Agreement of Sale - Brothers Coffee Bars Inc., Brothers Gourmet Coffees Inc. and Diedrich Coffee
AGREEMENT OF SALE
THIS AGREEMENT OF SALE (this "Agreement") is made this 23rd
day of February, 1996 by and among Brothers Coffee Bars, Inc. ("Bars"), and
Brothers Gourmet Coffees, Inc. ("Brothers"), each of which are Delaware
corporations whose principal places of business are located at 2255 Glades
Road, Boca Raton, Florida 33431 (each of Bars and Brothers is sometimes
individually referred to herein as a "Seller," and both of them are sometimes
collectively referred to herein as the "Sellers"), and Diedrich Coffee, a
California corporation having its principal place of business at 2144 Michelson
Drive, Irvine, California 92715 (referred to herein as "Purchaser"). Each of
the Sellers and the Purchaser is sometimes referred to herein as a "Party," and
all of them are sometimes collectively referred to herein as the "Parties."
RECITALS
WHEREAS, Sellers are engaged through the "Brothers" tradename
in the business of retail sales of coffee and other food, beverage, accessory
and specialty items, as conducted through twelve store locations (as more
specifically described in the leases set forth in Schedule 1(a)(i))
(individually, a "Store" and collectively, the "Stores") (collectively, the
"Business");
WHEREAS, Sellers desire (1) to sell to Purchaser certain of
their assets as more fully described in Paragraph 1(a) below, which assets
include, without limitation, real property leasehold interests for the twelve
(12) Stores, and (2) that Purchaser assume certain of the Sellers' liabilities
under the terms and conditions as hereinafter set forth; and
WHEREAS, Purchaser desires to purchase said assets, and is
willing to assume said liabilities, all under the terms and conditions as
hereinafter set forth.
NOW, THEREFORE, in consideration of the mutual promises,
covenants and representations of the Parties contained herein and for other
good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, it is hereby agreed by the Parties as follows:
1. SALE OF ASSETS.
a. Transferred Assets. On the Closing Date (as
defined in Paragraph 5(c) below), Sellers shall sell, transfer, assign, convey
and deliver to Purchaser, for the consideration hereinafter provided, all
right, title and interest in and to all of the assets used in or useful to the
Business, as such assets are enumerated in Schedule 1(a) (the "Assets"), which
Assets specifically include:
(i) All of Sellers' right, title and
interest under the real property leases for the Store locations described in
Schedule 1(a)(i), true and complete copies of which leases have been delivered
by Sellers to Purchaser prior to the date hereof and true and complete copies
of which leases are attached to Schedule 1(a)(i) (the "Leases"), and the
related security deposits.
(ii) All the stock-in-trade, retail
inventory, supplies, furniture, fixtures and equipment, leasehold improvements,
telephone equipment, telephone numbers (if assignable), rights in and to
personal property and other property used in the Business, as described in
Schedule 1(a)(ii) (the "FF&E").
<PAGE> 2
(iii) All licenses and permits issued for
use by Sellers at the Stores, if and to the extent so assignable, as described
in Schedule 1(a)(iii) (the "Licenses").
(iv) All customer address cards,
profiles, mailing lists and all other information regarding Sellers' current
and potential customers at the Stores.
(v) All hiring, training, operations,
personnel, quality control, marketing and other manuals or systems owned by
Sellers, including any computer-based or on-line systems, that are used in or
were developed for the operation of the Stores.
(vi) All existing plans or designs for
the Stores and for capital and cost reduction projects in process at or
currently planned in connection with the Stores (collectively, the
"Blueprints"), as described in Schedule 1(a)(vi).
(vii) All cash registers and polling
systems used in or for the Stores, as described in Schedule 1(a)(vii) (the "POS
Equipment").
(viii) The personal computers used at the
Store locations, including, to the extent assignable, all related packaged and
developed software, analysis sheets and business forms (i.e., time sheets,
inventory control, etc.) used in Sellers' day-to-day operation of the Stores,
Lotus Notes and the specialized programming developed to download and process
Store operations data, as described in Schedule 1(a)(viii) (the "Computer
Equipment").
(ix) Subject to Paragraph 4(d) below,
all Brothers Keeper/Sleeper bean storage equipment.
(x) All training, operations, personnel,
quality control and marketing manuals and/or systems, including those which are
computer based.
(xi) All rights of Sellers under any and
all express or implied warranties from Sellers' suppliers with respect to the
Assets, if and to the extent assignable.
b. Excluded Assets. This sale does not include
any assets of Sellers other than those specifically described in Schedule 1(a).
c. Amendments to Schedule 1(a). Sellers shall
have the right to amend and update Schedule 1(a) through the Closing Date. No
such amendment to Schedule 1(a) shall reduce the number of Stores and related
Leases that are the subject of this Agreement, nor shall any such amendment have
the effect of reducing by more than $ 2,500 the value of the Assets or of any
particular Store, or adversely affecting by more than $ 2,500 the potential
future operations of any particular Store.
2. PURCHASE PRICE.
a. Calculation; Timing of Payment. The total
purchase price for the Assets payable by Purchaser shall be $1,350,000 (the
"Purchase Price") or $112,500 per Store (the "Store Price"). The Purchaser
shall pay the Purchase Price at the following times in the following manner and
subject to the following conditions:
(i) Subject to repayment by Sellers to
Purchaser pursuant to Paragraph 2(a)(iv), fifty percent (50%) of the Purchase
Price (the "Downpayment") shall be paid by Purchaser to Sellers at Closing in
cash by federal funds wire transfer pursuant to
2
<PAGE> 3
written wire instructions provided by Sellers to Purchaser at least three (3)
business days prior to Closing.
(ii) In addition to the Downpayment,
Purchaser shall pay to Sellers at Closing in cash, by federal funds wire
transfer pursuant to written wire instructions provided by Sellers to Purchaser
at least three (3) business days prior to Closing, the amount, if any, by which
the Assigned Lease Amount as of the Closing Date exceeds the Downpayment. The
"Assigned Lease Amount" shall be equal to the product of the Store Price
multiplied by the number of Leases for which the Parties shall have received
and executed a lease assignment and landlord consent to assignment in form
satisfactory to Purchaser and Sellers ("Lease Assignment") executed by the
landlord thereof.
(iii) The balance of the Purchase Price
(the "Purchase Reserve") shall be paid in cash by federal funds wire transfer
to Norwest Bank of Colorado, N.A. (the "Escrow Agent"), pursuant to written
wire instructions provided by Escrow Agent to Purchaser at least three business
days prior to Closing which amount shall be held in an interest bearing account
established for the benefit of Sellers and Purchaser, subject to the terms of
that certain escrow agreement by and among Sellers, Purchaser and Escrow Agent,
in the form and substance of Exhibit A hereto (the "Escrow Agreement"). The
Purchase Reserve shall be held in escrow to secure Sellers' obligations under
Paragraphs 3(a), 4(b), 4(k), 7(b), 9(b)(i) and 14(b) of this Agreement
("Sellers' Indemnification Obligations") and Sellers' obligations to obtain any
Lease Assignments which are not obtained prior to the Closing Date. At such
time as the Assigned Lease Amount equals or exceeds the Downpayment, then,
within five (5) business days after Purchaser receives a Lease Assignment
signed by the respective landlord with respect to any Lease that was not
assigned on or prior to the Closing Date, an amount equal to the Store Price
shall be transferred from the Purchase Reserve to Sellers pursuant to the terms
of the Escrow Agreement; provided, however, that no such transfer to Sellers
shall be permitted if such transfer shall result in the balance of funds held
in the Purchase Reserve being less than twenty percent (20%) of the Purchase
Reserve balance as of the day immediately following the Closing Date. After
the close of the period ending September 30, 1996 (the "Deadline"), if all
twelve (12) of the Leases have not been assigned as provided herein, the
balance of the Purchase Reserve shall be paid by the Escrow Agent pursuant to
the terms of the Escrow Agreement to Purchaser. In the event that all twelve
(12) of the Leases have been assigned prior to the Deadline as provided herein,
on the date that is six (6) months after the Closing Date, all amounts
remaining in the Purchase Reserve on such date shall be paid by Escrow Agent to
Sellers pursuant to the terms of the Escrow Agreement.
(iv) Notwithstanding the foregoing, in
the event that all twelve (12) of the Leases have not been assigned by the
Deadline as provided herein and the amount of the Downpayment exceeds the
Assigned Lease Amount as of the Deadline, then Sellers shall immediately pay
the amount of such excess to Purchaser.
b. Allocation of Purchase Price. Sellers and
Purchaser shall allocate the Purchase Price among the Assets as set forth on
Schedule 2(b) hereto, using the allocation method required by Section 1060 of
the Internal Revenue Code of 1986, as amended (the "Code"), and the regulations
thereunder. Sellers and Purchaser each agree to report the federal, state and
local income and other tax consequences of the transactions contemplated
herein, and in particular to report the information required by Code Section
1060(b), in a manner consistent with such allocation and will not take any
position inconsistent therewith.
c. Working Capital Adjustment. On or before the
date which is twenty (20) business days following the Closing Date, (i)
Purchaser shall pay to Sellers an amount equal to the aggregate amount of the
prepaid rents made by Sellers as of the Closing
3
<PAGE> 4
Date, with respect to the Leases for periods beyond the end of the month in
which the Closing occurs, and (ii) Purchaser shall pay to Sellers (or Sellers
shall pay to Purchaser) the increase (or decrease) in Sellers' retail inventory
at the Stores (valued at Sellers' invoice cost) at the Closing Date as compared
to Sellers' retail inventory at the Stores (valued at Sellers' invoice cost) as
of December 29, 1995, and as set forth on Schedule 2(c).
3. ASSUMPTION OF CERTAIN LIABILITIES.
a. Nonassumed Liabilities. Except as
specifically provided in Paragraph 3(b) below, Purchaser shall not assume and
shall not acquire, take over, or be responsible for any liabilities or
obligations of the Sellers presently in existence, including, without
limitation, all liabilities and obligations relating to the Business, Lease
related commitments to contractors and landlords for Store build-outs, deferred
rents or any other ongoing non-lease related items (such liabilities or
obligations not assumed by Purchaser hereunder being herein referred to as the
"Nonassumed Liabilities") and Sellers shall indemnify, defend and hold harmless
Purchaser from all loss, cost, damage or expense related to the Nonassumed
Liabilities. The parties intend for Purchaser to acquire ownership of the
Assets free and clear of all claims, liens or encumbrances, except those
claims, liens or encumbrances which the Purchaser has agreed to assume or take
subject to as provided in Paragraph 3(b) below. The Sellers shall prior to
Closing fulfill all construction, consulting and similar commitments (other
than the payment of rent for periods after the month in which the Closing
occurs) to landlords under the Leases.
b. Assumed Liabilities. At Closing, Purchaser
shall, pursuant to the terms of an Assumption Agreement in the form and
substance of Exhibit B hereto, (i) with respect to Leases that have been
assigned to Purchaser, assume and agree to perform the obligations set forth in
the applicable Lease Assignment arising after the date of effectiveness of such
Lease Assignment, (ii) assume and agree to perform obligations of Sellers
arising after the Closing Date under all personal property leases set forth on
Schedule 1(a)(ii) and (iii) satisfy all costs arising after the Closing Date
under service agreements set forth on Schedule 1(a)(ii) (collectively referred
to herein as the "Assumed Liabilities"), and shall indemnify, defend and hold
harmless Sellers from all loss, cost, damage or expense related to the Assumed
Liabilities, except as provided for in Paragraph 10(a) below.
4. OTHER AGREEMENTS.
a. Employee Matters. Purchaser shall not
assume, acquire, take over or be responsible for any liabilities or obligations
of Sellers pursuant to any contract between Sellers and any of their employees.
After the date hereof, Purchaser may interview any or all of Sellers' employees
involved in the day-to-day operations of the Stores; provided, that, if the
transaction contemplated by this Agreement does not close as provided herein,
Purchaser shall not initiate contact with any of such employees for the purpose
of inducing such employee to leave the employ of the Sellers until the date
that is eighteen (18) months after the date hereof.
b. Bulk Transfers. Purchaser and Sellers agree
to waive the Uniform Commercial Code provisions relating to bulk transfers
("Bulk Sales Laws") with respect to the transactions contemplated by this
Agreement. Sellers shall indemnify and hold Purchaser, its directors, officers,
employees and agents harmless from and against all damages, costs and expenses
arising out of the noncompliance with the Bulk Sales Laws.
c. License to Use Name. Sellers shall permit
Purchaser to use the "Brothers" trade name and trademark for a period not to
exceed six (6) months following the
4
<PAGE> 5
date that Purchaser has received all Lease Assignments executed by the
respective landlords, in displays, signage and postings and on cups,
stationary, packaging materials, supplies or inventory, and Purchaser shall
discontinue any use thereof upon the expiration of such six-month period.
Purchaser acknowledges that the failure to discontinue the use of the
"Brothers" trade name and trademark at such time will cause irreparable damage
to Sellers and that Sellers will be entitled to seek all available remedies at
law and in equity against Purchaser.
d. Brothers Keeper and Brothers Sleeper.
Purchaser shall have the royalty-free right and perpetual, worldwide license to
use the Brothers Keeper and Brothers Sleeper technology and equipment (as
described on Schedule 4(d) hereto) in all of Purchaser's retail stores,
existing and future (the "License"); provided, however, that Sellers shall
retain any and all patent and other intellectual property rights in such
equipment other than the License and, except as provided elsewhere herein,
shall not be responsible following the Closing for (i) any warranties with
respect to such technology and equipment, except as provided in this Agreement,
(ii) any enhancements or modifications to such technology and equipment
following the Closing or (iii) providing to Purchaser any additional technology
or equipment other than the technology and equipment in Sellers' retail stores
on the Closing Date as set forth on Schedule 4(d) hereto.
e. Access to Books and Records. Purchaser may,
prior to the Closing Date, through its representatives, review the properties,
books and records of Sellers as they relate to the Assets and the Stores to
inspect such Assets and Stores and familiarize itself with the Assets, the
Leases and other matters related to the Assets and the Stores. Sellers shall,
at Purchaser's expense, permit Purchaser and its representatives to have, from
time to time after the Closing Date, full access to the premises and to all the
books and records of Sellers related to the Assets and the Stores and to cause
the officers of Sellers to (i) cooperate with and to furnish Purchaser with
such financial and operating data and other information with respect to the
Financial Statements, Assets and the Stores as Purchaser shall from time to
time reasonably request for the purpose of conducting an audit or such other
purposes related to the Business and (ii) provide management representations to
Purchaser's auditors with respect to the Financial Statements provided that
such auditors apply generally accepted accounting principles on a basis
consistent with Seller's practice for the period preceding the Closing Date.
f. Preservation of Goodwill. After the date
hereof and through the Closing Date, Sellers shall use reasonable efforts to
preserve for Purchaser the goodwill the Sellers have developed with their
suppliers, customers and other persons having business relations with the
Sellers with respect to the Stores.
g. Non-Compete. Except as set forth in Schedule
4(g), Sellers shall not own, operate, license or franchise any retail locations
in the United States that sell prepared coffee beverages and/or food items
(whole beans only and the existing locations and licensing agreements listed in
Schedule 4(g) excepted) for a period of five (5) years from Closing.
Notwithstanding, Sellers may prepare or license the preparation and
distribution of coffee beverages with the Sellers' names and/or marks within
the indoor premises of its current and future wholesale customers whose
principal business is not the retail sale and/or preparation of coffee beans
and/or prepared coffee beverages nor the operation of a retail coffee
establishment, provided that such preparation and distribution is not towards
the effort of creating a retail presence so as to avoid the aforesaid
restriction. However, Sellers shall not sell to nor license a wholesale
customer which purchases whole beans for the purpose of obtaining the right to
sell coffee beverages in order to avoid the restriction contained herein.
5
<PAGE> 6
Sellers acknowledge that Purchaser is relying on this non-compete clause as a
material inducement to consummate this transaction.
h. Confidentiality. Purchaser and Sellers shall
hold in strict confidence (i) all documents and information obtained from the
other Parties hereto, their employees, agents and/or independent contractors,
(ii) the nature and content of this Agreement and all discussions between
Purchaser and Sellers regarding the transaction contemplated herein, whether
prior to or after the execution of this Agreement and (iii) the fact that
Sellers and Purchaser have entered into this Agreement (all of the above shall
collectively be referred to herein as "Confidential Information"), and shall
not disclose or convey any of such Confidential Information to any other
person, provided that Purchaser and Sellers may disclose Confidential
Information (x) to such of their employees, attorneys, accountants and
financial advisors as is reasonable to facilitate consummation of the
transactions contemplated by this Agreement, (y) to the extent any such
disclosure is required by law and (z) to landlords and other third parties as
necessary to facilitate obtaining such parties' consent to the transfer of
Assets hereunder.
i. Sellers to Operate in Ordinary Course of
Business. During the period from the date of this Agreement to the Closing
Date, Sellers shall (i) carry on the Business and conduct their operations of
the Assets and the Stores only in the ordinary and usual course of business
consistent with past practices, (ii) use their best efforts to (A) preserve
intact the Assets and the Stores, (B) keep available the services of their
officers and employees and (C) preserve existing relationships with licensors,
suppliers, distributors, customers, landlords and others having business
relationships with Sellers with respect to the Business, (iii) not waive any
right of substantial value related to the Business, and (iv) communicate on a
regular and frequent basis with one or more designated representatives of
Purchaser to report material operational matters and to report the general
status of ongoing operations of the Business. Prior to the Closing Date and
except as may be first approved by the Purchaser or as is otherwise permitted
or required by this Agreement, Sellers shall refrain from entering into or
amending or terminating any material contract or commitment with respect to the
Business, except in the ordinary course of business.
j. Operation of Stores Following the Closing for
Which No Lease Assignment Has Been Received.
(i) In connection with each Store as to
which the Seller does not deliver a Lease Assignment to Purchaser on the
Closing Date, commencing on the Closing Date and ending on the earlier of the
date that such Lease Assignment is delivered to the Purchaser or the Deadline,
Purchaser shall (A) assume the operation of each such Store, (B) reasonably
cooperate with Sellers in their efforts to obtain such Lease Assignment, (C)
not knowingly or intentionally take any actions that would impair Sellers'
ability to obtain such Lease Assignment and (D) use commercially reasonable
efforts to maintain the goodwill and going concern value of the Store. During
this period in which Purchaser is operating such Store, Purchaser shall have
sole discretion in all operations and management of such Store as though there
had been an assignment and (X) Sellers relinquish and Purchaser shall retain
all rights to any revenues and/or income from the sale of goods and services
from such Store and (Y) Purchaser shall be responsible for payment of all costs
and expenses incurred in the operation of such Store (except for rental
payments for the month in which the Closing occurs).
(ii) On the first day following the date
of the Deadline, Sellers shall resume operation of and responsibility for any
Store for which no Lease Assignment has been received. As a result,
notwithstanding anything in this Agreement to the
6
<PAGE> 7
contrary, Sellers shall assume all risk and obligation under the Leases for
such Stores on the first day following the date of the Deadline.
(iii) In the event that Purchaser occupies
any Store premises pursuant to this Paragraph 4(j), Sellers shall jointly and
severally indemnify, defend, protect and hold Purchaser, its directors,
officers, employees, agents and affiliates harmless from and against any and
all Damages (as defined in Paragraph 9(b)(i)) arising out of, resulting from or
in any way related to the non- assignment of any Lease on the Closing Date
and/or Purchaser's occupancy of such Store premises on or after the Closing
Date in violation of any Lease, including, but not limited to, Damages
resulting from a landlord's failure to perform any of its obligations under any
Lease. The foregoing indemnification is in addition to the indemnification
provided by Paragraph 9. Purchaser shall reimburse Sellers for any regularly
scheduled rental payments required to be made by Sellers to the landlord under
the terms of a Lease after the month in which the Closing occurs and during
Purchaser's occupancy of the related Store premises hereunder until such time
as such Lease is validly assigned to Purchaser.
(iv) The occupancy by Purchaser of any
Store premises pursuant hereto shall not be deemed an implied assumption of the
Lease. Sellers shall use their best efforts and shall take all necessary
actions to obtain the valid assignment of each Lease to Purchaser effective as
of the Closing Date or as soon thereafter as possible. Sellers shall bear all
costs, expenses and risks relating to obtaining the valid assignment to
Purchaser of each Lease.
k. Certain Defaults. Sellers will give prompt
notice to Purchaser of:
(i) any notice of default received
subsequent to the date of this Agreement (and prior to the Closing Date) under
any lease, instrument or agreement to which it is a party or by which it is
bound, which default would, if not remedied, result in a material adverse
effect on the Business, Assets or operation of any particular Store or which
would render materially incomplete or untrue any representation made herein;
and
(ii) any suit, action or proceeding
instituted or, to the knowledge of Sellers, threatened against or affecting
Sellers, the Business or the Assets subsequent to the date of this Agreement
(and prior to the Closing Date) which, if adversely determined, would result in
a material adverse effect on the Business, Assets or operation of any
particular Store or which would render materially incorrect any representation
made herein.
l. Additional Actions. Subject to the terms and
conditions of this Agreement, the parties hereto agree to use all reasonable
efforts to take, or cause to be taken, all reasonable action and to do, or
cause to be done, all things reasonably necessary, proper or advisable under
applicable laws and regulations to consummate and make effective the
transactions contemplated by this Agreement as promptly as reasonably
practicable. Such obligation shall include without limitation such efforts of
each of the parties, prior to the Closing Date, to obtain, to be effective
either at the Closing Date or as soon as practicable thereafter, any required
consents with respect to, or novations of, any contracts, agreements, plans,
leases, instruments, licenses, arrangements or commitments of Sellers in effect
prior to the Closing Date. In case at any time after the Closing Date any
further action is necessary or desirable to carry out the purposes of this
Agreement or to vest Purchaser with full title to all properties, assets,
rights, approvals, immunities and franchises of Sellers, the proper officers,
directors or employees of each party to this Agreement shall take all such
necessary action.
7
<PAGE> 8
5. CONDITIONS TO CLOSING, CLOSING AND DELIVERIES AT
CLOSING.
a. Conditions to Purchaser's Obligations.
Subject to the terms of Paragraph 5(c) below, the obligation of Purchaser to
consummate the transactions contemplated hereunder is expressly contingent upon
the satisfaction, or written waiver by Purchaser in its sole discretion, of the
following conditions precedent:
(i) Purchaser shall have received duly
executed originals of the following documents: (A) the opinion of Sellers'
counsel, Ballard Spahr Andrews & Ingersoll, dated as of the Closing Date, in
the form and substance of Exhibit C hereto, (B) Bills of Sale for the Assets in
the form and substance of Exhibit D hereto, and (C) the Escrow Agreement.
(ii) Sellers shall have performed in all
material respects the obligations required under this Agreement to be performed
by them at or prior to the Closing, and Sellers shall have provided Purchaser
an Officer's Certificate to such effect at Closing.
(iii) The representations and warranties
of the Sellers contained herein shall be true and correct in all material
respects at and as of the Closing Date as if made at and as of such time,
except to the extent that a different time is specifically stated in such
representations and warranties, and Sellers shall have provided to Purchaser an
Officer's Certificate to such effect at Closing.
(iv) No temporary restraining order,
preliminary injunction or permanent injunction or other order preventing the
consummation of the transactions contemplated by this Agreement shall have been
issued by any federal, state or foreign court or other governmental or
regulatory authority and remain in effect, and no litigation seeking the
issuance of such an order or injunction, or seeking substantial damages against
Purchaser or Sellers if the transactions contemplated by this Agreement are
consummated, shall be pending which, in the good faith judgment of Sellers and
Purchaser, has a reasonable probability of resulting in such order, injunction
or substantial damages. In the event any such order or injunction shall have
been issued, each party agrees to use its reasonable efforts to have any such
injunction lifted.
(v) No federal, state, local or foreign
statute, rule or regulation shall have been enacted which would make the
consummation of the transactions contemplated by this Agreement illegal.
(vi) Since the date hereof, there shall
not have been instituted and be continuing or threatened against any Seller,
any claim, action or proceeding related to the Business or the Assets, which if
determined adversely to such Seller could reasonably result in a material
adverse effect on the Business, the Assets or the operation of any particular
Store.
(vii) No material adverse change shall
have occurred related to the Business or the Assets or the operation of any
particular Store.
(viii) Except for Lease Assignments not
obtained from landlords on or before the Closing Date, any and all other
consents, assignments and releases required from third parties relating to
contracts, licenses and other agreements and instruments that are part of the
Assets shall have been obtained in form and substance satisfactory to
Purchaser.
8
<PAGE> 9
(ix) Sellers shall have delivered a final
version of Schedule 1(a) which shall set forth the Assets to be transferred
pursuant to this Agreement and such final version of Schedule 1(a) shall not
differ from the version of Schedule 1(a) delivered on the date hereof if such
difference results in a reduction in the value of the Assets being transferred
hereunder by more than $ 2,500 or adversely affects the potential future
operations of any Store by more than $ 2,500.
(x) Purchaser shall have received a duly
executed Officer's Certificate certifying that the conditions set forth in
Paragraphs 5(a)(iv), (v), (vi), (vii), (viii) and (ix) have been satisfied.
b. Conditions to Sellers' Obligations. Subject
to the terms of Paragraph 5(c) below, the obligations of Sellers to consummate
the transactions contemplated hereunder are expressly contingent upon the
satisfaction, or written waiver by Sellers in their sole discretion, of the
following conditions precedent:
(i) Sellers shall have received duly
executed originals of the following documents: (A) the Assumption Agreement,
(B) the Escrow Agreement and (C) the opinion of Purchaser's counsel dated as of
the Closing Date in substantially the form of Exhibit E.
(ii) Purchaser shall have performed in
all material respects its obligations required under this Agreement to be
performed by it at or prior to the Closing, and Purchaser shall have provided
to Sellers an Officer's Certificate to such effect at Closing.
(iii) The representations and warranties
of Purchaser contained herein shall be true and correct in all material
respects at and as of the Closing Date as if made at and as of such time,
except to the extent that a different time is specifically stated in such
representations and warranties, and Purchaser shall have provided to Sellers an
Officer's Certificate to such effect at Closing.
c. Location of Closing and Closing Date. Unless
otherwise agreed to by the Parties, the consummation of the transactions
contemplated by this Agreement (the "Closing") shall take place at on February
__, 1996, or such later date as is agreed to by the Parties in writing (the
"Closing Date"), at the offices of Ballard Spahr Andrews & Ingersoll, 1225 17th
Street, Suite 2300, Denver, Colorado.
d. Deliveries at Closing.
(i) Sellers shall execute and deliver or
cause to be executed and delivered, as the case may be, to Purchaser (or the
Escrow Agent) at Closing the following, each of which must be reasonably
satisfactory in form and substance to Purchaser and its legal counsel (A) the
Escrow Agreement, (B) the Bills of Sale for the Assets, (C) the Lease
Assignments, (D) the opinion of Sellers' counsel, dated as of the Closing Date,
(E) the Officer's Certificate described in Paragraphs 5(a)(iii) and (iv) above,
(F) certified copies of resolutions of the Board of Directors of each Seller
approving the execution and delivery of this Agreement and consummation of all
of the transactions contemplated hereby, duly certified by an officer of each
Seller and (G) all other documents or certificates required to be delivered to
Purchaser under the provisions of this Agreement.
(ii) Purchaser shall execute and deliver
or cause to be executed and delivered, as the case may be, to Sellers (or the
Escrow Agent) at Closing the following, each of which must be reasonably
satisfactory in form and substance to Sellers and
9
<PAGE> 10
their legal counsel (A) the Escrow Agreement, (B) the Assumption Agreement, (C)
the Lease Assignments, (D) the Officer's Certificate described in Paragraphs
5(b)(iii) and (iv) above, (E) a certified copy of resolutions of the Board of
Directors of Purchaser approving the execution and delivery of this Agreement
and consummation of all of the transactions contemplated hereby, duly certified
by an officer of Purchaser, (F) the opinion of Purchaser's counsel dated as of
the Closing Date and (G) all other documents or certificates required to be
delivered to Sellers under the provisions of this Agreement.
6. REPRESENTATIONS AND WARRANTIES OF SELLERS.
Brothers, jointly and severally, and Bars, severally,
make the following representations and warranties to Purchaser, with the
knowledge that all such representations and warranties made by Sellers shall,
subject to Paragraph 9(a) below, survive execution of this Agreement, and with
the full knowledge that Purchaser is entering into and consummating this
Agreement in full reliance thereon.
a. Due Incorporation and Authorization. Each of
the Sellers (i) has been duly incorporated, is validly existing and is in good
standing under the laws of the State of Delaware, (ii) is in good standing in
every jurisdiction in which the nature of the business conducted by it or the
character of the properties owned or leased by it makes such qualification
necessary, except where the failure to be in good standing does not have a
material adverse effect on the operation of any particular Store or on each
Seller's Business taken as a whole, and (iii) has the full power and authority
to enter into this Agreement and the documents referenced herein and to
consummate the transactions contemplated herein and otherwise to perform its
obligations hereunder. This Agreement has been duly authorized and executed by
each of the Sellers and constitutes the legal, valid and binding obligation of
each of the Sellers, enforceable against each Seller in accordance with its
terms.
b. Violation. The execution and delivery of
this Agreement by each of the Sellers, the assignment of the Leases and the
consummation of the sale of the Assets contemplated hereby do not and will not
(i) violate any provision of the Certificate of Incorporation or by-laws of any
of the Sellers, (ii) violate any material court or administrative order,
process, judgment or decree to which any of the Sellers is a party or by which
any of them (or any of their respective properties or assets) is bound or (iii)
except as disclosed on Schedule 6(b), violate any provision of, or result in
the acceleration of or entitle any party to accelerate (whether after notice or
lapse of time or both) any obligation under, or result in the creation or
imposition of any material lien, charge, pledge, security interest or other
encumbrance upon the property of any of the Sellers pursuant to any provision
of, any mortgage, lien, lease, agreement, license, or instrument to which any
of the Sellers is a party.
c. Consents. Except as disclosed on Schedule
6(c) hereto, no consent or approval by or of, or any notification or filing
with, any person (governmental or private) is required in connection with the
execution, delivery and performance by Sellers of this Agreement or the
consummation of the transactions contemplated hereby.
d. Schedule of Assets. Schedule 1(a) is true,
complete and correct in all material respects. All of the Assets are in
satisfactory condition and repair for the requirements of the Business as now
being conducted ordinary wear and tear excepted. There are no proceedings
affecting any of the Assets pending or, to the knowledge of Sellers, threatened
which may reasonably be expected to adversely curtail the use of the Assets for
the purpose for which they were acquired or the purpose for which they are now
used. The Assets constitute all of the assets and interests in assets that are
necessary in the conduct of the
10
<PAGE> 11
Business as currently being conducted, other than the Excluded Assets. Sellers
are in possession of all Assets leased to them by others.
e. Encumbrances. Except as disclosed on
Schedule 6(e) hereto, at Closing, each Seller shall have good and marketable
title to (or a valid leasehold or contractual interest in) its Assets, free and
clear of any and all liens, claims, encumbrances, debts or other adverse claims
or rights of any kind.
f. Misstatements and Omissions. No
representation or warranty by Sellers in this Agreement and/or any Exhibit,
addendum or attachment hereto contains any untrue statement of a material fact,
or omits any material fact necessary to make the statements contained therein
not misleading.
g. Litigation. Except as disclosed on Schedule
6(g), there is no action, suit or proceeding pending or, to Sellers' knowledge,
contemplated in or before any licensing, taxing or other governmental body or
any court of law or arbitrator which could result in the avoidance of any term
or condition hereunder, or create any liability on the part of Purchaser for
the actions or operations of the Assets or Stores either on or before or
following the Closing Date, or which challenges the right or ability of Sellers
to enter into this Agreement and perform their obligations hereunder, or which
relates in any manner to the Assets or the Business. Except as disclosed as
Schedule 6(g), to the knowledge of Sellers, there is no reasonable basis for a
claim, action or proceeding against or relating to Sellers, the Assets or the
Business which, if adversely determined, could, individually or in the
aggregate, reasonably be expected to result in a material adverse effect on the
Business, Assets or the operation of any particular Store. There is not in
existence any order, judgment or decree of any court or other tribunal or other
agency enjoining or requiring Sellers to take any action of any kind with
respect to the Business or the Assets.
h. Financial Information. Sellers have
previously delivered to Purchaser the financial information set forth on
Schedule 6(h) hereto with respect to the Assets and the Stores (the "Financial
Statements"). The Financial Statements are true, correct and complete and have
been prepared in conformity with generally accepted accounting principles
applied on a consistent basis throughout the periods involved, except as
otherwise noted therein and subject (in the case of interim financial
statements referred to above) to year-end audit adjustments.
i. Ordinary Course of Business. Except as set
forth in Schedule 6(i) hereto, since January 1, 1995, (i) each Seller has
operated its Assets and its Stores in the ordinary course, consistent with past
practice, (ii) there has not been any change in the operations or condition,
financial or otherwise, of the Business, including the Assets and the Stores,
other than changes, none of which, individually or in the aggregate, has been
materially adverse to each Seller's Assets or the operation of any particular
Store, and (iii) there has not been any material Asset sold or disposed of
(except inventory sold in the ordinary course of business), any material Asset
mortgaged, pledged or subjected to any lien, charge or other encumbrance.
j. Compliance with Laws.
(i) Except as disclosed on Schedule
6(j), each Seller has complied and the Business has been operated in compliance
with all applicable federal, state and local laws and regulations, including,
without limitation, Environmental Laws and the Americans with Disabilities Act
of 1990, and all applicable foreign laws and regulations relating to the
operation of the Business, its Assets and its Stores, except where failure to
11
<PAGE> 12
comply with such laws and regulations would not have a material adverse effect
on the Business or each Seller's operation of its Assets and its Stores, taken
as a whole, or a material adverse effect as to the continued operation of any
particular Store by Purchaser from and after the Closing Date. For purposes of
this Agreement, the term "Environmental Laws" shall mean any federal, state or
local statute, ordinance, rule, regulation, order, consent decree, judgment or
common-law doctrine, and provisions and conditions of permits, licenses and
other operating authorizations relating to (i) pollution or protection of the
environment, (ii) exposure of persons, including employees, to toxic or
hazardous substances or other products, raw materials, chemicals or other
substances, (iii) protection of the public health or welfare from the effects
of by-products, wastes, emissions, discharges or releases of chemical
substances from industrial or commercial activities or (iv) regulation of the
manufacture, use or introduction into commerce of chemical substances,
including, without limitation, their manufacture, formulation, labeling,
distribution, transportation, handling, storage and disposal.
(ii) Each Seller, its employees or agents
have not caused or, to such Seller's knowledge, allowed the generation,
treatment, storage, release or disposal of hazardous substances except in
compliance with all Environmental Laws. Each Seller, its employees or agents
have not received any written notice or, to the knowledge of such Seller, any
other communication, from any governmental authority alleging or concerning any
violation by such Seller of, or responsibility or liability of such Seller
under, any Environmental Law. There are no pending, or to the knowledge of
each Seller, threatened, claims, suits, proceedings or investigations with
respect to the Business or the Assets alleging or concerning any violation of
or responsibility or liability under any Environmental Law, nor does any Seller
have any knowledge of any fact or condition which might reasonably be expected
to give rise to such a claim, suit, proceeding or investigation. Each Seller
is in possession of all material approvals, permits and licenses from all
governmental authorities under statutes and regulations relating to the
environment and to workplace health and safety with respect to the operation of
the Business; there are no pending or, to the knowledge of each Seller,
threatened, actions, proceedings or investigations seeking to revoke or deny
renewal of any of such approvals, permits and licenses; and each Seller has no
knowledge of any fact or condition which would reasonably be expected to give
rise to any action, proceeding or investigation to revoke or deny renewal of
such approvals, permits or licenses.
(iii) Schedule 6(j) sets forth a true and
complete list of each health authority (including, without limitation, the
Department of Health) pending or actual review of or visitation to a Store on
or after January 1, 1995, and the date of such pending or actual review or
visitation and, in the case of a completed review or visitation, a summary of
the health authority's findings resulting therefrom. Except as set forth on
Schedule 6(j), there are not existing, nor to the knowledge of each Seller
threatened, any orders or requests by any health authority requiring or
requesting any action by such Seller relating in any manner to the Business or
the Assets. Prior to the Closing Date, the Sellers have provided Purchaser
with true and complete copies of all correspondence since January 1, 1995 with
any health authority relating in any manner to the Business or the Assets.
k. Inventories. All of the inventories included
in the Financial Statements are usable and salable in the ordinary course of
business, except for items of obsolete materials and materials of
below-standard quality, all of which have been written off or written down to
fair market value on the Financial Statements and in accordance with generally
accepted accounting principles and except for such lack of usability and
salability as would not have a material adverse affect on the value of the
inventory. No inventory has been pledged as collateral.
12
<PAGE> 13
l. Permits and Licenses. Except as disclosed on
Schedule 6(l), each Seller has all permits, governmental licenses,
registrations and approvals (collectively, "Approvals") necessary to carry on
the Business as operated at its Stores (as presently conducted) as required by
law or the rules and regulations of any federal, state, county or local
association, corporation or governmental agency, body, instrumentality or
commission having jurisdiction over them, except where the failure to have any
such Approvals would not have a material adverse affect on each Seller's
operation of its Stores, taken as a whole, or a material adverse effect as to
the continued operation of any particular Store by Purchaser from and after the
Closing Date.
m. Material Contracts. Schedule 6(m) hereto
sets forth a list of all material contracts and agreements, whether oral or
written, to which each of the Sellers is a party with respect to the Business.
With respect to such contracts, except as set forth in Schedule 6(m), Sellers
(with respect to the contracts to which each is a party) are not in breach
thereof or default thereunder and, to the best knowledge of Sellers, there does
not exist under any such contract any event which, with the giving of notice or
the lapse of time, would constitute such a breach or default, except for such
breaches, defaults and events as to which requisite waivers or consents have
been obtained or as to which do not or would not have a material adverse affect
on the Business or the operation of any particular Store.
n. Labor Matters. Schedule 6(n) hereto sets
forth all labor union and collective bargaining agreements and all employment
or consulting contracts to which any Seller is a party and which are related to
the Business.
o. Taxes. Each Seller has paid or accrued for
all applicable income, social security, withholding, sales, unemployment
insurance, and other taxes of any kind relating to the Business due through the
Closing Date, and each Seller has properly filed all required tax returns and
applicable regulatory filings as provided by law which are due to be filed as
of the Closing Date and shall file on a timely basis all such returns and
filings, and shall make all related payments, required to be filed or made by
such Seller with respect to the Assets and the Stores following the Closing
Date. All such filings were true, correct and complete when made.
p. Other Transactions. Sellers, individually
and in the aggregate, have not entered into any unterminated contract to sell
(other than this Agreement) the Assets or the Stores, or any portion thereof.
q. Leases and Real Property. Except as
disclosed on Schedule 6(q), the Leases are in full force and effect as written
and, at Closing, the Sellers will be in full compliance therewith. Schedule
6(q) lists each lease of real property related to the Business (including,
without limitation, the Leases) under which any Seller is a lessee, lessor,
sublessee or sublessor, as so designated therein. All leases, easements and
other real property interests held by each Seller are valid and subsisting and,
except as disclosed on Schedule 6(q), each Seller is not in default thereunder.
No Seller owns any real property used in the Business.
r. Absence of Undisclosed Liabilities. Except
as disclosed in the Financial Statements, no Seller has any material
liabilities or obligations (contingent or otherwise) relating to the Business
or the Assets.
s. Full Disclosure. All instruments, agreements
and other documents delivered or to be delivered, or made available, to
Purchaser pursuant to this Agreement are complete and correct in all material
respects. No representation or warranty made by Sellers in this Paragraph 6 or
the Schedules to this Agreement contains or will
13
<PAGE> 14
contain any untrue statement of a material fact or omits or will omit to state
a material fact required to be stated herein or therein necessary to make the
statements on behalf of Sellers in this Paragraph 6. and the Schedules to this
Agreement, in light of the circumstances in which they are made, not
misleading.
7. EXCLUSION OF WARRANTIES.
a. No Warranties. Provided that nothing in this
Paragraph 7(a) shall be deemed to limit the effect of the other covenants,
representations and warranties made by Sellers in Paragraph 6, Paragraph 7(b)
or elsewhere herein, the Parties agree that all FF&E shall be in good operating
condition on the Closing Date, and are otherwise sold pursuant to this
Agreement "AS IS."
EXCEPT AS TO THE OPERATING CONDITION ON THE DAY OF CLOSING,
THERE ARE NO WARRANTIES WITH RESPECT TO THE FF&E WHICH EXTEND BEYOND THE
DESCRIPTION UPON THE FACE HEREOF. EXCEPT AS PROVIDED ELSEWHERE IN THIS
AGREEMENT, SELLERS MAKE NO REPRESENTATIONS OR WARRANTIES OF ANY KIND, EXPRESS
OR IMPLIED, INCLUDING, BUT NOT LIMITED TO, THOSE WITH RESPECT TO THE CONDITION
OF THE ASSETS, THEIR MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE OR
WITH RESPECT TO PATIENT INFRINGEMENT OR THE LIKE.
Except as provided in this Agreement, there shall be
no abatement of the Purchase Price and Sellers shall have no liability to
Purchaser for any claim, loss or damage as a result of (i) any non-operating
deficiency or defect in the FF&E, (ii) the use or performance of the FF&E or
(iii) any interruption or loss of service or of use of the FF&E; and
b. Limited Warranty. The Sellers hereby warrant
that all Assets, including, without limitation, all FF&E and buildouts in the
Stores, are in good operating condition as of the Closing Date, and Purchaser
shall have a period of six (6) months from the Closing Date to notify Seller of
any nonconforming Assets pursuant to this warranty. In the event that
Purchaser determines and establishes that any of such Assets were not in good
operating condition as of the Closing Date, Sellers shall reimburse Purchaser
within five (5) business days of Sellers' receipt of the reimbursement request
for any of Purchaser's reasonable costs related to repairing or replacing such
defective items. Sellers shall not be obligated to reimburse Purchaser for any
repairs and/or replacements of such items if such repair and/or replacement
shall cost less than one hundred dollars ($100) per item, except that the
Sellers shall reimburse Purchaser for any such repairs and/or replacements
which aggregate in excess of five hundred dollars ($500) in any one Store. All
equipment and construction warranties applicable to the Assets shall, to the
extent assignable, be assigned by the Sellers at Closing to Purchaser.
8. REPRESENTATIONS AND WARRANTIES OF PURCHASER.
Purchaser makes the following representations and
warranties to Sellers, with the knowledge that all such representations and
warranties made by Purchaser shall, subject to Paragraph 9(a) below, survive
execution of this Agreement, and with full knowledge that Sellers are entering
into and consummating this Agreement in full reliance thereon.
a. Due Incorporation and Authorization.
Purchaser (i) has been duly incorporated, is validly existing and is in good
standing under the laws of the State of California, (ii) is in good standing in
every jurisdiction in which the nature of the business conducted by it or the
character of the properties owned or leased by it makes such
14
<PAGE> 15
qualification necessary, except where the failure to be in good standing does
not have a material adverse effect on Purchaser's business taken as a whole,
and (iii) has the full power and authority to enter into this Agreement and to
consummate the transactions contemplated herein and otherwise to perform its
obligations hereunder. This Agreement has been duly authorized and executed by
the Purchaser and constitutes the legal, valid and binding obligation of
Purchaser enforceable against it in accordance with its terms.
b. Violation. The execution and delivery of
this Agreement by the Purchaser, the acceptance of the valid assignment of the
Leases, the consummation of the purchase of the Assets and the assumption of
the Assumed Liabilities contemplated hereby will not (i) violate any provision
of the articles of incorporation or by-laws of the Purchaser or (ii) violate
any material court or administrative order, process, judgment or decree to
which either Purchaser is a party or by which Purchaser is bound.
c. Consents. No consent or approval by, or any
notification of or filing with, any person (governmental or private) is
required in connection with the execution, delivery and performance by
Purchaser of this Agreement or the consummation of the transactions
contemplated hereby, other than those consents which have been obtained.
d. Misstatements and Omissions. No
representation or warranty of Purchaser in this Agreement and/or any Exhibit,
addendum or attachment hereto, contains any untrue statement of a material
fact, or omits any material fact necessary to make the statements contained
therein not misleading.
e. Litigation. Purchaser is not aware of any
action, suit or proceeding pending or contemplated in or before any licensing,
taxing or other governmental body or any court of law which could result in the
avoidance of any term or condition hereunder or which challenges the right or
ability of Purchaser to enter into this Agreement and perform its obligations
hereunder.
f. Financing. There is no financing contingency
which may prohibit or delay Purchaser's ability to close the transactions
contemplated hereby.
9. INDEMNIFICATION.
a. Survival of Representations and Warranties.
Regardless of any investigations of any Party made prior to the Closing, all
representations and warranties made by Sellers and Purchaser herein shall
survive the Closing hereunder for a period of one (1) year following the
Closing Date, and any claim with respect to the inaccuracy of any such
representation or warranty must be made during such one-year period; provided,
however, that the representations and warranties contained in Paragraphs 6(d),
6(e), 6(j) and 6(o) hereof shall survive the closing until expiration of
applicable statutes of limitation.
b. Agreement to Indemnify.
(i) Subject to the limitations set forth
in this Paragraph 9, from and after the Closing, Brothers, jointly and
severally, and Bars, severally, agree to indemnify, defend and hold Purchaser
and its directors, officers, employees and agents harmless from and against any
and all demands, claims, losses, damages, costs and expenses of any kind,
including without limitation interest, costs, penalties and reasonable
attorneys' fees (collectively, "Damages"), asserted against, resulting from,
imposed upon or incurred or suffered by Purchaser and its directors, officers,
employees and agents as a result of or arising from (A) the Nonassumed
Liabilities, (B) the Assumed Liabilities on or prior to the Closing
15
<PAGE> 16
Date, (C) any inaccuracy in or breach or nonfulfillment in any material respect
of any representation, warranty, covenant or agreement of Sellers contained in
this Agreement, (D) the payment of any Taxes (including interest and penalties)
of any kind or nature imposed, whether before or after the Closing, by any
government or subdivision thereof upon the business, assets or employees or
independent contractors of Sellers or otherwise resulting from or relating to
the Business or the Assets prior to or on the Closing, (E) the death of or
injury to any person or damage to property that occurred prior to the Closing
and arose out of or in connection with the Business or the Assets (whether
asserted, discovered or established before or after the Closing, and whether or
not such claim or action is disclosed in the Schedules to this Agreement), (F)
all employment-related claims and causes of action, and all other claims and
causes of action, that have arisen or arise out of or in connection with the
Business or the Assets prior to the Closing (whether asserted, discovered or
established before or after the Closing, and whether or not such claim or
action is disclosed in the Schedules to this Agreement), (G) all intellectual
property-related claims and causes of action, and all other claims and causes
of action, that arise out of or in connection with the use by Purchaser of the
rights granted to it pursuant to Paragraphs 4(c) and 4(d), including, without
limitation, any claims and causes of action that the "Brothers", "Brothers
Keeper" or "Brothers Sleeper" name and related trademarks, tradenames and/or
logos infringe any United States or foreign trademark or other proprietary
right, and (H) the existence prior to the Closing Date of any hazardous or
toxic substances, wastes or materials, defined as such or governed by any
applicable Environmental Law ("Hazardous Materials") upon, about or beneath any
property of any Seller or migrating or threatening to migrate from any such
properties, or the existence of a violation of Environmental Laws pertaining to
such properties or the Business or the Assets, regardless of whether the
existence of such Hazardous Materials or the violation of Environmental Laws
arose prior to the present ownership or operation of such properties by Sellers
or was disclosed to Purchaser by any Seller. Subject to the provisions of this
Paragraph 9, Purchaser shall have the right to offset any amount due hereunder
by withdrawing such amount from the Purchase Reserve.
(ii) Subject to the limitations set forth
in this Paragraph 9, Purchaser agrees to indemnify, defend and hold Sellers
harmless from and against any and all Damages, asserted against, resulting
from, imposed upon or incurred or suffered by Sellers as a result of or arising
from (A) the Assumed Liabilities after the Closing Date and (B) any inaccuracy
in or breach or nonfulfillment in any material respect of any representation,
warranty, covenant or agreement of Purchaser contained in this Agreement.
(iii) For purposes of this Paragraph 9,
all Damages shall be computed net of (A) any insurance proceeds actually
received by the indemnified party with respect thereto and (B) any amounts
recovered from any third parties based on claims the indemnified party has
against such third parties which reduce the Damages that would otherwise be
sustained. Each indemnified party agrees to use reasonable efforts to pursue
any claims or rights it may have against any third party, or otherwise
cooperate with the indemnifying party, so as to reduce the amount of Damages
otherwise incurred by such indemnified party.
c. Procedure for Indemnification.
(i) In the event that any indemnified
party receives written notice of the commencement of any action or proceeding,
the assertion of any claim by a third party or the imposition of any penalty or
assessment for which indemnity may be sought pursuant to this Paragraph 9 (a
"Third Party Claim"), and such indemnified party intends to seek indemnity
pursuant to this Paragraph 9, such indemnified party shall promptly provide the
indemnifying party with written notice of such Third Party Claim (provided that
failure to
16
<PAGE> 17
provide such notice shall not effect the indemnified party's right to indemnity
hereunder), and such indemnifying party shall, upon receipt of such notice, be
entitled to participate in or, at the indemnifying party's option, assume the
defense, appeal or settlement of such Third Party Claim with respect to which
such indemnity has been invoked with counsel of its choosing, subject to the
consent of the indemnified party, which consent shall not be unreasonably
withheld, and such indemnified party shall fully cooperate with the
indemnifying party in connection therewith; provided that such indemnified
party shall be entitled to employ counsel to represent such indemnified party
if, in such indemnified party's reasonable judgment, a conflict of interest
between the indemnifying party and the indemnified party exists in respect of
such Third Party Claim and in that event the fees and expenses of such separate
counsel after the date on which the indemnifying party assumes the defense
shall be paid by the indemnified party. In the event that the indemnifying
party fails to assume the defense, appeal or settlement of such Third Party
Claim within twenty (20) days after receipt of written notice thereof from such
indemnified party, such indemnified party shall have the right to undertake the
defense or appeal of or settle or compromise such Third Party Claim on behalf
of, at the expense of, and for the account and risk of the indemnifying party.
The indemnifying party shall not settle or compromise any Third Party Claim
without such indemnified party's prior written consent, which shall not be
unreasonably withheld, unless the terms of such settlement or compromise
release such indemnified party from any and all liability with respect to such
Third Party Claim.
(ii) Any indemnifiable claim that is not
a Third Party Claim shall be asserted by the party entitled to indemnification
hereunder by written notice to the indemnifying party in compliance with the
terms of this Agreement. If the indemnifying party does not respond to such
notice within sixty (60) days, it shall have no further right to contest the
validity of such claim.
d. Limitations on Indemnification. Sellers
shall not be liable for Damages under Paragraph 9(b)(i), and Purchaser shall
not be liable for Damages under Paragraph 9(b)(ii), unless the aggregate amount
of Damages for which Sellers or Purchaser, as the case may be, would, but for
the provisions of this Paragraph 9(d), be liable exceeds, on an aggregate
basis, $20,000 and then only to the extent of any such excess; provided, that
such limitation shall not be applicable to Seller's limited warranty, set forth
in Paragraph 7(b), as to the good operating condition of the Assets as of the
Closing Date, nor shall such limitation restrict amounts paid to Purchaser
following the Closing Date from the Purchase Reserve under the Escrow Agreement
in satisfaction of Sellers' obligations under Paragraph 9(b)(i) or to Disputed
Amounts of the Purchase Reserve under the Escrow Agreement. The aggregate
liability of Sellers, on the one hand, and Purchaser, on the other hand, under
this Paragraph 9 shall in no event exceed the Purchase Price.
e. Remedies Exclusive. The remedies provided in
this Paragraph 9 shall be exclusive and shall preclude assertion by an
indemnified party of any other rights or the seeking of any and all other
remedies against an indemnifying party for claims based on this Agreement.
f. Payments. Payments of all amounts owing by
any indemnifying party pursuant to this Paragraph 9 relating to a Third Party
Claim shall be made within fifteen (15) days after the latest of (i) the
settlement of such Third Party Claim, (ii) the expiration of the period for
appeal of a final adjudication of such Third Party Claim or (iii) the
expiration of the period for appeal of a final adjudication of the indemnifying
party's liability to the indemnified party under this Agreement. Payments of
all amounts owing by any indemnifying party other than for a Third Party Claim
shall be made within fifteen (15) days after the later of (i) the expiration of
the 60- day indemnity notice period set forth in Paragraph 9(c)(ii) or (ii)
17
<PAGE> 18
the expiration of the period for appeal of a final adjudication of the
indemnifying party's liability to the indemnified party under this Agreement.
10. TRANSFER; RISK OF LOSS.
a. Transfer of Assets and Assumption of Assumed
Liabilities. Purchaser shall take over and assume management and operational
control of the Stores, shall acquire legal and beneficial ownership of the
Assets related to such Stores, and shall assume, acquire, take over and become
responsible for the Assumed Liabilities related thereto as of the end of the
day on the Closing Date. If Lease Assignments are not received with respect to
a particular Store or Stores on or before the Deadline (following which the
balance of the Purchase Reserve is disbursed to Purchaser), management,
operational control, ownership of the Assets and responsibility for the Assumed
Liabilities as to such Store or Stores shall revert to Sellers as of the first
day following the close of such period.
b. Risk of Loss. Sellers shall retain all risk
of destruction, loss or damage due to fire or other casualty with respect to
each Store and its related Assets through the Closing Date. Such risks shall
revert to Sellers as to any Store or Stores for which Lease Assignments are not
received on or before the Deadline, (following which the balance of the
Purchase Reserve is disbursed to Purchaser), as of the first day following the
close of such period.
11. CERTAIN TRANSITION PROVISIONS.
a. Taxes and Rents. Taxes, rent and all other
charges due under the Leases shall be paid by Sellers through the last day of
the month in which the Closing occurs, without reimbursement by Purchaser. All
utility and telephone service to the Stores premises shall be discontinued in
Sellers' names within a reasonable period following the Closing and Sellers
shall no longer be responsible for payment of the related charges effective, in
each case, on and as of the close of business on the last day of the month in
which the Closing occurs.
b. Pre-Closing Credits. Purchaser shall
reimburse Sellers within ten (10) business days of receipt of any retroactive
credits or other amounts (excluding security deposits) which all or partially
relate to any period prior to Closing (for example, a real estate tax credit
arising after the Closing that relates to the period nine (9) months before and
three (3) months after Closing will be reimbursed by Purchaser to Sellers to
the extent of seventy-five percent (75%) of such credit received by Purchaser).
c. Post-Closing Charges. Sellers shall
reimburse Purchaser within ten (10) business days after receiving written
notice from Purchaser of any charges which all or partially relate to any
period prior to Closing and which are not Assumed Liabilities (for example, a
real estate tax charge received from a landlord after the Closing that relates
to the period nine (9) months before and three (3) months after Closing will be
reimbursed by Sellers to the extent of seventy-five percent (75%) of the bill).
d. Supply Agreement. Commencing on the Closing
Date and continuing for a period of fourteen (14) days thereafter, Sellers
hereby agree to supply to the Purchaser and the Stores whole coffee beans on
substantially the same terms and conditions (i.e., quantity of beans, quality
of beans, type of beans and delivery terms) as Seller provided such whole
coffee beans to the Stores immediately prior to the Closing; provided, however,
that the price of such whole coffee beans to the Purchaser and/or the Stores
shall be Seller's cost for such beans plus ten percent (10%) (F.O.B. the
Seller's shipping dock or any third
18
<PAGE> 19
party coffee supplier's shipping dock, as the case may be). Seller shall not
be responsible or liable to the Purchaser and/or the Stores for any damages
suffered by the Purchaser and/or the Stores for late delivery or non-delivery
of such beans if such damages are attributable solely to the actions or
inactions of third parties unrelated to the Sellers.
e. Personnel Support. For a period of up to two
(2) months following the Closing, Sellers shall make the personnel listed on
Schedule 11(e), who are involved in the day-to-day operation of the Stores,
available to Purchaser during normal business hours upon reasonable notice, at
Purchaser's option and at Purchaser's sole cost and expense, for not in excess
of an aggregate of fifteen (15) hours per week, to answer questions and
otherwise assist in the transition.
12. TAXES AND EXPENSES. All sales, transfer, use and
similar taxes and recording and similar fees incurred in connection with the
sale, conveyance or transfer of the Assets to Purchaser, to the extent required
by the respective governmental authorities, shall be paid in full by Sellers.
Sellers shall also be responsible for any and all fees charged by the landlords
in their review and/or processing of the Leases and the Lease Assignments.
13. PUBLIC ANNOUNCEMENTS. Sellers and Purchaser shall
consult with each other before issuing any press releases or otherwise making
any public statements with respect to this Agreement or the transactions
contemplated hereby and shall not issue any such press release or make any such
public statement prior to such consultation, except to the extent required by
law.
19
<PAGE> 20
14. MISCELLANEOUS.
a. Waiver. Failure of a Party to insist upon
the strict performance of any covenant, term, condition, warranty, guarantee or
indemnification of this Agreement or to exercise any right or remedy accruing
therefrom, shall not constitute a waiver by such Party of any unremedied breach
or the performance of any such covenant, term, condition, warranty, guarantee
or indemnification. A waiver shall be effective only upon a written instrument
executed by all of the Parties. Any waiver of any breach shall not affect or
alter this Agreement, but rather each and every covenant, term, condition,
warranty, guarantee and indemnification shall continue in full force and effect
with respect to any other then existing or subsequent breach thereof.
b. Expenses and Absence of Commissions.
Purchaser and Sellers each agree to bear their own legal, accounting, and other
expenses in connection with the preparation of this Agreement and the
consummation of the transactions contemplated hereby. Purchaser and Sellers
also acknowledge and warrant to each other that none of them has incurred any
liability for commissions, finder's fees, or similar claims in connection with
this transaction, except that Sellers shall be responsible for and hereby
indemnify Purchaser against all of the fees of Donaldson, Lufkin & Jenrette in
connection herewith.
c. Notices. All notices, demands, or other
communications given under this Agreement shall be in writing, and shall be
effective either when hand-delivered, or one (1) day after sent by Federal
Express or such comparable overnight delivery service, or three (3) days after
mailed postage prepaid, certified or registered mail, return receipt requested,
to Purchaser at 2144 Michelson Drive, Irvine, California 92715, Attention:
Steven A. Lupinacci, President, with a copy to John M. Williams, III, Esq.,
Gibson, Dunn & Crutcher, 4 Park Plaza, Irvine, California 92714; and to the
Sellers at 2255 Glades Road, Boca Raton, Florida 33431, Attention: Donald D.
Breen, with a copy to John L. Ruppert, Esq., Ballard Spahr Andrews & Ingersoll,
1225 17th Street, Suite 2300, Denver, Colorado 80202.
d. Assignability and Benefit. All of the terms
of this Agreement shall be binding upon and inure to the benefit of, and be
enforceable by, the respective legal representatives, and the successors and
permitted assigns of the Sellers and Purchaser. Notwithstanding the above,
this Agreement shall not be assignable by any Party without the prior written
consent of all of the other Parties, which consent may be withheld by a Party
in its sole discretion; provided, however, that Sellers may assign their
rights, but not their obligations, under this Agreement to First Union National
Bank of North Carolina, N.A. and; provided that a reincorporation by any party
shall not be deemed an assignment.
e. Construction. This Agreement is being
delivered and is intended to be performed in the State of Colorado, and shall
be construed and enforced in accordance with the laws of such jurisdiction.
Captions used in this Agreement are for convenience of reference only, do not
constitute a part of this Agreement and will not be deemed to limit,
characterize or any way affect any provision of this Agreement. All provisions
of this Agreement will be enforced and construed as if no caption had been used
in this Agreement.
f. Entire Agreement. This Agreement, together
with all Schedules and Exhibits hereto which are incorporated herein by this
reference, contains all of the agreements and understandings between the
parties hereto, and no oral agreements or written correspondence shall be held
to affect the provisions hereof. All subsequent changes and modifications to
be valid shall be by written instrument executed by each of the Sellers and
Purchaser. If for any reason any provision of this Agreement should be
declared void, illegal
20
<PAGE> 21
or invalid, such declaration shall not affect the validity of the remainder of
this Agreement, which shall continue in force as if executed with the void,
illegal or invalid provision eliminated. The Parties agree to accept and be
bound by facsimile signatures, with originals to follow by overnight mail.
g. Counterparts. This Agreement may be executed
in counterparts, each of which shall be deemed an original and all of which
counterparts taken together shall constitute one and the same agreement.
h. Attorneys' Fees. If any Party shall bring
any action, suit, counterclaim or appeal for any relief against any other
Party, declaratory or otherwise, to enforce the terms hereof or to declare
rights hereunder (collectively, an "Action"), the prevailing party shall be
entitled to recover as part of any such Action its reasonable attorneys' fees
and costs, including any fees and costs incurred in bringing and prosecuting
such Action and/or enforcing any order, judgment, ruling or award granted as
part of such Action. "Prevailing party" within the meaning of this Paragraph
includes, without limitation, a party who agrees to dismiss an Action upon the
other party's payment of all or a portion of the sums allegedly due or
performance of the covenants allegedly breached, or who obtains substantially
the relief sought by it.
21
<PAGE> 22
IN WITNESS WHEREOF, Sellers and Purchaser have caused this
Agreement to be signed as of the date first set forth above.
BROTHERS COFFEE BARS, INC.
By:
--------------------------------------
Name (Print):
----------------------------
Title:
-----------------------------------
BROTHERS GOURMET COFFEES, INC.
By:
--------------------------------------
Name (Print):
----------------------------
Title:
-----------------------------------
DIEDRICH COFFEE
By:
--------------------------------------
Name (Print):
----------------------------
Title:
-----------------------------------
22
<PAGE> 23
SCHEDULES
1(a)(i) - Leases
1(a)(ii) - FF&E
1(a)(iii) - Licenses
1(a)(vi) - Blueprints
1(a)(vii) - POS Equipment
1(a)(viii) - Computers and Software
2(b) - Allocation of Purchase Price
2(c) - December 31, 1995 Inventory
4(d) - Brothers Keeper and Brothers Sleeper Technology and Equipment
4(g) - Non-Compete Exceptions
6(b) - Violation
6(c) - Consents
6(e) - Encumbrances
6(g) - Litigation
6(h) - Financial Information
6(i) - Ordinary Course of Business
6(j) - Compliance with Laws and Health Authority Reviews
6(l) - Permits and Licenses
6(m) - Material Contracts
6(n) - Labor Matters
6(q) - Leases and Real Property
11(e) - Personnel Support
<PAGE> 24
EXHIBITS
Exhibit A: Escrow Agreement
Exhibit B: Assumption Agreement
Exhibit C: Form of Opinion of Ballard Spahr Andrews & Ingersoll
Exhibit D: Bills of Sale
Exhibit E: Form of Opinion of Gibson, Dunn & Crutcher