<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): November 15, 1996
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WEST COAST ENTERTAINMENT CORPORATION
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(Exact Name of Registrant as Specified in its Charter)
Delaware
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(State or Other Jurisdiction of Incorporation)
0-28072 04-3278751
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(Commission File Number) (IRS Employer Identification No.)
9990 Global Road, Philadelphia, Pennsylvania 19115
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(Address of principal executive offices) (Zip Code)
(215) 677-1000
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Registrant's Telephone Number, Including Area Code
Not Applicable
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(Former Name or Former Address, if Changed Since Last Report)
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ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS
RECENT ACQUISITIONS
On November 15, 1996, West Coast Entertainment Corporation
(the "Company") acquired from 10 unrelated selling groups a total of 45 video
specialty stores. Such acquisitions, together with the previous acquisition
by the Company of one video specialty store on October 18, 1996 (collectively,
the "Recent Acquisitions") from an unrelated selling group (the "Recent
Sellers") were of an aggregate size sufficient to require the filing of this
Current Report on Form 8-K. The terms of the Recent Acquisitions were
negotiated with the Recent Sellers at arm's length.
The Company intends to extend the West Coast Video(R) name and
logo and its registered trademark The Movie Buff's Movie Store(R) to the
acquired stores as soon as practicable. The Company has integrated the acquired
stores into the Company's management information, telecommunications,
management, marketing, finance and accounting, entertainment purchasing,
distribution, retail operations and merchandising systems. The Company expects
the aggregate costs of converting the acquired stores to West Coast signage and
format to be approximately $0.6 million over an 18-month period following
consummation of the Recent Acquisitions.
Set forth below is a brief description of each of the Recent Acquisitions:
<TABLE>
<CAPTION>
Number of
Owned and
Names of Seller Operated Stores Locations
--------------- --------------- ---------
<S> <C> <C>
One West Coast Video(R)
Franchisee (the "Columbus
Franchisee")*............................... 1 Columbus, Ohio
First Choice Video, Inc. ("First Springfield and Urbana, Ohio
Choice Video").............................. 4
Ohio Entertainment Corp. ("Ohio Dayton, Miamisburg, and Huber
Entertainment") ............................ 5 Heights, Ohio
Wellesley Entertainment, Inc. Wellesley, Medford, Peabody,
("Wellesley Entertainment")................. 6 Billerica, and Everett,
Massachusetts
Franexco, Inc. and Great American Tappan, New York and Teaneck,
Video Realty, Inc. ("Great Tenafly, Washington Township,
American") ................................. 10 Closter, Hackensack, Midland
Park, Landing, Morris Plains, and
Fairlawn, New Jersey
</TABLE>
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<TABLE>
<S> <C> <C>
L.A. Video, Inc. West Carrollton and Sidney, Ohio
("LA Video")........................... 2
Pottstown Video, Inc., Coventry Pottstown, Coventry, Pennsberg,
Video, Inc., Pennsburg W.C. Shamokin, Berwick, Danville,
Video, Inc., Shamokin W.C. Video, Bloomsburg, Boyerstown, Audubon
Inc., Berwick W.C. Video, Inc., and Spring Ford, Pennsylvania
Danville W.C. Video, Inc.,
Bloomsburg W.C. Video, Inc.,
Family Country Video, Inc.,
Audubon West Coast Video, Inc.,
and Spring Ford W.C. Video, Inc.
("Curran")*............................ 10
Broad & Park Video, Inc. Trenton, New Jersey
("DeCaro")*............................ 1
Wright Turn Entertainment, Inc., Miami Beach and Hollywood,
Wright Turn Entertainment II, Florida
Inc., and Wright Turn Video, Inc.
("Weiss")*............................. 3
Dogwood Hill Enterprises, Inc. Richboro, Pennsylvania
("Knight")*............................ 1
Alex Jordan Corporation, Cochise Philadelphia and Sharon Hill,
Corporation and Kyle David Corp. Pennsylvania
("Weisberg")* ......................... 3
-
Total.................................. 46
==
</TABLE>
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* West Coast Video franchisee
The 46 stores typically range in size from 1,800 to 7,800 square
feet and employ approximately 89 persons full-time and approximately 289
persons part-time. The leases for the stores generally do not vary in
important respects from the typical lease for the Company's existing stores.
After making the Recent Acquisitions, the Company has approximately
262 owned and operated stores and approximately 263 franchised stores located
in 24 states and three foreign countries.
Consideration Paid. In connection with the Recent Acquisitions,
the Company paid aggregate consideration (excluding costs related to the Recent
Acquisitions) of $24,784,532, consisting of $14,023,405 paid in cash and
$10,761,127 paid in shares of Common Stock valued in accordance with the
average closing or bid and asked prices of Common Stock on Nasdaq over a 15
trading-day period ending one to three trading days before the closing date.
The cash portion of the purchase price was financed with borrowings under the
Company's Credit Facility.
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The following table sets forth the consideration paid for the stores acquired
in connection with the Recent Acquisitions, after giving effect to adjustments
at closing for certain prepaid expenses and assumed liabilities:
<TABLE>
<CAPTION>
Cash Common Stock
----------------- -----------------------
Seller Amount %(1) Amount %(1) Total
------ ------ ---- ------ ---- -----
<S> <C> <C> <C> <C> <C>
Columbus Franchisee $ 40,200 100.0% $ 40,200
First Choice Video 1,007,667 46.2% $ 1,170,906(2)(3) 53.8% 2,178,573
Ohio Entertainment 2,617,985 53.8% 2,245,000(2)(4) 46.2% $ 4,862,985
Wellesley Enter-
tainment 1,102,500 50.0 1,102,500(5) 50.0 2,205,000
Great American(8) 3,373,609 60.5 2,200,000(6) 39.5 5,573,609
LA Video 133,257 23.2 440,000(2)(3) 76.8 573,257
Curran 2,701,977 62.4 1,628,293(5) 37.6 4,330,270(7)
De Caro 259,355 60.4 170,000(5) 39.6 429,355(7)
Weiss(9)(10) 1,693,372 61.1 1,080,000(5) 38.9 2,773,372(7)
Knight(11) 432,272 59.9 288,928(5) 40.1 721,200(7)
Weisberg 661,211 60.3 435,500(5) 39.7 1,096,711(7)
------- ------- ---------
$ 14,023,405 $ 10,761,127 $ 24,784,532
========== ========== ==========
</TABLE>
(1) Percentage of total consideration for each Recent Acquisition
represented by the cash component and by the stock component,
respectively.
(2) The value of each share of stock for this purpose is $11.10,
the average of the bid and asked prices of a share of the
Company's Common Stock on Nasdaq over a 15-day trading period
ending one trading day before the closing date.
(3) 40% of these shares will be delivered on the first anniversary
of the closing date and the remaining 60% will be delivered 18
months after the closing date.
(4) The shares to be issued to this seller can be resold only in
accordance with the following schedule: one-third commencing
six months after the closing date, an additional one-third
commencing 12 months after the closing date, and an additional
one-third commencing 18 months after the closing date.
(5) The value of each share of stock for this purpose is $11.07,
the average of the closing prices of a share of the Company's
Common Stock on Nasdaq over a 15-day trading period ending
three trading days before the closing date. The shares to be
issued to these sellers can be resold only in accordance with
the following schedule: 40% commencing 12 months after the
closing date, and the balance commencing 18 months after the
closing date.
(6) The value of each share of stock for this purpose, is $11.07,
the average of the closing prices of a share of the Company's
Common Stock on Nasdaq over a 15-day trading period ending
three trading days before the closing date. The shares to be
issued to this seller may only be resold commencing 12 months
after the closing date.
(7) Excludes a total of approximately $997,411 (11.1% of the
base purchase price payable to the sellers in these
acquisitions), of which amount $797,929 is payable to the
former owner of the WCEI Companies and $99,741 is payable to
each of Jules E. Gardner and Kenneth R. Graffeo, two former
executive officers of the WCEI Companies (who are now
executive officers of the Company), pursuant to the terms of
the acquisition by West Coast Franchising of the
franchise-related operating assets of those companies in July
1995.
(8) $367,655 of cash will be paid on December 2, 1996. The balance
of the cash and the shares will be delivered on January 3,
1997.
(9) $1,013,372 of cash was paid on the closing date. The balance
of the cash will be delivered on or before January 3, 1997.
The shares will be delivered on January 5, 1998.
(10) An executive officer of the Company, Donald Weiss, is a
director of, and an investor in, this seller.
(11) The shares will be delivered on January 6, 1997.
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Financial statements for the First Choice Video, Ohio
Entertainment, Great American, LA Video and Curran chains are described in Item
7 below.
FUTURE CLOSINGS. On October 1, the Company acquired one video
specialty store from Reel Entertainment, Inc. pursuant to an Asset Purchase
Agreement dated October 1, 1996. Under the terms of this Asset Purchase
Agreement, the Company will acquire three additional existing Reel
Entertainment stores, subject to the satisfaction of various closing
conditions. These stores are located in Lafayette, Lake Charles and Hammond,
Louisiana. An additional $300,000 of cash and $125,000 of stock will be
delivered at each closing of each of the three stores. These closings are
currently expected to occur on or about December 2, 1996 and March 3 and May 1,
1997. At its election, the Company may substitute cash for stock at any or all
of the closings for the three stores.
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION
AND EXHIBITS
(a) Financial Statements of Business Acquired.
It is impracticable to provide the required financial
statements of the First Choice Video, Ohio Entertainment, Great American, LA
Video and Curran chains acquired in the Recent Acquisitions at the time of the
filing of this Report. Accordingly, such financial statements will be filed as
soon as practicable, but not later than January 28, 1997.
(b) Pro Forma Financial Information.
It is impracticable to provide the required pro forma
financial information at the time of the filing of this Report. Accordingly,
such pro forma financial information will be filed as soon as practicable, but
not later than January 28, 1996.
(c) Exhibits
Exh. No. Description
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10.78 Form of Asset Purchase Agreement by and among West Coast
Entertainment Corporation, a Delaware corporation, and the
Sellers identified on each Schedule I filed herewith (each
such Schedule I sets forth the pertinent information with
respect to each Seller and the terms of each transaction).
10.79 Asset Purchase Agreement, dated November 15, 1996, by and
among West Coast Entertainment Corporation, a Delaware
corporation, Ohio Entertainment Corporation, an Ohio
corporation, and Ronald L. Davis.
10.80 Asset Purchase Agreement, dated November 1, 1996, by and
among West Coast Entertainment Corporation, a Delaware
corporation, L.A. Video, Inc., an Ohio corporation, and
Andrew
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Mitchell and Larry Williams (the "L.A.Video Agreement").
10.81 Instrument of Evidence of Indebtedness, dated November 15,
1996, relating to the L.A. Video Agreement.
10.82 Schedule I to Asset Purchase Agreement, dated November 15,
1996, by and among West Coast Entertainment Corporation, a
Delaware corporation, Kyle David Corp., Alexander Jordan
Corp., and Cochise Corp., and Michael Weisberg.
10.83 Asset Purchase Agreement, dated November 1, 1996, by and
among West Coast Entertainment Corporation, a Delaware
corporation, First Choice Video, Inc., an Ohio corporation,
Andrew Mitchell (the "First Choice Agreement").
10.84 Instrument of Evidence of Indebtedness, dated November 15,
1996, relating to the First Choice Agreement.
10.85 Asset Purchase Agreement, dated October 18, 1996, by and
among West Coast Entertainment Corporation, a Delaware
corporation, Wellesley Entertainment, Inc., a Massachusetts
corporation, and Adrian Wilkins and William Roberts.
10.86 Asset Purchase Agreement, dated November 15, 1996, by and
among West Coast Entertainment Corporation, a Delaware
corporation and Great American Video Realty, Inc. and
Franexco, Inc., New Jersey corporations, and Howard Frank and
James E. Frank.
10.87 Schedule I to Asset Purchase Agreement, dated November 15,
1996, by and among West Coast Entertainment Corporation, a
Delaware corporation, Broad & Park Video, Inc., a New Jersey
corporation, and Ernest M. DeCaro III.
10.88 Schedule I to Asset Purchase Agreement, dated November 15,
1996, by and among West Coast Entertainment Corporation, a
Delaware corporation, Wright Turn Video, Inc., a Florida
corporation, and Benjamin Flamm and Donald Weiss (the "Flamm
Weiss Agreement").
10.89 Instrument of Evidence of Indebtedness, dated November 15,
1996, relating to the Flamm Weiss Agreement.
10.90 Schedule I to Asset Purchase Agreement, dated November 15,
1996, by and among West Coast Entertainment Corporation, a
Delaware corporation, Wright Turn Entertainment, Inc. and
Wright Turn Entertainment II, Inc., Florida corporations, and
Benjamin Flamm, Angelo Ibanez and Donald Weiss (the "Flamm
Weiss Ibanez Agreement").
10.91 Instrument of Evidence of Indebtedness, dated November 15,
1996, relating to the Flamm Weiss Ibanez Agreement.
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10.92 Schedule I to Asset Purchase Agreement, dated November 15,
1996 by and among West Coast Entertainment Corporation, a
Delaware corporation, Pottstown Video, Inc., Coventry Video,
Inc., C&V Group, Inc., Shamokin W.C. Video, Inc., Berwick
W.C. Video, Inc., Danville W.C. Video, Inc., Bloomsburg W.C.
Video, Inc., Family Country Video, Inc. and Spring Ford W.C.
Video, Inc., Pennsylvania corporations, and Laurie Curran,
Edward Skypala and Vaughn Zimmerman.
10.93 Schedule I to Asset Purchase Agreement, dated November 15,
1996, by and among West Coast Entertainment Corporation, a
Delaware corporation, Dogwood Hill Enterprises, Inc., a
Pennsylvania corporation, and Edwin Knight.
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of
1934, the Registrant has duly caused this report to be signed on its behalf by
the undersigned hereunto duly authorized.
Date: November 27, 1996 WEST COAST ENTERTAINMENT
CORPORATION
(Registrant)
/s/Donald R. Thomas
-----------------------------
By: Donald R. Thomas
Chief Operating Officer
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<PAGE> 1
ASSET PURCHASE AGREEMENT
By and Among
West Coast Entertainment Corporation
and the Sellers and Principals Identified
on Schedule I hereto
<PAGE> 2
TABLE OF CONTENTS
Section Page
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1. Sale and Delivery of the Assets 1
1.1 Delivery of the Assets 1
1.2 Further Assurances 3
1.3 Purchase Price 3
1.4 Assumption of Liabilities, Etc. 5
1.5 Allocation of Purchase Price and Assumed
Liabilities 5
1.6 The Closing 5
1.7 Restrictions on Transfer 5
2. Representations of the Sellers and the Principals 5
2.1 Organization 6
2.2 Capitalization of the Sellers 6
2.3 Authorization 6
2.4 Ownership of the Assets 7
2.5 Financial Statements 7
2.6 Absence of Undisclosed Liabilities 9
2.7 Litigation 9
2.8 Insurance 9
2.9 Inventory 10
2.10 Fixed Assets 10
2.11 Leases 10
2.12 Change in Financial Condition and Assets 11
2.13 Tax Matters 11
2.14 Accounts Receivable 12
2.15 Books and Records 12
2.16 Contracts and Commitments 13
2.17 Compliance with Agreements and Laws 15
2.18 Employee Relations 15
2.19 Absence of Certain Changes or Events 16
2.20 Suppliers 17
2.21 Prepayments and Deposits 17
2.22 Trade Names and Other Intangible Property 18
<PAGE> 3
2.23 Employee Benefit Plans 18
2.24 Regulatory Approvals 19
2.25 Indebtedness to and from Officers, Directors and
Shareholders 19
2.26 Powers of Attorney and Suretyships 19
2.27 Disclosure 20
3. Representations of the Buyer 20
3.1 Organization and Authority 20
3.2 Capitalization of the Buyer 20
3.3 Authorization 20
3.4 Regulatory Approvals 21
3.5 Disclosure 21
4. Access to Information; Public Announcements 21
4.1 Access to Management, Properties and Records 21
4.2 Confidentiality 22
4.3 Public Announcements 23
5. Pre-Closing Covenants of the Sellers 23
5.1 Conduct of Business 23
5.2 Absence of Material Changes 23
5.3 Taxes 25
5.4 Delivery of Subsequent Financial Statements 25
5.5 Compliance with Laws 26
5.6 Continued Truth of Representations
and Warranties of the Sellers 26
5.7 Continuing Obligation to Inform 26
5.8 Exclusive Dealing 26
5.9 No Publicity 26
6. Satisfaction of Conditions 27
7. Conditions to Obligations of the Buyer 27
7.1 Continued Truth of Representations
and Warranties of the Sellers; Compliance with
Covenants and Obligations 27
7.2 Corporate Proceedings 27
7.3 Governmental Approvals 27
7.4 Consents of Lenders, Lessors and Other
Third Parties 28
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7.5 Adverse Proceedings 28
7.6 Opinion of Counsel 28
7.7 Board of Directors and Shareholder and
Member and Manager Approval 28
7.8 The Assets 28
7.9 Update 28
7.10 Cash Available for Working Capital Purposes 28
7.11 Payables 29
7.12 Engineer's Report 29
7.13 Tax Lien Waivers 29
7.14 Closing Deliveries 29
7.15 Noncompete Agreement 30
8. Conditions to Obligations of the Sellers 30
8.1 Continued Truth of Representations and
Warranties of the Buyer; Compliance
with Covenants and Obligations 30
8.2 Corporate Proceedings 31
8.3 Governmental Approvals 31
8.4 Consents of Lenders, Lessors and Other
Third Parties 31
8.5 Adverse Proceedings 31
8.6 Opinion of Counsel 31
8.7 Closing Deliveries 31
8.8 Seller Approval 32
9. Indemnification 32
9.1 By the Buyer and the Sellers and the Principals. 32
9.2 By the Sellers and the Principals 33
9.3 Claims for Indemnification 34
9.4 Defense by Indemnifying Party 34
9.5 Payment of Indemnification Obligation 35
9.6 Survival of Representations; Claims for
Indemnification 35
10. Post-Closing Agreements 35
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10.1 Proprietary Information 35
10.2 No Solicitation or Hiring of Former Employees 36
10.3 Non-Competition Agreement 36
10.4 Sharing of Data 37
10.5 Use of Name 37
10.6 Cooperation in Litigation 37
11. Termination of Agreement 38
11.1 Termination by Lapse of Time 38
11.2 Termination by Agreement of the Parties 38
11.3 Termination by Reason of Breach 38
12. Transfer and Sales Tax 38
13. Brokers 39
13.1 For the Sellers 39
13.2 For the Buyer 39
14. Notices 39
15. Arbitration 40
16. Successors and Assigns 40
17. Entire Agreement; Amendments; Attachments 40
18. Expenses 41
19. Legal Fees 41
20. Governing Law 41
21. Section Headings 41
22. Severability 41
23. Counterparts 42
Exhibits
A - Escrow Agreement
B - Instrument of Assumption of Liabilities
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C - Opinion of Counsel to Sellers
D - Bill of Sale
E - Opinion of Hale and Dorr
<PAGE> 7
ASSET PURCHASE AGREEMENT
Agreement made as of November __, 1996 between West Coast Entertainment
Corporation, a Delaware corporation with its principal office at 9990 Global
Road, Philadelphia, Pennsylvania 19115 (the "Buyer"), each of the Sellers
identified on Schedule I attached hereto, each of whom has a principal office
as indicated on Schedule I attached hereto (individually, a "Seller" and
collectively, the "Sellers"), and those persons identified as "Principals" on
Schedule I attached hereto (individually, a "Principal" and collectively, the
"Principals").
Preliminary Statement
The Buyer desires to purchase, and the Sellers desire to sell,
substantially all of the assets and business of the Sellers, each of which is
engaged in the retail video rental and sales business (the "Business") for the
consideration set forth below and the assumption of certain of the Sellers'
liabilities set forth below, subject to the terms and conditions of this
Agreement.
NOW, THEREFORE, in consideration of the mutual promises hereinafter set
forth and other good and valuable consideration, the receipt of which is hereby
acknowledged, the parties hereby agree as follows:
1. Sale and Delivery of the Assets
1.1 Delivery of the Assets.
(a) Subject to and upon the terms and conditions of this Agreement, at the
closing of the transactions contemplated by this Agreement (the "Closing"), the
Sellers shall sell, transfer, convey, assign and deliver to the Buyer, and the
Buyer shall purchase from the Sellers, the following properties, assets and
other claims, rights and interests:
(i) all inventories, videotapes, finished goods, office supplies,
maintenance supplies, packaging materials and similar items of the Sellers
(collectively, the "Inventory") which exist on the Closing Date (as defined
below);
(ii) all accounts, accounts receivable, notes and notes receivable
existing on the Closing Date which are payable to the Sellers, including any
security held by the Sellers
<PAGE> 8
for the payment thereof (the "Accounts Receivable");
(iii) all prepaid expenses, deposits and other similar assets of the
Sellers existing on the Closing Date;
(iv) all rights of the Sellers under the contracts, agreements, leases,
licenses and other instruments set forth on Schedule 2.16 attached hereto, but
not including such rights under contracts, agreements, leases, licenses and
other instruments set forth on Schedule 1.1 (collectively, the "Contract
Rights");
(v) copies of all books, records and accounts, correspondence, manuals,
customer lists, employment records, studies, reports or summaries relating to
or arising out of the business of the Sellers;
(vi) all rights of the Sellers under express or implied warranties from
the suppliers of the Sellers;
(vii) the motor vehicles and other rolling stock owned by the Sellers on
the Closing Date;
(viii) all of the machinery, equipment, furniture, leasehold improvements
and construction in progress owned by the Sellers on the Closing Date whether
or not reflected as capital assets in the accounting records of the Sellers
(collectively, the "Fixed Assets");
(ix) all of the Sellers' right, title and interest in and to all
intangible property rights, including but not limited to inventions,
discoveries, trade secrets, processes, formulas, know-how, United States and
foreign patents, patent applications, trade names, including the trade names
(if any) identified on Schedule I attached hereto or any derivation thereof,
trademarks, trademark registrations, applications for trademark registrations,
copyrights, copyright registrations, owned or, where not owned, used by the
Sellers in their business and all licenses and other agreements to which the
Sellers are a party (as licensor or licensee) or by which the Sellers are bound
relating to any of the foregoing kinds of property or rights to any "know-how"
or disclosure or use of ideas (collectively, the "Intangible Property");
(x) all of the outstanding shares of capital stock of the subsidiaries of
the Sellers, if any, set forth on Schedule 2.2 attached hereto (collectively,
the "Subsidiaries"); and
(xi) except as specifically provided in Subsection 1.1(b) hereof, all
other assets, properties, claims, rights and interests of the Sellers which
exist on the Closing Date, of every kind and nature and description, whether
tangible or intangible, real, personal or mixed.
(b) Notwithstanding the provisions of paragraph (a) above, the assets to
be transferred to the Buyer under this Agreement shall not include those assets
<PAGE> 9
listed on Schedule 1.1 attached hereto (the "Excluded Assets"). In the event a
lessor of real property for a store of a Seller does not consent to the
transfer or assignment of the lease for such real property to the Buyer and the
Buyer elects not to assume the liabilities thereunder, the assets included in
and related to such store shall become Excluded Assets and included on Schedule
1.1 prior to the Closing and the Purchase Price (as defined below) will be
adjusted based on a recalculation of Net Operating Cash Flow (as defined
below). Any such store not being transferred to the Buyer shall be herein
referred to as an "Excluded Store".
(c) The Inventory, Accounts Receivable, Contract Rights, Fixed Assets,
Intangible Property and other properties, assets and business of the Sellers
described in paragraph (a) above, other than the Excluded Assets, shall be
referred to collectively as the "Assets." The Assets relate to one or more
retail video stores which are owned and operated by the Sellers, all of which
stores are identified by location on Schedule I attached hereto, each of which
is sometimes hereinafter referred to as a "Store" and all of which are
sometimes hereinafter referred to collectively as the "Stores." The owner of
each Store is also set forth on Schedule I.
1.2 Further Assurances. At any time and from time to time after the
Closing, at the Buyer's request and without further consideration, the Sellers
and the Principals promptly shall execute and deliver such instruments of sale,
transfer, conveyance, assignment and confirmation, and take such other action,
as the Buyer may reasonably request to more effectively transfer, convey and
assign to the Buyer, and to confirm the Buyer's title to, all of the Assets, to
put the Buyer in actual possession and operating control thereof, to assist the
Buyer in exercising all rights with respect thereto and to carry out the
purpose and intent of this Agreement.
1.3 Purchase Price.
(a) The "Purchase Price" for the assets shall be as set forth on Schedule
I attached hereto. The parties acknowledge and agree that the Purchase Price
was determined as a multiple of the minimum Net Operating Cash Flow (as defined
below). The Purchase Price shall be subject to adjustment in the event a store
becomes an Excluded Store and further adjustment as provided in Subsection 1.4
below. In the event a store becomes an Excluded Store the Purchase Price shall
be reduced based on a recalculation of Net Operating Cash Flow that does not
include the Excluded Store.
(b) At the Closing, the Buyer shall deliver to the Sellers (i) 60% of the
Purchase Price in cash, by cashiers or certified check or by wire transfer of
<PAGE> 10
immediately available funds to an account designated by the Sellers, and (ii)
that number of shares of Common Stock, $.01 par value per share, of the Buyer
("Common Stock") as determined by dividing that portion of the balance of the
Purchase Price by the Market Value of a share of Common Stock. The "Market
Value" of a share of Common Stock shall equal the average of the closing price
of a share of Common Stock on the Nasdaq National Market for the 15 trading
days ending on the third business day prior to the Closing. The shares of
Common Stock issuable hereunder shall be registered under the Securities Act of
1933, as amended, pursuant to a Registration Statement on Form S-1 filed with
the Securities and Exchange Commission. At the Closing, 90% of the shares
issuable hereunder shall be issued to the Sellers and the balance shall be
issued in the name of the Seller and held by the Buyer as escrow agent (the
"Escrow Agent") in an escrow account in accordance with the Escrow Agreement
attached hereto as Exhibit A. The Purchase Price shall be allocated among the
Sellers in accordance with Section 1.3 hereto.
(c) For purposes hereof "Net Operating Cash Flow" shall be equal to the
pre-tax income, before general and administrative expenses, from the Stores for
the 12-month period ending on June 30, 1996, plus all debt-related interest
expense related to the Stores and depreciation and amortization expenses for
the Stores for such 12-month period, plus all Pennsylvania capital stock tax
for the Stores for such 12-month period, to the extent previously deducted,
less all rental product purchases for the Stores during such 12-month period
(including revenue sharing expenses if not previously expensed), less all
earned income interest for such 12-month period, plus all royalty expenses
attributable to such stores during such 12-month period, plus all compensation
benefits, travel and entertainment expenses for all persons employed by Sellers
spending less than 75% of their employment time serving customers at the Stores
during such 12-month period; with such components of Net Operating Cash Flow
determined in accordance with generally accepted accounting principles applied
consistently with the Sellers' past practices. Notwithstanding the above, the
portion of the Net Operating Cash Flow deemed to be contributed by the Store
owned by Pennsburg W.C. Video Inc. shall be deemed to be equal to that portion
of the Net Operating Cash Flow attributable to the Store owned by Bloomsburg
W.C. Video Inc.
1.4 Assumption of Liabilities; Etc.
(a) At the Closing, the Buyer shall execute and deliver an Instrument of
Assumption of Liabilities (the "Instrument of Assumption") substantially in the
form attached hereto as Exhibit B, pursuant to which it shall assume and agree
to perform, pay and discharge the liabilities, obligations and commitments of
the Sellers (the "Assumed Liabilities") set forth on Schedule I.
(b) The Buyer shall not at the Closing assume or agree to perform, pay or
discharge, and the Sellers shall remain unconditionally liable for, all
obligations, liabilities and commitments, fixed or contingent, of the Sellers
other than the Assumed Liabilities.
1.5 Allocation of Purchase Price and Assumed Liabilities. The aggregate
<PAGE> 11
amount of the Purchase Price and the Assumed Liabilities shall be allocated
among the Assets as set forth on Schedule 1.5 attached hereto.
1.6 The Closing. The closing of the transactions contemplated by this
Agreement (the "Closing") shall take place at the offices of Hale and Dorr, 60
State Street, Boston, Massachusetts 02109, on the date set forth on Schedule I
or on such other date mutually agreeable to the Buyer and the Principals (the
"Closing Date"). The transfer of the Assets by the Sellers to the Buyer shall
be deemed to occur at 9:00 a.m., Boston time, on the date of the Closing (the
"Closing Date").
1.7 Restrictions on Transfer. Each of the Sellers and the Principals
hereby confirm, covenant and agree that, without the prior written consent of
the Buyer, it, she or he will not, directly or indirectly, sell, offer to sell,
contract to sell, pledge, grant any option for the sale of, or otherwise
dispose of, (i) any shares of Common Stock issued or issuable to Sellers or the
Principals hereunder prior to the date 12 months after the Closing Date and
(ii) at least 60% of such shares of Common Stock prior to the date 18 months
after the Closing Date.
2. Representations of the Sellers and the Principals
The Sellers and the Principals, jointly and severally, represent and
warrant to the Buyer as follows:
2.1 Organization. Each Seller is a corporation duly organized, validly
existing and in good standing under the laws of the state of its incorporation,
and has all requisite power and authority (corporate and other) to own its
properties, to carry on its business as now being conducted, to execute and
deliver this Agreement and the agreements contemplated herein, and to
consummate the transactions contemplated hereby. Schedule 2.1 attached hereto
constitute a true, correct and complete list of all corporate, partnership,
joint venture and other entities in which any Seller holds, directly or
indirectly, a 50% or greater interest. Each of the Subsidiaries is a
corporation or other entity duly organized, validly existing and in good
standing under the laws of the state of its incorporation or organization and
has all requisite power and authority to own its properties and to carry on its
business as now being conducted. Each Seller and each Subsidiary is duly
qualified to do business and in good standing in all jurisdictions in which
their ownership of property or the character of their business requires such
qualification. Certified copies of the charter, bylaws and other governing
instruments of each of the Sellers and the Subsidiaries, each as amended to
date, have been previously delivered to the Buyer, are complete and correct,
and no amendments have been made
<PAGE> 12
thereto or have been authorized since the date thereof. No Seller owns any
capital stock of or other equity interest in any corporation, partnership or
other entity, other than the Subsidiaries.
2.2 Capitalization of the Sellers. Each Seller's state of organization
and authorized and issued capital stock is as specified on Schedule I. The
Principals own (beneficially and of record) all issued and outstanding shares
of stock of each Seller, all as more fully specified on Schedule I. All of
such shares have been duly and validly issued and are fully paid and
nonassessable.
2.3 Authorization. The execution and delivery of this Agreement by each
Seller, and the agreements provided for herein, and the consummation by each
Seller of all transactions contemplated hereby, have been duly authorized by
all requisite corporate and shareholder action. This Agreement and all such
other agreements and obligations entered into and undertaken in connection with
the transactions contemplated hereby to which any Seller is a party constitute
the valid and legally binding obligations of such Seller, enforceable against
such Seller in accordance with their respective terms. The execution, delivery
and performance by each Seller of this Agreement and the agreements provided
for herein, and the consummation by each Seller of the transactions
contemplated hereby and thereby, will not, with or without the giving of notice
or the passage of time or both: (a) violate the provisions of any law, rule or
regulation applicable to such Seller; (b) violate the provisions of the charter
or Bylaws of such Seller; (c) violate any judgment, decree, order or award of
any court, governmental body or arbitrator; or (d) conflict with or result in
the breach or termination of any term or provision of, or constitute a default
under, or cause any acceleration under, or cause the creation of any lien,
charge or encumbrance upon the properties or assets of such Seller pursuant to,
any indenture, mortgage, deed of trust or other instrument or agreement to
which such Seller is a party or by which such Seller or any of its properties
is or may be bound. Schedule 2.3 attached hereto sets forth a true, correct
and complete list of all consents and approvals of third parties that are
required in connection with the consummation by each Seller of the transactions
contemplated by this Agreement.
2.4 Ownership of the Assets. Schedule 2.4(i) attached hereto sets forth a
true, correct and complete list of all claims, liabilities, liens, pledges,
charges, encumbrances and equities of any kind affecting the Assets
(collectively, the "Encumbrances"). The Sellers are, and at the Closing will
be, the true and lawful owners of the Assets, and will have the right to sell
and transfer to the Buyer good, clear, record and marketable title to the
Assets, free and clear of all Encumbrances of any kind, except as set forth on
Schedule 2.4(ii) attached hereto (the "Permitted Encumbrances"). The delivery
to the Buyer of the instruments of transfer of ownership contemplated by this
Agreement will vest good and marketable title to the Assets in the Buyer, free
and clear of all liens, mortgages, pledges, security interests, restrictions,
prior assignments, encumbrances and claims of any kind or nature whatsoever,
except for the Permitted Encumbrances.
2.5 Financial Statements.
<PAGE> 13
(a) The Sellers have previously delivered to the Buyer their combined
audited balance sheets as of December 31, 1993, 1994 and 1995 (the "Audited
Balance Sheets") and the related statements of income, shareholders' equity,
retained earnings and statements of cash flow of the Sellers for the fiscal
years ended December 31, 1993, 1994 and 1995 (collectively, including the
Audited Balance Sheet, the "Audited Financial Statements").
The Sellers have also delivered their combined unaudited balance sheets as
of December 31, 1991 and 1992 (the "Unaudited Balance Sheets") and the related
statements of income, shareholders' equity, retained earnings and statements of
cash flow of the Sellers for the fiscal years then ended (collectively,
including the Unaudited Balance Sheets, the "Unaudited Financial Statements").
The Sellers have delivered to the Buyer their internal statements for each
whole monthly period commencing after June 30, 1996 and ending prior to the
date hereof (the "Internal Statements"), which were prepared by Sellers in
accordance with their internal accounting policies, consistently applied.
The Sellers shall deliver to the Buyer, no later than November 24, 1996,
their combined unaudited balance sheets as of September 30, 1996 and September
30, 1995, and the combined comparative statements of operations and retained
earnings and statements of cash flows for the nine months ended September 30,
1996 and September 30, 1995, prepared in accordance with generally accepted
accounting principles ("GAAP") applied consistently with Sellers' past
practices (the "Interim Statements").
The Audited Financial Statements have been prepared in accordance with
generally accepted accounting principles applied consistently with past
practice and are certified without qualification by the Sellers' respective
independent public accountants. The Unaudited Financial Statements and the
Internal Statements (and the subsequent financial statements to be delivered by
Sellers pursuant to Section 5.4) have been or will be certified by each
Sellers' chief financial officer to have been prepared in accordance with
Seller's internal accounting policies, consistent with past practice. The
Audited Financial Statements and the Unaudited Financial Statements are
hereinafter referred to collectively as the "Financial Statements."
(b) Each Seller's Financial Statements and the Internal Statements fairly
present, and the Interim Statements will fairly present, as of their respective
dates, the financial condition, retained earnings, assets and liabilities of
each Seller and the results of operations of such Seller's business for the
periods indicated; with respect to the
<PAGE> 14
contracts and commitments for the sale of goods or the provision of services by
such Seller, the Financial Statements and the Internal Statements contain and
reflect and the Interim Statements will contain and reflect adequate reserves,
which are consistent with previous reserves taken, for all reasonably
anticipated material losses and costs and expenses (except that the Internal
Statements do not contain accruals for current and deferred income taxes, tape
amortization or depreciation); and the amounts shown as accrued for current and
deferred income and other taxes in the Financial Statements, the Internal
Statements and the Interim Statements are (or will be) sufficient for the
payment of all unpaid federal, state and local income taxes, interest,
penalties, assessments or deficiencies applicable to such Seller, whether
disputed or not, for the applicable period then ended and periods prior
thereto.
(c) The Net Operating Cash Flow for the Seller is not less than the amount
set forth in Schedule I attached hereto.
2.6 Absence of Undisclosed Liabilities. Except as and to the extent (a)
reflected and reserved against in its most recent Audited Balance Sheet, (b)
set forth on Schedule 2.6 attached hereto or (c) incurred in the ordinary
course of business after the date of its most recent Audited Balance Sheet and
not material in amount, either individually or in the aggregate, no Seller
(individually) has, nor do the Sellers (in the aggregate) have, any liability
or obligation, secured or unsecured, whether accrued, absolute, contingent,
unasserted or otherwise, affecting the Assets. For purposes of this Subsection
2.6 only, "material" means any amount in excess of $10,000.
2.7 Litigation. Except as set forth on Schedule 2.7 attached hereto, no
Seller is a party to, or to the Sellers' best knowledge threatened with, and
none of the Assets are subject to, any litigation, suit, action, investigation,
proceeding or controversy before any court, administrative agency or other
governmental authority relating to or affecting the Assets or the business or
condition (financial or otherwise) of any Seller. No Seller is in violation of
or in default with respect to any judgment, order, writ, injunction, decree or
rule of any court, administrative agency or governmental authority or any
regulation of any administrative agency or governmental authority.
2.8 Insurance. Schedule 2.8 attached hereto sets forth a true, correct
and complete list of all fire, theft, casualty, general liability, workers
compensation, business interruption, environmental impairment, product
liability, automobile and other insurance policies insuring the Assets or
business of each Seller and of all life insurance policies maintained for any
of its employees, specifying the type of coverage, the amount of coverage, the
premium, the insurer and the expiration date of each such policy (collectively,
the "Insurance Policies") and all claims made under such Insurance Policies
since January 1, 1992. True, correct and complete copies of all of the
Insurance Policies have been previously delivered by the Sellers to the Buyer.
The Insurance Policies are in full force and effect and are in amounts and of a
nature which are adequate and customary for the Sellers' business. All
premiums due on the Insurance Policies or renewals thereof have been paid and
there is no default under any of the Insurance Policies.
<PAGE> 15
2.9 Inventory. Schedule 2.9 attached hereto sets forth a true, correct
and complete list of the Sellers' inventory of rental videotapes, rental video
games and other products held for rent by the Sellers, all as of a date not
more than two days prior to the date hereof which inventory shall be prepared
on a Seller-by-Seller basis, including quantities and titles. Schedule 2.9
also sets forth a true, correct and complete list of the inventory of the
Sellers' merchandise held for sale, all as of a date not more than two days
prior to the date hereof, which inventory shall be prepared on a
Seller-by-Seller basis, including a description, quantity and cost of all such
merchandise. Schedule 2.9, as updated pursuant to Subsection 7.9 hereof,
shall set forth a true, correct and complete list of such inventories as of a
date not more than two days prior to the Closing Date. Such inventories
consist of items of a quality and quantity which are usable or saleable without
discount in the ordinary course of the business conducted by the Sellers.
2.10 Fixed Assets. Schedule 2.10 attached hereto sets forth a true,
correct and complete list of all Fixed Assets (on a Seller-by-Seller basis) as
of the date hereof, including a description and the book value thereof.
Schedule 2.10, as updated pursuant to Subsection 7.9 hereof, shall set forth a
true, correct and complete list of all Fixed Assets as of the Closing Date,
including a description and valuation thereof. All of the Fixed Assets are in
good operating condition and repair, normal wear and tear excepted, are
currently used by the Seller in the ordinary course of business and in the
production of products of the Sellers and normal maintenance has been
consistently performed with respect to such Fixed Assets.
2.11 Leases. Schedule 2.11 attached hereto sets forth a true, correct and
complete list as of the date hereof of all leases of real property, identifying
separately each lease, to which each Seller is a party (the "Leases"). True,
correct and complete copies of the Leases, and all amendments, modifications
and supplemental agreements thereto, have previously been delivered by the
Sellers to the Buyer. The Leases are in full force and effect, are binding and
enforceable against each of the parties thereto in accordance with their
respective terms and, except as set forth on Schedule 2.11, have not been
modified or amended since the date of delivery to the Buyer. No party to any
Lease has sent written notice to the other claiming that such party is in
default thereunder, which remains uncured. Except as set forth on Schedule
2.11 attached hereto, there has not occurred any event which would constitute a
breach of or default in the performance of any material covenant, agreement or
condition contained in any Lease, nor has there occurred any event which with
the passage of time or the giving of notice or both would constitute such a
breach or material default. No Seller is obligated to pay any leasing or
brokerage commission relating to any Lease and, except as set forth on Schedule
2.11 attached hereto, no Seller will have any obligation to pay any
<PAGE> 16
leasing or brokerage commission upon the renewal of any Lease. No material
construction, alteration or other leasehold improvement work with respect to
any of the Leases remains to be paid for or to be performed by any Seller. The
Financial Statements and the Internal Statements contain (and the Interim
Statements will contain) adequate reserves to provide for the restoration of
the properties subject to the Leases at the end of the respective Lease terms,
to the extent required by the Leases.
2.12 Change in Financial Condition and Assets. Except as set forth on
Schedule 2.12 attached hereto, since December 31, 1995, there has been no
change which materially and adversely affects the business, properties, assets,
store operating cash flow, condition (financial or otherwise) or prospects of
any Seller, other than general economic conditions, and economic and other
conditions in and affecting the retail video rental industry generally. No
Seller has any knowledge of any existing or threatened occurrence, event or
development which, as far as can be reasonably foreseen, could have a material
and adverse effect on such Seller or its business, properties, assets, store
operating cash flow, condition (financial or otherwise) or prospects, other
than general economic conditions, and economic and other conditions in and
affecting the retail video rental industry generally.
2.13 Tax Matters.
(a) Except as set forth on Schedule 2.13 to this Agreement, the Sellers
and the Principals represent and warrant, as to each Seller:
(i) Within the times and in the manner prescribed by law, such Seller has
filed all Returns which are required to be filed;
(ii) With respect to all amounts in respect of Taxes imposed upon such
Seller for which it could be liable, whether to Taxing Authorities (as, for
example, under law) or to other persons or entities (as, for example, under Tax
allocation agreements), with respect to all taxable periods or portions of
taxable periods ending on or before the Closing Date, all applicable tax laws
and agreements have been fully complied with, and all such amounts required to
be paid by such Seller to Taxing Authorities or others on or before the date
hereof have been paid.
(iii) All Returns filed by such Seller constitute materially complete and
accurate representations of the respective Tax liabilities of, or attributable
to, such Seller for such years;
(iv) No examination of the Returns of such Seller is currently in progress
nor, to the best knowledge of the Seller, threatened and no unresolved
deficiencies have been asserted or assessed against such Seller as a result of
any audit by any Taxing Authority and no such deficiency has been proposed or
threatened;
(v) There are no liens for Taxes (other than for current Taxes not yet due
and payable) upon the assets of such Seller;
<PAGE> 17
(vi) Such Seller is not a person other than a United States person within
the meaning of the Internal Revenue Code of 1986, as amended (the "Code").
(b) For purposes of this Section 2.13: "Return" means any return,
declaration, report, statement or other document required to be filed in
respect of any Tax. "Tax" or "Taxes" means any federal, state, local, foreign
and other net income, gross income, gross receipts, sales, use, ad valorem,
transfer, franchise, profits, license, lease, service, service use,
withholding, payroll, employment, excise, severance, stamp, occupation,
premium, property, windfall profits, customs duty or other tax, fee, assessment
or charge of any kind whatever, together with interest and any penalty,
addition to tax or additional amount with respect thereto. "Taxing Authority"
means any governmental authority responsible for the imposition of Taxes.
2.14 Accounts Receivable. Schedule 2.14 attached hereto sets forth a
true, correct and complete list of the Sellers' collection accounts, including
an aging thereof as of the Balance Sheet Date. Schedule 2.14, as updated
pursuant to Subsection 7.9 hereof, shall set forth a true, correct and complete
list of the Sellers collection accounts as of the Closing Date, including an
aging thereof. Except for such collection accounts, the Sellers have no
Accounts Receivable. The collection accounts arose out of the sales or rentals
of inventory or services in the ordinary course of business, and the Sellers'
have established a reserve therefor in an amount equal to 100% of such
collection accounts.
2.15 Books and Records. The general ledgers and books of account of each
Seller, all federal, state and local income, franchise, property and other tax
returns filed by each Seller, with respect to the Assets, and all other books
and records of each Seller are in all material respects complete and correct
and have been maintained in accordance with good business practice and in
accordance with all applicable procedures required by laws and regulations.
2.16 Contracts and Commitments.
(a) Schedule 2.16 attached hereto contains a true, complete and correct
list and description of the following contracts and agreements, whether written
or oral (collectively, the "Contracts"):
(i) all loan agreements, indentures, mortgages and guaranties to which any
Seller is a party or by which any Seller or any of its property is bound;
(ii) all pledges, conditional sale or title retention agreements, security
<PAGE> 18
agreements, equipment obligations, personal property leases and lease purchase
agreements relating to any of the Assets to which any Seller is a party or by
which any Seller or any of its property is bound;
(iii) all contracts, agreements, commitments, purchase orders or other
understandings or arrangements to which any Seller is a party or by which any
Seller or any of its property is bound which (A) involve payments or receipts
by any Seller of more than $2,000 in the case of any single contract,
agreement, commitment, understanding or arrangement under which full
performance (including payment) has not been rendered by all parties thereto or
(B) which may materially adversely affect the condition (financial or
otherwise) or the properties, assets, business or prospects of any Seller;
(iv) all collective bargaining agreements, employment and consulting
agreements, executive compensation plans, bonus plans, deferred compensation
agreements, pension plans, vacation plans, retirement plans, employee stock
option or stock purchase plans and group life, health and accident insurance
and other employee benefit plans, agreements, arrangements or commitments to
which any Seller is a party or by which any Seller or any of its property is
bound;
(v) all agency, distributor, sales representative and similar agreements
to which any Seller is a party;
(vi) all contracts, agreements or other understandings or arrangements
between any Seller and any stockholder, member or Affiliate of such Seller;
(vii) all leases, whether operating, capital or otherwise, under which any
Seller is lessor or lessee; and
(viii) any other material agreement or contract entered into by any
Seller.
(b) Except as set forth on Schedule 2.16 attached hereto:
(i) each Contract is a valid and binding agreement of the applicable
Seller, enforceable against such Seller in accordance with its terms, and such
Seller does not have any knowledge that any Contract is not a valid and binding
agreement of the other parties thereto;
(ii) each Seller has fulfilled all material obligations required pursuant
to the Contracts to have been performed by such Seller on its part prior to the
date hereof, and each Seller has no reason to believe that it will not be able
to fulfill, when due, all of its obligations under the Contracts which remain
to be performed after the date hereof;
(iii) no Seller is in material breach of or default under any Contract,
and no event has occurred which with the passage of time or giving of notice or
both would constitute such a default, result in a loss of rights or result in
the creation of any lien, charge or encumbrance, thereunder or pursuant
thereto;
<PAGE> 19
(iv) to the best knowledge of the Sellers and the Principals, there is no
existing breach or default by any other party to any Contract, and no event has
occurred which with the passage of time or giving of notice or both would
constitute a default by such other party, result in a loss of rights or result
in the creation of any lien, charge or encumbrance thereunder or pursuant
thereto;
(v) no Seller is restricted by any Contract from carrying on its business
anywhere in the world; and
(vi) no Seller has any written or oral Contracts to sell products or
perform services which are expected to be performed at, or to result in, a
material loss.
(c) Except as set forth on Schedule 2.3 or Schedule 2.16, the
continuation, validity and effectiveness of each Contract will not be affected
by the transfer thereof to Buyer under this Agreement and all such Contracts
are assignable to Buyer without a consent.
(d) True, correct and complete copies of all Contracts have previously
been delivered by the Sellers to the Buyer.
2.17 Compliance with Agreements and Laws. Each Seller has all requisite
licenses, permits and certificates, including environmental, health and safety
permits, from federal, state and local authorities necessary to conduct the
Business and own and operate the Assets, other than those the failure of which
to obtain could not have a material adverse effect on any Seller or its
properties (collectively, the "Permits"). Schedule 2.17 attached hereto sets
forth a true, correct and complete list of all such Permits, copies of which
have previously been delivered by the Sellers to the Buyer. No Seller is in
violation of any law, regulation or ordinance (including, without limitation,
laws, regulations or ordinances relating to building, zoning, environmental,
disposal of hazardous substances, land use or similar matters) relating to its
properties, the violation of which could have a material adverse effect on any
Seller or its properties. Except as set forth on Schedule 2.7, the business of
each Seller does not violate, in any material respect, any federal, state,
local or foreign laws, regulations or orders (including, but not limited to,
any of the foregoing relating to employment discrimination, occupational
safety, environmental protection, hazardous waste (as defined in the Resource
Conservation and Recovery Act, as amended, and the regulations adopted pursuant
thereto), conservation, or corrupt practices, the enforcement of which would
have a material and adverse effect on the results of operations, condition
(financial or otherwise), assets, properties, business or prospects of such
Seller. Except as set forth on
<PAGE> 20
Schedule 2.17 attached hereto, no Seller has since January 1, 1993 received any
notice or communication from any federal, state or local governmental or
regulatory authority or otherwise of any such violation or noncompliance.
2.18 Employee Relations.
(a) Each Seller is in material compliance with all federal, state and
municipal laws respecting employment and employment practices, terms and
conditions of employment, and wages and hours, and no Seller is engaged in any
unfair labor practice, and there are no arrears in the payment of wages or
social security taxes.
(b) Except as set forth on Schedule 2.18 attached hereto:
(i) none of the employees of any Seller is represented by any labor union;
(ii) there is no unfair labor practice complaint against any Seller
pending before the National Labor Relations Board or any state or local agency;
(iii) there is no pending labor strike or other material labor trouble
affecting any Seller (including, without limitation, any organizational drive);
(iv) there is no labor grievance pending against any Seller;
(v) there is no pending representation question respecting the employees
of any Seller; and
(vi) there are no pending arbitration proceedings arising out of or under
any collective bargaining agreement to which any Seller is a party, or to the
best knowledge of the Sellers, any basis for which a claim may be made under
any collective bargaining agreement to which any Seller is a party.
(c) Schedule 2.18 attached hereto sets forth a true, correct and complete
list of (a) the employee benefits provided by each Seller to its employees and
all contracts or agreements between each Seller and its employees, and (b) each
Seller's current payroll, including the job descriptions and salary or wage
rates of each of its employees, showing separately for each such person who
received an annual salary in excess of $20,000 the amounts paid or payable as
salary and bonus payments for the years ending December 31, 1995 and December
31, 1994.
(d) For purposes of this Subsection 2.18, the term "employee" shall be
construed to include sales agents and other independent contractors who spend a
majority of their working time on a Seller's business.
2.19 Absence of Certain Changes or Events. Except as set forth on
Schedule 2.19 attached hereto, since December 31, 1995, the Sellers have not
entered into any transaction which is not in the usual and ordinary course of
business, and, without limiting the generality of the foregoing, the Sellers
have not:
<PAGE> 21
(a) Incurred any material obligation or liability for borrowed money;
(b) Discharged or satisfied any lien or encumbrance or paid any obligation
or liability other than current liabilities reflected in the Internal
Statements;
(c) Mortgaged, pledged or subjected to lien, charge or other encumbrance
any of the Assets;
(d) Sold or purchased, assigned or transferred any of its tangible assets
or cancelled any debts or claims, except for inventory sold and raw materials
purchased in the ordinary course of business;
(e) Made any material amendment to or termination of any Contract or done
any act or omitted to do any act which would cause the breach of any Contract;
(f) Suffered any losses, whether insured or uninsured, and whether or not
in the control of any Seller, in excess of $5,000 in the aggregate, or waived
any rights of any value;
(g) Made any changes in compensation of its officers, directors or
employees except in the ordinary course of their business and consistent with
past practice;
(h) Except as set forth on Schedule 2.7, received notice of any
litigation, warranty claim or products liability claims; or
(i) Made any material change in the terms, status or funding condition of
any Employee Plan, as defined in Subsection 2.23 hereof.
2.20 Suppliers. Schedule 2.20 attached hereto sets forth a true, correct
and complete list of the names and addresses of the six suppliers of the
Sellers which accounted for the largest dollar volume of purchases by the
Sellers for the fiscal years ending December 31, 1994 and December 31, 1995.
None of such suppliers has notified any Seller that it intends to discontinue
its relationship with the Sellers.
2.21 Prepayments and Deposits. Except for deposits from customers to
reserve videotapes which, in the aggregate, are less than $1,500 (which
deposits, as they
<PAGE> 22
exist on the Closing Date, shall be transferred to the Buyer pursuant to this
Agreement), the Sellers have not received prepayments or deposits from
customers for products to be shipped, or services to be performed, at a later
date.
2.22 Trade Names and Other Intangible Property.
(a) Schedule 2.22 attached hereto sets forth a true, correct and complete
list and, where appropriate, a description of, all Intangible Property. True,
correct and complete copies of all licenses and other agreements relating to
the Intangible Property have been previously delivered by the Sellers to the
Buyer.
(b) Except as otherwise disclosed in Schedule 2.22 attached hereto, the
Sellers are the sole and exclusive owners of all Intangible Property and all
designs, permits, labels and packages used on or in connection therewith. The
Intangible Property owned by the Sellers is sufficient to conduct the Sellers'
business as currently conducted and, when transferred to the Buyer pursuant to
this Agreement, will be sufficient to permit the Buyer to conduct the business
of the Sellers as currently conducted by the Sellers. The Sellers have
received no notice of, and have no knowledge of any basis for, a claim against
any of them that any of their operations, activities, products or publications
infringes on any patent, trademark, trade name, copyright or other property
right of a third party, or that any of them is illegally or otherwise using the
trade secrets, formulae or any property rights of others. No Seller has any
disputes with or claims against any third party for infringement by such third
party of any trade name or other Intangible Property of any Seller. Each
Seller has taken all steps reasonably necessary to protect its right, title and
interest in and to the Intangible Property.
2.23 Employee Benefit Plans.
(a) Except as listed on Schedule 2.23, none of the Sellers now has or
contributes to or participates in, and none of the Sellers has in the past had
or otherwise contributed to, any employee benefit plan subject to the Employee
Retirement Income Security Act of 1974.
(b) The Buyer assumes no liabilities with respect to any employee benefit
plan which liability relates to any period prior to or after the Closing Date,
including, without limitation, any taxes, accrued vacation or sick pay (whether
or not vested), accrued vacation, sick and personal leaves, employee policies,
employee benefit claims or liability to the Pension Benefit Guaranty
Corporation.
(c) Employee Plans. Schedule 2.23 attached hereto contains a true,
correct and complete list of all pension, benefit, profit sharing, retirement,
deferred compensation, welfare, insurance, disability, bonus, vacation pay,
severance pay and other similar plans, programs and agreements, whether reduced
to writing or not, relating to any Seller's employees, or maintained at any
time since January 1, 1991 by any Seller or by any other member of any
controlled group of corporations, group of trades or businesses under common
control, or affiliated service group (as defined for
<PAGE> 23
purposes of Section 414(b), (c) and (m), respectively, of the Internal Revenue
Code of 1986, as amended (the "Code")) (the "Employee Plans") and, except as
set forth on Schedule 2.23 attached hereto, no Seller has any obligations,
contingent or otherwise, past or present, under applicable law or the terms of
any Employee Plan.
2.24 Regulatory Approvals. Except to the extent waived by the Buyer in
this Section 2.24, all consents, approvals, authorizations and other
requirements prescribed by any law, rule or regulation which must be obtained
or satisfied by the Sellers and which are necessary for the execution and
delivery by the Sellers of this Agreement and the documents to be executed and
delivered by the Sellers in connection herewith are set forth on Schedule 2.24
attached hereto and have been, or will be prior to the Closing Date, obtained
and satisfied. The Sellers shall pay all costs and expenses required to obtain
such consents, approvals, authorizations and other requirements.
2.25 Indebtedness to and from Officers, Directors and Shareholders.
Except as set forth on Schedule 2.25 attached hereto, no Seller is indebted,
directly or indirectly, to any person who is an officer, director or
shareholder of any Seller or any affiliate of any such person in any amount
whatsoever other than for salaries for services rendered or reimbursable
business expenses, all of which have been reflected on the Internal Statements,
and no such officer, director, shareholder or affiliate is indebted to any
Seller, except for advances made to employees of the Sellers in the ordinary
course of business to meet reimbursable business expenses anticipated to be
incurred by such obligor.
2.26 Powers of Attorney and Suretyships. Except as set forth on Schedule
2.26 attached hereto, no Seller has any general or special powers of attorney
outstanding (whether as grantor or grantee thereof) and has no obligation or
liability (whether actual, accrued, accruing, contingent or otherwise) as
guarantor, surety, co-signor, endorser, co-maker, indemnitor or otherwise in
respect of the obligation of any person, corporation, partnership, joint
venture, association, organization or other entity, except as endorser or maker
of checks or letters of credit, respectively, endorsed or made in the ordinary
course of business.
2.27 Disclosure. To the best of the Sellers' and the Principals'
knowledge, no representation or warranty by any of the Sellers or the
Principals in this Agreement or in any Exhibit hereto, or in any list,
statement, document or information set forth in or attached to any Schedule
delivered or to be delivered pursuant to this Agreement, contains or will
contain any untrue statement of a material fact or omits or will omit any
material fact necessary in order to make the statements contained therein not
misleading.
<PAGE> 24
The Sellers and the Principals have disclosed to the Buyer the material facts
pertaining to the transactions contemplated by this Agreement.
3. Representations of the Buyer
The Buyer represents and warrants to the Seller as follows:
3.1 Organization and Authority. The Buyer is a corporation duly
organized, validly existing and in good standing under the laws of the state of
Delaware, and has requisite power and authority (corporate and other) to own
its properties and to carry on its business as now being conducted. The Buyer
has full power to execute and deliver this Agreement and the Instrument of
Assumption of Liabilities and to consummate the transactions contemplated
hereby and thereby. Certified copies of the Certificate of Incorporation and
the Bylaws of the Buyer, as amended to date, have been previously delivered to
the Seller, are complete and correct, and no amendments have been made thereto
or have been authorized since the date thereof.
3.2 Capitalization of the Buyer. On the date hereof, the Buyer's
authorized capital stock consists of 35,000,000 shares of Common Stock, $.01
par value ("Common Stock"), and 2,000,000 shares of Preferred Stock, $.01 par
value per share, none of which shares of Preferred Stock are issued or
outstanding. As of September 9, 1996, there were issued and outstanding
12,070,239 shares of Common Stock of the Buyer. All of the outstanding shares
of capital stock of the Buyer have been and on the Closing Date will be duly
and validly issued and are, or will be, fully paid and nonassessable.
3.3 Authorization. The execution and delivery of this Agreement by the
Buyer, and the agreements provided for herein, and the consummation by the
Buyer of all transactions contemplated hereby, have been duly authorized by all
requisite corporate action. This Agreement and all such other agreements and
written obligations entered into and undertaken in connection with the
transactions contemplated hereby constitute the valid and legally binding
obligations of the Buyer, enforceable against the Buyer in accordance with
their respective terms. The execution, delivery and performance of this
Agreement and the agreements provided for herein, and the consummation by the
Buyer of the transactions contemplated hereby and thereby, will not, with or
without the giving of notice or the passage of time or both, (a) violate the
provisions of any law, rule or regulation applicable to the Buyer; (b) violate
the provisions of the Buyer's Certificate of Incorporation or Bylaws; (c)
violate any judgment, decree, order or award of any court, governmental body or
arbitrator; or (d) conflict with or result in the breach or termination of any
term or provision of, or constitute a default under, or cause any acceleration
under, or cause the creation of any lien, charge or encumbrance upon the
properties or assets of the Buyer pursuant to, any indenture, mortgage, deed of
trust or other agreement or instrument to which it or its properties is a party
or by which the Buyer is or may be bound. Schedule 3.3 attached hereto sets
forth a true, correct and complete list of all consents and approvals of third
parties that are required in connection with the consummation by the Buyer of
the transactions contemplated by this Agreement.
<PAGE> 25
3.4 Regulatory Approvals. All consents, approvals, authorizations and
other requirements prescribed by any law, rule or regulation which must be
obtained or satisfied by the Buyer and which are necessary for the consummation
of the transactions contemplated by this Agreement have been, or will be prior
to the Closing Date, obtained and satisfied.
3.5 Disclosure. No representation or warranty by the Buyer in this
Agreement or in any Exhibit hereto, or in any list, statement, document or
information set forth in or attached to any Schedule delivered or to be
delivered pursuant hereto, contains or will contain any untrue statement of a
material fact or omits or will omit any material fact necessary in order to
make the statements contained therein not misleading.
4. Access to Information; Public Announcements
4.1 Access to Management, Properties and Records.
(a) From the date of this Agreement until the Closing Date, the Sellers
shall afford the officers, attorneys, accountants and other authorized
representatives of the Buyer free and full access upon reasonable notice and
during normal business hours to all management personnel, offices, properties,
books and records of the Sellers, so that the Buyer may have full opportunity
to make such investigation as it shall desire to make of the management,
business, properties and affairs of the Sellers, and the Buyer shall be
permitted to make abstracts from, or copies of, all such books and records.
The Sellers shall furnish to the Buyer such financial and operating data and
other information as to the Assets and the business of the Sellers as the Buyer
shall reasonably request.
(b) If the Buyer, at its option and expense, prior to the Closing Date,
elects to have a report or reports prepared by an engineer or other
professional selected by the Buyer, certifying that the real property
associated with the Assets (i) complies with all applicable federal, state and
local environmental and wetlands laws, rules and regulations and that there is
not now, and never has been, manufacture, storage, or disposal of hazardous
wastes at the real estate in violation of said laws, rules and regulations,
(ii) complies with all applicable building, health and fire codes, and
subdivision control laws, rules and regulations, the Sellers shall cooperate
with such engineer or professional to the extent necessary to prepare such
reports, including, without limitation, providing such engineer or professional
access to such real property and necessary records, and arranging interviews
with employees of the Sellers.
<PAGE> 26
(c) If reasonably requested by the Buyer, the Sellers shall authorize the
release to the Buyer of all files pertaining to the Sellers, the Assets or the
business or operations of the Sellers held by any federal, state, county or
local authorities, agencies or instrumentalities.
4.2 Confidentiality. All information not previously disclosed to the
public or generally known to persons engaged in the respective businesses of
the Sellers or the Buyer which shall have been furnished by the Buyer or the
Sellers to the other party in connection with the transactions contemplated
hereby or as provided pursuant to this Section 4 shall not be disclosed to any
person other than their respective employees, directors, attorneys, accountants
or financial advisors or other than as contemplated herein. In the event that
the transactions contemplated by this Agreement shall not be consummated, all
such information which shall be in writing shall be returned to the party
furnishing the same, including, to the extent reasonably practicable, all
copies or reproductions thereof which may have been prepared, and neither party
shall at any time thereafter disclose to third parties, or use, directly or
indirectly, for its own benefit, any such information, written or oral, about
the business of the other party hereto. Notwithstanding the above, (a) the
Buyer may include in any Registration Statement or periodic report filed by it
with the Securities and Exchange Commission or any state securities commission
or any stock market and (b) otherwise disclose, to the extent reasonably
advised to do so by counsel, any information regarding the Seller, the business
of the Seller, the financial condition of the Seller and/or the terms of this
Agreement.
In the event that the transactions contemplated by this Agreement shall
not be consummated, for a period of 12 months after the date of the termination
of this Agreement, the Buyer shall not solicit any person who was an employee
of any Seller on the date of such termination to terminate his employment with
the Sellers or to become an employee of the Buyer, or hire any person who was
such an employee on the date of such termination. In the event that the
transactions contemplated by this Agreement shall not be consummated, the Buyer
agrees that the remedy at law for any breach of this Section 4.2 by the Buyer
would be inadequate and that the Sellers shall be entitled to injunctive relief
in addition to any other remedy they may have upon breach of the Buyer's
obligations in such sentence.
4.3 Public Announcements. The parties agree that prior to the Closing
Date, except as otherwise required by law, any and all public announcements or
other public communications concerning this Agreement and the purchase of the
Assets by the Buyer shall be subject to the approval of the Buyer.
5. Pre-Closing Covenants of the Sellers
From and after the date hereof and until the Closing Date:
5.1 Conduct of Business. Each Seller shall carry on its business
diligently and substantially in the same manner as heretofore and shall not
make or institute any unusual or new methods of purchase, sale, shipment or
delivery, lease,
<PAGE> 27
management, accounting or operation, except as agreed to in writing by the
Buyer. All of the property of each Seller shall be used, operated, repaired
and maintained in a normal business manner consistent with past practice.
5.2 Absence of Material Changes. Without the prior written consent of the
Buyer, no Seller shall:
(a) Take any action to amend its charter, operating agreement, certificate
of formation or Bylaws;
(b) Issue any stock, bonds or other corporate securities or grant any
option or issue any warrant to purchase or subscribe to any of such securities
or issue any securities convertible into such securities;
(c) Incur any obligation or liability (absolute or contingent), except
current liabilities incurred and obligations under contracts entered into in
the ordinary course of business;
(d) Except for customary (in amount and frequency consistent with past
practice) dividend and distribution payments to the stockholders and members of
the Sellers, declare or make any payment or distribution to its shareholders
with respect to their stock or purchase or redeem any shares of its capital
stock;
(e) Mortgage, pledge, or subject to any lien, charge or any other
encumbrance any of the Assets;
(f) Sell, assign, or transfer any of the Assets, except for inventory sold
in the ordinary course of business, at a normal profit margin, and for not less
than replacement cost;
(g) Cancel any debts or claims, except in the ordinary course of business;
(h) Merge or consolidate with or into any corporation or other entity;
(i) Make, accrue or become liable for any bonus, profit sharing or
incentive payment, except for accruals under existing plans, if any, or
increase the rate of compensation payable or to become payable by it to any of
its officers, directors or
<PAGE> 28
employees, outside of the ordinary course of business or inconsistent with past
practice;
(j) Make any election or give any consent under the Code or the tax
statutes of any state or other jurisdiction or make any termination, revocation
or cancellation of any such election or any consent or compromise or settle any
claim for past or present Taxes, to the extent materially different from those
made in accordance with customary past practice;
(k) Modify, amend, alter or terminate any of its executory contracts of a
material value or which are material in amount;
(l) Take or permit any act or omission constituting a material breach or
default under any contract, indenture or agreement by which it or its
properties are bound;
(m) Fail to (i) preserve the possession and control of its assets and
business, (ii) use its best efforts to keep in faithful service its present
officers and key employees, (iii) use its best efforts to preserve the goodwill
of its customers, suppliers, agents, brokers and others having business
relations with it, and (iv) use its best efforts to keep and preserve its
business existing on the date hereof until after the Closing Date;
(n) Fail to operate its business and maintain its books, accounts and
records in the customary manner and in the ordinary or regular course of
business and maintain in good repair its business premises, fixtures, furniture
and equipment;
(o) Enter into any leases, contracts, agreements or understandings other
than those entered into in the ordinary course of business calling for payments
which in the aggregate do not exceed $5,000 for each such lease, contract,
agreement or understanding;
(p) Engage any employee for a salary in excess of $20,000 per annum;
(q) Materially alter the terms, status or funding condition of any
Employee Plan;
(r) Make any loans to any person or entity; or
(s) Commit or agree to do any of the foregoing in the future.
5.3 Taxes. Each Seller will, on a timely basis, file all tax returns for
and pay any and all taxes which shall become due or shall have accrued (a) on
account of the operation of the business of such Seller or the ownership of the
Assets on or prior to the Closing Date or (b) on account of the sale of the
Assets (including a pro-rata portion of all personal property and excise taxes
payable with respect to the Assets by such Seller).
<PAGE> 29
5.4 Delivery of Subsequent Financial Statements. As promptly as possible
following the last day of each month after the date hereof, and in any event
within 30 days after the end of each such month, the Sellers shall deliver to
the Buyer their combined comparative balance sheets and related statements of
income, shareholders' equity, retained earnings and statements of cash flow for
the one-month period then ended, and for the comparable one-month period of the
prior fiscal year, all prepared in accordance with Sellers' internal accounting
policies consistent with past practice, and certified by the chief financial
officer (collectively, the "Subsequent Financial Statements"). In addition, on
each of such dates, the Sellers shall deliver to the Buyer such combined
comparative balance sheets and related statements of income, shareholders'
equity, retained earnings and statements of cash flow for such periods,
prepared in accordance with Sellers internal accounting periods, consistent
with past practice.
5.5 Compliance with Laws. Each Seller will comply with all laws and
regulations which are applicable to it, its ownership of the Assets or to the
conduct of its business and will perform and comply with all contracts,
commitments and obligations by which it is bound.
5.6 Continued Truth of Representations and Warranties of the Sellers. No
Seller will take any actions which would result in any of the representations
or warranties set forth in Section 2 hereof being materially untrue, except for
representations which are qualified as to materiality, in which case no Seller
will take any actions which would result in any of such representations or
warranties being untrue in any respect.
5.7 Continuing Obligation to Inform. From time to time prior to the
Closing, each Seller will deliver or cause to be delivered to the Buyer
supplemental information concerning material events subsequent to the date
hereof which would render any statement, representation or warranty in this
Agreement or any information contained in any Schedule inaccurate or incomplete
in any material respect at any time after the date hereof until the Closing
Date. No such supplemental information shall modify the obligations of the
parties hereunder or constitute a waiver by the Buyer of any claims or rights
it may have for breach by any Seller or Principal of this Agreement.
5.8 Exclusive Dealing. No Seller or Principal shall, directly or
indirectly, through any officer, director, agent or otherwise, (a) solicit,
initiate or encourage submission of proposals or offers from any person
relating to any acquisition or purchase of all or a material portion of the
Assets, or any equity interest in, any Seller or
<PAGE> 30
any equity investment, merger, consolidation or business combination with any
Seller, or (b) participate in any discussions or negotiations regarding, or
furnish to any other person, any non-public information with respect to, or
otherwise cooperate in any way with, or assist or participate in, facilitate or
encourage, any effort or attempt by any other person to do or seek any of the
foregoing. The Sellers shall promptly notify the Buyer if any such proposal or
offer, or any inquiry or contact with any person with respect thereto, is made.
5.9 No Publicity. No Seller or Principal shall make any public
announcement with respect to this Agreement or the transactions contemplated
hereby without the express prior written consent of the Buyer. Each Seller and
Principal shall hold in confidence, and use its best efforts to have all of its
officers, directors and personnel hold in confidence, the terms of this
Agreement and the transactions contemplated hereby.
6. Satisfaction of Conditions. The Sellers, the Principals and the Buyer
covenant and agree to use their commercially reasonable efforts to obtain the
satisfaction of the conditions specified in this Agreement.
7. Conditions to Obligations of the Buyer
The obligations of the Buyer under this Agreement are subject to the
fulfillment, at the Closing Date, of the following conditions precedent, each
of which may be waived in writing in the sole discretion of the Buyer:
7.1 Continued Truth of Representations and Warranties of the Sellers;
Compliance with Covenants and Obligations. The representations and warranties
of the Sellers and the Principals shall be true on and as of the Closing Date
as though such representations and warranties were made on and as of such date,
except for any changes permitted by the terms hereof or consented to in writing
by the Buyer. The Sellers and the Principals shall have performed and complied
in all material respects with all terms, conditions, covenants, obligations,
agreements and restrictions required by this Agreement to be performed or
complied with by them prior to or at the Closing Date.
7.2 Corporate Proceedings. All corporate and other proceedings required
to be taken on the part of the Sellers to authorize or carry out this Agreement
and to convey, assign, transfer and deliver the Assets shall have been taken.
Without limiting the foregoing, promptly following delivery to the Principals
of a Prospectus relating to the sale of Buyer's Common Stock (which is included
in a Registration Statement which has been declared effective by the SEC), the
Sellers will hold a meeting of their respective stockholders for purposes of
approving the consummation of the transactions contemplated by this Agreement.
7.3 Governmental Approvals. All governmental agencies, departments,
bureaus, commissions and similar bodies, the consent, authorization or approval
of which is necessary under any applicable law, rule, order or regulation for
the
<PAGE> 31
consummation by the Sellers of the transactions contemplated by this Agreement
and the operation of the Sellers' business by the Buyer shall have consented
to, authorized, permitted or approved such transactions.
7.4 Consents of Lenders, Lessors and Other Third Parties. The Sellers
shall have received all requisite consents and approvals of all lenders, if
any, lessors and other third parties whose consent or approval is required in
order for the Sellers to consummate the transactions contemplated by this
Agreement, including, without limitation, those set forth on Schedule 2.3
attached hereto.
7.5 Adverse Proceedings. No action or proceeding by or before any court
or other governmental body shall have been instituted or threatened by any
governmental body or person whatsoever which shall seek to restrain, prohibit
or invalidate the transactions contemplated by this Agreement or which might
affect the right of the Buyer to own or use the Assets after the Closing.
7.6 Opinion of Counsel. The Buyer shall have received an opinion of
counsel to the Sellers, dated as of the Closing Date, in substantially the form
attached hereto as Exhibit C, and as to such other matters as may be reasonably
requested by the Buyer or its counsel.
7.7 Board of Directors and Shareholder and Member and Manager Approval.
The Board of Directors and shareholders or members and managers, as applicable,
of each Seller shall have duly authorized the transactions contemplated by this
Agreement.
7.8 The Assets. Except for the Permitted Encumbrances, at the Closing the
Buyer shall receive good, clear, record and marketable title to the Assets,
free and clear of all liens, liabilities, security interests and encumbrances
of any nature whatsoever.
7.9 Update. The Sellers shall have provided the Buyer with a true,
correct and complete list and amount, as of the Closing Date, of (a) the
Inventory; (b) the Fixed Assets; and (c) the trade accounts payable and accrued
liabilities of the Seller. The Seller shall have provided the Buyer with a
list of the Accounts Receivable, as of, or within five days prior to, the
Closing Date, including an aging thereof, as reflected in the records of the
Seller.
7.10 Cash Available for Working Capital Purposes. On the Closing Date,
<PAGE> 32
the Sellers will have available cash for working capital purposes of not less
than $200 per Store, which cash will be transferred to the Buyer pursuant to
the terms of this Agreement.
7.11 Payables.
(a) On the Closing Date, the Sellers shall have no obligations to
suppliers and vendors of goods and services and other trade creditors which are
either (i) in excess of $1,000 in the aggregate or (ii) past due in accordance
with their terms and in no event shall the Seller have any of such obligations
outstanding for more than 60 days as of the Closing.
(b) On the Closing Date, the Sellers shall have no outstanding obligations
to any Affiliate (including any stockholder).
(c) On the Closing Date, the Sellers shall have no liabilities to
employees for accrued vacation or sick pay, employee benefit claims or
liabilities to the Pension Benefit Guaranty Corporation.
7.12 Engineer's Report. On or prior to the Closing Date, the Buyer shall
have received the engineer's report, if any, referred to in Subsection 4.1(b)
hereof.
7.13 Tax Lien Waivers. On or prior to the Closing Date, the Sellers shall
have obtained and delivered to the Buyer tax lien waivers from all
jurisdictions in which Assets are located and which provide such tax lien
waivers.
7.14 Closing Deliveries. The Buyer shall have received at or prior to the
Closing each of the following documents:
(a) a bill of sale substantially in the form attached hereto as Exhibit D;
(b) such instruments of conveyance, assignment and transfer, in form and
substance satisfactory to the Buyer, as shall be appropriate to convey,
transfer and assign to, and to vest in, the Buyer, good, clear, record and
marketable title to the Assets;
(c) such contracts, files and other data and documents pertaining to the
Assets or the Sellers' business as the Buyer may reasonably request;
(d) copies of the general ledgers and books of account of each Seller, and
all federal, state and local income, franchise, property and other tax returns
filed by each Seller with respect to the Assets since January 1, 1991;
(e) such certificates of each Seller's officers and such other documents
evidencing satisfaction of the conditions specified in Section 7 as the Buyer
shall reasonably request;
<PAGE> 33
(f) a certificate of the Secretary of State of the state of organization
of each Seller as to the legal existence and good standing of each Seller in
such jurisdiction, and a certificate of the Secretary of State of each
jurisdiction in which each Seller is qualified to transact business, as to the
good standing and foreign qualification of each Seller in each such
jurisdiction as soon as practicable after the Closing;
(g) certificates of the Secretary or other appropriate offices of each
Seller attesting to the incumbency of such Seller's officers, respectively, the
authenticity of the resolutions authorizing the transactions contemplated by
the Agreement, and the authenticity and continuing validity of the charter
documents delivered pursuant to Subsection 2.1;
(h) estoppel certificates (in the form previously approved by the Buyer)
from each lessor from whom each Seller leases real or personal property and
instruments reflecting such lessor's consent to the assumption of such lease by
the Buyer and representing that there are no outstanding claims against such
Seller under any such lease;
(i) the schedules listed in Subsection 7.9;
(j) such other documents, instruments or certificates as the Buyer may
reasonably request.
7.15 Noncompete Agreement. Edward Curran shall have entered into a
noncompetition agreement with the Buyer on terms substantially similar to the
terms set forth in Section 10.3 hereof.
8. Conditions to Obligations of the Sellers
The obligations of the Sellers under this Agreement are subject to the
fulfillment, at the Closing Date, of the following conditions precedent, each
of which may be waived in writing at the sole discretion of the Sellers:
8.1 Continued Truth of Representations and Warranties of the Buyer;
Compliance with Covenants and Obligations. The representations and warranties
of the Buyer in this Agreement shall be true on and as of the Closing Date as
though such representations and warranties were made on and as of such date,
except for any changes consented to in writing by the Principals. The Buyer
shall have performed and
<PAGE> 34
complied in all material respects with all terms, conditions, obligations,
agreements and restrictions required by this Agreement to be performed or
complied with by it prior to or at the Closing Date.
8.2 Corporate Proceedings. All corporate and other proceedings required
to be taken on the part of the Buyer to authorize or carry out this Agreement
shall have been taken.
8.3 Governmental Approvals. All governmental agencies, departments,
bureaus, commissions and similar bodies, the consent, authorization or approval
of which is necessary under any applicable law, rule, order or regulation for
the consummation by the Buyer of the transactions contemplated by this
Agreement shall have consented to, authorized, permitted or approved such
transactions.
8.4 Consents of Lenders, Lessors and Other Third Parties. The Buyer shall
have received all requisite consents and approvals of all lenders, lessors and
other third parties whose consent or approval is required in order for the
Buyer to consummate the transactions contemplated by this Agreement, including,
without limitation, those set forth on Schedule 3.3 attached hereto.
8.5 Adverse Proceedings. No action or proceeding by or before any court
or other governmental body shall have been instituted or threatened by any
governmental body or person whatsoever which shall seek to restrain, prohibit
or invalidate the transactions contemplated by this Agreement or which might
affect the right of the Sellers to transfer the Assets.
8.6 Opinion of Counsel. The Sellers shall have received an opinion of
Hale and Dorr, counsel to the Buyer, dated as of the Closing Date, in
substantially the form attached hereto as Exhibit E, and as to such other
matters as may be reasonably requested by the Sellers or their counsel.
8.7 Closing Deliveries. The Sellers shall have received at or prior to
the Closing each of the following documents:
(a) such certificates of the Buyer's officers and such other documents
evidencing satisfaction of the conditions specified in this Section 8 as the
Sellers shall reasonably request;
(b) a certificate of the Secretary of State of the State of Delaware as to
the legal existence and good standing (including tax) of the Buyer in Delaware;
(c) a certificate of the Secretary of the Buyer attesting to the
incumbency of the Buyer's officers, the authenticity of the resolutions
authorizing the transactions contemplated by this Agreement, and the
authenticity and continuing validity of the charter documents delivered
pursuant to Subsection 3.1;
(d) The Instrument, and an Instrument of Assumption of
<PAGE> 35
Liabilities executed by the Buyer and accepted by the Sellers;
(e) payment of the Purchase Price;
(f) such other documents, instruments or certificates as the Sellers may
reasonably request.
8.8 Seller Approval. Each of the Sellers and the Principals shall have
approved the transactions contemplated by this Agreement after receipt and
review by each of them of a current prospectus (and any current supplement
thereto) included in the Buyer's Registration Statement on Form S-1.
9. Indemnification
9.1 By the Buyer and the Sellers and the Principals. The Buyer on the one
hand and the Sellers and the Principals, jointly and severally, on the other
hand, each hereby agree to indemnify and hold harmless the other against all
claims, damages, losses, liabilities, costs and expenses (including, without
limitation, settlement costs and any legal, accounting or other expenses for
investigating or defending any actions or threatened actions) reasonably
incurred by the Buyer or the Sellers in connection with each and all of the
following:
(a) Any breach by the indemnifying party of any representation or warranty
made by it in this Agreement;
(b) Any breach of any covenant, agreement or obligation of the
indemnifying party contained in this Agreement or any other agreement,
instrument or document contemplated by this Agreement; and
(c) Any misrepresentation contained in any statement, certificate or
schedule furnished by the indemnifying party pursuant to this Agreement or in
connection with the transactions contemplated by this Agreement.
9.2 By the Sellers and the Principals. The Sellers and the Principals, on
a joint and several basis, further agree to indemnify and hold harmless the
Buyer from any and all claims, damages, losses, liabilities, costs and expenses
(including, without limitation, settlement costs and any legal, accounting or
other expenses for investigating or defending any actions or threatened
actions) reasonably incurred by the Buyer, in connection with each and all of
the following:
<PAGE> 36
(a) Any claims against, or liabilities or obligations of, the Sellers or
against the Assets not specifically assumed by the Buyer pursuant this
Agreement;
(b) The failure of the Buyer to obtain the protections afforded by
compliance with the notification and other requirements of the bulk sales laws
in force in the jurisdictions in which such laws may be applicable to either
the Sellers or the transactions contemplated by this Agreement;
(c) Any violation by any Seller of, or any failure by the Sellers to
comply with, any law, ruling, order, decree, regulation or zoning,
environmental or permit requirement applicable to any Seller, the Assets or the
business of the Sellers, whether or not any such violation or failure to comply
has been disclosed to the Buyer, including any costs incurred by the Buyer (i)
in order to bring the Assets into compliance with environmental laws as a
consequence of noncompliance with such laws on the Closing Date or (ii) in
connection with the transfer of the Assets;
(d) Any warranty claim or product liability claim relating to any Seller's
business or operation prior to the Closing Date;
(e) Any Taxes of any Seller or any Principal;
(f) Any claims against, or liabilities or obligations of, any Seller with
respect to obligations under Employee Plans, or for accrued vacation or
severance pay, or for accrued and unpaid wages or similar amounts; and
(g) Except for the Assumed Liabilities, any claims, damages, or
liabilities arising out of the conduct of the business and operations of the
Sellers, the Business or the Stores, to the extent such claims accrue or arise
out of facts or circumstances occurring on or before to the Closing Date.
9.3 Claims for Indemnification. Whenever any claim shall arise for
indemnification hereunder the party seeking indemnification (the "Indemnified
Party"), shall promptly notify the party from whom indemnification is sought
(the "Indemnifying Party") of the claim and, when known, the facts constituting
the basis for such claim. In the event of any such claim for indemnification
hereunder resulting from or in connection with any claim or legal proceedings
by a third-party, the notice to the Indemnifying Party shall specify, if known,
the amount or an estimate of the amount of the liability arising therefrom.
The Indemnified Party shall not settle or compromise any claim by a third party
for which it is entitled to indemnification hereunder without the prior written
consent of the Indemnifying Party, which shall not be unreasonably withheld,
unless suit shall have been instituted against it and the Indemnifying Party
shall not have taken control of such suit after notification thereof as
provided in Subsection 9.4 of this Agreement.
9.4 Defense by Indemnifying Party. In connection with any claim giving
rise to indemnity hereunder resulting from or arising out of any claim or legal
proceeding by a person who is not a party to this Agreement, the Indemnifying
Party at
<PAGE> 37
its sole cost and expense may, upon written notice to the Indemnified Party,
assume the defense of any such claim or legal proceeding if it acknowledges to
the Indemnified Party in writing its obligations to indemnify the Indemnified
Party with respect to all elements of such claim. The Indemnified Party shall
be entitled to participate in (but not control) the defense of any such action,
with its counsel and at its own expense. If the Indemnifying Party does not
assume the defense of any such claim or litigation resulting therefrom within
30 days after the date such claim is made, (a) the Indemnified Party may defend
against such claim or litigation, in such manner as it may deem appropriate,
including, but not limited to, settling such claim or litigation, after giving
notice of the same to the Indemnifying Party, on such terms as the Indemnified
Party may deem appropriate, and (b) the Indemnifying Party shall be entitled to
participate in (but not control) the defense of such action, with its counsel
and at its own expense. If the Indemnifying Party thereafter seeks to question
the manner in which the Indemnified Party defended such third party claim or
the amount or nature of any such settlement, the Indemnifying Party shall have
the burden to prove by a preponderance of the evidence that the Indemnified
Party did not defend or settle such third party claim in a reasonably prudent
manner.
9.5 Payment of Indemnification Obligation. All indemnification by the
Buyer, the Sellers or the Principals hereunder shall be effected by payment of
cash or delivery of a cashier's or certified check in the amount of the
indemnification liability; provided that the Buyer shall have the right to
offset against amounts due from Buyer under the Instrument any amounts due to
Buyer hereunder.
9.6 Survival of Representations; Claims for Indemnification. All
representations and warranties made by the parties herein or in any instrument
or document furnished in connection herewith shall survive the Closing and any
investigation at any time made by or on behalf of the parties hereto. All such
representations and warranties shall expire on the eighteen-month anniversary
of the Closing Date, except for claims, if any, asserted in writing prior to
such eighteen-month anniversary, which shall survive until finally resolved and
satisfied in full. All claims and actions for indemnity pursuant to this
Section 9 for breach of any representation or warranty shall be asserted or
maintained in writing by a party hereto on or prior to the expiration of such
eighteen-month period. Notwithstanding the above claims resulting from the
failure by any Seller or Principal to pay any Tax when due shall expire one
year after any applicable statute of limitations.
10. Post-Closing Agreements
<PAGE> 38
The Sellers and the Principals agree that from and after the Closing Date:
10.1 Proprietary Information.
(a) Each of the Sellers and the Principals shall hold in confidence, and
use its best efforts to have all of its officers, directors, managers, members
and personnel hold in confidence, all knowledge and information of a secret or
confidential nature with respect to the business of the Sellers and shall not
disclose, publish or make use of the same without the consent of the Buyer,
except to the extent that such information shall have become public knowledge
other than by breach of this Agreement by the Sellers or the Principals.
(b) The Sellers agree that the remedy at law for any breach of this
Subsection 10.1 would be inadequate and that the Buyer shall be entitled to
injunctive relief in addition to any other remedy it may have upon breach of
any provision of this Subsection 10.1.
10.2 No Solicitation or Hiring of Former Employees. Except as provided by
law, for a period of five years after the Closing Date, no Seller, Principal or
any Affiliate of any of them shall solicit any person who was an employee of
any Seller on the Closing Date to terminate his employment with the Buyer or to
become an employee of any Seller or hire any person who was such an employee on
the date hereof or on the Closing Date; provided, that, subject to the
provisions of Section 10.3 below, if Brian Miller voluntarily terminates his
employment with the Buyer, any other Principal shall thereafter be permitted to
employ him.
10.3 Non-Competition Agreement.
(a) Without the prior approval of the Buyer, for a period of three years
after the Closing Date, neither the Sellers, the Principals, nor any Affiliate
thereof, shall engage directly or indirectly in the retail videotape rental
business, retail videotape rental industry, or retail videotape rental market
or the retail video game rental business, retail video game rental industry or
retail video game rental market within a three-mile radius of any of the
Buyer's existing stores, any site selected by the Buyer for a future store (as
evidenced in writing), any store acquired or to be acquired by the Buyer in the
future (as evidenced in writing), in the United States or any other country in
which the Buyer or Sellers conducted their business during the two years prior
to the Closing Date; provided that, nothing herein shall prevent the Sellers,
the Principals or their Affiliates from engaging in the development, marketing
or sale of software for use in video games.
(b) The parties hereto agree that the duration and geographic scope of the
non-competition provision set forth in this Subsection 10.3 are reasonable. In
the event that any court determines that the duration or the geographic scope,
or both, are unreasonable and that such provision is to that extent
unenforceable, the parties hereto agree that the provision shall remain in full
force and effect for the greatest time period and in the greatest area that
would not render it unenforceable. The parties intend that this
non-competition provision shall be deemed to be a series of
<PAGE> 39
separate covenants, one for each and every county of each and every state of
the United States of America and each and every political subdivision of each
and every country outside the United States of America where this provision is
intended to be effective. The Sellers and the Applicable Principals agree that
damages are an inadequate remedy for any breach of this provision and that the
Buyer shall, whether or not it is pursuing any potential remedies at law, be
entitled to equitable relief in the form of preliminary and permanent
injunctions without bond or other security upon any actual or threatened breach
of this non-competition provision.
10.4 Sharing of Data.
(a) The Sellers shall have the right for a period of three years following
the Closing Date (and for such longer period as may be reasonably necessary to
enable the Sellers to deal with applicable governmental agencies and
regulators) to have reasonable access to such books, records and accounts,
including financial and tax information, correspondence, production records,
and other similar information as are transferred to the Buyer pursuant to the
terms of this Agreement for the limited purposes of concluding its involvement
in the Business prior to the Closing Date and for complying with its
obligations under applicable securities, tax, environmental, employment or
other laws and regulations. The Buyer shall have the right for a period of
three years following the Closing Date (and for such longer period as may be
reasonably necessary to enable the Sellers to deal with applicable governmental
agencies and regulators) to have reasonable access to those books, records and
accounts, including financial and tax information, correspondence, employment
records and other records which are retained by the Sellers pursuant to the
terms of this Agreement to the extent that any of the foregoing relates to the
Business transferred to the Buyer hereunder or is otherwise needed by the Buyer
in order to comply with its obligations under applicable securities, tax,
environmental, employment or other laws and regulations.
(b) The Sellers, the Principals and the Buyer agree that from and after
the Closing Date they shall cooperate fully with each other to facilitate the
transfer of the Assets from the Sellers to the Buyer and the operation thereof
by the Buyer.
10.5 Use of Name. The Sellers and the Principals agree not to use the
name "West Coast" or the service mark "_______" or any variation or derivation
thereof after the Closing Date in connection with any business related to,
competitive with, or an outgrowth of, the business conducted by the Sellers on
the date hereof.
10.6 Cooperation in Litigation. Each party hereto will fully cooperate
<PAGE> 40
with the others in the defense or prosecution of any litigation or proceeding
already instituted or which may be instituted hereafter against or by such
party relating to or arising out of the conduct of the business of the Sellers
prior to or after the Closing Date (other than litigation or proceedings
arising out the transactions contemplated by this Agreement). The party
requesting such cooperation shall pay the reasonable out-of-pocket expenses
(including legal fees and disbursements), as incurred, of the party providing
such cooperation and of its officers, directors, managers, members, employees
and agents reasonably incurred in connection with providing such cooperation,
but shall not be responsible to reimburse the party providing such cooperation
for such party's time spent in such cooperation or the salaries or costs of
fringe benefits or similar expenses paid by the party providing such
cooperation to its officers, directors, managers, members, employees and agents
while assisting in the defense or prosecution of any such litigation or
proceeding.
11. Termination of Agreement
11.1 Termination by Lapse of Time. This Agreement shall terminate at 5:00
p.m., Boston time, on the day 60 days from the date hereof, if the Closing
contemplated hereby has not been consummated, unless such date is extended by
the written consent of the Buyer and the Principals.
11.2 Termination by Agreement of the Parties. This Agreement may be
terminated by the mutual written agreement of the parties hereto.
11.3 Termination by Reason of Breach. This Agreement may be terminated by
the Sellers, if at any time prior to the Closing there shall occur a material
breach of any of the representations, warranties or covenants of the Buyer or
the failure by the Buyer to perform any material condition or obligation
hereunder, and may be terminated by the Buyer, if at any time prior to the
Closing there shall occur a material breach of any of the representations,
warranties or covenants of the Sellers or the Principals or the failure of the
Sellers to perform any material condition or obligation hereunder.
12. Transfer and Sales Tax
Notwithstanding any provisions of law imposing the burden of such taxes on
the Sellers or the Buyer, as the case may be, the Sellers shall be responsible
for and shall pay (a) all sales, use and transfer taxes, and (b) all
governmental charges, if any, upon the sale or transfer of any of the Assets
hereunder. If the Sellers shall fail to pay such amounts on a timely basis,
the Buyer may pay such amounts to the appropriate governmental authority or
authorities, and the Sellers shall promptly reimburse the Buyer for any amounts
so paid by the Buyer.
13. Brokers
13.1 For the Sellers. The Sellers represent and warrant that none of them
has engaged any broker or finder or incurred any liability for brokerage fees,
<PAGE> 41
commissions or finder's fees in connection with the transactions contemplated
by this Agreement. The Sellers and the Principals agree to indemnify and hold
harmless the Buyer against any claims or liabilities asserted against it by any
person acting or claiming to act as a broker or finder on behalf of any Seller
or any Principal.
13.2 For the Buyer. The Buyer agrees to pay all fees, expenses and
compensation owed to any person, firm or corporation who has acted in the
capacity of broker or finder on its behalf in connection with the transactions
contemplated by this Agreement. The Buyer agrees to indemnify and hold
harmless the Sellers and the Principals against any claims or liabilities
asserted against them by any person acting or claiming to act as a broker or
finder on behalf of the Buyer.
14. Notices
Except to the extent otherwise provided herein, any notices or other
communications required or permitted hereunder shall be sufficiently given if
delivered personally or sent by telex, federal express, registered or certified
mail, postage prepaid, addressed as follows or to such other address of which
the parties may have given notice:
<TABLE>
<S> <C>
To any Seller: To the address of the Principal
To any Principal: At the address specified for
this purpose on Schedule I
To the Buyer: West Coast Entertainment Corporation
9990 Global Road
Philadelphia, PA 19115
With a copy to: Hale and Dorr
60 State Street
Boston, MA 02109
Attn: John H. Chory, Esq.
</TABLE>
Unless otherwise specified herein, such notices or other communications shall
be deemed received (a) on the date delivered, if delivered personally; (b)
three business days after being sent, if sent by registered or certified mail;
or (c) on the date of actual receipt, if delivered by any other method.
<PAGE> 42
15. Arbitration
(a) Any dispute, controversy or claim between the parties arising out of
or relating to this Agreement, a breach hereof or the transactions contemplated
hereby, shall be settled by arbitration in accordance with the provisions of
this Section 15. Any arbitration pursuant to this Section 15 shall be
conducted by a single arbitrator appointed by the Philadelphia, Pennsylvania
office of the American Arbitration Association upon the request of either
party. The arbitrator shall have a minimum of five years of experience in the
area of business relevant to the particular dispute. Each party shall be
permitted to submit only one proposal to the arbitrator, and the arbitrator
shall be required to choose one of such two proposals as the resolution of the
dispute. The arbitrator may proceed to a resolution notwithstanding the
failure of a party to participate in the proceedings. Each of the parties
shall pay its own costs and expenses in connection with any such arbitration,
and the parties shall share equally in the fees and expenses of the arbitrator.
(b) The parties agree that any such arbitration will occur in
Philadelphia, Pennsylvania, any such arbitration award shall be final and
binding upon the parties, may be entered in any court having jurisdiction and
shall not be appealable by either party in any court.
16. Successors and Assigns
This Agreement shall be binding upon and inure to the benefit of the
parties hereto and their respective successors and assigns, except that the
Buyer, the Sellers and the Principals may not assign their respective
obligations hereunder without the prior written consent of the Sellers in the
case of an assignment by the Buyer or the Buyer in the case of an assignment by
any Seller or Principal; provided, however, that the Buyer may assign this
Agreement, and its rights and obligations hereunder, to a subsidiary or
affiliate. Any assignment in contravention of this provision shall be void.
17. Entire Agreement; Amendments; Attachments
(a) This Agreement, all Schedules and Exhibits hereto, and all agreements
and instruments to be delivered by the parties pursuant hereto represent the
entire understanding and agreement between the parties hereto with respect to
the subject matter hereof and supersede all prior oral and written and all
contemporaneous oral negotiations, commitments and understandings between such
parties. The Buyer, the Sellers and the Principals may amend or modify this
Agreement, in such manner as may be agreed upon, by a written instrument
executed by the Buyer and the Principals.
(b) If the provisions of any Schedule or Exhibit to this Agreement are
inconsistent with the provisions of this Agreement, the provision of the
Agreement shall prevail. The Exhibits and Schedules attached hereto or to be
attached hereafter are hereby incorporated as integral parts of this Agreement.
18. Expenses
<PAGE> 43
Except as otherwise expressly provided herein, the Buyer (on the one hand)
and the Sellers and the Principals (on the other hand) shall each pay their own
expenses in connection with this Agreement and the transactions contemplated
hereby.
19. Legal Fees
In the event that legal proceedings are commenced by the Buyer against any
Principal or any Seller, or by any Principal or any Seller against the Buyer,
in connection with this Agreement or the transactions contemplated hereby, the
party or parties which do not prevail in such proceedings shall pay the
reasonable attorneys' fees and other costs and expenses, including
investigation costs, incurred by the prevailing party in such proceedings.
20. Governing Law
This Agreement shall be governed by and construed in accordance with the
laws of the State of Delaware.
21. Section Headings
The section headings are for the convenience of the parties and in no way
alter, modify, amend, limit, or restrict the contractual obligations of the
parties.
22. Severability
The invalidity or unenforceability of any provision of this Agreement
shall not affect the validity or enforceability of any other provision of this
Agreement.
23. Counterparts
This Agreement and any amendment hereto may be executed in one or more
counterparts, each of which shall be deemed to be an original, but all of which
shall be one and the same document.
(end of page)
<PAGE> 44
IN WITNESS WHEREOF, this Agreement has been duly executed by the parties
hereto as of and on the date first above written.
(Corporate Seal) WEST COAST ENTERTAINMENT CORPORATION
ATTEST:
By:________________________________
___________________________ Title:_____________________________
PRINCIPALS:
___________________________________
___________________________________
SELLERS:
(Corporate Seal)
ATTEST:
_________________________ By:________________________________
Title:_____________________________
(Corporate Seal)
ATTEST:
<PAGE> 1
ASSET PURCHASE AGREEMENT
By and Among
West Coast Entertainment Corporation,
Ohio Entertainment Corp.
and Ronald L. Davis
<PAGE> 2
TABLE OF CONTENTS
Section Page
- ------- ----
1. Sale and Delivery of the Assets 1
1.1 Delivery of the Assets 1
1.2 Further Assurances 3
1.3 Base Purchase Price 3
1.4 Assumption of Liabilities; Etc. 4
1.5 Allocation of Base Purchase Price and
Assumed Liabilities 4
1.6 The Closing 4
1.7 Apportionment 5
1.8 No New Stores 7
2. Representations of the Seller and the Principal 7
2.1 Organization 7
2.2 Capitalization of the Seller 7
2.3 Authorization 7
2.4 Ownership of the Assets 8
2.5 Financial Statements 8
2.6 Absence of Undisclosed Liabilities 9
2.7 Litigation 10
2.8 Insurance 10
2.9 Inventory 10
2.10 Fixed Assets 10
2.11 Leases 11
2.12 Change in Financial Condition and Assets 11
2.13 Tax Matters 12
2.14 Assets Complete 13
2.15 Books and Records 13
2.16 Contracts and Commitments 13
2.17 Compliance with Agreements and Laws 15
2.18 Employee Relations 16
2.19 Absence of Certain Changes or Events 17
2.20 Suppliers 18
2.21 Prepayments and Deposits 18
-i-
<PAGE> 3
2.22 Trade Names and Other Intangible Property 18
2.23 Employee Benefit Plans 19
2.24 Regulatory Approvals 19
2.25 Indebtedness to and from Officers, Directors and
Shareholders 19
2.26 Powers of Attorney and Suretyships 20
2.27 Cash Flow 20
2.28 Disclosure 20
3. Representations of the Buyer 20
3.1 Organization and Authority 20
3.2 Capitalization of the Buyer 20
3.3 Authorization 21
3.4 Regulatory Approvals 21
3.5 Disclosure 21
3.6 Issuance of Shares 22
4. Access to Information; Public Announcements 22
4.1 Access to Management, Properties and Records 22
4.2 Confidentiality 23
4.3 Public Announcements 23
5. Pre-Closing Covenants of the Seller 23
5.1 Conduct of Business 23
5.2 Absence of Material Changes 24
5.3 Taxes 25
5.4 Delivery of Interim Financial Statements 25
5.5 Compliance with Laws 25
5.6 Continued Truth of Representations
and Warranties of the Seller 26
5.7 Continuing Obligation to Inform 26
5.8 Exclusive Dealing 26
5.9 No Publicity 26
6. Satisfaction of Conditions; Liquidated Damages 26
6.1 Satisfaction of Conditions 26
6.2 Covenants of Buyer 26
7. Conditions to Obligations of the Buyer 27
7.1 Continued Truth of Representations
<PAGE> 4
and Warranties of the Seller; Compliance with
Covenants and Obligations 27
7.2 Corporate Proceedings 27
7.3 Governmental Approvals 27
7.4 Consents of Lenders, Lessors and Other
Third Parties 27
7.5 Adverse Proceedings 28
7.6 Opinion of Counsel 28
7.7 Board of Directors and Shareholder Approval 28
7.8 The Assets 28
7.9 Update 28
7.10 Cash Available for Working Capital Purposes 28
7.11 Payables 29
7.12 Tax Lien Waivers 29
7.13 Closing Deliveries 29
8. Conditions to Obligations of the Seller 30
8.1 Continued Truth of Representations and
Warranties of the Buyer; Compliance
with Covenants and Obligations 30
8.2 Corporate Proceedings 30
8.3 Governmental Approvals 30
8.4 Consents of Lenders, Lessors and Other
Third Parties 31
8.5 Adverse Proceedings 31
8.6 Opinion of Counsel 31
8.7 Closing Deliveries 31
9. Indemnification 32
9.1 By the Buyer and the Seller and the Principal 32
9.2A By the Seller and the Principal 32
9.2B By the Buyer 33
9.3 Claims for Indemnification 33
9.4 Defense by Indemnifying Party 34
9.5 Payment of Indemnification Obligation 34
9.6 Survival of Representations; Claims for
-iii-
<PAGE> 5
Indemnification 34
9.7 Limitation 35
10. Post-Closing Agreements 35
10.1 Proprietary Information 35
10.2 No Solicitation or Hiring of Former Employees 35
10.3 Non-Competition Agreement 35
10.4 Sharing of Data 36
10.5 Use of Name 37
10.6 Cooperation in Litigation 37
11. Termination of Agreement 37
11.1 Termination by Lapse of Time 37
11.2 Termination by Agreement of the Parties 37
11.3 Termination by Reason of Breach 38
12. Transfer and Sales Tax 38
13. Brokers 38
13.1 For the Seller 38
13.2 For the Buyer 38
14. Notices 38
15. Arbitration 39
16. Successors and Assigns 40
17. Entire Agreement; Amendments; Attachments 40
18. Expenses 40
19. Legal Fees 41
20. Governing Law 41
21. Section Headings 41
22. Severability 41
23. Counterparts 41
<PAGE> 6
Exhibits
A - Stores
B - Lockup Agreement
C - Instrument of Assumption of Liabilities
D - Opinion of Counsel to Seller
E - Bill of Sale
F - Opinion of Hale and Dorr
<PAGE> 7
ASSET PURCHASE AGREEMENT
Agreement made as of November 15, 1996 among West Coast Entertainment
Corporation, a Delaware corporation with its principal office at 9990 Global
Road, Philadelphia, Pennsylvania 19115 (the "Buyer"), Ohio Entertainment
Corp., an Ohio corporation with its principal office at 9353 Ambershire Drive,
Dayton, Ohio 45458 (the "Seller"), and Ronald L. Davis, a resident of the
State of Ohio (the "Principal").
Preliminary Statement
The Buyer desires to purchase, and the Seller desires to sell,
substantially all of the assets and business of the Seller, all of which relate
to the five retail video stores which are identified on Exhibit A
(individually, a "Store," and collectively, the "Stores"), for the
consideration set forth below and the assumption of certain of the Seller's
liabilities set forth below, subject to the terms and conditions of this
Agreement.
NOW, THEREFORE, in consideration of the mutual promises hereinafter set
forth and other good and valuable consideration, the receipt of which is hereby
acknowledged, the parties hereby agree as follows:
1. Sale and Delivery of the Assets
1.1 Delivery of the Assets.
(a) Subject to and upon the terms and conditions of this Agreement, at the
closing of the transactions contemplated by this Agreement (the "Closing"), the
Seller shall sell, transfer, convey, assign and deliver to the Buyer, and the
Buyer shall purchase from the Seller, the following properties, assets and
other claims, rights and interests (but not including the Excluded Assets, as
defined below):
(i) all inventories, videotapes, videogames, finished goods, office
supplies, maintenance supplies, packaging materials, spare parts and similar
items of the Seller (collectively, the "Inventory") which are located at, or
relate to, the Stores, and exist on the Closing Date (as defined below);
(ii) all accounts, accounts receivable, notes and notes receivable arising
out of the conduct of the business of the Stores and exist on the Closing Date
which are
<PAGE> 8
payable to the Seller, including any security held by the Seller for
the payment thereof (the "Accounts Receivable");
(iii) opening cash for each Store in the amounts set forth on Schedule
1.1(a)(iii), and prepaid expenses and deposits relating to the Stores
(including the deposits described on Schedule 2.21), existing on the Closing
Date;
(iv) all rights of the Seller under the contracts, agreements, leases,
licenses and other instruments set forth on Schedule 1.4 attached hereto other
than such rights under contracts, agreements, leases, licenses and other
instruments included on Schedule 1.1(b) (collectively, the "Contract Rights");
(v) copies of all books, records and accounts, correspondence, manuals,
customer lists, employment records, studies, reports or summaries relating in
whole or in part to or arising in whole or in part out of the business of the
Seller;
(vi) all rights of the Seller under express or implied warranties from the
suppliers of the Seller to the extent relating or applicable to the items
described in this Section 1.1(a);
(vii) all of the machinery, equipment, furniture, leasehold improvements
and construction in progress located at or related to the Stores and owned by
the Seller on the Closing Date whether or not reflected as capital assets in
the accounting records of the Seller (collectively, the "Fixed Assets");
(viii) a non-exclusive, royalty free, non-transferable license to use,
solely with respect to the business of the Stores, the name "Video Showcase",
or any derivation thereof used by the Seller in its business, for a period of
two years after the Closing Date (collectively, the "Intangible Property");
(ix) except as specifically provided in Subsection 1.1(b) hereof, all
other assets, properties, claims, rights and interests of the Seller which
exist on the Closing Date, of every kind and nature and description, whether
tangible or intangible, real, personal or mixed, which relate to the Stores.
(b) Notwithstanding the provisions of paragraph (a) above, the properties,
assets and business to be transferred to the Buyer under this Agreement shall
not include those assets listed on Schedule 1.1(b) attached hereto (the
"Excluded Assets").
(c) The Inventory, Accounts Receivable, Contract Rights, Fixed Assets,
Intangible Property and other properties, assets and business of the Seller
described in paragraph (a) above, other than the Excluded Assets, shall be
referred to collectively as the "Assets."
1.2 Further Assurances. At any time and from time to time after the
Closing, at the request of any party and without further consideration, each
party promptly shall execute and deliver such instruments of sale, transfer,
conveyance,
<PAGE> 9
assignment, assumption and confirmation, and take such other action, as may be
reasonably requested to more effectively carry out the purpose and intent of
this Agreement.
1.3 Base Purchase Price.
(a) The purchase price for all of the Assets of the Seller shall be
$4,850,000 subject to the adjustment provided in Subsection 1.7 hereof (the
"Base Purchase Price").
(b) At the Closing, the Buyer shall deliver to the Seller (i) that number
of shares of Common Stock, $.01 par value per share, of the Buyer ("Common
Stock") as is determined by dividing $2,245,000 by the Market Value of a share
of Common Stock and (ii) the balance of the Base Purchase Price (as adjusted
pursuant to Section 1.7) in cash, by cashiers or certified check or by wire
transfer of immediately available funds to an account designated by the Seller.
The "Market Value" of a share of Common Stock shall equal the average of the
bid and asked prices per share of Buyer's Common Stock as reported on the
Nasdaq Stock Exchange for each of the fifteen trading days ending on the
business day preceding the Closing Date. Shares of Buyer Common Stock issued
pursuant to this Agreement shall be registered under the Securities Act of
1933, as amended (the "Securities Act"), pursuant to a Registration Statement
(the "Registration Statement") filed with the Securities and Exchange
Commission (the "SEC").
At the Closing, the Seller shall enter into a Lockup Agreement
(substantially in the form and on the terms of Exhibit B hereto), pursuant to
which the Seller shall agree that it shall not: (i) sell any of the shares
issued to it at the Closing during the six-month period commencing on the
Closing Date; (ii) sell more than one-third of the total number of shares
issued to it at the Closing during the 12-month period after the Closing; and
(iii) sell more than two-thirds of the total number of shares issued to it at
the Closing during the 18-month period after the Closing (the "Lockup
Agreement").
1.4 Assumption of Liabilities; Etc.
(a) At the Closing, the Buyer shall execute and deliver an Instrument of
Assumption of Liabilities (the "Instrument of Assumption") substantially in the
form attached hereto as Exhibit C, pursuant to which it shall assume and agree
to timely perform, pay and discharge the following liabilities, obligations and
commitments of the Seller, to the extent such liabilities, obligations and
commitments relate exclusively to the Stores or the Assets, and not to the
Excluded Assets (the "Assumed Liabilities"):
<PAGE> 10
(i) All obligations of the Seller accruing or continuing after the Closing
under the leases set forth on Schedule 1.4 attached hereto (which includes a
lease for 6,400 square feet of space in Middletown, Ohio, on which Buyer
intends to develop a new retail video store (the "Middletown Location")) which
become due and payable after the Closing Date; and
(ii) Accounts payable incurred in the ordinary course of business by
Seller for purchase of videotapes, to the extent such videotapes were received
during the 60-day period prior to the Closing;
(iii) All other liabilities and obligations of the Seller specifically set
forth in Schedule 1.4 attached hereto.
(b) The Buyer shall not at the Closing assume or agree to perform, pay or
discharge, and the Seller shall remain unconditionally liable for, all
obligations, liabilities and commitments, fixed or contingent, of the Seller
other than the Assumed Liabilities.
1.5 Allocation of Base Purchase Price and Assumed Liabilities. The
aggregate amount of the Base Purchase Price and the Assumed Liabilities shall
be allocated among the Assets as set forth on Schedule 1.5 attached hereto.
Such allocation shall be subject to adjustment to the extent that the Base
Purchase Price is adjusted pursuant to Section 1.7 hereof in the manner
specified in such Section.
1.6 The Closing. The Closing shall take place on or before or before
November 15, 1996, at the offices of Hale and Dorr, 60 State Street, Boston,
Massachusetts, at such time or date as may be selected by Buyer, or at such
other time and date as may be mutually agreed upon in writing by the parties
hereto. The transfer of the Assets by the Seller to the Buyer shall be deemed
to occur at 9:00 a.m., Boston time, on the date of the Closing (the "Closing
Date").
1.7 Apportionment. The purchase price of the assets shall not be subject
to any adjustment for any prepaid expenses of the Seller, including without
limitation: (i) prepaid premiums on insurance, (ii) water and sewer use
charges, (iii) transfer taxes and recording fees, if any, incurred in
connection with the transfer of the Assets contemplated hereby, or (iv) real
property taxes or other taxes for the then current tax period, and such prepaid
amounts, if any, shall not be added to or deducted from the Base Purchase
Price. Notwithstanding the foregoing, the Seller shall be entitled to
additional consideration in respect of prepaid rent as of the Closing Date,
which amount shall be added to the cash portion of the purchase price
deliverable at closing.
1.8 No New Stores. The Seller shall not be entitled to open additional
video retail stores prior to the Closing without the prior written approval of
the Buyer, and then only if Buyer approves the site, and, if the Buyer so
elects, the Buyer and the Seller enter into an agreement pursuant to which the
Buyer shall have the option to purchase any such new store. Notwithstanding
the foregoing, prior to the Closing, the Seller shall be entitled to continue
retail video store development activities with respect to the
<PAGE> 11
Middletown Location, provided that such Location (and all of Seller's rights
therein or related thereto) shall be transferred to the Buyer at the Closing.
2. Representations of the Seller and the Principal
The Seller and the Principal, jointly and severally, represent and warrant
to the Buyer as follows:
2.1 Organization. The Seller is a corporation duly organized, validly
existing and in good standing under the laws of the state of its incorporation,
and has all requisite power and authority (corporate and other) to own its
properties, to carry on its business as now being conducted, to execute and
deliver this Agreement and the agreements contemplated herein, and to
consummate the transactions contemplated hereby. The Seller is duly qualified
to do business and in good standing in all jurisdictions in which its ownership
of property or the character of its business requires such qualification.
Certified copies of the Articles of Incorporation and Regulations of the
Seller, each as amended to date, have been previously delivered to the Buyer,
are complete and correct, and no amendments have been made thereto or have been
authorized since the date thereof. The Seller does not own any capital stock
of or other equity interest in any corporation, partnership or other entity.
Exhibit A sets forth a list of each retail video rental store (including the
location of each such store owned, operated or licensed directly or indirectly
by the Seller.
2.2 Capitalization of the Seller. The Seller's authorized capital stock
consists of 750 shares of Common Stock, no par value, of which 100 shares are
issued and outstanding. All of such shares are owned by the Principal. All of
such shares have been duly and validly issued and are fully paid and
nonassessable.
2.3 Authorization. The execution and delivery of this Agreement by the
Seller, and the agreements provided for herein, and the consummation by the
Seller of all transactions contemplated hereby, have been duly authorized by
all requisite corporate and shareholder action. This Agreement and all such
other agreements and obligations entered into and undertaken in connection with
the transactions contemplated hereby to which the Seller is a party constitute
the valid and legally binding obligations of the Seller, enforceable against
the Seller in accordance with their respective terms. The execution, delivery
and performance by the Seller of this Agreement and the agreements provided for
herein, and the consummation by the Seller of the transactions contemplated
hereby and thereby, will not, with or without the giving of notice or the
passage of time or both, (a) violate in any material respect the provisions
<PAGE> 12
of any law, rule or regulation applicable to the Seller; (b) violate the
provisions of the Articles of Incorporation or Regulations of the Seller; (c)
violate any judgment, decree, order or award of any court, governmental body or
arbitrator binding on Seller; or (d) subject to obtaining the consents and
approvals described in Schedule 2.3, conflict with or result in the breach or
termination of any term or provision of, or constitute a default under, or
cause any acceleration under, or cause the creation of any lien, charge or
encumbrance upon the properties or assets of the Seller pursuant to, any
indenture, mortgage, deed of trust or other instrument or agreement to which
the Seller is a party or by which the Seller or any of its properties are
bound. Schedule 2.3 attached hereto sets forth a true, correct and complete
list of all consents and approvals of third parties that are required in
connection with the consummation by the Seller of the transactions contemplated
by this Agreement.
2.4 Ownership of the Assets. Schedule 2.4(i) attached hereto sets forth a
true, correct and complete list of all claims, liabilities, liens, pledges,
charges, encumbrances and equities of any kind affecting the Assets
(collectively, the "Encumbrances"). The Seller, at the Closing, will, subject
to obtaining the consents and approvals described in Schedule 2.3, have the
right to (and will, upon delivery of the Bill of Sale, Instrument of Assignment
and instruments of transfer of ownership contemplated hereby), sell and
transfer to the Buyer good, clear, record and marketable title to the Assets,
free and clear of all Encumbrances of any kind, except as set forth on Schedule
2.4(ii) attached hereto (the "Permitted Encumbrances").
2.5 Financial Statements.
(a) The Seller has previously delivered to the Buyer its audited balance
sheets as of May 31, 1994, 1995 and 1996 (the "Audited Balance Sheets") and the
related statements of income, shareholders' equity, retained earnings and
statements of cash flow of the Seller for the fiscal years then ended
(collectively, including the Audited Balance Sheet, the "Audited Financial
Statements"). The Seller has also previously delivered to the Buyer its
comparative Balance Sheet (the "Current Balance Sheet") as of June 30, 1996
(the "Balance Sheet Date") and as of June 30, 1995, and the related comparative
statements of income, shareholders' equity, retained earnings and statements of
cash flow of the Seller for the six-month periods then ended (collectively, the
"Current Financial Statements"). The Seller has also previously delivered to
the Buyer its monthly Balance Sheets (the "Monthly Balance Sheets") for each of
the whole calendar months between June 30, 1996 and the date of this Agreement,
and the related comparative statements of income, shareholders' equity,
retained earnings and statements of cash flow of the Seller for the one-month
periods then ended (collectively, the "Monthly Financial Statements"). The
Seller has included in the footnotes to the Audited Financial Statements and
the Current Financial Statements statements of its quarterly earnings. The
Audited Financial Statements, the Current Financial Statements, the Monthly
Financial Statements and the interim financial statements (the "Interim
Financial Statements") to be delivered pursuant to Subsection 5.4 hereof
(collectively, the "Financial Statements") have been (or will be) prepared in
accordance with generally accepted accounting principles applied consistently
with past practice and certified without qualification by the Seller's
independent public accountants, in the case of the
<PAGE> 13
Audited Financial Statements, and have been (or will be) certified by the
Seller's chief financial officer, in the case of the Current Financial
Statements, the Monthly Financial Statements, and the Interim Financial
Statements.
(b) The Financial Statements fairly present, as of their respective dates,
the financial condition, retained earnings, assets and liabilities of the
Seller and the results of operations of the Seller's business for the periods
indicated. With respect to the contracts and commitments for the sale of goods
or the provision of services by the Seller, the Audited Financial Statements
and the Seller's comparative Balance Sheets dated June 30, 1995 and June 30,
1996 (the "June Balance Sheets") contain and reflect adequate reserves, which
are consistent with previous reserves taken, for all reasonably anticipated
material losses and costs and expenses; and the amounts shown as accrued for
current and deferred income and other taxes in the Audited Financial Statements
and the June Balance Sheets are sufficient for the payment of all accrued and
unpaid federal, state and local income taxes, interest, penalties, assessments
or deficiencies applicable to the Seller, whether disputed or not, for the
applicable period then ended and periods prior thereto.
2.6 Absence of Undisclosed Liabilities. Except as and to the extent (a)
reflected and reserved against in the Current Balance Sheet, (b) set forth on
Schedule 2.6 attached hereto or (c) incurred in the ordinary course of business
after the date of the Current Balance Sheet and not material in amount, either
individually or in the aggregate, the Seller, to its best knowledge, does not
have any liability or obligation, secured or unsecured, whether accrued,
absolute, contingent, unasserted or otherwise, affecting the Assets. For
purposes of this Subsection 2.6, "material" means any amount in excess of
$10,000.
2.7 Litigation. Except as set forth on Schedule 2.7 attached hereto, the
Seller is not a party to, or to the Seller's best knowledge threatened with,
and none of the Assets are subject to, any pending or, to Seller's best
knowledge threatened, litigation, suit, action, investigation, proceeding or
controversy before any court, administrative agency or other governmental
authority relating to or affecting the Assets or the business or condition
(financial or otherwise) of the Seller. The Seller is not in violation of or
in default with respect to any judgment, order, writ, injunction, decree or
rule of any court, administrative agency or governmental authority or any
regulation of any administrative agency or governmental authority.
2.8 Insurance. Schedule 2.8 attached hereto sets forth a true, correct
and complete copy of a certificate provided by Seller's insurer with respect to
all fire, theft,
<PAGE> 14
casualty, general liability, workers compensation, business interruption,
environmental impairment, product liability, automobile and other insurance
policies insuring the Assets or business of the Seller, specifying the type of
coverage, the amount of coverage, the insurer and the expiration date of each
such policy (collectively, the "Insurance Policies"). Schedule 2.8 lists all
claims made under such Insurance Policies since January 1, 1994. True, correct
and complete copies of all of the Insurance Policies have been previously
delivered by the Seller to the Buyer. The Insurance Policies are in full force
and effect. All premiums due on the Insurance Policies or renewals thereof
have been paid and there is no default under any of the Insurance Policies.
2.9 Inventory. On the Closing Date, the Inventory shall include not less
than 7,000 videotapes held for rental or sale per Store (except for Store #2,
as to which such Inventory shall include not less than 5,000 videotapes held
for rental or sale), and such Inventory shall consist of items of a quality and
quantity which are usable or saleable without discount in the ordinary course
of the business conducted by the Seller.
2.10 Fixed Assets. Schedule 2.10 attached hereto sets forth a true,
correct and complete list of all Fixed Assets as of the date hereof, including
a description and the book value thereof. Schedule 2.10, as updated pursuant
to Subsection 7.9 hereof, shall set forth a true, correct and complete list of
all Fixed Assets as of the Closing Date (regardless of whether such Fixed
Assets are reflected in the Seller's books and records, and including those
Fixed Assets as to which the book value is zero), including a description and
the book value thereof, and a complete list of all maintenance contracts with
respect to such Fixed Assets to which the Seller is a party. Except as
disclosed on Schedule 2.10 hereto, all of the Fixed Assets are in good
operating condition and repair, normal wear and tear excepted, are currently
used by the Seller in the ordinary course of business of the Stores, and, to
the extent provided in the maintenance contracts listed on Schedule 2.10,
normal maintenance has been consistently performed with respect to such Fixed
Assets.
2.11 Leases. Schedule 2.11 attached hereto sets forth a true, correct and
complete list as of the date hereof of all leases of real property, identifying
separately each ground lease, pursuant to which any Store occupies its premises
(the "Leases"). True, correct and complete copies of the Leases, and all
amendments, modifications and supplemental agreements thereto, have previously
been delivered by the Seller to the Buyer. The Leases are binding and
enforceable against Seller and, to Seller's knowledge, each of the other
parties thereto in accordance with their respective terms and, except as set
forth on Schedule 2.11, have not been modified or amended since the date of
delivery to the Buyer. Seller has not received or sent written notice claiming
that any party is in default thereunder, which default remains uncured, or that
there has occurred any event which would constitute a breach of or default in
the performance of any material covenant, agreement or condition contained in
any Lease, nor, to Seller's knowledge, has there occurred any event which with
the passage of time or the giving of notice or both would constitute such a
breach or material default. The Seller is not obligated to pay any leasing or
brokerage commission relating to any Lease and, except as set forth on Schedule
2.11 attached hereto, will not have any enforceable obligation to pay any
leasing or brokerage commission upon the renewal of any Lease. Except as set
forth on
<PAGE> 15
Schedule 2.11, no material construction, alteration or other leasehold
improvement work with respect to any of the Leases remains to be paid for or to
be performed by the Seller. Except as set forth on Schedule 2.11, the
Financial Statements contain adequate reserves to provide for the restoration
of the properties subject to the Leases at the end of the respective Lease
terms, to the extent required by the Leases.
2.12 Change in Financial Condition and Assets. Except as set forth on
Schedule 2.12 attached hereto, since May 31, 1996, there has been no change
which materially and adversely affects the business, properties, assets,
condition (financial or otherwise) or prospects of the Seller. Except for
competitive forces and the possible entry into Seller's market of video store
chains, or as set forth on Schedule 2.12, the Seller has no knowledge of any
existing occurrence, event or development which, as far as can be reasonably
foreseen, will have a material adverse effect on the Seller or its business,
properties, assets, condition (financial or otherwise) or prospects.
2.13 Tax Matters.
(a) Except as set forth on Schedule 2.13 to this Agreement and insofar as
material to the ownership and operation of the Assets and the Stores by the
Buyer after the Closing Date:
(i) Within the times and in the manner prescribed by law, the Seller has
filed all Returns which are required to be filed;
(ii) With respect to all amounts in respect of Taxes imposed upon the
Seller for which it could be liable, whether to Taxing Authorities (as, for
example, under law) or to other persons or entities (as, for example, under Tax
allocation agreements), with respect to all taxable periods or portions of
taxable periods ending on or before the Closing Date, all applicable tax laws
and agreements have been fully complied with, and all such amounts required to
be paid by the Seller to Taxing Authorities or others on or before the date
hereof have been paid.
(iii) All Returns filed by the Seller constitute complete and accurate
representations of the respective Tax liabilities of, or attributable to, the
Seller for such years;
(iv) No examination of the Returns of the Seller is currently in progress
nor, to the best knowledge of the Seller, threatened and no unresolved
deficiencies have been asserted or assessed against the Seller as a result of
any audit by any Taxing Authority
<PAGE> 16
and no such deficiency has been proposed or threatened;
(v) There are no liens for Taxes (other than for current Taxes not yet due
and payable) upon the Assets of the Seller;
(vi) The Seller is not a person other than a United States person within
the meaning of the Code;
(b) For purposes of this Section 2.13: "Return" means any return,
declaration, report, statement or other document required to be filed in
respect of any Tax. "Tax" or "Taxes" means any federal, state, local, foreign
and other governmental net income, gross income, gross receipts, sales, use, ad
valorem, transfer, franchise, profits, license, lease, service, service use,
withholding, payroll, employment, excise, severance, stamp, occupation,
premium, property, windfall profits, customs duty or other tax, fee, assessment
or charge of any kind whatever, together with interest and any penalty,
addition to tax or additional amount with respect thereto. "Taxing Authority"
means any governmental authority responsible for the imposition of Taxes.
2.14 Assets Complete. Except as disclosed on Schedule 2.14, the Assets
(together with the license granted by Seller to Buyer, as described in Section
1.1(a) above) constitute all of the material rights, interests, assets or
property (tangible or intangible) owned or licensed by the Seller (or in which
the Seller otherwise has rights or any interest) which are currently used in
the conduct of the business as such business is currently conducted by the
Seller.
2.15 Books and Records. The general ledgers and books of account of the
Seller, all federal, state and local income, franchise, property and other tax
returns filed by the Seller, with respect to the Assets, and all other books
and records of the Seller are in all material respects complete and correct and
have been maintained in accordance with good business practice and in
accordance with all applicable procedures required by laws and regulations.
2.16 Contracts and Commitments.
(a) Schedule 2.16 attached hereto contains a true, complete and correct
list (if written) and description (if oral) of all contracts and agreements,
whether written or oral to which the Seller is a party, necessary or useful to
the conduct of the business of the Stores, as conducted by Seller, but
excluding general support, management and supervision provided by Seller's
headquarters office (collectively, the "Contracts"), including without
limitation, the following types of Contracts:
(i) all loan agreements, indentures, mortgages and guaranties to which the
Seller is a party or by which the Seller or any of its property is bound;
(ii) all pledges, conditional sale or title retention agreements, security
agreements, equipment obligations, personal property leases and lease purchase
agreements relating to any of the Assets to which the Seller is a party or by
which the
<PAGE> 17
Seller or any of its property is bound;
(iii) all contracts, agreements, commitments, purchase orders or other
understandings or arrangements to which the Seller is a party or by which the
Seller or any of its property is bound which (A) involve payments or receipts
by the Seller of more than $2,000 in the case of any single contract,
agreement, commitment, understanding or arrangement under which full
performance (including payment) has not been rendered by all parties thereto or
(B) which may materially adversely affect the condition (financial or
otherwise) or the properties, assets, business or prospects of the Seller;
(iv) all collective bargaining agreements, employment and consulting
agreements, executive compensation plans, bonus plans, deferred compensation
agreements, pension plans, retirement plans, employee stock option or stock
purchase plans and group life, health and accident insurance and other employee
benefit plans, agreements, arrangements or commitments to which the Seller is a
party or by which the Seller or any of its property is bound;
(v) all agency, distributor, sales representative and similar agreements
to which the Seller is a party;
(vi) all contracts, agreements or other understandings or arrangements
between the Seller any stockholder or Affiliate of the Seller;
(vii) all leases, whether operating, capital or otherwise, under which the
Seller is lessor or lessee; and
(viii) any other material agreement or contract entered into by the
Seller.
(b) Except as set forth on Schedule 2.16 attached hereto:
(i) each Contract which is to be assumed by Buyer as an Assumed Liability
(an "Assumed Contract") is a valid and binding agreement of the Seller,
enforceable against the Seller in accordance with its terms, and the Seller
does not have any knowledge that any Assumed Contract is not a valid and
binding agreement of the other parties thereto;
(ii) the Seller has fulfilled all material obligations required pursuant
to the Assumed Contracts to have been performed by the Seller on its part prior
to the date
<PAGE> 18
hereof, and the Seller has no reason to believe that it will not be able to
fulfill, when due, all of its obligations under the Assumed Contracts which
remain to be performed after the date hereof;
(iii) the Seller is not in breach of or default under any Assumed Contract
in any material respect, and there has occurred no violation by Seller of any
provision of any Assumed Contract which with the passage of time (such as a
grace period) or giving of notice or both would constitute such a default by
Seller, result in a loss of rights or result in the creation of any lien,
charge or encumbrance on Seller's assets, thereunder or pursuant thereto;
(iv) to the best knowledge of the Seller, there is no existing breach or
default by any other party to any Assumed Contract, and there has occurred no
violation of any provision of any Assumed Contract which with the passage of
time (such as a grace period) or giving of notice or both would constitute such
a default by such other party, result in a loss of rights by Seller or result
in the creation of any lien, charge or encumbrance on Seller's assets
thereunder or pursuant thereto;
(v) the Seller is not restricted by any Assumed Contract from carrying on
its business anywhere in the world; and
(vi) the Seller has no written or oral Assumed Contracts to sell products
or perform services which are expected to be performed at, or to result in, a
loss.
(c) Except as set forth on Schedule 2.3 or Schedule 2.16, the
continuation, validity and effectiveness of each Assumed Contract will not be
affected by the transfer thereof to Buyer under this Agreement and all such
Assumed Contracts are assignable to Buyer without a consent.
(d) True, correct and complete copies of all written Contracts have
previously been delivered by the Seller to the Buyer.
2.17 Compliance with Agreements and Laws. Except as set forth on Schedule
2.17, the Seller has all requisite licenses, permits and certificates,
including environmental, health and safety permits, from federal, state and
local authorities necessary to conduct its business and own and operate its
assets (collectively, the "Permits"). Schedule 2.17 attached hereto sets forth
a true, correct and complete list of all such Permits, copies of which have
previously been delivered by the Seller to the Buyer. Except as set forth on
Schedule 2.17, the Seller is not in violation in any material respect of any
law, regulation or ordinance (including, without limitation, laws, regulations
or ordinances relating to building, zoning, environmental, disposal of
hazardous substances, land use or similar matters) relating to its properties,
the violation of which could have a material adverse effect on the Seller or
its properties. Except as set forth on Schedule 2.17, the business of the
Seller does not violate, in any material respect, any federal, state, local or
foreign laws, regulations or orders (including, but not limited to, any of the
foregoing relating to employment discrimination, occupational safety,
environmental protection, hazardous waste (as defined in the Resource
<PAGE> 19
Conservation and Recovery Act, as amended, and the regulations adopted pursuant
thereto), conservation, or corrupt practices, the enforcement of which would
have a material and adverse effect on the results of operations, condition
(financial or otherwise), assets, properties, business or prospects of the
Seller. Except as set forth on Schedule 2.17 attached hereto, the Seller has
not since January 1, 1993 received any notice or communication from any
federal, state or local governmental or regulatory authority or otherwise of
any such violation or noncompliance.
2.18 Employee Relations.
(a) The Seller is in compliance in all material respects with all federal,
state and municipal laws respecting employment and employment practices, terms
and conditions of employment, and wages and hours, and is not engaged in any
unfair labor practice, and there are no arrears in the payment of wages or
social security taxes.
(b) Except as set forth on Schedule 2.18 attached hereto:
(i) none of the employees of the Seller is represented by any labor union;
(ii) there is no unfair labor practice complaint against the Seller
pending before the National Labor Relations Board or any state or local agency;
(iii) there is no pending labor strike or other labor trouble affecting
the Seller (including, without limitation, any organizational drive);
(iv) there is no labor grievance pending against the Seller;
(v) there is no pending representation question respecting the employees
of the Seller; and
(vi) there are no pending arbitration proceedings arising out of or under
any collective bargaining agreement to which the Seller is a party, or to the
best knowledge of the Seller, any basis for which a claim may be made under any
collective bargaining agreement to which the Seller is a party.
(c) Schedule 2.18 attached hereto sets forth a true, correct and complete
list of (a) the employee benefits provided by the Seller to its employees who
are employed at or render services to the Stores, and all contracts or
agreements between
<PAGE> 20
the Seller and such employees, and (b) the Seller's current payroll, including
the job descriptions and salary or wage rates of each of such employees,
showing separately for each such person who received an annual salary in excess
of $20,000 the amounts paid or payable as salary and bonus payments for the
years ending May 31, 1995 and May 31, 1996.
(d) For purposes of this Subsection 2.18, the term "employee" shall be
construed to include sales agents and other independent contractors who spend a
majority of their working time on the Seller's business at or with respect to
the Stores, but shall exclude the Principal.
2.19 Absence of Certain Changes or Events. Except as set forth on
Schedule 2.19 attached hereto, since May 31, 1996, the Seller has not entered
into any transaction which is not in the usual and ordinary course of business,
and, without limiting the generality of the foregoing, the Seller has not,
except in the usual and ordinary course of its business or as set forth on
Schedule 2.19:
(a) Incurred any material obligation or liability for borrowed money;
(b) Mortgaged, pledged or subjected to lien, charge or other encumbrance
any of the Assets;
(c) Sold or purchased, assigned or transferred any of its tangible assets
or cancelled any debts or claims;
(d) Made any material amendment to or termination of any Contract or done
any act or omitted to do any act which would cause the breach of any Contract;
(e) Suffered any losses, whether insured or uninsured, and whether or not
in the control of the Seller, in excess of $5,000 in the aggregate, or waived
any rights of any value;
(f) Made any changes in compensation of its officers, directors or
employees;
(g) Received notice of any litigation, warranty claim or products
liability claims; or
(h) Made any material change in the terms, status or funding condition of
any Employee Plan, as defined in Subsection 2.23 hereof.
2.20 Suppliers. Schedule 2.20 attached hereto sets forth a true, correct
and complete list of the names and addresses of the ten suppliers of the Seller
which accounted for the largest dollar volume of purchases by the Seller for
the fiscal year ending May 31, 1996. None of such suppliers has notified the
Seller that it intends to discontinue its relationship with the Seller.
<PAGE> 21
2.21 Prepayments and Deposits. Schedule 2.21 attached hereto sets forth
all prepayments or deposits from customers for products to be shipped, or
services to be performed, after the Closing Date which have been received by
the Seller as of the date hereof.
2.22 Trade Names and Other Intangible Property.
(a) Schedule 2.22 attached hereto sets forth a true, correct and complete
list and, where appropriate, a description of, all Intangible Property. True,
correct and complete copies of all licenses and other agreements relating to
the Intangible Property have been previously delivered by the Seller to the
Buyer.
(b) Except as otherwise disclosed in Schedule 2.22 attached hereto, the
Seller has, to its knowledge, the sole and exclusive right to use all
Intangible Property used in connection with the operation of the Stores. The
Intangible Property rights of the Seller are sufficient to conduct the Seller's
business as currently conducted and, when licensed to the Buyer pursuant to
this Agreement, will be sufficient to permit the Buyer to conduct the business
of the Stores as currently conducted by the Seller. The Seller has received no
notice of, and has no knowledge of any basis for, a claim against it that any
of its operations, activities, products or publications infringes on any
patent, trademark, trade name, copyright or other intellectual property right
of a third party, or that it is illegally or otherwise using the trade secrets,
formulae or any intellectual property rights of others. The Seller has no
disputes with or claims against any third party for infringement by such third
party of any trade name or other Intangible Property of the Seller. The Seller
has taken no steps to protect its right, title and interest in and to the
Intangible Property.
2.23 Employee Benefit Plans.
(a) The Seller does not now have or otherwise contribute to or participate
in, and has not in the past had or otherwise contributed to, any employee
benefit plan subject to the Employee Retirement Income Security Act of 1974.
(b) Except as expressly provided in this Agreement, the Buyer assumes no
liabilities with respect to any employee benefit plan which liability relates
to any period prior to the Closing Date, including, without limitation, any
taxes, accrued vacation or sick pay (whether or not vested), accrued vacation,
sick and personal leaves, employee policies, employee benefit claims or
liability to the Pension Benefit Guaranty Corporation. From and after the
Closing Date, Buyer is hereby assuming liabilities
<PAGE> 22
relating to Seller's employee benefit plans only to the extent such liabilities
are allocable or attributable to the Stores and such liabilities accrue after
the Closing Date.
(c) Schedule 2.23 attached hereto contains a true, correct and complete
list of all pension, benefit, profit sharing, retirement, deferred
compensation, welfare, insurance, disability, bonus, vacation pay, severance
pay and other similar plans, programs and agreements, whether reduced to
writing or not, relating to the Seller's employees, or maintained at any time
since January 1, 1991 by the Seller or by any other member of any controlled
group of corporations, group of trades or businesses under common control, or
affiliated service group (as defined for purposes of Section 414(b), (c) and
(m), respectively, of the Internal Revenue Code of 1986, as amended (the
"Code")) (the "Employee Plans") and, except as set forth on Schedule 2.23
attached hereto, the Seller has no obligations, contingent or otherwise, past
or present, under applicable law or the terms of any Employee Plan.
2.24 Regulatory Approvals. All consents, approvals, authorizations and
other requirements prescribed by any law, rule or regulation which must be
obtained or satisfied by the Seller and which are necessary for the execution
and delivery by the Seller of this Agreement and the documents to be executed
and delivered by the Seller in connection herewith have been, or will be prior
to the Closing Date, obtained and satisfied.
2.25 Indebtedness to and from Officers, Directors and Shareholders.
Except as set forth on Schedule 2.25 attached hereto, the Seller is not
indebted, directly or indirectly, to any person who is an officer, director or
shareholder of the Seller or any affiliate of any such person in any amount
whatsoever other than for salaries for services rendered or reimbursable
business expenses, and no such officer, director, shareholder or affiliate is
indebted to the Seller, except for advances made to employees of the Seller in
the ordinary course of business to meet reimbursable business expenses
anticipated to be incurred by such obligor.
2.26 Powers of Attorney and Suretyships. Except as set forth on Schedule
2.26 attached hereto, the Seller has no general or special powers of attorney
outstanding (whether as grantor or grantee thereof) and has no obligation or
liability (whether actual, accrued, accruing, contingent or otherwise) as
guarantor, surety, co-signor, endorser, co-maker, indemnitor or otherwise in
respect of the obligation of any person, corporation, partnership, joint
venture, association, organization or other entity, except as endorser or maker
of checks or letters of credit, respectively, endorsed or made in the ordinary
course of business.
2.27 Cash Flow. The information reflected on Schedule 2.27 attached
hereto is complete and accurate.
2.28 Disclosure. No representation or warranty by the Seller in this
Agreement or in any Exhibit hereto, or in any list, statement, document or
information set forth in or attached to any Schedule delivered or to be
delivered pursuant to this Agreement, contains or will contain any untrue
statement of a material fact or omits or
<PAGE> 23
will omit any material fact necessary in order to make the statements contained
therein not misleading in light of the circumstances under which they were
made.
3. Representations of the Buyer
The Buyer represents and warrants to the Seller as follows:
3.1 Organization and Authority. The Buyer is a corporation duly
organized, validly existing and in good standing under the laws of the state of
Delaware, and has requisite power and authority (corporate and other) to own
its properties and to carry on its business as now being conducted. The Buyer
has full power to execute and deliver this Agreement and the Instrument of
Assumption of Liabilities and to issue the shares of Common Stock and
consummate the transactions contemplated hereby and thereby. Certified copies
of the Certificate of Incorporation and the Bylaws of the Buyer, as amended to
date, have been previously delivered to the Seller, are complete and correct,
and no amendments have been made thereto or have been authorized since the date
thereof.
3.2 Capitalization of the Buyer. On the date hereof, the Buyer's
authorized capital stock consists of 25,000,000 shares of Common Stock, $.01
par value ("Common Stock"), and 2,000,000 shares of Preferred Stock, $.01 par
value per share. The shares of Buyer Common Stock to be issued to the Seller
pursuant to the terms of this Agreement, when issued in accordance with the
terms hereof, will be duly authorized, validly issued, fully paid and
non-assessable, and will be registered under the Securities Act of 1933, as
amended.
3.3 Authorization. The execution and delivery of this Agreement by the
Buyer, and the agreements provided for herein, and the consummation by the
Buyer of all transactions contemplated hereby, have been duly authorized by all
requisite corporate action. This Agreement and all such other agreements and
written obligations entered into and undertaken in connection with the
transactions contemplated hereby constitute the valid and legally binding
obligations of the Buyer, enforceable against the Buyer in accordance with
their respective terms. The execution, delivery and performance of this
Agreement and the agreements provided for herein, and the consummation by the
Buyer of the transactions contemplated hereby and thereby, will not, with or
without the giving of notice or the passage of time or both, (a) violate the
provisions of any law, rule or regulation applicable to the Buyer; (b) violate
the provisions of the Buyer's Certificate of Incorporation or Bylaws; (c)
violate any judgment, decree, order or award of any court, governmental body or
arbitrator; or (d) conflict with
<PAGE> 24
or result in the breach or termination of any term or provision of, or
constitute a default under, or cause any acceleration under, or cause the
creation of any lien, charge or encumbrance upon the properties or assets of
the Buyer pursuant to, any indenture, mortgage, deed of trust or other
agreement or instrument to which it or its properties is a party or by which
the Buyer is or may be bound. Schedule 3.3 attached hereto sets forth a true,
correct and complete list of all consents and approvals of third parties that
are required in connection with the consummation by the Buyer of the
transactions contemplated by this Agreement.
3.4 Regulatory Approvals. All consents, approvals, authorizations and
other requirements prescribed by any law, rule or regulation which must be
obtained or satisfied by the Buyer and which are necessary for the consummation
of the transactions contemplated by this Agreement have been, or will be prior
to the Closing Date, obtained and satisfied.
3.5 Disclosure. No representation or warranty by the Buyer in this
Agreement or in any Exhibit hereto, or in any list, statement, document or
information set forth in or attached to any Schedule delivered or to be
delivered pursuant hereto, contains or will contain any untrue statement of a
material fact or omits or will omit any material fact necessary in order to
make the statements contained therein not misleading.
3.6 Issuance of Shares. The issuance and delivery of the shares of Common
Stock in accordance with this Agreement have been, or prior to the Closing,
will be, duly authorized by all necessary corporate action on the part of the
Buyer, and all the shares of Common Stock have been duly reserved for issuance.
The shares of Common Stock, when issued and delivered in accordance with the
provisions of this Agreement will be duly and validly issued, fully paid and
non-assessable.
4. Access to Information; Public Announcements
4.1 Access to Management, Properties and Records.
(a) From the date of this Agreement until the Closing Date, the Seller
shall afford the officers, attorneys, accountants and other authorized
representatives of the Buyer free and full access upon reasonable notice and
during normal business hours to all management personnel, offices, properties,
books and records of the Seller, so that the Buyer may have full opportunity to
make such investigation as it shall desire to make of the management, business,
properties and affairs of the Seller, and the Buyer shall be permitted to make
abstracts from, or copies of, all such books and records. The Seller shall
furnish to the Buyer such financial and operating data and other information as
to the Assets and the business of the Seller as the Buyer shall reasonably
request.
From the date of this Agreement until the Closing Date, the Buyer shall
provide to the Seller: (i) reasonable access, at reasonable times and upon
reasonable notice, to Seller's senior management personnel; and (ii) copies of
all periodic filings (Reports on Form 10-Q, 8-K) made by the Buyer with the
Securities and Exchange Commission.
<PAGE> 25
(b) If the Buyer, at its option and expense, prior to the Closing Date,
elects to have a report or reports prepared by an engineer or other
professional selected by the Buyer, certifying that the real property
associated with the Assets (i) complies with all applicable federal, state and
local environmental and wetlands laws, rules and regulations and that there is
not now, and never has been, manufacture, storage, or disposal of hazardous
wastes at the real estate in violation of said laws, rules and regulations,
(ii) complies with all applicable building, health and fire codes, and
subdivision control laws, rules and regulations, the Seller shall cooperate
with such engineer or professional to the extent necessary to prepare such
reports, including, without limitation, providing such engineer or professional
access to such real property and necessary records, and arranging interviews
with employees of the Seller. The Buyer does not anticipate that it will elect
to cause any such reports to be prepared.
4.2 Confidentiality. All information not previously disclosed to the
public or generally known to persons engaged in the respective businesses of
the Seller or the Buyer which shall have been furnished by the Buyer or the
Seller to the other party in connection with the transactions contemplated
hereby or as provided pursuant to this Section 4 shall not be disclosed to any
person other than their respective employees (who have a reasonable need for
access to such information), directors, attorneys, accountants or financial
advisors or other than as contemplated herein. In the event that the
transactions contemplated by this Agreement shall not be consummated, all such
information which shall be in writing shall be returned to the party furnishing
the same, including, to the extent reasonably practicable, all copies or
reproductions thereof which may have been prepared, and neither party shall at
any time thereafter disclose to third parties, or use, directly or indirectly,
for its own benefit, any such information, written or oral, about the business
of the other party hereto. Notwithstanding the above, the Buyer (i) may
include in any Registration Statement, prospectus, prospectus supplement, or
periodic report filed by it with the Securities and Exchange Commission or any
state securities commission or with any stock market, and (ii) may disclose in
order to comply with applicable law or upon advice of Buyer's counsel, any
information regarding the Seller, the business of the Seller, the financial
condition of the Seller and the terms of this Agreement.
4.3 Public Announcements. The parties agree that prior to the Closing
Date, except as otherwise required by law, any and all public announcements or
other public communications concerning this Agreement and the purchase of the
Assets by the Buyer shall be subject to the approval of the Buyer. The Buyer
will not make disparaging remarks regarding the Sellers or the Principal,
provided that nothing herein shall prohibit the Buyer from disclosing or
characterizing any information about the
<PAGE> 26
Sellers, the Principal or the transactions contemplated hereby to the extent
necessary or appropriate to comply with applicable laws, including state and
federal securities law.
5. Pre-Closing Covenants of the Seller
From and after the date hereof and until the Closing Date:
5.1 Conduct of Business. The Seller shall carry on its business
diligently and substantially in the same manner as heretofore and shall not
make or institute any unusual or new methods of purchase, sale, shipment or
delivery, lease, management, accounting or operation, except as agreed to in
writing by the Buyer. All of the property of the Seller shall be used,
operated, repaired and maintained in a normal business manner consistent with
past practice.
5.2 Absence of Material Changes. Without the prior written consent of the
Buyer, the Seller shall not:
(a) Incur any obligation or liability (absolute or contingent) that will
become the obligation or liability of Buyer after the Closing, except current
liabilities incurred and obligations under contracts entered into in the
ordinary course of business;
(b) Mortgage, pledge, or subject to any lien, charge or any other
encumbrance any of the Assets;
(c) Sell, assign, or transfer any of the Assets, except for inventory sold
in the ordinary course of business;
(d) Cancel any debts or claims, except in the ordinary course of business;
(e) Merge or consolidate with or into any corporation or other entity;
(f) Make, accrue or become liable for any bonus, profit sharing or
incentive payment payable to or for the benefit of any employees employed at or
rendering services to the Stores, except for accruals under existing plans, if
any, or increase the rate of compensation payable or to become payable by it to
any of its employees, other than increases in the ordinary course of business
consistent with past practice;
(g) Modify, amend, alter or terminate any of its executory contracts of a
material value or which are material in amount, and which are listed on
Schedule 2.16;
(h) Take or permit any act or omission constituting a breach or default
under any Contract listed on Schedule 2.16;
<PAGE> 27
(i) Fail to (i) preserve the possession and control of its assets and
business, (ii) use reasonable efforts (not requiring expenditure of money) to
keep in faithful service its present officers and key employees who render
services at or with respect to the Stores, (iii) use reasonable efforts to
preserve the goodwill of its customers, suppliers, agents, brokers and others
having business relations with it, and (iv) use reasonable efforts to keep and
preserve its business existing on the date hereof until the Closing Date;
(j) Fail to operate its business and maintain its books, accounts and
records in the customary manner and in the ordinary or regular course of
business and maintain in a manner consistent with past practices its business
premises, fixtures, furniture and equipment;
(k) Enter into any leases, contracts, agreements or understandings
relating to the Assets or the Stores other than those entered into in the
ordinary course of business calling for payments which in the aggregate do not
exceed $10,000 for each such lease, contract, agreement or understanding;
(l) Engage any employee to be employed at or render services with respect
to the Stores, for a salary in excess of $20,000 per annum;
(m) Materially alter the terms, status or funding condition of any
Employee Plan;
(n) Commit or agree to do any of the foregoing in the future.
5.3 Taxes. The Seller will, on a timely basis, file all tax returns for
and pay any and all taxes which shall become due or shall have accrued (a) on
account of the operation of the business of the Seller or the ownership of the
Assets on or prior to the Closing Date or (b) on account of the sale of the
Assets (including a pro-rata portion of all personal property and excise taxes
payable with respect to the Assets by the Seller).
5.4 Delivery of Interim Financial Statements. As promptly as possible
following the last day of each month after the date hereof, and in any event
within 15 days after the end of each such month, the Seller shall deliver to
the Buyer its balance sheet and related statements of income, shareholders'
equity, retained earnings and statement of cash flows for the one-month period
then ended, all certified by the Seller's Accountants or Seller's chief
financial officer (collectively, the "Interim Financial
<PAGE> 28
Statements").
5.5 Compliance with Laws. Except to the extent reflected on Schedule
2.17, the Seller will comply with all laws and regulations which are applicable
to it, its ownership of the Assets or to the conduct of its business at the
Stores, and will perform and comply with all contracts, commitments and
obligations by which it is bound to the extent relating to the Stores.
5.6 Continued Truth of Representations and Warranties of the Seller. The
Seller will not take any actions which would result in any of the
representations or warranties set forth in Section 2 hereof being untrue.
5.7 Continuing Obligation to Inform. From time to time prior to the
Closing, the Seller will deliver or cause to be delivered to the Buyer
supplemental information concerning events subsequent to the date hereof which
would render any statement, representation or warranty in this Agreement or any
information contained in any Schedule inaccurate or incomplete in any material
respect at any time after the date hereof until the Closing Date.
5.8 Exclusive Dealing. The Seller will not, directly or indirectly,
through any officer, director, agent or otherwise, (a) solicit, initiate or
encourage submission of proposals or offers from any person relating to any
acquisition or purchase of all or a material portion of the Assets and business
of the Stores, or any equity interest in, the Seller or any equity investment,
merger, consolidation or business combination with the Seller, or (b)
participate in any discussions or negotiations regarding, or furnish to any
other person, any non-public information with respect to, or otherwise
cooperate in any way with, or assist or participate in, facilitate or
encourage, any effort or attempt by any other person to do or seek any of the
foregoing. The Seller shall promptly notify the Buyer if any such proposal or
offer, or any inquiry or contact with any person with respect thereto, is made.
5.9 No Publicity. The Seller shall make no public announcement with
respect to this Agreement or the transactions contemplated hereby without the
express prior written consent of the Buyer. The Seller shall hold in
confidence, and use its best efforts to have all of its officers, directors and
personnel hold in confidence, the terms of this Agreement and the transactions
contemplated hereby.
6. Satisfaction of Conditions; Covenant of Buyer.
6.1 Satisfaction of Conditions. The Seller and the Buyer covenant and
agree to use their commercially reasonable efforts to obtain the satisfaction
of the conditions specified in this Agreement.
6.2 Covenants of Buyer. From and after the date hereof, until the Closing
Date, the Buyer will not take any actions which would result in any of the
representations or warranties of the Buyer set forth in Section 3 hereof
becoming untrue (except for the representation and warranty contained in the
first sentence of Section 3.2
<PAGE> 29
(and to the extent related to Buyer's authorized capital, the last sentence of
Section 3.1), to which this covenant shall not apply).
7. Conditions to Obligations of the Buyer
The obligations of the Buyer under this Agreement are subject to the
fulfillment, at the Closing Date, of the following conditions precedent, each
of which may be waived in writing in the sole discretion of the Buyer:
7.1 Continued Truth of Representations and Warranties of the Seller;
Compliance with Covenants and Obligations. The representations and warranties
of the Seller shall be true in all material respects (other than
representations and warranties which are qualified as to materiality, which
shall be true in all respects) on and as of the Closing Date as though such
representations and warranties were made on and as of such date, except for any
changes permitted by the terms hereof or consented to in writing by the Buyer.
The Seller shall have performed and complied in all material respects with all
terms, conditions, covenants, obligations, agreements and restrictions required
by this Agreement to be performed or complied with by it prior to or at the
Closing Date.
7.2 Corporate Proceedings. All corporate and other proceedings required
to be taken on the part of the Seller to authorize or carry out this Agreement
and to convey, assign, transfer and deliver the Assets shall have been taken.
7.3 Governmental Approvals. All governmental agencies, departments,
bureaus, commissions and similar bodies, the consent, authorization or approval
of which is necessary under any applicable law, rule, order or regulation for
the consummation by the Seller of the transactions contemplated by this
Agreement and the operation of the Seller's business by the Buyer shall have
consented to, authorized, permitted or approved such transactions.
7.4 Consents of Lenders, Lessors and Other Third Parties. The Seller
shall have received all requisite consents and approvals of all lenders,
lessors and other third parties whose consent or approval is required in order
for the Seller to consummate the transactions contemplated by this Agreement,
including, without limitation, those set forth on Schedule 2.3 attached hereto.
7.5 Adverse Proceedings. No action or proceeding by or before any court
or other governmental body shall have been instituted or threatened by any
<PAGE> 30
governmental body or person whatsoever which shall seek to restrain, prohibit
or invalidate the transactions contemplated by this Agreement or which might
affect the right of the Buyer to own or use the Assets after the Closing.
7.6 Opinion of Counsel. The Buyer shall have received an opinion of Taft,
Stettinius & Hollister, counsel to the Seller, dated as of the Closing Date, in
substantially the form attached hereto as Exhibit D, and as to such other
matters as may be reasonably requested by the Buyer or its counsel.
7.7 Board of Directors and Shareholder Approval. The shareholders of the
Seller shall have duly authorized the transactions contemplated by this
Agreement (which authorization shall be made only after delivery to the Seller
by the Buyer of a current Prospectus with respect to the shares of Buyer Common
Stock issuable to the Seller in connection with the consummation of the
transactions contemplated hereby).
7.8 The Assets. Except for the Permitted Encumbrances, at the Closing the
Buyer shall receive good, clear, record and marketable title to the Assets,
free and clear of all liens, liabilities, security interests and encumbrances
of any nature whatsoever (other than the Assumed Liabilities).
7.9 Update. The Seller shall have provided the Buyer with a true, correct
and complete list and amount, as of the Closing Date, of:
(a) videotapes held for sale or rental included in the
Inventory (provided Buyer acknowledges that such list will be
generated from Seller's computer database and may include
videotapes that were lost, stolen or damaged since the most
recent physical inventory);
(b) the Fixed Assets; and
(c) the trade accounts payable and accrued liabilities
assumed pursuant to Subsection 1.4(a)(i) hereof.
7.10 Cash Available for Working Capital Purposes. On the Closing Date,
the Seller will have available at each Store cash in the amounts set forth on
Schedule 1.1(a)(iii) hereof, which cash will be transferred to the Buyer
pursuant to the terms of this Agreement.
7.11 Payables. On the Closing Date, the Seller will have no obligations
to suppliers and vendors of goods and services and other trade creditors in
respect of the Stores which are past due in accordance with their terms and in
no event shall the Seller have any of such obligations outstanding for more
than 60 days as of the Closing (regardless of whether past due).
7.12 Tax Lien Waivers. On or prior to the Closing Date, the Seller shall
have obtained and delivered to the Buyer tax lien waivers or certification that
taxes are current from all jurisdictions in which Assets are located and which
provide such tax
<PAGE> 31
lien waivers.
7.13 Closing Deliveries. The Buyer shall have received at or prior to the
Closing each of the following documents:
(a) the Instrument of Assumption, the Lockup Agreement and a Bill of Sale
substantially in the form attached hereto as Exhibit E;
(b) such instruments of conveyance, assignment and transfer, in form and
substance consistent with this Agreement and satisfactory to the Buyer, as
shall be appropriate to convey, transfer and assign to, and to vest in, the
Buyer, good, clear, record and marketable title to the Assets (subject to the
Permitted Encumbrances);
(c) such certificates of the Seller's officers and such other documents
evidencing satisfaction of the conditions specified in Section 7 as the Buyer
shall reasonably request;
(d) a certificate of the Secretary of State of the
State of Ohio as to the legal existence and good standing (including tax) of
the Seller in Ohio;
(e) certificates of the President of the Seller attesting to the
incumbency of the Seller's officers, respectively, the authenticity of the
resolutions authorizing the transactions contemplated by the Agreement, and the
authenticity and continuing validity of the charter documents delivered
pursuant to Subsection 2.1;
(f) estoppel certificates from each lessor from whom the Seller leases
real or personal property consenting to the assumption of such lease by the
Buyer and representing that, to such lessor's knowledge, there are no
outstanding claims against the Seller under any such lease;
(g) the schedules listed in Subsection 7.9;
(h) cross receipt executed by the Buyer and the Seller;
(i) such other documents, instruments or certificates as the Buyer may
reasonably request.
On or before the Closing, the Seller shall have caused to be delivered to
such
<PAGE> 32
location as Buyer may reasonably request (which location may be Buyer's
principal place of business in Philadelphia, Pennsylvania), the following
items:
(j) such contracts, files and other data and documents (or copies thereof)
pertaining to the Assets or the Seller's business at the Stores as the Buyer
may reasonably request; and
(k) copies of the general ledgers and books of account of the Seller, and
all federal, state and local income, franchise, property and other tax returns
filed by the Seller with respect to the Assets since January 1, 1991.
8. Conditions to Obligations of the Seller
The obligations of the Seller under this Agreement are subject to the
fulfillment, at the Closing Date, of the following conditions precedent, each
of which may be waived in writing at the sole discretion of the Seller:
8.1 Continued Truth of Representations and Warranties of the Buyer;
Compliance with Covenants and Obligations. The representations and warranties
of the Buyer in this Agreement shall be true in all material respects (other
than representations and warranties which are qualified as to materiality,
which shall be true in all respects) on and as of the Closing Date as though
such representations and warranties were made on and as of such date, except
for any changes consented to in writing by the Seller. The Buyer shall have
performed and complied with all terms, conditions, obligations, agreements and
restrictions required by this Agreement to be performed or complied with by it
prior to or at the Closing Date.
8.2 Corporate Proceedings. All corporate and other proceedings required
to be taken on the part of the Buyer to authorize or carry out this Agreement
shall have been taken.
8.3 Governmental Approvals. All governmental agencies, departments,
bureaus, commissions and similar bodies, the consent, authorization or approval
of which is necessary under any applicable law, rule, order or regulation for
the consummation by the Buyer of the transactions contemplated by this
Agreement shall have consented to, authorized, permitted or approved such
transactions.
8.4 Consents of Lenders, Lessors and Other Third Parties. The Buyer shall
have received all requisite consents and approvals of all lenders, lessors and
other third parties whose consent or approval is required in order for the
Buyer to consummate the transactions contemplated by this Agreement, including,
without limitation, those set forth on Schedule 3.3 attached hereto.
8.5 Adverse Proceedings. No action or proceeding by or before any court
or other governmental body shall have been instituted or threatened by any
governmental body or person whatsoever which shall seek to restrain, prohibit
or invalidate the transactions contemplated by this Agreement or which might
affect the
<PAGE> 33
right of the Seller to transfer the Assets.
8.6 Opinion of Counsel. The Seller shall have received an opinion of Hale
and Dorr, counsel to the Buyer, dated as of the Closing Date, in substantially
the form attached hereto as Exhibit F, and as to such other matters as may be
reasonably requested by the Seller or its counsel.
8.7 Closing Deliveries. The Seller shall have received at or prior to the
Closing each of the following documents:
(a) such certificates of the Buyer's officers and such other documents
evidencing satisfaction of the conditions specified in this Section 8 as the
Seller shall reasonably request;
(b) a certificate of the Secretary of State of the State of Delaware as to
the legal existence and good standing (including tax) of the Buyer in Delaware,
and a certificate of the Secretary of State of Ohio, as to the qualification to
transact business and good standing of the Buyer in Ohio;
(c) a certificate of the Secretary of the Buyer attesting to the
incumbency of the Buyer's officers, the authenticity of the resolutions
authorizing the transactions contemplated by this Agreement, and the
authenticity and continuing validity of the charter documents delivered
pursuant to Subsection 3.1;
(d) Instrument of Assumption of Liabilities executed by the Buyer and in
form and substance consistent with this Agreement and satisfactory to the
Seller;
(e) payment of the Base Purchase Price by delivery of cash and
certificates for the Buyer Common Stock issuable in respect thereof;
(f) cross receipt executed by the Buyer and the Seller; and
(g) such other documents, instruments or certificates as the Seller may
reasonably request.
9. Indemnification
9.1 By the Buyer and the Seller and the Principal. The Buyer on the one
hand and the Seller and the Principal, jointly and severally, on the other
hand, each
<PAGE> 34
hereby indemnifies and holds harmless the other against all claims, damages,
losses, liabilities, costs and expenses (including, without limitation,
settlement costs and any legal, accounting or other expenses for investigating
or defending any actions or threatened actions) reasonably incurred by the
Buyer or the Seller in connection with each and all of the following:
(a) Any breach by the indemnifying party of any representation or warranty
in this Agreement;
(b) Any breach of any covenant, agreement or obligation of the
indemnifying party contained in this Agreement or any other agreement,
instrument or document contemplated by this Agreement; and
(c) Any misrepresentation contained in any certificate furnished by the
indemnifying party pursuant to this Agreement or in connection with the
transactions contemplated by this Agreement.
9.2A By the Seller and the Principal. The Seller and the Principal, on a
joint and several basis, further agree to indemnify and hold harmless the Buyer
from any and all claims, damages, losses, liabilities, costs and expenses
(including, without limitation, settlement costs and any legal, accounting or
other expenses for investigating or defending any actions or threatened
actions) reasonably incurred by the Buyer, in connection with each and all of
the following:
(a) Any claims against, or liabilities or obligations of, the Seller or
against the Assets not specifically assumed by the Buyer pursuant this
Agreement;
(b) The failure of the Buyer to obtain the protections afforded by
compliance with the notification and other requirements of the bulk sales laws,
if any, in force in the jurisdictions in which such laws may be applicable to
either the Seller or the transactions contemplated by this Agreement;
(c) Any warranty claim or product liability claim relating to the Seller's
business or operation prior to the Closing Date;
(d) Any tax liabilities or obligations of the Seller; and
(e) Any claims against, or liabilities or obligations of, the Seller with
respect to obligations under Employee Plans (i) not specifically assumed by the
Buyer pursuant to this Agreement or (ii) which are assumed by the Buyer but
relate to periods prior to the Closing Date.
9.2B By the Buyer. The Buyer further agrees to indemnify and hold
harmless the Seller and the Principal from any and all claims, damages, losses,
liabilities, costs and expenses (including, without limitation, settlement
costs and any legal, accounting or other expenses for investigating or
defending any actions or threatened actions) reasonably incurred by the Seller
and the Principal, in connection with each and
<PAGE> 35
all of the following:
(a) The Assumed Liabilities;
(b) Any claim or liability relating to or arising out of the conduct of
the Stores after the Closing Date; and
(c) Any tax liabilities or obligations of the Buyer.
9.3 Claims for Indemnification. Whenever any claim shall arise for
indemnification hereunder the party seeking indemnification (the "Indemnified
Party"), shall promptly notify the party from whom indemnification is sought
(the "Indemnifying Party") of the claim and, when known, the facts constituting
the basis for such claim. In the event of any such claim for indemnification
hereunder resulting from or in connection with any claim or legal proceedings
by a third-party, the notice to the Indemnifying Party shall specify, if known,
the amount or an estimate of the amount of the liability arising therefrom.
The Indemnified Party shall not settle or compromise any claim by a third party
for which it is entitled to indemnification hereunder without the prior written
consent of the Indemnifying Party, which shall not be unreasonably withheld,
unless suit shall have been instituted against it and the Indemnifying Party
shall not have taken control of such suit after notification thereof as
provided in Subsection 9.4 of this Agreement.
9.4 Defense by Indemnifying Party. In connection with any claim giving
rise to indemnity hereunder resulting from or arising out of any claim or legal
proceeding by a person who is not a party to this Agreement, the Indemnifying
Party at its sole cost and expense may, upon written notice to the Indemnified
Party, assume the defense of any such claim or legal proceeding if it
acknowledges to the Indemnified Party in writing its obligations to indemnify
the Indemnified Party with respect to all elements of such claim. The
Indemnified Party shall be entitled to participate in (but not control) the
defense of any such action, with its counsel and at its own expense. If the
Indemnifying Party does not assume the defense of any such claim or litigation
resulting therefrom within 30 days after the date such claim is made, (a) the
Indemnified Party may defend against such claim or litigation, in such manner
as it may deem appropriate, including, but not limited to, settling such claim
or litigation, after giving notice of the same to the Indemnifying Party, on
such terms as the Indemnified Party may deem appropriate, and (b) the
Indemnifying Party shall be entitled to participate in (but not control) the
defense of such action, with its counsel and at its own expense. If the
Indemnifying Party thereafter seeks to question the manner in which the
Indemnified
<PAGE> 36
Party defended such third party claim or the amount or nature of any such
settlement, the Indemnifying Party shall have the burden to prove by a
preponderance of the evidence that the Indemnified Party did not defend or
settle such third party claim in a reasonably prudent manner.
9.5 Payment of Indemnification Obligation. All indemnification by the
Buyer, the Seller or the Principal hereunder shall be effected by payment of
cash or delivery of a cashier's or certified check in the amount of the
indemnification liability.
9.6 Survival of Representations; Claims for Indemnification. All
representations and warranties made by the parties herein or in any instrument
or document furnished in connection herewith shall survive the Closing and any
investigation at any time made by or on behalf of the parties hereto. All such
representations and warranties shall expire on the date which is 18 months
after the Closing Date, except for claims, if any, asserted in writing prior to
such date, which shall survive until finally resolved and satisfied in full.
All claims and actions for indemnity pursuant to this Section 9 for breach of
any representation or warranty shall be asserted or maintained in writing by a
party hereto on or prior to the expiration of such 18-month period.
Notwithstanding the above claims resulting from the failure by the Seller to
pay any tax when due shall expire one year after any applicable statute of
limitations.
9.7 Limitation. Notwithstanding anything in this Agreement to the
contrary, the aggregate liability of the Seller and the Principal to the Buyer
under this Agreement shall not exceed the amount of the Base Purchase Price.
10. Post-Closing Agreements
The parties agree that from and after the Closing Date:
10.1 Proprietary Information.
(a) The Seller shall hold in confidence, and use its best efforts to have
all of its officers, directors and personnel hold in confidence, all knowledge
and information of a secret or confidential nature with respect to the business
of the Seller and shall not disclose, publish or make use of the same without
the consent of the Buyer, except to the extent that such information shall have
become public knowledge other than by breach of this Agreement by the Seller.
(b) The Seller agrees that the remedy at law for any breach of this
Subsection 10.1 would be inadequate and that the Buyer shall be entitled to
injunctive relief in addition to any other remedy it may have upon breach of
any provision of this Subsection 10.1.
10.2 No Solicitation or Hiring of Former Employees. Except as provided by
law, for a period of five years after the Closing Date, neither the Seller nor
any Affiliate thereof shall solicit any person who was an employee of the
Seller on the Closing Date to terminate his employment with the Buyer or to
become an employee of
<PAGE> 37
the Seller or an Affiliate or hire any person who was such an employee of the
Seller on the date hereof or on the Closing Date. Notwithstanding the above,
if employment with Buyer of any family member of any Principal is terminated by
Buyer, Seller and its Affiliates shall be free to hire such terminated
employee.
10.3 Non-Competition Agreement.
(a) For a period of five years after the Closing Date, neither the Seller
nor any Affiliate (including the Principal) thereof shall (i) market, rent or
sell any product which has the same or substantially the same form, function
and primary application as any existing or proposed product marketed, rented or
sold by the Seller on or prior to the Closing Date or (ii) engage in any
business competitive with the business of the Seller as conducted on the date
hereof or on the Closing Date, in the United States or any other country in
which the Seller conducted its business during the two years prior to the
Closing Date.
(b) The parties hereto agree that the duration and geographic scope of the
non-competition provision set forth in this Subsection 10.3 are reasonable. In
the event that any court determines that the duration or the geographic scope,
or both, are unreasonable and that such provision is to that extent
unenforceable, the parties hereto agree that the provision shall remain in full
force and effect for the greatest time period and in the greatest area that
would not render it unenforceable. The parties intend that this
non-competition provision shall be deemed to be a series of separate covenants,
one for each and every county of each and every state of the United States of
America and each and every political subdivision of each and every country
outside the United States of America where this provision is intended to be
effective. The Seller agrees that damages are an inadequate remedy for any
breach of this provision and that the Buyer shall, whether or not it is
pursuing any potential remedies at law, be entitled to equitable relief in the
form of preliminary and permanent injunctions without bond or other security
upon any actual or threatened breach of this non-competition provision.
10.4 Sharing of Data.
(a) The Seller shall have the right for a period of three years following
the Closing Date to have reasonable access to such books, records and accounts,
including financial and tax information, correspondence, production records,
employment records and other similar information as are transferred to the
Buyer pursuant to the terms of this Agreement for the limited purposes of
concluding its
<PAGE> 38
involvement in the business of the Seller prior to the Closing Date and for
complying with its obligations under applicable securities, tax, environmental,
employment or other laws and regulations. The Buyer shall have the right for a
period of three years following the Closing Date to have reasonable access to
those books, records and accounts, including financial and tax information,
correspondence, employment records and other records which are retained by the
Seller pursuant to the terms of this Agreement to the extent that any of the
foregoing relates to the business of the Seller transferred to the Buyer
hereunder or is otherwise needed by the Buyer in order to comply with its
obligations under applicable securities, tax, environmental, employment or
other laws and regulations.
(b) The Seller and the Buyer agree that from and after the Closing Date
they shall cooperate fully with each other to facilitate the transfer of the
Assets from the Seller to the Buyer and the operation thereof by the Buyer.
10.5 Use of Name. Without Buyer's prior written consent, the Seller and
the Principal each agrees not to use the name "Showcase Video", or any
derivation thereof after the Closing Date in connection with any business
related to, competitive with, or an outgrowth of, the business conducted by the
Seller on the date hereof.
10.6 Cooperation in Litigation. Each party hereto will fully cooperate
with the other in the defense or prosecution of any litigation or proceeding
already instituted or which may be instituted hereafter against or by such
party relating to or arising out of the conduct of the business of the Seller
prior to or after the Closing Date (other than litigation arising out the
transactions contemplated by this Agreement). The party requesting such
cooperation shall pay the out-of-pocket expenses (including legal fees and
disbursements) of the party providing such cooperation and of its officers,
directors, employees and agents reasonably incurred in connection with
providing such cooperation, but shall not be responsible to reimburse the party
providing such cooperation for such party's time spent in such cooperation or
the salaries or costs of fringe benefits or similar expenses paid by the party
providing such cooperation to its officers, directors, employees and agents
while assisting in the defense or prosecution of any such litigation or
proceeding.
11. Termination of Agreement
11.1 Termination by Lapse of Time. This Agreement shall terminate at 5:00
p.m., Boston time, on November 15, 1996, if the transactions contemplated
hereby have not been consummated, unless such date is extended by the written
consent of all of the parties hereto.
11.2 Termination by Agreement of the Parties. This Agreement may be
terminated by the mutual written agreement of the parties hereto. In the event
of such termination by agreement, the Buyer shall have no further obligation or
liability to the Seller under this Agreement, and the Seller shall have no
further obligation or liability to the Buyer under this Agreement.
<PAGE> 39
11.3 Termination by Reason of Breach. This Agreement may be terminated by
the Seller, if at any time prior to the Closing there shall occur a breach of
any of the representations, warranties or covenants of the Buyer or the failure
by the Buyer to perform any condition or obligation hereunder, and may be
terminated by the Buyer, if at any time prior to the Closing there shall occur
a breach of any of the representations, warranties or covenants of the Seller
or the failure of the Seller to perform any condition or obligation hereunder.
12. Transfer and Sales Tax
Notwithstanding any provisions of law imposing the burden of such taxes on
the Seller or the Buyer, as the case may be, the Seller shall be responsible
for and shall pay (a) all sales, use and transfer taxes, and (b) all
governmental charges, if any, upon the sale or transfer of any of the Assets
hereunder. If the Seller shall fail to pay such amounts on a timely basis, the
Buyer may pay such amounts to the appropriate governmental authority or
authorities, and the Seller shall promptly reimburse the Buyer for any amounts
so paid by the Buyer.
13. Brokers
13.1 For the Seller. The Seller represents and warrants that it has not
engaged any broker or finder or incurred any liability for brokerage fees,
commissions or finder's fees in connection with the transactions contemplated
by this Agreement. The Seller agrees to indemnify and hold harmless the Buyer
against any claims or liabilities asserted against it by any person acting or
claiming to act as a broker or finder on behalf of the Seller.
13.2 For the Buyer. The Buyer agrees to pay all fees, expenses and
compensation owed to any person, firm or corporation who has acted in the
capacity of broker or finder on its behalf in connection with the transactions
contemplated by this Agreement. The Buyer agrees to indemnify and hold
harmless the Seller against any claims or liabilities asserted against it by
any person acting or claiming to act as a broker or finder on behalf of the
Buyer.
14. Notices
Any notices or other communications required or permitted hereunder shall
be sufficiently given if delivered personally or sent by telex, federal express
or other nationally recognized overnight courier, registered or certified mail,
postage prepaid,
<PAGE> 40
addressed as follows or to such other address of which the parties may have
given notice:
To the Seller: Mr. Ronald L. Davis
c/o Ohio Entertainment Corp.
9353 Ambershire Drive
Dayton, Ohio 45458
With a copy to: Philip Schultz, Esq.
Taft, Stettinius & Hollister
1800 Star Bank Center
425 Walnut Street
Cincinnati, Ohio 45202
To the Buyer: West Coast Entertainment Corporation
9990 Global Road
Philadelphia, Pennsylvania 19111
Attn: Chief Operating Officer
With a copy to: Hale and Dorr
60 State Street
Boston, MA 02109
Attn: John H. Chory, Esq.
Unless otherwise specified herein, such notices or other communications shall
be deemed received (a) on the date delivered (or on which delivery is refused),
if delivered personally; (b) the business day following delivery to an
overnight courier, if sent by overnight courier; (c) three business days after
being sent, if sent by registered or certified mail or (d) the date of actual
receipt, if sent by any other method.
15. Arbitration
(a) Any dispute, controversy or claim between the parties arising out of
or relating to this Agreement, a breach hereof or the transactions contemplated
hereby, shall be settled by arbitration in accordance with the provisions of
this Section 15. Any arbitration pursuant to this Section 15 shall be
conducted by a single arbitrator appointed by the Philadelphia, Pennsylvania
office of the American Arbitration Association upon the request of either
party. The arbitrator shall have a minimum of five years of experience in the
area of business relevant to the particular dispute. Each party shall be
permitted to submit only one proposal to the arbitrator, and the arbitrator
shall be required to choose one of such two proposals as the resolution of the
dispute. The arbitrator may proceed to a resolution notwithstanding the
failure of a party to participate in the proceedings. Each of the parties
shall pay its own costs and expenses in connection with any such arbitration,
and the parties shall share equally in the fees and expenses of the arbitrator.
(b) The parties agree that any such arbitration will occur in
Philadelphia,
<PAGE> 41
Pennsylvania, any such arbitration award shall be final and binding upon the
parties, may be entered in any court having jurisdiction and shall not be
appealable by either party in any court.
16. Successors and Assigns
This Agreement shall be binding upon and inure to the benefit of the
parties hereto and their respective successors and assigns, except that the
Buyer and the Seller may not assign their respective rights or obligations
hereunder without the prior written consent of the other party; provided,
however, that the Buyer may assign this Agreement, and its rights and
obligations hereunder, to a subsidiary or affiliate. Any assignment in
contravention of this provision shall be void. No assignment shall release the
Buyer from any obligation or liability under this Agreement.
17. Entire Agreement; Amendments; Attachments
(a) This Agreement, all Schedules and Exhibits hereto, and all agreements
and instruments to be delivered by the parties pursuant hereto represent the
entire understanding and agreement between the parties hereto with respect to
the subject matter hereof and supersede all prior oral and written and all
contemporaneous oral negotiations, commitments and understandings between such
parties. The Buyer, the Seller and the Principal may amend or modify this
Agreement, in such manner as may be agreed upon, by a written instrument
executed by the Buyer, the Seller and the Principal.
(b) If the provisions of any Schedule or Exhibit to this Agreement are
inconsistent with the provisions of this Agreement, the provision of the
Agreement shall prevail. The Exhibits and Schedules attached hereto or to be
attached hereafter are hereby incorporated as integral parts of this Agreement.
18. Expenses
Except as otherwise expressly provided herein, the Buyer and the Seller
shall each pay their own expenses in connection with this Agreement and the
transactions contemplated hereby. Buyer shall pay the costs and expenses of
any audit conducted by, or at the request of, the Buyer, and Seller shall pay
the costs and expenses of any accounting services provided to the Seller in
connection with the transactions contemplated hereby. Notwithstanding the
above, the Buyer shall reimburse Seller for reasonable travel and related
expenses (approved by the Buyer in advance) which are
<PAGE> 42
incurred in connection with attendance by Seller at meetings requested by the
Buyer.
19. Legal Fees
In the event that legal proceedings are commenced by the Buyer against the
Seller, or by the Seller against the Buyer, in connection with this Agreement
or the transactions contemplated hereby, the party or parties which do not
prevail in such proceedings shall pay the reasonable attorneys' fees and other
costs and expenses, including investigation costs, incurred by the prevailing
party in such proceedings.
20. Governing Law
This Agreement shall be governed by and construed in accordance with the
laws of the State of Delaware.
21. Section Headings
The section headings are for the convenience of the parties and in no way
alter, modify, amend, limit, or restrict the contractual obligations of the
parties.
22. Severability
The invalidity or unenforceability of any provision of this Agreement
shall not affect the validity or enforceability of any other provision of this
Agreement.
23. Counterparts
This Agreement may be executed in one or more counterparts, each of which
shall be deemed to be an original, but all of which shall be one and the same
document.
(end of page)
<PAGE> 43
IN WITNESS WHEREOF, this Agreement has been duly executed by the parties
hereto as of and on the date first above written.
(Corporate Seal) OHIO ENTERTAINMENT CORP.
ATTEST:
/s/ Joni Davis, Secretary By: /s/ Ronald L. Davis
------------------------- ---------------------------------
Title: President
---------------------------
PRINCIPAL:
/s/ Ronald L. Davis
---------------------------------
Ronald L. Davis
(Corporate Seal) WEST COAST ENTERTAINMENT CORPORATION
ATTEST:
By: /s/ Richard Kelly
---------------------------------
/s/ Sarah Rothermel Title: Chief Financial Officer
---------------------------- ------------------------------
<PAGE> 44
Exhibit A
Video Stores
Store #1
2939 Linden Avenue
Dayton, Ohio 45410
Store #2
1201 East Central Avenue
Miamisburg, Ohio 45342
Store #3
5621 Old Troy Pike
Huber Heights, Ohio 45424
Store #4
6233 Far Hills Avenue
Dayton, Ohio 45459
Store #5
3901 Salem Avenue
Dayton, Ohio 45406
<PAGE> 1
(L.A. Video)
ASSET PURCHASE AGREEMENT
By and Among
West Coast Entertainment Corporation,
L. A. Video, Inc.,
Andrew Mitchell and Larry Williams
<PAGE> 2
TABLE OF CONTENTS
Section Page
- ------- ----
1. Sale and Delivery of the Assets 1
1.1 Delivery of the Assets 1
1.2 Further Assurances 3
1.3 Purchase Price 3
1.4 Assumption of Liabilities; Etc. 4
1.5 Allocation of Base Purchase Price and
Assumed Liabilities 4
1.6 The Closing 4
1.7 No Apportionment 5
2. Representations of the Seller 5
2.1 Organization 5
2.2 Capitalization of the Seller 6
2.3 Authorization 6
2.4 Ownership of the Assets 6
2.5 Financial Statements 7
2.6 Absence of Undisclosed Liabilities 8
2.7 Litigation 8
2.8 Insurance 8
2.9 Inventory 8
2.10 Fixed Assets 9
2.11 Leases 9
2.12 Change in Financial Condition and Assets 10
2.13 Tax Matters 10
2.14 Powers of Attorney and Suretyships 11
2.15 Books and Records 11
2.16 Contracts and Commitments 11
2.17 Compliance with Agreements and Laws 13
2.18 Employee Relations 14
2.19 Absence of Certain Changes or Events 15
2.20 Suppliers 16
2.21 Prepayments and Deposits 16
2.22 Trade Names and Other Intangible Property 16
<PAGE> 3
2.23 Employee Benefit Plans 17
2.24 Regulatory Approvals 17
2.25 Indebtedness to and from Officers, Directors and
Shareholders 17
2.26 Disclosure 18
3. Representations of the Buyer 18
3.1 Organization and Authority 18
3.2 Capitalization of the Buyer 18
3.3 Authorization 18
3.4 Regulatory Approvals 19
3.5 Disclosure 19
4. Access to Information; Public Announcements 19
4.1 Access to Management, Properties and Records 19
4.2 Confidentiality 20
4.3 Public Announcements 21
5. Pre-Closing Covenants of the Seller 21
5.1 Conduct of Business 21
5.2 Absence of Material Changes 21
5.3 Taxes 23
5.4 Delivery of Interim Financial Statements 23
5.5 Compliance with Laws 23
5.6 Continued Truth of Representation
and Warranties of the Seller 23
5.7 Continuing Obligation to Inform 23
5.8 Exclusive Dealing 24
5.9 No Publicity 24
6. Satisfaction of Conditions; Liquidated Damages 24
6.1 Satisfaction of Conditions 24
6.2 Liquidated Damages 24
7. Conditions to Obligations of the Buyer 25
7.1 Continued Truth of Representations
and Warranties of the Seller; Compliance with
Covenants and Obligations 25
7.2 Corporate Proceedings 25
7.3 Governmental Approvals 25
<PAGE> 4
7.4 Consents of Lenders, Lessors and Other
Third Parties 25
7.5 Adverse Proceedings 26
7.6 Opinion of Counsel 26
7.7 Board of Directors and Shareholder Approval 26
7.8 The Assets 26
7.9 Update 26
7.10 Opening Cash on Closing Date 29
7.11 Payables 27
7.12 Closing Deliveries 27
8. Conditions to Obligations of the Seller 28
8.1 Continued Truth of Representations and
Warranties of the Buyer; Compliance
with Covenants and Obligations 28
8.2 Corporate Proceedings 28
8.3 Governmental Approvals 28
8.4 Consents of Lenders, Lessors and Other
Third Parties 29
8.5 Adverse Proceedings 29
8.6 Opinion of Counsel 29
8.7 Closing Deliveries 29
9. Indemnification 30
9.1 By the Buyer and the Seller and the Principals 30
9.2 By the Seller and the Principals 30
9.3 Claims for Indemnification 31
9.4 Defense by Indemnifying Party 31
9.5 Payment of Indemnification Obligation 32
9.6 Survival of Representations; Claims for
Indemnification 32
9.7 Indemnification Limitations 33
10. Post-Closing Agreements 33
10.1 Proprietary Information 33
<PAGE> 5
10.2 No Solicitation or Hiring of Former Employees 33
10.3 Non-Competition Agreement 33
10.4 Sharing of Data 34
10.5 Use of Name 35
10.6 Cooperation in Litigation 35
11. Termination of Agreement 35
11.1 Termination by Lapse of Time 35
11.2 Termination by Agreement of the Parties 35
11.3 Termination by Reason of Breach 36
12. Transfer and Sales Tax 36
13. Brokers 36
13.1 For the Seller 36
13.2 For the Buyer 36
14. Notices 36
15. Arbitration 37
16. Successors and Assigns 38
17. Entire Agreement; Amendments; Attachments 38
18. Expenses 38
19. Legal Fees 39
20. Governing Law 39
21. Section Headings 39
22. Severability 39
23. Counterparts 39
Exhibits
A - Instrument of Evidence of Indebtedness
B - Assumption of Liabilities
C - Opinion of Counsel to Seller
<PAGE> 6
D - Bill of Sale
E - Opinion of Hale and Dorr
<PAGE> 7
ASSET PURCHASE AGREEMENT
Agreement made as of November 1, 1996 between West Coast Entertainment
Corporation, a Delaware corporation with its principal office at 9990 Global
Road, Philadelphia, Pennsylvania 19115 (the "Buyer"), L. A. Video, Inc., an
Ohio corporation (the "Seller") and Andrew Mitchell, a resident of the State of
Ohio, and Larry Williams, a resident of the State of Ohio (collectively, the
"Principals" and individually, a "Principal").
Preliminary Statement
The Buyer desires to purchase, and the Seller desires to sell,
substantially all of the assets and business of the Seller, for the
consideration set forth below and the assumption of certain of the Seller's
liabilities set forth below, subject to the terms and conditions of this
Agreement.
NOW, THEREFORE, in consideration of the mutual promises hereinafter set
forth and other good and valuable consideration, the receipt of which is hereby
acknowledged, the parties hereby agree as follows:
1. Sale and Delivery of the Assets
1.1 Delivery of the Assets.
(a) Subject to and upon the terms and conditions of this Agreement, at the
closing of the transactions contemplated by this Agreement (the "Closing"), the
Seller shall sell, transfer, convey, assign and deliver to the Buyer, and the
Buyer shall purchase from the Seller, the following properties, assets and
other claims, rights and interests:
(i) all inventories, videotapes, finished goods, office supplies,
maintenance supplies, packaging materials, spare parts and similar items of the
Seller (collectively, the "Inventory") which exist on the Closing Date (as
defined below);
(ii) all late fees due from customers, accounts, accounts receivable,
notes and notes receivable existing on the Closing Date which are payable to
the Seller, including any security held by the Seller for the payment thereof
(the "Accounts Receivable");
(iii) opening cash (cash on hand) in the amount indicated in Section 7.10
(but
<PAGE> 8
no other cash of Seller, whether or not held in bank accounts), and other
similar assets of the Seller existing on the Closing Date;
(iv) all rights of the Seller under the contracts, agreements, leases,
licenses and other instruments set forth on Schedule 2.16 attached hereto other
than such rights under contracts, agreements, leases, licenses and other
instruments included on Schedule 1.1 (collectively, the "Contract Rights");
(v) all books, records and accounts, correspondence, manuals, customer
lists, employment records, studies, reports or summaries relating to or arising
out of the business of the Seller;
(vi) all rights of the Seller under express or implied warranties from the
suppliers of the Seller;
(vii) all of the machinery, equipment, furniture, leasehold improvements
and construction in progress owned by the Seller on the Closing Date whether or
not reflected as capital assets in the accounting records of the Seller
(collectively, the "Fixed Assets");
(vii) all of the Seller's right, title and interest, if any, in and to all
intangible property rights, including but not limited to inventions,
discoveries, trade secrets, processes, formulas, know-how, United States and
foreign patents, patent applications, trade names, including the trade names
"First Choice Video" or any derivation thereof, trademarks, trademark
registrations, applications for trademark registrations, copyrights, copyright
registrations, owned or, where not owned, used by the Seller in its business
and all licenses and other agreements to which the Seller is a party (as
licensor or licensee) or by which the Seller is bound relating to any of the
foregoing kinds of property or rights to any "know-how" or disclosure or use of
ideas (collectively, the "Intangible Property");
(viii) except as specifically provided in Subsection 1.1(b) hereof, all
other assets, properties, claims, rights and interests of the Seller which
exist on the Closing Date, of every kind and nature and description, whether
tangible or intangible, real, personal or mixed.
(b) Notwithstanding the provisions of paragraph (a) above, the assets to
be transferred to the Buyer under this Agreement shall not include those assets
listed on Schedule 1.1 attached hereto (the "Excluded Assets"), which include
all motor vehicles owned or leased by the Seller, and certain notes receivable
of the Seller, as more fully described on Schedule 1.1.
(c) The Inventory, Accounts Receivable, Contract Rights, Fixed Assets,
Intangible Property and other properties, assets and business of the Seller
described in paragraph (a) above, other than the Excluded Assets, shall be
referred to collectively as the "Assets." The Assets relate to the two retail
video stores which are owned and operated by the Seller, all of which stores
are identified by location on
<PAGE> 9
Schedule I attached hereto, each of which is sometimes hereinafter referred to
as a "Store" and all of which are sometimes hereinafter referred to
collectively as the "Stores."
1.2 Further Assurances. At any time and from time to time after the
Closing, at the Buyer's request and without further consideration, the Seller
promptly shall execute and deliver such instruments of sale, transfer,
conveyance, assignment and confirmation, and take such other action, as the
Buyer may reasonably request to more effectively transfer, convey and assign to
the Buyer, and to confirm the Buyer's title to, all of the Assets, to put the
Buyer in actual possession and operating control thereof, to assist the Buyer
in exercising all rights with respect thereto and to carry out the purpose and
intent of this Agreement.
1.3 Purchase Price.
(a) The purchase price for the assets shall be $570,000 (the "Base
Purchase Price"). The Base Purchase Price shall be subject to adjustment for
prepaid rent as provided in Section 1.7 hereof.
(b) The Base Purchase Price shall be paid as follows. At the Closing, the
Buyer shall deliver to the Seller (i) $130,000 in cash, by bank or cashiers
check, or by wire transfer of immediately available federal funds, and (ii)
delivery of an Instrument of Evidence of Indebtedness, substantially in the
form of Exhibit A attached hereto (the "Instrument"). The Instrument shall
provide for payment of the 40% of balance of the Base Purchase Price on the
first anniversary of the Closing Date, and 60% of the balance of the Base
Purchase Price on the date which is 18 months following the Closing Date. The
Instrument shall provide for payment of such amounts by delivery of that number
of shares of Common Stock, $.01 par value per share, of the Buyer ("Common
Stock") as is determined by dividing (i) $440,000 by (ii) the Market Value (as
defined below). The "Market Value" of a share of Common Stock shall equal the
average of the bid and asked prices per share of Buyer's Common Stock as
reported on the Nasdaq Stock Exchange for each of the fifteen trading days
ending on the business day preceding the Closing Date. Shares of Buyer Common
Stock issued pursuant to the Instrument shall be registered under the
Securities Act of 1933, as amended (the "Securities Act"), pursuant to a
Registration Statement (the "Registration Statement") filed with the Securities
and Exchange Commission (the "SEC").
1.4 Assumption of Liabilities; Etc.
(a) At the Closing, the Buyer shall execute and deliver an
<PAGE> 10
Instrument of Assumption of Liabilities (the "Instrument of Assumption")
substantially in the form attached hereto as Exhibit B, pursuant to which it
shall assume and agree to perform, pay and discharge the following liabilities,
obligations and commitments of the Seller (the "Assumed Liabilities"):
(i) All accounts payable incurred by Seller in the ordinary course of
business to purchase videotapes held for rental during the 30-day period ending
on the Closing Date;
(ii) All obligations of the Seller continuing after the Closing under the
leases and contracts set forth on Schedule 1.4 attached hereto which become due
and payable after, and are attributable to periods occurring after, the Closing
Date; and
(iii) All other liabilities and obligations of the Seller specifically set
forth in Schedule 1.4 attached hereto.
(b) The Buyer shall not at the Closing assume or agree to perform, pay or
discharge, and the Seller shall remain unconditionally liable for, all
obligations, liabilities and commitments, fixed or contingent, of the Seller
other than the Assumed Liabilities.
1.5 Allocation of Base Purchase Price and Assumed Liabilities. The
aggregate amount of the Base Purchase Price and the Assumed Liabilities shall
be allocated among the Assets as set forth on Schedule 1.5 attached hereto.
Such allocation shall be subject to adjustment to the extent that the Base
Purchase Price is adjusted pursuant to Section 1.7 hereof in the manner
specified in such Section.
1.6 The Closing. The closing of the transactions contemplated by this
Agreement (the "Closing") shall take place at the offices of Hale and Dorr, 60
State Street, Boston, Massachusetts 02109, on or before November 15, 1996,
which date shall be specified by Buyer on not less than two days prior notice
(which may be given orally) to the Seller, or, if all of the conditions to the
obligations of the parties to consummate the transactions contemplated hereby
have not been satisfied or waived by such date, on such mutually agreeable
later date as soon as practicable after the satisfaction or waiver of all
conditions to the obligations of the Parties to consummate the transactions
contemplated hereby (the "Closing Date"). The transfer of the Assets by the
Seller to the Buyer shall be deemed to occur at 9:00 a.m., Boston time, on the
date of the Closing (the "Closing Date").
1.7 No Apportionment. The purchase price of the Assets shall not be
subject to any adjustment for any prepaid expenses of the Seller, including
without limitation: (i) prepaid premiums on insurance, (ii) water and sewer
use charges, (iii) security deposits, (iv) transfer taxes and recording fees,
if any, incurred in connection with the transfer of the Assets contemplated
hereby, or (v) real property taxes or other taxes for the then current tax
period, and such prepaid amounts, if any, shall not be added to or deducted
from the Base Purchase Price; provided that the purchase price shall be
increased by prepaid Seller's rent, if any (and any such amount shall increase
<PAGE> 11
the cash portion of the Purchase Price).
2. Representations of the Seller and the Principals
The Seller and each of the Principals, jointly and severally, represent
and warrant to the Buyer as follows:
2.1 Organization. The Seller is a corporation duly organized, validly
existing and in good standing under the laws of the state of Ohio, and has all
requisite power and authority (corporate and other) to own its properties, to
carry on its business as now being conducted, to execute and deliver this
Agreement and the agreements contemplated herein, and to consummate the
transactions contemplated hereby. The Seller is duly qualified to do business
and in good standing in all jurisdictions in which its ownership of property or
the character of its business requires such qualification. Certified copies of
the charter, bylaws and other governing instruments of the Seller, each as
amended to date, have been previously delivered to the Buyer, are complete and
correct, and no amendments have been made thereto or have been authorized since
the date thereof. The Seller does not own any capital stock of or other equity
interest in any corporation, partnership or other entity. Schedule I sets
forth a list of each retail video rental store (including the location of each
such store and the name and address of all owners (if not Seller) of each such
store) owned, operated or licensed directly or indirectly by the Seller or the
Principals, except for the stores owned and operated by First Choice Video,
Inc., an Ohio corporation in which Andrew Mitchell is a stockholder.
2.2 Capitalization of the Seller. The Seller's authorized capital stock
is as specified on Schedule 2.2 attached hereto. There are issued and
outstanding the number of shares of capital stock of the Seller as are
specified on Schedule 2.2 attached hereto, 50% of which shares are held of
record and beneficially by each Principal. All of such shares have been duly
and validly issued and are fully paid and nonassessable.
2.3 Authorization. The execution and delivery of this Agreement by the
Seller, and the agreements provided for herein, and the consummation by the
Seller of all transactions contemplated hereby, have been duly authorized by
all requisite corporate and shareholder action. This Agreement and all such
other agreements and obligations entered into and undertaken in connection with
the transactions contemplated hereby to which the Seller is a party constitute
the valid and legally binding obligations of the Seller, enforceable against
the Seller in accordance with their respective terms. The execution, delivery
and performance by the Seller of this Agreement and the agreements provided for
herein, and the consummation by the Seller
<PAGE> 12
of the transactions contemplated hereby and thereby, will not, with or without
the giving of notice or the passage of time or both, (a) violate the provisions
of any law, rule or regulation applicable to the Seller; (b) violate the
provisions of the charter or Bylaws of the Seller; (c) violate any judgment,
decree, order or award of any court, governmental body or arbitrator; or (d)
conflict with or result in the breach or termination of any term or provision
of, or constitute a default under, or cause any acceleration under, or cause
the creation of any lien, charge or encumbrance upon the properties or assets
of the Seller pursuant to, any indenture, mortgage, deed of trust or other
instrument or agreement to which the Seller is a party or by which the Seller
or any of its properties is or may be bound. Schedule 2.3 attached hereto sets
forth a true, correct and complete list of all consents and approvals of third
parties that are required in connection with the consummation by the Seller of
the transactions contemplated by this Agreement.
2.4 Ownership of the Assets. Schedule 2.4(i) attached hereto sets forth a
true, correct and complete list of all claims, liabilities, liens, pledges,
charges, encumbrances and equities of any kind affecting the Assets
(collectively, the "Encumbrances"). The Seller is, and at the Closing will be,
the true and lawful owner of the Assets, and will have the right to sell and
transfer to the Buyer good, clear, record and marketable title to the Assets,
free and clear of all Encumbrances of any kind, except as set forth on Schedule
2.4(ii) attached hereto (the "Permitted Encumbrances"). The delivery to the
Buyer of the instruments of transfer of ownership contemplated by this
Agreement will vest good and marketable title to the Assets in the Buyer, free
and clear of all liens, mortgages, pledges, security interests, restrictions,
prior assignments, encumbrances and claims of any kind or nature whatsoever,
except for the Permitted Encumbrances.
2.5 Financial Statements.
(a) The Seller has previously delivered to the Buyer its audited balance
sheets as of December 31, 1993, 1994 and 1995 (the "Audited Balance Sheets")
and the related statements of income, shareholders' equity, retained earnings
and statements of cash flows of the Seller for the fiscal years then ended
(collectively, including the Audited Balance Sheets, the "Audited Financial
Statements"). The Seller has also previously delivered to the Buyer its
comparative Balance Sheet (the "Current Balance Sheet") as of June 30, 1996
(the "Balance Sheet Date") and as of June 30, 1995, and the related comparative
statements of income, shareholders' equity, retained earnings and statements of
cash flows of the Seller for the six-month periods then ended (collectively,
the "Current Financial Statements"). The Seller has also included in the
footnotes to the Audited Financial Statements and the Current Financial
Statements (or provided to Buyer supplementally) statements of its quarterly
earnings. The Audited Financial Statements, the Current Financial Statements
and the interim financial statements (the "Interim Financial Statements") to be
delivered pursuant to Subsection 5.4 hereof (collectively, the "Financial
Statements") have been (or will be) prepared in accordance with generally
accepted accounting principles applied consistently with Seller's past practice
and are certified without qualification by the Seller's independent public
accountants, in the case of the Audited Financial Statements, and have been (or
will be) certified by the Seller's chief financial officer, in the case of the
Current Financial
<PAGE> 13
Statements and the Interim Financial Statements.
(b) The Financial Statements fairly present, as of their respective dates,
the financial condition, retained earnings, assets and liabilities of the
Seller and the results of operations of the Seller's business for the periods
indicated; with respect to the contracts and commitments for the sale of goods
or the provision of services by the Seller, the Financial Statements contain
and reflect adequate reserves, which are consistent with previous reserves
taken, for all reasonably anticipated material losses and costs and expenses;
and the amounts shown as accrued for current and deferred income and other
taxes in the Financial Statements are sufficient for the payment of all accrued
and unpaid federal, state and local income taxes, interest, penalties,
assessments or deficiencies applicable to the Seller, whether disputed or not,
for the applicable period then ended and periods prior thereto.
2.6 Absence of Undisclosed Liabilities. Except as and to the extent (a)
reflected and reserved against in the Current Balance Sheet, (b) set forth on
Schedule 2.6 attached hereto or (c) incurred in the ordinary course of business
after the date of the Current Balance Sheet and not material in amount, either
individually or in the aggregate, the Seller does not have any liability or
obligation, secured or unsecured, whether accrued, absolute, contingent,
unasserted or otherwise, affecting the Assets. For purposes of this Subsection
2.6, "material" means any amount in excess of $10,000.
2.7 Litigation. Except as set forth on Schedule 2.7 attached hereto, the
Seller is not a party to, or to the Seller's best knowledge threatened with,
and none of the Assets are subject to, any litigation, suit, action,
investigation, proceeding or controversy before any court, administrative
agency or other governmental authority relating to or affecting the Assets or
the business or condition (financial or otherwise) of the Seller. The Seller
is not in violation of or in default with respect to any judgment, order, writ,
injunction, decree or rule of any court, administrative agency or governmental
authority or any regulation of any administrative agency or governmental
authority.
2.8 Insurance. Schedule 2.8 attached hereto sets forth a true, correct
and complete list of all fire, theft, casualty, general liability, workers
compensation, business interruption, environmental impairment, product
liability, automobile and other insurance policies insuring the Assets or
business of the Seller and of all life insurance policies maintained for any of
its employees, specifying the type of coverage, the amount of coverage, the
premium, the insurer and the expiration date of each such policy (collectively,
the "Insurance Policies") and all claims made under such Insurance Policies
since January 1, 1991. True, correct and complete copies of all of the
Insurance Policies
<PAGE> 14
have been previously delivered by the Seller to the Buyer. The Insurance
Policies are in full force and effect and are in amounts and of a nature which
are adequate and customary for the Seller's business. All premiums due on the
Insurance Policies or renewals thereof have been paid and there is no default
under any of the Insurance Policies.
2.9 Inventory. The Seller shall provide to the Buyer on the Closing Date
(or not more than two days prior thereto) a schedule setting forth a true,
correct and complete list of the Inventory as of the date so provided,
including a description and the book value thereof. Such Inventory shall
consist of items of a quality and quantity which are usable or saleable without
discount in the ordinary course of the business conducted by the Seller. The
value of all items of obsolete materials and of materials of below standard
quality shall have been written down to realizable market value, and the values
at which such Inventory is carried reflect the normal inventory valuation
policy of the Seller of stating the Inventory at the lower of cost or market
value in accordance with generally accepted accounting principles applied
consistently with Seller's past practice.
2.10 Fixed Assets. Seller has provided to Buyer a videotape which shows
all Fixed Assets of the Seller as of the date hereof. Such videotape, as
updated pursuant to Subsection 7.9 hereof, shall show all Fixed Assets of the
Seller as of the Closing Date. All of the Fixed Assets are in good operating
condition and repair, normal wear and tear excepted, are currently used by the
Seller in the ordinary course of business and in the production of products of
the Seller and normal maintenance has been consistently performed with respect
to such Fixed Assets.
2.11 Leases. Schedule 2.11 attached hereto sets forth a true, correct and
complete list as of the date hereof of all leases of real property, identifying
separately each ground lease, to which the Seller is a party (the "Leases").
True, correct and complete copies of the Leases, and all amendments,
modifications and supplemental agreements thereto, have previously been
delivered by the Seller to the Buyer. The Leases are in full force and effect,
are binding and enforceable against each of the parties thereto in accordance
with their respective terms and, except as set forth on Schedule 2.11, have not
been modified or amended since the date of delivery to the Buyer. No party to
any Lease has sent written notice to the other claiming that such party is in
default thereunder, which remains uncured. Except as set forth on Schedule
2.11 attached hereto, there has not occurred any event which would constitute a
breach of or default in the performance of any material covenant, agreement or
condition contained in any Lease, nor has there occurred any event which with
the passage of time or the giving of notice or both would constitute such a
breach or material default. The Seller is not obligated to pay any leasing or
brokerage commission relating to any Lease and, except as set forth on Schedule
2.11 attached hereto, will not have any enforceable obligation to pay any
leasing or brokerage commission upon the renewal of any Lease. No material
construction, alteration or other leasehold improvement work with respect to
any of the Leases remains to be paid for or to be performed by the Seller. The
Financial Statements contain adequate reserves to provide for the restoration
of the properties subject to the Leases at the end of the respective
<PAGE> 15
Lease terms, to the extent required by the Leases.
2.12 Change in Financial Condition and Assets. Except as set forth on
Schedule 2.12 attached hereto, since the Balance Sheet Date, there has been no
change which materially and adversely affects the business, properties, assets,
condition (financial or otherwise) or prospects of the Seller. The Seller has
no knowledge of any existing or threatened occurrence, event or development
which, as far as can be reasonably foreseen, could have a material adverse
effect on the Seller or its business, properties, assets, condition (financial
or otherwise) or prospects.
2.13 Tax Matters.
(a) Except as set forth on Schedule 2.13 to this Agreement:
(i) Within the times and in the manner prescribed by law, the Seller has
filed all Returns which are required to be filed;
(ii) With respect to all amounts in respect of Taxes imposed upon the
Seller for which it could be liable, whether to Taxing Authorities (as, for
example, under law) or to other persons or entities (as, for example, under Tax
allocation agreements), with respect to all taxable periods or portions of
taxable periods ending on or before the Closing Date, all applicable tax laws
and agreements have been fully complied with, and all such amounts required to
be paid by the Seller to Taxing Authorities or others on or before the date
hereof have been paid.
(iii) All Returns filed by the Seller constitute complete and accurate
representations of the respective Tax liabilities of, or attributable to, the
Seller for such years;
(iv) No examination of the Returns of the Seller is currently in progress
nor, to the best knowledge of the Seller, threatened and no unresolved
deficiencies have been asserted or assessed against the Seller as a result of
any audit by any Taxing Authority and no such deficiency has been proposed or
threatened;
(v) There are no liens for Taxes (other than for current Taxes not yet due
and payable) upon the assets of the Seller;
(vi) The Seller is not a person other than a United States person within
the meaning of the Code;
<PAGE> 16
(b) For purposes of this Section 2.13: "Return" means any return,
declaration, report, statement or other document required to be filed in
respect of any Tax; "Tax" or "Taxes" means any federal, state, local, foreign
and other net income, gross income, gross receipts, sales, use, ad valorem,
transfer, franchise, profits, license, lease, service, service use,
withholding, payroll, employment, excise, severance, stamp, occupation,
premium, property, windfall profits, customs duty or other tax, fee, assessment
or charge of any kind whatever, together with interest and any penalty,
addition to tax or additional amount with respect thereto; "Taxing Authority"
means any governmental authority responsible for the imposition of Taxes; and
"Code" means the Internal Revenue Code of 1986, as amended.
2.14 Powers of Attorney and Suretyships. Except as set forth on Schedule
2.14 attached hereto, the Seller has no general or special powers of attorney
outstanding (whether as grantor or grantee thereof) and has no obligation or
liability (whether actual, accrued, accruing, contingent or otherwise) as
guarantor, surety, co-signor, endorser, co-maker, indemnitor or otherwise in
respect of the obligation of any person, corporation, partnership, joint
venture, association, organization or other entity, except as endorser or maker
of checks or letters of credit, respectively, endorsed or made in the ordinary
course of business.
2.15 Books and Records. The general ledgers and books of account of the
Seller, all federal, state and local income, franchise, property and other tax
returns filed by the Seller, with respect to the Assets, and all other books
and records of the Seller are in all material respects complete and correct and
have been maintained in accordance with good business practice and in
accordance with all applicable procedures required by laws and regulations.
2.16 Contracts and Commitments.
(a) Schedule 2.16 attached hereto contains a true, complete and correct
list and description of the following contracts and agreements, whether written
or oral (collectively, the "Contracts"):
(i) all loan agreements, indentures, mortgages and guaranties to which the
Seller is a party or by which the Seller or any of its property is bound;
(ii) all pledges, conditional sale or title retention agreements, security
agreements, equipment obligations, personal property leases and lease purchase
agreements relating to any of the Assets to which the Seller is a party or by
which the Seller or any of its property is bound;
(iii) all contracts, agreements, commitments, purchase orders or other
understandings or arrangements to which the Seller is a party or by which the
Seller or any of its property is bound which (A) involve payments or receipts
by the Seller of more than $2,000 in the case of any single contract,
agreement, commitment, understanding or arrangement under which full
performance (including payment) has not been rendered by all parties thereto or
(B) which may materially adversely affect the
<PAGE> 17
condition (financial or otherwise) or the properties, assets, business or
prospects of the Seller;
(iv) all collective bargaining agreements, employment and consulting
agreements, executive compensation plans, bonus plans, deferred compensation
agreements, pension plans, retirement plans, employee stock option or stock
purchase plans and group life, health and accident insurance and other employee
benefit plans, agreements, arrangements or commitments to which the Seller is a
party or by which the Seller or any of its property is bound;
(v) all agency, distributor, sales representative and similar agreements
to which the Seller is a party;
(vi) all contracts, agreements or other understandings or arrangements
between the Seller any stockholder or Affiliate of the Seller;
(vii) all leases, whether operating, capital or otherwise, under which the
Seller is lessor or lessee; and
(viii) any other material agreement or contract entered into by the
Seller.
(b) Except as set forth on Schedule 2.16 attached hereto:
(i) each Contract is a valid and binding agreement of the Seller,
enforceable against the Seller in accordance with its terms, and the Seller
does not have any knowledge that any Contract is not a valid and binding
agreement of the other parties thereto;
(ii) the Seller has fulfilled all material obligations required pursuant
to the Contracts to have been performed by the Seller on its part prior to the
date hereof, and the Seller has no reason to believe that it will not be able
to fulfill, when due, all of its obligations under the Contracts which remain
to be performed after the date hereof;
(iii) the Seller is not in breach of or default under any Contract, and no
event has occurred which with the passage of time or giving of notice or both
would constitute such a default, result in a loss of rights or result in the
creation of any lien, charge or encumbrance, thereunder or pursuant thereto;
(iv) to the best knowledge of the Seller, there is no existing breach or
default by
<PAGE> 18
any other party to any Contract, and no event has occurred which with the
passage of time or giving of notice or both would constitute a default by such
other party, result in a loss of rights or result in the creation of any lien,
charge or encumbrance thereunder or pursuant thereto;
(v) the Seller is not restricted by any Contract from carrying on its
business anywhere in the world; and
(vi) the Seller has no written or oral Contracts to sell products or
perform services which are expected to be performed at, or to result in, a
loss.
(c) Except as set forth on Schedule 2.3 or Schedule 2.16, the
continuation, validity and effectiveness of each Contract will not be affected
by the transfer thereof to Buyer under this Agreement and all such Contracts
are assignable to Buyer without a consent.
(d) True, correct and complete copies of all Contracts have previously
been delivered by the Seller to the Buyer.
2.17 Compliance with Agreements and Laws. The Seller has all requisite
licenses, permits and certificates, including environmental, health and safety
permits, from federal, state and local authorities necessary to conduct its
business and own and operate its assets (collectively, the "Permits").
Schedule 2.17 attached hereto sets forth a true, correct and complete list of
all such Permits, copies of which have previously been delivered by the Seller
to the Buyer. The Seller is not in violation of any law, regulation or
ordinance (including, without limitation, laws, regulations or ordinances
relating to building, zoning, environmental, disposal of hazardous substances,
land use or similar matters) relating to its properties, the violation of which
could have a material adverse effect on the Seller or its properties. The
business of the Seller does not violate, in any material respect, any federal,
state, local or foreign laws, regulations or orders (including, but not limited
to, any of the foregoing relating to employment discrimination, occupational
safety, environmental protection, hazardous waste (as defined in the Resource
Conservation and Recovery Act, as amended, and the regulations adopted pursuant
thereto), conservation, or corrupt practices, the enforcement of which would
have a material and adverse effect on the results of operations, condition
(financial or otherwise), assets, properties, business or prospects of the
Seller. Except as set forth on Schedule 2.17 attached hereto, the Seller has
not since January 1, 1993 received any notice or communication from any
federal, state or local governmental or regulatory authority or otherwise of
any such violation or noncompliance.
2.18 Employee Relations.
(a) The Seller is in compliance with all federal, state and municipal laws
respecting employment and employment practices, terms and conditions of
employment, and wages and hours, and is not engaged in any unfair labor
practice, and there are no arrears in the payment of wages or social security
taxes.
<PAGE> 19
(b) Except as set forth on Schedule 2.18 attached hereto:
(i) none of the employees of the Seller is represented by any labor union;
(ii) there is no unfair labor practice complaint against the Seller
pending before the National Labor Relations Board or any state or local agency;
(iii) there is no pending labor strike or other material labor trouble
affecting the Seller (including, without limitation, any organizational drive);
(iv) there is no material labor grievance pending against the Seller;
(v) there is no pending representation question respecting the employees
of the Seller; and
(vi) there are no pending arbitration proceedings arising out of or under
any collective bargaining agreement to which the Seller is a party, or to the
best knowledge of the Seller, any basis for which a claim may be made under any
collective bargaining agreement to which the Seller is a party.
(c) Schedule 2.18 attached hereto sets forth a true, correct and complete
list of (a) the employee benefits provided by the Seller to its employees and
all contracts or agreements between the Seller and its employees, and (b) the
Seller's current payroll, including the job descriptions and salary or wage
rates of each of its employees, showing separately for each such person who
received an annual salary in excess of $20,000 the amounts paid or payable as
salary and bonus payments for Seller's most recently completed full fiscal
year.
(d) For purposes of this Subsection 2.18, the term "employee" shall be
construed to include sales agents and other independent contractors who spend a
majority of their working time on the Seller's business.
2.19 Absence of Certain Changes or Events. Except as set forth on
Schedule 2.19 attached hereto, since the Balance Sheet Date, the Seller has not
entered into any transaction which is not in the usual and ordinary course of
business, and, without limiting the generality of the foregoing, the Seller has
not:
(a) Incurred any material obligation or liability for borrowed money;
<PAGE> 20
(b) Discharged or satisfied any lien or encumbrance or paid any obligation
or liability other than current liabilities reflected in the Current Balance
Sheet;
(c) Mortgaged, pledged or subjected to lien, charge or other encumbrance
any of the Assets;
(d) Sold or purchased, assigned or transferred any of its tangible assets
or cancelled any debts or claims, except for inventory sold and raw materials
purchased in the ordinary course of business;
(e) Made any material amendment to or termination of any Contract or done
any act or omitted to do any act which would cause the breach of any Contract;
(f) Suffered any losses, whether insured or uninsured, and whether or not
in the control of the Seller, in excess of $5,000 in the aggregate, or waived
any rights of any value;
(g) Made any changes in compensation of its officers, directors or
employees;
(h) Received notice of any litigation, warranty claim or products
liability claims; or
(i) Made any material change in the terms, status or funding condition of
any Employee Plan, as defined in Subsection 2.23 hereof.
2.20 Suppliers. Schedule 2.20 attached hereto sets forth a true, correct
and complete list of the names and addresses of the ten suppliers of the Seller
which accounted for the largest dollar volume of purchases by the Seller for
its most recently completed fiscal year. None of such suppliers has notified
the Seller that it intends to discontinue its relationship with the Seller.
2.21 Prepayments and Deposits. Schedule 2.21 attached hereto sets forth
all prepayments or deposits from customers for products to be shipped, or
services to be performed, after the Closing Date which have been received by
the Seller as of the date hereof.
2.22 Trade Names and Other Intangible Property.
(a) Schedule 2.22 attached hereto sets forth a true, correct and complete
list and, where appropriate, a description of, all Intangible Property. True,
correct and complete copies of all licenses and other agreements relating to
the Intangible Property have been previously delivered by the Seller to the
Buyer.
(b) Except as otherwise disclosed in Schedule 2.22 attached hereto, the
Seller is the sole and exclusive owner of all Intangible Property and all
<PAGE> 21
designs, permits, labels and packages used on or in connection therewith. The
Intangible Property owned by the Seller is sufficient to conduct the Seller's
business as presently conducted and, when transferred to the Buyer pursuant to
this Agreement, will be sufficient to permit the Buyer to conduct the business
of the Seller as presently conducted by the Seller. The Seller has received no
notice of, and has no knowledge of any basis for, a claim against it that any
of its operations, activities, products or publications infringes on any
patent, trademark, trade name, copyright or other property right of a third
party, or that it is illegally or otherwise using the trade secrets, formulae
or any property rights of others. The Seller has no disputes with or claims
against any third party for infringement by such third party of any trade name
or other Intangible Property of the Seller. The Seller has taken all steps
reasonably necessary to protect its right, title and interest in and to the
Intangible Property.
2.23 Employee Benefit Plans.
(a) Except as set forth on Schedule 2.23, the Seller does not now have or
otherwise contribute to or participate in, and has not in the past had or
otherwise contributed to, any employee benefit plan subject to the Employee
Retirement Income Security Act of 1974.
(b) The Buyer assumes no liabilities with respect to any employee benefit
plan which liability relates to any period prior to the Closing Date,
including, without limitation, any taxes, accrued vacation or sick pay (whether
or not vested), accrued vacation, sick and personal leaves, employee policies,
employee benefit claims or liability to the Pension Benefit Guaranty
Corporation.
(c) Employee Plans. Schedule 2.23 attached hereto contains a true,
correct and complete list of all pension, benefit, profit sharing, retirement,
deferred compensation, welfare, insurance, disability, bonus, vacation pay,
severance pay and other similar plans, programs and agreements, whether reduced
to writing or not, relating to the Seller's employees, or maintained at any
time since January 1, 1991 by the Seller or by any other member of any
controlled group of corporations, group of trades or businesses under common
control, or affiliated service group (as defined for purposes of Section
414(b), (c) and (m), respectively, of the Code) (the "Employee Plans") and,
except as set forth on Schedule 2.23 attached hereto, the Seller has no
obligations, contingent or otherwise, past or present, under applicable law or
the terms of any Employee Plan.
2.24 Regulatory Approvals. All consents, approvals, authorizations and
<PAGE> 22
other requirements prescribed by any law, rule or regulation which must be
obtained or satisfied by the Seller and which are necessary for the execution
and delivery by the Seller of this Agreement and the documents to be executed
and delivered by the Seller in connection herewith are set forth on Schedule
2.24 attached hereto and have been, or will be prior to the Closing Date,
obtained and satisfied.
2.25 Indebtedness to and from Officers, Directors and Shareholders.
Except as set forth on Schedule 2.25 attached hereto, the Seller is not
indebted, directly or indirectly, to any person who is an officer, director or
shareholder of the Seller or any affiliate of any such person in any amount
whatsoever other than for salaries for services rendered or reimbursable
business expenses, all of which have been reflected on the Current Financial
Statements, and no such officer, director, shareholder or affiliate is indebted
to the Seller, except for advances made to employees of the Seller in the
ordinary course of business to meet reimbursable business expenses anticipated
to be incurred by such obligor.
2.26 Disclosure. No representation or warranty by the Seller in this
Agreement or in any Exhibit hereto, or in any list, statement, document or
information set forth in or attached to any Schedule delivered or to be
delivered pursuant to this Agreement, contains or will contain any untrue
statement of a material fact or omits or will omit any material fact necessary
in order to make the statements contained therein not misleading. The Seller
has disclosed to the Buyer all material facts pertaining to the transactions
contemplated by this Agreement.
3. Representations of the Buyer
The Buyer represents and warrants to the Seller as follows:
3.1 Organization and Authority. The Buyer is a corporation duly
organized, validly existing and in good standing under the laws of the state of
Delaware, and has requisite power and authority (corporate and other) to own
its properties and to carry on its business as now being conducted. The Buyer
has full power to execute and deliver this Agreement and the Instrument of
Assumption of Liabilities and to consummate the transactions contemplated
hereby and thereby. Certified copies of the Certificate of Incorporation and
the Bylaws of the Buyer, as amended to date, have been previously delivered to
the Seller, are complete and correct, and no amendments have been made thereto
or have been authorized since the date thereof.
3.2 Capitalization of the Buyer. On the date of this Agreement, the
Buyer's authorized capital stock consists of 25,000,000 shares of Common Stock,
$.01 par value ("Common Stock"), and 2,000,000 shares of Preferred Stock, $.01
par value per share. All of the outstanding shares of capital stock of the
Buyer have been and on the Closing Date will be duly and validly issued and
are, or will be, fully paid and nonassessable.
3.3 Authorization. The execution and delivery of this Agreement by the
Buyer, and the agreements provided for herein, and the consummation by the
Buyer of
<PAGE> 23
all transactions contemplated hereby, have been duly authorized by all
requisite corporate action. This Agreement and all such other agreements and
written obligations entered into and undertaken in connection with the
transactions contemplated hereby constitute the valid and legally binding
obligations of the Buyer, enforceable against the Buyer in accordance with
their respective terms. The execution, delivery and performance of this
Agreement and the agreements provided for herein, and the consummation by the
Buyer of the transactions contemplated hereby and thereby, will not, with or
without the giving of notice or the passage of time or both, (a) violate the
provisions of any law, rule or regulation applicable to the Buyer; (b) violate
the provisions of the Buyer's Certificate of Incorporation or Bylaws; (c)
violate any judgment, decree, order or award of any court, governmental body or
arbitrator; or (d) conflict with or result in the breach or termination of any
term or provision of, or constitute a default under, or cause any acceleration
under, or cause the creation of any lien, charge or encumbrance upon the
properties or assets of the Buyer pursuant to, any indenture, mortgage, deed of
trust or other agreement or instrument to which it or its properties is a party
or by which the Buyer is or may be bound. Schedule 3.3 attached hereto sets
forth a true, correct and complete list of all consents and approvals of third
parties that are required in connection with the consummation by the Buyer of
the transactions contemplated by this Agreement.
3.4 Regulatory Approvals. All consents, approvals, authorizations and
other requirements prescribed by any law, rule or regulation which must be
obtained or satisfied by the Buyer and which are necessary for the consummation
of the transactions contemplated by this Agreement have been, or will be prior
to the Closing Date, obtained and satisfied.
3.5 Disclosure. No representation or warranty by the Buyer in this
Agreement or in any Exhibit hereto, or in any list, statement, document or
information set forth in or attached to any Schedule delivered or to be
delivered pursuant hereto, contains or will contain any untrue statement of a
material fact or omits or will omit any material fact necessary in order to
make the statements contained therein not misleading.
4. Access to Information; Public Announcements
4.1 Access to Management, Properties and Records.
(a) From the date of this Agreement until the Closing Date, the Seller
shall afford the officers, attorneys, accountants and other authorized
representatives of the Buyer free and full access upon reasonable notice and
during
<PAGE> 24
normal business hours to all management personnel, offices, properties, books
and records of the Seller, so that the Buyer may have full opportunity to make
such investigation as it shall desire to make of the management, business,
properties and affairs of the Seller, and the Buyer shall be permitted to make
abstracts from, or copies of, all such books and records. The Seller shall
furnish to the Buyer such financial and operating data and other information as
to the Assets and the business of the Seller as the Buyer shall reasonably
request.
(b) If the Buyer, at its option and expense, prior to the Closing Date,
elects to have a report or reports prepared by an engineer or other
professional selected by the Buyer, certifying that the real property
associated with the Assets (i) complies with all applicable federal, state and
local environmental and wetlands laws, rules and regulations and that there is
not now, and never has been, manufacture, storage, or disposal of hazardous
wastes at the real estate in violation of said laws, rules and regulations,
(ii) complies with all applicable building, health and fire codes, and
subdivision control laws, rules and regulations, the Seller shall cooperate
with such engineer or professional to the extent necessary to prepare such
reports, including, without limitation, providing such engineer or professional
access to such real property and necessary records, and arranging interviews
with employees of the Seller.
(c) The Seller shall authorize the release to the Buyer of all files
pertaining to the Seller, the Assets or the business or operations of the
Seller held by any federal, state, county or local authorities, agencies or
instrumentalities.
4.2 Confidentiality. All information not previously disclosed to the
public or generally known to persons engaged in the respective businesses of
the Seller or the Buyer which shall have been furnished by the Buyer or the
Seller to the other party in connection with the transactions contemplated
hereby or as provided pursuant to this Section 4 shall not be disclosed to any
person other than their respective employees, directors, attorneys, accountants
or financial advisors or other than as contemplated herein. In the event that
the transactions contemplated by this Agreement shall not be consummated, all
such information which shall be in writing shall be returned to the party
furnishing the same, including, to the extent reasonably practicable, all
copies or reproductions thereof which may have been prepared, and neither party
shall at any time thereafter disclose to third parties, or use, directly or
indirectly, for its own benefit, any such information, written or oral, about
the business of the other party hereto. Notwithstanding the above, the Buyer
may include in any Registration Statement, prospectus, periodic report or any
other disclosure made on advice of counsel information regarding the Seller,
the business of the Seller, the financial condition of the Seller and the terms
of this Agreement.
4.3 Public Announcements. The parties agree that prior to the Closing
Date, except as otherwise required by law, any and all public announcements or
other public communications concerning this Agreement and the purchase of the
Assets by the Buyer shall be subject to the approval of the Buyer.
5. Pre-Closing Covenants of the Seller
<PAGE> 25
From and after the date hereof and until the Closing Date:
5.1 Conduct of Business. The Seller shall carry on its business
diligently and substantially in the same manner as heretofore and shall not
make or institute any unusual or new methods of purchase, sale, shipment or
delivery, lease, management, accounting or operation, except as agreed to in
writing by the Buyer. All of the property of the Seller shall be used,
operated, repaired and maintained in a normal business manner consistent with
past practice.
5.2 Absence of Material Changes. Without the prior written consent of the
Buyer, the Seller shall not:
(a) Take any action to amend its charter or Bylaws;
(b) Issue any stock, bonds or other corporate securities or grant any
option or issue any warrant to purchase or subscribe to any of such securities
or issue any securities convertible into such securities;
(c) Incur any obligation or liability (absolute or contingent), except
current liabilities incurred and obligations under contracts entered into in
the ordinary course of business;
(d) Purchase or redeem any shares of its capital stock;
(e) Mortgage, pledge, or subject to any lien, charge or any other
encumbrance any of the Assets;
(f) Sell, assign, or transfer any of the Assets, except for inventory sold
in the ordinary course of business, at a normal profit margin, and for not less
than replacement cost;
(g) Cancel any debts or claims, except in the ordinary course of business;
(h) Merge or consolidate with or into any corporation or other entity;
(i) Make, accrue or become liable for any bonus, profit sharing or
incentive payment, except for accruals under existing plans, if any, or
increase the rate of
<PAGE> 26
compensation payable or to become payable by it to any of its officers,
directors or employees, other than increases in the ordinary course of business
consistent with past practice;
(j) Make any election or give any consent under the Code or the tax
statutes of any state or other jurisdiction or make any termination, revocation
or cancellation of any such election or any consent or compromise or settle any
claim for past or present tax due;
(k) Modify, amend, alter or terminate any of its executory contracts of a
material value or which are material in amount;
(l) Take or permit any act or omission constituting a breach or default
under any contract, indenture or agreement by which it or its properties are
bound;
(m) Fail to (i) preserve the possession and control of its assets and
business, (ii) keep in faithful service its present officers and key employees,
(iii) preserve the goodwill of its customers, suppliers, agents, brokers and
others having business relations with it, and (iv) keep and preserve its
business existing on the date hereof until after the Closing Date;
(n) Fail to operate its business and maintain its books, accounts and
records in the customary manner and in the ordinary or regular course of
business and maintain in good repair its business premises, fixtures, furniture
and equipment;
(o) Enter into any leases, contracts, agreements or understandings other
than those entered into in the ordinary course of business calling for payments
which in the aggregate do not exceed $5,000 for each such lease, contract,
agreement or understanding;
(p) Engage any employee for a salary in excess of $20,000 per annum (other
than an employee hired to replace a person employed on the date hereof who
ceases to be employed by the Seller, at a salary which is equal to or less than
the salary of such replaced employee);
(q) Materially alter the terms, status or funding condition of any
Employee Plan;
(r) Make any loans to any person or entity; or
(s) Commit or agree to do any of the foregoing in the future.
5.3 Taxes. The Seller will, on a timely basis, file all tax returns for
and pay any and all taxes which shall become due or shall have accrued (a) on
account of the operation of the business of the Seller or the ownership of the
Assets on or prior to the Closing Date or (b) on account of the sale of the
Assets (including a pro-rata portion
<PAGE> 27
of all personal property and excise taxes payable with respect to the Assets by
the Seller).
5.4 Delivery of Interim Financial Statements. As promptly as possible
following the last day of each month after the date hereof, and in any event
within 30 days after the end of each such month, the Seller shall deliver to
the Buyer its balance sheet and related statements of income, shareholders'
equity, retained earnings and statement of cash flow for the one-month period
then ended, all certified by the Seller's Accountants or Seller's chief
financial officer (collectively, the "Interim Financial Statements"). In
addition, the Seller shall, not less than 10 days prior to the Closing Date,
provide to the Buyer Interim Financial Statements for the months of July,
August and September 1996.
5.5 Compliance with Laws. The Seller will comply with all laws and
regulations which are applicable to it, its ownership of the Assets or to the
conduct of its business and will perform and comply with all contracts,
commitments and obligations by which it is bound.
5.6 Continued Truth of Representations and Warranties of the Seller. The
Seller will not take any actions which would result in any of the
representations or warranties set forth in Section 2 hereof being untrue.
5.7 Continuing Obligation to Inform. From time to time prior to the
Closing, the Seller will deliver or cause to be delivered to the Buyer
supplemental information concerning events subsequent to the date hereof which
would render any statement, representation or warranty in this Agreement or any
information contained in any Schedule inaccurate or incomplete in any material
respect at any time after the date hereof until the Closing Date.
5.8 Exclusive Dealing. The Seller will not, directly or indirectly,
through any officer, director, agent or otherwise, (a) solicit, initiate or
encourage submission of proposals or offers from any person relating to any
acquisition or purchase of all or a material portion of the Assets, or any
equity interest in, the Seller or any equity investment, merger, consolidation
or business combination with the Seller, or (b) participate in any discussions
or negotiations regarding, or furnish to any other person, any non-public
information with respect to, or otherwise cooperate in any way with, or assist
or participate in, facilitate or encourage, any effort or attempt by any other
person to do or seek any of the foregoing. The Seller shall promptly notify
the Buyer if any such proposal or offer, or any inquiry or contact with any
person with respect thereto, is
<PAGE> 28
made.
5.9 No Publicity. The Seller shall make no public announcement with
respect to this Agreement or the transactions contemplated hereby without the
express prior written consent of the Buyer. The Seller shall hold in
confidence, and use its best efforts to have all of its officers, directors and
personnel hold in confidence, the terms of this Agreement and the transactions
contemplated hereby.
6. Satisfaction of Conditions; Liquidated Damages.
6.1 Satisfaction of Conditions. The Seller and the Buyer covenant and
agree to use their commercially reasonable efforts to obtain the satisfaction
of the conditions specified in this Agreement.
6.2 Liquidated Damages.
(a) The parties hereto agree that the harm suffered by the Buyer as a
result of a breach of this Agreement by the Seller and the failure by the
Seller to consummate the transactions contemplated hereby is difficult to
accurately estimate. The parties agree, based on all present circumstances,
that $500,000 represents a reasonable estimate of the damages, including lost
opportunity costs, which would be suffered by the Buyer upon a failure to close
due to a breach of the Seller.
(b) If Seller (i) willfully or intentionally breaches any representation,
warranty or covenant under this Agreement, willfully or intentionally fails to
perform any condition or obligation required to be performed hereunder, or
fails to disclose a material fact pertaining to the Assets or the transactions
contemplated by this Agreement to the Buyer; or (ii) either elects not to sell
the Assets to the Buyer pursuant to the terms of this Agreement, sells or
otherwise transfers the Assets or enters into an agreement (in principle or
otherwise) with any other person or entity to sell any shares of the capital
stock of Seller, to merge with or into, or consolidate Seller with any person
or entity other than the Buyer, to sell more than 10% of the Assets to any
other person or entity or to effect any other transaction with any other person
or entity that would preclude or otherwise frustrate the transfer of the Assets
to the Buyer (a "Willful Breach"), the Seller will pay to the Buyer the sum of
$500,000, as liquidated damages. The remedy set forth in this paragraph (b)
shall be available to the Buyer only in the event that the transactions
contemplated hereby are not consummated.
7. Conditions to Obligations of the Buyer
The obligations of the Buyer under this Agreement are subject to the
fulfillment, at the Closing Date, of the following conditions precedent, each
of which may be waived in writing in the sole discretion of the Buyer:
7.1 Continued Truth of Representations and Warranties of the Seller;
Compliance with Covenants and Obligations. The representations and warranties
of the Seller shall be true on and as of the Closing Date as though such
representations and
<PAGE> 29
warranties were made on and as of such date, except for any changes permitted
by the terms hereof or consented to in writing by the Buyer. The Seller shall
have performed and complied with all terms, conditions, covenants, obligations,
agreements and restrictions required by this Agreement to be performed or
complied with by it prior to or at the Closing Date.
7.2 Corporate Proceedings. All corporate and other proceedings required
to be taken on the part of the Seller to authorize or carry out this Agreement
and to convey, assign, transfer and deliver the Assets shall have been taken.
7.3 Governmental Approvals. All governmental agencies, departments,
bureaus, commissions and similar bodies, the consent, authorization or approval
of which is necessary under any applicable law, rule, order or regulation for
the consummation by the Seller of the transactions contemplated by this
Agreement and the operation of the Seller's business by the Buyer shall have
consented to, authorized, permitted or approved such transactions.
7.4 Consents of Lenders, Lessors and Other Third Parties. The Seller
shall have received all requisite consents and approvals of all lenders,
lessors and other third parties whose consent or approval is required in order
for the Seller to consummate the transactions contemplated by this Agreement,
including, without limitation, those set forth on Schedule 2.3 attached hereto.
7.5 Adverse Proceedings. No action or proceeding by or before any court
or other governmental body shall have been instituted or threatened by any
governmental body or person whatsoever which shall seek to restrain, prohibit
or invalidate the transactions contemplated by this Agreement or which might
affect the right of the Buyer to own or use the Assets after the Closing.
7.6 Opinion of Counsel. The Buyer shall have received an opinion of
Jablinski, Folino, Roberts & Martin, counsel to the Seller, dated as of the
Closing Date, as to the matters specified in Exhibit C, and as to such other
matters as may be reasonably requested by the Buyer or its counsel.
7.7 Board of Directors and Shareholder Approval. The shareholders of the
Seller shall have duly authorized the transactions contemplated by this
Agreement (after delivery by the Buyer to the Principals of a Prospectus
relating to the shares deliverable by Buyer hereunder).
<PAGE> 30
7.8 The Assets. Except for the Permitted Encumbrances, at the Closing the
Buyer shall receive good, clear, record and marketable title to the Assets,
free and clear of all liens, liabilities, security interests and encumbrances
of any nature whatsoever.
7.9 Update. The Seller shall have provided the Buyer with a true, correct
and complete list and amount, as of the Closing Date, of:
(a) the Inventory (as contemplated by Section 2.9);
(b) the Fixed Assets (which update may be provided by
videotape);
(c) the Accounts Receivable, including an aging
thereof; and
(d) the trade accounts payable and accrued liabilities
assumed pursuant to Section 1.4(a)(i) and (ii) hereof.
7.10 Opening Cash on Closing Date. On the Closing Date, the Seller will
have opening cash (cash on hand) for each Store in the amount indicated on
Schedule I attached hereto for such Store, which cash will be transferred to
the Buyer pursuant to the terms of this Agreement.
7.11 Payables. (a) On the Closing Date, the Seller will have no
obligations to suppliers and vendors of goods and services and other trade
creditors which are past due in accordance with their terms and in no event
shall the Seller have any of such obligations outstanding for more than 60 days
as of the Closing.
(b) On the Closing Date, the Seller will have no outstanding obligations
to any Affiliate (including any stockholder) except as set forth on Schedule
7.11.
(c) On the Closing Date, the Seller will have no liabilities to employees
for accrued vacation or sick pay, employee benefit claims or liabilities to the
Pension Benefit Guaranty Corporation.
7.12 Closing Deliveries. The Buyer shall have received at or prior to the
Closing each of the following documents:
(a) a bill of sale substantially in the form attached hereto as Exhibit D;
(b) such instruments of conveyance, assignment and transfer, in form and
substance satisfactory to the Buyer, as shall be appropriate to convey,
transfer and assign to, and to vest in, the Buyer, good, clear, record and
marketable title to the Assets;
(c) such contracts, files and other data and documents pertaining to the
Assets or the Seller's business as the Buyer may reasonably request;
<PAGE> 31
(d) copies of the general ledgers and books of account of the Seller, and
all federal, state and local income, franchise, property and other tax returns
filed by the Seller with respect to the Assets since January 1, 1991;
(e) such certificates of the Seller's officers and such other documents
evidencing satisfaction of the conditions specified in Section 7 as the Buyer
shall reasonably request;
(f) a certificate of the Secretary of State (or comparable issuing
authority) of the state in which the Seller is incorporated as to the legal
existence and good standing (including tax) of the Seller in such state, and a
certificate of the Secretary of State (or comparable issuing authority) of each
state or jurisdiction in which the Seller is qualified to transact business, as
to Seller's qualification to do business in such state or jurisdiction;
(g) certificates of the Clerk or Secretary of the Seller attesting to the
incumbency of the Seller's officers, respectively, the authenticity of the
resolutions authorizing the transactions contemplated by the Agreement, and the
authenticity and continuing validity of the charter documents delivered
pursuant to Subsection 2.1;
(h) estoppel certificates from each lessor from whom the Seller leases
real or personal property consenting to the assumption of such lease by the
Buyer and representing that there are no outstanding claims against the Seller
under any such lease;
(i) the items listed in Subsection 7.9;
(j) such other documents, instruments or certificates as the Buyer may
reasonably request.
8. Conditions to Obligations of the Seller
The obligations of the Seller under this Agreement are subject to the
fulfillment, at the Closing Date, of the following conditions precedent, each
of which may be waived in writing at the sole discretion of the Seller:
8.1 Continued Truth of Representations and Warranties of the Buyer;
Compliance with Covenants and Obligations. The representations and warranties
of the Buyer in this Agreement shall be true on and as of the Closing Date as
though such
<PAGE> 32
representations and warranties were made on and as of such date, except for any
changes consented to in writing by the Seller. The Buyer shall have performed
and complied with all terms, conditions, obligations, agreements and
restrictions required by this Agreement to be performed or complied with by it
prior to or at the Closing Date.
8.2 Corporate Proceedings. All corporate and other proceedings required
to be taken on the part of the Buyer to authorize or carry out this Agreement
shall have been taken.
8.3 Governmental Approvals. All governmental agencies, departments,
bureaus, commissions and similar bodies, the consent, authorization or approval
of which is necessary under any applicable law, rule, order or regulation for
the consummation by the Buyer of the transactions contemplated by this
Agreement shall have consented to, authorized, permitted or approved such
transactions.
8.4 Consents of Lenders, Lessors and Other Third Parties. The Buyer shall
have received all requisite consents and approvals of all lenders, lessors and
other third parties whose consent or approval is required in order for the
Buyer to consummate the transactions contemplated by this Agreement, including,
without limitation, those set forth on Schedule 3.3 attached hereto.
8.5 Adverse Proceedings. No action or proceeding by or before any court
or other governmental body shall have been instituted or threatened by any
governmental body or person whatsoever which shall seek to restrain, prohibit
or invalidate the transactions contemplated by this Agreement or which might
affect the right of the Seller to transfer the Assets.
8.6 Opinion of Counsel. The Seller shall have received an opinion of Hale
and Dorr, counsel to the Buyer, dated as of the Closing Date, in substantially
the form attached hereto as Exhibit E, and as to such other matters as may be
reasonably requested by the Seller or its counsel.
8.7 Closing Deliveries. The Seller shall have received at or prior to the
Closing each of the following documents:
(a) such certificates of the Buyer's officers and such other documents
evidencing satisfaction of the conditions specified in this Section 8 as the
Seller shall reasonably request;
(b) a certificate of the Secretary of State of the State of Delaware as to
the legal existence and good standing (including tax) of the Buyer in Delaware;
(c) a certificate of the Secretary of the Buyer attesting to the
incumbency of the Buyer's officers, the authenticity of the resolutions
authorizing the transactions contemplated by this Agreement, and the
authenticity and continuing validity of the charter documents delivered
pursuant to Subsection 3.1;
<PAGE> 33
(d) Instrument of Assumption of Liabilities executed by the Buyer and
accepted by the Seller, and Instrument of Evidence of Indebtedness executed by
the Buyer;
(e) payment of the cash portion of the Base Purchase Price; and
(f) such other documents, instruments or certificates as the Seller may
reasonably request.
9. Indemnification
9.1 By the Buyer and the Seller and the Principals. The Buyer on the one
hand and the Seller and the Principals, jointly and severally (if more than one
Principal), on the other hand, each hereby agrees to indemnify and hold
harmless the other against all claims, damages, losses, liabilities, costs and
expenses (including, without limitation, settlement costs and any legal,
accounting or other expenses for investigating or defending any actions or
threatened actions) reasonably incurred by the Buyer or the Seller in
connection with each and all of the following:
(a) Any breach by the indemnifying party of any representation or warranty
in this Agreement;
(b) Any breach of any covenant, agreement or obligation of the
indemnifying party contained in this Agreement or any other agreement,
instrument or document contemplated by this Agreement; and
(c) Any misrepresentation contained in any statement, certificate or
schedule furnished by the indemnifying party pursuant to this Agreement or in
connection with the transactions contemplated by this Agreement.
9.2 By the Seller and the Principals. The Seller and the Principals, on a
joint and several basis, further agree to indemnify and hold harmless the Buyer
from any and all claims, damages, losses, liabilities, costs and expenses
(including, without limitation, settlement costs and any legal, accounting or
other expenses for investigating or defending any actions or threatened
actions) reasonably incurred by the Buyer, in connection with each and all of
the following:
(a) Any claims against, or liabilities or obligations of, the Seller or
against the Assets not specifically assumed by the Buyer pursuant this
Agreement,
<PAGE> 34
including without limitation, any liabilities or obligations of the Seller for
accrued vacation or sick pay;
(b) The failure of the Buyer to obtain the protections afforded by
compliance with the notification and other requirements of the bulk sales laws
in force in the jurisdictions in which such laws may be applicable to either
the Seller or the transactions contemplated by this Agreement;
(c) Any violation by the Seller of, or any failure by the Seller to comply
with, any law, ruling, order, decree, regulation or zoning, environmental or
permit requirement applicable to the Seller, the Assets or its business,
whether or not any such violation or failure to comply has been disclosed to
the Buyer, including any costs incurred by the Buyer (i) in order to bring the
Assets into compliance with environmental laws as a consequence of
noncompliance with such laws on the Closing Date or (ii) in connection with the
transfer of the Assets;
(d) Any warranty claim or product liability claim relating to the Seller's
business or operation prior to the Closing Date;
(e) Any tax liabilities or obligations of the Seller or the Principals;
and
(f) Any claims, liabilities or obligations of, the Seller with respect to
obligations under Employee Plans not specifically assumed by the Buyer pursuant
to this Agreement.
9.3 Claims for Indemnification. Whenever any claim shall arise for
indemnification hereunder the party seeking indemnification (the "Indemnified
Party"), shall promptly notify the party from whom indemnification is sought
(the "Indemnifying Party") of the claim and, when known, the facts constituting
the basis for such claim. In the event of any such claim for indemnification
hereunder resulting from or in connection with any claim or legal proceedings
by a third-party, the notice to the Indemnifying Party shall specify, if known,
the amount or an estimate of the amount of the liability arising therefrom.
The Indemnified Party shall not settle or compromise any claim by a third party
for which it is entitled to indemnification hereunder without the prior written
consent of the Indemnifying Party, which shall not be unreasonably withheld,
unless suit shall have been instituted against it and the Indemnifying Party
shall not have taken control of such suit after notification thereof as
provided in Subsection 9.4 of this Agreement.
9.4 Defense by Indemnifying Party. In connection with any claim giving
rise to indemnity hereunder resulting from or arising out of any claim or legal
proceeding by a person who is not a party to this Agreement, the Indemnifying
Party at its sole cost and expense may, upon written notice to the Indemnified
Party, assume the defense of any such claim or legal proceeding if it
acknowledges to the Indemnified Party in writing its obligations to indemnify
the Indemnified Party with respect to all elements of such claim. The
Indemnified Party shall be entitled to participate in (but not
<PAGE> 35
control) the defense of any such action, with its counsel and at its own
expense. If the Indemnifying Party does not assume the defense of any such
claim or litigation resulting therefrom within 30 days after the date such
claim is made, (a) the Indemnified Party may defend against such claim or
litigation, in such manner as it may deem appropriate, including, but not
limited to, settling such claim or litigation, after giving notice of the same
to the Indemnifying Party, on such terms as the Indemnified Party may deem
appropriate, and (b) the Indemnifying Party shall be entitled to participate in
(but not control) the defense of such action, with its counsel and at its own
expense. If the Indemnifying Party thereafter seeks to question the manner in
which the Indemnified Party defended such third party claim or the amount or
nature of any such settlement, the Indemnifying Party shall have the burden to
prove by a preponderance of the evidence that the Indemnified Party did not
defend or settle such third party claim in a reasonably prudent manner.
9.5 Payment of Indemnification Obligation. All indemnification by the
Buyer, the Seller or the Principals hereunder shall be effected by payment of
cash or delivery of a cashier's or certified check in the amount of the
indemnification liability. The Buyer may offset, against shares of its Common
Stock deliverable pursuant to the Instrument of Evidence of Indebtedness,
amounts owed pursuant hereto by Seller to Buyer. For purposes of calculating a
reduction in the number of shares issuable pursuant to such Instrument, each
share shall have a value equal to the Market Value.
9.6 Survival of Representations; Claims for Indemnification. All
representations and warranties made by the parties herein or in any instrument
or document furnished in connection herewith shall survive the Closing and any
investigation at any time made by or on behalf of the parties hereto. All such
representations and warranties shall expire on the second anniversary of the
Closing Date, except for claims, if any, asserted in writing prior to such
second anniversary, which shall survive until finally resolved and satisfied in
full. All claims and actions for indemnity pursuant to this Section 9 for
breach of any representation or warranty shall be asserted or maintained in
writing by a party hereto on or prior to the expiration of such two-year
period. Notwithstanding the above claims resulting from the failure by the
Seller to pay when due any tax or claims relating to Seller's employee benefit
plans shall expire one year after any applicable statute of limitations.
9.7 Indemnification Limitations. Notwithstanding the provisions of this
Section 9 to the contrary, (i) the Seller and the Principals shall be liable
for only that portion of the aggregate amount due under this Section 9 which
exceeds $32,050, and (ii) the Buyer shall be liable for only that portion of
the aggregate amount due under this
<PAGE> 36
Section 9 which exceeds $32,050, provided that, no such deductible shall be
applicable to Buyer in respect of any failure by the Buyer to pay or perform
any Assumed Liability.
10. Post-Closing Agreements
The Seller agrees that from and after the Closing Date:
10.1 Proprietary Information.
(a) The Seller shall hold in confidence, and use its best efforts to have
all of its officers, directors and personnel hold in confidence, all knowledge
and information of a secret or confidential nature with respect to the business
of the Seller and shall not disclose, publish or make use of the same without
the consent of the Buyer, except to the extent that such information shall have
become public knowledge other than by breach of this Agreement by the Seller.
(b) The Seller agrees that the remedy at law for any breach of this
Subsection 10.1 would be inadequate and that the Buyer shall be entitled to
injunctive relief in addition to any other remedy it may have upon breach of
any provision of this Subsection 10.1.
10.2 No Solicitation or Hiring of Former Employees. Except as provided by
law, for a period of five years after the Closing Date, neither the Seller nor
any Affiliate thereof (including the Principals) shall solicit any person who
was an employee of the Seller on the Closing Date to terminate his employment
with the Buyer or to become an employee of the Seller or hire any person who
was such an employee on the date hereof or on the Closing Date.
Notwithstanding the above, if employment with Buyer of any family member of any
Principal is terminated by Buyer, Seller and its Affiliates shall be free to
hire such terminated employee.
10.3 Non-Competition Agreement.
(a) For a period of five years after the Closing Date, neither the Seller
nor any Affiliate (including the Principals) thereof shall (i) market, rent or
sell any product which has the same or substantially the same form, function
and primary application as any existing or proposed product marketed, rented or
sold by the Seller on or prior to the Closing Date or (ii) engage in any
business competitive with the business of the Seller as conducted on the date
hereof or on the Closing Date, in the United States or any other country in
which the Seller conducted its business during the two years prior to the
Closing Date.
(b) The parties hereto agree that the duration and geographic scope of the
non-competition provision set forth in this Subsection 10.3 are reasonable. In
the event that any court determines that the duration or the geographic scope,
or both, are unreasonable and that such provision is to that extent
unenforceable, the parties hereto agree that the provision shall remain in full
force and effect for the greatest time period and in the greatest area that
would not render it unenforceable.
<PAGE> 37
The parties intend that this non-competition provision shall be deemed to be a
series of separate covenants, one for each and every county of each and every
state of the United States of America and each and every political subdivision
of each and every country outside the United States of America where this
provision is intended to be effective. The Seller agrees that damages are an
inadequate remedy for any breach of this provision and that the Buyer shall,
whether or not it is pursuing any potential remedies at law, be entitled to
equitable relief in the form of preliminary and permanent injunctions without
bond or other security upon any actual or threatened breach of this
non-competition provision.
10.4 Sharing of Data.
(a) The Seller shall have the right for a period of three years following
the Closing Date to have reasonable access to such books, records and accounts,
including financial and tax information, correspondence, production records,
employment records and other similar information as are transferred to the
Buyer pursuant to the terms of this Agreement for the limited purposes of
concluding its involvement in the business of the Seller prior to the Closing
Date and for complying with its obligations under applicable securities, tax,
environmental, employment or other laws and regulations. The Buyer shall have
the right for a period of three years following the Closing Date to have
reasonable access to those books, records and accounts, including financial and
tax information, correspondence, employment records and other records which are
retained by the Seller pursuant to the terms of this Agreement to the extent
that any of the foregoing relates to the business of the Seller transferred to
the Buyer hereunder or is otherwise needed by the Buyer in order to comply with
its obligations under applicable securities, tax, environmental, employment or
other laws and regulations.
(b) The Seller and the Buyer agree that from and after the Closing Date
they shall cooperate fully with each other to facilitate the transfer of the
Assets from the Seller to the Buyer and the operation thereof by the Buyer.
10.5 Use of Name. Without Buyer's prior written consent, the Seller and
the Principals each agree not to use the trade names "First Choice Video" or
any derivation thereof after the Closing Date in connection with any business
related to, competitive with, or an outgrowth of, the business conducted by the
Seller on the date hereof.
10.6 Cooperation in Litigation. Each party hereto will fully cooperate
<PAGE> 38
with the other in the defense or prosecution of any litigation or proceeding
already instituted or which may be instituted hereafter against or by such
party relating to or arising out of the conduct of the business of the Seller
prior to or after the Closing Date (other than litigation arising out the
transactions contemplated by this Agreement). The party requesting such
cooperation shall pay the out-of-pocket expenses (including legal fees and
disbursements) of the party providing such cooperation and of its officers,
directors, employees and agents reasonably incurred in connection with
providing such cooperation, but shall not be responsible to reimburse the party
providing such cooperation for such party's time spent in such cooperation or
the salaries or costs of fringe benefits or similar expenses paid by the party
providing such cooperation to its officers, directors, employees and agents
while assisting in the defense or prosecution of any such litigation or
proceeding.
11. Termination of Agreement
11.1 Termination by Lapse of Time. This Agreement shall terminate at 5:00
p.m., Boston time, on November 15, 1996, if the transactions contemplated
hereby have not been consummated, unless such date is extended by the written
consent of all of the parties hereto.
11.2 Termination by Agreement of the Parties. This Agreement may be
terminated by the mutual written agreement of the parties hereto. In the event
of such termination by agreement, the Buyer shall have no further obligation or
liability to the Seller under this Agreement, and the Seller shall have no
further obligation or liability to the Buyer under this Agreement.
11.3 Termination by Reason of Breach. This Agreement may be terminated by
the Seller, if at any time prior to the Closing there shall occur a breach of
any of the representations, warranties or covenants of the Buyer or the failure
by the Buyer to perform any condition or obligation hereunder, and may be
terminated by the Buyer, if at any time prior to the Closing there shall occur
a breach of any of the representations, warranties or covenants of the Seller
or the failure of the Seller to perform any condition or obligation hereunder.
12. Transfer and Sales Tax
Notwithstanding any provisions of law imposing the burden of such taxes on
the Seller or the Buyer, as the case may be, the Seller shall be responsible
for and shall pay (a) all sales, use and transfer taxes, and (b) all
governmental charges, if any, upon the sale or transfer of any of the Assets
hereunder. If the Seller shall fail to pay such amounts on a timely basis, the
Buyer may pay such amounts to the appropriate governmental authority or
authorities, and the Seller shall promptly reimburse the Buyer for any amounts
so paid by the Buyer.
13. Brokers
13.1 For the Seller. The Seller and the Principals represent and warrant
<PAGE> 39
that they have not engaged any broker or finder or incurred any liability for
brokerage fees, commissions or finder's fees in connection with the
transactions contemplated by this Agreement. The Seller and the Principals
agree to indemnify and hold harmless the Buyer against any claims or
liabilities asserted against it by any person acting or claiming to act as a
broker or finder on behalf of the Seller or the Principals.
13.2 For the Buyer. The Buyer agrees to pay all fees, expenses and
compensation owed to any person, firm or corporation who has acted in the
capacity of broker or finder on its behalf in connection with the transactions
contemplated by this Agreement. The Buyer agrees to indemnify and hold
harmless the Seller against any claims or liabilities asserted against it by
any person acting or claiming to act as a broker or finder on behalf of the
Buyer.
14. Notices
Except to the extent otherwise provided herein, any notices or other
communications required or permitted hereunder shall be sufficiently given if
delivered personally or sent by telex, federal express, registered or certified
mail, postage prepaid, addressed as follows or to such other address of which
the parties may have given notice:
To the Seller
or the Principals: Mr. Andrew Mitchell
First Choice Video
2125 East Main Street
Springfield, OH 45503
and
Mr. Larry Williams
655 Valley Ridge Court
Troy, Ohio 45373
With a copy to:
Thomas Martin, Esq.
Jablinski, Folino, Roberts & Martin
214 W. Monument Avenue
Dayton, Ohio 45402
<PAGE> 40
To the Buyer: West Coast Entertainment Corporation
9990 Global Road
Philadelphia, PA 19115
With a copy to: Hale and Dor
60 State Street
Boston, MA 02109
Attn: John H. Chory, Esq.
Unless otherwise specified herein, such notices or other communications shall
be deemed received (a) on the date delivered, if delivered personally; (b)
three business days after being sent, if sent by registered or certified mail;
or (c) on the date of actual receipt, if delivered by any other method.
15. Arbitration
(a) Any dispute, controversy or claim between the parties arising out of
or relating to this Agreement, a breach hereof or the transactions contemplated
hereby, shall be settled by arbitration in accordance with the provisions of
this Section 15. Any arbitration pursuant to this Section 15 shall be
conducted by a single arbitrator appointed by the Philadelphia, Pennsylvania
office of the American Arbitration Association upon the request of either
party. The arbitrator shall have a minimum of five years of experience in the
area of business relevant to the particular dispute. Each party shall be
permitted to submit only one proposal to the arbitrator, and the arbitrator
shall be required to choose one of such two proposals as the resolution of the
dispute. The arbitrator may proceed to a resolution notwithstanding the
failure of a party to participate in the proceedings. Each of the parties
shall pay its own costs and expenses in connection with any such arbitration,
and the parties shall share equally in the fees and expenses of the arbitrator.
(b) The parties agree that any such arbitration will occur in
Philadelphia, Pennsylvania, any such arbitration award shall be final and
binding upon the parties, may be entered in any court having jurisdiction and
shall not be appealable by either party in any court.
16. Successors and Assigns
This Agreement shall be binding upon and inure to the benefit of the
parties hereto and their respective successors and assigns, except that the
Buyer and the Seller may not assign their respective obligations hereunder
without the prior written consent of the other party; provided, however, that
the Buyer may assign this Agreement, and its rights and obligations hereunder,
to a subsidiary or affiliate. Any assignment in contravention of this
provision shall be void. No assignment shall release the Buyer from any
obligation or liability under this Agreement.
17. Entire Agreement; Amendments; Attachments
<PAGE> 41
(a) This Agreement, all Schedules and Exhibits hereto, and all agreements
and instruments to be delivered by the parties pursuant hereto represent the
entire understanding and agreement between the parties hereto with respect to
the subject matter hereof and supersede all prior oral and written and all
contemporaneous oral negotiations, commitments and understandings between such
parties. The Buyer, the Seller and the Principals may amend or modify this
Agreement, in such manner as may be agreed upon, by a written instrument
executed by the Buyer and the Principals.
(b) If the provisions of any Schedule or Exhibit to this Agreement are
inconsistent with the provisions of this Agreement, the provision of the
Agreement shall prevail. The Exhibits and Schedules attached hereto or to be
attached hereafter are hereby incorporated as integral parts of this Agreement.
18. Expenses
Except as otherwise expressly provided herein, the Buyer and the Seller
shall each pay their own expenses in connection with this Agreement and the
transactions contemplated hereby. Buyer shall pay the costs and expenses of
any audit conducted by, or at the request of, the Buyer, and Seller shall pay
the costs and expenses of any accounting services provided to the Seller in
connection with the transactions contemplated hereby. Notwithstanding the
above, the Buyer shall reimburse Seller for reasonable travel and related
expenses (approved by the Buyer in advance) which are incurred in connection
with attendance by Seller at meetings requested by the Buyer.
19. Legal Fees
In the event that legal proceedings are commenced by the Buyer against the
Seller, or by the Seller against the Buyer, in connection with this Agreement
or the transactions contemplated hereby, the party or parties which do not
prevail in such proceedings shall pay the reasonable attorneys' fees and other
costs and expenses, including investigation costs, incurred by the prevailing
party in such proceedings.
20. Governing Law
This Agreement shall be governed by and construed in accordance with the
laws of the State of Delaware.
21. Section Headings
<PAGE> 42
The section headings are for the convenience of the parties and in no way
alter, modify, amend, limit, or restrict the contractual obligations of the
parties.
22. Severability
The invalidity or unenforceability of any provision of this Agreement
shall not affect the validity or enforceability of any other provision of this
Agreement.
23. Counterparts
This Agreement may be executed in one or more counterparts, each of which
shall be deemed to be an original, but all of which shall be one and the same
document.
<PAGE> 43
IN WITNESS WHEREOF, this Agreement has been duly executed by the parties
hereto as of and on the date first above written.
WEST COAST ENTERTAINMENT CORPORATION
By: /s/ Richard Kelly
-------------------------------
Title: Chief Financial Officer
----------------------------
L. A. VIDEO, INC.
By: /s/ Andrew Mitchell
-------------------------------
Andrew Mitchell, President
PRINCIPALS:
/s/ Andrew Mitchell
-----------------------------------
Andrew Mitchell
/s/ Larry E. Williams
-----------------------------------
Larry Williams
<PAGE> 44
Schedule I
Stores (by Address)
and Required Cash on Hand at Closing
for Purposes of Section 7.10
Store and Address Cash On Hand at Closing
- ----------------- -----------------------
First Choice Video $300.00
5101 Springboro Pike
West Carrollton, Ohio 45439
First Choice Video $650.00
111 E. Russell Road
Sidney, Ohio 45365
<PAGE> 1
INSTRUMENT OF EVIDENCE OF INDEBTEDNESS
THIS INSTRUMENT OF EVIDENCE OF INDEBTEDNESS dated as of the 15th day of
November, 1996, is by and between West Coast Entertainment Corporation, a
Delaware corporation (the "Buyer"), and L. A. Video, Inc., an Ohio corporation
(the "Seller"), in connection with the transactions contemplated by that
certain Asset Purchase Agreement dated as of November 1, 1996, by and among the
Buyer, the Seller, Andrew Mitchell and Larry Williams (the "Purchase
Agreement"). Capitalized terms used herein, and not otherwise defined herein,
shall have the respective meanings ascribed to them in the Purchase Agreement.
WHEREAS, the Buyer has acquired substantially all of the assets and
business of the Seller pursuant to the Purchase Agreement; and
WHEREAS, in partial consideration for such assets and business, the Buyer
has agreed to issue this Instrument, pursuant to which it will deliver to the
Seller cash or shares of its Common Stock, at the times and on the terms
described herein.
NOW, THEREFORE, in consideration of the foregoing, and for other good and
valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, the Buyer and the Seller hereby agree as follows:
1. Payment of Indebtedness.
(a) The Buyer shall deliver to the Seller, on the first anniversary date
hereof, that number of shares of Common Stock, $.01 par value per share, of the
Buyer ("Common Stock") as is determined by dividing (x) $176,000 by (y) the
Market Value. The "Market Value" shall equal the average of the bid and asked
prices per share of Buyer's Common Stock as reported on the Nasdaq Stock
Exchange for each of the fifteen trading days ending on the business day
preceding the date on which the Closing of the transaction contemplated by the
Purchase Agreement occurred.
The Buyer shall deliver to the Seller, on the date which is 18 months
following the date hereof, that number of shares of Buyer Common Stock, as is
determined by dividing (x) $264,000 by (y) the Market Value.
<PAGE> 2
(b) Shares of Buyer Common Stock issuable pursuant to Section 1(a) above
shall be registered under the Securities Act of 1933, as amended (the
"Securities Act"), pursuant to a Registration Statement (the "Registration
Statement") filed with the Securities and Exchange Commission (the "SEC").
(c) If prior to the issuance of shares of Buyer Common Stock pursuant to
Section 1(a) above, the Buyer shall:
(x) declare a dividend of Common Stock on its Common Stock,
(y) subdivide outstanding Common Stock into a larger number of
shares of Common Stock by reclassification, stock split or
otherwise, or
(z) combine outstanding Common Stock into a smaller number of
shares of Common Stock by reclassification or otherwise,
then the number of shares of Buyer Common Stock issuable pursuant to Section
1(a) events shall be adjusted proportionately so that thereafter the Seller
shall be entitled to receive the number of shares of Common Stock which the
Seller would have been entitled to receive after the happening of any of the
events described above had the shares to be issued been issued immediately
prior to the happening of such events. An adjustment made pursuant to this
Section 1(c) shall become effective immediately after the record date in the
case of a dividend and shall become effective immediately after the effective
date in the case of a subdivision or combination.
2. Right of Set-Off. The Buyer shall be permitted to set off, against the
number of shares deliverable to the Seller hereunder, amounts or obligations
owed by the Principal or the Seller to the Buyer pursuant to the Purchase
Agreement. In order to calculate the reduction in the number of shares which
may be issuable by the Buyer hereunder for this purpose, each share shall be
deemed to have a value equal to the Market Value.
3. General.
(a) Successors and Assigns. This Agreement shall be binding upon and
inure to the benefit of the parties hereto and their respective successors and
assigns, except that the Buyer and the Seller may not assign their respective
rights and obligations hereunder without the prior written consent of the other
party. Any assignment in contravention of this provision shall be void. The
Seller may not transfer to any other person the right to receive shares of
Buyer Common Stock hereunder without the prior consent of the Buyer.
(b) Notices. Any notices or other communications required or permitted
hereunder shall be sufficiently given if delivered personally or sent by
federal express or other reputable nationwide overnight courier service,
registered or certified mail, postage prepaid, addressed as follows or to such
other address of which the parties may have given notice:
<PAGE> 3
To the Seller: Mr. Andrew Mitchell
First Choice Video
2125 East Main Street
Springfield, OH 45503
and
Mr. Larry Williams
655 Valley Ridge Court
Troy, Ohio 45373
With a copy to:
Thomas Martin, Esq.
Jablinski, Folino, Roberts & Martin
214 W. Monument Avenue
Dayton, Ohio 45402
To the Buyer: West Coast Entertainment Corporation
9990 Global Road
Philadelphia, Pennsylvania 19115
Attn: President
With a copy to: Hale and Dorr
60 State Street
Boston, MA 02109
Attn: John H. Chory, Esq.
Unless otherwise specified herein, such notices or other communications shall
be deemed received (1) on the date delivered, if delivered personally; (2) on
the business day following delivery to an overnight courier; (3) three business
days after being sent, if sent by registered or certified mail; or (4) on the
date of actual delivery, if sent by any other method.
(c) Arbitration.
(i) Any dispute, controversy or claim between the parties arising out of
or relating to this Agreement, a breach hereof or the transactions contemplated
hereby, shall be settled by arbitration in accordance with the provisions of
this
<PAGE> 4
Section 3(c). Any arbitration pursuant to this Section 3(c) shall be conducted
by a single arbitrator appointed by the Philadelphia, Pennsylvania office of
the American Arbitration Association upon the request of any party. The
arbitrator shall have a minimum of five years of experience in the area of
business relevant to the particular dispute. Each of the two parties to the
dispute shall be permitted to submit only one proposal to the arbitrator, and
the arbitrator shall be required to choose one of such two proposals as the
resolution of the dispute. The arbitrator may proceed to a resolution
notwithstanding the failure of a party to participate in the proceedings. Each
of the parties shall pay its own costs and expenses in connection with any such
arbitration, and the parties shall share equally in the fees and expenses of
the arbitrator.
(ii) The parties agree that any such arbitration will occur in
Philadelphia, Pennsylvania, any such arbitration award shall be final and
binding upon the parties, may be entered in any court having jurisdiction and
shall not be appealable by either party in any court.
(d) Entire Agreement; Amendments; Attachments. The Buyer and the Seller
may amend or modify this Agreement, in such manner as may be agreed upon, only
by a written instrument executed by the Buyer and the Seller.
(e) Section Headings. The section headings contained in this Instrument
are for the convenience of the parties and in no way alter, modify, amend,
limit, or restrict the contractual obligations of the parties.
(f) Severability. The invalidity or unenforceability of any provision of
this Agreement shall not affect the validity or enforceability of any other
provision of this Agreement.
(g) Counterparts. This Instrument and any amendment hereto may be executed
in one or more counterparts, each of which shall be deemed to be an original,
but all of which shall be one and the same document.
(h) Governing Law. This Instrument shall be construed and enforced in
accordance with, and the rights of the parties shall be governed by, the laws
of the State of Delaware.
IN WITNESS WHEREOF, this Instrument has been executed and delivered as a
sealed instrument on the date first above written by the duly authorized
representative of the Buyer.
WEST COAST ENTERTAINMENT CORPORATION
By /s/ Richard Kelly
----------------------------
Title Chief Financial Officer
--------------------------
<PAGE> 5
AGREED TO AND ACCEPTED AS OF
THE DATE FIRST SET FORTH ABOVE:
L. A. VIDEO, INC.
By /s/ Andrew D. Mitchell
----------------------------
Andrew Mitchell, President
<PAGE> 1
Schedule I
to Asset Purchase Agreement
between West Coast Entertainment Corporation and
the Sellers and Principals Identified Below
Section of Agreement
in Which Term, Item or
Information is Referenced Term or Item
------------------------- ------------
Recital Name, Address and Principal Office of Each Seller:
Alex Jordan Corp.
dba West Coast Video
1521 Locust Street
Philadelphia, PA 19102
Cochise Corp.
dba West Coast Video
Andorra Shopping Center
Henry Avenue and Cathedral Road
Philadelphia, PA 19128
Kyle David Corp.
dba West Coast Video
Sharon Hill Shopping Center
1102 A Chester Pike
Sharon Hill, PA 19079
Recital Principal:
Mr. Michael Weisberg
7 Marcy Court
Mt. Laurel, NJ 08054
1.1(a)(ix) Trade Names: West Coast Video
<PAGE> 2
West Coast Video of Locust Street
1.1(c) Stores, Reflecting Street Address of Each Store, and its Owning Seller:
Total Number of Stores: Three
Alex Jordan Corp.: 1521 Locust Street
Philadelphia, PA 19102
Michael Weisberg, President
Cochise Corp.: Henry Avenue and Cathedral Road
Philadelphia, PA 19128
Michael Weisberg, President
Kyle David Corp.: 1102 A. Chester Pike
Sharon Hill, PA 19079
Michael Weisberg, President
1.3(a) Purchase Price: $1,088,750
1.3(b) Cash Percentage: 60% ($653,250):
Payable at Closing: $100,000
Payable 1/3/97: $553,250
1.3(b) Allocation of Purchase Price Among
Sellers:
Alex Jordan Corp.: 1/3
Cochise Corp.: 1/3
Kyle David Corp.: 1/3
1.3(c) "Net Operating Cash Flow" shall be equal to (i) the pre-tax income from
the Stores for the 12-month period ending on July 31, 1996, plus (ii)
all debt-related interest expense for the Stores and depreciation and
amortization expenses for the Stores for such 12-month period, plus
(iii) all royalty expenses (if any and if expensed) attributable to such
stores during such 12-month period, less (iv) all rental product
purchases for the Stores during such 12-month period (including revenue
sharing expenses if not previously expensed), less (v) all earned income
interest for such 12-month period; with such components of Net Operating
Cash Flow determined in accordance with generally accepted accounting
principles applied consistently with the Sellers' past practices.
<PAGE> 3
1.4 Assumed Liabilities:
(1) All obligations of the Sellers relating to periods after the
Closing under the Leases specified on Schedule 2.11 which become due and
payable after the Closing Date.
(2) All obligations of Cochise Corp. relating to periods after the
Closing under that certain Computer Lease (Altos 900 Computer) between
Cochise Corp. and Bell Atlantic TriCon Leasing and Finova Manufacturer &
Dealer Services (Customer Number 7143998).
(3) All obligations of Alex Jordan Corp. relating to periods after
the Closing under that certain Ticketmaster Agreement dated November 27,
1993.
(4) All obligations of Cochise Corp. relating to periods after the
Closing under that certain Ticketmaster Agreement dated June 11, 1994.
1.6 Closing Date: November 15, 1996
2.1 Type of Entity:
Alex Jordan Corp.: S corporation
Cochise Corp.: S corporation
Kyle David Corp.: S corporation
2.2 Each Seller's State of Organization, and Authorized and Issued Stock (or
Other Interests), and Identity of Holders of All Legal and Beneficial
Interests in Each Seller
Alex Jordan
Corp.: Pennsylvania corp.
Authorized Capital: 1,000 shares Common
<PAGE> 4
Stock
Shares Outstanding: 100 Common
Sole Shareholder: Michael Weisberg
Cochise
Corp.: Pennsylvania corp.
Authorized Capital: 1,000 shares Common
Stock
Shares Outstanding: 100 Common
Sole Shareholder: Michael Weisberg
Kyle David
Corp.: Pennsylvania corp.
Authorized Capital: 1,000 shares Common
Stock
Shares Outstanding: 100 Common
Sole Shareholder: Michael Weisberg
2.5(c) Minimum Net Operating Cash Flow: $325,000
7.10 Amount of Cash (Per Store) to Be Left at Stores,
on Closing Date: $400.00.
14 Address for notices for purposes of Section 14:
To the Principal: Mr. Michael Weisberg
7 Marcy Court
Mt. Laurel, NJ 08054
With a copy to: Vincent D'Elia, Esq.
Dilworth, Paxson, Kalish
and Kauffmann
Commerce Atrium Building
1701 Route 70 East
Box 2570
Cherry Hill, NJ 08034
<PAGE> 1
ASSET PURCHASE AGREEMENT
By and Among
West Coast Entertainment Corporation,
First Choice Video, Inc., and
Andrew Mitchell
<PAGE> 2
TABLE OF CONTENTS
Section Page
- ------- ----
1. Sale and Delivery of the Assets 1
1.1 Delivery of the Assets 1
1.2 Further Assurances 3
1.3 Purchase Price 3
1.4 Assumption of Liabilities; Etc. 4
1.5 Allocation of Base Purchase Price and
Assumed Liabilities 4
1.6 The Closing 4
1.7 No Apportionment 5
2. Representations of the Seller 5
2.1 Organization 5
2.2 Capitalization of the Seller 6
2.3 Authorization 6
2.4 Ownership of the Assets 6
2.5 Financial Statements 7
2.6 Absence of Undisclosed Liabilities 8
2.7 Litigation 8
2.8 Insurance 8
2.9 Inventory 8
2.10 Fixed Assets 9
2.11 Leases 9
2.12 Change in Financial Condition and Assets 10
2.13 Tax Matters 10
2.14 Powers of Attorney and Suretyships 11
2.15 Books and Records 11
2.16 Contracts and Commitments 11
2.17 Compliance with Agreements and Laws 13
2.18 Employee Relations 14
2.19 Absence of Certain Changes or Events 15
2.20 Suppliers 16
2.21 Prepayments and Deposits 16
2.22 Trade Names and Other Intangible Property 16
<PAGE> 3
2.23 Employee Benefit Plans 17
2.24 Regulatory Approvals 17
2.25 Indebtedness to and from Officers, Directors and
Shareholders 17
2.26 Disclosure 18
3. Representations of the Buyer 18
3.1 Organization and Authority 18
3.2 Capitalization of the Buyer 18
3.3 Authorization 18
3.4 Regulatory Approvals 19
3.5 Disclosure 19
4. Access to Information; Public Announcements 19
4.1 Access to Management, Properties and Records 19
4.2 Confidentiality 20
4.3 Public Announcements 20
5. Pre-Closing Covenants of the Seller 21
5.1 Conduct of Business 21
5.2 Absence of Material Changes 21
5.3 Taxes 23
5.4 Delivery of Interim Financial Statements 23
5.5 Compliance with Laws 23
5.6 Continued Truth of Representations
and Warranties of the Seller 23
5.7 Continuing Obligation to Inform 23
5.8 Exclusive Dealing 23
5.9 No Publicity 24
6. Satisfaction of Conditions; Liquidated Damages 24
6.1 Satisfaction of Conditions 24
6.2 Liquidated Damages 24
7. Conditions to Obligations of the Buyer 25
7.1 Continued Truth of Representations
and Warranties of the Seller; Compliance with
Covenants and Obligations 25
7.2 Corporate Proceedings 25
7.3 Governmental Approvals 25
<PAGE> 4
Section Page
- ------- ----
1. Sale and Delivery of the Assets 1
1.1 Delivery of the Assets 1
7.4 Consents of Lenders, Lessors and Other
Third Parties 25
7.5 Adverse Proceedings 25
7.6 Opinion of Counsel 26
7.7 Board of Directors and Shareholder Approval 26
7.8 The Assets 26
7.9 Update 26
7.10 Opening Cash on Closing Date 26
7.11 Payables 26
7.12 Employment Agreement 27
7.13 Closing Deliveries 27
8. Conditions to Obligations of the Seller 28
8.1 Continued Truth of Representations and
Warranties of the Buyer; Compliance
with Covenants and Obligations 28
8.2 Corporate Proceedings 28
8.3 Governmental Approvals 28
8.4 Consents of Lenders, Lessors and Other
Third Parties 29
8.5 Adverse Proceedings 29
8.6 Opinion of Counsel 29
8.7 Closing Deliveries 29
9. Indemnification 30
9.1 By the Buyer and the Seller and the Principals 30
9.2 By the Seller and the Principals 30
9.3 Claims for Indemnification 31
9.4 Defense by Indemnifying Party 31
9.5 Payment of Indemnification Obligation 32
9.6 Survival of Representations; Claims for
Indemnification 32
9.7 Indemnification Limitations 32
10. Post-Closing Agreements 33
<PAGE> 5
10.1 Proprietary Information 33
10.2 No Solicitation or Hiring of Former Employees 33
10.3 Non-Competition Agreement 33
10.4 Sharing of Data 34
10.5 Use of Name 35
10.6 Cooperation in Litigation 35
11. Termination of Agreement 35
11.1 Termination by Lapse of Time 35
11.2 Termination by Agreement of the Parties 35
11.3 Termination by Reason of Breach 35
12. Transfer and Sales Tax 36
13. Brokers 36
13.1 For the Seller 36
13.2 For the Buyer 36
14. Notices 36
15. Arbitration 37
16. Successors and Assigns 38
17. Entire Agreement; Amendments; Attachments 38
18. Expenses 38
19. Legal Fees 39
20. Governing Law 39
21. Section Headings 39
22. Severability 39
23. Counterparts 39
Exhibits
A - Instrument of Evidence of Indebtedness
B - Assumption of Liabilities
<PAGE> 6
C - Opinion of Counsel to Seller
D - Bill of Sale
E - Opinion of Hale and Dorr
F - Form of Employment Agreement
<PAGE> 7
ASSET PURCHASE AGREEMENT
Agreement made as of November 1, 1996 between West Coast Entertainment
Corporation, a Delaware corporation with its principal office at 9990 Global
Road, Philadelphia, Pennsylvania 19115 (the "Buyer"), First Choice Video,
Inc., an Ohio corporation (the "Seller") and Andrew Mitchell, a resident of the
State of Ohio (the "Principal").
Preliminary Statement
The Buyer desires to purchase, and the Seller desires to sell,
substantially all of the assets and business of the Seller, for the
consideration set forth below and the assumption of certain of the Seller's
liabilities set forth below, subject to the terms and conditions of this
Agreement.
NOW, THEREFORE, in consideration of the mutual promises hereinafter set
forth and other good and valuable consideration, the receipt of which is hereby
acknowledged, the parties hereby agree as follows:
1. Sale and Delivery of the Assets
1.1 Delivery of the Assets.
(a) Subject to and upon the terms and conditions of this Agreement, at the
closing of the transactions contemplated by this Agreement (the "Closing"), the
Seller shall sell, transfer, convey, assign and deliver to the Buyer, and the
Buyer shall purchase from the Seller, the following properties, assets and
other claims, rights and interests:
(i) all inventories, videotapes, finished goods, office supplies,
maintenance supplies, packaging materials, spare parts and similar items of the
Seller (collectively, the "Inventory") which exist on the Closing Date (as
defined below);
(ii) all late fees due from customers, accounts, accounts receivable,
notes and notes receivable existing on the Closing Date which are payable to
the Seller, including any security held by the Seller for the payment thereof
(the "Accounts Receivable");
<PAGE> 8
(iii) opening cash (cash on hand) in the amount indicated in Section 7.10
(but no other cash of Seller, whether or not held in bank accounts), and other
similar assets of the Seller existing on the Closing Date;
(iv) all rights of the Seller under the contracts, agreements, leases,
licenses and other instruments set forth on Schedule 2.16 attached hereto other
than such rights under contracts, agreements, leases, licenses and other
instruments included on Schedule 1.1 (collectively, the "Contract Rights");
(v) all books, records and accounts, correspondence, manuals, customer
lists, employment records, studies, reports or summaries relating to or arising
out of the business of the Seller;
(vi) all rights of the Seller under express or implied warranties from the
suppliers of the Seller;
(vii) all of the machinery, equipment, furniture, leasehold improvements
and construction in progress owned by the Seller on the Closing Date whether or
not reflected as capital assets in the accounting records of the Seller
(collectively, the "Fixed Assets");
(vii) all of the Seller's right, title and interest, if any, in and to all
intangible property rights, including but not limited to inventions,
discoveries, trade secrets, processes, formulas, know-how, United States and
foreign patents, patent applications, trade names, including the trade names
"First Choice Video" or any derivation thereof, trademarks, trademark
registrations, applications for trademark registrations, copyrights, copyright
registrations, owned or, where not owned, used by the Seller in its business
and all licenses and other agreements to which the Seller is a party (as
licensor or licensee) or by which the Seller is bound relating to any of the
foregoing kinds of property or rights to any "know-how" or disclosure or use of
ideas (collectively, the "Intangible Property");
(viii) except as specifically provided in Subsection 1.1(b) hereof, all
other assets, properties, claims, rights and interests of the Seller which
exist on the Closing Date, of every kind and nature and description, whether
tangible or intangible, real, personal or mixed.
(b) Notwithstanding the provisions of paragraph (a) above, the assets to
be transferred to the Buyer under this Agreement shall not include those assets
listed on Schedule 1.1 attached hereto (the "Excluded Assets"), which include
all motor vehicles owned or leased by the Seller, and certain notes receivable
of the Seller, as more fully described on Schedule 1.1.
(c) The Inventory, Accounts Receivable, Contract Rights, Fixed Assets,
Intangible Property and other properties, assets and business of the Seller
described in paragraph (a) above, other than the Excluded Assets, shall be
referred to collectively as the "Assets." The Assets relate to one or more
retail video stores
<PAGE> 9
which are owned and operated by the Seller, all of which stores are identified
by location on Schedule I attached hereto, each of which is sometimes
hereinafter referred to as a "Store" and all of which are sometimes hereinafter
referred to collectively as the "Stores."
1.2 Further Assurances. At any time and from time to time after the
Closing, at the Buyer's request and without further consideration, the Seller
promptly shall execute and deliver such instruments of sale, transfer,
conveyance, assignment and confirmation, and take such other action, as the
Buyer may reasonably request to more effectively transfer, convey and assign to
the Buyer, and to confirm the Buyer's title to, all of the Assets, to put the
Buyer in actual possession and operating control thereof, to assist the Buyer
in exercising all rights with respect thereto and to carry out the purpose and
intent of this Agreement.
1.3 Purchase Price.
(a) The purchase price for the assets shall be $2,171,406 (the "Base
Purchase Price"). The Base Purchase Price shall be subject to adjustment for
prepaid rent as provided in Section 1.7 hereof.
(b) The Base Purchase Price shall be paid as follows. At the Closing, the
Buyer shall deliver to the Seller (i) $1,000,500 in cash, by bank or cashiers
check, or by wire transfer of immediately available federal funds, and (ii)
delivery of an Instrument of Evidence of Indebtedness, substantially in the
form of Exhibit A attached hereto (the "Instrument"). The Instrument shall
provide for payment of the 40% of balance of the Base Purchase Price on the
first anniversary of the Closing Date, and 60% of the balance of the Base
Purchase Price on the date which is 18 months following the Closing Date. The
Instrument shall provide for payment of such amounts by delivery of that number
of shares of Common Stock, $.01 par value per share, of the Buyer ("Common
Stock") as is determined by dividing (i) $1,170,906 by (ii) the Market Value
(as defined below). The "Market Value" of a share of Common Stock shall equal
the average of the bid and asked prices per share of Buyer's Common Stock as
reported on the Nasdaq Stock Exchange for each of the fifteen trading days
ending on the business day preceding the Closing Date. Shares of Buyer Common
Stock issued pursuant to the Instrument shall be registered under the
Securities Act of 1933, as amended (the "Securities Act"), pursuant to a
Registration Statement (the "Registration Statement") filed with the Securities
and Exchange Commission (the "SEC").
<PAGE> 10
1.4 Assumption of Liabilities; Etc.
(a) At the Closing, the Buyer shall execute and deliver an Instrument of
Assumption of Liabilities (the "Instrument of Assumption") substantially in the
form attached hereto as Exhibit B, pursuant to which it shall assume and agree
to perform, pay and discharge the following liabilities, obligations and
commitments of the Seller (the "Assumed Liabilities"):
(i) All accounts payable incurred by Seller in the ordinary course of
business to purchase videotapes held for rental during the 30-day period ending
on the Closing Date;
(ii) All obligations of the Seller continuing after the Closing under the
leases and contracts set forth on Schedule 1.4 attached hereto which become due
and payable after, and are attributable to periods occurring after, the Closing
Date; and
(iii) All other liabilities and obligations of the Seller specifically set
forth in Schedule 1.4 attached hereto.
(b) The Buyer shall not at the Closing assume or agree to perform, pay or
discharge, and the Seller shall remain unconditionally liable for, all
obligations, liabilities and commitments, fixed or contingent, of the Seller
other than the Assumed Liabilities.
1.5 Allocation of Base Purchase Price and Assumed Liabilities. The
aggregate amount of the Base Purchase Price and the Assumed Liabilities shall
be allocated among the Assets as set forth on Schedule 1.5 attached hereto.
Such allocation shall be subject to adjustment to the extent that the Base
Purchase Price is adjusted pursuant to Section 1.7 hereof in the manner
specified in such Section.
1.6 The Closing. The closing of the transactions contemplated by this
Agreement (the "Closing") shall take place at the offices of Hale and Dorr, 60
State Street, Boston, Massachusetts 02109, on or before November 15, 1996,
which date shall be specified by Buyer on not less than two days prior notice
(which may be given orally) to the Seller, or, if all of the conditions to the
obligations of the parties to consummate the transactions contemplated hereby
have not been satisfied or waived by such date, on such mutually agreeable
later date as soon as practicable after the satisfaction or waiver of all
conditions to the obligations of the Parties to consummate the transactions
contemplated hereby (the "Closing Date"). The transfer of the Assets by the
Seller to the Buyer shall be deemed to occur at 9:00 a.m., Boston time, on the
date of the Closing (the "Closing Date").
1.7 No Apportionment. The purchase price of the Assets shall not be
subject to any adjustment for any prepaid expenses of the Seller, including
without limitation: (i) prepaid premiums on insurance, (ii) water and sewer
use charges, (iii) security deposits, (iv) transfer taxes and recording fees,
if any, incurred in connection with the transfer of the Assets contemplated
hereby, or (v) real property taxes or
<PAGE> 11
other taxes for the then current tax period, and such prepaid amounts, if any,
shall not be added to or deducted from the Base Purchase Price; provided that
the purchase price shall be increased by Seller's prepaid rent, if any (and any
such amount shall increase the cash portion of the Purchase Price).
2. Representations of the Seller and the Principal
The Seller and the Principal, jointly and severally, represent and warrant
to the Buyer as follows:
2.1 Organization. The Seller is a corporation duly organized, validly
existing and in good standing under the laws of the state of Ohio, and has all
requisite power and authority (corporate and other) to own its properties, to
carry on its business as now being conducted, to execute and deliver this
Agreement and the agreements contemplated herein, and to consummate the
transactions contemplated hereby. The Seller is duly qualified to do business
and in good standing in all jurisdictions in which its ownership of property or
the character of its business requires such qualification. Certified copies of
the charter, bylaws and other governing instruments of the Seller, each as
amended to date, have been previously delivered to the Buyer, are complete and
correct, and no amendments have been made thereto or have been authorized since
the date thereof. The Seller does not own any capital stock of or other equity
interest in any corporation, partnership or other entity. Schedule I sets
forth a list of each retail video rental store (including the location of each
such store and the name and address of all owners (if not Seller) of each such
store) owned, operated or licensed directly or indirectly by the Seller or the
Principal, except for the stores owned and operated by L.A. Video, Inc., an
Ohio corporation in which the Principal is a stockholder.
2.2 Capitalization of the Seller. The Seller's authorized capital stock
is as specified on Schedule 2.2 attached hereto. There are issued and
outstanding the number of shares of capital stock of the Seller as are
specified on Schedule 2.2 attached hereto, which shares are held of record and
beneficially by the Principal. All of such shares have been duly and validly
issued and are fully paid and nonassessable.
2.3 Authorization. The execution and delivery of this Agreement by the
Seller, and the agreements provided for herein, and the consummation by the
Seller of all transactions contemplated hereby, have been duly authorized by
all requisite corporate and shareholder action. This Agreement and all such
other
<PAGE> 12
agreements and obligations entered into and undertaken in connection with the
transactions contemplated hereby to which the Seller is a party constitute the
valid and legally binding obligations of the Seller, enforceable against the
Seller in accordance with their respective terms. The execution, delivery and
performance by the Seller of this Agreement and the agreements provided for
herein, and the consummation by the Seller of the transactions contemplated
hereby and thereby, will not, with or without the giving of notice or the
passage of time or both, (a) violate the provisions of any law, rule or
regulation applicable to the Seller; (b) violate the provisions of the charter
or Bylaws of the Seller; (c) violate any judgment, decree, order or award of
any court, governmental body or arbitrator; or (d) conflict with or result in
the breach or termination of any term or provision of, or constitute a default
under, or cause any acceleration under, or cause the creation of any lien,
charge or encumbrance upon the properties or assets of the Seller pursuant to,
any indenture, mortgage, deed of trust or other instrument or agreement to
which the Seller is a party or by which the Seller or any of its properties is
or may be bound. Schedule 2.3 attached hereto sets forth a true, correct and
complete list of all consents and approvals of third parties that are required
in connection with the consummation by the Seller of the transactions
contemplated by this Agreement.
2.4 Ownership of the Assets. Schedule 2.4(i) attached hereto sets forth a
true, correct and complete list of all claims, liabilities, liens, pledges,
charges, encumbrances and equities of any kind affecting the Assets
(collectively, the "Encumbrances"). The Seller is, and at the Closing will be,
the true and lawful owner of the Assets, and will have the right to sell and
transfer to the Buyer good, clear, record and marketable title to the Assets,
free and clear of all Encumbrances of any kind, except as set forth on Schedule
2.4(ii) attached hereto (the "Permitted Encumbrances"). The delivery to the
Buyer of the instruments of transfer of ownership contemplated by this
Agreement will vest good and marketable title to the Assets in the Buyer, free
and clear of all liens, mortgages, pledges, security interests, restrictions,
prior assignments, encumbrances and claims of any kind or nature whatsoever,
except for the Permitted Encumbrances.
2.5 Financial Statements.
(a) The Seller has previously delivered to the Buyer its audited balance
sheets as of March 31, 1994, 1995 and 1996 (the "Audited Balance Sheets") and
the related statements of income, shareholders' equity, retained earnings and
statements of cash flows of the Seller for the fiscal years then ended
(collectively, including the Audited Balance Sheets, the "Audited Financial
Statements"). The Seller has also previously delivered to the Buyer its
comparative Balance Sheet (the "Current Balance Sheet") as of June 30, 1996
(the "Balance Sheet Date") and as of June 30, 1995, and the related comparative
statements of income, shareholders' equity, retained earnings and statements of
cash flows of the Seller for the three-month periods then ended (collectively,
the "Current Financial Statements"). The Seller has also included in the
footnotes to the Audited Financial Statements and the Current Financial
Statements (or provided to Buyer supplementally) statements of its quarterly
earnings. The Audited Financial Statements, the Current Financial
<PAGE> 13
Statements and the interim financial statements (the "Interim Financial
Statements") to be delivered pursuant to Subsection 5.4 hereof (collectively,
the "Financial Statements") have been (or will be) prepared in accordance with
generally accepted accounting principles applied consistently with Seller's
past practice and are certified without qualification by the Seller's
independent public accountants, in the case of the Audited Financial
Statements, and have been (or will be) certified by the Seller's chief
financial officer, in the case of the Current Financial Statements and the
Interim Financial Statements.
(b) The Financial Statements fairly present, as of their respective dates,
the financial condition, retained earnings, assets and liabilities of the
Seller and the results of operations of the Seller's business for the periods
indicated; with respect to the contracts and commitments for the sale of goods
or the provision of services by the Seller, the Financial Statements contain
and reflect adequate reserves, which are consistent with previous reserves
taken, for all reasonably anticipated material losses and costs and expenses;
and the amounts shown as accrued for current and deferred income and other
taxes in the Financial Statements are sufficient for the payment of all accrued
and unpaid federal, state and local income taxes, interest, penalties,
assessments or deficiencies applicable to the Seller, whether disputed or not,
for the applicable period then ended and periods prior thereto.
2.6 Absence of Undisclosed Liabilities. Except as and to the extent (a)
reflected and reserved against in the Current Balance Sheet, (b) set forth on
Schedule 2.6 attached hereto or (c) incurred in the ordinary course of business
after the date of the Current Balance Sheet and not material in amount, either
individually or in the aggregate, the Seller does not have any liability or
obligation, secured or unsecured, whether accrued, absolute, contingent,
unasserted or otherwise, affecting the Assets. For purposes of this Subsection
2.6, "material" means any amount in excess of $10,000.
2.7 Litigation. Except as set forth on Schedule 2.7 attached hereto, the
Seller is not a party to, or to the Seller's best knowledge threatened with,
and none of the Assets are subject to, any litigation, suit, action,
investigation, proceeding or controversy before any court, administrative
agency or other governmental authority relating to or affecting the Assets or
the business or condition (financial or otherwise) of the Seller. The Seller
is not in violation of or in default with respect to any judgment, order, writ,
injunction, decree or rule of any court, administrative agency or governmental
authority or any regulation of any administrative agency or
<PAGE> 14
governmental authority.
2.8 Insurance. Schedule 2.8 attached hereto sets forth a true, correct
and complete list of all fire, theft, casualty, general liability, workers
compensation, business interruption, environmental impairment, product
liability, automobile and other insurance policies insuring the Assets or
business of the Seller and of all life insurance policies maintained for any of
its employees, specifying the type of coverage, the amount of coverage, the
premium, the insurer and the expiration date of each such policy (collectively,
the "Insurance Policies") and all claims made under such Insurance Policies
since January 1, 1991. True, correct and complete copies of all of the
Insurance Policies have been previously delivered by the Seller to the Buyer.
The Insurance Policies are in full force and effect and are in amounts and of a
nature which are adequate and customary for the Seller's business. All
premiums due on the Insurance Policies or renewals thereof have been paid and
there is no default under any of the Insurance Policies.
2.9 Inventory. The Seller shall provide to the Buyer on the Closing Date
(or not more than two days prior thereto) a schedule setting forth a true,
correct and complete list of the Inventory as of the date so provided,
including a description and the book value thereof. Such Inventory shall
consist of items of a quality and quantity which are usable or saleable without
discount in the ordinary course of the business conducted by the Seller. The
value of all items of obsolete materials and of materials of below standard
quality shall have been written down to realizable market value, and the values
at which such Inventory is carried reflect the normal inventory valuation
policy of the Seller of stating the Inventory at the lower of cost or market
value in accordance with generally accepted accounting principles applied
consistently with Seller's past practice.
2.10 Fixed Assets. Seller has provided to Buyer a videotape which shows
all Fixed Assets of the Seller as of the date hereof. Such videotape, as
updated pursuant to Subsection 7.9 hereof, shall show all Fixed Assets of the
Seller as of the Closing Date. All of the Fixed Assets are in good operating
condition and repair, normal wear and tear excepted, are currently used by the
Seller in the ordinary course of business and in the production of products of
the Seller and normal maintenance has been consistently performed with respect
to such Fixed Assets.
2.11 Leases. Schedule 2.11 attached hereto sets forth a true, correct and
complete list as of the date hereof of all leases of real property, identifying
separately each ground lease, to which the Seller is a party (the "Leases").
True, correct and complete copies of the Leases, and all amendments,
modifications and supplemental agreements thereto, have previously been
delivered by the Seller to the Buyer. The Leases are in full force and effect,
are binding and enforceable against each of the parties thereto in accordance
with their respective terms and, except as set forth on Schedule 2.11, have not
been modified or amended since the date of delivery to the Buyer. No party to
any Lease has sent written notice to the other claiming that such party is in
default thereunder, which remains uncured. Except as set forth on Schedule
2.11 attached hereto, there has not occurred any event which would
<PAGE> 15
constitute a breach of or default in the performance of any material covenant,
agreement or condition contained in any Lease, nor has there occurred any event
which with the passage of time or the giving of notice or both would constitute
such a breach or material default. The Seller is not obligated to pay any
leasing or brokerage commission relating to any Lease and, except as set forth
on Schedule 2.11 attached hereto, will not have any enforceable obligation to
pay any leasing or brokerage commission upon the renewal of any Lease. No
material construction, alteration or other leasehold improvement work with
respect to any of the Leases remains to be paid for or to be performed by the
Seller. The Financial Statements contain adequate reserves to provide for the
restoration of the properties subject to the Leases at the end of the
respective Lease terms, to the extent required by the Leases.
2.12 Change in Financial Condition and Assets. Except as set forth on
Schedule 2.12 attached hereto, since the Balance Sheet Date, there has been no
change which materially and adversely affects the business, properties, assets,
condition (financial or otherwise) or prospects of the Seller. The Seller has
no knowledge of any existing or threatened occurrence, event or development
which, as far as can be reasonably foreseen, could have a material adverse
effect on the Seller or its business, properties, assets, condition (financial
or otherwise) or prospects.
2.13 Tax Matters.
(a) Except as set forth on Schedule 2.13 to this Agreement:
(i) Within the times and in the manner prescribed by law, the Seller has
filed all Returns which are required to be filed;
(ii) With respect to all amounts in respect of Taxes imposed upon the
Seller for which it could be liable, whether to Taxing Authorities (as, for
example, under law) or to other persons or entities (as, for example, under Tax
allocation agreements), with respect to all taxable periods or portions of
taxable periods ending on or before the Closing Date, all applicable tax laws
and agreements have been fully complied with, and all such amounts required to
be paid by the Seller to Taxing Authorities or others on or before the date
hereof have been paid.
(iii) All Returns filed by the Seller constitute complete and accurate
representations of the respective Tax liabilities of, or attributable to, the
Seller for such years;
<PAGE> 16
(iv) No examination of the Returns of the Seller is currently in progress
nor, to the best knowledge of the Seller, threatened and no unresolved
deficiencies have been asserted or assessed against the Seller as a result of
any audit by any Taxing Authority and no such deficiency has been proposed or
threatened;
(v) There are no liens for Taxes (other than for current Taxes not yet due
and payable) upon the assets of the Seller;
(vi) The Seller is not a person other than a United States person within
the meaning of the Code;
(b) For purposes of this Section 2.13: "Return" means any return,
declaration, report, statement or other document required to be filed in
respect of any Tax; "Tax" or "Taxes" means any federal, state, local, foreign
and other net income, gross income, gross receipts, sales, use, ad valorem,
transfer, franchise, profits, license, lease, service, service use,
withholding, payroll, employment, excise, severance, stamp, occupation,
premium, property, windfall profits, customs duty or other tax, fee, assessment
or charge of any kind whatever, together with interest and any penalty,
addition to tax or additional amount with respect thereto; "Taxing Authority"
means any governmental authority responsible for the imposition of Taxes; and
"Code" means the Internal Revenue Code of 1986, as amended.
2.14 Powers of Attorney and Suretyships. Except as set forth on Schedule
2.14 attached hereto, the Seller has no general or special powers of attorney
outstanding (whether as grantor or grantee thereof) and has no obligation or
liability (whether actual, accrued, accruing, contingent or otherwise) as
guarantor, surety, co-signor, endorser, co-maker, indemnitor or otherwise in
respect of the obligation of any person, corporation, partnership, joint
venture, association, organization or other entity, except as endorser or maker
of checks or letters of credit, respectively, endorsed or made in the ordinary
course of business.
2.15 Books and Records. The general ledgers and books of account of the
Seller, all federal, state and local income, franchise, property and other tax
returns filed by the Seller, with respect to the Assets, and all other books
and records of the Seller are in all material respects complete and correct and
have been maintained in accordance with good business practice and in
accordance with all applicable procedures required by laws and regulations.
2.16 Contracts and Commitments.
(a) Schedule 2.16 attached hereto contains a true, complete and correct
list and description of the following contracts and agreements, whether written
or oral (collectively, the "Contracts"):
(i) all loan agreements, indentures, mortgages and guaranties to which the
Seller is a party or by which the Seller or any of its property is bound;
<PAGE> 17
(ii) all pledges, conditional sale or title retention agreements, security
agreements, equipment obligations, personal property leases and lease purchase
agreements relating to any of the Assets to which the Seller is a party or by
which the Seller or any of its property is bound;
(iii) all contracts, agreements, commitments, purchase orders or other
understandings or arrangements to which the Seller is a party or by which the
Seller or any of its property is bound which (A) involve payments or receipts
by the Seller of more than $2,000 in the case of any single contract,
agreement, commitment, understanding or arrangement under which full
performance (including payment) has not been rendered by all parties thereto or
(B) which may materially adversely affect the condition (financial or
otherwise) or the properties, assets, business or prospects of the Seller;
(iv) all collective bargaining agreements, employment and consulting
agreements, executive compensation plans, bonus plans, deferred compensation
agreements, pension plans, retirement plans, employee stock option or stock
purchase plans and group life, health and accident insurance and other employee
benefit plans, agreements, arrangements or commitments to which the Seller is a
party or by which the Seller or any of its property is bound;
(v) all agency, distributor, sales representative and similar agreements
to which the Seller is a party;
(vi) all contracts, agreements or other understandings or arrangements
between the Seller any stockholder or Affiliate of the Seller;
(vii) all leases, whether operating, capital or otherwise, under which the
Seller is lessor or lessee; and
(viii) any other material agreement or contract entered into by the
Seller.
(b) Except as set forth on Schedule 2.16 attached hereto:
(i) each Contract is a valid and binding agreement of the Seller,
enforceable against the Seller in accordance with its terms, and the Seller
does not have any knowledge that any Contract is not a valid and binding
agreement of the other parties thereto;
<PAGE> 18
(ii) the Seller has fulfilled all material obligations required pursuant
to the Contracts to have been performed by the Seller on its part prior to the
date hereof, and the Seller has no reason to believe that it will not be able
to fulfill, when due, all of its obligations under the Contracts which remain
to be performed after the date hereof;
(iii) the Seller is not in breach of or default under any Contract, and no
event has occurred which with the passage of time or giving of notice or both
would constitute such a default, result in a loss of rights or result in the
creation of any lien, charge or encumbrance, thereunder or pursuant thereto;
(iv) to the best knowledge of the Seller, there is no existing breach or
default by any other party to any Contract, and no event has occurred which
with the passage of time or giving of notice or both would constitute a default
by such other party, result in a loss of rights or result in the creation of
any lien, charge or encumbrance thereunder or pursuant thereto;
(v) the Seller is not restricted by any Contract from carrying on its
business anywhere in the world; and
(vi) the Seller has no written or oral Contracts to sell products or
perform services which are expected to be performed at, or to result in, a
loss.
(c) Except as set forth on Schedule 2.3 or Schedule 2.16, the
continuation, validity and effectiveness of each Contract will not be affected
by the transfer thereof to Buyer under this Agreement and all such Contracts
are assignable to Buyer without a consent.
(d) True, correct and complete copies of all Contracts have previously
been delivered by the Seller to the Buyer.
2.17 Compliance with Agreements and Laws. The Seller has all requisite
licenses, permits and certificates, including environmental, health and safety
permits, from federal, state and local authorities necessary to conduct its
business and own and operate its assets (collectively, the "Permits").
Schedule 2.17 attached hereto sets forth a true, correct and complete list of
all such Permits, copies of which have previously been delivered by the Seller
to the Buyer. The Seller is not in violation of any law, regulation or
ordinance (including, without limitation, laws, regulations or ordinances
relating to building, zoning, environmental, disposal of hazardous substances,
land use or similar matters) relating to its properties, the violation of which
could have a material adverse effect on the Seller or its properties. The
business of the Seller does not violate, in any material respect, any federal,
state, local or foreign laws, regulations or orders (including, but not limited
to, any of the foregoing relating to employment discrimination, occupational
safety, environmental protection, hazardous waste (as defined in the Resource
Conservation and Recovery Act, as amended, and the regulations adopted pursuant
thereto), conservation, or corrupt practices, the enforcement of which would
have a material and adverse effect
<PAGE> 19
on the results of operations, condition (financial or otherwise), assets,
properties, business or prospects of the Seller. Except as set forth on
Schedule 2.17 attached hereto, the Seller has not since January 1, 1993
received any notice or communication from any federal, state or local
governmental or regulatory authority or otherwise of any such violation or
noncompliance.
2.18 Employee Relations.
(a) The Seller is in compliance with all federal, state and municipal laws
respecting employment and employment practices, terms and conditions of
employment, and wages and hours, and is not engaged in any unfair labor
practice, and there are no arrears in the payment of wages or social security
taxes.
(b) Except as set forth on Schedule 2.18 attached hereto:
(i) none of the employees of the Seller is represented by any labor union;
(ii) there is no unfair labor practice complaint against the Seller
pending before the National Labor Relations Board or any state or local agency;
(iii) there is no pending labor strike or other material labor trouble
affecting the Seller (including, without limitation, any organizational drive);
(iv) there is no material labor grievance pending against the Seller;
(v) there is no pending representation question respecting the employees
of the Seller; and
(vi) there are no pending arbitration proceedings arising out of or under
any collective bargaining agreement to which the Seller is a party, or to the
best knowledge of the Seller, any basis for which a claim may be made under any
collective bargaining agreement to which the Seller is a party.
(c) Schedule 2.18 attached hereto sets forth a true, correct and complete
list of (a) the employee benefits provided by the Seller to its employees and
all contracts or agreements between the Seller and its employees, and (b) the
Seller's current payroll, including the job descriptions and salary or wage
rates of each of its employees, showing separately for each such person who
received an annual salary
<PAGE> 20
in excess of $20,000 the amounts paid or payable as salary and bonus payments
for Seller's most recently completed full fiscal year.
(d) For purposes of this Subsection 2.18, the term "employee" shall be
construed to include sales agents and other independent contractors who spend a
majority of their working time on the Seller's business.
2.19 Absence of Certain Changes or Events. Except as set forth on
Schedule 2.19 attached hereto, since the Balance Sheet Date, the Seller has not
entered into any transaction which is not in the usual and ordinary course of
business, and, without limiting the generality of the foregoing, the Seller has
not:
(a) Incurred any material obligation or liability for borrowed money;
(b) Discharged or satisfied any lien or encumbrance or paid any obligation
or liability other than current liabilities reflected in the Current Balance
Sheet;
(c) Mortgaged, pledged or subjected to lien, charge or other encumbrance
any of the Assets;
(d) Sold or purchased, assigned or transferred any of its tangible assets
or cancelled any debts or claims, except for inventory sold and raw materials
purchased in the ordinary course of business;
(e) Made any material amendment to or termination of any Contract or done
any act or omitted to do any act which would cause the breach of any Contract;
(f) Suffered any losses, whether insured or uninsured, and whether or not
in the control of the Seller, in excess of $5,000 in the aggregate, or waived
any rights of any value;
(g) Made any changes in compensation of its officers, directors or
employees;
(h) Received notice of any litigation, warranty claim or products
liability claims; or
(i) Made any material change in the terms, status or funding condition of
any Employee Plan, as defined in Subsection 2.23 hereof.
2.20 Suppliers. Schedule 2.20 attached hereto sets forth a true, correct
and complete list of the names and addresses of the ten suppliers of the Seller
which accounted for the largest dollar volume of purchases by the Seller for
its most recently completed fiscal year. None of such suppliers has notified
the Seller that it intends to discontinue its relationship with the Seller.
<PAGE> 21
2.21 Prepayments and Deposits. Schedule 2.21 attached hereto sets forth
all prepayments or deposits from customers for products to be shipped, or
services to be performed, after the Closing Date which have been received by
the Seller as of the date hereof.
2.22 Trade Names and Other Intangible Property.
(a) Schedule 2.22 attached hereto sets forth a true, correct and complete
list and, where appropriate, a description of, all Intangible Property. True,
correct and complete copies of all licenses and other agreements relating to
the Intangible Property have been previously delivered by the Seller to the
Buyer.
(b) Except as otherwise disclosed in Schedule 2.22 attached hereto, the
Seller is the sole and exclusive owner of all Intangible Property and all
designs, permits, labels and packages used on or in connection therewith. The
Intangible Property owned by the Seller is sufficient to conduct the Seller's
business as presently conducted and, when transferred to the Buyer pursuant to
this Agreement, will be sufficient to permit the Buyer to conduct the business
of the Seller as presently conducted by the Seller. The Seller has received no
notice of, and has no knowledge of any basis for, a claim against it that any
of its operations, activities, products or publications infringes on any
patent, trademark, trade name, copyright or other property right of a third
party, or that it is illegally or otherwise using the trade secrets, formulae
or any property rights of others. The Seller has no disputes with or claims
against any third party for infringement by such third party of any trade name
or other Intangible Property of the Seller. The Seller has taken all steps
reasonably necessary to protect its right, title and interest in and to the
Intangible Property.
2.23 Employee Benefit Plans.
(a) Except as set forth on Schedule 2.23, the Seller does not now have or
otherwise contribute to or participate in, and has not in the past had or
otherwise contributed to, any employee benefit plan subject to the Employee
Retirement Income Security Act of 1974.
(b) The Buyer assumes no liabilities with respect to any employee benefit
plan which liability relates to any period prior to the Closing Date,
including, without limitation, any taxes, accrued vacation or sick pay (whether
or not vested), accrued vacation, sick and personal leaves, employee policies,
employee benefit claims or liability to the Pension Benefit Guaranty
Corporation.
<PAGE> 22
(c) Employee Plans. Schedule 2.23 attached hereto contains a true,
correct and complete list of all pension, benefit, profit sharing, retirement,
deferred compensation, welfare, insurance, disability, bonus, vacation pay,
severance pay and other similar plans, programs and agreements, whether reduced
to writing or not, relating to the Seller's employees, or maintained at any
time since January 1, 1991 by the Seller or by any other member of any
controlled group of corporations, group of trades or businesses under common
control, or affiliated service group (as defined for purposes of Section
414(b), (c) and (m), respectively, of the Code) (the "Employee Plans") and,
except as set forth on Schedule 2.23 attached hereto, the Seller has no
obligations, contingent or otherwise, past or present, under applicable law or
the terms of any Employee Plan.
2.24 Regulatory Approvals. All consents, approvals, authorizations and
other requirements prescribed by any law, rule or regulation which must be
obtained or satisfied by the Seller and which are necessary for the execution
and delivery by the Seller of this Agreement and the documents to be executed
and delivered by the Seller in connection herewith are set forth on Schedule
2.24 attached hereto and have been, or will be prior to the Closing Date,
obtained and satisfied.
2.25 Indebtedness to and from Officers, Directors and Shareholders.
Except as set forth on Schedule 2.25 attached hereto, the Seller is not
indebted, directly or indirectly, to any person who is an officer, director or
shareholder of the Seller or any affiliate of any such person in any amount
whatsoever other than for salaries for services rendered or reimbursable
business expenses, all of which have been reflected on the Current Financial
Statements, and no such officer, director, shareholder or affiliate is indebted
to the Seller, except for advances made to employees of the Seller in the
ordinary course of business to meet reimbursable business expenses anticipated
to be incurred by such obligor.
2.26 Disclosure. No representation or warranty by the Seller in this
Agreement or in any Exhibit hereto, or in any list, statement, document or
information set forth in or attached to any Schedule delivered or to be
delivered pursuant to this Agreement, contains or will contain any untrue
statement of a material fact or omits or will omit any material fact necessary
in order to make the statements contained therein not misleading. The Seller
has disclosed to the Buyer all material facts pertaining to the transactions
contemplated by this Agreement.
3. Representations of the Buyer
The Buyer represents and warrants to the Seller as follows:
3.1 Organization and Authority. The Buyer is a corporation duly
organized, validly existing and in good standing under the laws of the state of
Delaware, and has requisite power and authority (corporate and other) to own
its properties and to carry on its business as now being conducted. The Buyer
has full power to execute and deliver this Agreement and the Instrument of
Assumption of Liabilities and to consummate the transactions contemplated
hereby and thereby.
<PAGE> 23
Certified copies of the Certificate of Incorporation and the Bylaws of the
Buyer, as amended to date, have been previously delivered to the Seller, are
complete and correct, and no amendments have been made thereto or have been
authorized since the date thereof.
3.2 Capitalization of the Buyer. On the date of this Agreement, the
Buyer's authorized capital stock consists of 25,000,000 shares of Common Stock,
$.01 par value ("Common Stock"), and 2,000,000 shares of Preferred Stock, $.01
par value per share. All of the outstanding shares of capital stock of the
Buyer have been and on the Closing Date will be duly and validly issued and
are, or will be, fully paid and nonassessable.
3.3 Authorization. The execution and delivery of this Agreement by the
Buyer, and the agreements provided for herein, and the consummation by the
Buyer of all transactions contemplated hereby, have been duly authorized by all
requisite corporate action. This Agreement and all such other agreements and
written obligations entered into and undertaken in connection with the
transactions contemplated hereby constitute the valid and legally binding
obligations of the Buyer, enforceable against the Buyer in accordance with
their respective terms. The execution, delivery and performance of this
Agreement and the agreements provided for herein, and the consummation by the
Buyer of the transactions contemplated hereby and thereby, will not, with or
without the giving of notice or the passage of time or both, (a) violate the
provisions of any law, rule or regulation applicable to the Buyer; (b) violate
the provisions of the Buyer's Certificate of Incorporation or Bylaws; (c)
violate any judgment, decree, order or award of any court, governmental body or
arbitrator; or (d) conflict with or result in the breach or termination of any
term or provision of, or constitute a default under, or cause any acceleration
under, or cause the creation of any lien, charge or encumbrance upon the
properties or assets of the Buyer pursuant to, any indenture, mortgage, deed of
trust or other agreement or instrument to which it or its properties is a party
or by which the Buyer is or may be bound. Schedule 3.3 attached hereto sets
forth a true, correct and complete list of all consents and approvals of third
parties that are required in connection with the consummation by the Buyer of
the transactions contemplated by this Agreement.
3.4 Regulatory Approvals. All consents, approvals, authorizations and
other requirements prescribed by any law, rule or regulation which must be
obtained or satisfied by the Buyer and which are necessary for the consummation
of the transactions contemplated by this Agreement have been, or will be prior
to the Closing Date, obtained and satisfied.
<PAGE> 24
3.5 Disclosure. No representation or warranty by the Buyer in this
Agreement or in any Exhibit hereto, or in any list, statement, document or
information set forth in or attached to any Schedule delivered or to be
delivered pursuant hereto, contains or will contain any untrue statement of a
material fact or omits or will omit any material fact necessary in order to
make the statements contained therein not misleading.
4. Access to Information; Public Announcements
4.1 Access to Management, Properties and Records.
(a) From the date of this Agreement until the Closing Date, the Seller
shall afford the officers, attorneys, accountants and other authorized
representatives of the Buyer free and full access upon reasonable notice and
during normal business hours to all management personnel, offices, properties,
books and records of the Seller, so that the Buyer may have full opportunity to
make such investigation as it shall desire to make of the management, business,
properties and affairs of the Seller, and the Buyer shall be permitted to make
abstracts from, or copies of, all such books and records. The Seller shall
furnish to the Buyer such financial and operating data and other information as
to the Assets and the business of the Seller as the Buyer shall reasonably
request.
(b) If the Buyer, at its option and expense, prior to the Closing Date,
elects to have a report or reports prepared by an engineer or other
professional selected by the Buyer, certifying that the real property
associated with the Assets (i) complies with all applicable federal, state and
local environmental and wetlands laws, rules and regulations and that there is
not now, and never has been, manufacture, storage, or disposal of hazardous
wastes at the real estate in violation of said laws, rules and regulations,
(ii) complies with all applicable building, health and fire codes, and
subdivision control laws, rules and regulations, the Seller shall cooperate
with such engineer or professional to the extent necessary to prepare such
reports, including, without limitation, providing such engineer or professional
access to such real property and necessary records, and arranging interviews
with employees of the Seller.
(c) The Seller shall authorize the release to the Buyer of all files
pertaining to the Seller, the Assets or the business or operations of the
Seller held by any federal, state, county or local authorities, agencies or
instrumentalities.
4.2 Confidentiality. All information not previously disclosed to the
public or generally known to persons engaged in the respective businesses of
the Seller or the Buyer which shall have been furnished by the Buyer or the
Seller to the other party in connection with the transactions contemplated
hereby or as provided pursuant to this Section 4 shall not be disclosed to any
person other than their respective employees, directors, attorneys, accountants
or financial advisors or other than as contemplated herein. In the event that
the transactions contemplated by this Agreement shall not be consummated, all
such information which shall be in writing
<PAGE> 25
shall be returned to the party furnishing the same, including, to the extent
reasonably practicable, all copies or reproductions thereof which may have been
prepared, and neither party shall at any time thereafter disclose to third
parties, or use, directly or indirectly, for its own benefit, any such
information, written or oral, about the business of the other party hereto.
Notwithstanding the above, the Buyer may include in any Registration Statement,
prospectus, periodic report or any other disclosure made on advice of counsel
information regarding the Seller, the business of the Seller, the financial
condition of the Seller and the terms of this Agreement.
4.3 Public Announcements. The parties agree that prior to the Closing
Date, except as otherwise required by law, any and all public announcements or
other public communications concerning this Agreement and the purchase of the
Assets by the Buyer shall be subject to the approval of the Buyer.
5. Pre-Closing Covenants of the Seller
From and after the date hereof and until the Closing Date:
5.1 Conduct of Business. The Seller shall carry on its business
diligently and substantially in the same manner as heretofore and shall not
make or institute any unusual or new methods of purchase, sale, shipment or
delivery, lease, management, accounting or operation, except as agreed to in
writing by the Buyer. All of the property of the Seller shall be used,
operated, repaired and maintained in a normal business manner consistent with
past practice.
5.2 Absence of Material Changes. Without the prior written consent of the
Buyer, the Seller shall not:
(a) Take any action to amend its charter or Bylaws;
(b) Issue any stock, bonds or other corporate securities or grant any
option or issue any warrant to purchase or subscribe to any of such securities
or issue any securities convertible into such securities;
(c) Incur any obligation or liability (absolute or contingent), except
current liabilities incurred and obligations under contracts entered into in
the ordinary course of business;
(d) Purchase or redeem any shares of its capital stock;
<PAGE> 26
(e) Mortgage, pledge, or subject to any lien, charge or any other
encumbrance any of the Assets;
(f) Sell, assign, or transfer any of the Assets, except for inventory sold
in the ordinary course of business, at a normal profit margin, and for not less
than replacement cost;
(g) Cancel any debts or claims, except in the ordinary course of business;
(h) Merge or consolidate with or into any corporation or other entity;
(i) Make, accrue or become liable for any bonus, profit sharing or
incentive payment, except for accruals under existing plans, if any, or
increase the rate of compensation payable or to become payable by it to any of
its officers, directors or employees, other than increases in the ordinary
course of business consistent with past practice;
(j) Make any election or give any consent under the Code or the tax
statutes of any state or other jurisdiction or make any termination, revocation
or cancellation of any such election or any consent or compromise or settle any
claim for past or present tax due;
(k) Modify, amend, alter or terminate any of its executory contracts of a
material value or which are material in amount;
(l) Take or permit any act or omission constituting a breach or default
under any contract, indenture or agreement by which it or its properties are
bound;
(m) Fail to (i) preserve the possession and control of its assets and
business, (ii) keep in faithful service its present officers and key employees,
(iii) preserve the goodwill of its customers, suppliers, agents, brokers and
others having business relations with it, and (iv) keep and preserve its
business existing on the date hereof until after the Closing Date;
(n) Fail to operate its business and maintain its books, accounts and
records in the customary manner and in the ordinary or regular course of
business and maintain in good repair its business premises, fixtures, furniture
and equipment;
(o) Enter into any leases, contracts, agreements or understandings other
than those entered into in the ordinary course of business calling for payments
which in the aggregate do not exceed $5,000 for each such lease, contract,
agreement or understanding;
<PAGE> 27
(p) Engage any employee for a salary in excess of $20,000 per annum (other
than an employee hired to replace a person employed on the date hereof who
ceases to be employed by the Seller, at a salary which is equal to or less than
the salary of such replaced employee);
(q) Materially alter the terms, status or funding condition of any
Employee Plan;
(r) Make any loans to any person or entity; or
(s) Commit or agree to do any of the foregoing in the future.
5.3 Taxes. The Seller will, on a timely basis, file all tax returns for
and pay any and all taxes which shall become due or shall have accrued (a) on
account of the operation of the business of the Seller or the ownership of the
Assets on or prior to the Closing Date or (b) on account of the sale of the
Assets (including a pro-rata portion of all personal property and excise taxes
payable with respect to the Assets by the Seller).
5.4 Delivery of Interim Financial Statements. As promptly as possible
following the last day of each month after the date hereof, and in any event
within 30 days after the end of each such month, the Seller shall deliver to
the Buyer its balance sheet and related statements of income, shareholders'
equity, retained earnings and statement of cash flow for the one-month period
then ended, all certified by the Seller's Accountants or Seller's chief
financial officer (collectively, the "Interim Financial Statements"). In
addition, the Seller shall, not less than 10 days prior to the Closing Date,
provide to the Buyer Interim Financial Statements for the months of July,
August and September 1996.
5.5 Compliance with Laws. The Seller will comply with all laws and
regulations which are applicable to it, its ownership of the Assets or to the
conduct of its business and will perform and comply with all contracts,
commitments and obligations by which it is bound.
5.6 Continued Truth of Representations and Warranties of the Seller. The
Seller will not take any actions which would result in any of the
representations or warranties set forth in Section 2 hereof being untrue.
5.7 Continuing Obligation to Inform. From time to time prior to the
<PAGE> 28
Closing, the Seller will deliver or cause to be delivered to the Buyer
supplemental information concerning events subsequent to the date hereof which
would render any statement, representation or warranty in this Agreement or any
information contained in any Schedule inaccurate or incomplete in any material
respect at any time after the date hereof until the Closing Date.
5.8 Exclusive Dealing. The Seller will not, directly or indirectly,
through any officer, director, agent or otherwise, (a) solicit, initiate or
encourage submission of proposals or offers from any person relating to any
acquisition or purchase of all or a material portion of the Assets, or any
equity interest in, the Seller or any equity investment, merger, consolidation
or business combination with the Seller, or (b) participate in any discussions
or negotiations regarding, or furnish to any other person, any non-public
information with respect to, or otherwise cooperate in any way with, or assist
or participate in, facilitate or encourage, any effort or attempt by any other
person to do or seek any of the foregoing. The Seller shall promptly notify
the Buyer if any such proposal or offer, or any inquiry or contact with any
person with respect thereto, is made.
5.9 No Publicity. The Seller shall make no public announcement with
respect to this Agreement or the transactions contemplated hereby without the
express prior written consent of the Buyer. The Seller shall hold in
confidence, and use its best efforts to have all of its officers, directors and
personnel hold in confidence, the terms of this Agreement and the transactions
contemplated hereby.
6. Satisfaction of Conditions; Liquidated Damages.
6.1 Satisfaction of Conditions. The Seller and the Buyer covenant and
agree to use their commercially reasonable efforts to obtain the satisfaction
of the conditions specified in this Agreement.
6.2 Liquidated Damages.
(a) The parties hereto agree that the harm suffered by the Buyer as a
result of a breach of this Agreement by the Seller and the failure by the
Seller to consummate the transactions contemplated hereby is difficult to
accurately estimate. The parties agree, based on all present circumstances,
that $500,000 represents a reasonable estimate of the damages, including lost
opportunity costs, which would be suffered by the Buyer upon a failure to close
due to a breach of the Seller.
(b) If Seller (i) willfully or intentionally breaches any representation,
warranty or covenant under this Agreement, willfully or intentionally fails to
perform any condition or obligation required to be performed hereunder, or
fails to disclose a material fact pertaining to the Assets or the transactions
contemplated by this Agreement to the Buyer; or (ii) either elects not to sell
the Assets to the Buyer pursuant to the terms of this Agreement, sells or
otherwise transfers the Assets or enters into an agreement (in principle or
otherwise) with any
<PAGE> 29
other person or entity to sell any shares of the capital stock of Seller, to
merge with or into, or consolidate Seller with any person or entity other than
the Buyer, to sell more than 10% of the Assets to any other person or entity or
to effect any other transaction with any other person or entity that would
preclude or otherwise frustrate the transfer of the Assets to the Buyer (a
"Willful Breach"), the Seller will pay to the Buyer the sum of $500,000, as
liquidated damages. The remedy set forth in this paragraph (b) shall be
available to the Buyer only in the event that the transactions contemplated
hereby are not consummated.
7. Conditions to Obligations of the Buyer
The obligations of the Buyer under this Agreement are subject to the
fulfillment, at the Closing Date, of the following conditions precedent, each
of which may be waived in writing in the sole discretion of the Buyer:
7.1 Continued Truth of Representations and Warranties of the Seller;
Compliance with Covenants and Obligations. The representations and warranties
of the Seller shall be true on and as of the Closing Date as though such
representations and warranties were made on and as of such date, except for any
changes permitted by the terms hereof or consented to in writing by the Buyer.
The Seller shall have performed and complied with all terms, conditions,
covenants, obligations, agreements and restrictions required by this Agreement
to be performed or complied with by it prior to or at the Closing Date.
7.2 Corporate Proceedings. All corporate and other proceedings required
to be taken on the part of the Seller to authorize or carry out this Agreement
and to convey, assign, transfer and deliver the Assets shall have been taken.
7.3 Governmental Approvals. All governmental agencies, departments,
bureaus, commissions and similar bodies, the consent, authorization or approval
of which is necessary under any applicable law, rule, order or regulation for
the consummation by the Seller of the transactions contemplated by this
Agreement and the operation of the Seller's business by the Buyer shall have
consented to, authorized, permitted or approved such transactions.
7.4 Consents of Lenders, Lessors and Other Third Parties. The Seller
shall have received all requisite consents and approvals of all lenders,
lessors and other third parties whose consent or approval is required in order
for the Seller to consummate the transactions contemplated by this Agreement,
including, without
<PAGE> 30
limitation, those set forth on Schedule 2.3 attached hereto.
7.5 Adverse Proceedings. No action or proceeding by or before any court
or other governmental body shall have been instituted or threatened by any
governmental body or person whatsoever which shall seek to restrain, prohibit
or invalidate the transactions contemplated by this Agreement or which might
affect the right of the Buyer to own or use the Assets after the Closing.
7.6 Opinion of Counsel. The Buyer shall have received an opinion of
Jablinski, Folino, Roberts & Martin, counsel to the Seller, dated as of the
Closing Date, as to the matters specified in Exhibit C, and as to such other
matters as may be reasonably requested by the Buyer or its counsel.
7.7 Board of Directors and Shareholder Approval. The shareholders of the
Seller shall have duly authorized the transactions contemplated by this
Agreement (after delivery by the Buyer to the Principals of a Prospectus
relating to the shares deliverable by Buyer hereunder).
7.8 The Assets. Except for the Permitted Encumbrances, at the Closing the
Buyer shall receive good, clear, record and marketable title to the Assets,
free and clear of all liens, liabilities, security interests and encumbrances
of any nature whatsoever.
7.9 Update. The Seller shall have provided the Buyer with a true, correct
and complete list and amount, as of the Closing Date, of:
(a) the Inventory (as contemplated by Section 2.9);
(b) the Fixed Assets (which update may be provided by
videotape);
(c) the Accounts Receivable, including an aging
thereof; and
(d) the trade accounts payable and accrued
liabilities assumed pursuant to Section 1.4(a)(i) and (ii)
hereof.
7.10 Opening Cash on Closing Date. On the Closing Date, the Seller will
have opening cash (cash on hand) for each Store in the amount indicated on
Schedule I attached hereto for such Store, which cash will be transferred to
the Buyer pursuant to the terms of this Agreement.
7.11 Payables. (a) On the Closing Date, the Seller will have no
obligations to suppliers and vendors of goods and services and other trade
creditors which are past due in accordance with their terms and in no event
shall the Seller have any of such obligations outstanding for more than 60 days
as of the Closing.
(b) On the Closing Date, the Seller will have no outstanding obligations
to any Affiliate (including any stockholder) except as set forth on
<PAGE> 31
Schedule 7.11.
(c) On the Closing Date, the Seller will have no liabilities to employees
for accrued vacation or sick pay, employee benefit claims or liabilities to the
Pension Benefit Guaranty Corporation.
7.12 Employment Agreement. On or prior to the Closing Date, the Buyer and
the Principal shall have entered into an Employment Agreement substantially in
the form and on the terms of Exhibit F.
7.13 Closing Deliveries. The Buyer shall have received at or prior to the
Closing each of the following documents:
(a) a bill of sale substantially in the form attached hereto as Exhibit D;
(b) such instruments of conveyance, assignment and transfer, in form and
substance satisfactory to the Buyer, as shall be appropriate to convey,
transfer and assign to, and to vest in, the Buyer, good, clear, record and
marketable title to the Assets;
(c) such contracts, files and other data and documents pertaining to the
Assets or the Seller's business as the Buyer may reasonably request;
(d) copies of the general ledgers and books of account of the Seller, and
all federal, state and local income, franchise, property and other tax returns
filed by the Seller with respect to the Assets since January 1, 1991;
(e) such certificates of the Seller's officers and such other documents
evidencing satisfaction of the conditions specified in Section 7 as the Buyer
shall reasonably request;
(f) a certificate of the Secretary of State (or comparable issuing
authority) of the state in which the Seller is incorporated as to the legal
existence and good standing (including tax) of the Seller in such state, and a
certificate of the Secretary of State (or comparable issuing authority) of each
state or jurisdiction in which the Seller is qualified to transact business, as
to Seller's qualification to do business in such state or jurisdiction;
<PAGE> 32
(g) certificates of the Clerk or Secretary of the Seller attesting to the
incumbency of the Seller's officers, respectively, the authenticity of the
resolutions authorizing the transactions contemplated by the Agreement, and the
authenticity and continuing validity of the charter documents delivered
pursuant to Subsection 2.1;
(h) estoppel certificates from each lessor from whom the Seller leases
real or personal property consenting to the assumption of such lease by the
Buyer and representing that there are no outstanding claims against the Seller
under any such lease;
(i) the items listed in Subsection 7.9;
(j) such other documents, instruments or certificates as the Buyer may
reasonably request.
8. Conditions to Obligations of the Seller
The obligations of the Seller under this Agreement are subject to the
fulfillment, at the Closing Date, of the following conditions precedent, each
of which may be waived in writing at the sole discretion of the Seller:
8.1 Continued Truth of Representations and Warranties of the Buyer;
Compliance with Covenants and Obligations. The representations and warranties
of the Buyer in this Agreement shall be true on and as of the Closing Date as
though such representations and warranties were made on and as of such date,
except for any changes consented to in writing by the Seller. The Buyer shall
have performed and complied with all terms, conditions, obligations, agreements
and restrictions required by this Agreement to be performed or complied with by
it prior to or at the Closing Date.
8.2 Corporate Proceedings. All corporate and other proceedings required
to be taken on the part of the Buyer to authorize or carry out this Agreement
shall have been taken.
8.3 Governmental Approvals. All governmental agencies, departments,
bureaus, commissions and similar bodies, the consent, authorization or approval
of which is necessary under any applicable law, rule, order or regulation for
the consummation by the Buyer of the transactions contemplated by this
Agreement shall have consented to, authorized, permitted or approved such
transactions.
8.4 Consents of Lenders, Lessors and Other Third Parties. The Buyer shall
have received all requisite consents and approvals of all lenders, lessors and
other third parties whose consent or approval is required in order for the
Buyer to consummate the transactions contemplated by this Agreement, including,
without limitation, those set forth on Schedule 3.3 attached hereto.
<PAGE> 33
8.5 Adverse Proceedings. No action or proceeding by or before any court
or other governmental body shall have been instituted or threatened by any
governmental body or person whatsoever which shall seek to restrain, prohibit
or invalidate the transactions contemplated by this Agreement or which might
affect the right of the Seller to transfer the Assets.
8.6 Opinion of Counsel. The Seller shall have received an opinion of Hale
and Dorr, counsel to the Buyer, dated as of the Closing Date, in substantially
the form attached hereto as Exhibit E, and as to such other matters as may be
reasonably requested by the Seller or its counsel.
8.7 Closing Deliveries. The Seller shall have received at or prior to the
Closing each of the following documents:
(a) such certificates of the Buyer's officers and such other documents
evidencing satisfaction of the conditions specified in this Section 8 as the
Seller shall reasonably request;
(b) a certificate of the Secretary of State of the State of Delaware as to
the legal existence and good standing (including tax) of the Buyer in Delaware;
(c) a certificate of the Secretary of the Buyer attesting to the
incumbency of the Buyer's officers, the authenticity of the resolutions
authorizing the transactions contemplated by this Agreement, and the
authenticity and continuing validity of the charter documents delivered
pursuant to Subsection 3.1;
(d) Instrument of Assumption of Liabilities executed by the Buyer and
accepted by the Seller, and Instrument of Evidence of Indebtedness executed by
the Buyer;
(e) payment of the cash portion of the Base Purchase Price; and
(f) such other documents, instruments or certificates as the Seller may
reasonably request.
9. Indemnification
<PAGE> 34
9.1 By the Buyer and the Seller and the Principals. The Buyer on the one
hand and the Seller and the Principals, jointly and severally (if more than one
Principal), on the other hand, each hereby agrees to indemnify and hold
harmless the other against all claims, damages, losses, liabilities, costs and
expenses (including, without limitation, settlement costs and any legal,
accounting or other expenses for investigating or defending any actions or
threatened actions) reasonably incurred by the Buyer or the Seller in
connection with each and all of the following:
(a) Any breach by the indemnifying party of any representation or warranty
in this Agreement;
(b) Any breach of any covenant, agreement or obligation of the
indemnifying party contained in this Agreement or any other agreement,
instrument or document contemplated by this Agreement; and
(c) Any misrepresentation contained in any statement, certificate or
schedule furnished by the indemnifying party pursuant to this Agreement or in
connection with the transactions contemplated by this Agreement.
9.2 By the Seller and the Principals. The Seller and the Principals, on a
joint and several basis, further agree to indemnify and hold harmless the Buyer
from any and all claims, damages, losses, liabilities, costs and expenses
(including, without limitation, settlement costs and any legal, accounting or
other expenses for investigating or defending any actions or threatened
actions) reasonably incurred by the Buyer, in connection with each and all of
the following:
(a) Any claims against, or liabilities or obligations of, the Seller or
against the Assets not specifically assumed by the Buyer pursuant this
Agreement, including without limitation, any liabilities or obligations of the
Seller for accrued vacation or sick pay;
(b) The failure of the Buyer to obtain the protections afforded by
compliance with the notification and other requirements of the bulk sales laws
in force in the jurisdictions in which such laws may be applicable to either
the Seller or the transactions contemplated by this Agreement;
(c) Any violation by the Seller of, or any failure by the Seller to comply
with, any law, ruling, order, decree, regulation or zoning, environmental or
permit requirement applicable to the Seller, the Assets or its business,
whether or not any such violation or failure to comply has been disclosed to
the Buyer, including any costs incurred by the Buyer (i) in order to bring the
Assets into compliance with environmental laws as a consequence of
noncompliance with such laws on the Closing Date or (ii) in connection with the
transfer of the Assets;
(d) Any warranty claim or product liability claim relating to the Seller's
business or operation prior to the Closing Date;
<PAGE> 35
(e) Any tax liabilities or obligations of the Seller or the Principal; and
(f) Any claims, liabilities or obligations of, the Seller with respect to
obligations under Employee Plans not specifically assumed by the Buyer pursuant
to this Agreement.
9.3 Claims for Indemnification. Whenever any claim shall arise for
indemnification hereunder the party seeking indemnification (the "Indemnified
Party"), shall promptly notify the party from whom indemnification is sought
(the "Indemnifying Party") of the claim and, when known, the facts constituting
the basis for such claim. In the event of any such claim for indemnification
hereunder resulting from or in connection with any claim or legal proceedings
by a third-party, the notice to the Indemnifying Party shall specify, if known,
the amount or an estimate of the amount of the liability arising therefrom.
The Indemnified Party shall not settle or compromise any claim by a third party
for which it is entitled to indemnification hereunder without the prior written
consent of the Indemnifying Party, which shall not be unreasonably withheld,
unless suit shall have been instituted against it and the Indemnifying Party
shall not have taken control of such suit after notification thereof as
provided in Subsection 9.4 of this Agreement.
9.4 Defense by Indemnifying Party. In connection with any claim giving
rise to indemnity hereunder resulting from or arising out of any claim or legal
proceeding by a person who is not a party to this Agreement, the Indemnifying
Party at its sole cost and expense may, upon written notice to the Indemnified
Party, assume the defense of any such claim or legal proceeding if it
acknowledges to the Indemnified Party in writing its obligations to indemnify
the Indemnified Party with respect to all elements of such claim. The
Indemnified Party shall be entitled to participate in (but not control) the
defense of any such action, with its counsel and at its own expense. If the
Indemnifying Party does not assume the defense of any such claim or litigation
resulting therefrom within 30 days after the date such claim is made, (a) the
Indemnified Party may defend against such claim or litigation, in such manner
as it may deem appropriate, including, but not limited to, settling such claim
or litigation, after giving notice of the same to the Indemnifying Party, on
such terms as the Indemnified Party may deem appropriate, and (b) the
Indemnifying Party shall be entitled to participate in (but not control) the
defense of such action, with its counsel and at its own expense. If the
Indemnifying Party thereafter seeks to question the manner in which the
Indemnified Party defended such third party claim or the amount or nature of
any such settlement, the Indemnifying Party shall have
<PAGE> 36
the burden to prove by a preponderance of the evidence that the Indemnified
Party did not defend or settle such third party claim in a reasonably prudent
manner.
9.5 Payment of Indemnification Obligation. All indemnification by the
Buyer, the Seller or the Principal hereunder shall be effected by payment of
cash or delivery of a cashier's or certified check in the amount of the
indemnification liability. The Buyer may offset, against shares of its Common
Stock deliverable pursuant to the Instrument of Evidence of Indebtedness,
amounts owed pursuant hereto by Seller to Buyer. For purposes of calculating a
reduction in the number of shares issuable pursuant to such Instrument, each
share shall have a value equal to the Market Value.
9.6 Survival of Representations; Claims for Indemnification. All
representations and warranties made by the parties herein or in any instrument
or document furnished in connection herewith shall survive the Closing and any
investigation at any time made by or on behalf of the parties hereto. All such
representations and warranties shall expire on the second anniversary of the
Closing Date, except for claims, if any, asserted in writing prior to second
anniversary, which shall survive until finally resolved and satisfied in full.
All claims and actions for indemnity pursuant to this Section 9 for breach of
any representation or warranty shall be asserted or maintained in writing by a
party hereto on or prior to the expiration of such two-year period.
Notwithstanding the above claims resulting from the failure by the Seller to
pay when due any tax or claims relating to Seller's employee benefit plans
shall expire one year after any applicable statute of limitations.
9.7 Indemnification Limitations. Notwithstanding the provisions of this
Section 9 to the contrary, (i) the Seller and the Principals shall be liable
for only that portion of the aggregate amount due under this Section 9 which
exceeds $88,880, and (ii) the Buyer shall be liable for only that portion of
the aggregate amount due under this Section 9 which exceeds $88,880, provided
that, no such deductible shall be applicable to Buyer in respect of any failure
by the Buyer to pay or perform any Assumed Liability.
10. Post-Closing Agreements
The Seller agrees that from and after the Closing Date:
10.1 Proprietary Information.
(a) The Seller shall hold in confidence, and use its best efforts to have
all of its officers, directors and personnel hold in confidence, all knowledge
and information of a secret or confidential nature with respect to the business
of the Seller and shall not disclose, publish or make use of the same without
the consent of the Buyer, except to the extent that such information shall have
become public knowledge other than by breach of this Agreement by the Seller.
<PAGE> 37
(b) The Seller agrees that the remedy at law for any breach of this
Subsection 10.1 would be inadequate and that the Buyer shall be entitled to
injunctive relief in addition to any other remedy it may have upon breach of
any provision of this Subsection 10.1.
10.2 No Solicitation or Hiring of Former Employees. Except as provided by
law, for a period of five years after the Closing Date, neither the Seller nor
any Affiliate thereof (including the Principals) shall solicit any person who
was an employee of the Seller on the Closing Date to terminate his employment
with the Buyer or to become an employee of the Seller or hire any person who
was such an employee on the date hereof or on the Closing Date.
Notwithstanding the above, if employment with Buyer of any family member of any
Principal is terminated by Buyer, Seller and its Affiliates shall be free to
hire such terminated employee.
10.3 Non-Competition Agreement.
(a) For a period of five years after the Closing Date, neither the Seller
nor any Affiliate (including the Principal) thereof shall (i) market, rent or
sell any product which has the same or substantially the same form, function
and primary application as any existing or proposed product marketed, rented or
sold by the Seller on or prior to the Closing Date or (ii) engage in any
business competitive with the business of the Seller as conducted on the date
hereof or on the Closing Date, in the United States or any other country in
which the Seller conducted its business during the two years prior to the
Closing Date.
(b) The parties hereto agree that the duration and geographic scope of the
non-competition provision set forth in this Subsection 10.3 are reasonable. In
the event that any court determines that the duration or the geographic scope,
or both, are unreasonable and that such provision is to that extent
unenforceable, the parties hereto agree that the provision shall remain in full
force and effect for the greatest time period and in the greatest area that
would not render it unenforceable. The parties intend that this
non-competition provision shall be deemed to be a series of separate covenants,
one for each and every county of each and every state of the United States of
America and each and every political subdivision of each and every country
outside the United States of America where this provision is intended to be
effective. The Seller agrees that damages are an inadequate remedy for any
breach of this provision and that the Buyer shall, whether or not it is
pursuing any potential remedies at law, be entitled to equitable relief in the
form of preliminary and permanent injunctions without bond or other security
<PAGE> 38
upon any actual or threatened breach of this non-competition provision.
10.4 Sharing of Data.
(a) The Seller shall have the right for a period of three years following
the Closing Date to have reasonable access to such books, records and accounts,
including financial and tax information, correspondence, production records,
employment records and other similar information as are transferred to the
Buyer pursuant to the terms of this Agreement for the limited purposes of
concluding its involvement in the business of the Seller prior to the Closing
Date and for complying with its obligations under applicable securities, tax,
environmental, employment or other laws and regulations. The Buyer shall have
the right for a period of three years following the Closing Date to have
reasonable access to those books, records and accounts, including financial and
tax information, correspondence, employment records and other records which are
retained by the Seller pursuant to the terms of this Agreement to the extent
that any of the foregoing relates to the business of the Seller transferred to
the Buyer hereunder or is otherwise needed by the Buyer in order to comply with
its obligations under applicable securities, tax, environmental, employment or
other laws and regulations.
(b) The Seller and the Buyer agree that from and after the Closing Date
they shall cooperate fully with each other to facilitate the transfer of the
Assets from the Seller to the Buyer and the operation thereof by the Buyer.
10.5 Use of Name. Without Buyer's prior written consent, the Seller and
the Principal each agree not to use the trade names "First Choice Video" or any
derivation thereof after the Closing Date in connection with any business
related to, competitive with, or an outgrowth of, the business conducted by the
Seller on the date hereof.
10.6 Cooperation in Litigation. Each party hereto will fully cooperate
with the other in the defense or prosecution of any litigation or proceeding
already instituted or which may be instituted hereafter against or by such
party relating to or arising out of the conduct of the business of the Seller
prior to or after the Closing Date (other than litigation arising out the
transactions contemplated by this Agreement). The party requesting such
cooperation shall pay the out-of-pocket expenses (including legal fees and
disbursements) of the party providing such cooperation and of its officers,
directors, employees and agents reasonably incurred in connection with
providing such cooperation, but shall not be responsible to reimburse the party
providing such cooperation for such party's time spent in such cooperation or
the salaries or costs of fringe benefits or similar expenses paid by the party
providing such cooperation to its officers, directors, employees and agents
while assisting in the defense or prosecution of any such litigation or
proceeding.
11. Termination of Agreement
11.1 Termination by Lapse of Time. This Agreement shall terminate at
<PAGE> 39
5:00 p.m., Boston time, on November 15, 1996, if the transactions contemplated
hereby have not been consummated, unless such date is extended by the written
consent of all of the parties hereto.
11.2 Termination by Agreement of the Parties. This Agreement may be
terminated by the mutual written agreement of the parties hereto. In the event
of such termination by agreement, the Buyer shall have no further obligation or
liability to the Seller under this Agreement, and the Seller shall have no
further obligation or liability to the Buyer under this Agreement.
11.3 Termination by Reason of Breach. This Agreement may be terminated by
the Seller, if at any time prior to the Closing there shall occur a breach of
any of the representations, warranties or covenants of the Buyer or the failure
by the Buyer to perform any condition or obligation hereunder, and may be
terminated by the Buyer, if at any time prior to the Closing there shall occur
a breach of any of the representations, warranties or covenants of the Seller
or the failure of the Seller to perform any condition or obligation hereunder.
12. Transfer and Sales Tax
Notwithstanding any provisions of law imposing the burden of such taxes on
the Seller or the Buyer, as the case may be, the Seller shall be responsible
for and shall pay (a) all sales, use and transfer taxes, and (b) all
governmental charges, if any, upon the sale or transfer of any of the Assets
hereunder. If the Seller shall fail to pay such amounts on a timely basis, the
Buyer may pay such amounts to the appropriate governmental authority or
authorities, and the Seller shall promptly reimburse the Buyer for any amounts
so paid by the Buyer.
13. Brokers
13.1 For the Seller. The Seller and the Principal represent and warrant
that they have not engaged any broker or finder or incurred any liability for
brokerage fees, commissions or finder's fees in connection with the
transactions contemplated by this Agreement. The Seller and the Principal
agree to indemnify and hold harmless the Buyer against any claims or
liabilities asserted against it by any person acting or claiming to act as a
broker or finder on behalf of the Seller or the Principal.
13.2 For the Buyer. The Buyer agrees to pay all fees, expenses and
<PAGE> 40
compensation owed to any person, firm or corporation who has acted in the
capacity of broker or finder on its behalf in connection with the transactions
contemplated by this Agreement. The Buyer agrees to indemnify and hold
harmless the Seller against any claims or liabilities asserted against it by
any person acting or claiming to act as a broker or finder on behalf of the
Buyer.
14. Notices
Except to the extent otherwise provided herein, any notices or other
communications required or permitted hereunder shall be sufficiently given if
delivered personally or sent by telex, federal express, registered or certified
mail, postage prepaid, addressed as follows or to such other address of which
the parties may have given notice:
<TABLE>
<S> <C>
To the Seller
or the Principal: Mr. Andrew Mitchell
First Choice Video
2125 East Main Street
Springfield, OH 45503
With a copy to:
Thomas Martin, Esq.
Jablinski, Folino, Roberts & Martin
214 W. Monument Avenue
Dayton, Ohio 45402
To the Buyer: West Coast Entertainment Corporation
9990 Global Road
Philadelphia, PA 19115
With a copy to: Hale and Dorr
60 State Street
Boston, MA 02109
Attn: John H. Chory, Esq.
</TABLE>
Unless otherwise specified herein, such notices or other communications shall
be deemed received (a) on the date delivered, if delivered personally; (b)
three business days after being sent, if sent by registered or certified mail;
or (c) on the date of actual receipt, if delivered by any other method.
15. Arbitration
(a) Any dispute, controversy or claim between the parties arising out of
or relating to this Agreement, a breach hereof or the transactions contemplated
hereby, shall be settled by arbitration in accordance with the provisions of
this Section 15. Any arbitration pursuant to this Section 15 shall be
conducted by a single arbitrator appointed by the Philadelphia, Pennsylvania
office of the American
<PAGE> 41
Arbitration Association upon the request of either party. The arbitrator shall
have a minimum of five years of experience in the area of business relevant to
the particular dispute. Each party shall be permitted to submit only one
proposal to the arbitrator, and the arbitrator shall be required to choose one
of such two proposals as the resolution of the dispute. The arbitrator may
proceed to a resolution notwithstanding the failure of a party to participate
in the proceedings. Each of the parties shall pay its own costs and expenses
in connection with any such arbitration, and the parties shall share equally in
the fees and expenses of the arbitrator.
(b) The parties agree that any such arbitration will occur in
Philadelphia, Pennsylvania, any such arbitration award shall be final and
binding upon the parties, may be entered in any court having jurisdiction and
shall not be appealable by either party in any court.
16. Successors and Assigns
This Agreement shall be binding upon and inure to the benefit of the
parties hereto and their respective successors and assigns, except that the
Buyer and the Seller may not assign their respective obligations hereunder
without the prior written consent of the other party; provided, however, that
the Buyer may assign this Agreement, and its rights and obligations hereunder,
to a subsidiary or affiliate. Any assignment in contravention of this
provision shall be void. No assignment shall release the Buyer from any
obligation or liability under this Agreement.
17. Entire Agreement; Amendments; Attachments
(a) This Agreement, all Schedules and Exhibits hereto, and all agreements
and instruments to be delivered by the parties pursuant hereto represent the
entire understanding and agreement between the parties hereto with respect to
the subject matter hereof and supersede all prior oral and written and all
contemporaneous oral negotiations, commitments and understandings between such
parties. The Buyer, the Seller and the Principal may amend or modify this
Agreement, in such manner as may be agreed upon, by a written instrument
executed by the Buyer and the Seller.
(b) If the provisions of any Schedule or Exhibit to this Agreement are
inconsistent with the provisions of this Agreement, the provision of the
Agreement shall prevail. The Exhibits and Schedules attached hereto or to be
attached hereafter are hereby incorporated as integral parts of this Agreement.
<PAGE> 42
18. Expenses
Except as otherwise expressly provided herein, the Buyer and the Seller
shall each pay their own expenses in connection with this Agreement and the
transactions contemplated hereby. Buyer shall pay the costs and expenses of
any audit conducted by, or at the request of, the Buyer, and Seller shall pay
the costs and expenses of any accounting services provided to the Seller in
connection with the transactions contemplated hereby. Notwithstanding the
above, the Buyer shall reimburse Seller for reasonable travel and related
expenses (approved by the Buyer in advance) which are incurred in connection
with attendance by Seller at meetings requested by the Buyer.
19. Legal Fees
In the event that legal proceedings are commenced by the Buyer against the
Seller, or by the Seller against the Buyer, in connection with this Agreement
or the transactions contemplated hereby, the party or parties which do not
prevail in such proceedings shall pay the reasonable attorneys' fees and other
costs and expenses, including investigation costs, incurred by the prevailing
party in such proceedings.
20. Governing Law
This Agreement shall be governed by and construed in accordance with the
laws of the State of Delaware.
21. Section Headings
The section headings are for the convenience of the parties and in no way
alter, modify, amend, limit, or restrict the contractual obligations of the
parties.
22. Severability
The invalidity or unenforceability of any provision of this Agreement
shall not affect the validity or enforceability of any other provision of this
Agreement.
23. Counterparts
This Agreement may be executed in one or more counterparts, each of which
shall be deemed to be an original, but all of which shall be one and the same
document.
<PAGE> 43
IN WITNESS WHEREOF, this Agreement has been duly executed by the parties
hereto as of and on the date first above written.
WEST COAST ENTERTAINMENT CORPORATION
By: /s/ Richard Kelly
________________________________
Title: Chief Financial Officer
_____________________________
FIRST CHOICE VIDEO, INC.
By: /s/ Andrew D. Mitchell
________________________________
Title: Andrew Mitchell, President
PRINCIPAL:
/s/ Andrew D. Mitchell
___________________________________
Andrew Mitchell
<PAGE> 44
Schedule I
Stores (by Address)
and Required Cash on Hand at Closing
for Purposes of Section 7.10
<TABLE>
Store and Address Cash On Hand at Closing
- ------------------------ -----------------------
<S> <C>
First Choice Video $800.00
2976 Derr Road
Springfield, Ohio 45503
First Choice Video $600.00
2125 E. Main Street
Springfield, Ohio 45503
First Choice Video $600.00
1838 S. Limestone
Springfield, Ohio 45505
First Choice Video $400.00
1637 U.S. Route 36
Urbana, Ohio 43078
</TABLE>
<PAGE> 1
INSTRUMENT OF EVIDENCE OF INDEBTEDNESS
THIS INSTRUMENT OF EVIDENCE OF INDEBTEDNESS dated as of the 15th day of
November, 1996, is by and between West Coast Entertainment Corporation, a
Delaware corporation (the "Buyer"), and First Choice Video, Inc., an Ohio
corporation (the "Seller"), in connection with the transactions contemplated by
that certain Asset Purchase Agreement dated as of November 1, 1996, by and
among the Buyer, the Seller and Andrew Mitchell (the "Purchase Agreement").
Capitalized terms used herein, and not otherwise defined herein, shall have the
respective meanings ascribed to them in the Purchase Agreement.
WHEREAS, the Buyer has acquired substantially all of the assets and
business of the Seller pursuant to the Purchase Agreement; and
WHEREAS, in partial consideration for such assets and business, the Buyer
has agreed to issue this Instrument, pursuant to which it will deliver to the
Seller shares of its Common Stock, at the times and on the terms described
herein.
NOW, THEREFORE, in consideration of the foregoing, and for other good and
valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, the Buyer and the Seller hereby agree as follows:
1. Payment of Indebtedness.
(a) The Buyer shall deliver to the Seller, on the first anniversary date
hereof, that number of shares of Common Stock, $.01 par value per share, of the
Buyer ("Common Stock") as is determined by dividing (x) $468,362 by (y) the
Market Value. The "Market Value" shall equal the average of the bid and asked
prices per share of Buyer's Common Stock as reported on the Nasdaq Stock
Exchange for each of the fifteen trading days ending on the business day
preceding the date on which the Closing of the transaction contemplated by the
Purchase Agreement occurred.
The Buyer shall deliver to the Seller, on the date which is 18 months
following the date hereof, that number of shares of Buyer Common Stock, as is
determined by dividing (x) $702,544 by (y) the Market Value.
(b) Shares of Buyer Common Stock issuable pursuant to Section 1(a) above
shall be registered under the Securities Act of 1933, as amended (the
"Securities
<PAGE> 2
Act"), pursuant to a Registration Statement (the "Registration Statement")
filed with the Securities and Exchange Commission (the "SEC").
(c) If prior to the issuance of shares of Buyer Common Stock pursuant to
Section 1(a) above, the Buyer shall:
(x) declare a dividend of Common Stock on its Common Stock,
(y) subdivide outstanding Common Stock into a larger number of
shares of Common Stock by reclassification, stock split or
otherwise, or
(z) combine outstanding Common Stock into a smaller number of
shares of Common Stock by reclassification or otherwise,
then the number of shares of Buyer Common Stock issuable pursuant to Section
1(a) shall be adjusted proportionately so that thereafter the Seller shall be
entitled to receive the number of shares of Common Stock which the Seller would
have been entitled to receive after the happening of any of the events
described above had the shares to be issued been issued immediately prior to
the happening of such events. An adjustment made pursuant to this Section 1(c)
shall become effective immediately after the record date in the case of a
dividend and shall become effective immediately after the effective date in the
case of a subdivision or combination.
2. Right of Set-Off. The Buyer shall be permitted to set off, against the
number of shares deliverable to the Seller hereunder, amounts or obligations
owed by the Principal or the Seller to the Buyer pursuant to the Purchase
Agreement. In order to calculate the reduction in the number of shares which
may be issuable by the Buyer hereunder for this purpose, each share shall be
deemed to have a value equal to the Market Value.
3. General.
(a) Successors and Assigns. This Agreement shall be binding upon and
inure to the benefit of the parties hereto and their respective successors and
assigns, except that the Buyer and the Seller may not assign their respective
rights and obligations hereunder without the prior written consent of the other
party. Any assignment in contravention of this provision shall be void. The
Seller may not transfer to any other person the right to receive shares of
Buyer Common Stock hereunder without the prior consent of the Buyer.
(b) Notices. Any notices or other communications required or permitted
hereunder shall be sufficiently given if delivered personally or sent by
federal express or other reputable nationwide overnight courier service,
registered or certified mail, postage prepaid, addressed as follows or to such
other address of which the parties may have given notice:
<PAGE> 3
To the Seller: Mr. Andrew Mitchell
First Choice Video
2125 East Main Street
Springfield, OH 45503
With a copy to:
Thomas Martin, Esq.
Jablinski, Folino, Roberts & Martin
214 W. Monument Avenue
Dayton, Ohio 45402
To the Buyer: West Coast Entertainment Corporation
9990 Global Road
Philadelphia, Pennsylvania 19115
Attn: President
With a copy to: Hale and Dorr
60 State Street
Boston, MA 02109
Attn: John H. Chory, Esq.
Unless otherwise specified herein, such notices or other communications shall
be deemed received (1) on the date delivered, if delivered personally; (2) on
the business day following delivery to an overnight courier; (3) three business
days after being sent, if sent by registered or certified mail; or (4) on the
date of actual delivery, if sent by any other method.
(c) Arbitration.
(i) Any dispute, controversy or claim between the parties arising out of
or relating to this Agreement, a breach hereof or the transactions contemplated
hereby, shall be settled by arbitration in accordance with the provisions of
this Section 3(c). Any arbitration pursuant to this Section 3(c) shall be
conducted by a single arbitrator appointed by the Philadelphia, Pennsylvania
office of the American Arbitration Association upon the request of any party.
The arbitrator shall have a minimum of five years of experience in the area of
business relevant to the particular dispute. Each of the two parties to the
dispute shall be permitted to submit only one proposal to the arbitrator, and
the arbitrator shall be required to choose one of such two proposals as the
resolution of the dispute. The arbitrator may proceed to a resolution
notwithstanding the failure of a party to participate in the proceedings.
<PAGE> 4
Each of the parties shall pay its own costs and expenses in connection with any
such arbitration, and the parties shall share equally in the fees and expenses
of the arbitrator.
(ii) The parties agree that any such arbitration will occur in
Philadelphia, Pennsylvania, any such arbitration award shall be final and
binding upon the parties, may be entered in any court having jurisdiction and
shall not be appealable by either party in any court.
(d) Entire Agreement; Amendments; Attachments. The Buyer and the Seller
may amend or modify this Agreement, in such manner as may be agreed upon, only
by a written instrument executed by the Buyer and the Seller.
(e) Section Headings. The section headings contained in this Instrument
are for the convenience of the parties and in no way alter, modify, amend,
limit, or restrict the contractual obligations of the parties.
(f) Severability. The invalidity or unenforceability of any provision of
this Agreement shall not affect the validity or enforceability of any other
provision of this Agreement.
(g) Counterparts. This Instrument and any amendment hereto may be executed
in one or more counterparts, each of which shall be deemed to be an original,
but all of which shall be one and the same document.
(h) Governing Law. This Instrument shall be construed and enforced in
accordance with, and the rights of the parties shall be governed by, the laws
of the State of Delaware.
IN WITNESS WHEREOF, this Instrument has been executed and delivered as a
sealed instrument on the date first above written by the duly authorized
representative of the Buyer.
WEST COAST ENTERTAINMENT CORPORATION
By /s/ Richard Kelly
____________________________
Title Chief Financial Officer
_________________________
AGREED TO AND ACCEPTED AS OF
THE DATE FIRST SET FORTH ABOVE:
FIRST CHOICE VIDEO, INC.
<PAGE> 5
By /s/ Andrew D. Mitchell
___________________________
Andrew Mitchell, President
<PAGE> 1
ASSET PURCHASE AGREEMENT
By and Among
West Coast Entertainment Corporation
Wellesley Entertainment, Inc.,
Adrian Wilkins and William Roberts
<PAGE> 2
TABLE OF CONTENTS
Section Page
- ------- ----
1. Sale and Delivery of the Assets 1
1.1 Delivery of the Assets 1
1.2 Further Assurances 3
1.3 Purchase Price 3
1.4 Assumption of Liabilities; Etc. 4
1.5 Allocation of Purchase Price and Assumed Liabilities 4
1.6 The Closing 4
1.7 Restrictions on Transfer 4
1.8 Net Operating Cash Flow 5
1.9 Fee Dispute 5
2. Representations of the Seller 5
2.1 Organization 5
2.2 Capitalization of the Seller and the Subsidiaries 6
2.3 Authorization 6
2.4 Ownership of the Assets 7
2.5 Financial Statements 7
2.6 Absence of Undisclosed Liabilities 8
2.7 Litigation 8
2.8 Insurance 8
2.9 Inventory 9
2.10 Fixed Assets 9
2.11 Leases 9
2.12 Change in Financial Condition and Assets 10
2.13 Tax Matters 10
2.14 Accounts Receivable 11
2.15 Books and Records 11
2.16 Contracts and Commitments 12
2.17 Compliance with Agreements and Laws 14
2.18 Employee Relations 14
2.19 Absence of Certain Changes or Events 15
<PAGE> 3
Section Page
- ------- ----
2.20 Suppliers 16
2.21 Prepayments and Deposits 16
2.22 Trade Names and Other Intangible Property 16
2.23 Employee Benefit Plans 17
2.24 Regulatory Approvals 18
2.25 Indebtedness to and from Officers, Directors and
Shareholders 18
2.26 Powers of Attorney and Suretyships 18
2.27 Disclosure 18
2.28 Investment Representations 19
3. Representations of the Buyer 19
3.1 Organization and Authority 19
3.2 Capitalization of the Buyer 20
3.3 Authorization 20
3.4 Regulatory Approvals 20
3.5 Disclosure 20
3.6 Issuance of Shares 21
4. Access to Information; Public Announcements 21
4.1 Access to Management, Properties and Records 21
4.2 Confidentiality 22
4.3 Public Announcements 22
5. Pre-Closing Covenants of the Seller 22
5.1 Conduct of Business 22
5.2 Absence of Material Changes 23
5.3 Taxes 24
5.4 Delivery of Interim Financial Statements 24
5.5 Compliance with Laws 25
5.6 Continued Truth of Representations and Warranties
of the Seller 25
5.7 Continuing Obligation to Inform 25
5.8 Exclusive Dealing 25
5.9 No Publicity 25
6. Satisfaction of Conditions 25
7. Conditions to Obligations of the Buyer 26
7.1 Continued Truth of Representations and Warranties
of the Seller; Compliance with
<PAGE> 4
Section Page
- ------- ----
Covenants and Obligations 26
7.2 Corporate Proceedings 26
7.3 Governmental Approvals 26
7.4 Consents of Lenders, Lessors and Other Third Parties 26
7.5 Adverse Proceedings 26
7.6 Opinion of Counsel 27
7.7 Board of Directors and Shareholder Approval 27
7.8 The Assets 27
7.9 Update 27
7.10 Cash Available for Working Capital Purposes 27
7.11 Payables 27
7.12 Engineer's Report 27
7.13 Evidence of Tax Payment 27
7.14 Closing Deliveries 28
7.15 Payment of Taxes 29
8. Conditions to Obligations of the Seller 29
8.1 Continued Truth of Representations and Warranties of
the Buyer; Compliance with Covenants and Obligations 29
8.2 Corporate Proceedings 29
8.3 Governmental Approvals 29
8.4 Consents of Lenders, Lessors and Other Third Parties 29
8.5 Adverse Proceedings 29
8.6 Opinion of Counsel 30
8.7 Closing Deliveries 30
8.8 Stockholder Approval 30
9. Indemnification 31
9.1 By the Buyer and the Seller and the Principals 31
9.2 By the Seller and the Principals 31
9.3 Claims for Indemnification 32
9.4 Defense by Indemnifying Party 32
9.5 Payment of Indemnification Obligation 33
<PAGE> 5
Section Page
- ------- ----
9.6 Survival of Representations; Claims for Indemnification 33
10. Post-Closing Agreements 34
10.1 Proprietary Information 34
10.2 No Solicitation or Hiring of Former Employees 34
10.3 Non-Competition Agreement 34
10.4 Sharing of Data 35
10.5 Use of Name 36
10.6 Cooperation in Litigation 36
11. Termination of Agreement 36
11.1 Termination by Lapse of Time 36
11.2 Termination by Agreement of the Parties 36
11.3 Termination by Reason of Breach 36
12. Transfer and Sales Tax 37
13. Brokers 37
13.1 For the Seller 37
13.2 For the Buyer 37
14. Notices 37
15. Arbitration 38
16. Successors and Assigns 39
17. Entire Agreement; Amendments; Attachments 39
18. Expenses 39
19. Legal Fees 39
20. Governing Law 40
21. Section Headings 40
22. Severability 40
23. Counterparts 40
<PAGE> 6
Schedules to be provided by the Seller
1.1(i) - Subsidiaries
1.1(ii) - Excluded Assets
1.4 - Assumed Liabilities
1. - Allocation of the Purchase Price
2.2 - Capitalization
2.3 - Third Party Consents
2.4(i) - Encumbrances
2.4(ii) - Permitted Encumbrances
2.6 - Undisclosed Liabilities
2.7 - Litigation
2.8 - Insurance
2.9 - Inventory
2.10 - Fixed Assets
2.11 - Leases
2.1 - Changes in Financial Condition
2.13 - Tax Matters
2.14 - Accounts Receivable
2.16 - Contracts
2.17 - Permits
2.18 - Employee Relations
2.19 - Certain Changes or Events
2.20 - Suppliers
2.21 - Prepayments and Deposits
2.22 - Intangible Property
2.23 - Employee Plans
2.24 - Regulatory Approvals
2.25 - Affiliated Indebtedness
2.26 - Powers of Attorney and Suretyships
Schedules to be provided by the Buyer
3.3 - Third Party Consents
7.10 - Employment Contracts
<PAGE> 7
Exhibits
A - Instrument of Assumption of Liabilities
B - Opinion of Counsel to Seller
C - Bill of Sale
D - Opinion of Hale and Dorr
<PAGE> 8
ASSET PURCHASE AGREEMENT
Agreement made as of October 18, 1996 between West Coast Entertainment
Corporation, a Delaware corporation with its principal office at 9990 Global
Road, Philadelphia, PA 19115 (the "Buyer"), Wellesley Entertainment, Inc., a
Massachusetts corporation with its principal office at 12 Washington Street,
Wellesley, Massachusetts 02181 (the "Seller"), and Adrian Wilkins and William
Roberts (individually, a "Principal" and collectively, the "Principals").
Preliminary Statement
The Buyer desires to purchase, and the Seller desires to sell,
substantially all of the assets and business of the Seller, for the
consideration set forth below and the assumption of certain of the Seller's
liabilities set forth below, subject to the terms and conditions of this
Agreement.
NOW, THEREFORE, in consideration of the mutual promises hereinafter set
forth and other good and valuable consideration, the receipt of which is hereby
acknowledged, the parties hereby agree as follows:
1. Sale and Delivery of the Assets
1.1 Delivery of the Assets.
(a) Subject to and upon the terms and conditions of this Agreement, at the
closing of the transactions contemplated by this Agreement (the "Closing"), the
Seller shall sell, transfer, convey, assign and deliver to the Buyer, and the
Buyer shall purchase from the Seller, the following properties, assets and
other claims, rights and interests:
(i) all inventories, videotapes, video games, finished goods, office
supplies, maintenance supplies, packaging materials, spare parts and similar
items of the Seller (collectively, the "Inventory") which exist on the Closing
Date (as defined below);
(ii) all accounts, accounts receivable, notes and notes receivable
existing on the Closing Date which are payable to the Seller, including any
security held by the Seller for the payment thereof (the "Accounts
Receivable");
<PAGE> 9
(iii) all prepaid expenses, deposits and other similar assets of the
Seller existing on the Closing Date;
(iv) all rights of the Seller under the contracts, agreements, leases,
licenses and other instruments set forth on Schedule 2.16 attached hereto other
than such rights under contracts, agreements, leases, licenses and other
instruments included on Schedule 1.1(ii) (collectively, the "Contract Rights");
(v) copies of all books, records and accounts, correspondence, manuals,
customer lists, employment records, studies, reports or summaries relating to
or arising out of the business of the Seller;
(vi) all rights of the Seller under express or implied warranties from the
suppliers of the Seller;
(vii) the motor vehicles and other rolling stock owned by the Seller on
the Closing Date;
(viii) all of the machinery, equipment, furniture, leasehold improvements
and construction in progress owned by the Seller on the Closing Date whether or
not reflected as capital assets in the accounting records of the Seller
(collectively, the "Fixed Assets");
(ix) all of the Seller's right, title and interest in and to all
intangible property rights, including but not limited to inventions,
discoveries, trade secrets, processes, formulas, know-how, United States and
foreign patents, patent applications, trade names, including the name
"Wellesley Entertainment" or any derivation thereof, trademarks, trademark
registrations, applications for trademark registrations, copyrights, copyright
registrations, owned or, where not owned, used by the Seller in its business
and all licenses and other agreements to which the Seller is a party (as
licensor or licensee) or by which the Seller is bound relating to any of the
foregoing kinds of property or rights to any "know-how" or disclosure or use of
ideas (collectively, the "Intangible Property");
(x) all of the outstanding shares of capital stock of the subsidiaries of
the Seller set forth on Schedule 1.1(i) attached hereto (collectively, the
"Subsidiaries");
(xi) $1,000 in cash for each retail video store operated by the Seller;
(xii) except as specifically provided in Subsection 1.1(b) hereof, all
other assets, properties, claims, rights and interests of the Seller which
exist on the Closing Date, of every kind and nature and description, whether
tangible or intangible, real, personal or mixed.
(b) Notwithstanding the provisions of paragraph (a) above, the assets to
be transferred to the Buyer under this Agreement shall not include those assets
listed on Schedule 1.1(ii) attached hereto (the "Excluded Assets").
<PAGE> 10
(c) The Inventory, Accounts Receivable, Contract Rights, Fixed Assets,
Intangible Property and other properties, assets and business of the Seller
described in paragraph (a) above, other than the Excluded Assets, shall be
referred to collectively as the "Assets."
1.2 Further Assurances. At any time and from time to time after the
Closing, at the Buyer's request and without further consideration, the Seller
promptly shall execute and deliver such instruments of sale, transfer,
conveyance, assignment and confirmation, and take such other action, as the
Buyer may reasonably request to more effectively transfer, convey and assign to
the Buyer, and to confirm the Buyer's title to, all of the Assets, to put the
Buyer in actual possession and operating control thereof, to assist the Buyer
in exercising all rights with respect thereto and to carry out the purpose and
intent of this Agreement.
1.3 Purchase Price.
(a) The purchase price for the assets shall be $2,205,000 (the "Purchase
Price"). The parties acknowledge and agree that the Purchase Price was
determined as a multiple of Net Operating Cash Flow (as defined in Subsection
1.8).
(b) At the Closing, the Buyer shall deliver to the Seller (i) 50% of the
Purchase Price in cash, by cashiers or certified check or by wire transfer of
immediately available funds to an account designated by the Seller, and (ii)
that number of shares of Common Stock, $.01 par value per share, of the Buyer
("Common Stock") as determined by dividing that portion of the balance of the
Purchase Price by the Market Value of a share of Common Stock. The "Market
Value" of a share of Common Stock shall equal the average of the closing price
of a share of Common Stock on the Nasdaq National Market for the 15 trading
days ending on the third business day prior to the Closing. The shares of
Common Stock issuable hereunder shall be registered under the Securities Act of
1933, as amended, pursuant to a Registration Statement on Form S-1 filed with
the Securities and Exchange Commission.
1.4 Assumption of Liabilities; Etc.
(a) At the Closing, the Buyer shall execute and deliver an Instrument of
Assumption of Liabilities (the "Instrument of Assumption") substantially in the
form attached hereto as Exhibit A, pursuant to which it shall assume and agree
to perform, pay and discharge the following liabilities, obligations
<PAGE> 11
and commitments of the Seller (the "Assumed Liabilities"):
(i) All obligations of the Seller continuing after the Closing under the
leases and contracts set forth on Schedule 1.4 attached hereto which become due
and payable after the Closing Date; and
(ii) All other liabilities and obligations of the Seller specifically set
forth in Schedule 1.4 attached hereto.
(b) The Buyer shall not at the Closing assume or agree to perform, pay or
discharge, and the Seller shall remain unconditionally liable for, all accounts
payable, obligations, liabilities and commitments, fixed or contingent, of the
Seller other than the Assumed Liabilities.
1.5 Allocation of Purchase Price and Assumed Liabilities. The aggregate
amount of the Purchase Price and the Assumed Liabilities shall be allocated
among the Assets as set forth on Schedule 1.5 attached hereto.
1.6 The Closing. The closing of the transactions contemplated by this
Agreement (the "Closing") shall take place at the offices of Hale and Dorr, 60
State Street, Boston, Massachusetts 02109, on ____________, 1996 or on such
other date mutually agreeable to the Buyer and Seller (the "Closing Date").
The transfer of the Assets by the Seller to the Buyer shall be deemed to occur
at 9:00 a.m., Boston time, on the date of the Closing (the "Closing Date").
1.7 Restrictions on Transfer. Each of the Seller and the Principals
hereby confirm, covenant and agree that, without the prior written consent of
the Buyer, it or he will not, directly or indirectly, sell, offer to sell,
contract to sell, pledge, grant any option for the sale of, or otherwise
dispose of, (i) any shares of Common Stock issued or issuable to Seller or the
Principals hereunder prior to the date 12 months after the Closing Date and
(ii) 60% of such shares of Common Stock prior to the date 18 months after the
Closing Date.
1.8 Net Operating Cash Flow. For purposes hereof "Net Operating Cash
Flow" shall be equal to the pre-tax income for the 12-month period ending
December 31, 1995 as determined in accordance with Schedule 1.8 attached
hereto.
1.9 Fee Dispute. Seller hereby agrees to reimburse Buyer for the
aggregate costs in excess of $10,000 incurred by Seller in connection with the
satisfaction or release by Buyer of all claims by Anwar Bhamla and his
affiliates (including BMA Enterprises, Inc.) for brokers' or finders' fees (or
the like) in connection with the transaction contemplated hereby. At the
Closing Seller shall deliver to Buyer $35,000 (either by a reduction of the
cash portion of the Purchase Price or in cash, by cashiers or certified check)
as a prepayment of such reimbursement obligations. Buyer hereby agrees at
Seller's direction to deliver to Seller or to Anwar Bhamla (in cash or by
cashiers or certified check) the full amount of the aggregate costs up to and
including (but not to exceed) $10,000 so incurred by
<PAGE> 12
Seller against simultaneous delivery to Buyer of a release of Buyer, in form
and substance reasonably satisfactory to Buyer, of all claims by Anwar Bhamla
and his affiliates (including BMA Enterprises, Inc.). Upon resolution of the
amount, if any, payable to Mr. Bhalma and his affiliates, the Buyer shall
promptly return to Seller any unused portion of such prepayment.
2. Representations of the Seller
The Seller and the Principals, jointly and severally, represent and
warrant to the Buyer as follows:
2.1 Organization. The Seller is a corporation duly organized, validly
existing and in good standing under the laws of the state of its incorporation,
and has all requisite power and authority (corporate and other) to own its
properties, to carry on its business as now being conducted, to execute and
deliver this Agreement and the agreements contemplated herein, and to
consummate the transactions contemplated hereby. Schedule 1.1(i) attached
hereto constitute a true, correct and complete list of all corporate,
partnership, joint venture and other entities in which the Seller holds,
directly or indirectly, a 50% or greater interest. Each of the Subsidiaries is
a corporation or other entity duly organized, validly existing and in good
standing under the laws of the state of its incorporation or organization and
has all requisite power and authority to own its properties and to carry on its
business as now being conducted. The Seller and the Subsidiaries are each duly
qualified to do business and in good standing in all jurisdictions in which
their ownership of property or the character of their business requires such
qualification. Certified copies of the charter, bylaws and other governing
instruments of each of the Seller and the Subsidiaries, each as amended to
date, have been previously delivered to the Buyer, are complete and correct,
and no amendments have been made thereto or have been authorized since the date
thereof. Except as set forth on Schedule 2.1, the Seller does not own any
capital stock of or other equity interest in any corporation, partnership or
other entity, other than the Subsidiaries. Schedule 2.1 sets forth a list of
each retail video rental store (including the location of each such store and
the name and address of all owners (if not Seller) of each such store) owned,
operated or licensed directly or indirectly by the Seller.
2.2 Capitalization of the Seller and the Subsidiaries. The Seller's
authorized capital stock consists of 200,000 shares of Common Stock, no par
value, of which 200 shares are issued and outstanding and held of record and
beneficially by the stockholders listed on Schedule 2.2 attached hereto. All
of such shares have been
<PAGE> 13
duly and validly issued and are fully paid and nonassessable. The authorized
capital stock of the Subsidiaries is as set forth on Schedule 2.2 attached
hereto. All of such shares have been duly and validly issued, are fully paid
and nonassessable and held of record by the Seller.
2.3 Authorization. The execution and delivery of this Agreement by the
Seller, and the agreements provided for herein, and the consummation by the
Seller of all transactions contemplated hereby, have been duly authorized by
all requisite corporate and shareholder action. This Agreement and all such
other agreements and obligations entered into and undertaken in connection with
the transactions contemplated hereby to which the Seller is a party constitute
the valid and legally binding obligations of the Seller, enforceable against
the Seller in accordance with their respective terms. The execution, delivery
and performance by the Seller of this Agreement and the agreements provided for
herein, and the consummation by the Buyer of the transactions contemplated
hereby and thereby, will not, with or without the giving of notice or the
passage of time or both, (a) violate the provisions of any law, rule or
regulation applicable to the Seller; (b) violate the provisions of the charter
or Bylaws of the Seller; (c) violate any judgment, decree, order or award of
any court, governmental body or arbitrator; or (d) conflict with or result in
the breach or termination of any term or provision of, or constitute a default
under, or cause any acceleration under, or cause the creation of any lien,
charge or encumbrance upon the properties or assets of the Seller pursuant to,
any indenture, mortgage, deed of trust or other instrument or agreement to
which the Seller is a party or by which the Seller or any of its properties is
or may be bound. Schedule 2.3 attached hereto sets forth a true, correct and
complete list of all consents and approvals of third parties that are required
in connection with the consummation by the Seller of the transactions
contemplated by this Agreement.
2.4 Ownership of the Assets. Schedule 2.4(i) attached hereto sets forth a
true, correct and complete list of all claims, liabilities, liens, pledges,
charges, encumbrances and equities of any kind affecting the Assets
(collectively, the "Encumbrances"). The Seller is, and at the Closing will be,
the true and lawful owner of the Assets, and will have the right to sell and
transfer to the Buyer good, clear, record and marketable title to the Assets,
free and clear of all Encumbrances of any kind, except as set forth on Schedule
2.4(ii) attached hereto (the "Permitted Encumbrances"). The delivery to the
Buyer of the instruments of transfer of ownership contemplated by this
Agreement will vest good and marketable title to the Assets in the Buyer, free
and clear of all liens, mortgages, pledges, security interests, restrictions,
prior assignments, encumbrances and claims of any kind or nature whatsoever,
except for the Permitted Encumbrances.
2.5 Financial Statements.
(a) The Seller has previously delivered to the Buyer its combined audited
balance sheets as of December 31, 1994 and 1995 (the "Audited Balance Sheets")
and the statements of income, shareholders' equity, retained earnings and
changes in financial condition of the Seller for the fiscal years ended
<PAGE> 14
December 31, 1993, 1994 and 1995 (collectively, including the Audited Balance
Sheets, the "Audited Financial Statements"). The Seller has also previously
delivered to the Buyer its balance sheet as of June 30, 1996 (the "Current
Balance Sheet") and the related statements of income, shareholders' equity,
retained earnings and changes in financial condition of the Seller for the
six-month period then ended (collectively, the "Current Financial Statements").
The Unaudited Financial Statements, the Current Financial Statements and the
interim financial statements (the "Interim Financial Statements") to be
delivered pursuant to Subsection 5.4 hereof (collectively, the "Financial
Statements") have been, or will be, prepared in accordance with generally
accepted accounting principles applied consistently with past practice and have
been, or will be, certified by an officer of the Seller.
(b) The Financial Statements fairly present, as of their respective dates,
the financial condition, retained earnings, assets and liabilities of the
Seller and the results of operations of the Seller's business for the periods
indicated; with respect to the contracts and commitments for the sale of goods
or the provision of services by the Seller, the Financial Statements contain
and reflect adequate reserves, which are consistent with previous reserves
taken, for all reasonably anticipated material losses and costs and expenses;
and the amounts shown as accrued for current and deferred income and other
taxes in the Financial Statements are sufficient for the payment of all accrued
and unpaid federal, state and local income taxes, interest, penalties,
assessments or deficiencies applicable to the Seller, whether disputed or not,
for the applicable period then ended and periods prior thereto.
(c) The Net Operating Cash Flow for the Seller is not less than $428,000.
2.6 Absence of Undisclosed Liabilities. Except as and to the extent (a)
reflected and reserved against in the Current Balance Sheet, (b) set forth on
Schedule 2.6 attached hereto or (c) incurred in the ordinary course of business
after the date of the Current Balance Sheet and not material in amount, either
individually or in the aggregate, the Seller does not have any liability or
obligation, secured or unsecured, whether accrued, absolute, contingent,
unasserted or otherwise, affecting the Assets. For purposes of this Subsection
2.6, "material" means any amount in excess of $10,000.
2.7 Litigation. Except as set forth on Schedule 2.7 attached hereto, the
Seller is not a party to, or to the Seller's best knowledge threatened with,
and
<PAGE> 15
none of the Assets are subject to, any litigation, suit, action, investigation,
proceeding or controversy before any court, administrative agency or other
governmental authority relating to or affecting the Assets or the business or
condition (financial or otherwise) of the Seller. The Seller is not in
violation of or in default with respect to any judgment, order, writ,
injunction, decree or rule of any court, administrative agency or governmental
authority or any regulation of any administrative agency or governmental
authority.
2.8 Insurance. Schedule 2.8 attached hereto sets forth a true, correct
and complete list of all fire, theft, casualty, general liability, workers
compensation, business interruption, environmental impairment, product
liability, automobile and other insurance policies insuring the Assets or
business of the Seller and of all life insurance policies maintained for any of
its employees, specifying the type of coverage, the amount of coverage, the
premium, the insurer and the expiration date of each such policy (collectively,
the "Insurance Policies") and all claims made under such Insurance Policies
since January 1, 1992. True, correct and complete copies of all of the
Insurance Policies have been previously delivered by the Seller to the Buyer.
The Insurance Policies are in full force and effect and are in amounts and of a
nature which are adequate and customary for the Seller's business. All
premiums due on the Insurance Policies or renewals thereof have been paid and
there is no default under any of the Insurance Policies.
2.9 Inventory. Schedule 2.9 attached hereto sets forth a true, correct
and complete list of the Inventory as of the date hereof, including a
description and the total book value thereof. Schedule 2.9, as updated
pursuant to Subsection 7.9 hereof, shall set forth a true, correct and complete
list of the Inventory as of the Closing Date, including a description and total
valuation thereof. Such Inventory consists of items of a quality and quantity
which are usable or saleable without discount in the ordinary course of the
business conducted by the Seller. Except as otherwise described on Schedule
2.9, the value of all items of obsolete materials and of materials of below
standard quality has been written down on a per store basis to realizable
market value, and the values at which such Inventory is carried reflect the
normal inventory valuation policy of the Seller of stating the Inventory at the
lower of cost or market value in accordance with generally accepted accounting
principles.
2.10 Fixed Assets. Schedule 2.10 attached hereto sets forth a true,
correct and complete list of all Fixed Assets as of the date hereof, including
a description and the total book value thereof. Schedule 2.10, as updated
pursuant to Subsection 7.9 hereof, shall set forth a true, correct and complete
list of all Fixed Assets as of the Closing Date, including a description and
total valuation thereof. All of the Fixed Assets are in good operating
condition and repair, normal wear and tear excepted, are currently used by the
Seller in the ordinary course of business and in the production of products of
the Seller and normal maintenance has been consistently performed with respect
to such Fixed Assets.
2.11 Leases. Schedule 2.11 attached hereto sets forth a true, correct and
complete list as of the date hereof of all leases of real property, identifying
<PAGE> 16
separately each ground lease, to which the Seller is a party (the "Leases").
True, correct and complete copies of the Leases, and all amendments,
modifications and supplemental agreements thereto, have previously been
delivered by the Seller to the Buyer. The Leases are in full force and effect,
are binding and enforceable against each of the parties thereto in accordance
with their respective terms and, except as set forth on Schedule 2.11, have not
been modified or amended since the date of delivery to the Buyer. No party to
any Lease has sent written notice to the other claiming that such party is in
default thereunder, which remains uncured. Except as set forth on Schedule
2.11 attached hereto, there has not occurred any event which would constitute a
breach of or default in the performance of any material covenant, agreement or
condition contained in any Lease, nor has there occurred any event which with
the passage of time or the giving of notice or both would constitute such a
breach or material default. The Seller is not obligated to pay any leasing or
brokerage commission relating to any Lease and, except as set forth on Schedule
2.11 attached hereto, will not have any enforceable obligation to pay any
leasing or brokerage commission upon the renewal of any Lease. No material
construction, alteration or other leasehold improvement work with respect to
any of the Leases remains to be paid for or to be performed by the Seller. The
Financial Statements contain adequate reserves to provide for the restoration
of the properties subject to the Leases at the end of the respective Lease
terms, to the extent required by the Leases.
2.12 Change in Financial Condition and Assets. Except as set forth on
Schedule 2.12 attached hereto, since the Balance Sheet Date, there has been no
change which materially and adversely affects the business, properties, assets,
condition (financial or otherwise) or prospects of the Seller. The Seller has
no knowledge of any existing or threatened occurrence, event or development,
including, without limitation, new or potential competition, which, as far as
can be reasonably foreseen, could have a material adverse effect on the Seller
or its business, properties, assets, condition (financial or otherwise) or
prospects.
2.13 Tax Matters.
(a) Except as set forth on Schedule 2.13 to this Agreement:
(i) Within the times and in the manner prescribed by law, the Seller has
filed all Returns which are required to be filed;
(ii) With respect to all amounts in respect of Taxes imposed upon the
Seller
<PAGE> 17
for which it could be liable, whether to Taxing Authorities (as, for example,
under law) or to other persons or entities (as, for example, under Tax
allocation agreements), with respect to all taxable periods or portions of
taxable periods ending on or before the Closing Date, all applicable tax laws
and agreements have been fully complied with, and all such amounts required to
be paid by the Seller to Taxing Authorities or others on or before the date
hereof have been paid.
(iii) All Returns filed by the Seller constitute complete and accurate
representations of the respective Tax liabilities of, or attributable to, the
Seller for such years;
(iv) No examination of the Returns of the Seller is currently in progress
nor, to the best knowledge of the Seller, threatened and no unresolved
deficiencies have been asserted or assessed against the Seller as a result of
any audit by any Taxing Authority and no such deficiency has been proposed or
threatened;
(v) Except as set forth on Schedule 2.13, there are no liens for Taxes
(other than for current Taxes not yet due and payable) upon the assets of the
Seller;
(vi) The Seller is not a person other than a United States person within
the meaning of the Code;
(b) For purposes of this Section 2.13: "Return" means any return,
declaration, report, statement or other document required to be filed in
respect of any Tax. "Tax" or "Taxes" means any federal, state, local, foreign
and other net income, gross income, gross receipts, sales, use, ad valorem,
transfer, franchise, profits, license, lease, service, service use,
withholding, payroll, employment, excise, severance, stamp, occupation,
premium, property, windfall profits, customs duty or other tax, fee, assessment
or charge of any kind whatever, together with interest and any penalty,
addition to tax or additional amount with respect thereto. "Taxing Authority"
means any governmental authority responsible for the imposition of Taxes.
2.14 Accounts Receivable. Schedule 2.14 attached hereto sets forth a
true, correct and complete list of all Accounts Receivable, including an aging
thereof as of the Balance Sheet Date. Schedule 2.14, as updated pursuant to
Subsection 7.9 hereof, shall set forth a true, correct and complete list of the
Accounts Receivable as of the Closing Date, including an aging thereof. All
Accounts Receivable arose out of the sales or rentals of inventory or services
in the ordinary course of business and are collectible in the face value
thereof within 90 days of the date of invoice, using normal collection
procedures, net of the reserve for doubtful accounts as set forth thereon,
which reserve is adequate and was calculated in accordance with generally
accepted accounting principles consistently applied.
2.15 Books and Records. The general ledgers and books of account of the
Seller, all federal, state and local income, franchise, property and other tax
returns filed by the Seller, with respect to the Assets, and all other books
and records of the
<PAGE> 18
Seller are in all material respects complete and correct and have been
maintained in accordance with good business practice and in accordance with all
applicable procedures required by laws and regulations.
2.16 Contracts and Commitments.
(a) Schedule 2.16 attached hereto contains a true, complete and correct
list and description of the following contracts and agreements, whether written
or oral (collectively, the "Contracts"):
(i) all loan agreements, indentures, mortgages and guaranties to which the
Seller is a party or by which the Seller or any of its property is bound;
(ii) all pledges, conditional sale or title retention agreements, security
agreements, equipment obligations, personal property leases and lease purchase
agreements relating to any of the Assets to which the Seller is a party or by
which the Seller or any of its property is bound;
(iii) all contracts, agreements, commitments, purchase orders or other
understandings or arrangements to which the Seller is a party or by which the
Seller or any of its property is bound which (A) involve payments or receipts
by the Seller of more than $2,000 in the case of any single contract,
agreement, commitment, understanding or arrangement under which full
performance (including payment) has not been rendered by all parties thereto or
(B) which may materially adversely affect the condition (financial or
otherwise) or the properties, assets, business or prospects of the Seller;
(iv) all collective bargaining agreements, employment and consulting
agreements, executive compensation plans, bonus plans, vacation policies,
deferred compensation agreements, pension plans, vacation policies and plans,
retirement plans, employee stock option or stock purchase plans and group life,
health and accident insurance and other employee benefit plans, agreements,
arrangements or commitments to which the Seller is a party or by which the
Seller or any of its property is bound;
(v) all agency, distributor, sales representative and similar agreements
to which the Seller is a party;
(vi) all contracts, agreements or other understandings or arrangements
<PAGE> 19
between the Seller any stockholder or Affiliate of the Seller;
(vii) all leases, whether operating, capital or otherwise, under which the
Seller is lessor or lessee; and
(viii) any other material agreement or contract entered into by the
Seller.
(b) Except as set forth on Schedule 2.16 attached hereto:
(i) each Contract is a valid and binding agreement of the Seller,
enforceable against the Seller in accordance with its terms, and the Seller
does not have any knowledge that any Contract is not a valid and binding
agreement of the other parties thereto;
(ii) the Seller has fulfilled all material obligations required pursuant
to the Contracts to have been performed by the Seller on its part prior to the
date hereof, and the Seller has no reason to believe that it will not be able
to fulfill, when due, all of its obligations under the Contracts which remain
to be performed after the date hereof;
(iii) the Seller is not in breach of or default under any Contract, and no
event has occurred which with the passage of time or giving of notice or both
would constitute such a default, result in a loss of rights or result in the
creation of any lien, charge or encumbrance, thereunder or pursuant thereto;
(iv) to the best knowledge of the Seller, there is no existing breach or
default by any other party to any Contract, and no event has occurred which
with the passage of time or giving of notice or both would constitute a default
by such other party, result in a loss of rights or result in the creation of
any lien, charge or encumbrance thereunder or pursuant thereto;
(v) the Seller is not restricted by any Contract from carrying on its
business anywhere in the world; and
(vi) the Seller has no written or oral Contracts to sell products or
perform services which are expected to be performed at, or to result in, a
loss.
(c) Except as set forth on Schedule 2.3 or Schedule 2.16, the
continuation, validity and effectiveness of each Contract will not be affected
by the transfer thereof to Buyer under this Agreement and all such Contracts
are assignable to Buyer without a consent.
(d) True, correct and complete copies of all Contracts have previously
been delivered by the Seller to the Buyer.
2.17 Compliance with Agreements and Laws. The Seller has all requisite
licenses, permits and certificates, including environmental, health and safety
<PAGE> 20
permits, from federal, state and local authorities necessary to conduct its
business and own and operate its assets (collectively, the "Permits").
Schedule 2.17 attached hereto sets forth a true, correct and complete list of
all such Permits, copies of which have previously been delivered by the Seller
to the Buyer. The Seller is not in violation of any law, regulation or
ordinance (including, without limitation, laws, regulations or ordinances
relating to building, zoning, environmental, disposal of hazardous substances,
land use or similar matters) relating to its properties, the violation of which
could have a material adverse effect on the Seller or its properties. The
business of the Seller does not violate, in any material respect, any federal,
state, local or foreign laws, regulations or orders (including, but not limited
to, any of the foregoing relating to employment discrimination, occupational
safety, environmental protection, hazardous waste (as defined in the Resource
Conservation and Recovery Act, as amended, and the regulations adopted pursuant
thereto), conservation, or corrupt practices, the enforcement of which would
have a material and adverse effect on the results of operations, condition
(financial or otherwise), assets, properties, business or prospects of the
Seller. Except as set forth on Schedule 2.17 attached hereto, the Seller has
not since January 1, 1993 received any notice or communication from any
federal, state or local governmental or regulatory authority or otherwise of
any such violation or noncompliance.
2.18 Employee Relations.
(a) The Seller is in compliance with all federal, state and municipal laws
respecting employment and employment practices, terms and conditions of
employment, and wages and hours, and is not engaged in any unfair labor
practice, and there are no arrears in the payment of wages or social security
taxes.
(b) Except as set forth on Schedule 2.18 attached hereto:
(i) none of the employees of the Seller is represented by any labor union;
(ii) there is no unfair labor practice complaint against the Seller
pending before the National Labor Relations Board or any state or local agency;
(iii) there is no pending labor strike or other material labor trouble
affecting the Seller (including, without limitation, any organizational drive);
(iv) there is no material labor grievance pending against the Seller;
<PAGE> 21
(v) there is no pending representation question respecting the employees
of the Seller; and
(vi) there are no pending arbitration proceedings arising out of or under
any collective bargaining agreement to which the Seller is a party, or to the
best knowledge of the Seller, any basis for which a claim may be made under any
collective bargaining agreement to which the Seller is a party.
(c) Schedule 2.18 attached hereto sets forth a true, correct and complete
list of (a) the employee benefits provided by the Seller to its employees and
all contracts or agreements between the Seller and its employees, and (b) the
Seller's current payroll, including the job descriptions and salary or wage
rates of each of its employees, showing separately for each such person who
received an annual salary in excess of $20,000 the amounts paid or payable as
salary and bonus payments for the year ending December 31, 1995.
(d) For purposes of this Subsection 2.18, the term "employee" shall be
construed to include sales agents and other independent contractors who spend a
majority of their working time on the Seller's business.
2.19 Absence of Certain Changes or Events. Except as set forth on
Schedule 2.19 attached hereto, since the Balance Sheet Date, the Seller has not
entered into any transaction which is not in the usual and ordinary course of
business, and, without limiting the generality of the foregoing, the Seller has
not:
(a) Incurred any material obligation or liability for borrowed money;
(b) Discharged or satisfied any lien or encumbrance or paid any obligation
or liability other than current liabilities reflected in the Current Balance
Sheet;
(c) Mortgaged, pledged or subjected to lien, charge or other encumbrance
any of the Assets;
(d) Sold or purchased, assigned or transferred any of its tangible assets
or cancelled any debts or claims, except for inventory sold and raw materials
purchased in the ordinary course of business;
(e) Made any material amendment to or termination of any Contract or done
any act or omitted to do any act which would cause the breach of any Contract;
(f) Suffered any losses, whether insured or uninsured, and whether or not
in the control of the Seller, in excess of $5,000 in the aggregate, or waived
any rights of any value;
(g) Made any changes in compensation of its officers, directors
<PAGE> 22
or employees;
(h) Received notice of any litigation, warranty claim or products
liability claims; or
(i) Made any material change in the terms, status or funding condition of
any Employee Plan, as defined in Subsection 2.23 hereof.
2.20 Suppliers. Schedule 2.20 attached hereto sets forth a true, correct
and complete list of the names and addresses of the ten suppliers of the Seller
which accounted for the largest dollar volume of purchases by the Seller for
the fiscal year ending December 31, 1995. None of such suppliers has notified
the Seller that it intends to discontinue its relationship with the Seller.
2.21 Prepayments and Deposits. Schedule 2.21 attached hereto sets forth
all prepayments or deposits from customers for products to be shipped, or
services to be performed, after the Closing Date which have been received by
the Seller as of the date hereof.
2.22 Trade Names and Other Intangible Property.
(a) Schedule 2.22 attached hereto sets forth a true, correct and complete
list and, where appropriate, a description of, all Intangible Property. True,
correct and complete copies of all licenses and other agreements relating to
the Intangible Property have been previously delivered by the Seller to the
Buyer.
(b) Except as otherwise disclosed in Schedule 2.22 attached hereto, the
Seller is the sole and exclusive owner of all Intangible Property and all
designs, permits, labels and packages used on or in connection therewith. The
Intangible Property owned by the Seller is sufficient to conduct the Seller's
business as presently conducted and, when transferred to the Buyer pursuant to
this Agreement, will be sufficient to permit the Buyer to conduct the business
of the Seller as presently conducted by the Seller. The Seller has received no
notice of, and has no knowledge of any basis for, a claim against it that any
of its operations, activities, products or publications infringes on any
patent, trademark, trade name, copyright or other property right of a third
party, or that it is illegally or otherwise using the trade secrets, formulae
or any property rights of others. The Seller has no disputes with or claims
against any third party for infringement by such third party of any trade name
or other Intangible Property of the Seller. The Seller has taken all steps
reasonably
<PAGE> 23
necessary to protect its right, title and interest in and to the Intangible
Property.
2.23 Employee Benefit Plans.
(a) The Seller does not now have or otherwise contribute to or participate
in, and has not in the past had or otherwise contributed to, any employee
benefit plan subject to the Employee Retirement Income Security Act of 1974.
(b) The Buyer assumes no liabilities with respect to any employee benefit
plan which liability relates to any period prior to the Closing Date,
including, without limitation, any taxes, accrued vacation or sick pay (whether
or not vested), accrued vacation, sick and personal leaves, employee policies,
employee benefit claims or liability to the Pension Benefit Guaranty
Corporation.
(c) Employee Plans. Schedule 2.23 attached hereto contains a true,
correct and complete list of all pension, benefit, profit sharing, retirement,
deferred compensation, welfare, insurance, disability, bonus, vacation pay,
severance pay and other similar plans, programs and agreements, whether reduced
to writing or not, relating to the Seller's employees, or maintained at any
time since January 1, 1991 by the Seller or by any other member of any
controlled group of corporations, group of trades or businesses under common
control, or affiliated service group (as defined for purposes of Section
414(b), (c) and (m), respectively, of the Internal Revenue Code of 1986, as
amended (the "Code")) (the "Employee Plans") and, except as set forth on
Schedule 2.23 attached hereto, the Seller has no obligations, contingent or
otherwise, past or present, under applicable law or the terms of any Employee
Plan.
2.24 Regulatory Approvals. All consents, approvals, authorizations and
other requirements prescribed by any law, rule or regulation which must be
obtained or satisfied by the Seller and which are necessary for the execution
and delivery by the Seller of this Agreement and the documents to be executed
and delivered by the Seller in connection herewith are set forth on Schedule
2.24 attached hereto and have been, or will be prior to the Closing Date,
obtained and satisfied.
2.25 Indebtedness to and from Officers, Directors and Shareholders.
Except as set forth on Schedule 2.25 attached hereto, the Seller is not
indebted, directly or indirectly, to any person who is an officer, director or
shareholder of the Seller or any affiliate of any such person in any amount
whatsoever other than for salaries for services rendered or reimbursable
business expenses, all of which have been reflected on the Current Financial
Statements, and no such officer, director, shareholder or affiliate is indebted
to the Seller, except for advances made to employees of the Seller in the
ordinary course of business to meet reimbursable business expenses anticipated
to be incurred by such obligor.
2.26 Powers of Attorney and Suretyships. Except as set forth on Schedule
2.26 attached hereto, the Seller has no general or special powers of attorney
outstanding (whether as grantor or grantee thereof) and has no obligation or
liability
<PAGE> 24
(whether actual, accrued, accruing, contingent or otherwise) as guarantor,
surety, co-signor, endorser, co-maker, indemnitor or otherwise in respect of
the obligation of any person, corporation, partnership, joint venture,
association, organization or other entity, except as endorser or maker of
checks or letters of credit, respectively, endorsed or made in the ordinary
course of business.
2.27 Disclosure. No representation or warranty by the Seller in this
Agreement or in any Exhibit hereto, or in any list, statement, document or
information set forth in or attached to any Schedule delivered or to be
delivered pursuant to this Agreement, contains or will contain any untrue
statement of a material fact or omits or will omit any material fact necessary
in order to make the statements contained therein not misleading. The Seller
has disclosed to the Buyer all material facts pertaining to the transactions
contemplated by this Agreement. Any matter disclosed in any paragraph of any
disclosure schedule pursuant to any provision of this Agreement shall be deemed
disclosed for purposes of any other paragraph of any other disclosure schedule
to the extent applicable, but only if such matters are described in sufficient
detail in such paragraph of the disclosure schedule to permit the Buyer
reasonably to determine its relevance to the matter requiring disclosure under
the other paragraphs of any other disclosure schedule.
2.28 Investment Representations.
(a) The Seller is acquiring the securities of Buyer hereunder, for its
own account for investment and not with a view to, or for sale in connection
with, any distribution thereof in violation of applicable law, nor with any
present intention of distributing or selling the same in violation of
applicable law; and the Seller has no present or contemplated agreement,
undertaking, arrangement, obligation, indebtedness or commitment providing for
the disposition thereof in violation of applicable law.
(b) The Seller has carefully reviewed the representations concerning the
Buyer contained in this Agreement, has made detailed inquiry concerning the
Buyer, its business and its personnel; the officers of the Buyer have made
available to the Seller any and all written information which they have
requested and have answered to the Seller's satisfaction all inquiries made by
the Seller; and the Seller has sufficient knowledge and experience so as to be
able to evaluate the risks and merits of an investment in the Buyer and is able
financially to bear the risks thereof.
<PAGE> 25
(c) The Seller and the Principals understand that the securities to be
issued to them hereunder will be nontransferable for a period of at least 12
months (and up to 18 months for 60% of such securities) from the Closing Date.
3. Representations of the Buyer
The Buyer represents and warrants to the Seller as follows:
3.1 Organization and Authority. The Buyer is a corporation duly
organized, validly existing and in good standing under the laws of the state of
Delaware, and has requisite power and authority (corporate and other) to own
its properties and to carry on its business as now being conducted. The Buyer
has full power to execute and deliver this Agreement and the Instrument of
Assumption of Liabilities and to consummate the transactions contemplated
hereby and thereby. Certified copies of the Certificate of Incorporation and
the Bylaws of the Buyer, as amended to date, have been previously delivered to
the Seller, are complete and correct, and no amendments have been made thereto
or have been authorized since the date thereof.
3.2 Capitalization of the Buyer. On the date hereof, the Buyer's
authorized capital stock consists of 35,000,000 shares of Common Stock, $.01
par value ("Common Stock") and 2,000,000 shares of Preferred Stock, $.01 par
value per share, none of which shares of Preferred Stock are issued or
outstanding. As of September 9, 1996, 12,070,239 shares of Common Stock were
issued and outstanding. All of the outstanding shares of capital stock of the
Buyer have been and on the Closing Date will be duly and validly issued and
are, or will be, fully paid and nonassessable.
3.3 Authorization. The execution and delivery of this Agreement by the
Buyer, and the agreements provided for herein, and the consummation by the
Buyer of all transactions contemplated hereby, have been duly authorized by all
requisite corporate action. This Agreement and all such other agreements and
written obligations entered into and undertaken in connection with the
transactions contemplated hereby constitute the valid and legally binding
obligations of the Buyer, enforceable against the Buyer in accordance with
their respective terms. The execution, delivery and performance of this
Agreement and the agreements provided for herein, and the consummation by the
Buyer of the transactions contemplated hereby and thereby, will not, with or
without the giving of notice or the passage of time or both, (a) violate the
provisions of any law, rule or regulation applicable to the Buyer; (b) violate
the provisions of the Buyer's Certificate of Incorporation or Bylaws; (c)
violate any judgment, decree, order or award of any court, governmental body or
arbitrator; or (d) conflict with or result in the breach or termination of any
term or provision of, or constitute a default under, or cause any acceleration
under, or cause the creation of any lien, charge or encumbrance upon the
properties or assets of the Buyer pursuant to, any indenture, mortgage, deed of
trust or other agreement or instrument to which it or its properties is a party
or by which the Buyer is or may be bound. Schedule 3.3 attached hereto sets
forth a true, correct and complete list of all
<PAGE> 26
consents and approvals of third parties that are required in connection with
the consummation by the Buyer of the transactions contemplated by this
Agreement.
3.4 Regulatory Approvals. All consents, approvals, authorizations and
other requirements prescribed by any law, rule or regulation which must be
obtained or satisfied by the Buyer and which are necessary for the consummation
of the transactions contemplated by this Agreement have been, or will be prior
to the Closing Date, obtained and satisfied.
3.5 Disclosure. No representation or warranty by the Buyer in this
Agreement or in any Exhibit hereto, or in any list, statement, document or
information set forth in or attached to any Schedule delivered or to be
delivered pursuant hereto, contains or will contain any untrue statement of a
material fact or omits or will omit any material fact necessary in order to
make the statements contained therein not misleading. The Buyer has disclosed
to the Seller all material facts pertaining to the transactions contemplated by
this Agreement.
3.6 Issuance of Shares. The issuance and delivery of the shares of Common
Stock in accordance with this Agreement have been, or prior to the Closing,
will be, duly authorized by all necessary corporate action on the part of the
Buyer, and all the shares of Common Stock have been duly reserved for issuance.
The shares of Common Stock, when issued and delivered in accordance with the
provisions of this Agreement will be duly and validly issued, fully paid and
non-assessable.
4. Access to Information; Public Announcements
4.1 Access to Management, Properties and Records.
(a) From the date of this Agreement until the Closing Date, the Seller
shall afford the officers, attorneys, accountants and other authorized
representatives of the Buyer free and full access upon reasonable notice and
during normal business hours to all management personnel, offices, properties,
books and records of the Seller, so that the Buyer may have full opportunity to
make such investigation as it shall desire to make of the management, business,
properties and affairs of the Seller, and the Buyer shall be permitted to make
abstracts from, or copies of, all such books and records. The Seller shall
furnish to the Buyer such financial and operating data and other information as
to the Assets and the business of the Seller as the Buyer shall reasonably
request.
<PAGE> 27
(b) If the Buyer, at its option and expense, prior to the Closing Date,
elects to have a report or reports prepared by an engineer or other
professional selected by the Buyer, certifying that the real property
associated with the Assets (i) complies with all applicable federal, state and
local environmental and wetlands laws, rules and regulations and that there is
not now, and never has been, manufacture, storage, or disposal of hazardous
wastes at the real estate in violation of said laws, rules and regulations,
(ii) complies with all applicable building, health and fire codes, and
subdivision control laws, rules and regulations, the Seller shall cooperate
with such engineer or professional to the extent necessary to prepare such
reports, including, without limitation, providing such engineer or professional
access to such real property and necessary records, and arranging interviews
with employees of the Seller.
(c) The Seller shall authorize the release to the Buyer of all files
pertaining to the Seller, the Assets or the business or operations of the
Seller held by any federal, state, county or local authorities, agencies or
instrumentalities.
4.2 Confidentiality. All information not previously disclosed to the
public or generally known to persons engaged in the respective businesses of
the Seller or the Buyer which shall have been furnished by the Buyer or the
Seller to the other party in connection with the transactions contemplated
hereby or as provided pursuant to this Section 4 shall not be disclosed to any
person other than their respective employees, directors, attorneys, accountants
or financial advisors or other than as contemplated herein. In the event that
the transactions contemplated by this Agreement shall not be consummated, all
such information which shall be in writing shall be returned to the party
furnishing the same, including, to the extent reasonably practicable, all
copies or reproductions thereof which may have been prepared, and neither party
shall at any time thereafter disclose to third parties, or use, directly or
indirectly, for its own benefit, any such information, written or oral, about
the business of the other party hereto. Notwithstanding the above, the Buyer
may include in its Registration Statement on Form S-1 and in the prospectus
included therewith information regarding the Seller, the business of the
Seller, the financial condition of the Seller and the terms of this Agreement.
4.3 Public Announcements. The parties agree that prior to the Closing
Date, except as otherwise required by law, any and all public announcements or
other public communications concerning this Agreement and the purchase of the
Assets by the Buyer shall be subject to the approval of the Buyer.
5. Pre-Closing Covenants of the Seller
From and after the date hereof and until the Closing Date:
5.1 Conduct of Business. The Seller shall carry on its business
diligently and substantially in the same manner as heretofore and shall not
make or institute any unusual or new methods of purchase, sale, shipment or
delivery, lease, management, accounting or operation, except as agreed to in
writing by the Buyer.
<PAGE> 28
All of the property of the Seller shall be used, operated, repaired and
maintained in a normal business manner consistent with past practice.
5.2 Absence of Material Changes. Without the prior written consent of the
Buyer, the Seller shall not:
(a) Take any action to amend its charter or Bylaws;
(b) Issue any stock, bonds or other corporate securities or grant any
option or issue any warrant to purchase or subscribe to any of such securities
or issue any securities convertible into such securities;
(c) Incur any obligation or liability (absolute or contingent), except
current liabilities incurred and obligations under contracts entered into in
the ordinary course of business;
(d) Declare or make any payment or distribution to its shareholders with
respect to their stock or purchase or redeem any shares of its capital stock;
(e) Mortgage, pledge, or subject to any lien, charge or any other
encumbrance any of the Assets;
(f) Sell, assign, or transfer any of the Assets, except for inventory sold
in the ordinary course of business, at a normal profit margin, and for not less
than replacement cost;
(g) Cancel any debts or claims, except in the ordinary course of business;
(h) Merge or consolidate with or into any corporation or other entity;
(i) Make, accrue or become liable for any bonus, profit sharing or
incentive payment, except for accruals under existing plans, if any, or
increase the rate of compensation payable or to become payable by it to any of
its officers, directors or employees, other than increases in the ordinary
course of business consistent with past practice;
<PAGE> 29
(j) Make any election or give any consent under the Code or the tax
statutes of any state or other jurisdiction or make any termination, revocation
or cancellation of any such election or any consent or compromise or settle any
claim for past or present tax due;
(k) Modify, amend, alter or terminate any of its executory contracts of a
material value or which are material in amount;
(l) Take or permit any act or omission constituting a breach or default
under any contract, indenture or agreement by which it or its properties are
bound;
(m) Fail to (i) preserve the possession and control of its assets and
business, (ii) keep in faithful service its present officers and key employees,
(iii) preserve the goodwill of its customers, suppliers, agents, brokers and
others having business relations with it, and (iv) keep and preserve its
business existing on the date hereof until after the Closing Date;
(n) Fail to operate its business and maintain its books, accounts and
records in the customary manner and in the ordinary or regular course of
business and maintain in good repair its business premises, fixtures, furniture
and equipment;
(o) Enter into any leases, contracts, agreements or understandings other
than those entered into in the ordinary course of business calling for payments
which in the aggregate do not exceed $5,000 for each such lease, contract,
agreement or understanding;
(p) Engage any employee for a salary in excess of $20,000 per annum;
(q) Materially alter the terms, status or funding condition of any
Employee Plan;
(r) Make any loans to any person or entity; or
(s) Commit or agree to do any of the foregoing in the future.
5.3 Taxes. The Seller will, on a timely basis, file all tax returns for
and pay any and all taxes which shall become due or shall have accrued (a) on
account of the operation of the business of the Seller or the ownership of the
Assets on or prior to the Closing Date or (b) on account of the sale of the
Assets (including a pro-rata portion of all personal property and excise taxes
payable with respect to the Assets by the Seller).
5.4 Delivery of Interim Financial Statements. As promptly as possible
following the last day of each month after the date hereof, and in any event
<PAGE> 30
within 15 days after the end of each such month, the Seller shall deliver to
the Buyer its balance sheet and related statements of income, shareholders'
equity, retained earnings and changes in financial condition for the one-month
period then ended, all certified by the Seller's Accountants or Seller's chief
financial officer (collectively, the "Interim Financial Statements").
5.5 Compliance with Laws. The Seller will comply with all laws and
regulations which are applicable to it, its ownership of the Assets or to the
conduct of its business and will perform and comply with all contracts,
commitments and obligations by which it is bound.
5.6 Continued Truth of Representations and Warranties of the Seller. The
Seller will not take any actions which would result in any of the
representations or warranties set forth in Section 2 hereof being untrue.
5.7 Continuing Obligation to Inform. From time to time prior to the
Closing, the Seller will deliver or cause to be delivered to the Buyer
supplemental information concerning events subsequent to the date hereof which
would render any statement, representation or warranty in this Agreement or any
information contained in any Schedule inaccurate or incomplete in any material
respect at any time after the date hereof until the Closing Date.
5.8 Exclusive Dealing. The Seller will not, directly or indirectly,
through any officer, director, agent or otherwise, (a) solicit, initiate or
encourage submission of proposals or offers from any person relating to any
acquisition or purchase of all or a material portion of the Assets, or any
equity interest in, the Seller or any equity investment, merger, consolidation
or business combination with the Seller, or (b) participate in any discussions
or negotiations regarding, or furnish to any other person, any non-public
information with respect to, or otherwise cooperate in any way with, or assist
or participate in, facilitate or encourage, any effort or attempt by any other
person to do or seek any of the foregoing. The Seller shall promptly notify
the Buyer if any such proposal or offer, or any inquiry or contact with any
person with respect thereto, is made.
5.9 No Publicity. The Seller shall make no public announcement with
respect to this Agreement or the transactions contemplated hereby without the
express prior written consent of the Buyer. The Seller shall hold in
confidence, and use its best efforts to have all of its officers, directors and
personnel hold in confidence, the terms of this Agreement and the transactions
contemplated hereby.
<PAGE> 31
6. Satisfaction of Conditions. The Seller and the Buyer covenant and
agree to use their commercially reasonable efforts to obtain the satisfaction
of the conditions specified in this Agreement.
7. Conditions to Obligations of the Buyer
The obligations of the Buyer under this Agreement are subject to the
fulfillment, at the Closing Date, of the following conditions precedent, each
of which may be waived in writing in the sole discretion of the Buyer:
7.1 Continued Truth of Representations and Warranties of the Seller;
Compliance with Covenants and Obligations. The representations and warranties
of the Seller shall be true in all material respects (other than such
representations and warranties which are by their terms qualified as to
materiality, which shall be true in all respects) on and as of the Closing Date
as though such representations and warranties were made on and as of such date,
except for any changes permitted by the terms hereof or consented to in writing
by the Buyer. The Seller shall have performed and complied with all material
terms, conditions, covenants, obligations, agreements and restrictions required
by this Agreement to be performed or complied with by it prior to or at the
Closing Date.
7.2 Corporate Proceedings. All corporate and other proceedings required
to be taken on the part of the Seller to authorize or carry out this Agreement
and to convey, assign, transfer and deliver the Assets shall have been taken.
7.3 Governmental Approvals. All governmental agencies, departments,
bureaus, commissions and similar bodies, the consent, authorization or approval
of which is necessary under any applicable law, rule, order or regulation for
the consummation by the Seller of the transactions contemplated by this
Agreement and the operation of the Seller's business by the Buyer shall have
consented to, authorized, permitted or approved such transactions.
7.4 Consents of Lenders, Lessors and Other Third Parties. The Seller
shall have received all requisite consents and approvals of all lenders,
lessors and other third parties whose consent or approval is required in order
for the Seller to consummate the transactions contemplated by this Agreement,
including, without limitation, those set forth on Schedule 2.3 attached hereto.
In addition, Agfa Corporation and Innes Photo shall have executed and
delivered to the Buyer the agreements described on Schedule 2.16, which
agreements shall be in form and substance reasonably satisfactory to the Buyer.
7.5 Adverse Proceedings. No action or proceeding by or before any court
or other governmental body shall have been instituted or threatened by any
governmental body or person whatsoever which shall seek to restrain, prohibit
or invalidate the transactions contemplated by this Agreement or which might
affect the right of the Buyer to own or use the Assets after the Closing.
7.6 Opinion of Counsel. The Buyer shall have received an opinion of
<PAGE> 32
counsel to the Seller, dated as of the Closing Date, in substantially the form
attached hereto as Exhibit B, and as to such other matters as may be reasonably
requested by the Buyer or its counsel.
7.7 Board of Directors and Shareholder Approval. The shareholders of the
Seller shall have duly authorized the transactions contemplated by this
Agreement.
7.8 The Assets. Except for the Permitted Encumbrances, at the Closing the
Buyer shall receive good, clear, record and marketable title to the Assets,
free and clear of all liens, liabilities, security interests and encumbrances
of any nature whatsoever.
7.9 Update. The Seller shall have provided the Buyer with a true, correct
and complete list and amount, as of the Closing Date, of:
(a) the Inventory;
(b) the Fixed Assets;
(c) the Accounts Receivable, including an aging
thereof; and
(d) the liabilities assumed pursuant to Subsection
1.4 hereof.
7.10 Cash Available for Working Capital Purposes. On the Closing Date,
the Seller will have available cash for working capital purposes of not less
than $1,000 per retail video store, which cash will be transferred to the Buyer
pursuant to the terms of this Agreement.
7.11 Payables. On the Closing Date, the Seller will have no obligations
to suppliers and vendors of goods and services and other trade creditors which
are either (i) in excess of $1,000 in the aggregate or (ii) are past due in
accordance with their terms and in no event shall the Seller have any of such
obligations outstanding for more than 60 days as of the Closing.
7.12 Engineer's Report. On or prior to the Closing Date, the Buyer shall
have received the engineer's report, if any, referred to in Subsection 4.1(b)
hereof.
<PAGE> 33
7.13 Evidence of Tax Payment. On or prior to the Closing Date, the Seller
shall have obtained and delivered to the Buyer evidence of payment to the
Massachusetts Department of Revenue for the outstanding tax liability described
on Schedule 2.13.
7.14 Closing Deliveries. The Buyer shall have received at or prior to the
Closing each of the following documents:
(a) a bill of sale substantially in the form attached hereto as Exhibit C;
(b) such instruments of conveyance, assignment and transfer, in form and
substance satisfactory to the Buyer, as shall be appropriate to convey,
transfer and assign to, and to vest in, the Buyer, good, clear, record and
marketable title to the Assets;
(c) such contracts, files and other data and documents pertaining to the
Assets or the Seller's business as the Buyer may reasonably request;
(d) copies of the general ledgers and books of account of the Seller, and
all federal, state and local income, franchise, property and other tax returns
filed by the Seller with respect to the Assets since January 1, 1989;
(e) such certificates of the Seller's officers and such other documents
evidencing satisfaction of the conditions specified in Section 7 as the Buyer
shall reasonably request;
(f) a certificate of the Secretary of State of the
Commonwealth of Massachusetts as to the legal existence and good standing
(including tax) of the Seller in Massachusetts;
(g) certificates of the Chairman of the Board of Directors of the Seller
attesting to the incumbency of the Seller's officers, respectively, the
authenticity of the resolutions authorizing the transactions contemplated by
the Agreement, and the authenticity and continuing validity of the charter
documents delivered pursuant to Subsection 2.1;
(h) estoppel certificates from each lessor from whom the Seller leases
real or personal property consenting to the assumption of such lease by the
Buyer and representing that there are no outstanding claims against the Seller
under any such lease;
(i) the schedules listed in Subsection 7.9;
(j) cross receipt executed by the Buyer and the Seller;
(k) such other documents, instruments or certificates as the
<PAGE> 34
Buyer may reasonably request.
7.15 Payment of Taxes. On or prior to the Closing Date, the Seller shall
have delivered to the Buyer evidence of satisfaction of all obligations of the
Seller set forth in Schedule 2.13.
8. Conditions to Obligations of the Seller
The obligations of the Seller under this Agreement are subject to the
fulfillment, at the Closing Date, of the following conditions precedent, each
of which may be waived in writing at the sole discretion of the Seller:
8.1 Continued Truth of Representations and Warranties of the Buyer;
Compliance with Covenants and Obligations. The representations and warranties
of the Buyer in this Agreement shall be true on and as of the Closing Date as
though such representations and warranties were made on and as of such date,
except for any changes consented to in writing by the Seller. The Buyer shall
have performed and complied with all terms, conditions, obligations, agreements
and restrictions required by this Agreement to be performed or complied with by
it prior to or at the Closing Date.
8.2 Corporate Proceedings. All corporate and other proceedings required
to be taken on the part of the Buyer to authorize or carry out this Agreement
shall have been taken.
8.3 Governmental Approvals. All governmental agencies, departments,
bureaus, commissions and similar bodies, the consent, authorization or approval
of which is necessary under any applicable law, rule, order or regulation for
the consummation by the Buyer of the transactions contemplated by this
Agreement shall have consented to, authorized, permitted or approved such
transactions.
8.4 Consents of Lenders, Lessors and Other Third Parties. The Buyer shall
have received all requisite consents and approvals of all lenders, lessors and
other third parties whose consent or approval is required in order for the
Buyer to consummate the transactions contemplated by this Agreement, including,
without limitation, those set forth on Schedule 3.3 attached hereto.
8.5 Adverse Proceedings. No action or proceeding by or before any court
or other governmental body shall have been instituted or threatened by any
<PAGE> 35
governmental body or person whatsoever which shall seek to restrain, prohibit
or invalidate the transactions contemplated by this Agreement or which might
affect the right of the Seller to transfer the Assets.
8.6 Opinion of Counsel. The Seller shall have received an opinion of Hale
and Dorr, counsel to the Buyer, dated as of the Closing Date, in substantially
the form attached hereto as Exhibit D, and as to such other matters as may be
reasonably requested by the Seller or its counsel.
8.7 Closing Deliveries. The Seller shall have received at or prior to the
Closing each of the following documents:
(a) such certificates of the Buyer's officers and such other documents
evidencing satisfaction of the conditions specified in this Section 8 as the
Seller shall reasonably request;
(b) a certificate of the Secretary of State of the State of Delaware as to
the legal existence and good standing (including tax) of the Buyer in Delaware;
(c) a certificate of the Secretary of the Buyer attesting to the
incumbency of the Buyer's officers, the authenticity of the resolutions
authorizing the transactions contemplated by this Agreement, and the
authenticity and continuing validity of the charter documents delivered
pursuant to Subsection 3.1;
(d) Instrument of Assumption of Liabilities executed by the Buyer and
accepted by the Seller;
(e) payment of the Purchase Price;
(f) cross receipt executed by the Buyer and the Seller; and
(g) such other documents, instruments or certificates as the Seller may
reasonably request.
8.8 Stockholder Approval. The stockholders of the Seller shall have
approved the transactions contemplated by this Agreement after receipt and
review by each of them of a current prospectus relating to the Buyer's
Registration Statement on Form S-1, File No. 333-8683.
9. Indemnification
9.1 By the Buyer and the Seller and the Principals. The Buyer on the one
hand and the Seller and the Principals, jointly and severally, on the other
hand, each hereby indemnifies and holds harmless the other against all claims,
damages, losses, liabilities, costs and expenses (including, without
limitation, settlement costs and any legal, accounting or other expenses for
investigating or defending any
<PAGE> 36
actions or threatened actions) reasonably incurred by the Buyer or the Seller
in connection with each and all of the following:
(a) Any breach by the indemnifying party of any representation or warranty
in this Agreement;
(b) Any breach of any covenant, agreement or obligation of the
indemnifying party contained in this Agreement or any other agreement,
instrument or document contemplated by this Agreement; and
(c) Any misrepresentation contained in any statement, certificate or
schedule furnished by the indemnifying party pursuant to this Agreement or in
connection with the transactions contemplated by this Agreement.
9.2 By the Seller and the Principals. The Seller and the Principals, on a
joint and several basis, further agree to indemnify and hold harmless the Buyer
from any and all claims, damages, losses, liabilities, costs and expenses
(including, without limitation, settlement costs and any legal, accounting or
other expenses for investigating or defending any actions or threatened
actions) reasonably incurred by the Buyer, in connection with each and all of
the following:
(a) Any claims against, or liabilities or obligations of, the Seller or
against the Assets not specifically assumed by the Buyer pursuant this
Agreement;
(b) The failure of the Buyer to obtain the protections afforded by
compliance with the notification and other requirements of the bulk sales laws
in force in the jurisdictions in which such laws may be applicable to either
the Seller or the transactions contemplated by this Agreement;
(c) Any violation by the Seller of, or any failure by the Seller to comply
with, any law, ruling, order, decree, regulation or zoning, environmental or
permit requirement applicable to the Seller, the Assets or its business,
whether or not any such violation or failure to comply has been disclosed to
the Buyer, including any costs incurred by the Buyer (i) in order to bring the
Assets into compliance with environmental laws as a consequence of
noncompliance with such laws on the Closing Date or (ii) in connection with the
transfer of the Assets;
(d) Any warranty claim or product liability claim relating to
<PAGE> 37
the Seller's business or operation prior to the Closing Date;
(e) Any tax liabilities or obligations of the Seller; and
(f) Any claims against, or liabilities or obligations of, the Seller with
respect to obligations under Employee Plans not specifically assumed by the
Buyer pursuant to this Agreement.
9.3 Claims for Indemnification. Whenever any claim shall arise for
indemnification hereunder the party seeking indemnification (the "Indemnified
Party"), shall promptly notify the party from whom indemnification is sought
(the "Indemnifying Party") of the claim and, when known, the facts constituting
the basis for such claim. In the event of any such claim for indemnification
hereunder resulting from or in connection with any claim or legal proceedings
by a third-party, the notice to the Indemnifying Party shall specify, if known,
the amount or an estimate of the amount of the liability arising therefrom.
The Indemnified Party shall not settle or compromise any claim by a third party
for which it is entitled to indemnification hereunder without the prior written
consent of the Indemnifying Party, which shall not be unreasonably withheld,
unless suit shall have been instituted against it and the Indemnifying Party
shall not have taken control of such suit after notification thereof as
provided in Subsection 9.4 of this Agreement.
9.4 Defense by Indemnifying Party. In connection with any claim giving
rise to indemnity hereunder resulting from or arising out of any claim or legal
proceeding by a person who is not a party to this Agreement, the Indemnifying
Party at its sole cost and expense may, upon written notice to the Indemnified
Party, assume the defense of any such claim or legal proceeding if it
acknowledges to the Indemnified Party in writing its obligations to indemnify
the Indemnified Party with respect to all elements of such claim. The
Indemnified Party shall be entitled to participate in (but not control) the
defense of any such action, with its counsel and at its own expense. If the
Indemnifying Party does not assume the defense of any such claim or litigation
resulting therefrom within 30 days after the date such claim is made, (a) the
Indemnified Party may defend against such claim or litigation, in such manner
as it may deem appropriate, including, but not limited to, settling such claim
or litigation, after giving notice of the same to the Indemnifying Party, on
such terms as the Indemnified Party may deem appropriate, and (b) the
Indemnifying Party shall be entitled to participate in (but not control) the
defense of such action, with its counsel and at its own expense. If the
Indemnifying Party thereafter seeks to question the manner in which the
Indemnified Party defended such third party claim or the amount or nature of
any such settlement, the Indemnifying Party shall have the burden to prove by a
preponderance of the evidence that the Indemnified Party did not defend or
settle such third party claim in a reasonably prudent manner.
9.5 Payment of Indemnification Obligation. All indemnification by the
Buyer, the Seller or the Principals hereunder shall be effected by payment of
cash or delivery of a cashier's or certified check in the amount of the
indemnification liability. Notwithstanding the above, in no event shall the
aggregate liability of the
<PAGE> 38
Sellers and the Principals under this Article 9 exceed 67% of the Purchase
Price.
9.6 Survival of Representations; Claims for Indemnification. All
representations and warranties made by the parties herein or in any instrument
or document furnished in connection herewith shall survive the Closing and any
investigation at any time made by or on behalf of the parties hereto. All such
representations and warranties shall expire eighteen months after the Closing
Date, except for claims, if any, asserted in writing prior to the eighteenth
month after the Closing Date, which shall survive until finally resolved and
satisfied in full. All claims and actions for indemnity pursuant to this
Section 9 for breach of any representation or warranty shall be asserted or
maintained in writing by a party hereto on or prior to the expiration of such
eighteen-month period. Notwithstanding the above claims resulting from the
failure by the Seller to pay any tax when due shall expire one year after any
applicable statute of limitations.
<PAGE> 39
10. Post-Closing Agreements
The Seller agrees that from and after the Closing Date:
10.1 Proprietary Information.
(a) The Seller shall hold in confidence, and use its best efforts to have
all of its officers, directors and personnel hold in confidence, all knowledge
and information of a secret or confidential nature with respect to the business
of the Seller and shall not disclose, publish or make use of the same without
the consent of the Buyer, except to the extent that such information shall have
become public knowledge other than by breach of this Agreement by the Seller.
(b) The Seller agrees that the remedy at law for any breach of this
Subsection 10.1 would be inadequate and that the Buyer shall be entitled to
injunctive relief in addition to any other remedy it may have upon breach of
any provision of this Subsection 10.1.
10.2 No Solicitation or Hiring of Former Employees. Except as provided by
law, for a period of five years after the Closing Date, neither the Seller nor
any Affiliate thereof (including the Principals) shall solicit any person who
was an employee of the Seller on the Closing Date to terminate his employment
with the Buyer or to become an employee of the Seller or hire any person (other
than June Earney) who was such an employee on the date hereof or on the Closing
Date. Notwithstanding the above, (i) if employment with Buyer of any family
member of any Principal is terminated by Buyer, Seller and its Affiliates shall
not be restricted from hiring such terminated employee and (ii) the Seller and
its Affiliates shall not be restricted from soliciting or hiring any employee
of the Seller primarily responsible for performing office and/or administrative
duties for the Seller that is not hired by the Buyer within 15 days of the
Closing Date.
10.3 Non-Competition Agreement.
(a) For a period of five years after the Closing Date, neither the Seller
nor any Affiliate (including the Principals) thereof shall (i) market, rent or
sell any product which has the same or substantially the same form, function
and primary application as any existing or proposed product marketed, rented or
sold by the Seller on or prior to the Closing Date or (ii) engage in any
business competitive with the business of the Seller as conducted on the date
hereof or on the Closing Date, in the United States or any other country in
which the Seller conducted its business during the two years prior to the
Closing Date. Notwithstanding the above, with respect to Adrian Wilkins, this
paragraph (a) shall not apply to the business of film processing and any
restrictions related to the film processing business shall be as set forth in a
separate consulting agreement related thereto between Mr. Wilkins and the
Buyer.
(b) The parties hereto agree that the duration and geographic
<PAGE> 40
scope of the non-competition provision set forth in this Subsection 10.3 are
reasonable. In the event that any court determines that the duration or the
geographic scope, or both, are unreasonable and that such provision is to that
extent unenforceable, the parties hereto agree that the provision shall remain
in full force and effect for the greatest time period and in the greatest area
that would not render it unenforceable. The parties intend that this
non-competition provision shall be deemed to be a series of separate covenants,
one for each and every county of each and every state of the United States of
America and each and every political subdivision of each and every country
outside the United States of America where this provision is intended to be
effective. The Seller agrees that damages are an inadequate remedy for any
breach of this provision and that the Buyer shall, whether or not it is
pursuing any potential remedies at law, be entitled to equitable relief in the
form of preliminary and permanent injunctions without bond or other security
upon any actual or threatened breach of this non-competition provision.
10.4 Sharing of Data.
(a) The Seller shall have the right for a period of three years following
the Closing Date to have reasonable access to such books, records and accounts,
including financial and tax information, correspondence, production records,
employment records and other similar information as are transferred to the
Buyer pursuant to the terms of this Agreement for the limited purposes of
concluding its involvement in the business of the Seller prior to the Closing
Date and for complying with its obligations under applicable securities, tax,
environmental, employment or other laws and regulations. The Buyer shall have
the right for a period of three years following the Closing Date to have
reasonable access to those books, records and accounts, including financial and
tax information, correspondence, employment records and other records which are
retained by the Seller pursuant to the terms of this Agreement to the extent
that any of the foregoing relates to the business of the Seller transferred to
the Buyer hereunder or is otherwise needed by the Buyer in order to comply with
its obligations under applicable securities, tax, environmental, employment or
other laws and regulations.
(b) The Seller and the Buyer agree that from and after the Closing Date
they shall cooperate fully with each other to facilitate the transfer of the
Assets from the Seller to the Buyer and the operation thereof by the Buyer.
10.5 Use of Name. Without Buyer's prior written consent, the Seller and
each of the Principals each agrees not to use the name "Wellesley
Entertainment"
<PAGE> 41
or any derivation thereof after the Closing Date in connection with any
business related to, competitive with, or an outgrowth of, the business
conducted by the Seller on the date hereof.
10.6 Cooperation in Litigation. Each party hereto will fully cooperate
with the other in the defense or prosecution of any litigation or proceeding
already instituted or which may be instituted hereafter against or by such
party relating to or arising out of the conduct of the business of the Seller
prior to or after the Closing Date (other than litigation arising out the
transactions contemplated by this Agreement). The party requesting such
cooperation shall pay the out-of-pocket expenses (including legal fees and
disbursements) of the party providing such cooperation and of its officers,
directors, employees and agents reasonably incurred in connection with
providing such cooperation, but shall not be responsible to reimburse the party
providing such cooperation for such party's time spent in such cooperation or
the salaries or costs of fringe benefits or similar expenses paid by the party
providing such cooperation to its officers, directors, employees and agents
while assisting in the defense or prosecution of any such litigation or
proceeding.
11. Termination of Agreement
11.1 Termination by Lapse of Time. This Agreement shall terminate at 5:00
p.m., Boston time, 60 days from the date hereof, if the transactions
contemplated hereby have not been consummated, unless such date is extended by
the written consent of the Buyer and Seller.
11.2 Termination by Agreement of the Parties. This Agreement may be
terminated by the mutual written agreement of the Buyer and Seller. In the
event of such termination by agreement, the Buyer shall have no further
obligation or liability to the Seller under this Agreement, and the Seller
shall have no further obligation or liability to the Buyer under this
Agreement.
11.3 Termination by Reason of Breach. This Agreement may be terminated by
the Seller, if at any time prior to the Closing there shall occur a material
breach of any of the representations, warranties or covenants of the Buyer or
the failure by the Buyer to perform any material condition or obligation
hereunder, which breach or failure is not cured within 30 days of written
notice thereof, and may be terminated by the Buyer, if at any time prior to the
Closing there shall occur a material breach of any of the representations,
warranties or covenants of the Seller or the failure of the Seller to perform
any material condition or obligation hereunder, which breach or failure is not
cured within 30 days of written notice thereof.
12. Transfer and Sales Tax
Notwithstanding any provisions of law imposing the burden of such taxes on
the Seller or the Buyer, as the case may be, the Seller shall be responsible
for and shall pay (a) all sales, use and transfer taxes, and (b) all
governmental charges, if any, upon the sale or transfer of any of the Assets
hereunder. If the Seller shall fail
<PAGE> 42
to pay such amounts on a timely basis, the Buyer may pay such amounts to the
appropriate governmental authority or authorities, and the Seller shall
promptly reimburse the Buyer for any amounts so paid by the Buyer.
13. Brokers
13.1 For the Seller. The Seller represents and warrants that it has not
engaged any broker or finder or incurred any liability for brokerage fees,
commissions or finder's fees in connection with the transactions contemplated
by this Agreement. The Seller agrees to indemnify and hold harmless the Buyer
against any claims or liabilities asserted against it by any person acting or
claiming to act as a broker or finder on behalf of the Seller.
13.2 For the Buyer. The Buyer agrees to pay all fees, expenses and
compensation owed to any person, firm or corporation (including no more than
$10,000 to Anwar Bhalma and his affiliates, including BMA Enterprises, Inc.)
who has acted in the capacity of broker or finder on its behalf in connection
with the transactions contemplated by this Agreement. The Buyer agrees to
indemnify and hold harmless the Seller against any claims or liabilities
asserted against it by any person acting or claiming to act as a broker or
finder on behalf of the Buyer.
14. Notices
Any notices or other communications required or permitted hereunder shall
be sufficiently given if delivered personally or sent by telex, federal
express, registered or certified mail, postage prepaid, addressed as follows or
to such other address of which the parties may have given notice:
To the Seller: Adrian Wilkins
c/o Wellesley Entertainment
12 Washington Street
Wellesley, MA 02181
With a copy to: Charles Claeys, Esq.
Peabody & Brown
101 Federal Street
Boston, MA 02110
To the Buyer: West Coast Entertainment Corporation
<PAGE> 43
9990 Global Road
Philadelphia, PA 19115
With a copy to: Hale and Dorr
60 State Street
Boston, MA 02109
Attn: John H. Chory, Esq.
Unless otherwise specified herein, such notices or other communications shall
be deemed received (a) on the date delivered, if delivered personally; or (b)
three business days after being sent, if sent by registered or certified mail.
15. Arbitration
(a) Any dispute, controversy or claim between the parties arising out of
or relating to this Agreement, a breach hereof or the transactions contemplated
hereby, shall be settled by arbitration in accordance with the provisions of
this Section 15. Any arbitration pursuant to this Section 15 shall be
conducted by a single arbitrator appointed by the Boston, Massachusetts office
of the American Arbitration Association upon the request of either party. The
arbitrator shall have a minimum of five years of experience in the area of
business relevant to the particular dispute. Each party shall be permitted to
submit only one proposal to the arbitrator, and the arbitrator shall be
required to choose one of such two proposals as the resolution of the dispute.
The arbitrator may proceed to a resolution notwithstanding the failure of a
party to participate in the proceedings. Each of the parties shall pay its own
costs and expenses in connection with any such arbitration, and the parties
shall share equally in the fees and expenses of the arbitrator.
(b) The parties agree that any such arbitration will occur in Boston,
Massachusetts, any such arbitration award shall be final and binding upon the
parties, may be entered in any court having jurisdiction and shall not be
appealable by either party in any court.
16. Successors and Assigns
This Agreement shall be binding upon and inure to the benefit of the
parties hereto and their respective successors and assigns, except that the
Buyer and the Seller may not assign their respective obligations hereunder
without the prior written consent of the other party; provided, however, that
the Buyer may assign this Agreement, and its rights and obligations hereunder,
to a subsidiary or affiliate. Any assignment in contravention of this
provision shall be void. No assignment shall release the Buyer from any
obligation or liability under this Agreement.
17. Entire Agreement; Amendments; Attachments
(a) This Agreement, all Schedules and Exhibits hereto, and all
<PAGE> 44
agreements and instruments to be delivered by the parties pursuant hereto
represent the entire understanding and agreement between the parties hereto
with respect to the subject matter hereof and supersede all prior oral and
written and all contemporaneous oral negotiations, commitments and
understandings between such parties. The Buyer, the Seller and the Principals
may amend or modify this Agreement, in such manner as may be agreed upon, by a
written instrument executed by the Buyer and the Seller.
(b) If the provisions of any Schedule or Exhibit to this Agreement are
inconsistent with the provisions of this Agreement, the provision of the
Agreement shall prevail. The Exhibits and Schedules attached hereto or to be
attached hereafter are hereby incorporated as integral parts of this Agreement.
18. Expenses
Except as otherwise expressly provided herein (including in Sections 1.8
and 1.10), the Buyer and the Seller shall each pay their own expenses in
connection with this Agreement and the transactions contemplated hereby. Buyer
shall pay the costs and expenses of any audit conducted by, or at the request
of, the Buyer, and Seller shall pay the costs and expenses of any accounting
services provided to the Seller in connection with the transactions
contemplated hereby.
19. Legal Fees
In the event that legal proceedings are commenced by the Buyer against the
Seller, or by the Seller against the Buyer, in connection with this Agreement
or the transactions contemplated hereby, the party or parties which do not
prevail in such proceedings shall pay the reasonable attorneys' fees and other
costs and expenses, including investigation costs, incurred by the prevailing
party in such proceedings.
20. Governing Law
This Agreement shall be governed by and construed in accordance with the
laws of the State of Delaware.
21. Section Headings
The section headings are for the convenience of the parties and in no
<PAGE> 45
way alter, modify, amend, limit, or restrict the contractual obligations of the
parties.
22. Severability
The invalidity or unenforceability of any provision of this Agreement
shall not affect the validity or enforceability of any other provision of this
Agreement.
23. Counterparts
This Agreement may be executed in one or more counterparts, each of which
shall be deemed to be an original, but all of which shall be one and the same
document.
(end of page)
<PAGE> 46
IN WITNESS WHEREOF, this Agreement has been duly executed by the parties
hereto as of and on the date first above written.
(Corporate Seal) WELLESLEY ENTERTAINMENT, INC.
ATTEST:
/s/ June D. Earley By: /s/ Adrian S. Wilkins
------------------------- --------------------------------
Title: Vice President
-----------------------------
PRINCIPALS:
/s/ Adrian S. Wilkins
-----------------------------------
Adrian Wilkins
/s/ William Roberts
-----------------------------------
William Roberts
(Corporate Seal) WEST COAST ENTERTAINMENT CORPORATION
ATTEST:
By: /s/ T. Kyle Standley
--------------------------------
/s/ Scott E. Pueschel Title: President
---------------------------- -----------------------------
<PAGE> 1
ASSET PURCHASE AGREEMENT
By and Among
West Coast Entertainment Corporation
and the Sellers and Principals Identified
on Schedule I hereto
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Section Page
- ------- ----
<S> <C> <C> <C>
1. Sale and Delivery of the Assets..................................... 1
1.1 Delivery of the Assets........................................ 1
1.2 Further Assurances............................................ 3
1.3 Purchase Price................................................ 4
1.4 Assumption of Liabilities, Etc................................ 5
1.5 Allocation of Purchase Price and Assumed Liabilities.......... 5
1.6 The Closing................................................... 5
1.7 Restrictions on Transfer...................................... 5
2. Representations of the Sellers and the Principals................... 6
2.1 Organization.................................................. 6
2.2 Capitalization of the Sellers................................. 6
2.3 Authorization................................................. 6
2.4 Ownership of the Assets....................................... 7
2.5 Financial Statements.......................................... 7
2.6 Absence of Undisclosed Liabilities............................ 9
2.7 Litigation.................................................... 9
2.8 Insurance..................................................... 9
2.9 Inventory..................................................... 10
2.10 Fixed Assets.................................................. 10
2.11 Leases........................................................ 10
2.12 Change in Financial Condition and Assets...................... 11
2.13 Tax Matters................................................... 11
2.14 Accounts Receivable........................................... 12
2.15 Books and Records............................................. 13
2.16 Contracts and Commitments..................................... 13
2.17 Compliance with Agreements and Laws........................... 15
2.18 Employee Relations............................................ 16
2.19 Absence of Certain Changes or Events.......................... 17
2.20 Suppliers..................................................... 17
2.21 Prepayments and Deposits...................................... 18
2.22 Trade Names and Other Intangible Property..................... 18
2.23 Employee Benefit Plans........................................ 18
2.24 Regulatory Approvals.......................................... 19
2.25 Indebtedness to and from Officers, Directors and Shareholders. 19
2.26 Powers of Attorney and Suretyships............................ 19
2.27 Disclosure.................................................... 20
3. Representations of the Buyer....................................... 20
</TABLE>
-i-
<PAGE> 3
<TABLE>
<CAPTION>
Section Page
- ------- ----
<S> <C> <C> <C>
3.1 Organization and Authority.................................... 20
3.2 Capitalization of the Buyer................................... 20
3.3 Authorization................................................. 20
3.4 Regulatory Approvals.......................................... 21
3.5 Issuance of Shares............................................ 21
3.6 Disclosure.................................................... 21
4. Access to Information; Public Announcements......................... 22
4.1 Access to Management, Properties and Records.................. 22
4.2 Confidentiality............................................... 22
4.3 Public Announcements.......................................... 23
5. Pre-Closing Covenants of the Sellers................................ 23
5.1 Conduct of Business........................................... 23
5.2 Absence of Material Changes................................... 23
5.3 Taxes......................................................... 25
5.4 Delivery of Subsequent Financial Statements................... 25
5.5 Compliance with Laws.......................................... 26
5.6 Continued Truth of Representations and Warranties
of the Sellers................................................ 26
5.7 Continuing Obligation to Inform............................... 26
5.8 Exclusive Dealing............................................. 26
5.9 No Publicity.................................................. 26
6. Satisfaction of Conditions.......................................... 27
7. Conditions to Obligations of the Buyer.............................. 27
7.1 Continued Trust of Representations and Warranties of the
Sellers; Compliance with Covenants and Obligations............ 27
7.2 Corporate Proceedings......................................... 27
7.3 Governmental Approvals........................................ 27
7.4 Consents of Lenders, Lessors and Other Third Parties........... 27
7.5 Adverse Proceedings........................................... 28
7.6 Opinion of Counsel............................................ 28
7.7 Board of Directors and Shareholder/Partner/Member and
Manager Approval.............................................. 28
7.8 The Assets.................................................... 28
7.9 Update........................................................ 28
7.10 Cash on Hand at Stores........................................ 28
7.11 Payables...................................................... 29
7.12 Closing Deliveries............................................ 29
7.13 Other Conditions.............................................. 30
</TABLE>
-ii-
<PAGE> 4
<TABLE>
<CAPTION>
Section Page
- ------- ----
<S> <C> <C> <C>
8. Conditions to Obligations of the Sellers............................ 30
8.1 Continued Trust of Representations and Warranties of the
Buyer; Compliance with Covenants and Obligations.............. 30
8.2 Corporate Proceedings......................................... 30
8.3 Governmental Approvals........................................ 30
8.4 Consents of Lenders, Lessors and Other Third Parties.......... 31
8.5 Adverse Proceedings........................................... 31
8.6 Opinion of Counsel............................................ 31
8.7 Closing Deliveries............................................ 31
8.8 Other Conditions.............................................. 32
9. Indemnification..................................................... 32
9.1 By the Buyer and the Sellers and the Principals............... 32
9.2 By the Sellers and the Principals............................. 32
9.3 Claims for Indemnification.................................... 33
9.4 Defense by Indemnifying Party................................. 33
9.5 Payment of Indemnification Obligation......................... 34
9.6 Survival of Representations; Claims for Indemnification....... 34
10. Post-Closing Agreements............................................. 35
10.1 Proprietary Information....................................... 35
10.2 No Solicitation or Hiring of Former Employees................. 35
10.3 Non-Competition Agreement..................................... 36
10.4 Sharing of Data............................................... 36
10.5 Use of Name................................................... 37
10.6 Cooperation in Litigation..................................... 37
11. Termination of Agreement............................................ 38
11.1 Termination by Lapse of Time.................................. 38
11.2 Termination by Agreement of the Parties....................... 38
11.3 Termination by Reason of Breach............................... 38
12. Transfer and Sales Tax.............................................. 38
13. Brokers............................................................. 38
13.1 For the Sellers............................................... 39
13.2 For the Buyer................................................. 39
14. Notices............................................................. 39
</TABLE>
-iii-
<PAGE> 5
<TABLE>
<CAPTION>
Section Page
- ------- ----
<S> <C> <C>
15. Arbitration......................................................... 39
16. Successors and Assigns.............................................. 40
17. Entire Agreement; Amendments; Attachments........................... 40
18. Expenses............................................................ 41
19. Legal Fees.......................................................... 41
20. Governing Law....................................................... 41
21. Section Headings.................................................... 41
22. Severability........................................................ 41
23. Counterparts........................................................ 41
</TABLE>
Exhibits
- --------
A - Escrow Agreement
B - Instrument of Assumption of Liabilities
C - Opinion of Counsel to Sellers
D - Bill of Sale
E - Opinion of Hale and Dorr
-iv-
<PAGE> 6
ASSET PURCHASE AGREEMENT
Agreement made as of November 15, 1996, between West Coast Entertainment
Corporation, a Delaware corporation with its principal office at 9990 Global
Road, Philadelphia, Pennsylvania 19115 (the "Buyer"), each of the Sellers
identified on Schedule I attached hereto, each of whom has a principal office as
indicated on Schedule I attached hereto (individually, a "Seller" and
collectively, the "Sellers"), and those persons identified as "Principals" on
Schedule I attached hereto (individually, a "principal" and collectively, the
"Principals").
Preliminary Statement
The Buyer desires to purchase, and the Sellers desire to sell,
substantially all of the assets and business of the Sellers related to the
retail video rental and sales business and conducted under the name "Great
American Video Stores" (the "Business") for the consideration set forth below
and the assumption of certain of the Sellers' liabilities set forth below,
subject to the terms and conditions of this Agreement.
NOW, THEREFORE, in consideration of the mutual promises hereinafter set
forth and other good and valuable consideration, the receipt of which is hereby
acknowledged, the parties hereby agree as follows:
1. Sale and Delivery of the Assets
1.1 Delivery of the Assets.
(a) Subject to and upon the terms and conditions of this
Agreement, at the closing of the transactions contemplated by this Agreement
(the "Closing"), the Sellers shall sell, transfer, convey, assign and deliver to
the Buyer, and the Buyer shall purchase from the Sellers, the following
properties, assets and other claims, rights and interests:
(i) except as set forth on Schedule 1.1, all
inventories, videotapes, finished goods, office supplies, maintenance supplies,
packaging materials and similar items of the Sellers used by Sellers in
connection with the Business (collectively, the "Inventory") which exist on the
Closing Date (as defined below);
(ii) all accounts, accounts receivable, notes and notes
receivable existing on the Closing Date which are payable to the Sellers and are
related to the Business, including
<PAGE> 7
any security held by the Sellers for the payment thereof (the "Accounts
Receivable");
(iii) all prepaid expenses, security deposits, other
deposits and other similar assets of the Sellers existing on the Closing Date;
(iv) all rights of the Sellers under the contracts,
agreements, leases, licenses and other instruments set forth on Schedule 2.16
(the "Contracts") attached hereto, but not including such rights under
contracts, agreements, leases, licenses and other instruments set forth on
Schedule 1.1 (collectively, the "Contract Rights");
(v) copies of all books, records and accounts,
correspondence, manuals, customer lists, employment records, studies, reports or
summaries relating to or arising out of the Business;
(vi) all rights of the Sellers under express or implied
warranties from the suppliers of the Business;
(vii) all of the machinery, equipment, furniture,
leasehold improvements and construction in progress owned by the Sellers on the
Closing Date and related to the Business whether or not reflected as capital
assets in the accounting records of the Sellers (collectively, the "Fixed
Assets");
(viii) all of the Sellers' right, title and interest in and
to all intangible property rights, including but not limited to inventions,
discoveries, trade secrets, processes, formulas, know-how, United States and
foreign patents, patent applications, trade names, including the trade names (if
any) identified on Schedule I attached hereto or any derivation thereof,
trademarks, trademark registrations, applications for trademark registrations,
copyrights, copyright registrations, owned or, where not owned, used by the
Sellers in the Business and all licenses and other agreements to which the
Sellers are a party (as licensor or licensee) or by which the Sellers are bound
relating to any of the foregoing kinds of property or rights to any "know-how"
or disclosure or use of ideas (collectively, the "Intangible Property");
(ix) except as specifically provided in Subsection 1.1(b)
hereof, all other assets, properties, claims, rights and interests of the
Sellers which exist on the Closing Date and used by the Business, of every kind
and nature and
-2-
<PAGE> 8
description, whether tangible or intangible, real, personal or mixed.
(b) Notwithstanding the provisions of paragraph (a) above, the
assets to be transferred to the Buyer under this Agreement shall not include
(i) cash in Sellers' bank accounts (except that Sellers shall be required to
leave cash on hand at all store locations as provided in Section 7.10), and
(ii) those assets listed on Schedule 1.1 attached hereto (collectively, the
"Excluded Assets"). In the event a lessor of real property for a store of a
Seller, whose consent is required pursuant to the terms of the lease related to
such property, does not consent to the transfer or assignment of the lease for
such real property to the Buyer and the Buyer elects not to assume the
liabilities thereunder at the Closing, the assets included in and related to
such store shall become Excluded Assets and included on Schedule 1.1 prior to
the Closing and the Purchase Price (as defined below) will be adjusted based on
a recalculation of Net Operating Cash Flow (as defined below). Any such store
not being transferred to the Buyer shall be herein referred to as an "Excluded
Store". During the thirteen-month period beginning on the Closing, the closing
of the acquisition of any Excluded Store hereunder shall occur promptly after
the lessor consent referred to above is obtained or no longer required or upon
the election of the Buyer. The amount by which the Purchase Price was reduced
at the Closing with respect to such Excluded Store shall be paid by Buyer to
Seller at such subsequent closing. The Buyer shall operate the Excluded Store
during such thirteen-month period on behalf of the Seller but for the account
of the Buyer.
(c) The Inventory, Accounts Receivable, Contract Rights, Fixed
Assets, Intangible Property and other properties, assets and business of the
Sellers related to the Business and described in paragraph (a) above shall be
referred to collectively as the "Assets". The Assets relate to one or more
retail video stores which are owned and operated by the Sellers, all of which
stores are identified by location on Schedule I attached hereto, each of which
is sometimes hereinafter referred to as a "Store" and all of which are
sometimes hereinafter referred to collectively as the "Stores". The owner of
the lease for each Store is also set forth on Schedule I.
1.2 Further Assurances. At any time and from time to time after the
Closing, at the Buyer's request and without further consideration, the Sellers
and the Principals promptly shall execute and deliver such instruments of sale,
transfer, conveyance, assignment and confirmation, and take such other action,
as the Buyer may reasonably request to more effectively transfer, convey and
assign to the Buyer, and to confirm the
-3-
<PAGE> 9
Buyer's title to, all of the Assets, to put the Buyer in actual possession and
operating control thereof, to assist the Buyer in exercising all rights with
respect thereto and to carry out the purpose and intent of this Agreement.
1.3 Purchase Price.
(a) The "Purchase Price" for the assets shall be set forth on
Schedule I attached hereto. The parties acknowledge and agree that the Purchase
Price was determined as a multiple of the Sellers' minimum Net Operating Cash
Flow (as defined below). The Purchase Price shall be subject to adjustment (i)
in the event a store becomes an Excluded Store, (ii) for the portion of lease
payments and certain other prepaid expenses as set forth on Schedule 1.3 made by
Sellers covering periods after the Closing and relating to stores acquired
hereunder and (iii) as provided in Subsection 1.4 below. In the event a store
becomes an Excluded Store the Purchase Price shall be reduced based on a
recalculation of Net Operating Cash Flow that does not include the Excluded
Store.
(b) At the Closing (or such later date or dates as specified on
Schedule I), the Buyer shall deliver to the Sellers (i) a percentage (the "Cash
Percentage") specified on Schedule I of the Purchase Price (plus an additional
amounts as set forth on Schedule I) in cash, by cashiers or certified check or
by wire transfer of immediately available funds to an account designated by the
Sellers, and (ii) 198,735 shares of Common Stock, $.01 par value per share, of
the Buyer ("Common Stock"). The shares of Common Stock issuable hereunder shall
be registered under the Securities Act of 1933, as amended, pursuant to a
Registration Statement on Form S-1 filed with the Securities and Exchange
Commission. At the Closing (or such later date or dates as specified on Schedule
I), 86.36% of the shares issuable hereunder shall be issued to the Sellers and
the balance of the shares (13.64% of such shares) shall be issued in the name of
the Sellers and held by the Buyer as escrow agent (the "Escrow Agent") in an
escrow account in accordance with the Escrow Agreement attached hereto as
Exhibit A. The Purchase Price shall be allocated among the Sellers as specified
on Schedule I hereto. If for any reason Buyer is unable to deliver registered
shares of its Common Stock on the Closing Date, as contemplated by clause (ii)
above, the Buyer may pay the portion of the Purchase Price described in clause
(ii) by delivery of cash, by cashiers or certified check or by wire transfer of
immediately available
-4-
<PAGE> 10
funds, and cash (instead of shares of Buyer Common Stock) shall be held by the
Escrow Agent.
(c) For purposes hereof "Net Operating Cash Flow" shall have the
meaning specified in Schedule I.
1.4 Assumption of Liabilities; Etc.
(a) At the Closing, the Buyer shall execute and deliver an
Instrument of Assumption of Liabilities (the "Instrument of Assumption")
substantially in the form attached hereto as Exhibit B, pursuant to which it
shall assume and agree to perform, pay and discharge the liabilities,
obligations and commitments of the Sellers set forth on Schedule I (the "Assumed
Liabilities").
(b) The Buyer shall not at the Closing assume or agree to perform,
pay or discharge, and the Sellers shall remain unconditionally liable for, all
obligations, liabilities and commitments, fixed or contingent, of the Sellers
other than the Assumed Liabilities.
(c) Unless otherwise specified on Schedule I, the aggregate amount
of the Assumed Liabilities shall reduce the Purchase Price payable at Closing on
a dollar-for-dollar basis.
1.5 Allocation of Purchase Price and Assumed Liabilities. The aggregate
amount of the Purchase Price and the Assumed Liabilities shall be allocated
among the Assets as set forth on Schedule 1.5 attached hereto.
1.6 The Closing. The closing of the transactions contemplated by this
Agreement (the "Closing") shall take place at the offices of Hale and Dorr, 60
State Street, Boston, Massachusetts 02109, on the date set forth on Schedule I
or on such other date mutually agreeable to the Buyer and the Principals (the
"Closing Date"). The transfer of the Assets by the Sellers to the Buyer shall be
deemed to occur at 9:00 a.m., Boston time, on the date of the Closing (the
"Closing Date").
1.7 Restrictions on Transfer. Each of the Sellers and the Principals
hereby confirm, covenant and agree that, without the prior written consent of
the Buyer, it, she or he will not, directly or indirectly, sell, offer to sell,
contract to sell, pledge, grant any option for the sale of, or otherwise dispose
of ("Transfer"), any shares of Common Stock issued or issuable to Sellers or the
Principals hereunder prior to the date which is 12 months after the Closing
Date.
-5-
<PAGE> 11
2. Representations of the Sellers and the Principals
The Sellers and the Principals, jointly and severally, represent and
warrant to the Buyer as follows:
2.1 Organization. Each Seller is a corporation, partnership, limited
liability company ("LLC") or other entity, as specified on Schedule I, duly
organized, validly existing and in good standing under the laws of the state of
its organization, and has all requisite power and authority (corporate,
partnership, LLC (as applicable) and other) to own its properties, to carry on
its business as now being conducted, to execute and deliver this Agreement and
the agreements contemplated herein, and to consummate the transactions
contemplated hereby. Each Seller is duly qualified to do business and in good
standing in all jurisdictions in which their ownership of property or the
character of their business requires such qualification, and all such
jurisdictions are specified on Schedule I. Certified copies of the charter,
bylaws and other governing instruments of each of the Sellers, each as amended
to date, have been previously delivered to the Buyer, are complete and correct,
and no amendments have been made thereto or have been authorized since the date
thereof.
2.2 Capitalization of the Sellers. Each Seller's state of organization
and authorized and issued capital stock (or other capitalization) is as
specified on Schedule I. The Principals own (beneficially and of record) all
issued and outstanding shares of stock, partnership interests or LLC interests,
as applicable, of each Seller, all as more fully specified on Schedule I. All of
such shares, partnership interests or LLC interests (as applicable) have been
duly and validly issued and are fully paid and nonassessable.
2.3 Authorization. The execution and delivery of this Agreement by
each Seller, and the agreements provided for herein, and the consummation by
each Seller of all transactions contemplated hereby, have been duly authorized
by all requisite corporate and shareholder action, partner action, or member
and/or manager action (as applicable). This Agreement and all such other
agreements and obligations entered into and undertaken in connection with the
transactions contemplated hereby to which any Seller is a party constitute the
valid and legally binding obligations of such Seller, enforceable against such
Seller in accordance with their respective terms. The execution, delivery and
performance by each Seller of this Agreement and the agreements provided for
herein, and the consummation by each Seller of the transactions contemplated
hereby and thereby, will not, with or without the giving of notice or the
passage of time
-6-
<PAGE> 12
or both; (a) violate the provisions of any law, rule or regulation applicable
to such Seller; (b) violate the provisions of the charter or Bylaws,
partnership agreement or LLC agreement, as applicable, of such Seller; (c)
violate any judgment, decree, order or award of any court, governmental body or
arbitrator; or (d) conflict with or result in the breach or termination of any
term or provision of, or constitute a default under, or cause any acceleration
under, or cause the creation of any lien, charge or encumbrance upon the
properties or assets of such Seller pursuant to, any indenture, mortgage, deed
of trust or other instrument or agreement to which such Seller is a party or by
which such Seller or any of its properties is or may be bound. Schedule 2.3
attached hereto sets forth a true, correct and complete list of all consents
and approvals of third parties that are required in connection with the
consummation by each Seller of the transactions contemplated by this Agreement.
2.4 Ownership of the Assets. Schedule 2.4(i) attached hereto sets forth a
true, correct and complete list of all claims, liabilities, liens, pledges,
charges, encumbrances and equities of any kind affecting the Assets except for
minor imperfections of title and encumbrances, if any, which either individually
or in aggregate, are not material in amount, do not materially detract from the
value of the Assets and do not impair the use of the Assets or the Business
(collectively, the "Encumbrances"). The Sellers are, and at the Closing will be,
the true and lawful owners of the Assets, and will have the right to sell and
transfer to the Buyer good, clear, record and marketable title to the Assets,
free and clear of all Encumbrances, except as set forth on Schedule 2.4(ii)
attached hereto (the "Permitted Encumbrances"). The delivery to the Buyer of the
instruments of transfer of ownership contemplated by this Agreement will vest
good and marketable title to the Assets in the Buyer, free and clear of all
liens, mortgages, pledges, security interests, restrictions, prior assignments,
encumbrances and claims of any kind or nature whatsoever, except for the
Permitted Encumbrances.
2.5 Financial Statements.
(a) The Sellers have previously delivered to the Buyer their combined
audited balance sheets as of December 31, 1994 and 1995 (the "Audited Balance
Sheets") and the related statements of income, shareholders' equity, retained
earnings and statements of cash flow of the Sellers for the fiscal years ended
December 31, 1993, 1994 and 1995 (collectively, including the Audited Balance
Sheet, the "Audited Financial Statements").
The Sellers shave also delivered their combined unaudited balance sheets as
of December 31, 1991 and 1992 (the "Unaudited
-7-
<PAGE> 13
Balance Sheets") and the related statements of income, shareholders' equity,
retained earnings and statements of cash flow of the Sellers for the fiscal
years then ended (collectively, including the Unaudited Balance Sheets, the
"Unaudited Financial Statements").
The Sellers have delivered to the Buyer their internal statements for each
whole monthly period commencing after June 30, 1996 and ending prior to the date
hereof (the "Internal Statements"), which were prepared by Sellers in accordance
with their internal accounting policies, consistently applied.
The Sellers shall deliver to the Buyer, prior to the Closing, their
combined unaudited balance sheets as of September 30, 1996, and the combined
statement of operations and retained earnings and statements of cash flows for
the nine months ended September 30, 1996, prepared in accordance with generally
accepted accounting principles ("GAAP") applied consistently with Sellers' past
practices, which shall be compiled by Sellers' independent outside accounting
firm and accompanied by an unqualified report from such accounting firm (the
"Interim Statements").
The Audited Financial Statements have been, and the Interim Statements will
be, prepared in accordance with generally accepted accounting principles applied
consistently with past practice, and the Audited Financial Statements are
certified without qualification by the Sellers' respective independent public
accountants. The Unaudited Financial Statements, the Internal Statements and the
Interim Statements (and the subsequent financial statements to be delivered by
Sellers pursuant to Section 5.4) have been or will be certified by each Sellers'
comptroller or other officer to have been prepared in accordance with Seller's
internal accounting policies, consistent with past practice. The Audited
Financial Statements and the Unaudited Financial Statements are hereinafter
referred to collectively as the "Financial Statements."
(b) Each Seller's Financial Statements and the Internal Statements
fairly present, and the Interim Statements will fairly present, as of their
respective dates, the financial condition, retained earnings, assets and
liabilities of the Business and the results of operations of the Business for
the periods indicated; with respect to the contracts and commitments for the
sale of goods or the provision of services by any Seller, the Financial
Statements and the Internal Statements contain and reflect and the Interim
Statements will contain and reflect adequate reserves, which are consistent with
previous reserves taken, for all reasonably anticipated material losses and
costs and expenses (except the Internal Statements do not contain
-8-
<PAGE> 14
accruals for current and deferred income taxes, tape amortization or
depreciation); Sellers reasonably believe that the amounts shown as accrued for
current and deferred income and other taxes in the Financial Statements, the
Internal Statements and the Interim Statements are (or will be) sufficient for
the payment of all unpaid federal, state and local income taxes, interest,
penalties, assessments or deficiencies applicable to such Seller, whether
disputed or not, for the applicable period then ended and periods prior thereto.
(c) The Net Operating Cash Flow for the Seller is not less than the
amount set forth in Schedule I attached hereto.
2.6 Absence of Undisclosed Liabilities. Except as and to the extent (a)
reflected and reserved against in its most recent Audited Balance Sheet, (b) set
forth on Schedule 2.6 attached hereto or (c) incurred in the ordinary course of
business after the date of its most recent Audited Balance Sheet and not
material in amount, either individually or in the aggregate, no Seller
(individually) has, nor do the Sellers (in the aggregate) have, any liability or
obligation, secured or unsecured, whether accrued, absolute, contingent,
unasserted or otherwise, affecting the Assets. For purposes of this Subsection
2.6 only, "material" means any amount in excess of $10,000.
2.7 Litigation. Except as set forth on Schedule 2.7 attached hereto, no
Seller is a party to, or to the Sellers' best knowledge threatened with, and
none of the Assets are subject to, any litigation, suit, action, investigation,
proceeding or controversy before any court, administrative agency or other
governmental authority relating to or affecting the Assets or the business or
condition (financial or otherwise) of any Seller. No Seller is in violation of
or in default with respect to any judgment, order, writ, injunction, decree or
rule of any court, administrative agency or governmental authority or any
regulation of any administrative agency or governmental authority.
2.8 Insurance. Schedule 2.8 attached hereto sets forth a true, correct and
complete list of all fire, theft, casualty, general liability, workers
compensation, business interruption, environmental impairment, product
liability, automobile and other insurance policies insuring the Assets or the
Business, specifying the type of coverage, the amount of coverage, the premium,
the insurer and the expiration date of each such policy (collectively, the
"Insurance Policies") and all claims made under such Insurance Policies since
January 1, 1992. True, correct and complete copies of all the Insurance Policies
have been previously delivered by the Sellers to the Buyer. The Insurance
Policies are in full force and effect and are in amounts and of a nature which
are
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adequate and customary for the Sellers' business. All premiums due on the
Insurance Policies or renewals thereof have been paid and there is no default
under any of the Insurance Policies.
2.9 Inventory. Schedule 2.9 attached hereto sets forth the number of
units, on a store-by-store basis, of the inventory of new release rental
videotapes, catalog rental videotapes, new release rental electronic video games
(by 8-bit, 16-bit and new technology) and catalog rental electronic video games
(by 8-bit, 16-bit and "new technology") and other products held for rent by the
Sellers, all as of a date not more than two days prior to the date hereof.
Schedule 2.9 also sets forth the number of units, on a store-by-store basis, of
the inventory of new release videotapes, catalog videotapes, new release
electronic video games (by 8-bit, 16-bit and "new technology"), and catalog
electronic video games (by 8-bit, 16-bit and new technology) held for sale,
all as of a date not more than two days prior to the date hereof. Schedule 2.9,
as updated pursuant to Subsection 7.9 hereof, shall set forth the number of
units, on a store-by-store basis, of such inventories as of a date not more than
two days prior to the Closing Date. Such inventories consist of items of a
quality which are usable or saleable without discount or in the ordinary course
of the business conducted by the Sellers.
2.10 Fixed Assets. Schedule 2.10 attached hereto sets forth a true,
correct and complete list of all Fixed Assets as of the date hereof, including
a description and the book value thereof. Schedule 2.10, as updated pursuant to
Subsection 7.9 hereof, shall set forth a true, correct and complete list of all
Fixed Assets as of the Closing Date, including a description and valuation
thereof. All of the Fixed Assets are in good operating condition and repair,
normal wear and tear excepted, are currently used by the Business in the
ordinary course of business and normal maintenance has been consistently
performed with respect to such Fixed Assets.
2.11 Leases. Schedule 2.11 attached hereto sets forth a true, correct and
complete list as of the date hereof of all leases of real property for each
Store, identifying separately each lease, to which each Seller is a party (the
"Leases"). True, correct and complete copies of the Leases, and all amendments,
modifications and supplemental agreements thereto, have previously been
delivered by the Sellers to the Buyer. The Leases are in full force and effect,
are binding and enforceable against each of the parties thereto in accordance
with their respective terms and, except as set forth on Schedule 2.11, have not
been modified or amended since the date of delivery to the Buyer. No party to
any Lease has sent written notice to the other claiming that such party is in
default thereunder, which remains uncured. Except as
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set forth on Schedule 2.11 attached hereto, there has not occurred any event
which would constitute a breach of or default in the performance of any material
covenant, agreement or condition contained in any Lease, nor has there occurred
any event which with the passage of time or the giving of notice or both would
constitute such a breach or material default. No Seller is obligated to pay any
leasing or brokerage commission relating to any Lease and, except as set forth
on Schedule 2.11 attached hereto, no Seller will have any obligation to pay any
leasing or brokerage commission upon the renewal of any Lease. No material
construction, alteration or other leasehold improvement work with respect to any
of the Leases remains to be paid for or to be performed by any Seller. The
Financial Statements and the Internal Statements contain (and the Interim
Statements will contain) adequate reserves to provide for the restoration of the
properties subject to the Leases at the end of the respective Lease terms, to
the extent required by the Leases, except to the extent set forth in the Tenafly
lease, which amount shall not exceed $5,000.
2.12 Change in Financial Condition and Assets. Except as set forth on
Schedule 2.12 attached hereto, since December 31, 1995, there has been no change
which materially and adversely affects the business, properties, assets, store
operating cash flow, condition (financial or otherwise) or prospects of the
Business, other than general economic conditions, and economic and other
conditions in and affecting the retail video rental industry generally. No
Seller has any knowledge of any existing or threatened occurrence, event or
development which, as far as can be reasonably foreseen, could have a material
and adverse effect on the Business, including its, properties, assets, store
prospects, other than general economic conditions, and economic and other
conditions in and affecting the retail video rental industry generally.
2.13 Tax Matters.
(a) Except as set forth on Schedule 2.13 to this Agreement, the
Sellers and the Principals represent and warrant, as to each Seller:
(i) Within the times and in the manner prescribed by law, such
Seller has filed all Returns which are required to be filed;
(ii) With respect to all amounts in respect of Taxes imposed
upon such Seller for which it could be liable, whether to Taxing Authorities
(as, for example, under law) or to other persons or entities (as, for example,
under Tax allocation agreements), with respect to all taxable periods or
portions of taxable periods ending on or before the Closing Date, Sellers
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reasonably believe that all applicable tax laws and agreements have been fully
complied with in all material respects, and all such amounts required to be
paid by such Seller to Taxing Authorities or others on or before the date
hereof have been paid.
(iii) All Returns filed by such Seller constitute materially
complete and accurate representations of the respective Tax liabilities of, or
attributable to, such Seller for such years;
(iv) No examination of the Returns of such Seller is currently
in progress nor, to the best knowledge of the Seller, threatened and no
unresolved deficiencies have been asserted or assessed against such Seller as a
result of any audit by any Taxing Authority and no such deficiency has been
proposed or threatened;
(v) There are no liens for Taxes (other than for current Taxes
not yet due and payable) upon the assets of such Seller;
(vi) Such Seller is not a person other than a United States
person within the meaning of the Internal Revenue Code of 1986, as amended (the
"Code").
(b) For purposes of this Section 2.13 "Return" means any return,
declaration, report, statement or other document required to be filed in respect
of any Tax. "Tax" or "Taxes" means any federal, state, local, foreign and other
net income, gross income, gross receipts, sales, use, ad valorem, transfer,
franchise, profits, license, lease, service, service use, withholding, payroll,
employment, excise, severance, stamp, occupation, premium, property, windfall
profits, customs duty or other tax, fee, assessment or charge of any kind
whatsoever, together with interest and any penalty, addition to tax or
additional amount with respect thereto. "Taxing Authority" means any
governmental authority responsible for the imposition of Taxes.
2.14 Accounts Receivable. Schedule 2.14 attached hereto sets forth a true,
correct and complete list of the Sellers' collection accounts, including an
aging thereof as of November 1, 1996. Schedule 2.14, as updated pursuant to
Subsection 7.9 hereof, shall set forth a true, correct and complete list of the
Sellers collection accounts as of the Closing Date, including an aging thereof.
Except for such collection accounts, the Sellers have no Accounts Receivables.
The collection accounts arose out of the sales or rentals of inventory or
services in the ordinary course of business.
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2.15 Books and Records. The general ledgers and books of account of each
Seller, all federal, state and local income, franchise, property and other tax
returns filed by each Seller, with respect to the Assets, and all other books
and records of each Seller are in all material respects complete and correct and
have been maintained in accordance with good business practice and in accordance
with all applicable procedures required by laws and regulations.
2.16 Contracts and Commitments.
(a) Schedule 2.16 attached hereto contains a true, complete and
correct list and description of the following contracts and agreements, whether
written or oral, relating to the Business (collectively, the "Contracts"):
(i) all loan agreements, indentures, mortgages and guarantees
to which any Seller is a party or by which any Seller or any of its property is
bound;
(ii) all pledges, conditional sale or title retention
agreements, security agreements, equipment obligations, personal property leases
and lease purchase agreements relating to any of the Assets to which any Seller
is a party or by which any Seller or any of its property is bound;
(iii) all contracts, agreements, commitments, purchase orders or
other understandings or arrangements to which any Seller is a party or by which
any Seller or any of its property is bound which (A) involve payments or
receipts by any Seller of more than $2,000 in the case of any single contract,
agreement, commitment, understanding or arrangement under which full performance
(including payment) has not been rendered by all parties thereto or (B) which
may materially adversely affect the condition (financial or otherwise) or the
properties, assets, business or prospects of any Seller;
(iv) all collective bargaining agreements, employment and
consulting agreements, executive compensation plans, bonus plans, deferred
compensation agreements, pension plans, vacation plans, retirement plans,
employee stock option or stock purchase plans and group life, health and
accident insurance and other employee benefit plans, agreements, arrangements or
commitments to which any Seller is a party or by which any Seller or any of its
property is bound;
(v) all agency, distributor, sales representative and similar
agreements to which any Seller is a party;
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(vi) all contracts, agreements or other understandings or
arrangements between any Seller and any stockholder, member or Affiliate of such
Seller;
(vii) all leases, whether operating, capital or otherwise, under
which any Seller is lessor or lessee; and
(viii) any other material agreement or contract entered into by
any Seller.
(b) Except as set forth on Schedule 2.16 attached hereto:
(i) each Contract is a valid and binding agreement of the
applicable Seller, enforceable against such Seller in accordance with its terms,
and such Seller does not have any knowledge that any Contract is not a valid and
binding agreement of the other parties thereto;
(ii) each Seller has fulfilled all material obligations required
pursuant to the Contracts to have been performed by such Seller on its part
prior to the date hereof, and each Seller has no reason to believe that it will
not be able to fulfill, when due, all of its obligations under the Contracts
which remain to be performed after the date hereof;
(iii) no Seller is in material breach of or default under any
Contract, and no event has occurred which with the passage of time or giving of
notice or both would constitute such a default, result in a loss of material
rights or result in the creation of any material lien, charge or encumbrance,
thereunder or pursuant thereto;
(iv) to the best knowledge of the Sellers and the Principals,
there is no existing breach or default by any other party to any Contract, and
no event has occurred which with the passage of time or giving of notice or both
would constitute a default by such other party, result in a loss of material
rights or result in the creation of any material lien, charge or encumbrance
thereunder or pursuant thereto;
(v) no Seller is restricted by any Contract from carrying on
its business anywhere in the world; and
(vi) no Seller has any written or oral Contracts to sell
products or perform services which are expected to be performed at, or to result
in, a material loss.
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(c) Except as set forth on Schedule 2.3 or Schedule 2.16, the
continuation, validity and effectiveness of each Contract will not be affected
by the transfer thereof to Buyer under this Agreement and all such Contracts are
assignable to Buyer without a consent.
(d) True, correct and complete copies of all Contracts have
previously been delivered by the Sellers to the Buyer.
2.17 Compliance with Agreements and Laws. Each Seller has all requisite
licenses, permits and certificates, including environmental, health and safety
permits, from federal, state and local authorities necessary to conduct the
Business and own and operate the Assets, other than those the failure of which
to obtain could not have a material adverse effect on any Seller or its
properties (collectively, the "Permits"). Schedule 2.17 attached hereto sets
forth a true, correct and complete list of all such Permits held by Sellers,
copies of which have previously been delivered by the Sellers to the Buyer. No
Seller is in violation of any law, regulation or ordinance (including, without
limitation, laws, regulations or ordinances relating to building, zoning,
environmental, disposal of hazardous substances, land use or similar matters)
relating to its properties, the violation of which could have a material adverse
effect on any Seller or its properties. Except as set forth on Schedule 2.7, the
business of each Seller does not violate, in any material respect, any federal,
state, local or foreign laws, regulations or orders (including, but not limited
to, any of the foregoing relating to employment, discrimination, occupational
safety, environmental protection, hazardous waste (as defined in the Resource
Conservation and Recovery Act, as amended, and the regulations adopted thereto),
conservation, or corrupt practices, the enforcement of which would have a
material and adverse effect on the results of operations, condition (financial
or otherwise), assets, properties, business or prospects of such Seller. Except
as set forth on Schedule 2.17 attached hereto, no Seller has since January 1,
1993 received any notice or communication from any federal, state or local
governmental or regulatory authority or otherwise of any such violation or
noncompliance.
2.18 Employee Relations
(a) Each Seller is in material compliance with all federal, state and
municipal laws respecting employment and employment practices, terms and
conditions of employment, and wages and hours, and no Seller is engaged in any
unfair labor practices, and there are no arrears in the payment of wages or
social security taxes.
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(b) Except as set forth on Schedule 2.18 attached hereto:
(i) none of the employees of any Seller is represented by any
labor union;
(ii) there is no unfair labor practice complaint against any
Seller pending before the National Labor Relations Board or any state or local
agency;
(iii) there is no pending labor strike or other material labor
trouble affecting any Seller (including, without limitation, any organizational
drive);
(iv) there is no labor grievance pending against any Seller;
(v) there is no pending representation question respecting the
employees of any Seller; and
(vi) there are no pending arbitration proceedings arising out of
or under any collective bargaining agreement to which any Seller is a party, or
to the best knowledge of the Sellers, any basis for which a claim may be made
under any collective bargaining agreement to which any Seller is a party.
(c) Schedule 2.18 attached hereto sets forth a true, correct and
complete list of (a) the employee benefits provided by each Seller to its
employees and all contracts or agreements between each Seller and its employees,
and (b) each Sellers' current payroll, including the job descriptions and salary
or wage rates of each of its employees, showing separately for each such person
who received an annual salary in excess of $20,000 the amounts paid or payable
as salary and bonus payments for the years ending December 31, 1995 and December
31, 1994.
(d) For purposes of this Subsection 2.18, the term "employee" shall
be construed to include sales agents and other independent contractors who spend
a majority of their working time on a Seller's business.
2.19 Absence of Certain Changes or Events. Except as set forth on Schedule
2.19 attached hereto, since December 31, 1995, the Sellers have not entered into
any transaction related to the Business which is not in the usual and ordinary
course of business, and, without limiting the generality of the foregoing, the
Sellers have not:
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(a) Incurred any material obligation or liability for borrowed
money related to the Business;
(b) Discharged or satisfied any lien or encumbrance or paid any
obligation or liability related to the Business other than current liabilities
reflected in the Internal Statements;
(c) Mortgaged, pledged or subjected to lien, charge or other
encumbrance any of the Assets;
(d) Sold or purchased, assigned or transferred any of its
tangible assets related to the Business or cancelled any debts or claims related
to the Business, except for inventory sold and raw materials purchased in the
ordinary course of business;
(e) Made any material amendment to or termination of any
Contract or done any act or omitted to do any act which would cause the breach
of any Contract;
(f) Suffered any losses, whether insured or uninsured, and
whether or not in the control of any Seller, in excess of $5,000 in the
aggregate, or waived any rights of any value;
(g) Made any changes in compensation of its officers, directors
or employees except in the ordinary course of their business and consistent with
past practice;
(h) Except as set forth on Schedule 2.7, received notice of any
litigation, warranty claim or products liability claims; or
(i) Made any material change in the terms, status or funding
condition of any Employee Plan, as defined in Subsection 2.23 hereof.
2.20 Suppliers. Schedule 2.20 attached hereto sets forth a true,
correct and complete list of the names and addresses of the six suppliers of the
Sellers which accounted for the largest dollar volume of purchases by the
Sellers for the fiscal years ending December 31, 1994 and December 31, 1995.
None of such suppliers has notified any Seller that it intends to discontinue
its relationship with the Sellers.
2.21 Prepayments and Deposits. The Sellers have not received
prepayments or deposits from customers for products to be shipped, or services
to be performed, at a later date.
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2.22 Trade Names and Other Intangible Property.
(a) Schedule 2.22 attached hereto sets forth a true, correct and
complete list and, where appropriate, a description of, all Intangible Property.
True, correct and complete copies of all licenses and other agreements relating
to the Intangible Property have been previously delivered by the Sellers to the
Buyer.
(b) Except as otherwise disclosed in Schedule 2.22 attached hereto,
the Sellers are the sole and exclusive owners of all Intangible Property and all
designs, permits, labels and packages used on or in connection therewith. The
Intangible Property owned by the Sellers is sufficient to conduct the Business
as currently conducted and, when transferred to the Buyer pursuant to this
Agreement, will be sufficient to permit the Buyer to conduct the Business as
currently conducted by the Sellers. The Sellers have received no notice of, and
have no knowledge of any basis for, a claim against any of them that any of
their operations, activities, products or publications infringes on any patent,
trademark, trade name, copyright or other property right of a third party, or
that any of them is illegally or otherwise using the trade secrets, formulae or
any property rights of others. No Seller has any disputes with or claims against
any third party for infringement by such third party of any trade name or other
Intangible Property of any Seller. Each Seller has taken all steps reasonably
necessary to protect its right, title and interest in and to the Intangible
Property.
2.23 Employee Benefit Plans.
(a) Except as listed on Schedule 2.23, none of the Sellers now has
or contributes to or participates in, and none of the Sellers has in the past
had or otherwise contributed to, any employee benefit plan subject to the
Employee Retirement Income Security Act of 1974.
(b) The Buyer assumes no liabilities with respect to any employee
benefit plan which liability relates to any period prior to or after the Closing
Date, including, without limitation, any taxes, accrued vacation or sick pay
(whether or not vested), accrued vacation, sick and personal leaves, employee
policies, employee benefit claims or liability to the Pension Benefit Guaranty
Corporation.
(c) Employee Plans. Schedule 2.23 attached hereto contains a true,
correct and complete list of all pension, benefit, profit sharing, retirement,
deferred compensation, welfare, insurance, disability, bonus, vacation pay,
severance pay
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and other similar plans, programs and agreements, whether reduced to writing or
not, relating to any Seller's employees, or maintained at any time since
January 1, 1991 by any Seller or by any other member of any controlled group of
corporations, groups of trades or businesses under common control, or
affiliated service group (as defined for purposes of Section 414(b), (c) and
(m), respectively, of the Internal Revenue Code of 1986, as amended (the
"Code")) (the "Employee Plans") and, except as set forth on Schedule 2.23
attached hereto, no Seller has any obligations, contingent or otherwise, past
or present, under applicable law or the terms of any Employment Plan.
2.24 Regulatory Approvals. Except to the extent waived by the Buyer in
this Section 2.24, all consents, approvals, authorizations and other
requirements prescribed by any law, rule or regulations which must be obtained
or satisfied by the Sellers and which are necessary for the execution and
delivery by the Sellers of this Agreement and the documents to be executed and
delivered by the Sellers in connection herewith are set forth on Schedule 2.24
attached hereto and have been, or will be prior to the Closing Date, obtained
and satisfied. The Sellers shall pay all costs and expenses required to obtain
such consents, approvals, authorizations and other requirements.
2.25 Indebtedness to and from Officers, Directors and Shareholders. Except
as set forth on Schedule 2.25 attached hereto, no Seller is indebted, directly
or indirectly, to any person who is an officer, director or shareholder of any
Seller or any affiliate of any such person in any amount whatsoever other than
for salaries for services rendered or reimbursable business expenses, all of
which have been reflected on the Internal Statements, and no such officer,
director, shareholder or affiliate is indebted to any Seller, except for
advances made to employees of the Sellers in the ordinary course of business to
meet reimbursable business expenses anticipated to be incurred by such obligor.
2.26 Powers of Attorney and Suretyships. Except as set forth on Schedule
2.26 attached hereto, no Seller has any general or special powers of attorney
outstanding (whether as grantor or grantee thereof) and has no obligation or
liability (whether actual, accrued, accruing, contingent or otherwise) as
guarantor, surety, co-signor, endorser, co-maker, indemnitor or otherwise in
respect of the obligation of any person, corporation, partnership, joint
venture, association, organization or other entity, except as endorser or maker
of checks or letters of credit, respectively, endorsed or made in the ordinary
course of business.
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2.27 Disclosure. To the best of the Sellers' and the Principals'
knowledge, no representation or warranty by any of the Sellers or the Principals
in this Agreement or in any Exhibit hereto, or in any list, statement, document
or information set forth in or attached to any Schedule delivered or to be
delivered pursuant to this Agreement, contains or will contain any untrue
statement of a material fact or omits or will omit any material fact necessary
in order to make the statements contained therein not misleading. The Sellers
and the Principals have disclosed to the Buyer the material facts pertaining to
the transactions contemplated by this Agreement.
3. Representations of the Buyer
The Buyer represents and warrants to the Seller as follows:
3.1 Organization and Authority. The Buyer is a corporation duly
organized, validly existing and in good standing under the laws of the state of
Delaware, and has requisite power and authority (corporate and other) to own its
properties and to carry on its business as now being conducted. The Buyer has
full power to execute and deliver this Agreement and the Instrument of
Assumption of Liabilities and to consummate the transactions contemplated hereby
and thereby. Certified copies of the Certificate of Incorporation and the Bylaws
of the Buyer, as amended to date, have been previously delivered to the Seller,
are complete and correct, and no amendments have been made thereto or have been
authorized since the date thereof.
3.2 Capitalization of the Buyer. On the date hereof, the Buyer's
authorized capital stock consists of 35,000,000 shares of Common Stock, $.01 par
value ("Common Stock"), and 2,000,000 shares of Preferred Stock, $.01 par value
per share, none of which shares of Preferred Stock are issued or outstanding.
All of the outstanding shares of capital stock of the Buyer have been and on the
Closing Date will be duly and validly issued and are, or will be, fully paid and
nonassessable.
3.3 Authorization. The execution and delivery of this Agreement by the
Buyer, and the agreements provided for herein, and the consummation by the Buyer
of all transactions contemplated hereby, have been duly authorized by all
requisite corporate action. This Agreement and all such other agreements and
written obligations entered into and undertaken in connection with the
transactions contemplated hereby constitute the valid and legally binding
obligations of the Buyer, enforceable against the Buyer in accordance with their
respective terms. The execution, delivery and performance of this Agreement and
the agreements provided for herein, and the consummation by the Buyer of the
transactions
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contemplated hereby and thereby, will not, with or without the giving of notice
or the passage of time or both, (a) violate the provisions of any law, rule or
regulation applicable to the Buyer; (b) violate the provisions of the Buyer's
Certificate of Incorporation or Bylaws; (c) violate any judgment, decree, order
or award of any court, governmental body or arbitrator; or (d) conflict with or
result in the breach or termination of any term or provision of, or constitute
a default under, or cause any acceleration under, or cause the creation of any
lien, charge or encumbrance upon the properties or assets of the Buyer pursuant
to, any indenture, mortgage, deed of trust or other agreement or instrument to
which it or its properties is a party or by which the Buyer is or may be bound.
Schedule 3.3 attached hereto sets forth a true, correct and complete list of
all consents and approvals of third parties that are required in connection
with the consummation by the Buyer of the transactions contemplated by this
Agreement.
3.4 Regulatory Approvals. All consents, approvals, authorizations and
other requirements prescribed by any law, rule or regulation which must be
obtained or satisfied by the Buyer and which are necessary for the consummation
of the transactions contemplated by this Agreement have been, or will be prior
to the Closing Date, obtained and satisfied.
3.5 Issuance of Shares. The shares of Common Stock of Buyer issuable
hereunder shall be registered under the Securities Act of 1933, as amended,
pursuant to a Registration Statement filed with the Securities and Exchange
Commission.
3.6 Disclosure. No representation or warranty by the Buyer in this
Agreement or in any Exhibit hereto, or in any list, statement, document or
information set forth in or attached to any Schedule delivered or to be
delivered pursuant hereto, contains or will contain any untrue statement of a
material fact or omits or will omit any material fact necessary in order to make
the statement contained therein not misleading.
4. Access to Information; Public Announcements
4.1 Access to Management, Properties and Records.
(a) From the date of this Agreement until the Closing Date, the
Sellers shall afford the officers, attorneys, accountants and other authorized
representatives of the Buyer free and full access upon reasonable notice and
during normal business hours to all management personnel, offices, properties,
books and records of the Business, so that the Buyer may have full opportunity
to make such investigation as it shall desire to make
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of the management, business, properties and affairs of the Business, and the
Buyer shall be permitted to make abstracts from, or copies of, all such books
and records. The Sellers shall furnish to the Buyer such financial and operating
data and other information as to the Assets and the Business as the Buyer shall
reasonably request.
(b) If the Buyer, at its option and expense, prior to the Closing
Date, elects to have a report or reports prepared by an engineer or other
professional selected by the Buyer, certifying that the real property associated
with the Assets (i) complies with all applicable federal, state and local
environmental and wetlands laws, rules and regulations and that there is not
now, and never has been, manufacture, storage, or disposal of hazardous wastes
at the real estate in violation of said laws, rules and regulations, (ii)
complies with all applicable building, health and fire codes, and subdivision
control laws, rules and regulations, the Sellers shall cooperate with such
engineer or professional to the extent necessary to prepare such reports,
including, without limitation, providing such engineer or professional access to
such real property and necessary records, and arranging interviews with
employees of the Sellers.
(c) If reasonably requested by the Buyer, the Sellers shall authorize
the release to the Buyer of all files pertaining to the Sellers, the Assets or
the Business held by any federal, state, county or local authorities, agencies
or instrumentalities.
4.2 Confidentiality. All information not previously disclosed to the
public or generally known to persons engaged in the respective businesses of the
Sellers or the Buyer which shall have been furnished by the Buyer or the Sellers
to the other party in connection with the transactions contemplated hereby or as
provided pursuant to this Section 4 shall not be disclosed to any person other
than their respective employees, directors, attorneys, accountants or financial
advisors or other than as contemplated herein. In the event that the
transactions contemplated by this Agreement shall not be consummated, all such
information which shall be in writing shall be returned to the party furnishing
the same, including, to the extent reasonably practicable, all copies or
reproductions thereof which may have been prepared, and neither party shall at
any time thereafter disclose to third parties, or use, directly or indirectly,
for its own benefit, any such information, written or oral, about the business
of the other party hereto. Notwithstanding the above, (a) the Buyer may include
in any Registration Statement or periodic report filed by it with the Securities
and Exchange
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Commission or any state securities commission or any stock market and (b)
otherwise disclose if required by applicable law, to the extent reasonably
advised to do so by counsel, any information regarding the Seller, the business
of the Seller, the financial condition of the Seller and/or the terms of this
Agreement.
4.3 Public Announcements. The parties agree that prior to the Closing
Date, except as otherwise required by law, any and all public announcements or
other public communications concerning this Agreement and the purchase of the
Assets by the Buyer shall be subject to the prior approval of the Buyer.
5. Pre-Closing Covenants of the Sellers
From and after the date hereof and until the Closing Date:
5.1 Conduct of Business. Each Seller shall carry on the Business
diligently and substantially in the same manner as heretofore and shall not make
or institute any unusual or new methods of purchase, sale, shipment or delivery,
lease, management, accounting or operation, except as agreed to in writing by
the Buyer. All of the property of each Seller related to the Business shall be
used, operated, repaired and maintained in a normal business manner consistent
with past practice.
5.2 Absence of Material Changes. Without the prior written consent of
the Buyer, no Seller shall:
(a) Take any action to amend its charter, operating agreement,
certificate of formation or Bylaws;
(b) Issue any stock, bonds or other corporate securities or grant
any option or issue any warrant to purchase or subscribe to any of such
securities or issue any securities convertible into such securities;
(c) Incur any obligation or liability (absolute or contingent)
related to the Business, except current liabilities incurred and obligations
under contracts entered into in the ordinary course of business;
(d) Mortgage, pledge, or voluntarily subject to any lien, charge
or any other encumbrance any of the Assets;
(d) Sell, assign, or transfer any of the Assets, except for
inventory sold in the ordinary course of business;
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(f) Cancel any debts or claims, except in the ordinary course of
business;
(g) Merge or consolidate with or into any corporation or other
entity;
(h) Make, accrue or become liable for any bonus, profit sharing or
incentive payment, except for accruals under existing plans, if any, or increase
the rate of compensation payable or to become payable by it to any of its
officers, directors or employees, outside of the ordinary course of business or
inconsistent with past practice;
(i) Make any election or give any consent under the Code or the tax
statutes of any state or other jurisdiction or make any termination, revocation
or cancellation of any such election or any consent or compromise or settle any
claim for past or present Taxes, to the extent materially different from those
made in accordance with customary past practice;
(j) Modify, amend, alter or terminate any of its executory contracts
of a material value or which are material in amount;
(k) Take or permit any act or omission constituting a material breach
or default under any contract, indenture or agreement by which it or its
properties are bound;
(l) Fail to (i) preserve the possession and control of the Assets and
the Business, (ii) use its reasonable best efforts to keep in faithful service
its present officers and key employees, (iii) use its reasonable best efforts to
preserve the goodwill of its customers, suppliers, agents, brokers and others
having business relations with it, and (iv) use its best efforts to keep and
preserve its business existing on the date hereof until after the Closing Date;
(m) Fail to operate its business and maintain its books, accounts and
records in the customary manner and in the ordinary or regular course of
business and maintain in good repair its business premises, fixtures, furniture
and equipment;
(n) Enter into any leases, contracts, agreements or understandings
other than those entered into in the ordinary course of business calling for
payments which in the aggregate do not exceed $5,000 for each such lease,
contract, agreement or understanding;
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(o) Engage any employee for a salary in excess of $20,000 per annum;
(p) Materially alter the terms, status or funding condition of any
Employee Plan;
(q) Make any loans to any person or entity; or
(r) Commit or agree to do any of the foregoing in the future.
5.3 Taxes. Each Seller will, on a timely basis, file all tax returns for
and pay any and all taxes which shall become due or shall have accrued (a) on
account of the operation of the Business or the ownership of the Assets on or
prior to the Closing Date or (b) on account of the sale of the Assets (including
a pro-rata portion of all personal property and excise taxes payable with
respect to the Assets by such Seller).
5.4 Delivery of Subsequent Financial Statements. As promptly as possible
following the last day of each month after the date hereof, and in any event
within 30 days after the end of each such month, the Sellers shall deliver to
the Buyer their combined comparative balance sheets and related statements of
income, shareholders' equity, retained earnings and statements of cash flow for
the one-month period then ended, and for the comparable one-month period of the
prior fiscal year, all prepared in accordance with Sellers' internal accounting
policies consistent with past practice, and certified by the chief financial
officer (collectively, the "Subsequent Financial Statements"). In addition, on
each of such dates, the Sellers shall deliver to the Buyer such combined
comparative balance sheets and related statements of income, shareholders'
equity, retained earnings and statements of cash flow for such periods prepared
in accordance with Sellers internal accounting periods, consistent with past
practice.
5.5 Compliance with Laws. Each Seller will comply with all laws and
regulations which are applicable to it, its ownership of the Assets or to the
conduct of its business and will perform and comply with all contracts,
commitments and obligations by which it is bound.
5.6 Continued Truth of Representations and Warranties of the Sellers. No
Seller will intentionally take any actions which would result in any of the
representations or warranties set forth in Section 2 hereof being materially
untrue, except for representations which are qualified as to materiality, in
which
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case no Seller will take any actions which would result in any of such
representations or warranties being untrue in any respect.
5.7 Continuing Obligation to Inform. From time to time prior to the
Closing, each Seller will deliver or cause to be delivered to the Buyer
supplemental information concerning material events subsequent to the date
hereof which would render any statement, representation or warranty in this
Agreement or any information contained in any Schedule inaccurate or incomplete
in any material respect at any time after the date hereof until the Closing
Date. No such supplemental information shall modify the obligations of the
parties hereunder or constitute a waiver by the Buyer of any claims or rights it
may have for breach by any Seller or Principal of this Agreement.
5.8 Exclusive Dealing. No Seller or Principal shall, directly or
indirectly, through any officer, director, agent or otherwise, (a) solicit,
initiate or encourage submission of proposals or offers from any person relating
to any acquisition or purchase of all or a material portion of the Assets, or
any equity interest in, any Seller or any equity investment, merger,
consolidation or business combination with any Seller, or (b) participate in any
discussions or negotiations regarding, or furnish to any other person, any
non-public information with respect to, or otherwise cooperate in any way with,
or assist or participate in, facilitate or encourage, any effort or attempt by
any other person to do or seek any of the foregoing. The Sellers shall promptly
notify the Buyer if any such proposal or offer, or any inquiry or contact with
any person with respect thereto, is made.
5.9 No Publicity. No Seller or Principal shall make any public
announcement with respect to this Agreement or the transactions contemplated
hereby without the express prior written consent of the Buyer. Each Seller and
Principal shall hold in confidence, and use its best efforts to have all of its
officers, directors and personnel hold in confidence, the terms of this
Agreement and the transactions contemplated hereby.
6. Satisfaction of Conditions. The Sellers, the Principals and the Buyer
covenant and agree to use their commercially reasonable efforts to obtain the
satisfaction of the conditions specified in this Agreement.
7. Conditions to Obligations of the Buyer
The obligations of the Buyer under this Agreement are subject to the
fulfillment, at the Closing Date, of the following
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conditions precedent, each of which may be waived in writing in the sole
discretion of the Buyer:
7.1 Continued Truth of Representations and Warranties of the Sellers;
Compliance with Covenants and Obligations. The representations and warranties of
the Sellers and the Principals shall be true and correct in all material
respects on and as of the Closing Date as though such representations and
warranties were made on and as of such date, except for any changes permitted by
the terms hereof or consented to in writing by the Buyer. The Sellers and the
Principals shall have performed and complied in all material respects with all
terms, conditions, covenants, obligations, agreements and restrictions required
by this Agreement to be performed or complied with by them prior to or at the
Closing Date.
7.2 Corporate Proceedings. All corporate and other proceedings required to
be taken on the part of the Sellers to authorize or carry out this Agreement and
to convey, assign, transfer and deliver the Assets shall have been taken.
Without limiting the foregoing, promptly following delivery to the Principals of
a Prospectus relating to the sale of Buyer's Common Stock (which is included in
a Registration Statement which has been declared effective by the Securities and
Exchange Commission), the Sellers will hold a meeting of their respective
stockholders, partners, members or other owners for purposes of approving the
consummation of the transactions contemplated by this Agreement.
7.3 Governmental Approvals. All governmental agencies, departments,
bureaus, commissions and similar bodies, the consent, authorization or approval
of which is necessary under any applicable law, rule, order or regulation for
the consummation by the Sellers of the transactions contemplated by this
Agreement and the operation of the Sellers' business by the Buyer shall have
consented to, authorized, permitted or approved such transactions.
7.4 Consents of Lenders, Lessors and Other Third Parties. The Sellers
shall have received all requisite consents and approvals of all lenders, if any,
lessors and other third parties whose consent or approval is required in order
for the Sellers to consummate the transactions contemplated by this Agreement,
including, without limitation, those set forth on Schedule 2.3 attached hereto.
7.5 Adverse Proceedings. No action or proceeding by or before any court or
other governmental body shall have been instituted or threatened by any
governmental body or person whatsoever which shall seek to restrain, prohibit or
invalidate
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the transactions contemplated by this Agreement or which might affect the right
of the Buyer to own or use the Assets after the Closing.
7.6 Opinion of Counsel. The Buyer shall have received an opinion of
counsel to the Sellers, dated as of the Closing Date, in substantially the form
attached hereto as Exhibit C, and as to such other matters as may be reasonably
requested by the Buyer or its counsel.
7.7 Board of Directors and Shareholders/Partner/Member and Manager
Approval. The Board of Directors and shareholders, partners, or members and
managers, as applicable, of each Seller shall have duly authorized the
transactions contemplated by this Agreement.
7.8 The Assets. Except for the Permitted Encumbrances, at the Closing
the Buyer shall receive good, clear, record and marketable title to the Assets,
free and clear of all Encumbrances.
7.9 Update. The Sellers shall have provided the Buyer with a true,
correct and complete list and amount, as of the Closing Date, of (a) the
inventory lists to be provided pursuant to Section 2.9, as of two days prior to
Closing; (b) the Fixed Assets; and (c) the trade accounts payable and accrued
liabilities of the Seller. The Seller shall have provided the Buyer with a list
of the Accounts Receivable, as of, or within five days prior to, the Closing
Date, including an aging thereof, as reflected in the records of the Seller.
7.10 Cash on Hand at Stores. On the Closing Date, the Sellers will
have, at the Stores, cash on hand of not less than the amounts specified on
Schedule I per cash register per Store, which cash will be transferred to the
Buyer pursuant to the terms of this Agreement.
7.11 Payables. On the Closing Date, the Sellers shall have no
liabilities to employees for accrued vacation or sick pay, employee benefit
claims or liabilities to the Pension Benefit Guaranty Corporation.
7.12 Closing Deliveries. The Buyer shall have received at or prior to
the Closing each of the following documents:
(a) a bill of sale substantially in the form attached hereto as
Exhibit D;
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(b) such instruments of conveyance, assignment and transfer, in form
and substance satisfactory to the Buyer, as shall be appropriate to convey,
transfer and assign to, and to vest in, the Buyer, good, clear, record and
marketable title to the Assets;
(c) such contracts, files and other data and documents pertaining to
the Assets or the Business as the Buyer may reasonably request;
(d) copies of the general ledgers and books of account of each
Seller, and all federal, state and local income, franchise, property and other
tax returns filed by each Seller with respect to the Assets since January 1,
1991;
(e) such certificates of each Seller's officers and such other
documents evidencing satisfaction of the conditions specified in Section 7 as
the Buyer shall reasonably request;
(f) a certificate of the Secretary of State of the state of
organization of each Seller as to the legal existence and good standing of each
Seller in such jurisdiction, and a certificate of the Secretary of State of each
jurisdiction in which each Seller is qualified to transact business, as to the
good standing and foreign qualification of each Seller in each such
jurisdiction;
(g) certificates of the Secretary or other appropriate offices of
each Seller attesting to the incumbency of such Seller's officers, respectively,
the authenticity of the resolutions authorizing the transactions contemplated by
the Agreement, and the authenticity and continuing validity of the charter
documents delivered pursuant to Subsection 2.1;
(h) estoppel certificates (in the form previously approved by the
Buyer) from each lessor from whom each Seller leases real or personal property
and instruments reflecting such lessor's consent to the assumption of such lease
by the Buyer and representing that there are no outstanding claims against such
Seller under any such lease;
(i) the schedules listed in Subsection 7.9;
(j) such other documents, instruments or certificates as the Buyer
may reasonably request.
7.13 Other Conditions. The additional conditions to closing, if any, set
forth on Schedule I shall have been satisfied.
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8. Conditions to Obligations of the Sellers
The obligations of the Sellers under this Agreement are subject to the
fulfillment, at the Closing Date, of the following conditions precedent, each of
which may be waived in writing at the sole discretion of the Sellers:
8.1 Continued Truth of Representations and Warranties of the Buyer;
Compliance with Covenants and Obligations. The representations and warranties of
the Buyer in this Agreement shall be true and correct in all material respects
on and as of the Closing Date as though such representations and warranties were
made on and as of such date, except for any changes consented to in writing by
the Principals. The Buyer shall have performed and complied in all material
respects with all terms, conditions, obligations, agreements and restrictions
required by this Agreement to be performed or complied with by it prior to or at
the Closing Date.
8.2 Corporate Proceedings. All corporate and other proceedings
required to be taken on the part of the Buyer to authorize or carry out this
Agreement shall have been taken.
8.3 Governmental Approvals. All governmental agencies, departments,
bureaus, commissions and similar bodies, the consent, authorization or approval
of which is necessary under any applicable law, rule, order or regulation for
the consummation by the Buyer of the transactions contemplated by this Agreement
shall have consented to, authorized, permitted or approved such transactions.
8.4 Consents of Lenders, Lessors and Other Third Parties. The Buyer
shall have received all requisite consents and approvals of all lenders, lessors
and other third parties whose consent or approval is required in order for the
Buyer to consummate the transactions contemplated by this Agreement, including,
without limitation, those set forth on Schedule 3.3 attached hereto.
8.5 Adverse Proceedings. No action or proceeding by or before any
court or other governmental body shall have been instituted or threatened by any
governmental body or person whatsoever which shall seek to restrain, prohibit or
invalidate the transactions contemplated by this Agreement or which might affect
the right of the Sellers to transfer the Assets.
8.6 Opinion of Counsel. The Sellers shall have received an opinion of
Hale and Dorr, counsel to the Buyer, dated as of the Closing Date, in
substantially the form attached hereto
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as Exhibit E, and as to such other matters as may be reasonably requested by
the Sellers or their counsel.
8.7 Closing Deliveries. The Sellers shall have received at or prior
to the closing each of the following documents;
(a) such certificates of the Buyer's officers and such other
documents evidencing satisfaction of the conditions specified in this Section 8
as the Sellers shall reasonably request;
(b) a certificate of the Secretary of State of the State of
Delaware as to the legal existence and good standing (including tax) of the
Buyer in Delaware;
(c) a certificate of the Secretary of the Buyer attesting to the
incumbency of the Buyer's officers, the authenticity of the resolutions
authorizing the transactions contemplated by this Agreement, and the
authenticity and continuing validity of the charter documents delivered pursuant
to Subsection 3.1;
(d) an Instrument of Assumption of Liabilities executed by the
Buyer and accepted by the Sellers;
(e) payment of the Purchase Price (by delivery of cash and/or
stock certificates, as provided in Section 1.3);
(f) such other documents, instruments or certificates as the
Sellers may reasonably request.
8.8 Other Conditions. The additional conditions to closing, if any,
set forth on Schedule I shall have been satisfied.
9. Indemnification
9.1 By the buyer and the Sellers and the Principals. The Buyer on the
one hand and the Sellers and the Principals, jointly and severally, on the other
hand, each hereby agree to indemnify and hold harmless the other against all
direct claims, damages, losses, liabilities, costs and expenses (including,
without limitation, settlement costs and any legal, accounting or other expenses
for investigating or defending any actions or threatened actions) reasonably
incurred by the Buyer or the Sellers in connection with each and all of the
following:
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(a) Any breach by the indemnifying party of any representation or
warranty made by it in this Agreement;
(b) Any breach of any covenant, agreement or obligation of the
indemnifying party contained in this Agreement or any other Agreement,
instrument or document contemplated by this Agreement; and
(c) Any misrepresentation contained in any statement, certificate or
schedule furnished by the indemnifying party pursuant to this Agreement or in
connection with the transactions contemplated by this Agreement.
9.2 By the Sellers and the Principals. The Sellers and the Principals, on
a joint and several basis, further agree to indemnify and hold harmless the
Buyer from any and all direct claims, damages, losses, liabilities, costs and
expenses (including, without limitation, settlement costs and any legal,
accounting or other expenses for investigating or defending any actions or
threatened actions) reasonably incurred by the Buyer, in connection with each
and all of the following:
(a) Any claims against, or liabilities or obligations of, the Sellers
or against the Assets not specifically assumed by the Buyer pursuant this
Agreement;
(b) Any violation by any Seller of, or any failure by the Sellers to
comply with, any law, ruling, order, decree, regulation or zoning, environmental
or permit requirement applicable to any Seller, the Assets or the business of
the Sellers, whether or not any such violation or failure to comply has been
disclosed to the Buyer, including any costs incurred by the Buyer (i) in order
to bring the Assets into compliance with environmental laws as a consequence of
noncompliance with such laws on the Closing Date or (ii) in connection with the
transfer of the Assets;
(c) Any warranty claim or product liability claim relating to any
Seller's business or operation prior to the Closing Date;
(d) Any Taxes of any Seller or any Principal;
(e) Any claims against, or liabilities or obligations of, any Seller
with respect to obligations under Employee Plans, or for accrued vacation or
severance pay, or for accrued and unpaid wages or similar amounts; and
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(f) Except for the Assumed Liabilities, any claims, damages, or
liabilities arising out of the conduct of the business and operations of the
Sellers, the Business or the Stores, to the extent such claims accrue or arise
out of facts or circumstances occurring on or before to the Closing Date.
9.3 Claims for Indemnification. Whenever any claim shall arise for
indemnification hereunder the party seeking indemnification (the "Indemnified
Party"), shall promptly notify the party from whom indemnification is sought
(the "Indemnifying Party") of the claim and, when known, the facts constituting
the basis for such claim. In the event of any such claim for indemnification
hereunder resulting from or in connection with any claim or legal proceedings by
a third-party, the notice to the Indemnifying Party shall specify, if known,
the amount or an estimate of the amount of the liability arising therefrom. The
Indemnified Party shall not settle or compromise any claim by a third party for
which it is entitled to indemnification hereunder without the prior written
consent of the Indemnifying party, which shall not be unreasonably withheld,
unless suit shall have been instituted against it and the Indemnifying Party
shall not have taken control of such suit after notification thereof as
provided in Subsection 9.4 of this Agreement.
9.4 Defense by Indemnifying Party. In connection with any claim giving
rise to indemnity hereunder resulting from or arising out of any claim or legal
proceeding by a person who is not a party to his Agreement, the Indemnifying
Party at its sole cost and expense may, upon written notice to the Indemnified
Party, assume the defense of any such claim or legal proceeding if it
acknowledges to the Indemnified Party in writing its obligations to indemnify
the Indemnified Party with respect to all elements of such claim. The
Indemnified Party shall be entitled to participate in (but not control) the
defense of any such action, with its counsel and at its own expense. If the
Indemnifying Party does not assume the defense of any such claim or litigation
resulting therefrom within 30 days after the date such claim is made, (a) the
Indemnified Party may defend against such claim or litigation, in such manner as
it may deem appropriate, including, but not limited to, settling such claim or
litigation, after giving notice of the same to the Indemnifying Party, on such
terms as the Indemnified Party may deem appropriate, and (b) the Indemnifying
Party shall be entitled to participate in (but not control) the defense of such
action, with its counsel and at its own expense. If the Indemnifying Party
thereafter seeks to question the manner in which the Indemnified Party defended
such third party claim or the amount or nature of any such settlement, the
Indemnifying Party shall have the burden to prove by a preponderance of the
evidence that the Indemnified
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Party did not defend or settle such third party claim in a reasonably prudent
manner.
9.5 Payment of Indemnification Obligation. All indemnification by the
Buyer, the Sellers or the Principals hereunder shall be effected by payment of
cash or delivery of a cashier's or certified check in the amount of the
indemnification liability, or, at the option of the Sellers, by delivery to the
Buyer of shares held by the Escrow Agent (which shall be valued, for this
purpose, in the manner specified in the Escrow Agreement). Notwithstanding
anything to the contrary in this Section 9, Buyer shall not be entitled to
receive, and the Sellers and the Principals shall not be obligated to pay, the
first $10,000 in the aggregate of indemnity obligations (not including indemnity
obligations of any Seller or Principal with respect to any Tax or Taxes or
employee benefits) otherwise payable to Buyer pursuant to this Section 9 and the
Seller and the Principal shall not be entitled to receive, and the Buyer shall
not be obligated to pay, the first $10,000 in the aggregate of indemnity
obligations otherwise payable to any Seller or Principal pursuant to this
Section 9. Notwithstanding anything herein to the contrary, the maximum
aggregate liability of the Sellers and the Principals on the one hand and the
Buyer on the other hand under this Section 9 shall not exceed an amount equal to
the Purchase Price.
9.6 Survival of Representations; Claims for Indemnification. All
representations and warranties made by the parties herein or in any instrument
or document furnished in connection herewith shall survive the Closing and any
investigation at any time made by or on behalf of the parties hereto. All such
representations and warranties shall expire on the 18 month anniversary of the
Closing Date, except for claims, if any, asserted in writing prior to such 18
month anniversary, which shall survive until finally resolved and satisfied in
full. All claims and actions for indemnity pursuant to this Section 9 for breach
of any representation or warranty shall be asserted or maintained in writing by
a party hereto on or prior to the expiration of such 18-month period.
Notwithstanding the above claims resulting from the failure by any Seller or
Principal to pay any Tax when due shall expire one year after any applicable
statute of limitations, including any extensions thereof.
10. Post-Closing Agreements
The Sellers and the Principals agree that from and after the Closing Date:
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10.1 Proprietary Information.
(a) Each of the Sellers and the Principals shall hold in
confidence, and use its best efforts to have all of its officers, directors,
managers, members and personnel hold in confidence, all knowledge and
information of a secret or confidential nature with respect to the business of
the Sellers and shall not disclose, publish or make use of the same without the
consent of the Buyer, except to the extent that such information shall have
become public knowledge other than by breach of this Agreement by the Sellers or
the Principals.
(b) The Sellers agree that the remedy at law for any breach of
this Subsection 10.1 would be inadequate and that the Buyer shall be entitled to
injunctive relief in addition to any other remedy it may have upon breach of any
provision of this Subsection 10.1.
10.2 No Solicitation or Hiring of Former Employees. Except as
provided by law, for a period of five years after the Closing Date, no Seller,
Principal or any Affiliate of any of them shall solicit any person who was an
employee of any Seller on the Closing Date to terminate his employment with the
Buyer or to become an employee of any Seller or hire any person who was such an
employee on the date hereof or on the Closing Date other than persons not
offered a position with Buyer. Notwithstanding the above, any Seller, Principal
or any Affiliate of any of them may so solicit and hire (i) up to one video
store manager upon two weeks prior notice to the Buyer and (ii) any
administrative person or persons whose principal duties do not include customer
service or store level operations.
10.3 Non-Competition Agreement.
(a) Without the prior approval of the Buyer, for a period of
five years after the Closing Date, neither the Sellers, the Principals, nor any
Affiliate of any of them, shall engage directly or indirectly in the retail
videotape rental business, retail videotape rental industry, or retail videotape
rental market or the retail video game rental business, retail video game rental
industry or retail video game rental market in the United States or any other
country in which the Buyer or Sellers conducted their business during the two
years prior to the Closing Date. Notwithstanding the above, provided that one or
more Principal and/or Seller acquires the retail video store currently known as
Dollar Video and located in Belleville, New Jersey (the "DV Store") within 60
days of the Closing Date, then without violating the noncompetition provisions
included herein, the Principals and/or Sellers may own and operate the DV Store.
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(b) The parties hereto agree that the duration and geographic
scope of the non-competition provision set forth in this Subsection 10.3 are
reasonable. In the event that any court determines that the duration or the
geographic scope, or both, are unreasonable and that such provision is to that
extent unenforceable, the parties hereto agree that the provision shall remain
in full force and effect for the greatest time period and in the greatest area
that would not render it unenforceable. The parties intend that this
non-competition provision shall be deemed to be a series of separate covenants,
one for each and every county of each and every state of the United States of
America and each and every political subdivision of each and every country
outside the United States of America where this provision is intended to be
effective. The Sellers and the Principals agree that damages are an inadequate
remedy for any breach of this provision and that the Buyer shall, whether or not
it is pursuing any potential remedies at law, be entitled to equitable relief in
the form of preliminary and permanent injunctions without bond or other security
upon any actual or threatened breach of this non-competition provision.
10.4 Sharing of Data.
(a) The Sellers shall have the right for a period of three years
plus any extension of the statute of limitation relating to Taxes following the
Closing Date (and for such longer period as may be reasonably necessary to
enable the Sellers to deal with applicable governmental agencies and regulators)
to have reasonable access to such books, records and accounts, including
financial and tax information, correspondence, production records, and other
similar information as are transferred to the Buyer pursuant to the terms of
this Agreement for the limited purposes of concluding its involvement in the
Business prior to the Closing Date and for complying with its obligations under
applicable securities, tax, environmental, employment or other laws and
regulations. The Buyer shall have the right for a period of three years
following the Closing Date plus any extension of the statute of limitation
relating to Taxes (and for such longer period as may be reasonably necessary to
enable the Sellers to deal with applicable governmental agencies and regulators)
to have reasonable access to those books, records and accounts, including
financial and tax information, correspondence, employment records and other
records which are retained by the Sellers pursuant to the terms of this
Agreement to the extent that any of the foregoing relates to the Business
transferred to the Buyer hereunder or is otherwise needed by the Buyer in order
to comply with its obligations under applicable securities, tax, environmental,
employment or other laws and regulations.
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(b) The Sellers, the Principals and the Buyer agree that from
and after the Closing Date they shall cooperate fully with each other to
facilitate the transfer of the Assets from the Sellers to the Buyer and the
operation thereof by the Buyer.
10.5 Use of Name. The Sellers and the Principals agree not to use the
name "West Coast" or the service mark "Great American Video" or any variation or
derivation thereof after the Closing Date in connection with any business
related to, competitive with, or an outgrowth of, the business conducted by the
Sellers on the date hereof.
10.6 Cooperation in Litigation. Each party hereto will fully
cooperate with the others in the defense or prosecution of any litigation or
proceeding already instituted or which may be instituted hereafter against or by
such party relating to or arising out of the conduct of the business of the
Sellers prior to or after the Closing Date (other than litigation or proceedings
arising out the transactions contemplated by this Agreement). The party
requesting such cooperation shall pay the reasonable out-of-pocket expenses
(including legal fees and disbursements), as incurred, of the party providing
such cooperation and of its officers, directors, managers, members, employees
and agents reasonably incurred in connection with providing such cooperation,
but shall not be responsible to reimburse the party providing such cooperation
for such party's time spent in such cooperation or the salaries or costs of
fringe benefits or similar expenses paid by the party providing such cooperation
to its officers, directors, managers, members, employees and agents while
assisting in the defense or prosection of any such litigation or proceeding.
10.7 Option to Buy Store. Assuming one or more Principal and/or
Seller acquires the DV Store (the "DV Purchase") within 60 days of the Closing
(the date of the closing of the DV Purchase hereafter referred to as the
"Acquisition Date"), for the period beginning nine months after the Acquisition
Date until the 18-month anniversary of the Acquisition Date, the Principals and
the Sellers hereby grant to the Buyer an option ("Option") to purchase all of
the assets of the DV Store on terms and conditions substantially similar to the
terms and conditions of the purchase by the Buyer of the Stores for a purchase
price equal to the product of 3.75 multiplied by the Net Operating Cash Flow
(determined in a manner consistent with the definition of Net Operating Cash
Flow set forth on Schedule I) for the DV Store for the twelve-month period
ending on the date the Option is exercised by written notice to Seller (the
"Exercise Date") provided, however, that if the Exercise Date is prior to the
first anniversary of the Acquisition Date, the purchase price shall be equal to
the product of 3.75 multiplied by the net operating cash flow (determined in a
manner consistent with the definition of Net Operating Cash Flow set forth on
Schedule I) for the DV Store for the twelve-month period ending on the date the
Option is exercised (the "Exercise Date"); provided, however, that if the
Exercise Date is prior to the first anniversary of the Acquisition Date, the
purchase price shall be equal to the product of 3.75 multiplied by net
operating cash flow for such shorter period multiplied by 365 and divided by
the number of actual days elapsed starting on the Acquisition Date and ending
on the day prior to the Exercise Date. Buyer may exercise the option by
delivery of written notice to Sellers and the Closing shall occur no later than
60 days after such exercise. If the Buyer does not exercise the Option prior to
its expiration, the Principals and/or Sellers may sell the DV Store to any
third party subject to the prior written consent of Buyer, which consent shall
not be unreasonably withheld.
-37-
<PAGE> 43
11. Termination of Agreement
11.1 Termination by Lapse of Time. This Agreement shall terminate at
5:00 p.m., Boston time, on the day 120 days from the date hereof, if the Closing
contemplated hereby has not been consummated, unless such date is extended by
the written consent of the Buyer and the Principals.
11.2 Termination by Agreement of the Parties. This Agreement may be
terminated by the mutual written agreement of the parties hereto.
11.3 Termination by Reason of Breach. This Agreement may be
terminated by the Sellers, if at any time prior to the Closing there shall occur
a material breach of any of the representations, warranties or covenants of the
Buyer or the failure by the Buyer to perform any material condition or
obligation hereunder, and may be terminated by the Buyer, if at any time prior
to the Closing there shall occur a material breach of any of the
representations, warranties or covenants of the Sellers or the Principals or the
failure of the Sellers to perform any material condition or obligation
hereunder.
12. Transfer and Sales Tax
Notwithstanding any provisions of law imposing the burden of such
taxes on the Sellers or the Buyer, as the case may be, the Sellers shall be
responsible for and shall pay (a) all sales, use and transfer taxes, and (b) all
governmental charges, if any, upon the sale or transfer of any of the Assets
hereunder. If the Sellers shall fail to pay such amounts on a timely basis
(unless such amounts are being contested by the Sellers), the Buyer may pay such
amounts to the appropriate governmental authority or authorities, and the
Sellers shall promptly reimburse the Buyer for any amounts so paid by the Buyer.
13. Brokers
13.1 For the Sellers. The Sellers represent and warrant that none of
them has engaged any broker or finder or incurred any liability for brokerage
fees, commissions or finder's fees in connection with the transactions
contemplated by this Agreement. The Sellers and the Principals agree to
indemnify and hold harmless the Buyer against any claims or liabilities asserted
against it by any person acting or claiming to act as a broker or finder on
behalf of any Seller or any Principal.
13.2 For the Buyer. The Buyer agrees to pay all fees, expenses and
compensation owed to any person, firm or corporation
-38-
<PAGE> 44
who has acted in the capacity of broker or finder on its behalf in connection
with the transactions contemplated by this Agreement. The Buyer agrees to
indemnify and hold harmless the Sellers and the Principals against any claims or
liabilities asserted against them by any person acting or claiming to act as a
broker or finder on behalf of the Buyer.
14. Notices
Except to the extent otherwise provided herein, any notices or other
communications required or permitted hereunder shall be sufficiently given if
delivered personally or sent by telex, federal express, registered or certified
mail, postage prepaid, addressed as follows or to such other address of which
the parties may have given notice:
To any Seller: To the address of each Principal
To any Principal: At the address specified for
this purpose on Schedule I
To the Buyer: West Coast Entertainment Corporation
9990 Global Road
Philadelphia, PA 19115
With a copy to: Hale and Dorr
60 State Street
Boston, MA 02109
Attn: John H. Chory, Esq.
Unless otherwise specified herein, such notices or other communications shall be
deemed received (a) on the date delivered, if delivered personally; (b) three
business days after being sent, if sent by registered or certified mail; or (c)
on the date of actual receipt, if delivered by any other method.
15. Arbitration
(a) Any dispute, controversy or claim between the parties arising out
of or relating to this Agreement, a breach hereof or the transactions
contemplated hereby, shall be settled by arbitration in accordance with the
provisions of this Section 15. Any arbitration pursuant to this Section 15 shall
be conducted by a single arbitrator appointed by the Philadelphia, Pennsylvania
office of the American Arbitration Association upon the request of either party.
The arbitrator shall have a minimum of five years of experience in the area of
business relevant to the particular dispute. Each party shall be permitted to
submit only one proposal to the arbitrator, and the arbitrator shall be
-39-
<PAGE> 45
required to choose one of such two proposals as the resolution of the dispute.
The arbitrator may proceed to a resolution notwithstanding the failure of a
party to participate in the proceedings. Each of the parties shall pay its own
costs and expenses in connection with any such arbitration, and the parties
shall share equally in the fees and expenses of the arbitrator.
(b) The parties agree that any such arbitration will occur in
Philadelphia, Pennsylvania, any such arbitration award shall be final and
binding upon the parties, may be entered in any court having jurisdiction and
shall not be appealable by either party in any court.
16. Successors and Assigns
This Agreement shall be binding upon and inure to the benefit of the
parties hereto and their respective successors and assigns, except that the
Buyer, the Sellers and the Principals may not assign their respective
obligations hereunder without the prior written consent of the Sellers in the
case of an assignment by the Buyer or the Buyer in the case of an assignment by
any Seller or Principal; provided, however, that the Buyer may assign this
Agreement, and its rights and obligations hereunder (other than with respect to
delivery of stock and registration obligations related thereto), to a subsidiary
or affiliate. Any assignment in contravention of this provision shall be void.
17. Entire Agreement; Amendments; Attachments
(a) This Agreement, all Schedules and Exhibits hereto, and all
agreements and instruments to be delivered by the parties pursuant hereto
represent the entire understanding and agreement between the parties hereto with
respect to the subject matter hereof and supersede all prior oral and written
and all contemporaneous oral negotiations, commitments and understandings
between such parties. The Buyer, the Sellers and the Principals may amend or
modify this Agreement, in such manner as may be agreed upon, by a written
instrument executed by the Buyer and the Principals.
(b) If the provisions of any Schedule or Exhibit to this Agreement
are inconsistent with the provisions of this Agreement, the provision of the
Agreement shall prevail. The Exhibits and Schedules attached hereto or to be
attached hereafter are hereby incorporated as integral parts of this Agreement.
-40-
<PAGE> 46
18. Expenses
Except as otherwise expressly provided herein, the Buyer (on the one
hand) and the Sellers and the Principals (on the other hand) shall each pay
their own expenses in connection with this Agreement and the transactions
contemplated hereby.
19. Legal Fees
Each party hereto shall pay its own legal or arbitration costs and
expenses incurred in the event that legal or arbitration proceedings are
commenced by the Buyer against any Principal or any Seller, or by any Principal
or any Seller against the Buyer, in connection with this Agreement or the
transactions contemplated hereby.
20. Governing Law
This Agreement shall be governed by and construed in accordance with
the laws of the State of Delaware without regard to principles of conflicts of
laws.
21. Section Headings
The section headings are for the convenience of the parties and in no
way alter, modify, amend, limit, or restrict the contractual obligations of the
parties.
22. Severability
The invalidity or unenforceability of any provision of this Agreement
shall not affect the validity or enforceability of any other provision of this
Agreement.
23. Counterparts
This Agreement and any amendment hereto may be executed in one or more
counterparts, each of which shall be deemed to be an original, but all of which
shall be one and the same document.
(end of page)
-41-
<PAGE> 47
IN WITNESS WHEREOF, this Agreement has been duly executed by the parties
hereto as of and on the date first above written.
WEST COAST ENTERTAINMENT CORPORATION
By: /s/ Richard Kelly
--------------------------------
Title: Chief Financial Officer
-----------------------------
PRINCIPALS:
/s/ Howard Frank
------------------------------------
Howard Frank
/s/ James E. Frank
------------------------------------
James E. Frank
------------------------------------
SELLERS:
(Corporate Seal) FRANEXCO, INC.
ATTEST:
By: /s/ Howard Frank
- ------------------------------------- --------------------------------
Title: President
------------------------------
(Corporate Seal) GREAT AMERICAN REALTY, INC.
ATTEST:
By: /s/ Howard Frank
- ------------------------------------- --------------------------------
Title: Prsident
-----------------------------
-42-
<PAGE> 48
Schedule I
to Asset Purchase Agreement
between West Coast Entertainment Corporation and
the Sellers and Principals Identified Below
Section of Agreement
in Which Term, Item or
Information is Referenced Term or Item
- ------------------------- ------------
Recital Name, Address and Principal Office of Each Seller:
Franexco, Inc.
dba Great American Video Stores
25 Rockwood Place
Englewood, NJ 07631
Great American Video Realty, Inc.
25 Rockwood Place
Englewood, NJ 07631
Recital Principals: Howard Frank
James E. Frank
1.1(a)(ix) Trade Names: Great American Video
1.1(e) Stores, Reflecting Street Address of Each Store
and its owning Seller:
Total Number of Stores: ten
17 Route 303
Tappan, NY 10983
1560 Teaneck Road
Teaneck, NJ 07666
6-8 Washington Street
Tenafly, NJ 07670
263 Pascack Road
Washington Township, NJ 07675
<PAGE> 49
Schedule I
Page 2
270 Closter Dock Road
Closter, NJ 07624
461 Passaic Street
Hackensack, NJ 07601
85 Godwin Avenue
Midland Park, NJ 07432
12-66 River Road
Fair Lawn, NJ 07410
175 Lakeside Blvd.
Landing, NJ 07850
1711 State Highway 10
Morris Plains, NJ 07950
1.3(a) Purchase Price: $5,500,000
1.3(b) Payment Date: The cash and stock portion of the Purchase Price
shall be due and payable on January 3, 1997.
Additional payment of $22,151 due on January 3, 1997 (not
related to Purchase Price adjustments).
1.3(b) Cash Percentage: 60% ($3,300,000)
1.3(b) Allocation of Purchase Price Among Sellers: 100% payable to
Franexco, Inc.
1.3(c) "Net Operating Cash Flow" shall be equal to (i) the pre-tax
income from the Stores for the 6-month period ending on June 30,
1996, plus (ii) all debt-related interest expense for the Stores
and depreciation and amortization expenses for the Stores for
such 6-month period, plus (iii) all royalty expenses (if any and
if expensed) attributable to such stores during such 6-month
period, plus (iv) start-up expenses and purchases related to new
Stores in the amount of $98,000 less (v) all rental product
purchases for the Stores during such 6-months period (including
revenue sharing expenses if not previously expensed), less (v)
all earned income interest for such 6-month period; with such
components of Net Operating Cash Flow determined in accordance
with
<PAGE> 50
Schedule I
Page 3
generally accepted accounting principles applied consistently
with the Sellers' past practices.
1.4 Assumed Liabilities:
All obligations of the Sellers continuing after the
Closing under the Leases specified on Schedule 2.11 and the
Contracts specified on Schedule 2.16 which become due and
payable after the Closing Date. (No adjustment to Purchase
Price.)
Accounts Payable that have been incurred in the ordinary
course of business and that are itemized on a schedule delivered
to Buyer at the Closing for (i) new release rental and
sell-through videotapes and interactive electronic games that
have been outstanding for 60 days or less at the Closing, (ii)
goods that may be sold by Buyer in the ordinary course of
business after the Closing and are reflected on invoices that
have been outstanding for 60 days or less at the Closing, (iii)
up to $20,000 for all other payables that are within 30 days of
invoice date at the Closing and (iv) services, to the extent
such services will be provided to the Business after the
Closing. (No adjustment to Purchase Price.)
1.6 Closing Date: November 15, 1996
2.1 Type of Entity and Capitalization:
Franexco, Inc., a New York corporation, has 800 shares of
Preferred Stock authorized with no shares outstanding and 200
shares of Common Stock, no par value, authorized with 102 shares
outstanding and held by Howard Frank.
Great American Video Realty, Inc., a New Jersey corporation, has
2500 shares of Common Stock, no par value, authorized with 2500
shares outstanding and held by Howard Frank.
For each Seller, jurisdictions in which qualification is
required:
<PAGE> 51
Schedule I
- ----------
Page 4
Franexco, Inc.: New York
Great American Video Realty, Inc.: New Jersey
2.2 Each Seller's State of Organization, and Authorized and Issued
Stock (or Other Interests), and Identity of Holders of All
Legal and Beneficial Interests in Each Seller:
See Section 2.1 above.
2.5(c) Minimum Net Operating Cash Flow: $250,000
7.10 Amount of Cash (Per Register) to Be Left at Stores,
on Closing Date: $1000.
14 Address for notices for purposes of Section 14:
To any Principal: Howard Frank
1100 Park Avenue
New York, NY 10128
James E. Frank
12 Old Farms Road
Woodcliff Lake, NJ 07675
With a copy to: Solovay Marshall & Edlin
845 3rd Avenue
New York, NY 10022
Attn: Michael B. Solovay, Esq.
Telephone: (212) 752-1000
Fax: (212) 355-4608
<PAGE> 1
Schedule I
to Asset Purchase Agreement
between West Coast Entertainment Corporation and
the Sellers and Principals Identified Below
Section of Agreement
in Which Item is
Referenced Item
- -----------------------------------------------------------------------
Recital Name, Address and Principal Office of Each Seller:
Ernest DeCaro
Broad & Park Video, Inc.
c/o Bristol Environmental, Inc.
1605 Hanford Street
Levittown, PA 19057
Recital Principals: Ernest M. DeCaro, III
Jeffrey J. Cantwell
1.1(a)(ix) Trade Names: West Coast Video
1.1(c) Retail Video Store:
<PAGE> 2
Total Number of Stores: one
West Coast Video
2200 South Broad Street
Trenton, NJ 08610
Owner: Broad & Park Video, Inc.
1.3(a) Purchase Price: $425,000
1.3(b) Cash Percentage: 60% ($255,000)
1.3(c) "Net Operating Cash Flow" shall be equal to (i) the pre-tax income from
the Stores for the 12-month period ending on July 31, 1996, plus (ii) all
debt-related interest expense for the Stores and depreciation and
amortization expenses for the Stores for such 12-month period, plus (iii)
all royalty expenses (if any if expensed) attributable to such stores
during such 12-month period, plus (iv) Seller related expenses less (v)
all rental product purchases for the Stores during such 12-month period
(including revenue sharing expenses if not previously expensed), less
(vi) all earned income interest for such 12-month period; with such
components of Net Operating Cash Flow determined in accordance with
generally accepted accounting principles applied consistently with the
Sellers' past practices.
1.4 Assumed Liabilities:
1. All obligations of Seller continuing after the Closing under the
Lease Agreements listed on Schedule 2.11 which become due and payable
after the Closing Date. Buyer shall indemnify and hold harmless
Seller and Principals from any liabilities accruing subsequent to the
Closing Date under the Lease Agreement between Gene Epstein
Enterprises, Seller and Principals, dated November 1, 1988.
2. All obligations of Seller continuing after the Closing under the
Ticket Outlet Agreement between Ticketmaster-Delaware Valley, Inc.
and Broad & Park Video, Inc. dated April 17, 1995 which become due
and payable after the Closing Date. Buyer shall make appropriate
arrangements to properly have the $20,000 deposit/letter of credit
posted by Seller with Ticketmaster returned to Seller.
3. All obligations of Seller continuing after the Closing under the
Franchise Agreement between West Coast Video Enterprises, Inc. and
Broad & Park Video, Inc., dated August 31, 1988 which become due and
payable after the Closing Date.
4. Approximately $9,389 to Sight & Sound Distributors (ordered new
releases).
5. Approximately $500 to Mid-Atlantic Periodicals (ordered new
releases).
The amount of Assumed Liabilities shall not reduce the Purchase Price.
1.6 Closing Date: On or about November 15, 1996
2.1 Type of Entity of Seller:
Corporation
Jurisdictions where qualification required:
None
<PAGE> 3
2.2 Seller's State of Organization:
New Jersey
Authorized Capital Stock:
1,000 shares
Issued Capital Stock:
1,000 shares
Identity of holders of Interest in Seller
Ernest M DeCaro, III - 500 shares
Jeffrey J. Cantwell - 500 shares
2.5(c) Minimum Net Operating Cash Flow: $125,000
7.10 Amount of Cash to Be Left at each Store on Closing Date: $300.
14 Address for notices for purposes of Section 14:
To any Principal: Ernest M. DeCaro, III
c/o Bristol Environmental, Inc.
1605 Hanford Street
Levittown, PA 19507
Jeffrey J. Cantwell
28 Cove Road
Moorestown, NJ 08057
With a copy to: S. Laurence Shaiman, Esquire
Shaiman, Rovin & Silverman, P.C.
1411 Walnut Street
Suite 1015
Philadelphia, PA 19102
<PAGE> 1
Schedule I
to Asset Purchase Agreement
between West Coast Entertainment Corporation and
the Sellers and Principals Identified Below
Section of Agreement
in Which Term, Item or
Information is Referenced Term or Item
---------------------------------------- -----------------------
Recital Name, Address and Principal Office of Each Seller:
Wright Turn Video, Inc.
17268 Antiqua Point Way
Boca Raton, FL 33487
Recital Principals: Benjamin Flamm
Donald Weiss
1.1(a)(ix) Trade Names: Wright Turn Video, Inc.
DBA West Coast Video
Hollywood
1.1(c) Stores, Reflecting Street Address of Each Store,
and its Owning Seller:
Total Number of Stores: one
1715 E. Young Circle
Young Circle Shopping Center
Hollywood, FL 33020
1.3(a) Purchase Price: $1,200,000
<PAGE> 2
1.3(b) Cash Percentage: 60% ($720,000)
$400,000 payable at the Closing with the balance payable on or before
January 3, 1997.
Pursuant to an instrument of evidence of indebtedness to be delivered at
the Closing to Seller, 100% of the shares of Common Stock shall be issued
on January 5, 1998.
1.3(c) "Net Operating Cash Flow" shall be equal to (i) the pre-tax income from
the Stores for the 12-month period ending on June 30, 1996, plus (ii) all
debt-related interest expense for the Stores and depreciation and
amortization expenses for the Stores for such 12-month period, plus (iii)
all royalty expenses (if any and if expensed) attributable to such stores
during such 12-month period, less (iv) all rental product purchases for
the Stores during such 12-month period (including revenue sharing expenses
if not previously expensed), less (v) all earned income interest for such
12-month period; with such components of Net Operating Cash Flow
determined in accordance with generally accepted accounting principles
applied consistently with the Sellers' past practices.
1.4 Assumed Liabilities:
All obligations of the Sellers continuing after the Closing under the
Leases specified on Schedule 2.11 which become due and payable after the
Closing Date. (No adjustment to Purchase Price.)
Up to $60,000 of Accounts Payable.
1.6 Closing Date: November 15, 1996
2.1 Type of Entity and Capitalization:
C Corporation
Jurisdictions in which qualification of Seller is required: Florida
2.2 Each Seller's State of Organization, and Authorized and Issued Stock (or
Other Interests), and Identity of Holders of All Legal and Beneficial
Interests in Each Seller:
The Seller is a Florida corporation with 1,000 shares of common stock
authorized and 400 shares of common stock outstanding, of which 200 shares
are beneficially owned by Donald Weiss and 200 shares are beneficially
owned by Benjamin Flamm
<PAGE> 3
2.5(c) Minimum Net Operating Cash Flow: $150,000
7.10 Amount of Cash to Be Left at each Store on Closing Date: $300.
8.8 Other Conditions: Promptly following delivery to the Seller and each of
the Principals of a Prospectus (and any current supplement thereto)
relating to the sale of Buyer's Common Stock (which is included in a
Registration Statement which has been declared effective by the Securities
and Exchange Commission), the Seller shall hold a meeting of its
stockholders for purposes of approving the consummation of the
transactions contemplated by this Agreement.
14 Address for notices for purposes of Section 14:
To any Principal: Benjamin Flamm
17268 Antiqua Point Way
Boca Raton, FL 33487
Donald Weiss
1056 Hillview Turn
Huntingdon Valley, PA 19006
With a copy to: Wright Turn Video, Inc.
1715 E. Young Circle
Hollywood, FL 33020
<PAGE> 1
INSTRUMENT OF EVIDENCE OF INDEBTEDNESS
THIS INSTRUMENT OF EVIDENCE OF INDEBTEDNESS dated as of the 15th day of
November, 1996, is by and between West Coast Entertainment Corporation, a
Delaware corporation (the "Buyer"), and Wright Turn Video, Inc. (the "Seller"),
in connection with the transactions contemplated by that certain Asset Purchase
Agreement dated as of November 15, 1996, by and among the Buyer, the Seller and
Benjamin Flamm and Donald Weiss (the "Purchase Agreement"). Capitalized terms
used herein, and not otherwise defined herein, shall have the respective
meanings ascribed to them in the Purchase Agreement.
WHEREAS, the Buyer has acquired substantially all of the assets and
business of the Seller pursuant to the Purchase Agreement; and
WHEREAS, in partial consideration for such assets and business, the Buyer
has agreed to issue this Instrument, pursuant to which it will deliver to the
Seller shares of its Common Stock, at the times and on the terms described
herein.
NOW, THEREFORE, in consideration of the foregoing, and for other good and
valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, the Buyer and the Seller hereby agree as follows:
1. Payment of Indebtedness.
(a) The Buyer shall deliver to the Seller, on January 5, 1998, that number
of shares of Common Stock, $.01 par value per share, of the Buyer ("Common
Stock") as is determined by dividing (x) $480,000 by (y) the Market Value. The
"Market Value" shall equal the average of the closing prices of a share of
Common Stock on the Nasdaq National Market for each of the 15 trading days
ending on the third business day prior to the date on which the Closing of the
transaction contemplated by the Purchase Agreement occurred.
(b) Shares of Buyer Common Stock issuable pursuant to Section 1(a) above
shall be registered under the Securities Act of 1933, as amended (the
"Securities
<PAGE> 2
Act"), pursuant to a Registration Statement (the "Registration Statement")
filed with the Securities and Exchange Commission (the "SEC").
(c) If prior to the issuance of shares of Buyer Common Stock pursuant to
Section 1(a) above, the Buyer shall:
(x) declare a dividend of Common Stock on its Common Stock,
(y) subdivide outstanding Common Stock into a larger number of
shares of Common Stock by reclassification, stock split or
otherwise, or
(z) combine outstanding Common Stock into a smaller number of
shares of Common Stock by reclassification or otherwise,
then the number of shares of Buyer Common Stock issuable pursuant to Section
1(a) shall be adjusted proportionately so that thereafter the Seller shall be
entitled to receive the number of shares of Common Stock which the Seller would
have been entitled to receive after the happening of any of the events
described above had the shares to be issued been issued immediately prior to
the happening of such events. An adjustment made pursuant to this Section 1(c)
shall become effective immediately after the record date in the case of a
dividend and shall become effective immediately after the effective date in the
case of a subdivision or combination.
2. Right of Set-Off. The Buyer shall be permitted to set off, against the
number of shares deliverable to the Seller hereunder, amounts or obligations
owed by the Principals or the Seller to the Buyer pursuant to the Purchase
Agreement. In order to calculate the reduction in the number of shares which
may be issuable by the Buyer hereunder for this purpose, each share shall be
deemed to have a value equal to the Market Value.
3. Allocation of Shares Deliverable to the Assets. The Buyer and the
Seller hereby agree and acknowledge that the value of the consideration
issuable pursuant to this Instrument shall be allocated for tax purposes solely
to goodwill of the Seller being acquired by the Buyer pursuant to the Purchase
Agreement, and not to any of the Seller's other Assets.
4. General.
(a) Successors and Assigns. This Agreement shall be binding upon and
inure to the benefit of the parties hereto and their respective successors and
assigns, except that the Buyer and the Seller may not assign their respective
rights and obligations hereunder without the prior written consent of the other
party. Any assignment in contravention of this provision shall be void. The
Seller may not transfer to any other person the right to receive shares of
Buyer Common Stock hereunder without the prior consent of the Buyer.
<PAGE> 3
(b) Notices. Any notices or other communications required or permitted
hereunder shall be sufficiently given if delivered personally or sent by
federal express or other reputable nationwide overnight courier service,
registered or certified mail, postage prepaid, addressed to the address set
forth in Section 14 of the Purchase Agreement or such other address of which
the parties may have given notice. Unless otherwise specified herein, such
notices or other communications shall be deemed received (1) on the date
delivered, if delivered personally; (2) on the business day following delivery
to an overnight courier; (3) three business days after being sent, if sent by
registered or certified mail; or (4) on the date of actual delivery, if sent by
any other method.
(c) Arbitration.
(i) Any dispute, controversy or claim between the parties arising out of
or relating to this Agreement, a breach hereof or the transactions contemplated
hereby, shall be settled by arbitration in accordance with the provisions of
this Section 4(c). Any arbitration pursuant to this Section 4(c) shall be
conducted by a single arbitrator appointed by the Philadelphia, Pennsylvania
office of the American Arbitration Association upon the request of any party.
The arbitrator shall have a minimum of five years of experience in the area of
business relevant to the particular dispute. Each of the two parties to the
dispute shall be permitted to submit only one proposal to the arbitrator, and
the arbitrator shall be required to choose one of such two proposals as the
resolution of the dispute. The arbitrator may proceed to a resolution
notwithstanding the failure of a party to participate in the proceedings. Each
of the parties shall pay its own costs and expenses in connection with any such
arbitration, and the parties shall share equally in the fees and expenses of
the arbitrator.
(ii) The parties agree that any such arbitration will occur in
Philadelphia, Pennsylvania, any such arbitration award shall be final and
binding upon the parties, may be entered in any court having jurisdiction and
shall not be appealable by either party in any court.
(d) Entire Agreement; Amendments; Attachments. The Buyer and the Seller
may amend or modify this Agreement, in such manner as may be agreed upon, only
by a written instrument executed by the Buyer and the Seller.
(e) Section Headings. The section headings contained in this Instrument
are for the convenience of the parties and in no way alter, modify, amend,
limit, or restrict the contractual obligations of the parties.
<PAGE> 4
(f) Severability. The invalidity or unenforceability of any provision of
this Agreement shall not affect the validity or enforceability of any other
provision of this Agreement.
(g) Counterparts. This Instrument and any amendment hereto may be executed
in one or more counterparts, each of which shall be deemed to be an original,
but all of which shall be one and the same document.
(h) Governing Law. This Instrument shall be construed and enforced in
accordance with, and the rights of the parties shall be governed by, the laws
of the State of Delaware.
IN WITNESS WHEREOF, this Instrument has been executed and delivered as a
sealed instrument on the date first above written by the duly authorized
representative of the Buyer.
WEST COAST ENTERTAINMENT CORPORATION
By /s/ Richard Kelly
____________________________
Vice President
AGREED TO AND ACCEPTED AS OF
THE DATE FIRST SET FORTH ABOVE:
WRIGHT TURN VIDEO, INC.
By: /s/ Benjamin Flamm
________________________________
Title: President
_____________________________
<PAGE> 1
Schedule I
to Asset Purchase Agreement
between West Coast Entertainment Corporation and
the Sellers and Principals Identified Below
Section of Agreement
in Which Term, Item or
Information is Referenced Term or Item
- --------------------------------------------------------------------------------
Recital Name, Address and Principal Office of Each Seller:
Wright Turn Entertainment, Inc.
1056 Hillview Turn
Huntingdon Valley, PA 19006
Wright Turn Entertainment II, Inc.
1056 Hillview Turn
Huntingdon Valley, PA 19006
Recital Principals: Benjamin Flamm
Angelo Ibanez
Donald Weiss
1.1(a)(ix)Trade Names: Wright Turn Entertainment, Inc.
DBA West Coast Video Miami
Wright Turn Entertainment II, Inc.
DBA West Coast Video Emerald Hills
1.1(c) Stores, Reflecting Street Address of Each Store,
and its Owning Seller:
Total Number of Stores: two
Wright Turn Entertainment, Inc.
4931 Sheridan Street
<PAGE> 2
Hollywood, FL 33021
Wright Turn Entertainment II, Inc.
7300 Collins Ave.
Miami, FL 33141
1.3(a) Purchase Price: $1,500,000
1.3(b) Cash Percentage: 60% ($900,000)
$600,000 payable at the Closing with the balance payable on or before
January 3, 1997.
Pursuant to an instrument of evidence of indebtedness to be delivered at
the Closing to Seller, 100% of the shares of Common Stock shall be
issued on January 5, 1998.
1.3(b) Allocation of Purchase Price Among Sellers:
Wright Turn Entertainment, Inc. - 60%
Wright Turn Entertainment II, Inc. - 40%
1.3(c) "Net Operating Cash Flow" shall be equal to (i) the pre-tax income from
the Stores for the 12-month period ending on June 30, 1996, plus (ii)
all debt-related interest expense for the Stores and depreciation and
amortization expenses for the Stores for such 12-month period, plus
(iii) all royalty expenses (if any and if expensed) attributable to such
stores during such 12-month period, less (iv) all rental product
purchases for the Stores during such 12-month period (including revenue
sharing expenses if not previously expensed), less (v) all earned income
interest for such 12-month period; with such components of Net Operating
Cash Flow determined in accordance with generally accepted accounting
principles applied consistently with the Sellers' past practices.
1.4 Assumed Liabilities:
All obligations of the Sellers continuing after the Closing under the
Leases specified on Schedule 2.11 which become due and payable after the
Closing Date. (No adjustment to Purchase Price.)
1.6 Closing Date: November 15, 1996
2.1 Type of Entity and Capitalization:
<PAGE> 3
Each Seller is a Florida corporation.
For each Seller, jurisdictions in which qualification is required:
Florida
2.2 Each Seller's State of Organization, and Authorized and Issued Stock (or
Other Interests), and Identity of Holders of All Legal and Beneficial
Interests in Each Seller:
Wright Turn Entertainment, Inc. is a Florida corporation with 3,000
shares of common stock authorized and 1,500 shares of common stock
outstanding, of which 1,000 shares are beneficially owned by Wright Turn
Video, Inc. (which is owned equally by Donald Weiss and Benjamin Flamm)
and 500 shares are beneficially owned by Royo, Inc. (which is 100% owned
by Angelo Ibanez).
Wright Turn Entertainment II, Inc. is a Florida corporation with 3,000
shares of common stock authorized and 1,500 shares of common stock
outstanding, of which 1,000 shares are beneficially owned by Wright Turn
Video, Inc. and 500 shares are beneficially owned by Royo, Inc.
2.5(c) Minimum Net Operating Cash Flow: $400,000
7.10 Amount of Cash to Be Left at each Store on Closing Date: $300.
8.8 Other Conditions: Promptly following delivery to the Seller and each of
the Principals of a Prospectus (and any current supplement thereto)
relating to the sale of Buyer's Common Stock (which is included in a
Registration Statement which has been declared effective by the
Securities and Exchange Commission), the Seller shall hold a meeting of
its stockholders for purposes of approving the consummation of the
transactions contemplated by this Agreement.
14 Address for notices for purposes of Section 14:
To any Principal: Benjamin Flamm
17268 Antiqua Point Way
Boca Raton, FL 33487
Donald Weiss
<PAGE> 4
1056 Hillview Turn
Huntingdon Valley, PA 19006
Angelo Ibanez
780 N.E. 69th St, Apt. 1802
Miami, FL 33138
With a copy to: Wright Turn Video, Inc.
1715 E. Young Circle
Hollywood, FL 33020
<PAGE> 1
INSTRUMENT OF EVIDENCE OF INDEBTEDNESS
THIS INSTRUMENT OF EVIDENCE OF INDEBTEDNESS dated as of the 15th day of
November, 1996, is by and between West Coast Entertainment Corporation, a
Delaware corporation (the "Buyer"), and Wright Turn Entertainment, Inc. and
Wright Turn Entertainment II, Inc. (the "Sellers"), in connection with the
transactions contemplated by that certain Asset Purchase Agreement dated as of
November 15, 1996, by and among the Buyer, the Sellers and Benjamin Flamm,
Angelo Ibanez and Donald Weiss (the "Purchase Agreement"). Capitalized terms
used herein, and not otherwise defined herein, shall have the respective
meanings ascribed to them in the Purchase Agreement.
WHEREAS, the Buyer has acquired substantially all of the assets and
business of the Sellers pursuant to the Purchase Agreement; and
WHEREAS, in partial consideration for such assets and business, the Buyer
has agreed to issue this Instrument, pursuant to which it will deliver to the
Sellers shares of its Common Stock, at the times and on the terms described
herein.
NOW, THEREFORE, in consideration of the foregoing, and for other good and
valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, the Buyer and the Sellers hereby agree as follows:
1. Payment of Indebtedness.
(a) The Buyer shall deliver to the Seller, on January 5, 1998, that number
of shares of Common Stock, $.01 par value per share, of the Buyer ("Common
Stock") as is determined by dividing (x) $600,000 by (y) the Market Value. The
"Market Value" shall equal the average of the closing prices of a share of
Common Stock on the Nasdaq National Market for each of the 15 trading days
ending on the third business day prior to the date on which the Closing of the
transaction contemplated by the Purchase Agreement occurred.
<PAGE> 2
(b) Shares of Buyer Common Stock issuable pursuant to Section 1(a) above
shall be registered under the Securities Act of 1933, as amended (the
"Securities Act"), pursuant to a Registration Statement (the "Registration
Statement") filed with the Securities and Exchange Commission (the "SEC").
(c) If prior to the issuance of shares of Buyer Common Stock pursuant to
Section 1(a) above, the Buyer shall:
(x) declare a dividend of Common Stock on its Common Stock,
(y) subdivide outstanding Common Stock into a larger number of
shares of Common Stock by reclassification, stock split or
otherwise, or
(z) combine outstanding Common Stock into a smaller number of
shares of Common Stock by reclassification or otherwise,
then the number of shares of Buyer Common Stock issuable pursuant to Section
1(a) shall be adjusted proportionately so that thereafter the Sellers shall be
entitled to receive the number of shares of Common Stock which the Sellers
would have been entitled to receive after the happening of any of the events
described above had the shares to be issued been issued immediately prior to
the happening of such events. An adjustment made pursuant to this Section 1(c)
shall become effective immediately after the record date in the case of a
dividend and shall become effective immediately after the effective date in the
case of a subdivision or combination.
2. Right of Set-Off. The Buyer shall be permitted to set off, against the
number of shares deliverable to the Sellers hereunder, amounts or obligations
owed by the Principals or the Sellers to the Buyer pursuant to the Purchase
Agreement. In order to calculate the reduction in the number of shares which
may be issuable by the Buyer hereunder for this purpose, each share shall be
deemed to have a value equal to the Market Value.
3. Allocation of Shares Deliverable to the Assets. The Buyer and the
Sellers hereby agree and acknowledge that the value of the consideration
issuable pursuant to this Instrument shall be allocated for tax purposes solely
to goodwill of the Sellers being acquired by the Buyer pursuant to the Purchase
Agreement, and not to any of the Sellers' other Assets.
4. General.
(a) Successors and Assigns. This Agreement shall be binding upon and
inure to the benefit of the parties hereto and their respective successors and
assigns, except that the Buyer and the Sellers may not assign their respective
rights and obligations hereunder without the prior written consent of the other
party. Any assignment in contravention of this provision shall be void. The
Sellers may not
<PAGE> 3
transfer to any other person the right to receive shares of Buyer Common Stock
hereunder without the prior consent of the Buyer.
(b) Notices. Any notices or other communications required or permitted
hereunder shall be sufficiently given if delivered personally or sent by
federal express or other reputable nationwide overnight courier service,
registered or certified mail, postage prepaid, addressed to the address set
forth in Section 14 of the Purchase Agreement or such other address of which
the parties may have given notice. Unless otherwise specified herein, such
notices or other communications shall be deemed received (1) on the date
delivered, if delivered personally; (2) on the business day following delivery
to an overnight courier; (3) three business days after being sent, if sent by
registered or certified mail; or (4) on the date of actual delivery, if sent by
any other method.
(c) Arbitration.
(i) Any dispute, controversy or claim between the parties arising out of
or relating to this Agreement, a breach hereof or the transactions contemplated
hereby, shall be settled by arbitration in accordance with the provisions of
this Section 4(c). Any arbitration pursuant to this Section 4(c) shall be
conducted by a single arbitrator appointed by the Philadelphia, Pennsylvania
office of the American Arbitration Association upon the request of any party.
The arbitrator shall have a minimum of five years of experience in the area of
business relevant to the particular dispute. Each of the two parties to the
dispute shall be permitted to submit only one proposal to the arbitrator, and
the arbitrator shall be required to choose one of such two proposals as the
resolution of the dispute. The arbitrator may proceed to a resolution
notwithstanding the failure of a party to participate in the proceedings. Each
of the parties shall pay its own costs and expenses in connection with any such
arbitration, and the parties shall share equally in the fees and expenses of
the arbitrator.
(ii) The parties agree that any such arbitration will occur in
Philadelphia, Pennsylvania, any such arbitration award shall be final and
binding upon the parties, may be entered in any court having jurisdiction and
shall not be appealable by either party in any court.
(d) Entire Agreement; Amendments; Attachments. The Buyer and the Sellers
may amend or modify this Agreement, in such manner as may be agreed upon, only
by a written instrument executed by the Buyer and the Sellers.
<PAGE> 4
(e) Section Headings. The section headings contained in this Instrument
are for the convenience of the parties and in no way alter, modify, amend,
limit, or restrict the contractual obligations of the parties.
(f) Severability. The invalidity or unenforceability of any provision of
this Agreement shall not affect the validity or enforceability of any other
provision of this Agreement.
(g) Counterparts. This Instrument and any amendment hereto may be executed
in one or more counterparts, each of which shall be deemed to be an original,
but all of which shall be one and the same document.
(h) Governing Law. This Instrument shall be construed and enforced in
accordance with, and the rights of the parties shall be governed by, the laws
of the State of Delaware.
IN WITNESS WHEREOF, this Instrument has been executed and delivered as a
sealed instrument on the date first above written by the duly authorized
representative of the Buyer.
WEST COAST ENTERTAINMENT CORPORATION
By /s/ Richard Kelly
---------------------------
Vice President
AGREED TO AND ACCEPTED AS OF
THE DATE FIRST SET FORTH ABOVE:
WRIGHT TURN ENTERTAINMENT, INC.
By: /s/ Benjamin Flamm
-----------------------------
Title: President
WRIGHT TURN ENTERTAINMENT II, INC.
By: /s/ Benjamin Flamm
-----------------------------
Title: President
<PAGE> 1
Schedule I
to Asset Purchase Agreement
between West Coast Entertainment Corporation and
the Sellers and Principals Identified Below
Section of Agreement
in Which Term, Item or
Information is Referenced Term or Item
-----------------------------------------------------------------------
Recital Name, Address and Principal Office of Each Seller:
POTTSTOWN VIDEO INC.
("West Coast Video of Pottstown")
Northend Shopping Center
1300 N. Charlotte Street
Pottstown, PA 19464
Principal: Laurie Curran
COVENTRY VIDEO INC.
("West Coast Video of North Coventry")
Coventry Squre, Routes 724 & 100
Pottstown, PA 19464
Principal: Laurie Curran
C & V GROUP, INC.
("West Coast Video of Pennsburg")
Pennsburg Square Shopping Center
Pottstown Pike
Pennsburg, PA 18073
Principals: Laurie Curran, Edward Skypala
and Vaughn Zimmerman
SHAMOKIN W.C. VIDEO INC.
("West Coast Video of Shamokin")
6th and Walnut Streets
Shamokin, PA 17872
<PAGE> 2
Principals: Laurie Curran, Edward Skypala and Vaughn
Zimmerman
BERWICK W.C. VIDEO INC.
("West Coast Video of Berwick")
101 W. Front Street
Berwick, PA 18603
Principals: Laurie Curran, Edward Skypala and Vaughn
Zimmerman
DANVILLE W.C. VIDEO INC.
("West Coast Video of Danville")
606 Continental Boulevard
Danville, PA 17821
Principals: Laurie Curran, Edward Skypala and Vaughn
Zimmerman
BLOOMSBURG W.C. VIDEO INC.
("West Coast Video of Bloomsburg")
34 East Main Street
Bloomsburg, PA 17815
Principals: Laurie Curran, Edward Skypala and Vaughn
Zimmerman
FAMILY COUNTRY VIDEO, INC.
("West Coast Video of Boyerstown")
125 East Philadelphia Avenue
Boyerstown, PA 19512
Principal: Vaughn Zimmerman
SPRING FORD W.C. VIDEO INC.
("West Coast Video of Springford")
Limerick Square
70 Buckwalter Road
Royersford, PA 19468
Principals: Laurie Curran, Edward Skypala and Vaughn
Zimmerman
Recital Principals: Laurie Curran
1636 Potter Drive
Pottstown, PA 19464
Edward Skypala
224 King Street
Pottstown, PA 19464
Vaughn Zimmerman
73 Roosevelt Drive
Boyertown, PA 19512
<PAGE> 3
1.1(a)(ix) Trade Names: West Coast Video of Pottstown
West Coast Video of North Coventry
West Coast Video of Boyertown
West Coast Video of Springford
West Coast Video of Pennsburg
West Coast Video of Berwick
West Coast Video of Danville
West Coast Video of Bloomsburg
West Coast Video of Shamokin
1.1(c) Stores, Reflecting Street Address of Each Store,
and its Owning Seller: The information set forth
under "Recitals" on this Schedule I is
incorporated herein by reference.
1.3(a) Purchase Price: $4,075,733 (includes $5,000 in amounts Buyer has
agreed to pay toward the accounting/audit costs of the Sellers.
This amount is in addition to the amount calculated by reference
to the net operating cash flow formula)
1.4 Assumed Liabilities: All obligations of the Sellers continuing after
the Closing under the Leases specified on Schedule 2.11 and the
Contracts specified on Schedule 2.16 which become due and payable
after the Closing Date, in addition to other liabilities detailed on
the attachments to this Schedule I to the extent that such
liabilities arise after the Closing (No adjustment to Purchase
Price)
1.6 Closing Date: November 15, 1996
2.2 Each Seller's State of Organization, and Authorized and Issued Stock
(or Other Interests), and Identity of All Legal and Beneficial
Interests in Each Seller: See attachment to this Schedule I.
2.5(c) Minimum Net Operating Cash Flow: $1,085,529
14 Address for notices for purposes of Section 14:
To any Principal: At the addresses set forth under the heading
"Recitals" set forth
<PAGE> 4
on this Schedule I.
With a copy to: David Spirt, Esq.
Weiss, Spirt & Guyer
790 Penllyn Pike, Suite 300
Blue Bell, PA 19422
<PAGE> 1
Schedule I
to Asset Purchase Agreement
between West Coast Entertainment Corporation and
the Sellers and Principals Identified Below
Section of Agreement
in Which Term, Item or
Information is Referenced Term or Item
-----------------------------------------------------------------------------
Recital Name, Address and Principal Office of Each Seller:
Dogwood Hill Enterprises Inc.
d/b/a West Coast Video
545 Rockhill Road
Quakertown, PA 18951
Recital Principals: Edwin Knight
1.1(a)(ix) Trade Names: West Coast Video of Richboro
1.1(c) Stores, Reflecting Street Address of Each Store,
and its Owning Seller:
Total Number of Stores: one
1061 Second Street Pike
Richboro, PA 18954
1.3(a) Purchase Price: $721,200
1.3(b) Cash Percentage: 60% ($432,720)
The portion of the purchase price to be paid in shares of Common
Stock of Buyer (and not held in escrow) shall be delivered to
Sellers on January 6, 1997. Shares to be held in escrow shall be
delivered to the Escrow Agent on January 6, 1997.
<PAGE> 2
1.3(c) "Net Operating Cash Flow" shall be equal to (i) the pre-tax income from
the Stores for the 12-month period ending on June 30, 1996, plus (ii) all
debt-related interest expense for the Stores and depreciation and
amortization expenses for the Stores for such 12-month period, plus (iii)
all royalty expenses (if any and if expensed) attributable to such stores
during such 12-month period, less (iv) all rental product purchases for
the Stores during such 12-month period (including revenue sharing
expenses if not previously expensed), less (v) all earned income interest
for such 12-month period; with such components of Net Operating Cash Flow
determined in accordance with generally accepted accounting principles
applied consistently with the Sellers' past practices.
1.4 Assumed Liabilities:
All obligations of the Sellers continuing after the Closing under the
Leases specified on Schedule 2.11 which become due and payable after the
Closing Date. (No adjustment to Purchase Price.)
1.6 Closing Date: November 15, 1996
2.1 Type of Entity and Capitalization:
Corporation
For each Seller, jurisdictions in which qualification is required:
Pennsylvania
Subsidiaries of Seller: None
2.2 Each Seller's State of Organization, and Authorized and Issued Stock (or
Other Interests), and Identity of Holders of All Legal and Beneficial
Interests in Each Seller:
Dogwood Hill Enterprises Inc. is a Pennsylvania corporation with 100
shares of common stock authorized and 100 shares of common stock
outstanding, of which 88% are beneficially owned by Edwin Knight and 4%
are owned by each of Ursula Miller, Monica Fly and Dana Fly.
2.5(c) Minimum Net Operating Cash Flow: $218,000
7.10 Amount of Cash Per Register to Be Left at each Store, on Closing Date:
$250.
14 Address for notices for purposes of Section 14:
To any Principal: Edwin Knight
<PAGE> 3
545 Rockhill Road
Quakertown, PA 18951
With a copy to: Dennis Helf, Esq.
Grim, Biehn, Thatcher & Helf
314 West Broad Street
P.O. Box 380
Quakertown, PA 18951
<PAGE> 4
Exh.No. Description
- ------- -----------
1 Form of Asset Purchase Agreement by and among West Coast
Entertainment Corporation, a Delaware corporation, and the Sellers
identified on each Schedule I filed herewith (each such Schedule I
sets forth the pertinent information with respect to each Seller and
the terms of each transaction).
2 Asset Purchase Agreement by and among West Coast Entertainment
Corporation, a Delaware corporation, Ohio Entertainment Corporation,
an Ohio corporation, and Ronald L. Davis.
3 Asset Purchase Agreement by and among West Coast Entertainment
Corporation, a Delaware corporation, L.A. Video, Inc., an Ohio
corporation, and Andrew Mitchell and Larry Williams (the "L.A. Video
Agreement").
4 Instrument of Evidence of Indebtedness relating to the L.A. Video
Agreement.
5 Schedule I to Asset Purchase Agreement by and among West Coast
Entertainment Corporation, a Delaware corporation, Kyle David Corp.,
Alexander Jordan Corp., and Cochise Corp., and Michael Weisberg.
6 Asset Purchase Agreement by and among West Coast Entertainment
Corporation, a Delaware corporation, First Choice Video, Inc., an
Ohio corporation, Andrew Mitchell (the "First Choice Agreement").
7 Instrument of Evidence of Indebtedness relating to the First Choice
Agreement.
8 Asset Purchase Agreement by and among West Coast Entertainment
Corporation, a Delaware corporation, Wellesley Entertainment, Inc., a
Massachusetts corporation, and Adrian Wilkins and William Roberts.
9 Asset Purchase Agreement by and among West Coast Entertainment
Corporation, a Delaware corporation and Great American Video Realty,
Inc. and Franexco, Inc., New Jersey corporations, and Howard Frank
and James E. Frank.
10 Schedule I to Asset Purchase Agreement by and among West Coast
Entertainment Corporation, a Delaware corporation, Broad & Park
Video, Inc., a New Jersey corporation, and Ernest M. DeCaro III.
11 Schedule I to Asset Purchase Agreement by and among West Coast
Entertainment Corporation, a Delaware corporation, Wright Turn Video,
Inc., a Florida corporation, and Benjamin Flamm and Donald Weiss (the
"Flamm Weiss Agreement").
<PAGE> 5
12 Instrument of Evidence of Indebtedness relating to the Flamm Weiss
Agreement.
13 Schedule I to Asset Purchase Agreement by and among West Coast
Entertainment Corporation, a Delaware corporation, Wright Turn
Entertainment, Inc. and Wright Turn Entertainment II, Inc., Florida
corporations, and Benjamin Flamm, Angelo Ibanez and Donald Weiss (the
"Flamm Weiss Ibanez Agreement").
14 Instrument of Evidence of Indebtedness relating to the Flamm Weiss
Ibanez Agreement.
15 Schedule I to Asset Purchase Agreement by and among West Coast
Entertainment Corporation, a Delaware corporation, Pottstown Video,
Inc., Coventry Video, Inc., C&V Group, Inc., Shamokin W.C. Video,
Inc., Berwick W.C. Video, Inc., Danville W.C. Video, Inc., Bloomsburg
W.C. Video, Inc., Family Country Video, Inc. and Spring Ford W.C.
Video, Inc., Pennsylvania corporations, and Laurie Curran, Edward
Skypala and Vaughn Zimmerman.
16 Schedule I to Asset Purchase Agreement by and among West Coast
Entertainment Corporation, a Delaware corporation, Dogwood Hill
Enterprises, Inc., a Pennsylvania corporation, and Edwin Knight.
