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): June 19, 1996
AMERICAN CINEMASTORES INC.
(Exact name of registrant as specified in its charter)
DELAWARE 0-23138 95-4374952
(State or other jurisdiction (Commission (I.R.S. Employer
of incorporation) File Number) Identification No.)
1543 7TH STREET, SUITE 400, SANTA MONICA, CALIFORNIA 90401
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (310) 394-6444
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Former name or former address, if changed since last report
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Item 5. Events.
As of June 19, 1996, Registrant and two newly formed wholly-owned
subsidiaries of Registrant (the "Merger Subs") entered into Agreements and Plans
of Merger (collectively, the "Merger Agreements") with each of (i)
Superior/Panoramic Hand Prints Inc. ("Superior"), its sole shareholder (the
"Superior Stockholder") and Robert J. Strem, individually ("Strem") and (ii)
Just Jackets Corporation ("JJC," and together with Superior, the "Target
Companies"), its shareholders (the "JJC Stockholders," and together with the
Superior Stockholder, the "Target Company Stockholders"), Strem and Bruce Sacks,
individually ("Sacks," and together with Strem, the "Principals").
Pursuant to, and upon the terms and conditions of the Merger Agreements, at
the Effective Time (as defined below), each of the Target Companies will be
merged with and into each of the Merger Subs (the "Mergers"), and all
outstanding shares of the capital stock of the Target Companies will
automatically be converted into the right to receive, as consideration, an
aggregate of $2.04 million and 1,025,000 shares of Registrant's Common Stock. At
the closing of the Mergers, the Target Company Stockholders will receive
1,025,000 shares of the Registrant's Common Stock, constituting approximately
8.5% of the then outstanding shares of common stock of Registrant.
The Target Companies are principally involved in the production of value
added garments, beach and golf towels and wearables (including denim) by means
of the application of graphic images, screenprinting and embroidery (the
"Businesses"). Following the Mergers, the Merger Subs will change their
respective names to "Superior/Panoramic Hand Prints Inc." and "Just Jackets
Corporation," respectively, and will conduct the respective Businesses under
such names.
The Mergers will be effective as of the date and time of the filing of
agreements of merger with the Secretary of State of California (the "Effective
Time") in accordance with the California General Corporation Law. The Merger
Agreements provide that such filings will be made as promptly as practicable
following satisfaction of, or waiver of compliance with, certain conditions
precedent, as more particularly set forth in the Merger Agreements attached
hereto as Exhibits, including principally the following:
(a) Absence of any injunction or other legal restraint in connection with
either of the Mergers which in the judgment of Registrant or the Target Company
Stockholders makes it inadvisable to proceed with the Mergers;
(b) Accuracy of the representations and warranties of the Principals and
the Target Company Stockholders;
(c) Completion by Registrant of an equity financing resulting in sufficient
net proceeds to fund the Cash Consideration and provide working capital of at
least $1,000,000 for the Merger Subs (the "Equity Financing");
(d) Absence of material adverse change in the financial or business
condition of the Target Companies;
(e) Receipt and satisfactory review by Registrant of Superior's audited
financial statements for the year ended December 31, 1995;
(f) Delivery to the Principals by Registrant or Merger Subs of original
guaranties and/or releases from liability under guaranties given by the
Principals to certain creditors of the Target Companies and/or execution of
Cross-Indemnity Agreements (as defined below) by Registrant and the Principals,
providing, in part, for the indemnification of the Principals against liability
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under any guaranty which has not been so returned or released except as
otherwise limited by such agreements;
(g) Receipt by the Principals of waivers by the bank that provides credit
facilities to the Target Companies as to any defaults in complying with the
credit agreements with such bank, and (ii) Strem shall have indemnified the
Registrant Parties against loss or liability resulting from material undisclosed
defaults by Superior under credit and financing agreements to be assumed by the
Merger Sub into which Superior is merged;
(h) The reported closing bid price per share of Registrant's Common Stock
for the last NASDAQ trading day prior to the Effective Time to be not less than
$2.65 per share; and
(i) Consummation of the Mergers by July 31, 1996 or such later date to
which all parties to the Merger Agreements agree in writing.
The Merger Agreements may be terminated by the Registrant Parties, on the
one hand, or by the Target Company Stockholders, on the other, prior to the
Effective Time on certain grounds, including the following: (i) subject to an
exception, the Mergers are not consummated by July 31, 1996 (or such later date
to which all parties to the Merger Agreements agree in writing), or (ii) an
order or decree permanently restraining a Merger is issued, or (iii) the
terminating parties have reasonably determined that a Merger is inadvisable or
impractical by reason of the initiation or threat of material litigation against
Registrant or a Target Company, or (iv) the terminating parties have determined
that, subject to certain exceptions, there has been a material adverse change in
the business, assets or financial condition of Registrant or a Target Company
since December 31, 1995 or (v) a breach of a material provision of a Merger
Agreement by a party which is not timely remedied by such breaching party.
In certain circumstances, including termination of the Merger Agreements on
certain bases, the parties will be obligated to pay or reimburse the other
parties for actual costs (including professional fees) and expenses incurred by
such other parties in connection with the Mergers, in addition to other rights
the party may have.
For illustrative purposes only, attached as Schedule I to this report are
unaudited pro forma condensed combined financial statements (the "Pro Forma
Financials"), which assume a business combination among Registrant and the
Target Companies accounted for as a purchase, as more particularly described in
the "Notes to Pro Forma Financials." The Pro Forma Financials are, however, not
necessarily indicative of the operating results or financial position that would
have occurred had the Mergers become effective as of the beginning of the
periods presented, nor is it necessarily indicative of future operating results
or financial position. Specifically, the Merger Financials do not reflect any
sales attrition, cost savings or synergies which may result from the Mergers.
Simultaneously with the closing of the anticipated Mergers, Registrant has
agreed to take reasonable action to cause the following to occur:
1. Amendment of Registrant's by-laws to increase the number of directors
constituting Registrant's board of directors from two (2) to five (5) directors
and the nomination and election, as directors to fill such vacancies, of Strem,
a designee of The Boston Group, L.P. (which will act as the Company's agent in
connection with the Equity Financing) and two other persons jointly designated
by Strem and Registrant's President, Steve Natale ("Natale");
2. Election of each of Strem and Sacks as Presidents of the
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respective Merger Subs, whereupon Registrant shall enter into a three-year
employment agreement with Strem employing Strem as president of the Merger Sub
into which Superior is merged and the Merger Sub into which JJC is merged shall
enter into a one-year employment agreement with Sacks employing Sacks as
president of such Merger Sub. Strem is president and a director of Superior and
a trustee of the Target Company Stockholders and Sacks is an officer of JJC and
a trustee of a JJC Stockholder. The Superior Stockholder will receive an
aggregate of 975,000 shares of Registrant's Common Stock and the JJC
Stockholders will receive an aggregate of 50,000 shares of Registrant's Common
Stock upon consummation of the Mergers;
3. Execution of Cross-Indemnity Agreements by Registrant and the Target
Company Stockholders (collectively, the "Cross-Indemnity Agreements"), whereby
Registrant, on the one hand, and the Target Company Stockholders, on the other
hand, indemnify the other party with respect to certain obligations of the
Target Companies previously guaranteed by the Target Company Stockholders;
4. Execution of Registration Rights Agreements with the Target Company
Stockholders (collectively, the "Registration Rights Agreements"), whereby
Registrant grants certain registration rights under the Securities Act of 1933,
as amended, as to shares of Registrant's Common Stock issued to the Target
Company Stockholders pursuant to the Merger Agreements;
5. Steven Natale, president, director and a principal stockholder of
Registrant, and the Superior Stockholder shall enter into a Lock-Up Agreement
whereby each agrees, until the first anniversary of the Closing Date, not to
transfer or dispose of 750,000 and 1,000,000 shares, respectively, of
Registrant's Common Stock; and
6. Resignation of Mr. Gill Champion (the current Chairman of the Board of
Directors and Chief Executive Officer of Registrant) as a director and officer
of Registrant, effective at the Effective Time.
The sources of the Merger Consideration will be authorized but unissued
shares of Registrant's Common Stock and the net proceeds of exercises of
outstanding redeemable warrants of Registrant pursuant to a warrant solicitation
to be made by the Registrant.
The amount of the Merger Consideration paid by Registrant was determined by
negotiations among the representatives of Registrant and the Target Companies.
There can be no assurance that the Mergers will be consummated or that, if
consummated, that the operations of the Merger Subs will generate significant
revenues or net income for the Company.
The descriptions of the Merger Agreements and the other agreements
described herein are qualified in their entirety by reference to the copies of
the Merger Agreements and the other agreements which are filed exhibits to this
Report and which are incorporated herein by reference.
Item 7. Financial Statements, Pro Forma Financial Information and Exhibits.
A. Financial Statements of the Business Acquired.
1. Financial statements of the Target Companies will be filed with the SEC
in compliance with the Item 2 reporting requirements of Form 8K in the event the
Mergers are consummated and become effective in accordance with the California
General Corporation Law.
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B. Pro Forma Financial Information.
1. Financial statements of Registrant will be filed with the SEC in
compliance with the Item 2 reporting requirements of Form 8K in the event the
Mergers are consummated and become effective in accordance with California
General Corporation Law.
C. Exhibits.
1. Exhibit 2.1 - Agreement and Plan of Merger, dated as of June 19, 1996,
by and among Registrant, its subsidiary, Superior, Strem and the Superior
Stockholder (the "Superior Merger Agreement").
2. Exhibit 2.2 - Omitted Schedules and Exhibits of the Superior Merger
Agreement.
3. Exhibit 2.3 - Agreement and Plan of Merger, dated as of June 19, 1996,
by and among Registrant, its subsidiary, JJC, the Target Company Stockholders,
and the Principals (the "JJC Merger Agreement").
4. Exhibit 2.4 - Omitted Schedules and Exhibits of the JJC Merger
Agreement.
5. Exhibit 10.1 - Registration Rights Agreement, to be dated as of the
closing, between Registrant and the Superior Stockholder.
6. Exhibit 10.2 - Registration Rights Agreement, to be dated as of the
closing, between Registrant and the Target Company Stockholders.
7. Exhibit 10.3 - Cross-Indemnification Agreement, to be dated as of the
closing, among Registrant and each of Strem and Janet Strem.
8. Exhibit 10.4 - Cross-Indemnification Agreement, to be dated as of the
closing, among Registrant and each of Strem, Janet Strem, Sacks and Sharon
Sacks.
9. Exhibit 10.5 - Lock Up Agreement, to be dated as of the closing, by and
among Natale, the Superior Stockholder and Registrant.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
AMERICAN CINEMASTORES, INC.
By:/s/ Steve Natale
________________________________
Steve Natale, President
Dated: June 25, 1996
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<PAGE>
SCHEDULE I to FORM 8-K
<TABLE>
<CAPTION>
American CinemaStores Inc., Superior/Panoramic Hand Prints Inc., and Just Jackets Corporation
Unaudited Pro Forma Condensed Combined Balance Sheets at
May 31, 1996 for American CinemaStores Inc. and
December 31, 1995 for Superior/Panoramic Hand Prints Inc. and Just Jackets Corporation
American Just Pro Forma
CinemaStores Superior Jackets Adjustments Combined
ASSETS
Current assets
<S> <C> <C> <C> <C> <C>
Cash and equivalents ...... $ 480,960 $ -- $ -- $ -- $ 480,960
Accounts receivable (net) . 387,885 830,878 271,611 -- 1,363,310
Inventory (net) ........... 60,085 969,312 144,547 150,000 1,451,008
Prepaid and other ......... 5,030 77,080 2,100 -- 84,210
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Total current assets ....... 933,960 1,877,270 418,258 150,000 3,379,488
Property, plant and
equipment (net) ......... 103,050 886,489 32,027 250,000 1,271,566
Goodwill (net) ............. -- -- -- 3,476,884 3,476,884
Other assets ............... 250,664 27,989 1,250 -- 279,303
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Total assets ............... $ 1,287,674 $ 2,791,748 $ 451,535 $ 3,876,884 $ 8,407,841
=========== =========== =========== =========== ===========
Liabilities and
Stockholders' Equity
Current liabilities
Accounts payable .......... $ 166,185 $ 847,525 $ 171,057 $ --
$ 1,184,767
Accrued liabilities ....... 38,447 75,343 1,320 -- 115,110
Notes payable, bank ....... -- 967,948 266,606 -- 1,234,554
Current portion of
long term debt ............ -- 221,568 -- -- 221,568
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Total current liabilities .. 204,632 2,112,384 438,983 -- 2,755,999
Long term debt ............. -- 372,084 -- -- 372,084
Liability for acquisition
Purchase .................. -- -- -- 2,040,000 2,040,000
Stockholders' equity
Preferred stock ........... -- -- -- -- --
Common Stock .............. 6,892 1,700 5,000 (4,360) 9,232
Additional paid in capital 7,103,552 224,900 -- 2,079,044 9,407,496
Retained earnings(deficit) (6,027,410) 80,680 7,552 (237,800) (6,176,978)
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Total stockholders' equity . 1,083,042 307,280 12,552 1,836,884 3,239,750
Total liabilities and
Stockholders' equity ....... $ 1,287,674 $ 2,791,748 $ 451,535 $ 3,876,884 $ 8,407,841
=========== =========== =========== =========== ===========
(1) Reflects a step-up from revaluation of inventory.
(2) There also will be a revaluation of fixed assets whereby a higher fixed asset level will be established.
(3) Analysis is underway to allocate portions of goodwill to other asset
accounts. The resulting goodwill amount will be amortized over fifteen years.
See accompanying notes to unaudited pro forma condensed combined financial statements.
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
American CinemaStores Inc., Superior/Panoramic Hand Prints Inc. and Just Jackets Corporation
Unaudited Pro Forma Condensed Combined Statements of Income
For The Fiscal Year Ended
May 31, 1996 for American CinemaStores Inc.
and
December 31, 1995 for Superior/Panoramic Hand Prints Inc. and Just Jackets Corporation
American Just Pro Forma
CinemaStores Superior Jackets Adjustments Combined
<S> <C> <C> <C> <C> <C>
Net Sales ........................ $ 714,220 $ 8,457,526 $ 1,238,825 $ -- $ 10,410,571
Cost of Sales .................... 361,123 6,103,283 834,861 -- 7,299,267
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Gross profit ..................... 353,097 2,354,243 403,964 -- 3,111,304
Selling, general and
Administrative expenses ......... 1,869,585 2,078,892 372,668 317,064(1) 4,638,209
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Income(loss) from
Continuing operations ........... (1,516,488) 275,351 31,296 (317,064) (1,526,905)
Interest expense ................. (81,093) 138,356 21,001 -- 78,264
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Income(loss) before taxes
From continuing operations ...... (1,435,395) 136,995 10,295 (317,064) (1,605,169)
Loss from discontinued
Operations ...................... (966,809) (966,809)
Net income(loss) ................. $ (2,402,204) $ 136,995 $ 10,295 $ (317,064) $ (2,571,978)
============ ============ ============ ============ ============
Net (loss) per share:
Loss from continuing operations . $ (0.21) $ (0.13)
Loss from discontinued operations (0.14) (0.08)
------------ ------------
Net loss per share ............... $ (0.35) $ (0.21)
============ =============
Weighted average common
shares outstanding .............. 6,892,638 12,117,638
</TABLE>
(1) Assumes amortization of goodwill or depreciation of increased value of fixed
assets for twelve months.
See accompanying notes to unaudited pro forma condensed combined financial
statements.
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<PAGE>
NOTES TO PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
1. The Merger Financials are presented based on the respective historical
financial statements and notes thereto of the Target Companies disclosed to
Registrant pursuant to due diligence investigations of such Target
Companies. The pro forma condensed combined balance sheet combines
Registrant's May 31, 1996 historical balance sheet with the historical
balance sheets of the Target Companies as at December 31, 1995, assuming
that the Effective Time was May 31, 1996. The pro forma condensed combined
statements of income combine Registrant's historical statements of
operation for the fiscal year ended May 31, 1996 with the corresponding
historical statements of operations of the Target Companies for the fiscal
year ended December 31, 1995, assuming that the Mergers were effective on
the first day of each of the fiscal years ended May 31, 1996 and December
31, 1995.
2. The Merger Financials are also presented based on the assumption that, as
anticipated by the Equity Financing, an aggregate of 5,225,000 shares of
Common Stock of Registrant were issued upon exercise of all outstanding
Redeemable Warrants at an exercise price of $4.00 per Redeemable Warrant
($2.00 per share) and reflect the issuance of the 1,025,000 shares of
Common Stock and the payment of $2,040,000, constituting the Merger
Consideration, to the Target Company Stockholders, in exchange for all of
the outstanding capital stock of the Target Companies, pursuant to the
terms of the Merger Agreements.
Direct transaction costs of approximately $1 million associated with the
merger are to be charged to operations during the quarter fiscal period in
which the Mergers are consummated and are not included in the Merger
Financials.
3. The Target Company Stockholders have elected under Subchapter S of the
Internal Revenue Code of 1986, as amended, to include the income of the
Target Companies of which they are stockholders as their own for income tax
purposes.
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AGREEMENT AND PLAN OF MERGER
dated as of
June 19, 1996
by and among
AMERICAN CINEMASTORES, INC.,
ASCI/SPI ACQUISITION CORP.
AND
SUPERIOR/PANORAMIC HAND PRINTS INC.,
ROBERT J. STREM, individually, and
ROBERT J. STREM and JANET C. STREM, as Trustees
of the STREM FAMILY 1993 TRUST U/T/A 11/9/93.
<PAGE>
TABLE OF CONTENTS
Page
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1. The Merger.............................................................. 2
1.1. The Merger................................................... 2
1.2. Effective Time............................................... 2
1.3. Effect of the Merger......................................... 3
1.4. Articles of Incorporation; By-Laws........................... 3
1.6. Conversion of Securities..................................... 4
2. Representations and Warranties as to Superior........................... 6
2.1. Organization, Standing and Power............................. 6
2.2. Capitalization............................................... 7
2.3. Ownership of Superior Common Stock........................... 8
2.4. Interests in Other Entities.................................. 8
2.5. Authority.................................................... 9
2.6. Noncontravention............................................. 10
2.7. Financial Statements......................................... 11
2.8. Guaranties to Lender......................................... 14
2.9. Absence of Undisclosed Liabilities........................... 14
2.10. Properties.................................................. 15
2.11. Accounts Receivable; Inventories............................ 16
2.12. Absence of Changes.......................................... 17
2.13. Litigation.................................................. 17
2.14. No Violation of Law......................................... 18
2.15. Intangibles................................................. 19
2.16. Tax Matters................................................. 20
2.17. Insurance................................................... 21
2.18. Banks; Powers of Attorney................................... 22
2.19. Employee Arrangements....................................... 22
2.20. ERISA ..................................................... 23
2.21. Certain Business Matters.................................... 23
2.22. Certain Contracts........................................... 24
2.23. Customers and Suppliers..................................... 25
2.24. Business Practices and Commitments.......................... 26
2.25. Approvals/Consents.......................................... 26
2.26. Information as to .......................................... 26
3. Representations and Warranties as to ................................... 28
3.1. Organization, Standing and Power............................. 28
3.2. Interests in Other Entities.................................. 28
3.3. Incorporation Documents and By-Laws.......................... 29
3.4. Capitalization............................................... 29
3.5. Authority.................................................... 32
3.6. Noncontravention............................................. 33
3.7. Absence of Litigation........................................ 34
3.8. Employee Benefit Plans....................................... 34
3.9. Proxy Statement.............................................. 35
3.10. Securities and Exchange Commission Filings;
Financial Statements................................. 36
3.11. Stock Issuable in Merger.................................... 38
3.12. Properties.................................................. 38
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3.13. Absence of Changes.......................................... 39
3.14. No Violation of Law......................................... 40
3.15. Intangibles................................................. 40
3.16. Tax Matters................................................. 41
3.17. Insurance................................................... 42
3.18. Banks; Powers of Attorney................................... 43
3.19. Employee Arrangements....................................... 43
3.20. Certain Business Matters.................................... 44
3.21. Certain Contracts........................................... 45
3.22. Approvals/Consents.......................................... 45
3.23. Information as to ACSI and Subsidiary....................... 46
3.24. Tax Matters................................................. 46
3.25. ACSI Not Foreign-Owned...................................... 48
3.26. Borrowing................................................... 49
4. Indemnification......................................................... 49
4.1. Indemnification by the Trustees and Strem.................... 49
4.2. Indemnification by .......................................... 49
4.3. Direct Claim................................................. 50
4.4. Third Party Claims........................................... 50
4.5. Assistance................................................... 52
4.6. Exclusive Remedy............................................. 52
4.7. Limitations.................................................. 52
5. Covenants............................................................... 53
5.1. Investigation................................................ 53
5.2. Consummation of Transaction.................................. 54
5.3. Lender/Lessors of Superior................................... 55
5.4. Cooperation/Further Assurances............................... 56
5.5. Accuracy of Representations.................................. 57
5.6. Notification of Certain Matters.............................. 57
5.7. Proxy Statement; Registration Statement...................... 58
5.8. Broker ..................................................... 60
5.9. Merger Costs................................................. 60
5.10. Equity Funding............................................... 61
5.11. No Solicitation of Transactions.............................. 62
5.12. Employment Agreement Between Strem and ACSI.................. 63
5.13. Management and Administrative Matters at ACSI................ 63
5.14. Prohibited Conduct........................................... 64
5.15. Tax Covenants................................................ 68
5.16. Working Capital.............................................. 69
5.17. Reporting.................................................... 69
6. Closing Conditions ................................................ 69
6.1. Conditions to Obligations of ACSI and Subsidiary
to Effect the Merger................................. 69
6.2. Conditions to Obligations of Superior, the
Trustees and Strem to Effect the Merger.............. 75
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7. The Closing............................................................. 79
7.1. Deliveries by ACSI and Subsidiary at the
Closing.............................................. 79
7.2. Deliveries by Superior and/or the Trustees at
the Closing.......................................... 81
7.3. Other Deliveries............................................. 82
8. Post-Closing Covenants - Operating Facilities........................... 82
9. Termination, Amendment and Waiver....................................... 83
9.1. Termination.................................................. 83
9.2. Effect of Termination........................................ 85
9.3. Fees and Expenses............................................ 86
9.4. Amendment.................................................... 88
9.5. Waiver ..................................................... 88
10. Survival of Representations and Warranties............................. 88
11. Arbitration................................................... 89
12. General Provisions..................................................... 92
12.1. Notices..................................................... 92
12.2. Severability................................................ 93
12.3. Entire Agreement............................................ 94
12.4. No Assignment............................................... 94
12.5. Headings.................................................... 94
12.6. Governing Law............................................... 94
12.7. WAIVER OF JURY TRIAL........................................ 95
12.8. Attorneys' Fees............................................. 95
12.9. Counterparts................................................ 95
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AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER dated as of June 19, 1996 (the "Agreement"),
among American CinemaStores, Inc., a Delaware corporation ("ACSI"); ASCI/SPI
Acquisition Corp., a California corporation and a wholly-owned subsidiary of
ACSI ("Subsidiary"); Superior/Panoramic Hand Prints Inc., a California
corporation ("Superior"); Robert J. Strem, an individual residing in California
("Strem"), and each of Robert J. Strem and Janet C. Strem, as trustees of the
Strem Family 1993 Trust U/T/A 11/9/93 (the "Trustees").
W I T N E S S E T H :
WHEREAS, Superior is in the business of applying art and design work to
towels and wearables (including denim) by means of silkscreen, embroidery,
embossing, print (suede and foil) and applique (the "Business"); and
WHEREAS, ACSI desires to combine Superior's experience in manufacturing and
production with its existing marketing and distribution experience; and
WHEREAS, the Board of Directors of ACSI, the Board of Directors of
Subsidiary, ACSI, as the sole shareholder of Subsidiary, and the Board of
Directors and the Trustees as all of the stockholders of Superior have (a)
determined that it is in the best interests of their respective companies for
Superior to be merged with and into Subsidiary upon the terms and subject to the
conditions set forth herein; and (b) approved the merger of Superior with and
into Subsidiary (the "Merger") in accordance with the General Corporation Law of
the State of California ("California Law"), and upon the terms and subject to
the conditions set forth herein.
NOW, THEREFORE, in consideration of the foregoing and the mutual covenants
and agreements herein contained, and intending to be legally bound hereby, the
parties hereto do hereby agree as follows:
1. The Merger.
1.1. The Merger. At the Effective Time (as defined in Subsection 1.2), and
subject to and upon the terms and conditions of this Agreement and the
California Law, Superior shall be merged with and into Subsidiary, the separate
corporate existence of Superior shall cease, and Subsidiary shall continue as
the surviving corporation. Subsidiary, as the surviving
<PAGE>
corporation after the Merger, is hereinafter sometimes referred
to as the "Surviving Corporation."
1.2. Effective Time. As promptly as practicable after the satisfaction or
waiver of the conditions set forth in Section 6, Subsidiary and Superior shall
cause the Merger to be consummated by filing an Agreement of Merger (the
"Agreement of Merger") with the Secretary of State of the State of California in
the form of Exhibit 1.2 and making such other filing as may be required by the
California Law, in such form as required by and executed in accordance with such
laws (the time of the last of such filings to be made being the "Effective
Time").
1.3. Effect of the Merger. At the Effective Time, the effect of the Merger
shall be as provided in the applicable provisions of California Law. Without
limiting the generality of the foregoing, and subject thereto, at the Effective
Time, all the rights, privileges, powers, franchises and all property (real,
personal and mixed) of Superior and all debts due Superior shall vest in
Subsidiary, and all debts, liabilities, obligations and duties of Superior shall
become the debts, liabilities, obligations and duties of Subsidiary.
1.4. Articles of Incorporation; By-Laws.
(a) The Articles of Incorporation of Subsidiary, as in effect
immediately prior to the Effective Time (annexed hereto as Exhibit 1.4(a)),
shall be, subject to the name change set forth in the Agreement of Merger, the
Articles of Incorporation of the Surviving Corporation until thereafter amended
as provided by law or such Articles of Incorporation.
(b) The By-Laws of Subsidiary, as in effect immediately prior to the
Effective Time (annexed hereto as Exhibit 1.4(b)), shall be the By-Laws of the
Surviving Corporation until thereafter amended as provided by law or the
Articles of Incorporation of the Surviving Corporation or the By-Laws of the
Surviving Corporation.
1.5. Directors and Officers of Subsidiary.
(a) The directors of ACSI, as provided in Section 5.13(a) hereof,
shall be the initial directors of the Surviving Corporation, each to hold office
in accordance with applicable law, the Articles of Incorporation and By-Laws of
the Surviving Corporation until resignation, removal or replacement.
(b) Except for Strem, who shall at the Effective Time be duly
nominated and appointed as President of the Surviving Corporation as provided by
Subsection 5.13(b) hereof, the officers of Subsidiary immediately prior to the
Effective Time shall constitute the initial officers of the
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Surviving Corporation, in each case to serve at the pleasure of the Board of
Directors of Subsidiary until their respective resignation, removal or
placement.
1.6. Conversion of Securities. At the Effective Time, by virtue of the
Merger and without any action on the part of ACSI, Subsidiary, Superior, the
Trustees or Strem:
(a) Any share of Superior Common Stock (as defined in Subsection
1.6(b) hereof) held in the treasury of Superior shall be cancelled and
extinguished without any conversion thereof and no payment shall be made with
respect thereto.
(b) All of the 1,700 issued and outstanding shares (the "Shares") of
the capital stock, having no par value, of Superior (the "Superior Common
Stock") shall be converted into the right to receive (i) $1,960,000.00 (the
"Cash Consideration") and (ii) 975,000 shares of Common Stock, par value of
$.001 per share, of ACSI ("ACSI Common Stock") subject to adjustments pursuant
to Subsection 1.6(c) hereof (the "Share Consideration", and together with the
Cash Consideration, the "Merger Consideration") against the surrender to
Subsidiary of the certificates representing the Shares. The Merger Consideration
shall be exchanged pro rata among the Shares.
(c) To the extent that the Equity Funding (as defined in Subsection
5.10) is by private placement, if, prior to the Effective Date, the offering
price per share of any ACSI Common Stock to be sold by such placement is reduced
to less than $1.00 per share and, as a result thereof, the number of shares of
ACSI Common Stock sold by such placement is increased in order to raise
aggregate proceeds of $3.5 million pursuant to the Equity Funding, then the
number of shares of ACSI Common Stock constituting the Share Consideration
receivable by the shareholders of Superior pursuant to the Merger shall be
increased so as to maintain for the holders of Shares the same percentage
ownership of shares of ACSI Common Stock (on a fully diluted basis) immediately
after the Effective Time as such shareholders would have achieved as if only
3,500,000 shares of ACSI Common Stock were sold pursuant to the Equity Funding.
(d) Shares of the common stock, par value $.01 per share, of
Subsidiary issued and outstanding at the Effective Time shall remain outstanding
and unchanged and shall constitute all of the issued and outstanding shares of
the capital stock of the Surviving Corporation.
(e) At the Effective Time, the stock transfer books of Superior shall
be closed and there shall be no further registration of transfers of any Shares
thereafter.
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(f) From and after the Effective Time, the holders of certificates
evidencing ownership of Shares shall cease to have any rights with respect to
the Shares, except as otherwise provided herein or by law.
(g) Notwithstanding anything to the contrary in this Subsection 1.6,
no party hereto shall be liable to a holder of a certificate or certificates
formerly representing Shares for any amount properly paid to a public official
pursuant to any applicable property, escheat or similar law.
(h) No fractional shares of ACSI Common Stock shall be issued in
connection with the Merger and the shareholder of Superior will be deemed to
have received cash in lieu of any faction of a share, which cash shall be deemed
included in the Cash Consideration paid to the shareholders of Superior at the
Closing.
2. Representations and Warranties as to Superior. Each of the Trustees and
Strem, jointly and severally, represents and warrants to ACSI and Subsidiary as
follows:
2.1. Organization, Standing and Power. Superior is a corporation duly
organized, validly existing and in good standing under the laws of the State of
California, with full corporate power and corporate authority to (i) own, lease
and operate its properties, (ii) carry on its business as currently conducted by
it and (iii) execute and deliver, and perform under this Agreement and each
other agreement and instrument to be executed and delivered by it pursuant
hereto. There are no states or jurisdictions in which the character and location
of any of the properties owned or leased by Superior, or the conduct of its
business makes it necessary for Superior to qualify to do business as a foreign
corporation, where the failure to so qualify would have a material adverse
effect on the business, operations or financial condition of Superior. True and
complete copies of the Articles of Incorporation of Superior and all amendments
thereof, and of the By-Laws of Superior, as amended to date, have heretofore
been furnished to ACSI. Superior's minute books heretofore exhibited to ACSI
contain complete and accurate records of all meetings and other corporate
actions of Superior's stockholders and Board of Directors (including committees
of its Boards of Directors).
2.2. Capitalization. The authorized capital stock of Superior consists of
10,000 shares of Superior Common Stock, of which 1,700 shares are issued and
outstanding. All issued shares of the Superior Common Stock have been duly
authorized, validly issued and outstanding and are fully paid and nonassessable
and owned of record and beneficially by the
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Trustees. There are no outstanding options, warrants, rights, puts, calls,
commitments, exchange, conversion rights, plans or other agreements of any
character to which Superior, the Trustees or Strem are a party or otherwise
bound which provide for the acquisition, disposition or issuance of any issued
but not outstanding, or authorized and unissued shares, of Superior Common
Stock. There is no personal liability, and there are no preemptive or similar
rights, attached to the Superior Common Stock.
2.3. Ownership of Superior Common Stock. The Trustees have good and
marketable title to all of the issued and outstanding shares of Superior Common
Stock, free and clear of any and all liens, adverse claims, security interests,
pledges, mortgages, charges and encumbrances of any nature whatsoever (except
for federal and state securities law restrictions of general applicability), and
on the Closing Date will own all of such Superior Common Stock, free and clear
of any and all liens, adverse claims, security interests, pledges, mortgages,
charges and encumbrances of any nature whatsoever (except for federal and state
securities law restrictions of general applicability), including, but not
limited to, any claims by any present or former stockholders of Superior.
2.4. Interests in Other Entities.
(a) Superior does not (i) own, directly or indirectly, of record or
beneficially, any shares of voting stock or other equity securities of any other
corporation, (ii) have any ownership interest, direct or indirect, of record or
beneficially, in any unincorporated entity, and (iii) have any obligation,
direct or indirect, present or contingent, (A) to purchase or subscribe for any
interest in, advance or loan monies to, or in any way make investments in, any
other person or entity, or (B) to share any profits or capital investments or
both.
(b) Except for (A) the Trustees' ownership of 50% of Just Jackets
Corporation and (B) Strem's 50% general partnership interest in Wallys of
California, neither the Trustees nor Strem (i) own, directly or indirectly, of
record or beneficially, any shares of voting stock or other equity securities of
any other corporation engaged in the same or similar business to that business
engaged in by Superior or Just Jackets Corporation at the Effective Time
(exclusive of ownership of not more than one percent (1%) of the publicly-traded
capital stock of corporations engaged in such business, which stock is held
solely for investment purposes); (ii) have any ownership interest, direct or
indirect, of record or beneficially, in any unincorporated entity engaged in the
same or similar business to that business engaged in by Superior or Just Jackets
Corporation at the Effective Time; and (iii) have any obligation, direct or
indirect, present or contingent, (A) to purchase or subscribe for
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any interest in, advance or loan monies to, or in any way make investments in,
any other person or entity engaged in the same or similar business to that
business engaged in by Superior or Just Jackets Corporation at the Effective
Time, or (B) to share any profits or capital investments or both from an entity
engaged in the same or similar business to that business engaged in by Superior
or Just Jackets Corporation at the Effective Time.
2.5. Authority. The execution and delivery by Superior of this Agreement
and of all of the agreements to be executed and delivered by Superior pursuant
hereto (collectively, the "Superior Documents"), the performance by Superior of
its obligations hereunder and thereunder, and the consummation of the
transactions contemplated hereby and thereby, have been duly and validly
authorized by all necessary corporate action on the part of Superior (including,
but not limited to, the unanimous consent of the Board of Directors of Superior
and the written consent of the Trustees, as all of the stockholders of Superior)
and Superior has all necessary corporate power and corporate authority with
respect thereto. Strem and the Trustees, as applicable, are individuals having
all necessary capacity, power and authority to execute and deliver this
Agreement and such other agreements to be executed and delivered by either of
them pursuant hereto (collectively, the "Strem Documents") and to consummate the
transaction consummated hereby and thereby. This Agreement is, and when executed
and delivered by Superior, the Trustees, and Strem, each of the other agreements
to be delivered by either or both of them pursuant hereto will be, the valid and
binding obligations of Superior, the Trustees and Strem, to the extent they are
parties thereto, in accordance with their respective terms, except as the same
may be limited by bankruptcy, insolvency, reorganization, moratorium or other
laws affecting the rights of creditors generally and subject to the rules of law
governing (and all limitations on) specific performance, injunctive relief, and
other equitable remedies.
2.6. Noncontravention. Except as set forth on Schedule 2.6, neither the
execution and delivery by Superior or the Trustees of this Agreement or of any
other Superior Documents or Strem Documents to be executed and delivered by
either or both of them, nor the consummation of any of the transactions
contemplated hereby or thereby, nor the performance by either or both of them of
any of their respective obligations hereunder or thereunder, will (nor with the
giving of notice or the lapse of time or both would) (a) conflict with or result
in a breach of any provision of the Articles of Incorporation, By-Laws or other
constituent documents of Superior, each as amended to date, or (b) give rise to
a default, or any right of termination, cancellation or acceleration, or
otherwise be in conflict with or result in a loss of contractual benefits to any
of them, under any of the terms, conditions or provisions of any note, bond,
mortgage, indenture, license, agreement or other instrument or obligation to
which either or both of them is a party or by which
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either or both of them or any of their respective assets may be bound, or
require any consent, approval or notice under the terms of any such document or
instrument, or (c) violate any order, writ, injunction, decree to which Superior
is subject or any law, statute, rule or regulation of any court or governmental
authority having jurisdiction over Superior, or (d) result in the creation or
imposition of any lien, adverse claim, restriction, charge or encumbrance upon
any of the assets of Superior (the "Assets"), or (e) interfere with or otherwise
adversely affect the ability of Subsidiary to carry on the Business after the
Closing Date on substantially the same basis as is now conducted by Superior.
2.7. Financial Statements.
(a) Attached as Exhibit 2.7(a) are (i) true, correct and complete copies of
the draft audited balance sheet of Superior as at and for the year ended
December 31, 1995 (the "Balance Sheet Date"), and the related statements of
operations and retained earnings for the fiscal year then ended (the "Draft
Financial Statements") and (ii) true, correct and complete copies of the
unaudited balance sheets of Superior prepared by management, and the related
statement of operations, and related statement of retained earnings for the four
(4) month period ended April 30, 1996 (the "Interim Financial Statements"). The
Interim Financial Statements were compiled and prepared by management in
conformity with Superior's internal accounting procedures and fairly present the
financial position of Superior as at the dates thereof and its results of
operations for the periods indicated, subject to normal recurring adjustments
and the inclusion of notes which might be required as a result of year-end
audit.
(b) Superior will, prior to the Closing Date, deliver to ACSI copies of the
audited balance sheet of Superior at and for the year ended December 31, 1995,
together with the related statements of income, stockholders' equity and cash
flows as at and for the year ended on such date, certified by Singer, Lewak,
Greenbaum & Goldstein, independent certified public accountants, and a copy of
such audited statements shall be attached to this Agreement as Exhibit 2.7(b)
(collectively, the "Audited Financial Statements"). The Audited Financial
Statements, when prepared, shall be in accordance with GAAP, consistently
applied, and present fairly the financial position of Superior as at the date
thereof and the results of operations for the periods and the cash flow
indicated and the balance sheets included therein present fairly as of their
respective dates the financial condition of Superior. All material liabilities
and obligations, whether absolute, accrued, contingent or otherwise, whether
direct or indirect, and whether due or to become due, which existed at the date
of such Audited Financial Statements shall have been disclosed in the balance
sheets included in the Audited Financial Statements or in notes
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to the Financial Statements. The statements of operations, and statements of
retained earnings and cash flows included in the Audited Financial Statements,
when prepared, shall present fairly the results of operations, retained earnings
and cash flows of Superior for the periods indicated, and the notes included in
such Audited Financial Statements shall present fairly the information purported
to be shown thereby. The statements of operations included in the Audited
Financial Statements, when prepared, shall not contain any items of special or
non-recurring income or other income not earned in the ordinary course of
business except as expressly specified therein. The Audited Financial Statements
shall not differ in any materially adverse respect, taken as a whole or with
respect to any individual line item, from the Draft Financial Statements and the
Interim Financial Statements (the parties hereto agree that any changes due to
or related to any actions or inactions by California United Bank regarding the
waiver or nonwaiver of defaults of Superior of its loan covenants with such bank
and the report of such waiver or nonwaiver upon the form of auditor's opinion
issued by Singer, Lewak, Greenbaum & Goldstein shall not be deemed to be
materially adverse). The books and records of Superior are complete and correct,
have been maintained in accordance with good business practices, and accurately
reflect the basis for the financial condition, results of operations and cash
flow of Superior as set forth in the Audited Financial Statements.
2.8. Guaranties to Lender. Schedule 2.8 hereto is a complete and accurate
list and summary description of all written guaranties heretofore issued by
Strem or his wife or the Trustees to any bank or other lender in connection with
any credit facilities extended by such creditors to Superior and issued by Strem
or his wife or the Trustees to any lessor or vendor of Superior (collectively,
the "Guaranties"), including the name of such creditor, lessor or vendor. All of
such guarantees are in full force and effect as of the date hereof. Except as
specified in Schedule 2.8, no beneficiary of any such guarantee has demanded
payment or performance thereunder since the issuance thereof.
2.9. Absence of Undisclosed Liabilities. Superior has no liabilities or
obligations of any nature whatsoever, whether accrued, matured, unmatured,
absolute, contingent, direct or indirect or otherwise, which have not been (a)
in the case of liabilities and obligations of a type customarily reflected on a
corporate balance sheet, set forth on the balance sheet of the Draft Financial
Statements, or (b) incurred in the ordinary course of business since the Balance
Sheet Date, including but not limited to the approximate $93,000 loan by ACSI to
Superior and the acquisition by Superior of the new film output device, or (c)
in the case of other types of liabilities and obligations, described in any of
the Schedules delivered pursuant hereto or omitted from said Schedules in
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accordance with the terms of this Agreement, or arising under contracts or
leases listed in such Schedules or other contracts or leases which are omitted
from such Schedules in accordance with the terms of this Agreement, or (d)
incurred, consistent with past practice, in the ordinary course of business of
Superior (in the case of liabilities and obligations of the type referred to in
clause (a) above), or (e) incurred because of any actions or inactions by
California United Bank regarding the waiver or nonwaiver of defaults of Superior
of its loan covenants with such bank.
2.10. Properties. Superior owns no real estate. Except as set forth on
Schedule 2.10, Superior has marketable title to all of the properties and
assets, reflected on the Draft Financial Statements as of the Balance Sheet Date
or thereafter acquired, except properties or assets sold or otherwise disposed
of in the ordinary course of business, free and clear of any and all mortgages,
liens (including liens for current Taxes, as defined in Subsection 2.16(c)
hereof), pledges, claims, charges and encumbrances of any nature whatsoever
(hereinafter collectively, "Liens"), other than Liens not yet due and payable or
being contested in good faith by appropriate proceedings, and other than such
Liens or imperfections of title, if any, which are not substantial in character,
amount or extent and do not materially interfere with the present or continued
use of such property or otherwise materially adversely affect the value or
transferability thereof or otherwise materially impair the Business or
operations of Superior as conducted on the date hereof. Listed separately on
Schedule 2.10 hereof are all plants, structures and material equipment which are
owned or leased and utilized in the Business or are material to the condition
(financial or otherwise), of Superior, and such plants, structures and equipment
are, except for some equipment which is in storage and not in use, in good
operating condition and repair (ordinary wear and tear excepted) and are
adequate and suitable for the purposes for which they are used. Schedule 2.10
sets forth all (a) real property which is leased (whether as lessor or lessee)
or subject to lease (whether as lessor or lessee) by Superior, or which is
subject to a title retention or conditional sales agreement or other security
device, and (b) material tangible personal property which is owned, leased
(whether as lessor or lessee) or subject to contract or commitment of purchase
or sale or lease (whether as lessor or lessee) by Superior.
2.11. Accounts Receivable; Inventories. The accounts and notes receivable
which are reflected on the Draft Financial Statements as of the Balance Sheet
Date are good and collectible in the ordinary course of business at the
aggregate recorded amounts thereof, less the respective amount of the allowances
for doubtful accounts and notes receivable, if any, reflected thereon (which
allowance was established on a basis by Superior consistent with prior
practices), and are not subject to
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offsets other than in the ordinary course of business. The accounts and notes
receivable of Superior which were added after the Balance Sheet Date, are good
and collectible in the ordinary course of business to at least the extent of 93%
of the aggregate amounts recorded in Superior's books of account and are not
subject to offsets other than in the ordinary course of business. The
inventories reflected on the Balance Sheet and thereafter added consist of items
of a quality and quantity usable or saleable in the ordinary course of business,
except for obsolete materials, slow-moving items, materials of below standard
quality and not readily marketable items, all of which have been written down to
net realizable value or adequately reserved against on the books and records of
Superior. All inventories are stated at the lower of cost or market in
accordance with generally accepted accounting principles.
2.12. Absence of Changes. Since the Balance Sheet Date, there have not been
(a) any material adverse change (other than as is normal in the ordinary course
of business, e.g., inventory level changes and other than any changes due to
actions or inactions by California United Bank regarding the waiver or nonwaiver
of defaults of Superior of its loan covenants with such bank) in the condition
(financial or otherwise), assets, liabilities, business, prospects, results of
operations or cash flows of Superior (including, without limitation, any such
adverse change resulting from damage, destruction or other casualty loss,
whether or not covered by insurance), (b) any waivers by Superior of any right,
or cancellation of any debt or claim, of substantial value, (c) any
declarations, set asides or payments of any dividend or other distributions or
payments in respect of the Superior Common Stock, or (d) any changes in the
accounting principles or methods which are utilized by Superior.
2.13. Litigation. Except as set forth in Schedule 2.13, there are no suits
or actions, or administrative, arbitration or other proceedings or governmental
investigations, pending or, to the best knowledge of the Trustees and Strem,
threatened, against or relating to Superior, the Trustees, Strem, this
Agreement, the transactions contemplated hereby or any of the Assets. There are
no judgments, orders, stipulations, injunctions, decrees or awards in effect
which relate to Superior, this Agreement, the transactions contemplated, the
Business or any of the Assets, the effect of which is (a) to limit, restrict,
regulate, enjoin or prohibit any business practice of Superior in any area, or
the acquisition by Superior of any properties, assets or businesses, or (b)
otherwise materially adverse to the Business or any of the Assets.
2.14. No Violation of Law. Superior is not engaging in any activity or
omitting to take any action as a result of which both (a) it is in violation of
any law, rule, regulation, zoning or other ordinance, statute, order, injunction
or decree, or any other requirement of any court or governmental
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or administrative body or agency, applicable to Superior, the Business or any of
the Assets, including, but not limited to, those relating to: occupational
safety and health matters; issues of environmental and ecological protection
(e.g., the use, storage, handling, transport or disposal of pollutants,
contaminants or hazardous or toxic materials or wastes, and the exposure of
persons thereto); business practices and operations; labor practices; employee
benefits; and zoning and other land use, and (b) Superior, the Business and/or
any of the Assets have been, or may be, materially and adversely affected
thereby.
2.15. Intangibles/Inventions. To the best knowledge of the Trustees and
Strem, Superior owns no intellectual property other than possible rights to its
tradename. Superior is the licensee from third parties of commercially-available
computer software programs. Superior has granted no license to third parties
with regard to Superior's intellectual property. Superior has filed no federal
or state trademark registrations with regard to its trade name, and Superior
makes no representations or warranty with regard to such name. (a) No
proceedings have been instituted, are pending, or, to the best knowledge of the
Trustees and Strem, are threatened which challenge the rights of Superior with
respect to Superior's intellectual property or its use thereof in connection
with the Business and/or the Assets or the validity thereof and, to the best
knowledge of the Trustees and Strem, there is no valid basis for any such
proceedings; (b) neither Superior's ownership of Superior's intellectual
property nor its use thereof in connection with the Business and/or the Assets
violates any laws, statutes, ordinances or regulations, or to the best knowledge
of the Trustees and Strem, has at any time infringed upon or violated any rights
of others, or, to the best knowledge of the Trustees and Strem, is being
infringed by others; and (c) none of Superior's intellectual property, or
Superior's use thereof in connection with the Business and/or the Assets, is
subject to any outstanding order, decree, judgment, stipulation or, except as
otherwise specifically provided in this Agreement, any lien, security interest
or other encumbrance.
2.16. Tax Matters.
(a) Superior has filed with the appropriate governmental agencies all
tax returns and reports required to be filed by it, and has paid in full or
contested in good faith or made adequate provision for the payment of, Taxes (as
defined herein) shown to be due or claimed to be due on such tax returns and
reports. The provisions for Taxes which are set forth on the Draft Financial
Statements are adequate for all accrued and unpaid taxes of Superior as of the
Balance Sheet Date, whether (i) incurred in respect of or measured by income of
Superior for any periods prior to the close of business on that date, or (ii)
arising out of transactions entered into, or any state of facts existing, on or
prior to such date. Superior has
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duly withheld all payroll taxes, FICA and other federal, state and local taxes
and other items requiring to be withheld by it from employer wages, and has duly
deposited the same in trust for or paid over to the proper taxing authorities.
Superior has not executed or filed with any taxing authority any agreement
extending the periods for the assessment or collection of any Taxes, and is not
a party to any pending or, to the best knowledge of the Trustees and Strem,
threatened, action or proceeding by any governmental authority for the
assessment or collection of Taxes. Within the past three years, the United
States federal income tax returns of Superior have not been examined by the
Internal Revenue Service ("the IRS"), nor has the State of California or any
taxing authority thereof examined any merchandize, personal property, sales or
use tax returns of Superior.
(b) Superior (i) has not agreed to or been required to make any
adjustment pursuant to Section 481(a) of the Internal Revenue Code of 1986, as
amended (the "Code"), (ii) has no knowledge that the IRS or any other taxing
authority has proposed any such adjustment or change in accounting method, and
(iii) has no application pending with any governmental authority requesting
permission for any change in accounting method.
(c) As used herein, the term "Taxes" means all federal, state, county,
local and other taxes and governmental assessments, including but not limited to
income taxes, estimated taxes, withholding taxes, excise taxes, ad valorem
taxes, payroll related taxes (including but not limited to premiums for worker's
compensation insurance and statutory disability insurance), employment taxes,
franchise taxes and import duties, together with any related liabilities,
penalties, fines, additions to tax or interest.
2.17. Insurance. Schedule 2.17 is a complete and correct list and summary
description of all contracts and policies of insurance relating to any of the
Assets, the Business, the Trustees and Strem in which Superior is an insured
party, beneficiary or loss payable payee. Such policies are in full force and
effect, all premiums due and payable with respect thereto have been paid, and no
notice of cancellation or termination has been received by Superior with respect
to any such policy.
2.18. Banks; Powers of Attorney. Schedule 2.18 is a complete and correct
list showing (a) the names of each bank in which Superior has an account or safe
deposit box and the names of all persons authorized to draw thereon or who have
access thereto, and (b) the names of all persons, if any, holding powers of
attorney from Superior.
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2.19. Employee Arrangements. Schedule 2.19 is a complete and correct list
and summary description of all (a) union, collective bargaining, employment,
management, termination and consulting agreements to which any of Superior is a
party or otherwise bound, and (b) compensation plans and arrangements; bonus and
incentive plans and arrangements; deferred compensation plans and arrangements;
pension and retirement plans and arrangements; profit-sharing and thrift plans
and arrangements; stock purchase and stock option plans and arrangements;
hospitalization and other life, health or disability insurance or reimbursement
programs; holiday, sick leave, severance, vacation, tuition reimbursement,
personal loan and product purchase discount policies and arrangements; and other
plans or arrangements providing for benefits for employees of Superior. Said
Schedule also lists the names and compensation of all employees of Superior
whose earnings during the last fiscal year were $50,000 or more (including
bonuses and other incentive compensation), and all employees who are expected to
receive at least said amount in respect of the current fiscal year.
2.20. ERISA. Superior has no "employee pension benefit plan", as such term
is defined in Section 3(3) of the Employee Retirement Income Security Act of
1974, as amended ("ERISA"), or "welfare benefit plan", as such term is defined
in Section 3(1) of ERISA, which is maintained by Superior or to which they
contribute or are obligated or required to contribute. Superior has not ever
maintained or contributed to, or been obligated or required to contribute to, a
"multiemployer plan", as such term is defined in Section 3(37) of ERISA.
2.21. Certain Business Matters. Except as is set forth in Schedule 2.21,
(a) Superior is not a party to or bound by any distributorship, dealership,
sales agency, franchise or similar agreement which relates to the sale or
distribution of any of the products and services of the Business, (b) Superior
has no sole-source supplier of significant goods or services (other than
utilities) with respect to which practical alternative sources are not available
on comparable terms and conditions, (c) there are no pending or, to the best
knowledge of the Trustees and Strem, threatened labor negotiations, work
stoppages or work slowdowns involving or affecting the Business, and no union
representation questions exist, and there are no organizing activities, in
respect of any of the employees of Superior, (d) the product and service
warranties given by Superior or by which it is bound (complete and correct
copies or descriptions of which have heretofore been delivered by Superior to
ACSI) entail no greater obligations than are customary in the Business, (e)
neither Superior nor the Trustees is a party to or bound by any agreement which
limits its or his, as the case may be, freedom to compete in any line of
business or with any person, or which is otherwise materially burdensome to
Superior or the Trustees, and (f) Superior is not a party to or bound by any
agreement in which any officer, director or stockholder of
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Superior (or any affiliate of any such person) has, or had when made, a direct
or indirect material interest.
2.22. Certain Contracts. Schedule 2.22 is a complete and correct list of
all material contracts, commitments, obligations and understandings which are
not set forth in any other Schedule delivered hereunder and to which Superior is
a party or otherwise bound, except for (a) purchase orders from vendors or
customers and (b) each of those which (i) were made in the ordinary course of
business and (ii) either (A) are terminable by Superior (and will be terminable
by Subsidiary) without liability, expense or other obligation on 30 days' notice
or less, or (B) may be anticipated to involve aggregate payments to or by
Superior of $5,000 (or the equivalent) or less calculated over the full term
thereof, and (C) are not otherwise material to the Business or Superior.
Complete and correct copies of all contracts, commitments, obligations and
undertakings set forth on any of the Schedules delivered pursuant to this
Agreement have been furnished by Superior to ACSI. Except as expressly stated on
any of such Schedules, (1) each of them is in full force and effect, no person
or entity which is a party thereto or otherwise bound thereby is in material
default thereunder, and no event, occurrence, condition or act exists which does
(or which with the giving of notice or the lapse of time or both would) give
rise to a material default or right of cancellation, acceleration or loss of
contractual benefits thereunder; (2) there has been no threatened cancellations
thereof, and there are no outstanding disputes thereunder; (3) none of them is
materially burdensome to Superior; and (4) each of them is fully assignable
without the consent, approval, order or any waiver by, or any other action of or
with any individual or individuals which will not be obtained before the Closing
Date, without the payment of any penalty, the incurrence of any additional debt,
liability or obligation of any nature whatsoever or the change of any term.
2.23. Customers and Suppliers. Superior has previously provided to ACSI a
complete and correct list setting forth, as of May 20, 1996, (a) the 20 largest
customers of the Business and the amount for which each such customer was
invoiced, and (b) the 20 largest suppliers of the Business and the amount of
goods and services purchased from each such supplier. Except as set forth on
Schedule 2.23, there are no (i) threatened cancellations by the aforesaid
customers or suppliers with respect to the Business, (ii) outstanding material
disputes by such customers or suppliers with Superior and the Business, or (iii)
material adverse changes in the business relationship between the Business and
any such customer or supplier. To the best knowledge of the Trustees and Strem,
the aforesaid suppliers and customers will continue their respective
relationships with the Business after the Closing Date on substantially the same
basis as now exists.
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2.24. Business Practices and Commitments. Superior has, prior to the date
of this Agreement, delivered to ACSI a complete and correct description of (a)
Superior's rebate and volume discount practice, and obligations, (b) Superior's
allowance and customer return practice and obligations, (c) Superior's co-op
advertising and other promotional practices, and (d) Superior's warranty
practices and obligations, as each of the foregoing relate to Superior's
customers and suppliers.
2.25. Approvals/Consents. Except as set forth on Schedule 2.25, to the best
knowledge of the Trustees, and Strem, Superior currently holds all governmental
and administrative consents, permits, appointments, approvals, licenses,
certificates and franchises which are necessary for the operation of the
Business, all of which are in full force and effect and are transferable to
Subsidiary without the payment of any penalty, the incurrence of any additional
debt, liability or obligation of any nature whatsoever or the change of any
term. Schedule 2.25 is a complete and correct list of all such governmental and
administrative consents, permits, appointments, approvals, licenses,
certificates and franchises. To the best knowledge of the Trustees and Strem, no
material violations of the terms thereof have heretofore occurred or are known
by the Trustees or Strem to exist as of the date of this Agreement.
2.26. Information as to Superior.
(a) None of the representations or warranties made by the Trustees or
Strem in this Agreement is, or contained in any of the Superior or Stem
Documents to be executed and delivered hereto will be, false or misleading with
respect to any material fact, or omits to state any material fact necessary in
order to make the statements therein contained not misleading.
(b) To the extent that the Board of Directors of ACSI determines to
solicit proxies from its stockholders in connection with a special meeting of
stockholders to approve this Agreement and the Merger, and also in connection
with the Equity Funding, any information regarding Superior, the Trustees and
Strem included in the Proxy Statement (as defined in Subsection 5.7 hereof)
and/or in any Equity Funding Memorandum or in any amendment thereof or
supplement thereto, or in any Registration Statement (as defined in Section
5.7(b) hereof), or amendment thereto, filed by ACSI with the Securities and
Exchange Commission, with respect to securities issued or to be issued by ACSI
will, so long as Superior, Strem, and the Trustees, within five (5) business
days of receiving any such memorandum, amendment or supplement, confirm in
advance the accuracy of the facts set forth therein relating to Superior, the
Trustees or Strem, at the date of mailing to stockholders of ACSI of such Proxy
Statement and at the time of the stockholders' meeting to which the Proxy
Statement relates (provided that ACSI has amended such Proxy Statement prior
thereto to incorporate reasonable
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changes and additions relating to Superior, the Trustees and Strem requested by
Superior, the Trustees or Strem), and at the date of such Equity Funding
Memorandum or any such amendment thereof or supplement thereto, or such
Registration Statement or amendment thereto, not contain any untrue statement of
a material fact regarding Superior, the Trustees, or Strem or omit to state any
material fact required regarding Superior, the Trustees, or Strem to be stated
therein or necessary in order to make the statements therein regarding Superior,
the Trustees, or Strem, in the light of the circumstances under which they were
made, not misleading, except that no representation or warranty is made by
Superior, the Trustees, or Strem with respect to statements made therein based
on information supplied by ACSI or the Subsidiary.
3. Representations and Warranties as to ACSI and Subsidiary. ACSI and
Subsidiary, jointly and severally, represent and warrant to Superior, Strem, and
the Trustees as follows:
3.1. Organization, Standing and Power. ACSI is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Delaware, with full corporate power and authority to own, lease and operate its
properties and to carry on its businesses as presently conducted by it. Except
as set forth on Schedule 3.1, there are no states or jurisdictions in which the
character and location of any of the properties owned or leased by ACSI, or the
conduct of its businesses makes it necessary for it to qualify to do business as
a foreign corporation.
3.2. Interests in Other Entities. Schedule 3.2 sets forth a true and
complete list of all direct or indirect subsidiaries of ACSI (including the
Subsidiary) that are material to the financial condition of ACSI and it
subsidiaries, together with the jurisdiction of incorporation of each such
subsidiary and the percentage of each such subsidiary's outstanding capital
stock owned by ACSI or another of ACSI's subsidiaries. Each of such subsidiaries
are duly organized corporations, validly existing and in good standing under the
laws of the jurisdiction of its respective incorporation (as well as all
applicable foreign jurisdictions necessary to its business operations) and have
the requisite corporate power and authority and governmental authority to own,
operate or lease the properties that each purports to own, operate or lease and
to carry on its business as it is now being conducted.
3.3. Incorporation Documents and By-Laws. Each of ACSI and Subsidiary have
heretofore furnished, or will furnish to Superior, a complete and correct copy
of its Certificate or Articles of Incorporation, and the By-Laws, each as
amended to date. Such organizational documents are in full force and effect.
Neither ACSI nor Subsidiary is in violation of
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any of the provisions of any of the aforesaid organizational documents.
3.4. Capitalization. (a) The authorized capital stock of ACSI consists of
15,000,000 shares of ACSI Common Stock and 5,000,000 shares of Preferred Stock,
par value $.01 per share (none of which are outstanding or held in the treasury
of ACSI). As of the date hereof, (i) 6,892,638 shares of ACSI Common Stock were
issued and outstanding, all of which were duly authorized, validly issued, fully
paid and nonassessable, (ii) 800,000 shares of ACSI Common Stock are issuable or
available for issuance upon exercise of options granted and available for grant
under ACSI's stock option plan, as amended, and (iii) 5,225,000 shares of ACSI
Common Stock are reserved for future issuance upon exercise of outstanding
Redeemable Common Stock Purchase Warrants. Schedule 3.4 sets forth a true and
complete list of all outstanding options and warrants as of the date hereof. At
the Closing, Schedule 3.4, as then amended, shall set forth all then outstanding
shares of ACSI Common Stock and all then outstanding options and warrants as of
the Closing Date. Except as contemplated by the Merger and by the Equity Funding
and except as set forth on Schedule 3.4, there are no options, warrants or other
rights, agreements, arrangements or commitments of any character relating to the
issued or unissued capital stock of ACSI or any of its subsidiaries or
obligating ACSI or any of its subsidiaries to issue or sell any shares of
capital stock of or other equity interests in ACSI or any of its subsidiaries.
All shares of ACSI Common Stock issuable upon exercise of outstanding options
and warrants, or pursuant to the Merger or in connection with the Equity
Funding, will upon payment to ACSI of the exercise purchase price thereof, or
upon consummation of the Merger, on the terms and conditions specified in the
instruments pursuant to which they are issuable, be duly authorized, validly
issued, fully paid and nonassessable. Except as set forth in Schedule 3.4,
neither ACSI nor any of its subsidiaries is a party to any agreement granting
registration rights with respect to any equity or debt securities of ACSI or its
subsidiaries. There are no preemptive rights with regard to the capital stock of
ACSI or its subsidiaries, and no right-of-first refusal or similar catch-up
rights with regard to such capital stock. Except as set forth in Schedule 3.4
and except for the transactions contemplated by this Agreement (including
without limitation the advancement of funds in the form of a loan to Superior in
connection with the new printing machine described in Subsection 5.13(i)
hereof), there are no outstanding contractual obligations or other commitments
or arrangements of ACSI or any of its subsidiaries to (A) repurchase, redeem or
otherwise acquire any shares of ACSI Common Stock (or any interest therein) or
(B) provide funds to or make any investment (in the form of a loan, capital
contribution or otherwise) in any such subsidiary or other entity, or (C) issue
or distribute to any person any capital stock of ACSI or its subsidiaries, or
(D) issue or distribute to holders of any of the
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capital stock of ACSI or its subsidiaries any evidences of indebtedness or
assets of ACSI or its subsidiaries. All of the outstanding securities of ACSI
and Subsidiary have been, and all shares of ACSI Common Stock issuable in
connection with the Merger, the Equity Funding, and the exercise of the
outstanding options and warrants will be, offered, issued and sold by ACSI in
full compliance with applicable federal and state securities laws.
(b) The outstanding shares of capital stock of each of the
subsidiaries of ACSI, including Subsidiary, are duly authorized, validly issued,
fully paid and nonassessable, and such shares are owned by ACSI, directly or
indirectly, free and clear of all security interests, liens, adverse claims,
pledges, agreements, limitations on ACSI's voting rights, charges and other
encumbrances of any nature whatsoever.
3.5. Authority. Subject to a determination by the Board of Directors of
ACSI that a special meeting of the stockholders of ACSI may be advisable to
approve the transaction contemplated by this Agreement, the execution and
delivery by ACSI and Subsidiary of this Agreement and of each agreement to be
executed and delivered by either of them pursuant hereto (collectively, the
"ACSI Documents"), the compliance by each of them with the provisions hereof and
thereof, and the consummation of the transactions contemplated hereby and
thereby, have been (and at the Closing will be) duly and validly authorized by
all necessary corporate action on the part of ACSI and Subsidiary, and ACSI and
Subsidiary have (and at the Closing will have) all necessary corporate power and
corporate authority with respect thereto. This Agreement is, and when executed
and delivered by ACSI and Subsidiary each other ACSI Document will be, the valid
and binding obligation of ACSI or Subsidiary, as the case may be to the extent
it is a party thereto, in accordance with the respective terms, thereof, except
as the same may be limited by bankruptcy, insolvency, reorganization, moratorium
or other laws affecting the rights of creditors generally and subject to the
rules of law governing (and all limitations on) specific performance, injunctive
relief, and other equitable remedies.
3.6. Noncontravention. Except as set forth on Schedule 3.6, neither the
execution and delivery by ACSI and/or Subsidiary of any ACSI Document, nor the
consummation of any of the transactions contemplated hereby or thereby, nor the
performance by either of them of any of its respective obligations hereunder or
thereunder, will (nor with the giving of notice or the lapse of time or both
would) (a) conflict with or result in a breach of any provision of the Articles
or Certificates of Incorporation or By-Laws of either ACSI or Subsidiary, or (b)
give rise to a default, or any right of termination, cancellation or
acceleration, or otherwise be in conflict with, or result in a loss of
contractual benefits to,
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either of them, under any of the terms, conditions or provisions of any note,
bond, mortgage, indenture, license, agreement or other instrument or obligation
to which either of them is a party or by which either of them or their
respective assets may be bound, or require any consent, approval or notice under
the terms of any such document or instrument, or (c) violate any order, writ,
injunction, decree to which ACSI or Subsidiary is subject or any law, statute,
rule or regulation of any court or governmental authority having jurisdiction
over either of them, or (d) result in the creation or imposition of any lien,
adverse claim, restriction, charge or encumbrance upon any of their assets, or
(e) interfere with or otherwise adversely affect the ability of ACSI or
Subsidiary to carry on its business after the Closing Date on substantially the
same basis as is now conducted by it.
3.7. Absence of Litigation. There are no claims, actions, suits,
proceedings or investigations pending or, to the best knowledge of the executive
officers of ACSI and Subsidiary, threatened against or relating to ACSI,
Subsidiary, this Agreement, the transactions contemplated hereby, or any
properties, assets or rights of ACSI or Subsidiary, including but not limited to
any such matters before any court, arbitrator, or administrative, governmental
or regulatory authority or body, domestic or foreign. Neither ACSI nor any of
its subsidiaries (including Subsidiary), nor any of their respective properties
is subject to any order, writ, judgment, injunction, decree, determination or
award which, if enforced, would have a material adverse effect on the business,
the results of the operations, cash flows or financial condition of ACSI
separately or of ACSI and its subsidiaries taken as a whole.
3.8. Employee Benefit Plans. ACSI has no "employee pension benefit plan",
as such term is defined in Section 3(3) of the Employee Retirement Income
Security Act of 1974, as amended ("ERISA"), or "welfare benefit plan", as such
term is defined in Section 3(1) of ERISA, which is maintained by ACSI or to
which it contributes or is obligated or required to contribute. Exclusive of any
plan, program or arrangement which is required to be maintained pursuant to
local laws or practices, Schedule 3.8 lists all material bonus, stock option,
stock purchase, incentive, deferred compensation, supplemental retirement,
severance and other material fringe or employee benefit plans, programs or
arrangements, and any material employment or compensation agreements, written or
otherwise, for the benefit of, or relating to, any employee of ACSI (the
"Employee Plans"). Except as otherwise disclosed in Schedule 3.8, none of the
Employee Plans is a multiemployer plan, as defined in Section 4001(a)(3) of
ERISA. Each Employee Plan is in compliance in all material respects with the
requirements prescribed by any and all applicable statutes, orders, or
governmental rules or regulations currently in effect with respect thereto, and
ACSI and Subsidiary have performed all
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material obligations required to be performed by them under, are not in any
material respect in default under or in violation of, and have no knowledge of
any material default or violation by any other party to, any of the Employee
Plans.
3.9. Proxy Statement. (a) No Proxy Statement required to be sent to the
stockholders of ACSI in connection with any special meeting of stockholders of
ACSI concerning the Merger will, at the date such Proxy Statement (or any
amendment thereof or supplement thereto) is first mailed to stockholders and at
the time of ACSI's stockholders' meeting and at the Effective Time, and (b) no
Equity Funding Memorandum used in connection with the Equity Funding, will, at
the date of such Equity Funding Memorandum (or any amendment or supplement) and
at all times thereafter through the date of the consummation of the Equity
Funding, in each case be false or misleading with respect to any material fact,
or omit to state any material fact required to be stated therein or necessary in
order to make the statements made therein, in light of the circumstances under
which they are made, not misleading or, in the case of the Proxy Statement,
necessary to correct any statement in any earlier communication with respect to
the solicitation of proxies for ACSI's stockholders' meeting which shall have
become false or misleading. The Proxy Statement, if any, will comply in all
material respects as to form with the requirements of the Exchange Act and the
rules and regulations thereunder.
3.10. Securities and Exchange Commission Filings; Financial Statements.
(a) ACSI has filed all forms, reports, statements and documents
required to be filed with the Securities and Exchange Commission ("SEC") since
March 21, 1994 (collectively, the "SEC Reports"), each of which has complied in
all material respects with the applicable requirements of the Securities Act of
1933, as amended (the "Securities Act") or the Securities Exchange Act of 1934,
as amended (the "Exchange Act"), as applicable, each as in effect on the date so
filed. ACSI has delivered to Superior, in the form filed with the SEC (including
any amendments thereto), its Annual Report on Form 10-K for its fiscal year
ended May 31, 1995, and its Quarterly Report on Form 10-QSB for the quarter
ended February 29, 1996 (the "February 1996 10-Q"). None of such reports
(including but not limited to any financial statements or schedules included or
incorporated by reference therein) filed by ACSI, when filed (except to the
extent revised or superseded by a subsequent filing with the SEC) contained any
untrue statement of a material fact or omitted to state a material fact required
to be stated or incorporated by reference therein or necessary in order to make
the statements therein, in light of the circumstances under which they were
made, not misleading.
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(b) Each of the consolidated financial statements contained in the SEC
Reports has been prepared in accordance with generally accepted accounting
principles applied on a consistent basis throughout the periods involved (except
as may otherwise be indicated in the notes thereto) and each presents fairly, in
all material respects, the consolidated financial position of ACSI and its
subsidiaries as at the respective dates thereof and the consolidated results of
its operations and cash flow position for the periods indicated.
(c) Except as and to the extent set forth on the consolidated balance
sheet of ACSI and its subsidiaries as at February 29, 1996, including the notes
thereto, and except for possible rescission liabilities with respect to the
exercise of certain redeemable common stock purchase warrants and the
transactions contemplated hereby, ACSI and its subsidiaries taken as a whole, do
not have any liabilities or obligations, whether or not accrued, contingent or
otherwise, that would be required to be included on a balance sheet prepared in
accordance with GAAP, except for liabilities or obligations incurred in the
ordinary course of business since February 29, 1996, none of which would,
individually or in the aggregate, have a material adverse effect on the
financial condition, or results of the operations or cash flows of ACSI and its
subsidiaries, on a consolidated basis.
3.11. Stock Issuable in Merger. The Share Consideration, when issued, will
be duly authorized and validly issued, fully paid and non-assessable, will be
delivered hereunder free and clear of any liens, adverse claims, security
interests, pledges, mortgages, charges and encumbrances of any nature
whatsoever, except that the shares of ACSI Common Stock constituting the Shares
Consideration will be "restricted securities", as such term is defined in the
rules and regulations of the SEC promulgated under the Securities Act and will
be subject to restrictions on transfers pursuant to such rules and regulations
and the laws of applicable states.
3.12. Properties. ACSI does not own any real estate. Except as set forth on
Schedule 3.12, ACSI has marketable title to all of the properties and assets,
reflected on its balance sheets or thereafter acquired, except properties or
assets sold or otherwise disposed of in the ordinary course of business, free
and clear of any and all Liens, other than Liens not yet due and payable or
being contested in good faith by appropriate proceedings, and other than such
Liens or imperfections of title, if any, which are not substantial in character,
amount or extent and do not materially interfere with the present or continued
use of such property or otherwise materially adversely affect the value or
transferability thereof or otherwise materially impair the business operations
of ACSI as conducted on the date hereof. All plants, structures and material
equipment which are utilized in the business operations
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of ACSI or are material to the condition (financial or otherwise) of ACSI, are
owned or leased by ACSI, are in good operating condition and repair (ordinary
wear and tear excepted) and are adequate and suitable for the purposes for which
they are used. Schedule 3.12 sets forth all (a) real property which is leased
(whether as lessor or lessee) or subject to lease (whether as lessor or lessee)
by ACSI, or which is subject to a title retention or conditional sales agreement
or other security device, and (b) material tangible property which is owned,
leased (whether as lessor or lessee) or subject to contract or commitment of
purchase or sale or lease by ACSI.
3.13. Absence of Changes. Except for any actions taken or to be taken by
ACSI to write off the value carried on its balance sheets as of May 31, 1995 of
the assets with respect to its terminated retail business (as disclosed in the
November 1995 10-Q), there have not been, since February 29, 1996, (a) any
material adverse change (other than as is normal in the ordinary course of
business, e.g., inventory level changes) in the condition (financial or
otherwise), assets, liabilities, business, prospects, results of operations or
cash flows of ASCI (including, without limitation, any such adverse change
resulting from damage, destruction or other casualty loss, whether or not
covered by insurance), (b) any waivers by ASCI of any right, or cancellation of
any debt or claim, of substantial value, (c) any declarations, set asides or
payments of any dividend or other distributions or payments in respect of the
ACSI Common Stock, or (d) any changes in the accounting principles or methods
which are utilized by ACSI.
3.14. No Violation of Law. Neither ACSI nor Subsidiary are engaging in any
activity or omitting to take any action as a result of which both (a) it is in
violation of any law, rule, regulation, zoning or other ordinance, statute,
order, injunction or decree, or any other requirement of any court or
governmental or administrative body or agency, applicable to either ACSI or
Subsidiary, their respective business operations or any of their respective
assets, including, but not limited to, those relating to: occupational safety
and health matters; issues of environmental and ecological protection (e.g., the
use, storage, handling, transport or disposal of pollutants, contaminants or
hazardous or toxic materials or wastes, and the exposure of persons thereto);
business practices and operations; labor practices; employee benefits; and
zoning and other land use, and (b) ACSI or Subsidiary, their business operations
and/or any of their assets have been, or may be, materially and adversely
affected thereby.
3.15. Intangibles/Inventions. To the best knowledge of ACSI, ACSI does not
own any intellectual property other than to its tradename, as more particularly
set forth on Schedule 3.15 hereof. ACSI is the licensee from third parties of
intellectual property with regard to (i) the television series
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known as "Baywatch", (ii) the television series known as "The Adventures of
Hyperman" as well as (iii) commercially-available computer software programs.
ACSI has not granted any license to third parties with regard to any of ACSI's
intellectual property and (a) no proceedings have been instituted, are pending,
or are threatened which challenge the rights of ACSI with respect to its
intellectual property, if any, or its use thereof in connection with its
business affairs and/or its assets or the validity thereof and, to the best
knowledge of ACSI, there is no valid basis for any such proceedings; (b) neither
ACSI's ownership of any intellectual property nor its use thereof in connection
with its business operations and/or its assets violates any laws, statutes,
ordinances or regulations, or has at any time infringed upon or violated any
rights of others, or is being infringed by others; and (c) neither the
intellectual property of ACSI nor its use thereof in connection with its
business operations and/or its assets, is subject to any outstanding order,
decree, judgment, stipulation or, except as set forth on Schedule 3.15, any
lien, security interest or other encumbrance.
3.16. Tax Matters.
(a) ACSI has filed with the appropriate governmental agencies all tax
returns and reports required to be filed by it, and has paid in full or
contested in good faith or made adequate provision for the payment of, Taxes (as
defined in Section 2.16(c) hereof) shown to be due or claimed to be due on such
tax returns and reports. The provisions for Taxes which are set forth on its
balance sheets are adequate for all accrued and unpaid taxes of ACSI as of
December 31, 1995, whether (i) incurred in respect of or measured by income of
ACSI for any periods prior to the close of business on that date, or (ii)
arising out of transactions entered into, or any state of facts existing, on or
prior to such date. ACSI has duly withheld all payroll taxes, FICA and other
federal, state and local taxes and other items requiring to be withheld by it
from employer wages, and has duly deposited the same in trust for or paid over
to the proper taxing authorities. ACSI has not executed or filed with any taxing
authority any agreement extending the periods for the assessment or collection
of any Taxes, and is not a party to any pending or, to the best knowledge of
ACSI, threatened, action or proceeding by any governmental authority for the
assessment or collection of Taxes. Within the past three years, the United
States federal income tax returns of ACSI have not been examined by the IRS, nor
have the States of Delaware or California or any taxing authority thereof
examined any merchandize, personal property, sales or use tax returns of ACSI.
(b) ACSI (i) has not agreed to or been required to make any adjustment
pursuant to Section 481(a) of the Code, (ii) has no knowledge that the IRS or
any other taxing authority has proposed any such adjustment or change in
accounting method, and (iii) has no application pending with any
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governmental authority requesting permission for any change in accounting
method.
3.17. Insurance. Schedule 3.17 is a complete and correct list and summary
description of all contracts and policies of insurance relating to any of the
assets of either ACSI or Subsidiary or their respective business operations in
which ACSI or Subsidiary is an insured party, beneficiary or loss payable payee.
Such policies are in full force and effect, all premiums due and payable with
respect thereto have been paid, and no notice of cancellation or termination has
been received by either ACSI or Subsidiary with respect to any such policy.
3.18. Banks; Powers of Attorney. Schedule 3.18 is a complete and correct
list showing (a) the names of each bank in which ACSI or Subsidiary has an
account or safe deposit box and the names of all persons authorized to draw
thereon or who have access thereto, and (b) the names of all persons, if any,
holding powers of attorney from either ACSI or Subsidiary.
3.19. Employee Arrangements. Schedule 3.19 is a complete and correct list
and summary description of all (a) union, collective bargaining, employment,
management, termination and consulting agreements to which ACSI is a party or
otherwise bound, and (b) compensation plans and arrangements; bonus and
incentive plans and arrangements; deferred compensation plans and arrangements;
pension and retirement plans and arrangements; profit-sharing and thrift plans
and arrangements; stock purchase and stock option plans and arrangements;
hospitalization and other life, health or disability insurance or reimbursement
programs; holiday, sick leave, severance, vacation, tuition reimbursement,
personal loan and product purchase discount policies and arrangements; and other
plans or arrangements providing for benefits for employees of ACSI. Said
Schedule also lists the names and compensation of all employees of ACSI whose
earnings during the last fiscal year were $50,000 or more (including bonuses and
other incentive compensation), and all employees who are expected to receive at
least said amount in respect of the current fiscal year.
3.20. Certain Business Matters. Except as is set forth in Schedule 3.20,
(a) ACSI is not a party to or bound by any distributorship, dealership, sales
agency, franchise or similar agreement which relates to the sale or distribution
of any of the products and services of the business operations of ACSI, (b) ACSI
has no sole-source supplier of significant goods or services (other than
utilities) with respect to which practical alternative sources are not available
on comparable terms and conditions, (c) there are no pending or, to the best
knowledge of ACSI, threatened labor negotiations, work stoppages or work
slowdowns involving or affecting the business operations of ACSI, and no union
representation questions exist, and there are no organizing activities, in
respect of any of the employees
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of ACSI, (d) the product and service warranties given by ACSI or by which it is
bound (complete and correct copies or descriptions of which have heretofore been
delivered by ACSI to Superior) entail no greater obligations than are customary
in the business operations of ACSI, (e) ACSI is not a party to or bound by any
agreement which limits its freedom to compete in any line of business or with
any person, or which is otherwise materially burdensome to ACSI, and (f) ACSI is
not a party to or bound by any agreement in which any officer, director or
stockholder of ACSI (or any affiliate of any such person) has, or had when made,
a direct or indirect material interest.
3.21. Certain Contracts. Schedule 3.21 is a complete and correct list of
all material contracts, commitments, obligations and understandings which are
not set forth in any other Schedule delivered hereunder and to which ACSI is a
party or otherwise bound, except for (a) purchase orders from vendors or
customers and (b) each of those which (i) were made in the ordinary course of
business and (ii) either (A) are terminable by ACSI without liability, expense
or other obligation on 30 days' notice or less, or (B) may be anticipated to
involve aggregate payments to or by ACSI of $5,000 (or the equivalent) or less
calculated over the full term thereof, and (C) are not otherwise material to the
business operations of ACSI. Complete and correct copies of all contracts,
commitments, obligations and undertakings set forth on any of the Schedules
delivered pursuant to this Agreement have been furnished by ACSI to Superior.
Except as expressly stated on any of such Schedules, (1) each of them is in full
force and effect, no person or entity which is a party thereto or otherwise
bound thereby is in material default thereunder, and no event, occurrence,
condition or act exists which does (or which with the giving of notice or the
lapse of time or both would) give rise to a material default or right of
cancellation, acceleration or loss of contractual benefits thereunder; (2) there
has been no threatened cancellations thereof, and there are no outstanding
disputes thereunder; and (3) none of them is materially burdensome to ACSI.
3.22. Approvals/Consents. Except as set forth on Schedule 3.22, to the best
knowledge of ACSI and Subsidiary, ACSI currently holds all governmental and
administrative consents, permits, appointments, approvals, licenses,
certificates and franchises which are necessary for the operation of its
business, all of which are in full force and effect. Schedule 3.22 is a complete
and correct list of all such governmental and administrative consents, permits,
appointments, approvals, licenses, certificates and franchises. No material
violations of the terms thereof have heretofore occurred or are known by ACSI to
exist as of the date of this Agreement.
3.23. Information as to ACSI and Subsidiary. (a) None of the
representations or warranties made by ACSI or Subsidiary in this Agreement, or
contained in any of the ACSI
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Documents to be executed and delivered hereto or in connection with the Equity
Funding, if any, or in any Registration Statement or amendment thereto, is or
will be, false or misleading with respect to any material fact, or omits to
state any material fact necessary in order to make the statements therein
contained not misleading.
3.24. Tax Matters. As of the Effective Time and thereafter to the extent
indicated below:
(a) Subsidiary is a corporation newly formed under the California Laws
for the purpose of the Merger and has conducted no business and owns no assets,
real or personal, except such assets of which are required to carry out the
obligations of the Surviving Corporation hereunder.
(b) Subsidiary has conducted no business and owns no assets except
assets required to carry out the obligations of Surviving Corporation hereunder.
(c) As of the date of the Merger, ACSI will be in control of
Subsidiary within the meaning of section 368(c)(1) of the Code.
(d) Following the Merger, Subsidiary will not issue additional shares
of its stock that would result in ACSI losing control of Subsidiary within the
meaning of section 368(c)(1) of the Code, and in any event ACSI shall not cause,
permit or suffer Subsidiary to do so at any time during the two years following
the Effective Time without the prior written consent of Strem, which consent
shall not be unreasonably withheld or delayed.
(e) ACSI has no plan or intention to reacquire any ACSI Common Stock
issued in the Merger pursuant to this Agreement.
(f) ACSI has no plan or intention to liquidate Subsidiary; to merge
Subsidiary with and into another corporation; to sell or otherwise dispose of
the stock of Subsidiary; or to cause, permit or suffer Subsidiary to sell or
otherwise dispose of any of the assets of Superior acquired in the Merger,
except for any dispositions (x) made in the ordinary course of business or
transfers described in section 368(a)(2)(C) of the Code or (y) which do not
result in ACSI losing control of Subsidiary within the meaning of section 386(c)
of the Code and in any event ACSI shall not cause, permit or suffer to occur any
of the foregoing at any time during the two years following the Effective Time,
without the prior written consent of Strem and the Board of Directors of ACSI,
which consents shall not be unreasonably withheld or delayed.
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(g) Following the Merger, Subsidiary will continue the Business and,
in the course thereof, use substantially all of Superior's business assets in
such Business.
(h) ACSI and Subsidiary are not investment companies as defined in
section 368(a)(2)(F)(iii) and (iv) of the Code.
(i) No stock of Subsidiary is held or will, at any time during the two
years following the Effective Time, be issued to any person, other than (x)
stock of Subsidiary issued to ACSI in connection with formation of Subsidiary
for purposes of the Merger or (y) stock of Subsidiary issued to persons other
than ACSI so long as ACSI retains, at all times, control of Subsidiary within
the meaning of section 368(c) of the Code.
(j) There is no agreement or understanding on the part of ACSI or
Subsidiary to take any action which is prohibited by the foregoing provisions of
this Section 3.24.
3.25. ACSI Not Foreign-Owned. ACSI has no knowledge of any foreign
(non-United States Person) beneficial holder of ACSI Common Stock; provided,
however, that ACSI has not undertaken any independent investigation as to the
same.
3.26. Borrowing. Except as otherwise set forth in the SEC Reports, neither
ACSI nor Subsidiary has any notes, loan agreements, indentures, and other
contracts evidencing any indebtedness.
4. Indemnification.
4.1. Indemnification by the Trustees and Strem. Each of the Trustees and
Strem, jointly and severally, hereby indemnifies and agrees to defend and hold
harmless each of ACSI and Subsidiary from and against any and all losses,
obligations, deficiencies, liabilities, claims, damages, costs and expenses
(including, without limitation, the amount of any settlement entered into
pursuant hereto, and all reasonable legal and other expenses incurred in
connection with the investigation, prosecution or defense of any matter
indemnified pursuant hereto) which either of them may sustain, suffer or incur
and which arise out of, are caused by, relate to, or result or occur from or in
connection any misrepresentation of a material fact contained in any
representation of Superior, the Trustees and/or Strem contained in, or the
breach by Superior, the Trustees or Strem of any warranty or covenant made by
any one or all of them in, any Superior Document and/or Strem Document.
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4.2. Indemnification by ACSI and Subsidiary. Each of ACSI and Subsidiary,
jointly and severally, indemnifies and agrees to defend and hold harmless each
of Superior (before the Effective Time) and the Trustees and Strem from and
against any and all losses, obligations, deficiencies, liabilities, claims,
damages, costs and expenses (including, without limitation, the amount of any
settlement entered into pursuant hereto, and all reasonable legal and other
expenses incurred in connection with the investigation, prosecution or defense
of any matter indemnified pursuant hereto), which it or he may sustain, suffer
or incur and which arise out of, are caused by, relate to, or result or occur
from or in connection with any misrepresentation of a material fact contained in
any representation of ACSI and/or Subsidiary contained in, or the breach by ACSI
or Subsidiary of any warranty or covenant made by either or both of them in, any
ACSI Document.
4.3. Direct Claim. If a party hereto has a direct claim for indemnity under
this Section 4, then such party shall give notice to the other parties, with
details of such claim. If the parties hereto cannot reach agreement within 30
days after such notice, then the party with such claim may pursue their claim in
arbitration pursuant to Section 11 hereof.
4.4. Third Party Claims. If a claim by a third party is made against any
party or parties hereto and the party or parties against whom said claim is made
intends to seek indemnification with respect thereto under Subsections 4.1 or
4.2, the party or parties seeking such indemnification shall promptly notify the
indemnifying party or parties, in writing, of such claim, providing such details
of the claim (including the claimed amount) as are then known; provided,
however, that the failure to give such notice shall not affect the rights of the
indemnified party or parties hereunder except to the extent that such failure
materially and adversely affects the indemnifying party or parties due to the
inability to timely defend such action. The indemnifying party or parties shall
have 10 business days after said notice is given to elect, by written notice
given to the indemnified party or parties, to undertake, conduct and control,
through counsel of their own choosing (subject to the consent of the indemnified
party or parties, such consent not to be unreasonably withheld) and at their
sole risk and expense, the good faith settlement or defense of such claim, and
the indemnified party or parties shall cooperate with the indemnifying parties
in connection therewith; provided that: (a) all settlements shall require the
prior reasonable consultation with the indemnified party and the prior written
consent of the indemnified party, which consent shall not be unreasonably
withheld, and (b) the indemnified party or parties shall be entitled to
participate in such settlement or defense through counsel chosen by the
indemnified party or parties, provided that the fees and expenses of such
counsel shall be borne by the indemnified party or parties. So long as the
indemnifying party
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or parties are contesting any such claim in good faith, the indemnified party or
parties shall not pay or settle any such claim; provided, however, that
notwithstanding the foregoing, the indemnified party or parties shall have the
right to pay or settle any such claim at any time, provided that in such event
they shall waive any right of indemnification therefor by the indemnifying party
or parties. If the indemnifying party or parties do not make a timely election
to undertake the good faith defense or settlement of the claim as aforesaid, or
if the indemnifying parties fail to proceed with the good faith defense or
settlement of the matter after making such election, then, in either such event,
the indemnified party or parties shall have the right to contest, settle or
compromise (provided that all settlements or compromises require the prior
reasonable consultation with the indemnifying party and the prior written
consent of the indemnifying party, which consent shall not be unreasonably
withheld) the claim at their exclusive discretion, at the risk and expense of
the indemnifying parties.
4.5. Assistance. Regardless of which party is controlling the defense of
any claim, each party shall act in good faith and shall provide reasonable
documents and cooperation to the party handling the defense.
4.6. Exclusive Remedy. The provisions of this Section 4 shall be the sole
and exclusive remedy, other than equitable relief, of the parties hereto.
4.7. Limitations.
(a) ACSI and Subsidiary shall not be entitled to any claim for
indemnification under this Section 4 until the aggregate amount of losses, for
which indemnity is claimed exceeds $50,000, and once such threshold amount is
met, then the indemnity shall apply to amounts over such threshold.
(b) Anything in this Agreement to the contrary notwithstanding, the
aggregate liability of the Trustees and Strem under this Section 4 shall in no
event exceed, in the aggregate, the Merger Consideration.
(c) The Trustees and Strem may discharge any indemnity obligation (the
"Indemnity Obligations") to ACSI and Subsidiary by paying cash or transferring
shares of ACSI Common Stock, pursuant to the following formula: (i) for the
first $100,000 of the Indemnity Obligations over and above that threshold amount
set forth in paragraph (a) above, by payment in cash only and (ii) for any
Indemnity Obligations thereafter, by payment in cash with respect to 40% of such
Indemnity Obligations and by transferring back to ACSI shares of ACSI Common
Stock, valued as provided herein, with respect to the other 60% of such
Indemnity Obligations. For purposes of the foregoing sentence, the ACSI Common
Stock held by the Trustees
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shall be valued at fifty percent (50%) of the average closing price on the
NASDAQ Small-Cap Market of ACSI Common Stock for the twenty (20) trading days
prior to the date at which the Indemnity Obligations are [A] determined by the
arbitration panel in accordance with the provisions of Section 11 hereof or [B]
agreed to by the Trustees and ACSI.
5. Covenants
5.1. Investigation.
(a) Between the date hereof and the earlier of the Closing Date or the
termination date of this Agreement specified in Section 9 hereof, ACSI and/or
Subsidiary, on the one hand, and Superior and/or the Trustees, on the other
hand, may, directly and through their representatives, make such investigation
of each other corporate party and their respective businesses and assets as each
deems necessary or advisable (the entity and/or its representatives making such
investigation being the "Investigating Party"), but such investigation shall not
affect any of the representations and warranties contained herein or in any
instrument or document delivered pursuant hereto. In furtherance of the
foregoing, the Investigating Party shall have reasonable access, during normal
business hours, to all properties, books, contracts, commitments and records of
each other, and shall furnish to the other and their representatives such
financial and operating data and other information as may from time to time be
reasonably requested relating to the transactions contemplated by this
Agreement. Each of ACSI and Subsidiary, on the one hand, and Superior and the
Trustees, on the other, and the respective management, employees, accountants
and attorneys of the corporate parties shall cooperate fully with the
Investigating Party in connection with such investigation.
(b) The parties hereto hereby agree that all confidential information
of a party to which an Investigating Party obtains access shall be governed by
and subject to all of the terms and conditions of the confidentiality letter
agreement dated March 5, 1996 ("Confidentiality Agreement") among various
parties, including the parties hereto (with ACSI signing on behalf of
Subsidiary) and Subsidiary agrees to be bound to the Confidentiality Agreement.
5.2. Consummation of Transaction. Each of the parties hereto hereby agrees
to use all reasonable efforts to cause all conditions precedent to his or its
obligations (and to the obligations of the other parties hereto to consummate
the transactions contemplated hereby) to be satisfied, including, but not
limited to, using all reasonable efforts to obtain all required (if so required
by this Agreement) consents, waivers, amendments, modifications, approvals,
authorizations, novations
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and licenses; provided, however, that nothing herein contained shall be deemed
to modify any of the absolute obligations imposed upon any of the parties hereto
under this Agreement or any agreement executed and delivered pursuant hereto.
5.3. Lender/Lessors of Superior.
(a) Strem shall use his reasonable efforts to obtain a written waiver,
forbearance or similar document from Superior's bank lender, California United
Bank with respect to any defaults by Superior or Just Jackets Corporation under
any provision of the loan/credit documents, including but not limited to
violations of any cross-default provisions as a result of any failure by
Superior, the Trustees, or Strem to obtain the necessary consents from equipment
vendors, lessors, or licensors of Superior or Just Jackets Corporation.
(b) Strem shall execute on behalf of Superior a letter announcing the
Merger, in the form as mutually agreed to by Strem and Steve Natale (the "Vendor
Announcement"), which Vendor Announcement shall be delivered simultaneously at
the Closing to any and all vendors for which Strem had personally guaranteed
credit lines on behalf of Superior.
(c) Strem shall use his reasonable efforts to obtain prior to the
Closing the consent of the landlord(s) as to the assignment of the office leases
set forth on Schedule 2.10 (item 1).
(d) ACSI, Strem, and his wife shall execute a cross-indemnification
agreement, in the form of Exhibit 5.3(d) attached hereto (the "Cross-Indemnity
Agreement").
(e) Strem shall be obligated to pay any penalties, fees, extraordinary
costs or additional debt, liability or obligation incurred as a result of
releasing Strem from any Guaranty or obtaining any consents and/or transfer of
the credit facilities, leases and vendors contracts as contemplated in this
Section 5.3, up to an aggregate amount of $5,000 (collectively, the "Release
Fees").
(f) Notwithstanding anything to the contrary contained in this Section
5.3, Superior, the Trustees and Strem shall not be required to obtain the
consent to the Merger from any equipment lessor (which has leased equipment to
Superior) or from any computer software licensor.
5.4. Cooperation/Further Assurances.
(a) Each of the parties hereto hereby agrees to cooperate fully with
the other parties hereto in preparing and filing any notices, applications,
reports and other instruments and documents which are required by, or which are
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desirable in the reasonable opinion of any of the parties hereto, or their
respective legal counsel, in respect of, any statute, rule, regulation or order
of any governmental or administrative body in connection with the transactions
contemplated by this Agreement.
(b) Each of the parties hereto hereby further agrees to execute,
acknowledge, deliver, file and/or record, or cause such other parties to the
extent permitted by law to execute, acknowledge, deliver, file and/or record
such other documents as may be required by this Agreement and as ACSI and/or
Subsidiary, on the one hand, and/or Superior and/or the Trustees, on the other,
or their respective legal counsel may reasonably require in order to document
and carry out the transactions contemplated by this Agreement.
5.5. Accuracy of Representations. Each party hereto agrees that prior to
the Closing Date he or it will enter into no transaction and take no action, and
will use his or its best efforts to prevent the occurrence of any event (but
excluding events which occur in the ordinary course of business and events over
which such party has no control), which would result in any of his or its
representations, warranties or covenants contained in this Agreement or in any
agreement, document or instrument executed and delivered by him or it pursuant
hereto not to be true and correct, or not to be performed as contemplated, at
and as of the time immediately after the occurrence of such transaction or
event.
5.6. Notification of Certain Matters. Superior and the Trustees shall give
prompt notice to ACSI and Subsidiary, and ACSI or Subsidiary shall give prompt
notice to Superior and the Trustees, as the case may be, of (a) the occurrence,
or nonoccurrence, or any event the occurrence, or nonoccurrence, of which would
be likely to cause any representation contained in this Agreement to be untrue
or inaccurate in any material respect at or prior to the Effective Time and (b)
any material failure of Superior and/or the Trustees, on the one hand, and of
ACSI and/or Subsidiary, on the other, to comply with or satisfy any covenant,
condition or agreement to be complied with or satisfied by him or it hereunder;
provided, however, that the delivery of any notice pursuant to this Subsection
5.5 shall not limit or otherwise affect the remedies available hereunder to the
party receiving such notice.
5.7. Proxy Statement; Registration Statement. (a) To the extent that the
Board of Directors for ACSI determines that it is necessary or advisable for a
special meeting of the stockholders of ACSI to be held to approve the
consummation of the transactions contemplated hereby, ACSI shall cause to be
promptly prepared and filed with the SEC a proxy statement (the "Proxy
Statement") relating to such special
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meeting of the holders of ACSI Common Stock at which such Proxy Statement shall
solicit, inter alia, the approval of the Merger and the implementation thereof
upon the terms and subject to conditions set forth herein, an amendment to
ACSI's By-Laws to provide for an increase in the number of directors on ACSI's
Board of Directors and the approval of this Agreement. ACSI shall make the
decision of whether or not to hold a special meeting of stockholders promptly
(and no later than seven (7) days) after the date of this Agreement. ACSI shall
use all reasonable efforts to have the Proxy Statement cleared by the SEC as
promptly as practicable, and Superior and the Trustees shall cooperate with ACSI
in providing information deemed necessary or advisable by counsel for ACSI to be
included in such Proxy Statement and in obtaining such clearance. Superior and
the Trustees shall, within five (5) business days of receipt of such statement,
have the right to conduct a reasonable review, to request reasonable changes and
to approve portions of the Proxy Statement with respect to the accuracy of
information relating to Superior or the Trustees. Promptly after the Proxy
Statement has cleared the SEC, ACSI shall thereafter mail the Proxy Statement to
the ACSI stockholders. The term "Proxy Statement" shall mean such proxy or
information statement at the time it initially is mailed to the ACSI
stockholders and all amendments and supplements thereto, if any, similarly filed
and mailed.
(b) ACSI shall cause to be promptly prepared and filed with the SEC a
Post Effective Amendment to its Form SB-2 registration statement (the
"Registration Statement") covering certain equity securities of ASCI to be
issued. ACSI shall use all reasonable efforts to have the Registration Statement
cleared by the SEC as promptly as practicable, and Superior and the Trustees
shall cooperate with ACSI in providing information deemed necessary or advisable
by counsel for ACSI to be included in such Registration Statement and in
obtaining such clearance. Superior and the Trustees shall, within five (5)
business days of receipt of such statement, have the right to conduct a
reasonable review, to request reasonable changes and to approve portions of the
Registration Statement with respect to the accuracy of information relating to
Superior or the Trustees. The term "Registration Statement" shall mean such
registration statement at the time it initially is mailed to the SEC and all
amendments and supplements thereto, if any, similarly filed and mailed.
5.8. Broker. Each of ACSI, Subsidiary, Superior, the Trustees and Strem
represents and warrants to the other parties that, except for the services
provided, or to be provided, by The Boston Group, LLP ("Boston") in connection
with the Equity Funding (as defined in Subsection 5.9 hereof) undertaken by
ACSI, no other broker or finder has been engaged or dealt with in connection
with any of the transactions contemplated by this Agreement, and each of the
parties shall indemnify and hold the other harmless from and against any and
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all claims or liabilities asserted by or on behalf of any alleged broker or
finder (other than Boston) for broker's fees, finder's fees, commissions or like
payments; provided, however, that ACSI shall be responsible for, and shall pay,
all expenses and commissions due and owing to Boston, pursuant to any agreement
between ACSI and Boston.
5.9. Merger Costs. Except as otherwise provided in Subsection 9.3 hereof
concerning termination of this Agreement, ACSI shall be responsible for, and
shall pay, any and all applicable sales taxes, transfer taxes and similar
charges resulting from the Merger, and all legal fees, accounting fees, advisor
fees (but not the Mentor Group), and other fees and expenses reasonably incurred
by Superior, the Trustees and Strem in preparation for or in consummation of the
Merger, including such costs arising in connection with all negotiations with
ACSI, or its officers or authorized representatives, leading up to the Merger
and the preparation of necessary agreements (including this Agreement, the
Confidentiality Agreement and the letter of intent). Notwithstanding the
foregoing, ACSI shall not be responsible for any costs relating to advice or
assistance sought by Strem or any of the principals and/or shareholders of
Superior with respect to personal tax planning and money management strategies
(including without limitation advice from the Mentor Group with respect to
personal tax planning and money management strategies).
5.10. Equity Funding. The parties hereto each acknowledge that funding in
the amount of at least $3,500,000 for the transactions contemplated by this
Agreement and the Agreement of even date herewith regarding a merger of Just
Jackets Corporation and a subsidiary of ACSI shall be raised by ACSI either by
selling in a private placement shares of ACSI Common Stock, calling for
redemption and soliciting the exercise of the outstanding redeemable common
stock purchase warrants of ACSI presently outstanding, and/or a combination of
the two (collectively, the "Equity Funding"), employing the services of Boston
as placement or soliciting agent. To effect the Equity Funding, ACSI agrees and
covenants to use its best reasonable efforts to negotiate, prepare and enter
into such agreements, as well as to take or cause to be taken such actions, as
are necessary and proper to promptly effectuate the Equity Funding.
5.11. No Solicitation of Transactions.
(a) Prior to the earlier of the Effective Time or the termination of
this Agreement in accordance with its terms, none of the Trustees, Strem or
Superior will, directly or indirectly, through any director, officer, employee,
agent or otherwise, solicit, initiate or encourage the submission of proposals
or offers from any person relating to any acquisition or purchase of all or
(other than in the ordinary course of business) any portion of the Assets or
Business of, or
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any equity interest in, Superior, or any business combination with Superior
(other than the Merger) or, except to the extent required by fiduciary
obligations under applicable law, as advised by counsel in writing, and other
than with ACSI and/or Subsidiary, participate in any negotiations regarding, or
furnish to any other person any information with respect to, or otherwise
cooperate in any way with, or assist or participate in, facilitate or encourage,
any effort or attempt by any other person to do or seek any of the foregoing.
Except to the extent required by fiduciary obligations under applicable law, as
advised by counsel in writing, the Trustees, Strem and Superior shall
immediately cease and cause to be terminated any existing discussions or
negotiations with any parties conducted heretofore with respect to any of the
foregoing (other than in respect of the transaction contemplated hereby). The
Trustees, Strem and Superior shall promptly notify ACSI if any such proposal or
offer, or any inquiry or contact with any person with respect thereto, is made
and shall, in any such notice to ACSI, indicate in reasonable detail the
identity of the offeror and the terms and conditions of any proposal or offer.
(b) Prior to the earlier of the Effective Time or the termination of
this Agreement, ACSI shall not, directly or indirectly (i) sell a controlling
equity interest in ACSI or Subsidiary, (ii) sell all or substantially all of the
assets of ACSI or Subsidiary, (iii) merge ACSI or Subsidiary with or into
another entity, other than pursuant to the Merger, (iv) purchase the assets or
equity interest of another entity, or (v) enter into any negotiations or
agreements related to any of the foregoing.
5.12. Employment Agreement Between Strem and ACSI. At the Closing, each of
Strem and ACSI will enter into an employment agreement substantially in the form
of Exhibit 5.12 hereto (the "Employment Agreement").
5.13. Management and Administrative Matters at ACSI. ACSI shall, effective
at the Closing, take any and all steps or actions reasonably necessary to effect
the following:
(a) amendment of the By-Laws of ACSI to provide for an increase in the
number of directors on the Board of Directors of ACSI from two (2) to five (5)
members, whereupon ACSI shall cause the Board to nominate Strem and a nominee of
Boston to fill two (2) of the vacancies and thereafter, cause the Board, as then
constituted, to nominate two (2) additional directors. Such directors shall
serve until their successors are duly elected and qualified, with each to hold
office in accordance with the Articles of Incorporation and By-Laws of ACSI.
(b) nomination and appointment of Strem as President of Subsidiary to
serve for a three (3) year term or
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until his successor is duly elected and qualified in accordance with the
Articles of Incorporation and By-Laws of Subsidiary.
(c) amendment of the ACSI stock option plan currently in effect to
provide, in the reasonable determination of the ACSI Board of Directors, for an
increase in the number of shares of ACSI Common Stock available for grant of
stock options thereunder to directors, officers and employees of ACSI and its
subsidiaries.
5.14. Prohibited Conduct. Each of Superior, the Trustees and Strem, jointly
and severally, covenants and agrees that, during the period from the date hereof
to the earlier to occur of July 31, 1996, or the Effective Time, except pursuant
to the terms hereof or unless ACSI shall otherwise agree in writing, the
Business shall be conducted only, and Superior shall not take any action except,
in the ordinary course of business and in a manner consistent with past practice
and in compliance with applicable laws; and Superior shall use its reasonable
efforts to preserve intact its Assets, the Business and the business
organization of Superior, to keep available the services of the present
officers, employees and consultants of Superior, and to preserve the present
relationships of Superior with customers, suppliers and other persons with whom
Superior has business relations. By way of illustration, and not limitation,
neither Superior, the Trustees nor Strem shall, between the date of this
Agreement and the earlier to occur of July 31, 1996 or the Effective Time,
directly or indirectly do, or propose or commit to do, any of the following
without the prior written consent of ACSI:
(a) (i) declare, set aside or pay any dividends on, or make any other
distributions in respect of, any of the Superior Common Stock, or (ii) split,
combine or reclassify any of the Superior Common Stock or issue or authorize the
issuance of any other securities in respect of, in lieu of or in substitution
for shares of the Superior Common Stock, or otherwise;
(b) authorize for issuance, issue, deliver, sell or agree to commit to
issue, sell or deliver (whether through the issuance or granting of options,
warrants, commitments, subscriptions, rights to purchase or otherwise), pledge
or otherwise encumber, any shares of Superior Common Stock, any other voting
securities or any securities convertible into, or any rights, warrants or
options to acquire, any such shares, voting securities convertible securities or
any other securities or equity equivalents;
(c) (i) increase the compensation payable or to become payable to any
officer, director, employees or consultant of Superior, except pursuant to the
terms of contracts, policies or benefit arrangements in effect on the date
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hereof, or (ii) grant any severance or termination pay to, or enter into any
employment or severance agreement with, any director, officer, other employee or
consultant of Superior or any of its subsidiaries, except pursuant to the terms
of contracts, policies and benefit arrangements in effect on the date hereof, or
(iii) establish, adopt, enter into or amend any collective bargaining (other
than in accordance with past practice), bonus, profit sharing, thrift,
compensation, stock option, restricted stock, pension, retirement, deferred
compensation, employment, termination, severance or other plan, agreement,
trust, fund, policy or arrangement for the benefit of any directors, officers,
employees or consultants of Superior;
(d) amend the Articles of Incorporation, By-Laws or other comparable
charter or organizational documents of Superior or alter through merger,
liquidation, reorganization, restructuring, or in any other fashion, the
corporate structure or ownership of Superior;
(e) acquire, or agree to acquire, (i) by merging or consolidating
with, or by purchasing a substantial portion of the stock or assets of, or by
any other manner, any business or corporation, partnership, joint venture,
association or other business organization or division thereof, or (ii) any
assets that are material, individually or in the aggregate, to Superior, except
purchases consistent with past practice and except as otherwise provided for
with respect to that new printing machine and new film output device;
(f) sell, lease, license, mortgage or otherwise encumber or subject to
any lien, security interest, pledge or encumbrance or otherwise dispose of any
of the Assets, except sales in the ordinary course of business consistent with
past practice;
(g) except for loans from ACSI and except for actions or inactions due
to discussions with or actions or inactions by California United Bank regarding
the waiver or nonwaiver of defaults of Superior of its loan covenants with such
bank, (i) permit Superior to incur any indebtedness for borrowed money or
guarantee any such indebtedness of another person, issue or sell any debt
securities or warrants or other rights to acquire any debt securities of
Superior, guarantee any debt securities of another person, or enter into any
arrangement having the economic effect of any of the foregoing, except for
short-term borrowings incurred in the ordinary course of business consistent
with past practice, or (ii) permit the Trustees or Strem to issue any guaranties
of any indebtedness of Superior;
(h) except in the ordinary course of business and except for matters
relating to discussions with or actions or inactions by California United Bank
regarding the waiver or nonwaiver of defaults of Superior of its loan covenants
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with such bank, enter into any agreement, contract, commitment, involving a
commitment on the part of Superior to purchase, sell, lease or otherwise dispose
of assets or require payment by Superior in excess of $50,000;
(i) except for the capital expenditures for the purchase of a new
printing machine and the purchase of a new film output device, make any material
capital expenditures;
(j) adopt a plan of complete or partial liquidation of Superior or
resolutions providing for or authorizing such a liquidation or the dissolution,
merger, consolidation, restructuring, recapitalization or reorganization of
Superior;
(k) cause Superior to recognize any labor union (unless legally
required to do so) or enter into or amend any collective bargaining agreement;
(l) change any accounting principles used by Superior, unless required
by the SEC or the Financial Accounting Standards Board;
(m) make any tax election of, or settle or compromise any income tax
liability of Superior, which, in the case of any of the foregoing, is material
to the business, financial condition or results of the operations of Superior
and its subsidiaries, if any, taken as a whole;
(n) settle or compromise any litigation in which any of Superior is a
defendant (whether or not commenced prior to the date of this Agreement) or
settle, pay or compromise any claims not required to be paid, which payments are
individually in an amount in excess of $5,000 and in the aggregate in an amount
in excess of $50,000; and
(o) authorize any of, or commit or agree to take any of, the foregoing
actions.
5.15. Tax Covenants. The parties intend that the Merger constitutes a
tax-free reorganization by statutory merger of Superior with and into Surviving
Corporation within the meaning of section 368(a)(1)(A) and section 368(a)(2)(D)
of the Code and corresponding provisions of state income tax law, and the
parties agree to file all reports and statements with the IRS and state tax
authorities necessary to reflect such status and not to take any position
thereon or otherwise that is or would be inconsistent with such treatment.
5.16. Working Capital. At the Effective Time, ACSI agrees to provide, upon
a consolidated basis, not less than $1,000,000 as additional working capital, to
Subsidiary and JJI/ASCI Acquisition Corp. (a wholly-owned subsidiary of ACSI),
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which monies shall be in addition to the monies needed to pay the Cash
Consideration and, to the extent necessary, to satisfy any costs associated with
assuming, or procuring a new line of credit for the Surviving Corporation in
place of, as the case may be, the existing accounts receivable line of credit
which Superior has with California United Bank.
5.17. Reporting. ACSI hereby agrees that for ASCI's financial reporting
purposes and for ACSI's tax purposes in connection with the Share Consideration,
ACSI shall not utilize a value per share which represents a discount of more
than twenty-five percent (25%) from the public closing bid quotation for the
ACSI Common Stock (as reported by NASDAQ) on the last NASDAQ trading day prior
to the Effective Time.
6. Closing Conditions
6.1. Conditions to Obligations of ACSI and Subsidiary to Effect the Merger.
The respective obligations of ACSI and Subsidiary to effect the Merger shall be
subject to the fulfillment at or prior to the Closing Date of the following
conditions:
(a) Accuracy of Representations and Warranties. The representations
and warranties of each of Superior, the Trustees and Strem contained in any
Strem Document or Superior Document delivered by either or both of them shall
have been true when made, and, in addition, shall be true in all material
respects on and as of the Closing Date with the same force and effect as though
made on and as of the Closing Date.
(b) Performance of Agreements. Each of Superior, the Trustees and
Strem, as the case may be, shall have performed, observed and complied in all
material respects with all of their obligations, covenants and agreements, and
shall have satisfied or fulfilled in all material respects conditions contained
in any Strem Document or Superior Document and required to be performed,
observed or complied with, or to be satisfied or fulfilled, by Superior, the
Trustees and/or Strem at or prior to the Closing Date.
(c) Results of Investigation. ACSI and Subsidiary shall be satisfied
with the results of any investigation of the business and affairs of Superior
undertaken by them pursuant to Subsection 5.1 hereof. For purposes hereof,
"satisfactory" shall mean that the results of such investigation do not indicate
that a material adverse change has occurred in the condition, financial or
otherwise, business, results of operations, cash flows or prospects of Superior
from the Interim Financial Statements.
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(d) Audited Superior Financial Statements. ACSI shall have received
and reviewed to its satisfaction the Audited Financial Statements of Superior,
as at and for the period ending December 31, 1995, reported on by Singer, Lewak,
Greenbaum & Goldstein.
(e) The Equity Funding. The Equity Funding shall have been
successfully concluded, resulting in sufficient net proceeds to ACSI to provide
for the Cash Consideration and the Merger and at least $1,000,000 to be made
available, upon a consolidated basis, to Subsidiary and JJI/ASCI Acquisition
Corp., as additional working capital immediately after the Closing.
(f) The Registration Statement. The Registration Statement shall have
been successfully filed and become effective for purposes of the Equity Funding.
(g) Stockholder Approval. If the Board of Directors of ACSI shall have
determined that a special meeting of the stockholders of ACSI shall be called,
such meeting shall be duly held and the Merger, the transaction contemplated
herein, and the other matters to be voted upon at such meeting as specified in
the notice of meeting under the Proxy Statement shall have been approved and
adopted by the requisite vote of the stockholders of ACSI.
(h) Opinion of Counsel for Superior. ACSI and Subsidiary shall have
received an opinion of Sheppard, Mullin, Richter & Hampton LLP, counsel for
Superior, the Trustees and Strem, dated the Closing Date, in substantially the
form of Exhibit 6.1(h) hereto.
(i) Litigation. No order of any court or administrative agency shall
be in effect which restrains or prohibits the transactions contemplated hereby,
and no claim, suit, action, inquiry, investigation or proceeding in which it
will be, or it is, sought to restrain, prohibit or change the terms of or obtain
damages or other relief in connection with this Agreement or any of the
transactions contemplated hereby, shall have been instituted or threatened by
any person or entity, and which, in the reasonable judgment of ACSI (based on
the likelihood of success and material consequences of such claim, suit, action,
inquiry or proceeding), makes it inadvisable to proceed with the consummation of
such transactions.
(j) Consents and Approvals. Subject to the provisions of Section 5.3
hereof, all consents, waivers, approvals, licenses and authorizations by third
parties and governmental and administrative authorities (and all amendments or
modifications to existing agreements with third parties) required under this
Agreement as a precondition to the performance by Superior, the Trustees and
Strem of their
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respective obligations hereunder and under any agreement attached as Exhibits
hereto and delivered pursuant hereto, shall have been duly obtained and shall be
in full force and effect.
(k) Date of Consummation. The Merger shall have been consummated on or
prior to July 31, 1996, or such later date as the parties shall agree by a
written instrument signed by all of them.
(l) Validity of Transactions. The validity of all transactions
contemplated hereby, as well as the form and substance of all agreements,
instruments, opinions, certificates and other documents delivered by Superior,
the Trustees and Strem pursuant hereto, shall be satisfactory in all material
respects to ACSI and its counsel.
(m) No Material Adverse Change. There shall not have occurred after
the date hereof, in the reasonable judgment of ACSI, a material adverse change
in the financial or business condition of Superior; provided, however, that any
change arising out of or related to any action or inaction by California United
Bank regarding the waiver or nonwaiver of defaults of Superior of its loan
covenants with such bank shall not constitute a material adverse change for
purposes hereof.
(n) Employment Agreement. Strem shall have executed and delivered the
Employment Agreement with ACSI.
(o) Employment. Each of Steve Natale and Christopher Ebert shall have
executed and delivered separate employment agreements with ACSI.
(p) Satisfaction of Officer/Director Loans from Superior. All loans or
other indebtedness due from Strem to Superior, including without limitation that
certain loan in the amount of $20,000, as reflected on the Balance Sheet, shall
have been paid, irrespective of any other due date contained in the documents
executed in connection with any such loan or indebtedness.
(q) Closing Certificate. Strem shall have furnished ACSI and
Subsidiary with certificates, executed by him, individually, as President of
Superior and, together with Janet C. Strem, as Trustees, dated the Closing Date,
to the effect that all the representations and warranties of Superior, the
Trustees and Strem are true and complete in all material respects and all
covenants to be performed by Superior, the Trustees or Strem at or as of the
Closing have been performed in all material respects and conditions to be
satisfied at or as of the Closing have been waived or satisfied in all material
respects.
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(r) Merger with Just Jackets Corporation. All the transactions to be
consummated on or before the closing, pursuant to that certain Agreement and
Plan of Merger entered concurrently with this Agreement by and among Just
Jackets Corporation, the shareholders thereof, ACSI and a wholly-owned
subsidiary of ACSI formed for purposes thereof (the "Jackets Merger"), shall
have been effected, including without limitation, the employment agreement
between such subsidiary and Bruce Sacks.
(s) Office Facilities. Strem and Superior shall have made the
necessary arrangements to permit the relocation of the principal executive
offices of ACSI and Subsidiary to the current office location of Superior.
(t) Release Fees. Strem shall have paid any Release Fees, as provided
in Subsection 5.3(e) hereof, incurred with respect to releasing the Guaranties
(defined in Subsection 2.8 hereof) and/or obtaining any consents in accordance
with Section 5.3 hereof.
(u) Lock-Up Agreement. The Trustees shall have executed a lock-up
agreement, substantially in the form of Exhibit 6.1(u) hereto (the "Lock-Up
Agreement"), to become effective upon the Closing, whereby the Trustees
covenants and agrees, for a period of one (1) year from the Effective Time, not
to sell, assign, transfer, or otherwise dispose under Rule 144 or other
applicable securities law 1,000,000 shares of ACSI Common Stock (held of record
or beneficially by it).
(v) Waiver of California United Bank. Strem shall have obtained a
waiver, forbearance or similar document from California United Bank pursuant to
Subsection 5.3(a) hereof.
(w) Cross Indemnity Agreement. Strem shall have executed the
Cross-Indemnity Agreement pursuant to Subsection 5.3(d).
6.2. Conditions to Obligations of Superior, the Trustees and Strem to
Effect the Merger. The obligations of Superior, the Trustees and Strem to effect
the Merger shall be subject to the fulfillment at or prior to the Closing Date
of the following conditions:
(a) Accuracy of Representations and Warranties. The representations
and warranties of ACSI and Subsidiary contained in any ACSI Documents delivered
by either ACSI or Subsidiary or both of them shall have been true when made,
and, in addition, shall be true in all material respects, on and as of the
Closing Date with the same force and effect as though made on and as of the
Closing Date.
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(b) Performance of Agreements. Each of ACSI and Subsidiary shall have
performed, observed and complied, in all material respects, with all
obligations, covenants and agreements, and shall have satisfied or fulfilled in
all material respects all conditions contained in any ACSI Document and required
to be performed, observed or complied with, or satisfied or fulfilled, by either
or both of them at or prior to the Closing Date.
(c) Results of Investigation. Superior and the Trustees shall be
satisfied with the results of any investigation of the business and affairs of
ACSI and Subsidiary undertaken by it or them pursuant to Subsection 5.1 hereof.
For purposes hereof, "satisfactory" shall mean that the results of such
investigation do not indicate that a material adverse change has occurred in the
condition, financial or otherwise, business, results of operations, cash flows
or prospects of ACSI and its subsidiaries, taken as a whole, as set forth in the
February 1996 10Q filed by ACSI with the SEC.
(d) Opinion of Counsel for ACSI and Subsidiary. Superior, the Trustees
and Strem shall have received an opinion of Tenzer Greenblatt LLP, counsel for
ACSI and Subsidiary, dated the Closing Date, in substantially the form of
Exhibit 6.2(d) attached hereto and made a part hereof.
(e) Litigation. No order of any court or administrative agency shall
be in effect which restrains or prohibits the transactions contemplated hereby,
and no claim, suit, action, inquiry, investigation or proceeding in which it
will be, or it is, sought to restrain, prohibit or change the terms of or obtain
damages or other relief in connection with this Agreement or any of the
transactions contemplated hereby shall have been instituted or threatened by any
person or entity, and which in the reasonable judgment of the Trustees (based on
the likelihood of success and material consequences of such claim, suit, action,
inquiry or proceeding), makes it inadvisable to proceed with the consummation of
such transactions.
(f) Consents and Approvals. All consents, waivers, approvals, licenses
and authorizations by third parties and governmental and administrative
authorities (and all amendments and modifications to existing agreements with
third parties) required as a precondition to the performance by ACSI and
Subsidiary of their respective obligations hereunder and under any agreement
delivered pursuant hereto, shall have been duly obtained and shall be in full
force and effect.
(g) Date of Consummation. The Merger shall have been consummated on or
prior to July 31, 1996, or such later date as the parties shall agree by a
written instrument signed by all of them.
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(h) Validity of Transactions. The validity of all transactions
contemplated hereby, as well as the form and substance of all agreements,
instruments, opinions, certificates and other documents delivered by ACSI and
Subsidiary pursuant hereto, shall be satisfactory in all material respects to
the Trustees and its counsel.
(i) No material Adverse Change. There shall not have occurred after
the date hereof, in the reasonable judgment of the Trustees, a material adverse
change in the financial or business condition of ACSI or Subsidiary, taken as a
whole; provided, however, that any steps taken or to be taken by ACSI to write
off the assets with respect to its publicly disclosed terminated retail business
or in payment of its legal, banking and audit fees associated with the
transactions contemplated by this Agreement shall not constitute a material
adverse change for purposes hereof.
(j) Employment Agreement. ACSI shall have executed and delivered to
Strem the Employment Agreement.
(k) Registration Rights Agreement. ACSI shall have executed and
delivered a registration rights agreement, substantially in the form attached
hereto as Exhibit 6.2(k) (the "Registration Rights Agreement").
(l) ACSI Management. ACSI shall have effected each of the matters set
forth in Subsection 5.13, to be effective on or immediately after the Effective
Time.
(m) Guarantees/Releases. ACSI shall deliver, or cause to be delivered,
to Strem, in the alternative any of (i) the Guaranties; or (ii) releases
executed by the guaranteed party to whom the guaranties were delivered by Strem
releasing him from liability thereunder; or (iii) the Cross-Indemnity Agreement.
(n) Merger with Just Jackets Corporation. All the transactions to be
consummated on or before the closing pursuant to the Jackets Merger shall have
been effected.
(o) Closing Certificate. Each of ACSI and Subsidiary shall have
furnished Superior, the Trustees and Strem with certificates, each executed by
their respective presidents, dated the Closing Date, to the effect that all the
representations and warranties of ACSI or Subsidiary, as the case may be, are
true and complete in all material respects and all covenants to be performed by
each of ACSI or Subsidiary, as the case may be, at or as of the Closing have
been performed in all material respects and conditions to be satisfied at or as
of the Closing have been waived or satisfied in all material respects.
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(p) Lock-Up Agreement. Each of Steve Natale and ACSI shall have
executed the Lock-Up Agreement, to become effective upon the Closing, whereby
Natale covenants and agrees, for a period of one (1) year from the Effective
Time, not to sell, assign, transfer, or otherwise dispose under Rule 144 or
other applicable provisions of the securities laws, 750,000 shares of ACSI
Common Stock, being held of record or beneficially by Natale.
(q) Resignation of Gill Champion. Gill Champion shall have submitted
his resignation as an officer and director of ACSI, effective immediately at the
Closing Date.
(r) Market Price. The closing bid price for the ASCI Common Stock (as
reported by NASDAQ) for the last NASDAQ trading day prior to the Effective Time
shall be not less than $2.65 per share.
7. The Closing. Unless this Agreement shall have been terminated and the
transactions herein contemplated shall have been abandoned pursuant to Section
9, the closing of the Merger (the "Closing") will take place at the offices of
Sheppard, Mullin, Richter & Hampton LLP as promptly as practicable (and in any
event within five business days) after satisfaction or waiver of the conditions
set forth in Section 6 but in no event later than July 31, 1996 (the "Closing
Date"); or such later date as shall have been fixed by a written instrument
signed by the parties.
7.1. Deliveries by ACSI and Subsidiary at the Closing. At the Closing, ACSI
and Subsidiary shall deliver the following:
(a) stock certificate(s), representing the Share Consideration
registered in the name of the Trustees;
(b) a wire transfer of immediately available funds, in the amount of
$1,960,000.00, payable to the Trustees, representing the Cash Consideration,
against delivery of the certificate(s) representing the Shares;
(c) checks representing payment of the merger costs, as set forth in
Section 5.9 hereof, against the presentation of itemized invoices setting forth
such costs and an explanation thereof in reasonable detail;
(d) copies of (i) (A) resolutions adopted by the Board of Directors of
ACSI authorizing ACSI to execute and deliver the ACSI Documents to which it is a
party and to perform its obligations thereunder, upon the terms and subject to
the conditions set forth therein and of any proposals approved
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by the stockholders of ACSI if ACSI shall have determined to hold a special
meeting of stockholders to approve the Merger, (B) resolutions adopted by the
Board of Directors of ACSI increasing the number of directors constituting the
entire Board from two to five members, duly certified by the Secretary or
Assistant Secretary of ACSI, and (C) resolutions adopted by the Board of
Directors of ACSI with respect to Subsection 5.13(a) hereof; and (ii)
resolutions of the Board of Directors of Subsidiary authorizing Subsidiary to
execute and deliver the ACSI Documents to which it is a party, to perform its
obligations thereunder, and to effect the Merger upon the terms and subject to
the conditions set forth therein, duly certified by the Secretary or Assistant
Secretary of Subsidiary.
(e) Confirmation, in the form satisfactory to the parties hereto, from
the State of California or a filing service (jointly chosen by the parties
hereto) that the Agreement of Merger of Superior with and into the Subsidiary
has been filed with the Secretary of State of California; together with a copy
of the executed form of such agreement.
(f) Certificates of the Secretary or Assistant Secretary of each of
ACSI and Subsidiary certifying as to the incumbency and specimen signatures of
the officers of ACSI and Subsidiary executing the ACSI Documents on behalf of
such corporation.
(g) the Registration Rights Agreement, duly executed by ACSI.
(h) the Employment Agreement, duly executed by ACSI.
(i) the Lock-Up Agreement, duly executed by Natale.
(j) the Cross-Indemnity Agreement duly executed by ACSI.
7.2. Deliveries by Superior and/or the Trustees at the Closing. At the
Closing, Superior, the Trustees and/or Strem, as applicable, shall deliver to
ACSI and/or Subsidiary, as the case may be, the following:
(a) stock certificate(s) representing the Shares, duly executed by the
Trustees;
(b) a copy of the resolutions of the Board of Directors of Superior,
and the written consent of the Trustees, as all of the shareholders of Superior,
authorizing Superior to execute and deliver the Superior Documents, to perform
its obligations thereunder and to effect the Merger, duly certified by the
Secretary or assistant Secretary of Superior.
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(c) Certificates of the Secretary or Assistant Secretary of Superior
certifying as to the incumbency and specimen signatures of the officers of
Superior executing the Superior Documents on behalf of such corporation.
(d) the Registration Rights Agreement, duly executed by the Trustees.
(e) the Employment Agreement, duly executed by Strem.
(f) the Lock-up Agreement, duly executed by the Trustees.
(g) the Cross-Indemnity Agreement, duly executed by Strem.
(h) the Vendor Announcements duly executed by Strem.
(i) California United Bank's waiver, forebearance or other similar
documents from the California United Bank.
(j) the Minute Books and other corporate records of Superior.
(k) the three (3) most recent monthly bank statements pertaining to
the banking activities of Superior.
7.3. Other Deliveries. In addition, the parties shall execute and deliver
such other documents as may be required by this Agreement and as either of them
or their respective counsel may reasonably require in order to document and
carry out the transactions contemplated by this Agreement.
8. Post-Closing Covenants - Operating Facilities. The parties hereby
acknowledge and agree that, effective upon the Closing Date, the corporate
headquarters of ACSI, the Surviving Corporation and the subsidiaries of ACSI
(except for the offices of Sierra Designs) shall be relocated to the current
corporate location of Superior or such other location in the Los Angeles,
California, metropolitan area as hereafter determined. ACSI shall, to the extent
permitted by and subject to any applicable lease provisions, take reasonable
steps following the Closing to terminate or sublet its current office lease
agreement.
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9. Termination, Amendment and Waiver.
9.1. Termination. This Agreement may be terminated at any time prior to the
Effective Time:
(a) By mutual consent of Strem and the Boards of Directors of ACSI,
Subsidiary and Superior; or
(b) By ACSI and Subsidiary, on the one hand, or Superior, the Trustees
and Strem, on the other hand, if (i) the Merger shall not have been consummated
by July 31, 1996, or such later date as the parties shall have fixed by written
instrument signed by the parties hereto; provided, however, that the right to
terminate this Agreement under this Subsection shall not be available to any
party whose failure to fulfill any obligation under this Agreement has been the
cause of, or resulted in, the failure of the Effective Time to occur on or
before such date or (ii) a court of competent jurisdiction or governmental,
regulatory or administrative agency or commission shall have issued an order,
decree or ruling or taken any other action (which order, decree, ruling or other
action the parties hereto shall use their reasonable efforts to vacate), in each
case permanently restraining, enjoining or otherwise prohibiting the
transactions contemplated by this Agreement.
(c) By ACSI and Subsidiary, on the one hand, or by Superior, the
Trustees and Strem, on the other hand, if, in the reasonable judgment of ACSI
and Subsidiary or Superior, the Trustees and Strem, as the case may be, (and
provided such parties are not then in material breach of their respective
obligations hereunder), it shall have been determined that the transaction
contemplated by this Agreement has become inadvisable or impracticable by reason
of the institution or threat by state, local or federal governmental authorities
or by any other person of material litigation or proceedings against ACSI or
Superior; provided, however, that any action brought by California United Bank
regarding the waiver or nonwaiver of defaults of Superior of its loan covenants
with such bank shall not be deemed material for this subsection.
(d) By ACSI and Subsidiary, on the one hand, or Superior, the Trustees
and Strem, on the other hand, if, in the reasonable judgment of ACSI and
Subsidiary or Superior, the Trustees or Strem, as the case may be (and provided
such parties are not then in material breach of their respective obligations
hereunder), it shall be determined that the business or assets or financial
condition of the other unrelated corporate party hereto has been materially and
adversely affected since the Balance Sheet Date, whether by reason of changes,
developments or operations in the normal course of business or otherwise;
provided, however, (i) that any steps taken or to be taken by ACSI to write off
the assets with respect to its publicly disclosed terminated retail business or
in payment of its legal,
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banking and audit fees associated with the transactions contemplated by this
Agreement shall not constitute a material adverse change for purposes hereof,
and (ii) any actions or inactions by California United Bank regarding the waiver
or nonwaiver of defaults of Superior of its loan covenants with such bank shall
not constitute a material adverse change for purposes hereof.
(e) In the event ACSI or Subsidiary, on the one hand, or Superior, the
Trustees or Strem on the other hand, breaches or otherwise fails to perform any
material part of this Agreement, then the other party (or parties) hereto not in
breach shall notify in (writing) the party in material breach and demand that
such material breach or such material failure to perform be corrected within a
stipulated period, which period shall not be less than ten (10) days following
notification. If the party (or parties) in material breach fails to correct the
material breach within the period stated in the written notice of demand for
correction, the other party (or parties) may, in its (or their) sole discretion,
immediately terminate this Agreement by giving the party (or parties) in
material breach written notice of termination.
9.2. Effect of Termination. In the event of the termination of this
Agreement as provided in this Section 9, this Agreement shall, except with
respect to Subsection 9.3, forthwith become null and void and there shall be no
liability on the part of any party hereto except and to the extent such
termination results from the willful breach by a party of any of its
representations, warranties or agreements hereunder, in which case, the
non-breaching party shall be entitled to damages. Any termination shall not,
however, affect the obligations of the parties under the Confidentiality
Agreement.
9.3. Fees and Expenses.
(a) Except as otherwise provided in Subsection 5.9 or in paragraphs
(b) and (c) below, each of the parties shall be responsible for, and shall pay,
its or his respective fees and expenses incurred by such party in connection
with the Merger and the transactions contemplated by this Agreement.
(b) Notwithstanding anything contained in this Agreement to the
contrary, if this Agreement is terminated prior to the Effective Time for any or
the following reasons: (i) failure of ACSI to successfully consummate the Equity
Funding, (ii) failure of the Board of Directors or shareholders of ACSI to
approve the Merger or the Equity Funding, (iii) breach of this Agreement by ACSI
or Subsidiary, or (iv) the arbitrary and capricious refusal of ACSI to proceed
with the Merger despite the satisfaction or waiver by Superior and the
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Trustees of any unfulfilled conditions precedent to the consummation of the
transactions hereunder as set forth in Section 6.2, then ACSI shall, in addition
to its own fees and expenses, be responsible for and shall pay or reimburse each
of Superior, Strem and the Trustees, upon their respective submissions of true
and complete statements (together with invoices, bills and similar proof
attached thereto), for any and all fees and expenses (legal, accounting, advisor
and other) actually incurred by Superior, the Trustees and Strem in good faith,
or on their behalf, in connection with the letter of intent, the Confidentiality
Agreement, this Agreement, the proposed Merger and the transactions contemplated
by this Agreement. Notwithstanding the foregoing, ACSI shall not be responsible
for any costs relating to advice or assistance sought by Strem or any of the
principals and/or shareholders of Superior with respect to personal tax planning
and money management strategies (including without limitation advice from the
Mentor Group with respect to personal tax planning and money management
strategies).
(c) Notwithstanding anything contained in this Agreement to the
contrary, in the event this Agreement is terminated prior to the Effective Time
for any of the following reasons: (i) fraud of Superior or a material
misstatement in the financial condition of Superior or (ii) breach of this
Agreement by Superior, the Trustees or Strem, or (iii) the arbitrary and
capricious refusal of Superior to proceed with the Merger despite the
satisfaction or waiver by ACSI and Subsidiary of all conditions precedent to the
consummation of the transactions hereunder as set forth in Section 6.1 hereof,
then Superior shall, in addition to its own fees and expenses, be responsible
for and shall pay or reimburse each of ACSI and Subsidiary, upon their
respective submissions of true and accurate statements (together with invoices,
bills and similar proof attached thereto), for any and all fees and expenses
actually incurred by ACSI and Subsidiary or on their behalf in good faith (but
specifically not including fees, expenses and charges payable to Boston and any
bank, financial institution and/or investment banker, including their respective
agents, for arranging or providing the Equity Funding and related financing) in
connection with the letter of intent, the Confidentiality Agreement, this
Agreement, the proposed Merger, and the transactions contemplated by this
Agreement (but not the Equity Funding and other financing in connection with
such transactions and actually incurred by banks, financial institutions and
investment bankers).
9.4. Amendment. This Agreement may not be amended except by an instrument
in writing signed by each of the parties hereto.
9.5. Waiver. At any time prior to the Effec- tive Time, any party hereto
may (a) extend the time for the performance of any of the obligations or other
acts of the other
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parties hereto, (b) waive any inaccuracies in the representations and warranties
contained herein or in any document delivered pursuant hereto and (c) waive
compliance with any of the agreements or conditions contained herein. Any such
extension or waiver shall be valid if set forth in an instrument in writing
signed by the party or parties to be bound thereby.
10. Survival of Representations and Warranties.
Each of the parties hereto hereby agrees that all representations and
warranties made by or on behalf of him or it in this Agreement or in any
document or instrument delivered pursuant hereto shall survive the Closing Date
for a period of one (1) year after the Effective Time.
11. Arbitration.
All disputes arising under this Agreement between ACSI and Subsidiary, on
the one hand, and Superior, the Trustees or Strem, on the other hand, that
cannot be amicably resolved by the parties shall be settled by binding
arbitration in Los Angeles County, California, subject to the terms and
provisions of this Section 11, and judgment upon the award rendered may be
entered in any court having jurisdiction thereof; provided, however, that if
equitable relief is sought (including injunctive relief) by a party hereto for a
breach of this Agreement, then the non-breaching party may, in its sole
discretion, enforce such rights or seek such equitable relief by court action.
Except as provided below, the arbitration shall proceed in accordance with the
laws of the State of California. Any party requesting arbitration shall serve a
written demand for arbitration on the other parties by registered or certified
mail. The demand shall set forth a statement of the nature of the dispute, the
amount involved and the remedies sought. There shall be three (3) arbitrators
subject to the provisions below. No later than twenty (20) calendar days after a
demand for arbitration is served, ACSI and Subsidiary shall jointly select and
appoint one retired judge of the Los Angeles County Superior Court to act as an
arbitrator, and the Trustees and Strem shall jointly select and appoint one
retired judge of the Los Angeles County Superior Court to act as an arbitrator.
If one side fails or refuses to appoint an arbitrator within such 20-day period,
then the other party may apply to the Los Angeles County Superior Court for
appointment of a retired judge to serve as an arbitrator. Not later than ten
(10) calendar days after the appointment of such two arbitrators, such two
arbitrators shall appoint a retired judge of the Los Angeles County Superior
Court to act as the third arbitrator. No later than ten (10) calendar days after
appointment of the last arbitrator, the parties hereto shall
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jointly prepare and submit to the three arbitrators a set of rules for
arbitration. In the event that the parties hereto cannot agree on the rules for
the arbitration, the arbitrators shall establish the rules. All decisions by the
three arbitrators shall be by majority rule. No later than ten (10) calendar
days after the last arbitrator is appointed, the arbitrators shall schedule the
arbitration for a hearing to commence on a mutually convenient date. The
hearing, which shall be in the English language, shall commence no later than
one hundred twenty (120) calendar days after the last arbitrator is appointed
and shall continue from day to day until completed. The arbitrators shall issue
their award in writing no later than twenty (20) calendar days after the
conclusion of the hearing.
The arbitration award shall be final and binding regardless of whether any
party fails or refuses to participate in the arbitration; provided, however,
that after the written arbitration award is issued, any party may, within thirty
(30) days thereafter, file an appeal with the California Court of Appeal on
issues of law only, and such appeal shall be governed by the normal California
rules governing an appeal of a final trial court decision from the Los Angeles
County Superior Court. No interlocutory appeals shall be permitted. If an appeal
is filed, the decision of the California Court of Appeal shall be final, binding
and nonappealable, and the arbitrators shall promptly reconvene and reissue
their written arbitration award, revising their written arbitration award, if
necessary, in light of such appellate decision. The arbitrators' award shall
become final and binding upon the earlier to occur of (i) the expiration of the
30-day appeal period without an appeal being timely filed, or (ii) the issuance
of the arbitrators' award following a timely appeal being filed and the issuance
of an appellate decision. The arbitrators are empowered to hear and determine
all disputes between the parties hereto concerning the subject matter of this
Agreement, and the arbitrators may award money damages (but specifically not
punitive damages), injunctive relief, rescission, restitution, costs, and
attorneys' fees.
In the event that any party serves a proper demand for arbitration under
this Agreement, all parties may pursue discovery in accordance with California
Code of Civil Procedure Section 1283.05, the provisions of which are
incorporated herein by reference, with the following exceptions: (a) the parties
hereto may conduct all discovery, including depositions for discovery purposes,
without leave of the arbitrators; and (b) all discovery shall be completed no
later than the commencement of the arbitration hearing or one hundred twenty
(120) calendar days after the date that a proper demand for arbitration is
served, whichever occurs earlier, unless upon a showing of good cause the
arbitrators extend or shorten that period.
The arbitrators shall not have the power to amend this Agreement in any
respect.
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Until an arbitrators' award is issued, (A) the out-of-pocket cost of the
arbitrator appointed by ACSI and Subsidiary (or appointed by the Court on their
behalf) shall be paid by ACSI, (B) the out-of-pocket cost of the arbitrator
appointed by the Trustees and Strem (or appointed by the Court on their behalf)
shall be paid by Strem, and (C) the out-of-pocket cost of the third arbitrator
and of the arbitration facilities shall be shared equally by ACSI and Strem. The
arbitrators' award may, however, reallocate those costs upon a reasonable basis
set forth in such award.
12. General Provisions.
12.1. Notices. All notices and other communications given or made pursuant
hereto shall be in writing and shall be deemed to have been duly given or made
as of the earlier of the date delivered or mailed if delivered personally, by
overnight courier or mailed by express, registered or certified mail (postage
prepaid, return receipt requested) or by facsimile transmittal, confirmed by
express, certified or registered mail, to the parties at the following addresses
(or at such other address for a party as shall be specified by like notice,
except that notices of changes of address shall be effective upon receipt):
If to ACSI or Subsidiary: American CinemaStores, Inc.
Suite 400
1543 Seventh Street
Santa Monica, California 90401
Attn: Steven Natale,
President
Telecopier: 310-394-3464
with a copy to: Tenzer Greenblatt LLP
405 Lexington Avenue
New York, New York 10174
Attn: Gary A. Schonwald
Fax: (212) 573-4313
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If to Superior, Strem, or the Trustees:
Superior/Panoramic Hand Prints Inc.
7330 Varna Avenue
North Hollywood, CA 91650
Attn: Robert J. Strem,
President
Telecopier: (818) 764-5875
with a copy to: Sheppard, Mullin, Richter
& Hampton LLP
333 South Hope Street
48th Floor
Los Angeles, California 90071
Attn: Lawrence M. Braun, Esq.
Telecopier: (213) 620-1398
12.2. Severability. If any term or other provision of this Agreement is
invalid, illegal or incapable of being enforced by any rule of law, or public
policy, all other conditions and provisions of this Agreement shall nevertheless
remain in full force and effect so long as the economic or legal substance of
the transactions contemplated hereby is not affected in any manner adverse to
any party. Upon such determination that any term or other provision is invalid,
illegal or incapable of being enforced, the parties hereto shall negotiate in
good faith to modify this Agreement so as to effect the original intent of the
parties as closely as possible in an acceptable manner to the end that
transactions contemplated hereby are fulfilled to the greatest extent possible.
12.3. Entire Agreement. This Agreement and the Confidentiality Agreement
and the agreements referred to herein constitute the entire agreement, and
supersede all prior agreements and undertakings, both written and oral, among
the parties, or any of them, with respect to the subject matter hereof.
12.4. No Assignment. This Agreement shall not be assigned by operation of
law or otherwise, and any assignment shall be null and void.
12.5. Headings. Headings in this Agreement are included herein for
convenience of reference only and shall not constitute a part of this Agreement
for any other purpose.
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12.6. Governing Law. This Agreement shall be governed by, and construed in
accordance with, the law of the State of California without regard to its choice
of law principles. Each of ACSI, Subsidiary, Superior, the Trustees and Strem
hereby irrevocably and unconditionally consents to submit to the exclusive
jurisdiction of the courts of the State of California and of the United States
located in the County of Los Angeles, State of California (the "California
Courts") for any litigation arising out of or relating to this Agreement and the
transactions contemplated hereby (and agrees not to commence any litigation
relating thereto except in such courts), waives any objection to the laying of
venue of any such litigation in the California Courts and agrees not to plead or
claim that such litigation brought in any California Courts has been brought in
an inconvenient forum.
12.7. WAIVER OF JURY TRIAL. EACH OF THE PARTIES HERETO IRREVOCABLY WAIVES
ANY RIGHT TO A JURY TRIAL IN CONNECTION WITH ANY SUIT, ACTION, OR SIMILAR
PROCEEDING BROUGHT RELATING TO OR ARISING OUT OF THIS AGREEMENT AND THE
TRANSACTIONS CONTEMPLATED HEREBY.
12.8. Attorneys' Fees. In the event of any dispute arising out of the
subject matter of this Agreement, the prevailing party shall recover, in
addition to any other damages assessed, its reasonable attorneys' fees and costs
incurred in litigating, arbitrating, or otherwise settling or resolving such
dispute.
12.9. Counterparts. This Agreement may be executed in one or more
counterparts, and by the different parties hereto in separate counterparts, each
of which when so executed shall be deemed to be an original, but all of which
taken together shall constitute one and the same agreement.
IN WITNESS WHEREOF, each of American CinemaStores, Inc., Subsidiary,
Superior/Panoramic Hand Prints Inc., by their respective officers thereunto duly
authorized, the Strem Family 1993 Trust U/T/A 11/9/93, by its respective
trustees and Robert J. Strem, individually, have caused this Agreement to be
executed as of the date first written above.
AMERICAN CINEMASTORES, INC.
By:__________________________
Steve Natale, President
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ASCI/SPI ACQUISITION CORP.
By:___________________________
Steve Natale, President
SUPERIOR/PANORAMIC HAND PRINTS
INC.
By:___________________________
Robert J. Strem, President
THE STREM FAMILY 1993 TRUST
U/T/A 11/9/93
By:___________________________
Robert J. Strem, Trustee
By:___________________________
Janet C. Strem, Trustee
_______________________________
ROBERT J. STREM
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INDEX OF SCHEDULES
------------------
Page
----
Exhibit 1.2 Agreement of Merger...............................................2
Exhibit 1.4(a) Articles of Incorporation......................................3
Exhibit 1.4(b) By-Laws .......................................................3
Exhibit 2.7(a) Draft Audit Financial Statements..............................11
Exhibit 2.7(b) Audited Financial Statements..................................12
Exhibit 5.3(d) Cross-Indemnity Agreement.....................................56
Exhibit 5.12 Strem Employment Agreement......................................63
Exhibit 6.1(h) Opinion of Sheppard, Mullin, Richter &
Hampton LLP.........................................................72
Exhibit 6.1(u) Lock-up Agreement.............................................75
Exhibit 6.2(d) Opinion of Tenzer Greenblatt LLP..............................77
Exhibit 6.2(k) Registration Rights Agreement.................................78
Schedule 2.6 Conflicts ......................................................10
Schedule 2.8 Personal Guaranties.............................................14
Schedule 2.10 Properties.....................................................15
Schedule 2.13 Litigation.....................................................17
Schedule 2.17 Insurance......................................................21
Schedule 2.18 Banks; Power of Attorneys......................................22
Schedule 2.19 Employee Agreements............................................22
Schedule 2.21 Distributorships/Franchises....................................23
Schedule 2.22 Contracts......................................................24
Schedule 2.23 Customers/Suppliers............................................25
Schedule 2.25 Approvals and Consents.........................................26
Schedule 3.1 Jurisdictions...................................................28
Schedule 3.2 Subsidiaries....................................................28
Schedule 3.4 Capitalization..................................................29
Schedule 3.6 ASCI Conflicts..................................................33
Schedule 3.12 Properties.....................................................38
Schedule 3.15 Trademarks.....................................................40
Schedule 3.17 Insurance......................................................42
Schedule 3.18 Banks; Power of Attorneys......................................43
Schedule 3.19 Employee Agreements............................................43
Schedule 3.20 Business Matters...............................................44
Schedule 3.21 Contracts......................................................45
Schedule 3.22 Approvals and Consents.........................................45
Exhibit 2.2
LIST OF OMITTED SCHEDULES/EXHIBITS
TO SUPERIOR MERGER AGREEMENT
Except as otherwise indicated herein, the list identifies schedules and
exhibits annexed to the Merger Agreement but omitted from this filing. In
accordance with Regulation S-X, Item 601, copies of any such schedule or exhibit
will be furnished to the Securities and Exchange Commission upon request.
Exhibit/Schedule Brief Description
Exhibit 1.2 Agreement of Merger
Exhibit 1.4(a) Articles of Incorporation
Exhibit 1.4(b) By-Laws
Exhibit 2.7(a) Draft Audit Financial Statements
Exhibit 2.7(b) Audited Financial Statements
Exhibit 5.12 Strem Employment Agreement
Exhibit 6.1(h) Opinion of Sheppard, Mullin, Richter &
Hampton LLP
Exhibit 6.2(d) Opinion of Tenzer Greenblatt LLP
Schedule 2.6 Conflicts
Schedule 2.8 Personal Guaranties
Schedule 2.10 Properties
Schedule 2.13 Litigation
Schedule 2.17 Insurance
Schedule 2.18 Banks; Power of Attorneys
Schedule 2.19 Employee Agreements
Schedule 2.21 Distributorships/Franchises
Schedule 2.22 Contracts
Schedule 2.23 Customers/Suppliers
Schedule 2.25 Approvals and Consents
Schedule 3.1 Jurisdictions
Schedule 3.2 Subsidiaries
Schedule 3.4 Capitalization
Schedule 3.6 ASCI Conflicts
Schedule 3.12 Properties
Schedule 3.15 Trademarks
Schedule 3.17 Insurance
Schedule 3.18 Banks; Power of Attorneys
Schedule 3.19 Employee Agreements
Schedule 3.20 Business Matters
Schedule 3.21 Contracts
Schedule 3.22 Approvals and Consents
AGREEMENT AND PLAN OF MERGER
dated as of
June 19, 1996
by and among
AMERICAN CINEMASTORES, INC.,
JJI/ASCI ACQUISITION CORP.
AND
JUST JACKETS CORPORATION,
each of ROBERT J. STREM and JANET C. STREM
as Trustees of the STREM FAMILY 1993 TRUST U/T/A 11/9/93,
each of BRUCE SACKS and SHARON SACKS, as Trustees of
the BRUCE AND SHARON SACKS FAMILY TRUST - 1990 U/T/A 4/13/90,
ROBERT J. STREM, individually,
and BRUCE SACKS, individually.
<PAGE>
TABLE OF CONTENTS
Page
1. The Merger.............................................................. 1
1.1. The Merger................................................... 1
1.2. Effective Time............................................... 2
1.3. Effect of the Merger......................................... 2
1.4. Articles of Incorporation; By-Laws........................... 2
1.5. Directors and Officers of Subsidiary......................... 2
1.6. Conversion of Securities..................................... 3
2. Representations and Warranties as to JJC................................ 4
2.1. Organization, Standing and Power............................. 4
2.2. Capitalization............................................... 4
2.3. Ownership of JJC Common Stock................................ 4
2.4. Interests in Other Entities.................................. 5
2.5. Authority.................................................... 5
2.6. Noncontravention.............................................. 6
2.7. Financial Statements......................................... 6
2.8. Guaranties to Lender......................................... 7
2.9. Absence of Undisclosed Liabilities........................... 7
2.10. Properties.................................................. 8
2.11. Accounts Receivable; Inventories............................ 8
2.12. Absence of Changes.......................................... 9
2.13. Litigation.................................................. 9
2.14. No Violation of Law......................................... 9
2.15. Intangibles/Inventions...................................... 10
2.16. Tax Matters................................................. 10
2.17. Insurance................................................... 11
2.18. Banks; Powers of Attorney................................... 11
2.19. Employee Arrangements....................................... 11
2.20. ERISA....................................................... 12
2.21. Certain Business Matters.................................... 12
2.22. Certain Contracts........................................... 12
2.23. Customers and Suppliers..................................... 13
2.24. Business Practices and Commitments.......................... 13
2.25. Approvals/Consents.......................................... 13
2.26. Information as to JJC....................................... 14
3. Representations and Warranties as to ACSI and
Subsidiary......................................................... 15
3.1. Organization, Standing and Power............................. 15
3.2. Interests in Other Entities.................................. 15
3.3. Incorporation Documents and By-Laws.......................... 15
3.4. Capitalization............................................... 15
3.5. Authority.................................................... 17
3.6. Noncontravention............................................. 17
3.7. Absence of Litigation........................................ 17
3.8. Employee Benefit Plans....................................... 18
3.9. Proxy Statement.............................................. 18
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Page
3.10. Securities and Exchange Commission Filings;
Financial Statements..................................... 19
3.11. Stock Issuable in Merger.................................... 20
3.12. Properties.................................................. 20
3.13. Absence of Changes.......................................... 20
3.14. No Violation of Law......................................... 21
3.15. Intangibles/Inventions...................................... 21
3.16. Tax Matters................................................. 22
3.17 Insurance................................................... 22
3.18 Banks; Powers of Attorney................................... 22
3.19 Employee Arrangements....................................... 23
3.20 Certain Business Matters.................................... 23
3.21 Certain Contracts........................................... 23
3.22. Approvals/Consents.......................................... 24
3.23. Information as to ACSI and Subsidiary....................... 24
3.24. Tax Matters................................................. 24
3.25. ACSI Not Foreign-Owned...................................... 26
3.26. Borrowing................................................... 26
4. Indemnification......................................................... 26
4.1. Indemnification by the Trustees, Strem and Sacks............. 26
4.2. Indemnification by .......................................... 26
4.3. Direct Claim................................................. 26
4.4. Third Party Claims........................................... 27
4.5. Assistance................................................... 28
4.6. Exclusive Remedy............................................. 28
4.7. Limitations.................................................. 28
5. Covenants............................................................... 28
5.1. Investigation................................................ 28
5.2. Consummation of Transaction.................................. 29
5.3. Lender/Lessors of JJC........................................ 29
5.4. Cooperation/Further Assurances............................... 30
5.5. Accuracy of Representations.................................. 30
5.6. Notification of Certain Matters.............................. 31
5.7. Proxy Statement.............................................. 31
5.8. Broker....................................................... 32
5.9. Merger Costs................................................. 32
5.10. Equity Funding............................................... 33
5.11. No Solicitation of Transactions.............................. 33
5.12. Employment Agreement Between Sacks and
Subsidiary.............................................. 34
5.13. Prohibited Conduct........................................... 34
5.14. Tax Covenants................................................ 36
5.15. Working Capital.............................................. 36
6. Closing Conditions. .................................................... 37
6.1. Conditions to Obligations of ACSI and Subsidiary
to Effect the Merger...................................... 37
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<PAGE>
Page
6.2. Conditions to Obligations of JJC, Sacks, Strem,
and the Trustees, to Effect the Merger.................... 40
7. The Closing............................................................. 42
7.1. Deliveries by ACSI and Subsidiary at the Closing............. 42
7.2. Deliveries by JJC and/or the Trustees, Strem
and/or Sacks at the Closing............................... 43
7.3. Other Deliveries............................................. 44
8. Termination, Amendment and Waiver....................................... 44
8.1. Termination.................................................. 44
8.2. Effect of Termination. In the event of the.................. 46
8.3. Fees and Expenses............................................ 46
8.4. Amendment.................................................... 47
8.5. Waiver....................................................... 47
9. Survival of Representations and Warranties.............................. 47
10. Arbitration............................................................ 48
11. General Provisions..................................................... 49
11.1. Notices..................................................... 49
11.2. Severability................................................ 50
11.3. Entire Agreement............................................ 51
11.4. No Assignment............................................... 51
11.5. Headings.................................................... 51
11.6. Governing Law............................................... 51
11.7. WAIVER OF JURY TRIAL........................................ 51
11.8. Attorneys' Fees............................................. 51
11.9. Counterparts................................................ 51
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<PAGE>
AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER dated as of June 19, 1996 (the "Agreement"),
among American CinemaStores, Inc., a Delaware corporation ("ACSI"); JJI/ASCI
Acquisition Corp., a California corporation and a wholly-owned subsidiary of
ACSI ("Subsidiary"); Just Jackets Corporation, a California corporation ("JJC");
Robert J. Strem and Janet C. Strem, as trustees of the Strem Family 1993 Trust
U/T/A 11/9/93 (the "Strem Trustees"); Robert J. Strem, an individual residing in
California ("Strem"); Bruce Sacks, an individual residing in California
("Sacks"); and each of Sacks and Sharon Sacks, as trustees of the Bruce and the
Sharon Sacks Family Trust - 1990 U/T/A 4/13/90 (the "Sacks Trustees," and
together with the Strem Trustees, sometimes referred to as the "Trustees").
W I T N E S S E T H :
WHEREAS, JJC is in the business of applying art and design work to jackets
(including denim) by means of embroidery and stitching (the "Business"); and
WHEREAS, ACSI desires to combine JJC's experience in manufacturing and
production with its existing marketing and distribution experience; and
WHEREAS, the Board of Directors of ACSI, the Board of Directors of
Subsidiary, ACSI, as the sole shareholder of Subsidiary, and the Board of
Directors and each of the Strem Trustees and Sacks Trustees, as all of the
shareholders of JJC, have (a) determined that it is in the best interests of
their respective companies for JJC to be merged with and into Subsidiary upon
the terms and subject to the conditions set forth herein; and (b) approved the
merger of JJC with and into Subsidiary (the "Merger") in accordance with the
General Corporation Law of the State of California ("California Law"), and upon
the terms and subject to the conditions set forth herein.
NOW, THEREFORE, in consideration of the foregoing and the mutual covenants
and agreements herein contained, and intending to be legally bound hereby, the
parties hereto do hereby agree as follows:
1. The Merger.
1.1. The Merger. At the Effective Time (as defined in Subsection 1.2), and
subject to and upon the terms and conditions of this Agreement and the
California Law, JJC shall be merged with and into Subsidiary, the separate
corporate existence
<PAGE>
of JJC shall cease, and Subsidiary shall continue as the surviving corporation.
Subsidiary, as the surviving corporation after the Merger, is hereinafter
sometimes referred to as the "Surviving Corporation."
1.2. Effective Time. As promptly as practicable after the satisfaction or
waiver of the conditions set forth in Section 6, Subsidiary and JJC shall cause
the Merger to be consummated by filing an Agreement of Merger (the "Agreement of
Merger") with the Secretary of State of the State of California in the form of
Exhibit 1.2 and making such other filing as may be required by the California
Law, in such form as required by and executed in accordance with such laws (the
time of the last of such filings to be made being the "Effective Time").
1.3. Effect of the Merger. At the Effective Time, the effect of the Merger
shall be as provided in the applicable provisions of California Law. Without
limiting the generality of the foregoing, and subject thereto, at the Effective
Time, all the rights, privileges, powers, franchises and all property (real,
personal and mixed) of JJC and all debts due JJC shall vest in Subsidiary, and
all debts, liabilities, obligations and duties of JJC shall become the debts,
liabilities, obligations and duties of Subsidiary.
1.4. Articles of Incorporation; By-Laws.
(a) The Articles of Incorporation of Subsidiary, as in effect
immediately prior to the Effective Time (annexed hereto as Exhibit 1.4(a)),
shall be, subject to the name change set forth in the Agreement of Merger, the
Articles of Incorporation of the Surviving Corporation until thereafter amended
as provided by law or such Articles of Incorporation.
(b) The By-Laws of Subsidiary, as in effect immediately prior to the
Effective Time (annexed hereto as Exhibit 1.4(b)), shall be the By-Laws of the
Surviving Corporation until thereafter amended as provided by law or the
Articles of Incorporation of the Surviving Corporation or the ByLaws of the
Surviving Corporation.
1.5. Directors and Officers of Subsidiary.
(a) The directors of ACSI in effect on the Closing Date shall be the
initial directors of the Surviving Corporation, each to hold office in
accordance with applicable law, the Articles of Incorporation and By-Laws of the
Surviving Corporation until resignation, removal or replacement.
(b) Except for Sacks, who shall at the Effective Time be duly
nominated and appointed as President of the Surviving Corporation as provided by
Subsection 5.12 hereof, the officers of Subsidiary immediately prior to the
Effective
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Time shall constitute the initial officers of the Surviving Corporation, in each
case to serve at the pleasure of the Board of Directors of Subsidiary until
their respective resignation, removal or placement.
1.6. Conversion of Securities. At the Effective Time, by virtue of the
Merger and without any action on the part of ACSI, Subsidiary, JJC, the
Trustees, Sacks or Strem:
(a) Any share of JJC Common Stock (as defined in Subsection 1.6(b)
hereof) held in the treasury of JJC shall be cancelled and extinguished without
any conversion thereof and no payment shall be made with respect thereto.
(b) All of the 1,998 issued and outstanding shares (the "Shares") of
the capital stock of JJC, having no par value (the "JJC Common Stock") shall be
converted into the right to receive (i) $80,000 (the "Cash Consideration") and
(ii) an aggregate of 50,000 shares of the capital stock, par value $.001 per
share, of ACSI ("ACSI Common Stock") (the "Share Consideration", and together
with the Cash Consideration, the "Merger Consideration") against the surrender
to Subsidiary of the certificates representing the Shares. The Merger
Consideration shall be exchanged pro rata among the Shares.
(c) Shares of the common stock, par value $.01 per share, of
Subsidiary issued and outstanding at the Effective Time shall remain outstanding
and unchanged and shall constitute all of the issued and outstanding shares of
the capital stock of the Surviving Corporation.
(d) At the Effective Time, the stock transfer books of JJC shall be
closed and there shall be no further registration of transfers of any Shares
thereafter on the records of JJC.
(e) From and after the Effective Time, the holders of certificates
evidencing ownership of Shares shall cease to have any rights with respect to
the Shares, except as otherwise provided herein or by law.
(f) Notwithstanding anything to the contrary in this Subsection 1.6,
no party hereto shall be liable to a holder of a certificate or certificates
formerly representing Shares for any amount properly paid to a public official
pursuant to any applicable property, escheat or similar law.
(g) No fractional shares of ACSI Common Stock shall be issued in
connection with the Merger and the shareholders of JJC will be deemed to have
received cash in lieu of any faction of a share, which cash shall be deemed
included in the Cash Consideration paid to the shareholders of JJC at the
Closing.
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2. Representations and Warranties as to JJC. Each of the Trustees, Strem,
and Sacks, jointly and severally, represents and warrants to ACSI and Subsidiary
as follows:
2.1. Organization, Standing and Power. JJC is a corporation duly organized,
validly existing and in good standing under the laws of the State of California,
with full corporate power and corporate authority to (i) own, lease and operate
its properties, (ii) carry on its business as currently conducted by it and
(iii) execute and deliver, and perform under this Agreement and each other
agreement and instrument to be executed and delivered by it pursuant hereto.
There are no states or jurisdictions in which the character and location of any
of the properties owned or leased by JJC, or the conduct of its business makes
it necessary for JJC to qualify to do business as a foreign corporation, where
the failure to so qualify would have a material adverse effect on the business,
operations or financial condition of JJC. True and complete copies of the
Articles of Incorporation of JJC and all amendments thereof, and of the ByLaws
of JJC, as amended to date, have heretofore been furnished to ACSI. JJC's minute
books heretofore exhibited to ACSI contain complete and accurate records of all
meetings and other corporate actions of JJC's stockholders and Board of
Directors (including committees of its Boards of Directors).
2.2. Capitalization. The authorized capital stock of JJC consists of
100,000 shares of JJC Common Stock, of which 1,998 shares are issued and
outstanding. All issued shares of the JJC Common Stock have been duly
authorized, validly issued and outstanding and are fully paid and nonassessable
and owned of record and beneficially as follows: (i) 999 shares by the Strem
Trustees and (ii) 999 shares by the Sacks Trustees. There are no outstanding
options, warrants, rights, puts, calls, commitments, exchange, conversion
rights, plans or other agreements of any character to which JJC, Trustees, Strem
or Sacks are a party or otherwise bound which provide for the acquisition,
disposition or issuance of any issued but not outstanding, or authorized and
unissued shares, of JJC Common Stock. There is no personal liability, and there
are no preemptive or similar rights, attached to the JJC Common Stock.
2.3. Ownership of JJC Common Stock. The Trustees have good and marketable
title to all of the issued and outstanding Shares of JJC Common Stock, free and
clear of any and all liens, adverse claims, security interests, pledges,
mortgages, charges and encumbrances of any nature whatsoever (except for federal
and state securities law restrictions of general applicability), and on the
Closing Date will own all of such Shares free and clear of any and all liens,
adverse claims, security interests, pledges, mortgages, charges and encumbrances
of any nature whatsoever (except for federal and state securities law
restrictions of general applicability), including, but not
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<PAGE>
limited to, any claims by any present or former stockholders of JJC.
2.4. Interests in Other Entities.
(a) JJC does not (i) own, directly or indirectly, of record or
beneficially, any shares of voting stock or other equity securities of any other
corporation, (ii) have any ownership interest, direct or indirect, of record or
beneficially, in any unincorporated entity, and (iii) have any obligation,
direct or indirect, present or contingent, (A) to purchase or subscribe for any
interest in, advance or loan monies to, or in any way make investments in, any
other person or entity, or (B) to share any profits or capital investments or
both.
(b) Except for (A) the Strem Trustees' ownership of 100% of
Superior/Panoramic Hand Prints Inc. and Strem's 50% general partnership interest
in Wally's of California, and (B) the Sacks Trustees' ownership of 100% of
American Specialty Advertising Corporation, neither the Trustees, Sacks nor
Strem (i) own, directly or indirectly, of record or beneficially, any shares of
voting stock or other equity securities of any other corporation engaged in the
same or similar business to that business engaged in by JJC or
Superior/Panoramic Hand Prints Inc. at the Effective Time (exclusive of
ownership of not more than one percent (1%) of the publicly-traded capital stock
of corporations engaged in such business held solely for investment purposes);
(ii) have any ownership interest, direct or indirect, of record or beneficially,
in any unincorporated entity engaged in the same or similar business to that
business engaged in by JJC at the Effective Time; and (iii) have any obligation,
direct or indirect, present or contingent, (A) to purchase or subscribe for any
interest in, advance or loan monies to, or in any way make investments in, any
other person or entity engaged in the same or similar business to that business
engaged in by JJC at the Effective Time, or (B) to share any profits or capital
investments or both from an entity engaged in the same or similar business to
that business engaged in by JJC or Superior/Panoramic Hand Prints Inc. at the
Effective Time.
2.5. Authority. The execution and delivery by JJC of this Agreement and of
all of the agreements to be executed and delivered by JJC pursuant hereto
(collectively, the "JJC Documents"), the performance by JJC of its obligations
hereunder and thereunder, and the consummation of the transactions contemplated
hereby and thereby, have been duly and validly authorized by all necessary
corporate action on the part of JJC (including, but not limited to, the
unanimous consent of the Board of Directors of JJC and the written consent of
the Trustees and JJC has all necessary corporate power and corporate authority
with respect thereto. Sacks, Strem and the Trustees, as
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applicable, are individuals having all necessary capacity, power and authority
to execute and deliver this Agreement and such other agreements to be executed
and delivered by either of them pursuant hereto (collectively, the "Sacks
Documents") and to consummate the transaction consummated hereby and thereby.
This Agreement is, and when executed and delivered by JJC, the Trustees, Sacks
and Strem, each of the other agreements to be delivered by either or both of
them pursuant hereto will be, the valid and binding obligations of JJC, the
Trustees, Sacks and Strem to the extent they are parties thereto, in accordance
with their respective terms, except as the same may be limited by bankruptcy,
insolvency, reorganization, moratorium or other laws affecting the rights of
creditors generally and subject to the rules of law governing (and all
limitations on) specific performance, injunctive relief, and other equitable
remedies.
2.6. Noncontravention. Except as set forth on Schedule 2.6, neither the
execution and delivery by JJC, the Trustees, Sacks or Strem of this Agreement or
of any other JJC Documents or Sacks Documents to be executed and delivered by
either or both of them, nor the consummation of any of the transactions
contemplated hereby or thereby, nor the performance by either or both of them of
any of their respective obligations hereunder or thereunder, will (nor with the
giving of notice or the lapse of time or both would) (a) conflict with or result
in a breach of any provision of the Articles of Incorporation, By-Laws or other
constituent documents of JJC, each as amended to date, or (b) give rise to a
default, or any right of termination, cancellation or acceleration, or otherwise
be in conflict with or result in a loss of contractual benefits to any of them,
under any of the terms, conditions or provisions of any note, bond, mortgage,
indenture, license, agreement or other instrument or obligation to which either
or both of them is a party or by which either or both of them or any of their
respective assets may be bound, or require any consent, approval or notice under
the terms of any such document or instrument, or (c) violate any order, writ,
injunction, decree, to which JJC is subject or any law, statute, rule or
regulation of any court or governmental authority having jurisdiction over
either of them, or (d) result in the creation or imposition of any lien, adverse
claim, restriction, charge or encumbrance upon any of the assets of JJC (the
"Assets"), or (e) interfere with or otherwise adversely affect the ability of
Subsidiary to carry on the Business after the Closing Date on substantially the
same basis as is now conducted by JJC.
2.7. Financial Statements. Attached as Exhibit 2.7 are (i) true, correct
and complete copies of the unaudited balance sheet of JJC as at and for the year
ended December 31, 1995 (the "Balance Sheet Date"), and the related statements
of operations and retained earnings for the fiscal year then ended (the
"Unaudited Financial Statements") and (ii) true, correct and complete copies of
the unaudited balance sheets of JJC and the
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related statement of operations and statement of retained earnings for the four
(4) month period ended April 30, 1996 (the "Interim Financial Statements" and,
together with the Unaudited Financial Statements, the "JJC Financial
Statements"). The JJC Financial Statements were compiled and prepared by
management in conformity with JJC's internal accounting procedures; and fairly
present the financial position of JJC as at the dates thereof and its results of
operations for the periods indicated, subject to normal recurring adjustments
and the inclusion of notes which might be required as a result of year-end
audit.
All material liabilities and obligations, whether absolute, accrued,
contingent or otherwise, whether direct or indirect, and whether due or to
become due, which existed at the date of the Interim Financial Statements shall
have been disclosed in the balance sheets included in the JJC Financial
Statements. The statements of operations and statements of retained earnings
included in the JJC Financial Statements present fairly the results of
operations, and retained earnings of JJC for the periods indicated. The
statements of operations included in the JJC Financial Statements do not contain
any items of special or non-recurring income or other income not earned in the
ordinary course of business except as expressly specified therein. The books and
records of JJC are complete and correct, have been maintained in accordance with
good business practices, and accurately reflect the basis for the financial
condition, results of operations of JJC as set forth in the JJC Financial
Statements.
2.8. Guaranties to Lender. Schedule 2.8 hereto is a complete and accurate
list and summary description of all written guaranties heretofore issued by
Strem, Sacks, their wives, or the Strem Trustees, or the Sacks Trustees to any
bank or other lender in connection with any credit facilities extended by such
creditors to JJC and issued by any of them to any lessor or vendor of JJC
(collectively, the "Guaranties"), including the name of such creditor, lessor or
vendor. All of such guarantees are in full force and effect as of the date
hereof. Except as specified in Schedule 2.8, no beneficiary of any such
guarantee has demanded payment or performance thereunder since the issuance
thereof.
2.9. Absence of Undisclosed Liabilities. JJC has no liabilities or
obligations of any nature whatsoever, whether accrued, matured, unmatured,
absolute, contingent, direct or indirect or otherwise, which have not been (a)
in the case of liabilities and obligations of a type customarily reflected on a
corporate balance sheet set forth in the JJC Financial Statements or (b)
incurred in the ordinary course of business since December 31, 1995, or (c) in
the case of other types of liabilities and obligations, described in any of the
Schedules delivered pursuant hereto or omitted from said Schedules in accordance
with the terms of this Agreement, or arising under contracts or leases
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listed in such Schedules or other contracts or leases which are omitted from
such Schedules in accordance with the terms of this Agreement, or (d) incurred,
consistent with past practice, in the ordinary course of business of JJC (in the
case of liabilities and obligations of the type referred to in clause (a)
above).
2.10. Properties. JJC owns no real estate. Except as set forth on Schedule
2.10, JJC has marketable title to all of the properties and assets, reflected on
the JJC Financial Statements or thereafter acquired, except properties or assets
sold or otherwise disposed of in the ordinary course of business, free and clear
of any and all mortgages, liens (including liens for current Taxes, as defined
in Subsection 2.16(c) hereof), pledges, claims, charges and encumbrances of any
nature whatsoever (hereinafter collectively, "Liens"), other than Liens not yet
due and payable or being contested in good faith by appropriate proceedings, and
other than such Liens or imperfections of title, if any, which are not
substantial in character, amount or extent and do not materially interfere with
the present or continued use of such property or otherwise materially adversely
affect the value or transferability thereof or otherwise materially impair the
Business or operations of JJC as conducted on the date hereof. Listed separately
on Schedule 2.10 hereof are all plants, structures and material equipment which
are owned or leased and utilized in the Business, or are material to the
condition (financial or otherwise) of JJC and such plants, structures and
equipment are in good operating condition and repair (ordinary wear and tear
excepted) and are adequate and suitable for the purposes for which they are
used. Schedule 2.10 sets forth all (a) real property which is leased (whether as
lessor or lessee) or subject to lease (whether as lessor or lessee) by JJC, or
which is subject to a title retention or conditional sales agreement or other
security device, and (b) material tangible personal property which is owned,
leased (whether as lessor or lessee) or subject to contract or commitment of
purchase or sale or lease (whether as lessor or lessee) by JJC.
2.11. Accounts Receivable; Inventories. The accounts and notes receivable
which are reflected on the JJC Financial Statements are good and collectible in
the ordinary course of business at the aggregate recorded amounts thereof, less
the respective amount of the allowances for doubtful accounts and notes
receivable, if any, reflected thereon (which allowance was established on a
basis by JJC consistent with prior practices), and are not subject to offsets
other than in the ordinary course of business. [The accounts and notes
receivable of JJC which were added after December 31, 1995 are good and
collectible in the ordinary course of business and are not subject to offsets
other than in the ordinary course of business. The inventories reflected on the
JJC Financial Statements and thereafter added consist of items of a quality and
quantity usable or saleable in the ordinary course of business, except for
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obsolete materials, slow-moving items, materials of below standard quality and
not readily marketable items, all of which have been written down to net
realizable value or adequately reserved against on the books and records of JJC.
All inventories are stated at the lower of cost or market in accordance with
generally accepted accounting principles.
2.12. Absence of Changes. Since December 31, 1995, except for California
United Bank's verbal agreement to extend the due date for the 2 promissory notes
of JJC for another 6 to 12 months, there have not been (a) any material adverse
change (other than as is normal in the ordinary course of business, e.g.,
inventory level changes) in the condition (financial or otherwise), assets,
liabilities, business, prospects, results of operations or cash flows of JJC
(including, without limitation, any such adverse change resulting from damage,
destruction or other casualty loss, whether or not covered by insurance), (b)
any waivers by JJC of any right, or cancellation of any debt or claim, of
substantial value, (c) any declarations, set asides or payments of any dividend
or other distributions or payments in respect of the JJC Common Stock, or (d)
any changes in the accounting principles or methods which are utilized by JJC.
2.13. Litigation. Except as set forth in Schedule 2.13, there are no suits
or actions, or administrative, arbitration or other proceedings or governmental
investigations, pending or, to the best knowledge of the Trustees, Strem and
Sacks, threatened, against or relating to JJC, the Trustees, Strem, Sacks or
this Agreement, the transactions contemplated hereby or any of the Assets. There
are no judgments, orders, stipulations, injunctions, decrees or awards in effect
which relate to JJC, this Agreement, the transactions contemplated, the Business
or any of the Assets, the effect of which is (a) to limit, restrict, regulate,
enjoin or prohibit any business practice of JJC in any area, or the acquisition
by JJC of any properties, assets or businesses, or (b) otherwise materially
adverse to the Business or any of the Assets.
2.14. No Violation of Law. JJC is not engaging in any activity or omitting
to take any action as a result of which both (a) it is in violation of any law,
rule, regulation, zoning or other ordinance, statute, order, injunction or
decree, or any other requirement of any court or governmental or administrative
body or agency, applicable to JJC, the Business or any of the Assets, including,
but not limited to, those relating to: occupational safety and health matters;
issues of environmental and ecological protection (e.g., the use, storage,
handling, transport or disposal of pollutants, contaminants or hazardous or
toxic materials or wastes, and the exposure of persons thereto); business
practices and operations; labor practices; employee benefits; and zoning and
other land use, and
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(b) JJC, the Business and/or any of the Assets have been, or may be, materially
and adversely affected thereby.
2.15. Intangibles/Inventions. (a) To the best knowledge of the Trustees,
Strem and Sacks, JJC owns no intellectual property other than some possible
rights to its tradename. JJC is the licensee from third parties of
commercially-available computer software programs. JJC has granted no license to
third parties with regard to JJC's intellectual property. JJC has filed no
federal or state trademark registrations with regard to its trade name, and JJC
makes no representations or warranty with regard to such name. No proceedings
have been instituted, are pending, or, to the best knowledge of the Trustees,
Strem and Sacks, are threatened which challenge the rights of JJC with respect
to JJC's intellectual property or its use thereof in connection with the
Business and/or the Assets or the validity thereof and, to the best knowledge of
the Trustees, Strem and Sacks, there is no valid basis for any such proceedings;
(b) neither JJC's ownership of JJC's intellectual property nor its use thereof
in connection with the Business and/or the Assets violates any laws, statutes,
ordinances or regulations, or, to the best knowledge of the Trustees, Strem and
Sacks, has at any time infringed upon or violated any rights of others, or to
the best knowledge of the Trustees, Strem and Sacks, is being infringed by
others; and (c) none of JJC's intellectual property, or JJC's use thereof in
connection with the Business and/or the Assets, is subject to any outstanding
order, decree, judgment, stipulation or, except as otherwise specifically
provided in this Agreement, any lien, security interest or other encumbrance.
2.16. Tax Matters.
(a) JJC has filed with the appropriate governmental agencies all tax
returns and reports required to be filed by it, and has paid in full or
contested in good faith or made adequate provision for the payment of, Taxes (as
defined herein) shown to be due or claimed to be due on such tax returns and
reports. The provisions for Taxes which are set forth on the JJC Financial
Statements will be adequate for all accrued and unpaid taxes of JJC as of [April
30, 1996,] whether (i) incurred in respect of or measured by income of JJC for
any periods prior to the close of business on that date, or (ii) arising out of
transactions entered into, or any state of facts existing, on or prior to such
date. JJC has duly withheld all payroll taxes, FICA and other federal, state and
local taxes and other items requiring to be withheld by it from employer wages,
and has duly deposited the same in trust for or paid over to the proper taxing
authorities. JJC has not executed or filed with any taxing authority any
agreement extending the periods for the assessment or collection of any Taxes,
and is not a party to any pending or, to the best knowledge of the Trustees,
Strem and Sacks, threatened, action or proceeding by any governmental authority
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for the assessment or collection of Taxes. Within the past three years, the
United States federal income tax returns of JJC have not been examined by the
Internal Revenue Service ("the IRS"), nor has the State of California or any
taxing authority thereof examined any merchandize, personal property, sales or
use tax returns of JJC.
(b) JJC (i) has not agreed to or been required to make any adjustment
pursuant to Section 481(a) of the Internal Revenue Code of 1986, as amended (the
"Code"), (ii) has no knowledge that the IRS or any other taxing authority has
proposed any such adjustment or change in accounting method, and (iii) has no
application pending with any governmental authority requesting permission for
any change in accounting method.
(c) As used herein, the term "Taxes" means all federal, state, county,
local and other taxes and governmental assessments, including but not limited to
income taxes, estimated taxes, withholding taxes, excise taxes, ad valorem
taxes, payroll related taxes (including but not limited to premiums for worker's
compensation insurance and statutory disability insurance), employment taxes,
franchise taxes and import duties, together with any related liabilities,
penalties, fines, additions to tax or interest.
2.17. Insurance. Schedule 2.17 is a complete and correct list and summary
description of all contracts and policies of insurance relating to any of the
Assets, the Business, the Trustees, Strem and Sacks in which JJC is an insured
party, beneficiary or loss payable payee. Such policies are in full force and
effect, all premiums due and payable with respect thereto have been paid, and no
notice of cancellation or termination has been received by JJC with respect to
any such policy.
2.18. Banks; Powers of Attorney. Schedule 2.18 is a complete and correct
list showing (a) the names of each bank in which JJC has an account or safe
deposit box and the names of all persons authorized to draw thereon or who have
access thereto, and (b) the names of all persons, if any, holding powers of
attorney from JJC.
2.19. Employee Arrangements. Schedule 2.19 is a complete and correct list
and summary description of all (a) union, collective bargaining, employment,
management, termination and consulting agreements to which any of JJC is a party
or otherwise bound, and (b) compensation plans and arrangements; bonus and
incentive plans and arrangements; deferred compensation plans and arrangements;
pension and retirement plans and arrangements; profit-sharing and thrift plans
and arrangements; stock purchase and stock option plans and arrangements;
hospitalization and other life, health or disability insurance or reimbursement
programs; holiday, sick leave, severance, vacation,
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tuition reimbursement, personal loan and product purchase discount policies and
arrangements; and other plans or arrangements providing for benefits for
employees of JJC. Said Schedule also lists the names and compensation of all
employees of JJC whose earnings during the last fiscal year were $50,000 or more
(including bonuses and other incentive compensation), and all employees who are
expected to receive at least said amount in respect of the current fiscal year.
2.20. ERISA. JJC has no "employee pension benefit plan", as such term is
defined in Section 3(3) of the Employee Retirement Income Security Act of 1974,
as amended ("ERISA"), or "welfare benefit plan", as such term is defined in
Section 3(1) of ERISA, which is maintained by JJC or to which they contribute or
are obligated or required to contribute. JJC has not ever maintained or
contributed to, or been obligated or required to contribute to, a "multiemployer
plan", as such term is defined in Section 3(37) of ERISA.
2.21. Certain Business Matters. Except as is set forth in Schedule 2.21,
(a) JJC is not a party to or bound by any distributorship, dealership, sales
agency, franchise or similar agreement which relates to the sale or distribution
of any of the products and services of the Business, (b) JJC has no sole-source
supplier of significant goods or services (other than utilities) with respect to
which practical alternative sources are not available on comparable terms and
conditions, (c) there are no pending or, to the best knowledge of the Trustees,
Strem and Sacks, threatened labor negotiations, work stoppages or work slowdowns
involving or affecting the Business, and no union representation questions
exist, and there are no organizing activities, in respect of any of the
employees of JJC, (d) the product and service warranties given by JJC or by
which it is bound (complete and correct copies or descriptions of which have
heretofore been delivered by JJC to ACSI) entail no greater obligations than are
customary in the Business, (e) none of JJC, the Trustees, Strem or Sacks is a
party to or bound by any agreement which limits its, their or his, as the case
may be, freedom to compete in any line of business or with any person, or which
is otherwise materially burdensome to JJC, the Trustees, Strem or Sacks, and (f)
JJC is not a party to or bound by any agreement in which any officer, director
or stockholder of JJC (or any affiliate of any such person) has, or had when
made, a direct or indirect material interest.
2.22. Certain Contracts. Schedule 2.22 is a complete and correct list of
all material contracts, commitments, obligations and understandings which are
not set forth in any other Schedule delivered hereunder and to which JJC is a
party or otherwise bound, except for (a) purchase orders from vendors or
customers and (b) each of those which (i) were made in the ordinary course of
business and (ii) either (A) are terminable by JJC (and will be terminable by
Subsidiary) without liability,
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expense or other obligation on 30 days' notice or less, or (B) may be
anticipated to involve aggregate payments to or by JJC of $5,000 (or the
equivalent) or less calculated over the full term thereof, and (C) are not
otherwise material to the Business or JJC. Complete and correct copies of all
contracts, commitments, obligations and undertakings set forth on any of the
Schedules delivered pursuant to this Agreement have been furnished by JJC to
ACSI. Except as expressly stated on any of such Schedules, (1) each of them is
in full force and effect, no person or entity which is a party thereto or
otherwise bound thereby is in material default thereunder, and no event,
occurrence, condition or act exists which does (or which with the giving of
notice or the lapse of time or both would) give rise to a material default or
right of cancellation, acceleration or loss of contractual benefits thereunder;
(2) there has been no threatened cancellations thereof, and there are no
outstanding disputes thereunder; (3) none of them is materially burdensome to
JJC; and (4) each of them is fully assignable without the consent, approval,
order or any waiver by, or any other action of or with any individual or
individuals which will not be obtained before the Closing Date, without the
payment of any penalty, the incurrence of any additional debt, liability or
obligation of any nature whatsoever or the change of any term.
2.23. Customers and Suppliers. JJC has previously provided to ACSI a
complete and correct list setting forth, as of March 13, 1996, (a) the 20
largest customers of the Business and the amount for which each such customer
was invoiced, and (b) the 20 largest suppliers of the Business and the amount of
goods and services purchased from each such supplier. Except as set forth on
Schedule 2.23, there are no (i) threatened cancellations by the aforesaid
customers or suppliers with respect to the Business, (ii) outstanding material
disputes by such customers or suppliers with JJC and the Business, or (iii)
material adverse changes in the business relationship between the Business and
any such customer or supplier. To the best knowledge of the Trustees, Strem and
Sacks, the aforesaid suppliers and customers will continue their respective
relationships with the Business after the Closing Date on substantially the same
basis as now exists.
2.24. Business Practices and Commitments. JJC has, prior to the date of
this Agreement, delivered to ACSI a complete and correct description of (a)
JJC's rebate and volume discount practice, and obligations, if any (b) JJC's
allowance and customer return practice and obligations, if any (c) JJC's co-op
advertising and other promotional practices, and (d) JJC's warranty practices
and obligations, if any, as each of the foregoing relate to JJC's customers and
suppliers.
2.25. Approvals/Consents. Except as set forth on Schedule 2.25, to the best
knowledge of the Trustees, Strem and Sacks, JJC currently holds all governmental
and administrative
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consents, permits, appointments, approvals, licenses, certificates and
franchises which are necessary for the operation of the Business, all of which
are in full force and effect and are transferable to Subsidiary without the
payment of any penalty, the incurrence of any additional debt, liability or
obligation of any nature whatsoever or the change of any term. Schedule 2.25 is
a complete and correct list of all such governmental and administrative
consents, permits, appointments, approvals, licenses, certificates and
franchises. To the best knowledge of the Trustees, Strem and Sacks, no material
violations of the terms thereof have heretofore occurred or are known by the
Trustees, Strem or Sacks to exist as of the date of this Agreement.
2.26. Information as to JJC. (a) None of the representations or warranties
made by the Trustees, Strem or Sacks in this Agreement, or contained in any of
the JJC or Sacks Documents to be executed and delivered hereto, is or will be at
the Closing, false or misleading with respect to any material fact, or omits to
state any material fact necessary in order to make the statements therein
contained not misleading.
(b) To the extent that the Board of Directors of ACSI determines to
solicit proxies from its stockholders in connection with a special meeting of
stockholders to approve this Agreement and the Merger, and also in connection
with the Equity Funding, any information regarding JJC, the Trustees, Strem and
Sacks included in the Proxy Statement (as defined in Subsection 5.7 hereof)
and/or in any Equity Funding Memorandum or in any amendment thereof or
supplement thereto, or in any Registration Statement (as defined in Section
5.7(b) hereof), or amendment thereto, filed by ACSI with the Securities and
Exchange Commission, with respect to securities issued or to be issued by ACSI
will, so long as JJC, Strem, Sacks and the Trustees, within five (5) business
days of receiving any such memorandum, amendment or supplement, confirm in
advance the accuracy of the facts set forth therein relating to JJC, Strem,
Sacks or the Trustees, at the date of mailing to stockholders of ACSI of such
Proxy Statement and at the time of the stockholders' meeting to which the Proxy
Statement relates (provided that ACSI has amended such Proxy Statement prior
thereto to incorporate reasonable changes and additions relating to JJC, Strem,
Sacks, and the Trustees requested by JJC, Strem, Sacks, or the Trustees), and at
the date of such Equity Funding Memorandum or any such amendment thereof or
supplement thereto, not contain any untrue statement of a material fact
regarding JJC, Strem, Sacks, or the Trustees or omit to state any material fact
required regarding JJC, Strem, Sacks, or the Trustees to be stated therein or
necessary in order to make the statements therein regarding JJC, Strem, Sacks,
or the Trustees, in the light of the circumstances under which they were made,
not misleading, except that no representation or warranty is made by JJC, Strem,
Sacks,
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or the Trustees with respect to statements made therein based on information
supplied by ACSI or the Subsidiary.
3. Representations and Warranties as to ACSI and Subsidiary. ACSI and
Subsidiary, jointly and severally, represent and warrant to JJC, the Trustees,
Strem and Sacks as follows:
3.1. Organization, Standing and Power. ACSI is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Delaware, with full corporate power and authority to own, lease and operate its
properties and to carry on its businesses as presently conducted by it. Except
as set forth on Schedule 3.1, there are no states or jurisdictions in which the
character and location of any of the properties owned or leased by ACSI, or the
conduct of its businesses makes it necessary for it to qualify to do business as
a foreign corporation.
3.2. Interests in Other Entities. Schedule 3.2 sets forth a true and
complete list of all direct or indirect subsidiaries of ACSI (including the
Subsidiary) that are material to the financial condition of ACSI and it
subsidiaries, together with the jurisdiction of incorporation of each such
subsidiary and the percentage of each such subsidiary's outstanding capital
stock owned by ACSI or another of ACSI's subsidiaries. Each of such subsidiaries
are duly organized corporations, validly existing and in good standing under the
laws of the jurisdiction of its respective incorporation (as well as all
applicable foreign jurisdictions necessary to its business operations) and have
the requisite corporate power and authority and governmental authority to own,
operate or lease the properties that each purports to own, operate or lease and
to carry on its business as it is now being conducted.
3.3. Incorporation Documents and By-Laws. Each of ACSI and Subsidiary have
heretofore furnished, or will furnish to JJC, a complete and correct copy of its
Certificate or Articles of Incorporation, and the By-Laws, each as amended to
date. Such organizational documents are in full force and effect. Neither ACSI
nor Subsidiary is in violation of any of the provisions of any of the aforesaid
organizational documents.
3.4. Capitalization. (a) The authorized capital stock of ACSI consists of
15,000,000 shares of ACSI Common Stock and 5,000,000 shares of Preferred Stock,
par value $.01 per share (none of which are outstanding or held in the treasury
of ACSI). As of the date hereof, (i) 6,892,638 shares of ACSI Common Stock were
issued and outstanding, all of which were duly authorized, validly issued, fully
paid and nonassessable, (ii) 800,000 shares of ACSI Common Stock are issuable or
available for issuance upon exercise of options granted and available for grant
under ACSI's stock option plan, as amended, and (iii) 5,225,000 shares of ACSI
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Common Stock are reserved for future issuance upon exercise of outstanding
Redeemable Common Stock Purchase Warrants. Schedule 3.4 sets forth a true and
complete list of all outstanding options and warrants as of the date hereof. At
the Closing, Schedule 3.4, as then amended, shall set forth all then outstanding
shares of ACSI Common Stock and all then outstanding options and warrants as of
the Closing Date. Except as contemplated by the Merger and by the Equity Funding
and except as set forth on Schedule 3.4, there are no options, warrants or other
rights, agreements, arrangements or commitments of any character relating to the
issued or unissued capital stock of ACSI or any of its subsidiaries or
obligating ACSI or any of its subsidiaries to issue or sell any shares of
capital stock of or other equity interests in ACSI or any of its subsidiaries.
All shares of ACSI Common Stock issuable upon exercise of outstanding options
and warrants, or pursuant to the Merger or in connection with the Equity
Funding, will upon payment to ACSI of the exercise purchase price thereof, or
upon consummation of the Merger, on the terms and conditions specified in the
instruments pursuant to which they are issuable, be duly authorized, validly
issued, fully paid and nonassessable. Except as set forth on Schedule 3.4,
neither ACSI nor any of its subsidiaries is a party to any agreement granting
registration rights with respect to any equity or debt securities of ACSI or its
subsidiaries. There are no preemptive rights with regard to the capital stock of
ACSI or its subsidiaries, and no right-of-first refusal or similar catch-up
rights with regard to such capital stock. Except as set forth on Schedule 3.4
and except for the transactions contemplated by this Agreement, there are no
outstanding contractual obligations or other commitments or arrangements of ACSI
or any of its subsidiaries to (A) repurchase, redeem or otherwise acquire any
shares of ACSI Common Stock (or any interest therein) or (B) provide funds to or
make any investment (in the form of a loan, capital contribution or otherwise)
in any such subsidiary or other entity, or (C) issue or distribute to any person
any capital stock of ACSI or its subsidiaries, or (D) issue or distribute to
holders of any of the capital stock of ACSI or its subsidiaries any evidences of
indebtedness or assets of ACSI or its subsidiaries. All of the outstanding
securities of ACSI and Subsidiary have been, and all shares of ACSI Common Stock
issuable in connection with the Merger, the Equity Funding, and the exercise of
the outstanding options and warrants will be, offered, issued and sold by ACSI
in full compliance with applicable federal and state securities laws.
(b) The outstanding shares of capital stock of each of the
subsidiaries of ACSI, including Subsidiary, are duly authorized, validly issued,
fully paid and nonassessable, and such shares are owned by ACSI, directly or
indirectly, free and clear of all security interests, liens, adverse claims,
pledges, agreements, limitations on ACSI's voting rights, charges and other
encumbrances of any nature whatsoever.
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3.5. Authority. Subject to a determination by the Board of Directors of
ACSI that a special meeting of the stockholders of ACSI may be advisable to
approve the transaction contemplated by this Agreement, the execution and
delivery by ACSI and Subsidiary of this Agreement and of each agreement to be
executed and delivered by either of them pursuant hereto (collectively, the
"ACSI Documents"), the compliance by each of them with the provisions hereof and
thereof, and the consummation of the transactions contemplated hereby and
thereby, have been (and at the Closing will be) duly and validly authorized by
all necessary corporate action on the part of ACSI and Subsidiary, and ACSI and
Subsidiary have (and at the Closing will have) all necessary corporate power and
corporate authority with respect thereto. This Agreement is, and when executed
and delivered by ACSI and Subsidiary each other ACSI Document will be, the valid
and binding obligation of ACSI or Subsidiary, as the case may be to the extent
it is a party thereto, in accordance with the respective terms, thereof, except
as the same may be limited by bankruptcy, insolvency, reorganization, moratorium
or other laws affecting the rights of creditors generally and subject to the
rules of law governing (and all limitations on) specific performance, injunctive
relief, and other equitable remedies.
3.6. Noncontravention. Except as set forth on Schedule 3.6, neither the
execution and delivery by ACSI and/or Subsidiary of any ACSI Document, nor the
consummation of any of the transactions contemplated hereby or thereby, nor the
performance by either of them of any of its respective obligations hereunder or
thereunder, will (nor with the giving of notice or the lapse of time or both
would) (a) conflict with or result in a breach of any provision of the Articles
or Certificates of Incorporation or By-Laws of either ACSI or Subsidiary, or (b)
give rise to a default, or any right of termination, cancellation or
acceleration, or otherwise be in conflict with, or result in a loss of
contractual benefits to, either of them, under any of the terms, conditions or
provisions of any note, bond, mortgage, indenture, license, agreement or other
instrument or obligation to which either of them is a party or by which either
of them or their respective assets may be bound, or require any consent,
approval or notice under the terms of any such document or instrument, or (c)
violate any order, writ, injunction, decree, to which ACSI or Subsidiary is
subject or any law, statute, rule or regulation of any court or governmental
authority having jurisdiction over either of them, or (d) result in the creation
or imposition of any lien, adverse claim, restriction, charge or encumbrance
upon any of their assets, or (e) interfere with or otherwise adversely affect
the ability of ACSI or Subsidiary to carry on its business after the Closing
Date on substantially the same basis as is now conducted by it.
3.7. Absence of Litigation. There are no claims, actions, suits,
proceedings or investigations pending or, to the
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best knowledge of the executive officers of ACSI and Subsidiary, threatened
against or relating to ACSI, Subsidiary, this Agreement, the transactions
contemplated hereby, or any properties, assets or rights of ACSI or Subsidiary,
including but not limited to any such matters before any court, arbitrator, or
administrative, governmental or regulatory authority or body, domestic or
foreign. Neither ACSI nor any of its subsidiaries (including Subsidiary), nor
any of their respective properties is subject to any order, writ, judgment,
injunction, decree, determination or award which, if enforced, would have a
material adverse effect on the business, the results of the operations, cash
flows or financial condition of ACSI separately or of ACSI and its subsidiaries
taken as a whole.
3.8. Employee Benefit Plans. ACSI has no "employee pension benefit plan",
as such term is defined in Section 3(3) of the Employee Retirement Income
Security Act of 1974, as amended ("ERISA"), or "welfare benefit plan", as such
term is defined in Section 3(1) of ERISA, which is maintained by ACSI or to
which it contributes or is obligated or required to contribute. Exclusive of any
plan, program or arrangement which is required to be maintained pursuant to
local laws or practices, Schedule 3.8 lists all material bonus, stock option,
stock purchase, incentive, deferred compensation, supplemental retirement,
severance and other material fringe or employee benefit plans, programs or
arrangements, and any material employment or compensation agreements, written or
otherwise, for the benefit of, or relating to, any employee of ACSI (the
"Employee Plans"). Except as otherwise disclosed in Schedule 3.8, none of the
Employee Plans is a multiemployer plan, as defined in Section 4001(a)(3) of
ERISA. Each Employee Plan is in compliance in all material respects with the
requirements prescribed by any and all applicable statutes, orders, or
governmental rules or regulations currently in effect with respect thereto, and
ACSI and Subsidiary have performed all material obligations required to be
performed by them under, are not in any material respect in default under or in
violation of, and have no knowledge of any material default or violation by any
other party to, any of the Employee Plans.
3.9. Proxy Statement. (a) No Proxy Statement required to be sent to the
stockholders of ACSI in connection with any special meeting of stockholders of
ACSI concerning the Merger will, at the date such Proxy Statement (or any
amendment thereof or supplement thereto) is first mailed to stockholders and at
the time of ACSI's stockholders' meeting and at the Effective Time, and (b) no
Equity Funding Memorandum used in connection with the Equity Funding, will, at
the date of such Equity Funding Memorandum (or any amendment or supplement) and
at all times thereafter through the date of the consummation of the Equity
Funding, in each case be false or misleading with respect to any material fact,
or omit to state any material fact required to be stated therein or necessary in
order to make the statements
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made therein, in light of the circumstances under which they are made, not
misleading or, in the case of the Proxy Statement, necessary to correct any
statement in any earlier communication with respect to the solicitation of
proxies for ACSI's stockholders' meeting which shall have become false or
misleading. The Proxy Statement, if any, will comply in all material respects as
to form with the requirements of the Exchange Act and the rules and regulations
thereunder.
3.10. Securities and Exchange Commission Filings; Financial Statements.
(a) ACSI has filed all forms, reports, statements and documents
required to be filed with the Securities and Exchange Commission ("SEC") since
March 21, 1994 (collectively, the "SEC Reports"), each of which has complied in
all material respects with the applicable requirements of the Securities Act of
1933, as amended (the "Securities Act") or the Securities Exchange Act of 1934,
as amended (the "Exchange Act"), as applicable, each as in effect on the date so
filed. ACSI has delivered to JJC, in the form filed with the SEC (including any
amendments thereto), its Annual Report on Form 10-K for its fiscal year ended
May 31, 1995, and its Quarterly Report on Form 10-QSB for the quarter ended
February 29, 1996 (the "February 1996 10-Q"). None of such reports (including
but not limited to any financial statements or schedules included or
incorporated by reference therein) filed by ACSI, when filed (except to the
extent revised or superseded by a subsequent filing with the SEC) contained any
untrue statement of a material fact or omitted to state a material fact required
to be stated or incorporated by reference therein or necessary in order to make
the statements therein, in light of the circumstances under which they were
made, not misleading.
(b) Each of the consolidated financial statements contained in the SEC
Reports has been prepared in accordance with generally accepted accounting
principles applied on a consistent basis throughout the periods involved (except
as may otherwise be indicated in the notes thereto) and each presents fairly, in
all material respects, the consolidated financial position of ACSI and its
subsidiaries as at the respective dates thereof and the consolidated results of
its operations and cash flow position for the periods indicated.
(c) Except as and to the extent set forth on the consolidated balance
sheet of ACSI and its subsidiaries as at February 29, 1996, including the notes
thereto, and except for possible rescission liabilities with respect to the
exercise of certain redeemable common stock purchase warrants and the
transactions contemplated hereby, ACSI and its subsidiaries taken as a whole, do
not have any liabilities or obligations, whether or not accrued, contingent or
otherwise, that would be required to be included on a balance sheet prepared in
accordance with
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GAAP, except for liabilities or obligations incurred in the ordinary course of
business since February 29, 1996, none of which would, individually or in the
aggregate, have a material adverse effect on the financial condition, or results
of the operations or cash flows of ACSI and its subsidiaries, on a consolidated
basis.
3.11. Stock Issuable in Merger. The Share Consideration, when issued,
will be duly authorized and validly issued, fully paid and non-assessable, will
be delivered hereunder free and clear of any liens, adverse claims, security
interests, pledges, mortgages, charges and encumbrances of any nature
whatsoever, except that the shares of ACSI Common Stock constituting the Shares
Consideration will be "restricted securities", as such term is defined in the
rules and regulations of the SEC promulgated under the Securities Act and will
be subject to restrictions on transfers pursuant to such rules and regulations
and the laws of applicable states.
3.12. Properties. ACSI does not own any real estate. Except as set
forth on Schedule 3.12, ACSI has marketable title to all of the properties and
assets, reflected on its balance sheets or thereafter acquired, except
properties or assets sold or otherwise disposed of in the ordinary course of
business, free and clear of any and all Liens, other than Liens not yet due and
payable or being contested in good faith by appropriate proceedings, and other
than such Liens or imperfections of title, if any, which are not substantial in
character, amount or extent and do not materially interfere with the present or
continued use of such property or otherwise materially adversely affect the
value or transferability thereof or otherwise materially impair the business
operations of ACSI as conducted on the date hereof. All material plants,
structures and equipment which are utilized in the business operations of ACSI,
or are material to the condition (financial or otherwise) of ACSI, are owned or
leased by ACSI, are in good operating condition and repair (ordinary wear and
tear excepted) and are adequate and suitable for the purposes for which they are
used. Schedule 3.12 sets forth all (a) real property which is leased (whether as
lessor or lessee) or subject to lease (whether as lessor or lessee) by ACSI, or
which is subject to a title retention or conditional sales agreement or other
security device, and (b) material tangible property which is owned, leased
(whether as lessor or lessee) or subject to contract or commitment of purchase
or sale or lease (whether as lessor or lessee) by ACSI.
3.13. Absence of Changes. Except for any actions taken or to be taken
by ACSI to write off the value carried on its balance sheets as of May 31, 1995
of the assets with respect to its terminated retail business (as disclosed in
the November 1995 10-Q), there have not been, since February 29, 1996, (a) any
material adverse change (other than as is normal in the ordinary
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course of business, e.g., inventory level changes) in the condition (financial
or otherwise), assets, liabilities, business, prospects, results of operations
or cash flows of ASCI (including, without limitation, any such adverse change
resulting from damage, destruction or other casualty loss, whether or not
covered by insurance), (b) any waivers by ASCI of any right, or cancellation of
any debt or claim, of substantial value, (c) any declarations, set asides or
payments of any dividend or other distributions or payments in respect of the
ACSI Common Stock, or (d) any changes in the accounting principles or methods
which are utilized by ACSI.
3.14. No Violation of Law. Neither ACSI nor Subsidiary are engaging in any
activity or omitting to take any action as a result of which both (a) it is in
violation of any law, rule, regulation, zoning or other ordinance, statute,
order, injunction or decree, or any other requirement of any court or
governmental or administrative body or agency, applicable to either ACSI or
Subsidiary, their respective business operations or any of their respective
assets, including, but not limited to, those relating to: occupational safety
and health matters; issues of environmental and ecological protection (e.g., the
use, storage, handling, transport or disposal of pollutants, contaminants or
hazardous or toxic materials or wastes, and the exposure of persons thereto);
business practices and operations; labor practices; employee benefits; and
zoning and other land use, and (b) ACSI or Subsidiary, their business operations
and/or any of their assets have been, or may be, materially and adversely
affected thereby.
3.15. Intangibles/Inventions. To the best knowledge of ACSI, ACSI does not
own any intellectual property other than to its tradename, as more particularly
set forth on Schedule 3.15 hereof. ACSI is the licensee from third parties of
intellectual property with regard to (i) the television series known as
"Baywatch", (ii) the television series known as "The Adventures of Hyperman" as
well as (iii) commercially-available computer software programs. ACSI has not
granted any license to third parties with regard to any of ACSI's intellectual
property and (a) no proceedings have been instituted, are pending, or are
threatened which challenge the rights of ACSI with respect to its intellectual
property, if any, or its use thereof in connection with its business affairs
and/or its assets or the validity thereof and, to the best knowledge of ACSI,
there is no valid basis for any such proceedings; (b) neither ACSI's ownership
of any intellectual property nor its use thereof in connection with its business
operations and/or its assets violates any laws, statutes, ordinances or
regulations, or has at any time infringed upon or violated any rights of others,
or is being infringed by others; and (c) neither the intellectual property of
ACSI nor its use thereof in connection with its business operations and/or its
assets, is subject to any outstanding order, decree, judgment,
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stipulation or, except as set forth on Schedule 3.15, any lien, security
interest or other encumbrance.
3.16. Tax Matters.
(a) ACSI has filed with the appropriate governmental agencies all tax
returns and reports required to be filed by it, and has paid in full or
contested in good faith or made adequate provision for the payment of, Taxes (as
defined in Section 2.16(c) hereof) shown to be due or claimed to be due on such
tax returns and reports. The provisions for Taxes which are set forth on its
balance sheets are adequate for all accrued and unpaid taxes of ACSI as of
December 31, 1995, whether (i) incurred in respect of or measured by income of
ACSI for any periods prior to the close of business on that date, or (ii)
arising out of transactions entered into, or any state of facts existing, on or
prior to such date. ACSI has duly withheld all payroll taxes, FICA and other
federal, state and local taxes and other items requiring to be withheld by it
from employer wages, and has duly deposited the same in trust for or paid over
to the proper taxing authorities. ACSI has not executed or filed with any taxing
authority any agreement extending the periods for the assessment or collection
of any Taxes, and is not a party to any pending or, to the best knowledge of
ACSI, threatened, action or proceeding by any governmental authority for the
assessment or collection of Taxes. Within the past three years, the United
States federal income tax returns of ACSI have not been examined by the IRS, nor
have the States of Delaware or California or any taxing authority thereof
examined any merchandize, personal property, sales or use tax returns of ACSI.
(b) ACSI (i) has not agreed to or been required to make any adjustment
pursuant to Section 481(a) of the Code, (ii) has no knowledge that the IRS or
any other taxing authority has proposed any such adjustment or change in
accounting method, and (iii) has no application pending with any governmental
authority requesting permission for any change in accounting method.
3.17. Insurance. Schedule 3.17 is a complete and correct list and summary
description of all contracts and policies of insurance relating to any of the
assets of either ACSI or Subsidiary or their respective business operations in
which ACSI or Subsidiary is an insured party, beneficiary or loss payable payee.
Such policies are in full force and effect, all premiums due and payable with
respect thereto have been paid, and no notice of cancellation or termination has
been received by either ACSI or Subsidiary with respect to any such policy.
3.18. Banks; Powers of Attorney. Schedule 3.18 is a complete and correct
list showing (a) the names of each bank in which ACSI or Subsidiary has an
account or safe deposit box and the names of all persons authorized to draw
thereon or who
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have access thereto, and (b) the names of all persons, if any, holding powers of
attorney from either ACSI or Subsidiary.
3.19. Employee Arrangements. Schedule 3.19 is a complete and correct list
and summary description of all (a) union, collective bargaining, employment,
management, termination and consulting agreements to which ACSI is a party or
otherwise bound, and (b) compensation plans and arrangements; bonus and
incentive plans and arrangements; deferred compensation plans and arrangements;
pension and retirement plans and arrangements; profit-sharing and thrift plans
and arrangements; stock purchase and stock option plans and arrangements;
hospitalization and other life, health or disability insurance or reimbursement
programs; holiday, sick leave, severance, vacation, tuition reimbursement,
personal loan and product purchase discount policies and arrangements; and other
plans or arrangements providing for benefits for employees of ACSI. Said
Schedule also lists the names and compensation of all employees of ACSI whose
earnings during the last fiscal year were $50,000 or more (including bonuses and
other incentive compensation), and all employees who are expected to receive at
least said amount in respect of the current fiscal year.
3.20. Certain Business Matters. Except as is set forth in Schedule 3.20,
(a) ACSI is not a party to or bound by any distributorship, dealership, sales
agency, franchise or similar agreement which relates to the sale or distribution
of any of the products and services of the business operations of ACSI, (b) ACSI
has no sole-source supplier of significant goods or services (other than
utilities) with respect to which practical alternative sources are not available
on comparable terms and conditions, (c) there are no pending or, to the best
knowledge of ACSI, threatened labor negotiations, work stoppages or work
slowdowns involving or affecting the business operations of ACSI, and no union
representation questions exist, and there are no organizing activities, in
respect of any of the employees of ACSI, (d) the product and service warranties
given by ACSI or by which it is bound (complete and correct copies or
descriptions of which have heretofore been delivered by ACSI to JJC) entail no
greater obligations than are customary in the business operations of ACSI, (e)
ACSI is not a party to or bound by any agreement which limits its freedom to
compete in any line of business or with any person, or which is otherwise
materially burdensome to ACSI, and (f) ACSI is not a party to or bound by any
agreement in which any officer, director or stockholder of ACSI (or any
affiliate of any such person) has, or had when made, a direct or indirect
material interest.
3.21. Certain Contracts. Schedule 3.21 is a complete and correct list of
all material contracts, commitments, obligations and understandings which are
not set forth in any other Schedule delivered hereunder and to which ACSI is a
party or otherwise bound, except for (a) purchase orders from vendors
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or customers and (b) each of those which (i) were made in the ordinary course of
business and (ii) either (A) are terminable by ACSI without liability, expense
or other obligation on 30 days' notice or less, or (B) may be anticipated to
involve aggregate payments to or by ACSI of $5,000 (or the equivalent) or less
calculated over the full term thereof, and (C) are not otherwise material to the
business operations of ACSI. Complete and correct copies of all contracts,
commitments, obligations and undertakings set forth on any of the Schedules
delivered pursuant to this Agreement have been furnished by ACSI to JJC. Except
as expressly stated on any of such Schedules, (1) each of them is in full force
and effect, no person or entity which is a party thereto or otherwise bound
thereby is in material default thereunder, and no event, occurrence, condition
or act exists which does (or which with the giving of notice or the lapse of
time or both would) give rise to a material default or right of cancellation,
acceleration or loss of contractual benefits thereunder; (2) there has been no
threatened cancellations thereof, and there are no outstanding disputes
thereunder; and (3) none of them is materially burdensome to ACSI.
3.22. Approvals/Consents. Except as set forth on Schedule 3.22, to the best
knowledge of ACSI and Subsidiary, ACSI currently holds all governmental and
administrative consents, permits, appointments, approvals, licenses,
certificates and franchises which are necessary for the operation of its
business, all of which are in full force and effect. Schedule 3.22 is a complete
and correct list of all such governmental and administrative consents, permits,
appointments, approvals, licenses, certificates and franchises. No material
violations of the terms thereof have heretofore occurred or are known by ACSI to
exist as of the date of this Agreement.
3.23. Information as to ACSI and Subsidiary. (a) None of the
representations or warranties made by ACSI or Subsidiary in this Agreement, or
contained in any of the ACSI Documents to be executed and delivered hereto or in
connection with the Equity Funding, if any, or in any Registration Statement or
amendment thereto, is or will be, false or misleading with respect to any
material fact, or omits to state any material fact necessary in order to make
the statements therein contained not misleading.
3.24. Tax Matters. As of the Effective Time and thereafter to the extent
indicated below:
(a) Subsidiary is a corporation newly formed under the California Laws
for the purpose of the Merger and has conducted no business and owns no assets,
real or personal, except such assets of which are required to carry out the
obligations of the Surviving Corporation hereunder.
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(b) Subsidiary has conducted no business and owns no assets except
assets required to carry out the obligations of Surviving Corporation hereunder.
(c) As of the date of the Merger, ACSI will be in control of
Subsidiary within the meaning of section 368(c)(1) of the Code.
(d) Following the Merger, Subsidiary will not issue additional shares
of its stock that would result in ACSI losing control of Subsidiary within the
meaning of section 368(c)(1) of the Code, and in any event ACSI shall not cause,
permit or suffer Subsidiary to do so at any time during the two years following
the Effective Time without the prior written consent of Strem and the board of
directors of ACSI, which consents shall not be unreasonably withheld or delayed.
(e) ACSI has no plan or intention to reacquire any ACSI Common Stock
issued in the Merger pursuant to this Agreement.
(f) ACSI has no plan or intention to liquidate Subsidiary; to merge
Subsidiary with and into another corporation; to sell or otherwise dispose of
the stock of Subsidiary; or to cause, permit or suffer Subsidiary to sell or
otherwise dispose of any of the assets of JJC acquired in the Merger, except for
any dispositions (x) made in the ordinary course of business or transfers
described in section 368(a)(2)(C) of the Code or (y) which do not result in ACSI
losing control of Subsidiary within the meaning of section 386(c) of the Code
and in any event ACSI shall not cause, permit or suffer to occur any of the
foregoing at any time during the two years following the Effective Time, without
the prior written consent of Strem and the Board of Directors of ACSI, which
consents shall not be unreasonably withheld or delayed.
(g) Following the Merger, Subsidiary will continue the Business and in
the course thereof cause it to use substantially all of JJC's business assets in
such Business.
(h) ACSI and Subsidiary are not investment companies as defined in
section 368(a)(2)(F)(iii) and (iv) of the Code.
(i) No stock of Subsidiary is held or will, at any time during the two
years following the Effective Time, be issued to any person, other than (x)
stock of Subsidiary issued to ACSI in connection with formation of Subsidiary
for purposes of the Merger or (y) stock of Subsidiary issued to persons other
than ACSI so long as ACSI retains, at all times, control of Subsidiary within
the meaning of section 368(c) of the Code.
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(j) There is no agreement or understanding on the part of ACSI or
Subsidiary to take any action which is prohibited by the foregoing provisions of
this Section 3.24.
3.25. ACSI Not Foreign-Owned. ACSI has no knowledge of any foreign (non
United States Person) beneficial holder of the ACSI Common Stock; provided,
however, that ACSI has not undertaken any independent investigation as to the
same.
3.26. Borrowing. Except as otherwise set forth in the SEC Reports, neither
ACSI nor Subsidiary has any notes, loan agreements, indentures, and other
contracts evidencing any indebtedness.
4. Indemnification.
4.1. Indemnification by the Trustees, Strem and Sacks. Each of the
Trustees, Strem and Sacks, jointly and severally, hereby indemnifies and agrees
to defend and hold harmless each of ACSI and Subsidiary from and against any and
all losses, obligations, deficiencies, liabilities, claims, damages, costs and
expenses (including, without limitation, the amount of any settlement entered
into pursuant hereto, and all reasonable legal and other expenses incurred in
connection with the investigation, prosecution or defense of any matter
indemnified pursuant hereto) which either of them may sustain, suffer or incur
and which arise out of, are caused by, relate to, or result or occur from or in
connection any misrepresentation of a material fact contained in any
representation of JJC, the Trustees, Strem and/or Sacks contained in, or the
breach by JJC, the Trustees, Strem or Sacks of any warranty or covenant made by
any one or all of them in, any JJC Document and/or Sacks Document.
4.2. Indemnification by ACSI and Subsidiary. Each of ACSI and Subsidiary,
jointly and severally, indemnifies and agrees to defend and hold harmless each
of JJC (before the Effective Time) and the Trustees, Strem and Sacks from and
against any and all losses, obligations, deficiencies, liabilities, claims,
damages, costs and expenses (including, without limitation, the amount of any
settlement entered into pursuant hereto, and all reasonable legal and other
expenses incurred in connection with the investigation, prosecution or defense
of any matter indemnified pursuant hereto), which it or he may sustain, suffer
or incur and which arise out of, are caused by, relate to, or result or occur
from or in connection with any misrepresentation of a material fact contained in
any representation of ACSI and/or Subsidiary contained in, or the breach by ACSI
or Subsidiary of any warranty or covenant made by either or both of them in, any
ACSI Document.
4.3. Direct Claim. If a party hereto has a direct claim for indemnity under
this Section 4, then such party
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shall give notice to the other parties, with details of such claim. If the
parties hereto cannot reach agreement within 30 days after such notice, then the
party with such claim may pursue their claim in arbitration pursuant to Section
11 hereof.
4.4. Third Party Claims. If a claim by a third party is made against any
party or parties hereto and the party or parties against whom said claim is made
intends to seek indemnification with respect thereto under Subsections 4.1 or
4.2, the party or parties seeking such indemnification shall promptly notify the
indemnifying party or parties, in writing, of such claim, providing such details
of the claim (including the claimed amount) as are then known; provided,
however, that the failure to give such notice shall not affect the rights of the
indemnified party or parties hereunder except to the extent that such failure
materially and adversely affects the indemnifying party or parties due to the
inability to timely defend such action. The indemnifying party or parties shall
have 10 business days after said notice is given to elect, by written notice
given to the indemnified party or parties, to undertake, conduct and control,
through counsel of their own choosing (subject to the consent of the indemnified
party or parties, such consent not to be unreasonably withheld) and at their
sole risk and expense, the good faith settlement or defense of such claim, and
the indemnified party or parties shall cooperate with the indemnifying parties
in connection therewith; provided that: (a) all settlements shall require the
prior reasonable consultation with the indemnified party and the prior written
consent of the indemnified party, which consent shall not be unreasonably
withheld, and (b) the indemnified party or parties shall be entitled to
participate in such settlement or defense through counsel chosen by the
indemnified party or parties, provided that the fees and expenses of such
counsel shall be borne by the indemnified party or parties. So long as the
indemnifying party or parties are contesting any such claim in good faith, the
indemnified party or parties shall not pay or settle any such claim; provided,
however, that notwithstanding the foregoing, the indemnified party or parties
shall have the right to pay or settle any such claim at any time, provided that
in such event they shall waive any right of indemnification therefor by the
indemnifying party or parties. If the indemnifying party or parties do not make
a timely election to undertake the good faith defense or settlement of the claim
as aforesaid, or if the indemnifying parties fail to proceed with the good faith
defense or settlement of the matter after making such election, then, in either
such event, the indemnified party or parties shall have the right to contest,
settle or compromise (provided that all settlements or compromises require the
prior reasonable consultation with the indemnifying party and the prior written
consent of the indemnifying party, which consent shall not be unreasonably
withheld) the claim at their exclusive discretion, at the risk and expense of
the indemnifying parties.
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4.5. Assistance. Regardless of which party is controlling the defense of
any claim, each party shall act in good faith and shall provide reasonable
documents and cooperation to the party handling the defense.
4.6. Exclusive Remedy. The provisions of this Section 4 shall be the sole
and exclusive remedy, other than equitable relief, of the parties hereto.
4.7. Limitations.
(a) ACSI and Subsidiary shall not be entitled to any claim for
indemnification under this Section 4 until the aggregate amount of losses, for
which indemnity is claimed exceeds $5,000, and once such threshold amount is
met, then the indemnity shall apply to amounts over such threshold.
(b) Anything in this Agreement to the contrary notwithstanding, the
aggregate liability of the Strem Trustees and Strem under this Section 4 shall
in no event exceed, in the aggregate, one-half of the Merger Consideration, and
the aggregate liability of the Sacks Trustees and Sacks under this Section 4
shall in no event exceed, in the aggregate, one-half of the Merger
Consideration.
(c) The Trustees, Strem or Sacks may discharge any indemnity
obligation ("Indemnity Obligations") to ACSI and Subsidiary by paying cash or
transferring shares of ACSI Common Stock, pursuant to the following formula: (i)
for the first $10,000 of the Indemnity Obligations over and above that threshold
amount set forth in paragraph (a) above, by payment in cash only and (ii) for
any Indemnity Obligations thereafter, by payment in cash with respect to 40% of
such Indemnity Obligations and by transferring back to ACSI shares of ACSI
Common Stock, valued as provided herein, with respect to the other 60% of such
Indemnity Obligations. For purposes hereof, the ACSI Common Stock held by the
Trustees shall be valued at fifty percent (50%) of the average closing price on
the NASDAQ Small-Cap Market of ACSI Common Stock for the twenty (20) trading
days prior to the date at which the Indemnity Obligations are (A) determined by
the arbitration panel in accordance with the provisions of Section 11 hereof or
(B) agreed to by the Trustees and ACSI.
5. Covenants
5.1. Investigation.
(a) Between the date hereof and the earlier of the Closing Date or the
termination date of this Agreement specified in Section 9 hereof, ACSI and/or
Subsidiary, on the one hand, and JJC and/or the Trustees, on the other hand,
may, directly and through their representatives, make such investigation of each
other corporate party and their respective
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businesses and assets as each deems necessary or advisable (the entity and/or
its representatives making such investigation being the "Investigating Party"),
but such investigation shall not affect any of the representations and
warranties contained herein or in any instrument or document delivered pursuant
hereto. In furtherance of the foregoing, the Investigating Party shall have
reasonable access, during normal business hours, to all properties, books,
contracts, commitments and records of each other, and shall furnish to the other
and their representatives such financial and operating data and other
information as may from time to time be reasonably requested relating to the
transactions contemplated by this Agreement. Each of ACSI and Subsidiary, on the
one hand, and JJC and the Trustees, on the other, and the respective management,
employees, accountants and attorneys of the corporate parties shall cooperate
fully with the Investigating Party in connection with such investigation.
(b) The parties hereto hereby agree that all confidential information
of a party to which an Investigating Party obtains access shall be governed by
and subject to all of the terms and conditions of the confidentiality letter
agreement dated March 5, 1996 ("Confidentiality Agreement") among various
parties, including the parties hereto (with ACSI signing on behalf of
Subsidiary) and Subsidiary agrees to be bound to the Confidentiality Agreement.
5.2. Consummation of Transaction. Each of the parties hereto hereby agrees
to use all reasonable efforts to cause all conditions precedent to his or its
obligations (and to the obligations of the other parties hereto to consummate
the transactions contemplated hereby) to be satisfied, including, but not
limited to, using all reasonable efforts to obtain all required (if so required
by this Agreement) consents, waivers, amendments, modifications, approvals,
authorizations, novations and licenses; provided, however, that nothing herein
contained shall be deemed to modify any of the absolute obligations imposed upon
any of the parties hereto under this Agreement or any agreement executed and
delivered pursuant hereto.
5.3. Lender/Lessors of JJC.
(a) Strem shall use his reasonable efforts to obtain a written waiver,
forbearance or similar document from JJC's bank lender, California United Bank
(the "Lender"), with respect to any defaults by JJC or Superior/Panoramic Hand
Prints Inc. under any provision of the loan/credit documents, including but not
limited to violations of any cross-default provisions as a result of any failure
by JJC, the Trustees, Strem or Sacks to obtain the necessary consents from
equipment vendors, lessors, or licensors of JJC or Superior/Panoramic Hand
Prints Inc.
(b) Strem and Sacks shall execute on behalf of JJC a letter announcing
the Merger, in the form as mutually
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agreed to by Strem, Sacks and Steve Natale (the "Vendor Announcement"), which
Vendor Announcement shall be delivered simultaneously at the Closing to any and
all vendors for which Sacks had personally guaranteed credit lines on behalf of
JJC.
(c) Sacks shall use reasonable efforts to obtain the consent of the
landlord(s) as to the assignment of the office lease set forth on Schedule 2.10
(item 1).
(d) ACSI, the Trustees, Sacks and/or Strem shall execute a cross
indemnification agreement, in the form of Exhibit 5.3(d)attached hereto (the
"Cross Indemnity Agreement").
(e) Strem and Sacks shall be obligated to pay any penalties, fees,
extraordinary costs or additional debt, liability or obligation incurred as a
result of releasing Strem, Sacks, or the Trustees from any Guaranty or obtaining
any consents and/or transfer of the credit facilities, leases and vendors
contracts as contemplated in this Section 5.3, up to an aggregate amount (for
Strem and Sacks combined) of $5,000 (collectively, the "Release Fees").
(f) Notwithstanding anything to the contrary contained in this Section
5.3, Superior, the Trustees, Sacks, and Strem shall not be required to obtain
the consent to the Merger from any equipment lessor (which has leased equipment
to Superior), or from any computer software licensor.
5.4. Cooperation/Further Assurances.
(a) Each of the parties hereto hereby agrees to cooperate fully with
the other parties hereto in preparing and filing any notices, applications,
reports and other instruments and documents which are required by, or which are
desirable in the reasonable opinion of any of the parties hereto, or their
respective legal counsel, in respect of, any statute,rule, regulation or order
of any governmental or administrative body in connection with the transactions
contemplated by this Agreement.
(b) Each of the parties hereto hereby further agrees to execute,
acknowledge, deliver, file and/or record, or cause such other parties to the
extent permitted by law to execute, acknowledge, deliver, file and/or record
such other documents as may be required by this Agreement and as ACSI and/or
Subsidiary, on the one hand, and/or JJC and/or the Trustees, on the other, or
their respective legal counsel may reasonably require in order to document and
carry out the transactions contemplated by this Agreement.
5.5. Accuracy of Representations. Each party hereto agrees that prior to
the Closing Date he or it will enter into no transaction and take no action, and
will use his or its best efforts to prevent the occurrence of any event (but
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excluding events which occur in the ordinary course of business and events over
which such party has no control), which would result in any of his or its
representations, warranties or covenants contained in this Agreement or in any
agreement, document or instrument executed and delivered by him or it pursuant
hereto not to be true and correct, or not to be performed as contemplated, at
and as of the time immediately after the occurrence of such transaction or
event.
5.6. Notification of Certain Matters. JJC and the Trustees shall give
prompt notice to ACSI and Subsidiary, and ACSI or Subsidiary shall give prompt
notice to JJC and the Trustees, as the case may be, of (a) the occurrence, or
nonoccurrence, or any event the occurrence, or nonoccurrence, of which would be
likely to cause any representation contained in this Agreement to be untrue or
inaccurate in any material respect at or prior to the Effective Time and (b) any
material failure of JJC and/or the Trustees, on the one hand, and of ACSI and/or
Subsidiary, on the other, to comply with or satisfy any covenant, condition or
agreement to be complied with or satisfied by him or it hereunder; provided,
however, that the delivery of any notice pursuant to this Subsection 5.6 shall
not limit or otherwise affect the remedies available hereunder to the party
receiving such notice.
5.7. Proxy Statement.
(a) To the extent that the Board of Directors for ACSI determines that
it is necessary or advisable for a special meeting of the stockholders of ACSI
to be held to approve the consummation of the transactions contemplated hereby,
ACSI shall cause to be promptly prepared and filed with the SEC a proxy
statement (the "Proxy Statement") relating to such special meeting of the
holders of ACSI Common Stock at which such Proxy Statement shall solicit, inter
alia, the approval of the Merger and the implementation thereof upon the terms
and subject to conditions set forth herein, an amendment to ACSI's By-Laws to
provide for an increase in the number of directors on ACSI's Board of Directors
and the approval of this Agreement. ACSI shall make the decision of whether or
not to hold a special meeting of stockholders promptly (and no later than seven
(7) days) after the date of this Agreement. ACSI shall use all reasonable
efforts to have the Proxy Statement cleared by the SEC as promptly as
practicable, and JJC, the Trustees, Strem and Sacks shall cooperate with ACSI in
providing information deemed necessary or advisable by counsel for ACSI to be
included in such Proxy Statement and in obtaining such clearance. JJC and the
Trustees shall, within five (5) business days of receipt of such statement, have
the right to conduct a reasonable review, to request reasonable changes and to
approve portions of the Proxy Statement with respect to the accuracy of
information relating to JJC or the Trustees. Promptly after the Proxy Statement
has cleared the SEC, ACSI shall thereafter mail the Proxy Statement
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to the ACSI stockholders. The term "Proxy Statement" shall mean such proxy or
information statement at the time it initially is mailed to the ACSI
stockholders and all amendments and supplements thereto, if any, similarly filed
and mailed.
(b) ACSI shall cause to be promptly prepared and filed with the SEC a
Post Effective Amendment to its Form SB- 2 registration statement (the
"Registration Statement") covering certain equity securities of ASCI to be
issued. ACSI shall use all reasonable efforts to have the Registration Statement
cleared by the SEC as promptly as practicable, and JJC, the Trustees, Strem and
Sacks shall cooperate with ACSI in providing information deemed necessary or
advisable by counsel for ACSI to be included in such Registration Statement and
in obtaining such clearance. JJC, the Trustees, Strem and Sacks shall, within
five (5) business days of receipt of such statement, have the right to conduct a
reasonable review, to request reasonable changes and to approve portions of the
Registration Statement with respect to the accuracy of information relating to
JJC, the Trustees, Strem and Sacks. The term "Registration Statement" shall mean
such registration statement at the time it initially is mailed to the SEC and
all amendments and supplements thereto, if any, similarly filed and mailed.
5.8. Broker. Each of ACSI, Subsidiary, JJC, the Trustees, Strem and Sacks
represents and warrants to the other parties that, except for the services
provided, or to be provided, by The Boston Group, LLP ("Boston") in connection
with the Equity Funding (as defined in Subsection 5.10 hereof) undertaken by
ACSI, no other broker or finder has been engaged or dealt with in connection
with any of the transactions contemplated by this Agreement, and each of the
parties shall indemnify and hold the other harmless from and against any and all
claims or liabilities asserted by or on behalf of any alleged broker or finder
(other than Boston) for broker's fees, finder's fees, commissions or like
payments; provided, however, that ACSI shall be responsible for, and shall pay,
all expenses and commissions due and owing to Boston, pursuant to any agreement
between ACSI and Boston.
5.9. Merger Costs. Except as otherwise provided in Subsection 8.3 hereof
concerning termination of this Agreement, ACSI shall be responsible for, and
shall pay, any and all applicable sales taxes, transfer taxes and similar
charges resulting from the Merger, and all legal fees, accounting fees and other
fees and expenses reasonably incurred by JJC, the Trustees, Strem and Sacks in
preparation for or in consummation of the Merger, including such costs arising
in connection with all negotiations with ACSI, or its officers or authorized
representatives, leading up to the Merger and the preparation of necessary
agreements (including this Agreement, the Confidentiality Agreement and the
letter of intent). Notwithstanding the foregoing, ACSI shall not be responsible
for
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any costs relating to advice or assistance sought by Sacks and/or Strem or any
of the principals and/or shareholders of JJC with respect to personal tax
planning and money management strategies (including without limitation advice
from the Mentor Group with respect to personal tax planning and money management
strategies).
5.10. Equity Funding. The parties hereto each acknowledge that funding in
the amount of at least $3,500,000, for the transactions contemplated by this
Agreement and the Agreement of even date herewith regarding a merger of
Superior/Panoramic Hand Prints Inc. and a subsidiary of ACSI shall be raised by
ACSI either by selling in a private placement shares of ACSI Common Stock,
calling for redemption and soliciting the exercise of the outstanding redeemable
common stock purchase warrants of ACSI presently outstanding, and/or a
combination of the two (collectively, the "Equity Funding"), employing the
services of Boston as placement or soliciting agent. To effect the Equity
Funding, ACSI agrees and covenants to use its best reasonable efforts to
negotiate, prepare and enter into such agreements, as well as to take or cause
to be taken such actions, as are necessary and proper to promptly effectuate the
Equity Funding.
5.11. No Solicitation of Transactions.
(a) Prior to the earlier of the Effective Time or the termination of
this Agreement in accordance with its terms, none of the Trustees, Strem, Sacks
or JJC will, directly or indirectly, through any director, officer, employee,
agent or otherwise, solicit, initiate or encourage the submission of proposals
or offers from any person relating to any acquisition or purchase of all or
(other than in the ordinary course of business) any portion of the Assets or
Business of, or any equity interest in, JJC, or any business combination with
JJC (other than the Merger) or, except to the extent required by fiduciary
obligations under applicable law, as advised by counsel in writing, and other
than with ACSI and/or Subsidiary, participate in any negotiations regarding, or
furnish to any other person any information with respect to, or otherwise
cooperate in any way with, or assist or participate in, facilitate or encourage,
any effort or attempt by any other person to do or seek any of the foregoing.
Except to the extent required by fiduciary obligations under applicable law, as
advised by counsel in writing, the Trustees, Strem, Sacks and JJC shall
immediately cease and cause to be terminated any existing discussions or
negotiations with any parties conducted heretofore with respect to any of the
foregoing (other than in respect of the transaction contemplated hereby). The
Trustees, Sacks, Strem and JJC shall promptly notify ACSI if any such proposal
or offer, or any inquiry or contact with any person with respect thereto, is
made and shall, in any such notice to ACSI, indicate in reasonable
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detail the identity of the offeror and the terms and conditions of any proposal
or offer.
(b) Prior to the earlier of the Effective Time or the termination of
this Agreement, ACSI shall not, directly or indirectly (i) sell a controlling
equity interest in ACSI or Subsidiary, (ii) sell all or substantially all of the
assets of ACSI or Subsidiary, (iii) merge ACSI or Subsidiary with or into
another entity, other than pursuant to the Merger, (iv) purchase the assets or
equity interest of another entity, or (v) enter into any negotiations or
agreements related to any of the foregoing.
5.12. Employment Agreement Between Sacks and Subsidiary. At the Closing,
each of Sacks and Subsidiary will enter into an employment agreement
substantially in the form of Exhibit 5.12 hereto (the "Employment Agreement"),
whereby Sacks shall serve as President of Subsidiary for a one (1) year term or
until his successor is duly elected and qualified in accordance with the
Articles of Incorporation and By-Laws of Subsidiary.
5.13. Prohibited Conduct. Each of JJC, the Trustees, Strem and Sacks,
jointly and severally, covenants and agrees that, during the period from the
date hereof to the earlier to occur of July 31, 1996, or the Effective Time,
except pursuant to the terms hereof or unless ACSI shall otherwise agree in
writing, the Business shall be conducted only, and JJC shall not take any action
except, in the ordinary course of business and in a manner consistent with past
practice and in compliance with applicable laws; and JJC shall use its
reasonable efforts to preserve intact its Assets, the Business and the business
organization of JJC, to keep available the services of the present officers,
employees and consultants of JJC, and to preserve the present relationships of
JJC with customers, suppliers and other persons with whom JJC has business
relations. By way of illustration, and not limitation, neither JJC, the
Trustees, Strem nor Sacks shall, between the date of this Agreement and the
earlier to occur of July 31, 1996, or the Effective Time, directly or indirectly
do, or propose or commit to do, any of the following without the prior written
consent of ACSI:
(a) (i) declare, set aside or pay any dividends on, or make any other
distributions in respect of, any of the JJC Common Stock, or (ii) split, combine
or reclassify any of the JJC Common Stock or issue or authorize the issuance of
any other securities in respect of, in lieu of or in substitution for shares of
the JJC Common Stock, or otherwise;
(b) authorize for issuance, issue, deliver, sell or agree to commit to
issue, sell or deliver (whether through the issuance or granting of options,
warrants, commitments, subscriptions, rights to purchase or otherwise),
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pledge or otherwise encumber, any shares of JJC Common Stock, any other voting
securities or any securities convertible into, or any rights, warrants or
options to acquire, any such shares, voting securities convertible securities or
any other securities or equity equivalents;
(c) (i) increase the compensation payable or to become payable to any
officer, director, employees or consultant of JJC, except pursuant to the terms
of contracts, policies or benefit arrangements in effect on the date hereof, or
(ii) grant any severance or termination pay to, or enter into any employment or
severance agreement with, any director, officer, other employee or consultant of
JJC or any of its subsidiaries, except pursuant to the terms of contracts,
policies and benefit arrangements in effect on the date hereof, or (iii)
establish, adopt, enter into or amend any collective bargaining (other than in
accordance with past practice), bonus, profit sharing, thrift, compensation,
stock option, restricted stock, pension, retirement, deferred compensation,
employment, termination, severance or other plan, agreement, trust, fund, policy
or arrangement for the benefit of any directors, officers, employees or
consultants of JJC;
(d) amend the Articles of Incorporation, By-Laws or other comparable
charter or organizational documents of JJC or alter through merger, liquidation,
reorganization, restructuring, or in any other fashion, the corporate structure
or ownership of JJC;
(e) acquire, or agree to acquire, (i) by merging or consolidating
with, or by purchasing a substantial portion of the stock or assets of, or by
any other manner, any business or corporation, partnership, joint venture,
association or other business organization or division thereof, or (ii) any
assets that are material, individually or in the aggregate, to JJC, except
purchases consistent with past practice;
(f) sell, lease, license, mortgage or otherwise encumber or subject to
any lien, security interest, pledge or encumbrance or otherwise dispose of any
of the Assets, except sales in the ordinary course of business consistent with
past practice;
(g) except in connection with extending the term of the 2 existing
promissory notes to California United Bank for 6 to 12 months, (i) permit JJC to
incur any indebtedness for borrowed money or guarantee any such indebtedness of
another person, issue or sell any debt securities or warrants or other rights to
acquire any debt securities of JJC, guarantee any debt securities of another
person, or enter into any arrangement having the economic effect of any of the
foregoing, except for short-term borrowings incurred in the ordinary course of
business
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consistent with past practice, or (ii) permit the Trustees, Strem or Sacks to
issue any guaranties of any indebtedness of JJC;
(h) except in the ordinary course of business, enter into any
agreement, contract, commitment, involving a commitment on the part of JJC to
purchase, sell, lease or otherwise dispose of assets or require payment by JJC
in excess of $1,000;
(i) make any capital expenditures;
(j) adopt a plan of complete or partial liquidation of JJC or
resolutions providing for or authorizing such a liquidation or the dissolution,
merger, consolidation, restructuring, recapitalization or reorganization of JJC;
(k) cause JJC to recognize any labor union (unless legally required to
do so) or enter into or amend any collective bargaining agreement;
(l) change any accounting principles used by JJC, unless required by
the SEC or the Financial Accounting Standards Board;
(m) make any tax election of, or settle or compromise any income tax
liability of JJC, which in the case of any of the foregoing, is material to the
business, financial condition or results of the operations of JJC and its
subsidiaries, if any, taken as a whole;
(n) settle or compromise any litigation in which any of JJC is a
defendant (whether or not commenced prior to the date of this Agreement) or
settle, pay or compromise any claims not required to be paid, which payments are
individually in an amount in excess of $1,000 and in the aggregate in an amount
in excess of $5,000; and
(o) authorize any of, or commit or agree to take any of, the foregoing
actions.
5.14. Tax Covenants. The parties intend that the Merger constitutes a
tax-free reorganization by statutory merger of JJC with and into Surviving
Corporation within the meaning of section 368(a)(1)(A) and section 368(a)(2)(D)
of the Code and corresponding provisions of state income tax law, and the
parties agree to file all reports and statements with the IRS and state tax
authorities necessary to reflect such status and not to take any position
thereon or otherwise that is or would be inconsistent with such treatment.
5.15. Working Capital. At the Effective Time, ACSI agrees to provide, upon
a consolidated basis, not less than $1,000,000 as additional working capital, to
Subsidiary and
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ASCI/SPI Acquisition Corp. (a wholly-owned subsidiary of ACSI), which monies
shall be in addition to the monies needed to pay the Cash Consideration and, to
the extent necessary, to satisfy any costs associated with assuming, or
procuring a new line of credit for the Surviving Corporation in place of, as the
case may be, the existing accounts receivable line of credit which Superior has
with the United California Bank.
5.16. Reporting. ACSI hereby agrees that for ASCI's financial reporting
purposes and for ACSI's tax purposes in connection with the Share Consideration,
ACSI shall not utilize a value per share which represents a discount of more
than twenty-five percent (25%) from the public closing bid quotation for the
ACSI Common Stock (as reported by NASDAQ) on the last NASDAQ trading day prior
to the Effective Time.
6. Closing Conditions.
6.1. Conditions to Obligations of ACSI and Subsidiary to Effect the Merger.
The respective obligations of ACSI and Subsidiary to effect the Merger shall be
subject to the fulfillment at or prior to the Closing Date of the following
conditions:
(a) Merger with Superior/Panoramic Hand Prints Inc.. All the
transactions to be consummated on or before the Closing, pursuant to that
certain Agreement and Plan of Merger entered concurrently with this Agreement by
and among Superior/Panoramic Hand Prints Inc., the shareholders thereof, ACSI
and a wholly-owned subsidiary of ACSI formed for purposes thereof (the "Superior
Merger"), shall have been effected, including without limitation, the employment
agreement between ACSI and Strem.
(b) Equity Funding. The Equity Funding shall have been successfully
concluded, resulting in sufficient net proceeds to ACSI to provide for not less
than $3,500,000 in cash to be made available by ACSI for the Cash Consideration
under this Agreement and under the Superior Merger Agreement and at least
$1,000,000 to be made available, upon a consolidated basis, to Subsidiary and
ASCI/SPI Acquisition Corp. as additional working capital immediately after the
Closing.
(c) Accuracy of Representations and Warranties. The representations
and warranties of each of JJC, the Trustees, Strem and Sacks contained in any
Sacks Document or JJC Document delivered by either or both of them shall have
been true when made, and, in addition, shall be true in all material respects on
and as of the Closing Date with the same force and effect as though made on and
as of the Closing Date.
(d) Performance of Agreements. Each of JJC, the Trustees, Strem and
Sacks, as the case may be, shall have
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performed, observed and complied in all material respects with all of their
obligations, covenants and agreements, and shall have satisfied or fulfilled in
all material respects conditions contained in any Sacks Document or JJC Document
and required to be performed, observed or complied with, or to be satisfied or
fulfilled, by JJC, the Trustees, Strem and/or Sacks at or prior to the Closing
Date.
(e) Results of Investigation. ACSI and Subsidiary shall be satisfied
with the results of any investigation of the business and affairs of JJC
undertaken by them pursuant to Subsection 5.1 hereof. For purposes hereof,
"satisfactory" shall mean that the results of such investigation do not indicate
that a material adverse change has occurred in the condition, financial or
otherwise, business, results of operations, cash flows or prospects of JJC from
the JJC Financial Statements.
(f) Stockholder Approval. If the Board of Directors of ACSI shall have
determined that a special meeting of the stockholders of ACSI shall be called,
such meeting shall be duly held and the Merger, the transaction contemplated
herein, and the other matters to be voted upon at such meeting as specified in
the notice of meeting under the Proxy Statement shall have been approved and
adopted by the requisite vote of the stockholders of ACSI.
(g) Opinion of Counsel for JJC. ACSI and Subsidiary shall have
received an opinion of Sheppard, Mullin, Richter & Hampton LLP, counsel for JJC,
the Trustees, Strem and Sacks, dated the Closing Date, in substantially the form
of Exhibit 6.1(g) hereto.
(h) Litigation. No order of any court or administrative agency shall
be in effect which restrains or prohibits the transactions contemplated hereby,
and no claim, suit, action, inquiry, investigation or proceeding in which it
will be, or it is, sought to restrain, prohibit or change the terms of or obtain
damages or other relief in connection with this Agreement or any of the
transactions contemplated hereby, shall have been instituted or threatened by
any person or entity, and which, in the reasonable judgment of ACSI (based on
the likelihood of success and material consequences of such claim, suit, action,
inquiry or proceeding), makes it inadvisable to proceed with the consummation of
such transactions.
(i) Consents and Approvals. Subject to the provisions of Section 5.3
hereof, all consents, waivers, approvals, licenses and authorizations by third
parties and governmental and administrative authorities (and all amendments or
modifications to existing agreements with third parties) required under this
Agreement as a precondition to the performance by JJC, the Trustees, Strem and
Sacks of their
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respective obligations hereunder and under any agreement attached as Exhibits
hereto delivered pursuant hereto shall have been duly obtained and shall be in
full force and effect.
(j) Date of Consummation. The Merger shall have been consummated on or
prior to July 31, 1996, or such later date as the parties shall agree by a
written instrument signed by all of them.
(k) Validity of Transactions. The validity of all transactions
contemplated hereby, as well as the form and substance of all agreements,
instruments, opinions, certificates and other documents delivered by JJC, the
Trustees, Strem and Sacks pursuant hereto, shall be satisfactory in all material
respects to ACSI and its counsel.
(l) No Material Adverse Change. Except as otherwise provided by this
Agreement, there shall not have occurred after the date hereof, in the
reasonable judgment of ACSI, a material adverse change in the financial or
business condition of JJC, taken as a whole.
(m) Employment Agreement. Sacks shall have executed and delivered the
Employment Agreement with the Subsidiary.
(n) Employment. Each of Steve Natale and Christopher Ebert shall have
executed and delivered separate employment agreement with ACSI.
(o) Satisfaction of Officer/Director Loans from JJC and/or
Superior/Panoramic Hand Prints Inc. All loans or other indebtedness due from
Sacks to JJC and/or Superior/Panoramic Hand Prints Inc. shall have been paid,
irrespective of any other due date contained in the documents executed in
connection with any such loan or indebtedness.
(p) Closing Certificate. Trustees, Strem, and Sacks shall have
furnished ACSI and Subsidiary with certificates, executed by Strem individually,
as President of JJC, and Sacks, individually, as Secretary of JJC, all dated the
Closing Date, to the effect that all the representations and warranties of JJC,
the Trustees, Strem and Sacks are true and complete in all material respects and
all covenants to be performed by JJC, the Trustees, Strem or Sacks at or as of
the Closing have been performed in all material respects and conditions to be
satisfied at or as of the Closing have been waived or satisfied in all material
respects.
(q) Release Fees. Strem shall have paid any Release Fees, as provided
in Subsection 5.3(e) hereof, incurred with respect to releasing the Guaranties
(defined in Subsection
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2.8 hereof) and/or obtaining any consents in accordance with Section 5.3 hereof.
(r) Waiver of Lender. Strem shall have obtained a waiver, forbearance
or similar document from the California United Bank pursuant to Subsection
5.3(a) hereof.
(s) Cross Indemnity Agreement. Strem and Sacks shall have executed the
Cross Indemnity Agreement pursuant to Subsection 5.3(d).
6.2. Conditions to Obligations of JJC, Sacks, Strem, and the Trustees, to
Effect the Merger. The obligations of JJC, Sacks, Strem and the Trustees to
effect the Merger shall be subject to the fulfillment at or prior to the Closing
Date of the following conditions:
(a) Accuracy of Representations and Warranties. The representations
and warranties of ACSI and Subsidiary contained in any ACSI Documents delivered
by either ACSI or Subsidiary or both of them shall have been true when made,
and, in addition, shall be true in all material respects, on and as of the
Closing Date with the same force and effect as though made on and as of the
Closing Date.
(b) Performance of Agreements. Each of ACSI and Subsidiary shall have
performed, observed and complied, in all material respects, with all
obligations, covenants and agreements, and shall have satisfied or fulfilled in
all material respects all conditions contained in any ACSI Document and required
to be performed, observed or complied with, or satisfied or fulfilled, by either
or both of them at or prior to the Closing Date.
(c) Results of Investigation. JJC and the Trustees shall be satisfied
with the results of any investigation of the business and affairs of ACSI and
Subsidiary undertaken by it or them pursuant to Subsection 5.1 hereof. For
purposes hereof, "satisfactory" shall mean that the results of such
investigation do not indicate that a material adverse change has occurred in the
condition, financial or otherwise, business, results of operations, cash flows
or prospects of ACSI and its subsidiaries, taken as a whole, as set forth in the
February 1996 10Q filed by ACSI with the SEC.
(d) Opinion of Counsel for ACSI and Subsidiary. JJC, Sacks, Strem, and
the Trustees shall have received an opinion of Tenzer Greenblatt LLP, counsel
for ACSI and Subsidiary, dated the Closing Date, in substantially the form of
Exhibit 6.2(d) attached hereto and made a part hereof.
(e) Litigation. No order of any court or administrative agency shall
be in effect which restrains or
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prohibits the transactions contemplated hereby, and no claim, suit, action,
inquiry, investigation or proceeding in which it will be, or it is, sought to
restrain, prohibit or change the terms of or obtain damages or other relief in
connection with this Agreement or any of the transactions contemplated hereby
shall have been instituted or threatened by any person or entity, and which in
the reasonable judgment of the Trustees (based on the likelihood of success and
material consequences of such claim, suit, action, inquiry or proceeding), makes
it inadvisable to proceed with the consummation of such transactions.
(f) Consents and Approvals. All consents, waivers, approvals, licenses
and authorizations by third parties and governmental and administrative
authorities (and all amendments and modifications to existing agreements with
third parties) required as a precondition to the performance by ACSI and
Subsidiary of their respective obligations hereunder and under any agreement
delivered pursuant hereto, shall have been duly obtained and shall be in full
force and effect.
(g) Date of Consummation. The Merger shall have been consummated on or
prior to July 31, 1996, or such later date as the parties shall agree by a
written instrument signed by all of them.
(h) Validity of Transactions. The validity of all transactions
contemplated hereby, as well as the form and substance of all agreements,
instruments, opinions, certificates and other documents delivered by ACSI and
Subsidiary pursuant hereto, shall be satisfactory in all material respects to
the Trustees and its counsel.
(i) No material Adverse Change. There shall not have occurred after
the date hereof, in the reasonable judgment of the Trustees, a material adverse
change in the financial or business condition of ACSI or Subsidiary, taken as a
whole; provided, however, that any steps taken or to be taken by ACSI to write
off the assets with respect to its publicly disclosed terminated retail business
or in payment of its legal, banking and audit fees associated with the
transactions contemplated by this Agreement shall not constitute a material
adverse change for purposes hereof.
(j) Employment Agreement. Subsidiary shall have executed and delivered
to Sacks the Employment Agreement.
(k) Registration Rights Agreement. ACSI shall have executed and
delivered a registration rights agreement, substantially in the form attached
hereto as Exhibit 6.2(k) (the "Registration Rights Agreement"), and a similar
Agreement to the Strem Trustees under the Superior Merger.
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(l) Guarantees/Releases. ACSI shall deliver, or cause to be delivered,
to Strem and Sacks, in the alternative any of (i) the Guaranties; or (ii)
releases executed by the guaranteed party to whom the guaranties were delivered
by Strem or Sacks releasing him from liability thereunder; or (iii) the
Cross-Indemnity Agreement.
(m) Merger with Superior/Panoramic Hand Prints Inc.. All the
transactions to be consummated on or before the closing pursuant to the Superior
Merger shall have been effected.
(n) Closing Certificate. Each of ACSI and Subsidiary shall have
furnished JJC, the Trustees, Strem, and Sacks with certificates, each executed
by their respective presidents, dated the Closing Date, to the effect that all
the representations and warranties of ACSI or Subsidiary, as the case may be,
are true and complete in all material respects and all covenants to be performed
by each of ACSI or Subsidiary, as the case may be, at or as of the Closing have
been performed in all material respects and conditions to be satisfied at or as
of the Closing have been waived or satisfied in all material respects.
(o) Resignation of Gill Champion. Gill Champion shall have submitted
his resignation as an officer and director of ACSI, effective immediately at the
Closing Date.
(p) Market Price. The closing bid price for the ASCI Common Stock (as
reported by NASDAQ) for the last NASDAQ trading day prior to the Effective Time
shall be not less than $2.65 per share.
7. The Closing. Unless this Agreement shall have been terminated and the
transactions herein contemplated shall have been abandoned pursuant to Section
9, the closing of the Merger (the "Closing") will take place at the offices of
Sheppard, Mullin, Richter & Hampton LLP as promptly as practicable (and in any
event within five business days) after satisfaction or waiver of the conditions
set forth in Section 6 but in no event later than July 31, 1996 (the "Closing
Date"); or such later date as shall have been fixed by a written instrument
signed by the parties.
7.1. Deliveries by ACSI and Subsidiary at the Closing. At the Closing, ACSI
and Subsidiary shall deliver the following:
(a) stock certificate(s), representing the Share Consideration
registered 25,000 in the name of the Strem Trustees and 25,000 in the name of
the Sacks Trustees;
(b) a wire transfer of immediately available funds, in the amount of
$40,000.00, payable to the Strem Trustees
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and $40,000.00 payable to the Sacks Trustees, representing the Cash
Consideration, against delivery of the certificate(s) representing the Shares;
(c) checks representing payment of the merger costs against the
presentation of itemized invoices setting forth such costs and an explanation
thereof in reasonable detail;
(d) copies of (i) resolutions adopted by the Board of Directors of
ACSI authorizing ACSI to execute and deliver the ACSI Documents to which it is a
party and to perform its obligations thereunder, upon the terms and subject to
the conditions set forth therein and of any proposals approved by the
stockholders of ACSI if ACSI shall have determined to hold a special meeting of
stockholders to approve the Merger, and (ii) resolutions of the Board of
Directors of Subsidiary authorizing Subsidiary to execute and deliver the ACSI
Documents to which it is a party, to perform its obligations thereunder, and to
effect the Merger upon the terms and subject to the conditions set forth
therein, duly certified by the Secretary or Assistant Secretary of Subsidiary.
(e) Confirmation, in the form satisfactory to the parties hereto, from
the State of California or a filing service (jointly chosen by the parties
hereto) that the Agreement of Merger of JJC with and into the Subsidiary has
been filed with the Secretary of State of California; together with a copy of
the executed form of such agreement.
(f) Certificates of the Secretary or Assistant Secretary of each of
ACSI and Subsidiary certifying as to the incumbency and specimen signatures of
the officers of ACSI and Subsidiary executing the ACSI Documents on behalf of
such corporation.
(g) the Registration Rights Agreement, duly executed by ACSI.
(h) the Employment Agreement, duly executed by Subsidiary.
(i) the Cross Indemnity Agreement duly executed by ACSI.
7.2. Deliveries by JJC and/or the Trustees, Strem and/or Sacks at the
Closing. At the Closing, JJC, the Trustees, Sacks and/or Sacks, as applicable,
shall deliver to ACSI and/or Subsidiary, as the case may be, the following:
(a) stock certificate(s) representing the Shares, duly executed by the
Trustees;
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(b) a copy of the resolutions of the Board of Directors of JJC, and
the written consent of the Trustees, as all of the shareholders of JJC,
authorizing JJC to execute and deliver the JJC Documents, to perform its
obligations thereunder and to effect the Merger, duly certified by the Secretary
or assistant Secretary of JJC.
(c) Certificates of the Secretary or Assistant Secretary of JJC
certifying as to the incumbency and specimen signatures of the officers of JJC
executing the JJC Documents on behalf of such corporation.
(d) the Employment Agreement, duly executed by Sacks.
(e) the Cross Indemnity Agreement, duly executed by Sacks.
(f) the Vendor Announcements duly executed by Strem and Sacks.
(g) California United Bank's waiver, forebearance or other similar
documents from the California United Bank.
(h) the Minute Books and other corporate records of Superior.
(i) the three (3) most recent monthly bank statements pertaining to
the banking activities of JJC.
7.3. Other Deliveries. In addition, the parties shall execute and deliver
such other documents as may be required by this Agreement and as either of them
or their respective counsel may reasonably require in order to document and
carry out the transactions contemplated by this Agreement.
8. Termination, Amendment and Waiver.
8.1. Termination. This Agreement may be terminated at any time prior to the
Effective Time:
(a) By mutual consent of Sacks, Strem and the Boards of Directors of
ACSI, Subsidiary and JJC; or
(b) By ACSI and Subsidiary, on the one hand, or JJC, Sacks, Strem and
the Trustees, on the other hand, if (i) the Merger shall not have been
consummated by July 31, 1996, or such later date as the parties shall have fixed
by written instrument signed by the parties hereto; provided, however, that the
right to terminate this Agreement under this Subsection shall not be available
to any party whose failure to fulfill any obligation under this Agreement has
been the cause of, or
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resulted in, the failure of the Effective Time to occur on or before such date
or (ii) a court of competent jurisdiction or governmental, regulatory or
administrative agency or commission shall have issued an order, decree or ruling
or taken any other action (which order, decree, ruling or other action the
parties hereto shall use their reasonable efforts to vacate), in each case
permanently restraining, enjoining or otherwise prohibiting the transactions
contemplated by this Agreement.
(c) By ACSI and Subsidiary, on the one hand, or by JJC, Sacks, Strem
and the Trustees, on the other hand, if, in the reasonable judgment of ACSI and
Subsidiary or JJC, Sacks, Strem, and the Trustees, as the case may be, (and
provided such parties are not then in material breach of their respective
obligations hereunder), it shall have been determined that the transaction
contemplated by this Agreement has become inadvisable or impracticable by reason
of the institution or threat by state, local or federal governmental authorities
or by any other person of material litigation or proceedings against ACSI or
JJC; provided, however, that any action brought by California United Bank
regarding the waiver or nonwaiver of defaults of JJC of its loan covenants with
such bank shall not be deemed material for this subsection.
(d) By ACSI and Subsidiary, on the one hand, or JJC, Strem, Sacks, and
the Trustees, on the other hand, if, in the reasonable judgment of ACSI and
Subsidiary or JJC, Strem, Sacks, and the Trustees, as the case may be (and
provided such parties are not then in material breach of their respective
obligations hereunder), it shall be determined that the business or assets or
financial condition of the other unrelated corporate party hereto has been
materially and adversely affected since December 31, 1995, whether by reason of
changes, developments or operations in the normal course of business or
otherwise; provided, however, (i) that any steps taken or to be taken by ACSI to
write off the assets with respect to its publicly disclosed terminated retail
business or in payment of its legal, banking and audit fees associated with the
transactions contemplated by this Agreement shall not constitute a material
adverse change for purposes hereof, and (ii) any actions or inactions by
California United Bank regarding the waiver or nonwaiver of defaults of JJC of
its loan covenants with such bank shall not constitute a material adverse change
for purposes hereof.
(e) In the event ASCI or Subsidiary, on the one hand, or JJC, the
Trustees, Strem, or Sacks, on the other hand, breaches or otherwise fails to
perform any material obligation under this Agreement, then the other party (or
parties) hereto not in breach shall notify in (writing) the party in material
breach and demand that such material breach or such material failure to perform
be corrected within a stipulated period, which period shall not be less than ten
(10) days
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following notification. If the party (or parties) in material breach fails to
correct the material breach within the period stated in the written notice of
demand for correction, the other party (or parties) may, in its (or their) sole
discretion, immediately terminate this Agreement by giving the party (or
parties) in material breach written notice of termination.
8.2. Effect of Termination. In the event of the termination of this
Agreement as provided in this Section 8, this Agreement shall, except with
respect to Subsection 8.3, forthwith become null and void and there shall be no
liability on the part of any party hereto except and to the extent such
termination results from the willful breach by a party of any of its
representations, warranties or agreements hereunder, in which case, the
non-breaching party shall be entitled to damages. Any termination shall not,
however, affect the obligations of the parties under the Confidentiality
Agreement.
8.3. Fees and Expenses.
(a) Except as otherwise provided in Subsection 5.9 or in paragraphs
(b) and (c) below, each of the parties shall be responsible for, and shall pay,
its or his respective fees and expenses incurred by such party in connection
with the Merger and the transactions contemplated by this Agreement.
(b) Notwithstanding anything contained in this Agreement to the
contrary, in the event this Agreement is terminated prior to the Effective Time
for any or the following reasons: (i) failure of ACSI to successfully consummate
the Equity Funding, (ii) failure of the Board of Directors of ACSI or the
stockholders of ACSI to approve the Merger or the Equity Funding, (iii) breach
of this Agreement by ACSI or Subsidiary, or (iv) the arbitrary and capricious
refusal of ACSI to proceed with the Merger despite the satisfaction or waiver by
JJC and the Trustees of any unfulfilled conditions precedent to the consummation
of the transactions hereunder as set forth in Section 6.2, then ACSI shall, in
addition to its own fees and expenses, be responsible for and shall pay or
reimburse each of JJC, Sacks, Strem, and the Trustees, upon their respective
submissions of true and complete statements (together with invoices, bills and
similar proof attached thereto), for any and all fees and expenses (legal,
accounting, advisor and other) actually incurred by JJC, Sacks, the Trustees and
Strem, in good faith, or on their behalf, in connection with the letter of
intent, the Confidentiality Agreement, this Agreement, the proposed Merger and
the transactions contemplated by this Agreement. Notwithstanding the foregoing,
ACSI shall not be responsible for any costs relating to advice or assistance
sought by Sacks and/or Strem or any of the principals and/or shareholders of JJC
with respect to personal tax planning and money management strategies (including
without limitation advice
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from the Mentor Group with respect to personal tax planning and money management
strategies).
(c) Notwithstanding anything contained in this Agreement to the
contrary, in the event this Agreement is terminated prior to the Effective Time
for any of the following reasons: (i) fraud of JJC or a material misstatement in
the financial condition of JJC; (ii) breach of this Agreement by JJC, the
Trustees, Strem, or Sacks, (iii) the arbitrary and capricious refusal of JJC to
proceed with the Merger despite the satisfaction or waiver by ACSI and
Subsidiary of all conditions precedent to the consummation of the transactions
hereunder as set forth in Section 6.1 hereof, or (iv) the failure of the
proposed merger of Superior/Panoramic Hand Prints Inc. and a subsidiary of ACSI
by reason of an event or condition described in Section 6.2 of the merger
agreement with respect to such merger, then JJC shall, in addition to its own
fees and expenses, be responsible for and shall pay or reimburse each of ACSI
and Subsidiary, upon their respective submissions of true and accurate
statements (together with invoices, bills and similar proof attached thereto),
for any and all fees and expenses actually incurred by ACSI and Subsidiary or on
their behalf in good faith (but specifically not including fees, expenses and
charges payable to Boston and any bank, financial institution and/or investment
banker, including their respective agents, for arranging or providing the Equity
Funding and related financing) in connection with the letter of intent, the
Confidentiality Agreement, this Agreement, the proposed Merger, and the
transactions contemplated by this Agreement (but not the Equity Funding and
other financing in connection with such transactions and actually incurred by
banks, financial institutions and investment bankers).
8.4. Amendment. This Agreement may not be amended except by an instrument
in writing signed by each of the parties hereto.
8.5. Waiver. At any time prior to the Effective Time, any party hereto may
(a) extend the time for the performance of any of the obligations or other acts
of the other parties hereto, (b) waive any inaccuracies in the representations
and warranties contained herein or in any document delivered pursuant hereto and
(c) waive compliance with any of the agreements or conditions contained herein.
Any such extension or waiver shall be valid if set forth in an instrument in
writing signed by the party or parties to be bound thereby.
9. Survival of Representations and Warranties.
Each of the parties hereto hereby agrees that all representations and
warranties made by or on behalf of him or it in this Agreement or in any
document or instrument delivered
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pursuant hereto shall survive the Closing Date for a period of one (1) year
after the Effective Time.
10. Arbitration.
All disputes arising under this Agreement between ACSI and Subsidiary, on
the one hand, and JJC, the Trustees, Strem or Sacks, on the other hand, that
cannot be amicably resolved by the parties shall be settled by binding
arbitration in Los Angeles County, California, subject to the terms and
provisions of this Section 10, and judgment upon the award rendered may be
entered in any court having jurisdiction thereof; provided, however, that if
equitable relief is sought (including injunctive relief) by a party hereto for a
breach of this Agreement, then the nonbreaching party may, in its sole
discretion, enforce such rights or seek such equitable relief by court action.
Except as provided below, the arbitration shall proceed in accordance with the
laws of the State of California. Any party requesting arbitration shall serve a
written demand for arbitration on the other parties by registered or certified
mail. The demand shall set forth a statement of the nature of the dispute, the
amount involved and the remedies sought. There shall be three (3) arbitrators
subject to the provisions below. No later than twenty (20) calendar days after a
demand for arbitration is served, ACSI and Subsidiary shall jointly select and
appoint one retired judge of the Los Angeles County Superior Court to act as an
arbitrator, and the Trustees, Strem and Sacks shall jointly select and appoint
one retired judge of the Los Angeles County Superior Court to act as an
arbitrator. If one side fails or refuses to appoint an arbitrator within such
20-day period, then the other party may apply to the Los Angeles County Superior
Court for appointment of a retired judge to serve as an arbitrator. No later
than ten (10) calendar days after the appointment of such two arbitrators, such
two arbitrators shall appoint a retired judge of the Los Angeles County Superior
Court to act as the third arbitrator. No later than ten (10) calendar days after
appointment of the last arbitrator, the parties hereto shall jointly prepare and
submit to the three arbitrators a set of rules for arbitration. In the event
that the parties hereto cannot agree on the rules for the arbitration, the
arbitrators shall establish the rules. All decisions by the three arbitrators
shall be by majority rule. No later than ten (10) calendar days after the last
arbitrator is appointed, the arbitrators shall schedule the arbitration for a
hearing to commence on a mutually convenient date. The hearing, which shall be
in the English language, shall commence no later than one hundred twenty (120)
calendar days after the last arbitrator is appointed and shall continue from day
to day until completed. The arbitrators shall issue their award in writing no
later than twenty (20) calendar days after the conclusion of the hearing.
The arbitration award shall be final and binding regardless of whether any
party fails or refuses to participate in the
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arbitration; provided, however, that after the written arbitration award is
issued, any party may, within thirty (30) days thereafter, file an appeal with
the California Court of Appeal on issues of law only, and such appeal shall be
governed by the normal California rules governing an appeal of a final trial
court decision from the Los Angeles County Superior Court. No interlocutory
appeals shall be permitted. If an appeal is filed, the decision of the
California Court of Appeal shall be final, binding and nonappealable, and the
arbitrators shall promptly reconvene and reissue their written arbitration
award, revising their written arbitration award, if necessary, in light of such
appellate decision. The arbitrators' award shall become final and binding upon
the earlier to occur of (i) the expiration of the 30-day appeal period without
an appeal being timely filed, or (ii) the issuance of the arbitrators' award
following a timely appeal being filed and the issuance of an appellate decision.
The arbitrators are empowered to hear and determine all disputes between the
parties hereto concerning the subject matter of this Agreement, and the
arbitrators may award money damages (but specifically not punitive damages),
injunctive relief, rescission, restitution, costs, and attorneys' fees.
In the event that any party serves a proper demand for arbitration under
this Agreement, all parties may pursue discovery in accordance with California
Code of Civil Procedure Section 1283.05, the provisions of which are
incorporated herein by reference, with the following exceptions: (a) the parties
hereto may conduct all discovery, including depositions for discovery purposes,
without leave of the arbitrators; and (b) all discovery shall be completed no
later than the commencement of the arbitration hearing or one hundred twenty
(120) calendar days after the date that a proper demand for arbitration is
served, whichever occurs earlier, unless upon a showing of good cause the
arbitrators extend or shorten that period.
The arbitrators shall not have the power to amend this Agreement in any
respect.
Until an arbitrators' award is issued, (A) the out-of-pocket cost of the
arbitrator appointed by ACSI and Subsidiary (or appointed by the Court on their
behalf) shall be paid by ACSI, (B) the out-of-pocket cost of the arbitrator
appointed by the Trustees, Strem and Sacks (or appointed by the Court on their
behalf) shall be paid by Strem, and (C) the out-of-pocket cost of the third
arbitrator and of the arbitration facilities shall be shared equally by ACSI and
Strem. The arbitrators' award may, however, reallocate those costs upon a
reasonable basis set forth in such award.
11. General Provisions.
11.1. Notices. All notices and other communications given or made pursuant
hereto shall be in writing
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and shall be deemed to have been duly given or made as of the earlier of the
date delivered or mailed if delivered personally, by overnight courier or mailed
by express, registered or certified mail (postage prepaid, return receipt
requested) or by facsimile transmittal, confirmed by express, certified or
registered mail, to the parties at the following addresses (or at such other
address for a party as shall be specified by like notice, except that notices of
changes of address shall be effective upon receipt):
If to ACSI or Subsidiary: American CinemaStores, Inc.
Suite 400
1543 Seventh Street
Santa Monica, California 90401
Attn: Steven Natale, President
Telecopier: 310-394-3464
with a copy to: Tenzer Greenblatt LLP
405 Lexington Avenue
New York, New York 10174
Attn: Gary A. Schonwald
Fax: (212) 573-4313
If to JJC, Sacks, Strem or the Trustees:
Just Jackets Corporation
7330 Varna Avenue
North Hollywood, California 91650
Attn: Robert J. Strem, President
Telecopier: (818) 764-5875
with a copy to: Sheppard, Mullin, Richter
& Hampton LLP
333 South Hope Street - 48th Floor
Los Angeles, California 90071
Attn: Lawrence M. Braun, Esq.
Telecopier: (213) 620-1398
11.2. Severability. If any term or other provision of this Agreement is
invalid, illegal or incapable of being enforced by any rule of law, or public
policy, all other conditions and provisions of this Agreement shall nevertheless
remain in full force and effect so long as the economic or legal substance of
the transactions contemplated hereby is not affected in any manner adverse to
any party. Upon such determination that any term or other provision is invalid,
illegal or incapable of being enforced, the parties hereto shall negotiate in
good faith to modify this Agreement so as to effect the original intent of the
parties as closely as possible in an acceptable manner to the end that
transactions contemplated hereby are fulfilled to the greatest extent possible.
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11.3. Entire Agreement. This Agreement and the Confidentiality Agreement
and the agreements referred to herein constitute the entire agreement, and
supersede all prior agreements and undertakings, both written and oral, among
the parties, or any of them, with respect to the subject matter hereof.
11.4. No Assignment. This Agreement shall not be assigned by operation of
law or otherwise, and any assignment shall be null and void.
11.5. Headings. Headings in this Agreement are included herein for
convenience of reference only and shall not constitute a part of this Agreement
for any other purpose.
11.6. Governing Law. This Agreement shall be governed by, and construed in
accordance with, the law of the State of California without regard to its choice
of law principles. Each of ACSI, Subsidiary, JJC, the Trustees, Strem and Sacks
hereby irrevocably and unconditionally consents to submit to the exclusive
jurisdiction of the courts of the State of California and of the United States
located in the County of Los Angeles, State of California (the "California
Courts") for any litigation arising out of or relating to this Agreement and the
transactions contemplated hereby (and agrees not to commence any litigation
relating thereto except in such courts), waives any objection to the laying of
venue of any such litigation in the California Courts and agrees not to plead or
claim that such litigation brought in any California Courts has been brought in
an inconvenient forum.
11.7. WAIVER OF JURY TRIAL. EACH OF THE PARTIES HERETO IRREVOCABLY WAIVES
ANY RIGHT TO A JURY TRIAL IN CONNECTION WITH ANY SUIT, ACTION, OR SIMILAR
PROCEEDING BROUGHT RELATING TO OR ARISING OUT OF THIS AGREEMENT AND THE
TRANSACTIONS CONTEMPLATED HEREBY.
11.8. Attorneys' Fees. In the event of any dispute arising out of the
subject matter of this Agreement, the prevailing party shall recover, in
addition to any other damages assessed, its reasonable attorneys' fees and costs
incurred in litigating, arbitrating, or otherwise settling or resolving such
dispute.
11.9. Counterparts. This Agreement may be executed in one or more
counterparts, and by the different parties hereto in separate counterparts, each
of which when so executed shall be deemed to be an original, but all of which
taken together shall constitute one and the same agreement.
IN WITNESS WHEREOF, each of American CinemaStores, Inc., Subsidiary, Just
Jackets Corporation, by their respective officers thereunto duly authorized, the
Strem Family 1993 Trust
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U/T/A 11/9/93 and The Bruce and Sharon Sacks Family Trust - 1990 U/T/A 4/13/90,
by its respective trustees and each of Robert J. Strem and Bruce Sacks,
individually, have caused this Agreement to be executed as of the date first
written above.
AMERICAN CINEMASTORES, INC.
By:________________________________________
Steve Natale, President
JJI/ASCI ACQUISITION CORP.
By:________________________________________
Steven Natale, President
JUST JACKETS CORPORATION
By:________________________________________
Robert J. Strem, President
THE STREM FAMILY 1993 TRUST U/T/A 11/9/93
By:________________________________________
Robert J. Strem, Trustee
By:________________________________________
Janet C. Strem, Trustee
BRUCE AND SHARON SACKS FAMILY TRUST - 1990 U/T/A 4/13/90
By:________________________________________
Bruce Sacks, Trustee
By:________________________________________
Sharon Sacks, Trustee
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__________________________________________
ROBERT J. STREM
__________________________________________
BRUCE SACKS
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INDEX OF SCHEDULES
Page
Exhibit 1.2 Agreement of Merger...............................................3
Exhibit 1.4(a) Articles of Incorporation......................................3
Exhibit 1.4(b) By-Laws........................................................3
Exhibit 2.7 JJC Financial Statements.........................................11
Exhibit 5.3(d) Cross-Indemnity Agreement.....................................54
Exhibit 5.12 Sacks Employment Agreement......................................61
Exhibit 6.1(g) Opinion of Sheppard, Mullin, Richter &
Hampton LLP.........................................................68
Exhibit 6.2(d) Opinion of Tenzer Greenblatt LLP..............................73
Exhibit 6.2(k) Registration Rights Agreement.................................74
Schedule 2.6 Conflicts.......................................................10
Schedule 2.8 Personal Guaranties.............................................12
Schedule 2.10 Properties.....................................................13
Schedule 2.13 Litigation.....................................................16
Schedule 2.17 Insurance......................................................19
Schedule 2.18 Banks; Power of Attorneys......................................20
Schedule 2.19 Employee Agreements............................................20
Schedule 2.21 Distributorships/Franchises....................................21
Schedule 2.22 Contracts......................................................22
Schedule 2.23 Customers/Suppliers............................................23
Schedule 2.25 Approvals and Consents.........................................24
Schedule 3.1 Jurisdictions...................................................26
Schedule 3.2 Subsidiaries....................................................26
Schedule 3.4 Capitalization..................................................27
Schedule 3.6 JJC Conflicts...................................................30
Schedule 3.12 Properties.....................................................36
Schedule 3.15 Trademarks.....................................................38
Schedule 3.17 Insurance......................................................40
Schedule 3.18 Banks; Power of Attorneys......................................41
Schedule 3.19 Employee Agreements............................................41
Schedule 3.20 Business Matters...............................................42
Schedule 3.21 Contracts......................................................43
Schedule 3.22 Approvals and Consents.........................................43
-54-
Exhibit 2.4
LIST OF OMITTED SCHEDULES/EXHIBITS
TO JJC MERGER AGREEMENT
Except as otherwise indicated herein, the list identifies schedules and
exhibits annexed to the Merger Agreement but omitted from this filing. In
accordance with Regulation S-X, Item 601, copies of any such schedule or exhibit
will be furnished to the Securities and Exchange Commission upon request.
Exhibit/Schedule Brief Description
Exhibit 1.2 Agreement of Merger
Exhibit 1.4(a) Articles of Incorporation
Exhibit 1.4(b) By-Laws
Exhibit 2.7 JJC Financial Statements
Exhibit 5.12 Sacks Employment Agreement
Exhibit 6.1(g) Opinion of Sheppard, Mullin, Richter &
Hampton LLP
Exhibit 6.2(d) Opinion of Tenzer Greenblatt LLP
Schedule 2.6 Conflicts
Schedule 2.8 Personal Guaranties
Schedule 2.10 Properties
Schedule 2.13 Litigation
Schedule 2.17 Insurance
Schedule 2.18 Banks; Power of Attorneys
Schedule 2.19 Employee Agreements
Schedule 2.21 Distributorships/Franchises
Schedule 2.22 Contracts
Schedule 2.23 Customers/Suppliers
Schedule 2.25 Approvals and Consents
Schedule 3.1 Jurisdictions
Schedule 3.2 Subsidiaries
Schedule 3.4 Capitalization
Schedule 3.6 JJC Conflicts
Schedule 3.12 Properties
Schedule 3.15 Trademarks
Schedule 3.17 Insurance
Schedule 3.18 Banks; Power of Attorneys
Schedule 3.19 Employee Agreements
Schedule 3.20 Business Matters
Schedule 3.21 Contracts
Schedule 3.22 Approvals and Consents
REGISTRATION RIGHTS AGREEMENT
Registration Rights Agreement ("Agreement") dated as of __, 1996, among (1)
Robert J. Strem and Janet C. Strem, Trustees of The Strem Family 1993 Trust
U/T/A 11/9/93 (the "Holder"), and (2) American CinemaStores, Inc., a Delaware
corporation (the "Company").
RECITALS
WHEREAS, the Company will issue to the Holder on the date hereof pursuant
to the merger of Superior-Panoramic Hand Prints Inc., with and into ASCI/SPI
Acquisition Corp., a wholly-owned subsidiary of the Company (the "Merger"),
approximately 975,000 shares (the "Shares") of the Company's common stock, par
value $.001 per share (the "Common Stock"), as more particularly provided for in
a certain Agreement and Plan of Merger dated June __, 1996, among various
parties; including the Holder and the Company (the "Merger Agreement"); and
WHEREAS, it is a condition to the performance of the Holder's obligations
under the Merger Agreement that the Company enter into this Agreement with the
Holder;
NOW, THEREFORE, in consideration of the foregoing recitals and mutual
covenants herein contained, the parties hereto do hereby agree as follows:
1. Registrable Securities. The term "Registrable Securities" means up to an
aggregate of 200,000 of the Shares, except as otherwise provided herein and
subject to an adjustment proportional to any corresponding adjustment under
Subsection 1.6(c) of the Merger Agreement; provided, however, that with respect
to any particular Registrable Security, such security shall cease to be a
Registrable Security when, as of the date of determination, (i) it has been
effectively registered under the Securities Act of 1933, as amended (the
"Securities Act") and disposed of pursuant thereto, or (ii) it has ceased to be
outstanding. In the event of any merger, reorganization, consolidation,
recapitalization or other change in corporate structure affecting the Common
Stock, such adjustment shall be made in the definition of "Registrable Security"
as is appropriate in order to prevent any dilution or enlargement of the rights
granted pursuant to this Article 1.
<PAGE>
2. Piggyback Registration.
(a) If, at any time after the first anniversary of the Effective Time
(as defined in the Merger Agreement) of the Merger pursuant to the Merger
Agreement, the Company proposes to prepare and file with the Securities and
Exchange Commission (the "Commission") a registration statement, or
post-effective amendment to a previously filed registration statement, covering
equity or debt securities of the Company, or any such securities of the Company
held by its shareholders, other than in connection with a merger, acquisition or
pursuant to a registration statement on Form S-4 or Form S-8 or any successor
form (for purposes of this Article 2, collectively, a "Registration Statement"),
the Company will give written notice of its intention to do so by certified mail
("Notice"), at least 30 days prior to the filing of each such Registration
Statement, to the Holder. Upon the written request of the Holder, made within 15
days after receipt of the Notice, that the Company include any of the Holder's
Registrable Securities in the proposed Registration Statement, the Company
shall, as to the Holder, use reasonable efforts to effect the registration under
the Securities Act of the Registrable Securities which it has been so requested
to register ("Piggyback Registration"), at the Company's sole cost and expense
and at no cost or expense to the Holder (other than any commission, discounts or
counsel fees payable by the Holder, as further provided in Section 4(b) hereof);
provided, however, that if, the Piggyback Registration is in connection with an
underwritten public offering and in the written opinion of the Company's
underwriter or managing underwriter of the underwriting group, if any, for such
offering, the inclusion of all or a portion of the Registrable Securities
requested to be registered, when added to the securities being registered by the
Company or the selling shareholder(s), will exceed the maximum amount of the
Company's securities which can be marketed (i) at a price reasonably related to
their then current market value, or (ii) without otherwise having a material
adverse effect on the entire offering, then the Company may, subject to the
allocation priority set forth in the next paragraph, exclude from such offering
all or a portion of the Registrable Securities which it has been requested to
register. Without limiting the generality of the foregoing, such underwriter or
managing underwriter may condition its consent to the inclusion of all or a
portion of the Registrable Securities requested to be registered upon the
participation by the holders of such Registrable Securities in the underwritten
public offering on the terms and conditions thereof.
If securities are proposed to be offered for sale pursuant to such
Registration Statement by other security holders of the Company and the total
number of securities to be offered
-2-
<PAGE>
by the Holder and such other selling security holders is required to be reduced
pursuant to a request from the underwriter or managing underwriter (which
request shall be made only for the reasons and in the manner set forth above),
the aggregate number of Registrable Securities to be offered by the Holder
pursuant to such Registration Statement shall equal the number which bears the
same ratio to the maximum number of securities that the underwriter or managing
underwriter believes may be included for all the selling security holders
(including the Holder) as the original number of Registrable Securities proposed
to be sold by the Holder bears to the total original number of securities
proposed to be offered by the Holder and the other selling security holders.
Incidental registration rights may be granted by the Company to other persons
after the date of this Agreement provided that, unless the Holder waives its
rights hereunder, such rights granted to such other persons are to be exercised
pro rata with, and not superior or prior to, the rights afforded to the Holder
under this Agreement.
Notwithstanding the preceding provisions of this Section 2(a), the
Company shall have the right at any time after it shall have given written
notice pursuant to this Section 2(a) (irrespective of whether any written
request for inclusion of such securities shall have already been made) to elect
not to file any proposed Registration Statement, or to withdraw the same after
the filing but prior to the effective date thereof.
(b) In the event that the Company proposes to prepare and file with
the Commission a registration statement on Form S-4, it will at its sole
expense, simultaneously file a Registration Statement on Form S-3 (to the extent
available or, in the event Form S-3 is unavailable to the Company, such other
form as is available to the Company for registration of such Registrable
Securities), in respect of 25% of the Registrable Securities, so as to permit a
public offering and sale of such Registrable Securities (upon effectiveness
thereof), unless prior to such time the Registration Statement contemplated by
Section 3 hereof has been declared and has remained effective.
3. Demand Registration.
(a) At any time after the first anniversary of the Effective Time of
the Merger pursuant to the Merger Agreement, the Holder shall have the right on
one occasion only (which right is in addition to the piggyback registration
rights provided for under Section 2 hereof), exercisable by written notice to
the Company (a "Demand Registration Request"), to have the Company prepare and
file with the Commission, at the sole expense of the Company (except as
hereinafter provided), in respect of the Registrable Securities held by the
Holder, a
-3-
<PAGE>
Registration Statement so as to permit a public offering and sale of the
Registrable Securities. If the Holder intends to distribute the Registrable
Securities by means of an underwriting, then the Holder shall so notify the
Company in the Demand Registration Request. The underwriter shall be selected by
the Holder and be reasonably acceptable to the Company.
The Company and other stockholders may, at the Company's discretion,
have other shares of the Company's common stock included in such Registration
Statement, provided that in the event that an underwriter requires a limitation
in the total number of shares in the offering for marketing purposes, then only
the shares of the Company proposed to be offered by the Company and such other
stockholders shall be cut-back, and the Holder's Registrable Securities shall
not be subject to such cut-back.
(b) The Company will use reasonable efforts to file the Registration
Statement as expeditiously as reasonably possible, but in no event later than 90
days following receipt of such Demand Registration Request; provided that
nothing herein shall require the Company to undergo an audit, other than in the
ordinary course of business. In connection with any underwritten Demand
Registration Request and subject to Section 4(b) hereof, the Company will enter
into any underwriting agreement reasonably necessary to effect such offering,
provided such underwriting agreement (i) is with an underwriter selected by the
Holder and reasonably acceptable to the Company and (ii) contains customary
underwriting provisions for offerings by selling stockholders. Once effective,
the Company will use reasonable best efforts to maintain the effectiveness of
the Registration Statement until the earlier of (i) the date that all of the
Registrable Securities have been sold, or (ii) 120 days after the effective date
of the Registration Statement.
(c) Notwithstanding any provision of this Section 3 to the contrary,
if, at the time a Demand Registration Request is given to the Company under
Section 3 hereof, the Company is negotiating a merger, consolidation,
acquisition or sale of all or substantially all of its assets or a similar
transaction and if in the opinion of counsel to the Company, the Registration
Statement would be required to include information concerning such transactions
or the parties thereto which is not reasonably available at the time, the
Company shall promptly inform the holders of the Registrable Securities by
written notice of such circumstances (a "Postponement Notice") and, at the
Company's election to be set forth in the Postponement Notice, the filing of the
Registration Statement may be postponed for one (and not more than one) period
not to exceed 180 days from the date on which the Demand Registration Request is
given to the Company
-4-
<PAGE>
under this Section 3 (notwithstanding any provisions herein to the contrary);
provided that in the event of such postponement, the Holder may withdraw the
Demand Registration Request during the 90 day period following the date on which
the Notice of Postponement was given by the Company, and thereafter the Holder
will continue to be entitled to a Demand Registration Request pursuant to this
Section 3 until such time as the Holder no longer possesses any Registerable
Securities.
4. Covenants of the Company With Respect to Registration. The Company
hereby covenants and agrees as follows:
(a) The Company shall use reasonable efforts to cause the Registration
Statement to become effective as promptly as possible under the circumstances at
the time prevailing and, if any stop order shall be issued by the Commission in
connection therewith, to use its reasonable efforts to obtain the removal of
such order. Following the effective date of a Registration Statement, the
Company shall, upon the request of the Holder, forthwith supply such reasonable
number of copies of the Registration Statement, preliminary prospectus and
prospectus meeting the requirements of the Securities Act, and other documents
necessary or incidental to the public offering of the Registrable Securities, as
shall be reasonably requested by the Holder to permit the Holder to make a
public distribution of the Holder's Registrable Securities. The obligations of
the Company hereunder with respect to the Holder's Registrable Securities are
expressly conditioned on the Holder's furnishing to the Company such appropriate
information concerning the Holder, the Holder's Registrable Securities and the
terms of the Holder's offering of such Registrable Securities as the Company may
request.
(b) The Company will pay all costs, fees and expenses in connection
with all Registration Statements filed pursuant to Sections 2 and 3 hereof,
including, without limitation, the Company's legal and accounting fees, printing
expenses and blue sky fees and expenses; provided, however, that the Holder
shall be solely responsible for the fees of any counsel retained by the Holder
in connection with such registration and any transfer taxes or underwriting
discounts, selling commissions or selling fees applicable to the Registrable
Securities sold by the Holder pursuant thereto.
(c) The Company will use reasonable efforts to qualify or register the
Registrable Securities included in a Registration Statement for offering and
sale under the securities or blue sky laws of such states as are requested by
the Holder, provided that the Company shall not be obligated to execute or file
any general consent to service of process (unless the
-5-
<PAGE>
Company is already then subject to service in such jurisdiction) or to qualify
as a foreign corporation to do business under the laws of any such jurisdiction,
except as may be required by the Securities Act and its rules and regulations.
(d) If the Company fails to keep the Registration Statement referred
to in Section 3 continuously effective during the requisite period, then the
Company will, promptly upon the request of the Holder use reasonable efforts to
update such Registration Statement or file a new Registration Statement covering
the Registrable Securities remaining unsold, subject to the terms and provisions
hereof.
5. Covenant of the Holder.
The Holder, upon receipt of notice from the Company that an event has
occurred which requires a post-effective amendment to the Registration Statement
or a supplement to the prospectus included therein, shall promptly discontinue
the sale of Registrable Securities until the Holder receives a copy of a
supplemented or amended prospectus from the Company, which the Company shall
provide as soon as practicable after such notice.
6. Indemnification.
(a) The Company shall indemnify, defend and hold harmless the Holder
and the trustees of the Holder, and each underwriter and Controlling Person of
such underwriter, who may purchase from or sell for the Holder, any Registrable
Securities, from and against any and all losses, claims, damages and liabilities
caused by or arising out of any untrue statement (or alleged untrue statement)
of a material fact contained in the Registration Statement, any other
registration statement filed by the Company under the Securities Act, any
post-effective amendment to such registration statements, or any prospectus
included therein, or caused by or arising out of any omission to state therein a
material fact required to be stated therein or necessary to make the statements
therein not misleading, except insofar as such losses, claims, damages or
liabilities are caused by any such untrue statement or omission based upon
information furnished or required to be furnished in writing to the Company by
the Holder or the trustees thereof expressly for use therein, or arising out of
or caused by any violation by the Company of the Securities Act of any rule or
regulation thereunder applicable to the Company in connection with any such
registration; provided, however, that the indemnification in this Section 6(a)
with respect to any prospectus shall not inure to the benefit of the Holder on
account of any such loss, claim, damage or liability arising from the sale of
Registrable
-6-
<PAGE>
Securities by the Holder, if a copy of a subsequent prospectus correcting the
untrue statement or omission in such earlier prospectus was provided to the
Holder by the Company prior to the subject sale and the subsequent prospectus
was not delivered or sent by the Holder to the purchaser prior to such sale. The
Holder shall at the same time indemnify the Company, its directors, each officer
signing the Registration Statement and each person, if any, who controls the
Company within the meaning of the Securities Act, from and against any and all
losses, claims, damages and liabilities caused by any untrue statement of a
material fact contained in the Registration Statement, any other registration
statement filed by the Company under the Securities Act, any post-effective
amendments to such registration statements, or any prospectus included therein,
or caused by any omission to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading, insofar as
such losses, claims, damages or liabilities are caused by any untrue statement
or omission based upon information furnished in writing to the Company by the
Holder expressly for use therein; provided, however, that the obligation of
indemnity made by the Holder shall be limited to an amount equal to the proceeds
to the Holder of the Registrable Securities sold in such registered offering.
(b) If for any reason the indemnification provided for in the
preceding section 6(a) is held by a court of competent jurisdiction to be
unavailable to an indemnified party with respect to any loss, claim, damage,
liability or expense referred to therein, then the indemnifying party, in lieu
of indemnifying such indemnified party thereunder, shall contribute to the
amount paid or payable by the indemnified party as a result of such loss, claim,
damage or liability in such proportion as is appropriate to reflect not only the
relative benefits received by the indemnified party and the indemnifying party,
but also the relative fault of the indemnified party and the indemnifying party,
as well as any other relevant equitable considerations.
(c) (i) Each party entitled to indemnification under this Agreement
(each, an "Indemnified Party") shall give notice to each party required to
provide indemnification (each, an "Indemnifying Party") promptly after such
Indemnified Party has knowledge of any claim for loss as to which indemnity may
be sought, and, in the event of any claim or demand asserted against an
Indemnified Party by a third party, shall permit the Indemnifying Party to
assume the defense of any such claim (and litigation resulting therefrom) as
provided in Section 6(c)(ii) hereof. Notwithstanding anything to the contrary
contained herein, any failure by an Indemnified Party to give notice as provided
herein shall not relieve the Indemnifying Party of its
-7-
<PAGE>
indemnity obligations under this Agreement except to the extent that such
failure materially and adversely affects the Indemnifying Party due to the
inability to defend such action timely.
(ii) The Indemnifying Party shall have ten (10) business days after
the aforesaid notice is given to elect, by written notice given to the
Indemnified Party, to undertake, conduct and control, through counsel of their
own choosing (subject to the consent of the Indemnified Party, which consent is
not to be unreasonably withheld or delayed) and at their sole risk and expense,
the good faith settlement or defense of such claim, and the Indemnified Party
shall cooperate with the Indemnifying Party in connection therewith; provided
that: (i) all settlements shall be made only upon the prior reasonable
consultation with the Indemnified Party and the prior written consent of the
Indemnified Party, which consent shall not be unreasonably withheld or delayed,
and (ii) the Indemnified Party shall be entitled to participate in such
settlement or defense through counsel chosen by the Indemnified Party (provided
that the fees and expenses of such counsel shall be borne by the Indemnified
Party). So long as the Indemnifying Party are contesting any such claim in good
faith, the Indemnified Party shall not pay or settle any such claim; provided,
however, that notwithstanding the foregoing, the Indemnified Party shall have
the right to pay or settle any such claim at any time, provided that in such
event they shall waive any right of indemnification therefor by the Indemnifying
Party. If the Indemnifying Party does not make a timely election to undertake
the good faith defense or settlement of the claim as aforesaid, or if the
Indemnifying Party fails to proceed with the good faith defense or settlement of
the matter after making such election, then, in either such event, the
Indemnified Party shall have the right to contest, settle or compromise
(provided that all settlements or compromises require the prior reasonable
consultation with the Indemnifying Party and the prior written consent of the
Indemnifying Party, which consent shall not be unreasonably withheld or delayed)
the claim at their exclusive discretion, at the risk and expense of the
Indemnifying Party.
(d) The Indemnified Party shall furnish such information regarding
themselves or the claim in question as the Indemnifying Parties may reasonably
request in writing and as shall be reasonably required in connection with
defense of such claim and litigation resulting therefrom.
7. Arbitration.
To the extent permitted by law and prevailing public policy, all disputes
arising under this Agreement between Holder,
-8-
<PAGE>
on the one hand, and the Company, on the other hand, that cannot be amicably
resolved by the parties shall be settled by binding arbitration in Los Angeles
County, California, subject to the terms and provisions of this Section 7, and
judgment upon the award rendered may be entered in any court having jurisdiction
thereof; provided, however, that if equitable relief is sought (including
injunctive relief) by a party hereto for a breach of this Agreement, then the
non-breaching party may, in its sole discretion, enforce such rights or seek
such equitable relief by court action. Except as provided below, the arbitration
shall proceed in accordance with the laws of the State of California. Any party
requesting arbitration shall serve a written demand for arbitration on the other
parties by registered or certified mail. The demand shall set forth a statement
of the nature of the dispute, the amount involved and the remedies sought. There
shall be three (3) arbitrators subject to the provisions below. No later than
twenty (20) calendar days after a demand for arbitration is served, the Company
shall select and appoint one retired judge of the Los Angeles County Superior
Court to act as an arbitrator, and the Holder shall select and appoint one
retired judge of the Los Angeles County Superior Court to act as an arbitrator.
If one side fails or refuses to appoint an arbitrator within such 20-day period,
then the other party may apply to the Los Angeles County Superior Court for
appointment of a retired judge to serve as an arbitrator. Not later than ten
(10) calendar days after the appointment of such two arbitrators, such two
arbitrators shall appoint a retired judge of the Los Angeles County Superior
Court to act as the third arbitrator. No later than ten (10) calendar days after
appointment of the last arbitrator, the parties hereto shall jointly prepare and
submit to the three arbitrators a set of rules for arbitration. In the event
that the parties hereto cannot agree on the rules for the arbitration, the
arbitrators shall establish the rules. All decisions by the three arbitrators
shall be by majority rule. No later than ten (10) calendar days after the last
arbitrator is appointed, the arbitrators shall schedule the arbitration for a
hearing to commence on a mutually convenient date. The hearing, which shall be
in the English language, shall commence no later than one hundred twenty (120)
calendar days after the last arbitrator is appointed and shall continue from day
to day until completed. The arbitrators shall issue their award in writing no
later than twenty (20) calendar days after the conclusion of the hearing.
The arbitration award shall be final and binding regardless of whether any
party fails or refuses to participate in the arbitration; provided, however,
that after the written arbitration award is issued, any party may, within thirty
(30) days thereafter, file an appeal with the California Court of Appeal on
issues of law only, and such appeal shall be governed
-9-
<PAGE>
by the normal California rules governing an appeal of a final trial court
decision from the Los Angeles County Superior Court. No interlocutory appeals
shall be permitted. If an appeal is filed, the decision of the California Court
of Appeal shall be final, binding and nonappealable, and the arbitrators shall
promptly reconvene and reissue their written arbitration award, revising their
written arbitration award, if necessary, in light of such appellate decision.
The arbitrators' award shall become final and binding upon the earlier to occur
of (i) the expiration of the 30-day appeal period without an appeal being timely
filed, or (ii) the issuance of the arbitrators' award following a timely appeal
being filed and the issuance of an appellate decision. The arbitrators are
empowered to hear and determine all disputes between the parties hereto
concerning the subject matter of this Agreement, and the arbitrators may award
money damages (but specifically not punitive damages), injunctive relief,
rescission, restitution, costs, and attorneys' fees.
In the event that any party serves a proper demand for arbitration under
this Agreement, all parties may pursue discovery in accordance with California
Code of Civil Procedure Section 1283.05, the provisions of which are
incorporated herein by reference, with the following exceptions: (a) the parties
hereto may conduct all discovery, including depositions for discovery purposes,
without leave of the arbitrators; and (b) all discovery shall be completed no
later than the commencement of the arbitration hearing or one hundred twenty
(120) calendar days after the date that a proper demand for arbitration is
served, whichever occurs earlier, unless upon a showing of good cause the
arbitrators extend or shorten that period.
The arbitrators shall not have the power to amend this Agreement in any
respect.
Until an arbitrators' award is issued, (A) the out-of-pocket cost of the
arbitrator appointed by the Company (or appointed by the Court on its behalf)
shall be paid by the Company, (B) the out-of-pocket cost of the arbitrator
appointed by the Holder (or appointed by the Court on its behalf) shall be paid
by the Holder, and (C) the out-of-pocket cost of the third arbitrator and of the
arbitration facilities shall be shared equally by the Company and the Holder.
The arbitrators' award may, however, reallocate those costs upon a reasonable
basis set forth in such award.
8. Governing Law.
(a) The Registrable Securities will be, if and when issued, delivered
in California. This Agreement shall be deemed to have been made and delivered in
the State of California
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<PAGE>
and shall be governed as to validity, interpretation, construction, effect and
in all other respects by the internal substantive laws of the State of
California, without giving effect to the choice of law rules thereof.
(b) Each of the Company and the Holder hereby irrevocably and
unconditionally consents to submit to the exclusive jurisdiction of the courts
of the State of California and of the United States located in the County of Los
Angeles, State of California (the "California Courts") for any litigation
arising out of or relating to this Agreement and the transactions contemplated
hereby (and agrees not to commence any litigation relating thereto except in
such courts), waives any objection to the laying of venue of any such litigation
in the California Courts and agrees not to plead or claim that such litigation
brought in any California Courts has been brought in an inconvenient forum.
9. Attorneys' Fees. In the event of any dispute arising out of the subject
matter of this Agreement, the prevailing party shall recover, in addition to any
other damages assessed, its reasonable attorneys' fees and costs incurred in
litigating, arbitrating, or otherwise settling or resolving such dispute.
10. WAIVER OF JURY TRIAL. EACH OF THE PARTIES HERETO IRREVOCABLY WAIVES ANY
RIGHT TO A JURY TRIAL IN CONNECTION WITH ANY SUIT, ACTION, OR SIMILAR PROCEEDING
BROUGHT RELATING TO OR ARISING OUT OF THIS AGREEMENT AND THE TRANSACTIONS
CONTEMPLATED HEREBY.
11. Amendment. This Agreement may only be amended by a written instrument
executed by the Company and the Holder.
12. Entire Agreement. This Agreement constitutes the entire agreement of
the parties hereto with respect to the subject matter hereof, and supersedes all
prior agreements and understandings of the parties, oral and written, with
respect to the subject matter hereof.
13. Notices. All notices, requests, demands and other communications
hereunder shall be in writing and shall be deemed duly given when delivered by
hand or mailed by express, registered or certified mail, postage prepaid, return
receipt requested, as follows:
If to the Holder, at:
Robert J. Strem and
Jane C. Strem, as Co-Trustees
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<PAGE>
5715 Ridgebrook Drive
Agoura Hills, CA 91301
with a copy of the same to:
Sheppard, Mullin, Richter & Hampton LLP
333 South Hope Street
48th Floor
Los Angeles, CA 90071
Attn: Lawrence M. Braun, Esq.
If to the Company, at:
American CinemaStores, Inc.
Suite 400
1543 7th Street
Santa Monica, CA 90401
with a copy of the same to:
Tenzer Greenblatt L.L.P.
405 Lexington Avenue
23rd Floor
New York, NY 1074
Attn: Gary A. Schonwald, Esq.
Or such other address as has been indicated by either party in accordance
with a notice duly given in accordance with the provisions of this Section.
14. Assignment; Binding Effect; Benefits. Except as otherwise provided
below, the Holder may not assign the Holder's rights hereunder without the prior
written consent of the Company, which consent may be given or withheld for any
reason and any attempted assignment without having obtained such prior written
notice shall be void and of no force and effect. This Agreement shall inure to
the benefit of, and be binding upon, the parties hereto and the permitted
assigns, heirs and legal representatives of the Holder and the Company and its
successors. Nothing herein contained, express or implied, is intended to confer
upon any person other than the parties hereto and their respective heirs, legal
representatives and successors, any rights or remedies under or by reason of
this Agreement.
15. Headings. The headings contained herein are for the sole purpose of
convenience of reference, and shall not in any way limit or affect the meaning
or interpretation of any of the terms or provisions of this Agreement.
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<PAGE>
16. Severability. Any provision of this Agreement which is held by a court
of competent jurisdiction to be prohibited or unenforceable in any
jurisdiction(s) shall be, as to such jurisdiction(s), ineffective to the extent
of such prohibition or unenforceability without invalidating the remaining
provisions of this Agreement or affecting the validity or enforceability of such
provision in any other jurisdiction.
17. Execution in Counterparts. This Agreement may be executed in one or
more counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same document.
IN WITNESS WHEREOF, this Agreement has been executed and delivered by the
parties hereto as of the date first above written.
AMERICAN CINEMASTORES, INC.
By: _____________________________
Name: Steve Natale
Title: President
STREM FAMILY 1993 TRUST U/T/A
11/9/93
By: _____________________________
Robert J. Strem, Co-Trustee
By: _____________________________
Janet C. Strem, Co-Trustee
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REGISTRATION RIGHTS AGREEMENT
Registration Rights Agreement ("Agreement") dated as of _________, 1996,
among (1) Bruce Sacks and Sharon Sacks, Trustees of The Bruce and Sharon Sacks
Family Trust - 1990 U/T/A 4/13/90 (the "Holder"), and (2) American CinemaStores,
Inc., a Delaware corporation (the "Company").
RECITALS
WHEREAS, the Company will issue to the Holder on the date hereof pursuant
to the merger of Just Jackets Corporation with and into JJI/ASCI Acquisition
Corp., a wholly-owned subsidiary of the Company (the "Merger"), an aggregate of
25,000 shares (the "Shares") of the Company's common stock, par value $.001 per
share (the "Common Stock"), as more particularly provided for in a certain
Agreement and Plan of Merger dated June ___, 1996, among various parties;
including the Holder and the Company (the "Merger Agreement"); and
WHEREAS, it is a condition to the performance of the Holder's obligations
under the Merger Agreement that the Company enter into this Agreement with the
Holder;
NOW, THEREFORE, in consideration of the foregoing recitals and mutual
covenants herein contained, the parties hereto do hereby agree as follows:
1. Registrable Securities. The term "Registrable Securities" means up to an
aggregate of 25,000 of the Shares, except as otherwise provided herein;
provided, however, that with respect to any particular Registrable Security,
such security shall cease to be a Registrable Security when, as of the date of
determination, (i) it has been effectively registered under the Securities Act
of 1933, as amended (the "Securities Act") and disposed of pursuant thereto or
(ii) it has ceased to be outstanding. In the event of any merger,
reorganization, consolidation, recapitalization or other change in corporate
structure affecting the Common Stock, such adjustment shall be made in the
definition of "Registrable Security" as is appropriate in order to prevent any
dilution or enlargement of the rights granted pursuant to this Article 1.
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2. Piggyback Registration.
(a) If, at any time after the first anniversary of the Effective Time
(as defined in the Merger Agreement) of the Merger pursuant to the Merger
Agreement, the Company proposes to prepare and file with the Securities and
Exchange Commission (the "Commission") a registration statement, or
post-effective amendment to a previously filed registration statement, covering
equity or debt securities of the Company, or any such securities of the Company
held by its shareholders, other than in connection with a merger, acquisition or
pursuant to a registration statement on Form S-4 or Form S-8 or any successor
form (for purposes of this Article 2, collectively, a "Registration Statement"),
the Company will give written notice of its intention to do so by certified mail
("Notice"), at least 30 days prior to the filing of each such Registration
Statement, to the Holder. Upon the written request of the Holder, made within 15
days after receipt of the Notice, that the Company include any of the Holder's
Registrable Securities in the proposed Registration Statement, the Company
shall, as to the Holder, use reasonable efforts to effect the registration under
the Securities Act of the Registrable Securities which it has been so requested
to register ("Piggyback Registration"), at the Company's sole cost and expense
and at no cost or expense to the Holder (other than any commission, discounts or
counsel fees payable by the Holder, as further provided in Section 4(b) hereof);
provided, however, that if, the Piggyback Registration is in connection with an
underwritten public offering and in the written opinion of the Company's
underwriter or managing underwriter of the underwriting group, if any, for such
offering, the inclusion of all or a portion of the Registrable Securities
requested to be registered, when added to the securities being registered by the
Company or the selling shareholder(s), will exceed the maximum amount of the
Company's securities which can be marketed (i) at a price reasonably related to
their then current market value, or (ii) without otherwise having a material
adverse effect on the entire offering, then the Company may, subject to the
allocation priority set forth in the next paragraph, exclude from such offering
all or a portion of the Registrable Securities which it has been requested to
register. Without limiting the generality of the foregoing, such underwriter or
managing underwriter may condition its consent to the inclusion of all or a
portion of the Registrable Securities requested to be registered upon the
participation by the holders of such Registrable Securities in the underwritten
public offering on the terms and conditions thereof.
If securities are proposed to be offered for sale pursuant to such
Registration Statement by other security holders
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of the Company and the total number of securities to be offered by the Holder
and such other selling security holders is required to be reduced pursuant to a
request from the underwriter or managing underwriter (which request shall be
made only for the reasons and in the manner set forth above), the aggregate
number of Registrable Securities to be offered by the Holder pursuant to such
Registration Statement shall equal the number which bears the same ratio to the
maximum number of securities that the underwriter or managing underwriter
believes may be included for all the selling security holders (including the
Holder) as the original number of Registrable Securities proposed to be sold by
the Holder bears to the total original number of securities proposed to be
offered by the Holder and the other selling security holders. Incidental
registration rights may be granted by the Company to other persons after the
date of this Agreement provided that unless the Holder waives its rights
hereunder, such rights granted to such other persons are to be exercised pro
rata with, and not superior or prior to, the rights afforded to the Holder under
this Agreement.
Notwithstanding the preceding provisions of this Section 2(a), the
Company shall have the right at any time after it shall have given written
notice pursuant to this Section 2(a) (irrespective of whether any written
request for inclusion of such securities shall have already been made) to elect
not to file any proposed Registration Statement, or to withdraw the same after
the filing but prior to the effective date thereof.
(b) In the event that the Company proposes to prepare and file with
the Commission a registration statement on Form S-4, it will at its sole
expense, simultaneously file a Registration Statement on Form S-3 (to the extent
available or, in the event Form S-3 is unavailable to the Company, such other
form as is available to the Company for registration of such Registrable
Securities), in respect of 25% of the Registrable Securities, so as to permit a
public offering and sale of such Registrable Securities (upon effectiveness
thereof), unless prior to such time the Registration Statement contemplated by
Section 3 hereof has been declared and has remained effective.
3. Covenants of the Company With Respect to Registration. The Company
hereby covenants and agrees as follows:
(a) The Company shall use reasonable efforts to cause the Registration
Statement to become effective as promptly as possible under the circumstances at
the time prevailing and, if any stop order shall be issued by the Commission in
connection therewith, to use its reasonable efforts to obtain the removal of
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such order. Following the effective date of a Registration Statement, the
Company shall, upon the request of the Holder, forthwith supply such reasonable
number of copies of the Registration Statement, preliminary prospectus and
prospectus meeting the requirements of the Securities Act, and other documents
necessary or incidental to the public offering of the Registrable Securities, as
shall be reasonably requested by the Holder to permit the Holder to make a
public distribution of the Holder's Registrable Securities. The obligations of
the Company hereunder with respect to the Holder's Registrable Securities are
expressly conditioned on the Holder's furnishing to the Company such appropriate
information concerning the Holder, the Holder's Registrable Securities and the
terms of the Holder's offering of such Registrable Securities as the Company may
request.
(b) The Company will pay all costs, fees and expenses in connection
with all Registration Statements filed pursuant to Section 2 hereof, including,
without limitation, the Company's legal and accounting fees, printing expenses
and blue sky fees and expenses; provided, however, that the Holder shall be
solely responsible for the fees of any counsel retained by the Holder in
connection with such registration and any transfer taxes or underwriting
discounts, selling commissions or selling fees applicable to the Registrable
Securities sold by the Holder pursuant thereto.
(c) The Company will use reasonable efforts to qualify or register the
Registrable Securities included in a Registration Statement for offering and
sale under the securities or blue sky laws of such states as are requested by
the Holder, provided that the Company shall not be obligated to execute or file
any general consent to service of process (unless the Company is already then
subject to service in such jurisdiction) or to qualify as a foreign corporation
to do business under the laws of any such jurisdiction, except as may be
required by the Securities Act and its rules and regulations.
4. Covenant of the Holder.
The Holder, upon receipt of notice from the Company that an event has
occurred which requires a post-effective amendment to the Registration Statement
or a supplement to the prospectus included therein, shall promptly discontinue
the sale of Registrable Securities until the Holder receives a copy of a
supplemented or amended prospectus from the Company, which the Company shall
provide as soon as practicable after such notice.
5. Indemnification.
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(a) The Company shall indemnify, defend and hold harmless the Holder,
and the trustees of the Holder, and each underwriter and Controlling Person of
such underwriter, who may purchase from or sell for the Holder, any Registrable
Securities, from and against any and all losses, claims, damages and liabilities
caused by or arising out of any untrue statement (or alleged untrue statement)
of a material fact contained in the Registration Statement, any other
registration statement filed by the Company under the Securities Act, any
post-effective amendment to such registration statements, or any prospectus
included therein, or caused by or arising out of any omission to state therein a
material fact required to be stated therein or necessary to make the statements
therein not misleading, except insofar as such losses, claims, damages or
liabilities are caused by any such untrue statement or omission based upon
information furnished or required to be furnished in writing to the Company by
the Holder or the trustees thereof expressly for use therein, or arising out of
or caused by any violation by the Company of the Securities Act of any rule or
regulation thereunder applicable to the Company in connection with any such
registration; provided, however, that the indemnification in this Section 5(a)
with respect to any prospectus shall not inure to the benefit of the Holder on
account of any such loss, claim, damage or liability arising from the sale of
Registrable Securities by the Holder, if a copy of a subsequent prospectus
correcting the untrue statement or omission in such earlier prospectus was
provided to the Holder by the Company prior to the subject sale and the
subsequent prospectus was not delivered or sent by the Holder to the purchaser
prior to such sale. The Holder shall at the same time indemnify the Company, its
directors, each officer signing the Registration Statement and each person, if
any, who controls the Company within the meaning of the Securities Act, from and
against any and all losses, claims, damages and liabilities caused by any untrue
statement of a material fact contained in the Registration Statement, any other
registration statement filed by the Company under the Securities Act, any
post-effective amendments to such registration statements, or any prospectus
included therein, or caused by any omission to state therein a material fact
required to be stated therein or necessary to make the statements therein not
misleading, insofar as such losses, claims, damages or liabilities are caused by
any untrue statement or omission based upon information furnished in writing to
the Company by the Holder expressly for use therein; provided, however, that the
obligation of indemnity made by the Holder shall be limited to an amount equal
to the proceeds to the Holder of the Registrable Securities sold in such
registered offering.
(b) If for any reason the indemnification provided for in the
preceding section 5(a) is held by a court of
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competent jurisdiction to be unavailable to an indemnified party with respect to
any loss, claim, damage, liability or expense referred to therein, then the
indemnifying party, in lieu of indemnifying such indemnified party thereunder,
shall contribute to the amount paid or payable by the indemnified party as a
result of such loss, claim, damage or liability in such proportion as is
appropriate to reflect not only the relative benefits received by the
indemnified party and the indemnifying party, but also the relative fault of the
indemnified party and the indemnifying party, as well as any other relevant
equitable considerations.
(c) (i) Each party entitled to indemnification under this Agreement
(each, an "Indemnified Party") shall give notice to each party required to
provide indemnification (each, an "Indemnifying Party") promptly after such
Indemnified Party has knowledge of any claim for loss as to which indemnity may
be sought, and, in the event of any claim or demand asserted against an
Indemnified Party by a third party, shall permit the Indemnifying Party to
assume the defense of any such claim (and litigation resulting therefrom) as
provided in Section 5(c)(ii) hereof. Notwithstanding anything to the contrary
contained herein, any failure by an Indemnified Party to give notice as provided
herein shall not relieve the Indemnifying Party of its indemnity obligations
under this Agreement except to the extent that such failure materially and
adversely affects the Indemnifying Party due to the inability to defend such
action timely.
(ii) The Indemnifying Party shall have ten (10) business days after
the aforesaid notice is given to elect, by written notice given to the
Indemnified Party, to undertake, conduct and control, through counsel of their
own choosing (subject to the consent of the Indemnified Party, which consent is
not to be unreasonably withheld or delayed) and at their sole risk and expense,
the good faith settlement or defense of such claim, and the Indemnified Party
shall cooperate with the Indemnifying Party in connection therewith; provided
that: (i) all settlements shall be made only upon the prior reasonable
consultation with the Indemnified Party and the prior written consent of the
Indemnified Party, which consent shall not be unreasonably withheld or delayed,
and (ii) the Indemnified Party shall be entitled to participate in such
settlement or defense through counsel chosen by the Indemnified Party (provided
that the fees and expenses of such counsel shall be borne by the Indemnified
Party). So long as the Indemnifying Party are contesting any such claim in good
faith, the Indemnified Party shall not pay or settle any such claim; provided,
however, that notwithstanding the foregoing, the Indemnified Party shall have
the right to pay or settle any such claim at any time, provided
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<PAGE>
that in such event they shall waive any right of indemnification therefor by the
Indemnifying Party. If the Indemnifying Party does not make a timely election to
undertake the good faith defense or settlement of the claim as aforesaid, or if
the Indemnifying Party fails to proceed with the good faith defense or
settlement of the matter after making such election, then, in either such event,
the Indemnified Party shall have the right to contest, settle or compromise
(provided that all settlements or compromises require the prior reasonable
consultation with the Indemnifying Party and the prior written consent of the
Indemnifying Party, which consent shall not be unreasonably withheld or delayed)
the claim at their exclusive discretion, at the risk and expense of the
Indemnifying Party.
(d) The Indemnified Party shall furnish such information regarding
themselves or the claim in question as the Indemnifying Parties may reasonably
request in writing and as shall be reasonably required in connection with
defense of such claim and litigation resulting therefrom.
6. Arbitration.
To the extent permitted by law and prevailing public policy, all disputes
arising under this Agreement between the Company, on the one hand, and the
Holder, on the other hand, that cannot be amicably resolved by the parties shall
be settled by binding arbitration in Los Angeles County, California, subject to
the terms and provisions of this Section 6, and judgment upon the award rendered
may be entered in any court having jurisdiction thereof; provided, however, that
if equitable relief is sought (including injunctive relief) by a party hereto
for a breach of this Agreement, then the non-breaching party may, in its sole
discretion, enforce such rights or seek such equitable relief by court action.
Except as provided below, the arbitration shall proceed in accordance with the
laws of the State of California. Any party requesting arbitration shall serve a
written demand for arbitration on the other parties by registered or certified
mail. The demand shall set forth a statement of the nature of the dispute, the
amount involved and the remedies sought. There shall be three (3) arbitrators
subject to the provisions below. No later than twenty (20) calendar days after a
demand for arbitration is served, the Company shall select and appoint one
retired judge of the Los Angeles County Superior Court to act as an arbitrator,
and the Holder shall jointly select and appoint one retired judge of the Los
Angeles County Superior Court to act as an arbitrator. If one side fails or
refuses to appoint an arbitrator within such 20-day period, then the other party
may apply to the Los Angeles County Superior Court for appointment of a retired
judge to serve as an arbitrator. Not later than ten (10) calendar days after the
appointment of such two arbitrators,
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<PAGE>
such two arbitrators shall appoint a retired judge of the Los Angeles County
Superior Court to act as the third arbitrator. No later than ten (10) calendar
days after appointment of the last arbitrator, the parties hereto shall jointly
prepare and submit to the three arbitrators a set of rules for arbitration. In
the event that the parties hereto cannot agree on the rules for the arbitration,
the arbitrators shall establish the rules. All decisions by the three
arbitrators shall be by majority rule. No later than ten (10) calendar days
after the last arbitrator is appointed, the arbitrators shall schedule the
arbitration for a hearing to commence on a mutually convenient date. The
hearing, which shall be in the English language, shall commence no later than
one hundred twenty (120) calendar days after the last arbitrator is appointed
and shall continue from day to day until completed. The arbitrators shall issue
their award in writing no later than twenty (20) calendar days after the
conclusion of the hearing.
The arbitration award shall be final and binding regardless of whether any
party fails or refuses to participate in the arbitration; provided, however,
that after the written arbitration award is issued, any party may, within thirty
(30) days thereafter, file an appeal with the California Court of Appeal on
issues of law only, and such appeal shall be governed by the normal California
rules governing an appeal of a final trial court decision from the Los Angeles
County Superior Court. No interlocutory appeals shall be permitted. If an appeal
is filed, the decision of the California Court of Appeal shall be final, binding
and nonappealable, and the arbitrators shall promptly reconvene and reissue
their written arbitration award, revising their written arbitration award, if
necessary, in light of such appellate decision. The arbitrators' award shall
become final and binding upon the earlier to occur of (i) the expiration of the
30-day appeal period without an appeal being timely filed, or (ii) the issuance
of the arbitrators' award following a timely appeal being filed and the issuance
of an appellate decision. The arbitrators are empowered to hear and determine
all disputes between the parties hereto concerning the subject matter of this
Agreement, and the arbitrators may award money damages (but specifically not
punitive damages), injunctive relief, rescission, restitution, costs, and
attorneys' fees.
In the event that any party serves a proper demand for arbitration under
this Agreement, all parties may pursue discovery in accordance with California
Code of Civil Procedure Section 1283.05, the provisions of which are
incorporated herein by reference, with the following exceptions: (a) the parties
hereto may conduct all discovery, including depositions for discovery purposes,
without leave of the arbitrators; and (b) all discovery shall be completed no
later than the commencement of
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<PAGE>
the arbitration hearing or one hundred twenty (120) calendar days after the date
that a proper demand for arbitration is served, whichever occurs earlier, unless
upon a showing of good cause the arbitrators extend or shorten that period.
The arbitrators shall not have the power to amend this Agreement in any
respect.
Until an arbitrators' award is issued, (A) the out-of-pocket cost of the
arbitrator appointed by the Company (or appointed by the Court on its behalf)
shall be paid by the Company, (B) the out-of-pocket cost of the arbitrator
appointed by the Holder (or appointed by the Court on their behalf) shall be
paid by the Holder, and (C) the out-of-pocket cost of the third arbitrator and
of the arbitration facilities shall be shared equally by the Company and the
Holder. The arbitrators' award may, however, reallocate those costs upon a
reasonable basis set forth in such award.
7. Governing Law.
(a) The Registrable Securities will be, if and when issued, delivered
in California. This Agreement shall be deemed to have been made and delivered in
the State of California and shall be governed as to validity, interpretation,
construction, effect and in all other respects by the internal substantive laws
of the State of California, without giving effect to the choice of law rules
thereof.
(b) Each of the Company and the Holder hereby irrevocably and
unconditionally consents to submit to the exclusive jurisdiction of the courts
of the State of California and of the United States located in the County of Los
Angeles, State of California (the "California Courts") for any litigation
arising out of or relating to this Agreement and the transactions contemplated
hereby (and agrees not to commence any litigation relating thereto except in
such courts), waives any objection to the laying of venue of any such litigation
in the California Courts and agrees not to plead or claim that such litigation
brought in any California Courts has been brought in an inconvenient forum.
8. Attorneys' Fees. In the event of any dispute arising out of the subject
matter of this Agreement, the prevailing party shall recover, in addition to any
other damages assessed, its reasonable attorneys' fees and costs incurred in
litigating, arbitrating, or otherwise settling or resolving such dispute.
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<PAGE>
9. WAIVER OF JURY TRIAL. EACH OF THE PARTIES HERETO IRREVOCABLY WAIVES ANY
RIGHT TO A JURY TRIAL IN CONNECTION WITH ANY SUIT, ACTION, OR SIMILAR PROCEEDING
BROUGHT RELATING TO OR ARISING OUT OF THIS AGREEMENT AND THE TRANSACTIONS
CONTEMPLATED HEREBY.
10. Amendment. This Agreement may only be amended by a written instrument
executed by the Company and the Holder.
11. Entire Agreement. This Agreement constitutes the entire agreement of
the parties hereto with respect to the subject matter hereof, and supersedes all
prior agreements and understandings of the parties, oral and written, with
respect to the subject matter hereof.
12. Notices. All notices, requests, demands and other communications
hereunder shall be in writing and shall be deemed duly given when delivered by
hand or mailed by express, registered or certified mail, postage prepaid, return
receipt requested, as follows:
If to the Holder, at:
Bruce Sacks and
Sharon Sacks
1389 North Tottenham
Agoura Hills, CA 91301
with a copy of the same to:
Sheppard, Mullin, Richter & Hampton LLP
333 South Hope Street
48th Floor
Los Angeles, CA 90071
Attn: Lawrence M. Braun, Esq.
If to the Company, at:
American CinemaStores, Inc.
Suite 400
1543 7th Street
Santa Monica, CA 90401
with a copy of the same to:
Tenzer Greenblatt L.L.P.
405 Lexington Avenue
23rd Floor
New York, NY 1074
Attn: Gary A. Schonwald, Esq.
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<PAGE>
Or such other address as has been indicated by either party in accordance
with a notice duly given in accordance with the provisions of this Section.
13. Assignment; Binding Effect; Benefits. Except as otherwise provided
below, the Holder may not assign the Holder's rights hereunder without the prior
written consent of the Company, which consent may be given or withheld for any
reason and any attempted assignment without having obtained such prior written
notice shall be void and of no force and effect. This Agreement shall inure to
the benefit of, and be binding upon, the parties hereto and the permitted
assigns, heirs and legal representatives of the Holder and the Company and its
successors. Nothing herein contained, express or implied, is intended to confer
upon any person other than the parties hereto and their respective heirs, legal
representatives and successors, any rights or remedies under or by reason of
this Agreement.
14. Headings. The headings contained herein are for the sole purpose of
convenience of reference, and shall not in any way limit or affect the meaning
or interpretation of any of the terms or provisions of this Agreement.
15. Severability. Any provision of this Agreement which is held by a court
of competent jurisdiction to be prohibited or unenforceable in any
jurisdiction(s) shall be, as to such jurisdiction(s), ineffective to the extent
of such prohibition or unenforceability without invalidating the remaining
provisions of this Agreement or affecting the validity or enforceability of such
provision in any other jurisdiction.
16. Execution in Counterparts. This Agreement may be executed in one or
more counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same document.
IN WITNESS WHEREOF, this Agreement has been executed and delivered by the
parties hereto as of the date first above written.
AMERICAN CINEMASTORES, INC.
By: _______________________________
Steve Natale, President
THE BRUCE AND SHARON SACKS FAMILY TRUST
- 1990 U/T/A 4/13/90
By: ______________________________
Bruce Sacks, Co-Trustee
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<PAGE>
By: _______________________________
Sharon Sacks, Co-Trustee
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CROSS-INDEMNIFICATION AGREEMENT
CROSS-INDEMNIFICATION AGREEMENT ("Agreement", dated as of __, 1996, by and
between American CinemaStores, Inc., a Delaware corporation ("ACSI"), and Robert
J. Strem, an individual, and Janet C. Strem, an individual (collectively
referred to as "Strem"). All capitalized terms used herein and not otherwise
defined herein shall have the respective meanings ascribed to them in the Merger
Agreement (as defined below).
RECITALS
WHEREAS, ASCI/SPI Acquisition Corp., a wholly-owned subsidiary of ACSI (the
"Subsidiary"), acquired as a going concern Superior/ Panoramic Hand Prints Inc.
(the "Merged Company") by merger (the "Merger") pursuant to an Agreement and
Plan of Merger, dated ____________, 1996, by and among Robert J. Strem, the
Merged Company and its shareholder, ACSI and the Subsidiary (the "Merger
Agreement"); and
WHEREAS, by reason of the Merger, the Subsidiary has succeeded as a matter
of law to obligations of the Merged Company. The specific obligations relating
to vendors, equipment leases, loan facilities and office leases of the Merged
Company which were assumed by the subsidiary are more particularly set forth in
Schedule I annexed hereto (the "Schedule I Obligations"); and
WHEREAS, Robert J. Strem served as President and Janet C. Strem served as
Secretary of the Merged Company, and Robert J. Strem and Janet C. Strem were
directors and beneficial equity owners of the Merged Company and, in such
capacity, had previously guaranteed the performance by the Merged Company of the
Schedule I Obligations, which guarantees continue to be in full force and effect
(the "Guarantees"); and
WHEREAS, it is a condition to the consummation of the transactions
contemplated by the Merger Agreement that ACSI and Strem enter into this
Agreement.
NOW, THEREFORE, in consideration of the premises and mutual covenants and
agreements of the parties set forth herein and other good and valuable
consideration, receipt of which is hereby acknowledged, the parties hereto do
hereby agree as follows:
1. Indemnification of Strem by ACSI and Subsidiary.
Each of ACSI and the Subsidiary (collectively the "Indemnitors"), jointly
and severally, indemnifies and agrees to
<PAGE>
defend and hold harmless Strem from and against any and all losses, obligations,
deficiencies, liabilities, claims, damages, costs and expenses, including,
without limitation, the amount of any settlement entered into pursuant hereto
and all reasonable legal and other expenses incurred in connection with the
investigation, prosecution or defense of any matter indemnified pursuant hereto
(collectively the "Loss") sustained, suffered or incurred by, or charged to
Strem, which Loss arises out of, relates to, or results from the Guarantees by
reason of any act or omission of Indemnitors, or either of them, subsequent to
the Effective Time with respect to their performance of the Schedule I
Obligations subsequent to the Effective Time.
2. Indemnification of ACSI and Subsidiary by Strem.
Strem hereby indemnifies and agrees to defend and hold harmless each of
ACSI and the Subsidiary from and against any Loss sustained, suffered or
incurred by, or charged to, either ACSI or the Subsidiary by reason of any
Schedule I Obligation incurred by, or having accrued to, the Merged Company
prior to the Effective Time and not disclosed in the Merger Agreement and any
exhibits or schedules thereto (whether or not knowledge may be attributed to
Strem) or knowingly assumed by the Subsidiary pursuant to the Merger Agreement;
it being explicitly hereby acknowledged and confirmed by Strem that Strem shall
be solely responsible for any Schedule I Obligation encompassed by this Section
2 and shall not be entitled to any indemnification from ACSI or the Subsidiary
pursuant to the provisions of Section 1 hereof.
3. Limitations,
Notwithstanding anything contained in this Agreement to the contrary, an
Indemnifying Party shall not be obligated to indemnify or defend the Indemnified
Party with respect to:
(a) Any Loss incurred, accruing or resulting from a claim or assertion
of liability arising out of or caused by acts or omissions of an Indemnified
Party or the Merged Company prior to the Effective Time, which claim or
assertion of liability was not disclosed in the Merger Agreement and any
exhibits or schedules thereto (whether or not knowledge may be attributed to the
Indemnified Party);
(b) Any Loss arising out of, relating to, or resulting from negligent
or tortious conduct by an Indemnified Party or the Merged Company; or
(c) Any settlement of any claim or assertion of liability for Loss
made by the Indemnified Party without the consent of the Indemnifying Party;
provided, however, that in the event the Indemnifying Party elects not to defend
or settle any
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<PAGE>
such matter, the Indemnifying Party shall not unreasonably withhold their
respective consent to any reasonable settlement proposed by the Indemnified
Party.
4. Notice and Defense of Claims.
(a) Each party entitled to indemnification under this Agreement (each,
an "Indemnified Party") shall give notice to each party required to provide
indemnification (each, an "Indemnifying Party") promptly after such Indemnified
Party has knowledge of any claim for Loss as to which indemnity may be sought,
and, in the event of any claim or demand asserted against an Indemnified Party
by a third party, shall permit the Indemnifying Party to assume the defense of
any such claim (and litigation resulting therefrom) as provided in Section 4(b)
hereof. Notwithstanding anything to the contrary contained herein, any failure
by an Indemnified Party to give notice as provided herein shall not relieve the
Indemnifying Party of its indemnity obligations under this Agreement except to
the extent that such failure materially and adversely affects the Indemnifying
Party due to the inability to defend such action timely.
(b) The Indemnifying Party shall have ten (10) business days after the
aforesaid notice is given (i) to dispute its liability for the Loss being
claimed by the Indemnified Party and (ii) to elect, by written notice given to
the Indemnified Party, to undertake, conduct and control, through counsel of
their own choosing (subject to the consent of the Indemnified Party, which
consent is not to be unreasonably withheld or delayed) and at their sole risk
and expense, the good faith settlement or defense of such claim, and the
Indemnified Party shall cooperate with the Indemnifying Party in connection
therewith; provided that: (i) all settlements shall be made only upon the prior
reasonable consultation with the Indemnified Party and the prior written consent
of the Indemnified Party, which consent shall not be unreasonably withheld or
delayed, and (ii) the Indemnified Party shall be entitled to participate in such
settlement or defense through counsel chosen by the Indemnified Party (provided
that the fees and expenses of such counsel shall be borne by the Indemnified
Party). So long as the Indemnifying Party are contesting any such claim in good
faith, the Indemnified Party shall not pay or settle any such claim; provided,
however, that notwithstanding the foregoing, the Indemnified Party shall have
the right to pay or settle any such claim at any time, provided that in such
event they shall waive any right of indemnification therefor by the Indemnifying
Party. If the Indemnifying Party does not make a timely election to undertake
the good faith defense or settlement of the claim as aforesaid, or if the
Indemnifying Party fails to proceed with the good faith defense or settlement of
the matter after making such election, then, in either such event, the
Indemnified Party shall have the right to contest, settle or compromise
(provided that
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<PAGE>
all settlements or compromises require the prior reasonable consultation with
the Indemnifying Party and the prior written consent of the Indemnifying Party,
which consent shall not be unreasonably withheld or delayed) the claim at their
exclusive discretion, at the risk and expense of the Indemnifying Party. With
respect to any dispute as to the Indemnifying Party's liability for the Loss,
the Indemnified Party may proceed against such Indemnifying Party simultaneously
with the third party claim or demand and need not await the outcome of such
third party claim or demand before initiating any such proceeding.
5. Assistance.
The Indemnified Party shall furnish such information regarding
themselves or the claim in question as the Indemnifying Parties may reasonably
request in writing and as shall be reasonably required in connection with
defense of such claim and litigation resulting therefrom.
6. Reimbursement and Subrogation.
(a) Subject to the provisions of Section 3, 4 and 5 hereof, upon a
determination of the amount of any Loss for which indemnification is sought
hereunder, either by payment for the Loss claimed or by entry of a final
judgment, order or decree (after exhaustion or expiration of appeal rights) by a
court of competent jurisdiction, and of the Indemnifying Party's liability for
such Loss under this Agreement, then the Indemnifying Party shall forthwith,
upon written notice from the Indemnified Party, reimburse such Indemnified Party
for the amount of such Loss.
(b) If such amount is not paid forthwith, then the Indemnified Party
may, at its option, take legal action against the Indemnifying Party for
reimbursement in the amount of its Loss together with (i) any costs (including
reasonable attorney's fees) to bring such legal action and (ii) interest on the
foregoing items (but only to the extent pre-judgment interest is not already
included within such items) at the rate of twelve percent (12%) per annum from
the date the Loss is due, as hereinabove provided, until such Loss shall be paid
by the Indemnifying Party.
(c) To the extent that any Loss is paid hereunder, the Indemnified
Party shall do all things reasonably requested by the Indemnifying Party to
subrogate to the Indemnifying Party any rights of recovery (including rights to
insurance or indemnification from persons other than the Indemnifying Party)
which the Indemnified Party may have with respect to the Loss.
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<PAGE>
7. Representations and Warranties.
Strem hereby represents and warrants to ACSI and the Subsidiary as
follows:
(a) Each of the Schedule I Obligations represents the complete
agreement of the Merged Company and/or Strem with the other party named therein
(the "Contracting Party") as to all rights, liabilities and obligations of the
Merged Company, Strem and such Contracting Party in and to the subject matter of
the respective Schedule I Obligation and has not been modified or amended;
(b) All rents or payments, of any nature, under the Schedule I
Obligations have been paid and are current as of the date hereof or appropriate
provisions for such payment have been made on the books of the Merged Company;
(c) Except as otherwise set forth in the Merger Agreemeent, neither
Strem nor the Merged Company is in default under any Schedule I Obligation which
would result in monetary damages or termination of such Schedule I Obligation
and there is no known default by the Contracting Party which would result in
monetary damages or termination of such Schedule I Obligation nor are there any
unsatisfied claims, set-offs or counterclaims against Strem or the Merged
Company by any such Contracting Party with respect to any Schedule I Obligation;
and
(d) There are no actions or proceedings pending or, to the best of
Strem's knowledge, threatened by or against Strem or the Merged Company with
respect to any Schedule I Obligation.
8. Effect of Due Diligence.
No investigation by or on behalf of the Indemnified Party into the
business, operations, prospects, assets or condition (financial or otherwise) of
Strem or ACSI or the Subsidiary, as the case may be, shall diminish in any way
the effect of any representations or warranties made by Strem or ACSI and the
Subsidiary herein or shall relieve Strem or ACSI and the Subsidiary, as the case
may be, of any of their respective obligations under this Agreement.
9. Notices.
All notices and other communications given or made pursuant hereto shall be
in writing and shall be deemed to have been duly given if delivered personally,
by overnight courier or by express, registered or certified mail (postage
prepaid, return receipt requested) or by facsimile transmittal, to the parties
at the following addresses (or at such other address for a party as
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<PAGE>
shall be specified by like notice, except that notices of changes of address
shall be effective upon receipt):
If to ACSI or the Subsidiary: American CinemaStores, Inc.
Suite 400
1543 Seventh Street
Santa Monica, California 90401
Attn: Steve Natale, President
Telecopier: 310-394-3464
with a copy to: Tenzer Greenblatt LLP
405 Lexington Avenue
New York, New York 10174
Attn: Gary A. Schonwald
Fax: (212) 573-4313
If to Strem: Robert J. Strem
Janet C. Strem
5715 Ridgebrook Drive
Agoura Hills, CA 91301
with a copy to: Sheppard, Mullin, Richter
& Hampton LLP
333 South Hope Street - 48th Floor
Los Angeles, California 90071
Attn: Lawrence M. Braun, Esq.
Telecopier: (213) 620-1398
All such notices and communications shall, when telefaxed, be effective when
telefaxed or if sent by nationally recognized overnight courier service, be
effective one (1) business day after the same has been delivered to such courier
service marked for overnight delivery, or, if mailed, be effective three (3)
days after being mailed by registered or certified mail, return receipt
requested, postage prepaid.
10. Governing Law.
This Agreement shall be governed by, and construed in accordance with, the
law of the State of California without regard to its choice of law principles.
Each of ACSI, the Subsidiary and Strem hereby irrevocably and unconditionally
consents to submit to the exclusive jurisdiction of the courts of the State of
California and of the United States located in the County of Los Angeles, State
of California (the "California Courts") for any litigation arising out of or
relating to this Agreement and the transactions contemplated hereby (and agrees
not to commence any litigation relating thereto except in such courts), waives
any objection to the laying of venue of any such litigation in the California
Courts and agrees not to plead or claim that such litigation brought in any
California Courts has been brought in an inconvenient forum.
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<PAGE>
11. Arbitration.
All disputes arising under this Agreement between Strem, on the one hand,
and ACSI, on the other hand, that cannot be amicably resolved by the parties
shall be settled by binding arbitration in Los Angeles County, California,
subject to the terms and provisions of this Section 11, and judgment upon the
award rendered may be entered in any court having jurisdiction thereof;
provided, however, that if equitable relief is sought (including injunctive
relief) by a party hereto for a breach of this Agreement, then the non-breaching
party may, in its sole discretion, enforce such rights or seek such equitable
relief by court action. Except as provided below, the arbitration shall proceed
in accordance with the laws of the State of California. Any party requesting
arbitration shall serve a written demand for arbitration on the other parties by
registered or certified mail. The demand shall set forth a statement of the
nature of the dispute, the amount involved and the remedies sought. There shall
be three (3) arbitrators subject to the provisions below. No later than twenty
(20) calendar days after a demand for arbitration is served, ACSI shall select
and appoint one retired judge of the Los Angeles County Superior Court to act as
an arbitrator, and Strem shall jointly select and appoint one retired judge of
the Los Angeles County Superior Court to act as an arbitrator. If one side fails
or refuses to appoint an arbitrator within such 20-day period, then the other
party may apply to the Los Angeles County Superior Court for appointment of a
retired judge to serve as an arbitrator. Not later than ten (10) calendar days
after the appointment of such two arbitrators, such two arbitrators shall
appoint a retired judge of the Los Angeles County Superior Court to act as the
third arbitrator. No later than ten (10) calendar days after appointment of the
last arbitrator, the parties hereto shall jointly prepare and submit to the
three arbitrators a set of rules for arbitration. In the event that the parties
hereto cannot agree on the rules for the arbitration, the arbitrators shall
establish the rules. All decisions by the three arbitrators shall be by majority
rule. No later than ten (10) calendar days after the last arbitrator is
appointed, the arbitrators shall schedule the arbitration for a hearing to
commence on a mutually convenient date. The hearing, which shall be in the
English language, shall commence no later than one hundred twenty (120) calendar
days after the last arbitrator is appointed and shall continue from day to day
until completed. The arbitrators shall issue their award in writing no later
than twenty (20) calendar days after the conclusion of the hearing.
The arbitration award shall be final and binding regardless of whether any
party fails or refuses to participate in the arbitration; provided, however,
that after the written arbitration award is issued, any party may, within thirty
(30) days thereafter, file an appeal with the California Court of Appeal on
issues of law only, and such appeal shall be governed
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<PAGE>
by the normal California rules governing an appeal of a final trial court
decision from the Los Angeles County Superior Court. No interlocutory appeals
shall be permitted. If an appeal is filed, the decision of the California Court
of Appeal shall be final, binding and nonappealable, and the arbitrators shall
promptly reconvene and reissue their written arbitration award, revising their
written arbitration award, if necessary, in light of such appellate decision.
The arbitrators' award shall become final and binding upon the earlier to occur
of (i) the expiration of the 30-day appeal period without an appeal being timely
filed, or (ii) the issuance of the arbitrators' award following a timely appeal
being filed and the issuance of an appellate decision. The arbitrators are
empowered to hear and determine all disputes between the parties hereto
concerning the subject matter of this Agreement, and the arbitrators may award
money damages (but specifically not punitive damages), injunctive relief,
rescission, restitution, costs, and attorneys' fees.
In the event that any party serves a proper demand for arbitration under
this Agreement, all parties may pursue discovery in accordance with California
Code of Civil Procedure Section 1283.05, the provisions of which are
incorporated herein by reference, with the following exceptions: (a) the parties
hereto may conduct all discovery, including depositions for discovery purposes,
without leave of the arbitrators; and (b) all discovery shall be completed no
later than the commencement of the arbitration hearing or one hundred twenty
(120) calendar days after the date that a proper demand for arbitration is
served, whichever occurs earlier, unless upon a showing of good cause the
arbitrators extend or shorten that period.
The arbitrators shall not have the power to amend this Agreement in any
respect.
Until an arbitrators' award is issued, (A) the out-of-pocket cost of the
arbitrator appointed by ACSI (or appointed by the Court on its behalf) shall be
paid by ACSI, (B) the out-of-pocket cost of the arbitrator appointed by Strem
(or appointed by the Court on their behalf) shall be paid by Strem, and (C) the
out-of-pocket cost of the third arbitrator and of the arbitration facilities
shall be shared equally by ACSI and Strem. The arbitrators' award may, however,
reallocate those costs upon a reasonable basis set forth in such award.
12. Attorneys' Fees.
In the event of any dispute arising out of the subject matter of this
Agreement, each party shall recover, in addition to any other damages assessed,
its reasonable attorneys' fees and costs (or a portion thereof) incurred in
litigating, arbitrating, or otherwise settling or resolving such dispute, which
fees shall be borne by the party against whom the decisions are rendered, or if
the decisions are split, then by each of the
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<PAGE>
parties in the inverse proportion of their respective award. For example, if the
disputed amount is $100,000, and the award is $25,000 to one party and $75,000
to the other, the party awarded $25,000 will bear 75% of the fees and expenses.
13. Miscellaneous.
(a) Successors and Assigns. This Agreement will inure to the benefit
of and be binding upon the parties hereto and their respective successors and
permitted assigns. Neither this Agreement nor any of the rights, interests or
obligations hereunder shall be assigned by any of the parties hereto without the
prior written consent of the other parties hereto.
(b) Entire Agreement. This Agreement and the other documents referred
to herein contain the entire agreement among the parties hereto with respect to
the transactions contemplated hereby, and controls and supersedes any prior
understandings, agreements or representations by or between the parties, written
or oral, which conflicts with, or may have related to, the subject matter hereof
or thereof in any way.
(c) Severability. Whenever possible, each provision of this Agreement
shall be interpreted in such manner so as to be effective and valid under
applicable law, but if any provision of this Agreement is held to be invalid,
illegal or unenforceable in any respect under any applicable law or rule in any
jurisdiction, such invalidity, illegality or unenforceability shall not affect
any other provision of this Agreement. If any provision contained in this
Agreement is determined to be invalid, illegal or unenforceable as written, a
court of competent jurisdiction shall, at any party's request, reform the terms
of this Agreement to the extent necessary to cause such otherwise invalid
provisions to be enforceable under applicable law.
(d) Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
(e) Amendment. This Agreement may not be amended except by an
instrument in writing signed by each of the parties hereto.
(f) Headings. Headings in this Agreement are included herein for
convenience of reference only and shall not constitute a part of this Agreement
for any other purpose.
IN WITNESS WHEREOF, the parties hereto have executed
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<PAGE>
this Agreement on the day, month and year first written above.
AMERICAN CINEMASTORES, INC.
By:________________________________________
Steve Natale, President
___________________________________________
ROBERT J. STREM
___________________________________________
JANET C. STREM
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CROSS-INDEMNIFICATION AGREEMENT
CROSS-INDEMNIFICATION AGREEMENT ("Agreement", dated as of __, 1996, by and
between American CinemaStores, Inc., a Delaware corporation ("ACSI"), Robert J.
Strem, an individual , and Janet C. Strem, an individual (collectively referred
to as "Strem"), and each of Bruce Sacks, an individual, and Sharon Sacks, an
individual (collectively referred to as "Sacks"). All capitalized terms used
herein and not otherwise defined herein shall have the respective meanings
ascribed to them in the Merger Agreement (as defined below).
RECITALS
WHEREAS, JJI/ASCI Acquisition Corp., a wholly-owned subsidiary of ACSI (the
"Subsidiary"), acquired as a going concern Just Jackets Corporation (the "Merged
Company") by merger (the "Merger") pursuant to an Agreement and Plan of Merger,
dated ____________, 1996, by and among Robert J. Strem, the Merged Company and
its shareholders, ACSI and the Subsidiary (the "Merger Agreement"); and
WHEREAS, by reason of the Merger, the Subsidiary has succeeded as a matter
of law to obligations of the Merged Company. The specific obligations relating
to equipment leases, loan facilities and office leases of the Merged Company
which were assumed by the Subsidiary are more particularly set forth in Schedule
I annexed hereto (the "Schedule I Obligations"); and
WHEREAS, Robert J. Strem served as President and Bruce Sacks served as
Secretary of the Merged Company, and Robert J. Strem and Bruce Sacks were
directors and Strem and Sacks were beneficial equity owners of the Merged
Company and, in such capacity, had previously guaranteed the performance by the
Merged Company of the Schedule I Obligations, which guarantees continue to be in
full force and effect (the "Guarantees"); and
WHEREAS, it is a condition to the consummation of the transactions
contemplated by the Merger Agreement that ACSI, Strem and Sacks enter into this
Agreement.
NOW, THEREFORE, in consideration of the premises and mutual covenants and
agreements of the parties set forth herein and other good and valuable
consideration, receipt of which is hereby acknowledged, the parties hereto do
hereby agree as follows:
1. Indemnification of Strem and Sacks by ACSI and Subsidiary.
Each of ACSI and the Subsidiary (collectively the "Indemnitors"), jointly
and severally, indemnifies and agrees to
<PAGE>
defend and hold harmless each of Strem and Sacks from and against any and all
losses, obligations, deficiencies, liabilities, claims, damages, costs and
expenses, including, without limitation, the amount of any settlement entered
into pursuant hereto and all reasonable legal and other expenses incurred in
connection with the investigation, prosecution or defense of any matter
indemnified pursuant hereto (collectively the "Loss") sustained, suffered or
incurred by, or charged to Strem or Sacks, which Loss arises out of, relates to,
or results from the Guarantees by reason of any act or omission of Indemnitors,
or either of them, subsequent to the Effective Time with respect to their
performance of the Schedule I Obligations subsequent to the Effective Time.
2. Indemnification of ACSI and Subsidiary by Strem and Sacks.
Each of Strem and Sacks, jointly and severally, hereby indemnifies and
agrees to defend and hold harmless each of ACSI and the Subsidiary from and
against any Loss sustained, suffered or incurred by, or charged to, either ACSI
or the Subsidiary by reason of any Schedule I Obligation incurred by, or having
accrued to, the Merged Company prior to the Effective Time and not disclosed in
the Merger Agreement and any exhibits or schedules thereto (whether or not
knowledge may be attributed to Strem and Sacks) or knowingly assumed by the
Subsidiary pursuant to the Merger Agreement; it being explicitly hereby
acknowledged and confirmed by Strem and Sacks that Strem and Sacks shall be
solely responsible for any Schedule I Obligation encompassed by this Section 2
and shall not be entitled to any indemnification from ACSI or the Subsidiary
pursuant to the provisions of Section 1 hereof.
3. Limitations,
Notwithstanding anything contained in this Agreement to the contrary, an
Indemnifying Party shall not be obligated to indemnify or defend the Indemnified
Party with respect to:
(a) Any Loss incurred, accruing or resulting from a claim or assertion
of liability arising out of or caused by acts or omissions of an Indemnified
Party or the Merged Company prior to the Effective Time, which claim or
assertion of liability was not disclosed in the Merger Agreement and any
exhibits or schedules thereto (whether or not knowledge may be attributed to the
Indemnified Party);
(b) Any Loss arising out of, relating to, or resulting from negligent
or tortious conduct by an Indemnified Party or the Merged Company; or
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<PAGE>
(c) Any settlement of any claim or assertion of liability for Loss
made by the Indemnified Party without the consent of the Indemnifying Party;
provided, however, that in the event the Indemnifying Party elects not to defend
or settle any such matter, the Indemnifying Party shall not unreasonably
withhold their respective consent to any reasonable settlement proposed by the
Indemnified Party.
4. Notice and Defense of Claims.
(a) Each party entitled to indemnification under this Agreement (each,
an "Indemnified Party") shall give notice to each party required to provide
indemnification (each, an "Indemnifying Party") promptly after such Indemnified
Party has knowledge of any claim for Loss as to which indemnity may be sought,
and, in the event of any claim or demand asserted against an Indemnified Party
by a third party, shall permit the Indemnifying Party to assume the defense of
any such claim (and litigation resulting therefrom) as provided in Section 4(b)
hereof. Notwithstanding anything to the contrary contained herein, any failure
by an Indemnified Party to give notice as provided herein shall not relieve the
Indemnifying Party of its indemnity obligations under this Agreement except to
the extent that such failure materially and adversely affects the Indemnifying
Party due to the inability to defend such action timely.
(b) The Indemnifying Party shall have ten (10) business days after the
aforesaid notice is given (i) to dispute its liability for the Loss being
claimed by the Indemnified Party and (ii) to elect, by written notice given to
the Indemnified Party, to undertake, conduct and control, through counsel of
their own choosing (subject to the consent of the Indemnified Party, which
consent is not to be unreasonably withheld or delayed) and at their sole risk
and expense, the good faith settlement or defense of such claim, and the
Indemnified Party shall cooperate with the Indemnifying Party in connection
therewith; provided that: (i) all settlements shall be made only upon the prior
reasonable consultation with the Indemnified Party and the prior written consent
of the Indemnified Party, which consent shall not be unreasonably withheld or
delayed, and (ii) the Indemnified Party shall be entitled to participate in such
settlement or defense through counsel chosen by the Indemnified Party (provided
that the fees and expenses of such counsel shall be borne by the Indemnified
Party). So long as the Indemnifying Party are contesting any such claim in good
faith, the Indemnified Party shall not pay or settle any such claim; provided,
however, that notwithstanding the foregoing, the Indemnified Party shall have
the right to pay or settle any such claim at any time, provided that in such
event they shall waive any right of indemnification therefor by the Indemnifying
Party. If the Indemnifying Party does not make a timely election to undertake
the good faith defense or settlement of the claim as
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<PAGE>
aforesaid, or if the Indemnifying Party fails to proceed with the good faith
defense or settlement of the matter after making such election, then, in either
such event, the Indemnified Party shall have the right to contest, settle or
compromise (provided that all settlements or compromises require the prior
reasonable consultation with the Indemnifying Party and the prior written
consent of the Indemnifying Party, which consent shall not be unreasonably
withheld or delayed) the claim at their exclusive discretion, at the risk and
expense of the Indemnifying Party. With respect to any dispute as to the
Indemnifying Party's liability for the Loss, the Indemnified Party may proceed
against such Indemnifying Party simultaneously with the third party claim or
demand and need not await the outcome of such third party claim or demand before
initiating any such proceeding.
5. Assistance.
The Indemnified Party shall furnish such information regarding themselves
or the claim in question as the Indemnifying Parties may reasonably request in
writing and as shall be reasonably required in connection with defense of such
claim and litigation resulting therefrom.
6. Reimbursement and Subrogation.
(a) Subject to the provisions of Sections 3, 4 and 5 hereof, upon a
determination of the amount of any Loss for which indemnification is sought
hereunder, either by payment for the Loss claimed or by entry of a final
judgment, order or decree (after exhaustion or expiration of appeal rights) by a
court of competent jurisdiction, and of the Indemnifying Party's liability for
such Loss under this Agreement, then the Indemnifying Party shall forthwith,
upon written notice from the Indemnified Party, reimburse such Indemnified Party
for the amount of such Loss.
(b) If such amount is not paid forthwith, then the Indemnified Party
may, at its option, take legal action against the Indemnifying Party for
reimbursement in the amount of its Loss together with (i) any costs (including
reasonable attorney's fees) to bring such legal action and (ii) interest on the
foregoing items (but only to the extent pre-judgment interest is not already
included within such items) at the rate of twelve percent (12%) per annum from
the date the Loss is due, as hereinabove provided, until such Loss shall be paid
by the Indemnifying Party.
(c) To the extent that any Loss is paid hereunder, the Indemnified
Party shall do all things reasonably requested by the Indemnifying Party to
subrogate to the Indemnifying Party any rights of recovery (including rights to
insurance or indemnification from persons other than the
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<PAGE>
Indemnifying Party) which the Indemnified Party may have with respect to the
Loss.
7. Representations and Warranties.
Each of Strem and Sacks, jointly and severally, hereby represents and
warrants to ACSI and the Subsidiary as follows:
(a) Each of the Schedule I Obligations represents the complete
agreement of the Merged Company, Strem and/or Sacks with the other party named
therein (the "Contracting Party") as to all rights, liabilities and obligations
of the Merged Company, Strem, Sacks and such Contracting Party in and to the
subject matter of the respective Schedule I Obligation and has not been modified
or amended;
(b) All rents or payments, of any nature, under the Schedule I
Obligations have been paid and are current as of the date hereof or appropriate
provisions for such payment have been made on the books of the Merged Company;
(c) Except as otherwise set forth in the Merger Agreement, neither
Strem, Sacks, nor the Merged Company is in default under any Schedule I
Obligation which would result in monetary damages or termination of such
Schedule I Obligation and there is no default by the Contracting Party which
would result in monetary damages or termination of such Schedule I Obligation
nor are there any known unsatisfied claims, set-offs or counterclaims against
Strem, Sacks or the Merged Company by any such Contracting Party with respect to
any Schedule I Obligation; and
(d) There are no actions or proceedings pending or, to the best of
Strem's or Sacks' knowledge, threatened by or against Strem, Sacks or the Merged
Company with respect to any Schedule I Obligation.
8. Effect of Due Diligence.
No investigation by or on behalf of the Indemnified Party into the
business, operations, prospects, assets or condition (financial or otherwise) of
Strem, Sacks or ACSI or the Subsidiary, as the case may be, shall diminish in
any way the effect of any representations or warranties made by Strem, Sacks or
ACSI and the Subsidiary herein or shall relieve Strem, Sacks or ACSI and the
Subsidiary, as the case may be, of any of their respective obligations under
this Agreement.
9. Notices.
All notices and other communications given or made pursuant hereto shall be
in writing and shall be deemed to have
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<PAGE>
been duly given if delivered personally, by overnight courier or by express,
registered or certified mail (postage prepaid, return receipt requested) or by
facsimile transmittal, to the parties at the following addresses (or at such
other address for a party as shall be specified by like notice, except that
notices of changes of address shall be effective upon receipt):
If to ACSI or the Subsidiary:
American CinemaStores, Inc.
Suite 400
1543 Seventh Street
Santa Monica, California 90401
Attn: Steve Natale, President
Telecopier: 310-394-3464
with a copy to: Tenzer Greenblatt LLP
405 Lexington Avenue
New York, New York 10174
Attn: Gary A. Schonwald
Fax: (212) 573-4313
If to Strem: Robert J. Strem
Janet C. Strem
5715 Ridgebrook Drive
Agoura Hills, CA 91301
If to Sacks: Bruce Sacks
Sharon Sacks
1389 North Tottenham
Agoura Hills, CA 91301
with a copy to: Sheppard, Mullin, Richter
& Hampton LLP
333 South Hope Street - 48th Floor
Los Angeles, California 90071
Attn: Lawrence M. Braun, Esq.
Telecopier: (213) 620-1398
All such notices and communications shall, when telefaxed, be effective when
telefaxed or if sent by nationally recognized overnight courier service, be
effective one (1) business day after the same has been delivered to such courier
service marked for overnight delivery, or, if mailed, be effective three (3)
days after being mailed by registered or certified mail, return receipt
requested, postage prepaid.
10. Governing Law.
This Agreement shall be governed by, and construed in accordance with, the
law of the State of California without regard to its choice of law principles.
Each of ACSI, the
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<PAGE>
Subsidiary and Strem hereby irrevocably and unconditionally consents to submit
to the exclusive jurisdiction of the courts of the State of California and of
the United States located in the County of Los Angeles, State of California (the
"California Courts") for any litigation arising out of or relating to this
Agreement and the transactions contemplated hereby (and agrees not to commence
any litigation relating thereto except in such courts), waives any objection to
the laying of venue of any such litigation in the California Courts and agrees
not to plead or claim that such litigation brought in any California Courts has
been brought in an inconvenient forum.
11. Arbitration.
All disputes arising under this Agreement between ACSI and Subsidiary, on
the one hand, and Strem and Sacks, on the other hand, that cannot be amicably
resolved by the parties shall be settled by binding arbitration in Los Angeles
County, California, subject to the terms and provisions of this Section 11, and
judgment upon the award rendered may be entered in any court having jurisdiction
thereof; provided, however, that if equitable relief is sought (including
injunctive relief) by a party hereto for a breach of this Agreement, then the
non-breaching party may, in its sole discretion, enforce such rights or seek
such equitable relief by court action. Except as provided below, the arbitration
shall proceed in accordance with the laws of the State of California. Any party
requesting arbitration shall serve a written demand for arbitration on the other
parties by registered or certified mail. The demand shall set forth a statement
of the nature of the dispute, the amount involved and the remedies sought. There
shall be three (3) arbitrators subject to the provisions below. No later than
twenty (20) calendar days after a demand for arbitration is served, ACSI and
Subsidiary shall jointly select and appoint one retired judge of the Los Angeles
County Superior Court to act as an arbitrator, and Strem and Sacks shall jointly
select and appoint one retired judge of the Los Angeles County Superior Court to
act as an arbitrator. If one side fails or refuses to appoint an arbitrator
within such 20-day period, then the other party may apply to the Los Angeles
County Superior Court for appointment of a retired judge to serve as an
arbitrator. Not later than ten (10) calendar days after the appointment of such
two arbitrators, such two arbitrators shall appoint a retired judge of the Los
Angeles County Superior Court to act as the third arbitrator. No later than ten
(10) calendar days after appointment of the last arbitrator, the parties hereto
shall jointly prepare and submit to the three arbitrators a set of rules for
arbitration. In the event that the parties hereto cannot agree on the rules for
the arbitration, the arbitrators shall establish the rules. All decisions by the
three arbitrators shall be by majority rule. No later than ten (10) calendar
days after the last arbitrator is appointed, the arbitrators shall schedule the
arbitration for a hearing to
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<PAGE>
commence on a mutually convenient date. The hearing, which shall be in the
English language, shall commence no later than one hundred twenty (120) calendar
days after the last arbitrator is appointed and shall continue from day to day
until completed. The arbitrators shall issue their award in writing no later
than twenty (20) calendar days after the conclusion of the hearing.
The arbitration award shall be final and binding regardless of whether any
party fails or refuses to participate in the arbitration; provided, however,
that after the written arbitration award is issued, any party may, within thirty
(30) days thereafter, file an appeal with the California Court of Appeal on
issues of law only, and such appeal shall be governed by the normal California
rules governing an appeal of a final trial court decision from the Los Angeles
County Superior Court. No interlocutory appeals shall be permitted. If an appeal
is filed, the decision of the California Court of Appeal shall be final, binding
and nonappealable, and the arbitrators shall promptly reconvene and reissue
their written arbitration award, revising their written arbitration award, if
necessary, in light of such appellate decision. The arbitrators' award shall
become final and binding upon the earlier to occur of (i) the expiration of the
30-day appeal period without an appeal being timely filed, or (ii) the issuance
of the arbitrators' award following a timely appeal being filed and the issuance
of an appellate decision. The arbitrators are empowered to hear and determine
all disputes between the parties hereto concerning the subject matter of this
Agreement, and the arbitrators may award money damages (but specifically not
punitive damages), injunctive relief, rescission, restitution, costs, and
attorneys' fees.
In the event that any party serves a proper demand for arbitration under
this Agreement, all parties may pursue discovery in accordance with California
Code of Civil Procedure Section 1283.05, the provisions of which are
incorporated herein by reference, with the following exceptions: (a) the parties
hereto may conduct all discovery, including depositions for discovery purposes,
without leave of the arbitrators; and (b) all discovery shall be completed no
later than the commencement of the arbitration hearing or one hundred twenty
(120) calendar days after the date that a proper demand for arbitration is
served, whichever occurs earlier, unless upon a showing of good cause the
arbitrators extend or shorten that period.
The arbitrators shall not have the power to amend this Agreement in any
respect.
Until an arbitrators' award is issued, (A) the out-of-pocket cost of the
arbitrator appointed by ACSI and Subsidiary (or appointed by the Court on their
behalf) shall be paid by ACSI, (B) the out-of-pocket cost of the arbitrator
appointed by Strem and Sacks (or appointed by the Court on their behalf) shall
be paid by Strem, and (C) the out-of-pocket cost of the third
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<PAGE>
arbitrator and of the arbitration facilities shall be shared equally by ACSI and
Strem. The arbitrators' award may, however, reallocate those costs upon a
reasonable basis set forth in such award.
12. Attorneys' Fees.
In the event of any dispute arising out of the subject matter of this
Agreement, each party shall recover, in addition to any other damages assessed,
its reasonable attorneys' fees and costs (or a portion thereof) incurred in
litigating, arbitrating, or otherwise settling or resolving such dispute, which
fees shall be borne by the party against whom the decisions are rendered, or if
the decisions are split, then by each of the parties in the inverse proportion
of their respective award. For example, if the disputed amount is $100,000, and
the award is $25,000 to one party and $75,000 to the other, the party awarded
$25,000 will bear 75% of the fees and expenses.
13. Miscellaneous.
(a) Successors and Assigns. This Agreement will inure to the benefit
of and be binding upon the parties hereto and their respective successors and
permitted assigns. Neither this Agreement nor any of the rights, interests or
obligations hereunder shall be assigned by any of the parties hereto without the
prior written consent of the other parties hereto.
(b) Entire Agreement. This Agreement and the other documents referred
to herein contain the entire agreement among the parties hereto with respect to
the transactions contemplated hereby, and controls and supersedes any prior
understandings, agreements or representations by or between the parties, written
or oral, which conflicts with, or may have related to, the subject matter hereof
or thereof in any way.
(c) Severability. Whenever possible, each provision of this Agreement
shall be interpreted in such manner so as to be effective and valid under
applicable law, but if any provision of this Agreement is held to be invalid,
illegal or unenforceable in any respect under any applicable law or rule in any
jurisdiction, such invalidity, illegality or unenforceability shall not affect
any other provision of this Agreement. If any provision contained in this
Agreement is determined to be invalid, illegal or unenforceable as written, a
court of competent jurisdiction shall, at any party's request, reform the terms
of this Agreement to the extent necessary to cause such otherwise invalid
provisions to be enforceable under applicable law.
(d) Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an
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<PAGE>
original, but all of which together shall constitute one and the same
instrument.
(e) Amendment. This Agreement may not be amended except by an
instrument in writing signed by each of the parties hereto.
(f) Headings. Headings in this Agreement are included herein for
convenience of reference only and shall not constitute a part of this Agreement
for any other purpose.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on the
day, month and year first written above.
AMERICAN CINEMASTORES, INC.
By:________________________________________
Steve Natale, President
____________________________________________
ROBERT J. STREM
____________________________________________
JANET C. STREM
____________________________________________
BRUCE SACKS
____________________________________________
SHARON SACKS
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LOCK UP AGREEMENT
LOCK UP AGREEMENT ("Agreement"), dated as of _______, 1996, among American
CinemaStores, Inc., a Delaware corporation (the "Company") and each of Robert J.
Strem and Janet C. Strem, Trustees of the Strem Family 1993 Trust U/T/A 11/9/93
(the "Strem Trustees") and Steve Natale ("Natale"), all individuals residing in
the State of California (the Strem Trustees and Natale collectively hereinafter
referred to as the "Shareholders").
RECITALS
WHEREAS, each of the Shareholders is or will be the beneficial owner and
holder of record with respect to a portion of shares of the Common Stock of the
Company; and
WHEREAS, as part of the merger of Superior/Panoramic Hand Prints Inc.
("Superior") with and into ASCI/SPI Acquisition Corp. (the "Subsidiary"), a
wholly-owned subsidiary of the Company (the "Merger"), the Company will
undertake to raise capital either through a private placement of shares of the
Company or the exercise of outstanding redeemable common stock purchase warrants
of the Company, as more particularly provided for in a certain Agreement and
Plan of Merger dated June __, 1996, among the Company, the Subsidiary, Superior,
the Strem Trustees and Robert Strem (the "Merger Agreement"); and
WHEREAS, it is a condition to the performance of the obligations of the
Strem Trustees and the Company under the Merger Agreement that the Shareholders
enter into this Agreement with the Company.
NOW, THEREFORE, for and in good consideration, as more particularly set
forth in the Merger Agreement, each of the Strem Trustees and Natale, as holders
of shares, par value $.001 per share, of Common Stock of the Company (the
"Shares"), hereby covenants and agrees as follows:
1. For a period of one (1) year after the Effective Time (as defined in the
Merger Agreement) of the Merger (the "Lock Up Period"), not to sell, assign,
transfer or otherwise dispose, pursuant to Rule 144 or any other applicable
securities law, the number of Shares set opposite their respective name as
follows:
Name Shares
Natale 750,000
Strem Trustees 1,000,000
2. That any breach of this Agreement by any of the Shareholders will result
in irreparable harm to the Company such that monetary damages would be
inadequate to remedy the breach and, accordingly agrees that the covenant and
provisions of this
<PAGE>
Agreement are specifically enforceable by the Company in the form of
stop-transfer instructions with respect to such Shares until the end of the Lock
Up Period, without the Company waiving any claim for other injunctive relief or
damages caused by such breach.
3. This Agreement may be executed in one or more counterparts, and by the
different parties hereto in separate counterparts, each of which when so
executed shall be deemed to be an original, but all of which taken together
shall constitute one and the same agreement.
4. This Agreement shall be governed by, and construed in accordance with,
the law of the State of California without regard to its choice of law
principles. Each of the Company and the Shareholders hereby irrevocably and
unconditionally consents to submit to the exclusive jurisdiction of the courts
of the State of California and of the United States located in the County of Los
Angeles, State of California (the "California Courts") for any litigation
arising out of or relating to this Agreement and the transactions contemplated
hereby (and agrees not to commence any litigation relating thereto except in
such courts), waives any objection to the laying of venue of any such litigation
in the California Courts and agrees not to plead or claim that such litigation
brought in any California Courts has been brought in an inconvenient forum.
5. All disputes among the parties hereto arising under this Agreement that
cannot be amicably resolved by the parties hereto shall be settled by binding
arbitration in Los Angeles County, California, subject to the terms and
provisions of this Section 5, and judgment upon the award rendered may be
entered in any court having jurisdiction thereof; provided, however, that if
equitable relief is sought (including injunctive relief) by a party hereto for a
breach of this Agreement, then the non-breaching party may, in its sole
discretion, enforce such rights or seek such equitable relief by court action.
Except as provided below, the arbitration shall proceed in accordance with the
laws of the State of California. Any party requesting arbitration shall serve a
written demand for arbitration on the other parties by registered or certified
mail. The demand shall set forth a statement of the nature of the dispute, the
amount involved and the remedies sought. There shall be three (3) arbitrators
subject to the provisions below. No later than twenty (20) calendar days after a
demand for arbitration is served, each of (x) ACSI and the non-breaching
Shareholder, on the one hand, and (y) the breaching Shareholder on the other
hand, shall select and appoint one retired judge of the Los Angeles County
Superior Court to act as an arbitrator. If one side fails or refuses to appoint
an arbitrator within such 20-day period, then the other party may apply to the
Los Angeles County Superior Court for appointment of a retired judge to serve as
an arbitrator. Not later than ten (10) calendar days after the appointment of
such two arbitrators, such two arbitrators shall appoint a retired judge of the
Los Angeles County Superior Court to
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<PAGE>
act as the third arbitrator. No later than ten (10) calendar days after
appointment of the last arbitrator, the parties hereto shall jointly prepare and
submit to the three arbitrators a set of rules for arbitration. In the event
that the parties hereto cannot agree on the rules for the arbitration, the
arbitrators shall establish the rules. All decisions by the three arbitrators
shall be by majority rule. No later than ten (10) calendar days after the last
arbitrator is appointed, the arbitrators shall schedule the arbitration for a
hearing to commence on a mutually convenient date. The hearing, which shall be
in the English language, shall commence no later than one hundred twenty (120)
calendar days after the last arbitrator is appointed and shall continue from day
to day until completed. The arbitrators shall issue their award in writing no
later than twenty (20) calendar days after the conclusion of the hearing.
The arbitration award shall be final and binding regardless of whether any
party fails or refuses to participate in the arbitration; provided, however,
that after the written arbitration award is issued, any party may, within thirty
(30) days thereafter, file an appeal with the California Court of Appeal on
issues of law only, and such appeal shall be governed by the normal California
rules governing an appeal of a final trial court decision from the Los Angeles
County Superior Court. No interlocutory appeals shall be permitted. If an appeal
is filed, the decision of the California Court of Appeal shall be final, binding
and nonappealable, and the arbitrators shall promptly reconvene and reissue
their written arbitration award, revising their written arbitration award, if
necessary, in light of such appellate decision. The arbitrators' award shall
become final and binding upon the earlier to occur of (i) the expiration of the
30-day appeal period without an appeal being timely filed, or (ii) the issuance
of the arbitrators' award following a timely appeal being filed and the issuance
of an appellate decision. The arbitrators are empowered to hear and determine
all disputes between the parties hereto concerning the subject matter of this
Agreement, and the arbitrators may award money damages (but specifically not
punitive damages), injunctive relief, rescission, restitution, costs, and
attorneys' fees.
In the event that any party serves a proper demand for arbitration under
this Agreement, all parties may pursue discovery in accordance with California
Code of Civil Procedure Section 1283.05, the provisions of which are
incorporated herein by reference, with the following exceptions: (a) the parties
hereto may conduct all discovery, including depositions for discovery purposes,
without leave of the arbitrators; and (b) all discovery shall be completed no
later than the commencement of the arbitration hearing or one hundred twenty
(120) calendar days after the date that a proper demand for arbitration is
served, whichever occurs earlier, unless upon a showing of good cause the
arbitrators extend or shorten that period.
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<PAGE>
The arbitrators shall not have the power to amend this Agreement in any
respect.
Until an arbitrators' award is issued, (A) the out-of-pocket cost of the
arbitrator appointed by ACSI and the nonbreaching Shareholder shall be paid by
ACSI, (B) the out-of-pocket costs of the arbitrator appointed by the breaching
Shareholder(s) shall be paid by the breaching Shareholder(s), and (C) the
out-of-pocket cost of the third arbitrator and of the arbitration facilities
shall be shared equally by ACSI and the breaching Shareholder(s). The
arbitrators' award may, however, reallocate those costs upon a reasonable basis
set forth in such award.
6. In the event of any dispute arising out of the subject matter of this
Agreement, the prevailing party shall recover, in addition to any other damages
assessed, its reasonable attorneys' fees and costs incurred in litigating,
arbitrating, or otherwise settling or resolving such dispute.
7. This Agreement shall not be assigned by operation of law or otherwise,
and any assignment shall be null and void.
8. This Agreement and the agreements referred to herein constitute the
entire agreement, and supersede all prior agreements and undertakings, both
written and oral, among the parties, or any of them, with respect to the subject
matter hereof.
IN WITNESS WHEREOF, each of the Company, Natale and the Trustees have
caused this Agreement to be executed as of the date first set forth above.
___________________________________
STEVE NATALE
___________________________________
ROBERT J. STREM, as Trustee
of the Strem Family 1993
Trust U/T/A 11/9/93
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<PAGE>
___________________________________
JANET C. STREM, as Trustee
of the Strem Family 1993
Trust U/T/A 11/9/93
AMERICAN CINEMASTORES, INC.
By:________________________________
Steve Natale, President
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