Exhibit 2.1
PURCHASE AGREEMENT
THIS PURCHASE AGREEMENT (this "Agreement"), dated this 14th
day of September, 1998 (the "Effective Date"), is entered into at Los Angeles,
California, and Broomfield, Colorado, by and among Gaiam Holdings, Inc. a
Colorado corporation ("Buyer"); Healing Arts Publishing, LLC, a California
limited liability company ("LLC"), Xxxxxx X. Xxxxx ("Xxxxx" or "Shareholder,"
depending on the context); and Healing Arts Publishing, Inc., a California
corporation ("Corporation") (Shareholder and Corporation are collectively
referred to as "Sellers") and, for purposes of Section 5.4 only, Gaiam, Inc., a
Colorado corporation, with respect to the following:
A. Shareholder has represented that he owns all the outstanding capital stock
of Corporation (the "Shares").
B. Buyer desires to purchase from Corporation, and Corporation desires to sell
to Buyer, 50.37% of the assets of the business of Corporation (the "Business"),
subject to certain liabilities.
C. In order to effect the sale of assets, Corporation hereby transfers all of
the assets of the Business, subject to certain liabilities, to LLC in exchange
for 49.63% of the membership interests in LLC.
D. Buyer hereby purchases membership interests in LLC representing 50.37% of
the membership interests (subject to adjustment as described below).
E. Buyer hereby loans certain funds to LLC and contributes certain additional
funds to LLC in order to conduct the Business.
F. In order to induce Buyer to loan funds to LLC and otherwise to enter into
the transaction contemplated by this Agreement, Corporation and Shareholder
hereby guarantee all of the obligations of LLC and hereby secure such
guaranties, Xxxxx and LLC hereby enter into an Employment Agreement, and the
parties hereby enter into a Non-Compete and Confidentiality Agreement.
ACCORDINGLY, in consideration of the mutual covenants,
agreements, representations and warranties contained in this Agreement, the
parties agree as follows:
1. TRANSACTION.
On the terms and subject to all of the conditions hereof, and upon the
performance by the parties hereto of their respective obligations hereunder,
simultaneously with the execution of this Agreement, the following shall be
effected:
1.1 Transfer of Assets. Corporation shall hereby transfer to LLC
all of its assets,
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including without limitation, its equipment, inventory, fixtures, receivables,
tradenames, trademarks, servicemarks, personal property (tangible and
intangible), intellectual property rights, choses in action, and contract rights
(the "Assets"), subject only to those liabilities set forth on Exhibit 1.1
hereof (the "Assumed Liabilities"), which LLC shall hereby assume.
1.2 Loan to LLC. Corporation is subject to that certain Judgment in
favor of Xxxxxxx Xxxx and InterArts Productions (collectively, "Xxxx") pursuant
to Xxxx Xx. XX 000000, Superior Court of the State of California, County of Los
Angeles (the "Xxxx Judgment"). Buyer shall loan to LLC the sum of $740,024.85 in
order to partially satisfy the Xxxx Judgment (such amount is referred to as the
"Xxxx Judgment Costs"), which loan shall be evidenced by a Secured Promissory
Note of even date in the form of Exhibit 1.2 (the "Secured Promissory Note"),
and LLC shall execute the Secured Promissory Note. The Secured Promissory Note
shall be secured by all of the assets of LLC and shall be guaranteed by
Corporation and Shareholder. Buyer shall, in lieu of payment to LLC, deliver the
Xxxx Judgment Costs to the Sheriff's Department of the County of Los Angeles,
State of California, or, in Buyer's sole discretion, to Xxxxxx & Xxxxxxxx,
counsel to Corporation. Corporation shall immediately pay the balance of the
amounts necessary to pay the Xxxx Judgment in full, without (except as otherwise
provided by law) waiving any rights of appeal which Corporation may have.
1.3 Additional Loan to LLC. Under certain conditions, Buyer shall
loan additional funds to LLC as described in Section 2 hereof, which loan shall
be evidenced by a Second Advance Note (Secured) of even date in the form of
Exhibit 1.3 hereof (the "Second Advance Note"), and LLC shall execute the Second
Advance Note. The Secured Promissory Note and Second Advance Notes are
collectively referred to in this Agreement as the "Notes."
1.4 Security. As security for the Notes and all other obligations
of LLC, Corporation, and Shareholder under this Agreement (including all of the
exhibits thereto):
1.4.1 LLC shall execute the Security Agreement in the form of
Exhibit 1.4A hereof (the "LLC Security Agreement"), the UCC-1 Financing
Statement in the form of Exhibit 1.4B hereof (the "LLC Financing Statement"),
and the Assignment of Audio-Visual Documents and Rights in the form of Exhibit
1.4C (the "Assignment");
1.4.2 Corporation shall execute the Security Agreement in the
form of 1.4D hereof (the "Corporation Security Agreement"), the UCC-1 Financing
Statement in the form of Exhibit 1.4E hereof (the "Corporation Financing
Agreement"), and the Guaranty in the form of Exhibit 1.4F hereof (the
"Corporation Guaranty"); and
1.4.3 Shareholder shall execute the Security Agreement in the
form of Exhibit 1.4G hereof (the "Shareholder Security Agreement"), the UCC-1
Financing Statement in the form of Exhibit 1.4H hereof (the "Shareholder
Financing Agreement"), the Guaranty in the form of Exhibit 1.4I hereof (the
"Shareholder Guaranty"), and the Pledge Agreement in the form of Exhibit 1.4J
hereof (the "Pledge Agreement").
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1.5 Contribution to LLC. Buyer shall contribute the amount of Ten
Thousand Dollars ($10,000) to the capital of LLC.
1.6 Purchase of Bank Note. Buyer shall purchase the obligation of
Corporation and Shareholder to Xxxxx Fargo Bank, N.A., under the Promissory Note
and Accounts Receivable Primeline Agreement (both dated November 13, 1996), the
present amount of which is $562,100 (the "Xxxxx Note"), which Xxxxx Note is
secured by a Commercial Security Agreement and Commercial Guaranty of the same
date (collectively, the "CSA"), for an amount agreed by and between Buyer and
the holder of the Xxxxx Note in their sole discretion (the "Xxxxx Note Purchase
Amount"). Sellers acknowledge that the amounts loaned by Buyer pursuant to the
Notes are made as additional advances under the Xxxxx Note and the CSA (in
addition to the Security Agreements) and that this Agreement and the Notes
constitute modifications of the Xxxxx Note only with respect to such additional
advances and with respect to the due date. Buyer hereby waives any defaults
which may exist under the Xxxxx Note and the CSA as of the Effective Date and
hereby extends the due date of the Xxxxx Note (subject to the provisions of the
last two sentences of Section 10 hereof) to December 14, 1998.
1.7 Issuance of Interests. Corporation and Buyer shall execute
the Operating Agreement of LLC in the form of Exhibit 1.7 hereof.
1.8 Non-Compete Agreement. Shareholder and Corporation shall
execute the Non-Compete and Confidentiality Agreement in the form of Exhibit 1.8
hereof (the "Non- Compete Agreement").
1.9 Employment Agreement. LLC and Xxxxx shall execute the
Employment Agreement in the form of Exhibit 1.9 hereof (the "Employment
Agreement").
1.10 Xxxx of Sale. Corporation shall execute a xxxx of sale and
other assignment documents in the form of Exhibit 1.10 hereof (the "Xxxx of
Sale"), transferring all of the Assets to LLC.
1.11 Opinion of Counsel. Sellers shall deliver to Buyer an opinion
of Shareholder's counsel in substantially the form set forth in Exhibit 1.11 to
the Agreement.
1.12 Corporate Approval. Sellers shall deliver to Buyer copies of
all resolutions pertaining to due authorization by all necessary corporate
action of and delivery of this Agreement by Corporation, and the performance of
its covenants and obligations under it, certified by the secretary of
Corporation.
1.13 Consents. Sellers shall deliver to Buyer all necessary
agreements and consents of any parties to the consummation of the transaction
contemplated by this Agreement, or otherwise pertaining to the matters covered
by it.
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2. ADDITIONAL AMOUNTS DUE TO LLC.
On or before the Second Advance Date (as hereinafter defined), Buyer
shall loan the additional sum of $490,000 to LLC, which loan shall be evidenced
by the Second Advance Note. The proceeds of such loan shall be used first for
the costs of preparing, printing, and mailing a catalog (with circulation of at
least 600,000 copies) of LLC's products, as well as the inventory associated
with the catalog, and payment of amounts due to Xxxx under contracts with LLC,
and Buyer and Corporation shall agree with respect to application and
disbursement of the balance of such loan proceeds. The "Second Advance Date"
shall mean September 15, 1998, or such later date, if ever, as, to the
satisfaction of Buyer (in its sole discretion), (a) Shareholder shall have
obtained the consent of Shareholder's wife Xxxxxxxxx Xxxxx to the transactions
contemplated by this Agreement, (b) Corporation and LLC have implemented a plan
satisfactory to Buyer to bring current the accounting books and records of
Corporation and LLC and to implement proper and appropriate accounting
procedures, and (c) with Xxxxxxxx Xxxxxx, Esq., counsel to Corporation, Xxxx
Xxxxxx, Esq., counsel to Buyer, shall have contacted Xxxx or Xxxx'x counsel with
respect to a settlement of all claims arising between Corporation or LLC and
Xxxx and Xxxx'x successors and assigns, the terms of which are no less favorable
to Corporation and LLC than those set forth in Schedule 2 to this Agreement.
3. VALUATION.
On or before the First Price Adjustment (as that term is defined in
Section 11.1 hereof), Corporation and LLC shall engage Ernst & Young, LLP (the
"Independent Accountant") to do the following:
3.1 Audit. The Independent Accountant shall perform an audit of
Corporation and LLC and shall prepare and deliver to Buyer an audited balance
sheet, statement of income, and cash flows for Corporation and LLC for the
period from January 1, 1998, to the Effective Date (the "Corporation Short
Period") and the period from the Effective Date to December 31, 1998 (the "LLC
Short Period"), respectively.
3.2 The Valuation. The Independent Accountant shall evaluate
Corporation and LLC (the "Valuation") as follows:
3.2.1 The Independent Accountant shall determine adjusted net
income (as hereinafter defined) of Corporation for the Corporation Short Period
(the "Corporation Short Period Net Income").
3.2.2 The Independent Accountant shall determine the adjusted
net income (as hereinafter defined) of LLC for the LLC Short Period (the "LLC
Short Period Net Income").
3.2.3 For purposes of the Valuation, "adjusted net income"
shall mean the
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net income, determined in accordance with generally accepted accounting
principles consistently applied ("GAAP") and in accordance with Exhibit 12.4
hereof, adjusted as follows:
3.2.3.1 Net income shall be reduced by any amounts not
actually collected by March 25, 1999, or reserved.
3.2.3.2 Net income shall be reduced by:
3.2.3.2.1 The fees and costs of the Independent
Accountant for the audit of the Corporation
Short Period;
3.2.3.2.2 The costs of preparing financial records of
Corporation or LLC (as applicable) for the
Valuation; and
3.2.3.2.3 The amount of income generated (or expected
to be generated) for the applicable period
by material contracts (other than contracts
with Xxxx), termination of which is caused
during the LLC Short Period by reason of
action or inaction of Corporation or Xxxxx.
but shall not be reduced by:
3.2.3.2.4 Any taxes arising out of the transactions
contemplated in this Agreement;
3.2.3.2.5 The fees and costs of the Independent
Accountant for the audit of the LLC Short
Period;
3.2.3.2.6 Any legal fees or consulting fees of
Magazine Consulting Group incurred by
Corporation or LLC in connection with the
transactions contemplated in this
Agreement; or
3.2.3.2.7 The Xxxx Judgment Costs and any legal fees,
interest, and other costs relating to the
Xxxx Judgment or other legal matters
relating to the "Tai Chi for Health"
videos.
3.2.4 The Independent Accountant shall determine the
"Valuation Amount," which shall mean six (6) times the sum of (a) the
Corporation Short Period Net Income and (b) the
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LLC Short Period Net Income.
3.3 Adjustment of Percentage Interests. Upon determination of the
Valuation Amount, and retroactive to the Effective Date, the Percentage Interest
of Corporation shall be decreased, and the Percentage Interest of Buyer in LLC
shall be increased by multiplying such Percentage Interests by a fraction, as
follows:
3.3.1 The numerator of the fraction shall be the Valuation
Amount (but not more than $5,000,000).
3.3.2 The denominator of the fraction shall be $5,000,000.
In no event shall Corporation's Percentage Interest be less than thirty-three
percent (33%).
4. FIRST PRICE ADJUSTMENT.
On the terms and subject to all of the conditions hereof, and upon the
performance by the parties hereto of their respective obligations hereunder, at
the First Price Adjustment (as that term is defined in Section 11.1 hereof),
Buyer shall pay to Corporation and Shareholder in the aggregate (to be allocated
between them as they shall direct) the sum of $100,000 as payment in full of all
amounts due under the Non-Compete Agreement. In addition, Buyer shall pay the
First Price Adjustment Amount as follows:
4.1 Determination of First Price Adjustment Amount. The First Price
Adjustment Amount shall mean (a) the sum of $2,400,000, less (b) the sum of (i)
the amount of the Xxxx Judgment Costs, (ii) the amount contributed to the
capital of LLC by Buyer pursuant to Section 1.5 hereof, (iii) the Xxxxx Note
Purchase Amount, and (iv) the amount lent to LLC pursuant to Section 2 hereof.
4.2 Contribution to LLC. Buyer shall contribute to LLC, to be
allocated to the capital accounts of Corporation and Buyer in the ratio of their
Percentage Interests (as defined in the Operating Agreement) one-half (1/2) of
the First Price Adjustment Amount plus the amount of $50,000. Buyer may, in its
sole discretion, apply all or any portion of such amount to repayment in full of
all amounts owing from Shareholder to Goldhil Home Media International, Inc.,
under that certain Note Secured by Conditional Licenses entered into by
Shareholder, the amount of which repayment shall be charged to Shareholder's
capital account.
4.3 Payment to Corporation. Buyer shall pay to Corporation the
lesser of (a) the amount of $300,000 or (b) (i) one-half (1/2) of the First
Price Adjustment Amount, less (ii) the sum of $50,000 (but not less than zero
(0).
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5. SECOND PRICE ADJUSTMENT AND EARNOUT.
5.1 Payment at Second Price Adjustment. On the terms and subject to
all of the conditions hereof, and upon the performance by the parties hereto of
their respective obligations hereunder, at the Second Price Adjustment (as that
term is defined in Section 11.2 hereof), Buyer shall pay to Corporation one-
quarter (1/4) of the Valuation Amount, less the amount of $1,850,000 (but not
less than zero (0)).
5.2 Contribution to LLC. On the terms and subject to all of the
conditions hereof, and upon the performance by the parties hereto of their
respective obligations hereunder, at the Second Price Adjustment (as that term
is defined in Section 11.2 hereof), Buyer shall:
5.2.1 Cancel and contribute the Notes and the Xxxxx Note to
the capital of LLC (but all accrued but unpaid interest shall be due and payable
in full in cash); and
5.2.2 Shall contribute to the capital of LLC one-quarter (1/4)
of the Valuation Amount, less the amount of $1,250,000 (but not less than zero
(0) (the "Second Price Adjustment Amount").
Such contributions shall be allocated to the capital accounts of Corporation and
Buyer in the ratio of their Percentage Interests (as defined in the Operating
Agreement). Buyer's obligation to make such cancellation and contribution shall
be deemed hereby to be incorporated into the provisions of the Notes and the
Xxxxx Note, notwithstanding the negotiable provisions thereof.
5.3 Earnout Amounts. On the terms and subject to all of the
conditions hereof, and upon the performance by the parties hereto of their
respective obligations hereunder, and provided that Xxxxx is not then in default
under the terms of the Employment Agreement and has not terminated the
Employment Agreement during its term pursuant thereto, Buyer shall pay to
Corporation the following (collectively, the "Earnout Amounts"):
5.3.1 The sum of (a) one-half (1/2) of the lesser of (i) (A)
one-quarter (1/4) of the Valuation Amount, less (B) the amount of $1,250,000
(but not less than zero (0)) and (ii) $600,000, plus (b) the amount of fifteen
percent (15%) of the amount described in subparagraph (a) hereof shall be
payable on March 31, 2000, if, for the calendar year ending December 31, 1999,
LLC shall have net income (as determined in accordance with GAAP) of not less
than $300,000; otherwise, such Earnout Amount shall be forfeited.
5.3.2 The sum of (a) one-half (1/2) of the lesser of (i) (A)
one-quarter (1/4) of the Valuation Amount, less (B) the amount of $1,250,000
(but not less than zero (0)) and (ii) $600,000, plus (b) the amount of fifteen
percent (15%) of the amount described in subparagraph (a) hereof shall be
payable on March 31, 2001, if, for the calendar year ending December 31, 2000,
LLC shall have net income (as determined in accordance with GAAP) of not less
than $300,000; otherwise, such Earnout Amount shall be forfeited.
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5.4 Guaranties. The obligations of Buyer to pay the First Price
Adjustment Amount, the Second Price Adjustment Amount, and the Earnout Amounts
shall be, and hereby are, guarantied by Gaiam, Inc., a Colorado corporation.
Xxxxx Xxxxxx shall guaranty the obligation of Gaiam, Inc., naming as LLC and
Corporation as express third party beneficiaries of such guaranty.
6. WARRANTIES OF SHAREHOLDER.
As an inducement to Buyer to enter into this Agreement, upon which
Buyer has relied, and intends to rely, Sellers hereby jointly and severally
represent and warrant that:
6.1 Corporate Status. Corporation is a corporation duly organized,
validly existing and in good standing under the laws of California and has all
necessary corporate powers to own its properties and operate its business as now
owned and operated by it. Healing Arts is a validly filed fictitious business
name of Corporation. Neither the ownership of its properties nor the nature of
its business requires Corporation to be qualified in any jurisdiction other than
the state of its incorporation.
6.2 Capital Structure. The authorized capital stock of Corporation
consists of 10,000 shares of common stock, of which 100 (the "Shares") are
issued and outstanding. All the Shares are validly issued, fully paid and
nonassessable, and the Shares have been so issued in full compliance with all
federal and state securities laws. There are no outstanding subscriptions,
options, rights, warrants, convertible securities or other agreements or
commitments obligating Corporation to issue or to transfer from treasury any
additional shares of its capital stock of any class.
6.3 Title to Shares. Except as set forth on Schedule 6.3 hereof,
Shareholder is the owner, beneficially and of record, of all of the Shares, free
and clear of all liens, encumbrances, security agreements, equities, options,
claims, charges and restrictions.
6.4 Subsidiaries. Corporation does not own, directly or indirectly,
any interest or investment (whether equity or debt) in any corporation,
partnership, business, trust or other entity.
6.5 Financial Statements. Exhibit 6.5 to this Agreement sets forth
a reviewed balance sheet of Corporation as of December 31, 1997, and the related
statements of income and retained earnings for the period ending on that date
(the "Balance Sheet Date") and the balance sheet for such date is hereinafter
referred to as the "Latest Balance Sheet." All of such statements are certified
by the treasurer/chief operating officer of Corporation as accurately reflecting
the financial condition of Corporation for the applicable period. The balance
sheet and statements comprising Exhibit 6.5 are collectively referred to as the
"Financial Statements." The Financial Statements have been prepared in
accordance with generally accepted accounting principles consistently followed
by Corporation throughout the periods indicated, and fairly present the
financial position of Corporation on the Balance Sheet Date.
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6.6 Absence of Changes. Except as set forth in Schedule 6.6 to this
Agreement, since the Balance Sheet Date, Corporation has conducted its business
only in the ordinary course and in a manner consistent with past practice, and
there has not been (a) any material damage, destruction, or loss (whether or not
covered by insurance) with respect to any assets of Corporation, (b) any change
by Corporation in its accounting or tax reporting methods, principles, or
practices; (c) any declaration, setting aside, or payment of any dividends or
distributions in respect of shares of the Shares, or any redemption, repurchase,
or other acquisition by Corporation of any of Corporation's securities; (d) any
increase in the benefits under, or the establishment or amendment of, any bonus,
insurance, severance, deferred compensation, pension, retirement, profit
sharing, stock option (including, without limitation, the granting of stock
options, stock appreciation rights, performance awards, or restricted stock
awards), stock purchase, or other employee benefit plan, or any increase in the
compensation payable or to become payable to directors, officers, or employees
of Corporation, (e) any entry by Corporation into any material commitment or
transaction not in the ordinary course of business and consistent with past
practice (other than this Agreement and the transactions contemplated by this
Agreement); (f) any increase in indebtedness for borrowed money; or (g) any
other change, effect, or condition that, individually or when taken together
with all other such changes, effects, or conditions, would be materially adverse
to the business, operations, assets, financial condition, results of operations,
or prospects of Corporation (a "Material Adverse Effect").
6.7 Absence of Undisclosed Liabilities. Corporation has no material
debt, liability or obligation of any nature, whether accrued, absolute,
contingent or otherwise, and whether due or to become due, that is not reflected
or reserved in the Latest Balance Sheet, except for (1) those that may have been
incurred after the Balance Sheet Date and (2) those that are not required by
generally accepted accounting principles to be included in a balance sheet. All
debts, liabilities and obligations incurred after that date were incurred in the
ordinary course of business and are usual and normal in amount both individually
and in the aggregate.
6.8 Tax Returns and Audits.
6.8.1 Within the times and in the manner prescribed by law,
Corporation has filed all returns required by law with respect to any federal,
state, county and local taxes applicable to Corporation ("Taxes") and has paid
all Taxes, assessments and penalties due and payable.
6.8.2 No federal income tax returns or California franchise
tax returns of Corporation have been audited by the Internal Revenue Service or
the California Franchise Tax Board.
6.8.3 The provisions for Taxes reflected in the Latest
Balance Sheet are adequate for Taxes for the period ending on the Balance Sheet
Date and for all prior periods, whether disputed or undisputed. There are no
present disputes about Taxes payable by Corporation.
6.8.4 No extensions of time with respect to the due date of
any Tax returns are in force, and no waiver or agreement for any extension of
time for the assessment, collection, or
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payment of any Tax has been made by Corporation.
6.8.5 Corporation has disclosed on its federal income tax
returns all positions taken that could give rise to a substantial understatement
of federal income tax, within the meaning of Section 6662 of the Internal
Revenue Code of 1986, as amended (the "Code").
6.8.6 All Taxes payable by Corporation or which Corporation
was required to withhold and pay with respect to any amounts paid by Corporation
to any persons (including without limitation employees and persons who are
nominally independent contractors) have been paid.
6.8.7 Corporation will not be required to include any amount
in taxable income for any taxable period beginning after the Balance Sheet Date
as a result of a change in accounting method for any taxable period ending on or
before the Balance Sheet Date or pursuant to any agreement with any Tax
authority with respect to any such taxable period.
6.8.8 No property of Corporation is subject to a safe-harbor
lease (pursuant to Section 168(f) (8) of the Code of 1954 as in effect after the
Economic Recovery Tax Act of 1981 and before the Tax Reform Act of 1986) or is
"tax-exempt use property" (within the meaning of Section 168(h) of the Code) or
"tax-exempt bond financed property" (within the meaning of Section 168(g) (5) of
the Code).
6.8.9 Corporation has not made an election under Section
341(f) of the Code. Corporation is not a United States real property holding
corporation within the meaning of Section 897(c)(2) of the Code during the
applicable period specified in Section 897(c)(1)(A)(ii) of the Code.
6.8.10 Schedule 6.8.10 to this Agreement sets forth the
following information with respect to Corporation as of the most recent
practicable date (as well as on an estimated pro forma basis as of the Effective
Date giving effect to the consummation of the transactions contemplated by this
Agreement) its basis in its assets.
6.9 Real Property. Schedule 6.9 to this Agreement is a complete and
accurate list of all real property owned by or leased to Corporation, together
with an accurate brief description of each property. Schedule 6.9 to this
Agreement also sets forth brief descriptions of all building and other major
improvements located on these properties. The zoning of each parcel of property
described in Schedule 6.9 to this Agreement permits the presently existing
improvements and the continuation of the business presently being conducted on
such parcel. Corporation has not commenced, nor has Shareholder or Corporation
received notice of the commencement of, any proceeding that would affect the
present zoning classification of any such parcel.
6.10 Environmental Matters. To the best of Sellers' knowledge:
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6.10.1 (a) The properties, operations, and activities of
Corporation comply currently with, and have at all times complied with, all
applicable Environmental Laws (as defined below);
6.10.2 Corporation (or its properties or operations) is not
subject to any existing, pending, or threatened action, suit, claim,
investigation, inquiry, or proceeding by or before any Governmental Entity under
any Environmental Law;
6.10.3 There are no physical or environmental conditions
existing on any property used by Corporation or resulting from Corporation's
operations or activities, past or present, at any location, that would give rise
to any on-site or off-site remedial obligations or other liabilities imposed
under any Environmental Laws or that would affect the soil, groundwater, surface
water, or human health;
6.10.4 There has been no exposure of any person or property to
hazardous substances or any pollutant or contaminant, nor has there been any
release of hazardous substances or any pollutant or contaminant into the
environment, by Corporation or in connection with its properties or operations;
and
6.10.5 Corporation has made available to Buyer all internal
and external environmental audits and studies and all correspondence on
environmental matters in the possession of Corporation relating to any of the
current or former properties or operations of Corporation.
For purposes of this Agreement, the term "Environmental Laws" means
any and all Laws, statutes, ordinances, rules, regulations, or orders of any
governmental or regulatory authority, domestic or foreign, pertaining to health
or the environment currently in effect in any and all jurisdictions in which
Corporation owns property or conducts business, including without limitation,
the Comprehensive Environmental, Response, Compensation, and Liability Act of
1980 ("CERCLA"), as amended; the Resource Conservation and Recovery Act of 1976
("RCRA"), as amended; any state Laws implementing the foregoing federal laws;
and all other environmental conservation or protection Laws. For purposes of
this Agreement, the terms "hazardous substance" and "release" have the meanings
specified in CERCLA and RCRA, and the term "disposal" has the meaning specified
in RCRA; provided, however, that to the extent the laws of the state in which
the property is located establish a meaning for "hazardous substance,"
"release," or "disposal" that is broader than that specified in either CERCLA or
RCRA, such broader meaning will apply.
6.11 Inventory.
6.11.1 The inventory shown on Schedule 6.11.1 to this
Agreement (the "Inventory") consists of items of a quality and quantity usable
and salable in the ordinary course of business by Corporation, except for
obsolete and slow-moving items and items below standard quality, all of which
have been written down on the books of Corporation to net realizable market
value or have been provided for by adequate reserves.
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6.11.2 All items included in the Inventory are the property of
Corporation, except for sales made in the ordinary course of business since the
date of the balance sheet. For each of these sales, either the purchaser has
made full payment or the purchaser's liability to make payment is reflected in
the books of Corporation. Except as set forth in Schedule 6.11.2 to this
Agreement, no items included in the Inventory have been pledged as collateral or
are held by Corporation on consignment from others. The Inventory shown in the
Financial Statements is based on quantities determined by physical count or
measurement, taken within the preceding twelve (12) months, and is valued at the
lower of cost (determined on a first-in, first-out basis) or market value and on
a basis consistent with that of prior years.
6.11.3 All items included in the Inventory are the property of
Corporation except for items sold, lost or destroyed in the ordinary course of
business since the date of Schedule 6.11.1 to this Agreement. No items included
in the Inventory have been pledged as collateral or are held by Corporation on
consignment from others.
6.12 Accounts Receivable. Schedule 6.12 to this Agreement is a
complete and accurate schedule of the accounts receivable of Corporation as of
September 8, 1998, together with an accurate aging of these accounts. Except for
immaterial amounts (not to exceed $70,000 in the aggregate), these accounts
receivable, and all accounts receivable of Corporation created after the date of
Schedule 6.12 to this Agreement, arose from valid transactions in the ordinary
course of business. These accounts have been collected in full since that date
or are collectible in their full amount or have been reserved.
6.13 Intellectual Property. Schedule 6.13 to this Agreement is a
schedule of all trade names, trademarks, service marks and copyrights and their
registrations, owned by Corporation or in which it has any rights or licenses,
together with a brief description of each. Neither Corporation nor Shareholder
has any knowledge of any infringement or alleged infringement by others of any
trade name, trademark, service xxxx or copyright. Corporation has not infringed,
and is not now infringing on any trade name, trademark, service xxxx or
copyright belonging to any other person, firm or corporation. Corporation is not
a party to any license, agreement or arrangement, whether as licensor, licensee,
franchiser, franchisee or otherwise with respect to any trademarks, service
marks, trade names or applications for them, or any copyright. Corporation owns,
or holds adequate licenses or other rights to use all trademarks, service marks,
trade names and copyrights necessary for its business as now conducted by
Corporation (including without limitation those listed on Schedule 6.13), and
that use does not, and will not, conflict with, infringe on or otherwise violate
any rights of others.
6.14 Title to Assets. Corporation has good and marketable title
to all its assets and interests in assets, whether real, personal, mixed,
tangible or intangible, which constitute all the assets and interest in assets
that are used in the business of Corporation. All these assets are free and
clear of restrictions on or conditions to transfer or assignment and free and
clear of mortgages, liens, pledges, charges, encumbrances, equities, claims,
easements, rights of way, covenants, conditions
12
or restrictions except for (a) those disclosed in the Latest Balance Sheet or in
Schedules to this Agreement which specifically refer to this Section 6.14; (b)
the lien of current property taxes not yet due and payable; and (c) possible
minor matters that, in the aggregate, are not substantial in amount and do not
have a Material Adverse Effect. Corporation is not in default or in arrears in
any respect under any lease which would have a Material Adverse Effect. All
buildings and structures (including roofs and machinery and equipment
permanently affixed to such buildings and structures) and tangible personal
property of Corporation that is necessary to the operation of the Business are
in good operating condition and repair, ordinary wear and tear excepted.
Corporation is in possession of all premises leased to it from others. Neither
Shareholder; nor any officer, director or employee of Corporation, nor any
spouse, child or other relative of any of these persons, owns, or has any
interest, directly or indirectly, in any of the real or personal property owned
by or leased to Corporation or any copyrights, patents, trademarks, trade names
or trade secrets licensed by Corporation.
6.15 Programs. By the Xxxx of Sale, Corporation has transferred to
LLC all of its right, title and interest in, to and under any and all audio
and/or visual programs and materials created by Corporation (alone or jointly
with others) (the "Programs"), including, where held by Corporation, the
copyrights thereto, that Corporation owns or controls with respect to the
Programs, and all contracts, licenses, agreements, options, and rights relating
thereto, including without limitation agreements with writers, editors,
instructors, performers, musicians, licensing bodies, societies, producers,
directors, other technical personnel, distributors, subdistributors, licensees
and sub-licensees, and fulfillment houses (collectively, "Contracts").
6.15.1 The rights transferred by the Xxxx of Sale include,
without limitation the sole and exclusive right to the following:
6.15.1.1 To use the title or titles by which the
Program is or may be known or identified and to change the title of the Program;
6.15.1.2 To use and perform any and all music, lyrics
and musical compositions contained in the Program and/or recorded in the
soundtrack thereof in connection with the distribution, exhibition, advertising,
publicizing and exploiting of the Program;
6.15.1.3 To make such dubbed and titled versions of
the Program, and any trailers thereof, including without limitation, cut-in,
synchronized and superimposed versions in any and all languages for use in such
parts of the world as Corporation may deem advisable;
6.15.2 To make such changes, alterations, cuts, additions,
interpolations, deletions and eliminations into and from the Program and trailer
as may deem necessary or desirable, or as its licensees may deem necessary or
desirable for the effective marketing, distribution, exploitation or other use
of the Program.
6.15.3 The Xxxx of Sale also conveys to LLC throughout the
world the sole
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and exclusive right, license and privilege to any and all ancillary rights
and derivative works in the Programs. Such rights may include but are not
limited to all underlying work(s), all literary publishing rights, live
television rights, merchandising rights, music publishing rights, soundtrack
recording rights, radio rights, additional motion picture rights, remake rights
and sequel motion picture rights subject to the terms and conditions of the
agreements pursuant to which Corporation acquired the foregoing rights with
respect to the literary, dramatic and/or musical material used by Corporation in
connection with the Programs.
6.15.4 Corporation is the sole and absolute owner of the
rights granted herein, and has the absolute right to grant to and vest in LLC,
all the rights, licenses and privileges granted to LLC under this Agreement.
6.15.5 To the best of Corporation's knowledge, neither the
Programs nor any part thereof, nor any materials contained therein or
synchronized therewith, nor the title thereof, nor the exercise of any right,
license or privilege herein granted, violates or will violate or infringe or
will infringe any trademark, trade name, contract, agreement, copyright (whether
common law or statutory), patent, literary, artistic, dramatic, personal,
private, civil or property right or right of privacy or "moral rights of
authors" or any other right whatsoever of or slanders or libels any person,
firm, corporation or association whatsoever.
6.15.6 All terms, covenants and conditions required to be kept
or performed by Corporation under each and all of the contracts, licenses or
other documents relating to the production of the Programs have been kept and
performed and will hereafter be kept and performed by LLC and there is no
existing breach or other act of default by Corporation under any such agreement,
license or other document which has had or is likely to have a Material Adverse
Effect on Corporation or LLC.
6.15.7 LLC will quietly and peacefully enjoy and possess each
and all of the rights, licenses and privileges herein granted or purported to be
granted to LLC in perpetuity.
6.15.8 The performing rights to all musical compositions
contained in the Programs are: (a) controlled by the American Society of
Composers, Authors and Publishers (ASCAP), Broadcast Music, Inc., (BMI) or
similar organizations in other countries such as the Japanese Society of Rights
of Authors and Composers (JASEAC), the Performing Right Society Ltd. (PRS), the
Society of European Stage Authors and Composers (SESAC), the Societe des Auteurs
Compositeurs Et Editeurs de Musique (SACEM), Gesellschaft fur Misikalische
Auffuhrungs und Mechanische Vervielfaltigungsrechte (GEMA) or their affiliates,
or (b) in the public domain in the world or (c) controlled by Corporation to the
extent required for the purposes of this Agreement and Corporation similarly
controls or has licenses for any necessary synchronization and recording rights.
6.15.9 Except as set forth in Schedule 6.15.9 to this
Agreement or as hereinafter provided and except for the existing financing
statements in favor of Xxxxx Fargo Bank
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(No. 94127460) and Xxxx Commercial Credit Corporation (No. 9528660443),
Corporation has made no other assignment of any of its rights which pertain to
the Programs to any other person or entity; that it has done no act, nor failed
to do any act, which might prevent LLC from exercising any of the rights, powers
and privileges conferred upon Corporation by the Programs as contemplated by
this Assignment; and, that Corporation is not in default under the provisions of
any of the Contracts and, to the knowledge of Corporation, none of the other
parties to any of the Contracts is in default under the provisions thereof.
6.16 Insurance. Schedule 6.16 to this Agreement is a description,
including policy number, of all insurance policies held by Corporation
concerning the Business and the Assets or insuring the life of any individual.
All these policies are in the respective principal amounts set forth in Schedule
6.16. Corporation has maintained and now maintains (1) insurance on the Assets
and the Business of a type customarily insured, covering property damage and
loss of income by fire or other casualty, and (2) adequate insurance protection
against all liabilities, claims and risks against which it is customary to
insure. Corporation is not in default with respect to payment of premiums on any
such policy. Except as set forth in an exhibit to this Agreement no claim is
pending under any such policy. As of the date of this Agreement, Corporation has
not received any notice that any of the policies listed on Schedule 6.16 have
been or will be canceled prior to its scheduled termination date, or would not
be renewed substantially on the same terms now in effect if the insured party
requested renewal or has received notice from any of its insurance carriers that
any insurance premiums will be subject to increase in an amount materially
disproportionate to the amount of the increases with respect thereto (or with
respect to similar insurance) in prior years.
6.17 Other Contracts. Other than as required by this Agreement,
Corporation is not a party to, nor is the property of Corporation bound by, any
agreement not entered into in the ordinary course of business; any indenture,
mortgage, deed of trust, or lease; or any agreement that is unusual in nature,
duration or amount (including any agreement requiring the performance by
Corporation of any obligation for more than one (1) year from the Effective Date
or calling for consideration of more than $10,000.00); except the agreements
listed in Schedule 6.17 to this Agreement, copies of which have been furnished
or made available to Buyer. There is no default or event that with notice, lapse
of time or both would constitute a default by any party to any of these
agreements. Corporation has not received notice that any party to any of these
agreements intends to cancel or terminate any of these agreements or to exercise
or not exercise any options under any of these agreements. Corporation is not a
party to nor is it or its property bound by any agreement that has a Material
Adverse Effect. Neither Corporation nor Shareholder knows or has reason to know
that any material artist, licensor, or licensee (other than Xxxx) intends to
terminate its relationship with Corporation as a result of the transactions
contemplated by this Agreement.
6.18 Compliance with Laws. Neither Corporation nor Shareholder has
received notice of any violation of any applicable federal, state or local
statute, law or regulation (including any applicable building, zoning,
environmental protection or other ordinance or regulation) affecting their
properties or operation of their business; and to the best of the knowledge of
Corporation and Shareholder, there are no such violations.
6.19 Litigation. Except as set forth in Schedule 6.19 to this
Agreement, there is no pending, or to the best knowledge of Shareholder, or
Corporation, threatened, suit, action, arbitration or legal, administrative or
other proceeding, or governmental investigation against or affecting Corporation
or any of its business, assets, or financial condition. Corporation is not in
default with respect to any order, writ, injunction or decree of any federal,
state, local or foreign court, department, agency or instrumentality. Neither
Corporation nor Shareholder is presently engaged in any legal action to recover
money due to any of them or damages sustained by any of them.
6.20 Agreement Will Not Cause Breach or Violation. The consummation
of the transaction contemplated by this Agreement will not result in or
constitute any of the following:
6.20.1 A material breach of any term or provision of this
Agreement or of any applicable federal or state law;
6.20.2 A default or an event that with notice, lapse of time
or both would be a default, breach or violation of the Articles of Incorporation
or By-Laws of Corporation or any lease, license, promissory note, conditional
sales contract, commitment, indenture, mortgage, deed of trust or other
agreement, instrument or arrangement to which Shareholder or Corporation is a
party or by which any of them or the property of any of them is bound (other
than the Xxxxx Note or the CSA); or
6.20.3 An event that would permit any party to terminate any
agreement or to require a payment under or accelerate the maturity of any
indebtedness or other obligation of Corporation; or
6.20.4 Other than the liens created under this Agreement and
the Corporation Security Agreement, creation or imposition of any lien, charge
or encumbrance on any of the properties of Corporation.
6.21 Authority and Consents. Corporation and Shareholder each have
the right, power, legal capacity and authority to enter into and perform their
respective obligations under this Agreement; and no approvals or consents of any
persons other than Shareholder and the Board of Directors of Corporation are
necessary in connection with it. The execution and delivery of this Agreement by
Corporation has been duly authorized by all necessary corporate action.
6.22 Documents Provided. Buyer has been furnished for its
examination copies of the Articles of Incorporation and By-Laws of Corporation.
In addition, Buyer has been furnished Schedule 6.22A, an unaudited balance sheet
and income statement of Corporation for the seven-month period ending July 31,
1998, as well as Schedule 6.22B, projected financial statements for the calendar
year 1998.
16
6.23 Employees. Schedule 6.23(a) to this Agreement sets forth
an accurate, correct, and complete list of all employees of Corporation as of
the Effective Date, including name, title or position, the present annual
compensation or wage rate, any interests in any bonus or incentive compensation
plan, and any other perquisite or form of non-cash compensation. No employee of
Corporation is subject to a non-competition or any other form of agreement,
whether written or oral, that would prevent such employee from continuing as an
employee of Corporation upon consummation of the transaction contemplated by
this Agreement or devoting his or her full talents, knowledge, and efforts to
Corporation upon consummation of the transaction contemplated by this Agreement.
Schedule 6.23(b) to this Agreement sets forth an accurate and complete list of
all loans, debts, and other obligations (collectively, "Employee Loans") owed by
any employee of Corporation to Corporation. Except as set forth in Schedule
6.23(b) to this Agreement, all outstanding Employee Loans owed to Corporation by
Shareholder will be repaid to Corporation at the Effective Date.
6.24 Employee Benefit Plans; Labor Matters.
6.24.1 Set forth in Schedule 6.24.1 to this Agreement is a
complete and correct list of all "employee benefit plans" (as defined in the
Employee Retirement Income Security Act of 1974, as amended ("ERISA")), all
plans or policies providing for "fringe benefits" (including but not limited to
vacation, paid holidays, personal leave, employee discount, educational benefit,
or similar programs), and each other bonus, incentive, compensation, deferred
compensation, profit sharing, stock, severance, retirement, health, life,
disability, group insurance, employment, stock option, stock purchase, stock
appreciation right, supplemental unemployment, layoff, consulting, or any other
similar plan, agreement, policy, or understanding (whether written or oral,
qualified or nonqualified, currently effective or terminated), and any trust,
escrow, or other agreement related thereto that (a) is or has been established,
maintained, or contributed to by Corporation or any ERISA Affiliate (as defined
below) or with respect to which Corporation or any ERISA Affiliate has any
liability, or (b) provides benefits, or describes policies or procedures
applicable, to any officer, employee, director, former officer, former employee,
or former director of Corporation or any ERISA Affiliate, or any dependent
thereof, regardless of whether funded (each, an "Employee Plan," and
collectively, the "Employee Plans "). For purposes of this Agreement, "ERISA
Affiliate " means Corporation and each Person or other trade or business,
whether or not incorporated, that is or has been treated as a single employer or
controlled group member with Corporation pursuant to Section 414 of the Code or
ERISA Section 4001.
6.24.2 No written or oral representations have been made to
any employee or officer or former employee or officer of Corporation promising
or guaranteeing any coverage under any employee welfare plan for any period of
time beyond the end of the current plan year (except to the extent of coverage
required under Section 4980B of the Code), and no Employee Plan provides
benefits to any employee of Corporation or any ERISA Affiliate or any employee's
dependents after the employee terminates employment other than as required by
law. The consummation of the transactions contemplated by this Agreement will
not accelerate the time of payment or vesting, or increase the amount of
compensation (including amounts due under Employee Plans) due to any employee,
officer, former employee, or former officer of Corporation.
17
6.24.3 Except as set forth on Schedule 6.24.3 to this
Agreement, all employees of Corporation are terminable at the will of
Corporation, and Corporation has not, nor has any present or former director,
officer, employee, or agent of Corporation, made any binding commitments of
Corporation, written or oral, to any present or former director, officer, agent,
or employee concerning his or her term, condition or benefits of employment by
Corporation other than as set forth in Schedule 6.24.3.
6.24.4 With respect to each Employee Plan, Corporation has
furnished to Buyer true, correct, and complete copies of (a) the plan documents
and summary plan description; (b) the most recent determination letter received
from the Internal Revenue Service; (c) the annual reports required to be filed
for the two most recent plan years of each such Employee Plan; (d) all related
trust agreements, insurance contracts; or other funding agreements that
implement such Employee Plan; and (e) all other documents, records, or other
materials related thereto requested by Buyer.
6.24.5 None of the Employee Plans are employee pension
benefit plans. All Employee Plans purporting to qualify for special tax
treatment under any provision of the Code, including, without limitation, Code
sections 79, 105, 106, 125, 127, 129, 132, 421, or 501(c)(9), meet the
requirement of such sections in form and in operation. All reports, returns, or
filings required by law have been timely filed in accordance with all applicable
requirements.
6.24.6 Neither Corporation, nor any ERISA Affiliate, nor any
plan fiduciary of any Employee Plan has engaged in any transaction in violation
of Section 406(a) or (b) of ERISA or any "prohibited transaction" (as defined in
Section 4975(c)(1) of the Code), that could subject Corporation, any ERISA
Affiliate, LLC, or Buyer to any taxes, penalties, or other liabilities resulting
from such prohibited transaction. No condition exists that would subject
Corporation, any ERISA Affiliate, or Buyer to any excise tax, penalty tax, or
fine related to any Employee Plan.
6.24.7 There is no Employee Plan that is or was subject to
Part 3 of Title I of ERISA or Title IV of ERISA; each Employee Plan has been
operated in all material respects in compliance with ERISA, the Code, and all
other applicable laws; none of the Employee Plans is or was a "multiple employer
plan" or "multiemployer plan" (as described or defined in ERISA or the Code),
nor has Corporation or any ERISA Affiliate ever contributed or been required to
contribute to any such plan; there are no material unfunded liabilities existing
under any Employee Plans; and each Employee Plan that has not been terminated
could be terminated as of the Effective Date without any material liability to
Buyer, Corporation, LLC, or any ERISA Affiliate. All contributions required to
be made to the Employee Plans have been made timely.
6.24.8 Corporation is not now nor has it ever been a party to
any collective bargaining or other labor union contract, and no collective
bargaining agreement is being negotiated by Corporation. Corporation is in
compliance in all material respects with all applicable laws respecting
employment, employment practices, and wages and hours. There is no pending or
18
threatened labor dispute, strike, or work stoppage against Corporation that may
interfere with the business activities of Corporation. Neither Corporation nor
any of its representatives or employees has committed any unfair labor practices
in connection with the operation of the business of Corporation, and there is no
pending or threatened charge or complaint against Corporation by the National
Labor Relations Board or any comparable state authority.
6.24.9 Corporation is not a party to or bound by any
severance agreements, programs, policies, plans, or arrangements, whether or not
written. Schedule 6.24.9 sets forth, and Corporation has provided to Buyer true
and correct copies of, (a) all employment agreements with officers or employees
of Corporation; (b) all agreements with consultants of Corporation obligating
Corporation to make annual cash payments in an amount exceeding $10,000, and (c)
all noncompetition agreements with Corporation.
6.24.10 Corporation has not amended or taken any other
action with respect to any of the Employee Plans or any of the plans, programs,
agreements, policies, or other arrangements described in this Section 6.24.1
since the Balance Sheet Date.
6.24.11 If requested in writing by Buyer at least three (3)
business days prior to the First Price Adjustment Date, Corporation will
terminate its employee benefit pension plans listed in Schedule 6.24.5 prior to
the First Price Adjustment Date and will comply with all provisions of the Code,
ERISA and applicable laws in terminating such plan.
6.25 Powers of Attorney; Bank Accounts. Schedule 6.25 to this
Agreement lists (a) the names and addresses of all persons holding a power of
attorney on behalf of Corporation and (b) the names and addresses of all banks
or other financial institutions in which Corporation has an account, deposit, or
safe deposit box, with the names of all persons authorized to draw on these
accounts or deposits or to have access to these boxes, including account
numbers.
6.26 Full Disclosure. None of the representations or warranties
made by Shareholder or Corporation or made in any certificate, memorandum or
exhibit furnished or to be furnished by Corporation or Shareholder or on their
behalf, contains or will contain any untrue statement of a material fact, or
omits to state any material fact necessary to make the statements made true.
7. BUYER'S REPRESENTATIONS AND WARRANTIES
Buyer represents and warrants that Buyer has the right, power, legal
capacity and authority to enter into and perform their respective obligations
under this Agreement; and no approvals or consents of any persons other than
Buyer are necessary in connection with it.
19
8. RELEASE OF SHAREHOLDER.
Effective upon the Effective Date, except as expressly provided in
this Agreement, Shareholder, for itself and its successors, and assigns, hereby
fully and unconditionally releases and forever discharges and holds harmless
Corporation and LLC and their employees, officers, directors, successors, and
assigns and Buyer from any and all claims of every kind and nature whatsoever,
whether or not now existing or known, relating in any way, directly or
indirectly, to Corporation, LLC, or Buyer that Shareholder may now have or may
hereafter claim to have against Corporation or LLC or any of their employees,
officers, directors, successors, or assigns or Buyer arising before the
Effective Date or as a result of the transactions contemplated by this
Agreement.
9. CONFIDENTIAL INFORMATION.
Corporation and Shareholder waive any cause of action, right or claim
arising out of the access of Buyer or its representatives to any trade secrets
or any other confidential business information of Corporation from the date of
this Agreement until October 8, 1998, except for the intentional competitive
misuse by Buyer or its representatives of such trade secrets or other
confidential business information. If Buyer makes Buyer's Recision Election (as
defined in Section 10.1 hereof), Buyer shall promptly return to Corporation and
Shareholder all written documents, records, and other information provided to
Buyer by Corporation, Shareholder, or their agents, attorneys, or accountants,
in connection with the transactions contemplated in this Agreement and shall
destroy all copies thereof.
10. CONDITIONS PRECEDENT TO BUYER'S PERFORMANCE
The obligations of Buyer to consummate the transactions contemplated
by this Agreement are subject to the satisfaction, at or before each of the
First Adjustment Date and the Second Adjustment Date (except as otherwise
specifically provided), of all of the conditions set out below in this Section
10. Buyer may waive any or all of these conditions in whole or in part without
prior notice; provided, however, any such waiver shall be in writing and that no
such waiver of a condition will constitute a waiver by Buyer of any of its other
rights or remedies, at law or in equity, if Shareholder or Corporation is in
default of any of the representations, warranties of covenants under this
Agreement:
10.1 Due Diligence. Satisfaction of Buyer, in its sole discretion,
with the results of its investigation and analysis of Shareholder, Corporation,
the Business, and the Assets (its "due diligence"). Such condition shall have no
further effect after October 8, 1998, or, if later, completion of financial
statements for Corporation for the period ending September 8, 1998 (including a
balance sheet as of such date), satisfactory in form to Buyer, unless Buyer
shall have notified Sellers of its disapproval of such condition on or before
such date. Buyer's notification of such disapproval is hereinafter referred to
as "Buyer's Recision Election." The parties acknowledge that Buyer's preliminary
evaluation of the Business and its decision to enter into this Agreement have
been based in significant part on financial information for the period from
January 1, 1998, through July 31,
20
1998, and that as a result of its due diligence, Buyer may determine, among
other things, that the true financial condition and results of the Business for
such period materially vary from that information.
10.2 Corporate Documents. Sellers shall have furnished to Buyer for
its examination:
10.2.1 The minute books of Corporation containing all records
required to be set forth of all proceedings, consents, actions and meetings of
shareholders and boards of directors of Corporation;
10.2.2 All permits, orders and consents issued by the
California Commissioner of Corporations with respect to Corporation or with
respect to any security of Corporation, and all applications for such permits,
orders and consents; and
10.2.3 The stock transfer books of Corporation setting forth
all transfers of any capital stock.
10.3 Xxxx Judgment. Satisfaction in full of the Xxxx Judgment and
release of all liens arising therefrom.
10.4 Accuracy of Warranties. Except as otherwise permitted by this
Agreement, all representations and warranties by Shareholder in this Agreement,
or in any written statement that will be delivered to Buyer by Corporation or
Shareholder under this Agreement must be true in all material respects on the
applicable Adjustment Date as though made at that time.
10.5 Performance. Corporation and Shareholder must have performed,
satisfied and complied in all material respects with all covenants, agreements
and conditions required by this Agreement to be performed or complied with by
them, or either of them, by the applicable Adjustment Date.
10.6 Absence of Litigation. No action, suit or proceeding before
any court or any governmental body or authority, pertaining to the transaction
contemplated by this Agreement or to its consummation will have been instituted
or threatened on or before the applicable Adjustment Date.
10.7 Consent of Xxxxxxxxx Xxxxx. Sellers shall have obtained and
furnished to Buyer, in form satisfactory to Buyer, the consent of Xxxxxxxxx
Xxxxx, Shareholder's wife, to the transactions contemplated by this Agreement.
10.8 No Material Adverse Change. During the period from the Balance
Sheet Date to the First Adjustment Date, other than the consequences of
enforcement of the Xxxx Judgment, there will not have been any change in the
financial condition or results of operations of Corporation or LLC which has a
Material Adverse Effect, and neither Corporation nor LLC will have
21
sustained any insured or uninsured loss or damage to its assets that will have a
Material Adverse Effect on its ability to conduct its business.
10.9 Certification. Buyer will have received a certificate, dated
as of the applicable Adjustment Date, signed and verified by Shareholder,
certifying, in such detail as Buyer and its counsel may reasonably request, that
to the best of Shareholder's knowledge the conditions specified in Sections 10.1
through 10.8 hereof have been fulfilled.
If any of the foregoing conditions shall fail, then subject to Section 16.1
hereof, Buyer may, in its sole discretion, declare that the Notes and the Xxxxx
Note are due and payable in full and take all actions permitted by law to
collect the amounts due thereunder. Otherwise, Buyer shall extend the due dates
of the Notes and the Xxxxx Note to March 31, 1999.
11. TIME AND PLACE OF ADJUSTMENTS.
11.1 First Price Adjustment. The First Price Adjustment will take
place at the offices Gaiam Holdings, Inc., at 000 Xxxxxxxxxxx Xxxx. Xxxxx 000,
Xxxxxxxxxx, XX 00000, at 2:00 pm local time, at the earliest time after which
(a) Corporation has implemented accounting procedures outlined in Exhibit 12.4
hereof to the satisfaction of Buyer and (b) the Xxxx Judgment has been satisfied
in full and all liens against Sellers, LLC, and the Assets have been released,
or at such other time and place as the parties may agree in writing. That date
or if the First Price Adjustment is advanced or postponed under this Section
11.1, the date to which it is advanced or postponed, is called the First Price
Adjustment Date.
11.2 Second Price Adjustment. The Second Price Adjustment will take
place at the offices of Gaiam Holdings, Inc., 000 Xxxxxxxxxxx Xxxx. Xxxxx 000,
Xxxxxxxxxx, XX 00000, at 2:00 pm local time, on the later of March 31, 1999, or
fifteen (15) days after delivery of the audited financial statements of the
Corporation Short Period and the LLC Short Period prepared by the Independent
Accountant to Buyer or at such other time and place as the parties may agree in
writing. That date or if the Second Price Adjustment is advanced or postponed
under this Section 11.2, the date to which it is advanced or postponed is called
the Second Price Adjustment Date. The First Adjustment Date and the Second
Adjustment Date are collectively referred to as "Adjustment Dates."
12. SELLERS' OBLIGATIONS AFTER EFFECTIVE DATE
12.1 Sellers' Indemnity. Sellers shall jointly and severally
indemnify, defend and hold harmless, Buyer and LLC against and in respect of
claims, demands, losses, costs, expenses. obligations, liabilities, damages,
recoveries and deficiencies including interest, penalties and reasonable
attorney fees ("claims"), that either may incur or suffer, which arise, result
from or relate to any breach of, or failure by Sellers to perform, any of their
representations, warranties, covenants or agreements in this Agreement or in any
schedule, certificate, exhibit or other instrument furnished or to be furnished
to Buyer under this Agreement, or arising out of the ownership or operation of
the
22
Business and the Assets prior to the Effective Date (except Assumed
Liabilities).
12.2 Sellers' Right to Defend. Buyer will promptly notify Sellers
of the existence of any claim, demand or other matter to which Sellers'
indemnification obligation would apply and will give Sellers a reasonable
opportunity to defend the same at Sellers' own expense and with counsel of
Sellers' own selection; provided that Buyer will at all times also have the
right to participate fully in the defense at Buyer's own expense. If Sellers,
within a reasonable time after this notice, fails to defend, Buyer will have the
right, but not the obligation, to undertake the defense of and to compromise or
settle (exercising reasonable business judgment), the claim or other matter on
behalf of or for the account and at the risk of Sellers. If the claim is one
that cannot by its nature be defended solely by Sellers (including any Tax
proceedings), Buyer will make available and cause LLC to make available all
information and assistance that Sellers may reasonably request.
12.3 Tax and Accounting Matters. On and after the Second Adjustment
Date, at the election of Buyer, Sellers shall cause the incorporation of LLC as
a "C" corporation, provided that Buyer shall indemnify and hold Sellers harmless
from any adverse tax consequences to Sellers (including Corporation in its
capacity as a member of LLC) resulting from such incorporation (and not from the
operations of the "C" corporation). In addition, Sellers shall cooperate with
Buyer in restructuring the transactions contemplated by this Agreement to effect
the best possible positions for Buyer with respect to accounting and tax matters
relating to the Business and the transactions contemplated by this Agreement,
provided that Buyer shall bear any additional expenses incurred as a result of
such restructuring and such restructuring shall not result in any tax
consequences to Sellers which vary materially from the tax consequences of the
transactions contemplated by this Agreement.
12.4 Accounting Issues. On and after the Effective Date, to the
satisfaction of Buyer, Sellers shall use their best efforts to cause LLC to
implement the accounting issues outlined in Exhibit 12.4 hereof. If the parties
are unable to agree on the appropriate accounting issues, the Independent
Accountant (or another "Big 5" accounting firm replacing the Independent
Accountant mutually agreed upon by the parties) shall determine the appropriate
accounting issues.
12.5 Right of First Refusal. If, at any time while Corporation is a
member of LLC, Shareholder receives a bona fide third party offer to purchase
all or any part of the stock of Corporation (the "offered shares") (such offer
is referred to hereinafter as the "offer"), Shareholder shall immediately submit
a complete copy of the offer to Buyer. Buyer shall then have fourteen (14) days
in which to notify Shareholder, if at all, of its intent to purchase the offered
shares for the price set forth in the offer. If Buyer so elects, Buyer shall
purchase the offered shares for such price and on such terms. Such purchase
shall close within one hundred twenty (120) days of such notice, regardless of
any other terms of the offer. If Buyer does not so notify Shareholder,
Shareholder shall be free to sell the offered shares at the price and on the
terms set forth in the offer. Except as provided in this Section 12.5,
Corporation may not sell, exchange, or otherwise transfer all or any part of the
shares of Corporation.
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12.6 Name Change. As soon as possible after the Effective Date,
Shareholder shall change the name of Corporation to "Xxxxxx X. Xxxxx Holdings,
Inc.," or a substantially similar name.
12.7 Negotiations with Xxxx. After the Effective Date, Buyer or its
representative may enter into discussions with Xxxx respecting settlement of
claims arising between Corporation or LLC and Xxxx, provided that such
discussions are conducted together with Xxxxxxxx Xxxxxx, Esq., counsel to
Corporation, and that no settlement offer is made to Xxxx which does not comply
with Schedule 2 to this Agreement.
13. BUYER'S INDEMNITY.
13.1 Buyer's Indemnity. Buyer shall indemnify, defend and hold
harmless, Sellers against and in respect of claims, demands, losses, costs,
expenses. obligations, liabilities, damages, recoveries and deficiencies
including interest, penalties and reasonable attorney fees that Sellers may
incur or suffer, which arise, result from or relate to any breach of, or failure
by Buyer to perform, any of its representations, warranties, covenants or
agreements in this Agreement or in any schedule, certificate, exhibit or other
instrument furnished or to be furnished to Sellers under this Agreement. In
addition, provided that no changes are made to the tax basis of the Assets as
set forth on the 1997 federal income tax return of Corporation, Buyer shall
indemnify Sellers and hold them harmless against any tax liabilities of Sellers
arising solely from the casting of the form of the transactions contemplated in
this Agreement as a purchase by Buyer of a membership interest in LLC, rather
than a sale to Buyer of an undivided portion of the Assets.
13.2 Buyer's Right to Defend. Sellers will promptly notify Buyer of
the existence of any claim, demand or other matter to which Buyer's
indemnification obligation would apply and will give Buyer a reasonable
opportunity to defend the same at Buyer's own expense and with counsel of
Buyer's own selection; provided that Sellers will at all times also have the
right to participate fully in the defense at Sellers' own expense. If Buyer,
within a reasonable time after this notice, fails to defend, Sellers will have
the right, but not the obligation, to undertake the defense of and to compromise
or settle (exercising reasonable business judgment), the claim or other matter
on behalf of or for the account and at the risk of Buyer. If the claim is one
that cannot by its nature be defended solely by Buyer, Sellers will make
available all information and assistance that Buyer may reasonably request.
14. PUBLICITY.
All notices to third parties and all other publicity concerning
the transaction contemplated by this Agreement will be jointly planned and
coordinated between Buyer and Sellers, and no party will act unilaterally in
this regard without the prior written approval of the other, which approval will
not be unreasonable withheld.
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15. COSTS AND EXPENSES.
15.1 Broker; Finder's Fee. Each party represents and warrants that
it has dealt with no broker or finder in connection with any transaction
contemplated by this Agreement and, as far as it knows, no broker or other
person is entitled to any commission or finder's fee in connection with any of
these transactions. Sellers will indemnify and hold LLC and Buyer, and Buyer
will indemnify and hold Sellers, harmless against any loss, liability, damage,
costs claim or expense incurred by reason of any brokerage, commission, or
finder's fee alleged to be payable because of any act, omission or statement of
the indemnifying party.
15.2 Expenses. Each party will pay all costs and expenses incurred
or to be incurred by it in negotiating and preparing this Agreement and closing
and carrying out the transactions contemplated by this Agreement, including
without limitation any taxes incurred by it as a result of or arising out of
such transactions.
16. MISCELLANEOUS PROVISIONS.
16.1 Buy-Back Right. If, on or before October 8, 1998, Buyer make
Buyer's Recision Election, Corporation shall have the right, upon notice given
within ten (10) days after receipt of notice from Buyer of such Election, to
purchase Buyer's entire right, title, and interest in and to its membership
interest in LLC for the sum of $100,000 and payment in full of the Xxxxx Note,
the Notes, and all accounting expenses of Buyer in connection with the
transactions contemplated by this Agreement (including reasonable and actual
costs), which amounts shall be due and payable in full on or before December 14,
1998.
16.2 Covenants re Operations of LLC.
16.2.1 The parties acknowledge that the Valuation is
dependent upon the operations of the LLC during the LLC Short Period. In order
to assure that such operations fairly reflect the profitability of the Business,
during the LLC Short Period, except in the event of a business emergency, Buyer
shall not cause any extraordinary measures to be instituted by LLC or cause LLC
to incur any extraordinary expenses which would unfairly distort the income of
LLC for such period. Sellers agree to operate the Business in the ordinary
course, not sacrificing value for short-term gain. Neither Corporation nor
Shareholder, in his capacity as President of LLC, shall cause LLC to incur any
capital expenditures in excess of $10,000 or enter into any long-term contracts
without the approval of Buyer.
16.2.2 Corporation and Shareholder shall take no actions
which cause (and shall perform all actions required to prevent) termination of
any contracts of LLC.
16.2.3 After Buyer's receipt of financial statements for
Corporation for the period ending September 8, 1998 (including a balance sheet
as of such date), satisfactory in form to Buyer, Corporation and Shareholder may
pursue obtaining financing of LLC for the purpose of
25
repayment of the Xxxxx Note.
16.3 Effect of Headings. The subject headings of the paragraphs and
subparagraphs are included for convenience only and will not effect the
construction or interpretation of any of its provisions.
16.4 Word Usage. Unless the context clearly requires otherwise: (a)
plural and singular number will each be considered to include the other; (b) the
masculine, feminine and neuter genders will each be considered to include the
others; (c) "shall," "will," "must," "agree," and "covenants" are each
mandatory; (d) "may" is permissive; (e) "or" is not exclusive; and (f)
"includes" and "including" are not limiting.
16.5 Entire Agreement; Modification and Waiver. This Agreement and
the ancillary documents and agreements referred to in this Agreement constitute
the entire agreement between the parties pertaining to the subject matter
contained in it and supersedes all prior and contemporaneous agreements,
representations and understandings of the parties. No supplement, modification
or amendment to this Agreement will be binding unless executed in writing by all
parties. No waiver of any of the provisions of this Agreement will constitute a
waiver of any other provision, whether or not similar, nor will any waiver
constitute a continuing waiver. No waiver will be binding unless executed in
writing by the party making the waiver.
16.6 Counterparts. This Agreement may be executed simultaneously or
in one or more counterparts, each of which will be deemed an original, but all
of which together will constitute one and the same Agreement.
16.7 Parties in Interest. Nothing in this Agreement, whether
expressed or implied, is intended to confer any rights or remedies under or by
reason of this Agreement on any persons other than the parties to it and their
respective successors and assigns. Nothing in this Agreement is intended to
relieve or discharge the obligation or liability of any third persons to any
party to this Agreement. No provision gives any third persons any right of
subrogation or action against any party to this Agreement.
16.8 Assignment. This Agreement will be binding on and will enure
to the benefit of the parties to it and their respective heirs, legal
representatives, successors and assigns; provided, however, Buyer may not assign
any of its rights under this Agreement, except to a family member of Buyer or to
an entity owned or controlled by Buyer or which owns or controls Buyer. No such
assignment by Buyer will relieve Buyer of any of Buyer's obligations or duties
under this Agreement.
16.9 Arbitration. Any controversy or claim arising out of, or
relating to this Agreement or the making, performance or interpretation of it
will be settled by arbitration in Denver, Colorado, under the Commercial
Arbitration rules of the American Arbitration Association then existing, and
judgment on the arbitration award may be entered in any court having
jurisdiction over the subject matter of the controversy. Arbitrators will be
persons experienced in negotiating, making
26
and consummating acquisition agreements.
16.10 Specific Performance and Waiver of Recision Rights. Each
party's obligations under this Agreement are unique. If any party should default
in its obligations under this Agreement, the parties acknowledge that it would
be extremely impractical to measure the resulting damages; accordingly, the non-
defaulting party or parties, in addition to any other available rights or
remedies, may xxx in equity for specific performance and the parties each
expressly waive the defense that a remedy in damages will be adequate. Despite a
breach or default by any of the parties or any of their respective
representations, warranties, covenants or agreements under this Agreement, if
the agreement and sale contemplated by it is consummated at the closing, each of
the parties waive any unilateral right that such party may have to rescind this
Agreement or the transaction consummated by it; provided, however, that this
waiver will not effect any rights or remedies available to the parties under
this Agreement or under law.
16.11 Attorney Fees. If any legal action, arbitration or other
proceeding is brought for the enforcement of this Agreement because of an
alleged dispute, breach, default or misrepresentation in connection with any of
the provisions of this Agreement, the successful or prevailing party or parties
will be entitled to recover reasonable attorney fees and other costs incurred in
that action or proceeding, in addition to any other relief to which it or they
may be entitled.
16.12 Nature and Survival of Warranties and Obligations; Setoffs.
All representations, warranties, covenants and agreements of Buyer and Sellers
contained in this Agreement or in any instruments, certificate, opinion or other
writing provided for in it (other than the representations of Shareholder set
forth in Section 6.8 hereof ("Tax Warranties")) will survive until September 8,
2001. All Tax Warranties will survive without limitation. All statements
contained in any schedule, certificate, or other writing delivered in connection
with this Agreement or the transactions contemplated by this Agreement will
constitute representations and warranties under this Agreement. Buyer may reduce
any amounts due to Sellers or LLC, and set off against its obligations
hereunder, without any further action or notice to Sellers or LLC, any amounts
due and payable from Sellers or LLC to Buyer under the terms of this Agreement,
including without limitation Section 12.1 hereof. Notwithstanding the foregoing,
any amounts in excess of disputed amounts shall be paid to Corporation or
Shareholder when otherwise due.
16.13 Notices. Unless otherwise specifically permitted by this
Agreement, all notices under this Agreement shall be in writing and shall be
delivered by personal service, federal express or comparable overnight service
or certified mail (if such service is not available, then by first class mail),
postage prepaid, to such address as may be designated from time to time by the
relevant party, and which shall initially be:
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If to Corporation:
Healing Art Publishing, Inc.
0000 Xxxx Xxxxxx
Xxxxx Xxxxxx, Xxxxxxxxxx 00000
Attn: Xxxxxx X. Xxxxx
With a copy to:
Xxxxxx Xxxxxxx, Esq.
0000 Xxxxxxxx, Xxx. 000
Xxxxxxx Xxxxx, XX 00000
If to Shareholder:
Xxxxxx X. Xxxxx
0000 Xxxx Xxxxxx
Xxxxx Xxxxxx, Xxxxxxxxxx 00000
With a copy to:
Xxxxxx Xxxxxxx, Esq.
0000 Xxxxxxxx, Xxx. 000
Xxxxxxx Xxxxx, XX 00000
If to Buyer:
Gaiam Holdings Inc.
000 Xxxxxxxxxxx Xxxx. Xxxxx 000
Xxxxxxxxxx, XX 00000
Attn: Xxxx Xxxxxx
With a copy to:
Xxxxxx X. Xxxxxxx, Esq.
Kopple & Xxxxxxx, LLP
0000 Xxxxxxx Xxxx Xxxx
Xxxxx 0000
Xxx Xxxxxx, XX 00000
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And a copy to:
Xxxx X. Xxxxxx, Esq.
0000 Xxxxx Xxxxxx Xxxx
Xxxxxx, XX 00000
Any notice sent by certified mail shall be deemed to have been
given three (3) days after the date on which it is mailed. All other notices
shall be deemed given when received. No objection may be made to the manner of
delivery of any notice actually received in writing by an authorized agent of a
party.
Any party may change its address for purposes of this
paragraph by giving the other parties written notice of the new address in the
manner set forth above.
16.14 Governing Law. This Agreement and the ancillary documents
executed together with this Agreement will (except to the extent otherwise
specifically provided in such documents) be construed in accordance with and
governed by the laws of the State of Colorado, as applied to contracts that are
executed and performed entirely in Colorado.
16.15 Further Assurances. Sellers, at any time after the
Effective Date, will execute, acknowledge, and deliver any further deeds,
assignments, conveyances, and other assurances, documents, and instruments of
transfer, reasonably requested by Buyer (and will use their best efforts to
cause third parties to do the same), and will take any other action consistent
with the terms of this Agreement that may reasonably be requested by Buyer for
the purpose of assigning, transferring, granting, conveying, and confirming to
Buyer, or reducing to possession, any or all property to be conveyed and
transferred under this Agreement. If requested by Buyer, Corporation will
prosecute or otherwise enforce in its own name for the benefit of LLC any
claims, rights, or benefits that are transferred to LLC under this agreement and
that require prosecution or enforcement in Corporation's name. Any prosecution
or enforcement of claims, rights, or benefits under this Section 16.15 will be
solely at LLC's expense, unless the prosecution or enforcement is made necessary
by a breach of this agreement by any of Sellers.
16.16 Severability. If any provision of this Agreement is held
invalid or unenforceable by any court of final jurisdiction, it is the intent of
the parties that all other provisions of this Agreement be construed to remain
fully valid, enforceable and binding on the parties.
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IN WITNESS WHEREOF, the parties to this Agreement have duly
executed it on the day and year first above written.
Buyer: GAIAM HOLDINGS, INC.
By: /s/ Xxxx Xxxxxx
-------------------------------------
Corporation: HEALING ARTS PUBLISHING, INC.
By: /s/ Xxxxxx X. Xxxxx
-------------------------------------
Xxxxxx X. Xxxxx, President
By: /s/ Xxxxxxxx Xxxxxxx
-------------------------------------
Xxxxxxxx Xxxxxxx, Assistant Secretary
Shareholder:
/s/ Xxxxxx X. Xxxxx
-------------------------------------
XXXXXX X. XXXXX
LLC: HEALING ARTS PUBLISHING, LLC
By: /s/ Xxxxxx X. Xxxxx
-------------------------------------
Xxxxxx X. Xxxxx, President
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For purposes of Section 5.4 only:
GAIAM, INC.
By: /s/ Xxxx Xxxxxx
--------------------------------
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