EXHIBIT 2.1
REAL ESTATE AND ASSET PURCHASE AGREEMENT
MILLENNIA CAR WASH, LLC
AND
AMERICAN WASH SERVICES, INC.
TABLE OF CONTENTS
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PAGE
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RECITALS................................................ 1
ARTICLE I REAL PROPERTY AND ASSET TRANSFER; CLOSING..... 1
ARTICLE II TITLE........................................ 9
ARTICLE III REPRESENTATIONS AND WARRANTIES OF SELLERS... 10
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF PURCHASER.. 21
ARTICLE V ADDITIONAL AGREEMENTS OF SELLERS.............. 22
ARTICLE VI ADDITIONAL AGREEMENTS OF PURCHASER........... 25
ARTICLE VII CONDITIONS OF PURCHASER..................... 26
ARTICLE VIII CONDITIONS OF SELLERS...................... 28
ARTICLE IX INDEMNIFICATION.............................. 30
ARTICLE X OTHER PROVISIONS.............................. 34
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SCHEDULES
1.9(a)(ii) Operating Agreement
1.9(a)(iv) Opinion of Counsel for Purchaser
1.9(a)(vi) First Closing Assignment Agreement
1.9(a)(vii) Registration Rights Agreement
1.9(b)(ii) Second Closing Assignment Agreement
1.10(a)(i) Bill of Sale
1.10(a)(iv) Noncompetition Agreement
1.10(a)(v) Opinion of Counsel for Sellers
Enclosed in Disclosure Binder
1.3(a) Company Debt
1.3(b) Restricted and Unrestricted Locations
1.4(a) Equipment
1.4(c) Operating Contracts and Leases
1.4(d) Permits, Consents and Approvals
1.4(g) Description of Deposits Under Purchase and Sale Agreements
1.4(h) Purchase Agreement Escrows
1.5 Excluded Assets List
1.11(b) Allocation of Purchase Price to Assets
2.1 Real Property Descriptions
2.3 Permitted Real Property Exceptions
3.3 Material Documents
3.4 Liens and Encumbrances Affecting Personal Property
3.5 Effect of Transactions on Operating Agreements
3.6 Real Property Interests
3.6(a) Exceptions to governmental compliance
3.6(b) Exceptions to lawful use of the Property
3.6(c) Exceptions to conduct in compliance with Applicable laws
3.6(e) Litigation or administrative proceedings for environmental
violations
3.6(f) Releases of "Hazardous Materials" and Environmental Conditions
3.6(h) Wetlands
3.6(i) Mechanic's liens
3.6(k) Proceedings which would affect use of the Real Property
3.7 Financial Statements
3.8 List of Accounts Payable
3.9 Material events since date of Most Recent Balance Sheet
3.10 Insurance Policies, Performance Bonds and Letters of Credit
3.12(a) Employment Agreements
3.12(b) Benefit Plans
3.13(a) Violations of federal, state or local tax
3.13(b) Environmental violations
3.13(f) Required Governmental Approvals
3.15 Required Consents
3.19 List of Investments in Competitors and Others
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3.21 Pending and Threatened Litigation
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REAL ESTATE AND ASSET PURCHASE AGREEMENT
This Real Estate and Asset Purchase Agreement ("Agreement") is made as
of March 30, 1999, by and among Millennia Car Wash, LLC ("Millennia"), Excel
Legacy Corporation and G II Ventures, LLC ("Members"), and American Wash
Services, Inc. ("AWS"). For purposes of this Agreement, AWS is sometimes
referred to as the "Purchaser," Millennia is referred to as "Company," and the
Company and the Members are collectively referred to as the "Sellers."
RECITALS
The Members are the owners of all of the outstanding membership interests
in Company, which is in the business of operating a car wash company (the
"Business") in or about Encinitas, California. Company owns certain parcels of
real property upon which the Business is conducted (the "Owned Real Property"),
possesses valid leasehold interests in or at other parcels of real property (the
"Leased Real Property") and operates certain car wash businesses pursuant to
operating agreements (the "Operating Agreements"). The locations of the Owned
Real Property, the Leased Real Property and the properties subject to Operating
Agreements (the "Operating Agreement Property") are referred to in this
Agreement as the "Locations." The real and personal property pertaining to
certain of the Locations (the "Restricted Locations") is subject to various
liens and may not be transferred without the approval ("Lender Approval") of the
Franchise Mortgage Acceptance Company ("FMAC").
Purchaser intends to merge with a subsidiary of Mace Security
International, Inc. ("Successor Corporation"). The parties desire that the Owned
Real Property and substantially all of the other assets of the Company be
acquired by Purchaser in exchange for common stock of Successor Corporation, all
on the terms contained herein.
Throughout this Agreement various Schedules are referenced as being
attached to this Agreement. Notwithstanding the fact that all Schedules are
referred to as being attached to this Agreement, some of the Schedules are not
attached but instead appear in a Disclosure Binder prepared by the Sellers. The
Disclosure binder shall be delivered to Purchaser within fourteen days after the
date of this Agreement. The Disclosure Binder is organized under subheadings
which correspond to the various Schedules described in this Agreement. For
purposes of identification, the Disclosure Binder has been identified by the
parties by a written statement executed by the parties and appearing as the
first page of the Disclosure Binder.
ARTICLE I
Real Property and Asset Transfer; Closing
Section 1.1 Incorporation of Recitals. The recitals set forth above
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are incorporated herein by reference and are a part of this Agreement.
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Section 1.2 Place for Closings. Each Closing under this Agreement shall
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take place at the offices of Purchaser, 1000 Crawford Place, Mount Laurel, New
Jersey, or such other place as the parties hereto may agree upon. The date that
each Closing occurs is referred to hereinafter as the "First Closing Date" or
"Second Closing Date," as applicable, and the act of closing as "Closing."
Section 1.3 Agreement to Transfer Assets and Owned Real Property;
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Consideration.
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(a) The Company shall transfer and deliver to the Purchaser the Owned Real
Property and the Assets as hereafter defined and as set forth in Section 1.4
below for the total consideration as follows: (i) 4,087,678 shares of Successor
Corporation's common stock ("Consideration Stock") having a value of
$20,810,000.00, based on 2,601,250 shares being valued at $4.00 per share and
1,486,428shares being valued at $7.00 per share and (ii) a warrant to purchase
62,500 shares of the common stock of Successor Corporation, exercisable at any
time after issuance at a $4.00 per share exercise price, which warrant will
expire five (5) years following the date of issuance (the "Warrant"), and (iii)
assumption by the Successor Corporation of the long-term debt of the Company, in
an amount set forth on Schedule 1.3(a) attached ("Company Debt") which debt
shall not exceed $15,109,000.00 in amount (collectively, the "Purchase Price").
Schedule 1.3(a) lists by separate subheadings those items of Company Debt
arising out of or related to the Restricted Locations ("Restricted Location
Debt") and those items of Company Debt that neither relate to nor arise out of
the Restricted Locations ("Unrestricted Location Debt").
(b) There shall be two Closings under this Agreement. At the first closing
("First Closing"), all Assets and Owned Real Property which are not part of or
related to the Restricted Locations ("Unrestricted Locations") shall be conveyed
to Purchaser in exchange for 2,357,143 of the 4,087,678 total of the
Consideration Stock, the Warrant, and Purchaser's assumption of the Unrestricted
Location Debt. At the second closing ("Second Closing"), all Assets and Owned
Real Property which are part of the Restricted Locations shall be conveyed to
Purchaser in exchange for the 1,730,535 balance of the Consideration Stock and
the assumption of the Restricted Location Debt. A list of the Unrestricted and
Restricted Locations is attached hereto as Schedule 1.3(b).
Section 1.4 Description of Assets. Upon the terms and subject to the
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conditions set forth in this Agreement, on the First Closing Date and on the
Second Closing Date as hereinabove defined, the Company shall grant, convey,
sell, transfer and assign to Purchaser all assets of the Company (other than the
Excluded Assets as defined in this Agreement), which assets shall include the
following assets, properties and contractual rights of the Company, wherever
located, all as set forth in this Section 1.4 (the "Assets"). Where the assets
are in different physical locations, the applicable Schedules have been
organized with subheadings which set forth the physical locations of the listed
assets. The Assets related to the Unrestricted Locations shall be conveyed on
the First Closing Date and the Assets related to the Restricted Locations shall
be conveyed on the Second Closing Date.
(a) All equipment, computers, printers, card readers, vending machines,
appliances, machinery and parts, vehicles, tools, hoses, brushes, heating,
ventilation, air conditioning, plumbing, electrical, drainage, fire alarm,
communications, sprinkler, security and exhaust equipment and
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similar items in Company's possession or control, used in connection with,
located in or on, or otherwise pertaining to the Business (collectively, the
"Equipment"), as listed on Schedule 1.4(a);
(b) All of the inventory of retail items, operating supplies, parts and
accessories owned by the Company and used in connection with the Business;
(c) All contractual rights of the Company to acquire car wash businesses
from third parties, and all contractual rights under the Operating Agreements
and other agreements with its customers, vendors, suppliers, landlords, lessors
and others (whether oral or in writing), as listed on Schedule 1.4(c);
(d) All permits, licenses, franchises, consents and other approvals from
governments, governmental agencies (federal, state and local) and/or third
parties ("Consents and Approvals") held by the Company relating to, used in or
required for the operation of the Business or any of the Assets, all of which
are listed on Schedule 1.4(d), to the extent such Consents and Approvals are
assignable;
(e) All office or other equipment, furnishings, supplies, brochures, sales
and promotional materials, catalogues and advertising literature, business
files, customer lists, customer records and information, and all pictures and
photographs, computer programs and software (with applicable documentation and
source codes), construction and "as-built" drawings, plans and specifications,
finish plans and other personal property of every nature and description (i) in
Company's possession or control, or (ii) if used in connection with the
Business, in the possession or control of any Member;
(f) To the extent owned, licensed or otherwise available to Sellers, all
intellectual property used in connection with the Business or any other Asset,
including, without limitation, know-how, trade secrets, trademarks, trade names,
and the right to use the names under which any of the Locations are currently
operated (collectively, the "Intellectual Property");
(g) All of the accounts receivable, prepaid deposits, deposits under valid
purchase and sale agreements with third parties, cash, cash equivalents,
goodwill and all other tangible and intangible assets of the Company as listed
on Schedule 1.4(g) (Schedule 1.4(g) attached hereto describes all deposits under
valid purchase and sale agreements with third parties, identifying the amount
paid in hand or by escrow, and the amount refundable to the purchaser under said
agreements); and
(h) The Company's rights under the escrows established under purchase
agreements to secure representations and warranties the Company received from
sellers under such purchase agreements ("Holdbacks") which escrows and purchase
agreements are listed on Schedule 1.4(h); and
(i) All books, records, original agreements and contracts and title
documents relating to the items set forth in (a) through (h) above.
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At the First Closing and the Second Closing, as applicable, good and marketable
title to the Assets will be conveyed to Purchaser by the Company free and clear
of all liens, encumbrances, security interests and claims, except as set forth
in Schedule 1.3(a).
Section 1.5 Excluded Assets. Except as provided in this section, all of
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the real and personal property used by the Company in the conduct of the
business is included among the Owned Real Property and the Assets being sold to
Purchaser pursuant to this Agreement. The parties agree that the only tangible
and intangible property owned or used by the Company and not being sold to the
Purchaser are the financial books and records of the Company, copies of which
will be made available by the Company to Purchaser, both before and after
Closing, for examination, inspection and copying, Merrill Lynch account number
232-07710, and those specific assets located at the Company's California office
listed in Schedule 1.5 ("Excluded Assets").
Section 1.6 Assumption of Obligations. Purchaser agrees: (i) to assume or
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pay the Unrestricted Location Debt as set forth on Schedule 1.3(a), from and
after the First Closing; (ii) to assume or pay the Restricted Location Debt as
set forth on Schedule 1.3(a), from and after the Second Closing; (iii) to assume
or pay, after each Closing, the accounts payable of the Company arising out of
inventory items conveyed to Purchaser at such Closing that are to be assumed by
the Purchaser in accordance with Section 3.8, and to the extent they do not
exceed $200,000.00 in the aggregate; and (iv) to assume and perform all of the
Company's obligations under the contracts and Operating Agreements listed on
Schedule 1.4(c), to the extent, and only to the extent, such obligations are
required to be performed subsequent to the close of business on the First or
Second Closing Date, as applicable; ("Assumed Liabilities").
Section 1.7 Non-Assumption of Liabilities. Purchaser shall not, by the
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execution and performance of this Agreement or otherwise, assume, become
responsible for, or incur any liability or obligation of any nature of the
Company (except for the Assumed Liabilities being assumed under Section 1.6
hereof), whether legal or equitable, matured or contingent, known or unknown,
foreseen or unforeseen, ordinary or extraordinary, patent or latent, whether
arising out of occurrences prior to, at, or after the date of this Agreement,
including, without limiting the generality of the foregoing, any liability or
obligation arising out of or relating to: (a) any occurrence or circumstance
(whether known or unknown) which occurs or exists on or prior to the First
Closing Date and constitutes, or which by the lapse of time or giving notice (or
both) would constitute, a breach or default under any lease, contract, or other
instrument or agreement or obligation (whether written or oral); (b) injury to
or death of any person or damage to or destruction of any property, whether
based on negligence, breach of warranty, or any other theory; (c) violation of
the requirements of any governmental authority or of the rights of any third
person, including, without limitation, any requirements relating to the
reporting and payment of federal, state, local or other income, sales, use,
franchise, excise or property tax liabilities of Sellers; (d) the generation,
collection, transportation, storage or disposal by the Company of any materials,
including, without limitation, municipal service waste, special waste,
construction and demolition debris, or hazardous materials; (f) any
compensation, severance pay, or accrued vacation pay obligation of the Company
owed to employees of the Company for periods prior to the Second Closing Date,
or any obligations under any employee benefit plan (within
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the meaning of Section 3(3) of the Employee Retirement Income Security Act of
1974, as amended) or any other fringe benefit program maintained or sponsored by
Company or to which any of the company contributes or any contributions,
benefits or liabilities therefor or any liability for the withdrawal or partial
withdrawal from or termination of any such plan or program by the Company; (g)
the debts and obligations of the Company, except for the Assumed Liabilities;
(h) any violation by the Company of any law, including, without limitation, any
federal, state or local antitrust, racketeering or trade practice law, (i)
liabilities or obligations of the Sellers for brokerage or other commissions
relative to this Agreement or the transactions contemplated hereunder; and (j)
all liabilities related to the Excluded Assets or associated with or related to
the operation of the Company's California office.
1.8 Term and Time For Closing. Following execution of this Agreement,
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Purchaser and Sellers shall be obligated to conclude the First Closing within
ten (10) days after the conditions of First Closing set forth in Article VII and
Article VIII have been satisfied or waived. Purchaser and Sellers shall be
obligated to conclude the Second Closing within ten (10) days after the
conditions of Second Closing set forth in Article VII and Article VIII have been
satisfied or waived. If the failure to conclude this transaction is due to the
refusal and failure of Sellers to perform their obligations under this
Agreement, Purchaser may seek to enforce this Agreement with an action of
specific performance. In the case of a willful default by Sellers, Purchaser, in
addition to the remedy of specific performance, and not in limitation of any
other rights and remedies available to the Purchaser under this Agreement or at
law or in equity, may recover its actual (but not consequential) damages
resulting from the default of the Sellers. If the failure to conclude this
transaction is due to the refusal and failure of Purchaser to perform its
obligations to close under this Agreement, the Sellers may seek to enforce this
Agreement with an action of specific performance. In the case of a willful
default by Purchaser, Sellers, in addition to the remedy of specific
performance, and not in limitation of any other rights and remedies available to
the Sellers under this Agreement or at law or in equity, may recover their
actual (but not consequential) damages resulting from the default of the
Purchaser. Neither Sellers not Purchaser shall be deemed in default hereunder by
reason of (i) any failure of the contemplated merger between Purchaser and
Successor Corporation to occur, for any reason beyond the control of Purchaser,
or (ii) any failure of a condition precedent to the obligations of either
Sellers or Purchaser hereunder where such failure has occurred for reasons
beyond the control of the party unable to satisfy the condition precedent to the
other party's obligations under this Agreement.
This Agreement and the transactions contemplated hereby may be terminated
at any time: prior to the First Closing Date:
(a) by mutual written agreement of Purchaser and the Sellers;
(b) by Purchaser within fourteen (14) days after the date of this
Agreement if Sellers have not delivered the Disclosure Binder to Purchaser;
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(c) by the Sellers, or by Purchaser in the event Purchaser or the Sellers,
as applicable, makes a material misrepresentation under this Agreement or
breaches a material covenant or agreement under this Agreement, and fails to
cure such misrepresentation or breach within ten (10) business days from the
date of written notice of the existence of such misrepresentation or breach; or
(d) by the Sellers or Purchaser, if the First Closing does not occurr by
March 30, 1999, or such other date as may be agreed to by the parties hereto in
writing, due to the non-fulfillment of a condition precedent to such party's
obligation to close as set forth at Article VII or VIII hereof, as applicable
(through no fault or breach by the terminating party).
If the First Closing occurs, and the conditions precedent to any party's
obligation to complete the Second Closing have not been fulfilled by the date
which is the second anniversary of the First Closing Date, then either Purchaser
or Sellers upon ten days' written notice to the other party may terminate any
and all obligations of the parties to complete the Second Closing.
All terminations shall be exercised by sending the other parties a written
notice of the termination. In the event this Agreement is terminated as provided
herein, this Agreement shall become void and be of no further force and effect
and no party hereto shall have any further liability to any other party hereto,
except that this Section 1.8, Article IX, Section 10.1, and Section 10.2 shall
survive and continue in full force and effect, notwithstanding termination. The
termination of this Agreement shall not limit, waive or prejudice the remedies
available to the parties, at law or in equity, for a breach of this Agreement.
Section 1.9 Deliveries by Purchaser.
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(a) At the First Closing, Purchaser shall deliver, all duly and properly
executed (where applicable):
(i) The portion of the Consideration Stock due on the First Closing
Date, as provided in Section 1.3(b) above to be delivered to the Sellers;
(ii) An operating agreement providing for Purchaser to manage the
Restricted Locations until the Second Closing Date, in form and substance as
attached hereto as Schedule 1.9(a)(ii) ("Operating Agreement").
(iii) A copy of the resolutions of the Board of Directors of
Purchaser authorizing the execution and delivery of this Agreement and each
other agreement to be executed in connection herewith (the resolutions and
agreements to be executed in connection herewith by Sellers and/or Purchasers
are referred to in this Agreement collectively, the "Collateral Documents") and
the consummation of the transactions contemplated herein;
(iv) A favorable opinion from counsel for Purchaser, dated the day of
the First Closing, in form and substance as attached hereto as Schedule
1.9(a)(iv);
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(v) Other documents and instruments required by this Agreement, if
any;
(vi) An Assignment and Assumption Agreement in form and substance as
attached hereto as Schedule 1.9(a)(vi) ("First Closing Assignment Agreement");
(vii) A Registration Rights Agreement in form and substance as
attached hereto as Schedule 1.9(a)(vii) ("Registration Rights Agreement"); and
(viii) The Warrant.
(b) At the Second Closing, Purchaser shall deliver, all duly and properly
executed (where applicable):
(i) The remaining portion of the Consideration Stock due on the
Second Closing Date, as provided in Section 1.3(b) above to be delivered to the
Sellers;
(ii) An Assignment and Assumption Agreement in form and substance as
attached hereto as Schedule 1.9(b)(ii) ("Second Closing Assignment Agreement");
and
(iii) Other documents and instruments required by this Agreement, if
any.
Section 1.10 Deliveries by Sellers.
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(a) At the First Closing, each of the Sellers shall deliver, all duly and
properly executed (where applicable):
(i) A Bill of Sale for the Assets related to the Unrestricted
Locations to be conveyed and assigned, in the form attached as Scheduled
1.10(a)(i);
(ii) A certified copy of resolutions of the directors of the Company
and the Members authorizing the execution and delivery of this Agreement and
each of the Collateral Documents to be executed in connection herewith by
Sellers or either of them;
(iii) The Certificate described at Section 7.1, executed by the
president of each of the Members;
(iv) A Noncompetition Agreement in form and substance attached as
Schedule 1.10(a)(iv);
(v) A favorable opinion from counsel for Sellers, dated the First
Closing Date, in form and substance as attached hereto as Schedule 1.10(a)(v);
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(vi) A Special Warranty Deed conveying to Purchaser each parcel of
the Owned Real Property related to the Unrestricted Locations;
(vii) An Assignment conveying to Purchaser each leasehold interest in
the Leased Real Property related to the Unrestricted Locations;
(viii) Physical possession of all Assets related to the Unrestricted
Locations;
(ix) The First Closing Assignment Agreement;
(x) The Registration Rights Agreement; and
(xi) Other documents and instruments required by this Agreement, if
any.
(b) At the Second Closing, each of the Sellers shall deliver, all duly and
properly executed (where applicable):
(i) A Bill of Sale for the Assets related to the Restricted Locations
to be conveyed and assigned, in the form attached as Scheduled 1.10(a)(i);
(ii) The Certificate described at Section 7.1, executed by the
president of each of the Members;
(iii) The Second Closing Assignment Agreement;
(iv) A Special Warranty Deed conveying to Purchaser each parcel of
the Owned Real Property related to the Restricted Locations;
(v) An Assignment conveying to Purchaser each leasehold interest in
the Leased Real Property related to the Restricted Locations;
(vi) Physical possession of all Assets related to the Restricted
Locations; and
(vii) Other documents and instruments required by this Agreement, if
any.
Section 1.11 Transfer Tax, Allocation of Purchase Price.
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(a) Sellers and Purchaser shall each bear or pay sales, transfer taxes and
fees imposed on the conveyance of the Assets by all governments, state, local
and federal in accordance with the provisions of Section 6.1.
(b) The parties agree that the consideration for the sale of the Assets
shall be allocated among the Assets as set forth on Schedule 1.11(b) attached
hereto, which Schedule shall be prepared
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by Sellers and submitted to Purchaser for approval on or before the First
Closing Date. The Sellers and the Purchaser acknowledge that the allocation in
such Schedule, when approved by Purchaser, will have been arrived at based upon
their negotiations and shall be used by them for all purposes, including, but
not limited to, federal, state, and local tax and financial reporting purposes,
and they shall not take any position inconsistent to the allocation. On each
Closing Date, as applicable, the Purchaser and the Sellers shall execute
Internal Revenue Form 8594 which form shall be binding on the Purchaser and the
Sellers and shall be filed with the income tax returns of the Purchaser and the
Sellers.
(c) Charges for water, electricity, sewer rental, gas, telephone and all
other utilities pertaining to the Real Property shall be pro rated on a per diem
basis as of midnight of the day preceding the date of the Closing applicable to
each parcel being conveyed, disregarding any discount or penalty and on the
basis of the fiscal year or billing period of the authority, utility or other
person levying or charging for the same. If the consumption of any of the
foregoing is measured by meters, then in lieu of apportionment as aforesaid
Purchaser shall, not earlier than the day preceding the date of the applicable
Closing, obtain a reading of each such meter and Sellers shall pay all charges
thereunder through the date of the meter readings or include such charges on
Schedule 3.8. If there is no such meter or if the bills for any of the foregoing
have not been issued prior to the date of the applicable Closing, the charges
therefor shall be adjusted at such Closing on the basis of charges for the prior
period for which bills were issued and shall be further adjusted when the bills
for the current period are issued. Sellers and Purchaser shall cooperate to
cause the transfer of the Business's utility accounts and telephone numbers from
Sellers to Purchaser.
(d) Sellers, jointly and severally, covenant and agree to pay and
discharge, when due, or contest in good faith by appropriate proceedings, all
liabilities, obligations and claims of creditors which are or could be asserted
against the Purchaser or the Assets by reason of any failure of the Company to
pay, discharge and satisfy any of the liabilities or obligations set forth in
Section 1.7 that are not being assumed by the Purchaser under this Agreement.
ARTICLE II
Title
Section 2.1 Real Property. As set forth in the Recitals, Company owns the
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Owned Real Property, a legal description of the metes and bounds of which is
attached as Schedule 2.1. For purposes of this Agreement, "Owned Real Property"
shall also include (i) all of the Company's right, title and interest in and to
all easements, rights-of-way, privileges and appurtenances thereto, (ii) all of
Company's right, title and interest in and to the beds of all streets, roads,
avenues or highways, open or proposed, abutting the Owned Real Property, (iii)
all of Company's right, title and interest, if any, in and to any award in
condemnation, or damages of any kind, to which Company may have become entitled
or may hereafter be entitled, by reason of any exercise of the power of eminent
domain with respect to the owned Real Property or any other right, title or
interest to be sold hereunder or any part thereof, and (iv) all of Company's
right, title and interest in and to all surveys,
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architectural and engineering plans, specifications, drawings, reports, etc., if
any, presently existing or hereafter prepared, with respect to the Owner Real
Property.
Section 2.2 Owners Title Policy. At each Closing, Sellers shall obtain
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for Purchaser, at regular rates at Purchaser's expense, with respect to the
Owned Real Property being conveyed at such Closing, an extended coverage owners
policy of title insurance from a title company acceptable to Purchaser (the
"Title Company"), dated as of the applicable Closing Date, in the amount equal
to the allocated purchase price of the Owned Real Property. The title policy
shall include comprehensive, zoning, access and contiguity endorsements, and
shall insure title to the Owned Real Property to be in fee simple in Company
subject only to the Permitted Exceptions permitted by Section 2.3 hereof (the
"Owners Policy"). Purchasers shall pay the cost of the Owners Policy.
Section 2.3 Permitted Exceptions. The Owners Policy shall insure
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Purchaser's interest in the Owned Real Property to be free and clear of all
encumbrances and exceptions whatsoever except those listed on Schedule 2.3
attached hereto ("Permitted Exceptions").
Section 2.4 Survey. Company shall furnish Purchaser with a survey
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relating to the Owned Real Property that is sufficiently current that the Title
Company shall not have included a survey exception in the Owner's Policy. If
Company does not have such a survey available, Purchaser, at its election, may
have a survey of the Owned Real Property made at its expense. Sellers will
cooperate and aid Purchaser's surveyor in preparing any survey commissioned by
Purchaser.
ARTICLE III
Representations and Warranties of Sellers
Whenever the phrase "to Sellers' knowledge" or any equivalent phrase is
used in this Agreement, the phrase shall mean the actual knowledge of either of
the Members or any officer, director or managing member thereof, or of any
officer or director of the Company, and the knowledge such member or officer or
director would or should have had, if such member or officer or director
exercised reasonable diligence in the conduct of the Member's or the Company's
business. Notwithstanding the foregoing, no member, officer, director, or
managing member shall be required to undertake any affirmative investigative
action for the purposes of satisfying the preceding sentence. With knowledge
that Purchaser is relying upon the representations, warranties and covenants
herein contained, Sellers represent and warrant to Purchaser and make the
following covenants for the Purchaser's benefit, at and as of the date hereof
and the date of each Closing:
Section 3.1 Organization and Standing. The Company is duly organized,
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legally existing and in good standing under the laws of the state of Delaware,
with full power and authority to own its properties and conduct its business as
now being conducted, and has been duly admitted and is in good standing under
the laws of each state in which it owns property or operates a business.
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Section 3.2 Authorization. The Sellers have by proper proceedings
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duly authorized the execution, delivery and performance of this Agreement and
each of the Collateral Documents to be entered into by Sellers and no other
action is required by law or the certificate of incorporation, limited liability
company certificate, governing agreement or by-laws of any Seller. Members own
all of the outstanding membership interests of the Company.
Section 3.3 Contracts, Permits and Material Documents. The items
-----------------------------------------
listed and included in Schedule 3.3, attached hereto, are all of the following
("Material Documents") with respect to the Company, Business, Real Property or
Assets: (i) leases for real and personal property, (ii) licenses, (iii)
franchises, (iv) promissory notes, guarantees, bonds, letters of credit,
mortgages, liens, pledges, and security agreements under which any of the
Company or Assets are bound or under which the Company or Assets are the
beneficiary, (v) collective bargaining agreements, (vi) patents, trademarks,
trade names, copyrights, trade secrets, proprietary rights, symbols, service
marks, and logos, (vii) all permits, licenses, consents and other approvals from
governments, governmental agencies (federal, state and local) and/or third
parties relating to, used in or required for the operation of any of the Assets;
(viii) all surety bonds, closure bonds or any other obligation which the Company
has liability for with respect to the Business; (ix) all contracts to acquire
any car wash businesses from third parties; (x) all Operating Agreements and
other contracts, agreements and instruments not listed on another Schedule
attached to this Agreement (such as the Operating Agreements listed on Schedule
1.4(c)) which are binding on the Company or any of the Assets. The Material
Documents listed on Schedule 3.3, are organized under separate heading for each
of the different type of documents listed. Except as set forth on Schedule 3.3,
neither the Company nor any person or party to the any of the Material Documents
or bound thereby is in material default or in default known to any Seller under
any of the Material Documents, and, to the knowledge of Sellers, no act or event
or knowing default under any of the Material Documents, no act or event has
occurred which with notice or lapse of time, or both, would constitute such a
default. The Company is not a party to, and the Company's property is not bound
by, any agreement or instrument which is material to the continued conduct of
business operations of the Company, as now being conducted, except as listed in
Schedule 3.3. The Material Documents are transferable or assignable to
Purchaser, or any required consent or approval to such transfer or assignment
have been obtained,, except as listed in Schedule 3.3, and except that Sellers
have advised Purchaser that certain contracts of Company to acquire certain car
wash businesses are not assignable to Purchaser at the date of this Agreement,
and Sellers have agreed to take all necessary action before the Closing
applicable to each such contract to obtain any consents or approvals required so
that each such contract may be assigned to Purchaser at the applicable Closing
as contemplated under this Agreement.
Section 3.4 Personal Property. All items of personal property used in the
------------------
Business, except for the Excluded Assets used in the Business, are included
among the Assets described in Section 1.4 hereof and will be transferred to
Purchaser at the First or Second Closing. All items of personal property owned
by the Company are in good operating order, normal wear and tear excepted, and
are sufficient in type, quantity and quality to operate the business currently
conducted by the Company in the manner such business has been conducted in the
past. The Company at each Closing will have good and marketable title to all of
the Assets conveyed at such Closing, each free
11
and clear of any mortgages, pledges, liens, encumbrances, leases, charges,
claims, security agreements or title retention or other security arrangements,
except as set forth in Schedule 3.4.
Section 3.5 Operating Agreements. The name and address of each party to
--------------------
each Operating Agreement under which the Company operates at any of the
Locations is listed on Schedule 1.4(c) attached hereto. Neither the Company nor,
to the Sellers' knowledge, any person or party to the any of the Operating
Agreements is in material or knowing default thereunder, and to Sellers'
knowledge no act or event has occurred which with notice or lapse of time, or
both, would constitute such a default. The purchase of the Assets by Purchaser
will not create a default or otherwise affect the parties under any Operating
Agreement, except as set forth under Schedule 3.5. The Company or its successors
and assigns may cancel the Company's obligations under the Operating Agreements
at any time without penalty or premium and without being in default thereof.
Section 3.6 Real Property. The Company has never owned, leased or
-------------
otherwise occupied, had an interest in or operated any real property other than
the Owned Real Property, the Leased Real Property and the Operating Agreement
Property (collectively, the "Real Property"), except as listed on Schedule 3.6
attached hereto and incorporated herein by reference. The Company has a valid
leasehold estate interest in each parcel of the Leased Real Property and has
good, marketable and insurable title to, or a valid and enforceable leasehold
interest in, all of the Real Property, except for the Permitted Exceptions. Full
and complete copies of all of the leases of the Leased Real Property, and all
Operating Agreements, including all modifications and amendments thereof, have
been furnished to Purchaser.
(a) To Sellers' knowledge, in all material respects, except as set forth in
Schedule 3.6(a) attached hereto and incorporated herein, the Real Property is,
and at all times during operation of the Business thereon has been, licensed,
permitted and authorized for the operation of such Business under all applicable
federal, state and local statutes, laws, rules, regulations, orders, permits
(including, without limitation, zoning restrictions and land use requirements)
and licenses and all administrative and judicial judgments, rulings, decisions
and orders affecting or otherwise applicable to the protection of the
environment, the Real Property and the conduct of such Business thereon
(collectively, the "Applicable Laws").
(b) To Sellers' knowledge, except as set forth in Schedule 3.6(b) attached
hereto and incorporated herein by reference, the Real Property is legally usable
for its current uses, and the Real Property can be used by the Purchaser after
the Closing to operate such business as is currently operated, without violating
any Applicable Law or private restriction, and such uses are legal, conforming
uses.
(c) To Sellers' knowledge, except as set forth in Schedule 3.6(c) attached
hereto and incorporated herein by reference, all activities and operations
conducted on the Real Property, whether by Sellers or by third parties, are now
being conducted and have always been conducted in compliance with all Applicable
Laws.
12
(d) The Sellers shall make available on Purchaser's reasonable request all
engineering, geologic and other similar reports, documentation and maps relating
to the Real Property in the possession or control of the Sellers their
consultants or employed professional firms.
(e) Except as set forth in Schedule 3.6(e) attached hereto and
incorporated herein by reference, neither Sellers nor the Real Property now is
or ever has been during Sellers' use or ownership thereof involved in any
litigation or administrative proceeding seeking to impose fines, penalties or
other liabilities or seeking injunctive relief for violation of any Applicable
Laws relating to the environment.
(f) To Sellers' knowledge there have been no spills, leaks, deposits or
other releases into the environment or onto or under the Real Property of any
Hazardous Materials as defined for purposes of this Agreement as any material or
substance which, by reason of its composition or characteristics, is (i) toxic
or hazardous waste ("Hazardous Waste") as defined in either (A) the Solid Waste
disposal Act, 42 U.S.C. (S)(S) 6901 et seq., or Section 6(c) of the Toxic
-- ---
Substance Control Act, 15 U.S.C. (S)2605(c), or the Resource Conservation and
Recovery Act, 42 USCA Section 6901 et seq., or any laws of similar purpose or
-- ---
effect, and any rules, regulations or policies promulgated thereunder, or (B)
any Environmental Law as hereinafter defined, or (ii) special nuclear or by-
products materials within the meaning of the Atomic Energy Act of 1954, or other
material environmental conditions other than as disclosed on Schedule 3.6(f). A
list of all of the Locations is set forth on Schedule 3.6(f) showing, for each
Location, all environmental inspections, reports, studies and other activities
and due diligence conducted by the Sellers on each of such Locations to
determine whether or not any environmental conditions or contamination exists on
or at each such Location (e.g., Phase I and Phase II inspections, reports,
----
studies and other activities).
(g) To Sellers' knowledge, no party, other than the Company and the record
owners of each parcel of the Leased Real Property, has a present or future right
to possession of all or any part of the Real Property, except for any right
defined in, under or by any of the Permitted Exceptions.
(h) To Sellers' knowledge, no portion of the Real Property contains any
areas that could be characterized as disturbed, undisturbed or man-made wetlands
or as "waters of the United States" pursuant to any Applicable Laws or the
procedural manuals of the Environmental Protection Agency, U.S. Army Corps of
Engineers or any California state agency whether such characterization reflects
current conditions or historic conditions which have been altered without the
necessary permits or approvals, except as listed on Schedule 3.6(h) attached
hereto and incorporated herein by reference.
(i) To Sellers' knowledge, there are no mechanic's liens affecting the Real
Property and no work has been performed on the Real Property within twelve (12)
months of the date hereof for which a mechanic's lien could be filed, except as
set forth in Schedule 3.6(i) attached hereto and incorporated herein by
reference.
13
(j) There are no levied or pending special assessments affecting all or
any part of the Real Property owed to any governmental entity and none is
threatened. To Sellers' knowledge there are no changes in the real estate tax
assessments of any Real Property that would increase the real estate taxes paid
by the owner of any of the Owned Real Property or that would increase the real
estate taxes paid by the lessee of any of the Leased Real Property for any
current or future tax year.
(k) To Sellers' knowledge there are no proceedings or amendments pending,
or to Sellers' knowledge threatened by any third party, which would result in a
change in the allowable uses of the Real Property or which would modify the
right of the Purchaser to use the Real Property for its present uses after the
Closing Date, except as set forth in Schedule 3.6(k) attached hereto and
incorporated herein by reference.
Section 3.7 Financial Statements. Sellers have delivered to Purchaser
--------------------
true and correct copies of the following financial statements and operating
records of the Company, copies of which are attached hereto as Schedule 3.7
and incorporated herein by reference:
(a) Historical operating records for all of the Locations, as received by
Sellers from the former owners and/or operators thereof, including all income
and expense records.
(b) A balance sheet for the Company as of October 31, 1998 ("Most Recent
Balance Sheet"), and a statement of income, cash flow and retained earnings for
the period ended October 31, 1998 ("Most Recent Income Statement"), both
prepared on an accrual basis and reviewed by the Company's regular accountants.
The Most Recent Balance Sheet and Most Recent Income Statement are hereafter
referred to as the "Financial Statements" or "Most Recent Financial Statements."
The Financial Statements have been prepared by the regular accountants of
the Company, in accordance with generally accepted accounting principles
("GAAP"). All notes and contingent labilities required to be stated and
reflected under GAAP are stated and reflected on the Financial Statements. Each
of the Financial Statements (including all footnotes thereto) is true, complete
and correct in all material respects, and Sellers are not aware of any material
misstatements or omission of facts pertaining thereto. The balance sheets
present fairly and accurately the financial condition of the Company as of the
dates indicated thereon and the statements of income present fairly and
accurately on an accrual basis the results of the operations of the Company for
the periods indicated thereon. The Company has not (i) made any material change
in its accounting policies or (ii) effected any prior period adjustment to, or
other restatement of, its financial statements for any period. The Financial
Statements are consistent with the books and records of the Company (which books
and records are correct and complete). Since the date of the Most Recent
Financial Statements, there has not been any material adverse change in the
income, expenses, assets, liabilities or financial condition of the Company.
Section 3.8 Liabilities; Accounts Receivable.
---------------------------------
14
(a) The Company does not have any liabilities, fixed or contingent, other
than:
(i) liabilities fully reflected in the Most Recent Balance Sheet;
(ii) accounts payable arising since the date of the Most Recent
Balance Sheet arising during the normal course of business consistent with past
custom and practice; and
(iii) the Company Debt.
All accounts payable of the Company shall be for the purchase of inventory
held at the time of each Closing, for which invoices have been received or for
which inventory and supplies have been ordered, shipped or delivered to the
Company prior to such Closing Date, and shall have been incurred in the ordinary
course of business by the Company. The Company shall provide Purchaser with an
itemized list of all such inventory at each Closing and the cost of the listed
inventory shall be at least equal to the accounts payable to be assumed by
Purchaser under Section 1.6. All other accounts payable will be and remain the
sole responsibility and obligation of the Company, and will be paid by the
Company before payment shall become past due. A list of all of the accounts
payable at the date of this Agreement is attached to this Agreement as Schedule
3.8. The Company shall deliver an updated list of the accounts payable to the
Purchaser at the First Closing.
(b) All accounts receivable of the Company, less a bad accounts reserve as
set forth on the Most Recent Balance Sheet, are valid accounts receivable, and
will be fully collectible within 120 days of Closing. All accounts receivable
have been generated in the ordinary course of the Company's business and all
services required to be rendered for the accounts receivable to be due have been
rendered. To Sellers' knowledge, there are no defenses or set-offs to any of the
accounts receivable.
(c) The aggregate value of the (i) cash, (ii) cash equivalents, (iii)
deposits under valid purchase and sale agreements with third parties as
described in Schedule 1.4(g), (iv) current saleable inventory items conveyed to
Purchaser hereunder valued at the invoice price on invoices received by the
Company for such items, and (v) accounts receivable of the Company (which
accounts receivable shall not be over thirty days old) conveyed to Purchaser
hereunder, shall equal or exceed the aggregate amount of the accounts payable
assumed by Purchaser pursuant to Section 1.6 by no less than $500,000.00.
Section 3.9 Fiscal Condition of Company. Since the date of the Most
---------------------------
Recent Balance Sheet, except as set forth on Schedule 3.9, there has not (except
as otherwise specifically permitted by this Agreement) been:
(a) Any material change in the financial condition, business organization
or personnel of the Company or in the relationships of the Company with
suppliers, customers or others, other than changes occurring in the ordinary
course of business;
15
(b) Any sale or other disposition of any asset owned by the Company (other
than the Excluded Assets) at the close of business on the date of the Most
Recent Balance Sheet, or acquired by it since that date, other than in the
ordinary course of business or which individually do not exceed $5,000 or in the
aggregate, do not exceed $10,000;
(c) Any expenditure or commitment by the Company for the acquisition of
any single asset having an acquisition price of $10,000 or more;
(d) Any damage, destruction or loss (whether or not insured) adversely
affecting the property, business or prospects of the Company, except damage,
destruction or loss which does not exceed $10,000 in the aggregate;
(e) Any employment contracts, or bonuses or increases in the compensation
payable or to become payable by the Company to any officer or key employee;
(f) Any loans or advances to the Company other than renewals or extensions
of existing indebtedness; or
(g) Any change in accounting method or practice.
Section 3.10 Policies of Insurance. All insurance policies, performance
---------------------
bonds, and letters of credit insuring the Assets or which the Company has had
issued regarding the Assets and which have not expired are listed on Schedule
3.10 attached hereto. Schedule 3.10 includes, the names and addresses of the
beneficiaries, insurers and sureties, policy and bond numbers, types of coverage
or bond, time periods or projects covered and the names and addresses of all
known agents or agencies, issuing banks, and beneficiaries, with respect to each
listed insurance policy, performance bond and letter of credit. The Company's
current insurance policies, performance bonds and letters of credits relating to
any Asset are in force and effect and the premiums thereon are not delinquent.
The Company has not received any written notification from any insurance carrier
denying or disputing any claim made by the Company or denying or disputing any
coverage for any such claim or denying or disputing the amount of any claim.
Except as set forth on Schedule 3.10, the Company has no claims against any of
its insurance carriers under any policies insuring the Assets pending or
anticipated and there has been no occurrence of any kind which would give rise
to any such claim.
Section 3.11 Tax Returns. The Company is a limited liability company duly
-----------
organized under the laws of the state of Delaware, is duly admitted to operate
in the state of California and each other state where it has business operations
or property ownership, and is taxed on its income as a partnership under
federal, state and local income tax laws, statutes, ordinances and regulations.
The Company has filed all federal and other tax returns for all periods on or
before the due date of such return (as may have been extended by any valid
extension of time) and has paid all taxes due for the periods covered by the
said returns. The Company has filed, and will file (if due), in a timely manner
all requisite federal, state, local, payroll, property and other tax returns due
for all fiscal periods ended on or before the date hereof, and as of each
Closing shall have filed in a timely
16
manner all such returns due for all periods ended on or before each such Closing
Date. Sellers shall pay all taxes due with respect to such returns.
Section 3.12 Employees, Pensions and, ERISA.
------------------------------
(a) Except as set forth on Schedule 3.12(a), no employee of the Company is
represented by any union. Except as set forth on Schedule 3.12(a), no employee
of the Company has a written employment agreement with the Company. The name,
address and social security number and current rate of compensation of the
Company's employees and capacity to which each person is employed are listed on
Schedule 3.12(a) attached. There is no pending or, to the knowledge of the
Sellers, threatened dispute between the Company and any of its employees which
might materially and adversely affect the customer contracts being assigned to
Purchaser. The Company is not deficient or in arrears in contributing to any
trust funds the Company is required to contribute to in accordance with any
contracts with unions, including, without limitation, scholarship funds, legal
aid funds, pension funds and health, welfare or benefit funds ("Trust Funds").
There is no matter, action, audit, suit or claim pending or to Sellers'
knowledge threatened relating to contributions of the Company to any Trust Fund,
before any court, tribunal or governmental agency.
(b) Attached hereto made a part hereof and marked Schedule 3.12(b) lists
all employee benefit plans, funds or programs (within the meaning of the
Internal Revenue Code of the United States ("Code") or the Employee Retirement
Income Security Act of 1974, as amended ("ERISA")) which are currently
maintained and/or were established or sponsored by the Company (whether or not
they are now terminated) or to which the Company currently contribute, or have
an obligation to contribute in the future, including, without limitation,
employment agreements and any other agreements containing "golden parachute"
provisions ("Plans"), whether or not the Plans are or are intended to be (i)
covered or qualified under the Code, ERISA or any other applicable law, (ii)
written or oral, (iii) funded or unfunded, or (iv) generally available to all
employees of the Company.
(c) No reportable event (as defined in Section 4043 of ERISA or the
regulations thereunder) for which the reporting requirements have not been fully
waived, or accumulated funding deficiency whether or not waived (as defined in
Section 302 of ERISA), or liability to the Pension Benefit Guaranty Corporation
("PBGC") under Section 4062 of ERISA, nor any prohibited transaction (as defined
in Section 406 of ERISA or Section 4975 of the Code), has occurred or exists
with respect to any Plan. All Plans are in substantial compliance with all
material applicable provisions of ERISA and the regulations issued thereunder,
as well as with all other material law applicable to such Plans, and, in all
material respects, have been administered, operated and managed in substantial
accordance with the governing documents of the Plan and the requirements of
ERISA.
(d) There is no matter, action, audit, suit or claim pending or, to
Sellers' knowledge, threatened relating to any Plan, fiduciary of any Plan or
assets of any Plan, before any court, tribunal or government agency.
17
(e) Each most recent Plan audit report, actuarial report and annual
report, certified by the Plan's actuaries and auditors, as the case may be,
fairly presents the actuarial status and the financial condition of the Plan as
at the date thereof and the results of operations of the Plan for the plan year
reflected therein and, subject to changes in amounts attributable to investment
performance and normal employee turnover, there has been no material adverse
change in the condition of the Plan since the date of the most recent Form 5500,
audited annual financial statement or actuarial valuation report.
(f) The transaction contemplated herein will not accelerate any liability
under the Plans because of an acceleration of any rights or benefits to which
any employee may be entitled thereunder.
Section 3.13 Legality of Operation.
---------------------
(a) Except as disclosed in Schedule 3.13(a) to this Agreement, to the
Sellers' knowledge the Sellers' use of the Assets and Real Property is in
compliance with all Federal, state and local laws, rules and regulations
including, without limitation, the following laws: Environmental Laws (as
defined in Section 3.13(b)); land use laws; payroll, employment, labor, or
safety laws; or federal, state or local "anti-trust" or "unfair competition" or
"racketeering" laws such as but not limited to the Sherman Act, Clayton Act,
Robinson Patman Act, Federal Trade Commission Act, or Racketeer Influenced and
Corrupt Organization Act ("Law"). Except as disclosed in Schedule 3.13(a), to
the Sellers' knowledge the Sellers are in compliance with all permits,
franchises, licenses, and orders that have been issued with respect to the Laws
and are or may be applicable to the Sellers' property and operations, including,
without limitation, any order, decree or directive of any court or federal,
state, municipal, or other governmental department, commission, board, bureau,
agency or instrumentality wherever located, federal, state and local permits,
orders, franchises and consents. Except as set forth on Schedule 3.13(a), with
respect to any Law, there are no claims, actions, suits or proceedings pending,
or, to the knowledge of the Sellers threatened against or affecting the Assets
or Real Property, at law or in equity, or before or by any federal, state,
municipal or other governmental department, commission, board, bureau, agency or
instrumentality, wherever located, which would result in a material change in
how Purchaser may use the Assets or Real Property or which would invalidate this
Agreement or any action taken in connection with this Agreement. Except as
disclosed in Schedule 3.13(a), the Sellers have received no notification of any
past or present failure by the Sellers to comply with any Law applicable to the
Assets or Real Property or affecting the Sellers' use of the Assets or Real
Property.
(b) Except as disclosed in Schedule 3.13(b) to this Agreement, to the
Sellers' knowledge the Sellers are in compliance with all Federal, state and
local laws, rules and regulations relating to environmental issues of any kind
and/or the receipt, transport or disposal of any hazardous or non-hazardous
waste materials from any source ("Environmental Law"). Except as disclosed in
Schedule 3.13(b), with respect to any Environmental Law, to the Sellers'
knowledge the Sellers are in compliance with all permits, licenses, and orders
related thereto or issued thereunder with respect to Environmental Laws, as are
or may be applicable to the Sellers property and operations, including,
18
without limitation, any order, decree or directive of any court or federal,
state, municipal, or other governmental department, commission, board, bureau,
agency or instrumentality wherever located. Except as set forth on Schedule
3.13(b) there are no Environmental Law related claims, actions, suits or
proceedings pending, or, to the knowledge of the Sellers, threatened against or
affecting the Sellers, at law or in equity, or before or by any federal, state,
municipal or other governmental department, commission, board, bureau, agency or
instrumentality, wherever located. To the knowledge of the Sellers, except as
set forth on Schedule 3.13(b), the Sellers have not transported, stored, treated
or disposed, nor has any Seller allowed any third persons, on its behalf, to
transport, store, treat or dispose waste to or at (i) any location other than a
site lawfully permitted to receive such waste for such purpose or, (ii) any
location currently designated for remedial action pursuant to the Comprehensive
Environmental Response, Compensation and Liability Act ("CERCLA") or any similar
federal or state statute; nor has any Seller performed, arranged for or allowed
by any method or procedure such transportation or disposal in contravention of
state or federal laws and regulations or in any other manner which may result in
liability for contamination of the environment; and the Sellers have not
disposed of waste, nor has any Seller knowingly allowed third parties to dispose
of waste upon property owned or leased by the Sellers, or on any other real
property, other than as permitted by, and in conformity with, applicable
Environmental Law. Except as disclosed in Schedule 3.13(b), the Sellers have not
received notification of any past or present failure by the Sellers to comply
with any Environmental Law applicable to them or their operations or their
assets. Without limiting the generality of the foregoing, the Sellers have not
received any notification (including requests for information directed to the
Sellers or, to the knowledge of the Sellers, an owner thereof) from any
governmental agency asserting that the Company, or any owner, lessee or operator
of the Assets or the Real Property, is or may be a "potentially responsible
person" for a remedial action at a waste storage, treatment or disposal
facility, pursuant to the provisions of CERCLA, or any similar federal or state
statute assigning responsibility for the costs of investigating or remediating
releases of contaminants into the environment.
(c) To the Sellers' knowledge, no employee, contractor or agent of the
Company has, in the course and scope of employment with the Company, been harmed
by exposure to hazardous materials, as defined under the Laws. No liens with
respect to environmental liability have been imposed against the Company under
CERCLA, any comparable state statute or other applicable Environmental Law, and
to Sellers' knowledge no facts or circumstances exist which would give rise to
the same.
(d) Schedules 3.13(a) and 3.13(b) list all remedied violations of Laws and
Environmental Laws which existed within the past five years and all outstanding
unremedied notice of violations issued to the Sellers by any federal, state or
local governmental authority involving or relating to the Assets or the Real
Property. There are no outstanding or unremedied notices of violation from any
federal, state or local governmental authority involving or relating to the
Assets or the Real Property.
(e) To Sellers' knowledge, no employee, officer, director or member of the
Company is under investigation by the Attorney General of any state, by the
District Attorney of any county of any state, or by any United States Attorney
or any other governmental investigative agency for the
19
violation of any Laws, including, without limitation, the violation of any
anti-trust, racketeering, or unfair competition Laws.
(f) To Sellers' knowledge, except as set forth in Schedule 3.13(f), all
licenses, approvals, permits and certificates ("Government Approvals") needed or
required for the operation of the Company's business are set forth on Schedule
3.3. All such Government Approvals are in full force and effect, the Company is
in compliance with all such Government Approvals, and all such Government
Approvals have been validly and legally obtained by the Company.
Section 3.14 Corrupt Practices. The Sellers have not made, offered or
-----------------
agreed to offer anything of value to any employees of any customers of the
Company for the purpose of attracting business to the Company or any foreign or
domestic governmental official, political party or candidate for government
office or any of their respective employees or representatives in any manner
which would result in the Sellers being in violation of any Law, nor have the
Sellers otherwise taken any action which would cause them to be in violation of
the Foreign Corrupt Practices Act of 1977, as amended.
Section 3.15 Legal Authority and Compliance. The Sellers have the right,
------------------------------
power, legal capacity and authority to enter into, and perform their respective
obligations under this Agreement, and, except as set forth in Schedule 3.15, no
approvals or consents of any other persons or entities are necessary in
connection with the transactions contemplated by this Agreement. The execution,
delivery and performance of this Agreement have been duly authorized by all
necessary action of the managers and Members of the Company. Except as disclosed
in Section 3.15 to this Agreement, the execution and performance of this
Agreement will not result in a material breach of or constitute a material
default or result in the loss of any material right or benefit under:
(a) Any charter, by-law, agreement or other document to which the Company
is a party or by which the Company, or any of its property is bound; or
(b) Any decree, order or rule of any court or governmental authority which
is binding on the Company or on any property of the Company.
Section 3.16 Transaction Intermediaries. No agent or broker or other
--------------------------
person acting pursuant to the authority of any Seller is entitled to any
commission or finder's fee in connection with the transactions contemplated by
this Agreement.
Section 3.17 Intellectual Property. The Company has not infringed and is
---------------------
not now infringing, on any Intellectual Property belonging to any person, firm
or corporation and to the knowledge of the Sellers, no one has or is infringing
any Intellectual Property right of the Company. The Company owns or has legally
licensed all computer software used in connection with the Business and has not
infringed, and is not now infringing, on the rights of any third parties by its
use of computer software.
20
Section 3.18 Disclosure. The representations and warranties of the
----------
Sellers contained in this Article III or in any Exhibit or Schedule or other
document delivered by the Sellers or the Company pursuant hereto, do not contain
any untrue statement of a material fact, or omit any statement of a material
fact necessary to make the statements contained not misleading. If, prior to
either Closing, the Sellers become aware of any inaccuracy, or misrepresentation
or omission in any of the Schedules, they shall immediately advise Purchaser in
writing of the inaccuracy, misrepresentation or omission and Sellers shall have
the right, subject to the provisions of Section 10.14, to update the Disclosure
Binder accordingly.
Section 3.19 Competition. No salaried officer, shareholder or employee
-----------
of the Company, nor any spouse, child or other relative of any of them, has any
direct or indirect interest in any competitor of the Company within the
geographical area in which the Company currently conducts business, or an
interest in any supplier or customer of the Company or in any person from whom
or to whom the Company leases any real or personal property, or in any other
person with whom the Company is doing business which interest adversely or
materially affects the business of the Company, excepting only those investments
of not more than five percent of the capital stock of a business, the stock of
which is traded on a national securities exchange or over-the-counter, where
such investments are set forth on Schedule 3.19 attached hereto and incorporated
herein by reference.
Section 3.20 Impairment of Contracts. To Seller's knowledge, no written
-----------------------
agreement between the Company and any third party shall be impaired or in any
way limited by the transactions contemplated by this Agreement.
Section 3.21 Litigation. All pending or, to Sellers' knowledge,
----------
threatened litigation, administrative or judicial proceedings or investigations
by any governmental agency or officials involving the Company, the Real
Property, the Assets, any liabilities or the Company membership interests,
together with a description of each such proceeding, is set forth on Schedule
3.21 attached. Schedule 3.21 provides a description of the insurance coverage
attendant to each such proceeding. There is no pending or, to Sellers'
knowledge, threatened litigation, administrative or judicial proceedings or
investigation involving the Company or its Real Property, assets, liabilities or
the Memberships, except as listed on Schedule 3.21.
ARTICLE IV
Representations and Warranties of Purchaser
With knowledge that Sellers are relying upon the representations,
warranties and covenants herein contained, the Purchaser represents and warrants
to Sellers and makes the following covenants for the Sellers' benefit, at and as
of the date hereof and the date of each Closing.
Section 4.1 Structure. The Purchaser is duly organized and legally
---------
existing in good standing under the laws of the state of Delaware.
21
Section 4.2 Authorization to Proceed with this Agreement. Purchaser has
--------------------------------------------
by proper corporate proceedings duly authorized the execution, delivery and
performance of this Agreement and each other agreement contemplated to be
entered into and no other corporate action is required by law or the Certificate
of Incorporation or by-laws of Purchaser. The Purchaser has the right, power,
legal capacity and authority to enter into, and perform its obligations under
this Agreement, and neither the execution nor performance of this Agreement will
result in a material breach of or constitute a material default or result in the
loss of any material right or benefit under:
(a) Any charter, by-law, agreement or other document to which the Purchaser
is a party or by which the Purchaser or any of its property is bound; or
(b) Any decree, order or rule of any court or governmental authority which
is binding on the Purchaser or on any property of the Purchaser.
Section 4.3 Consideration Stock and Warrants. The Consideration Stock to
--------------------------------
be issued pursuant to this Agreement has been duly authorized and, when issued,
will be validly issued, fully paid and nonassessable. The Warrant to be issued
pursuant to this Agreement has been duly authorized and, when issued, will be
validly issued.
Section 4.4 Absence of Intermediaries. No agent, broker, or other person
-------------------------
acting pursuant to Purchaser's authority will be entitled to make any claim
against the Company or against the Sellers for any commission or finder's fee in
connection with the transactions contemplated by this Agreement.
Section 4.5 Commission Filings. Purchaser will have delivered to Sellers
------------------
by the First Closing Date current and all historical filings made by Successor
Corporation on Forms 8-K, 10-K, 10-Q and Proxy Statements timely filed with the
Securities and Exchange Commission ("SEC") for fiscal year ending June 30, 1998
(the "Public Reports"). The Public Reports accurately and completely describe,
in all material respects, Successor Corporation's financial status, business
operations and prospects as of the date of such filings and as of the date
hereof, and do not omit any material fact(s) necessary to make the information
contained in the filings not misleading.
ARTICLE V
Additional Agreements of Sellers
The parties hereto covenant and agree with the other, as applicable, as
follows:
Section 5.1 Restrictions on Transfer of Unregistered Stock. The Sellers
----------------------------------------------
understand and agree that the following restrictions and limitations are
applicable to the Sellers' purchase and resale or other transfer of the
Consideration Stock, the Warrant and the common stock issuable upon exercise of
the Warrant, pursuant to the Securities Act of 1933 (the "Act"). For purposes of
this Article 5 the term "Consideration Stock" shall include the Warrant and the
common stock issuable upon exercise of the Warrant.
22
(a) Sellers agree that the Consideration Stock shall not be sold or
otherwise transferred, unless the Consideration Stock is registered under the
Act and state securities laws or is exempt therefrom.
(b) For a period of one year after the Consideration Stock or portion
thereof has been issued (unless the Consideration Stock, the Warrants and any
stock issuable upon exercise of the Warrants shall have been registered under
the Act for sale prior thereto), Sellers shall not sell, distribute or transfer
any of such securities without the prior written consent of Successor
Corporation. Unless and until the consideration Stock is registered under the
Act, a legend in substantially the following form will be placed on the
certificates evidencing the Consideration Stock to be issued to the Sellers:
"The securities represented by this certificate have not been registered
under the Securities Act of 1933 or any state securities act. These shares
have been acquired for investment and may not be sold, transferred, pledged
or hypothecated unless (i) they shall have been registered under the
Securities Act of 1933 and any applicable states securities act or (ii)
Mace Security International, Inc., shall have been furnished with an
opinion of counsel, reasonably satisfactory to counsel for Mace Security
International, Inc., that registration is not required under any such
acts."
(c) Stop transfer instructions will be imposed with respect to the
Consideration Stock issued to Sellers pursuant to this Agreement so as to
restrict resale or other transfer thereof except in accordance with the
foregoing provisions of this Agreement.
Section 5.2 Access to Records. The Sellers will give Purchaser and its
-----------------
representatives, from the date hereof until six years after the Second Closing
Date, full access during normal business hours upon reasonable notice to all of
the properties, books, contracts, customer lists, documents and records of the
Company not delivered to Purchaser or Successor Corporation at either Closing
that pertain to the Real Property and the Assets, and to make available to
Purchaser and its representatives, experts and advisers all additional financial
statements of and all information with respect to the business, Real Property
and the Assets of the Company that Purchaser may reasonably request. Purchaser
and its representatives shall have the right to copy any information or
documentation the Purchaser is entitled to inspect under this Section 5.2. In
the event that this transaction is not consummated for any reason, all documents
and due diligence materials provided to Purchaser by Sellers shall be returned
to Sellers, and all documents and due diligence materials provided to Sellers by
Purchaser shall be returned to Purchaser.
Section 5.3 Continuation of Business. The Company will operate the
------------------------
Assets until the First Closing in the ordinary course of business, consistent
with past practice, so as to preserve their value intact, and to preserve for
Purchaser the relationships of the Company with suppliers, customers, and
others.
23
Section 5.4 Continuation of Insurance. The Sellers will cause the Company
-------------------------
to and the Company shall keep in existence all policies of insurance insuring
the Real Property and the Assets and the operation thereof against liability and
property damage, fire and other casualty through the First Closing, consistent
with the policies currently in effect.
Section 5.5 Representations as to Private Offering. The Consideration
--------------------------------------
Stock is being delivered to the Company in a private placement under Section 4.2
of the Act and under Regulation D promulgated under the Act. To induce Purchaser
to deliver the Consideration Stock, each Seller represents and warrants as
follows:
(a) The Company is Delaware limited liability company and each Seller is
an accredited investor, as that term is defined in Regulation D under the Act.
(b) Each Seller represents and warrants that the Consideration Stock is
being acquired for its own account without a view to public distribution or
resale and that the Sellers have no contract, undertaking, agreement or
arrangement to sell or otherwise transfer or dispose of Consideration Stock, or
any portion thereof, to any other person.
(c) Each Seller represents and warrants that, in determining to acquire
the Consideration Stock, it has relied solely upon its independent
investigation, including the advice of its legal counsel and accountants or
other financial advisers or purchaser representatives, and has, during the
course of discussions concerning its acquisition of the Consideration Stock,
been offered the opportunity to ask such questions and inspect such documents
concerning Purchaser and its business and affairs as each Seller has requested
so as to more fully understand the nature of the investment and to verify the
accuracy of the information supplied.
(d) THE SELLERS ACKNOWLEDGE THAT THE ACQUISITION OF THE CONSIDERATION
STOCK INVOLVES A HIGH DEGREE OF RISK, and represent and warrant that they can
bear the economic risk of the Company's acquisition of the Consideration Stock,
including the total loss of the investment.
(e) The Sellers represent and warrant that (i) they have adequate means of
providing for their current needs and financial contingencies, (ii) they have no
need for liquidity in this investment, (iii) they have no debts or other
obligations, and cannot reasonably foresee any other circumstances, that are
likely in the future to require them to dispose of the Consideration Stock, and
(iv) all their investments in and commitments to non-liquid investments are,
and after their acquisition of the Consideration Stock will be reasonable in
relation to their net worth and current needs.
(f) The Sellers understand that no federal or state agency has approved or
disapproved the Consideration Stock or made any finding or determination as to
the fairness of the Consideration Stock for investment.
24
(g) The Sellers understand that the Consideration Stock is being offered
and sold in reliance on specific exemptions from the registration requirements
of federal and state securities laws and that Purchaser is relying upon the
truth and accuracy of the representations, warranties, agreements,
acknowledgments and understandings set forth herein in order to determine the
applicability of such exemption and the suitability of Sellers to acquire the
Consideration Stock.
(h) The Sellers represent and warrant that they are familiar with the
business and financial affairs of the Company, and have had access to all
financial statements prepared by the Company.
Section 5.6 Standstill Agreement. Until the Second Closing Date, unless
--------------------
and until this Agreement is earlier terminated pursuant to the provisions
hereof, Sellers will not, directly or indirectly solicit offers for the
membership interests or the assets of the Company or for a merger or
consolidation involving the Company, or respond to inquiries from (other than a
general response to acknowledge receipt or note this restriction), share
information with, negotiate with or in any way facilitate inquiries or offers
from, third parties who express or who have heretofore expressed an interest in
acquiring the Company by merger, consolidation or other combination or acquiring
any of Company's assets.
Section 5.7 FIRPTA Certificate. Purchaser and Sellers acknowledge that
------------------
the financial provisions of this Agreement are subject to the requirements of
the Foreign Investment in Real Property Tax Act ("FIRPTA"), and that the
Internal Revenue Code ("Code") Sections 1445 and 6039C require Purchaser in
certain circumstances to withhold ten percent (10%) of the amount realized by
the Sellers. Among other circumstances, Purchaser is not required to withhold
said amount if Sellers furnish Purchaser with a certificate stating the Sellers'
U.S. Taxpayer Identification Numbers and that no Seller is a foreign person
within the meaning of the Code. Sellers agree to provide to Purchaser at each
Closing such certificate as is reasonably necessary to insure that such
withholding is not required under FIRPTA.
Section 5.8 Consents. Sellers and Purchaser shall cooperate with each
--------
other and use their best efforts to obtain all approvals, authorizations and
consents required to be obtained to consummate the transaction set forth in this
Agreement, including, without limitation, the approval of every regulatory
agency of federal, state, or local government that may be required in the
opinion of either Purchaser or Sellers.
Section 5.9 Audited Financial Statements. Before and after each Closing,
----------------------------
Sellers agree to cooperate with Purchaser, at Purchaser's request, to have the
Company prepare an audited balance sheet and statement of income, cash flow and
retained earnings for the Company for the period from and after the date of the
Company's inception through the end of the most recent calendar quarter ending
prior to the First Closing Date (the "Interim Financial Statements"), and to
have the Company prepare audited financial statements (to the extent that same
can be prepared from the records in the Company's possession or control) for the
historical businesses now owned by the Company as of December 31, 1996, December
31, 1997, and December 31, 1998 ("Historical Financial Statements"), as rapidly
as possible. Sellers' cooperation shall include, without limitation, the
execution of standard representation letters requested by Purchaser's auditors
for periods that the
25
Company has been in operation. The Historical Financial Statements and the
Interim Financial Statements shall be prepared at Purchaser's expense. Sellers
shall cause the Company's usual accountants to cooperate with Purchaser's
accountants. Purchaser shall pay for the reasonable costs of the Company's usual
accountants in the preparation of the Historical Financial Statements and the
Interim Financial Statements.
Section 5.10 Lender Approval. After the date of this Agreement, Sellers
---------------
shall use best efforts to obtain the Lender Approval.
Section 5.11 Payment of Expenses. The Sellers and Company will pay all
-------------------
expenses incurred by the Sellers and Company (including legal fees) in
connection with the negotiation, execution and performance of this Agreement.
Sellers, in addition to their other expenses, shall pay (i) one-half of all
transfer taxes and/or documentary stamps associated with the transfer and
conveyance of the Owned Real Property, (ii) all accounts payable of the Company
that do not arise out of inventory items; (iii) all accounts payable of the
Company arising out of inventory items to the extent they exceed $200,000.00 in
the aggregate; and (iv) any and all of the Company Debt that exceeds
$15,109,000.00 in the aggregate and is therefore not assumed by Purchaser.
ARTICLE VI
Additional Agreements Of Purchaser
Section 6.1 Payment of Expenses. Purchaser will pay all expenses
-------------------
(including legal fees) incurred by it in connection with the negotiation,
execution and performance of this Agreement. Purchaser, in addition to its other
expenses, shall pay (i) one-half of all transfer taxes and/or documentary stamps
associated with the transfer and conveyance of the Owned Real Property, (ii) the
costs of any surveys prepared at Purchaser's request, (iii) all title insurance
premiums associated with the transfer of the Owned Real Property, (iv) the
application fees for any governmental approvals it considers to be required
under Sections 5.8, 7.1(d) and 7.2(e), (v) any processing and assumption fees
imposed by FMAC relating to the assumption of the Company Debt by Purchaser, and
(vi) all recording charges for Owned Real Property transfer documents.
Section 6.2 Books and Records. From the First Closing Date to six years
-----------------
after the Second Closing Date, the Purchaser shall allow the Sellers and their
professional advisers access to all business records and files of the Company
pertaining to the operation of the Company which were delivered to the Purchaser
in accordance with this Agreement ("Records") where the Members or Sellers
require access to the Records for the purpose of preparing their tax returns,
responding to any audit or informational request regarding their tax returns or
if required by them for use in a judicial proceeding in which they are a party.
Access to the records shall be during normal working hours at the location where
such Records are stored. The Sellers shall have the right, at their own expense,
to make copies of any Records 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 Purchaser's business. For a period of six years after
the Second Closing Date, the Purchaser shall not dispose
26
of or destroy any material Records without first providing written notice to the
Sellers at least 30 days prior to the proposed date of such disposition or
destruction.
Section 6.3 Lender Approval. After the date of this Agreement, Purchaser
---------------
shall use commercially reasonable efforts to obtain the Lender Approval.
Section 6.4 Merger. After the date of this Agreement, Purchaser shall use
------
commercially reasonable efforts to complete its merger into Successor
Corporation.
ARTICLE VII
Conditions of Purchaser
Section 7.1 Conditions of First Closing The obligations of Purchaser to
---------------------------
effect the transactions contemplated by this Agreement shall be subject to the
fulfillment at or prior to the time of First Closing of each of the following
items which are conditions to the First Closing. Purchaser in its sole
discretion may waive any of the following conditions by written notice to
Sellers of Purchaser's decision to waive such condition to the First Closing,
referring specifically to this Agreement and the condition being waived.
(a) The Sellers shall have performed and complied with all material
obligations and conditions required by this Agreement to be performed or
complied with by Sellers prior to or at the First Closing Date. All
representations and warranties of Sellers contained in this Agreement shall be
true and correct at and as of the First Closing Date, with the same force and
effect as though made at and as of the First Closing Date, except for changes
expressly permitted by this Agreement, and Purchaser shall have received a
Certificate duly executed by Members as to the foregoing. Any failure of a
representation and warranty to be true and correct in any material respect at
and as of the First Closing Date, without regard to whether or not such
representation or warranty is qualified in any respect by Sellers' knowledge in
this Agreement, shall be deemed a failure of this condition precedent.
(b) There shall be no actual or threatened action by or before any court
which seeks to restrain, prohibit or invalidate the transaction contemplated by
this Agreement or which might affect the right of Purchaser to own, operate in
its entirety or control any of the Assets, the Real Property, or the Business or
which, as a result of the transaction contemplated by this Agreement, might
affect such right as to Purchaser or any affiliate thereof subsequent to the
Date of Closing and which, in the judgment of the Board of Directors of
Purchaser, made in good faith and based upon advice of its counsel, makes it
inadvisable to proceed with the transaction contemplated by this Agreement.
(c) There shall have been no material adverse change in the Assets, the
Real Property, the Business, or the results of operations, financial condition
or business of the Company, and the Company shall have not suffered any material
loss or damage or any of its properties or assets, whether or not covered by
insurance, since the date of the Most Recent Balance Sheet.
27
(d) All approvals, authorizations and consents required to be obtained
shall have been obtained, including, without limitation, (i) the consent of the
Federal Trade Commission under the Hart-Scott-Rodino Antitrust Improvements Act
of 1986; and (ii) the approval of every regulatory agency of federal, state, or
local government that may be required in the reasonable opinion of either
Purchaser or Sellers. Purchaser shall have been furnished with appropriate
evidence, reasonably satisfactory to Purchaser and its counsel, of the granting
of such approvals, authorizations and consents.
(e) Sellers shall have delivered to the Purchaser the opinion of counsel,
dated the First Closing Date, in the form and substance of Schedule 1.10(a)(iv).
(f) The Sellers shall have executed and delivered to Purchaser the
Noncompetition Agreement.
(g) The Sellers shall have executed and delivered to Purchaser the
Operating Agreement.
(h) Sellers shall have provided an Owner's Title Policy for the Owned Real
Property related to the Unrestricted Locations.
(i) Purchaser shall have completed its merger into Successor Corporation.
(j) FMAC shall have consented in writing to the Company's execution and
performance of the Operating Agreement.
Section 7.2 Conditions of Second Closing. The obligations of Purchaser to
----------------------------
effect the Second Closing shall be subject to the fulfillment at or prior to the
time of Second Closing of each of the following items which are conditions to
the Second Closing. Purchaser in its sole discretion may waive any of the
following conditions by written notice to Sellers of Purchaser's decision to
waive such condition to the First Closing, referring specifically to this
Agreement and the condition being waived.
(a) The First Closing shall have occurred.
(b) Sellers shall have obtained the Lender Approval. However, the receipt
of Lender Approval shall cease to be a condition of the Second Closing at such
time, if any, as all indebtedness of Company to FMAC becomes paid and satisfied,
and Purchaser is furnished with appropriate evidence, reasonably satisfactory to
Purchaser and its counsel, of the satisfaction and payment of such debt.
(c) The Sellers shall have performed and complied with all material
obligations and conditions required by this Agreement to be performed or
complied with by Sellers prior to or at the Second Closing Date. All
representations and warranties of Sellers contained in this Agreement shall be
true and correct at and as of the Second Closing Date, with the same force and
effect as
28
though made at and as of the Second Closing Date, except for changes expressly
permitted by this Agreement, and Purchaser shall have received a Certificate
duly executed by Members as to the foregoing. Any failure of a representation
and warranty to be true and correct in any material respect at and as of the
Second Closing Date, without regard to whether or not such representation or
warranty is qualified in any respect by Sellers' knowledge in this Agreement,
shall be deemed a failure of this condition precedent.
(d) All approvals, authorizations and consents required to be obtained
shall have been obtained, including, without limitation, (i) the consent of the
Federal Trade Commission under the Hart-Scott-Rodino Antitrust Improvements Act
of 1986; and (ii) the approval of every regulatory agency of federal, state, or
local government that may be required in the reasonable opinion of either
Purchaser or Sellers. Purchaser shall have been furnished with appropriate
evidence, reasonably satisfactory to Purchaser and its counsel, of the granting
of such approvals, authorizations and consents.
(e) Sellers shall have provided the Owner's Title Policy for the Owned
Real Property related to the Restricted Locations.
ARTICLE VIII
Conditions of Sellers
Section 8.1 Conditions of First Closing The obligations of the Sellers to
---------------------------
transfer the Assets and Owned Real Estate related to the Unrestricted Locations
in accordance with this Agreement shall be subject to the fulfillment at or
prior to the time of First Closing of each of the following conditions:
(a) The Purchaser shall have delivered to the Company Consideration Stock
and the Warrant in accordance with Section 1.3.
(b) All approvals, authorizations and consents required to be obtained by
Purchaser shall have been obtained, and the Sellers shall have been furnished
with appropriate evidence, reasonably satisfactory to them and their counsel, of
the granting of such approvals, authorizations and consents.
(c) Purchaser shall have delivered to Sellers the opinion of counsel,
dated the First Closing Date, in the form attached hereto as Schedule
1.9(a)(iii).
(d) The Purchaser shall have performed and complied with all material
obligations and conditions required by this Agreement to be performed or
complied with by Purchaser prior to or at the First Closing Date. All
representations and warranties of Purchaser contained in this Agreement shall be
true and correct at and as of the Date of First Closing, with the same force and
effect as though made at and as of the Date of First Closing, except for changes
expressly permitted by this Agreement.
29
(e) There shall be no actual or threatened action by or before any court
which seeks to restrain, prohibit or invalidate the transaction contemplated by
this Agreement.
(f) Purchaser shall have completed its merger into Successor Corporation.
(g) Successor Corporation shall have elected or appointed a designee of
Sellers to the Board of Directors of Successor Corporation, or shall have
nominated such designee to stand for election at the next annual meeting of
shareholders after the First Closing as a member of the management slate of
directors, such election or appointment to become effective after the
consummation of the First Closing under this Agreement. Any such designee of the
Company shall be a qualified individual with experience in the Business. Such
designee (or any substitute designee similarly qualified selected by the
Sellers) shall be nominated as a member of the management slate to run for
election to the Board of Directors of Successor Corporation for any elections to
be held within the thirty-six calendar month period following the month in which
the First Closing occurs.
(h) On the First Closing Date, Successor Corporation shall:
(i) Be current with its filings with the Securities and Exchange
Commission and be a publicly traded company on the NASDAQ National Market System
or Nasdaq Small Cap Market;
(ii) Demonstrate that it has cash assets of not less than $4.5
million;
(iii) Have no material litigation, judgments or adverse claims
asserted;
(iv) Demonstrate that it has shareholder's equity according to GAAP
of not less than $5 million; and
(v) Have a book value in accordance with GAAP of not less than
seventy-five cents ($0.75) per share.
(i) Purchaser shall have executed the First Closing Assignment Agreement.
(j) Purchaser shall have executed the Registration Rights Agreement.
Section 8.2 Conditions of Second Closing The obligations of the Sellers
----------------------------
to transfer the Assets and Owned Real Estate related to the Restricted Locations
in accordance with this Agreement shall be subject to the fulfillment at or
prior to the time of Second Closing of each of the following conditions:
(a) The First Closing shall have occurred.
(b) Sellers shall have obtained the Lender Approval.
30
(c) The Purchaser shall have delivered to the Company Consideration Stock
in accordance with Section 1.3.
(d) Purchaser shall have executed the Second Closing Assignment Agreement.
(e) The Purchaser shall have performed and complied with all material
obligations and conditions required by this Agreement to be performed or
complied with by Purchaser prior to or at the Second Closing Date. All
representations and warranties of Purchaser contained in this Agreement shall be
true and correct at and as of the Date of Second Closing, with the same force
and effect as though made at and as of the Date of Second Closing, except for
changes expressly permitted by this Agreement.
ARTICLE IX
Indemnification
Section 9.1 Indemnification by Sellers. The Sellers each agree that they
--------------------------
will each indemnify, defend, protect and hold harmless the Purchaser and its
officers, shareholders, directors, divisions, subdivisions, affiliates,
subsidiaries, parent, agents, employees, legal representatives, successors and
assigns, as applicable, from and against all claims, damages, actions, suits,
proceedings, demands, assessments, adjustments, penalties, costs and expenses
whatsoever (including specifically, but without limitation, reasonable
attorneys' fees and expenses of investigation) whether equitable or legal,
matured or contingent, known or unknown to the Sellers, foreseen or unforeseen,
ordinary or extraordinary, patent or latent, whether arising out of occurrences
prior to, at, or after the date of this Agreement, as a result of or incident
to: (a) any breach of, misrepresentation in, untruth in or inaccuracy in the
representations and warranties by the Sellers, set forth in this Agreement or in
the Schedules attached to this Agreement or in the Collateral Documents; (b)
nonfulfillment or nonperformance of any agreement, covenant or condition on the
part of Sellers made in this Agreement or in the Collateral Documents and to be
performed by Sellers before or after the Closing Date; (c) the imposition upon,
claim against or payment by the Purchaser of any liability or obligation of the
Company other than the Assumed Liabilities; (d) violation of the requirements of
any governmental authority relating to the reporting and payment of federal,
state, local or other income, sales, use, franchise, excise, payroll or property
tax liabilities of the Company arising or accrued prior to the Closing Date; and
(e) any claim by a third party that, if true, would mean that a condition for
indemnification set forth in subsections (a), (b), (c) or (d) of this Section
9.1 of this Agreement has occurred.
Section 9.2 Indemnification by Purchaser. The Purchaser (and Successor
----------------------------
Corporation after the contemplated merger) agrees that it will indemnify,
defend, protect and hold harmless the Sellers and their officers, members,
directors, divisions, subdivisions, affiliates, subsidiaries, parents, agents,
employees, legal representatives, successors and assigns, as applicable, from
and against all claims, damages, actions, suits, proceedings, demands,
assessments, adjustments, penalties, costs and expenses whatsoever (including
specifically, but without limitation, reasonable attorneys' fees and expenses of
investigation) whether equitable or legal, matured or contingent, known or
unknown to
31
the Purchaser, foreseen or unforeseen, ordinary or extraordinary, patent or
latent, whether arising out of occurrences prior to, at, or after the date of
this Agreement, as a result of or incident to: (a) any breach of,
misrepresentation in, untruth in or inaccuracy in the representations and
warranties of Purchaser set forth in this Agreement or in the Schedules attached
to this Agreement or in the Collateral Documents; (b) nonfulfillment or
nonperformance of any agreement, covenant or condition on the part of Purchaser
made in this Agreement or in the Collateral Documents and to be performed by
Purchaser before or after the Closing Date; (c) the imposition upon, claim
against, or payment by the Company or Sellers of any of the Assumed Liabilities
because of the Purchaser's failure to pay or assume the Assumed Liabilities; (d)
violation of the requirements of any governmental authority relating to the
reporting and payment of federal, state, local or other income, sales, use,
franchise, excise, payroll or property tax liabilities of the Company accrued
after the Closing Date; (e) any of the litigation listed on Schedule 3.21 which
is not covered by insurance; and (f) any claim by a third party that, if true,
would mean that a condition for indemnification set forth in subsections (a),
(b), (c), (d) or (e) of this Section 9.2 has occurred.
Section 9.3 Procedure for Indemnification with Respect to Third Party
---------------------------------------------------------
Claims.
- ------
(a) If any third party shall notify a party to this Agreement (the
"Indemnified Party") with respect to any matter (a "Third Party Claim") that may
give rise to a claim for indemnification against any other party to this
Agreement (the "Indemnifying Party") under this Article IX, then the Indemnified
Party shall promptly notify each Indemnifying Party thereof in writing;
provided, however, that no delay on the part of the Indemnified Party in
notifying any Indemnifying Party shall relieve the Indemnifying Party from any
obligation hereunder unless (and then solely to the extent) the Indemnifying
Party is thereby prejudiced. Such notice shall state the amount of the claim and
the relevant details thereof.
(b) Any Indemnifying Party will have the right to defend the Indemnified
Party against the Third Party Claim with counsel of its choice satisfactory to
the Indemnified Party so long as (i) the Indemnifying Party notifies the
Indemnified Party in writing within fifteen business days after the Indemnified
Party has given notice of the Third Party Claim that the Indemnifying Party will
indemnify the Indemnified Party pursuant to the provisions of Article IX, as
applicable, from and against the entirety of any adverse consequences (which
will include, without limitation, all losses, claims, liens, and reasonable
attorneys' fees and related expenses) the Indemnified Party may suffer resulting
from, arising out of, relating to, in the nature of, or caused by the Third
Party Claim, (ii) the Indemnifying Party provides the Indemnified Party with
evidence reasonably acceptable to the Indemnified Party that the Indemnifying
Party will have the financial resources to defend against the Third Party Claim
and fulfill its indemnification obligations hereunder, (iii) the Third Party
Claim involves only monetary damages and does not seek an injunction or
equitable relief, (iv) settlement of, or adverse judgment with respect to the
Third Party Claim is not, in the good faith judgment of the Indemnified Party,
likely to establish a precedential custom or practice adverse to the continuing
business interests of the Indemnified Party, and (v) the Indemnifying Party
conducts the defense of the Third Party Claim actively and diligently.
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(c) So long as the Indemnifying Party is conducting the defense of the
Third Party Claim in accordance with Section 9.3(b) above, (i) the Indemnified
Party may retain separate co-counsel at its sole cost and expense and
participate in (but not control) the defense of the Third Party Claim, (ii) the
Indemnified Party will not consent to the entry of any judgment or enter into
any settlement with respect to the Third Party Claim without the prior written
consent of the Indemnifying Party (which will not be unreasonably withheld), and
(iii) the Indemnifying Party will not consent to the entry of any judgment or
enter into any settlement with respect to the Third Party Claim without the
prior written consent of the Indemnified Party (which will not be unreasonably
withheld). In the case of (c)(ii) or (c)(iii) above, any such consent to
judgment or settlement shall include, as an unconditional term thereof, the
release of the Indemnifying Party from all liability in connection therewith.
(d) If any condition set forth in Section 9.3(b) above is or becomes
unsatisfied, (i) the Indemnified Party may defend against, and consent to the
entry of any judgment or enter into any settlement with respect to, the Third
Party Claim and any matter it may deem appropriate and the Indemnified Party
need not consult with, or obtain any consent from, any Indemnifying Party in
connection therewith, (ii) the Indemnifying Party will reimburse the Indemnified
Party promptly and periodically for the cost of defending against the Third
Party Claim (including reasonable attorneys' fees and expenses), and (iii) the
Indemnifying Party will remain responsible for any adverse consequences the
Indemnified Party may suffer resulting from, arising out of, relating to, in the
nature of, or caused by the Third Party Claim to the fullest extent provided in
this Article IX.
Section 9.4 Procedure for Non-Third Party Claims. If any Purchaser or
------------------------------------
Seller wishes to make a claim for indemnity under Section 9.1 or Section 9.2, as
applicable, and the claim does not arise out of a third party notification which
makes the provisions of Section 9.3 applicable, the party desiring
indemnification ("Indemnified Party") shall deliver to the parties from which
indemnification is sought ("Indemnifying Party") a written demand for
indemnification ("Indemnification Demand"). The Indemnification Demand shall
state: (a) the amount of losses, damages or expenses which the Indemnified Party
has incurred or has suffered or is expected to incur or suffer to which the
Indemnified Party is entitled to indemnification pursuant to Section 9.1 or
Section 9.2, as applicable; and (b) the nature of the event or occurrence which
entitles the Indemnified Party to receive payment under Section 9.1 or Section
9.2, as applicable. If the Indemnifying Party wishes to object to an
Indemnification Demand, the Indemnifying Party must send written notice to the
Indemnified Party stating the objections and the grounds for the objections
("Indemnification Objection"). If no Indemnification Objection is sent within
forty-five (45) days after the Indemnification Demand is sent, the Indemnifying
Party shall be deemed to have acknowledged the correctness of the claim or
claims specified in the Indemnification Demand and shall pay the full amount
claimed in the Indemnification Demand within sixty (60) days of the day the
Indemnification Demand is dated. If for any reason the Indemnifying Party does
not pay the amounts claimed in the Indemnification Demand, within thirty days of
the Indemnification Demand's date, the Indemnified Party may institute legal
proceedings to enforce payment of the indemnification claim contained in the
Indemnification Demand and any other claim for indemnification that the
Indemnified Party may have.
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Section 9.5 Survival of Claims.
------------------
(a) All of the respective representations, warranties and obligations of
the parties to this Agreement shall survive consummation of the transactions
contemplated by this Agreement as follows: (i) the following representations and
warranties shall survive until the expiration of the applicable statute of
limitations (as same may be extended) on any claim which can be brought against
the Company by tax authorities, governmental agencies, governmental units or
private third parties: Subsections 3.6(a), (b), (c), (e), (f) and (h),
Subsection 3.8(a), Sections 3.11, 3.12, 3.13 and 3.14, Section 3.21, and (ii)
all representations and warranties other than set forth in (i) above shall
survive until three years from the Closing Date.
(b) Notwithstanding the provisions of Section 9.5(a) above, which provide
that representations, warranties and obligations expire after certain stated
periods of time, if within the stated period of time, an Indemnification Demand
is given, or a suit or action based upon representation or warranty is
commenced, the Indemnified Party shall not be precluded from pursuing such claim
or action, or from recovering from the Indemnifying Party (whether through the
courts or otherwise) on the claim or action, by reason of the expiration of the
representation or warranty.
Section 9.6 Prompt Payment. In the event that any party is required to
--------------
make any payment under this Article IX, such party shall promptly pay the
Indemnifying Party the amount so determined. If there should be a dispute as to
the amount or manner of determination of any indemnity obligation owed under
this Article IX, the Indemnifying Party shall, nevertheless, pay when due such
portion, if any, of the obligation as shall not be subject to dispute. The
portion in dispute shall be paid upon a final and non-appealable resolution of
such dispute. Upon the payment in full of any claim, the Indemnifying Party
shall be subrogated to the rights of the Indemnified Party against any person
with respect to the subject matter of such claim.
Section 9.7 Limitation of Liability. Notwithstanding anything in this
-----------------------
Agreement to the contrary, the liability and obligations of each Member under
this Agreement for the indemnification set forth in Section 9.1, shall be
limited to the total aggregate amount of any proceeds from the sale of the
Assets and Owned Real Property to Purchaser which are actually distributed by
Company to such Member or to an affiliate of such Member or to any entity or
person at the request or direction of such Member. The Company has the Holdbacks
established under purchase agreements to secure representations and warranties
it received from the sellers under such purchase agreements which escrows and
purchase agreements are listed on Schedule 1.4(h). To the extent commercially
reasonable, Purchaser shall attempt to recover any loss from an applicable
Holdback and any amount so recovered shall reduce Purchaser's damages against
Sellers in the event Purchaser has also made an Indemnification Claim against
Sellers. If Purchaser determines it is not commercially reasonable to attempt to
recover against a Holdback, it shall notify Sellers and cooperate with Sellers
proceeding against the Holdback, at the Sellers' expense, if Sellers wish to
bring a claim against the Holdback.
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ARTICLE X
Other Provisions
Section 10.1 Nondisclosure by Sellers. Sellers recognize and acknowledge
------------------------
that they have in the past, currently have, and in the future will have certain
confidential information of Purchaser such as lists of customers, operational
policies, and pricing and cost policies that are valuable, special and unique
assets of the Company. Sellers agree that for a period of three (3) years from
the Second Closing Date, and as to any Records received by them under Section
6.2 of this Agreement, for a period of three (3) years from their receipt of the
Records, they will not disclose such confidential information to any person,
firm, corporation, association or other entity for any purpose or reason
whatsoever, except to authorized representatives of the Sellers, unless (i) such
information becomes known to the public generally through no fault of Sellers,
(ii) the Sellers are compelled to disclose such information by a governmental
entity or pursuant to a court proceeding, or (iii) the Second Closing does not
take place. In the event of a breach or threatened breach by Sellers of the
provisions of this Section, Purchaser shall be entitled to an injunction
restraining Sellers from disclosing, in whole or in part, such confidential
information. Nothing herein shall be construed as prohibiting Purchaser from
pursuing any other available remedy for such breach or threatened breach,
including, without limitation, the recovery of damages.
Section 10.2 Nondisclosure by Purchaser. Purchaser recognize and
--------------------------
acknowledges that it has in the past, currently has, and prior to the Closing
Date, will have access to certain confidential information of the Company, such
as lists of customers, operational policies, and pricing and cost policies that
are valuable, special and unique assets of the Company. Purchaser agrees that,
for a period of five (5) years from the date hereof, it will not utilize such
information in the business or operation of Purchaser, or any of its affiliates
or disclose such confidential information to any person, firm, corporation,
association, or other entity for any purpose or reason whatsoever, unless (i)
such information becomes known to the public generally through no fault of
Purchaser or any of its affiliates, (ii) Purchaser is compelled to disclose such
information by a governmental entity or pursuant to a court proceeding, or (iii)
Closing takes place (provided, however, that after Closing Purchaser will abide
by any legally binding contractual duties of non-disclosure owed to third
parties from whom assets were purchased by the Company). In the event of a
breach or threatened breach by Purchaser of the provisions of this Section, the
Sellers shall be entitled to an injunction restraining Purchaser from utilizing
or disclosing, in whole or in part, such confidential information. Nothing
contained herein shall be construed as prohibiting Sellers from pursuing any
other available remedy for such breach or threatened breach, including, without
limitation, the recovery of damages.
Section 10.3 Assignment; Binding Effect; Amendment. This Agreement and
-------------------------------------
the rights of the parties hereunder may not be assigned (except by operation of
law by the merger of Purchaser) and shall be binding upon and shall inure to the
benefit of the parties hereto, the successors of Purchaser, and the Sellers.
This Agreement, upon execution and delivery, constitutes a valid and binding
agreement of the parties hereto enforceable in accordance with its terms and may
be modified or amended only by a written instrument executed by all parties
hereto.
35
Section 10.4 Entire Agreement. This Agreement, is the final, complete and
----------------
exclusive statement and expression of the agreement among the parties hereto
with relation to the subject matter of this Agreement, it being understood that
there are no oral representations, understandings or agreements covering the
same subject matter as the Agreement. The Agreement supersedes, and cannot be
varied, contradicted or supplemented by evidence of any prior or contemporaneous
discussions, prior correspondence, oral agreements or written agreements of any
kind. The parties to this Agreement have relied on their own advisors for all
legal, accounting, tax or other advice whatsoever with respect to the Agreement
and the transactions contemplated hereby.
Section 10.5 Counterparts. This Agreement may be executed simultaneously
------------
in two or more counterparts, each of which shall be deemed an original and all
of which together shall constitute but one and the same instrument.
Section 10.6 Notices. All notices or other communications required or
-------
permitted hereunder shall be in writing and may be given by depositing the same
in United States mail, addressed to the party to be notified, postage prepaid
and registered or certified with return receipt requested, by overnight courier
or by delivering the same in person to such party. "Overnight Courier" shall be
deemed for purposes of this Section 10.6 to include, without limitation, the
Express Mail service of the U.S. Postal Service.
(a) If to Purchaser, addressed to them at:
President
1000 Crawford Place
Mt. Laurel, NJ 08054
with a copy to:
Robert M. Kramer & Associates, P.C.
1150 First Avenue, Suite 900
King of Prussia, Pennsylvania 19406
(b) If to Sellers, addressed to them at:
(before Closing) Millennia Car Wash, LLC
511 Encinitas Boulevard, Suite 100
Encinitas, California 92024
(after Closing) Millennia Car Wash, LLC
Attention: Eric Ottesen
c/o Excel Legacy Corporation
36
16955 Via del Campo, Suite 110
San Diego, CA 92127
with a copy to:
Lynne M. Geyser, Esq.
P.O. Box 4715
San Clemente, CA 92674-4715
Senior General Counsel
Millennia Car Wash, LLC
Notice shall be deemed given and effective on the earliest of the day personally
delivered, or one business day after being sent by Overnight Courier, or three
business days after the deposit in the U.S. mail of a writing addressed as above
and sent first class mail, certified, return receipt requested, or when actually
received, if earlier. Any party may change the address for notice by notifying
the other parties of such change in accordance with this Section 10.6.
Section 10.7 Governing Law. This Agreement shall be governed by and
-------------
construed in accordance with the internal laws of the State of Delaware, without
giving effect to any choice or conflict of law provision or rule (whether of the
State of Delaware or any other jurisdiction) that would cause the application of
the laws of any jurisdiction other than the State of Delaware. Issues that
relate to the Real Property and would be governed by local law shall be governed
by the law of the jurisdiction in which the Real Property is located.
Section 10.8 No Waiver. No delay of, or omission in, the exercise of any
---------
right, power or remedy accruing to any party as a result of any breach or
default by any other party under this Agreement shall impair any such right,
power or remedy, nor shall it be construed as a waiver of or acquiescence in any
such breach or default, or in any similar breach or default occurring later; nor
shall any waiver of any single breach or default be deemed a waiver of any other
breach of default occurring before or after that waiver.
Section 10.9 Captions. The headings of this Agreement are inserted for
--------
convenience only, shall not constitute a part of this Agreement or be used to
construe or interpret any provision hereof.
Section 10.10 Severability. In case any provision of this Agreement shall
------------
be invalid, illegal or unenforceable, it shall, to the extent possible, be
modified in such manner as to be valid, legal and enforceable but so as most
nearly to retain the intent of the parties. If such modification is not
possible, such provision shall be severed from this Agreement. In either case
the validity, legality and enforceability of the remaining provisions of this
Agreement shall not in any way be affected or impaired thereby.
Section 10.11 Construction. The parties have participated jointly in the
------------
negotiation and drafting of this Agreement. In the event an ambiguity or
question of intent or interpretation arises,
37
this Agreement shall be construed as if drafted jointly by the parties and no
presumption or burden of proof shall arise favoring or disfavoring any party by
virtue of the authorship of any of the provisions of this Agreement. Any
reference to any federal, state, local or foreign statute shall be deemed to
refer to all rules and regulations promulgated thereunder, unless the context
requires otherwise. The word "including" means included, without limitation.
Section 10.12 Extension or Waiver of Performance. Either the Sellers or
-----------------------------------
Purchaser may extend the time for or waive the performance of any of the
obligations of the other, waive any inaccuracies in the representations or
warranties by the other, or waive compliance by the other with any of the
covenants or conditions contained in this Agreement, provided that any such
extension or waiver shall be in writing and signed by the party granting or
approving such extension or waiver.
Section 10.13 Liabilities of Third Parties. Nothing in this Agreement,
----------------------------
whether expressed or implied, is intended to confer any rights or remedies under
or by reason of this Agreement on any persons other than the parties to it and
their respective successors, heirs, legal representative and assigns, nor is
anything in this Agreement intended to relieve or discharge the obligation or
liability of any third persons to any party to this Agreement, nor shall any
provisions give any third person any rights of subrogation or action over or
against any party to this Agreement.
Section 10.14 Disclosure on Schedules. The parties to this Agreement
-----------------------
shall have the obligation to supplement or amend the Schedules being delivered
concurrently with the execution of this Agreement and attached hereto or
incorporated herein with respect to any matter hereafter arising or discovered
which, if existing or known at the date of this Agreement, would have been
required to be set forth or described in the Schedules. The obligations of the
parties to amend or supplement the Schedules shall terminate on the consummation
of the transaction contemplated by this Agreement at the Second Closing, or on
the date of termination of this Agreement if Closing does not occur.
Notwithstanding any such amendment or supplementation, the conditions to Closing
set forth in Section 7.1 and 7.2 shall not be satisfied, if the amendment or
supplementation of any Schedule by Sellers results in any of Sellers'
representations and warranties changing in a manner which the Purchaser in good
faith believes is materially adverse to the Purchaser, the Business, the Real
Property or the Assets.
[The balance of this page intentionally left blank.]
38
IN WITNESS WHEREOF, the parties have executed this Agreement on the date
first above written.
PURCHASER: American Wash Services, Inc.
By: /s/ Robert M. Kramer
----------------------------
Name:__________________________
Title:_________________________
COMPANY: Millennia Car Wash, LLC
By: /s/ Russell B. Geyser
----------------------------
Name:__________________________
Title:_________________________
MEMBERS
EXCEL LEGACY CORPORATION, a Delaware corporation
/s/ Richard B. Muir
- -----------------------------------------------
By: Richard B. Muir, Executive Vice President
G II VENTURES, LLC, a California limited liability company
By its Managing Member, Russell B. Geyser I, LLC, a California
limited liability company
/s/ Russell B. Geyser
-----------------------------------------
By: Russell B. Geyser, Managing Member
39