STOCK PURCHASE AGREEMENT
STOCK PURCHASE AGREEMENT (the "Agreement"), dated August 20, 1998, by
and among HOME RETAIL HOLDINGS, INC., a Delaware corporation (Home Retail"),
XXXXX XXXX, an individual resident of the State of Georgia (the "Shareholder")
and AROPI, INCORPORATED, an Iowa corporation (the "Company"),
WHEREAS, the Shareholder owns all of the issued and outstanding shares
of capital stock of the Company, consisting of 174 shares of the voting Common
Stock, no par value (the "Aropi Common Stock" or "Aropi Shares");
WHEREAS, Home Retail desires to purchase from the Shareholder and the
Shareholder desires to sell to Home Retail, all of the issued and outstanding
shares of the Aropi Common Stock in exchange for the Purchase Price (as
hereafter defined);
NOW, THEREFORE, the parties hereto agree as follows:
1. Definitions. For purposes of this Agreement, the following terms
have the meanings specified or referred to in this Section.
(a) "Aropi Common Stock" or "Aropi Shares" is any and all of the voting
common stock of the Company, no par value, owned by Xxxxx Xxxx.
(b) "Audited Financial Statements" is defined in Section 4.4 hereof.
(c) "Bankruptcy Court" is defined in Section 5.2 hereof.
(d) "Bankruptcy Court Order" is defined in Section 5.2 hereof.
(e) "Benefit Plans" is defined in Section 4.17(a) hereof.
(f) "Blue Sky" are the various state security laws applicable to the
Shareholder or shareholders of Home Retail.
(g) "Closing" is defined in Section 3.2 hereof.
(h) "Closing Date" is defined in Section 3.2 hereof.
(i) "Closing Documents" are those documents set forth on Exhibit 1(j)
attached hereto and incorporated herein by reference.
(j) "Closing Liabilities" are those liabilities set forth on Exhibit
6.2 attached hereto and incorporated herein by reference.
(k) "Code" is the Internal Revenue Code of 1986, as amended.
(l) "Confidentiality Agreement" is defined in Section 11.2 hereof.
(m) "Conversion Date" is the date on which the Offering has been
consummated in accordance with the underwriting agreement.
(n) "Convertible Promissory Note No. 1" is defined in Section 3.1(b)
hereof.
(o) "Convertible Promissory Note No. 2" is defined in Section 3.1(b)
hereof.
(p) "Convertible Promissory Note No. 1 and Stock Escrow Agreement" is
the escrow agreement attached hereto as Exhibit 7.
(q) "Current-Operating Liabilities" are any and all liabilities of the
Company arising in the ordinary course of business.
(r) "Disclosure Documents" is defined in Section 5.2 hereof.
(s) "ERISA" is defined in Section 4.17(a) hereof.
(t) "Escrow Agreement" is that certain Escrow Agreement dated June 30,
1998 by and between Xxxxx Xxxx, Home Retail Acquisition Corporation, a Delaware
corporation, and Arnall Golden & Xxxxxxx, LLP, Escrow Agent.
(u) "Home Retail Shares" is defined in Section 3.1(b) hereof.
(v) "Home Retail Information" is defined in Section 4.21(b) hereof.
(w) "Insurance Policies" is defined in Section 4.18 hereof.
(x) "Interim Financials" is defined in Section 4.4 hereof.
(y) "Lease" is defined in Section 6.5 hereof.
(z) "Letter of Credit" is defined in Section 6.6 hereof.
(aa) "Loan and Financing Agreement" are those certain loan documents
set forth on Exhibit 1(aa) attached hereto and incorporated herein by reference.
-2-
(ab) "Material-Adverse Effect" or "Material-Adverse Change" is defined
on Exhibit 1(ab) attached hereto and incorporated herein by reference.
(ac) "May 1998 Balance Sheet" is the financial statement attached
hereto as Exhibit 4.4.
(ad) "Offering" is defined on Exhibit 1(ad) attached hereto and
incorporated herein by reference.
(ae) "Offering Price" is defined on Exhibit 1(ae) attached hereto and
incorporated herein by reference.
(af) "Plan" is defined in Section 5.2 hereof.
(ag) "Purchase Price" is defined in Section 2 hereof.
(ah) "Rule 144" is defined in Section 5.5(a)(ii) hereof.
(ai) "Securities Act" is defined in Section 4.21(a) hereof.
(aj) "Tag Along Agreement" is defined in Section 8.2(j) hereof.
2. Sale and Purchase of the Aropi Shares. Subject to the terms and
conditions hereof and in reliance upon the representations, warranties and
covenants contained herein, the Shareholder will sell the Aropi Shares to Home
Retail, and Home Retail will purchase the Aropi Shares from the Shareholder on
the Closing Date for an aggregate purchase price equal to $1,290,312, (the
"Purchase Price") payable as set forth in Section 3.1 below.
3. The Closing; Purchase Price, etc.
3.1. Payment At Closing. At the Closing, Home Retail shall pay the
Purchase Price as follows:
(a) $790,312.21 in cash by wire transfer to the Shareholder of
immediately available funds or by certified bank check.
(b) the balance of the Purchase Price, $500,000, shall be
evidenced by two convertible promissory notes each in the amount of $250,000 and
each bearing interest at the rate of 8% per annum, principal and interest due
and payable as follows: (i) the first convertible promissory note in one lump
sum 365 days from the Closing Date, similar to that attached hereto as Exhibit
3.1(b)(i) and incorporated herein by reference ("Convertible Promissory Note No.
1"), and (ii) the second convertible promissory note in one lump sum 180 days
from the Closing Date, similar to that attached hereto as Exhibit 3.1(b)(ii)
("Convertible Promissory Note No. 2") (collectively, the "Convertible Promissory
Notes"). The Convertible Promissory Notes shall be convertible as set forth in
Section 10.3 hereof into shares of the Class A Voting Common Stock of Home
Retail, par value of $.01 per share having a fair market value as of the
Conversion Date of not less than $500,000 ("Home Retail Shares") which shares as
-3-
of the Conversion Date shall represent not less than 2% of all of the issued and
outstanding shares of Home Retail on a fully diluted basis. It is understood,
acknowledged and agreed by the Parties hereto, that the Shareholder's purchase
price per share for the Home Retail Shares, on the Conversion Date will be at
the Offering Price per share as that sold to the Public in the Offering.
3.2. The Closing. The Closing (the "Closing") of the transactions
contemplated by this Agreement shall take place at the offices of Cambridge
Holdings LLC, 000 Xxxxxxx Xxxxxx, Xxx Xxxx, Xxx Xxxx, at 10:00 a.m. New York
time on August 20, 1998 or at such place and on such other date as may be
mutually agreed upon by Home Retail and the Shareholder. The date of the closing
is herein referred to as the "Closing Date".
3.3. Delivery of Aropi Shares. At the Closing, Shareholder will
deliver to Home Retail certificates representing the Aropi Shares duly endorsed
for transfer by the Shareholder or accompanied by stock powers duly executed by
the Shareholder in form reasonably satisfactory to Home Retail and in exchange
therefor Shareholder shall receive (i) the Convertible Promissory Notes and (ii)
the cash portion of the Purchase Price as provided in Section 3.1(a) above.
4. Representations and Warranties of the Shareholder and the Company.
The Shareholder and the Company, jointly and severally, to the best of their
knowledge and belief, represent and warrant to Home Retail as follows:
4.1. (a) Organization and Qualification. The Company is a
corporation duly organized, validly existing and in good standing under the laws
of the State of Iowa and has all requisite power and authority to own, lease and
operate its properties and carry on its business as now being conducted. The
Company is duly qualified and in good standing as a foreign corporation
authorized to do business in each jurisdiction where the character of the
properties owned or leased or the nature of activities conducted makes such
qualification necessary except where the failure to so qualify would not have a
Material-Adverse Effect on the Company.
(b) Certificate of Incorporation and By-Laws. Attached hereto and
incorporated herein by reference as Exhibits 4.1(b)(i) and (b)(ii) hereto, are
true, correct and complete copies, in full force and effect, of the Company's
Certificate of Incorporation and By-Laws, as amended or restated. The Company is
not in violation of any of the provisions of its Certificate of Incorporation or
By-Laws.
4.2. Capitalization. The authorized capital stock of the Company
consists of (i) 10,000 shares of Voting Common Stock, of which 174 shares will
be issued and outstanding as of the Closing Date after the cancellation of the
174 shares of Voting Common Stock held in escrow to secure the Company's
indebtedness to Xxxxxx Xxxx which indebtedness will be paid as provided for in
Sections 6.2 and 10.1 hereof, (ii) 10,000 shares of Non-Voting Common Stock and
(iii) 10,000 shares of Non-Voting Preferred Common, none of which are issued or
outstanding. All of the issued and outstanding shares of Aropi Common Stock are
duly authorized, validly issued, fully paid, non-assessable and free of
preemptive rights. There are no options, warrants, calls subscriptions,
convertible securities, or other rights or agreements or commitments of any
character whatsoever obligating the Company to issue or sell any shares of Aropi
Common Stock or any other class of capital stock of the Company, or any
securities convertible into or exchangeable or exercisable for or otherwise
-4-
evidencing a right to acquire any shares of capital stock or other securities of
any kind of the Company. There are no voting trusts or other agreements or
understandings to which the Company or the Shareholder is a party with respect
to the voting of the Aropi Common Stock or any other class of capital stock of
the Company, except as set forth on Exhibit 4.2 attached hereto and incorporated
herein by reference.
4.3. Agreement; Title to Aropi Shares.
(a) Each of the Shareholder and the Company has the legal
capacity to enter into this Agreement. This Agreement has been duly executed and
delivered by the Shareholder and the Company and, assuming due execution by Home
Retail, constitutes the legal and binding obligation of the Shareholder and the
Company enforceable in accordance with its terms except as enforceability may be
limited by applicable bankruptcy, insolvency, reorganization of other similar
laws of general application relating to the rights of creditors and is subject
to general principles of equity. The execution and delivery by the Shareholder
and the Company of this Agreement, the consummation of the transactions
contemplated hereby, and the performance by the Shareholder and the Company of
their respective obligations hereunder will not conflict with or result in any
violation of, or default under (either immediately or with notice or lapse of
time), or in any right to accelerate or the creation of any lien, charge or
encumbrance pursuant to, any provision of (i) the certificate of incorporation
or by-laws of the Company, (ii) any agreement, contract, lease, license, note,
bond, mortgage, indenture, deed of trust or other instrument to which the
Shareholder or the Company is a party or by which any of the properties or other
assets of the Company is bound, (iii) any franchise, license, permit or
authorization, or any judgment or order of any tribunal or governmental body
applicable to the Shareholder or the Company, or any of the properties or other
assets of the Company, (iv) any law, statute, decree, rule or regulation of any
jurisdiction.
(b) No authorization, consent or approval of, or declaration
of, filing with or notice to any governmental body or authority by the
Shareholder or the Company is necessary for the execution of this Agreement, the
consummation by the Shareholder and the Company of the transactions contemplated
hereby or the performance by the Shareholder and the Company of their respective
obligations hereunder other than (i) satisfaction of applicable requirements, if
any, of the Securities Act or state securities, "Blue Sky" or takeover laws and
(ii) other regulatory rules, as required by law.
(c) Since January 1, 1998, the Company has not declared or paid
any dividend on any of the Aropi Common Stock, or directly or indirectly
redeemed, or made any distribution with respect to, or authorized or effected
any split-up or any other purchase or otherwise acquired any of its outstanding
capital stock or agreed to take any such action and will not take any such
action during the period between the date of this Agreement and the Closing
Date, except as set forth on Exhibit 4.3 which is attached hereto and
incorporated herein by reference.
(d) The Shareholder is the record and beneficial owner of the
Aropi Shares, has the sole and undivided ownership of said Aropi Shares with the
full power, right, and authority to enter into and perform this Agreement and to
transfer the Aropi Shares to Home Retail.
-5-
(e) The Aropi Shares represent all of the Aropi Shares which
the Shareholder owns in the Company.
(f) The Aropi Shares are free and clear of all liens, security
interests, claims, pledges, community property rights and encumbrances of any
nature whatsoever and are not subject to any shareholder agreements, voting
trusts, contractual restrictions, or outstanding proxies.
(g) The Shareholder has not granted any options, warrants or
purchase rights with respect to the Aropi Shares to any individual, group,
partnership, corporation or other legal entity.
(h) The delivery by the Shareholder to Home Retail of the
certificate(s) representing the Aropi Shares shall pass good and marketable
title to the Aropi Shares to Home Retail.
4.4. Financial Statements. The Shareholder has delivered to Home
Retail true and correct copies of the audited financial statements of the
Company for the fiscal years ending June 30, 1996 and June 30, 1997 prepared by
Xxxxx & Xxxxxxx, certified public accountants, Atlanta, Georgia (the "Audited
Financial Statements").
The unaudited balance sheet of the Company for the period ending May
31, 1998 ("the May 1998 Balance Sheet") and the related unaudited statements of
operations and accumulated deficit for the period from July 1, 1997 to the May
1998 Balance Sheet, certified by the President of the Company (collectively, the
"Interim Financials") were prepared from the books and records of the Company
and fairly present in all material respects the financial position of the
Company as of their respective dates and the results of operations of the
Company for the periods then ended. The Audited Financial Statements and the
Interim Financials, including the notes to all such statements, are referred to
herein collectively as the "Financial Statements." The Audited Financial
Statements have been prepared in accordance with generally accepted accounting
principles applied on a consistent basis throughout the periods specified, and
present fairly in all material respects and in accordance with generally
accepted accounting principles the financial position of the Company as of the
respective dates specified. Except as reflected or reserved against in the
Interim Financials, the Company has no debts, liabilities, or obligations of any
nature, whether accrued, absolute, contingent, or otherwise, arising out of
transactions entered into, or any state of facts existing, other than (a)
liabilities and obligations as disclosed or contemplated in this Agreement, (b)
liabilities and obligations described in the exhibits to this Agreement, (c)
liabilities and obligations arising after the May 1998 Balance Sheet in the
ordinary course of the business of the Company that do not have and cannot
reasonable be expected to have, individually or in the aggregate, a
Material-Adverse Effect, and (d) those set forth on Exhibit 4.4 attached hereto
and incorporated herein by reference.
4.5. Title to Property, Absence of Encumbrances. etc. Except for
leased property and as set forth on Exhibit 4.5 attached hereto and incorporated
herein by reference, the Company has good and marketable title, and is the sole
owner of, all material assets, real or personal, tangible or intangible, owned
or used by it, including, without limitation, all assets reflected in the
balance sheets included in the Interim Financials (other than any assets sold or
-6-
otherwise disposed of in the ordinary course of business since June 1, 1998),
free and clear of all mortgages, pledges, liens, security interests or
encumbrances of any nature (other than liens for taxes, assessments or other
governmental charges not yet due and payable, or presently payable without
penalty or interest) including, without limitation, any governmental
restrictions on the operation of such assets, except for such leases and such
mortgages, liens and encumbrances, or as otherwise disclosed in Exhibit 4.5 or
other Exhibits to this Agreement. All buildings, other improvements and
leasehold improvements, and all machinery, equipment, tools, furniture and
fixtures except as listed on Exhibit 4.5 owned or leased by the Company are in
good operating condition and repair, except for reasonable wear and tear. The
Company has not received notice of any outstanding enforcement actions or
notices of violation issued by any Federal, state, county or municipal authority
having jurisdiction over any such property, including but not limited to any
notice from any state or Federal environmental agency.
4.6. Inventory; Accounts Receivable. Subject to the aggregate of the
reserves reflected on the May 1998 Balance Sheet with respect to inventory, the
inventories of the Company in all material respects (a) are in good marketable
condition, and (b) conform to generally accepted standards in the industry of
which the Company is a part. The accounts receivable reflected on the books of
the Company on the May 1998 Balance Sheet were valid and existing and represent
monies owed to the Company for services provided or goods sold and delivered in
the ordinary course of the business as of that date. Except as reflected on the
May 1998 Balance Sheet, there were no refunds, discounts, or other adjustments
payable relating to a material amount of the accounts receivable, and the
Company has not received any written notice, or to its knowledge, any notice,
asserting any defenses, rights of set-off, assignments, or conditions
enforceable by third parties against the Company relating to a material amount
of the accounts receivable. The accounts receivable reflected on the May 1998
Balance Sheet were net of a write-off determined in accordance with the
Company's past practices.
4.7. Patents, Trademarks, etc. Exhibit 4.7 attached hereto and
incorporated herein by reference contains a complete and correct list of all
patents, trademarks registered or claimed by the Company, trade names and
registered copyrights owned by, or registered in the name of the Company, and
all applications for patents or for registration of trademarks, trade names or
copyrights made by the Company, or by any of its employees for the benefit of
the Company. Except as otherwise indicated on Exhibit 4.7, the Company is the
registered and beneficial owner of all such patents, trademarks, trade names and
registered copyrights, free and clear of any license, royalty, lien or
encumbrance. The Company owns or has the right to use all patents, patent
applications, trademarks, trade names, copyrights and other intellectual
property rights, including, without limitation, inventions, processes, designs,
formula, trade secrets, technology and know-how necessary for the conduct of its
business. There is no pending or threatened claim by the Company against any
third party for infringement, misuse or misappropriation of any patent,
trademark, trade name, copyright or other intellectual property (including,
without limitation, any trade secrets or know-how) owned by the Company or in
which the Company has an interest, whether as licensee or otherwise. Except as
set forth in Exhibit 4.7, there is no pending or, to the knowledge of the
Shareholder, threatened action, suit or proceeding against the Company or the
Shareholder for infringement, misuse or appropriation of any patent, trademark,
trade name, copyright or other intellectual property (including, without
limitation, any trade secret or know-how) owned by any third party or, to the
knowledge of the Shareholder, any basis therefor.
-7-
4.8. Employee Remuneration, etc. Exhibit 4.8 attached hereto and
incorporated herein by reference lists the current salaries and bonuses
(together with pending or anticipated increases therein) of each director,
officer employee, and other remuneration with respect to any consultant or agent
of the Company currently paid at a rate in excess of $30,000 per year. No
officer or other key employee of the Company has indicated to the Shareholder,
or to the Shareholder's knowledge has any intention to terminate his or her
employment with the Company.
4.9. Union and Employment Agreements. The Company is not a party to
any collective bargaining agreement, or to any written or oral employment
agreement, including without limitation any agreement regarding severance or
compensation due upon a change of control, with any of its respective officers,
directors, employees, consultants or agents. No attempts to organize the
employees of the Company have been made, nor, to the knowledge of the
Shareholder, are any such attempts now threatened or, being planned. The Company
is in compliance in all material respects with all applicable Federal, state and
local laws, rules and regulations regarding employment conditions and practices,
has withheld all amounts required by law or agreement to be withheld from the
wages or salaries of its employees and is not liable for any arrears of wages or
any taxes or penalties for failure to comply with any of the foregoing. The
Company has not engaged, nor has it been alleged to have engaged in any unfair
labor practices and has not discriminated, nor has it been alleged to have
discriminated on the basis of age, sex or other bases prohibited by law in its
respective employment conditions or practices. There are no unfair labor
practice or age or sex discrimination charges or complaints or other charges or
complaints alleging illegal discriminatory practices pending or, to the
knowledge of the Shareholder, threatened against the Company before any Federal,
state or local board, department, commission or agency. There are no existing
or, to the knowledge of the Shareholder, threatened labor strikes, disputes,
grievances, controversies or other labor troubles affecting the Company. There
are no pending or threatened representation questions respecting the employees
of the Company or any pending arbitration proceedings.
4.10. Officers, Directors and Bank Accounts. Exhibit 4.10 attached
hereto and incorporated herein by reference lists (a) the names of all directors
and officers of the Company, and (b) the name and location of each bank or other
institution in which the Company has any account or safe deposit box, the number
or other identification thereof, and the names of all persons authorized to draw
thereon or have access thereto.
4.11. No Adverse Change. Since the May 1998 Balance Sheet, there has
not been any Material-Adverse Change in the financial condition, operations or
business of the Company, it being understood and agreed that (i) any adverse
changes generally affecting national, regional or local economic conditions or
adverse changes generally affecting industry conditions as a whole, and (ii) the
financial impact to the Company for any fees or expenses incurred in regard to
the consummation of this Agreement shall not be construed to constitute a breach
of the foregoing representation.
-8-
Home Retail (A) acknowledges that the Shareholder has disclosed to it
that (i) due to an Internal Revenue Service audit for the fiscal years 1995,
1996 and 1997 there will be an adjustment (decrease) to the depreciation
reflected on the Audited Financial Statements of approximately $145,000.00
("Depreciation Adjustment"), and (ii) for the fiscal year ending June 30, 1998
the Company may incur a net operating loss of approximately $10,000.00 to
$20,000.00 ("Loss"), and (B) agrees that neither the Depreciation Adjustment nor
the Loss shall constitute a Material-Adverse Change to the Audited Financial
Statements.
4.12. Absence of Certain Changes. Except as set forth on Exhibit
4.12, since the May 1998 Balance Sheet, the Company has not (a) issued, sold or
delivered or agreed to issue, sell or deliver any shares of its capital stock or
any options or rights to acquire any such capital stock or securities
convertible into or exchangeable for such capital stock, (b) incurred any
obligations or liabilities, whether absolute, accrued, contingent or other,
other than obligations and liabilities incurred in the ordinary course of
business, (c) mortgaged, pledged or subjected to any lien, lease, security
interest or other encumbrance (other than liens for taxes, penalty or interest)
any of its assets, real or personal, tangible or intangible, (d) acquired or
disposed of any assets or properties, or entered into any agreement for any such
acquisition or disposition, except in the ordinary course of business, (e)
declared, made, paid or set apart any sum for any dividend or other distribution
to its Shareholder, or purchased or redeemed any shares of its capital stock or
granted any option, warrant or right to purchase any such capital stock, (f)
forgiven or cancelled any debts or claims other than in the ordinary course of
business or waived any rights of material value not previously accrued for, (g)
granted any increase in compensation in any form to any officer, salaried
employee or any class of other employees, or granted any severance or
termination pay, or entered into any employment agreement, or any modification
of a previously existing employment agreement, with any officer or any other
salaried employee, other than increases in compensation of less than 10% granted
in the ordinary course of business consistent with prior practice to employees
whose base pay at the time of such increase was less than $30,000, (h) adopted,
amended or entered into any collective bargaining, bonus, profit sharing,
compensation, stock option, pension, retirement, deferred compensation or other
plan, agreement or arrangement for the benefit of employees, (i) granted any
rights or licenses under any of its patents, trademarks, trade names, copyrights
or other intellectual property rights, (j) suffered any loss of, or adverse
change in its relationship with, any supplier or customer, or has reason to know
of any action which would constitute or lead to such a loss or adverse change,
(k) suffered any damage, destruction or loss (whether or not covered by
insurance) which has a Material-Adverse Effect on its business, (l) suffered any
strike or other labor trouble which has had a Material-Adverse Effect on its
operations, (m) terminated or made any substantial revision of, or engaged in
any renegotiation of, any material contract, (n) decreased the level of
maintenance on, or its expenditures for maintenance of, the real property,
machinery, equipment, tools, furniture and fixtures owned or leased by it, (o)
made any change in accounting principles or methods or in classification,
depreciation or amortization policies or rates except as set forth in Section
4.11 above, (p) settled any dispute involving payment by the Company in excess
of $10,000, (q) made any loan or advance in excess of $10,000 to any person or
entity, other than travel or expense advances in accordance with its normal
policies which have been accounted for, or repaid and extensions of trade credit
in accordance with its normal business practices, or (r) entered into any
material transaction other than in the ordinary course of business.
-9-
4.13. Litigation. Except as set forth on Exhibit 4.13 attached
hereto and incorporated herein by reference, there are no judicial or
administrative actions, suits, proceedings or governmental investigations
pending or, to the knowledge of the Shareholder, threatened before any court or
tribunal or governmental instrumentality, or any citation, order or notice of
violation of any law, decree, rule or regulation, by or against the Company or
any of its properties, or which relate in any way to the Company's business,
properties, assets or operations, or which have or are likely to result in an
imposition of a lien on any of the properties or assets owned or leased by the
Company, or which question the validity of this Agreement, or any action to be
taken in connection herewith or therewith, nor is there any such action, suit,
proceeding or investigation, to the knowledge of the Shareholder, pending or
threatened against the Company. Neither the Company nor any property or assets
of the Company is subject to any judicial or administrative order, judgement,
injunction or decree.
4.14. Contracts, etc. Exhibit 4.14 attached hereto and incorporated
herein by reference contains a complete and correct list of each (a) mortgage,
debenture, note or installment obligation, or other instrument or contract for
the borrowing or lending of money by the Company, including, without limitation,
any agreement or arrangement relating to the maintenance of compensation
balances or the availability of a line of credit, (b) license agreement, sales
agency agreement or distribution agreement to which the Company is a party, (c)
guaranty of any obligation by the Company, including, without limitation, any
keep-well, make-whole or maintenance of working capital or earnings or similar
agreement, (d) agreement for the sale of any properties or assets by the Company
other than sales of products in the ordinary course of business, (e) contract
(other than a contract, purchase order or other agreement for the purchase of
raw materials or other supplies in the ordinary course of business or for the
purchase of machinery, equipment, tools, furniture or fixtures with a cost of
less than $10,000) pursuant to which the Company is or may be obligated to make
payments, contingent or otherwise, on account of or arising out of the
acquisition, prior, pending or future, of the shares, business, or other assets
of another enterprise, (f) secrecy or invention agreement under which the
Company or, to the Shareholder's knowledge, any of the present officers or
employees of the Company has any obligation and relating to the business of the
Company, (g) requirements contract with the Company as purchaser or seller or
other agreement for the purchase or sale of goods or services not terminable
without liability by the Company on 30 days' (or less) notice or involving
payments by or to the Company in excess of $10,000, (h) agreement or arrangement
with a customer or supplier of the Company for rebates, sharing of expenses or
any similar device for the effective reduction or increase of prices or other
charges and involving products with a value in excess of $10,000, (i) agreement
of the Company with, or loan or advance by the Company to or from, or other
obligation of the Company to or from any officer or director of the Company, (j)
lease of real or personal property with the Company as lessor or lessee,
involving rents of more than $5,000 per year, (k) agreement or arrangement
limiting the freedom of the Company or, to the shareholder's knowledge, any of
the present officers or employees of the Company to compete in any line of
business similar to the Company business, with any person or other entity or in
any geographical area, (l) governmental license, franchise, permit or
authorization held by and material to the business of the Company and not listed
on any other Exhibit hereto, (m) joint venture agreement, partnership or profit
sharing to which the Company is a party, (n) agreement pursuant to which the
Company has indemnified or shared tax liability with any party; and (o)
contract, commitment or agreement not referred to above in this Section 4.14 or
in any other Exhibit to this Agreement and which involves aggregate payments by
or to the Company of $10,000 or more. All such contracts and agreements are in
-10-
full force and effect, the Company is not in default thereunder and no event has
occurred which, whether with notice, lapse of time or otherwise, would
constitute a default thereunder. No consent of any party or the payment of any
penalty or incurrence of additional obligations or change of any terms is
necessary upon or prior to the consummation of the transaction contemplated by
this Agreement so that all rights of the Company under the contracts to which it
is a party shall continue unimpaired on and after the Closing Date.
4.15. Taxes.
(a) The Company has been since 1994, and continues to be an S
corporation, as defined by Section 1361 of the Internal
Revenue Code (the "Code"). The Company has delivered to
Home Retail true and correct copies of (i) the statement
that the Company received from the IRS regarding its
status as an S corporation and (ii) its three (3) most
recently filed U.S. federal income tax returns as an S
corporation. All taxes due and owing by The Company
(whether or not shown on any tax return, whether known or
unknown, asserted or unasserted) have been paid other than
matters previously disclosed in writing, for which
adequate accruals or reserves have been established. The
Company is not a party to any tax sharing or other
agreement that will require any payment with respect to
taxes. The Company is not the beneficiary of any extension
of time within which to file any tax return. The Company
has not waived any statute of limitations in respect of
taxes or agreed to any extension of time with respect to a
tax assessment or deficiency or the collection of taxes.
(b) Except as set forth on Exhibit 4.15 which is attached
hereto and incorporated herein by reference, no taxing
authority or other governmental unit has claimed, raised
with the Shareholder, discussed with the Shareholder,
proposed, or to the Shareholder knowledge threatened any
assessment, deficiency, adjustment, dispute, or claim
concerning any tax return or any tax liability of the
Company. There is no asserted unpaid assessment,
deficiency, or adjustment concerning any tax return or tax
liability of the Company. To the knowledge of the Company,
none of the tax returns of the Company has been selected
for or are now under audit or examination by any taxing
authority or other governmental unit, and there are no
suits, actions, proceedings, or investigations pending or,
to the knowledge of the Shareholder, threatened against
the Company with respect to any taxes, except as set forth
on Exhibit 4.15.
(c) The Company has withheld and timely deposited or paid all
taxes required to have been withheld and deposited or paid
in connection with amounts paid or owing to any employee,
independent contractor, creditor, shareholder, or other
third party.
-11-
(d) The Company (A) has not been a member of an affiliated
group filing a consolidated federal income tax return; and
(B) has no liability for the taxes of any Person (other
than the Company) under Treas. Reg. Sec. 1.1502-6 or any
similar provision of state, local, or foreign law), as
transferee or successor, by contract, or otherwise. None
of the Company or any shareholder of the Company is a
Person other than a United States person within the
meaning of the Code and payments of purchase price made
pursuant to the transaction contemplated herein are not
subject to the withholding provisions of Sec. 3406 of the
Code or subchapter A of Chapter 3 of the Code.
4.16. Licenses. The licenses listed on Exhibit 4.16 attached hereto
and incorporated herein by reference (the "Licenses"), represent all of the
licenses, permits, approvals, and clearances issued to the Company as of the
date hereof by all foreign, Federal, state or local governmental authorities and
currently used by or useful to the Company in connection with the operation of
its business except for those which the failure to hold has not and cannot
reasonably be expected to have a Material-Adverse Effect. The Licenses represent
all government licenses, permits, approvals, or clearances that the Company is
required to maintain by applicable statute or regulation in connection with the
business as presently conducted except for those which the failure to hold has
not and cannot reasonably be expected to have a Material-Adverse Effect. The
Licenses are full in full force and effect in accordance with their terms, and
there is no outstanding notice of cancellation or termination in connection
therewith.
4.17. Employee Benefit Plans and Arrangements and Compliance with
ERISA.
(a) Exhibit 4.17 attached hereto and incorporated herein by
reference sets forth all employee benefit plans (within the meaning of Section
3(3) of the Employee Retirement Income Security Act of 1974, as amended
("ERISA")) and any other deferred compensation, bonus, overtime, fringe benefit,
insurance, welfare, medical, health, life, company car, disability, injury,
illness, accident, sick pay, sick leave, vacation, termination, severance,
retention, executive compensation, incentive, commission, or other plan,
agreement, policy, trust fund, or arrangement, not otherwise listed on any
exhibit to this Agreement, maintained or to which contributions are being made
by the Company or which provide benefits to the Company's current or former
employees (collectively, the "Benefit Plans"). True and correct copies of each
Benefit Plan have been delivered to Home Retail. To the extent applicable, for
each Benefit Plan, the Company has provided to Home Retail copies of (i) the
most recent determination letter and any outstanding request for a determination
letter; (ii) IRS Forms 5500 with respect to the last two plan years; (iii)
certified financial statements; (iv) summary plan descriptions to employees
purporting to inform them of the Benefit Plan; (v) any related trust agreement;
(vi) all insurance contracts or other funding arrangements; and (vii) all
material communications received from or sent to the IRS or the Department of
Labor within the last two years. All contributions or premiums required to be
made by the Company as of the Closing Date on account of, or under, each Benefit
-12-
Plan have been paid or adequate accruals have been made therefore on the books
of the Company and, except as disclosed on Exhibit 4.17, no such contribution or
premium is delinquent under the terms of the applicable Benefit Plan. The
Company does not maintain any Benefit Plan that provides post retirement or post
termination welfare benefits for retired employees, except for continuing
benefits required by applicable state and federal laws.
(b) The only Benefit Plan that is an "employee pension benefit
plan" (as defined in Section 3(2) of ERISA) maintained or to which contributions
are being made by The Company or which provide benefits to the Company's
Employees is the Retirement Plan. The Retirement Plan has received a favorable
determination letter from the IRS that it is qualified under Section 401(a) of
the Code, and the trust established in connection with the Retirement Plan has
received a determination letter from the IRS that it is exempt under Section
501(a) of the Code. To the knowledge of the Shareholder, nothing has occurred
with respect to the operation of the Retirement Plan that could cause the loss
of such qualification or exemption or the imposition of any material penalty or
tax under ERISA or the Code. The Company does not contribute to, and has not
within the five-year period ending on the Closing Date, contributed to any
"multi-employer plan" (as defined in Section 4001(a)(3) of ERISA) or any plan
which is subject to Section 412 of the Code or Title IV of ERISA.
(c) No termination, retention, severance, or similar benefit
will become payable as a result of any transaction contemplated under the
Agreement.
(d) Benefits under any Benefit Plan are as represented in said
documents and have not been increased or modified (whether written or not
written) subsequent to the dates of such documents. The Company has not
communicated to any employee or former employee any intention or commitment to
modify any Benefit Plan or to establish or implement any other employee or
retiree benefit or compensation arrangement.
(e) Each Benefit Plan has been maintained and administered in
compliance in all material respects with its terms and in all material respects
with the requirements (including reporting requirements) prescribed by any and
all applicable statutes, orders, rules, and regulations, including, but not
limited to, ERISA and the Code.
4.18. Insurance. Exhibit 4.18 attached hereto and incorporated
herein by reference lists all insurance policies to which the Company is, as of
the date of this Agreement, a party or which have been obtained by the Company
and relate to the employees of the Company (the "Insurance Policies") and, on
attachment if necessary, a claims history for each Insurance Policy since July
1, 1996. The Insurance Policies are in full force and effect, all premiums with
respect thereto covering all periods up to and including the date hereof have
been paid when due, and no notice of cancellation or termination has been
received with respect to any Insurance Policy.
4.19. Other Liabilities. The Company does not have any liabilities
or obligations (direct or indirect, contingent or absolute, matured or
unmatured) of whatever nature, whether arising out of contract, tort, statute or
otherwise, except (a) as reflected in the balance sheets included in the Interim
-13-
Financials, (b) disclosed in the Exhibits of this Agreement, (c) as contemplated
by this Agreement or (d) liabilities and obligations incurred in the ordinary
course of business since the May 1998 Balance Sheet.
4.20. Absence of Certain Payments. Neither the Shareholder nor the
Company nor, to the best of the Shareholder's and the Company's knowledge, any
officers, directors, employees, agents representatives, or independent
contractors of the Company has made, or arranged for the making of, any unlawful
payment to any official, officer or employee of any Federal, state, county,
municipal or other governmental or regulatory body or authority or any self
regulatory body or authority, or made any payment to any customer or supplier of
the Company or any officer, director, partner, employee or agent of any customer
or supplier, for the unlawful sharing of fees or to any such customer or
supplier or any such officer, director, partner, employee or agent for the
unlawful rebating of charges, or engaged in any other unlawful reciprocal
practice, or made any other unlawful payment or given any other unlawful
consideration to any such customer or supplier or any such officer, director,
partner, employee or agent, in respect of the Company.
4.21. Investment Representation.
(a) On the Conversation Date, the Shareholder represents and
warrants that he will acquire the Home Retail Shares for his own account only,
for investment purposes and not with a view to distribution and acknowledges
that the Home Retail Shares are and will be "restricted securities" within the
meaning of the Rules and Regulations under the Securities Act of 1933 (the
"Securities Act"), that the disposition of such securities is subject to
compliance with the registration and prospectus provisions of the Securities
Act, and that certificates for the securities issued hereunder will bear a
legend to that effect.
(b) The Shareholder acknowledges receipt of and has read,
carefully considered and fully understands this Agreement and all other
documents, including without limitation the exhibits and schedules hereto and,
prior to the Closing, the Disclosure Documents (as hereafter defined) requested
by and furnished to the Shareholder (such documents are herein collectively
referred to as the "Home Retail Information"). The Shareholder acknowledges that
he has not been furnished with or solicited by any offering literature, leaflet,
public promotional meeting, circular, newspaper or magazine article, radio or
television advertisement, or any other form of general advertising.
(c) The Shareholder is able to (i) bear the economic risk of
his investment in the Home Retail Shares and (ii) hold Home Retail Shares for an
indefinite period of time.
(d) The Shareholder understands the business in which Home
Retail is engaged and has such knowledge and experience in financial and
business matters that he is capable of evaluating the merits and risks of his
investment in the Home Retail Shares and of making an informed investment
decision with respect thereto. The Shareholder has obtained sufficient
information to evaluate the merits and risks of his investments and to make such
a decision.
-14-
(e) The Shareholder confirms that neither Home Retail nor any
of its affiliates or agents have made any representations or warranties (oral or
written) concerning Home Retail's investment in the Home Retail Shares, Home
Retail, its business, prospects or anticipated financial results, or other
matters, other than as set forth in the Home Retail Information.
4.22. Disclosure. This Agreement (except for Section 5), the
Exhibits hereto and the Financial Statements do not contain any untrue
statements of a material fact or omit or will omit to state any material fact
necessary to make the statements contained therein, in such light of the
circumstances under which they were made, not false or misleading.
5. Representations and Warranties of Home Retail. Home Retail
represents and warrants to the Shareholder as follows:
5.1. (a) Organization and Qualification. Home Retail is a
corporation duly organized, validly existing and in good standing under the laws
of the State of Delaware and has all requisite power and authority to own, lease
and operation its properties and carry on its business as it is now being
conducted.
(b) Exhibits 5.1(b)(i) and 5.1(b)(ii) attached hereto and
incorporated herein by reference are true, correct and complete copies, in full
force and effect, of Home Retail's Certificate of Incorporation and By-Laws, in
each case as amended. Home Retail is not in violation of any of the provisions
of its Certificate of Incorporation or By-Laws.
5.2. Disclosure Documents. Home Retail has heretofore furnished the
Shareholder, with true, correct and complete copies of the Plan of
Reorganization of Xxxxxxx Companies, Inc., the Cookstore and Worthington, Inc.
dated June 19, 1998 as amended and supplemented, (the "Plan"), the Disclosure
Statement for the Plan dated June 19, 1998 and all exhibits thereto, as amended
and supplemented (collectively, the "Disclosure Documents"). The Plan has been
confirmed by the Bankruptcy Court for the Southern District of Ohio, Eastern
Division (the "Bankruptcy Court") by order dated July 10, 1998 ("Bankruptcy
Court Order") (which Bankruptcy Court Order has not been appealed) attached
hereto as Exhibit 5.2 and incorporated herein by reference. The Disclosure
Documents fairly summarize the business, operations, properties and management
of Home Retail and its subsidiaries as of the dates of filing. The Disclosure
Documents, as of respective dates on which such documents were confirmed by the
Bankruptcy Court, and the representations made by Home Retail herein do not and
did not contain any misstatements of a material fact or omit to state a material
fact necessary to make the statements contained therein, in the light of the
circumstances under which they were made, not misleading.
5.3. Agreement. (a) This Agreement has been duly executed and
delivered by Home Retail and constitutes the legal and binding obligation of
Home Retail enforceable in accordance with its terms. The execution and delivery
by Home Retail of this Agreement, the consummation of the transactions
contemplated hereby, and the performance by Home Retail of its obligations
hereunder will not conflict with or result in any violation of, or default under
(either immediately or with notice or lapse of time), or in any right to
accelerate or the creation of any lien, charge or encumbrance pursuant, to any
provision of (a) the Certificate of Incorporation of Home Retail, (b) any
-15-
agreement, contract, lease, license, note, bond, mortgage, indenture, deed of
trust or other instrument to which Home Retail is a party or by which any of
Home Retail's properties or other assets is bound, (c) any governmental
franchise, license, permit or authorization, or any judgment or order of any
tribunal or governmental body applicable to Home Retail, or any of Home Retail's
properties or other assets, or (d) any law, statute, decree, rule or regulation
of any jurisdiction.
(b) No authorization, consent or approval of, or declaration
of, filing with or notice to any governmental body or authority by Home Retail
is necessary for the execution of this Agreement by Home Retail, the
consummation by Home Retail of the transactions contemplated hereby or the
performance by Home Retail of its obligations hereunder other than the
satisfaction of the applicable requirements, if any, of (i) the Securities Act
or state securities, "Blue Sky" or takeover laws and (ii) other regulatory
rules, as required by law.
5.4. Capitalization. The authorized capital stock of Home Retail
consists of (i) 20,000,000 shares of Class A Voting Common Stock, par value $.01
per share, of which 1,535,945 shares are issued and outstanding, (ii) 156,000
shares of Class B Restricted Common Stock, par value $.01 per share, of which
156,100 shares are issued and outstanding, and (iii) one million (1,000,000)
shares of Serial Preferred Stock, $.01 par value per share, none of which shares
are issued and outstanding. All of the issued and outstanding shares of Home
Retail's capital stock are duly authorized, validly issued, fully paid,
nonassessable and free of preemptive rights. Except as set forth on Exhibit 5.4
attached hereto and incorporated herein by reference, there are no options,
warrants, calls, subscriptions, convertible securities, or other rights or other
agreements or commitments of any character whatsoever obligating Home Retail to
issue or sell any shares of its capital stock, or any securities convertible
into or exchangeable or exercisable for or otherwise evidencing a right to
acquire any shares of its capital stock or other securities of any kind of Home
Retail. To the best knowledge of Home Retail, there are no voting trusts or
other agreements or understandings with respect to the voting of the capital
stock of Home Retail.
5.5. Home Retail Share. On the Conversion Date, (a) The Home Retail
Shares
(i) will, upon issuance in accordance with the terms of this
Agreement, be duly authorized, validly issued, fully paid, non-assessable and
free of preemptive rights; and
(ii) will be listed on the Nasdaq Small CAP Marketsm subject to
the notice of issuance which will be given on the Conversion Date.
(b) Upon delivery of Home Retail Shares as provided in Section
10.3 hereof, the Shareholder will acquire good, marketable and valid title
thereto, free and clear of any and all liens or other encumbrances.
-16-
5.6. Information Requirements. On the Conversion Date, Home Retail
will meet the "information" requirements of Rule 144(c).
5.7. No Adverse Change. Since May 31, 1998 there has not been any
Material-Adverse Change in the financial condition, operations or business of
Home Retail, it being understood and agreed that any adverse changes generally
affecting national, regional or local economic conditions or adverse changes
generally affecting industry conditions as a whole shall not be construed to
constitute a breach of the foregoing representation.
5.8. Investment Representation. Home Retail represents and warrants
that it is acquiring the Aropi Shares for its own account only, for investment
purposes and not with a view to distribution and acknowledges that the Aropi
Shares are and will be "restricted securities" within the meaning of the Rules
and Regulations under the Securities Act, that the disposition of such
securities is subject to compliance with the registration and prospectus
provisions of the Securities Act, and that certificates for the securities
issued hereunder will bear a legend to that effect.
5.9. Brokers. No finder, broker, agent or other intermediary has
acted on behalf of Home Retail in connection with this Agreement or the
transactions contemplated hereby for whose fees the Company or the Shareholder
is liable.
5.10. Home Retail's Knowledge. Home Retail has no knowledge of any
inaccuracy in any of the representations and warranties of the Shareholder or
the Company contained in this Agreement or the Exhibits hereto which may give
rise to a claim for indemnification.
6. Covenants and Agreements of Home Retail. Home Retail covenants and
agrees as follows:
6.1. Retention of Records. To facilitate the resolution of any
claims made by or against or incurred by the Shareholder or the Company, or for
any other reasonable purpose, Home Retail shall, for a period of five years
after the date hereof, (a) retain the books and records of the Company which
Home Retail receives as a result of this transaction, and (b) upon reasonable
notice, afford the officers, employees, and authorized agents and
representatives of the Company reasonable access (including the right to make,
at the Company's expense, photocopies), during normal business hours, to the
books and records of the Company which the Company receives as a result of this
transaction; provided, however, that such investigation shall not unreasonably
interfere with the business or operations of Home Retail.
6.2. Payments at Closing. At the Closing, to provide the Company
with sufficient funds to pay in full the Closing Liabilities set forth on
Exhibit 6.2 attached hereto and incorporated herein by reference.
6.3. Further Assurances. Upon the request of the Shareholder or the
Company at any time after the Closing Date, to execute and deliver such
documents as the Shareholder or the Company may reasonably request or effectuate
the purposes of this Agreement.
-17-
6.4. Payment of Obligations. From and after the Closing, to pay the
Current-Operating Liabilities of the Company in the ordinary course of business.
6.5. Lease. To enter into the Lease attached hereto as Exhibit 6.5
and incorporated herein by reference for the premises located at 0000-X Xxxxxxx
Xxxxxx Xxxx, Xxxxxxx, Xxxxxxx 00000.
6.6. Letter of Credit. At the Closing, Home Retail will provide the
Shareholder with a $250,000 irrevocable standby letter of credit similar to that
attached hereto as Exhibit 6.6 and incorporated herein by reference to secure
payment of both Convertible Promissory Notes ("Letter of Credit"). The Letter of
Credit shall have a maturity date of not less than fourteen (14) months from the
date of issuance.
7. Covenants and Agreements of Shareholder. To secure the Shareholder's
indemnification obligation set forth in Section 9 hereof and his covenant and
agreement to convert the Convertible Promissory Note No. 1 to Home Retail Shares
set forth in Section 10.3 hereof, the Shareholder covenants and agrees (i) to
place in escrow for a period of twelve (12) months from the Closing Date the
Convertible Promissory Note No. 1, or (ii) in the event the Convertible
Promissory Note No. 1 is converted, to place in escrow for a period of six (6)
months from the Closing Date a sufficient number of Home Retail Shares to equal
$125,000 (based upon the value of the shares on the Closing Date) pursuant to
the terms and conditions of the Convertible Promissory Note No. 1 and Stock
Escrow Agreement attached hereto as Exhibit 7 and incorporated herein by
reference.
8. Conditions Precedent.
8.1. Conditions Precedent to Each Party's Obligations. The
respective obligation of each party to consummate the transactions contemplated
in this Agreement is subject to the satisfaction at or prior to the Closing Date
of the following conditions precedent:
(a) no order, decree or injunction shall have been enacted,
entered, promulgated or enforced by any United States court of competent
jurisdiction or any United States governmental authority which prohibits the
consummation of the transactions contemplated herein; provided, however, that
the parties hereto shall use their commercially reasonable best efforts to have
any such order, decree or injunction vacated or reversed;
(b) the Shareholder and the Company shall have entered into a
three-year Employment Agreement in the form attached hereto as Exhibit 8.1(b)
and incorporated herein by reference; and
(c) the transactions contemplated by this Agreement shall (i)
be permitted by the laws and regulations of each jurisdiction or Governmental
Entity to which the Shareholder, the Company or any of their respective
Affiliates are subject and (ii) not violate any applicable law.
-18-
8.2. Conditions Precedent to Obligations of the Shareholder and the
Company. The obligations of the Company and the Shareholder to consummate the
transactions contemplated in this Agreement are subject to the satisfaction or
waiver at or prior to the Closing Date of the following conditions precedent:
(a) the representations and warranties of Home Retail contained
in Section 5 shall be true and correct in all material respects when made and at
and as of the Closing Date with the same force and effect as if those
representations and warranties had been made at and as of such time except (i)
to the extent such representations and warranties speak as of a specified
earlier date, and (ii) as otherwise contemplated or permitted by this Agreement;
(b) Home Retail shall, in all material respects, have performed
all obligations and complied with all covenants necessary to be performed or
complied with by it on or before the Closing Date;
(c) all proceedings, corporate or other, to be taken by Home
Retail in connection with the transactions contemplated by this Agreement, and
all documents incident thereto, shall be reasonably satisfactory in form and
substance to the Company and the Shareholder and the Company's and the
Shareholder's counsel, and Home Retail shall have made available to the Company
and the Shareholder for examination the originals or true, correct and complete
copies of all documents that the Company or the Shareholder may reasonably
request in connection with the transactions contemplated by this Agreement;
(d) each of the representations and warranties of Home Retail
contained in this Agreement that contains a materiality qualifier shall be true
and accurate in all respects as of the date hereof and on the Closing Date, and
each of the representations and warranties of Home Retail contained in this
Agreement that does not contain a materiality qualifier shall be true and
accurate in all material respects as of the date hereof and on the Closing Date.
Home Retail shall have performed in all material respects all covenants and
agreements on their part required to be performed on or before the Closing Date;
(e) payment of the Purchase Price shall be made to the
Shareholder at the Closing in the amount and in the manner prescribed in Section
3.1;
(f) Home Retail shall have consummated the Loan and Financing
Agreement;
(g) the Shareholder and the Company shall have received copies,
certified by the duly qualified and acting Secretary or Assistant Secretary of
Home Retail, of resolutions adopted by the Board of Directors of Home Retail
approving the Closing Documents to which it is a party and the consummation of
the transactions contemplated by the Closing Documents;
-19-
(h) the Shareholder and the Company shall have received an
opinion of Xxxxx & Wood, Washington, D.C., counsel for Home Retail, dated the
Closing Date, in substantially the form set forth in Exhibit 8.2(h) attached
hereto and incorporated herein by reference and based on qualifications and
limitations that are reasonably acceptable to the Shareholder and the Company;
(i) Home Retail shall have executed and delivered the Lease;
(j) the stockholders of Home Retail shall have entered into a
mutually acceptable Tag Along Agreement similar to that attached hereto as
Exhibit 8.2(j) and incorporated herein by reference;
(k) at the Closing, the Company and the Shareholder shall have
received a certificate of a senior officer of Home Retail, in form satisfactory
to counsel for the Company and the Shareholder, certifying fulfillment of the
matters referred to in paragraphs (a) through (j) of this Section 8.2; and
(l) Home Retail shall have delivered the Letter of Credit.
8.3. Conditions Precedent to Obligations of Home Retail. The
obligations of Home Retail to consummate the transactions contemplated by this
Agreement are subject to the satisfaction or waiver at or prior to the Closing
Date of the following conditions precedent:
(a) there shall have occurred no Material-Adverse Change from
the date hereof to the Closing Date in the condition or affairs of the Company;
(b) the representations and warranties of the Shareholder and
the Company contained in Section 4 shall be true and correct in all material
respects when made and at and as of the Closing Date with the same force and
effect as if those representations and warranties had been made at and as of
such time except (i) to the extent such representations and warranties speak as
of a specified earlier date, and (ii) as otherwise contemplated or permitted by
this Agreement;
(c) the Shareholder and the Company shall have received all
necessary and material third party consents;
(d) the Shareholder and the Company shall, in all material
respects, have performed all obligations and complied with all covenants
necessary to be performed or complied with by each of them on or before the
Closing Date;
(e) Home Retail shall have received a certificate of the
President of the Company, in form satisfactory to counsel for Home Retail,
certifying fulfillment of the matters referred to in paragraphs (a) through (d)
of this Section 8.3;
-20-
(f) all proceedings, corporate or other, to be taken by the
Shareholder or the Company in connection with the transactions contemplated by
this Agreement, and all documents incident thereto, shall be reasonably
satisfactory in form and substance to Home Retail and Home Retail's counsel, and
the Shareholder and the Company shall have made available to Home Retail for
examination the originals or true, correct and complete copies of all documents
that Home Retail may reasonably request in connection with the transactions
contemplated by this Agreement;
(g) Home Retail shall have received (i) the opinion of Arnall
Golden & Xxxxxxx, LLP, counsel for the Shareholder and the Company, dated the
Closing Date, in substantially the form attached as Exhibit 8.3(g) hereto;
(h) Each director of the Company other than Shareholder and
each officer of the Company other than Shareholder shall have delivered a
written resignation effective as of the Closing Date;
(i) all options, warrants and other rights to purchase any
equity securities of the Company, if any, shall be irrevocably cancelled and any
instruments or agreements evidencing such options, etc, shall be delivered to
Home Retail for cancellation.
(j) the Shareholder and the Company shall have delivered to
Home Retail (i) a long form good standing certificate from the Secretary of
State of Iowa confirming as of a date within five days of the Closing Date the
good standing of the Company and a good standing certificate from any state in
which the Company is qualified to do business and (ii) a copy of the current
Certificate of Incorporation of the Company certified by the Secretary of State
of Iowa.
9. Indemnification.
9.1. Survival of Representations and Warranties.
All covenants and agreements shall survive the Closing in
accordance with their terms. The representations and warranties contained in
Sections 4 and 5 of this Agreement shall survive any investigation by either
party and the Closing but shall expire and be extinguished on the secondary
anniversary of the Closing Date, except that (i) the representations and
warranties of the Shareholder set forth in Sections 4.3(d) and (e) shall survive
without limitation as to time, and (ii) the representations and warranties of
the Shareholder set forth in Section 4.15 shall survive until 90 days after
expiration of the applicable statute of limitations for any affected taxable
period. No action for indemnification under this Section 9 may be brought with
respect to such representations and warranties after the applicable date
indicated in the preceding sentence unless, before the date such representations
and warranties expire, the party seeking indemnification has notified in
reasonable detail in writing the party from whom indemnification is sought of a
claim for indemnity hereunder.
9.2. Indemnification by the Shareholder. Subject to the limitations
set forth in this Section 9, from and after the Closing, the Shareholder agrees
to indemnify and defend Home Retail and the Company, and hold Home Retail and
the Company harmless from and against any loss, liability, damage, penalty,
claim or expense, including reasonable attorneys' and technical consultants'
-21-
fees and other costs and expenses (collectively, "Damage") incurred or sustained
by Home Retail or the Company as a result of or relating to the non-fulfillment
or breach of covenant or agreement or the breach of any representation or
warranty of the Shareholder set forth in this Agreement. As security for the
payment of amounts which may be due to Home Retail pursuant to this Section 9,
the Shareholder shall deliver to the Escrow Agent the Convertible Promissory
Note No. 2 to be held and disposed of by the Escrow Agent pursuant to the terms
of the Stock Escrow Agreement.
9.3. Indemnification by Home Retail. Home Retail agrees to indemnify
and hold harmless the Shareholder from and against any and all Damages, as
defined in Section 9.2 above, the Shareholder may suffer or incur, resulting
from or arising out of the non-fulfillment or breach of any covenant or
agreement or the breach of any representation or warranty of Home Retail in this
Agreement.
9.4. Indemnification Procedures. A party entitled to indemnification
hereunder shall herein be referred to as an "Indemnitee." A party obligated to
indemnify an Indemnitee hereunder shall herein be referred to as an
"Indemnitor." Promptly after receipt by an Indemnitee of notice of any claim or
the commencement of any action, or upon discovery of any facts which an
Indemnitee believes may give rise to a claim for indemnification from an
Indemnitor hereunder, such Indemnitee shall, if a claim in respect thereof is to
be made against an Indemnitor under this Section 9, notify such Indemnitor in
writing in reasonable detail of the claim or the commencement of such action. If
any such claim shall be brought against such Indemnitee, it shall notify the
Indemnitor thereof, the Indemnitor shall be entitled to participate therein, and
to assume the defense thereof with counsel reasonably satisfactory to the
Indemnitee, and to settle or compromise any such claim or action; provided that
the terms of such settlement or compromise provide for the unconditional release
of the Indemnitee and require the payment by the Indemnitor of monetary damages
only. After notice to the Indemnitee of the Indemnitor's election to assume the
defense of such claim or action, the Indemnitor shall be entitled to participate
therein, and to assume the defense thereof with counsel reasonably satisfactory
to the Indemnitee, and to settle or compromise any such claim or action;
provided that the terms of such settlement or compromise provide for the
unconditional release of the Indemnitee and require the payment by the
Indemnitor of monetary damages only. After notice to the Indemnitee of the
Indemnitor's election to assume the defense of such claim or action, the
Indemnitor shall not be liable to the Indemnitee under this Section 9 for any
legal or other expenses subsequently incurred by the Indemnitee in connection
with the defense thereof; provided, however, that the Indemnitee shall have the
right to employ counsel to represent it if, in the Indemnitee's reasonable
judgment, it is advisable for the Indemnitee to be represented by separate
counsel, and in that event the fees and expenses of such separate counsel shall
be paid by the Indemnitee. If the Indemnitor does not elect to assume the
defense of such claim or action, the Indemnitee shall act reasonably and in
accordance with its good faith business judgment with respect thereto, and shall
not settle or compromise any such claim or action without the consent of the
Indemnitor, which consent shall not be unreasonably withheld. The parties hereto
agree to render to each other such assistance as may reasonably be requested in
order to insure the proper and adequate defense of any such claim or proceeding.
-22-
9.5. Limits to the Right to Indemnification. As Indemnitee's rights
to indemnification under this Section 9 shall be limited as follows:
(a) The Indemnitee shall be entitled to indemnification with
respect to a breach of a representation or warranty, and with respect to
indemnification as may be owed by the Shareholder under Section 9.2, only if the
aggregate amount of all such Damages for which indemnification is otherwise
available hereunder exceeds $125,000. If such Damages owed by the Indemnitor
exceed $125,000, then the Indemnitor shall be liable to the full extent the
Damages exceed $50,000. The maximum aggregate amount of indemnification payable
by the Shareholder or Home Retail under this Agreement shall not exceed
$125,000.
(b) Any indemnification hereunder shall be net of:
(i) any insurance proceeds recovered by the Shareholder,
Home Retail, the Company or any subsidiary on account of, or applicable to, the
satisfaction of claims for which indemnification is provided hereunder,
provided, however, that the term "insurance proceeds", as used in this
subdivision, shall mean the payment received under any applicable insurance
policy less the amount of additional premium payable, or the reduction of any
premium refund, consequent to the application of any retrospective loss
adjustment provisions of such insurance policy to such insurance payments; and
(ii) any Tax Benefit. As used in this Section 9.5, "Tax
Benefit," with respect to any Damage shall mean any reduction in the net federal
or state income tax liability of the Shareholder or the Company or the entity
filing consolidated tax returns which will following the Closing include the
Company, as a result of such Damage, provided, that any calculation of Tax
Benefit, with respect to any Damage, shall include any increase in federal
income tax liability attributable to a reduction in state or local taxes as a
result of such loss.
(c) No indemnification shall be available with respect to the
breach of any representation or warranty made herein if the party claiming
indemnification had received written notice prior to the Closing that the
Indemnitor was in breach of such representation and warranty.
9.6. Exclusive Remedy. The rights to indemnification provided by
this Section 9 shall be exclusive and shall be construed to exclude and preclude
the exercise of, and shall be in substitution and replacement of, any other
rights of the parties hereto, express or implied, under this Agreement or
applicable law, except in the event of a fraudulent breach of a representation,
warranty or covenant contained in this Agreement.
10. Joint Covenants and Agreements of Home Retail, the Shareholder and
the Company.
10.1. Indebtedness to Xxxxxx Xxxx. At the Closing, the Company
shall pay in full any and all monies due or owing to Xxxxxx X. Xxxx in regard to
(i) the Stock Redemption Agreement dated December 31, 1994, evidenced by (a) the
-23-
Promissory Note dated December 31, 1994 in the original principal amount of
$500,000.00 and (b) the Promissory Note dated December 31, 1994 in the original
principal amount of $92,554.00, (ii) the Employment Agreement and (iii) the
Covenant Not to Compete set forth on Exhibit 10.1 attached hereto and
incorporated herein by reference.
At the Closing, the Shareholder shall deliver to the Company the stock
certificate of Xxxxxx Xxxx for 174 shares of the Company's Class A Voting Common
Stock which shares have been held in escrow pursuant to the Stock Redemption
Agreement with the appropriate Stock Power attached thereto and a letter
authorizing the Company to cancel the stock certificate of record.
10.2. Tax Distributions. Before the Closing, the Company shall be
entitled to make cash distributions to its shareholders in amounts equal to the
estimated federal and state income Tax payments due on September 15, 1998 and
January 15, 1999 with respect to the Company's fiscal year ended December 31,
1998, in each case calculated consistent with past practices and distributed no
more than 20 days before the respective dates on which those payments are due;
provided, however, that the Purchase Price shall be reduced by an amount equal
to the distributions made.
10.3. Conversion of Convertible Promissory Notes. If within 365 days
of the Closing Date, Home Retail shall have completed the Offering, the
Shareholder covenants and agrees and Home Retail covenants and agrees to convert
and exchange the Convertible Promissory Notes (or Convertible Promissory Note
No. 1 plus $250,000 cash) for shares of the Class A Voting Common Stock of Home
Retail, par value of $.01 per share having a fair market value as of the
Conversion Date of not less than $500,000 which shares as of the Conversion Date
shall represent not less than 2% of all of the issued and outstanding shares of
Home Retail on a fully diluted basis. The interest accrued on the Convertible
Promissory Notes shall be paid when due irrespective of whether the principal of
the Convertible Promissory Notes has been converted to Home Retail Shares.
The Shareholder's obligation to convert the Convertible Promissory
Notes is conditioned on (i) the capital structure of Home Retail (on the
Conversion Date) being not less than that described in Exhibit 10.3 attached
hereto and incorporated herein by reference and (ii) Home Retail delivering
evidence satisfactory to the Shareholder that Home Retail has received at least
Five Million Dollars ($5,000,000.00) for the purchase of its Common Stock and/or
Preferred Stock (other than the stock to be purchased by Shareholder) from the
Offering. If the Offering has not been completed within 365 days from the Date
of Closing, the Shareholder's obligation to convert the Convertible Promissory
Notes shall terminate forthwith.
10.4. Delivery of Home Retail Shares. On the Conversion Date, Home
Retail will deliver to Shareholder (or the Escrow Agent if the Conversion Date
is within 180 days of the Closing Date) certificates representing the Home
Retail Shares in exchange for the Convertible Promissory Notes duly endorsed.
-24-
11. Termination.
11.1. Termination. This Agreement may be terminated at any time
before the Closing:
(a) by the mutual written consents of Home Retail, the
Shareholder and the Company; or
(b) by either Home Retail, the Shareholder or the Company (by
written notice) if the Closing shall not have occurred on
or before October 15, 1998, provided, however, that the
right to terminate this Agreement under this Section
11.1(b) shall not be available to any party whose failure
to fulfill any obligation under this Agreement shall have
been the cause of, or shall have resulted in, the failure
of the Closing to occur on such date, and nothing
contained herein shall relieve such party from liability
for breach of this Agreement.
11.2. Effect of Termination. Upon termination of this Agreement
pursuant to Section 11.1, neither Home Retail nor the Shareholder nor the
Company shall have any further duties, obligations, or liabilities under this
Agreement except for the confidentiality obligations set forth in the
Confidentiality Agreement attached hereto as Exhibit 11.2 and incorporated
herein by reference, and the obligations for expenses under the Escrow
Agreement.
12. Miscellaneous.
12.1. Expenses. Home Retail shall pay its expenses and costs,
including, without limitation, expenses of their respective counsel and
auditors, incidental to the preparation of this Agreement, the performance and
compliance with all agreements and conditions contained in this Agreement to be
performed or complied with by them and the consummation of the transactions
contemplated hereby and thereby. Home Retail acknowledges and agrees that the
professional fees and expenses of the Company and the Shareholder incurred in
regard to (i) this transaction and (ii) the preparation of the various
agreements and documents related to the Agreement have been billed to and will
be paid by the Company at or prior to the Closing. The Shareholder expressly
stipulates that except as set forth in the preceding sentence, the Company shall
not pay or be liable for any expenses and costs of the Shareholder in connection
with this Agreement or the transaction contemplated hereby. Home Retail shall be
responsible for the payment of fees and expenses owed to any finder, agent or
broker who has acted on behalf of Home Retail in connection with this Agreement
or the transactions contemplated hereby.
12.2. Notices, etc. Any and all notices and other communications
made pursuant to this Agreement shall be in writing and shall be deemed to have
been given if delivered by personal delivery or by messenger or overnight
delivery or facsimile, or mailed by registered or certified mail, to the parties
at the following addresses (or such other address for a party as shall be
specified by notice given, from time to time, pursuant hereto):
-25-
If to Home Retail, to:
Home Retail Holdings, Inc.
c/o Cambridge Holdings LLC
000 Xxxxxxx Xxxxxx
Xxx Xxxx, XX 00000-0000
Attention: Xxxxx X. Xxxxxxxxx
Fax: (000) 000-0000
with a copy to:
Xxxxx & Wood, LLP 000 Xxxxxxxxxxx Xxxxxx, X.X.
Xxxxx 000
Xxxxxxxxxx, XX 00000
Attention: Xxxxxxx X. Xxxxx, Esq.
Fax: (000) 000-0000
If to the Shareholder:
Xx. Xxxxx Xxxx
0000 Xxxxxxx Xxxx Xxxxx
Xxxxxxxx, Xxxxxxx 00000
Fax: (000) 000-0000
with a copy to:
Arnall Golden & Xxxxxxx, LLP
2800 One Atlantic Center
0000 Xxxx Xxxxxxxxx Xxxxxx
Xxxxxxx, XX 00000
Attention: Xxxx X. Xxxxxxx, Esq.
Fax: (000) 000-0000
If to the Company:
Aropi, Incorporated
0000-X Xxxxxxx Xxxxxx Xxxx
Xxxxxxx, XX 00000
Attention: Xxxxx Xxxx, President
12.3. Further Assurances. The parties hereto shall do and perform
or cause to be done and performed all such further acts and things and shall
execute and deliver all such other agreements, certificates, instruments or
documents as the other party hereto may reasonably request in order to carry out
the intent and purposes of this Agreement and the consummation of the
transactions contemplated hereby.
-26-
12.4. Amendments, etc. This Agreement may be amended, waived,
discharged or terminated only by an instrument in writing executed by the party
against which enforcement of such amendment, waiver, discharge or termination is
sought.
12.5. Miscellaneous. The headings in this Agreement are for
convenience of reference only and shall not constitute a part of this Agreement.
This Agreement shall be construed in accordance with the laws of the State of
Georgia without regard to principles of conflicts of laws. This Agreement may be
executed in several counterparts, each of which is an original but all of which
shall constitute one instrument. Any term or provision of this Agreement which
is invalid or unenforceable shall be ineffective to the extent of such
invalidity or unenforceability without rendering invalid or unenforceable the
remaining terms and provisions of this Agreement. Neither this Agreement nor any
rights or obligations hereunder may be assigned by one party without the consent
of the other. Subject to the previous sentence, this Agreement shall be binding
upon and inure to the benefit of the successors and assigns of Home Retail and
the successors, assigns, heirs, administrators, executors and legal
representatives of the Shareholder. Time is of the Essence.
12.6. Counterparts. This Agreement may be executed in one or more
counterparts, all of which shall be one and the same Agreement and shall become
effective when one or more counterparts have been signed by each of the parties
and delivered to each of the other parties.
12.7. Entire Agreement. This Agreement, the exhibits to this
Agreement and the Escrow Agreement constitute the entire understanding and
agreement among the parties with respect to the subject matter hereof and shall
supersede any prior agreements, representations and understandings among the
parties with respect to such subject matter, including without limitation that
certain Summary of Terms dated May 6, 1998 by and between Home Retail
Acquisition Corporation and Aropi, Inc. d/b/a Rolling Pin/Kitchen Emporium. No
representations or disclosures, whether oral or in writing, made before the date
hereof, but not made or confirmed herein, shall be of any force or effect, and
the parties acknowledge and agree that they have not relied on any such
representations or disclosures in entering into this Agreement. Prior drafts of
this Agreement shall not be used as a basis for interpreting this Agreement.
12.8. Public Announcements. Any press release or other public
disclosure issued or made by either Home Retail or the Shareholder or the
Company relating to the transactions contemplated hereby shall be first provided
in draft form to the other party, as the case may be, and such other party shall
have the opportunity within a reasonable period of time to review and comment on
such draft before it is released; provided that approval of such press release
or other public disclosure shall not be required if any party is advised by its
legal counsel that disclosure is required by law.
-27-
12.9. Exhibits. The information disclosed on any Exhibit hereto
shall be deemed to have been disclosed in every other Exhibit where the
disclosure of such information would be pertinent. The parties hereto may, at
their option, include in the Exhibits or elsewhere items which by virtue of such
disclosure shall be deemed not to be material or to have a Material-Adverse
Effect to avoid any misunderstanding, and such inclusion shall not be deemed to
be an acknowledgment by a party hereto that such items would but for such
disclosure be material or have a Material-Adverse Effect.
12.10. Knowledge. Whenever in this Agreement a reference is made to
the "knowledge" of the Company or the Shareholder, such reference shall mean the
actual knowledge of the Shareholder, without giving effect to imputed knowledge,
and does not connote a duty to investigate or an obligation to know.
-28-
IN WITNESS WHEREOF, the parties have duly executed this Agreement as of
the date first above written.
HOME RETAIL:
HOME RETAIL HOLDINGS, INC.
By: /S/ XXXXX X. XXXXXXXXX
----------------------
Name:
Title:
THE SHAREHOLDER:
/S/ XXXXX XXXX
-------------------------
Xxxxx Xxxx
THE COMPANY:
AROPI, INCORPORATED
By: /S/ XXXXX XXXX
---------------------
Name:
Title:
-29-
Exhibits
Exhibit 1(j) Closing documents
Exhibit 1(aa) List of Loan Documents
Exhibit 1(ab) Material-Adverse Effect or Material-Adverse Change
Exhibit 1(ad) Offering
Exhibit 1(ae) Offering Price
Exhibit 3.1(b)(i) Convertible Promissory Note No. 1
Exhibit 3.1(b)(ii) Convertible Promissory Note No. 2
Exhibit 4.1(b)(i) Certificate of Incorporation of Aropi
Exhibit 4.1(b)(ii) By-Laws of Aropi
Exhibit 4.2 Voting trusts and other agreements
Exhibit 4.3(c) Distribution of Stock or Dividends
Exhibit 4.4 May 1998 Balance Sheet
Exhibit 4.5 Leased property
Exhibit 4.7 List of Patents, trademarks, trade names, registered
copyrights
Exhibit 4.8 List of Salaries and Bonuses of each Director, Officer, and
Consultant or Agent Paid in Excess of $30,000 per year
Exhibit 4.10 List of Directors and Officers of the Company and
Bank Accounts
Exhibit 4.12 Changes with regard to Company's assets
Exhibit 4.13 Litigation
Exhibit 4.14 List of contracts and agreements
Exhibit 4.15 Exceptions to any tax returns
Exhibit 4.16 List of licenses
Exhibit 4.17 Employee benefit plans
Exhibit 4.18 List of insurance policies
Exhibit 5.1(b)(i) Certificate of Incorporation of Home Retail
Exhibit 5.1(b)(ii) By-Laws of Home Retail
Exhibit 5.2 Order of Bankruptcy Court
Exhibit 5.4 Options, warrants, calls, etc. of Home Retail
Exhibit 6.2 Closing Liabilities
Exhibit 6.5 Lease for 0000-X Xxxxxxx Xxxxxx Xxxx, Xxxxxxx,
Xxxxxxx 00000
Exhibit 6.6 Letter of Credit from Home Retail
Exhibit 7 Convertible Promissory Note No. 1 and Stock Escrow
Agreement
Exhibit 8.1(b) Employment Agreement between Shareholder & Company
Exhibit 8.2(h) Opinion letter from Xxxxx & Wood, LLP
Exhibit 8.2(j) Tag Along Agreement
Exhibit 8.3(g) Opinion letter from Arnall Golden & Xxxxxxx, LLP
Exhibit 10.1 Indebtedness to Xxxxxx Xxxx
Exhibit 10.3 Capital Structure of Home Retail
Exhibit 11.2 Confidentiality Agreement
