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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): September 2, 1997
PARTY CITY CORPORATION
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(Exact name of registrant as specified in its charter)
Delaware 0-27826 22-3033692
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(State or other jurisdiction (Commission IRS Employer
of incorporation) File Number) Identification No.
400 Commons Way, Rockaway, New Jersey 07866
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (201) 983-0888
N/A
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(Former name or former address, if changed since last report)
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Item 2. Acquisition of Assets
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(a) On September 2, 1997, the Registrant purchased substantially
all of the assets (the "Assets") of each of Hammond Retailing of Mesquite,
L.C., Hammond Retailing of West Plano, L.C., Hammond Retailing of Richardson,
L.C., Hammond Retailing of Arlington, L.C., Hammond Retailing of Carrollton,
L.C., Hammond Retailing of Irving, L.C., Hammond Retailing of Medallion, L.C.,
Hammond Retailing of Red Bird LLC, Hammond Retailing of Vista Ridge, LLC,
Hammond Retailing of Pleasant Grove, LLC, and Hammond Retailing of White Rock,
LLC, each a Texas limited liability company and a franchisee of the Registrant
(collectively, the "Sellers"), for cash consideration of approximately
$8,390,000, subject to further adjustment. With respect to each of the Sellers
other than Hammond Retailing of Pleasant Grove, LLC, the purchase price was
based in part on the revenues of each of the Sellers. The purchase price with
respect to the purchase of assets from Hammond Retailing of Pleasant Grove,
LLC, a franchise which commenced operations on June 17, 1997, was based in part
on the cost of inventory and store opening costs and pre-paid expenses incurred
by such Seller. The purchase price of the Assets may be adjusted based on
variations between the Registrant's estimates of inventory value and payable
amounts at closing and actual amounts determined after a post-closing review,
scheduled to occur not later than 90 days from the closing date.
In anticipation of completing the purchase of the Assets, on July 7,
1997, the Registrant assumed the obligations of Hammond Retailing of Plano East,
LLC, a franchisee of the Registrant, in connection with the pending opening of a
Party City(R) store in Plano East, Texas, including the existing real estate
lease agreement, trade payables, inventory cost and opening costs and
pre-opening expenses. Simultaneous with the closing of the purchase of the
Assets, the Registrant remitted to Hammond Retailing of Plano East, LLC
approximately $98,000 in satisfaction of such obligations.
The funds used for the acquisition of the Assets and the opening of the
Plano East store were obtained from a draw on a line of credit provided by PNC
Bank, National Association. Amounts borrowed under this line bear interest at
the Registrant's option at 1/2 of 1% below the bank's prime rate (8.5% as of
September 1, 1997) or LIBOR plus 1.25% (which margin for the LIBOR rate option
is subject to reduction to .75% or increase to 1.75% based on the Company's
ratio of total liabilities to tangible net worth), and are secured by a
blanket lien on the Registrant's tangible and intangible assets.
(b) Prior to the acquisition, each of the Sellers used the assets
in its business as a speciality retailer of party supplies as a franchisee of
the Registrant. Registrant plans to continue this business with the Assets in
the same manner and to integrate each of the businesses of the Sellers with the
Registrant's other Party City(R) stores. Prior to the acquisition of the
Assets, there was no relationship between the Registrant (and/or any of its
affiliates, directors, officers or any associates of any of such director or
officer), and any of the Sellers.
Item 7. Financial Statements and Exhibits
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(a) Financial Statements of Businesses Acquired. Registrant is
unable to provide the required financial statements for the acquired businesses
at this time because such financial statements are not available. The required
financial statements are currently being prepared and will be filed under cover
of an amendment to this Form 8-K as soon as practicable, but not later than 60
days after the date on which this report on Form 8-K must be filed.
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(b) Pro Forma Financial Information. Registrant is unable to
provide the required pro forma financial information to reflect the acquired
businesses at this time because such financial information is not available.
The required pro forma financial information is currently being prepared and
will be filed under cover of an amendment to this Form 8-K as soon as
practicable, but not later than 60 days after the date on which this report on
Form 8-K must be filed.
(c) Exhibits.
2.1 Asset Purchase Agreement dated as of September 2, 1997
by and among the Registrant and Hammond Retailing of
Mesquite, L.C., Hammond Retailing of West Plano, L.C.,
Hammond Retailing of Richardson, L.C., Hammond Retailing
of Arlington, L.C., Hammond Retailing of Carrollton,
L.C., Hammond Retailing of Irving, L.C., Hammond
Retailing of Medallion, L.C., Hammond Retailing of Red
Bird LLC, Hammond Retailing of Vista Ridge, LLC, Hammond
Retailing of Pleasant Grove, LLC, Hammond Retailing of
White Rock, LLC, Hammond Communications, Inc. and
Mr. Geoffrey Hammond (without exhibits or schedules).
2.2 Letter Agreement by and between the Registrant and
Hammond Retailing of Plano East, LLC dated July 7, 1997.
10.1 Third Amendment to Loan and Security Agreement dated as
of June 16, 1997, between the Registrant and PNC Bank,
National Association.
SIGNATURES
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.
Party City Corporation
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(Registrant)
Date: September 12, 1997 By: /s/ David E. Lauber
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David E. Lauber,
Executive Vice President
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EXHIBIT INDEX
ITEM NO. DESCRIPTION
2.1 Asset Purchase Agreement dated as of September 2, 1997
by and among the Registrant and Hammond Retailing of
Mesquite, L.C., Hammond Retailing of West Plano, L.C.,
Hammond Retailing of Richardson, L.C., Hammond Retailing
of Arlington, L.C., Hammond Retailing of Carrollton,
L.C., Hammond Retailing of Irving, L.C., Hammond
Retailing of Medallion, L.C., Hammond Retailing of Red
Bird LLC, Hammond Retailing of Vista Ridge, LLC, Hammond
Retailing of Pleasant Grove, LLC, Hammond Retailing of
White Rock, LLC, Hammond Communications, Inc. and
Mr. Geoffrey Hammond (without exhibits or schedules).
2.2 Letter Agreement by and between the Registrant and
Hammond Retailing of Plano East, LLC dated July 7, 1997.
10.1 Third Amendment to Loan and Security Agreement dated as
of June 16, 1997, between the Registrant and PNC Bank,
National Association.
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EXHIBIT 2.1
ASSET PURCHASE AGREEMENT
This asset purchase agreement ("Agreement") is made and entered into as
of the 2nd day of September, 1997, by and among Party City Corporation, a
Delaware corporation with its principal offices located at 400 Commons Way,
Rockaway, New Jersey 07866 ("Purchaser"), and each of the following Texas
limited liability companies: Hammond Retailing of Mesquite, L.C., Hammond
Retailing of West Plano, L.C., Hammond Retailing of Richardson, L.C., Hammond
Retailing of Arlington, L.C., Hammond Retailing of Carrollton, L.C., Hammond
Retailing of Irving, L.C., Hammond Retailing of Medallion, L.C., Hammond
Retailing of Red Bird LLC, Hammond Retailing of Vista Ridge, LLC, Hammond
Retailing of Pleasant Grove, LLC, Hammond Retailing of White Rock, LLC,
(hereinafter collectively referred to as the "Sellers"), Hammond Communications,
Inc. and Mr. Geoffrey Hammond, member and manager of each of the Sellers (the
"Principal").
RECITALS
WHEREAS, Sellers, as franchisees of Purchaser, are each engaged in the
business of supplying to the consumer certain retail party goods and related
products and accessories through the operation of Party City(R) franchise party
products stores located at the addresses set forth on Exhibit 1.00(a) attached
hereto (collectively, the "Premises");
WHEREAS, Sellers utilize specially designed buildings or facilities with
specifically developed layout interior and exterior designs and accessories,
identification programs, management programs, standards, distributions and
delivery methods, specifications and proprietary intellectual property, all of
which are more fully described in the franchise agreements, by and between
Purchaser and each respective Seller as set forth on Exhibit 1.00(b) attached
hereto (collectively, the "Franchise Agreements"), in the business of the retail
sale of party goods and related products and accessories (the "Businesses");
WHEREAS, Hammond Communications, Inc., an affiliate of Sellers, and
Purchaser have entered into a certain development agreement dated August 13,
1992 ( a copy of which is attached hereto as Exhibit A) (the "Development
Agreement");
WHEREAS, Sellers desire to convey and assign the Purchased Assets (as
defined herein) and the Assumed Liabilities (as defined herein) to the Purchaser
upon the terms and subject to the conditions set forth in this Agreement; and
WHEREAS, Purchaser desires to purchase the Purchased Assets and assume
the Assumed Liabilities upon the terms and subject to the conditions set forth
in this Agreement.
AGREEMENT
NOW, THEREFORE, in consideration of the premises and mutual promises
contained herein, the parties hereto agree as follows:
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SECTION 1
ACQUISITION OF ASSETS
1.01 Assets to be Conveyed. On the terms and subject to the conditions
contained herein and in the Bill of Sale attached hereto in substantial form as
Exhibit 1.01, on the Closing Date (as that term is defined in Section 3.01
hereof) Sellers shall convey, transfer, assign, sell and deliver to Purchaser,
and Purchaser shall acquire, accept and purchase, all right, title and interest
in and to those certain assets of Sellers currently used by Sellers in the
normal, ordinary course of the operation of the Businesses at the Premises
(excluding the Excluded Assets defined hereinbelow) including, but not limited
to, all of the following assets, properties and rights of Sellers described in
items (a) to (h) below (hereinafter, collectively, the "Assets"):
(a) All Inventory, Pleasant Grove Store Inventory and the Card
Inventory, as determined in accordance with the terms and conditions contained
in Sections 2.01 and 2.02 (all as defined in Sections 2.01(c), 201(d) and
2.02(a) hereof), including any miscellaneous office supplies, packing and
maintenance materials and other similar items of Sellers on the Premises
relating to the Businesses;
(b) All (i) finished goods or services for which payment has
been made but which are not in inventory on the Premises, or otherwise tendered
to the Businesses, to the extent such service or goods will be utilized by the
Businesses after the Closing Date (the "Prepaid Items") and (ii) deposits made
by customers for products ordered but not delivered before the Closing Date
(the "Customer Deposits").
(c) Except as expressly reserved to Sellers in Section 1.02, all
of the Sellers' right, title and interest in and to all leases for realty or
personalty, including the real property leases for each of the Premises,
subleases, licenses, permits, and easements (and rights-of-way and all permits,
approvals or qualifications relating to such property issued to Sellers by a
governmental authority) relating to the Businesses. Schedule 1.01(c) attached
hereto contains a list of all leases for realty utilized by the Sellers in the
operation of the Businesses at the Premises.
(d) All of the right, title and interest in and to the
Businesses conducted by Sellers and the business records together with copies
of all books, records, accounts, price lists, sale lists, correspondence,
formulations, customer lists, supplier lists, marketing techniques and
procedures, intellectual property rights, computer programs, software
(together with the licenses for such software), data bases, whether in the form
of computer tapes or otherwise, related object and source codes, manuals and
guide books and any other confidential information and other documents relating
to or arising out of the Businesses assignable by Sellers and not otherwise
subject to third-party restrictions on transfer (the "Business Records"). Upon
the request of any Seller, Purchaser shall provide Seller with access to the
Business Records subsequent to the Closing Date to enable such Seller to
fulfill any of its post Closing obligations. In furtherance of the foregoing,
Purchaser
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covenants and agrees to retain copies of such Business Records for at least
seven (7) years following the Closing Date.
(e) All of Sellers' and Hammond Communications, Inc.'s right,
title and interest in and to the Development Agreement, the Franchise
Agreements, the leases set forth on Schedule 1.01(c) and all contracts,
commitments and agreements (including but not limited to vendor contracts)
relating to the Businesses (hereinafter collectively the "Contracts"), all as
set forth on Schedule "1.01(e)" attached hereto.
(f) All of the equipment, furnishings, fixtures, signs and
improvements located upon or attached to the Premises and other items of
tangible personal property owned by Sellers used in the Businesses (the "Fixed
Assets"). Schedule "1.01(f)" attached hereto sets forth a list of all such
equipment owned by Sellers.
(g) All of Sellers' right, title and interest in and to the
goodwill of the Sellers.
(h) To the extent any Assets of the Sellers are intended to be
transferred to the Purchaser pursuant to the general language of this Section
1.01, but do not appear on the applicable Schedules, the general language of
this Section 1.01 shall govern and such Assets shall nonetheless be deemed
transferred to Purchaser, subject to the other terms of this Agreement.
1.02 Excluded Assets. Sellers are not selling, and Purchaser is not
purchasing, any of the following assets, all of which shall be retained by
Sellers (the "Excluded Assets"):
(a) Cash and Cash Equivalents. Except as described in Section
1.01(b)(ii) hereinabove, any cash on hand, deposits in banks, cash equivalents,
investment securities and deposits existing of whatever nature (i.e., leasehold
deposits, utility deposits, etc.) on the Closing Date, and rebates owed to any
Seller for purchases made prior to the Closing Date.
(b) Government Refunds. Notwithstanding Section 1.01(h), any
and all claims for tax refunds or other refunds of monies paid to any
governmental authority.
(c) Prepaid Taxes and Assessments. Schedule 1.02(c) attached
hereto sets forth certain prepaid taxes, assessments and service fees which
relate to the Businesses, for which the Purchaser will receive service or
benefit by its use of the Premises or operation of the Businesses. The amounts
prepaid will be prorated by Sellers at Closing (by way of update to Schedule
1.02(c)) as of the Closing Date and any such amounts not relating to the
pre-Closing period shall be paid to the Sellers upon the Closing Date with any
adjustments thereto being made on the Settlement Date.
(d) Allocation of Charges. Schedule 1.02(d) sets forth
charges for license and permit fees, rent, utilities, taxes, and additional
charges relating to assets purchased or liabilities assumed by Purchaser, with
Sellers to bear such charges accruing on or before the Closing Date, and
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Purchaser thereafter, and such apportionment will be paid to the party owed upon
the Closing Date with any adjustments thereto being made on the Settlement Date.
(e) Any rights under contracts not expressly assumed by
Purchaser pursuant to Section 1.01(e).
The calculation and payment of all prorations and allocations as set forth
in clauses (c) and (d) above, to the extent not addressed on the Closing Date,
will be made on the Settlement Date (as defined in Section 2.01(b)(i) hereof).
1.03 Non-Assumption of Liabilities. Except for (i) as otherwise
specifically assumed by Purchaser pursuant to Section 1.01(c), and Section
1.01(c), (ii) trade payables incurred in the ordinary course of business of the
Businesses as set forth on Schedule 1.03 attached hereto, as may be amended by
agreement of Sellers and Purchaser after the Closing Date and on or before the
Settlement Date ("Trade Payables"), and (iii) open purchase orders for the
purchase of inventory, incurred in the ordinary course of business of the
Businesses and as otherwise specifically disclosed in Schedule "1.03" attached
hereto as may be amended by agreement of Purchaser and Sellers after the Closing
Date and on or prior to the Settlement Date (collectively, such purchase orders
and other obligations, together with the Trade Payables, the "Assumed
Liabilities"), the Purchaser shall not be obligated pursuant to this Agreement
to assume and is not liable for any liabilities, obligations or commitments of
the Sellers of any nature whatsoever, including, but not limited to, (i) any
payments or liabilities pursuant to contracts or leases assumed in writing by
Purchaser pursuant to Section 1.01(c) and Section 1.01(e) hereof which relate to
the period prior to the Closing Date, (ii) any liabilities, obligations or
commitments not related to the Premises or Businesses of Sellers, (iii) Sellers'
debt or any portion thereof, (iv) any liability for foreign, United States
Federal or state or local taxes (of any nature, including, but not limited to,
sales, income and unemployment taxes) of the Sellers or any person for whom the
Sellers may be liable for the payment of taxes, or, any real or personal
property taxes or assessments, permit or license fees, or utility charges or any
similar taxes, assessments, fees or charges on or against the Assets or the
Businesses which relate to the period prior to the Closing Date, (v) any
liabilities or expenses to be borne by the Sellers hereunder or under applicable
law, (vi) any employment agreements or bonus arrangements of Sellers, (vii) any
liability of Sellers relating to any matters presently in litigation,
arbitration, mediation, or any other suit, agency proceeding, investigation,
notice of violation or any such action which may arise in the future due to a
matter which occurred prior to the Closing Date, and (viii) any other
liabilities of Sellers arising prior to the Closing Date, whether accrued,
absolute, contingent or otherwise. The Purchaser expressly assumes the Sellers'
obligations for payment or performance arising on or after the Closing Date with
respect to the Premises, the Contracts and all other Assumed Liabilities.
1.04 Further Assurances. From time to time after the Closing, Sellers
shall execute and deliver to Purchaser such instruments of sale, transfer,
conveyance, assignment and delivery, consents, assurance, powers of attorney and
other instruments as may reasonably be requested by counsel for Purchaser in
order to vest in Purchaser all right, title, and interest in and to the Assets,
and otherwise, in order to carry out the purpose and intent of this Agreement.
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1.05 Schedule Updates. Sellers shall update and deliver Schedules
"1.01(c)", "1.01(e)", and "1.01(f)" as of the Closing Date. Schedules 1.02(c),
1.02(d) and 1.03 shall be updated on the Settlement Date.
SECTION 2
CONSIDERATION TO BE PAID BY PURCHASER
2.01 Purchase Price to be Paid by Purchaser. Subject to the terms and
conditions of this Agreement and in reliance on the representations, warranties
and agreements of Sellers, subject to the performance of the covenants and
agreements, all as contained herein, and in consideration of the sale and
delivery of the Assets, Purchaser shall deliver to Sellers: SEVEN MILLION, NINE
HUNDRED THOUSAND DOLLARS ($7,900,000), plus a return of fees previously paid by
Sellers pursuant to the Development Agreement in an amount of ONE HUNDRED FIFTY
THOUSAND DOLLARS ($150,000), plus EIGHT HUNDRED DOLLARS ($800) for the office
equipment of Mr. Les Wozniak located at the Richardson, Texas Premises (in total
EIGHT MILLION FIFTY THOUSAND EIGHT HUNDRED DOLLARS ($8,050,800)), subject to the
inventory and other adjustments contained herein, plus prepaid expenses and
deposits as of the Closing Date, plus the cost of new fixtures added to the
Premises after June 1, 1997, at the request of the Purchaser, plus the purchase
price for the business assets of the Premises owned and operated by Hammond
Retailing of Pleasant Grove, LLC (the "Pleasant Grove Store") as set forth in
subsection (d) below (in total, the "Purchase Price").
The Purchase Price payments, adjustments and adjustment payments will be
made as follows below:
(a) SIX MILLION NINE HUNDRED FIFTY THOUSAND EIGHT HUNDRED
DOLLARS ($6,950,800), plus 90% of the total cash consideration owing for the
Pleasant Grove Store, as estimated by mutual agreement among such Seller and
Purchaser, plus an estimated value agreed to by the Purchaser and the Sellers
for the above-described fixtures purchased after June 1, 1997 (at the request of
the Purchaser), plus agreed to prepaid expenses and deposits shall be paid by
Purchaser to the Sellers by certified check or wire funds on the Closing Date.
(b) ONE MILLION ONE HUNDRED THOUSAND DOLLARS ($1,100,000), plus
10% of the consideration of the Purchase Price arising for the Pleasant Grove
Store (as estimated by mutual agreement of Sellers and the Purchaser) shall be
paid in cash by the Purchaser to PNC Bank National Association (the "Escrow
Agent") on the Closing Date to be held pursuant to the Escrow Agreement
(attached hereto in substantial form as Exhibit 2(b)) (the "Escrow Agreement")
in escrow ("Escrow") and released pursuant to the terms set forth in Sections
2.02 and 2.03 below and the Escrow Agreement.
(i) An estimate of the consideration to be paid by the
Purchaser for the Pleasant Grove Store is set forth on Schedule 2.01(b)(i) and
such estimate will be paid by the Purchaser on the Closing Date as provided in
Sections 2.01(a) and 2.01(b). Based upon each party's
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post Closing review of the inventory taken and the documents
supporting the estimated opening costs, Prepaid Items and Customer
Deposits and the losses (if any) and gains (if any) for the Pleasant
Grove Store, any adjustment to the consideration paid by the
Purchaser for the Pleasant Grove Store shall be made on the Settlement
Date. For purposes of this Agreement, the term "Settlement Date"
shall mean the closest business day 90 days after the Closing Date.
(ii) An estimate of the consideration to be paid by the
Purchaser for the Prepaid Items and Customer Deposits for the Businesses
located at the Premises (other than the Pleasant Grove Store), the cost of new
fixtures added to all the Businesses located at the Premises after June 1, 1997
at the request of the Purchaser, and accounts receivable is set forth in
Schedule 2.01(b)(ii) hereto, and such estimates will be paid by the Purchaser on
the Closing Date as provided in Section 2.01(a). Based upon each party's
post-Closing review of the documents supporting the aforementioned estimates of
the Prepaid Items and Customer Deposits, the cost of new fixtures and the amount
of the accounts receivable, any adjustment to the consideration paid by the
Purchaser to Seller for such items shall be made on the Settlement Date.
(c) In addition to the Purchase Price for the assets being transferred
and conveyed, Purchaser will pay the cost paid by Sellers to vendors for the
Sellers' "make your own card" inventory (hereinafter the "Card Inventory"). An
estimate of the value of the Card Inventory is set forth on Schedule 2.01(c) and
the Purchaser will deposit such estimate with the Escrow Agent on the Closing
Date. The value of the Card Inventory was taken as of approximately July 31,
1997 and will be adjusted to reflect sales subsequent thereto to the September
2, 1997 Closing Date (the "Adjustment Amount"). In the event that the Purchaser
determines, on or prior to November 30, 1997, to continue the utilization or the
"make your own card" program, the total amount held in Escrow with respect to
this inventory less the Adjustment Amount shall be forthwith paid over by the
Escrow Agent to the Sellers. The Adjustment Amount shall be forthwith paid over
by the Escrow Agent to Purchaser. In the event that the Purchaser determines by
way of written notice to Sellers, on or before November 30, 1997, to discontinue
the "make your own card" program it will: (i) continue to attempt to sell the
Card Inventory on behalf of Sellers through December 31, 1997 at a price no
lower than Sellers' cost; (ii) on December 31, 1997 take a physical inventory of
the balance of the Card Inventory (at Purchaser's expense); (iii) have the
Escrow Agent remit to the Sellers the dollar amount received by Purchaser for
the Card Inventory sold subsequent to the Closing Date, as determined by the
physical inventory taken on December 31, 1997 and the sales records of
Purchaser; (iv) transfer to the Sellers the balance of the unsold Card
Inventory; and (v) direct the Escrow Agent to remit to the Purchaser the balance
of the original value of the Card Inventory held in Escrow after the payment is
made pursuant to clause (iii) above. In the event that the Purchaser fails to
notify the Sellers in writing by November 30, 1997 of its election to continue
or discontinue the "make your own card" program, the Purchaser shall be deemed
to have elected to continue the program.
(d) The Purchaser shall purchase all Assets (excluding the Excluded
Assets) relating to the business and operations of the Pleasant Grove Store,
located at Pleasant Grove
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Shopping Center, 1437 South Buckner Blvd., Dallas, Texas, by paying to said
Seller: (a) the cost basis of all inventory relating to the Pleasant Grove
Store, based upon a physical inventory taken pursuant to the same terms and
conditions as set forth for taking inventory in Section 2.02 below (the
"Pleasant Grove Store Inventory"), (b) documented opening costs and prepaid
expenses and deposits relating to the Pleasant Grove Store, including costs for
plant, property, and equipment and (c) all documented losses as calculated from
June 17, 1997 to the Closing Date (as defined in Section 3 hereof); provided,
however, that if the Pleasant Grove Store achieves earnings during the period
from June 17, 1997 to the Closing Date, such earnings are for the benefit of the
Purchaser and shall be remitted to the Purchaser upon the Settlement Date.
Purchaser and Sellers agree to cooperate in good faith in the preparation of an
income statement for the period from June 17, 1997 through the Closing Date to
determine the net income or net loss for the Pleasant Grove Store. To the
extent that the Purchaser assumes any liabilities other than those set forth
herein which arose prior to the Closing Date, such assumption will reduce the
amount to be paid by the Purchaser for the Pleasant Grove Store and in the event
such liability exceeds the purchase price for the Pleasant Grove Store, a
payment equal to the amount of such excess will be made by the Sellers to the
Purchaser on the Settlement Date. In addition, upon receipt by the Purchaser of
a list of payables with respect to the Pleasant Grove Store, the Purchaser will
contact such creditors and arrange for deferment of such payables (and any
future payables) until the closing of this Agreement. The foregoing deferment is
a condition precedent to the closing of this Agreement.
2.02 Inventory Value. (a) The value of the inventory for purposes of
Section 2.02(b) and Section 2.02(c) below will be based upon a physical
inventory taken of the inventory on hand at Sellers' Premises by RGIS. Upon
completion of such physical inventory, RGIS, the Sellers and the Purchaser
shall prepare an inventory schedule detailing as follows: (i) inventory which
does not include inventory items discontinued for use by the Business, (ii)
inventory consisting of discontinued items to the extent that such items are
subject to vendor agreements wherein vendors are required to repurchase such
items ("Repurchase Agreements") and (iii) discontinued items for which no
Repurchase Agreement exists in an amount not to exceed an aggregate of One
Hundred Sixty Five Thousand Dollars ($165,000) (all such inventory exclusive
of the Card Inventory and the Pleasant Grove Store Inventory is hereinafter
referred to as the "Inventory"). The costs, fees and expenses of RGIS will be
shared equally between Sellers and Purchaser upon the Settlement Date. In the
event that RGIS is unable to take the inventory on the desired date,
the inventory will be taken on a date as close as possible thereto and
appropriate adjustments shall be made to such inventory to determine it as
of the Closing Date.
(b) The Inventory shall be valued at : (i) cost as determined
by the Party City(R) inventory system regularly used by Purchaser and its
franchisees in the ordinary course of their business without regard to labor or
any other overhead for those inventory items described in Section 2.02(a)(i)
above; (ii) the price as set forth in the Repurchase Agreement for those
inventory items described in Section 2.02(a)(ii) above; and, (iii) at 50% of
the cost, subject to an aggregate cap of One Hundred Sixty Five Thousand
Dollars ($165,000) for items described in Section 2.02(a)(iii) above (the
aggregate of the value of the Inventory as determined in accordance with the
provisions of Section 2.02(a) and Section 2.02(b) is hereinafter referred to as
the "Inventory Value").
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(c) The Pleasant Grove Store Inventory shall be valued at cost as
determined by the Sellers in accordance with Sellers' books and records (the
aggregate of the value of the Pleasant Grove Inventory is hereinafter referred
to as the "Pleasant Grove Store Inventory Value").
(d) The Purchase Price shall be adjusted upward or downward on the
Settlement Date by the amount that the aggregate Inventory Value minus the
aggregate Trade Payables is lesser or greater than TWO MILLION SIX HUNDRED AND
TWENTY FIVE THOUSAND DOLLARS ($2,625,000) (exclusive of the value of the
Pleasant Grove Store Inventory Value and the Card Inventory Value) (the
"Adjusted Purchase Price").
2.03 Adjusted Payments. Payments required to be made as a result of an
adjustment to any portion of the Purchase Price, as well as the allocation
determination set forth in Section 4 below, shall occur upon the Settlement
Date. The monies deposited into the Escrow Account shall be used as security for
any adjustments required to be made to the Purchase Price, as security for the
value of the Card Inventory and as security for the indemnification obligations
described in Section 11.01; provided, however, it is understood and agreed to
that the release of said monies from Escrow shall not be delayed if there are no
current claims for indemnity as of the release date. The parties shall cooperate
in good faith with each other to determine the adjustments, if any, to the
Purchase Price and the value of the Card Inventory and disburse the sums held in
Escrow as soon as possible. Except where specifically stated otherwise herein,
and in the Escrow Agreement, for all other fees and expenses, the Purchaser and
Sellers will each be solely responsible for their respective expenses of
entering into this agreement, including, without limitation, fees and expenses
of legal counsel, accountants or other advisors incurred in connection with the
transactions contemplated hereby. A "business day" is any day upon which PNC
Bank, National Association is open for business to the general public. Subject
to the Sellers' obligations under Section 11.01 hereof and Purchaser's set-off
rights described in Section 11.03, it is the intent of the parties that all sums
held in Escrow (other than the sums associated with the Card Inventory) be
disbursed on the Settlement Date. THE SELLERS AGREE THAT ALL PAYMENTS DUE FROM
THE PURCHASER OR THE ESCROW AGENT TO THE SELLERS IN CONNECTION HEREWITH SHALL BE
MADE TO MR. GEOFFREY HAMMOND ON BEHALF OF THE SELLERS, AND MR. GEOFFREY HAMMOND
SHALL DISTRIBUTE SUCH FUNDS AMONGST THE SELLERS IN RELATION TO THE PURCHASED
ASSETS SOLD BY EACH SELLER HEREUNDER AND/OR IN ACCORDANCE WITH ANY APPLICABLE
PARTNERSHIP OR OPERATING AGREEMENTS, OR AS OTHERWISE AGREED TO AMONGST THE
SELLERS. The parties further agree that any interest earned on the monies held
in escrow shall be disbursed to the party entitled to receive the principal of
the escrowed funds (i.e., if a party receives 50% of the principal amount of the
escrowed funds, such party would also receive 50% of the interest accrued
through the date of disbursement).
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SECTION 3
CLOSING DATE
3.01 The closing of the sale and purchase of the Assets shall close in
accordance with the terms and conditions hereof. The closing shall take place
at the offices of St. John & Wayne, L.L.C., Two Penn Plaza East, Newark, New
Jersey 07105, after the satisfaction of the terms and conditions set forth in
this Agreement (the "Closing") no later than September 2, 1997 (the "Closing
Date").
SECTION 4
ALLOCATION
4.01 Allocation. The Purchaser and Sellers agree that they shall
execute Schedule "4.01" to be delivered on the Settlement Date which shall be
an allocation of the Purchase Price of the Assets once the various levels of
Assets have been ascertained in accordance with appropriate tax laws. Such
allocation shall provide: (a) a valuation for furniture, fixtures, equipment
and all other fixed assets for each of the stores; (b) a valuation of the
Inventory, the Inventory and the Card Inventory to reflect the value as
calculated under Section 2.02 hereof; and (c) a valuation of all other items
including good will, if any, in the amount equal to the balance of the Purchase
Price as adjusted upon the Settlement Date.
SECTION 5
REPRESENTATIONS AND WARRANTIES
Representation and Warranties of the Sellers. Sellers each hereby
severally represent and warrant to Purchaser as follows:
5.01 Organization of Sellers. (a) Sellers are limited liability
companies duly organized, validly existing and in good standing under the laws
of the State of Texas and have the full power and authority to conduct their
Businesses as they are now being conducted and to own and operate the
properties and Assets now owned and operated by them; (b) the execution and
delivery of this Agreement and the performance by Sellers of their obligations
hereunder have been duly authorized by all necessary limited liability company
action; (c) this Agreement is a valid and binding obligation of each of the
Sellers enforceable against them in accordance with its terms, except as
enforceability of this Agreement may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium or other similar laws affecting
creditors' rights generally.
5.02 Sellers - Execution of Documents. Neither the execution and
delivery of this Agreement nor the performance by the Sellers of any of their
obligations hereunder nor the consummation of any of the transactions
contemplated hereby will (a) violate or conflict with any agreement to which
the Sellers are a party or by which the Sellers or any of their properties may
be
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bound; (b) violate or conflict with any provision of the Sellers' Certificates
of Organization or other organizational documents or any applicable law, rule or
regulation or any order or decree of any court or other agency of government;
(c) be prevented, limited by or be in conflict with or result in a breach of or
default under any indenture, agreement or other instrument to which the Sellers,
or any of them, are a party or by which either of them or any of their property
is bound; or (d) result in the creation or imposition of any charge or
encumbrance of any nature on the Assets.
5.03 No Consent. To Sellers' knowledge, no consent, approval or
authorization of, designation, declaration or filing with, any governmental
authority on the part of the Sellers is required as a condition to the valid
execution and delivery of this Agreement by the Sellers or any of them, or the
sale of the Assets pursuant to this Agreement, except for (i) such as have been
duly made or obtained and (ii) the consent of the landlord to the assignment of
the lease described in Section 11.05(c) hereof.
5.04 Financial Statements. The financial statements of each Seller for
the year ended December 31, 1996 are hereinafter referred to as the "Financial
Statements", all of which have been previously delivered to Purchaser and are
attached hereto as Schedule "5.04", and are complete and correct, fairly present
the financial position of each Seller and the results of its operations as of
the respective dates and for the periods indicated thereon. No Seller has any
material liability or obligation, fixed, contingent, known, unknown or
otherwise, not reflected in its respective balance sheets included in the
Financial Statements, except for liabilities or obligations incurred between
December 31, 1996 and the Closing Date, in the ordinary and usual course of
Business, consistent with the representations and warranties set forth herein.
Each of the Sellers represent and warrant that it has available to it operating
statement data for each of the Sellers for the six (6) months ended June 30,
1997 and 1996 which shall be sufficient in all material respects to permit
Sellers' accountant, or the Purchaser's account as the parties may otherwise
agree, to prepare an unaudited balance sheet for the six (6) month period ended
June 30, 1997 and a comparative income statement for the six (6) months ended
June 30, 1997 and 1996, in such form as will be acceptable for filing with the
U.S. Securities and Exchange Commission.
5.05 Taxes. All taxes, assessments and other governmental charges
imposed upon or applicable to the Assets or the Businesses required to be
collected by the Sellers pursuant to any sales or use tax or otherwise as of the
Closing Date have been paid in full or will be paid in full by each of the
Sellers if not yet due.
5.06 Adverse Developments. Except as may be set forth on Schedule
"5.06", since December 31, 1996 and up to the Closing Date there has not been
(i) any damage, destruction or loss, whether covered by insurance or not,
materially and adversely affecting the Assets or the Businesses of Sellers; (ii)
to the Seller's knowledge, any labor or employment matter or complaint filed
with any court or any federal or state agency; (iii) any taking of property by
any governmental agency; (iv) any adverse change in the condition (financial
condition or operations) of any of the Sellers and there has been no occurrence,
circumstances or combination thereof which might reasonably be expected to
result in any such adverse effect before or after the Closing Date. Since
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December 31, 1996, Sellers have not (a) sold, assigned, transferred, pledged or
granted rights, in, to or under any of the Assets except for sales in the
ordinary course of Business; (b) failed to pay any taxes when due; or (c) been
notified or otherwise become aware of any claim, which could have a material
adverse effect on the Assets or Business of any of the Sellers, or asserting
any right with respect to the Assets of Businesses, and to the knowledge of
Sellers there is no basis for any such action or claim.
5.07 Title to Properties; Encumbrances, etc. Except for the financing
statements relating to lease-financing as set forth on Schedule "5.07" attached
hereto, Sellers have the sole and exclusive, good and marketable, title to all
the Assets (other than those Assets under lease to Sellers), free and clear of
all liens, security agreements, options, claims, restrictions, encroachments,
defects in title, easements, pledges, charges or encumbrances of any kind or
nature whatsoever (other than those in the ordinary course of business). Except
as set forth on Schedule "5.07" attached hereto, all of the tangible Assets of
the Sellers that are used or useful in the Businesses being conducted by Sellers
are in good operating condition and repair, and free from all material defects
subject only to normal wear and tear. No financing statement pursuant to the
applicable uniform commercial code of the state at issue with respect to any
Asset has been filed in any jurisdiction and Sellers have not signed any such
financing statement or security agreement authorizing such a filing, except as
set forth on Schedule 5.07 attached hereto. The parties agree to cooperate
following the Closing so as to obtain releases and/or termination statements
for the financing statements listed in Schedule 5.07.
5.08 No Infringement. The conduct of the Businesses of Sellers as
heretofore carried on is free from any known infringement of patents,
trademarks, trade name rights, copyrights or publication rights of others.
5.09 Contracts and Commitments. The Sellers have made available to the
Purchaser true and complete copies of all of the written contracts referred to
on the Schedules hereto.
5.10 Power of Attorney. The Sellers have not given any irrevocable
power of attorney to any person, firm or corporation for any purpose whatsoever
which relates to the Assets or Businesses of Sellers.
5.11 Employees and Affiliates, etc. Sellers have no outstanding
contracts with officers, employees, agents, consultants, advisers, salesmen,
sales representatives, distributors or dealers which relate to the Businesses
of Sellers that are not cancelable by the Sellers on notice of not more than 30
days and without liability, penalty or premium.
5.12 Employment/Collective Bargaining Agreements. Sellers are not a
party to any collective bargaining agreement or agreements and have no
knowledge of any attempt to organize the employees in a collective bargaining
unit currently in process with respect to the Businesses of any of the Sellers.
There are no known writs, actions, claims or legal, administrative,
arbitration or other proceedings or governmental investigations pending or
threatened against Sellers involving civil rights violations, unfair labor
practice claims, back pay orders, discrimination, sexual
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harassment or other similar claims or proceedings, and the Sellers do not know,
of any basis for any such writ, action, claim, proceeding or investigation.
5.13 Compliance with Laws. To the knowledge of Sellers, the Sellers,
with respect to the Businesses, have complied with and are presently complying
with all material laws, municipal by-laws, regulations, rules, orders,
judgments, ordinances, decrees and other requirements and policies imposed by
any governmental authority applicable to the Businesses. Without in any way
limiting the generality of the foregoing, the Sellers, with respect to the
Businesses of Sellers, are, to the knowledge of Sellers, in material compliance
with:
(a) all laws relating to the protection of human health and
safety, including, without limitation, the Occupational Safety and Health Act of
1970, as amended, and all regulations and standards issued thereunder by the
Secretary of Labor or the Occupational Safety and Health Administrator or other
governmental agency or authority acting as any time thereunder and all state and
municipal equivalents of worker safety laws, regulations or ordinances;
(b) all laws relating to equal employment opportunity; and
(c) all zoning, building and other laws, ordinances, rules,
regulations, plans and directives of governmental authorities, Boards of Fire
Underwriters and other entities having jurisdiction in each case without
reliance of non-conforming use or similar rules; and the Sellers have not
received any notice or citation of noncompliance with respect to any of the
foregoing, and there exists no condition, situation or circumstance, which,
after notice or lapse of time, or both, would constitute noncompliance with or
give rise to future liability with regard to any of the foregoing: provided,
however, this clause (c) shall not be applicable to any instances of
noncompliance caused by or relating to any acts of lessors of any leased
Property.
5.14 Litigation. Except as set forth in Schedule "5.14", there is no
material suit, action, claim, or legal, administrative, arbitration, or other
proceeding or governmental investigation, pending or, to the knowledge of any of
the Sellers, threatened against the Sellers which might materially adversely
affect the conduct of each of the Businesses of each of the Sellers, or the
Assets, or the transactions contemplated hereby, including, without limitation,
any products liability, workers' compensation, or wrongful dismissal claims or
claims, actions, suits, or proceedings relating to health and safety, toxic
materials, hazardous substances, pollution or the environment, and Sellers do
not know of any basis for any such suit, action, claim or legal, administrative,
arbitration or other proceedings or governmental investigation.
5.15 No Defaults. Seller is not in material default or otherwise
delinquent in payment or performance pursuant to any lease, agreement, contract,
commitment, plan, license or other arrangement to which they are a party or by
which they or their properties may be bound with respect to the Businesses of
Sellers. Notwithstanding the foregoing, the Purchaser has inspected the Premises
of the Businesses and accepts such Premises, and all equipment and machinery
thereat, and
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will make no claim against Sellers for any failure to conform to the
requirements of any Franchise Agreement or any other prior request of the
Purchaser.
5.16 Insurance Policies. Schedule "5.16" attaches copies of all
insurance policies relating to the Businesses of the Sellers naming the Sellers
as insured. Such policies are in full force and effect, with all premiums due
thereon paid. The Sellers have complied in all material respects with the
provisions of such policies and the Sellers have furnished, or will furnish,
prior to the Closing Date, to the Purchaser true and complete copies of all such
policies. The Sellers have not received any notices of, or been threatened with,
cancellation of its policies of insurance, nor have the Sellers received any
notices of requirements or recommendations of the insurance carriers which
require or recommend modifications to the Premises or Assets which, if not
complied with, would result in cancellation or non-renewal of such policy or
policies or an increase in the premiums for such policy or policies.
5.17 Undisclosed Liabilities. To the knowledge of the Sellers, Sellers
have no material undisclosed liabilities or obligations, either accrued,
absolute, contingent or otherwise to which Purchaser may be subjected by virtue
of this Agreement or the transactions contemplated herein.
5.18 Disclosure. No representation or warranty by the Sellers in this
Agreement, nor any Schedule, statement or certificate furnished, or to be
furnished, by or on behalf of the Sellers to the Purchaser pursuant to this
Agreement, or in connection with the transactions contemplated hereby, or marked
for identification pursuant to this Agreement, contains or will contain any
untrue statement of a material fact, or omits or will omit to state a material
fact necessary to make the statements contained in this Agreement or in its
Schedules not misleading.
5.19 Inventory. Except for discontinued items, the finished goods
inventory purchased by Purchaser hereunder is of a quality and usable and
saleable in the normal course of business. All goods previously sold by Sellers
were of merchantable quality and the Sellers have not breached any express or
implied warranties in such sale.
5.20 Prepaid Items, etc. The Prepaid Items recorded on the balance
sheets included in the Financial Statements constitute a full and complete
presentation of each and every Prepaid Item in the Financial Statements as of
the dates thereof, in accordance with generally accepted accounting principles.
5.21 Fixed Assets. Schedule "1.01(f)" hereto constitutes a true and
complete list of all material items of equipment (including, without limitation,
equipment ordered by Sellers but not yet delivered) owned by the Sellers or with
respect to which Sellers may have ownership rights and which relate to the
Businesses of Sellers, and all such equipment is in good operating condition,
subject to ordinary wear and tear, and free from any material defect and are
located upon the Premises.
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5.22 Brokers. The Sellers have not expressly or impliedly engaged any
broker, finder or agent with respect to this Agreement or any transaction
contemplated hereby.
5.23 Licenses, Permits and Approvals. Each of the Sellers possess all
material licenses, permits, certificates, approvals and other authorizations
necessary to own, lease and operate its Business and the Assets as now
conducted. None of the Sellers have received any notice from any governmental
unit, agency, body or instrumentality, whether federal, state, municipal or
local as to its failure to possess or maintain a license, permit or other
approval necessary for the operation of the Assets or the Business.
5.24 Assets. The Assets being transferred hereunder represent all the
material assets necessary to operate the Sellers' Businesses as such Businesses
are presently being operated by Sellers and upon the transfer of such Assets,
Purchaser shall have all the Assets necessary to operate the Sellers' Businesses
as presently being operated.
5.25 The Premises. The Premises are able to be used as they are
presently being used and can be used in a manner necessary to conduct the
Businesses of Sellers; to the knowledge of Sellers, the Premises are not in
violation of any material law, regulations, rule, order, judgment, ordinance,
zoning or other requirements imposed by any governmental authority or agency,
nor in violation or in obstruction of any material easements, restrictions, or
rights of adjacent landholders.
SECTION 6
REPRESENTATIONS AND WARRANTIES OF THE PURCHASER
Representations and Warranties of the Purchaser. The Purchaser
represents and warrants to the Sellers, Hammond Communications, Inc. and the
Principal as follows:
6.01 Corporate Organization of the Purchaser. The Purchaser is a
corporation duly organized, validly existing and in good standing under the
laws of the State of Delaware and has full power and authority to conduct its
business as it is now being conducted and to own and operate the properties and
assets now owned and operated by it. The execution and delivery of this
Agreement and the performance by the Purchaser of its obligations hereunder
have been duly authorized by all necessary corporate action on the part of the
Purchaser. This Agreement is a valid and binding obligation of the Purchaser
enforceable against the Purchaser in accordance with its terms except as
enforceability of this Agreement may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium or other similar laws affecting
creditors' rights generally.
6.02 Execution of Documents. Neither the execution and delivery of this
Agreement nor the performance by the Purchaser of any of its obligations
hereunder nor the consummation of any of the transactions contemplated hereby
will (a) violate or conflict with any agreement to which the Purchaser is a
party or by which the Purchaser or any of its property may be bound; or (b)
violate or conflict with any provision of Purchaser's Certificate of
Incorporation or By-Laws or any
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applicable law, rule or regulation or any order or decree of any court or other
agency of government; or (c) be prevented, limited by or be in conflict with or
result in a breach of or default under any indenture, agreement or other
instruments to which the Purchaser is a party or by which it or its property is
bound.
6.03 Litigation. There is no material suit, action, claim, or legal,
administrative, arbitration or other proceeding or governmental investigation
pending or, to Purchaser's knowledge, threatened against the Purchaser which
might materially adversely affect the transactions contemplated hereby, and the
Purchaser does not know of any basis for any such suit, action, claim or legal,
administrative, arbitration or other proceeding or governmental investigation.
6.04 Disclosure. No representation or warranty by the Purchaser in this
Agreement, nor any Schedule, statement or certificate furnished, or to be
furnished, by or on behalf of the Purchaser to the Sellers pursuant to this
Agreement, or in connection with the transactions contemplated hereby, or marked
for identification pursuant to this Agreement, contains or will contain any
untrue statement of a material fact or omits or will omit to state a material
fact necessary to make the statement contained therein not misleading.
6.05 Brokers. Purchaser has not expressly or impliedly engaged any
broker, finder or agent with respect to this Agreement or any transaction
contemplated hereby.
6.06 No Consent. No consent, approval or authorization of, designation,
declaration or filing with any governmental authority on the part of the
Purchaser is required as a condition to the valid execution, delivery and
performance of this Agreement by the Purchaser.
SECTION 7
COVENANTS PENDING
THE CLOSING
Covenants Pending the Closing. Sellers each hereby covenant to
Purchaser as follows:
7.01 Access to Information Prior to the Closing Date. Each of the
Sellers will give to the Purchaser and to Purchaser's consultants, counsel, and
other representatives upon at least one (1) business days' prior written
notice to each Seller full access to Sellers' business operations, to all of
the properties, books, contracts, commitments, reports and records of the
Sellers and will furnish to the Purchaser all such documents, records and
information with respect to the affairs of Sellers and copies of any working
papers relating to Sellers as the Purchaser shall from time to time reasonably
request. Sellers shall consult with the officers of the Purchaser on matters
outside the ordinary course of business and important matters pertaining to the
Businesses of the Sellers. Sellers agree to advise Purchaser in advance of any
notices to employees concerning the acquisition of Sellers by Purchaser and
Purchaser shall be afforded the opportunity to be on the Premises when such
notices are given. The Purchaser agrees that until the Closing Date the
Purchaser and its
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representatives shall keep confidential all data and information obtained with
respect to the Sellers from any representative, officer, director or employee
or from any books or records or personal inspection of the Sellers in the same
degree of confidence with which the Purchaser maintains its own similar
information, and the Purchaser further agrees that it shall not use such data or
information or disclose the same to others. If this Agreement is terminated
prior to the Closing Date for any reason, all data, information, files, records
and copies of documents, work sheets and other materials obtained by the
Purchaser in connection with this Agreement shall be returned to the Sellers.
7.02 Maintenance of Standing. Sellers will maintain themselves at all
times as limited liability companies duly organized, validly existing, and in
good standing in the State of Texas, provided, however, that Sellers shall not
be obligated under this Agreement to so maintain their corporate existence as
limited liability companies after the Closing Date.
7.03 Transactions. Pending the Closing Date, the Sellers will only
engage in transactions, and commitments, in the ordinary course of Sellers'
Businesses consistent with past practices, and such transactions and
commitments as are required or contemplated by this Agreement.
7.04 Insurance. Pending the Closing Date, the Sellers will carry
insurance comparable to that in effect on the date of this Agreement with
respect to the operations of Sellers.
7.05 Conduct of Business. Until the Closing Date, the Sellers will
maintain and keep their stores and equipment in the same repair, working order
and condition as at present, except for depreciation due to normal wear and
tear, and, except as expressly contemplated herein, will perform in all
material respects all of their obligations under material contracts and
commitments relating to or affecting their assets, properties or Businesses of
Sellers. Sellers will use their best efforts, to preserve their business
organizations, and to conduct their business with suppliers, customers and
others having business relations with the Sellers in the same manner as in the
period prior to the commencement of negotiations of this Agreement.
SECTION 8
CERTAIN OTHER COVENANTS OF THE PARTIES
Certain Other Covenants of the Parties. Sellers and Purchaser hereby
further covenant as follows:
8.01 Covenants Regarding Sellers' Insurance. (a) The following
provision shall govern insurance policies set forth in Schedule "5.16":
(i) With regard to products liability and comprehensive general
liability coverage for the policies providing such coverage as indicated on
Schedule "5.16", and all policies which are written on a claims made basis,
Sellers will secure, continue and maintain, until the Closing Date
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at Sellers' expense, insurance against claims by any person, corporation,
company, governmental unit or agency or anyone or anything which may arise for
any and all occurrences concerning the manufacture, sale or use of Sellers'
products prior to the Closing Date and Sellers agree to provide certificates
evidencing the insurance coverage as required by the Franchise Agreements.
(ii) Sellers shall provide Purchaser with a copy of the
underlying policy, if requested.
8.02 Employee Obligations. Purchaser does not assume, and Sellers
indemnify and hold the Purchaser harmless against, any and all obligations,
liabilities and responsibilities with respect to each and every employee of the
Businesses of Sellers under any employment agreement, current or future
pension, retirement, deferred compensation, bonus, profit-sharing, insurance or
similar plan, agreement, arrangements or formal or informal understandings for
the benefit of employees, in each case whether or not legally binding which
Sellers maintain or ever have maintained or to which the Sellers contribute or
ever have contributed or to which the Sellers are obligated to contribute,
including any outstanding tax liability which Sellers may have arising from the
employment of employees, including unemployment taxes, federal income taxes,
social security taxes, or other taxes or assessments ("Plans"). For purposes of
this Section 8.02, the "Sellers" shall include the Sellers and (i) any
corporation with which the Sellers are a member of a controlled group of
corporations within the meaning of Section 4.14(b) of the Federal Internal
Revenue Code (the "Code"); (ii) any entity with which the Sellers are under
common control within the meaning of Section 4.14(c) of the Code; and (iii) any
entity with which the Sellers are a member of an affiliated service group
within the meaning of Section 4.14(m) of the Code.
8.03 Responsibility for Benefit Plans. The Purchaser shall have no
liability whatsoever to employees of the Sellers with respect to accrued
benefits under any plans for employees' service with the Sellers, whether or
not any of such employees are offered employment by, or become employees of
Purchaser, Sellers hereby indemnify and hold Purchaser harmless against any and
all obligations and responsibilities with respect to each and every such
employee.
8.04 Other Employee Benefits. The Sellers shall be responsible for
and hereby indemnify and hold harmless the Purchaser against all employee
benefit claims (including long-term disability and medical and hospitalization
claims) of any nature whatsoever and worker's compensation claims which relate
to the Businesses of Sellers and (a) which have risen before the Closing Date
for all employees of the Sellers, and (b) for all employees of the Sellers (or
their eligible dependents) with respect to events or situations which may lead
to a determination of eligibility or disability, illness or any other state of
facts occurring before the Closing Date. Notwithstanding the fact that such
Employees may become employees of Purchaser, the Purchaser shall have no
liability whatsoever in respect of any of the foregoing.
8.05 Liability for Transfer Taxes. Sellers hereby agree to be
responsible for the timely payment of, and shall indemnify and hold harmless
the Purchaser against, all sales (including, without limitation, bulk sales),
use, value added, documentary, stamp, gross receipts, registration,
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transfer, conveyance, excise and other similar taxes and fees ("Transfer
Taxes"), arising out of or in connection with or attributable to the
transactions effected pursuant to this Agreement. The Sellers shall prepare and
timely file all tax returns required to be filed in respect of Transfer Taxes
(including, without limitation, all notices required to be given with respect
to bulk sales taxes), provided that, the Purchaser shall be permitted to prepare
any such tax returns that are the primary responsibility of the Purchaser under
applicable law. The Purchaser's preparation of any such tax returns shall be
subject to Sellers' approval, which approval shall not be withheld
unreasonably. Purchaser agrees to execute and deliver to the Sellers a resale
certificate in form and substance reasonably satisfactory to Sellers' counsel.
8.06 Certificate of Tax Authorities. On or before the Closing Date,
and if that is not practicable after a good faith effort, on or before the
Settlement Date, the Sellers shall provide, or Purchaser shall have otherwise
received, copies of certificates from the appropriate taxing authority relating
to any applicable unemployment, income, franchise, sales or use taxes stating
that no taxes are due to any state or other taxing authority for which the
Purchaser could have liability to withhold or pay taxes, provided that any
failure to provide such certificates to the Purchaser, which is not the fault
of the Sellers, shall not relieve the Purchaser of its obligations to enter
into and complete the Closing. Each of the Purchaser and the Sellers hereby
acknowledge that Hammond Retailing of Arlington, L.C. is currently under audit
by certain taxing authorities in the State of Texas relating to sales and use
taxes. In this regard, the parties agree that to the extent the Purchaser is
subject to any claim, liability, damage or expense relating to such audit or
otherwise relating to any tax liability of any of the Sellers' operations
preceding the Closing Date, the Sellers and the Principal shall jointly and
severally indemnify the Purchaser for such amounts as described in Section
11.01 hereof.
8.07 Change in Name. After the Closing, neither the Principal,
Hammond Communications, Inc. nor any of the Sellers will directly or indirectly
use the names, or any other words or expressions derived from or resembling or
confusingly similar to Party City(R),The Discount Party Super Store(R) and/or
any other trademark, servicemark, or copyrightable materials, or other
intellectual property used by Sellers, or Purchaser for purposes of soliciting
or selling to any customers or doing business of any kind.
8.08 Disclosure of Certain Liabilities. Except as specifically
disclosed to Purchaser and assumed by Purchaser pursuant to Section 1.01, the
Assumed Liabilities and the written assignment agreement in the form of Exhibit
9.05 attached hereto, after the Closing Date Sellers shall pay and discharge
each and all of their liabilities and obligations relating to the Businesses
accruing prior to the Closing Date, including, without limitation, Sellers'
accounts payable not assumed by Purchaser, as and when such liabilities and
obligations become due.
8.09 Compliance with Bulk Sales Law. Purchaser and Sellers hereby
waive compliance by Purchaser and Sellers with any applicable bulk sales law
and any other similar laws in any applicable jurisdiction in respect of the
transactions contemplated by this Agreement. Each of Sellers and the Principal
hereby agree to jointly and severally indemnify Purchaser from, and hold it
harmless against, any liabilities, damages, costs and expenses resulting from
or arising out of (i)
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the parties' failure to comply with any of such laws in respect of the
transactions contemplated by this Agreement, or (ii) any action brought or levy
made as a result thereof, other than those liabilities which have been
expressly assumed, on such terms as expressly assumed, by Purchaser pursuant to
this Agreement.
8.10. Location of Acquisition Assets. Except as set forth on Schedule
8.10 attached hereto all the tangible Assets being purchased hereunder or
acquired shall be located at the Premises or such other locations as is
designated in writing by Sellers and agreed to by Purchaser.
8.11 Interim Financial Statements. Not later than forty five (45)
days from the closing Date, each of the Sellers shall provide an unaudited
balance sheet for the six (6) month period ended June 30, 1997 and a
comparative income statement for the six (6) months ended June 30, 1997 and
1996, presented on a consolidating basis, in such form as will be acceptable
for filing with the U.S. Securities and Exchange Commission. Purchaser will
reimburse the Sellers for the cost and expense incurred in connection with the
preparation of such interim financial statements, up to an amount not to exceed
$7,000. Each of the Sellers acknowledge and agree that such interim financial
statements are required to be provided to the Purchaser on a timely basis in
order to allow Purchaser to comply with its reporting requirements under the
Securities Exchange Act of 1934, as amended, and the regulations promulgated
thereunder. Purchaser shall also reimburse the Sellers in the amount of $1,000
at Closing for the costs and expense incurred in connection with preparation of
the Financial Statements.
SECTION 9
CONDITIONS TO PURCHASER'S OBLIGATIONS
Conditions Precedent to the Purchaser's Obligations. The obligations of
the Purchaser hereunder shall be subject to the satisfaction of the following
conditions:
9.01 Closing Date. It is hereby agreed by the parties hereto that
time is of the essence and Purchaser shall have no obligation to purchase the
Assets or perform any of its obligations hereunder if the Closing Date does not
occur on or before September 1, 1997.
9.02. Due Diligence. Satisfactory completion of a normal due
diligence review of the operations of each of the Sellers by representatives of
the Purchasers, its counsel and its independent accountants to ascertain that
the information supplied by Sellers to the Purchaser accurately reflects the
status of the Businesses and operations of Sellers.
9.03. Representations and Warranties, etc. The representations and
warranties of the Sellers set forth herein shall be accurate in all material
respects on the Closing Date and the Sellers shall have duly performed all
obligations undertaken by them herein.
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9.04 Title. Delivery by Sellers to the Purchaser of good, valid, and
marketable title to the Assets, being free and clear of all encumbrances, liens,
and restrictions on transferability and such delivery of title or assignment as
the case may be, being effective to transfer, assign to and vest in Purchaser
all of Sellers' right, title, and interest in the Assets.
9.05 Consents to Assignment. Delivery to the Purchaser of that certain
Assignment and Assumption Agreement substantially in the form of Exhibit 9.05
attached hereto, together with any necessary consents of third parties,
concerning the transfer of all Contracts that Purchaser is assuming hereunder.
9.06 Approvals. All applicable approvals of governmental regulatory
authorities of the United States of America or any state or political
subdivision thereof required to consummate the acquisition shall have been
obtained and all applicable governmental pre-transaction filing and waiting
period requirements of governmental authorities of the United States of America
or any state of political subdivision thereof shall have expired.
9.07 Tax Clearance. Sellers shall deliver to Purchaser or Purchaser shall
have otherwise obtained the tax clearance certificates described in Section 8.06
hereof.
9.08 Opinion of Sellers' Counsel. The Purchaser shall have received from
counsel for the Sellers a legal opinion, dated the Closing Date, in
substantially the form attached as Exhibit 9.08 hereto.
9.09 No Suits. No suit, action or other proceeding or investigation shall
be threatened or pending before any court or governmental agency in which it is
sought to restrain or prohibit or to obtain material damages or other material
relief in connection with this Agreement or the consummation of the transactions
contemplated hereby or which is likely to affect materially the value of the
Assets and Businesses of the Sellers.
9.10 Financials. The receipt of the Financial Statements referred to in
Section 5.04.
9.11 Officer's Certificate. Sellers shall have delivered to the Purchaser
a certificate, dated the Closing Date, signed by a responsible officer of each
of the Sellers substantially in the form attached hereto as Exhibit 9.11.
9.12 Consent of Landlord. Sellers shall have secured the consent of the
landlords of each of the Premises, in form acceptable to Purchaser, to the
assignment of the leases to the Premises to Purchaser.
9.13 East Plano Purchase. Purchase by Purchaser of Party City(R)
franchise party products store owned by Hammond Retailing of Plano East, LLC
("Plano East") located at Parker Central Plaza Shopping Center, 3308 North
Central Expressway, Suite A, Plano, Texas pursuant to the terms
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of the letter agreement dated as of July 7, 1997, as amended, by and between
Purchaser and Plano East.
SECTION 10
CONDITIONS TO SELLERS' OBLIGATIONS
Conditions Precedent to the Sellers' Obligations. The obligations of
the Sellers hereunder shall be subject to the satisfaction of the following
conditions:
10.01 Closing Date. It is hereby agreed by the parties hereto that
time is of the essence and Sellers shall have no obligation to sell the Assets
or perform any of their obligations hereunder if the Closing Date does not
occur on or before September 1, 1997.
10.02 Representations and Warranties, etc. The representations and
warranties of the Purchaser set forth herein shall be accurate in all material
respects on the Closing Date to the same extent as if made on such date and the
Purchaser shall have duly performed all obligations undertaken by it herein.
10.03 No Suit. No suit, action or other proceeding or investigation
shall be threatened or pending before any court or governmental agency in which
it is sought to restrain or prohibit or to obtain material damages or other
material relief in connection with this Agreement or the consummation of the
transactions contemplated hereby or which is likely to affect materially the
value of the assets and businesses of the Purchaser.
10.04 Officers' Certificate. The Purchaser shall have delivered to the
Sellers a Certificate substantially in the form of Exhibit 10.04 attached
hereto, dated the Closing Date, signed by an officer of the Purchaser.
10.05 Opinion of Purchaser's Counsel. The Sellers shall have received
from St. John & Wayne, counsel for Purchaser, a legal opinion, dated the
Closing Date, in substantially the form attached hereto as Exhibit 10.05.
10.06 East Plano Purchase. Purchase by Purchaser of Party City(R)
franchise party products store owned by Plano East located at Parker Central
Plaza Shopping Center, 3308 North Central Expressway, Suite A, Plano, Texas
pursuant to the terms of the letter agreement dated as of July 7, 1997, as
amended, by and between Purchaser and Plano East.
10.07 Consent to Assignment. Delivery to the Sellers of that certain
Assignment and Assumption Agreement substantially in the form of Exhibit 9.05
attached hereto.
10.08 Approvals. All applicable approvals of governmental regulatory
authorities of the United States of America or any state or political
subdivision thereof required to consummate the
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acquisition shall have been obtained and all applicable governmental
pre-transaction filing and waiting period requirements of governmental
authorities of the United States of America or any state or political
subdivision thereof shall have expired.
SECTION 11
A. INDEMNIFICATION BY SELLERS AND PRINCIPAL
11.01 Indemnification by the Sellers and Principal. The Sellers and
the Principals, in addition to all other express indemnities set forth
elsewhere herein, hereby agree to indemnify the Purchaser and hold it harmless,
on a joint and several basis from and against the following (including
reasonable legal fees and expenses incurred in connection with any of the
following and in seeking indemnification therefor):
(a) Taxes. All claims against and liabilities, costs,
expenses and damages resulting from or arising out of any United States
Federal, state, local and foreign taxes or governmental charges and any related
penalties and interest against the Assets or arising from the Businesses or the
employment by Sellers of its employees, relating to any period ending on or
prior to the Closing Date (including, without limitation, any taxes,
governmental charges, penalties or interest required to be paid by the Sellers
as a result of, or in connection with, the transactions contemplated by this
Agreement).
(b) Non-Purchased Assets and Contractual Relations. All
claims against and liabilities, costs, expenses and damages relating to or
arising out of (a) assets now or formerly owned by the Sellers or operations
now or previously conducted by the Sellers not included in the Assets or
Business, or (b) contractual relations maintained, or employees employed, by
the Sellers prior to the Closing Date, unless specifically assumed by Purchaser
in writing pursuant to this Agreement.
(c) Liabilities. The amount of any of Sellers' liabilities or
obligations, whether accrued, absolute, contingent or otherwise, existing on
the Closing Date, including any liability or obligations of any nature which
arose out of activities prior to the Closing Date, relating to the Businesses
or otherwise, and are asserted by any governmental agency or other third party
prior to the Closing Date or thereafter, unless specifically assumed by
Purchaser pursuant to this Agreement.
(d) Representations and Warranties. Any and all claims,
liabilities, costs, expenses, damages and losses arising out of or resulting
from (i) any inaccuracy in any representations or warranties or failure to
perform any covenants made by the Sellers in this Agreement, and/or (ii) any
action or suit seeking to impose a liability on the Purchaser for any of the
foregoing, subject in each case to the survival period of the representations
and warranties provided in Section 13.01 hereof.
(e) Covenants Regarding Environmental Laws. All claims,
liabilities, obligations, and expenses (including without limitation reasonable
legal fees), which may be asserted or claimed against the Purchaser as a result
of Sellers' operations on the Premises being, prior to the
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<PAGE> 23
Closing Date, in violation of, or non-compliance with, any law, municipal
by-law, regulation, rule, order, judgment, ordinance, decree or other
requirement relating to the protection of the environment, as the same emanates
from the United States Federal government or any state or local government.
(f) Claims. Any and all claims, suits, causes of action, consumer
complaints, product liability actions and any other litigation or arbitration
or mediation by anyone against Purchaser related to the sale or use of Sellers'
products prior to Closing.
11.02 Notices, etc. Promptly after receipt by the Purchaser of notice
of the assertion of any claim or the commencement of any notion with respect to
any matter referred to in Section 11.01, the Purchaser will give written notice
to the Sellers thereof and will thereafter keep the Sellers reasonably
informed with respect thereto; provided, that the failure of the Purchaser to
give prompt notice as contemplated hereby shall not relieve the Sellers of
their obligations hereunder except to the extent, if any, that the Sellers
shall have been prejudiced thereby. In case any such action is brought against
the Purchaser, the Sellers shall be entitled to participate in (and, if the
parties agree, to assume) the defense thereof with counsel reasonably
satisfactory to the Purchaser. The power to make a final determination as to
any claim or litigation settlement shall rest in the Purchaser, unless Sellers
assume full and sole responsibility to comply with the terms of such settlement
as it relates to the indemnities set forth herein.
11.03 Set-off Rights. In addition to any other rights and remedies
available to the Purchaser pursuant to this Section 11, the Purchaser shall
have the right to set-off against the monies held in escrow pursuant to
Section 2.01(b) and (c) hereof the amount of any liability, damage, cost, or
expense for which Purchaser is entitled to indemnification under Section 11.01.
Purchaser agrees to provide the Sellers with advance written notice of the
claim to which the indemnity relates and its intention to exercise its rights
provided in this Section 11.03.
11.04 Limitation of Indemnity Obligations. Notwithstanding anything to
the contrary contained herein, in no event shall the aggregate liability of the
Sellers and the Principal relating to its/his indemnification obligations to
the Purchaser pursuant to this Section 11 exceed the aggregate Purchase Price
paid by the Purchaser to the Sellers pursuant to this Agreement.
B. INDEMNIFICATION BY PURCHASER
11.05 Indemnification by Purchaser. The Purchaser shall indemnify the
Sellers and the Principal and hold them harmless from and against the following
(including reasonable legal fees and expenses incurred in connection with any
of the following and seeking indemnification therefor):
(a) Purchased Assets and Contractual Relations. All claims,
liabilities, costs, expenses and damages in connection with the Assets arising
out of the actions or inactions of
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<PAGE> 24
Purchaser from the Closing Date forward, or contractual relations maintained by
the Purchaser on or after the Closing Date, except where the claim, liability or
cost is due to an action or inaction of a Seller.
(b) Representations and Warranties. Any and all claims, liabilities,
costs, expenses, damages and losses arising out of or resulting from (i) any
inaccuracy in any representations or warranties or failure to perform any
covenants made by the Purchaser in this Agreement and/or (ii) any action or suit
seeking to impose a liability on any Seller for any of the foregoing subject in
each case to the survival period of the representations and warranties provided
in Section 13.01 hereof.
(c) Any and all claims, liabilities, costs, expenses, damages and costs
arising solely out of or resulting from the Sellers' and the Principal's failure
to obtain the consent of The Lincoln National Life Insurance Company (the
"Landlord") to the assignment of the Lease dated September 14, 1992 between
Cencor Realty Services, Inc., as agent for Preston Towne Crossing, Ctd.,
Landlord's predecessor in interest, covering approximately 7,800 square feet of
the Preston Towne Crossing Shopping Center located in Plano, Collin County,
Texas.
11.06 Notices, etc. Promptly after receipt by any Seller of notice of the
assertion of any claim or the commencement of any action with respect to any
matter referred to in this section, Sellers will give written notice to
Purchaser thereof and will thereafter keep the Purchaser reasonably informed
with respect thereto; provided, that the failure of the Sellers to give prompt
notice as contemplated hereby shall not relieve the Purchaser of its obligations
hereunder except to the extent, if any, that the Purchaser shall have been
prejudiced thereby. In case any such action is brought against any Seller, the
Purchaser shall be entitled to participate in (and, if Purchaser so elects, to
assume) the defense thereof with counsel reasonably satisfactory to Sellers.
SECTION 12
RESTRICTIVE COVENANT
Section 12.01. Non-Disclosure and Non-Competition Relating to the Business.
Each of the Sellers, Hammond Communications, Inc. and the Principal jointly and
severally covenant and agree that for a period of one (1) year from and after
the Closing Date they shall not:
(a) at any time or in any manner, either directly or indirectly, divulge,
disclose or communicate to any person, firm or corporation in any manner
whatsoever any Confidential Information (as defined below); or
(b) compete with the Purchaser or the Purchaser's successors in the
business of selling retail party goods and related products and accessories to
consumers or solicit any employees or customers of the Purchaser at or prior to
the expiration of such one (1) year period following the Closing Date
(collectively, the "Non-Compete Business Operations").
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For the purposes of Section 12, an entity shall be deemed to be competing
with the Non-Compete Business Operations if it shall engage in any such business
in the cities or counties set forth on Schedule 12.01 attached hereto or if
such business competes for the customers of any of Purchaser's stores or any
Party City(R) franchise party products store and if such business is owned by
the Principal, directly or indirectly, whether for his own account or for that
of any other person, firm or corporation, whether as a shareholder, partner or
investor possessing by an ownership interest exceeding 5% in any such entity, or
as a principal, agent, employee or consultant, or in any other capacity and such
business is a like business or the same or similar to the business. For purposes
of this undertaking, the term "Confidential Information" means any information
not in the public domain concerning any matters affecting or relating to the
business including, without limitation, any proprietary information or processes
or know how for the sale or distribution of any of the products sold in
connection with the business, any portion of any reports, analyses or other
materials generated or used in connection with the business or any customers,
suppliers, agents, or contractors relating to the Non-Compete Business
Operations, the prices that Purchaser or any franchisee has obtained from the
sale of, or at which it sells or has sold, its products and services, or any
other information concerning the business, the manner of operations, plans,
processes, or other data, without regard to whether all or any part of the
foregoing matter would otherwise be deemed "confidential" or "material", the
parties hereto stipulating that as between them, the same are confidential and
material and gravely affect the effective and successful conduct of the
Businesses and the goodwill sold hereunder. If any clause or provision of this
Section 12 shall be unenforceable, then such clause or provision shall be
deemed to be deleted and or modified to the extent it is enforceable, and every
other clause and provision shall continue in full force and effect. Each of the
Sellers and the Principal acknowledge that the restraints imposed upon them
pursuant to this Section 12 are no greater than is reasonably necessary to
preserve and protect the assets and legitimate business interests of the
Purchaser and that such restraints will not impose undue hardship on them, and
that a violation of this Section by them would irreparably injure the Purchaser.
Accordingly, the Purchaser may, in addition to pursuing its other remedies
(including damages and reasonable attorney fees), obtain an injunction from any
court having jurisdiction of the matter against each of the Principal and the
Sellers for any such violation, and no bond or other security shall be required
in connection with such injunction.
SECTION 13
SURVIVAL OF REPRESENTATIONS AND WARRANTIES
13.01 Survival of Representations and Warranties. All the representations,
warranties and covenants of the Sellers and the Purchaser contained herein
(including all Schedules hereto) or in any document, letter, statement,
certificate or other instrument referred to herein or delivered by any party
hereto in connection with the transactions contemplated hereby shall survive for
a period of six (6) months after the Closing Date (except that Purchaser's
obligations relating to the Assumed Liabilities and the matters covered by
Section 11.05(c) shall continue in perpetuity). Each of the Purchaser, the
Sellers and the Principal acknowledge and agree that so long as written notice
is given on or prior to the date set for the
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expiration of the representations and warranties provided herein, any claims
for indemnification pursuant to Section XI hereof shall survive until such
matter is resolved.
SECTION 14
TERMINATION OF FRANCHISE AGREEMENTS
14.01 Payment of Franchise Fees. Sellers hereby agree to pay on the
Settlement Date all amounts due and owing pursuant to the Franchise Agreements,
including but not limited to the Royalty Fee and Ad Fee (all as defined in the
Franchise Agreements) prorated to the Closing Date.
14.02 TERMINATION OF FRANCHISE AGREEMENTS. PURCHASER HEREBY AGREES
THAT THE FRANCHISE AGREEMENTS TERMINATE UPON THE CLOSING, AND SHALL HAVE NO
FURTHER FORCE OR EFFECT. SUBJECT TO THE CLOSING AND SUCH TERMINATION, EACH PARTY
HERETO WAIVES ANY REQUIREMENT OF NOTICE OF TERMINATION, AND, SUBJECT TO SECTION
14.01 HEREOF, PURCHASER AND SELLERS HEREBY RELEASE, DISCHARGE AND FOREVER HOLD
HARMLESS THE OTHER, OF AND FROM, ANY CAUSE OF ACTION, CLAIM OR SUIT ARISING FROM
OR IN ANY MANNER CONNECTED TO THE FRANCHISE AGREEMENTS AND SELLERS AND PURCHASER
HEREBY FURTHER COVENANT AND AGREE THAT ALL RIGHT, TITLE AND INTEREST IN AND TO
THE PURCHASER'S INTELLECTUAL PROPERTY LICENSED TO SELLERS BY PURCHASER RESIDE
WITH PURCHASER AND SELLERS HEREBY WARRANT AND REPRESENT THAT NO PROPRIETARY
CLAIM WILL BE MADE BY SELLERS WITH RESPECT TO SUCH INTELLECTUAL PROPERTY OF
PURCHASER.
14.03 TERMINATION OF DEVELOPMENT AGREEMENT; MUTUAL RELEASE. PURCHASER
HEREBY AGREES THAT THE DEVELOPMENT AGREEMENT BETWEEN PURCHASER AND HAMMOND
COMMUNICATIONS, INC., DATED AUGUST 13, 1992, AS AMENDED, AS ATTACHED AS EXHIBIT
A, (THE "DEVELOPMENT AGREEMENT"), TERMINATES UPON THE CLOSING, AND SHALL HAVE
NO FURTHER LEGAL FORCE OR EFFECT. PURCHASER AND HAMMOND COMMUNICATIONS, INC.
EACH WAIVES ANY REQUIREMENT OF NOTICE OF TERMINATION, AND PURCHASER AND HAMMOND
COMMUNICATIONS, INC. EACH HEREBY RELEASE, DISCHARGE AND HOLD HARMLESS THE OTHER
PARTY, OF AND FROM, ANY CAUSE OF ACTION, CLAIM OR SUIT ARISING FROM OR IN ANY
MANNER CONNECTED TO THE DEVELOPMENT AGREEMENT.
SECTION 15
EXPENSES
15.01 Fees and Expenses. The Purchaser and the Sellers will each be
solely responsible for their respective expenses, including, without
limitation, fees and expenses of legal counsel,
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accountants, investment bankers, underwriters and other advisors incurred in
connection with the consummation of the transactions contemplated hereby. No
broker's or finder's fee or commission will be payable with respect to this
Agreement or any of the transactions contemplated hereby or thereby, and the
Purchaser and the Sellers each hereby indemnify each other against, and agree
that they hold the other harmless from, any claim, demand or liability for any
such broker's or finder's fees alleged to have been incurred in connection
herewith or therewith and any expenses (including reasonable fees, expenses and
disbursements of counsel) arising in connection with any such claim, demand or
liability.
SECTION 16
MISCELLANEOUS PROVISIONS
16.01 Amendment and Modification. The parties hereto may amend, modify
and supplement this Agreement in such manner as may be agreed upon by them in a
writing executed by all of the parties.
16.02 Notices. All notices, requests, demands and other communications
hereunder shall be deemed to have been duly given if delivered by hand on the
date of such delivery or if mailed, certified or registered mail, return receipt
requested, with postage prepaid, three days after the date of posting or, if
sent via telecopier, upon receipt of reasonably adequate confirmation thereof:
(a) if to the Sellers or the Principals at:
Mr. Geoffrey Hammond
Hammond Enterprises, L.P.
2187 Atlantic Street, 10th Floor
Stamford, CT 06902
Telephone: (203) 353-9090
Facsimile: (203) 351-4499
with a courtesy copy to;
Thomas J. Freed, Esq.
Cummings & Lockwood
107 Elm Street
Stamford, Connecticut 06902
Telephone: (203) 327-1700
Facsimile: (203) 351-4499
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(b) if to the Buyer at:
Party City Corporation
400 Commons Way, Bldg. C
Rockaway, New Jersey 07866
Attn: David E. Lauber,
Chief Financial Officer
Telephone: (973) 983-0888
Facsimile: (973) 983-1333
with a courtesy copy to:
St. John & Wayne, L.L.C.
Two Penn Plaza East
10th Floor
Newark, New Jersey 07105
Attention: John J. Oberdorf, Esq.
Telephone: (973) 491-3600
Facsimile: (973) 491-3555
16.03 Assignment. This Agreement and the rights, interests or
obligations hereunder shall not be assigned by Purchaser or Sellers without the
express written consent of the other, which consent shall not be unreasonably
withheld.
16.04 Third Parties' Rights. No provision of this Agreement is
intended to create any right in persons or entities other than the parties
hereto, their successors and assigns.
16.05 Counterparts. This Agreement may be executed simultaneously in
two or more counterparts, each of which shall be deemed an original, but all of
which together shall constitute one and the same instrument.
16.06 Headings. The headings of the sections of this Agreement are
for convenience only and shall not constitute a part hereof.
16.07 Entire Agreement. This Agreement and other documents
specifically referred to herein which form a part hereof or are marked for
identification by each of the parties hereto, contain the entire understanding
of the parties hereto in respect of the subject matter contained herein. There
are no restrictions, promises, warranties, covenants or undertakings, other
than those expressly set forth herein.
16.08 GOVERNING LAW. IT IS THE INTENTION OF THE PARTIES HERETO THAT
THIS AGREEMENT AND THE RIGHTS, OBLIGATIONS AND REMEDIES OF THE PARTIES
HEREUNDER SHALL BE GOVERNED BY AND CONSTRUED AND ENFORCED IN
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ACCORDANCE WITH THE LAWS OF THE STATE OF NEW JERSEY. WHENEVER POSSIBLE EACH
PROVISION OF THIS AGREEMENT SHALL BE INTERPRETED IN SUCH MANNER, AS TO BE
EFFECTIVE AND VALID UNDER NEW JERSEY LAW, BUT IF ANY PROVISION OF THIS AGREEMENT
SHALL BE PROHIBITED BY OR INVALID UNDER SUCH APPLICABLE LAW, SAID PROVISION
SHALL BE INEFFECTIVE TO THE EXTENT OF THE PROHIBITION OR INVALIDITY, WITHOUT
INVALIDATING THE REMAINDER OF THE PROVISION OR THE REMAINING PROVISIONS OF THIS
AGREEMENT.
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IN WITNESS WHEREOF, the parties have duly executed and delivered this
Asset Purchase Agreement as of the 2nd day of September, 1997.
PARTY CITY CORPORATION
By: /s/ David E. Lauber
--------------------------
Name: David E. Lauber
Title: Chief Financial Officer
HAMMOND RETAILING OF MESQUITE, L.C.
By: /s/ Geoffrey Hammond
--------------------------
Name: Geoffrey Hammond
Title: Manager
HAMMOND RETAILING OF WEST PLANO, L.C.
By: /s/ Geoffrey Hammond
--------------------------
Name: Geoffrey Hammond
Title: Manager
HAMMOND RETAILING OF RICHARDSON, L.C.
By: /s/ Geoffrey Hammond
--------------------------
Name: Geoffrey Hammond
Title: Manager
HAMMOND RETAILING OF ARLINGTON, L.C.
By: /s/ Geoffrey Hammond
--------------------------
Name: Geoffrey Hammond
Title: Manager
HAMMOND RETAILING OF CARROLLTON, L.C.
By: /s/ Geoffrey Hammond
--------------------------
Name: Geoffrey Hammond
Title: Manager
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HAMMOND RETAILING OF IRVING, L.C.
By: /s/ Geoffrey Hammond
-----------------------------
Name: Geoffrey Hammond
Title: Manager
HAMMOND RETAILING OF MEDALLION, L.C.
By: /s/ Geoffrey Hammond
-----------------------------
Name: Geoffrey Hammond
Title: Manager
HAMMOND RETAILING OF RED BIRD LLC
By: /s/ Geoffrey Hammond
-----------------------------
Name: Geoffrey Hammond
Title: Manager
HAMMOND RETAILING OF VISTA RIDGE LLC
By: /s/ Geoffrey Hammond
-----------------------------
Name: Geoffrey Hammond
Title: Manager
ONLY FOR PURPOSES OF SECTIONS HAMMOND RETAILING OF PLEASANT GROVE, LLC
8.06, 8.09, 11.01, AND 12.01
ACKNOWLEDGED AND AGREE TO:
/s/ Geoffrey Hammond By: /s/ Geoffrey Hammond
- ----------------------------- -----------------------------
Geoffrey Hammond Name: Geoffrey Hammond
Title: Manager
ONLY FOR PURPOSES OF SECTIONS, HAMMOND RETAILING OF WHITE ROCK, LLC
1.01(o), 8.07, 12.01 AND 14.03
ACKNOWLEDGED AND AGREED TO:
HAMMOND COMMUNICATIONS, INC.
By: /s/ Geoffrey Hammond By: /s/ Geoffrey Hammond
- ----------------------------- -----------------------------
Name: Geoffrey Hammond Name: Geoffrey Hammond
Title: President Title: Manager
31
<PAGE> 1
EXHIBIT 2.2
July 7, 1997
Mr. Geoffrey Hammond
c/o Thomas J. Freed, Esq.
Cummings & Lockwood
107 Elm Street
Stanford, CT 06902
RE: PARTY CITY CORPORATION/HAMMOND RETAILING OF PLANO EAST
Dear Mr. Hammond:
The undersigned is aware that pursuant to your Developmental Agreement
you intend to open a Party City franchise operation at the following address:
Hammond Retailing of Plano East, LLC ("Hammond")
Parker Central Plaza Shopping Center
3308 N. Central Expressway
Suite A
Plano, Texas
It is anticipated that the opening of the franchise will be on or about
August 1, 1997.
You are presently negotiating to sell eleven (11) existing franchise
locations to Party City Corporation, however, this letter will address the
franchise store about to open on or about August 1, 1997 ("New Store").
Immediately upon execution of this Letter Agreement and upon the
further execution of the following documents: (a) an Assignment of Lease by the
lessee of the New Store with all requisite approvals required therein (i.e.,
landlord's consent); (b) a waiver of your developmental rights under your
Developmental Agreement for the Dallas Fort Worth Area; and (c) the Letter of
Intent for the sale of eleven (11) existing franchise locations, Party City
Corporation (the "Corporation") will undertake to open the New Store on or
about August 1, 1997 (no later than September 1, 1997). In that connection the
Corporation will undertake and continue all pre-operating tasks, including
completion of inventory, location of fixtures and normal pre-opening routines.
Furthermore, the
<PAGE> 2
Mr. Geoffrey Hammond
c/o Thomas J. Freed, Esq.
July 7, 1997
Page 2
Corporation will reimburse you upon the acquisition of the eleven (11) Geoffrey
Hammond affiliated stores (on or before September 1, 1997), for all of your
pre-operating costs in connection with the New Store. These include, without
limitation, your cost for inventory, cost for property, plant and equipment,
reimbursement, for security deposits and normal prepaids ("Your Costs")
assumption to certain obligations specifically related to the New Store,
including without limitation, the Lease and open purchase orders from vendors as
yet to be filled. All such costs will be pursuant to a written list furnished by
Hammond to the Corporation together with the requisite back-up invoices. The
Corporation will thereafter pay all additional costs required to open the New
Store from the date of the execution of this letter and receipt of the above
described documents on a going forward basis ("Corporation Costs").
In the event that the Corporation does not complete the acquisition of
eleven (11) Geoffrey Hammond affiliated stores by September 1, 1997 in
accordance with the proposed letter of intent, then in that event: (a) Geoffrey
Hammond will be required and agrees to repurchase the New Store and operate the
New Store as a Franchise store under his Developmental Agreement, (b) the
prepaid Franchise Fee applicable to the opening of this Franchise store will be
credited to Hammond and furthermore, Hammond will be required to pay to the
Corporation and the Corporation's Costs, (c) the Corporation shall be required
to assign the Lease in question back to Hammond with all requisite approvals
(i.e., landlord consent), (d) the Corporation shall return to Hammond any
development rights previously waived by Hammond and (e) the Corporation shall
remit to Hammond all revenue received in connection with the New Store. All
Corporation Costs will be documented in a written list by the Corporation and
with appropriate invoices to substantiate the same.
Very truly yours,
PARTY CITY CORPORATION
By: /s/ David E. Lauber
------------------------------
Name: David E. Lauber
Title: Chief Financial Officer
HAMMOND RETAILING OF PLANO EAST, LLC
By: /s/ Geoffrey Hammond
--------------------------------
Name: Geoffrey Hammond
Title: Manager
<PAGE> 1
EXHIBIT 10.1
THIRD AMENDMENT TO LOAN AND SECURITY AGREEMENT
THIS THIRD AMENDMENT TO LOAN AND SECURITY AGREEMENT (this "Third
Amendment"), dated as of June 16, 1997, is entered into by and between PARTY
CITY CORPORATION, a Delaware corporation (the "Borrower"), and PNC BANK,
NATIONAL ASSOCIATION, successor by merger to Midlantic Bank, N.A. (the "Bank").
RECITALS:
A. The Borrower and the Bank are parties to a certain Loan and Security
Agreement, dated February 15, 1995, as amended by First Amendment to Loan and
Security Agreement, dated as of October 6, 1995 (the "First Amendment"), and by
Second Amendment to Loan and Security Agreement, dated as of December 15, 1996
(the "Second Amendment"; the Loan and Security Agreement, as amended by the
First Amendment and Second Amendment and as the same may be further amended from
time to time, the "Agreement"), pursuant to which (among other things) the Bank
agreed to make revolving credit loans to the Borrower, the outstanding principal
of which converted to term loans at scheduled intervals; and
B. The Borrower has requested that the Bank amend certain terms of the
Agreement to provide additional capital for general corporate purposes and for
expansion of company-owned retail stores; and
C. The Bank is willing to so amend the Agreement, upon and subject to
the terms and conditions set forth herein.
NOW, THEREFORE, in consideration of the premises and the mutual
covenants and agreements set forth herein, and for value received by each party,
the parties hereto, intending to be legally bound hereby, agree as follows:
Section 1. DEFINITIONS
1.1. EXISTING DEFINITIONS. Unless otherwise defined herein, capitalized
terms used herein shall have the meanings set forth in the Agreement. The
definitions of the following defined terms used in the Agreement are amended as
set forth herein and such amended definitions shall apply wherever such defined
terms are used in the Loan Documents.
(a) Amended Revolving Credit Note. The definition of the term "Amended
Revolving Credit Note" set forth in the First Amendment is deleted and the
following is substituted therefor:
1
<PAGE> 2
"'AMENDED REVOLVING CREDIT NOTE' shall mean the amended and
restated promissory note of the Borrower, in substantially the
form of Exhibit A annexed hereto, evidencing the Revolving
Credit Loan and replacing the Amended Revolving Credit Note
dated October 6, 1995."
(b) Anniversary Date. The definition of the term "Anniversary Date" set
forth in the Agreement is deleted in its entirety.
(c) Eurodollar Rate. The definition of the term "Eurodollar Rate" set
forth in the Agreement is deleted and the following is substituted therefor:
"'EURODOLLAR RATE' means, for each Eurodollar Rate Loan, the
rate of interest per annum equal to the Adjusted LIBOR plus
the applicable LIBOR Margin."
(d) Interest Payment Date. The definition of the term "Interest Payment
Date" set forth in the Agreement is amended to delete subsection (ii) thereof
and to substitute the following therefor:
"(ii) as to Eurodollar Rate Loans having an Interest Period of
one, two or three months, the last day of the Interest Period
with respect thereto".
(e) Interest Period. The definition of the term "Interest Period" set
forth in the Agreement is amended to add the phrase ", two" after the word "one"
in the third line thereof, and subsection (c) thereof is amended to delete the
words "an Anniversary Date or".
(f) Loans. The definition of the term "Loan" set forth in the Agreement
is deleted and the following is substituted therefor:
"'LOANS' shall mean any Revolving Credit Advance made pursuant
hereto."
(g) Notes. The definition of the term "Notes" set forth in the
Agreement is deleted and the following is substituted therefor, and all
references to the term "Notes" in the Loan Documents shall hereafter be deemed
to refer to the term "Note" as so defined:
"'NOTE' shall mean the Amended Revolving Credit Note."
2
<PAGE> 3
(h) Permitted Indebtedness. The definition of the
term "Permitted Indebtedness" set forth in the Agreement, and
all references thereto in the Loan Documents, are deleted in
their entirety.
(i) Permitted Encumbrances. The definition of the
term "Permitted Encumbrances" set forth in the Agreement is
amended to delete subsection (ix) thereof in its entirety and
to delete Schedule 10.9 of the Agreement, as the Liens
reflected thereon have been terminated.
(j) Revolving Credit Maximum. The definition of the
term "Revolving Credit Maximum" set forth in the Agreement is
deleted and the following is substituted therefor:
"'REVOLVING CREDIT MAXIMUM' shall mean the sum of
$20,000,000."
3
<PAGE> 4
(k) Termination Date. The definition of the term "Termination Date" set
forth in the Agreement is deleted and the following is substituted therefor:
"'TERMINATION DATE' shall mean June 30, 2000."
(l) Term Loan. The definition of the word "Term Loan" set forth in the
Agreement, and any reference to such term in the Loan Documents, is deleted in
its entirety.
(m) Term Note. The definition of the term "Term Note" set forth in the
Agreement, and any reference to such term in the Loan Documents, is deleted in
its entirety.
1.2. ADDITIONAL DEFINITIONS. For purposes of the Agreement and the
other Loan Documents, the following terms shall have the meanings assigned to
them in this Section 1.2:
(a) "LEVERAGE RATIO" shall mean the ratio of total liabilities to
tangible net worth, as determined in accordance with GAAP.
(b) "LIBOR MARGIN" shall mean, initially, one and one quarter percent
(1.25%) per annum, and for each quarter thereafter, the following percent per
annum based upon the Borrower's Leverage Ratio for such quarter in accordance
with the following rates corresponding to the following Leverage Ratios:
<TABLE>
<CAPTION>
LEVERAGE RATIO LIBOR MARGIN
-------------- ------------
<S> <C>
Less than 0.75:1.00 .75%
Equal to or greater than 0.75:1.00 but less than
1.25:100 1.00%
Equal to or greater than 1:25:1.00 but less than
1.75:1.00 1.25%
Equal to or greater than 1.75:1.00 but less than
2.0:1.00. 1.50%
</TABLE>
4
<PAGE> 5
<TABLE>
<CAPTION>
<S> <C>
Equal to or greater than 2.0:1.00 but less than
2.25:1.00 1.75%
</TABLE>
5
<PAGE> 6
Section 2. THE REVOLVING CREDIT LOAN
2.1. AMENDMENTS TO THE REVOLVING CREDIT LOAN.
(a) Section 2.1(a) of the Agreement is deleted and the following is
substituted therefor:
"(a) Upon and subject to the terms and conditions hereof, the
Bank agrees to make available, at any time and from time to
time, until the Termination Date, for Borrower's use and upon
the request of Borrower therefor, advances (each, a "Revolving
Credit Advance"); provided, however, that after giving effect
to each requested Revolving Credit Advance, at no time shall
the sum of the aggregate amount of Revolving Credit Advances
outstanding exceed the Revolving Credit Maximum."
(b) Section 2.1(b) of the Agreement is amended to delete the first
sentence thereof and to substitute the following therefor:
"Upon and subject to the terms and conditions hereof, and
provided that no Event of Default has occurred and is
continuing, until the Termination Date, Borrower may from time
to time borrow, repay and reborrow under this Section 2.1."
(c) Section 2.2 of the Agreement is amended to add the following
language after the first sentence thereof:
"The Amended Revolving Credit Note shall provide for the
payment of principal in full on the Termination Date and for
the payment of interest in accordance with Section 4.1 and the
Notice of Borrowing received from Borrower."
(d) Section 2.3 of the Agreement is deleted in its entirety and the
following is substituted therefor:
"2.3. USE OF PROCEEDS. Revolving Credit Advances shall be used
for working capital needs in connection with the expansion of
company-owned retail stores, the purchase of existing
franchisees and for other general corporate purposes."
6
<PAGE> 7
(e) Section 2.4(i) of the Agreement is amended to change the commitment
fee from "1/4 of 1% per annum" to "one eighth of one percent (0.125%) per annum"
of the average daily difference between (i) the Revolving Credit Maximum and
(ii) the outstanding balance of the Revolving Credit Loan.
2.2. FACILITY FEE. A facility fee in the amount of $50,000 shall be
payable by the Borrower to the Bank on the date of this Third Amendment. The
Bank hereby acknowledges receipt of payment of $25,000 on account of such fee
prior to the date hereof.
Section 3. THE TERM LOANS
3.1. Section 3 of the Agreement is deleted in its entirety.
Section 4. INTERESTS, PAYMENTS, ETC.
4.1. INTEREST RATES, PAYMENT DATES. Section 4.1(b) of the Agreement is
deleted and the following is substituted therefor:
"(b) All Loans which are Eurodollar Rate Loans shall bear
interest on the unpaid principal amount thereof at a rate per
annum equal to the Eurodollar Rate for the applicable Interest
Period."
4.2. MANNER OF PAYMENT. Section 4.4 of the Agreement is amended to
provide that payments shall be made to the Bank at its offices at Two Tower
Center, East Brunswick, New Jersey 08816.
Section 5. CONDITIONS PRECEDENT
5.1. CONDITIONS TO THIS THIRD AMENDMENT. The Bank's agreement to amend
the Agreement is subject to the conditions precedent that the Bank shall have
received, or waived the receipt of, the following:
(a) the Amended Revolving Credit Note, duly executed and delivered by
Borrower to the Bank;
(b) resolutions of the board of directors of Borrower, certified by the
Secretary of Borrower as of the date hereof to be duly adopted and in full force
and effect on such date, authorizing the execution and delivery of this Third
Amendment and the increased borrowing hereunder;
7
<PAGE> 8
(c) certificates of the appropriate Governmental Authorities, dated the
most recent practicable date prior to the date hereof, showing that Borrower is
organized and in good standing in the State of its organization and in each
jurisdiction where it is qualified as a foreign corporation;
(d) copies of (i) the certificate of incorporation of the Borrower and
all amendments thereto, and (ii) the by-laws of the Borrower, certified by the
Secretary of the Borrower as true and complete and in full force and effect as
of the date hereof;
(e) an opinion of St. John & Wayne, counsel to the Borrower, as to such
matters relating to the Borrower and the Loans as the Bank may reasonably
request;
(f) UCC-1 financing statements deemed necessary by the Bank in its
reasonable discretion in order to perfect its security interest in the
Collateral;
(g) results of UCC, judgment and tax Lien searches on the Borrower
disclosing no Liens other than Permitted Encumbrances;
(h) evidence that the insurance policies provided for in Section 7.20
of the Agreement are in full force and effect, with appropriate loss payable and
additional insured clauses in favor of the Bank, certified by the insurer;
(i) payment of the facility fee set forth in Section 2.2 of this Third
Amendment; and
(j) such other agreements, documents, corporate resolutions and
certificates, filings, recordations and instruments as the Bank may reasonably
request.
5.2 Section 5.3 of the Agreement is deleted in its entirety.
8
<PAGE> 9
Section 6. SECURITY
6.1 Reaffirmation of Security Interest and Liens. The Borrower
acknowledges and agrees that the security interests and other Liens granted by
it to the Bank under the Agreement and the Loan Documents are and remain valid
and first priority Liens on the Collateral (other than Permitted Encumbrances),
and the Borrower represents and warrants that, as of the date hereof, there are
no set-offs or defenses to the Bank's exercise of any rights or remedies
available to it as a creditor in realizing upon the Collateral under the terms
and conditions of the Loan Documents. The Borrower agrees that the Liens granted
by it under the Agreement shall continue and shall secure the Obligations of the
Borrower to the Bank, as amended as set forth herein.
Section 7. RATIFICATION AND AMENDMENT OF REPRESENTATIONS,
WARRANTIES AND COVENANTS
7.1. RATIFICATION. The Borrower hereby ratifies, confirms and restates,
as if set forth herein in their entirety, all representations, warranties,
covenants, acknowledgments and agreements set forth in Sections 6, 7, 8, 9 and
10 of the Agreement at and as of the date hereof (other than representations,
warranties and covenants which expressly speak only as of a different date), and
affirmatively states that all of the same are true and accurate as of the date
hereof and shall be and remain in full force and effect, subject only to changes
effected by this Third Amendment and/or changes previously disclosed to the Bank
in writing. In addition, the Borrower represents and warrants to the Bank that:
(a) Borrower has the power and authority to enter into this Third
Amendment;
(b) the execution, delivery and performance of this Third Amendment and
the instruments and agreements executed and delivered by the Borrower in
connection herewith have been duly authorized by all requisite corporate action
and this Third Amendment and the instruments and agreements executed and
delivered in connection herewith constitute the legal, valid and binding
obligations of the Borrower, enforceable against it in accordance with their
terms;
(c) the copies of good standing certificates delivered to the Bank
pursuant to Section 5.1(c) above are true and correct copies of the respective
certificates received from the appropriate Governmental Authorities;
(d) the audited financial statements of the Borrower as at December 31,
1996 and unaudited financial statements of the Borrower as at September 30, 1996
and April 30, 1996, which were previously furnished to the Bank, were prepared
in accordance with GAAP consistently applied throughout the period involved and
present fairly the financial position of
9
<PAGE> 10
the Borrower as at the date thereof and the results of operations and cash flows
of the Borrower for the period then ended;
(e) no changes having a Material Adverse Effect have occurred since the
date of such financial statements referred to in Section 7.1(c) above; and
(f) no Default or Event of Default has occurred and is continuing or
will result from the execution, delivery and performance of this Third Amendment
and the instruments and agreements executed and delivered in connection
herewith.
7.2. AMENDMENT OF CERTAIN REPRESENTATIONS, WARRANTIES AND COVENANTS.
(a) Section 7.1 of the Agreement is amended to delete subsection (i)
thereof and to substitute the following therefor: "(i) is a corporation duly
organized and validly existing in good standing under the laws of the State of
Delaware;".
(b) Section 7.5(b) of the Agreement is amended to reflect that the
Borrower has no material obligations, contingent liabilities or liabilities for
Governmental Charges, long-term leases or unusual forward or long-term
commitments which are not reflected in the unaudited financial statements of the
Borrower as of April 30, 1997.
(c) Section 7.5(c) of the Agreement is deleted in its entirety.
(d) Section 7.6 of the Agreement is amended to add the following
language after the words "December 31, 1998" in the fourth line thereof:
", the Borrower's annual operating budget for the Fiscal Year
ending on December 31, 1997 and projections of Borrower's
annual operating budget, balance sheet and cash flow statement
for the Fiscal Year ending on December 31, 1998, previously
delivered to the Bank".
(e) Section 7.7 of the Agreement is amended to update Schedule 7.7 as
set forth on Schedule 7.2(e) hereof.
(f) Section 7.8 of the Agreement is amended to update Schedule 7.8 as
reflected on Schedule 7.2(f) hereof.
(g) Section 7.15 of the Agreement is amended to update Schedule 7.15 to
reflect that all of the Intellectual Property Rights listed thereon have been
registered with the United States Patent and Trademark Office.
10
<PAGE> 11
(h) Section 7.18 of the Agreement is amended to update Schedule 7.18 as
reflected in Schedule 7.2(h) hereto.
(i) Section 7.19 of the Agreement is amended to update Schedule 7.19 to
add the following tradename thereto: "Party City, The Discount Party Super
Store."
(j) Section 8.1 of the Agreement is amended to add the following
subsections (h) through (j), and to re-designate existing subsection (h) as
subsection (k):
"(h) Within 20 days from the date of possession of any new
store, a list of new store openings, including the address of
each such store, together with (i) UCC-1 financing statements,
in form acceptable to the Bank, duly executed on behalf of the
Borrower, for filing in the appropriate state and local
jurisdiction(s) and (ii) consent and waiver of the landlord of
such store, in form and substance satisfactory to the Bank;
(i) Within 45 days after the end of each Fiscal Year,
forecasted financial statements consisting of an income
statement, balance sheet and cash flow statement for each
Fiscal Year through the Termination Date, including details of
expected store openings, Capital Expenditures and projected
financing needs;
(j) Within 10 days after filing of same with the Securities
and Exchange Commission, copies of all periodic reports or
filings of any kind required to be filed pursuant to the
Securities Exchange Act of 1934, as amended; and".
(k) The following new Section 9.12 is added to the Agreement:
"9.12 SUBSIDIARIES AND AFFILIATES. Within ten (10) days of the
formation of any Subsidiary or Affiliate of Borrower, Borrower
shall deliver to the Bank a guaranty by such Subsidiary or
Affiliate, in form and substance satisfactory to the Bank,
guaranteeing all of Borrower's Obligations to the Bank."
(l) Section 10.1 of the Agreement is amended to delete subsection (i)
thereof and to substitute the following therefor:
"(i) merge or consolidate with or acquire all substantially
all of the assets or capital stock of, or otherwise combine
with, any Person, except that the Borrower may acquire
11
<PAGE> 12
assets or Capital Stock of any Person engaged in substantially
the same or similar business as the Borrower;".
(m) Section 10.6 of the Agreement is amended to delete subsection (iv)
thereof and to substitute the following therefor:
"(iv) Indebtedness in respect of Capital Leases and Purchase
Money Loans existing on the date hereof or hereafter incurred,
provided that, in no event shall Borrower incur Indebtedness
for Capital Leases in excess of $2,000,000 in any Fiscal Year
and $3,000,000 in the aggregate at any time outstanding;".
(n) Section 10.7 of the Agreement is deleted in its entirety.
(o) Section 10.8 of the Agreement is amended to reflect that the minute
books of the Borrower are retained at the offices of St. John & Wayne, located
at Two Penn Plaza East, Newark, New Jersey.
(p) Section 10.11 of the Agreement is amended to (i) delete the words
"acquire any business, including, without limitation, existing franchisees" in
lines six to seven thereof; and (ii) update Schedule 10.11 to reflect that all
accounts listed thereon have been closed and any similar investments are now
carried with the Bank.
(q) Section 10.12 of the Agreement is deleted and the following is
substituted therefor:
"10.12. CAPITAL EXPENDITURES. Borrower shall not make
Capital Expenditures in any Fiscal Year aggregating in excess
of:
(i) for the Fiscal Year ending December
31, 1997, an amount equal to
$15,000,000;
(ii) for the Fiscal Year ending December
31, 1998, an amount equal to (x)
$20,000,000 plus (y) the lesser of
(A) the amount by which Capital
Expenditures of the Borrower, in the
aggregate in Fiscal Year 1997, was
less than $15,000,000, or (B)
$3,000,000; and
(iii) for any Fiscal Year thereafter, an
amount equal to (x) $20,000,000 plus
(y) the lesser of (A) the amount by
which
12
<PAGE> 13
Capital Expenditures of the
Borrower, in the aggregate in the
prior Fiscal Year, was less than the
sum permitted by this Section 10.12,
or (B) $3,000,000;
provided, however, that Capital Expenditures
for the acquisition by the Borrower
of six retail franchise stores
(formerly owned by Les Fetes, Inc.,
Party Town USA, Inc., Party City of
Parsippany, Inc., Perry's Party
City, Inc., Party City of Wayne,
Inc. and Barbara's Party City, Inc.)
in the Fiscal Year ending December
31, 1997 shall be excluded for the
purposes of this calculation.
Notwithstanding anything in this
Section 10.12 to the contrary, in
addition to the Capital Expenditure
allowance limits set forth in
subsections (i), (ii) and (iii)
above, the Borrower may make
additional independent Capital
Expenditures as follows:
(A) in an aggregate amount
not to exceed $3,000,000 from the
date hereof through the Termination
Date, relating to the acquisition of
existing franchise stores; provided,
however, that the aggregate purchase
price of all existing franchise
stores through the Termination Date
shall not exceed $4,000,000; plus
(B) in an amount not to
exceed $14,700,000 from the date
hereof through the Termination Date,
the maximum net cash proceeds from
the public offering of shares of
capital stock of the Borrower in
March 1997."
(r) Section 10.13 of the Agreement is deleted in its entirety and the
following is substituted therefor:
"10.13. TANGIBLE NET WORTH. Borrower shall not permit its
tangible net worth, as determined in accordance with GAAP, at
any time, to be less than $20,300,000 plus an additional sum
equal to the greater of (i) $1,000,000, or (ii) fifty percent
(50%) of the Borrower's after-tax earnings."
(s) Section 10.15 of the Agreement is deleted and the following is
substituted therefor:
"10.15. LEVERAGE RATIO. Borrower shall not permit its Leverage
Ratio, measured at any time for such period, to be greater
than:
13
<PAGE> 14
<TABLE>
<CAPTION>
PERIOD OF ANY FISCAL YEAR LEVERAGE RATIO
------------------------- --------------
<S> <C>
July 1 through and including December 31 2.25: 1.0
January 1 through and including June 30 1.75:1.0."
</TABLE>
(t) The parties acknowledge and agree that Section 10.17(a) of the
Agreement has been deleted pursuant to that certain letter, dated January 16,
1996, by the Bank to the Borrower.
(u) Section 10.18 of the Agreement is deleted in its entirety.
(v) The following new Sections 10.20 through 10.21 are added to the
Agreement:
"10.20. DISTRIBUTIONS. Borrower shall not make any
Distributions to its shareholders.
10.21. CHANGE OF CONTROL. Borrower shall not (i) make or
suffer a change of ownership of the outstanding capital stock
of the Borrower such that Steven Mandell shall cease to own at
least 7% of the outstanding capital stock of the Borrower, or
(ii) suffer or permit Steven Mandell to cease to be the chief
executive officer of the Borrower and actively involved in the
control of the day to day operations of the Borrower."
Section 8. EVENTS OF DEFAULT
14
<PAGE> 15
8.1. Section 11.1(g) is amended to delete the dollar amount of
"$100,000" and to substitute the amount "$200,000" therefor.
8.2. Section 11.1(j) of the Agreement is deleted in its entirety.
8.3. Section 11.1(n) of the Agreement is deleted in its entirety.
8.4. Section 11.1 of the Agreement is amended to add the following
subsections (n) and (o) thereto:
"(n) Any individual or group, as defined in Section 13(d) of
the Securities and Exchange Act of 1934, as amended, and the
rules and regulations promulgated thereunder, shall purchase
more than 50% of the issued and outstanding Stock of the
Borrower; and
(o) In any proxy contest pursuant to Section 14 of the
Securities and Exchange Act of 1934, as amended, and the rules
and regulations promulgated thereunder, over the opposition of
the then-incumbent board of directors of the Borrower (whether
or not such board of directors ultimately acquiesces therein),
at any time after the date hereof, any stockholder or group of
stockholders of the Borrower shall elect a majority of the
members of the board of directors of the Borrower."
Section 9. MISCELLANEOUS
9.1. CONTINUED EFFECTIVENESS. Except as specifically amended by and/or
inconsistent with this Third Amendment, all of the terms and conditions of the
Agreement shall remain unchanged and in full force and effect and are hereby
ratified, adopted and confirmed in all respects. All references to the Agreement
in any Loan Document shall hereafter be deemed to refer to the Agreement as
amended by this Third Amendment. This Third Amendment is a Loan Document.
9.2. PAYMENT OF EXPENSES. Borrower shall pay the fees and expenses
(including, but not limited to, reasonable attorneys' fees and expenses, notary
fees, searches and recording fees) incurred by the Bank in connection with the
preparation, negotiation, execution and delivery and enforcement of this Third
Amendment and the documents executed and delivered in connection herewith and
any and all renewals, modifications, amendments and waivers hereof and
hereunder.
15
<PAGE> 16
9.3. ENTIRE AGREEMENT. This Third Amendment, together with the other
Loan Documents, constitutes the entire agreement between the parties with
respect to the subject matter hereof and supersedes any prior agreements,
written or oral, with respect to such subject matter.
9.4. COUNTERPARTS. This Third Amendment may be executed in one or more
counterparts, each of which shall be deemed to be an original and all of which
together shall constitute one and the same agreement, and any party may execute
this Third Amendment by signing any such counterpart.
9.5. GOVERNING LAW. This Third Amendment shall be interpreted, and the
rights and liabilities of the parties hereto, whether arising in contract or
tort and howsoever pertaining to the parties' relationship, shall be determined
in accordance with the laws of the State of New Jersey.
9.6. HEADINGS. The section titles contained in this Third Amendment
shall be without substantive meaning or content of any kind whatsoever and are
not a part of the agreement between the parties.
IN WITNESS WHEREOF, the parties have executed this Third
Amendment the day and year first above-written.
PARTY CITY CORPORATION, a
Delaware corporation
By: /s/ David E. Lauber
-------------------------
Name: David E. Lauber
Title: Chief Financial Officer
PNC BANK, NATIONAL
ASSOCIATION
By: /s/ David M. Kreitzberg
--------------------------
Name: David M. Kreitzberg
Title: Vice President
16
