UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
(Amendment No. 1)
(Mark One)
[ X ] ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
For the fiscal year ended February 1, 1997
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period ____________to____________
Commission File Number 0-25002
WHAT A WORLD!, INC.
(Name of small business issuer as specified in its charter)
Delaware 59-3200879
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
10901-B Roosevelt Boulevard, Suite 100
St. Petersburg, Florida 33716
(Address of principal executive offices) (Zip Code)
Issuer's telephone number: (813) 577-9366
Securities registered under Section 12(b) of the Exchange Act: NONE
Securities registered under Section 12(g) of the Exchange Act:
Title of Each Class Registered: Common Stock, par value $.01:
Redeemable Warrants, each to purchase
one share of Common Stock
Check whether the issuer (1) filed all reports required by Section 13 or 15(d)
of the Exchange Act during the past 12 months (or for such shorter period that
the registrant was required to file such reports), and (2) has been subject to
filing requirements for the past 90 days. Yes |X| No |_|
Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B is not contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB. |X|
Issuer's revenues for its most recent fiscal year: $8,166,755
The aggregate market value of the voting stock held by
non-affiliates of the Registrant
(based on the last reported sale price of the stock as of May 15, 1997)
was approximately $119,751
The number of shares outstanding of the registrant's Common Stock,
par value $.01 per share, as of May 15, 1997 was 2,118,125
DOCUMENTS INCORPORATED BY REFERENCE: NONE
Transitional Small Business Disclosure Format (check one): Yes |_| No |X|
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Item 13. EXHIBITS, LIST AND REPORTS ON FORM 8-K
A. A. (1) The following financial statements of the Company
and the reports thereon of Arthur Andersen LLP dated March 29,
1997 are being filed as part of this Annual Report on Form 10-KSB.
Report of Independent Certified Public Accountants.
Balance Sheet February 1, 1997
Statements of Operations and Accumulated Deficits for the years ended
February 3, 1996 and February 1, 1997.
Statements of Cash Flows for the years ended February 3, 1996 and
February 1, 1997.
Notes to the Financial Statements
(2) The following exhibits are filed as part of this report (exhibits
marked with an asterisk have been previously filed with the Commission as
indicated and are incorporated herein by this reference):
Exhibit
Number Description
- -------- ----------------------------------------------------------------------
1.1* Underwriting Agreement between Registrant and Whale Securities Co.,
L.P. and Selected Dealer Agreement.(incorporated by reference to
exhibit 1.1 of the Registrant's Form 10-KSB for the year ended
December 31, 1994 as filed with the Securities and Exchange
Commission(the `1994 Form 10-KSB'))
3.1* Certificate of Incorporation of Registrant, as amended (incorporated
by reference from Exhibit 1.1 of the Registrant's Registration
Statement on Form SB-2, (Commission No.33-84774) as filed with the
Securities and Exchange Commission (the"SB-2"))..
3.2* By-Laws of Registrant (incorporated by reference to exhibit 3.2 of the
SB-2).
3.2.A* Restated By-Laws of Registrant (incorporated by reference to exhibit
3.2A of the SB-2).
4.1* Form of Certificate for Common Stock (incorporated by reference to
exhibit 4.1 of the SB-2).
4.2* Public Warrant Agreement between the Registrant, American Stock
Transfer & Trust Company and Whale Securities Co., L.P.
4.3* Form of Public Warrant Certificate (incorporated by reference to
exhibit 4.3 of the SB-2).
4.4* Underwriter's Warrant Agreement (incorporated by reference to exhibit
4.4 of the SB-2).
10.1* Agreement among the Registrant, Edward J. Munley, David B. Cornstein,
David Miller and the other parties thereto, dated as of July 21, 1993,
together with amendments to said Agreement (incorporated by reference
to exhibit 10.1 of the SB-2).
10.2* Employment Agreement with Edward J. Munley dated as of November 8,
1994 (incorporated by reference to exhibit 10.3 of the SB-2)
10.3* Consulting Agreement between the Registrant and the Whale Securities
Co., L.P. (incorporated by reference to exhibit 10.11 of the 1994 Form
10-KSB)
10.4* 1994 Stock Option Plan (incorporated by reference to exhibit 10.12 of
the SB-2).
10.4.A* 1994 Nonemployee Directors' Stock Option Plan (incorporated by
reference to exhibit 10.12.A of the SB-2).
10.5* Letter agreement dated October 3, 1994 by and among the Registrant,
David B. Cornstein, David F. Miller and Edward J. Munley (incorporated
by reference to exhibit 10.17 of the SB-2).
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10.6* Agreement dated as of September 8, 1994 by and among the Registrant,
Edward J. Munley, David B. Cornstein and David F. Miller in respect of
contribution of shares to the Registrant (incorporated by reference to
exhibit 10.19 of the SB-2).
10.7* Equipment Lease Agreement, dated December 2, 1994, between the Company
and Wasco Funding Corporation. (incorporated by reference to exhibit
10.21 of the 1994 Form 10-KSB)
10.8* Form of Seasonal Secured Revolving Note dated August 28, 1996 in favor
of each of David B. Cornstein, Hugh H. Jones, Jr., and David F.
Miller. (incorporated by reference to the Registrant's Form 10-Q for
the Quarter ended August 3, 1996 as filed September 17, 1996 (the
"Third Quarter 1996 10-Q)).
10.9* Form of Warrant and Registration Agreement dated as of August 28, 1996
in favor of each of David B. Cornstein, Hugh H. Jones, Jr., and David
F. Miller. (incorporated by reference to the Third Quarter 1996 10-Q).
10.10* Security Agreement dated as of August 28, 1996 in respect of Seasonal
Secured Revolving Notes. (incorporated by reference to the Third
Quarter 1996 10-Q).
10.11 Asset Purchase Agreement dated as of March 7, 1997 between the
Registrant and Natural Wonders, Inc.
10.12 Form of Shareholder Lock-up Agreement dated March 7, 1997 by each of
David B. Cornstein, David F. Miller, and Edward J. Munley
10.13 Management Agreement dated March 7, 1997 between the Registrant and
Natural Wonders, Inc.
10.14 Form of Non Competition Agreement dated March 7, 1997 by David B.
Cornstein and David F. Miller.
11* Statement re Computation of Per Share Earnings (not required because
the relevant computations can be clearly determined from material
contained in the financial statements included herein).
16* Letter dated January 26, 1995 from Ernst & Young LLP in regard to
their review of the Current Report on Form 8-K dated January 20, 1995
which reports the dismissal of Ernst & Young as the Registrant's
independent certified public accountants(incorporated by reference
from Exhibit 1 of the Current Report on Form 8-K dated January 20,
1995 as filed with the Securities and Exchange Commission).
27 Financial Data Schedule
B. No Reports on Form 8-K were filed with the Securities and Exchange Commission
during the last quarter of Fiscal 1996
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
What A World!, Inc.
By:
/s/ David F. Miller May 16, 1997
----------------------------- -------------------
David F. Miller Date
President
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
/s/ David F. Miller
- ---------------------------------------------------------------- --------------
David F. Miller, President, Secretary, and Director Date
(Principal Executive Officer)
/s/ David B. Cornstein
- ---------------------------------------------------------------- --------------
David B. Cornstein, Chairman of the Board and Director Date
/s/ Brian S. Lappin
- ---------------------------------------------------------------- --------------
Brian S. Lappin, Vice President of Finance and Chief Financial Date
Officer (Principal Financial and Accounting Officer)
/s/ James Martin Kaplan
- ---------------------------------------------------------------- --------------
James Martin Kaplan, Director Date
/s/ Hugh H. Jones, Jr.
- ---------------------------------------------------------------- --------------
Hugh H. Jones, Jr., Director Date
- ---------------------------------------------------------------- --------------
Edward J. Munley, Director Date
<PAGE>
APPENDIX A
ASSET PURCHASE AGREEMENT
BY AND BETWEEN
NATURAL WONDERS, INC.
AND
WHAT A WORLD!, INC.
DATED MARCH 7, 1997
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ASSET PURCHASE AGREEMENT
This ASSET PURCHASE AGREEMENT (the "Agreement") is made as of March 7, 1997
by and between Natural Wonders, Inc., a Delaware corporation ("Buyer"), and What
A World!, Inc., a Delaware corporation ("Seller"), with reference to the
following:
Seller is a mall-based specialty unique gift retailer which owns and
operates a total of twelve stores in Florida, New Jersey and New York. Subject
to the terms and conditions of this Agreement, Buyer is willing to purchase, and
Seller is willing to sell, certain of the assets, rights, and business of
Seller, subject to certain of the liabilities thereof.
The parties agree as follows:
1. SALE AND PURCHASE OF ASSETS.
1.1 SALE OF ASSETS.
On the terms and subject to the conditions of this Agreement and for the
consideration set forth herein, Seller shall at the Closing, as defined in
Section 1.6.1, sell, convey, assign, transfer and deliver to Buyer, and Buyer
shall purchase and acquire from Seller, the assets of Seller described below
(which assets, excluding the assets listed on Schedule 1.2, shall be referred to
as the "Assets"):
(a) Inventories. All good and salable current inventory of Seller (which
inventory shall have a value of at least $700,000 based upon the lower of cost
or market value (the "Minimum Inventory Amount")) as of the Closing Date
wherever located (the "Inventories"). A summary by class of such items on hand
as of March 1, 1997 is attached hereto as Schedule l.l(a).
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(b) Fixed Assets and Tangible Personal Property. All fixed assets and
tangible personal property of Seller (other than the Inventories) located at
each of the Seller's Leased Properties (as defined below) and the Seller's
Warehouse, including without limitation, all store fixtures, furniture and
lighting fixtures, and all store supplies, wherever located. A list of such
fixed assets and tangible personal property by class of such items is attached
hereto as Schedule 1.1(b) showing, for each such class of asset: the amount at
which such class of asset is carried on Seller's books, its depreciation
schedule, its location and (in the event that Seller does not have possession)
the name of the person in possession.
(c) Intangible Personal Property. All deposits and prepaid expenses, vendor
lists, customer lists, customer files, customer records, and licenses and
permits susceptible of transfer under regulatory agency rules. A detailed list
of such assets is attached hereto as Schedule l.l(c).
(d) Contracts. All rights in and to all contracts of Seller to the extent
such rights and contracts relate specifically to the operation and maintenance
of the Leased Properties, and to the extent assignable, including the Assets
maintained by Seller therein, including without limitation, license agreements,
assignment agreements, maintenance agreements, service agreements, and
agreements for leased equipment (but not including the lease for the Leased
Register Equipment, as defined herein) (together, the "Contracts"). A list of
all Contracts involving the payment or receipt of $2,500 or more in any one-year
period is attached hereto as Schedule l.l(d) showing, for each such Contract,
the names of the parties, the subject of the Contract and the date of the
Contract. Copies of all material written Contracts have been furnished to Buyer.
1.2 ASSETS NOT PURCHASED.
Seller shall not sell, and Buyer shall not acquire any interest in, any of
Seller's assets not transferred pursuant to Section 1.1. Such assets shall
remain the property of Seller, and Buyer shall have no liability or other
responsibility with respect thereto.
1.3 PURCHASE PRICE.
1.3.1 Purchase Price and Other Payments. Subject to the other terms and
conditions of this Agreement and in full consideration for the Assets: (a) Buyer
shall pay at the
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Closing (the "Purchase Price") the sum of $500,000 (as adjusted in accordance
with Section 1.3.2 below), in immediately available funds; and (b) Buyer shall
assume certain liabilities of Seller pursuant to Section 1.4. In addition, Buyer
shall reimburse Seller for (i) all prepaid expenses and deposits (including,
without limitation, all rent deposits for the Store Leases (as defined herein))
assigned to Buyer, which payments are listed on Schedule 1.3.1 attached hereto,
and (ii) all cash on hand at each of the Leased Properties as of the close of
business on March 9, 1997.
1.3.2 Closing Inventory Adjustment. (a) Buyer shall, at its sole
discretion, undertake a physical inventory of the Seller's Inventories on or
about March 8, 1997 in accordance with the procedures set forth below (the
"Buyer's Inventory"). The Buyer's Inventory shall be compared to the Seller's
perpetual inventory records dated as of March 8, 1997, as adjusted for
differences from its physical inventory as of February 1, 1997. In the event
that Buyer's Inventory is less than the Minimum Inventory Amount, any such
difference shall be subtracted at the Closing from the Purchase Price set forth
in Section 1.3.1 above.
Inventory Procedures: (i) Seller has taken a physical inventory of all
Inventories at all Leased Properties on or about January 31, 1997; (ii)
Seller has subsequently updated its perpetual inventory records; (iii)
Buyer will, at its sole discretion and expense, take a total physical
inventory on March 8, 1997 at the Monmouth, N.J. and Clearwater, Fla.
Leased Properties; (iv) Buyer will compare its Buyer's Inventory to the
perpetual inventory records of the Seller with respect to such Leased
Properties; (v) to the extent that the Buyer's Inventory is less than
the Seller's perpetual inventory for such Leased Properties, the Buyer
will apply the percentage difference to the Seller's total perpetual
inventory; (vi) to the extent that the adjusted Seller's perpetual
inventory is less than the Minimum Inventory Amount, the Purchase Price
shall be adjusted downward; (vii) if Seller does not accept Buyer's
Inventory, Seller can, at its expense conduct a physical inventory of
all Leased Properties on or before the Closing and to the extent that
such physical inventory is less than the Minimum Inventory Amount, the
Purchase Price shall be adjusted downward.
(b) Buyer shall pay at Closing an additional amount of up to $25,000 to
Seller equal to one-quarter of the value of all good and salable current
inventory of Seller (exclusive of all goods which are are defined by Seller as
permanent markdowns (approximately $80,00 in goods) for which goods the Buyer
shall receive at no charge) which is in excess of the Minimum Inventory Amount.
Such goods shall be valued at the lower of cost or market value
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and the amount of such goods shall be determined by reference to the Seller's
perpetual inventory records as of March 9, 1997, as adjusted for physical
inventory adjustment.
1.3.3 Purchase Price Escrow. Simultaneously with the execution of this
Agreement, Buyer shall deposit the sum of $500,000 into escrow with Baker &
McKenzie, counsel for Buyer (the "Escrow Agent") pursuant to the terms and
conditions of the Escrow Agreement between Buyer, Seller and Escrow Agent
substantially in the form of Exhibit 1.3.3 attached hereto.
1.4 ASSUMPTION OF LIABILITIES. In connection with the purchase and sale of
the Assets pursuant to this Agreement, Buyer shall assume in writing at the
Closing, only those liabilities and obligations of Seller that are specifically
described on Schedule 1.4, (the "Assumed Liabilities") including without
limitation, the retail store leases (the "Store Leases") for each of the
Seller's retail locations (the "Leased Properties"). Without limiting the
generality of the foregoing, Buyer shall assume all liabilities under the Store
Leases arising on or after the Closing Date regardless of whether Seller is able
to obtain requisite consent to assignment of any one or more of the Store
Leases. To the extent consent to assignment of a Store Lease cannot be obtained,
Buyer and Seller shall enter in to such alternative arrangements and agreements
as may be appropriate to effectuate the intent of the parties with respect to
the Store Leases. No other liabilities or obligations of any nature, whether
known or unknown, whether fixed or contingent, accrued or unaccrued, shall be
assumed by Buyer in connection with the purchase and sale of the Assets
hereunder.
1.5 USE OF LEASED EQUIPMENT. Seller shall permit the Buyer to have full
access to and rights to the continued use of the computer and store register
equipment presently leased by the Seller (the "Leased Register Equipment") for a
period not to exceed one year from the date of Closing, which equipment and
lease is more fully described on Schedule 1.5 attached hereto. Buyer shall use
its best efforts to discontinue the use of the Leased Register Equipment as
quickly as possible after Closing. In the event Seller discontinues the use of
its current corporate offices which house certain components of the Leased
Register Equipment, Buyer shall undertake to obtain and pay for a suitable
facility for such equipment during the period in which it requires use of the
Leased Register Equipment. In addition, during its use of the Leased Register
Equipment, Buyer shall pay all maintenance costs related to the Leased Register
Equipment. The foregoing shall not include the underlying lease payments for the
Leased Register Equipment which payments shall remain solely an obligation of
Seller.
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1.6 CLOSING.
1.6.1 Closing Date. The closing of the purchase and sale of the Assets
(the "Closing") shall take place at the offices of Baker & McKenzie, 660 Hansen
Way, Palo Alto, CA at 10:00 a.m. on the first business day following the
approval of the transactions contemplated herein by the Seller's stockholders at
a properly noticed meeting of the stockholders of Seller or at such other place,
date or time as Buyer and Seller may agree (the "Closing Date").
1.6.2 Seller's Deliveries at Closing. At the Closing, Seller shall
deliver or cause to be delivered the following to Buyer against delivery of the
items specified in Section 1.6.3:
(a) A Bill of Sale in a form mutually satisfactory to counsel to
Seller and Buyer;
(b) A License in favor of Buyer to use Seller's trademarks and
tradenames in a form mutually satisfactory to counsel to
Seller and Buyer;
(c) Certified resolutions of Seller's Board of Directors and
stockholders authorizing consummation of the transactions
contemplated by this Agreement;
(d) A compliance certificate pursuant to Section 4.3;
(e) The opinion of Seller's counsel pursuant to Section 4.4;
(f) A good standing certificate from the State of Delaware for
Seller as of a date not earlier than five business days
before the Closing;
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(g) Termination statements for all outstanding UCC financing
statements (other than for UCC financing statements filed in
connection with leases being assumed under Section 1.4);
(h) All third party consents (excluding the consent of each of
the lessors of the Leased Properties specifically consenting
to the assignment of the Store Leases to the Buyer)
necessary for consummation of the transactions contemplated
hereby;
(i) A balance sheet showing the Assets, the Assumed Liabilities
of Seller as of the Closing Date;
(j) Buyer shall have received assurances satisfactory to it that
the provisions of the bulk-sales laws, if any, of the of
Florida, New York and New Jersey have been complied with;
(k) Buyer shall have received satisfactory evidence of the
payment of all outstanding liabilities to the vendors listed
on Schedule 1.6.2(k);
(l) Buyer shall have received satisfactory evidence of payment
of all sales taxes due and owing by the Seller as of the
close of business of the day immediately preceding the
Closing;
(m) Such other documents and instruments as shall be reasonably
requested to effect the transactions contemplated hereby.
Simultaneously with such deliveries, Seller shall take such steps as are
necessary to put Buyer in actual possession and control of the Assets.
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1.6.3 Buyer's Deliveries at Closing. At the Closing, Buyer shall
deliver or cause to be delivered to (or pursuant to the instructions of) Seller
the following against delivery of the items specified in Section 1.6.2:
(a) Certified check or wire transfer of immediately available
funds of the Purchase Price, as adjusted in accordance with
Sections 1.3.2(a) and (b), together with the amount set forth
in Schedule 1.3.1;
(b) Certified resolutions of Buyer's Board of Directors
authorizing consummation of the transactions contemplated by
this Agreement;
(c) A compliance certificate pursuant to Section 5.3;
(d) An assumption agreement with respect to the Assumed
Liabilities in a form mutually satisfactory to counsel to
Seller and Buyer; and
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(e) Such other documents and instruments as shall be reasonably
necessary to effect the transactions contemplated hereby.
1.7 CONSENTS OF THIRD PARTIES. Nothing in this Agreement shall be construed
as an attempt or agreement to assign: (i) any Contract (other than the Store
Leases) which is non-assignable without the consent of the party or parties
thereto unless such consent shall have been obtained; or (ii) any Contract
(other than the Store Leases) or claim as to which all of the remedies for the
enforcement thereof enjoyed by Seller would not pass to Buyer as an incident of
the assignments provided for by this Agreement. Seller shall cooperate with
Buyer to obtain the consents of any other party required in connection with the
transfer of any Contract requiring such consent and shall provide Buyer with all
of the benefits enjoyed by Seller under any such Contract until consent to the
assignment thereof is obtained.
1.8 PRINCIPAL STOCKHOLDER LOCK-UP. Simultaneously with the execution of this
Agreement, each of David F. Miller, David B. Cornstein and Edward J. Munley
(collectively, the "Principal Stockholders") shall execute and deliver to Seller
a lock-up agreement in the form attached hereto as Exhibit 1.8.
1.9 MANAGEMENT AGREEMENT. Simultaneously with the execution of this
Agreement, the parties shall enter into a management agreement in the form
attached hereto as Exhibit 1.9 (the "Management Agreement").
2. REPRESENTATIONS AND WARRANTIES OF SELLER.
Seller hereby represents and warrants to Buyer that:
2.1 ORGANIZATION AND AUTHORITY. Seller: (i) is a corporation duly organized,
validly existing and in good standing under the laws of the State of Delaware;
(ii) has all necessary corporate power to own and lease its properties, to carry
on its business as now being conducted and at Closing will have the power to
enter into and perform this Agreement; and (iii) is qualified to do business in
all jurisdictions in which the failure to so qualify would have a material
adverse effect on its business or financial condition.
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2.2 Authority Relating to this Agreement: No Violation of Other Instruments.
2.2.1 Subject to the approval of Seller's stockholders of the
transactions contemplated herein and compliance with applicable federal
securities laws and the Delaware General Corporation Law, the execution and
delivery of this Agreement and the performance hereunder by Seller have been
duly authorized by all necessary corporate action on the part of Seller and,
assuming execution of this Agreement by Buyer, this Agreement will constitute a
legal, valid and binding obligation of Seller, enforceable against Seller in
accordance with its terms, subject as to enforcement: (i) to bankruptcy,
insolvency, reorganization, arrangement, moratorium and other laws of general
applicability relating to or affecting creditors' rights; and (ii) to general
principles of equity, whether such enforcement is considered in a proceeding in
equity or at law.
2.2.2 Subject to the approval of Seller's stockholders of the
transactions contemplated herein and compliance with applicable federal
securities laws and the Delaware General Corporation Law, and except as set
forth in Schedule 2.2.2, neither the execution of this Agreement nor the
performance hereof by Seller will: (i) conflict with or result in any breach or
violation of the terms of any decree, judgment, order, law or regulation of any
court or other governmental body now in effect applicable to Seller; (ii)
conflict with, or result in, with or without the passage of time or the giving
of notice, any breach of any of the terms, conditions and provisions of, or
constitute a default under, or result in the creation of any lien, charge, or
encumbrance upon any of the Assets pursuant to, any indenture, mortgage, lease,
agreement or other instrument to which Seller is a party or by which it or any
of the Assets are bound; (iii) permit the acceleration of the maturity of any
indebtedness of Seller or of any other person secured by the Assets; (iv)
violate or conflict with any provision of Seller's Certificate of Incorporation,
Bylaws, or similar organizational instruments; or (v) give rise to any statutory
dissenter's rights from Seller's stockholders, which, in the case of clauses (i)
through (v) above, individually, or in the aggregate, could reasonably be
expected to materially adversely affect the ability of the Seller to effectuate
the transactions contemplated herein.
2.2.3 Subject to compliance with applicable federal securities laws,
the Delaware General Corporation Law and state bulk transfer laws, to the extent
they apply, and except as otherwise disclosed in Schedule 2.2.3, no consent from
any third party and no consent, approval or authorization of, or declaration,
filing or registration with, any government or regulatory authority is required
to be made or obtained in order to permit the execution, delivery or performance
of this Agreement by Seller, or the consummation of the transactions
contemplated by this Agreement, except where the failure to obtain any such
consent, approval, authorization or declaration or make any filing or
registration will not individually, or in the
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aggregate, materially adversely affect the ability of the Seller to effectuate
the transactions contemplated herein.
2.3 OWNERSHIP AND DELIVERY OF ASSETS. The Assets, together with all other
assets of Seller, comprise substantially all of the assets, rights and business
of Seller. Seller is the true and lawful owner of the Assets and has all
necessary power and authority to transfer the Assets to Buyer free and clear of
all liens, charges, security interests, conditional sales contracts, equities,
claims or other encumbrances ("Liens") other than (i) Liens noted in Schedule
2.3, (ii) Liens for current real and personal property taxes not yet due and
payable and (iii) Liens, the existence of which would not have a material
adverse effect on the condition, financial or otherwise, Assets, liabilities,
business, prospects or results of operations of Seller. No other person,
including without limitation any officer, director, employee, or stockholder of
Seller, will have on the Closing Date any direct or indirect interest in any of
the Assets. Upon delivery to Buyer on the Closing Date of the Bill of Sale and
other instruments of conveyance with respect to the Assets, and of releases and
UCC termination statements from all Lien holders listed on Schedule 2.3 (except
holders of liens related to leases included in the Assumed Liabilities), Buyer
will acquire good title to the Assets free and clear of all Liens, other than
those specifically noted above.
2.4 COMPLIANCE WITH LAW. Seller holds all material licenses, permits and
authorizations necessary for the lawful conduct of Seller's business wherever
conducted pursuant to all applicable statutes, laws, ordinances, rules and
regulations of all governmental bodies, agencies and subdivisions having,
asserting or claiming jurisdiction over Seller or over any part of Seller's
operations, and Seller knows of no violation thereof. Schedule 2.4 constitutes a
true and complete list of such material licenses, permits and authorizations.
Seller is not in violation of any decree, judgment, order, law or regulation of
any court or other governmental body (including without limitation, applicable
environmental protection legislation and regulations, equal employment and civil
rights regulations, wages, hours and the payment of social security taxes and
occupational health and safety legislation), which violation could have a
material adverse effect on the condition, financial or otherwise, Assets,
liabilities, business, prospects or results of operations of Seller.
2.5 Intentionally Deleted
2.6 FINANCIAL STATEMENTS. Seller has delivered to Buyer financial statements
of Seller (the "Financial Statements") as follows:
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2.6.1 Balance Sheets and Statements of Operations and Cash Flows of
Seller as of January 4, 1997 and for the one month period ended February 1,
1997, which are unaudited and prepared by management in the ordinary course of
business of Seller and are attached as Exhibit 2.6.1A.
2.6.2 Balance Sheets of Seller at February 3, 1996 and January 28,
1995, together with Statements of Operations and Cash Flow for the year ended
December 31, 1994 and for the period from January 1, 1995 to January 28, 1995,
which financial statements are accompanied by the audit report thereon of Arthur
Andersen LLP are attached as Exhibit 2.6.2B.
Each Financial Statement as well as the notes thereto is in accordance with
the books and records of Seller, fairly presents in all material respects the
financial position of Seller at the date indicated and the results of
operations of Seller for the period indicated, and has been prepared in
accordance with generally accepted accounting principles ("GAAP") consistently
applied, except that all interim financial statements may vary from GAAP
insofar as footnote disclosures required for compliance with GAAP are not
included.
2.7 ABSENCE OF UNDISCLOSED LIABILITIES. Except as set forth on Schedule 2.7,
as of February 1, 1997, Seller did not have and as of the Closing Date Seller
will not have, any indebtedness or liability (fixed or contingent, known or
unknown, accrued or unaccrued) which is not shown or provided for in full on
Schedule 2.7 and, in the case of the Closing Date, except for liabilities which
are not material and which have arisen in the ordinary course of business of
Seller after February 1, 1997.
2.8 TAX RETURNS AND PAYMENTS. Except as set forth in Schedule 2.8, all tax
returns and reports with respect to Seller required by law to be filed under the
laws of any jurisdiction, domestic or foreign, have been duly and timely filed
and all taxes, fees or other governmental charges of any nature which were
required to have been paid have been paid or provided for. Seller has no
knowledge of any unpaid taxes or any actual or threatened assessment of
deficiency or additional tax or other governmental charge or a basis for such a
claim against Seller. Seller has no knowledge of any tax audit of Seller by any
taxing or other authority in connection with any of its fiscal years, Seller has
no knowledge of any such audit currently pending or threatened, and there are no
tax liens on any of the properties of Seller, nor have any such liens been
threatened.
2.9 ABSENCE OF CERTAIN CHANGES OR EVENTS. Since December 31, 1996 through
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the date of this Agreement, except as set forth on Schedule 2.9 or as
contemplated by this Agreement, there have been no material changes in the
condition, financial or otherwise, Assets, liabilities, business, prospects or
the results of operations of Seller, other than changes in the ordinary course
of business which in the aggregate have not been materially adverse. Without
limiting the foregoing, since December 31, 1996 through the date of this
Agreement, except as set forth in Schedule 2.9 and as contemplated by this
Agreement:
2.9.1 There have been no losses or damage to any of the Assets due to
fire or other casualty, whether or not insured, amounting to more than $10,000
in the aggregate;
2.9.2 Seller has not executed, created, amended or terminated any
Contract except in the ordinary course of business;
2.9.3 There has been no material change in the contingent obligations
of Seller by way of guaranty, endorsement, indemnity, warranty or otherwise;
2.9.4 There has been no change in accounting methods or practices
(including without limitation, any change in depreciation or amortization
policies or rates) by Seller;
2.9.5 There has been no revaluation by Seller of any of the Assets;
2.9.6 There has been no sale or transfer of any of the Assets, except
in the ordinary course of business;
2.9.7 There has been no commencement or notice of threat of
commencement of any governmental proceeding against or investigation of Seller
or its affairs; and
2.9.8 There has been no revocation of license or right to do business
granted to Seller.
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2.10 INVENTORIES. The Inventories are all good and salable current inventory
of Seller. The amounts shown for inventories on Exhibit 2.6.1A have been
determined in accordance with generally accepted accounting principles stated at
lower of cost or market utilizing the retail method of inventory valuation. The
Inventories have a value of at least the Minimum Inventory Amount as of the date
hereof.
2.11 PERSONAL PROPERTY. Seller has good title, free and clear of all Liens,
to all equipment, furniture, and other personal property reflected on Schedules
l.l(a), (b) and (c), except as set forth in Schedule 2.11. Except as set forth
on Schedule 2.11, all such personal property is in good operating condition,
ordinary wear and tear excepted. Except as set forth on Schedule 2.11, all of
the leases to personal property utilized in the business of Seller are valid and
enforceable and are not in default.
2.12 REAL PROPERTY. Except as set forth on Schedule 2.12, all of the Store
Leases are valid and enforceable and are not in default. Except as set forth in
Schedule 2.12, to Seller's knowledge, the Leased Properties, the improvements
located thereon, and the furniture, fixtures and equipment relating thereto
(including plumbing, heating, air conditioning and electrical systems), conform
to any and all applicable health, fire, safety, zoning, land use and building
laws, ordinances and regulations, except where a violation would not have a
material adverse effect on the condition, financial or otherwise, Assets,
liabilities, business, prospects or results of operations of Seller . There are
no outstanding contracts made by Seller for any improvements made to the Leased
Properties which have not been paid for. To Seller's knowledge, all Leased
Properties have been constructed in accordance with all applicable building
codes and otherwise in accordance with the Store Leases and the rules and
regulations of the lessors of such Store Leases and all mechanical and
electrical systems present in and used in connection with the Leased Properties
are in good working order.
2.13 TRADEMARKS, TRADE NAMES AND COPYRIGHTS. All trademarks, trade names,
copyrights, trade secrets or other proprietary rights that are necessary to the
conduct of Seller's business are owned or are useable by Seller and are listed
on Schedule 2.13. Except as otherwise noted in Schedule 2.13, the conduct of any
business conducted by Seller does not infringe any trademark, trade name,
service mark, copyright, trade secret, or other proprietary right of any other
person. Except as otherwise noted in Schedule 2.13, no litigation is pending or
has been threatened in writing against Seller or, to the knowledge of Seller,
against any officer, director, stockholder, employee or agent of Seller, for the
infringement of any trademarks or trade names
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of any other party or for the misuse or misappropriation of any trade secret or
other proprietary right owned by any other party; nor, to the knowledge of
Seller, does any basis exist for any such litigation. To Seller's knowledge and
except as otherwise noted in Schedule 2.13, there has been no infringement or
unauthorized use by any other person of any trademark, trade name, copyright or
other proprietary right belonging to Seller.
2.14 WARRANTIES AND GUARANTEES. Except as set forth on Schedule 2.14, Seller
has made no warranties or guarantees relating to its products.
2.15 LITIGATION. Except as set forth on Schedule 2.15, neither Seller nor,
to the knowledge of Seller, any officer, director, stockholder, employee or
agent of Seller is a party to any written pending or, to the knowledge of
Seller, threatened action, suit, proceeding or investigation, at law or in
equity or otherwise in, for or by any court or other governmental body which
could have a material adverse effect on: (i) the condition, financial or
otherwise, Assets, liabilities, business, prospects or results of operations of
Seller; or (ii) the transactions contemplated by this Agreement; nor does any
basis exist for any such action, suit, proceeding or investigation. Seller is
not subject to any pending or threatened product liability claim; nor does any
basis exist for any such claim. Except as set forth on Schedule 2.15, Seller is
not subject to any decree, judgment, order, law or regulation of any court or
other governmental body which could have a material adverse effect on the
condition, financial or otherwise, Assets, liabilities, business, prospects or
results of operations of Seller or which could prevent the transactions
contemplated by this Agreement.
2.16 PERSONNEL. Schedule 2.16 comprises a list of: (i) all Employee Plans
(as hereinafter defined) and all contracts or agreements with directors,
officers, employees or consultants to which Seller is a party or is subject as
of the date of this Agreement; (ii) the names, hire dates, accrued wages
(including salaries, commissions and bonuses), severance pay, vacation pay, sick
leave or other benefits, current salary rates, bonuses paid during the last
fiscal year and (iii) all group insurance programs in effect for employees of
Seller. Seller is not in default with respect to any of the obligations so
listed. Seller has delivered to Buyer complete and correct copies of all such
written obligations and complete summaries of all such oral obligations. Except
as set forth on Schedule 2.16, Seller has no union contracts or collective
bargaining agreements with, or any other obligations to, employee organizations
or groups relating to Seller's business, nor is Seller currently engaged in any
labor negotiations except in minor grievances not involving any employee
organization or group, nor, to the best knowledge of Seller, is Seller the
subject of any union organization affecting its business. There is no pending
or, to Seller's best knowledge, threatened labor dispute, strike or work
stoppage affecting Seller's business. All plans listed on Schedule 2.16 are in
full compliance with applicable
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provisions of the Employees Retirement Income Security Act of 1974, as amended
("ERISA"), and regulations issued under ERISA, and there is no unfunded
liability with respect to such plans. Schedule 2.16 also lists the amount
payable to employees of Seller under other fringe benefit plans.
2.17 INSURANCE. Schedule 2.17 constitutes a list of all insurance policies
and bonds in force with respect to Seller showing for each such policy or bond:
(i) the owner; (ii) the coverage of such policy or bond; (iii) the amount of
premium properly allocable to such policy or bond; (iv) the name of the insurer;
and (v) the termination date of the policy or bond. All such insurance policies
and bonds are in full force and effect, and the insurance coverage provided by
such policies and bonds is adequate for the conduct of the business conducted by
Seller in accordance with good business practices.
2.18 CERTAIN PAYMENTS. Neither Seller, nor to Seller's knowledge, any
director, officer, employee or agent of Seller, has made or caused to be made,
directly or indirectly, the payment of any consideration whatsoever to any
public official, candidate for public office, political party, or other third
person in connection with the business or operations of Seller, or pertaining to
Seller's relations with any customer, supplier, or creditor, in contravention of
the law of any applicable jurisdiction.
2.19 BROKERS AND FINDERS. Neither Seller nor any stockholder, director,
officer, employee or agent of Seller has retained any broker or finder in
connection with the transactions contemplated by this Agreement. As more fully
set forth in Section 9, Seller will indemnify and hold Buyer harmless against
all claims for brokers' or finders' fees made or asserted by any party claiming
to have been employed by Seller or any stockholder, director, officer, employee
or agent of Seller and all costs and expenses (including the reasonable fees of
counsel) of investigating and defending such claims.
2.20 CONTRACTS. Except as set forth on Schedule 2.20, neither Seller nor, to
Seller's knowledge, any other party to the Contracts is in default in
performance of or not in compliance with any material provisions of such
Contracts. Seller has no knowledge of any intent by any other party not to
perform its obligations under any such Contract. Except as set forth on Schedule
2.20, Seller has the right to assign all Contracts to Buyer pursuant to this
Agreement and neither the assignment of such Contracts nor the consummation of
the transactions contemplated by this Agreement permits, or to the best
knowledge of Seller, would lead any party to such Contract, to terminate or
alter such Contract.
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2.21 ABSENCE OF ENVIRONMENTAL LIABILITIES. To the knowledge of Seller, at
all times prior to the Closing Date, Seller has complied with all applicable
environmental laws, orders, regulations, rules and ordinances adopted, imposed
or promulgated by any governmental entity relating to the Seller's Properties.
To Seller's knowledge, neither Seller nor any of the Leased Properties are in
violation of any federal, state or local law, ordinance or regulation relating
to industrial hygiene, worker safety, environmental hazardous materials or waste
or toxic materials on, under or about any of the properties, including soil and
waste water conditions. To Seller's knowledge, no current use of any of the
Leased Properties constitutes a public or private nuisance. To Seller's
knowledge, the environmental licenses, permits, clearances, consents and
authorizations material to the operations of Seller are in full force and
effect. Seller is not aware of any fact or circumstance that could involve
Seller or Buyer in any environmental litigation or impose any material
environmental liability upon Seller or Buyer.
2.22 ACCURACY OF DOCUMENTS AND INFORMATION. The copies of all instruments,
agreements, other documents and written information set forth as, or referenced
in, Schedules or Exhibits to this Agreement or specifically required to be
furnished pursuant to this Agreement to Buyer by Seller are and will be complete
and correct in all material respects.
3. REPRESENTATIONS AND WARRANTIES OF BUYER.
Buyer hereby represents and warrants to Seller that:
3.1 ORGANIZATION AND AUTHORITY. Buyer is a corporation duly organized,
validly existing and in good standing under the laws of the State of Delaware.
Buyer has all necessary corporate power and authority to enter into and perform
this Agreement.
3.2 Authority Relating to this Agreement; No Violation of Other Instruments.
3.2.1 The execution and delivery of this Agreement and the performance
hereunder by Buyer have been duly authorized by all necessary corporate action
on the part of Buyer and, assuming execution of this Agreement by Seller, this
Agreement will constitute a legal, valid and binding obligation of Buyer,
enforceable against Buyer in accordance with its terms, subject as to
enforcement: (i) to bankruptcy, insolvency, reorganization, arrangement,
moratorium and other laws of general applicability relating to or affecting
creditors' rights; and
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(ii) to general principles of equity, whether such enforcement is considered in
a proceeding in equity or at law.
3.2.2 Neither the execution of this Agreement nor the performance
hereof by Buyer will: (i) conflict with or result in the breach or violation of
the terms of any decree, judgment, order, law or regulation of any court or
other governmental body now in effect applicable to Buyer; (ii) conflict with,
or result in, with or without the passage of time or the giving of notice, any
breach of any of the terms, conditions and provisions of, or constitute a
default under, any indenture, mortgage, lease, agreement or other instrument to
which Buyer is a party or by which it is bound; or (iii) violate or conflict
with any provisions of Buyer's Certificate of Incorporation, Bylaws, or similar
organizational instruments.
3.3 CONSENTS. No consent from any third party and no consent, approval or
authorization of, or declaration, filing or registration with, any governmental
or regulatory authority is required to be made or obtained by Buyer in order to
permit the execution, delivery or performance of this Agreement by Buyer, or the
consummation of the transactions contemplated by this Agreement.
3.4 BROKERS AND FINDERS. Neither Buyer nor any stockholder, director,
officer, employee or agent of Buyer has retained any broker or finder in
connection with the transactions contemplated by this Agreement. As more fully
set forth in Section 9, Buyer will indemnify and hold harmless Seller against
all claims for brokers' or finders' fees made or asserted by any party claiming
to have been employed by Buyer or any stockholder, director, officer, employee
or agent of Buyer and all costs and expenses (including the reasonable fees of
counsel) of investigating and defending such claims.
4. CONDITIONS TO THE OBLIGATIONS OF BUYER.
Except as otherwise specifically set forth herein or as contemplated by this
Agreement, all obligations of Buyer under this Agreement are subject to the
fulfillment, prior to or at the Closing Date, of each of the following
conditions:
4.1 REPRESENTATIONS AND WARRANTIES TRUE AT CLOSING. The representations and
warranties of Seller contained in this Agreement shall be deemed to have been
made again at and as of the Closing Date and shall then be true in all respects.
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4.2 COVENANTS PERFORMED BY SELLER. Each of the obligations of Seller to be
performed on or before the Closing Date pursuant to the terms of this Agreement
shall have been duly performed.
4.3 Authority Relating to this Agreement; Compliance Certificate. All
corporate and other proceedings (including without limitation stockholder
approval) required to be taken by or on behalf of Seller to authorize Seller to
execute, deliver and carry out this Agreement and to sell, transfer and deliver
the Assets to Buyer in accordance with this Agreement shall have been duly and
properly taken. Buyer shall have received a certificate of the president and the
secretary of Seller in a form mutually satisfactory to counsel for Seller and
Buyer, dated the Closing Date, certifying to the fulfillment of the conditions
specified in Sections 4.1., 4.2 and 4.3.
4.4 OPINION OF COUNSEL. Buyer shall have been furnished with an opinion of
Zimet, Haines, Friedman & Kaplan, dated the Closing Date, in substantially the
form of Exhibit 4.4.
4.5 MATERIAL CHANGES IN BUSINESS OF SELLER. Between March 10, 1997 and the
Closing Date there shall have been no materially adverse change in the
condition, financial or otherwise, of the Assets, liabilities, business,
prospects or the results of operations of Seller except as permitted or
contemplated by this Agreement, other than changes related to declining sales at
each of the Leased Properties.
4.6 NO ACTION TO PREVENT COMPLETION. There shall not have been instituted
and be continuing or, to Seller's knowledge, threatened any claim, action or
proceeding which could have a material adverse effect on the condition,
financial or otherwise, of the Assets, liabilities, business, prospects or
results of operations of Seller, nor shall there have been instituted and be
continuing or, to Seller's knowledge, threatened any such claim, action or
proceeding to restrain, prohibit or invalidate, or to obtain damages in respect
of, the transactions contemplated by this Agreement or which might affect the
right of Buyer after the Closing Date to own or to operate the Assets.
4.7 CONSENTS. Seller shall have received all permits and authorizations and
consents necessary for the execution of this Agreement and the consummation of
the transactions contemplated by this Agreement, other than the consent of the
lessors of the Leased Properties to the assignment of the Store Leases, which
consents are not required by Buyer to be obtained by
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Seller, provided, however, Seller shall use its best efforts to obtain such
lessor consents.
4.8 DELIVERY OF CLOSING DOCUMENTS. Seller shall have delivered to Buyer the
closing documents required to be delivered pursuant to Section 1.6.2 in form and
substance reasonably satisfactory to Buyer and its counsel.
4.9 NONCOMPETITION AGREEMENTS. Noncompetition Agreements in favor of Buyer
effective as of the Closing shall have been received from David F. Miller and
David B. Cornstein in substantially the form attached as Exhibit 4.9.
4.10 FAILURE OF CONDITIONS. In the event any one or more of the conditions
set forth in this Section 4 is not satisfied, Buyer, in its sole and absolute
discretion, may elect: (i) to waive any such condition precedent or (ii) to
terminate this Agreement pursuant to Section 10.
5. CONDITIONS TO THE OBLIGATIONS OF SELLER.
Except as otherwise specifically set forth herein, all obligations of Seller
under this Agreement are subject to the fulfillment and satisfaction, prior to
or at the Closing, of each of the following conditions:
5.1 REPRESENTATIONS AND WARRANTIES TRUE AT THE CLOSING. The representations
and warranties of Buyer contained in this Agreement shall be deemed to have been
made again at and as of the Closing Date and shall then be true in all respects.
5.2 COVENANTS PERFORMED BY BUYER. Each of the obligations of Buyer to be
performed on or before the Closing Date pursuant to the terms of this Agreement
shall have been duly performed.
5.3 Authority Relating to this Agreement; Compliance Certificate. All
corporate and other proceedings required to be taken by or on behalf of Buyer to
authorize Buyer to execute, deliver and carry out this Agreement, shall have
been duly and properly taken. Seller shall have received a certificate of the
president and secretary of Buyer in a form mutually satisfactory to counsel for
Seller and Buyer, dated the Closing Date, certifying
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to the fulfillment of the conditions specified in Section 5.1, 5.2 and 5.3.
5.4 NO ACTION TO PREVENT COMPLETION. There shall not have been instituted
and be continuing or, to Seller's knowledge, threatened any action or proceeding
by or before any court or other governmental body to restrain, prohibit or
invalidate, or to obtain damages in respect of, the transactions contemplated by
this Agreement.
5.5 DELIVERY OF CLOSING DOCUMENTS. Buyer shall have delivered to Seller the
closing documents required to be delivered pursuant to Section 1.6.3, in form
and substance reasonably satisfactory to Seller and its counsel.
5.6 NONCOMPETITION AGREEMENTS. Noncompetition Agreements in favor of Buyer
effective as of the Closing shall have been received from David F. Miller and
David B. Cornstein in substantially the form attached as Exhibit 4.9.
5.7 FAILURE OF CONDITIONS. In the event any one or more of the conditions
set forth in this Section 5 is not satisfied Seller, in its sole and absolute
discretion, may elect: (i) to waive any such condition precedent or (ii) to
terminate this Agreement pursuant to Section 10.
6. COVENANTS OF SELLER.
Seller covenants as follows:
6.1 SATISFACTION OF CONDITIONS. Seller shall in good faith proceed to take
or cause to be taken all actions within its power necessary to satisfy all
conditions to its obligations to close and consummate the transactions
contemplated by this Agreement.
6.2 CONDUCT OF THE BUSINESS AFTER CLOSING DATE. After the Closing Date, the
Seller will conduct no business which competes directly or indirectly with the
business of Buyer, except as contemplated by this Agreement.
6.3 CONTINUED LEASED REGISTER EQUIPMENT PAYMENTS. After the Closing Date,
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Seller shall continue to make all lease payments (including all amounts for
maintenance and support of the Leased Register Equipment) to lessor in
connection with the Leased Register Equipment for a period not to exceed twelve
months from the Closing Date. Seller may cease making payments for the Leased
Register Equipment upon written notification by Buyer that it no longer requires
the use of the Leased Register Equipment.
6.4 GIFT CERTIFICATE REIMBURSEMENT. Seller shall promptly reimburse Buyer
for the full amount of Seller gift certificates redeemed at any of the Leased
Properties during the period that the Management Agreement between the parties
hereto is in effect. After the Closing, Seller shall reimburse Buyer for 50% of
the face value of all Seller gift certificates redeemed at any of the Leased
Properties.
7. COVENANTS OF BUYER.
Buyer covenants to Seller as follows:
7.1 SATISFACTION OF CONDITIONS. Buyer shall in good faith proceed to take or
cause to be taken all actions within its power necessary to satisfy all
conditions to its obligations to close and consummate the transactions
contemplated by this Agreement.
7.2 ASSUMED LIABILITIES. Buyer shall pay and perform all of its obligations
under the Assumed Liabilities.
8. EMPLOYMENT MATTERS.
8.1 EMPLOYEES. As of the date of this Agreement, Buyer shall have the
right, but not the obligation, to offer employment to any of Seller's employees,
at the salary levels and on other terms and conditions to be determined in
Buyer's sole discretion. Buyer shall have no liability for accrued wages
(including salaries, commissions and bonuses), severance pay, vacation pay, sick
leave or other benefits (including stock options to purchase shares of stock of
Seller, or Employee Plans of any type or nature on account of Seller's
employment of or termination of such employees arising before March 10, 1997,
and Seller shall indemnify Buyer and hold Buyer harmless against any liability
arising out of any claims for such pay or benefits or any other claims arising
from Seller's employment of or termination of employment of such
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employees arising before March 10, 1997, as more fully set forth in Section 9
below. Buyer shall indemnify Seller and hold Seller harmless against any
liability arising out of any claims for such payor benefits or any other claims
arising from Buyer's employment of or termination of employment of such
employees arising on or after March 10, 1997.
8.2 EMPLOYEE PLANS. Buyer is not assuming any of the Employee Plans of the
Corporation (as each such term is hereafter defined), and Buyer shall have no
liability whatsoever to employees of the Corporation (or to the Corporation)
with respect to accrued or future benefits under any such Employee Plans,
whether or not any of such employees are offered employment by, or become
employees of, Buyer, and Seller shall defend, indemnify and hold Buyer harmless
against any claims that it has liability under such Employee Plans, as more
fully set forth in Section 9 below. The term "Corporation" means Seller, any
controlled group (within the meaning of Section 414(b) of the Internal Revenue
Code of 1986, as amended ("IRC")) of which Seller is a member, all trades or
businesses under common control (within the meaning of IRC Section 414(c)) of
which Seller is a member and all affiliated service groups (within the meaning
of IRC Section 414(m)) of which Seller is a member. The term "Employee Plan"
includes all present and prior (including terminated and transferred) plans,
programs, agreements, arrangements and methods of contributions or compensation
(including all amendments to and components of the same, such as a trust with
respect to a plan) providing any remuneration or benefits, other than current
cash compensation, to any current or former employee of Seller or to any other
person who provides services to Seller's business, whether or not such plan or
plans, programs, agreements, arrangements and methods of contribution or
compensation are subject to ERISA, and whether or not such plan or plans,
programs, agreements, arrangements and methods of contribution or compensation
are qualified under the IRC. The term Employee Plan includes, but is not limited
to, pension, retirement, profit sharing, percentage compensation, stock
purchase, stock option, bonus and non-qualified deferred compensation plans. The
term Employee Plan also includes, but is not limited to, disability, medical,
dental, workers compensation, health insurance, life insurance or other death
benefits, incentive, severance plans, vacation benefits and fringe benefits. The
term Employee Plan also includes any employee plan that is a multi-employer plan
as defined in Section 3(37) of ERISA.
9. INDEMNITY AND RECOUPMENT.
9.1 SELLER'S INDEMNITY. Seller shall indemnify and hold harmless Buyer from
and against any and all losses, costs, expenses, liabilities, claims, damages
and judgments of every nature, including the cost of investigation and defense
thereof and reasonable attorneys' fees incurred ("Buyer's Damages") which arise
out of or based upon: (i) the breach by Seller of any representation or warranty
made by it pursuant to this Agreement; (ii) the non-performance,
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partial or total, of any covenant made by it pursuant to this Agreement; (iii)
any activities of Seller prior to the Closing; (iv) liabilities under any
Employee Plans of the Corporation (as defined in Section 8.2); (v) claims for
brokers' or finders' fees as described in Section 3.4; (vi) any liabilities
arising from the failure to comply with the applicable state bulk transfer laws
in connection with the transactions contemplated hereby; and (vii) any other
liabilities of Seller which Buyer is not assuming, including, without
limitation, any liabilities not disclosed to Buyer in this Agreement or the
Exhibits and Schedules hereto.
9.2 BUYER'S INDEMNITY. Buyer shall indemnify and hold harmless Seller from
and against any and all losses, costs, expenses, liabilities, claims, damages
and judgments of every nature, including the costs of investigation and defense
thereof and reasonable attorneys' fees incurred ("Seller's Damages" and when
used together with or in the alternative to Buyer's Damages, "Damages"), which
arise out of: (i) the breach by Buyer of any representation or warranty made by
Buyer pursuant to this Agreement; (ii) claims for brokers' or finders' fees as
described in Section 3.4; (iii) the non-performance, partial or total, of any
covenant made by Buyer pursuant to this Agreement; or (iv) the failure to
satisfy any Assumed Liabilities assumed pursuant to Section 1.4.
9.3 NOTICE. In the event that either party suffers Damages, the party making
a claim for indemnification ("Indemnitee") shall within thirty (30) days of
discovering such Damage give the indemnifying party ("Indemnitor") written
notice thereof ("Notice of Claim"). The Notice of Claim shall state in
reasonable detail the nature of the claim, the specific provisions in this
Agreement alleged to have been breached, and the amount of the claim for
indemnification. Such amount shall represent the Indemnitee's good faith
estimate of the Damages. The Indemnitor shall have thirty (30) days from receipt
of the Notice of Claim to accept or reject the claim for indemnification. The
Indemnitee shall be deemed to have waived its right to indemnification for any
Damages for which notice is not given in a timely manner as set forth herein
only if and to the extent that the Indemnitor can show that such failure to give
timely notice has materially prejudiced the Indemnitor's ability to defend or
otherwise respond to such claim. Any claim for Damages accepted by the
Indemnitor or any claim determined as valid under the claim procedure set forth
below, shall be deemed "Established Damages" for the purposes of this Agreement.
9.4 CLAIMS OF BUYER AND SELLER. If a Notice of Claim is given pursuant to
Section 9.3 above, and no rejection is received within the thirty (30) day
period specified above, then the Indemnitor shall be deemed to have accepted
such claim. If the Indemnitor rejects a claim within such thirty (30) day
period, the parties shall, in good faith, attempt to negotiate a resolution of
such claim within sixty (60) days thereafter (the "Resolution Period"). If the
parties
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do not reach resolution during the Resolution Period, then the Indemnitee may,
within thirty (30) days after the end of the Resolution Period proceed to submit
the controversy to arbitration under the rules then in effect of the American
Arbitration Association in San Francisco. The determination of the arbitrator(s)
shall be binding, final and conclusive on the parties. The expenses in
connection with any arbitration shall be borne equally by the parties unless
determined otherwise by the arbitrator(s). If as a result of such arbitration it
is determined that the Indemnitor is obligated for such Damages, the amount set
by such arbitration shall be the amount of the Established Damages and the
Indemnitor shall owe such amount. If as a result of such arbitration it is
determined that the Indemnitor has no obligation to indemnify, the Indemnitor
shall have no further liability on the claim.
9.5 CLAIMS OF THIRD PARTIES. If a claim for indemnification arises out of a
claim by a third party, including without limitation any governmental agency,
body or authority, ("Third Party Claim") in the Notice of Claim, the Indemnitee
shall state in reasonable detail the nature of the claim and the basis for
asserting such claim. Such notice shall be given in accordance with Section 9.3
above and shall specify whether the Indemnitee intends to defend the claim. If
the claim has resulted in the commencement of litigation, the Indemnitee shall
take all necessary legal steps to preserve the legal rights of the Indemnitor
until such time as the Indemnitor is able to assume or participate in the
defense of the litigation. If the Indemnitee elects to defend the claim, the
Indemnitor shall have the right to participate in the defense of the claim. If
the Indemnitee does not elect to defend the claim, the Indemnitor shall have the
obligation to defend the claim and the Indemnitee shall have the right to
participate in such defense and hereby agrees to cooperate with the Indemnitor
and make available to it or its counsel all records and other material
reasonably required to defend the claim. If the Indemnitee is defending the
claim, the Indemnitor shall be given written notice of any bona fide settlement
offers received with respect to the claim. Within twenty (20) days of receipt of
such offer, the Indemnitor may elect in writing to accept the settlement offer.
If the Indemnitor wishes to accept such settlement offer and the Indemnitee does
not, then such Third Party Claim shall be subject to a maximum indemnification
in the amount of the settlement offer and the right to such indemnification of
the Indemnitee shall be deemed established in such amount. So long as the
Indemnitor may continue to have liability for such claim, the Indemnitee shall
not have the right to settle such claim without the prior written consent of the
Indemnitor. So long as a Third-Party Claim is pending, the Indemnitee shall hold
in abeyance its claim for indemnification. If a settlement is reached which
results in any liability on the part of the Indemnitor, or if a judgment is
rendered against the Indemnitee which is not properly appealed or appealable,
then the Indemnitee shall be entitled to assert its claim for indemnification.
Each party shall be responsible for its own costs and expenses including legal
fees incurred in investigating and defending such Third Party Claim, except that
the Indemnitor shall pay the reasonable attorneys' fees: (a) for taking legal
actions necessary to preserve the legal rights of the Indemnitor in connection
with defending the claim of the Indemnitee; and (b) which are found to be
24
<PAGE>
indemnifiable under this Agreement.
9.6 INDEMNITY LIMITS. Notwithstanding anything herein to the contrary,
Seller and Buyer shall not be obligated to indemnify, defend and hold harmless
the other party pursuant to this Section 9 unless and until and to the extent
that the aggregate amount of such Buyer's Damages or Seller's Damages, as the
case may be, exceeds Ten Thousand Dollars ($10,000).
10. TERMINATION.
10.1 MUTUAL AGREEMENT. This Agreement may be terminated and abandoned at any
time prior to the Closing Date by the written agreement of Seller and Buyer.
10.2 TERMINATION BY BUYER. This Agreement may be terminated by Buyer if (i)
on the Closing Date the conditions set forth in Section 4 of this Agreement
shall not have been met by Seller or waived by Buyer or (ii) the Closing does
not occur on or before May 31, 1997 (the "Final Closing Date").
10.3 TERMINATION BY SELLER. This Agreement may be terminated by Seller if on
the Closing Date the conditions set forth in Section 5 of this Agreement shall
not have been met by Buyer or waived by Seller.
10.4 EFFECT OF TERMINATION. In the event of termination of this Agreement
pursuant to this Section 10, neither party shall have any obligation to the
other whatsoever with respect to this Agreement, the transactions provided for
herein, or the expenses either of them incurred in connection with or in
contemplation of such transactions.
10.5 CLOSING PENALTY. In the event the Closing does not occur on or before
April 15, 1997 for any reason other than the fault of the Buyer, Seller shall
pay to Buyer in arrears on a weekly basis commencing on April 18, 1997 by wire
transfer to the Buyer the sum of $1,000 per calendar day for the period from
April 16, 1997 through the Final Closing Date.
11. MISCELLANEOUS.
25
<PAGE>
11.1 ASSIGNMENT. This Agreement shall be binding upon and inure to the
benefit of the successors and assigns of the parties. No assignment of the
rights, duties and obligations of either party may be made without the written
consent of the other party.
11.2 ALLOCATION OF PURCHASE PRICE. Within ten (10) days prior to Closing,
Buyer shall deliver to Seller an allocation of the Purchase Price among the
various items included in the Assets. Buyer and Seller shall file all tax
returns and reports in a manner consistent therewith.
11.3 TRANSFER TAXES. Any sales, use and other transfer taxes arising out of
or incurred in connection with the transactions contemplated by this Agreement
shall be paid by Seller. Both parties shall take reasonable steps to minimize or
eliminate any such taxes.
11.4 CONFIDENTIALITY.
11.4.1 Neither party shall disclose the terms of the transaction
contemplated hereby, without the prior written consent of the other party, to
anyone other than such party's board of directors, stockholders (except such
disclosure required by federal securities laws) and such members of management
and other employees who have need to know, and its legal counsel and auditors,
except as otherwise required by applicable law or regulation.
11.4.2 Each party to this Agreement will take all reasonable
precautions to maintain the confidentiality of any nonpublic information
obtained from the other, and no nonpublic information, documents or reports
provided to or obtained by either party in connection with this transaction
shall be disclosed to any non-party except as required in carrying out the
transactions contemplated hereby and except as otherwise required by law;
provided, however, that after the Closing, Buyer may deal freely with all such
information that is included in the Assets. In the event this Agreement is
terminated as permitted herein, each party shall return to the other party
(without retaining copies) all such documents, information and reports.
11.5 EXPENSES. Except as otherwise expressly provided herein, each party
will pay its own costs and expenses, including legal and accounting expenses,
related to the transactions provided for herein, irrespective of when incurred.
Notwithstanding the foregoing, Buyer shall reimburse Seller at Closing for its
reasonable, documented legal costs and expenses related to the transactions
contemplated hereby, in an amount not to exceed $100,000.
26
<PAGE>
11.6 FURTHER ASSURANCES. Seller will from time to time subsequent to the
Closing Date, at Buyer's request and without further consideration, execute and
deliver such other instruments of conveyance, assignment and transfer and take
such other actions as Buyer may reasonably request in order more effectively to
convey, assign, transfer to and vest in Buyer, the Assets and the right to
operate the business of Seller. Buyer will from time to time after the Closing
Date, at Seller's request provide to Seller, at Seller's expense, access on a
reasonable basis to tax and accounting records on an "as-needed" basis.
11.7 NOTICES. In order to be effective, any notice or other communication
required or permitted hereunder must be in writing and may be transmitted by
messenger, delivery service, mail, telex, telegram, telecopy or cable:
If to Buyer: Natural Wonders, Inc.
4209 Technology Drive
Fremont, CA 94538
Telecopier: 510-252-6795
Attention: Michael Waide
With a copy to: Baker & McKenzie
660 Hansen Way
Palo Alto, CA 94304
Telecopier: 415-856-9299
Attention: Andrew D. Zeif, Esq.
If to Seller: What A World!, Inc.
c/o Zimet, Haines, Friedman & Kaplan
460 Park Avenue, 9th Floor
New York, New York 10022
27
<PAGE>
Telecopier: 212-223-1151
Attention: James Martin Kaplan, Esq.
With a copy to: Zimet, Haines, Friedman & Kaplan
460 Park Avenue, 9th Floor
New York, New York 10022
Telecopier: 212-223-1151
Attention: James Martin Kaplan, Esq.
or at such other address as the party shall designate in a written notice to the
other parties hereto, given in accordance with this Paragraph 11.7. All notices
and other communications shall be effective (i) if sent by messenger or delivery
service, when delivered; (ii) if sent by mail, five days after having been sent
by certified mail, with return receipt requested; (iii) if sent by telegram or
cable, when delivered; or (iv) if sent by telex or telecopier with receipt
acknowledged, when sent.
11.8 ENTIRE AGREEMENT AND MODIFICATION. This Agreement and the agreements
entered into between the parties in connection with the transactions
contemplated herein including, without limitation, the Management Agreement and
the Escrow Agreement, constitute and contain the entire agreement of the parties
and supersedes any and all prior negotiations, correspondence, understandings
and agreements between the parties respecting the subject matter hereof. This
Agreement may only be amended by written instrument signed by the parties.
11.9 SURVIVAL OF TERMS. All warranties and representations contained in this
Agreement and any certificate or other instrument delivered by or on behalf of
the parties pursuant to this Agreement shall be continuous and shall survive the
Closing for two years from the Closing Date or until the expiration of the
applicable statutes of limitation with respect to matters covered by Sections
2.8 and 2.15 or, with respect to the Buyer's assumption of the Assumed
Liabilities, for so long as there remain outstanding obligations under any of
the Assumed Liabilities.
28
<PAGE>
11.10 GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the laws of the State of Delaware applicable to contracts
entered into and wholly to be performed in the State of Delaware by Delaware
residents.
11.11 SEVERABILITY. If any provision of this Agreement is held to be
unenforceable for any reason, it shall be adjusted rather than voided, if
possible, in order to achieve the intent of the parties to the extent possible.
In any event, all other provisions of this Agreement shall be deemed valid and
enforceable to the fullest extent possible.
11.12 HEADINGS. The headings appearing at the beginning of several sections
contained herein have been inserted for the convenience of the parties, and
shall not be used to determine the construction or interpretation of this
Agreement.
11.13 COUNTERPARTS. This Agreement may be executed in original or facsimile
counterparts, each of which shall be deemed an original, but both of which when
taken together shall constitute one and the same instrument.
29
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as of the date first above set forth.
NATURAL WONDERS, INC.
By: /s/ Michael J. Waide
----------------------------------
Title: Senior Vice President, Finance
and Chief Financial Officer
-------------------------------
WHAT A WORLD!, INC.
By: /s/ David F. Miller
----------------------------------
Title: President
-------------------------------
30
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