PLACEMENT AGENT AGREEMENT

 

                                                                    EXHIBIT 10.9

                            PLACEMENT AGENT AGREEMENT

 

 

                                November 23, 2005

 

Sanders Morris Harris Inc.

320 Park Avenue, 17th Floor

New York, NY 10022

 

Gentlepersons:

 

1.        INTRODUCTORY. Sanders Morris Harris Inc., a Texas corporation, proposes

to act on a best efforts basis as the exclusive   placement agent for the Century

Pacific Financial Corporation,   a Delaware corporation ("Century") and Versatile

Entertainment   Inc., a California limited liability company   ("Versatile"),   and

Bella Rose, LLC, a California   limited   liability   company ("Bella" and together

with Versatile,   the "Company"),   in a private placement of Series A Convertible

Preferred   Stock   (the   "Preferred    Stock")   of   Century   and   certain   selling

stockholders   of the   Company   (the   "Offering").   Prior to the   closing   of the

Offering,   all of the owners of the   Versatile and Bella Rose will exchange 100%

of their respective   ownership interests for shares of Preferred Stock.   Century

will sell a number of shares of Preferred Stock   convertible into   approximately

6.25 million shares of Century's   common stock (the "Common Stock") after giving

effect to a reverse   stock   split of 9.25   shares of Common   Stock to 1 share of

Common   Stock (the   "Reverse   Split").   The   Company   will sell its shares   (the

"Shares")   of   Preferred   Stock at a purchase   price of $13.5135   per share (the

"Offering Price"),   which represents a price of $1.25 per share, on as-converted

to Common Stock basis and after   giving   effect to the Reverse   Split.   Century,

Bella,   all of the members of Bella,   Versatile and all of the   stockholders   of

Versatile have entered into an Exchange Agreement,   dated as of October 28, 2005

(the   "Exchange   Agreement"),   pursuant to which Century will acquire all of the

outstanding membership interests (the "Interests") of Bella from its members and

all of the   outstanding   shares of capital   stock of Versatile   (the   "Versatile

Shares") from its   stockholders in exchange for shares of Preferred Stock as set

forth in the Exchange Agreement.   The exchange of Interests and Versatile Shares

for the   Preferred   Stock   contemplated   in the Merger   Agreement   and the other

transactions contemplated thereunder are referred to as the "Transaction" or the

"Transactions."

 

         Following the consummation of the Transactions and prior to the closing

of   the   Offering,   Century   shall   assume   all   of   the   Company's   rights   and

obligations   under   this   Agreement   and all   references   to the   Company   shall

thereafter   be deemed to be   references   to   Century;   provided,   that   prior to

Century's   approval and assumption of this Agreement,   references to the Company

shall only be deemed to include,   together,   Versatile   and Bella.   In addition,

upon   consummation   of the   Transactions,   Century will   prepare an   information

statement   pursuant to Rule 14(c)   promulgated under Section 14A of the Exchange

Act (together   with any   amendments or   supplements   thereto,   the   "Information

Statement")   in   connection   with the approval   and adoption of the   Stockholder

Matters (as set forth in the Exchange Agreement.

 

 

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2.        REPRESENTATIONS AND WARRANTIES OF THE COMPANY.

 

         (a)       Each of Bella and Versatile   jointly and severally   represents

and warrants to, and covenants with, you as follows:

 

                  (i)       AUTHORITY.   As of the   Closing (as defined in Section

4(d) below),   all action required to be taken by each Company   necessary for the

authorization of this Agreement, the Subscription Agreements between the Company

and the   purchasers   of the   Preferred   Stock in the form   attached as EXHIBIT A

hereto (the "Subscription Agreements"), the Registration Rights Agreement in the

form   attached   as EXHIBIT B hereto (the   "Registration   Rights   Agreement"   and

together with the   Subscription   Agreements,   the "Related   Agreements") and the

performance of all   obligations   of the Company   hereunder will have been taken;

and this Agreement and the Related Agreements shall be in full force and effect.

 

                  (ii)      AUTHORITY OF EXCHANGE TRANSACTION. As of the Closing,

all action required to be taken by each Company   necessary for the authorization

of the Exchange Agreement   (collectively   with each of the ancillary   agreements

related thereto,   collectively the "Transaction   Documents") and the performance

of all obligations of the Company hereunder will have been taken.

 

                  (iii)     ORGANIZATION OF BELLA.   Bella is a limited   liability

company duly formed or organized,   validly   existing and in good standing   under

the laws of the State of California and has the requisite power and authority to

own, lease and operate its assets and properties and to carry on its business as

it is now being or currently planned by Bella to be conducted. To its knowledge,

Bella is in   possession of all   franchises,   grants,   authorizations,   licenses,

permits, easements, consents,   certificates,   approvals and orders ("Approvals")

necessary to own, lease and operate the   properties it purports to own,   operate

or lease and to carry on its business as it is now being conducted, except where

the failure to have such Approvals could not,   individually or in the aggregate,

reasonably   be   expected   to have a   Material   Adverse   Effect   (as   hereinafter

defined) on Bella. Bella is not in violation of any of the provisions of Bella's

articles of organization or operating agreement   ("Bella's Charter   Documents").

For purposes of this Agreement,   the term "Material Adverse Effect" when used in

connection   with an   entity   means any   change,   event,   violation,   inaccuracy,

circumstance   or effect,   individually   or when   aggregated   with other changes,

events, violations,   inaccuracies,   circumstances or effects, that is materially

adverse   to   the   business,   assets   (including   intangible   assets),   revenues,

financial condition or results of operations of such entity or its subsidiaries,

if any,   taken as a whole (it being   understood   that   neither of the   following

alone or in   combination   shall be deemed,   in and of itself,   to   constitute   a

Material Adverse Effect: (a) changes   attributable to the public announcement or

pendency   of the   Transactions,   (b)   changes in general   national   or   regional

economic   conditions,   (c) changes affecting the industry generally in which the

Company operates,   or (d) any SEC rulemaking   requiring   enhanced   disclosure of

reverse merger transactions with a public shell.

 

 

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                  (iv)      ORGANIZATION OF VERSATILE. Versatile is a corporation

duly formed or organized,   validly   existing and in good standing under the laws

of the State of   California   and has the   requisite   power and authority to own,

lease and operate its assets and   properties   and to carry on its business as it

is   now   being   or   currently   planned   by   Versatile   to be   conducted.   To its

knowledge,   Versatile is in possession of all Approvals   necessary to own, lease

and operate the properties it purports to own,   operate or lease and to carry on

its business as it is now being conducted, except where the failure to have such

Approvals could not, individually or in the aggregate, reasonably be expected to

have a Material   Adverse   Effect on Versatile.   Versatile is not in violation of

any of the   provisions   of   Versatile's   Articles   of   Incorporation   or   bylaws

("Versatile's Charter Documents").

 

                  (v)       QUALIFICATION.   Each   Company   is duly   qualified   or

licensed   to do business   as a foreign   company and is in good   standing in each

jurisdiction where the character of the properties owned,   leased or operated by

it or the   nature   of its   activities   makes   such   qualification   or   licensing

necessary,   except for such failures to be so duly   qualified or licensed and in

good standing that could not,   individually   or in the aggregate,   reasonably be

expected to have a Material Adverse Effect on either Company.

 

                   (vi)      CORPORATE RECORDS. The minute books or the equivalent

of each   Company   to the extent of their   existence   contain   true and   accurate

records of meetings and true,   complete and accurate records of consents in lieu

of meetings of its managers,   managing   members,   directors   (and any committees

thereof),    similar   governing   bodies,   members   and   stockholders   ("Corporate

Records"), since the time of each Company's organization.

 

                  (vii)     SUBSIDIARIES.   Neither   Bella nor   Versatile   has any

subsidiaries.

 

                  (viii)    CAPITALIZATION.

 

                           a.        At the close of business on the business day

prior   to the   date   hereof,   Schedule   2(a)(viii)   hereto   contains   all of the

outstanding   Interests of Bella. All Interests on Schedule   2(a)(viii) have been

validly   issued,   fully   paid   and are   nonassessable.   Except   as set   forth in

Schedule    2(a)(viii),    there   are   no   outstanding    securities,    convertible

securities,   options,   warrants or derivative securities of Bella, and there are

no   agreements   or   commitments   obligating   Bella to issue or grant   any of the

foregoing,    including   any   pre-emptive   or   similar   rights.   All   outstanding

Interests,   options,   warrants and other securities of Bella have been issued in

compliance   with   (i) all   applicable   securities   laws   and   (in   all   material

respects) other applicable laws and   regulations,   and (ii) all requirements set

forth in any applicable   contracts.   Except as described in Schedule   2(a)(viii)

hereto,   there are no   commitments or agreements of any character to which Bella

is bound   obligating   Bella to accelerate the vesting of any options or warrants

as a result of the Transactions.

 

                            b.        The   authorized   capital   stock of Versatile

consists of 100 shares of common stock, no par value ("Versatile Common Stock").

At the close of business on the business   day prior to the date   hereof,   (i) 90

shares of Versatile Common Stock were issued and   outstanding,   all of which are

validly issued, fully paid and

 

 

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nonassessable,   (ii) no shares of   Versatile   Common   Stock   were   reserved   for

issuance upon the exercise of outstanding   options to purchase   Versatile Common

Stock   granted to employees of   Versatile or other   persons,   (iii) no shares of

Versatile   Common   Stock   were   reserved   for   issuance   upon   the   exercise   of

outstanding   warrants to purchase   Versatile Common Stock, and (iv) no shares of

Versatile   Common   Stock were   reserved   for   issuance   upon the   conversion   of

outstanding convertible securities of Versatile. Except as set forth in Schedule

2(a)(viii),   there   are   no   outstanding   securities,    convertible   securities,

options,   warrants   or   derivative   securities   of   Versatile,   and there are no

agreements   or   commitments   obligating   Versatile   to issue or grant any of the

foregoing,    including   any   pre-emptive   or   similar   rights.   All   outstanding

Versatile Shares, options,   warrants and other securities of Versatile have been

issued   in   compliance   with   (i) all   applicable   securities   laws   and (in all

material   respects)   other   applicable   laws   and   regulations,    and   (ii)   all

requirements set forth in any applicable contracts.

 

                           c.        Except as set forth in   Schedule   2(a)(viii)

hereto,   there   are no   equity   securities,   partnership   interests   or   similar

ownership   interests of any class of any equity security of either   Versatile or

Bella,   or any securities   exchangeable   or convertible   into or exercisable for

such equity securities,   partnership   interests or similar ownership   interests,

issued,   reserved for issuance or   outstanding.   Except as set forth in Schedule

2(a)(viii)   hereof,   there   are   no   subscriptions,   options,   warrants,   equity

securities,   partnership interests or similar ownership interests, calls, rights

(including   preemptive   rights),   commitments   or agreements of any character to

which either   Versatile   or Bella is a party or by which it is bound   obligating

either   Company to issue,   deliver or sell, or cause to be issued,   delivered or

sold,   or   repurchase,   redeem or otherwise   acquire,   or cause the   repurchase,

redemption   or   acquisition    of,   any   interests,    shares   of   capital   stock,

partnership   interests   or   similar   ownership   interests   of either   Company or

obligating either Company to grant,   extend,   accelerate the vesting of or enter

into any such   subscription,   option,   warrant,   equity security,   call,   right,

commitment or agreement.

 

                           d.        Except   as    contemplated   by   the   Exchange

Agreement   and this   Agreement   and except as set forth in   Schedule   2(a)(viii)

hereto,   there are no registration   rights, and there is no voting trust, proxy,

rights plan,   anti-takeover   plan or other agreement or   understanding   to which

either   Company is a party or by which   either   Company is bound with respect to

any interests,   equity   securities,   partnership   interests or similar ownership

interests of any class of either   Company,   and there are no agreements to which

either   Company is a party,   or which   either   Company has   knowledge   of, which

conflict   with   this   Agreement   or   the   transactions   contemplated   herein   or

otherwise prohibit the consummation of the transactions contemplated hereunder.

 

                  (ix)      AUTHORITY   RELATIVE TO THIS   AGREEMENT.   Each Company

has all necessary   power and authority to execute and deliver this Agreement and

to perform   its   obligations   hereunder   and,   to   consummate   the   transactions

contemplated hereby (including the Transactions).   The execution and delivery of

this   Agreement   and   the   consummation   by   each   Company   of the   transactions

contemplated   hereby   (including   the   Transactions)   have been duly and validly

authorized by all necessary   action on the part of each Company   (including   the

approval   by   its    managers,    managing    members,    members,    directors    and

stockholders), and no other proceedings on the part of Company aren

 

 

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necessary   to   authorize   this   Agreement   or   to   consummate   the   transactions

contemplated   hereby.   This   Agreement   has been duly and validly   executed   and

delivered by each of Versatile   and Bella and,   assuming the due   authorization,

execution and delivery   thereof by the other   parties   hereto,   constitutes   the

legal and binding obligation of each Company,   enforceable   against each Company

in   accordance   with   its   terms,   except   as   may   be   limited   by   bankruptcy,

insolvency,   reorganization   or other similar laws affecting the   enforcement of

creditors' rights generally,   by general   principles of equity and public policy

and   except as   enforceability   of the   indemnity   and   contribution   provisions

contained in Section 7 hereof may be limited by applicable   law or principles of

public policy.

 

                  (x)       NO CONFLICT; REQUIRED FILINGS AND CONSENTS.

 

                            a.        The execution and delivery of this Agreement

by each Company does not, and the   performance of this Agreement by each Company

shall not, (i) conflict with or violate either Company's Charter Documents, (ii)

to its   knowledge,   conflict   with or violate any Legal   Requirements,   or (iii)

result in any breach of or constitute a default (or an event that with notice or

lapse of time or both would become a default) under, or materially impair either

Company's rights or alter the rights or obligations of any third party under, or

give   to   others   any   rights   of    termination,    amendment,    acceleration   or

cancellation   of, or result in the creation of a lien or   encumbrance   on any of

the properties or assets of either Company   pursuant to, any Material   Contracts

(as defined in Section   2(a)(xxiv)),   except,   with   respect to clauses   (ii) or

(iii),   for   any   such   conflicts,    violations,   breaches,   defaults   or   other

occurrences   that would not,   individually   or in the   aggregate,   reasonably be

expected to have a Material   Adverse Effect on either   Company.   For purposes of

this Agreement,   the term "LEGAL Requirements" means any federal,   state, local,

municipal, foreign or other law, statute, constitution, principle of common law,

resolution,    ordinance,   code,   edict,   decree,   rule,   regulation,   ruling   or

requirement issued, enacted, adopted, promulgated,   implemented or otherwise put

into effect by or under the authority of any Governmental   Entity (as defined in

paragraph b. below).

 

                           b.        The execution and delivery of this Agreement

by each Company   does not, and the   performance   of each   Company's   obligations

hereunder will not, require any consent,   approval,   authorization or permit of,

or filing with or notification to, any court, administrative agency, commission,

governmental   or   regulatory   authority,   domestic   or foreign (a   "Governmental

Entity"), except (i) for applicable requirements,   if any, of the Securities Act

of 1933, as amended (the "Securities Act"), the Securities Exchange Act of 1934,

as amended (the "Exchange Act"),   state   securities laws ("Blue Sky Laws"),   and

the   rules   and   regulations   thereunder,   and   appropriate   documents   with the

relevant   authorities of other   jurisdictions in which each Company is qualified

to do business,   and (ii) where the failure to obtain such consents,   approvals,

authorizations or permits, or to make such filings or notifications,   would not,

individually   or in the   aggregate,   reasonably   be   expected to have a Material

Adverse   Effect on either   Company or,   after the Closing,   Century,   or prevent

consummation of the   Transactions   or otherwise   prevent the parties hereto from

performing their obligations under this Agreement.

 

 

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                  (xi)      COMPLIANCE.   To the knowledge of each Company, it has

complied with and is not in violation of any Legal   Requirements with respect to

the conduct of its   business,   or the   ownership or   operation of its   business,

except   for   failures   to comply or   violations   which,   individually   or in the

aggregate, have not had and are not reasonably likely to have a Material Adverse

Effect on either   Company.   To each   Company's   knowledge,   the   businesses   and

activities   of each   Company   have   not   been   and are not   being   conducted   in

violation of any Legal Requirements.   Neither Company is in default or violation

of any term,   condition   or   provision of any   applicable   Charter   Documents or

Contracts.   Except as set forth on Schedule 2(xi), to each Company's   knowledge,

no written notice of non-compliance with any Legal Requirements relating or with

respect to the business of each   Company has been   received by each such Company

(and each Company has no knowledge of any material such notice   delivered to any

other   person).   To each   Company's   knowledge,   it is not in   violation   of any

material   term of any   contract or covenant   relating   to   employment,   patents,

proprietary information disclosure, non-competition or non-solicitation.

 

                  (xii)     FINANCIAL STATEMENTS.

 

                           a.        The    audited    financial     statements    of

Versatile to be provided to you prior to the Closing will be a complete   copy of

the audited   financial   statements   (including,   in each case, any related notes

thereto) of   Versatile   for the fiscal   years ended   December 31, 2004 and 2003,

which   statements   will   be   prepared   in   accordance   with   generally   accepted

accounting principles of the United States ("U.S. GAAP") applied on a consistent

basis   throughout the period   involved   (except as may be indicated in the notes

thereto),   will be audited in   accordance   with the   auditing   standards   of the

Public Company Accounting Oversight Board ("PCAOB") by an independent accountant

registered   with PCAOB,   and such statements will fairly present in all material

respects   the   financial   position   of   Versatile   at the dates   thereof and the

results of its operations and cash flows for the periods indicated, and will not

contain any untrue statement of a material fact or omit to state a material fact

required   to be stated   therein   or   necessary   in order to make the   statements

therein,   in   light   of the   circumstances   under   which   they   were   made,   not

misleading.

 

                           b.        The   unaudited   financial   statements   to be

provided by   Versatile   and Bella to you prior to the Closing will be a complete

copy of the unaudited financial statements (including, in each case, any related

notes thereto) of Versatile and Bella for the three-month and nine-month periods

ended   September   30,   2005 and   2004,   which   statements   will be   prepared   in

accordance   with U.S. GAAP applied on a consistent   basis   throughout the period

involved (except as may be indicated in the notes thereto),   will be reviewed by

an independent accountant registered with PCAOB, and such statements will fairly

present in all   material   respects the   financial   position of each at the dates

thereof   and the   results   of its   operations   and cash   flows   for the   periods

indicated,   except   that the   unaudited   interim   financial   statements   will be

subject to normal   adjustments which are not expected to have a Material Adverse

Effect   on   the   Company.    Notwithstanding   the   foregoing,   Bella's   financial

statements   shall   be for the   period   from   inception   (May 13,   2005)   through

September   30,   2005.   The audited   financial   statements   described   in Section

2(a)(xii)a   and the   unaudited   financial   statements   described in this

 

 

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Section   2(a)(xii)b   are   collectively   referred   to herein   as the   "U.S.   GAAP

Financial Statements."

 

                           c.        To each   Company's   knowledge,   the books of

account and other   financial   records of each   Company have been   maintained   in

accordance with good business practice.

 

                  (xiii)    NO   UNDISCLOSED   LIABILITIES.   Except as set forth in

Schedule 2(a)(xiii) hereto, neither Company has any liabilities   individually in

excess of $25,000 and in the aggregate in excess of $50,000 (absolute,   accrued,

contingent or otherwise) of a nature required to be disclosed on a balance sheet

or in the related notes to the financial   statements prepared in accordance with

U.S. GAAP which are, individually or in the aggregate, material to the business,

results of operations or financial condition of Company, except: (i) liabilities

provided for in or otherwise   disclosed in the balance sheets of each Company as

of September   30, 2005   prepared in   accordance   with U.S.   GAAP,   and (ii) such

liabilities   arising in the ordinary   course of each   Company's   business   since

September 30, 2005,   none of which would have a Material   Adverse   Effect on the

Company.

 

                  (xiv)     ABSENCE OF CERTAIN   CHANGES OR EVENTS.   Except as set

forth in   Schedule   2(a)(xiv)   hereto or in the interim   balance   sheets of each

Company   as of   September   30,   2005   and   except   for the   Transactions,   since

September   30,   2005,   there has not been:   (i) any Material   Adverse   Effect on

either Company,   (ii) any declaration,   setting aside or payment of any dividend

on, or other distribution   (whether in cash,   securities or property) in respect

of, either Company's equity or other securities, or any purchase,   redemption or

other   acquisition by either Company of any of equity or other securities or any

options,   warrants,   calls   or   rights   to   acquire   any   such   equity   or other

securities, (iii) any split, combination or reclassification of either Company's

capital,   (iv) any granting by either Company of any increase in compensation or

fringe   benefits,   except   for   normal   increases   of cash   compensation   in the

ordinary   course of business   consistent   with past practice,   or any payment by

either Company of any bonus,   except for bonuses made in the ordinary   course of

business consistent with past practice, or any granting by either Company of any

increase in severance or termination pay or any entry by either Company into any

currently   effective   employment,    severance,   termination   or   indemnification

agreement or any agreement the benefits of which are   contingent or the terms of

which are   materially   altered upon the   occurrence of a   transaction   involving

either Company of the nature   contemplated   hereby,   (v) entry by either Company

into   any   licensing   or other   agreement   with   regard   to the   acquisition   or

disposition   of any   Intellectual   Property   (as defined in Section   2(a)(xxiii)

hereof) other than licenses in the ordinary   course of business   consistent with

past   practice   or any   amendment   or   consent   with   respect   to any   licensing

agreement   filed or required to be filed by either   Company   with respect to any

Governmental   Entity,   (vi)   any   material   change   by   either   Company   in   its

accounting methods, principles or practices, (vii) any change in the auditors of

either   Company,   (vii) any   issuance   of equity or other   securities   of either

Company,   or (viii) any revaluation by either Company of any of their respective

assets,   including,   without   limitation,   writing down the value of capitalized

inventory or writing off notes or

 

 

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accounts   receivable   or any sale of assets of either   Company other than in the

ordinary course of business.

 

                  (xv)      LITIGATION.   Except as disclosed in Schedule 2(a)(xv)

hereto,   there are no claims,   suits,   actions or proceedings pending, or to the

knowledge   of   either   Company    threatened   against   them,   before   any   court,

governmental department,   commission,   agency,   instrumentality or authority, or

any   arbitrator   that   seeks to   restrain   or   enjoin   the   consummation   of the

transactions   contemplated   by this   Agreement   or   which   could   reasonably   be

expected,   either individually or in the aggregate with all such claims, actions

or   proceedings,   to have a Material   Adverse Effect on either Company or have a

Material   Adverse   Effect on the ability of the parties hereto to consummate the

Transactions.

 

                  (xvi)     EMPLOYEE   BENEFIT   PLANS.    Except   as   disclosed   in

Schedule    2(a)(xvi)    hereto,    neither    Company   has   any   written    employee

compensation,    incentive,    fringe   or   benefit   plans,    programs,    policies,

commitments   or other   arrangements   covering   any   active or   former   employee,

director or consultant of either Company,   or any trade or business   (whether or

not    incorporated)    which   is   under   common    control   with   either    Company

(collectively, the "Plans").

 

                  (xvii)    LABOR   MATTERS.    Except   as   disclosed   in   Schedule

2(a)(xvii)   hereto,   neither   Company   is a party to any   collective   bargaining

agreement or other labor union contract applicable to persons employed by either

Company nor does either   Company know of any   activities or   proceedings   of any

labor union to organize any such employees.

 

                  (xviii)   RESTRICTIONS   ON   BUSINESS    ACTIVITIES.    Except   as

disclosed on Schedule   2(a)(xviii)   hereto, to each Company's knowledge there is

no agreement,   commitment,   judgment,   injunction,   order or decree binding upon

either   Company   or to   which   either   Company   is a party   which   has or   could

reasonably be expected to have the effect of prohibiting or materially impairing

any business   practice of either Company,   any acquisition of property by either

Company or the   conduct of   business by either   Company as   currently   conducted

other than such effects,   individually   or in the aggregate,   which have not had

and could not reasonably be expected to have a Material Adverse Effect on either

Company.

 

                  (xix)     TITLE TO PROPERTY.

 

                            a.        All   leases   of real   property   held by each

Company and all personal   property and other property and assets of each Company

(other than real property)   owned,   used or held for use in connection   with the

business of each Company (the "Personal   Property")   obligating   each Company to

make annual   payments in excess of $15,000 are shown or reflected on the balance

sheets of each   Company   prepared in   accordance   with U.S.   GAAP or in Schedule

2(a)(xix).   To each   Company's   knowledge,   each   Company   owns and has good and

marketable   title to the Personal   Property,   and all such assets and properties

are in each case held free and clear of all liens, except for Liens disclosed in

the financial   statements of each Company   prepared in accordance with U.S. GAAP

or in   Schedule   2(a)(xix)   hereto,   none   of   which   liens   has or   will   have,

 

 

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individually or in the aggregate,   a Material Adverse Effect on such property or

on the present or   contemplated   use of such property in the   businesses of each

Company.

 

                           b.        To   each   Company's   knowledge,   all   leases

pursuant to which each   Company   leases from   others   material   real or personal

property are valid and effective in accordance with their respective   terms, and

there is not, under any of such leases,   any existing   material default or event

of default of the Company or, to each Company's   knowledge,   any other party (or

any event   which   with   notice or lapse of time,   or both,   would   constitute   a

material   default),   except where the lack of such validity and effectiveness or

the   existence   of such   default or event of   default   could not   reasonably   be

expected to have a Material Adverse Effect on each Company.

 

                  (xx)      TAXES.

 

                           a.        DEFINITION   OF TAXES.   For the   purposes   of

this Agreement, "Tax" or "Taxes" refers to any and all federal, state, local and

foreign taxes, including,   without limitation,   gross receipts, income, profits,

sales,   use,   occupation,    value   added,   ad   valorem,    transfer,    franchise,

withholding,    payroll,   recapture,    employment,   excise   and   property   taxes,

assessments,   governmental   charges   and   duties   together   with   all   interest,

penalties   and   additions   imposed   with   respect   to any such   amounts   and any

obligations   under any   agreements   or   arrangements   with any other person with

respect to any such amounts and including any liability of a predecessor   entity

for any such amounts.

 

                           b.        TAX RETURNS AND AUDITS.   Except as set forth

in Schedule 2(a)(xx) hereto, to each Company's   knowledge:   (i) Each Company has

timely   filed   all   federal,   state,   local   and   foreign   returns,    estimates,

information   statements and reports relating to Taxes ("Returns") required to be

filed by each Company with any Tax   authority   prior to the date hereof,   except

such Returns which are not material to each Company.   All such Returns are true,

correct and complete in all material   respects.   Each Company has paid all Taxes

shown to be due on such Returns; (ii) All Taxes that each Company is required by

law to withhold or collect have been duly withheld or   collected,   and have been

timely paid over to the proper   governmental   authorities   to the extent due and

payable;   (iii) No audit or other examination of any Return of either Company by

any Tax authority is presently in progress, nor has either Company been notified

of any request for such an audit or other examination;   (iv) Neither Company has

taken any action nor knows of any fact,   agreement,   plan or other   circumstance

that is   reasonably   likely to prevent the   Transactions   from   qualifying   as a

tax-deferred exchange within the meaning of Section 351 of the Code.

 

                  (xxi)     ENVIRONMENTAL    MATTERS.    Except   as    disclosed   in

Schedule   2(a)(xxi) hereto and except for such matters that,   individually or in

the aggregate,   are not reasonably   likely to have a Material Adverse Effect, to

each   Company's   knowledge:   (i) each Company has complied   with all   applicable

Environmental   Laws;   (ii) the   properties   currently   owned or operated by each

Company   (including   soils,   groundwater,   surface   water,   buildings   or   other

structures)   are not   contaminated   with any   Hazardous   Substances;   (iii)   the

properties formerly owned or operated by each Company were not contaminated with

Hazardous Substances during the period of ownership or operation by

 

 

                                        9

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each   Company;   (iv) neither   Company is subject to liability   for any Hazardous

Substance   disposal or   contamination   on any third party property;   (v) neither

Company   has been   associated   with any   release   or   threat of   release   of any

Hazardous   Substance;   (vi) neither   Company has   received   any notice,   demand,

letter,   claim or request for information alleging that either Company may be in

violation of or liable under any Environmental Law; and (vii) neither Company is

subject to any   orders,   decrees,   injunctions   or other   arrangements   with any

Governmental   Entity or subject to any   indemnity   or other   agreement   with any

third party   relating to liability   under any   Environmental   Law or relating to

Hazardous Substances.

 

                           a.        As   used   in   this    Agreement,    the    term

"Environmental Law" means any federal,   state, local or foreign law, regulation,

order, decree, permit, authorization,   opinion, common law or agency requirement

relating   to:   (A)   the    protection,    investigation    or   restoration   of   the

environment,   health and safety, or natural   resources;   (B) the handling,   use,

presence,   disposal, release or threatened release of any Hazardous Substance or

(C) noise, odor, wetlands,   pollution,   contamination or any injury or threat of

injury to persons or property.

 

                           b.        As   used   in   this    Agreement,    the    term

"Hazardous   Substance"   means any substance   that is: (i) listed,   classified or

regulated   pursuant to any   Environmental   Law;   (ii) any   petroleum   product or

by-product,   asbestos-containing   material,   lead-containing   paint or plumbing,

polychlorinated   biphenyls,   radioactive   materials or radon; or (iii) any other

substance which is the subject of regulatory   action by any Governmental   Entity

pursuant to any Environmental Law.

 

                  (xxii)    BROKERS;   THIRD PARTY EXPENSES.   Neither Company nor,

to each Company's   knowledge,   any of its members or stockholders   has incurred,

nor will they incur,   directly   or   indirectly,   any   liability   for   brokerage,

finders' fees,   agent's   commissions or any similar   charges in connection   with

this Agreement or any   transactions   contemplated   hereby except as set forth in

this Agreement and the Related Agreements. Except as set forth in this Agreement

and in the   Related   Agreements   or as   disclosed   on   Schedule   2(a)(xxii),   no

membership   interests,   ownership   interests,   equity   securities,    convertible

securities,   warrants, options, or other derivative securities of either Company

or   Century   are   payable   to any third   party by either   Company   or any of its

members or stockholders as a result of the Transactions.

 

                  (xxiii)   INTELLECTUAL   PROPERTY.   For   the   purposes   of   this

Agreement, the following terms have the following definitions:

 

                           a.        "Intellectual   Property"   shall   mean any or

all of the following:   (i) patents and   applications   therefor and all reissues,

divisions,     renewals,     extensions,     provisionals,      continuations     and

continuations-in-part   thereof ("Patents")   worldwide;   (ii) inventions (whether

patentable   or   not),   invention   disclosures,    improvements,    trade   secrets,

proprietary   information,   know how,   technology,   technical   data and   customer

lists, and all documentation relating to any of the foregoing;   (iii) registered

copyrights   and   applications   therefor,   and   all   other   rights   corresponding

thereto,   worldwide;   (iv) material   domain   names,   uniform   resource   locators

("URLs") and other

 

 

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names and locators associated with the Internet ("Domain Names"); (v) registered

industrial designs and applications therefor,   worldwide;   (vi) registered trade

names,   logos,   trademarks   and service   marks,   and any   applications   therefor

(collectively,    "Trademarks"),    worldwide;    (vii)   all    databases   and   data

collections and all rights therein;   and (viii) all moral and economic rights of

authors and inventors, however denominated.

 

                           b.        "Company   Intellectual   Property" shall mean

any Intellectual Property that is owned by, or licensed to, either Company.

 

                            c.        "Company    Products"    means    all    current

versions of products of either Company.

 

                           d.        Except as disclosed on Schedule 2(a)(xxiii),

to each   Company's   knowledge,   the Company   Intellectual   Property   and Company

Products   are not subject to any   material   proceeding   or   outstanding   decree,

order, judgment,   contract, license, agreement or stipulation restricting in any

manner the use,   transfer or licensing   thereof by either Company,   or which may

affect the validity, use or enforceability of such Company Intellectual Property

or Company Product,   which in any such case could reasonably be expected to have

a Material Adverse Effect on either Company.

 

                           e.        Except as disclosed on Schedule   2(a)(xxiii)

hereto, to each Company's   knowledge,   each Company either owns and has good and

marketable title to each material item of Company Intellectual Property owned by

it free and clear of any liens   (excluding   licenses   and   related   restrictions

granted in the ordinary course) or has one or more licenses   sufficient for each

Company's use of Company Intellectual Property; and each Company is the owner or

licensee of all Trademarks   used in connection   with the operation or conduct of

the   business   of each   Company   including   the sale of any   products   by either

Company.

 

                           f.        The    operation   of   the   business   of   each

Company as such   business   currently   is   conducted,   including   (i) the design,

development, manufacture,   distribution,   reproduction, marketing or sale of the

products of each Company   (including   Company   Products) and (ii) each Company's

use of any product, device or process, to each Company's knowledge and except as

could not reasonably be expected to have a Material Adverse Effect,   has not and

does not infringe or misappropriate the Intellectual Property of any third party

or   constitute   unfair   competition   or trade   practices   under   the laws of any

jurisdiction.

 

                            g.        Except as set forth on Schedule   2(a)(xxiii)

hereto,   Versatile   owns all right,   title and interest in and to the   Trademark

"People's   Liberation"   and   "William   Rast" in the   jurisdictions   set forth on

Schedule 2(a)(xxiii) hereto.

 

                  (xxiv)    AGREEMENTS, CONTRACTS AND COMMITMENTS.

 

                           a.        Schedule   2(a)(xxiv)   hereto   sets   forth   a

complete and accurate list of all Material   Contracts (as hereinafter   defined),

specifying the parties   thereto.   For purposes of this   Agreement,   (i) the term

"Contracts" shall mean all written   contracts,   agreements,   leases,   mortgages,

indentures, notes, bonds, liens, licenses,

 

 

                                       11

<PAGE>

 

 

arbitration   awards,   judgments,    decrees,   orders,    documents,    instruments,

understandings   and   commitments   to which either Company is a party or by or to

which any of the properties or assets of either Company may be bound, subject or

affected   (including without limitation notes or other instruments payable by or

to either Company),   and (ii) the term "Material   Contracts" shall mean (x) each

Contract (I)   providing   for payments   (present or future) to either   Company in

excess of $25,000 in the   aggregate,   or (II) under which or in respect of which

either   Company   presently   has   any   liability   or   obligation   of   any   nature

whatsoever   (absolute,   contingent or   otherwise) in excess of $25,000,   and (y)

without   limitation of subclause (x), each of the following   Contracts:   (1) any

mortgage, indenture, note, installment obligation or other instrument, agreement

or   arrangement   for or   relating   to any   borrowing   of money by or from either

Company; (2) any guaranty, direct or indirect, by either Company or any officer,

director   or 5% or   more   stockholder   ("Insider")   of   either   Company   of   any

obligation   of   either    Company   for    borrowings,    or   otherwise,    excluding

endorsements   made for   collection in the ordinary   course of business;   (3) any

Contract made other than in the ordinary course of business or (x) providing for

the grant of any   preferential   rights to   purchase or lease any asset of either

Company or (y) providing for any right (exclusive or   non-exclusive)   to sell or

distribute, or otherwise relating to the sale or distribution of, any product or

service of either   Company;   (4) any   obligation   to register   any shares of the

capital   stock or other   securities   of   either   Company   with any   Governmental

Entity;   (5) any obligation to make payments,   contingent or otherwise,   arising

out of the prior acquisition of the business,   assets or stock of other persons;

(6) any collective   bargaining   agreement with any labor union; (7) any lease or

similar arrangement for the use by either Company of personal property;   (8) any

Contract   granting or purporting to grant,   or otherwise in any way relating to,

any mineral   rights or any other   interest   (including,   without   limitation,   a

leasehold   interest) in real property;   and (9) any Contract with either Company

to which any Insider of either Company is a party.

 

                           b.        Each   Material   Contract was entered into at

arms'   length and in the   ordinary   course,   is in full force and effect and, to

each Company's knowledge, is valid and binding upon and enforceable against each

of the parties thereto.

 

                           c.        Except as set forth in Schedule   2(a)(xxiv),

neither Company nor, to each Company's knowledge, any other party thereto, is in

breach of or in default   under,   and no event has occurred   which with notice or

lapse of time or both would   become a breach of or default   under,   any Material

Contract,   which breach,   individually or in the aggregate,   could be reasonably

likely to have a Material Adverse Effect on either Company,   and no party to any

Material   Contract has given any written notice of any claim of any such breach,

default or event, which, individually or in the aggregate, are reasonably likely

to have a Material Adverse Effect on either Company.   Each Material   Contract to

which either   Company is a party or by which it is bound that has not expired by

its terms is in full force and effect,   except   where such failure to be in full

force and effect is not reasonably   likely to have a Material   Adverse Effect on

either Company.

 

                  (xxv)     INSURANCE.    Schedule    2(a)(xxv)    sets   forth   each

Company's    insurance   policies   covering   the   assets,    business,    equipment,

properties, operations,  

 

 

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employees, officers, directors, managers and managing members (collectively, the

"Insurance Policies") of each Company which each Company reasonably believes are

adequate in amount and scope for the business in which it is engaged.

 

                  (xxvi)    GOVERNMENTAL   ACTIONS/FILINGS.   To the   knowledge   of

each Company, each Company holds, and has made, all Governmental Actions/Filings

reasonably   necessary   to the   conduct   by   each   Company   of its   business   (as

presently   conducted),   except with respect to any Governmental   Actions/Filings

the   failure of which to hold or make would not   reasonably   be likely to have a

Material Adverse Effect on either Company.

 

                           a.        For   purposes   of this   Agreement,   the term

"Governmental   Action/Filing" shall mean any franchise,   license, certificate of

compliance,   authorization,   consent, order, permit, approval,   consent or other

action of, or any filing,   registration   or   qualification   with,   any   federal,

state,   municipal,   foreign or other   governmental,   administrative   or judicial

body, agency or authority.

 

                  (xxvii)   MANAGEMENT. During the past five year period, to each

Company's   knowledge,   no current or former manager,   managing   member,   member,

director,   executive   officer   or   stockholder   of either   Company   has been the

subject   of:   (a) a   petition   under the   Federal   bankruptcy   laws or any other

insolvency or moratorium law or has a receiver,   fiscal agent or similar officer

been   appointed by a court for such   person,   or any   partnership   in which such

person   was a general   partner   at or within   two years   before the time of such

filing,   or any corporation or business   association of which such person was an

executive   officer at or within two years before the time of such filing;   (b) a

conviction in a criminal   proceeding   or a named   subject of a pending   criminal

proceeding   (excluding   traffic   violations   that do not relate to driving while

intoxicated or driving under the influence);   (c) any order, judgment or decree,

not   subsequently   reversed,   suspended   or vacated,   of any court of   competent

jurisdiction,   permanently   or   temporarily   enjoining   any such person from, or

otherwise limiting, the following activities: (1) Acting as a futures commission

merchant,    introducing   broker,   commodity   trading   advisor,    commodity   pool

operator,    floor   broker,   leverage   transaction   merchant,   any   other   person

regulated   by the United   States   Commodity   Futures   Trading   Commission   or an

associated   person   of   any   of   the   foregoing,   or as an   investment   adviser,

underwriter,   broker   or   dealer   in   securities,   or as an   affiliated   person,

director   or   employee   of   any   investment   company,   bank,   savings   and   loan

association   or insurance   company,   or engaging in or continuing any conduct or

practice in connection with such activity;   (2) Engaging in any type of business

practice;   or (3)   Engaging in any activity in   connection   with the purchase or

sale of any   security   or   commodity   or in   connection   with any   violation   of

Federal,   state or other   securities   laws or   commodities   laws; (d) any order,

judgment or decree,   not   subsequently   reversed,   suspended or vacated,   of any

Federal, state or local authority barring,   suspending or otherwise limiting for

more   than 60 days the   right of any   such   person   to   engage   in any   activity

described   in the   preceding   sub-paragraph,   or to be   associated   with persons

engaged in any such activity; (e) a finding by a court of competent jurisdiction

in a civil   action   or by the   U.S.   Securities   and   Exchange   Commission   (the

"Commission") to have violated any securities law,   regulation or decree and the

judgment   in such   civil   action   or   finding   by the   Commission   has not   been

 

 

                                       13

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subsequently   reversed,   suspended   or   vacated;   or (f) a finding by a court of

competent   jurisdiction   in a civil action or by the Commodity   Futures   Trading

Commission   to have   violated any federal   commodities   law, and the judgment in

such civil action or finding has not been   subsequently   reversed,   suspended or

vacated.

 

                  (xxviii) REPRESENTATIONS    AND    WARRANTIES    COMPLETE.     All

representations,   warranties and other disclosures provided to you regarding the

Company, its business and the transactions   contemplated hereby, furnished by or

on behalf of the   Company   are true and   correct   and do not   contain any untrue

statement   of a material   fact or omit to state any material   fact   necessary in

order to make the statements made therein,   in light of the circumstances   under

which they were made, not misleading.

 

                  (xxix)    The Escrow Agreement (the "Escrow   Agreement")   among

the Company,   you,   Century and Sterling Bank (the "Escrow Agent") has been duly

and validly   executed and delivered by or on behalf of Versatile and constitutes

a legal,   valid, and binding   obligation of Versatile   enforceable in accordance

with its terms,   except as such   enforceability may be limited by (a) applicable

bankruptcy,   insolvency,   reorganization,   moratorium,   or other laws of general

application relating to or affecting   enforcement of creditors' rights generally

and (b) laws relating to the   availability of specific   performance,   injunctive

relief, or other equitable remedies.

 

                  (xxx)     Neither the Company nor any of its   affiliates   is or

has been   subject to any order,   judgment,   or decree of any court of   competent

jurisdiction   temporarily,   prel