Exhibit 10.6
STOCK PURCHASE AGREEMENT
Dated as of March 20, 1998
TABLE OF CONTENTS
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Page
ARTICLE I Definitions............................................................................ 1
1.01 Defined Terms......................................................................... 1
1.02 Construction.......................................................................... 5
1.03 Other Definitional Provisions......................................................... 5
ARTICLE II Purchase of Shares; Consideration..................................................... 5
2.01 Closing............................................................................... 5
2.02 Purchase of Shares.................................................................... 5
2.03 Closing Payment....................................................................... 5
2.04 Post Closing Adjustment............................................................... 6
2.05 Cash Earnout.......................................................................... 7
2.06 Stock Earnout......................................................................... 8
2.07 Offset................................................................................ 10
ARTICLE III Representations and Warranties of the Seller......................................... 11
3.01 Corporate Organization................................................................ 11
3.02 Capitalization........................................................................ 11
3.03 Subsidiaries.......................................................................... 11
3.04 Financial Statements.................................................................. 11
3.05 No Violation.......................................................................... 12
3.06 Consents and Approvals................................................................ 12
3.07 Compliance with Legal Requirements.................................................... 12
3.08 Environmental Matters................................................................. 13
3.09 Absence of Certain Changes............................................................ 14
3.10 Availability of Assets and Title...................................................... 15
3.11 Permits............................................................................... 15
3.12 Litigation............................................................................ 15
3.13 Taxes................................................................................. 16
3.14 Employee Benefit Plans................................................................ 16
3.15 Contracts............................................................................. 19
3.16 Employees and Affiliated Agreements................................................... 20
3.17 Proprietary Rights.................................................................... 22
3.18 Insurance............................................................................. 22
3.19 Real Property......................................................................... 22
3.20 Personal Property..................................................................... 23
3.21 Personal Property Leases.............................................................. 23
3.22 Production Capacity................................................................... 23
3.23 Execution, Delivery and Enforceability of Agreement................................... 23
3.24 Ownership of Stock.................................................................... 23
3.25 Disclosure............................................................................ 23
i.
Page
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ARTICLE IV Representations and Warranties of Restoration......................................... 24
4.01 Corporate Organization................................................................ 24
4.02 Authorization......................................................................... 24
4.03 No Violation.......................................................................... 24
4.04 Consents and Approvals................................................................ 24
ARTICLE V Conditions to Obligations of Restoration to Consummate the Transactions
Contemplated Hereby................................................................... 25
5.01 Representations and Warranties True................................................... 25
5.02 Performance........................................................................... 25
5.03 Authorization......................................................................... 25
5.04 No Change in Business................................................................. 25
5.05 Opinion of Counsel for the Seller..................................................... 25
5.06 No Restraint or Litigation............................................................ 25
5.07 Necessary Governmental Approvals...................................................... 26
5.08 Necessary Consents.................................................................... 26
5.09 Liens................................................................................. 26
5.10 Other Documents....................................................................... 26
5.11 Repayment of Affiliate Indebtedness and Termination of Affiliate Agreements........... 26
5.12 Key Man Insurance Policy.............................................................. 26
5.13 Other Closing Date Deliveries......................................................... 26
5.14 Transfer of Loans..................................................................... 27
5.15 Title Insurance and NonDisturbance Agreement.......................................... 27
5.16 Sanwa Bank Documents.................................................................. 27
5.17 Proceedings, Instruments, etc......................................................... 27
ARTICLE VI Conditions to Obligations of the Seller to Consummate the Transactions Contemplated
Hereby................................................................................ 27
6.01 Representations and Warranties True................................................... 28
6.02 Performance........................................................................... 28
6.03 Authorization......................................................................... 28
6.04 Necessary Governmental Approvals...................................................... 28
6.05 Certificates.......................................................................... 28
6.06 Proceedings, Instruments, etc......................................................... 28
ARTICLE VII Covenants Regarding Employees and Covenant Not to Interfere, Compete or
Solicit Business...................................................................... 28
7.01 Covenant Regarding Employees.......................................................... 28
7.02 Covenant Not to Compete............................................................... 29
7.03 Equitable Relief...................................................................... 29
ii.
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ARTICLE VIII Indemnification..................................................................... 29
8.01 Indemnification by the Seller......................................................... 29
8.02 Notice of Claims...................................................................... 30
8.03 Third Party Claims.................................................................... 30
ARTICLE IX Miscellaneous Provisions.............................................................. 30
9.01 Brokers............................................................................... 30
9.02 Confidentiality....................................................................... 31
9.03 Payment of Expenses................................................................... 31
9.04 Waiver of Compliance.................................................................. 31
9.05 Notices............................................................................... 32
9.06 Certain Limitations................................................................... 32
9.07 Survival of Representations, Warranties, Indemnities and Other Agreements............. 32
9.08 Binding Nature; Assignment............................................................ 33
9.09 Governing Law; Construction........................................................... 33
9.10 Counterparts.......................................................................... 33
9.11 Entire Agreement; Amendments and Waivers.............................................. 33
9.12 Severability.......................................................................... 33
9.13 Headings.............................................................................. 33
9.14 Remedies.............................................................................. 33
9.15 Arbitration........................................................................... 34
9.16 Further Documents and Assurances...................................................... 36
iii.
Schedules
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Disclosure Schedule
Schedule 3.06 Consents and Approvals
Schedule 3.08 Environmental Matters
Schedule 3.10 Availability of Assets and Title
Schedule 3.11 Permits
Schedule 3.14 Employee Benefit Plans
Schedule 3.15 Contracts
Schedule 3.16 Employees and Affiliated Agreements
Schedule 3.17 Proprietary Rights
Schedule 3.18 Insurance
Schedule 3.19 Real Estate
Schedule 3.20 Personal Property
Schedule 3.21 Personal Property Leases
Exhibits
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Exhibit A Investment Representation Letter
Exhibit B Opinion of Seller's Counsel
Exhibit C Form of Consent
Exhibit D Lease Agreement
Exhibit E Supply Agreement
Exhibit F Employment Agreement
iv.
STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE AGREEMENT, is made and entered into as of this
20th day of March, 1998, by and among Restoration Hardware, Inc. ("Restoration")
and ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇ ("Seller").
WITNESSETH:
WHEREAS, Seller is the beneficial and record owner of 100% of the
outstanding capital stock (the "Shares") of The Michaels Concepts in Wood, Inc.,
a California corporation (the "Company");
WHEREAS, Restoration desires to acquire from Seller, and Seller
desires to transfer to Restoration, all of the Shares, on the terms and
conditions set forth herein;
NOW, THEREFORE, for and in consideration of the mutual covenants and
agreements hereinafter set forth, the parties hereby agree as follows:
ARTICLE I
DEFINITIONS
1.01 DEFINED TERMS. As used in this Agreement, the following terms
shall have the following meanings:
"Affiliate" of a Person shall mean any other Person that, directly or
indirectly, Controls or is Controlled by that Person, or is under common Control
with that Person or any such other Person.
"Agreement" shall mean this Stock Purchase Agreement as the same may
be amended, supplemented or otherwise modified from time to time.
"Balance Sheet Date" shall mean December 31, 1997.
"Benefit Plans" shall have the meaning ascribed thereto in Section
3.14 hereof.
"Best Efforts" shall mean the taking by a party of such action as
would be in accordance with reasonable commercial practices as applied to the
particular matter in question to achieve the result as expeditiously as
practicable.
"Business Day" shall mean any day excluding Saturday, Sunday and any
day which shall be in San Francisco, California a legal holiday or a day on
which banking institutions are authorized by law to close.
1.
"Closing" shall have the meaning ascribed thereto in Section 2.01.
"Closing Balance Sheet" shall have the meaning set forth in Section
2.04(a).
"Closing Date" shall have the meaning ascribed thereto in Section
2.01.
"COBRA" shall have the meaning set forth in Section 3.14(d).
"Code" shall mean the Internal Revenue Code of 1986, as amended.
"Contracts" shall have the meaning ascribed thereto in Section 3.15
hereof.
"Control" (including, with correlative meaning, the terms "controlled
by" or "under common control with"), as used with respect to any Person, means
the possession, directly or indirectly, of the power to direct or cause the
direction of the management and policies of such Person or the ownership of
voting securities of a Person representing more than 20% of the voting power of
such Person.
"Disclosure Schedule" shall mean the disclosure schedule delivered by
Seller to Restoration concurrently with the execution of this Agreement.
"EBITDA" shall mean, for any fiscal year, the Company's net income for
such fiscal year before interest, depreciation, amortization and provision for
all federal and state income taxes, all as determined in accordance with GAAP
and as reflected on the Company's audited financial statements for such fiscal
year as prepared by the Company's independent auditors. For purposes of
calculating EBITDA, the sales, cost of goods sold and operating expenses will be
those generated solely by the Company exclusive of Restoration's operations
(i.e., on a non-consolidated basis), except to the extent that Restoration has
incurred expenses on the Company's behalf (but in no event more than $50,000 in
any fiscal year without the consent of Seller) in which case such expenses will
be reflected in the Company's financial statements prepared in accordance with
GAAP. In the event that Seller advises Restoration in writing within 7 days
after Seller's receipt of such audited financial statements that Seller has any
exceptions to such audited financial statements which would result in a material
adjustment to EBITDA as calculated therein, the dispute mechanism set forth in
subsection 2.04(b) shall apply with respect to such disputed items.
"Environmental Laws" shall mean any federal, state or local laws,
ordinances, codes, regulations, rules, policies or orders that are intended to
assure the protection of the environment, or that classify, regulate, call for
the remediation of, require reporting with respect to, or list or define air,
water, groundwater, solid waste, hazardous or toxic substances, materials,
wastes, pollutants or contaminants, or which are intended to assure the safety
of employees, workers or other persons, including the public.
"Environmental Liabilities" shall mean any cost, debt, expense,
obligation, liability or other responsibility arising as a result of, from or
under any Environmental Law.
2.
"ERISA" shall have the meaning ascribed thereto in Section 3.14
hereof.
"Expense" shall have the meaning ascribed to it in Section 8.01
hereof.
"Facilities" shall mean all buildings and improvements on the Property
of the Company.
"Financial Status" shall mean the condition (financial or otherwise),
business, assets, properties or operations of the Person in question.
"Financial Statements" shall have the meanings ascribed thereto in
Section 3.04 hereof.
"GAAP" shall mean generally accepted United States accounting
principles.
"Governmental Authority" shall mean any federal, state, local or other
governmental or administrative body, instrumentality, department or agency or
any court, tribunal, administrative hearing, arbitration panel, commission or
other similar dispute resolving panel or body.
"Hazardous Materials" shall mean any toxic or hazardous substance,
material or waste or any pollutant or contaminant, or infectious or radioactive
substance or material, including without limitation, those substances, materials
and wastes defined in or regulated under any Environmental Laws.
"HSR Act" shall mean the ▇▇▇▇-▇▇▇▇▇-▇▇▇▇▇▇ Antitrust Improvements Act
of 1976, as amended, and the rules and regulations promulgated thereunder.
"IRS" shall mean the Internal Revenue Service.
"Leased Property" shall have the meaning ascribed thereto in Section
3.19 hereof.
"Leases" shall have the meaning ascribed thereto in Section 3.21
hereof.
"Legal Requirements" shall mean all applicable international, foreign,
federal, state and local laws, judgments, decrees, orders, statutes, ordinances,
rules, regulations or permits.
"Lien" shall mean any mortgage, pledge, security interest,
encumbrance, lien, hypothecation, assignment for security or charge of any kind.
"Loss" shall have the meaning ascribed to it in Section 8.01 hereof.
3.
"Net Worth" shall mean the Company's total assets calculated in
accordance with GAAP minus the Company's total liabilities calculated in
accordance with GAAP, as reflected on the Company's Closing Balance Sheet.
"Ordinary Course of Business" shall mean an action taken by a Person
if: (a) such action is consistent with the past practices of such Person and is
taken in the ordinary course of the normal ongoing operations of such Person;
and (b) such action is not required to be authorized by the board of directors
of such Person (or by any Person or group of Persons exercising similar
authority), is not required to be specifically authorized by the parent company
(if any) of such Person, and does not require any other special corporate
authorization (other than the customary delegation of authority to officers and
other employees).
"Permits" of a Person shall mean all rights, franchises, permits,
authorities, licenses, certificates of approval or authorizations, including,
without limitation, licenses and other authorizations issuable by a Governmental
Authority, which pursuant to applicable Legal Requirements are necessary to
permit such Person lawfully to conduct and operate its business as currently
conducted and to own and use its assets.
"Permitted Lien" shall mean with respect to any Lien on the assets and
properties of the Company any (i) Liens for Taxes not yet delinquent for which
adequate reserves, as are required by GAAP, have been established on the
Financial Statements and (ii) minor interests, none of which is substantial in
amount, materially detracts from the value of such assets or property or
materially impairs the use thereof in the operation of the business of the
Company.
"Person" shall mean an individual, partnership, corporation, joint
venture, trust, unincorporated organization or association or other legal
entity.
"Property" shall mean all real property leased or owned by the Company
either currently or in the past.
"Securities Act" shall mean the Securities Act of 1933, as amended,
and the rules and regulations promulgated thereunder.
"Subsidiary" of a Person, shall mean any corporation, limited
liability company, partnership or other entity of which securities or other
interests are owned, directly or indirectly, by such Person.
"Taxes" means (i) any net income, alternative or add-on minimum tax,
gross income, gross receipts, sales, use, ad valorem, transfer, franchise,
profits, license, withholding, payroll, employment, excise, severance, stamp,
occupation, premium, property, environmental or windfall profit tax, custom,
duty or other tax governmental fee or other like assessment or charge of any
kind whatsoever, together with any interest or any penalty, addition to tax or
additional amount imposed by any Governmental Authority responsible for the
imposition of any such tax (domestic or foreign), (ii) any liability for the
payment of any
4.
amounts of the type described in (i) as a result of being a member of an
affiliated, consolidated, combined or unitary group for any Taxable period and
(iii) any liability for the payment of any amounts of the type described in (i)
or (ii) as a result of any express or implied obligation to indemnify any other
person.
"Tax Return" means any return, report, information return, or other
document (including any related or supporting information and, where applicable,
profit and loss accounts and balance sheets) with respect to Taxes (including
any returns related to Benefit Plans maintained by a Person).
1.02 CONSTRUCTION. This Agreement is the result of arm's-length
negotiations between, and has been reviewed by, each party hereto and its
counsel. Each party agrees that any ambiguity of this Agreement shall not be
interpreted against the party drafting the particular clause which is in
question.
1.03 OTHER DEFINITIONAL PROVISIONS. The meanings given to terms
herein shall be equally applicable to both the singular and plural forms of such
terms. Any references to Articles, Sections, Exhibits or Schedules contained
herein shall, unless otherwise so specified, refer to the Article, Section,
Exhibit or Schedule of the same number contained in this Agreement. A masculine
pronoun whenever used herein shall be construed to include the feminine or
neuter where appropriate.
ARTICLE II
PURCHASE OF SHARES; CONSIDERATION
2.01 CLOSING. A closing (the "Closing") will be held at the offices
of ▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇ & ▇▇▇▇▇▇▇▇ LLP, in San Francisco, California on March 20,
1998 (unless the parties hereto otherwise agree in writing) at which the
documents referred to in Articles V and VI hereof will be exchanged by the
parties, and the consideration to which the parties are entitled pursuant to
this Article II hereof shall be paid. The date on which the Closing actually
takes place is referred to herein as the "Closing Date."
2.02 PURCHASE OF SHARES. Subject to the terms and conditions of this
Agreement, at the Closing, Seller will sell and transfer to Restoration, and
Restoration will purchase from Seller, the Shares.
2.03 CLOSING PAYMENT.
(a) Upon the terms and subject to the conditions of this
Agreement, in consideration for the transfer of the Shares, Restoration
shall deliver to Seller at the Closing cash in the amount of U.S.
$5,000,000. Of such $5,000,000 (i) $1,100,000 shall be withheld by
Restoration in a segregated account to be disbursed as set forth in
subsection 2.03(c) below and (ii) the sum of $848,469.86 plus any amounts
paid to Seller (other than Seller's ordinary salary) by the Company since
5.
January 31, 1998, shall be paid to the Company in payment of Seller's
shareholder note payable due the Company.
(b) In addition, based on Seller's reasonable expectation that
the Net Worth is greater than $1,450,000, the Company shall deliver to
Seller immediately prior to the Closing cash in an amount equal to $350,000
less applicable witholdings and taxes of $5,075. Such amount shall be
netted from the $848,469.86 shareholder note payable due for a balance of
$503,544.86.
(c) The $1,100,000 withheld by Restoration pursuant to
subsection 2.03(a) shall be disbursed by Restoration as follows: (i) if
Seller shall have provided Restoration within 45 days of the Closing a
written release in form reasonably satisfactory to Restoration by the
United States Small Business Administration (the "SBA") releasing the
Company from any obligations owing by Seller to the SBA and UCC-3
termination statements in form suitable for filing terminating all security
interests held by the SBA in property of the Company, then Restoration
shall deliver the $1,100,000 to Seller promptly upon receipt of such
release and termination statements or (ii) if Seller has not provided
Restoration within 45 days of the Closing with the documents referenced in
subsection (i) above, then Restoration shall pay such $1,100,000 to the SBA
as soon as SBA will allow to relieve such outstanding indebtedness. If the
$1,100,000 is insufficient to pay all obligations owing to SBA, Seller
shall promptly remit any deficiency to Restoration. If the $1,100,000 is
greater than required to discharge all obligations to SBA then Restoration
shall promptly remit to Seller any excess.
2.04 POST CLOSING ADJUSTMENT.
(a) Promptly after the Closing Date, Seller shall cause to be
prepared and delivered to Restoration statements of operations, changes in
shareholder's equity and cash flow and a balance sheet of the Company as of
and for the fiscal year ended January 31, 1998 (the "Year-End Financial
Statements") and a balance sheet of the Company as of March 20, 1998 (the
"Closing Balance Sheet"), in each case in accordance with GAAP applied on a
basis consistent with the Financial Statements for the Company referred to
in Section 3.04. The Year-End Financial Statements shall be audited and
the Closing Balance Sheet shall be reviewed by Deloitte & Touche LLP
("Deloitte"), independent accountants for Restoration, to confirm that such
Year-End Financial Statements and the Closing Balance Sheet have been
prepared in accordance with GAAP and fairly present the financial position
of the Company as of such dates and its results of operations and cash
flows for such periods. Restoration shall deliver copies of the audited
Year-End Financial Statements and the reviewed Closing Balance Sheet to
Seller and Seller's independent accountants, ▇▇▇▇▇▇ ▇▇▇▇▇▇ & ▇▇▇
("▇▇▇▇▇▇"), not later than 45 days after the Closing Date. Seller shall
cooperate and cause its accountants to cooperate with Restoration and its
auditors in connection with such audit and review.
6.
(b) Within 7 days after its receipt of the audited Year-End
Financial Statements and the Closing Balance Sheet, Seller shall advise
Restoration whether Seller has any exceptions to such audited Year-End
Financial Statements, the Closing Balance Sheet or the conduct of the
audit. Unless Seller shall deliver to Restoration within such 7-day period
a letter of Seller specifying in reasonable detail any such exceptions, the
Net Worth shall be conclusive and binding on Seller and Restoration and
shall provide the basis for the adjustment specified in subsection (c)
below. If within such 7-day period Seller shall deliver to Restoration a
letter of Seller setting forth any such exceptions which, in the aggregate,
would result in a material adjustment in the Closing Balance Sheet, Seller
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and Restoration shall promptly endeavor to resolve the matters set forth in
such letter; and if Seller and Restoration shall fail to reach an agreement
with respect to such matters on or before the 14th day after receipt by
Restoration of such Seller letter, then Seller and Restoration shall engage
a third firm of independent public accountants of recognized national
standing who shall promptly make an independent determination of such
matters as to which disagreement remains and shall deliver its written
opinion thereon to Seller and Restoration. The opinion of such third firm
shall be conclusive and binding on Seller and Restoration and shall provide
the basis for the adjustment specified in subsection (c) below with respect
to any remaining disagreement between Seller and Restoration.
(c) If the Net Worth shall be less than $1,450,000, Seller shall
pay, within 5 days after the date on which the Closing Balance Sheet shall
become conclusive and binding in accordance with subsection (b) above, to
Restoration an amount equal to the difference between $1,450,000 and such
Net Worth. If the Net Worth shall be greater than $1,450,000, there shall
be no further action or payment by either party.
(d) One half of the fees and disbursements of Deloitte incurred
in connection with the audit described in Section 2.04(a) shall be paid by
Restoration. The remaining half of the Deloitte fees and disbursements to
a maximum amount of $30,000 shall be paid by Seller. The fees incurred by
▇▇▇▇▇▇ as they relate to helping the Company maintain and close its books
at February 1, 1997, December 31, 1997, January 31, 1998 and as of the
Closing Date shall be borne by the Company up to maximum of $30,000. All
additional costs in excess of the aforementioned $30,000 related to
maintaining and closing the Company's books at February 1, 1997, December
31, 1997, January 31, 1997 and as of the Closing Date and all costs
relating to ▇▇▇▇▇▇'▇ review of the audited Year-End Financial Statements
and the Closing Balance Sheet shall be borne by Seller. The fees and
disbursements of such third firm, if any, shall be equally shared by Seller
and Restoration.
2.05 CASH EARNOUT. Restoration shall pay to Seller, subject to the
provisions of this Section 2.05 and Section 2.07, additional cash amounts equal
to 35% of the Company's EBITDA for the period beginning with the Closing Date
and ending on January 30, 1999, 25% of the Company's EBITDA for the fiscal year
ending January 29, 2000 and 25% of the Company's EBITDA for the fiscal year
ending January 27, 2001 (each,
7.
an "Earnout Payment"). Each Earnout Payment will be payable to Seller within 60
days following the Company's fiscal year-end for the applicable Earnout Payment.
2.06 STOCK EARNOUT.
(a) Subject to the provisions of Section 2.07, Restoration shall
also cause the Company to issue to Seller, upon Seller's execution of the
Investor Representation Letter in the form attached hereto as Exhibit A for
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each such issuance, shares of the common stock of the Company (the "Common
Stock") in an amount equal to (i) 3.3% of the outstanding shares of the
Common Stock if EBITDA for the period commencing on the Closing Date and
ending on January 30, 1999 equals or exceeds $2.605 million, (ii) an
additional 3.3% of the outstanding shares of the Common Stock if EBITDA for
the fiscal year ending January 29, 2000 equals or exceeds $3.6 million and
(iii) an additional 3.4% of the outstanding shares of the Common Stock if
EBITDA for the fiscal year ending January 27, 2001 equals or exceeds $4.0
million. In no event shall Seller receive in excess of 10% of the
Company's total outstanding shares of Common Stock in the aggregate. Each
issuance shall occur within 60 days following the Company's fiscal year-end
for the applicable issuance. If the Company at any time issues additional
shares of Common Stock or effects a subdivision or combination of its
shares, the number of shares issued to Seller shall be adjusted so that
Seller maintains his percentage ownership in the total outstanding shares
of the Company's Common Stock.
(b) Seller shall not dispose of any shares of such Common Stock,
whether by sale, exchange, assignment, transfer, gift, devise, bequest,
mortgage, pledge, encumbrance or otherwise, or contract to do or permit any
of the foregoing, whether voluntarily or involuntarily, by bankruptcy,
operation of law or otherwise, except in accordance with the terms and
conditions of this Agreement, and Seller shall not take or omit to take any
action which will impair the absolute and unrestricted right, power,
authority and capacity of such Seller to sell such shares of Common Stock
to Restoration in accordance with the terms and conditions hereof. Any
purported transfer of such shares of Common Stock by Seller that violates
any provision of this Agreement shall be wholly void and ineffectual and
such shares of Common Stock shall continue to be subject to this Agreement.
(c) The shares of Common Stock may not be pledged, mortgaged or
otherwise encumbered and shall at all time be free of any Liens.
(d) (i) Subject to the provisions of Section 2.07, Seller will
have the right, commencing on April 15, 2003 and ending 60 days thereafter,
to require the Company to purchase all, but not less than all, of his
shares of the Common Stock, at a per share price equal to 5 times the
Company's EBITDA for the fiscal year ending January 25, 2003 divided by the
number of shares of Common Stock outstanding as of such fiscal year-end
(calculated on a fully diluted basis) (the "2003 Value") times 95%. If
Seller does not exercise his right by providing written notice to the
Company within such 60 day period, the Company shall have the right
8.
commencing on the day after such 60 day period terminates to purchase all,
but not less than all, of Seller's shares at a price per share equal to
105% of the 2003 Value.
(ii) Subject to the provisions of Section 2.07, Seller will
have the right, commencing on April 15, 2004 and ending 60 days thereafter,
to require the Company to purchase all, but not less than all, of his
shares of the Common Stock, at a per share price equal to 5 times the
Company's EBITDA for the fiscal year ending January 31, 2004 divided by the
number of shares of Common Stock outstanding as of such fiscal year-end
(calculated on a fully diluted basis) (the "2004 Value") times 95%. If
Seller does not exercise his right by providing written notice to the
Company within such 60 day period, the Company shall have the right
commencing on the day after such 60 day period terminates to purchase all,
but not less than all, of Seller's shares at a price per share equal to
105% of the 2004 Value.
(iii) Subject to the provisions of Section 2.07, Seller will
have the right, commencing on April 15, 2005 and ending 60 days thereafter,
to require the Company to purchase all, but not less than all, of his
shares of the Common Stock, at a per share price equal to 5 times the
Company's EBITDA for the fiscal year ending January 29, 2005 divided by the
number of shares of Common Stock outstanding as of such fiscal year-end
(calculated on a fully diluted basis) (the "2005 Value") times 95%. If
Seller does not exercise his right by providing written notice to the
Company within such 60 day period, the Company shall have the right
commencing on the day after such 60 day period terminates to purchase all,
but not less than all, of Seller's shares at a price per share equal to
105% of the 2005 Value.
(e) Notwithstanding anything to the contrary herein, the Company
shall have the right, but not the obligation, to purchase any such shares
of the Common Stock held by Seller, at a per share price equal to the
quotient obtained by dividing the Company's EBITDA for the fiscal year
ending immediately prior to such occurrence by the number of shares of
Common Stock outstanding as of such fiscal year-end (calculated on a fully
diluted basis), upon the occurrence of any of the following events:
(i) Any levy upon such shares of Common Stock, the
commencement of federal or state bankruptcy, reorganization or
insolvency proceedings by or against the Seller, or the appointment in
any bankruptcy, reorganization or insolvency proceeding of a trustee,
receiver, conservator or other judicial representative of the Seller
unless such levy or proceeding has been withdrawn or dismissed within
20 days of its commencement; or
(ii) Any voluntary, involuntary or attempted sale,
assignment, conveyance, transfer, pledge, hypothecation, encumbrance
or other disposition of such shares of Common Stock in violation of
this Agreement.
9.
2.07 OFFSET. Restoration may offset against any amounts due under
the cash and stock earnouts set forth in Sections 2.05 and 2.06 any liabilities
or amounts of any kind whatsoever incurred by Restoration or owed to Restoration
by Seller pursuant to the terms of this Agreement (including the provisions of
Article VIII hereof) or the lease agreement of even date herewith between Seller
and the Company (the "Lease Agreement"), attached hereto as Exhibit D, or as a
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result of a breach by the Company of the supply agreement of even date herewith
between the Company, Seller and Restoration (the "Supply Agreement"), attached
hereto as Exhibit E. Notwithstanding the foregoing, if Seller initiates
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arbitration pursuant to Section 9.15 hereof contesting the liability claimed in
connection with such offset, Restoration shall deposit any amounts otherwise due
to Seller against which Restoration seeks offset into a third party escrow until
a final judgment of the arbitrators shall have been rendered as to such matter
in accordance with Section 9.15.
10.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE SELLER
Except as expressly set forth in the Disclosure Schedule, the Seller
represents and warrants to Restoration as follows:
3.01 CORPORATE ORGANIZATION. The Company is a corporation duly
organized, validly existing and in good standing under the laws of the State of
California. The Company has full power and authority to carry on its business
as it is now being conducted and to own the properties and assets it now owns,
and is duly qualified or licensed to do business as a foreign corporation in
good standing in every jurisdiction in which its ownership of property or the
conduct of its business requires such qualification or licensing. No amendment
or other document relating to the Articles of Incorporation of the Company has
been filed in the Office of the Secretary of State of California since November
1, 1979 The copies of the Bylaws and corporate minutes of the Company delivered
to Restoration on or before the date hereof are true, correct and complete
copies of the Bylaws and corporate minutes of the Company.
3.02 CAPITALIZATION. The entire authorized capital stock of the
Company consists of 1,000 shares of Common Stock, no par value and no shares of
preferred stock (the "Preferred Stock"). As of the date hereof, 1,000 shares of
such Common Stock are issued and outstanding and are held of record and
beneficially by Seller and no shares of Preferred Stock are issued and
outstanding. All of the outstanding shares of Common Stock have been validly
issued, fully paid and are nonassessable, and none were issued in violation of
the preemptive or similar rights (whether statutory or contractual) of any
Person. None of such shares were issued, offered or sold by the Company in
violation of any applicable federal or state securities laws or the rules and
regulations thereunder. The Company has no outstanding options, warrants,
debentures or other securities convertible into or exchangeable or exercisable
for shares of capital stock of the Company, and there are no outstanding
contracts, commitments or arrangements by which the Company is or may become
bound to issue, repurchase, retire or otherwise acquire (contingent or
otherwise) any shares of capital stock of the Company or any security
convertible into or exchangeable for any of its capital stock. Neither the
Company nor the Seller is a party to any voting trust or other agreement,
contract or obligation (whether written or oral) with respect to the voting of
the capital stock of the Company and there are no such voting trusts or other
agreements, contracts or obligations (whether written or oral) with respect to
the voting of the capital stock of the Company.
3.03 SUBSIDIARIES. The Company has no Subsidiaries.
3.04 FINANCIAL STATEMENTS. Seller has furnished to Restoration
complete and accurate copies of (i) reviewed financial statements of the Company
as of and for the years ended December 31, 1995 and December 31, 1996, including
a reviewed balance sheet of the Company as of the end of such years and reviewed
statements of operations, changes in shareholders equity and statement of cash
flows of the Company for such years, together
11.
with the opinions thereon of ▇▇▇▇▇▇ and (ii) unaudited financial statements of
the Company as of and for the year ended December 31, 1997 (the financial
statements referred to in this Section 3.04 being collectively referred to as
the "Financial Statements"). The Financial Statements have been prepared in
accordance with GAAP applied on a consistent basis during the respective
periods. The Financial Statements present fairly the financial position of
Seller as of such dates and the results of its operations and cash flows for
such periods. The Company's fiscal year shall be changed to a fiscal year ending
the last Saturday in January.
3.05 NO VIOLATION. The execution and delivery of this Agreement, the
Lease Agreement, the Supply Agreement and the employment agreement of even date
herewith between Seller and the Company (the "Employment Agreement") attached
hereto as Exhibit F (this Agreement, the Lease Agreement, the Supply Agreement
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and the Employment Agreement, collectively, are referred to herein as the
"Transaction Documents") and the consummation of the transactions contemplated
hereby and thereby by Seller and the Company will not (a) violate any provision
of the Company's Articles of Incorporation, Bylaws or other charter documents,
(b) violate, constitute a default under or permit the termination or
acceleration of the maturity of any indebtedness for borrowed money of Seller or
the Company except with respect to a $998,000 loan to SBA, (c) violate,
constitute a default under, permit the termination of, trigger a right of first
refusal under or cause the loss or impairment of any rights or options under or
any payments being made with respect to any agreement to which Seller is a party
or to any Permit, Lease or Contract, (d) result in the creation or imposition of
any Lien upon any of the assets or properties of Seller or the Company or (e)
violate any Legal Requirement to which Seller or the Company is subject.
3.06 CONSENTS AND APPROVALS. Except as set forth on Schedule 3.06 of
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the Disclosure Schedule, the execution, delivery and performance of the
Transaction Documents and the consummation of the transactions contemplated
hereby and thereby by the Seller do not require the consent, approval, license
or authorization of, notice to, or declaration, filing or registration with, any
third party or Governmental Authority.
3.07 COMPLIANCE WITH LEGAL REQUIREMENTS.
(a) The Company has conducted its business in material
compliance with all Legal Requirements. The assets and properties of the
Company and their uses conform in all material respects to all applicable
Legal Requirements currently required to be complied with in the business
and operations of the Company.
(b) Neither Seller nor the Company has received any citations,
complaints, consent orders, compliance schedules or other similar
enforcement orders which currently remain outstanding and unresolved or
received any other notice from any Governmental Authority or Person
regarding the violation of, or failure to comply with, any Legal
Requirements relating to the operations or any assets or properties of the
Company or Seller, or the obligation on the part of the Company or Seller
to undertake or bear the cost of any remedial action.
12.
3.08 ENVIRONMENTAL MATTERS. Except as set forth on Schedule 3.08 of
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the Disclosure Schedule,
(a) no methylene chloride or asbestos is contained in or has
been used at or released from the Facilities;
(b) all Hazardous Materials and wastes have been disposed of in
accordance with all Environmental Laws;
(c) neither the Company nor Seller has received any notice of
any noncompliance of the Facilities or the Company's past or present
operations with Environmental Laws;
(d) no notices, administrative actions or suits are pending or
threatened relating to a violation of any Environmental Laws;
(e) the Company is not a potentially responsible party under the
federal Comprehensive Environmental Response, Compensation and Liability
Act (CERCLA), or state analog statute, arising out of events occurring
prior to the Closing Date;
(f) there have not been in the past, and there are not now, any
Hazardous Materials on, under or migrating to or from the Facilities or
Property;
(g) there have not been in the past, and are not now, any
underground tanks or underground improvements at, on or under the Property
including without limitation, treatment or storage tanks, sumps, or water,
gas or oil ▇▇▇▇▇;
(h) there are no polychlorinated biphenyls (PCBs) deposited,
stored, disposed of or located on the Property, the Facilities or any
equipment on the Property at levels in excess of 50 parts per million;
(i) there is no formaldehyde or asbestos on the Property or in
the Facilities, nor any insulating material containing urea formaldehyde or
asbestos in the Facilities;
(j) the Facilities and the Company's uses and activities therein
have at all times complied with all Environmental Laws; and
(k) the Company has all the Permits required to be issued under
all Legal Requirements regarding Environmental Laws and is in full
compliance with the terms and conditions of those Permits.
13.
3.09 ABSENCE OF CERTAIN CHANGES. Since the Balance Sheet Date, the
Company has conducted its business only in the Ordinary Course of Business, has
paid promptly its trade payables and other accrued expenses and has not:
(a) incurred any increase in indebtedness for borrowed money
over the level thereof reflected in the Financial Statements or granted any
security interest in any of its assets or other property to secure any
obligation for borrowed money;
(b) issued or sold any capital stock;
(c) received any notices of a default or breach of any Permit,
Contract or Lease;
(d) waived, compromised or permitted to lapse any claims or
rights of substantial value, or sold, transferred or otherwise disposed of
any assets or other properties, except in the Ordinary Course of Business;
(e) adopted or amended in any respect any Benefit Plan or bonus,
profit sharing, deferred compensation, incentive, stock option or stock
purchase, paid time off for sickness or other plan, program or arrangement
for the benefit of employees, consultants or directors, or granted any
general increase in the compensation of employees (including any such
increase pursuant to any bonus, profit sharing or other compensation or
incentive plan, program or commitment) or any increase in the compensation
payable or to become payable to any officer or director;
(f) made any capital expenditures in excess of $100,000 or made
or entered into any commitments in excess of $5,000 or entered into any
Contract in excess of $10,000;
(g) declared, paid or set aside for payment any dividend or
other distribution in respect of its capital stock, or directly or
indirectly redeemed, purchased or otherwise acquired any shares of its
capital stock;
(h) paid, loaned or advanced any amount to, or sold, transferred
or leased any properties or assets to, or entered into any other agreement
or arrangement with any of its executive officers, directors or other
Affiliates, except for payment of compensation to officers;
(i) suffered any damage, destruction, loss or claim to or
against any property or asset with an aggregate value in excess of $10,000,
whether or not covered by insurance;
(j) initiated or maintained any proceedings with respect to its
sale, merger, consolidation, liquidation or reorganization other than
pursuant to the terms of this Agreement;
14.
(k) terminated, amended or modified any Permit, Contract or
Lease; or
(l) agreed, whether in writing or otherwise, to take any action
described in this Section 3.09.
3.10 AVAILABILITY OF ASSETS AND TITLE.
(a) Except as described in Schedule 3.10 in the Disclosure
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Schedule, which disclosure constitutes all assets and properties currently
used by the Company and owned by the Seller not being transferred to
Restoration at the Closing, the assets and properties owned or leased by
the Company constitute all of the assets and properties used in its
business, such assets constitute all of the assets necessary to continue
the operations of the Company as currently being conducted and such assets
are, in all material respects, in reasonably good and serviceable condition
(normal wear and tear excepted).
(b) The Company has good and valid title to all of the
properties and assets owned by it, including the properties and assets
reflected in the Financial Statements (other than those disposed of since
the Balance Sheet Date in the Ordinary Course of Business), and the Company
has good and valid leasehold interests in all other properties and assets
held under lease by it, in each case free and clear of all Liens other than
Permitted Liens and liens described in Schedule 3.21.
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3.11 PERMITS. The Company owns, holds or possesses all Permits. The
Company is in compliance with all of its respective obligations with respect to
such Permits, and no event has occurred which permits, or upon the giving of
notice or lapse of time or otherwise would permit, revocation or termination of
any such Permit. All Permits are listed on Schedule 3.11 of the Disclosure
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Schedule. Except as set forth in Schedule 3.11 of the Disclosure Schedule, each
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of the Permits is valid and is in full force and effect and there are no
existing proceedings, complaints or investigations pending, or to the knowledge
of the Seller, threatened before or by any Governmental Authority relating to
any of such Permits or to the right or ability of the Company to maintain,
acquire or otherwise hold such Permits.
3.12 LITIGATION.
(a) There are no actions at law, suits in equity or claims
pending or, to the knowledge of the Seller, threatened against, the Company
or Seller, their respective officers, directors, partners, employees or
shareholders or their respective businesses or properties or their
respective Benefit Plans and, to the knowledge of the Seller, there is no
reasonable basis for any action, suit or claim which would reasonably be
expected to result in a material adverse change in the Financial Status of
the Company;
15.
(b) there are no governmental proceedings or investigations (in
which any subpoena, request for information or other notice, paper or
demand has been served upon the Company or the Seller or any of its
officers, directors or employees) pending against the Company or the
Seller;
(c) there is no action, suit or proceeding pending or, to the
knowledge of the Seller, threatened which questions the legality or
propriety of the transactions contemplated by the Transaction Documents;
(d) neither the Company nor the Seller is a party to or bound
by, and the properties and assets of the Company and Seller are not subject
to, any judgments, writs, decrees, injunctions or orders of any
Governmental Authority; and
(e) neither the Company nor the Seller is engaged in any present
dispute with any of its present or former officers, directors, employees,
partners, joint venturers or shareholders, as the case may be, or any
representative thereof.
3.13 TAXES. The Company and any consolidated, combined, unitary or
aggregate group for Tax purposes of which the Company is or has been a member
have timely filed all Tax Returns required to be filed by them and have paid all
Taxes shown thereon to be due. The Company has provided adequate accruals in
accordance with GAAP in its Financial Statements for any Taxes that have not
been paid, whether or not shown as being due on any Tax Returns. There is (i)
no material claim for Taxes that is a lien against the property of the Company
or is being asserted against the Company other than liens for Taxes not yet due
and payable, (ii) no audit of any Tax Return of the Company or Seller being
conducted by a Governmental Authority, (iii) no extension of the statute of
limitations on the assessment of any Taxes granted by the Company currently in
effect and (iv) no agreement, contract or arrangement to which the Company is a
party that may result in the payment of any amount that would not be deductible
by reason of Sections 280G (other than agreements or arrangements for which
shareholder approval meeting the requirements of Section 280G(b)(5)(B) will be
obtained prior to the Closing) or 404 of the Code. The Company has not been and
will not be required to include any material adjustment in Taxable income for
any Tax period (or portion thereof) pursuant to Section 481 or 263A of the Code
or any comparable provision under state or foreign Tax laws as a result of
transactions, events or accounting methods employed prior to the Closing.
Neither Seller nor the Company is a party to any Tax sharing or Tax allocation
agreement nor does the Company or Seller owe any amount under any such
agreement.
3.14 EMPLOYEE BENEFIT PLANS.
(a) Schedule 3.14 lists, with respect to the Company, and any
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trade or business (whether or not incorporated) which is treated as a
single employer with the Company (an "ERISA Affiliate") within the meaning
of Section 414(b), (c), (m) or (o) of the Code (i) all material employee
benefit plans (as defined in Section 3(3) of the Employee Retirement Income
Security Act of 1974, as amended ("ERISA"), (ii) each loan to a non-officer
employee in excess of $10,000, loans to officers and
16.
directors and any stock option, stock purchase, phantom stock, stock
appreciation right, supplemental retirement, severance, sabbatical,
medical, dental, vision care, disability, employee relocation, cafeteria
benefit (Code Section 125), dependent care (Code Section 129), life
insurance or accident insurance plans, programs or arrangements, (iii) all
bonus, pension, profit sharing, savings, deferred compensation or incentive
plans, programs or arrangements, (iv) other fringe or employee benefit
plans, programs or arrangements that apply to senior management of the
Company and that do not generally apply to all employees and (v) any
current or former employment or executive compensation or severance
agreements, written or otherwise, as to which unsatisfied obligations of
the Company of greater than $10,000 remain for the benefit of, or relating
to, any present or former employee, consultant or director of the Company
(together, the "Benefit Plans").
(b) Seller has furnished to Restoration a copy of each of the
Benefit Plans and related plan documents (including trust documents,
insurance policies or contracts, employee booklets, summary plan
descriptions and other authorizing documents, and any material employee
communications relating thereto) and has, with respect to each Benefit Plan
which is subject to ERISA reporting requirements, provided copies of the
Form 5500 reports filed for the last three plan years. Any Benefit Plan
intended to be qualified under Section 401(a) of the Code has either
obtained from the Internal Revenue Service a favorable determination letter
as to its qualified status under the Code, including all amendments to the
Code effected by the Tax Reform Act of 1986 and subsequent legislation, or
has applied to the Internal Revenue Service for such a determination letter
prior to the expiration of the requisite period under applicable Treasury
Regulations or IRS pronouncements in which to apply for such determination
letter and to make any amendments necessary to obtain a favorable
determination. Seller has also furnished Restoration with the most recent
IRS determination letter issued with respect to each such Benefit Plan, and
nothing has occurred since the issuance of each such letter which could
reasonably be expected to cause the loss of the Tax-qualified status of any
Benefit Plan subject to Code Section 401(a). Seller has also furnished
Restoration with all registration statements and prospectuses prepared in
connection with each Benefit Plan.
(c) (i) None of the Benefit Plans promises or provides retiree
medical or other retiree welfare benefits to any person; (ii) there has
been no "prohibited transaction," as such term is defined in Section 406 of
ERISA and Section 4975 of the Code, with respect to any Benefit Plan, which
could reasonably be expected to have, in the aggregate, a material adverse
effect on the Company's Financial Status; (iii) each Benefit Plan has been
administered in accordance with its terms and in compliance with the
requirements prescribed by any and all statutes, rules and regulations
(including ERISA and the Code), except as would not have, in the aggregate,
a material adverse effect on the Company's Financial Status, and the
Company or ERISA Affiliate have performed all obligations required to be
performed by them under, are not in any material respect in default under
or in violation of, and have no knowledge of any material default or
violation by any other party to, any of the Benefit Plans; (iv) neither the
Company nor any subsidiary or ERISA Affiliate is
17.
subject to any liability or penalty under Sections 4976 through 4980 of the
Code or Title I of ERISA with respect to any of the Benefit Plans; (v) all
material contributions required to be made by the Company or any subsidiary
or ERISA Affiliate to any Benefit Plan have been made on or before their
due dates and a reasonable amount has been accrued for contributions to
each Benefit Plan for the current plan years; (vi) with respect to each
Benefit Plan, no "reportable event" within the meaning of Section 4043 of
ERISA (excluding any such event for which the 30-day notice requirement has
been waived under the regulations to Section 4043 of ERISA) nor any event
described in Section 4062, 4063 or 4041 of ERISA has occurred; (vii) no
Benefit Plan is covered by, and neither the Company nor any subsidiary or
ERISA Affiliate has incurred or expects to incur any liability under Title
IV of ERISA or Section 412 of the Code; and (viii) each Benefit Plan can be
amended, terminated or otherwise discontinued after the Closing in
accordance with its terms, without liability to Restoration (other than
ordinary administrative expenses typically incurred in a termination
event). With respect to each Benefit Plan subject to ERISA as either an
employee pension plan within the meaning of Section 3(2) of ERISA or an
employee welfare benefit plan within the meaning of Section 3(1) of ERISA,
the Company has prepared in good faith and timely filed all requisite
governmental reports (which were true and correct as of the date filed) and
has properly and timely filed and distributed or posted all notices and
reports to employees required to be filed, distributed or posted with
respect to each such Benefit Plan. No suit, administrative proceeding,
action or other litigation has been brought, or to the best knowledge of
Seller is threatened, against or with respect to any such Benefit Plan,
including any audit or inquiry by the IRS or United States Department of
Labor. No payment or benefit which will or may be made by the Company to
any employee will be characterized as an "excess parachute payment" within
the meaning of Section 280G(b)(1) of the Code.
(d) With respect to each Benefit Plan, the Company has complied
with (i) the applicable health care continuation and notice provisions of
the Consolidated Omnibus Budget Reconciliation Act of 1985 ("COBRA") and
the regulations (including proposed regulations) thereunder, (ii) the
applicable requirements of the Family Medical and Leave Act of 1993 and the
regulations thereunder, except to the extent that such failure to comply
would not, in the aggregate, have a material adverse effect on the
Company's Financial Status and (iii) the applicable requirements of the
Health Insurance Portability and Accountability Act of 1996 and the
regulations (including proposed regulations) thereunder, except to the
extent that such failure to comply would not, in the aggregate, have a
material adverse effect on the Company's Financial Status.
(e) The consummation of the transactions contemplated by this
Agreement will not (i) entitle any current or former employee or other
service provider of the Company, any Subsidiary of the Company or any other
ERISA Affiliate to severance benefits or any other payment, except as
expressly provided in this Agreement, or (ii) accelerate the time of
payment or vesting, or increase the amount of compensation due any such
employee or service provider.
18.
(f) There has been no amendment to, written interpretation or
announcement (whether or not written) by the Company, any Subsidiary of the
Company or other ERISA Affiliate relating to, or change in participation or
coverage under, any Benefit Plan which would materially increase the
expense of maintaining such Benefit Plan above the level of expense
incurred with respect to that Benefit Plan for the most recent fiscal year
included in the Company's Financial Statements.
(g) Pension Plans. The Company does not currently maintain,
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sponsor, participate in or contribute to nor has it ever maintained,
established, sponsored, participated in or contributed to any pension plan
(within the meaning of Section 3(2) of ERISA) which is subject to Part 3 of
Subtitle B of Title I of ERISA, Title IV of ERISA or Section 4.12 of the
Code.
(h) Multiemployer Plans. Neither the Company nor any ERISA
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Affiliate is a party to, or has made any contribution to or otherwise
incurred any obligation under, any "multiemployer plan" as defined in
Section 3(37) of ERISA.
3.15 CONTRACTS.
(a) Except as set forth in Schedule 3.15 of the Disclosure
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Schedule, neither Seller nor the Company is a party to or bound by:
(i) any note, bond, debenture or other evidence of
indebtedness, or any contract, agreement, commitment or understanding
under which the Company or Seller has borrowed any money or issued any
note, bond, debenture or other evidence of indebtedness, or any
mortgage, pledge, security agreement, deed of trust, financing
statement or other document granting any Lien or any guaranty or
endorsement (other than endorsements for collection in the Ordinary
Course of Business) of, or other contingent obligations in respect of,
indebtedness for borrowed money or other liabilities or obligations of
others;
(ii) any contract, agreement, commitment or arrangement
relating to any joint venture, partnership or sharing of profits or
losses with any Person or permitting any Person to utilize any
technology, know-how or proprietary information of the Company;
(iii) any contract, agreement, commitment, arrangement or
understanding for the future purchase or sale by the Company of any
products, materials, equipment, services or supplies, which (w)
involves the payment or receipt by the Company of more than $25,000,
(x) continues for a period of more than six months, (y) by its terms
requires the Company to purchase or supply the entire output of a
Person or (z) provides for any exclusive relationship between the
Company and any Person;
19.
(iv) any contract, agreement, commitment, arrangement or
understanding for the sale or other disposition by the Company of any
of its assets or properties other than in the Ordinary Course of
Business, or for the merger or consolidation of the Company with any
other Person;
(v) any contract, agreement, commitment, arrangement or
understanding containing covenants purporting to limit the freedom of
the Company to compete in any line of business or in any geographic
area or to require the Company to maintain any information as
confidential; or
(vi) any contract, agreement, commitment, arrangement or
understanding not elsewhere specifically disclosed pursuant to this
Agreement involving the payment or receipt by the Company of more than
$25,000 per year or $100,000 over the term thereof.
(b) Copies of all agreements or instruments identified in
Schedule 3.15 of the Disclosure Schedule (herein collectively called
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"Contracts") have been made available to Restoration. Except as set forth
in Schedule 3.15 of the Disclosure Schedule under the title "Contract
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Defects," (i) each of such Contracts constitutes a legal, valid and binding
obligation of the Company and is in full force and effect, (ii) the Company
has fulfilled and performed in all material respects its obligations under
each of the Contracts required to be performed prior to the date hereof,
and is not in breach or default under, nor is there any basis for
termination of, any of the Contracts, (iii) no other party to any of the
Contracts has materially breached or defaulted thereunder, and no event has
occurred which, with the passage of time or the giving of notice or both,
would constitute such a default or breach by the Company and (iv) neither
Seller nor the Company is currently renegotiating any of the Contracts or
paying liquidated damages in lieu of performance thereunder.
3.16 EMPLOYEES AND AFFILIATED AGREEMENTS.
(a) Except as set forth in Schedule 3.16(a) of the Disclosure
----------------
Schedule, the Company is not a party to or bound by any (i) employee
collective bargaining agreement, employment agreement, consulting, advisory
or service agreement, deferred compensation agreement, confidentiality
agreement or covenant not to compete; (ii) contract or agreement with any
officer, director or employee (other than employment agreements disclosed
in response to clause (i)); or (iii) Benefit Plan or bonus, profit sharing,
deferred compensation, incentive, stock option or stock purchase, or paid
time off for sickness plan, program or arrangement with respect to their
employees. Except as set forth in Schedule 3.16(a) of the Disclosure
----------------
Schedule, the Company is not a party to or bound by any severance plan or
program or other severance arrangement for its employees. The consummation
of the transactions contemplated by this Agreement will not result in any
severance liability to any employee of the Company.
20.
(b) Set forth in Schedule 3.16(b) of the Disclosure Schedule are
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(i) the name of each of the officers and directors and other key employees
(i.e. those employees who earn in excess of $25,000) of the Company and
(ii) the base annual salary level as of the date hereof and projections for
the current fiscal year of other incentive compensation (including bonuses)
for each person whose name is set forth under such title in the Disclosure
Schedule. Schedule 3.16(b) of the Disclosure Schedule lists as of the date
----------------
hereof the names of all other employees of the Company, the annual rates of
compensation and the job titles for all such employees.
(c) Except as set forth in Schedule 3.16(c) of the Disclosure
----------------
Schedule, (i) neither Seller (or any Affiliate of Seller) nor the Company
has a direct or indirect interest in the business of competitors, suppliers
or customers of the Company and for which the Company will continue to make
payments or be obligated in any respect beyond the Closing, (ii) neither
Seller nor any Affiliate of Seller owns or has any interest in any assets
or properties currently used by the Company in the conduct of its business
and (iii) neither Seller nor the Company has used any corporate funds for
unlawful contributions, gifts, entertainment or other unlawful expenses
related to political activity, made any direct or indirect unlawful
payments to government officials or others from corporate funds or
established or maintained any unlawful or unrecorded funds, violated any of
the provisions of The Foreign Corrupt Practices Act of 1977, or any rules
or regulations thereunder, received any illegal discounts or rebates or
been the subject of any investigation by the Securities and Exchange
Commission or any other Governmental Authority.
(d) Except as set forth in Schedule 3.16(d) of the Disclosure
----------------
Schedule, neither Seller nor the Company has engaged in any unfair labor
practice, unlawful employment practice or unlawful discriminatory practice
in the conduct of its business. Except as set forth in Schedule 3.16(d) of
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the Disclosure Schedule, Seller and the Company have complied in all
material respects with all applicable Legal Requirements relating to
prices, wages, hours and collective bargaining and have complied in all
material respects with all applicable Legal Requirements relating to the
payment and withholding of taxes and have withheld all amounts required by
law or agreement to be withheld from the wages or salaries of employees and
are not liable for any arrears of wages or any taxes or penalties for
failure to comply with any of the foregoing. Except as set forth in
Schedule 3.16(d) of the Disclosure Schedule, the relations of the Company
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with its employees are satisfactory and the Company is not a party to or,
to the knowledge of the Seller, threatened with any dispute or controversy
with a union or with respect to unionization or collective bargaining.
Schedule 3.16(d) of the Disclosure Schedule sets forth all union organizing
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or election activities involving any nonunion employees of the Company
which are in progress or threatened as of the date hereof.
(e) Except as set forth in Schedule 3.16(e) of the Disclosure
----------------
Schedule, neither Seller nor the Company has made any agreement with or
promise to any employee, officer or consultant regarding continued
employment by the Company or Restoration after the Closing Date.
21.
3.17 PROPRIETARY RIGHTS. The Company holds all patents, patent
applications, trademarks, service marks, trade names, corporate names,
copyrights, trade secrets or other proprietary rights, if any, necessary to the
conduct of its business as now conducted. The Company has taken all action
reasonably necessary to protect its proprietary rights. Neither Seller nor the
Company has received notice of any infringement, misappropriation or conflict
from any third party with respect to such proprietary rights which are listed;
neither Seller nor the Company has infringed, misappropriated or otherwise taken
any actions which conflict with any proprietary rights of any third parties; no
claim by any third party contesting the validity of any proprietary rights
listed under such caption is currently outstanding against Seller or the
Company, or to the knowledge of the Seller, is threatened. Seller is not aware
of the infringing use of any of such trademarks, trade names or other
proprietary rights or the infringement of any of such copyrights and patents by
any other Person.
3.18 INSURANCE. The Company has with respect to its properties and
business insurance of such a nature, with such terms and in such amounts, as
would reasonably be maintained with respect to similar properties and a similar
business. Schedule 3.18 of the Disclosure Schedule identifies (indicating
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policy owners, carriers and effective dates) all policies of insurance,
including insurance providing benefits for employees, owned, held or maintained
by or for the benefit of the Company or under which any of such companies is a
named insured on the date hereof. All such policies are in full force and
effect and no notice of cancellation or termination has been received with
respect to such insurance.
3.19 REAL PROPERTY.
(a) The Company does not own any real property other than
fixtures. Seller owns that certain real property described in Schedule
--------
3.19 free and clear of any Liens, except as set forth on Schedule 3.19.
---- -------------
(b) Schedule 3.19 of the Disclosure Schedule also identifies
-------------
each lease, sublease, material easement, grant or similar instrument
(showing the annual rental, expiration date, renewal and purchase options,
if any, and the location of the real property covered by such lease or
other agreement) under which the Company has the rights to use, hold or
operate any real property owned by a third party (collectively, the "Real
Property Leases") (the property covered by the agreements described in this
Section being referred to herein as the "Leased Property").
(c) Except as disclosed in Schedule 3.19 of the Disclosure
-------------
Schedule, the Real Property Leases (i) are each in full force and effect
and are each legal, valid and binding obligations of the Company and (ii)
will continue in effect after the Closing without the consent, approval or
act of, or the making of any filing with, any other party. The Company is
not in default in any material respect nor has it received any notice of
default thereunder which has not been cured. To the knowledge of the
Seller, no other party to any such Real Property Lease is in material
default thereunder. The Company has valid (except with respect to the
interest of
22.
lessors in leasehold improvements) leasehold interests in the Leased
Property, free and clear of all Liens.
(d) There are no security deposits held by Seller or the Company
under any of the Real Property Leases and there are no arrearages in rent
or additional rent under any of such Real Property Leases.
3.20 PERSONAL PROPERTY. Schedule 3.20 of the Disclosure Schedule
-------------
contains a detailed list of all machinery, equipment, vehicles, furniture and
other personal property owned and in current use by the Company having an
original purchase price per item in excess of $5,000 and not expensed by the
Company at the time of purchase or fully depreciated before December 31, 1997.
3.21 PERSONAL PROPERTY LEASES. Schedule 3.21 of the Disclosure
-------------
Schedule identifies each lease or other agreement or right under which the
Company is lessee of, or holds or operates, any machinery, equipment, vehicle or
other tangible personal property owned by a third party and having lease or rent
payment in excess of $10,000 per year (indicating in each case the annual
rental, the expiration date thereof and the type of property covered)
(collectively, the "Personal Property Leases", and together with the Real
Property Leases, the "Leases"). Each of the Personal Property Leases is in full
force and effect and will continue in effect after the Closing without the
consent, approval or act of, or the making of any filing with, any other party.
3.22 PRODUCTION CAPACITY. The Company has sufficient capacity to
provide Restoration the volume of furniture set forth in the Supply Agreement
and the Company has no commitments or agreements which would prevent or impair
its ability to perform its obligations under the Supply Agreement.
3.23 EXECUTION, DELIVERY AND ENFORCEABILITY OF AGREEMENT. Seller has
all requisite power and authority to enter into the Transaction Documents and to
perform his obligations hereunder and thereunder. Seller has taken all actions
necessary to be taken by him to authorize the execution and delivery of the
Transaction Documents and the transactions contemplated hereby and thereby.
Each of the Transaction Documents has been executed and delivered by Seller and
constitutes the legal, valid and binding obligation of Seller, enforceable
against him in accordance with its terms.
3.24 OWNERSHIP OF STOCK. Seller owns of record and beneficially the
Shares with full right and authority to deliver such Shares hereunder, and upon
delivery of such Shares hereunder in exchange for the consideration set forth
herein, Restoration will receive good title thereto, free and clear of all Liens
and not subject to any agreements, contracts or obligations among any Persons
with respect to the voting or transfer of such Shares other than those arising
under agreements to which Restoration is a party.
3.25 DISCLOSURE. No representation or warranty of Seller contained
in any of the Transaction Documents and no statement of Seller contained in the
Disclosure Schedule or any certificate delivered in connection with the Closing
contains or will contain
23.
any untrue statement of a material fact or omits or will omit to state a
material fact necessary to make the statements made herein or therein, with
respect to the respective subject matters of such representations, warranties or
statements, in light of the circumstances under which they were made, not
misleading.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF
RESTORATION
Restoration hereby represents and warrants to the Seller as follows:
4.01 CORPORATE ORGANIZATION. Restoration is a corporation duly
organized, validly existing and in good standing under the laws of the state of
its incorporation, and is duly qualified or licensed to do business as a foreign
corporation in good standing in every jurisdiction in which its ownership of
property or the conduct of its business requires such qualification or
licensing, except where the failure to be so qualified or licensed would not
have a material adverse effect on the Financial Status of Restoration, or on its
ability to execute and deliver this Agreement and to consummate the transactions
contemplated hereby.
4.02 AUTHORIZATION. Restoration has all requisite power and
authority (corporate and other) to enter into this Agreement and to perform its
obligations under this Agreement. Restoration has taken all corporate action
required to be taken by law and its Articles of Incorporation and Bylaws to
authorize and approve the execution and delivery of this Agreement, the
performance of its obligations hereunder and the consummation of the
transactions contemplated hereby. This Agreement has been duly executed and
delivered by Restoration, and is the valid and binding obligation of
Restoration, enforceable against it in accordance with its terms.
4.03 NO VIOLATION. The execution and delivery of this Agreement and
the consummation of the transactions contemplated hereby by Restoration will not
(a) violate any provision of Restoration's Articles of Incorporation or Bylaws,
(b) violate, or constitute a default under, or permit the termination or
acceleration of the maturity of, any indebtedness for borrowed money of
Restoration, (c) violate, or constitute a default under, or permit the
termination of, any material agreement, understanding or instrument to which
Restoration is a party or by which it or its properties is bound, (d) result in
the creation of any Lien upon any of the assets or properties of Restoration or
(e) violate any Legal Requirements to which Restoration is subject.
4.04 CONSENTS AND APPROVALS. Except for possible filings under the
HSR Act, no consent, approval, license or authorization of, notice to, or
declaration, filing or registration with, any third party or Governmental
Authority is required to be made or obtained by Restoration in connection with
the execution, delivery and performance of this Agreement by Restoration or the
consummation by it of the transactions contemplated hereby.
24.
ARTICLE V
CONDITIONS TO OBLIGATIONS OF RESTORATION
TO CONSUMMATE THE TRANSACTIONS CONTEMPLATED HEREBY
The obligations of Restoration to consummate the purchase of the
Shares under this Agreement shall, unless waived in writing by Restoration, be
subject to the satisfaction on or before the Closing Date of each of the
following conditions, and the Seller shall use his Best Efforts to cause each
such condition to be so satisfied:
5.01 REPRESENTATIONS AND WARRANTIES TRUE. Each of the
representations and warranties of the Seller contained herein shall be true and
correct in all respects as of the date made and at and as of the Closing Date as
though such representations and warranties were made at and as of the Closing
Date.
5.02 PERFORMANCE. The Seller shall have performed and complied in
all respects with each of the covenants, agreements and obligations required by
this Agreement to be performed or complied with by him on or prior to the
Closing Date.
5.03 AUTHORIZATION. All actions necessary to authorize the
execution, delivery and performance of this Agreement and the consummation of
the transactions contemplated by this Agreement shall have been duly and validly
taken; and the Seller shall have full power and right to transfer the Shares all
in accordance with the terms and conditions set forth in this Agreement.
5.04 NO CHANGE IN BUSINESS. Between the Balance Sheet Date and the
Closing Date, there shall have been (a) no material adverse change in the
Financial Status of the Company; and (b) no lawsuits, claims or proceedings
filed against or affecting the Company or the Seller which may result in a
material adverse change in the Financial Status of the Company.
5.05 OPINION OF COUNSEL FOR THE SELLER. Restoration shall have
received from ▇▇▇▇▇▇▇▇, ▇▇▇▇▇ & ▇▇▇▇▇▇▇▇▇ LLP, as Seller's counsel for the
transaction, an opinion, dated the Closing Date, in form and substance
reasonably satisfactory to Restoration and its counsel, to the effect set forth
in Exhibit B hereto.
---------
5.06 NO RESTRAINT OR LITIGATION. No order, decree or ruling of any
Governmental Authority shall have been entered, and no action, suit or
proceeding before any Governmental Authority shall have been instituted (or
threatened if Restoration reasonably believes that such threat will result in
institution of an action, suit or proceeding) by any Governmental Authority, to
restrain, prohibit, challenge or invalidate any of the transactions contemplated
by this Agreement or the right of the Company to carry out its business after
the Closing Date.
25.
5.07 NECESSARY GOVERNMENTAL APPROVALS. The waiting periods under the
HSR Act shall have expired or been terminated, and the parties shall have
received all approvals and actions from Governmental Authorities necessary to
consummate the transactions contemplated hereby which are either required to be
obtained prior to the Closing by applicable law or regulation or are specified
to be obtained in the Disclosure Schedule.
5.08 NECESSARY CONSENTS. The parties shall have received all
necessary consents, in substantially the form attached hereto as Exhibit C or
---------
otherwise as reasonably satisfactory to Restoration, to the transactions
contemplated hereby by all third parties to the Leases and other Contracts.
5.09 LIENS. Restoration shall have received reports, satisfactory to
Restoration, from the Secretary of State of California and the Secretary of
State of any other jurisdiction in which any assets of the Company are located,
indicating that there are no Liens of record as of a date no more than five days
before the Closing Date with respect to any asset of the Company, other than
Permitted Liens, and liens relating to a $998,000 loan to Seller by the SBA,
liens relating to Hardwoods Inc. and liens relating to Sanwa Bank, California.
Restoration shall have received UCC Termination Statements from any secured
creditors releasing all Liens other than Permitted Liens and those approved and
accepted in writing by Restoration on the assets and properties at the Closing.
5.10 OTHER DOCUMENTS. This Agreement, the Lease Agreement, the
Supply Agreement, the Employment Agreement and all other instruments and
documents required to be executed and delivered hereunder to Restoration by the
Seller on or prior to the Closing Date shall have been executed and delivered by
Seller.
5.11 REPAYMENT OF AFFILIATE INDEBTEDNESS AND TERMINATION OF AFFILIATE
AGREEMENTS. All indebtedness due to the Company from Seller, any Affiliate of
Seller or the Company and all related parties shall be paid to the Company as of
Closing, including the shareholder note payable described in Section 2.03(a).
5.12 KEY MAN INSURANCE POLICY. The Company shall have obtained key
man insurance on the life of Seller in the amount of $1 million, with proceeds
payable to Restoration, or Seller shall have assigned to Restoration the Allied
Group Insurance policy number IN 023453 and Aetna Life Insurance Company policy
number R2 G35-198 until such time as the Company shall have obtained such key
man insurance policy.
5.13 OTHER CLOSING DATE DELIVERIES. In addition to the other
deliveries referenced in this Article V, on the Closing Date, the Seller shall
deliver to Restoration:
(a) Stock Certificates. Stock certificates representing in the
------------------
aggregate all (100%) of the outstanding shares of capital stock of the
Company, together with duly executed and witnessed stock powers (in blank)
attached thereto;
26.
(b) Certificates. Such certificates of the Seller to evidence
------------
compliance with the conditions specified in Sections 5.01, 5.02, 5.03, 5.04
and 5.11;
(c) Resignations. Resignations of the Board of Directors and
------------
Officers of the Company, effective as of the Closing; and
(d) Books. The books, records, customer lists, files, reports,
-----
surveys, studies, projections, budgets and strategic plans of the Company.
5.14 TRANSFER OF LOANS. Seller and Sanwa Bank California shall have
executed and delivered assignments transferring the Sanwa Bank California
consumer loan for the Hummer vehicle from the Company to Seller.
5.15 TITLE INSURANCE AND NONDISTURBANCE AGREEMENT. At the Closing,
Restoration shall have received preliminary title reports relating to the real
property to be leased by Restoration in connection with this Agreement, which
reports shall set forth as the only exceptions to Seller's ownership thereof a
Deed of Trust in favor of Sanwa Bank of California and a Deed of Trust in favor
of ▇▇▇▇▇▇ ▇. ▇▇▇▇▇. Sanwa Bank of California and ▇▇▇▇▇▇ ▇. ▇▇▇▇▇ shall have
provided Restoration NonDisturbance Agreements in form reasonably satisfactory
to Restoration with respect to Restoration's lease of such real property.
5.16 SANWA BANK DOCUMENTS. Sanwa Bank of California shall have
provided to Restoration a written release of the Company's guaranty on Seller's
personal loans, a written release of three pieces of the Company's equipment
currently being used as collateral for Seller's personal loans, and an executed
consent letter relating to the transactions contemplated hereby.
5.17 PROCEEDINGS, INSTRUMENTS, ETC. All proceedings and actions
taken on or prior to the Closing Date in connection with the transactions
contemplated by this Agreement and all instruments incident thereto shall be in
form and substance reasonably satisfactory to Restoration and its counsel
(provided that such documents shall not expand the representations, warranties
or obligations of the Seller hereunder), and Restoration and its counsel shall
have received copies of all documents that Restoration and its counsel may
reasonably request in connection with such proceedings, actions and
transactions.
ARTICLE VI
CONDITIONS TO OBLIGATIONS OF THE SELLER
TO CONSUMMATE THE TRANSACTIONS CONTEMPLATED HEREBY
The obligations of the Seller to consummate the sale of the Shares
under this Agreement shall, unless waived in writing by the Seller, be subject
to the satisfaction on or before the Closing Date of each of the following
conditions, and Restoration shall use its Best Efforts to cause each such
condition to be so satisfied:
27.
6.01 REPRESENTATIONS AND WARRANTIES TRUE. The representations and
warranties of Restoration contained herein shall be true and correct in all
respects as of the date made and at and as of the Closing Date as though such
representations and warranties were made at and as of the Closing Date.
6.02 PERFORMANCE. Restoration shall have performed and complied in
all respects with all covenants, agreements and obligations required by this
Agreement to be performed or complied with by it on or prior to the Closing
Date.
6.03 AUTHORIZATION. All actions necessary to authorize the
execution, delivery and performance of this Agreement by Restoration and the
consummation of the transactions contemplated by this Agreement by Restoration
shall have been duly and validly taken.
6.04 NECESSARY GOVERNMENTAL APPROVALS. The waiting periods under the
HSR Act shall have expired or been terminated, and the parties shall have
received all approvals of Governmental Authorities and actions necessary to
consummate the transactions contemplated hereby which are either required to be
obtained prior to the Closing by applicable law or regulation or are specified
to be obtained in the Disclosure Schedule.
6.05 CERTIFICATES. Restoration shall have delivered to the Seller a
certificate to evidence compliance with the conditions set forth in Sections
6.01, 6.02 and 6.03 hereof.
6.06 PROCEEDINGS, INSTRUMENTS, ETC. All proceedings and actions
taken on or prior to the Closing Date in connection with the transactions
contemplated by this Agreement and all instruments incident thereto shall be in
form and substance reasonably satisfactory to the Seller and his counsel
(provided that such documents shall not expand the representations, warranties
or obligations of Restoration hereunder), and the Seller and his counsel shall
have received copies of all documents that the Seller and his counsel may
reasonably request in connection with such proceedings, actions and
transactions.
ARTICLE VII
COVENANTS REGARDING EMPLOYEES AND COVENANT NOT TO INTERFERE,
COMPETE OR SOLICIT BUSINESS.
7.01 COVENANT REGARDING EMPLOYEES. Seller hereby agrees that
commencing on the date hereof and continuing for a period of five years from the
Closing Date, he shall not induce or encourage, directly or indirectly, any
current employee or consultant of the Company to decline an employment or
consulting arrangement with Restoration or the Company, and Seller hereby agrees
that for a period of five years from the Closing Date, he shall not induce or
encourage, directly or indirectly, any current employee or consultant if such
Person is hired by Restoration or the Company, to leave Restoration's or the
Company's employ, whether to accept a position with him or an entity related to
him or otherwise.
28.
7.02 COVENANT NOT TO COMPETE. In furtherance of the sale of the
Shares to Restoration and more effectively to protect the business and good will
of the Company, upon the consummation of the transactions contemplated hereby,
the Seller agrees that, for a period commencing on the Closing Date and ending
on the later of (i) the fifth annual anniversary of the Closing Date or (ii) two
years after the exercise of the rights by Seller or Restoration referred to in
Section 2.06(d) hereof, Seller and his Affiliates will not: (i) directly or
indirectly (whether as an employer, employee, partner, stockholder, director,
representative or otherwise) anywhere within the United States, Canada or Mexico
(it being understood and agreed by the parties hereto that the prohibited
activities are not limited to any particular region within such area because
such activities may be engaged in effectively in competition with the Company
from any location therein) organize, invest in, sponsor or promote, participate
or become interested, affiliated or connected with or provide management,
employment or consulting services to any Person which is engaging or intending
to engage in activities of the type conducted by the Company or Restoration.
7.03 EQUITABLE RELIEF. Without limiting the right of Restoration to
pursue all other legal and equitable rights available to it for violation of
this Article VI by the Seller, it is agreed that other remedies cannot fully
compensate Restoration for such a violation and that Restoration shall be
entitled to injunctive relief to prevent the violation or the continuing
violation thereof. It is the intent and understanding of each party hereto that
if, in any action before any Governmental Authority legally empowered to enforce
this Article VI, any term, restriction, covenant or promise in this Article VI
is found to be unreasonable and for that reason unenforceable, then such term,
restriction, covenant or promise shall be deemed modified to the extent
necessary to make it enforceable by such court or agency.
ARTICLE VIII
INDEMNIFICATION
8.01 INDEMNIFICATION BY THE SELLER. The Seller hereby agrees to
indemnify and hold harmless Restoration and the Company and their respective
Affiliates, agents, officers, employees, successors and assigns from and against
any and all liabilities, obligations, losses, costs, damages or diminution of
value ("Loss") and reasonable attorneys' and accountants' fees and expenses,
court costs and all other reasonable out-of-pocket expenses ("Expense") incurred
by any of Restoration or the Company or their respective Affiliates, agents,
officers, employees, successors and assigns in connection with or arising from
or attributable to (i) any breach by Seller of any of his representations,
warranties, covenants or agreements contained in this Agreement, the Lease
Agreement or in any agreement or instrument contemplated hereby or thereby; (ii)
any failure of the Seller to perform any of his obligations in this Agreement,
the Lease Agreement or in any agreement or instrument contemplated hereby or
thereby; (iii) any Taxes for any period prior to the Closing or arising as a
result of the closing of the transactions contemplated hereby; (iv) those
matters set forth in Schedules 3.06 and 3.08 of the Disclosure Schedule; and (v)
the operations of the business of the Company or the ownership, use or operation
of the assets of
29.
the Company prior to the Closing Date, whether invoiced or not invoiced,
liquidated or unliquidated, known or unknown.
8.02 NOTICE OF CLAIMS. If an indemnified person believes that it has
suffered or incurred any Loss or Expense pursuant to Sections 8.01 hereof, it
shall so notify the indemnifying person promptly in writing (i) describing such
Loss or Expense, (ii) the amount thereof, if known, (iii) any complaints,
subpoenas or other documents served against the indemnified person in connection
with such Loss or Expense and (iv) the method of computation of such Loss or
Expense. Promptly after receipt by an indemnified party of notice of the
commencement of any action by any third party, such indemnified party shall, if
a claim in respect thereof is to be made against the indemnifying party under
Section 8.01, notify each party against whom indemnification is to be sought in
writing of the commencement thereof (but the failure so to notify an
indemnifying party shall not relieve it from any liability which it may have
under this Article VIII).
8.03 THIRD PARTY CLAIMS. The persons indemnified under this Article
VIII shall have the right, at the expense of the indemnifying party, to conduct
and control, through counsel of their choosing, any third party claim, action or
suit, and the persons indemnified may compromise or settle the same, provided
that any of the indemnified persons shall give the indemnifying party advance
notice of any proposed compromise or settlement. The indemnifying party shall
promptly pay to such indemnified persons the amount of any Loss resulting from
its liability to the third party claimant and all related Expense. The
indemnified persons shall permit the indemnifying party to participate in the
defense of any such action or suit through counsel chosen by it, provided that
the fees and expenses of such counsel shall also be borne by the indemnifying
party.
ARTICLE IX
MISCELLANEOUS PROVISIONS
9.01 BROKERS.
(a) Each party represents and warrants to the other that it has
dealt with no brokers with respect to the transactions contemplated hereby.
No party has done any acts, had any negotiations or conversations, or made
any agreements or promises which will in any way create or give rise to any
obligation or liability for the payment of any fee, charge, commission or
other compensation to any party with respect to the transactions
contemplated hereby other than as provided above.
(b) The Sellers and Restoration agree to forever indemnify,
defend and save harmless each other of, from and against any and all claims
or suits for compensation, commission or otherwise which may be asserted or
made by any broker, person or entity as a result of any dealing by the
indemnifying party or its representatives with such other broker, person or
entity, including, without limitation, all costs, losses, liabilities,
damages and expenses (including, without limitation,
30.
attorneys' fees and disbursements) related thereto. This Section 9.01
shall survive the Closing or any sooner expiration or termination of this
Agreement.
9.02 CONFIDENTIALITY.
(a) Subject to the provisions contained in this Section 9.02,
all information furnished as confidential to a party by any other party
hereunder shall be treated confidentially. Each of the parties hereby
agrees for the benefit of each other that, except as required by law, they
will not release, cause or permit to be released any press notices,
publicity (oral or written) or advertising promotion or otherwise announce,
disclose or cause or permit to be announced or disclosed, in any manner
whatsoever, the fact that negotiations have taken place, or the terms and
conditions or substance of the transactions contemplated herein, without
first obtaining the express written consent of the other party.
Notwithstanding anything to the contrary set forth in this Section 9.02, a
party shall be permitted to provide confidentially all materials and
information furnished by another party to its attorneys, legal counsel and
professional advisers.
(b) Each party shall (i) use Best Efforts to keep confidential
all such information furnished to it hereunder and (ii) return to the
disclosing party, or at the option of the disclosing party, destroy, all
documents and other written materials furnished by the disclosing party
containing such information. The obligation to keep such information
confidential shall survive the termination of this Agreement for three
years.
(c) The confidentiality agreement in this Section 9.02 shall not
preclude the Seller or Restoration from discussing the substance of the
transaction with their attorneys, accountants, professional consultants,
counsel and other representatives. Further, the confidentiality agreement
in this Section 9.02 shall not apply to any information which (w) a party
can demonstrate was already in its possession prior to the disclosure
thereof by another party; (x) is known to the public; (y) becomes known to
the public through no fault of the other party; or (z) is disclosed to the
other party by a third party without any duty or obligation of
confidentiality.
9.03 PAYMENT OF EXPENSES. Each of the parties hereto will pay its
own expenses, including without limitation legal, finders, brokerage, investment
banking and accounting fees.
9.04 WAIVER OF COMPLIANCE. Any failure of Seller, on the one hand,
or Restoration, on the other, to comply with any obligation, covenant, agreement
or condition contained herein may be expressly waived in writing by Restoration
on the one hand or Seller on the other, but such waiver or failure to insist
upon strict compliance shall not operate as a waiver of, or estoppel with
respect to, any subsequent or other failure.
31.
9.05 NOTICES. All notices, requests, demands and other
communications required or permitted hereunder shall be in writing and shall be
deemed to have been duly given if delivered by hand or express mail delivery:
(a) If to Seller to:
▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇
The Michaels Concepts in ▇▇▇▇▇, Inc.
▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
And a copy to:
▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇
▇▇▇▇▇▇▇▇, ▇▇▇▇▇ & ▇▇▇▇▇▇▇▇▇ LLP
▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
(b) If to Restoration to:
▇▇ ▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇ ▇
▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Attn: ▇▇▇ Low
And a copy to:
▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇, Phleger & ▇▇▇▇▇▇▇▇ LLP
Two Embarcadero Place
▇▇▇▇ ▇▇▇▇ ▇▇▇▇
▇▇▇▇ ▇▇▇▇, ▇▇ ▇▇▇▇▇-▇▇▇▇
or, in each case, to such other Person or address as may be specified in writing
in accordance with this Section 9.05 to the other parties.
9.06 CERTAIN LIMITATIONS. All representations and warranties
contained herein respecting the enforceability of any agreement shall be deemed
to be made subject to any applicable bankruptcy, insolvency, reorganization or
other laws relating to or affecting creditors' rights generally and to general
principles of equity.
9.07 SURVIVAL OF REPRESENTATIONS, WARRANTIES, INDEMNITIES AND OTHER
AGREEMENTS. All representations and warranties, indemnities and other
agreements made by each party in this Agreement, in any Schedule hereto or in
any list, certificate, document or written statement furnished or delivered by
any such party pursuant hereto shall expire on the third anniversary of the
Closing Date and all liabilities of the parties hereto with respect to such
representations, warranties, indemnities and other agreements (except as with
respect to
32.
the agreements set forth in Article VII hereof and except as expressly otherwise
provided) shall thereupon be extinguished, except for any claim or action
against any party relating thereto brought prior to the expiration of such
three-year period or in the event of the fraud, intentional misrepresentation or
active concealment of such party and except that the representations and
indemnities set forth in Sections 3.08, 3.13 and 3.14 shall terminate upon
termination of the applicable statute of limitations under the applicable Legal
Requirements.
9.08 BINDING NATURE; ASSIGNMENT. This Agreement and all of the
provisions hereof shall be binding upon and inure to the benefit of the parties
hereto and their respective successors and assigns. Nothing contained herein,
express or implied, is intended to confer on any Person other than the parties
hereto or their respective successors and assigns any rights, remedies,
obligations or liabilities.
9.09 GOVERNING LAW; CONSTRUCTION. This Agreement, and the legal
relations among the parties hereto arising from this Agreement, shall be
governed by and construed in accordance with the laws of the State of
California. The fact that one representation and warranty in this Agreement or
the Disclosure Schedule may be duplicative of or may overlap, in whole or in
part, or may be more general or specific than another representation and
warranty in this Agreement or the Disclosure Schedule shall not negate, diminish
or modify either representation and warranty, as each shall be construed and
interpreted independently.
9.10 COUNTERPARTS. This Agreement may be executed simultaneously in
two or more counterparts, each of which shall be deemed an original but all of
which together shall constitute one and the same instrument.
9.11 ENTIRE AGREEMENT; AMENDMENTS AND WAIVERS. This Agreement and
the other Transaction Documents (including the Exhibits and Schedules hereto,
the Disclosure Schedule and the other instruments referred to herein) embody the
entire agreement and understanding of the parties hereto in respect of the
subject matter contained herein. This Agreement supersedes all prior agreements
and understandings among the parties with respect to such subject matter,
including any term sheets prepared in anticipation of this Agreement. No
amendment, modification or waiver of this Agreement shall be binding unless
executed in writing by the party or parties to be bound thereby.
9.12 SEVERABILITY. If any terms or provisions of this Agreement or
any application thereof shall be invalid or unenforceable, the remainder of this
Agreement and any other application thereof shall not be affected thereby.
9.13 HEADINGS. The headings contained in this Agreement are inserted
for convenience only and shall not affect in any way the meaning or
interpretation of this Agreement.
9.14 REMEDIES. A party hereto may pursue any right or remedy
available to it at law or in equity for any claim relating to the transactions
contemplated hereunder, and the use of any one right or other remedy by any
party hereto shall not preclude or constitute
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a waiver of its rights to use any or all other remedies. In any proceeding by
the Company or Restoration to assert or prosecute any claim under, or to
otherwise enforce, this Agreement, the Seller agrees that he shall not assert as
a defense or bar to recovery by the Company or Restoration, and hereby waives
any right to so assert such defense or bar such recovery, that: (a) prior to
the Closing, the Company shall have had knowledge of the circumstances giving
rise to the claim being pursued by it or Restoration; (b) prior to the Closing,
the Company engaged in conduct or took action that caused or brought about the
circumstances giving rise to such claim, or otherwise contributed thereto; (c)
the Company or Restoration is estopped from asserting or recovering upon such
claim by reason of the Company having joined in any of the representations,
warranties and covenants made by the Seller in this Agreement; or (d) the Seller
has a right of contribution from the Company to the extent that there is any
recovery against them.
9.15 ARBITRATION. BY EXECUTING THIS AGREEMENT, THE PARTIES ARE
AGREEING TO HAVE ANY MATTER THAT IS THE SUBJECT OF ARBITRATION PURSUANT TO THIS
SECTION 9.15 DECIDED BY NEUTRAL ARBITRATION AS PROVIDED BY CALIFORNIA LAW AND
ARE GIVING UP ANY RIGHTS THEY MIGHT POSSESS TO HAVE THE DISPUTE LITIGATED IN A
COURT OR JURY TRIAL. BY EXECUTING THIS AGREEMENT, THE PARTIES ARE GIVING UP
JUDICIAL RIGHTS TO DISCOVERY AND APPEAL, UNLESS SUCH RIGHTS ARE SPECIFICALLY
INCLUDED IN THE ARBITRATION PROVISION OR ARE OTHERWISE PROVIDED BY CODE OF CIVIL
PROCEDURE SECTION 1280 ET SEQ; IF ANY OF THE PARTIES REFUSES TO SUBMIT TO
ARBITRATION IT MAY BE COMPELLED TO ARBITRATE UNDER THE CALIFORNIA CODE OF CIVIL
PROCEDURE. A PARTY'S AGREEMENT TO THIS ARBITRATION PROVISION IS VOLUNTARY. BY
EXECUTING THIS AGREEMENT, EACH OF THE PARTIES ACKNOWLEDGES THAT IT HAS READ AND
UNDERSTOOD THE FOREGOING AND HAS AGREED TO SUBMIT DISPUTES ARISING OUT OF
MATTERS INCLUDED IN THIS SECTION 9.15 TO NEUTRAL ARBITRATION. Any controversy
or claim arising out of or relating to this Agreement or the breach hereof shall
be settled by binding arbitration, before a retired judge affiliated with
JAMS/Endispute. The place of arbitration shall be the offices of JAMS/Endispute
in San Francisco, California. A party seeking arbitration shall promptly send
its Demand for Arbitration, including a general description of the nature of the
claim and the nature and amount of damages and/or other relief sought, to the
other party and to JAMS/Endispute. The parties shall cooperate in seeking to
agree on the arbitrator; if they are unable to agree within 10 days of notice of
arbitration, JAMS/Endispute shall promptly select an arbitrator.
Within 10 days after the appointment of the arbitrator, any party may
serve demands for documents on another party to the extent permitted by
California Code of Civil Procedure ("CCP") Section 2031, and the other party
shall respond as provided in Section 2031. Within 20 days of the production of
documents, the parties shall exchange a list of: (i) any fact witnesses they
intend to call at the arbitration hearing and (ii) any other persons who may
have material information about the dispute. The witness list also shall
include a brief description of each identified person's knowledge. Within 80
days after the appointment of the arbitrator, any party may notice depositions,
however the total time for
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all of each party's depositions of fact witnesses shall not exceed 15 eight-hour
days, including breaks, and said depositions shall be completed within 90 days
of the notice of deposition. Any other depositions or discovery shall be as
provided by CCP Title 9 Chapter 3.
The parties shall each exchange lists of up to 3 expert witnesses,
along with a statement of the witnesses' backgrounds and opinions, 45 days prior
to the commencement of the arbitration hearing. Between the 30th and 15th day
preceding the arbitration hearing, each party shall have the right to depose the
other party's experts, however, the total time for all of each party's
depositions of expert witnesses shall not exceed 2 eight-hour days, including
breaks. At least 5 business days prior to any expert's scheduled deposition,
the party designating the expert shall provide the other party with copies of
any reports or other documents the expert intends to offer at the arbitration
hearing and all documents on which the expert has relied in forming his or her
opinions.
The arbitration hearing shall be commenced within 240 days of the
notice of arbitration and conducted as expeditiously as possible in the manner
provided by CCP Title 9 Chapter 3. Parties may submit a post-hearing brief to
the arbitrator within 15 days after the conclusion of the arbitration hearing;
replies may be submitted within 10 days thereafter. Within 45 days after the
conclusion of the arbitration hearing, the arbitrator shall render an award and
issue a written statement of reasons for the award. The arbitration award shall
dispose of all of the issues that are the subject of the arbitration. Except as
otherwise limited by the Agreement, the arbitrator shall be empowered to award
compensatory or actual damages or enter an equitable award or remedy as
established by the preponderance of the evidence, but shall NOT have the
authority (i) to award punitive damages, or (ii) to reform, modify or materially
change this Agreement. Judgment upon the award may be entered in any court of
competent jurisdiction.
Costs of the arbitration initially shall be borne one-half each by
Seller and Restoration. However, in the discretion of the arbitrator, the
prevailing party(ies) in the arbitration may be entitled to recover costs and
reasonable attorneys' fees. The arbitrator's award shall determine the
prevailing party(ies), if any, in accordance with CCP Section 1032. Within 15
days after receipt of the award, the prevailing party(ies) shall submit to the
arbitrator a ▇▇▇▇ of costs and itemization of claimed attorneys' fees. Opposing
parties shall have 15 days to respond. Costs and attorneys' fees shall be
determined as provided by CCP Section 1033.5. Within 45 days after the award,
the arbitrator shall complete the award by adding costs and attorneys' fees as
appropriate. For purposes of petitions to confirm, correct or vacate the award
pursuant to CCP Title 9 Chapter 4, the time of service of any award to which
costs or attorneys' fees have been added as provided above shall be deemed to be
the date of service of a signed copy of the award, including costs and/or
attorneys' fees, on the petitioner. The following periods set forth in the CCP
shall be shortened as follows: Section 1288 -- from four years to 180 days to
file and serve a petition to confirm an award; and from 100 days to 30 days to
file and serve a petition to vacate or correct an award; Section 1288.2 -- from
100 days to 30 days to file and serve a response to a petition to vacate or
correct an award. The provisions of CCP Section 998 (relating to offers of
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compromise) and of Civil Code Section 3287 (relating to prejudgment interest)
shall be applicable to any arbitration proceeding commenced hereunder.
9.16 FURTHER DOCUMENTS AND ASSURANCES.
(a) The Seller agrees to execute, acknowledge and deliver or
cause to be delivered, both before and after the Closing, such other deeds,
documents, affidavits and certificates as may be reasonably necessary and
required from time to time to confirm this Agreement and the performance of the
obligations of such Persons under the terms hereof, in such form and substance
as shall be reasonably satisfactory to Restoration.
(b) Restoration agrees to execute, acknowledge and deliver or
cause to be delivered, both before and after the Closing, such other deeds,
documents, affidavits and certificates as may be reasonably necessary and
required from time to time to confirm this Agreement and the performance of the
obligations of Restoration under the terms hereof, in such form and substance as
shall be reasonably satisfactory to the Seller.
(c) Restoration and Seller shall use best efforts to release
Seller as guarantor under those certain loans to Sanwa Bank California set forth
in Schedule 3.15 of the Disclosure Schedule assumed by Restoration in connection
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with this Agreement and shall hold Seller harmless for liabilities relating to
such assumed loans and Seller's guarantee thereof.
(d) The Company and Seller shall use their respective best
efforts to obtain the key man life insurance referred to in Section 5.12.
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36.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed and made and entered into as of the date first set forth above.
RESTORATION HARDWARE, INC.
By /s/ ▇▇▇▇▇▇ ▇. Low
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Name: ▇▇▇▇▇▇ ▇. Low
Title: SVP CFO
SELLER
/s/ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇
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