<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
(Mark One)
[ X ] Quarterly report pursuant to section 13 or 15(d) of the Securities
Exchange Act of 1934 for the quarterly period ended November 8, 1997.
[ ] Transition report pursuant to section 13 or 15(d) of the Securities
Exchange Act of 1934 for the transition period from _______ to________
Commission File Number 0-21598
OLD AMERICA STORES, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 13-3487813
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
811 NORTH COLLINS FREEWAY
Highway 75 North
PO BOX 370
HOWE, TEXAS 75459
(Address of principal executive offices)
(903)532-3000
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding twelve months (or such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past ninety days.
Yes [ ] No [X]
At December 12, 1997, an aggregate of 3,530,727 shares of the registrant's
Common Stock, value of $ .01 each (the "Common Stock"), and 1,012,842 shares of
registrant's Nonvoting Common Stock, value of $ .01 each (the "Nonvoting Common
Stock"), were outstanding.
<PAGE>
OLD AMERICA STORES, INC. AND SUBSIDIARIES
(DEBTOR-IN-POSSESSION)
Table of Contents
Page
- - --------------------------------------------------------------------------------
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Condensed Consolidated Balance Sheets -
November 8, 1997 and January 31, 1997 3
Condensed Consolidated Statements of Operations -
Sixteen weeks and year-to-date ended
November 8, 1997 and November 2, 1996 4
Condensed Consolidated Statements of Cash Flows -
Year-to-date ended November 8, 1997 and November 2, 1996 5
Notes to Condensed Consolidated Financial Statements 6-10
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 11
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
Item 2. Changes in Securities (no response required)
Item 3. Defaults Upon Senior Securities
Item 4. Submission of Matters to a Vote of Security Holders (no response
required)
Item 5. Other Information (no response required)
Item 6. Exhibits and Reports on Form 8-K
SIGNATURES 13
2
<PAGE>
OLD AMERICA STORES, INC.
(DEBTOR-IN-POSSESSION)
CONDENSED CONSOLIDATED BALANCE SHEETS
- - --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
November 8, 1997 January 31, 1997
----------------------------------
ASSETS (Unaudited)
<S> <C> <C>
CURRENT ASSETS:
Receivables, net of allowance $ 3,110,159 $ 5,947,955
Merchandise inventories 42,592,587 56,906,255
Prepaid expenses and other 2,433,662 1,891,893
------------ -----------
Total current assets 48,136,408 64,746,103
------------ -----------
Property and equipment, at cost, net 14,482,731 17,755,770
Intangible assets and deferred charges, net 52,141 13,639,227
Other assets 421,148 482,916
------------ -----------
$ 63,092,428 $96,624,016
============ ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current debt $ 26,876,872 $ -
Accounts payable 3,678,047 21,813,553
Accrued salaries and wages 945,931 1,190,131
Other accrued liabilities 2,400,660 3,510,308
Current obligations under capital leases 7,229 29,043
Deferred income taxes - 65,000
------------ -----------
Total current liabilities 33,908,739 26,608,035
------------ -----------
Liabilities subject to compromise 20,095,175 -
------------ -----------
Long-term debt - 23,570,850
Deferred income taxes - 947,000
------------ -----------
Total long-term liabilities - 24,517,850
------------ -----------
Commitments and contingencies
STOCKHOLDERS' EQUITY:
Common stock, par value $.01; 6,000,000
shares authorized, 3,530,727 and 3,514,500
shares issued and outstanding 35,307 35,145
Nonvoting common stock, par value $.01;
1,500,000 shares authorized; 1,012,842
shares issued and outstanding 10,128 10,128
Additional paid-in capital 42,385,939 42,350,728
Retained earnings (deficit) (33,342,860) 3,102,130
------------ -----------
Total stockholders' equity 9,088,514 45,498,131
------------ -----------
$ 63,092,428 $96,624,016
============ ===========
</TABLE>
See notes to condensed consolidated financial statements.
3
<PAGE>
OLD AMERICA STORES, INC.
(DEBTOR-IN-POSSESSION)
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
- - --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
QUARTER ENDED YEAR-TO-DATE ENDED
--------------------------- ---------------------------
NOVEMBER 8, NOVEMBER 2, NOVEMBER 8, NOVEMBER 2,
1997 1996 1997 1996
--------------------------- ---------------------------
<S> <C> <C> <C> <C>
Net sales $25,128,577 $37,900,615 $ 75,648,212 $89,984,471
----------- ----------- ------------ -----------
Cost of goods sold (including
occupancy costs) 18,716,637 24,136,350 59,483,234 56,632,045
----------- ----------- ------------ -----------
Gross profit 6,411,940 13,764,265 16,164,978 33,352,426
----------- ----------- ------------ -----------
Selling, general and
administrative expenses 10,932,575 13,272,305 30,300,930 31,036,490
Depreciation expense 916,839 805,726 2,462,349 2,007,613
Amortization expense 938,685 159,031 1,153,940 400,340
Restructuring charges 1,015,580 - 18,598,293 -
----------- ----------- ------------ -----------
Loss before interest and taxes (7,391,739) (472,797) (36,350,534) (92,017)
Interest expense, net 696,905 569,876 1,633,707 1,268,139
----------- ----------- ------------ -----------
Loss before income taxes (8,088,644) (1,042,673) (37,984,241) (1,360,156)
Income taxes - (430,000) (1,539,252) (553,000)
----------- ----------- ------------ -----------
Net loss $(8,088,644) $ (612,673) $(36,444,989) $ (807,156)
=========== =========== ============ ===========
Weighted average shares
outstanding 4,542,558 4,526,815 4,542,892 4,521,558
=========== =========== ============ ===========
Earnings per share:
Net loss per share $ (1.78) $ (0.14) $ (8.02) $ (0.18)
=========== =========== ============ ===========
</TABLE>
See notes to condensed consolidated financial statements.
4
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OLD AMERICA STORES, INC.
(DEBTOR-IN-POSSESSION)
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
- - --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR-TO-DATE ENDED
------------------------------------
NOVEMBER 8, 1997 NOVEMBER 2, 1996
------------------------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(36,444,989) $ (807,156)
Adjustments to reconcile net loss to net
cash used for operating activities:
Depreciation and amortization 2,749,622 2,407,953
Provision for deferred taxes (1,012,000) (416,323)
Gain on sale of equipment - (198,841)
Restructuring charges 17,304,562 -
Cash used for restructuring items:
Professional fees 736,759 -
Payroll expenses 385,005 -
Other 171,967 -
Changes in assets and liabilities:
Decrease (increase) in receivables 2,485,740 (2,005,456)
Decrease (increase) in merchandise inventories 13,502,153 (13,654,055)
Increase in prepaid expenses and other (744,969) (187,446)
Increase in other assets (239,204) (367,309)
Increase (decrease) in accounts payable (1,046,225) 10,193,279
Decrease (increase) in other accrued liabilities (757,751) 8,554
------------ ------------
Net cash used for operating activities (2,909,330) (5,026,800)
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property and equipment (410,251) (3,747,902)
Proceeds from sale of equipment - 300,000
------------ ------------
Net cash used for investing activities (410,251) (3,447,902)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings under revolving loan, net 3,306,022 8,792,199
Proceeds from sale of equity securities 35,373 91,934
Payments under capital leases (21,814) (19,409)
------------ ------------
Net cash provided by financing activities 3,319,581 8,864,724
------------ ------------
Net increase (decrease) in cash - 390,022
Cash, beginning of period - 1,239,117
------------ ------------
Cash, end of period - $ 1,629,139
============ ============
</TABLE>
See notes to condensed consolidated financial statements.
5
<PAGE>
OLD AMERICA STORES, INC.
(DEBTOR-IN-POSSESSION)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
- - --------------------------------------------------------------------------------
1. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The consolidated financial statements include the accounts of OLD
AMERICA STORES, INC., a Delaware corporation ("Old America"), and its wholly-
owned subsidiaries, OLD AMERICA STORE, INC., a Texas corporation ("Store"), and
OLD AMERICA WHOLESALE, INC., a Delaware corporation ("Wholesale") (Old America,
Store and Wholesale, collectively, the "Company"). All material intercompany
balances and transactions have been eliminated. The Company is a specialty
retailer of home decorating products and arts and crafts items with 83 operating
retail locations in 22 states throughout the United States as of the end of its
third quarter, November 8, 1997.
In the opinion of the Company's management, the accompanying unaudited
condensed consolidated financial statements include all adjustments (consisting
of normal, recurring adjustments except as discussed in note 4) that the Company
considers necessary for a fair presentation, in accordance with generally
accepted accounting principles, of the consolidated financial position of the
Company and its subsidiaries at November 8, 1997, and the results of their
operations for the quarter and year-to-date and cash flows for the year-to-date
ended November 8, 1997, and November 2, 1996. These results are not necessarily
indicative of the results to be expected for the current fiscal year.
The consolidated financial information presented herein should be read
in conjunction with the audited consolidated financial statements and the notes
thereto for the fiscal years ended January 31, 1997 and 1996, included in the
Company's Annual Report on Form 10-K (File No. 0-21598) dated May 1, 1997.
The Company reports its financial results on the basis of thirteen
periods. The third quarter began on July 20, 1997 and ended on November 8, 1997.
The first, second and fourth quarters each year include three periods. The third
quarter includes four periods. The actual number of selling days in each period
may vary from year to year.
2. BANKRUPTCY FILING
On August 11, 1997, the Company filed a voluntary petition for
reorganization under Chapter 11 of the United States Bankruptcy Code (the
"Bankruptcy Code") in the United States Bankruptcy Court for the District of
Delaware, (the "Bankruptcy Court"). Prior to the sale transaction discussed in
Note 8 below, the Company had been operating its business as a debtor-in-
possession under the supervision of the Bankruptcy Court.
As of the Petition Date, actions to collect pre-petition indebtedness
are stayed and other contractual obligations may not be enforced against the
Company. In addition, under the Bankruptcy Code, the Company may reject leases
and executory contracts. Parties affected by these rejections may file claims
with the Bankruptcy Court in accordance with the reorganization process.
6
<PAGE>
OLD AMERICA STORES, INC.
(DEBTOR-IN-POSSESSION)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
- - --------------------------------------------------------------------------------
The Company's Bankruptcy filing was precipitated by a number of
factors. Deep discounting in the fourth quarter of 1996 eroded margins and
reduced liquidity. The reduction in cash flow greatly increased the level of
vendor payables at 1996 year-end and resulted in higher than normal past due
invoices. Vendors responded to the past due situation by reducing shipments in
the first and second quarters of 1997, which slowed sales and further decreased
liquidity. In addition, the Company recorded an inventory shrink estimate of
$2.9 million at the end of the first quarter based on physical inventory results
at twenty-one of the Company's retail locations. This accrual reduced the
Company's borrowing base and further limited the Company's ability to pay
vendors. In late June, management unsuccessfully attempted to convince trade
creditors to ship goods under a proposal which required vendors to defer payment
on past due balances until September through December, 1997. Finally, the
Company was in default with respect to its bank line throughout a significant
portion of the second quarter and operated under a forbearance agreement until
it filed for Chapter 11 bankruptcy on August 11, 1997.
3. GOING CONCERN
The Company incurred net losses without regard to the restructuring
charges (discussed in note 4) of $7,073,000 for the quarter ended November 8,
1997 and $17,752,000 for the year-to-date ended November 8, 1997. The Company
closed sixteen stores and sold the inventory at three stores to an outside group
conducting going-out-of-business sales. The Company's Chapter 11 filing,
liquidity issues, continuing operating losses and the Company present non-
compliance with bank covenants which have remained uncured raise substantial
doubt about the Company's ability to continue as a going concern. In addition,
effective October 10, 1997 the Company was notified by NASDAQ that it no longer
qualifies for inclusion in the national market system .
In November 1997, the Company engaged an investment banking firm to
assist the Company in identifying a buyer for the Company. As discussed in Note
8, the assets of the company were sold on January 21, 1998.
The Company's financial statements for the quarter ended November 8,
1997 have been prepared on a going concern basis which contemplates the
realization of assets and the settlement of liabilities and commitments in the
normal course of business with the exception of the restructuring charges
discussed in note 4 and financing cost as discussed in note 7. The financial
statements do not reflect any adjustments that might result from the outcome of
this uncertainty.
4. RESTRUCTURING CHARGES
As a result of the Company's continuing evaluation of the carrying
value of its long-lived tangible and intangible assets, additional losses from
operations in the second quarter and other factors discussed in note 3, the
Company recorded restructuring charges of $17,583,000 in the second quarter and
$1,016,000 in the third quarter of 1997.
7
<PAGE>
OLD AMERICA STORES, INC.
(DEBTOR-IN-POSSESSION)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
- - --------------------------------------------------------------------------------
These charges are summarized as follows:
<TABLE>
<S> <C>
Write-off of goodwill $13,160,000
Write-off of net book value of assets for closed stores 3,855,000
Other restructuring charges 1,583,000
-----------
Total restructuring charges $18,598,000
===========
</TABLE>
As a result of recent significant losses recorded by the Company and
the attendant uncertainty regarding the Company's reorganization proceedings,
management of the Company and the Board of Directors concluded that goodwill
previously recorded had been permanently impaired and, therefore, should be
written off. The net book value of goodwill charged to operations was
$13,160,000.
As part of the Company's restructuring program, management closed
sixteen unprofitable stores in June and July 1997 and an additional three stores
in October 1997. The inventory at these stores was sold to the NASSI Group, LLC
at 31% of retail value. For the closed and GOB stores, the Company has recorded
a charge to earnings as part of its restructuring costs equal to the sum of 1)
the net book value of fixtures and equipment, 2) all remaining unpaid lease
payments through the remaining term of the lease, and 3) the write off of all
other assets which have no future value subsequent to the store closure date.
Such amounts aggregated $3,855,000.
5. INVENTORIES
As a result of inventory shrink experienced at the end of the first
quarter in twenty-one retail locations, management accrued inventory shrink
equal to 2% of sales for all stores not inventoried at quarter one. Management
also made the decision to take physical inventories at all remaining stores in
quarter two. The results of those physical counts disclosed an average shrink
of 2.4% of sales since each store's last count. In December 1997, the Company
took physical inventories at 33 stores which resulted in an aggregate gain of
1.5% of sales since the last inventories.
6. INCOME TAXES
While the Company has recorded significant operating losses year-to-
date, the Company is unable to recognize the tax benefits from such losses in
the accompanying financial statements since there is no assurance of future
realization of such benefits. Therefore, income tax expense has not been
recorded in the third quarter.
8
<PAGE>
OLD AMERICA STORES, INC.
(DEBTOR-IN-POSSESSION)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
- - --------------------------------------------------------------------------------
7. LONG-TERM DEBT
On August 12, 1997, the Company obtained Debtor-in-Possession (DIP)
financing from GBFC/BankBoston. The proceeds from this financing were used to
pay off the Company's existing lenders and provide working capital to the
Company. The financing consisted of a $30 million revolving credit facility (the
"Revolver") and $5 million in term loans (the "Term Loans"). The Revolver
provided for advances equal to 65% of eligible inventory, as defined. The Term
Loans require no principal payment until January 1, 1998 at which time monthly
installments of $211,111 were due and payable. Both the Revolver and Term Loans
bear interest equal to GBFC/BankBoston Base Rate (8.59% on August 11, 1997) plus
.625%. These facilities were scheduled to become due and payable at the earlier
of 1) August 11, 1999, 2) emergence from Chapter 11 Bankruptcy or 3) any default
under the financing agreement.
In order to obtain the DIP financing, the Company agreed to pay a
$700,000 commitment fee of which $500,000 was paid upon closing of the facility
with the balance payable in one year. In addition, a facility fee of $200,000
(payable in monthly installments of $8,333.33 each) and a yearly fee of 25 basis
points (.25%) on the unused portion of the Revolver were incurred. All amounts
borrowed under the Revolver and Term Loans are secured by the assets of the
Company. At the end of the third quarter the Company was not in compliance with
certain loan covenants. Accordingly, the revolving and term loans are classified
as current liabilities on the Balance Sheet as of November 8,1997. In addition,
the loan commitment fee ($700,000) and facility fee ($200,000) were recorded as
financing costs in the Company's Statement of Operations in the third quarter.
Although, GBFC/BankBoston has continued to fund the Company's cash flow needs
for operating expenses, the Company was forced to suspend payments to its
vendors commencing in early December 1997. Consequently, the Company received
almost no inventory since that time. GBFC/BankBoston substantially reduced the
Company's loan availability by: (I) reducing the borrowing base for an
additional shrink reserve of $500,000, (ii) requiring a 1998 Ad Valorem tax
reserve of $437,000 during the month of December 1997 as a reduction in the
borrowing base, and (iii) phase in a reduction in the advance rate to 50% in
December 1997.
Effective December 1, 1997, GBFC/BankBoston had also increased its
interest rate on the revolver and term facilities to 12.125%, the default rate
provided in its agreement.
8. SUBSEQUENT EVENTS
On January 16, 1998, the bankruptcy court approved the sale of all assets of the
Company and its subsidiaries to Old America Stores, LP and KOB, LP in exchange
for cash, used primarily to pay off all secured indebtedness, and the assumption
of substantially all post petition liabilities of the Company and its
subsidiaries. The purchase price was determined through arms-length negotiations
between the parties. The purchase price did not provide for any payment to pre-
petition creditors or stockholders. Accordingly, there will be no value for the
stockholders of the Company. As a result of
9
<PAGE>
OLD AMERICA STORES, INC.
(DEBTOR-IN-POSSESSION)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
- - --------------------------------------------------------------------------------
the sale, the Company and its subsidiaries have terminated operations and is in
the process of liquidating and winding up their affairs. The transaction closed
on January 21, 1998.
As discussed in the Company's 1996 Annual Report on Form 10-K, the
Company and a former officer and director are named defendants in a lawsuit
which alleges breach of contract and fraud. The Company is a party to a
settlement agreement between the Company, the plaintiff and the Company's
insurance carrier whereby the Company has agreed to pay $50,000 in exchange for
full release of all claims against the Company and its former officer. The
settlement has been approved by the Company's bankruptcy court and is pending
approval of the plaintiff's bankruptcy court.
10
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Third Quarter 1997 Compared to Third Quarter 1996
- - -------------------------------------------------
Net Sales. Net sales for the third quarter ended November 8, 1997, decreased by
$12,772,000 or 33.7% to $25,129,000 from $37,901,000 for the quarter ended
November 2, 1996. Comparable store sales for the quarter were down 28.8% over
the third quarter in the prior year. Comparable store sales have continued to
deteriorate as a result of higher out-of-stock positions and reduced advertising
as compared to the prior year.
Gross Profit. Gross profit for the third quarter decreased 53.4% or $7,352,000
to $6,412,000 or 25.5% of net sales, from $13,764,000 or 36.3% of net sales in
1996. The 11.2% decrease in gross profit as a percent of net sales is primarily
attributable to (i) an increase in the accrual for inventory shrinkage which
reflects actual results achieved during the first half of the year, (ii) a
significant decline in the amount of expenses that can be capitalized into
inventory due to a reduction in purchasing from the prior year, (iii) an
increase in rent expense as a percent to sales (although the dollar amount
declined, the percentage increase is due to reduction in leverage from lower
sales) and (iv) a loss on sale of inventory to an outside liquidation company in
three stores to be closed ($435,000).
Selling, General and Administrative Expenses. Selling, general and
administrative expenses for the third quarter of 1997 decreased $2,339,000 or
17.6% to $10,933,000 or 43.5% of net sales from $13,272,000 or 35.0% of net
sales in 1996. This 8.5% of net sales increase is primarily attributable to an
increase in salaries and wages (5.7%) due to lost leverage from lower sales.
Depreciation Expense. Depreciation expense increased from $806,000 in the third
quarter of 1996, to $917,000 in 1997. This increase is primarily associated
with capitalized costs of new stores incurred since the third quarter of 1996.
Restructuring Charges. Restructuring charges resulting from the bankruptcy
filing during the quarter were recorded. The restructuring charges amounted to
$1,016,000 which represented professional fees ($630,000) and a reserve for
bonuses to certain key employees for remaining through the bankruptcy process
($385,000).
Interest Expense. Interest expense increased from $570,000 in the third quarter
of 1996, to $697,000 in the third quarter of 1997. The growth in interest
expense is due to increased borrowings under the revolving loan facility to
finance the nine new stores in 1996.
Net Income. Net income for the third quarter decreased from a net loss of
$613,000 in the third quarter of 1996 to a loss of $8,089,000 for 1997. This
net loss equates to $1.78 loss per share based on 4,542,558 weighted average
shares outstanding for the third quarter of 1997, as compared to $0.14 loss per
share for the third quarter of 1996 based on 4,526,815 weighted average shares
outstanding.
FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES
Capital expenditures for property and equipment amounted to $410,000
for the forty weeks ended November 8, 1997. Such expenditures are related to
normal replacement of store equipment. The Company's inventory has decreased
$14,313,000 from $56,906,000 at January 31, 1997 to
11
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (CONTINUED)
$42,593,000 on November 8, 1997. This decrease reflects the reduction in the
total number of stores, 102 stores at January 31, 1997, down to 83 stores at the
end of the third quarter. In addition, per store inventory has declined from an
average of $558,000 per store at January 31, 1997, to an average of $513,000 per
store at November 8, 1997. This per store decrease reflects a significant
reduction in vendor shipments resulting from higher-than-normal past due
balances for the Company's vendors payable.
At November 8, 1997, long-term and short-term bank debt was $26,877,000, an
increase of $3,306,000 from January 31, 1997. On August 11, 1997, the Company
filed a voluntary petition for reorganization under Chapter 11 of the United
States Bankruptcy Code (the "Bankruptcy Code") in the United States Bankruptcy
Court for the District of Delaware, (the "Bankruptcy Court"). The Company is
currently operating its business as a debtor-in-possession under the supervision
of the Bankruptcy Court. In conjunction with the Chapter 11 filing the Company
obtained debtor-in-possession (DIP) financing from GBFC/BankBoston which
allowed the Company to repay its existing indebtedness and have cash
availability to purchase regular and seasonal merchandise. At the end of the
third quarter the Company was not in compliance on certain loan covenants.
Accordingly, the revolving and term loans are classified as current liabilities
on the Balance Sheet as of November 8,1997. GBFC/BankBoston has agreed to
continue to fund the DIP financing on a discretionary basis (see note 7 to the
financial statements).
On January 16, 1998, the bankruptcy court approved the sale of all
assets of the Company and its subsidiaries to Old America Stores, LP and KOB, LP
in exchange for cash, used primarily to pay off all secured indebtedness, and
the assumption of substantially all post petition liabilities of the Company and
its subsidiaries. The purchase price was determined through arms-length
negotiations between the parties. The purchase price did not provide for any
payment to pre-petition creditors or stockholders. Accordingly, there will be no
value for the stockholders of the Company. As a result of the sale, the Company
and its subsidiaries have terminated operations and are in the process of
liquidating and winding up their affairs. The transaction closed on January 21,
1998.
12
<PAGE>
PART II. OTHER INFORMATION
- - ---------------------------
ITEMS 1 AND 3. LEGAL PROCEEDINGS AND DEFAULTS UPON SENIOR SECURITIES
See Part I. Item 2. Management's Discussion and Analysis for a discussion
of these matters.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(2.1) Asset Purchase Agreement between Old America Stores, Inc., and its
subsidiaries and Old America Stores, LP and KOB, LP
(99) Press Release dated January 26, 1998
13
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
OLD AMERICA STORES, INC.
Date: January 29, 1998 By: /s/ Jim D. Schultz
------------------
Jim D. Schultz
Senior Vice President, Secretary,
Treasurer and Chief Financial
Officer (Principal Financial
and Accounting Officer)
14
<PAGE>
EXHIBIT 2.1
ASSET PURCHASE AGREEMENT
AMONG
OLD AMERICA STORES, LP AND KOB, LP, AS BUYERS
AND
OLD AMERICA STORES, INC.,
AND
OLD AMERICA WHOLESALE, INC.,
AND
OLD AMERICA STORE, INC., AS SELLERS
DATED AS OF DECEMBER 31, 1997
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
ARTICLE I PURCHASE AND SALE; ASSUMPTION OF CERTAIN LIABILITIES........... 5
1.1 Acquired Assets................................................ 5
1.2 Assignment of Leases, Contracts and Purchase Orders............ 7
1.3 Excluded Assets................................................ 7
1.4 Assumed Obligations............................................ 8
1.5 No Other Liabilities Assumed................................... 8
ARTICLE II - PURCHASE PRICE AND PAYMENT..................................... 9
2.1 Deposit........................................................ 9
2.2 Payment of Purchase Price...................................... 9
2.3 Physical Count and Valuation................................... 10
2.4 Post-Closing Purchase Price Adjustment......................... 10
2.5 Prorations..................................................... 11
2.6 Further Assurances............................................. 12
2.7 Stipulation Regarding Purchase Price........................... 12
ARTICLE III - REPRESENTATIONS AND WARRANTIES OF SELLERS..................... 12
3.1 Due Authorization.............................................. 12
3.2 Permits; Consent............................................... 12
3.3 Financial Statements and Obligations........................... 13
3.5 Contracts...................................................... 13
3.6 Brokers........................................................ 13
3.7 Accounts....................................................... 13
3.8 Bankruptcy Reports............................................. 13
ARTICLE IV - REPRESENTATIONS AND WARRANTIES OF PURCHASER.................... 14
4.1 Corporate Authority............................................ 14
4.2 Consents....................................................... 14
4.3 Brokers........................................................ 14
4.4 "AS IS" Purchase............................................... 14
ARTICLE V - COVENANTS OF SELLERS........................................... 14
5.1 Implementing Agreement......................................... 14
5.2 Cooperation of Sellers; Access to Information.................. 15
5.3 Ordinary Course................................................ 15
5.4 Compensation................................................... 15
5.5 Consents and Approvals......................................... 15
5.6 Preservation of Acquired Assets................................ 16
5.7 Maintenance of Insurance....................................... 16
5.8 No Modifications............................................... 16
5.9 Bankruptcy Actions............................................. 16
5.10 Approval of Certain Contracts.................................. 16
5.11 Tax Returns.................................................... 16
5.12 Noncompetition and Confidentiality............................. 16
</TABLE>
(i)
<PAGE>
<TABLE>
<S> <C>
5.13 Referral of Business Opportunities............................. 18
5.14 Insurance...................................................... 18
5.15 Notice of Developments......................................... 18
5.16 Employees...................................................... 19
ARTICLE VI - COVENANTS OF PURCHASER......................................... 19
6.1 Implementing Agreement......................................... 19
6.2 Consents and Approvals......................................... 19
6.3 Assumed Obligations............................................ 19
6.4 Payment of Purchase Price...................................... 19
6.5 Employees...................................................... 19
6.6 Cooperation in Chapter 11 Cases................................ 20
6.7 Reasonable Access to Records and Certain Personnel............. 20
ARTICLE VII - CONDITIONS PRECEDENT TO OBLIGATIONS OF PURCHASER.............. 20
7.1 Warranties True as of Both Present Date and Closing Date....... 20
7.2 Compliance with Agreement and Covenants........................ 21
7.3 Bankruptcy Conditions.......................................... 21
7.4 No Material Adverse Change..................................... 21
7.5 Actions or Proceedings......................................... 21
7.6 Escrow Agreement and Other Agreements.......................... 22
7.7 Other Documents................................................ 22
7.8 Consents and Approvals; Permits................................ 22
7.9 General Release................................................ 22
ARTICLE VIII - CONDITIONS PRECEDENT TO OBLIGATIONS OF SELLERS............... 22
8.1 Warranties True as of Both Present Date and Closing Date....... 22
8.2 Compliance with Agreements and Covenants; Certificates......... 22
8.3 Actions or Proceedings......................................... 23
8.4 Bankruptcy Conditions.......................................... 23
8.5 Guaranty....................................................... 23
8.6 General Release................................................ 23
ARTICLE IX - CLOSING........................................................ 23
9.1 Closing........................................................ 23
9.2 Deliveries by Sellers.......................................... 23
9.3 Deliveries by Purchaser........................................ 24
ARTICLE X - TERMINATION.................................................... 24
10.1 Termination.................................................... 24
10.2 Effect of Termination.......................................... 24
ARTICLE XI[INTENTIONALLY OMITTED]........................................... 25
ARTICLE XII - MISCELLANEOUS................................................. 25
12.1 Expenses....................................................... 25
12.2 Amendment; Supplemental Disclosure............................. 25
</TABLE>
(ii)
<PAGE>
<TABLE>
<S> <C>
12.3 Notices........................................................ 25
12.4 Effect of Investigations....................................... 26
12.5 Waivers........................................................ 27
12.6 Counterparts................................................... 27
12.7 Headings....................................................... 27
12.8 APPLICABLE LAW AND JURISDICTION................................ 27
12.9 Binding Nature; Assignment..................................... 27
12.10 No Third Party Beneficiaries................................... 28
12.11 Tax Matters.................................................... 28
12.12 Construction................................................... 28
12.13 Entire Understanding........................................... 28
</TABLE>
EXHIBITS
- - --------
EXHIBIT A Inventory Projections
EXHIBIT B Form of Sale Order
EXHIBIT C Escrow Agreement
EXHIBIT D Guaranty
EXHIBIT E Form of General Release to be executed by Sellers
EXHIBIT F Form of General Release to be executed by Purchaser
SCHEDULES
- - ---------
1.2(a) Leases
1.2(b) Assumed Contracts
3.3 Financial Statements
3.5 Material Contracts
6.5 Sellers' Employees
(iii)
<PAGE>
ASSET PURCHASE AGREEMENT
------------------------
THIS ASSET PURCHASE AGREEMENT is dated as of December 31, 1997, by and
among Old America Stores, LP and KOB, LP, each a limited partnership organized
under the laws of the State of Tennessee (individually each a "Purchaser" and
---------
collectively "Purchasers"), and Old America Stores, Inc., Old America Wholesale,
----------
Inc., and Old America Store, Inc., each a debtor and debtor-in-possession under
Chapter 11 Case No. 97-1687 (PJW), jointly administered (individually each a
"Seller" and collectively "Sellers"). In consideration of the mutual covenants,
------ -------
agreements and warranties herein contained, the parties hereto agree as follows:
CERTAIN DEFINITIONS
-------------------
Unless otherwise defined herein, terms used herein shall have the meanings
set forth below:
"Affiliate Obligations" means Sellers' debt and other obligations and
---------------------
liabilities to affiliates and stockholders of Sellers, and includes all
interest, fees, costs and similar amounts payable by Sellers in respect thereof.
"Agreement" means this Asset Purchase Agreement, including all Exhibits and
---------
Schedules hereto, as it may be amended from time to time in accordance with its
terms.
"Balance Sheet" means the consolidated projected balance sheet of Sellers
-------------
as of January 31, 1998 attached as Exhibit A.
"Bankruptcy Code" means title 11 of the United States Code, sections 101-
---------------
1330.
"Bankruptcy Court" means the United States Bankruptcy Court for the
----------------
District of Delaware, having jurisdiction over Sellers and their assets in the
Chapter 11 Cases.
"BRF" means BankBoston Retail Finance, Inc. f/k/a GBFC, Inc.
---
"Business" means the business conducted utilizing those operating assets
--------
and operations of Sellers for the sale and distribution of, inter alia, framing,
floral, craft and decorative accent products.
"Chapter 11 Cases" means the pending cases commenced by Sellers on August
----------------
11, 1997 under chapter 11 of the Bankruptcy Code, pending in the Bankruptcy
Court under docket no. 97-1687 (PJW), jointly administered.
"Claim" means any claim, lawsuit, demand, suit, inquiry made, hearing,
-----
investigation, notice of violation, litigation, proceeding, arbitration, or
other dispute, whether civil, criminal, administrative or otherwise.
<PAGE>
"Closing" means the consummation of the transactions contemplated herein in
-------
accordance with Article IX hereof.
----------
"Closing Date" means the date set forth in Section 9.1 below but in no
------------
event later than the date set forth in Section 7.13 below.
"Code" means the United States Internal Revenue Code of 1986, as amended.
----
"Contaminant" means any substance regulated under any Environmental Law, or
-----------
any substance defined as or included in the statutory or regulatory definitions
of pollutant, hazardous substances, hazardous or toxic wastes, hazardous
materials, or "toxic substances" under any Environmental Law.
"Contract" means any agreement, contract, commitment, or other binding
--------
arrangement or understanding, whether written or oral.
"Disclosure Schedule" means the disclosure schedules hereto.
-------------------
"Dollars" or "$" means dollars of the United States of America.
------- -
"Environmental Law" means any Regulation which related to or otherwise
-----------------
imposes liability or standards of conduct concerning discharges, releases or
threatened releases of noxious odors or any Contaminants into ambient air, water
or land, or otherwise relating to the manufacture, processing, generation,
distribution, use, treatment, storage, disposal, cleanup, transport or handling
of Contaminants.
"Environmental Liabilities and Costs" means all Losses from any claim, by a
-----------------------------------
Person, whether based on Contract, tort, implied or express warranty, strict
liability, criminal or civil statute, including under any Remedial Action, any
Environmental Law, any Permit required by or pursuant to any applicable
Environmental Law, any Lien in favor of any authority for Environmental
Liabilities and Costs, any Order or agreement with any authority, arising from
environmental, health or safety conditions, or the Release of a Contaminant into
the environment.
"Financial Statements" means and refers collectively only to the
--------------------
consolidated Form 10-Q dated as of November 10, 1997, together with Sellers'
1996 Form 10-K, copies of which are attached hereto as Schedule 3.3.
------------
"First Term Loan" means that certain term loan in the original principal
---------------
amount of $3,000,000, as same arises under that certain Loan and Security
Agreement, dated August 12, 1997 between Sellers and BRF.
"GAAP" means the U.S. generally accepted accounting principles at the time
----
in effect, consistently applied.
"Guarantee" means any guarantee or other contingent liability (other than
---------
any endorsement for collection or deposit in the ordinary course of business),
direct or
2
<PAGE>
indirect with respect to any Indebtedness or obligations of another Person,
through a Contract or otherwise, including, without limitation, (a) any other
endorsement or discount with recourse or undertaking substantially equivalent to
or having economic effect similar to a guarantee in respect of any such
obligation or to assure the owner thereof against loss regardless of the
delivery or nondelivery of the property, products, materials or supplies or
transportation or services or (b) to make any loan, advance or capital
contribution to or other investment in, or to otherwise provide funds to or for,
such other Person in respect of enabling such Person to satisfy an obligation
(including any liability for a dividend, stock liquidation payment or expense)
or to assume a minimum equity, working capital or other balance sheet condition
in respect of any such obligation.
"Indebtedness" with respect to any Person means any obligation of such
------------
Person for borrowed money, and in any event shall include (i) any obligation
incurred for all or any part of the purchase price of property or other assets
or for the cost of property or other assets constructed or of improvements
thereto, other than accounts payable included in current liabilities and
incurred in respect of property purchased in the ordinary course of business,
(ii) the face amount of all letters of credit issued for the account of such
Person, (iii) obligations (whether or not such Person has assumed or become
liable for the payment of such obligation) secured by Liens, (iv) capitalized
lease obligations, (v) all Guarantees of such Person, (vi) all accrued interest,
fees and charges in respect of any Indebtedness, and (vii) all prepayment
premiums and penalties, and any other fees, expenses, indemnities and other
amounts payable as a result of the prepayment and/or discharge of any
Indebtedness.
"Inventory Book Value" means all Inventory valued on the basis of Sellers'
--------------------
historical cost and determined in accordance with the procedures and assumptions
set forth in Section 2.2 hereof.
"License" means that certain License to be granted to Purchasers by Sellers
-------
at Closing to enable Purchasers to use certain Stores to conduct "going-out-of-
business," "store closing" or similar theme sales therefrom.
"Lien" means any security interest, lien, charge, mortgage, deed,
----
assignment, pledge, hypothecation, encumbrance, easement, restriction or
interest of another Person of any kind or nature.
"Losses" mean all liabilities of every kind, losses, costs, claims,
------
judgments, awards, damages (including punitive, consequential and treble
damages), penalties or expenses (including, without limitation, reasonable
attorneys' fees and expenses and costs of investigation and litigation), and
also including any expenditures or expenses incurred to cover, remedy or rectify
any such Losses.
"Order" means any decree, order, injunction, rule, judgment, consent of or
-----
by an authority.
3
<PAGE>
"Ordinary Course of Business" means the operation of the Business by
---------------------------
Sellers in the usual and ordinary course in a manner substantially similar to
the manner in which Sellers have operated since the commencement of the Chapter
11 Cases.
"Person" means any corporation, partnership, joint venture, limited
------
liability company, organization, entity, authority or natural person.
"Pipeline Cash" means all of the Sellers' credit card receipts (net of
-------------
chargebacks) and cash received up until the calendar day immediately preceding
the Closing and not yet credited to the amounts due under the Revolver.
"Projected Inventory Book Value" shall mean $34,803,673, which represents
------------------------------
the applicable projected book value of the Inventory computed in accordance with
GAAP as of January 20, 1998 as set forth in the attached Schedule 2.3(a).
"Purchaser" means, as applicable herein, Old America Stores, LP or KOB, LP,
---------
each a Tennessee limited partnership.
"Purchasers" means, collectively, Old America Stores, LP and KOB, LP.
----------
"Regulation" means any law, statute, regulation, ruling, rule or Order of,
----------
administered or enforced by or on behalf of any authority.
"Release" means any release, spill, emission, leaking, pumping, disposal,
-------
discharge, dispersal or migration of any Contaminant into the indoor or outdoor
environment or into or out of any property or assets (including the Acquired
Assets) owned or leased by Sellers, including the movement of Contaminants
through or in the air, soil, surface water, groundwater or property.
"Remedial Action" means all actions required under any applicable
---------------
Environmental Law to (1) clean up, remove, treat or in any other way address
Contaminants in the indoor or outdoor environment; (2) prevent the Release or
threat of Release or minimize the further Release of Contaminants so they do not
migrate or endanger or threaten to endanger public health or welfare or the
indoor or outdoor environment; or (3) perform pre-remedial studies and
investigations and post-remedial monitoring and care.
"Revolver" means the revolving line of credit extended by BRF to the
--------
Sellers under that certain Loan and Security Agreement, dated August 12, 1997.
"Sale Order" means that certain order(s) to be entered by the Bankruptcy
----------
Court in the Chapter 11 Cases, in substantially the form attached as Exhibit "B"
to this Agreement, inter alia, approving the transactions contemplated by this
Agreement.
"Second Term Loan" means that certain term loan in the original principal
----------------
amount of $2,000,000, as same arises under that certain Loan and Security
Agreement, dated August 12, 1997 between Sellers and BRF.
4
<PAGE>
"Sellers" means Old America Stores, Inc., Old America Wholesale, Inc., and
-------
Old America Store, Inc., individually and collectively.
"Store" means the premises from which Sellers operate the Business.
-----
"Store Lease" means, individually, any lease of non-residential real
-----------
property from which Sellers conduct the Business and, collectively, all of
Sellers' leases of non-residential real property from which Sellers conduct the
Business, including, but not limited to, as same relate to a Store(s).
"Taxes" means all taxes, charges, fees, duties, levies or other
-----
assessments, including, without limitation, income, gross receipts, net
proceeds, ad valorem, turnover, real and personal property (tangible and
intangible), sales, use, franchise, excise, value added, license, payroll,
unemployment, environmental, customs duties, capital stock, disability, stamp,
leasing, lease, user, transfer, fuel, excess profits, occupational and interest
equalization, windfall profits, severance and employees' income withholding and
Social Security taxes imposed by the United States or any other country or by
any state, municipality, subdivision or instrumentality of the United States or
of any other country or by any other tax authority, including all applicable
penalties and interest, and such term shall include any interest, penalties or
additions to tax attributable to such Taxes.
"Tax Return" means any report, return or other information required to be
----------
supplied to a taxing authority in connection with Taxes.
"Third Party" means any Person other than Sellers, Purchasers or any of
-----------
their respective affiliates.
ARTICLE I
PURCHASE AND SALE; ASSUMPTION OF CERTAIN LIABILITIES
1.1 Acquired Assets. Subject to the terms and conditions set forth in
---------------
this Agreement, at the Closing, Sellers shall sell, assign, transfer and deliver
to Purchasers, and Purchasers shall purchase, acquire and take assignment and
delivery of, as shall be directed and designated by Purchasers at Closing, in
their respective sole discretion, the following assets owned by Sellers
(wherever located) related to, or used in conjunction with, the Business, and
all of Sellers' right, title and interest therein and thereto, but not including
those assets specifically excluded in Section 1.3 (all of the assets to be sold,
assigned, transferred and delivered to Purchasers hereunder shall be deemed
included in the term "Acquired Assets" as used herein):
---------------
(a) cash, net of Pipeline Cash, (i) in the amount necessary to
assure that on the day immediately following the Closing each retail location
will have cash on hand equal to the sum of (x) $100 per cash register at such
location plus (y) $500; (ii) cash received by Sellers relating to the Business
on or after the Closing Date and (iii) received (whether by Purchasers or
Sellers) on or after the Closing relating to the Business for credit card sales
transacted prior to the Closing (i.e., where the goods were
5
<PAGE>
delivered to the customer prior to the Closing based upon the customer's payment
by credit card);
(b) all instruments, prepaid assets and deposits, receivables,
unbilled costs and fees, tax refunds, co-op advertising allowances, and accounts
(individually an "Account" and collectively the "Accounts"); provided that by
------- --------
acquiring any Account from Sellers, Purchasers and Sellers intend that should
Purchasers elect to pursue collection of any outstanding Account, Purchasers'
sole exposure to the account debtor for set off, recoupment, or counterclaim
relating to any pre-Closing transactions shall be limited to the amount owing
under the relevant Account (the amount to which such exposure of Purchasers to
Account debtors is to be limited as described in this Section 1.1(b) is referred
to in this Agreement as "Account Debtor Liability");
(c) all supplies, materials and inventories relating in any manner
to the Business, including, without limitation, any such assets which (x) are
actually located at any location of any Seller, (y) have been paid for by any
Seller prior the Closing, or (z) have been shipped to such Seller, but not
received by such Seller as of the Closing (collectively, the "Inventory");
---------
(d) all machinery, equipment, tools, vehicles, furniture,
furnishings, leasehold improvements, goods, and other tangible personal property
owned by Sellers;
(e) all transferable licenses, permits, approvals, certificates of
occupancy, authorizations, operating permits, registrations, plans and the like
applicable to the Business (collectively, the "Permits");
-------
(f) all transferable patents, patent applications, licenses,
service names, service marks, trade names, trademarks, trade name and trademark
registrations (and applications therefor), copyrights and copyright
registrations (and applications therefor), inventions and designs, including,
without limitation, any and all such rights in and to the names "Old America,"
"Crafts America" and any of their derivatives as used on products related to the
Business and goodwill, trade secrets, processes and know-how which relate in any
manner to the Business (collectively, the "Intellectual Property");
---------------------
(g) all Claims and rights of action arising out of occurrences
before or after the consummation of the proposed transactions contemplated
herein to the extent relating to the Acquired Assets (including all rights to
insurance proceeds relating to any of the Acquired Assets), but specifically
excluding any avoidance claims or causes of action arising under the Bankruptcy
Code or applicable state law, including, without limitation, all rights and
avoidance claims of Sellers arising under Sections 544, 547, 548, 549 and 550 of
the Bankruptcy Code (an "Avoidance Action" and collectively the "Avoidance
---------------- ---------
Actions"); provided, however, in the event Sellers elect to pursue any Avoidance
- - -------
Action, prior to the commencement of such Avoidance Action, Sellers shall
provide Purchasers with not less than ten (10) business days notice thereof;
(h) all information, files, records, data, plans, contracts, and
recorded knowledge, including customer and supplier lists, related to or used in
connection with
6
<PAGE>
the Business, except to the extent that any of the foregoing are privileged or
otherwise subject to third party privacy rights (the items excluded from this
Section 1.1(h) are collectively referred to herein as "Excluded Records");
(i) all real estate owned by any Seller, wherever located; and
(j) any and all other assets and rights that are not of the type or
character referenced in Section 1.1(a) - (i) and which relate solely to or are
necessary for the continuation after the Closing Date of the Business in at
least the same manner and magnitude as of the date hereof.
1.2 Assignment of Leases, Contracts and Purchase Orders. Subject to the
---------------------------------------------------
terms and conditions set forth in this Agreement, Sellers will assign and
transfer to Purchasers, effective as of the Closing Date, all of Sellers' right,
title and interest in and to, and Purchasers will take assignment of, the
following rights and interests that are exclusively used in connection with, or
relate exclusively to, the Business (and the right, title and interest of
Sellers (or any of them) under all of the following shall be deemed included in
the term "Acquired Assets" as used herein):
---------------
(a) Those leases (including, without limitation, Store Leases and
leases covering real property and equipment or other personal property)
identified on Schedule 1.2(a) (collectively, the "Leases"); provided, however,
--------------- ------ -------- -------
Purchasers shall have the right to terminate this Agreement (as provided in
Section 7.11 hereof) in the event the Bankruptcy Court does not authorize
Sellers' assumption and assignment to Purchasers of at least 80 Store Leases as
shall be designated by Purchasers on Schedule 1.2(a); provided further, that
--------------- -------- -------
Purchasers' right to terminate this Agreement upon a failure of the Bankruptcy
Court to approve the assumption and assignment of at least 80 Store Leases shall
be adjusted downward on a store-for-store basis consistent with Purchasers'
designation at or before Closing of those Stores that shall be subject to the
License (for example, if the Purchasers designate that 25 Stores shall be
subject to the License, the 80 Store Lease threshold shall be reduced to 55
Store Leases); and
(b) All Contracts or other arrangements entered into in the
Ordinary Course of Business, including, but not limited to, Contracts where
either Seller is the customer/purchaser and the goods, supplies or materials
purchased thereunder are not included in Inventory (collectively, the "Sellers'
-------
Purchase Orders"), solely to the extent such Contracts are identified in
- - ---------------
Schedule 1.2(b) hereof (collectively, the "Assumed Contracts").
1.3 Excluded Assets. Notwithstanding anything to the contrary in this
---------------
Agreement, the following assets of Sellers, as well as any other assets not
defined as Acquired Assets, shall be retained by Sellers and are not being sold
or assigned to Purchasers hereunder (all of the following are referred to
collectively as the "Excluded Assets"):
---------------
(a) any stock held by either Seller or any other affiliates of
Sellers;
7
<PAGE>
(b) any and all Avoidance Actions; and
(c) any and all Excluded Records.
1.4 Payment of Certain Secured Obligations. At Closing, Purchasers
--------------------------------------
will:
(a) pay BRF a sum sufficient to satisfy the Sellers' obligations to
BRF on account of the First Term Loan;
(b) pay BRF a sum sufficient to satisfy the Sellers' obligations to
BRF on account of the Second Term Loan;
(c) pay BRF a sum sufficient to satisfy the Sellers' obligations to
BRF on account of the Revolver.
1.5 Additional Assumed Obligations. At the Closing, except as provided
------------------------------
in Section 1.4, Section 1.5 and/or in Section 1.6, Purchasers shall only assume,
and agree to pay, perform, fulfill and discharge the following additional
obligations of the Sellers:
(a) those obligations which are required to be performed after the
Closing Date under the following: (i) the Leases; and (ii) the Assumed
Contracts;
(b) those obligations relating to accrued but unused vacation of
employees of Sellers (or any of them) hired by Purchasers at Closing;
(c) all of Sellers' outstanding post-petition (ie. post-August 11,
--
1997) bona fide payment obligations owing to its product suppliers and vendors,
up to a maximum of $5,050,511 (the "Post-Petition Trade Payables"), subject to
any defenses and counter-claims; provided, however, Purchasers shall only assume
-------- -------
Sellers' Post-Petition Trade Payables obligations to the extent same are
disclosed in writing to Buyer prior to Closing and are set forth in Schedule
--------
1.5(c) hereof. Subject to the occurrence of the Closing, Purchasers shall pay
- - ------
those Post-Petition Trade Payables as shall be set forth in Schedule 1.5(c)
---------------
hereof on a pro rata basis to the affected creditors according to the following
schedule: (i) the aggregate sum of $1,500,000 at Closing; (ii) the aggregate sum
of $1,250,000 on or before August 31, 1998 (the "First Installment"); and (iii)
the aggregate sum of $2,300,511 on or before December 31, 1998 (the "Second
------
Installment") (Purchaser agrees to co-operate in good faith with holders of
- - -----------
Post-Petition Trade Payables appearing on Schedule 1.5(c) to reconcile their
respective accounts. Each trade vendor's actual ratable payment of the Post-
Petition Trade Payables shall be based on such reconciled amounts; provided the
first payment shall be made in accordance with the amounts on Schedule 1.5(c).
Notwithstanding the result of such reconciliation, in no event shall Purchaser
be obligated to assume and pay Post-Petition Trade Payables in excess of the
aggregate amount of $5,050,511.);
8
<PAGE>
(d) all of Sellers' obligations (i) for curing any defaults and
arrearages arising from Sellers' assignment to Purchasers and Purchasers'
assumption of those Leases and Assumed Contracts as shall be identified in
Schedule 1.2(a) and Schedule 1.2(b) hereof, respectively, pursuant to (S) 365 of
- - --------------- ---------------
the Bankruptcy Code (hereinafter, individually a "Cure Amount," and collectively
the "Cure Amounts"); provided, however, that in no event shall any Cure Amount
-------- -------
exceed the Dollar amount set forth per Lease/Assumed Contract in Schedule 1.2(a)
---------------
and Schedule 1.2(b) hereof, respectively, or such other amount as Purchasers may
---------------
agree or the Bankruptcy Court may order; and (ii) pre-petition (i.e., pre-August
----
11, 1997) personal property taxes attributable to property maintained at the
Leases; provided, that in no event shall the aggregate Dollar amount of the
--------
amounts assumed by Purchasers under (d)(i) and (d)(ii) above exceed $927,808 in
the aggregate. All undisputed Cure Amounts shall be paid on or before 10
business days after the Closing Date, with any disputed portion of a Cure Amount
to be paid within such time as shall be determined by the Bankruptcy Court upon
the final determination of such dispute by the Bankruptcy Court,
(e) certain of Sellers' outstanding post-petition (ie. post-
--
August 11, 1997) bona fide non-trade payable payment obligations (collectively,
the "Post-Petition Non-Trade Payables"), as follows: (i) accrued salaries, wages
and bonuses of employees of Sellers (or any of them) hired by Purchasers at
Closing (hereinafter, individually a "Employee Amount", and collectively
"Employee Amounts"), all as set forth in Schedule 1.5(e)(i) hereof; provided,
--------
however, that in no event shall the aggregate Dollar amount of the Employee
- - -------
Amounts exceed $929,250 in the aggregate; and (ii) other post-petition
liabilities, subject to any defenses and counter-claims as may exist
thereagainst or with respect thereto, as same shall be set forth in Schedule
--------
1.5(e)(ii) (hereinafter, individually an "Other Non-Trade Obligation", and
- - ----------
collectively, the "Other Non-Trade Obligations"); provided, however, that in
-------- -------
no event shall the aggregate Dollar amount of the Other Non-Trade Obligations
exceed $1,150,000 in the aggregate. Buyer shall pay the Post-Petition Non-Trade
Payables to the affected creditors according to the following schedule: (i) all
Employee Amounts shall be paid on or before the later of (x) the next regularly
scheduled payroll period for said employees, or (y) the date when such amounts
shall become due in the Ordinary Course of Business, by agreement with the
affected employee, or order of the Bankruptcy Court, and (ii) all Other Non-
Trade Obligations shall be paid (x) $850,000 at Closing and (y) $300,000 on July
31, 1998.
The amounts set forth in this Section 1.5(a) - (e) are collectively defined
herein as the "Assumed Obligations"). Sellers shall not be responsible for any
-------------------
such cure obligations in connection with the assumption and assignment of any of
the Assumed Contracts or Leases. Purchasers hereby reserve the right to
challenge the amount of any Cure Amount set forth in Schedule 1.2(a) or (b)
----------------------
hereof, as the case may be. Subject to the terms and provisions of the License,
Sellers expressly reserve the right to at any time seek to reject any Contract
to which any of the Sellers is a party if such Contract is not among those
designated for assumption and assignment by Purchasers at the Closing pursuant
to this Section 1.5; provided, however, that any such rejection shall be (i) on
-------- -------
prior written notice to Purchasers, (ii) not limit or impair the rights of
Purchasers to use
9
<PAGE>
or occupy any of the Closing Stores pursuant to the terms of the License, and
(iii) without prejudice to Purchasers' right to argue that property which is
subject to any such Contract to be rejected constitutes Disputed Status Property
(as defined in Section 1.7 below) and that it is owned by Sellers.
1.6 No Other Liabilities Assumed. Sellers acknowledge and agree that
----------------------------
pursuant to the terms and provisions of this Agreement and under any Contract,
Purchasers will not assume any obligation of Sellers, other than the Assumed
Obligations. In furtherance and not in limitation of the foregoing, neither
Purchasers nor any of its affiliates shall assume, and shall not be deemed to
have assumed, other than as specifically set forth in Sections 1.4 and 1.5
above, any debt, claim, obligation or other liability of Sellers or any of its
affiliates whatsoever, including, but not limited to (i) any Environmental Costs
and Liabilities for any act, omission, condition, event or circumstance to the
extent occurring or existing prior to the Closing Date, including without
limitation all Environmental Costs and Liabilities relating in any manner to
Sellers' direct or indirect handling, transportation or disposal of any
Contaminants, (ii) any of Sellers' liabilities in respect of Taxes except as
expressly provided in Sections 1.5(d) and 1.5(e) (but solely to the extent such
taxes appear in Schedule 1.5(e)(ii) hereof) and Section 12.11(b) hereof, (iii)
-------------------
any brokers' or finders' fees arising by reason of Sellers' dealings with
brokers or other third parties, or other liability of Sellers for costs and
expenses (including legal fees and expenses) incurred in connection with this
Agreement, (iv) any Indebtedness except for the Assumed Obligations, (v) except
as otherwise provided in Section 6.5 hereof with respect to the accrued and
unused vacation of Sellers' Employees, any obligations or liabilities for
Sellers' Employees, including severance, pension, profit sharing or any other
employee benefit plans, compensation or retiree medical and other benefits and
obligations, except to the extent same constitutes an Employee Amount, (vi) any
obligation or liability arising as a result of or whose existence is a breach of
Sellers' representations, warranties, agreements or covenants, (vii) any
Excluded Assets, (viii) any Affiliate Obligations, (ix) any liability subject to
compromise, except to the extent same constitutes an Assumed Obligation, and (x)
rebates, allowances, deductions and/or price discrepancies relating in any
manner to products sold in pursuit of the Business prior to the Closing Date
(collectively, "Unassumed Liabilities"). Disclosure of any obligation or
---------------------
liability on any schedule to this Agreement shall not create an Assumed
Obligation or other liability of Purchasers, except where such disclosed
obligation has been expressly assumed by Purchasers as an Assumed Obligation in
accordance with the provisions of Sections 1.4 and 1.5 hereof. Notwithstanding
anything to the contrary herein, Purchasers acknowledge that they shall acquire
the Accounts subject to the Account Debtor Liability (as defined in Section
1.1(b) above).
1.7 Certain Limitations on Purchasers' Right to Acquire. Sellers and
---------------------------------------------------
Purchasers acknowledge that Sellers are currently in possession of certain
property under one or more Contracts, of which Sellers may actually be the
owner, as distinguished from lessee, under certain principles of law, and which
property Purchasers may wish to have Seller treat as Acquired Assets (such
property is hereinafter referred to as "Disputed Status Property").
Notwithstanding any contrary provision of this Agreement or any document
executed pursuant hereto, Purchasers shall not have the right, to the extent the
same are
10
<PAGE>
held by Sellers (or either of them) under any Contract not assumed by Purchasers
pursuant to Section 1.5 above, to acquire (i) any furniture, fixture, machinery,
equipment or other item of tangible personal property which constitutes Disputed
Status Property, or (ii) any furniture, fixture, machinery, equipment or other
item of tangible personal property which does not constitute Disputed Status
Property, unless in each case (and only if) Purchasers arrange to acquire such
property in a manner which results in the Sellers being released and discharged
(in a manner reasonably satisfactory to Sellers) from any and all further cost,
expense or liability relating to such item (whether such costs, expenses and
liability relate to or arise during the period prior to the Closing or after the
Closing).
1.8 Closing Locations License. Upon approval of this Agreement by the
-------------------------
Bankruptcy Court under the Sale Order, Sellers shall have been deemed to have
granted unto Purchasers a license ("License") to use certain of Sellers' Stores
-------
for the purpose of conducting "going-out-of-business," "store closing" or
similar theme inventory liquidation sales ("Store Closing Sales") from up to 25
-------------------
of Sellers' current retail store locations (with such closing locations to be
identified by Purchasers to Seller no later than the Closing (collectively, the
"Closing Locations")), with such Store Closing Sales to be (i) for the sole
-----------------
account and benefit of the Purchasers, (ii) completed by Purchasers no later
than 90 days after the Closing of the transaction contemplated hereby ("End
Date") and (iii) conducted in accordance with procedures reasonably satisfactory
to Purchasers and consistent with the Store Closing Guidelines attached as
Schedule 1.8 hereof, and further consistent with such procedures as are
- - ------------
customarily approved by the Bankruptcy Court in similar such situations. The
Sale Order shall contain provisions satisfactory to Purchasers which grants
Purchasers the License to use the Closing Locations for the duration of the
Store Closing Sales thereat, with Purchasers being obligated to pay all
associated costs of the use and occupancy of the Closing Locations during the
conduct of the Store Closing Sales therefrom. Purchasers shall provide Sellers
with not less than 7 days written notice of their intention to vacate a Closing
Location, if said date is prior to the End Date.
ARTICLE II
PURCHASE PRICE AND PAYMENT
2.1 Payment of Purchase Price. The aggregate purchase price for the
-------------------------
Acquired Assets (the "Purchase Price") shall be the sum of the following:
--------------
(a) In accordance with Section 1.4(a) hereof, Purchasers' payment
of Sellers' obligations to BRF under the First Term Loan; plus
(b) In accordance with Section 1.4(b) hereof, Purchasers' payment
of Sellers' obligations to BRF under the Second Term Loan; plus
(c) In accordance with Section 1.4(c) hereof, Purchasers' payment
of Sellers' obligations to BRF under the Revolver; plus
11
<PAGE>
(d) In accordance with Section 1.5 hereof, Purchasers' assumption
of the Assumed Obligations; plus
(e) Purchasers' payment to Sellers of the sum of $150,000 at
Closing, said sum to be used by Sellers to defray post-Closing expenses of
administration of Sellers' Chapter 11 estates.
2.2 Physical Count and Valuation. On or before January 31, 1998,
----------------------------
Purchasers shall have conducted and completed a physical count and inspection of
the Inventory (the "Physical Inventory"). The instructions and guidelines to be
------------------
abided by Purchasers in the conduct of the Physical Inventory shall be
reasonable and customary and shall have been agreed to by Purchasers and
Sellers. Sellers shall be permitted, at their own expense, to have
representatives present for the taking of such Physical Inventory. Based on
such Physical Inventory, Purchasers shall reasonably determine the amount of the
Inventory Book Value as of the Closing Date, subject to Sellers' reasonable
approval and taking into account the results of such Physical Inventory and the
presence or absence of Inventory.
2.3 Post-Closing Purchase Price Adjustment. Upon determination of the
--------------------------------------
Inventory Book Value in accordance with Section 2.2 (in addition to the
adjustments provided for in Sections 2.5 below), the Purchase Price shall be
adjusted as follows:
(a) In the event that as of Closing there appears any negative
variance greater than 10% (the "Adjustment Threshold") in either the book value
of Seller's Accounts (including any tax refunds), net property, plant and
equipment, prepaid expenses and/or any other assets comprising the Acquired
Assets, from that which is reflected in the Balance Sheet, Purchasers shall be
entitled to a reduction in the Purchase Price equal to the aggregate amount of
such negative variance(s) over and above the Adjustment Threshold and for the
amount of any negative variance between the Projected Inventory Book Value and
the Inventory Book Value ("Purchase Price Adjustment"), provided, however, no
------------------------- -------- -------
Purchase Price Adjustment shall be permitted if there has been a reduction in
the outstanding amount of the First Term Loan, Second Term Loan and/or BRF
Revolver, as the case may be, in an amount equal to or greater than the
aggregate negative variance from the Balance Sheet. The Purchase Price
Adjustment shall be effectuated by Purchasers making a ratable reduction in the
amounts Purchasers shall pay in respect of the Post-Petition Trade Payables
hereunder, with such reduction, to the extent applicable to the Post-Petition
Trade Payables being made from the amount due from Purchasers in respect of the
First Installment or Second Installment, at Purchasers' election.
(b) [Intentionally Omitted]
2.4 [Intentionally Omittted]
2.5 Further Assurances. From time to time after the Closing and without
------------------
further consideration, (i) Sellers, upon the request of Purchasers and at
Sellers' expense, shall execute and deliver such documents and instruments of
conveyance and transfer as
12
<PAGE>
Purchasers may reasonably request in order to consummate more effectively the
purchase and sale of the Acquired Assets as contemplated hereby and to vest in
Purchasers title to the Acquired Assets transferred hereunder, provided that (x)
Sellers shall not be required to execute or deliver any document or instrument
pursuant to this Section 2.5 which includes any provision(s) which impose
obligations upon the Sellers which are greater than those imposed upon Sellers
under the other provisions of this Agreement or the documents executed pursuant
hereto, and (y) in no event shall Sellers be required to incur any material cost
or expense in the performance of its obligations under this Section 2.5, Section
5.5, or Section 5.14 (it being understood that notwithstanding the foregoing,
the Purchasers shall in any event be entitled to require Sellers to take such
action as Sellers would otherwise be required to take pursuant to this Section
2.5, Section 5.5 and/or Section 5.14 but for the cost thereof by advancing to
Sellers the amounts Sellers reasonably anticipate incurring in excess of
immaterial costs and expenses in taking the action), and (ii) Purchasers, upon
the request of Sellers and at Purchasers' expense, shall execute and deliver
such documents and instruments of assumption as Sellers may reasonably request
in order to confirm Purchasers' liability for the obligations under the Assumed
Obligations or otherwise more fully consummate the transactions contemplated by
this Agreement; provided that (xx) Purchasers shall not be required to execute
or deliver any document or instrument pursuant to this Section 2.5 which
includes any provision(s) which impose obligations upon the Purchasers which are
greater than those imposed upon Purchasers under the other provisions of this
Agreement or the documents executed pursuant hereto, and (yy) in no event shall
Purchasers be required to incur any material cost or expense in the performance
of its obligations under this Section 2.5 (it being understood that
notwithstanding the foregoing, Sellers shall in any event be entitled to require
Purchasers to take such action as Purchasers would otherwise be required to take
pursuant to this Section 2.5 but for the cost thereof by advancing to Purchasers
the amounts Purchasers reasonably anticipate incurring in excess of immaterial
costs and expenses in taking the action).
2.5 Diligent Efforts to Finalize all Adjustments. Sellers and
--------------------------------------------
Purchasers hereby agree to use their diligent, good faith efforts to effectuate
and finalize all adjustments contemplated by this Article II within thirty (30)
days following the Closing. In the event that all such adjustments have not been
finalized and effectuated by the expiration of such thirty (30) day period,
either party shall have the right, upon written notice to the other(s), to
submit the determination of the remaining adjustments to the Bankruptcy Court
for determination (on shortened time if the Bankruptcy Court will hear the
matter on such basis).
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF SELLERS
Sellers jointly and severally represent and warrant to Purchasers as of the
date of this Agreement and the Closing Date, as follows:
13
<PAGE>
3.1 Due Incorporation; Good Standing. Sellers are corporations duly
--------------------------------
incorporated under the laws of the state(s) of their respective incorporation,
and are in good standing thereunder as of the date hereof and as of the Closing.
3.2 Consents. To Seller's actual knowledge, except for consents,
--------
approvals or authorizations of, or filings with, the Bankruptcy Court, no notice
to, filing with, authorization of, exemption by, or consent of any governmental
authority is required in order for Sellers to consummate the transaction
contemplated hereby.
3.3 Financial Statements and Obligations. To Sellers actual knowledge,
------------------------------------
the Projected Inventory Book Value and Financial Statements (as defined in the
"Definitions" section above) present fairly in all material respects the matters
addressed therein as of and for the periods set forth therein in conformity with
the past accounting practices of the Sellers, and make full and adequate
disclosure of, and provision for, all material obligations and liabilities of
Sellers and the Business, as applicable, as of the date thereof.
3.4 Title to and Condition of Properties. At and as of the Closing
------------------------------------
Date, Sellers will have good and marketable title to, and will have the right to
sell, convey, transfer, assign and deliver to Purchasers the Acquired Assets,
including, but not limited to, the Leases, the Assumed Contracts and the
Inventory on hand at Sellers' locations. At and as of the Closing Date, the Bill
of Sale and the Assignment and Assumption of Leases, Contracts and Other Assumed
Obligations (each as defined in Section 9.2 below) will be effective to vest in
Purchasers good and valid record and marketable title to the Acquired Assets,
including, but not limited to, the Leases, the Assumed Contracts and all of the
Inventory on hand at Sellers' locations. To Sellers' actual knowledge, at and as
of the Closing Date, Sellers will have good and marketable title to, and will
have the right to sell, convey, transfer, assign and deliver to Purchasers the
Intellectual Property.
3.5 Contracts. To Sellers' actual knowledge, Schedule 3.5 is a true
--------- ------------
and complete list of all material Contracts (i.e., contracts under which Sellers
(or either of them) would be required to pay $10,000 or more to another party)
as of the date hereof which Sellers are party or to which any of the Acquired
Assets or Assumed Obligations are subject. Sellers have the full right to occupy
the Stores pursuant to the Leases, and such right shall continue throughout the
term of the License at any Closing Location. Each of the Contracts and Leases
are (i) in full force and effect and (ii) have not been assumed or rejected (as
such terms are used in section 365 of the Bankruptcy Code).
3.6 Brokers. Sellers have incurred no liability to any broker, finder
-------
or agent with respect to the payment of any commission regarding the
consummation of the transactions contemplated hereby, except for certain fees
and commissions payable to Price Waterhouse LLP in connection with the
consummation of the transactions contemplated herein, the payment of which shall
be the sole responsibility of Sellers. Sellers agree that if any claims for
commissions, fees or other compensation, including, without limitation,
brokerage fees, finder's fees, or commissions are ever asserted against
Purchasers or the Sellers in connection with this transaction, all such claims
shall be handled and paid by the party whose actions form the basis of such
claim and such party
14
<PAGE>
shall indemnify, defend (with counsel reasonably satisfactory to the party(ies)
entitled to indemnification), protect and save and hold the other harmless from
and against any and all such claims or demands asserted by any person, firm or
corporation in connection with the transaction contemplated hereby.
3.7 Accounts. To Sellers' actual knowledge, all of Sellers' Accounts
--------
have been made in the Ordinary Course of Business.
As used herein, the term "Sellers' actual knowledge" and similar terms
shall mean and refer only to matters actually known to Jerry Payton and/or Jim
Schultz as of the execution date hereof, without any inquiry or investigation.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF PURCHASERS
(a) Purchasers represent and warrant to Sellers as follows:
4.1 Authority. The execution, delivery and performance of this
---------
Agreement and the consummation of the transactions contemplated hereby and
thereby have been duly authorized and do not and will not violate any provisions
of the certificate of organization, partnership agreement, by-laws, or similar
instrument of Purchasers.
4.2 Consents. No notice to, filing with, authorization of, exemption
--------
by, or consent of any authority is required in order for Purchasers to
consummate the transactions contemplated hereby.
4.3 Brokers. Purchasers have incurred no liability to any broker,
-------
finder or agent with respect to the payment of any commission regarding the
consummation of the transactions contemplated hereby. Purchasers agree that if
any claims for commissions, fees or other compensation, including, without
limitation, brokerage fees, finder's fees, or commissions are ever asserted
against Purchasers or the Sellers in connection with this transaction, all such
claims shall be handled and paid by the party whose actions form the basis of
such claim and such party shall indemnify, defend (with counsel reasonably
satisfactory to the party(ies) entitled to indemnification), protect and save
and hold the other harmless from and against any and all such claims or demands
asserted by any person, firm or corporation in connection with the transaction
contemplated hereby.
(b) "AS IS" Purchase. Purchasers hereby acknowledge and agree that,
----------------
except as otherwise expressly provided in Article III above, (i) Sellers make no
representations or warranties whatsoever, express or implied, with respect to
any matter relating to the Acquired Assets, and (ii) Purchasers accept the
Acquired Assets "AS IS," "WHERE IS," and "WITH ALL FAULTS." Without in any way
limiting the foregoing, Sellers hereby disclaim any warranty (express or
implied) of merchantability or fitness for any particular purpose as to any
Acquired Asset.
15
<PAGE>
ARTICLE V
COVENANTS OF SELLERS
5.1 - 5.4 [THESE PROVISIONS INTENTIONALLY OMITTED]
5.5 Consents and Approvals. Subject to the provisions of Section 2.5
----------------------
above, Sellers shall use their reasonable efforts (i) to obtain all consents and
approvals, as reasonably requested by Purchasers, to more effectively consummate
the purchase and sale of the Acquired Assets and the assignment of the Assumed
Obligations, together with any other necessary consents and approvals to
consummate the transactions contemplated hereby, including, but not limited to,
obtain the Sale Order, (ii) to make, as reasonably requested by Purchasers, all
filings, applications, statements and reports to all authorities which are
required to be made prior to the Closing Date by or on behalf of Sellers or any
of their affiliates pursuant to any applicable Regulation in connection with
this Agreement and the transactions contemplated hereby, and (iii) to obtain, as
reasonably requested by Purchasers, all required consents and approvals (if any)
to assign and transfer the Permits to Purchasers at Closing and, to the extent
that one or more of the Permits are not transferable, to obtain replacements
therefor; provided that Seller shall not be required to make any filing in
connection with the transfer of a Permit or take any other action required by
this sentence unless Purchasers advances any and all fees and other charges
imposed by any applicable authority in connection with such filing, transfer or
other requested action. Subject to the provisions of Section 2.5 above, in the
event that certain Permits are not transferable or replacements therefor are not
obtainable on or before the Closing, but such Permits are transferable or
replacements therefor are obtainable after the Closing, Sellers shall continue
to use such reasonable efforts in cooperation with Purchasers after the Closing
as may be required to obtain all required consents and approvals to transfer, or
obtain replacements for, such Permits after Closing and shall do all things
reasonably necessary to give Purchasers the benefits which would be obtained
under such Permits; provided, however, Seller shall in no event be required to
make any filing in connection with the transfer of a Permit or take any other
action required by this sentence unless Purchasers advance any and all fees and
other charges imposed by any applicable authority in connection with such
filing, transfer or other requested action.
5.6 - 5.10 [THESE PROVISIONS INTENTIONALLY OMITTED]
5.11 Tax Returns. Sellers, in accordance with applicable law, shall
-----------
(i) promptly prepare and file on or before the due date or any extension thereof
all federal, state and local tax returns required to be filed by them with
respect to taxable periods of either Seller that include any period ending on or
before the Closing and (ii) pay all Taxes of Sellers shown on such returns
attributable to periods ending on or before the Closing.
16
<PAGE>
5.12 Noncompetition and Confidentiality.
----------------------------------
(a) Each Seller jointly and severally acknowledges that it has a
special knowledge of the Business and the proprietary and confidential
information included in the Acquired Assets, and that Purchasers are making a
considerable investment in the Acquired Assets from which investment Sellers
have benefitted. In consideration of this Agreement and such investment and
benefit, and as an inducement to Purchasers to enter into this Agreement and
consummate the transactions contemplated herein, each Seller jointly and
severally agrees that, for a period of three (3) years after the Closing Date,
(i) it will not, directly or indirectly, own, manage, operate, control or
participate in the ownership, management, operation or control of, or be
connected as an officer, employee, partner, director or that otherwise engages
in the Business; or have any financial interest in, or aid or assist anyone else
in the conduct of, any business that competes with the Business as conducted on
the date hereof (a "Competitive Business"); provided, however, that each Seller
-------------------- -------- -------
may own less than 5% of any outstanding class of publicly traded securities of
an issuer that is a Competitive Business, and (ii) it will not, directly or
indirectly in one or a series of transactions, disclose to any person, or use or
otherwise exploit for its own benefit or for the benefit of anyone other than
Purchasers, Confidential Information (as defined below) and Sellers shall use
their reasonable efforts to cause all persons or entities to whom any
Confidential Information has been disclosed without violation hereunder to
observe the terms and conditions set forth herein as though each such person or
entity was bound hereby. "Confidential Information" means any trade secret,
------------------------
confidential study, data, calculations, software storage media or other
compilation of information, patent, patent application, copyright, trademark,
trade name, service mark, service name, "know-how", trade secrets, customer
lists, details of client or consultant contracts, pricing policies, sales
techniques, confidential information relating to suppliers, marketing plans or
strategies, products and formulae, product development techniques or plans,
business acquisition plans or any portion or phrase of any scientific or
technical information, ideas, discoveries, designs, computer programs (including
source or object codes), processes, procedures, research or technical data,
improvements or other proprietary or intellectual property of Sellers
specifically relating to the Business, whether or not in written or tangible
form, and whether or not registered, and including all files, records, manuals,
books, catalogues, memoranda, notes, summaries, plans, reports, records,
documents and other evidence thereof. The term "Confidential Information" does
------------------------
not include, and there shall be no obligation hereunder with respect to,
information that is or becomes generally available to the public other than as a
result of a disclosure by any Seller. Sellers shall have no obligation
hereunder to keep confidential any Confidential Information if and to the extent
disclosure of any therefor is specifically required by law; provided, however,
-------- -------
that in the event disclosure is required by applicable law, Sellers shall
provide Purchasers with prompt notice of such requirement, prior to making any
disclosure, so that Purchasers may seek an appropriate protective order, and
shall cooperate with Purchasers in connection therewith. Notwithstanding
anything to the contrary in this Agreement, Sellers shall not be deemed to be in
default under this Section 5.12 or any other provision of this Agreement by
reason of any information which Sellers (or either of them) may reasonably deem
appropriate to disclose in the continuing administration of the Chapter 11
Cases.
17
<PAGE>
(b) For a period of five (5) years following the Closing Date, each
Seller jointly and severally agrees that it will not without the express prior
written approval of Purchasers: (i) directly or indirectly recruit, solicit or
otherwise induce or influence any employee, sales agent, joint venturer, lessor,
supplier, agent, representative or any other person that has or had during the
one year period initially preceding the Closing Date a business relationship
with Sellers relating to the Business, to discontinue, reduce or adversely
modify such employment, agency or business relationship with Purchasers as it
relates solely to the Business, or (ii) only to the extent competitive with the
Business as conducted on the Closing Date, employ or seek to employ or cause any
Competitive Business to employ or seek to employ any person or agent who is
employed or retained by Purchasers. Notwithstanding the foregoing, nothing
herein shall prevent an officer of Sellers from providing a letter of
recommendation to an employee with respect to a future employment opportunity.
(c) For a period of five (5) years following the Closing Date, each
Seller jointly and severally agrees that it will not without the express prior
written approval of Purchasers, directly or indirectly, recruit, solicit or
otherwise induce or influence any customer of Purchasers to discontinue, reduce
or modify such business relationship with Purchasers to the extent such business
relationship pertains to the Business.
(d) Each Seller jointly and severally agrees that the violation or
threatened violation of any of the provisions of this Section 5.12 by it shall
cause immediate and irreparable harm to Purchasers and that the damage to
Purchasers will be difficult or impossible to calculate with precision.
Therefore, in the event that either Seller violates this Section 5.12, an
injunction restraining such Sellers from such violation may be entered against
the relevant Seller in addition to any other relief available to Purchasers.
(e) If, at the time of enforcement of any provision of this Section
5.12, a court shall hold that the duration, scope or other restrictions stated
herein are unreasonable under circumstances then existing, the parties agree
that the maximum duration, scope or other restrictions reasonable under such
circumstances shall be substituted for the stated duration, scope or other
restrictions and that the court shall be allowed to revise the restrictions
contained herein to cover the maximum period, scope and other restrictions
permitted by law.
5.13 Referral of Business Opportunities. From and after the Closing
----------------------------------
Date, Sellers shall use reasonable efforts to refer to Purchasers all incoming
business inquiries, customer orders and other matters related to the Business,
the Acquired Assets and the Assumed Obligations including, without limitation,
all customer orders received by Sellers via computer or other automated
inventory control systems. To the extent customer orders are delivered to third
party electronic data interchange providers, such providers will be instructed
to transmit such orders to Purchasers or Purchasers' providers. Electronic
delivery, if used, shall be by such method as shall be mutually agreed.
18
<PAGE>
5.14 Insurance. Provided that any claim by Purchasers in no way
---------
prejudices or otherwise affects Sellers' right to look to such policies with
respect to claims arising pre-Closing, Purchasers shall be entitled to make
claims against Sellers' insurance policies and coverage which are occurrence
policies from and after the Closing Date for all matters, injuries and claims
arising prior to the Closing Date relating in any way to the Acquired Assets or
Assumed Liabilities in the same manner and subject to the same terms, conditions
and limitations as Sellers prior to the Closing Date. Purchasers will have no
obligations or liabilities under such insurance policies for additional premiums
or similar payments after the Closing Date, either due to retroactive
adjustments, audits, roll-backs or otherwise. Subject to the provisions of
Section 2.6 and to the same proviso as is set forth at the beginning of this
Section 5.14, Sellers will cooperate after the Closing Date with Purchasers and
its insurance carriers and agents in connection with the foregoing and with
Purchasers in establishing new insurance policies and coverage for Purchasers
from and after the Closing Date. Without in any way limiting the foregoing,
Purchasers shall be entitled to make claims against Sellers' insurance policies
and coverage only to the extent permitted by the carriers of such insurance.
5.15 Sellers' Employees. Except as provided in Section 6.5, Purchasers
------------------
have not agreed to hire any of Sellers' employees or independent contractors
retained by Sellers. Effective immediately prior to the Closing, Sellers shall
terminate all of their respective Employees. Any employee of Sellers hired by
Purchasers after the Closing shall be a new-hired employee of Purchasers.
Other than the covenants set forth in the last sentence of Section 5.5 and
the covenants set forth in Sections 5.11, 5.12, 5.13 and 5.14 (which shall
survive the Closing), all covenants of Sellers set forth in this Article V shall
lapse at, and be of no further force or effect following, the Closing.
ARTICLE VI
COVENANTS OF PURCHASERS
6.1 - 6.2 [THESE PROVISIONS INTENTIONALLY OMITTED]
6.3 Assumed Obligations. Subsequent to the Closing, Purchasers agree to
-------------------
assume and perform the Assumed Obligations.
6.4 [INTENTIONALLY OMITTED]
6.5 Employees. Effective as of the Closing, Purchasers shall offer
---------
employment to all active employees of Sellers listed on Schedule 6.5 hereto
("Employees"), at compensation and benefit levels substantially equivalent to
---------
their present levels, including, but not limited to, the right to use any unused
vacation time accrued as of the Closing Date. Employees who accept offers of
employment made by Purchasers pursuant to this Section 6.5 shall be referred to
hereinafter as the "Transferred Employees." Sellers shall assist Purchasers in
---------------------
effecting the change of employment of the Transferred Employees as of the
Closing in an orderly fashion. Nothing herein expressed
19
<PAGE>
or implied shall confer upon any Employee of Sellers, any Transferred Employee,
any other employee or any legal representative thereof any rights or remedies,
including any right to employment or continued employment for any specified
period, of any nature or kind whatsoever, under or by reason of this Agreement.
Each Employee hired by Purchasers shall be a new-hired employee of Purchasers.
6.6 [INTENTIONALLY OMITTED]
6.7 Reasonable Access to Records and Certain Personnel. Following
--------------------------------------------------
consummation of the Closing, so long as either of the Chapter 11 Cases is
pending and so long as such access does not unreasonably interfere with
Purchasers' business operations, Purchasers shall permit Sellers' counsel and
any other professionals employed in the Chapter 11 Cases reasonable access to
the financial and other books and records relating to the Acquired Assets or the
Sellers' Business (whether in documentary or data form) for the purpose of the
continuing administration of the Chapter 11 Cases (including, without
limitation, the Sellers' pursuit of any Avoidance Action), which access shall
include the right of such professionals to copy, at the Sellers' expense, such
documents and records as they may request in furtherance of the purposes
described above. If Purchasers move any such documents or records out of Texas,
Sellers have the right to require Purchasers to copy and deliver to Sellers or
their professionals such documents and records as they may request, but only to
the extent Sellers or any such professional (i) furnish Purchasers with
reasonably detailed written descriptions of the materials to be so copied and
(ii) Sellers reimburse Purchasers for the costs and expenses thereof. The
parties acknowledge that Sellers shall have the right to retain any documents
and records provided pursuant to this Section 6.7. Following consummation of
the Closing, Purchasers shall provide Sellers and such professionals with
reasonable access to Jerry Payton and Jim Schultz during regular business hours
to assist in the continuing administration of the Chapter 11 Cases, provided
again that such access does not unreasonably interfere with Purchasers' business
operations. Without otherwise limiting the generality of the foregoing,
Purchasers shall only be obligated to permit access to books and records and to
Messrs. Payton and Schultz to enable Sellers' counsel and other professionals
described above to investigate matters relating to transactions, owed or
occurred prior to the Closing.
Except for the covenant set forth in Section 6.5 above (to the extent that it is
fully performed by Purchasers concurrently with or prior to the Closing), all of
Purchasers' covenants set forth in this Article VI shall survive the Closing.
ARTICLE VII
CONDITIONS PRECEDENT TO OBLIGATIONS
OF PURCHASERS
The obligations of Purchasers under this Agreement are, at the option of
Purchasers, subject to satisfaction of the following conditions precedent on or
before the Closing Date.
20
<PAGE>
7.1 Warranties True as of Both Present Date and Closing Date. Each of
--------------------------------------------------------
the representations and warranties of Sellers contained herein shall be true and
correct on and as of the date of this Agreement, and shall also be true and
correct in all material respects (except for such changes as are contemplated by
the terms of this Agreement) on and as of the Closing Date with the same force
and effect a though made on and as of the Closing Date.
7.2 Secured Obligations. The maximum amount of the First Term Loan
-------------------
shall be $2,800,000. The maximum amount of the Second Term Loan shall be
$2,000,000. The maximum amount of the Revolver shall be $13,000,000.
7.3 Bankruptcy Condition. The Sale Order (i) shall have been entered by
--------------------
the Bankruptcy Court, and (ii) shall not have been appealed or be subject to any
pending appeal as of the Closing Date and no stay with respect thereto shall be
in effect as of the Closing Date.
7.4 Purchasers' Due Diligence. Purchasers acknowledge that prior to
-------------------------
executing this Agreement Purchasers have conducted due diligence regarding,
inter alia, Sellers' Business operations, assets, and liabilities. Immediately
- - ----- ----
upon Sellers' execution and delivery of this Agreement, Sellers shall continue
to provide Purchasers (or its designated representatives) full and complete
access to Sellers' employees, books and records, corporate offices and other
facilities for the purpose of conducting such additional due diligence as
Purchasers deem appropriate or necessary, in its discretion, in order to
facilitate Purchasers' efforts to consummate the transaction provided for
herein. Sellers shall hereby covenant and agree to cooperate with Purchasers in
this regard. In the event that after execution of this Agreement, and at any
time prior to Closing Purchasers discover any material negative item or matter
which has not been disclosed to the Purchasers prior to the delivery of this
Agreement, Purchasers shall be entitled to terminate this Agreement without
recourse, damages, or claims against it by Sellers or any party claiming by,
through, or under any Seller;
7.5 No Material Adverse Change. The Purchasers being satisfied that
--------------------------
there has been no material adverse change in either the Acquired Assets or the
Sellers' Business between the date hereof and Closing;
7.6 Financing. The obtaining by Purchasers of necessary acquisition and
---------
working capital financing, in an amount(s) deemed by Purchasers in their
discretion necessary to fulfill Purchasers' obligations under this Agreement,
with evidence of such financing satisfactory to Sellers to be provided to
Sellers not later than 12 hours prior to the commencement of the Overbid
Auction;
7.7 Management Employment Agreements. Purchasers negotiating and
--------------------------------
reaching definitive agreement with certain senior executives of Sellers
regarding continued employment post-Closing, it being further understood that
payment of any amount in respect of severance or other retention bonus amounts
to retained senior management separate and apart from the Purchase Price shall
be subject to negotiation and agreement between Purchasers and said individuals;
21
<PAGE>
7.8 Bankruptcy Court Approval of Sellers' Grant of License and
----------------------------------------------------------
Purchasers' Conduct of the Store Closing Sales From the Closing Locations. The
- - -------------------------------------------------------------------------
Sale Order shall contain provisions satisfactory to Purchasers authorizing and
approving Sellers' grant unto Purchasers of the License and the authority to
conduct the Store Closing Sales from the Closing Locations, as provided in
Section 1.8 hereof;
7.9 Sale Procedures Order; Overbid Protection; Expense Reimbursement.
----------------------------------------------------------------
Purchasers acknowledge that their offer may be subject to the Sellers' receipt
of higher and/or better offers in the course of the Bankruptcy Court approval
process, all in accordance with the terms and provisions of that certain order
of the Bankruptcy Court, dated January 6, 1998, inter alia, (a) approving
certain competitive bid and auction procedures, including, but not limited to,
the requirement that any competing offer from a third party to acquire the
Acquired Assets as a going concern must be in an amount that is not less than
$750,000 higher than the Purchase Price provided for herein, with any successive
going concern offers being made in additional increments of not less than
$50,000 of the next highest offer received, (b) scheduling a hearing for
approval of the transaction provided for herein for January 16, 1998 at 3:00
p.m. (standby), and (c) approving Sellers' (i) payment to Purchasers of a
topping fee of $500,000, and (ii) reimbursement of Purchasers for their actual,
documented out-of-pocket expenses up to a maximum amount of $100,000 (the
amounts provided for in this Section 7.9(c)(i) and (ii) are collectively defined
as the "Topping Fee") (the foregoing procedures in (a), (b) and (c) above are
collectively referred to and defined herein as the "Sale Procedures" and the
"Sale Procedures Order", respectively).
7.10 Bankruptcy Court Approval. Entry of one or more orders of the
-------------------------
Bankruptcy Court, inter alia, approving the (i) Sale Procedures (as defined in
Section 7.9 hereof), (ii) the sale of the Acquired Assets to Purchasers,
pursuant to the terms of this Agreement, and (iii) the Sellers' grant to the
Purchasers of the License at Closing. The Sale Order must be in a form and
content that is satisfactory to the Purchasers; and at a minimum contain (i) a
finding that the Acquired Assets shall be sold to Purchasers free and clear of
all liens, claims and encumbrances pursuant to section 363(f) of the Bankruptcy
Code, (ii) provide that the Purchasers are good faith purchasers entitled to
the protection of section 363(m) of the Bankruptcy Code, (iii) authorize
Purchasers' conduct of the Store Closing Sales upon terms and conditions
reasonably satisfactory to Purchasers, and (iv) authorize Sellers' assumption
and assignment to Purchasers of at least 80 Store Leases, as same shall be
designated by Purchasers on Schedule 1.2(a), subject to the provisions and
---------------
adjustments provided for in Section 1.2(a) hereof, if any;
7.11 Lease/Contract Assumption and Assignment. The Sale Order shall
----------------------------------------
approve and authorize the assumption and assignment of those Leases and
Contracts designated by the Purchasers prior to Closing;
7.12 Sale Order Deadline. The Sale Order shall be entered by January 20,
-------------------
1998; and
22
<PAGE>
7.13 Closing Deadline. The Closing must occur on or before January 21,
----------------
1998 at 3:00 p.m.
7.14 General Release. Each Seller shall have executed a general
---------------
release (the "Seller Releases") in favor of Purchasers, in substantially the
form of Exhibit C attached hereto; provided, however, that in no event shall the
---------
Seller Releases provide for the release of any of the obligations of the parties
created by this Agreement or any instrument, document or agreement executed
pursuant to the terms and provisions hereof.
ARTICLE VIII
CONDITIONS PRECEDENT TO OBLIGATIONS OF SELLERS
The obligations of Sellers under this Agreement are, at the option of
Sellers, subject to the satisfaction of the following conditions precedent on or
before the Closing Date.
8.1 Warranties True as of Both Present Date and Closing Date. The
--------------------------------------------------------
representations and warranties of Purchasers contained herein shall be true and
correct on and as of the date of this Agreement, and shall also be true in all
material respects (except for such changes as are contemplated by the terms of
this Agreement) on and as of the Closing Date with the same fore and effect as
though made by Purchasers on and as of the Closing Date.
8.2 General Release. Each of Jerry Payton and Jim Schultz shall have
---------------
executed and delivered to Sellers a General Release in favor of Sellers (the
"Executives' Release") in the form of Exhibit D attached hereto and incorporated
herein by this reference; provided, however, that in no event shall the
Executives' Release provide for the release of any of the obligations of the
parties created by this Agreement or by any document or agreement executed
pursuant to the terms and provisions hereof.
8.3 [INTENTIONALLY OMITTED]
8.4 Bankruptcy Condition. The Sale Order (i) shall have been entered by
--------------------
the Bankruptcy Court, and (ii) shall not have been appealed or be subject to any
pending appeal as of the Closing Date and no stay with respect thereto shall be
in effect as of the Closing Date.
8.5 General Release. Purchasers shall have executed and delivered to
---------------
Sellers a General Release in favor of Sellers (the "Purchasers Release") in the
form of Exhibit E attached hereto and incorporated herein by this reference;
provided, however, that in no event shall the Purchasers Release provide for the
release of any of the obligations of the parties created by this Agreement or by
any document or agreement executed pursuant to the terms and provisions hereof.
23
<PAGE>
ARTICLE IX
CLOSING
9.1 Closing. Provided that the Sale Order shall (i) have been issued
-------
and entered by Bankruptcy Court on or before the date set forth in Section 7.12
and (ii) not have been appealed or otherwise subject to a stay or other
injunction, the Closing shall take place on a date and time to be mutually
agreed upon by Sellers and Purchasers, but in no event later than 3:00 p.m. on
January 21, 1998.
9.2 Deliveries by Sellers. At the Closing, Sellers will deliver the
---------------------
following to Purchasers: (a) a Bill of Sale in form and content mutually
satisfactory to Purchasers and Sellers; (b) an Assignment and Assumption of
Leases, Contracts and Other Assumed Obligations in form and content mutually
satisfactory to Purchasers and Sellers (the "Assignment and Assumption"); (c) a
-------------------------
Trademark Assignment in form and content mutually satisfactory to Purchasers and
Sellers; (d) the Seller Releases; and (e) with respect to each vehicle
comprising part of the Acquired Assets, an original Certificate of Title, with
the assignment portion completed and signed by Sellers.
9.3 Deliveries by Purchasers. At the Closing, Purchasers will deliver
------------------------
the following: (a) the Purchase Price payable pursuant to and in accordance with
Section 2.2; and (b) duly-executed originals of the Assignment and Assumption,
and the Purchasers Release.
ARTICLE X
10.1 Termination.
-----------
(a) In the event the transactions provided for in this Agreement
have not closed on or before January 21, 1998 at 3:00 p.m., this Agreement and
the transactions contemplated herein shall automatically terminate and be of no
further force or effect. In the event of a termination in accordance with this
Section 10.1(a), and provided that each of Sellers and Purchasers have used
their best efforts to effectuate a closing of the transactions contemplated
hereunder, neither Sellers nor Purchasers shall suffer any liability or other
obligation to the other.
(b) In the event that the condition set forth in Section 7.2 is not
satisfied on or before January 21, 1998 at 3:00 p.m., Purchasers may terminate
this Agreement. In the event of a termination in accordance with this Section
10.1(b), neither Sellers nor Purchasers shall suffer any liability or other
obligation to the other.
ARTICLE XI
[INTENTIONALLY OMITTED]
24
<PAGE>
ARTICLE XII
MISCELLANEOUS
12.1 Expenses. Each party hereto shall bear its own expenses with
--------
respect to the transactions contemplated hereby. Notwithstanding the foregoing,
in the event of any action or proceeding to interpret or enforce this Agreement,
the prevailing party in such action or proceeding (i.e., the party who, in light
of the issues contested or determined in the action or proceeding, was more
successful) shall be entitled to have and recover from the non-prevailing party
such costs and expenses (including, without limitation, all court costs and
reasonable attorneys' fees) as the prevailing party may incur in the pursuit or
defense thereof.
12.2 Amendment. This Agreement may be amended, modified or
---------
supplemented but only in writing signed by all of the parties hereto.
12.3 Notices. Any notice, request, instruction or other document to
-------
be given hereunder by a party hereto shall be in writing and shall be deemed to
have been given, (i) when received if given in person, (ii) on the date of
transmission if sent by telex, telecopy or other wire transmission (provided
that a copy of such transmission is simultaneously deposited in the manner
provided in clause (iii) below), (iii) one business day after being delivered to
------------
a nationally known commercial courier service providing next day delivery
service (such as Federal Express), or (iv) three business days after being
deposited in the U.S. mail, certified or registered mail, postage prepaid:
(A) If to Sellers, addressed as follows:
Old America Stores, Inc.
c/o Young Conaway Stargatt & Taylor LLP
11th Floor, Rodney Square North
P.O. Box 391
Wilmington, Delaware 19899-0391
Attn: S. David Peress, Esq.
Telephone: (302) 571-6634
Facsimile: (302) 571-1253
with a copy to:
Gardere & Wynne LLP
3000 Thanksgiving Tower
1601 Elm Street
Dallas, Texas 75201
Attn: Dierdre Ruckman, Esq.
Telephone: (214) 999-3000
Facsimile: (214) 999-3250
25
<PAGE>
(B) If to Purchasers, addressed as follows:
Old America Stores, LP and
KOB, LP
c/o 811 North Collins Freeway
Highway 75 North
Howe, Texas 75459
Attn: Robert E. Kirkland
with a copy to:
REK, LLC
c/o Dunn Creswell Sparks Smith Horne & Downing PLLC
624 E. Reelfoot Avenue
Union, Tennessee 38261
Attn: Alfred H. Creswell, CPA
Telephone: (901) 885-3661
Facsimile: (901) 885-6909
-and-
Traub, Bonacquist & Fox LLP
489 Fifth Avenue
Suite 2700
New York, New York 10017
Attn: Paul Traub, Esq.
Telephone: (212) 476-4770
Facsimile: (212) 476-4787
or to such other individual or address as a party hereto may designate for
itself by notice given as herein provided.
12.4 Effect of Investigations. Any due diligence review, audit or
------------------------
other investigation or inquiry undertaken or performed by or on behalf of
Purchasers shall not limit, qualify, modify or amend the representations,
warranties and covenants of, and indemnities by, Sellers made or undertaken
pursuant to this Agreement, irrespective of the knowledge and information
received (or which should have been received) therefrom by Purchasers.
12.5 Waivers. The failure of a party hereto at any time or times to
-------
require performance of any provision hereof shall in no manner affect its right
at a later time to enforce the same. No waiver by a party of any condition or
of any breach of any term, covenant, representation or warranty contained in
this Agreement shall be effective unless in writing, and no waiver in any one or
more instances shall be deemed to be a further or continuing waiver of any such
condition or breach in other instances or a
26
<PAGE>
waiver of any other condition or breach of any other term, covenant,
representation or warranty.
12.6 Counterparts. This Agreement may be executed simultaneously in
------------
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
12.7 Headings. The headings preceding the text of Articles and
--------
Sections of this Agreement and the Schedules thereto are for convenience only
and shall not be deemed part of this Agreement.
12.8 APPLICABLE LAW AND JURISDICTION. THIS AGREEMENT (AND ALL
-------------------------------
DOCUMENTS, INSTRUMENTS, AND AGREEMENTS EXECUTED AND DELIVERED PURSUANT TO THE
TERMS AND PROVISIONS HEREOF (COLLECTIVELY, "ANCILLARY DOCUMENTS")) SHALL BE
GOVERNED BY AND CONSTRUED AND ENFORCED IN ACCORDANCE WITH THE LAWS OF THE STATE
OF NEW YORK APPLICABLE TO AGREEMENTS MADE AND TO BE PERFORMED WHOLLY WITHIN SUCH
JURISDICTION. PURCHASERS AND SELLER FURTHER AGREE THAT THE BANKRUPTCY COURT
SHALL HAVE EXCLUSIVE JURISDICTION OVER ALL DISPUTES AND OTHER MATTERS RELATING
TO (i) THE INTERPRETATION AND ENFORCEMENT OF THIS AGREEMENT OR ANY ANCILLARY
DOCUMENT; AND/OR (ii) THE ACQUIRED ASSETS AND/OR ASSUMED LIABILITIES (INCLUDING,
WITHOUT LIMITATION ANY DISPUTES REGARDING ANY ADJUSTMENTS CONTEMPLATED BY
SECTIONS 2.2, 2.4 AND/OR 2.5 HEREOF WHICH ARE NOT RESOLVED BY MUTUAL AGREEMENT
WITHIN THIRTY (30) DAYS FOLLOWING THE CLOSING DATE) AND PURCHASERS EXPRESSLY
CONSENT TO AND AGREE NOT TO CONTEST SUCH EXCLUSIVE JURISDICTION.
12.9 Binding Nature; Assignment. This Agreement shall be binding upon
--------------------------
and inure to the benefit of the parties hereto and their respective successors
and permitted assigns, but neither this Agreement nor any of the rights,
interest or obligations hereunder shall be assigned by any of the parties hereto
without prior written consent of the other parties; except, that (i) Purchasers
may assign any of its rights hereunder to any affiliate or wholly-owned
subsidiary, (ii) Purchasers may grant a security interest in its rights and
interests hereunder to its lenders, and (iii) as otherwise provided in this
Agreement. Nothing contained herein, express or implied, is intended to confer
on any Person other than the parties hereto or their successors and assigns, any
rights, remedies, obligations or liabilities under or by reason of this
Agreement.
12.10 No Third Party Beneficiaries. This Agreement is solely for the
----------------------------
benefit of the parties hereto and their respective affiliates and no provision
of this Agreement shall be deemed to confer upon third parties any remedy,
claim, liability, reimbursement, claim of action or other right in excess of
those existing without reference to this Agreement.
27
<PAGE>
12.11 Tax Matters.
-----------
(a) Purchasers shall make available to Sellers, and Sellers shall
make available to Purchasers, (i) such records as any such party may require for
the preparation of any Tax Returns required to be filed by Sellers or Purchasers
and (ii) such records as Sellers or Purchasers may require for the defense of
any audit, examination, administrative appeal, or litigation of any Tax Return
in which Sellers or Purchasers was included.
(b) Purchasers shall be responsible for the timely payment of all
sales, use, transfer (including, without limitation, documentary transfer, stamp
and like taxes) and similar taxes payable in connection with the consummation of
the transactions contemplated by this Agreement.
(c) Notwithstanding anything herein to the contrary, following the
Closing, Purchasers shall for federal income tax purposes allocate the Purchase
Price (and other capitalized costs) among the Acquired Assets in accordance with
the provisions of Section 1060 of the Code.
12.12 Construction. The language used in this Agreement will be deemed
------------
to be the language chosen by the parties to this Agreement to express their
mutual intent, and no rule of strict construction shall be applied against any
party. Any reference to any federal, state, local, or foreign statute or law
shall be deemed also to refer to all rules and regulations promulgated
thereunder, unless the context requires otherwise. Nothing in the Disclosure
Schedule will be deemed adequate to disclose an exception to a representation or
warranty made herein unless the Disclosure Schedule identifies the exception
with particularity and describes the relevant facts in detail of the exception.
Without limiting the generality of the foregoing, the mere listing (or inclusion
of a copy) of a document or other item shall not be deemed adequate to disclose
an exception to a representation or warranty made herein (unless the
representation or warranty has to do with the existence of the document or other
items itself). The parties hereto intend that each representation, warranty,
and covenant contained herein shall have independent significance. If any party
hereto has breached any representation, warranty, or covenant contained herein
in any respect, the fact that there exists another representation, warranty, or
covenant relating to the same subject matter (regardless of the relative levels
of specificity) which such party has not breached shall not detract from or
mitigate the fact that the party is in breach of the first representation,
warranty, or covenant.
12.13 Entire Understanding. This Agreement and the Ancillary Documents
--------------------
set forth the entire agreement and understanding of the parties hereto in
respect to the transactions contemplated hereby and the Agreement and such
Ancillary Documents supersede all prior agreements, arrangements and
understandings relating to the subject matter hereof and is not intended to
confer upon any other person any rights or remedies hereunder. There have been
no representations or statements, oral or written, that have been relied on by
any party hereto, except those expressly set forth in this Agreement or in any
Ancillary Document.
28
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed and delivered on the date first above written.
PURCHASERS:
OLD AMERICA STORES, LP
By REK LLC, As General Partner
By:
---------------------------------------
Alfred H. Creswell, Attorney-in-Fact
for Robert E. Kirkland, Chief Manager
KOB, LP
By REK LLC, as General Partner
By:
---------------------------------------
Alfred H. Creswell, Attorney-in-Fact
for Robert E. Kirkland, Chief Manager
SELLERS:
OLD AMERICA STORES, INC., Debtor and
Debtor-in-Possession
By:
---------------------------------------
Name: Jerry Payton
Title: President
OLD AMERICA WHOLESALE, INC., Debtor and
Debtor-in-Possession
By:
---------------------------------------
Name: Jerry Payton
Title: President
OLD AMERICA STORE, INC., Debtor and
Debtor-in-Possession
By:
---------------------------------------
Name: Jerry Payton
Title: President
29
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 9-MOS
<FISCAL-YEAR-END> JAN-31-1998 JAN-31-1998
<PERIOD-START> JUL-20-1997 JAN-01-1997
<PERIOD-END> NOV-08-1997 NOV-08-1997
<CASH> 0 0
<SECURITIES> 0 0
<RECEIVABLES> 3,110,159 0
<ALLOWANCES> 0 0
<INVENTORY> 42,592,587 0
<CURRENT-ASSETS> 48,136,408 0
<PP&E> 14,482,731 0
<DEPRECIATION> 0 0
<TOTAL-ASSETS> 63,092,428 0
<CURRENT-LIABILITIES> 33,908,739 0
<BONDS> 0 0
0 0
0 0
<COMMON> 42,396,067 0
<OTHER-SE> (33,342,860) 0
<TOTAL-LIABILITY-AND-EQUITY> 63,092,428 0
<SALES> 25,128,577 75,648,212
<TOTAL-REVENUES> 25,128,577 75,648,212
<CGS> 18,716,637 59,483,234
<TOTAL-COSTS> 31,504,736 93,400,453
<OTHER-EXPENSES> 1,015,580 18,598,293
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 696,905 1,633,707
<INCOME-PRETAX> (8,088,644) (37,984,241)
<INCOME-TAX> 0 (1,539,252)
<INCOME-CONTINUING> (8,088,644) (36,444,989)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (8,088,644) (36,444,989)
<EPS-PRIMARY> (1.78) (8.02)
<EPS-DILUTED> (1.78) (8.02)
</TABLE>
<PAGE>
EXHIBIT 99
Company Contact
Jim Schultz
(903) 532-3002
OLD AMERICA STORES, INC. (NASDAQ) SELLS ASSETS
HOWE, TEXAS, January 26, 1998...OLD AMERICAN STORES, INC. (OTC:OASIQ)
announced today that the bankruptcy court approved the sale of substantially all
assets of the Company and its subsidiaries to Old America Stores, LP and KOB,
LP, entities owned and controlled by Tennessee businessman Robert E. Kirkland,
in exchange for cash, used primarily to pay off all secured indebtedness, and
the assumption of certain post-petition liabilities of the Company and its
subsidiaries. The purchase price was determined through arms-length
negotiations between the parties. The transaction closed on January 21, 1998.
The purchase price did not provide for any payment to pre-petition creditors or
stockholders. Accordingly, there will be no value for the stockholders of the
Company. As a result of the sale, the Company and its subsidiaries have
terminated operations and are in the process of liquidating and winding up
their affairs. The Company intends to delist trading of its common stock in the
over-the-counter market and to deregister its common stock as soon as
practicable.
Mr. Payton, former CEO of the Company, said, "While I am disappointed
the consideration received for the assets of the Company was not sufficient to
provide any distribution to the Company's pre-petition creditors and
shareholders, we are pleased that the purchase allows our post-petition vendors
to be paid in full and provides for continued employment of over 1,200 employees
by the new owner."
