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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-----------------
FORM 8-K
CURRENT REPORT
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Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): AUGUST 4, 1995
AMERICAN RECREATION CENTERS, INC.
(Exact name of Registrant as specified in charter)
CALIFORNIA 0-2849 94-1441151
(State of other jurisdiction (Commission (I.R.S. Employer
of incorporation) File Number) Identification No.)
11171 SUN CENTER DRIVE, SUITE 120, RANCHO CORDOVA, CA 95741
(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code: (916) 852-8005
NOT APPLICABLE
(Former name or former address, if changed, since last report)
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ITEM 2. ACQUISITION OF DISPOSITION OF ASSETS
On August 4, 1995, the Registrant sold 3,937,000 shares of Common Stock of
The Right Start, Inc. to Kayne, Anderson Investment Management and affiliated
partnerships and persons (collectively, the "Purchasers") pursuant to a Stock
Purchase Agreement dated August 3, 1995 among the Registrant and the Purchasers
(the "Stock Purchase Agreement"), at a purchase price of $3.00 per share, for an
aggregate cash purchase price of $11,811,000. A copy of the Stock Purchase
Agreement is attached hereto as Exhibit 2.1 and incorporated by reference.
Pursuant to the Stock Purchase Agreement, the Registrant acquired options to
purchase up to 400,000 shares of Common Stock of The Right Start, Inc. from the
Purchasers pursuant to Option Certificates substantially in the form attached
hereto as Exhibit 4.1 and incorporated by reference.
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS
(b) PRO FORMA FINANCIAL INFORMATION.
Pro Forma Financial Information is not included. As a result of
the sale of The Right Start, Inc. Common Stock, the Company's
investment in the stock, and the results of operations of the
Right Start, Inc. have been fully reflected as discontinued
operations in the historical financial statements filed in the
Registrant's May 31, 1995 Form 10-K.
(c) EXHIBITS.
Exhibit Number
2.1 Stock Purchase Agreement, dated August 3, 1995 between the
Registrant and Kayne, Anderson Investment Management and certain
of its affiliates.
4.1 Form of Option Certificate for options granted to the Registrant
by the Purchasers for the purchase by the Registrant of an
aggregate of 400,000 shares of Common Stock of The Right Start,
Inc.
10.5 Contract, dated December 20, 1994 for financial advisory services
relative to The Right Start, Inc. between the Company and
Cruttenden & Company.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
AMERICAN RECREATION CENTERS, INC.
Date: August 4, 1995 By: Robert A. Crist
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Robert A. Crist, President
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EXHIBIT INDEX
The following exhibits are attached hereto and incorporated by reference:
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Exhibit
Number
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2.1 Stock Purchase Agreement, dated August 3, 1995 between the Registrant
and Kayne, Anderson Investment Management and certain of its
affiliates.
4.1 Form of Option Certificate for options granted to the Registrant by the
Purchasers for the purchase by the Registrant of an aggregate of
400,000 shares of Common Stock of The Right Start, Inc.
10.5 Contract, dated December 20, 1994 for financial advisory services
relative to The Right Start, Inc. between the Company and Cruttenden &
Company.
</TABLE>
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AMERICAN RECREATION CENTERS, INC.
Sale of
THE RIGHT START, INC.
Common Stock
To
PURCHASERS
Stock Purchase Agreement
Dated as of August 3, 1995
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TABLE OF CONTENTS
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ARTICLE I
PURCHASE AND SALE OF THE SHARES
1.2 The Closing of Purchase and Sale of the Shares.................. 1
1.3 Representations and Warranties by Purchaser..................... 1
(a) Investment................................................. 1
(b) Authorization.............................................. 2
(c) Other...................................................... 3
ARTICLE II
CONDITIONS PRECEDENT TO PURCHASERS' OBLIGATIONS
2.1 Representations and Warranties.................................. 3
2.2 Absence of Litigation........................................... 3
2.3 Performance of Obligations...................................... 3
2.4 Documentation at Closing........................................ 3
2.5 Material Adverse Change......................................... 4
2.6 Consents, Waivers, etc. ........................................ 4
2.7 Hart-Scott-Rodino............................................... 5
2.8 Directors and Officers.......................................... 5
2.9 Administrative Services Agreement............................... 5
2.10 Employment Agreements........................................... 5
2.11 Insurance....................................................... 5
2.12 Audited Financial Statements.................................... 5
2.13 Tax Matters..................................................... 5
2.14 Registration Rights Agreements.................................. 5
2.15 Proceedings..................................................... 5
ARTICLE III
CONDITIONS PRECEDENT TO ARC'S OBLIGATIONS
3.1 Representations and Warranties.................................. 6
3.2 Absence of Litigation........................................... 6
3.3 Performance of Obligations...................................... 6
3.4 Documentation at Closing........................................ 6
3.5 Payment......................................................... 6
3.6 Consents, Waivers, etc. ........................................ 6
3.7 Hart-Scott-Rodino............................................... 6
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
4.1 Representations and Warranties Regarding ARC.................... 7
(a) Organization and Standing of ARC........................... 7
(b) Authority.................................................. 7
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TABLE OF CONTENTS
(Continued)
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(c) Governmental Approvals..................................... 7
(d) Litigation................................................. 7
(e) No Conflicts............................................... 8
(f) Stock Ownership............................................ 8
(g) Securities Act of 1933..................................... 9
(h) No Brokers or Finders...................................... 9
(i) Taxes and Tax Returns...................................... 9
(j) Disclosure................................................. 9
4.2 Representations and Warranties Regarding the Company............ 10
(a) Organization of the Company................................ 10
(b) Books and Records.......................................... 10
(c) Financial Statements....................................... 10
(d) Absence of Changes......................................... 11
(e) Investment Company......................................... 11
(f) Properties................................................. 11
(g) Material Agreements........................................ 11
(h) NASDAQ..................................................... 12
(i) Labor Practices............................................ 12
(j) Intellectual Property...................................... 12
(k) Certain Business Relationships............................. 12
(l) Insurance.................................................. 12
(m) Employment and Related Matters............................. 12
ARTICLE V
OBLIGATIONS PENDING THE CLOSING
5.1 Access.......................................................... 13
ARTICLE VI
OBLIGATIONS AT THE CLOSING
6.1 Exclusivity/Other Offers........................................ 13
6.2 Other Deliveries................................................ 14
ARTICLE VII
NATURE AND SURVIVAL OF REPRESENTATIONS AND WARRANTIES
7.1 Survival of Representations and Warranties...................... 14
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TABLE OF CONTENTS
(Continued)
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ARTICLE VIII
INDEMNIFICATION
8.1 (a) Indemnification by ARC..................................... 14
(b) Indemnification by Purchasers................................... 14
8.2 Claims for Indemnification...................................... 15
8.3 Defense by Indemnifying Party................................... 15
ARTICLE IX
DEFINITIONS AND ACCOUNTING TERMS
9.1 Certain Defined Terms........................................... 15
ARTICLE X
MISCELLANEOUS
10.1 No Waiver; Cumulative Remedies.................................. 16
10.2 Termination..................................................... 16
10.3 Amendments, Waivers and Consents................................ 17
10.4 Addresses for Notices, etc. .................................... 17
10.5 Costs, Expenses and Taxes....................................... 18
10.6 Binding Effect; Assignment...................................... 18
10.7 Prior Agreements................................................ 18
10.8 Severability.................................................... 18
10.9 Governing Law................................................... 18
10.10 Headings........................................................ 18
10.11 Counterparts.................................................... 18
10.12 Further Assurances.............................................. 18
10.13 Confidentiality................................................. 19
10.14 Press Release................................................... 19
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STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE AGREEMENT (the "Agreement") is made and entered into as
of August 3, 1995, by and among the Purchasers listed on Exhibit A hereto
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(singularly "Purchaser" and collectively "Purchasers") and AMERICAN RECREATION
CENTERS, INC., a California corporation ("ARC").
RECITALS
A. ARC desires to sell to Purchasers, and Purchasers desire to purchase
from ARC shares of Common Stock of The Right Start, Inc., a California
corporation (the "Company").
B. ARC is the legal and beneficial holder of 3,937,000 shares of Common
Stock of the Company (the "Shares").
NOW, THEREFORE, in consideration of the mutual promises and agreements
herein, and subject to the terms and conditions hereinafter set forth, the
parties hereby agree as follows:
ARTICLE I
PURCHASE AND SALE OF THE SHARES
1.1 The Shares. Subject to and in reliance upon the representations,
warranties, terms and conditions of this Agreement, ARC hereby agrees to sell,
assign, convey and transfer the Shares for an aggregate purchase price of
$11,811,000 or $3.00 per share to Purchasers in the respective amounts set forth
in Exhibit A hereto ("Cash Purchase Price") plus delivery of Option Certificates
---------
in the form of Exhibit 1.1 hereto.
-----------
1.2 The Closing of Purchase and Sale of the Shares. The purchase and sale
of the Shares shall take place at a closing (the "Closing") to be held at the
office of Stradling, Yocca, Carlson & Rauth, 660 Newport Center Drive, Suite
1600, Newport Beach, California 92660, on August 3, 1995, at 9:00 A.M., or on
such other date and at such time as may be mutually agreed upon. At the Closing,
ARC will deliver a certificate or certificates evidencing the Shares against (a)
wire transfers to the account of ARC in payment of the Cash Purchase Price for
the Shares and (b) delivery to ARC of Option Certificates representing the right
to purchase an aggregate of 400,000 shares of the Common Stock of the Company
(the "Options") held by Purchasers (the "Purchase Price").
1.3 Representations and Warranties by Purchasers.
(a) Investment. Purchasers severally, but not jointly, represent
that:
(i) Purchaser has been advised that the Shares have not been
registered under the Securities Act nor qualified under any state securities
laws.
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(ii) It is Purchaser's intention to acquire the Shares for its
own account and that the Shares are being and will be acquired for the purpose
of investment, it being understood that the right to dispose of such Shares
shall be entirely within the discretion of Purchaser. Purchaser will refrain
from transferring or otherwise disposing of any of the Shares, or any interest
therein, in such manner as to cause ARC to be in violation of the Securities Act
of 1933, as amended or applicable state securities or blue sky laws.
(iii) Purchaser is able to bear the economic risk of an
investment in the Shares acquired by it through Purchaser pursuant to this
Agreement and can afford to sustain a total loss on such investment.
(iv) Purchaser is an experienced and sophisticated investor, is
able to fend for itself in the transactions contemplated by this Agreement, and
has such knowledge and experience in financial and business matters that it is
capable of evaluating the risks and merits of acquiring the Shares. Purchaser
has had, during the course of this transaction and prior to its purchase of the
Shares, the opportunity to ask questions of, and receive answers from, the
Company and its management concerning the Company and of ARC and its management
concerning the Company and the terms and conditions of this Agreement. Purchaser
hereby acknowledges that it or its representatives have received all such
information as it considers necessary for evaluating the risks and merits of
acquiring the Shares and for verifying the accuracy of any information furnished
to it or to which it had access. Purchaser represents and warrants that the
nature and amount of its investment in connection with the purchase of the
Shares is consistent with its investment objectives, abilities and resources.
(v) Purchaser is an "accredited investor" for purposes of
Regulation D promulgated by the Securities and Exchange Commission under
the Securities Act and not counted for purposes of Section 25102(f) of the
California Corporate Securities Law of 1968.
(vi) Purchaser acknowledges that the certificates representing
the Shares shall contain the following legend:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933; THEY HAVE BEEN ACQUIRED BY THE
HOLDER FOR INVESTMENT AND MAY NOT BE PLEDGED, HYPOTHECATED, SOLD, TRANSFERRED OR
OTHERWISE DISPOSED OF EXCEPT AS MAY BE AUTHORIZED UNDER THE SECURITIES ACT OF
1933 AND THE RULES AND REGULATIONS PROMULGATED THEREUNDER.
(b) AUTHORIZATION. Each Purchaser for itself further represents that:
(i) It has duly authorized, executed and delivered this
Agreement and any other agreements and instruments executed in connection
herewith.
(ii) This Agreement and such other agreements and instruments
constitute the valid and binding obligations of Purchaser enforceable against it
in accordance with their respective terms.
2
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(iii) No consent or approval of any Person is required in
connection with the execution, delivery and performance of this Agreement and
such other agreements and instruments by Purchaser which has not heretofore been
obtained.
(iv) Execution and performance of this Agreement shall not
result in a material default of other agreements or instruments by Purchaser.
(c) Other. Purchaser represents that no Person has or will have, as a
result of the transactions contemplated by this Agreement, any right, interest
or valid claim upon or against ARC or the Company for any commission, fee or
other compensation as a finder or broker because of any act or omission by
Purchaser, and Purchaser agrees to indemnify and hold ARC harmless against any
such commissions, fees or other compensation.
ARTICLE II
CONDITIONS PRECEDENT TO PURCHASERS' OBLIGATIONS
The obligation of Purchasers to purchase and pay for the Shares are subject
to the fulfillment, at or before the Closing, of each of the following
conditions (all or any of which may be waived in whole or in part by Purchaser
in its sole discretion, provided that any such waiver, to be effective, must be
in writing and signed by Purchaser):"
2.1 Representations and Warranties. Each of the representations and
warranties of ARC set forth in Article IV hereof shall be true in all material
respects on the date of the Closing (other than those made as of a specified
date earlier than the date of the Closing), and any representation or warranty
made as of a specified date earlier than the date of Closing shall have been
true in all material respects on and as of such earlier date.
2.2 Absence of Litigation. Absence of litigation, whether brought against
ARC, Purchaser or the Company, seeking to prevent the consummation of the
transactions contemplated by this Agreement, and no such litigation shall have
been threatened nor shall there be in effect any order restraining or
prohibiting the consummation of the transactions contemplated by this Agreement
nor any proceedings pending with respect thereto. There shall be no pending or
threatened litigation, or asserted or unasserted claims, assessments, or other
loss contingencies, materially affecting the Company, its business, assets or
future prospects, other than as disclosed in the Disclosure Letter delivered
pursuant hereto as of the date of this Agreement.
2.3 Performance of Obligations. ARC shall have performed and complied,
in all material respects, with all covenants, conditions and obligations
required by this Agreement to have been performed by ARC at or prior to the
Closing.
2.4 Documentation at Closing. Purchaser shall have received prior to or
at the Closing all of the following, each in form and substance satisfactory to
Purchaser and its special counsel, and all of the following events shall have
occurred prior to or simultaneous with the Closing hereunder:
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(a) A copy of all charter documents of the Company certified by the
Secretary of State of California, a certified copy of the resolutions of the
Board of Directors and, if required, the shareholders of ARC, evidencing
approval of this Agreement, and other matters contemplated hereby, a certified
copy of the bylaws of the Company, and certified copies of all documents
evidencing other necessary corporate or other action and governmental approvals,
if any, with respect to this Agreement and the Shares.
(b) An opinion of Stradling, Yocca, Carlson & Rauth, a Professional
corporation, securities counsel for ARC, as to such matters as counsel to the
parties may reasonably request.
(c) A certificate of the Secretary or an Assistant Secretary of ARC
stating the names of the officers of ARC authorized to sign this Agreement, the
stock assignment separate from certificate for transfer of the Common Stock and
the other documents or certificates to be delivered pursuant to this Agreement
by ARC or any of its officers, together with the true signatures of such
officers. Purchaser may conclusively rely on such certificate until it shall
receive a further certificate of the Secretary or Assistant Secretary of ARC
cancelling or amending the prior certificate and submitting the signatures of
the officers named in such further certificate.
(d) A certificate from the Chief Executive Officer of ARC stating that
the representations and warranties of ARC contained in Article IV hereof and
otherwise made by ARC in writing in connection with the transactions
contemplated hereby are true and correct as of the date hereof and as of the
date of Closing, as if such representations and warranties were made on the date
of Closing and that all conditions required to be performed by ARC prior to or
at the Closing have been performed, and that no condition or event has occurred
or is continuing or will result from the execution and delivery of this
Agreement, which is a breach of a material term hereof or would constitute a
breach of a material term hereof but for the requirement that notice be given or
time elapse or both.
(e) Stock Certificates representing the Shares together with stock
assignments separate from the certificates with signatures thereon shall be
delivered by ARC on or prior to the Closing.
2.5 Material Adverse Change. There shall not have been, subsequent to the
balance sheet of the Company dated May 31, 1995, any material adverse change in
the financial condition of the business of the Company, or its assets,
liabilities, business, results of operations, prospects or customer, supplier or
employee relations, other than changes occurring in the normal course of
business of the Company.
2.6 Consents, Waivers, etc. Prior to the Closing, Purchasers and ARC shall
have obtained all consents or waivers listed on the Disclosure Letter, and all
other consents and waivers, if any, necessary to execute and deliver this
Agreement, sell the Shares and to carry out the transactions contemplated hereby
and thereby, and all such consents and waivers shall be in full force and
effect. All corporate and other action and governmental filings necessary to
effectuate the terms of this Agreement and other agreements and instruments
executed and delivered by ARC in connection herewith shall have been made or
taken, except for any post-sale filing that may be required under federal and
state securities laws.
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2.7 Hart-Scott-Rodino. Prior to the Closing, any waiting period (and any
extension thereof) applicable to the consummation of any of the transactions
contemplated hereby, including, without limitation, the sale of the securities
of the Company to Purchaser under the Hart-Scott-Rodino Antitrust Improvements
Act of 1976, as amended and the rules and regulations thereunder, shall have
expired or been terminated.
2.8 Directors and Officers. All members of the board of directors of the
Company immediately prior to the Closing (other than Stanley M. Fridstein and
Lenny M. Targon) shall have tendered their resignations as directors and
officers of the Company, effective at the Closing, and Richard A. Kayne and
Jerry R. Welch shall have been duly appointed to serve as members of the board
of directors of the Company, effective at the Closing.
2.9 Administrative Services Agreement. The Company and ARC shall have
entered an agreement relating to the continuation of certain services performed
by ARC under the Administrative Services Agreement dated August 23, 1991 (the
"Administrative Services Agreement"), which agreement shall be reasonably
satisfactory in form and substance to Purchasers.
2.10 Employment Agreements. The existing employment agreements between the
Company and each of Stanley M. Fridstein and Lenny M. Targon shall have been
modified, and such agreements, as modified, shall be reasonably satisfactory in
form and substance to Purchasers.
2.11 Insurance. The Company shall have received documentation, reasonably
satisfactory in form and substance to Purchasers, stating that the Company's
existing insurance policies will remain in full force and effect after the date
of the Closing and until such time as such policies can be replaced on
commercially reasonable terms.
2.12 Audited Financial Statements. The Purchasers shall have received true
and complete copies of the audited balance sheet of the Company as of May 31,
1995, and the related audited consolidated statement of operations,
shareholders' equity and cash flows for the fiscal year then ended, together
with a true and correct copy of the report on such audited information by Price
Waterhouse LLP, and all letters from such accountants with respect to the
results of such audits.
2.13 Tax Matters. The Company and ARC shall have entered an agreement
relating to State income taxes, which agreement shall be reasonably satisfactory
in form and substance to Purchasers.
2.14 Registration Rights Agreements. The Company and Purchasers shall have
entered into a Registration Rights Agreement relating to the Shares, which
agreement shall be reasonably satisfactory in form and substance to Purchasers.
2.15 Proceedings. All proceedings to be taken on the part of ARC in
connection with the transactions contemplated by this Agreement and all
documents incident thereto shall be reasonably satisfactory in form and
substance to Purchasers, and Purchasers shall have received copies of all such
documents and other evidences as Purchasers may reasonably request in order to
establish the consummation of such transactions and the taking of all
proceedings in connection therewith.
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ARTICLE III
CONDITIONS PRECEDENT TO ARC'S OBLIGATIONS
The obligations of ARC to consummate the sale of the Shares to Purchasers
at the Closing, and of ARC to perform its other obligations under this Agreement
shall be subject to the fulfillment, or the waiver by ARC, at or prior to the
Closing, of each of the following conditions (provided that any such waiver, to
be effective, must be in writing and signed by ARC):
3.1 Representations and Warranties. Each of the representations and
warranties made by Purchasers in Section 1.3 hereof shall be true in all
material respects on the date of the Closing (other than those made as of a
specified date earlier than the date of the Closing) and any representation or
warranty made as of a specified date earlier than the date of Closing shall have
been true in all material respects on and as of such earlier date.
3.2 Absence of Litigation. Absence of litigation, whether brought against
the Company, Purchasers or ARC seeking to prevent the consummation of the
transactions contemplated by this Agreement, and no such litigation shall have
been threatened nor shall there be in effect any order restraining or
prohibiting the consummation of the transactions contemplated by this Agreement
nor any proceedings pending with respect thereto. There shall be no pending or
threatened litigation, or asserted or unasserted claims, assessments, or other
loss contingencies, materially affecting the Company, its business, assets or
future prospects, other than as disclosed in the Disclosure Letter delivered
pursuant hereto as of the date of this Agreement.
3.3 Performance of Obligations. Purchasers collectively shall have
performed and complied, in all material respects, with all of their
covenants, conditions and obligations required by this Agreement to be performed
or complied with by them at or prior to the Closing.
3.4 Documentation at Closing. ARC shall have received prior to or at the
Closing, an executed Option Certificate representing the right to purchase the
number of shares of the Company's Common Stock set forth opposite each
Purchaser's name on Exhibit A hereto, in the form of Exhibit 1.1 hereto.
--------- -----------
3.5 Payment. ARC shall have received payment in full, from all of the
Purchasers, for the Shares, of the Cash Purchase Price in the amount and in the
form set forth in Section 1.1 hereof.
-----------
3.6 Consents, Waivers, etc. Prior to the Closing, Purchasers and ARC shall
have obtained all consents or waivers, if any, necessary to execute and deliver
this Agreement, to purchase the Shares and to carry out the transactions
contemplated hereby and thereby, and all such consents and waivers shall be in
full force and effect. All corporate and other action and governmental filings
necessary to effectuate the terms of this Agreement and other agreements and
instruments executed and delivered by Purchasers and ARC in connection herewith
shall have been made or taken, except for any post-sale filing that may be
required under federal and state securities laws.
3.7 Hart-Scott-Rodino. Prior to the Closing, any waiting period (and any
extension thereof) applicable to the consummation of any of the transactions
contemplated hereby, including, without limitation, the acquisition of the
Shares from ARC, under the Hart-Scott-Rodino Antitrust
6
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Improvements Act of 1976, as amended and the rules and regulations thereunder,
shall have expired or been terminated.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
4.1 Representations and Warranties Regarding ARC. ARC represents and
warrants to Purchaser that:
(a) Organization and Standing of ARC. ARC is a duly organized and
validly existing corporation in good standing under the laws of the jurisdiction
in which it is organized and has all requisite corporate power and authority to
execute and deliver this Agreement and the other agreements contemplated herein
to which it is a party (the "ARC Agreements") and to perform its obligations
hereunder and thereunder and to consummate the transactions contemplated hereby
and thereby, including without limitation to own, hold, sell and transfer
(pursuant to this Agreement) the Shares.
(b) Authority. The execution and delivery by ARC of this Agreement
and the other ARC Agreements, and the performance by ARC of its obligations
hereunder and thereunder, have been duly and validly authorized by the Board of
Directors of ARC, no other corporate action on the part of ARC or its
shareholders being necessary. This Agreement has been duly and validly executed
and delivered by ARC and constitutes, and upon the execution and delivery by ARC
of the other ARC Agreements will constitute, legal, valid and binding
obligations of ARC enforceable against ARC in accordance with their terms.
(c) Governmental Approvals. No authorization, consent, approval,
license, exemption of or filing or registration with any court or governmental
department, commission, board, bureau, agency or instrumentality, domestic or
foreign, is or will be necessary for, or in connection with the execution or
delivery by ARC of, or for the performance by it of its obligations under, this
Agreement, except for filings to be made, if any, to comply with exemptions from
registration or qualification under federal and state securities laws.
(d) Litigation. Except as disclosed on the Disclosure Letter, (a)
there is no litigation or governmental proceeding or investigation pending or
threatened against ARC or the Company, or, to the knowledge of ARC, against any
officer or Key Employee of the Company that (i) might call into question the
validity of this Agreement, any of the Shares, or any action taken or to be
taken pursuant hereto or (ii) if determined adversely to ARC or the Company or
such officer or Key Employee, could reasonably be expected to result in (x) any
injunction or other equitable relief against the Company that would interfere in
any material respect with its business or operations or (y) material losses by
the Company; (b) to the best knowledge of ARC, there are no facts or
circumstances that could reasonably be expected to give rise to any litigation
or proceeding that would be required to be disclosed pursuant to clause (a)
above; and (c) there are no orders of any governmental or regulatory authority
outstanding against the Company known to ARC. To the best knowledge of ARC,
prior to the execution of this Agreement, the Company has delivered to
Purchasers all responses of counsel for the Company to auditors' requests for
information delivered in connection with the audited financial statements
(together with any updates provided by such
7
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counsel) regarding litigation or proceedings pending or threatened against,
relating to or affecting the Company.
(e) No Conflicts. The execution and delivery by ARC of this
Agreement do not, and execution and delivery by ARC of the ARC Agreements,
the performance by ARC of its obligations under this Agreement and such ARC
Agreements and the consummation of the transactions contemplated hereby
and thereby will not: (a) conflict with or result in a violation or breach of
any of the terms, conditions or provisions of the articles of incorporation or
by-laws of ARC; (b) subject to obtaining the consents, approvals and actions,
making the filings and giving the notices disclosed in the Disclosure Letter,
conflict with or result in a violation or breach of any term or provision of any
law or order applicable to ARC or to the knowledge of ARC, the Company, or any
of their respective assets and properties; or (c) except as disclosed in the
Disclosure Letter, (i) conflict with or result in a violation or breach of, (ii)
constitute (with or without notice or lapse of time or both) a default under,
(iii) require ARC or to the knowledge of ARC, the Company, to obtain any
consent, approval or action of, make any filing with or give any notice to any
Person as a result or under the terms of, (iv) result in or give to any Person
any right of termination, cancellation, acceleration or modification in or with
respect to, (v) result in or give to any Person any additional rights or
entitlement to increased, additional, accelerated or guaranteed payments under,
or (vi) result in the creation or imposition of any lien upon ARC or to the
knowledge of ARC, the Company, or any of their respective assets and properties
under, any material agreement or license to which ARC or to the knowledge of
ARC, the Company, is a party or by which any of their respective assets
and properties is bound.
(f) Stock Ownership. ARC is, and at the Closing will be, the sole
owner, beneficially and of record, of the Shares, free and clear of all claims,
liens, encumbrances, security interests, pledges, options, charges, restrictions
and defects in title of any nature whatsoever (collectively, "Liens") other
than restrictions imposed by federal and applicable state securities laws which
do not constitute an impediment to the transfer described in this Agreement. ARC
has not, and as of the Closing it shall not have, granted or sold, and ARC is
not, and at the time of Closing will not be, a party to any agreement,
commitment or understanding, written or oral, providing for the grant or sale
of, options or other rights to purchase or restricting the transfer of, and is
not, and at the Closing will not be, obligated to sell or otherwise transfer,
any of the Shares to any person or entity except to Purchaser. The outstanding
shares of Common Stock have been duly authorized, validly issued, fully paid and
are nonassessable and will not be subject to any preemptive or similar right.
The description of the Common Stock in the Company's most recent Annual Report
on Form 10-K ("Annual Report") is, and as of the date of the Closing will be,
complete and accurate in all respects. Except as set forth in the most recent
Financial Statements, the Company does not have outstanding, and as of the date
of the Closing will not have outstanding, any options to purchase, or any rights
or warrants to subscribe for, or any securities or obligations convertible into,
or any contracts or commitments to issue or sell, any shares of Common Stock,
any shares of capital stock of any subsidiary or any such warrants, convertible
securities or obligations. The delivery of a certificate or certificates after
the Closing representing the Shares in the manner provided in Section 1.2 will
transfer to Purchasers good and valid title to the Shares, free and clear of any
pledge, security liens. Except as set forth in the Disclosure Letter, there are
no contracts, agreements or understandings between the Company and any person
granting to any person the right to require the Company to file a registration
statement under the Securities Act with respect to any securities of the Company
owned or to be owned by such person or to require the Company to include such
securities in any other registration statement under the Securities Act.
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(g) Securities Act of 1933. ARC has complied with all applicable
federal and state securities laws in connection with the sale of the Shares.
Neither ARC nor anyone acting on its behalf has offered or will offer to sell
the Shares, or similar securities to, or solicit offers with respect thereto
from, or enter into any preliminary conversations or negotiations relating
thereto with, any Person, so as to bring the sale of the Shares under the
registration provisions of the Securities Act of 1933, as amended (the
"Securities Act").
(h) No Brokers or Finders. Except as set forth on the Disclosure
Letter, ARC has not taken any action nor failed to take any action and knows of
no such act or omission by any Person, which would give rise to any right,
interest or valid claim against or upon the Company or ARC for any commission,
fee or other compensation as a finder or broker as a result of the transactions
contemplated by this Agreement.
(i) Taxes and Tax Returns.
(i) Except as disclosed on the Disclosure Letter: (i) ARC and the
Company do not file consolidated income tax returns with the Internal Revenue
Service pursuant to the Internal Revenue Code of 1986, as amended (the "Code");
(ii) ARC and the Company do file combined income tax returns in the State of
California, and such Tax Returns (as hereinafter defined) have been duly filed
and the Taxes due thereunder have been duly paid, and there are no assessments
or claims for payment of Taxes now pending or, to the knowledge of ARC,
threatened, nor is there any audit of the records of the Company being made or,
to the knowledge of ARC, threatened by the California Franchise Tax Board; and
(iii) each Tax Return previously filed by ARC with the California Franchise Tax
Board for itself and the Company, or to be filed in the future relating to any
period up to the date of Closing, is or will be (as the case may be) correct and
complete in all material respects.
(ii) For purposes of this Agreement, the term "Tax" or "Taxes"
means any federal, state, local, or foreign income, gross receipts, license,
payroll, employment, excise, severance, stamp, occupation, premium, windfall
profits, environmental (including taxes under Code Section 59A), customs
duties, capital stock, franchise profits, withholding, social security,
unemployment, disability, real property, personal property, sales, use,
transfer, registration, value added, alternative or add-on minimum, estimated,
or other tax of any kind whatsoever, including any interest, penalty, or
addition thereto, whether disputed or not.
(iii) For purposes of this Agreement, the term "Tax Return" means
any return, declaration, report, claim for refund, or information return or
statement relating to Taxes, including any schedule or attachment thereto, and
including any amendment thereof.
(j) Disclosure. ARC knows of no material facts relating to the
business, condition (financial or otherwise), results of operations, assets and
properties and prospects of the Company that have not been disclosed to the
Purchasers in or in connection with this Agreement. To ARC's knowledge, no
representation or warranty contained in this Agreement, and no statement
contained in the Disclosure Letter or in any certificate, list or other writing
furnished to Purchasers by ARC (including without limitation the Company's
periodic reports filed with the Securities and Exchange Commission and its
audited and unaudited financial statements) contains any untrue statement of a
material fact or omits to state a material fact necessary in order to make the
statements herein or therein, in the light of the circumstances under which they
were made, not misleading;
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provided that no representation or warranty is made with respect to any
--------
projections or forecasts which may have been delivered to Purchasers by the
Company. Best knowledge for purposes of this Section is intended to indicate
that no information that would give ARC current actual knowledge of the
inaccuracy of such statement has come to ARC's attention. Information in the
possession of other employees, directors or officers of the Company shall only
be deemed received by ARC if actually received by an authorized officer of ARC
and knowledge of such information shall not simply be inferred from the fact
that ARC or its officers are either an officer or director, or that ARC is a
shareholder, of the Company.
4.2 Representations and Warranties Regarding the Company. ARC makes the
following representations to its knowledge based upon its involvement on the
Board of Directors and as an owner of a majority of the Common Stock of the
Company:
(a) Organization of the Company. The Company is a corporation duly
organized, validly existing and in good standing under the laws of the State of
California, and has full corporate power and authority to conduct its business
as and to the extent now conducted and to own, use and lease its assets and
properties. The Company is duly qualified, licensed or admitted to do business
and is in good standing in those jurisdictions specified in the Disclosure
Letter, which are the only jurisdictions in which the ownership, use or leasing
of its assets and properties, or the conduct or nature of its business, makes
such qualification, licensing or admission necessary, except for those
jurisdictions in which the adverse effects of all such failures by the Company
to be qualified, licensed or admitted and in good standing can in the aggregate
be eliminated without material cost or expense by the Company becoming qualified
or admitted and in good standing. ARC or the Company has prior to the execution
of this Agreement delivered to Purchasers true and complete copies of the
articles of incorporation and by-laws of the Company as in effect on the date
hereof. The Company has no Subsidiaries.
(b) Books and Records. The minute books and other similar records of
the Company as made available to Purchaser prior to the execution of this
Agreement contain a true and complete record, in all material respects, of all
action taken at all meetings and by all written consents in lieu of meetings of
the shareholder, the boards of directors and committees of the boards of
directors of the Company. Except as set forth in the Disclosure Letter, the
Company has none of its books and records recorded, stored, maintained, operated
or otherwise wholly or partly dependent upon or held by any means (including any
electronic, mechanical or photographic process, whether computerized or not)
which (including all means of access thereto and therefrom) are not under the
exclusive ownership and direct control of the Company.
(c) Financial Statements. Prior to the execution of this Agreement,
ARC or the Company has delivered to Purchasers true and complete copies of the
following financial statements: (a) the audited balance sheets of the Company
and its consolidated subsidiaries as of the fiscal years ended in May 1995, 1994
and 1993 (the "Financial Statements"), and the related audited consolidated
statements of operations, shareholders' equity and cash flows for each of the
fiscal years then ended, together with a true and correct copy of the report on
such audited information by Price Waterhouse, and all letters from such
accountants with respect to the results of such audits; and (b) the unaudited
balance sheets of the Company contained in the Company's quarterly reports filed
with the Securities and Exchange Commission since May 1993 and the related
unaudited consolidated statements of operations, shareholders' equity and cash
flows contained in such reports. Except as set forth in the notes thereto and as
disclosed in the Disclosure Letter, all such financial statements (i) were
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prepared in accordance with generally accepted accounting principles ("GAAP"),
(ii) fairly present the consolidated financial condition and results of
operations of the Company as of the respective dates thereof and for the
respective periods covered thereby, and (iii) were compiled from the books and
records of the Company regularly maintained by management and used to prepare
the financial statements of the Company in accordance with the principles stated
therein. The Company has maintained its books and records in a manner sufficient
to permit the preparation of financial statements in accordance with GAAP, such
books and records fairly reflect, in all material respects, the income,
expenses, assets and liabilities of the Company and the books and records
provided a fair and accurate basis for the preparation of the audited financial
statements and the unaudited financial statements.
(d) Absence of Changes. Subsequent to the respective dates as of
which information is given in the most recent Financial Statements and prior to
the Closing Date, except as set forth in or contemplated herein and in the
Disclosure Letter, (i) there has not been and will not have been any change
in the capitalization of the Company, or any material adverse change in the
business, properties, business prospects, condition (financial or otherwise) or
results of operations of the Company, arising for any reason whatsoever, (ii)
the Company has not incurred nor will it incur any material liabilities or
obligations, direct or contingent, nor has it entered into nor will it enter
into any material transactions other than pursuant to this Agreement and the
transactions referred to herein or in the Disclosure Letter and (iii) the
Company has not and will not have paid or declared any dividends or other
distributions of any kind on any class of its capital stock. For purposes of
this subparagraph, the term "capitalization" shall mean all amounts properly
included in shareholders' equity under GAAP, excluding increases or decreases in
retained earnings for results from operations subsequent to the date of such
information presented in the most recent Financial Statements.
(e) Investment Company. The Company is not an "investment company"
or an "affiliated person" of, or "promoter" or "principal underwriter" for, an
"investment company," as such terms are defined in the Investment Company Act of
1940, as amended.
(f) Properties. The Company has good and marketable title to all
properties and assets described in the most recent Annual Report and Financial
Statements as owned by it, of all Liens, except such as are described therein
or in the Disclosure Letter or are not material to the business of the Company
or as do not materially affect the aggregate value of such property and real
interests taken as a whole and do not materially interfere with the use made and
proposed to be made of such property and interests by the Company. The Company
has valid, subsisting and enforceable leases for the properties described in its
most recent Annual Report and Financial Statements as leased by it, with such
exceptions as are not material and do not materially interfere with the use made
and proposed to be made of such properties by the Company.
(g) Material Agreements. Except as set forth in the Disclosure
Letter, there is no document or contract of a character required to be described
in the Company's Annual Report for the fiscal year ended May 31, 1995 which is
not described or filed in the Company's most recent Annual Report or subsequent
Quarterly Report on Form 10-Q. All such contracts to which the Company is a
party have been duly authorized, executed and delivered by the Company,
constitute valid and binding agreements of the Company and are enforceable
against the Company in accordance with the terms thereof.
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(h) NASDAQ. The Shares are eligible for quotation on the Nasdaq
National Market.
(i) Labor Practices. The Company is not engaged in any unfair labor
practice which could have a material adverse effect on the business, properties,
business prospects, condition (financial or otherwise) or results of operations
of the Company. There is (1) no unfair labor practice complaint pending, or to
the best knowledge of ARC, threatened against the Company before the National
Labor Relations Board, and no grievance or arbitration proceeding arising out of
or under collective bargaining agreements is pending or threatened (2) no
strike, labor dispute, slowdown or stoppage pending or threatened against the
Company and (3) no union representation question existing with respect to the
employees of the Company and no union organizing activities are taking place and
there has been no violation of any federal, state, local or foreign law relating
to discrimination in the hiring, promotion, or pay of employees, or any
applicable wage or hour laws, nor any provisions of the Employee Retirement
Income Security Act of 1974 ("ERISA") or the rules and regulations promulgated
thereunder.
(j) Intellectual Property. The Company owns, or is licensed or
otherwise has the full exclusive right to use, all material trademarks and trade
names which are used in or necessary for the conduct of its business. No claims
have been asserted by any person to the use of any such trademarks or trade
names or challenging or questioning the validity or effectiveness of any such
trademark or trade name. The use, in connection with the business and operations
of the Company of such trademarks or trade names does not infringe on the rights
of any person.
(k) Certain Business Relationships. Except as disclosed in the
Company's most recent Proxy Statement, there are no business relationships or
related party transactions required to be disclosed therein by Item 404 of
Regulation S-K promulgated under the Securities Act.
(l) Insurance. Except as set forth on the Disclosure Letter, the
Company maintains insurance covering its properties, operations, personnel and
businesses. Such insurance insures against losses and risks to an extent which
is adequate in accordance with customary industry practice to protect the
Company and its business. All such insurance is outstanding and duly in force on
the date hereof and will be outstanding and duly in force as of the Closing.
(m) Employment and Related Matters. The Disclosure Letter sets forth
all employee bonus, profit sharing, pension, savings, stock option, stock-based,
medical, disability, insurance, severance or vacation plans, deferred
compensation, health or welfare, or other plans or policies providing employee
benefits of any kind whatsoever maintained by the Company in which any employee
or former employee of the Company has participated or under which any of them
has accrued and remains entitled to any rights. All reports relating to such
plans and policies required by law to have been filed have been timely and
correctly filed, and all plans and policies have been operated in compliance
with all applicable laws. The Company is not a contributing employer to any
"multi-employer plan" as such term is defined in Section 3(37) or Section
4001(a)(3) of ERISA.
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ARTICLE V
OBLIGATIONS PENDING THE CLOSING
Between the date hereof and the Closing, unless this Agreement is
terminated sooner, pursuant to Section 10.2 hereof:
5.1 Access. ARC shall cause the Company to give Purchasers and their
counsel, accountants and other authorized representatives from and after the
date of execution of this Agreement, on prior request therefor from Purchasers
or such representatives, such access to the premises, employees, agents and
consultants of the Company, and such copies of the Company's financial
statements, books and records, and contracts and leases and other documentation,
so as to enable Purchaser to inspect and evaluate all aspects of the business
and operations, assets, operating results, financial condition, future
prospects, capitalization, ownership, and legal and regulatory affairs of the
Company and to verify the accuracy of the information heretofore furnished to
Purchasers and the representations and warranties made in this Agreement, by ARC
with respect to the foregoing matters. ARC agrees that it will take no action to
prevent or delay the Company from furnishing all information reasonably
requested by Purchasers. Purchasers agree to conduct their review in a manner
designed to minimize any disruption of the Company's operations. All information
and records obtained by Purchasers pursuant to this Agreement shall be
maintained as confidential prior to the Closing and shall not be disclosed to
any third party prior to the Closing without the prior written consent of the
Company and ARC, except (i) in response to legal process, (ii) to the extent
required to comply with applicable law, or (iii) to the extent disclosed to any
bank, finance company or other lender or investor in connection with the
financing of the transactions contemplated by this Agreement. Purchasers shall
not be obligated to maintain as confidential any information obtained from the
Company which is publicly available, readily from public sources, known to it at
the time the information was disclosed, or which was rightly obtained from a
third party.
ARTICLE VI
OBLIGATIONS AT THE CLOSING
6.1 Exclusivity/Other Offers. Unless and until this Agreement has been
terminated in accordance with Section 10.2 below, neither the Company nor ARC,
nor any of their respective representatives, agents, officers, directors,
shareholders, partners or employees, will take directly or indirectly any action
to solicit, encourage or accept offers from, provide information or assistance
to, or negotiate or enter into any agreement or understanding (written or oral)
with, any other person or entity regarding (i) the sale, merger, public offering
of securities of or reorganization of the Company; (ii) the sale or other
disposition of, or the granting of any security interest, lien or encumbrance
on, any of the Shares; or (iii) any other transaction which would cause or
result in any change, other than of an immaterial nature, in or adversely affect
the business or the Shares or otherwise interfere with the consummation of the
transactions contemplated herein. If ARC or the Company (or any such Person
acting for or on their behalf) receives from any Person any offer, inquiry or
informational request referred to above, ARC will promptly advise such Person,
by written notice, of the terms of this Section 6.1 and will promptly, orally
and in writing, advise Purchasers of such offer, inquiry or request and deliver
a copy of such notice to Purchasers.
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6.2 Other Deliveries. At the Closing, the parties hereto shall also
execute and deliver all agreements and instruments referred to in Articles II,
III and otherwise provided herein.
ARTICLE VII
NATURE AND SURVIVAL OF REPRESENTATIONS AND WARRANTIES
7.1 Survival of Representations and Warranties. Notwithstanding any right
of Purchasers (whether or not exercised) to investigate the affairs of the
Company or any right of any party (whether or not exercised) to investigate the
accuracy of the representations and warranties of the other party contained in
this Agreement, ARC and Purchasers have the right to rely fully upon the
representations, warranties, covenants and agreements of the other contained in
this Agreement. The representations, warranties, covenants and agreements of ARC
and Purchasers contained in this Agreement will survive the Closing (a)
indefinitely with respect to the representations and warranties contained in
Section 4.1(f), (b) until sixty (60) days after the expiration of all applicable
statutes of limitation (including all periods of extension, whether automatic or
permissive) with respect to matters covered by Section 4.1(i), and (c) until six
(6) months after the date of the Closing in the case of all other
representations and warranties.
ARTICLE VIII
INDEMNIFICATION
8.1 (a) Indemnification by ARC. Subject to the limitations set forth in
this Article VIII, ARC shall indemnify and hold harmless Purchasers and their
respective officers, directors, employees, successors and assigns in respect of
any and all claims, actions, suits or other proceedings and any and all losses,
costs, expenses, liabilities, fines, penalties, interest and damages, whether or
not arising out of any claim, action, suit or other proceeding (and including
reasonable counsel and accountants' fees and expenses and all other reasonable
costs and expenses of investigation, defense or settlement of claims and amounts
paid in settlement) ("Damages") incurred by, imposed on or borne by Purchasers
resulting from the breach of any of the representations or warranties made by
ARC in Section 4 of this Agreement subject to the terms of Section 7.1 herein or
resulting from litigation brought by a third party relating to the transactions
contemplated by this Agreement.
(b) Indemnification by Purchasers. Subject to the limitations set
forth in this Article VIII, each Purchaser, severally and not jointly, shall
indemnify and hold harmless ARC and its respective officers, directors,
employees, successors and assigns in respect of any and all claims, actions,
suits or other proceedings and any and all Damages incurred by, imposed on or
borne by ARC resulting from the breach of any representations or warranties made
by the Purchaser in Section 1.3 of this Agreement subject to the terms of
Section 7.1 herein.
(c) Damages shall exclude any amount with respect to which ARC,
Purchasers or the Company, as the case may be, shall be entitled to receive and
shall have received payment under any insurance policy which provides coverage
for the liability to which such amount relates.
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8.2 Claims for Indemnification. Whenever any claim shall arise for
indemnification hereunder, the party to be indemnified hereunder ("Indemnified
Party") shall promptly notify the party with the obligation of indemnification
("Indemnifying Party") of the claim and, when known, the facts constituting the
basis for such claim; provided that the Indemnified Party's failure to give such
notice shall not affect any rights or remedies of the Indemnified Party
hereunder with respect to indemnification for Damages except to the extent that
the Indemnifying Party is materially prejudiced thereby. In the event of any
claim for indemnification hereunder resulting from or in connection with any
claim or legal proceedings by a third party, the notice to the Indemnifying
Party shall specify, if known, the amount or an estimate of the amount of the
liability arising therefrom. The Indemnified Party shall not settle or
compromise any claim by a third party for which they are entitled to
indemnification hereunder, without the prior written consent of the Indemnifying
Party (which shall not be unreasonably withheld) unless suit shall have been
instituted against them and the Indemnifying Party shall not have taken control
of such suit after notification thereof as provided in Section 8.3 of this
Agreement.
8.3 Defense by Indemnifying Party. In connection with any claim
giving rise to indemnity hereunder or resulting from or arising out of any
claim or legal proceeding by a person who is not a party to this Agreement, the
Indemnifying Party, at its sole cost and expense may, upon written notice to the
Indemnified Party, assume the defense of any such claim or legal proceeding if
it acknowledges to the Indemnified party in writing its obligation to indemnify
the Indemnified Party with respect to all elements of such claim, and thereafter
diligently conduct the defense thereof with counsel reasonably acceptable to the
Indemnified Party. The Indemnified Party shall be entitled to participate in
(but not control) the defense of any such action with its counsel and at its own
expense. If the Indemnifying Party does not assume or fail to conduct in a
diligent manner the defense of any such claim or litigation resulting therefrom,
(a) the Indemnified Party may defend against such claim or litigation, in such
manner as it may deem appropriate, including, but not limited to, settling
such claim or litigation, after giving notice of the same to the Indemnifying
Party, on such terms as the Indemnified Party may deem appropriate, and (b) the
Indemnifying Party shall be entitled to participate in (but not control) the
defense of such action, with its counsel and at its own expense. Each party
agrees to cooperate fully with the other, such cooperation to include, without
limitation, attendance at depositions and the provision of relevant documents as
may be reasonably requested by the Indemnifying Party, provided that the
Indemnifying Party will hold the Indemnified Party harmless from all of its
expenses, including reasonable attorneys' fees, incurred in connection with such
cooperation by the Indemnified Party.
ARTICLE IX
DEFINITIONS AND ACCOUNTING TERMS
9.1 Certain Defined Terms. As used in this Agreement, the following
terms shall have the following meanings (such meanings to be equally applicable
to both the singular and plural forms of the terms defined):
"Agreement" means this Stock Purchase Agreement as from time to
time amended and in effect between the parties.
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"ARC" means and shall include American Recreation Centers, Inc., a
California corporation, and its successors and assigns.
"Board of Directors" shall mean the then present members of the Board
of Directors of ARC.
"Company" means and shall include The Right Start, Inc., a California
corporation, and its successors and assigns.
"Common Stock" includes the Company's Common Stock, no par value, as
authorized on the date of this Agreement.
"Key Employee" means and includes the Chairman of the Board of
Directors, the President, any Vice-President and the Chief Financial Officer of
the Company or any Subsidiary, or any person who is not an officer of the
Company or any Subsidiary and is in charge of one or more of the following
functions: sales, marketing, production, or engineering and technical
development or any other position or employee so designated by the Board of
Directors of the Company or any employee with access to the confidential
information of the Company.
"Person" means an individual, corporation, partnership, joint venture,
trust, or unincorporated organization, or a government or any agency or
political subdivision thereof.
"Securities Act" means the Securities Act of 1933, as amended, or any
similar Federal statute, and the rules and regulations of the Securities and
Exchange Commission (or of any other Federal agency then administering the
Securities Act) thereunder, all as the same shall be in effect at the time.
"Subsidiary" or "Subsidiaries" means any corporation, 50% or more of
the outstanding voting stock of which shall at the time be owned by the Company
or by one or more Subsidiaries, or any other entity or enterprise, 50% or more
of the equity of which shall at the time be owned by the Company or by one or
more Subsidiaries.
ARTICLE X
MISCELLANEOUS
10.1 No Waiver; Cumulative Remedies. No failure or delay on the part of
any party hereto in exercising any right, power or remedy hereunder shall
operate as a waiver thereof; nor shall any single or partial exercise of any
such right, power or remedy hereunder. The remedies herein provided are
cumulative and not exclusive of any remedies provided by law.
10.2 Termination. This Agreement may be terminated prior to the Closing
(i) by the mutual consent of the parties hereto; (ii) by ARC if there has been a
material misrepresentation or material breach on the part of Purchaser in the
representations and warranties of Purchasers set forth herein, which, if
curable, has not been cured within 10 business days after notice thereof by ARC;
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(iii) by Purchasers if there has been a material misrepresentation or material
breach on the part of ARC in the representations, warranties and covenants of
ARC set forth herein, which, if curable, has not been cured within 10 business
days after notice thereof by Purchasers; (iv) by ARC upon delivery to Purchasers
of a written notice if any event occurs which renders impossible of satisfaction
one or more of the conditions to ARC's obligations contained in Article III
hereof and noncompliance is not waived by ARC; (v) by Purchasers upon delivery
to ARC of a written notice if any event occurs which renders impossible of
satisfaction one or more of the conditions to Purchasers' obligations contained
in Article II hereof and noncompliance is not waived by Purchasers; (vi) by ARC
if in the exercise of its fiduciary obligation to the ARC shareholders the Board
of Directors determines it must accept an offer to sell the Shares to a third
party; and (vii) by anyone, if the Closing does not occur by August 15, 1995 for
any reason. Upon termination of this Agreement, no party shall have any further
obligations or liability hereunder; provided, however, in the event of any
termination of this Agreement (other than pursuant to subsections (i), (ii),
(iv) or (vii) of this Section 10.2) ARC shall reimburse Purchaser for its
expenses (including without limitation legal fees and disbursements) incurred in
connection with investigation, preparation, negotiation, execution and attempted
completion of this Agreement incurred from July 18, 1995 through the effective
date of such termination, provided such reimbursement amount in no event shall
exceed $75,000. Sections 10.2, 10.5, 10.13 and 10.14 alone shall survive the
termination of this Agreement.
10.3 Amendments, Waivers and Consents. Any provision in this Agreement to
the contrary notwithstanding, changes in or additions to this Agreement may be
made, and compliance with any covenant or provision herein or therein set forth
may be omitted or waived in writing by both parties hereto. Any waiver or
consent may be given subject to satisfaction of conditions stated therein and
any waiver or consent shall be effective only in the specific instance and for
the specific purpose for which given.
10.4 Addresses for Notices, etc. Any notices and other communications
required or permitted under this Agreement shall be effective if in writing and
delivered personally or sent by telecopier, Federal Express or registered or
certified mail, postage prepaid, addressed as follows:
If to ARC, to: American Recreation Centers, Inc.
11171 Sun Center Drive, Suite 120
Rancho Cordova, California 95670-6113
Attention: Robert A. Crist,
Chief Executive Officer
Telecopier: (916) 852-8004
with a copy to: Bruce Feuchter, Esq.
Stradling, Yocca, Carlson & Rauth
660 Newport Center Drive, Suite 1600
Newport Beach, California 92660
Telecopier: (714) 725-4100
If to Purchasers, to: The names and addresses on Exhibit A hereto.
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with a copy to: Eric H. Schunk, Esq.
Milbank, Tweed, Hadley & McCloy
601 South Figueroa, 30th Floor
Los Angeles, California 90017
Telecopier: (213) 629-5063
Unless otherwise specified herein, such notices or other communications
shall be deemed effective (a) on the date delivered, if delivered personally,
(b) two business days after being sent, if sent by Federal Express, (c) one
business day after being sent, if sent by telecopier with confirmation of good
transmission and receipt, and (d) three business days after being sent, if sent
by registered or certified mail. Each of the parties herewith shall be entitled
to specify another address by giving notice as aforesaid to each of the other
parties hereto.
10.5 Costs, Expenses and Taxes. Except as provided in Section 10.2 hereof,
all parties shall pay all their own costs and expenses incurred in connection
with the investigation, preparation, execution and delivery of this Agreement,
the Shares and other instruments and documents to be delivered hereunder and the
transactions contemplated hereby and thereby, including the fees and
out-of-pocket expenses of legal counsel, whether or not this transaction is
completed. In the event a conflict should arise between the parties the
prevailing party shall recover its attorney's fees including all costs and
expenses in connection with such dispute from the losing party.
10.6 Binding Effect; Assignment. This Agreement shall be binding upon and
inure to the benefit of ARC and Purchasers, and their respective successors and
assigns, except that no party shall have the right to assign its rights
hereunder or any interest herein without the prior written consent of the other
parties.
10.7 Prior Agreements. This Agreement constitutes the entire agreement
between the parties and supersedes any prior understandings or agreements
concerning the subject matter hereof.
10.8 Severability. The invalidity or unenforceability of any provision
hereto shall in no way affect the validity or enforceability of any other
provision.
10.9 Governing Law. This Agreement shall be governed by, and construed in
accordance with, the laws of the State of California.
10.10 Headings. Article, Section and subsection headings in this Agreement
are included herein for convenience of reference only and shall not constitute a
part of this Agreement for any other purpose.
10.11 Counterparts. This Agreement may be executed in any number of
counterparts, all of which taken together shall constitute one and the same
instrument, and any of the parties hereto may execute this Agreement by signing
any such counterpart.
10.12 Further Assurances. From and after the date of this Agreement, upon
the request of Purchasers or ARC, the other party shall execute and deliver such
instruments, documents and other writings as may be necessary or desirable to
confirm and carry out and to effectuate fully the intent and purposes of this
Agreement and the Securities.
18
<PAGE>
10.13 Confidentiality. Until the date of Closing, any information relating
to the terms of this Agreement and the transactions contemplated hereby shall be
treated as confidential and shall not be disclosed, by any of the parties
hereto, to a third party without the consent of the Board of Directors of ARC
and the Company and the mutual consent of a majority in interest of Purchasers.
10.14 Press Release. No party hereto shall release a press release to this
Agreement or any of the transactions or documents contemplated hereby without
first submitting a copy of such press release to the other parties hereto and
obtaining the prior approval of such other parties to any such press release,
which approval shall not be unreasonably withheld.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their respective officers thereunto duly authorized, as of the date
first above written.
"ARC"
AMERICAN RECREATION CENTERS, INC.,
a California corporation
By: /s/ ROBERT A. CRIST
----------------------------------------
Robert A. Crist, Chief Executive Officer
19
<PAGE>
"PURCHASERS"
ARBCO ASSOCIATES, L.P.
KAYNE, ANDERSON NON-TRADITIONAL
INVESTMENTS L.P.
OPPORTUNITY ASSOCIATES, L.P.
OFFENSE GROUP ASSOCIATES, L.P.
By: KAIM Non-Traditional, L.P., its General
Partner
By: Kayne, Anderson Investment Management,
Inc., its General Partner
By: /s/ JERRY R. WELCH
-------------------------------------
Jerry R. Welch, Senior Vice President
/s/ ALBERT O. NICHOLAS
-------------------------------------
Albert O. Nicholas
By: /s/ FRED KAYNE
-------------------------------------
Fred Kayne
PRIMERICA LIFE INSURANCE COMPANY
By: /s/ HARVEY P. EISEN
-------------------------------------
Name: Harvey P. Eisen
Title: Senior Vice President/Investments
20
<PAGE>
EXHIBIT A
<TABLE>
<CAPTION>
Right Start Amount Right Start
Purchaser Shares of Cash Shares Subject
Name and Address Purchased Purchase Price to Option
---------------- ----------- -------------- ---------------
<S> <C> <C> <C>
Arbco Associates, L.P. 682,360 $2,047,080 69,328
1800 Avenue of the Stars
Suite 1425
Los Angeles, CA 90067
Kayne, Anderson Non-Traditional 999,170 $2,997,510 101,516
Investments, L.P.
1800 Avenue of the Stars
Suite 1425
Los Angeles, CA 90067
Opportunity Associates, L.P. 170,590 $ 511,770 17,332
1800 Avenue of the Stars
Suite 1425
Los Angeles, CA 90067
Offense Group Associates, L.P. 584,880 $1,754,640 59,424
1800 Avenue of the Stars
Suite 1425
Los Angeles, CA 90067
Albert O. Nicholas 500,000 $1,500,000 50,800
Nicholas Co., Inc.
700 North Water Street
Milwaukee, WI 53202
Fred Kayne 500,000 $1,500,000 50,800
Fortune Fashions
6501 Flotilla Street
Commerce, CA 90040
Primerica Life Insurance Company 500,000 $1,500,000 50,800
388 Greenwich Street
New York, NY 10013
</TABLE>
<PAGE>
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933; THEY HAVE BEEN ACQUIRED BY THE HOLDER FOR INVESTMENT
AND MAY NOT BE PLEDGED, HYPOTHECATED, SOLD, TRANSFERRED OR OTHERWISE DISPOSED OF
EXCEPT AS MAY BE AUTHORIZED UNDER THE SECURITIES ACT OF 1933 AND THE RULES AND
REGULATIONS PROMULGATED THEREUNDER.
THE RIGHT START, INC.
OPTION CERTIFICATE _______________, 1995
THIS OPTION CERTIFICATE (the "Option Certificate"), certifies that _______
___________, as grantor ("Grantor"), has granted to AMERICAN RECREATION CENTERS,
INC. or registered assigns (the "Holder"), the right to purchase up to [400,000]
shares of the issued and outstanding shares of Common Stock, without par value,
of THE RIGHT START, INC., a California corporation (the "Company"), at the price
per share set forth in Paragraph 2 below (the "Shares"), subject to conditions
as provided in Paragraph 6 of this Option Certificate (collectively, the
"Options").
1. Option. These Options entitle the Holder to purchase all or any portion
------
of the Shares (such number being subject to adjustment as provided in Paragraph
6 hereof) on the terms and conditions herein set forth.
2. Purchase Price. The purchase price of the Shares covered by the Options
--------------
shall be $3.30 per share through July 31, 1996, thereafter and through July 31,
1997, $3.70 per share, thereafter and through July 31, 1998, $4.10 per share,
thereafter and through July 31, 1999, $4.50 per share, thereafter and through
July 31, 2000, $4.95 per share, thereafter and through July 31, 2001, $5.45 per
share, and thereafter and through the end of the term hereof $6.00 per share for
the Shares.
3. Term of Option. The term of the Options shall commence on the date
---------------
hereof and all rights to purchase Shares hereunder shall cease at 11:59 A.M. on
__________________, 2002, subject to earlier termination as provided herein.
Except as may otherwise be provided in this Option Certificate, Options granted
hereunder may be exercised at any time preceding the expiration date hereof or
expiration pursuant to Paragraph 5 hereof. The Holder of the Options shall not
have any of the rights of a shareholder with respect to the Shares covered by
the Options as to the Common Shares not actually issued and delivered to it.
The purchase price of the Shares as to which the Options shall be exercised
shall be paid in full at the time of exercise and such consideration may consist
of cash, check or bank draft
<PAGE>
or other Shares owned by Holder having a fair market value on the date of
exercise equal to the aggregate exercise price of the Shares.
In the event the Common Stock of the Company is listed on a national
securities exchange or traded over the counter on an inter-dealer quotation
system maintained by the National Association of Securities Dealers, Inc.
("NASD"), then, upon the delivery of this Option Certificate, Holder shall have
the right to convert the Options (the "Conversion Right") into shares of Common
Stock of the Company as provided for below. Upon exercise of the Conversion
Right, Grantor shall deliver to the Holder (without payment by the Holder of any
of the purchase price) that number of Shares equal to the quotient obtained by
dividing (i) the value of the Options at the time the Conversion Right is
exercised (determined by subtracting the aggregate purchase price for the Shares
in effect immediately prior to the exercise of the Conversion Right from the
aggregate fair market value for the Shares immediately prior to the exercise of
the Conversion Right) by (ii) the fair market value of one share of the Common
Shares immediately prior to the exercise of the Conversion Right.
As used in the paragraph above, the "fair market value" per share of
Common Stock of the Company shall be the closing sale price of Common Stock on
the principal stock exchange on which the Common Stock is listed or admitted to
trading, or in the over-the-counter market as reported by the NASD immediately
prior to the exercise of the Conversion Right; or, if no sale takes place on
such day on the principal exchange or market, then the closing sale price of
Common Stock on the next preceding day on which a sale occurred; or, during such
time as there is not a market price available, the fair market value as mutually
determined by the Grantor and the Holder.
4. Transferability. The Options shall be transferable, provided, however,
---------------
that the Options may not be assigned or transferred, except when a Registration
Statement is in effect covering these Options and the Shares thereunder pursuant
to the Securities Act of 1933, as amended, or an opinion of counsel reasonably
satisfactory to the Company and Grantor that such registration is not required
has been received by the Company and Grantor prior to such transfer.
5. Expiration. In addition to any other event causing an expiration or
----------
termination of this Option Certificate, these Options shall expire and all
rights to purchase Shares shall cease (to the extent not theretofore terminated
or expired as herein provided) upon the effective date of the dissolution or
liquidation of the Company or upon a merger, consolidation, acquisition of
property or shares, separation or reorganization of the Company with one or more
entities, corporate or otherwise, as a result of which the Company is not the
surviving entity, or of a sale of substantially all of the property of the
Company to another entity, corporate or otherwise, or of a "reverse" merger by
which the Company is acquired but is the surviving entity or upon the sale of
the shares underlying the Options herein by Grantor any time after July 31,
1999. The Grantor shall cause written notice to be given to the Holder of the
proposed transaction not less than fifteen (15) days prior to the anticipated
effective date thereof, and the Holder shall have the right to exercise these
Options at any time prior to the effective date of (i) the termination of these
Options, or (ii) the proposed transaction, whichever is earlier.
6. Additional Conditions.
---------------------
6.1 Adjustments for Stock Splits, Consolidations, etc. The number and
-------------------------------------------------
class of Shares subject to this Option Certificate shall all be proportionately
adjusted in the event of any
2
<PAGE>
change or increase or decrease in the number of issued Common Shares in the
Company, without receipt of consideration by the Company, which result from a
split-up or consolidation of shares, payment of a share dividend, a
recapitalization, combination of shares or other like capital adjustment, so
that, upon exercise of this Option Certificate, the Holder shall receive the
number and class of shares it would have received had it been the holder of the
number of Shares,for which this Option Certificate is being exercised, on the
date of such change or increase or decrease in the number of issued Shares.
Subject to any required action by its shareholders, if the Company shall be a
surviving entity in any reorganization, merger or consolidation,this Option
Certificate shall be proportionately adjusted so as to apply to the securities
to which the Holder of the number of Shares in the Company subject to this
Option Certificate would have been entitled upon the effectiveness of such
reorganization, merger or consolidation, but see Paragraph 5 regarding "reverse
mergers" with the Company as the surviving entity. Adjustments under this
paragraph shall be made by the Board of Directors, whose determination with
respect thereto shall be final and conclusive. No fractional share shall be
issued under this Option Certificate or upon any such adjustment.
6.2 Legends. It is understood that the certificates evidencing the
-------
Common Shares purchased upon exercise of this Option Certificate may bear the
following legend:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933; THEY HAVE BEEN ACQUIRED BY THE HOLDER FOR
INVESTMENT AND MAY NOT BE PLEDGED, HYPOTHECATED, SOLD, TRANSFERRED, OR
OTHERWISE DISPOSED OF EXCEPT AS MAY BE AUTHORIZED UNDER THE SECURITIES ACT
OF 1933 AND THE RULES AND REGULATIONS PROMULGATED THEREUNDER."
It is further understood that the stock certificates representing the
Shares subject to this Option Certificate in the hands of Grantor or its assigns
shall bear the following legend but that the stock certificates representing the
Shares not subject to this Option shall not bear such legend:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO ACQUISITION
PURSUANT TO THAT CERTAIN OPTION CERTIFICATE DATED , 1995, AND THE
---------
HOLDER OF THESE SECURITIES MAY NOT SELL, TRANSFER, EXCHANGE OR OTHERWISE
DISPOSE OF SAME THROUGH AND INCLUDING JULY 31, 1999 WITHOUT TAKING SUCH
SECURITIES SUBJECT TO THE TERMS OF SUCH OPTION. A COPY OF THE OPTION
CERTIFICATE MAY BE OBTAINED FROM THE SECRETARY OF THE COMPANY."
7. Registration Rights. The Holder of this Option Certificate is entitled
-------------------
to certain rights regarding registration under the Securities Act of 1933, as
amended, of the Shares issuable on exercise hereof pursuant to the Registration
Rights Agreement of even date herewith, the terms of which are incorporated
herein and a copy of which will be delivered to the Holder hereof on request to
the Company.
8. Method of Exercising Options. Subject to the terms and conditions of
----------------------------
this Option Certificate, the Options may be exercised by written notice to the
Grantor, at 1800 Avenue of the Stars, Suite 1425, Los Angeles, California 90067.
Such notice shall state the election to exercise the Options and the number of
Shares in respect of which it is being exercised, and shall be signed by the
person or persons so exercising the Options. Such notice shall be accompanied by
payment
3
<PAGE>
in cash, check or bank draft, payable to Grantor, equal to, in the aggregate,
the full purchase price of such Shares or as provided in Paragraph 3 pursuant to
the Conversion Right. Grantor shall, as soon as practicable after the notice
shall be received, deliver stock certificates representing the number of Shares
being purchased, or more, to the Company, with instructions to transfer the
Shares being purchased to the Holder. The certificate or certificates for the
Shares as to which the Options shall have been so exercised shall be registered
in the name of the person or persons so exercising the Options and shall be
delivered, as provided above, to or upon the written order of the person or
persons exercising the Options. In the event the Options shall be exercised by
any person or persons other than the Holder in accordance with the terms hereof,
such notice shall be accompanied by appropriate proof of the right of such
person or persons to exercise the Options. All Shares that shall be purchased
upon the exercise of the Options as provided herein shall be fully paid and
nonassessable. The Holder of this Option Certificate shall not be entitled to
the privileges of share ownership as to the Shares not actually transferred and
delivered to it. The Holder hereby certifies that all Shares purchased or to be
purchased by it pursuant to the exercise of this Option Certificate are being,
or are to be, acquired by it for investment, and not with a view to the
distribution thereof. In addition, the person exercising the Options shall
execute and deliver to the Company with the notice provided for above a
certificate substantially in the form attached hereto as Exhibit A.
---------
9. General. Grantor shall at all times during the term of the
-------
Options through July 31, 1999 only transfer the Shares which are subject to this
Option Certificate subject to the continued rights of the Holder hereof and the
stock certificate issued thereto shall bear the legends contained in Section 6.2
hereof, shall pay any fees and expenses necessarily incurred by Grantor and the
Company in connection therewith, and will from time to time use its best efforts
to comply with all laws and regulations, which, in the opinion of counsel for
the Company, shall be applicable thereto.
IN WITNESS WHEREOF, the Grantor has duly executed this Option
Certificate as of the day and year first above written.
----------------------------------------------------
4
<PAGE>
EXHIBIT A
OPTION CERTIFICATE
------------------
CERTIFICATE
-----------
____________, 199_
I hereby certify that all of the shares of Common Stock, without par
value, of THE RIGHT START, INC., purchased by the undersigned pursuant to the
exercise on this date of the Option granted to the undersigned by an Option
Certificate issued by __________, dated the ____ day of July, 1995, are being
acquired by the undersigned for investment and not with a view to the
distribution thereof.
________________________________
By:_____________________________
5
<PAGE>
[LETTERHEAD OF CRUTTENDEN & COMPANY INVESTMENT BANKERS]
December 20, 1994
Robert A. Crist
President and Chief Executive Officer
American Recreation Centers Inc.
P.O. Box 580
Rancho Cordova, CA 95741
Dear Bob:
Cruttenden & Company ("Cruttenden") is pleased to act as a non-exclusive
financial advisor to American Recreation Centers Inc. ("ARC") in connection with
any proposed Business Combination (as defined below) involving Right Start Inc.
(the "Company") and another party (a "Purchaser"). This letter agreement is to
confirm our understanding with respect to our engagement. As used in this letter
agreement, the term "Business Combination" means, whether effected in one
transaction or a series of related transactions, (a) any merger, consolidation,
reorganization or other business combination pursuant to which the business of
the Company is combined with that of one or more Purchasers or one or more
persons formed by or affiliated with a Purchaser, including, without limitation,
any joint venture, (b) the acquisition, directly or indirectly, by one or more
Purchasers of more than 50% of the then outstanding capital stock of the Company
by way of a tender or exchange offer, negotiated purchase or other means, (c)
the acquisition, directly or indirectly, by one or more Purchasers of all or a
substantial portion of the assets of, or of any right to all or a substantial
portion of the revenue or income of, the company by way of a negotiated
purchase, lease, license, exchange, joint venture or other means, or (d) the
acquisition, directly or indirectly, by one or more Purchasers of control of the
Company otherwise than through the acquisition of the company's voting capital
stock.
Cruttenden will assist ARC in identifying Purchasers and in analyzing,
structuring, negotiating and effecting proposed Business Combinations on the
terms and conditions of this letter agreement. In this regard, we propose to
undertake certain activities on your behalf, including, if appropriate, the
following:
(1) developing with ARC a list of prospective Purchasers;
(2) performing financial analyses of the Company and prospective
Purchasers in the context of a possible Business Combination;
(3) assisting ARC in preparing a brochure to be utilized in discussion
with prospective Purchasers which will describe the Company in such
detail as may be appropriate under the circumstances;
(4) assisting ARC in its determination of appropriate and desirable values
to be realized in a Business Combination;
(5) advising ARC as to the structure and form of proposed Business
Combinations;
(6) Advising and assisting ARC's management in making presentations to
ARC's Board of Directors about proposed Business Combinations;
(7) counseling ARC as to strategy and tactics for initiating discussions
and negotiating with a prospective Purchaser and, if requested by ARC
or at Cruttenden's request, participating in such discussions and
negotiations;
<PAGE>
Robert Crist
December 20, 1994
Page 2
(8) assuming an agreement in principle is reached for a Business
Combination, assisting ARC in negotiating a definitive acquisition
agreement; and
(9) rendering such other financial advisory and investment banking services
as may from time to time be agreed upon by Cruttenden and ARC.
If, during the period Cruttenden is retained by ARC hereunder (the
"Engagement Period"), or within 12 months thereafter (together with the
Engagement Period, the "Transaction Period"), (a) a Business Combination is
consummated with a Targeted Purchaser (as defined below) or (b) ARC or the
Company enters into a definitive agreement that provides for a Business
Combination with a Targeted Purchaser and such Business Combination is
consummated within 12 months thereafter, then a fee based upon the aggregate
purchase price paid in such Business Combination (determined in the manner
hereinafter set forth) shall be payable in cash upon the consummation of the
Business Combination and shall be calculated in accordance with the following
table:
<TABLE>
<CAPTION>
Aggregate Purchase
Price Paid Fee
---------- ---
<S> <C>
$1,000,000 or less 5% of price paid up to $1,000,000
$1,000,001 to $2,000,000 4% of price paid in excess of $1,000,000
but less than $2,000,001
$2,000,001 to $3,000,000 3% of price paid in excess of $2,000,000 but
less than $3,000,001
over $3,000,000 2% of price paid in excess of $3,000,000
</TABLE>
For purpose hereof, a Purchaser shall constitute a "Targeted Purchaser" if
(i) such purchaser is Kayne, Anderson Investment Management & Co., Inc. or any
of its affiliates. If a Business Combination described in clause (b) of the
first Paragraph of this letter agreement is consummated with a Targeted
Purchaser during the Transaction Period in which less than all of the
outstanding shares of the common stock of the company owned by ARC are acquired
by the Targeted Purchaser and, within 24 months thereafter any additional
shares of common stock of the company owned by ARC are acquired by the Targeted
Purchaser or any affiliate thereof by means of any transaction described in
clauses (a) through (d) of the first Paragraph of this letter agreement, then an
additional fee for such additional shares (determined in the manner set forth in
the table above, giving effect to the purchase price paid for the earlier
acquisitions) shall be payable by the Company in cash to Cruttenden upon the
consummation of the acquisition of such additional shares.
For purposes of this letter agreement, the term "purchase price" means an
amount equal to the sum of the aggregate fair market value of any securities
issued and any other non-cash consideration delivered (including, without
limitation, any joint venture interest delivered to, or retained by, ARC), and
any cash consideration paid to ARC in connection with a Business Combination
and, in the case of an acquisition of all or substantially all of the assets of
the company which constitutes a Business
<PAGE>
Robert Crist
December 20, 1994
Page 3
Combination hereunder, ARC's pro rata portion of the amount of all indebtedness
of the Company; such indebtedness does not include real or personal property
leases, or management's employment and incentive agreement (based upon ARC's
percentage interest in the Company's outstanding common stock), assumed,
acquired or retired by the Purchaser upon consummation of such Business
Combination, and in the case of any other Business Combination, ARC's pro rata
portion of the amount of any indebtedness of the Company which, upon
consummation thereof is assumed, acquired or retired by the Purchaser and, but
for the assumption, acquisition or retirement would have been required to have
been retired or paid by any of the shareholders of the company. The fair market
value of any securities issued and any other non-cash consideration delivered or
retained in connection with a Business Combination will be the value determined
in good faith by the Board of Directors of ARC upon the closing of the Business
Combination.
In addition to any fees that may be payable to Cruttenden under this
letter agreement, ARC agrees to reimburse Cruttenden, upon request made from
time to time, for its reasonable out-of-pocket expenses incurred in connection
with Cruttenden's activities under this letter agreement including, without
limitation, the reasonable fees and disbursement of its legal counsel,
provided, that, Cruttenden shall have obtained the prior written consent of ARC
for expenses exceeding $2,000 per month and $10,000 in the aggregate.
ARC will furnish Cruttenden with such information as Cruttenden believes
appropriate to its assignment (all such information as furnished being the
"Information"). ARC recognizes and confirms that Cruttenden (a) will use and
rely primarily on the Information and on information available from generally
recognized public sources in performing the services contemplated by this letter
agreement without having independently verified the same, (b) does not assume
responsibility for the accuracy or completeness of the Information and such
other information and (c) will not make an appraisal of any assets of the
Company or any prospective Purchaser. ARC shall permit Cruttenden to release
Information to prospective Purchasers that have been approved by ARC and that
have entered into a non-disclosure agreement with ARC.
ARC agrees to indemnify Cruttenden and its affiliates and their respective
directors, officers, employees, agents and controlling persons (Cruttenden and
each such person being an "Indemnified Party") from and against any and all
losses, claims, damages and liabilities, joint or several arising from, and will
reimburse any Indemnified Party for all expenses including the reasonable
expenses as they are incurred in connection with the investigation of,
preparation for or defense of any pending or threatened claim or any action or
proceeding that arises from Cruttenden's engagement or its services to ARC
hereunder, whether or not such Indemnified Party is a party and whether or not
such claim, action or proceeding is initiated or brought by or on behalf of ARC,
provided, however, that ARC or any Purchaser may assume the defense of any such
action or other proceeding with legal counsel reasonably acceptable to
Cruttenden and upon such assumption ARC shall have no obligation to reimburse
the fees or costs of counsel to the Indemnified Party or Parties incurred
thereafter except that ARC shall reimburse the Indemnified parties for the
reasonable fees and expenses of a single counsel if counsel for such Party or
Parties confirms in writing that a conflict of interest would arise if the
counsel retained by ARC or the Purchaser also represented the Indemnified Party
or Parties in such action or proceeding. ARC will not be liable under the
foregoing indemnification provision to the extent that any loss, claim, damage,
liability or expense resulted from Cruttenden's malfeasance, bad faith or
negligence. ARC also agrees that no Indemnified Party shall have any liability
(whether direct or indirect, in contract or tort or otherwise) to ARC or its
security holders related to or arising out of the engagement of Cruttenden
pursuant to, or the performance by Cruttenden of the services contemplated by,
<PAGE>
Robert Crist
December 20, 1994
Page 4
this letter agreement except to the extent that any loss, claim, damage or
liability is found in a final judgment by a court to have resulted from
Cruttenden's malfeasance, bad faith or negligence.
If the indemnification of an Indemnified Party provided for in this letter
agreement is for any reason held unenforceable, ARC agrees to contribute to the
losses, claims, damages and liability for which such indemnification is held
unenforceable in such proportion as is appropriate to reflect the relative
benefits to ARC, on the one hand, and Cruttenden, on the other hand, of the
Business Combination as contemplated (whether or not the Business Combination is
consummated) and also the relative fault of ARC, on the one hand, and
Cruttenden, on the other hand, as well as any other relevant equitable
considerations. ARC agrees that for the purposes of this paragraph the relative
benefits to ARC and Cruttenden of the Business Combination as contemplated shall
be deemed to be the same proportion that the total value received or
contemplated to be received by ARC as a result of or in connection with the
Business Combination bears to the fees paid or contemplated to be paid to
Cruttenden under this letter agreement; provided, however, that, to the extent
permitted by applicable law, in no event shall the Indemnified Parties be
required to contribute an aggregate amount in excess of the aggregate fees
actually paid to Cruttenden under this letter agreement.
ARC agrees that, without Cruttenden's prior written consent (which shall
not be unreasonably withheld) it will not settle, compromise or consent to the
entry of any judgment in any pending or threatened claim, action or proceeding
in respect of which indemnification could be sought under the indemnification
provisions of this letter agreement (whether or not Cruttenden or any other
Indemnified Party is an actual or potential party to such claim, action or
proceeding) unless such settlement, compromise or consent includes an
unconditional release of each Indemnified Party from all liability arising out
of such claim, action or proceeding.
ARC acknowledges and agrees that Cruttenden has been retained to act solely
as financial advisor to ARC. In such capacity, Cruttenden shall act as an
independent contractor, and any duties of Cruttenden arising out of its
engagement pursuant to this letter agreement shall be owed solely to ARC.
Cruttenden's engagement hereunder may be terminated by either ARC or
Cruttenden at any time upon written notice to that effect to the other party,
it being understood that the provisions relating to the payment of fees and
expenses, indemnification, limitations on the liability of Indemnified Parties,
contributions, settlements, the status of Cruttenden as an independent
contractor, the holding confidential of all information provided hereunder, and
the limitation on to whom Cruttenden shall owe any duties shall survive any such
termination.
If an Indemnified Party is requested or required to appear as a witness in
any action brought by or on behalf of or against ARC or any Purchaser in which
such Indemnified Party is not named as a defendant, ARC agrees to reimburse
Cruttenden for all reasonable out-of-pocket expenses incurred by it in
connection with such Indemnified Party's appearing and preparing to appear as
such a witness, including, without limitation, the reasonable fees and
disbursement of its legal counsel related thereto and to compensate Cruttenden
in an amount to be mutually agreed upon.
ARC acknowledges that Cruttenden may, at its option and expense, place an
announcement approved in writing in advance by ARC in such newspapers and
periodicals as it may choose, stating that Cruttenden has acted as a financial
advisor to ARC in connection with any Business Combination.
<PAGE>
Robert Crist
December 20, 1994
Page 5
This letter agreement and your letter directed to me dated December
19, 1994 contain our entire agreement, and there are no other understandings,
oral or written, with respect to the subject matter hereof. No waiver, amendment
or other modification of this letter agreement shall be effective unless in
writing and signed by each party to be bound thereby. This letter agreement
shall be governed by, and construed and enforced in accordance with, the laws of
the State of California applicable to contracts executed in and to be performed
in that state.
Cruttenden looks forward to working with ARC on this engagement.
Please indicate your confirmation of these terms and conditions by signing below
and returning the executed original of this letter to Cruttenden.
Very truly yours,
CRUTTENDEN & COMPANY
/s/ ROBERT S. LONDON DATED: 12-22-94
------------------------------ -----------------------------
ROBERT S. LONDON
MANAGING DIRECTOR
Accepted and Agreed:
AMERICAN RECREATION CENTERS INC.
/s/ ROBERT A. CRIST DATED: 12-22-94
------------------------------ -----------------------------
ROBERT A. CRIST
PRESIDENT AND CEO
