EXHIBIT 2
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STOCK PURCHASE AGREEMENT
BY WHICH
XXXX FURNITURE CORPORATION
ACQUIRES
STOREHOUSE, INC.
* * *
DATED AUGUST 25, 1998
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TABLE OF CONTENTS
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ARTICLE 1: SUBORDINATED LOAN BY XXXX TO STOREHOUSE
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1.1. Generally......................................................................................... 1
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1.2 Certain Contemporaneous Deliveries................................................................ 1
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(a) Deliveries by Storehouse.................................................................. 1
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(b) Deliveries by Xxxx........................................................................ 1
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(c) Certain Other Deliveries.................................................................. 1
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ARTICLE 2: PURCHASE AND SALE OF THE
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STOREHOUSE COMMON STOCK BY XXXX
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2.1 Generally......................................................................................... 2
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2.2 Purchase Price.................................................................................... 2
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2.3 Allocation of Base Purchase Price................................................................. 3
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2.4 Stock Options and Rights.......................................................................... 3
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ARTICLE 3: CLOSING OF PURCHASE OF STOREHOUSE COMMON STOCK
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3.1 Generally......................................................................................... 3
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(a) Time of Common Stock Closing.............................................................. 3
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(b) Election Against Common Stock Closing..................................................... 3
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(c) Place of Closing.......................................................................... 4
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3.2 Conditions to the Storehouse Shareholders' Obligations............................................ 4
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(a) Representations and Warranties True and Correct........................................... 4
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(b) Agreements Complied With.................................................................. 4
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Stock Option and Rights Conversions....................................................... 4
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(d) No Challenge to Transaction............................................................... 4
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(e) Governmental Consents Obtained or Requirements Satisfied.................................. 4
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3.3 Conditions to Xxxx'x Obligations.................................................................. 4
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(a) Representations and Warranties True and Correct........................................... 5
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(b) Agreements Complied With.................................................................. 5
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(c) No Damage or Destruction or Adverse Developments With Respect to Storehouse............... 5
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(d) Stock Option and Rights Conversions....................................................... 5
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(e) No Challenge to Transaction............................................................... 5
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(f) Governmental Consents Obtained or Requirements Satisfied.................................. 5
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(g) Consents Obtained......................................................................... 5
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(h) Confirmation of EBITDA.................................................................... 6
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3.4 Deliveries by the Storehouse Shareholders......................................................... 6
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(a) Stock Certificate......................................................................... 6
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(b) Vendor Comfort............................................................................ 6
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(c) Resignations.............................................................................. 6
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(d) Common Stock Closing Certificate.......................................................... 6
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(e) Legal Opinions............................................................................ 6
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(f) U.C.C. Termination Statements............................................................. 6
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3.5 Deliveries by Xxxx................................................................................ 6
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(a) Purchase Price --to the Storehouse Shareholders........................................... 6
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(b) Stock Option Agreements................................................................... 7
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(c) Common Stock Closing Certificate......................................................... 7
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(d) Legal Opinion............................................................................ 7
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(e) Other Funds.............................................................................. 7
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3.6 Earn-Out Purchase Price.......................................................................... 7
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(a) Generally................................................................................ 7
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(b) Calculation of EBITDA Earn-Out........................................................... 7
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(c) Calculation of Product Sales Earn-Out.................................................... 8
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(d) Report to the Shareholders' Agent Committee of the Earn-Out.............................. 8
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(e) Report Binding; Objections............................................................... 8
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(f) Arbitration.............................................................................. 9
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3.7 Allocation of Earn-Out Purchase Price among Storehouse Shareholders.............................. 9
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(a) Generally................................................................................ 9
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(b) Tranche One.............................................................................. 10
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(c) Tranche Two.............................................................................. 10
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(d) Tranche Three............................................................................ 10
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3.8 Debenture Election with Respect to Earn-Out Purchase Price....................................... 10
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(a) Generally................................................................................ 10
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(b) Election of Xxxx Convertible Debentures.................................................. 10
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(c) Election as to Convertibility Rights..................................................... 11
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3.9 Repurchase of Subordinated Promissory Note if Closing Does Not Occur............................. 11
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3.10 Default on Redemption Obligation......................................................... 11
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3.11 Guarantee by Certain Storehouse Shareholders............................................. 12
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3.12 Prepayment of Subordinated Promissory Note............................................... 12
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3.13 Right of Refusal......................................................................... 12
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ARTICLE 4: REPRESENTATIONS AND WARRANTIES OF CERTAIN
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STOREHOUSE SHAREHOLDERS
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4.1 Status of Storehouse............................................................................. 13
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(a) Corporate Existence and Status........................................................... 13
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(b) Corporate Power.......................................................................... 13
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(c) Capitalization and Shareholders.......................................................... 13
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(d) Qualification............................................................................ 13
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(e) Ownership Interests...................................................................... 13
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(f) Books and Records........................................................................ 14
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4.2 Certain Financial Matters........................................................................ 14
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(a) Attached Financial Statements............................................................ 14
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(b) Status of Financial Statements........................................................... 14
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(c) Absence of Undisclosed Liabilities....................................................... 14
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(d) Absence of Certain Changes............................................................... 15
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4.3 Taxes............................................................................................ 16
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(a) Filing of Returns; Payment of Taxes; Liens............................................... 16
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(b) Examinations............................................................................. 17
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(c) Absence of IRC (S) 338 and Subchapter S Elections........................................ 17
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(e) Excess Parachute Payments................................................................ 17
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4.4 Real and Personal Property--Owned or Leased...................................................... 17
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(a) Owned Properties......................................................................... 17
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(b) Leases................................................................................... 18
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(c) Certain Information as to the Property................................................... 18
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(d) All Necessary Properties................................................................. 18
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(e) Year 2000 Compliant...................................................................... 18
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4.5 Trademarks, Trade Names and Other Intellectual Property.......................................... 19
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4.6 Indebtedness..................................................................................... 19
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4.7 Contracts........................................................................................ 19
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4.8 Insurance........................................................................................ 20
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4.9 Status........................................................................................... 20
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4.10 Officers and Directors; Employment Relationships................................................. 21
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4.11 Employee Benefits................................................................................ 21
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(a) List of Plans............................................................................ 21
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(b) Qualification............................................................................ 22
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(c) Accruals; Funding........................................................................ 22
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(d) Reporting and Disclosure................................................................. 23
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(e) Prohibited Transactions; Terminations; Other Reportable Events........................... 23
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(f) Claims for Benefits...................................................................... 23
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(g) Retiree Benefits......................................................................... 23
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(h) Other.................................................................................... 24
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4.12 Labor Relations.................................................................................. 24
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4.13 Litigation....................................................................................... 24
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4.14 Compliance with Laws............................................................................. 24
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(a) Generally................................................................................ 24
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(b) Charges or Violations; Investigations.................................................... 24
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(c) Permits.................................................................................. 25
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(d) Environmental............................................................................ 25
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4.15 Bank Accounts.................................................................................... 26
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4.16 Transactions with Affiliate...................................................................... 26
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4.17 No Violations or Conflict from Execution, Delivery or Performance of this Agreement.............. 26
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4.18 Vendor and Factor Relationships.................................................................. 26
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4.19 Brokers.......................................................................................... 26
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4.20 No Governmental Consents Required................................................................ 27
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4.21 No Material Omission............................................................................. 27
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4.22 Other............................................................................................ 27
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4.23 Reliance......................................................................................... 27
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4.24 Character of Representations and Warranties...................................................... 27
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ARTICLE 5: XXXX'X REPRESENTATIONS AND WARRANTIES
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5.1 Existence........................................................................................ 27
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5.2 Authorization.................................................................................... 27
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5.3 SEC Reports...................................................................................... 28
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5.4 No Violation or Conflict from Execution, Delivery or Performance of this Agreement............... 28
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5.5 Investment Representation........................................................................ 28
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5.6 Xxxx Common Stock - Valid Issuance............................................................... 28
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5.7 Material Omissions............................................................................... 28
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ARTICLE 6: CERTAIN OTHER AGREEMENTS
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iii
6.1 Operation of Storehouse's Business Between Signing and Common Stock Closing...................... 29
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6.2 No Negotiations.................................................................................. 29
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6.3 Publicity........................................................................................ 30
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6.4 Inspection....................................................................................... 30
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6.5 Certain Employee Matters......................................................................... 30
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(a) Continued Employment..................................................................... 30
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(b) Generally as to Employee Plans........................................................... 30
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(c) Vacation................................................................................. 31
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(d) Group Insurance Plans.................................................................... 31
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(e) ESOP..................................................................................... 31
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6.6 Release of Storehouse By Each Storehouse Shareholder............................................. 32
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6.7 Cancellation of Any Restrictive Contracts........................................................ 32
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6.8 Certain Taxes.................................................................................... 33
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6.9 Filing under HSR Act............................................................................. 33
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(a) General.................................................................................. 33
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(b) Filings.................................................................................. 33
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(c) Appeal................................................................................... 33
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(d) Certain Representations and Warranties................................................... 33
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6.10 Payoff of Sanwa Loan............................................................................. 33
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6.11 Xxxx'x Agreement to Transfer Restrictions & Share Legends........................................ 33
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6.12 Expenses......................................................................................... 34
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6.13 Consent as to Representation..................................................................... 34
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ARTICLE 7: INDEMNIFICATION.
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7.1 Specific Indemnification Obligations--by the Storehouse Shareholders............................. 34
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(c) ESOP..................................................................................... 35
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(e) Third-Party Claims....................................................................... 35
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7.2 Specific Indemnification Obligations--By Xxxx.................................................... 36
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7.3 Certain Limitations.............................................................................. 36
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(a) Time Limitations......................................................................... 36
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(b) Deductible............................................................................... 36
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(c) Cap...................................................................................... 36
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(d) Recoveries............................................................................... 36
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(e) Other.................................................................................... 37
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7.4 Procedures for Claims and Satisfaction........................................................... 37
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(a) Notice of Facts Forming Basis for Claim.................................................. 37
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(b) Right to Contest Third Party Claims...................................................... 37
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(c) Notice of Fixed or Determined Loss....................................................... 38
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(d) Arbitration.............................................................................. 38
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(e) Satisfaction of Indemnification Obligations.............................................. 38
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7.5 Certain Rules.................................................................................... 39
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7.6 Survival; Exclusive Remedies..................................................................... 39
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ARTICLE 8: TERMINATION AND ABANDONMENT
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8.1 General.......................................................................................... 39
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(a) Failure of Storehouse's Conditions....................................................... 39
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(b) Failure of Xxxx'x Conditions............................................................. 40
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(c) HSR Act.................................................................................. 40
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8.2 Specific Performance and Other Remedies.......................................................... 40
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8.3 Effect of Termination............................................................................ 41
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ARTICLE 9: SHAREHOLDERS' AGENT COMMITTEE
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9.1 Appointment and Acceptance....................................................................... 41
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9.2 Authorization.................................................................................... 41
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(a) Execution and Delivery of Agreements..................................................... 41
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(b) Notices & Determinations................................................................. 41
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(c) Disputes & Consents...................................................................... 41
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(d) Payments - Receipt & Disbursements....................................................... 42
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9.3 Procedural Matters............................................................................... 42
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(a) Meetings and Written Consents............................................................ 42
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(b) Required Vote or Signatures.............................................................. 42
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9.4 Reliance......................................................................................... 42
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9.5 Successors....................................................................................... 42
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9.6 Survival of Authorizations....................................................................... 43
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9.7 Certain Limitations.............................................................................. 43
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9.8 No Implied Agency or Partnership................................................................. 43
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9.9 Expenses......................................................................................... 43
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ARTICLE 10: MISCELLANEOUS PROVISIONS
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10.1 Good Faith; Cooperation.......................................................................... 44
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10.2 Notices.......................................................................................... 44
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10.3 Assignment; Successors in Interest............................................................... 45
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(a) By Xxxx.................................................................................. 45
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(b) By the Storehouse Shareholders........................................................... 45
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(c) Binding Nature........................................................................... 45
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(d) Notice of Changes........................................................................ 45
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10.4 Severability..................................................................................... 46
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10.5 Certain Definitions.............................................................................. 46
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10.6 Certain Rules of Construction.................................................................... 47
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10.7 Definition of Knowledge.......................................................................... 47
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10.8 Remedies......................................................................................... 47
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10.9 Controlling Law; Integration; Amendment; Waiver.................................................. 47
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10.10 Counterparts..................................................................................... 48
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DEFINED TERMS
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Page
1997 Financial Statements..........................................14
1998 Plan Year.....................................................31
1999 Plan Year.....................................................31
applicable law.....................................................46
Antitrust Division.................................................33
Article............................................................47
Average Sales...................................................... 8
Category I Shareholder............................................. 2
Category II Shareholders........................................... 2
CERCLA.............................................................25
Closing............................................................ 4
Closing Date....................................................... 4
COBRA..............................................................24
Common Stock Closing Date.......................................... 4
Conflict...........................................................26
contract...........................................................46
copies.............................................................47
copy...............................................................47
Deal Expenses...................................................... 2
defined benefit plan...............................................22
Debenture Election.................................................10
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DEFINED TERMS
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Debenture Election Amount..........................................10
Debt Instruments...................................................19
EBITDA Amount...................................................... 7
EBITDA Earn-Out.................................................... 7
EBITDA Earn-Out Period............................................. 7
EBITDA Report...................................................... 8
Election Notice....................................................11
Election to Defend.................................................37
Employee Plans.....................................................22
Employment Agreements.............................................. 2
Employment Arrangements............................................21
Environmental Law..................................................25
ERISA..............................................................21
ERISA Affiliate....................................................22
employee pension benefit plan......................................22
ESOP............................................................... 2
Exhibit............................................................47
Financial Statements...............................................14
FTC................................................................33
Georgia Act........................................................34
governmental authority.............................................46
Hazardous Substance................................................25
Hazardous Waste....................................................25
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DEFINED TERMS
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HSR Act............................................................ 4
Indebtedness.......................................................19
Indemnified Party..................................................37
Indemnifying Party.................................................37
Indemnifying Shareholders..........................................34
Insurance Policies.................................................20
Intellectual Property..............................................19
Intellectual Property Licenses.....................................19
included...........................................................47
Internal ESOP Indebtedness.........................................31
including..........................................................47
IRC................................................................ 7
IRS................................................................22
Loan Closing Date.................................................. 1
Loss...............................................................39
lease..............................................................46
lien...............................................................46
multiple employer plan.............................................21
multi-employer plan................................................22
Material Contract..................................................20
Material Contracts.................................................20
multiple employer welfare arrangement..............................22
Material Leases....................................................18
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DEFINED TERMS
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Noncompetition Agreements.......................................... 2
Option Exercise Price.............................................. 3
Pension/Profit-Sharing Plan........................................21
Prime Rate.........................................................39
Product Sales Earn-Out............................................. 8
Product Sales Earn-Out Period...................................... 8
Product Sales Report............................................... 8
Properties.........................................................17
Property...........................................................17
Purchase Price..................................................... 2
parties............................................................46
party..............................................................46
pending............................................................46
permit.............................................................46
permitted lien.....................................................46
person.............................................................46
plan...............................................................46
prohibited transaction.............................................23
reportable event...................................................23
restriction........................................................46
Regulatory Filings.................................................33
Representing Storehouse Shareholders...............................12
Repurchase Date....................................................11
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DEFINED TERMS
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Repurchase Default.................................................12
Xxxx............................................................... 0
Xxxx Xxxxxx Xxxxx..................................................00
Xxxx Convertible Debenture......................................... 9
Xxxx Delivered Documents...........................................27
Xxxx Subordinated Loan............................................. 1
Rules.............................................................. 9
Schedule...........................................................47
Section............................................................47
SEC Filings........................................................28
subsidiary.........................................................46
Shareholders' Agent Committee......................................41
Significant Vendor.................................................26
Storehouse......................................................... 1
Storehouse Common Stock............................................ 2
Storehouse Shareholders............................................ 1
Subordinated Promissory Note....................................... 1
Subsection.........................................................47
Sub-Category II Shareholders.......................................10
Super lien.........................................................25
SuperFund..........................................................25
taxes..............................................................46
Tax Authority......................................................17
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DEFINED TERMS
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Technology Products................................................18
Third Party Claim..................................................37
this Agreement.....................................................47
threatened.........................................................47
to its knowledge...................................................47
to Storehouse's knowledge..........................................47
toxic substances...................................................25
Unaudited Financial Statements.....................................14
Welfare Plan.......................................................21
Year 2000 Compliant................................................18
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STOCK PURCHASE AGREEMENT
BY WHICH
XXXX FURNITURE CORPORATION
ACQUIRES
STOREHOUSE, INC.
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THIS IS A STOCK PURCHASE AGREEMENT by and among Xxxx Furniture Corporation,
a Nevada corporation ("Xxxx"), and the shareholders of Storehouse, Inc., a
Georgia corporation ("Storehouse"), listed in Exhibit A (the "Storehouse
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Shareholders"), and dated August 25, 1998, and by which Xxxx and the Storehouse
Shareholders, in consideration of the mutual agreements set forth below (the
mutuality, adequacy and sufficiency of which are hereby acknowledged), hereby
agree as follows:
ARTICLE 1: SUBORDINATED LOAN BY XXXX TO STOREHOUSE
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1.1. GENERALLY. Contemporaneously with the execution and delivery of
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this Agreement (the "Loan Closing Date"), Xxxx is making a subordinated loan to
Storehouse in the amount of $2,500,000 (the "Xxxx Subordinated Loan").
1.2 CERTAIN CONTEMPORANEOUS DELIVERIES.
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(a) Deliveries by Storehouse. On the Loan Closing Date, Storehouse
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shall deliver to Xxxx the following:
(i) Subordinated Promissory Note. A subordinated promissory
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note in the principal amount of $2,500,000 in substantially the form as Exhibit
__(the "Subordinated Promissory Note").
(b) Deliveries by Xxxx.
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(i) Loan Proceeds. $2,500,000 by wire transfer of
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immediately available funds to a bank account designated by Storehouse.
(c) Certain Other Deliveries.
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(i) Delivery to the ESOP. A written opinion from the ESOP's
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financial advisor that the terms and conditions of the transactions contemplated
by this Agreement are fair to the ESOP from a financial point of view.
(ii) Noncompetition & Nondisclosure Agreements.
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Noncompetition and Nondisclosure agreements duly executed by Storehouse and each
of Xxxxxxxxx X. Xxxxxx, Xxxxxxx X. Xxxxxx, Xx., Xxxxxx X. Xxxx, Xxxxxxx
Xxxxxxxxx, Xxxxx X. Xxxx and W. Xxxxx Xxxxxx and becoming effective as of the
Common Stock Closing Date, in substantially the form of Exhibits C(a) through
C(c), respectively (the "Noncompetition Agreements").
(iii) Employment Agreement. An employment agreement in
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substantially the form of Exhibit D duly executed by W. Xxxxx Xxxxxx and
effective as of the Common Stock Closing Date.
(iv) Severance Agreements. Severance agreements in
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substantially the form of Exhibit E duly executed by each of Xxxxxx X. Xxxx,
Xxxxxxx Xxxxxxxxx and Xxxxx X. Xxxx and effective as of the Common Stock Closing
Date.
(v) Stock Rights Letters. Agreements canceling all existing
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stock awards, phantom stock awards, employment agreements and stock option
agreements between Storehouse and W. Xxxxx Xxxxxx, Xxxxxxx Xxxxxxxxx, Xxxxx X.
Xxxx and Xxxxxx X. Xxxx in substantially the form attached as Exhibits F(a) and
F(b) having been duly executed by each such person and effective as of the
Common Stock Closing Date.
(vi) Stock Bonus Letters. Agreements granting Storehouse
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stock awards to Xxxxxxx Xxxxxxxxx, Xxxxx X. Xxxx and Xxxxxx X. Xxxx in
substantially the form attached as Exhibits G(a) - G(c) having been duly
executed by each such person.
ARTICLE 2: PURCHASE AND SALE OF THE
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STOREHOUSE COMMON STOCK BY XXXX.
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2.1 GENERALLY. Xxxx'x acquisition of all of the issued and outstanding
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capital stock of Storehouse (the "Storehouse Common Stock"), at the Common Stock
Closing shall consist of (a) each Storehouse Shareholder's selling, assigning,
conveying, transferring and delivering his Storehouse Common Stock to Xxxx, (b)
Xxxx'x purchasing and accepting delivery of the Storehouse Common Stock from the
Storehouse Shareholders, (c) Xxxx'x paying to the Storehouse Shareholders the
Purchase Price, and (d) the other matters set forth in this Agreement. The
Storehouse Shareholders are categorized as follows: the "Category I
Shareholder" is the Storehouse, Inc. Employee Stock Ownership Plan (the "ESOP");
and the "Category II Shareholders" are all the other Storehouse Shareholders.
2.2 PURCHASE PRICE. The Purchase Price consists of the Base Purchase Price
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(as defined below) and the Earn-Out Purchase Price (as defined in Section 3.6
below; the Base Purchase Price and the Earn-Out Purchase Price are referred to
collectively as the "Purchase Price"). The Base Purchase Price is an amount
calculated as (a) $10,350,000 minus (b) $3,120,030.70 minus (c) 62% of the
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prepayment penalty attributable to prepayment of any portion of Storehouse's
indebtedness to Sanwa Business Credit Corporation (which amount the parties
estimate will not exceed $130,000) minus (d) 62% of the fee or other costs (but
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excluding any increases in rental or other regular periodic payments) paid to
third parties in order to obtain the consents necessary to satisfy the closing
condition of Section 3.3(g) minus (e) all expenses of Storehouse in connection
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with evaluating its strategic alternatives, its sale process, this Agreement and
the transactions contemplated herein, including fees and expenses of brokers,
advisors, attorneys and accountants ("Deal Expenses") in excess of $500,000
(which excess expenses the parties estimate will not exceed $125,000); minus (f)
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cash payments to Xxxxxxx Xxxxxxxxx, Xxxxxx X. Xxxx and/or Xxxxx X. Xxxx pursuant
to agreements referred to in Section 1.2(c)(vi); minus (g) any payments to Xxxx
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Xxxxxx pursuant to a severance agreement with her dated August 6, 1998.
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2.3 ALLOCATION OF BASE PURCHASE PRICE. The Base Purchase Price is
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allocated among the Storehouse Shareholders as provided in Section 3.5. The
Earn-Out Purchase Price will be separately allocated to the Category I and
Category II Shareholders in accordance with Sections 3.7 and 3.8.
2.4 STOCK OPTIONS AND RIGHTS. Immediately prior to the Common Stock
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Closing, each outstanding option to acquire Storehouse Common Stock listed in
Part I of Exhibit B shall be converted into shares of Storehouse Common Stock.
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Exhibit B lists: (a) the option holders, (b) the number of shares of Storehouse
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Common Stock resulting from such conversions as to each option holder (and those
shares are also reflected in the totals at the Common Stock Closing in Exhibit
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A); and (c) the amount of each option holder's option exercise price (the
"Option Exercise Price") that will reduce the Purchase Price paid to them.
Immediately prior to the Common Stock Closing, each of the stock bonus, phantom
stock and employment agreements listed in Parts II, III and IV of Exhibit B will
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be canceled and shares of Storehouse Common Stock will be issued to the
employees as specified in such Exhibit B (and those are also reflected in the
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total number of shares at Common Stock Closing in Exhibit A).
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ARTICLE 3: CLOSING OF PURCHASE OF STOREHOUSE COMMON STOCK.
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3.1 GENERALLY.
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(a) Time of Common Stock Closing. The Common Stock Closing shall
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occur no later than ten days after the conditions specified in Sections 3.2 and
3.3 have been satisfied and one of the following has occurred:
(i) Storehouse has achieved an EBITDA for the six-month period
ended January 31, 1999 of at least $3,698,000;
(ii) Storehouse has achieved an EBITDA of at least $3,660,000
for the twelve-month period ended April 30, 1999; or
(iii) Xxxx has given written notice to the Shareholders' Agent
Committee of its election to proceed with the Common Stock Closing, which notice
must be given within five days after the 15 day period set forth in Section
3.6(d)(i), and the Storehouse Shareholders having failed to make the Storehouse
Shareholder Election as defined in Subsection (b) below.
(b) Election Against Common Stock Closing. If Xxxx elects to proceed
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with the Common Stock Closing pursuant to Subsection (a)(iii), then the Common
Stock Closing will not occur if within ten days after receipt of the notice by
Xxxx pursuant to Subsection (a)(iii), Storehouse Shareholders owning one hundred
percent (100%) of the Storehouse Common Stock elect in writing not to proceed
with the Common Stock Closing (the "Storehouse Shareholder Election").
(c) Place of Closing. The payments and deliveries contemplated by
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Sections 3.4 and 3.5 (the "Common Stock Closing") shall be at the offices of
Xxxxxxxxxx, Xxxxxx & Xxxxxxx LLP, 000 Xxxxxxxxx Xxxxxx, X.X., Xxxxxxx, Xxxxxxx
00000, commencing at 10:00 a.m., local time on the date specified by Xxxx within
the time period specified in Section 3.1(a) (the
3
"Common Stock Closing Date"). The Common Stock Closing shall be effective at
11:59:59 p.m. on the Common Stock Closing Date.
3.2 CONDITIONS TO THE STOREHOUSE SHAREHOLDERS' OBLIGATIONS. The
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Storehouse Shareholders' obligations to make their deliveries at the Common
Stock Closing are subject to the following conditions:
(a) Representations and Warranties True and Correct. Each of Xxxx'x
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representations and warranties contained in this Agreement being true and
complete as of the date of this Agreement and being true and complete in all
material respects as of the Common Stock Closing as if made anew as of such date
(disregarding as of the Common Stock Closing Date any materiality or knowledge
qualifiers in such representations and warranties).
(b) Agreements Complied With. Each of Xxxx'x agreements contained in
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Article 6 that are to be complied with prior to the Common Stock Closing having
been complied with.
(c) Stock Option and Rights Conversions. The conversions of the
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options and the cancellation of the stock bonus, phantom stock and employment
agreements as contemplated by Section 2.4 having occurred.
(d) No Challenge to Transaction. No action having been instituted,
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proposed or threatened by any person before any governmental authority that has
not been withdrawn, dismissed with prejudice, rescinded, or otherwise eliminated
either (i) to enjoin, restrain or prohibit the performance of this Agreement or
(ii) to obtain material damages against Storehouse or any of the Storehouse
Shareholders in respect of the execution, delivery or performance of this
Agreement.
(e) Governmental Consents Obtained or Requirements Satisfied. All
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authorizations, consents and approvals, if any, of any governmental authority
necessary for the execution, delivery and performance of this Agreement having
been obtained and being in full force and effect; and all applicable
governmental pre-acquisition filing, information furnishing and waiting period
requirements (including those under the Xxxx-Xxxxx-Xxxxxx Antitrust Improvements
Act of 1976, as amended, and the rules and regulations promulgated thereunder
(collectively, the "HSR Act")) having been met or such compliance having been
waived by the governmental authorities having authority to grant such waivers.
3.3 CONDITIONS TO XXXX'X OBLIGATIONS. Xxxx'x obligation to make its
--------------------------------
payments and deliveries at the Common Stock Closing are subject to the following
conditions:
(a) Representations and Warranties True and Correct. Each of the
-----------------------------------------------
representations and warranties of the Storehouse Shareholders contained in this
Agreement being true and complete as of the date of this Agreement and being
true and complete in all material respects as of the Common Stock Closing as if
made anew as of such date (disregarding in each case materiality or knowledge
qualifiers other than in Section 4.18 and in those instances involving knowledge
of acts or omissions of third parties in any such representations and
warranties).
4
(b) Agreements Complied With. Each of the agreements of the
------------------------
Storehouse Shareholders contained in Article 6 that are to be complied with
prior to the Common Stock Closing having been complied with in all material
respects.
(c) No Damage or Destruction or Adverse Developments With Respect to
----------------------------------------------------------------
Storehouse. No material damage to any material property of Storehouse, whether
----------
or not covered by insurance, or material change in or material development with
respect to Storehouse's business, having occurred which has resulted in, or
could be reasonably expected to result in, a material adverse effect on
Storehouse's financial condition or Storehouse's results of operations.
(d) Stock Option and Rights Conversions. The conversions of the
-----------------------------------
options and the cancellation of the stock bonus, phantom stock and employment
agreements contemplated Section 2.4 having occurred.
(e) No Challenge to Transaction. No action having been instituted or
---------------------------
threatened by any person before any governmental authority that has not been
withdrawn, dismissed with prejudice, rescinded, or otherwise eliminated either
(i) to enjoin the performance of this Agreement, (ii) to obtain material damages
against Xxxx in respect of the execution, delivery and performance of this
Agreement, or (iii) which, in the reasonable judgment of Xxxx, could reasonably
be expected to have a material adverse effect on Storehouse's financial
condition.
(f) Governmental Consents Obtained or Requirements Satisfied. All
--------------------------------------------------------
authorizations, consents and approvals, if any, of any governmental authority
necessary for the execution, delivery and performance of this Agreement having
been obtained and being in full force and effect; and all applicable
governmental pre-acquisition filing, information furnishing and waiting period
requirements (including those under the HSR Act) having been met or such
compliance having been waived by the governmental authorities having authority
to grant such waivers.
(g) Consents Obtained. Xxxx'x having obtained consents or other
-----------------
agreements of the necessary persons for the assignment to Xxxx of the material
contracts, leases and permits under which Storehouse would otherwise (i) be in
breach as a result of the transactions contemplated by this Agreement (assuming
that any required notice of default has been given and any periods for cure have
expired) or (ii) be subject to additional payments as a result of the
transactions contemplated by this Agreement; provided, however, that none of
-------- -------
such consents or other assurances shall be given on terms that materially
adversely affect Storehouse's business or Xxxx. Without limiting any other
provision of this Agreement obligating Xxxx to use its best efforts to
consummate the transactions contemplated by this Agreement, this condition may
not be utilized by Xxxx unless it has used its best efforts to cause it to be
satisfied.
(h) Confirmation of EBITDA. Xxxx'x having confirmed, within $200,000,
----------------------
the calculation by Storehouse of the amount set forth in Section 3.1(a)(i) or
(ii), if applicable.
3.4 DELIVERIES BY THE STOREHOUSE SHAREHOLDERS. The Storehouse
-----------------------------------------
Shareholders, as applicable, shall deliver to Xxxx the following:
5
(a) Stock Certificate. Share certificates representing all of the
-----------------
Storehouse Common Stock, together with: (i) separate stock transfer powers duly
endorsed by each of the Storehouse Shareholders for transfer of the Storehouse
Common Stock to Xxxx; (ii) a certificate in the form of Exhibit H; and (iii) in
---------
the case of any non-individual Storehouse Shareholder, a certificate dated the
Common Stock Closing Date and executed by an authorized officer or other person
of such shareholder certifying and setting forth (A) the provisions of the
instrument authorizing such non-individual Storehouse Shareholder's execution
and delivery of this Agreement and (B) the signature and title of the authorized
officer or other person executing such documents.
(b) Vendor Comfort. A letter from each of Storehouse's three largest
--------------
consignment vendors stating that following the Common Stock Closing Date it
intends to continue its business relationship with Storehouse on substantially
the same terms as such business is conducted as of the date of the letter.
(c) Resignations. Resignations of each of Storehouse's officers and
------------
directors, effective as of the Common Stock Closing.
(d) Common Stock Closing Certificate. A certificate dated the Common
--------------------------------
Stock Closing Date and executed by an authorized officer of Storehouse in form
and substance reasonably satisfactory to Xxxx.
(e) Legal Opinions. The opinion of Xxxxxxxxxx, Xxxxxx & Xxxxxxx LLP
--------------
in form and substance reasonably satisfactory to Xxxx and the opinion of Hunton
& Xxxxxxxx in form and substance reasonably satisfactory to Xxxx.
(f) U.C.C. Termination Statements. U.C.C. termination statements for
-----------------------------
the liens representing indebtedness of Storehouse in favor of Wachovia Bank and
Xxxxxxxxx X. Xxxxxx.
3.5 DELIVERIES BY XXXX. Xxxx shall pay or deliver to the Storehouse
------------------
Shareholders at the Common Stock Closing the following:
(a) Purchase Price --to the Storehouse Shareholders. Payment to each
-----------------------------------------------
Storehouse Shareholder of an amount equal to the sum of the Base Purchase Price
and the amount of the aggregate Option Exercise Price multiplied by such
Storehouse Shareholder's percentage interest at the Common Stock Closing as
reflected in Exhibit A less any Option Exercise Price as to Storehouse Common
--------- ----
Stock of such Storehouse Shareholder resulting from the conversion of options as
of the Common Stock Closing pursuant to Section 2.4. Such payment shall be made
by wire transfer based on wiring instructions provided to Xxxx at least one (1)
business day prior to the Common Stock Closing Date (and if not so provided,
then by check).
(b) Stock Option Agreements. Stock Option Agreements in substantially
-----------------------
the form of Exhibit I to the Storehouse Shareholders and employees and in the
amounts set forth on Schedule I attached to Exhibit I.
6
(c) Common Stock Closing Certificate. A certificate dated the Common
--------------------------------
Stock Closing Date and executed by an authorized officer of Xxxx in form and
substance reasonably satisfactory to the Shareholders' Agent Committee.
(d) Legal Opinion. The opinion of Silver, Xxxxxxxx & Taff, L.L.P. in
-------------
form and substance reasonably satisfactory to the Shareholders' Agent Committee.
(e) Other Funds. Immediately available funds in an amount sufficient
-----------
to fully retire the outstanding indebtedness of Storehouse to Sanwa Business
Credit Corporation.
3.6 EARN-OUT PURCHASE PRICE.
-----------------------
(a) Generally. This Section 3.6 sets forth the calculation of the
---------
Earn-Out Purchase Price contemplated by Section 2.2 above. The Earn-Out
Purchase Price shall consist of (i) the Product Sales Earn-Out and (ii) the
EBITDA Earn-Out, each as defined below.
(b) Calculation of EBITDA Earn-Out. The EBITDA Earn-Out, if any, will
------------------------------
equal (i) an amount determined by multiplying (A) up to $4,666,667 of
Storehouse's EBITDA (as defined in Exhibit J for the twelve-month period
---------
beginning May 1, 1998 and ending April 30, 1999 (the "EBITDA Earn-Out Period")
as reflected in Storehouse's financial statements as of such date as audited by
Xxxx'x outside auditors consistent with the adjustments in Exhibit J by (B) six
---------
(which shall not exceed $28,000,000) (the "EBITDA Amount"); less (ii)
----
$10,350,000; less (iii) $5,151,000 [EBITDA Shortfall]; less (iv) $1,900,000
---- ----
[1998 ESOP Contribution]; less (v) 62% of the interest paid or accrued with
----
respect to the period February 1, 1998 to the Common Stock Closing Date on
$5,020,030.70 of debt from Storehouse to Sanwa Business Credit Corporation
(which amount the parties estimate will not exceed $390,000); plus (vi)
----
$500,000; less (vii) any tax penalty arising under Section 4978 of the Internal
----
Revenue Code of 1986, as amended (the "IRC"); less (viii) all Deal Expenses not
----
taken into account as reductions under Section 2.2 in arriving at the Base
Purchase Price; less (ix) any decrease adjustment to Storehouse's EBITDA for its
----
fiscal year ended January 31, 1998 and the quarter ended April 30, 1998, net of
any current federal income tax benefit resulting therefrom; plus (x) any
----
increase adjustment to Storehouse's EBITDA for its fiscal year ended January 31,
1998 and the quarter ended April 30, 1998, net of any federal income tax
detriment or liability resulting therefrom (the "EBITDA Earn-Out").
(c) Calculation of Product Sales Earn-Out. The Product Sales Earn-Out
-------------------------------------
is based on average annual shipments to Storehouse in the ordinary course of
business of goods manufactured by Xxxx'x subsidiaries existing as of the date of
this Agreement determined at vendor invoice price less discounts, allowances,
returns and all other credits reducing payments to be made to vendor (the
"Average Sales") during the period from December 1, 1999 through November 30,
2001 (the "Product Sales Earn-Out Period"), all as set forth below. The Product
Sales Earn-Out (the "Product Sales Earn-Out") will equal an amount not to exceed
$2,500,000 (subject to the last sentence of this Subsection), determined as
follows:
(i) for Average Sales in excess of $14,500,000 but not greater
than $19,500,000 a Product Sales Earn-Out equal to 30% of such excess; and
7
(ii) for Average Sales in excess of $19,500,000 but not greater
than $21,500,000 a Product Sales Earn-Out equal to 50% of such excess.
Notwithstanding the foregoing, if the EBITDA Amount is less than $22,000,000,
then the Product Sales Earn-Out (as defined in this Subsection (c)) shall equal
$0.00.
(d) Report to the Shareholders' Agent Committee of the Earn-Out.
-----------------------------------------------------------
(i) EBITDA Report. Within fifteen (15) days after the
-------------
completion of the audit of Storehouse's financial statements for the EBITDA
Earn-Out Period by Xxxx'x outside auditors, Xxxx shall provide the Shareholders'
Agent Committee with a written report prepared by Xxxx'x outside auditors (the
"EBITDA Report") that sets forth the EBITDA Amount for the EBITDA Earn-Out
Period and the calculation of the EBITDA Earn-Out, together with supporting
detail (including work papers) with respect to such calculation. Xxxx shall
cause its chief financial officer and a representative of its outside auditors
to be reasonably available to discuss the EBITDA Report with the Shareholders'
Agent Committee and its agents after its delivery.
(ii) Product Sales Report. Within seventy-five (75) days after
--------------------
the end of the Product Sales Earn-Out Period, Xxxx shall provide the
Shareholders' Agent Committee with a written report prepared by Xxxx'x outside
auditors (the "Product Sales Report") that sets forth the Average Sales and the
calculation of the Product Sales Earn-Out. Xxxx shall cause its chief financial
officer and a representative of its outside auditors to be reasonably available
to discuss the Product Sales Report with the Shareholders' Agent Committee and
its agents after its delivery.
(e) Report Binding; Objections. Unless the Shareholders' Agent
--------------------------
Committee gives notice to Xxxx of a good faith objection to an aspect of the
Product Sales Report or the EBITDA Report, as the case may be, within thirty
(30) days after receipt of such Report, it shall become binding in its entirety
upon the parties at the end of such thirty (30) day period; but if the
Shareholders' Agent Committee in good faith objects to any aspect of such
Report, then Xxxx and the Shareholders' Agent Committee shall discuss those
aspects as to which the good faith objection was timely made (it being agreed
that aspects as to which objections were not timely given shall become binding
upon all the parties at the expiration of the period for making objections). If
they reach agreement as to a disputed aspect, then such determination as agreed
upon as to such aspect shall become binding upon the parties at such time and
shall be paid promptly thereafter. If they are unable to reach agreement as to
all disputed aspects of such Report within thirty (30) days after the good faith
objection is given to Xxxx, then the unresolved aspects shall be submitted to
arbitration as provided in Subsection (f) below to resolve the dispute and make
a determination that shall be binding on the parties (it being expressly
understood and agreed that if such objections cannot be resolved by mutual
agreement, it is the intention of the parties that any such claim shall be
resolved by arbitration). Any disputes with respect to the Earn-Out Purchase
Price shall defer the payment of disputed amounts only.
(f) Arbitration. Arbitration shall be by a single arbitrator
-----------
experienced in the matters at issue selected by the Shareholders' Agent
Committee and Xxxx in accordance with the Commercial Arbitration Rules of the
American Arbitration Association (the "Rules"). The
8
arbitration shall be held in such place in the metropolitan Charlotte, North
Carolina area as may be specified by the arbitrator (or any other place upon
which Xxxx, the Shareholders' Agent Committee and the arbitrator may agree), and
shall be conducted in accordance with the Rules and (regardless of any other
choice of law provision in this Agreement) the United States Arbitration Act (9
U.S.C. (S)(S) 1-16) to the extent not inconsistent with this Agreement. The
decision of the arbitrator shall be final and binding as to any matters
submitted to arbitration; and, if necessary, any judgment upon the arbitrator's
decision may be entered in any court of record having jurisdiction over the
subject matter or over the party against whom the judgment is being enforced.
The determination of which party (or combination of them) shall bear the costs
and expenses of such arbitration proceeding shall be determined by the
arbitrator. The arbitrator shall have the discretionary authority to award that
all or part of the reasonable attorneys' fees of one party in connection with
the arbitration shall be reimbursed by another party.
3.7 ALLOCATION OF EARN-OUT PURCHASE PRICE AMONG STOREHOUSE SHAREHOLDERS.
-------------------------------------------------------------------
(a) Generally. Promptly upon determining the amounts due to the
---------
Storehouse Shareholders, if any, pursuant to Sections 3.6(b) and 3.6(c) above,
Xxxx shall pay to the Storehouse Shareholders an amount of cash and/or
convertible debentures (the "Xxxx Convertible Debentures" as defined below)
allocated as provided in Subsections (b), (c), and (d) below; provided, no
Product Sales Earn-Out otherwise earned under Section 3.6(c) shall be due,
payable or otherwise owed by Xxxx to any Storehouse Shareholder if an Election
Notice is given pursuant to Section 3.8(c) declining the Product Sales Earn-Out;
and provided, further, that prior to any distribution, Xxxx and the Indemnifying
-------- -------
Shareholders shall have entered into a mutually agreeable escrow agreement with
a bank for the purpose of partially securing the indemnification obligations of
the Indemnifying Shareholders pursuant to Section 7.1 of this Agreement
(providing among other things that earnings will be paid no less frequently than
annually to the Indemnifying Shareholders) and that 25% of the Earn-Out Purchase
Price payable to the Indemnifying Shareholders shall be paid into such escrow
until the aggregate total payments to it total $1,500,000 to be held until
November 30, 2002, at which time the balance less the reasonably estimated
amounts of unresolved claims shall be distributed to the Indemnifying
Shareholders. "Xxxx Convertible Debenture" means a subordinated three-year
debenture bearing interest at 8% per annum and convertible into Xxxx common
stock in an amount equal to its face value divided by the closing price of Xxxx
common stock on the date of issuance.
(b) Tranche One. An amount of the Earn-Out Purchase Price shall be
-----------
allocated to the Storehouse Shareholders in proportion to their respective share
ownership in Storehouse at Tranche One as reflected in Exhibit A (or as modified
---------
pursuant to Section 10.3(d)) until the ESOP receives an amount pursuant to this
Subsection (b) equal to the cost to the ESOP of the number of shares of
Storehouse Common Stock allocated to the participants in the ESOP as of the
Common Stock Closing Date less the amount of the Base Purchase Price paid to the
ESOP pursuant to Section 3.5(a); provided, however, that such amount shall be
-------- -------
net (where applicable in the case of the Category II Shareholders) of the
portion of the Option Exercise Price as to Storehouse Common Stock of such
Storehouse Shareholder resulting from the conversion of options pursuant to
Section 2.4 that exceeds the Base Purchase Price per share allocable to such
shareholder pursuant to Section 3.5(a).
(c) Tranche Two. To the extent the aggregate Purchase Price is more
-----------
than the amount specified in Tranche One but less than or equal to $20,000,000
reduced by
------- --
9
(a) $10,350,000, further reduced by (b) the amount of Tranche One, and increased
------- ------- -- ---------
by (c) the sum of the amounts specified in Subsections (c), (d) and (e) of
--
Section 2.2 that were deducted in arriving at the Base Purchase Price, then the
Earn-Out Purchase Price shall be allocated 100% to the Category II Shareholders
in proportion to their respective ownership interests at Tranche Two as
reflected in Exhibit A (or as modified pursuant to Section 10.3(d).
(d) Tranche Three. To the extent the aggregate Purchase Price is more
-------------
than the amount in Tranche Two, then the remaining Earn-Out Purchase Price shall
be allocated to the Storehouse Shareholders in proportion to their respective
share ownership in Storehouse at Tranche Three as reflected in Exhibit A (or as
modified pursuant to Section 10.3(d)).
3.8 DEBENTURE ELECTION WITH RESPECT TO EARN-OUT PURCHASE PRICE.
----------------------------------------------------------
(a) Generally. Notwithstanding Section 3.7, Xxxxxxxxx X. Xxxxxx,
---------
Xxxxxxx X. Xxxxxx, Xx. and W. Xxxxx Xxxxxx (the "Sub-Category II Shareholders")
may elect to take a portion of the EBITDA Earn-Out to which they are entitled in
the form of Xxxx Convertible Debentures in accordance with Subsection (b) below.
(b) Election of Xxxx Convertible Debentures. The Sub-Category II
---------------------------------------
Shareholders (acting jointly) may elect to receive a portion of their share of
the EBITDA Earn-Out in the form of the Xxxx Convertible Debenture (a "Debenture
Election"). Such election(s) shall be made 10 days prior to the payment date
for the EBITDA Earn-Out, and shall be made in $1,000,000 increments; provided,
--------
however, the aggregate amount of Xxxx Convertible Debentures issued pursuant to
-------
this Agreement shall not exceed $4,000,000. The Sub-Category II Shareholders
shall provide Xxxx notice in writing of the amount to be received by each Sub-
Category II Shareholder in the form of Convertible Xxxx Debentures (the
"Debenture Election Amount").
(c) Election as to Convertibility Rights. Within ten (10) business
------------------------------------
days after the amount of the Product Sales Earn-Out becomes binding, the Sub-
Category II Shareholders (acting jointly) shall notify Xxxx of their election to
accept or decline the Product Sales Earn-Out (the "Election Notice"). If the
Sub-Category II Shareholders elect to accept the Product Sales Earn-Out, then
the rights of the Sub-Category II Shareholders to convert the Xxxx Convertible
Debentures into shares of Xxxx common stock (the "Xxxx Common Stock") shall
cease and terminate, and the principal and any accrued and unpaid interest
thereon shall be due and payable in full within thirty (30) days following
Xxxx'x receipt of the Election Notice. If the Election Notice declines to
accept the Product Sales Earn-Out, then the Sub-Category II Shareholders may
thereafter exercise their conversion rights in accordance with the terms of the
Xxxx Convertible Debentures. The conversion rights under the Xxxx Convertible
Debentures will only be exercisable after Xxxx'x receipt of the Election Notice
declining the Product Sales Earn-Out and prior to the expiration of the three-
year term of the Xxxx Convertible Debenture. If the Sub-Category II Shareholders
fail to timely deliver to Xxxx the Election Notice, then they shall be deemed to
have accepted the Product Sales Earn-Out and their Xxxx Convertible Debentures
shall be promptly paid in full.
(d) Payment to Other Shareholders. If the Sub-Category II
-----------------------------
Shareholders elect to decline the Product Sales Earn-Out, then the Sub-Category
II Shareholders shall pay to the other Storehouse Shareholders as additional
Earn-Out Purchase Price in accordance with their
10
interests as reflected on Exhibit A an amount equal to the greater of (i) what
such other Storehouse Shareholders would have received as their portion of the
Product Sales Earn-Out or (ii) their pro-rata portion of any premium represented
by the Xxxx Convertible Debentures as of the date of the Election Notice as
determined by unanimous vote of the Shareholders' Agent Committee or by a person
selected by unanimous vote of the Shareholders' Agent Committee. Such payment by
the Sub-Category II Shareholders shall be made within 30 days after Xxxx'x
receipt of the Election Notice.
3.9 REPURCHASE OF SUBORDINATED PROMISSORY NOTE IF CLOSING DOES NOT OCCUR.
--------------------------------------------------------------------
If the Common Stock Closing does not occur, then Storehouse shall repurchase the
Subordinated Promissory Note by the earlier of (a) Xxxxx 00, 0000, (x) the date
of a change of control of Storehouse, or (c) a bulk sale of a substantial
portion of the assets of Storehouse (the "Repurchase Date"), at a repurchase
price equal to $2,500,000 less seven percent (7%) of the net invoice price of
----
goods sold by Xxxx and any of its currently existing subsidiaries as of the date
of this Agreement to Storehouse and actually paid for by Storehouse on or before
the Repurchase Date. Notwithstanding the preceding sentence, if the Common
Stock Closing does not occur, and within 90 days after the Storehouse
Shareholder Election is made Storehouse and Xxxx do not enter into a supply
agreement pursuant to which Xxxx and its currently existing subsidiaries agree
to ship goods to Storehouse at an annual rate of at least $12,000,000 through
the period ending April 30, 2001, then Storehouse shall repurchase the
Subordinated Promissory Note in 14 equal monthly installments of $100,000,
beginning August 31, 1999 and continuing at the end of each calendar month
through September 30, 2000 and with a final repurchase payment of $1,100,000 on
October 31, 2000.
3.10 DEFAULT ON REDEMPTION OBLIGATION. If Storehouse fails to perform its
--------------------------------
obligations under Section 3.9, in whole or in part, which failure is not cured
within 30 days after written demand by Xxxx to Storehouse (a "Repurchase
Default"), then any remaining amount due by Storehouse in satisfaction of its
obligation under Section 3.9 shall bear interest beginning on the date of the
Repurchase Default at a rate equal to the "Prime Rate." For purposes of this
Section, Prime Rate means the prime rate as published in the "Money Rates" table
of The Wall Street Journal on the date a Repurchase Default occurs and on the
-----------------------
first day of each subsequent calendar quarter in which a Repurchase Default
remains unpaid, plus 600 basis points.
----
3.11 GUARANTEE BY CERTAIN STOREHOUSE SHAREHOLDERS. Xxxxxxxxx X. Xxxxxx and
--------------------------------------------
Xxxxxxx X. Xxxxxx, Xx. (the "Guarantors") do hereby jointly and severally, as
primary obligors, absolutely, unconditionally and irrevocably guarantee the
prompt payment and performance of all of the obligations set forth in Sections
3.9 and 3.10 of this Agreement without any requirement of notice or demand of,
or failure to perform by, Storehouse; and this guarantee by the Guarantors shall
be an obligation for full and prompt payment and performance rather than a
secondary guarantee of collectibility. No change, amendment or modification of
this Agreement or waiver of any of its terms shall diminish, release or
discharge the liability of Guarantors under the guarantee provided herein. The
liability of Guarantors is continuing and shall only be discharged by the full
performance of Storehouse of all of its obligations under Sections 3.9 and 3.10.
3.12 PREPAYMENT OF SUBORDINATED PROMISSORY NOTE. Storehouse may prepay its
------------------------------------------
obligations under Section 3.9 in whole or in part at any time without penalty.
11
3.13 RIGHT OF REFUSAL. Xxxx shall not transfer the Subordinated Promissory
----------------
Note or any interest in it without first providing Xxxxxxxxx X. Xxxxxx and
Xxxxxxx X. Xxxxxx, Xx., an opportunity to purchase on no less favorable terms
than those on which Xxxx proposes to transfer to a third party. Xxxx will
provide Xxxxxxxxx X. Xxxxxx and Xxxxxxx X. Xxxxxx, Xx. with reasonable notice
and opportunity to exercise such rights, but such notice may, among other
things, impose a time limit for responding of not less than 30 days.
ARTICLE 4: REPRESENTATIONS AND WARRANTIES OF CERTAIN STOREHOUSE
================================================================
SHAREHOLDERS
============
Xxxxxxxxx X. Xxxxxx, Xxxxxxx X. Xxxxxx, Xx., and W. Xxxxx Xxxxxx (the
"Representing Storehouse Shareholders") hereby jointly and severally represent
and warrant to Xxxx as follows as of the Loan Closing Date and again as of the
Common Stock Closing Date (with all the Schedules to this Article 4 being
amended by revised Schedules submitted to Xxxx prior to the Common Stock Closing
Date to the extent the revisions (a) reflect changes not prohibited by Section
6.1); and (b) do not reflect changes that adversely affect their representations
and warranties as of the Common Stock Closing Date in any material respect from
those made on the date of this Agreement; provided, however any tax examination,
-------- -------
governmental claim or litigation involving less than $75,000 (or a greater
amount if covered by insurance), or termination of a Significant Vendor (other
than one providing goods on consignment) shall not be deemed an adverse change.
4.1 STATUS OF STOREHOUSE.
--------------------
(a) Corporate Existence and Status. Storehouse is a corporation duly
------------------------------
incorporated, organized, entitled to conduct business and validly existing in
good standing under the corporation and franchise tax laws of the State of
Georgia.
(b) Corporate Power. Storehouse has had at all times, and now has,
---------------
the corporate power to own or lease its properties and otherwise to conduct its
business.
(c) Capitalization and Shareholders. Storehouse's authorized capital
-------------------------------
stock consists of 500,000 shares of $0.1 par value common stock, of which
131,495 shares are issued and outstanding and are owned of record by the
Storehouse Shareholders in the respective amounts and percentages of ownership
set forth in Schedule 4.1, and 25,000 shares of no par value Series 1998-A
------------
Preferred Stock of which no shares are issued and outstanding; and 1,000,000
shares of no par value Special Stock of which no shares are issued and
outstanding. The Storehouse shareholders listed in Schedule 4.1 are the only
------------
record owners of capital stock or other securities of any kind or class of
Storehouse. Except as set forth in Schedule 4.1: (i) no options, warrants,
------------
subscriptions, puts, calls or other rights, commitments, undertakings or
understandings to acquire, receive, dispose of or restrict the transfer of, any
of Storehouse's capital stock or other securities of any kind or class or
rights, obligations or undertakings convertible into securities of any kind or
class of Storehouse are authorized or outstanding; and (ii) Storehouse is not
subject to any obligation to purchase, redeem or otherwise acquire any of its
capital stock or securities (or of any options or rights or obligations
described in the preceding clause (i)) upon the occurrence of a specified event
(and assuming that specified time periods have passed and appropriate notices
have been given) or otherwise. Schedule 4.1 lists each person to whom options,
------------
warrants or other rights to purchase or receive Storehouse capital stock
12
or other securities of any kind or class or rights, obligations or undertakings
convertible into securities of any kind or class of Storehouse are currently
outstanding, the number of shares evidenced thereby and the exercise prices
thereof (and a copy of all option, warrant and other rights agreements relating
thereto has been delivered to Xxxx). All of the outstanding shares of Storehouse
common stock are duly authorized, validly issued, fully paid and non-assessable,
were issued in full compliance with all applicable laws, and were not issued in
violation of the preemptive right of any shareholder of Storehouse. Upon the
exercise of the options and warrants and the satisfaction of stock bonus and
other rights as set forth on Schedule 4.1 prior to the Common Stock Closing, the
------------
Storehouse shares to be issued in connection therewith will be duly authorized,
validly issued, fully paid and non-assessable, will be issued in full compliance
with all applicable laws and regulations, and will not be issued in violation of
the preemptive right of any shareholder of Storehouse.
(d) Qualification. Schedule 4.1 lists the jurisdictions in which
------------- ------------
Storehouse is qualified to do business as a foreign corporation, and nothing
either requires (or has required) it to be qualified in any other jurisdiction
or subjects it to any cost, restriction or penalty for failing to qualify.
(e) Ownership Interests. Schedule 4.1 lists all loans, advances or
------------------- ------------
similar arrangements by Storehouse to any other person (other than trade terms
extended to customers in the ordinary course of business). Storehouse has no
capital stock or other direct or indirect ownership interests in any person.
(f) Books and Records. The corporate record books, transfer books and
-----------------
stock ledgers of Storehouse are complete and accurate in all material respects
and reflect all meetings, consents and other material actions of the organizers,
incorporators, stockholders, Board of Directors and committees of the Board of
Directors of Storehouse, and all transactions in its capital stock, since its
inception.
4.2 CERTAIN FINANCIAL MATTERS.
-------------------------
(a) Attached Financial Statements. Attached to Schedule 4.2 are:
----------------------------- ------------
(i) a copy of Storehouse's balance sheets as of January 31, 1996,
January 31, 1997 and January 31, 1998, and related statements of
operations, stockholder's equity and cash flows for the years then ended
and the notes to them, prepared by Storehouse and audited by its certified
public accountant, whose report is included; and
(ii) a copy of Storehouse's unaudited financial statements for
the quarter ending on April 30, 1998, prepared by Storehouse.
All of the foregoing, and any financial statements delivered pursuant to Section
6.4, are referred to collectively as the "Financial Statements", with those
relating to January 31, 1998 and the twelve-month period then ended referred to
as the "1998 Financial Statements" and with those unaudited financial statements
for the quarter ending on April 30, 1998, and those other financial statements
which may be delivered pursuant to Section 6.4 being referred to as the
"Unaudited Interim Financial Statements".
13
(b) Status of Financial Statements. Except as set forth in the notes
------------------------------
to the 1998 Financial Statements or in Schedule 4.2, the Financial Statements:
------------
(i) are in accordance with Storehouse's books and records, which books and
records reflect only actual transactions; (ii) in the case of the Financial
Statements other than the Unaudited Interim Financial Statements, (A) have been
prepared in accordance with generally accepted accounting principles applied on
a consistent basis throughout the periods covered by such statements and (B)
fairly present in all material respects Storehouse's financial condition as of
their respective dates and the results of Storehouse's operations and cash flows
for the periods then ended; and (iii) in the case of the Unaudited Interim
Financial Statements, have been prepared as generally described in Schedule 4.2.
------------
(c) Absence of Undisclosed Liabilities. Except (i) as and to the
----------------------------------
extent sufficiently reserved against in the 1998 Financial Statements, (ii) as
set forth in Schedule 4.2, and (iii) for trade payables and similar ordinary and
------------
necessary liabilities (which do not include liabilities arising from the
borrowing of money or secured indebtedness or negligent or unlawful actions of
Storehouse or Storehouse's officers, directors, shareholders, agents or
employees) arising in the ordinary course of business since January 31, 1998
(none of which are material), Storehouse has no other liabilities of any nature
(whether accrued, absolute, contingent, changing, known, unknown, determinable,
indeterminable, liquidated, unliquidated or otherwise and whether due or to
become due) relating to any existing or prior act, omission, condition or state
of facts.
(d) Absence of Certain Changes. Except as set forth in Schedule 4.2
-------------------------- ------------
or in connection with the transaction contemplated by this Agreement, since
January 31, 1998 there has not been any activity with respect to Storehouse
other than in the ordinary course of business, and, without limiting the
foregoing, there has not been:
(i) any adverse change in the assets owned, leased or currently
used by Storehouse or the liabilities, condition (financial or otherwise),
results of operation, or cash flow of Storehouse, except as reflected in the
Unaudited Interim Financial Statements for the three month period ended April
30, 1998;
(ii) any damage, destruction or loss, whether or not covered by
insurance, that has had, individually or in the aggregate, a material adverse
effect on the assets owned, leased or currently used by Storehouse or on
Storehouse's business, financial condition or results of operations exceeding
$50,000 in the aggregate;
(iii) any change in any method of accounting or accounting
practice used by Storehouse or any other material change in Storehouse's manner
of conducting its business;
(iv) any write-down of any inventory or writing-off of any
receivable, except for write-downs and write-offs in the ordinary course of
business consistent with past practice and in like amounts;
(v) any merger or consolidation with any other corporation (or
any transaction having a similar effect) involving Storehouse or any acquisition
of any business unit or operation (however effected) of any other person to
which Storehouse was a party;
14
(vi) any declaration, agreement to declare, setting aside or
payment of any dividend or other distribution of cash or other assets in respect
of Storehouse's capital stock or other securities or any direct or indirect
issuance by Storehouse, or redemption, purchase or other acquisition by
Storehouse, of any such stock or agreement to do so;
(vii) any borrowing of any money or otherwise incurring of any
indebtedness (other than draws under the existing financing arrangements and
other than trade payables or other current expenses incurred in the ordinary
course of business) or any grant or incurring of any lien or restriction on any
of Storehouse's assets except permitted liens; or the entering into of any
guaranty or suretyship contract or any other contract having a similar effect
(other than endorsements of negotiable instruments in the ordinary course of
business);
(viii) any sale, transfer, assignment, lease or other disposition
of all or any portion of (or any interest in) any of the property or assets
owned, licensed or leased by Storehouse (other than dispositions of inventory in
the ordinary course of business);
(ix) any appointment of a receiver or other bankruptcy
proceeding involving Storehouse; or
(x) the establishment of any new, modification of or amendment
to, or increase in the formula for contributions to or benefits under any
Employee Plan (as defined in Section 4.11);
(xi) any bonus or increase in the compensation payable or to
become payable by Storehouse to any of its employees, officers or directors,
other than routine annual increases and minimum wage increases to rank and file
employees consistent with past practices;
(xii) the entering into of any new employment or consulting
agreement or arrangement;
(xiii) any purchase, whether for cash or secured or unsecured
obligations (including financed leases), by Storehouse of any assets (other than
inventory in the ordinary course of business) which has a purchase price
individually in excess of $5,000 or in the aggregate in excess of $50,000;
(xiv) any cancellation or compromise of any debt to, or claim by
or right of, Storehouse other than the settlement of retail customer complaints
in the ordinary course of business;
(xv) the grant of any option, warrant or other direct or
indirect right to acquire any capital stock of Storehouse; or
(xvi) any change to the articles of incorporation or bylaws of
Storehouse; or
(xvii) any contract to do any of the foregoing or any contract
entered into by Storehouse not in the ordinary course of business.
15
4.3 TAXES.
-----
(a) Filing of Returns; Payment of Taxes; Liens. Except as set forth
------------------------------------------
in Schedule 4.3: (i) all returns of every nature of taxes required to be filed
------------
by Storehouse have been timely and otherwise properly filed, and no extensions
of time in which to file any such returns are in effect (and Schedule 4.3 lists
------------
all of Storehouse's federal, state, local or other income tax returns of taxes
for the last three taxable years that have been provided to Xxxx); (iii)
Storehouse has paid and satisfied on or before their respective due dates all
taxes for periods covered by such returns; (iv) all taxes and other amounts that
Storehouse is or was required by applicable law to withhold or collect have been
duly withheld and collected and have been paid over to the proper governmental
authorities in accordance with applicable law; (v) there are no liens for taxes
on any of the assets owned by Storehouse other than permitted liens with respect
to state and local taxes on property; and (vi) Storehouse does not have any
liability for any taxes or duties (or interest or penalties with respect
thereto) of any nature whatsoever, and there is no basis for any additional tax
claims or assessments, other than taxes accrued as stated liabilities on the
balance sheet included in the 1998 Financial Statements and taxes accrued in the
ordinary course of business since January 31, 1998 relating to Storehouse
operations after such date.
(b) Examinations. Except as set forth in Schedule 4.3: (i) no audit
------------ ------------
of the returns of Storehouse's taxes is currently being conducted (nor has any
audit been conducted since December 31, 1989), and Storehouse has not received
from any governmental authority with jurisdiction or other authority as to taxes
(a "Tax Authority") either a notice that it intends to conduct any other audit
of returns of taxes or any request for information with respect to taxes; (ii)
without limiting Subsection (a) above, all taxes asserted (and other matters
required) as a result of such examinations have been paid or finally settled;
(iii) there are no outstanding agreements or waivers extending the statutory
period of limitation applicable to any return of taxes for any period with
respect to Storehouse; and (iv) there are no outstanding requests by Storehouse
for rulings from any Tax Authority.
(c) Absence of IRC (S) 338 and Subchapter S Elections. Storehouse has
-------------------------------------------------
not filed an election, and has not been deemed to have made an election, under
IRC (S) 338 and has not elected to be taxed as a "small business corporation"
under IRC Subchapter S.
(d) Affiliated Group and Collapsible Corporation. Storehouse has
--------------------------------------------
never filed a consolidated federal income tax return with or as part of an
"affiliated group" (within the meaning of IRC (S) 1504). Storehouse has not
engaged in any transaction which could require it to include in income any
adjustment pursuant to IRC (S) 481(a). Storehouse has not filed a consent
pursuant to IRC (S) 341(f) or agreed to have IRC (S) 341(f)(2) apply.
(e) Excess Parachute Payments. Storehouse has not made any payment
-------------------------
which constitutes an "excess parachute payment" within the meaning of IRC
(S)280G, and no payment by Storehouse required to be made under any contract
will, if made, constitute an "excess parachute payment" within the meaning of
IRC (S)280G.
4.4 REAL AND PERSONAL PROPERTY--OWNED OR LEASED. With respect to the real
-------------------------------------------
and tangible personal properties that Storehouse owns or leases (such owned,
leased or used property being referred to individually as "Property" and
collectively as "Properties"):
16
(a) Owned Properties. Schedule 4.4 lists: (i) all such real property
---------------- ------------
owned by Storehouse and (ii) all such plant, machinery, equipment (including
motor vehicles), and other tangible personal property owned by Storehouse as to
which Storehouse is taking depreciation or is fully depreciated. Except as set
forth in Schedule 4.4: (A) Storehouse owns all right, title and interest in and
------------
to all of such Properties; (B) no person has any rights to acquire, lease or use
any of such Property or has any interest in any of such Properties; and (C) none
of such Properties is subject to any lien, except permitted liens, or
restriction.
(b) Leases. Schedule 4.4: (i) lists each lease that has annual
------ ------------
aggregate rental payments of $25,000 or more and a term of more than twelve (12)
months, or was entered into (or for which payment performance commences) after
January 31, 1998 ("Material Leases") (copies of which have been provided to
Xxxx); and (ii) describes all oral Material Leases. Except as set forth in
Schedule 4.4, Storehouse is in possession of, and each Material Lease grants to
------------
Storehouse the exclusive right to possess, the property leased in accordance
with the lease terms. Storehouse does not rent or lease any property as
landlord or lessor.
(c) Certain Information as to the Property. Except as set forth in
--------------------------------------
Schedule 4.4: (i) the Properties are satisfactory for the operations for which
------------
they are being used by Storehouse; (ii) there is no pending or, to Storehouse's
knowledge, contemplated: (A) condemnation or eminent domain proceeding affecting
any of the Properties, (B) proposal or other consideration for increasing the
assessed value of such property for state, county, local or other ad valorem or
similar taxes, or (C) proceedings or public improvements which could or might
result in the levy of any special tax or assessment against any of the
Properties; (iii) there are no outstanding requirements or recommendations by
fire underwriters or rating boards, insurance companies or holders of mortgages
or other security interests requiring or recommending any repairs or work to be
done with reference to any of the Properties; (iv) all bills and claims for
labor performed and materials furnished to or for the benefit of any of the real
property among the Properties have been paid in full, and there are no
mechanics' liens or materialmen's liens, whether or not perfected, on or
affecting any portion of the real property among the Properties; (v) all of the
Properties, including leasehold improvements, are in normal operating condition
and repair, ordinary wear and tear excepted; and (vi) all of Storehouse's
inventory is of merchantable quality and is usable and saleable in the ordinary
course of its business, other than those items which have been written down in
the ordinary course of business consistent with past practices and in like
amounts and in accordance with generally accepted accounting principles applied
on a consistent basis.
(d) All Necessary Properties. Except as set forth in Schedule 4.4,
------------------------ ------------
the Properties constitute all of the properties that Storehouse uses or needs in
connection with the operation of its business.
(e) Year 2000 Compliant. Storehouse has no Y2K budget. Except as set
-------------------
forth in Schedule 4.4, Storehouse is in the process of causing each hardware,
------------
software, firmware and other information technology product, individually or as
a system, owned by, leased to, licensed to or otherwise used by Storehouse in
its business (collectively, "Technology Products") to be able to accurately
process data (including calculating, comparing and sequencing) from, into and
between the twentieth and twenty-first centuries, including leap year
calculations. Such operating condition shall herein be referred to as "Year
2000 Compliant." Except as set forth in Schedule 4.4: (i) Storehouse does not
------------
expect that its actual costs for causing the Technology
17
Products to be Year 2000 Compliant will exceed $25,000; (ii) all expenditures by
Storehouse to date to cause the Technology Products to be Year 2000 Compliant
have been properly expensed in accordance with generally accepted accounting
principles; and (iii) to Storehouse's knowledge, its Technology Products will be
Year 2000 Compliant on a timely basis.
4.5 TRADEMARKS, TRADE NAMES AND OTHER INTELLECTUAL PROPERTY. Schedule 4.5
------------------------------------------------------- ------------
lists (other than computer software generally available to the public and having
a purchase price of less than $2,500 per application):
(a) all patents, trademarks, service marks, trade names or copyrights
that Storehouse owns or uses, or currently proposes to acquire or use, in
its business and all applications or registrations for them (together with
trade secrets and other confidential information used in or necessary for
the ordinary conduct of Storehouse's business, the "Intellectual
Property"); and
(b) all licenses or other contracts relating to Storehouse's use or
license in its business of technology, know-how, processes or the
Intellectual Property (the "Intellectual Property Licenses").
Except as disclosed in Schedule 4.5: (i) Storehouse owns all right, title and
------------
interest, free and clear of all payment obligations (other than as set forth in
the Intellectual Property Licenses), liens (other than permitted liens) and
restrictions, in and to, or has the sole and exclusive right to use, all
Intellectual Property (and Schedule 4.5 indicates whether such are owned or, if
------------
not, the basis on which Storehouse has its rights); (ii) since December 31,
1989, no person has challenged or, to Storehouse's knowledge, threatened to
challenge the validity of, or Storehouse's rights to, any of such; (iii) no act
or omission by Storehouse, including the use, production, marketing, licensing
or sale of Storehouse's products or Storehouse's use of the Intellectual
Property, violates, infringes or misappropriates, or has violated, infringed or
misappropriated, any patent, trademark, service xxxx, trade name, copyright,
technology, know-how, process, trade secret or other rights or other
intellectual properties of any other person; and (iv) Storehouse has purchased a
sufficient number of licenses for the use of each and every copyrighted computer
software program used by it in its business operations.
4.6 INDEBTEDNESS. Schedule 4.6 lists each promissory note, instrument or
------------ ------------
other document or contract (collectively, "Debt Instruments") relating to (a)
any indebtedness for money borrowed by Storehouse or (b) any capital lease,
lease-purchase arrangement, guaranty or undertaking by Storehouse on which
others rely in extending credit or conditional sales contracts (collectively,
"Indebtedness").
4.7 CONTRACTS. Schedule 4.7 lists each written or oral contract (and each
--------- ------------
and every amendment, modification or supplement to any of them) to which
Storehouse is a party or bound or to which it or any of its property is subject
and that is described by any of the following:
(a) individually both (i) exceeds $25,000 and (ii) is not reasonably
---
expected to be performed fully within twelve (12) months of its respective
date (including those for the purchase or sale of property or services
entered into in the ordinary and usual course of business);
18
(b) for any matter not in the ordinary course of business;
(c) restricting the right of Storehouse to compete, whether by
restricting territories, customers or otherwise, in any line of business or
territory;
(d) requiring Storehouse to purchase its requirements for any goods
or services from any one or more parties;
(e) constituting performance bonds, letters of credit or other
security arrangements required by any other contract, Material Lease,
Intellectual Property License, Debt Instrument or Insurance Policy or
otherwise;
(f) making Storehouse liable, by guaranty, suretyship agreement,
indemnification contract, contribution contract or otherwise, upon or with
respect to any debt, dividend or other liability or obligation of any other
person (except endorsements made in the ordinary course of business in
connection with the deposit of items for collection);
(g) relating to participation in a cooperative, partnership or joint
venture;
(h) for political or charitable contributions;
(i) granting a power of attorney; or
All contracts disclosed or to be disclosed on Schedule 4.7 are "Material
------------
Contracts." Schedule 4.7 describes all oral Material Contracts, and copies of
------------
all written Material Contracts have been provided to Xxxx. Notwithstanding the
foregoing, Schedule 4.7 does not list (and the phrase "Material Contract" does
------------
not include) Material Leases, Intellectual Property Licenses, Indebtedness, Debt
Instruments and Insurance Policies disclosed (or not required to be disclosed)
pursuant to this Agreement or employee-related matters disclosed (or not
required to be disclosed) pursuant to this Agreement.
4.8 INSURANCE. Schedule 4.8 lists all of Storehouse's insurance policies
--------- ------------
now in force (all of such policies, whether or not listed, "Insurance
Policies"), and such list states the type of policy, the policy number, the
limits of coverage, the carrier, the annual premium and the expiration date.
Copies of the Insurance Policies have been provided to Xxxx. Except as set
forth in Schedule 4.8: (a) the premiums due on Storehouse's Insurance Policies
------------
have been timely paid; (b) no notice of cancellation or termination of any
Insurance Policy has been given to Storehouse by the carrier of any such policy
or predecessor policy since December 31, 1994; and (c) such Insurance Policies
comply with Storehouse's Material Leases, Debt Instruments and Material
Contracts; (d) all material claims under all policies of insurance maintained by
Storehouse have been filed in due and timely fashion; and (e) Storehouse has
taken or will timely take all requisite action (including without limitation the
making of claims and the giving of notices) pursuant to its Insurance Policies
in order to preserve all rights thereunder with respect to all matters occurring
prior to the Common Stock Closing.
4.9 STATUS. Except as disclosed in Schedule 4.4 with respect to Material
------ ------------
Leases, in Schedule 4.5 with respect to Intellectual Property Licenses, in
------------
Schedule 4.6 with respect to
19
Indebtedness and Debt Instruments, in Schedule 4.7 with respect to Material
------------
Contracts, or in Schedule 4.8 with respect to Insurance Policies: (a)
------------
Storehouse has not assigned any of its rights or obligations under any of the
Material Leases, Intellectual Property Licenses, Debt Instruments, Material
Contracts or Insurance Policies; (b) no act or omission by Storehouse or, to
Storehouse's knowledge, any other party has occurred which, with notice or lapse
of time or both, would constitute a material breach or default under any of
them; (c) Storehouse has not received any outstanding notice of cancellation or
termination in connection with any of them; (d) neither the execution, delivery
or performance of any of them violated, violates or will violate any applicable
law; (e) neither Storehouse nor, to Storehouse's knowledge, any other party
currently contemplates any termination, amendment or change to any of them; (f)
Storehouse has not waived any right under any of them; and (g) to Storehouse's
knowledge, no other party to any of them is in default in any obligation to be
performed by such party.
4.10 OFFICERS AND DIRECTORS; EMPLOYMENT RELATIONSHIPS. Schedule 4.10
------------------------------------------------ -------------
lists all of Storehouse's officers and directors, specifying their office and
annual rate of compensation and director fees. Except as disclosed in Schedule
--------
4.10 and except as disclosed (or to be disclosed) pursuant to Sections 4.11 and
----
4.12, Storehouse has no liabilities or obligations, contingent or otherwise (and
since December 31, 1997 has not been actively negotiating with respect to new or
modified liabilities or obligations): (a) under any employment contract; (b)
under any bonus, incentive or deferred compensation contract or plan; and (c)
except as disclosed pursuant to Section 4.11, under any pension, profit-sharing,
stock purchase or any other similar plan. Except as set forth in Schedule 4.10,
-------------
Storehouse has no outstanding loans to employees. Except as set forth in
Schedule 4.10 with respect to contracts or plans for the benefit of current or
-------------
former employees or their spouses or other dependents disclosed or to be
disclosed pursuant to the foregoing (the "Employment Arrangements"), neither the
execution, delivery nor performance of this Agreement will: (i) entitle any
person to severance pay or other compensation under any Employment Arrangement
or otherwise; or (ii) accelerate the time of payment or vesting, or increase the
amount of compensation or benefits due under, any Employment Arrangement or
otherwise.
4.11 EMPLOYEE BENEFITS.
-----------------
(a) List of Plans. Schedule 4.11 lists each of the following that
------------- -------------
Storehouse or any ERISA Affiliate (as defined below) either maintains, is
required to contribute to or otherwise participates in (or since December 31,
1989 has maintained, contributed to or otherwise participated in) or as to which
Storehouse or any ERISA Affiliate has any liability or obligation, whether
accrued, contingent or otherwise:
(i) any employee pension benefit plan ("Pension/Profit-Sharing
Plan") (as such term is defined in the Employee Retirement Income Security
Act of 1974, as amended ("ERISA")), including any pension, profit-sharing,
retirement, thrift, or stock purchase plan;
(ii) any employee welfare benefit plan ("Welfare Plan") (as such
term is defined in ERISA) or any "multiple employer plan" (as such term is
defined in IRC (S) 413(c)) or any "multiple employer welfare arrangement"
(as such term is defined in ERISA (S) 3(40)); or
20
(iii) any other compensation, stock option, restricted stock,
fringe benefit or retirement plan of any kind whatsoever, whether formal or
informal, not included in the foregoing and providing for benefits for, or
the welfare of, any or all of the current or former employees, directors or
agents of Storehouse or any ERISA Affiliate or their beneficiaries or
dependents, including any group health, life insurance, bonus, incentive or
severance plan;
(all of the foregoing in items (i), (ii) and (iii) being referred to as
"Employee Plans" but such term does not include worker compensation plans or
payroll practices (such as overtime, jury duty and the like) or fringe benefits
such as expense accounts or newspaper, magazine newsletter or journal
subscriptions). "ERISA Affiliate" means each trade or business (whether or not
incorporated) which together with Storehouse is treated as a single employer
pursuant to IRC (S)(S) 414(b), (c), (m) or (o). Neither Storehouse nor any
ERISA Affiliate has ever maintained, contributed to or otherwise participated
in, or had any liability or obligation with respect to, any "multi-employer
plan" (as defined in ERISA) or any "multiple employer welfare arrangement" (as
defined in ERISA). Except as listed in Schedule 4.11, Storehouse has delivered
-------------
to Xxxx (and Schedule 4.11 lists each item delivered) copies of the following:
-------------
(A) each written Employee Plan, as amended (including either the original plan
or the most recent restatement and all subsequent amendments); (B) the most
recent Internal Revenue Service ("IRS") determination letter issued with respect
to each Pension/Profit-Sharing Plan that is intended to be qualified under IRC
(S)(S) 401(a) and 501; (C) the latest actuarial valuation (if any) for each
Pension/Profit-Sharing Plan; (D) the most recent annual reports on the Form 5500
series for each Employee Plan for which such a report is required; (E) each
trust agreement, insurance contract or document setting forth any funding
arrangement, if any, with respect to each Employee Plan; (F) the most recent
ERISA summary plan description or other summary of plan provisions distributed
to participants or beneficiaries for each Employee Plan;(G) each opinion or
ruling from the IRS, the Department of Labor or the Pension Benefit Guaranty
Corporation concerning any Employee Plan; and (H) copies of all documents
relating to the ESOP loan and any guaranty by Storehouse, together with a
statement of the unpaid principal balance and accrued interest thereunder.
(b) Qualification. Except as set forth in Schedule 4.11, each
------------- -------------
Pension/Profit-Sharing Plan: (i) has received a favorable determination letter
from the IRS to the effect that it is qualified under IRC (S)(S) 401(a) and 501,
both as to the original plan and each restatement or material amendment; (ii)
has never been subject to any assertion by any governmental authority that it is
not so qualified; and (iii) has been operated so that it has always been and is
so qualified.
(c) Accruals; Funding.
-----------------
(i) No Defined Benefit Pension Plan. Storehouse does not, and
-------------------------------
has not, either maintained, contributed to or otherwise participated in either
(A) an "employee pension benefit plan" as defined in ERISA (S) 3(a) that is a
"defined benefit plan" as defined in ERISA (S) 3(35) and subject to ERISA Title
I, Subtitle B, Part 3 or ERISA Title IV or (B) a Pension/Profit-Sharing Plan
subject to ERISA Title IV.
(ii) Contributions. Except as set forth in Schedule 4.11: (A)
------------- -------------
all contributions and other amounts required under or with respect to each
Employee Plan currently
21
due has been paid or accrued by Storehouse on the 1998 Financial Statements or
on Storehouse's books and records as incurred in the ordinary course since
January 31, 1998, in accordance with applicable law, (B) no Employee Plan is
funded by insurance subject to retroactive premium adjustments, and (C)
contributions to each Employee Plan, including the ESOP, are accrued at fiscal
year-end for financial reporting purposes.
(iii) Tax Status of Contributions. Except as disclosed in
---------------------------
Schedule 4.11: (A) no excise or penalty taxes are assessable as a result of any
-------------
nondeductible or other contributions made or not made to an Employee Plan; and
(B) all contributions to each Employee Plan are currently deductible under the
IRC.
(d) Reporting and Disclosure. Summary plan descriptions and all other
------------------------
returns, reports, documents, statements and communications (including summary
annual reports) which are required to have been filed, published or disseminated
under ERISA or other federal law and the rules and regulations promulgated by
the Department of Labor under ERISA and the Treasury Department or by the
Securities and Exchange Commission with respect to the Employee Plans have been
so filed, published or disseminated.
(e) Prohibited Transactions; Terminations; Other Reportable Events.
--------------------------------------------------------------
Except as set forth in Schedule 4.11: (i) neither Storehouse, any ERISA
-------------
Affiliate, any Employee Plan, any trust or arrangement created under any of
them, nor any trustee, fiduciary, custodian, administrator or any person holding
or controlling assets of any of the Employee Plans has engaged in any
"prohibited transaction" (as such term is defined in ERISA or the IRC) which
could subject any of the foregoing persons or entities, or any person dealing
with them, to any tax, penalty or other cost or liability of any kind; (ii) no
termination, whether partial or complete, has occurred with respect to any
Employee Plan; and (iii) no "reportable event" (as such term is defined in
ERISA) (other than a reportable event for which the statutory notice
requirements have been waived by regulation) has occurred with respect to any
Employee Plan.
(f) Claims for Benefits. Other than claims for benefits arising in
-------------------
the ordinary course of the administration and operation of the Employee Plans,
no claims, investigations or arbitrations are pending or threatened against any
Employee Plan or regarding any Employee Plan against Storehouse, any ERISA
Affiliate, any trust or arrangement created under or as part of any Employee
Plan, any trustee, fiduciary, custodian, administrator or other person holding
or controlling assets of any Employee Plan, and no basis for any such claim or
claims exists.
(g) Retiree Benefits. Except as set forth in Schedule 4.11,
---------------- -------------
Storehouse has no obligation to provide health or welfare benefits to retirees
or other former employees, directors or their dependents, or post-separation of
service health or welfare benefits to any current employees, directors or their
dependents, other than rights under IRC (S) 4980B or ERISA (S) 601.
(h) Other. Except as set forth in Schedule 4.11: (i) Storehouse and
----- -------------
all ERISA Affiliates have fully complied with all of their obligations under
each of the Employee Plans and with all provisions of ERISA and any and all
other applicable law applicable to the Employee Plans and (ii) no written notice
has been received by Storehouse since December 31, 1995 of any claim by any
participant in the Plans of any violation of such laws, and no such claims are
pending or, to Storehouse's knowledge, threatened.
22
4.12 LABOR RELATIONS. Except as set forth in Schedule 4.12: (a)
--------------- -------------
Storehouse is (and has been) in compliance with all applicable law respecting
employment and compensation practices (including all requirements under the
Consolidated Omnibus Budget Reconciliation Act of 1985 ("COBRA") to offer to its
terminated employees and their dependents continued coverage under Storehouse's
group health plan); (b) there are no charges, investigations, administrative
proceedings or formal complaints of harassment or discrimination (including
discrimination based upon sex, age, race, color, national origin, religion or
disability) pending or, to Storehouse's knowledge, threatened before the Equal
Employment Opportunity Commission or any other governmental authority against
Storehouse; (c) there have been no governmental audits of Storehouse's equal
employment opportunity and wage and hour practices; (d) Storehouse has not
received since December 31, 1992 notice of any unfair labor practice, complaint,
charge or other matter against or involving Storehouse, and to Storehouse's
knowledge, none of the foregoing is pending or threatened before any
governmental authority; (e) to Storehouse's knowledge, there is no (and since
December 31, 1992, there has not been any) labor strike, organizing effort,
organized slow down, organized stoppage or other organized labor difficulty
pending, involving or threatened against Storehouse; (f) no representation
question exists (or has existed since December 31, 1992) respecting Storehouse's
employees; and (g) there is not (and since December 31, 1992 has not been any) a
collective bargaining contract that is binding on Storehouse.
4.13 LITIGATION. Except as described in Schedule 4.13, Storehouse: (i) is
---------- -------------
not (and since December 31, 1992 has not been) engaged in, a party to, subject
to or, to Storehouse's knowledge, threatened with any claim, controversy, legal
or equitable action or other proceeding (whether as plaintiff, defendant or
otherwise and regardless of the forum or the nature of the opposing party) and
(ii) is not (and since December 31, 1992 has not been) a party to or subject to
any judgment, order or decree against it or any of its assets.
4.14 COMPLIANCE WITH LAWS. Except as set forth in Schedule 4.14:
-------------------- -------------
(a) Generally. Storehouse is (and has been) in compliance in all
---------
material respects with all applicable law, including that involving antitrust,
unfair competition, trade regulation, antipollution, environmental,
accommodation for the disabled, employment and plant downsizing, relocation,
closing or safety.
(b) Charges or Violations; Investigations. Storehouse is not (and
-------------------------------------
since December 31, 1992 has not been) either charged with, in receipt of any
notice of or, to Storehouse's knowledge, under investigation with respect to any
failure or alleged failure to comply with any provision of any applicable law in
any material respect.
(c) Permits. Without limiting the foregoing: (i) Storehouse has all
-------
permits required with respect to assets owned, leased or used by it and its
business (and a copy of all of such permits have been provided to Xxxx and are
listed in Schedule 4.14); (ii) no such permit has expired or been terminated
-------------
(nor has Storehouse received notice from any governmental authority that it
intends to terminate any permit); and (iii) Storehouse is (and has been) in
compliance in all material respects with each such permit and any predecessor
permit; provided, however, that the foregoing does not require disclosure of
-------- -------
state and local business or similar licenses required of businesses generally.
23
(d) Environmental. Without limiting the foregoing: (i)
-------------
Storehouse is not subject to any fine, penalty, judgment (including those for
exemplary or punitive damages), settlement payment, or other liability or
obligation whatsoever (including those with respect to personal injury, clean-
up, removal or remediation, whether under CERCLA or otherwise and including the
cost of defending against any allegation of any of the foregoing) which relates
to, is based upon or arises from or in connection with any Environmental Law
with respect to Storehouse's business or Properties, whether made or asserted by
a governmental authority or by a private person, with respect to any acts or
omissions occurring, or facts or circumstances now or previously existing, and
whether or not any such act, omission, condition or circumstance was lawful when
it occurred or initially or subsequently existed; (ii) Storehouse has obtained,
maintained and complied with all permits required by Environmental Law with
respect to Storehouse's business or Properties (which are listed in Schedule
--------
4.14) and has maintained all records and has made all filings required by
----
applicable Environmental Law with respect to treatment, storage, presence,
contamination, generation, transport, emission, discharge or release into the
environment by Storehouse's business or Properties of any substance (including
solids, liquids and gases) and the proper disposal by Storehouse's business or
Properties of such materials (including solid waste materials and petroleum or
any fractions or by-products of them) required for the operations of
Storehouse's business or Properties; and (iii) Storehouse has no liability or
other obligation for the removal of asbestos or underground storage tanks with
respect to any Properties.
"Environmental Law" means each applicable law relating to protection of the
environment, prevention or minimization of pollution, control and tracking of
any Hazardous Substance, Hazardous Waste (each as defined below) or other waste,
protection of human health or similar matters with respect to the foregoing
matters.
"Hazardous Substance" means: (i) any toxic or hazardous wastes, materials,
pollutants or substances, including petroleum or petroleum-based or related
products and their fractions and by-products, flammables, explosives,
radioactive materials, asbestos, polychlorinated biphenyls, pesticides,
herbicides, pesticide or herbicide containers, untreated sewage, and industrial
process sludge; (ii) any substances defined as "hazardous substances" or "toxic
substances" or similarly identified in or pursuant to the Comprehensive
Environmental Response, Compensation and Liability Act of 1980, 42 U.S.C. (S)
9601 et seq., as amended ("CERCLA"); and (iii) any toxic or hazardous wastes,
-- ----
materials, pollutants or substances regulated under any other applicable law,
including any so-called "SuperFund" or "Super lien" legislation relating to
environmental, pollution or similar matters. "Hazardous Waste" means any waste,
material or substance defined, identified or which would be classified as a
hazardous waste or regulated substance pursuant to the Resource Conservation and
Recovery Act, 42 U.S.C. (S) 6901 et seq., as amended, and each regulation or
-- ----
other applicable law promulgated thereunder.
4.15 BANK ACCOUNTS. Schedule 4.15 lists all of Storehouse's bank, money
------------- -------------
market, savings, brokerage, and similar accounts and safe deposit boxes,
specifying the account numbers and the authorized signatories or persons having
access to them.
4.16 TRANSACTIONS WITH AFFILIATES. Except as set forth in Schedule 4.16,
---------------------------- -------------
no officer or director of Storehouse, no Storehouse Shareholder, no spouse nor
any children of any of them, no trust or other entity for the benefit (in whole
or in part) of any of the foregoing and no person controlled by any combination
of any of the foregoing: (a) is a party to any contract or plan of
24
any kind whatsoever involving any such person and Storehouse; (b) owns directly
or indirectly, in whole or in part, any property that Storehouse uses or
otherwise has rights in respect of; or (c) has any cause of action or other
claim whatsoever against, or owes any amount to, Storehouse.
4.17 NO VIOLATIONS OR CONFLICT FROM EXECUTION, DELIVERY OR PERFORMANCE OF
--------------------------------------------------------------------
THIS AGREEMENT. Except as set forth in Schedule 4.17 or any other Schedule to
-------------- -------------
this Agreement, the execution, delivery and/or performance of this Agreement and
of each of the other Documents executed and delivered by a Storehouse
Shareholder does not, and the consummation of the transactions contemplated
hereby will not, require consent under, conflict with or result in any
violation, breach or termination of, or default or loss of a material benefit
under, or permit the acceleration of any obligation under, or result in the
creation of any lien, charge or encumbrance on any property or assets under (A)
the Articles of Incorporation or Bylaws of Storehouse, (B) any note, agreement,
indenture, mortgage, deed of trust, lease, license or other instrument or
obligation to which Storehouse or any of the Storehouse Shareholders is a party,
(C) any judgment, order, decree, ruling or injunction of any court, governmental
body or arbitrator in proceedings to which Storehouse or any of the Storehouse
Shareholders is a party, or (D) any license, certificate, permit, concession,
grant, franchise, patent, trademark, service xxxx, trade name, copyright, law,
regulation, ordinance, rule, order or mandate of a similar nature which is
applicable to Storehouse, its assets or properties, or any of the Storehouse
Shareholders (a "Conflict"), other than a Conflict that will be cured prior to
the Common Stock Closing Date.
4.18 VENDOR AND FACTOR RELATIONSHIPS. Except as set forth in Schedule
------------------------------- --------
4.18: (a) No supplier that was included among Storehouse's top ten vendors for
its fiscal year ended January 31, 1998 on an annual basis (a "Significant
Vendor") has terminated its trading relationship with Storehouse since December
31, 1996; (b) no factor has terminated its contractual relationship with
Storehouse or has adversely affected the terms upon which it extends credit to
Storehouse or diminished the amount of credit available to Storehouse for vendor
purchases; and (c) to the knowledge of Storehouse, no Significant Vendor intends
to terminate its trading relationship and no factor intends to terminate its
contractual relationship with Storehouse as a result of the consummation of the
transactions contemplated by this Agreement or otherwise.
4.19 BROKERS. Except for amounts payable to Wheat First Union division of
-------
Wheat First Securities, Inc., there are no claims or agreements for brokerage
commissions, finder's fees or similar compensation in connection with the
transactions contemplated by this Agreement.
4.20 NO GOVERNMENTAL CONSENTS REQUIRED. Except as set forth in Section
---------------------------------
6.9 regarding the HSR Act, no consent, approval, order or authorization of, or
registration, declaration or filing with, any governmental authority on
Storehouse's or any Storehouse Shareholder's part is required in connection with
any Storehouse Shareholder's execution, delivery or performance of this
Agreement or any contract, instrument or document to be delivered by any of them
pursuant to this Agreement.
4.21 NO MATERIAL OMISSION. None of the representations or warranties in
--------------------
this Agreement on which Xxxx has relied either (a) contains any untrue statement
of a material fact or (b) omits to state a fact necessary to make such
representation or warranty (giving full effect to any dollar, time or other
limitation specified in, and only with respect to the subject matter contained
in, such representation or warranty) not materially misleading. The foregoing
does not impose any obligation to disclose the implications of disclosed facts.
25
4.22 OTHER. No representation or warranty is made by the Representing
-----
Storehouse Shareholders except as expressly set forth in this Article 4;
provided, however, that all lists or other statements, information or documents
-------- -------
set forth in or attached to any Schedule to this Agreement shall be deemed to be
representations and warranties of the Representing Storehouse Shareholders in
this Agreement with the same force and effect as if such lists, statements,
information and documents were set forth in this Agreement.
4.23 RELIANCE. The foregoing representations and warranties have been made
--------
with the knowledge and expectation that Xxxx is placing complete reliance
thereon.
4.24 CHARACTER OF REPRESENTATIONS AND WARRANTIES. No due diligence or
-------------------------------------------
other investigation by Xxxx conducted at any time and from time to time shall
alter any representation or warranty made by or release any Representing
Storehouse Shareholder in this Agreement from any liability for the
incorrectness of any such representation or warranty.
ARTICLE 5: XXXX'X REPRESENTATIONS AND WARRANTIES.
-------------------------------------------------
Xxxx hereby represents and warrants to the Storehouse Shareholders as
follows:
5.1 EXISTENCE. Xxxx is a corporation duly incorporated, organized and
---------
validly existing in good standing under the corporation and franchise laws of
the State of Nevada.
5.2 AUTHORIZATION. With respect to this Agreement and any other
-------------
contracts, instruments and documents executed and delivered, or to be executed
and delivered, by Xxxx pursuant to this Agreement (this Agreement and such other
contracts, instruments (including the Xxxx Convertible Debentures) and
documents, collectively the "Xxxx Delivered Documents"): (a) Xxxx has the
corporate power to execute, deliver and perform the Xxxx Delivered Documents;
(b) the execution, delivery and performance by Xxxx of the Xxxx Delivered
Documents have been duly authorized by all necessary corporate action on Xxxx'x
part in compliance with its articles of incorporation, its bylaws, any other
governing contracts, instruments or other documents and applicable law (and a
certified copy of such corporate action is being delivered to Storehouse
contemporaneously with the execution of this Agreement); and (c) this Agreement
constitutes, and each of the other Xxxx Delivered Documents will constitute,
Xxxx'x valid and binding agreements that are enforceable against it in
accordance with their terms.
5.3 SEC REPORTS. Xxxx (a) has furnished Storehouse and each Category II
-----------
Shareholder with copies of its Annual Report on Form 10-K for the fiscal year
ended November 30, 1997, Quarterly Reports on Form 10-Q for the quarters ended
August 31, 1997, February 1998 and May 31, 1998 and all other reports or
registration statements filed by Xxxx with the SEC under applicable laws, rules
and regulations since December 31, 1997 (all such reports and registration
statements being herein collectively called the "SEC Filings"), each as filed
with the SEC; each such SEC Filing when it became effective or was filed with
the SEC, as the case may be, complied in all material respects with the
requirements of the Securities Act and the Exchange Act, as applicable, and the
rules and regulations of the SEC thereunder and each SEC Filing did not on the
date of effectiveness or filing, as the case may be, contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements therein, in the light of circumstances under which they were
made, not misleading. Xxxx has
26
made all filings required to be made under the Exchange Act for the twelve (12)
months prior to the date hereof.
5.4 NO VIOLATION OR CONFLICT FROM EXECUTION, DELIVERY OR PERFORMANCE OF
-------------------------------------------------------------------
THIS AGREEMENT. The execution, delivery and/or performance by Xxxx of the Xxxx
--------------
Delivered Documents do not (and will not with the passage of time or the giving
of notice or both) violate, conflict with, or constitute a default under (a) any
term or provision of Xxxx'x articles of incorporation or bylaws, (b) any
contract to which it is a party or subject, (c) any judgment, decree or order of
any governmental authority to which Xxxx or any of its properties is subject or
bound, or (d) any applicable law.
5.5 INVESTMENT REPRESENTATION. Xxxx is acquiring the Storehouse Shares
-------------------------
and the Subordinated Promissory Note pursuant to this Agreement for its own
account for investment purposes only and not with a view to any resale,
distribution, subdivision or fractionalization of them.
5.6 XXXX COMMON STOCK - VALID ISSUANCE. The shares of Xxxx common stock
----------------------------------
to be issued upon exercise of conversion rights in the Xxxx Convertible
Debentures will be duly authorized, validly issued, fully paid and
nonassessable, and will be issued in compliance with applicable securities laws.
A sufficient number of shares have been reserved by Xxxx'x Board of Directors to
provide for the conversion of the Xxxx Convertible Debentures.
5.7 MATERIAL OMISSIONS. No representation or warranty by Xxxx in this
------------------
Agreement or in any other Xxxx Delivered Document contains or will contain any
untrue statement of a material fact, or omits a material fact necessary to make
the statements herein or therein not misleading.
ARTICLE 6: CERTAIN OTHER AGREEMENTS.
------------------------------------
6.1 OPERATION OF STOREHOUSE'S BUSINESS BETWEEN SIGNING AND COMMON STOCK
-------------------------------------------------------------------
CLOSING. Without limiting the foregoing, until the Common Stock Closing (except
-------
upon the prior written consent of Xxxx, which consent shall not be unreasonably
withheld or delayed), each of the Storehouse Shareholders shall (to the extent
it has the power) cause Storehouse to:
(a) not take any action, or fail to take any action, except in the
ordinary and regular course of business consistent with current practice and not
otherwise prohibited under this Section 6.1 or this Agreement;
(b) not enter into or renew any long-term lease or other long-term
contract (or modify or terminate any existing one) other than store openings and
relocations contemplated by Storehouse's business plan and budget for the 12-
month period ended April 30, 1999, as set forth in Exhibit K (the "Business
Plan"), in all cases so long as not otherwise prohibited under this Section 6.1
or this Agreement;
(c) not take any of the actions or, to the extent it is within its
control, allow to occur any of the events described in Sections 4.2(d)(i)
through (xvii);
27
(d) not enter into any contract or plan of any kind whatsoever to do
anything prohibited by any of the foregoing;
(e) use commercially reasonable efforts to perform the Business Plan;
(f) terminate its existing cash bonus program for key executives;
(g) continue to record revenues, expenses, deductions, depreciation
and amortization consistent with existing practices and Generally Accepted
Accounting Principles;
(h) make no change in its current accounting practices and
procedures;
(i) declare no dividends or other distribution on the Storehouse
Common Stock;
(j) make no change in its business practices except changes to
improve margins, reduce expenditures and achieve cost savings in a manner
consistent with the Business Plan; and
(k) provide Xxxx with monthly financial information as soon as it is
available and provide Xxxx with periodic consultations relating to such
information.
6.2 NO NEGOTIATIONS. Until the earliest to occur of (i) the Common Stock
---------------
Closing, (ii) the termination of this Agreement and (iii) July 31, 1999, none of
the Storehouse Shareholders shall solicit any discussions or negotiations with
any person (other than Xxxx and its employees and agents) relating to any
proposed acquisition of Storehouse's business or the issued and outstanding
Storehouse Common Stock.
6.3 PUBLICITY. Xxxx and Storehouse shall consult with each other in
---------
issuing any press release or otherwise making public statements with respect to
the transactions contemplated hereby. Neither party shall issue any press
release or otherwise make any public statement without the prior written consent
of the other except as required by law, which consent shall not be unreasonably
withheld or delayed.
6.4 INSPECTION. Each of the Storehouse Shareholders shall (to the extent
----------
it has the power) allow Xxxx and its authorized representatives full access to
Storehouse when accompanied by an Executive Officer of Storehouse during normal
business hours and until the Common Stock Closing on a basis that does not
interfere with Storehouse's normal operations to Storehouse's personnel,
properties and records, and shall furnish Xxxx and its authorized
representatives such information (including financial statements) concerning
Storehouse as Xxxx requests; provided, however, that nothing in this Agreement
-------- -------
requires that the Storehouse Shareholders disclose to Xxxx any information (such
as price lists) that it reasonably thinks could, in Xxxx'x possession, have a
material adverse affect on Storehouse if the Common Stock Closing does not
occur. Xxxx and its authorized representatives shall have the right to review
and copy all such records as they may deem advisable and to discuss them with
Storehouse's executive personnel.
28
6.5 CERTAIN EMPLOYEE MATTERS.
------------------------
(a) Continued Employment. Xxxx acknowledges and agrees that it
--------------------
intends to cause Storehouse to continue to employ its employees immediately
after the Common Stock Closing, but the foregoing does not give any person the
right to be employed or restrict in any way Storehouse's right to terminate any
person's employment. In this regard Xxxx agrees that during the six (6) month
period immediately following the Common Stock Closing, it will defer to the
judgment of the President of Storehouse after the Common Stock Closing relating
to the termination of Storehouse subordinate employees.
(b) Generally as to Employee Plans. Except as specifically provided
------------------------------
to the contrary in the following Subsections of this Section 6.5, at or after
the Common Stock Closing, Xxxx may cause Storehouse to amend, terminate or
freeze any Employee Plan or merge any such Employee Plan with a plan maintained
by Xxxx or Xxxx'x retail subsidiary. In the event of any freeze or termination
(other than the freeze and termination of the ESOP) of an Employee Plan
available to Storehouse employees on a uniform and non-discriminatory basis that
is comparable to a plan maintained by Xxxx or Xxxx'x retail subsidiary for
similarly situated retail employees, if any, Xxxx shall permit Storehouse
employees to participate in such comparable plan on a fair and equitable basis
or cause Storehouse to provide equivalent benefits to those under such plans,
with Storehouse employees receiving full credit for their length of service at
Storehouse for purposes of eligibility, participation and vesting, and (except
for defined benefit plans) accrual of benefits.
(c) Vacation. At the Common Stock Closing, Xxxx shall cause
--------
Storehouse to continue Storehouse's vacation plan or to cover Storehouse's
employees under the vacation plan maintained by Xxxx or Xxxx'x retail subsidiary
for similarly situated retail employees, with Storehouse employees receiving
credit for prior years of service with Storehouse for purposes of calculating
vacation that may be received pursuant to Xxxx'x or its retail subsidiary's
vacation policy and will waive any eligibility requirements of such policy with
respect to such employees.
(d) Group Insurance Plans. Xxxx shall cause Storehouse to continue
---------------------
the group health and life insurance plans in their current form for Storehouse's
employees on the Common Stock Closing Date and continue such plans in such form
until it has either: (i) arranged for such employees to participate in another
plan providing for health, medical and other insurance comparable to that
maintained by Xxxx for its other comparable employees (and Xxxx shall obtain a
waiver of the waiting period for participation in such plan, first day at work
requirement and any restrictions and limitations on pre-existing medical
conditions under such plan for such employees); or (ii) provided any terminated
employees with information concerning rights to convert to separate coverage and
the method for exercising such conversion rights.
(e) ESOP.
----
(i) Contribution to ESOP. Storehouse shall contribute to the
--------------------
ESOP on or before October 15, 1998 an amount aggregating $1,900,000 (less any
amounts previously contributed by Storehouse to the ESOP with respect to the
ESOP's plan year ended January 31, 1998 (the "1998 Plan Year"), plus accrued
interest, which amount shall be applied by the ESOP to repay a principal amount
of indebtedness from the ESOP to Storehouse (the "Internal ESOP
29
Indebtedness") equal to $1,900,000, plus accrued interest. To the extent
permitted by IRC (S) 415 or any other applicable IRC limitation, such
contribution to the ESOP shall be treated as a contribution with respect to the
1998 Plan Year and shall result in an appropriate release and allocation of
shares under the terms of the ESOP for the 1998 Plan Year, and the amount of
such contribution, if any, in excess of the amount that can be so allocated
without violating any applicable IRC limitation shall be treated as a
contribution with respect to the plan year of the ESOP beginning February 1,
1998 (the "1999 Plan Year") and shall result in an appropriate release and
allocation of shares under the terms of the ESOP with respect to the 1999 Plan
Year. Storehouse shall until the Common Stock Closing Date make contributions as
required under the plan document to permit the ESOP to repay its indebtedness to
Storehouse in accordance with its terms.
(ii) Treatment of Remainder of Internal ESOP Indebtedness and
--------------------------------------------------------
Storehouse ESOP Indebtedness. The remaining balance of the Internal ESOP
----------------------------
Indebtedness as of the Common Stock Closing Date shall be written off by
Storehouse. Such writeoff of the remaining Internal ESOP Indebtedness shall not
constitute a contribution to the ESOP and shall not result in a further release
and allocation of shares to participants in the ESOP.
(iii) Freezing and Termination of the ESOP. Storehouse shall
------------------------------------
amend the ESOP and take such further actions as may be necessary or appropriate
to cease all further contributions to the ESOP effective at the Common Stock
Closing Date. The ESOP shall continue in existence as a frozen plan after the
Common Stock Closing Date, and as soon as practicable after the payment of the
full amount of the Purchase Price Storehouse shall do the following: (A)
terminate the ESOP; (B) apply for all the governmental approvals in connection
with any amendment or the termination of the ESOP (as well as any other
governmental approvals); (C) execute and deliver such contracts as may be
necessary in connection with the termination of the ESOP; (D) keep the
Shareholders' Agent Committee reasonably informed as to the status of the
termination of the ESOP (including promptly responding to its reasonable
inquiries); (E) take such reasonable actions as may be requested by the
Shareholders' Agent Committee with regard to such ESOP termination; and (F)
cause the ESOP trustee to make distributions or payments from the ESOP to or for
the benefit of the ESOP participants in accordance with the ESOP plan documents
and applicable law but otherwise as soon as practicable. Xxxx shall cause
Storehouse to amend the ESOP to the extent necessary or appropriate to obtain a
favorable determination letter that the termination of the ESOP does not
adversely affect its prior qualification and otherwise to effect the termination
of the ESOP. Xxxx shall cooperate (and shall cause Storehouse to cooperate) in
effecting the foregoing, and shall not take any action inconsistent with the
foregoing.
6.6 RELEASE OF STOREHOUSE BY EACH STOREHOUSE SHAREHOLDER. If, but only
----------------------------------------------------
if, the Common Stock Closing occurs as contemplated by this Agreement, then each
Storehouse Shareholder hereby releases Storehouse from any and all claims,
rights and causes of action which such Storehouse Shareholder may have or may
have had against Storehouse arising out of any transactions between such
Storehouse Shareholder and Storehouse or its predecessors in interest prior to,
or arising with respect to any acts or omissions occurring prior to, the Common
Stock Closing; provided, however, that nothing in this instrument waives,
-------- -------
releases or restricts in any manner whatsoever any of the rights of the
Storehouse Shareholders arising out of this Agreement or other agreements,
instruments and documents delivered pursuant to this Agreement; and provided,
--------
further, that the foregoing release does not apply to the following: (a)
-------
30
regular salary and vacation that is accrued and earned but unpaid at the Common
Stock Closing Date; (b) any unreimbursed travel or other advances relating to
Storehouse's business at the Common Stock Closing Date that is reimbursable
under Storehouse's current policies; (c) any bonus, incentive or similar
compensation pursuant to a written plan of Storehouse that is accrued and earned
but unpaid at the Common Stock Closing Date; (d) any benefits that are accrued
and earned but unpaid at the Common Stock Closing Date under any employee
benefit plan of Storehouse (including any profit-sharing or similar plan and any
matters covered at the Common Stock Closing Date under any insured medical or
health policy or plan or other insurance policies maintained by Storehouse by
reason of the occurrence of a covered or coverable matter on or before the
Common Stock Closing Date, whether or not the necessary forms have been filed
with Storehouse, its insurer or any other person); (e) any indemnification
rights under Storehouse's articles of incorporation or bylaws; and (f) any
obligations of Storehouse to the ESOP under the plan documents.
6.7 CANCELLATION OF ANY RESTRICTIVE CONTRACTS. If, but only if, the
-----------------------------------------
Common Stock Closing occurs as contemplated by this Agreement, then the
Storehouse Shareholders hereby cancel each and every contract among some or all
of them and/or Storehouse that restricts the transfer of the Storehouse Shares
pursuant to this Agreement.
6.8 CERTAIN TAXES. Xxxx acknowledges that the Common Stock Closing may
-------------
result in its incurring a liability for the tax imposed by IRC (S) 4978 with
respect to Storehouse Common Stock sold to the ESOP by Xxxxxxxxx X. Xxxxxx and
Xxxxxxx X. Xxxxxx, Xx. on February 28, 1997. If such tax is determined to be
applicable, Storehouse shall file such return or returns as may be required by
applicable law and to pay such tax in the manner required by applicable law.
6.9 FILING UNDER HSR ACT.
--------------------
(a) General. Xxxx and the Storehouse Shareholders acknowledge that
-------
the transactions contemplated by this Agreement require filings with the Federal
Trade Commission (the "FTC") and the Antitrust Division of the United States
Department of Justice (the "Antitrust Division") under the HSR Act.
(b) Filings. Xxxx and the Storehouse Shareholders shall each promptly
-------
file with the FTC and the Antitrust Division the notifications and reports
required to be filed pursuant to the HSR Act and shall undertake in good faith
to file promptly any supplemental information which may be requested, which
notifications and reports and filing of supplemental information will comply in
all material respects with the requirements of such act. Xxxx and the
Storehouse Shareholders shall each furnish to the other such information as
either may reasonably request to make such filings.
(c) Appeal. If the Antitrust Division brings suit seeking to prevent
------
or restrain the transactions contemplated by this Agreement or if FTC issues a
complaint or petitions a court to enjoin the transactions contemplated by this
Agreement, then the decision as to whether an adverse decision or action of the
FTC or the Antitrust Division should be appealed or contested shall be solely
within the discretion of the Storehouse Shareholders.
(d) Certain Representations and Warranties. None of the information
--------------------------------------
supplied or to be supplied by a party for inclusion in any regulatory filings
prepared in
31
connection with the transactions contemplated by this Agreement (collectively,
the "Regulatory Filings") by it, will, at the respective time the Regulatory
Filings or any amendments or supplements to them are filed with the appropriate
regulatory authorities, contain any untrue statement of a material fact or omit
to state a material fact necessary in order to make the statements made therein,
in light of the circumstances under which they were made, not misleading. If at
any time prior to the consummation of the transactions contemplated by this
Agreement any act or event should be discovered by a party which the applicable
law requires to be set forth in an amendment of, or a supplement to, the
Regulatory Filings, then such party shall promptly so inform the other and will
furnish all necessary information in writing to the other relating to such
event.
6.10 PAYOFF OF SANWA LOAN. Immediately after the Common Stock Closing,
--------------------
Xxxx will cause Storehouse to pay off all remaining indebtedness to Sanwa
Business Credit Corporation and/or its affiliates.
6.11 XXXX'X AGREEMENT TO TRANSFER RESTRICTIONS & SHARE LEGENDS. Xxxx
---------------------------------------------------------
acknowledges that the Storehouse Shares and the Subordinated Promissory Note are
not being registered under the Georgia Securities Act of 1973 as amended (the
"Georgia Act") on the ground that this transaction is exempt from registration
under Georgia Act (S) 10-5-9(13) and are not being registered under the '33 Act
(as defined below) on the ground that this transaction is exempt from
registration under '33 Act (S) 4(2) as not involving any public offering, and
that reliance by the Storehouse Shareholders on such exemptions is predicated in
part on Xxxx'x representations set forth in Section 4.5 [Investment
Representation]. Xxxx also acknowledges and agrees that it shall not make any
sale, transfer or other disposition of the Storehouse Shares or the Subordinated
Promissory Note in violation of the Georgia Act or the General Rules and
Regulations promulgated by the Securities and Exchange Commission and (b) that
it shall cause to be placed and maintained for a period of at least one year
from the Common Stock Closing Date, or such longer period as may be required by
applicable law, on the certificate issued to it to evidence the Storehouse
Shares, a legend stating in substance:
The shares evidenced by this certificate have been acquired
for investment and have not been registered under the Georgia
Securities Act of 1973 as amended (the "Georgia Act") in reliance
on the exemption contained in Georgia Act (S) 10-5-9(13) or under
the Securities Act of 1933 as amended (the "33 Act") in reliance
on the exemption contained in '33 Act (S) 4(2). These shares may
not be sold or transferred except in transactions (a) exempt from
registration under the '33 Act or pursuant to an effective
registration statement under it and (b) exempt from registration
under the Georgia Act or pursuant to an effective registration
statement under it.
6.12 EXPENSES. Each party shall pay its own expenses and costs incurred in
--------
connection with the negotiation and consummation of this Agreement and the
transactions contemplated by it. Without limiting the foregoing, Storehouse
shall bear the fees and expenses of the ESOP in connection with this Agreement,
and Xxxx shall pay all filing fees with respect to the HSR Act.
6.13 CONSENT AS TO REPRESENTATION. Xxxx acknowledges that the law firm of
----------------------------
Xxxxxxxxxx, Xxxxxx & Xxxxxxx LLP is expected, after the Common Stock Closing, to
represent the
32
Storehouse Shareholders and the Shareholders' Agent Committee in connection with
this Agreement and agrees that it shall be entitled to represent the Storehouse
Shareholders and the Shareholders' Agent Committee in any disputes that arise
concerning this Agreement or any other agreement to be delivered pursuant to
this Agreement and waives any conflict of interest that may result from its
representing Storehouse under this Agreement or otherwise; provided, however,
-------- -------
if the representative of the ESOP Trustee makes a good faith determination that
it requires separate legal representation as a member of the Shareholders' Agent
Committee, the representative shall be permitted to retain such representation.
ARTICLE 7: INDEMNIFICATION.
---------------------------
7.1 SPECIFIC INDEMNIFICATION OBLIGATIONS--BY THE STOREHOUSE SHAREHOLDERS.
--------------------------------------------------------------------
If the Common Stock Closing occurs then Xxxxxxxxx X. Xxxxxx, Xxxxxxx X. Xxxxxx,
Xx., and W. Xxxxx Xxxxxx (the "Indemnifying Shareholders") shall jointly and
severally indemnify, defend and hold Xxxx harmless as provided in this Article 7
as to any Loss involving any of the following:
(a) Taxes: any taxes (i) for periods ending on or before the Common
-----
Stock Closing Date or (ii) that relate to any period or the conduct of
business prior to the Common Stock Closing Date, in each instance, other
than taxes accrued as stated liabilities on the balance sheet included in
the 1998 Financial Statements and taxes accrued in the ordinary course of
business since January 31, 1998 relating to Storehouse operations after
such date and prior to the Common Stock Closing Date.
(b) Certain Deal Expenses: any Deal Expenses that do not reduce the
---------------------
amount of the Earn-Out Purchase Price actually paid or that would have
reduced the Earn-Out Purchase Price but for the fact that the Earn-Out
Purchase Price had already been reduced to zero (treating Deal Expenses in
both instances as the last amount deducted in the Section 3.6 calculation
of Earn-Out Purchase Price).
(c) ESOP: any obligations or liabilities of Storehouse to the ESOP,
----
former or current participants of the ESOP or their beneficiaries, any ESOP
lender, any governmental or taxing authority relating to the maintenance,
operation and administration of the ESOP (including fiduciary duties and
any tax penalty incurred in excess of the amount to be deducted in arriving
at the Earn-Out Purchase Price as provided for in Section 3.6), relating to
the tax-qualified status of the ESOP, or in any other manner relating to
the ESOP, but excluding the normal costs of administration and termination
-------------
of the ESOP;
(d) O&D Indemnification: any acts and omissions occurring, or fact or
-------------------
circumstance existing, on or before the Common Stock Closing Date that
entitle any officer, director, agent or other person to indemnification
pursuant to the articles of incorporation, bylaws or other corporate
authorization of Storehouse in effect on or before the Common Stock Closing
Date with respect to any act or omission prior to the Common Stock Closing
Date;
(e) Third-Party Claims: any and all claims, demands, causes of
------------------
action or proceedings against Storehouse, and penalties imposed against
Storehouse, whether arising before or after the Common Stock Closing Date
but relating to facts, events or
33
circumstances in existence or occurring on or prior to the Common Stock
Closing Date, except to the extent expensed by Storehouse in its income
statement for the annual period ending April 30, 1999 and deducted from
income in arriving at the EBITDA Amount; and
(f) Breaches: without limiting or being in any manner limited by the
--------
foregoing, any breach of any representation, warranty, covenant or
agreement made by the Representing Storehouse Shareholders in this
Agreement (but for purposes of this Subsection, disregarding in such
representations and warranties (i) materiality qualifiers, (ii) knowledge
qualifiers (other than in Section 4.18 and in those instances involving
knowledge of acts or omissions of third parties), and (iii) limitations to
acts or omissions or facts or circumstances after a specified date (other
than in Section 4.18) and other than those requiring listing of notices or
other documents only after a certain date.)
The Indemnifying Shareholders will pay their costs pursuant to this Article 7.
7.2 SPECIFIC INDEMNIFICATION OBLIGATIONS--BY XXXX. If the Common Stock
---------------------------------------------
Closing occurs, then Xxxx shall indemnify, defend and hold the Storehouse
Shareholders harmless as provided in this Article 7 as to any Loss involving any
breach of a representation, warranty, covenant or agreement made by Xxxx herein
or in any Xxxx Delivered Document.
7.3 CERTAIN LIMITATIONS. Notwithstanding the foregoing:
-------------------
(a) Time Limitations. No indemnification shall be required under this
----------------
Article 7 unless the person claiming the right to be indemnified gives notice as
hereinafter provided:
(i) in the case of matters involving taxes, third party claims
and breaches involving violations of applicable law not covered by (ii) below,
within thirty (30) days after the expiration of the statute of limitation
(including extensions of it); and
(ii) with respect to any other claim involving matters covered
by Article 4 or Section 7.1, on or before the third (3rd) anniversary of the
Common Stock Closing Date.
(b) Deductible. No party shall be required to indemnify another party
----------
unless and only to the extent that the aggregate amount of the agreed to or
adjudicated indemnification claims against such party exceed $200,000; provided,
--------
however, that the foregoing limitation shall not apply to: (i) any Loss with
-------
respect to, as a result of, or involving a breach of, a representation or
warranty in Section 4.1 [status of Storehouse] or 4.3 [taxes] or (ii) any Loss
for which Xxxx is indemnified pursuant to Section 7.1(a), Section 7.1(b), or
Section 7.1(d); and provided, further, that for purposes of the foregoing
-------- -------
limitation, the matters described in clauses (i) and (ii) in the preceding
sentence shall not be taken into account in determining whether Losses exceed
$200,000 in the aggregate.
(c) Cap. The Indemnifying Shareholders shall not be obligated to make
---
indemnification payments pursuant to this Agreement which in the aggregate
exceed the aggregate amounts paid or to be paid to the Indemnifying Shareholders
pursuant to this Agreement.
34
(d) Recoveries. The amount of any Loss suffered by a party under this
----------
Agreement shall be reduced by the amount, if any, of the recovery or benefit
(net of reasonable expenses incurred in obtaining such recovery or benefit) the
party seeking indemnification under this Agreement shall have received or
otherwise enjoyed with respect thereto from any other person (including the
present value of any federal, state or local income tax benefit and any recovery
under any insurance policies paid for by Storehouse prior to the Common Stock
Closing); and if such a recovery or benefit is received or enjoyed by an
Indemnified Party after it receives payment or other credit under this Agreement
with respect to a Loss, then a refund equal to the aggregate amount of the
recovery, net of reasonable expenses and tax or other costs incurred in
obtaining recovery, shall be made promptly to the Indemnifying Party. For
purposes of the foregoing, the present value of any tax benefit referred to
above shall consist solely of those future tax benefits that can be reasonably
estimated by Xxxx at the time the claim is being determined and shall take into
account only those tax benefits reasonably expected to be utilized by Storehouse
or Xxxx during the five taxable years following the Common Stock Closing
(counting the taxable year in which the Common Stock Closing occurs as one of
such taxable years). The present value shall be calculated using the then-
applicable Prime Rate as published in the Wall Street Journal.
(e) Other. Notwithstanding anything in this Agreement to the
-----
contrary, the Indemnified Party shall act in good faith and in a commercially
reasonable manner to mitigate any damages it may suffer.
7.4 PROCEDURES FOR CLAIMS AND SATISFACTION. All claims for
--------------------------------------
indemnification under this Article 7 shall be resolved in accordance with the
following procedures (and notices pursuant to the following to be given to or by
the Indemnifying Shareholders shall be given to or by the Shareholders' Agent
Committee):
(a) Notice of Facts Forming Basis for Claim. Notice must be given of
---------------------------------------
facts that are the basis of an indemnification claim under this Article 7 by the
person claiming the right to be indemnified ("Indemnified Party") to the person
from whom it is claiming indemnification ("Indemnifying Party") of the facts the
claimant thinks are the basis for such indemnification promptly and in any event
before the expiration of the applicable time period specified in Section 7.3(a).
(b) Right to Contest Third Party Claims. If a claim or demand for
-----------------------------------
indemnification is based upon an asserted liability or obligation to a person
not a party (a "Third Party Claim"), then (and without limiting the obligations
under Section 7.4(a)) the Indemnified Party shall undertake in good faith to
give prompt written notice of any such claim to the Indemnifying Party. The
Indemnifying Party may defend such claims or actions with counsel chosen and
paid by it by giving written notice (the "Election to Defend") to the
Indemnified Party within thirty (30) days after the date such notice of a Third
Party Claim is deemed received; provided, however, that the Indemnifying Party
-------- -------
may not settle such claims or actions without the consent of the Indemnified
Party, which consent shall not be unreasonably withheld or delayed; and
provided, further, that if the Indemnifying Party submits to the Indemnified
-------- -------
Party a bona fide settlement offer from the third party claimant of any Third
Party Claim (which settlement offer shall include as an unconditional term of it
the release by the claimant or the plaintiff to the Indemnified Party from all
liability in respect of such claim) and the Indemnified Party refuses to consent
to such settlement, then thereafter the Indemnifying Party's liability to
35
the Indemnified Party with respect to such Third Party Claim shall not exceed
the settlement amount included in such bona fide settlement offer, and the
Indemnified Party shall either assume the defense of such Third Party Claim or
pay the Indemnifying Party's attorney's fees and other out-of-pocket costs
incurred thereafter in continuing the defense of such Third Party Claim.
Notwithstanding anything to the contrary in this Article 7, a failure to provide
any required notice shall not prejudice any right to indemnification under this
Agreement except to the extent that the Indemnifying Party is prejudiced by such
failure. If the Indemnifying Party does not duly give the Election to Defend as
provided above, then it shall be deemed to have irrevocably waived its right to
defend or settle such claims, but it shall have the right, at its expense, to
attend, but not otherwise participate in, proceedings with such third parties;
and if the Indemnifying Party does duly give the Election to Defend, then the
Indemnified Party shall have the right at its expense, to attend, but not
otherwise participate in, such proceedings.
(c) Notice of Fixed or Determined Loss. When a Loss as to which a
----------------------------------
notice has been timely given in accordance with Section 7.4(a) is paid or is
otherwise fixed or determined, then the Indemnified Party shall give the
Indemnified Party notice of such Loss, in reasonable detail and specifying the
amount of such Loss and the Sections upon which the claim for indemnification
for such Loss is based (which notice shall be in addition to the notice required
under Section 7.4(a), but the notices under this Section 7.4(c) and under
Section 7.4(a) may be given simultaneously and in a single instrument when
appropriate and in compliance with both provisions). If the Indemnifying Party
desires to dispute such claim, it shall, within thirty (30) days after receipt
of notice of the claim of Loss against it pursuant to this section, give
counter-notice, setting forth the basis for disputing such claim, to the
Indemnified Party. If no such counter-notice is given within such thirty-day
period or if the Indemnifying Party acknowledges liability for indemnification,
then such Loss shall be promptly satisfied as provided in Section 7.4(a). If,
within thirty (30) days after the receipt of counter-notice by the party
claiming indemnification, the parties shall not have reached agreement as to the
claim in question (during which time the parties shall negotiate in good faith
to resolve the dispute), then the claim for indemnification shall be submitted
to and settled by arbitration as provided below (it being expressly understood
and agreed that, if such counter-notice is duly given, it is the intention of
the parties that any such claim shall be resolved by arbitration as provided in
this section).
(d) Arbitration. Arbitration shall be by a single arbitrator
-----------
experienced in the matters at issue and selected by Xxxx and the Shareholders'
Agent Committee in accordance with the Rules. The arbitration shall be held in
such place in the Charlotte, North Carolina metropolitan area as may be
specified by the arbitrator (or any place agreed to by the Shareholders' Agent
Committee, Xxxx and the arbitrator), and shall be conducted in accordance with
the Rules and (regardless of any other choice of law provision in this
Agreement) the United States Arbitration Act (9 U.S.C. (S)(S) 1-16) to the
extent not inconsistent with this Agreement. The decision of the arbitrator
shall be final and binding as to any matters submitted under this Agreement, and
to the extent the decision is that a Loss has been suffered for which a party is
to be indemnified under this Agreement, it shall be satisfied as provided in
Subsection (e) below; and if necessary, any judgment upon the arbitrator's
decision may be entered in any court of record having jurisdiction over the
subject matter or over the party against whom the judgment is being enforced.
The determination of which party (or combination of them) shall bear the costs
and expenses of such arbitration proceeding shall be determined by the
arbitrator. The arbitrator
36
shall have the discretionary authority to award that all or part of the
reasonable attorneys' fees of one party in connection with the arbitration shall
be reimbursed by another party.
(e) Satisfaction of Indemnification Obligations. Subject to the
-------------------------------------------
procedures set forth above, claims for indemnified Losses shall be satisfied as
follows:
(i) By the Indemnifying Shareholders. The Indemnifying
--------------------------------
Shareholders' liability for such indemnification shall be satisfied by
paying the amount of such liability to Xxxx or offsetting such amount
against the Earn-Out Purchase Price payable to the Indemnifying
Shareholders.
(ii) By Xxxx. Xxxx shall satisfy its liability for
--------
indemnification Losses by paying the amount of such liability to the
Shareholders' Agent Committee.
Payments pursuant to the foregoing shall be by wire transfer or by check, as the
recipient may direct; provided, however, that in the absence of directions
-------- -------
within a reasonable period of time, payment may be made by check.
7.5 CERTAIN RULES. The indemnification obligations in this Article 7,
-------------
although stated in terms of the parties, shall be for the benefit of the
parties, their permitted successors and assigns and their officers, directors,
employees, agents and affiliates. The phrase "breach of a representation"
includes a misrepresentation. The term "Loss" means one hundred percent (100%)
of any liability, loss, cost, damage, expense or payment, including (i) in the
case of Third Party Claims, related attorneys', accountants' and other
professional advisors' fees and expenses, and (ii) interest on each of the
foregoing at the Prime Rate from the date the Loss was incurred until paid.
"Prime Rate" for purposes of this Section 7.5 means the prime rate as published
in the "Money Rates" table of The Wall Street Journal on the first date of the
--- ---- ------ -------
calendar quarter on which The Wall Street Journal was published and on the first
--- ---- ------ -------
such day of each subsequent calendar quarter in which the Loss is unpaid.
7.6 SURVIVAL; EXCLUSIVE REMEDIES. The representations, warranties,
----------------------------
covenants and agreements made in this Agreement shall survive the Common Stock
Closing. Subject to Section 7.3(e) above, neither the survival of such
representations, warranties, covenants and agreements, nor their enforceability
nor any remedies for breaches of them shall be affected by any knowledge of a
party regardless of when or how such party acquired such knowledge. If the
Common Stock Closing occurs, then the remedies provided in this Article 7
constitute the sole and exclusive remedies for recoveries against another party
for breaches of the representations and warranties in this Agreement and for the
matters specifically listed in this Article 7 as being indemnified against, but
neither the foregoing nor anything else in this Agreement shall limit the right
of a party to enforce the performance of this Agreement or of any contract,
document or other instrument executed and delivered pursuant to this Agreement
by any remedy available to it in equity.
37
ARTICLE 8: TERMINATION AND ABANDONMENT.
---------------------------------------
8.1 GENERAL. This Agreement may be terminated prior to the Common Stock
-------
Closing:
(a) Failure of Storehouse's Conditions. By the Shareholders' Agent
----------------------------------
Committee: (i) at any time a condition in Section 3.2 becomes no longer
capable of being satisfied and (ii) on August 31, 1999 if the conditions
set forth in Section 3.2 have not been then complied with in any respect
and the Storehouse Shareholders are not materially in breach of its
obligations under this Agreement; provided, however, that if such
-------- -------
noncompliance, nonperformance or breach can be cured or eliminated, then
the Shareholders' Agent Committee shall not terminate under this Subsection
(a) unless and until (A) it has given Xxxx written notice that
noncompliance, nonperformance or breach has occurred, specifying the nature
of same and the action required to cure same and (B) such shall not have
been cured or eliminated within thirty (30) days after such notice is
received.
(b) Failure of Xxxx'x Conditions. By Xxxx: (i) at any time a
----------------------------
condition in Section 3.3 becomes no longer capable of being satisfied and
(ii) on August 31, 1999 if the conditions set forth in Section 3.3 have not
been then complied with in any respect and Xxxx is not materially in breach
of its obligations under this Agreement; provided, however, if such
-------- -------
noncompliance, nonperformance or breach can be cured or eliminated, then
Xxxx shall not terminate under this Subsection (b) unless and until (A) it
has given the Shareholders' Agent Committee written notice that
noncompliance, nonperformance or breach has occurred, specifying the nature
of same and the action required to cure same and (B) such shall not have
been cured or eliminated within thirty (30) days after such notice is
received.
(c) HSR Act. Either (i) by the Shareholders' Agent Committee or Xxxx
-------
in the event it determines not to appeal an adverse decision or action of
the FTC or the Antitrust the Division in connection with actions pursuant
to Section 6.9 or (ii) by Xxxx or by the Storehouse Shareholders if all
applicable pre-acquisition filing, information furnishing and waiting
period requirements under the HSR Act shall have not been met or such
compliance shall have not been waived by the governmental agencies having
authority to grant such waivers on or before August 31, 1999.
If the Common Stock Closing has not occurred on or before September 30, 1999,
and no action has been brought to specifically perform this Agreement, then this
Agreement shall terminate without any action on the part of any party. If a
party institutes an action to specifically perform this Agreement prior to its
termination pursuant to this Section 8.1, then notwithstanding any provision of
any such section, this Agreement shall be terminated thereafter only if a final
judgment or order is entered in such action or in any appeal therefrom denying
specific performance in such action or dismissing or discontinuing such action
without the granting of such relief (and such judgment or order is not then
subject to appeal) or such action or an appeal therefrom is dismissed or
discontinued voluntarily by the party seeking such action in such action or by
agreement of the parties thereto without the granting of such relief.
38
8.2 SPECIFIC PERFORMANCE AND OTHER REMEDIES. The Storehouse Shareholders
---------------------------------------
acknowledge that the rights of Xxxx to consummate the transactions contemplated
hereby are special, unique and of extraordinary character, and that, if the
Storehouse Shareholders violate or fail and refuse to perform any covenant or
agreement made by any of them herein, then Xxxx may be without adequate remedy
at law. Each Storehouse Shareholder agrees, therefore, that if he violates or
fails and refuses to perform any covenant or agreement made by him herein, Xxxx
may, in addition to any remedies at law for damages or other relief, institute
and prosecute an action to enforce specific performance of such covenant or
agreement or seek any other equitable relief.
8.3 EFFECT OF TERMINATION. Upon the termination of this Agreement,
---------------------
neither party shall have any further obligation to the other, except that: (a)
no termination shall prejudice any claim either party may have under this
Agreement that arises from the willful and intentional breach of this Agreement
by the other party and (b) termination of this Agreement shall not terminate or
otherwise affect the rights and obligations set forth in Sections 3.9 through
3.13 and 6.12, which shall survive termination as independent obligations.
ARTICLE 9: SHAREHOLDERS' AGENT COMMITTEE.
-----------------------------------------
9.1 APPOINTMENT AND ACCEPTANCE. The Storehouse Shareholders hereby
--------------------------
appoint each of Xxxxxxxxx X. Xxxxxx, Xxxxx X. Xxxxx, and Xxxxxxx X. Xxxxxx, and
the successors of each of them, acting as provided in this Agreement, as each
Storehouse Shareholder's attorney-in-fact and agent in each's name, place and
stead in connection with the transactions contemplated by this Agreement
(collectively, the "Shareholders' Agent Committee"), and acknowledges that such
appointment, being an integral part of the manner and basis of converting the
Storehouse Common Stock and being relied upon by Xxxx is coupled with an
interest. By executing and delivering this Agreement under the heading
"Shareholders' Agent Committee," each of such individuals hereby (a) accepts his
appointment and authorization to act as a member of the Shareholders' Agent
Committee as attorney-in-fact and agent on behalf of the Storehouse Shareholders
in accordance with the terms of this Agreement, and (b) agrees to perform his
obligations under, and otherwise comply with, this Agreement.
9.2 AUTHORIZATION. Each Storehouse Shareholder fully and completely,
-------------
without restriction:
(a) Execution and Delivery of Agreements. Authorizes and directs the
------------------------------------
Shareholders' Agent Committee: (i) to deliver to Xxxx on his behalf as provided
in this Agreement his share certificates representing his Storehouse Common
Stock and all other materials to be delivered in connection with this Agreement,
(ii) to execute, deliver, and to accept delivery of, on his behalf, the
agreements, instruments and documents to be, or as, delivered by or on behalf of
the Storehouse Shareholders pursuant to this Agreement, (iii) to execute,
deliver, and to accept delivery of, on his behalf such amendments as may be
deemed by the Shareholders' Agent Committee in its sole discretion to be
appropriate under this Agreement, and (iv) to execute and deliver, and to accept
delivery of, on his behalf such agreements, instruments and other documents as
may be deemed by the Shareholders' Agent Committee in its sole discretion to be
appropriate under this Agreement;
39
(b) Notices & Determinations. Agrees to be bound by all notices
------------------------
received, by all agreements and determinations made, and by all agreements,
instruments and other documents executed and delivered by the Shareholders'
Agent Committee under this Agreement;
(c) Disputes & Consents. Authorizes the Shareholders' Agent
-------------------
Committee: (i) to dispute or to refrain from disputing any claim made by Xxxx
under this Agreement; (ii) to negotiate and compromise any dispute which may
arise under, and to exercise or refrain from exercising remedies available under
this Agreement and to sign any releases or other documents with respect to such
dispute or remedy; (iii) to waive any condition contained in this Agreement;
(iv) to give any and all consents under this Agreement; and (v) to give such
instructions and to do such other things and refrain from doing such other
things as the Shareholders' Agent Committee in its sole discretion deems
necessary or appropriate to carry out the provisions of this Agreement; and
(d) Payments - Receipt & Disbursements. Authorizes and directs the
----------------------------------
Shareholders' Agent Committee: (i) to receive any payments made to the
Storehouse Shareholders or to the Shareholders' Agent Committee on the
Storehouse Shareholders' behalf pursuant to this Agreement, (ii) to invest such
funds pending their disbursement in such manner as the Shareholders' Agent
Committee in its sole discretion deems appropriate, and (iii) to disburse to the
Storehouse Shareholders payments made to the Shareholders' Agent Committee under
this Agreement in accordance with the terms of this Agreement.
9.3 PROCEDURAL MATTERS.
------------------
(a) Meetings and Written Consents. Actions by the Shareholders' Agent
-----------------------------
Committee shall be made either (i) at a meeting (which can be conducted by a
telephone call) or (ii) by written consent.
(b) Required Vote or Signatures. Decisions of the Shareholders' Agent
---------------------------
Committee at a meeting may be made only if all of the three members are
participating, and decisions shall require the affirmative vote of all members.
Written consents shall be effective when signed by all members of the
Shareholders' Agent Committee.
9.4 RELIANCE. Each of the Storehouse Shareholders hereby expressly
--------
acknowledges and agrees (a) that the Shareholders' Agent Committee is authorized
to act on his behalf notwithstanding any dispute or disagreement among the
Storehouse Shareholders and (b) that Xxxx and any other person shall be entitled
to rely on any and all actions taken (or not taken) by the Shareholders' Agent
Committee under this Agreement that appear to have been taken in accordance with
this Agreement without any duty of inquiry as to the genuineness of the writing
or other communication and without any obligation of inquiry of any of the
Storehouse Shareholders.
9.5 SUCCESSORS.
----------
(a) Generally. If a member of the Shareholders' Agent Committee
---------
resigns, dies or is removed, then a successor shall be appointed as follows:
40
(i) Category I Representative. Successors to Xxxxxxx X. Xxxxxx
-------------------------
(or to any of his successors) shall be appointed by Trust Company of
Knoxville.
(ii) Category II Representative. Successors to Xxxxxxxxx X.
--------------------------
Xxxxxx (or to any of his successors) and Xxxxx X. Xxxxx (or to any of his
successors) shall be appointed by a majority vote of the Category II
Shareholders.
Each of the foregoing named persons and any of his successors may be removed for
any reason (or for no reason) by a majority vote of the shareholders entitled to
appoint successors to a member.
(b) Other Appointment Procedure. If for any reason no successor to a
---------------------------
member has been appointed within thirty (30) days after his resignation, death
or removal, then any person entitled to vote for the appointment of a successor
to such member may petition a court of competent jurisdiction for appointment of
a successor.
(c) Notice of Appointment. The appointment of a successor pursuant to
---------------------
the foregoing shall be by a written instrument (i) that is signed by the
requisite number of persons or by a judge or clerk of a court of competent
jurisdiction and (ii) that sets forth the explanation of how such persons
satisfy the foregoing voting requirements, and promptly thereafter a copy of
such instrument shall be given to the Shareholders and the other members of the
Shareholders' Agent Committee.
9.6 SURVIVAL OF AUTHORIZATIONS. THE AUTHORIZATION AND AGREEMENTS IN THIS
--------------------------
AGREEMENT SHALL REMAIN IN FORCE IF ANY STOREHOUSE SHAREHOLDER SUBSEQUENTLY
BECOMES MENTALLY OR PHYSICALLY DISABLED OR INCOMPETENT. SUCH RECORDINGS AND
FILINGS OF THIS AGREEMENT MAY BE MADE AS ANY PERSON DEEMS APPROPRIATE. NO
FILING OF ANY INVENTORY OR POSTING OF A SURETY BOND SHALL BE REQUIRED OF ANY
PERSON IN CONNECTION WITH THIS ARTICLE 9.
9.7 CERTAIN LIMITATIONS. No member of the Shareholders' Agent Committee
-------------------
shall have any liability whatsoever (whether at law, in equity or otherwise) to
any Storehouse Shareholder for any act or omission relating to this Agreement
except such that arises from gross negligence or willful misconduct.
9.8 NO IMPLIED AGENCY OR PARTNERSHIP. No party other than the
--------------------------------
Shareholders' Agent Committee is the agent or representative of any other party.
Except as provided with respect to the Shareholders' Agent Committee, nothing in
this Agreement shall be construed to make a party liable to any other person for
or on account of any claim or act or omission of any other party. Nothing in
this Agreement shall be construed to create a partnership or joint venture among
the parties.
9.9 EXPENSES. No member of the Shareholders' Agent Committee is entitled
--------
to any fee or reimbursement of expenses for his activities pursuant to this
Agreement.
41
ARTICLE 10: MISCELLANEOUS PROVISIONS.
-------------------------------------
10.2 GOOD FAITH; COOPERATION. The parties shall use their best efforts to
-----------------------
perform their obligations in this Agreement, to satisfy all conditions, and to
cause the transactions contemplated by this Agreement to be carried out promptly
in accordance with its terms. The parties shall cooperate fully with each other
and their respective representatives in connection with any actions required to
be taken as part of their respective obligations under this Agreement.
10.3 NOTICES. Each notice, communication and delivery under this
-------
Agreement: (a) shall be made in writing signed by the party making it; (b) shall
specify the section of this Agreement to which it relates; (c) shall either be
delivered in person or by telecopier or nationally recognized next business day
delivery service; (d) unless given in person, shall be given to the address
specified below; (e) shall be deemed given (i) if delivered in person, on the
date delivered, (ii) if sent by telecopier, on the date transmitted or (iii) if
sent by nationally recognized next business day delivery service (with costs
prepaid), on the first business day after so sent; and (f) shall be deemed
received (i) if delivered in person, on the date of personal delivery, (ii) if
telecopied, on the day transmitted or (iii) if sent by nationally recognized
next business day delivery service, on the first business day after so sent.
The addresses and requirements for copies are as follows:
If to the Storehouse Shareholders, to: with a copy to:
------------------------------------- --------------
Xx. Xxxxxxxxx X. Xxxxxx Xx. Xxxxxx X. Xxxxx, Xx.
8818 Xxxxxxxx Circle Xxxxxxxxxx, Xxxxxx & Xxxxxxx LLP
Xxxxxx, XX 00000 000 Xxxxxxxxx Xxxxxx, X.X.
Telecopier: 000-000-0000 Xxxxxxx, Xxxxxxx 00000-0000
Confirm: 000-000-0000 Telecopier: 000-000-0000
Confirm: 000-000-0000
and
Xx. Xxxxx X. Xxxxxxxx
Xx. Xxxxxx X. Xxxxxx Hunton & Xxxxxxxx
The Trust Company of Knoxville, Inc. Xxxxx 0000
Xxx Xxxxxx Xxxxxx - Xxxxx 000 NationsBank Plaza
000 Xxxxxx Xxxxxx 000 Xxxxxxxxx Xxxxxx, X.X.
Xxxxxxxxx, XX 00000 Xxxxxxx, XX 00000
Telecopier: 000-000-0000 Telecopier: 000-000-0000
Confirm: 000-000-0000 Confirm: 404/888-4000
If to Xxxx, to: with a copy to:
-------------- --------------
Xxxx Furniture Corporation Xx. Xxxxxx X. Silver
0000 Xxxxxx Xxxxxxxxx Silver, Xxxxxxxx & Xxxx, LLP
Suite 710 0000 Xxx Xxxx Xxxxxx, XX
XxXxxx, XX 00000 Suite 700 East
Attn: Xx. Xxxxxx X. Xxxxxxxx Xxxxxxxxxx, XX 00000
Telecopier: 000-000-0000 Telecopier: 000-000-0000
Confirm: 703-847-8670 Confirm: 000-000-0000
42
Such notice shall be given to such other representatives or at such other
addresses as a party may furnish to the other parties pursuant to the foregoing.
If notice is given pursuant to this Section of a permitted successor or assign
of a party, then notice shall thereafter be given as set forth above also to
such successor or assign of such party.
10.3 ASSIGNMENT; SUCCESSORS IN INTEREST.
----------------------------------
(a) By Xxxx. Except with the prior consent of the Shareholder's Agent
-------
Committee (which shall not be unreasonably withheld): (i) no assignment by
operation of law or otherwise by Xxxx of its rights and obligations under this
Agreement shall be made to any person other than to one that controls Xxxx or is
controlled by or is under common control with Xxxx or a successor to a
substantial portion or all of the business of Xxxx (and then only if such person
expressly assumes all obligations and liabilities of Xxxx under this Agreement
by operation of law or by specific assumption executed and delivered by the
transferee to the Shareholders' Agent Committee); and (ii) no transfer by
operation of law or otherwise by Xxxx of all or a substantial part of its
business shall be made unless the obligations of Xxxx under this Agreement are
assumed in connection with such transfer either by operation of law or by
specific assumption executed and delivered by the transferee to the
Shareholders' Agent Committee. In any such event, Xxxx shall remain liable for
the performance of all the assigned, transferred or assumed obligations under
this Agreement, which liability shall be a primary obligation for full and
prompt performance rather than a secondary guarantee of collectibility of
damages.
(b) By the Storehouse Shareholders. Except for any transfer or
------------------------------
assignment of rights and obligations under this Agreement, in whole or in part,
upon the death of a Storehouse Shareholder to the heirs, legatees or devisees of
a deceased Storehouse Shareholder or upon distributions from a non-individual
Storehouse Shareholder to its beneficiaries or except with the prior written
consent of Xxxx (which shall not be unreasonably withheld), no assignment or
transfer (by operation of law or otherwise), in whole or in part, by a
Storehouse Shareholder of his rights or obligations under this Agreement shall
be made.
(c) Binding Nature. This Agreement is binding upon the parties and
--------------
their respective successors or assigns (whether or not permitted) and inures to
the benefit of the parties and their permitted successors and assigns. Without
limiting the foregoing or any other provision of this Agreement or the
agreements to be delivered pursuant to it (and thus acknowledging that the
failure or refusal to accomplish the following does not affect the foregoing),
the Storehouse Shareholders shall undertake in good faith to have any heir,
legatee, devisee, beneficiary, personal representative or other successor or
assign of a Storehouse Shareholder ratify and confirm the agreements and
obligations of such Storehouse Shareholder (including the authority of the
Shareholders' Agent Committee) under this Agreement and under the other
agreements to be delivered pursuant to this Agreement (including the Escrow
Agreement).
(d) Notice of Changes. In the event of a successor to a Storehouse
-----------------
Shareholder, his interest as reflected in Exhibit A shall be allocated among his
---------
successors as certified to the Shareholders' Agent Committee by an appropriate
party.
10.4 SEVERABILITY. Any determination by any court of competent
------------
jurisdiction of the invalidity of either (a) any provision of this Agreement
that is not essential to accomplishing its
43
purposes or (b) any aspect of Section 6.3 shall not affect the validity of any
other provision of this Agreement, which shall remain in full force and effect
and which shall be construed as to be valid under applicable law.
10.5 CERTAIN DEFINITIONS. For purposes of this Agreement (and whether or
-------------------
not underlined): (a) "applicable law" means each provision of any constitution,
--------------
statute, law, ordinance, code, rule, regulation, decision, order, decree,
judgment, release, license or other official pronouncement of any governmental
authority; (b) "contract" means any contract of any kind whatsoever, together
--------
with all related amendments, modifications, supplements, waivers and consents;
(c) "governmental authority" means any legislative, executive, judicial, quasi-
----------------------
judicial or other public authority, agency, department, bureau, division, unit,
court or other public body; (d) "lease" means any written or oral lease,
-----
sublease, rental contract or similar contract and all amendments, modifications,
supplements, waivers and consents to or under them pursuant to which Storehouse
leases or rents either as lessee or tenant, any Property; (e) "lien" means any
----
mortgage, deed to secure debt, security interest, lien, pledge, encumbrance or
adverse claim of any kind whatsoever, including the interest of a lessor under
any capital lease; (f) "party" or "parties" means each or all, as appropriate,
----- -------
of the entities who have executed and delivered this Agreement, each permitted
successor or assign of a party, and when appropriate to effect the binding
nature of this Agreement for the benefit of another party, any other successor
or assign of a party; (g) "pending" means that written notice of the act or
-------
omission or fact or circumstance with respect to which such term is used has
been received by the person with respect to which such term is used; (h)
"permit" means any license, permit, authorization or certificate issued by a
------
governmental authority; (i) "permitted lien" means any lien (i) for indebtedness
--------------
for money borrowed specifically listed in the footnotes to the 1998 Financial
Statements or in Schedule 4.6, (ii) for taxes not yet due and payable, (iii)
imposed by applicable law and incurred in the ordinary course of business for
obligations not yet due and payable to landlords, carriers, warehousemen,
laborers, materialmen and the like; (iv) arising from a purchase money security
interest or a vendor's lien, provided that no such security interest or lien
shall extend to or cover any other property of Storehouse other than that so
purchased; or (v) other liens, encumbrances or restrictions which do not,
individually or in the aggregate have a material adverse effect on Storehouse;
(j) "person" means any individual, sole proprietorship, partnership, joint
------
venture, corporation, estate, trust, unincorporated organization, association,
limited liability company, institution or other entity, including any that is a
governmental authority; (k) "plan" means any plan, program or policy and all
----
related amendments, modifications, supplements, waivers and consents; (l)
"restriction" means any option, right of refusal or similar right or other
-----------
restriction of any nature whatsoever; (m) "subsidiary", when used to determine
----------
the relationship of Storehouse to another entity, means an entity of which an
aggregate of 30% or more of the stock of any class or 30% or more of other
ownership interests is owned of record or beneficially by Storehouse, or by one
or more subsidiaries of Storehouse, or by any combination of Storehouse and one
or more subsidiaries of Storehouse; (n) "taxes" means all taxes, assessments,
-----
charges, duties, fees, levies or other governmental charges, including all
federal, state local, foreign or other income, profits, unitary, business,
franchise, capital stock, real property, personal property, intangible taxes,
withholding, FICA, unemployment compensation, disability, transfer, sales, use,
excise and other taxes, assessments, charges, duties, fees, or levies of any
kind whatsoever (whether or not requiring the filing of returns) and all
deficiency assessments, additions to tax, penalties and interest; (o) "this
----
Agreement" includes any amendments or other modifications and supplements, and
---------
all exhibits, schedules and other attachments, to it; and (p) "threatened" means
----------
44
any act that would cause one reasonably to believe that the act, omission, fact
or circumstance with respect to which such word is used is likely to occur.
10.6 CERTAIN RULES OF CONSTRUCTION. For purposes of this Agreement: (a)
-----------------------------
"including" and any other words or phrases of inclusion shall not be construed
as terms of limitation, so that references to "included" matters shall be
regarded as non-exclusive, non-characterizing illustrations; (b) "copy" or
"copies" means that the copy or copies of the material to which it relates are
true, correct and complete; (c) when "Article," "Section," "Subsection,"
"Exhibit," or "Schedule" is capitalized in this Agreement, such refers to such
item of or to this Agreement; (d) titles and captions of or in this Agreement
and the cover sheet and table of contents of this Agreement are inserted only as
a matter of convenience and in no way define, limit, extend or describe the
scope of this Agreement or the intent of any of its provisions; (e) whenever the
context so requires, the singular includes the plural and the plural includes
the singular, and the gender of any pronoun includes the other genders; and (f)
each exhibit and schedule referred to in this Agreement and each attachment to
any of them or this Agreement is hereby incorporated by reference into this
Agreement and is made a part of this Agreement as if set out in full in the
first place that reference is made to it.
10.7 DEFINITION OF KNOWLEDGE. For the purposes of this Agreement, the
-----------------------
phrases "to Shareholder knowledge" or "to its knowledge" and variations of them
when used with respect to Storehouse shall refer to all matters (a) actually
known to any of Xxxxxxxxx X. Xxxxxx, W. Xxxxx Xxxxxx, Xxxxxxx Xxxxxxxxx, Xxxxx
X. Xxxx or Xxxxxx X. Xxxx or (b) of which any of them had any reason to know (i)
after the meeting of them devoted to a review of this Agreement and the
disclosure schedules to this Agreement, and Shareholder business, properties and
affairs, which meeting has been held both prior to the execution of this
Agreement and again immediately prior to the Common Stock Closing and (ii) to
the extent that such a meeting indicates that some disclosure may be required
with respect to a matter, after reviews of all relevant files and discussions
with an individual who could reasonably be expected to have knowledge of or
familiarity with such matter.
10.8 REMEDIES. Except as set forth in Article 7, the rights and remedies
--------
specified in any provision of this Agreement are in addition to all other rights
and remedies a party may have, including any right to equitable relief and any
right to xxx for damages as a result of a breach of this Agreement (whether or
not it elects to terminate this Agreement), and all such rights and remedies are
cumulative. Without limiting the foregoing, no exercise of a remedy shall be
deemed an election excluding any other remedy (any such claim by any other party
being hereby waived). A party who prevails in enforcing rights or remedies
under this Agreement shall (in addition to any other relief hereunder) be paid
by the other party all costs, fees and expenses, including reasonable attorneys'
fees, incurred by the prevailing party in enforcing such rights and remedies.
10.9 CONTROLLING LAW; INTEGRATION; AMENDMENT; WAIVER. This Agreement is
-----------------------------------------------
governed by, and shall be construed and enforced in accordance with, the laws of
the State of Georgia except its laws that would render such choice of laws
ineffective. This Agreement and the other contracts, documents and instruments
to be delivered pursuant to this Agreement supersede all prior negotiations,
agreements and understandings between the parties with respect to their subject
matter, constitute the entire agreement of the parties with respect to their
subject matter, and may not be altered or amended except in writing signed by
Xxxx and the Storehouse
45
Shareholders. The failure of any party at any time or times to require
performance of any provision of this Agreement shall in no manner affect the
right to enforce the same; and no waiver by any party of any provision (or of a
breach of any provision) of this Agreement, whether by conduct or otherwise, in
any one or more instances shall be deemed or construed either as a further or
continuing waiver of any such provision or breach or as a waiver of any other
provision (or of a breach of any other provision) of this Agreement.
10.10 COUNTERPARTS. This Agreement may be executed in one or more
------------
counterparts (one counterpart reflecting the signatures of all parties), each of
which shall be deemed to be an original, and it shall not be necessary in making
proof of this Agreement or its terms to account for more than one of such
counterparts. This Agreement may be executed by each party upon a separate
copy, and one or more execution pages may be detached from one copy of this
Agreement and attached to another copy in order to form one or more
counterparts.
DULY EXECUTED and delivered by the parties, under seal, on August ___,
1998.
Xxxx: Xxxx Furniture Corporation
----
(Corporate Seal)
Attest: By:______________________________________
Xxxxxx X. Xxxxxxxx, Chairman of the
Board and President
___________________________
Xxxxxx X. Xxxxxx,
Secretary-Treasurer
The Storehouse Shareholders:
---------------------------
_________________________________________
Xxxxxxxxx X. Xxxxxx
_________________________________________
Xxxxxxx X. Xxxxxx, Xx.
_________________________________________
W. Xxxxx Xxxxxx
The Storehouse Inc. Employee Stock
Ownership Plan, by The Trust Company of
Knoxville, Trustee
By:______________________________________
Xxxxxxx X. Xxxxxx, Senior Vice President
_________________________________________
Xxxxxxx Xxxxxxxxx
_________________________________________
00
Xxxxxx Xxxxxx
_________________________________________
Xxxxx X. Xxxx
_________________________________________
Xxxxxx X. Xxxx
* * * * *
Shareholders' Agent Committee:
_________________________________________
Xxxxxxxxx X. Xxxxxx
_________________________________________
Xxxxxxx X. Xxxxxx
_________________________________________
Xxxxx X. Xxxxx
* * * * *
DULY EXECUTED by Storehouse solely for purposes of indicating its
consent and agreement to the cancellation of the restrictive contracts and plans
as set forth in Article 1, Sections 3.9 through 3.13 and Section 6.7 and 6.8.
Storehouse, Inc.
By:______________________________________
W. Xxxxx Xxxxxx,
President
Date: August 21, 1998
* * * * *
47
EXHIBITS
--------
Exhibit A -- Storehouse Shareholders & Their Shares
Exhibit B -- Option Holders; Conversion Shares; and
Conversion Price
Exhibit C(a)-(c)-- Form of Noncompetition and Nondisclosure (S)1.2(c)(ii)
Agreement
Exhibit D -- Form of Employment Agreement (S)1.2(c)(iii)
Exhibit E -- Form of Severance Agreements (S)1.2(c)(iv)
Exhibit F(a)-(b)-- Form of Stock Rights Letter (S)1.2(c)(v)
Exhibit G(a)-(c)-- Form of Stock Bonus Letters (S)1.2(b)(vi)
Exhibit H -- Form of Certificate of Each Storehouse (S)3.4(a)
Shareholder
Exhibit I -- Form of Stock Option Agreement and (S)3.5(b)
Schedule of Options
Exhibit J -- EBITDA Calculation (S)3.6(b)
Exhibit K -- Business Plan (S)6.1(b)
SCHEDULES
---------
Schedule 4.1 -- Status of Storehouse
Schedule 4.2 -- Financial Statements and Certain Other Matters
Schedule 4.3 -- Taxes
Schedule 4.4 -- Real and Personal Property--Owned or Leased
Schedule 4.5 -- Trademarks; Trade Names and Other Intellectual Property
Schedule 4.6 -- Indebtedness; Guaranties
Schedule 4.7 -- Contracts
Schedule 4.8 -- Insurance
Schedule 4.10 -- Officers and Directors; Employment Relationships
Schedule 4.11 -- Employee Benefits
Schedule 4.12 -- Labor Relations
Schedule 4.13 -- Litigation
Schedule 4.14 -- Compliance with Laws
Schedule 4.15 -- Bank Accounts
Schedule 4.16 -- Transactions with Affiliates
Schedule 4.17 -- Absence of Violations or Conflicts
Schedule 4.18 -- Vendor and Factor Relationship
* * * * *
xii
EXHIBIT A TO
STOREHOUSE STOCK
PURCHASE AGREEMENT
(Sections 2.3, 3.7)
====================
PERCENTAGE OWNERSHIP TABLE
--------------------------
Interests
At Common Interests Interests Interests
Name Current/1/ Stock Closing At Tranche One At Tranche Two/2/ At Tranche Three/3/
---- --------------------- -------------------- ----------------- ------------------ --------------------
# of Shares % # of Shares % # of Shares % # of Shares % # of Shares %
----------- ---- ----------- ---- ----------- ---- ----------- ---- ----------- ----
X. X. Xxxxxx 46,420 30.63 46,420 30.63 46,420 30.63 46,420 42.88 46,420 28.39
X. X. Xxxxxx 21,589 14.25 21,589 14.25 21,589 14.25 21,589 19.96 21,589 13.20
X. X. Xxxxxx 24,530 16.19 24,530 16.19 24,530 16.19 24,530 22.66 36,530 22.34
ESOP 43,294 28.57 43,294 28.57 43,294 28.57 --- --- 43,294 26.47
X. Xxxxxxxxx 5,100 3.37 5,100 3.37 5,100 3.37 5,100 4.71 5,100 3.12
X. Xxxxxx 2,000 1.32 2,000 1.32 2,000 1.32 2,000 1.84 2,000 1.22
J. R. Wood 4,100 2.71 4,100 2.71 4,100 2.71 4,100 3.79 4,100 2.51
L. O. Xxxx 4,500 2.97 4,500 2.97 4,500 2.97 4,500 4.16 4,500 2.75
------- ----- ------- ------ ------- ------ ------- ------ ------- ------
TOTAL 151,533 100.0 151,533 100.00 151,533 100.00 108,239 100.00 163,533 100.00
======= ===== ======= ====== ======= ====== ======= ====== ======= ======
__________________________
/1/ Assumes existing vested options exercised at Closing, including Xxxx
option for 2,000 shares at $52.79 per share. Reflects issuance of share bonuses
as follows: Xxxx--2,000; Xxxxxxxxx--2,100; Wood--1,600.
/2/ ESOP does not participate in Tranche Two.
/3/ Xxxxxx will be deemed to have received 12,000 shares beginning at
Tranche 3. This is in consideration for cancellation of his rights under a
phantom stock agreement covering 12,000 shares.
EXHIBIT B TO
STOREHOUSE STOCK
PURCHASE AGMT
(Section 2.4)
----------------
CERTAIN EMPLOYEE OPTIONS & RIGHTS
---------------------------------
Part I - Options
----------------------
Name of Number Aggregate
Option Holder of Shares Option Price
------------- --------- ------------
Xxxxxx X. Xxxx 500 @ $57.87 $ 28,935.00
Xxxxxx X. Xxxx 2,000 @ $47.10* $ 94,200.00
Xxxxx X. Xxxx 1,800 @ $47.10* $ 84,780.00
Xxxxx X. Xxxx 205 @ $57.87 $ 11,863.35
W. Xxxxx Xxxxxx 9,833 @ $16.82 $165,391.06
*Note: The actual exercise price for L.O. Xxxx'x shares is the lesser
----
of (a) $47.10 or (b) the Base Purchase Price, less the aggregate
option exercise price set forth in this Part I, divided by 137,195.
The actual exercise price for J. R. Wood's shares is the lesser of (a)
$47.10 or (b) the Base Purchase Price, less the aggregate option
exercise price set forth in this Part I, divided by 137,195.
Part II - Stock Bonus Arrangements
----------------------------------
Xxxxxxx Xxxxxxxxx 2,100 shares
Xxxxx X. Xxxx 1,600 shares
Xxxxxx X. Xxxx 2,000 shares
Part III -- Phantom Stock Arrangements
--------------------------------------
W. Xxxxx Xxxxxx Based on increase in value over $139.05
@ 151,533 shares outstanding
Part IV -- Employment Agreements
--------------------------------
W. Xxxxx Xxxxxx -- dated 2/28/97
Xxxxxxx Xxxxxxxxx -- dated 8/25/98
Xxxxxx X. Xxxx -- dated 8/25/98
Xxxxx X. Xxxx -- dated 8/25/98
* * * * *
* * * * *
EXHIBIT J TO
STOREHOUSE STOCK
PURCHASE AGREEMENT
(Section 3.6(b))
------------------
This Exhibit J sets forth the definition of EBITDA Earn-Out as set forth in
(S)3.6(b) of the Storehouse Stock Purchase Agreement (the "Agreement").
1. Definition of EBITDA. "EBITDA" means Storehouse's net income (after
--------------------
reduction for any increases in rentals or other periodic payments
(annualized so as to include its full impact as if it were in effect for
the full 12 month period) pursuant to (S)3.3(g) of the Agreement) before
(a) interest expense, (b) interest income, (c) income taxes or payments in
lieu of income taxes, (d) depreciation and (e) amortization (including push
down accounting arising from the acquisition of Storehouse by Xxxx) or
other non-cash charges, all as determined in accordance with GAAP
consistently applied with Storehouse's practices (including classifications
of items of income and expense and policies for capitalization and revenue
recognition) at January 31, 1998 as reflected in Storehouse's financial
statements as of such date as audited by Xxxxxx Xxxxxxxx LLP (specifically
disregarding any changes in Storehouse's accounting practices or policies
or other methodology after the Common Stock Closing Date); provided,
--------
however, that in any event the following shall not be taken into account in
-------
calculating EBITDA:
i. any income or revenues from activities other than the sale of
goods to retail consumers in the regular and ordinary course of
business;
ii. "Deal Expenses" (as defined in the Agreement); the amount of any
prepayment penalty relating to the indebtedness of Storehouse to
Sanwa Business Credit Corporation; the fee or other costs (but
excluding any increases in rental or other regular periodic
payments) paid to third parties in order to obtain the consents
necessary to satisfy the closing condition of Section 3.3(g) of
the Agreement; any tax penalty arising under Section 4978 of the
Internal Revenue Code of 1986, as amended; any severance
payments made pursuant to the Employment Agreement and Severance
Agreements referred to in (S)1.2(c)(iii) and (iv) of the
Agreement; and any amounts paid to employees that are taken into
account as reductions under (S)2.2(f) and (g) of the Agreement
in arriving at the Base Purchase Price;
iii. any non-cash expenses arising from the exercise of stock options
and the satisfaction of stock rights to stock pursuant to (S)2.4
of the Agreement;
iv. any compensation expense relating to contributions to the ESOP,
third party routine administrative expenses relating to the
maintenance of the
-1-
Exhibit J to Storehouse Stock
Purchase Agreement -- p. 2 of 3
-------------------------------
ESOP in the ordinary course and third party costs relating to
the amendment and termination of the ESOP pursuant to (S)6.5
(iii) of the Agreement;
v. extraordinary items (including the cost of litigation) as
defined by GAAP to the extent indemnified and actually paid by
the Indemnifying Shareholders pursuant to (S)7.4(e) of the
Agreement or not paid by reason of (S)7.3(b) or (S)7.3(d) of the
Agreement;
vi. any adjustments as to the EBITDA Earn-Out Period arising with
respect to periods prior to or after the EBITDA Earn-Out Period,
other than adjustments to estimates in the normal course of
business;
vii. any compensation expense resulting from the issuance after the
Common Stock Closing of stock or options by Xxxx to employees of
Storehouse; and
viii. any charge for services provided by Xxxx or any affiliate
(including those characterized or charged as overhead or similar
corporate support charges); provided, however, that the
-------- -------
foregoing shall not restrict Xxxx from charging Storehouse for
costs directly related to Storehouse's business that are
actually borne by Xxxx.
2. Effect of Certain Events
------------------------
a. Sale of Storehouse. If Xxxx or its affiliates cease to own at least
------------------
50% of Storehouse's outstanding stock after the Common Stock Closing
Date through the EBITDA Earn-Out Period (whether in a single
transaction or in multiple transactions and whether by stock sale,
merger, share exchange or other transaction); if Storehouse sells all
or substantially all of its assets (whether in a single transaction or
multiple transactions after the Common Stock Closing Date through the
EBITDA Earn-Out Period); or if Storehouse has issued stock in a public
offering after the Common Stock Closing Date through the EBITDA Earn-
Out Period, then the EBITDA Earn-Out shall be deemed to be earned in
full.
b. Acquisition of Another Business. If Storehouse acquires another
-------------------------------
business after the Common Stock Closing Date through the EBITDA Earn-
Out Period, then Storehouse's EBITDA will be computed for the
remainder of the EBITDA Earn-Out Period as though no such acquisition
had occurred.
c. Fundamental Business Change. If Storehouse's business fundamentally
---------------------------
changes solely as a result of action taken by the Board of Directors
of Storehouse after the
-2-
Exhibit J to Storehouse Stock
Purchase Agreement -- p. 3 of 3
-------------------------------
Common Stock Closing Date through the EBITDA Earn-Out Period in a
manner not covered by any of the foregoing, then Storehouse's EBITDA
will be computed for the remainder of the EBITDA Earn-Out Period as
though no such change in Storehouse's business had occurred.
3. Obligations of Xxxx. After the Common Stock Closing Date through EBITDA
-------------------
Earn-Out Period, Xxxx shall:
a. maintain and operate Storehouse as a separate legal entity with its
own management, financial statements, and board of directors, subject
to customary parent oversight; and
b. provide the Shareholders' Agent Committee with information (including
detailed support) as to overhead or other charges made by Xxxx or any
affiliates to Storehouse.
* * * * *
-3-
