EXHIBIT 10.1
ASSET PURCHASE AGREEMENT
by and among
The Leap Group, Inc.
One World Communications, Inc.
Kang & Xxx Advertising , Inc.
K&L West Advertising, Inc.
and
Xxxxx Xxxx
Dated: As of November 1, 1997
TABLE OF CONTENTS
Page
1. SALE AND PURCHASE OF THE PURCHASED ASSETS........... 1
1.1 Purchased Assets.................................... 1
1.2 Excluded Assets..................................... 3
1.3 Purchase Price...................................... 3
1.4 Escrowed Funds...................................... 3
1.5 Closing............................................. 4
1.6 Closing Deliveries.................................. 4
1.7 Earn Out............................................ 6
1.8 Accounting Procedures............................... 10
1.9 Third Party Consents................................ 11
2. ASSUMPTIONS OF LIABILITIES AND CONTRACTS............ 11
2.1 Assumed Liabilities................................. 11
2.2 Excluded Liabilities................................ 12
3. REPRESENTATIONS AND WARRANTIES
OF THE COMPANY AND THE SHAREHOLDER............... 13
3.1 Organization and Good Standing...................... 13
3.2 Authority; No Conflict.............................. 13
3.3 Financial Statements................................ 14
3.4 Books and Records................................... 15
3.5 Title to Properties; Encumbrances................... 15
3.6 Condition and Sufficiency of Assets................. 15
3.7 Intentionally Omitted............................... 16
3.8 Work in Process..................................... 16
3.9 No Undisclosed Liabilities.......................... 16
3.10 Taxes............................................... 16
3.11 No Material Adverse Change.......................... 18
3.12 Employee Benefits................................... 19
3.13 Compliance with Legal Requirements; Governmental
Authorizations..................................... 21
3.14 Legal Proceedings; Orders........................... 23
3.15 Absence of Certain Changes and Events............... 24
3.16 Contracts; No Defaults.............................. 24
3.17 Insurance........................................... 26
3.18 Environmental Matters............................... 27
3.19 Employees........................................... 28
3.20 Labor Disputes; Compliance.......................... 28
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3.21 Intangible Property................................. 29
3.22 Certain Payments.................................... 30
3.23 Intentionally Omitted............................... 30
3.24 Disclosure.......................................... 30
3.25 Relationships with Related Persons.................. 31
3.26 Client Relationships................................ 31
3.27 Suppliers........................................... 31
4. REPRESENTATIONS AND WARRANTIES OF BUYER............. 31
4.1 Organization and Good Standing...................... 32
4.2 Authority; No Conflict.............................. 32
4.3 Certain Proceedings................................. 33
4.4 Financial Statements................................ 33
5. ADDITIONAL AGREEMENTS............................... 33
5.1 Intentionally Omitted............................... 33
5.2 Noncompetition and Nondisclosure.................... 33
5.3 Allocation of Purchase Price........................ 35
5.4 K&L Name............................................ 36
5.5 Agreements Regarding Employees After Closing........ 36
5.6 Management of Buyer During the Applicable Term...... 36
5.7 Transfer Tax Compliance............................. 38
5.8 Sales Tax Liability................................. 38
5.9 Successor Employer.................................. 38
6. INDEMNIFICATION; REMEDIES........................... 39
6.1 Survival............................................ 39
6.2 Indemnification of Buyer............................ 40
6.3 Indemnification of the Company...................... 40
6.4 Indemnification Procedure for Third Party Claims.... 41
6.5 Escrowed Amount; Right of Set-Off................... 44
6.6 Sole Remedy......................................... 44
6.7 Treatment........................................... 44
7. DEFINITIONS......................................... 44
7.1 Definitions......................................... 44
"Applicable Contract"............................... 44
"Best Efforts"...................................... 44
"Breach"............................................ 44
"Closing Date"...................................... 45
"Code".............................................. 45
"Consent"........................................... 45
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"Contemplated Transactions"......................... 45
"Contract".......................................... 45
"Disclosure Letter"................................. 45
"Encumbrance"....................................... 45
"ERISA"............................................. 46
"Facilities"........................................ 46
"GAAP".............................................. 46
"Governmental Authorization"........................ 46
"Governmental Body"................................. 46
"IRS"............................................... 46
"Kang & Xxx Operation of the Buyer"................. 46
"Knowledge"......................................... 46
"Legal Requirement"................................. 47
"Order"............................................. 47
"Ordinary Course of Business"....................... 47
"Organizational Documents".......................... 47
"Person"............................................ 47
"Proceeding"........................................ 48
"Related Person".................................... 48
"Representative".................................... 48
"Securities Act".................................... 48
"Threatened"........................................ 48
8. GENERAL PROVISIONS.................................. 49
8.1 Expenses............................................ 49
8.2 Notices............................................. 49
8.3 Further Assurances.................................. 50
8.4 Waiver.............................................. 50
8.5 Entire Agreement and Modification................... 50
8.6 Assignments, Successors, and No Third-Party Rights.. 50
8.7 Severability........................................ 50
8.8 Section Headings, Construction...................... 50
8.9 Governing Law....................................... 51
8.10 Counterparts........................................ 51
8.11 No Strict Construction.............................. 51
8.12 Alternative Dispute Resolution...................... 51
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ASSET PURCHASE AGREEMENT
This Asset Purchase Agreement (this "Agreement") dated as of November 1,
1997 by and among The Leap Group, Inc., a Delaware corporation ("Parent"), One
World Communications, Inc., a Delaware Corporation ("Buyer"), Xxxxx Xxxx
("Shareholder"), and Kang & Xxx Advertising, Inc., a New York Corporation and
K&L West Advertising, Inc., a California Corporation (hereinafter jointly
referred to as the "Company"). Capitalized terms that are not otherwise defined
in the body of this Agreement are defined in Section 7 herein.
The Company desires to sell to Buyer, and Buyer desires to purchase from
the Company, substantially all of the assets of the Company which are used in or
arise out of the conduct of the Company's multi-lingual communications and
advertising services business as it is presently conducted, all for the
consideration and upon the terms set forth in this Agreement.
The parties, intending to be legally bound, agree as follows:
1. SALE AND PURCHASE OF THE PURCHASED ASSETS.
1.1 Purchased Assets. On the terms and subject to the conditions
hereinafter set forth, at the Closing, the Company shall sell, convey, transfer,
assign and deliver to Buyer, free and clear of all Encumbrances (except as
disclosed in the Disclosure Letter), and Buyer shall purchase from the Company,
all of the Company's right, title and interest in and to all of its property and
assets which are used in or arise out of the conduct of the Business or are
considered to be assets of the Company in connection with the Business as of the
Closing Date, wherever located (collectively, the "Purchased Assets"),
including, but not limited to, the following:
(a) All fixed assets, fixtures, equipment, including computer hardware
and software, machinery, tools, furniture, office furniture and equipment,
plans, specifications, leasehold improvements and other similar personal
property of the Company used in the conduct of the Business (collectively, the
"Tangible Personal Property");
(b) All inventory of the Company, including without limitation, raw
materials and finished goods (collectively, the "Inventory");
(c) The two real estate leases under which the Company is a tenant, as
follows:
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000 Xxxxx Xxxxxx, Xxx Xxxx, Xxx Xxxx 00000; and
000 Xxxx 0xx Xxxxxx, Xxxxx 000, Xxx Xxxxxxx, XX 00000;
(d) All pre-paid assets, pre-paid accounts and security deposits (pre-
paid items and security deposits to be reimbursed by Buyer in addition to the
Purchase Price at Closing), uniforms, equipment, office, operating, factory,
marketing and other supplies of the Company;
(e) All Contracts of the Company in connection with the Business,
including, without limitation, those Contracts specifically disclosed in Part
3.16 of the Disclosure Letter, all of which are being assigned to and assumed by
Buyer (each an "Assigned Contract" and collectively, "Assigned Contracts"),
including, without limitation, any agreements containing any restrictive
covenants (i.e. noncompetition and nonsolicitation);
(f) Any and all trademarks, trademark registrations and trademark
applications, trade-names, logos, copyrights, patents and patent applications,
patent and other licenses thereof, patent disclosures and inventions (whether or
not patentable and whether or not reduced to practice), know-how, trade secrets,
lists of past and present customers, potential customers, recorded knowledge,
business plans, performance standards, catalogues, research data, analyses and
computer software and programs, sales data, sales and advertising materials,
scheduling and service methods, sales and service manuals and all other
proprietary, confidential and other similar information (in whatever form or
medium) relating to the conduct of the Business;
(g) All records, files, documents and papers of the Company, including
but not limited to, financial statements, journals, ledgers, correspondence,
customer records, employment records (for current employees only) and books of
account and excluding all tax records, records maintained by the Company's
accountants and attorneys and records relating to Excluded Assets (as defined in
Section 1.2) and Excluded Liabilities (as defined in Section 3.2); it is
expressly agreed that the Company and the Shareholder shall be afforded, after
the Closing, reasonable access to the records, files, etc. at convenient times
and places provided that use of this privilege is not abused or unreasonable;
(h) All permits, franchises, licenses, approvals and authorizations by
or of any Government Entities or other Persons required for the conduct of the
Business or in connection with ownership of the Purchased Assets, to the extent
that such are transferrable;
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(i) All causes of action, claims, rights of recovery and set-off of
every kind and character pertaining or relating to the Purchased Assets,
including all insurance, warranty and condemnation proceeds received after the
Closing Date with respect to damage, destruction or loss of any Purchased
Assets;
(j) The names "Kang & Xxx Advertising, Inc.," "K&L West Advertising,
Inc." and all combinations and variations thereof, and any other names utilized
in the Business, together with all goodwill associated therewith and with the
Business; and
1.2 Excluded Assets. Notwithstanding the foregoing, the following
assets of the Company shall be retained by the Company and are not included in
the Purchased Assets and not sold or transferred to Buyer hereunder (the
"Excluded Assets"):
(a) The formal corporate records and corporate seal of the Company,
including any records having exclusively to do with the corporate organization
of the Company;
(b) The Company's rights pursuant to or under this Agreement,
including the payments made and to be made to the Company hereunder;
(c) The tax records, tax returns and all related work papers of the
Company; and
(d) Loan receivables from the Shareholder existing as of the Closing.
(e) All cash, cash equivalents, investments, accounts receivable,
notes, bonds or other evidences of indebtedness of any Person held by the
Company.
(f) Life insurance policies on the lives of Xxxxx Xxxx and Xxxxx Xxx
as well as the cash surrender values of such policies.
1.3 Purchase Price. The purchase price (the "Purchase Price") for
the Purchased Assets will be $1,300,000 payable to the Company in cash in
accordance with this Agreement. At Closing, $975,000 will be paid by Buyer,
$825,000 to Seller and $150,000 subject to the escrow provision of Sections 1.4
below. The $325,000 balance of the Purchase Price shall be paid to Seller on or
before December 31, 1997.
1.4 Escrowed Funds. Of the total Purchase Price to be delivered at
the Closing to the Company by the Buyer, $150,000 shall be placed into an escrow
account (the "Escrowed Amount") by Buyer pursuant to the terms of an escrow
agreement to be entered into by the parties in order to secure the Company's and
the Shareholder's indemnification obligations under Section 6.2, in the form
attached hereto as Exhibit 1.4
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(the "Escrow Agreement").
1.5 Closing. The purchase and sale (the "Closing") provided for in
this Agreement will take place simultaneously with the execution and delivery of
this Agreement at the offices of Xxxxx, Bliablias, McGuire, Pantages & Xxxx,
counsel to the Company, at 000 Xxxxxxxxxx Xxxxxxx, Xxxxxxxxxx, Xxx Xxxxxx at
10:00 a.m. (local time) on November 11, 1997, or as the parties may otherwise
agree.
1.6 Closing Deliveries. At the Closing:
(a) The Company and the Shareholder shall deliver to Buyer ("Company
Closing Documents"):
(i) the Escrow Agreement, executed by the Company and the
Shareholder;
(ii) an employment agreement in the form of Exhibit 1.6(a)(ii),
executed by Xxxxx Xxxx (the "Employment Agreement");
(iii) Xxxx of Sale in the form of Exhibit 1.6(a)(iii);
(iv) noncompetition agreements executed by the Shareholder and
the Buyer, in the form of Exhibit 1.6(a)(iv) (the "Noncompetition Agreements");
(v) a letter from the Company's lender confirming that all of the
Company's outstanding indebtedness has been paid in full prior to the Closing
and UCC termination statements releasing all liens on the Company's assets held
by such lender;
(vi) a Good Standing Certificate for the Company from all states
in which the Company is authorized to do business;
(vii) copies of resolutions of the board of directors of the
Company and of its stockholders, certified by the Company's corporate secretary
as having been duly adopted and being in current force and effect, authorizing
the transactions and documents contemplated by this Agreement;
(viii) releases of all liens (and appropriate executed UCC
termination statements) existing as of the Closing, except equipment leasing
liens in favor of NIA National Leasing, Inc. and AT&T Capital Corporation and
Saddleback Financial Corp.
(ix) assignment of leases and estoppel certificates for the
leases referenced in Section 1.1(c) hereof, in a form of Exhibit 1.6(a)(ix);
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(x) copy of each of the Company's Articles of Incorporation and
all amendments thereto (including an executed amendment to be filed upon the
Closing changing the Company's name), certified by the Secretary of States of
New York and California, and a copy of each of the Company's By-laws, and all
amendments thereto, certified by the Secretary of the Company;
(xi) a legal opinion in the form of Exhibit 1.6(a)(xi) issued to
the Buyer and Parent by special counsel to the Company and the Shareholder; and
(xii) a Closing Statement in the form of Exhibit 1.6(a)(xii).
(b) Buyer shall deliver to the Company and the Shareholder ("Buyer's
Closing Documents"):
(i) bank cashier's checks or certified checks payable to the
Company, or wire transfers to accounts specified, in writing, by the Company, in
an amount equal to $825,000 of the Purchase Price to be delivered at the
Closing, net of the Escrowed Amount;
(ii) the Escrow Agreement, attached hereto and made a part hereof
as Exhibit 1.6 (b) (ii), executed by Parent and Buyer;
(iii) the Employment Agreement, attached hereto and made a part
here of as Exhibit 1.6 (a)(ii), executed by Parent and Buyer with the Stock
Option Agreement, attached thereto as an exhibit, executed by Parent;
(iv) the Noncompetition Agreements, attached hereto and made a
part hereof as Exhibit 1.6 (b) (iv), executed by Parent and Buyer;
(v) Intentionally omitted;
(vi) a certified copy of resolutions adopted by Buyer's and
Parent's Board of Directors authorizing execution of this Agreement and
consummation of the Contemplated Transactions; and
(vii) a legal opinion in the form of Exhibit 1.6(b)(vii) issued
to the Company and the Shareholder by Xxxxxx Xxxxxx & Xxxxx, counsel to the
Buyer and the Parent.
(c) Buyer on the one hand, the Company and the Shareholder on the
other hand, shall also deliver to the other party such other documents,
instruments, certificates, and opinions as may be required by this Agreement or
as otherwise necessary
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to consummate the Contemplated Transactions, including, without limitation,
conveyance documents and assumption agreements.
1.7 Earn Out.
(a) In addition to the Purchase Price, Buyer will pay to the Company
additional consideration for the Purchased Assets (the "Earn Out") which amount
shall be equal to forty percent (40%) of the Annual Net Income (defined below)
for each such year during the Applicable Term (defined below) so long as (A)
the Company has not materially breached the terms of Section 5.2 hereof or (B)
the Shareholder and the Company have not materially breached the terms of the
Noncompetition Agreements or (C) Xxxxx Xxxx has not materially breached the
terms of the Employment Agreement.
(b) "Applicable Term" means each of the three consecutive fiscal years
which begin on November 1, 1997 and which end on October 31, 2000 (each of such
years hereinafter referred to as the "fiscal year" for purposes of this Section
1.7).
(c) As used in this Section 1.7, the term "Annual Net Income", for
each relevant period during the Applicable Term shall mean the net income of the
Kang and Xxx Operation of the Buyer before provision for all Federal, state and
local income taxes for such period, determined in accordance with GAAP.
(d) In making the determination of the Annual Net Income during the
Applicable Term, the following additional conditions shall apply:
(i) there shall be no charge against income for any payment or
accrual of any component of the Purchase Price (including, without limitation
any write-off, amortization, depreciation or imputed interest charges);
similarly, the purchase price for any other assets and/or stock of companies
which are acquired by the Kang and Xxx Operation of the Buyer at the direction
of the Parent and without the approval of the Shareholder during the Applicable
Term may not be charged against income in excess of the charges against income
which would have otherwise been accrued or expensed by the seller had the sale
not been consummated; the Purchase Price for any other assets and/or stock of
companies which are acquired by the Kang and Xxx Operation of the Buyer in all
other cases during the Applicable Term shall be charged against Annual Net
Income;
(ii) intercompany management or other overhead charges and fees
between Parent and its subsidiaries (the "Parent Group"), on the one hand, and
Buyer, on the other hand, shall not be treated as an expense or other charge;
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(iii) for any service rendered to the Kang and Xxx Operation of
the Buyer by a member of the Parent Group, the Kang and Xxx Operation of the
Buyer shall be charged at the rate agreed to by such Parent Group member and
Xxxxx Xxxx; all charges permitted by this clause (iii) shall be treated as an
expense; provided, however, if such agreement is not reached, such expenses
included in the calculation of the Earn Out will not be in excess of similar
expenses incurred by the Company on an annual basis prior to the Closing, it
being agreed that the Kang and Xxx Operation of the Buyer shall not be required
to use any such service to the extent such service specifically relates to the
servicing of a particular client of the Kang and Xxx Operation of the Buyer and
such client specifically objects to the rendering of such service;
(iv) any Losses (as defined in Section 6.2) of the Buyer
Indemnified Parties (as defined in Section 6.2) which give rise to an indemnity
payment pursuant to the indemnification provisions of Section 6.2 below, to the
extent assumed by the Company or the Shareholder or to the extent the
Shareholder has reimbursed (by offset or otherwise) the Buyer Indemnified
Parties or which does not give the Buyer Indemnified Party the right to an
indemnity payment because it falls within the Basket Threshold referred to in
Section 6.1(b), shall not be treated as an expense, and there shall be excluded
from income any amount received by the Buyer Indemnified Parties pursuant
thereto;
(v) any indemnity payments made by a Buyer Indemnified Party to
any Company Indemnified Party (as defined in Section 6.3) shall not be treated
as an expense;
(vi) interest on loans to Buyer to finance any portion of the
Purchase Price or indemnity payments hereunder shall not be charged as an
expense;
(vii) expenses of the Buyer or the Company prior to or after the
Closing incurred in connection with the negotiation, preparation and execution
of this Agreement and the other documents to be delivered at the Closing
hereunder (including, without limitation, the fees and disbursements of their
attorneys, accountants and tax advisors, any brokers or finder fees), shall not
be treated as an expense;
(viii) the fees and expenses of the Accountants (defined in
Section 1.8) in preparing the Annual Determination (defined in Section 1.8) and
performing the related audit shall not be treated as an expense; and
(ix) any costs and expenses incurred by Buyer in contesting any
Annual Determination or in pursuing any indemnity claim under Section 6.2 shall
not be treated as an expense.
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(e) As used in this Section 1.7, the term "Annual Revenues" for each
relevant period during the Applicable Term shall mean the commissions and fees
and other revenues earned by the Kang and Xxx Operation of the Buyer during each
year of the Applicable Term, determined in accordance with GAAP.
(f) The Earn Out for each fiscal year during the Applicable Term will
be paid to the Company or its assignee within fifteen business days after the
Annual Determination for such fiscal year has been delivered to the Company by
Parent but in no event later than the March 31st immediately following the
fiscal year. If the Company does not agree that the Annual Determination
correctly states the Earn Out for the fiscal year under examination, the Company
shall promptly (but not later than 30 days after the delivery to the Company of
such Annual Determination) give written notice to Parent of any disagreement
thereto (in reasonable detail describing the nature and amount of the
disagreement asserted). If the Company and Parent reconcile such disagreement,
the Annual Determination shall be adjusted accordingly and shall thereupon
become final, binding and conclusive upon all of the parties hereto and
enforceable in a court of law. If the Company and Parent are unable to
reconcile such disagreement in writing within 20 days after written notice of
such disagreement is delivered to Parent, the dispute shall be submitted to
binding arbitration in accordance with the Alternative Dispute resolution
procedure set forth in this Agreement. That portion of the Earn Out which is
not in dispute shall be paid to the Company or its assignee at the normal time
provided hereunder. Upon receipt of the arbitrator's decision, the balance of
the payment of the Earn Out, if any, shall be made within five business days,
plus interest on the award calculated at an annualized rate equal to the Buyer's
then existing borrowing rate for the entire period of nonpayment, beginning on
the date that such payment was first due and payable.
(g) In the event that Parent or the board of directors of Buyer
requires Buyer to resign a "material" (i.e., 20% or more of annual net revenues
of the Company as determined for the 12 month period ending on October 31,
1997) Kang and Xxx Operation account (the "Resigned Account") solely because the
servicing of such account conflicts with the servicing or potential servicing by
Parent or one of Parent's affiliates of another account, Annual Net Income and
Annual Revenues of the Kang and Xxx Operation of the Buyer shall be adjusted for
the remainder of the Applicable Term depending upon the fiscal year in which
such resignation occurs, as follows:
(i) Annual Net Income for the fiscal year in which such
resignation occurred (the "Resignation Year") shall be adjusted by (A) adding
thereto an amount equal to a pro rata share of the Presumed Annual Profit (as
hereinafter defined) of such Resigned Account, which pro rata share shall be
determined by multiplying the Presumed Annual Profit by a fraction (the
"Resignation Year Fraction"), the numerator of which is the number of days
remaining in the Resignation Year after the date that Buyer's resignation
becomes effective (the "Resignation Date") with respect to such Resigned Account
and
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the denominator of which is 365, and (B) subtracting any New Account Presumed
Profit;
(ii) Annual Net Income for the fiscal year immediately following
the Resignation Year (the "Second Year") shall be adjusted by (A) adding thereto
an amount equal to the pro rata share of the Presumed Annual Profit of such
Resigned Account, which pro rata share shall be determined by multiplying the
Presumed Annual Profit by a fraction (the "Second Year Fraction"), the numerator
of which is the lesser of (x) 365 and (y) the number of days (if any) remaining
in the Applicable Term, and the denominator of which is 365, and (B) subtracting
any New Account Presumed Profit;
(iii) Annual Net Income for the second fiscal year following the
Resignation Year (the "Third Year") shall be adjusted by (A) adding thereto an
amount equal to a pro rata share of the Presumed Annual Profit, which pro rata
share shall be determined by multiplying the Presumed Annual Profit by a
fraction (the "Third Year Fraction"), the numerator of which is the number of
days (if any) remaining in the Applicable Term and the denominator of which is
365, and (B) subtracting any New Account Presumed Profit;
(iv) Annual Revenues for the Resignation Year shall be adjusted
by (A) adding thereto an amount equal to the pro rata share of the Presumed
Annual Revenues (as hereinafter defined) of such Resigned Account, which pro
rata share shall be determined by multiplying the Presumed Annual Revenues by
the Resignation Year Fraction and (B) subtracting any New Annual Revenues (as
hereinafter defined);
(v) Annual Revenues for the Second Year shall be adjusted by (A)
adding thereto an amount equal to the pro rata share of the Presumed Annual
Revenues of such Resigned Account, which pro rata share shall be determined by
multiplying the Presumed Annual Revenues by the Second Year Fraction and (B)
subtracting any New Annual Revenues;
(vi) Annual Revenues for the Third Year shall be adjusted by (A)
adding thereto an amount equal to the pro rata share of the Presumed Annual
Revenues of such Resigned Account, which pro rata share shall be determined by
multiplying the Presumed Annual Revenues by the Third Year Fraction and (B)
subtracting any New Annual Revenues.
(h) As used in this Section 1.7 and Section 1.8, the following terms
shall have the following meanings:
(i) "Presumed Annual Revenues" shall mean the total commission
and fees and other revenues earned by the Kang and Xxx Operation of Buyer which
were solely attributable to a Resigned Account during the twelve month period
immediately
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preceding the Resignation Date.
(ii) "Presumed Annual Profit" shall mean the amount determined by
multiplying the Presumed Annual Revenues times the pre-tax profit margin of the
Kang and Xxx Operation of Buyer (or the Company if such determination is being
made prior to the end of the first calendar year of the Applicable Term), as
reflected on its latest audited financial statements ("Profit Margin").
(iii) "New Annual Revenues" for each relevant period during the
Applicable Term shall mean the commissions and fees and other revenues earned by
the Kang and Xxx Operation of Buyer, solely attributable to new accounts
obtained by the Kang and Xxx Operation of Buyer through an introduction by
Parent or one of Parent's affiliates. New Annual Revenues shall only be taken
into account to the extent that they exceed the Presumed Annual Revenues of the
Resigned Account.
(iv) "New Account Presumed Profit" shall mean the amount
determined by multiplying the New Annual Revenues times the Profit Margin.
(i) Attached hereto as Exhibit 1.7 (i) is a pro forma projection of
the Earn Out payable during the Applicable Term. In the event that the
Shareholder is constructively terminated or terminated without cause at any
time during the Applicable Term, the Company will be paid for the remainder of
the Applicable Term the greater of:
1. the actual amounts earned as calculated under the terms of
this Section 1.7; or
2. the amounts shown on Exhibit 1.7 (i).
In the event that the Shareholder voluntarily terminates his employment or he is
terminated for cause, no further Earn Out will be paid to the Company as of the
date of either event. In any other case where the Shareholder's employment
relationship with Buyer ends, payments as provided under Section 1.7 (a) shall
continue to the Company.
1.8 Accounting Procedures.
(a) For each fiscal year during the Applicable Term, a report
containing the balance sheet of the Kang and Xxx Operation of the Buyer and a
related statement of income of the Kang and Xxx Operation of the Buyer for the
one year period beginning on the prior November 1st (and each subsequent
anniversary thereof), prepared in accordance with GAAP, together with a
statement from Buyer's Chief Financial Officer, based upon such report and in
accordance with this Agreement, setting forth for the period under examination
the calculation of the Earn Out payment (including the calculation of
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Annual Net Income and Annual Revenues) and all other adjustments required to be
made to such financial statements in order to make the calculations required
under Section 1.7 (the "Annual Determination"). A copy of each such Annual
Determination shall be delivered to the Shareholder not later than 120 days
after the end of the fiscal year to which such Annual Determination relates. In
the event that audited statements have been prepared for Buyer by an independent
accounting firm, any report submitted to the Company by Buyer under this section
shall be consistent with any such audited statement(s).
(b) The books and records of Buyer and the Company shall be made
available during normal business hours upon reasonable advance notice at the
principal office of Buyer, to the parties to the extent required to determine
the calculations required under Section 1.7. Buyer shall make arrangements to
make available to the other parties and their representatives (including their
auditors) all work papers of Buyer's Chief Financial Officer and/or the
accounting firm that prepared the financial statements under examination.
1.9 Third Party Consents. In the event the Closing is consummated
and all required consents to the assignment by third parties for the Contracts
of the Company assumed by Buyer hereunder are not received as of the Closing,
anything in this Agreement to the contrary notwithstanding, in the event an
assignment or purported assignment to Buyer of any Contracts of the Company, or
any claim, right or benefit arising thereunder or resulting therefrom, without
the consent of other parties thereto, would constitute a breach thereof or would
not result in Buyer receiving all of the rights of the Company thereunder, such
Contract shall be deemed not to have been assigned by the Company to the Buyer
(provided, however, the obligations under such Contracts shall be deemed to have
been assumed by Buyer, as between Buyer and Company). In those circumstances,
Buyer shall be deemed to have waived the requirement to obtain such consents
prior to the Closing; provided, however, (i) if requested by Buyer, the Company
and the Shareholder will use their best efforts to obtain any such consent and
(ii) if such consent is not obtained and is required to effectively assign a
Contract to Buyer, the Company and the Shareholder will fully cooperate with
Buyer in any reasonable arrangement to provide Buyer with the full claims,
rights and benefits under any such Contract, including enforcement at the cost
and for the benefit of Buyer of any and all rights of the Company, as the case
may be, against a third party thereto arising out of the breach or cancellation
by such third party or otherwise, and any amount received by the Company in
respect thereof shall be held for and immediately paid over to Buyer.
2. ASSUMPTIONS OF LIABILITIES AND CONTRACTS.
2.1 Assumed Liabilities. As of the Closing Date, except as otherwise
agreed to herein, Buyer will assume and thereafter pay and fully satisfy when
due, (i) all
11
liabilities and obligations under any Assigned Contract (for work performed
under said Assigned Contract on and after Closing Date) and (ii) all other
liabilities of the Company in connection with the Business which are
specifically disclosed in the Disclosure Letter and which Buyer specifically
agrees to assume (all such liabilities and obligations to be assumed by Buyer
hereunder shall be referred to herein as the "Assumed Liabilities"); provided,
however, in no event will Buyer's assumption of the Assumed Liabilities, in any
manner, limit, waive or restrict Buyer's right to indemnification by the Company
and the Shareholder pursuant to Section 6.2 below; it being the understanding
and acknowledgement of the parties that Buyer is relying solely on the
disclosures set forth in the Disclosure Letter to determine the liabilities and
obligations of the Company that are being assumed hereunder.
2.2 Excluded Liabilities. Notwithstanding anything to the contrary
contained in this Agreement or any agreement, document, certificate or
instrument being delivered pursuant to this Agreement (collectively, the
"Transaction Documents"), and regardless of whether such debt, liability or
obligation is disclosed in this Agreement, in any of the Transaction Documents,
in the Disclosure Letter or on any Schedule or Exhibit hereto or thereto, Buyer
shall not assume or agree to pay, perform or discharge or in any manner be
responsible for any Excluded Liabilities. As used herein, the term "Excluded
Liabilities" means:
(i) any liability or obligation of the Company or the Shareholder
arising out of or in connection with the negotiation and preparation of this
Agreement and consummation and performance of the transactions contemplated
hereby, including without limitation, legal and accounting fees (including those
associated with the preparation of the audited financial statements referred to
in Section 3.3), brokerage commissions, finder's fees or similar fees or
commissions, and income or other Tax liability so arising;
(ii) any liability or obligation of the Company to the
Shareholder, including, without limitation any obligation to distribute to its
Shareholder or any other Person all or any part of the Purchase Price;
(iii) any liability or obligation of the Company arising from the
failure of the Company to perform or discharge any of its agreements contained
herein;
(iv) any obligation of the Company for Taxes (except as otherwise
specifically provided for in Section 5.8); or
12
(v) any liability or obligation of the Company incurred by or
accruing to the Company prior to or after the Closing Date including work
performed under said Assigned Contracts prior to the Closing Date, except as
otherwise agreed hereunder; or
(vi) accounts payable and accruals for liabilities incurred in
the ordinary course of business.
3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND THE SHAREHOLDER.
The Company and the Shareholder, jointly and severally, represent and
warrant to Buyer as follows:
3.1 Organization and Good Standing.
(a) Each Company is a corporation duly organized, validly existing,
and in good standing under the laws of the States of New York (Kang & Xxx
Advertising, Inc.) and California (K&L West Advertising, Inc.), with full
corporate power and authority to conduct its business as it is now being
conducted, to own, hold under lease, or otherwise possess or use the properties
and assets that it purports to own, hold under lease, or otherwise possess or
use, and to perform all its obligations under the contracts to which it is a
party or by which it is bound. Part 3.1(a) of the Disclosure Letter sets forth
all other jurisdictions in which the Company is authorized to do business.
(b) The Company has delivered to Buyer copies of the Organizational
Documents of the Company, as currently in effect.
(c) Part 3.1(c) of the Disclosure Letter contains a complete and
accurate list of the current Shareholder, directors and officers of the Company.
3.2 Authority; No Conflict.
(a) This Agreement, the Escrow Agreement and the Noncompetition
Agreements constitute the legal, valid, and binding obligation of the Company
and the Shareholder to which each is a party, enforceable against each of them
in accordance with their terms, except as such enforcement may be limited by
bankruptcy, insolvency, moratorium, reorganization, or similar laws affecting
creditor's rights generally and by general equitable principles (whether
considered in a proceeding at equity or at law) and implied covenants of good
faith and fair dealing. The Company and the Shareholder have the absolute and
unrestricted right, power, authority, and capacity to execute and deliver
13
this Agreement and Company's Closing Documents and to perform their respective
obligations under this Agreement and Company's Closing Documents.
(b) Except as set forth in Part 3.2 of the Disclosure Letter, neither
the execution and delivery of this Agreement or any other documents executed by
either of the Company or the Shareholder in connection herewith, nor the
consummation or performance of any of the Contemplated Transactions will,
directly or indirectly:
(i) contravene, conflict with, or result in (with or without
notice or lapse of time) a violation or breach of (A) any provision of the
Organizational Documents of the Company, (B) any resolution adopted by the board
of directors or the Shareholder of the Company, (C) any Legal Requirement or any
Order to which the Company, the Shareholder, or any of the assets owned or used
by them, may be subject, or give any Governmental Body or other Person the right
(with or without notice or lapse of time) to challenge any of the Contemplated
Transactions or to exercise any remedy or obtain any relief under any such Legal
Requirement or Order; (D) any of the terms or requirements of, or give any
Governmental Body the right (with or without notice or lapse of time) to revoke,
withdraw, suspend, cancel, terminate, or modify, any Governmental Authorization
that is held by the Company or that otherwise relates to the business of, or any
of the assets owned or used by the Company, or (E) any provision of, or give any
Person the right (with or without notice or lapse of time) to declare a default
or exercise any remedy under, or to accelerate the maturity or performance of,
or to cancel, terminate, or modify, any Applicable Contract;
(ii) cause any of the assets owned by the Company to be
reassessed or revalued by any taxing authority or other Governmental Body; or
(iii) result in (with or without notice or lapse of time) the
imposition or creation of any Encumbrance upon or with respect to any of the
assets owned or used by the Company.
Except as set forth in Part 3.2 of the Disclosure Letter and subject to the
terms of Section 1.9 hereof, the Company will not be required to give any notice
to or obtain any Consent from any Person in connection with the execution and
delivery of this Agreement or the consummation or performance of any of the
Contemplated Transactions including, without limitation, assigning the Assigned
Contracts to Buyer.
3.3 Financial Statements. Part 3.3 of the Disclosure Letter sets
forth: the unaudited financial statements of the Company as of and for the
fiscal years ended December 31, 1994, 1995 and 1996, and for the period January
1, 1997 to August 31, 1997 (the unaudited balance sheet at December 31, 1996
shall be referred to herein as the "Balance Sheet")(collectively, the "Financial
Statements"). Company and Shareholder
14
warrant and represent that the Financial Statements are materially correct,
complete and fairly present the financial condition, results of operations and
cash flows of the Company as of the respective dates thereof and for the periods
referred to therein, all in accordance with GAAP.
3.4 Books and Records. The books of account, minute books, stock
record books, and other records of the Company, all of which have been made
available to Buyer, are complete and correct. At the Closing, all of those
books and records will be in the possession of the Company. All of the issued
and outstanding shares of capital stock of the Company are held solely by Xxxxx
Xxxx.
3.5 Title to Properties; Encumbrances. The Company does not own any
real property. Part 3.5 of the Disclosure Letter contains a complete and
accurate list of all leaseholds or other interests in real property currently or
previously owned by the Company. The Company has good and valid title to all
the properties and assets (whether real, personal, or mixed and whether tangible
or intangible) reflected as owned in the books and records of the Company,
including the Purchased Assets, the Intangible Property, all of the properties
and assets reflected in the Balance Sheet (except for personal property sold
since the date of the Balance Sheet in the Ordinary Course of Business) and all
of the properties and assets purchased or otherwise acquired by the Company
since the date of the Balance Sheet (except for supplies, inventory, and
personal property acquired and sold since the date of the Balance Sheet in the
Ordinary Course of Business). Except as set forth in Part 3.5 of the Disclosure
Letter, all properties and assets owned by the Company are free and clear of all
Encumbrances.
3.6 Condition and Sufficiency of Assets. Except for the Excluded
Assets, the Purchased Assets constitute all of the property and assets of the
Company, other than assets sold or disposed in the ordinary course of business.
All such assets are sold to Buyer in normal operating condition (any claim to
the contrary must be asserted by Buyer within 180 days after the Closing or else
will be deemed to be waived). The Company has the right to convey, and upon
consummation of the transactions which are the subject of this Agreement, Buyer
will be vested with good and valid title to the Purchased Assets or enforceable
leasehold interests in or valid rights under contract to use the Purchased
Assets (subject to receipt of any required third party consents, the obtaining
of all of such consents as of Closing having been waived by the Parent and
Buyer), free and clear of all Encumbrances, except as set forth in Part 3.5 of
the Disclosure Letter. The equipment and other tangible personal property used
by the Company in the conduct of its business, and to the knowledge of the
Company and the Shareholder (without inquiry), the heating, ventilation,
mechanical, electrical, sewer, sprinkler and air-conditioning systems at the
facilities leased by the Company which leases are set forth in Part 3.16 of the
Disclosure Letter, are in good operating condition and repair, are adequate in
all material respects for the uses to which they are being put, and are not in
need of maintenance or repairs,
15
except for ordinary, routine maintenance and repairs that are immaterial in
amount. The Purchased Assets are sufficient for Buyer to effect the continued
conduct of Business after the Closing in substantially the same manner as
conducted prior to the Closing.
3.7 Intentionally omitted.
3.8 Work in Process. All work-in-process of the Company existing as
of the Closing, whether or not reflected in the Balance Sheet, shall remain the
property of the Company and shall be performed, billed and collected by the
Company after the Closing. The Company shall be entitled to receive all profits
and shall suffer all losses derived from the work-in process, less the
reasonable charges for goods and services provided by Buyer after the Closing
Date to perform any such work-in-process.
3.9 No Undisclosed Liabilities. Except as set forth in Part 3.9 of
the Disclosure Letter, the Company has no liabilities or obligations of any kind
or nature (whether absolute, accrued, contingent, or otherwise) after the
Closing in connection with the transactions contemplated hereunder, other than
(i) liabilities or obligations reflected or reserved against in the Balance
Sheet, (ii) current liabilities for trade payables incurred in the Ordinary
Course of Business since the date of the Balance Sheet and (iii) obligations
under executory contracts that are set forth in the Disclosure Letter or that
are not required to be so set forth which are to be performed after the date
hereof in the Ordinary Course of Business, none of which liabilities or
obligations with respect to (i), (ii) and (iii) above result directly or
indirectly from a breach of contract (other than the failure to obtain consents
for Assigned Contracts), breach of warranty, tort, infringement or lawsuit.
3.10 Taxes.
(a) For the purposes of this Agreement, "Tax" or "Taxes" refers to any
and all federal, state, local and foreign taxes, assessments and other
governmental charges, duties, impositions and liabilities relating to taxes,
including taxes based upon or measured by gross receipts income, profits, sales,
use and occupation, and value added, ad valorem, transfer, franchise,
withholding, payroll, recapture, employment, excise and property taxes, together
with all interest, penalties and additions imposed with respect to such amounts
and any obligations under any agreements or arrangements with any other person
with respect to such amounts and including any liability for taxes of a
predecessor entity.
(b) The Company has timely filed all federal, state, local and foreign
returns, estimates, information statements and reports ("Returns") relating to
Taxes
16
required to be filed by the Company. With respect to all Taxes imposed on the
Company for which the Company is or could be liable, whether to taxing
authorities or to other persons or entities (as, for example, under tax
allocation agreements), with respect to all taxable periods or portions of
periods ending on or before the Closing Date, all applicable laws and agreements
have been fully complied with, and all such Taxes required to be paid by the
Company to taxing authorities or others on or before the date hereof have been
paid.
(c) The Company as of the Closing Date will have withheld with respect
to its employees all federal and state income taxes, FICA, FUTA and other Taxes
required to be withheld.
(d) The Company has not been delinquent in the payment of any Tax nor
is there any Tax deficiency outstanding, proposed or assessed against the
Company. The Company has not executed or requested any waiver of any statute of
limitations on or extending the period for the assessment or collection of any
Tax.
(e) An examination of the 1995 Return of the Company is presently in
progress with the IRS; the Company has not been notified of any other request
for such an audit or other examination. The Company and the Shareholder will
indemnify and hold Buyer and its Parent harmless as provided in Section 6.2
hereof from any adverse action taken by the IRS as a result of the disclosed
audit.
(f) The Company has no liability for unpaid federal, state, local or
foreign Taxes which have not been accrued for or reserved on the Balance Sheet,
whether asserted or unasserted, contingent or otherwise. There are no liens for
Taxes on the assets of the Company other than Taxes not yet due and payable.
(g) None of the Company's assets are treated as "tax-exempt use
property" within the meaning of Section 168(h) of the Code.
(h) There is no contract, agreement, plan or arrangement, including
but not limited to the provisions of this Agreement, covering any employee or
former employee of the Company that, individually or collectively, could give
rise to the payment of any amount that would not be deductible to the Company
pursuant to Sections 280G, 404 or 162 of the Code.
(i) The Company has not filed any consent agreement under Section
341(f) of the Code or agreed to have Section 341(f)(2) of the Code apply to any
disposition of a subsection (f) asset (as defined in Section 341(f)(4) of the
Code) owned by the Company.
17
(j) The Company is not, and has not been at any time, a "United States
real property holding corporation" within the meaning of Section 897(c)(2) of
the Code.
(k) The Company is not a party to or bound by any tax indemnity, tax
sharing or tax allocation agreements.
(l) The Company has never been a member of an affiliated group of
corporations within the meaning of Sections 1504 of the Code.
(m) None of the assets of the Company is property that the Company is
required to treat as being owned by any other person pursuant to the "safe
harbor lease" provisions of former Section 168(f)(8) of the Code.
(n) None of the assets of the Company directly or indirectly secures
any debt the interest on which is tax-exempt under Section 103(a) of the Code.
(o) The Company has not agreed to make nor is it required to make
before the Closing Date any adjustment under Section 481(a) of the Code by
reason of a change in accounting method or otherwise.
(p) The Company has not participated in and will not participate in an
international boycott within the meaning of Section 999 of the Code.
(q) The Company does not have and has never had a permanent
establishment in any foreign country, as defined in any applicable tax treaty or
convention between the United States and such foreign country.
(r) Except as set forth in Part 3.10(r) of the Disclosure Letter, the
Company is not a party to any joint venture, partnership, or other arrangement
or contract that could be treated as a partnership for federal income tax
purposes.
(s) Since its formation, the Company has been a valid "C" corporation
under the Internal Revenue Code.
3.11 No Material Adverse Change. Since the date of the Balance
Sheet, there has not been any material adverse change in the business,
operations, properties, assets, (to the knowledge of the Company or the
Shareholder, the client relations of the Company) or condition of the Company or
any event, condition, or contingency that, to the knowledge of the Company or
the Shareholder, is likely to result in such a material adverse change, and to
the knowledge of the Company and the Shareholder, no such material adverse
change is likely to occur as a result of the consummation of the Contemplated
Transaction.
18
3.12 Employee Benefits.
(a) The Company acknowledges that Buyer is not adopting the Company's
Profit Sharing Plan, and except as is listed in Part 3.12(a) of the Disclosure
Letter or as could not result in the Buyer having any material liability,
neither the Company nor any current or former Plan Affiliate of the Company has
at any time maintained, sponsored, adopted, made contributions to, obligated
itself or had any liability with respect to: any "employee pension benefit plan"
(as such term is defined in Section 3(2) of ERISA); any "employee welfare
benefit plan" (as such term is defined in Section 3(1) of ERISA); any collective
bargaining agreement, personnel policy (including vacation time, holiday pay,
service awards, bonus programs, moving expense reimbursement programs and sick
leave) or material fringe benefit; any severance agreement or plan or any
medical, life or disability benefit; any excess benefit plan, bonus or incentive
plan (including stock options, restricted stock, stock bonus or deferred bonus
plans), top hat plan or deferred compensation plan, salary reduction agreement,
change-of-control agreement, employment agreement, consulting agreement; or any
other benefit plan, policy, program, arrangement, agreement or contract, with
respect to any employee, former employee, director, independent contractor, or
any beneficiary or dependent thereof (all such plans, policies, programs,
arrangements, agreements and contracts, including but not limited to those that
are set forth in Part 3.12(a) of the Disclosure Letter, are referred to in this
Agreement as "Scheduled Plans").
(b) The Company has delivered to Buyer a complete and accurate copy,
as of the Closing, of each written Scheduled Plan, together with a copy of
financial statements, actuarial reports and Form 5500 Annual Reports (including
required schedules), if any, for the three (3) most recent plan years, the most
recent IRS determination letter or IRS recognition of exemption; any other
letter, ruling or notice issued by any Governmental Authority with respect to
each such plan which may result in material liability, a copy of each trust
agreement, insurance contract or other funding vehicle, if any, with respect to
each such plan, the most recent PBGC Form 1 with respect to each such plan, if
any, the current summary plan description or summary of material modifications
with respect to each such plan, and a copy or description of each other general
explanation or written or oral communication which describes any material term
of any such plan that has not previously been disclosed to Buyer pursuant to
this Section or as could not result in a liability to the Buyer.
(c) Each Scheduled Plan (i) has been and currently complies in form
and in operation in all material respects with the applicable requirements of
ERISA and the Code, and any other Legal Requirements; (ii) has been and is
operated and administered in material compliance with its terms (except as
otherwise required by law); and (iii) where appropriate, has received a
favorable determination letter or recognition of exemption from the Internal
Revenue Service.
19
(d) With respect to each Scheduled Plan, there are no claims or other
Proceedings pending or Threatened with respect to the assets thereof (other than
routine claims for benefits), and to the Company's or the Shareholder's
knowledge, there are no facts which could reasonably be expected to give rise to
any liability, claim or other Proceeding against any Scheduled Plan, any
fiduciary or plan administrator or other person dealing with any Scheduled Plan
or the assets of any such plan.
(e) With respect to each Company Employee Benefit Plan, to the
Company's or the Shareholder's knowledge no person: (i) has entered into any
"prohibited transaction," as such term is defined in ERISA or the Code; (ii) has
breached a fiduciary obligation or violated Sections 402, 403, 405, 503, 510 or
511 of ERISA; or (iii) has any liability for any failure to act or comply in
connection with the administration or investment of the assets of such plans, or
(iv) engaged in any transaction or otherwise acted with respect to such plans in
such a manner which could subject Buyer, or any fiduciary or plan administrator
or any other person dealing with any such plan, to liability under Sections 409
or 502 of ERISA or Sections 4972 or 4976 through 4980B of the Code.
(f) Neither the Company nor any current or former Company Plan
Affiliate has at any time participated in, made contributions to or had any
other liability with respect to any Scheduled Plan which is a "multi-employer
plan" as defined in Section 4001 of ERISA, a "multi-employer plan" within the
meaning of Section 3(37) of ERISA, a "multiple employer plan" within the meaning
of Section 413(c) of the Code or a "multiple employer welfare arrangement"
within the meaning of Section 3(40) of ERISA.
(g) Except as set forth in Part 3.12(a) Disclosure Letter, neither the
Company nor any current or former Company Plan Affiliate has at any time
maintained, contributed to or obligated itself or otherwise had any liability
with respect to any funded or unfunded employee welfare plan, whether or not
terminated, which provides medical, health, life insurance or other welfare type
benefits for current or future retirees or current or future former employees,
their spouses or dependents or any other persons (except for limited continued
medical benefit coverage for former employees, their spouses and other
dependents as required to be provided under Section 4980B of the Code and Part 6
of Subtitle B of Title I of ERISA and the accompanying proposed regulations or
state continuation coverage laws ("COBRA")).
(h) No Scheduled Plan has incurred an "accumulated funding deficiency"
as such term is defined in Section 302 of ERISA or Section 412 of the Code,
whether or not waived, or has posted or is required to provide security under
Code Section 401(a)(29) or Section 307 of ERISA; no event has occurred which has
or could result in the imposition of a lien under Code Section 412 or Section
302 of ERISA, nor has any liability to the Pension Benefit Guaranty Corporation
(the "PBGC") (except for payment of premiums) been incurred or reportable event
within the meaning of Section 4043 of ERISA occurred
20
with respect to any such plan; and the PBGC has not threatened or taken steps to
institute the termination of any such plan.
(i) Upon information and belief, the requirements of COBRA have been
satisfied in all material respects with respect to each Scheduled Plan.
(j) All contributions, payments, premiums, expenses, reimbursements or
accruals for all periods ending prior to or as of the Closing for each Scheduled
Plan (including periods from the first day of the then current plan year to the
Closing) shall have been made or accrued on the Company financial statements,
and each such plan otherwise neither has nor could have any unfunded liability
which is not reflected on the Company financial statements which are required to
be recorded in accordance with GAAP. Any contribution made or accrued with
respect to any Scheduled Plan is fully deductible by the Company.
(k) As used in this Agreement, with respect to any person ("First
Person") the term "Plan Affiliate" shall mean any other person or entity with
whom the First Person constitutes or has constituted all or part of a controlled
group, or which would be treated or has been treated with the First Person as
under common control or whose employees would be treated or have been treated as
employed by the First Person, under Section 414 of the Code and any regulations,
administrative rulings and case law interpreting the foregoing.
3.13 Compliance with Legal Requirements; Governmental Authorizations.
(a) Except as set forth in Part 3.13(a) of the Disclosure Letter and
to the best of the Company's knowledge:
(i) the Company is, and at all times has been, in compliance in
all material respects with each Legal Requirement that is or was applicable to
it or to the conduct or operation of its business or the ownership or use of any
of its assets;
(ii) no event has occurred or, to the knowledge of the Company or
the Shareholder, circumstance exists that would reasonably be expected to
constitute or result in (with or without notice or lapse of time) a violation by
the Company of, or a failure on the part of the Company to comply with, any
Legal Requirement; and
(iii) the Company has not received any notice or other
communication (whether oral or written) from any Governmental Body or any other
Person regarding, and the Company is not aware of, any actual, alleged,
possible, or potential violation of, or failure to comply with, any Legal
Requirement, or any obligation on the part of the Company to undertake, or to
bear all or any portion of the cost of, any remedial
21
action of any nature.
(b) Part 3.13(b) of the Disclosure Letter contains a complete and
accurate list of each Governmental Authorization that is held by the Company or
that otherwise relates to the Business, or to any of the assets owned or used by
the Company. Each Governmental Authorization listed or required to be listed in
Part 3.13(b) of the Disclosure Letter is valid and in full force and effect.
Except as set forth in Part 3.13(b) of the Disclosure Letter:
(i) the Company is, and at all times has been, in compliance in
all material respects with all of the terms and requirements of each
Governmental Authorization identified or required to be identified in Part
3.13(b) of the Disclosure Letter;
(ii) no event has occurred or circumstance exists that may (with
or without notice or lapse of time) (A) constitute or result directly or
indirectly in a violation of or a failure to comply with any term or requirement
of any Governmental Authorization listed or required to be listed in Part
3.13(b) of the Disclosure Letter, or (B) result directly or indirectly in the
revocation, withdrawal, suspension, cancellation, or termination of, or any
modification to, any Governmental Authorization listed or required to be listed
in Part 3.13(b) of the Disclosure Letter;
(iii) the Company has not received any notice or other
communication (whether oral or written) from any Governmental Body or any other
Person regarding (A) any actual, alleged, possible, or potential violation of or
failure to comply with any term or requirement of any Governmental
Authorization, or (B) any actual, proposed, possible, or potential revocation,
withdrawal, suspension, cancellation, termination of, or modification to any
Governmental Authorization; and
(iv) all applications required to have been filed for the renewal
of the Governmental Authorizations listed or required to be listed in Part
3.13(b) of the Disclosure Letter have been duly filed on a timely basis with the
appropriate Governmental Bodies, and all other filings required to have been
made with respect to such Governmental Authorizations have been duly made on a
timely basis with the appropriate Governmental Bodies.
The Governmental Authorizations listed in Part 3.13(b) of the Disclosure Letter
collectively constitute all of the Governmental Authorizations necessary to
permit the Company to lawfully conduct and operate its business in the manner
they currently conduct and operate such businesses and to permit the Company to
own and use its assets in the manner in which it currently owns and uses such
assets.
22
3.14 Legal Proceedings; Orders.
(a) Except as set forth in Part 3.14 of the Disclosure Letter, there
is no pending Proceeding:
(i) that has been commenced by or against the Company or the
Shareholder (relating to the Business) or that otherwise relates to or may
affect the Business, or any of the assets owned or used by the Company; or
(ii) that has been commenced by or against the Company or the
Shareholder, that challenges, or that may have the effect of preventing,
delaying, making illegal, or otherwise interfering with, any of the Contemplated
Transactions.
To the knowledge of the Company and the Shareholder, (1) no such Proceeding has
been Threatened, and (2) no event has occurred or circumstance exists that may
give rise to or serve as a reasonable basis for the commencement of any such
Proceeding. The Company has delivered to Buyer copies of all pleadings,
correspondence, and other documents relating to each Proceeding listed in Part
3.14 of the Disclosure Letter. The Proceedings listed in Part 3.14 of the
Disclosure Letter will not interfere in any material respect with, or result in
costs, expenses or damages exceeding $10,000, in the aggregate to, the Business,
operations, assets, condition, or prospects of the Company. Also listed in Part
3.14 of the Disclosure Letter are all Proceedings commenced or, to the knowledge
of the Company and the Shareholder, threatened by or against the Company within
the last three years, and a description of the outcome thereof.
(b) Except as set forth in Part 3.14 of the Disclosure Letter:
(i) there is no Order to which the Company, or any of the assets
owned or used by the Company, is subject;
(ii) no shareholder of the Company is subject to any Order that
relates to the business of, or any of the assets owned or used by the Company;
and
(iii) no officer, director, or to the knowledge of the Company or
the Shareholder, no agent, or employee of the Company is subject to any Order
that prohibits such officer, director, agent, or employee from engaging in or
continuing any conduct, activity, or practice relating to the business of the
Company.
(c) Except as set forth in Part 3.14 of the Disclosure Letter:
(i) the Company is, and at all times has been, in full compliance
with all of the terms and requirements of each Order to which it, or any of the
assets owned
23
or used by it, is or has been subject;
(ii) no event has occurred or circumstance exists that may
constitute or result in (with or without notice or lapse of time) a violation of
or failure to comply with any term or requirement of any Order to which the
Company, or any of the assets owned or used by the Company, is subject; and
(iii) the Company has not received any notice or other
communication (whether oral or written) from any Governmental Body or any other
Person regarding any actual, alleged, possible, or potential violation of, or
failure to comply with, any term or requirement of any Order to which the
Company, or any of the assets owned or used by the Company, is or has been
subject.
3.15 Absence of Certain Changes and Events. Except as set forth in
Part 3.15 of the Disclosure Letter, since January 1, 1997, the Company has
conducted its business only in the Ordinary Course of Business.
3.16 Contracts; No Defaults.
(a) Part 3.16 of the Disclosure Letter contains a complete and
accurate list of all Applicable Contracts described in (i) through (xv) below.
In addition, the Company has delivered to Buyer true and complete copies (or
forms thereof, where form agreements are used; provided that any and all
deviations or changes to the forms in any individual case are described in Part
3.16 of the Disclosure Letter), of all Applicable Contracts described in (i)
through (xv) below.
(i) each Contract that involves performance of services or
delivery of goods or materials by the Company of an amount or value in excess of
$10,000;
(ii) each Contract relating to the borrowing of money, the
guaranty of another Person's borrowing of money, or the creation of an
Encumbrance on the assets of the Company;
(iii) each Contract not in the Ordinary Course of Business
involving expenditures or receipts of the Company in excess of $10,000 or
providing for an express undertaking by the Company to be responsible for
consequential damages;
(iv) each lease, rental or occupancy agreement, license,
installment and conditional sale agreement, and other Contract affecting the
ownership of, leasing of, title to, use of, or any leasehold or other interest
in, any real property or personal property with a remaining commitment of
$10,000, in any one case;
24
(v) each licensing agreement (regardless of whether the Company
is licensor or licensee), maintenance or support agreement, escrow agreement, or
other Contract with respect to the use of any Intangible Property, including
agreements with current or former employees, consultants, and contractors
regarding the development, appropriation or the non-disclosure any Intangible
Property of the Company;
(vi) each Contract with employees, officers, and directors, and
Contracts with any labor union or other employee representative of a group of
employees relating to wages, hours, and other conditions of employment, and each
agreement providing for the Company to indemnify any Person;
(vii) each Contract of which the Company or the Shareholder have
knowledge and to which any employee, consultant, or contractor of the Company is
bound that in any manner purports to (A) restrict such employee's, consultant's,
or contractor's freedom to engage in any line of business or activity or to
compete with any other Person, or (B) assign to any other Person such
employee's, consultant's, or contractor's rights to any copyright, software,
invention, improvement, or discovery;
(viii) each joint venture, partnership, and other Contract
(however named) involving a sharing of profits, losses, costs, or liabilities by
the Company with any other Person;
(ix) each Contract containing covenants that in any way purport
to restrict the Company's business activity or limit the freedom of the Company
to engage in any line of business or to compete with any Person;
(x) each Contract providing for payments to or by any Person
based on sales, purchases, or profits, including distribution, reseller and
sales representative agreements, other than direct payments for goods by end
users of Company products;
(xi) each power of attorney that is currently effective and
outstanding;
(xii) each Contract for capital expenditures in excess of
$10,000;
(xiii) each written warranty, guaranty, and or other similar
undertaking with respect to contractual performance extended by the Company; and
(xiv) each amendment, supplement, and modification (whether oral
or written) in respect of any of the foregoing.
25
The parties agree that (i) commitments to media and production expenses which
are fully reimbursable from clients and (ii) estimates or purchase orders given
in the Ordinary Course Of Business relating to the execution of projects, do not
have to be set forth on Part 3.16 of the Disclosure Letter.
(b) Except as set forth in Part 3.16 or Part 3.2 of the Disclosure
Letter, all of the Contracts listed or required to be listed in Part 3.16 of the
Disclosure Letter are in full force and effect and are valid and enforceable in
accordance with their terms, and no event has occurred or circumstance exists
that would give the Company or to the knowledge of the Company or the
Shareholder or any other Person the right (with or without notice or lapse of
time) to declare a default or exercise any remedy under, or to accelerate the
maturity or performance of, or to commence an audit, cancel, terminate, modify,
any such Contract. Without giving effect to this Agreement and the transactions
contemplated hereby, immediately preceding the Closing, the Company has not
caused a default to occur under any Contract material to the Business.
(c) There are no renegotiations of, attempts to renegotiate, or
outstanding rights to renegotiate amounts of $10,000 or more, paid or payable to
the Company under current or completed Contracts with any Person, and no such
Person has made written demand for such renegotiation.
(d) In accordance with Article 2 of this Agreement, all of the above
listed and disclosed contracts and agreements will be assigned to Buyer. In
obtaining such assignments, the parties shall attempt, whenever possible, to
secure the complete release and discharge of the Company and the Shareholder
from the party accepting the assignment.
3.17 Insurance. Part 3.17 of the Disclosure Letter contains a
complete and accurate list of all insurance policies (including "self-insurance"
programs) now maintained by the Company (the "Insurance Policies") and all
general liability policies maintained by the Company during the past three years
with respect to the Company's business or assets and all claims (other than
usual and customary claims for health care benefits) made under any such current
or prior insurance policies. The Insurance Policies are in full force and
effect, the Company is not in default under any Insurance Policy, and no claim
for coverage under any Insurance Policy has been denied. The Company covenants
and agrees that all of the Insurance Policies will be maintained by the Company
in full force and effect through and including the Closing Date. To the
knowledge of the Company and the Shareholder, the Insurance Policies are
reasonably prudent and adequate for the operation of the Business.
26
3.18 Environmental Matters.
(a) The Company has never generated, transported, treated, stored,
disposed of or otherwise handled any Hazardous Materials (as defined below) at
any site, location or facility in connection with its business, its assets or
its leased premises ("Leased Premises") and no such Hazardous Materials are
present on, in or under the Leased Premises used in connection with the
operation of the Company's business, and to the knowledge of the Company and the
Shareholder, such property does not contain (including without limitation,
containment by means of any underground storage tank) any Hazardous Materials in
violation of any applicable Environmental and Safety Requirement (as defined
below). To the knowledge of the Company, there are no underground storage tanks
on the Leased Premises.
(b) The Company (i) is in compliance, in all material respects, with
all applicable Environmental and Safety Requirements, and (ii) except as set
forth on Part 3.13(a) of the Disclosure Letter, possesses all required permits,
licenses, certifications and approvals and has filed all notices or applications
required thereby or pertaining thereto which are material to the operation of
the Business.
(c) The Company has never been subject to, or received any notice
(written or oral) of, any private, administrative or judicial inquiry,
investigation, order or action, or any notice (written or oral) of any intended
or threatened private, administrative, or judicial inquiry, investigation, order
or action relating to the presence or alleged presence of Hazardous Materials
in, under or upon the Leased Premises, and, to the knowledge of the Company or
the Shareholder, there is no reasonable basis for any such inquiry,
investigation, order, action or notice; and there are no pending or, to the
knowledge of the Company or the Shareholder, threatened investigations, actions,
orders or proceedings (or notices of potential investigations, actions, orders
or proceedings) from any governmental agency or any other entity regarding any
matter relating to Environmental and Safety Requirements.
(d) To the knowledge of the Company and the Shareholder, no facts,
events or conditions with respect to the past or present operations or
facilities of the Company exist which could reasonably be expected to interfere
with or prevent continued compliance with, or could give rise to any common law
or statutory liability or otherwise form the basis of any claim, action, suit,
proceedings, hearing or investigation against or involving the Company, its
assets or properties or the Leased Premises under any Environmental and Safety
Requirement or related common law theories based on any such fact, event or
circumstance, including, without limitation, liability for investigation costs,
cleanup costs, personal injury or property damage.
27
(e) For purposes of this Agreement, "Environmental and Safety
Requirements" means all federal, state and local statutes, laws, rules,
regulations, codes, ordinances, orders, standards, permits, licenses, actions,
policies and requirements (including consent decrees, judicial decisions and
administrative orders) relating to protection, preservation or conservation of
the environment and public or worker health and safety, all as amended,
hereafter amended or re-authorized. For purposes of this Agreement, "Hazardous
Materials" means (i) hazardous substances, as defined by the Comprehensive
Environmental Response, Compensation and Liability Act, 42 U.S.C. 9601 et seq.;
(ii) hazardous wastes as defined by the Resource Conservation and Recovery Act,
42 U.S.C. 6901 et seq.; (iii) petroleum, including without limitation, crude oil
or any fraction thereof which is liquid at standard conditions of temperature
and pressure (60 degrees Fahrenheit and 14.7 pounds per square inch absolute);
(iv) any radioactive material, including, without limitation, any source,
special nuclear, or by-product material as defined in 42 U.S.C. 2011 et seq.;
(v) asbestos in any form or condition; (vi) polychlorinated biphenyls; and (vii)
any other material, substance or waste to which liability or standards of
conduct may be imposed under any Environmental and Safety Requirements.
3.19 Employees. Part 3.19 of the Disclosure Letter contains a
complete and accurate list of the following information for each employee of the
Company, including each employee on leave of absence or layoff status: name; job
title; current compensation paid or payable (and any change in compensation
since January 1, 1996 for employees with an annual salary in excess of $50,000);
vacation accrued; and service credited for purposes of vesting and eligibility
to participate under the Company's pension, retirement, profit-sharing, thrift-
savings, deferred compensation, stock bonus, stock option, cash bonus, employee
stock ownership (including investment credit or payroll stock ownership),
severance pay, insurance, medical, welfare, or vacation plan, other Scheduled
Plans, or any other employee benefit plan. To the knowledge of the Company or
the Shareholder (without inquiry), no former or current employee or current or
former officer or director of the Company is a party to, or is otherwise bound
by, any agreement or arrangement, including any confidentiality, non-
competition, or proprietary rights agreement, between such employee or officer
or director and any other Person ("Proprietary Rights Agreement") that in any
way adversely affected, affects, or will affect (i) the performance of his
duties as an employee or officer or director of the Company, or (ii) the ability
of the Company to conduct its business including any Proprietary Rights
Agreement with the Company by any such employee or director. Neither the
Company or the Shareholder have any reason to believe (without inquiry) that any
director, officer, or other employee of the Company intends to terminate his or
her employment with the Company (or refuse employment with the Buyer, as the
case may be), as a result of the Contemplated Transaction or otherwise.
3.20 Labor Disputes; Compliance. Except as set forth in Part 3.20 of
the Disclosure Letter, the Company has never been a party to any collective
bargaining or
28
other labor Contract. There has never been, there is not presently pending or
existing, and to the knowledge of the Company or the Shareholder, there is not
Threatened, any strike, slowdown, picketing, work stoppage, labor arbitration,
or proceeding in respect of the grievance of any employee, application or
complaint filed by an employee or union with the National Labor Relations Board
or any comparable Governmental Body, organizational activity, or other labor
dispute against or affecting the Company (including without limitation the
Screen Actors Guild or AFTRA), and no application for certification of a
collective bargaining agent is pending or, to the knowledge of the Company or
the Shareholder, is Threatened. No event has occurred or, to the knowledge of
the Company or the Shareholder, circumstance exists that could provide any
reasonable basis for any work stoppage or other labor dispute. There is no
lockout of any employees by the Company, and no such action is contemplated by
the Company. The Company has complied in all material respects with all Legal
Requirements, and except as set forth in Part 3.20 of the Disclosure Letter,
there is no allegation, charge or complaint or Proceeding pending or, to the
knowledge of the Company or the Shareholder (without inquiry), Threatened
against the Company or any of its officers, directors or employees, relating to
employment, equal employment opportunity, discrimination, harassment,
immigration, wages, hours, benefits, collective bargaining, the payment of
social security and similar taxes, occupational safety and health, and plant
closing, and neither the Company nor the Shareholder have knowledge of any
reasonable basis for any such allegation, charge, complaint, or Proceeding.
3.21 Intangible Property.
(a) Part 3.21(a) of the Disclosure Letter sets forth a true, correct
and complete list of each patent, trademark, trade name, service xxxx, brand
xxxx, brand name, industrial design and copyright owned or used in business by
the Company (except for "off the shelf" computer software licenses purchased at
retail by the Company), as well as all registrations thereof and pending
applications therefor, and each license or other contract relating thereto
(collectively with any other intellectual property owned or used in the business
by the Company, and all of the goodwill associated therewith, the "Intangible
Property") and indicates, with respect to each item of Intangible Property
listed thereon, the owner thereof and, if applicable, the name of the licensor
and licensee thereof and the terms of such license or other contract relating
thereto. Except as set forth in Part 3.21(a) of the Disclosure Letter, each of
the foregoing items of Intangible Property are owned free and clear of any and
all Encumbrances and the Company has not received any notice to the effect that
any other entity has any claim of ownership with respect thereto. To the
knowledge of the Company and the Shareholder, the use of the Intangible
Property, or any other intellectual property owned or licensed by another Person
which is used by the Company in connection with the Business, does not conflict
with, infringe upon, violate or interfere with or constitute an appropriation of
any right, title, interest or goodwill, including, without limitation, any
intellectual property right, patent, trademark, trade name, service
29
xxxx, brand xxxx, brand name, computer program, industrial design, copyright or
any pending application therefor of any other person or entity. Except as set
forth in Part 3.21(a) of the Disclosure Letter, no claims have been made, and
the Company has not received any notice, nor does the Company or the Shareholder
have any knowledge of any reasonable basis for any claims, that any of the
Intangible Property is invalid, conflicts with the asserted rights of other
entities, or has been used or enforced (or has failed to be used or enforced) in
a manner that would result in the abandonment, cancellation or unenforceability
of any item of the Intangible Property. The term Intangible Property shall not
include to any intellectual property provided to the Company by a client of the
Company which intellectual property is owned or licensed by such client and used
by the Company in the Ordinary Course of Business pursuant to such client's
request in the course of rendering services to such client (i.e. use of a
client's tradename or trademark).
(b) To the knowledge of the Company and the Shareholder, the Company
possesses all Intangible Property material to the Business, including, without
limitation, all know-how, formulae and other proprietary and trade rights and
trade secrets, necessary for the conduct of the Business as now conducted. The
Company has not taken or failed to take any action that would result in the
forfeiture or relinquishment of any such Intangible Property used in the conduct
of the Business as now conducted.
3.22 Certain Payments. Neither the Company, the Shareholder or
directors, nor to the knowledge of the Company or the Shareholder, any officer,
agent, or employee of the Company or any other Person associated with or acting
for or on behalf of the Company, has directly or indirectly (a) made any
contribution, gift, bribe, rebate, payoff, influence payment, kickback, or other
payment to any Person, private or public, regardless of form, whether in money,
property, or services (i) to obtain favorable treatment in securing business,
(ii) to pay for favorable treatment for business secured, (iii) to obtain
special concessions or for special concessions already obtained, for or in
respect of the Company or any Person affiliated with the Company, or (iv) in
violation of any Legal Requirements, or (b) established or maintained any fund
or asset that has not been recorded in the books and records of the Company.
3.23 Intentionally Omitted.
3.24 Disclosure. To the knowledge of the Company or the Shareholder,
no representation or warranty of the Company or the Shareholder in this
Agreement and no statement in the Disclosure Letter omits to state a material
fact necessary to make the statements herein or therein, in light of the
circumstances in which they were made, not misleading.
30
3.25 Relationships with Related Persons. Neither the Company, the
Shareholder nor, to the knowledge of the Company or the Shareholder, any other
Related Person of the Company has any interest in any property (whether real,
personal, or mixed and whether tangible or intangible) used in or pertaining to
the Business. Neither the Company, the Shareholder, nor any other Related
Person of the Company owns, of record or as a beneficial owner, an equity
interest or any other financial or profit interest in any Person that has (i)
had business dealings or a material financial interest in any transaction with
the Company, or (ii) engaged in competition with the Company with respect to any
line of products or services of the Company (a "Competing Business") in any
market presently served by such the Company except for less than one percent of
the outstanding capital stock of any Competing Business that is publicly traded
on any recognized exchange or in the over-the-counter market. Except as set
forth in Part 3.16 of the Disclosure Letter, neither the Company, the
Shareholder nor, to the knowledge of the Company or the Shareholder, any other
Related Person of the Company is a party to any Contract with, or has any claim
or right against, the Company. All money owed by the Company to Related Persons
(other than for salary) are for bona fide debts.
3.26 Client Relationships. Set forth in Part 3.26 of the Disclosure
Letter is a true and complete list of the Company's top twenty (20) client
accounts for the past two (2) fiscal years (including, but not limited to,
AT&T), measured by gross revenues in each year (the "Major Customers"), and the
key Company employees which manage the account, including the account manager
and the creative team assigned to each such account. In the last twelve months,
no Major Customer has canceled or otherwise terminated, or, to the knowledge of
the Company or the Shareholder, Threatened to cancel or otherwise terminate, its
relationship with the Company, or reduced, or Threatened to reduce, its business
with the Company or conducted an audit of the Company. The Company has not
received any written or oral notice and has no knowledge that any Major Customer
intends to cancel, audit or otherwise modify its relationship with Company (and,
after the Closing, the Buyer) on account of the Contemplated Transaction or
otherwise.
3.27 Suppliers. Set forth in Part 3.27 of the Disclosure Letter is
an accurate and complete list of the top ten (10) Company's vendors (by dollar
volume of sales during fiscal year 1996). No vendor has canceled or otherwise
terminated, modified or, to the Company's or the Shareholder' knowledge,
threatened to cancel or otherwise terminate, or to modify, its relationship with
the Business on account of the Contemplated Transaction or otherwise.
4. REPRESENTATIONS AND WARRANTIES OF BUYER AND PARENT
Buyer and Parent hereby, jointly and severally, represent and warrant
to the Company and the Shareholder as follows:
31
4.1 Organization and Good Standing. Buyer and Parent are
corporations duly incorporated, validly existing, and in good standing under the
laws of the State of Delaware, its state of incorporation.
4.2 Authority; No Conflict.
(a) This Agreement, the Escrow Agreement, the Employment Agreement and
the Noncompetition Agreements constitute the legal, valid, and binding
obligation of Buyer and Parent, enforceable against them in accordance with its
terms, except as such enforcement may be limited by bankruptcy, insolvency,
moratorium, reorganization, or similar laws affecting creditor's rights
generally and by general equitable principles (whether considered in a
proceeding at equity or at law) and implied covenants of good faith and fair
dealing. Buyer and the Parent each has the absolute and unrestricted right,
power, and authority to execute and deliver this Agreement and Buyer's Closing
Documents and to perform its obligations under this Agreement and Buyer's
Closing Documents.
(b) Neither the execution and delivery of this Agreement or any other
documents executed by either of the Parent or the Buyer in connection herewith,
nor the consummation or performance of any of the Contemplated Transactions
will, directly or indirectly contravene, conflict with, or result in (with or
without notice or lapse of time) a violation or breach of (A) any provision of
the Organizational Documents of either the Parent or Buyer, (B) any resolution
adopted by the board of directors or the shareholders of either the Parent or
the Buyer, (C) any Legal Requirement or any Order to which either the Parent,
the Buyer, or any of the assets owned or used by them, may be subject, or give
any Governmental Body or other Person the right (with or without notice or lapse
of time) to challenge any of the Contemplated Transactions or to exercise any
remedy or obtain any relief under any such Legal Requirement or Order; (D) any
of the terms or requirements of, or give any Governmental Body the right (with
or without notice or lapse of time) to revoke, withdraw, suspend, cancel,
terminate, or modify, any Governmental Authorization that is held by the either
the Parent or the Buyer or that otherwise relates to the business of, or any of
the assets owned or used by either the Parent or the Buyer, or (E) any provision
of, or give any Person the right (with or without notice or lapse of time) to
declare a default or exercise any remedy under, or to accelerate the maturity or
performance of, or to cancel, terminate, or modify, any material contract to
which Parent or Buyer is a party.
(c) The execution and delivery of this Agreement and the Buyer's
Closing Documents by each of Parent and Buyer and the consummation of the
transactions contemplated hereby have been duly authorized by all required
corporate action on behalf of each of Parent and Buyer.
32
4.3 Certain Proceedings. There is no pending Proceeding that has
been commenced against Buyer and that challenges, or may have the effect of
preventing, delaying, making illegal, or otherwise interfering with, any of the
Contemplated Transactions. To Buyer's knowledge, no such Proceeding has been
Threatened.
4.4 Financial Statements. Attached hereto as Exhibit 4.4 are the
audited financial statements of Parent for the fiscal year ending January 31,
1997 upon which the Company and Shareholder may rely .
5. ADDITIONAL AGREEMENTS
5.1 Intentionally Omitted
5.2 Noncompetition and Nondisclosure.
(a) (i) The Company acknowledges that (A) the Company is one of the
limited number of Persons who are intimately familiar with the Business; (B) the
Company has grown and developed the Business and (C) the Business is currently
conducted throughout the world.
(ii) Accordingly, the Company covenants and agrees that the
Company will not Compete with the Business, for a period of sixty (60)
successive months following the Closing (the "Term"). As used herein, the term
"Compete with the Business" shall mean to directly or indirectly: (A) engage in
the Business (or a business that provides the same or substitute products or
services offered by or available from Buyer) anywhere the Company has conducted
(or where the Buyer will conduct) the Business; (B) solicit any Person who is a
customer of the Company (which customers will become customers of the Buyer upon
the Closing) immediately preceding the Closing or who becomes a customer of the
Buyer at any time after the Closing or during the twenty-four (24) month period
immediately prior to any such solicitation (a "Customer"), for the purpose of
marketing, selling or providing to any Customer any services or products offered
by or available from the Buyer at the time of such solicitation or otherwise
seek to influence or alter any Customer's relationship with the Buyer, (C)
employ or engage, recruit or solicit for employment or engagement, any person
who is or becomes employed or engaged by the Buyer, the Parent or any of their
affiliates during the Term or during the eighteen-month period preceding the
Term or otherwise seek to influence or alter any such employee's relationship
with the Buyer, Parent or their respective affiliates (including those Company
employees hired by Buyer).
33
(iii) Nothing in this Section 5.2 shall prevent the Company from
owning not more than an aggregate of two percent (2%) of the publicly traded
equity securities of any competing enterprise (so long as it has no power to
manage, operate, advise, consult with or control the competing enterprise and no
power, alone or in conjunction with other affiliated parties, to select a
director, general partner, or similar governing official of the competing
enterprise). Nothing in this Section 5.2 shall prevent the Shareholder from
performing his services contemplated in the Employment Agreement.
(iv) The Company acknowledges that the foregoing restrictions
placed upon it are necessary and reasonable in scope and duration to adequately
protect the Buyer's interests, the goodwill of Buyer and the Business (including
the goodwill purchased by Buyer hereunder), and are a material inducement to
Buyer to execute, deliver and perform its obligations arising under or pursuant
to the transactions contemplated by this Agreement or the Transaction Documents.
(b) (i) The Company recognizes and acknowledges that certain
knowledge and information which the Company and its officers, directors and
Shareholder have acquired or developed relating to the Business, including its
pricing and quotation techniques, costs, developments, activities or products of
the Business or the business affairs of any person or entity doing business with
the Business, such as, but not limited to, customer and supplier lists, cost and
selling and service prices for specific vendor, customers' needs and
requirements, and all inventions, ideas, discoveries, creations, developments,
improvements, patents, patent applications, know how, technology, designs and
processes so acquired (collectively, "Confidential Information") will be the
valuable property of Buyer as a result of the consummation of the transactions
contemplated by this Agreement and the Transaction Documents and, following the
Closing, shall be held by the Company and its affiliates, officers, directors
and Shareholder in confidence and trust for the sole benefit of Buyer.
(ii) The Company (and each of its directors) agrees (and shall
use its best efforts to cause each of its officers and employees) not to use,
disclose, divulge or publish, in any manner whatsoever, without the prior
written consent of Buyer at any time during the Term hereof or thereafter, any
Confidential Information; provided, however, that Confidential Information shall
not include (a) information which is known to the public (other than as a result
of a violation of this covenant) or in the public domain or (b) information
which such party is required to disclose pursuant to law or order of a court
having jurisdiction over such party (provided that such party offers Buyer a
reasonable opportunity to obtain an appropriate protective order or
administrative relief against disclosure of such Confidential Information).
(iii) All memoranda, notes, lists, records and other documents or
papers (and all copies thereof), including such items stored in computer
memories, or
34
microfiche or by any other means, made or compiled by or on behalf of the
Company, and copies of records made by or made available to the Company relating
to the Business of Buyer are and shall be Buyer's property and shall be
delivered to Buyer promptly upon the request of Buyer.
(c) Rights and Remedies Upon Breach. Upon a breach, or threatened
breach, of any of the provisions of Sections 5.2(a) or 5.2(b) (the "Restrictive
Covenants"), Parent and Buyer shall have the right and remedy to have the
Restrictive Covenants specifically enforced by any court of competent
jurisdiction, without the necessity of posting a bond, it being agreed that any
breach or threatened breach of the Restrictive Covenants would cause irreparable
injury to Parent and Buyer and that money damages would not provide an adequate
remedy to Parent and Buyer. Parent and Buyer shall also have any other rights
and remedies available to Parent and Buyer under law or in equity.
(d) Severability of Covenants. The parties hereto acknowledge and
agree that the Restrictive Covenants are reasonable and valid in geographical
and temporal scope and in all other respects and are necessary for the
protection of legitimate, protectible interests acquired by Parent and Buyer
hereunder.
(e) In the event that it is determined in an appropriate forum that
either Parent or Buyer has breached a material term or condition of this
Agreement or any other agreement entered into with Company or Shareholder
contemporaneously with this transaction, then Company and Shareholder shall be
permitted to seek any other relief that an arbitrator may deem necessary, just
or proper.
5.3 Allocation of Purchase Price. Within 30 days after the Closing,
the Company and Buyer will, in good faith, agree to an allocation of the
Purchase Price in accordance with Section 1060 of the Code. For this purpose,
the parties hereto agree that the fair market value of, and the Purchase Price
allocable to, the tangible personal property of the Company is equal to the book
value of such property net of depreciation as reflected on the Balance Sheet,
appropriately adjusted to reflect changes since the Balance Sheet Date. The
parties further agree that the Purchase Price will be allocated first to the
current assets and the tangible assets to the extent of the aggregate value
thereof, and thereafter to goodwill, the Restrictive Covenants or other
intangible assets. The Purchase Price shall be further allocated as follows:
$1,040,000 to Kang & Xxx Advertising, Inc. and $260,000 to K&L West Advertising,
Inc. The Company and Buyer will report the allocation of the Purchase Price in
a manner entirely consistent with such agreement in all tax returns and forms
(including without limitation, Form 8594 filed with Parent's and the Company's
respective federal income tax returns for the taxable year that includes the
Closing Date) and in the course of any tax audit, tax review or tax litigation
relating thereto. The Company and Buyer shall cooperate with each other to
prepare the Forms 8594 in the manner required by this Section 5.3. The Company
and Buyer shall
35
each deliver to the other a copy of the Form 8594 it files with its respective
federal income tax return.
5.4 Kang & Xxx Name. At the Closing, the Company shall execute, and
deliver copies to Buyer of, all documents necessary to change its corporate name
to a name dissimilar to "Kang & Xxx Advertising" and "K&L West Advertising" and
promptly thereafter the Company agrees to file all such documents with the
appropriate Persons and Governmental Bodies.
5.5 Agreements Regarding Employees After Closing.
(a) Other than as may be provided in the Employment Agreement, Buyer
shall offer employment to all employees of the Company effective as of the
Closing Date (including those employees who are on vacation, temporary lay-off,
leave of absence, sick leave or short- or long-term disability) on economic
terms substantially equivalent to the terms of their employment with the Company
immediately prior to the Closing (such personnel who accept such employment, the
"Affected Employees"). In addition, from and after the Closing Date, until
otherwise determined by the Board of Directors of Buyer in its sole discretion,
Buyer shall use all reasonable efforts to provide the Affected Employees with
substantially similar health, welfare and other employee benefits as provided by
the Company to such employees immediately prior to the Closing Date. In the
event any employee of the Company fails to accept the employment offered by
Buyer, all liabilities associated with the termination of any such employee's
employment with the Company (including, without limitation, severance benefits)
shall be borne by the Company and the Shareholder, and shall not be assumed by
Buyer. All Affected Employees shall be subject to all rules, regulations,
requirements and policies applicable to all new hires of Buyer. Notwithstanding
anything to the contrary contained herein, in no event will the terms of this
Section 5.5 (i) deem any employee of the Company to be a third party beneficiary
hereunder, (ii) create an employment contract between Buyer and/or any of its
affiliates and any of the Company's employees (including the Affected Employees)
or (iii) require or obligate Buyer to keep any Affected Employee in its employ
for any period of time under any specific terms.
(b) The Buyer shall recognize under its employee benefit plans,
programs, arrangements and policies, in which an Affected Employee will
participate, the service credited to the Affected Employee as of the Closing
Date for purposes of any waiting period, eligibility conditions and benefits.
5.6 Management of Buyer During the Applicable Term.
(a) Buyer and Parent agree that from and after the Closing Date
through the end of the Applicable Term, Parent shall cause: (i) the operations
of Buyer to be
36
conducted and managed as a separate subsidiary in which the operations of the
Company shall be maintained, which will be authorized to conduct the Business in
substantially the same manner as the operations of the Company were conducted
prior to the Closing Date; (ii) the Board of Directors of Buyer to consist of at
least five directors; and (iii) the Shareholder to be elected to the Board of
Directors of the Buyer and to remain a director of Buyer as long as such
Shareholder is a full-time employee of Buyer. Under a separate Employment
Agreement, attached hereto and made a part hereof, Shareholder will be employed
under an initial term of five years as a Director and Senior Officer of Buyer
with senior executive authority over the Kang and Xxx Operation.
(b) Parent and Buyer agree that, from and after the Closing Date
through at least the end of the Applicable Term, the Organizational Documents
and the By-Laws of Buyer will be as set forth in Exhibit 5.6 hereto, and that
such Organizational Documents and By-Laws shall not be amended or repealed
during the Applicable Term without the consent of the Shareholder, which consent
shall not be unreasonably withheld, conditioned or delayed.
(c) During the Applicable Term, the Buyer and Parent shall establish
and agree on an annual operating budget for Buyer (the "Budget") for each
calendar year. The parties hereto agree that during the Applicable Term, so
long as the actual operating results of Buyer are not diverging in any material
manner from the Budget without the prior written consent of the President of the
Kang and Xxx Operation (which consent shall not be unreasonably withheld,
conditioned or delayed), neither Parent nor the Board of Directors of Buyer will
require the Kang and Xxx Operation of Buyer (i) to hire or fire any of its staff
employees, (ii) to change, in any material manner, the base salaries or bonus
structure provided by Buyer to the Kang and Xxx Operation employees, (iii) to
terminate its relationship with any client of the Kang and Xxx Operation of
Buyer that represented in excess of $3.5 million in revenue to Buyer for the
previous twelve month period and (iv) to provide services to any client.
(d) In the event Parent desires to consummate a sale of any part of
the Buyer's Kang and Xxx Operation to an unaffiliated purchaser, whether by sale
of assets, stock, merger, consolidation or other transaction, the following is
agreed to:
(i) if such third party purchaser will under a direct agreement
with Company assume all of the obligations of Parent and Buyer set forth in
Section 1.7 above (the "Earn Out Obligations") then, in such case, all of
Parent's and Buyer's Earn Out Obligations under Section 1.7 shall automatically
terminate;
(ii) if such third party purchaser fails to assume the Earn Out
Obligations in connection with such sale, then the Parent's and Buyer's Earn Out
Obligations shall continue.
37
(e) Without limiting the terms and conditions set forth in this
Section 5.6, the Shareholder agrees, understands and acknowledges that Buyer
will be operated as a wholly-owned subsidiary of Parent and, in connection
therewith, the Parent and the Board of Directors of Buyer shall have all power,
authority and control over Buyer, without restriction, as provided under all
applicable laws in order to fulfill their fiduciary duties; provided, however,
the Parent agrees that it will inform, and consult with, the President of the
Kang and Xxx Operation of Buyer prior to implementing (or causing the Board of
Directors of Buyer to implement) any material change to the business or
operations of Buyer.
5.7 Transfer Tax Compliance. The Company and Buyer shall comply with
Section 14.15 of the New York State Tax Law relating to the New York State Real
Property Transfer Tax and Chapter 21, Title 11 of the Administrative Code of the
City of New York relating the New York City Real Property Transfer Tax and any
similar taxes of other applicable jurisdictions (all such taxes collectively,
the "Transfer Taxes"). For such purposes, the Company and the Buyer agree that
the leasehold interests of the Company have no value and that no portion of the
Purchase Price is allocable thereto. At the Closing, the Company shall deliver
and cause to be filed all returns required to be filed in connection with the
Transfer Taxes. The Transfer Taxes and the costs and expenses incurred by
Parent, Buyer, the Company or the Shareholder as a result of a dispute with any
Governmental Body in connection with the Transfer Taxes, shall be the sole
responsibility of the Company and the Shareholder.
5.8 Sales Tax Liability. Buyer and the Company shall use their
reasonable best efforts to obtain all necessary sales tax exemptions and take
all such other action as may be necessary or advisable to cause the transfer of
the Purchased Assets to Buyer not to be subject to sales tax. To the extent
that, despite all such actions, the transfer of any Purchased Assets to the
Buyer gives rise to sales tax liability or other transfer, purchase or
recordation documentary tax and fees (collectively, "Sales Taxes"), the Buyer
shall promptly pay such Sales Taxes to the appropriate tax authorities and any
costs and expenses incurred by Parent, Buyer, the Company or the Shareholder as
a result of a dispute with any Governmental Body in connection with the Sales
Taxes, shall be the sole responsibility of the Parent and Buyer.
5.9 Successor Employer. Buyer agrees that it shall elect treatment
as a "successor employer" for withholding tax purposes with respect to the 1997
calendar year.
38
6. INDEMNIFICATION; REMEDIES
6.1 Survival.
(a) The representations and warranties in this Agreement and any other
certificate or document delivered pursuant to this Agreement will survive the
Closing until the one year anniversary of the Closing Date (the "Sunset
Period"), except that (a) the representations and warranties in Sections 3.10,
3.12 and 3.24 will survive until all applicable statutes of limitation
(including extensions of such statutes) have elapsed, and (b) the
representations and warranties in Section 3.5 concerning title to the Purchased
Assets shall survive indefinitely. Notwithstanding the foregoing, a
representation and warranty shall continue in effect in the event a claim for
breach thereof has been made prior to the expiration of the Sunset Period and
shall survive until such claim is fully resolved. The right to indemnification,
reimbursement, or other remedy based on such representations and warranties will
not be affected by any investigation conducted by Buyer.
(b) Notwithstanding anything to the contrary set forth in this
Agreement but subject to the terms set forth in Section 6.1(d), neither the
Company nor the Shareholder shall be liable hereunder to a Buyer Indemnified
Party as a result of any misrepresentation or Breach of any representation or
warranty contained in this Agreement unless, and not until, the aggregate amount
of all Losses incurred by all Buyer Indemnified Parties (in the aggregate) as a
result of any such misrepresentations or Breaches under this Agreement exceeds
$25,000 (the "Basket Threshold"), in which case the Company and the Shareholder
shall only be liable for Losses in excess of $25,000.
(c) Notwithstanding anything to the contrary set forth in this
Agreement, but subject to the terms set forth in Section 6.1(d), following the
Closing, the aggregate liability of the Company and the Shareholder to the Buyer
Indemnified Parties for breaches of the representations or warranties set forth
herein shall not exceed, in the aggregate, $1,300,000 (the "Cap").
(d) Each of the limitations set forth in subparagraphs (a), (b) and
(c) above (including, without limitation, the Sunset Period, the Cap and the
Basket Threshold) shall in no event apply to any Losses incurred by a Buyer
Indemnified Party which relate, directly or indirectly, to (i) any fraudulent
acts committed by the Company or the Shareholder (including, without limitation,
fraud in connection with the Contemplated Transaction and any fraudulent acts by
any officer, director, employee, agent or shareholder of the Company), (ii) any
breach or misrepresentations of the representations and warranties contained in
Sections 3.10, 3.24 and Section 3.5 concerning title to the Purchased Assets,
(iii) an indemnification obligation under Sections 6.2(b) or 6.2(d) or (iv)
39
the Company's and Shareholder's obligations set forth in Section 8.1 below to
pay for their own expenses in connection with the Contemplated Transactions.
6.2 Indemnification of Parent and Buyer. From and after the Closing,
the Company and the Shareholder jointly and severally, on behalf of themselves
and any of their respective successors and assigns, hereby agree to indemnify
Parent and Buyer and their subsidiaries, affiliates, shareholders, directors,
partners, officers, employees, agents, representatives and successors, permitted
assigns of Buyer and their respective affiliates (the "Buyer Indemnified
Parties") and save and hold them harmless from and against and pay on behalf of
or reimburse the Buyer Indemnified Parties as and when incurred for any and all
liabilities, demands, claims, actions, causes of action, assessments, losses,
costs, damages, deficiencies, taxes, fines or expenses (whether or not arising
out of third party claims), including, without limitation, interest, penalties,
reasonable attorneys' fees and all amounts paid in investigation, defense or
settlement of any of the foregoing (collectively, "Losses"), which any Buyer
Indemnified Party may suffer, sustain or become subject to, in connection with,
incident to, resulting from or arising out of or in any way relating to or by
virtue of:
(a) any misrepresentation or breach of a representation or warranty
made herein by the Company and/or the Shareholder;
(b) any nonfulfillment or breach of any covenant or agreement on the
part of the Company or the Shareholder under this Agreement (including the
Escrow Agreement);
(c) any action, demand, proceeding, investigation, audit or claim by
any third party (including any Governmental Body) against or affecting any Buyer
Indemnified Party which, if successful, would give rise to or evidence the
existence of or relate to a misrepresentation or breach of any of the
representations, warranties, agreements or covenants of the Company or the
Shareholder set forth in this Agreement; or
(d) any liability or obligation or any assertion against a Buyer
Indemnified Party, arising out of or relating, directly or indirectly, to any
Excluded Liability.
The rights of the Buyer Indemnified Parties to indemnification under part (b) or
(d) of this Section 6.2 shall apply notwithstanding that the matter in question
may be the subject of, excluded from or beyond the scope of any representation
or warranty of the Company or the Shareholder in this Agreement.
6.3 Indemnification of the Company. Each of Buyer and Parent,
jointly and severally, on behalf of itself and its successors and assigns,
hereby agrees to indemnify the Company and its affiliates, Shareholder,
directors, partners, officers,
40
employees, agents, representatives, successors and permitted assigns of the
Company and its respective affiliates (the "Company Indemnified Parties") and
save and hold each of them harmless from and against and pay on behalf of or
reimburse the Company Indemnified Party as and when incurred for any and all
Losses which a Company Indemnified Party may suffer, sustain or became subject
to, in connection with, incident to resulting from or arising out of or in any
way relating to or by virtue of:
(a) any misrepresentation or breach of a representation or warranty
made herein by Buyer or Parent;
(b) any non-fulfillment or breach of any covenant or agreement on the
part of Buyer or Parent under this Agreement (including the Escrow Agreement);
(c) any action, demand, proceeding, investigation or claim by any
third party (including governmental agencies) against or affecting a Company
Indemnified Party which, if successful, would give rise to or evidence the
existence of or relate to a misrepresentation or breach of any of the
representations, warranties, agreements or covenants of Buyer or Parent set
forth in this Agreement; or
(d) any liability or obligation or any assertion against a Company
Indemnified Party arising out of Buyer's or Parent's failure to pay, satisfy or
discharge the Assumed Liabilities.
Notwithstanding anything to the contrary contained in this Agreement or in any
other document, certificate, agreement or otherwise, in the event an
indemnification obligation of the Company or the Shareholder arises pursuant to
this Agreement, which is final and non-appealable, the Buyer's and Parent's
obligations to indemnify a Company Indemnified Party hereunder (whether pursuant
to subparagraph (d) above or any other provision of this Section 6.3) shall not
be applicable and be deemed null and void with respect to such matters but only
to the extent that the Buyer and Parent's obligation do not exceed the Company
or Shareholder's indemnification obligation hereunder.
The rights of the Company Indemnified Parties to indemnification under part (b)
or (d) of this Section 6.3 shall apply notwithstanding that the matter in
question may be the subject of, excluded from or beyond the scope of any
representation or warranty of the Buyer or the Parent in this Agreement.
6.4 Indemnification Procedure for Third Party Claims. In the event
that subsequent to the Closing any person or entity entitled to indemnification
under this Agreement (an "Indemnified Party") asserts a claim for
indemnification or receives notice of the assertion of any claim or of the
commencement of any action or proceeding by any entity who is not a party to
this Agreement or an affiliate of a party to this Agreement
41
(including, but not limited to any domestic or foreign court or Governmental
Body, federal, state or local) (a "Third Party Claim") against such Indemnified
Party, against which a party to this Agreement is required to provide
indemnification under this Agreement (an "Indemnifying Party"), the Indemnified
Party shall give written notice together with a statement of any available
information (other than privileged information) regarding such claim to the
Indemnifying Party within thirty (30) business days after learning of such claim
(or within such shorter time as may be necessary to give the Indemnifying Party
a reasonable opportunity to respond to such claim). The Indemnifying Party shall
have the right, upon written notice to the Indemnified Party (the "Defense
Notice") within fifteen days (15) after receipt from the Indemnified Party of
notice of such claim, which notice by the Indemnifying Party shall specify the
counsel it will appoint to defend such claim ("Defense Counsel"), to conduct at
its expense the defense against such claim in its own name, or if necessary in
the name of the Indemnified Party; provided, however, that the Indemnified Party
shall have the right to approve the Defense Counsel, which approval shall not be
unreasonably withheld or delayed, and in the event the Indemnifying Party and
the Indemnified Party cannot agree upon such counsel within ten (10) days after
the Defense Notice is provided, then the Indemnifying Party shall propose an
alternate Defense Counsel, which shall be subject again to the Indemnified
Party's approval which approval shall not be unreasonably withheld or delayed.
If the parties still fail to agree on the Defense Counsel, then, at such time,
they shall mutually agree in good faith on a procedure to determine the Defense
Counsel.
(a) In the event that the Indemnifying Party shall fail to give the
Defense Notice within said 15 day period, it shall be deemed to have elected not
to conduct the defense of the subject claim, and in such event the Indemnified
Party shall have the right to conduct the defense in good faith and to
compromise and settle the claim in good faith without prior consent of the
Indemnifying Party and the Indemnifying Party will be liable for all reasonable
costs, expenses, settlement amounts or other Losses paid or incurred in
connection therewith.
(b) In the event that the Indemnifying Party does deliver a Defense
Notice and thereby elects to conduct the defense of the subject claim, the
Indemnifying Party shall be entitled to have the exclusive control over said
defense settlement of the subject claim and the Indemnified Party will cooperate
with and make available to the Indemnifying Party such assistance and materials
as it may reasonably request, all at the expense of the Indemnifying Party, and
the Indemnified Party shall have the right at its expense to participate in the
defense assisted by counsel of its own choosing. In such an event, the
Indemnifying Party will not settle the subject claim without the prior written
consent of the Indemnified Party, which consent will not be unreasonably
withheld or delayed.
(c) Without the prior written consent of the Indemnified Party, the
Indemnifying Party will not enter into any settlement of any Third Party Claim
or cease to
42
defend against such claim, if pursuant to or as a result of such settlement or
cessation, (i) injunctive relief or specific performance would be imposed
against the Indemnified Party, or (ii) such settlement or cessation would lead
to liability or create any financial or other obligation on the part of the
Indemnified Party for which the Indemnified Party is not entitled to
indemnification hereunder.
(d) If an Indemnified Party refuses to consent to a bona fide offer of
settlement which provides for a full release of the Parent, Buyer and its
affiliates and solely for a monetary payment which the Indemnifying Party wishes
to accept, the Indemnified Party may continue to pursue such matter, free of any
participation by the Indemnifying Party, at the sole expense of the Indemnified
Party. In such event, the obligation of the Indemnifying Party shall be limited
to the amount of the offer of settlement which the Indemnified Party refused to
accept plus the costs and expenses of the Indemnified Party incurred prior to
the date the Indemnifying Party notified the Indemnified Party of the offer of
settlement.
(e) Notwithstanding paragraph (b) above, the Indemnifying Party shall
not be entitled to control, but may participate in, and the Indemnified Party
shall be entitled to have sole control over, the defense or settlement of any
claim (i) that seeks a temporary restraining order, a preliminary or permanent
injunction or specific performance against the Indemnified Party, (ii) to the
extent such claim involves criminal allegations against the Indemnified Party,
(iii) that if unsuccessful, would set a precedent that would materially
interfere with, or have a material adverse effect on, the business or financial
condition of the Indemnified Party, or (iv) to the extent such claim imposes
liability on the part of the Indemnified Party for which the Indemnified Party
is not entitled to indemnification hereunder (including, without limitation, a
liability which may exceed the Cap). In such an event, the Indemnifying Party
will still have all of its obligations hereunder provided that the Indemnified
Party will not settle the subject claim without the prior written consent of the
Indemnifying Party, which consent will not be unreasonably withheld.
(f) Any final judgment entered or settlement agreed upon in the manner
provided herein shall be binding upon the Indemnifying Party, and shall
conclusively be deemed to be an obligation with respect to which the Indemnified
Party is entitled to prompt indemnification hereunder.
(g) A failure by an Indemnified Party to give timely, complete or
accurate notice as provided in this Section 6.4 will not affect the rights or
obligations of any party hereunder except and only to the extent that, as a
result of such failure, any party entitled to receive such notice was deprived
of its right to recover any payment under its applicable insurance coverage or
was otherwise directly and materially damaged as a result of such failure to
give timely notice.
43
6.5 Escrowed Amount; Right of Set-Off. In the event an
indemnification obligation of the Company or the Shareholder arise under Section
6.2 above and such indemnification obligation is not paid, in full, on demand,
Buyer or Parent, on a non-exclusive basis, shall be entitled to (i) first,
remove such amounts owed from escrow, pursuant to the Escrow Agreement, and (ii)
second, set-off, on a dollar for dollar basis, any amounts then owed by Buyer to
the Company or to the Shareholder pursuant to Section 1.7 hereof. In the event
(A) the Buyer or Parent exercises the right of set off pursuant to (ii) above
and (B) an arbitrator issues a final, non-appealable order that Buyer or Parent
inappropriately exercised such right due to the failure of an indemnification
obligation to exist in connection with the exercise of such set off right, Buyer
and Parent agree to pay to the Company (x) the amount previously set off by
Buyer or Parent pursuant to (ii) above, (y) interest on the amount set off,
calculated at the Buyer's then existing annual borrowing rate, for the period
beginning on the date of such set off through and including the date of such
payment and (z) any other damages that the arbitrator deems just and proper.
6.6 Sole Remedy. The liability of each of the parties hereto with
respect to any matter set forth in Sections 6.2 or 6.3, as the case may be,
shall be limited by the terms and to the extent set forth in this Article VI,
and no party will have any claim, right or remedy under this Agreement except
for indemnification as provided in this Article VI; provided, however this
Section 6.6 shall in no event apply to any equitable remedies available to any
party or liabilities related to any fraudulent claims.
6.7 Treatment. Any indemnity payments by an Indemnifying Party to an
Indemnified Party under this Article VI shall be treated by the parties as an
adjustment to the Purchase Price.
7. DEFINITIONS.
7.1 Definitions. For purposes of this Agreement, the following terms
have the meanings specified:
"Applicable Contract" -- any Contract (a) under which the Company
has or may acquire any rights, (b) under which the Company has or may become
subject to any obligation or liability, or (c) by which the Company or any of
the assets owned or used by the Company is or may become bound.
"Best Efforts" -- the efforts that a prudent Person desirous of
achieving a result would use in similar circumstances to ensure that such result
is achieved as expeditiously as possible.
"Breach" -- a "Breach" of a representation, warranty, covenant,
obligation, or other provision of this Agreement will be deemed to have occurred
if there
44
is or has been (a) any inaccuracy in or breach of, or any failure to perform or
comply with, such representation, warranty, covenant, obligation, or other
provision, or (b) any claim (by any Person) or other occurrence or circumstance
that is or was inconsistent with such representation, warranty, covenant,
obligation, or other provision, and the term "Breach" means any such inaccuracy,
breach, failure, claim, occurrence, or circumstance.
"Closing Date" -- the date and time as of which the Closing
actually takes place.
"Code" -- the Internal Revenue Code of 1986, as amended, or any
successor law, and regulations issued by the IRS pursuant to the Internal
Revenue Code or any successor law.
"Consent" -- any approval, consent, ratification, waiver, or
other authorization (including any Governmental Authorization).
"Contemplated Transactions" -- all of the transactions
contemplated by this Agreement, including:
(i) the Closing hereunder;
(ii) the sale of the Purchased Assets by the Company to Buyer and
the assumption, by Buyer, of the Assumed Liabilities;
(iii) the execution, delivery, and performance of the Company's
Closing Documents and Buyer's Closing Documents; and
(iv) the performance by Buyer and the Company of their respective
covenants and obligations under this Agreement.
"Contract" -- any agreement, contract, obligation, promise, or
undertaking (whether written or oral and whether express or implied) that is
legally binding.
"Disclosure Letter" -- the disclosure letter delivered by the
Company to Buyer concurrently with the execution and delivery of this Agreement.
"Encumbrance" -- any claim, lien, pledge, charge, security
interest, equitable interest, option, right of first refusal or preemptive
right, condition, or other restriction of any kind, including any restriction on
use, voting (in the case of any security), transfer, receipt of income, or
exercise of any other attribute of ownership.
45
"ERISA" -- the Employee Retirement Income Security Act of 1974,
as amended, or any successor law.
"Facilities" -- any real property, leaseholds, or other interests
currently or formerly owned or operated by the Company (or any predecessor
Person) and any buildings, plants, or structures currently or formerly owned,
leased, or operated by the Company (or any predecessor Person).
"GAAP" -- generally accepted United States accounting principles,
consistently applied from year to year.
"Governmental Authorization" -- any approval, consent, license,
permit, waiver, or other authorization issued, granted, given, or otherwise made
available by or under the authority of any Governmental Body or pursuant to any
Legal Requirement.
"Governmental Body" -- any:
(i) nation, state, county, city, town, village, district, or
other jurisdiction of any nature;
(ii) federal, state, local, municipal, foreign, or other
government;
(iii) governmental or quasi-governmental authority of any nature
(including any governmental agency, branch, department, official, or other
entity and any court or other tribunal);
(iv) multi-national organization or body; or
(v) body exercising, or entitled or purporting to exercise, any
administrative, executive, judicial, legislative, police, regulatory, or taxing
authority or power of any nature.
"IRS" -- the United States Internal Revenue Service.
"Kang and Xxx Operation of the Buyer" shall mean the business of
the Company, as of October 31, 1997, which is derived by the assets acquired by
the Buyer under this Asset Purchase Agreement and which is continued by the
Buyer on or after November 1, 1997.
"Knowledge" -- where any representation and warranty contained in
this Agreement is expressly qualified by reference to the best knowledge,
information and
46
belief of the Company and the Shareholder, such term shall be limited to the
knowledge of the Shareholder, Xxxx Xx or such knowledge that would have been
discovered by such individuals after reasonable due inquiry of Persons known to
the Company or the Shareholder who may reasonably have knowledge of such
matters.
"Legal Requirement" -- any federal, state, local, municipal,
foreign, or other constitution, ordinance, regulation, code, statute, treaty, or
other law adopted, enacted, implemented, or promulgated by or under the
authority of any Governmental Body or by the eligible voters of any
jurisdiction, and any agreement, approval, consent, injunction, judgment,
license, order, or permit by or with any Governmental Body or to which the
Company is a party or by which the Company is bound.
"Order" -- any award, injunction, judgment, order, ruling,
subpoena, or verdict or other decision entered, issued, made, or rendered by any
court, administrative agency, or other Governmental Body or by any arbitrator.
"Ordinary Course of Business" -- an action taken by a Person will
be deemed to have been taken in the "Ordinary Course of Business" only if:
(i) such action is consistent with the past practices of such
Person and is taken in the ordinary course of the normal day-to-day operations
of such Person;
(ii) such action is not required to be authorized by the board of
directors of such Person (or by any Person or group of Persons exercising
similar authority) and does not require any other separate or special
authorization of any nature; and
(iii) such action is similar in nature and magnitude to actions
customarily taken, without any separate or special authorization, in the
ordinary course of the normal day-to-day operations of other Persons that are in
the same line of business as such Person.
"Organizational Documents" -- (i) the articles or certificate of
incorporation and the bylaws of a corporation; (ii) any charter or similar
document adopted or filed in connection with the creation, formation, or
organization of a Person; and (iii) any amendment to any of the foregoing.
"Person" -- any individual, corporation (including any non-profit
corporation), general or limited partnership, limited liability company, joint
venture, estate, trust, association, organization, or other entity or
Governmental Body.
47
"Proceeding" -- any suit, litigation, arbitration, hearing,
audit, investigation, or other action (whether civil, criminal, administrative,
investigative, or informal) commenced, brought, conducted, or heard by or
before, or otherwise involving, any Governmental Body or arbitrator.
"Related Person" -- with respect to a particular individual:
(i) each other member of such individual's Family; and
(ii) any Person that is directly or indirectly controlled by any
one or more members of such individual's Family.
With respect to a specified Person other than an individual:
(i) any Person that, directly or indirectly, controls, is
controlled by, or is under common control with such specified Person; and
(ii) each Person that serves as a director, executive officer,
general partner, executor, or trustee of such specified Person (or in a similar
capacity);
For purposes of this definition, the "Family" of an individual includes (i) such
individual, (ii) the individual's spouse and former spouses, (iii) any lineal
ancestor or lineal descendant of the individual, or (iv) a trust for the benefit
of the foregoing. A Person will be deemed to control another Person, for
purposes of this definition, if the first Person possesses, directly or
indirectly, the power to direct, or cause the direction of, the management
policies of the second Person, (x) through the ownership of voting securities,
(y) through common directors, trustees or officers, or (z) by contract or
otherwise.
"Representative" -- with respect to a particular Person, any
director, officer, employee, agent, consultant, advisor, or other representative
of such Person, including legal counsel, accountants, and financial advisors.
"Securities Act" -- the Securities Act of 1933, 15 U.S.C. 77a et
seq., as amended, or any successor law.
"Threatened" -- a claim, Proceeding, dispute, action, or other
matter will be deemed to have been "Threatened" if any demand or statement has
been made (orally or in writing) or any notice has been given (orally or in
writing), or if any other event has occurred or any other circumstances exists,
that would lead a prudent Person to conclude that such a claim, Proceeding,
dispute, action, or other matter is likely to be asserted, commenced, taken, or
otherwise pursued in the future.
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8. GENERAL PROVISIONS
8.1 Expenses. The Company, on the one hand, and Buyer and the
Parent, on the other, will each bear their own expenses (legal, accounting,
broker or other expenses) which may be incurred in connection with the
Contemplated Transactions.
8.2 Notices. All notices, consents, waivers, and other
communications under this Agreement must be in writing and will be deemed to
have been duly given (a) when delivered by hand; (b) when sent by telecopier,
provided that a copy is mailed by U.S. certified mail, return receipt requested;
(c) three days after sent by Certified U.S. Mail, return receipt requested; or
(d) one day after deposit with a nationally recognized overnight delivery
service, in each case to the appropriate addresses and telecopier numbers set
forth below (or to such other addresses and telecopier numbers as a party may
designate by notice to the other parties):
The Company or the Shareholder: with a copy to:
Attn: Kang & Xxx Advertising, Inc*. Xxxxx, Bliablias, McGuire, Pantages & Xxxx
000 Xxxxx Xxxxxx 000 Xxxxxxxxxx Xxxxxxx
Xxx Xxxx, Xxx Xxxx 00000 Livingston, New Jersey 07039-0460
Attention: Xxxxx Xxxx Attention: Xxxx X. Xxxxx, Esq.
Telecopier (000) 000-0000 Telecopier: (000) 000-0000
* Notice to Kang & Xxx Advertising, Inc. shall be deemed to be notice to
K&L West Adverting, Inc.
Buyer: with a copy to:
One World Communications, Inc. Xxxxxx Xxxxxx & Zavis
22 West Xxxxxxx 000 Xxxx Xxxxxx Xxxxxx
Xxxxxxx, Xxxxxxxx 00000 Suite 1600
Attention: Secretary Xxxxxxx, Xxxxxxxx 00000-0000
Telecopier (000) 000-0000 Attention: Xxxxxx Xxxxx
Telecopier (000) 000-0000
Parent:
The Leap Group, Inc.
00 Xxxx Xxxxxxx Xxxxxx
Xxxxxxx, Xxxxxxxx 00000
Attention: Chief Legal Officer
Telecopier (000) 000-0000
49
8.3 Further Assurances. The parties agree (a) to furnish upon
request to each other such further information, (b) to execute and deliver to
each other such other documents, and (c) to do such other acts and things
including payment of funds due hereunder, all as the other party may reasonably
request for the purpose of carrying out the intent of the Contemplated
Transactions.
8.4 Waiver. The rights and remedies of the parties to this Agreement
are cumulative and not alternative. Neither the failure nor any delay by any
party in exercising any right, power, or privilege under this Agreement or the
documents referred to in this Agreement will operate as a waiver of such right,
power, or privilege, and no single or partial exercise of any such right, power,
or privilege will preclude any other or further exercise of such right, power,
or privilege or the exercise of any other right, power, or privilege.
8.5 Entire Agreement and Modification. This Agreement supersedes all
prior oral or written agreements between the parties with respect to its subject
matter and constitutes (along with the documents referred to in this Agreement
or required to effect the Contemplated Transactions) as a complete and exclusive
statement of the terms of the agreement between the parties with respect to its
subject matter. This Agreement may not be amended except by a written agreement
executed by the party to be charged with the amendment.
8.6 Assignments, Successors, and No Third-Party Rights. Neither
party may assign any of its rights under this Agreement without the prior
consent of the other parties except that Buyer may assign any of its rights
under this Agreement to any direct or indirect wholly-owned subsidiary of Parent
provided such assignment does not materially change the risks of this Agreement.
Subject to the preceding sentence, this Agreement will apply to, be binding in
all respects upon, and inure to the benefit of the successors and permitted
assigns of the parties. Nothing expressed or referred to in this Agreement will
be construed to give any Person other than the parties to this Agreement any
legal or equitable right, remedy, or claim under or with respect to this
Agreement or any provision of this Agreement.
8.7 Severability. If any provision of this Agreement is held invalid
or unenforceable by any court of competent jurisdiction, the other provisions of
this Agreement will remain in full force and effect. Any provision of this
Agreement held invalid or unenforceable only in part or degree will remain in
full force and effect to the extent not held invalid or unenforceable.
8.8 Section Headings, Construction. The headings of Sections in this
Agreement are provided for convenience only and will not affect its construction
or interpretation. All references to "Sections" refer to the corresponding
Sections of this
50
Agreement. All words used in this Agreement will be construed to be of such
gender or number as the circumstances require. Unless otherwise expressly
provided, the word "including" does not limit the preceding words or terms. In
the event of any inconsistency between the statements in the body of this
Agreement and those in the Disclosure Letter (other than an exception expressly
set forth as such in the Disclosure Letter with respect to a specifically
identified representation or warranty), the statements in the body of this
Agreement will control.
8.9 Governing Law. This Agreement will be governed by and construed
under the laws of the State of New York without regard to conflicts of laws
principles.
8.10 Counterparts. This Agreement may be executed in one or more
counterparts, each of which will be deemed to be an original copy of this
Agreement and all of which, when taken together, will be deemed to constitute
one and the same agreement.
8.11 No Strict Construction. The language used in this Agreement
will be deemed to be the language chosen by the parties to express their mutual
intent, and no rule of strict construction will be applied against any party.
8.12 Alternative Dispute Resolution.
(a) In the event that any dispute shall arise among the parties
hereto as to any matter or thing covered hereby or as to the meaning of this
Agreement, or to any state of facts which may arise, same shall be settled by
the agreement of the parties, or if they are unable to agree, same shall be
settled, upon written demand of any party hereto, by arbitration in Chicago,
Illinois before a single arbitrator, selection of the arbitrator and the conduct
of the arbitration to be in accordance with the Commercial Rules for Arbitration
of the American Arbitration Association. Any award or decision rendered shall
be made by means of a written opinion explaining the arbitrator's reasons for
the award or decision, and the award or decision shall be final and binding upon
the parties hereto. The arbitrator may not amend or vary any provision of this
Agreement. Judgment upon the award or decision rendered by the arbitrator may
be entered in any court of competent jurisdiction. Whenever the arbitrator
determines that a defaulting party has acted in bad faith in violation of their
Duty of Fair Dealing, reasonable attorney's fees shall be awarded to the non-
defaulting party in addition to any other damages or relief that the arbitrator
may deem just and proper.
(b) Refusal of one party to arbitrate shall entitle any other party
hereto to specifically enforce this Agreement in a court of competent
jurisdiction, and as a result of said refusal to arbitrate, the remaining
parties shall be entitled to receive costs, reasonable attorney's fees and their
share of the arbitration fee, if any, on a pro-rata basis. Arbitration
51
by the parties shall take place at a time and place as may be agreed upon, but
if no agreement shall be reached, then at the offices of the Company's then
regular attorneys at a time selected by the arbitrator.
(c) If the arbitrator determines, in his or her absolute discretion,
that any party has (i) been in default hereof, (ii) instituted the arbitration
proceeding without reasonable cause, or (iii) has taken an action or failed to
take an action without reasonable cause which warranted the institution of the
arbitration proceeding (each such party "a Defaulting Party"), as the case may
be, they shall have the right to award to the party or parties injured by such
unreasonable conduct an amount equal to the reasonable attorney's fees and costs
incurred by such injured party in such proceedings, together with the actual
cost of such arbitration proceeding itself.
(d) If the Defaulting Party does not pay to the other party the
Arbitration Award within ten (10) days of written demand therefor, and the other
party shall institute suit in a court of competent jurisdiction to enforce said
decision, the Defaulting Party shall pay to the other party the reasonable
attorney's fees and court costs incurred in such action. Nothing in this
Section 8.12 is intended to preclude any party hereto from seeking, in an action
in a court of competent jurisdiction, (i) specific performance of an obligation
to him of any other party hereto, or (ii) enforcement of his rights hereunder
after the entry of an Arbitration Award.
IN WITNESS WHEREOF, the parties have executed this Asset Purchase
Agreement as of the date first written above.
COMPANY
ATTEST: KANG & XXX ADVERTISING, INC.
/s/ Xxxx Xx /s/ Xxxxx Xxxx
__________________________ By:______________________________
Xxxx Xx, Chief Financial Xxxxx Xxxx, President
Officer
SEAL:
COMPANY
ATTEST: K&L WEST ADVERTISING, INC.
/s/ Xxxx Xx /s/ Xxxxx Xxxx
__________________________ By:______________________________
Xxxx Xx, Chief Financial Xxxxx Xxxx, President
Officer
52
SEAL:
ATTEST: THE SHAREHOLDER
/s/ Xxxx Xx /s/ Xxxxx Xxxx
__________________________ By:______________________________
Xxxx Xx, Chief Financial Xxxxx Xxxx
Officer
PARENT:
ATTEST: THE LEAP GROUP, INC.
/s/ Xxxxxx X. Xxxxxxxxx /s/ Xxxxx Xxxxxx
__________________________ By:______________________________
Xxxxx Xxxxxx
Name:____________________________
CFO
Title:___________________________
SEAL:
BUYER:
ATTEST: ONE WORLD COMMUNICATIONS, INC.
/s/ Xxxxxx X. Xxxxxxxxx /s/ Xxxxx Xxxxxx
__________________________ By:______________________________
Xxxxx Xxxxxx
Name:____________________________
Treasurer
Title:___________________________
SEAL:
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