UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
Current Report
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported) August 15, 1997
GROW BIZ INTERNATIONAL, INC.
(Exact Name of Issuer as Specified in Charter)
Minnesota 0-22012 41-1622691
(State or Other Jurisdiction or (Commission File (I.R.S. Employer
Incorporation or Organization) Number) Identification Number)
4200 Dahlberg Drive, Golden Valley, MN 55422-4837
(Address of Principal Executive Offices)
(612) 520-8500
(Registrant's Telephone Number, Including Area Code)
<PAGE>
ITEM 2. Acquisition or Disposition of Assets
On August 15, 1997, Grow Biz Games, Inc. a wholly-owned subsidiary of Grow Biz
International, Inc. ("Registrant") acquired certain assets and franchising
rights of Video Game Exchange, Inc. ("VGE") of Cleveland, Ohio. VGE operates 40
retail stores in Ohio, Pennsylvania, Kentucky, Georgia and Maryland. These
stores buy, sell and trade used and new video games and equipment and will
become the nucleus of the sixth business concept under the title It's About
Games(TM). The Registrant intends to market and franchise the concept throughout
the United States and Canada.
The purchase consideration paid to the former shareholders of VGE was $4,579,700
cash and a $2,000,000 two year promissory note payable in twenty-four equal
monthly installments beginning September 1, 1997 and bears interest at the prime
rate plus 1/2%. The acquisition has been accounted for under the purchase method
of accounting. The source of cash utilized in the purchase was from a $4,500,000
bank term loan from TCF Bank Minnesota fsb payable in sixty equal monthly
principal payments beginning October 10, 1997 plus accrued interest at prime
plus 1/2%. The cost in excess of net assets acquired is approximately $4,500,000
and will be amortized over a 25 year period.
The purchase consideration paid by the Registrant was determined by negotiations
between and among the representatives of the Registrant and VGE. Prior to the
purchase, no material relationship existed between VGE and the Registrant or any
of its affiliates, any director or officer of the Registrant, or any associate
of any such director or officer.
ITEM 7. Financial Statements, Pro Forma Financial Information and Exhibits
(a) The required financial statements of VGE are currently not
available. The financial statements will be filed as soon as
practicable but not later than October 29, 1997.
(b) The required pro forma financial information related to the
acquisition of certain assets of VGE is not currently
available. The pro forma information will be filed as soon as
practicable but not later than October 29, 1997.
(c) Exhibits
10.1 Asset Purchase Agreement, dated August 15, 1997
10.2 First Amendment to Credit Agreement and Revolving
Note, dated August 8, 1997
10.3 Term Note, TCF, dated August 8, 1997
10.4 Non-Negotiable Promissory Note, Video Game Exchange,
Inc., dated August 15, 1997
<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.
GROW BIZ INTERNATIONAL, INC.
Date: August 29, 1997 By: /s/ Ronald G. Olson
--------------------------
Ronald G. Olson
President and Chief Executive Officer
Date: August 29, 1997 By: /s/ David J. Osdoba, Jr.
--------------------------
David J. Osdoba, Jr.
Vice President of Finance and Chief
Financial Officer
EXHIBIT 10.1
ASSET PURCHASE AGREEMENT
AGREEMENT (hereinafter, together with the Exhibits annexed hereto the
"Agreement") made and entered into as of the 15th day of August, 1997, by and
among Grow Biz Games, Inc., a Minnesota corporation ("Purchaser"), Grow Biz
International, Inc., a Minnesota corporation ("Guarantor"), Video Game Exchange,
Inc., an Ohio corporation ("VGE") and VGE's affiliate under common control with
VGE, Video Franchise Ventures, Inc., an Ohio corporation ("VFV"; hereinafter
"Seller", as used herein means VGE and VFV, collectively, and each of VGE and
VFV, unless otherwise specifically indicated.)
WITNESSETH:
WHEREAS, VGE owns and operates forty (40) retail stores selling new and
used video games located in Ohio (20), Pennsylvania (8), Maryland (7), Georgia
(4) and Kentucky (1) (collectively, the "Stores") and a warehouse located in
Middleburg Heights, Ohio ("Warehouse").
WHEREAS, Purchaser desires to purchase and acquire all the assets and
business of Seller, excluding only its cash and certain assets identified on
Exhibit C hereto, and Seller is willing to sell said assets and business to
Purchaser, upon the terms and conditions hereinafter set forth.
NOW, THEREFORE, in consideration of the purchase and sale of the assets
and of the premises and the mutual promises, covenants and conditions
hereinafter set forth, Seller and Purchaser, hereby agree as follows:
ARTICLE I
DEFINITIONS
As used herein, the following terms shall have the meanings set forth
below, and where said meanings are intended, said terms shall be capitalized:
1.1 "Assets" shall mean all of the assets, properties and rights of
Seller, including but not limited to the Inventory, Equipment, Contracts,
Receivables, Orders, Leases, Permits and Approvals, Books and Records, Plans,
Intellectual Property Rights, and Goodwill, excluding only the Excluded Assets.
1.2 "Books and Records" shall mean all of Seller's books and records
relating to the Assets or Seller's business (other than Seller's corporate
records and tax returns) including without limitation, lists of customers and
suppliers, and records with respect to pricing, volume, payment history, cost,
inventory, machinery and equipment, mailing lists, supplier and customer lists,
employees, sales, purchasing and materials, and including any such records which
are maintained on computer. In the case of Seller's central corporate financial
records, Seller shall retain the original of such records but shall provide
copies of the same to Purchaser, including where appropriate, copies in digital
format such as computer discs or tapes.
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1.3 "Closing Date" shall mean the date on which the Closing hereunder is
held. The Closing shall be held at 10:00 a.m., then current Cleveland time, on
August 15, 1997, or at such other time or date as the parties may mutually agree
upon in writing, unless delayed by a party for failure to satisfy conditions
precedent to said party's obligations hereunder, in which case Closing shall be
held as soon as practicable after such conditions are satisfied.
1.4 "Contracts" shall mean all contracts, commitments and
agreements--other than leases--to which Seller is a party which relate to the
Assets or Seller's business, all of which are listed on an Exhibit A attached
hereto.
1.5 "Equipment" means all of Seller's tangible assets, other than the
Inventory, including but not limited to furniture, fixtures, machinery,
equipment, displays, registers, computers and the software utilized therewith,
operating systems (including the point-of-sale software used by Seller and the
source code for such point-of-sale software, together with the source code for
any other software which source code is available to Seller), vehicles, and all
manuals, as well as all of Seller's right, title and interest in and to all
warranties and guarantees related to the foregoing, specifically including but
not limited to the items listed on Exhibit B.
1.6 "Excluded Assets" shall mean Seller's cash and the assets listed on
Exhibit C attached hereto.
1.7 "Goodwill" shall mean all goodwill and business of Seller.
1.8 "Intellectual Property Rights" shall mean all of Seller's right,
title and interest in and to patents, copyrights, trademarks, trade names, trade
secrets, service marks, franchise rights, and know-how utilized by Seller,
including but not limited to those items listed on Exhibit D attached hereto.
1.9 "Interim Statements" shall mean the unaudited balance sheet of
Seller as of June 30, 1997, and related unaudited statements of income and
retained earnings of Seller for the fiscal period ending on said date, compiled
by Seller, copies of which have been provided to Seller.
1.10 "Inventory" shall mean all of Seller's inventory and supplies,
including parts, supplies and goods held for sale to customers.
1.11 "Lease Assignment Consents" shall mean the third party lessor
consents to Seller's assignment of the Leases to Purchaser.
1.12 "Leases" shall mean the real estate leases in which Seller is a
lessee for the Stores and Warehouse as described on Exhibit F.
1.13 "Liabilities and Obligations" shall mean any indebtedness, claim,
obligation or liability of any kind or nature whatsoever, whether absolute or
contingent, known or unknown, liquidated or unliquidated, due or to become due,
accrued or not accrued, or otherwise.
<PAGE>
1.14 "Orders" shall mean all Seller's orders for merchandise from
suppliers. Exhibit G attached hereto lists all of Seller's Orders for
merchandise for the Stores and Warehouse as of the date set forth on said
Exhibit G.
1.15 "Permits and Approvals" shall mean all licenses, permits,
franchises, approvals and authorizations issued by governmental authorities to
Seller.
1.16 "Plans" shall mean all plans and specifications for the Stores and
Warehouse, including any available "as built" drawings, maintenance records,
reports and certificates and such other items relating to the construction,
operation or environmental assessment of the Stores and Warehouse as may be in
the possession of Seller.
1.17 "Receivables" shall mean Seller's accounts receivable, other than
the Excluded Assets, existing on the Closing Date in the ordinary course of
business which arise from sales of merchandise or services to customers in the
ordinary course of Seller's business, specifically including but not limited to
receivables from VFV to VGE in the principal amount of $130,000 evidenced by a
note in the principal amount of $100,000 dated June 24, 1996, and a note in the
principal amount of $30,000 dated April 1, 1997, which accrue interest at seven
(7%) percent (the "VFV Receivable").
1.18 "Seller Statements" shall mean the balance sheets of Seller as of
December 31, 1995 and December 31, 1996, and statements of income and retained
earnings of the Seller for the fiscal years ending on said dates audited and
certified by Zion, Smorag and Associates, certified public accountants, copies
of which have been provided to Purchaser.
1.19 "Shareholders" shall mean all of the principal shareholders of
Seller, who are Mark S. Lamb, Trustee under Declaration of Trust dated 8/12/97,
Boake A. Sells, Trustee under Declaration of Trust dated 8/12/97; and Douglas R.
Masters, Trustee under Declaration of Trust dated 8/14/97.
ARTICLE II
PURCHASE AND SALE
2.1 Purchase Price. On the Closing Date, subject to the terms and
conditions set forth in this Agreement, Seller agrees to sell and convey to
Purchaser, and Purchaser agrees to purchase, the Assets, for an amount (the
"Purchase Price") equal to $6,400,000. The Purchase Price is based on the
assumption that the "Average Cost," as defined below, of the Qualifying
Inventory as of the Closing Date will be $1,400,000. If the Average Cost of the
Qualifying Inventory on the Closing Date is less than $1,400,000, the Purchase
Price will be reduced by the amount of the deficit. If the Average Cost of the
Qualifying Inventory on the Closing Date is more than $1,400,000, the Purchase
Price will be increased by the amount of the excess. Any adjustment to the
Purchase Price will be reflected in the amount of cash to be paid to Seller on
the Closing Date.
<PAGE>
For these purposes, the "Average Cost" of Inventory shall mean for each
item of Inventory, the average cost of such item as reflected on Seller's books
and records and determined in a manner consistent with Seller's past practices.
Each of the parties hereto agrees to report this transaction
consistently with the allocation set forth on Exhibit H hereto, specifically
including for income tax purposes.
2.2 Inventory Procedures. Purchaser shall purchase all of Seller's
Inventory which is of a type consistent with the Inventory that Seller has
maintained in the past and which consists of video game platforms, video games
and related products. (Hereinafter, the items of Inventory which satisfy the
foregoing requirements are referred to as "Qualifying Inventory".)
The purchase price for Qualifying Inventory will be its Average Cost;
provided, however, that to the extent there are items of Qualifying Inventory
that are obsolete, as described below, or which are damaged used goods,
Purchaser shall be entitled to reduce the amount paid for the Inventory by the
Average Cost of all such obsolete or damaged items, but such reduction shall not
exceed an amount equal to one percent (1%) of the Average Cost of all Qualifying
Inventory. For these purposes, an item of Inventory shall be considered obsolete
if it is any of the following video game platforms or a video game which runs on
any of, or other products specific to, said platforms:
(i) Sega CD
(ii) Sega 32X
(iii) Turbo Graphics
(iv) Atari Jaguar
(v) Phillips CDI
(vi) Panasonic 3D0
An Inventory count will be taken by Seller, with the representatives of
Purchaser participating if desired by Purchaser, on the day immediately
preceding the Closing Date. At both Seller's Stores and Warehouse, such
inventory count shall commence immediately upon the closing of the Stores and
the Warehouse. For this purpose, in order to insure that the inventory counts
can be completed, Stores may be closed early on said date. Purchaser may
participate in said inventory counts to whatever extent Purchaser desires. At
the present time, Purchaser contemplates conducting inventory sampling at each
of the locations to verify the counts taken by Seller.
The counts thus taken shall cut off the Inventory for purposes of this
Agreement. Therefore, any sales of inventory on the Closing Date shall be for
the account of Purchaser, provided that the closing is held hereunder as
provided herein.
<PAGE>
The valuation of Inventory in accordance with the standards set forth
above shall be undertaken jointly by Seller and Purchaser at the Stores and
Warehouse. Said valuation shall start the day after the Inventory count is taken
and shall be completed prior to the Closing Date.
2.2A Leases and Contracts. Notwithstanding anything in this Agreement
to the contrary, to the extent that assignment hereunder of any of the Leases or
Contracts shall require the consent of any other party (or in the event that any
of the same shall be non-assignable), neither this Agreement nor any action
taken pursuant to its provisions shall constitute an assignment or an agreement
to assign if such assignment or attempted assignment would constitute a breach
thereof or result in the loss or diminution thereof; provided, however, that in
each such case, Seller shall use all reasonable efforts to obtain the consent of
such other party to an assignment to Purchaser. If such consent is not obtained,
Seller shall cooperate with Purchaser in any reasonable arrangement designed to
provide for Purchaser the benefits of such Leases or Contracts.
2.3 No Assumption of Liabilities. Purchaser shall not assume or become
liable for any Liabilities and Obligations of Seller; except only that Purchaser
shall assume and be responsible for:
(a) Liabilities and Obligations arising under the Leases and
Contracts, but only with respect to Liabilities and Obligations first
to be performed or discharged under said Leases and Contracts from and
after the Closing Date (the "Post-Closing Contract Liabilities"). In
this connection it is understood that if a Liability or Obligation
arises due to an action or breach or failure to act which occurs before
the Closing Date, said Liability and Obligation shall remain Seller's
responsibility. Correspondingly, Purchaser shall be responsible for all
Liabilities and Obligations arising from actions or breaches or failure
to act occurring on or after the Closing Date.
(b) Liabilities and Obligations with respect to warranties
issued by Seller for products sold by Seller prior to the Closing Date,
but only with respect to warranties which (i) conform with or are less
extensive than Seller's standard warranty as represented by Seller, and
(ii) which have been issued by Seller in the ordinary course of
business and in accordance with its past practices; and
(c) Liabilities and Obligations with respect to gift
certificates sold by Seller prior to the Closing Date in the ordinary
course of business and in accordance with Seller's past practices;
provided, however, that the total amount of specific gift certificates
which Purchaser shall be responsible for shall not exceed, in the
aggregate, $6,000. Purchaser may honor any gift certificates issued by
Seller in excess of said amount but Seller shall be responsible to
reimburse Purchaser for the same.
<PAGE>
In return for Purchaser's assumption of the Liabilities and Obligations
referred to in paragraphs (b) and (c), the Purchase Price shall be reduced by
$8,000.
Without limiting the generality of the foregoing, it is specifically
understood and agreed as follows:
(a) Although Purchaser is contemplating hiring all or most of
the employees, Purchaser has no obligation to hire any of Seller's
employees. In any event, Seller shall be responsible for any and all
Liabilities and Obligations owed to its employees, including but not
limited to any termination or severance payments due to employees not
hired by Purchaser, accrued vacation pay, and unpaid wages. All such
obligations of Seller to employees shall be satisfied, or arrangements
for the satisfaction thereof reasonably acceptable to Purchaser shall
be made, on or before the Closing Date.
(b) All Liabilities and Obligations that Seller has to
suppliers or creditors shall be promptly paid and satisfied by Seller
when due in the ordinary course of business, so as to avoid any adverse
impact upon the business related to the Assets in the hands of
Purchaser.
2.4 Non-Compete and Consulting Agreements. At the Closing, Purchaser,
Seller, the Shareholders and certain officers of Seller identified on Exhibit I
shall enter into separate Non-Compete Agreements in the form of Exhibit I
attached hereto (the "Non-Compete Agreements"), pursuant to which Seller and
each of the Shareholders and such officers will agree not to compete with
Purchaser for a period of five years after the Closing Date. In return for the
Non-Compete Agreements, Purchaser shall pay a total amount, in the aggregate, of
$100,000, payable as specified on Exhibit I.
At Closing, Purchaser and Mark Lamb also shall enter into a Consulting
Agreement substantially in the form of Exhibit J attached hereto (the
"Consulting Agreement") for part-time consulting services during the sixty (60)
days after the Closing Date.
2.5 Payment at Closing; the Note. The Purchase Price, (subject to any
appropriate withholding if the Inventory Value has not been finally determined
by the Closing) payment shall be paid as follows:
(a) By payment of $4,400,000 at Closing (less the $8,000
referred to in Section 2.3) by wire transfer of immediately available
funds; and
(b) By delivery of a non-negotiable (but assignable, to the
extent provided in the Note) Promissory Note (the "Note") of Purchaser
in the principal amount of $2,000,000 substantially in the form of
Exhibit K attached hereto and guaranteed by Guarantor.
<PAGE>
All payments made hereunder are subject to the terms and conditions
herein set forth, and will be made by Purchaser in reliance upon the
representations, warranties, covenants and agreements contained herein.
2.6 Accounts Receivable; VFV Receivable. Seller is transferring the
Receivables to Purchaser. At the Closing, the VFV Receivable shall be paid in
full, together with accrued interest, by VFV, by cashier's or certified check or
by wire transfer of immediately available funds, or, if it is not so paid, the
payment to Seller at Closing shall be reduced by the amount required to pay off
the VFV Receivable and thereupon the VFV Receivable shall be transferred to
Seller.
2.7 Prorations; Costs, Etc. Seller and Purchaser agree to the following
prorations and allocation of costs in connection with this Agreement and the
transactions contemplated hereby:
(a) Seller's rights in and to security deposits deposited by
Seller with lessors pursuant to the Leases shall be transferred to
Purchaser at the Closing.
(b) All other operating costs of the Assets, such as but not
limited to utilities and payments pursuant to Leases and Contracts,
shall be allocated between Seller and Purchaser based upon the Closing
Date, as of the opening of business on said Date, such that Seller
shall pay that portion of the operating costs pertaining to that period
of time up to and including the Closing Date, and Purchaser shall pay
that portion of the operating costs from and after the actual Closing
Date. Prepaid license fees or permit fees, if any, relating to licenses
or permits assigned to Purchaser as provided above shall be prorated
and credited to Seller and paid for by Purchaser as of the Closing
Date. Such prorated amounts shall be netted against the amounts due to
Seller at Closing. In the case of amounts -- such as additional charges
for taxes and rent under percentage rent clauses in Leases -- which
cannot be determined until after Closing, final adjustment shall be
made when and as said amounts are finally determined.
(c) Transfer taxes, if any, imposed, shall be paid split
equally between Purchaser and Seller. Recording fees, if any, shall be
paid by Purchaser.
(d) Purchaser shall pay any lease transfer charges imposed by
landlords pursuant to the Leases.
(e) The cost of the searches referred to in Section 3.1(c)
shall be borne equally by Purchaser and Seller.
2.8 Automobile. Seller presently owns a Red Corvette automobile (the
"Car") which is used by Mark Lamb ("Lamb"), which is included in the Assets.
Purchaser agrees that at or at any time within a month of the Closing, Lamb can
acquire the Car from Purchaser by payment to Purchaser of $18,178, which is the
approximate book value at which Seller carries the car on its
<PAGE>
books. It is understood that Seller will remain responsible for any lease or
loan upon the Car and that Purchaser shall neither assume or be obligated to pay
any such lease or loan.
ARTICLE III
DELIVERIES BY SELLER
3.1 Seller's Deliveries. On the Closing Date, subject to the terms and
conditions set forth in this Agreement, Seller shall make or cause to be made
the following deliveries:
(a) Bill of Sale and Assignment and Assumption Agreement, each
in the form attached hereto as Exhibit E, and certificates of title;
(b) Assignments of registered trademarks, and Assignment of
Trade Names;
(c) Copies of current UCC financing statement, judgment,
bankruptcy, federal, state and local tax and other searches requested
by Purchaser pertaining to Seller, the Assets, the Stores and
Warehouse, together with appropriate releases or termination statements
for any security interests in the Assets;
(d) Lease Assignment Consents, duly executed by each of the
third party lessors for each of the Leases, in form reasonably
acceptable to Purchaser;
(e) Counterparts of the Non-Compete Agreements duly executed
by Seller, the Shareholders and certain officers of Seller identified
on Exhibit I;
(f) The Consulting Agreement duly executed by Mark Lamb;
(g) An opinion of counsel to Seller, dated the Closing Date,
in the form of Exhibit L-1 hereto;
(h) A certificate of Seller certifying that Seller has
satisfied its obligations to its employees as specifically addressed in
Section 2.3(a) hereof;
(i) The Officer's Certificate required pursuant to Section
10.3;
(j) An incumbency certificate for each of Seller dated as of
the Closing Date, duly executed by the respective Secretary of each
Seller;
(k) Copies of the resolutions of each of Seller authorizing
the transactions contemplated by this Agreement, certified by the
respective Secretary of each Seller;
<PAGE>
(l) Certificates of Good Standing for each of Seller for its
state of incorporation and any state(s) in which it is qualified or
required to be qualified to transact business;
3.2 Purchaser's Deliveries. On the Closing Date, subject to the terms
and conditions set forth in this Agreement, Purchaser shall make or cause to be
made the following deliveries:
(a) Payment of the Purchase Price in accordance with Section
2.5.
(b) The Note duly executed on behalf of Purchaser and
guaranteed by Guarantor.
(c) The Non-Compete Agreements and the Consulting Agreement,
duly executed by Purchaser;
(d) Incumbency certificates dated as of the Closing Date, duly
executed by the Secretary of Purchaser and Guarantor;
(e) Copies of the resolutions of Purchaser and Guarantor
authorizing the transactions contemplated by this Agreement, certified
by the Secretary of each of Purchaser and Guarantor;
(f) An opinion of counsel to Purchaser, dated the Closing
Date, in the form of Exhibit L-2 hereto;
(g) Counterparts of the Assignment and Assumption Agreements
executed by Purchaser and guaranteed by Guarantor;
(h) Certificate of Good Standing for each of Purchaser and
Guarantor issued by the Secretary of State of the State of Minnesota;
ARTICLE IV
CLOSING
The Closing hereunder shall take place at the offices of Baker &
Hostetler, 3200 National City Center, Cleveland, Ohio, on the Closing Date, or
at such other place as may be mutually agreed upon in writing by Purchaser and
Seller.
ARTICLE V
INVESTIGATION
From and after the date hereof and through the Closing Date, Seller
shall afford to the officers and representatives of Purchaser reasonable access
to the properties and records of Seller in order that Purchaser may have full
opportunity to make such investigation during normal business hours after
reasonable notice (which need not be more than 24 hours in advance) as it
<PAGE>
shall desire of the assets and of the affairs of Seller, and Seller shall
provide to Purchaser reasonable assistance in the conduct of said investigation
by Purchaser. Subject to the foregoing, Purchaser, and its representatives,
consultants and employees, shall be permitted access to the Stores and Warehouse
prior to Closing in order to inspect the same and conduct environmental
inspections and tests. Seller shall also provide Purchaser, originals or
reproductions of the Plans, Permits and Approvals to the extent Seller has such
items in its possession.
ARTICLE VI
REPRESENTATIONS AND WARRANTIES
OF THE SELLER
Seller represents and warrants to Purchaser that, except as set forth
in reasonable detail on Exhibit M annexed hereto, entitled Representations and
Warranties: Exceptions and Disclosures, the following statements are true and
correct as of the as of the date hereof and the Closing Date:
6.1 Seller. Each Seller is a corporation duly organized and existing and
in good standing under the laws of the state of Ohio and has all requisite
authority to own or lease its properties and to carry on its business as and in
the places where such properties are now owned, leased or operated, or such
business is now conducted. Each Seller has full power and authority to enter
into this Agreement, perform its respective obligations hereunder and consummate
the transactions contemplated hereby. All necessary corporate action has been
taken by each Seller with respect to the execution of this Agreement and the
deliveries to be made hereunder. This Agreement and the agreements and documents
to be delivered by Seller hereunder ("Seller's Deliveries"), including, without
limitation, Seller's Non-Compete Agreements, the Bill of Sale, the Assignment
and Assumption Agreement and the Assignment of Registered Trademarks,
constitutes a valid and binding obligation of each Seller, enforceable in
accordance with its terms. Neither the execution and delivery by Seller of this
Agreement and Seller's Deliveries nor the consummation by Seller of the
transactions contemplated hereby or thereby nor compliance by Seller with any of
the provisions hereof or thereof will (i) conflict with or result in a breach of
any provision of the articles of incorporation or code of regulations of either
Seller; (ii) conflict with, or result in a breach of any provision of, or
constitute a default under, under any note, mortgage, license, permit, lease,
contract or other instrument or obligation to which Seller is a party or by
which any of its properties may be bound or affected ("Seller Agreements"), or
result in the creation of any lien upon any of the Assets; or (iii) violate any
order, writ, injunction, decree, judgment, ruling, law, rule or regulation of
any court or governmental authority, United States or foreign, applicable to
Seller or any of its properties; or (iv) require any consent, approval or
authorization of, or notice to, or declaration, filing or registration with, any
governmental or regulatory authority.
Each Seller is qualified to do business as a foreign corporation in all
jurisdictions in which the nature of each Seller's business, the location of its
assets or other factors require it to be so qualified.
VFV does not now own or hold, and has never owned or held, any assets
or rights and has never conducted business. The Shareholders and Paul Masters
and Larry Tellerico constitute the
<PAGE>
only shareholders of VFV and no other persons or entities hold stock or other
equity interests in VFV.
The Shareholders and Robert Masters constitute the only shareholders of
VGE, and no other persons or entities hold stock or other equity interests in
VGE. Neither VGE nor VFV has any subsidiaries, nor do they have any equity
interest in any corporation, partnership, limited liability company, or other
business entity.
6.2 Title. Except as set forth on Exhibit M, Seller has good and
marketable title to the Assets, free and clear of any mortgages, liens, security
interests, pledges, easements or encumbrances of any kind or nature whatsoever.
At the Closing, Seller will convey good and marketable title to the Assets to be
sold hereunder, free and clear of any and all mortgages, liens, security
interests, pledges, easements, or encumbrances of any kind or nature whatsoever.
6.3 Financial Statements. The Seller Statements and Interim Statements
are true, complete and correct in all material respects, have been prepared in
accordance with generally accepted accounting principles, consistently applied
(subject in the case of the Interim Statements to normal year-end adjustments),
and fairly and accurately present the financial condition and assets and
liabilities (whether accrued, absolute, contingent or otherwise) of Seller as of
the dates indicated and the results of operations of Seller for the periods then
ended.
The supporting schedules and supporting work papers provided
or made available by Seller to Purchaser relating to the Seller Statements and
the Interim Statements are true, complete and correct in all material respects.
6.4 Liabilities. Except as and to the extent reflected or reserved
against in the Interim Statements, or otherwise disclosed herein, Seller had, as
of the date of such Statements, no Liabilities and Obligations of a nature which
under generally accepted accounting principles would be required to be disclosed
in a financial statement or in the footnotes thereto if said financial statement
was prepared in accordance with generally accepted accounting principles. As of
the date of this Agreement, Seller is not subject to and does not have any
Liabilities and Obligations of a nature which under generally accepted
accounting principles would be required to be disclosed in a financial statement
or in the footnotes thereto if said financial statement was prepared in
accordance with generally accepted accounting principles, except as disclosed in
the Interim Statements, and except for such Liabilities and Obligations as have
arisen in the ordinary course of business of Seller since the date of said
Interim Statements, none of which newly arisen Liabilities and Obligations would
be expected, using reasonable business judgment, to have a material adverse
effect upon the Assets, or Seller, its organization, business, properties or
financial condition.
6.5 Other Operations. Neither Seller nor any of the Shareholders has any
divisions or other operations, nor do any controlled affiliates or controlled
corporations or entities of Seller or Shareholders have any divisions or
operations, which sell products or services which compete with those sold by
Seller.
<PAGE>
During the past two years, neither Seller, any of the Shareholders, nor
any controlled affiliates or controlled entities of Seller or Shareholders, has
sold, transferred or otherwise disposed of companies, assets or businesses
selling products or services which compete with the products or services sold by
Seller.
6.6 [Intentionally Deleted.]
6.7 Contracts. Except as listed in Exhibit A, Seller is not a party to
any written or oral:
(i) contract, agreement or understanding for the employment of
any officer, consultant, director or employee;
(ii) contract, agreement or understanding with any labor
union;
(iii) material contract, agreement or understanding for the
purchase of any materials, supplies or equipment;
(iv) material contract, agreement or understanding for the
sale of products or performance of services;
(v) license or franchise agreement, either as licensor or
licensee or franchisor or franchisee, including any related to
intellectual property, or distributor, dealership or sales agency
contract, agreement or understanding;
(vi) lease for real or personal property under which Seller is
a lessor or lessee, or contract, agreement or understanding to purchase
or sell real property or a material amount of personal property;
(vii) pension, profit-sharing, bonus, deferred compensation,
retirement or stock option or stock purchase plan in effect with
respect to employees or others;
(viii) contract or agreement granting to any person the right
to use any property or property right of Seller, including any
trademark or patent licensing agreement, contract or understanding;
(ix) plan or contract or other arrangement providing for
insurance for any officer, director or employee or member of their
families;
(x) construction contract;
(xi) contract or agreement containing covenants by Seller not
to compete in any line of business or with any person;
<PAGE>
(xii) joint venture contract or partnership or arrangement or
other agreement involving a sharing of profits; or
(xiii) contract or agreement relating to the borrowing or
lending of money by Seller, providing for letters of credit, or
providing for any mortgage, lien or security interest upon any of the
Assets; or
(xiv) any guaranties or indemnifications by Seller, except for
Seller's obligations resulting from the endorsement of checks deposited
for collection;
(xv) any contracts calling for cumulative payments by Seller
in excess of $25,000;
(xvi) other material contract, agreement or understanding.
Seller has made available to Purchaser true, current, correct and
complete copies of all of the Contracts, including all items specified in the
preceding paragraph.
Seller has performed all obligations required to be performed by it to
date under, and Seller and, to the best knowledge of Seller, each other party to
each Contract is not in default in any material respect under, each of the
Contracts, all of which are in full force and effect. Seller is not aware of any
fact which, with notice and/or passage of time, would constitute such a default.
Except as stated on Exhibit A, each of said Contracts are assignable without
consent.
6.8 Inventory and Orders. The Inventory reflected on the Interim
Statements is valued at the lower of cost or market and has not been written
down since the date of the Interim Statements. The cost of all such inventory is
determined using the average cost method, in accordance with generally accepted
accounting principles. To the best knowledge of Seller, none of the Inventory
was purchased at any price substantially in excess of the then current market
price.
All Inventories will be of a quality and quantity usable by Seller in
the ordinary course of its business, consistent with past practices. Based on
Seller's past experience, Seller believes that the quality and quantity of
Inventories are reasonable in relationship to the anticipated business for
Seller.
All Inventories treated as Qualifying Inventories under Section 2.2
will meet the requirements set forth in said Section.
None of the Orders is in excess of the normal, ordinary, and usual
anticipated requirements for Seller's business consistent with past practice or,
to the best knowledge of Seller, was made at any price substantially in excess
of then current market price, or, to the best knowledge of Seller, contains
terms and conditions significantly more onerous than those which are usual and
customary for Seller's business, consistent with past practices.
<PAGE>
6.9 Equipment. All items included in the Equipment are located within
the Stores or the Warehouse, and are in good condition and repair in light of
their age, ordinary wear and tear excepted and as of the Closing Date will be
free and clear of any and all liens, security interests, pledges, or
encumbrances of any kind or nature whatsoever.
6.10 Leases. Exhibit E includes a true and complete list of all real
estate leases (including all amendments thereto), both oral and written,
pertaining to the Stores and Warehouse. Seller does not lease any real estate
other than pursuant to the Leases.
True, correct and complete copies of the Leases have been made
available to Purchaser. The Leases are in full force and effect, and neither
Seller nor, to the best knowledge of Seller, any landlord party to any Lease is
in default in any material respect under any of the Leases, and there are no
facts which, with notice and/or the passage of time, would constitute a default
in any material respect. To the best of Seller's knowledge, all premises leased
by the Seller pursuant to the Leases are in good condition, normal wear and tear
excepted. To the best of Seller's knowledge, the heating, air conditioning,
plumbing and electrical systems serving the premises leased under the Leases are
in good operating order, ordinary wear and tear excepted and there is no
material defect or wear and tear to any such building, structure or improvement,
or any other deterioration, damage or defect, which would prohibit or impair the
continued use of any leased premises for the purposes for which they are now
employed, or which would require any material expenditure for repair or
replacement. Seller has not received notice that any leased premises or the
building in which they are located do not comply with municipal, state and
federal statutes, ordinances, rules and regulations applicable to the
construction of the buildings and their actual use. Except as listed in Exhibit
F, no consent is required under the Leases in connection with the transactions
contemplated by this Agreement.
Seller is not aware of: (i) any transformers, capacitors or other
appliances in use or stored in the Stores or Warehouse which contain PCB's; (ii)
any urea-formaldehyde insulation or any asbestos in the Stores or Warehouse; or
(iii) any hazardous substance or hazardous waste (hereinafter a "Hazardous
Substance"), as defined in the Comprehensive Environmental Response Compensation
and Liability Act of 1980 ("CERCLA"), or the Resource Conservation and Recovery
Act of 1976 ("RCRA") or any other applicable federal, state or local
environmental laws, statutes or regulations or as defined in 42 U.S.C. 3251, as
amended, located anywhere in the Stores or Warehouse, except for Hazardous
Substances which are stored and disposed of in compliance with applicable law.
No activity has been conducted by Seller at the Stores or Warehouse or adjoining
properties which has given rise to, or may give rise to, any liability or
obligation under any applicable federal, state or local environmental
protection, health, safety, or similar law, whether statutory or common law.
Seller has not engaged in the business of generating, transporting,
storing, treating or disposing of Hazardous Substances in or about the Stores or
Warehouse; Seller is not aware of any use of the Stores and Warehouse for the
storing or disposal of waste or for storing or disposal of Hazardous Substances
prior to or during the period that Seller has been a tenant of the Stores or
Warehouse.
<PAGE>
Seller does not lease any personal property other than pursuant to (i)
leases in the ordinary course of business which can be terminated on not more
than 30 days notice by Seller without payment of any penalty or termination
payment, and (ii) leases ("Personal Property Leases") which are listed and
described on Exhibit A. The Personal Property Leases are in full force and
effect and neither Seller nor, to the best of Seller's knowledge, any other
parties to the Personal Property Leases is in default in any material respect
under any of the Personal Property Leases and there are no facts which, with
notice and/or the passage of time, would constitute such a default in any
material respect. Except as noted in Exhibit A, no consent is required under the
Personal Property Leases for the transactions contemplated hereby.
6.11 Assets Complete, Etc. The Assets and the Excluded Assets include
all assets used in or necessary for the operation of Seller's business as
previously conducted, except for (i) sales of inventory and utilization of
supplies in the ordinary course of business, and (ii) non-material items of
personal property owned by employees. All assets are presently located at the
Stores or the Warehouse. No operation of Seller's business is located other than
at the Stores and the Warehouse.
Seller does not lease or otherwise use any real or personal property
owned by third parties in its operations, except as may occur under Contracts or
Leases disclosed hereunder.
Since December 31, 1996, no assets of any kind used by the Seller or
located at the Stores or Warehouse, have been removed, transferred or disposed
of except for sales of inventory and utilization of supplies in the ordinary
course of business of Seller and except for scrapping of equipment which is no
longer useful in Seller's business.
6.12 Litigation. There are no claims, actions, suits, proceedings or
investigations pending or, to the best of Seller's knowledge, threatened against
Seller or involving the Assets, at law or in equity or admiralty or before or by
any federal, state, municipal or other governmental department, commission,
board, agency or instrumentality, domestic or foreign, nor has any such action,
suit, proceeding or investigation been pending during the 12-month period
preceding the date hereof; and Seller is not operating under or subject to, or
in default with respect to, any order, writ, injunction or decree of any court
or federal, state, municipal or other governmental department, commission,
board, agency or instrumentality, domestic or foreign.
6.13 Compliance with Laws. Seller has complied in all material respects
with, and the Assets, Stores and Warehouses comply in all material respects
with, all applicable laws, regulations and orders applicable, including without
limitation CERCLA, RCRA, the Occupational Safety & Health Act, the Clean Air
Act, the Clean Water Act, the Toxic Substances Control Act, the Safe Drinking
Water Act, and the Refuse Act, and the present uses by Seller of the Assets,
Stores and Warehouses do not violate any such laws, regulations and orders in
any material respect.
6.14 Intellectual Property. Exhibit M lists all service marks, patents,
trademarks, trade names, trademark and trade name registrations, material brand
names, franchise rights, copyrights and copyright registrations, all pending
applications for any of the foregoing, and any other
<PAGE>
proprietary rights, inventions, material trade secrets, or material know-how or
processes (hereinafter the foregoing are collectively referred to as
"Intellectual Property") used by Seller in the operation of Seller's business,
or owned by Seller, and any licenses granted by or to Seller, and any other
agreements to which it is a party, which relate, in whole or in part, to
Intellectual Property. Said Exhibit M further includes a brief description of
the filing, registration or issuance dates of any such Intellectual Property
which is registered. Seller owns or is licensed to use, all Intellectual
Property used by it in the conduct of its business as currently conducted. To
the best of Seller's knowledge, the use by Seller of any such Intellectual
Property, and the conduct by Seller of its business, does not infringe on the
Intellectual Property rights of any third party, and no claim has been asserted
to such effect. The Intellectual Property to be assigned, transferred or
conveyed to Purchaser hereunder constitutes all the Intellectual Property used
by Seller in the conduct of its business, or in connection with the Assets.
6.15 Labor Controversies. There is no unfair labor practice charge or
complaint against Seller pending before the National Labor Relations Board, nor
has Seller committed any unfair labor practices. There is no labor strike,
dispute, slow down or stoppage, or any union organizing campaign or petition for
certification actually pending or, to the best knowledge of Seller, threatened
against Seller. Seller is not party to any collective bargaining agreements.
6.16 Pension and Profit Sharing Plans; Benefits. Seller has no pension
or profit sharing plans which cover any of its employees, except as referenced
on Exhibit M. All contributions required to be made or accrued prior to the
Closing Date to any such plans shall have been paid.
Exhibit L contains a complete list of all benefit plans and employee
benefits provided by Seller to its employees including but not limited to any
disability, medical, dental, workers compensation, health insurance, life
insurance, vacation, benefits plans, incentive plans, fringe benefit plans and
any other material plans, programs, agreements or arrangements which provide
benefits to any current or former employee of Seller.
All the accrued obligations of Seller, for payments by it to trust or
other funds or any governmental agency with respect to unemployment compensation
benefits, social security benefits or any other benefits for employees of Seller
shall have been paid prior to Closing or, if due after Closing, shall be paid
when due under applicable laws, regulations, or provisions of benefit plans or
policies as the case may be. All accrued vacation benefits payable to employees
of Seller who are hired by Purchaser shall have been paid prior to or
contemporaneously with Closing. All other accrued benefits, and all other
obligations of Seller, for holiday pay, bonuses or other forms of compensation
or benefits which are or become payable to employees of Seller shall be paid in
accordance with the provisions of applicable laws, regulations, benefit plans or
policies, as the case may be. In no event shall Purchaser assume or be
responsible for past or future obligations of Seller to any employee, including
any obligations to pay salary, benefits, severance pay, vacation pay or other
benefits to any employee, regardless of whether such employees are hired by
Purchaser.
6.17 Changes in Suppliers and Customers. Seller is not aware of any
facts which indicate that any material supplier to Seller intends to cease doing
business with Seller, or to not
<PAGE>
do business with Purchaser after the Closing hereunder, whether as a result of
the transactions contemplated hereby or otherwise.
6.18 Conduct of Business. Since the ending date of the most recent
Interim Statements and until the Closing Date, Seller has not and will not have:
(i) incurred any Liabilities or Obligations (absolute or
contingent), except for Liabilities and Obligations disclosed in the
Interim Statement, or in the Exhibits annexed hereto, and except for
such Liabilities and Obligations as have arisen in the ordinary course
of business of Seller since the date of the Interim Statement, none of
which newly arisen Liabilities and Obligations have a material adverse
effect upon Seller, the Assets, or Seller's organization, business,
properties, or financial condition;
(ii) mortgaged, pledged or subjected to any lien, charge or
other encumbrance, any of the Assets, tangible or intangible;
(iii) sold or transferred any assets included in the Assets,
other than sales of inventory or utilization of supplies in the
ordinary course of business or the scrapping of equipment which is no
longer useful in Seller's business;
(iv) sold, assigned or transferred any patents, copyrights,
trademarks, trade secrets or service marks, or any other material items
of Intellectual Property included in the Assets;
(v) suffered any extraordinary losses or waived any rights of
substantial value relating to Seller's business or the Assets;
(vi) other than immaterial damage or loss occurring in the
ordinary course of business, suffered any damage, destruction or loss
to any Assets, whether or not covered by insurance;
(vii) entered into any transaction involving or relating to
Seller's business or the Assets other than in the ordinary course of
business;
(viii) except in the ordinary course of business consistent
with past practice, increased the compensation payable, or to become
payable by Seller to any of its employees including, but not limited
to, any bonus payment or deferred compensation;
(ix) made or suffered any material amendment or termination of
any Contracts or Leases;
(x) increased any benefits to employees of Seller under
pension, insurance or other employee benefit programs;
<PAGE>
(xi) changed its methods of accounting in any respect;
(xii) acquired a significant portion of the assets or stock of
any person or business entity; or
(xiii) suffered a termination of, or materially amended, any
license or permit.
6.19 Employees. Seller is not aware that any employees of Seller intend
to cease their employment with Seller, or to not accept employment with
Purchaser if offered by Purchaser, whether as a result of the transactions
contemplated hereby or otherwise.
6.20 Licenses and Permits. All licenses, permits, franchises, approvals
and governmental authorizations required for the operation of the business of
Seller as currently conducted, or for the Assets, are listed on Exhibit M. True,
current, correct and complete copies of such licenses, permits, franchises,
approvals, and governmental authorizations have been made available by Seller to
Purchaser to the extent Seller has such items in its possession or readily
available to it. Seller has performed in all material respects all obligations
required to be performed by it to date under, and is not in default under, any
such licenses, permits, franchises, approvals, or governmental authorizations.
All such licenses, permits, franchises, approvals, and governmental
authorizations are in full force and effect. Except as set forth on Exhibit M,
all such licenses, permits, franchises, approvals, and governmental
authorizations will, to the extent permissible, be assigned to Purchaser at the
Closing.
6.21 Receivables. The Receivables of Seller reflected in the Seller
Statements and in the Interim Statement originated in the ordinary course of
Seller's business, are valid, and are fully collectible in accordance with their
terms, subject to the allowance for doubtful accounts maintained by Seller
consistent with generally accepted accounting principles and Seller's past
practices. (Although Exhibit M may disclose that certain accounts receivable or
notes receivable are in arrears or otherwise not performing, it is understood
that such disclosure will not affect the warranty set forth in this Section
6.21.)
6.22 Suppliers. Exhibit M attached hereto lists each supplier of
products or services to whom Seller paid in excess of $100,000 in the 12 months
ended December 31, 1996.
6.23 Products and Warranties; New Goods. True, complete and correct
copies of Seller's standard warranties have been provided to Purchaser. Except
as set forth on Exhibit M since January 1, 1995, Seller has not issued any
warranties which depart in any material respect from the standard warranties.
The information that Seller has provided to Purchaser regarding Seller's
warranty expense since January 1, 1995 is true, correct and complete in all
material respects. To the best of Seller's knowledge, there is no problem or
defect with respect to products for which Seller has issued warranties which
would result in a significant increase in warranty expense over the warranty
expense incurred by Seller since January 1, 1995.
<PAGE>
New goods in Seller's Inventory which are damaged can be returned to
the seller of such new goods for credit.
6.24 Gift Certificates. Seller has issued gift certificates only in the
ordinary course of business and in accordance with its past practice. The amount
of Seller's gift certificates outstanding does not exceed, in the aggregate
$5,000.
6.25
6.26 Insurance. Except as listed on Exhibit M, Seller has not received
any notice of cancellation with respect to any insurance policy of Seller. All
premiums due under any such insurance policy have been paid in full. Seller has
timely filed all claims or timely notified insurance carriers of events or
circumstances giving rise to any claims under such policies.
Exhibit M lists each insurance policy maintained by Seller.
6.27 Material Change. Since the date of the most recent Interim
Statements there has been no material change in the condition, financial or
otherwise, of Seller, Seller's business, or the Assets from that shown in said
Statements, except changes occurring in the ordinary course of business, which
changes have not materially adversely affected the Assets, or Seller's
organization, business, properties or financial condition.
To the best of Seller's knowledge, no statute, order, judgment, writ,
injunction, decree, permit, rule or regulation of any court or governmental or
regulatory body has been adopted or entered, or is proposed to be adopted or
entered, which may materially and adversely affect Seller, the Assets or the
business of Seller.
6.28 Tax Returns and Audits. Seller has timely filed all federal, state
and local tax returns which are required to have been filed by it and timely
paid all amounts required to be paid by it or extensions permitted by law have
been obtained. There are no claims for or investigations or audits of taxes
pending or threatened against Seller.
6.29
ARTICLE VII
REPRESENTATIONS AND WARRANTIES BY PURCHASER AND GUARANTOR
Purchaser and Guarantor, jointly and severally, represent and warrant
to Seller that the following statements are true and correct as of the date
hereof and will be true and correct as of the Closing Date:
7.1 Organization and Standing. Each of Purchaser and Guarantor is a
corporation duly organized, existing and in good standing under the laws of the
State of Minnesota, and has all requisite authority to own or lease its
properties and to carry on its business as and in the places where such
properties are now owned, leased or operated, or such business is now
<PAGE>
conducted. Each of Purchaser and Guarantor is qualified to do business as a
foreign corporation in all jurisdictions in which the nature of its business,
the location of its assets or other factors required to be so qualified, except
where the failure to be so qualified would not have a material adverse effect on
Purchaser or Guarantor as the case may be.
7.2 Authority. Each of Purchaser and Guarantor has full power and
authority to enter into this Agreement, perform its respective obligations
hereunder and consummate the transactions contemplated hereby. All necessary
corporate action has been taken by each of Purchaser and Guarantor with respect
to the execution of this Agreement and the deliveries to be made hereunder,
including, without limitation, the Note, the Guaranty and the Assignment and
Assumption Agreement and the other documents and agreements delivered hereunder.
This Agreement, the Note, the Guaranty and the Assignment and Assumption
Agreement will each constitute a valid and binding obligation of each of
Purchaser and Guarantor, enforceable in accordance with its terms. Neither the
execution and delivery by Purchaser and Guarantor of this Agreement nor the
consummation by Purchaser and Guarantor of the transactions contemplated hereby
nor compliance by Purchaser and Guarantor with any of the provisions hereof will
(i) conflict with or result in a breach of any provision of the certificate or
articles of incorporation or by laws or code of regulations of either Purchaser
or Guarantor; (ii) conflict with, or result in a breach of any provision of, or
constitute a default under, any note, mortgage, license, permit, lease, contract
or other instrument or obligation to which Purchaser or Guarantor is a party or
by which any of their respective properties may be bound or affected; or (iii)
violate any order, writ, injunction, decree, judgment, ruling, law, rule or
regulation of any court or governmental authority, United States or foreign,
applicable to Purchaser or Guarantor or any of their respective properties; or
(iv) require any consent, approval or authorization of, or notice to, or
declaration, filing or registration with, any governmental or regulatory
authority.
7.3 Litigation. There is no claim, litigation, suit, action, proceeding,
investigation or inquiry, administrative or judicial pending or, to the best
knowledge of each of Purchaser and Guarantor, threatened against Purchaser or
Guarantor, at law or in equity, before any federal, state or local court or
regulatory agency, or other governmental authority, which would reasonably be
expected to have a material adverse effect on the ability of Purchaser or
Guarantor to perform any of their respective obligations under this Agreement,
the Note, the Guaranty or the Assignment and Assumption Agreement, or upon the
consummation of the transactions contemplated by this Agreement.
7.4 Status of Guarantor. Guarantor is a publicly traded company, the
shares of which are listed on the NASDAQ Stock Market. Guarantor has timely
filled (other than certain Form 4's which were filed late) with the United
States Securities and Exchange Commission (the "SEC") all reports required to be
filed by it, and the information contained in such reports is complete and
accurate in all material respects. There is no disciplinary or de-listing
proceeding pending or, to the best knowledge of Guarantor, threatened, by the
SEC, the NASDAQ Stock Market, or any state securities agency or board.
<PAGE>
ARTICLE VIII
COVENANTS OF THE PARTIES
8.1 Further Assurances. On the Closing Date, and from time to time
thereafter, at the request and expense of Purchaser, Seller will execute and
deliver to Purchaser all such assignments, endorsements and other documents
(prepared at the expense of Purchaser), and take such other action as Purchaser
may reasonably request in order more effectively to transfer and assign to
Purchaser the Assets transferred to Purchaser pursuant to this Agreement, to
confirm the title of Purchaser thereto and to assist Purchaser in exercising its
rights with respect thereto and under this Agreement.
8.2 Closing of Seller's Books. During the 30-day period commencing on
the Closing date, Purchaser agrees that Seller can utilize the accounting system
that Purchaser acquires from Seller and may utilize the services of Jim Pierce,
Kathy Conroy and Sue Lanese, who are currently employees of Seller and to whom
Purchaser intends to offer employment at the Closing (the "Employees") in order
to carry out the accounting closing of the books and records of Seller (but not
other functions such as the preparation of tax returns). It is understood that
Purchaser is not obligated to make any other employees available for such
services and, further, that if any of the Employees cease to be employees of
Purchaser for whatsoever reason, it will be Seller's obligation to replace the
services of said employee.
8.3 Medical Benefits. In the case of those employees of Seller who are
hired by Purchaser, Purchaser shall provide medical coverage to said employees
in accordance with its policies and procedures commencing on the Closing Date.
Seller shall be entitled to, and shall have the responsibility of obtaining, any
rebate of premiums with respect to coverage it has paid for with respect to said
employees past the Closing Date.
ARTICLE IX
NO BROKERS OR FINDERS
Seller and Purchaser represent and warrant to each other that each did
not directly or indirectly engage any person, corporation or partnership to
bring about the consummation of the transactions contemplated herein, and, that
no person, corporation or partnership is entitled to a broker's commission,
finder's fee or any similar compensation upon the consummation of the
transactions contemplated herein. If this representation and warranty is
breached by either Seller or Purchaser, the breaching party shall indemnify and
hold harmless the other party from any and all claims, demands, liabilities and
obligations (and any and all expenses and costs incurred in connection with or
in defending against the same), which may arise due to any third party's claim
as a broker or finder.
ARTICLE X
CONDITIONS PRECEDENT OF PURCHASER
The obligations of Purchaser hereunder are subject to the conditions
that, on or before the Closing Date:
<PAGE>
10.1 Representations and Warranties True at Closing. The
representations and warranties of Seller contained in this Agreement or in any
certificate delivered pursuant to the provisions hereof or in connection with
the transactions contemplated hereby shall be true on and as of the Closing Date
as though such representations and warranties were made at and as of such date.
10.2 Compliance with the Agreement. Seller shall have performed and
complied with all agreements and conditions required by this Agreement to be
performed or complied with by it prior to or at the Closing Date.
10.3 Seller's Certificate. Seller shall deliver to Purchaser a
certificate of an officer of Seller dated the Closing Date, certifying the
fulfillment of the conditions specified in sections 10.1 and 10.2.
10.4 Deliveries. The documents and items required under Article III
hereof shall be tendered by Seller for delivery to Purchaser at the Closing.
10.5 Injunction. On the Closing Date, there shall be no effective
injunction, writ, preliminary restraining order or any order of any nature
issued by a court of competent jurisdiction directing that the transactions
provided for herein or any of them not be consummated as herein provided.
10.6 Casualty. Prior to the Closing Date, the business and the Assets
of Seller, or any portion thereof, shall not have been adversely affected in any
material way as a result of any fire, accident, flood or other casualty or act
of God or the public enemy.
10.7 Adverse Development. There shall have been no developments in the
business of Seller, or in the Assets, between the date of the Interim Statements
and the Closing Date which would have a material adverse effect on Seller's
business or the Assets.
10.8 Employee Arrangements. Seller shall have assigned to Purchaser
Seller's rights under the non-compete and confidentiality covenants contained in
Seller's Employment Agreements or Agreements Regarding Protection of Company
Information, as applicable, with Seller's district managers and store managers,
and other employees of Seller who have signed such agreements, it being
understood that Seller makes no representation or warranty as to the
effectiveness of said assignment.
10.9 Stores and Warehouse. Seller shall have furnished to Purchaser
Lease Assignment Consents for all the Leases executed by each of the lessors
under the Leases in form reasonably acceptable to Purchaser.
10.10 Satisfaction of Liabilities. On or before Closing, Seller shall
certify to Purchaser that Seller has satisfied its obligations to its employees
as specifically addressed in Section 2.3(a) hereof.
<PAGE>
ARTICLE XI
CONDITIONS PRECEDENT OF THE SELLER
The obligations of the Seller hereunder are subject to the conditions
that, on or before the Closing Date:
11.1 Representations and Warranties True at Closing. The
representations and warranties of Purchaser and Guarantor contained in this
Agreement or in any certificate delivered pursuant to the provisions hereof or
in connection with the transactions contemplated hereby, shall be true on and as
of the Closing Date as though such representations and warranties were made at
and as of such date.
11.2 Purchaser's and Guarantor's Compliance with the Agreement.
Purchaser and Guarantor shall have performed and complied with all agreements
and conditions required by this Agreement to be performed or complied with by it
prior to or at the Closing Date.
11.3 Officers' Certificate. Purchaser shall deliver to the Seller a
certificate of an officer of Purchaser, dated the Closing Date, certifying to
the fulfillment of the conditions specified in sections 11.1 and 11.2.
11.4 Deliveries. The documents and items required under Article III
hereof shall be tendered by Purchaser for delivery to Seller at the Closing.
11.5 Injunction. There shall be no effective injunction, restraining
order or order of any nature issued by a court of competent jurisdiction which
shall direct that this Agreement, or any of the transactions provided for
herein, not be consummated as herein provided.
ARTICLE XII
INDEMNIFICATION BY SELLER
12.1 Indemnification. Each Seller hereby agrees that, notwithstanding
the Closing, the delivery of instruments of conveyance, and regardless of any
investigation at any time made by or on behalf of any party hereto or of any
information any party hereto may have in respect thereof, each Seller, jointly
and severally, will indemnify, save and hold Purchaser and Guarantor and
Purchaser's and Guarantor's officers, directors, employees and shareholders,
harmless from and against any and all liabilities, losses, damages, claims,
deficiencies, costs and expenses (including, without limitation, reasonable
attorney fees and other costs and expenses incident to any suit, action or
proceeding) arising out of or resulting from and will pay to Purchaser the
amount of damages suffered thereby together with any amount which it may pay or
become obligated to pay on account of:
(a) the breach or inaccuracy of any warranty or representation
by Seller herein;
<PAGE>
(b) any failure of Seller to perform or observe any term,
provision, covenant or condition hereunder on the part of Seller to be
performed or observed including, without limitation, the Assignment and
Assumption Agreement, the Bill of Sale, and Seller's Non-Compete
Agreement;
(c) any Liabilities and Obligations of Seller not specifically
and expressly assumed by Purchaser hereunder;
(d) any Liabilities and Obligations imposed on Purchaser due
to Seller's failure to comply with any applicable bulk transfer law.
In the event of any claim by Purchaser under this Article XII,
Purchaser shall be entitled to exercise all remedies provided by law and/or
equity with respect thereto, subject, however, to the limitations set forth
below. In addition Purchaser shall be entitled to offset against amounts due
under the Note, the amount of such claim, but only in accordance with the
following procedure:
(a) Purchaser shall give written notice of such claim to
Seller, describing the claim in reasonable detail;
(b) From and after the date such notice has been delivered,
Purchaser then can offset any amounts due Seller under the Note against
the amount of such claim provided that Purchaser pays the amount offset
into escrow with an independent third party agreed to by Seller and
Purchaser (the "Escrow Agreement")to be held pending resolution of the
claim. Thus, Purchaser will continue to make payments on the Note when
due, but the amount of such payments will be paid into escrow rather
than to Seller;
(c) The amounts will be held by the escrow agent in accordance
with the form of Escrow Agreement attached hereto as Exhibit N. The
parties will enter into the Escrow Agreement with a bank or other
independent financial institution to provide the escrow services
promptly upon notice of a claim being delivered.
12.2 Limitations. Provided that there has been no knowing and
intentional misrepresentation of a material fact or failure to disclose a
material fact by Seller, and no knowing and intentional failure to perform by
Seller, the indemnification obligations of Seller are subject to the following
limitations:
(a) No claim for indemnification can be made by Purchaser
unless and until the amount of damages incurred by Purchaser, in the
aggregate, for all claims asserted, exceeds $50,000. Once such amount
has been exceeded, Purchaser may recover indemnifiable damages only to
the extent that such damages exceed said amount. Notwithstanding the
foregoing, the limitations set forth in this subpart (a) shall not
apply to Seller's obligations under 2.3(a) (relating to satisfying
Liabilities
<PAGE>
and Obligations owed to employees) under 2.3(b) (relating to
Liabilities and Obligations to suppliers and creditors), and 2.7
(relating to prorations and costs).
(b) The total amount recoverable from the Seller, in the
aggregate, for all claims asserted, shall not exceed $6,500,000.
ARTICLE XIII
INDEMNIFICATION BY PURCHASER AND GUARANTOR
13.1 Indemnification. Purchaser and Guarantor hereby agree that,
notwithstanding the Closing, the delivery of instruments of conveyance, and
regardless of any investigation at any time made by or on behalf of any party
hereto or of any information any party hereto may have in respect thereof,
Purchaser and Guarantor will indemnify, save and hold Seller and Seller's
officers, directors, employees and shareholders harmless from and against any
and all liabilities, losses, damages, claims, deficiencies, costs and expenses
(including, without limitation, reasonable attorney fees and other costs and
expenses incident to any suit, action or proceeding) arising out of or resulting
from and will pay to Seller the amount of damages suffered thereby together with
any amount which it may pay or become obligated to pay on account of:
(a) the breach or inaccuracy of any warranty or representation
by Purchaser herein; or
(b) any failure of the Purchaser to perform or observe any
term, provision, covenant or condition hereunder on the part of
Purchaser to be performed or observed including, without limitation,
the Note, the Assignment and Assumption Agreement and the Consulting
Agreement.
In the event of any claim by Seller under this Article XIII, Seller
shall be entitled to exercise all remedies provided by law and/or equity with
respect thereto, subject, however, to the limitations set forth below.
13.2 Limitations. Provided that there has been no knowing and
intentional misrepresentation of a material fact or failure to disclose a
material fact by Purchaser, and no knowing and intentional failure to perform by
Purchaser, the indemnification obligations of Purchaser are subject to the
following limitation:
(a) No claim for indemnification can be made by Seller unless
and until the amount of damages incurred by Seller, in the aggregate,
for all claims asserted, exceeds $50,000. Once such amount has been
exceeded, Seller may recover indemnifiable damages only to the extent
that such damages exceed said amount.
<PAGE>
ARTICLE XIV
NATURE AND SURVIVAL OF REPRESENTATIONS
All statements contained in any certificates delivered by or on behalf
of Seller or Purchaser pursuant to this Agreement or in connection with the
transactions contemplated hereby shall be deemed representations and warranties
by Seller or Purchaser hereunder. All representations and warranties and
agreements made by Seller or Purchaser or Guarantor in this Agreement or in any
certificates delivered pursuant hereto shall survive the Closing hereunder (and
any investigation at any time made by or on behalf of Seller or Purchaser), for
a period of eighteen (18) months after the Closing Date; provided, however, that
the representations and warranties made by Seller in Section 6.1 (Seller), and
6.2 (Title) shall survive without time limitation, and that the representations
and warranties made by Purchaser in Section 7.1 (Organization and Standing) and
Section 7.2 (Authority) shall survive without time limitation.
ARTICLE XV
NOTICES
All notices, requests, demands, and other communications hereunder
shall be in writing and shall be deemed to have been duly given if delivered or
mailed first-class postage prepaid:
(a) To the Seller or Shareholders:
Video Game Exchange, Inc.
7007 Eagle Road
Middleburg Heights, OH 44130
Attn: Mark Lamb
with a copy thereof to:
Baker & Hostetler
3200 National City Center
Cleveland, Ohio 44114
Attn: Robert G. Markey, Esq.
(b) To Purchaser:
Grow Biz International, Inc.
4200 Dahlberg Drive
Minneapolis, Minnesota 55422-4837
Attn.: Ronald G. Olson
<PAGE>
with a copy thereof to:
Gray Plant Mooty
3400 City Center
33 South Sixth Street
Minneapolis, Minnesota 55402
Attn.: Bruce W. Mooty, Esq.
or to such other address or to such other person as Purchaser or Seller shall
have last designated by notice to the other.
ARTICLE XVI
MODIFICATION
This Agreement contains the entire agreement between the parties hereto
with respect to the transactions contemplated herein and shall not be modified
or amended except by an instrument in writing signed by or on behalf of the
parties hereto.
ARTICLE XVII
EXPENSES
Whether or not the transactions contemplated hereby are consummated,
each of the parties hereto shall pay its own expenses incurred in connection
with the authorization, preparation, execution or performance of this Agreement
and all transactions contemplated hereby, including without limitation all fees
and expenses of agents, representatives, counsel and accountants.
ARTICLE XVIII
ASSIGNMENT
This Agreement shall not be assignable by any party hereto without the
prior written consent of the other party.
ARTICLE XIX
OHIO LAW TO GOVERN
This Agreement shall be deemed to have been entered into in Cuyahoga
County, Ohio and the laws of the State of Ohio shall govern the validity of this
Agreement, the construction of its terms and the interpretation of the rights
and duties of the parties. The parties agree that any action arising out of or
related to this Agreement and the documents (other than the Non-Compete
Agreements) delivered pursuant to this Agreement shall be venued in the federal,
state or local courts located in, or otherwise, having jurisdiction over
Cuyahoga County, Ohio and the parties hereby consent to personal jurisdiction in
such courts and waive any objection based on Forum Non Conveniens and any
objection to jurisdiction or venue of any action instituted hereunder.
<PAGE>
Purchaser and Guarantor hereby consent to the personal jurisdiction of
the United States District Court for the Northern District of Ohio and any of
the courts of Cuyahoga County, in the State of Ohio in any action, suit or
proceeding arising under or in connection with this Agreement (including,
without limitation, actions, suits and proceedings in connection with the
enforcement of any judgment) and agrees that any such action suit or proceeding
shall be venued in any of such courts and that service of process or notice in
any such action, suit or proceeding shall be effective if in writing and sent by
certified or registered mail, return receipt requested, postage prepaid, as
provided in Article XV.
ARTICLE XX
COUNTERPARTS
This Agreement may be executed in any number of counterparts, each of
which shall be deemed an original but all of which together shall constitute one
and the same instrument.
ARTICLE XXI
HEADINGS
The headings in this Agreement are for convenience of reference only
and shall not be deemed to alter or affect any provision thereof. Reference to
numbered "articles," "sections," "paragraphs" and "subparagraphs," and to
lettered "Exhibits" refer to articles, sections, paragraphs and subparagraphs of
this Agreement and Exhibits annexed thereto.
ARTICLE XXII
ACCESS TO BOOKS AND RECORDS
Under the terms of this Agreement, Purchaser is receiving some of the
books and records which relate to Seller's business relating to the Assets,
while Seller is retaining other records. Each party agrees that for a period of
three (3) years from the Closing Date, said party shall preserve any books and
records relating to the Assets and the related business, and that during such
period it will afford to the other party access to all such books and records at
reasonable business hours and upon reasonable notice. After the termination of
said three (3)-year period each party shall be free to dispose of any such
records in such form as it pleases, unless the other party has requested said
records. If the other party has made such a request, the party receiving the
request either shall give to the requesting party the originals or copies of
such records, or may retain such records subject to the requesting party's
continuing right to inspect the same.
ARTICLE XXIII
JOINT AND SEVERAL LIABILITY
All agreements, covenants, representations, warranties and obligations
of Seller hereunder shall be joint and several obligations of VGE and VFV.
<PAGE>
ARTICLE XXIV
PUBLIC ANNOUNCEMENTS
Seller and Purchaser will consult with each other before issuing any
press release or otherwise making any public statement with respect to the
execution or closing of this Agreement or the transactions contemplated hereby,
and neither Seller nor the Purchaser shall issue any such press release or make
any such public statement prior to such consultation.
IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement as of the date first above written.
GROW BIZ GAMES, INC.
By /s/ Gaylen L. Knack
------------------------------------
Its Vice President/General Counsel
GROW BIZ INTERNATIONAL, INC.
By /s/ Gaylen L. Knack
------------------------------------
Its Vice President/General Counsel
VIDEO GAME EXCHANGE, INC.
By /s/ Mark Lamb
------------------------------------
Its President
VIDEO FRANCHISE VENTURES, INC.
By /s/ Mark Lamb
------------------------------------
Its President
<PAGE>
The Registrant agrees to provide supplementally copies of the following exhibits
to the Asset Purchase Agreement, dated August 15, 1997 to the Commission upon
request.
INDEX
Exhibit A - Contracts
Exhibit B - Equipment
Exhibit C - Excluded Assets
Exhibit D - Intellectual Property
Exhibit F - Leases
Exhibit G - Orders
Exhibit H - Purchase Price Allocation
Exhibit I - Non-Compete Agreements
Exhibit J - Mark Lamb Consulting Agreement
Exhibit K - Promissory Note (See Exhibit 10.4)
Exhibit 3.1 (a) - Assignment and Assumption Agreement
Exhibit L-1 - Opinion of Seller's Counsel
Exhibit L-2 - Opinion of Purchaser's Counsel
Exhibit M - Representations and Warranties: Exceptions and Disclosures
Section 6.2 - Title
Section 6.4 and 6.12 - Liabilities; Litigation
Section 6.5 - Other Operations
Section 6.13 - Compliance with Laws
Section 6.14 - Intellectual Property
Section 6.15 - Labor Controversies
<PAGE>
Exhibit M - Representations and Warranties: Exceptions and Disclosures
(continued)
Section 6.16 - Pension and Profit Sharing Plans; Benefits
Section 6.18 - Conduct of Business
Section 6.19 - Employees
Section 6.22 - Suppliers
Section 6.23 - Products and Warranties
Section 6.25 - Insurance
Exhibit N - Escrow Agreement
EXHIBIT 10.2
FIRST AMENDMENT TO
CREDIT AGREEMENT AND REVOLVING NOTE
This Amendment, dated as of August 8, 1997, is made by and
between GROW BIZ INTERNATIONAL, INC., a Minnesota corporation (the "Borrower"),
and TCF NATIONAL BANK MINNESOTA, f/k/a TCF Bank Minnesota fsb, a national
banking association (the "Bank").
RECITALS
The Borrower and the Bank have entered into a Credit Agreement
dated as of July 31, 1996 (the "Credit Agreement"). Capitalized terms used in
these recitals have the meanings given to them in the Credit Agreement unless
otherwise specified.
The Borrower has requested that the Bank (i) extend the
Maturity Date of the existing revolving loan from July 31, 1997 to July 31,
1998, (ii) make an additional term loan of $4,500,000 to the Borrower and (iii)
make certain amendments to the Credit Agreement.
The Bank is willing to grant the Borrower's request pursuant
to the terms and upon the conditions set forth herein.
NOW, THEREFORE, in consideration of the premises and of the
mutual covenants and agreements herein contained, the parties hereto hereby
agree as follows:
1. The Revolving Loan. Section 3.1 (a) of the Credit Agreement
is amended by deleting "July 31, 1997" as it appears in the third line and
replacing it with "July 31, 1998."
2. Late Payment Fee. Section 4.6 of the Credit Agreement is
deleted and Section 3.1 (g) is added to the Credit Agreement as follows:
"Section 3.1 (g) Late Fees. If any amount due hereunder or
under the Revolving Note or other Obligations (whether principal,
interest, fees, costs, expenses or otherwise) is paid more than thirty
(30) days after the stated due date for such payment, the Borrower
shall pay to the Bank, on demand, a late payment fee equal to five
percent (5%) of the past due amount."
3. The Term Loan. Section 3.2 is added to the Credit Agreement
as follows:
"Section 3.2 The Term Loan (Single Advance Term Loan).
(a) General Terms and Conditions. The Bank agrees, on the
terms and subject to the conditions herein set forth, to make on the
Term Loan Funding Date a single advance term loan to the Borrower in
the amount of $4,500,000 (the "Term
<PAGE>
Loan"). The Term Loan shall have a term of five (5) years and shall be
repayable in equal principal payments of $75,000 per month, beginning
on October 10, 1997, and continuing thereafter on the tenth day of each
month until September 10, 2002, at which time a final payment of the
remaining unpaid principal balance and all accrued and unpaid interest
thereon shall be made. Interest on the Term Loan shall be payable
monthly on the tenth day of the next succeeding month and at maturity
or earlier prepayment in full. Payments of interest shall begin on
September 10, 1997.
(b) The Term Loan Note. The Term Loan shall be evidenced by,
and payable with interest in accordance with, the Borrower's promissory
note of even date herewith, payable to the order of the Bank in the
original principal amount of $4,500,000 and otherwise in substance and
form acceptable to the Bank in its sole discretion, as attached hereto
as Exhibit A (as the same may hereafter be extended, renewed, amended
or replaced from time to time, the "Term Loan Note").
(c) Normal Rate of Interest. The principal balance of the Term
Loan Note outstanding from time to time shall bear interest from the
Term Loan Funding Date until paid in full at an annual rate which shall
at all times be equal to one-half of one percent (.50%) over the Base
Rate, which annual rate shall change when and as the Base Rate changes;
subject, however, to the imposition of the Default Rate pursuant to
Section 4.5.
(d) Use of Proceeds. The Borrower shall use the proceeds of
the Term Loan to fund the acquisition of the assets of Video Game
Exchange, Inc. by one of its Subsidiaries.
(e) Late Payment Fee. If any installment of interest or
principal on the Term Loan is paid more than ten (10) days after the
stated due date for such installment, a late payment fee shall be due
and payable in the amount of five percent (5%) of the installment so
paid.
(f) Prepayment. The Borrower may, upon at least one Business
Day's prior notice to the Bank, prepay the principal balance of the
Term Loan voluntarily in whole or in part at any time, without premium
or penalty. Prepayments of principal of the Term Loan shall be applied
to installments becoming due and payable thereunder in inverse order of
their respective maturities. No prepayment of the Term Loan shall
suspend or delay any required payments of principal or interest
otherwise due and payable thereunder."
4. Default Rate of Interest. Section 4.5 of the Credit
Agreement is amended as follows:
"Section 4.5 Default Rate of Interest. If an Event of Default
shall occur and continue for a period of 30 days after the Bank has
given notice to the Borrower
<PAGE>
specifying such Event of Default and stating the Bank's intent to
implement the Default Rate (it being understood that such grace period
and notice requirement are conditions only to imposing the Default
Rate), the Borrower shall pay interest on the unpaid principal balance
of the Revolving Note, the Term Loan Note and any other Obligations,
from the first day immediately following the expiration of such 30-day
period until the earlier of payment in full of the Revolving Note, the
Term Loan Note and any other Obligations or the day on which such Event
of Default is cured to the written satisfaction of the Bank, at an
annual rate at all times equal to two percent (2%) over the annual rate
or rates of interest that would otherwise be in effect from time to
time with respect to such Revolving Note, Term Loan Note or any other
Obligations had there been no occurrence of an Event of Default (the
"Default Rate").
5. Subsidiaries. Section 6.4 of the Credit Agreement is
deleted in its entirety and replaced with the following new Section 6.4:
"Section 6.4 Subsidiaries. The Borrower has two (2)
Subsidiaries, Grow Biz Worldwide, Ltd. and Grow Biz Games, Inc."
6. Financial Covenants. Section 7.9 of the Credit Agreement is
deleted in its entirety while Sections 7.8 and 7.10 of the Credit Agreement are
amended and new Sections 7.11 and 7.12 are added as follows:
"Section 7.8 Current Ratio. The Borrower will maintain at all
times the ratio of its Current Assets to Current Liabilities at not
less than 1.25 to 1.00.
Section 7.10 Maximum Total Liabilities to Capital Base. The
Borrower will maintain the ratio of its Total Liabilities to Capital
Base at not more than the ratio set forth below opposite the applicable
period:
Period Maximum Total Liabilities to
------ ----------------------------
Capital Base
------------
Term Loan Funding Date
to 2.50 to 1.00
December 30, 1997
December 31, 1997
to 2.00 to 1.00
December 30, 1998
December 31, 1998
to 1.50 to 1.00
December 30, 1999
December 31, 1999
and thereafter 1.25 to 1.00
<PAGE>
Section 7.11 Minimum Capital Base. The Borrower will maintain
its Capital Base at an amount not less than the amount set forth below
opposite the applicable period:
Period Minimum Capital Base
------ --------------------
Term Loan Funding Date
to $ 9,500,000
December 30, 1998
December 31, 1998
to $14,000,000
December 30, 1999
December 31, 1999
and thereafter
$20,000,000
Section 7.12 Debt Service Coverage Ratio. The Borrower will
maintain at all times the ratio of its Cash Flow Available for Debt
Service to its Debt Service Requirements at not less than 1.50 to 1.00.
For purposes of the foregoing, "Cash Flow Available for Debt Service"
means the pre-tax net income of the Borrower, plus interest expense,
depreciation, amortization and other non-cash charges, and "Debt
Service Requirements" means current maturities of long-term debt,
interest expense of the Borrower and income tax expense."
7. Defined Terms. Capitalized terms used in this Amendment
which are defined in the Glossary of Terms Appendix to the Credit Agreement
shall have the same meanings as defined therein, unless otherwise defined herein
or in the recitals hereto. In addition, the Glossary of Terms Appendix to the
Credit Agreement is hereby amended by adding or substituting, as the case may
be, the following definitions:
"'Compliance Certificate' means a certificate of an officer
of the Borrower in the form of Exhibit B to the First Amendment setting
forth in reasonable detail all relevant information and the
calculations necessary to determine the Borrower's compliance with its
covenants set forth in Sections 7.8, 7.10, 7.11, and 7.12 hereof."
"'First Amendment' means the First Amendment to Credit
Agreement and Revolving Note dated as of August 8, 1997, between the
Borrower and the Bank."
"'Note' or 'Notes' means collectively the Revolving Note and
the Term Loan Note and any other promissory note now or hereafter
evidencing any Obligation."
"'Term Loan' has the meaning given in Section 3.2 hereof."
<PAGE>
"'Term Loan Funding Date' means the date all of the conditions
set forth in Paragraph 10 of the First Amendment are satisfied."
"'Term Loan Note' has the meaning given in Section 3.2 (b)
hereof."
8. Revolving Note. The Revolving Note is amended by deleting
the date "July 31, 1997" as it appears in the fifth line of the first paragraph
thereof and by substituting therefor the date "July 31, 1998", and by deleting
the term "first" from the second line of the second paragraph thereof and by
substituting therefor the term "tenth".
9. No Other Changes. Except as explicitly amended by this
Amendment, all of the terms and conditions of the Credit Agreement shall remain
in full force and effect.
10. Conditions Precedent. This Amendment shall be effective
when the Bank shall have received an executed original hereof, together with
each of the following, each in substance and form acceptable to the Bank in its
sole discretion:
(a) The Term Loan Note, as attached hereto as Exhibit A, duly
executed on behalf of the Borrower.
(b) A Certificate of the Secretary of the Borrower certifying
as to (i) the resolutions of the board of directors of the Borrower
approving the execution and delivery of this Amendment, (ii) the fact
that the articles of incorporation and bylaws of the Borrower, which
were certified and delivered to the Lender pursuant to the Certificate
of Authority of the Borrower's secretary or assistant secretary dated
as of July 30, 1996 continue in full force and effect and have not been
amended or otherwise modified except as set forth in the Certificate to
be delivered, and (iii) certifying that the officers and agents of the
Borrower who have been certified to the Lender, pursuant to the
Certificate of Authority of the Borrower's secretary or assistant
secretary dated as of July 30, 1996, as being authorized to sign and to
act on behalf of the Borrower continue to be so authorized or setting
forth the sample signatures of each of the officers and agents of the
Borrower authorized to execute and deliver this Amendment and all other
documents, agreements and certificates on behalf of the Borrower.
(c) An opinion of the Borrower's counsel as to the due
authorization, execution and delivery of the First Amendment and the
Term Loan Note, the enforceability of such documents against the
Borrower and as to such other matters as the Lender shall require.
(d) Copies of the acquisition agreement with Video Game
Exchange, Inc. (the "Seller") and the proposed note for the $2,000,000
payable by a Subsidiary of the Borrower to the Seller evidencing the
deferred portion of the purchase price for the Seller's assets.
<PAGE>
(e) The Borrower requests, in accordance with Section 4.1 of
the Credit Agreement, that the Lender make the Term Loan advance.
(f) Such other matters as the Bank may require.
11. Representations and Warranties. The Borrower hereby
represents and warrants to the Bank that all of the representations and
warranties contained in Article VI of the Credit Agreement are correct on and as
of the date hereof as though made on and as of such date, except to the extent
that such representations and warranties relate solely to an earlier date.
12. References. All references in the Credit Agreement to
"this Agreement" shall be deemed to refer to the Credit Agreement as amended
hereby; and any and all references in the Security Documents to the Credit
Agreement shall be deemed to refer to the Credit Agreement as amended hereby.
13. No Waiver. The execution of this Amendment and acceptance
of any documents related hereto shall not be deemed to be a waiver of any
Default or Event of Default under the Credit Agreement or breach, default or
event of default under any Security Document or other document held by the Bank,
whether or not known to the Bank and whether or not existing on the date of this
Amendment.
14. Release. The Borrower hereby absolutely and
unconditionally releases and forever discharges the Bank, and any and all
participants, parent corporations, subsidiary corporations, affiliated
corporations, insurers, indemnitors, successors and assigns thereof, together
with all of the present and former directors, officers, agents and employees of
any of the foregoing, from any and all claims, demands or causes of action of
any kind, nature or description, whether arising in law or equity or upon
contract or tort or under any state or federal law or otherwise, which the
Borrower has had, now has or has made claim to have against any such person for
or by reason of any act, omission, matter, cause or thing whatsoever arising
from the beginning of time to and including the date of this Amendment, whether
such claims, demands and causes of action are matured or unmatured or known or
unknown.
15. Costs and Expenses. The Borrower hereby reaffirms its
agreement under Section 10.5 of the Credit Agreement to pay or reimburse the
Bank on demand for all costs, expenses and fees incurred by the Bank in
connection with the Credit Agreement, the Security Documents and all other
documents contemplated thereby, including without limitation all reasonable fees
and disbursements of legal counsel. Without limiting the generality of the
foregoing, the Borrower specifically agrees to pay all fees and disbursements of
counsel to the Bank for the services performed by such counsel in connection
with the preparation of this Amendment and the documents and instruments
incidental hereto.
<PAGE>
16. Miscellaneous. This Amendment may be executed in any
number of counterparts, each of which when so executed and delivered shall be
deemed an original and all of which counterparts, taken together, shall
constitute one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have caused this
Amendment to be duly executed as of the day and year first above written.
GROW BIZ INTERNATIONAL, INC.
By /s/ David J. Osdoba, Jr.
-----------------------------------
Its Vice President of Finance/CFO
TCF NATIONAL BANK MINNESOTA f/k/a
TCF Bank Minnesota fsb
By /s/ R. James Hancock
-----------------------------------
Its Vice President
And
By /s/ Milli A. Navara
-----------------------------------
Its Vice President
EXHIBIT 10.3
TERM NOTE
$4,500,000 Minneapolis, Minnesota
August 8, 1997
For Value Received, GROW BIZ INTERNATIONAL, INC., a Minnesota
corporation (hereinafter the "Borrower"), promises to pay to the order of TCF
NATIONAL BANK MINNESOTA f/k/a TCF Bank Minnesota fsb, a national banking
association (hereinafter the "Bank"), at its main office at 801 Marquette Avenue
in Minneapolis, Minnesota, or at such other place as the holder hereof may from
time to time in writing designate, in lawful money of the United States of
America, the principal sum of Four Million Five Hundred Thousand Dollars
($4,500,000), together with interest on the principal balance of this Note
outstanding from time to time from the Term Loan Funding Date until paid in full
at an annual rate determined, and calculated, pursuant to the Credit Agreement.
This Note is the "Term Loan Note" defined in and is subject to
the terms and provisions of the Credit Agreement dated as of July 31, 1996, by
and between the Borrower and the Bank, as amended by the First Amendment to
Credit Agreement dated as of even date herewith (as the same may hereafter be
amended, supplemented or restated, the "Credit Agreement"). The Credit Agreement
provides for the acceleration of the principal balance hereof upon the
occurrence of certain events stated therein.
Interest accruing on the principal of this Note shall be due
and payable monthly, on the tenth day of the next succeeding month and at
maturity or earlier prepayment in full. Principal payments shall be payable in
sixty (60) equal consecutive monthly installments of $75,000 each, commencing on
October 10, 1997, and continuing thereafter on the tenth day of each month until
September 10, 2002, at which time a final payment of the remaining unpaid
principal balance and all accrued and unpaid interest thereon shall be made.
This Note is issued in and shall be governed by the
substantive laws (but not conflicts laws) of the State of Minnesota.
This Note is made in reliance on Minn. Stat. ss. 334.01,
subd. 2.
No delay or omission on the part of the holder in exercising
any right hereunder shall operate as a waiver of such right or of any other
remedy under this Note. A waiver on any one occasion shall not be construed as a
waiver of any such right or remedy on a future occasion.
<PAGE>
All makers, endorsers, sureties, guarantors and other
accommodation parties hereby waive presentment for payment, protest and notice
of nonpayment and consent, without affecting their liability hereunder, to any
and all extensions, renewals, substitutions and alterations of any of the terms
of this Note and to the release of or failure by the Bank to exercise any rights
against any party liable for or any property securing payment thereof.
GROW BIZ INTERNATIONAL, INC.
By /s/ David J. Osdoba, Jr.
-----------------------------------
Its Vice President of Finance/CFO
EXHIBIT 10.4
NON-NEGOTIABLE
PROMISSORY NOTE
$2,000,000 Minneapolis, Minnesota
August 15, 1997
FOR VALUE RECEIVED, the undersigned Grow Biz Games, Inc. ("Maker"), a
Minnesota corporation, hereby promises to pay to the order of Video Games
Exchange, Inc. ("Payee"), an Ohio corporation, at Merrill Lynch acct
#930-4-019012, or at such other place as may be designated from time to time in
writing by the holder hereof, the principal sum of Two Million Dollars
($2,000,000) with simple interest on the outstanding principal balance beginning
on the date hereof at an annual floating rate of one-half percent (1/2%) in
excess of the prime rate as announced from time to time by Norwest Bank
Minneapolis, N.A.
Repayment of this Note shall be made in 24 monthly payments of
principal equal to $83,333 plus interest beginning on September 1, 1997 and
ending on August 1, 1999. Prepayments can be made at any time, and from time to
time, at the election of Maker. Any prepayment shall be applied first to accrued
but unpaid interest and the remainder to the principal portions of the monthly
installments due under this Note in the inverse order that the monthly
installments become due.
Maker will be in default if any of the following happens:
(a) Maker fails to make any payment when due and fails to cure
said nonpayment within five (5) days of written notice from Payee;
(b) Maker fails to perform promptly any material covenant
provided in this Note or any agreement related to this Note;
(c) Any representation or statement made or furnished to Payee
by maker or on Maker's behalf is false or misleading in any material
respect;
(d) Maker becomes insolvent, a receiver is appointed for any
part of Maker's property, Maker makes an assignment for the benefit of
creditors, or any proceeding is commenced either by Maker or against
Maker under any bankruptcy or insolvency laws; or
(e) Any of the events described in this default section occurs
with respect to any guarantor of this Note.
If any default, other than a default in payment, is curable and if Maker has not
previously been given a notice of a breach of the same provision of this Note,
it may be cured (and no
<PAGE>
event of default will have occurred) if Maker, after receiving written notice
from Payee demanding cure of such default, (a) cures the default within fifteen
(15) days; or (b) if the cure requires more than fifteen (15) days, immediately
initiates steps which Payee deems in Payee's reasonable discretion to be
sufficient to cure the default and thereafter continues and completes all
reasonable and necessary steps sufficient to produce compliance as soon as
reasonably practical.
Upon default, Payee may declare the entire unpaid principal balance on
this Note and all accrued unpaid interest immediately due, without notice, and
then Maker will pay that amount. Maker will pay Payee Payee's reasonable
attorneys' fees and Payee's legal expenses whether or not there is a lawsuit,
including attorneys' fees and legal expenses for bankruptcy proceedings
(including efforts to modify or vacate any automatic stay or injunction),
appeals, and any anticipated post-judgment collection services. If not
prohibited by applicable law, Maker also will pay any court costs, in addition
to all other sums provided by law. This Note has been delivered to Payee and
accepted by Payee in the State of Ohio. If there is a lawsuit, Maker agrees upon
Payee's request to submit to the jurisdiction of the courts of Cuyahoga County,
the State of Ohio. This Note shall be governed by and construed in accordance
with the laws of the State of Ohio.
This Note is given to evidence the purchase price owed by Maker to
Payee for the purchase of the assets of Payee, pursuant to the terms of that
certain Asset Purchase Agreement (the "Asset Purchase Agreement") dated August
15, 1997, between Maker and Payee. This Note is non-negotiable and subject to
and governed by the terms and provisions of the Asset Purchase Agreement,
including rights of offset as set forth therein.
Payee shall have the right to assign this Note to any of the present
shareholders of Payee or of Video Franchise Ventures, Inc., an Ohio corporation,
without the consent of Maker; provided that for the assignment to be effective,
Payee must give written notice to Maker of any such assignment including
directing where subsequent payments are to be made; and provided further that
notwithstanding any assignment, this Note shall continue to be subject to and
governed by the terms and provisions of the Asset Purchase Agreement, including
rights of offset as set forth therein.
IN WITNESS WHEREOF, the undersigned has caused this Note to be executed
on the date first above written.
GROW BIZ GAMES, INC.
By /s/ David J. Osdoba, Jr.
-----------------------------------
Its Vice President of Finance/CFO
