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Asset Purchase Agreement |
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2001 |
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ASSET PURCHASE AGREEMENT
THIS ASSET PURCHASE AGREEMENT, dated as of August 9, 2001 ("Agreement"), is
by and among Harry's Farmers Market, Inc., a Georgia corporation ("Parent"),
Karalea, Inc., a Georgia corporation ("Karalea"), Marthasville Trading Company,
a Georgia corporation ("Marthasville, and together with Parent and Karalea, the
"Seller"), and Whole Foods Market Group, Inc., a Delaware corporation
("Purchaser").
WHEREAS, Seller is engaged in the ownership and operation of three mega-
format "Harry's Farmers Market" supermarkets and related real estate assets
(including certain real estate operated as a shopping center and leased by
Seller to third parties), a distribution center, a commissary and other support
facilities (collectively the "Stores") and six small format "Harry's In A Hurry"
food stores (the "Excluded Stores"); and
WHEREAS, Purchaser desires to purchase certain assets and assume certain
liabilities of Seller, and Seller desires that Purchaser engage in such
transactions; and
WHEREAS, concurrently with the execution and delivery of this Agreement,
the majority stockholder of Seller has entered into a Voting Agreement,
substantially in the form of Exhibit A hereto, indicating the intent of such
person to support the transactions contemplated hereby;
In consideration of the mutual covenants and agreements herein contained,
the parties hereto agree as follows:
1. PURCHASE AND SALE OF ASSETS.
---------------------------
1.1. Purchase and Sale. At the Closing (as hereinafter defined) and
-----------------
subject to the terms and conditions of this Agreement, Purchaser shall purchase
from Seller, and Seller shall sell to Purchaser, all of Seller's right, title
and interest in and to the following assets (the "Purchased Assets"):
(a) Seller's fee interest in the real property identified on
Schedule 1.1(a) as "Owned Real Estate," together with all buildings and
improvements located thereon (the "Owned Improvements") and together with
all fixtures, plants, vehicles, equipment, machinery, spare parts, tools,
instruments, furniture and other items of personal property owned by
Seller, used in the operation of Seller's business and located thereon or
attached thereto (collectively, the "Personal Property - Owned Real
Estate"), and, to the extent assignable, Seller's leasehold interests in
the real property identified on Schedule 1.1(a) as "Leased Real Estate,"
together with all vehicles, equipment, computer hardware and software,
machinery, spare parts, tools, instruments, furniture, fixtures and other
tangible personal property owned by Seller, used in the operation of
Seller's business and located thereon or attached thereto (collectively,
the "Personal Property -Leased Real Estate"; the Personal Property - Owned
Real Estate and the Personal Property -
<PAGE>
Leased Real Estate shall be collectively referred to herein as the
"Personal Property") (the Owned Real Estate, Owned Improvements and Leased
Real Estate shall be collectively referred to herein as the "Real Estate");
(b) All of Seller's right, title and interest as lessor in all leases
covering the Owned Real Estate (said leases, together with any and all
amendments, modifications or supplements thereto, are hereinafter referred
to collectively as the "Cobb Leases" and are identified on Schedule 1.1(b)
hereto), as the same may be further amended, modified, supplemented or
terminated through the Closing Date with the mutual consent of Seller and
Purchaser, which consent may not be unreasonably withheld, conditioned or
delayed by Purchaser;
(c) All of Seller's right, title and interest in and to the
management contracts, service contracts and agreements affecting the Owned
Real Estate and Leased Real Estate (said contracts and agreements, together
with any and all amendments, modifications or supplements thereto, are
hereinafter referred to collectively as the "Assumed Contracts" and are
identified on Schedule 1.1(c) attached hereto), as the same may be amended,
modified, supplemented or terminated through the Closing Date with the
mutual consent of Seller and Purchaser, which consent may not be
unreasonably withheld, conditioned or delayed by Purchaser;
(d) All of Seller's rights, privileges, easements and appurtenances,
if any, to the Real Estate and to the improvements located thereon, if any,
including, without limitation, all of Seller's right, title and interest,
if any, in and to all mineral and water rights and all easements, rights-
of-way and other appurtenances used or connected with the beneficial use or
enjoyment of the Real Estate;
(e) To the extent assignable, all right, title and interest of Seller
(if any) in and to all site plans, surveys, soil and substratus studies,
architectural drawings, plans and specifications, engineering, electrical
and mechanical plans and studies, floor plans, landscape plans, and other
plans and studies of any kind if existing and in Seller's possession or
control that relate to the Real Estate or the Personal Property; provided,
however, that the following items (herein collectively, the "Excluded
Materials") shall be specifically excluded: (i) such items in Seller's
off-site facilities that are duplicates of such items available at the Real
Estate; (ii) such items to the extent pertaining to Seller's organization,
entity record books, financial statements and tax returns; and (iii) such
items to the extent related to any property, agreements, assets or
liabilities relating to properties, interests or other pursuits other than
the Purchased Assets (collectively, but specifically excluding the Excluded
Materials, the "Property Documents");
2
<PAGE>
(f) All of Seller's right, title and interest, to the extent
assignable, in and to any guarantees, licenses, approvals, certificates,
permits, and machinery and equipment warranties relating to the Real Estate
or necessary to the operation of the Stores;
(g) All inventory of the Stores, whether on location or in transit as
of the Closing Date, to the extent Purchaser may legally purchase such
inventory;
(h) All cash on hand at the Stores and accounts receivable related to
the Stores to the extent not collected by Seller prior to the Closing Date;
(i) As set forth on Schedule 1.1(i), all (i) proprietary information,
trade secrets and confidential information, technical information and data,
trademarks, trade names, internet domain names and service marks relating
to the operation of the Stores; (ii) all causes of action not pending as of
the Closing Date related to or in connection with the Purchased Assets; and
(iii) all licenses and permits necessary or related to the operation of the
Stores (collectively, the "Intangible Personal Property"); and
(j) All books and records related to the Purchased Assets and
operation of the Stores, including all financial, accounting and property
tax records, computer data and programs, market data, and records and all
correspondence with and documents pertaining to transactions with
suppliers, governmental authorities and other third parties (provided,
however, that copies of the same may be retained by Seller) to the extent
in the possession of Seller and prepared or produced in connection with the
Purchased Assets but specifically excluding any Excluded Materials
(collectively, the "Books and Records").
1.2 Assumption of Liabilities. At the Closing, the Purchaser shall
-------------------------
assume, perform and discharge all of the following obligations of Seller
(collectively the "Assumed Liabilities"):
(a) The current trade accounts payable and other current liabilities
incurred in the ordinary course of operation of the Stores, as set forth in
the "Accounts Payable" and "Accrued Liabilities" categories on the Current
Balance Sheet (as defined herein), to the extent (i) the same have been
properly recorded in the general ledger of Seller through the Closing Date
and (ii) Seller at the Closing shall have provided a complete listing of
the same as recorded on the general ledger through the Closing Date;
provided, however, that in no event shall any of the indebtedness of Seller
for borrowed money, even to the extent classified as a current liability,
be included as one of the Assumed Liabilities;
3
<PAGE>
(b) To the extent relating to periods on and after the Closing, the
liabilities of Seller under the Cobb Leases and the Assumed Contracts;
(c) Obligations to Transferred Employees as provided in Section 5.5
hereof; and
(d) All liabilities, obligations and responsibilities (whether
contingent or otherwise) arising out of or any way related to the Purchased
Assets to the extent relating to periods on or after the Closing, whether
known or unknown, contingent or absolute or otherwise.
Except as specifically set forth above, Purchaser does not assume and shall in
no event be liable for any debt, obligation, responsibility, liability or
contingent liability of Seller, or any affiliate or successor of Seller, or any
claim against any of the foregoing, whether known or unknown, contingent or
absolute, or otherwise. The scheduling of, or representations relating to,
liabilities of Seller pursuant to Section 3 of this Agreement shall in no way
imply that Purchaser intends to assume any such liability.
1.3. Excluded Assets. In no event shall the Purchased Assets include any
---------------
of the Excluded Stores, Excluded Materials and other assets listed on Schedule
1.3 hereto (collectively the "Excluded Assets"). In order that Seller may
continue to operate and to expand, sale, transfer or otherwise dispose of the
Excluded Stores, Purchaser and Seller will, on the Closing Date, enter into the
Supply Agreement, substantially in the form of Exhibit B hereto ("Supply
Agreement"), and the License Agreement, substantially in the form of Exhibit C
hereto (the "License Agreement").
1.4. Purchase Price. The consideration to be received by Seller hereunder
--------------
at the Closing for the Purchased Assets ("Purchase Price") shall be $35,000,000,
payable in cash at the Closing, as subsequently adjusted in accordance with the
provisions of Section 1.5 and 2.2; provided, however, that the sum of $1,000,000
(as such sum is adjusted pursuant to the Escrow Agreement (as hereinafter
defined) from time to time, the "Escrowed Funds") shall be deducted from the
Purchase Price. The Escrowed Funds shall be paid to a mutually acceptable
escrow agent (the "Escrow Agent") to hold pursuant to the Escrow Agreement,
substantially in the form of Exhibit D hereto, subject to such changes as
requested by the Escrow Agent as reasonably agreed to by Purchaser and Seller
(the "Escrow Agreement"). The foregoing Purchase Price shall be allocated among
the Purchased Assets in accordance with Section 1060 of the Internal Revenue
Code of 1986, as amended, and as set forth on a schedule to be mutually prepared
by Seller and Purchaser at the Closing. Seller and Purchaser each agree to
report the federal, state and local income and other tax consequences of the
transactions contemplated herein in a manner consistent with such allocation.
4
<PAGE>
1.5 Prorations. Except as elsewhere set forth herein, all items of income
----------
and expense arising from the operation of the Stores and ownership of the
Purchased Assets on or before the Closing Date shall be for the account of
Seller and thereafter shall be for the account of Purchaser, with such items
being prorated accordingly. Proration of the items described below between
Seller and Purchaser, as well as any and all other items as may be typically
prorated between the parties, shall be effective as of 12:01 a.m., local time,
on the day immediately following the Closing Date and shall occur as follows
with respect to those rights, liabilities and obligations of Seller transferred
to and assumed by Purchaser hereunder:
(i) Liability for state and local real estate and personal property
taxes and any water and sewer use charges assessed on the Purchased Assets
payable with respect to the year 2001 shall be prorated as between Seller
and Purchaser on the basis of the number of days of the tax year elapsed to
and including such date.
(ii) Prepaid items, deposits, credits, payables and accruals such as
utilities, other service charges, rental and other payments or advances
under any Assumed Contracts (but specifically excluding the rents and other
items covered under subsection (iii) below) shall be prorated between
Seller and Purchaser on the basis of the period of time to which such
liabilities, prepaid items and accruals apply.
(iii) All rent received by Seller or Purchaser after Closing with
respect to the Cobb Leases shall be applied first to current rentals and
then to delinquent rentals, if any, in the order of their maturity. In the
event that there shall be any rents or other charges under any of the Cobb
Leases that, although relating to a period prior to Closing, do not become
due and payable until after Closing or are paid prior to Closing but are
subject to adjustment after Closing (such as year-end common area
expenses), then any rent or charges of such type shall, to the extent
applicable to a period prior to or extending through the Closing, be
prorated between Seller and Purchaser as of the Closing Date upon
collection by either Seller or Purchaser and paid to the party owed
pursuant to the last grammatical paragraph of this Section 1.5.
(iv) Purchaser shall be responsible for the payment of (i) all
"Tenant Inducement Costs" (as hereinafter defined) and those leasing
commissions, which leasing commissions are described on Schedule 1.5(iv),
as potentially modified as set forth below, whether (A) a result of any
renewals or expansions of existing Cobb Leases approved by Purchaser
between the date hereof and the date of Closing or (B) under any new Cobb
Leases, approved by Purchaser and entered into between the date hereof and
the date of Closing, and (ii) all Tenant Inducement Costs and leasing
commissions entered into by Purchaser that become due and payable from and
after the date of Closing. Any Tenant Inducement Costs due and
5
<PAGE>
payable prior to Closing or not set forth on Schedule 1.5(iv) (as
potentially modified as set forth below) shall be the sole responsibility
of Seller. Purchaser's approval (which approval may not be unreasonably
withheld, conditioned or delayed) of any leasing commissions under either
clauses (A) or (B) above will be so indicated by an amendment to Schedule
1.5(iv). If, as of the date of Closing, Seller shall have paid any Tenant
Inducement Costs or leasing commissions for which Purchaser is responsible
pursuant to the foregoing provisions, Purchaser shall reimburse Seller for
such Tenant Inducement Costs or leasing commissions at Closing. For
purposes hereof, the term "Tenant Inducement Costs" shall mean any payments
required under a Cobb Lease to be paid by the landlord thereunder to or for
the benefit of the tenant thereunder which is in the nature of a tenant
inducement, including specifically, without limitation, tenant improvement
costs, lease buyout costs, and moving, design, refurbishment and club
membership allowances. The term "Tenant Inducement Costs" shall not include
loss of income resulting from any free rental period, it being agreed that
Seller shall bear the loss resulting from any free rental period until the
date of Closing and that Purchaser shall bear such loss from and after the
date of Closing.
All such prorations shall be made as of the Closing Date to the extent
practicable and the Purchase Price adjusted therefor, with any additional
prorations to be agreed upon from time to time as promptly as practicable during
the nine month period following the Closing Date. Notwithstanding the
foregoing, if Seller collects any rent or charges described in subsection (iii)
above, Seller shall, within 15 days after the receipt thereof, deliver to
Purchaser any such rent that Purchaser is entitled to pursuant to this Section
1.5, and if Purchaser collects any such amounts, Purchaser shall, within 15 days
after the receipt thereof, deliver to Seller any such rent that Seller is
entitled to pursuant to this Section 1.5. Further, general real estate and ad
valorem taxes and assessments for the current tax year for the Real Estate,
although based on the 2001 tax year, will not be final and will be re-prorated
between Seller and Purchaser upon receipt of the final real estate and ad
valorem tax bill for the time period in which the Closing occurred. Seller and
Purchaser agree to pay the other any amounts due based on the re-proration,
within 30 days of receipt of such final tax bill.
2. CLOSING PROCEDURES.
------------------
2.1 Closing. A closing (the "Closing") to effect the purchase and sale of
-------
the Purchased Assets shall be held at the offices of Alston & Bird LLP, counsel
to Seller, on such date (the "Closing Date") that is the fifth business date
after the satisfaction or waiver of all conditions precedent to the Closing, or
such other date as may be mutually agreed upon by the parties; provided,
however, the parties shall use their reasonable best efforts to close on the
last day of a fiscal month of Seller to the extent practicable. At the Closing,
Purchaser and Seller shall deliver or cause to be delivered the documents and
instruments described in Sections 6 and 7 herein. All actions taken at the
Closing shall be deemed to
6
<PAGE>
have been taken simultaneously at the time the last of any such actions is taken
or completed.
2.2. Post-Closing Adjustment Procedure.
---------------------------------
(a) Purchaser, at its sole cost and expense, shall prepare and
deliver to Seller within 90 days after the Closing Date an unaudited
balance sheet of the Purchased Assets and the Assumed Liabilities as of the
Closing Date ("Closing Balance Sheet"), prepared in accordance with
generally accepted accounting principles ("GAAP") consistent with past
practices used by Seller. Purchaser shall permit Seller, at its sole cost
and expense, and its accountants to participate in the preparation thereof
(including the right to observe any physical inventory) and shall promptly
make available to Seller and its accountants all work papers and other
pertinent information used in connection therewith. Seller shall have full
access to the books, records, properties and personnel of Purchaser for
purposes of verifying the Closing Balance Sheet.
(b) Within 30 days after the Closing Balance Sheet is delivered to
Seller pursuant to Section 2.2(a) above, Seller shall complete its
examination thereof and shall deliver to Purchaser either (i) a written
acknowledgement accepting the Closing Balance Sheet or (ii) a written
report setting forth in reasonable detail any proposed adjustments to the
Closing Balance Sheet ("Adjustment Report"). A failure by Seller to
deliver the Adjustment Report within the required 30-day period shall
constitute Seller's acceptance of the Closing Balance Sheet.
(c) During a period of 15 days following the receipt by Purchaser of
the Adjustment Report, Seller and Purchaser shall attempt to resolve any
difference they may have with respect to the matters raised in the
Adjustment Report. In the event the Purchaser and Seller fail to agree on
any of Seller's proposed adjustments contained in the Adjustment Report
within such 15 day period, then Seller and Purchaser mutually agree that
the Atlanta, Georgia office of the firm of PriceWaterhouseCoopers,
certified public accountants ("Independent Auditors"), shall make the final
determination with respect to the correctness of the proposed adjustments
in the Adjustment Report in light of the terms and provisions of this
Agreement. Purchaser and Seller each represent that it and its affiliates
have no current relationship with the Independent Auditor nor had any
relationship within the past three years. When making its decision, the
Independent Auditors shall follow GAAP consistent with past practices used
by Seller. The decision of the Independent Auditors shall be final and
binding on Seller and Purchaser, and may be used in a court of law by
either Seller or Purchaser for the purpose of enforcing such decision. The
costs and expenses of the Independent Auditors and their services rendered
pursuant to this Section 2.2(c) shall be borne equally by Seller and
Purchaser.
7
<PAGE>
(d) In the event that after finalization (which shall be deemed to
mean either the failure of Seller to deliver an Adjustment Report within
the 30-day period referred to Section 2.2(b) or, if Seller delivers such an
Adjustment Report, promptly upon the resolution of the matters raised in
such Adjustment Report pursuant to Section 2.2(c)) of the Closing Balance
Sheet, the "Net Working Capital" (as defined) of Seller is less than
$1,300,000 (which amount has been calculated as shown on Schedule 2.2(d)),
then Seller shall promptly pay to Purchaser the amount of such deficiency
below $1,300,000; provided, however, the total amount paid by Seller
pursuant to this Section 2.2(d) shall be paid only from the Escrowed Funds
and shall not exceed the amount of the Escrowed Funds. In the event that
after finalization of the Closing Balance Sheet, the "Net Working Capital"
(as defined) of Seller is greater than $1,300,000, then Purchaser shall
promptly pay to Seller the amount of such surplus above $1,300,000. As
used herein, "Net Working Capital" shall mean the current assets of Seller
less the current liabilities of Seller, prepared in accordance with
Schedule 2.2(d); provided, however, that all Excluded Assets and all
liabilities which are not Assumed Liabilities shall be excluded from the
computation of Net Working Capital.
3. REPRESENTATIONS AND WARRANTIES OF SELLER. Except as qualified by the
----------------------------------------
schedules attached hereto, numbered to correspond with the representations so
qualified (the "Disclosure Schedules"), Seller hereby represents and warrants to
Purchaser as follows:
3.1. Organization and Good Standing. Each of Parent, Marthasville and
------------------------------
Karalea is a corporation duly incorporated and validly existing under the laws
of the State of Georgia.
3.2. Binding Effect. This Agreement has been duly authorized, executed and
--------------
delivered by Seller and, subject to the approval of this Agreement and the
transactions contemplated hereby by the requisite holders of common stock of
Seller, is the legal, valid and binding obligation of Seller, enforceable in
accordance with its terms except that (i) enforceability may be limited by
bankruptcy, insolvency, reorganization, receivership, conservatorship,
moratorium or other similar laws affecting the enforcement of creditors' rights
and (ii) the availability of equitable remedies may be limited by equitable
principles of general applicability.
3.3. Consents; Compliance with Other Instruments.
-------------------------------------------
(a) Except as set forth on Schedule 3.3, neither the execution and
delivery by Seller of this Agreement nor the consummation by it of the
transactions contemplated hereby will materially violate, breach, be in
conflict with, or constitute a material default under, or permit the
termination or the acceleration of
8
<PAGE>
maturity of, or result in the imposition of any lien, claim, or encumbrance
upon any property or asset of Seller pursuant to (i) the articles of
incorporation or bylaws of Parent, Marthasville or Karalea or (ii) any
note, bond, indenture, mortgage, deed of trust, evidence of indebtedness,
loan or lease agreement, other material agreement or instrument, judgment,
order, injunction, or decree by which Seller is bound, to which it is a
party, or to which any of its material assets are subject.
(b) Except as contemplated elsewhere herein and except as set forth
in Schedule 3.3, Seller is not required to submit any notice, declaration,
report or other filing or registration with any governmental or regulatory
authority or instrumentality in connection with the execution and delivery
of this Agreement or the consummation of the transactions contemplated
hereby.
(c) Except as contemplated elsewhere herein and except as set forth
in Schedule 3.3, no waiver, consent, approval or authorization of any
governmental or regulatory authority or instrumentality or any other person
is required to be obtained or made by Seller in connection with the
execution and delivery of this Agreement or the consummation of the
transactions contemplated hereby.
(d) The only consents from any non-governmental person or entity
which are required to be obtained by Seller in connection with the
execution and delivery by it of this Agreement and the consummation of the
transactions contemplated hereby are set forth on Schedule 3.3, and, except
as set forth on Schedule 3.3, all such third party consents have been so
obtained.
3.4. Financial Statements and Records of Seller; SEC Reports.
-------------------------------------------------------
(a) Seller has made available to Purchaser the following financial
statements of Seller (the "Seller Financial Statements"): (i) the balance
sheet as of January 31, 2001 and statements of operations, cash flows and
stockholders' equity for the fiscal year then ended, accompanied by the
report of Seller's independent public accountants thereon, and (ii) the
unaudited balance sheet as of May 2, 2001 (the "Current Balance Sheet") and
statements of operations and cash flows for the 13 weeks then ended.
Except as described on Schedule 3.4, the Seller Financial Statements
present fairly the assets, liabilities and financial position of Seller as
of the dates thereof and the results of operations thereof for the periods
then ended and have been prepared in conformity with GAAP. The books and
records of Seller have been and are being maintained in accordance with
good business practice, reflect only valid transactions, are complete and
correct in all material respects, and present fairly in all material
respects the basis for the financial position and results of operations of
Seller set forth in the Seller Financial Statements.
9
<PAGE>
(b) All inventory used in the conduct of the operations of the Stores
reflected on the Current Balance Sheet, or acquired since the date thereof,
was acquired and has been maintained in the ordinary course of business,
consists substantially of good and merchantable quality and, other than
after acquired inventory, has been recorded on the Current Balance Sheet in
accordance with GAAP. Inventory acquired since the date of the Current
Balance Sheet consists of good and merchantable quality and has been
properly recorded in the general ledger of Seller according to GAAP.
(c) Except as described on Schedule 3.4, the accounts payable and
accrued expenses reflected on the Current Balance Sheet include all trade
liabilities and accrued expenses incurred in the ordinary course of
business as of that date, and have been recorded on the Current Balance
Sheet in accordance with GAAP. All trade accounts payable and accrued
expenses incurred since the date of the Current Balance Sheet have been
recorded in the general ledger of Seller according to GAAP. As of the
Closing Date, none of the trade accounts payable included in the Assumed
Liabilities will relate to invoices incurred for purposes other than the
operation of the Stores.
(d) Seller has made available to Purchaser (i) Seller's Annual Report
on Form 10-K for the year ended January 31, 2001, including all exhibits
filed thereto and items incorporated therein by reference, (ii) Seller's
Quarterly Report on Form 10-Q, including all exhibits thereto and items
incorporated therein by reference, for the 13 weeks ended May 2, 2001 and
(iii) all other reports or registration statements (as amended or
supplemented prior to the date hereof), filed by Seller with the Securities
and Exchange Commission (the "SEC") since January 1, 1999, including all
exhibits thereto and items incorporated therein by reference (items (i)
through (iv) being referred to as the "Seller SEC Reports"). As of their
respective dates, the Seller SEC Reports did not contain any untrue
statement of a material fact or omit to state a material fact required to
be stated therein or necessary to make the statements therein, in light of
the circumstances under which they were made, not misleading.
3.5. Absence of Certain Changes. Except as set forth on Schedule 3.5,
--------------------------
since May 2, 2001, Seller has not (except as may result from the transactions
contemplated by this Agreement or as set forth on the Seller Financial
Statements):
(i) suffered any material adverse change in its results of operations
or financial condition related to the Stores;
(ii) suffered any damage or destruction to or loss of the Purchased
Assets not covered by insurance, excluding normal wear and tear; or
10
<PAGE>
(iii) entered into or terminated any material agreement, commitment
or transaction (other than the Assumed Contracts, the Permitted
Encumbrances and/or the Cobb Leases, each as scheduled and attached
hereto), or agreed or made any changes in the Assumed Contracts.
3.6. No Material Undisclosed Liabilities. There are no material
-----------------------------------
liabilities or obligations of Seller related to the Purchased Assets or Assumed
Liabilities of any nature, whether absolute, accrued, contingent or otherwise,
other than (i) the liabilities and obligations that are fully reflected,
accrued, or reserved against on the Seller Financial Statements, for which the
reserves are appropriate and reasonable, or incurred in the ordinary course of
business and consistent with past practices since May 2, 2001; or (ii)
liabilities or obligations not required to be disclosed in financial statements
prepared in accordance with GAAP.
3.7. Real Estate.
-----------
(a) With respect to the Owned Real Estate, Seller has not granted
any mortgages, pledges, liens, security interests or encumbrances of any
kind other than the mortgages that will be satisfied in connection with the
Closing and the permitted exceptions set forth on Schedule 3.7 hereto (the
"Permitted Exceptions"), and Seller holds fee simple title and/or leasehold
title free and clear of all encumbrances other than such mortgages and the
Permitted Exceptions.
(b) A true, complete and correct copy of the lease evidencing
Seller's interest in the Leased Real Estate has been made available to
Purchaser.
(c) Seller has not received written notice of any violation of law,
municipal or county ordinances or other legal requirements with respect to
the Stores (or any part thereof) or with respect to the use, occupancy or
construction thereof. Seller has not received any written notice of any
pending or threatened termination or impairment of access to the Real
Estate or discontinuation of necessary sewer, water, electrical, gas,
telephone or other utilities or services.
(d) Seller has not received any written notice (i) that either the
whole or any portion of the Real Estate is to be condemned, requisitioned
or otherwise taken by any public authority, (ii) of violation of
restrictive covenants, deed restrictions or governmental requirements on
the Real Estate which have not been remedied, (iii) of any proceedings
which would cause the change, redefinition or other modification of the
zoning classification or (iv) any proceedings to widen or realign any
street or highway adjacent to the Real Estate. Seller has received no
written notice of any pending public improvements that may result in
special assessments against any of the Real Estate.
11
<PAGE>
(e) Except as set forth on Schedule 3.7 and 3.7(e) and in each case
solely in respect of the Real Estate:
(i) Seller has not received any written notice from any
governmental authority that Seller is in violation or alleged
violation of any judgment, decree, order, law, license, rule or
regulation pertaining to environmental matters, including, without
limitation those arising under the Resource Conservation and Recovery
Act, the Comprehensive Environmental Response, Compensation and
Liability Act of 1980 as amended ("CERCLA"), the Superfund Amendments
and Reauthorization Act of 1986, the Federal Water Pollution Control
Act, the Solid Waste Disposal Act, as amended, the Federal Clean Air
Act, the Toxic Substances Control Act, or any state or local statute,
regulation, ordinance, order or decree relating to the environment
(hereinafter "Environmental Laws");
(ii) Seller has not received written notice from any third
party, including without limitation any federal, state or local
governmental authority, (A) that Seller has been identified by the
United States Environmental Protection Agency as a potentially
responsible party under CERCLA with respect to a site listed on the
National Priorities List, 40 C.F.R. Part 300 Appendix B (1986); (B)
that any hazardous waste, as defined by 42 U.S.C. (S)6903(5), any
hazardous substance as defined by 42 U.S.C. (S)9601(33) or any toxic
substance, oil or hazardous material or other hazardous chemical or
hazardous substance regulated by any Environmental Laws ("Hazardous
Substances") which Seller has generated, transported or disposed of
has been found at any site at which a federal, state or local agency
or other third party has conducted or has ordered that Seller conduct
a remedial investigation, removal or other response action pursuant to
any Environmental Law; or (C) that Seller is or shall be a named party
to any claim, action, cause of action, complaint (contingent or
otherwise), legal or administrative proceeding arising out of any
third party's incurrence of costs, expenses, losses or damages of any
kind whatsoever in connection with the release of Hazardous
Substances; and
(iii) (A) no portion of any of the Real Estate has been used by
Seller for the handling, manufacturing, processing, storage or
disposal of Hazardous Substances in material violation of applicable
Environmental Laws, and to the knowledge of Seller, no underground
storage tank for Hazardous Substances is located on such properties;
(B) in the course of any activities conducted by
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Seller on the Real Estate, no Hazardous Substances have been generated
by Seller or are being used by Seller on such properties in material
violation of applicable Environmental Laws; and (C) to the knowledge
of Seller, there have been no releases (i.e., any past or present
releasing, spilling, leaking, pumping, pouring, emitting, emptying,
discharging, injecting, escaping, disposing or dumping) by Seller or
threatened releases by Seller of Hazardous Substances on, upon, into
or from any of the Real Estate in material violation of applicable
Environmental Laws.
(f) Except as set forth on Schedule 3.7(f), Seller has not received
written notice and has no knowledge that any of the sites constituting the
Owned Real Estate are not in compliance in all material respects with the
Americans with Disabilities Act, as amended, and all applicable state
statutes and local ordinances and regulations promulgated pursuant thereto
related to persons with disabilities, handicaps and special needs, all to
the extent the foregoing is presently applicable to the Owned Real Estate
and to the extent the Owned Real Estate is not grandfathered as legal
nonconforming.
(g) To Seller's knowledge, there are no pending legal proceedings or
administrative actions of any kind or character pending against any of the
Real Estate that, if adversely determined, could individually or in the
aggregate have a material adverse effect on title to the Real Estate or any
portion thereof or that could in any material way interfere with the
consummation of the transactions contemplated herein by Seller.
(h) Seller has received no written notice from any city, county,
state, federal or other government authority of any material violation of
any law, statute, ordinance, regulation, or administrative or judicial
order or holding, whether or not appearing in public records, with respect
to the Real Estate, which violation has not been corrected or otherwise
addressed.
(i) Seller has received no written notice from any city, county,
state, federal or other government authority relating to noncompliance with
any applicable building code or restriction that has not been corrected or
otherwise addressed.
(j) To Seller's knowledge and subject to the terms and conditions
thereof, the Cobb Leases are in full force and effect and have not been
modified except as disclosed on Schedule 3.7(j). There are no outstanding
assignments by Seller of Seller's interest in the Cobb Leases except for
those that will be satisfied at Closing or are set forth on Schedule
3.7(j). To Seller's knowledge, there are no other leases, service
contracts, maintenance agreements or other agreements to
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which Seller is a party with respect to the Real Estate that will survive
the Closing other than the Cobb Leases, the Permitted Exceptions or the
Assumed Contracts.
3.8. Title to Properties. Seller has, and will convey to Purchaser at
-------------------
Closing, good and insurable fee or leasehold title, as applicable, to the Owned
Real Estate and the Personal Property, free and clear of any lien, claim or
encumbrance, except for (i) liens for taxes, assessments or other governmental
charges not yet due and payable, (ii) statutory liens incurred in the ordinary
course of business with respect to liabilities that are not yet due and payable
and (iii) the Permitted Exceptions.
3.9. Condition of Personal Property. All of the Personal Property is in
------------------------------
good condition and working order, ordinary wear and tear excepted, and is
reasonably suitable for the uses for which intended, free from any defects known
to Seller, except such minor defects as do not substantially interfere with the
continued use thereof.
3.10 Litigation and Government Claims. Except as set forth on Schedule
--------------------------------
3.10, there is no pending suit, action or litigation, or administrative,
arbitration or other proceeding or governmental investigation or inquiry, to
which Seller is a party or to which its assets are subject which would, if
decided against Seller, individually or in the aggregate, have a material
adverse effect on the Purchased Assets (excluding the Real Estate, which
representations are embodied in Sections 3.7 and 3.8 hereof) or in any material
way interfere with the consummation by Seller of the transactions contemplated
by this Agreement. To Seller's knowledge, there are no such proceedings
threatened, contemplated, or any basis for any unasserted claims (whether or not
the potential claimant may be aware of the claim) which would, if decided
against Seller, individually or in the aggregate, have a material adverse effect
on the Purchased Assets (excluding the Real Estate, which representations are
embodied in Sections 3.7 and 3.8 hereof) of Seller or in any material way
interfere with the consummation by Seller of the transactions contemplated by
this Agreement.
3.11. No Violations or Defaults. To Seller's knowledge, Seller is not in
-------------------------
violation of or default under nor has any event occurred that, with the lapse of
time or the giving of notice or both, would constitute a material violation of
or material default under, or permit the termination or the acceleration of
maturity of, or result in the imposition of a lien, claim or encumbrance upon
the Purchased Assets (excluding the Real Estate, which representations are
embodied in Sections 3.7 and 3.8 hereof) pursuant to, any agreement, instrument,
judgment, order, injunction, or decree to which Seller is a party, by which
Seller is bound, or to which any of its assets is subject, except where such
violation or default would not have a material adverse effect on the Purchased
Assets (excluding the Real Estate, which representations are embodied in
Sections 3.7 and 3.8 hereof) or in any material way interfere with the
consummation by Seller of the transactions contemplated by this Agreement.
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3.12. Labor Matters. Seller is not party to any collective bargaining
-------------
agreements with any union, and no collective bargaining agreement is currently
being negotiated by Seller. There is no labor strike or similar material
dispute pending or, to Seller's knowledge, threatened against or involving
Seller.
3.13. Assumed Contracts. Seller has furnished or made available accurate
-----------------
and complete copies of the Assumed Contracts to Purchaser. All of the Assumed
Contracts are valid, binding and enforceable obligations of Seller subject to
the terms and conditions thereof.
3.14. Transaction with Affiliates. As of the Closing, Seller and its
---------------------------
Affiliates shall have transferred to Seller good and valid title to any
equipment, fixtures or other assets (other than Excluded Assets) owned by Seller
and its Affiliates which are primarily used in the operation of the Stores.
Upon the occurrence of the Closing, neither Seller nor any Affiliate of Seller
will have any material interest in or will own any material property or material
right used principally in the operation of the Stores. The term "Affiliate"
shall mean Seller and any of its subsidiaries, officers or directors. Seller
and the wholly-owned subsidiaries listed on Schedule 3.14 constitute the sole
legal entities which conduct the business of Seller, except and to the extent
RCG Management, L.L.C. manages the Harry's Crossing Shopping Center for Seller.
3.15. Compliance with Laws. Except as set forth on Schedule 3.7(e) and/or
--------------------
3.7(f), as relates to the Purchased Assets (excluding the Real Estate, which
representations are embodied in Sections 3.7 and 3.8 hereof) and Assumed
Liabilities, Seller is in material compliance with all material laws, statutes,
governmental regulations and all judicial or administrative tribunal orders,
judgments, writs, injunctions, decrees or similar commands applicable to Seller,
except for such non-compliance that is not reasonably likely to have,
individually or in the aggregate, a materially adverse effect on the Purchased
Assets (excluding the Real Estate, which representations are embodied in
Sections 3.7 and 3.8 hereof) or in any material way interfere with the
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