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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 13/D
Under the Securities Exchange Act of 1934
National Auto Credit, Inc.
- --------------------------------------------------------------------------------
(Name of Issuer)
Common Stock, par value $.01 per share
- --------------------------------------------------------------------------------
(Title of Class of Securities)
632900106
---------
(CUSIP Number)
S. Craig Tompkins
Reading Entertainment, Inc., Citadel Holding Corporation and Craig Corporation
c/o 550 South Hope Street, Suite 1825,
Los Angeles, California 90071 (213) 239-0555
- ------------------------------------------------------------------------------
(Name, Address and Telephone Number of Person Authorized
to Receive Notices and Communications)
April 5. 2000
------------------------------------
(Date of Event which Requires Filing of this Statement)
If the filing person has previously filed a statement on Schedule 13G to report
the acquisition which is the subject of this Schedule 13D, and is filing this
schedule because of Rule 13d-1(e), 13d-1(f) or 13d-1(g) check the following box.
[_]
Note: Six copies of this statement, including all exhibits, should be filed
with the Commission. See Rule 13d-1(a) for other parties to whom copies are to
be sent.
*The remainder of this cover page shall be filled out for a reporting person's
initial filing on this form with respect to the subject class of securities, and
for any subsequent amendment containing information which would alter
disclosures provided in a prior cover page.
The information required on the remainder of this cover page shall not be deemed
to be "filed" for the purpose of Section 18 of the Securities Exchange Act of
1934 ("Act") or otherwise subject to the liabilities of that section of the Act
but shall be subject to all other provisions of the Act (however, see the
Notes).
<PAGE>
SCHEDULE 13D
- ----------------------- ---------------------
CUSIP NO. 632900106 PAGE 2 OF 12 PAGES
- ----------------------- ---------------------
- ------------------------------------------------------------------------------
NAME OF REPORTING PERSON
1 S.S. OR I.R.S. IDENTIFICATION NO. OF ABOVE PERSON
FA, INC.
51-0285397
- ------------------------------------------------------------------------------
CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP*
2 FA, Inc. is a member of a group with Reading Entertainment, Inc., but not
with any other Filing Party
(a) [_]
(b) [X]
- ------------------------------------------------------------------------------
SEC USE ONLY
3
- ------------------------------------------------------------------------------
SOURCE OF FUNDS*
4
00
- ------------------------------------------------------------------------------
CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT
TO ITEMS 2(d) or 2(e) [_]
5
- ------------------------------------------------------------------------------
CITIZENSHIP OR PLACE OF ORGANIZATION
6
DELAWARE
- ------------------------------------------------------------------------------
SOLE VOTING POWER
7
NUMBER OF
8,999,900
SHARES -----------------------------------------------------------
SHARED VOTING POWER
BENEFICIALLY 8
OWNED BY -0-
-----------------------------------------------------------
EACH SOLE DISPOSITIVE POWER
9
REPORTING
8,999,900
PERSON -----------------------------------------------------------
SHARED DISPOSITIVE POWER
WITH 10
-0-
- ------------------------------------------------------------------------------
AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
11
8,999,900
- ------------------------------------------------------------------------------
CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES*
12
[_]
- ------------------------------------------------------------------------------
PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
13
25.88%
- ------------------------------------------------------------------------------
TYPE OF REPORTING PERSON*
14
CO
- ------------------------------------------------------------------------------
*SEE INSTRUCTIONS BEFORE FILLING OUT.
<PAGE>
SCHEDULE 13D
- ----------------------- ---------------------
CUSIP NO. 632900106 PAGE 3 OF 12 PAGES
- ----------------------- ---------------------
- ------------------------------------------------------------------------------
NAME OF REPORTING PERSON
1 S.S. OR I.R.S. IDENTIFICATION NO. OF ABOVE PERSON
Reading Entertainment, Inc., a Nevada Corporation
23-2859312
- ------------------------------------------------------------------------------
CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP*
2 Reading Entertainment, Inc., is a member of a group with FA, Inc., but
not with any other Filing Party.
(a) [_]
(b) [X]
- ------------------------------------------------------------------------------
SEC USE ONLY
3
- ------------------------------------------------------------------------------
SOURCE OF FUNDS*
4
OO
- ------------------------------------------------------------------------------
CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT
TO ITEMS 2(d) or 2(e) [_]
5
- ------------------------------------------------------------------------------
CITIZENSHIP OR PLACE OF ORGANIZATION
6
Nevada
- ------------------------------------------------------------------------------
SOLE VOTING POWER
7
NUMBER OF
-0-
SHARES -----------------------------------------------------------
SHARED VOTING POWER
BENEFICIALLY 8
OWNED BY 8,999,900
-----------------------------------------------------------
EACH SOLE DISPOSITIVE POWER
9
REPORTING
-0-
PERSON -----------------------------------------------------------
SHARED DISPOSITIVE POWER
WITH 10
8,999,900
- ------------------------------------------------------------------------------
AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
11
8,999,900
- ------------------------------------------------------------------------------
CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES*
12
[_]
- ------------------------------------------------------------------------------
PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
13
25.88%
- ------------------------------------------------------------------------------
TYPE OF REPORTING PERSON*
14
CO
- ------------------------------------------------------------------------------
*SEE INSTRUCTIONS BEFORE FILLING OUT.
<PAGE>
SCHEDULE 13D
- ----------------------- ---------------------
CUSIP NO. 632900106 PAGE 4 OF 12 PAGES
- ----------------------- ---------------------
- ------------------------------------------------------------------------------
NAME OF REPORTING PERSON
1 S.S. OR I.R.S. IDENTIFICATION NO. OF ABOVE PERSON
Craig Corporation, a Nevada corporation
95-1620188
- ------------------------------------------------------------------------------
CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP*
2
Craig Corporation reports with Reading Entertainment, Inc. on a
consolidated basis and collectively with Reading owns approximately 49%
of the voting stock of Citadel Holding Corporation. However, Craig
disclaims membership in any group.
(a) [_]
(b) [X]
- ------------------------------------------------------------------------------
SEC USE ONLY
3
- ------------------------------------------------------------------------------
SOURCE OF FUNDS*
4
N/A
- ------------------------------------------------------------------------------
CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT
TO ITEMS 2(d) or 2(e) [_]
5
- ------------------------------------------------------------------------------
CITIZENSHIP OR PLACE OF ORGANIZATION
6
Nevada
- ------------------------------------------------------------------------------
SOLE VOTING POWER
7
NUMBER OF
-0-
SHARES -----------------------------------------------------------
SHARED VOTING POWER
BENEFICIALLY 8
9,925,000
OWNED BY
-----------------------------------------------------------
EACH SOLE DISPOSITIVE POWER
9
REPORTING
-0-
PERSON -----------------------------------------------------------
SHARED DISPOSITIVE POWER
WITH 10
9,925,000
- ------------------------------------------------------------------------------
AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
11
9,925,000
- ------------------------------------------------------------------------------
CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES*
12
[_]
- ------------------------------------------------------------------------------
PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
13
28.54%
- ------------------------------------------------------------------------------
TYPE OF REPORTING PERSON*
14
CO
- ------------------------------------------------------------------------------
*SEE INSTRUCTIONS BEFORE FILLING OUT.
<PAGE>
SCHEDULE 13D
- ----------------------- ---------------------
CUSIP NO. 632900106 PAGE 5 OF 12 PAGES
- ----------------------- ---------------------
- ------------------------------------------------------------------------------
NAME OF REPORTING PERSON
1 S.S. OR I.R.S. IDENTIFICATION NO. OF ABOVE PERSON
Citadel Holding Corporation, a Nevada corporation
95-3885184
- ------------------------------------------------------------------------------
CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP*
2 Citadel is owned approximately 49% by Craig Corporation (a) [_]
and Reading Entertainment, Inc. However, Citadel disclaims (b) [X]
membership in any group.
- ------------------------------------------------------------------------------
SEC USE ONLY
3
WC
- ------------------------------------------------------------------------------
SOURCE OF FUNDS*
4
- ------------------------------------------------------------------------------
CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT
TO ITEMS 2(d) or 2(e) [_]
5
- ------------------------------------------------------------------------------
CITIZENSHIP OR PLACE OF ORGANIZATION
6
Nevada
- ------------------------------------------------------------------------------
SOLE VOTING POWER
7
NUMBER OF
-0-
SHARES -----------------------------------------------------------
SHARED VOTING POWER
BENEFICIALLY 8
OWNED BY 925,100
-----------------------------------------------------------
EACH SOLE DISPOSITIVE POWER
9
REPORTING
-0-
PERSON -----------------------------------------------------------
SHARED DISPOSITIVE POWER
WITH 10
925,100
- ------------------------------------------------------------------------------
AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
11
925,100
- ------------------------------------------------------------------------------
CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES*
12
[_]
- ------------------------------------------------------------------------------
PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
13
2.66%
- ------------------------------------------------------------------------------
TYPE OF REPORTING PERSON*
14
CO
- ------------------------------------------------------------------------------
*SEE INSTRUCTIONS BEFORE FILLING OUT.
<PAGE>
SCHEDULE 13D
---------------------
PAGE 6 OF 12 PAGES
---------------------
Item 1. Security and Issuer.
This Statement relates to the purchase on April 5, 2000 by FA, Inc., ("FA"), a
wholly owned subsidiary of Reading Entertainment, Inc., a Nevada corporation
("REI and collectively with FA, "Reading") of 8,999,900 shares of the Common
Stock, par value $.05 per share (the "Common Stock"), of National Auto Credit,
Inc., a Delaware corporation (the "Issuer"). This filing is also being made by
the following persons:
a) Craig Corporation, a Nevada corporation ("CC" and collectively with its
wholly owned subsidiaries "Craig"), which owns approximately 78% of the
voting power of REI, and reports its ownership in REI on a consolidated
basis for financial reporting purposes; and
b) Citadel Holding Corporation, a Nevada corporation ("CHC" and
collectively with its wholly owned subsidiaries "Citadel"), which holds
925,100 shares of the Common Stock of the Issuer, and 70,000 shares of the
Series A Preferred Stock of REI, and the Class A Non-voting Common Stock
and Class B Voting Common Stock of which are held 31.7% and 31.7%
respectively by Reading and 16.4% and 17.3% respectively by Craig.
These persons are referred to herein collectively as the "Filing Parties."
Item 2. Identity and Background.
The information required under this item is set forth in Schedule 1 to this
Statement.
Item 3. Source and Amount of Funds or Other Consideration.
The Common Stock acquired by FA was issued by the Issuer to FA in partial
consideration of (a) the transfer by FA to the Issuer of a 50% membership
interest in the Angelika Film Center, LLC., a Delaware limited liability company
("AFC"), and (b) the granting to the Issuer of certain options to further expand
into the domestic cinema exhibition market through the acquisition from Reading
of certain additional domestic cinemas assets (the "Exchange Transaction"). The
membership interest transferred by FA to the Issuer was valued by the parties at
$13.5 million. The remainder of the consideration included 100 shares of the
Issuer's Series A Convertible Preferred Stock (the "Preferred Stock") and cash
in the amount of $500,000. A copy of the Certificate of Designation setting out
the rights, privileges and preferences of the Preferred Stock is set out in
Schedule 2 to this Statement. That Certificate of Designation provides, among
other things, that the Issuer's Certificate of Incorporation and By-Laws cannot
be amended and that the Board of Directors cannot be removed without the
approval of the holders of a majority of the Preferred Stock outstanding from
time to time. At the present time, FA holds 100% of the authorized Preferred
Stock. This summary description of the Preferred Stock is qualified by
reference to the complete text of the Certificate of Designation, set out in
Schedule 2, hereto.
The Common Stock acquired by Citadel was purchased in the over-the-counter
market for cash from Citadel's internally generated funds over the period
October 14, 1999 to March 23, 2000.
<PAGE>
- ----------------------------- ------------------------
CUSIP No. 632900106 Page 7 of 12 Pages
- ----------------------------- ------------------------
Collectively, the Filing Parties currently own Common Stock representing
approximately 28.54 % of the outstanding voting power of the Issuer. Although
they are filing this Statement jointly, there is not presently any binding
agreement between the Filing Parties with respect to the voting of shares, the
acquisition of further shares, the disposition of any shares, or the taking of
any other action with respect to the shares or the Issuer. The Filing Parties,
may, however, from time to time, share the costs of a common law firm to assist
them with respect to their compliance with the federal securities laws
applicable to their respective transactions involving the Common Stock and/or
the Preferred Stock. Also, FA and REI may be considered as a part of a group,
since FA is a wholly owned subsidiary of REI. Craig and Citadel disclaim
membership in any group.
Item 4. Purpose of Transaction.
The transaction was a part of Reading's previously disclosed plan to focus its
business principally upon the ownership, development and operation of cinemas
and cinema based entertainment centers in Australia and New Zealand, and to de-
emphasize its direct ownership and operation of cinemas in the United States and
Puerto Rico. The sole asset of AFC is the Angelika Film Center located in the
Soho district of Manhattan. In the Exchange Transaction, Reading believes that
it has, in essence, brought a potential partner with significant cash assets and
no indebtedness, into its domestic cinema exhibition business. While no
assurances can be given, it is Reading's hope that the Issuer will elect to
exercise its options to acquire further cinema interests from Reading in
consideration of the issuance to it of additional shares of the Issuer's Common
Stock. The Issuer has the option, through and including May 20, 2000 to
acquire, for example, an additional 33.3% membership interest in AFC from FA in
consideration of the issuance to FA of an additional 6 million shares of Common
Stock.
The Filing Parties believe that the value of the Common Stock may, at present,
be adversely affected by a variety of factors, including the uncertainty
presently surrounding the management and direction of the Issuer and the role
that will be played, if any, by its principal stockholder, Mr. Sam Frankino
("Frankino"). According to the Issuer's public reports and press releases,
a) The Issuer and Frankino are currently the subject of eleven purported
class action lawsuits (collectively referred to herein as the "Class
Action") alleging fraud and other violations of the federal securities
laws. While the Company has reached agreement in principal with
plaintiff's counsel to settle these claims for $6.5 million, this
settlement needs to be approved by the Court and, insofar as the Filing
Parties are aware, does not resolve matters between the Issuer and
Frankino;
b) On January 16, 1998, Deloitte & Touche LLP resigned as the independent
auditors to the Issuer, advising the Issuer that information had come to
its attention that caused it to no longer be able to rely on the
representations of the then management of the Issuer's, which management
included Frankino;
c) The Securities and Exchange Commission, the United States Attorney for
the Northern District of Ohio, and the Federal Bureau of Investigation are
investigating the issue raised as a result of the resignation of Deloitte &
Touche LLP;
<PAGE>
- ---------------------------- ------------------------
CUSIP No. 632900106 Page 8 of 12 Pages
- ---------------------------- ------------------------
d) In August 1999, Frankino filed a written consent with the Issuer in
which he (i) amended the Issuer's bylaws to expand the number of directors
from six to thirteen and (ii) elected seven of his nominees to fill these
newly-created seats on the Board. This action was contested by the Issuer
but was upheld by the Delaware Chancery Court in November 1999;
e) Prior to the acquisition of its interest in AFC, the Issuer sold
substantially all of its business assets reducing its assets, in essence,
to cash and a limited amount of commercial real estate;
f) On April 7, 2000, following the closing of the Exchange Transaction and
the issuance of the Common Stock and the Preferred Stock to Reading,
Frankino delivered a written consent the Issuer, in which he purported to
a) rescind any and all amendments to the Issuer's by-laws made on or after
March 1, 2000, b) declassify the Board of Directors of the Issuer, and c)
remove all of the directors who voted in favor of the Exchange Transaction
(including 4 of the Directors placed upon the Board of Directors of the
Issuer by Frankino in 1999). The Filing Parties are further advised that
Frankino has filed a lawsuit in the Delaware Chancery Court (the "Frankino
Lawsuit") seeking to compel the Issuer to accept these purported actions by
written consent, which lawsuit is currently pending, and that the Issuer
intends to defend against such lawsuit. Although Frankino seeks to prevent
Reading from voting its shares of Common Stock and Preferred Stock, Reading
has not been named in the action. Based on the above actions by Frankino,
it appears to the Filing Parties that Frankino intends to challenge the
Exchange Transaction and the rights of Reading as the holder of the
securities described in this Statement; and
g) The Issuer's current auditors have questioned the Issuer's ability to
continue as a going concern.
The Filing Parties believe that the Exchange Transaction has resulted in (a) the
dilution of Frankino's voting interest in the Issuer from over 60% to less than
50% and (b) absent the acquisition of additional shares by Frankino, the
elimination of Frankino's ability to unilaterally amend the Issuer's By-laws and
remove the Directors of the Issuer. However, given the Frankino Lawsuit, no
assurances can be given in this regard.
Depending upon a variety of factors, including without limitation, the state of
the relations between the Issuer and its largest stockholder, Frankino, the
status of the Frankino Lawsuit and the decision by the Board of Directors of the
Issuer whether or not to exercise its options to acquire addition cinema assets
from Reading, the Filing Parties may purchase additional shares (directly from
the Issuer, in open market transactions, and/or by tender or other offer) or
they may sell shares. However, since the 8,999,900 shares acquired directly
from the Issuer were sold without the benefit of a registration statement, they
constitute restricted securities, and cannot be sold other than after
registration or otherwise pursuant to an exemption from the registration
requirements of the Securities Act of 1933, as amended and applicable state
securities laws. While Reading has been granted certain registration rights by
the Issuer, these rights are limited. Other than the limitations on resale
imposed by applicable state and federal securities laws, however, there are no
restrictions or limitations on the right of the Filing Parties to dispose of
their respective interests in the Issuer at such time, in such manner and to
such person or persons as they may elect.
<PAGE>
- ---------------------------- ------------------------
CUSIP No. 632900106 Page 9 of 12 Pages
- ---------------------------- ------------------------
Prior to the closing of the Exchange Transaction, the Filing Parties had
discussions with Frankino and with certain of his representatives, concerning a
purchase by one or more of the Filing Parties of the interest held in the Issuer
by Frankino and certain of his affiliates. However, these discussions have not
to date resulted in any transaction and the Filing Parties have no reason to
believe that Frankino would be a willing seller of his interest in the Issuer at
this time.
The Filing Parties may consider and/or propose one or more additional
transactions which relate to or would result in the effects specified in items
(b) through (g), (i) and (g) of Item 4. of Schedule 13D. However, as Reading is
an "Interested Person" as such term is defined in Article SIXTH of the
Certificate of Incorporation of the Issuer, the ability of the Filing Parties to
cause the consummation of any one or more transactions constituting a "Business
Combination" as defined in such Article SIXTH is limited. Accordingly, it
appears that Frankino is currently in a position to block any "Business
Combination" between the Issuer and Reading or any of Reading's affiliates or
associates. The Issuer has covenanted, however, in the Purchase Agreement
pursuant to which the Issuer acquired the 50% membership interest in AFC (the
"Purchase Agreement") that:
subject to the fiduciary duty of the board of Directors of [Issuer], to
present to the stockholders of [Issuer], at [Issuer's] next annual or
special meeting of stockholders, a proposed amendment to [Issuer's]
Restated Certificate of Incorporation to eliminate Article SIXTH thereof,
and shall use their best efforts to solicit proxies in favor of such
amendment.
The Filing Parties believe that the interests of the Issuer and its stockholders
would best be served by the elimination of Article SIXTH. However, while
Article SIXTH is rather convoluted and difficult to interpret, the Filing
Parties believe that the elimination of Article SIXTH would require the approval
of stockholders of the Issuer representing 2/3rds of the outstanding shares,
calculated both with and without reference to the shares held by the Filing
Parties and Frankino. Accordingly, Frankino could block the removal of Article
SIXTH. No assurances can be given as to whether Frankino would support the
elimination of Article SIXTH.
As a consequence of action by the Board of Directors of the Issuer, Reading and
its affiliates are exempt from the provisions of Section 203 of the Delaware
Corporations Code.
Given the amount of Common Stock held by Frankino, the actions recently taken by
Frankino to purportedly restructure the Issuer's Board of Directors and to
purportedly remove from the Issuer's Board of Directors all Directors who voted
in favor of the Exchange Transaction, and the uncertainty surrounding the future
of the Issuer and the Exchange Transaction, no assurances can be given as to
what, if any, action will be taken by the Filing Parties.
Item 5. Interest in Securities of the Issuer.
See the materials set forth on Pages 2-5 above and in Schedule 3 to this
Statement.
<PAGE>
- ---------------------------- ------------------------
CUSIP No. 632900106 Page 10 of 12 Pages
- ---------------------------- ------------------------
Item 6. Contracts Arrangements, Understandings or Relationships With Respect to
Securities of the Issuer.
There are no agreements other than the following agreements between Reading and
the Issuer pertaining to the Securities of the Issuer.
a) the Purchase Agreement between the parties dated April 5, 2000,
b) the Registration Rights Agreement between the parties dated April 5, 2000,
c) the Option Letter dated April 5, 2000 (the "First Option Letter") granting
to the Issuer the right, on or before May 20, 2000, to elect to acquire an
additional 33% interest in AFC in consideration of the issuance by it to Reading
of an additional 6 million shares of Common Stock (the Issuer having the right,
in the event and to the extent that it should lack sufficient authorized shares
to effect such transaction, to substitute cash at the rate of $1.50 for such
shares to the extent necessary to make up the difference), and
d) The Option Letter dated April 5, 2000, (the "Second Option Letter") granting
to the Issuer the right, on or before June 5, 2000 to acquire all of the
remaining domestic cinema assets of Reading, subject to the right of Citadel to
participate, on a 50/50 basis with the Issuer, in any such transaction.
Copies of the above documents are attached as exhibits to this Statement, and
any description of them herein is necessarily qualified by reference to the full
text of such documents, as set forth in such exhibits.
The Purchase Agreement includes a put right, exercisable by Reading under
certain circumstances. The relevant provision provides as follows:
Section 5.9. Notification and Put Rights.
(a) [Issuer] covenants and agrees that it shall provide written notice
to [REI] at least thirty (30) days prior to the date on which any of the
following is proposed to occur: (i) the issuance of shares of Common Stock
or of any class or series of Preferred Stock (in one or a series of related
transactions) representing more than fifteen percent (15%) of the number or
voting power of the shares of Common Stock or [Issuer] Preferred Stock, as
the case may be, outstanding immediately prior to such issuance, or (ii)
the making of an investment or series of related investments involving
aggregate payments by [Issuer] of $10 million or more (calculated on a
consolidated basis);
(b) [REI] shall notify [Issuer] within thirty (30) days after the date
of the notice in paragraph (a) above whether it agrees with the proposed
issuance or investment described in such notice. If (x) [REI] objects to
any such proposed transaction and (y) [Issuer] notifies [REI] that [Issuer]
will nonetheless proceed with the proposed transaction, [REI] shall have
the option, exercisable within fifteen (15) days after the date of the
written notice in clause (y) above, to cause [Issuer] to repurchase, out of
funds legally available therefore, all of the Common Share Consideration
and the Preferred Share Consideration, for an aggregate purchase price
equal to (aa) $13.5 million plus (bb) interest at a per annum
<PAGE>
- ---------------------------- ------------------------
CUSIP No. 632900106 Page 11 of 12 Pages
- ---------------------------- ------------------------
rate of ten percent (10%) calculated on a daily basis through the date of
such repurchase, which repurchase shall be consummated no later than thirty
(30) days after the date of the notice of exercise of the option provided
herein; and
c) The rights of [REI] to receive notice and to require the [Issuer]
to repurchase the Common Share Consideration and the Preferred Share
consideration shall expire on the date that is thirty (30) days following
the date on which [Issuer] files with the Securities and Exchange
Commission its Annual Report on Form 10-K for the fiscal year ended January
30, 2001, provided that the parties shall be obligated to consummate any
repurchase for which [REI] has provided notice of exercise of the
repurchase option provided in section 5.9(b) prior to such expiration date.
The Purchase Agreement also includes (a)an undertaking, as previously set forth
above, to propose to the stockholders of the Issuer and to solicit proxies in
support of an amendment to the Restated Certificate of Incorporation of the
Issuer to eliminate Article SIXTH, and (b) a covenant to permit a representative
of Reading to attend meetings of the Board of Directors of the Issuer.
Item 7. Material to be Filed as Exhibits.
Exhibit A - Purchase Agreement
Exhibit B - Registration Rights Agreement
Exhibit C - First Option Letter
Exhibit D - Second Option Letter
Exhibit E - Joint Filing Agreement
Schedule 1 Information with Respect to Executive Officers and Directors
Schedule 2 Certificate of Designation
Schedule 3 Interest in Securities of the Issuer: Transactions for shares
for the past 60 days.
[Intentionally left blank]
<PAGE>
- ---------------------------- ------------------------
CUSIP No. 632900106 Page 12 of 12 Pages
- ---------------------------- ------------------------
SIGNATURE
After reasonable inquiry and to the best of my knowledge and belief, I
certify that the information set forth in this statement is true, complete and
correct.
Dated: April 17, 2000
FA, INC.
By: /s/ S. Craig Tompkins
---------------------
S. Craig Tompkins
Vice President
READING ENTERTAINMENT, INC.
By: /s/ S. Craig Tompkins
---------------------
S. Craig Tompkins
Vice Chairman
CRAIG CORPORATION.
By: /s/ S. Craig Tompkins
---------------------
S. Craig Tompkins
President
CITADEL HOLDING CORPORATION
By: /s/ S. Craig Tompkins
---------------------
S. Craig Tompkins
Vice Chairman
<PAGE>
EXHIBIT A
================================================================================
PURCHASE AGREEMENT
AMONG
NATIONAL AUTO CREDIT, INC.,
NATIONAL CINEMAS, INC.
FA, INC.
and
READING ENTERTAINMENT, INC.
______________________________
Dated as of April 5, 2000
______________________________
================================================================================
<PAGE>
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
Page
----
<S> <C>
ARTICLE I. DEFINITIONS.......................................................... 1
Section 1.1 Definitions...................................................... 1
ARTICLE II. PURCHASE AND SALE.................................................... 6
Section 2.1 Transfer of Shares............................................... 6
Section 2.2 Closing.......................................................... 6
Section 2.3 Purchase Price................................................... 6
Section 2.4 Certain Indemnitees.............................................. 7
Section 2.5 Newco............................................................ 7
Section 2.6 Option Letters................................................... 7
ARTICLE III REPRESENTATIONS AND WARRANTIES OF THE SELLER AND THE PARENT.......... 7
Section 3.1 Organization..................................................... 8
Section 3.2 Capitalization; Title to the Interests........................... 8
Section 3.3 Subsidiaries and Investments..................................... 8
Section 3.4 Authorization and Validity of Agreement.......................... 8
Section 3.5 No Conflict or Violation......................................... 9
Section 3.6 Consents and Approvals........................................... 9
Section 3.7 Financial Statements............................................. 9
Section 3.8 Absence of Certain Changes or Events............................. 10
Section 3.9 Tax Matters...................................................... 11
Section 3.10 Intentionally Omitted............................................ 12
Section 3.11 Intellectual Property............................................ 12
Section 3.12 Personal Property................................................ 12
Section 3.13 Real Property.................................................... 13
Section 3.14 Licenses, Permits and Governmental Approvals..................... 14
Section 3.15 Compliance with Law.............................................. 14
Section 3.16 Contracts........................................................ 15
Section 3.17 Intentionally Omitted............................................ 16
Section 3.18 Litigation....................................................... 16
Section 3.19 Insurance........................................................ 16
Section 3.20 Employee Plans................................................... 16
Section 3.21 Labor Matters.................................................... 16
Section 3.22 Environmental Matters............................................ 17
Section 3.23 Brokers and Finders.............................................. 17
Section 3.24 Year 2000 Compliance............................................. 17
Section 3.25 Intentionally Omitted............................................ 17
Section 3.26 Change in Ownership.............................................. 18
</TABLE>
i
<PAGE>
<TABLE>
<S> <C>
Section 3.27 Intentionally Omitted........................................... 18
Section 3.28 Absence of Undisclosed Liabilities.............................. 18
Section 3.29 Purchase for Investment......................................... 18
Section 3.30 Restricted Securities........................................... 18
Section 3.31 Due Diligence................................................... 19
Section 3.32 Survival........................................................ 19
ARTICLE IV. REPRESENTATIONS AND WARRANTIES OF THE BUYER AND NEWCO.............. 19
Section 4.1 Corporate Organization.......................................... 19
Section 4.2 Subsidiaries and Investments.................................... 20
Section 4.3 Authorization and Validity of Agreement......................... 20
Section 4.4 Capitalization.................................................. 20
Section 4.5 No Conflict or Violation........................................ 21
Section 4.6 Consents and Approvals.......................................... 21
Section 4.7 Financial Statements............................................ 21
Section 4.8 Absence of Certain Changes or Events............................ 21
Section 4.9 Tax Matters..................................................... 22
Section 4.10 Real Property................................................... 23
Section 4.11 Litigation...................................................... 25
Section 4.12 Employee Plans.................................................. 25
Section 4.13 Labor Matters................................................... 28
Section 4.14 Environmental Matters........................................... 28
Section 4.15 Purchase for Investment......................................... 29
Section 4.16 Brokers and Finders............................................. 29
Section 4.17 Due Diligence................................................... 29
Section 4.18 Survival........................................................ 29
ARTICLE V. COVENANTS OF THE PARTIES........................................... 30
Section 5.1 Consents and Approvals Required on Closing Date................. 30
Section 5.2 Further Assurances.............................................. 30
Section 5.3 Best Efforts.................................................... 30
Section 5.4 Nondisclosure................................................... 30
Section 5.5 Tax Matters..................................................... 30
Section 5.6 Cooperation on Tax Matters...................................... 31
Section 5.7 Amendment to Management Agreement............................... 31
Section 5.8 Amendment to Trademark License Agreement........................ 31
Section 5.9 Notification and Put Rights..................................... 31
Section 5.10 Amendment to Certificate of Incorporation....................... 32
Section 5.11 Board Representation............................................ 32
ARTICLE VI. INDEMNIFICATION.................................................... 32
Section 6.1 Indemnification by the Seller and the Parent.................... 32
</TABLE>
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<TABLE>
<S> <C>
Section 6.2 Procedures for Indemnification by the Seller and the Parent....... 33
Section 6.3 Indemnification by the Buyer and Newco............................ 34
Section 6.4 Procedures for Indemnification by the Buyer and Newco............. 35
ARTICLE VII. CONDITIONS TO OBLIGATIONS OF THE SELLER AND THE PARENT............... 36
Section 7.1 Representations and Warranties of the Buyer and Newco............. 36
Section 7.2 Performance of the Obligations of the Buyer and Newco............. 36
Section 7.3 Consents and Approvals............................................ 36
Section 7.4 No Violation of Orders............................................ 36
Section 7.5 Registration Rights Agreement..................................... 36
Section 7.6 Buyer Closing Documents........................................... 36
Section 7.7 Legal Matters..................................................... 37
ARTICLE VIII. CONDITIONS TO OBLIGATIONS OF THE BUYER AND NEWCO..................... 37
Section 8.1 Representations and Warranties of the Seller and the Parent....... 37
Section 8.2 Performance of the Obligations of the Seller and the Parent....... 37
Section 8.3 Consents and Approvals............................................ 37
Section 8.4 No Violation of Orders............................................ 37
Section 8.5 Sellers Closing Documents......................................... 38
Section 8.6 Legal Matters..................................................... 38
ARTICLE IX. TERMINATION.......................................................... 38
Section 9.1 Conditions of Termination......................................... 38
Section 9.2 Effect of Termination............................................. 39
Section 9.3 Intentionally Omitted............................................. 39
ARTICLE X. MISCELLANEOUS........................................................ 39
Section 10.1 Successors and Assigns............................................ 39
Section 10.2 Governing Law; Jurisdiction....................................... 39
Section 10.3 Service of Process................................................ 39
Section 10.4 Expenses; Fees.................................................... 39
Section 10.5 Severability...................................................... 39
Section 10.6 Notices........................................................... 39
Section 10.7 Amendments; Waivers............................................... 40
Section 10.8 Public Announcements.............................................. 41
</TABLE>
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<TABLE>
<S> <C>
Section 10.9 Entire Agreement.................................................. 41
Section 10.10 Parties in Interest............................................... 41
Section 10.11 Scheduled Disclosures............................................. 41
Section 10.12 Specific Performance.............................................. 41
Section 10.13 Section and Paragraph Headings.................................... 41
Section 10.14 Counterparts...................................................... 41
</TABLE>
Exhibits
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Exhibit A - Form of Amendment and Waiver
Exhibit B - Option Letters
Exhibit C - Company Financial Statements
Exhibit D - Form of Registration Rights Agreement
Exhibit E - Form of Amendment to Trademark License Agreement
Exhibit F - Certificate of Designation, Number, Powers, Preferences and
Relative, Participating, Optional and Other Special Rights and the
Qualifications, Limitations, Restrictions, and Other Distinguishing
Characteristics of the Series A Convertible Preferred Stock of
National Auto Credit, Inc.
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PURCHASE AGREEMENT
THIS PURCHASE AGREEMENT (this "Agreement") is made and entered into as of
this 4/th/ day of April, 2000, by and among National Auto Credit, Inc., a
Delaware corporation (the "Buyer"), National Cinemas, Inc. ("Newco"), FA, Inc.
(d/b/a FA of Delaware), a Delaware corporation (the "Seller"), and Reading
Entertainment, Inc., a Nevada corporation (the "Parent").
PRELIMINARY STATEMENT
WHEREAS, Angelika Film Centers LLC, a Delaware limited liability company
(the "Company"), owns and operates the Angelika Film Center, consisting of a
multiplex cinema and cafe complex, located at 18 W. Houston Street, New York,
New York, in the SOHO District of Manhattan;
WHEREAS, the Seller owns an 83.34% membership interest in the Company
which, together with the remaining 16.66% membership interest in the Company
owned by Sutton Hill Associates, a California general partnership ("Sutton
Hill"), constitutes all of the outstanding membership interests in the Company
(the "Interests"); and
WHEREAS, the Parent owns indirectly all of the issued and outstanding
shares of capital stock of the Seller and Buyer owns all of the issued and
outstanding capital stock of Newco; and
WHEREAS, the Buyer desires to enter into the motion picture exhibition
business in the United States and to purchase a 50% membership interest in the
Company from the Seller (the "Purchased Interests"), and the Seller desires to
sell the Purchased Interests to the Buyer, on the Closing Date (as hereinafter
defined), upon the terms and conditions set forth in this Agreement.
NOW, THEREFORE, in consideration of the mutual terms, conditions and other
agreements set forth herein, the parties hereto hereby agree as follows:
ARTICLE I.
DEFINITIONS
Section 1.1. Definitions. As used in this Agreement (including the
recitals and Schedules hereto), the following terms shall have the following
meanings (such meanings to be applicable equally to both singular and plural
forms of the terms defined):
"Affiliate" shall mean, as to any Person, any other Person which directly
or indirectly controls, or is under common control with, or is controlled by,
such Person. As used in this definition, "control" (including, with its
correlative meanings, "controlled by" and "under common control with") shall
mean possession, directly or indirectly, of the power to direct or cause the
direction of management, policies or investments (whether through ownership of
securities or partnership or other ownership interests, by management or
advisory contract or otherwise) of such Person.
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"Agreement" shall have the meaning set forth in the preamble hereto.
"Amended Trademark License Agreement" shall have the meaning set forth in
Section 5.9 hereof.
"Amendment and Waiver" means the Amendment and Waiver to the Limited
Liability Company Agreement between the Seller and Sutton Hill to be entered
into among the Seller and Sutton Hill on or prior to the Closing Date in the
form attached hereto as Exhibit A.
"Benefit Arrangement" shall have the meaning set forth in Section 3.20
hereof.
"Buyer" shall have the meaning set forth in the preamble hereto.
"Buyer Common Stock" means the Common Stock, par value $.05 per share, of
the Buyer.
"Buyer Series A Preferred Stock" means the Series A Convertible Preferred
Stock, par value $.05 per share, of the Buyer, described on Exhibit F hereto.
"Buyer Employee Plans" shall have the meaning set forth in Section 4.12
hereof.
"Buyer ERISA Affiliate" shall have the meaning set forth in Section 4.12
hereof.
"Buyer Events of Breach" shall have the meaning set forth in Section 6.3
hereof.
"Buyer Indemnitees" shall have the meaning set forth in Section 6.1 hereof.
"Buyer Leased Property" shall have the meaning set forth in Section 4.10(b)
hereof.
"Buyer Leases" shall have the meaning set forth in Section 4.10(b) hereof.
"Buyer Losses" shall have the meaning set forth in Section 6.1 hereof.
"Buyer Material Adverse Effect" shall mean a material adverse effect on the
business, operations, assets, properties or condition (financial or otherwise)
of the Buyer and its subsidiaries, taken as a whole.
"Buyer Multiemployer Plan" shall have the meaning set forth in Section
4.12(b) hereof.
"Buyer Owned Real Property" shall have the meaning set forth in Section
4.10(a) hereof.
"Buyer Pension Plans" shall have the meaning set forth in Section 4.12
hereof.
"Buyer Plans" shall have the meaning set forth in Section 4.12 hereof.
"Buyer Financial Statements" shall have the meaning set forth in Section
4.7 hereof.
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"CERCLA" shall have the meaning set forth in Section 3.22(b) hereof.
"Certificate of Designation" shall mean that Certificate of Designation,
Number, Powers, Preferences and Relative, Participating, Optional and Other
Special Rights and the Qualifications, Limitations, Restrictions, and Other
Distinguishing Characteristics of the Series A Convertible Preferred Stock of
National Auto Credit, Inc., the form of which is attached hereto as Exhibit F.
"Closing" shall have the meaning set forth in Section 2.2 hereof.
"Closing Date" shall have the meaning set forth in Section 2.2 hereof.
"Code" shall mean the Internal Revenue Code of 1986, as amended, and all
regulations promulgated thereunder, as in effect from time to time.
"Commission" means the Securities and Exchange Commission.
"Company" shall have the meaning set forth in the preliminary statement
hereof.
"Company Balance Sheet" shall have the meaning set forth in Section 3.7
hereof.
"Company Financial Statements" shall have the meaning set forth in Section
3.7 hereof.
"Company Material Adverse Effect" shall mean a material adverse effect on
the business, operations, assets, properties or condition (financial or
otherwise) of the Company.
"Company Permits" shall have the meaning set forth in Section 3.14 hereof.
"Company Unaudited Financial Statements" shall have the meaning set forth
in Section 3.7 hereof.
"Contracts" shall have the meaning set forth in Section 3.16 hereof.
"Employee Plans" shall have the meaning set forth in Section 3.20(a)
hereof.
"Employment and Labor Agreements" shall have the meaning set forth in
Section 4.13(a) hereof.
"Environmental Laws" shall have the meaning set forth in Section 3.22(a)
hereof.
"ERISA" shall mean the Employee Retirement Income Security Act of 1974, as
amended, and all regulations promulgated thereunder, as in effect from time to
time.
"GAAP" shall mean United States generally accepted accounting principles as
in effect on the date on which the document or calculation to which it refers
relates, applied on a consistent basis throughout the periods covered thereby.
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<PAGE>
"Government" shall mean any agency, division, subdivision, audit group or
procuring office of the Government of the United States, any state of the United
States or any foreign government, including the employees or agents thereof.
"Hazardous Materials" shall have the meaning set forth in Section 3.22(c)
hereof.
"Income Tax" or "Income Taxes" shall mean all Taxes based upon, measured
by, or calculated with respect to (i) gross or net income or gross or net
receipts or profits (including, but not limited to, any capital gains, minimum
taxes and any Taxes on items of tax preference, but not including sales, use,
goods and services, real or personal property transfer or other similar Taxes),
(ii) multiple bases (including, but not limited to, corporate franchise, doing
business or occupation Taxes) if one or more of the bases upon which such Tax
may be based upon, measured by, or calculated with respect to, is described in
clause (i) above or (iii) withholding taxes measured by, or calculated with
respect to, any payments or distributions (other than wages).
"Indebtedness" shall mean all loan and credit agreements, indentures,
debentures, promissory notes and other evidences of indebtedness, and all
guarantees related thereto, of the Company.
"Intellectual Property" shall have the meaning set forth in Section 3.11
hereof.
"Interests" shall have the meaning set forth in the Preliminary Statement
hereof.
"Leases" shall have the meaning set forth in Section 3.13(b) hereof.
"Leased Property" shall have the meaning set forth in Section 3.13(b)
hereof.
"Lien" shall mean any mortgage, pledge, security interest, encumbrance,
lien (statutory or other) or conditional sale agreement.
"Management Agreement" shall mean the Management Agreement, dated as of
August 27, 1996, by and between the Company and City Cinemas Corporation, a New
York corporation.
"Newco" shall have the meaning set forth in the preamble hereto.
"NLRB" shall have the meaning set forth in Section 4.13(b) hereof.
"Option Letters" shall have the meaning set forth in Section 2.6 hereof.
"Parent" shall have the meaning set forth in the preamble hereto.
"PBGC" shall have the meaning set forth in Section 4.12(e) hereof.
"Permits" shall mean licenses, permits, franchises, authorizations and
approvals issued or granted by the Government, any state or local government,
any foreign national or local
4
<PAGE>
government, or any department, agency, board, commission, bureau or
instrumentality of any of the foregoing.
"Person" shall mean and include any individual, corporation, limited
liability company, partnership, joint venture, association, joint-stock company,
trust, any other unincorporated organization or Government.
"Plans" shall have the meaning set forth in Section 3.20(a) hereof.
"Proceeding" shall have the meaning set forth in Section 6.2 hereof.
"Purchased Interests" shall have the meaning set forth in the Preliminary
Statement hereof.
"Reading Investment" shall have the meaning set forth in Section 5.9
hereof.
"Registration Rights Agreement" means the Registration Rights Agreement to
be entered into among the Buyer and the Seller on the Closing Date in the form
attached hereto as Exhibit D.
"SEC Reports" means the registration statements, reports and proxy
statements filed with the Commission.
"Securities Act" shall mean the Securities Act of 1933, as amended.
"Seller Events of Breach" shall have the meaning set forth in Section 6.1
hereof.
"Seller Indemnitees" shall have the meaning set forth in Section 6.3
hereof.
"Seller Losses" shall have the meaning set forth in Section 6.3 hereof.
"Seller" shall have the meaning set forth in the preamble hereto.
"Share Consideration" shall have the meaning set forth in Section 2.3
hereof.
"Sutton Hill" shall have the meaning set forth in the Preliminary Statement
hereof.
"Taxes" shall mean any and all federal, state, local, foreign and other
taxes, levies, fees, imposts, duties and charges of whatever kind (including any
interest, penalties or additions to the tax imposed in connection therewith or
with respect thereto), whether or not imposed on the Company, including, without
limitation, taxes imposed on, or measured by, income, franchise, profits or
gross receipts, and also ad valorem, value added, sales, use, service, real or
personal property, capital stock, license, payroll, withholding, employment,
social security, workers' compensation, unemployment compensation, utility,
severance, production, excise, stamp, occupation, premium, windfall profits,
transfer and gains taxes and customs duties.
5
<PAGE>
"Tax Returns" shall mean returns, reports, information statements and other
documentation (including any additional or supporting material) filed or
maintained, or required to be filed or maintained, in connection with the
calculation, determination, assessment or collection of any Tax and shall
include any amended returns required as a result of examination adjustments made
by the Internal Revenue Service or other Tax authority.
"Transaction Documents" shall mean this Agreement and the Exhibits and
Schedules hereto, the Registration Rights Agreement, the Option Letters, the
Amendment and Waiver, the Amended Trademark License Agreement and all other
agreements, instruments, certificates and other documents to be entered into or
delivered by any party in connection with the transactions contemplated to be
consummated pursuant to any of the foregoing.
ARTICLE II.
PURCHASE AND SALE
Section 2.1. Transfer of Interests. On the Closing Date and upon the
terms and subject to the conditions set forth in this Agreement, the Seller
shall sell, assign, transfer, convey and deliver the Purchased Interests, free
and clear of any liens, claims, charges, security interests or other legal or
equitable encumbrances, limitations or restrictions, to the Buyer, and the Buyer
shall purchase and accept the Purchased Interests from the Seller.
Section 2.2. Closing. The closing of the sale and purchase of the
Purchased Interests (the "Closing") shall take place on the 5/th/ day of April,
2000, or at such other time and date as the parties hereto shall agree in
writing (the "Closing Date"), at the offices of De Martino Finkelstein Rosen &
Virga, 1818 N Street, N.W., Suite 400, Washington, D.C. 20036, or at such other
place as the parties hereto shall agree. At the Closing, the Seller shall
deliver to the Buyer or its designees instruments of transfer reasonably
acceptable to the Buyer transferring the Purchased Interests, with all stamp or
other taxes attributable to the transfer of such Purchased Interests paid or
provided for as contemplated herein, and the Seller and the Parent shall execute
and deliver the Transaction Documents to which each of them is a party. In full
consideration and exchange for the Purchased Interests, the Buyer shall
thereupon pay to the Seller the purchase price as provided in Section 2.3
hereof, and the Buyer and Newco shall execute and deliver the Transaction
Documents to which each of them is a party.
Section 2.3. Purchase Price. Upon the terms and subject to the conditions
set forth in this Agreement, in reliance on the representations, warranties,
covenants and agreements of the parties contained herein, the consideration for
the sale and transfer of the Purchased Interests on the Closing Date shall
consist of (i) 8,999,900 shares of Buyer Common Stock (the "Common Share
Consideration") and (ii) 100 shares of Buyer Series A Preferred Stock (the
"Preferred Share Consideration"). The Buyer shall deliver to the Seller the
certificates representing the Common Share Consideration on the Closing Date,
and the Buyer shall deliver to the Seller the certificates representing the
Preferred Share Consideration promptly following the acceptance for filing under
the Delaware General Corporation Law of the Certificate of Designation. In the
event that the Certificate of Designation for the Buyer's Series A Preferred
Stock has not been filed with the appropriate Delaware authorities at the
Closing Date, the parties will nevertheless
6
<PAGE>
close the transaction, based upon Buyer's covenant to file such Certificate of
Designation and to issue the Buyer Series A Preferred Stock immediately
thereafter. In such case, stock certificates representing such Buyer Series A
Preferred Stock will be conditionally delivered to Seller at the Closing to be
effective immediately upon the filing of the Certificate of Designation. The
failure to file the Certificate of Designation within 48 hours of the Closing
will give to Seller the right, at its election, either (a) to rescind the
transactions provided for in this Agreement or (b) to surrender to Buyer the
Buyer Common Stock received and its rights to receive the Buyer Series A Common
Stock in exchange for cash in the amount of $13.5 million.
Section 2.4. Certain Indemnitees. Reference is made to that certain
Guarantee dated August 28, 1996 by Parent in favor of Cable Building Associates,
pursuant to which Parent has guaranteed the obligations of the Company under the
lease between Cable Building Associates and the Company (the "Cable Guarantee").
Effective upon the Closing, NAC agrees to indemnify Parent for 50% of any
liability that Parent may incur under the Cable Guarantee other than any
liability resulting solely from the breach by Parent of its obligations under
the Cable Guarantee. Upon the request of Parent, NAC and Parent will cooperate
and work in good faith to separately document such indemnity, with the intention
that Parent and NAC be, in effect, each responsible for 50% of the obligations
of the guarantor under such guarantee.
Section 2.5. Newco. On the Closing Date, the Buyer shall transfer to
Newco the Purchased Interests. Seller hereby consents to the transfer of the
Purchased Interests to Newco. The parties acknowledge and agree that other than
Newco's obligations pursuant to this Agreement, ownership and management of the
Purchased Interests, ownership of any distributions received from the Company
and obligations pursuant to the operating agreement with respect to the Company,
Newco shall not incur any liabilities or obligations or conduct any business.
Buyer hereby covenants and agrees that it will not take, and will cause Newco
not to take, any action that would foreseeably cause Newco to be unable to
satisfy its obligations hereunder or would foreseeably render such obligations
unenforceable, including, without limitation, any action with respect to the
sale or other disposition by Newco of any of its assets, the declaration of
dividends by Newco, the repurchase, redemption or other acquisition by Newco of
any of its stock, the incurrence of indebtedness by Newco, the creation of any
liens or encumbrances by Newco on any of its assets, or the merger,
consolidation, liquidation or dissolution of Newco.
Section 2.6. Option Letters. The Buyer and the Parent acknowledge that
they are executing and delivering simultaneously with this Agreement the Option
Letters in the form set forth as Exhibits B-1 and B-2 hereto (the "Option
Letters").
ARTICLE III.
REPRESENTATIONS AND WARRANTIES OF THE SELLER AND THE PARENT
The Seller and the Parent (jointly and severally) represent and warrant to
the Buyer as follows:
7
<PAGE>
Section 3.1. Organization. The Company is a limited liability company
duly formed, validly existing and in good standing under the laws of the State
of Delaware and has all requisite power and authority and all governmental
licenses, authorizations, permits, consents and approvals to own its properties
and assets and to conduct its businesses as now conducted and as proposed to be
conducted, except where the failure to be so organized, existing and in good
standing or to have such power and authority will not, in the aggregate, have a
Company Material Adverse Effect. The Company is duly qualified to do business as
a foreign company and is in good standing in every jurisdiction where the
character of the properties owned or leased by it or the nature of the business
conducted by it makes such qualification necessary, except where the failure to
be so qualified would not have a Company Material Adverse Effect. The Company is
qualified to do business only in the State of New York. Copies of the Limited
Liability Company Agreement, the Management Agreement of the Company and other
formation documents of the Company, with all amendments thereto to the date
hereof, have been furnished by the Parent to the Buyer or its representatives,
and such copies are accurate and complete as of the date hereof.
Section 3.2. Capitalization; Title to the Interests. The authorized and
outstanding capitalization of the Company is as set forth in Schedule 3.2. All
------------
of the Purchased Interests are issued and outstanding as of the date of this
Agreement and are owned of record and beneficially by the Seller as set forth in
Schedule 3.2. The Purchased Interests have been duly authorized and validly
- ------------
issued and no personal liability attaches to the ownership thereof. The
Purchased Interests represent 50% of the issued and outstanding Interests of the
Company. Except for this Agreement and as set forth on Schedule 3.2, there are
------------
no outstanding options, warrants, agreements, conversion rights, preemptive
rights or other rights to subscribe for, purchase or otherwise acquire the
Interests, any unissued or treasury shares of capital stock or interests of the
Company, any outstanding obligations of the Company to repurchase, redeem or
otherwise acquire outstanding Interests or any securities convertible into or
exchangeable for any shares of capital stock or interests of the Company. The
Seller owns beneficially and of record and has all of the ownership interests
in, all of the Purchased Interests, free and clear of any mortgage, pledge,
hypothecation, rights of others, claim, security interest, charge, encumbrance,
title defect, title retention agreement, voting trust agreement, interest,
option, lien, charge or similar restriction or limitation (including any
restriction on the right to vote, sell or otherwise dispose of the Purchased
Interests).
Section 3.3. Subsidiaries and Investments. The Company does not, directly
or indirectly, own, of record or beneficially, any outstanding voting securities
or other equity interests in or control any corporation, limited liability
company, partnership, trust, joint venture or other entity.
Section 3.4. Authorization and Validity of Agreement. Each of the Seller
and the Parent has all requisite corporate or other authority to enter into the
Transaction Documents to which it is a party and to carry out its obligations
thereunder. The execution and delivery of the Transaction Documents to which the
Seller and Parent are parties by the Seller and the Parent and the performance
by the Seller and the Parent of their respective obligations thereunder have
been duly authorized by all necessary action on the part of the Seller and the
Parent, and no other
8
<PAGE>
proceedings on the part of the Seller and the Parent are necessary to authorize
such execution, delivery and performance. The Transaction Documents to which the
Seller and Parent are parties have been duly and validly executed and delivered
by each of the Seller and the Parent and constitute a valid and binding
obligation of each of the Seller and the Parent, enforceable against each of
them in accordance with their terms, except as may be limited by applicable
bankruptcy, insolvency, moratorium or similar laws of general application
relating to or affecting creditors' rights generally and except for the
limitations imposed by general principles of equity.
Section 3.5. No Conflict or Violation. Assuming the consents and
approvals listed on Schedule 3.6 are obtained or waived, the execution, delivery
------------
and performance by each of the Seller and the Parent of the Transaction
Documents to which it is a party (i) does not and will not violate or conflict
with the Limited Liability Company Agreement, Operating Agreement, Management
Agreement or any formation documents of the Company, (ii) does not and will not
violate any provision of law, or any order, judgment or decree of any court or
other governmental or regulatory authority binding on the Company, the Seller or
the Parent except which individually or in the aggregate would not have a
Company Material Adverse Effect, (iii) does not violate and will not result in a
breach of or constitute (with due notice or lapse of time or both) a default
under any contract, lease, loan agreement, mortgage, security agreement, trust
indenture or other agreement or instrument to which the Seller, the Parent or
the Company is a party or by which the Seller, the Parent or the Company is
bound or to which any of their respective properties or assets is subject,
except which in the aggregate would not have a Company Material Adverse Effect,
(iv) will not result in the creation or imposition of any Lien upon any of the
Purchased Interests, and (v) will not result in the cancellation, modification,
revocation or suspension of any of the licenses, franchises, Permits,
authorizations or approvals referred to on Schedule 3.14, except which in the
aggregate would not have a Company Material Adverse Effect.
Section 3.6. Consents and Approvals. Except as set forth on Schedule 3.6,
------------
no consent, waiver, authorization or approval of, or declaration or filing with,
any governmental or regulatory authority, domestic or foreign, or other Person
is required in connection with the execution and delivery of the Transaction
Documents by the Seller and the Parent or the performance by the Seller and the
Parent of their respective obligations thereunder.
Section 3.7. Financial Statements. The Parent has heretofore furnished to
the Buyer copies of (i) the unaudited consolidated balance sheet of the Company
as of December 31, 1999 (the "Company Balance Sheet"), together with the related
statements of operations, members' equity and cash flows for the twelve month
period then ended and the notes thereto, if any (the "Company Unaudited
Financial Statements"); and (ii) the unaudited consolidated balance sheet of the
Company as of December 31, 1998, together with the related statement of
operations, members' equity and cash flows for the twelve month period then
ended and the notes thereto, if any and (iii) the audited consolidated balance
sheet of the Company as of the fiscal years ended January 1, 1998 and December
31, 1996, together with the related statements of operations, members' equity
and cash flows for the periods then ended and the notes thereto, if any, (the
financial statements listed in clause (i) (ii) and (iii) above being hereinafter
referred to as the "Company Financial Statements"). Except as set forth therein,
the Company Financial
9
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Statements: (i) were prepared in accordance with GAAP applied on a consistent
basis throughout the periods covered thereby; (ii) present fairly in all
material respects the financial position, results of operations and cash flow of
the Company as of such dates and for the periods then ended, except for
customary audit adjustments which are not material to the financial position or
results of operations of the Company; and (iii) are in accordance with the books
of account and records of the Company. The Company Financial Statements are
attached hereto as Exhibit C.
Section 3.8. Absence of Certain Changes or Events. Except as contemplated
by this Agreement, or as set forth in Schedule 3.8, since December 31, 1999, the
------------
business of the Company has been conducted in the ordinary course consistent
with past practices and, other than any of the following actions taken in the
ordinary course of business, there has not been any:
(a) Event that has had or is reasonably likely to have a Company
Material Adverse Effect, and no factor or condition exists and no event has
occurred that would be likely to result in a Company Material Adverse Effect;
(b) Destruction of, damage to, or loss of, any material asset of
the Company (whether or not covered by insurance);
(c) Change in accounting methods or practices (including,
without limitation, any change in depreciation or amortization methods,
policies, or rate) by the Company;
(d) Declaration or making of, or agreement to declare or make,
any payment of dividends or distribution of any asset of any kind whatsoever in
respect to any of the Company's interests, nor any purchase, redemption, or
other acquisition or agreement to purchase, redeem, or otherwise acquire, any of
such outstanding interests;
(e) Borrowing of, or agreement to borrow, any funds by the
Company, and the Company has not incurred or become subject to any material
obligation or liability (whether absolute, accrued, contingent or otherwise);
(f) Payment of any obligation or liability (absolute or
contingent), by the Company other than current liabilities reflected in or shown
on the Company Financial Statements and current liabilities incurred in the
ordinary course of business;
(g) Mortgage, pledge, or subjection to lien, charge, or other
encumbrance, of any of the assets, properties, or rights (tangible or
intangible) of the Company, except for mechanics lien and Liens for taxes, in
each case, not yet due and payable;
(h) Sale, transfer or disposal of any of the assets, properties,
or rights (tangible or intangible) of the Company;
(i) Agreement entered into granting any preferential rights to
purchase any of the assets, properties, or rights (tangible or intangible) of
the Company (including management and control thereof), or requiring the consent
of any party to the transfer and
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assignment of any such assets, properties, or rights (including management and
control thereof);
(j) Amendment, modification, or termination of any contract,
lease, license, promissory note, commitment, indenture, mortgage, deed of trust,
collective bargaining agreement, employee benefit plan, or any other agreement,
instrument, indebtedness, or obligation to which the Company is a party, or by
which it or any of its assets or properties are bound, except those agreements,
amendments, or terminations effected in the ordinary course of business
consistent with past practices;
(k) Capital expenditure by the Company exceeding $25,000, or
additions to property, plant and equipment used in the operations of the Company
other than ordinary repairs and maintenance;
(l) Citation received by the Company from any governmental
entity or agency for any violations of any act, law, rule, regulation, or code
of any governmental entity or agency, which citations in the aggregate would be
reasonably likely to result in a Company Material Adverse Effect;
(m) Claim against the Company for damages or alleged damages for
any actual or alleged negligence or other tort or breach of contract (whether or
not fully covered by insurance) except as would not have a Company Material
Adverse Effect; or
(n) Agreement by the Seller, the Parent or the Company to do any
of the things described in the preceding clauses.
Section 3.9. Tax Matters. Except as otherwise disclosed in Schedule 3.9,
------------
(i) the Company has filed (or joined in the filing of) when due all Tax Returns
required by applicable law to be filed with respect to the Company and all Taxes
shown to be due on such Tax Returns have been paid; (ii) all such Tax Returns
were true, correct and complete in all material respects as of the time of such
filing; (iii) all Taxes relating to periods ending on or before the Closing
Date, owed by the Company (whether or not shown on any Tax Return) at any time
on or prior to the Closing Date, if required to have been paid, have been paid
(except for Taxes which are being contested in good faith); (iv) any liability
of the Company for Taxes not yet due and payable, or which are being contested
in good faith, has been provided for on the financial statements of the Company
in accordance with and to the extent required by GAAP; (v) there is no action,
suit, proceeding, investigation, audit or claim now pending against, or with
respect to, the Company in respect of any Tax or assessment, nor is any claim
for additional Tax or assessment asserted by any Tax authority; (vi) no material
claim has been made by any Tax authority in a jurisdiction where the Company
does not currently file a Tax Return that it is or may be subject to Tax by such
jurisdiction, nor to the Company's knowledge is any such assertion threatened;
(vii) there is no outstanding request for any extension of time within which to
pay any Taxes or file any Tax Returns; (viii) there has been no waiver or
extension of any applicable statute of limitations for the assessment or
collection of any Taxes of the Company; (ix) no property of the Company is "tax-
exempt use property" within the meaning of Section 168(h) of the Code; (x) the
Company is not a party to any lease made pursuant to former Section
11
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168(f)(8) of the Internal Revenue Code of 1954; (xi) the Company is currently
and for all periods since its formation has qualified as a "partnership" within
the meaning of Section 7701(a)(2) of the Code; (xii) the Company has a valid
election in effect under Section 754 of the Code or, at the request of Buyer,
will make a timely election under Section 754 of the Code with respect to the
Purchased Interests; (xiii) Seller is not a "foreign person" within the meaning
of Section 1445 of the Code; (xiv) the Company is not a party to any agreement,
whether written or unwritten, providing for the payment of Taxes, payment for
Tax losses, entitlements to refunds or similar Tax matters; and (xiv) the
Company has withheld and paid all material Taxes required to be withheld in
connection with any amounts paid or owing to any employee, creditor, independent
contractor or other third party.
Section 3.10. Intentionally Omitted.
Section 3.11. Intellectual Property. Schedule 3.11 sets forth a true and
-------------
complete list of all domestic and foreign trademarks, trademark applications,
patents, registered copyrights (except copyrighted software and theatrical films
and film trailers licensed to the Company in its ordinary course of business)
and patent applications owned by, registered in the name of or licensed to or
from the Company as of the date hereof. The Company owns or possesses adequate
patents, patent rights, licenses, inventions, copyrights, know-how (including
trade secrets and other unpatented and/or unpatentable proprietary or
confidential information, systems or procedures), trademarks, service marks and
trade names or other intellectual property (collectively, "Intellectual
Property") necessary to carry on its business as presently conducted. Except as
set forth on Schedule 3.11, the Company has not received any notice of any
-------------
infringement of or conflict with asserted rights of others with respect to any
Intellectual Property or of any facts or circumstances which would render any
Intellectual Property invalid or inadequate to protect the interest of the
Company, and which infringement or conflict (if the subject of any unfavorable
decision, ruling or finding) or invalidity or inadequacy, individually or in the
aggregate, would result in a Company Material Adverse Effect.
Section 3.12. Personal Property. Except as set forth in Schedule 3.12,
-------------
the Company owns and has good and marketable title, free and clear of all title
defects and objections, security interests, Liens, charges and encumbrances of
any nature whatsoever to each item of personal property owned or leased by the
Company and reflected on the Company Balance Sheet and all such property
acquired or leased since the date thereof, except for sales and dispositions in
the ordinary course of business since such date. The property owned, leased or
used by the Company is sufficient and adequate to carry on its business as
presently conducted and all items thereof are in good operating condition and
repair. Except as set forth in Schedule 3.12, the Company holds good and
-------------
transferable leaseholds under valid and enforceable leases in all of the
personal property leased by it, and none of the property leased by the Company
is subject to any sublease, license or other agreement granting to any person
any right to use such personal property. Except as set forth in Schedule 3.12,
-------------
the Company is not in breach of or default (and no event has occurred which,
with due notice or lapse of time or both, may constitute such a lapse or
default) of any provision of any of its personal property leases. Except as
disclosed in Schedule 3.12, and except for the personal property of the Seller
-------------
located at 950 Third Avenue,
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<PAGE>
New York, New York, the Company does not hold any personal property of the
Seller or any of their respective Affiliates or any other Person.
Section 3.13. Real Property.
(a) The Company does not own any real property.
(b) Schedule 3.13(b) contains a list of all leases and subleases,
----------------
together with any amendments thereto and any subordination, nondisturbance and
attornment agreements (the "Leases"), with respect to all real property leased
by the Company (the "Leased Property"). Each Lease is in full force and effect.
The Company has performed all material obligations required to be performed by
it to date under each of the Leases and neither the Company nor, to the best
knowledge of the Parent or the Seller, any other party thereto is (except as set
forth on Schedule 3.13(b)) in material default under any of the Leases (and,
----------------
except as set forth on Schedule 3.13(b), no event has occurred which, with due
----------------
notice or lapse of time or both, would constitute such a lapse or default).
Except as set forth on Schedule 3.13(b), no amount due under the Leases remains
----------------
unpaid and no material controversy, claim, dispute or disagreement exists
between the parties to any of the Leases. The Company has delivered to the
Buyer a copy of each Lease, and all amendments thereto, listed in Schedule
--------
3.13(b), except to the extent otherwise noted therein.
- -------
(c) To the knowledge of the Parent and the Seller, the covenants,
conditions, restrictions, encroachments, encumbrances, easements, rights of way,
licenses, grants, building or use restrictions, exceptions, reservations,
limitations or other impediments affecting the Leased Property do not and will
not, with respect to each Leased Property, materially impair the Company's
ability to use any such Leased Property in the operation of the Company's
business as presently conducted. There are no pending or, to the knowledge of
the Company, threatened condemnation or similar proceedings affecting the Leased
Property. The Company has access to public roads, streets or the like or valid
easements over private streets, roads or other private property for such ingress
to and egress from the Leased Property, except as would not materially impair
the Company's ability to use any such Leased Property in the operation of the
Company's business as presently conducted.
(d) All brokerage commissions and other compensation and fees payable
by reason of the Leases have been paid in full or are reflected in the Company
Financial Statements except for such commissions and other compensation related
to options or extensions in the Leases which are not yet exercised.
(e) No notices of violations have been received with respect to the
improvements on the Leased Property and the operations therein conducted,
including without limitation, health, fire, environmental, safety, zoning and
building laws, ordinances and administrative regulations, except as set forth on
Schedule 3.13(e).
- ----------------
(f) There are no outstanding requirements or recommendations by any
insurance company which has issued to the Company a policy covering the Leased
Property, or
13
<PAGE>
by any board of fire underwriters or other body exercising similar functions,
requiring or recommending any repairs or work to be done on such property.
(g) All public utilities required for the operation of the Leased
Property, as it is currently operated, and necessary for the conduct of the
business of the Company, as it is presently conducted, are installed and
operating, and all installation and connection charges are paid in full.
(h) Except as set forth in Schedule 3.13(b), the Leased Property is
----------------
not subject to any lease, sublease, license or other agreement granting to any
person any right to the use, occupancy or enjoyment of such property or any
portion thereof.
(i) The plumbing, electrical, heating, air conditioning, elevator,
ventilating and all other mechanical or structural systems for which the Company
is responsible under the Leases in the buildings or improvements are, to the
knowledge of the Company, in good working order and condition, and the roof,
basement and foundation walls of such buildings and improvements for which the
Company is responsible under said Leases are, to the knowledge of the Company,
in good condition and free of leaks and other material defects. All such
mechanical and structural systems and such roofs, basement and foundation walls
for which others are responsible under said Leases are, to the knowledge of the
Company, in good working order and condition and free of leaks and other
material defects.
Section 3.14. Licenses, Permits and Governmental Approvals. Schedule 3.14
-------------
sets forth a true and complete list of all material Permits issued or granted to
the Company (the "Company Permits"), and all pending applications therefor. Such
list contains a summary description of each such item and, where applicable,
specifies the date issued, granted or applied for, the expiration date and the
current status thereof. Except as set forth in Schedule 3.14, each Company
Permit has been duly obtained, is valid and in full force and effect, and is not
subject to any pending or threatened administrative or judicial proceeding to
revoke, cancel or declare such Company Permit invalid in any respect. The
Company Permits have never been suspended, revoked or otherwise terminated,
subject to any fine or penalty, or subject to judicial or administrative review,
for any reason other than the renewal or expiration thereof nor has any
application of any of the Company for any Company Permit ever been denied. The
Company Permits are sufficient and adequate in all material respects to permit
the continued lawful conduct of the Company's business in the manner now
conducted, and none of the operations of the Company are being conducted in a
manner that violates any of the terms or conditions under which any Company
Permit was granted, except for such Company Permits the absence of which would
not have a Company Material Adverse Effect or any non-compliance which will not
have a Company Material Adverse Effect. Except as set forth in Schedule 3.14, no
-------------
such Company Permit will in any way be affected by, or terminate or lapse by
reason of, the transactions contemplated by the Transaction Documents.
Section 3.15. Compliance with Law. Except as set forth in Schedule 3.15
or as would not reasonably be expected to have a Company Material Adverse
Effect, the operations of the Company have been conducted in accordance with all
applicable laws, regulations, orders and
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<PAGE>
other requirements of all courts and other governmental or regulatory
authorities having jurisdiction over the Company and its assets, properties and
operations. Except as set forth in Schedule 3.15 or as would not reasonably be
-------------
expected to have a Company Material Adverse Effect, the Company has not received
notice of any violation of any such law, regulation, order or other legal
requirement binding on it, and the Company is not in default with respect to any
order, writ, judgment, award, injunction or decree of any federal, state or
local court or governmental or regulatory authority or arbitrator, domestic or
foreign, applicable to it or any of its assets, properties or operations. The
Company does not have knowledge of any proposed change in any such laws, rules
or regulations (other than laws of general applicability) that would materially
and adversely affect the transactions contemplated by the Transaction Documents
or all or a material part of the Company's business.
Section 3.16. Contracts.
(a) Schedule 3.16 sets forth (subject to the dollar amount
-------------
limitations of clause (i) below) a true and complete list of all material
contracts, agreements, instruments, commitments and other arrangements to which
the Company is a party or to which the Parent or the Seller is a party and which
otherwise relate to or affect in a material way any of the Company's assets,
properties or operations including, without limitation, all written or oral,
express or implied, (i) contracts, agreements and commitments for the purchase
or sale of products or services which involve a consideration in excess of
$25,000; (ii) contracts, loan agreements, letters of credit, repurchase
agreements, mortgages, security agreements, guarantees, pledge agreements, trust
indentures, promissory notes and other documents or arrangements relating to the
borrowing or lending of money or for lines of credit (including intercompany
Indebtedness); (iii) personal property leases, agreements relating to intangible
assets; (iv) agreements and other arrangements for the sale, pledge, transfer
of, or placing of a Lien on any Interests of the Company, any material assets,
property or rights or for the grant of any options or preferential rights to
purchase any assets, property or rights; (v) documents granting any power of
attorney with respect to the affairs of the Company; (vi) suretyship contracts,
performance bonds, working capital maintenance or other forms of guaranty
agreements; (vii) contracts or commitments limiting or restraining the Company
from engaging or competing in any lines of business or with any person, firm, or
corporation; (viii) partnership or joint venture agreements; (ix) shareholder or
membership agreements or agreements relating to the issuance of any securities
of the Company or the granting of any registrations rights with respect thereto;
and (x) all amendments, modifications, extensions or renewals of any of the
foregoing (the foregoing contracts, agreements and documents are hereinafter
referred to collectively as the "Contracts" and individually as a "Contract").
(b) Each Contract is valid, binding and enforceable against the
Company in accordance with its terms, and in full force and effect on the date
hereof. The Seller, the Parent and the Company have performed all material
obligations, including, but not limited to, the timely making of any rental or
other payments, required to be performed by it under, and is not in default or
in breach of in respect of, any Contract, and no event has occurred which, with
due notice or lapse of time or both, would constitute such a default. To the
Company's knowledge, no other party to any Contract is in default in respect
thereof, and no event has
15
<PAGE>
occurred which, with due notice or lapse of time or both, would constitute such
a default. The Parent has delivered to the Buyer or its representatives true and
complete originals or copies of all the Contracts.
Section 3.17. Intentionally Omitted.
Section 3.18. Litigation. Except as set forth in Schedule 3.18, there are
-------------
no claims, actions, suits, proceedings, labor disputes or investigations pending
or, to the knowledge of the Seller or the Parent, threatened, before any
federal, state or local court or governmental or regulatory authority, domestic
or foreign, or before any arbitrator of any nature, brought by or against any of
the Seller, Parent or, to their knowledge after due inquiry, the Company or any
of its respective officers, directors, employees, agents or Affiliates, except
as would not have a Company Material Adverse Effect. Schedule 3.18 sets forth a
-------------
list and a summary description of all such pending actions, suits, proceedings,
disputes or investigations. None of the Seller, the Parent nor the Company is
subject to any order, writ, judgment, award, injunction or decree which of any
national, state or local court or governmental or regulatory authority or
arbitrator, domestic or foreign, which would have a Company Material Adverse
Effect, or that would interfere with the transactions contemplated by the
Transaction Documents.
Section 3.19. Insurance. Schedule 3.19 sets forth a complete and accurate
-------------
list of the insurance policies of the Company as in effect on the date hereof,
including in each case the applicable coverage limits, deductibles and the
policy expiration dates. No notice of any termination or threatened termination
of any of such policies has been received by the Company and such policies are
in full force and effect.
Section 3.20. Employee Plans.
The Company has no employee benefit plans (as defined in Section 3(3) of
the Employee Retirement Income Security Act of 1974) covering former and current
employees of the Company, or under which the Company has any obligation or
liability. Schedule 3.20 lists all material plans, contracts, bonuses,
-------------
commissions, profit-sharing, savings, stock options, insurance, deferred
compensation, or other similar fringe or employee benefits covering former or
current employees of the Company or under which the Company has any obligation
or liability (each, a "Benefit Arrangement"), if any. The Benefit Arrangements
are and have been administered in substantial compliance with their terms and
with the requirements of applicable federal, state and local laws.
Section 3.21. Labor Matters.
The Company is in material compliance with all laws, if applicable,
regarding employment, wages, hours, equal opportunity, collective bargaining and
payment of social security and other taxes. The Company is not engaged in any
unfair labor practice or discriminatory employment practice and no complaint of
any such practice against the Company has been filed or, to the best of the
Company's knowledge, threatened to be filed with or by the National Labor
Relations Board, the Equal Employment Opportunity Commission or any other
administrative agency, federal or state, that regulates labor or
16
<PAGE>
employment practices. The Company is in compliance with all applicable federal,
state and local laws and regulations regarding occupational safety and health
standards.
Section 3.22. Environmental Matters. Notwithstanding anything to the
contrary contained in this Agreement and in addition to the other
representations and warranties contained herein:
(a) The Company and its operations are in material compliance with
all applicable laws, regulations and other requirements of governmental or
regulatory authorities or duties under the common law relating to Hazardous
Materials (as defined below) or to the protection of health, safety or the
environment (collectively, "Environmental Laws") and has obtained, maintained in
effect and complied in all material respects with all licenses, permits and
other authorizations or registrations required under Environmental Laws except
where such noncompliance or such failure to obtain, maintain in effect or comply
with such licenses, permits and other authorizations or registrations would not
give rise to a Material Adverse Effect.
(b) The Company has not performed any act which would reasonably be
expected to give rise to, and has not otherwise incurred, liability to any
person (governmental or not) under the Comprehensive Environmental Response,
Compensation and Liability Act, 42 U.S.C. (S) 9601 et seq. ("CERCLA"), or any
-- ----
similar state or municipal law, except in either case where such liability would
not constitute a Material Adverse Effect. nor has the Company received notice of
any such liability or any claim therefor or submitted notice pursuant to Section
103 of CERCLA to any governmental agency.
(c) To the knowledge of James A. Wunderle or Robert F. Smerling, no
asbestos, lead, petroleum, hazardous substance, hazardous waste, contaminant,
pollutant or toxic substance (as such terms may be defined in any Environmental
Law and collectively referred to herein as "Hazardous Materials") has been
released, placed, dumped or otherwise come to be located on, at, beneath or
near, and no storage tank containing any Hazardous Materials is located at, any
of the real property and/or improvements currently or formerly owned or leased
by the Company which could subject the Company to a claim or claims pursuant to
Environmental Laws.
Section 3.23. Brokers and Finders. None of the Seller, the Parent, the
Company or any of their respective officers, directors or employees has employed
any broker or finder and none of the Seller, the Parent, the Company or any of
their respective officers, directors or employees has incurred any liability for
any investment banking fees, brokerage fees, commissions or finders' fees in
connection with the transactions contemplated by this Agreement.
Section 3.24. Year 2000 Compliance. To the knowledge of the Seller and
the Parent after due inquiry, the software used by the Company will be year 2000
compliant, which, for purposes of this Agreement, shall mean that the data
outside the range 1900-1999 will be correctly processed.
Section 3.25. Intentionally Omitted.
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<PAGE>
Section 3.26. Change in Ownership. Neither the purchase of the Purchase
Interests by the Buyer nor the consummation of the transactions contemplated by
the Transaction Documents are reasonably likely to result in any material
adverse change in the business operations of the Company or in the loss of the
benefits of any servicing relationship.
Section 3.27. Intentionally Omitted.
Section 3.28. Absence of Undisclosed Liabilities. Except as set forth in
Schedule 3.28, the Company has no indebtedness or liability, absolute or
- -------------
contingent, direct or indirect, which is not shown or provided for on the
balance sheets of the Company included in the Company Financial Statements other
than liabilities incurred or accrued in the ordinary course of business
(including liens of current taxes and assessments not in default) since December
31, 1999 and other than liabilities which GAAP does not require to be shown or
provided for and there is no existing condition, situation or set of
circumstances which would reasonably be expected to result in such a liability.
Except as shown in such balance sheets or in the Company Financial Statements,
the Company is not, directly or indirectly, liable upon or with respect to (by
discount, repurchase agreements or otherwise), or obligated in any other way to
provide funds in respect of, or to guarantee or assume, any debt, obligation or
dividend of any person.
Section 3.29. Purchase for Investment. Each of the Seller and the Parent
is an accredited investor as defined under Rule 501(a) of the Securities Act.
The Share Consideration will be acquired for investment for the Seller's own
account and not with a view to the resale or distribution of any part thereof,
except in compliance with the registration provisions of the Securities Act or
an exemption therefrom.
Section 3.30. Restricted Securities. Each of the Seller and the Parent
understands that the Share Consideration is characterized as "restricted
securities" under the federal securities laws inasmuch as they are being
acquired from the Buyer in a transaction not involving a public offering and
that under such laws and applicable regulations the Share Consideration may be
resold without registration under the Securities Act only in certain limited
circumstances.
Each of the Seller and the Parent further agrees that each certificate
representing the Share Consideration shall be stamped or otherwise imprinted
with a legend substantially in the following form:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE
NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 AND MAY
NOT BE TRANSFERRED OR OTHERWISE DISPOSED OF UNLESS SUCH
SECURITIES HAVE BEEN REGISTERED UNDER THAT ACT OR AN
EXEMPTION FROM REGISTRATION IS AVAILABLE."
A certificate shall not bear such legend if the Seller shall have delivered
to the Buyer an opinion of counsel reasonably satisfactory to the Buyer to the
effect that the securities being sold may be publicly sold without registration
under the Securities Act. The foregoing shall not be deemed to affect the
obligations of the Buyer under the Registration Rights Agreement.
18
<PAGE>
Section 3.31. Due Diligence. Each of the Seller and the Parent has
sufficient knowledge and experience in investing in companies similar to the
Buyer and is capable of evaluating the merits and risks of its investment in the
Buyer as contemplated by this Agreement and is able to bear the economic risk of
such investment for an indefinite period of time. Each of the Seller and the
Parent has been given access to full and complete information regarding the
Buyer and has utilized such access to its satisfaction for the purpose of
obtaining information each of the Seller and the Parent desires or deems
relevant to its decision to acquire the Share Consideration. Each of the Seller
and the Parent has had the opportunity to ask questions of and receive answers
from management and representatives of the Buyer, including the Buyer's
accountants, to discuss the Buyer's business, management and financial affairs
and to obtain any additional information each of the Seller and the Parent
desires or deems relevant. Each of the Seller and the Parent has obtained, to
the extent it has deemed necessary, professional advice with respect to the
risks inherent in the acquisition of the Share Consideration, including, without
limitation, the matters relating to the Buyer's business and financial condition
set forth in the Buyer's internal reports and public filings.
Section 3.32. Survival. Except where a representation or warranty
expressly refers to another date, in which case such representation or warranty
need be true and correct only as of such date, each of the representations and
warranties set forth in this Section 3 shall be deemed represented and made by
the Seller and the Parent at the Closing as if made at such time and shall
survive the Closing for a period terminating on the later of (a) the date 6
months after the Closing Date, and (b) with respect to claims asserted pursuant
to Section 6.1 of this Agreement before the expiration of the applicable
representation or warranty, on the date such claim is finally liquidated or
otherwise resolved; provided, however, that (x) the representations and
-------- -------
warranties in Sections 3.22 hereof shall survive until the third anniversary of
the Closing Date and (y) the representations and warranties in Sections 3.2 and
3.9 hereof shall survive until the applicable statute of limitations for third
party or governmental actions has expired.
ARTICLE IV.
REPRESENTATIONS AND WARRANTIES OF THE BUYER AND NEWCO
The Buyer and Newco represent and warrant (jointly and severally) to the
Seller as follows:
Section 4.1. Corporate Organization. The Buyer is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Delaware, and has all requisite corporate power and authority to own its
properties and assets and to conduct its businesses as now conducted, except
where the failure to be so organized, existing and in good standing or to have
such power or authority will not, in the aggregate, have a Buyer Material
Adverse Effect. The Buyer is duly qualified to do business as a foreign
corporation and is in good standing in every jurisdiction in which the character
of the properties owned or leased by it or the nature of the business conducted
by it makes such qualification necessary, except where the failure to be so
qualified would not have a Buyer Material Adverse Effect. Newco is a
corporation duly organized, validly existing and in good standing under the laws
of the State of
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<PAGE>
Delaware, and has all requisite corporate power and authority to own its
properties and assets and to conduct its businesses as now conducted.
Section 4.2. Subsidiaries and Investments. Except as set forth in
Schedule 4.2, the Buyer does not, directly or indirectly, own, of record or
- ------------
beneficially, any outstanding voting securities or other equity interests in or
control any corporation, limited liability company, partnership, trust, joint
venture or other entity.
Section 4.3. Authorization and Validity of Agreement. Each of the Buyer
and Newco has all requisite power and authority to enter into the Transaction
Documents to which it is a party and to carry out its obligations thereunder.
The execution and delivery of the Transaction Documents to which Buyer and Newco
are parties and the performance of the Buyer's and Newco's obligations
thereunder have been duly authorized by all necessary corporate action by the
Buyer and Newco, respectively, and no other proceedings on the part of the Buyer
or Newco are necessary to authorize such execution, delivery and performance.
The Transaction Documents to which the Buyer and Newco are parties have been
duly executed by the Buyer and Newco, respectively, and constitute a valid and
binding obligation of each of them, enforceable against each of them in
accordance with their terms, except as may be limited by applicable bankruptcy,
insolvency, moratorium or similar laws of general application relating to or
affecting creditors' rights generally and except for the limitations imposed by
general principles of equity. The Buyer has authorized the issuance and
delivery of the Share Consideration in accordance with this Agreement. For
purposes of Section 203 of the General Corporation Law of the State of Delaware,
the Board of Directors of the Buyer, prior to the execution and delivery of this
Agreement by the Buyer, and as a condition to the parties' reaching agreement
hereunder, has approved the transactions that are the subject hereof as
contemplated by subsection (a)(1) of said Section 203.
Section 4.4. Capitalization. The authorized and outstanding capital stock
of the Buyer is as set forth in Schedule 4.4. Upon issuance, sale and delivery
------------
as contemplated by this Agreement, the shares which constitute the Share
Consideration will be duly authorized, validly issued, fully paid and non-
assessable shares of the Buyer, free of all preemptive or similar rights, and
entitled to the rights therein described. Except as set forth in Schedule 4.4,
------------
there are no outstanding options, warrants, agreements, conversion rights,
preemptive or similar rights to subscribe for or purchase shares of capital
stock of the Buyer. The fair market value of the Buyer's net assets (calculated
net of all liabilities whether or not currently liquidated and whether currently
known or unknown, including, without limitation, all contingent liabilities
which may be asserted against the Buyer by a Person with respect to the actions
of the Buyer, its officers and/or directors during the time that Sam Frankino
was an officer and/or director of the Buyer, all current litigation claims, and
any liabilities, if any, which may result from the current audit of the Buyer by
the Internal Revenue Service) is not less than $1.65 per share. Notwithstanding
the provisions of Section 4.18 to the contrary, the representation and warranty
set forth in the penultimate sentence of this Section 4.4 shall be deemed
represented and made by the Buyer at the Closing as if made at such time and
shall survive the Closing for a period terminating on the earlier of (a) the
date that the Buyer files its Annual Report on Form 10-K for the fiscal year
ended January 31, 2001 with the Securities and Exchange Commission; or (b) April
1, 2001.
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Section 4.5. No Conflict or Violation.
(a) Assuming the consents and approvals listed on Schedule 4.6 are
obtained or waived, the execution, delivery and performance by the Buyer and
Newco of the Transaction Documents to which it is a party does not and will not
violate or conflict with any provision of the Certificate of Incorporation or
the By-laws of the Buyer or Newco and does not and will not violate any
provision of law, or any order, judgment or decree of any court or other
governmental or regulatory authority, nor violate nor will result in a breach of
or constitute (with due notice or lapse of time or both) a default under any
contract, lease, loan agreement, mortgage, security agreement, trust indenture
or other agreement or instrument to which the Buyer or Newco is a party or by
which either of them is bound or to which any of the Buyer's or Newco's
properties or assets is subject, except for such violations, breaches or
defaults which, in the aggregate, will not have a Buyer Material Adverse Effect.
(b) Neither the transfer to Newco of the Purchased Interests and cash
as contemplated in Section 2.5 hereof, nor the payment by Newco to the Seller of
any amount required to be paid pursuant to Section 2.4(a) or (b) hereof, will
render the Buyer or Newco insolvent or be made with the intention to hinder,
delay or defraud creditors of either the Buyer or Newco, nor will any such
transfer or payment contravene any requirement under Delaware or other
applicable law that such payment be made only out of legally available funds.
Section 4.6. Consents and Approvals. Except as set forth in Schedule 4.6,
------------
no consent, waiver, authorization or approval of, or declaration or filing with,
any governmental or regulatory authority, domestic or foreign, or other Person
is required in connection with the execution and delivery of the Transaction
Documents by the Buyer or Newco or the performance by the Buyer or Newco of its
obligations thereunder.
Section 4.7. Financial Statements. The Buyer has heretofore furnished to
the Seller copies of the audited consolidated balance sheets of the Company as
of: (i) January 31, 1999, 1998 and 1997, together with the related statements
of income, stockholders' equity and cash flows for the twelve month period then
ended and the notes thereto, if any, and (ii) the unaudited consolidated balance
sheet of the Company as of October 31, 1999, together with the related
statements of income, stockholders' equity and cash flows for the nine month
period then ended and the notes thereto, if any, (the "Buyer Financial
Statements"). Except as set forth therein, the Buyer Financial Statements,
including the notes thereto: (i) were prepared in accordance with GAAP; (ii)
present fairly in all material respects the consolidated financial position,
results of operations and changes in cash flows of the Buyer as of such dates
and for the periods then ended; and (iii) are in accordance with the books of
account and records of the Buyer.
Section 4.8. Absence of Certain Changes or Events.
(a) Except as contemplated by this Agreement or as set forth in
Schedule 4.8, since October 31, 1999, there has not been:
------------
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(i) Any material adverse change in the business, operations,
properties, assets, condition (financial or other) or prospects of the
Buyer, or any event that has had or is reasonably likely to have a Buyer
Material Adverse Effect, and no factor or condition exists and no event has
occurred that would be likely to result in any such change;
(ii) Any material loss, damage, destruction or other casualty to its
business (whether or not insurance awards have been received or
guaranteed); or
(iii) Any material change in any method of accounting or accounting
practice of the Buyer.
(b) Except as contemplated by the Transaction Documents or as set
forth in Schedule 4.8, since October 31, 1999, the Buyer has not:
------------
(i) Incurred any material obligation or liability (whether
absolute, accrued, contingent or otherwise) relating to the operations of
Buyer except in the ordinary course of business consistent with past
practice;
(ii) Sold or transferred any assets material to its business or
canceled any debts or claims or waived any material rights relating to the
operations of its business, except in the ordinary course of business
consistent with past practice;
(iii) Defaulted on any of its material obligations;
(iv) Entered into any material transaction, except in the
ordinary course of business consistent with past practice;
(v) Made any capital expenditure in excess of $25,000, or
additions to property, plant and equipment used in the operations of its
business other than ordinary repairs and maintenance;
(vi) Entered into any agreement or made any commitment to do
any of the foregoing.
Section 4.9. Tax Matters. Except as otherwise disclosed in Schedule 4.9,
------------
(i) the Buyer has filed (or joined in the filing of) when due all Tax Returns
required by applicable law to be filed with respect to the Buyer and all Taxes
shown to be due on such Tax Returns have been paid; (ii) all such Tax Returns
were true, correct and complete in all material respects as of the time of such
filing; (iii) all Taxes relating to periods ending on or before the Closing Date
owed by the Buyer (whether or not shown on any Tax Return) or to which the Buyer
may be liable under Treasury Regulations (S) 1.1502-6 (or analogous state or
foreign provisions) by virtue of having been members of any "affiliated group"
(or other group filing on a combined or unitary basis) at any time on or prior
to the Closing Date, if required to have been paid, have been paid (except for
Taxes which are being contested in good faith); (iv) any liability of the Buyer
for Taxes not yet due and payable, or which are being contested in good faith,
has been provided for
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on the financial statements of the Buyer in accordance with and to the extent
required by GAAP; (v) there is no action, suit, proceeding, investigation, audit
or claim now pending against, or with respect to, the Buyer in respect of any
Tax or assessment, nor is any claim for additional Tax or assessment asserted by
any Tax authority; (vi) no material claim has been made by any Tax authority in
a jurisdiction where the Buyer does not currently file a Tax Return that it is
or may be subject to Tax by such jurisdiction, nor to the Buyer's knowledge is
any such assertion threatened; (vii) there is no outstanding request for any
extension of time within which to pay any Taxes or file any Tax Returns; (viii)
there has been no waiver or extension of any applicable statute of limitations
for the assessment or collection of any Taxes of the Buyer; (ix) no property of
the Buyer is "tax-exempt use property" within the meaning of Section 168(h) of
the Code; (x) the Buyer is not a party to any lease made pursuant to former
Section 168(f)(8) of the Internal Revenue Code of 1954; (xi) the Buyer has not
filed any agreement or consent under Section 341(f) of the Code; (xii) the Buyer
is not a "foreign person" within the meaning of Section 1445 of the Code; (xiii)
the Buyer is not a party to any agreement, whether written or unwritten,
providing for the payment of Taxes, payment for Tax losses, entitlements to
refunds or similar Tax matters; and (xiv) the Buyer has withheld and paid all
material Taxes required to be withheld in connection with any amounts paid or
owing to any employee, creditor, independent contractor or other third party.
Section 4.10. Real Property.
(a) Schedule 4.10(a) lists all real property owned by the Buyer or
----------------
its subsidiaries (the "Buyer Owned Real Property"). Except as disclosed on
Schedule 4.10(a), the Buyer or its subsidiaries have good and marketable title
- ----------------
in fee simple to the Buyer Owned Real Property free and clear of any Liens. All
buildings, plants and structures included on the Buyer Owned Real Property lie
wholly within the boundaries of the Buyer Owned Real Property and do not
encroach upon the property of, or otherwise conflict with the property rights
of, any other Person.
(b) Schedule 4.10(b) contains a list of all leases and subleases,
----------------
together with any amendments thereto and any subordination, nondisturbance and
attornment agreements (the "Buyer Leases"), with respect to all real property
leased by the Buyer or its subsidiaries (the "Buyer Leased Property"). Each
Lease is in full force and effect. Each of the Buyer or its subsidiaries has
performed all material obligations required to be performed by it to date under
each of the Leases and neither the Buyer or its subsidiaries nor any other party
thereto is, except as set forth on Schedule 4.10(b), in material default under
----------------
any of the Leases (and, except as set forth on Schedule 4.10(b), no event has
----------------
occurred which, with due notice or lapse of time or both, would constitute such
a lapse or default). No amount due under the Leases remains unpaid and no
material controversy, claim, dispute or disagreement exists between the parties
to any of the Leases. The Buyer has delivered to the Seller a copy of each
Lease, and all amendments thereto, listed in Schedule 4.10(b), except to the
----------------
extent otherwise noted therein.
(c) The covenants, conditions, restrictions, encroachments,
encumbrances, easements, rights of way, licenses, grants, building or use
restrictions, exceptions,
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reservations, limitations or other impediments affecting the Buyer Owned Real
Property or Buyer Leased Property do not and will not, with respect to each
Buyer Owned Real Property or Buyer Leased Property, materially impair the
Buyer's or its subsidiaries' ability to use any such Buyer Owned Real Property
or Buyer Leased Property in the operation of the Buyer's and its subsidiaries'
business as presently conducted. There are no pending or, to the knowledge of
the Buyer, threatened condemnation or similar proceedings affecting the Buyer
Owned Real Property. There are no pending or, to the knowledge of the Buyer,
threatened condemnation or similar proceedings affecting the Buyer Leased
Property. The Buyer and its subsidiaries have access to public roads, streets or
the like or valid easements over private streets, roads or other private
property for such ingress to and egress from the Buyer Owned Real Property and
the Buyer Leased Property, except as would not materially impair the Buyer's and
its subsidiaries' ability to use any such Buyer Owned Real Property or Buyer
Leased Property in the operation of the Buyer's and its subsidiaries' business
as presently conducted.
(d) All brokerage commissions and other compensation and fees payable
by reason of the Buyer Leases or the Buyer Owned Real Property have been paid in
full or are reflected in the Buyer Unaudited Financial Statements except for
such commissions and other compensation related to options or extensions in the
Buyer Leases which are not yet exercised.
(e) No notices of violations have been received with respect to the
improvements on the Buyer Owned Real Property and Buyer Leased Property and the
operations therein conducted, including without limitation, health, fire,
environmental, safety, zoning and building laws, ordinances and administrative
regulations, except as set forth on Schedule 4.10(e).
----------------
(f) There are no outstanding requirements or recommendations by any
insurance company which has issued to the Buyer or its subsidiaries a policy
covering the Buyer Owned Real Property or Buyer Leased Property, or by any board
of fire underwriters or other body exercising similar functions, requiring or
recommending any repairs or work to be done on such property.
(g) All public utilities required for the operation of the Buyer
Owned Real Property and the Buyer Leased Property, as they are currently
operated, and necessary for the conduct of the business of the Buyer and its
subsidiaries, as it is presently conducted, are installed and operating, and all
installation and connection charges are paid in full.
(h) Except as set forth in Schedule 4.10(b), the Buyer Owned Real
----------------
Property and the Buyer Leased Property are not subject to any lease, sublease,
license or other agreement granting to any person any right to the use,
occupancy or enjoyment of such property or any portion thereof.
(i) The plumbing, electrical, heating, air conditioning, elevator,
ventilating and all other mechanical or structural systems for which the Buyer
or its subsidiaries are responsible under the Buyer Leases in the buildings or
improvements are, to the knowledge of the Buyer, in good working order and
condition, and the roof, basement and foundation walls of such buildings and
improvements for which the Buyer or its subsidiaries are responsible
24
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under said Buyer Leases, to the knowledge of the Buyer, are in good condition
and free of leaks and other material defects. All such mechanical and structural
systems and such roofs, basement and foundation walls for which others are
responsible under said Buyer Leases are, to the knowledge of the Buyer, in good
working order and condition and free of leaks and other material defects.
Section 4.11. Litigation. Except as set forth in the Buyer's public
filings or in Schedule 4.11, there are no claims, actions, suits, proceedings,
-------------
labor disputes or investigations pending or, to the knowledge of Buyer,
threatened before any federal, state or local court or governmental or
regulatory authority, domestic or foreign, or before any arbitrator of any
nature, brought by or against Buyer, any of its officers, directors, employees,
agents or Affiliates, nor is any basis known to Buyer or its Affiliates for any
such action, suit, proceeding or investigation which would reasonably be
expected to have a Buyer Material Adverse Effect. The Buyer is not subject to
any order, writ, judgment, award, injunction or decree of any national, state or
local court or governmental or regulatory authority or arbitrator, domestic or
foreign, which would have a Buyer Material Adverse Effect, or that would or
might interfere with the transactions contemplated by the Transaction Documents.
Section 4.12. Employee Plans.
(a) Schedule 4.12 sets forth: (i) all "employee benefit plans," as
-------------
defined in Section 3(3) of ERISA, and all other employee benefit arrangements or
payroll practices, including, without limitation, any employment or consulting
agreements, any such arrangements or payroll practices providing severance pay,
sick leave, vacation pay, salary continuation for disability, retirement
benefits, deferred compensation, bonus pay, incentive pay, stock options,
hospitalization insurance, medical insurance, life insurance, scholarships or
tuition reimbursements, maintained by the Buyer or its subsidiaries or to which
the Buyer or its subsidiaries are obligated to contribute thereunder for current
or former employees, consultants and directors of the Buyer or its subsidiaries
(the "Buyer Plans"), and (ii) all "employee pension plans", as defined in
Section 3(2) of ERISA, maintained by the Buyer or its subsidiaries or any trade
or business (whether or not incorporated) which is or has ever been under
control or treated as a single employer with the Buyer or its subsidiaries under
Section 414(b), (c), (m), or (o) of the Code ("Buyer ERISA Affiliate") or to
which the Buyer or its subsidiaries or any Buyer ERISA Affiliate has contributed
or has ever been obligated to contribute thereunder (the "Buyer Pension Plans")
(the Buyer Plans and Buyer Pension Plans are hereafter collectively referred to
as the "Buyer Employee Plans").
(b) None of the Buyer Employee Plans is a multiemployer plan, as
defined in Section 3(37) of ERISA ("Buyer Multiemployer Plan"), and neither the
Buyer or its subsidiaries nor any Buyer ERISA Affiliate has withdrawn in a
complete or partial withdrawal from any Buyer Multiemployer Plan, nor has any of
them incurred any liability due to the termination or reorganization of a Buyer
Multiemployer Plan.
(c) Each Buyer Employee Plan that is intended to qualify under
Section 401 of the Code has received a determination letter from the Internal
Revenue Service to the effect
25
<PAGE>
that it meets the requirements of Code Section 401(a) and the trust maintained
pursuant thereto is exempt from federal income taxation under Section 501 of the
Code, and nothing has occurred with respect to the operation of any such Buyer
Employee Plan that could cause the loss of such qualification or exemption or
the imposition of any liability, penalty or tax under ERISA or the Code.
(d) All contributions (including all employer contributions and
employee salary reduction contributions) required to have been made under any of
the Buyer Employee Plans or by law (without regard to any waivers granted under
Section 412 of the Code) to any funds or trusts established thereunder or in
connection therewith have been made by the due date thereof (including any valid
extension), and all contributions for any period ending on or before the Closing
Date which are not yet due will have been paid or accrued on or prior to the
Closing Date. No accumulated funding deficiencies exist in any of the Buyer
Employee Plans subject to Section 412 of the Code.
(e) There is no "amount of unfunded benefit liabilities" within the
meaning of Section 4001(a)(18) of ERISA in any of the respective Buyer Pension
Plans which are subject to Title IV of ERISA. Each of the respective Buyer
Pension Plans are fully funded in accordance with the actuarial assumptions used
by the Pension Benefit Guaranty Corporation (the "PBGC") to determine the level
of funding required in the event of the termination of the Buyer Pension Plans.
(f) None of the Buyer or its subsidiaries or any Buyer ERISA
Affiliate has terminated any Buyer Pension Plan subject to Title IV, or incurred
any outstanding liability under Section 4062 of ERISA to the PBGC or to a
trustee appointed under Section 4042 of ERISA. All premiums due the PBGC with
respect to the Buyer Pension Plans have been paid. None of the Buyer or its
subsidiaries or any Buyer ERISA Affiliate has engaged in any transaction
described in Section 4069 of ERISA.
(g) There has been no "reportable event" within the meaning of
Section 4043 of ERISA with respect to any Buyer Pension Plans subject to Title
IV of ERISA which would require the giving of notice or any other event
requiring disclosure under Section 4041(c)(3)(C) or 4063(a) of ERISA.
(h) There has been no material violation of ERISA or the Code with
respect to the filing of applicable reports, documents and notices regarding the
Buyer Employee Plans with the Secretary of Labor or the Secretary of the
Treasury or the furnishing of required reports, documents or notices to the
participants or beneficiaries of the Buyer Employee Plans.
(i) True, correct and complete copies of the following documents,
with respect to each of the Buyer Employee Plans, have been delivered to the
Seller by the Buyer: (i) all plans and related trust documents, and amendments
thereto; (ii) the most recent Forms 5500; (iii) the last IRS determination
letter; (iv) summary plan descriptions; (v) the most recent actuarial report
relating to the Buyer Employee Plans; and (vi) written descriptions of all non-
written agreements relating to the Buyer Employee Plans.
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(j) There are no pending actions, claims or lawsuits which have been
asserted or instituted against the Buyer Employee Plans, the assets of any of
the trusts under such plans or the plan sponsor or the plan administrator, or
against any fiduciary of the Buyer Employee Plans with respect to the operation
of such plans (other than routine benefit claims), nor do the Buyer or Newco
have knowledge of facts which could form the basis for any such claim or
lawsuit.
(k) All amendments and actions required to bring the Buyer Employee
Plans into conformity in all material respects with all of the applicable
provisions of ERISA, the Code and other applicable laws have been made or taken
except to the extent that such amendments or actions are not required by law to
be made or taken until a date after the Closing Date.
(l) Any bonding required with respect to the Buyer Employee Plans in
accordance with applicable provisions of ERISA has been obtained and is in full
force and effect.
(m) The Buyer Employee Plans have been maintained, in all material
respects, in accordance with their terms and with all provisions of ERISA and
the Code (including rules and regulations thereunder) and other applicable
federal and state laws and regulations, and none of the Buyer or its
subsidiaries or any "party in interest" or "disqualified Person" with respect to
the Buyer Employee Plans has engaged in a "prohibited transaction" within the
meaning of Section 406 of ERISA or 4975 of the Code. No fiduciary has any
liability for breach of fiduciary duty or any other failure to act or comply in
connection with the administration or investment of the assets of any Buyer
Employee Plan.
(n) None of the Buyer Employee Plans provide retiree life or retiree
health benefits except as may be required under Section 4980B of the Code or
Section 601 of ERISA and at the expense of the participant or the participant's
beneficiary. The Buyer and its subsidiaries and the Buyer ERISA Affiliates have
at all times complied with the notice and health care continuation requirements
of Section 4980B of the Code and Sections 601 through 608 of ERISA.
(o) Except as disclosed on Schedule 4.12, no stock or other security
-------------
issued by the Seller, the Buyer or its subsidiaries or any of their Affiliates
forms or has formed part of the assets of any Buyer Employee Plan.
27
<PAGE>
Section 4.13. Labor Matters.
(a) Except as set forth in Schedule 4.13: (i) none of the Buyer or
-------------
its subsidiaries is a party to any outstanding employment, consulting or
management agreements or contracts with officers or employees that provide for
the payment of any bonus or commission; (ii) none of the Buyer or its
subsidiaries is party to any collective bargaining agreement or other labor
union contract applicable to persons employed by the Buyer or its subsidiaries
nor do the Seller, the Buyer or its subsidiaries know of any activities or
proceedings of any labor union to organize any such employees. The Buyer has
furnished to the Seller complete and correct copies of all such agreements
("Employment and Labor Agreements"). The Buyer and its subsidiaries have not
breached or otherwise failed to comply with any provisions of any Employment and
Labor Agreement, and are in full compliance with all terms of any collective
bargaining agreement and there are no grievances outstanding thereunder.
(b) The Buyer and its subsidiaries are in compliance with all
applicable laws relating to employment and employment practices, wages, hours,
and terms and conditions of employment and are not engaged in any unfair labor
practice; (ii) there is no unfair labor practice charge or complaint pending
before the National Labor Relations Board ("NLRB"); (iii) there is no labor
strike, material slowdown or material work stoppage or lockout actually pending
or threatened against or affecting the Buyer or its subsidiaries, and the Buyer
and its subsidiaries have not at any time experienced any strike, material slow
down or material work stoppage, lockout or other collective labor action by or
with respect to employees of the Buyer or its subsidiaries; (iv) there is no
representation claim or petition pending before the NLRB or any similar foreign
agency and no question concerning representation exists relating to the
employees of the Buyer or its subsidiaries; (v) there are no charges with
respect to or relating to the Buyer or its subsidiaries pending before the Equal
Employment Opportunity Commission or any state, local or foreign agency
responsible for the prevention of unlawful employment practices; and (vi) the
Buyer and its subsidiaries have no formal notice from any federal, state, local
or foreign agency responsible for the enforcement of labor or employment laws of
an intention to conduct an investigation of the Buyer or its subsidiaries and no
such investigation is in progress.
Section 4.14. Environmental Matters. Notwithstanding anything to the
contrary contained in this Agreement and in addition to the other
representations and warranties contained herein:
(a) The Buyer and its subsidiaries and their operations are in
compliance with all applicable Environmental Laws and have obtained, maintained
in effect and complied with all licenses, permits and other authorizations or
registrations required under Environmental Laws.
(b) The Buyer and its subsidiaries have not performed or suffered any
act which could give rise to, or have otherwise incurred, liability to any
person (governmental or not) under CERCLA or any similar state or municipal law,
nor has the Buyer or its
28
<PAGE>
subsidiaries received notice of any such liability or any claim therefor or
submitted notice pursuant to Section 103 of CERCLA to any governmental agency.
(c) No Hazardous Materials have been released, placed, dumped or
otherwise come to be located on, at, beneath or near, and no storage tank
containing any Hazardous Materials is located at, any of the real property
and/or improvements currently or, to the knowledge of the Buyer, formerly owned
or leased by the Company which could subject the Buyer to a claim or claims
pursuant to Environmental Laws.
Section 4.15. Purchase for Investment. Each of the Buyer and Newco is an
accredited investor as defined under Rule 501(a) of the Securities Act. The
Purchased Interest will be acquired for investment for Buyer's own account and
not with a view to the resale or distribution of any part thereof, except in
compliance with the registration provisions of the Securities Act or an
exemption therefrom.
Section 4.16. Brokers and Finders. None of the Buyer or its subsidiaries
or any of their respective officers, directors or employees has employed any
broker or finder, except for Slusser Associates, Inc., and none of the Buyer or
its subsidiaries or any of their respective officers, directors or employees has
incurred any liability for any investment banking fees, brokerage fees,
commissions or finders' fees in connection with the transactions contemplated by
this Agreement other than fees payable to Slusser Associates, Inc.
Section 4.17. Due Diligence. Each of the Buyer and Newco has sufficient
knowledge and experience in investing in companies similar to the Company and is
capable of evaluating the merits and risks of its investment in the Company as
contemplated by this Agreement and is able to bear the economic risk of such
investment for an indefinite period of time. Each of the Buyer and Newco has
been given access to full and complete information regarding the Company and has
utilized such access to its satisfaction for the purpose of obtaining
information each of the Buyer and Newco desires or deems relevant to its
decision to acquire the Purchased Interests. Each of the Buyer and Newco has
had the opportunity to ask questions of and receive answers from management and
representatives of the Company to discuss the Company's business, management and
financial affairs and to obtain any additional information each of the Buyer and
Newco desires or deems relevant. Each of the Buyer and Newco has obtained, to
the extent it has deemed necessary, professional advice with respect to the
risks inherent in the acquisition of the Purchased Interests, including, without
limitation, the matters relating to the Company's business and financial
condition.
Section 4.18. Survival. Except where a representation or warranty
expressly refers to another date, in which case such representation or warranty
need be true and correct only as of such date, each of the representations and
warranties set forth in this Section 4 shall be deemed represented and made by
the Buyer at the Closing as if made at such time and shall survive the Closing
for a period terminating on the later of (a) date 6 months after the Closing
Date, and (b) with respect to claims asserted pursuant to Section 6.2 of this
Agreement before the expiration of the applicable representation or warranty, on
the date such claim is finally liquidated or otherwise resolved; provided,
--------
however, that (x) the representations and warranties in Sections 4.14 hereof
- -------
29
<PAGE>
shall survive until the third anniversary of the Closing Date and (y) the
representations and warranties in Sections 4.4 and 4.9 hereof shall survive
until the applicable statute of limitations for third party or governmental
actions has expired.
ARTICLE V.
COVENANTS OF THE PARTIES
The Parties hereto covenant as follows (all covenants of the Seller and the
Parent being joint and several obligations and all covenants of the Buyer and
Newco being joint and several obligations):
Section 5.1. Consents and Approvals Required on Closing Date. Each of the
parties hereto has or will have on or prior to the Closing Date, at its cost and
expense, obtained all necessary consents, waivers, authorizations and approvals
of all governmental and regulatory authorities, domestic and foreign, and of all
other Persons required on the Closing Date in connection with the execution,
delivery and performance by it of the Transaction Documents.
Section 5.2. Further Assurances. Upon the request of another party at any
time after the Closing Date, the Buyer, Newco, the Seller and the Parent shall
forthwith execute and deliver such further instruments of assignment, transfer,
conveyance, endorsement, direction or authorization and other documents as the
requesting party or its counsel may request to perfect title of the Buyer and
its successors and assigns to the Purchased Interests and to perfect title of
the Seller in and to the Share Consideration or otherwise to effectuate the
purposes of the Transaction Documents.
Section 5.3. Best Efforts. Upon the terms and subject to the conditions
of this Agreement, each party shall use its reasonable best efforts to take, or
cause to be taken, all action, and to do, or cause to be done, all things
necessary, proper or advisable consistent with applicable law to consummate and
make effective in the most expeditious manner practicable the transactions
contemplated hereby and in the Transaction Documents.
Section 5.4. Nondisclosure. Except as required under applicable law, from
and after the Closing Date, no party shall use, divulge, furnish or make
accessible to anyone any proprietary, material non-public, confidential or
secret information to the extent relating to the Buyer or its subsidiaries, in
the case of the Seller and the Parent, or relating to the Seller and the Parent,
in the case of the Buyer and Newco (in each case including, without limitation,
customer lists, supplier lists and pricing and marketing arrangements with
customers or suppliers), and each of the parties shall cooperate reasonably with
the others in preserving such proprietary, confidential or secret aspects of the
parties.
Section 5.5. Tax Matters. All transfer, documentary, sales, use, stamp,
registration, value added and other such taxes and fees (including any penalties
and interest) incurred in connection with this Agreement shall be borne and paid
equally by the Parent and the Seller, on the one hand, and the Buyer and Newco,
on the other hand, when due, and the Seller will file all necessary tax returns
and other documentation with respect to all such taxes and fees, and, if
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required by applicable law, the Buyer will, and will cause its affiliates to,
join in the execution of any such tax returns and other documentation.
Section 5.6. Cooperation on Tax Matters. The Buyer and the Seller shall
cooperate fully, as and to the extent reasonably requested by the other party,
in connection with the preparation and filing of any tax return, statement,
report or form (including any report required pursuant to Section 6043 of the
Code and all Treasury Regulations promulgated thereunder), any audit, litigation
or other proceeding with respect to taxes. Such cooperation shall include the
retention and (upon the other party's request) the provision of records and
information which are reasonably relevant to any such audit, litigation or other
proceeding and making employees available on a mutually convenient basis to
provide additional information and explanation of any material provided
hereunder. The Seller and the Buyer agree (i) to retain, and to cause the
Company to retain, all books and records with respect to tax matters pertinent
to the Company relating to any pre-closing tax period, and to abide by all
record retention agreements entered into with any taxing authority and (ii) to
give the other party reasonable written notice prior to destroying or discarding
any such books and records and, if the party so requests, the Buyer or the
Seller, as the case may be, shall allow the other party to take possession of
such books and records.
Section 5.7. Amendment to Management Agreement. The Parent shall use its
best efforts to cause the Company and City Cinemas Corporation to amend the
Management Agreement so that it provides the Buyer with the same rights as the
Parent pursuant to Section 3.2(b) thereof, and in any event, the Parent shall
deliver to the Buyer the financial statements referenced in such Section
promptly following receipt thereof.
Section 5.8. Amendment to Trademark License Agreement. The Parent shall
cause its affiliate Reading Investment Company, Inc. ("Reading Investment") and
the Company to execute an amended Angelika-SOHO Trademark License Agreement
dated as of April 15, 1997 by and between Reading Investment (as amended, the
"Amended Trademark License Agreement") in the form attached hereto as Exhibit E.
Section 5.9. Notification and Put Rights.
(a) Buyer covenants and agrees that it shall provide written notice
to Parent at least thirty (30) days prior to the date on which any of the
following is proposed to occur: (i) the issuance of shares of Common Stock or of
any class or series of Preferred Stock (in one or a series of related
transactions) representing more than fifteen percent (15%) of the number or
voting power of the shares of Common Stock or Buyer Preferred Stock, as the case
may be, outstanding immediately prior to such issuance, or (ii) the making of an
investment or series of related investments involving aggregate payments by
Buyer of $10 million or more (calculated on a consolidated basis);
(b) Parent shall notify Buyer within thirty (30) days after the date
of the notice in paragraph (a) above whether it agrees with the proposed
issuance or investment described in such notice. If (x) Parent objects to any
such proposed transaction and (y) Buyer notifies Parent
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that Buyer will nonetheless proceed with the proposed transaction, Parent shall
have the option, exercisable within fifteen (15) days after the date of such
written notice, to cause Buyer to repurchase, out of funds legally available
therefor, all of the Common Share Consideration and the Preferred Share
Consideration, for an aggregate purchase price equal to (aa) $13.5 million plus
(bb) interest at a per annum rate of ten percent (10%) calculated on a daily
basis through the date of such repurchase, which repurchase shall be consummated
no later than thirty (30) days after the date of the notice of exercise of the
option provided herein; and
(c) The rights of Parent to receive notice and to require the Buyer to
repurchase the Common Share Consideration and the Preferred Share Consideration
shall expire on the date that is thirty (30) days following the date on which
Buyer files with the Securities and Exchange Commission its Annual Report on
Form 10-K for the fiscal year ended January 30, 2001, provided that the parties
shall be obligated to consummate any repurchase for which Parent has provided
notice of exercise of the repurchase option provided in Section 5.9(b) prior to
such expiration date.
Section 5.10. Amendment to Certificate of Incorporation. Buyer hereby
covenants, subject to the fiduciary duty of the Board of Directors of Buyer, to
present to the stockholders of Buyer, at Buyer's next annual or special meeting
of stockholders, a proposed amendment to Buyer's restated Certificate of
Incorporation to eliminate Article SIXTH thereof, and shall use their best
efforts to solicit proxies in favor of such amendment.
Section 5.11. Board Representation. Parent will be entitled to have a
representative attend all meetings of the Board of Directors of the Buyer, and
of any meetings of any executive or other similar committee of the Board of
Directors as may be formed from time to time. Buyer will give Parent
substantially the same notice of any such meeting as Parent provides to its
directors, so as to allow such representative to attend such meetings in person,
and provide to such representative copies of any materials provided to directors
from time to time, whether or not in connection with any particular Board or
executive committee meeting, contemporaneously with the delivery of such
materials to such directors. Notwithstanding the above, it is acknowledged and
agreed that such representative will not be entitled to attend any portions of
any such meeting where specific advice is being given by legal counsel to the
directors and where the presence of such representative would result in a waiver
of any otherwise applicable attorney-client communication privilege.
ARTICLE VI.
INDEMNIFICATION
Section 6.1. Indemnification by the Seller and the Parent.
Notwithstanding the Closing and except to the extent that the Buyer or Newco has
any knowledge or information with respect to such matter on or prior to the
Closing Date, the Seller and the Parent, jointly and severally, shall indemnify
and fully defend, save and hold the Buyer, Newco, and their directors, officers
and employees (the "Buyer Indemnitees"), harmless if any Buyer Indemnitee shall
at any time or from time to time suffer any damage, liability, loss, cost,
expense (including all
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reasonable attorneys' fees and expenses of investigation incurred by the Buyer
Indemnitees in any action or proceeding between the Seller or the Parent and the
Buyer Indemnitees or between the Buyer Indemnitees and any third party or
otherwise), deficiency, interest, penalty, impositions, assessments or fines
(collectively, "Buyer Losses") arising out of or resulting from, or shall pay or
become obliged to pay any sum on account of, any and all the Seller Events of
Breach. As used herein, "Seller Events of Breach" shall be and mean any one or
more of the following:
(a) any untruth or inaccuracy in any representation of the Seller or
the Parent or the breach of any warranty of the Seller or the Parent contained
in the Transaction Documents written notice of which has been given to the
Seller and the Parent prior to the expiration of any survival period applicable
thereto;
(b) any failure of the Seller or the Parent duly to perform or
observe any term, provision, covenant, agreement contained in the Transaction
Documents on the part of such Person to be performed or observed, provided,
however, that, except for Buyer Losses incurred by the Buyer Indemnitees in
connection with the inaccuracy of any representation or the breach of any
warranty of the Seller or the Parent relating to Taxes, the representations and
warranties contained in Section 3.2 or actual fraud by the Seller or the Parent,
the Seller and the Parent shall not have any obligation to make any payment
under Section 6.1(a) hereof with respect to any representation or warranty
unless (i) the Buyer Indemnitees have suffered Buyer Losses by reason of any
particular representation or warranty, together with all other particular claims
arising from the same facts and circumstances, in excess of $50,000 and (ii)
until all Buyer Indemnitees have suffered Buyer Losses (other than Buyer Losses
below the $50,000 threshold referred to in clause (i) above) by reason of all
such claims that exceed $500,000, it being understood that once such amount is
exceeded, the aggregate of all such claims in excess of $500,000 shall be
payable by the Seller and Parent on demand by the Buyer.
Section 6.2. Procedures for Indemnification by the Seller and the Parent.
If a Seller's Event of Breach occurs or is alleged and a Buyer Indemnitee
asserts that the Seller or the Parent has become obligated to such Buyer
Indemnitee pursuant to Section 6.1 hereof, or if any suit, action,
investigation, claim or proceeding (a "Proceeding") is begun, made or instituted
by a third party as a result of which the Seller or the Parent may become
obligated to a Buyer Indemnitee hereunder, such Buyer Indemnitee shall give
written notice to the Seller and the Parent. The Seller and the Parent, jointly
and severally, agree to defend, contest or otherwise protect the Buyer
Indemnitee against any Proceeding at their sole cost and expense. The Buyer
Indemnitee shall have the right, but not the obligation, to participate at its
own expense in the defense thereof by counsel of the Buyer Indemnitee's choice
and shall in any event cooperate with and assist the Seller and the Parent to
the extent reasonably possible. If the Seller and the Parent fail timely to
defend, contest or otherwise protect against such Proceeding, the Buyer
Indemnitee shall have the right to do so, including, without limitation, the
right to make any compromise or settlement thereof, and the Buyer Indemnitee
shall be entitled to recover the entire cost thereof from the Seller or the
Parent, including, without limitation, reasonable attorneys' fees, disbursements
and amounts paid as the result of such Proceeding, as such costs are
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incurred, and the Seller and the Parent shall be bound by any determination made
in such Proceeding or any compromise or settlement effected by the Buyer. If the
Buyer Indemnitee shall have reasonably concluded upon advice from counsel that
there may be a conflict of interest between the Buyer Indemnitee and the Seller
or the Parent, the Buyer Indemnitee shall have the right to defend, contest or
otherwise protect against such Proceeding, provided that if the Buyer Indemnitee
--------
shall compromise or settle such claims without consent of Seller and Parent,
such compromise or settlement shall not bind Seller or Parent. If the Seller or
the Parent assumes the defense of any Proceeding, (a) it will be conclusively
established for purposes of this Agreement that the claims made in that
Proceeding are within the scope of and subject to indemnification, (b) no
compromise or settlement of such claims may be effected by the Seller or the
Parent without the Buyer Indemnitee's consent unless (i) there is no finding or
admission of any violation of federal, state, local, municipal, foreign,
international, multinational or other administrative order, law, ordinance,
principal of common law, regulation, statute or treaty or any violation of the
rights of any Person and no effect on any other claims that may be made against
the Buyer Indemnitee and (ii) the sole relief provided is monetary damages that
are paid in full by the Seller or the Parent; and (c) the Buyer Indemnitee will
have no liability with respect to any compromise or settlement of such claims
effected without its consent.
Section 6.3. Indemnification by the Buyer and Newco. Notwithstanding the
Closing, and, with respect to paragraph (a) only, except to the extent that the
Seller or the Parent has any knowledge or information with respect to such
matter on or prior to the Closing Date (it being agreed that the Seller
Indemnitees are entitled to indemnification under this Section 6.3 regardless of
their knowledge of facts giving rise to any litigation referred to in paragraph
(b) hereof or of their knowledge for purposes of the representation and warranty
set forth in the penultimate sentence of Section 4.4 of any liabilities or
claims against the Buyer or any of its Affiliates), the Buyer and Newco shall,
jointly and severally, indemnify and agree to fully defend, save and hold the
Seller, the Parent, or any Affiliate of the Seller or of the Parent and their
directors, officers and employees (the "Seller Indemnitees"), harmless if any
Seller Indemnitee shall at any time or from time to time suffer any damage,
liability, loss, cost, expense (including all reasonable attorneys' fees and
expenses of investigation incurred by the Seller Indemnitees in any action or
proceeding between the Buyer or Newco and the Seller Indemnitees or between the
Seller Indemnitees and any third party or otherwise), deficiency, interest,
penalty, impositions, assessments or fines (collectively, "Seller Losses")
arising out of or resulting from, or shall pay or become obligated to pay any
sum on account of, any and all the Buyer Events of Breach. As used herein,
"Buyer Events of Breach" shall be and mean any one or more of the following:
(a) any untruth or inaccuracy in any representation of the Buyer or
Newco or the breach of any warranty of the Buyer or Newco contained in the
Transaction Documents written notice of which has been given to the Buyer and
Newco prior to the expiration of any survival period applicable thereto;
(b) any Proceeding is brought by any stockholder of the Buyer, either
directly or derivatively, challenging any of the transactions contemplated
herein or in any other Transaction Document or asserting any liability on the
part of Parent, any of its affiliates or any of the respective officers or
directors;
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(c) any failure of the Buyer or Newco duly to perform or observe
any term, provision, covenant, agreement or condition contained herein or in the
Transaction Documents on the part of the Buyer or Newco to be performed or
observed;
provided, however, that, except for Seller Losses incurred by the Seller
Indemnitees in connection with the inaccuracy of any representations or the
breach of any warranty of the Buyer or Newco relating to Taxes, the
representations and warranties contained in Section 5.4 hereof or actual fraud
by the Buyer or Newco, the Buyer and Newco shall have no obligation to make any
payment under Section 6.3(a) hereof with respect to any representation or
warranty unless (i) the Seller Indemnitees have suffered Seller Losses by reason
of any particular representation or warranty, together with all other particular
claims arising from the same facts and circumstances, in excess of $50,000 and
(ii) until all Seller Indemnitees have suffered Seller Losses (other than Seller
Losses below the $50,000 threshold referred to in clause (i) above) by reason of
all such claims that exceed $500,000, it being understood that once such amount
is exceeded, the aggregate of all such claims in excess of $500,000 shall be
payable by the Buyer and Newco on demand by the Seller.
Section 6.4. Procedures for Indemnification by the Buyer and Newco. If a
Buyer Event of Breach occurs or is alleged and a Seller Indemnitee asserts that
the Buyer or Newco has become obligated to such Seller Indemnitee pursuant to
Section 6.3 hereof, or if any Proceeding is begun, made or instituted by a third
party as a result of which the Buyer or Newco may become obligated to a Seller
Indemnitee hereunder, such Seller Indemnitee shall give written notice to the
Buyer and Newco. The Buyer and Newco, jointly and severally, agree to defend,
contest or otherwise protect the Seller Indemnitee against any Proceeding at
their sole cost and expense. The Seller Indemnitee shall have the right, but
not the obligation, to participate at its own expense in the defense thereof by
counsel of the Seller Indemnitee's choice and shall in any event cooperate with
and assist the Buyer and Newco to the extent reasonably possible. If the Buyer
or Newco fail timely to defend, contest or otherwise protect against such
Proceeding, the Seller Indemnitee shall have the right to do so, including,
without limitation, the right to make any compromise or settlement thereof, and
the Seller Indemnitee shall be entitled to recover the entire cost thereof from
the Buyer or Newco, including, without limitation, reasonable attorneys' fees,
disbursements and amounts paid as the result of such Proceeding, as such costs
are incurred, and the Buyer or Newco shall be bound by any determination made in
such Proceeding or any compromise or settlement effected by the Seller. If the
Seller Indemnitee shall have reasonably concluded upon advice from counsel that
there may be a conflict of interest between the Seller Indemnitee and the Buyer
or Newco, the Seller Indemnitee shall have the right to defend, contest or
otherwise protect against such Proceeding, provided that if the Seller
--------
Indemnitee shall compromise or settle such claims without consent of Buyer and
Newco, such compromise or settlement shall not bind the Buyer or Newco. If the
Buyer or Newco assumes the defense of any Proceeding, (a) it will be
conclusively established for purposes of this Agreement that the claims made in
that Proceeding are within the scope of and subject to indemnification, (b) no
compromise or settlement of such claims may be effected by the Buyer or Newco
without the Seller Indemnitee's consent unless (i) there is no finding or
admission of any violation of federal, state, local, municipal, foreign,
international, multinational or other administrative order, law, ordinance,
principal of common law, regulation, statute or treaty or
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any violation of the rights of any Person and no effect on any other claims that
may be made against the Seller Indemnitee and (ii) the sole relief provided is
monetary damages that are paid in full by the Buyer or Newco; and (c) the Seller
Indemnitee will have no liability with respect to any compromise or settlement
of such claims effected without its consent. Notwithstanding the above, in the
event of any claim for indemnity under clause 6.3(b) the Seller Indemnitees will
be entitled to retain their own counsel and Buyer will promptly reimburse such
Seller Indemnitees for the reasonable costs and disbursements of such separate
counsel.
ARTICLE VII.
CONDITIONS TO OBLIGATIONS OF THE SELLER AND THE PARENT
The obligations of the Seller and the Parent to consummate the transactions
contemplated by the Transaction Documents are subject to the fulfillment, at or
before the Closing Date of the following conditions, any one or more of which
may be waived by the Parent and the Seller in their sole discretion:
Section 7.1. Representations and Warranties of the Buyer and Newco. All
representations and warranties made by the Buyer and Newco in this Agreement
shall be true and correct in all material respects on and as of the Closing Date
as if again made by the Buyer and Newco on and as of such date, except for any
warranties made with reference to a specific date, which shall be true and
correct as of such specific date.
Section 7.2. Performance of the Obligations of the Buyer and Newco. The
Buyer and Newco shall have performed in all material respects all obligations
required under this Agreement to be performed by them on or before the Closing
Date.
Section 7.3. Consents and Approvals. All consents, waivers,
authorizations and approvals of any governmental or regulatory authority,
domestic or foreign, and of any Person, other than the Seller, the Parent or
their respective subsidiaries or affiliates, required on the Closing Date in
connection with the execution, delivery and performance of the Transaction
Documents shall have been duly obtained and shall be in full force and effect on
the Closing Date.
Section 7.4. No Violation of Orders. No preliminary or permanent
injunction or other order issued by any court or other governmental or
regulatory authority, domestic or foreign, nor any statute, rule, regulation,
decree or executive order promulgated or enacted by any government or
governmental or regulatory authority, domestic or foreign, that declares any of
the Transaction Documents invalid or unenforceable in any respect or which
prevents the consummation of the transactions contemplated hereby shall be in
effect on the Closing Date.
Section 7.5. Registration Rights Agreement. On the Closing Date, the
Buyer and the Seller shall enter into the Registration Rights Agreement in the
form attached hereto as Exhibit D for the registration of the Buyer Common Stock
included in the Share Consideration.
Section 7.6. Buyer Closing Documents. The Buyer shall have delivered to
the Seller or cause Newco to deliver to the Seller the following documents on
the Closing Date:
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(a) the certificates representing the Share Consideration;
(b) a certificate dated the Closing Date of the Secretary of
State of the jurisdiction of incorporation of the Buyer as to its good standing
in such jurisdiction;
(c) the Transaction Documents; and
(d) such other documents, including legal opinions, or
certificates relating to the transactions contemplated by the Transaction
Documents as the Seller reasonably requests.
Section 7.7. Legal Matters. All certificates, instruments, opinions and
other documents required to be executed or delivered by or on behalf of the
Buyer and Newco under the provisions of the Transaction Documents, and all other
actions and proceedings required to be taken by or on behalf of the Buyer and
Newco in furtherance of the transactions contemplated hereby and thereby, shall
be reasonably satisfactory in form and substance to counsel for the Seller.
ARTICLE VIII.
CONDITIONS TO OBLIGATIONS OF THE BUYER AND NEWCO
The obligations of the Buyer to consummate the transactions contemplated by
the Transaction Documents are subject to the fulfillment, at or before the
Closing Date of the following conditions, any one or more of which may be waived
by the Buyer in its sole discretion:
Section 8.1. Representations and Warranties of the Seller and the Parent.
All representations and warranties made by the Seller and the Parent in this
Agreement shall be true and correct in all material respects on and as of the
Closing Date as if again made by the Seller and the Parent on and as of such
date, except for any warranties made with reference to a specific date, which
shall be true and correct as of such specific date.
Section 8.2. Performance of the Obligations of the Seller and the Parent.
The Seller and the Parent shall have performed in all material respects all
obligations required under this Agreement to be performed by them on or before
the Closing Date and the Buyer shall have received a certificate dated the
Closing Date signed by the duly authorized representatives of the Seller and the
Parent to that effect.
Section 8.3. Consents and Approvals. All consents, waivers, authorizations
and approvals of any governmental or regulatory authority, domestic or foreign,
and of any Person, other than the Buyer, Newco or their respective subsidiaries
or affiliates, in connection with the execution, delivery and performance of the
Transaction Documents shall have been duly obtained and shall be in full force
and effect on the Closing Date, subject to the proviso in Section 8.4 hereof.
Section 8.4. No Violation of Orders. No preliminary or permanent
injunction or other order issued by any court or other governmental or
regulatory authority, domestic or foreign, nor
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any statute, rule, regulation, decree or executive order promulgated or enacted
by any government or governmental or regulatory authority, domestic or foreign,
that declares any of the Transaction Documents invalid or unenforceable in any
respect or which prevents the consummation of the transactions contemplated
hereby shall be in effect on the Closing Date; provided that if Buyer or Newco
--------
fail to consummate the transactions contemplated by the Transaction Documents
because of a failure of the conditions specified in Sections 8.3 and 8.4 based
solely upon the entry by the Delaware Court of Chancery in the Chancery Court
Litigation or another court in related litigation of an injunction or other
order barring the Closing, then the parties agree that their contractual rights
under this agreement are not affected.
Section 8.5. Seller Closing Documents. The Seller shall have delivered to
the Buyer or caused the Parent to deliver to the Buyer the following documents
on the Closing Date:
(a) instruments of transfer duly transferring all the Purchased
Interests on the Closing Date with appropriate transfer stamps, if any, affixed
thereto;
(b) a certificate dated the Closing Date of the Secretary of
State of the State of Delaware as to its good standing in such jurisdiction;
(c) copies of the consents, waivers and approvals specified on
Schedule 3.6;
- ------------
(d) the Transaction Documents; and
(e) such other documents, including legal opinions, or
certificates relating to the transactions contemplated by the Transaction
Documents as the Buyer reasonably requests.
Section 8.6. Legal Matters. All certificates, instruments, opinions and
other documents required to be executed or delivered by or on behalf of the
Seller and the Parent under the provisions of the Transaction Documents, and all
other actions and proceedings required to be taken by or on behalf of the Seller
and the Parent in furtherance of the transactions contemplated hereby and
thereby, shall be reasonably satisfactory in form and substance to counsel for
the Buyer.
ARTICLE IX.
TERMINATION
Section 9.1. Conditions of Termination. Notwithstanding anything to the
contrary contained herein, this Agreement may be terminated at any time before
the Closing (a) by mutual consent of the Seller and the Buyer, (b) by the Seller
if the conditions set forth in Section 8 hereof are not satisfied or waived by
the Closing Date, (c) by the Buyer if the conditions set forth in Section 9
hereof are not satisfied or waived by the Closing Date or (d) by any party
hereto that is not in breach of its material obligations hereunder if the
Closing shall not have occurred on or prior to April 30, 2000, provided that the
--------
Buyer and Newco shall not have a right to terminate this Agreement pursuant to
clause (d) if they are prohibited from closing because of a preliminary or
permanent injunction binding on them.
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Section 9.2. Effect of Termination. In the event of termination pursuant
to Section 9.1 hereof, this Agreement shall become null and void and have no
effect, with no liability on the part of the Seller, the Company or the Buyer,
or their respective directors, officers, agents or stockholders, with respect to
this Agreement, except for the (i) liability of a party for expenses pursuant to
Section 11.3 hereof, (ii) liability for any breach of this Agreement and (iii)
Buyer and Newco's indemnification obligations under Section 6.3(b).
Section 9.3. Intentionally Omitted.
ARTICLE X.
MISCELLANEOUS
Section 10.1. Successors and Assigns. Except as otherwise provided in
this Agreement, no party hereto shall assign this Agreement or any rights or
obligations hereunder without the prior written consent of the other parties
hereto and any such attempted assignment without such prior written consent
shall be void and of no force and effect, provided that the Buyer may assign its
rights to a wholly-owned subsidiary. This Agreement shall inure to the benefit
of and shall be binding upon the successors and permitted assigns of the parties
hereto.
Section 10.2. Governing Law; Jurisdiction. This Agreement shall be
construed, performed and enforced in accordance with, and governed by, the laws
of the State of New York, without giving effect to the principles of conflicts
of laws thereof. The parties hereto irrevocably elect as the sole judicial
forum for the adjudication of any matters arising under or in connection with
this Agreement, and consent to the jurisdiction of, the courts of the State of
New York.
Section 10.3. Service of Process. The parties hereto acknowledge and
agree that under this Agreement process may be served, in the case of the Buyer
and Newco, by delivery to CT Corporation, 111 8th Avenue, New York, New York,
10011, in the case of the Seller, the Parent and the Company, by delivery to
Duane, Morris & Heckscher LLP, 380 Lexington Avenue, New York, New York 10168,
Attn: Michael H. Margulis, Esq. or to such other address or to the attention of
such other person in New York City as the parties may provide by notice by given
in accordance with Section 10.6 hereof.
Section 10.4. Expenses; Fees. Except as otherwise provided herein, each
of the parties hereto shall pay its own expenses in connection with this
Agreement and the transactions contemplated hereby, including, without
limitation, any legal and accounting fees, whether or not the transactions
contemplated hereby are consummated.
Section 10.5. Severability. In the event that any part of this Agreement
is declared by any court or other judicial or administrative body to be null,
void or unenforceable, said provision shall survive to the extent it is not so
declared, and all of the other provisions of this Agreement shall remain in full
force and effect.
Section 10.6. Notices. All notices, requests, demands and other
communications under this Agreement shall be in writing and shall be deemed to
have been duly given (i) on the date of
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service if served personally on the party to whom notice is to be given, (ii) on
the day of transmission if sent via facsimile transmission to the facsimile
number given below, and telephonic confirmation of receipt is obtained promptly
after completion of transmission, (iii) on the day after delivery to Federal
Express or similar overnight courier or the Express Mail service maintained by
the U.S. Postal Service or (iv) on the fifth day after mailing, if mailed to the
party to whom notice is to be given, by first class mail, registered or
certified, postage prepaid and properly addressed, to the party as follows:
If to the Seller:
Reading Entertainment, Inc.
One Penn Square West
30 South Fifteenth Street, Suite 1300
Philadelphia, Pennsylvania 19102-4813
Attention: James J. Cotter, Chairman
Facsimile: (215) 569-2862
Copy to:
Potter Anderson & Corroon LLP
Hercules Plaza
1313 N. Market Street
Wilmington, Delaware 19801
Attention: John F. Grossbauer, Esq.
Facsimile: (302) 984-1192
If to the Buyer:
National Auto Credit, Inc.
30000 Aurora Road
Solon, Ohio 44139
Attention: David L. Huber, Chairman of the Board
Facsimile: (440) 349-0442
Copy to:
National Auto Credit, Inc.
30000 Aurora Road
Solon, Ohio 44139
Attention: Raymond A. Varcho, Esq., Vice President,
Secretary and General Counsel
Facsimile: (440) 349-3959
Any party may change its address for the purpose of this Section by giving
the other party written notice of its new address in the manner set forth above.
Section 10.7. Amendments; Waivers. This Agreement may be amended or
modified, and any of the terms, covenants, representations, warranties or
conditions hereof may be waived, only by a written
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instrument executed by the parties hereto, or in the case of a waiver, by the
party waiving compliance. Any waiver by any party of any condition, or of the
breach of any provision, term, covenant, representation or warranty contained in
this Agreement, in any one or more instances, shall not be deemed to be nor
construed as further or continuing waiver of any such condition, or of the
breach of any other provision, term, covenant, representation or warranty of
this Agreement.
Section 10.8. Public Announcements. The parties agree that after the
signing of this Agreement, neither party shall make any press release or public
announcement concerning the transactions contemplated by the Transaction
Documents without the prior written approval of the other parties unless the
disclosing party is advised by counsel that a press release or public
announcement is required by law. If any such announcement or other disclosure
is required by law, the disclosing party agrees to give the nondisclosing
parties prior notice and an opportunity to comment on the proposed disclosure.
Section 10.9. Entire Agreement. The Transaction Documents contain the
entire understanding between the parties hereto with respect to the transactions
contemplated hereby and thereby and supersedes and replaces all prior and
contemporaneous agreements and understandings, oral or written, with regard to
such transactions. All schedules hereto and any documents and instruments
delivered pursuant to any provision hereof are expressly made a part of this
Agreement as fully as though completely set forth herein.
Section 10.10. Parties in Interest. Except for the rights granted to the
Buyer Indemnitees and the Seller Indemnitees in Article VI hereof, nothing in
this Agreement is intended to confer any rights or remedies under or by reason
of this Agreement on any persons other than the Seller, the Parent, the Company,
the Buyer and Newco and their respective successors and permitted assigns.
Nothing in this Agreement is intended to relieve or discharge the obligations or
liability of any third persons to the Seller, the Parent, the Company, the Buyer
or Newco. No provision of this Agreement shall give any third persons any right
of subrogation or action over or against the Seller, the Parent, the Company,
the Buyer or Newco.
Section 10.11. Scheduled Disclosures. Disclosure of any matter, fact or
circumstance in a Schedule to this Agreement shall not be deemed to be
disclosure thereof for purposes of any other Schedule hereto.
Section 10.12. Specific Performance. The parties recognize that the
Purchased Interests and the Company's principal asset, the Angelika Film Center,
are unique and not capable of duplication. Accordingly, without limited or
waiving any rights or remedies the parties may have under this Agreement now or
hereinafter existing at law or in equity or by statute, each of the parties
hereto shall be entitled to seek specific performance by the other of the
obligations to be performed by the other in accordance with the provisions of
this Agreement.
Section 10.13. Section and Paragraph Headings. The section and paragraph
headings in this Agreement are for reference purposes only and shall not affect
the meaning or interpretation of this Agreement.
Section 10.14. Counterparts. This Agreement may be executed in
counterparts, each of which shall be deemed an original, but all of which shall
constitute the same instrument.
41
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on
April 5, 2000.
SELLER:
FA, INC.
By: /s/ S. Craig Tompkins
---------------------
Name: S. Craig Tompkins
Title: Vice Chairman
PARENT:
READING ENTERTAINMENT, INC.
By: /s/ S. Craig Tompkins
---------------------
Name: S. Craig Tompkins
Title: Vice Chairman
BUYER:
NATIONAL AUTO CREDIT, INC.
By: /s/ David L. Huber
------------------
Name: David L. Huber
Title: President Chairman CEO
NEWCO:
NATIONAL CINEMAS, INC.
By: /s/ David L. Huber
------------------
Name: David L. Huber
Title: President
42
<PAGE>
EXHIBIT B
FORM OF REGISTRATION RIGHTS AGREEMENT
REGISTRATION RIGHTS AGREEMENT, dated as of April ____, 2000, between FA,
Inc. d/b/a FA of Delaware (the "Investor")and National Auto Credit, Inc., a
Delaware corporation (the "Company").
RECITALS
--------
WHEREAS, the Investor, an indirect wholly owned subsidiary of Reading
Entertainment, Inc. , a Delaware corporation (the "Parent"), has received or
will receive shares (the "Shares") of Common Stock, par value $0.05 per share,
of the Company (the "Common Stock"), in the amount and subject to the conditions
set forth in the Purchase Agreement, dated as of April ___, 2000, among, the
Investor, the Parent and the Company (the "Purchase Agreement");
WHEREAS, the Company has agreed to grant the Investor certain registration
rights with respect to the Shares; and
WHEREAS, the Company and the Investor desire to define the registration
rights of the Investor on the terms and subject to the conditions herein set
forth.
NOW, THEREFORE, in consideration of the foregoing premises and for other
good and valuable consideration, the parties hereby agree as follows:
1. DEFINITIONS
-----------
As used in this Agreement, the following terms have the respective meanings
set forth below:
"Commission" shall mean the Securities and Exchange Commission or any other
federal agency at the time administering the Securities Act.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as amended,
and the rules and regulations promulgated thereunder.
"Holder" shall mean any holder of Registrable Securities.
"Initiating Holder" shall mean any Holder or Holders of Registrable
Securities aggregating at least 25% of the aggregate number of shares of Common
Stock held by all Holders.
"Person" shall mean an individual, partnership, joint-stock company,
corporation, limited liability company, trust or unincorporated organization,
and a government or agency or political subdivision thereof.
<PAGE>
"register, "registered" and "registration" shall mean a registration
effected by preparing and filing a registration statement in compliance with the
Securities Act (and any post-effective amendments filed or required to be
filed) and the declaration or ordering of effectiveness of such registration
statement.
"Registrable Securities" shall mean the Shares and any additional shares of
Common Stock of the Company issued as a dividend or other distribution with
respect to, or in exchange for or in replacement of, the Shares, until, in the
case of any such securities, (i) a registration statement covering such
securities has been declared effective by the Commission and such securities
have been disposed of pursuant to such effective Registration Statement or
(ii) such securities have been disposed of in open market transactions pursuant
to Rule 144 under the Securities Act (or similar rule then in effect).
"Registration Expenses" shall mean all expenses incurred by the Company in
compliance with Sections 2(a) and (b) hereof, excluding Selling and Legal
Expenses, but including, without limitation, all registration and filing fees,
printing expenses, blue sky fees and expenses and the expense of any special
audits incident to or required by any such registration (but excluding the
compensation of regular employees of the Company, which shall be paid in any
event by the Company).
"Security" and "Securities" shall have the meaning set forth in Section
2(l) of the Securities Act.
"Securities Act" shall mean the Securities Act of 1933, as amended, and the
rules and regulations promulgated thereunder.
"Selling and Legal Expenses" shall mean (x) all underwriting and selling
discounts, fees and commissions applicable to the sale of Registrable Securities
and (y) all reasonable fees and disbursements of counsel retained by the Holders
of the Registrable Securities to be included in a particular registration.
2. REGISTRATION RIGHTS
-------------------
(2) Requested Registration.
----------------------
(a) Request for Registration. If the Company shall receive from
------------------------
an Initiating Holder, at any time after September 30, 2000, a written
request that the Company effect any registration with respect to all or a
part of the Registrable Securities, the Company will:
(A) promptly, but in any event within ten (10) business days
of the receipt of such request, give written notice of the proposed
registration, qualification or compliance to all other Holders; and
(B) as soon as reasonably practicable, but in any event
within 60 days following the receipt of such request, file a
registration statement on an
2
<PAGE>
appropriate form with the Commission and use its reasonable best
efforts to effect such registration (including, without limitation,
the execution of an undertaking to file post-effective amendments,
appropriate qualification under applicable blue sky or other state
securities laws and appropriate compliance with applicable regulations
issued under the Securities Act) as may be so requested and as would
permit or facilitate the sale and distribution of all or such portion
of such Registrable Securities as are specified in such request,
together with all or such portion of the Registrable Securities of any
Holder or Holders joining in such request as are specified in a
written request received by the Company within 10 business days after
written notice from the Company is given under Section
2(a)(i)(A) above; provided that the Company shall not be obligated to
--------
effect, or take any action to effect, any such registration pursuant
to this Section 2(a):
(v) in any particular jurisdiction in which the Company
would be required to execute a general consent to service of process
in effecting such registration, qualification or compliance, unless
the Company is already subject to service in such jurisdiction and
except as may be required by the Securities Act or applicable rules or
regulations thereunder;
(w) with respect to a request for registration of Shares,
after the Company has effected one (1) such registration pursuant to
this Section 2(a) requested by an Initiating Holder and such
registration has been declared or ordered effective and the sales of
such Registrable Securities shall have closed;
(x) if the Registrable Securities requested by all Holders
to be registered pursuant to such request do not have an anticipated
aggregate public offering price (before any underwriting discounts and
commissions) of at least $1,000,000;
(y) if at the time of any request to register Registrable
Securities, the Company is engaged or intends to engage in an
acquisition, financing or other material transaction which, in the
good faith determination of the Board of Directors of the Company,
would be adversely affected by the requested registration to the
material detriment of the Company, or the Board of Directors of the
Company determines in good faith that the registration would require
the disclosure of material information that the Company has a bona
fide business purpose for preserving as confidential, and that the
Company is not otherwise required by applicable securities laws or
regulations to disclose, in which event, the Company may, at its
option, direct that such request be delayed for a period not in excess
of sixty days from the date of the determination by the Board of
Directors, as the case may be, such right to delay a request to be
exercised by the Company not more than once in any twelve-month
period; or
3
<PAGE>
(z) with respect to Holders who are officers, directors or
employees of the Company, if at the time of any request to register
Registrable Securities, directors, officers, or employees of the
Company are not permitted to offer or sell securities in accordance
with the Company's policies.
The registration statement filed pursuant to the request of an
Initiating Holder may, subject to the provisions of Section 2(a)(ii) below,
include other securities, other than Registrable Securities, of the Company
which are held by the other stockholders
("Other Stockholders") of the Company.
The Holders holding a majority of the Registrable Securities requested
to be registered may, at any time prior to the effective date of the
registration statement relating to such registration, revoke such request,
without liability to the Company, such Holders, any of the other Holders or
the Other Stockholders, by providing a written notice to the Company
revoking such request, provided that such revoked request shall count
--------
against the registrations available to the Holders pursuant to Section
2(a)(w) unless such Holders pay the costs and expenses associated with such
revoked request.
(ii) Underwriting. If the Initiating Holders intend to distribute
------------
the Registrable Securities covered by their request by means of an
underwriting, they shall so advise the Company as a part of their request
made pursuant to Section 2(a). If shares held by Other Stockholders are
requested by such Other Stockholders to be included in any registration
pursuant to this Section 2, the Company shall condition such inclusion on
their acceptance of the further applicable provisions of this Section 2.
The Initiating Holders whose Registrable Securities are to be included in
such registration and the Company shall (together with all Other
Stockholders proposing to distribute their securities through such
underwriting) enter into an underwriting agreement in customary form with
the representative of the underwriter or underwriters selected for such
underwriting by such Initiating Holders and reasonably acceptable to the
Company. Notwithstanding any other provision of this Section 2(a), if the
representative advises the Holders in writing that marketing factors
(including, without limitation, pricing considerations) require a
limitation on the number of shares to be underwritten or a limitation on
the inclusion of shares held by directors and officers of the Company, the
securities of the Company held by Other Stockholders shall be excluded from
such registration to the extent so required by such limitation. If, after
the exclusion of such shares, further reductions are still required, the
Registrable Securities of the Company held by each Holder other than the
Initiating Holders shall be excluded from such registration to the extent
so required by such limitation. Thereafter, if still further reductions are
required, the number of Registrable Securities included in the registration
by each Initiating Holder shall be reduced on a pro rata basis (based on
the number of Registrable Securities held by such Initiating Holder), by
such minimum number of Registrable Securities as is necessary to comply
with such request. No Registrable Securities or any other securities
excluded from the underwriting by reason of the underwriter's marketing
limitation shall be included in
4
<PAGE>
such registration. If any Other Stockholder who has requested inclusion in
such registration as provided above disapproves of the terms of the
underwriting, such person may elect to withdraw therefrom by written notice
to the Company, the underwriter and the Initiating Holders. The securities
so withdrawn shall also be withdrawn from registration. If the underwriter
has not limited the number of Registrable Securities or other securities to
be underwritten, the Company and officers and directors of the Company may
include its or their securities for its or their own account in such
registration if the representative so agrees and if the number of
Registrable Securities and other securities which would otherwise have been
included in such registration and underwriting will not thereby be limited.
(iii) Other Registration Rights. The Company shall not grant any
-------------------------
registration rights inconsistent with the provisions of this Section
2(a)and in granting any demand registration rights hereafter shall provide
that the Holders shall have the right to notice of the exercise of any such
demand registration right and to participate in such registration on a pro
rata basis.
(b) Company Registration.
--------------------
(i) If the Company shall determine to register any of its equity
securities either for its own account or for any Other Stockholders, other
than a registration relating solely to employee benefit plans, or a
registration relating solely to a Commission Rule 145 transaction, or a
registration on any registration form which does not permit secondary
sales, the Company will:
(A) promptly give to each of the Holders a written notice
thereof; and
(B) include in such registration (and any related
qualification under blue sky laws or other compliance), and in any
underwriting involved therein, all the Registrable Securities
specified in a written request or requests, made by the Holders
within fifteen (15) days after receipt of the written notice from the
Company described in clause (A) above, except as set forth in Section
2(b)(ii) below.
The Company may terminate, in its sole and absolute discretion, any
registration described in this Section 2 (b) at any time prior to the
effectiveness of the applicable registration statement. Upon such
termination, the Company's obligations under this Section 2(b) with respect
to such terminated registration shall terminate.
(ii) Underwriting. If the registration of which the Company gives
------------
notice is for a registered public offering involving an underwriting, the
Company shall so advise each of the Holders as a part of the written notice
given pursuant to Section 2(b)(i)(A). In such event, the right of each of
the Holders to registration pursuant to this Section 2(b) shall be
conditioned upon such Holders' participation in such underwriting and the
inclusion of such Holders' Registrable Securities in the underwriting to
the extent
5
<PAGE>
provided herein. The Holders whose shares are to be included in such
registration shall (together with the Company and the Other Stockholders
distributing their securities through such underwriting) enter into an
underwriting agreement in customary form with the representative of the
underwriter or underwriters selected for underwriting by the Company.
Notwithstanding any other provision of this Section 2(b), if the
representative determines that marketing factors require a limitation on
the number of shares to be underwritten or a limitation on the inclusion of
shares held by directors and officers of the Company, the representative
may (subject to the allocation priority set forth below) limit the number
of Registrable Securities to be included in the registration and
underwriting to not less than twenty five percent (25%) of the total number
of shares to be included in such underwritten offering, subject to the
Company's compliance with any registration obligations to any Demanding
Holders (as hereinafter defined) participating in such registration. The
Company shall so advise all holders of securities requesting registration,
and the number of shares of securities that are entitled to be included in
the registration and underwriting shall be allocated in the following
manner: The securities of the Company held by officers, directors and Other
Stockholders (other than Registrable Securities and other than securities
held by holders who by contractual right demanded such registration ("
Demanding Holders")) shall be excluded from such registration and
underwriting to the extent required by such limitation, and, if a
limitation on the number of shares is still required, the number of shares
that may be included in the registration and underwriting by each of the
Holders other than the Demanding Holders shall be excluded from such
registration to the extent so required by such limitation. Thereafter, if
still further reductions are required, the number of shares included in the
registration by each of the Demanding Holders shall be reduced, on a pro
rata basis (based on the number of shares held by such Demanding Holders),
by such minimum number of shares as is necessary to comply with such
limitation. If any of the Holders or any officer, director or Other
Stockholder disapproves of the terms of any such underwriting, he may elect
to withdraw therefrom by written notice to the Company and the underwriter.
Any Registrable Securities or other securities excluded or withdrawn from
such underwriting shall be withdrawn from such registration.
(iii) Number and Transferability. Each of the Holders shall be
--------------------------
entitled to have its shares included in two registrations pursuant to this
Section 2(b); provided, however, that notwithstanding anything to the
contrary contained herein, the Holders shall not be entitled to have their
shares registered in the first registered public offering of the Company
occurring within six months of the Closing Date.
(c) Expenses of Registration. All Registration Expenses incurred in
------------------------
connection with any registration, qualification or compliance pursuant to this
Section 2 shall be borne by the Company, and all Selling and Legal Expenses
shall be borne by the Holders of the securities so registered pro rata on the
basis of the number of their shares so registered; provided, however, that if,
as a result of the withdrawal of a request for registration by any of the
Holders, as applicable, the registration statement does not become effective,
the Holders and Other Stockholders requesting registration may elect to bear the
Registration Expenses
6
<PAGE>
(pro rata on the basis of the number of their shares so included in the
registration request, or on such other basis as such Holders and Other
Stockholders may agree), in which case such registration shall not be counted as
a registration pursuant to Section 2(a)(i)(B)(w).
(d) Registration Procedures. In the case of each registration effected by
-----------------------
the Company pursuant to this Section 2, the Company will keep the Holders
holding Registrable Securities requested to be included in such registration
("Participating Holders") advised in writing as to the initiation of each
registration and as to the completion thereof. At its expense, the Company will:
(i) furnish to each Participating Holder, and to any underwriter
before filing with the Commission, copies of any registration statement
(including all exhibits) and any prospectus forming a part thereof and any
amendments and supplements thereto (including, upon request, all documents
incorporated or deemed incorporated by reference therein) prior to the
effectiveness of such registration statement and including each preliminary
prospectus, any summary prospectus or any term sheet (as such term is used
in Rule 434 under the Securities Act)) and any other prospectus filed under
Rule 424 under the Securities Act, which documents, other than exhibits and
documents incorporated or deemed incorporated by reference, will be subject
the review of the Participating Holders and any such underwriter for a
period of at least five business days, and the Company shall not file any
such registration statement or such prospectus or any amendment or
supplement to such registration statement or prospectus to which any
Participating Holder or any such underwriter shall reasonably object within
five business days after the receipt thereof; a Participating Holder or
such underwriter(s), if any, shall be deemed to have reasonably objected to
such filing only if the registration statement, amendment, prospectus or
supplement, as applicable, as proposed to be filed, contains a material
misstatement or omission;
(ii) furnish to each Participating Holder and to any underwriter,
such number of conformed copies of the applicable registration statement
and of each amendment and supplement thereto (in each case including all
exhibits) and such number of copies of the prospectus forming a part of
such registration statement (including each preliminary prospectus, any
summary prospectus or any term sheet (as such term is used in Rule 434
under the Securities Act)) and any other prospectus filed under Rule 424
under the Securities Act, in conformity with the requirements of the
Securities Act, and such other documents, including without limitation
documents incorporated or deemed to be incorporated by reference prior to
the effectiveness of such registration, as each of the Participating
Holders or any such underwriter, from time to time may reasonably request;
(iii) to the extent practicable, promptly prior to the filing of
any document that is to be incorporated by reference into any registration
statement or prospectus forming a part thereof subsequent to the
effectiveness thereof, and in any event no later than the date such
document is filed with the Commission, provide copies of such document to
the Participating Holders, if requested, and to any underwriter, make
7
<PAGE>
representatives of the Company available for discussion of such document
and other customary due diligence matters;
(iv) make available at reasonable times for inspection by the
Participating Holders, any underwriter participating in any disposition
pursuant to such registration and any attorney or accountant retained by
the Holders or any such underwriter, all financial and other records,
pertinent corporate documents and properties of the Company and cause the
officers, directors and employees of the Company to supply all information
reasonably requested by the Participating Holders and any such
underwriters, attorneys or accountants in connection with such registration
subsequent to the filing of the applicable registration statement and prior
to the effectiveness of the applicable registration statement, subject to
the execution of a customary confidentiality agreement;
(v) use its reasonable best efforts (x) to register or qualify
all Registrable Securities and other securities covered by such
registration under such other securities or blue sky laws of such States of
the United States of America where an exemption is not available and as the
sellers of Registrable Securities covered by such registration shall
reasonably request, (y) to keep such registration or qualification in
effect for so long as the applicable registration statement remains in
effect, and (z) to take any other action which may be reasonably necessary
or advisable to enable such sellers to consummate the disposition in such
jurisdictions of the securities to be sold by such sellers, except that the
Company shall not for any such purpose be required to qualify generally to
do business as a foreign corporation in any jurisdiction where it is not so
qualified, or to subject itself to taxation in any such jurisdiction, or to
execute a general consent to service of process in effecting such
registration, qualification or compliance, unless the Company is already
subject to service in such jurisdiction and except as may be required by
the Securities Act or applicable rules or regulations thereunder;
(vi) use its reasonable best efforts to cause all Registrable
Securities covered by such registration statement to be registered with or
approved by such other federal or state governmental agencies or
authorities as may be necessary in the opinion of counsel to the Company
and counsel to the Participating Holders of Registrable Securities to
enable the Holders thereof to consummate the disposition of such
Registrable Securities in accordance with the plan of distribution
described in the applicable registration statement;
(vii) promptly notify each Holder of Registrable Securities covered
by a registration statement (A) upon discovery that, or upon the happening
of any event as a result of which, the prospectus forming a part of such
registration statement, as then in effect, includes an untrue statement of
a material fact or omits to state any material fact required to be stated
therein or necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading, (B) of the
issuance by the Commission of any stop order suspending the effectiveness
of such registration statement or the initiation of proceedings for that
purpose, (C) of any request by the
8
<PAGE>
Commission for (1) amendments to such registration statement or any
document incorporated or deemed to be incorporated by reference in any such
registration statement, (2) supplements to the prospectus forming a part of
such registration statement or (3) additional information, (D) of the
receipt by the Company of any notification with respect to the suspension
of the qualification or exemption from qualification of any of the
Registrable Securities for sale in any jurisdiction or the initiation of
any proceeding for such purpose, and at the request of any such Holder
promptly prepare and furnish to it a reasonable number of copies of a
supplement to or an amendment of such prospectus as may be necessary so
that, as thereafter delivered to the purchasers of such securities, such
prospectus shall not include an untrue statement of a material fact or omit
to state a material fact required to be stated therein or necessary to make
the statements therein, in the light of the circumstances under which they
were made, not misleading;
(viii) use its reasonable best efforts to obtain the withdrawal of
any order suspending the effectiveness of any such registration, or the
lifting of any suspension of the qualification (or exemption from
qualification) of any of the Registrable Securities for sale in any
jurisdiction;
(ix) if requested by a Participating Holder, or any underwriter,
subject to receipt of any required information from such Holder or
underwriter, promptly incorporate in such registration statement or
prospectus, pursuant to a supplement or post-effective amendment if
necessary, such information as the Participating Holder and any underwriter
may reasonably request to have included therein, including, without
limitation, information relating to the "plan of distribution" of the
Registrable Securities, information with respect to the number of shares of
Registrable Securities being sold to such underwriter, the purchase price
being paid therefor and any other terms of the offering of the Registrable
Securities to be sold in such offering and make all required filings of any
such prospectus supplement or post-effective amendment as soon as
practicable after the Company is notified of the matters to be incorporated
in such prospectus supplement or post-effective amendment;
(x) furnish to the Participating Holders, addressed to them, an
opinion of counsel for the Company, dated the date of the closing under the
underwriting agreement, if any, or the date of effectiveness of the
registration statement if such registration is not an underwritten
offering, and use its reasonable best efforts to furnish to the
Participating Holders, addressed to them, a "cold comfort" letter signed by
the independent certified public accountants who have certified the
Company's financial statements included in such registration, covering
substantially the same matters with respect to such registration (and the
prospectus included therein) and, in the case of such accountants' letter,
with respect to events subsequent to the date of such financial statements,
as are customarily covered in opinions of issuer's counsel and in
accountants' letters delivered to underwriters in underwritten public
offerings of securities and such other matters as the Participating Holders
may reasonably request;
9
<PAGE>
(xi) provide promptly to the Participating Holders upon request
any document filed by the Company with the Commission pursuant to the
requirements of Section 13 and Section 15 of the Exchange Act; and
(xii) use its reasonable best efforts to cause all Registrable
Securities included in any registration pursuant hereto to be listed on
each securities exchange on which securities of the same class are then
listed or, if not then listed on any securities exchange, to be eligible
for trading in any over-the-counter market or trading system in which
securities of the same class are then traded.
(e) Indemnification.
---------------
(i) The Company will indemnify each of the Holders, as
applicable, each of its officers, directors and partners, and each person
controlling each of the Holders (within the meaning of the Securities Act),
with respect to each registration which has been effected pursuant to this
Section 2, and each underwriter, if any, and each person who controls any
underwriter, against all claims, losses, damages and liabilities (or
actions in respect thereof) arising out of or based on any untrue statement
(or alleged untrue statement) of a material fact contained in any
preliminary, final or summary prospectus, offering circular or other
document (including any related registration statement, notification or the
like, or any amendment or supplement to any of the foregoing) incident to
any such registration, qualification or compliance, or based on any
omission (or alleged omission) to state therein a material fact required to
be stated therein or necessary to make the statements therein not
misleading, or any violation (or alleged violation) by the Company of the
Securities Act or the Exchange Act or any rule or regulation thereunder or
of any applicable state or common law applicable to the Company and
relating to action or inaction required of the Company in connection with
any such registration, qualification or compliance, and (subject to Section
2(e)(iii)) will reimburse each of the Holders, each of its officers,
directors and partners, and each person controlling each of the Holders,
each such underwriter and each person who controls any such underwriter,
for any legal and any other expenses reasonably incurred in connection with
investigating and defending any such claim, loss, damage, liability or
action, provided that the Company will not be liable in any such case to
the extent that any such claim, loss, damage, liability or expense arises
out of or is based on any untrue statement or omission based upon and in
conformity with written information furnished to the Company by the Holders
or underwriter and stated to be specifically for use therein. The foregoing
indemnification shall remain in effect regardless of any investigation by
any indemnified party and shall survive any transfer or assignment by a
Holder of its Registrable Securities or of its rights pursuant to this
Agreement.
(ii) Each of the Holders will, if Registrable Securities held by
it are included in the securities as to which such registration,
qualification or compliance is being effected, indemnify the Company, each
of its directors and officers and each underwriter, if any, of the
Company's securities covered by such a registration
10
<PAGE>
statement, each person who controls the Company or such underwriter, each
Other Stockholder and each of their officers, directors, and partners, and
each person controlling such Other Stockholder against all claims, losses,
damages and liabilities (or actions in respect thereof) arising out of or
based on any untrue statement (or alleged untrue statement) made by such
Holder of a material fact contained in any such registration statement,
prospectus, offering circular or other document, or any omission (or
alleged omission) made by such Holder to state therein a material fact
required to be stated therein or necessary to make the statements therein
not misleading, and will reimburse the Company and such directors,
officers, partners, persons, underwriters or control persons for any legal
or any other expenses reasonably incurred in connection with investigating
or defending any such claim, loss, damage, liability or action, in each
case to the extent, but only to the extent, that such untrue statement (or
alleged untrue statement) or omission (or alleged omission) is made in such
registration statement, prospectus, offering circular or other document in
reliance upon and in conformity with written information furnished to the
Company by such Holder and stated to be specifically for use therein;
provided, however, that the obligations of each of the Holders hereunder
-------- -------
shall be limited to an amount equal to the net proceeds to such Holder of
securities sold pursuant to such registration statement or prospectus.
(iii) Each party entitled to indemnification under Section 2(e)(the
"Indemnified Party") shall give notice to the party required to provide
indemnification (the "Indemnifying Party") promptly after such Indemnified
Party has actual knowledge of any claim as to which indemnity may be
sought, and shall permit the Indemnifying Party to assume the defense of
any such claim or any litigation resulting therefrom; provided that counsel
for the Indemnifying Party, who shall conduct the defense of such claim or
any litigation resulting therefrom, shall be approved by the Indemnified
Party (whose approval shall not unreasonably be withheld) and the
Indemnified Party may participate in such defense at such party's expense
(unless the Indemnified Party shall have reasonably concluded upon advice
from counsel that there may be a conflict of interest between the
Indemnifying Party and the Indemnified Party in such action, in which case
the reasonable fees and expenses of counsel shall be at the expense of the
Indemnifying Party), and provided further that the failure of any
Indemnified Party to give notice as provided herein shall not relieve the
Indemnifying Party of its obligations under this Section 2 except to the
extent the Indemnifying Party is materially prejudiced thereby. No
Indemnifying Party, in the defense of any such claim or litigation shall,
except with the consent of each Indemnified Party, consent to entry of any
judgment or enter into any settlement which does not include as an
unconditional term thereof the giving by the claimant or plaintiff to such
Indemnified Party of a release from all liability in respect to such claim
or litigation. Each Indemnified Party shall promptly furnish such
information regarding itself or the claim in question as an Indemnifying
Party may reasonably request in writing and as shall be reasonably required
in connection with the defense of such claim and litigation resulting
therefrom.
11
<PAGE>
(iv) If the indemnification provided for in this Section 2(e) is
held by a court of competent jurisdiction to be unavailable to an
Indemnified Party with respect to any loss, liability, claim, damage or
expense referred to herein, then the Indemnifying Party, in lieu of
indemnifying such Indemnified Party hereunder, shall contribute to the
amount paid or payable by such Indemnified Party as a result of such loss,
liability, claim, damage or expense in such proportion as is appropriate to
reflect the relative fault of the Indemnifying Party on the one hand and of
the Indemnified Party on the other in connection with the statements or
omissions which resulted in such loss, liability, claim, damage or expense,
as well as any other relevant equitable considerations, provided, however,
that no Person guilty of fraudulent misrepresentation (within the meaning
of Section 11(f) of the Securities Act) shall be entitled to contribution
from any Person who was not guilty of any such fraudulent
misrepresentation. The relative fault of the Indemnifying Party and of the
Indemnified Party shall be determined by reference to, among other things,
whether the untrue (or alleged untrue) statement of a material fact or the
omission (or alleged omission) to state a material fact relates to
information supplied by the Indemnifying Party or by the Indemnified Party
and the parties' relative intent, knowledge, access to information and
opportunity to correct or prevent such statement or omission.
Notwithstanding the foregoing, no Holder will be required to contribute any
amount pursuant to this paragraph (e) in excess of the total price at which
the Registrable Securities of such Holder were offered to the public (less
underwriting discounts and commissions, if any).
(v) The foregoing indemnity agreement of the Company and Holders
is subject to the condition that, insofar as they relate to any loss,
claim, liability or damage made in a prospectus, preliminary prospectus or
other offering document but eliminated or remedied in an amended
prospectus, preliminary prospectus or other offering document delivered to
an underwriter or Holder, as applicable (the "Final Prospectus"), such
indemnity agreement shall not inure to the benefit of (A) any underwriter
if a copy of the Final Prospectus was furnished to the underwriter and was
not furnished to the person asserting the loss, liability, claim or damage
at or prior to the time such action is required by the Securities Act or
(B) in circumstances where no underwriter is acting as such in the offer
and sale in question, any Holder who (1) either directly or through its
agent provided the preliminary prospectus to the Person asserting the loss,
liability, claim or damage, (2) was furnished with a copy of the Final
Prospectus, and (3) did not furnish or cause to be furnished the Final
Prospectus to the Person asserting the loss, liability, claim or damage at
or prior to the time such action is required by the Securities Act.
(vi) Any indemnification payments required to be made to an
Indemnified Party under this Section 2(e) shall be made as the related
claims, losses, damages, liabilities or expenses are incurred.
(f) Information bv the Holders. Each of the Holders holding securities
--------------------------
included in any registration shall furnish to the Company such information
regarding such Holder and the
12
<PAGE>
distribution proposed by such Holder as the Company may reasonably request in
writing and as shall be reasonably required in connection with any registration,
qualification or compliance referred to in this Section 2. No Investor shall be
required, in connection with any underwriting agreements entered into in
connection with any registration, to provide any information, representations or
warranties, or covenants with respect to the Company, its business or its
operations, and such Investor shall not be required to provide any
indemnification with respect to any registration statement except as
specifically provided for in Section 2(d)(ii) hereof.
(g) Rule 144 Reporting.
------------------
With a view to making available the benefits of certain rules and
regulations of the Commission which may permit the sale of restricted
securities to the public without registration, the Company agrees to:
(i) make and keep public information available as those terms are
understood and defined in Rule 144 under the Securities Act ("Rule 144"),
at all times;
(ii) use its best efforts to file with the Commission in a timely
manner all reports and other documents required of the Company under the
Securities Act and the Exchange Act; and
(iii) so long as the Holder owns any Registrable Securities,
furnish to the Holder upon request, a written statement by the Company as
to its compliance with the reporting requirements of Rule 144 and of the
Securities Act and the Exchange Act, a copy of the most recent annual or
quarterly report of the Company, and such other reports and documents so
filed as the Holder may reasonably request in availing itself of any rule
or regulation of the Commission allowing the Holder to sell any such
securities without registration.
(h) Termination. The registration rights set forth in this Section 2
-----------
shall not be available to any Holder if, in the opinion of counsel to the
Company, all of the Registrable Securities then owned by such Holder could be
sold in any 120-day period pursuant to Rule 144(k)or at such time that no
Registrable Securities are outstanding. The Company will arrange for a provision
to the transfer agent for such shares of an opinion of counsel in connection
with any such sale under Rule 144. The Company shall use its reasonable best
efforts to comply with the requirements of Rule 144 as will enable the Holders
to make sales pursuant to Rule 144.
(i) Assignment. The registration rights set forth in Section 2 hereof may
----------
be assigned, in whole or in part, to any transferee of Registrable Securities
(who shall be considered thereafter to be a Holder and shall be bound by all
obligations and limitations of this Agreement).
(j) The Holders agree that, upon receipt of any notice from the Company
pursuant to Section 2(d)(vii), they shall immediately discontinue the
disposition of Registrable Securities
13
<PAGE>
pursuant to the registration statement applicable to such Registrable Securities
until they have received copies of the amended or supplemented prospectus as
described in Section 2(d)(vii). The Holders shall destroy all copies in their
possession of the registration statement and related materials covering such
Registrable Securities at the time of receipt of the Company's notice.
3. MISCELLANEOUS
-------------
(a) Directly or Indirectly. Where any provision in this Agreement refers
----------------------
to action to be taken by any Person, or which such Person is prohibited from
taking, such provision shall be applicable whether such action is taken directly
or indirectly by such Person.
(b) Governing Law. This Agreement shall be governed by and construed in
-------------
accordance with the laws of the State of New York applicable to contracts made
and to be performed entirely within such State.
(c) Section Headings. The headings of the sections and subsections of
----------------
this Agreement are inserted for convenience only and shall not be deemed to
constitute a part thereof.
(d) Notices.
-------
(i) All communications under this Agreement shall be in writing
and shall be delivered by hand or by facsimile or mailed by overnight
courier or by registered or certified mail, postage prepaid:
(A) If to the Investor:
FA, Inc.
c/o Reading Entertainment, Inc.
One Penn Square West
30 South Fifteenth Street, Suite 1300
Philadelphia, Pennsylvania 19102-4813
Attention: James A. Wunderle, Executive Vice President
Facsimile: (215)569-2862
14
<PAGE>
Copy to:
Potter Anderson & Corroon LLP
Hercules Plaza
1313 N. Market Street
Wilmington, Delaware 19801
Attention: John F. Grossbauer, Esq.
Facsimile: (302)658-l192
If to the Company:
National Auto Credit, Inc.
30000 Aurora Road
Solon, Ohio 44139
Attention: David L. Huber, Chairman of the Board
Facsimile: (440)349-0442
Copy to:
National Auto Credit, Inc.
30000 Aurora Road
Solon, Ohio 44139
Attention: Raymond A. Varcho, Esq., Vice President,
Secretary and General Counsel
Facsimile: (440)349-3959
Any party may change its address for the purpose of this Section by
giving the other party written notice of its new address in the manner set
forth above.
(ii) Any notice so addressed shall be deemed to be given: if
delivered by hand or facsimile, on the date of such delivery; if mailed by
courier, on the first business day following the date of such mailing; and
if mailed by registered or certified mail, on the third business day after
the date of such mailing.
(e) Reproduction of Documents. This Agreement and all documents relating
-------------------------
thereto, including, without limitation, any consents, waivers and modifications
which may hereafter be executed may be reproduced by the parties hereto by any
photographic, photostatic, microfilm, microcard, miniature photographic or other
similar process and the parties hereto may destroy any original document so
reproduced. The parties hereto agree and stipulate that any such reproduction
shall be admissible in evidence as the original itself in any judicial or
administrative proceeding (whether or not the original is in existence and
whether or not such reproduction was made by the Investor in the regular course
of business) and that any enlargement, facsimile or further reproduction of such
reproduction shall likewise be admissible in evidence.
(f) Successors and Assigns. This Agreement shall inure to the benefit of
----------------------
and be binding upon the successors and assigns of each of the parties.
15
<PAGE>
(g) Entire Agreement; Amendment and Waiver. This Agreement constitutes
--------------------------------------
the entire understanding of the parties hereto and supersedes all prior
understanding among such parties. This Agreement may be amended, and the
observance of any term of this Agreement may be waived, with (and only with) the
written consent of the Company and the Holders holding a majority of the then
outstanding Registrable Securities.
(h) Severability. In the event that any part or parts of this Agreement
------------
shall be held illegal or unenforceable by any court or administrative body of
competent jurisdiction, such determination shall not effect the remaining
provisions of this Agreement which shall remain in full force and effect.
(i) Counterparts. This Agreement may be executed in one or more
------------
counterparts, each of which shall be deemed an original and all of which
together shall be considered one and the same agreement.
[Signature page follows]
16
<PAGE>
IN WITNESS WHEREOF, the undersigned have executed this Agreement as of the
date first set forth above.
INVESTOR:
FA, INC.
By:
------------------------
Name:
Title:
COMPANY:
NATIONAL AUTO CREDIT, INC.
By:
------------------------
Name:
Title:
17
<PAGE>
EXHIBIT C
NATIONAL AUTO CREDIT, INC.
LETTERHEAD
April 5, 2000
James J. Cotter, Chairman James J. Cotter, Chairman
Reading Entertainment, Inc. FA, Inc.
One Penn Square West c/o Reading Entertainment, Inc.
30 South Fifteenth Street, Suite 1300 One Penn Square West
Philadelphia, PA 19103-4831 30 South Fifteenth Street, Suite 1300
Philadelphia, PA 19103-4831
Re: Acquisition of Additional 1/3 Membership interest in
Angelika Film Center, LLC
Dear Mr. Cotter:
National Auto Credit, Inc. ("National") and its wholly-owned subsidiary,
National Cinemas, Inc. ("National Cinemas"), have entered into an agreement (the
"Angelika Agreement") with FA, Inc. and Reading Entertainment, Inc. ("RDG" and
collectively with its consolidated subsidiaries, "Reading") to acquire a 50%
membership interest in Angelika Film Centers, LLC ("AFC"). The purpose of this
letter is to set out the terms under which Reading has agreed to grant to
National an option to acquire an Additional 1/3 Membership Interest in AFC.
A. The Option Grant: For good and valuable consideration, the receipt and
----------------
sufficiency of which is hereby acknowledged, Reading does hereby grant to
National that option more specifically described hereinbelow.
B. Exercise Option: National will have a period of forty-five (45) days,
---------------
through and including May 20, 2000 in which to determine whether or not it
wishes to proceed with the acquisition of the 1/3 Membership Interest owned
by Reading that is not subject to the Angelika Agreement (the "Subject
Interest"), for a purchase price of $9,000,000, on substantially the same
terms and conditions set forth in the Angelika Agreement (except as
otherwise provided herein). If National determines that it wishes to
exercise the option, it will give written notice of that election to
Reading within this period. Thereafter, National and Reading will cooperate
and work in good faith to complete the definitive documentation necessary
to complete the transaction, with an intention to close such transactions
within thirty (30) days of the date of such election. Closing shall be
subject to compliance with the Hart-Scott-Rodino Antitrust Improvements
Act.
C. Exclusivity: Reading agrees to deal exclusively with National during the
-----------
term of this
<PAGE>
option, other then its ongoing discussions with Citadel Holding
Corporation.
D. Form and Payment of the Purchase Price: The purchase price of $9,000,000
--------------------------------------
will be paid in full at the Closing by the issuance of the Common Stock of
National, priced at $1.50 per share. In the event that National lacks
sufficient authorized and unissued shares to pay the entire purchase price
in Common Stock, it will pay the balance in cash by wire transfer of
currently available funds. National will grant to Reading registration
rights equivalent to the registration rights granted to Reading pursuant to
the Angelika Agreement.
Sincerely,
/s/ David L. Huber
David L. Huber
Chairman of the Board and
Chief Executive Officer
ACCEPTED AND AGREED
AS OF THIS 5/th/ DAY
OF APRIL, 2000
READING ENTERTAINMENT, INC.
By: /s/ S. Craig Tompkins
------------------------
Its: Vice Chairman
------------------------
2
<PAGE>
EXHIBIT D
NATIONAL AUTO CREDIT, INC.
LETTERHEAD
April 5, 2000
James J. Cotter, Chairman
Reading Entertainment, Inc.
One Penn Square West
30 South Fifteenth Street, Suite 1300
Philadelphia, PA 19103-4831
Re: Acquisition of Domestic Cinema Assets
Dear Mr. Cotter:
As we have discussed, National Auto Credit, Inc. ("National") is interested in
entering into the motion picture exhibition business in the United States
through it wholly-owned subsidiary National Cinemas, Inc. ("National Cinemas").
National and National Cinemas have entered into an agreement (the "Angelika
Agreement") with Reading Entertainment, Inc. ("RDG" and collectively with its
consolidated subsidiaries, "Reading") to acquire a 50% membership interest in
Angelika Film Centers, LLC ("AFC"). The purpose of this letter is to set out the
terms under which Reading has agreed to grant to National an option to acquire
the remainder of Reading's domestic cinema assets.
A. The Option Fee: Promptly following the execution and delivery of this
--------------
letter agreement, National will transfer to Reading the sum of $500,000, in
consideration of the rights granted by Reading to National pursuant to this
letter agreement.
B. The Assets Covered: In consideration of the payment of this fee, National
------------------
will have the option, as described hereinbelow, to acquire the following assets:
1. The City Cinemas Rights: These are the rights held by Reading under
-----------------------
that certain Agreement in Principle between RDG, James J. Cotter and Michael
Forman dated December 2, 1998, a copy of which is appended as Appendix A to this
letter (the "City Cinemas Agreement"), other than the right to acquire the 1/6th
interest in AFC and the right to acquire by merger Off Broadway, Inc. described
in that Agreement in Principle. The purchase price of this asset will be an
amount equal to Reading's transaction costs with respect to such transaction
(including reimbursement of the $1 million deposit previously made by Reading
and which counts as a credit against the option fee specified in the City
Cinemas Agreement).
2. The Domestic Cinema Assets: These include the following cinema assets:
--------------------------
<PAGE>
a) The remaining interest held by Reading in AFC (including the
interest being acquired pursuant to the City Cinemas Agreement);
b) The Angelika Film Center Houston (Houston, Texas);
c) The Reading Mansville 12 (Mansville, New Jersey);
d) The St. Anthony Main (Minneapolis, Minnesota);
e) The Tower Cinema (Sacramento, California)
f) The Angelika Film Center Buffalo (Buffalo, New York); and
g) The Angelika Film Center Dallas (under development in Dallas,
Texas).
Provided, that Reading is currently in negotiations with respect to
the Angelika Film Center Buffalo, and may terminate its rights and
obligations with respect to such cinema complex if it is not satisfied
with the results of such negotiation.
The purchase price of the Domestic Cinema Assets will be as follows:
a) With respect to the remaining interest in AFC, the million;
amount of $13.5
b) With respect to the cinemas at Houston, Mansville, Minneapolis,
Sacramento and Buffalo, the lesser of Reading's historic cost
basis in such assets and the fair market value of such cinemas
(such fair market value to be determined, in the event of dispute
between the parties, by binding arbitration under the rules of
the American Arbitration Association); and
c) With respect to the cinema under development in Dallas, Reading's
cost basis in such asset.
C. Exercise Option: National will have a period of sixty (60) days, through
---------------
and including June 5, 2000 in which to determine whether or not it wishes to
proceed with the acquisition of the City Cinema Rights and the Domestic Cinema
Assets. National shall have the right to extend the sixty (60) day period
provided in the immediately preceding sentence for up to two (2) additional
periods of thirty (30) days, by written notice to Reading given on or before the
expiration of such sixty (60) day period (or extension thereof) accompanied by
payment to Reading of $100,000 in immediately available funds for each such
thirty (30) day extension. If National determines that it wishes to exercise the
option, it will give written notice of that election to Reading within this
period. Thereafter, National and Reading will cooperate and work in good faith
to complete the definitive documentation necessary to complete the transaction,
with an intention to close such transactions within sixty (60) days of the date
of such election. Closing shall be subject to compliance with the Hart-Scott-
Rodino Antitrust Improvements Act.
D. Citadel Offer: In the event that National elects to exercise the Option
-------------
that is the subject of this letter agreement, National will offer to Citadel
Holding Corporation ("Citadel") the right to form a joint venture with National
or National Cinemas (as the case may be) to acquire the City Cinemas Rights and
the Domestic Cinema Assets. The joint venture would be structured as a
2
<PAGE>
Delaware limited liability company, and would be generally on the terms set out
in Appendix B to this letter. Citadel will have until the later of (i) thirty
(30) days following the date on which National offers Citadel such right and
(ii) two (2) business days following the date on which National notifies Citadel
(by coy of its notice to Reading) whether it elects to exercise the option
granted to National by RDG and FA, Inc. by letter of even date herewith to
purchase the additional 1/3 Membership Interest in AFC held by FA, Inc., in
which to elect in writing to accept such offer. Thereafter, if Citadel elects to
accept such offer, National and Citadel will cooperate and work in good faith to
complete the definitive documentation necessary to complete the transaction
within the time periods specified above. If Citadel has elected to participate
in the joint venture and then fails for any reason, other than default by
National or National Cinemas, to close, National will be entitled, at its
option, within ten (10) business days of such default, to revoke through written
notice to Reading, its exercise of the option to acquire the city Cinema Rights
and the Domestic Cinema Assets.
E. Exclusivity: Reading agrees to deal exclusively with National during the
-----------
term of this option; provided, however, that Reading will be entitled to
continue its negotiations with Citadel and to enter into agreements with Citadel
with respect to the City Cinema Rights and the Domestic Cinema Assets, so long
as any agreements entered into with Citadel are entered into subject to the
rights of National under this letter agreement. National also acknowledges and
agrees that Reading may elect to dispose of its interest in the Angelika Film
Center Buffalo separate from this agreement.
F. Return of Option Fee: In the event of failure to close the acquisition of
--------------------
the City Cinemas Rights and the Domestic Cinema Assets due to default on the
part of Reading, National will be entitled to a refund of the option fee. In all
other cases, such fee will be deemed fully earned by Reading upon the execution
and delivery of this letter agreement by Reading.
G. Form and Payment of the Purchase Price: The purchase price will be paid in
--------------------------------------
full at the Closing by wire transfer of currently available funds. In the event
of such a closing, the option fee will be credited to the purchase price
(including any fee paid for the extension thereof).
[THE REMAINDER OF THIS PAGE IS LEFT INTENTIONALLY BLANK.]
3
<PAGE>
Should you have any questions, please feel free to contact me at (440) 349-1000.
Sincerely,
/s/ David L. Huber
David L. Huber
Chairman of the Board and
Chief Executive Officer
ACCEPTED AND AGREED
AS OF THIS 5th DAY
---
OF APRIL, 2000
READING ENTERTAINMENT, INC.
By: /s/ S. Craig Tompkins
--------------------------
Its: Vice Chairman
--------------------------
4
<PAGE>
Exhibit E
Joint Filing Agreement
This Agreement is entered into as of this 17th Day of April, 2000 by an between
Reading Entertainment, Inc. ("Reading"), its wholly owned subsidiary FA, Inc
("FA"), Craig Corporation ("Craig") and Citadel Holding Corporation (Citadel").
It is hereby agreed between the parties hereto that they will make a joint
filing on Schedule 13D with respect to the acquisition by FA of 8,999.900 shares
of the Common Stock, par value $.05 per share, of National Auto Credit, Inc.
Each of the parties understands its obligations under Rule 13d-1(k) with respect
to such a joint filing.
Reading Entertainment, Inc.
By:/s/ S. Craig Tompkins
-------------------------------------
S. Craig Tompkins, Vice Chairman
FA, Inc.
By:/s/ S. Craig Tompkins
-------------------------------------
S. Craig Tompkins, Vice President
Craig Corporation
By:/s/ S. Craig Tompkins
-------------------------------------
S. Craig Tompkins, President
Citadel Holding Corporation
By:/s/ S. Craig Tompkins
-------------------------------------
S. Craig Tompkins,
Vice Chairman and Corporate Secretary
<PAGE>
Schedule 1
----------
Information with respect to the Executive Officers and Directors of FA, Inc. is
- -------------------------------------------------------------------------------
as follows:
- -----------
FA, Inc. ("FA") is a wholly owned subsidiary of Reading Entertainment, Inc.,
("REI" and collectively with its consolidated subscribers "Reading") and is
engaged principally in the business of owning its membership interest in the
Angelika Film Center and in the equipment leasing business. FA's business
address is.103 Springer Building, 3411 Silverside Road, Wilmington, DE 19801.
Set forth below is certain information with respect to the Executive Officers
and Directors of FA. Inc.
Robert F. Smerling: President. Business Address: c/o Reading Entertainment,
Inc. One Penn Square West, 30 S. Fifteenth Street, Suite 1300,
Philadelphia, Pennsylvania 19102. Principal business: Mr. Smerling a
Director and the President of Reading Entertainment, Inc., and of various
of its subsidiaries. Reading is discussed below.
Charles S. Groshon: Vice President and Secretary. Business Address: c/o
Reading Entertainment, Inc. One Penn Square West, 30 S. Fifteenth Street,
Suite 1300, Philadelphia, Pennsylvania 19102. Principal business: Mr.
Groshon is the Vice President of Finance of REI and of various of its
subsidiaries. Reading is discussed below.
James A. Wunderle: Vice President and Treasurer. Business Address: c/o Reading
Entertainment, Inc. One Penn Square West, 30 S. Fifteenth Street, Suite
1300, Philadelphia, Pennsylvania 19102. Principal business: Mr. Wunderle
is the Chief Financial Officer of REI and of various of its subsidiaries.
Reading is discussed below.
George P. Warren, Jr.: Vice President: Business Address: c/o Reading
Entertainment, Inc. One Penn Square West, 30 S. Fifteenth Street, Suite
1300, Philadelphia, Pennsylvania 19102. Principal business: Mr. Warren is
an employee of Reading is discussed below.
S. Craig Tompkins: Vice President. Business Address: c/o Craig Corporation,
550 South Hope Street, Suite 1825, Los Angeles, CA 90071. Principal
business: . Mr. Tompkins is the Vice Chairman and Corporate Secretary of
REI and of various of its subsidiaries, a Director and President of Craig
Corporation ("CC"), and Vice Chairman and Corporate Secretary of Citadel
Holding Corporation ("CHC"). Mr. Tompkins is also a director of G&L
Realty, Inc. (an NYSE listed REIT specializing in health care properties).
Reading, Craig and Citadel are discussed below.
Anthony V. Scoma: Assistant Secretary. c/o Reading Entertainment, Inc. One
Penn Square West, 30 S. Fifteenth Street, Suite 1300, Philadelphia,
Pennsylvania 19102. Principal business: Mr. Scoma is the Financial
Analyst/Office Manager of REI and of various of its subsidiaries. Reading
is discussed below.
Set forth below is certain information with respect to the Executive Officers
- -----------------------------------------------------------------------------
and Directors of Citadel, other than those individuals already discussed above.
- -------------------------------------------------------------------------------
Citadel Holding Corporation ("CHC" and collectively with its consolidated
subsidiaries "Citadel") is principally in the business of owning and managing
its commercial real estate and agricultural assets. CHC's business address is
550 S. Hope Street, Los Angeles, California 90071.
James J. Cotter: Chief Executive Officer and Chairman of the Board. Business
address: c/o Citadel Holding Corporation, 550 S. Hope Street, Suite 1825,
Los Angeles, California 90071. Principal business: Consultant. Mr.
Cotter is the Chairman of the Board of Directors of CHC, CC, and REI and of
various of their subsidiaries, and a director of The Decurion Corporation
(real estate and cinema exhibition). Craig and Reading are discussed below.
<PAGE>
Robert M. Loeffler: Director. Business address: c/o Citadel Holding
Corporation, 550 S. Hope Street, Suite 1825, Los Angeles, California,
90071; Principle business: Director Mr. Loeffler is also a director of CC
and REI. Mr. Loeffler has been a director of PaineWebber Group, Inc. since
1978. Mr. Loeffler is a retired attorney and was Of Counsel to the
California law firm of Wyman Bautzer Kuchel & Silbert from 1987 to March
1991. He was Chairman of the Board, President and Chief Executive Officer
of Northview Corporation from January to December 1987 and a partner in the
law firm of Jones, Day, Reavis & Pogue until December 1986. Mr. Loeffler
is also a director of Advanced Machine Vision Corp. Craig and Reading are
discussed below.
Andrzej J. Matyczynski: Chief Financial Officer of CHC Business address: c/o
Citadel Holding Corporation, 550 S. Hope Street, Suite 1825, Los Angeles,
California, 90071. Principal business: Executive. Mr. Matyczynski is
also the Chief Financial Officer of CC and the Chief Administrative Officer
of REI. Prior to joining the Company, Mr. Matyczynski was the Finance
Director of Beckman Coulter, Inc. Mr. Matyczynski was associated with
Beckman Coulter and its predecessors for more than the past twenty years
and also served as a director of certain Beckman Coulter subsidiaries.
Reading and Craig are discussed herein.
Brett Marsh: Vice President of Real Estate of CHC Business address: c/o
Citadel Holding Corporation, 550 S. Hope Street, Suite 1825, Los Angeles,
California 90071. Principal business: Executive. Mr. Marsh is also Vice
President of Real Estate for Reading. Reading is discussed below.
William C. Soady: Director Business address: c/o Citadel Holding Corporation,
550 S. Hope Street, Suite 1825, Los Angeles, California, 90071. Principle
business: Director. Mr. Soady is self-employed.
Alfred Villasenor Jr.: Director. Business address, c/o Citadel Holding
Corporation, 550 S. Hope Street, Suite 1825, Los Angeles, California 90071;
principal business activity: executive. Mr. Villasenor is the President
and the owner of Unisure Insurance Services, Incorporated, a corporation
specialized in the life, business life and group health insurance business,
which has offices at 2214 Torrance Boulevard, Suite 201, Torrance, CA
90501.
Set forth below is certain information with respect to the Executive Officers
- -----------------------------------------------------------------------------
and Directors of Craig, other than those individuals already discussed above.
- -----------------------------------------------------------------------------
Craig Corporation ("CC" and collectively with its wholly owned subsidiaries
"Craig") is principally in the business of acquiring and holding controlling
interests in other publicly held companies, and providing management and
consulting services to such companies. At the present time, Craig's principal
holdings are equity securities in Reading Entertainment, Inc. and Citadel
Holding Corporation. Craig's business address is 550 S. Hope Street, Los
Angeles, California 90071
Margaret Cotter: Director. Business address: c/o Craig Corporation, 550 S.
Hope Street, Suite 1825, Los Angeles, California 90071. Principal
business: Executive. Ms. Cotter is a member of the New York Bar, and the
Vice President of Cecelia Packing Corporation, a company which is engaged
in the citrus packing and marketing business in California, with offices at
24780 East South Avenue, Orange Cove, California 93646, and a Director of
Big 4 Ranch, Inc., an affiliate of Craig and Reading. Ms. Margaret Cotter
is also the Senior Vice President of Union Square Management, Inc. (live
theater management).
William D. Gould: Director. Business address: c/o Craig Corporation, 550 S.
Hope Street, Suite 1825, Los Angeles, California 90071; principal business:
Attorney with the law firm of Troy & Gould.
<PAGE>
Gerard P. Laheney: Director. Business address: c/o Craig Corporation, 550 S.
Hope Street, Suite 1825, Los Angeles, California 90071.; Principal
business: Executive and financial advisor. Mr. Laheney owns and operates
Aegis Investment Management Company, a financial advisory business located
at 3325 Clubheights, Colorado Springs, CO 80906.
Set forth below is certain information with respect to the Executive Officers an
Directors of Reading, other than those individuals already discussed above.
Reading Entertainment, Inc., ("REI" and collectively with its consolidated
subsidiaries, "Reading") is principally in the business of developing, owning
and operating cinemas in Australia, New Zealand, the United States and Puerto
Rico and of developing, owning and operating cinema based entertainment centers
in Australia and New Zealand
Kenneth S. McCormick: Director. Business Address: c/o One Penn Square West,
30 S. Fifteenth Street, Suite 1300 Philadelphia, Pennsylvania 19102.
Business activity: Director and Investor and Financial Consultant. Mr.
McCormick is self-employed.
Scott A. Braly: Director. Business Address: c/o One Penn Square West, 30 S.
Fifteenth Street, Suite 1300 Philadelphia, Pennsylvania 19102. Business
activity: Director, Investor and Business Executive. Mr. Braly is
currently self-employed.
Ellen M. Cotter: Vice President--Business Affairs. Business address; 950 Third
Avenue, 30th Floor, New York, NY 10022; principal business activity:
Executive.
To the best knowledge of the Filing Parties, none of the above individuals have,
during the last five years, been convicted in a criminal proceeding (excluding
traffic violations or similar misdemeanors). Likewise, to the best knowledge of
the Filing Parties, none of the above individuals was, during the last five
years, a party to a civil proceeding of a judicial or administrative body of
competent jurisdiction and as a result of such proceeding was or is subject to a
judgment, decree or final order enjoining future violations or prohibiting or
mandating activities subject to, federal or state securities laws or finding any
violation with respect to such laws. To the best knowledge of the Filing
Parties, all of the above individuals are citizens of the United Sates of
America.
<PAGE>
Schedule 2
----------
Certificate of Designation
--------------------------
CERTIFICATE OF DESIGNATION, NUMBER, POWERS, PREFERENCES AND
RELATIVE, PARTICIPATING, OPTIONAL AND OTHER SPECIAL RIGHTS AND
THE QUALIFICATIONS, LIMITATIONS, RESTRICTIONS, AND OTHER
DISTINGUISHING CHARACTERISTICS
OF THE
SERIES A CONVERTIBLE PREFERRED STOCK
OF
NATIONAL AUTO CREDIT, INC.
The undersigned hereby certify that:
1. The name of the corporation is National Auto Credit, Inc. (hereinafter
referred to as the "Corporation"), a corporation organized and existing under
the laws of the State of Delaware.
2. The certificate of incorporation of the Corporation, as amended, authorizes
the issuance of two million shares of Preferred Stock, par value $.05 per share,
and expressly vests in the Board of Directors of the Corporation the authority
provided therein to issue any or all of said shares as a class without series,
or if so determined from time to time by the board of directors, either in whole
or in part in one or more series, each series to be expressly designated by
distinguishing number, letter, or title prior to the issuance thereof; and to
designate the number, rights, preferences, privileges and other special rights
and the qualifications, limitations, restrictions, and other distinguishing
characteristics thereof.
3. The Board of Directors of the Corporation, pursuant to the authority
expressly vested in it as aforesaid and pursuant to the provisions of the
Delaware General Corporation Law, has adopted the following resolutions creating
a Series "A" issue of Preferred Stock:
WHEREAS, Article FOURTH of the certificate of incorporation, as amended
(the "Certificate of Incorporation"), authorizes the Corporation to issue
up to 2,000,000 shares of Preferred Stock as a class without series, or if
so determined from time to time by the Board of Directors; either in whole
or in part in one or more series, each series to be expressly designated by
distinguishing number, letter, or title prior to the issuance thereof.
WHEREAS, the Board of Directors is authorized by the Certificate of
Incorporation, to designate the number, rights, preferences, privileges and
other special rights and the qualifications, limitations, restrictions, and
other distinguishing characteristics of one or more series of Preferred
Stock;
WHEREAS, no series of such preferred stock has been previously designated,
and the Corporation now wishes to designate one hundred (100) of such
shares of Preferred Stock to be Series A Convertible Preferred Stock; and
to designate the number, rights, preferences, privileges and other special
rights and the qualifications, limitations, restrictions, and other
distinguishing characteristics of the same;
<PAGE>
NOW, THEREFORE, RE IT RESOLVED, that the Board of Directors hereby fixes
and determines the designation and the number of shares constituting, and
the rights, preferences, privileges and other special rights and the
qualifications, limitations, restrictions and other distinguishing
characteristics of a new series of Preferred Stock, as follows:
1. Designation. The series of preferred stock provided for by this resolution
shall be designated "Series A Convertible Preferred Stock" (hereinafter referred
to as the "Series A Preferred Stock").
2. Authorization. The number of shares constituting the Series A Preferred
Stock shall be one hundred (100) shares having a par value of $0.05 per share.
Such number may not be increased or decreased without the vote or consent of the
holders of a majority of the shares of Series A Preferred stock then
outstanding.
3. Dividends. The holders of the Series A Preferred Stock shall be entitled to
receive such dividends as may be declared and paid from time to time by the
Board of Directors of the Corporation, prior to and in preference to the holders
of Common Stock. For purposes solely of the Series A Preferred Stock's
entitlement to dividends, a share of Series A Preferred Stock shall be treated
as equivalent to a share of the Corporation's Common Stock, subject to
adjustment pursuant to Section 5 hereof, so that the Board of Directors shall
not declare or pay any dividends on the Common Stock unless it shall have
declared and paid prior thereto an equivalent dividend (as adjusted pursuant to
Section 5 hereof).
4. Conversion Rights.
(a) At any time, at the option of the holder, and subject to the
antidilution provisions set forth in Section 5, each share of outstanding
Series A Preferred Stock may be converted into one share of the
Corporation's Common Stock. To exercise this conversion right, the holder
shall deliver written notice to the Corporation stating the number shares
of Series A Preferred Stock which it intends to convert, along with the
certificate or certificates representing the whole number of shares Series
A Preferred Stock which the holder intends to so convert into Common Stock.
(b) Promptly after the surrender of Series A Preferred Stock by the
holder under Section 4 (a) hereof, and receipt thereof by the Corporation,
the Corporation shall issue and deliver, or cause to be issued and
delivered, to the holder a certificate or certificates for the number of
whole shares of Common Stock issuable upon the conversion of such Series A
Preferred Stock. The date of the issuance of such Common Stock shall be the
"Conversion Date." No fractional shares shall be issued upon conversion of
the Series A Preferred Stock into shares of Common Stock; the number of
shares of Common Stock issued upon conversion of the Series A Preferred
Stock shall be rounded to the nearest whole number of shares. To the extent
permitted by law, the conversion shall be deemed to have been effected as
of the close of business on the Conversion Date (or on the next preceding
business day if the Conversion Date is not a business day) and at that time
the rights of the holder of Series A Preferred Stock, as such holder, shall
cease, and the holder of the Series A Preferred Stock shall become the
holder of record shares of Common Stock and shall solely be entitled to the
rights and preferences of the holders of shares of Common Stock.
(c) Notwithstanding anything herein to the contrary, on any liquidation
of the Corporation, the right of conversion of the Series A preferred Stock
shall terminate at the
<PAGE>
close of business on the last full business day before the date fixed for
payment of the amount distributable on the Series A Preferred Stock.
5. Antidilution Rights. The Conversion Price and the number of shares issuable
upon conversion shall be subject to adjustment as follows:
(a) In case the Corporation shall (i) declare a dividend on its Common
Stock payable in shares of its Common Stock, (ii) subdivide its outstanding
shares of Common Stock, into a greater number of shares, (iii) combine its
outstanding shares of Common Stock into a smaller number of shares, or (iv)
issue any shares of its capital stock by reclassification of the Common
Stock (including any such reclassification in connection with a
consolidation or merger in which the Corporation is the continuing
corporation), then, and in each case, the Conversion Price in effect at the
time of the record date for such dividend or of the effective date of such
subdivision, combination or reclassification shall be proportionately
adjusted so that the holder of any shares of the Series A Preferred Stock
surrendered for conversion after such time shall be entitled to receive the
kind and amount of shares such holder would have owned or have been
entitled to receive had such shares of the Series A Preferred Stock been
convened immediately prior to the time of such dividend, subdivision,
combination, or reclassification. Such adjustment shall be made
successively whenever any event listed above shall occur.
(b) In case of any consolidation or merger of the Corporation with or
into any other corporation (other than a consolidation or merger in which
the Corporation is the surviving or continuing Corporation), or in case of
any sale or transfer of all or substantially all of the assets of the
Corporation, the holder of each share of the Series A Preferred Stock,
shall have after such reorganization, classification, consolidation,
merger, sale or transfer, the right to convert such shares of the Series A
Preferred Stock solely into (or redeem such share for, out of funds legally
available for the purpose, as the case may be) the kind and amount of
shares of stock and other securities and property including cash) which
such holder would have been entitled to receive had such share of Series A
Preferred Stock been converted immediately prior to such consolidation,
merger, sale or transfer.
(c) In case the Corporation shall distribute to holders of its Common
Stock shares of its capital stock (other than Common Stock), stock or other
securities of other persons, evidences of indebtedness issued by the
corporation or other persons, assets (excluding cash dividends) or options
or rights (excluding options to purchase and rights to subscribe for Common
Stock or other securities of the corporation convertible into or
exchangeable for Common Stock), then, in each such case, the holders of the
Series A Preferred Stock shall, from and after the distributions of holders
of Common Stock, be entitled upon Conversion to receive the number and kind
of securities such holder would have received if such holder's shares had
been converted immediately prior to the record date for determining holders
of Common Stock entitled to such distribution.
(d) Whenever there is an adjustment in the Conversion Price and/or the
number or kind of securities issuable upon conversion of the Series A
Preferred Stock, as provided herein, the Corporation shall promptly file in
the custody of its Secretary, a certificate signed by an
<PAGE>
officer of the Corporation, showing in detail the facts requiring such
adjustment, the number and kind of securities issuable upon conversion of
Series A Preferred Stock upon such adjustment, and the Conversion Price;
and notice of such adjustment along with a duplicate officers certificate
shall be sent by registered mail, postage paid, to each holder at its
address as it shall appear in the Corporation's Stock Register.
(e) The Corporation will not through any reorganization,
recapitalization, transfer of assets, consolidation merger, dissolution,
issue or sale of securities or any other voluntary action, avoid or modify
or seek to avoid or modify the observance or performance of any of the
terms to be observed or performed hereunder by the corporation, but will at
all times in good faith assist in the carrying out of all the provisions of
this Agreement and in the taking of all such action as may be necessary or
appropriate in order to protect the conversion rights of the holders of
Series A Preferred Stock against impairment.
6. Shares Reserved for Issuance. The Corporation shall at all times reserve
and keep available and free of preemptive rights out of its authorized but
unissued Common Stock, solely for the purpose of effecting the conversion of the
Series A Preferred Stork, such number of shares of Common Stock (or such other
shares or securities as may be required) as shall from time to time be
sufficient to effect the conversion of all outstanding Series A Preferred Stock
and if at any time the number of authorized but unissued shares of Common Stock
(or any such other shares or other securities) shall not be sufficient to effect
the conversion of all then outstanding Series A Preferred Stock, the Corporation
shall take such action as may be necessary to increase the authorized but
unissued shares of Common Stock (or other shares or other securities) to such
number of shares as shall be sufficient for such purposes.
7. Voting Rights.
(a) Except as otherwise provided in this Section 7, the shares of Series
A Preferred Stock shall not, as a single class with the shares of Common
Stock and each share of Series A Preferred Stock shall have as many votes
us the number of shares of Common Stock into which it is convertible as of
the record date relating to a given vote, provided that, to the extent
required by law or by the Corporation's Certificate of Incorporation, in
the case of the election of directors, holders of Series A Preferred Stock
shall be entitled to one vote per share of Series A Preferred Stock without
regard to the number or kind shares into which such shares shall then be
convertible.
(b) So long as any shares of Series A Preferred Stock are outstanding,
each share of Series A Preferred Stock shall be entitled to vote, or to
submit a consent, together with the Common Stock of the Corporation, voting
together as a single class, upon any matter as to which the Common Stock is
entitled to vote or consent as a class under the Corporation's Certificate
of incorporation or under Delaware law. Such consent or vote may be given
in person or by proxy, either in writing without a meeting, or by vote at
any meeting called for the purpose of obtaining such vote.
(c) In addition to the voting rights provided by Sections 7(a) and (b)
above so long as any shares of Series A Preferred Stock are outstanding,
(i) no amendment to the Certificate of Incorporation (except for the
designation of one or more series of Preferred Stock pursuant to Article
FOURTH of the Certificate of Incorporation, which shall not require the
approval of the Series A Preferred Stock if a series so designated does not
rank prior to the Series A Preferred Stock with respect to dividends or on
liquidation) and no amendment to
<PAGE>
the Bylaws of the Corporation by the stockholders of the Corporation may be
effected without the prior vote or written consent of a majority of those
shares of Series A preferred Stock outstanding voting as a class and (ii)
to the extent (if any) permitted by law no director may be removed from the
Board of Directors of the Corporation without the prior vote or written
consent of a majority of those shares of Series A Preferred Stock
outstanding, voting as a class. Such consent or vote may be given in person
or by proxy, either in writing without a meeting, or by vote at any meeting
called for the purpose of obtaining such vote. Each share of Series A
Preferred Stock shall, in either such event be entitled to a single vote or
consent.
8. Redemption Rights. Neither the Corporation nor the holders of Series A
Preferred Stock shall have any redemption rights with respect to the Series A
Preferred Stock except and to the extent that an adjustment in the conversion
rate made pursuant to Section 5 shall require that the Series A Preferred Stock
is convertible (in whole or in part) into cash.
9. Liquidation, Dissolution and Winding Up.
(a) In the event of any liquidation, dissolution or winding up of the
Corporation, whether voluntary or involuntary, each holder of Series A
Preferred Stock shall have the right to receive a distribution of assets of
the Corporation equal to $1.50 per share from any of the Corporation's
assets then available for distribution (i) pari passu with the holders of
any other Series of Preferred Stock and (ii) before any distribution in
connection with the liquidation, dissolution and winding up is made to the
holders of Common Stock, all, in accordance with the Delaware General
Corporation Law. If the assets of the Corporation are not sufficient to pay
in full the liquidation payments payable to the holders of the Series A
Preferred Stock, then the holders of such shares shall share ratably in
such distribution of assets (i) pari passu with the holders of any other
series of Preferred Stock and (ii) before any distributions in connection
with the liquidation, dissolution, and winding up is made to the holders of
Common Stock, all, in accordance with the Delaware General Corporation Law
(b) Whenever the distribution provided for in this Section 9 shall be
payable in property other than cash, the value of such distribution shall
be the fair market value of such property as determined in good faith by
not less than a majority of the directors then serving on the Board of
Directors of the Corporation. A reorganization of the Corporation, or a
consolidation or merger of the Corporation with or into another corporation
or entity or a sale of or other disposition of all or substantially all of
the assets of the Corporation, shall not be treated as a liquidation,
dissolution or winding up of the Corporation within the meaning or this
Section 9.
FURTHER RESOLVED, that the Statements contained in the foregoing
resolutions creating and designating the number, powers, preferences and
relative, optional, participating, and other special rights and the
qualifications, limitations, restrictions, and other distinguishing
characteristics thereof shall, upon the effective date of such series, be
deemed to be included in and be a part of the Certificate of Incorporation
of the Corporation pursuant to the provisions of Section 104 and 151 of the
general Corporate Law of the State of Delaware.
<PAGE>
The foregoing resolutions were duly adopted by the Board of Directors
without the requirement of shareholder action by meeting held on April 5, 2000
pursuant to the Certificate of Incorporation and the provisions of the Delaware
General Corporation Law.
IN WITNESS WHEREOF, National Auto Credit, Inc. has caused this Certificate
Of Designation, Number, Powers, Preferences And Relative, Participating,
Optional And Other Special Rights And The Qualifications, Limitations,
Restrictions, And Other Distinguishing Characteristics Of The Series A
Convertible Preferred Stock Of National Auto Credit, Inc. to be executed by its
duly authorized officer, on this 5th day of April, 2000.
National Auto Credit, Inc.
By: /s/ David Huber
---------------
David Huber, Chairman of the Board
and Chief Executive Officer
<PAGE>
Schedule 3
Purchase in the past 60 days by Citadel Holding Corporation.
--------------------------------------------------------------
All of these transactions were open market purchases.
-----------------------------------------------------
<TABLE>
<CAPTION>
<S> <C> <C>
02/17 15,000 1.13
02/25 2,000 1.01
02/25 2,500 1.01
02/29 2,500 1.01
03/03 1,500 1.10
03/07 13,000 1.125
03/07 2,000 1.125
03/07 5,000 1.125
03/07 5,000 1.125
03/07 7,000 1.125
03/07 8,500 1.125
03/07 1,500 1.125
03/08 1,500 1 125
03/08 1,500 1.11
03/08 2,000 1.12
03/08 4,000 1.125
03/08 5,000 1.12
03/08 8,000 1.11
03/08 10,000 1.125
03/08 18,000 1.125
03/09 5,000 1.10
03/09 15,000 1.10
03/09 20,000 1.10
03/13 1,000 1.10
03/13 24,000 1.10
03/17 2,500 1.00
03/17 20,000 1.00
03/17 5,000 1.00
03/17 5,000 1.00
03/17 10,000 .99
03/21 5,000 1.00
03/21 16,500 1.00
03/23 30,000 1.00
</TABLE>
Purchases in the past 60 days by FA, Inc.
-----------------------------------------
All of the shares were acquired as a part of the Exchange Transaction
---------------------------------------------------------------------
04/05 8,999,900 $1.50
