ASSET PURCHASE AGREEMENT By and Among PARTY CITY OF WARWICK, INC. PARTY CITY OF LINCOLN, LLC, as Sellers, and iPARTY CORP. iPARTY RETAIL STORES CORP., as Buyers Dated as of August 15, 2007
Exhibit
10.1
Execution
Version
By
and Among
PARTY
CITY OF WARWICK, INC.
&
PARTY
CITY OF LINCOLN, LLC,
as
Sellers,
and
&
iPARTY
RETAIL STORES CORP.,
as
Buyers
Dated
as of August 15, 2007
TABLE
OF CONTENTS
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Schedules
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Schedule
2.1(a)(i)
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-
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Fixed
Asset Register
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Schedule
2.1(b)
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-
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Leases
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Schedule
2.1(c)
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-
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Telephone
Numbers
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Schedule
2.1(e)
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-
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Other
Assumed Contract Rights/Obligations
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Schedule
2.8
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-
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Allocation
of Purchase Price
|
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Schedule
2.12
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-
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Acquired
Inventory
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Disclosure
Schedules
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Schedule
3.7
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-
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Material
Consents (Sellers)
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Schedule
3.10
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-
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Environmental
Matters
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Schedule
3.14
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-
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Monthly
Sales and Profit and Loss Statements
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Schedule
3.17
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Contracts
|
|
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Schedule
4.5
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-
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Material
Consents (Buyer and Buyer Parent)
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Exhibits
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Exhibit
A
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-
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▇▇▇▇
of Sale
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Exhibit
B
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-
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Instrument
of Assumption
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Exhibit
C
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-
|
Lease
Assignment and Assumption
|
Exhibit
10.1
This
Asset Purchase Agreement (the
“Agreement”) is entered into on August 15, 2007, by and among iParty Retail
Stores Corp., a Delaware corporation (the “Buyer”), iParty Corp., a Delaware
corporation (the “Buyer Parent”), Party City of Warwick, Inc., a Rhode Island
corporation (“Party City Warwick”), and Party City of Lincoln, LLC, a Rhode
Island limited liability company (“Party City Lincoln” and with Party City
Warwick, the “Sellers” and each a “Seller”), and, with respect to certain
sections hereof, certain other parties set forth on the signature pages
hereto. The Buyer, Buyer Parent, and the Sellers, and, where
applicable, the other parties set forth on the signature pages hereto, are
collectively referred to herein as the “Parties.”
Whereas,
Sellers have determined that they desire to sell and transfer their retail
stores located in Warwick, Rhode Island and Lincoln, Rhode Island
respectively;
Whereas,
Buyer and Buyer Parent desire to purchase and acquire such retail stores from
Sellers;
Whereas,
subject to the terms and conditions contained in this Agreement, Sellers hereby
shall sell and transfer and Buyer hereby shall purchase and acquire certain
of
the assets (and assume certain of the liabilities associated with those assets)
of the Sellers’ retail stores located at Cowesett Corners in Warwick, Rhode
Island and the Lincoln Mall in Lincoln, Rhode Island (the “Acquired Locations”),
all as more fully specified below;
Whereas,
to facilitate and further the transactions contemplated by this Agreement,
the
Parties have agreed that, except as provided for herein, Sellers and their
Affiliates may continue to engage in their businesses after the
consummation of the transactions contemplated hereby.
Now,
therefore, in consideration of the premises and the mutual promises herein
made,
and in consideration of the representations, warranties, and covenants herein
contained, the Parties agree as follows.
1.
DEFINITIONS;
CERTAIN RULES OF CONSTRUCTION.
As
used
herein, the following terms will have the following meanings:
“Acquired
Assets” has the meaning set forth in §2.1.
“Acquired
Inventory” has the meaning set forth in §2.12.
“Acquired
Locations” has the meaning set forth in the recitals.
“Action”
means any claim, action, cause of action or suit (whether in contract or tort
or
otherwise), litigation (whether at law or in equity and whether civil or
criminal), controversy, assessment, arbitration, investigation, hearing, charge,
complaint, demand, notice or proceeding to, from, by or before any Governmental
Authority.
“Affiliate”
means, as to any specified Person at any time, each Person directly or
indirectly controlling, controlled by or under direct or indirect common control
with such specified Person at such time, and, as to natural persons, shall
also
include any immediate family member of such person, including, such person’s
spouse, parents, children, siblings, mother-in-law, father-in-law,
brother-in-law, sister-in-law, son-in-law, daughter-in-law, and any other
relative (by blood or adoption) who has a place of residence in such person’s
home .
“Agreement”
has the meaning set forth in the preamble.
“Assumed
Liabilities” has the meaning set forth in §2.3.
“▇▇▇▇
of
Sale” has the meaning set forth in §2.7.
“Businesses”
means the operations of the Sellers related to the retail sale and merchandising
of party goods and related items that are conducted in the retail stores
operated by the Sellers at the Acquired Locations.
“Business
Day” means any weekday other than a weekday on which banks in The Commonwealth
of Massachusetts or the State of Rhode Island are authorized or required to
be
closed.
“Buyer”
has the meaning set forth in the preamble.
“Buyer
Indemnitees” has the meaning set forth in §8.2.
“Buyer
Parent” has the meaning set forth in the preamble.
“Buyer’s
Knowledge” means the actual (and not constructive or imputed) knowledge of ▇▇▇
▇▇▇▇▇▇▇▇ and ▇▇▇▇ ▇▇▇▇▇▇▇▇▇.
“Cash
Purchase Price” has the meaning set forth in §2.5.
“CERCLA”
shall mean the federal Comprehensive Environmental Response Compensation and
Liability Act of 1980, as amended.
“Clearance
Merchandise” has the meaning set forth in §2.12.
“Closing”
has the meaning set forth in §2.6.
“Closing
Date” has the meaning set forth in §2.6.
“Closing
Documents” has the meaning set forth in §2.7.
“COBRA”
shall mean Consolidated Omnibus Budget Reconciliation Act.
“Code”
shall mean the Internal Revenue Code of 1986, as amended.
2
“Contractual
Obligation” means, with respect to any Person, any written contract, agreement,
deed, mortgage, lease, license, commitment, undertaking, arrangement or
understanding, or other document or written instrument, including without
limitation any document or written instrument evidencing or otherwise relating
to any Debt (but excluding the charter and by-laws of such Person), to which
or
by which such Person is a party or otherwise subject or bound or to which or
by
which any property or right of such Person is subject or bound.
"Debt”
of any Person means all obligations of such Person (i) for borrowed money,
(ii)
evidenced by notes, bonds, debentures or similar instruments, (iii) under
capital leases or (iv) in the nature of Guarantees of the obligations described
in clauses (i) through (iii) above of any other Person.
“Defective
Merchandise” has the meaning set forth in §2.12.
“Deposit”
has the meaning set forth in §2.9.
“Disclosure
Schedule” has the meaning set forth in §3.
“Employees”
has the meaning set forth in §7.3(a).
“Employee
Plans” mean all compensation and benefit plans, programs, arrangements,
contracts, agreements, understandings, commitments and policies sponsored,
administered, maintained, or contributed to, by or on behalf of the Sellers
relating to the Acquired Locations for the benefit of any former or current
employees of the Sellers who perform services for the Sellers in connection
with
the Acquired Locations or their respective dependents.
“Enforceable”
means, with respect to any Contractual Obligation stated to be Enforceable
by or
against any Person, that such Contractual Obligation is a legal, valid and
binding obligation of such Person enforceable by or against such Person in
accordance with its terms, except to the extent that enforcement of the rights
and remedies created thereby is subject to bankruptcy, insolvency,
reorganization, moratorium and other similar laws of general application
affecting the rights and remedies of creditors and to general principles of
equity (regardless of whether enforceability is considered in a proceeding
in
equity or at law).
“Environmental
Laws” shall mean all federal, state, local and foreign statutes, rules, orders,
directives, judgments, permits, regulations, and ordinances or the common law
concerning or relating to the environment, occupational health and safety,
pollution, or protection of public health including without
limitation all those relating to the generation, manufacture, processing,
import, export, labeling, recycling, registration, investigation, documentation,
use, handling, transportation, treatment, storage, remediation, disposal,
release, or threatened release of any Materials of Environmental Concern, as
such requirements are enacted and in effect on or prior to the Closing Date,
including, without limitation, any statute, regulation, administrative decision,
order, or release pertaining to: (i) air, water, and noise pollution, (ii)
groundwater and soil contamination, (iii) the release, threatened release,
or
accidental release into the environment, the workplace or other areas of
Materials of Environmental Concern, including emissions, discharges, injections,
spills, escapes or dumping of Materials of Environmental Concern, (iv) transfer
of interests in or control of real property which may be contaminated, (v)
community or worker right-to-know disclosures with respect to Materials of
Environmental Concern, (vi) the protection of wild life, marine life and
wetlands, and endangered and threatened species, (vii) storage tanks, vessels,
containers, abandoned and discarded barrels and other closed or breached
receptacles, and (viii) health and safety of employees and other
persons. As used above, the term “release” shall have the meaning set
forth in CERCLA.
3
“Excess
Seasonal Merchandise” has the meaning set forth in §2.12.
“Excluded
Assets” has the meaning set forth in §2.2.
*Excluded
Contracts” has the meaning set forth in §2.1(e).
“Financial
Statements” shall mean as to each Seller:
(a) the
compiled balance sheets and statements of income, changes in stockholders’
equity and cash flows as of the end of and for each of the last two fiscal
years
through and including the Most Recent FYE Balance Sheet Date, and
(b) the
unaudited statements of income (or profit and loss statements), sales, and
cash
flows for each monthly period since the Most Recent FYE Balance Sheet Date
and
the unaudited balance sheet as of June 30, 2007,
copies
of
which are attached hereto as Schedule 1.
“GAAP”
means United States generally accepted accounting principles.
“Governmental
Authority” means any United States federal, state or local or any foreign
government, or political subdivision thereof, or any multinational organization
or authority or any authority, agency or commission entitled to exercise any
administrative, executive, judicial, legislative, police, regulatory or taxing
authority or power, any court or tribunal (or any department, bureau or division
thereof), or any arbitrator or arbitral body.
“Greeting
Card Merchandise” has the meaning set forth in §2.12.
“Guarantee”
means (i) any guarantee, other than in the Ordinary Course of Business, of
the
payment or performance of, or any contingent obligation in respect of, any
Debt
or other obligation of any other Person, (ii) any other arrangement, other
than
in the Ordinary Course of Business, whereby credit is extended to one obligor
on
the basis of any promise or undertaking of another Person (A) to pay the Debt
or
other obligation of such obligor, (B) to purchase any obligation owed by such
obligor, (C) to purchase or lease assets (other than inventory in the Ordinary
Course of Business) under circumstances that would enable such obligor to
discharge one or more of its obligations or (D) to maintain the capital, working
capital, solvency or general financial condition of such obligor or (iii) any
liability as a general partner of a partnership or as a venturer in a joint
venture in respect of indebtedness or other obligations of such partnership
or
venture.
4
“Hired
Employees” has the meaning set forth in §7.3(c).
“Instrument
of Assignment and Assumption” has the meaning set forth in §2.7.
“Intellectual
Property” means the following types of proprietary rights: patents, copyrights,
Trademarks, mask works, software, trade secrets and proprietary information
(including without limitation proprietary ideas, research and development,
know-how, processes and techniques, technical data, specifications, customer
and
supplier lists (other than the customer mailing list used by the Acquired
Locations in connection with the conduct of the Businesses), pricing and cost
information, and business and marketing plans and proposals), all applications
for any of the foregoing, all copies and tangible embodiments of any of the
foregoing in Sellers’ possession or control, and any Contractual Obligations
granting rights related to the foregoing (i) subsisting in, covering, reading
on, directly applicable to, used in the production of or existing in the
Technology used in the Acquired Locations or (ii) that are owned, licensed
or
controlled in whole or in part by the Sellers and relate to the Acquired
Locations.
“Inventory
Taking” has the meaning set forth in §2.12.
“Inventory
Taking Instructions” has the meaning set forth in §2.12.
“Layaway,
Repair, and Special Orders Merchandise” has the meaning set forth in
§2.12.
“Leases”
has the meaning set forth in §2.1(b).
“Lease
Assignment and Assumption” has the meaning set forth in §2.7.
“Legal
Requirement” means any United States federal, state, or local or any foreign
law, statute, standard, ordinance, code, rule, regulation, resolution or
promulgation, or any order, judgment or decree of any Governmental Authority,
or
any similar provision having the force and effect of law.
“Liability”
means any liability or obligation (whether known or unknown, whether asserted
or
unasserted, whether absolute or contingent, whether accrued or unaccrued,
whether liquidated or unliquidated and whether due or to become
due).
“Lien”
means any mortgage, pledge, lien, security interest, charge, adverse or prior
claim, encumbrance, restriction on transfer, conditional sale or other title
retention device or arrangement (including without limitation a capital lease),
transfer for the purpose of subjection to the payment of any Debt or other
obligation, or restriction on the creation of any of the foregoing, whether
relating to any property or right or the income or profits therefrom;
provided, however, that the term “Lien” shall not include (i)
statutory liens for Taxes, special assessments, or other governmental charges
to
the extent that the payment thereof is not in arrears or otherwise due, (ii)
imperfections in title or encumbrances in the nature of zoning restrictions,
easements, rights or restrictions of record on the use of real property if
the
same do not impair its use in the operations of the Acquired Location as
currently conducted, (iii) statutory or common law liens in favor of carriers,
warehousemen, mechanics and materialmen, statutory or common law liens to secure
claims for labor, materials or supplies and other like liens, which secure
obligations to the extent that payment thereof is not in arrears or otherwise
due, and (iv) as to any leased assets or properties (including pursuant to
financial or capital leases), rights of the lessors thereof.
5
“Loss”
means any loss, Liability, claim, damage, expense (including costs of
investigation and defense, reasonable attorneys’ fees, and any interest and
penalties imposed or assessed by any Governmental Authority), whether or not
involving a third party claim, and reduced by the amount of any insurance
proceeds and any Tax Benefit applicable to the then current fiscal year in
respect of (i) such Loss or (ii) a correlative adjustment which makes allowable
to the Buyer, Buyer Parent, Sellers, or any of their Affiliates any deduction,
amortization, exclusion from income, or other allowance.
“Material
Adverse Effect” means any change in or effect on the Businesses at the Acquired
Locations, the Acquired Assets or the Assumed Liabilities that, when considered
either singly or in the aggregate, would result in a material adverse effect
on
the condition (financial or otherwise), prospects, or operations (including
under any Lease) of the Businesses, Acquired Assets and Assumed Liabilities
at
the Acquired Locations, other than any such changes or effects resulting from
(i) this Agreement, the transactions contemplated hereby or the announcement
thereof, (ii) changes in general economic or political conditions or the
securities markets in general to the extent that they do not have a
substantially disproportionate effect on the Businesses at the Acquired
Locations, and (iii) changes in GAAP or its application.
“Materials
of Environmental Concern” means (i) any pollutants, contaminants, or hazardous
substances (as such terms are defined under CERCLA), pesticides, (as such term
is defined under the Federal Insecticide, Fungicide and Rodenticide Act),
hazardous wastes (as such term is defined under the Resource Conservation and
Recovery Act), other hazardous, radioactive or toxic materials, oil, petroleum
and petroleum products (and fractions thereof), or any other material listed
or
subject to regulation under any law, statute, rule, regulation, permit, or
directive due to its potential, directly or indirectly, to harm the environment
or the health of humans or other living beings, including, without limitation,
those substances defined or regulated as hazardous or toxic under Environmental
Laws.
“Most
Recent FYE Balance Sheet” shall mean for each Seller the balance sheet of such
Seller as of the Most Recent FYE Balance Sheet Date provided to the
Buyer.
“Most
Recent FYE Balance Sheet Date” shall mean December 31, 2006 in the case of each
Seller.
“Non-Competition
Period” has the meaning set forth in §7.1.
“Non-Disclosure
Agreement” means the Mutual Non-Disclosure Agreement, dated April 2, 2007,
by and between the Buyer Parent and Sellers.
“Ordinary
Course of Business” means, with respect to the Acquired Locations, the ordinary
course of business consistent with past custom and practice of the Acquired
Locations (including with respect to the quantity and frequency of and
expenditure on advertising for the Acquired Locations) and shall expressly
exclude, without limitation, any going out of business or similar sales (however
denominated) or any sell off of any merchandise at sale prices that are
inconsistent with Sellers’ past practices at the Acquired
Locations.
6
“Other
Assumed Contract Rights/Obligations” has the meaning set forth in
§2.1(f).
“Out-of-Season
Merchandise” has the meaning set forth in §2.12.
“Parties”
has the meaning set forth in the preamble above.
"Party"
means any of the Parties individually.
“Person”
means an individual, a partnership, a corporation, an association, a joint
stock
company, a limited liability company, a trust, a joint stock or venture, an
unincorporated organization, a Governmental Authority, an estate or other entity
or organization.
“Personal
Property” has the meaning set forth in §2.1(a).
“Purchase
Price” has the meaning set forth in §2.5.
"Restricted
Parties" means, collectively, the Sellers, their subsidiaries, assigns,
successors and Affiliates.
"Restricted
Party" means any of the Restricted Parties individually.
“Restricted
Region” has the meaning set forth in §7.1.
“Retained
Liabilities” has the meaning set forth in §2.4.
“Sellers”
has the meaning set forth in the preamble.
“Seller
Indemnitees” has the meaning set forth in §8.1.
“Sellers’
Knowledge” means the knowledge of ▇▇▇▇ Art ▇▇▇▇▇▇▇ and ▇▇▇▇ ▇.
▇▇▇▇▇▇▇ after due inquiry of ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇▇ and the
store managers for the Acquired Locations employed by the Sellers immediately
prior to the Closing
“Tax”
or
“Taxes” means any United States federal, state, or local or any foreign income,
gross receipts, license, payroll, employment, excise, severance, stamp,
occupation, premium, windfall profits, customs duties, capital stock, franchise,
profits, withholding, social security (or similar, including FICA),
unemployment, disability, real property, personal property, sales, use,
transfer, registration, value added, alternative or add-on minimum, estimated,
or other tax, including any interest, penalty, or addition thereto.
“Tax
Benefit” shall mean any refund or reduction in Tax realized by any Person (or
any Affiliate of a Person) attributable, as the context may require, to any
specified matter or event, which Tax Benefit shall be determined after first
taking into account all other items of income, gain, loss, deduction or credit
of such Person or Affiliate.
7
“Tax
Return” means any return, declaration, report, claim for refund, or information
return or statement relating to Taxes, including any schedule or attachment
thereto, and including any amendment thereof.
“Technology”
means all inventions, copyrightable works, discoveries, innovations, know-how,
information (including ideas, research and development, know-how, formulas,
compositions, processes and techniques, technical data, designs, drawings,
specifications), and all other forms of technology, including improvements,
modifications, derivatives or changes, whether or not protectible or protected
by patent, copyright, mask work right, trade secret law or
otherwise.
“Trademarks”
means any trademarks, service marks, trade dress, and logos, together with
all
translations, adaptations, derivations, and combinations thereof and including
all goodwill associated therewith.
“Transaction
Proposal” has the meaning set forth in §5.6.
“Transfer
Taxes” has the meaning set forth in §9.10.
"Transitional
Assets" has the meaning set forth in §7.6.
2.
ACQUISITION
OF ASSETS BY BUYER.
2.1. Purchase
and Sale of Assets.
The
Sellers agree to sell and transfer to the Buyer, and the Buyer agrees to
purchase and acquire from the Sellers at the Closing, subject to the exclusions
contained in §2.2 and subject to and upon the other terms and conditions
contained herein, all of Sellers’ right, title and interest in and to the assets
of the Sellers which are used or required in the conduct of the Businesses
as
set forth below (collectively, the “Acquired Assets”), and no other properties,
assets, or rights of the Sellers:
(a) (i) the
tangible personal property and leasehold improvements, including machinery,
equipment (but excluding, specifically, POS equipment and computers), alarm
systems, tools, furniture, fixtures, furnishings, shelving, owned by the Sellers
and used or required in the conduct of the Business, each as set forth on the
fixed asset register attached hereto as Schedule 2.1(a)(i) (as supplemented
by
Sellers at Closing for any additional items acquired after the date hereof),
and
(ii) the Acquired Inventory (such Acquired Inventory, collectively with the
items specified in §2.1(a)(i), the “Personal Property”);
(b) all
rights
of the Sellers (i) as tenants under the leases relating to the real property
at
the Acquired Locations (including to security deposits, but only if and to
the
extent any existing deposits are not released by the landlords on or prior
to
Closing) and (ii) under the leases relating to such personal property as is
used
in the Businesses, each as set forth on Schedule 2.1(b) (collectively, the
“Leases”) ;
8
(c) all
rights
of the Sellers to the telephone numbers of the Acquired Locations, each as
set
forth on Schedule 2.1(c);
(d) all
customer mailing lists and other records relating to the customers of the
Businesses or used at or by the Acquired Locations in connection with the
conduct of the Businesses that are not owned by Party City
Corporation;
(e) such
other
contracts, contract rights, agreements and leases (in addition to the Leases)
of
Sellers required for the conduct of the Businesses at the Acquired Locations
as
may be set forth on Schedule 2.1(e), as updated by Sellers as of the
Closing Date, and in each case accepted by Buyer (“Other Assumed Contract
Rights/Obligations”); but specifically excluding any contractual obligations
with Party City Corporation and ▇▇▇▇▇▇ Greeting Cards and all other contracts,
agreements or leases of Sellers (collectively the “Excluded Contracts”);
and
(f) the
goodwill of the Businesses at the Acquired Locations.
2.2. Excluded
Assets.
There
shall be excluded from the Acquired Assets to be sold and transferred to Buyer
hereunder, and, to the extent in existence on the Closing Date, the Sellers
shall retain all of the Sellers’ right, title and interest in and to the
following assets, properties and rights of the Sellers (collectively, the
“Excluded Assets”):
(a) the
consideration delivered to Sellers by Buyer or Buyer Parent pursuant to this
Agreement and all checks received by the Sellers as of the Closing which have
not yet cleared or been deposited or cashed;
(b) any
assets
of the Sellers not used in the conduct of the Businesses as well as any POS
equipment and computers, even if used in the conduct of the
Businesses;
(c) all
rights
of the Sellers under the Excluded Contracts;
(d) all
claims, prepayments, refunds, entitlements, causes of action, choses in action,
rights of recovery, rights of set off and rights of recoupment, including
without limitation with respect to Taxes, which Sellers may hereafter receive
or
be responsible for by reason of their ownership of the Acquired Assets prior
to
the Closing or which have arisen in connection with the operation of the
Acquired Locations by the Sellers prior to the Closing (including security
deposits, but only if and to the extent such deposits are released by the
landlords of the leased real property at the Acquired Locations on or prior
to
Closing) unless otherwise allocated pursuant to §2.10;
(e) all
rights
in and with respect to the assets associated with (whether in trust, reserve,
or
otherwise) employee benefit plans of the Sellers, if any, including, without
limitation, any Employee Plan;
(f) all
rights
in and with respect to insurance policies of the Sellers;
9
(g) all
corporate, financial (including, without limitation, Tax),
computer, and human resource books, records and systems of the
Sellers, including without limitation those used in connection with the Acquired
Locations;
(h) all
Intellectual Property used in connection with the operations of the Acquired
Locations, goodwill associated therewith, licenses and sublicenses granted
in
respect thereto and rights thereunder, remedies against infringements thereof
and rights to protection of interest therein; and
(i) all
inventories, merchandise and supplies of the Sellers that do not constitute
Acquired Inventory under this Agreement.
2.3. Assumption
of Liabilities.
At
the
Closing, Buyer will deliver to Sellers an instrument of assumption whereby
on
the terms and subject to the conditions set forth herein and except as excluded
by §2.4 hereof, Buyer will undertake, assume, agree to satisfy or perform when
due and hold Sellers harmless from and indemnify Sellers against the following
Liabilities of the Sellers (the “Assumed Liabilities”):
(a) all
Liabilities of the Sellers under the Leases included in the Acquired Assets
(other than those Liabilities that arose or accrued solely based on any act,
event, or omission that occurred prior to the Closing, which shall in all cases
be retained by Sellers irrespective of whether they are known at Closing or
become known only after the Closing, except to the extent adjusted pursuant
to
§2.10 hereof);
(b) all
Liabilities for Taxes relating to the Acquired Locations that are incurred
subsequent to the Closing (unless otherwise allocated pursuant to
§2.10);
(c) all
other
Liabilities relating to the operations of the Acquired Locations or the
ownership of the Acquired Assets, but in each such case only to the extent
they
arise or accrue after the Closing; and
(d) all
Liabilities relating to or arising from the Buyer’s use of the utilities and
telephone accounts of the Sellers pursuant to §7.5.
2.4. Liabilities
Not Assumed.
Except
as
expressly set forth in this Agreement, the Buyer will not assume or perform
any
Liabilities not specifically covered in §2.3 hereof including, but not limited
to, the following Liabilities (the “Retained Liabilities”), which shall be
retained by the Sellers:
(a) any
Liability of the Sellers for Taxes (i) not relating to the Acquired Locations
or
(ii) incurred or arising on or prior to the Closing (unless otherwise allocated
pursuant to §2.10);
10
(b) any
Liability of the Sellers for costs and expenses incurred in connection with
this
Agreement, the making or performance of this Agreement and the transactions
contemplated hereby;
(c) any
Liability of the Sellers to indemnify any Person, except to the extent arising
under the Leases for acts, events, or omissions that may take place or transpire
after the Closing (unless otherwise allocated pursuant to §2.10);
(d) any
Liability associated with any Employee Plan;
(e) any
Liability of the Sellers arising under this Agreement except as set forth in
the
indemnification provisions of §8 hereof, to the extent set forth
therein;
(f) any
Liability arising out of or relating to the Excluded Assets;
(g) any
Liability to Affiliates of Sellers;
(h) any
Liability relating to former employees of Sellers no longer employed by Sellers
as of the close of business on the Closing Date, except to the extent, if any,
that Buyer has specifically assumed or agreed to assume responsibility for
such
obligations in this Agreement; and
(i) any
Liability under any Leases that accrued or arose based solely on any act, event,
or omission that occurred prior to or through and including the Closing Date
(unless otherwise allocated pursuant to §2.10).
2.5. Purchase
Price.
The
Buyer
agrees to purchase the Acquired Assets (other than the Acquired Inventory)
and
the covenant not to compete provided for in §7.1 hereunder for One Million Three
Hundred Fifty Thousand Dollars ($1,350,000) and additionally agrees to purchase
the Acquired Inventory at the purchase price determined in accordance
with §2.12 below (together, the “Purchase Price”), subject to any adjustment
pursuant to §§ 2.9, 2.10 or 2.11 below, payable at Closing by release of the
Deposit to Seller and the balance by wire transfer of immediately available
funds in accordance with written instructions of the Sellers given to the Buyer
not less than two Business Days prior to the Closing Date.
2.6. The
Closing.
The
effective time of the closing of the transactions contemplated by this Agreement
(the “Closing”) shall be the commencement of business at the Acquired Locations
on January 3, 2008 (the “Closing Date”).
2.7. Deliveries
by Sellers and Buyer.
At
the
Closing:
11
(i) the
Sellers shall deliver to the Buyer the various certificates, instruments and
documents referred to in §6.1;
(ii) the
Buyer and Buyer Parent shall deliver to the Sellers the various certificates,
instruments and documents referred to in §6.2;
(iii) the
Sellers shall execute and deliver to the Buyer and Buyer Parent a ▇▇▇▇ of sale
in substantially the form attached hereto as Exhibit A (the “▇▇▇▇ of
Sale”) and such other instruments of conveyance as the Buyer and Buyer Parent
and their counsel may reasonably request in order to effect the sale, transfer,
conveyance and assignment to the Buyer and Buyer Parent of valid ownership
of
the Acquired Assets;
(iv) the
Buyer and Buyer Parent shall execute and deliver to the Sellers an instrument
of
assumption in substantially the form attached hereto as Exhibit B (the
“Instrument of Assignment and Assumption”) and such other instruments as the
Sellers and their counsel may reasonably request in order to effect the
assumption by the Buyer and Buyer Parent of the Assumed
Liabilities;
(v) the
Sellers and Buyer shall each execute and deliver to the other an Assignment
and
Assumption of Lease substantially in the form attached hereto as Exhibit
C (the "Lease Assignment and Assumption") with respect to each lease
relating to the real property at the Acquired Locations, with each such Lease
Assignment and Assumption governed by and construed in accordance with the
terms
of this Agreement and, in the event that any provision of either such Lease
Assignment and Assumption is construed to conflict with a provision in this
Agreement, the provision in this Agreement shall be deemed to be
controlling;
(vi) the
Buyer shall pay to the Sellers the Purchase Price set forth in §2.5, subject to
any adjustment thereunder or elsewhere hereunder;
(vii) the
Sellers shall deliver to the Buyer, or otherwise put the Buyer in possession
and
control of, all of the Acquired Assets of a tangible nature; and
(viii) the
Buyer and the Sellers shall execute and deliver to each other a cross-receipt
evidencing the transactions referred to above.
As
used in
this Agreement, the term “Closing Documents” shall mean each ▇▇▇▇ of Sale, the
Instrument of Assignment and Assumption, each Lease Assignment and Assumption,
and any other instruments of sale, transfer, conveyance, assignment, and
assumption of liabilities executed and delivered by the Parties pursuant to
this
§2.7 or §7.8 (Further Assurances).
2.8.
Allocation
of Purchase
Price.
The
Buyer
and the Sellers agree that the Purchase Price shall be allocated in accordance
with Schedule 2.8, which will be prepared by the Parties within one hundred
twenty (120) calendar days following the Closing Date, or as soon as practicable
thereafter, in accordance with Section 1060 of the United States Internal
Revenue Code of 1986, as amended, and will be revised to reflect any adjustments
necessary as a result of any Purchase Price adjustment pursuant to §§ 2.9, 2.10,
2.11 and 2.12 below. The Buyer, Buyer Parent, and the Sellers shall
use such allocation in all relevant Tax Returns.
12
2.9. Deposit.
Within
five Business Days after Sellers obtain consents from the lessors under each
of
the Leases for the real property at the Acquired Locations pursuant to the
provisions of §5.8 hereunder, Buyer shall deposit in escrow with a mutually
agreed upon escrow agent the sum of One Hundred Thirty Five Thousand Dollars
($135,000) (such amount, plus all interest earned thereon, the “Deposit”), which
Deposit shall be applied against the Purchase Price due and payable at the
Closing, or refunded in full to Buyer if the Closing does not occur through
no
fault of Buyer.
2.10. Prorations.
(a) the
following items shall be prorated between Buyer and Sellers as of and through
the Closing Date and shall constitute an adjustment to the Purchase
Price:
(i)
All
ad
valorem, real and personal property Taxes (including without limitation any
such
Taxes paid indirectly through the lessors under or relating to the Leases),
general and special assessments (solely with respect to installments due in
the
current Tax year), and any other property Taxes relating to the Acquired Assets
for the current tax year; however, if the amount of such Tax for the
current Tax year is not determinable, it shall be initially be prorated on
the
basis of the Tax for the immediately preceding Tax year or, if greater, the
amounts billed by the landlords for the current period and finally adjusted
after the amount of Tax for the current Tax year becomes
determinable,
(ii) All
payments to the lessors under or relating to the Leases, including unpaid or
prepaid rent, security deposits (which shall be returned to the Sellers to
the
extent released by the lessors), and common area maintenance charges;
and
(iii) Any
prepaid expenses associated with the operation of the Acquired Locations which
were paid by Sellers in the Ordinary Course of Business, including without
limitation telephone expenses and utility charges, but excluding advertising
expenses.
(b)
Sellers
shall bear the cost and expense of all prorated items set forth in this §2.10
applicable to periods prior to and including the Closing Date and shall receive
the benefits thereof, Buyer shall bear the cost and expense of payment of all
prorated items set forth in this §2.10 applicable to periods from and after the
Closing Date and shall receive the benefits thereof, and the Purchase Price
shall be adjusted, if necessary, to account for such division of the costs
and
expenses of prorated items.
13
(c) At
the
Closing, all such amounts shall be estimated by the Parties in the manner set
forth above or otherwise in good faith, with final adjusting payments due once
the actual amounts are determined. After Closing, either Party, at its option,
may give the other Party written notice of the correct amount of any payment
any
necessary adjustment to the prorations due under this §2.10 (accompanied by
documentation substantiating such amount) and (B) the Party from whom additional
payment is required will pay the applicable amount within ten Business Days
after such notice.
2.11. Purchase
Price Adjustment for Lease Security Deposits.
In
the
event that one or more of the Sellers’ security deposits relating to the real
property at the Acquired Locations are not released by the landlords on or
prior
to Closing, then the Purchase Price payable under §2.5 hereunder shall be
increased by an amount (not to exceed Fifty Thousand Dollars ($50,000)) equal
to
the security deposits of the Sellers that are not being released by the
landlords, with said adjustment to the Purchase Price, if any, serving as full
consideration for the transfer and assignment by the Sellers to the Buyer of
their interest in said unreleased security deposits.
2.12. Acquired
Inventory.
(a) Sellers
agree to sell and Buyer agrees to purchase an amount not to exceed Four Hundred
Thousand Dollars ($400,000) worth of mutually agreed upon inventory at the
Acquired Locations on the Closing Date (valued at Sellers’ cost as determined
from Sellers’ books and records maintained in accordance with GAAP) subject to
the conditions of this §2.12 and as set forth on Schedule 2.12 (such inventory,
the “Acquired Inventory”).
(b) In
determining what shall constitute Acquired Inventory for purposes of this
Agreement, the Parties agree that it shall consist only of such inventories
and
items of merchandise at the Acquired Locations that are saleable in the Ordinary
Course of Business as mutually determined by Buyer and Buyer Parent and Sellers
and conform to the provisions of Section 2.12(d) below. In the event
that such inventories and items of merchandise are valued at greater than
$400,000 (measured by Sellers’ cost and as verified with and accepted by Buyer
and Buyer Parent under this §2.12) (“Excess Inventory”), then Buyer may elect to
purchase any or all of such Excess Inventory or exclude any thereof from the
purchase hereunder.
(c) In
connection with the provisions of this §2.12, the Sellers and Buyer shall cause
to be taken a physical inventory (units and costs) of all items of merchandise
located at the Acquired Locations (the “Inventory Taking”), which Inventory
Taking shall take place and be completed following the close of business at
the
Acquired Locations on January 2, 2008 and before the commencement of business
on
the Closing Date. In the event that the Parties mutually agree that
inclement winter weather would impede or prevent the Inventory Taking to take
place on such date, the Inventory Taking shall place on January 3,
2008. The Sellers and Buyer shall jointly employ WIS or another
mutually acceptable independent inventory taking service (the “Inventory Taking
Service”) to conduct the Inventory Taking. The Inventory Taking shall
be conducted in accordance with procedures and instructions as shall be mutually
agreed upon by the parties, which will include producing electronic data files
in a format capable of being readily inputted into Buyer’s electronic inventory
and merchandising system (the “Inventory Taking Instructions”)). The
Sellers and Buyer shall each be responsible for one-half (1/2) of the fees
and
expenses of the Inventory Taking Service. Except as provided in the
immediately preceding sentence, the Sellers and Buyer shall each bear their
respective costs and expenses relative to the Inventory Taking. The
Sellers and Buyer shall each have the right to have such number of
representatives present during the Inventory Taking as they reasonably deem
necessary, and shall each have the right to review and verify the listing and
tabulation of the Inventory Taking Service. The Sellers agree that
during the conduct of the Inventory Taking, the retail stores at the Acquired
Locations shall be closed to the public and no sales or other transactions
shall
be conducted.
14
(d) In
mutually agreeing to the items of merchandise that shall constitute Acquired
Inventory, the Parties agree that Acquired Inventory shall not include any
(i)
Defective Merchandise, (ii) Out-Of-Season Merchandise, (iii) Clearance
Merchandise, (iv) Greeting Card Merchandise, (v) items or merchandise not
located at the Acquired Locations, (vi) Obsolete Merchandise, (vii) Excess
Seasonal Merchandise, and (viii) Special Order Merchandise which is not received
at the Acquired Locations or picked up by customers prior to the Closing
Date. Notwithstanding anything to the contrary in the foregoing,
Acquired Inventory also shall not include: (1) goods which belong to sublessees,
licensees or concessionaires of the Sellers; (2) goods held by the Sellers
on
memo, on consignment, or as bailee; and (3) furnishings, trade fixtures,
furniture and equipment and improvements to real property which are located
at
the Acquired Locations.
(e) As
used in this §2.12 and elsewhere herein, the following terms shall have the
respective meanings set forth below:
“Clearance
Merchandise” as to a Seller means merchandise that has been offered for sale at
a point-of-sale discount equal to fifty percent (50%) or greater off such
Seller’s normal selling price.
“Defective
Merchandise” means any item of merchandise identified and agreed upon by Sellers
and Buyer during the Inventory Taking as defective or otherwise not saleable
in
the Ordinary Course of Business because it is dented, worn, scratched, broken,
faded, torn, mismatched, mistailored, is an outdated food item, or is affected
by other similar defects rendering it not first quality, or has been segregated
by Sellers as “discontinued” merchandise.
“Excess
Seasonal Merchandise” as to each Seller means items in inventory of seasonal,
holiday, or packaway merchandise (other than Out-of-Season Merchandise) in
quantities or amounts that exceed what was sold by such Seller in the
immediately previous selling season during calendar 2007.
15
“Greeting
Card Merchandise” means all items of merchandise constituting greeting
cards.
“Layaway,
Repair, and Special Order Merchandise” means all items of merchandise held at
the Acquired Locations on layaway or for repair, or customer-specific special
orders for goods, in each case pursuant to binding agreements, invoices or
other
legal documentation, where (A) the documentation is clear as to the name,
address, telephone number, date of last payment and balance due from the
customer, and (B) the goods subject to layaway, repair or special order are
properly identified, segregated, and in a condition as described in the
documentation.
“Obsolete
Merchandise” means all items that are not saleable or useable due to age or
similar factors, including merchandise such as film, batteries and similar
items
with use expiration dates that are within 60 days of product expiration
date.
“Out-Of-Season
Merchandise” means all items of seasonal, holiday, or packaway merchandise that
relate to seasons or holidays that fall in any one calendar year between
Halloween and New Year’s Day, inclusive, and shall expressly be deemed to
include, without limitation, Halloween, Thanksgiving, Christmas, Hanukah,
Kwanzaa, New Year’s Eve and New Year’s Day merchandise.
(f) The
Sellers shall retain all responsibility for any goods not included as “Acquired
Inventory” hereunder. All items not included in the Acquired
Inventory, (and that are not otherwise an Acquired Asset hereunder) including
any Excess Inventory will be removed by the Sellers from the Acquired Locations
at a practicable time but in no event later than two days after the Closing
Date. The Buyer and Buyer Parent shall have no cost, expense or
responsibility in connection with any goods not included in Acquired
Inventory.
3.
REPRESENTATIONS
AND WARRANTIES OF THE SELLERS.
The
Sellers jointly and severally
represent and warrant to the Buyer and Buyer Parent that, except as set forth
in
the disclosure schedule attached to this Agreement (the “Disclosure
Schedule”):
3.1
Organization
and Qualification of the Sellers.
Party
City
Warwick is a corporation that is duly organized, validly existing, and in good
standing under the laws of the State of Rhode Island, Party City Lincoln is
a
limited liability company that is duly organized, validly existing, and in
good
standing under the laws of the State of Rhode Island, and each of the
Sellers are qualified to do business in the State of Rhode
Island. Neither Seller has any subsidiary.
16
3.2
Authorization
of Transaction.
Prior
to
the date hereof, the Board of Directors of Party City Warwick and the Members
of
Party City Lincoln, by written consent in lieu of a special meeting of the
Board
of Directors (in the case of Party City Warwick) and of the Members (in the
case
of Party City Lincoln), adopted and approved this Agreement and the transactions
contemplated hereby. No vote of the holders of any class of capital
stock of the Sellers is necessary to adopt and approve this Agreement or the
transactions contemplated hereby. The Sellers have the power and
authority (including full corporate power and authority) to execute and deliver
this Agreement and have taken all actions necessary to authorize the
consummation of the transactions contemplated hereby and the performance of
its
obligations hereunder. This Agreement has been duly executed and
delivered by the Sellers and is Enforceable against the Sellers.
3.3
Noncontravention.
Neither
the execution and the delivery of this Agreement, nor the consummation of the
transactions contemplated hereby (including the assignments and assumptions
referred to in §2 above), will (i) violate any Legal Requirement to which the
Sellers are subject, (ii) result in a breach or violation of, or default under,
any Contractual Obligation of the Sellers, (iii) require any action by
(including any authorization, consent or approval), or in respect of (including
notice to), any Person under any Contractual Obligation of the Sellers (other
than the Leases relating to the real property at the Acquired Locations), or
(iv) result in a breach or violation of, or default under, the Sellers’ charter,
bylaws or other organizational documents.
3.4 Brokers’
Fees.
The
Sellers do not have any Liability or obligation to pay any fees or commissions
to any broker, finder, or agent with respect to the transactions contemplated
by
this Agreement for which the Buyer could become liable or
obligated.
3.5
Assets.
The
Sellers have good title to (or, in the case of the Leases, a valid and
subsisting leasehold interest in or right to use), and the power to sell or
transfer to the Buyer, all of the Acquired Assets free and clear of any
Liens.
3.6 Legal
and
Other Compliance.
The
Sellers are in material compliance with all applicable Legal Requirements
relating to the conduct of the Businesses, and no Action has been filed or
commenced or, to the Sellers' Knowledge, threatened against either of them
alleging any failure so to comply. Without limiting the
generality of the foregoing, the Sellers acknowledge that the bulk transfer
laws
in The State of Rhode Island are no longer in effect.
3.7
Consents.
The
Sellers have given all of the material third party notices and will have
procured on or before September 14, 2007 the material third party consents,
approvals, waivers, and, in the case of holders of Liens, pay off or partial
release letters, necessary to permit the consummation by the Sellers of the
transactions contemplated hereby, as set forth on §3.7 of the Disclosure
Schedule.
17
3.8
Property,
Plant and Equipment.
The
Personal Property and other tangible assets included in the Acquired Assets
that
are material to the operation of the Acquired Locations as conducted on the
Closing Date are in good operating condition and repair (subject to normal
wear
and tear, scheduled maintenance, and retirement). The Sellers have
obtained an estoppel from the lessors under the Leases in respect of real
property relating to the Acquired Locations.
3.9
Litigation.
There
are
no Actions to which either Seller is a party (either as plaintiff or defendant)
or to which the Acquired Assets are subject pending or, to the Sellers’
Knowledge, threatened that, individually or collectively, would be reasonably
likely to result in a Material Adverse Effect, or that question the validity
of
this Agreement or of any action taken or to be taken pursuant to or in
connection with the provisions of this Agreement. There are no
outstanding judgments, orders, decrees, citations, fines or penalties or written
notices of violation against the Seller affecting the Acquired Assets or the
Assumed Liabilities under any Legal Requirement.
3.10 Environmental
Matters.
Sellers
have complied with all applicable Environmental Laws relating to the Acquired
Locations, except for violation of Environmental Laws that have not had and
would not reasonably be expected to have a Material Adverse
Effect. There is no pending or, to Sellers’ Knowledge, threatened in
writing civil or criminal litigation, notice of violation, formal administrative
proceeding, or investigation, inquiry or information request by any governmental
or administrative entity relating to any Environmental Law relating to the
Acquired Locations. To the Sellers’ Knowledge, with respect to the
Acquired Locations, no individual or entity has any material liabilities or
material obligations arising from the release or threatened release of Materials
of Environmental Concern into the environment. Neither
Seller nor to Sellers’ Knowledge any other individual or entity is a party or
bound by any court order, administrative order, consent order, or other written
agreement or release with any governmental entity entered into in connection
with any legal obligation or liability arising under any Environmental Law
with
respect to the Acquired Locations. To the Sellers’ Knowledge, the
Sellers do not possess any documents (whether in hard copy or electronic form)
that contain any material environmental reports, investigations, or audits
relating to the Acquired Locations. Except as may be described in
§3.10 of the Disclosure Schedule or as has not had or would not reasonably be
expected to have a Material Adverse Effect: (i) the Seller has all material
permits, licenses and other authorizations required to operate the Acquired
Locations under any applicable Environmental Laws and (ii) neither the execution
of this Agreement nor the consummation of the transactions contemplated hereby
will require any investigation, remediation or other action with respect to
Materials of Environmental Concern, or any notice to or consent of any
Governmental Authority, pursuant to any applicable Environmental
Laws.
18
3.11 Affiliated
Transactions.
No
Affiliate of the Sellers owns or otherwise has any rights to or interests in
any
Acquired Assets, or has engaged in business dealings with the Sellers related
to
the Acquired Locations other than on arms-length terms which are no less
favorable to the Sellers than those which could be obtained with a third party
which is not an Affiliate of the Sellers.
3.12 Absence
of
Certain Developments.
Since
the
Most Recent FYE Balance Sheet Date, (a) there has not been any material adverse
change in or material adverse effect on the Acquired Assets and no event has
occurred or circumstance exists that would be reasonably likely to result in
such a change or effect and (b) the Acquired Locations have only been operated
in the Ordinary Course of Business.
3.13 Employment.
The
Sellers are not a party to (a) any labor, collective bargaining union or similar
agreement, (b) the employment by Sellers of each Hired Employee is terminable
at
will, (c) the Sellers are and have been in compliance in all material respects
with any obligations arising under a collective bargaining agreement or any
obligations arising under employee benefit plans in each case with respect
to
the Acquired Locations, and (d) the Sellers have paid or will pay in full to
all
Hired Employees all amounts currently due and payable for wages, salaries,
commissions, bonuses, benefits and other compensation accrued as of the Closing
Date. There are no pending or threatened workers’ compensation
claims, nor, to the Sellers’ Knowledge, any basis for any such
claims.
3.14 Certain
Financial Information.
The
Sellers have provided to the Buyer the Financial Statements. The
Financial Statements have been prepared in accordance with GAAP applied on
a
consistent basis throughout the periods covered thereby, fairly present the
financial condition, results of operations and cash flows of the Sellers as
of
the respective dates thereof and for the periods referred to therein and are
consistent with the books and records of the Sellers; provided,
however, that the Financial Statements referred to in clause (b) of
the
definition of such term are subject to normal recurring year-end adjustments
(which will not be material) and do not include
footnotes. Notwithstanding the foregoing, the monthly sales and
profit and loss statements attached to §3.14 of the Disclosure Schedule, as
updated from time to time from the date of this Agreement until the Closing
pursuant to §5.7 hereof were (or will be) prepared in accordance with the past
custom and practice of the Sellers and fairly present (or will fairly present)
the results of operations of the Acquired Locations set forth therein as of
the
respective dates thereof and for the periods referred to therein.
3.15 Undisclosed
Liabilities.
To
the
Sellers' Knowledge, except for Liabilities (i) arising in the Ordinary Course
of
Business since the Most Recent FYE Balance Sheet Date, (ii) under the Leases
included in the Acquired Assets, (iii) for accounts payable of the Acquired
Location, the Acquired Locations have no material Liabilities that would be
required to be disclosed in financial statements prepared in accordance with
GAAP.
19
3.16 Tax
Matters.
(a) Each
of the Sellers has filed on a timely basis all Tax Returns that it was required
to file, and all such Tax Returns were complete and accurate in all material
respects. Each of the Sellers has paid on a timely basis all
Taxes that were due and payable on or prior to the date hereof and as of
Closing, shall have paid all such Taxes due and payable on or prior to the
Closing Date. The unpaid Taxes of the Sellers for tax periods through
the Most Recent FYE Balance Sheet Date do not exceed the accruals and reserves
for Taxes (excluding accruals and reserves for deferred Taxes established to
reflect timing differences between book and Tax income) set forth on the Most
Recent FYE Balance Sheet, and will not exceed the accruals and reserves thereof
as of the Closing Date. Neither Seller has any actual or potential
liability for any Tax obligation of any taxpayer (including any affiliated
group
of corporations or other entities that included the Sellers during a prior
period) other than the Sellers. All Taxes that the Sellers are or
were required by law to withhold or collect have been duly withheld or collected
and, to the extent required, have been paid to the proper Governmental
Authority.
(b) The
Sellers have delivered to the Buyer complete and accurate copies of all federal
and state income Tax Returns of the Sellers for their three most recent fiscal
years ending prior to the date hereof. No examination or audit of any Tax Return
of the Sellers by any Governmental Authority is currently in progress or, to
the
Sellers’ Knowledge, threatened or contemplated.
(c) Neither
Seller:
(i) has
made any payments, is obligated to make any payments, or is a party to any
agreement that could obligate it to make any payments that may be treated as
an
“excess parachute payment” under Section 280G of the Code;
(ii) has
any actual or potential liability for any Taxes of any person (other than the
Sellers) under Treasury Regulation Section 1.1502-6 (or any similar provision
of
federal, state, local, or foreign law), or as a transferee or successor, by
contract, or otherwise; or
(iii) is
or has been required to make a basis reduction pursuant to Treasury Regulation
Section 1.1502-20(b) or Treasury Regulation Section 1.337(d)-2(b).
(d) Neither
Seller has undergone a change in its method of accounting resulting in an
adjustment to its taxable income pursuant to Section 481 of the
Code.
(e) At
all times since January 1, 2001, for federal income tax purposes, Party City
Warwick (and any predecessor of Party City Warwick) has been a validly electing
“S corporation” within the meaning of Sections 1361 and 1362 of the Code and has
validly elected (if necessary) and been treated in a similar manner for purposes
of the income tax laws of all states in which it has been subject to income
taxation. At all times since January 20, 2004, for federal income tax
purposes, Party City Lincoln (and any predecessor of Party City Lincoln) has
validly been classified as a partnership under Section 7701 of the Code and
the
Treasury Regulations thereunder and has been subject to taxation under
Subchapter K of Chapter 1 of the Code and has validly been treated in a similar
manner for purposes of the income tax laws of all states in which it has been
subject to income taxation.
20
3.17 Contracts.
(a) Schedule
3.17 of the Disclosure Schedule lists all contracts, contract rights, agreements
and leases used in or acquired for the conduct of its business at the Acquired
Locations (written or oral) to which either Seller is a party.
(b) Except
with respect to the Excluded Contracts identified on Schedule 3.17, each Seller
has delivered to the Buyer and Buyer Parent a complete and accurate copy of
each
agreement listed in Schedule 3.17 of the Disclosure Schedule. With
respect to each agreement so listed: (i) the agreement is legal,
valid, binding and enforceable and in full force and effect; (ii) for those
agreements to which a Seller is a party, the agreement is assignable by such
Seller to the Buyer without the consent or approval of any party (except as
set
forth in Schedule 3.17 of the Disclosure Schedule) and will continue to be
legal, valid, binding and enforceable and in full force and effect immediately
prior to the Closing; and (iii) neither Sellers nor, to the Sellers’ Knowledge,
any other party, is in breach or violation of, or default under, any such
agreement, and no event has occurred, is pending or, to Sellers’ Knowledge, is
threatened, which, after the giving of notice, with lapse of time, or otherwise,
would constitute a breach or default by a Seller or, to Sellers’ Knowledge, any
other party under such agreement.
3.18 Insurance.
The
Sellers have and maintain adequate insurance policy coverage (including, without
limitation, fire, theft, casualty, comprehensive general liability, workers
compensation, and business interruption) under policies which are in full force
and effect. Such insurance policies are of the type and in amounts
customarily carried by organizations conducting businesses or owning assets
similar to those of the Sellers. Such insurance coverage is and will
be adequate to cover all claims made or arising prior to the Closing hereunder
in respect of the conduct and operation of the Businesses at the Acquired
Locations. The Sellers have no knowledge of any threatened
termination of, or premium increase with respect to, any such
policy.
3.19 No
Material Adverse Change.
There
is
and has been no Material Adverse Effect on Sellers’ Businesses at the Acquired
Locations since the Most Recent FYE Balance Sheet Date or from that represented
and disclosed in previous discussions with Buyer.
3.20 No
Competing Superstore.
There
has
been no opening or announced opening on or before August 15, 2007 of any
permanent party goods “superstore” (i.e., of more than approximately 9,000
square feet) within a ten mile radius of either of the Acquired Locations,
and,
to Sellers’ Knowledge, at no time prior to Closing was such a permanent party
goods “superstore” scheduled, planned, or announced to be opened within a ten
mile radius of either of the Acquired Locations.
21
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REPRESENTATIONS
AND WARRANTIES OF THE BUYER AND BUYER
PARENT.
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The
Buyer and Buyer Parent
jointly and severally represent and warrant to the Seller that:
4.1 Organization
and Qualification of the Buyer and Buyer Parent.
The
Buyer
and Buyer Parent are each a corporation that is duly organized, validly
existing, and in good standing under the laws of the State of Delaware and
are
each qualified to do business in The Commonwealth of Massachusetts.
4.2 Authorization
of Transaction.
Prior
to
the date hereof, the Board of Directors of the Buyer and Buyer Parent,
respectively, at a meeting duly called and held, or by written consent in lieu
of a special meeting of the Board of Directors, adopted and approved this
Agreement and the transactions contemplated hereby. No vote of the
holders of any class of capital stock of the Buyer or Buyer Parent is necessary
to adopt and approve this Agreement or the transactions contemplated
hereby. The Buyer and Buyer Parent each have the power and authority
(including full corporate power and authority) to execute and deliver this
Agreement and have taken all actions necessary to authorize the consummation
of
the transactions contemplated hereby and thereby and the performance of its
obligations hereunder and thereunder. This Agreement has been duly
executed and delivered by each of the Buyer and Buyer Parent and is or will
be,
as applicable, Enforceable against each of the Buyer and Buyer
Parent.
4.3 Noncontravention.
Neither
the execution and the delivery of this Agreement, nor the consummation of the
transactions contemplated hereby (including, without limitation, the assignments
and assumptions referred to in §2 above, will (i) violate any material Legal
Requirement to which the Buyer or Buyer Parent is subject, (ii) result in a
material breach or violation of, or default under, any material Contractual
Obligation of the Buyer or Buyer Parent, (iii), except as set forth on Schedule
4.5, require any action by (including any authorization, consent or approval),
or in respect of (including notice to), any Person under any material
Contractual Obligation of the Buyer or Buyer Parent or (iv) result in a breach
or violation of, or default under, the Buyer’s or Buyer Parent's charter or
bylaws.
4.4 Brokers’
Fees.
The
Buyer
and Buyer Parent do not have any Liability or obligation to pay any fees or
commissions to any broker, finder, or agent with respect to the transactions
contemplated by this Agreement for which the Seller could become liable or
obligated.
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4.5 Consents.
The
Buyer
and Buyer Parent have given all of the material third party notices and
procured, or will procure by Closing, the material third party consents,
approvals, and waivers necessary to permit the consummation by the Buyer and
Buyer Parent of the transactions contemplated hereby, as set forth on Schedule
4.5.
4.6 Litigation.
There
are
no Actions to which either the Buyer or Buyer Parent is a party (either as
plaintiff or defendant) or to which either of its assets are subject pending
or,
to the Buyer’s Knowledge, threatened that question the validity of this
Agreement or of any action taken or to be taken pursuant to or in connection
with the provisions of this Agreement.
5.
PRE-CLOSING
COVENANTS.
The
Parties agree as
follows:
5.1 General.
From
the
date of this Agreement until the Closing, each of the Buyer, Buyer Parent and
Sellers will use their commercially reasonable best efforts to take all action
and to do all things necessary, proper, or advisable in order to consummate
and
make effective the transactions contemplated by this Agreement (including
satisfaction, but not waiver, of the other Parties’ closing conditions set forth
in §6.2 and §6.1, respectively).
5.2 Notices
and Consents.
From
the
date of this Agreement until the Closing, each of the Buyer, Buyer Parent and
Sellers will give any notices to third parties and will obtain the third party
consents, approvals or waivers that are set forth on Schedules 3.7 and 4.5
respectively.
5.3 Operation
of Businesses.
From
the
date of this Agreement until the Closing, the Sellers will not engage in any
practice, take any action, or enter into any transaction with respect to the
conduct of the Businesses outside the Ordinary Course of Business and shall
not,
without limitation, engage in any going out of business or similar sales
(however denominated), nor sell off any merchandise at sale prices that are
inconsistent with Sellers’ past practices. Without limiting the
generality of the foregoing, from the date of this Agreement until the Closing,
the Seller will use commercially reasonably efforts to keep the Businesses
and
Acquired Assets substantially intact, including their present operations,
physical facilities, working conditions, and relationships with lessors,
licensors, suppliers, customers, and employees relating to the
Businesses. Notwithstanding the foregoing, Sellers will not, without
Buyer’s prior written consent, enter into any new contracts, agreements, or
obligations with respect to the Acquired Locations or the Businesses thereat,
whether written or oral, unless the same shall be terminable by their terms
on
not more than thirty (30) days notice, nor enter into any new employment
contracts with any employees of Sellers, nor grant any increase to employees’
pay in excess of the Sellers’ standard pay practices, but in no event more than
three percent (3%) per annum. Prior to the Closing, Sellers and their
Affiliates shall not operate, manage, or invest in, directly or indirectly,
any
temporary Halloween or any party goods store within a three-and-one-half (3-1/2)
mile radius of the Acquired Locations or at any other location within a
three-and-one-half (3-1/2) mile radius of any currently existing store of
Buyer.
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5.4 Full
Access.
From
the
date of this Agreement until the Closing, the Sellers will permit the Buyer,
Buyer Parent, and their representatives to have full access at all reasonable
times, upon reasonable notice, and in a manner not to interfere with the
Sellers’ business operations or normal employee relations, to all premises,
properties, books, records, and documents exclusively of or pertaining
exclusively to the Businesses.
5.5 Notice
of
Developments.
From
the
date of this Agreement until the Closing, each Party will give prompt written
notice to the other Party of any material development causing a breach of any
of
its own representations and warranties in §3 and §4 above; provided, however,
that compliance with the disclosure requirements of this §5.5 shall not relieve
a Party of any obligation with respect to any of its representations, warranties
or covenants in this Agreement or waive any condition to any other Party’s
obligations under this Agreement.
5.6 Exclusivity.
From
the date hereof and until Closing,
neither the Sellers, nor any of their respective officers, directors,
representatives, shareholders, members, managers, agents or Affiliates shall
(a)
directly or indirectly solicit, initiate or encourage the submission of any
Transaction Proposal (as defined below) with; (b) negotiate, furnish, or cause
to be furnished any information to, or otherwise cooperate with; or (c) enter
into any contract, agreement in principle, or other commitment (whether or
not
legally binding) with, any person, partnership, corporation, or liability
company or other entity (other than Buyer Parent, Buyer or their
representatives) with respect to or for any Transaction
Proposal. Sellers shall promptly disclose to Buyer and Buyer Parent
any Transaction Proposal received by them during such period (and in no event
later than the next Business Day after they shall have received such Transaction
Proposal). As used herein, “Transaction Proposal” means a proposal
for the acquisition of the entire or any portion of the capital stock of any
of
the Sellers, or any material portion of the assets or the Businesses of the
Sellers at the Acquired Locations outside the Ordinary Course of Business,
or
any merger, consolidation, reorganization or business combination involving
the
Sellers.
24
5.7 Monthly
Financial Reports.
From
the
date of this Agreement until the Closing, the Sellers shall periodically,
regularly and promptly update the monthly sales and profit and loss statements
set forth on §3.14 of the Disclosure Schedule for each successive monthly period
by providing to Buyer and Buyer Parent copies of the same no later than the
next
Business Day after they become available.
5.8 Lease
Assignments.
Sellers
will obtain not later than September 14, 2007 the written consents and approvals
of their respective landlords (and any mortgagees) to the assignment of the
Leases for their leased real property at the Acquired Locations to Buyer,
including, as applicable, consent to such changes that may be necessary to
the
use and/or the signage clauses under such Leases to permit Buyer’s use of the
Acquired Locations for the conduct by Buyer of a typical “iParty”
store. Within five business days after Sellers obtain all such
necessary landlord consents in the form satisfactory to Buyer, Buyer shall
make
payment of the Deposit pursuant to §2.9 of this Agreement. Sellers
shall use commercially reasonable efforts to cause the landlords to release
their security deposits relating to the leased real property at the Acquired
Locations without requiring replacement security deposits from
Buyer. The Parties hereto agree that if such security deposits are
released by the landlords at any time between the date of this Agreement and
the
Closing Date the same shall be paid over to the Sellers, but that if such
security deposits are not released by the landlords on or prior to the Closing
Date, then the Purchase Price otherwise payable under §2.5 hereunder shall be
adjusted in accordance with the provisions of §2.11 above.
5.9 Rhode
Island Tax Good Standing
The
Sellers shall obtain before or at Closing tax releases for all state
unemployment, sales, use, and other taxes under all applicable Rhode Island
state laws (as in effect on the Closing Date), including, without limitation,
§28-40-15, §28-43-21, §44-19-22 and §44-11-29 of the General Laws of Rhode
Island (and any successor statutes or provisions) and shall obtain and provide
the Buyer with Letters of Tax Good Standing (or similar documentation) as to
each Seller from the Rhode Island Division of Taxation (or other applicable
Rhode Island governmental agency or body).
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CONDITIONS
TO OBLIGATION TO CLOSE.
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6.1 Conditions
to Obligation of the Buyer and Buyer Parent.
The
obligation of the Buyer and Buyer Parent to consummate the transactions to
be
performed by them in connection with the Closing is subject to satisfaction
of
the following conditions; provided, however, that the Buyer and Buyer Parent
may
waive any condition specified in this §6.1 by written notice to the
Sellers:
(a)
Representations and Warranties. The representations and
warranties set forth in §3 above shall be true and correct in all material
respects as of the date hereof and at and as of the Closing Date, other
than
representations and warranties that expressly speak only as of a specific
date
or time, which will be true and correct as of such specified date or
time;
25
(b)
Performance by Sellers. The Sellers shall have performed and complied
in all material respects with all of their covenants, agreements and obligations
contained in this Agreement that are required to be performed or complied
with
by the Sellers at or prior to the Closing;
(c)
Consents. The Sellers shall have given all of the material third
party notices and procured all of the material third party consents, approvals,
and waivers necessary to permit the consummation by the Sellers of the
transactions contemplated hereby as set forth on Schedule 3.7, including
consents of the lessors under the Leases and a release of any and all
Liens. The Buyer and Buyer Parent shall have procured all of
the consents listed on Schedule 4.5.
(d)
Absence of Litigation. No Action shall be pending or threatened in
writing wherein an unfavorable injunction would (i) prevent consummation
of any
of the transactions contemplated by this Agreement, (ii) cause any of the
transactions contemplated by this Agreement to be rescinded following
consummation, or (iii) be reasonably likely to have a Material Adverse Effect
or
materially affect adversely the right of the Buyer or Buyer Parent to own
the
Acquired Assets (and no such injunction shall be in effect);
and
(e)
Financial Statements and Records. Receipt and review to Buyer’s
satisfaction of Sellers’ Financial Statements for each monthly period from
April, 2007 through and inclusive of November 2007;
(f)
No Material Adverse Effect. There is and has been no Material Adverse
Effect on Sellers’ Businesses at the Acquired Locations since the Most Recent
FYE Balance Sheet Date or from that represented and disclosed in previous
discussions with Buyer;
(g)
No Competing Superstore. There has been no opening or announcement on
or before October 1, 2007 of a scheduled or planned opening of any permanent
party goods “superstore” (i.e., of more than approximately 9,000 square feet)
within a three (3) mile radius of either of the Acquired
Locations;
(h)
Sellers shall have conducted their Businesses at the Acquired Locations
in the
Ordinary Course of Business in a manner consistent with past
practices. Sellers shall not have engaged in any going out of
business or similar sales (however denominated), nor any sell off of merchandise
at sale prices or discounts that are inconsistent with Sellers’ past practices,
nor have made any other material adverse change in the Businesses conducted
by
Sellers at the Acquired Locations. Sellers have not entered
into any new contracts for the Acquired Locations without Buyer’s consent unless
they are terminable on not more than 30 days notice, nor have entered into
any
employment contracts with any employees, nor granted any increase to employees’
pay in excess of the Sellers’ standard pay increases, not to exceed 3% per
annum. Prior to Closing, Sellers and their Affiliates shall not
have operated, managed, or invested in, directly or indirectly, any temporary
Halloween or any party good stores within a three-and-one-half (3-1/2)
mile
radius of the Acquired Locations or at any other location within a
three-and-one-half (3-1/2) mile radius of any currently existing store
of Buyer;
and
26
(i)
Party City Consents. Sellers have obtained no later than September
14, 2007 any and all consents required of Party City Corporation for the
transactions contemplated hereby, it being expressly agreed that Buyer
is not
seeking to obtain rights to continue to operate the Acquired Locations
as Party
City franchised stores.
(j)
Certificate. The Sellers shall have delivered to the Buyer and Buyer
Parent a certificate to the effect that each of the conditions specified
above
in §6.1 (a)-(i) are satisfied in all respects.
6.2 Conditions
to Obligations of the Sellers.
The
obligation of the Sellers to
consummate the transactions to be performed by them in connection with the
Closing is subject to satisfaction of the following conditions; provided,
however, that the Sellers may waive any condition specified in this § 6.2 by
written notice to the Buyer and Buyer Parent.
(a)
Representations and Warranties. The representations and warranties
set forth in §4 above shall be true and correct in all material respects as of
the date hereof and at and as of the Closing Date, other
than representations and warranties that expressly speak only as of a specific
date or time, which will be true and correct as of such specified date
or
time;
(b)
Performance by Buyer and Buyer Parent. The Buyer and Buyer Parent
shall have performed and complied in all material respects with all of their
covenants, agreements and obligations contained in this Agreement that are
required to be performed or complied with by the Buyer and Buyer Parent at
or
prior to the Closing;
(c)
Consents. The Buyer and Buyer Parent shall have given all of the
material third party notices and procured all of the material third party
consents, approvals, and waivers necessary to permit the consummation by
the
Buyer and Buyer Parent of the transactions contemplated hereby as set forth
on
Schedule 4.5;
(d)
Absence of Litigation. No Action shall be pending or threatened
wherein an unfavorable injunction would (i) prevent consummation of any of
the
transactions contemplated by this Agreement, (ii) cause any of the transactions
contemplated by this Agreement to be rescinded following consummation, or
(iii)
be reasonably likely to have a material adverse effect on or materially affect
adversely the right of the Sellers to have an Enforceable
interest in and right under this Agreement (and no such injunction shall
be in
effect); and
27
(e)
Certificate. The Buyer and Buyer Parent shall have delivered to the
Seller a certificate to the effect that each of the conditions specified
above
in §6.2(a) through (d) is satisfied in all respects.
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POST-CLOSING
COVENANTS.
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7.1 Non-Competition.
The
Seller
agrees that, in consideration of the transactions contemplated by this
Agreement, the Sellers and the other Restricted Parties shall not, on or prior
to the fifth anniversary of the Closing Date, directly or indirectly, open,
operate, control or invest in, in each case, any new retail party goods store
engaged in any way or manner with the sale and marketing for sale or rental
of
any party, birthday, seasonal or holiday goods, paper goods, costumes, masks,
supplies, gift items, balloons, candy, stationery, greeting cards, or services
(including, without limitation, any retail party goods stores that are opened
and operated temporarily or Halloween or any other holiday or season) anywhere
in the State of Rhode Island, and shall not on or prior to the third anniversary
of the Closing Date directly or indirectly, open, operate, control, or invest
in, in each case, any new retail party goods store (including, without
limitation, any retail party goods stores that are opened and operated
temporarily for Halloween or any other holiday or season) that is located within
a three-and-one-half (3-1/2) mile radius of any retail store owned, operated,
controlled, managed or invested in by the Buyer or Buyer Parent anywhere in
Massachusetts, Rhode Island, New Hampshire, Vermont, Maine, or Connecticut
(such
respective five- and three-year periods, the “Non-Competition Period” and, both
of such geographical areas, the “Restricted Region”). Notwithstanding
the foregoing, the Restricted Parties shall not during the Non-Competition
Period and in the Restricted Region directly or indirectly, open, operate,
control or invest in, any retail stores that are not retail party goods stores
that sell, market for sale, or rent anything other than a de minimis
amount of any party, birthday, seasonal or holiday goods, paper goods,
costumes, masks, supplies, gift items, balloons, candy, stationery, greeting
cards, or services (measured as less than five percent (5%) of annual store
revenues and less than five percent (5%) of retail square footage).
Sellers
acknowledge and agree that (i) the provisions of this §7.1 will not impose an
undue hardship on them and (ii) breach of the provisions of this §7.1 will cause
irreparable injury and damage to Buyer and Buyer Parent, the exact amount of
which will be difficult to ascertain and that remedies at law for any such
breach would be inadequate and that therefore, in the event of such a breach,
Buyer and Buyer Parent shall be entitled, in addition to all remedies available
at law, to equitable relief without posting any bond or other
undertaking.
7.2 Payment
Received.
In
the
event that a Party receives any payment or other amount owing to such Party
but
allocated to another Party pursuant to this Agreement, the receiving Party
agrees to forward such payments in good faith as promptly as practicable to
the
applicable Party.
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7.3 Employees.
(a)
Contemporaneously with the Closing, Sellers intend to terminate all employees
who work at the Acquired Location (the "Employees"). Sellers shall be
solely responsible for all termination payments and obligations to such
Employees, including, without limitation, any severance and other costs
and
expenses incurred in connection with such termination. Through the Closing
Date,
Sellers shall comply with their COBRA obligations, if
any.
(b)
Upon the occurrence of the Closing, Buyer and/or Buyer Parent may, but are
not
obligated to, offer to those Employees it selects employment by Buyer and/or
Buyer Parent. Subject to the other provisions of this §7.3, with
respect to any “employee benefit plan”, as defined in Section 3(3) of ERISA,
maintained by Buyer and/or Buyer Parent (including any severance plan), for
all
purposes, including determining eligibility to participate and vesting, service
with the Sellers or any subsidiary or predecessor of the Seller shall be
treated
as service with Buyer, Buyer Parent, or any of their subsidiaries;
provided, however, that such service need not be recognized to
the extent that such recognition would result in any duplication of
benefits.
(c)
Employees who accept offers of employment made by Buyer and/or Buyer Parent
pursuant to §7.3(b) shall be referred to hereinafter as “Hired
Employees.” For all periods following the Closing Date the Buyer
and/or Buyer Parent hereby (i) acknowledge and agree that the Sellers shall
not
be responsible for paying any salary, wages, pension, retirement, savings,
health, welfare and other benefits (whether arising by contract, plan, statute
or otherwise) with respect to such Hired Employees in connection with their
employment by the Buyer and/or Buyer Parent and (ii) agree to comply with their
COBRA obligations, if any, in the event that, subsequent to their hire by the
Buyer and/or Buyer Parent, the employment of such Hired Employees is terminated
by the Buyer and/or Buyer Parent.
7.4 Reimbursement for Returns, Merchandise Credits and Gift Certificates.
Following
the Closing Date, Buyer may, in the ordinary course of business, accept any
of
the following:
(a)
the return of a retail product sold by the Sellers in connection with the
Acquired Locations prior to the Closing Date and refund no more than the retail
purchase price of such product and any associated sales tax to the purchaser
of
such product; or
(b)
a merchandise credit or gift certificate for a retail product sold by the Buyer
that was issued by the Sellers in connection with the Acquired Locations prior
to the Closing Date and such acceptance is for no more than the original face
amount of such merchandise credit or gift certificate.
29
The
Sellers agree to a hold back of the Purchase Price in the amount of Fifteen
Thousand ($15,000) to be used to reimburse the Buyer for the amount of such
refund or the face amount of such merchandise credit or gift certificate that
is
paid or accepted, as applicable, by the Buyer. At its option, the
Buyer shall retain (and credit for reimbursement from the hold back) or return
to Seller (and forward but not credit for reimbursement from the hold back)
all
of such returned items. Within ninety (90) days of the Closing Date, the Buyer
shall provide written notice to the Sellers of all such returns, merchandise
credits and gift certificates accepted, including which of such items the Buyer
has elected to retain and which to return and forward to the Sellers and the
aggregate amount due to the Buyer pursuant to this §7.4 along with any
supporting documentation reasonably requested by the Seller. Any such
reimbursement to the Buyer shall occur by wire transfer of immediately available
funds within five (5) Business Days after the receipt by the Seller of the
Buyer's written notice and accompanying documentation pursuant to the preceding
sentence. Any balance remaining of the hold back after the expiration
of such ninety (90) day period shall be released to the Sellers. For
the avoidance of doubt, the Sellers shall receive a credit for such returned
merchandise (in an amount equal to the Sellers’ cost) if it shall be deemed
Acquired Inventory in accordance with §2.12 hereof and the Buyer elects to
retain and buy such returned merchandise, but not if the Buyer elects to return
such returned merchandise to the Sellers.
7.5 Utilities
and Telephone Service.
Subject
to
the provisions of §§ 2.1(d) and 2.10(c) above, Seller shall cancel its utilities
and telephone accounts at the Acquired Location on the date that is five (5)
Business Days after the Closing Date and Buyer will be responsible for opening
and arranging its own utility and telephone accounts thereafter.
7.6 Future
Assurances.
At
any
time and from time to time after the Closing, at the request of a Party and
without further consideration, each other Party will execute and deliver such
other instruments of sale, transfer, conveyance, assignment and confirmation
and
take such action as the requesting Party may reasonably determine is necessary
to effectuate the provisions and purposes of this Agreement.
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INDEMNIFICATION.
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8.1 Buyer’s
Indemnification.
Subject
to
the limitations set forth in this §6, the Buyer and Buyer Parent shall jointly
and severally indemnify and hold harmless, to the fullest extent permitted
by
law, Sellers, and their direct and indirect partners, stockholders, members,
managers, officers, directors, employees, agents and Affiliates (collectively,
the “Seller Indemnitees”) from, against and in respect of Losses arising from or
related to any of the following:
30
(a)
any breach or default in performance by the Buyer or Buyer Parent of any
covenant or agreement of the Buyer or Buyer Parent contained in this Agreement
or any Closing Document;
(b)
any breach of, or inaccuracy in, any representation or warranty made by the
Buyer or Buyer Parent in (i) §4.1, §4.2, §4.3, or §4.4 of this Agreement, (ii)
any Closing Document, or (iii) any certificate or other document delivered
by
the Buyer or Buyer Parent pursuant hereto or thereto (in each case, as such
representation or warranty would read if all qualifications as to materiality
were deleted therefrom); or
(c)
any use of (i) the Transitional Assets by the Buyer or Buyer Parent pursuant
to
§7.6 or (ii) the Sellers' utilities and telephone accounts by the Buyer or Buyer
Parent pursuant to §7.5; or
(d)
any Assumed Liabilities.
8.2 Seller’s
Indemnification.
Subject
to
the limitations set forth in this §8, the Seller shall indemnify and hold
harmless, to the fullest extent permitted by law, the Buyer, Buyer Parent,
and
their direct and indirect partners, stockholders, members, managers, officers,
directors, employees, agents and Affiliates (collectively, the “Buyer
Indemnitees”) from, against and in respect of Losses arising from or related to
any of the following:
(a)
any breach or default in performance by the Seller of any covenant or agreement
of the Seller contained in this Agreement or any Closing Document;
(b)
any breach of, or inaccuracy in, any representation or warranty made by the
Seller in (i) §3.1, §3.2, §3.3, §3.4, or §3.5 of this Agreement, (ii) any
Closing Document, or (iii) any certificate or other document delivered by the
Seller pursuant hereto or thereto (in each case, as such representation or
warranty would read if all qualifications as to materiality, including each
reference to the defined term “Material Adverse Effect” were deleted therefrom);
or
(c)
any Retained Liabilities.
8.3 Time
Limitations.
(a)
Regardless of any investigation made at any time by or on behalf of any Party
hereto or of any information any Party may have in respect thereof, except
as
set forth in paragraphs (b) and (c) of this §8.3, all of the representations and
warranties made by the Buyer, Buyer Parent, and Sellers herein and all known,
unknown or unasserted claims and causes of action with respect thereto will
terminate upon the Closing Date and no claim may be made or suit instituted
with
respect to such representations and warranties pursuant to this §6
thereafter.
31
(b)
No claim may be made or suit instituted under §8.1(b) or §8.2(b) after the close
of business on the date that is twelve (12) months after the Closing
Date.
(c)
Claims may be made or suits instituted at any time if such claims or suits
are
based upon fraud or intentional misrepresentation or are
under §8.1(a), §8.1(c), §8.1(d), §8.2(a), or §8.2(c) (subject to any applicable
statutes of limitation).
(d)
For purposes of this §8, any claim for indemnification shall be duly made by
delivering written notice of such claim describing with reasonable specificity
(in light of the facts then known) the amount and basis of such claim to the
Buyer, Buyer Parent, or the Seller, as applicable, prior to the applicable
limitation date specified in this §8.3.
(e)
Notwithstanding the limitation dates set forth in this §8.4 above, obligations
to indemnify shall not terminate with respect to any claim as to which the
Indemnified Party shall have, before the expiration of the applicable time
limitation, made a bona fide claim by delivering notice in accordance with
§8.4(d) above.
8.4 Certain
Other Indemnity Matters.
Except
with respect to §7.1, and except with respect to claims relating to fraud or
intentional misrepresentation, the sole and exclusive remedies of each Seller
Indemnitee and each Buyer Indemnitee as against any Person from and after the
Closing with respect to any and all claims of any kind whatsoever relating
to
the subject matter of this Agreement shall be pursuant to the indemnification
provisions set forth in this §8. In furtherance of and subject to the
foregoing, the Seller, Buyer, and Buyer Parent hereby waive, to the fullest
extent permitted under applicable law, and agree not to assert and to cause
each
of the other Seller Indemnitees and Buyer Indemnitees not to assert in any
Action or proceeding of any kind, any and all rights, claims and causes of
action it may now or hereafter have against any Party and any of their
respective Affiliates and their respective members, partners, stockholders,
officers, directors, employees, agents and representatives and their respective
Affiliates relating to the subject matter of this Agreement, other than claims
for indemnification asserted as permitted by and in accordance with the
provisions set forth in this §8 (including any such rights, claims or causes of
action arising under or based upon common law or other Legal
Requirements). Upon making any payment to an Indemnified Party for
any indemnification claim pursuant to this §8, the Indemnifying Party shall be
subrogated, to the extent of such payment, to any rights which the Indemnified
Party may have against other Persons with respect to the subject matter
underlying such indemnification claim. The Parties shall take all
reasonable steps to mitigate all such Losses upon and after becoming aware
of
any event which could reasonably be expected to give rise to any Losses with
respect to which indemnification may be requested hereunder. Any
insurance proceeds and Tax Benefits actually received or realized by an
Indemnified Party (or an Affiliate of an Indemnified Party) after
indemnification shall have been made to such Indemnified Party hereunder that
were not given effect, pursuant to the definition of “Loss”, in determining the
amount of such Loss, up to the amount of such Loss, shall be refunded to the
Indemnifying Party by the Indemnified Party. To the extent permitted
under applicable Legal Requirements, any and all payments or offsets pursuant
to
this §8 shall be deemed for Tax purposes to be adjustments to the Purchase
Price.
32
8.5 Third
Party Claims.
Promptly
after the receipt by any Person entitled to indemnification pursuant to this
§8
(the “Indemnified Party”) of notice of the commencement of any Action against
such Indemnified Party by a third party, such Indemnified Party shall, if a
claim with respect thereto is to be made against any party obligated to provide
indemnification pursuant to this §8 (the “Indemnifying Party”), give such
Indemnifying Party written notice thereof in reasonable detail in light of
the
circumstances then known to such Indemnified Party. The failure to
give such notice shall not relieve any Indemnifying Party from any obligation
hereunder except where, and then solely to the extent that, such failure
actually and materially prejudices the rights of such Indemnifying
Party. Such Indemnifying Party shall have the right to defend such
claim, at such Indemnifying Party’s expense and with counsel of its choice
reasonably satisfactory to the Indemnified Party, provided that the Indemnifying
Party conducts the defense of such claim actively and diligently. If
the Indemnifying Party assumes the defense of such claim, the Indemnified Party
agrees to reasonably cooperate in such defense so long as the Indemnified Party
is not materially prejudiced thereby. So long as the Indemnifying
Party is conducting the defense of such claim actively and diligently, the
Indemnified Party may retain separate co-counsel at its sole cost and expense
and may participate in the defense of such claim, and neither any Indemnifying
Party nor any Indemnified Party will consent to the entry of any judgment or
enter into any settlement with respect to such claim without the prior written
consent of the other, which consent will not be unreasonably withheld (provided
that such consent shall be granted in connection with any settlement (i)
containing a full release of the party from whom such consent is so requested
and (ii) in the case of a consent from an Indemnified Party, involving only
monetary damages). In the event the Indemnifying Party does not or
ceases to conduct the defense of such claim actively and diligently, (x) the
Indemnified Party may defend against, and, with the prior written consent of
the
Indemnifying Party (which consent shall not be unreasonably withheld), consent
to the entry of any judgment or enter into any settlement with respect to,
such
claim, (y) the Indemnifying Party will reimburse the Indemnified Party promptly
and periodically for the costs of defending against such claim, including
reasonable attorneys’ fees and expenses and (z) the Indemnifying Party will
remain responsible for any Losses the Indemnified Party may suffer as a result
of such claim to the full extent provided in this §8.
8.6 Information.
Each
Party
hereby agrees to provide to the other Parties on request all information and
documentation reasonably necessary to support and verify any Losses which give
rise to a claim for indemnification pursuant to this §8 and to provide
reasonable access to all books, records and personnel in their possession or
under their control which would have a bearing on such claim.
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TERMINATION.
|
9.1 Termination
of Agreement.
The
Parties may terminate this Agreement prior to the Closing, as provided
below:
33
(a) the
Parties may terminate this Agreement by mutual written consent;
(b) the
Buyer and Buyer Parent may terminate this Agreement by giving written notice
to
the Sellers in the event a Seller is in breach of any representation, warranty
or covenant contained in this Agreement, and such breach, individually or in
combination with any other such breach, (i) would cause the conditions set
forth
in §6.1 not to be satisfied and (ii) is not cured within 20 days following
delivery by the Buyer and Buyer Parent to the Sellers of written notice of
such
breach;
(c) the
Sellers may terminate this Agreement by giving written notice to the Buyer
and
Buyer Parent in the event the Buyer or Buyer Parent is in breach of any
representation, warranty or covenant contained in this Agreement, and such
breach, individually or in combination with any other such breach, (i) would
cause the conditions set forth in §6.2 not to be satisfied and (ii) is not cured
within 20 days following delivery by the Sellers to the Buyer and Buyer Parent
of written notice of such breach;
(d) the
Buyer and Buyer Parent may terminate this Agreement by giving written notice
to
the Sellers if the Closing shall not have occurred on or before January 3,
2008
by reason of the failure of any condition precedent under §6.1 (unless the
failure results primarily from a breach by the Buyer or Buyer Parent of any
representation, warranty or covenant contained in this Agreement);
or
(e) the
Sellers may terminate this Agreement by giving written notice to the Buyer
and
Buyer Parent if the Closing shall not have occurred on or before January 3,
2008
by reason of the failure any condition precedent under §6.2 (unless the failure
results primarily from a breach by the Sellers of any representation, warranty
or covenant contained in this Agreement).
9.2 Effect
of
Termination.
If
this Agreement is terminated
pursuant to §8.1, all obligations of the Parties hereunder shall terminate
without any liability of any Party to any other Party (except for any liability
of a Party resulting from such Party’s breach or default of this Agreement) and
the provisions of §2.9 hereunder shall govern, if applicable, the refund of the
Deposit, if previously made, and its return to the
Buyer.
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MISCELLANEOUS.
|
10.1 Press
Releases
No
public announcement, press release,
or other publicity regarding this Agreement or the transactions contemplated
hereby shall be made prior to or after the date of this Agreement without the
prior written approval of the other Parties following an opportunity to review
such proposed announcement or release. Notwithstanding the foregoing,
(i) nothing in this Agreement shall preclude or prevent any Party from making
any public announcement or filing that the disclosing Party believes in good
faith is required for it to comply with by applicable law (in which case the
disclosing Party will provide the other Parties with the opportunity to review
in advance the disclosure), including applicable federal or state securities
laws or any rules of a stock exchange upon which any shares of such Party are
listed for trading and (ii) the Parties hereby approve the press releases and
other documents attached hereto as Schedule 10.1.
34
10.2 Entire
Agreement.
This
Agreement, together with the Non-Disclosure Agreement and any side letters
or
instruments related thereto, and Closing Documents, constitutes the entire
agreement among the parties hereto with respect to the subject matter hereof
and
supersedes any and all prior discussions, negotiations, proposals, undertakings,
understandings and agreements, whether written or oral, with respect
thereto.
10.3 Succession
and Assignment; No Third-Party Beneficiary.
Subject
to
the immediately following sentence, this Agreement will be binding upon and
inure to the benefit of the parties hereto and their respective successors
and
permitted assigns, each of which such successors and permitted assigns will
be
deemed to be a party hereto for all purposes hereof. No Party may
assign, delegate or otherwise transfer either this Agreement or any of its
rights, interests, or obligations hereunder without the prior written approval
of the other Parties (except with respect to any successor to all or
substantially all of a Party’s business that becomes a party to this Agreement
and subject to the terms and conditions of this Agreement to the same extent,
and in the same capacity, as the Party which is so succeeded, in which case
no
prior written consent shall be necessary hereunder). Except as
expressly provided herein, this Agreement is for the sole benefit of the Parties
and their permitted successors and assignees and nothing herein expressed or
implied will give or be construed to give any Person, other than the Parties
and
such successors and assignees, any legal or equitable rights
hereunder.
10.4 Counterparts.
This
Agreement may be executed in any number of counterparts, each of which will
be
deemed an original, but all of which together will constitute but one and the
same instrument. This Agreement will become effective when duly
executed by each Party hereto.
10.5 Headings.
The
headings contained in this Agreement are for convenience purposes only and
will
not in any way affect the meaning or interpretation hereof.
35
10.6 Notices.
All
notices, requests, demands, claims and other communications required or
permitted to be delivered, given or otherwise provided under this Agreement
must
be in writing and must be delivered, given or otherwise provided:
(a) by
hand (in which case, it will be effective upon delivery);
(b) by
facsimile (in which case, it will be effective upon receipt of confirmation
of
good transmission); or
(c)
by
overnight delivery by a nationally recognized courier service (in which case,
it
will be effective on the Business Day after being deposited with such courier
service);
in
each
case, to the address (or facsimile number) listed below:
If
to the
Sellers:
▇▇▇
▇▇▇▇
▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇▇▇,
▇▇ ▇▇▇▇▇
Phone:
(▇▇▇) ▇▇▇-▇▇▇▇
Fax:
(▇▇▇)
▇▇▇-▇▇▇▇
Attention: ▇▇▇▇
Art ▇▇▇▇▇▇▇
With
a
copy to:
▇▇▇▇▇▇▇
Deutsch ▇▇▇▇▇▇▇▇ &
▇▇▇▇▇▇▇▇▇, LLP
▇▇▇▇
▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇▇▇▇,
▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇
Phone:
(▇▇▇) ▇▇▇-▇▇▇▇
Fax:
(▇▇▇)
▇▇▇-▇▇▇▇
Attention: ▇▇▇▇▇▇
▇. ▇▇▇▇▇▇, Esq.
If
to the
Buyer or Buyer Parent:
▇▇▇
▇▇▇▇▇▇
▇▇▇▇▇▇
▇▇▇▇▇▇,
▇▇
▇▇▇▇▇
Phone:
(▇▇▇) ▇▇▇-▇▇▇▇
Fax:
(▇▇▇)
▇▇▇-▇▇▇▇
Attention: ▇▇▇
▇▇▇▇▇▇▇▇, Chairman & Chief Executive Officer
With
a
copy to:
▇▇▇▇▇▇▇▇▇
▇▇▇▇▇▇▇▇▇▇ & ▇▇▇▇ LLP
Prudential
Tower
▇▇▇
▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇,
▇▇
▇▇▇▇▇
Phone:
(▇▇▇) ▇▇▇-▇▇▇▇
Fax:
(▇▇▇)
▇▇▇-▇▇▇▇
Attention: ▇▇▇▇▇▇
▇. ▇▇▇▇▇▇, P.C.
36
Any
Party
may change the address to which notices, requests, demands, claims, and other
communications hereunder are to be delivered by giving the other Parties notice
in the manner herein set forth.
10.7 Governing
Law.
This
Agreement, the rights of the parties and all Actions arising in whole or in
part
under or in connection herewith, will be governed by and construed in accordance
with the domestic substantive laws of The Commonwealth of Massachusetts, without
giving effect to any choice or conflict of law provision or rule that would
cause the application of the laws of any other jurisdiction.
10.8 Amendments
and Waivers.
No
amendment or waiver of any provision of this Agreement will be valid and binding
unless it is in writing and signed, in the case of an amendment, by Buyer,
Buyer
Parent, and Sellers, or in the case of a waiver, by the Party against whom
the
waiver is to be effective, and if the amendment or waiver is applicable to
any
other party set forth on the signatures pages hereto, such party. No
waiver by any Party of any breach or violation of, default under or inaccuracy
in any representation, warranty or covenant hereunder, whether intentional
or
not, will be deemed to extend to any prior or subsequent breach, violation,
default of, or inaccuracy in, any such representation, warranty or covenant
hereunder or affect in any way any rights arising by virtue of any prior or
subsequent such occurrence. No delay or omission on the part of any
Party in exercising any right, power or remedy under this Agreement will operate
as a waiver thereof.
10.9 Severability.
Any
term
or provision of this Agreement or of any Section hereof that is invalid or
unenforceable in any situation in any jurisdiction, including without limitation
§7.1 hereof, will not affect the validity or enforceability of the remaining
terms and provisions hereof or the validity or enforceability of the offending
term or provision in any other situation or in any other
jurisdiction. In the event that any provision hereof would, under
applicable law, be invalid or unenforceable in any respect, each Party hereto
intends that such provision will be construed by modifying or limiting it so
as
to be valid and enforceable to the maximum extent compatible with, and possible
under, applicable law.
10.10 Expenses.
Each
of
the Buyer, Buyer Parent, and the Sellers will bear its own costs and expenses
(including legal and accounting fees and expenses) incurred in connection with
this Agreement and the transactions contemplated hereby. Buyer shall
pay any sales, use, excise, transfer or other similar Tax (collectively,
“Transfer Taxes”) imposed with respect to the transactions contemplated by this
Agreement.
37
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, this Agreement will be construed as if drafted jointly
by
the Parties and no presumption or burden of proof will arise favoring or
disfavoring any Party by virtue of the authorship of any of the provisions
of
this Agreement. The Parties intend that each representation, warranty
and covenant contained herein will have independent significance.
10.12 Incorporation
of Schedules.
The
Schedules identified in this Agreement are incorporated herein by reference
and
made a part hereof.
10.13 Jurisdiction.
Each
Party
to this Agreement, by its execution hereof, (a) hereby irrevocably submits
to
the exclusive jurisdiction of the federal or state courts within The
Commonwealth of Massachusetts for the purpose of any Action between the Parties
arising in whole or in part under or in connection with this Agreement, (b)
hereby waives to the extent not prohibited by applicable law, and agrees not
to
assert, by way of motion, as a defense or otherwise, in any such Action, any
claim that it is not subject personally to the jurisdiction of the above-named
courts, that its property is exempt or immune from attachment or execution,
that
any such Action brought in one of the above-named courts should be dismissed
on
grounds of forum non conveniens, should be transferred or removed to any court
other than one of the above- named courts, or should be stayed by reason of
the
pendency of some other proceeding in any other court other than one of the
above-named courts, or that this Agreement or the subject matter hereof may
not
be enforced in or by such court and (c) hereby agrees not to commence any such
Action other than before one of the above-named
courts. Notwithstanding the previous sentence a Party may commence
any Action in a court other than the above-named courts solely for the purpose
of enforcing an order or judgment issued by one of the above-named
courts.
10.14 Venue.
Each
Party
agrees that for any Action between the Parties arising in whole or in part
under
or in connection with this Agreement, such Party bring Actions only in The
Commonwealth of Massachusetts. Each Party further waives any claim
and will not assert that venue should properly lie in any other location within
the selected jurisdiction.
10.15 Service
of
Process.
Each
Party
hereby (a) consents to service of process in any Action between the Parties
arising in whole or in part under or in connection with this Agreement in any
manner permitted by Massachusetts law, (b) agrees that service of process made
in accordance with clause (a) or made by registered or certified mail, return
receipt requested, at its address specified pursuant to §9.6, will constitute
good and valid service of process in any such Action and (c) waives and agrees
not to assert (by way of motion, as a defense, or otherwise) in any such Action
any claim that service of process made in accordance with clause (a) or (b)
does
not constitute good and valid service of process.
38
10.16 Waiver
of
Jury Trial.
TO
THE EXTENT NOT PROHIBITED BY APPLICABLE LAW THAT CANNOT BE WAIVED, THE PARTIES
HEREBY WAIVE, AND COVENANT THAT THEY WILL NOT ASSERT (WHETHER AS PLAINTIFF,
DEFENDANT OR OTHERWISE), ANY RIGHT TO TRIAL BY JURY IN ANY ACTION ARISING IN
WHOLE OR IN PART UNDER OR IN CONNECTION WITH THIS AGREEMENT OR ANY OF THE
CONTEMPLATED TRANSACTIONS, WHETHER NOW EXISTING OR HEREAFTER ARISING, AND
WHETHER SOUNDING IN CONTRACT, TORT OR OTHERWISE. THE PARTIES AGREE
THAT ANY OF THEM MAY FILE A COPY OF THIS PARAGRAPH WITH ANY COURT AS WRITTEN
EVIDENCE OF THE KNOWING, VOLUNTARY AND BARGAINED-FOR AGREEMENT AMONG THE PARTIES
IRREVOCABLY TO WAIVE ITS RIGHT TO TRIAL BY JURY IN ANY PROCEEDING WHATSOEVER
BETWEEN THEM RELATING TO THIS AGREEMENT OR ANY OF THE CONTEMPLATED TRANSACTIONS
WILL INSTEAD BE TRIED IN A COURT OF COMPETENT JURISDICTION BY A JUDGE SITTING
WITHOUT A JURY.
[The
remainder of this page is intentionally left blank.]
39
IN
WITNESS
WHEREOF, each of the undersigned has executed this Agreement as an agreement
under seal as of the date first above written.
|
The
Buyer:
|
iPARTY
RETAIL STORES CORP.
|
|
By:
s/▇▇▇ PERISANO____________
|
|
|
Name:
▇▇▇ ▇▇▇▇▇▇▇▇
|
|
|
Title:
Chief Executive Officer
|
|
|
The
Buyer Parent:
|
|
|
By:
s/▇▇▇ PERISANO____________
|
|
|
Name:
▇▇▇ ▇▇▇▇▇▇▇▇
|
|
|
Title:
Chief Executive Officer
|
|
The
Sellers:
|
PARTY
CITY OF WARWICK, INC.
|
|
By:
s/▇▇▇▇ ART LINARES__________
|
|
|
Name:
▇▇▇▇ Art ▇▇▇▇▇▇▇
|
|
|
Title:
President
|
|
|
PARTY
CITY OF LINCOLN, LLC
|
|
|
By:
s/▇▇▇▇ ART LINARES__________
|
|
|
Name:
▇▇▇▇ Art ▇▇▇▇▇▇▇
|
|
|
Title:
Managing Member
|
|
|
Solely
with respect to §7.1 hereof:
|
|
|
s/▇▇▇▇
ART LINARES_____________
|
|
|
▇▇▇▇
Art ▇▇▇▇▇▇▇
|
|
|
s/▇▇▇▇
▇. LINARES_______________
|
|
|
▇▇▇▇
▇. ▇▇▇▇▇▇▇
|