STOCK PURCHASE AGREEMENT
This Stock Purchase Agreement (the "Agreement"), dated as of November
14, 1997, is made among AHC I Acquisition Corp., a Delaware corporation
("Purchaser"), Arcade Holding Corporation, a Delaware corporation (the
"Company"), and the parties identified on the signature page hereto as
"Sellers" (each a "Seller" and collectively, "Sellers").
RECITALS
A. Sellers currently collectively own all of the issued and outstanding
shares (the "Shares") of the common stock, $.01 par value (the "Common
Stock"), of the Company.
B. State Board of Administration of Florida ("SBA") owns all of the
issued and outstanding shares of the preferred stock, $1.00 par value
(the "Preferred Stock"), of the Company. Liberty Partners Holdings 4,
L.L.C. ("Liberty Holdings") is the holder of an Arcade Holding
Corporation Common Stock Purchase Warrant dated November 4, 1993 (the
"Warrant") entitling Liberty Holdings to purchase shares of the common
stock of the Company.
C. The Company is a party to an Executive Stock Option Agreement (an
"Option Agreement") with certain executives of the Company or its
subsidiary who are Sellers under this Agreement (the "Option
Holders"), the terms of which provide for the immediate vesting of all
options to purchase shares of common stock of the Company ("Options")
thereunder upon, and forfeitability of any unexercised Options not
exercised prior to or in connection with, the sale contemplated
hereunder.
D. Arcade, Inc., a Tennessee corporation ("Arcade"), is a wholly-owned
subsidiary of the Company. Each of Scent Seal, Inc., a California
corporation ("Scent Seal"), and Arcade Europe SARL, a company
organized under the laws of France ("Arcade Europe"), is a
wholly-owned subsidiary of Arcade. Arcade, Scent Seal and Arcade
Europe are collectively referred to herein as the "Subsidiaries".
E. The Subsidiaries are engaged in the business of developing,
manufacturing, marketing and distributing olfactory sampling products
and related items (the "Business").
NOW, THEREFORE, in consideration of the foregoing Recitals (which are
hereby incorporated by reference), the agreements hereafter set forth and other
good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, the parties agree as follows:
ARTICLE 1. PURCHASE AND SALE OF SHARES; OPTIONS; WARRANTS; REDEMPTION OF
PREFERRED; DEBT CLOSING,
1.1 Agreement to Purchase and Sell. On the Closing Date (as defined in
Section 1.8) and upon the terms and subject to the conditions set forth in this
Agreement, Sellers shall sell, assign, transfer, convey and deliver the Shares
to Purchaser free and clear of all Liens (as hereinafter defined) and Purchaser
shall purchase the Shares from Sellers.
1.2 Treatment of Options. On the Closing Date and upon the terms and
subject to the conditions set forth in this Agreement, each Option that is
vested or would vest upon consummation of the transactions contemplated by this
Agreement immediately prior to the Closing (as defined in Section 1.8) shall be
cancelled and terminated without delivery of any shares of capital stock of the
Company and Purchaser shall pay each Option Holder in exchange for each such
Option the price to be paid for each Share hereunder (as the same may be
adjusted) less the Option Price (as defined in the Option Agreements)
applicable to such Option (any payments paid by Purchaser to the Option Holders
pursuant to this Section 1.2 are referred to herein as the "Option Payments").
Each Option Holder shall be deemed to be a "Seller" hereunder with respect to
the Options.
1.3 Treatment of Warrants. On the Closing Date and upon the terms and
subject to the conditions set forth in this Agreement, Liberty Holdings shall
deliver to Purchaser, and Purchaser shall purchase from Liberty Holdings, the
Warrant for a purchase price equal to the purchase price to be paid for each
Share hereunder (as the same may be adjusted) multiplied by the number of
shares of Common Stock issuable upon exercise of the Warrant, less the
aggregate exercise price payable under the Warrant (the payment paid by
Purchaser to Liberty Holdings pursuant to this Section 1.3 is referred to
herein as the "Warrant Payment"). Liberty Holdings shall be deemed to be a
"Seller" hereunder with respect to the Warrant.
1.4 Purchase Price. Subject to the terms and conditions set forth
herein and to adjustment as provided in Section 1.5, at the Closing, Purchaser
shall:
(i) pay the Sellers, the Option Holders and the Warrant Holder in the
aggregate the Pre-Closing Adjusted Purchase Price (as hereinafter
defined), less the Escrow Amount (as hereinafter defined) (the
"Closing Payment"). The Closing Payment shall be allocated among
the Sellers in accordance with Exhibit A attached hereto; and
(ii) deposit $5,000,000 in the aggregate (the "Escrow Amount") into an
escrow (the "Escrow") established pursuant to an escrow agreement
substantially in the form attached hereto as Exhibit B (the
"Escrow Agreement") among Purchaser, Sellers and a party,
reasonably acceptable to purchaser and that would qualify as a
successor escrow agent pursuant to the escrow agreement, selected
by Sellers to act as escrow agent (the "Escrow Agent"), which
Escrow Amount shall simultaneously with the
-2-
Closing without any further action by any Person (as defined in
Section 8.12) become subject to the terms and conditions of the
Escrow Agreement.
All payments to be made by Purchaser hereunder shall be made in cash by wire
transfer of immediately available funds to the account designated by the
recipient thereof in writing at least two business days prior to the Closing.
1.5 Purchase Price Adjustment.
(a) Pre-Closing Statement.
(i) At least two business days prior to the Closing Date, the Company
shall furnish to Purchaser a statement of the Company (the "Pre-
Closing Statement"), prepared as of a date which is no more than
five business days prior to the Closing Date, reflecting the
Company's good faith estimate of the Net Indebtedness (as
hereinafter defined), the Redemption Payments and the Transaction
Fees and Expenses (as hereinafter defined) immediately prior to
the Closing.
(ii) The "Pre-Closing Adjusted Purchase Price" shall be the amount
determined pursuant to this subsection 1.5(a)(ii) by subtracting
the sum of the Net Indebtedness, the Redemption Payments and the
Transaction Fees and Expenses, as set forth on the Pre-Closing
Statement, from the Unadjusted Purchase Price (as hereinafter
defined). The calculation of the Pre-Closing Adjusted Purchase
Price shall be set forth in reasonable detail on the Pre-Closing
Statement. At Closing, the Pre-Closing Adjusted Purchase Price
shall be used to determine the amounts to be paid to Sellers or
for the benefit of Sellers as described in Section 1.4.
(iii) As used herein,
(A) "Net Indebtedness" shall mean (1) the sum of (x) the
indebtedness of the Company and its Subsidiaries on a consolidated
basis for borrowed money (including accrued interest thereon and all
related charges, fees, expenses and penalties, including prepayment
penalties which become due as a result of the transactions
contemplated hereby), including amounts owed under the senior loan
agreement and the credit agreement plus amounts reflected in capital
leases to the extent such amounts would be required to be shown as
indebtedness on a consolidated balance sheet of the Company and its
Subsidiaries prepared in accordance with generally accepted accounting
principles applied in a manner consistent with the Financial
Statements (as hereinafter defined), and
-3-
(y) all amounts outstanding under the Conditional Promissory Note executed by
Arcade, dated June 9, 1995 for the original principal amount of $1,750,000
minus (2) the amount of cash and cash equivalents of the Company and its
Subsidiaries that would be shown on a consolidated balance sheet prepared in
accordance with generally accepted accounting principles applied in a manner
consistent with the Financial Statements, in each case as of the Closing Date.
(B) "Transaction Fees and Expenses" shall mean the aggregate amount of
the fees and expenses of the Company and its Subsidiaries or the Sellers (to
the extent paid or payable by the Company on behalf of the Sellers) incurred at
or prior to the Closing in connection with the negotiation and execution of
this Agreement and the consummation of the transactions contemplated hereby,
including any investment banking, brokers, finders and legal fees and including
the fees of the Seller Representative (as hereinafter defined), or transfer
taxes (including real property transfer taxes, change of control payments,
conveyance and recording fees, documentary stamp taxes and all other similar
charges); provided, however, that Transaction Fees and Expenses shall not
include any expenses or fees incurred in connection with the capitalization of
Purchaser and the financing (including broker and agent fees) to consummate the
transactions contemplated hereby.
(C) "Unadjusted Purchase Price" shall mean $195.0 million.
(b) Post-Closing Statement.
(i) As soon as practicable, but in no event more than 30 days
after the Closing Date, Purchaser shall furnish the Seller
Representative a statement (the "Post-Closing Statement")
reflecting its determination of the Net Indebtedness, the
Redemption Payments and the Transaction Fees and Expenses.
(ii) The "Adjusted Purchase Price" shall be the amount determined
pursuant to this subsection 1.5(b)(ii) by subtracting the sum
of the Net Indebtedness, the Redemption Payments and the
Transaction Fees and Expenses from the Unadjusted Purchase
Price as calculated based on the Post-Closing Statement. The
calculation of the Adjusted Purchase Price and the Proposed
Closing Differential (as hereinafter defined) shall be set
forth in reasonable detail on the post-closing statement.
(iii) As used herein,
-4-
(A) "Closing Differential" shall mean the Proposed Closing
Differential with such revisions, adjustments and changes thereto, if
any, as shall be effected pursuant to Section 1.5(b)(iv).
(B) "Proposed Closing Differential" shall mean the amount
(whether a positive or negative number) equal to the difference
between (1) the Adjusted Purchase Price determined based upon the
Post-Closing Statement minus (2) the Pre-Closing Adjusted Purchase
Price determined based upon the Pre-Closing Statement.
(iv) Within 60 days after the delivery of the Post-Closing
Statement to the Seller Representative, the Seller
Representative shall (on behalf of the Sellers) either accept
the amount of the Proposed Closing Differential as reflected
on the Post-Closing Statement as correct or object to the
Proposed Closing Differential, specifying in reasonable
detail in writing the nature of its objection(s). In the
event the Seller Representative does not object to the
Proposed Closing Differential within said 60-day period, the
Seller Representative shall be deemed to have accepted the
Proposed Closing Differential as the Closing Differential. In
the event the Seller Representative objects to the Proposed
Closing Differential, then, during a 30-day period subsequent
to the receipt by Purchaser of notice of the Seller
Representative's objection(s), Purchaser and the Seller
Representative shall attempt in good faith to resolve the
differences respecting such Proposed Closing Differential. In
the event Purchaser and the Seller Representative are unable
to resolve their differences within said 30-day period, the
parties agree that the matter shall be submitted to a
mutually acceptable firm of certified public accountants, the
costs and expenses of which firm shall be borne equally by
the Purchaser and the Sellers. If Purchaser and the Seller
Representative cannot mutually agree upon said firm of
certified public accountants within fifteen days, the
disputed Proposed Closing Differential shall be jointly
determined by two firms of certified public accountants, one
such firm being selected by each of Purchaser and the Seller
Representative, with Purchaser, on the one hand, and Sellers,
on the other hand, each paying the costs and expenses of the
firm selected by it. In the event that the respective firms
of certified public accountants of Purchaser and the Seller
Representative are unable to so agree, such firms of
certified public accountants shall select a third firm of
certified public accountants (which shall be one of the five
largest nationally-recognized public accounting firms in the
United States) to determine the Closing Differential pursuant
to this Section 1.5 and
-5-
whose determination shall be final and binding upon the
parties. The costs and expenses of such third firm of
certified public accountants shall be borne equally by
Purchaser, on the one hand, and Sellers, on the other
hand. During the period from the date of delivery of the
Post-Closing Statement to the Seller Representative through
the date of resolution of any dispute regarding the
Proposed Closing Differential as contemplated by this
Section 1.5(b)(iv), Purchaser shall cause the Company and
each of its Subsidiaries to provide the Seller
Representative and its agents and representatives
(including accountants) reasonable access to the books,
records (including those supplemental schedules prepared
by Purchaser in connection with preparation of the
Post-Closing Statement), facilities, employees and
accountants of the Company and each of its Subsidiaries
and to accountants' work papers for purposes relevant to
the review of such Post-Closing Statement and the
resolution of any related dispute. All determinations to
be made hereunder shall be made in accordance with the
terms of this Agreement consistently applied.
(c) Within three days after the final determination of the
Closing Differential, the Adjusted Purchase Price shall be determined
as follows: If the amount of the Closing Differential is a positive
amount, then the Adjusted Purchase Price shall be adjusted upward by
an amount equal to the Closing Differential. In such case, Purchaser
shall inform the Seller Representative and the Escrow Agent and fund
the Escrow Account under the Escrow Agreement with the amount of such
difference (for allocation among the Sellers in the manner
contemplated by Section 1.4 upon expiration of the Escrow Agreement in
accordance with its terms). Conversely, if the amount of the Closing
Differential is a negative amount, then the Adjusted Purchase Price
shall be adjusted downward by an amount equal to the Closing
Differential (expressed as a positive amount), which amount shall be
distributed to Purchaser in accordance with the terms of the Escrow
Agreement.
1.6 Redemption of Preferred Stock. Simultaneously with the
Closing, Purchaser shall pay or cause to be paid to SBA on behalf of
the Company the "Liquidation Value" (as defined in the Company's
Certificate of Incorporation (the "Certificate of Incorporation")) of
the Preferred Stock and all accrued and unpaid dividends thereon to
which SBA is entitled in accordance with the Certificate of
Incorporation as a result of the optional redemption of the Preferred
Stock by the Company. The Company shall take all action necessary
prior to Closing to provide for the redemption of the Preferred Stock
at the Closing, including delivering any notice of redemption required
under the Certificate of Incorporation. The amount payable pursuant to
this Section 1.6 is referred to herein as the "Redemption Payments".
-6-
1.7 Payment of Debt.
(a) SBA Payments. Simultaneously with the Closing, Purchaser
shall pay or cause to be paid to SBA on behalf of the Company the unpaid
principal balance (together with all interest accrued thereon and all other
amounts due) under Arcade's line of credit and term loan with SBA pursuant to
(i) the Senior Loan Agreement between SBA and Arcade dated November 4, 1993, as
amended (the "Senior Loan Agreement"), and (ii) the Subordinated Loan Agreement
between SBA and Arcade dated November 4, 1993, as amended (the "Subordinated
Loan Agreement"). The aggregate amounts payable pursuant to this Section 1.7(a)
are referred to herein as the "SBA Payments".
(b) Heller Payments. Simultaneously with the Closing, Purchaser
shall pay or cause to be paid on behalf of the Company to Heller Financial,
Inc. ("Heller") the unpaid principal balance (together with all interest
accrued thereon) of all Revolving Loans and Lender Guarantees (as such terms
are defined in the Credit Agreement dated as of April 30, 1996 between Arcade
and Heller (the "Credit Agreement")) and all other amounts due under the Credit
Agreement. The aggregate amounts payable pursuant to this Section 1.7(b) are
referred to herein as the "Heller Payments".
1.8 Closing. Subject to the satisfaction or waiver of the
conditions set forth in Article 7, consummation of the transactions
contemplated hereby (the "Closing") shall take place on December 15, 1997 or
such other time as the parties agree (the "Closing Date") at the offices of
Sonnenschein Nath & Rosenthal, 1221 Avenue of the Americas, 24th Floor, New
York, New York 10020, or at such other place as the parties agree.
Notwithstanding the foregoing, the parties agree that if any filing is
required under the HSR Act (as hereinafter defined) and early termination of
the waiting period thereunder is not received prior to December 15, 1997, then
the Closing shall occur on the third business day following receipt of notice
of early termination. At the Closing, Sellers shall deliver to Purchaser (i)
stock certificates representing the Common Stock, duly endorsed in blank for
transfer or accompanied by appropriate stock powers duly executed in blank,
(ii) the Option Agreements representing the Options to be cancelled pursuant to
Section 1.2, and (iii) the Warrant. Notwithstanding anything to the contrary
set forth herein, Purchaser shall use its best efforts to satisfy the
conditions set forth in Section 7.2 and, only with respect to its obligations
hereunder, cause the Closing to occur on or before December 1, 1997.
Notwithstanding anything to the contrary contained herein, in the event (i) the
Closing has not occurred on or before December 8, 1997, and (ii) the conditions
set forth in Section 7.1 have been satisfied as of that date, upon Closing
Purchaser shall pay to Sellers, in addition to its payment obligations under
Sections 1.4, 1.6 and 1.7, an amount that would equal the amount of interest on
$56.0 million at an annual rate equal to the prime rate as published from time
to time in the Wall Street Journal table of money rates from December 8, 1997
through the Closing Date.
1.9 Sellers' Closing Deliveries. Subject to the conditions set
forth in this Agreement, at the Closing, simultaneous with Purchaser's
deliveries hereunder, Sellers shall deliver or cause
-7-
to be delivered to Purchaser all of the documents and instruments set forth on
Schedule 1.9, all in form and substance reasonably satisfactory to Purchaser
and its counsel.
1.10 Purchaser's Closing Deliveries. Subject to the conditions set
forth in this Agreement, at the Closing, simultaneous with Sellers' deliveries
hereunder, Purchaser shall deliver or cause to be delivered to Sellers all of
the payments, documents and instruments set forth on Schedule 1.10, all in
form and substance reasonably satisfactory to Sellers and their counsel.
1.11 Withholding Taxes. All payments pursuant to this Agreement shall
be subject to and shall be reduced by any and all required withholding Tax (as
hereinafter defined) and other similar withholding requirements imposed by
applicable law or regulations.
1.12 Appointment of Seller Representative. Each Seller hereby appoints
and designates Victor J. Barnett and Michael J. Kluger, jointly (collectively,
the "Seller Representative") as the true and lawful agent and attorney-in-fact
of such Seller with full power of substitution. Any action or decision to be
made by the Seller Representative shall require the approval of both Victor J.
Barnett and Michael J. Kluger. The Seller Representative shall have the
authority to take such actions and exercise such discretion as is required of
the Seller Representative pursuant to the terms of this Agreement and the
Escrow Agreement (and any such actions shall be binding on each Seller)
including the following:
(a) to receive, hold and deliver to Purchaser the certificates
for the Common Stock and the Preferred Stock, the Option Agreements and the
Warrant and any other documents relating thereto on behalf of Sellers;
(b) to execute, acknowledge, deliver, record and file all
ancillary agreements, certificates and documents that the Seller Representative
deems necessary or appropriate in connection with the consummation of the
transactions contemplated by the terms and provisions of this Agreement;
(c) to receive any payments due under this Agreement and
acknowledge receipt for such payments;
(d) to waive any breach or default under this Agreement or to
waive any condition precedent to the Closing;
(e) to terminate this Agreement;
(f) to receive service of process in connection with any claims
under this Agreement;
(g) to give and receive all notices permitted hereunder; and
-8-
(h) to perform the obligations and exercise the rights under this
Agreement and the Escrow Agreement, including the settlement of any claims and
disputes with Purchaser and Sellers arising hereunder and thereunder.
The Sellers may, at any time, substitute or replace the Seller
Representative named above, if such action is agreed to in writing by Sellers
owning not less than a majority of the Common Stock on a fully-diluted basis
and a copy of such writing is delivered to each party to this Agreement.
ARTICLE 2. REPRESENTATIONS AND WARRANTIES BY EACH SELLER. Each Seller hereby,
severally for itself only and not jointly with any other Seller, represents and
warrants to Purchaser that the following statements are true with respect to
such Seller:
2.1 Ownership of Stock. Such Seller is the sole record owner of
the number of shares of Common Stock, Options and/or Warrant, as the case may
be, set forth opposite such Seller's name on Schedule 2.1, which ownership is
free and clear of all liens, security interests, mortgages, pledges, charges,
claims, restrictions and other encumbrances of any nature whatsoever
(collectively, "Liens") other than restrictions on transfer under federal and
state securities laws and restrictions which will be terminated in connection
with the consummation of the transactions contemplated hereby and as set forth
on Schedule 2.1, such shares of Common Stock have been validly issued and are
fully paid and are nonassessable and such shares of Common Stock represent all
of the issued and outstanding shares of Common Stock owned by such Seller. Upon
consummation of the transactions contemplated herein and delivery of and
payment for the Shares as set forth herein and assuming Purchaser has no actual
knowledge of any adverse claim to the Shares, Sellers shall convey to Purchaser
marketable title thereto. No Seller holds any Common Stock as a nominee.
2.2 Restrictions on Stock, Options and Warrant.
(a) Agreements Relating to Stock. Such Seller is not a party to
any agreement which will not be terminated prior to or as of the Closing and
which is not set forth on Schedule 2.2(a) creating rights with respect to such
Seller's shares of Common Stock, Options or Warrant in any Person and such
Seller has the full power and legal right to sell, assign, transfer and deliver
such Seller's shares of Common Stock, Options and Warrant.
(b) No Warrants, Options, Etc. Except for the Warrant, the
Options and the Option Agreements, there are no existing warrants, options,
stock purchase agreements, redemption agreements, restrictions of any nature,
calls or rights to subscribe of any character relating to the shares of Common
Stock owned by such Seller, which will not be terminated prior to or as of the
Closing and which is not set forth on Schedule 2.2(b).
-9-
2.3 Authority.
(a) Corporate Action; Capacity. If such Seller is not a natural
person, the execution and delivery to Purchaser of this Agreement and the
performance of such Seller's obligations under this Agreement have been duly
authorized by such Seller and its governing body, If such Seller is a natural
person, such Seller has the capacity and authority to execute and deliver to
Purchaser this Agreement and to perform such Seller's obligations under this
Agreement.
(b) Execution and Delivery. This Agreement has been duly and validly
executed and delivered to Purchaser by each Seller who is a signatory hereto
and constitutes a valid and binding obligation of such Seller, enforceable
against such Seller in accordance with its terms, except as may be limited by
bankruptcy, insolvency, reorganization, moratorium or other similar laws
affecting the enforcement of creditors' rights in general and subject to
general principles of equity (regardless of whether such enforceability is
considered in a proceeding in equity or at law.
(c) No Violation. Except for violations which will be waived prior to
the Closing, as set forth on Schedule 2.3(c), or Liens which will be released
concurrent with the Closing, the execution, delivery and performance of this
Agreement by such Seller do not: (i) constitute a breach, or a violation of, or
a default under, any organizing or governing document, if any, of such Seller,
or of any law, rule or regulation, agreement, indenture, deed of trust,
mortgage, loan agreement or other agreement or instrument to which such Seller
is a party or by which such Seller or any of such Seller's shares of Common
Stock, Options or Warrant are bound; (ii) constitute a violation of any order,
judgment or decree to which such Seller or any of such Seller's shares of
Common Stock, Options or Warrant are bound; or (iii) result in the creation of
any Lien upon any of the assets or properties of the Company, any Subsidiary or
such Seller, including any of such Seller's shares of Common Stock, Options or
Warrant.
2.4 Consents and Approvals No consent, approval, waiver or
authorization from any governmental and regulatory authorities, domestic and
foreign (collectively, "Consents") or notice or filing with any such
authorities is required to be obtained or made by such Seller in connection
with the execution or delivery of this Agreement or the consummation of the
transactions contemplated hereby, except for Consents which have been obtained
or will have been timely obtained prior to Closing, which Consents are set
forth on Schedule 2.4.
ARTICLE 3. Representations and warranties of the company. The Company
hereby represents and warrants to Purchaser the following:
3.1 Corporate Organization; Authority; No Violation. Except as set
forth on Schedule 3.1, the Company and each Subsidiary is a corporation duly
organized, validly existing and in good standing under the laws of the
jurisdiction of its organization and in each other jurisdiction (as set forth
on Schedule 3. 1) where the failure to so qualify would have a material
-10-
adverse effect on the business, assets, properties, operations or financial
condition of the Company and the Subsidiaries taken as a whole (a "Material
Adverse Effect"). Each of the Company and the Subsidiaries has all requisite
corporate power and authority to own, lease, operate or otherwise hold its
properties and assets and to carry on the Business as now being conducted. The
Company has the requisite corporate power to execute and to deliver this
Agreement and to perform the transactions contemplated hereby to be performed
by it. The execution and delivery by the Company of this Agreement and the
performance by it of the transactions contemplated hereby to be performed by it
have been duly authorized by all necessary corporate action on the part of the
Company. This Agreement has been duly executed and delivered by duly authorized
officers of the Company and, assuming the due execution and delivery of this
Agreement by the other parties hereto, constitutes a valid and binding
obligation of the Company enforceable against it in accordance with its terms,
except as may be limited by bankruptcy, insolvency, reorganization, moratorium
or other similar laws affecting the enforcement of creditors' rights in general
and subject to general principles of equity (regardless of whether such
enforceability is considered in a proceeding in equity or at law). The
execution, delivery and performance by the Company of this Agreement (i) do not
and will not conflict with or result in any violation of, or constitute a
breach or default under, any term of the charter documents, by-laws or other
organizational documents of the Company or the Subsidiaries, of any agreement,
permit or other instrument to which the Company or any Subsidiary is subject
(other than those violations, breaches or defaults for which the Company or
such Subsidiary shall have obtained a waiver prior to the Closing, which are
set forth on Schedule 3.1), or any domestic or foreign statute, ordinance,
law, regulation, order, judgment or decree of any court or other governmental
or regulatory authority to which any of the same are, subject, (ii) do not and
will not give rise to a right of termination which is not waived prior to
Closing, cancellation or acceleration of any obligation or to the loss of a
benefit under, any contract, permit, order, judgment or decree to which the
Company or any Subsidiary is a party or by which any of their respective
properties are bound, and (iii) do not and will not result in the creation of
any Lien upon any of the Common Stock, Options, Warrant, properties or assets
of the Company or any Subsidiary.
3.2 Capitalization Subsidiaries.
(a) The Company. The authorized capital stock of the Company consists
solely of (i) 100,000 shares of Common Stock, $.01 par value, of which there
are 48,000 shares issued and outstanding as of the date hereof, and (ii) 8,700
shares of preferred stock, $1.00 par value, of which there are 8,678.197 shares
issued and outstanding as of the date hereof. All of such shares of Common
Stock and Preferred Stock have been duly authorized and validly issued and are
fully paid and non-assessable and were not issued in violation of any
preemptive rights or federal or state securities laws.
(b) Subsidiaries. the authorized capital stock of each Subsidiary and
the number of issued and outstanding shares of such stock is set forth on
schedule 3.2. All of the outstanding shares of capital stock of Arcade are
owned beneficially and of record by the Company and all of the outstanding
shares of capital stock of Scent Seal and Arcade Europe are
-11-
owned beneficially and of record by Arcade. All of the issued and outstanding
shares of capital stock of Arcade and Scent Seal have been duly authorized and
validly issued and are fully paid and non-assessable and were not issued in
violation of any preemptive rights or federal or state securities laws.
(c) Rights. Except as set forth on Schedule 3.2, (i) no other class of
capital stock of the Company or any Subsidiary is authorized or outstanding and
there are no securities convertible into or exchangeable for any shares of
capital stock of the Company or any Subsidiary or containing any profit
participation features, (ii) there are no existing warrants, options,
agreements, calls, conversion rights, exchange rights, preemptive rights which
will not be terminated prior to Closing or other rights to subscribe for,
purchase or otherwise acquire any of the shares of capital stock of the Company
or any of the Subsidiaries, (iii) none of the shares of capital stock of the
Company or any of the Subsidiaries is subject to any voting trust, transfer
restrictions or other similar arrangements which will not be terminated prior
to Closing, and (iv) except for ownership of the Subsidiaries, neither the
Company nor any Subsidiary has, directly or indirectly, any joint venture,
partnership, license or similar relationship with, or any ownership interest
in, any Person. All of the holders of Options are listed on Schedule 2.1 and
are designated therein as an Option Holder, The cancellation of the Options
pursuant to Section 1.2 hereof, is in compliance with the terms and conditions
of and does not constitute a breach of, or a violation of, or a default under
any applicable Option Agreement.
3.3 Financial Statements. The Company has previously delivered copies
of the following consolidated financial statements to Purchaser (collectively,
the "Financial Statements"): (a) audited balance sheets as of June 30, 1997,
1996 and 1995, and an unaudited internally-prepared balance sheet as of
September 30, 1997 (the "Balance Sheet"), and (b) audited income statements and
cash flow statements for the fiscal years ended June 30, 1997, 1996 and 1995
and unaudited internally-prepared income statements and cash flow statements for
the three months ended September 30, 1997, accompanied by the opinions of
Coopers & Lybrand on the audited Financial Statements. Except as set forth on
Schedule 3.3, the Financial Statements: (i) were prepared in accordance with
generally accepted accounting principles consistently applied throughout the
periods involved, and (ii) present fairly, in all material respects, the
financial position, cash flows and results of operations of the Company and the
Subsidiaries at the dates and for the periods indicated therein.
3.4 Employees.
(a) Except as set forth on Schedule 3.4(a), neither the Company nor
any Subsidiary is a party to a collective bargaining agreement or any other
agreement with any labor organization applicable to its employees. No labor
organization or group of employees of the Company or any of its Subsidiaries
has made a pending demand for recognition or certification, and there are no
representation or certification proceedings or petitions seeking a
representation proceeding presently pending or threatened in writing to be
brought or filed with the National Labor Relations Board or any other labor
relations tribunal or authority. No unfair labor practice complaints are
pending or, to the Company's Knowledge (as defined in Section 8.12),
-12-
threatened against the Company or any of the Subsidiaries before the National
Labor Relations Board, no similar claims are pending or, to the Company's
Knowledge, threatened before any similar foreign agency. To the Company's
Knowledge, no strike, slowdown, work stoppage, lockout or other collective
labor action by or with respect to any employees of the Company or any of the
Subsidiaries is in progress or has been threatened. The Company and its
Subsidiaries are in material compliance with all material laws, regulations and
orders relating to the employment of labor, including all such laws,
regulations and orders relating to wages, hours, the Workers Adjustment and
Retraining Notification Act and any similar state or local law ("WARN"),
collective bargaining, discrimination, civil rights, safety and health,
workers' compensation and the collection and payment of withholding and/or
social security taxes and any similar tax. There has been no "mass layoff" or
"plant closing" as defined by WARN with respect to the Company or any of its
Subsidiaries within the six months prior to Closing.
(b) Schedule 3.4(b) contains a complete and accurate list of each
material pension, retirement, profit sharing, savings, stock option, restricted
stock, severance, termination, bonus, fringe benefit, insurance, supplemental
benefit, medical, education reimbursement or other employee benefit plan,
including each "employee benefit plan" as defined in Section 3(3) of the
Employee Retirement Income Security Act of 1974 ("ERISA"), sponsored,
maintained or contributed to or required to be contributed to by the Company or
any of the Subsidiaries for the benefit of current or former employees of the
Company or any of the Subsidiaries within the three years prior to the Closing
(each a "Plan"). Schedule 3.4(b) separately indicates each Plan which is a
multiemployer plan, as defined in Section 3(37) of ERISA ("Multiemployer
Plan"). There are no trades or businesses (whether or not incorporated) which
are or have ever been under common control, or which are or have ever been
treated as a single employer, with the Company under Section 414(b), (c), (m)
or (o) of the Code, other than the Subsidiaries. During the past six years,
neither the Company nor any of its Subsidiaries have contributed to an employee
benefit plan subject to Title IV of ERISA, other than the Multiemployer Plan.
(c) Complete and accurate copies of the following items relating to
each Plan, where applicable, have been delivered to Purchaser or its
representatives:
(i) all material Plan documents and related trust agreements
including amendments thereto;
(ii) the most recent determination letter received from the
Internal Revenue Service (the "IRS") with respect to each such Plan
that is intended to be qualified under Section 401 of the Internal
Revenue Code (the "Code");
(ii) the most recent summary plan description, summary of
material modifications and all material communications to
participants; and
(iv) the most recent Annual Report (5500 Series) and accompanying
schedules for each Plan as filed with the IRS.
-13-
(d) In connection with the operation and administration of the
Plans, the Company and the Subsidiaries have complied in all material respects
with, and are not in material violation of, the applicable provisions of ERISA
and the Code and the terms of such Plans.
(e) Each of the Plans that is intended to be "qualified" within
the meaning of Section 401(a) of the Code is so qualified and the trusts
maintained pursuant thereto are exempt from federal income taxation under
Section 501 of the Code, and to the Company's Knowledge, nothing has occurred
with respect to the operation of such Plans which is reasonably likely to cause
the loss of such qualification or exemption or the imposition of any liability,
penalty or tax under ERISA or the Code.
(f) Neither the Company nor any Subsidiary has any current
material liability with respect to a plan termination under Title IV of ERISA,
a funding deficiency under Section 412 of the Code or Section 302 of ERISA or a
withdrawal from a "multiemployer plan" as defined under Section 4063 of ERISA.
(g) Neither the Company nor any of its Subsidiaries has withdrawn
in a complete or partial withdrawal from any Multiemployer Plan within the
three years prior to the Closing Date, nor has any of them incurred any
liability due to the termination or reorganization of a Multiemployer Plan.
(h) All contributions (including all employer contributions and
employee salary reduction contributions) required to have been made under any
of the Plans or by law (without regard to any waivers granted under Section 412
of the Code), to any funds or trusts established thereunder or in connection
therewith have been made by the due date thereof (including any valid
extension), and all contributions for any period ending on or before September
30, 1997 which are not yet due will have been paid or accrued on the Balance
Sheet on or prior to the Closing Date.
(i) None of the Plans provide for post-employment life or health
insurance, benefits or coverage for any participant or any beneficiary of a
participant, except as may be required under the Consolidated Omnibus Budget
Reconciliation Act of 1985, as amended ("COBRA") and at the expense of the
participant or the participant's beneficiary.
(j) There are no pending actions, claims or lawsuits which have
been asserted or instituted against the Plans, the assets of any of the trusts
under such Plans or the plan sponsor or the plan administrator, or against any
fiduciary of the Plans with respect to the operation of such Plans (other than
routine benefit claims), nor does the Company have Knowledge of any such
threatened claim or lawsuit.
3.5 Intangible Property. Set forth in Schedule 3.5 is a complete
and accurate list of all United States and foreign trademarks, service marks,
trade names and patents owned by, or registered or applied for in the name of,
or licensed to, the Company or any Subsidiary which
-14-
are utilized in the operation of the Business (collectively, the "Intangible
Property"). Neither the Company nor any Subsidiary has any copyright
registrations or applications. Except as set forth on Schedule 3.5, (a) to the
Company's Knowledge, the Intangible Property does not infringe the rights of
any third party or is being infringed by any third party, (b) to the Company's
Knowledge, there is no material restriction or action threatened in writing
affecting the use of any of the Intangible Property by the Company or any
Subsidiary in the manner in which the Company or the Subsidiaries have been
using it, and (c) no license has been granted by the Company or any Subsidiary
to any third party with respect thereto. Except as set forth on Schedule 3.5,
the Company or a Subsidiary owns the entire right, title and interest in and to
the Intangible Property. Except as set forth on Schedule 3.5, there is, to the
Knowledge of the Company, no reasonable basis upon which any claim may be
asserted against the Company or a Subsidiary for infringement or
misappropriation of any of the Intangible Property. All letters patent,
registrations and certificates issued by any Governmental Authority relating to
any of the Intangible Property and all licenses and other agreements pursuant
to which the Company uses any of the Intangible Property, are, to the Company's
Knowledge, valid and subsisting, and neither the Company, nor in the case of
any such license or agreement to the Knowledge of the Company, any other
person, is in default or violation thereunder.
3.6 Assets; Inventory. Except as set forth on Schedule 3.6, all of the
material assets of the Company and the Subsidiaries are in good operating
condition and repair, subject to normal wear and tear, are usable in the
regular and ordinary course of business, and conform in all material respects
to all material applicable Laws, licenses, authorizations and approvals issued
to the Company by any Governmental Authority relating to their construction,
use and operation. The Assets constitute all material assets and rights
necessary to operate the Business as currently conducted and the Company or a
Subsidiary has marketable title to all such assets, free and clear of all Liens
other than Permitted Liens. The term "Permitted Liens" means (a) tax liens with
respect to taxes not yet due and payable or which are being contested in good
faith by appropriate proceedings and for which appropriate reserves have been
established in accordance with generally accepted accounting principles,
consistently applied; (b) deposits or pledges made in connection with, or to
secure payment of, utilities or similar services, workers' compensation,
unemployment insurance, old age pensions or other social security obligations;
(c) purchase money security interests in any property acquired by the Company
or any Subsidiary; (d) interests or title of a lessor under any lease; (e)
mechanics', materialmen's or contractors' liens or encumbrances or any similar
lien or restriction for amounts not yet past due; (f) easements, rights-of-way,
restrictions and other similar charges and encumbrances not interfering with
the ordinary conduct of the business of the Company and its Subsidiaries or
detracting from the value of the assets of the Company and its Subsidiaries;
(g) liens outstanding on the date hereof which secure the indebtedness
outstanding under the Senior Loan Agreement, the Subordinated Loan Agreement or
the Credit Agreement. The inventory of the Subsidiaries consists only of items
of quality and quantity commercially useable and saleable in the ordinary
course of the Subsidiaries' manufacturing processes, and is fit for the purpose
for which it was procured or manufactured, except for any items of obsolete
material or material below standard quality, all of which have been written
down to realizable market value, or for which adequate reserves have been
provided on the Balance Sheet and except for immaterial amounts. All such
-15-
items of inventory are (and will be) carried at amounts which reflect
valuations pursuant to the normal inventory valuation policy of the Company and
the Subsidiaries of stating inventory at the lower of cost or market on a
last-in, first-out basis.
3.7 Litigation. Except as set forth on Schedule 3.7, there is no
action, suit, claim, judicial or administrative proceeding or arbitration which
is pending nor, to the Company's Knowledge, is there any pending investigation
nor to the Company's Knowledge is any of the foregoing overtly threatened,
against the Company or any Subsidiary before any court, arbitrator or
administrative or governmental body, nor is there any judgment, decree,
injunction, rule or order of any court, governmental department, commission,
agency, instrumentality or arbitrator outstanding against the Company or any
Subsidiary.
3.8 Real Property. Title to the real property owned by the Company and
described on Schedule 3.8 and all of the buildings, structures and other
improvements located thereon (collectively, the "Owned Real Property"), are,
and at Closing shall be, owned by the Company or a Subsidiary in fee simple
absolute, free and clear of all material Liens affecting title to or possession
of such Owned Real Property, including all material encroachments, boundary
disputes, covenants, restrictions, easements, rights of way, mortgages,
security interests, leases, encumbrances and title objections, excepting only
the Permitted Liens and such easements, restrictions and covenants set forth on
Schedule 3.8 (in a manner so that the Owned Real Property to which they relate
is readily identifiable). The Owned Real Property set forth on Schedule 3.8
constitutes all of the real property owned by the Company and the Subsidiaries
on the date hereof and as of the Closing Date. Schedule 3.8 contains a list of
all real property leased by the Company or any Subsidiary (collectively, the
"Leased Premises"). A complete and accurate copy of each lease, as amended to
date (a "Lease") for each of the Leased Premises has been provided to Purchaser
or its representatives. Except as set forth on Schedule 3.8, (i) each Lease is
valid and binding upon the Subsidiary which is a party thereto and, to the
Company's Knowledge, enforceable against the lessor in accordance with the
terms thereof, and (ii) the Subsidiary which is a party thereto has performed
all material obligations required to be performed by it under each Lease prior
to the date hereof and possesses and quietly enjoys the Leased Premises. Except
as set forth on Schedule 3.8, neither the Company nor, to the Company's
Knowledge, the landlord or sublandlord under any Lease is in material default
under any of the Real Property Leases, and no circumstances or state of facts
presently exists which, with the giving of notice or passage of time, or both,
would permit the landlord or sublandlord under any Lease to terminate such
Lease. For purposes of the following representations, the Owned Real Property
and the Leased Premises are collectively referred to as the "Real Property."
Neither the Company nor Sellers have received any written notice from any
Governmental Authority that the assessed value of the Real Property has been
determined to be greater than that upon which county, township or school tax
was paid for the 1996 tax year applicable to each such tax, or from any
insurance carrier of the Company of fire hazards with respect to the Real
Property. Neither the Company nor Sellers have received any written notice that
any Governmental Authority having the power of eminent domain over the Real
Property has commenced or intends to exercise the power of eminent domain or a
similar power with respect to all or any part of the Real Property. No
assessment for public improvements has been
-16-
made against the Real Property that remains unpaid. No written, uncured notice
from any county, township or other Governmental Authority has been received by
the Company or Sellers requiring any work, repair, construction, alteration or
installation on or in connection with the Real Property that has not been
complied with. The Real Property complies with all applicable zoning and other
land use requirements. There are no restrictions on entrance to or exit from
the Real Property to adjacent public streets and no conditions that will result
in the termination of the present access from the Real Property to existing
highways and roads. No part of the Real Property contains, is located within,
or abuts any flood plain, navigable water, tideland, wetland, marshlands or any
other area that is subject to special state, federal or municipal regulation,
control or protection.
3.9 Consents and Approvals. Except for filings with the Federal Trade
Commission and the Antitrust Division of the United States Department of
Justice pursuant to the Hart-Scott-Rodino Antitrust Improvements Act of 1976,
as amended (the "HSR Act"), the Company has obtained (or will have obtained
prior to the Closing) all consents, waivers, authorizations and approvals of,
and made all required filings with, all governmental and regulatory
authorities, domestic and foreign, and of all other Persons required or
necessary in connection with the execution, delivery and performance by the
Company of this Agreement. All material consents, waivers, authorizations,
approvals and filings required to be made by the Company in connection with
this Agreement are set forth on Schedule 3.9.
3.10 Contracts. Except for the contracts listed on Schedule 3.10 (the
"Contracts"), and except for purchase orders in the ordinary course of
business, neither the Company nor any Subsidiary is a party to or otherwise
bound by any written or oral contract for the purchase of materials, supplies,
goods, services, equipment or other assets providing for annual payments by the
Company or any Subsidiary of $50,000 or more, (ii) any sales, distribution,
agency, dealer, sales representative or other similar agreement providing for
annual payments by the Company or any Subsidiary or materials, goods, supplies,
services, equipment or other assets providing for annual payments to the
Company or any Subsidiary of $100,000 or more, (iii) any partnership, joint
venture or other similar contract, arrangement or agreement, (iv) any contract
relating to indebtedness for borrowed money, (v) any material license agreement
or franchise agreement granted to or held by the Company or any Subsidiary,
(vi) any contract or other document that limits the freedom of the Company or
any Subsidiary to compete in any line of business or with any Person or in any
area or which would so limit the freedom of the Company or any Subsidiary after
the Closing, (vii) any material contract or commitment not made in the ordinary
course of business other than contracts to be terminated effective upon the
Closing (none of which terminated contracts or commitments will result in any
material liability or obligation on the part of the Company), or (viii) any
collective bargaining agreement, or agreement providing for severance payments
in the event of the sale or change in control of the Company or any Subsidiary.
The Company has previously provided Purchaser or its representatives with
complete and accurate copies of the Contracts. The Contracts are in full force
and effect and are valid and binding upon the Company or the Subsidiary which
is a party thereto and, to the Company's KNOWLEDGE, THE OTHER PARTIES THERETO.
Neither the Company nor any Subsidiary is in material default under any
Contract, nor to the Company's Knowledge, is
-17-
any other party thereto. The Company will have no liability or obligation under
any of the agreements set forth on Schedule 2.2(a) or 2.2(b) upon termination
of such agreements effective upon Closing.
3.11 Absence of Undisclosed Liabilities. As of the date of the Balance
Sheet (the "Balance Sheet Date"), neither the Company nor any Subsidiary had
any liability or obligation, either direct or indirect, matured or unmatured or
absolute, contingent or otherwise that should be reflected in balance sheets
prepared in accordance with generally accepted accounting principles (a
"Balance Sheet Liability") which was not fully disclosed on, or reflected or
reserved against in, the Balance Sheet; and except for liabilities which have
been incurred since the Balance Sheet Date in the ordinary course of business,
consistent with past business practice or liabilities, the incurrence of which
is contemplated by this Agreement, since the Balance Sheet Date, neither the
Company nor any Subsidiary has incurred any Balance Sheet Liability.
3.12 Licenses; Compliance with Laws. Since 1993, the Company or the
Subsidiaries have held all material licenses, franchises, permits and
authorizations ("Permits") necessary for the lawful conduct of the Business as
conducted by the Company during such time period and neither the Company nor
any Subsidiary is in material violation of any applicable material laws,
statutes, regulations, rules, ordinances, decrees, orders and judgments
(collectively, "Laws") of any governmental, regulatory or administrative body,
agency or authority (a "Governmental Authority"). The Company is not in
material default, nor has it received any written notice of any claim of
default. All such Permits are renewable by their terms or in the ordinary
course of business without the need to comply with any special qualification
procedures or to pay any amounts other than routine filing fees or other
immaterial amounts. None of such material Permits will be adversely affected by
consummation of the transactions contemplated hereby. No shareholder, director,
officer, employee or former employee of the Company or any Affiliates of the
Company (other than its Subsidiaries), or any other Person owns or has any
proprietary, financial or other interest (direct or indirect) in any Permits
that the Company owns, possesses or uses in the operation of the Business as
now conducted.
3.13 Environmental Matters. (a) Except as disclosed on Schedule 3.13,
(i) the Company and the Subsidiaries are in material compliance with
Environmental Laws; (ii) the Company and each Subsidiary has obtained and
currently maintains all Permits required under or pursuant to Environmental
Laws that are material to the conduct of the business or for the ownership or
use of their property or assets; (iii) there is no civil, criminal or
administrative order, action, suit, demand, claim, hearing, notice of
violation, investigation, proceeding or demand letter pending or, to the
Knowledge of the Company, threatened against the Company or any Subsidiary;
(iv) neither the Company nor any Subsidiary is otherwise subject to any
currently outstanding liabilities under Environmental Law, the effect of which
would result in material liabilities, losses or expenses under Environmental
Law; and (v) there is not now, nor, to the Knowledge of the Company, has there
been in the past, on, in or under any real property owned, leased or operated
by the Company or any Subsidiary (x) any underground storage tanks,
above-ground storage tanks, dikes or impoundments containing Hazardous
Materials, (Y) any asbestos-containing materials, or (Z) any polychlorinated
biphenyls, the presence of
-18-
which could reasonably be expected to result in material liabilities, losses or
expenses under Environmental Law.
(b) Seller has provided Buyer with copies of all
environmentally-related audits, assessments, studies, reports, analyses, and
results of environmental investigations of any real property currently or
formerly owned, operated or leased by the Company that are in the possession,
custody or control of Sellers, the Company or any Subsidiary; and
(c) For purposes of this Agreement, the following terms have the
following definitions: (i) "Environmental Law" means any applicable federal,
state, local, or foreign law, statute, code, ordinance, rule, regulation or
other requirement relating to the environment, natural resources, or public or
employee health and safety and includes the Comprehensive Environmental
Response, Compensation and Liability Act ("CERCLA"), 42 U.S.C. ss. 9601 et
seq., the Hazardous Materials Transportation Act, 49 U.S.C. ss. 1801 et IM,,
the Resource Conservation and Recovery Act ("RCRA"), 42 U.S.C. ss. 6901 seq.
seq., the Clean Water Act, 33 U.S.C. ss. 1251 et seq., the Clean Air Act, 33
U.S.C. ss. 2601 et seq., the Toxic Substances Control Act, 15 U.S.C. ss. 2601
et seq., the Federal Insecticide, Fungicide, and Rodenticide Act, 7 U.S.C. ss.
136 et seq., the Oil Pollution Act of 1990, 33 U.S.C. ss. 2701 et seq. and the
Occupational Safety and Health Act, 29 U.S.C. ss. 651 et seq., as such laws
have been amended or supplemented, and the regulations promulgated pursuant
thereto, and all analogous state or local statutes; and (ii) "Hazardous
Material" means any substance, material or waste which is regulated by or forms
the liability under any Environmental Law, including petroleum, petroleum
products, asbestos, urea formaldehyde and polychlorinated biphenyls.
3.14 Tax Matters. Except as set forth on Schedule 3.14:
(i) All Tax Returns (as hereinafter defined) required to be filed
by or with respect to the Company or any Subsidiary have been duly and
timely filed and all such Tax Returns are complete. Each of the
Company and its Subsidiaries has duly and timely paid all Taxes that
are due. With respect to any period for which Taxes are not yet due
from the Company or any Subsidiary up to September 30, 1997, the
Company has made sufficient current accruals for such Taxes in the
Financial Statements and the Balance Sheet. The Company and each
Subsidiary has made all required estimated Tax payments sufficient to
avoid any material underpayment penalties. The Company and each
Subsidiary has withheld and paid all material Taxes required by all
applicable Laws to be withheld or paid in connection with any amounts
paid or owing to any employee, creditor, independent contractor, or
other third person.
(ii) There are no outstanding agreements, waivers, or
arrangements extending the statutory period of limitation applicable
to any claim for, or the period for the collection or assessment of,
Taxes due from or with respect to the Company or any Subsidiary for
any taxable period. No audit or other proceeding by any court,
governmental or regulatory authority, or similar person is pending or,
to the Knowledge of the Company, threatened in regard to any Taxes due
from or with respect to the
-19-
Company or any Subsidiary or any Tax Return filed by or with respect to the
Company or any Subsidiary. No assessment of Taxes is proposed in writing
against the Company or any Subsidiary or any of their respective assets.
(iii) Neither the Company nor any Subsidiary has agreed to make any
adjustment pursuant to Section 481(a) of the Code (or any predecessor
provision) by reason of any change in any accounting method, and there is no
application pending with any taxing authority requesting permission for any
changes in any accounting method of the Company or any Subsidiary.
(iv) Neither the Company nor any Subsidiary is a party to, is bound
by, or has any obligation under, any Tax sharing agreement, Tax allocation
agreement, Tax indemnity agreement, or similar contract by which the Company or
any Subsidiary has a current or potential obligation to indemnify another
person with respect to Taxes.
(v) There is no contract, option, agreement, plan, or arrangement
covering any person that, individually or collectively, could give rise to the
payment of any amount that would not be deductible by the Company or any
Subsidiary by reason of Section 280G of the Code.
(vi) None of the Sellers is a foreign person for purposes of Section
1445(b)(2) of the Code.
(vii) The Company is not (and during the preceding five years has not
been) a "U.S. real property holding corporation" as defined in Section
897(c)(2) of the Code.
(viii) None of the outstanding indebtedness of the Company or any
Subsidiary is "corporate acquisition indebtedness" for purposes of Section 279
of the Code,
(ix) Since 1996, none of the Company or any Subsidiary has ever been a
member of a consolidated, combined, or affiliated group other than any group of
which the Company is the common parent. There are no deferred gains
attributable to "intercompany transactions" for purposes of Treas. Reg.
ss. 1.1502-13 with respect to the Company or any Subsidiary, and there are no
"excess loss accounts" for purposes of Treas. Reg. ss. 1.1502-19 with respect
to any Subsidiary.
(x) "Taxes" shall mean all taxes, charges, fees, levies, or other
similar assessments or liabilities, including (a) income, gross receipts, ad
valorem, premium, excise, real property, personal property, sales, use,
transfer, withholding, employment, payroll, and franchise taxes imposed by the
United States of America, or by any state, local, or foreign government, or any
subdivision, agency, or other similar person of the United States or any such
government; and (b) any interest, fines, penalties, assessments, or additions
to taxes resulting from, attributable to, or incurred in connection with any
tax or any contest, dispute, or refund thereof. "Tax Returns" shall mean any
report,
-20-
return, or statement required to be supplied to a taxing authority in connection
with Taxes.
3.15 Accounts Receivable. Except as reserved against on the Balance
Sheet or in the books and records of the Company and the Subsidiaries for
receivables arising since the Balance Date, the accounts and notes receivable
reflected on such Balance Sheet and all accounts or notes receivable arising
since the Balance Sheet Date are valid and genuine and represent bona fide
claims against debtors for sales, services performed or other charges arising
on or before the date of recording thereof in the ordinary course of business
consistent with past practice, and are not subject to valid defenses, set-offs
or counterclaims, other than adjustments, which in the aggregate are not
material, made in the ordinary course of business.
3.16 Conduct of Business Since Balance Sheet Date. Since the Balance
Sheet Date, except as contemplated by this Agreement or as set forth on
Schedule 3.16:
(a) the Company and the Subsidiaries have conducted the
Business only in the ordinary course of business consistent with past practice;
(b) except for equipment, inventory and supplies purchased,
sold or otherwise disposed of in the ordinary course of business consistent
with past practice, the Company and the Subsidiaries have not purchased, sold,
leased, mortgaged, pledged, assigned, transferred or otherwise acquired or
disposed of any properties or assets;
(c) neither the Company nor any Subsidiary has sustained or
incurred any material loss or damage with respect to the Business (whether or
not insured against) on account of fire, flood, accident or other calamity;
(d) neither the Company nor any Subsidiary has increased the
rate of compensation of any officer or other employee, or made any advance or
loan to (except for advances for business expenses in the ordinary course of
business), any officer or other employee, or made any increase in, or any
addition to, other benefits to which any officer or other employee may be
entitled, except in the ordinary course of business consistent with past
practice;
(e) neither the Company nor any Subsidiary has changed any
accounting methods or practices;
(f) neither the company nor any subsidiary has incurred any
liabilities, other than liabilities incurred in the ordinary course of business
consistent with past practice, or discharged or satisfied any Lien or paid, or
failed to pay or discharge when due, any liabilities, other than in the ordinary
course of business consistent with past practice;
(g) neither the company nor any subsidiary has made or
suffered any amendment or termination of any material agreement, contract,
commitment, lease or plan to
-21-
which it is a party or by which it is bound, or cancelled, modified or waived
any substantial debts or claims held by it or waived any rights of substantial
value, other than modifications of customer orders in the ordinary course of
business;
(h) neither the Company nor any Subsidiary has declared, set
aside or paid any dividend or made or agreed to make any other distribution or
payment in respect to its capital shares or redeemed, purchased or otherwise
acquired or agreed to redeem, purchase or acquire any of its capital shares;
(i) the Company and the Subsidiaries have not entered into
any material transaction other than in the ordinary course of business
consistent with past practice;
(j) the Company and the Subsidiaries have not suffered any
Material Adverse Effect; and
(k) neither the Company nor any Subsidiary has agreed to take
any of the actions described in paragraphs (b), (d), (e), (f), (g), (h) or (i)
above.
3.17 Affiliated Transactions. Except for compensation and benefits
arrangements in the ordinary course of business and as disclosed on Schedule
3.17, no Seller, no member of any Seller's family nor any entity controlled by
or under control of any Seller (i) has borrowed from or loaned money or other
property to the Company or any Subsidiary which has not been repaid or
returned; or (ii) has any direct or indirect interest in any Person which is a
customer or supplier of the Company or the Subsidiaries.
3.18 Names. The Company has not conducted business under any names
other than the names set forth on Schedule 3.18 during the past three years.
3.19 Brokers and Finders. Except for amounts which may become due from
the Company to Bowles Hollowell Conner & Co. ("Bowles"), there are no
outstanding broker, finder or investment banker fees or commissions owed or to
be owed by the Company or the Subsidiaries in connection with the transactions
contemplated by this Agreement.
3.20 Schedules. Notwithstanding any specific reference to the
disclosure of any matter pursuant to any section of this Article 3 or to any
Schedule, all disclosures made pursuant to any section hereunder or on the
Schedules shall be deemed made for all other sections of the Schedules to which
such disclosure is readily apparent on the face of the Schedules and any
headings or captions on any section herein or therein are for convenience of
reference only; provided, however, that no disclosure on the Schedules shall be
deemed effective unless the reason such item is being disclosed on a particular
schedule is adequately explained to be informative of the matter at issue with
respect to the disclosure to be set forth on such schedule. Sellers shall be
entitled to supplement or amend the Schedules delivered in connection herewith
with respect to any matter occurring after the date hereof which, if existing
or occurring at the date of this Agreement, would have been required to be set
forth or described in any such
-22-
Schedule, and whether or not such matter is material. No supplement or
amendment shall have any effect for the purpose of determining satisfaction of
the conditions set forth in Section 7.1(a) hereof or the compliance by
Sellers with the covenant set forth in Section 5.2 hereof; provided, however,
that by consummating the transactions contemplated hereby, Purchaser waives any
right or claim it may have or have had on account of or relating to such
failure to satisfy such conditions or comply with such covenant or on account
of or relating to any such breach of representation or warranty of Sellers.
3.21 DISCLAIMER OF WARRANTIES. EXCEPT AS EXPRESSLY SET FORTH IN THIS
ARTICLE 3, NEITHER THE COMPANY NOR ANY SELLER MAKES ANY REPRESENTATION OR
WARRANTY, WHATSOEVER, EXPRESS OR IMPLIED, RELATING TO THE COMPANY'S OR THE
SUBSIDIARIES' BUSINESS OR ASSETS, INCLUDING ANY REPRESENTATION OR WARRANTY AS
TO THE FUTURE SALES OR PROFITABILITY OF THE COMPANY'S OR THE SUBSIDIARIES'
BUSINESS OR AS TO THE MERCHANTABILITY, OR FITNESS FOR A PARTICULAR PURPOSE, OF
ANY OF THE COMPANY'S OR THE SUBSIDIARIES' ASSETS OR REPRESENTATIONS OR
WARRANTIES ARISING BY STATUTE OR OTHERWISE IN LAW, FROM A COURSE OF DEALING OR
USAGE OF TRADE. ALL SUCH OTHER REPRESENTATIONS AND WARRANTIES ARE HEREBY
EXPRESSLY DISCLAIMED BY THE COMPANY AND SELLERS.
ARTICLE 4. REPRESENTATIONS AND WARRANTIES OF PURCHASER. Purchaser hereby
represents and warrants to the Company and each Seller the following:
4.1 Organization; Authority; Capitalization. Purchaser is a
corporation duly organized, existing and in good standing under the laws of the
State of Delaware, Purchaser has the requisite corporate power and authority to
execute and deliver this Agreement and to consummate the transactions
contemplated hereby. The execution and delivery of this Agreement by Purchaser,
the performance by Purchaser of its obligations hereunder and the consummation
by Purchaser of the transactions contemplated hereby have been duly authorized
pursuant to and in accordance with the laws governing Purchaser and no other
proceedings on the part of Purchaser are necessary to authorize such execution,
delivery and performance. This Agreement has been duly and validly executed and
delivered by Purchaser and constitutes a valid and binding obligation of
Purchaser, enforceable against Purchaser in accordance with its terms, except
as may be limited by bankruptcy, insolvency, reorganization, moratorium or
other similar laws affecting the enforcement of creditors' rights in general
and subject to general principles of equity (regardless of whether such
enforceability is considered in a proceeding in equity or at law).
4.2 No Violation. The execution, delivery and performance by Purchaser
of this Agreement and the transactions contemplated hereby do not and will not
conflict with or result in any violation of, or constitute a breach or default
under, any term of the charter documents, by-laws or other organizational
documents of Purchaser, of any agreement, permit or other instrument to which
Purchaser is a party or by which Purchaser is subject, or any law,
-23-
regulation, order, judgment or decree of any court or other governmental or
regulatory authority to which Purchaser is subject.
4.3 Consents and Approvals. Except for filings pursuant to the HSR
Act, Purchaser has obtained (or will obtain prior to Closing) all necessary
consents, waivers, authorizations and approvals of all governmental and
regulatory authorities, domestic and foreign, and of all other Persons required
in connection with the execution, delivery and performance by Purchaser of this
Agreement, all of which are set forth on Schedule 4.3.
4.4 Financing; Solvency.
(a) Purchaser currently has or will have as of the Closing all funds
necessary to consummate the transactions contemplated by this Agreement.
Attached hereto as Exhibit C is a commitment letter with respect to the equity
financing necessary to consummate the transactions contemplated by this
Agreement. No transfer of property is being made and no obligation is being
incurred in connection with the transactions contemplated by this Agreement or
with the financing to be obtained by or on behalf of the Purchaser in
connection with consummating the transaction contemplated by this Agreement
with the intent to hinder, delay or defraud either present or future creditors
of the Company or any of its Subsidiaries.
(b) Neither the Company nor any subsidiary shall become insolvent as a
result of the consummation of the transactions contemplated by this Agreement
or the financing to be obtained by or on behalf of Purchaser in connection with
consummating the transactions contemplated by this Agreement. The Company and
each of its subsidiaries, after giving effect to the transactions contemplated
by this Agreement and the financing to be obtained by or on behalf of Purchaser
in connection with consummating the transactions contemplated by this
Agreement, shall be able to pay their debts as they become due, and the
Company's and each Subsidiary's property, after giving effect to the
transactions contemplated hereby, shall have a fair salable value greater than
the amounts required to pay its debts (including a reasonable estimate of the
amount of all contingent liabilities). The Company and each subsidiary, after
giving effect to the transactions contemplated by this Agreement, shall have
adequate capital to carry on its business.
4.5 Litigation. Purchaser has not received any notice of any action,
suit, inquiry, judicial or administrative proceeding, arbitration or
investigation which is pending and, to the knowledge of Purchaser, none of the
foregoing is threatened, against or involving Purchaser before any Governmental
Authority, nor is there any judgment, decree, injunction, rule or order of any
Governmental Authority outstanding against Purchaser which, individually or in
the aggregate, could impair the ability of Purchaser to consummate the
transactions contemplated by this Agreement.
4.6 Brokers and Finders. There are no outstanding broker, finder or
investment banker fees or commissions owed or to be owed by Purchaser in
connection with the transactions contemplated by this Agreement other than
amounts that will be fully satisfied by Purchaser.
-24-
4.7 Investment Intent; Sophistication. Purchaser is acquiring the
Common Stock hereunder solely for its own account and not for any other Person
and for investment purposes only and without any intent to distribute, resell
or otherwise transfer any of such Common Stock. Purchaser represents, warrants
and acknowledges that it is an "accredited investor" as defined in Rule 501(a)
under the Securities Act of 1933, as amended (the "Securities Act"), that it
has such knowledge and experience in business and financial matters as to be
capable of evaluating the merits and risks of the investment contemplated to be
made hereunder, that it has sufficient financial strength to hold the same as
an investment and to bear the economic risks of such investment (including
possible loss of such investment) for an indefinite period of time. Purchaser
acknowledges that it is fully informed that the shares of Common Stock being
sold hereunder are being sold pursuant to a private offering exemption of the
Securities Act and are not being registered under the Securities Act or under
the securities or blue sky laws of any state or foreign jurisdiction; and that
such securities must be held indefinitely unless they are subsequently
registered under the Securities Act and any applicable state securities or blue
sky laws, or unless an exemption from registration is available thereunder.
Purchaser acknowledges that it has such knowledge and experience in financial
and business matters so as to be capable of evaluating the risks and merits of
this investment, that all documents and records pertaining to the investment in
the Company requested by Purchaser have been made available or delivered to it;
and that it has had an opportunity to ask questions of and receive answers from
Sellers concerning the terms and conditions of this Agreement and to obtain
additional information.
ARTICLE 5. COVENANTS.
5.1 Indemnification of Directors and Officers. Notwithstanding any
provision to the contrary in Section 8.13 hereof, Purchaser acknowledges that
each Person who served prior to the Closing as a director or officer of the
Company or any of the Subsidiaries shall be entitled to all rights to
indemnification existing in favor of the directors and officers of the Company
or such Subsidiaries, as applicable, as provided in their respective articles
of incorporation and bylaws during the time any such Person served as an
officer or director.
5.2 Satisfaction of Conditions. Purchaser shall use all reasonable
efforts to cooperate with Sellers to satisfy the conditions set forth in
Section 7.2 and Sellers shall use all reasonable efforts to cooperate with
Purchaser to satisfy the conditions set forth in Section 7. 1.
5.3 Conduct of Business. Except as disclosed on Schedule 5.3 or as
reasonably contemplated as a result and in anticipation of the transactions
contemplated hereby, from the date hereof through the Closing Date, the Company
shall use reasonable efforts to continue to conduct the business in the
ordinary course consistent with past practice and to preserve the Company's
present business operations, and to keep available the services of their key
employees and to preserve their relationship with their customers and
suppliers, licensors and others having a business relationship with the Company
and the Subsidiaries. Without limiting the generality of the foregoing, the
Company and the Subsidiaries shall not, without the written consent of
Purchaser which consent shall not be unreasonably withheld or delayed, (a)
declare or pay any dividend with respect to its capital stock (except for
dividends payable with respect
-25-
to the Preferred Stock), (b) redeem or repurchase any of its capital stock or
otherwise make or commit to make any distribution to its stockholders, (c) fail
to maintain their cash management practices and all related policies, practices
and procedures with respect to collection of trade accounts receivable, accrual
of accounts receivable, inventory control, prepayment of expenses, payment of
trade accounts payable, accrual of other expenses, deferral of revenue, and
acceptance of customer deposits in the ordinary course of business, (d) fail to
pay or discharge when due any material liabilities, (e) make or suffer any
amendment or termination of any Contract or Permit, or cancel, modify or waive
any substantial debts or claims held by it or waive any rights of substantial
value, other than modifications of customer orders in the ordinary course of
business, (f) make commitments or agreements for capital expenditures or
capital additions or betterments in excess of $250,000 except as set forth in
Schedule 5.3, (g) change any of the accounting principles followed by it or the
methods of applying such principles, (h) amend its certificate of incorporation
or bylaws nor take any action with respect to any such amendment, (i) authorize
or issue any shares of the Company's capital stock or other equity securities
nor grant any option, warrant, or right calling for the authorization or
issuance of any such shares, j) enter into any contract or other transaction
with any Seller or any affiliate of the Company or any Seller, and (k) agree,
in writing or otherwise, to do any of the foregoing.
5.4 Taxes. Sellers agree to pay all sales and other taxes (except
income taxes), if any, arising from the sale of the Shares, Options and
Warrants to Purchaser pursuant to this Agreement.
5.5 Further Assurances. Upon the reasonable request of any party after
the Closing, the other parties shall promptly execute and deliver such
documents and instruments as necessary to further effectuate the transactions
contemplated herein.
5.6 Books and Records: Personnel. Purchaser hereby covenants and
agrees with Sellers as follows:
(a) Retention of Records; Purchaser shall not, for a period of five
years after the Closing Date, dispose of or destroy any of the business records
and files of the Company or the Subsidiaries relating to the period prior to
the Closing Date without first offering to turn over possession thereof to
Sellers by written notice to Sellers at least 30 days prior to the proposed
date of such disposition or destruction.
(b) Access to Records. Purchaser shall, for a period of five years
after the Closing date, allow Sellers access to all business records and files
of the Company and the Subsidiaries relating to the period prior to the Closing
Date, upon prior written request of Sellers and during normal working hours at
the principal places of business of the Company and the Subsidiaries or at any
location where such records are stored, and sellers Shall have the right, at
their own expense, to make copies of any such records and files; provided,
however, that any such access or copying shall be had or done in such a manner
so as not to interfere unreasonably with the normal conduct of the business of
the Company and the Subsidiaries.
-26-
(c) Assistance with Records. Purchaser, shall make available to
Sellers, consistent with the business requirements of the Company, (i) the
Company's personnel to assist Seller in locating and obtaining records and
files maintained by the Company, and (ii) any of the Company's personnel whose
assistance or participation is reasonably required by Sellers in anticipation
of, or preparation for, any existing or future litigation, tax or other matters
in which Sellers or any of their past, present or future affiliates are
involved and which related to the business of the Company.
5.7 Hart-Scott-Rodino. As promptly as practicable, and in any event
within seven business days following the execution and delivery of this
Agreement by the parties, Purchaser and the Company shall each prepare and file
any required notification and report form under the HSR Act, in connection with
the transactions contemplated hereby or mutually agree no filing is necessary.
Purchaser and the Company shall request early termination of the waiting period
thereunder. Purchaser and the Company shall respond with reasonable diligence
to, and reasonably cooperate with each other with respect to, any request for
additional information made in response to such filings and shall promptly
notify the other party of any such request. Purchaser and the Company shall
each pay one-half of any filing fee associated with the notification and report
forms required under the HSR Act.
5.8 Resignation of Directors. Sellers shall cause such members of the
board of directors of the Company and such officers of the Company as are
designated by Purchaser to tender, effective at the Closing, their resignations
from such positions with the Company.
5.9 Confidentiality. Purchaser and each Seller shall keep confidential
all information obtained by it with respect to the other pursuant to this
Agreement and the negotiations preceding this Agreement, and will use such
information solely in connection with the transactions contemplated by this
Agreement, and if the transactions contemplated hereby are not consummated,
each shall return to the other, without retaining a copy thereof, any
schedules, documents or other written information obtained from the other in
connection with this Agreement and the transactions contemplated hereby.
Notwithstanding the foregoing, neither party shall be required to keep
confidential or return any information which (a) is known or available through
other lawful sources, (b) is or becomes publicly known through no fault of the
receiving party or its agents, (c) is required to be disclosed pursuant to an
order or request of a judicial authority or Governmental Authority (provided
the disclosing party is given reasonable prior notice), or (d) is developed by
the receiving party independently of the disclosure by the disclosing party.
5.10 Acquisition Proposals. From and after the date of this Agreement
unless this agreement is terminated pursuant to the terms hereof, Sellers shall
not, nor shall they authorize or permit any officer, director or employee of,
or any investment banker, attorney, accountant or other representative retained
by, any seller, the company or any Subsidiary to, directly or indirectly,
solicit, initiate or encourage submission of any proposal or offer (including
by way of furnishing information) from any person which constitutes, or may
reasonably be expected to lead to, any proposal for a merger or other business
combination involving the Company or
-27-
any Subsidiary or any proposal or offer to acquire any of the capital stock or
any of the assets of the Company or any Subsidiary.
5.11 Access. Prior to the Closing, the Company shall make reasonably
available to Purchaser, at locations other than the facilities of the Company
or any Subsidiary, the business records of the Company and access to Victor
Barnett, Roger Barnett and Gordon Jones and the Company's independent
accountants upon Purchaser's prior written request and subject to reasonable
time, place and manner restrictions imposed by the Company.
5.12 Noncompetition. Effective upon Closing, Victor Barnett agrees to
be bound by the noncompete terms set forth on Exhibit H.
5.13 Minority Investors' Agreements. Concurrent with the Closing,
Purchaser shall execute and deliver to Liberty Holdings and Roger Barnett the
Common Stock Purchase Agreement and the Minority Investors' Stockholders'
Agreement, as set forth on Schedule 1.10, and Liberty Holdings and Roger
Barnett shall execute and deliver to Purchaser the Common Stock Purchase
Agreement and the Minority Investors' Stockholders' Agreement as set forth on
Schedule 1.9.
ARTICLE 6. INDEMNIFICATION.
6.1 Sellers' Indemnification. Subject to the provisions of this
Article 6 (including Sections 6.5 and 6.8), Sellers shall indemnify and hold
harmless Purchaser and its successors and permitted assigns and their
affiliates and their respective directors, officers, partners, employees,
agents and each person who controls Purchaser (collectively, "Purchaser
Indemnified Parties") from and against and in respect of any and all losses,
costs, fines, liabilities, claims, penalties, damages and expenses (including
reasonable legal fees and expenses incurred in the investigation and defense of
claims and actions) (collectively "Losses") resulting from, in connection with
or arising out of:
(a) any breach of any representation or warranty made by Sellers in
Article 2 of this Agreement or by the Company in Article 3 of this Agreement or
in any closing certificate executed and delivered by Sellers or the Company in
connection with this Agreement;
(b) any breach or non-fulfillment of any covenant made by Sellers or
the Company under the terms of this Agreement; or
(c) any action, suit or proceeding relating to any of the foregoing.
6.2 Purchaser's Indemnification. Subject to the provisions of this
Article 6 (including Sections 6.5 and 6.8), Purchaser shall indemnify and hold
harmless Sellers and their respective successors, permitted assigns, personal
representatives and heirs and their affiliates and their respective directors,
officers, partners, employees, agents and each person who controls any
-28-
Seller (collectively, "Seller Indemnified Parties") from and against and in
respect of any and all Losses resulting from, in connection with or arising out
of:
(a) any breach of any representation or warranty made by Purchaser in
Article 4 of this Agreement or in any closing certificate executed and
delivered by Purchaser in connection with this Agreement;
(b) any breach or non-fulfillment of any covenant made by Purchaser
under the terms of this Agreement; or
(e) any action, suit or proceeding relating to any of the foregoing.
6.3 Indemnification Procedures.
(a) Procedures Relating to Indemnification . In the event that a third
party files a lawsuit, enforcement action or other proceeding against a party
entitled to indemnification under this Article 6 (an "Indemnified Party") or
the Indemnified Party receives notice of assertion, or knowledge, of a claim by
a third party (a "Third Party Claim"), the Indemnified Party shall give written
notice thereof (the "Claim Notice") promptly, but in any event not later than
30 days after receipt of notice of such Third Party Claim, to Purchaser, with
respect to a claim for indemnification made pursuant to Section 6.2, or to
Seller Representative, with respect to a claim for indemnification made
pursuant to Section 6.1, other than with respect to any breach of a
representation or warranty made by Sellers in Article 2 of this Agreement, in
which case to any such Seller breaching such representation or warranty. The
Claim Notice shall describe in reasonable detail the nature of the claim,
including an estimate, if practicable, of the amount of Losses that have been
or may be suffered or incurred by the Indemnified Party attributable to such
claim and the basis of the Indemnified Party's request for indemnification
under this Agreement (the "Claim Detail"). Notwithstanding the foregoing,
failure by an Indemnified Party to provide notice on a timely basis of a Third
Party Claim or include any information required to be included in such notice
shall not relieve the party obligated to provide indemnification pursuant to
this Article 6 (an "Indemnifying Party") of its obligations hereunder, except
to the extent that the Indemnifying Party is actually damaged thereby
(including by incurring additional fees or expenses in defending such claim,
having to pay greater damages or being precluded from asserting certain claims
or defenses).
(b) Conduct of Defense. The Indemnifying Party shall have the right,
upon written notice to the Indemnified Party (the "Defense Notice") within
fifteen days of its receipt from the Indemnified Party of the Claim Notice, to
conduct and control the defense against such Third Party Claim in its own name,
or, if necessary, in the name of the Indemnified Party and the Indemnifying
Party shall have the right subject to the terms of the Escrow Agreement, TO
withdraw funds from the Escrow to pay for the conduct of Such Defense, and
shall not be liable for any legal expenses incurred in connection with such
Third Party Claim by the Indemnitee subsequent to the receipt of such Defense
Notice, except as otherwise provided herein. When the Indemnifying Party
conducts and controls the defense, the Indemnified Party shall have the
-29-
right to approve the defense counsel representing the Indemnifying Party in
such defense, which approval shall not be unreasonably withheld or delayed, and
in the event the Indemnifying Party and the Indemnified Party cannot agree upon
such counsel within ten days after the Defense Notice is provided, then the
Indemnifying Party shall propose an alternate defense counsel, which shall be
subject again to the Indemnified Party's approval, which approval shall not be
unreasonably withheld or delayed. The Indemnifying Party shall have the right
to withdraw from the defense of any Third Party Claim with respect to which the
Indemnifying Party had previously delivered a Defense Notice at any time upon
reasonable notice to the Indemnified Party.
(c) Conduct by Indemnified Party. In the event that the Indemnifying
Party shall fail to give the Defense Notice within the time prescribed by
Section 6.3(b) or the Indemnifying Party withdraws from the defense of a Third
Party Claim as contemplated by Section 6.3(b), the Indemnified Party shall have
the right to conduct and control such defense in good faith with counsel
reasonably acceptable to the Indemnifying Party, but the Indemnified Party
shall be prohibited from compromising or settling the claim without the prior
written consent of the Indemnifying Party, which consent shall not be
unreasonably withheld or delayed. Failure at any time of the Indemnifying Party
to diligently defend a Third Party Claim as required herein or failure of the
Indemnifying Party to undertake to fully indemnify the Indemnified Party with
respect to Losses relating to the Third Party Claim shall entitle the
Indemnified Party to assume the defense and settlement of such Third Party
Claim as if the Indemnifying Party had never elected to do so as provided in
this Section.
(d) Cooperation. In the event that the Indemnifying Party does deliver
a Defense Notice and thereby elects to conduct the defense of such Third Party
Claim in accordance with Section 6.3(b), the Indemnified Party will cooperate
with and make available to the Indemnifying Party such assistance, personnel,
witnesses and materials as the Indemnifying Party may reasonably request.
Regardless of which party defends such Third Party Claim, the other party shall
have the right at its expense to participate in the defense assisted by counsel
of its own choosing.
(e) Settlements. Without the prior written consent of the Indemnified
Party (which shall not be unreasonably withheld or delayed), the Indemnifying
Party shall not enter into any settlement of any Third Party Claim if pursuant
to or as a result of such settlement, such settlement would result in any
liability, obligation or material hardship on the part of the Indemnified Party
for which the Indemnified Party is not entitled to indemnification hereunder.
If a firm offer is made to settle a Third Party Claim, without leading to
liability or creation of a financial or other obligation on the part of the
Indemnified Party for which the Indemnified Party would not be entitled to
indemnification hereunder or any other Material Adverse Effect on the Company
and the Indemnifying Party desires to accept and agree to such offer, the
Indemnifying Party shall give written notice to the Indemnified Party to that
effect. If the Indemnified Party fails to consent to such firm offer within ten
days after its receipt of such notice, the Indemnified Party may continue to
contest or defend such Third Party Claim and, in such event, the maximum
liability of the Indemnifying Party as to such Third Party Claim
-30-
shall not exceed the amount of such settlement offer, plus other Losses paid or
incurred by the Indemnified Party up to the expiration of such ten-day period.
(f) Binding Obligations. Any judgment entered or settlement agreed
upon in the manner provided herein shall be binding upon the Indemnifying Party
and shall be conclusively deemed to be an obligation with respect to which the
Indemnified Party is entitled to prompt indemnification hereunder, subject to
the Indemnifying Party's right to appeal an appealable judgment or order.
(g) Mitigation. Each Indemnified Party shall reasonably consult and
cooperate with each Indemnifying Party with a view towards mitigating Losses,
in connection with claims for which a party seeks indemnification under this
Section 6.3.
(h) Seller Representative. If a Purchaser Indemnified Party seeks
indemnification hereunder from the Sellers collectively, the Seller
Representative shall be deemed to be the Indemnifying Party for purposes of
giving and receiving notices and consents hereunder,
6.4 Nature of Other Liabilities. In the event any Indemnified Party
should have a claim against any Indemnifying Party hereunder which does not
involve a Third Party Claim, the Indemnified Party shall promptly transmit to
the Indemnifying Party a written notice (the "Indemnity Notice") setting forth
applicable Claim Detail. Notwithstanding the foregoing, failure by an
Indemnified Party to provide notice on a timely basis of such a claim or
include any information required to be included in such notice shall not
relieve the Indemnifying Party of its obligations hereunder, except to the
extent that the Indemnifying Party is actually damaged thereby (including by
incurring additional fees or expenses in defending such claim, or having to pay
greater damages or being precluded from asserting certain claims or defenses).
6.5 Certain Limitations on Remedies. No Seller shall be obligated to
indemnify or hold harmless any Person entitled to indemnification under Section
6.1(a) or (c) (with respect to any action, suit or proceeding relating to
Section 6.1(a)) (collectively, the "Purchaser Indemnified Parties") unless
claims for indemnification on account of. any breaches of representations or
warranties exceed in the aggregate $500,000 (the "Basket") after which point
any such Person entitled to indemnification shall be entitled to
indemnification only for Losses in excess of the Basket; provided, however,
that under no circumstance shall any Seller be obligated to pay Losses for
indemnity claims made pursuant to Section 6.1(a) with respect to the breach
by any other Seller of any representations and warranties set forth in Article
2; provided, further that nothing shall prohibit Purchaser Indemnified Parties
from making a claim under the Escrow Agreement in respect of such claims.
Notwithstanding anything to the contrary in this Agreement, Purchaser
acknowledges that the sole and exclusive recourse and remedy of the Purchaser
Indemnified Parties with respect to the breach of any representation or
warranty or pre-Closing covenant of the Company contained in this Agreement or
in any closing certificate executed and delivered by Sellers or the Company in
connection herewith shall be indemnification in accordance with the provisions
of this Article 6 and limited to the amounts
-31-
of the Escrow then on deposit with the Escrow Agent subject to the terms and
conditions of the Escrow Agreement.
6.6 Amount of Losses. The amount of any Loss payable hereunder shall
be reduced by any insurance proceeds which the Indemnified Party may receive
with respect to the event or occurrence giving rise to such Losses and shall be
reduced by any amounts which Purchaser may receive from third parties in
connection with Losses for which indemnification is sought under this Article 6
and shall be reduced by any net reduction in Taxes actually realized by the
Indemnified Party in connection with such Losses; provided, however, that the
Indemnifying Party shall repay to the Indemnified Party the amount of such net
actual reduction in Taxes which is subsequently disallowed pursuant to a
determination of a taxing authority. Purchaser shall use commercially
reasonable efforts to pursue insurance claims or third party claims that may
reduce or eliminate Losses. If the Indemnified Party both collects proceeds
from any insurance company or third party and receives a payment from the
Indemnifying Party hereunder, and the sum of such proceeds and payment is in
excess of the amount payable with respect to the matter that is the subject of
the indemnity, then the Indemnified Party shall promptly refund to the
Indemnifying Party (or to the Escrow) the amount of such excess to the extent
of such Indemnifying Party's indemnification Payments.
6.7 Subrogation. After any indemnification payment is made to any
Purchaser Indemnified Party pursuant to this Article 6, Sellers shall, to the
extent of such payment, be subrogated to all rights (if any) of the Purchaser
Indemnified Party against any third party in connection with the Losses to
which such payment relates. Without limiting the generality of the preceding
sentence, any Purchaser Indemnified Party receiving an indemnification payment
pursuant to the preceding sentence shall execute, upon the written request of
the Indemnifying Party, any instrument reasonably necessary to evidence such
subrogation rights.
6.8 Survival of Representations, Warranties and Pre-Closing Covenants.
The respective representations and warranties of each of the parties to this
Agreement shall survive the Closing and the consummation of the transactions
contemplated hereby until December 31, 1998 (the "Expiration Date"), and any
claim for indemnification which is not asserted by notice as herein provided
within such period of survival may not be pursued and is hereby irrevocably
waived after such time. Any claim for indemnification asserted within such
period of survival as herein provided will be timely made for purposes hereof
and may be pursued after the expiration of such period of survival.
6.9 Purchase Price Adjustment. Any indemnification payment pursuant to
this Article 6 shall be treated by sellers and Purchaser as an adjustment to
the purchase price hereunder for the Shares, Options or Warrants, as the case
may be.
-32-
ARTICLE 7. CONDITIONS TO CLOSING.
7.1 Conditions to Obligations of Purchaser. All obligations of
Purchaser to close the transactions contemplated by this Agreement are subject
to the fulfillment, at or prior to the Closing, of the following conditions:
(a) Representations and Warranties of Sellers and the
Company. All representations and warranties made by Sellers and the Company in
this Agreement or any other certificate delivered in connection herewith shall
be true and correct in all material respects on and as of the Closing Date, as
if again made by Sellers and the Company on and as of such date,
(b) Performance of Obligations. The Company and the Sellers
shall have delivered all documents and agreements described in Section 1.8 and
shall have otherwise performed in all material respects all obligations
required under this Agreement to be performed by them on or prior to the
Closing Date.
(c) Pending Proceedings; Legal Restraints. No injunction,
restraining order or other ruling or order issued by any court of competent
jurisdiction or governmental authority or other legal restraint or prohibition
preventing the consummation of the transactions contemplated by this Agreement
shall be in effect. No action or proceeding shall be pending by or before any
court or other governmental authority seeking to restrain, prohibit or
invalidate the transactions contemplated by this Agreement which is reasonably
expected to restrain, prohibit or invalidate such transactions.
(d) HSR Waiting Period. Any waiting period applicable to the
consummation of the transactions contemplated by this Agreement under the HSR
Act shall have expired or been terminated.
(e) FIRPTA Certificate. Each of the Sellers shall have
provided a nonforeign affidavit pursuant to Section 1445(b)(2) of the Code and
the Treasury Regulations thereunder.
(f) Consents and Approvals. Sellers and the Company shall
have obtained all material consents, waivers, authorizations and approvals of
any Person required in connection with their execution, delivery and
performance of this Agreement.
7.2 Conditions to Obligations of Sellers. All obligations of Sellers
to close the transactions contemplated by this Agreement are subject to the
fulfillment, at or prior to the Closing, of the following conditions:
(a) Representations and Warranties of Purchaser. All
representations and warranties made by Purchaser in this agreement or any
other certificate delivered in connection herewith shall be true and correct in
all material respects on and as of the Closing Date, as if again made by
Purchaser on and as of such date.
-33-
(b) Performance of Purchaser's Obligations. Purchaser shall
have delivered all documents and agreements described in Section 1.9 and shall
have otherwise performed in all material respects all obligations required
under this Agreement to be performed by Purchaser on or prior to the Closing
Date.
(c) Pending Proceedings; Legal Restraints. No injunction,
restraining order or other ruling or order issued by any court of competent
jurisdiction or governmental authority or other legal restraint or prohibition
preventing the consummation of the transactions contemplated by this Agreement
shall be in effect. No action or proceeding shall be pending by or before any
court or other governmental authority seeking to restrain, prohibit or
invalidate the transactions contemplated by this Agreement which is reasonably
expected to restrain, prohibit or invalidate such transactions.
(d) HSR Waiting Period. Any waiting period applicable to the
consummation of the transactions contemplated by this Agreement under the HSR
Act shall have expired or been terminated.
7.3 Termination.
(a) Methods of Termination. This Agreement may be terminated
and the transactions contemplated hereby may be abandoned at any time prior to
the Closing:
(i) by mutual consent of the Seller Representative
and Purchaser;
(ii) by either Purchaser or the Seller Representative
if there shall have been entered a final, nonappealable order
or injunction of any governmental authority restraining or
prohibiting the consummation of the transactions contemplated
hereby or any material part thereof;
(iii) by the Purchaser if the Sellers or the Company
is in material breach of any material representation,
warranty, covenant or agreement herein contained and such
breach shall not be cured within fifteen days of the date of
notice of default served by the Purchaser; provided, that
Purchaser shall not have the right to terminate pursuant to
this provision if Purchaser is in material breach of any
representation, warranty, covenant or agreement herein
contained at the time such notice of default is served;
(iv) by the Seller Representative if the Purchaser
is in material breach of any representation, warranty,
covenant or agreement herein contained and such breach shall
not be cured within fifteen days of the date of notice of
default served by the Seller Representative; provided, that
the Seller Representative shall not have the right to
terminate pursuant to this provision if the Sellers or the
Company is in material breach of any representation,
warranty, covenant or agreement herein contained at the time
such notice of default is served.
-34-
(v) by either Purchaser or the Seller Representative
if the Closing has not occurred on or before December 31,
1997; provided, however, that if the Closing has not occurred
by such date solely because applicable waiting periods (and
any extensions thereof) under the HSR Act shall not have
expired or otherwise been terminated, no party shall be
entitled to terminate this Agreement pursuant to this Section
7.3(a)(v) until January 31, 1998; provided, further, that the
right to terminate this Agreement shall not be available to
any party whose breach of this Agreement has been the cause
of, or resulted in, the failure of the Closing to occur on or
before such date.
(b) Procedure and Effect of Termination. In the event of
written notice of termination of this Agreement by the Sellers or Purchaser,
this Agreement shall immediately become void and there shall be no liability
hereunder on the part of any party except as follows;
(i) the Confidentiality Agreement shall remain in
full force and effect; and
(ii) nothing contained in this Section shall relieve
any party hereto from any liability for any material breach of a
representation or warranty contained in this Agreement or the material
breach of any covenant contained herein prior to the date of
termination.
ARTICLE 8. MISCELLANEOUS PROVISIONS.
8.1 Successors and Assigns. This Agreement shall inure to the benefit
of, and be binding upon, the parties hereto and their respective successors and
assigns; provided, however, that no party shall assign or delegate this
Agreement or any of its rights or obligations created hereunder without the
prior consent of the other parties, which consent shall not be unreasonably
withheld or delayed.
8.2 Remedies. In the absence of fraud, no party shall be liable or
responsible in any manner whatsoever to any other party, whether for
indemnification or otherwise, with respect to any matter arising out of the
representations, warranties or covenants of this Agreement or any Schedule
hereto or any opinion or certificate delivered in connection herewith, except
for (i) equitable relief as described below, (ii) indemnity as provided in
Article 6, or (iii) pursuant to other remedies expressly provided for in this
Agreement all of which provide the exclusive remedies of the parties. Each of
the parties acknowledges and agrees that each other party would be damaged
irreparably in the event any of the provisions of this Agreement are not
performed in accordance with their specific terms or otherwise are breached.
Accordingly, each of the parties agrees that each other party shall be entitled
to an injunction or injunctions to prevent breaches of the provisions of this
Agreement and to enforce specifically this Agreement and the terms and
provisions hereof in addition to any other remedy to which it may be entitled
at law or in equity.
-35-
8.3 Publicity. No party shall issue or cause the publication of any
press release or other announcement with respect to this Agreement or the
transactions contemplated hereby or disclose the identity of any party hereto
or its principals without the prior written consent of the other parties,
except where such release or announcement is required by applicable law,
provided that the other parties are notified in writing as to the content of
such release or announcement prior to the publication thereof.
8.4 Notices. All notices, requests, consents, instructions and other
communications required or permitted to be given hereunder shall be in writing
and hand delivered, sent by nationally-recognized, next-day delivery service
or mailed by certified or registered mail, return receipt requested, postage
prepaid, addressed as set forth below; receipt shall be deemed to occur on the
earlier of the date of actual receipt or receipt by the sender of confirmation
that the delivery was completed or that the addressee has refused to accept
such delivery or has changed its address without giving notice of such change
as set forth herein.
(a) if to Purchaser, as follows:
DLJ Merchant Banking II, Inc.
277 Park Avenue, 19th Floor
New York, New York 10172
Attention: Tom Dean
with a copy to counsel for Purchaser:
Weil, Gotshal & Manges LLP
100 Crescent Court, Suite 1300
Dallas, Texas 75201
Attention: R. Scott Cohen
(b) if to any Seller, to each of the following:
Vilarc Capital
895 Park Avenue
New York, NY 10021
Attention: Victor J. Barnett
Liberty Partners
1177 Avenue of the Americas
New York, New York 10036
Attention: Michael J. Kluger
-36-
with a copy to counsel for Sellers:
Sonnenschein Nath & Rosenthal
8000 Sears Tower
Chicago, IL 60606
Attention: Donald G. Lubin
Michael M. Froy
Kirkland & Ellis
200 East Randolph Drive
Chicago, Illinois 60601
Attention: Edward T. Swan
Mark B. Tresnowski
or such other address or persons as the parties may from time to time designate
in writing in the manner provided in this Section.
8.5 Entire Agreement. This Agreement, together with the Schedules and
Exhibits attached hereto, represent the entire agreement and understanding of
the parties hereto with respect to the transactions contemplated herein and
therein, and no representations, warranties or covenants have been made in
connection with this Agreement, other than those expressly set forth herein and
therein, or in the certificates delivered in accordance herewith or therewith.
Except for the Confidentiality Agreement, which shall remain in effect unless
and until consummation of the Closing, this Agreement supersedes all prior
negotiations, discussions, correspondence, communications, understandings and
agreements among the parties relating to the subject matter of this Agreement
and such other agreements and all prior drafts of this Agreement and such other
agreements are merged into this Agreement. No Seller shall have any liability
for statements, claims, forecasts, projections or other information, financial
or otherwise, provided by or on behalf of any Seller, the Company or any
Subsidiary or in connection with the Business prior to the Closing (including
information contained in the September 1997 Arcade, Inc. Confidential
Information Memorandum prepared by Bowles). Purchaser agrees that it is not
relying on any financial data, statements, claims, projections, forecasts or
other information other than as expressly set forth in Article 3 in entering
into this Agreement or consummating the transactions contemplated hereby.
8.6 Amendments and Waivers. This Agreement may be amended, superseded,
cancelled, renewed or extended, and the terms hereof may be waived, only by a
written instrument signed by the purchaser, the Company, and the Sellers set
forth on schedule 8.6 or, in the case of a waiver, by the party waiving
compliance (or by the Sellers set forth on Schedule 8.6 on behalf of all of the
Sellers). No delay on the part of any party in exercising any right, power or
privilege hereunder shall operate as a waiver thereof; nor shall any waiver on
the part of any party of any such right, power or privilege, nor any single or
partial exercise of any such right, power or privilege, preclude any further
exercise thereof or the exercise of any other such right, power or privilege.
-37-
8.7 Severabilily. This Agreement shall be deemed severable and the
invalidity or unenforceability of any term or provision hereof shall not affect
the validity or enforceability of this Agreement or of any other term or
provision hereof.
8.8 Headings. The article and section headings contained in this
Agreement are solely for convenience of reference and shall not affect the
meaning or interpretation of this Agreement or of any term or provision hereof.
8.9 Terms. All references herein to Articles, Sections, Schedules and
Exhibits shall be deemed references to such parts of this Agreement, unless the
context shall otherwise require. All references to singular or plural shall
include the other as the context may require.
8.10 Governing Law; Jurisdiction; Venue. This Agreement shall be
governed by and construed in accordance with the laws of the State of New York,
without giving effect to choice of law principles. The parties agree that (a)
the United States District Court for the State of New York (or, in the absence
of diversity jurisdiction, the courts of the State of New York) shall have
exclusive jurisdiction of any action or proceeding relating to, or arising
under or in connection with this Agreement and each party consents to personal
jurisdiction of such courts and waives any objection to such courts'
jurisdiction, and (b) service of any summons and complaint or other process in
any such action or proceeding may be made by registered or certified mail
directed to each party at the address set forth in Section 8.4, and service so
made shall be deemed to be completed upon the earlier of actual receipt or five
days after posting, each party hereby waiving personal service thereof.
8.11 Schedules and Exhibits. The Schedules and Exhibits attached
hereto are a part of this Agreement as if fully set forth herein.
8.12 Definitions.
(a) "Person". The term "Person" as used in this Agreement shall
mean any individual, partnership, corporation, company, limited
liability company, trust or other entity.
(b) "Knowledge". The term "Knowledge" (or any form of such term,
such as "Knows", "Known", etc.) as used in this Agreement with respect
to the Company's awarness of the presence or absence of a fact, event
or condition shall mean actual, not implied or imputed, then present
knowledge of the following individuals, after due inquiry: Victor
Barnett, Roger Barnett and Gordon Jones. Purchaser acknowledges that
none of Victor Barnett, Roger Barnett or Gordon Jones have advised
other officers or employees of the Company or its Subsidiaries (other
than Hubert Brown) of this Agreement or the transactions contemplated
hereby, nor have they discussed or reviewed with any such officers or
employees the representations and warranties of the Company set forth
herein.
-38-
(c) "Including". The term "including" as used in this Agreement
shall mean including, without limitation, and shall not be deemed to
indicate an exhaustive enumeration of the items at issue.
8.13 No Third Party Beneficiaries. Except as expressly contemplated in
this Agreement (including pursuant to Sections 1.2 and 5.1), this Agreement
shall be binding upon and inure solely to the benefit of each party hereto and
nothing in this Agreement is intended to confer upon any other Person any
rights or remedies of any nature whatsoever under or by reason of this
Agreement.
8.14 Expenses. All transaction fees and expenses (including fees and
expenses of legal counsel, accountants, investment bankers, brokers, finders or
other representatives and consultants) incurred in connection with the
preparation, negotiation, execution and performance of this Agreement and the
transactions contemplated hereby are referred to herein as the "Deal Expenses."
Except as expressly provided otherwise in this Agreement, Purchaser shall bear
its own Deal Expenses and the Company shall bear the Deal Expenses of itself
and the Sellers; provided, that any filing fee paid under the HSR Act shall be
borne between the parties as set forth in Section 5.7.
8.15 Construction. The language used in this Agreement shall be deemed
to be the language chosen by the parties to express their mutual intent and no
rule of strict construction shall be applied against any party. Without limiting
the generality of the foregoing, the parties acknowledge that they have jointly
participated in the negotiation and drafting of this Agreement and that in the
event of an ambiguity or question of intent or interpretation arises, this
Agreement shall be construed as if drafted jointly by the parties and no
presumptions or burdens of proof shall arise favoring any party by virtue of
the authorship of any of the provisions of this Agreement.
-39-
This Agreement may be executed in two or more counterparts, each of
which shall be deemed an original and all of which together shall be considered
one and the same agreement.
PURCHASER:
By: /s/ Tompson Dean
_________________________________
Name: _______________________________
Title: ______________________________
ARCADE HOLDING CORPORATION
By: /s/ Victor Barnett
_________________________________
Name: _______________________________
Title: ______________________________
SELLERS:
VILARC CAPITAL
By: /s/ Michael Kluger
_________________________________
Name: _______________________________
Title: ______________________________
LIBERTY PARTNERS HOLDINGS 4, L,L.C.
By: /s/ Michael Kluger
_________________________________
Name: _______________________________
Title: ______________________________
STATE BOARD OF ADMINISTRATION OF FLORIDA
By: LIBERTY PARTNERS, L.P.,
ITS ATTORNEY-IN-FACT
By: LIBERTY CAPITAL PARTNERS, INC.,
ITS GENERAL PARTNER
By: /s/ Michael Kluger
_________________________________
Name: _______________________________
Title: ______________________________
-40-
/s/ Roger L. Barnett
-------------------------------
Roger L. Barnett
/s/ Victor J. Barnett
-------------------------------
Victor J. Barnett
-41-
FIRST AMENDMENT TO STOCK PURCHASE AGREEMENT
This First Amendment to Stock Purchase Agreement (this "Amendment"),
dated December 2, 1997, by and among AHC I Acquisition Corp., a Delaware
corporation ("Purchaser"), Arcade Holding Corporation, a Delaware corporation
(the "Company"), and Victor J. Barnett and Michael J. Kluger (collectively, the
"Seller Representative").
RECITALS
WHEREAS, Purchaser will acquire all of the issued and outstanding
capital stock of the Company pursuant to that certain Stock Purchase Agreement,
dated November 14, 1997, by and among Purchaser, the Company and certain other
parties identified on the signature pages thereto (the "Stock Purchase
Agreement"); and
WHEREAS, Purchaser, the Company and the Seller Representative desire
to amend certain provisions of the Stock Purchase Agreement.
NOW, THEREFORE, in consideration of the foregoing and the mutual
covenants herein contained, the parties hereto agree as follows:
ARTICLE I
AMENDMENT OF AGREEMENT
Section 1.1 Amendment to Section 1.7(b). Section 1.7(b) of the Stock
Purchase Agreement is hereby amended to add thereto the following at the end of
such Section 1.7(b):
Notwithstanding the foregoing, Purchaser may, at its sole option,
elect not to pay or cause to be paid the Heller Payments. If Purchaser so
elects, Sellers shall not be obligated to deliver to Purchaser any pay-off
letter or termination statements with respect thereto as provided in Schedule
1.9.
Section 1.2 Amendment to Article 1. Article 1 of the Stock Purchase
Agreement is hereby amended to add the following section as follows:
1.13 Purchase and Sale Obligations. Notwithstanding any other
provision herein, with respect to Sellers' obligation to sell, assign,
transfer, convey and deliver the Shares, Options or Warrants, as applicable, to
Purchaser and Purchaser's obligation to purchase the Shares, Options or
Warrants, as applicable, from Sellers, Purchaser shall have the right to either
(i) effect such transactions directly or (ii) designate and cause a
wholly-owned subsidiary of Purchaser to effect such transactions and, in such
case, Sellers shall sell, assign, transfer, convey and deliver the Shares,
Options or Warrants, as applicable, to such wholly-owned subsidiary.
ARTICLE II
MISCELLANEOUS
Section 2.1 Defined Terms. All capitalized terms used and not defined
herein shall have the meanings ascribed to such terms in the Stock Purchase
Agreement as hereby amended.
Section 2.2 Effect of Amendment. Except as specifically provided
herein, the Stock Purchase Agreement is in all respects ratified and confirmed.
All of the terms, conditions and provisions of the Stock Purchase Agreement as
hereby amended shall be and remain in full force and effect.
Section 2.3 Entire Agreement. This Amendment and the unaltered
portions of the Stock Purchase Agreement, together with the Schedules and
Exhibits attached to the Stock Purchase Agreement, represent the entire
agreement and understanding of the parties to the Stock Purchase Agreement with
respect to the transactions contemplated herein and therein, and no
representations, warranties or covenants have been made in connection with this
Amendment or the Stock Purchase Agreement, other than those expressly set forth
herein and therein, or in certificates delivered in accordance herewith or
therewith. Except for the Confidentiality Agreement, which shall remain in
effect unless and until consummation of the Closing, this Amendment and the
unaltered portions of the Stock Purchase Agreement supersedes all prior
negotiations, discussions, correspondence, communications, understandings and
agreements among the parties relating to the subject matter of this Amendment
and the Stock Purchase Agreement and such agreements and all prior drafts of
this Amendment and the Stock Purchase Agreement and such other agreements are
merged into this Amendment and the unaltered portions of the Stock Purchase
Agreement.
Section 2.4 Amendments and Waivers. This Amendment and the Stock
Purchase Agreement as hereby amended may be amended, superseded, cancelled,
2
renewed or extended, and the terms hereof may be waived, only by a written
instrument signed by the Purchaser, the Company, and the Sellers set forth on
Schedule 8.6 to the Stock Purchase Agreement or, in the case of a waiver, by
the party waiving compliance (or by Sellers set forth on Schedule 8.6 to the
Stock Purchase Agreement on behalf of all Sellers).
Section 2.5 Governing Law. This Amendment shall be governed by and
construed in accordance with the laws of the State of New York, without giving
effect to choice of laws principles.
Section 2.6 Seller Representative. Victor J. Barnett and Michael J.
Kluger have all requisite power and authority to execute and deliver this
Amendment on behalf of all of the Sellers pursuant to Section 8.6 of the Stock
Purchase Agreement.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
3
This Amendment may be executed in two or more counterparts, each of
which shall be deemed an original and all of which together shall be considered
one and the same agreement.
AHC I ACQUISITION CORP.
By: /s/ David Wittels
-----------------------
David Wittels,
Vice President
ARCADE HOLDING CORPORATION
By: /s/ Victor J. Barnett
-----------------------
Victor J. Barnett,
Chairman
SELLER REPRESENTATIVE
By: /s/ Victor J. Barnett
-----------------------
Victor J. Barnett
By: /s/ Michael J. Kluger
-----------------------
Michael J. Kluger
4
EXECUTION COPY
SECOND AMENDMENT TO STOCK PURCHASE AGREEMENT
This Second Amendment to Stock Purchase Agreement (this "Amendment"),
dated December 12, 1997, by and among AHC I Acquisition Corp., a Delaware
corporation ("Purchaser"), Arcade Holding Corporation, a Delaware corporation
(the "Company"), and Victor J. Barnett and Michael J. Kluger (collectively, the
"Seller Representative").
RECITALS
WHEREAS, Purchaser will acquire all of the issued and outstanding
capital stock of the Company pursuant to that certain Stock Purchase Agreement,
dated November 14, 1997, by and among Purchaser, the Company and certain other
parties identified on the signature pages thereto, as amended by that certain
First Amendment to Stock Purchase Agreement dated December 2, 1997 (as amended,
the "Stock Purchase Agreement"); and
WHEREAS, Purchaser, the Company and the Seller Representative desire
to amend certain provisions of the Stock Purchase Agreement.
NOW, THEREFORE, in consideration of the foregoing and the mutual
covenants herein contained, the parties hereto agree as follows:
ARTICLE I
AMENDMENT OF AGREEMENT
Section 1.1 Amendment to Section 1.2. Section 1.2 of the Stock
Purchase Agreement is hereby amended to add thereto the following at the end
thereof:
Notwithstanding the foregoing, Roger Barnett's Options to purchase
1,368.55 Shares (the "Exchanged Shares") shall be surrendered and exchanged for
options to receive 100,000 shares of preferred stock, $0.01 par value, of
Purchaser, in accordance
with the Option Substitution Agreement dated as of December 15, 1997, among the
Company, Purchaser and Roger Barnett.
Section 1.2 Amendment to Section 1.5. Section 1.5(a)(iii)(C) is hereby
amended by replacing "$195.0 million" with "$192,636,855."
Section 1.3 Amendment to Section 1.5(c)Section 1.5(c) of the Stock
Purchase Agreement is hereby amended to read in its entirety as follows:
(c) Within three days after the final determination of the
Closing Differential, the Adjusted Purchase Price shall be determined as
follows: If the amount of the Closing Differential is a positive amount, then
the Adjusted Purchase Price shall be adjusted upward by an amount equal to the
Closing Differential. In such case, Purchaser shall inform the Seller
Representative and pay the amount of such difference to the Seller
Representative, which shall allocate the amount among the Sellers in accordance
with Exhibit A attached to the original Stock Purchase Agreement. Conversely,
if the amount of the Closing Differential is a negative amount, then the
Adjusted Purchase Price shall be adjusted downward by an amount equal to the
Closing Differential (expressed as a positive amount), which amount shall be
distributed to Purchaser in accordance with the terms of the Escrow Agreement.
For purposes of calculating Net Indebtedness, (i) no indebtedness incurred in
connection with the financing of the transactions contemplated by this
Agreement shall be taken into consideration; provided that no credit shall be
given for indebtedness paid in connection with the transactions contemplated by
this Agreement, and (ii) the amount of cash and cash equivalents under Section
1.5(a)(iii)(A) shall be determined as of the close of business on the Closing
Date.
ARTICLE II
MISCELLANEOUS
Section 2.1 Defined Terms. All capitalized terms used and not defined
herein shall have the meanings ascribed to such terms in the Stock Purchase
Agreement as hereby amended.
Section 2.2 Effect of Amendment. Except as specifically provided
herein, the Stock Purchase Agreement is in all respects ratified and confirmed.
All of the terms, conditions and provisions of the Stock Purchase Agreement as
hereby amended shall be and remain in full force and effect.
2
Section 2.3 Entire Agreement. This Amendment and the unaltered
portions of the Stock Purchase Agreement, together with the Schedules and
Exhibits attached to the Stock Purchase Agreement, represent the entire
agreement and understanding of the parties to the Stock Purchase Agreement with
respect to the transactions contemplated herein and therein, and no
representations, warranties or covenants have been made in connection with this
Amendment or the Stock Purchase Agreement, other than those expressly set forth
herein and therein, or in certificates delivered in accordance herewith or
therewith. Except for the Confidentiality Agreement, which shall remain in
effect unless and until consummation of the Closing, this Amendment and the
unaltered portions of the Stock Purchase Agreement supersedes all prior
negotiations, discussions, correspondence, communications, understandings and
agreements among the parties relating to the subject matter of this Amendment
and the Stock Purchase Agreement and such agreements and all prior drafts of
this Amendment and the Stock Purchase Agreement and such other agreements are
merged into this Amendment and the unaltered portions of the Stock Purchase
Agreement.
Section 2.4 Amendments and Waivers. This Amendment and the Stock
Purchase Agreement as hereby amended may be amended, superseded, cancelled,
renewed or extended, and the terms hereof may be waived, only by a written
instrument signed by the Purchaser, the Company, and the Sellers set forth on
Schedule 8.6 to the Stock Purchase Agreement or, in the case of a waiver, by
the party waiving compliance (or by Sellers set forth on Schedule 8.6 to the
Stock Purchase Agreement on behalf of all Sellers).
Section 2.5 Governing Law. This Amendment shall be governed by and
construed in accordance with the laws of the State of New York, without giving
effect to choice of laws principles.
Section 2.6 Seller Representative. Victor J. Barnett and Michael J.
Kluger have all requisite power and authority to execute and deliver this
Amendment on behalf of all of the Sellers pursuant to Section 8.6 of the Stock
Purchase Agreement.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
3
This Amendment may be executed in two or more counterparts, each of
which shall be deemed an original and all of which together shall be considered
one and the same agreement.
AHC I ACQUISITION CORP.
By: /s/ David Wittels,
-----------------------
David Wittels,
Vice President
ARCADE HOLDING CORPORATION
By: Victor J. Barnett
-----------------------
Victor J. Barnett,
Chairman
SELLER REPRESENTATIVE
By: /s/ VIctor J. Barnett
-----------------------
Victor J. Barnett
By: /s/ Michael J. Kluger
-----------------------
Michael J. Kluger
4