1
Exhibit: 2.2FT
AGREEMENT
FOR
PURCHASE AND SALE
OF
ASSETS
THIS AGREEMENT is made as of the 17th day of October, 1997, by and
between XYZ Group Inc., a Wisconsin corporation ("Seller") and Futech
Educational Products, Inc., an Arizona corporation ("Buyer").
R E C I T A L S:
A. Seller owns and operates a distribution business (the "Business")
distributing books, toys and games under the trade names "XYZ Distributors" and
"Little Tiger Press." The Business is operated at the following address:
X00X00000 Xxxxxxxxxx Xxxxx
Xxxxxxxx, Xxxxxxxxx 00000
B. Seller desires to sell to Buyer, and Buyer desires to purchase from
Seller, the Business and the assets of the Business, all in accordance with the
terms and conditions set forth below (the "Transaction").
NOW, THEREFORE, in consideration of the mutual covenants and conditions
contained herein, and of other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, and intending to be legally bound,
the parties hereto agree as follows:
T E R M S:
1. PURCHASE AND SALE. Seller hereby agrees to sell to Buyer, and
Buyer agrees to purchase from Seller, the following (collectively the "Assets"):
1.1 All fixtures, furniture, cash, notes receivable, accounts
receivable, all prepaid items, equipment, vehicles, machinery,
inventory (all finished and unfinished goods, work-in-process,
inventories, and materials of Seller are sometimes collectively
referred to herein as the "Inventory"), supplies and all other property
currently used by Seller in connection with the operation of the
Business. For purposes of this Agreement, the Inventory will be valued
at the lower of cost or market value.
Within ten (10) days after the execution of this Agreement,
Seller shall provide Buyer with a list of all assets of Seller other
than Inventory, cash, office supplies, and accounts receivable. The
list shall include, but not be limited to, all furniture, fixtures,
equipment, dies, molds, toolings, prepaids, intangible rights, notes
receivable, and deposits. Within ten (10) days after receipt by Buyer
of said list, Buyer may terminate this Agreement if Buyer is not
satisfied with said list by so notifying Seller in writing. Seller
shall be obligated to transfer to Buyer at the Closing the assets
identified on the
2
Agreement for Purchase and Sale of Assets
Page 2
agreed upon list. The assets of Seller to be transferred hereunder
shall in any event include, without limitation, all of the fixed assets
included in the "Total Fixed Assets at Cost" on Seller's July 31, 1997
balance sheet attached hereto as Exhibit "E".
1.2 All of Seller's interest in any leases of real and/or
personal property, including all of Seller's interest in any and all
leasehold improvements located on leased real property.
1.3 All rights to the trade names "XYZ Group" and "XYZ
Distributors," and any and all other trade names (other than "Little
Tiger Press," which name is not owned by Seller) used by Seller in
connection with the Business, along with any and all trademarks,
service marks, logos and designs relating thereto. As soon as is
practicable after the Closing, Seller will change its corporate name to
eliminate use of any of the names transferred to Buyer.
1.4 Any and all deposits associated with the operation of the
Business, including but not limited to all deposits on leases,
insurance contracts transferred to Buyer, utility deposits and license
deposits.
1.5 All of Seller's books and records, computer programs,
software, drawings, financial and tax information, and customer and
vendor files.
1.6 All contracts and other accounts which remain unperformed
as of the Closing, including all contracts with Magi Publications.
1.7 All other contracts, licenses, accounts and other general
intangibles currently held by Seller. Buyer understands that contracts
with Seller's customers may be transferable only with the consent of
the customer, and that transfer of said contracts without such consent
may not be binding on the customer.
1.8 All patents, copyrights, trade secrets, customer and
supplier lists, promotional materials, and other intangible rights used
in connection with the operation of the Business.
1.9 The phone numbers and all phone and other advertising
associated with the Business.
1.10 All warranties and all warranty claims of Seller.
1.11 All other assets, of any type or nature, owned by Seller.
2. PURCHASE PRICE.
3
Agreement for Purchase and Sale of Assets
Page 3
2.1 The purchase price for the Assets shall, subject to adjustment
as described below, be as follows, and shall be payable as follows:
2.1.1 $6,000,000.00 payable in full in cash equivalent at the
closing;
2.1.2 $300,000.00 of Futech Stock (defined below), valued as of
the date of the Closing, payable at the Closing or as soon as is
practicable thereafter, to be held pursuant to Section 8.2 below, and
payable pursuant to Section 2.3 below;
2.1.3 $1,367,334.00 of Futech Stock (defined below), valued as
of the date of the Closing, payable at the Closing or as soon as is
practicable thereafter;
2.1.4 $1,332,666.00 of Futech Stock (defined below), valued as
of December 31, 1998, payable within thirty days after said date if
and only if: (i) the "Net Sales" (defined below) of the Business for
the calendar year 1998 are at least 115% of the calendar year 1997
Net Sales, and (ii) a "Xxxxxxxx Termination" (defined below) has not
occurred prior to said date;
2.1.5 $500,000.00 of Futech Stock (defined below), valued as of
January 1, 1999, payable within thirty days after said date if and
only if: (i) the "Net Sales of All Futech Entities" (defined below)
for the calendar year 1998 are at least 120% of the calendar year 1997
Net Sales of All Futech Entities, and (ii) a "Xxxxxxxx Termination"
(defined below) has not occurred prior to said date;
2.1.6 $500,000.00 of Futech Stock (defined below), valued as of
January 1, 2000, payable within thirty days after said date if and
only if: (i) the "Net Sales of All Futech Entities" (defined below)
for the calendar year 1999 are at least 120% of the calendar year 1998
Net Sales of All Futech Entities, and (ii) a "Xxxxxxxx Termination"
(defined below) has not occurred prior to said date;
The term "Futech Stock" as used herein means the common stock of
Buyer (or Buyer's successor), subject to all of the terms and
restrictions generally applying to said stock. Said stock shall be
unregistered stock subject to all restrictions required by law, and
subject to such reasonable restrictions as are required by Buyer's
underwriter, and will be stock subject to a Registration Rights
Agreement in the form of Exhibit "F" attached hereto and hereby made
a part hereof. At Buyer's election, Buyer may substitute cash or cash
equivalent for Futech Stock under Sections 2.1.3 through 2.1.6 above.
The term "Net Sales" as used herein shall mean gross sales of the
Business, minus only returns and allowances.
4
Agreement for Purchase and Sale of Assets
Page 4
The term "Net Sales of All Futech Entities" as used herein shall
mean gross sales, minus only returns and allowances, of Buyer and any
successor of Buyer, including all subsidiaries thereof.
The term "Xxxxxxxx Termination" shall mean voluntary termination
by Xxxx Xxx ("Xxx") Xxxxxxxx (hereinafter "Xxxxxxxx") of his
employment with Buyer, or if Xxxxxxxx is or becomes no longer able to
render employment services to Buyer as a result of his death,
disability or other cause, or if Xxxxxxxx breaches his obligations to
Buyer under the Employment Agreement in the form of Exhibit "A"
attached hereto or the Confidentiality Agreement in the form of
Exhibit "B" attached hereto.
2.2 The purchase price assumes collection of Seller's accounts
receivable existing as of the Closing at the rate of at least 90% of the
net face value thereof (after deduction for allowance for doubtful
accounts). If, within 150 days after Closing, Buyer is unable to collect at
least 90% of the net face value of the accounts receivable as of the
Closing, then the purchase price shall be adjusted downward by the face
amounts of the accounts receivable existing as of the Closing which are not
collected within said 150 days, and said reduction may be offset by the
Buyer against the payment next due to Seller under subparagraph 2.1 above,
or, at Buyer's election, shall be payable within 30 days in cash equivalent
by Seller to Buyer. The uncollected receivables shall be, at the time of
offset or payment, assigned by Buyer to Seller for Seller's collection.
Buyer shall not be obligated to file lawsuits to collect receivables.
2.3 The $300,000.00 described in subparagraph 2.1.2 above shall, if it
is cash, be held in an escrow governed by the escrow terms appearing in
Section 8.2 below as security for payment by Buyer of any amounts owing to
Seller under Section 2.2 above, and for amounts owing by Seller elsewhere
in this Agreement, until all such amounts are paid and the parties jointly
authorize distribution of the funds held, or until a court of competent
jurisdiction orders distribution of the amount held. If the $300,000.00 is
in the form of stock, then Buyer may reserve issuing/transferring said
stock as security for payment by Buyer of any amounts owing to Seller under
Section 2.2 above, and for amounts owing by Seller elsewhere in this
Agreement, until all such amounts are paid, or until a court of competent
jurisdiction orders issuance/transfer of the stock held.
2.4 The purchase price set out in Section 2.1 above assumes no
decrease in the net value of the assets of Seller between July 31, 1997 and
the Closing. At and as of the date of the Closing (or the "Pre-Closing
Date" if and as called for under Section 8.2 below), a balance sheet shall
be prepared for Seller in the same form and format, and using the same
principals, as the July 31, 1997 balance sheet attached hereto as Exhibit
"E" and hereby made a part hereof. The "Total Current Assets" amount shown
on said balance sheet, minus the "Total Current Liabilities" amount shown
on said balance sheet, is referred to below as the "Net Value." (See
Section 1.1 above regarding Seller's fixed
5
Agreement for Purchase and Sale of Assets
Page 5
assets). If the Net Value is greater than a negative balance of
$939,977.00 (for clarification - a negative $900,000.00 is greater than
a negative $939,977.00), then the purchase price will be increased by
said amount, and if the Net Value is less than a negative balance of
$939,977.00, the purchase price shall be decreased by said difference.
Any change to the purchase price under this Section shall be made to
the price payable under Section 2.1.1 above (not under 2.1.2).
If the Net Value is less than a negative balance of
$940,000.00 (for clarification - a negative $950,000.00 is less than a
negative $940,000.00), then Buyer shall be entitled to terminate this
transaction as provided for in Section 7.15 below.
All transactions of Buyer after July 31, 1997 shall be done in
a manner such that the value acquired by Buyer under this Agreement
shall not be decreased between said date and the Closing date. For
example, all cash received shall be: (i) held and transferred to Buyer
at the Closing, or (ii) paid against trade payables or bank debt to be
assumed by Buyer at the Closing.
2.5 The purchase price includes assumption of liabilities as
set out in Section 3 below.
2.6 The purchase price shall be allocated as follows, and the
parties agree to execute and complete such forms as are required by the
Internal Revenue Service to evidence such allocation:
Furniture, fixtures and equipment, leasehold Note #1
improvements, prepaids, and other assets not
listed below
Inventory Note #2
Accounts Receivable Note #3
Restrictive Covenants $5,000.00
Goodwill The Balance
Note 1: Seller's adjusted basis for federal income
tax purposes.
Note 2: The Inventory will be valued at the lower of
cost or market value.
Note 3: The net face amount of the accounts
receivable.
3. LIABILITIES.
3.1 Buyer will at the Closing assume liabilities as, and only
as, follows:
6
Agreement for Purchase and Sale of Assets
Page 6
3.1.1 Seller's obligations under the leases and other
contracts assumed by Buyer, for time periods after the
Closing. Within ten (10) days after the execution of this
Agreement, Seller shall provide Buyer with a list of all
agreements, including leases, to which Seller is subject. At
that time, Seller shall also deliver to Buyer copies of all of
the documents relating to said agreements. Within ten (10)
days after receipt by Buyer of all of said documents, Buyer
shall inform Seller in writing as to which agreements Buyer
will assume at the Closing. In the event Seller objects to the
list, Seller shall be entitled to terminate this Transaction
within five (5) days after receipt of the written notice from
Buyer. If no such objection is made by Seller, Buyer shall
assume at the Closing only the obligations identified in
Buyer's notice to Seller. Absent delivery of a notice to
Seller as set out above, Buyer will be assumed to have elected
not to assume any of Seller's liabilities of any type.
3.1.2 The parties acknowledge and agree that, at the
Closing, Buyer will assume only the following liabilities (the
"Assumed Liabilities"):
(a) Normal trade payables for services and
products received or receivable by Seller, incurred
in the ordinary course of the Business not exceeding
150 days past due (i.e., excluding payables which
have not been paid within 150 days of receipt by
Buyer of the first invoice received by Buyer for the
payable);
(b) Bank debt incurred by Buyer in the
ordinary course of the operation of the Business;
provided, however, that Seller shall be responsible
for any prepayment penalties charged on said debt as
a result of this Transaction;
(c) Buyer's obligations under leases and
other contracts disclosed to and approved by Buyer;
and
(d) Payroll and payroll tax obligations for
employees for not more than the most recent pay
period prior to the Closing, plus only the employee
benefits identified on Exhibit "C" attached hereto
and hereby made a part hereof.
3.1.3 Specifically, but not in limitation of the
foregoing, Buyer shall not be assuming the following
liabilities:
(a) Any federal, state or local income
taxes;
(b) Any labor, discrimination, harassment or
similar claims;
7
Agreement for Purchase and Sale of Assets
Page 7
(c) Any environmental liability claims;
(d) Any negligence, conversion, tortious
interference or other tort claims, or claims
for infringement of tradename, patent, or
copyright, or other intangible right;
(e) Any liability associated with any
litigation or other proceeding pending or
threatened at the time of the Closing;
(f) Any contractual liability for contracts
not disclosed to and agreed upon by Buyer, or
any liability to or for employees or employee
benefits not expressly agreed upon by Buyer.
(g) Any sales and use tax arising from the
sale of asset contemplated by this Agreement
(Seller shall be responsible for same).
(h) Any debt of Seller payable to Seller's
shareholders.
3.2 All liabilities of Seller other than those expressly
assumed by Buyer as identified in Section 3.1 above shall be and remain
the obligations of Seller, and Seller shall indemnify, defend and hold
Buyer harmless from and against any and all such liabilities.
3.3 Buyer may offset against the purchase price any and all
liabilities associated with the Business which are not expressly
assumed by Buyer but which Buyer is required to pay.
3.4 The following expenses of the Business will be prorated to
the Closing: utilities and phone expenses, advertising expense,
insurance premiums on any insurance transferred to the Buyer, personal
property taxes, and other normal operating expenses of the Business.
3.5 Seller will, to the extent requested by Buyer, deliver to
Buyer prior to the Closing, estoppel letters or certificates, in form
acceptable to Buyer, from parties to contracts under which Seller is
obligated.
3.6 Seller hereby agrees to indemnify, defend and hold Buyer
harmless from and against any and all liabilities, claims, expenses and
other costs arising from Seller's operations of the Business prior to
the Closing, except as expressly assumed by Buyer pursuant to this
Section 3. Buyer hereby agrees to indemnify, defend and hold harmless
Seller from and against any and all liabilities, claims, expenses or
other costs arising from Buyer's operations of the Business from and
after the Closing. The indemnities set forth in this Section shall
survive the Closing.
8
Agreement for Purchase and Sale of Assets
Page 8
4. EMPLOYEES. Buyer shall have the right to cancel this Agreement if:
(i) the employment of any of the ten highest paid employees of the
Business is terminated prior to the Closing; or (ii) there is a
significant reduction in the number of employees prior to the Closing,
which impairs the operations of the Business in Buyer's reasonable
discretion.
Seller shall cooperate with Buyer in any reasonable efforts by Buyer to
obtain the transfer of Seller's portion of the Wisconsin Unemployment
Compensation Fund and experience rating applicable to the employees of
Seller hired by Buyer to the extent Buyer elects to transfer such
items.
After the Closing, Buyer will offer employment only to those employees
of Seller as Buyer chooses. Immediately prior to the Closing, Seller
shall terminate the employment of all its employees. It is, however,
Buyer's present intent to immediate employ of all Seller's employees
after the Closing.
5. BUYER'S NOMINEE. Buyer, or a successor to Buyer, may form a wholly
owned subsidiary to purchase the Business, and in that event may assign
Buyer's rights under this Agreement to said entity.
6. INTERIM EVENTS.
6.1 Seller agrees that Seller will take no action prior to the
Closing, other than in the ordinary course of the Business, which would
or might have a material adverse effect upon the financial condition of
Seller, and no benefits will be paid or incurred to shareholders,
officers, or directors of Seller between the date hereof and the
Closing other than as is consistent with past activities and practices.
Seller will use Seller's best efforts to preserve for Buyer the present
relationships of Seller with Seller's employees, customers and others
having business relations with Seller. Seller will not allow its trade
payables to go unpaid, except in the ordinary course of business.
6.2 Buyer will pay Xxx Xxxxxxxx a lump sum of $50,000.00 no
later than five days after this Agreement is fully signed. In exchange
for said fee, Xxx Xxxxxxxx agrees to assist Buyer with integration,
prospectus structuring, and road shows for the Initial Public Offering,
and provide other services in connection with the restructuring and
Initial Public Offering of Buyer. Xxx Xxxxxxxx will pay his own travel,
hotel and meal expense for trips to Phoenix. Said expenses for trips
associated with the road show will be paid by Buyer.
6.3 Risk of loss regarding the Assets shall remain with Seller
until Closing and shall pass to Buyer upon Closing.
6.4 Seller shall, as soon as is practicable, provide Buyer
with audited financial statements for Seller with a September 30, 1997
cut-off, and will cooperate with Buyer
9
Agreement for Purchase and Sale of Assets
Page 9
and timely provide Buyer with other documents and information as
requested by Buyer in connection with preparation for Buyer's Initial
Public Offering. Buyer shall pay the costs of the September 30, 1997
audit, but Seller will reimburse Buyer, within thirty days after the
amount to be reimbursed is first known, but in any event prior to the
Closing and prior to the "Net Value" calculation being done under
Section 2.4 above, an amount equal to the auditor's and accountant's
fees and costs saved by Seller in connection with Seller's December 31,
1997 audit or review as a result of the work done for the September 30,
1997 audit. Said savings shall be payable regardless of whether the
Transaction ultimately closes, and shall be calculated by subtracting
the cost of the December 31, 1997 audit or review from $15,000.00
(Seller's estimate of what the December 31, 1997 audit or review would
have cost without the work done for the September 30, 1997 audit).
7. CONDITIONS TO CLOSING. Buyer's obligation to close the Transaction
shall be conditioned upon (each of the conditions may be waived by Buyer in
writing only):
7.1 Buyer obtaining the consent of the lessors of the leases
assumed by Buyer, and the consent of the other parties to any other
contracts assumed by Buyer, to the extent said consents are required;
7.2 Buyer having obtained, or having obtained the appropriate
consents or approvals to the assignment of, all permits, licenses and
contracts necessary to continue the operations of the Business;
7.3 Seller having maintained the Assets in the same condition
as of the date of this Agreement (subject to ordinary wear and tear
only);
7.4 Seller having conducted the Business diligently and
substantially in the same manner as prior to the execution of this
Agreement and not having entered into any contract, commitment or
transaction not in the usual and ordinary course of business;
7.5 The operations of the Business not having changed in a
material and adverse manner between the date of this Agreement and the
date of Closing;
7.6 There being no governmental investigations or suits
pending or threatened with respect to the operations of the Business,
except as may otherwise be agreed to in writing by Buyer;
7.7 Buyer closing its Initial Public Offering on terms
acceptable to Buyer;
7.8 Xxxxxxxx entering into an Employment Agreement in the form
of Exhibit "A" attached hereto, and a Confidentiality Agreement in the
form of Exhibit "B" attached hereto, to be effective at the Closing.
Xxxxxxxx agrees to sign said Agreement;
10
Agreement for Purchase and Sale of Assets
Page 10
7.9 Buyer's approval of Seller's most recent Financial
Statements prior to the Closing;
7.10 Buyer obtaining for use by Buyer, based solely upon the
strength of the assets of the Business, revolving credit lines and
other debt instruments satisfactory to Buyer;
7.11 Buyer's receipt of opinions of Seller's counsel
satisfactory to Buyer as to certain matters deemed necessary by Buyer's
counsel;
7.12 Buyer's approval of a report of Buyer's independent
auditors with respect to the operations and assets of the Business;
7.13 Buyer obtaining executed Employment Agreements from key
employees as determined by Buyer, with terms and content acceptable to
Buyer;
7.14 Buyer's purchase, on terms acceptable to Buyer, of the
stock of Premier Publishing Inc., with a closing simultaneous with that
of the Closing hereunder;
7.15 The Net Value at the Closing being not less than a
negative balance of $940,000.00, as identified in Section 2.4 above;
and
7.16 Buyer and Seller agreeing as to the manner in which the
purchase price shall be allocated among the various assets transferred
pursuant to this Agreement. The parties agree to execute and complete
such forms as are required by the Internal Revenue Service to evidence
such allocation.
7.17 Seller's representations and warranties set forth in this
Agreement being accurate in all material respects as of the Closing
date.
7.18 Buyer receiving a certificate of the Department of
Financial Institutions of Wisconsin as to the legal existence of the
Seller in Wisconsin.
8. CLOSING.
8.1 The closing of the Transaction (the "Closing") shall occur
simultaneously with the closing of Buyer's Initial Public Offering, on
a date selected by Buyer within said time period. If Buyer is not
ready, willing and able to close the transaction on or before February
15, 1998, then Seller shall be entitled to terminate this Agreement by
providing written notice thereof to Buyer. The Closing shall occur at
3:00 p.m. M.S.T. at the offices of Buyer, at 0000 Xxxxx 00xx Xxxxxx,
Xxxxx 000, Xxxxxxx, Xxxxxxx 00000-0000. The Transaction shall be
consummated without the use of an independent escrow company.
11
Agreement for Purchase and Sale of Assets
Page 11
At the Closing, Seller shall execute and deliver to Buyer such
conveyance documents as are necessary or appropriate to accomplish the
Transaction, in form reasonably satisfactory to Buyer.
8.2 Notwithstanding the foregoing, Buyer shall be entitled to
purchase an extension until April 30, 1998 of Buyer's time to close
this Transaction by payment (prior to February 16, 1998) by Buyer of
xxxxxxx money in the amount of $50,000.00. In the event the Transaction
closes prior to April 30, 1998, then the $50,000.00 xxxxxxx money so
paid shall be applied against the purchase price. If Buyer is not
ready, willing and able to close the Transaction by April 30, 1998,
then Seller shall be entitled to terminate this Agreement by providing
written notice thereof to Buyer, and receive and retain the $50,000.00
xxxxxxx money; provided, however, that said xxxxxxx money, and any
interest earned thereon, shall be returned to Buyer if the Transaction
fails to close because a condition identified in Section 7 above, other
than those in Sections 7.7, 7.10, 7.12, or 7.13, has not been
satisfied or waived, if a condition to Buyer's obligation to close
appearing anywhere else in this Agreement has not been satisfied or
waived, or if Buyer exercises one of Buyer's termination rights
appearing in this Agreement.
The xxxxxxx money described above, and the funds described in
Section 2.1.2 above, shall be payable to and deposited into an interest
bearing Wisconsin Bar Trust account of Seller's attorney, Xxxx Xxxxxxx,
to be held by said attorney and distributed pursuant to this Agreement.
Said attorney and his successors, if any, as holders of said funds, are
collectively referred to below as the "Holder." The interest earned on
the funds while held by Holder shall accrue to the benefit of Buyer.
The Holder shall be relieved of all responsibility for funds
held upon surrendering them or tendering surrender of them pursuant to
this Agreement. The parties hereby authorize Holder, in the event any
demand is made upon Holder concerning this Agreement, at Holder's
election, to hold the money and any documents deposited with Holder
until an action shall be brought in a court of competent jurisdiction
to determine the rights of the parties, or to interplead the parties by
an action brought in any Court. Deposit by Holder of all of said funds
and documents, after deducting therefrom Holder's charges and expenses
and attorneys' fees incurred in connection with any such Court action
or incurred in connection with Holder's duties hereunder, shall relieve
Holder from all further liability and responsibility in connection
therewith.
The parties shall indemnify and hold harmless Holder against
all claims, demands or damages, attorney's fees, expenses, and
liabilities that Holder may incur or sustain in connection with this
Agreement or any Court action arising therefrom, and will pay the same
upon demand. If not paid upon demand, such amounts shall accrue
interest at the rate of 12% per annum until paid in full.
Holder, solely at Holder's election, may resign as Holder by
sending written
12
Agreement for Purchase and Sale of Assets
Page 12
notice thereof to the parties to this Agreement. The resignation shall
be effective ten (10) days after the notice is deposited into the
United States Mail, or such other date as selected by the Holder. All
documents and money held by Holder after such resignation shall be
returned to the proper parties or held by Holder at Holder's discretion
until the parties shall have named a successor Holder.
8.3 The parties acknowledge that it may be difficult to
coordinate all that must happen on the date of Closing. To facilitate a
smoother Closing, pre-Closing calculations will be done as of the last
day (the "Pre-Closing Date") of the most recent calendar month which
ended at least five (5) business days prior to the Closing. Inventory,
accounts receivable, trade payables, etc. will be determined as of the
Pre-Closing Date as if said date were the actual Closing date. All
transactions of the Corporation after the Pre-Closing shall be done in
a manner such that the value acquired by Buyer shall not be decreased
between the Pre-Closing Date and the Closing date. For example, all
cash received shall be held and transferred to Buyer at the Closing or
paid against trade payables to be assumed by Buyer at the Closing.
Buyer may elect to use the Pre-Closing figures as if they were
the actual Closing figures, for all purposes of this Agreement, and
close the Transaction based on those figures. In said event, no
adjustments shall be made for the actual Closing figures, except any
necessary to account for violations of the last two sentences of the
paragraph immediately preceding this paragraph.
Instead, Buyer may elect to use the actual Closing numbers. In
said event, the Transaction shall be closed using the Pre-Closing
figures as estimates, and $100,000.00 shall be held from Seller's sales
price at the Closing as security until the final actual Closing figures
are determined (the parties estimate this should take no longer than
ten days). The withheld sales price shall be held by Buyer's counsel in
escrow on terms similar to those described in Section 8.2 above, except
that an interest bearing account need not be used.
8.4 The cash portion of the purchase price payable to Seller
may be paid by Buyer the day after the day of the Closing, and Buyer
shall have thirty (30) days after the Closing to transfer to Seller the
stock portion of said purchase price.
9. RESTRICTIVE COVENANTS.
9.1 Neither Seller nor Xxxx Xxx (Xxx) Xxxxxxxx (hereinafter
"Xxxxxxxx"), by his signature appearing below, shall, except as
representatives of and as directed by Buyer, without the prior written
consent of Buyer, which consent may be withheld for any or no reason,
for a period of 2 years following the Closing, directly or indirectly,
own, manage, operate, control, be employed by, participate in, render
services to, make loans to, or be connected in any manner with the
ownership, management, operation, or
13
Agreement for Purchase and Sale of Assets
Page 13
control of any business located anywhere in United States of America,
Canada, or Europe, in any business competitive with the Business (which
shall be deemed to include all business operations publishing,
manufacturing, and/or distributing books, toys or games, or electronic
or other parts or components thereof).
In the event of any actual or threatened breach of the
provisions of this Section, Buyer shall be entitled to an injunction
restraining the actual or threatened breach. The parties further agree
that should there be a violation of the provisions of this Section, the
violating party shall be liable to Buyer for, in addition to amounts
pursuant to other remedies available against that party, two (2) times
the greater of the amount of profit earned by the violating party as a
result of the violation and the amount of profit which would have been
earned by Buyer from the activities causing the violation had Buyer
conducted said activities, plus interest on said greater amount from
the date of the violating activities until paid, as liquidated damages
for only Buyer's loss of potential profits. Said interest shall be
calculated at the lesser of: (i) eighteen percent (18%) per annum, and
(ii) the highest rate of interest permitted by applicable law. Nothing
in this paragraph shall be construed as prohibiting Buyer from pursuing
any other available remedies for such breach or threatened breach,
including pursuing a recovery for damages. The parties agree that the
liquidated provisions set out above do not constitute a penalty, but
rather reflect the estimate of the parties as to the actual damages,
including loss of profits, Buyer might or is likely to incur in the
event of a violation of the restrictions appearing herein.
9.2 Neither Seller nor Xxxxxxxx shall at any time, without
the prior written consent of Buyer, which consent may be withheld for
any or no reason, disclose, in any fashion other than as required in
the day to day affairs of Buyer, to any person or entity: (i) the names
of customers of Buyer or the Business, or the names of other persons or
entities having business dealings with Buyer or the Business, or (ii)
any of the business methods or confidential information of Buyer or the
Business, including but not limited to its customer lists, prospective
customers, customers purchasing habits, customer contact personnel,
marketing and servicing techniques, financial matters, sales and
marketing systems and methods, marketing development and business
expansion plans and projections, personnel training and development
programs, customer and supplier relationships, and trade secrets.
9.3 Neither Seller nor Xxxxxxxx shall, at any time within two
(2) years after the Closing, without the prior written consent of
Buyer, which consent may be withheld for any reason or no reason,
directly or indirectly induce, encourage or solicit or assist any
person who was or is employed (whether as an employee or as an
independent contractor) by the Business during the two years preceding
the Closing, to leave the employ of the Business.
9.4 The parties acknowledge and agree that the restrictions
contained herein, including but not limited to the time period and
geographical area restrictions, are fair and reasonable and necessary
for the successful operation of the Business, that violation
14
Agreement for Purchase and Sale of Assets
Page 14
of any of them would cause irreparable injury, and that the
restrictions contained herein are not unreasonably restrictive of any
party's ability to earn a living. If the scope of any restriction in
this Section is too broad to permit enforcement of such restriction to
its fullest extent, then such restriction shall be enforced to the
maximum extent permitted by law, and all parties hereto consent and
agree that such scope shall be modified judicially or by arbitration in
any proceeding brought to enforce such restriction. The parties hereto
acknowledge and agree that remedies at law for any breach or violation
of the provisions of this Section would alone be inadequate, and agree
and consent that temporary and permanent injunctive relief may be
granted in connection with such violations, without the necessity of
proof of actual damage, and such remedies shall be in addition to other
remedies and rights the parties may have at law or in equity. The
parties agree that no party shall be required to give notice or post
any bond in connection with applying for or obtaining any such
injunctive relief.
9.5 The parties acknowledge and agree that the covenants in
this Section shall be construed as an agreement independent of any
other provision of this Agreement, so that the existence of any claim
or cause of action by Seller (or Xxxxxxxx) against Buyer, whether
predicated on this Section or otherwise, shall not constitute a defense
to the enforcement of this Section.
9.6 The provisions in this Section 9 were specifically
bargained for as a material portion of the Transaction. The
consideration for the restrictions appearing in this Section include,
without limitation, the financial benefits received by the Corporation
and Xxxxxxxx from the sale transaction.
10. ACCESS TO CUSTOMER FILES AND OTHER RECORDS. For a period of 3 years
following the Closing, where there is a legitimate purpose not injurious to
Buyer, or if there is an audit by any taxing authority, other governmental
inquiry, or litigation or prospective litigation to which Seller (or its
principals) is or may become a party, Seller (and its principals) shall be
granted access, at reasonable times and after reasonable notice, to all customer
files and other records transferred to Buyer pursuant to this Agreement.
11. DUE DILIGENCE INVESTIGATION. Buyer shall have sixty (60) days from
the date of execution of this Agreement (the "Due Diligence Period") in which to
conduct any due diligence investigations, including UCC-1 searches, which Buyer
may deem necessary or appropriate to ascertain the financial viability and value
of the Business. Throughout the Due Diligence Period Buyer (and its agents)
shall have the right to inspect: (i) all books, records and computer systems
maintained by Seller, in order to authenticate and audit all financial
information provided to Buyer, (ii) all equipment and machinery used in the
Business to verify that it is in an acceptable state of repair, (iii) all
agreements to which Seller is a party, and (iv) all facilities and physical
operations of Seller, including facilities warehousing Inventory. Seller shall
provide access to Seller's federal and state income tax returns, sales tax
returns, financial statements (internal and those issued to third parties),
personal property tax returns, and all other governmental filings,
15
Agreement for Purchase and Sale of Assets
Page 15
for the three previous years, for the purpose of conducting due diligence
investigations. Buyer shall indemnify Seller from and against any and all
liabilities, costs, claims and losses incurred by Seller as a result of Buyer's
conduct of its due diligence investigation. Buyer may, in Buyer's sole
discretion, terminate this Agreement within five days after the date of
termination of the Due Diligence Period for any reason deemed appropriate by
Buyer.
Buyer and its representatives will further have the authority to
communicate with Seller's creditors, debtors, suppliers, agents and employees.
Seller agrees to aid Buyer and its representatives in Buyer's investigations and
evaluations of the Business and the Assets, and to provide whatever information
and documents Buyer reasonably deems necessary or appropriate to the making of
an informed decision regarding the Transaction.
12. REPRESENTATIONS AND WARRANTIES. Seller and Xxxxxxxx each hereby
represent and warrant as follows, as of the date hereof and as of the date of
the Closing:
12.1 Authority. Seller has the power and authority to enter
into and perform its obligations under this Agreement, and the Board
of Directors and the shareholders of Seller have approved, authorized,
and ratified the execution and delivery of this Agreement, and of the
documents herein required to consummate the transaction contemplated
herein. This Agreement constitutes the legally valid and binding
obligation of Seller, enforceable in accordance with its terms.
12.2 Financial Information. Seller has furnished Buyer with
true, correct and complete copies of Seller's financial statements and
other books and records relating to the operation of the Business,
which statements fairly present the financial condition of the Business
as of their respective dates.
12.3 Taxes. All federal and state income, excise, franchise,
payroll, property, sales, and other tax returns required to be filed
by or with respect to the Business (except returns not yet due) have
been filed, are complete and accurately reflect in all material
respects all matters therein required to be reflected, and all taxes
shown on such returns to be due, and any assessments received by
Seller with respect thereto, have been paid in full. Seller shall pay
all such future taxes relating to periods prior to the Closing, when
and as the same shall become due and payable. Seller shall provide
Buyer with such certificates and other evidence of payment of all
taxes due in connection with the Assets and the Business as Buyer
shall request. Seller shall be responsible for all sales and use taxes
arising from the sale of assets contemplated by this Agreement.
12.4 Material Changes. From the date of the most recent
financial statements provided by Seller to Buyer, and through the day
hereof, and through the date of Closing, the Business has been
conducted only in the ordinary course, there have been no material
adverse changes in the financial condition or operations of the
Business, and there has been no damage, destruction or other occurrence
(whether or not insured
16
Agreement for Purchase and Sale of Assets
Page 16
against) which materially adversely affects the financial condition or
operations of the Business.
12.5 Title to Assets: Liens. Seller owns all assets it
purports to own, including all assets reflected in its financial
information. Seller does not own any real property. All property to be
transferred by Seller to Buyer pursuant to this Agreement is, at the
time of this Agreement, or will be at the Closing, free and clear of
any and all liens, claims and encumbrances.
12.6 Litigation. To the knowledge of Seller or Xxxxxxxx, there
is no litigation, proceeding, or investigation pending against Seller
or the Business, and neither Seller nor Xxxxxxxx have any reasonable
grounds to know any basis for such litigation, proceeding or
investigation.
12.7 Licenses. Seller has any and all licenses, permits, and
contracts necessary and/or appropriate to operate the Business in the
manner in which the Business is currently operated.
12.8 Hazardous Materials. The Business has not dealt in any
manner with any hazardous or toxic materials or waste.
12.9 Complete Disclosure. Seller has disclosed to Buyer all
facts and papers which would or might be important to Buyer in making
the decision to purchase the Business as called for in this Agreement.
12.10 Judgments Against Seller and/or Business. Neither
Seller nor the Business is under any governmental investigation, no
such investigation has been threatened, and there are no judgments
against Seller, the Business or the Assets.
12.11 Complete Sale. The assets to be transferred under this
Agreement are all of the assets used by Seller in the operation of the
Business.
12.12 Assets in Good Condition. Each of the Assets which is a
tangible asset is and will be at the Closing in good working order and
condition, and are adequate to the uses to which they are being put.
12.13 Disclosure Materials. The financial condition of the
Business is at least as favorable as presented in the financial
information, including tax returns and financial statements, and books
and records provided by Seller to Buyer. Those materials and the other
materials disclosed to Buyer are true, complete and accurate in all
respects, and fairly represent the information they purport to provide.
All the information disclosed, as a whole, does not contain any
statement that, as of the date hereof, or as of the Closing, is false
or misleading, and does not omit to state any material fact (i)
necessary
17
Agreement for Purchase and Sale of Assets
Page 17
to make the statements made, in light of the circumstances under which
they were made, not false or misleading, or (ii) necessary to provide
Buyer with complete and accurate information as to the assets and
financial standing of the Business.
12.14 Defaults. There are no defaults or events with which
the giving of notice or the passage of time would constitute defaults
under any document under which Seller is obligated.
12.15 Bulk Sales Provisions. Seller shall indemnify and hold
Buyer harmless from any liability resulting from any failure to comply
with any applicable Bulk Sales provisions with respect to any and all
liabilities of Seller.
12.16 Vendor Accounts. Seller will use Seller's best efforts
to cause a transfer to Buyer of all of Seller's supplier and other
vendor accounts without adverse changes in the account terms.
12.17 Outstanding Liabilities. There are no liabilities of
Seller other than as are shown on the most recent financial statement,
other than liabilities arising in the normal course of business out of
purchases and sales of goods. There are no liabilities relating to the
Business which are more than ninety (90) days past due.
12.18 Inventory. The Inventory is useable and in good
condition, with not more than 1% thereof being obsolete, and all of
the inventory is owned by Seller, none of it being held by Seller on
consignment.
12.19 Losses. There are no unrealized or anticipated losses on
any commitment or contract of Seller.
12.20 Patents. There is no litigation pending or threatened
with respect to the patents of Seller, there is no outstanding order,
judgment, decree or stipulation affecting the validity or
enforceability of said patents, there exits no outstanding notices of
infringement given by Seller regarding the patents, there are no
pending interferences or other contested proceedings pending, or that
are in the process of being instituted, in the United States Patent
Office or in the courts, relating to said patents, and, to the best
knowledge of Seller and Xxxxxxxx, none of Seller's patents are being
presently infringed.
12.21 Receivables. All accounts receivable arose in the
regular course of business, and, to the best knowledge of Seller and
Xxxxxxxx, are collectable and subject to no defenses or counterclaims.
12.22 No Conflict. The execution, delivery and performance of
this Agreement and the other documents and instruments to be executed
and delivered by Seller pursuant hereto, and the consummation by Seller
of the transactions contemplated herein or
18
Agreement for Purchase and Sale of Assets
Page 18
therein:
(a) Will not violate or conflict with any applicable law;
(b) Will not require any authorization, consent, approval,
exemption or other action by or notice to any government entity
(including, without limitation, under any "plant closing" or similar
law); and
(c) Will not violate or conflict with, or constitute a default
(or event which, with notice or lapse of time, or both, would
constitute a default) under, or will not result in the termination of,
or accelerate the performance required by, or result in the creation of
any lien upon any of the Assets under any term or provision of the
Seller's Articles of Incorporation or Bylaws, or any contract,
commitment, understanding, arrangement, agreement or restriction of any
kind or character to which Seller is a party or by which Seller or any
of the Assets may be bound or affected.
12.23 Violations of Law
(a) None of the present or past operations of the Business,
the products of the Business, or the Assets violates or conflicts, in
any material respect, with any permits, any law (including
Environmental Laws), governmental specification, authorization, or
requirement, or any decree, judgment, order, or similar restriction. To
the knowledge of Seller, neither Seller nor any supplier of Seller is
the subject of an inspection or inquiry regarding violations or alleged
violations of any law by other state, federal, or local agency.
(b) There are no proceedings, threatened proceedings, orders,
notice of violations, inspection reports, or other similar occurrences
relating to the conduct of the Business or the Assets.
(c) Seller has not been the subject of an Occupational and
Safety Health Administration inspection or found by any agency to be
in violation of any state or federal occupational safety or health law
in the conduct of the Business.
12.24 Condition and Sufficiency of Assets. All Assets are in
good operating condition and repair, and are adequate for the uses to
which they are being put, and none of such items are in need of
maintenance or repairs except for ordinary, routine maintenance and
repairs that are not material in nature or cost. The Assets are
sufficient for the continued conduct of then Business after the
Closing in substantially the same manner as conducted prior to the
Closing.
12.25 Environmental Matters. For the purposes of this
Section:
19
Agreement for Purchase and Sale of Assets
Page 19
(i) "Environmental Law" means all federal, state,
local, foreign, and other applicable jurisdiction Laws relating to the
environment or the use, disposal, existence, or release of any
Hazardous Materials, including but not limited to any and all Laws
concerning, affecting, controlling, or in any way relating to, whether
in whole or in part, noise levels, ground vibrations, air pollutants,
water pollutants, process waste water, or Hazardous Materials;
(ii) "Environmental Release" means any release,
spill, emission, leaking, injection, deposit, disposal, discharge,
dispersal, leaching or migration into the atmosphere, soil, surface
water, groundwater or property;
(iii) "Hazardous Materials" means: (A) any waste,
hazardous waste, pollutant, contaminant, or hazardous or toxic
substance as specified, listed, identified, or defined in (1) the
Resource Conservation and Recovery Act, 42 U.S.C.A. Section 6901, et
seq., and the rules, regulations and orders promulgated thereunder; (2)
CERCLA; (3) the Clean Water Act, 33 U.S.C. 1251, et seq., and the
rules, regulations and orders promulgated thereunder; (4) the Clean Air
Act, 42 U.S.C. 7401 et seq., and the rules, regulations and orders
promulgated thereunder; (5) the Toxic Substances Control Act, 15 U.S.C.
2601, et seq., and the rules, regulations and orders promulgated
thereunder; (6) the Hazardous Materials Transportation Act, 49 U.S.C.
1801, et seq., and the rules, regulations and orders promulgated
thereunder; (7) the Occupational Safety and Health Act, 29 U.S.C. 651
et seq., and the rules, regulations, and orders promulgated
thereunder; and (8) any other applicable U.S. federal, state, local,
foreign, or other statutes or Laws, and the rules, regulations, and
orders promulgated thereunder; (B) asbestos; (C) formaldehyde; (D)
polychlorinated biphenuls; (E) radioactive materials; (F) waste oil and
other petroleum products; and (G) any other substance which constitutes
a nuisance or hazard to the environment or to the public health,
safety, or welfare;
(iv) "CERCLA" means the Comprehensive Environmental
Response, Compensation and Liability Act of 1980, as amended, 42
U.S.C.A. Section 9601, et seq., and the rules, regulations and orders
promulgated thereunder; and
(v) "Environmental Claim" shall mean any and all
administrative, regulatory, judicial, or third party actions, suits,
demands, demand letters, directives, claims, liens, investigations,
proceedings or notices of noncompliance or violation (written or oral)
by any person or entity alleging damage or other adverse effect on the
environment, or potential liability (including, without limitation,
potential liability for enforcement, investigatory costs, cleanup
costs, governmental response costs, removal costs, remedial costs,
natural resources damages, property damages, personal injuries, or
penalties) arising out of, based on or resulting from: (A) the
presence, or release into the environment, of any Hazardous Materials,
contaminant, odor, audible noise, or other release into the environment
from or at any location, whether or not owned by any Seller; or (B)
environmental aspects of the transportation, storage, treatment or
disposal
20
Agreement for Purchase and Sale of Assets
Page 20
of Hazardous Materials in connection with the operation of the
Business; or (C) circumstances forming the basis of any violation or
alleged violation of any Environmental Law; or (D) any and all claims
by any person or entity seeking damages, contribution, indemnification,
cost, recovery, compensation or injunctive relief resulting from the
presence or release of any Hazardous Materials.
12.25.1 Seller is, and at all times has been, in full
compliance with, and has not been and is not in violation of or liable
under, any Environmental Law. Seller has no basis to expect, nor has
any other person for whose conduct Seller is or may be held to be
responsible received, any actual or threatened order, notice, or other
communication from (i) any governmental body or private citizen acting
in the public interest, or (ii) the current or prior owner or operator
of any of Seller's properties or assets, of any actual or potential
violation or failure to comply with any Environmental Law, or of any
actual or threatened obligation to undertake or bear the cost of any
Environmental, Health, and Safety Liabilities with respect to any of
Seller's properties or assets (whether real, personal, or mixed) in
which Seller has had an interest, or with respect to any of Seller's
properties at or to which Hazardous Materials were generated,
manufactured, refined, transferred, imported, used, or processed by
Seller or any other person for whose conduct Seller is or may be held
responsible, or from which Hazardous Materials have been transported,
treated, stored, handled, transferred, disposed, recycled, or received.
12.25.2 There are no pending or, to the knowledge of
Seller threatened claims, encumbrances, or other restrictions of any
nature, resulting from any Environmental, Health and Safety Liabilities
or arising under or pursuant to any Environmental Law, with respect to
or affecting any of Seller's properties and assets (whether real,
personal, or mixed) in which Seller has or had an interest.
12.25.3 Seller has no basis to expect, nor has any
other person for whose conduct Seller is or may be held responsible,
received, any citation, directive, inquiry, notice, order, summons,
warning, or other communication that relates to hazardous activity,
Hazardous Materials, or any alleged, actual, or potential violation or
failure to comply with any Environmental Law, or of any alleged,
actual, or potential obligation to undertake or bear the cost of any
Environmental, Health, and Safety Liabilities with respect to any of
Seller's properties or assets (whether real, personal, or mixed) in
which Seller has an interest, or with respect to any property or
facility to which Hazardous Materials generated, manufactured, refined,
transferred, imported, used, or processed by Seller or any other person
for whose conduct Seller is or may be held responsible, have been
transported, treated, stored, handled, transferred, disposed, recycled,
or received.
12.25.4 Neither Seller nor any other person for
whose conduct Seller is or may be held responsible, has any
Environmental, Health, Safety Liabilities with
21
Agreement for Purchase and Sale of Assets
Page 21
respect to Seller's properties and assets (whether real, personal, or
mixed) in which Seller (or any predecessor), has or had an interest, or
at any property geologically or hydrologically adjoining the facilities
or any other property or assets of Seller.
12.25.5 There are no Hazardous Materials present on or in the
environment at Seller's properties or at any geologically or
hydrologically adjoining property, including any Hazardous Materials
contained in barrels, above or underground storage tanks, landfills,
temporary or permanent, and deposited or located in land, water, sumps,
or any other part of Seller's properties or such adjoining property, or
incorporated into any structure therein or thereon. Neither Seller nor
any other person for whose conduct Seller is or may be held
responsible, or any other person, has permitted or conducted, or is
aware of, any hazardous activity conducted with respect to Seller's
properties or assets (whether real, personal, or mixed) in which Seller
has or had an interest except in full compliance with all applicable
Environmental Laws.
12.25.6 There has been no Environmental Release or, to the
knowledge of Seller, any threat of such release, of any Hazardous
Materials at or from Seller's properties or at any other locations
where any Hazardous Materials are generated, manufactured, refined,
transferred, produced, imported, used, or processed from or by Seller's
properties or from or by any other properties and assets (whether real,
personal, or mixed) in which Seller has or had an interest, or any
geologically or hydrologically adjoining property, whether by Seller or
any other person.
12.25.7 Seller has delivered to Buyer true and complete copies
and results of any reports, studies, analyses, tests, or monitoring
possessed or initiated by Seller pertaining to Hazardous Materials or
hazardous activities in, on, or under Seller's properties or concerning
compliance by Seller or any other person for whose conduct Seller is or
may be held responsible, with Environmental Laws.
12.26 Employment Matters. For purposes of this Section: (i)
the term "Employee Benefit Plans" shall mean any pension plan, profit
sharing plan, bonus plan, incentive compensation plan, stock purchase
plan, stock option plan, stock appreciation plan, benefit plan, benefit
policy, retirement plan, fringe benefit program, insurance plan,
severance plan or any other plan or program to provide income or
benefits to active or former employees of Seller; (ii) "Employee
Liabilities" shall mean all liabilities arising under law relating to
severance payments due to employees of Seller, or any other liabilities
arising from the termination, change of status or any other
employee-related matter; and (iii) "ERISA" shall mean the Employee
Retirement Income Security Act of 1974, as amended, and the regulations
promulgated thereunder.
(a) Seller has delivered to Buyer a list of all
employees of the Business, their current rates of compensation and most
recent pay increase, date of hire, benefits, location of employment,
and other related information requested by Buyer.
22
Agreement for Purchase and Sale of Assets
Page 22
(b) Exhibit "D" hereto lists and describes all of
Seller's present or past Employee Benefit Plans. Each Employee Benefit
Plan is and at all times has been in full compliance with all
applicable Laws (including ERISA). Seller is not contributing to, and
has not contributed to any multi-employer plan, as defined in ERISA.
Any past Employee Benefit Plan that has been terminated was done so in
full compliance with all applicable laws, and there is no basis for
further liability or obligation of Seller pursuant to any and all past
Employee Benefit Plans.
(c) Seller has no Employee Benefit Plan or other
agreements (including collective bargaining agreements), arrangements,
or plans which would bind or in any way affect Buyer after the Closing
date, regardless of whether Buyer employs any such employees.
(d) Seller is in material compliance with all
federal, foreign, state, or other applicable laws respecting employment
and employment practices, terms and conditions of employment, wages and
hours, and has not and is not engaged in any unfair labor practice that
would in any way affect Buyer after the Closing.
(e) No present or former employee of the Business has
any claim against Seller (whether under federal, foreign or state law,
under any employee agreement or otherwise), that would in any way
affect Buyer after the Closing, on account of or for: (i) overtime pay,
other than overtime pay for the current payroll period; (ii) wages or
salaries, other than wages or salaries for the current payroll period;
or (iii) vacations, time off or pay in lieu of vacation or time off,
other than vacation or time off (or pay in lieu thereof) earned in the
past twelve-month period.
(f) Seller has disclosed to Buyer Seller's
unemployment compensation contribution and solvency rates. Seller has
made all required payments to its unemployment compensation reserve
account with the appropriate governmental department(s) under
applicable law, such accounts have positive balances and, to the
knowledge of Seller, there are no current or former employees:
(i) receiving unemployment compensation benefits which are being
charged against such account, (ii) that are eligible for such benefits,
or (iii) that are claiming such benefits.
12.27 Labor Relations: Compliance. Seller has not been nor is
a party to any collective bargaining or other labor contract. There
has not been, there is not presently pending or existing, and there is
not threatened: (i) any strike, slowdown, picketing, work stoppage, or
employee grievance process, (ii) any proceeding against or affecting
Seller relating to the alleged violation of any legal requirement
pertaining to labor relations or employment matters, including any
charge or complaint filed by an employee or union with the National
Labor Relations Board, the Equal Employment Opportunity Commission, or
any comparable Governmental Body, organizational activity, or other
labor or employment dispute against or affecting Seller or its
premises, or (iii) any
23
Agreement for Purchase and Sale of Assets
Page 23
application for certification of a collective bargaining agent. No
event has occurred or circumstance exists that could provide the basis
for any work stoppage or other labor dispute. There is no lockout of
any employees by Seller, and no such action is contemplated by Seller.
Seller has complied in all respects with all legal requirements
relating to employment, equal employment opportunity,
nondiscrimination, immigration, wages, hours, benefits, collective
bargaining, the payment of social security and similar taxes,
occupational safety and health, and plant closing. Seller is not liable
for the payment of any compensation, damages, taxes, fines, penalties,
or other amounts, however designated, for failure to comply with any of
the foregoing legal requirements.
12.28 Consents and Approvals. No consent, approval or
authorization of, or declaration, filing or registration with, any
governmental person, whether federal, state or local, is required of
Seller in connection with the execution or delivery by Seller of this
Agreement or the consummation by Seller of any of the transactions
contemplated hereby or thereby.
12.29 Customers and Suppliers Seller has provided Buyer with a
list of the ten (10) largest customers of Seller in terms of dollar
volume of sales for the three (3) preceding fiscal years and for the
current fiscal year, showing the approximate total dollar amount of
sales to each such customer during each such fiscal year. Seller has
provided Buyer with a list of the ten (10) largest suppliers to Seller
in terms of dollar volume of purchases for the three (3) preceding
fiscal years and for the current fiscal year showing the approximate
total dollar amount of purchases from each supplier during each such
fiscal year. Since January 1, 1994, Seller has not received any notice
from and has not otherwise been informed or made aware that any of such
ten (10) largest suppliers or customers will be terminating or
curtailing its business with Seller in a manner that would have a
material adverse effect on Seller. To Seller's knowledge, to date of
this Agreement, there has been no material adverse change in the
business relationship of Seller with its customers taken as a whole and
with its suppliers taken as a whole.
12.30 Investment Intent. The provisions of this Section are
subject to the provisions in Section 2.1 above. The Futech Stock to be
acquired by Seller is being acquired by Seller for its own account and
not with the view to, or for the resale in connection with, any
distribution or public offering thereof within the meaning of the
Securities Act of 1933, as amended (the "1933 Act"). Seller understands
that the Futech Stock has not been registered under the 1933 Act by
reason of its issuance in transactions exempt from the registration and
prospectus delivery requirements of the 1933 Act pursuant to Section
4(2) thereof and agrees to deliver to the Buyer, if requested by the
Buyer, an investment letter in customary form. Seller understands that
the Futech Stock may not be sold, transferred or otherwise disposed of
without registration under the 1933 Act or an exemption therefrom, and
that in the absence of an effective registration statement covering the
Futech Stock, or an available exemption from registration under
24
Agreement for Purchase and Sale of Assets
Page 24
the 1933 Act, the Futech Stock must be held indefinitely. Seller
further understands that the certificates representing the Futech Stock
may bear a legend substantially in the following form and agrees that
it will hold such Futech Stock subject thereto:
THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR
UNDER ANY STATE SECURITIES LAWS. NEITHER THIS SECURITY NOR ANY
PORTION HEREOF OR INTEREST HEREIN MAY BE SOLD, ASSIGNED,
TRANSFERRED, PLEDGED OR OTHERWISE DISPOSED OF UNLESS THE SAME
IS REGISTERED UNDER SAID ACT AND APPLICABLE STATE SECURITIES
LAWS OR UNLESS AN EXEMPTION FROM SUCH REGISTRATION IS
AVAILABLE AND THE COMPANY SHALL HAVE RECEIVED, AT THE EXPENSE
OF THE HOLDER HEREOF, EVIDENCE OF SUCH EXEMPTION REASONABLY
SATISFACTORY TO THE COMPANY (WHICH MAY INCLUDE, AMONG OTHER
THINGS, AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY).
12.31 Knowledge; Resources. Seller has such knowledge and
experience in financial and business matters that Seller is capable of
evaluating independently the risks and merits of acquiring Futech
Stock. Seller has independently evaluated the risks and merits of
acquiring Futech Stock and has independently determined that Futech
Stock is a suitable investment for Seller. Seller has sufficient
financial resources to bear the loss of its entire investment in Futech
Stock.
12.32 Ability to Ask Questions. Seller represents that it has
had an opportunity to ask questions and receive answers from Buyer
regarding the business, properties, prospects and financial condition
of Buyer and to obtain additional information (to the extent Buyer
possesses such information or could acquire it without unreasonable
effort or expense) necessary to verify the accuracy of any information
furnished to Seller or to which Seller had access.
12.33 Due Incorporation. Seller is a corporation duly
organized, validly existing and in good standing under the laws of the
State of Wisconsin, and is duly licensed or qualified to do business
and is in good standing in each State where the property owned or held
under lease is such as to require Seller to be so licensed or
qualified, except those states where the failure to be so licensed or
qualified would not have a material adverse effect on the financial
condition or operations of Seller or the Business. Seller has the
corporate power and authority to own and operate its properties and
carry on the Business as now conducted.
True, correct and complete copies of the corporate formation
documents for
25
Agreement for Purchase and Sale of Assets
Page 25
Seller, and all operating minutes, resolutions and consents, have been
or will be delivered to Buyer within twenty (20) days from the date of
the execution of this Agreement. The minute book(s) of Seller correctly
records all resolutions of the directors and shareholders of Seller,
and Seller's stock records correctly reflect the ownership of stock of
Seller.
12.34 Subsidiaries. Seller has no subsidiaries or equity
interests of stock ownership or otherwise in any firm, corporation,
association or business enterprise.
12.35 Compliance with Laws. Seller is not aware of any
investigation with respect to any violation of any provision of any
federal, state or local law, regulation, ordinance, order or
administrative ruling, relating to Seller or the Business.
12.36 Intellectual Property.
(a) Seller has provided Buyer with a true, correct
and complete list of: (i) all patents held by Seller, and all
re-examinations, re-issues, divisions, continuations, continuations in
part and extensions thereof and all pending patent applications by
Seller, including for each such patent the serial or patent number,
country, filing and expiration date and title, (ii) all registered
trademarks of Seller and pending trademark registrations by Seller,
including, for each such trademark, the registration number, country,
filing and expiration date, xxxx and class, (iii) all registered
copyrights of Seller, and copyright applications by Seller, including
the registration number, country and filing and expiration date of each
such copyright, and (iv) all service marks, trade names and brand names
of Seller, used in the Business (whether or not registered) (all of the
foregoing collectively referred to as the "Intellectual Property"). All
such patents, trademarks and copyrights are properly registered, any
applications therefor have been properly made, and all annuity,
maintenance, renewal and other fees in connection with any of the
foregoing are current.
(b) Seller has provided Buyer with a list of all
material licenses, contracts, commitments (including, without
limitation, confidentiality agreements) to which Seller is a party or
otherwise subject relating to the Intellectual Property, including,
without limitation, computer software (except for standard licensing
agreements or provisions from the seller or licensor of such software).
During the preceding three (3) fiscal years and the current fiscal year
to date, no claim or allegation of infringement has been made by or
against Seller, whether relating to any item of Intellectual Property
or otherwise, no claim or allegation of misappropriation or misuse of
any item of Intellectual Property has been made by or against Seller,
and no claim or allegation has been asserted against Seller with
respect to the ownership or use of any of the Intellectual Property by
Seller, or challenging or questioning the validity or effectiveness of
any such license, contract or commitment, and there does not exist to
the knowledge of Seller any valid basis for any such claim or
allegation.
26
Agreement for Purchase and Sale of Assets
Page 26
(c) Seller has good and valid title to, or otherwise
possesses rights to use, the Intellectual Property.
12.37 Relationships with Related Persons. Neither Seller nor
any person affiliated with Seller has, or since January 1, 1994, has
had, any interest in any property (whether real, personal, or mixed and
whether tangible or intangible), used in or pertaining to Buyer's
businesses. Other than inventory purchases made in the ordinary course
of business, neither Seller nor any person affiliated with Seller is,
or since January 1, 1994, has owned (of record or as a beneficial
owner) an equity interest or any other financial or profit interest in,
a person that has: (i) had business dealings or a material financial
interest in any transaction with the Buyer, or (ii) engaged in
competition with the Buyer with respect to any line of the products or
services of the Buyer (a "Competing Business") in any market presently
served by the Buyer, 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.
Neither Seller nor any person affiliated with Seller is a party to any
contract with, or has any claim or right against, Buyer.
The representations and warranties in this Section, and elsewhere in
this Agreement, and all indemnification provisions in this Agreement, shall
survive the Closing of the Transaction.
13. BULK SALE PROVISIONS. At Buyer's option, the parties will comply
with any and all bulk sale laws applicable to the Transaction. If Buyer elects
to close the Transaction without complying with applicable bulk sales laws, then
Seller and Xxxx Xxx ("Xxx") Xxxxxxxx shall indemnify and defend and hold Buyer
harmless from any and all liabilities of Seller to which Buyer, the Assets, or
the Business are subject but would not have been subject with such compliance.
14. EXPENSES. Each party shall bear its own expenses in completing the
Transaction. "Expenses" shall mean any expense of any nature incurred in
connection with the Transaction, including without limitation attorneys' fees,
accounting fees, filing fees and other costs.
15. GOVERNING LAW; JURISDICTION. This Agreement shall be governed by,
construed and enforced in accordance with the laws of the State of Arizona,
without giving effect to the conflicts of laws rules thereof. The courts of the
State of Arizona shall have the sole and exclusive jurisdiction and venue in any
case or controversy arising under this Agreement or by reason of this Agreement.
The parties agree that any litigation or arbitration arising from the
interpretation or enforcement of this Agreement shal1 be only in either
Maricopa County Superior Court or in the United States Federal District Court
for the District of Arizona, and for this purpose each party to this Agreement
(and each person who shall become a party) hereby expressly and irrevocably
consents to the jurisdiction and venue of such courts.
16. SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon and
inure to the
27
Agreement for Purchase and Sale of Assets
Page 27
benefit of the parties hereto and their respective heirs, personal
representatives, successors and assigns. Seller may not assign any rights of
Seller under this Agreement without the prior written consent of Buyer.
17. ENTIRE AGREEMENT. Except as otherwise set forth herein, this
Agreement constitutes the entire agreement between the parties which respect to
the subject matter hereof, and supersedes all prior understandings, if any, with
respect thereto.
18. FURTHER ASSURANCES. The parties agree to do such further acts and
things and to execute and deliver such additional agreements and instruments as
any party may reasonably require to consummate, evidence, or confirm any
agreement contained herein in the manner contemplated hereby.
19. MODIFICATION. Any modification or waiver of any term of this
Agreement, including a modification or waiver of this term, must be in writing
and signed by the parties to be bound by the modification or waiver.
20. SEVERABILITY. In the event any portion of this Agreement shall be
declared by any court of competent jurisdiction to be invalid, illegal, or
unenforceable, such portion shall be deemed severed from this Agreement, and the
remaining parts hereof shall remain in full force and effect as fully as though
such invalid, illegal or unenforceable portion had never been a part of this
Agreement.
21. COUNTERPARTS, FACSIMILE SIGNATURES. This Agreement may be executed
by the parties in one or more counterparts, and any number of counterparts
signed in the aggregate by the parties shall constitute a single instrument. The
parties authorize and agree to accept facsimile signatures in counterparts to
this Agreement, and that said facsimile signatures shall for all purposes be
binding upon the parties as if the same were original signatures.
22. ATTORNEY'S FEES. Should any party institute any action or
proceeding to enforce this Agreement or any provision hereof, or for damages by
reason of any alleged breach of this Agreement, or of any provision hereof, or
for a declaration of rights hereunder, the prevailing party(s) of such action or
proceeding shall be entitled to receive from the other involved party or parties
all costs and expenses, including reasonable attorneys' fees and expert witness
fees incurred by the prevailing party(s) in connection with such action or
proceeding.
23. NOTICES. Any notice or communication given under the terms of this
Agreement ("Notice") shall be in writing and shall be delivered in person or
mailed by certified mail, return receipt requested, in the United States Mail,
postage pre-paid, addressed as follows:
If to Seller: Xxxx Xxx ("Xxx") Xxxxxxxx
X00X00000 Xxxxxxxxxx Xxxxx
Xxxxxxxx, Xxxxxxxxx 00000
28
Agreement for Purchase and Sale of Assets
Page 28
If to Xxxxxxxx: Xxxx Xxx ("Xxx") Xxxxxxxx
X00X00000 Xxxxxxxxxx Xxxxx
Xxxxxxxx, Xxxxxxxxx 00000
If to Buyer: Futech Educational Products, Inc.
Attention: Xxxxxxx X. Xxxxx
0000 Xxxxx 00xx Xxxxxx, Xxxxx 000
Xxxxxxx, Xxxxxxx 00000-0000
or at such other address as a person may from time to time designate by Notice
hereunder. Notice shall be effective upon delivery in person, or if mailed, at
midnight on the third business day after the date of mailing.
24. PARAGRAPH TITLES AND HEADINGS. The titles and headings of sections
of this Agreement are for the convenience of reference only, and are not
intended to define, limit, or describe the scope or intent of any provision of
this Agreement, and shall not affect the construction of any provision of this
Agreement.
25. PUBLIC ANNOUNCEMENTS. Any public announcement or similar publicity
with respect to this Agreement or the transactions contemplated hereby will be
issued, if at all, at such time and in such manner as Buyer determines. Unless
consented to by Buyer in advance or required by legal requirements, prior to the
Closing, Seller shall keep this Agreement strictly confidential and may not make
any disclosure of this Agreement to any person. Seller and Buyer will consult
with each other concerning the means by which Seller's employees, customers, and
suppliers and others having dealings with Seller will be informed of this
Agreement and the transactions contemplated hereby, and Buyer will have the
right to be present for any such communication.
26. NO NEGOTIATION. Between the date of this Agreement and the Closing,
or until such time, if any, as this Agreement is terminated pursuant to the
terms of this Agreement, Buyer and Seller will not, directly or indirectly,
solicit, initiate, or encourage any inquiries or proposals from, discuss or
negotiate with, provide any non-public information to, or consider the merits of
any unsolicited inquiries or proposals from, any person (other than Buyer)
relating to any transaction involving the sale of the business or assets (other
than in the ordinary course of business) of Seller, or any of the capital stock
of Seller, or any merger, consolidation, business combination, or similar
transaction involving Seller.
27. CONFIDENTIALITY. Between the date of this Agreement and the
Closing, Buyer and Seller will maintain in confidence, and will cause the
directors, officers, employees, agents, and advisors of Buyer or Seller to
maintain in confidence, and not use to the detriment of the other party, any
written, oral, or other information obtained in confidence from the other party
in connection with this Agreement or the transactions contemplated hereby,
unless: (i) such
29
Agreement for Purchase and Sale of Assets
Page 29
information is already known to such other party or to others not bound by a
duty of confidentiality, or such information becomes publicly available through
no fault of such party, (ii) the use of such information is necessary or
appropriate in making any filing or obtaining any consent or approval required
for the consummation of the transactions contemplated by this Agreement, or
(iii) the furnishing or use of such information is required by or necessary or
appropriate in connection with legal proceedings.
If the transactions contemplated by this Agreement are not consummated,
each party will return or destroy as much of such written information as the
other party may reasonable request. Whether or not the Closing takes place,
Seller waives any cause of action, right, or claim arising out of the access of
Buyer or its representatives to any trade secrets or other confidential
information of Seller, except for the intentional competitive misuse by Buyer of
such trade secrets or confidential information.
28. MISCELLANEOUS. The parties agree that each party and its counsel
have reviewed and revised this Agreement, or had an opportunity to review and
revise this Agreement, and that any rule of construction to the effect that
ambiguities are to be resolved against the drafting party shall not apply to the
interpretation of this Agreement or any amendments or exhibits hereto. In the
event of default by Seller hereunder, Buyer shall, in addition to its other
remedies under this Agreement and in law or equity, be entitled to specific
performance of Seller's obligations under this Agreement. The parties do not
intend to confer any benefit upon any person, firm, or corporation other than
the parties hereto. No representation or warranty herein may be relied upon by
any person not a party to this Agreement.
SELLER: XYZ Group Inc.,
a Wisconsin corporation
By /s/ Xxxx Xxx Xxxxxxxx
---------------------------------------
Xxxx Xxx ("Xxx") Xxxxxxxx, President
BUYER: Futech Educational Products, Inc.,
an Arizona corporation
By
----------------------------------------
Xxxxxxx X. Xxxxx, President
ACCEPTED AND AGREED TO as to
Sections 6, 7.8, 9 and 12 above,
and the timely performance of
the obligations of Seller are
hereby guarantied, as of the
date first hereinabove written,
by:
30
Agreement for Purchase and Sale of Assets
Page 29
information is already known to such other party or to others not bound by a
duty of confidentiality, or such information becomes publicly available through
no fault of such party, (ii) the use of such information is necessary or
appropriate in making any filing or obtaining any consent or approval required
for the consummation of the transactions contemplated by this Agreement, or
(iii) the furnishing or use of such information is required by or necessary or
appropriate in connection with legal proceedings.
If the transactions contemplated by this Agreement are not consummated,
each party will return or destroy as much of such written information as the
other party may reasonable request. Whether or not the Closing takes place,
Seller waives any cause of action, right, or claim arising out of the access of
Buyer or its representatives to any trade secrets or other confidential
information of Seller, except for the intentional competitive misuse by Buyer of
such trade secrets or confidential information.
28. MISCELLANEOUS. The parties agree that each party and its counsel
have reviewed and revised this Agreement, or had an opportunity to review and
revise this Agreement, and that any rule of construction to the effect that
ambiguities are to be resolved against the drafting party shall not apply to the
interpretation of this Agreement or any amendments or exhibits hereto. In the
event of default by Seller hereunder, Buyer shall, in addition to its other
remedies under this Agreement and in law or equity, be entitled to specific
performance of Seller's obligations under this Agreement. The parties do not
intend to confer any benefit upon any person, firm, or corporation other than
the parties hereto. No representation or warranty herein may be relied upon by
any person not a party to this Agreement.
SELLER: XYZ Group Inc.,
a Wisconsin corporation
By
---------------------------------------
Xxxx Xxx ("Xxx") Xxxxxxxx, President
BUYER: Futech Educational Products, Inc.,
an Arizona corporation
By /s/ Xxxxxxx X. Xxxxx
----------------------------------------
Xxxxxxx X. Xxxxx, President
ACCEPTED AND AGREED TO as to
Sections 6, 7.8, 9 and 12 above,
and the timely performance of
the obligations of Seller are
hereby guarantied, as of the
date first hereinabove written,
by:
31
Agreement for Purchase and Sale of Assets
Page 30
/s/ Xxxx Xxx Xxxxxxxx
----------------------------------
Xxxx Xxx ("Xxx") Xxxxxxxx
/s/ Xxxxxxx X. Xxxxxxxx
----------------------------------
Xxxxxxx X. Xxxxxxxx
List of Exhibits:
Employment Agreement "A"
Confidentiality Agreement "B"
Assumed Employee Benefits Obligations "C"
Seller's Employee Benefit Plans "D"
July 31, 1997 Balance Sheet "E"
Registration Rights Agreement "F"
32
EXHIBIT "A"
(EMPLOYMENT AGREEMENT FOR XXX XXXXXXXX)
33
EXHIBIT "A"
FUTECH EDUCATIONAL PRODUCTS, INC.
EMPLOYMENT CONTRACT
DATED AS OF ________________________ , 199_____
The following sets forth the agreement by and between Xxxx Xxx ("Xxx") Xxxxxxxx
("Employee") and Futech Educational Products, Inc., an Arizona corporation
("Futech"), as to the employment of the Employee by Futech.
1. POSITIONS AND DUTIES. Futech shall employ Employee and Employee shall accept
employment from Futech, during the term of this Agreement, upon the terms and
subject to the conditions set forth below. Employee's duties as President shall
be subject to the direction and control of Futech's Chairman and Chief Executive
Officer, Xxxxxxx X. Xxxxx, or his designee.
2. ACTIVITIES RELATING TO THE CORPORATION'S BUSINESS. At all times during the
term of this Agreement, Employee shall devote his full energies, interest,
abilities and productive time to the performance of this duties and
responsibilities hereunder. During the term of this Agreement, and for a period
of two (2) years thereafter, Employee shall not, without the prior written
consent of Futech, which consent may be withheld for any or no reason, directly
or indirectly, own, manage, operate, control, be employed by, participate in,
render services to, make loans to, or be connected in any manner with the
ownership, management, operation, or control of any business operation located
in the United States, Canada, or Europe, or any other country in which Futech,
or any of its subsidiaries, does business or intends to do business, which
business operation conducts business activities the same or substantially
similar to any type of business ever conducted by Futech, or any of its
subsidiaries, or proposed to be carried on by Futech or its subsidiaries.
In the event of any actual or threatened breach of the provisions of
this Section, Futech shall be entitled to an injunction restraining the actual
or threatened breach. The parties further agree that should Employee violate the
provisions of this Section, Employee shall be liable to Futech for, in addition
to any amounts pursuant to other remedies available against Employee, two (2)
times the greater of the amount of profit earned by Employee as a result of the
violation and the amount of profit which would have been earned by Futech from
the activities causing the violation had Futech conducted said activities, plus
interest on said greater amount from the date of the violating activities until
paid, as liquidated damages for only Futech's loss of potential profits. Said
interest shall be calculated at the lesser of: (i) eighteen percent (18%) per
annum, and (ii) the highest rate of interest permitted by applicable law.
Nothing in this Section shall be construed as prohibiting Futech from pursuing
any other available remedies for such breach or threatened breach, including
pursuing a recovery for damages. The parties agree that the liquidated
provisions set out above do not constitute a penalty, but rather reflect the
estimate of the parties as to the actual damages, including loss of profits,
Futech might or is likely to incur in the event of a violation of the
restrictions appearing herein.
Employee shall not, during the term of this Agreement and for a period
of two (2) years
EXHIBIT "A", PAGE 1 OF 6
34
thereafter, without the prior written consent of Futech, which consent may be
withheld for any reason, directly or indirectly induce, encourage or solicit or
assist any person who was or is employed (whether as employee or as independent
contractor) by Futech, during the time period described above in this sentence,
to leave Futech's employ. If Employee has any control over, or responsibility
with respect to, the hiring of employees, agents or consultants at any facility
or with any other employer, Employee shall do everything in Employee's power to
preclude the hiring of or retention by such other employer or facility of any
individual who was employed by Futech during the period of time described in the
beginning of the proceeding sentence.
Employee acknowledges and agrees that the restrictions contained in
this Agreement, including but not limited to time period and geographical area
restrictions, are fair and reasonable and necessary for the successful operation
of Futech, that violation of any of them would cause irreparable injury, and
that the restrictions contained herein are not unreasonably restrictive of
Employee's ability to earn a living. If the scope of any restriction in this
Section is too broad to permit enforcement of such restriction to its fullest
extent, then such restriction shall be enforced to the maximum extent permitted
by law, and the parties hereto consent and agree that such scope may be modified
judicially or by arbitration in any proceeding brought to enforce such
restriction. Employee acknowledges and agrees that remedies at law for any
breach or violation of the provisions of this Section would alone be inadequate,
and agrees and consents that temporary and permanent injunctive relief may be
granted in connection with such violations, without the necessity of proof of
actual damage, and such remedies shall be in addition to other remedies and
rights Futech may have at law or in equity. Employee agrees that Futech shall
not be required to give notice or post any bond in connection with applying for
or obtaining any such injunctive relief.
The parties acknowledge and agree that the covenants in this Section
shall be construed as an agreement independent of any other provision of this
Agreement so that the existence of any claim or cause of action by Employee
against Futech, whether predicated on this Section or otherwise, shall not
constitute a defense to the enforcement of this Section.
This Agreement was specifically bargained for as a material portion of
a transaction wherein XYZ Group Inc. agreed to sell its assets to Futech
Educational Products, Inc. The consideration for this Agreement includes,
without limitation, the financial benefits received by Employee from said sale
transaction.
3. CONFIDENTIALITY AGREEMENTS. The obligations of the Employee and the rights of
Futech set forth herein are in addition to those set forth in a certain
Confidentiality Agreement executed by the Employee (the "Confidentiality
Agreement").
4. REPRESENTATIONS AND WARRANTIES. Employee represents and warrants to and
covenants with Futech that: (a) he has furnished to Futech a true and correct
copy of any agreements with any prior employer in the securities industry and is
subject to no contractual or other restriction or obligation which is
inconsistent with the execution of this Agreement, the performance of his duties
hereunder, or any rights of Futech hereunder or under the Confidentiality
Agreement, (b) upon information and belief, there are no regulatory,
self-regulatory, administrative, civil or criminal matters past or present,
2 EXHIBIT "A", PAGE 2 OF 6
35
affecting the employment of Employee by Futech.
5. SALARY. Employee will receive an annual salary of $250,000 (the "Base
Salary") for each year during the term of this Agreement. Such salary shall be
payable in equal periodic installments in accordance with Futech's usual
practice, but not less frequently than twice monthly, and shall be subject to
payroll and withholding deductions as may be required by law.
Employee's salary as set forth in the preceding paragraph shall
increase as follows if the performance criteria set forth below are satisfied:
(a) On January 1, 1999, if and only if the "Net Sales"
(defined below) of "Futech Entities" (defined below) for the calendar
year 1998 are at least 120% of Net Sales of Futech Entities for the
calendar year 1997, then Employee's Base Salary shall increase by 10%
over what it was at the end of the prior calendar year;
(b) On January 1, 2000, if and only if the "Net Sales"
(defined below) of "Futech Entities" (defined below) for the calendar
year 1999 are at least 120% of Net Sales of Futech Entities for the
calendar year 1998, then Employee's Base Salary shall increase by 10%
over what it was at the end of the prior calendar year.
The term "Net Sales" shall mean gross product sales, minus
returns and allowances. As used in this Agreement, the term "Futech
Entities" means Futech (defined at the beginning of this Agreement),
and any successor thereto, together with all subsidiaries thereof.
Employee may be eligible for additional discretionary
incentive compensation in the discretion of an executive committee of
the board of directors of Futech.
6. BENEFITS. During the term of his employment, Employee shall be eligible to
participate in, subject to their respective terms, all Futech employee (i) group
medical, hospitalization and life insurance plans, (ii) pension and profit
sharing plans, and (iii) other benefit plans or programs. Futech shall pay or
reimburse Employee for all out-of-pocket expenses for travel, meals, hotel
accommodations and the like reasonably incurred by him in accordance with
Futech's policies and directives (including any required prior approvals) for
such expenses in connection with the performance of Futech's business, each such
payment for reimbursement to be made upon submission of a statement and evidence
documenting such expenses as required by Futech. During the term of this
Agreement, Employee shall be entitled to an annual paid vacation of such period
as may be established from time to time by Futech's Board of Directors.
7. TERM. The term of this Agreement shall commence on , 199 and shall
continue in effect until December 31, 2000, or until such time as terminated as
provided in paragraphs 8, 9, 10 and/or 11. Upon termination of this Agreement
pursuant to paragraphs 8 or 9, Futech's sole obligation to Employee shall be to
pay all salary and stock options, if any, accrued by him up to the date of such
termination. Upon termination of this Agreement, Employee's obligations under
the Confidentiality Agreement shall survive.
3 EXHIBIT "A", PAGE 3 OF 6
36
8. TERMINATION UPON DEATH. In the event of the death of Employee, the employment
of, and this Agreement with respect to, such deceased Employee shall be
terminated; provided always that Futech shall pay any accrued salary and any
accrued stock options, if any, as of the date of termination to the legal
representative of Employee's estate.
9. TERMINATION FOR DISABILITY. Futech may terminate the employment of, and this
Agreement with respect to, Employee if Employee becomes disabled, including
disability by reason of any emotional or mental disorders, physical diseases or
injuries, and as a result of such disability is unable to work on a full-time
basis for a continuous period of two months or more or any two months in a
twenty four month period. Upon such termination, Futech shall have no further
liability to Employee hereunder, except to pay any accrued salary and accrued
stock options, if any, as of the termination date. Upon such termination,
Employee's obligation to Futech under the Confidentiality Agreement shall
survive.
10. TERMINATION FOR CAUSE. Futech may terminate the employment of, and this
Agreement with respect to, Employee if: (a) Employee breaches his fiduciary
duties to Futech or is guilty of fraud or willful malfeasance, (b) Employee
materially breaches any representation, warranty, covenant or agreement
contained in this Agreement or fails to perform any of the obligations under
this Agreement or duties assigned to him pursuant to this Agreement or otherwise
by Futech, (c) Employee materially misrepresents any statement to Futech, (d)
Employee is convicted of a crime involving moral turpitude or a felony, (e)
Employee knowingly commits a material violation of any law, rule, regulation or
by-law of a securities exchange or association or other regulatory or
self-regulatory body or agency applicable to any general policy or directive of
Futech communicated in writing to Employee, (f) Employee fails to follow
reasonable instructions and/or policies of Futech's Chairman of the Board and
Chief Executive Officer, or (g) Employee terminates this Agreement at any time.
Upon termination of this Agreement pursuant to this paragraph 10,
Futech's sole obligation to Employee shall be to pay all accrued salary.
However, this shall not affect Employee's vested benefits under paragraph 6
above.
Upon such termination, Employee's obligation to Futech under the
Confidentiality Agreement shall survive.
11. TERMINATION OTHER THAN FOR CAUSE. Futech retains the right to terminate this
Agreement and/or Employee's employment for cause as set forth in paragraph 10,
and notwithstanding anything to the contrary in this Agreement, Futech shall
have the right to terminate this Agreement and/or Employee's employment
hereunder at any time for any reason other than for cause. In such event, Futech
shall remain obligated to pay Employee salary through December 31, 2000, at the
level of the Base Salary at the time of termination, as the salary accrues
between the termination date and December 31, 2000 (i.e., it is not payable in
one lump sum at the date of termination). The Base Salary so payable does not
include the 10% increases under subparagraphs 5(a) or 5(b) above. Employee's
obligation to Futech under the Confidentiality Agreement shall survive.
Employee shall provide Futech at least sixty (60) days notice of
Employee's termination of his employment with Futech.
4 EXHIBIT "A", PAGE 4 OF 6
37
12. REVIEW. On August 1, 1998 and on each of the subsequent six month periods
thereafter during the term of employment, Xxxxxxx X. Xxxxx shall provide
Employee with an informal verbal review of Employee's performance. Prior to
expiration of this Agreement, Xxxxxxx X. Xxxxx and Employee shall discuss the
potential for Employee's continued employment subsequent to the termination of
this Agreement. Futech makes no promises and has no obligation to so continue
Employee's employment.
13. SUCCESSORS AND ASSIGNS. The rights and obligations of Futech hereunder shall
inure to the benefit of and shall be binding upon the successors and assigns of
Futech; provided, however, that Futech's obligations or liabilities hereunder
may not be assigned without the prior written approval of Employee, except to an
affiliate of Futech (which assignment shall not release Futech from its
obligations to Employee hereunder) or to a successor to all or substantially all
of Futech's assets, business or stock that agrees to be bound hereby. This
Agreement is personal to the Employee and may not be assigned by Employee.
14. AMENDMENT OR WAIVER. This Agreement may not be amended or modified except by
an agreement in writing duly executed by the Chairman and Chief Executive
Officer of Futech and Employee. The failure of Futech, on the one hand, or
Employee, on the other hand, at any time to enforce performance by the other of
any provision of this Agreement shall in no way affect Futech's or the
Employee's, as the case may be, rights thereafter to enforce the same, nor shall
the waiver by Futech, on the one hand, or Employee, on the other hand, of any
breach of any provision hereof be deeded to be a waiver by Futech or Employee,
as the case may be, of any other breach of the same or any other provision
hereof.
15. ARBITRATION. Except as set forth in the Confidentiality Agreement, any
controversy or claim arising out of or relating to this Agreement, or the breach
hereof, shall be settled in Arizona by arbitration in accordance with the rules
of the American Arbitration Association. Judgment upon the award of the
arbitrator(s) may be entered in any court having jurisdiction thereof.
16. MISCELLANEOUS. The invalidity or unenforceability of any provision of this
Agreement shall not affect the validity or enforceability of any other provision
hereof. This Agreement shall be constructed, interpreted and enforced in
accordance with the laws of the State of Arizona. The parties agree that the
State of Arizona shall have sole and exclusive jurisdiction and venue over the
parties and any disputes arising under or otherwise relating to this Agreement.
This, Agreement contains all of the terms and conditions agreed to by the
parties hereto with respect to the subject matter hereof and supersedes all
prior agreements, understandings, negotiations and discussions, whether oral or
written, of the parties, except those set forth in the Confidentiality
Agreement.
DATED the date first hereinabove written.
-----------------------------------
Xxxx Xxx ("Xxx") Xxxxxxxx
5 EXHIBIT "A", PAGE 5 OF 6
38
Futech Educational Products, Inc.,
an Arizona corporation
By:
--------------------------------
Xxxxxxx X. Xxxxx, Chairman and
Chief Executive Officer
6 EXHIBIT "A", PAGE 6 OF 6
39
EXHIBIT "B"
(CONFIDENTIALITY AGREEMENT FOR XXX XXXXXXXX)
40
EXHIBIT "B"
CONFIDENTIALITY AGREEMENT
This Agreement is made as of __________, 199_, by and between Futech
Educational Products, Inc., a __________ corporation ("Futech") and the
undersigned ("Recipient").
Futech has developed or otherwise obtained certain confidential
information and proprietary technology relating to, among other things,
electronic books. Recipient wishes to negotiate with respect to, and possibly
enter into, a business relationship with Futech. However, in order to do so, it
is necessary that Recipient be made aware of confidential information and
propriety technology belonging to Futech. Futech does not wish to lose the
confidentiality or diminish its rights in the confidential information and
technology, and requires assurances that its rights therein will not be
diminished or impaired by virtue of the dealings with Recipient. In
consideration of being made aware of the confidential information and
proprietary technology, RECIPIENT THEREFORE AGREES AS FOLLOWS:
1. "Technology" means concepts, inventions, technological developments
and improvements, mask works, methods, techniques, systems, documentation, data
and information (irrespective of whether in human or machine-readable form),
works of authorship, and products, whether or not patentable, copyrightable, or
susceptible to any other form of protection and whether or not reduced to
practice.
2. "Confidential Information" means any and all Technology and/or
information which: (i) is provided to Recipient by Futech, (ii) is created,
developed, or otherwise generated by or on behalf of Futech, (iii) concerns or
relates to any aspect of Futech's business, or (iv) is, for any reason,
identified by Futech as confidential: except such information which Recipient
can show, clearly and convincingly: (a) is publicly and openly known and in the
public domain, (b) becomes publicly and openly known and in the public domain
through no fault of Recipient, or (c) is in Recipient's possession and
documented prior to this agreement, lawfully obtained by Recipient from a source
other than from Futech, and not subject to any obligation of confidentiality or
restrictions on use.
3. All Confidential Information and all Technology embodying or
comprising Confidential Information is and shall be the sole and exclusive
property of Futech. Any Technology embodying or derived from the Confidential
Information, or conceived or first made in connection with the business
relationship shall likewise be the sole and exclusive property of Futech.
Recipient shall not take or cause any action which would be inconsistent with or
tend to diminish or impair Futech's rights in the Confidential Information.
Recipient shall not, directly or indirectly, print, copy or otherwise reproduce,
in whole or in part, or embody in any product, any Confidential Information
without Futech's prior consent.
4. Confidential Information is revealed to Recipient in strict
confidence, and solely for the purpose of assessing (and perhaps forming under)
the business relationship. Recipient shall not use, or induce others to use, any
Confidential Information for any other purpose whatsoever, nor shall it disclose
or reveal any Confidential Information to anyone except those of Recipient's
employees directly involved in the business relationship, with a specific need
to
EXHIBIT "B", PAGE 1 OF 2
41
know, and who have first agreed to be bound by the terms of this agreement.
Recipient acknowledges that in view of the nature of the Confidential
Information, the geographical scope (universal), temporal scope (so long as
information qualifies as Confidential Information hereunder), and scope of
restriction on use and disclosure are reasonable. Recipient also acknowledges
that any unauthorized disclosure or use of Confidential Information would cause
Futech immediate and irreparable injury or loss.
5. Upon Futech's request, Recipient will deliver over to Futech all
Confidential Information, as well as all documents, media, items and Technology
comprising, embodying, or relating to the Confidential Information, as well as
any other documents or things belonging to Futech that may be in Recipient's
possession. Recipient shall not retain any copies.
6. This agreement may be amended only in writing signed by Futech, and
there are no other understandings, agreements, or representations, express or
implied. If any clause or provision of this agreement is or becomes illegal,
invalid, or unenforceable, such clause or provisions shall be interpreted to
call for the protection of Futech's rights to the greatest extent which is
legal, valid, and enforceable, unless such clause or provision cannot be so
interpreted, or a court of competent jurisdiction declines to permit such clause
or provision to be so interpreted, in which case such clause or provision shall
be severed and the remaining provisions of this agreement shall continue in full
force and effect. This agreement shall be governed by and construed in
accordance with the laws of the State of Arizona, and jurisdiction and venue
over the parties and any dispute arising under or otherwise relating to this
agreement shall solely and exclusively be in Arizona.
RECIPIENT:
Address:
By:
-------------------------------
Name:
-----------------------------
Title:
----------------------------
Date:
-----------------------------
2 EXHIBIT "B", PAGE 2 OF 2
42
EXHIBIT "C"
(ASSUMED EMPLOYEE BENEFITS OBLIGATIONS)
1. Vacation and sick pay earned by employees in accordance with company
policies, not however exceeding 25 days total for any employee.
2. Buyer will provide Seller's employees, after the Closing, health and life
insurance benefits, and 401k benefits, similar to those currently provided by
Seller to Seller's employees. [END OF LIST]
43
EXHIBIT "D"
(SELLER'S EMPLOYEE BENEFIT PLANS)
1. Health and life insurance plans.
2. 401k Plan.
3. Profit Sharing Plan.
44
EXHIBIT "E"
(JULY 31, 1997 BALANCE SHEET)
45
EXHIBIT "E"
Page: 1
Date: 08/26/97 at 12:21 PM
XYZ GROUP INC.
BALANCE SHEET
JULY 1997
BALANCE
-------
ASSETS
-------------------Current Assets--------------------------
Xxxxx Cash Fund 1,000
Cash In Bank -- Regular Checking 2,495
Trade Receivables 4,524,938
Employee Receivables 5,362
Reserve For Doubtful Accounts -106,731
Reserve For Currency Exchange Losses -4,310
Reserve For Returns -200,000
Inventory -- XYZ 3,573,100
Inventory In Progress 47,500
Inventory -- Reserve For Returns 170,000
Inventory -- Consignment 63,660
Prepaid Insurance 4,144
Other Prepaid Expenses -49,654
---------
Total Current Assets 80,31,504
-------------------Fixed Assets at Cost---------------------
Leasehold Improvements 36,814
Amortization Of Leasehold Improvements -614
Vehicles 47,566
Reserve For Depreciation -- Vehicles -11,891
Furniture And Fixtures 786,686
Reserve For Depreciation -- Furniture & Fixtures -409,205
Machinery 213,334
Depreciation -- Machinery And Equipment -127,610
---------
Total Fixed Assets at Cost 535,079
---------
Total ASSETS 8,566,583
=========
Liabilities
----------------------Current Liabilities-------------------
Notes Payable To Bank 4,705,476
Accounts Payable 4,191,220
Accrued Commission 3,152
Accrued State Withholding 124
Page 1 of 2
46
Page: 2
Date: 08/26/97 at 12:21 PM
XYZ GROUP INC.
BALANCE SHEET
JULY 1997
BALANCE
-------
Accrued Federal Unemployment 36
Accrued State Unemployment 442
Accrued Vacation Pay 19,827
Accrued Interest 45,444
Accrued Personal Property Taxes 5,712
Payroll Deduction Clearing 48
--------
Total Current Liabilities 8,971,481
----------------------Long Term Liabilities---------------------
Subordinated Debt -- From Stockholder 772,637
----------
Total Long Term Liabilities 772,637
----------
Total LIABILITIES 9,744,118
----------
EQUITY
----------------------------Equity------------------------------
Treasury Stock -1,032
Capital Stock 20,632
Capital In Excess Of Par Value 154,570
Retained Earnings -- Prior Years 236,132
S Corp Distributions -812,180
----------
Total Equity -401,878
Year-to-date Net Income -775,656
----------
Total EQUITY -1,177,534
----------
Total Liabilities and Equity 8,566,583
==========
Page 2 of 2
47
EXHIBIT "F"
(REGISTRATION RIGHTS AGREEMENT)
48
EXHIBIT "F"
This REGISTRATION RIGHTS AGREEMENT (the "Agreement"), which shall be
effective as of October , 1997, is by and between Futech Educational Products,
Inc., an Arizona corporation (the "Company"), and Xxxx Xxx ("Xxx") Xxxxxxxx (the
"Shareholder");
RECITALS:
A. The Company and XYZ Group, Inc., a Wisconsin corporation ("XYZ") are
parties to an Agreement and Sale for Purchase of Assets dated October , 1997
(the "Asset Purchase Agreement").
B. Pursuant to the Asset Purchase Agreement, XYZ is acquiring shares of
the Company's common stock, no par value.
C. Shareholder shall acquire the shares from XYZ as sole shareholder of a
subchapter S corporation.
D. The shares of the Company's common stock which will or may be issued
pursuant to the Asset Purchase Agreement, as described in Recital B, are
referred to in this Agreement as the "Common Stock."
E. The Common Stock will not be registered under the Securities Act of
1933, as amended, or under the securities laws of any state, in reliance upon
exemptions from registration thereunder.
In consideration of the mutual covenants and obligations hereinafter set
forth, the Company and the Shareholder, hereby agree as follows:
SECTION 1. Definitions. As used in this Agreement, the terms listed in this
Section shall have the meanings set forth below:
(a) "Affiliate" of any Person means any other Person who either
directly or indirectly is in control of, is controlled by or is under common
control with such Person; provided that for purposes of this definition an
investment entity shall be deemed to be controlled by its investment manager,
investment advisor or general partner.
(b) "Business Day" shall mean any Monday, Tuesday, Wednesday,
Thursday or Friday that is not a day on which banking institutions in the City
of Phoenix are authorized by law, regulation or executive order to close.
(c) "Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended (or any similar successor federal statute), and the rules and
regulations thereunder, as the same are effect from time to time.
(d) "Holder" shall mean the Shareholder and his successors, assigns
and transferees (subject to Section 10 hereof). For purposes of this Agreement
the Company may
EXHIBIT "F", PAGE 1 OF 12
49
deem the registered holder of a Registrable Security as the Holder thereof
(subject to Section 10 hereof).
(e) "Person" shall mean an individual, partnership, corporation,
limited liability company, joint venture, trust or unincorporated organization,
a government or agency or political subdivision thereof or any other entity.
(f) "Prospectus" shall mean the prospectus included in any
Registration Statement, as amended or supplemented by a prospectus supplement
with respect to the terms of the offering of any portion of the Registrable
Securities covered by such Registration Statement and by all other amendments
and supplements to the prospectus, including post-effective amendments, and all
material incorporated by reference in such prospectus.
(g) "Registrable Securities" shall mean (i) all shares of Common
Stock issued or issuable to the Shareholder pursuant to the Asset Purchase
Agreement as further described in Recital Section B; and (ii) any other
securities issued as a result of or in connection with any stock dividend, stock
split or reverse stock split, combination, recapitalization, reclassification,
merger or consolidation, exchange or distribution in respect of the shares of
Common Stock referred in to (i) above.
(h) "Registration Expenses" shall have the meaning set forth in
Section 6 hereof.
(i) "Registration Statement" shall mean any registration statement
which covers any of the Registrable Securities pursuant to the provisions of
this Agreement, including the Prospectus included therein, all amendments and
supplements to such Registration Statement including post effective amendments,
all exhibits and all material incorporated by reference in such Registration
Statement.
(j) "Registration Termination Date" shall mean the earlier to occur
of (i) the date that is five years following the date hereof or (ii) the first
date upon which the Registrable Securities may be sold without limitation under
Rule 144 under the Securities Act (as such Rule may be amended from time to
time), other than the limitations set forth in paragraphs (c), (f) and (h) of
such Rule, as determined by the opinion of counsel to the Company (which shall
be reasonably satisfactory to counsel to the Holders).
(k) "SEC" shall mean the U.S. Securities and Exchange Commission, or
any other U.S. federal agency at the time administering the Securities Act.
(l) "Securities Act" shall mean the Securities Act of 1933, as
amended (or any similar successor federal statute), and the rules and
regulations thereunder, as the same are in effect from time to time,
EXHIBIT "F", PAGE 2 OF 12
50
(m) "Underwritten Offering" shall mean an offering that is registered
under the Securities Act in which securities of the Company are sold pursuant to
a firm commitment underwriting, to an underwriter at a fixed price for
reoffering to the public or pursuant to agency or best efforts arrangements with
an underwriter.
SECTION 2. Securities Subject to this Agreement. The Registrable Securities
are entitled to the benefits of this Agreement.
SECTION 3. Demand Registration.
(a) Demand Registration (i) Upon the written request of Holders
owning not less than 50% of the Registrable Securities (excluding any
Registrable Securities that have previously been sold pursuant to a Registration
Statement hereunder or Rule 144 under the Securities Act), and provided that
there is then no effective Registration Statement in effect with respect to such
Registrable Securities, the Company will effect, in accordance with the terms of
this Agreement, the registration under the Securities Act of the Registrable
Securities which the Company has been so requested to register by such Holders,
subject to Section 3(c) hereof; provided that the number of securities requested
to be so registered shall be not less than 50% of the Registrable Securities
held by such requesting Holders. NO SUCH REQUEST MAY BE MADE EARLIER THAN ONE
YEAR AFTER THE ACQUISITION OF THE COMMON STOCK BY THE HOLDER PURSUANT TO THE
TERMS OF THE ASSET PURCHASE AGREEMENT (THE "DEMAND COMMENCEMENT DATE"). In
addition, no such request shall be made during the 90-day period following the
completion of any Underwritten Offering of the Company's shares of Common Stock
and no such request shall be made to include any Registrable Securities in the
initial public offering of securities of the Company. The Company shall not be
obligated to effect more than two demand registrations pursuant to this Section
3, provided that the Company shall not be required to effect registrations on a
form other than a Form S-3 (or any successor to such form).
(ii) Expenses. The Company shall pay all Registration Expenses
with respect to any demand registration pursuant to this Section 3.
(b) Effectiveness of Registration Statement. The Company agrees to
use its best efforts to (i) cause the Registration Statement relating to any
demand registration pursuant to this Section 3 to become effective under the
Securities Act as promptly as practicable (ii) thereafter keep such Registration
Statement effective continuously for the period specified in the next succeeding
paragraph; and (iii) prevent the happening of any event of the kinds described
in clauses (4) or (5) of Section 5(a)(ii) hereof.
A demand registration requested pursuant to this Section 3 will not be
deemed to have been effected unless the Registration Statement relating thereto
has become effective under the Securities Act and remain continuously effective
(except as otherwise permitted under this Agreement) for a period ending on the
earlier of:
EXHIBIT "F", PAGE 3 OF 12
51
(A) in the case of a Registration Statement on Form S-3 (subject to
Section 5(c) below), the Registration Termination Date; or
(B) the date on which all Registrable Securities covered by such
Registration Statement have been sold and the distribution
contemplated thereby has been completed.
(c) Inclusion of Other Securities. The Company, and any other holder
of the Company's securities that has registration rights, may include its
securities in any demand registration effected pursuant to this Section 3;
provided, however, that if the managing' underwriter or underwriters of any
Underwritten Offering contemplated thereby advise the Holders in writing that
the total amount or kind of securities which such Holder, the Company or any
such other holder intends to include in such proposed public offering is
sufficiently large to affect the success of the proposed public offering
requested by the Holder or Holders materially and adversely, then the amount or
kind of securities to be offered for the account of the Company or any such
other holder shall be reduced to the extent necessary to reduce the total amount
or kind of securities to be included in such proposed public offering to the
amount or kind recommended by such managing underwriter or underwriters.
(d) Form. Registrations under this Section 3 will be on a form
permitted by the rules and regulations of the SEC selected by the Company;
provided, however, the Company may use Form S-3 if at the time of filing such
Registration Statement the Company is eligible to use such Form.
(e) Manner of Sale. The Company may (but shall have no obligation to)
cause any Registrable Securities that are the subject of a demand registration
pursuant to this Section 3 to be sold in an Underwritten Offering in which event
the Company shall have the right to designate the managing underwriter or
underwriters thereof (which shall be reasonably satisfactory to the Holders
whose Registrable Securities are the subject of such demand registration).
SECTION 4. Piggyback Registration.
(a) Piggyback Registration. If the Company at any time proposes to
file a registration statement with respect to any class of equity securities,
whether for its own account (other than a registration statement on Form S-4 or
S-8, or any successor or substantially similar form or a registration statement
covering (i) an employee stock option, stock purchase or compensation plan or
securities issued or issuable pursuant to any such plan or (ii) a dividend
reinvestment plan) or for the account of a holder of securities of the Company
pursuant to registration rights granted by the Company (a "Requesting
Securityholder"), then the Company shall in each case give written notice of
such proposed filing to all Holders of Registrable Securities at least 20
Business Days before the anticipated filing date of any such registration
statement by the Company, and such notice shall offer to all Holders the
opportunity to have any or all of the Registrable Securities held by such
Holders included in such registration statement.
EXHIBIT "F", PAGE 4 OF 12
52
Each Holder of Registrable Securities desiring to have his Registrable
Securities registered under this Section 4 shall so advise the Company in
writing within 10 Business Days after the date of receipt of such notice (which
request shall set forth the amount of Registrable Securities for which
registration is requested), and the Company shall include in such Registration
Statement all such Registrable Securities so requested to be included therein;
provided, however, that if such Registration Statement is for an Underwritten
Offering, the Holders of Registrable Securities included therein shall join in
the underwriting on the same terms and conditions as the Company or the
Requesting Securityholders except that the Holders of Registrable Securities
shall not be required to give any representations and warranties relating to the
Company, and shall execute any underwriting agreement, "lock-up" letters or
other customary agreements or documents executed by the Company or the
Requesting Securityholders in connection therewith. Notwithstanding the
foregoing, if the managing underwriter or underwriters of any such proposed
public offering advise the Holders in writing that the total amount or kind of
securities which the Holders of Registrable Securities, the Company, the
Requesting Securityholders and any other Persons intended to be included in such
proposed public offering is sufficiently large to affect the success of such
proposed public offering materially and adversely, then the amount or kind of
securities to be offered for the accounts of the Holders of Registrable
Securities shall be reduced pro rata, together with the amount or kind of
securities to be offered for the accounts of any other Persons requesting
registration of securities pursuant to rights similar to the rights of the
Holders under this Section 4, to the extent necessary to reduce the total amount
or kind of securities to be included in such proposed public offering to the
amount or kind recommended by such managing underwriter or underwriters before
the securities offered by the Company or any Requesting Securityholder are so
reduced. Notwithstanding the foregoing, however, the Holders shall have no right
to include any Registrable Securities in the Company's initial public offering
of securities.
(b) No Obligation. Neither the giving of notice by the Company nor
any request by the Holders to register Registrable Securities pursuant to
Section 4(a) shall in any way obligate the Company to file any such Registration
Statement. The Company may, at any time prior to the effective date thereof,
determine not to offer the securities to which Registration Statement relates
and/or withdraw the Registration Statement from the SEC, without liability of
the Company to the Holders.
SECTION 5. Registration Procedures and Other Agreements.
(a) General. In connection with the Company's registration
obligations pursuant to Section 3 and, to the extent applicable thereto, Section
4 hereof, the Company will:
(i) prepare and file with the SEC a new Registration Statement
or such amendments and post-effective amendments to an existing Offering
Registration Statement as may be necessary to keep such Registration Statement
effective as set forth in Section 3(b); provided, however, that no Registration
Statement shall be required to remain in effect after all Registrable Securities
covered by such Registration Statement have been sold and distributed as
contemplated by such Registration Statement;
EXHIBIT "F", PAGE 5 OF 12
53
(ii) notify each selling Holder promptly (1) when a new
Registration Statement, amendment thereto, Prospectus or any Prospectus
supplement or post-effective amendment has been filed, and, with respect to any
new Registration Statement or posteffective amendment, when it has become
effective, (2) of any request by the SEC for amendments or supplements to any
Registration Statement or Prospectus or for additional information, (3) of the
issuance by the SEC of any comments with respect to any filing, (4) of any stop
order suspending the effectiveness of any Registration Statement or the
initiation or threatening of any proceedings for such purpose, (5) of any
suspension of the qualification of the Registrable Securities for sale in any
jurisdiction or the initiation or threatening of any proceeding for such
purpose, and (6) of the happening of any event which makes any statement of a
material fact made in any Registration Statement, Prospectus or any document
incorporated therein by reference untrue or which requires the making of any
changes in any Registration Statement, Prospectus or any document incorporated
therein by reference in order to make the statements therein (in the case of any
Prospectus, in the light of the circumstances under which they were made) not
misleading; and make every reasonable effort to obtain as promptly as
practicable the withdrawal of any order or other action suspending the
effectiveness of any Registration Statement or suspending the qualification or
registration (or exemption therefrom) of the Registrable Securities for sale in
any jurisdiction;
(iii) furnish to each selling Holder, without charge, at least
one manually signed or "edgarized" copy and as many conformed copies as may
reasonable be requested, of the then effective Registration Statement and any
post-effective amendment thereto, and one copy of all financial statements and
schedules, all documents incorporated therein by reference and all exhibits
thereto (including those incorporated by reference);
(iv) deliver to each selling Holder, without charge, as many
copies of the then effective Prospectus (including each prospectus subject to
completion) and any amendments or supplements thereto as such Holder may
reasonably request;
(v) use its best efforts to register or qualify under the
securities or blue sky laws of such jurisdictions as the selling Holders
reasonably request in writing and do any and all other acts or things reasonably
necessary or advisable to enable the disposition in such jurisdictions of the
Registrable Securities covered by the then effective Registration Statement;
provided, however, that the Company will not be required to (x) qualify to do
business in any jurisdiction where it would not otherwise be required to
qualify, or (y) subject itself to general taxation in any such jurisdiction, or
(z) register or qualify such Registrable Securities under the securities or blue
sky laws of any jurisdiction in which the Company does not then maintain a
currently effective registration or qualification of any of its securities;
(vi) upon the occurrence of any event contemplated by clause (6)
of Section 5(a)(ii) hereof, as promptly as practicable (in light of the
circumstances causing the occurrence of such event) prepare a supplement or
post-effective amendment to the Registration Statement or the related Prospectus
or any document incorporated therein by reference or file any other required
document so that, as thereafter delivered to the purchasers of the Registrable
EXHIBIT "F", PAGE 6 OF 12
54
Securities, the Prospectus will not contain an untrue statement of a material
fact or omit to state any material fact necessary to make the statements therein
in the light of the circumstances under which they were made, not misleading;
(vii) use reasonable efforts to cause all Registrable Securities
covered by the Registration Statement to be listed on each securities exchange
(or quotation system operated by a national securities association) on which
identical securities issued by the Company are then listed, and enter into
customary agreements including, if necessary, a listing application and
indemnification agreement in customary form;
(viii) if the registration is in connection with an Underwritten
Offering, enter into an underwriting agreement with respect to the Registrable
Securities, which agreement shall contain provisions that are customary in
connection with underwritten secondary offerings, including representations and
warranties, opinions of counsel, letters of accountants and indemnification
provisions with underwriters that acquire Registrable Securities;
(ix) otherwise use its best efforts to comply in all material
respects with all applicable rules and regulations of the SEC relating to such
registration and the distribution of the securities being offered and make
generally available to its securities holders earnings statements satisfying the
provisions of Section 11(a) of the Securities Act and complying with Rule 158
of the SEC thereunder;
(x) cooperate and assist in any filings required to be made with
the National Association of Securities Dealers, Inc.; and
(xi) make available for inspection by a representative of selling
Holders and any attorney or accountant retained by such selling Holders, all
financial and other records, pertinent corporate documents and properties of the
Company and cause the Company's officers, directors and employees to supply all
information reasonably requested by, and to cooperate fully with, any such
representative, underwriter, attorney or accountant in connection with such
registration, and otherwise to cooperate fully in connection with any due
diligence investigation; provided that such representatives, underwriters,
attorneys or accountants enter into a confidentiality agreement in form and
substance reasonably satisfactory to the Company, prior to the release or
disclosure to them of any such information, records or documents.
(b) Each selling Holder shall furnish to the Company, upon request,
in writing such information and documents as, in the opinion of counsel to the
Company may be reasonably required to prepare properly and file such
Registration Statement in accordance with the applicable provisions of the
Securities Act.
SECTION 6. Registration Expenses. All expenses incident to the Company
performance of or compliance with this Agreement, including without limitation
all registration and filing fees, fees and expenses of compliance with
securities or blue sky laws (including reasonable fees and disbursements of one
counsel in connection with blue sky qualifications or registrations (or
EXHIBIT "F", PAGE 7 OF 12
55
the obtaining of exemptions therefrom) of the Registrable Securities), the
reasonable fees and disbursements of counsel retained by the Holders (which
counsel shall be reasonably satisfactory to the Company), printing expenses
(including expenses of printing Prospectuses), messenger and delivery expenses,
internal expenses (including all salaries and expenses of its officers and
employees performing legal or accounting duties), fees and disbursements of its
counsel and its independent certified public accountants (including the expenses
of any special audit or "comfort" letters required by or incident to such
performance or compliance), securities acts liability insurance (if the Company
elects to obtain such insurance), fees and expenses of any special experts
retained by the Company in connection with any registration hereunder and the
fees and expenses of any other Person retained by the Company (all such fees and
expenses being referred to as "Registration Expenses"), shall be borne by the
Company, whether or not any Registration Statement becomes effective.
SECTION 7. Suspension of Sales under Certain Circumstances.
(a) Upon receipt of any notice from the Company that dispositions
under the then current Prospectus must be discontinued and suspended, whether as
a result of an event described in Section 5(a)(ii)(4),(5) or (6) hereof or
otherwise, each Holder will forthwith discontinue and suspend disposition of
Registrable Securities pursuant to such Prospectus until (i) the Holders are
advised in writing by the Company that a new Registration Statement covering the
offer of Registrable Securities has become effective under the Securities Act,
or (ii) the Holders receive copies of a supplemented or amended Prospectus
contemplated by Section 5(a) hereof, or (iii) the Holders are advised in writing
by the Company that the use of the Prospectus may be resumed.
(b) If at any time following the date hereof any of the Company's
shares of Common Stock are to be sold pursuant to an Underwritten Offering, then
for the period commencing 45 days prior to, and expiring 180 days after, the
effective date of such Underwritten Offering, none of the Holders will effect
any public sale or distribution of any Registrable Securities or any other
shares of Common Stock of the Company then owned by such Holders, other than
pursuant to such Underwritten Offering (if any Registrable Securities are
included in such Underwritten Offering).
SECTION 8. Indemnification.
(a) Indemnification by the Company. The Company agrees to indemnify
and hold harmless, to the full extent permitted by law, but without duplication,
each Holder of Registrable Securities, any their respective officers and
directors, if any, and each Person who controls such Holder within the meaning
of the Securities Act, against all losses, claims, damages, liabilities and
expenses (including reasonable costs of investigation and reasonable legal fees
and expenses) resulting from any untrue statement of a material fact in, or any
omission of a material fact required to be stated in, any Registration Statement
or in any preliminary or final Prospectus, or any amendment or supplement
thereto, or necessary to make the statements therein (in the case of a
Prospectus in light of the circumstances under which they were made)
EXHIBIT "F", PAGE 8 OF 12
56
not misleading, except insofar as the same are caused by or contained in any
information furnished in writing to the Company by any Holder or any underwriter
expressly for use therein; provided that the Company will not be liable pursuant
to this Section 8(a) if such losses, claims, damages, liabilities or expenses
have been caused by the failure of any selling Holder to deliver a copy of the
Registration Statement or Prospectus, or any amendments or supplements thereto,
after the Company has furnished such copies to such Holder.
(b) Indemnification by the Holders of Registrable Securities. In
connection with any Registration Statement covering Registrable Securities of
any Holder, such Holder will furnish to the Company in writing such information
as the Company reasonably requests for use in connection with any such
Registration Statement or Prospectus and agrees to indemnify and hold harmless,
to the full extent permitted by law, but without duplication, the Company, its
officers, directors, shareholders, employees, advisors and agents, and each
Person who controls the Company (within the meaning of the Securities Act),
against any losses, claims, damages, liabilities and expenses resulting from any
untrue statement of a material fact in, or any omission of a material fact
required to be stated in, the Registration Statement or in any preliminary or
final Prospectus, or any amendment or supplement thereto, or necessary to make
the statements therein (in the case of a Prospectus in light of the
circumstances under which they were made) not misleading, but only to the extent
that such untrue statement or omission is contained in any information so
furnished in writing by such Holder to the Company specifically for inclusion
therein. If the offering to which the Registration Statement relates is an
Underwritten Offering, each Holder agrees to enter into an underwriting
agreement in customary form with such underwriters and to indemnify such
underwriters, their officers and directors, if any, and each Person who controls
such underwriters within the meaning of the Securities Act to the same extent as
hereinabove provided with respect to indemnification by such Holder of the
Company.
(c) Conduct of Indemnification Proceedings. Any Person entitled to
indemnification hereunder will (i) give prompt notice to the indemnifying party
of any claim with respect to which it seeks indemnification, and (ii) permit
such indemnifying party to assume the defense of such claim with counsel
reasonably satisfactory to the indemnified party; provided, however, that any
Person entitled to indemnification hereunder shall have the right to employ
separate counsel and to participate in, but not control, the defense of such
claim, but the fees and expenses of such counsel shall be at the expense of such
indemnified Person, unless (A) the indemnifying party shall have failed to
assume the defense of such claim and employ counsel reasonably, satisfactory to
the indemnified party in a timely manner, or (B) in the reasonable judgment of
any such Person, based upon written advice of its counsel, a conflict of
interest may exist between such Person and the indemnifying party with respect
to such claims (in which case, if the Person notifies the indemnifying party in
writing, that such Person elects to employ separate counsel at the expense of
the indemnifying party, the indemnifying party shall not have the right to
assume the defense of any such claim as to which such conflict of interest may
exist). The indemnifying party will not be subject to any liability for any
settlement made without its consent. No indemnified party will be required to
consent to the entry of any judgment or enter into any settlement which does not
include as an unconditional term thereof the giving by the claimant or plaintiff
to such indemnified party of a release from all liability
EXHIBIT "F", PAGE 9 OF 12
57
in respect of such claim or litigation. An indemnifying party who is not
entitled to, or elects not to, assume the defense of the claim will not be
obligated to pay the fees and expenses of more than one counsel for all parties
indemnified by such indemnifying party with respect to such claim, as well as
one local counsel in each relevant jurisdiction.
(d) Contribution. If for any reason the indemnification provided for
in Section 8(a) or 8(b) hereof is unavailable to an indemnified party or
insufficient to hold it harmless as contemplated by Sections 8(a) and 8(b)
hereof, then the indemnifying party shall contribute to the amount paid or
payable by the indemnified party as a result of such loss, claim, damage,
liability or expense in such proportion as is appropriate to reflect not only
the relative benefits received by the indemnifying party and the indemnified
party, but also the relative fault of the indemnifying party and the indemnified
party, as well as any other relevant equitable considerations. No Person guilty
of fraudulent misrepresentation (within the meaning of Section 11(f) of the
Securities Act) shall be entitled to contribution from any Person who was not
guilty of such fraudulent misrepresentations.
SECTION 9. Current Public Information. The Company agrees that it will file
all reports required to be filed by it under the Securities Act and the Exchange
Act and the rules and regulations adopted by the SEC thereunder (or, if it
ceases to be required to file such reports, it will, upon the request of Holders
owning not less than 51% of the Registrable Securities [excluding any
Registrable Securities that have previously been sold pursuant to a Registration
Statement hereunder or Rule 144 under the Securities Act], make publicly
available other information), and it will take such further action as may
reasonably be required, in each case to the extent required from time to time to
enable the Holders to sell Registrable Securities without registration under the
Securities Act within the limitations of the applicable exemptions provided by
(x) Rule 144 under the Securities Act, as such Rule may be amended from time to
time, or (y) any similar regulation hereinafter adopted by the SEC.
SECTION 10. No Inconsistent Agreements. The Company has not previously
entered into and shall not in the future enter into any agreement, arrangement
or understanding with respect to its securities which is inconsistent with the
rights granted to the Holders in this Agreement.
SECTION 11. Amendments and Waivers. The provisions of this Agreement may
not be amended, modified or supplemented, and waivers or consents to departures
from the provisions hereof may not be given, without the written consent of (a)
the Company and (b) the Holders owning not less than 51% of the Registrable
Securities (excluding any Registrable Securities that have previously been sold
pursuant to a Registration Statement hereunder or Rule 144 under the Securities
Act).
SECTION 12. Notices. All notices and other communications provided for or
permitted hereunder shall be made in writing by hand-delivery, registered
first-class mail, facsimile, or air-courier guaranteeing overnight delivery:
EXHIBIT "F", PAGE 10 OF 12
58
(a) If to a Holder of Registrable Securities, at the most current
address for such Holder, as it appears on the books of the Company; and
(b) If to the Company: Futech Educational Products, Inc., 0000 Xxxxx
00xx Xxxxxx, Xxxxx 000, Xxxxxxx, Xxxxxxx 00000, Attention: Chief Executive
Officer; facsimile no. 808-9863, or at such other address as may be designated
from time to time by notice given in accordance with the provisions of this
Section 11.
All such notices and other communications shall be deemed to have been
delivered and received (i) in the case of personal delivery or facsimile, on the
date of such delivery, (ii) in the case of air courier, on the Business Day
after the date when sent, and (iii) in the case of mailing, on the fifth
Business Day following such mailing.
SECTION 13. Successors and Assigns. This Agreement shall inure to the
benefit of and be binding upon the successors, transferees and assigns of the
parties hereto; provided, however, that (a) no transferee in any transfer made
in reliance on Rule 144 under the Securities Act shall have any rights as a
Holder under this Agreement; and (b) no Person to whom the Registrable
Securities are transferred shall have any rights under this Agreement as a
Holder unless such Person agrees to be bound by the terms and conditions of this
Agreement.
SECTION 14. Headings. The headings in this Agreement are inserted for
convenience only and shall not constitute a part hereof.
SECTION 15. Governing Law; Consent to Jurisdiction. This Agreement shall
be governed by and construed and enforced in accordance with the internal laws
of the State of Arizona without reference to principles of conflict of laws. The
parties to this Agreement hereby consent to the jurisdiction in personam of the
Superior Court of the State of Arizona, in and for the County of Maricopa or of
the United States District Court for the District of Arizona, in any legal
proceeding to enforce any obligations under this Agreement, and agree that venue
in Maricopa County is not inconvenient.
SECTION 16. Construction. The Section headings contained in this Agreement
are for reference purposes only and will not affect in any way the meaning or
interpretation of this Agreement. All terms used in one number or gender shall
be construed to include any other number or gender as the context may require.
Whenever the words "include," "includes," or "including" are used in this
Agreement, they shall be deemed to be followed by the words "without
limitation."
SECTION 17. Entire Agreement. This Agreement, together with any other
documents and certificates delivered hereunder and the Asset Purchase Agreement,
state the entire agreement of the Company and the Shareholder with respect to
the subject matter hereof, merge all prior negotiations, agreements and
understandings, if any, and state in full all representations, warranties and
agreements which have induced this Agreement.
EXHIBIT "F", PAGE 11 OF 12
59
IN WITNESS WHEREOF, the Company and the Shareholder have duly executed and
delivered this agreement as of the date written above.
SHAREHOLDER:
_________________________________
FUTECH EDUCATIONAL PRODUCTS, INC.
By:______________________________
Name:_______________________
Title:______________________
EXHIBIT "F", PAGE 12 OF 12
