SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K/A
AMENDMENT NO. 1 TO
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): June 1, 1995
CHILDREN'S DISCOVERY CENTERS OF AMERICA, INC.
(Exact name of registrant as specified in its charter)
Delaware 0-14368 061097006
(State or Other Jurisdiction (Commission) (IRS Employer
of Incorporation) File Number) Identification No.)
851 Irwin Street, San Rafael, California 94901
(Address of principal executive offices) (zip code)
Registrant's Telephone Number, including Area Code:
(415) 257-4200
N/A
(Former name or former address, if changed since last report)
<PAGE>
EXPLANATORY NOTE
This Amendment No. 1 to Current Report on Form 8-K is being
filed to incorporate audited financial statements for the year ended
December 31, 1994 of two affiliated companies, Day Care of
Chester County, Inc., and Little Explorers of Montgomery, Inc.
<PAGE>
Item 1. Changes in Control of Registrant
None
Item 2. Acquisition or Disposition of Assets
On June 1, 1995, Registrant acquired from two affiliated companies,
Day Care of Chester County, Inc., and Little Explorers of
Montgomery, Inc., the assets of five preschool and day care centers
located in West Chester and Montgomery Counties, Pennsylvania.
The assets purchased included the personal property
and trademarks used in the connection with operation of the centers.
In addition, each of the sellers and their sole shareholder have
entered into covenants not-to-compete with Registrant.
The purchase price paid to Day Care of Chester County, Inc.,
consisted of $1,390,000 in cash and issuance of the Company's
$1,100,000, ten (10) year, 9% promissory note. The purchase price
paid to Little Explorers of Montgomery, Inc., consisted of $252,000
in cash. In addition, Registrant paid the sole shareholder of the two
companies $145,000 in consideration of his entering into a
covenants not-to-compete and also paid $13,000 for the acquisition
of certain personal property owned by the selling shareholder used in
connection with the business.
The cash portion of the purchases was provided by Registrant's
working capital. The Registrant intends to continue to use the
assets acquired in connection with the day care business.
Item 3. Bankruptcy or Receivership
None
Item 4. Changes in Registrant's Certifying Accountants
None
Item 5. Other Events
None
Item 6. Resignations of Registrant's Directors
None
Item 7. Financial Statements, Pro Forma Financial Information and
Financial Exhibits
(a) Financial Statements of Business Acquired
Report of Independent Public Accountants F-1
Combined Balance Sheet as of December 31, 1994 F-2
Combined Statement of Operations for the Year Ended
December 31, 1994 F-3
Combined Statement of Changes in Stockholders' Equity
for the Year Ended December 31, 1994 F-4
Combined Statement of Cash Flow for the Year Ended
December 31, 1994 F-5
(b) Pro Forma Financial Information for Business Acquired
Introduction to Pro Forma Financial Data F-9
Unaudited Pro Forma Condensed Combined
Statements of Operations F-10
Unaudited Pro Forma Condensed Combined Balance Sheet
F-11
(c) Exhibits
(1) Consent of Independent Public Accountants C-1
(2) Purchase Agreement dated as of March 31, 1995
between Registrant's wholly-owned subsidiary and
Day Care of Chester County, Inc P-1
(3) Purchase Agreement dated as of March 31, 1995
between Registrant's wholly-owned subsidiary and
Little Explorerof Montgomery, Inc P-2
Item 8. Change in Fiscal Year
None
<PAGE>
SIGNATURES
Pursuant to the requirements of the Section 13 of the Securities
Exchange Act of 1934, the Registrant has duly caused this
Amendment No. 1 to its Current Report on Form 8-K filed on June
15, 1995 to be duly signed on its behalf by the undersigned
thereunto duly authorized.
Dated: August 10, 1995 CHILDREN'S DISCOVERY CENTERS
OF AMERICA, INC.,
By: /s/ Randall J. Truelove
Randall J. Truelove
Vice President - Finance
<PAGE>
DAY CARE OF CHESTER COUNTY, INC.
AND LITTLE EXPLORERS OF MONTGOMERY, INC.
COMBINED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 1994
TOGETHER WITH AUDITORS' REPORT
<PAGE>
F-1
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors of
Children's Discovery Centers of America, Inc.:
We have audited the accompanying combined balance sheet of Day
Care of Chester County, Inc. ("DCCC") and Little Explorers of
Montgomery, Inc. ("LEM") (the "Ches-Mont Centers") as of
December 31, 1994, and the related combined statements of
operations, changes in stockholders' equity and cash flows for the
year then ended. These financial statements are the responsibility of
the Ches-Mont Centers' management. Our responsibility is to
express an opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the
amounts and disclosures in the financial statements. An audit also
includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides
a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of Day Care of
Chester County, Inc. and Little Explorers of Montgomery, Inc. as of
December 31, 1994, and the results of their operations and their
cash flows for the year then ended in conformity with generally
accepted accounting principles.
ARTHUR ANDERSEN LLP
Philadelphia, Pennsylvania,
June 30, 1995
<PAGE>
F-2
<TABLE>
DAY CARE OF CHESTER COUNTY, INC. AND
LITTLE EXPLORERS OF MONTGOMERY, INC.
COMBINED BALANCE SHEETS
<CAPTION>
December 31, March 31,
1994 1995
(Unaudited)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash $ 114,009 $ 186,725
Accounts receivable 69,195 82,301
Prepaid expenses 46,000 25,000
Due from noncombined
affiliates (Note 6) 115,600 73,470
Total current 344,804 367,496
PROPERTY AND EQUIPMENT:
Property and equipment, net of
accumulated depreciation of
$175,294 and $185 356,048 377,365
DEPOSITS 20,000 20,000
Total assets $ 720,852 $ 764,861
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 14,579 $ 22,449
Payroll and related accruals 119,609 124,352
Accrued insurance 46,000 23,000
Other accrued liabilitie 7,285 12,869
Due to shareholder (Note 6) 219,302 181,397
Total current liabilities 406,775 364,067
DEFERRED RENT (Note 3) 20,505 24,606
COMMITMENTS AND CONTINGENCIES (Note 7)
STOCKHOLDERS' EQUITY:
DCCC common stock, no par value;
10,000 shares authorized, 800 shares
issued and outstanding $ 80,000 $ 80,000
LEM common stock, no par value;
100,000 shares authorized,
75,000 shares issued and
outstanding 75,000 75,000
Retained earnings 138,572 221,188
Total stockholders' equity 293,572 376,188
Total liabilities and
stockholders' equity $ 720,852 $ 764,861
<FN>
The accompanying notes are an integral part of these combined
balance sheets.
</TABLE>
<PAGE>
F-3
<TABLE>
DAY CARE OF CHESTER COUNTY, INC.
LITTLE EXPLORERS OF MONTGOMERY, INC.
COMBINED STATEMENTS OF OPERATIONS
<CAPTION>
Year Ended Three Months Ended
December 31, March 31,
1994 1995 1994
(Unaudited) (Unaudited)
<S> <C> <C> <C>
NET REVENUES $3,260,004 $ 823,433 $805,844
OPERATING EXPENSES:
Payroll and related expenses 1,562,019 449,468 386,712
Other center operating exp. 888,000 217,467 221,564
Administrative expenses
(Note 6) 453,700 73,924 106,446
Total operating exp. 2,903,719 740,859 714,722
OPERATING INCOME 356,285 82,574 91,122
OTHER INCOME (EXPENSE):
Interest expense, net (8,405) (2,279) (2,036)
Insurance proceeds 26,803 0 10,668
Other income (1,611) 2,321 4,363
Total other income 16,787 42 12,995
Income before taxes 373,072 82,616 104,117
PROVISION FOR INCOME TAXES
(Note 5) 0 0 0
NET INCOME $ 373,072 $ 82,616 $ 104,117
<FN>
The accompanying notes are an integral part of these combined
statements.
</TABLE>
<PAGE>
F-4
<TABLE>
DAY CARE OF CHESTER COUNTY, INC. AND
LITTLE EXPLORERS OF MONTGOMERY, INC.
COMBINED STATEMENT OF STOCKHOLDERS' EQUITY
<CAPTION>
DCCC LEM
Common Stock Common Stock Retained
Shares Amount Shares Amount Earnings Total
<S> <C> <C> <C> <C> <C> <C>
BALANCE,
12/31/93 800 $80,00 75,000 $75,000 $134,989 $289,989
Distributions 0 0 0 0 (369,489) (369,489)
Net income 0 0 0 0 373,072 373,072
BALANCE,
12/31/94 800 80,000 75,000 75,000 138,572 293,572
Net income
(unaudited) 0 0 0 0 82,616 82,616
BALANCE,
March 31, 1995
(unaudited) 800 $80,000 75,000 $75,000 $221,188 $376,188
<FN>
The accompanying notes are integral part of these combined
statements.
</TABLE>
<PAGE>
F-5
<TABLE>
DAY CARE OF CHESTER COUNTY, INC. AND
LITTLE EXPLORERS OF MONTGOMERY, INC.
COMBINED STATEMENT OF CASH FLOWS
<CAPTION>
Year Ended Three Months Ended
December 31, March 31,
1994 1995 1994
(Unaudited) (Unaudited)
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net income $ 373,072 $ 82,616 $ 104,117
Adjustments to reconcile net
income to net cash provided
by operating activities-
Depreciation and amort. 41,500 10,528 8,579
Changes in operating assets
and liabilities--
(Increase) decrease in
accounts receivable (91,663) 29,025 (19,477)
Decrease in prepaid
expenses 11,783 21,000 27,599
Increase (decrease) in
accounts payable (4,289) 7,870 8,960
Increase (decrease) in
accrued liabilities 18,000 (12,673) (9,975)
(Decrease) in due to
shareholder (9,469) (37,905) (94,317)
Increase in deferred
rent 16,404 4,101 4,101
Net cash provided by
operating activities 355,338 104,562 29,587
INVESTING ACTIVITIES:
Purchases of property and
equipment (63,867) (31,846) (3,091)
Net cash used for
investing activities (63,867) (31,846) (3,091)
FINANCING ACTIVITIES:
Repayment of shareholder loan (3,543) 0 (1,236)
Distributions to shareholder (369,489) 0 0
Net cash used for
financing activities (373,032) 0 (1,236)
Net increase (decrease)
in cash (81,561) 72,716 25,260
CASH, BEGINNING OF PERIOD 195,570 114,009 195,570
CASH, END OF PERIOD $ 114,009 $ 186,725 $ 220,830
SUPPLEMENTAL DISCLOSURE
OF CASH FLOW INFORMATION:
Cash paid for interest $ 0 $ 0 $ 0
<FN>
The accompanying notes are an integral part of these combined
statements.
</TABLE>
<PAGE>
F-6
DAY CARE OF CHESTER COUNTY, INC. AND
LITTLE EXPLORERS OF MONTGOMERY, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS
(Information related to the three months ended March 31, 1995 and
1994, is unaudited)
NATURE OF BUSINESS AND DESCRIPTION OF
ENTITIES:
The accompanying combined financial statements represent the
financial statements of Day Care of Chester County, Inc.
("DCCC")
and Little Explorers of Montgomery, Inc. ("LEM") (collectively,
the "Ches-Mont Centers" or the "Companies"). DCCC and LEM
are each 100% owned by Barry L. Herr. All intercompany
transactions and balances between the Ches-Mont Centers have
been eliminated in the accompanying financial statements.
DCCC and LEM were formed for the purpose of owning and
operating five child development centers in the metropolitan
Philadelphia area under the names Little People Day Care Centers
and Little Explorers Day Care Centers.
On June 1, 1995, the Ches-Mont Centers, including its sole
shareholder, entered into purchase agreements with a subsidiary of
Children's Discovery Centers of America, Inc. (CDC) to sell
principally all of the assets related to its five child care centers.
2. INTERIM FINANCIAL STATEMENTS (UNAUDITED):
The unaudited interim financial statements as of March 31, 1995,
and for the three month periods ended March 31, 1995 and 1994,
reflect, in the opinion of management, all adjustments necessary to
fairly state the financial position and results of operations for the
respective periods. Operating results for interim periods are not
necessarily indicative of the results which can be expected for a full year.
3. SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES:
Cash Equivalents
The Companies consider highly liquid investments purchased with
original maturities of three months or less to be cash equivalents.
<PAGE>
F-7
Property and Equipment
Property and equipment are stated at historical cost and depreciated
using an accelerated method over their estimated useful lives as
follows:
Leasehold improvements Shorter of useful life or lease
life
Machinery and equipment 5 years
Furniture and fixtures 7 years
Transportation equipment 5 years
Deferred Rent
The operating lease agreements for one of the Ches-Mont Centers
contain escalating lease payments. The resulting deferred rent is
being amortized on a straight-line basis over the related lease
terms.
Revenue Recognition
Tuition revenue is recorded in the period in which services are
provided.
4. PROPERTY AND EQUIPMENT:
Property and equipment consist of the following at December 31,
1994:
Leasehold improvements $ 299,766
Machinery and equipment 58,953
Furniture and fixtures 20,875
Transportation equipment 151,748
Less- Accumulated depreciation (175,294)
$ 356,048
5. INCOME TAXES:
DCCC has elected "S" Corporation status for federal and state tax
purposes. LEM is treated as a "C" Corporation for federal and
state tax purposes.
As DCCC has elected to be treated as an "S" Corporation, the
taxable income for the year ended December 31, 1994, of
approximately $375,000, will pass through to the federal and state
income taxes of its stockholder, and DCCC will not be subject to
income taxes. The taxable income related to LEM was insignificant,
which resulted in no provision for income taxes or related income
tax payable as of December 31, 1994.
Effective January 1, 1993, LEM adopted Statement of Financial
Accounting Standards (SFAS) No. 109, "Accounting for Income
Taxes." SFAS No. 109 requires the liability method of accounting
for deferred income taxes. The adoption of this standard had no
effect on the Ches-Mont Center's financial position or results of
operations.
<PAGE>
F-8
As of December 31, 1994, there were no material financial
reporting-tax differences. Therefore, there are no deferred tax
assets or liabilities.
6. RELATED-PARTY TRANSACTIONS:
The Companies recognized $115,600, which is included as a
reduction to administrative expenses, for administrative services
performed for B.L. Herr, Inc. ("Herr") during the year ended
December 31, 1994. The Companies and Herr are wholly owned by
the same shareholder. The uncollected balances for these services
at December 31, 1994, represent due from noncombined affiliates in
the accompanying balance sheet.
Balances due the shareholder of $219,302 represents net
distributions payable to the stockholder.
7. INSURANCE PROCEEDS:
In August 1993, DCCC experienced damages to equipment used at a
daycare facility as a result of a fire. DCCC recognized a gain for the
difference between the cost of the equipment and the insurance
proceeds received. The total proceeds to be received was not
determinable until 1994, at which time DCCC recognized a gain of
$26,803.
8. COMMITMENTS AND CONTINGENCIES:
The Companies lease child care facilities under operating leases
expiring through 2008. Two of the leases are with a related party.
These leases are month-to-month and rent expense was $150,000
for the year-ended December 31, 1994.
Rent expense for operating leases (excluding related party leases)
was $233,604 for the year ended December 31, 1994.
Minimum annual rental commitments for noncancelable operating
leases having original terms in excess of one year are as follows:
1995 $ 190,272
1996 190,272
1997 190,272
1998 194,472
1999 158,056
Thereafter 1,176,000
$ 2,099,344
<PAGE>
F-9
Introduction to Pro Forma Financial Data
The following unaudited pro forma condensed combined statements
of operations and condensed combined balance sheet combine the
financial statements of Registrant and the businesses of Day Care
of Chester County and Little Explorers of Montgomery for each of
the (i) three months ended March 31, 1994, (ii) year ended
December 31, 1994 and (iii) three months ended March 31, 1995.
The pro forma information is presented assuming that the planned
acquisition occurred as of January 1, 1994. The pro forma
information reflects purchase accounting adjustments based on
allocations of the purchase price. This information should be read
in conjunction with the historical financial statements and related
notes thereto of Registrant and Day Care of Chester County, Inc., and
Little Explorers of Montgomery, Inc. The unaudited pro forma
information presented does not purport to be indicative of the results
which would have been obtained had the planned acquisition
actually been consummated as of the beginning of 1994, or which
may be obtained in the future.
<PAGE>
F-10
<TABLE>
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENTS OF OPERATIONS
<CAPTION>
Three Months Ended March 31, 1994
DCCC & Pro Forma
CDC LEM Adjustments Combined
(in thousands, except per share data)
<S> <C> <C> <C> <C>
Revenues from ops $11,761 $806 $12,567
Operating Expenses:
Direct costs 9,335 600 (9) (a) 9,926
Depreciation and
amortization 489 9 46 (b) 544
Total operating expenses 9,824 609 37 10,470
Operating income 1,937 197 (37) 2,097
General & admin.
expenses 971 106 (77) (c) 1,000
Other (income) expense
net 100 (13) 37 (d) 124
Pre-tax profit (loss) 866 104 3 973
Provision for inc. tax 225 0 43 253
Net profit (loss) 641 104 (40) 705
Net profit(loss) per share 0.14 0.15
Weighted avg. common
shares outstanding 4,731 4,731
</TABLE>
<TABLE>
<CAPTION>
Twelve Months Ended December 31, 1994
DCCC & Pro Forma
CDC LEM Adjustments Combined
(in thousands, except per share data)
<S> <C> <C> <C> <C>
Revenues from ops $55,323 $3,260 $58,583
Operating Expenses:
Direct costs 44,316 2,409 (37) (a) 46,688
Depreciation and
amortization 2,355 42 180 (b) 2,576
Total operating
expenses 46,671 2,451 143 49,264
Operating income 8,652 810 (143) 9,319
General & admin.
expenses 4,227 454 (339) (c) 4,342
Other (income) expense
net 744 (17) 113 (d) 840
Pre-tax profit (loss) 3,681 373 83 4,137
Provision for inc. tax 921 0 182 1,103
Net profit (loss) 2,760 373 (99) 3,034
Net profit(loss) per share 0.57 0.63
Weighted avg. common
shares outstanding 4,831 4,831
</TABLE>
<TABLE>
<CAPTION>
Three Months Ended March 31, 1995
DCCC & Pro Forma
CDC LEM Adjustments Combined
(in thousands, except per share data)
<S> <C> <C> <C> <C>
Revenues from ops $18,279 $823 $19,102
Operating Expenses:
Direct costs 14,318 655 (9) (a) 14,964
Depreciation and
amortization 770 11 46 (b) 827
Total operating
expenses 15,088 666 37 15,791
Operating income 3,191 157 (37) 3,311
General & admin.
expenses 1,458 74 (45) (c) 1,487
Other (income) expense
net 14 0 24 (d) 38
Pre-tax profit (loss) 1,719 83 (16) 1,786
Provision for inc. tax 632 0 27 659
Net profit (loss) 1,087 83 (43) 1,127
Net profit(loss) per share 0.16 0.16
Weighted avg. common
shares outstanding 6,938 6,938
<FN>
a) Reflects effect of adjustment between rents prior and subsequent
to acquisition.
b) Reflects an increase in amortization relating to the goodwill and
other intangibles resulting from acquisition.
c) Reflects reduction in fees, salaries and general & administrative
expenses paid to former owners that were eliminated with
acquisition.
d) Reflects interest expense during the respective periods on
$1,100,000 of debt issued since January 1, 1994, less interest on
the debt not assumed.
</TABLE>
<PAGE>
<TABLE>
UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE
SHEET
<CAPTION>
As of
March 31, 1995
CDC DCCC & LEM Pro Forma
Combined
(in thousands)
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash, cash equivalents
and short-term investments $20,141 ($1,800) (a) $18,341
Other current assets 3,556 0 3,556
Total current assets 23,697 (1,800) 21,897
PROPERTY, PLANT AND EQUIPMENT,
net 14,937 89 (b) 15,026
INTANGIBLE ASSETS 28,916 2,901 (c) 31,817
OTHER ASSETS 1,735 0 1,735
TOTAL ASSETS 69,285 1,190 70,475
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of long-
term debt $1,931 $71 (d) $2,002
Accounts payable and
accrued expenses 3,637 90 (e) 3,727
Total current liabilities 5,568 161 5,729
LONG-TERM DEBT 14,767 1,029 (d) 15,796
OTHER LONG-TERM LIABILITIES 1,078 0 1,078
STOCKHOLDERS EQUITY:
Preferred Stock, Common Stock,
Paid-in Capital and 52,179 0 52,179
Accumulated deficit (4,307) 0 (4,307)
Total stockholders' equity 47,872 0 47,872
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $69,285 $1,190 $70,475
<FN>
(a) Adjustment for $1,800,000 cash portion of purchase price.
(b) Reflects allocation of purchase price to fixed assets.
(c) Reflects allocation of purchase price to intangibles.
(d) Reflects current portion and long-term portion of notes and liabilities issued or assumed for $1,100,000.
(e) Reflects transaction costs associated with acquisition.
</TABLE>
<PAGE>
C-1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the
incorporation of our report dated June 30, 1995 related to Day
Care of Chester County, Inc., and Little Explorers of Montgomery,
Inc.'s combined financial statements for the year ended December
31, 1994 included in this Form 8-K/A, into Children's Discovery
Centers of America, Inc.'s previously filed Registration Statement
File Nos. 33-76954 and 33-59351.
ARTHUR ANDERSEN LLP
Philadelphia, Pennsylvania
August 8, 1995
<PAGE>
P-1
(Little Explorers)
PURCHASE AGREEMENT
This Purchase Agreement (the "Agreement") is
made and entered into the 31st day of March, 1995 by and among
Magic Years Child Care and Learning Centers, Inc., a
Pennsylvania corporation or its designee with offices at 851 Irwin
Street, Suite 200, San Rafael, California 94901 referred to as
"Buyer", and Little Explorers of Montgomery, Inc., a Pennsylvania
corporation with offices at 342 Central Avenue, Malvern,
Pennsylvania 19355, referred to as "Seller", and Barry L. Herr, an
individual with an address of 934 Retonda Parkway, Cape Coral,
Florida 33904, referred to as "Shareholder";
WHEREAS, Seller is engaged in the business of
operating child care centers;
WHEREAS, Seller desires to sell to Buyer and
Buyer desires to buy from Seller, certain of Seller's equipment,
tangible personal property, and other assets related to Seller's child
care business at Seller's center known as Little Explorer Child Care
Center, 375 Commerce Drive, Fort Washington, Pennsylvania;
NOW, THEREFORE, for good and valuable
consideration, the receipt, adequacy and sufficiency of which are
hereby acknowledged, subject to the terms and conditions hereof
, and intending to be legally bound hereby, the parties agree as
follows:
1. Definitions. In addition to the terms defined
elsewhere in this Agreement:
"Act" shall have the meaning set forth in Section
12(c).
"Agreement" shall mean this entire Purchase
Agreement, including the exhibits and leases attached hereto, or
referred to herein, as it may be amended from time to time in
writing by mutual agreement of Seller and Buyer.
"Assets" shall mean the Personal Property and
Equipment, Intellectual Property, Contracts, Supplies, and
Licenses and Permits, as such terms are defined herein. Assets
shall not include cash or accounts receivables.
"Assumed Liabilities" shall mean the liabilities set
forth on Exhibit "F" attached hereto and described more
specifically in Section 4 hereof.
"Building" shall mean the buildings, structures and
improvements, now or hereafter located on land utilized by the
Business.
"Business" means the child care centers operated by
Seller, at 375 Commerce Drive, Fort Washington, Pennsylvania.
"Center" shall mean 375 Commerce Drive, Fort
Washington, Pennsylvania.
"Closing" shall have the meaning set forth in
Section 10 hereof.
"Closing Date" shall have the meaning set forth in
Section 10 hereof.
"Consideration" shall have the meaning set forth in
Section 3 hereof.
"Contracts" shall mean the contracts and
agreements, and equipment rental agreements, warranties and/or
service contracts relating to the Center, as more particularly
described on Exhibit "F" attached hereto.
"Disclosure Schedule" shall mean the schedule set
forth on Exhibit "E" hereto.
"ERISA" shall mean the Employee Retirement
Income Security Act of 1974, as amended.
"Event of Default" shall have the meaning set forth
in Section 14.
"Financial Statements" shall have the meaning set
forth in Section 5(c).
"Intellectual Property" shall mean the trademarks,
tradenames, trademark applications, registration and renewals,
logos and corporate names (together with any derivations,
modifications or adaptations thereof, and all goodwill associated
therewith), patents (and applications), copyrights (and applications
and registrations), and all customer lists, advertising, promotional
materials and similar proprietary information related to the
Business, all of which are set forth on Exhibit "B" hereto.
"Knowledge" means actual knowledge after
reasonable investigation.
"Lease" shall mean a lease from the owner or
owners of a fee simple interest in the land and Building, or a
sublease from the lessee of such property, pursuant to which lease
or sublease Buyer shall have the right to use and occupy the
Center, including all amendments and modifications thereto, which
lease or sublease is more particularly described in Exhibit "L"
hereto.
"Licenses and Permits" shall mean the licenses and
permits currently held by Seller for the Center, including, without
limitation, license for food preparation, food stamps or other
welfare or social service programs, and other licenses, health, fire
marshal approval, business, sign and other permits, including those
issued by the Commonwealth of Pennsylvania and the county in
which the center is located affecting the occupancy of the land and
premises for the purpose of conducting the Business, all of which
licenses and permits are set forth in Exhibit "K" attached hereto.
"Personal Property and Equipment" shall mean all
furniture, equipment and other personal property which is set forth
on Exhibit "A" hereto. Personal property and equipment shall
include any personal property acquired prior to the Closing Date
by Seller and used in or in connection with the operation of the
Center or the Building but shall not include such personal proper
ty so affixed to the underlying real property so to be considered a
fixture.
"Prepaid Tuition" shall have the meaning set forth
in Section 2(b).
"Security Agreement" shall have the meaning set
forth in Section 10.
"Shareholder" shall mean Barry L. Herr, sole
shareholder of Seller.
"Supplies" shall mean the inventory of supplies
(e.g., paper, art supplies, crayons, books, educational materials,
writing materials, food service supplies, cleaning supplies) and like
kind or consumable materials utilized in the normal and ordinary
operation of the Center, whether on hand, stocked, shelved or
stored at or upon the Center, all of which are set forth on Exhibit
"C" hereto.
2. Sale of Assets. Effective June 1, 1995, Buyer
shall purchase and acquire from Seller, and Seller shall sell,
transfer, assign and convey to Buyer, free and clear of all liens,
claims and encumbrances of every kind, except those specifically
permitted by this Agreement, the following:
a. All of the Assets.
b. All right, title and interest in and to any existing
outstanding prepaid tuition, deposits, and registration fees (the
"Prepaid Tuition") collected by Seller in connection with the
Business and relating to a period following Closing, as described
in Exhibit "D" attached hereto and made a part hereof.
c. The covenant not to compete as described in Section 19 hereof.
3. Purchase Price
a. Seller. The purchase price for the Assets, the
Prepaid Tuition, the Intellectual Property and associated goodwill,
and the covenant not to compete is Two Hundred Fifty Two
Thousand Dollars ($252,000) (the "Consideration").
Pursuant to Section 26 hereof, the Consideration
shall be allocated and reported as follows:
$30,000 in consideration of the Assets exclusive of the
Intellectual Property), and Prepaid Tuition;
$72,500 in consideration of Seller's covenant not to compete;
$149,500 in consideration of the Intellectual Property.
$252,000 Total consideration paid to Seller.
The Consideration shall be payable to Seller as
follows:
(1) $29,000 upon execution of this Agreement, payable in immediately
available U.S. Dollars;
(2) $223,000 upon Closing, payable in immediately available U.S.
Dollars;
Any adjustments required or permitted to be made
to the Consideration pursuant to the terms and conditions of this
Agreement shall be made by adjusting the cash portion of the
Consideration set forth in subsection (2) above.
(b) Shareholder. The purchase price for
Shareholder's covenant not to compete is Twenty Five Thousand
Dollars ($25,000), payable to Shareholder upon Closing in
immediately available U.S. Dollars.
4. Buyer's Assumption of Liabilities. Buyer shall
assume those liabilities and obligations of Seller listed on Exhibit
"F" hereto (the "Assumed Liabilities"). Buyer and Seller agree that
Buyer does not assume or have any responsibilities for any existing
liability, obligation or commitment of any nature, except for the
Assumed Liabilities described in Exhibit "F" hereto relating to the
Business.
5. Representations and Warranties of Seller.
Except as otherwise disclosed in the Disclosure Schedule, Seller
represents and warrants to and agrees with Buyer as follows:
a. Seller is, as of the date hereof and will be on the Closing
Date, a corporation duly organized, validly existing and in good
standing under the laws of the Commonwealth of Pennsylvania.
Seller is authorized to carry on its business as presently conducted,
and Seller may lawfully perform this Agreement
b. Upon execution, this Agreement and all other
agreements, documents and instruments referenced herein and
executed in connection herewith are and will be the valid and
binding obligations of Seller, enforceable in accordance with their
terms and the execution, delivery and performance of this
Agreement, and such other agreements, documents and instruments
and the transactions contemplated hereunder, have been duly and
validly authorized by the Shareholder and Seller's Board of
Directors.
c. Seller has delivered to Buyer copies of its profit and loss
statements and balance sheets for the Center for 1992, 1993 and
1994, along with its 1992, 1993 and 1994 federal income tax
returns for years ending December 31, 1992, 1993 and 1994,
copies of which are attached hereto as Exhibit "G," all of which
fairly present the financial condition and results of operation of the
Seller as of such dates (the "Financial Statements"), and have been
prepared and completed in accordance with generally accepted
accounting principles.
d. Seller, as of execution hereof, has no liabilities or
obligations of any nature, whether accrued, absolute, contingent, or
otherwise, for any period prior to December 31, 1994 or arising out
of transactions entered into or any state of facts existing prior
thereto, except as disclosed in the Financial Statements or in
writing to Buyer, including, without limitation, tax liabilities due
or to become due, and whether incurred in respect of or measured by Seller's
income. Seller does not have Knowledge of any basis
for the assertion against Seller as of the date hereof or at Closing of
any liability of any nature which is material in amount and which
has not been disclosed to Buyer in writing.
e. Since December 31, 1994 there has not been any
damage, destruction or loss materially adversely affecting Seller's
property or Business, nor, to Seller's Knowledge, any event or
condition of any character materially and adversely affecting the
Business, nor any change in Seller's financial condition, assets,
liabilities, or business which has been materially adverse; and since
December 31, 1994 the Business has been operated in the ordinary
and normal course and there has been no material change in the
operation of the Business. Without limiting the generality of the
foregoing, except as set forth in the Financial Statements or the
Exhibits of this Agreement, since December 31, 1994, Seller has
not:
(1) Incurred any obligations or liabilities whether
absolute, accrued, contingent or otherwise and whether due or to
become due), except in the ordinary course of business and
consistent with past practice, nor without limiting the generality of
the foregoing, guaranteed, endorsed or assumed responsibility for
the debts or obligations of any person or entity.
(2) Except in the ordinary course of business and
consistent with its past practice, sold, leased or otherwise disposed
of any of its propety or assets, personal or mixed, tangible or
intangible, or permitted, caused, or allowed any of such properties
or assets to be mortgaged, pledged or subjected to any lien or
encumbrance.
(3) Disposed of, or permitted to lapse, any trademark or
copyright or any trademark or copyright application or license set
forth on Exhibit "B", or disposed of or disclosed to any person any
trade secret, license, permit, design, or formula.
(4) Other than in the normal course of business and
consistent with past practices, granted any general increase in the
compensation of employees (including, without limitation, any
increase pursuant to any bonus, pension, profit-sharing or other
plan or commitment), or any increase in any compensation payable
or to become payable to any officer or employee, and no such
increase (whether general or otherwise) is or has been required and
agreed, whether in writing or otherwise, to take any action
described in this subparagraph (e).
f. As of the Closing Date, Seller has the ability to transfer
the Assets, free and clear of all liens, encumbrances, and
agreements of every kind, nature and description.
g. The Personal Property and Equipment are in good
operating order, repair and condition, subject to reasonable wear
and tear, and coform in all respects to all applicable Federal, state
and local laws, ordinances and regulations.
h. Exhibit "B" hereto contains an accurate and complete
list and description of all trademarks, trade names, assumed names
and copyrights and all applications therefor, which are owned by
the Business. To Seller's Knowledge, no trademarks, trade names,
assumed names, copyrights, designs or designations used in its
business, infringes on any patents, trademarks, or copyrights, or
any other rights of any person. To Seller's Knowledge, there are
no claims of third parties to the use of Seller's trade names or any
similar names, and there is no basis for any such claim or claims.
i. Except common grievances in the normal course of
business and other ordinary employee problems, Seller has had no
notice of pending labor problems of any kind at the Center,
including, without limitation, disputes, controversies, grievances,
disturbances, and similar problems with any employees; and, to
Seller's Knowledge, there have been no attempts to organize the
employees of Seller by any union or similar association or
discussions with respect to any collective bargaining agreement of
any type to which Seller or its representative have been a party
during the preceding twenty-four (24) months.
j. Exhibit "H", attached hereto, lists all employees
currently employed by Seller and their job titles and current
salaries and other compensation (including a description of all
benefits paid by Seller, vacation and time off policies). Except as
otherwise set forth in Exhibit "H", none of such employees is
covered by a union contract and there are no retroactive increases
or other accrued and unpaid sums owed to any employee. Seller
does not have or make contributions to any defined benefit plan or
defined contribution plan for its employees that is subject to
ERISA. Exhibit "I", attached hereto, lists separately each student
of Seller, the grade or preschool or day care program in which said
student is enrolled, the applicable tuition rates, the hours and days
of attendance. Both Exhibit "H" and "I" shall be updated
immediately prior to Closing.
k. Except as set forth on Exhibit "E" hereto, the execution
and delivery of this Agreement and the performance of the
transactions contemplated hereby (i) do not, and will not, constitute
a violation of, and are not and will not be, a default under or
conflict with the terms of the Articles of Incorporation or By-Laws
of Seller, or any contract, indenture, agreement, order, judgment or
decree to which Seller is a party or by which Seller is bound or to
which any of the Assets are subject, and (ii) do not, and will not,
violate or constitute a default under any statute, rule, regulation,
order, or ordinance of any governmental, judicial or arbitral body.
l. No representation or warranty made in this Agreement or
in any statement or certificate furnished or to be furnished to Buyer
pursuant hereto knowingly contains any untrue statement of a
material fact or knowingly omits to state a material fact necessary
to make the statements contained therein not misleading.
m. Seller now has insurance coverage as set forth on
Exhibit "J" hereto. The insurance policies set forth on Exhibit "J"
are in full force and effect and will remain in full force and effect
up to the Closing.
n. The Licenses and Permits are, on the date hereof, and
will be in full force and effect on the Closing Date, without default
or notice of default. Notwithstanding the foregoing, Buyer
expressly acknowledges and agrees that this representation shall
not apply to any default or notice of default which arises from or is
caused by the failure of Seller to give timely notice of the
transaction contemplated by this Agreement as may be required
under such License or Permit.
o. To the Knowledge of Seller, there is, as of the date
hereof, no suit, action or legal, administrative, arbitration or other
proceeding of any nature pending or threatened against Seller or its
property which affects in any way Seller, or which might
materially or adversely affect the legality or validity of this
Agreement, the transactions contemplated hereby, or the continued
operations and earnings of the Business or which might materially
and adversely affect the enjoyment or use thereof by Buyer.
p. Seller has filed with the appropriate governmental
agencies all tax returns required to be filed by it, and has paid, or
made provision for the payment of, all taxes which have or may
become due pursuant to said returns or pursuant to any assessment
received by Seller as of the Closing Date, including all federal,
state, city and foreign income, profits, franchise, sales, use,
occupation, property, excise, or other taxes due in connection with
the Assets or the Business.
q. Except in the ordinary course of business, Seller has not
received any written or oral notice from any of Seller's customers
that any such customer will not continue to purchase the services
of Seller from and after the date hereof.
r. Except for defaults caused by Seller's failure to give
timely notice of the transaction contemplated by the Agreement, on
execution hereof and as of Closing, the Center is in substantial
compliance with all material licensing requirements of all
applicable governmental regulations, and Seller is unaware of any
licensing regulation or requirement from which the Center has
been exempted, which regulation or requirement could be imposed
as a condition of licensing any Center to Buyer.
s. Seller is not aware of any change in the configuration of
the Building that will be required upon the change in ownership of
the Business and the relicensing of the Business in Buyer's name.
t. To Seller's Knowledge, neither the Business nor the
Building is in violation of or delinquent in respect to, any law or
regulation of any governmental body or agency to which Seller
reports, and Seller has not heretofore received notice of any such
violations which violation has not been corrected.
u. Seller is unaware
(1) That any hazardous material (hereinafter defined) is
present at the Center;
(2) Of any discharge, spillage, uncontrolled loss, seepage or
filtration of any hazardous material at, upon or under the Center;
(3) Seller has not been, is not now, nor will be prior to the
Closing engaged in the generation, treatment, storage or disposal of
hazardous materials;
(4) To Seller's Knowledge, the Center does not now
contain, and during the period of Seller's occupancy has not
contained, any underground or above ground tanks for the storage
of fuel oil, gasoline and/or any other petroleum products or by
-products or hazardous materials;
(5) To Seller's Knowledge, Seller is in compliance with all
federal, state and local environmental laws now in effect relating to
hazardous materials and applicable to the Center;
(6) Seller has not received any notice of writs, injunctions,
decrees, orders or judgments outstanding, or suits, claims, actions,
proceedings or investigations instituted or threatened under any
environmental laws applicable to the Center; and
(7) As used herein, the term "hazardous material" shall
mean all materials designated as hazardous in the following
statutes: (a) "hazardous substances" as defined in Section 101(14)
of the Comprehensive Environmental Response, Compensation
and Liability Act of 1980, as amended, 42 U.S.C. 9601; (b)
"hazardous waste" as defined in the Resource Conservation and
Recovery Act of 1976, 42 U.S.C. 6903(5), as amended; (c) if not
included in (a) or (b), hazardous waste as defined in 40 CFR
260.10, specifically including Appendix VII and VIII of Subpart D
of 40 CFR 261; and (d) source, special nuclear or by-product
material as defined by the Atomic Energy Act of 954, as amended
(42 U.S.C. 3011, et seq., as amended).
w. Upon execution, the Lease is or will be a valid and
binding obligation of the parties thereto.
6. Buyer's Warranties and Representations. Buyer
represents and warrants and agrees with Seller as follows:
a. Buyer is a corporation duly organized, validly existing
and in good standing under the laws of the Commonwealth of
Pennsylvania and has all requisite power to conduct its business
and perform the transactions contemplated hereby. Buyer is duly
qualified to do business in the Commonwealth of Pennsylvania.
b. Upon execution, this Agreement and all other
agreements, documents and instruments referenced herein and
executed in connection herewith are and will be the valid and
binding obligations of Buyer, enforceable in accordance with their
terms and the execution, delivery and performance of this
Agreement, and such other agreements, documents and instruments
and the transactions contemplated hereunder, have been duly and
validly authorized by the Buyer's Board of Directors.
c. The execution and delivery of this Agreement and all
other agreements, documents and instruments executed pursuant
hereto, and the performance of the transactions contemplated
hereby (i) do not and will not constitute a violation of, and are not
and will not be a default under or conflict with the terms of the
Articles of Incorporation or By-Laws of Buyer, or any contract,
lease, indenture, agreement, order, judgment or decree to which
Buyer is a party or by which it is bound, and (ii) do not, and will
not, to the best of Buyer's Knowledge, violate or constitute a
default under any statute, rule, regulation, order or ordinance of
any governmental, judicial or arbitral body.
d. No representations or warranties by Buyer in this
Agreement, nor any written statement or certificate furnished, or to
be furnished by Buyer pursuant to this Agreement, or in connection
with the actions contemplated hereby, contain or shall contain any
untrue statement of material fact or omit or shall omit to state a
material fact necessary to make the statements contained therein
not misleading.
e. As set forth more specifically in Section 4 hereof with
regards to the Assumed Liabilities, Buyer agrees to assume and
perform all obligations of Seller relating to deposits and prepaid
tuition.
f. This Agreement and all other agreements, documents
and instruments executed pursuant hereto are and will be the valid
and binding obligations of Buyer, enforceable in accordance with
their terms and the execution, delivery and performance of this
Agreement, and such other agreements, documents and instruments
and the transactions contemplated hereunder, have been duly and
validly authorized by the Buyer's Board of Directors.
g. Buyer has delivered to Seller copies of the annual report
for Children's Discovery Centers of America, Inc. for the year
ended December 31, 1994, and its reports for the first quarter of
1995.
h. No representation or warranty made in this Agreement
or in any statement or certificate furnished or to be furnished to
Seller pursuant hereto knowingly contains any untrue statement of
a material fact or omits to state a material fact necessary to make
the statements contained therein not misleading, and there is no
material fact which adversely affects, insofar as Buyer can now
foresee, the business, prospects, condition, financial or otherwise,
of Buyer or Seller or any of their property or assets, which has not
been set forth herein, in any Exhibit hereto or in any certificate or
statement furnished by Buyer to Seller pursuant hereto.
i. There is, as of the date hereof, no suit, action or legal,
administrative, arbitration or other proceeding of any nature
pending or, to the Knowledge of Buyer, threatened against Buyer
or its property, which affects in any way Buyer, or which might
materially or adversely affect the legality or validity of this
Agreement, the transactions contemplated hereby, or the continued
operations and earnings of the business presently conducted by
Buyer.
j. Buyer has filed with the appropriate governmental
agencies all tax returns required to be filed by it, and has paid, or
made provision for the payment of, all taxes which have or may
become due pursuant to said returns or pursuant to any assessment
received by Buyer.
k. Consummation of the transaction contemplated hereby
shall be deemed a waiver of any unsatisfied condition.
7. Covenants. Seller warrants, covenants and
agrees with Buyer that, except as otherwise contemplated by this
Agreement or otherwise consented to by Buyer in writing, from th
e date hereof until Closing, Seller will take or cause to be taken all
necessary or appropriate action, to the extent practicable, to ensure
the following:
a. The Business will continue to be operated and conducted
substantially in the same manner in which this Business has
heretofore been conducted and no transactions shall be entered into
by or on behalf of this Business other than those that would be
entered into in the usual and ordinary course of its business.
b. Seller shall, consistent with prior practices, preserve the business
organization of the Business intact, retain the services of
its present employees, preserve the goodwill of its suppliers,
customers and others having business relations with the Business.
c. The Personal Property and Equipment will be maintained
in good operating condition and repair, ordinary wear and tear
excepted.
d. Seller shall not take any action inconsistent with the
satisfaction of the conditions, terms and provisions of this
Agreement or the consummation of the transactions contemplated
hereby.
e. Seller shall not take any action which would have the
effect of making any of Seller's warranties or representations
untrue, false or misleading.
f. Seller shall supply Buyer operating profit and loss
statements for the Business for each month of 1995 through April,
1995.
g. Seller shall maintain its level of Supplies at its normal
and customary levels through Closing.
h. Seller shall permit Buyer, its agents and accountants to
review all books, records, files and all other records pertaining to
the Business and similar records of all other related businesses or
operations with which the Business is combined for reporting
purposes.
7.A. Adjustment to Consideration. The following
adjustments shall be made at Closing to the cash portion of the
Consideration set forth in Section 3 of this Agreement:
a. The consideration shall be reduced by $5,000,
representing the liability for accrued vacation time and personal
time set forth on Exhibit "H" hereto, which liability is expressly
assumed by Buyer pursuant to Section 4 hereof.
b. The Consideration shall be reduced by the amount of the
Prepaid Tuition set forth on Exhibit "D" hereto. Buyer shall
expressly assume liability for the Prepaid Tuition pursuant to
Section 4 hereof.
c. The Consideration shall be increased by $10,000,
representing the security deposit held by the Landlord under the
Lease Agreement set forth as number 1 on Exhibit "F" hereto,
which Lease Agreement shall be assigned to Buyer pursuant to
Section 2 hereof.
8. Conditions Precedent to Buyer's Obligation to
Close. All obligations of Buyer under this Agreement and all other
agreements, documents, and instruments executed pursuant hereto
are subject to the fulfillment, on or prior to the Closing Date, of
each of the following conditions (any and all of which may be
waived in writing by Buyer in its sole discretion):
a. Seller's Representations and Warranties. The
representations and warranties of Seller herein contained shall be
true and correct in every material respect on and as of the Closing
Date with the same force and effect as though the same had been
made on and as of the Closing Date and Buyer shall have received
a certificate of Seller, executed on behalf of Seller and dated the
Closing Date, certifying as to the correctness of Seller's
representations and warranties.
b. Seller's Covenants. Seller shall have performed
all obligations and agreements and complied with all covenants
contained in this Agreement in every material respect required to
be performed and complied with by it on or prior to the Closing
Date.
c. Delivery of Documents. Seller shall have
delivered to Buyer on or prior to the Closing Date all the
documents set forth in this Agreement, including:
(1) Bills-of-sale, assignments, other documents of title, and
similar documents required to transfer unencumbered title of the
Assets to Buyer;
(2) Certified copy of Seller's Boards of Directors and
Shareholders' actions approving the transactions contemplated
hereby; and
(3) Certificates of good standing for Seller issued by the
Commonwealth of Pennsylvania;
d. (Intentionally omitted)
e. No Litigation. No action, suit or proceeding before any
court or any governmental or regulatory authority shall have been
commenced, no investigation by any governmental or regulatory
authority shall have been threatened against Seller (i) seeking to
restrain, prevent or modify the transactions contemplated hereby or
questioning the validity or legality of any of such transactions, or
(ii) which, if resolved
adversely to Seller, would materially and adversely affect the
Assets, the financial condition, Business, properties, or prospects
of the Business.
f. Form of Documents. All documents required under this
Agreement to be executed by Seller shall be in form and substance
reasonably acceptable to counsel for Buyer.
g. Buyer shall have received and entered into the Lease.
h. No material adverse change shall have occurred in the
Business, financial position, results of operations, operations or
prospects of Seller or the Business since the date of this
Agreement.
i. Seller shall have executed such other and further
documents, instruments and certificates not inconsistent with the
provisions of this Agreement as Buyer shall reasonably require to
carry out and effectuate the purposes and terms of this Agreement.
j. Buyer shall have received executed UCC-3's in
recordable form releasing all existing liens in the Assets.
k. At least five (5) days prior to Closing, Buyer shall have
received the Financial Statements.
l. Buyer shall not have received notice from any
appropriate licensing authority indicating that Buyer's applications
for any licenses and permits necessary for operation of the
Business will be denied.
m. The Purchase Agreement of even date by and between
Buyer and Day Care of Chester County, Inc. ("DCCC"), and Buyer
and Barry L. Herr relating to the purchase of Downingtown,
Malvern, Exton, and West Chester preschools owned by DCCC
and personal property, respectively, shall close simultaneously
herewith.
n. Buyer's independent certified accountants, Arthur
Andersen L.L.P., shall have confirmed to Buyer that they have
inspected Seller's books and records and will be able to deliver to
Buyer within sixty (60) days of the Closing any audits
contemplated by Section 12(c) hereof.
9. Conditions Precedent to Seller's Obligations to
Close. All obligations of Seller under this Agreement and all
other agreements, documents, and instruments executed pursuant
hereto are subject to the fulfillment on or prior to the Closing Date,
of each of the following conditions (any or all of which may be
waived in writing by Seller in its sole discretion):
a. Buyer's Representations and Warranties. The
representations and warranties of Buyer herein contained shall be
true and correct on and as of the Closing Date, in every material
respect, with the same force and effect as though the same had
been made on and as of the Closing Date, and Seller shall have
received a certificate of Buyer, executed on behalf of Buyer and
dated the Closing Date, certifying as to the correctness of Buyer's
representations and warranties.
b. Buyer's Covenants. Buyer shall have performed all
obligations and agreements and complied with all covenants
contained in this Agreement, in every material respect, required to
be performed or complied with by it on or prior to the Closing
Date.
c. No Litigation. No action, suit or proceeding by any
third party before any court or any governmental or regulatory
authority, shall have been commenced or threatened against Buyer
(i) seeking to restrain, prevent or modify the transaction
contemplated hereby or questioning the validity or legality of any
of such transactions, or (ii) which, if resolved adversely to Buyer,
would materially and adversely affect the financial condition,
business, properties, assets or prospects of Buyer.
d. Buyer shall deliver to Seller on or prior to the Closing
Date all the documents set forth in this Agreement, including: (i)
certified copy of Buyer's Board of Directors' actions approving the
transactions contemplated hereby; and (ii) the Lease.
e. Form of Documents. All documents required under this
Agreement to be executed by Buyer shall be in form and substance
reasonably acceptable to counsel for Seller.
f. Buyer shall have executed such other and further
documents, instruments and certificates not inconsistent with the
provisions of this Agreement as Seller shall reasonably require to
carry out and effectuate the purposes and terms of this Agreement.
g. There shall have been no material adverse change in
Buyer's business as represented by Buyer's financial statements for
the period from the date of Buyer's last financial statement to
Closing.
10. Closing. The closing of the purchase and sale
contemplated by this Agreement (the "Closing") shall take place at
the offices of Siana & Shields, P.C., counsel for Seller, at 10:00
a.m. on May 31, 1995, or at such other place and time as may be
fixed by written agreement of the parties (the "Closing Date").
11. Risk of Loss, Casualty or Destruction. If the
Center, its building, fixtures, equipment or supplies shall be
damaged or destroyed prior to the Closing, Seller promptly shall
repair, replace and restore the same to the condition thereof
existing immediately prior to such damage or destruction. In the
event that such repair, replacement and restoration has not been
undertaken or completed prior to the Closing, then at the Closing,
Seller shall remit to Buyer an amount sufficient to fully repair,
replace and restore the same or complete the repair, replacement
and restoration thereof after the Closing. If, however, the Building
or Center shall be damaged or destroyed to such an extent that (i)
the tenant under the Lease would have the right to terminate the
Lease, (ii) it shall be impossible or impractical in Buyer's
reasonable business judgment under the applicable building,
zoning and other codes, laws and regulations then prevailing, to
repair, replace and restore such buildings substantially to their
condition immediately prior to such damage or destruction, and
(iii) Buyer has not elected to receive from Seller an amount
sufficient to cause repair, replacement or restoration as hereinabove
provided, then Buyer may elect, in its sole discretion, to terminate
this Agreement by delivery to Seller of a written notice to such
effect.
12. Post Closing Covenants. The parties covenant
and agree to take the following actions simultaneously with or
immediately following the Closing:
a. Seller shall be responsible for all utilities, supplier and
other bills, and payroll expenses rendered and delivered up to and
including the Closing Date, other than the Assumed Liabilities, and
shall pay same within thirty (30) days of the Closing.
b. Seller shall make available to Buyer all books, records
and files, financial and otherwise, pertaining to the Business for the
last three (3) complete years, including, but not limited to,
customer lists, credit, collection and sales records, personnel
records of persons employed by Seller who become employees of
Buyer, pricing policies including discounts and rebates, and such
other records reasonably necessary in order to enable Buyer to
conduct the Business as Seller has in the past in order that Buyer
can make copies thereof. Buyer shall pay all costs associated with
copying information to be supplied by Seller to Buyer subsequent
to Closing.
c. Seller acknowledges that Buyer is a publicly-held
company, subject to the reporting provisions of Section 13 of the
Securities Exchange Act of 1934, as amended (the "Act"), and that
Buyer may be required by the Act and the rules and regulations of
the Securities and Exchange Commission to include audited
financial statements including balance sheets and income
statements of the Business for the Seller's three (3) prior fiscal
years in reports filed by Buyer. If required by Buyer, Seller shall
use its best efforts, at Buyer's request, both before and after
Closing, to assist Buyer in obtaining and preparing audited
financial statements for three (3) years, such efforts to include, but
not be limited to, cooperating by signing customary representation
letters required by Buyer's independent auditors, as well as making
all records, accounts and files, financial or otherwise, available
pertaining to the Business. If the records and other information
pertaining to the Business are included with or reported together or
in combination with any other business or businesses, Seller shall
make all such records available so as to permit Buyer or its
accountants to make appropriate allocations and perform all such
calculations necessary to complete its audit. Notwithstanding
anything to the contrary contained herein, Buyer shall pay for all
costs and expenses, including Seller's attorneys fees incurred
pursuant to this Section 12(c).
d. Buyer agrees to transfer or remit to Seller, within five (5) days after
receipt thereof, any payments received by Buyer on
account of accounts receivable of the Business attributable to
periods prior to the effective date of the Sale of Assets
contemplated hereby. Buyer's sole obligation with respect to this
Section 12(d) shall be to transfer or remit the aforedescribed
payments and in no event shall Buyer be responsible for cashing
any checks or initiating any collection actions for overdue accounts
receivable. Buyer's obligation to transfer or remit the
aforedescribed payments shall be deemed fulfilled when such
payments are deposited in the United States mail. It is understood
that accounts receivable will include all bills rendered by Seller to
customers for services performed by Seller, to and including the
close of business on May 31, 1995.
13. Survival of Representations. All of the
representations and warranties of the Seller contained in Section 5
above shall survive the Closing hereunder and continue in full
force and effect for one year thereafter. All of the representations
and warranties of Buyer and Buyer's guarantor contained in
Section 6 above, and the covenants contained in Section 12 above,
shall survive the Closing hereunder and continue in full force and
effect subject to any applicable statutes of limitations.
14. Indemnification by Seller.
a. Indemnification Generally. For a period
of one (1) year following the Closing hereunder, Seller agrees to
indemnify, defend, and hold harmless Buyer against and in respect
of any and all claims, demands, losses, costs, expenses,
obligations, liabilities, damages, recoveries, and deficiencies,
including interest, penalties, and reasonable attorneys fees, that
Buyer shall incur or suffer, that arise, result from or relate to any
Event of Default. Seller's liability under this Section shall not,
however, exceed the Consideration. For the purposes of this
Section 14, the term "Event of Default" shall mean the breach by
Seller or any of its surviving representations, warranties,
covenants, or agreements set forth in this Agreement which
remains uncured for thirty (30) days; provided, however, that if the
breach is of a nature such that it cannot reasonably be cured within
such thirty (30) day period, then the breach shall constitute an
Event of Default only if Seller has not commenced in good faith to
cure such breach within such thirty (30) day period.
b. Third Party Claims. Buyer shall promptly
notify Seller of the existence of any claim, demand, or other matter
to which Seller's indemnification obligations would apply, and
shall give it a reasonable opportunity to defend the same at its own
expense and with counsel of its own selection; provided that Buyer
shall at all times also have the right to fully participate in the
defense at its own expense. If Seller shall, within a reasonable
time after this notice, fail to defend, Buyer shall have the right, but
not the obligation, to undertake the defense of, and to compromise
or settle (exercising reasonable business judgment), the claim or
other matter on behalf, for the account, and at the risk, of Seller. If
the claim is one that cannot by its nature be defended solely by
Seller (including, without limitation, any federal or state tax
proceeding), then Buyer shall make available all information and
assistance that Seller may reasonably request.
15. Indemnification by Buyer. For so long as the
applicable statute of limitation period, Buyer and its guarantor
agree to indemnify and hold harmless Seller against, and in respect
of, any and all claims, losses, expenses, costs, obligations, and
liabilities is may incur by reason of Buyer's breach of or failure to
perform any of its warranties, guaranties, commitments, or
covenants in this Agreement, or by reason of any act or omission
of Buyer, or any of its successors or assigns, after the Closing
Date, that constitutes a breach or default under, or a failure to
perform, any obligation, duty, or liability of Seller under any loan
agreement, lease, contract, order, or other agreement to which it is
a party or by which it is bound at the Closing Date, but only to the
extent to which Buyer expressly assumes these obligations, duties
and liabilities under this Agreement. Seller shall promptly notify
Buyer of the existence of any claim, demand, or other matter to
which Buyer's indemnification obligations would apply, and shall
give Buyer a reasonable opportunity to defend the same at its own
expense and with counsel of its own selection; provided that Seller
shall at all times also have the right to fully participate in the
defense at its own expense. If Buyer shall, within a reasonable
time after this notice, fail to defend, Seller shall have the right, but
not the obligation, to undertake the defense of, and to compromise
or settle (exercising reasonable business judgment), the claim or
other matter on behalf, for the account, and at the risk, of Buyer.
If the claim is one that cannot by its nature be defended solely by
Buyer (including, without limitation, any federal or state tax
proceeding), then Seller shall make available all information and
assistance that Buyer may reasonably request.
16. Taxes. Sales or use taxes incurred pursuant to
the purchase by Buyer of the Assets shall be paid by Seller. All
other taxes, including but not limited to excise and other types of
transaction taxes, documentary stamps, transfer taxes and/or
assessments on the transaction of whatever nature, if any, shall be
paid at Closing by Seller. Moreover, any taxes, assessments, or
other charges of any kind, arising from, measured by, or
attributable to any operations, events or conditions prior to
Closing, including but not limited to any gross receipts, income,
payroll or other forms of taxation of any kind shall be paid by
Seller. Any taxes, assessments or other charges of any kind arising
from, measured by, or attributable to any operations, events or
condition after Closing, including but not limited to any gross
receipts, income, payroll or other forms of taxation of any kind,
shall be paid by Buyer.
17. Attorney Fees. If any legal action or any
arbitration or other proceeding is brought for the enforcement of
this Agreement, or because of an alleged dispute, breach, default,
or misrepresentation in connection with any of the provisions of
this Agreement, the successful or prevailing party or parties shall
be entitled to recover reasonable attorneys' fees and other costs
incurred in that action or proceeding, in addition to any other relief
to which it or they may be entitled. Otherwise, each party hereto
shall bear its own legal fees. Except as otherwise set forth herein,
each of the parties shall bear its own expenses and costs incurred in
connection with the performance of this Agreement.
18. Governing Law. This Agreement shall be
governed by and construed in accordance with the domestic laws
of, and enforced in the Commonwealth of Pennsylvania, without
giving effect to any choice or conflict of law provision or rule that
would cause the application of the laws of any jurisdiction other
than the Commonwealth of Pennsylvania. The parties submit to
the exclusive jurisdiction of the Court of Common Pleas of Chester
County, Pennsylvania and the United States District Court for the
Eastern District of Pennsylvania.
19. Covenant Not To Compete. As an integral part
of the consideration for and inducement to Buyer to enter into and
consummate this Agreement, neither Seller nor Shareholder for
five (5) years from the Closing Date shall, directly or indirectly, as
partner, owner, officer, director or stockholder of any other person,
firm, partnership or corporation, engage in, or aid or assist anyone
else to engage in, the establishment and operation of a child care
facility or other based child care facility or competitively solicit
any "customers" or "students" of Buyer, or aid or assist anyone else
to engage in any business in competition therewith in any location
within twenty (20) miles of the Center or in the county where the
Center is presently operated, so long as Buyer, or its parent,
affiliates, subsidiaries or successors or assigns, carries on a like
business at said location. If, however, Buyer ceases to operate the
premises where the Center is currently located as a child care
center then the covenant shall not be further effective.
If this covenant or any particular portion thereof be
extent any provision hereof is deemed unenforceable by virtue of
its scope in terms of area or length of time, but may be made
enforceable by limitations thereon, the parties agree that the same
shall, nevertheless, be enforceable to the full extent permissible
under the laws and public policies applying in such jurisdiction
where enforcement is sought, or failing that, then the
unenforceable covenant shall be eliminated from these provisions
for the purpose of any enforcement proceeding to the extent
necessary to permit the remaining covenants to be enforced.
Seller and Shareholder expressly acknowledge that
damages alone will be an inadequate remedy for any breach or
violation of any of the provisions of this covenant, and that Buyer,
in addition to all other remedies under this Agreement, shall be
entitled as a matter of right to injunctive relief, including specific
performance, with respect to any such breach or violation, in any
court of competent jurisdiction.
20. Licenses and Permits.
a. Seller agrees to transfer to Buyer the Licenses
and Permits to the extent that such Licenses and Permits are
transferable. In addition, Seller shall cooperate with Buyer and
shall take such measures as are reasonably necessary in order to
enable Buyer to receive all appropriate Licenses and Permits; and
agrees to execute all documents reasonably necessary in order to
enable Buyer to receive such Licenses or Permits; provided,
however, that Buyer shall pay all fees, costs and expenses,
including reasonable attorneys' fees, incurred by Seller in
connection with the performance of Seller's obligations under this
Section.
b. Buyer acknowledges and agrees that certain of
the Licenses and Permits require notice which may make it
impossible for Buyer to acquire such License or Permit prior to the
Closing Date, and Buyer nevertheless desires to close the
transaction contemplated hereby on the Closing Date. In order to
induce Seller to do the same, Buyer agrees that notwithstanding
any representation or agreement to the contrary in this Agreement:
(1) The transfer of such Licenses and Permits to
Buyer is not a condition precedent to Buyer's obligations under this
Agreement.
(2) Buyer is not relying on the continued
validity of such Licenses and Permits.
(3) Provided that Seller is not in default of
its obligations under Section 20(a) above, Seller shall not be
responsible in any manner whatsoever for Buyer's failure to obtain
the permits, and the Closing shall not be prevented or delayed by
Buyer's failure to obtain any of the Licenses and Permits.
21. The Recitals and Exhibits hereto are
incorporated herein by this reference.
22. Expenses. Except as otherwise expressly
provided herein, Buyer shall be responsible for all fees and
expenses in connection with the execution and delivery of this
Agreement and the performance of its obligations hereunder.
23. Benefit. This Agreement shall be binding upon
and inure to the benefit of the parties hereto, and their respective
heirs, executors, administrators, successors and assigns.
24. Notice. All necessary notices, payments,
demands and requests shall be in writing and shall be deemed duly
given if mailed by certified mail, postage prepaid, return receipt
requested, or by recognized overnight express delivery carrier that
provides a receipt, and addressed as follows:
IF TO SELLER: Little Explorers of Montgomery, Inc.
342 Central Avenue
Malvern, Pennsylvania
With a copy to: Steve Siana
Siana & Shields
One East Uwchlan Avenue, Suite 301
Exton, PA 19341
IF TO BUYER: Magic Years Child Care and Learning Centers, Inc.
851 Irwin St., Suite 200
San Rafael, California 94901
Attn: Frank A. Devine, Esq.
and
Richard. A. Niglio, President
Either party may change its address for notice by giving notice of
change of address in the manner set forth above.
25. Headings. The headings of the Sections of this
Agreement are for convenience of reference only and do not form a
part hereof and in no way modify, interpret or construe the
meanings of the parties.
26. Tax Reporting. The parties hereto agree and
acknowledge that the determination of the price for each of the
Assets and the covenant not to compete is the result of arms-length
negotiations between the parties, and the parties agree and warrant
and represent to each other, that their respective tax returns and
those of any parent, subsidiary or affiliated entity shall report the
transactions contemplated by this Agreement in accordance with
the characterization and allocated prices of the various Assets and
the covenant not to compete set forth in this Agreement.
27. Entire Agreement. This Agreement, together
with the other agreements referred to herein and the Exhibits
hereto, sets forth the entire agreement and understanding between
the parties as to the subject matter hereof and merges with and
supersedes all prior discussions, agreements and understandings
with respect hereto.
28. Further Assurances. Each party hereto agrees
that it will, without further consideration, cooperate with the other
during the performance of Buyer's diligence including supplying
additional financial information, execute and deliver such other
documents, and take such other action as may reasonably be
requested in order to consummate the transactions contemplated
hereby and confirm and assure to Buyer title to all the Assets. The
provisions of this Section 28 shall survive the Closing.
29. Counterparts. This Agreement may be signed
in any number of counterparts, each of which shall be deemed an
original, but all of which shall constitute one and the same
instrument.
30. Proration Year. Except as otherwise provided
in this Agreement, any items of income or expense to be allocated
or prorated between Buyer and Seller pursuant to this Agreement
shall be computed on the basis of a 365 day year and the actual
number of days elapsed for any portion thereof.
31. Severability. If any provision of this
Agreement is declared invalid in a court proceeding between the
parties, such invalidity shall not invalidate this Agreement, and
this Agreement shall be construed as if the invalid part were not
contained herein, and the rights and obligations of the parties shall
be construed as if the invalid part were not contained herein, and
the rights and obligations of the parties shall be construed and
enforced accordingly.
32. Confidentiality. The parties agree to keep all
information and documentation exchanged in the course of this
transaction in confidence from third parties. Should this
transaction not close, each party agrees to return all documents and
copies thereof, and other information to the party which supplied
the same. Seller shall not issue a press release related to this
transaction until Buyer has issued its press release.
33. Brokers. Each party represents that it has dealt
with no broker or finder in connection with any transaction
contemplated by this Agreement, and, as far as it knows, no broker
or other person is entitled to any commission or finder's fee in
connection with any of these transactions.
34. Assignment. Neither party may assign this
Agreement without the prior written consent of the other parties,
except that Buyer may assign this Agreement to any subsidiary it
owns or controls provided the Buyer executes and delivers Buyer's
guaranty in a form reasonably acceptable to Seller's counsel.
IN WITNESS WHEREOF, the parties have
executed this Agreement under seal as of the day and year first
above written.
WITNESS: SELLER:
LITTLE
EXPLORERS OF MONTGOMERY, INC.
a Pennsylvania corporation
_________________________ By:_______________________________
Title:______________________________
__________________________________
Barry L. Herr
By his execution hereof, Barry L. Herr agrees to be personally
bound as to Section 19 only.
WITNESS: BUYER:
MAGIC YEARS
CHILD CARE AND LEARNING
CENTERS, INC., a
Pennsylvania corporation
________________________ By:________________________________
Title:______________________________
LIST OF EXHIBITS
Exhibit A Personal Property and Equipment
Exhibit B Tradenames
Exhibit C Supplies
Exhibit D List of prepaid tuition, deposits and registration fees
Exhibit E Disclosure Schedule
Exhibit F Assumed Liabilities
Exhibit G Seller's tax returns and Financial Statements
Exhibit H Employees, job titles and salaries
Exhibit I Children, ages and tuition rates
Exhibit J Seller's insurance policies
Exhibit K Licenses and Permits
Exhibit L Form of Lease
<PAGE>
P-2
(DCCC)
PURCHASE AGREEMENT
This Purchase Agreement (the "Agreement") is
made and entered into the 31st day of Marcch, 1995 by and among
Magic Years Child Care and Learning Centers, Inc., a
Pennsylvania corporation or its designee with offices at 851 Irwin
Street, Suite 200, San Rafael, California 94901 referred to as
Pennsylvania 19355, referred to as "Seller", and Barry L. Herr, an
individual with an address of 934 Retonda Parkway, Cape Coral,
Florida, 33904, referred to as "Shareholder";
WHEREAS, Seller is engaged in the business of
operating child care centers;
WHEREAS, Seller desires to sell to Buyer and
Buyer desires to buy from Seller, certain of Seller's equipment,
tangible personal property, and other assets related to Seller's child
care business at Seller's center known as Little Explorer Child Care
Center, 375 Commerce Drive, Fort Washington, Pennsylvania;
NOW, THEREFORE, for good and valuable
consideration, the receipt, adequacy and sufficiency of which are
hereby acknowledged, subject to the terms and conditions hereof,
and intending to be legally bound hereby, the parties agree as
follows:
1. Definitions. In addition to the terms defined
elsewhere in this Agreement:
"Act" shall have the meaning set forth in Section
12(c).
"Agreement" shall mean this entire Purchase
Agreement, including the exhibits and leases attached hereto, or
referred to herein, as it may be amended from time to time in
writing by mutual agreement of Seller and Buyer.
"Assets" shall mean the Personal Property and
Equipment, Intellectual Property, Contracts, Supplies, and
Licenses and Permits, as such terms are defined herein. Assets
shall not include cash or accounts receivables.
"Assumed Liabilities" shall mean the liabilities set
forth on Exhibit "F" attached hereto and described more
specifically in Section 4 hereof.
"Building" shall mean the buildings, structures and
improvements, now or hereafter located on land utilized by the
Business.
"Business" means the child care centers operated by
Seller, at (1) 340 Central Avenue, Malvern; (2) 1154 West Chester
Pike, West Chester; (3) 101 Gordon Drive, Exton; and (4) 799 E.
Lincoln Highway, Downingtown.
"Centers" shall mean (1) 340 Central Avenue,
Malvern; (2) 1154 West Chester Pike, West Chester; (3) 101
Gordon Drive, Exton; and (4) 799 E. Lincoln Highway,
Downingtown.
"Closing" shall have the meaning set forth in
Section 10 hereof.
"Closing Date" shall have the meaning set forth in
Section 10 hereof.
"Consideration" shall have the meaning set forth in
Section 3 hereof.
"Contracts" shall mean the contracts and
agreements, and equipment rental agreements, warranties and/or
service contracts relating to the Center, as more particularly
described on Exhibit "F" attached hereto.
"Disclosure Schedule" shall mean the schedule set
forth on Exhibit "E" hereto.
"ERISA" shall mean the Employee Retirement
Income Security Act of 1974, as amended.
"Event of Default" shall have the meaning set forth in Section 14.
"Financial Statements" shall have the meaning set
forth in Section 5(c).
"Guaranty" shall mean the guaranty of Children's
Discovery Centers of America, Inc. in the form attached hereto as
Exhibit O, as described more particularly in Section 10.
"Intellectual Property" shall mean the trademarks,
tradenames, trademark applications, registration and renewals,
logos and corporate names (together with any derivations,
modifications or adaptations thereof, and all goodwill associated
therewith), patents (and applications), copyrights (and applications
and registrations), and all customer lists, advertising, promotional
materials and similar proprietary information related to the
Business, all of which are set forth on Exhibit "B" hereto.
"Knowledge" means actual knowledge after
reasonable investigation.
"Lease" shall mean a lease from the owner or
owners of a fee simple interest in the land and Building, or a
sublease from the lessee of such property, pursuant to which lease
or sublease Buyer shall have the right to use and occupy the
Center, including all amendments and modifications thereto,
which lease or sublease is more particularly described in Exhibit
"L" hereto.
"Licenses and Permits" shall mean the licenses and
permits currently held by Seller for the Center, including, without
limitation, license for food preparation, food stamps or other
welfare or social service programs, and other licenses, health, fire
marshal approval, business, sign and other permits, including
those issued by the Commonwealth of Pennsylvania and the
county in which the center is located affecting the occupancy of the
land and premises for the purpose of conducting the Business, all
of which licenses and permits are set forth in Exhibit "K" attached
hereto.
"Note" shall have the meaning set forth in Section
3.
"Personal Property and Equipment" shall mean all
furniture, equipment and other personal property which is set forth
on Exhibit "A" hereto. Personal property and equipment shall
include any personal property acquired prior to the Closing Date
by Seller and used in or in connection with the operation of the
Center or the Building but shall not include such personal property
so affixed to the underlying real property so to be considered a
fixture.
"Prepaid Tuition" shall have the meaning set forth
in Section 2(b).
"Security Agreement" shall have the meaning set
forth in Section 10.
"Shareholder" shall mean Barry L. Herr, sole
shareholder of Seller.
"Supplies" shall mean the inventory of supplies
(e.g., paper, art supplies, crayons, books, educational materials,
writing materials, food service supplies, cleaning supplies) and like
kind or consumable materials utilized in the normal and ordinary
operation of the Center, whether on hand, stocked, shelved or
stored at or upon the Center, all of which are set forth on Exhibit
"C" hereto.
2. Sale of Assets. Effective June 1, 1995, Buyer
shall purchase and acquire from Seller, and Seller shall sell,
transfer, assign and convey to Buyer, free and clear of all liens,
claims and encumbrances of every kind, except those specifically
permitted by this Agreement, the following:
a. All of the Assets.
b. All right, title and interest in and to any existing
outstanding prepaid tuition, deposits, and registration fees (the
"Prepaid Tuition") collected by Seller in connection with the
Business and relating to a period following Closing, as described
in Exhibit "D" attached hereto and made a part hereof.
c. The covenant not to compete as described in Section 19 hereof.
3. Purchase Price.
a. Seller. The purchase price for the Assets,
the Prepaid Tuition, and the covenant not to compete is Two
Million Four Hundred Ninety Thousand Dollars ($2,490,000) (the
"Consideration").
Pursuant to Section 26 hereof, the Consideration
shall be allocated and reported as follows:
$ 46,000 in consideration of the Assets
(exclusive of the Intellectual
Property), and Prepaid
Tuition;
$ 507,500 in consideration of Seller's
covenant not to compete;
$1,936,500 in consideration of the
Intellectual Property.
$2,490,000 Total consideration paid to
Seller.
The Consideration shall be payable to Seller as
follows:
(1) $261,000 upon execution of this Agreement, payable in
immediately available U.S. Dollars;
(2) $1,129,000 upon Closing, payable in immediately available
U.S. Dollars;
(3) Delivery of Buyer's note in the form of Exhibit "M" attached
hereto (the "Note") in the principal amount of One Million One
Hundred Thousand Dollars ($1,100,000), bearing nine percent
(9%) interest per year, payable in monthly installments of
Thirteen Thousand Nine Hundred thirty Four Dollars and
Thirty-four Center ($13,934.34).
Any adjustments required or permitted to be made
to the Consideration pursuant to the terms and conditions of this
Agreement shall be made by adjusting the cash portion of the
Consideration sets forth in subsection (2) above.
(b) Shareholder: The purchase price for
Shareholder's covenant not to compete is One Hundred Twenty
Thousand Dollars ($120,000), payable to Shareholder upon
Closing in immediately available U.S. Dollars.
4. Buyer's Assumption of Liabilities. Buyer shall
assume those liabilities and obligations of Seller listed on Exhibit
"F" hereto (the "Assumed Liabilities"). Buyer and Seller agree that
Buyer does not assume or have any responsibilities for any existing
liability, obligation or commitment of any nature, except for the
Assumed Liabilities described in Exhibit "F" hereto relating to the
Business.
5. Representations and Warranties of Seller.
Except as otherwise disclosed in the Disclosure Schedule, Seller
represents and warrants to and agrees with Buyer as follows:
a. Seller is, as of the date hereof and will be on the Closing
Date, a corporation duly organized, validly existing and in good
standing under the laws of the Commonwealth of Pennsylvania.
Seller is authorized to carry on its business as presently conducted,
and Seller may lawfully perform this Agreement
b. Upon execution, this Agreement and all other
agreements, documents and instruments referenced herein and
executed in connection herewith are and will be the valid and
binding obligations of Seller, enforceable in accordance with their
terms and the execution, delivery and performance of this
Agreement, and such other agreements, documents and instruments
and the transactions contemplated hereunder, have been duly and
validly authorized by the Shareholder and Seller's Board of
Directors.
c. Seller has delivered to Buyer copies of its profit and loss
statements and balance sheets for the Center for 1992, 1993 and
1994, along with its 1992, 1993 and 1994 federal income tax
returns for years ending December 31, 1992, 1993 and 1994,
copies of which are attached hereto as Exhibit "G," all of which
fairly present the financial condition and results of operation of the
Seller as of such dates (the "Financial Statements"), and have been
prepared and completed in accordance with generally accepted
accounting principles.
d. Seller, as of execution hereof, has no liabilities or
obligations of any nature, whether accrued, absolute, contingent, or
otherwise, for any period prior to December 31, 1994 or arising out
of transactions entered into or any state of facts existing prior
thereto, except as disclosed in the Financial Statements or in
writing to Buyer, including, without limitation, tax liabilities due
or to become due, and whether incurred in respect of or measured
by Seller's income. Seller does not have Knowledge of any basis
for the assertion against Seller as of the date hereof or at Closing of
any liability of any nature which is material in amount and which
has not been disclosed to Buyer in writing.
e. Since December 31, 1994 there has not been any
damage, destruction or loss materially adversely affecting Seller's
property or Business, nor, to Seller's Knowledge, any event or
condition of any character materially and adversely affecting the
Business, nor any change in Seller's financial condition, assets,
liabilities, or business which has been materially adverse; and since
December 31, 1994 the Business has been operated in the ordinary
and normal course and there has been no material change in the
operation of the Business. Without limiting the generality of the
foregoing, except as set forth in the Financial Statements or the
Exhibits of this Agreement, since December 31, 1994, Seller has
not:
(1) Incurred any obligations or liabilities whether
absolute, accrued, contingent or otherwise and whether due or to
become due), except in the ordinary course of business and
consistent with past practice, nor without limiting the generality of
the foregoing, guaranteed, endorsed or assumed responsibility for
the debts or obligations of any person or entity.
(2) Except in the ordinary course of business and
consistent with its past practice, sold, leased or otherwise disposed
of any of its property or assets, personal or mixed, tangible or
intangible, or permitted, caused, or allowed any of such properties
or assets to be mortgaged, pledged or subjected to any lien or
encumbrance.
(3) Disposed of, or permitted to lapse, any trademark or
copyright or any trademark or copyright application or license set
forth on Exhibit "B", or disposed of or disclosed to any person any
trade secret, license, permit, design, or formula.
(4) Other than in the normal course of business and
consistent with past practices, granted any general increase in the
compensation of employees (including, without limitation, any
increase pursuant to any bonus, pension, profit-sharing or other
plan or commitment), or any increase in any compensation payable
or to become payable to any officer or employee, and no such
increase (whether general or otherwise) is or has been required and
agreed, whether in writing or otherwise, to take any action
described in this subparagraph (e).
f. As of the Closing Date, Seller owns the Assets, free and
clear of all liens, encumbrances, and agreements of every kind,
nature and description.
g. The Personal Property and Equipment are in good
operating order, repair and condition, subject to reasonable wear
and tear, and conform in all respects to all applicable Federal, state
and local laws, ordinances and regulations.
h. Exhibit "B" hereto contains an accurate and complete
list and description of all trademarks, trade names, assumed names
and copyrights and all applications therefor, which are owned by
the Business. To Seller's Knowledge, no trademarks, trade names,
assumed names, copyrights, designs or designations used in its
business, infringes on any patents, trademarks, or copyrights, or
any other rights of any person. To Seller's Knowledge, there are
no claims of third parties to the use of Seller's trade names or any
similar names, and there is no basis for any such claim or claims.
i. Except common grievances in the normal course of
business and other ordinary employee problems, Seller has had no
notice of pending labor problems of any kind at the Center,
including, without limitation, disputes, controversies, grievances,
disturbances, and similar problems with any employees; and, to
Seller's Knowledge, there have been no attempts to organize the
employees of Seller by any union or similar association or
discussions with respect to any collective bargaining agreement of
any type to which Seller or its representative have been a party
during the preceding twenty-four (24) months.
j. Exhibit "H", attached hereto, lists all employees
currently employed by Seller and their job titles and current
salaries and other compensation (including a description of all
benefits paid by Seller, vacation and time off policies). Except as
otherwise set forth in Exhibit "H", none of such employees is
covered by a union contract and there are no retroactive increases
or other accrued and unpaid sums owed to any employee. Seller
does not have or make contributions to any defined benefit plan or
defined contribution plan for its employees that is subject to
ERISA. Exhibit "I", attached hereto, lists separately each student
of Seller, the grade or preschool or day care program in which said
student is enrolled, the applicable tuition rates, the hours and days
of attendance. Both Exhibit "H" and "I" shall be updated
immediately prior to Closing.
k. Except as set forth on Exhibit "E" hereto, the execution
and delivery of this Agreement and the performance of the
transactions contemplated hereby (i) do not, and will not, constitute
a violation of, and are not and will not be, a default under or
conflict with the terms of the Articles of Incorporation or By-Laws
of Seller, or any contract, indenture, agreement, order, judgment or
decree to which Seller is a party or by which Seller is bound or to
which any of the Assets are subject, and (ii) do not, and will not,
violate or constitute a default under any statute, rule, regulation,
order, or ordinance of any governmental, judicial or arbitral body.
l. No representation or warranty made in this Agreement or
in any statement or certificate furnished or to be furnished to
Buyer pursuant hereto knowingly contains any untrue statement of
a material fact or knowingly omits to state a material fact necessary
to make the statements contained therein not misleading.
m. Seller now has insurance coverage as set forth on
Exhibit "J" hereto. The insurance policies set forth on Exhibit "J"
are in full force and effect and will remain in full force and effect
up to the Closing.
n. The Licenses and Permits are, on the date hereof, and
will be in full force and effect on the Closing Date, without default
or notice of default. Notwithstanding the foregoing, Buyer
expressly acknowledges and agrees that this representation shall
not apply to any default or notice of default which arises from or is
caused by the failure of Seller to give timely notice of the
transaction contemplated by this Agreement as may be required
under such License or Permit.
o. To the Knowledge of Seller, there is, as of the date
hereof, no suit, action or legal, administrative, arbitration or other
proceeding of any nature pending or threatened against Seller or its
property which affects in any way Seller, or which might
materially or adversely affect the legality or validity of this
Agreement, the transactions contemplated hereby, or the continued
operations and earnings of the Business or which might materially
and adversely affect the enjoyment or use thereof by Buyer.
p. Seller has filed with the appropriate governmental
agencies all tax returns required to be filed by it, and has paid, or
made provision for the payment of, all taxes which have or may
become due pursuant to said returns or pursuant to any assessment
received by Seller as of the Closing Date, including all federal,
state, city and foreign income, profits, franchise, sales, use,
occupation, property, excise, or other taxes due in connection with
the Assets or the Business.
q. Except in the ordinary course of business, Seller has not
received any written or oral notice from any of Seller's customers
that any such customer will not continue to purchase the services
of Seller from and after the date hereof.
r. Except for defaults caused by Seller's failure to give
timely notice of the transaction contemplated by the Agreement, on
execution hereof and as of Closing, the Center is in substantial
compliance with all material licensing requirements of all
applicable governmental regulations, and Seller is unaware of any
licensing regulation or requirement from which the Center has
been exempted, which regulation or requirement could be imposed
as a condition of licensing any Center to Buyer.
s. Seller is not aware of any change in the configuration of
the Building that will be required upon the change in ownership of
the Business and the relicensing of the Business in Buyer's name.
t. To Seller's Knowledge, neither the Business nor the
Building is in violation of or delinquent in respect to, any law or
regulation of any governmental body or agency to which Seller
reports, and Seller has not heretofore received notice of any such
violations which violation has not been corrected.
u. Seller is unaware::
(1) That any hazardous material (hereinafter defined) is
present at the Center;
(2) Of any discharge, spillage, uncontrolled loss, seepage
or filtration of any hazardous material has occurred at, upon or
under the Center;
(3) Seller has not been, is not now, nor will be prior to the
Closing engaged in the generation, treatment, storage or disposal
of hazardous materials;
(4) To Seller's Knowledge, the Center does not now
contain, and during the period of Seller's occupancy has not
contained, any underground or above ground tanks for the storage
of fuel oil, gasoline and/or any other petroleum products or by-
products or hazardous materials;
(5) To Seller's Knowledge, Seller is in compliance with all
federal, state and local environmental laws now in effect relating to
hazardous materials and applicable to the Center;
(6) Seller has not received any notice of writs, injunctions,
decrees, orders or judgments outstanding, or suits, claims, actions,
proceedings or investigations instituted or threatened under any
environmental laws applicable to the Center; and
(7) As used herein, the term "hazardous material" shall
mean all materials designated as hazardous in the following
statutes: (a) "hazardous substances" as defined in Section 101(14)
of the Comprehensive Environmental Response, Compensation
and Liability Act of 1980, as amended, 42 U.S.C. 9601; (b)
"hazardous waste" as defined in the Resource Conservation and
Recovery Act of 1976, 42 U.S.C. 6903(5), as amended; (c) if not
included in (a) or (b), hazardous waste as defined in 40 CFR
260.10, specifically including Appendix VII and VIII of Subpart D
of 40 CFR 261; and (d) source, special nuclear or by-product
material as defined by the Atomic Energy Act of 954, as amended
(42 U.S.C. 3011, et seq., as amended).
w. Upon execution, the Lease is or will be a valid and
binding obligation of the parties thereto.
6. Buyer's Warranties and Representations. Buyer
represents and warrants and agrees with Seller as follows:
a. Buyer is a corporation duly organized, validly existing
and in good standing under the laws of the Commonwealth of
Pennsylvania and has all requisite power to conduct its business
and perform the transactions contemplated hereby. Buyer is duly
qualified to do business in the Commonwealth of Pennsylvania.
b. Upon execution, this Agreement and all other
agreements, documents and instruments referenced herein and
executed in connection herewith are and will be the valid and
binding obligations of Buyer, enforceable in accordance with their
terms and the execution, delivery and performance of this
Agreement, and such other agreements, documents and instruments
and the transactions contemplated hereunder, have been duly and
validly authorized by the Buyer's Board of Directors.
c. The execution and delivery of this Agreement and all
other agreements, documents and instruments executed pursuant
hereto, and the performance of the transactions contemplated
hereby (i) do not and will not constitute a violation of, and are not
and will not be a default under or conflict with the terms of the
Articles of Incorporation or By-Laws of Buyer, or any contract,
lease, indenture, agreement, order, judgment or decree to which
Buyer is a party or by which it is bound, and (ii) do not, and will
not, to the best of Buyer's Knowledge, violate or constitute a
default under any statute, rule, regulation, order or ordinance of
any governmental, judicial or arbitral body.
d. No representations or warranties by Buyer in this
Agreement, nor any written statement or certificate furnished, or to
be furnished by Buyer pursuant to this Agreement, or in connection
with the actions contemplated hereby, contain or shall contain any
untrue statement of material fact or omit or shall omit to state a
material fact necessary to make the statements contained therein
not misleading.
e. As set forth more specifically in Section 4 hereof with
regards to the Assumed Liabilities, Buyer agrees to assume and
perform all obligations of Seller relating to deposits and prepaid
tuition.
f. This Agreement and all other agreements, documents
and instruments executed pursuant hereto are and will be the valid
and binding obligations of Buyer, enforceable in accordance with
their terms and the execution, delivery and performance of this
Agreement, and such other agreements, documents and instruments
and the transactions contemplated hereunder, have been duly and
validly authorized by the Buyer's Board of Directors.
g. Buyer has delivered to Seller copies of the annual report
for Children's Discovery Centers of America, Inc. for the year
ended December 31, 1994, and its reports for the first quarter of
1995.
h. No representation or warranty made in this Agreement
or in any statement or certificate furnished or to be furnished to
Seller pursuant hereto knowingly contains any untrue statement of
a material fact or omits to state a material fact necessary to make
the statements contained therein not misleading, and there is no
material fact which adversely affects, insofar as Buyer can now
foresee, the business, prospects, condition, financial or otherwise,
of Buyer or Seller or any of their property or assets, which has not
been set forth herein, in any Exhibit hereto or in any certificate or
statement furnished by Buyer to Seller pursuant hereto.
i. There is, as of the date hereof, no suit, action or legal,
administrative, arbitration or other proceeding of any nature
pending or, to the Knowledge of Buyer, threatened against Buyer
or its property, which affects in any way Buyer, or which might
materially or adversely affect the legality or validity of this
Agreement, the transactions contemplated hereby, or the continued
operations and earnings of the business presently conducted by
Buyer.
j. Buyer has filed with the appropriate governmental
agencies all tax returns required to be filed by it, and has paid, or
made provision for the payment of, all taxes which have or may
become due pursuant to said returns or pursuant to any assessment
received by Buyer.
k. Consummation of the transaction contemplated hereby
shall be deemed a waiver of any unsatisfied condition hereof.
7. Covenants. Seller warrants, covenants and
agrees with Buyer that, except as otherwise contemplated by this
Agreement or otherwise consented to by Buyer in writing, from the
date hereof until Closing, Seller will take or cause to be taken all
necessary or appropriate action, to the extent practicable, to ensure
the following:
a. The Business will continue to be operated and conducted
substantially in the same manner in which this Business has
heretofore been conducted and no transactions shall be entered into
by or on behalf of this Business other than those that would be
entered into in the usual and ordinary course of its business.
b. Seller shall, consistent with prior practices, preserve the
business organization of the Business intact, retain the services of
its present employees, preserve the goodwill of its suppliers,
customers and others having business relations with the Business.
c. The Personal Property and Equipment will be maintained
in good operating condition and repair, ordinary wear and tear
excepted.
d. Seller shall not take any action inconsistent with the
satisfaction of the conditions, terms and provisions of this
Agreement or the consummation of the transactions contemplated
hereby.
e. Seller shall not take any action which would have the
effect of making any of Seller's warranties or representations
untrue, false or misleading.
f. Seller shall supply Buyer operating profit and loss
statements for the Business for each month of 1995 through
Closing.
g. Seller shall maintain its level of Supplies at its normal
and customary levels through Closing.
h. Seller shall permit Buyer, its agents and accountants to
review all books, records, files and all other records pertaining to
the Business and similar records of all other related businesses or
operations with which the Business is combined for reporting
purposes.
7.A. Adjustments to Consideration. The following
adjustments shall be made at Closing to the cash portion of the
Consideration set forth in Section 3 of this Agreement:
a. The Consideration shall be reduced by
$15,000, representing the liability for accrued vacation time and
personal time set forth on Exhibit "H" hereto, which liability is
expressly assumed by Buyer pursuant to Section 4 hereof.
b. The Consideration shall be reduced by the
amount of Prepaid Tuition set forth on Exhibit "D" hereto. Buyer
shall expressly assume liability for the Prepaid Tuition pursuant to
Section 4 hereof.
c. The Consideration shall be increased by
$5,000, representing the security deposit held by the Landlord
under the Lease Agreement set forth as number 1 on Exhibit "F"
hereto, which Lease Agreement shall be assigned to Buyer
pursuant to Section 2 hereof.
d. The Consideration shall be increased by
$5,000, representing the security deposit held by the Landlord
under the Lease Agreement set forth as number 2 on Exhibit "F"
hereto, which Lease Agreement shall be assigned to Buyer
pursuant to Section 2 hereof.
8. Conditions Precedent to Buyer's Obligation to
Close. All obligations of Buyer under this Agreement and all
other agreements, documents, and instruments executed pursuant
hereto are subject to the fulfillment, on or prior to the Closing
Date, of each of the following conditions (any and all of which
may be waived in writing by Buyer in its sole discretion):
a. Seller's Representations and Warranties. The
representations and warranties of Seller herein contained shall be
true and correct in every material respect on and as of the Closing
Date with the same force and effect as though the same had been
made on and as of the Closing Date and Buyer shall have received
a certificate of Seller, executed on behalf of Seller and dated the
Closing Date, certifying as to the correctness of Seller's
representations and warranties.
b. Seller's Covenants. Seller shall have performed
all obligations and agreements and complied with all covenants
contained in this Agreement in every material respect required to
be performed and complied with by it on or prior to the Closing
Date.
c. Delivery of Documents. Seller shall have
delivered to Buyer on or prior to the Closing Date all the
documents set forth in this Agreement, including:
(1) Bills-of-sale, assignments, other documents of title, and
similar documents required to transfer unencumbered title of the
Assets to Buyer;
(2) Certified copy of Seller's Boards of Directors and
Shareholders' actions approving the transactions contemplated
hereby; and
(3) Certificates of good standing for Seller issued by the
Commonwealth of Pennsylvania;
d. (Intentionally omitted)
e. No Litigation. No action, suit or proceeding before any
court or any governmental or regulatory authority shall have been
commenced, no investigation by any governmental or regulatory
authority shall have been threatened against Seller (i) seeking to
restrain, prevent or modify the transactions contemplated hereby or
questioning the validity or legality of any of such transactions, or
(ii) which, if resolved
adversely to Seller, would materially and adversely affect the
Assets, the financial condition, Business, properties, or prospects
of the Business.
f. Form of Documents. All documents required under this
Agreement to be executed by Seller shall be in form and substance
reasonably acceptable to counsel for Buyer.
g. Buyer shall have received and entered into the Lease.
h. No material adverse change shall have occurred in the
Business, financial position, results of operations, operations or
prospects of Seller or the Business since the date of this
Agreement.
i. Seller shall have executed such other and further
documents, instruments and certificates not inconsistent with the
provisions of this Agreement as Buyer shall reasonably require to
carry out and effectuate the purposes and terms of this Agreement.
j. Buyer shall have received executed UCC-3's in
recordable form releasing all existing liens in the Assets.
k. At least five (5) days prior to Closing, Buyer shall have
received the Financial Statements.
l. The Purchase Agreement of even date by and
between Buyer and Little Explorers of Montgomery, Inc. and
Buyer and Barry L. Herr, shall close simultaneously herewith.
m. Buyer's independent certified accountants,
Arthur Andersen L.L.P., shall have confirmed to Buyer that they
have inspected Seller's books and records and will be able to
deliver to Buyer within sixty (60) days of the Closing any audits
contemplated by Section 12(c) hereof.
9. Conditions Precedent to Seller's Obligations to Close.
All obligations of Seller under this Agreement and all other
agreements, documents, and instruments executed pursuant hereto
are subject to the fulfillment on or prior to the Closing Date, of
each of the following conditions (any or all of which may be
waived in writing by Seller in its sole discretion):
a. Buyer's Representations and Warranties. The
representations and warranties of Buyer herein contained shall be
true and correct on and as of the Closing Date, in every material
respect, with the same force and effect as though the same had
been made on and as of the Closing Date, and Seller shall have
received a certificate of Buyer, executed on behalf of Buyer and
dated the Closing Date, certifying as to the correctness of Buyer's
representations and warranties.
b. Buyer's Covenants. Buyer shall have performed all
obligations and agreements and complied with all covenants
contained in this Agreement, in every material respect, required to
be performed or complied with by it on or prior to the Closing
Date.
c. No Litigation. No action, suit or proceeding by any
third party before any court or any governmental or regulatory
authority, or investigation by any governmental or regulatory
authority, shall have been commenced or threatened against Buyer
(i) seeking to restrain, prevent or modify the transaction
contemplated hereby or questioning the validity or legality of any
of such transactions, or (ii) which, if resolved adversely to Buyer,
would materially and adversely affect the financial condition,
business, properties, assets or prospects of Buyer.
d. Buyer shall deliver to Seller on or prior to the Closing
Date all the documents set forth in this Agreement, including: (i)
certified copy of Buyer's Board of Directors' actions approving the
transactions contemplated hereby; (ii) the Lease, and (iii) the
Guaranty.
e. Form of Documents. All documents required under this
Agreement to be executed by Buyer shall be in form and substance
reasonably acceptable to counsel for Seller.
f. Buyer shall have executed such other and further
documents, instruments and certificates not inconsistent with the
provisions of this Agreement as Seller shall reasonably require to
carry out and effectuate the purposes and terms of this Agreement.
g. There shall have been no material adverse change in
Buyer's business as represented by Buyer's financial statements for
the period from the date of Buyer's last financial statement to
Closing.
h. Buyer's Guaranty. Children's Discovery Centers of
America, Inc. shall have executed and delivered to Seller a
guaranty in form and substance reasonably acceptable to Seller's
counsel (the "Guaranty").
10. Closing. The closing of the purchase and sale
contemplated by this Agreement (the "Closing") shall take place at
the offices of Siana & Shields, P.C., counsel for Seller, at 10:00
a.m. on May 31, 1995, or at such other place and time as may be
fixed by written agreement of the parties (the "Closing Date").
11. Risk of Loss, Casualty or Destruction. If the
Center, its building, fixtures, equipment or supplies shall be
damaged or destroyed prior to the Closing, Seller promptly shall
repair, replace and restore the same to the condition thereof
existing immediately prior to such damage or destruction. In the
event that such repair, replacement and restoration has not been
undertaken or completed prior to the Closing, then at the Closing,
Seller shall remit to Buyer an amount sufficient to fully repair,
replace and restore the same or complete the repair, replacement
and restoration thereof after the Closing. If, however, the Building
or Center shall be damaged or destroyed to such an extent that (i)
the tenant under the Lease would have the right to terminate the
Lease, (ii) it shall be impossible or impractical in Buyer's
reasonable business judgment under the applicable building,
zoning and other codes, laws and regulations then prevailing, to
repair, replace and restore such buildings substantially to their
condition immediately prior to such damage or destruction, and
(iii) Buyer has not elected to receive from Seller an amount
sufficient to cause repair, replacement or restoration as hereinabove
provided, then Buyer may elect, in its sole discretion, to terminate
this Agreement by delivery to Seller of a written notice to such
effect.
12. Post Closing Covenants. The parties covenant
and agree to take the following actions simultaneously with or
immediately following the Closing:
a. Seller shall be responsible for all utilities, supplier and
other bills, and payroll expenses rendered and delivered up to and
including the Closing Date, other than the Assumed Liabilities, and
shall pay same within thirty (30) days of the Closing.
b. Seller shall make available to Buyer all books, records
and files, financial and otherwise, pertaining to the Business for the
last three (3) complete years, including, but not limited to,
customer lists, credit, collection and sales records, personnel
records of persons employed by Seller who become employees of
Buyer, pricing policies including discounts and rebates, and such
other records reasonably necessary in order to enable Buyer to
conduct the Business as Seller has in the past in order that Buyer
can make copies thereof. Buyer shall pay all costs associated with
copying information to be supplied by Seller to Buyer subsequent
to Closing.
c. Seller acknowledges that Buyer is a publicly-held
company, subject to the reporting provisions of Section 13 of the
Securities Exchange Act of 1934, as amended (the "Act"), and that
Buyer may be required by the Act and the rules and regulations of
the Securities and Exchange Commission to include audited
financial statements including balance sheets and income
statements of the Business for the Seller's three (3) prior fiscal
years in reports filed by Buyer. If required by Buyer, Seller shall
use its best efforts, at Buyer's request, both before and after
Closing, to assist Buyer in obtaining and preparing audited
financial statements for three (3) years, such efforts to include, but
not be limited to, cooperating by signing customary representation
letters required by Buyer's independent auditors, as well as making
all records, accounts and files, financial or otherwise, available
pertaining to the Business. If the records and other information
pertaining to the Business are included with or reported together or
in combination with any other business or businesses, Seller shall
make all such records available so as to permit Buyer or its
accountants to make appropriate allocations and perform all such
calculations necessary to complete its audit. Notwithstanding
anything to the contrary contained herein, Buyer shall pay for all
costs and expenses, including Seller's attorneys fees incurred
pursuant to this Section 12(c).
d. Buyer agrees to transfer or remit to Seller, within five
(5) days after receipt thereof, any payments received by Buyer on
account of accounts receivable of the Business attributable to
periods prior to the effective date of the Sale of Assets
contemplated hereby. Buyer's sole obligation with respect to this
Section 12(d) shall be to transfer or remit the aforedescribed
payments and in no event shall Buyer be responsible for cashing
any checks or initiating any collection actions for overdue accounts
receivable. Buyer's obligation to transfer or remit the
aforedescribed payments shall be deemed fulfilled when such
payments are deposited in the United States mail. It is understood
that accounts receivable will include all bills rendered by Seller to
customers for services performed by Seller, to and including the
close of business on May 31, 1995.
13. Survival of Representations. All of the
representations and warranties of the Seller contained in Section 5
above shall survive the Closing hereunder and continue in full
force and effect for one year thereafter. All of the representations
and warranties of Buyer and Buyer's guarantor contained in
Section 6 above, and the covenants contained in Section 12 above,
shall survive the Closing hereunder and continue in full force and
effect subject to any applicable statutes of limitations.
14. Indemnification by Seller.
a. Indemnification Generally. For a period of one
(1) year following the Closing hereunder, Seller agrees to
indemnify, defend, and hold harmless Buyer against and in respect
of any and all claims, demands, losses, costs, expenses,
obligations, liabilities, damages, recoveries, and deficiencies,
including interest, penalties, and reasonable attorneys fees, that
Buyer shall incur or suffer, that arise, result from or relate to any
Event of Default. Seller's liability under this Section shall not,
however, exceed the Consideration. For the purposes of this
Section 14, the term "Event of Default" shall mean the breach by
Seller or any of its surviving representations, warranties,
covenants, or agreements set forth in this Agreement which
remains uncured for thirty (30) days; provided, however, that if the
breach is of a nature such that it cannot reasonably be cured within
such thirty (30) day period, then the breach shall constitute an
Event of Default only if Seller has not commenced in good faith to
cure such breach within such thirty (30) day period.
b. Third Party Claims. Buyer shall promptly
notify Seller of the existence of any claim, demand, or other matter
to which Seller's indemnification obligations would apply, and
shall give it a reasonable opportunity to defend the same at its own
expense and with counsel of its own selection; provided that Buyer
shall at all times also have the right to fully participate in the
defense at its own expense. If Seller shall, within a reasonable
time after this notice, fail to defend, Buyer shall have the right, but
not the obligation, to undertake the defense of, and to compromise
or settle (exercising reasonable business judgment), the claim or
other matter on behalf, for the account, and at the risk, of Seller. If
the claim is one that cannot by its nature be defended solely by
Seller (including, without limitation, any federal or state tax
proceeding), then Buyer shall make available all information and
assistance that Seller may reasonably request.
15. Indemnification by Buyer. For so long as the
applicable statute of limitation period, Buyer and its guarantor
agree to indemnify and hold harmless Seller against, and in respect
of, any and all claims, losses, expenses, costs, obligations, and
liabilities is may incur by reason of Buyer's breach of or failure to
perform any of its warranties, guaranties, commitments, or
covenants in this Agreement, or by reason of any act or omission
of Buyer, or any of its successors or assigns, after the Closing
Date, that constitutes a breach or default under, or a failure to
perform, any obligation, duty, or liability of Seller under any loan
agreement, lease, contract, order, or other agreement to which it is
a party or by which it is bound at the Closing Date, but only to the
extent to which Buyer expressly assumes these obligations, duties
and liabilities under this Agreement. Seller shall promptly notify
Buyer of the existence of any claim, demand, or other matter to
which Buyer's indemnification obligations would apply, and shall
give Buyer a reasonable opportunity to defend the same at its own
expense and with counsel of its own selection; provided that Seller
shall at all times also have the right to fully participate in the
defense at its own expense. If Buyer shall, within a reasonable
time after this notice, fail to defend, Seller shall have the right, but
not the obligation, to undertake the defense of, and to compromise
or settle (exercising reasonable business judgment), the claim or
other matter on behalf, for the account, and at the risk, of Buyer. If
the claim is one that cannot by its nature be defended solely by
Buyer (including, without limitation, any federal or state tax
proceeding), then Seller shall make available all information and
assistance that Buyer may reasonably request.
16. Taxes. Sales or use taxes incurred pursuant to
the purchase by Buyer of the Assets shall be paid by Seller. All
other taxes, including but not limited to excise and other types of
transaction taxes, documentary stamps, transfer taxes and/or
assessments on the transaction of whatever nature, if any, shall be
paid at Closing by Seller. Moreover, any taxes, assessments, or
other charges of any kind, arising from, measured by, or
attributable to any operations, events or conditions prior to
Closing, including but not limited to any gross receipts, income,
payroll or other forms of taxation of any kind shall be paid by
Seller. Any taxes, assessments or other charges of any kind arising
from, measured by, or attributable to any operations, events or
condition after Closing, including but not limited to any gross
receipts, income, payroll or other forms of taxation of any kind,
shall be paid by Buyer.
17. Attorney Fees. If any legal action or any
arbitration or other proceeding is brought for the enforcement of
this Agreement, or because of an alleged dispute, breach, default,
or misrepresentation in connection with any of the provisions of
this Agreement, the successful or prevailing party or parties shall
be entitled to recover reasonable attorneys' fees and other
costs incurred in that action or proceeding, in addition to any other
relief to which it or they may be entitled. Otherwise, each party
hereto shall bear its own legal fees. Except as otherwise set forth
herein, each of the parties shall bear its own expenses and costs
incurred in connection with the performance of this Agreement.
18. Governing Law. This Agreement shall be
governed by and construed in accordance with the domestic laws
of, and enforced in the Commonwealth of Pennsylvania, without
giving effect to any choice or conflict of law provision or rule that
would cause the application of the laws of any jurisdiction other
than the Commonwealth of Pennsylvania. The parties submit to
the exclusive jurisdiction of the Court of Common Pleas of Chester
County, Pennsylvania and the United States District Court for the
Eastern District of Pennsylvania.
19. Covenant Not To Compete. As an integral part
of the consideration for and inducement to Buyer to enter into and
consummate this Agreement, neither Seller nor Shareholder for
five (5) years from the Closing Date shall, directly or indirectly, as
partner, owner, officer, director or stockholder of any other person,
firm, partnership or corporation, engage in, or aid or assist anyone
else to engage in, the establishment and operation of a child care
facility or other based child care facility or competitively solicit
any "customers" or "students" of Buyer, or aid or assist anyone else
to engage in any business in competition therewith in any location
within twenty (20) miles of the Center or in the county where the
Center is presently operated, so long as Buyer, or its parent,
affiliates, subsidiaries or successors or assigns, carries on a like
business at said location. If, however, Buyer ceases to operate the
premises where the Center is currently located as a child care
center then the covenant shall not be further effective.
If this covenant or any particular portion thereof be
adjudicated to be invalid or unenforceable, such adjudication shall
apply only with respect to the operation of this covenant and the
jurisdiction in which such adjudication is made; further, to the
extent any provision hereof is deemed unenforceable by virtue of
its scope in terms of area or length of time, but may be made
enforceable by limitations thereon, the parties agree that the same
shall, nevertheless, be enforceable to the full extent permissible
under the laws and public policies applying in such jurisdiction
where enforcement is sought, or failing that, then the
unenforceable covenant shall be eliminated from these provisions
for the purpose of any enforcement proceeding to the extent
necessary to permit the remaining covenants to be enforced.
Seller and Shareholder expressly acknowledge that
damages alone will be an inadequate remedy for any breach or
violation of any of the provisions of this covenant, and that Buyer,
in addition to all other remedies under this Agreement, shall be
entitled as a matter of right to injunctive relief, including specific
performance, with respect to any such breach or violation, in any
court of competent jurisdiction.
20. Licenses and Permits.
a. Seller agrees to transfer to Buyer the Licenses
and Permits to the extent that such Licenses and Permits are
transferable. In addition, Seller shall cooperate with Buyer and
shall take such measures as are reasonably necessary in order to
enable Buyer to receive all appropriate Licenses and Permits; and
agrees to execute all documents reasonably necessary in order to
enable Buyer to receive such Licenses or Permits; provided,
however, that Buyer shall pay all fees, costs and expenses,
including reasonable attorneys' fees, incurred by Seller in
connection with the performance of Seller's obligations under this
Section.
b. Buyer acknowledges and agrees that certain of
the Licenses and permits require notice which may make it
impossible for Buyer to acquire such License or Permit prior to the
Closing Date, and Buyer nevertheless desires to close the
transaction contemplated hereby on the Closing Date. In order to
induce Seller to do the same, Buyer agrees that notwithstanding
any representations or agreement to the contrary in this Agreement:
(1) The transfer of such Licenses and
Permits to Buyer is not a condition precedent to Buyer's
obligations under this Agreement.
(2) Buyer is not relying on the continued
validity of such Licenses and Permits.
(3) Provided that Seller is not in default of
its obligations under Section 20(a) above, Seller shall not be
responsible in any manner whatsoever for Buyer's failure to obtain
the permits, and the Closing shall not be prevented or delayed by
Buyer's failure to obtain any of the Licenses and Permits.
21. The Recitals and Exhibits hereto are
incorporated herein by this reference.
22. Expenses. Except as otherwise expressly
provided herein, Buyer shall be responsible for all fees and
expenses in connection with the execution and delivery of this
Agreement and the performance of its obligations hereunder.
23. Benefit. This Agreement shall be binding upon
and inure to the benefit of the parties hereto, and their respective
heirs, executors, administrators, successors and assigns.
24. Notice. All necessary notices, payments,
demands and requests shall be in writing and shall be deemed duly
given if mailed by certified mail, postage prepaid, return receipt
requested, or by recognized overnight express delivery carrier that
provides a receipt, and addressed as follows:
IF TO SELLER: Day Care of Chester,
Inc.
342 Central Avenue
Malvern, PA 19355
With a copy to: Steve Siana
Siana & Shields
One East Uwchlan Avenue, Suite 301
Exton, PA 19341
IF TO BUYER: Magic Years Child
Care and Learning Centers, Inc.
851 Irwin St., Suite 200
San Rafael, California 94901
Attn: Frank A. Devine, Esq.
and
Richard. A. Niglio, President
Either party may change its address for notice by giving notice of
change of address in the manner set forth above.
25. Headings. The headings of the Sections of this
Agreement are for convenience of reference only and do not form a
part hereof and in no way modify, interpret or construe the
meanings of the parties.
26. Tax Reporting. The parties hereto agree and
acknowledge that the determination of the price for each of the
Assets and the covenant not to compete is the result of arms-length
negotiations between the parties, and the parties agree and warrant
and represent to each other, that their respective tax returns and
those of any parent, subsidiary or affiliated entity shall report the
transactions contemplated by this Agreement in accordance with
the characterization and allocated prices of the various Assets and
the covenant not to compete set forth in this Agreement.
27. Entire Agreement. This Agreement, together
with the other Agreements referred to herein and the Exhibits
hereto, sets forth the entire agreement and understanding between
the parties as to the subject matter hereof and merges with and
supersedes all prior discussions, agreements and understandings
with respect hereto.
28. Further Assurances. Each party hereto agrees
that it will, without further consideration, cooperate with the other
during the performance of Buyer's diligence including supplying
additional financial information, execute and deliver such other
documents, and take such other action as may reasonably be
requested in order to consummate the transactions contemplated
hereby and confirm and assure to Buyer title to all the Assets. The
provisions of this Section 28 shall survive the Closing.
29. Counterparts. This Agreement may be signed
in any number of counterparts, each of which shall be deemed an
original, but all of which shall constitute one and the same
instrument.
30. Proration Year. Except as otherwise provided
in this Agreement, any items of income or expense to be allocated
or prorated between Buyer and Seller pursuant to this Agreement
shall be computed on the basis of a 365 day year and the actual
number of days elapsed for any portion thereof.
31. Severability. If any provision of this
Agreement is declared invalid in a court proceeding between the
parties, such invalidity shall not invalidate this Agreement, and
this Agreement shall be construed as if the invalid part were not
contained herein, and the rights and obligations of the parties shall
be construed as if the invalid part were not contained herein, and
the rights and obligations of the parties shall be construed and
enforced accordingly.
32. Confidentiality. The parties agree to keep all
information and documentation exchanged in the course of this
transaction in confidence from third parties. Should this
transaction not close, each party agrees to return all documents and
copies thereof, and other information to the party which supplied
the same. Seller shall not issue a press release related to this
transaction until Buyer has issued its press release.
33. Brokers. Each party represents that it has dealt
with no broker or finder in connection with any transaction
contemplated by this Agreement, and, as far as it knows, no broker
or other person is entitled to any commission or finder's fee in
connection with any of these transactions.
34. Assignment. Neither party may assign this
Agreement without the prior written consent of the other parties,
except that Buyer may assign this Agreement to any subsidiary it
owns or controls provided the Buyer executes and delivers Buyer's
guaranty in a form reasonably acceptable to Seller's counsel.
IN WITNESS WHEREOF, the parties have
executed this Agreement under seal as of the day and year first
above written.
WITNESS: SELLER:
DAY CARE OF
CHESTER COUNTY, INC.
a Pennsylvania
corporation
___________________________ By:_______________________________
Title:
_________________________ __________________________________
Barry L. Herr
By his execution hereof, Barry L. Herr agrees to be personally
bound as to Section 19 only.
WITNESS: BUYER:
MAGIC YEARS
CHILD CARE AND LEARNING
CENTERS, INC., a Pennsylvania corporation
____________________________ By:________________________________
Title: ______________________________
For the limited purposes set forth below, Children's
Discovery Centers of America, Inc., the parent corporation of
Buyer and guarantor, agrees as follows:
1. Guarantor represents and warrants and agrees
with Seller as follows:
a. Guarantor is a corporation duly organized,
validly existing under the laws of Delaware and is in good standing
in all jurisdictions in which it conducts its business.
b. Upon execution, the guaranty contemplated
hereby (Exhibit "O"), executed in connection herewith, is and will
be the valid and binding obligation of Guarantor, enforceable in
accordance with its term, and the execution, delivery and
performance of the Guaranty has been duly authorized by
Guarantor's Board of Directors.
GUARANTOR:
CHILDREN'S DISCOVERY CENTERS
OF AMERICA, INC.
By: _______________________________
Title: ______________________________
LIST OF EXHIBITS
Exhibit A Personal Property and Equipment
Exhibit B Tradenames
Exhibit C Supplies
Exhibit D List of prepaid tuition, deposits and registration fees
Exhibit E Disclosure Schedule
Exhibit F Assumed Liabilities
Exhibit G Seller's tax returns and Financial Statements
Exhibit H Employees, job titles and salaries
Exhibit I Children, ages and tuition rates
Exhibit J Seller's insurance policies
Exhibit K Licenses and Permits
Exhibit L Form of Lease
Exhibit M Form of Note
Exhibit N Form of Security Agreement
Exhibit O Form of Guaranty
5
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8KA8895.SEC/JM F-10
8KA8895.SEC/JM C-1
littlexp.agr P-1-27
littlexp.agr
chester.agr P-2-37
Chester.Agr. P-2-1
