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ASSET PURCHASE AGREEMENT
BY AND AMONG
XXXXXX, INC.,
GOODFOOT ACQUISITION CO.,
BENEFOOT, INC.,
BENEFOOT PROFESSIONAL PRODUCTS, INC.,
XXXXX XXXXX,
AND
XXXX XXXXXX
DATED AS OF MAY 6, 2002
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ARTICLE I. DEFINITIONS...................................................................................1
1.1 Definitions...................................................................................1
1.2 Interpretation................................................................................8
ARTICLE II. PURCHASE OF PURCHASED ASSETS; CONSIDERATION...................................................8
2.1 Purchased Assets..............................................................................8
2.2 Excluded Assets..............................................................................10
2.3 Assumed Liabilities..........................................................................10
2.4 Excluded Liabilities.........................................................................11
2.5 Consideration................................................................................12
2.6 Certain Closing Adjustments and Covenants....................................................13
2.7 Deferred Consideration.......................................................................14
2.8 Allocation of the Purchase Price.............................................................16
2.9 Delivery and Assignment of Purchased Assets; Attorney-in-Fact................................17
2.10 Closing; Effective Date......................................................................18
2.11 Fractional Shares............................................................................18
2.12 Legending of Securities......................................................................18
ARTICLE III. REPRESENTATIONS AND WARRANTIES OF XXXXXX AND PURCHASER.......................................18
3.1 Capitalization...............................................................................18
3.2 Organization; Standing and Power.............................................................19
3.3 Authorization; Enforceability................................................................19
3.4 No Violation or Conflict.....................................................................19
3.5 Consent of Governmental Authorities..........................................................20
3.6 Brokers......................................................................................20
3.7 Issuance of Xxxxxx Common Stock..............................................................20
3.8 SEC Filings..................................................................................20
3.9 Litigation...................................................................................20
3.10 No Default...................................................................................21
ARTICLE IV. REPRESENTATIONS AND WARRANTIES OF THE SELLER.................................................21
4.1 Organization.................................................................................21
4.2 Authorization; Enforceability................................................................21
4.3 No Violation or Conflict; Consent............................................................22
4.4 Consents of Governmental Authorities.........................................................22
4.5 Conduct of Business..........................................................................22
4.6 Litigation; Disputes.........................................................................23
4.7 Brokers......................................................................................23
4.8 Compliance...................................................................................23
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4.9 Charter, Bylaws and Corporate Records........................................................24
4.10 Capitalization of Benefoot and Benefoot Products.............................................24
4.11 Rights, Warrants, Options....................................................................24
4.12 Financial Statements.........................................................................25
4.13 Absence of Undisclosed Liabilities...........................................................25
4.14 Title to Securities..........................................................................25
4.15 Title to and Condition of Personal Property..................................................25
4.16 Real Property................................................................................26
4.17 Insurance....................................................................................27
4.18 Governmental Authorizations..................................................................28
4.19 Intellectual Property Rights.................................................................28
4.20 Customers and Suppliers; Supplies............................................................30
4.21 Related Parties..............................................................................31
4.22 List of Accounts and Proxies.................................................................31
4.23 Employee Policies, Manuals, etc..............................................................31
4.24 Labor Relations..............................................................................31
4.25 Employment Agreements and Employee Benefit Plans.............................................32
4.26 Tax Matters..................................................................................34
4.27 Material Agreements..........................................................................35
4.28 Guaranties...................................................................................36
4.29 Products.....................................................................................36
4.30 Environmental and Safety Matters.............................................................37
4.31 Accounts Receivable, Notes Receivable, and Costs in Excess of Billing........................38
4.32 Accounts and Notes Payable...................................................................38
4.33 Inventory Valuation..........................................................................38
4.34 Absence of Certain Business Practices........................................................38
4.35 Solvency.....................................................................................39
4.36 Review of Forms..............................................................................39
4.37 Investment Representations...................................................................39
4.38 Ownership of Shares of Xxxxxx................................................................40
4.39 Returns and Exchanges........................................................................40
4.40 Purchase of the Seller's Shares..............................................................40
4.41 Disclosure...................................................................................40
ARTICLE V. INDEMNIFICATION..............................................................................40
5.1 Survival of the Representations and Warranties...............................................40
5.2 Investigation................................................................................40
5.3 Indemnification Generally....................................................................41
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ARTICLE VI. CLOSING; DELIVERIES..........................................................................46
6.1 Closing Date Deliveries by the Seller........................................................46
6.2 Closing Date Deliveries by Xxxxxx and/or the Purchaser.......................................48
ARTICLE VII. ADDITIONAL AGREEMENTS........................................................................49
7.1 Non-competition..............................................................................49
7.2 General Confidentiality......................................................................50
7.3 Continuing Obligations; Equitable Remedies...................................................51
7.4 Change of Name; Post-Closing Use of Name and Tradenames......................................51
7.5 Taxes........................................................................................52
7.6 No Pre-Payment of Outstanding 4% Convertible Subordinated Notes..............................52
7.7 Collection of Receivables....................................................................52
7.8 Access to Records after Closing..............................................................54
7.9 Treatment of Certain Excluded Liabilities....................................................54
7.10 Treatment of Employees.......................................................................54
7.11 Waiver of Jury Trial.........................................................................55
7.12 Use of Leased Property.......................................................................55
7.13 Payments of Accounts Payable.................................................................55
ARTICLE VIII. MISCELLANEOUS................................................................................56
8.1 Notices......................................................................................56
8.2 Entire Agreement.............................................................................56
8.3 Binding Effect...............................................................................57
8.4 Knowledge of the Parties.....................................................................57
8.5 Assignment...................................................................................57
8.6 Waiver and Amendment.........................................................................57
8.7 No Third Party Beneficiary...................................................................57
8.8 Severability.................................................................................57
8.9 Expenses.....................................................................................58
8.10 Headings.....................................................................................58
8.11 Counterparts.................................................................................58
8.12 Time of the Essence..........................................................................58
8.13 Injunctive Relief............................................................................58
8.14 Remedies Cumulative..........................................................................58
8.15 Governing Law................................................................................58
8.16 Jurisdiction and Venue.......................................................................58
8.17 Participation of Parties.....................................................................59
8.18 Further Assurances...........................................................................59
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8.19 Publicity....................................................................................59
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ASSET PURCHASE AGREEMENT (the "AGREEMENT"), dated as of May 6, 2002, by
and among XXXXXX, INC., a New York corporation ("Xxxxxx"), GOODFOOT ACQUISITION
CO., a Delaware corporation and a wholly-owned subsidiary of Xxxxxx (the
"Purchaser"), BENEFOOT, INC., a New York corporation ("Benefoot"), BENEFOOT
PROFESSIONAL PRODUCTS, INC., a New York corporation ("Benefoot Products" and,
together with Benefoot, the "Seller"); and XXXXX XXXXX, an individual, and XXXX
XXXXXX, an individual (collectively, the "Principal Shareholders").
PREAMBLE
WHEREAS, Benefoot designs, manufactures and distributes foot and
gait-related biomechanical products, including custom made prescription orthotic
devices, and non-custom made orthotic devices, to the podiatric physician
market, as well as other markets, including chiropractors, physical therapists,
certified orthotists and prosthetists (the "Benefoot Business");
WHEREAS, Benefoot Products markets and distributes footwear products to
podiatrists' patients, including custom-made Birkenstock sandals and standard
comfort shoes, which products are manufactured by third parties (the "Benefoot
Products Business" and, together with the Benefoot Business, the "Business");
and
WHEREAS, Seller desires to sell to the Purchaser, and the Purchaser
desires to purchase from the Seller, on a going concern basis, substantially all
of the assets, properties, and business of Seller, and assume certain of the
liabilities of the Seller, all on the terms and subject to the conditions set
forth herein.
NOW, THEREFORE, in consideration of the premises and the respective
mutual covenants, representations and warranties herein contained, the parties
hereto hereby agree as follows:
ARTICLE I.
DEFINITIONS
1.1 Definitions. In addition to terms defined elsewhere in this
Agreement, the following terms when used in this Agreement shall have the
meanings indicated below and shall be equally applicable to both the singular
and the plural:
"Acquired Company" shall mean any company, division, entity, product
line, or business acquired by a Xxxxxx Affiliate.
"Affiliate" shall mean with respect to a specified Person, any other
Person which directly or indirectly controls, is controlled by, or is under
common control with such Person.
"Agreement" shall mean this Asset Purchase Agreement together with all
exhibits and schedules referred to herein.
"Applicable Law" shall mean, with respect to any Person, any
international, national, regional, state or local treaty, statute, law,
ordinance, rule, administrative action, regulation, order, writ, injunction,
judgment, decree or other requirement of any Governmental Authority
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and any requirements imposed by common law or case law, applicable to such
Person or any of its properties, assets, officers, directors, employees,
consultants or agents (in connection with their activities on behalf of such
Person). Applicable Law includes, without limitation, Environmental and Safety
Requirements, and state and local zoning and building laws.
"Assignment and Assumption of the Office Lease" shall have the meaning
set forth in Section 6.1(p).
"Average Closing Price" shall mean the average closing price of the
Xxxxxx Common Stock on the NASDAQ Small Cap Market for a ten (10) consecutive
trading day period ending four (4) trading days prior to the Closing Date.
"Average Gross Revenue" shall mean, with respect to any Acquired
Company, the average of (i) the gross revenue derived from sales of DME Products
by such Acquired Company during the six (6) month period prior to such
acquisition multiplied by two (2) and (ii) the gross revenue derived from sales
of DME Products by such Acquired Company during the twelve (12) month period
prior to such acquisition, in each case less returns, credits, allowances,
chargebacks, discounts and rebates generated during the applicable period.
"Xxxx of Sale" shall have the meaning set forth in Section 6.1(d).
"Cash Payment" shall have the meaning set forth in Section 2.5(a)(i).
"CERCLA" shall mean the Comprehensive Environmental Response,
Compensation and Liability Act of 1980, as amended.
"Closing" shall have the meaning set forth in Section 2.10.
"Closing Date" shall have the meaning set forth in Section 2.10.
"Closing Date Balance Sheet" shall have the meaning set forth in
Section 2.6(b).
"COBRA" shall mean the Consolidated Omnibus Reconciliation Act of 1985,
as amended.
"Code" shall mean the Internal Revenue Code of 1986, as amended, or any
successor law.
"Competitive Business" shall have the meaning set forth in Section 7.1.
"Consideration Shares" shall have the meaning set forth in Section
2.5(a)(iii).
"Consulting Agreement" shall have the meaning set forth in Section 6.1.
"Current Assets" shall mean the Seller's cash, cash equivalents,
accounts receivable (net of allowances), prepaid expenses and security deposits,
other receivables, and inventory, each as identified on Schedule 1.
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"Current Liabilities" shall mean the Seller's (i) current maturities of
long-term debt, (ii) current maturities of capitalized leases (excluding leases
for automobiles other than vehicles used to delivery products of the Seller),
(iii) customer deposits, and (iv) accounts payable and accrued expenses,
including accrued, but unpaid, rebates relating to the MVP Program, (excluding
costs and expenses incurred by Seller incident to the negotiation and
preparation of this Agreement and the transactions contemplated hereby),
including accrued vacation and vacation days granted to the Seller's employees
in lieu of bonuses, but excluding accrued vacations of the Principal
Shareholders, and (v) payroll and other taxes payable (including accrued
expenses), each as identified on Schedule 1. For the avoidance of doubt, Current
Liabilities shall exclude all unearned revenue and warranty reserves described
on Schedule 1.
"Deferred Consideration" shall have the meaning set forth in Section
2.7(a).
"Deferred Consideration Period" shall have the meaning set forth in
Section 2.7(a).
"Determination Date" shall have the meaning set forth in Section
2.6(d).
"Determining Accountants" shall have the meaning set forth in Section
2.6(c).
"DME Products" shall mean (i) diabetic insoles, (ii) orthopedic
softgoods, (iii) prefabricated orthoses, (iv) medicare therapeutic footwear
products, including custom orthotics (as described by the then existing Medicare
diabetic therapeutic program) that are bundled with footwear, (v) professional
footwear program products, and (vi) ankle foot orthoses, and shall exclude (x)
Birkenstock sandals or custom sandals and (y) custom orthotics (as described by
the then existing Medicare diabetic therapeutic program) that are not bundled
with footwear.
"Encumbrance" shall mean any claim, lien, charge, security interest,
pledge, mortgage, or any other restriction or encumbrance of any kind or nature.
"Environmental Lien" shall mean any lien, whether recorded or
unrecorded, in favor of any Governmental Authority, relating to any liability of
the Seller, arising under any Environmental and Safety Requirements.
"Environmental and Safety Requirements" shall mean all federal, state,
local and foreign statutes, regulations, ordinances and other provisions having
the force or effect of law, all judicial and administrative orders and
determinations, all contractual obligations and all common law, in each case
concerning public health and safety, worker health and safety and pollution or
protection of the environment (including, without limitation, all those relating
to the presence, use, production, generation, handling, transport, treatment,
storage, disposal, distribution, labeling, testing, processing, discharge,
Release, threatened Release, control or cleanup of any hazardous or otherwise
regulated materials, substances or wastes, chemical substances or mixtures,
pesticides, pollutants, contaminants, toxic chemicals, petroleum products or
byproducts, asbestos, polychlorinated biphenyls, noise or radiation).
"ERISA" shall have the meaning set forth in Section 4.25(a).
"Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended.
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"Financial Statements" shall mean the combined balance sheets and the
combined statements of income, cash flows and retained earnings of the Seller as
of and for the fiscal years ended December 31, 2001, 2000 and 1999, including
the notes thereto and the reports thereon of the Seller's independent auditors,
each prepared in accordance with GAAP and audited in accordance with GAAS,
consistently applied with prior periods.
"GAAP" shall mean United States generally accepted accounting
principles.
"GAAS" shall mean United States generally accepted auditing standards.
"Governmental Authority" shall mean any domestic, international,
national, territorial, regional, state or local governmental authority,
quasi-governmental authority, instrumentality, court, commission or tribunal or
any regulatory, administrative or other agency, or any political or other
subdivision, department or branch of any of the foregoing or any arbitrator or
mediator.
"Governmental Authorizations" shall mean all authorizations, consents,
approvals, franchises, licenses and permits required under Applicable Law for
the operation of the Business as presently operated.
"Guaranty" shall mean, as to any Person, all liabilities or obligations
of such Person, with respect to any indebtedness or other obligations of any
other person, which have been guaranteed, directly or indirectly, in any manner
by such Person, through an agreement, contingent or otherwise, to purchase such
indebtedness or obligation, or to purchase or sell property or services,
primarily for the purpose of enabling the debtor to make payment of such
indebtedness or obligation or to guarantee the payment to the owner of such
indebtedness or obligation against loss, or to supply funds to or in any manner
invest in the debtor, or otherwise.
"Indemnified Party" shall have the meaning set forth in Section 5.3(c).
"Indemnifying Party" shall have the meaning set forth in Section
5.3(c).
"Insurance Organizations" shall have the meaning set forth in Section
4.16(d).
"Intellectual Property" shall mean any United States, foreign,
international and state patents and patent applications, and continuations,
reissues, divisions, or disclosures relating thereto, industrial design
registrations, inventions, certificates of invention and utility models
(collectively, "Patents"); trademarks, service marks, trademark or service xxxx
registrations and applications, trade names, trade dress, fictitious names,
assumed names, logos, slogans, and general intangibles of like nature, together
with all goodwill related to the foregoing (collectively, "Trademarks");
Internet domain names; copyrights, copyright registrations, renewals and
applications for copyright registrations, and mask works (collectively,
"Copyrights"); Software, technology, trade secrets and other confidential
information, know-how, proprietary processes, formulae, algorithms, models,
concepts, and methodologies (collectively, "Trade Secrets"); rights of privacy
and publicity, including, but not limited to, the names, likenesses, voices, and
biographical information of real persons, and all license agreements and other
agreements granting rights relating to any of the foregoing.
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"Investments" shall mean, with respect to any Person, all advances,
loans or extensions of credit to any other Person, all purchases or commitments
to purchase any stock, bonds, notes, debentures or other securities of any other
Person, and any other investment in any other Person, including partnerships or
joint ventures (whether by capital contribution or otherwise) or other similar
arrangement (whether written or oral) with any Person, including but not limited
to arrangements in which (i) the Person shares profits and losses, (ii) any such
other Person has the right to obligate or bind the Person to any third party, or
(iii) the Person may be wholly or partially liable for the debts or obligations
of such partnership, joint venture or other arrangement.
"knowledge", whether capitalized or lower case, when used with respect
to Seller, shall mean the knowledge of the officers and directors of the Seller,
after due inquiry.
"Xxxxx Employment Agreement" shall have the meaning set forth in
Section 6.1.
"Xxxxxx" shall have the meaning set forth in the preamble hereof.
"Xxxxxx Affiliates" shall mean Xxxxxx and its Affiliates.
"Xxxxxx Ancillary Agreements" shall mean the Xxxx of Sale, Registration
Rights Agreement, the Promissory Notes, the Xxxxxx Employment Agreement, the
Xxxxx Employment Agreement, and the Consulting Agreement.
"Xxxxxx Common Stock" shall mean the common stock, par value $.02 per
share, of Xxxxxx.
"Xxxxxx DME Sales Program" shall collectively mean the sales and
marketing program of the Xxxxxx Affiliates which market and sell DME Products
(other than Acquired Companies which are not orthotic lab companies).
"Xxxxxx Employment Agreement" shall have the meaning set forth in
Section 6.1.
"Xxxxxx Lease" shall mean the lease entered into by Xxxxxx or the
Purchaser with respect to the property located at 000 Xxxx Xxxxxx Xxxxxx, Xxxxx
X, Xxxx Xxxx, Xxx Xxxx.
"Xxxxxx 10-K" shall have the meaning set forth in Section 3.8.
"Leased Property" shall have the meaning set forth in Section 4.16(a).
"Leases" shall have the meaning set forth in Section 4.16(a).
"Liabilities" shall have the meaning set forth in Section 4.13.
"Litigation" shall have the meaning set forth in Section 4.6.
"Long Term Liabilities" shall mean Benefoot's long term debt (excluding
current maturities of long term debt), capitalized lease obligations (excluding
current maturities of capitalized lease obligations), and deposits payable, each
as identified on Schedule 1.
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"Losses" shall have the meaning set forth in Section 5.3(a).
"Material Agreements" shall have the meaning set forth in Section 4.27.
"Material Adverse Change" or "Material Adverse Effect" shall mean any
change, event or condition of any character which has had or could have a
material adverse effect on (i) the condition (financial or otherwise), results
of operations, assets, liabilities, or properties of the Seller, taken as a
whole, (ii) the Business, or (iii) the Purchased Assets.
"May Health Plan Premium" shall have the meaning set forth in Section
7.10(e).
"Neopost Lease" shall have the meaning set forth in Section 2.2(h).
"Net Current Assets" shall mean the Current Assets less the Current
Liabilities.
"Net DME Sales" shall mean an amount equal to 99.6% (as may be adjusted
on November 1, 2002 and quarterly thereafter to reflect the bad debt reserve for
the preceding six months) of the gross revenues generated by Xxxxxx, the
Purchaser, or the Purchased Assets from sales of DME Products to the
professional community and patients who have been referred to Xxxxxx or the
Purchaser by the professional community (i.e., not direct retail sales) in (i)
the United States and all of its territories and possessions (including, but not
limited to, Puerto Rico) and (ii) Canada, but only to the extent that sales in
Canada are generated through the Xxxxxx DME Sales Program, less returns,
credits, allowances, chargebacks, discounts and rebates generated during the
applicable period; provided, that Net DME Sales shall not include revenues of
any Acquired Company which (a) is not an orthotic lab company and (b) the sales
of which are not generated through the Xxxxxx DME Sales Program.
"Office Lease" shall mean the Lease Agreement between Benefoot and
Heartland Rental Properties Partnership for the premises located at 000
Xxxxxxxxx Xxxxx, Xxxxx X, Xxxxxxxx, Xxx Xxxx, dated December 9, 1992, as amended
on January 31, 1998, March 31, 2001, and April 11, 2001.
"Other Liabilities" shall mean (i) product warranties, including
warranties under warranty reserves relating to the BeneGuard Protection Program,
(ii) the warranty reserves, (iii) obligations relating to product returns and
exchanges, (iv) unearned revenue (short term and long term) and (v) the May
Health Plan Premium each as identified on Schedule 1.
"Owned Property" shall have the meaning set forth in Section 4.16(a).
"Person," whether or not capitalized, shall mean any natural person,
corporation, unincorporated organization, partnership, limited liability
company, association, joint stock company, joint venture, trust or government,
or any agency or political subdivision of any government or any other entity.
"Post-Closing Settlement" shall have the meaning set forth in Section
2.6(d).
"Principal Shareholders" shall have the meaning set forth in the
preamble hereof.
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"Product" shall have the meaning set forth in Section 4.29.
"Purchase Price" shall have the meaning set forth in Section 2.5
hereof.
"Purchaser" shall have the meaning set forth in the preamble hereof.
"Purchaser Ancillary Agreements" shall mean the Xxxx of Sale.
"Purchaser Indemnified Parties" shall have the meaning set forth in
Section 5.3(a).
"Real Property" shall have the meaning set forth in Section 4.16(a).
"Real Property Permits" shall have the meaning set forth in Section
4.16(d).
"Registration Rights Agreement" shall have the meaning set forth in
Section 6.1.
"Related Party" shall have the meaning set forth in Section 4.21.
"Release" shall have the meaning set forth in CERCLA.
"Review Period" shall have the meaning set forth in Section 2.6(b).
"SEC" shall mean the Securities and Exchange Commission of the United
States.
"Securities Act" shall mean the Securities Act of 1933, as amended.
"Seller" shall have the meaning set forth in the preamble hereof.
"Seller Ancillary Agreements" shall mean the Xxxx of Sale, the Lock-Up
Agreement, the Registration Rights Agreement, and any agreements relating to the
assignment of trademarks from the Seller to Xxxxxx or the Purchaser.
"Seller Indemnified Parties" shall have the meaning set forth in
Section 5.3(b).
"Seller Leases" shall mean the Office Lease and the Warehouse Lease.
"Software" shall mean any and all (i) computer programs, including any
and all software implementations of algorithms, models and methodologies,
whether in source code or object code form, (ii) databases, compilations, and
any other electronic data files, including any and all collections of data,
whether machine readable or otherwise, (iii) descriptions, flow-charts,
technical and functional specifications, and other work product used to design,
plan, organize, develop, test, troubleshoot and maintain any of the foregoing,
(iv) without limitation to the foregoing, the software technology supporting any
functionality contained on the Seller's Internet site(s), and (v) all
documentation, including technical, end-user, training and troubleshooting
manuals and materials, relating to any of the foregoing.
"Subsidiary" of any Person shall mean any Person, whether or not
capitalized, in which such Person owns, directly or indirectly, an equity
interest of at least fifty percent (50%), or which may be controlled, directly
or indirectly, by such Person.
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"Tangible Property" shall have the meaning set forth in Section 4.15.
"Tax" means any federal, state, local, or foreign income, gross
receipts, license, payroll, employment, excise, severance, stamp, occupation,
premium, windfall profits, environmental (including taxes under Code Section
59A), customs duties, capital stock, franchise, profits, withholding, social
security (or similar), unemployment, disability, real property, personal
property, sales, use, transfer, registration, value added, alternative or add-on
minimum, estimated, or other tax of any kind whatsoever, including any interest,
penalty, or addition thereto, whether disputed or not.
"Tax Authority" means, with respect to any Tax, the Governmental
Authority that imposes such Tax, and the agency (if any) charged with the
collection of such Tax for such Governmental Authority.
"Tax Group" shall have the meaning set forth in Section 4.26.
"Tax Return" means any return, report or similar statement required to
be filed with respect to any Taxes (including any attached schedules),
including, any information return, claim for refund, amended return or
declaration of estimated Tax.
"Tooling" shall mean all tooling, molds, dies, plates, film, artwork,
color reproductions, jigs, assembly line and test fixtures (including those
relating to discontinued items) used in the Business, whether in the possession
of Seller or in the possession of a third party.
"Warehouse Lease" shall mean the Lease Agreement between Benefoot
Products and Triangle Properties #5 for the premises located at 000 Xxxx Xxxxxx
Xxxxxx, Xxxxx X, Xxxx Xxxx, Xxx Xxxx, dated March 2001, as amended on April 5,
2002.
1.2 Interpretation. For purposes of this Agreement, (i) the words "include,"
"includes" and "including" shall be deemed to be followed by the words "without
limitation", (ii) the words "herein", "hereof", "hereby", "hereto" and
"hereunder" refer to this Agreement as a whole, including the Exhibits and
Schedules, and (iii) the use of any gender shall be construed to include all
other genders, unless the context clearly indicates that less than all the
genders is intended. References herein to Articles, Sections, Exhibits and
Schedules mean the Articles and Sections of, and the Exhibits and Schedules
attached to, this Agreement.
ARTICLE II.
PURCHASE OF PURCHASED ASSETS; CONSIDERATION
2.1 Purchased Assets. Upon the terms and subject to the conditions of
this Agreement, on the Closing Date, Seller shall sell, transfer, assign, convey
and deliver to Purchaser, and Purchaser shall purchase from Seller, on a going
concern basis, free and clear of all Encumbrances (except for those Encumbrances
set forth on Schedule 2.1), good and marketable title to all of the Business and
operations of Seller and the goodwill associated therewith and all right, title,
and interest in, to and under all of the assets (other than the Excluded Assets)
and properties of Seller of every kind and description, wherever located, real,
personal or mixed, tangible or intangible, used in connection with the Business
as the same shall
8
exist on the Closing Date (herein collectively called the "Purchased Assets"),
including, but not limited to, all right, title and interest of Seller in, to
and under:
(a) the Current Assets (other than the amount of cash set forth on
Schedule 1 which shall be retained by the Seller (the "Retained Cash"));
(b) all transferable governmental approvals, authorizations,
consents, licenses, orders, franchises, and other permits of all Governmental
Authorities owned, held, or utilized by Seller in connection with the Business,
including the Governmental Authorizations listed on Schedule 4.18;
(c) the machinery, equipment, Tooling, vehicles (except to the
extent that they constitute Excluded Assets), office equipment, furniture,
fixtures, computer hardware and software and other personal property of every
kind and description, owned, leased, or held by Seller, including the Tangible
Property listed or referred to on Schedule 4.15;
(d) all Intellectual Property (and all goodwill associated
therewith), and the agreements, contracts, licenses, sublicenses, assignments
and indemnities listed on Schedule 4.19, including the right to xxx for and seek
remedies against past, present, and future infringements thereof;
(e) all raw materials, work in process, supplies, spare parts, and
shipping and packing materials;
(f) the Material Agreements and the leases, contracts, agreements,
understandings, licenses, supply and distribution agreements, commitments,
orders, or purchase orders with respect to the Purchased Assets not required by
the terms of Section 4.27 to be listed or described in a schedule to this
Agreement;
(g) all of Seller's rights, claims or causes of action of whatever
nature, contingent, or otherwise against third parties relating to the Purchased
Assets or the Business arising out of transactions occurring prior to the
Closing Date;
(h) all books, records, files, and papers (including all data and
other information stored on discs, tapes or other media) of Seller relating to
the Business, including without limitation engineering or manufacturing
information, lists of present of former suppliers, lists of present and former
customers, personnel and employment records, and any information relating to
Taxes imposed on the Purchased Assets;
(i) all sales, promotion, advertising, and marketing materials of
whatever form or nature owned or licensed by the Seller relating to the Business
or the Purchased Assets;
(j) all corporate names, including the name "Benefoot", telephone,
telex and telephone facsimile numbers and other directory listings and Internet
and other electronic addresses utilized in connection with the Business;
(k) the exclusive right of Purchaser to represent itself as
carrying on the Business in continuation thereof;
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(l) all right, title and interest in the Office Lease;
(m) the security deposit relating to the Office Lease;
(n) all goodwill and all other rights, properties, and assets of
any kind or character whatsoever directly or indirectly relating to the conduct
of the Business, whether tangible or intangible, owned, licensed, or held by the
Seller, including, without limitation, the full benefit of all third party
representations, warranties, guarantees, indemnities, undertakings,
certificates, covenants, agreements and the like and all security received by
the Seller for the purchase or other acquisition of any part of the Purchased
Assets, except to the extent such rights, properties, or assets comprise a part
of an Excluded Asset or are expressly excluded by the terms of this Agreement.
2.2 Excluded Assets. Notwithstanding the provisions of Section 2.1,
the Purchased Assets shall not include the following (herein referred to as the
"Excluded Assets"):
(a) all automobiles or leases for automobiles, other than the
delivery vehicles and leases for delivery vehicles listed on Schedule 2.2;
(b) all right, title and interest in all leases for real property
to which the Seller is a party, other than the Office Lease;
(c) any prepaid expenses relating to an Excluded Asset;
(d) Seller's rights, claims or causes of action against third
parties relating to the Business which might arise from or in connection with
the Excluded Assets or the discharge by Seller of the Excluded Liabilities;
(e) all claims, rights, and interests in and to any refunds for
Taxes paid by Seller for periods prior to the Closing Date;
(f) all insurance and other claims or rights to recoveries and
similar benefits of the Seller which are not related to or derived from the
Assumed Liabilities;
(g) the articles of incorporation and by-laws of the Seller and
all corporate minute books, stock books, corporate seals, stock transfer books,
and other corporate records relating to the corporate organization and
capitalization of the Seller; and
(h) all right, title and interest relating to that certain
computer and other equipment leased from Neopost, Inc. (the "Neopost Lease").
2.3 Assumed Liabilities. On the Closing Date, the Purchaser shall
assume and agree to discharge the following obligations and liabilities of
Seller in accordance with their respective terms and subject to the respective
conditions thereof (herein referred to as the "Assumed Liabilities"):
(a) the Current Liabilities;
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(b) the Long Term Liabilities;
(c) the Other Liabilities; and
(d) liabilities and obligations of Seller to be paid or performed
after the Closing Date under (x) the Material Agreements, (y) the Office Lease,
and (z) the contracts and other agreements with respect to the Business to which
Seller is a party not required by the terms of Section 4.27 to be listed in a
schedule to this Agreement, except in each case, to the extent such liabilities
and obligations, but for a breach or default by Seller, would have been paid,
performed or otherwise discharged on or prior to the Closing Date or to the
extent the same arise out of any such breach or default.
2.4 Excluded Liabilities. The Purchaser expressly does not, and shall
not, assume, be deemed to assume, or be obligated to pay, perform or otherwise
discharge any liability, obligation, or commitment of Seller, the shareholders
of the Seller, or their Affiliates, direct or indirect, known or unknown,
absolute or contingent, not specifically identified as an Assumed Liability (all
such liabilities and obligations not being assumed being herein called the
"Excluded Liabilities") and, notwithstanding anything to the contrary in Section
2.3, none of the following shall be Assumed Liabilities for purposes of this
Agreement:
(a) all costs and expenses incurred by Seller or the Principal
Shareholders incident to their negotiation and preparation of this Agreement and
its performance and compliance with the agreements and conditions contained
herein;
(b) all liabilities or obligations in respect of any Excluded
Assets;
(c) all other liabilities or obligations of the Seller, except for
the Current Liabilities, the Long Term Liabilities, the Other Liabilities, and
the liabilities and obligations assumed pursuant to Section 2.3(d);
(d) all liabilities or obligations in respect of Taxes (whether
imposed on the Seller, shareholders of the Seller, or any of their Affiliates)
arising with respect to the Business or the Purchased Assets on or before the
Closing Date, or the sale of the Purchased Assets to the Purchaser, including
sales or other transfer Tax, whenever such Taxes become due or payable;
(e) all liabilities and obligations, including damages, fines, and
penalties, with respect to pending or threatened litigation, suits, claims,
demands, or investigations or proceedings by Governmental Authorities to the
extent they relate to or arise from occurrences, actions, or non-actions prior
to the Closing Date;
(f) all liabilities or obligations imposed by Applicable Law or
associated with, arising out of or arising from (i) noncompliance by the Seller
with any Applicable Law, including, but not limited to, those relating to
employment practices and Environmental and Safety Requirements prior to the
Closing Date, (ii) the occupancy, operation, use or control of any of the
business property of the Seller prior to the Closing Date, or (iii) the
operation of the Business prior to the Closing Date;
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(g) all claims, demands, liabilities, obligations, or litigation
of any nature whatsoever arising out of or based upon events occurring or
conditions existing on or before the Closing Date which relate to products sold
or services performed by Seller on or before the Closing Date or any other
action or inaction of Seller, whether founded upon negligence, breach of
warranty, strict liability in tort and/or other legal theory seeking
compensation or recovery for or relating to injury to persons or damage to
property, notwithstanding that the date on which the injury, claim, demand,
liability, or obligation was or is either before or after the Closing Date,
other than a claim or liability included as an Assumed Liability;
(h) all claims, demands, obligations or liabilities, including the
cost and expenses of defense thereof, whether arising out of, based upon, or
related to workers' compensation or employer's liability claims, negligence,
strict liability in tort and/or other legal theory seeking compensation and/or
recovery and arising out of injuries and occupational diseases sustained by
employees of Seller on or before the Closing Date;
(i) all liabilities and obligations arising from the breach or
default by Seller, prior to the Closing Date, of any lease, contract,
engagement, or commitment, including the Seller Leases and the Material
Agreements;
(j) all wages, compensation, premiums for medical and health
insurance, severance premiums, deferred compensation, profit-sharing, pension
contributions, or other welfare or benefit programs relating to the employees of
the Seller accruing or arising on or prior to the Closing Date;
(k) all costs, expenses, and liabilities associated with the
Seller's termination of the Seller's employees as contemplated by Section
7.10(a), excluding the accrued vacation set forth on Schedule 2.4(k);
(l) all liabilities for compensation (including salaries, wages,
and benefits) and claims for severance and for payments in lieu of notice of
termination made by employees of Seller who are not employed by Purchaser as of
the Closing Date, including, without limitation, by reason of Seller's failure
to comply with the Worker Adjustment and Restraining Notification Act ("WARN"),
other than a liability included as an Assumed Liability; and
(m) all liabilities, debts, and obligations relating to any
employee profit sharing plans and savings and stock ownership plans and pension
or retirement plans, health, and other employee plans, including, without
limitation, any defined benefit pension plan or 401(k) plan.
(n) all liabilities and obligations arising out of or relating to
the Neopost Lease.
2.5 Consideration. (a) Subject to adjustment as set forth in Section
2.6, the aggregate purchase price for the Purchased Assets shall be Six Million
Dollars ($6,000,000) (the "Purchase Price"), payable by Purchaser to the Seller
as follows:
(i) $3,700,000, less an amount equal to the amount of Retained
Cash, shall be payable at the Closing in cash by wire
transfer of
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immediately available funds to an account or accounts
specified by the Seller (the "Cash Payment");
(ii) One promissory note issued to each of Benefoot and
Benefoot Products by Xxxxxx in the aggregate initial
outstanding amount of $1,800,000, substantially in the
form attached hereto as Exhibit 1 hereto (the "Promissory
Notes"); and
(iii) A number of shares of Xxxxxx Common Stock having a value
equal to $500,000, valued based upon the Average Closing
Price (the "Consideration Shares");
(b) The Cash Payment, initial outstanding amount of each
Promissory Note, the Consideration Shares and the Deferred Consideration shall
be allocated between Benefoot and Benefoot Products in the respective amounts
set forth on Schedule 2.5(b) hereto.
2.6 Certain Closing Adjustments and Covenants. (a) The Purchase Price
(i) shall be increased dollar for dollar to the extent that the Net Current
Assets, as included in the Closing Date Balance Sheet, are in excess of $700,000
on the Closing Date and (ii) shall be decreased dollar for dollar to the extent
that Net Current Assets, as included in the Closing Date Balance Sheet, are less
than $700,000 on the Closing Date. Additionally, the Purchase Price (i) shall be
increased dollar for dollar to the extent that the Long Term Liabilities, as
included in the Closing Date Balance Sheet, are less than $400,000 on the
Closing Date and (ii) shall be decreased dollar for dollar to the extent that
Long Term Liabilities, as included in the Closing Date Balance Sheet, exceed
$400,000 on the Closing Date.
(b) For purposes of calculating the Net Current Assets and the
Long Term Liabilities, the Seller's independent accountants shall conduct an
audit of the closing date balance sheet of the Seller promptly after the
Closing, and within 45 days following the Closing Date, the Seller shall deliver
to the Purchaser (i) a balance sheet of the Seller as at the Closing Date (the
"Closing Date Balance Sheet") prepared in accordance with GAAP applied on a
basis consistent with the Financial Statements and audited in accordance with
GAAS, and (ii) an unaudited statement of Net Current Assets and Long Term
Liabilities, derived from the items set forth on the Closing Date Balance Sheet.
Notwithstanding the immediately preceding sentence, if the accounting policies
and procedures applied by Seller in the preparation of the Financial Statements
are not in accordance with GAAP, the Closing Date Balance Sheet shall
nevertheless be prepared in accordance with GAAP. The Closing Date Balance Sheet
and such statement of Net Current Assets and Long Term Liabilities shall exclude
any adjustments or modification to the historical carrying values of assets and
liabilities resulting from the recording of the transactions contemplated
hereby. The Purchaser and its accountants shall be afforded access to and shall
review the workpapers of the Seller and its accountants in connection with the
preparation of the Closing Date Balance Sheet and such statement of Net Current
Assets and Long Term Liabilities. The Closing Date Balance Sheet shall become
final and binding upon the parties unless, within 30 days following delivery to
the Purchaser (such 30 day period hereinafter referred to as the "Review
Period"), notice is given by the Purchaser to the Seller of the Purchaser's
dispute of the Closing Date Balance Sheet, setting forth in reasonable detail
the
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Purchaser's basis for such objection. If notice of dispute is timely given
by the Purchaser, the parties shall work together in good faith to resolve such
dispute.
(c) If the parties are unable to reach agreement within 30 days
after notice of dispute has been received by the Seller, the dispute shall be
referred for resolution to KPMG Peat Marwick, LLP (the "Determining
Accountants") as promptly as practicable. The Determining Accountants shall make
a determination as to each item in dispute, which determination shall be (i) in
writing, (ii) furnished to Xxxxxx, the Purchaser, the Seller, and the Principal
Shareholders as promptly as practicable after the items in dispute have been
referred to the Determining Accountants, (iii) made in accordance with this
Agreement, and (iv) conclusive and binding upon each party hereto. Each of
Purchaser and the Seller shall use reasonable efforts to cause the Determining
Accountants to render their decision as soon as reasonably practicable,
including without limitation by promptly complying with all reasonable requests
by the Determining Accountants for information, books, records and similar
items.
(d) If any post-closing adjustment is required or permitted to be
made pursuant hereto, the settlement thereof (the "Post-Closing Settlement")
shall take place at the offices of Xxxx Xxxxxxx, P.C. at 10:00 a.m. local time
on the fifth business day following the end of the Review Period, or in the
event such matter has been referred to the Determining Accountants, on the fifth
business day following the date upon which the written determination of the
Determining Accountants becomes final and binding upon the parties, or at such
other time and place as the Purchaser and the Seller may mutually agree in
writing (the "Determination Date"). If at the Post-Closing Settlement the
Purchase Price is increased, the Purchaser shall pay the first $100,000 of any
such increase in cash by wire transfer of immediately available funds to an
account or accounts specified by the Seller, and the balance of such increase
shall be paid in a number of shares of Xxxxxx Common Stock equal to the balance
of such increase, valued at the average closing price of the Xxxxxx Common Stock
on the NASDAQ Small Cap Market for the ten (10) consecutive trading day period
ending three (3) trading days prior to the Determination Date. If at the
Post-Closing Settlement the Purchase Price is decreased, the first $100,000 of
any such decrease shall be paid in cash by wire transfer of immediately
available funds to an account or accounts specified by Xxxxxx, and the balance
of such decrease shall be set-off from the Promissory Notes in proportion to the
initial outstanding amount of each Promissory Note. The fees and expenses of
each party's respective accountants shall be borne by such party; provided;
however, the Purchaser shall pay the initial $10,000 of the cost incurred by the
Seller for the preparation of the Closing Date Balance Sheet. The fees and
expenses of the Determining Accountants incurred in connection with its review
and determination shall be borne one-half by the Purchaser and one-half by the
Seller.
2.7 Deferred Consideration. (a) Xxxxxx shall pay the Seller deferred
consideration ("Deferred Consideration") in cash in an amount equal to nine
percent (9%) of the Net DME Sales during the first two years after the Closing
Date (the "Deferred Consideration Period"), up to a maximum aggregate amount of
$1,000,000. The parties agree that for the purpose of calculating Deferred
Consideration, the following parameters shall apply:
(i) Net DME Sales during any Deferred Consideration
Calculation Period (as defined below) shall be decreased
by the product of (x) $400,000 times (y) a fraction, the
numerator of which is the
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number of days within such Deferred Consideration
Calculation Period and the denominator of which is 365.
(ii) If the gross revenue from all sales of DME Products by an
Acquired Company which occur during any Deferred
Consideration Calculation Period but after the date of
acquisition of such Acquired Company exceeds the product
of (x) Average Gross Revenue of such Acquired Company
times (y) a fraction, the numerator of which is the number
of days within such Deferred Consideration Calculation
Period after the date of acquisition of such Acquired
Company and the denominator of which is 365 (such amount
being the "Excess Acquired Company Gross Revenue"), then:
(x) If such Acquired Company is an orthotic lab company,
Net DME Sales for such Deferred Consideration Period shall include the Excess
Acquired Company Gross Revenue with respect to such Deferred Consideration
Period; and
(y) If such Acquired Company is not an orthotic lab
company, Net DME Sales for such Deferred Consideration Period shall include the
Excess Acquired Company Gross Revenue with respect to such Deferred
Consideration Period to the extent that such sales are generated through the
Xxxxxx DME Sales Program. Such Net DME shall not include revenues of any
Acquired Company (i) which is not an orthotic lab company and (ii) the sales of
which are not generated through the Xxxxxx DME Sales Program.
(b) Deferred Consideration shall be paid as follows:
(i) Fifty Percent (50%) of Deferred Consideration earned
during the period beginning on the Closing Date and ending
on November 6, 2002 shall be paid on or before December
21, 2002;
(ii) One Hundred Percent (100%) of Deferred Consideration
earned during the period beginning on the Closing Date and
ending on December 31, 2002, less the amount of any
payment made pursuant to Section 2.7(b)(i) above, shall be
paid on or before the 15th day following the completion of
the audit for the fiscal year ended December 31, 2002 by
Xxxxxx'x independent accountants;
(iii) Fifty Percent (50%) of Deferred Consideration earned
during the period beginning January 1, 2003 and ending
June 30, 2003 shall be paid on or before August 14, 2003;
(iv) One Hundred Percent (100%) of Deferred Consideration
earned during the period beginning January 1, 2003 and
ending December 31, 2003, less the amount any payment made
pursuant to Section 2.7(b)(iii) above, shall be paid on or
before the 15th day following the completion of the audit
for the fiscal year ended December 31, 2003 by Xxxxxx'x
independent accountants; and
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(v) One Hundred Percent (100%) of Deferred Consideration
earned during the period beginning on January 1, 2004 and
ending on May 6, 2004 shall be paid on or before June 20,
2004.
Each time period described in Sections 2.7(b)(i)-(v) above shall
be referred to herein as a "Deferred Consideration Calculation Period".
(c) If, within the Deferred Consideration Period, the employment
of either of Xxxxx Xxxxx or Xxxx Xxxxxx is terminated by Xxxxxx without Cause or
if either of Xxxxx Xxxxx or Xxxx Xxxxxx shall terminate his employment for Good
Reason, each as defined in the Xxxxx Employment Agreement or the Xxxxxx
Employment Agreement, as the case may be, then, with respect to each such
termination, an amount equal to the difference between $500,000 and one-half of
the aggregate payments of Deferred Consideration paid to Seller through the date
of such termination shall be accelerated and be immediately due and payable in
cash by wire transfer of immediately available funds to Seller upon such
termination.
(d) For the period commencing on the Closing Date through November
1, 2002, Xxxxxx shall make available to the Xxxxxx DME Sales Program the same
categories, but not necessarily the same levels, of resources which it makes
available to other Xxxxxx sales programs (e.g., the amounts of resources made
available to the Xxxxxx DME Sales Program may be greater or less than the
amounts of resources made available to other Xxxxxx sales programs). On each of
November 1, 2002, February 1, 2003, May 1, 2003, August 1, 2003, and November 1,
2003 (each a "Comparison Date"), Net DME sales for the six month period
immediately preceding such Comparison Date ("Six Month Sales") will be compared
to the Net DME sales targets set forth on Schedule 2.7(d) (the "Sales Targets")
with respect to such Comparison Date. If on any Comparison Date, the Six Month
Sales with respect to such Comparison Date is equal to or greater than the Sales
Target with respect to such Comparison Date, then for the six months following
such Comparison Date, Xxxxxx shall make available to the Xxxxxx DME Sales
Program the same categories, but not necessarily the same levels, of resources
which it makes available to other Xxxxxx sales programs (e.g., the amounts of
resources made available to the Xxxxxx DME Sales Program may be greater or less
than the amounts of resources made available to other Xxxxxx sales programs).
Net DME Sales, for the purpose of this Section 2.7(d), shall exclude all sales
of DME Products by an Acquired Company.
(e) Xxxxxx and the Purchaser shall have the sole and absolute
right to establish and modify prices for DME Products and its other products
from time to time.
2.8 Allocation of the Purchase Price. In order to facilitate certain
tax filings, the Purchase Price, as adjusted pursuant to Section 2.6, and the
value of the Assumed Liabilities shall be allocated among the Purchased Assets
and restrictive covenants in the manner set forth on Schedule 2.8. The Purchaser
and the Seller each agree to file timely IRS Form 8594, and all federal, state,
local and foreign Tax Returns, in accordance with Schedule 2.8 and in compliance
with the requirements of Section 1060 of the Code, and no party shall take any
position inconsistent with Schedule 2.8 upon examination of any such Tax Return,
in any claim, or otherwise.
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2.9 Delivery and Assignment of Purchased Assets; Attorney-in-Fact. (a)
Promptly following the Closing, Seller will put the Purchaser into full physical
possession and enjoyment of the Purchased Assets. With respect to the Purchased
Assets listed on Schedule 4.15 that cannot be physically delivered to the
Purchaser because they are in the possession of third parties or otherwise, the
Seller shall give irrevocable instructions to the party in possession thereof,
promptly following the Closing, with copies to the Purchaser, that all right,
title, and interest therein have been vested in the Purchaser and that the same
are to be held for the Purchaser's exclusive use and benefit.
(b) To the extent that the assignment by the Seller to the
Purchaser of any Material Agreement or other contract, agreement, instrument,
lease, license, understanding, or arrangement to be assigned to the Purchaser
hereunder shall require the consent of a party other than the Seller, including
those set forth on Schedule 4.3, which has not been obtained prior to the
Closing and if Xxxxxx and the Purchaser shall nevertheless elect to consummate
the transactions contemplated by this Agreement, this Agreement shall not
constitute an agreement to assign the same if an attempted assignment without
such consent would constitute a breach thereof unless the Purchaser before, at,
or after the Closing elects in a writing delivered to the Seller, specifically
identifying such absent consent, to waive such consent. Nothing in this Section
2.9(b) regarding such non-assignment or such election shall limit any rights
Xxxxxx or the Purchaser may have against the Seller as a result of the failure
to obtain such consent.
(c) All costs and expenses incurred in connection with the
assignment and transfer of the Purchased Assets (including, but not limited to,
amounts required to be paid in order to obtain necessary consents for such
assignments and transfers) shall be borne solely by the Seller.
(d) Seller hereby constitutes and appoints Purchaser, and its
successors and assigns, the true and lawful attorneys-in-fact of Seller with
full power of substitution, in the name of Purchaser or the name of Seller, on
behalf of and for the benefit of Purchaser, to collect all accounts receivable
included within the Purchased Assets and other items being transferred, conveyed
and assigned to Purchaser as provided herein, to endorse, without recourse,
checks, notes and other instruments included with the Purchased Assets in the
name of Seller for the purpose of collection, to institute and prosecute, in the
name of Seller or otherwise, all proceedings which Purchaser may deem proper in
order to collect, assert or enforce any claim, right or title of any kind in or
to the Purchased Assets being transferred, conveyed and assigned as provided
herein and to defend and compromise any and all actions, suits or proceedings in
respect of any of such Purchased Assets and Assumed Liabilities and to do all
such acts and things in relation thereto as Purchaser may deem advisable in its
sole discretion. Seller acknowledges and agrees that the foregoing powers are
coupled with an interest and shall be irrevocable. Seller further agrees that
Purchaser shall retain for its own account any amounts collected pursuant to the
foregoing powers, and Seller, the Principal Shareholders, and their Affiliates
shall pay to Purchaser, if and when received, any amounts which shall be
received by Seller, the Principal Shareholders, or their Affiliates after the
Closing in respect of the Purchased Assets to be transferred, conveyed and
assigned to Purchaser as provided herein; and Xxxxxx, the Purchaser, and the
Affiliates shall pay to Seller, if and when received, any amounts which shall be
received by Xxxxxx, the Purchaser, or their Affiliates after the Closing in
respect of the Excluded Assets.
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2.10 Closing; Effective Date. Subject to the terms and conditions set
forth herein, the closing of the transactions contemplated by this Agreement
(the "Closing") shall take place at the offices of Xxxx Xxxxxxx, P.C., 0000
Xxxxxx xx xxx Xxxxxxxx, Xxx Xxxx, Xxx Xxxx 00000, on May 6, 2002, or on such
other date and at such other place as may be agreed to by the parties. The
Closing shall be deemed to be effective as of 12:01 a.m., New York City time, on
such date, and such date is referred to herein as the "Closing Date". All
proceedings to be taken and all documents to be executed at the Closing shall be
deemed to have been taken, delivered and executed simultaneously, and no
proceeding shall be deemed taken nor documents deemed executed or delivered
until all have been taken, delivered and executed.
2.11 Fractional Shares. Notwithstanding any other provision of this
Agreement, if the Seller would otherwise have been entitled to receive a
fraction of a share of Xxxxxx Common Stock, the number of shares issuable shall
be rounded up or down to the nearest whole number.
2.12 Legending of Securities. Each certificate for Xxxxxx Common Stock
to be issued to the Seller as part of the Consideration Shares, and each
certificate for Xxxxxx Common Stock to be issued pursuant to the Consulting
Agreement shall bear substantially the following legend:
"THE SHARES OF COMMON STOCK REPRESENTED BY THIS CERTIFICATE
HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "SECURITIES ACT"), AND MAY NOT BE SOLD, ASSIGNED,
PLEDGED, HYPOTHECATED OR OTHERWISE TRANSFERRED WITHOUT SUCH
REGISTRATION UNDER THE SECURITIES ACT OR AN EXEMPTION
THEREFROM.
IN ADDITION, THE TRANSFER OF THE SHARES OF COMMON STOCK
EVIDENCED HEREBY IS RESTRICTED BY THE TERMS OF AN AGREEMENT
BETWEEN THE REGISTERED HOLDER HEREOF AND THE ISSUER HEREOF.
A COPY OF SUCH AGREEMENT IS ON FILE AT THE PRINCIPAL OFFICES
OF THE ISSUER."
ARTICLE III.
REPRESENTATIONS AND WARRANTIES OF XXXXXX AND PURCHASER
In order to induce the Seller and the Principal Shareholders to enter
into this Agreement and the Seller Ancillary Agreements and to consummate the
transactions contemplated hereby and thereby, Xxxxxx and the Purchaser, jointly
and severally, make the representations and warranties set forth below to the
Seller and the Principal Shareholders.
3.1 Capitalization. The authorized capital stock of Xxxxxx consists of
(i) 10,000,000 shares of common stock, $.02 par value per share, of which four
million two hundred thousand nine hundred twenty two (4,200,922) shares were
issued and outstanding as of March 26, 2002
18
and (ii) two hundred fifty thousand (250,000) shares of preferred stock, $1.00
par value per share, of which no shares are outstanding. Except as set forth on
Schedule 3.1, as of March 26, 2002, there were no outstanding (a) securities or
instruments convertible into or exercisable for any of the capital stock or
other equity interests of Xxxxxx, or (b) options, warrants, subscriptions or
other rights to acquire capital stock or other equity interests of Xxxxxx.
3.2 Organization; Standing and Power. Xxxxxx is a corporation duly
organized, validly existing and in good standing under the laws of the State of
New York. Purchaser is a corporation duly organized, validly existing and in
good standing under the laws of the State of Delaware.
3.3 Authorization; Enforceability. Each of Xxxxxx and the Purchaser
has all requisite right, corporate power, and corporate authority to execute,
deliver, and perform this Agreement, the Xxxxxx Ancillary Agreements, and the
Purchaser Ancillary Agreements, as the case may be, and to consummate the
transactions contemplated hereby and thereby. This Agreement, the Xxxxxx
Ancillary Agreements, the Purchaser Ancillary Agreements, and all other
agreements or documents executed and delivered by Xxxxxx and the Purchaser
pursuant to this Agreement have been duly authorized by each of Xxxxxx and the
Purchaser, do not require any further authorization or consent of Xxxxxx or the
Purchaser, and have been duly executed and delivered by Xxxxxx and the
Purchaser, as the case may be, and constitute the legal, valid and binding
obligations of Xxxxxx and Purchaser, as the case may be, enforceable in
accordance with their terms, except to the extent that their enforcement is
limited by bankruptcy, insolvency, reorganization or other laws relating to or
affecting the enforcement of creditors' rights generally and by general
principles of equity.
3.4 No Violation or Conflict. (a) The execution, delivery and
performance of this Agreement, the Xxxxxx Ancillary Agreements, the Purchaser
Ancillary Agreements, and the other agreements and documents pursuant hereto by
Xxxxxx and the Purchaser and the consummation by Xxxxxx and Purchaser of the
transactions contemplated hereby and thereby: (i) do not violate or conflict
with any Applicable Law, except where such violation or conflict would not have
a Material Adverse Effect, (ii) do not violate or conflict with any provision of
Xxxxxx'x and Purchaser's certificate of incorporation or bylaws; and (iii) do
not, with or without the passage of time or the giving of notice, (x) result in
the breach of, constitute a default, or give rise to a right of termination,
cancellation, or acceleration of performance or loss of benefit or other adverse
reaction under, or in any way affect the continuation, validity, or
effectiveness of any agreement, understanding, or instrument to which Xxxxxx and
the Purchaser are a party or by which Xxxxxx and the Purchaser or their
respective properties may be bound or affected or (y) result in the creation of
any Encumbrance upon any property or assets of Xxxxxx and Purchaser pursuant to
any agreement, understanding, or instrument to which Xxxxxx and Purchaser are a
party or by which Xxxxxx and Purchaser or their respective properties may be
bound or affected.
(b) Except as set forth on Schedule 3.4, the consummation of the
transactions contemplated by this Agreement, the Xxxxxx Ancillary Agreements,
the Purchaser Ancillary Agreements and the other agreements executed and
delivered by Xxxxxx or the Purchaser at the Closing will not require the
notification of or consent, approval, or authorization of any third party, other
than a notification or consent which is not required to be obtained until after
the date hereof. Each of the consents, approvals, and authorizations listed on
Schedule 3.4 has been
19
obtained and are valid, unconditional, and in full force and effect as of the
date hereof, except as set forth on Schedule 3.4.
3.5 Consent of Governmental Authorities. No consent, approval or
authorization of, or registration, qualification or filing with any Governmental
Authority is required to be made by Xxxxxx and Purchaser in connection with the
execution, delivery or performance by Xxxxxx and Purchaser of this Agreement,
the Xxxxxx Ancillary Agreements, or the Purchaser Ancillary Agreements or the
consummation by Xxxxxx and Purchaser of the transactions contemplated hereby,
other than as required by the Securities Act or applicable state law with
respect to the issuance of the Consideration Shares and the shares of Xxxxxx
Common Stock to Xx. Xxxxxxx Xxxxxx under the Consulting Agreement.
3.6 Brokers. Except for Lloyds Capital, Inc., Xxxxxx and Purchaser have
not employed any financial advisor, broker or finder. Xxxxxx and the Purchaser
shall be solely responsible for all fees, commissions, and expenses of Lloyds
Capital, Inc. incurred by Xxxxxx and the Purchaser in connection with the
transactions contemplated by this Agreement.
3.7 Issuance of Xxxxxx Common Stock. The shares of Xxxxxx Common Stock,
when issued and delivered to the Seller in accordance with the terms and
provisions of this Agreement and to Xx. Xxxxxxx Xxxxxx in accordance with the
terms and provisions of the Consulting Agreement, will be (i) duly authorized
and validly issued, fully paid and non-assessable, (ii) free and clear of any
Encumbrances, and (iii) assuming the accuracy of the representations and
warranties set forth in Sections 4.36 and 4.37 and in the Representation
Letters, dated as of the date hereof signed by the Seller and each of its
stockholders and delivered to Xxxxxx and the Purchaser and the making of filings
that are not required to be made until after the date hereof, are issued in
compliance with the Securities Act and Applicable Law.
3.8 SEC Filings. The audited consolidated balance sheets and related
consolidated statements of income, cash flows, and changes in stockholders'
equity (together with related notes) as of and for the ten months ended December
31, 2001 and the twelve months ended February 28, 2001, as set forth in Xxxxxx'x
annual report on Form 10-K, as amended, with respect to the ten months ended
December 31, 2001, as filed with the SEC (the "Xxxxxx 10-K"), (x) fairly present
in all material respects the financial position of Xxxxxx as of December 31,
2001 and February 28, 2001 and the results of its operations, cash flows, and
stockholders' equity for the ten months ended December 31, 2001 and the twelve
months ended February 28, 2001 and (y) were prepared in accordance with GAAP
applied on a consistent basis throughout such period, except as otherwise
indicated in the notes thereto.
3.9 Litigation. There are no suits or actions pending or, to the
knowledge of Xxxxxx and Purchaser, threatened, against Xxxxxx and Purchaser,
which if decided against Xxxxxx and Purchaser would materially affect the
ability of Xxxxxx and Purchaser to consummate the Closing. There are no
judgments, orders, stipulations, injunctions, decrees or awards in effect which
relate to Xxxxxx and Purchaser or the operation of Xxxxxx and Purchaser, which
if decided against Xxxxxx and Purchaser would materially affect the ability of
Xxxxxx and Purchaser to consummate the Closing.
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3.10 No Default. To the knowledge of Xxxxxx, as of the date hereof,
there exists no Default or Event of Default under the Convertible Subordinated
Note Purchase Agreement, dated October 31, 2001, between the Company and the
purchasers thereunder (the "Note Purchase Agreement") or under the promissory
notes issued pursuant to the Note Purchase Agreement. As of the date hereof,
Xxxxxx has made all payments required pursuant to Section 10(a) of the Note
Purchase Agreement.
ARTICLE IV.
REPRESENTATIONS AND WARRANTIES OF THE SELLER
In order to induce Purchaser and Xxxxxx to enter into this Agreement,
the Xxxxxx Ancillary Agreements, and the Purchaser Ancillary Agreements and to
consummate the transactions contemplated hereby and thereby, the Seller and each
of the Principal Shareholders, jointly and severally, make the representations
and warranties set forth below to Purchaser and to Xxxxxx.
4.1 Organization. (a) Each Seller is a corporation duly organized,
validly existing and in good standing under the laws of New York. Each Seller is
duly qualified to transact business as a foreign corporation in all
jurisdictions where the ownership or leasing of its properties or the conduct of
its business requires such qualification, except where the failure to be so
qualified would not have a Material Adverse Effect. Each jurisdiction in which
the Seller is so qualified is listed on Schedule 4.1(a) hereto. Each Seller has
the requisite right, power and authority (i) to own or lease and operate its
properties and (ii) to conduct its business as presently conducted.
(b) Except as set forth on Schedule 4.1(b), the Seller does not,
directly or indirectly, (a) own, of record or beneficially, any outstanding
voting securities or other equity interests in any corporation, partnership,
limited liability company, joint venture or other entity, (b) control any
corporation, partnership, joint venture or other entity, or (c) have any
Investments.
4.2 Authorization; Enforceability. Each Seller has all requisite right,
corporate power and corporate authority to execute, deliver and perform this
Agreement and the Seller Ancillary Agreements and to consummate the transactions
contemplated hereby and thereby. Each Principal Shareholder has the capacity to
execute, deliver, and perform this Agreement and the agreements or other
documents contemplated hereby to which it is a party. This Agreement, the Seller
Ancillary Agreements, the Xxxxxx Employment Agreement, the Xxxxx Employment
Agreement and all other agreements or documents executed and delivered by the
Seller or the Principal Shareholders pursuant to this Agreement have been duly
authorized by the Seller and the Principal Shareholders, do not require any
further authorization or consent of the Seller or the Principal Shareholders,
and have been and will be duly executed and delivered and constitute the legal,
valid and binding obligations of Seller and the Principal Shareholders
enforceable in accordance with their respective terms, except to the extent that
their enforcement is limited by bankruptcy, insolvency, reorganization or other
laws relating to or affecting the enforcement of creditors' rights generally and
by general principles of equity.
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4.3 No Violation or Conflict; Consent. (a) Except as set forth on
Schedule 4.3 hereto, the execution, delivery and performance of this Agreement,
the Seller Ancillary Agreements, the Xxxxxx Employment Agreement, and the Xxxxx
Employment Agreement, and the other agreements and documents pursuant hereto by
the Seller and the Principal Shareholders and the consummation by the Seller and
the Principal Shareholders of the transactions contemplated hereby: (i) do not
materially violate or conflict with any Applicable Law, (ii) do not violate or
conflict with any provision of either Seller's certificate of incorporation or
bylaws; and (iii) do not, with or without the passage of time or the giving of
notice, (x) result in the material breach of, constitute a default, or give rise
to a right of termination, cancellation, or acceleration of performance or loss
of material benefit or other adverse reaction under, or in any way affect the
continuation, validity, or effectiveness of any Material Agreement or any other
agreement, understanding, or instrument which is a Purchased Asset to which the
Seller or any Principal Shareholder is a party or by which the Seller or the
Principal Shareholders or their respective properties may be bound or affected
or (y) result in the creation of any Encumbrance upon any property or assets of
the Seller or the Principal Shareholders pursuant to any Material Agreement or
any other agreement, understanding, or instrument which is a Purchased Asset to
which the Seller or any Shareholder is a party or by which the Seller or the
Principal Shareholders or their respective properties may be bound or affected.
(b) Except as set forth on Schedule 4.3, the consummation of the
transactions contemplated by this Agreement, the Seller Ancillary Agreements,
the Xxxxxx Employment Agreement, and the Xxxxx Employment Agreement and the
other agreements executed and delivered by the Seller or the Principal
Shareholders at the Closing will not require the notification of or consent,
approval, or authorization of any third party. Each of the consents, approvals,
and authorizations listed on Schedule 4.3 has been obtained and are valid,
unconditional, and in full force and effect as of the date hereof, except as set
forth on Schedule 4.3.
4.4 Consents of Governmental Authorities. Except as set forth on
Schedule 4.4, no consent, approval or authorization of, or registration,
qualification or filing with any Governmental Authority is required to be made
in connection with the execution, delivery or performance of this Agreement, the
Seller Ancillary Agreements, the Xxxxxx Employment Agreement, or the Xxxxx
Employment Agreement by the Seller or the Principal Shareholders or the
consummation by the Seller of the transactions contemplated hereby.
4.5 Conduct of Business. Except as disclosed on Schedule 4.5 hereto,
since December 31, 2001, the Seller has conducted its business in the ordinary
and usual course consistent with past practices and there has not occurred any
Material Adverse Change. Without limiting the generality of the foregoing,
except as disclosed on Schedule 4.5, since December 31, 2001, Seller has not:
(a) amended its certificate of incorporation or bylaws; (b) issued, sold or
authorized for issuance or sale, shares of any class of its securities
(including, but not limited to, by way of stock split or dividend) or any
subscriptions, options, warrants, rights or convertible securities or entered
into any agreements or commitments of any character obligating it to issue,
sell, redeem, purchase, or register any such securities; (c) redeemed, purchased
or otherwise acquired, directly or indirectly, any shares of its capital stock
or any option, warrant or other right to purchase or acquire any such shares;
(d) declared or paid any dividend or other distribution (whether in cash, stock
or other property) with respect to its capital stock, other than
22
distributions to its shareholders sufficient to pay taxes with respect to their
ownership of capital stock of the Seller; (e) sustained any operating loss or
reduction in net assets; (f) suffered any damage, destruction or loss, whether
or not covered by insurance, which has had or could have a Material Adverse
Effect; (g) sold, leased, or disposed of any material assets or property; (h)
granted or made any mortgage or pledge or subjected itself or any of its
properties or assets to any Encumbrance of any kind, except liens for Taxes not
currently due; (i) made or committed to make any capital expenditures in excess
of $1,000, other than capital expenditures in the ordinary course of business
consistent with past practice; (j) become subject to any Guaranty; (k) changed
any accounting method used by the Seller or been affected by any material change
in any accounting method used by the Seller; (l) granted any increase in the
compensation payable or to become payable to directors, officers, or employees
paid more than $40,000 per year (including, without limitation, any such
increase pursuant to any bonus, pension, profit-sharing or other plan or
commitment); (m) entered into any agreement which would be a Material Agreement,
or amended or terminated any existing Material Agreement or received notice of
any such amendment or termination; (n) experienced any strike, work stoppage or
slowdown; (o) received notice of any adverse change in its relationship with any
financial institution, customer or supplier with which it currently does
business, nor is the Seller aware of any circumstance that could reasonably lead
to such a change; (p) in writing, or orally through the Principal Shareholders
or any other person with authority to act on behalf of the Seller, increased or
agreed to increase any fee, compensation, or other payment to any other Person
or supplier, including pursuant to any technology or patent license agreement,
other than in the ordinary course of business consistent with past practice or
(q) entered into any agreement to do any the foregoing.
4.6 Litigation; Disputes. Except as set forth on Schedule 4.6, there
are no actions, suits, investigations, arbitrations, claims or proceedings
("Litigation") pending or, to the knowledge of the Seller or the Principal
Shareholders, threatened by or before any Governmental Authority or arbitrator,
(a) affecting the Seller (as plaintiff or defendant) or the Purchased Assets or
(b) against the Seller or the Principal Shareholders relating to the Purchased
Assets or the transactions contemplated by this Agreement, and there exist no
facts or circumstances known to the Seller or the Principal Shareholders
creating any reasonable basis for the institution of any such action, suit,
investigation, claim or proceeding described above. Schedule 4.6 sets forth a
complete and accurate list and description of any Litigation commenced against
the Seller in the last five (5) years. No dispute or claim exists between the
Seller and any of its customers, suppliers, or distributors that could
reasonably be expected to have a Material Adverse Effect.
4.7 Brokers. Except as set forth on Schedule 4.7 hereto, neither the
Seller nor the Principal Shareholders has employed any financial advisor, broker
or finder, and neither of them has incurred or will incur any other broker's,
finder's, investment banking or similar fees, commissions or expenses in
connection with the transactions contemplated by this Agreement. The Seller
shall be solely responsible for all fees, commissions, and expenses of any
Person set forth on Schedule 4.7 hereto incurred in connection with the
transactions contemplated by this Agreement.
4.8 Compliance. The Seller is in material compliance with all
Applicable Law including, but not limited to, those relating to (a) the
development, manufacture, distribution, marketing and sale of products and
services, (b) employment, (c) building, zoning and land use, (d) Environmental
and Safety Requirements, (e) the bidding for contracts by and the conduct of
23
business by federal and state contractors, (f) the Medicare and Medicaid
Anti-Fraud and Abuse Amendments to the Social Security Act (42 U.S.C.
ss.1320a-7a-b and 42 U.S.C. ss.1396h(a)), (g) the Federal False Claims Act, and
(h) the Xxxxx Law (42 U.S.C. ss.1395nn). The Seller is not subject to any
judicial, governmental or administrative order, judgment or decree. Attached
hereto as Schedule 4.8 are true and correct copies of all reports of inspections
of the Purchased Assets, the Business and properties of the Seller which
occurred during the past five (5) years through the date hereof, under all
Applicable Laws. Neither the Seller nor the Shareholders has received notice of
any violation (or any investigation, inspection, audit, or other proceeding by
any Governmental Authority involving an allegation of any violation) of any
Applicable Law, and to the knowledge of the Seller or the Principal
Shareholders, no investigation, inspection, audit, or other proceeding by any
Governmental Authority involving an allegation of violation of any Applicable
Law by the Seller is threatened or contemplated.
4.9 Charter, Bylaws and Corporate Records. A true, correct and complete
copy of (a) the certificate of incorporation of each Seller, as amended and in
effect on the date hereof and (b) the bylaws of each the Seller, as amended and
in effect on the date hereof, has previously been made available to the
Purchaser. The minute books of each Seller has previously been made available to
the Purchaser. Such minute books contain complete and accurate records, in all
material respects, of all meetings and other corporate actions of the board of
directors, committees of the board of directors, incorporators and shareholders
of each Seller from the date of its incorporation to the date hereof. All such
meetings were duly called and held in accordance with the corporate laws of the
State of New York.
4.10 Capitalization of Benefoot and Benefoot Products. (a) Benefoot.
The authorized capital stock of Benefoot consists of (i) 7,500 shares of common
stock, no par value, of which two hundred (200) shares are issued and
outstanding, and (ii) no shares of preferred stock (such outstanding common
stock and outstanding preferred stock, the "Outstanding Benefoot Capital
Stock"). All shares of the Outstanding Benefoot Capital Stock have been duly
authorized, are validly issued and outstanding, and are fully paid and
nonassessable. No securities issued by Benefoot from the date of its
incorporation to the date hereof were issued in violation of any statutory or
common law preemptive rights.
(b) Benefoot Products. The authorized capital stock of Benefoot
Products consists of (i) 200 shares of common stock, no par value, of which one
hundred three and ninety five hundredths (103.95) shares are issued and
outstanding, and (ii) no shares of preferred stock (such outstanding common
stock and outstanding preferred stock, the "Outstanding Benefoot Products
Capital Stock"). All shares of the Outstanding Benefoot Products Capital Stock
have been duly authorized, are validly issued and outstanding, and are fully
paid and nonassessable. No securities issued by Benefoot Products from the date
of its incorporation to the date hereof were issued in violation of any
statutory or common law preemptive rights.
4.11 Rights, Warrants, Options. Except as set forth on Schedule 4.11
hereto, there are no outstanding (a) securities or instruments convertible into
or exercisable for any of the capital stock or other equity interests of the
Seller; (b) options, warrants, subscriptions or other rights to acquire capital
stock or other equity interests of the Seller; or (c) commitments, agreements or
understandings of any kind, including employee benefit arrangements, relating to
the issuance or repurchase by the Seller of any its capital stock or other
equity interests, or any instruments
24
convertible or exercisable for any such securities or any options, warrants or
rights to acquire such securities.
4.12 Financial Statements. Attached hereto as Schedule 4.12 are true
and complete copies of the Financial Statements and the Seller's balance sheet
and profit and loss statements for the three months ended March 31, 0000 (xxx
"Xxxxx Xxxxxxx Xxxxxxxxxx"). Except as set forth on Schedule 4.12, the Financial
Statements and the First Quarter Statements: (a) are correct and complete in all
material respects and have been prepared in accordance with the books of account
and records of the Seller; (b) fairly present, and are true, correct and
complete statements in all material respects of the Seller's financial condition
and the results of its operations and cash flows at the dates and for the
periods specified in those statements; and (c) have been prepared in accordance
with GAAP and audited in accordance with GAAS (except with respect to the First
Quarter Statements), consistently applied with prior periods; provided, however,
that it is understood that the Financial Statements differ from the presentation
contained in the Seller's unaudited financial statements, dated as of October
31, 2001, prepared by Seller and delivered to Xxxxxx prior to the date hereof
with respect to the items referred to on Schedule 4.12.
4.13 Absence of Undisclosed Liabilities. Except for Liabilities (as
defined below) incurred in the ordinary course of business consistent with past
practice since January 1, 2002, the Seller does not have any direct or indirect
indebtedness, liability, claim, loss, damage, deficiency, obligation or
responsibility, known or unknown, fixed or unfixed, xxxxxx or inchoate,
liquidated or unliquidated, secured or unsecured, accrued, absolute, contingent
or otherwise, including, without limitation, liabilities on account of Taxes,
other governmental charges or lawsuits brought, whether or not of a kind
required by GAAP to be set forth on a financial statement, ("Liabilities"),
which were not fully and adequately reflected on (i) the Financial Statements or
(ii) Schedule 4.13. There are no circumstances, conditions, events or
arrangements which may hereafter give rise to any Liabilities of Seller except
in the ordinary course of business or as otherwise set forth on Schedule 4.13.
4.14 Title to Securities. The shareholders of the Seller are the record
and beneficial owner of the shares of common stock or other securities of the
Seller listed opposite their names on Schedule 4.14, and, such securities are
owned free and clear of any Encumbrances and claims whatsoever, including,
without limitation, claims or rights under any voting trust agreements,
shareholder agreements or other agreements. The shares of common stock listed on
Schedule 4.14 constitute all of the issued and outstanding capital stock of the
Seller.
4.15 Title to and Condition of Personal Property. Schedule 4.15 sets
forth all interests owned or claimed by the Seller (including, without
limitation, options) in or to the plant, machinery, equipment, furniture,
leasehold improvements, fixtures, vehicles, structures, any related capitalized
items and other tangible property used in the Business ("Tangible Property").
The Seller has good and marketable title to, or in the case of leased property,
has a valid leasehold interest in, each item of Tangible Property, free and
clear of any options or Encumbrances whatsoever, except as set forth on Schedule
4.15 hereto. Except as set forth on Schedule 4.15, all Tangible Property owned
by the Seller or used by the Seller on the date hereof (with a replacement value
in excess of $250) in the operation of the Business is in good operating
condition and in a good state of maintenance and repair (subject to normal wear
and
25
tear), is adequate for the Business as presently conducted, and is
inspected, maintained, and operated in conformity with all Applicable Law in all
material respects. Except as set forth on Schedule 4.15, there are no assets
owned by the shareholders of the Seller or any third party which are used in or
necessary for the operation of the Business, as presently conducted. Schedule
4.15 sets forth a complete and accurate list of all Tangible Property that are
in the possession of any third party. The automobiles identified on Schedule 2.2
as being owned or leased by the Seller were acquired and are used exclusively
for the purpose of delivering products of the Seller.
4.16 Real Property. (a) The Seller does not own any fee simple interest
in real property other than as set forth on Schedule 4.16. The Seller does not
lease or sublease (as lessee or sublessee) any real property other than as set
forth on Schedule 4.16. Schedule 4.16 sets forth the street address of each
parcel of real property owned by the Seller (the "Owned Property") or leased or
subleased (as lessee or sublessee) by the Seller (the "Leased Property" and,
together with the Owned Property, the "Real Property"). Attached hereto as
Schedule 4.16 are true and complete copies of all of the lease and sublease
agreements and all other instruments granting such leasehold interests, rights,
options, or other interests, as amended to date relating to the Leased Property,
including the Seller Leases (the "Leases"). The Leases are valid, binding and in
full force and effect, all rent and other sums and charges payable thereunder
are current, no notice of default or termination under any of the Leases is
outstanding, no termination event or condition or uncured default on the part of
the Seller or, to the knowledge of the Seller or the Principal Shareholders, on
the part of the landlord or sublandlord, as the case may be, thereunder, exists
under the Leases, and no event has occurred and no condition exists which, with
the giving of notice or the lapse of time or both, would constitute such a
default or termination event or condition. In the event that any of the Leases
is a sublease, the Seller, as sublessee or sublessor, as the case may be, has
obtained the required consent of the prime landlord to such sublease, and such
prime lease is in full force and effect, there are no outstanding uncured
notices of default or termination, and no right of the Seller in any such
sublease conflicts with such prime lease. There are no subleases, licenses or
other agreements granting to any person other than the Seller any right to the
possession, use, occupancy or enjoyment of the premises demised by the Leases.
All of such premises are used in the conduct of the Business.
(b) The Seller has good and marketable title in fee simple or
otherwise to the Owned Property, and good and marketable leasehold title to the
Leased Property, and to all plants, buildings, and improvements thereon, free
and clear of any Encumbrances, claims, charges, imperfections of title,
encroachments, easements, rights-of-way, squatters' rights, covenants,
conditions, or restrictions. The Seller enjoys a peaceful and undisturbed
possession of the Real Property. No Person other than the Seller has any right
to use or occupy any part of the Real Property. All of such premises are used in
the conduct of the Business.
(c) All improvements located on the Real Property are in a state
of good maintenance and repair (subject to normal wear and tear) and in a
condition adequate and suitable for the effective conduct therein of the
Business. The heating, ventilation, air conditioning, plumbing and electrical
systems at the Real Property will be in good working order and repair on the
Closing Date (except as set forth on Schedule 4.16 hereof). The Seller has not
experienced any material interruption in such services provided to any of the
premises located on
26
the Real Property within the last year. To the knowledge of the Seller or the
Principal Shareholders, no landlord under the Leases has any plans to make any
material alterations to any of the Leased Property, the construction of which
would interfere with the use of any portion of the Leased Property. To the
knowledge of the Seller or the Principal Shareholders, no landlord under the
Leases has any plans to make any material alterations to any of the buildings in
which Leased Property is located, the costs of which alterations would be borne
in any part by a tenant under the applicable Lease.
(d) All permits, licenses, franchises, approvals and
authorizations (collectively, the "Real Property Permits") of all Governmental
Authorities having jurisdiction over each Real Property and from all insurance
companies and fire rating and other similar boards and organizations
(collectively, the "Insurance Organizations"), required or appropriate are set
forth on Schedule 4.16 and have been issued to the Seller to enable each Real
Property to be lawfully occupied and used for all of the purposes for which they
are currently occupied and used have been lawfully issued and are, as of the
date hereof, in full force and effect. The Seller has not received or been
informed by a third party of the receipt by it of any notice from any
Governmental Authority having jurisdiction over any Real Property or from any
Insurance Organization threatening a suspension, revocation, modification or
cancellation of any Real Property Permit or of any insurance policies, and there
is no basis for the issuance of any such notice or the taking of any such
action. There is no action required by the Seller in order for all Real Property
Permits and liability and casualty insurance policies required under any of the
Leases to remain Real Property Permits and insurance policies of Purchaser.
(e) Neither the Seller nor the Principal Shareholders has not
received any notice nor have they any knowledge of any pending, threatened or
contemplated condemnation or eminent domain proceeding with respect to or
affecting any Real Property or any part thereof.
(f) There are no liabilities (other than rent and other sums and
charges regularly payable) associated with any of the Leases including, without
limitation, any liability under any Environmental and Safety Requirements which
is or which may become payable by Purchaser.
4.17 Insurance. Schedule 4.17 sets forth a true and complete list of
all insurance policies providing insurance coverage of any nature to the Seller.
The Seller has previously provided the Purchaser with true and complete copies
of all of such insurance policies, as amended to the date hereof. Such policies
provide adequate and customary coverage for the Business and are sufficient for
material compliance by the Seller with all requirements of Applicable Law and
all Material Agreements to which the Seller is a party or by which any of the
Purchased Assets of the Seller are bound. All of such policies are in full force
and effect and are valid and enforceable in accordance with their terms, and the
Seller has complied with all terms and conditions of such policies, including
premium payments. None of the insurance carriers has indicated to the Seller or
the Principal Shareholders an intention to cancel, or alter the coverage under,
any such policy. The Seller does not have any claim pending against any of the
insurance carriers under any of such policies and, to the knowledge of Seller or
the Principal Shareholders, there has been no actual or alleged occurrence of
any kind which may give rise to any such claim and has not made any claims under
any policy at any time since January 1, 2000, except as set forth on Schedule
4.17. All applications for such policies are accurate in all respects.
27
4.18 Governmental Authorizations. Schedule 4.18 lists all
authorizations, consents, approvals, franchises, licenses and permits required
under Applicable Law or regulation for the operation of the business of the
Seller as presently operated (the "Governmental Authorizations"). All the
Governmental Authorizations have been duly issued or obtained and are in full
force and effect, and the Seller is in material compliance with the terms and
conditions of all the Governmental Authorizations. To the knowledge of the
Seller and the Principal Shareholders, no fact, condition, or violation exists
which could cause the Governmental Authorizations not to be renewed by the
appropriate Governmental Authorities in the ordinary course or which could cause
the revocation, termination, suspension, or impairment of any Governmental
Authorization. Except as set forth on Schedule 4.18, the consummation of the
transactions contemplated hereby and the transfer to the Purchaser of the
Governmental Authorizations will not adversely affect the status of any of the
Governmental Authorizations.
4.19 Intellectual Property Rights.
(a) Schedule 4.19 sets forth a complete and accurate list (showing
in each case the registered owner, title, xxxx or name, applicable jurisdiction,
application number, registration number and date of filing or registration, if
any) of all United States, international and state (i) Patents and patent
applications, (ii) Trademark registrations and applications, (iii) unregistered
Trademarks, trade names and assumed or fictitious names under which Seller is
conducting business or has in the last five (5) years conducted business, (iv)
Internet domain names, and (iv) Copyright registrations and applications and
common law Copyrights owned by, licensed to or used by Seller.
(b) Schedule 4.19 sets forth a complete and accurate list and
description of all agreements, licenses, contracts or sublicenses pursuant to
which Seller uses or grants others the right to use any Copyrights, Trademarks,
trade names, assumed names, domain names, Patents, inventions, trade secrets,
Software (excluding mass market software licensed to Seller that is available in
consumer retail stores or otherwise commercially available and subject to
"shrink-wrap" or "click-through" license agreements) or other Intellectual
Property.
(c) Schedule 4.19 sets forth a complete and accurate list and
description of all Software owned by, licensed to or used by the Seller
(excluding mass market software licensed to Seller that is available in consumer
retail stores or otherwise commercially available and subject to "shrink-wrap"
or "click-through" license agreements). All of the Intellectual Property and
Software set forth on Schedule 4.19 shall be denominated herein as "Seller's
Intellectual Property".
(d) The Seller owns or has the valid right to use all Intellectual
Property currently used or contemplated or necessary to be used in connection
with the Business.
(e) Except as set forth on Schedule 4.19, Seller either: (i) owns
the entire right, title and interest in and to the Seller's Intellectual
Property, free and clear of all liens or other encumbrances or (ii) has the
perpetual, royalty-free right to use the same. Except as set forth on Schedule
4.19, Seller is the record owner of all applications and registrations listed on
Schedule 4.19.
28
(f) Except as set forth on Schedule 4.19: (i) all of the
registrations or applications set forth on Schedule 4.19 are valid and
subsisting, in full force and effect, all without challenge of any kind, and
have not been canceled, expired, or abandoned; (ii) there is no pending or, to
the Seller's or the Principal Shareholders' knowledge, threatened opposition,
interference or cancellation proceeding before any court or registration
authority in any jurisdiction against the items set forth on Schedule 4.19 or
any other Intellectual Property, directly or indirectly, used or owned by the
Seller; (iii) Seller's Intellectual Property has not been canceled or abandoned
and is valid and enforceable; (iv) Seller has the sole and exclusive right to
bring actions for infringement, misappropriation, dilution, violation or
unauthorized use of Seller's Intellectual Property. Correct and complete copies
of registrations and applications for all registered Copyrights, Patents and
Trademarks identified on Schedule 4.19 as being owned by Seller have heretofore
been given to Purchaser.
(g) Except as set forth on Schedule 4.19, there are no
settlements, injunctions, forbearances to xxx, consents, judgments, or orders or
similar obligations to which the Seller is a party or is otherwise bound, which
(i) restrict the Seller's rights to use any Intellectual Property, (ii) restrict
the Business in order to accommodate a third party's Intellectual Property
rights or (iii) permit third parties to use any Intellectual Property which
would otherwise infringe any Intellectual Property. Other than as set forth on
Schedule 4.19, the Seller has not licensed or sublicensed its rights in any
Intellectual Property and no royalties, honoraria or other fees are payable by
the Seller for the use of or right to use any Intellectual Property in
connection with the Business as currently conducted or contemplated to be
conducted, except pursuant to the license agreements set forth on Schedule 4.19.
(h) The license agreements, permits and other agreements under
which the Seller has rights to the Intellectual Property are valid and binding
obligations of the Seller and all other parties thereto, enforceable in
accordance with their terms, and there exists no event or condition, which will
result in a violation or breach of, or constitute (with or without due notice or
lapse of time or both) a default by the Seller, under any such license agreement
or other agreement relating to Seller's Intellectual Property.
(i) The Seller takes reasonable measures to protect the
confidentiality of its Trade Secrets. Except as set forth on Schedule 4.19, no
Trade Secret of the Seller has been improperly disclosed or authorized to be
disclosed to any third party, which disclosure would result in a forfeiture of
such Trade Secret.
(j) The conduct of the Business as currently conducted and does
not infringe, misappropriate, violate or dilute any Intellectual Property rights
owned or controlled by any third party (either directly or indirectly such as
through contributory infringement or inducement to infringe) and is not
libelous, slanderous, defamatory, violative in any way of any publicity,
privacy, or other rights, or obscene. There are no claims or suits pending or,
to the Seller's or the Principal Shareholders' knowledge, threatened, and the
Seller has not received any notice of a third party claim or suit, (i) alleging
that the Seller's activities or the conduct of the Business infringes or
constitutes the unauthorized use of the Intellectual Property rights of any
third party, violates the rights of publicity or privacy of any third party or
is defamatory or otherwise violates a personal right, or (ii) challenging the
ownership, use, validity or enforceability of any Seller Intellectual Property.
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(k) To the knowledge of the Seller and the Principal Shareholders,
no third party (i) is misappropriating, infringing, diluting, or otherwise
violating any of Seller's Intellectual Property or rights of publicity or
privacy or (ii) is taking or has taken any action that is defamatory of Seller,
and no such claims are pending against a third party by the Seller.
(l) The Seller has made no improvements or enhancements to the
technology or the devices that are the subject of the patents licensed by the
Patent License Agreement between Xxxxxx X. Xxxxx and Benefoot, Inc., effective
as of January 1, 1996, or the Technology License Agreement between Virtual 3-D
Technologies Corp. and Benefoot, effective January 1, 1996.
(m) After the deliveries provided for in this Agreement have
occurred, neither the Seller nor any current or former officer, director or
employee of the Seller will retain any rights of ownership or use with respect
to the Seller's Intellectual Property. All Seller Intellectual Property was
either (i) developed by an employee of the Seller within the scope of employment
of the employee and pursuant to a binding invention assignment agreement, (ii)
developed by a third-party under a binding work for hire and assignment
agreement, or (iii) developed by a third party and transferred and assigned to
the Seller under a binding transfer and assignment agreement.
(n) Except as set forth on Schedule 4.19, (i) the Software or
Intellectual Property identified on Schedule 4.19 is not subject to any
transfer, assignment, change of control, site, equipment or other operational
limitations; (ii) Seller has copies of all releases or separate versions of the
Software identified on Schedule 4.19 as being owned by Seller so that same may
become the subject of registration in the United States Copyright Office; (iii)
for any Software identified on Schedule 4.19 as being owned by Seller, Seller
has copies of all source code, system documentation, statements of principles of
operation and schematics, as well as any pertinent commentary, explanation,
program, workbenches, tools and higher level language used for the development,
implementation and use thereof, so that a trained computer programmer could
develop, maintain, support, compile and use all releases or separate versions of
the same; (iv) the Software identified on Schedule 4.19 as being owned by Seller
complies with all applicable laws relating to import or export of same and such
Software may be exported or reexported to all countries without the necessity of
any license, other than to those countries specified as prohibited destinations
pursuant to applicable regulations of the U.S. Department of Commerce and/or the
United States State Department.
4.20 Customers and Suppliers; Supplies. Schedule 4.20 sets forth a list
of the twenty (20) largest customers (measured by dollar volume) of each of
Benefoot and Benefoot Products within the United States, ten (10) largest
customers (measured by dollar volume) of each of Benefoot and Benefoot Products
within Canada, and all suppliers of significant goods or services to each of
Benefoot and Benefoot Products for the year ended December 31, 2001. Schedule
4.20 identifies those suppliers of significant goods or services with respect to
which alternative sources of supply are not readily available on comparable
terms and conditions. Neither the Seller nor the Principal Shareholders has any
knowledge that the Seller's customers or suppliers has or is contemplating
terminating its relationship with the Seller. To Seller's and the Principal
Shareholders' knowledge, no customer or supplier has experienced any type of
work stoppage or other material adverse circumstances or conditions that may
jeopardize, or have a Material Adverse Effect on, the Purchaser's relationship
with any customer or supplier. There are no
30
pending disputes or controversies between any customer or supplier of any of the
Seller, nor are there any facts known to the Seller or the Principal
Shareholders which in the future would impair the relationship of the Purchaser
with such customers or suppliers.
4.21 Related Parties. Except as set forth on Schedule 4.21, neither the
Seller, nor any current or former (within the past five (5) years) director,
officer, or Principal Shareholder of the Seller, or any of their family members
(individually a "Related Party" and collectively the "Related Parties"), or any
Affiliate of the Seller or any Related Party: (a) owns, directly or indirectly,
any interest in any person which is a competitor of the Seller, or of a supplier
or customer of the Seller; (b) owns, directly or indirectly, in whole or in
part, any property, asset or right, real, personal or mixed, tangible or
intangible (including, but not limited to, any of the intangible property) which
is utilized in the operation of the Business; (c) has an interest in or is,
directly or indirectly, a party to any contract, agreement, lease or arrangement
pertaining or relating to the Seller, except for employment, consulting or other
personal service agreements that may be in effect and which are listed on
Schedule 4.21 hereto; or (d) to the knowledge of Seller or the Principal
Shareholders, has any cause of action or other claim whatsoever against, or owes
any amount to, the Seller.
4.22 List of Accounts and Proxies. Set forth on Schedule 4.22 is: (a)
the name and address of each bank or other institution in which the Seller
maintains an account (cash, securities or other) or safe deposit box; (b) the
name and phone number of the Seller's contact person at such bank or
institution; (c) the account number of the relevant account and a description of
the type of account; (d) the name of each person authorized by the Seller to
effect transactions therewith or to have access to any safe deposit box or
vault; and (e) all proxies, powers of attorney or other like instruments to act
on behalf of the Seller in matters concerning its business or affairs.
4.23 Employee Policies, Manuals, etc. Schedule 4.23 contains the
current names, job descriptions and annual salary rates and other compensation
of all officers, directors, consultants and senior employees of the Seller
(including compensation paid or payable by the Seller under the Seller Plans).
Schedule 4.23 sets forth a list of all currently maintained employee policies,
employee manuals or other written statements of rules or policies as to existing
working conditions, vacation and sick leave applicable to such persons.
4.24 Labor Relations. (a) There is currently no strike, sympathy
strike, sit-down, slow-down, stay-in, sick-out, walk-out, picketing, work
stoppage, retarding of work, boycott or any other interference with the Seller
or the Business (all of the foregoing referred to as "work interference"), and
neither the Seller not the Principals Shareholders has knowledge of any pending
or threatened work interference. To the knowledge of the Seller and the
Principal Shareholders, there are no facts or circumstances which might give
rise to any work interference. The Seller is not in breach of any provision of
any collective bargaining agreement, and no such claims have been made or are
pending that might give rise to any work interference. The Seller is not in
breach of any court, arbitration, administrative decision or order which might
result in any work interference or give rise to a claim that a work interference
is protected by, or does not violate, any law or provision of any collective
bargaining agreement and there no facts or circumstances known to the Seller or
the Principal Shareholders which might result in the foregoing.
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(b) There are no unfair labor practices, representation or other
proceedings claimed, pending or, to the Seller's or the Principal Shareholders'
knowledge, threatened before any Governmental Authority, and the Seller and the
Principal Shareholders do not know of any facts or circumstances which might
give rise to such unfair labor practice, representation or other proceeding.
(c) There are no filed, pending or, to the Seller's or the
Principal Shareholders' knowledge, threatened injunctions against the Seller
which would have the effect of constituting a work interference and no facts or
circumstances exist which might give rise to any such injunction and no such
claim has been made or is pending.
4.25 Employment Agreements and Employee Benefit Plans.
(a) Except as set forth on Schedule 4.25 hereto, the Seller does
not have and has not had any defined contribution plan and is not part of a
controlled group contributing to any defined contribution plan. The Seller does
not contribute to any pension, profit-sharing, option, other incentive plan, or
any other type of Employee Benefit Plan (as defined in Section 3(3) of the
Employee Retirement Income Security Act of 1974, as amended ("ERISA")), or have
any obligation to or customary arrangement with employees for bonuses, incentive
compensation, vacations, severance pay, insurance, or other benefits, except as
set forth on Schedule 4.25 and it is not part of a controlled group with regard
to any of the foregoing. The Seller has furnished to Xxxxxx true and correct
copies of all documents evidencing plans, obligations, qualification, IRS
determination, or arrangements referred to on Schedule 4.25 (or true and correct
written summaries of such plans, obligations, or arrangements to the extent not
evidenced by documents) and true and correct copies of all documents evidencing
trusts relating to any such plans. Schedule 4.25 also contains a true and
correct statement of the names, relationship with the Seller, job description,
present rates of compensation (delineated by annual salary, bonuses,
commissions, benefits, or other supplemental compensation now or hereafter
payable), and aggregate compensation for the fiscal year ended December 31, 2001
of (i) each director, officer, consultant or other employee of the Seller and
(ii) all sales agents, dealers, or distributors of the Seller. Except as set
forth on Schedule 4.25, and except for changes in the ordinary course of
business consistent with past practice with respect to employees paid less than
$40,000 per year, the Seller has not changed the rate of compensation of any of
its directors, officers, employees, agents, dealers, or distributors since
December 31, 2001.
(b) No Employee Benefit Plan (as so defined) of the Seller or of
any plan of any controlled group relating to the Seller is, or during the last
three years was, subject to Title IV of ERISA.
(c) There has been no violation of the reporting and disclosure
requirements imposed either under ERISA or the Code for which a penalty has been
or may be imposed with respect to any such Employee Benefit Plan. There is no
investigation, litigation, arbitration, claim, investigation, or governmental or
other proceeding (formal or informal), pending or, to the knowledge of the
Seller or the Principal Shareholders, threatened with respect to any such
Employee Benefit Plan or related trust or with respect to any fiduciary,
administrator, or sponsor (in its capacity as such) of any such Employee Benefit
Plan. No event has occurred or, to the
32
knowledge of the Seller or the Principal Shareholders, is threatened which would
constitute a non-exempt prohibited transaction under Section 406 of ERISA.
(d) Except as set forth on Schedule 4.25 hereto, the Seller does
not have, maintain, or sponsor any Employee Pension or Employee Welfare Benefit
Plans (as defined in Section 3(2) of ERISA) and is not part of any controlled
group that has, maintains, or sponsors any Employee Pension Benefit Plan.
(e) The Seller does not contribute to or have any obligation to
contribute to any multiemployer Pension Plan within the meaning of Section 3(37)
of ERISA and is not part of any controlled group that contributes, or has an
obligation to contribute, to any multi-employer Pension Plan.
(f) The Seller is in compliance with all present and past
collective bargaining agreements, memoranda of agreement, side letters, court,
administrative, arbitration, ADR, or mediation decisions or awards, wage or
benefit schedules and all other documents which reflect or pertain to
understandings or practices communicated or agreed upon between the Seller and
any union representatives.
(g) There are no claims or grievances filed, pending or, to the
Seller's or the Principal Shareholders' knowledge, threatened pertaining to
present or past collective bargaining agreements, memoranda of agreement, side
letters, court, administration, arbitration, ADR or mediation decisions or
awards or other documents.
(h) There are no complaints, charges, claims, allegations or
grievances pending or, to the knowledge of the Seller or the Principal
Shareholders, threatened which reflects or pertains to: (i) any federal, state
or local labor, employment, wage or hour, workers compensation, disability or
unemployment law, regulation or ordinance; (ii) any claim for wrongful
discharge, breach of employment contract or employment related tort; or (iii)
any employment agreement, restrictive convent, non-competitive agreement or
employee confidentiality agreement.
(i) The Seller is in material compliance with all past and present
profit sharing plans, money purchase plans, target benefit plans, ESOP's, stock
bonus plans, defined benefit plans or any other tax qualified employee benefit
plan, whether terminated or not, and any amendments thereto.
(j) The Seller is in material compliance with all past and present
welfare benefit plans, (i.e., health, dental, vision, long term disability,
short term disability, life insurance), and child care, tuition reimbursement,
prepaid legal services, and severance plans, programs or arrangements.
(k) The Seller is in material compliance with all past and present
supplemental benefit plans, deferred compensation plans, executive compensation
agreements, bonus agreements, consulting agreements or any other non-qualified
employee benefit plans.
(l) The Seller is in compliance with all past and present trusts,
group annuity contracts, IRC Section 501(c)(9) Voluntary Employees' Beneficiary
Associations, cafeteria plans
33
and any Multiple Employer Welfare Arrangements as described in Sections 3(40)
and 40(A) of ERISA.
(m) The Seller is not engaged in any prohibited transaction (as
defined by ERISA).
(n) The Seller is not a federal contractor.
(o) In connection with subparagraphs (i) through (n) above, there
are no complaints, charges, claims, litigation, audits, investigations or
administrative proceedings filed, pending, or, to the knowledge of the Seller or
the Principal Shareholders, threatened.
(p) Additional representations and warranties to be provided.
4.26 Tax Matters. (a) The Seller has previously delivered to Purchaser
true, correct and complete copies of each of the federal, state, local, and
other income Tax Returns filed by the Seller for the past five fiscal years
which were due, without regard to any extensions granted, on or before the date
hereof. At all times since the date of incorporation, the Seller has been a
validly electing S corporation within the meaning of Code Sections 1361 and
1362. All Tax Returns and tax reports required to be filed with respect to the
income, operations, business or assets of the Seller or each affiliated,
combined or unitary group ("Tax Group") of which the Seller has been a member
have been timely filed (or appropriate extensions have been obtained which
extensions are listed on Schedule 4.26) with the appropriate governmental
agencies in all jurisdictions in which such returns and reports are required to
be filed. All of the foregoing as filed are true, correct and complete and, in
all material respects, reflect accurately all liability for Taxes of the Seller
for the periods to which such returns relate, and all amounts shown as owing
thereon have been paid. All income, profits, franchise, sales, use, value added,
occupancy, property, excise, payroll, withholding, FICA, FUTA and other Taxes
(including interest and penalties), if any, collectible or payable by the Seller
or relating to or chargeable against any of its assets, revenues or income or
relating to any employee, independent contractor, creditor, stockholder or other
third party through December 31, 2001, were fully collected and paid by such
date or provided for by adequate reserves in the Financial Statements or, for
periods thereafter, on the books of the Seller, as the case may be, and all
similar items due through the Closing Date will have been fully paid by that
date or provided for by adequate reserves, whether or not any such Taxes were
reported or reflected in any Tax Returns or filings.
(b) No Tax Authority has sought to audit, and the Seller has not
received notice of an audit of, the records of the Seller for the purpose of
verifying or disputing any Tax Returns, reports or related information and
disclosures provided to such Tax Authority, or for the Seller's alleged failure
to provide any such Tax Returns, reports or related information and disclosure.
Except as provided on Schedule 4.26, no claims, deficiencies, or assessments
have been asserted against or inquiries raised with the Seller with respect to
any Taxes or other governmental charges or levies which have not been paid or
otherwise satisfied, including claims that, or inquiries whether, the Seller has
not filed a Tax Return that it was required to file, and there exists no
reasonable basis for the making of any such claims or inquiries. The Seller has
not waived any restrictions on assessment or collection of Taxes or consented to
the extension of any statute of limitations relating to taxation.
34
(c) No claim has been made, nor do the Seller or the Principal
Shareholders know of any claim that is pending, by an authority in any
jurisdiction where the Seller files Tax Returns alleging that the Seller is or
may be subject to taxation in that jurisdiction.
(d) Except for (i) Taxes for the payment of which an adequate
reserve has been established on the Financial Statements and (ii) property taxes
that are not delinquent, there is no Tax lien imposed by any taxing authority
outstanding against any of the assets or properties of the Seller.
(e) The Seller has not executed any "closing agreement" or similar
agreement with any taxing authority, domestic or international.
(f) The Seller and any member of a Tax Group have reported on its
income Tax Returns any positions taken therein that could give rise to a
substantial understatement of federal or other income tax within the meaning of
Section 6662 of the Code or similar statute.
(g) None of the Purchased Assets is property which is required to
be treated as being owned by any other Person pursuant to the so-called "safe
harbor lease" provisions of former section 168(f)(8) of the Code.
(h) None of the Purchased Assets directly or indirectly secures
any debt or other liability, the interest on which is tax exempt under section
103(a) of the Code.
(i) None of the Purchased Assets is "tax exempt use property"
within the meaning of section 168(h) of the Code.
(j) Schedule 4.26 sets forth a list of all states where the Seller
has collected sales tax during the past two (2) years.
4.27 Material Agreements.
(a) Schedule 4.27 sets forth a list and a brief description of all
material written and oral contracts or agreements relating to the Seller (except
with respect to the Leases, which are set forth on Schedule 4.16, which is
hereby incorporated by reference into Schedule 4.27 and made a part thereof),
including without limitation any: (i) contract or series of contracts resulting
in a commitment or potential commitment for expenditure or other obligation or
potential obligation, or which provides for the receipt or potential receipt,
involving in excess of Ten Thousand Dollars ($10,000.00) in any instance, or
series of related contracts that in the aggregate give rise to rights or
obligations exceeding such amount; (ii) indenture, mortgage, promissory note,
loan agreement, guarantee or other agreement or commitment for the borrowing or
lending of money or Encumbrance of assets involving more than Ten Thousand
Dollars ($10,000.00) in each instance; (iii) agreement which restricts the
Seller from engaging in any line of business or from competing with any other
Person; (iv) warranties made with respect to products manufactured, packaged,
distributed or sold by the Seller; (v) partnership, shareholder, joint venture,
or similar agreement or arrangements to which the Seller is a party; (vi)
employment agreements, collective bargaining agreements, and any amendments or
modifications thereof and union recognition agreements; (vii) contracts with
suppliers and distributors; (viii) any agreements, contracts, license or
sublicense agreements, assignments, or understandings with
35
respect to Intellectual Property owned or used by the Seller, or (ix) any other
contract, agreement, instrument, arrangement or commitment that is material to
the condition (financial or otherwise), results of operation, assets,
properties, liabilities, Business or prospects of the Seller or the Purchased
Assets (collectively, and together with the Leases and all other agreements
required to be disclosed on any schedule to this Agreement, the "Material
Agreements"). The Seller has previously furnished to Purchaser true, complete
and correct copies of all written agreements, as amended, required to be listed
on Schedule 4.27.
(b) Except as set forth on Schedule 4.27, none of the Material
Agreements was entered into outside the ordinary course of business of the
Seller, contains any unusual, onerous or burdensome provisions that will impair
or adversely effect in any material way the operations of the Seller, or is
reasonably likely to be performed at a material loss.
(c) The Material Agreements are each in full force and effect and
are the valid and legally binding obligations of the Seller and the other
parties thereto, enforceable in accordance with their respective terms, subject
only to bankruptcy, insolvency or similar laws affecting the rights of creditors
generally and to general equitable principles. Neither the Seller nor the
Principal Shareholders has received notice of default by the Seller under any of
the Material Agreements or any other contract or agreement relating to borrowed
money to which the Seller is a party or by or to which it or its assets are
bound or subject, and no event has occurred which, with the passage of time or
the giving of notice or both, would constitute a default by the Seller
thereunder. Neither the Seller nor any of the other parties to any of the
Material Agreements is in default thereunder, nor has an event occurred which,
with the passage of time or the giving of notice or both would constitute a
default by such other party thereunder. Neither the Seller nor the Principal
Shareholders has received notice of the pending or threatened cancellation,
revocation or termination of any of the Material Agreements or any other
agreements relating to borrowed money to which the Seller is a party or by or to
which it or its assets are bound or subject, nor are any of them aware of any
facts or circumstances which could lead to any such cancellation, revocation or
termination. Neither the Seller nor the Principal Shareholders has received
notice, or has any knowledge, that the consummation of the transactions
contemplated under this Agreement would result in any party to a Material
Agreement canceling, revoking, or termination such Material Agreement or ceasing
to transact business, or materially altering the manner in which it transacts
business, pursuant to such Material Agreement.
4.28 Guaranties. Except as set forth on Schedule 4.28, the Seller is
not a party to any Guaranty, and no Person is a party to any Guaranty for the
benefit of the Seller.
4.29 Products.
(a) Except as set forth on Schedule 4.29, there exists no set of
facts (i) which could furnish a basis for the recall, withdrawal or suspension
of any Governmental Authorization, approval or consent of any Governmental
Authority with respect to any category of product manufactured, distributed or
sold by the Seller (a "Product"), (ii) which could furnish a basis for the
recall, withdrawal or suspension by order of any Governmental Authority of any
Product, or (iii) which could have a Material Adverse Effect or which could
otherwise cause the Seller to recall, withdraw or suspend any such Product from
the market or to change the
36
marketing classification of any such Product. There are no material defects in
the designs, specifications, or process with respect to any Product sold or
otherwise distributed that will give rise to any Losses or that will cause such
Products to not be useable as intended or marketed.
(b) Schedule 4.29 sets forth a list and brief description of all
correspondence received or sent by or on behalf of the Seller during the past
five (5) years from or to any Governmental Authority with respect to a potential
or actual recall, withdrawal, or suspension from the market of any Product.
Copies of all such correspondence have been previously delivered to Purchaser.
4.30 Environmental and Safety Matters.
(a) Except as set forth on Schedule 4.30, the Seller has complied
with and is currently in material compliance with all Environmental and Safety
Requirements, and the Seller has not received any oral or written notice, report
or information regarding any Liabilities (whether accrued, absolute, contingent,
unliquidated or otherwise) or any corrective, investigatory or remedial
obligations arising under Environmental and Safety Requirements which relate to
the Seller or any of their respective properties or facilities. Without limiting
the generality of the foregoing, the Seller has obtained and complied with, and
is currently in material compliance with, all permits, licenses and other
authorizations that may be required pursuant to any Environmental and Safety
Requirements for the occupancy of its properties or facilities or the operation
of its Business as it is presently being conducted, as it has been conducted in
the past. A list of all such permits, licenses and other authorizations of the
Seller is set forth on Schedule 4.30 attached hereto.
(b) Neither this Agreement nor the consummation of the
transactions contemplated by this Agreement shall impose any obligations on the
Seller or otherwise for site investigation or cleanup, or notification to or
consent of any Governmental Authority or Regulatory Entities or third parties
under any Environmental and Safety Requirements (including, without limitation,
any so called "transaction-triggered" or "responsible property transfer" laws
and regulations).
(c) The Seller has not treated, stored, disposed of, arranged for
or permitted the disposal of, transported, handled or Released any substance
(including, without limitation, any hazardous substance), or owned, occupied or
operated any facility or property, so as to give rise to Liabilities of the
Seller for response costs, natural resource damages or attorneys fees pursuant
to the CERCLA, or any other Environmental and Safety Requirements. Without
limiting the generality of the foregoing, no facts, events or conditions
relating to the past or present properties, facilities or operations of the
Seller, prevent, hinder or limit continued compliance with Environmental and
Safety Requirements, give rise to any corrective, investigatory or remedial
obligations pursuant to Environmental and Safety Requirements or give rise to
any other Liabilities (whether accrued, absolute, contingent, unliquidated or
otherwise) pursuant to Environmental and Safety Requirements (including, without
limitation, those Liabilities relating to onsite or offsite Releases or
threatened Releases or hazardous materials, substances or wastes, personal
injury, property damage or natural resources damage).
37
(d) The Seller has not either expressly or by operation of law,
assumed or undertaken any liability or corrective, investigatory or remedial
obligation of any other Person relating to any Environmental and Safety
Requirements.
(e) No Environmental Lien has attached to any property leased or
operated by the Seller.
4.31 Accounts Receivable, Notes Receivable, and Costs in Excess of
Billing. All accounts and notes receivable of the Seller have arisen in the
ordinary course of business, represent valid obligations to the Seller for sales
made, services performed or other charges, and are not subject to claims or
set-off, or other defenses or counter-claims. Subject only to consistently
recorded reserves for bad debts (which has been recorded on the Financial
Statements and books and records of the Seller in accordance with GAAP on a
consistent basis in a manner consistent with past practice) all accounts and
notes receivable of the Seller are collectible in accordance with their terms.
Xxxxxx and the Purchaser's sole remedy for a breach of the representation and
warranty set forth is the immediately preceding sentence shall be pursuant to
Section 7.7 hereof. All items which are required by GAAP to be reflected as
accounts and notes receivable on the Financial Statements and on the books and
records of the Seller are so reflected and have been recorded in accordance with
GAAP on a consistent basis in a manner consistent with past practice.
4.32 Accounts and Notes Payable. Schedule 4.32 sets forth a true and
correct aged list of all accounts and notes payable of the Seller as of the end
of the month prior to the date hereof in excess of $1,000 to any one payee. All
such accounts and notes payable have arisen in the ordinary course of business
and represent valid indebtedness of the Seller. All items which are required by
GAAP to be reflected as accounts and notes payable on the Financial Statements
and on the books and records of the Seller are so reflected and have been
recorded in accordance with GAAP on a consistent basis in a manner consistent
with past practice.
4.33 Inventory Valuation. The raw materials, work in process, spare
parts, and other inventory of the Seller as set forth on the Financial
Statements was, and the raw materials, work in process, spare parts, and other
inventory of the Seller currently is, in usable or salable condition in the
ordinary course of business at the amounts carried on the Financial Statements
and currently on the books and records of the Seller, respectively. The raw
materials, work in process, spare parts, and other inventory are not obsolete or
excessive and are of at least the standard quality for such items; are suitable
for the manufacture and distribution of Seller's Products of standard quality
for such products; and are not in excess of the normal purchasing patterns of
the Seller. Neither the Seller nor the Principal Shareholders knows of any
condition adversely affecting the supply of materials available to the Seller.
The amounts of the inventories reflected on the Financial Statements and on the
books and records of the Seller have been determined in accordance with GAAP
consistently applied.
4.34 Absence of Certain Business Practices. None of the Seller, its
related parties or any affiliates or any other Person acting on behalf of or
associated with the Seller or any individual related to any of the foregoing
Persons, acting alone or together, has with respect to the Business or
activities of the Seller: (a) received, directly or indirectly, any rebates,
payments, commissions, promotional allowances or any other economic benefits,
regardless of their nature
38
or type, from any customer, supplier, trading company, shipping company,
governmental employee or other Person with whom the Seller has done business
directly or indirectly; or (b) directly or indirectly, given or agreed to give
any gift or similar benefit to any customer, supplier, trading company, shipping
company, governmental employee or other Person who is or may be in a position to
help or hinder the business of the Seller (or assist the Seller in connection
with any actual or proposed transaction) which (i) may subject the Seller to any
damage or any penalty in any civil, criminal or governmental litigation or
proceeding, (ii) if not given in the past, may have had a Material Adverse
Effect or (iii) if not continued in the future, may materially adversely affect
the assets, business or operations of the Seller or subject the Seller to suit
or penalty in any private or governmental litigation or proceeding. The Seller
has conducted its business in a manner that complies with the U.S. Foreign
Corrupt Practices Act.
4.35 Solvency. The Seller is able to pay its debts as they mature and
the transfer of the Purchased Assets by the Seller to the Purchaser in
accordance with the terms of this Agreement shall not constitute a voidable
preference or transfer in fraud of any creditor under applicable federal or
state insolvency law.
4.36 Review of Forms. The Seller has (1) received and carefully
reviewed the Xxxxxx 10-K and Xxxxxx'x Quarterly Reports on Form 10-Q and Current
Reports on Form 8-K filed by Xxxxxx with the Commission since January 1, 2001
and (2) had the opportunity to ask questions and receive answers from Xxxxxx
concerning such forms and the documents incorporated by reference therein and to
obtain any documents relating to Xxxxxx which are on file with the SEC and
available for inspection by the public. The Seller is aware of the risks
inherent in an investment in Xxxxxx and specifically the risks of an investment
in the Xxxxxx Common Stock. In addition, Seller is aware and acknowledges that
there can be no assurance of the future viability or profitability of Xxxxxx,
nor can there be any assurance relating to the current or future price of the
Xxxxxx Common Stock, as quoted on the NASDAQ Small Cap Market, or market
conditions generally.
4.37 Investment Representations. The Seller is acquiring the
Consideration Shares for its own account and will not sell, transfer, or
otherwise dispose of (including pursuant to a liquidating dividend or otherwise)
any of the Consideration Shares or any interest therein, without registration
under the Securities Act and applicable state "blue sky" laws, except in a
transaction which in the opinion of counsel reasonably acceptable to Xxxxxx is
exempt therefrom. The Seller has such knowledge and experience in financial and
business matters as to be capable of evaluating the merits and risk of an
investment in the Xxxxxx Common Stock and has obtained, in its judgment,
sufficient information from Xxxxxx to evaluate the merits and risks of an
investment in the Xxxxxx Common Stock. The Seller has been provided the
opportunity to obtain information and documents concerning Xxxxxx and the Xxxxxx
Common Stock, and has been given the opportunity to ask questions of, and
receive answers from, the directors and officers of Xxxxxx concerning Xxxxxx and
the Xxxxxx Common Stock and other matters pertaining to this investment. The
Seller is acquiring the Consideration Shares for its own account, for investment
purposes only, and not with a view to or for the resale, distribution or
fractionalization thereof. The Seller acknowledges that the offer of the Xxxxxx
Common Stock will not be reviewed by any governmental agency and is being sold
to the Seller in reliance upon exemption from the Securities Act. The Seller
acknowledges that certificates representing the Consideration Shares will bear
the legend set forth in Section 2.12.
39
4.38 Ownership of Shares of Xxxxxx. The Seller and the shareholders of
the Seller do not own, as determined in accordance with Section 197(f)(9) of the
Code, directly or indirectly, in the aggregate, immediately prior to and as of
the Closing, more than twenty percent (20%) of the outstanding shares of capital
stock of Xxxxxx.
4.39 Returns and Exchanges. Schedule 4.39 sets forth a complete and
accurate description of the Seller's policy regarding product returns and
exchanges and a statement of the percentage of the Seller's products returned or
exchanged within the three (3) years prior to the date of this Agreement.
4.40 Purchase of the Seller's Shares. Prior to the execution and
consummation of that certain Stock Purchase Agreement, dated May 5, 2002, among
Benefoot, the Principal Shareholders, on the one hand, and Xxxxxx X. Xxxxx,
Xxxxxxx Xxxxx, Xxxx X. Xxxxx and Xxxxxx X. Xxxxx, on the other hand, the
Principal Shareholders fully and completely disclosed to Xxxxxx X. Xxxxx,
Xxxxxxx Xxxxx, Xxxx X. Xxxxx and Xxxxxx X. Xxxxx the existence of this
Agreement, the Seller Ancillary Agreements, the Xxxxxx Employment Agreement, the
Xxxxx Employment Agreement, the Consulting Agreement, and terms and conditions
of each of the foregoing documents, including the amount of the Purchase Price.
The consideration paid by the Principal Shareholders to Xxxxxx X. Xxxxx, Xxxxxxx
Xxxxx, Xxxx X. Xxxxx and Xxxxxx X. Xxxxx was negotiated in good faith on an
arm's length basis. Each of Xxxxxx X. Xxxxx, Xxxxxxx Xxxxx, Xxxx X. Xxxxx and
Xxxxxx X. Xxxxx has been advised, and has been provided an opportunity, to
consult with their legal, financial, and other advisors regarding the effect of
the sale of their shares of the Seller to the Principal Shareholders prior to
the consummation of the transactions contemplated hereby.
4.41 Disclosure. No representation or warranty of the Seller contained
in this Agreement or the Seller Ancillary Agreements, and no statement, report,
or certificate furnished by or on behalf of the Seller or the Principal
Shareholders to Xxxxxx and/or the Purchaser or its agents pursuant hereto or in
connection with the transactions contemplated hereby, contains or will contain
any untrue statement of a material fact or omits to state a material fact
necessary in order to make the statements contained herein or therein not
misleading.
ARTICLE V.
INDEMNIFICATION
5.1 Survival of the Representations and Warranties. The representations
and warranties of Xxxxxx, the Purchaser, the Seller and the Principal
Shareholders set forth in this Agreement, the Seller Ancillary Agreements, the
Purchaser Ancillary Agreements, the Xxxxxx Ancillary Agreements, the Xxxxxx
Employment Agreement, and the Xxxxx Employment Agreement shall survive the
Closing Date for a period of three (3) years; provided that the representations
and warranties set forth in Sections 4.25, 4.26, 4.30, and 4.34 shall survive
the Closing and remain in effect until the expiration of the applicable statute
of limitations.
5.2 Investigation. The representations, warranties, covenants and
agreements set forth in this Agreement shall not be affected or diminished in
any way by any investigation (or failure to investigate) at any time by or on
behalf of the party for whose benefit such
40
representations, warranties, covenants and agreements were made. All statements
contained herein or in any schedule, certificate, exhibit, list or other
document delivered pursuant hereto, shall be deemed to be representations and
warranties for purposes of this Agreement.
5.3 Indemnification Generally.
(a) By the Seller and the Principal Shareholders. The Seller and
the Principal Shareholders, agree, jointly and severally, to be responsible for,
pay, indemnify and hold harmless Purchaser and Xxxxxx and their respective
directors, officers, employees and agents (the "Purchaser Indemnified Parties")
from, against and in respect of, the full amount of any and all liabilities,
damages, claims, deficiencies, fines, assessments, losses, Taxes, penalties,
interest, costs and expenses, including, without limitation, reasonable fees and
disbursements of counsel (collectively, "Losses") arising from, in connection
with, or incident to: (i) any breach, or inaccuracy of any of the
representations or warranties of the Seller or the Principal Shareholders
contained in this Agreement or any of the Seller Ancillary Agreements, the Xxxxx
Employment Agreement, the Xxxxxx Employment Agreement, or any other agreement
referred to herein or delivered at or prior to the Closing; (ii) any breach of
Seller or the Principal Shareholders of any covenants or agreements contained in
this Agreement or any of the Seller Ancillary Agreements, the Xxxxx Employment
Agreement, the Xxxxxx Employment Agreement, or any other agreement referred to
herein and delivered at to the Closing; (iii) any failure by the Seller or the
Principal Shareholders to perform any obligations contained in this Agreement or
any of the Seller Ancillary Agreements, the Xxxxx Employment Agreement, the
Xxxxxx Employment Agreement, or any other agreement referred to herein and
delivered at to the Closing; (iv) any liability resulting from any litigation
involving the Companies, if no accrual for such liability was taken into account
in the preparation of the Closing Date Balance Sheet or if an accrual for such
liability was taken into account in the preparation of the Closing Date Balance
Sheet, to the extent such liability exceeds the accrual for such liability set
forth on the Closing Date Balance Sheet, regardless of whether or not such
litigation was disclosed by the Seller on Schedule 4.6; (v) any and all Taxes
and related penalties, interest or other charges for any unaccrued or unreported
Tax liabilities with respect to the Seller or the Purchased Assets for all
periods prior to or including the Closing Date; (vi) any and all claims or
liabilities, other than Assumed Liabilities, arising out of, relating to,
resulting from or caused (whether in whole or in part) by any transaction,
event, condition, occurrence or situation in any way relating to the Purchased
Assets, the Seller or the conduct of the Business arising or occurring on or
prior to the Closing Date without regard to whether such claim exists on the
Closing Date or arises at any time thereafter; (vii) any failure of the Seller
or the Principal Shareholders to perform or satisfy any liability or obligation
of the Seller of any nature, fixed, absolute, accrued, contingent, or otherwise,
not assumed hereunder by the Purchaser, including any Excluded Liability, (viii)
any and all claims or liabilities resulting from or arising out of the Seller
Leases prior to the Closing Date, (ix) any claim or liability arising out of or
related to the Seller's failure to obtain any consent set forth on Schedule 4.3
hereto; (x) any and all claims and liabilities arising from the purchase of the
shares of the Seller owned by Xxxxxx X. Xxxxx, Xxxxxxx Xxxxx, Xxxx X. Xxxxx, and
Xxxxxx X. Xxxxx prior to the Closing, and (xi) any and all actions, suits,
proceedings, demands, assessments or judgments, costs and expenses incidental to
any of the foregoing.
(b) By Xxxxxx and the Purchaser. Xxxxxx and the Purchaser agree,
jointly and severally, to be responsible for, pay and indemnify and hold
harmless the Seller, the Principal
41
Shareholders, and their respective directors, officers, employees and agents
("Seller Indemnified Parties") from, against and in respect of, the full amount
of any and all Losses arising from, in connection with, or incident to (i) any
breach or inaccuracy of any of the representations or warranties of Xxxxxx or
the Purchaser contained in this Agreement, any of the Xxxxxx Ancillary
Agreements or the Purchaser Ancillary Agreements, or any other agreement
referred to herein and delivered at the Closing; (ii) any breach of Xxxxxx or
the Purchaser of any covenants or agreements contained in this Agreement, any of
the Xxxxxx Ancillary Agreements or the Purchaser Ancillary Agreements, or any
other agreement referred to herein and delivered at the Closing; (iii) any
failure by Xxxxxx or the Purchaser to perform any obligations contained in this
Agreement, any of the Xxxxxx Ancillary Agreements or the Purchaser Ancillary
Agreements, or any other agreement referred to herein and delivered at the
Closing; (iv) any failure of the Purchaser to perform or satisfy any Assumed
Liability, (v) any and all claims or liabilities arising out of, relating to,
resulting from, or caused by any transaction, event, condition, occurrence, or
situation relating to the operation of the Business arising or occurring
subsequent to the Closing Date, (vi) any amount that the Principal Shareholders
are required to pay pursuant to their guaranty obligations for liabilities
arising after the date hereof under (x) the personal lease guarantees contained
on the Master Lease Agreement Schedule to the master lease agreement, dated
March 16, 2001, between Benefoot and Fleet National Bank, which master lease
agreement has been assigned to De Xxxxx Xxxxxx, pursuant to which the Principal
Shareholders guarantee all of the obligations of Benefoot under such master
lease agreement, (y) the personal guaranty, dated June 23, 1997, between New
Balance Athletic Shoe, Inc. and Xx. Xxxx Xxxxxx (other than an unauthorized
incurrence of liabilities or losses by either of the Principal Shareholders);
and (z) the personal guaranty, dated June 17, 1997, between New Balance Athletic
Shoe, Inc. and Xx. Xxxxx Xxxxx (other than an unauthorized incurrence of
liabilities or losses by either of the Principal Shareholders); provided,
however, notwithstanding anything else in this Agreement to the contrary in the
case of clauses (x), (y) and (z) above, such indemnification shall be provided
solely by Xxxxxx, and not the Purchaser, and in the case of clauses (x), (y),
and (z) above, Xxxxxx shall indemnify the Principal Shareholders for any failure
of the Purchaser to perform or satisfy any Assumed Liability (vii) any claims or
liabilities arising after the Closing Date with respect to the Office Lease,
solely to the extent that such claims or liabilities arise from Xxxxxx'x or the
Purchaser's use of the premises leased pursuant to the Office Lease, including,
but not limited to, the amount of $11,408.61 representing rent and additional
rent due under the Office Lease, and (viii) any and all actions, suits,
proceedings, demands, assessments or judgments, costs and expenses incidental to
any of the foregoing.
(c) Indemnity Procedure. A party or parties hereto agreeing to be
responsible for or to indemnify against any matter pursuant to this Agreement is
referred to herein as the "Indemnifying Party" and the other party or parties
claiming indemnity is referred to as the "Indemnified Party".
(i) An Indemnified Party under this Agreement shall, with
respect to claims for Losses asserted against such party
by any third party, give written notice to the
Indemnifying Party of any liability which might give rise
to a claim for indemnity under this Agreement, to the
extent reasonably possible, but not later than ten (10)
days prior to, with respect to claims for losses arising
after the date hereof the date any answer or responsive
pleading is due, and with respect to
42
other matters for which the Indemnified Party may seek
indemnification, give prompt written notice to the
Indemnifying Party of any liability which might give rise
to a claim for indemnity; provided, however, that any
failure to give such notice will not waive any rights of
the Indemnified Party, except to the extent the rights of
the Indemnifying Party are materially prejudiced.
(ii) Subject to Section 5.3(c)(iii), the Indemnified Party
shall have the right to conduct and control, through
counsel of its choosing, the defense, compromise or
settlement of any third Person claim, action or suit
against such Indemnified Party as to which indemnification
will be sought by any Indemnified Party from any
Indemnifying Party hereunder, and in any such case the
Indemnifying Party shall cooperate in connection therewith
and shall furnish such records, information and testimony
and attend such conferences, discovery proceedings,
hearings, trials and appeals as may be reasonably
requested by the Indemnified Party in connection
therewith; provided, that the Indemnifying Party may
participate, through counsel chosen by it and at its own
expense, in the defense of any such claim, action or suit
as to which the Indemnified Party has so elected to
conduct and control the defense thereof; and provided,
further, that the Indemnified Party shall not, without the
written consent of the Indemnifying Party (which written
consent shall not be unreasonably withheld), pay,
compromise or settle any such claim, action or suit,
except that no such consent shall be required if,
following a written request from the Indemnified Party,
the Indemnifying Party shall fail, within 14 days after
the making of such request, to acknowledge and agree in
writing that, if such claim, action or suit shall be
adversely determined, such Indemnifying Party has an
obligation to provide indemnification hereunder to such
Indemnified Party. Notwithstanding the foregoing, the
Indemnified Party shall have the right to pay, settle or
compromise any such claim, action or suit without such
consent, provided that in such event the Indemnified Party
shall waive any right to indemnity therefor hereunder
unless such consent is unreasonably withheld.
(iii) If any third Person claim, action or suit against any
Indemnified Party is (x) solely for money damages or (y)
if the Seller is the Indemnifying Party and such claim,
action, or suit will not have a Material Adverse Effect,
then with respect to each of (x) and (y) above the
Indemnifying Party shall have the right to conduct and
control, through counsel of its choosing, the defense,
compromise or settlement of any such third Person claim,
action or suit against such Indemnified Party as to which
indemnification will be sought
43
by any Indemnified Party from any Indemnifying Party
hereunder if the Indemnifying Party has acknowledged and
agreed in writing that, if the same is adversely
determined, the Indemnifying Party has an obligation to
provide indemnification to the Indemnified Party in
respect thereof, and in any such case the Indemnified
Party shall cooperate in connection therewith and shall
furnish such records, information and testimony and attend
such conferences, discovery proceedings, hearings, trials
and appeals as may be reasonably requested by the
Indemnifying Party in connection therewith; provided, that
the Indemnified Party may participate, through --------
counsel chosen by it and at its own expense, in the
defense of any such claim, action or suit as to which the
Indemnifying Party has so elected to conduct and control
the defense thereof. Notwithstanding the foregoing, the
Indemnified Party shall have the right to pay, settle or
compromise any such claim, action or suit, provided that
in such event the Indemnified Party shall -------- waive
any right to indemnity therefor hereunder unless the
Indemnified Party shall have sought the consent of the
Indemnifying Party to such payment, settlement or
compromise and such consent was unreasonably withheld, in
which event no claim for indemnity therefor hereunder
shall be waived.
(iv) With regard to any and all claims for which
indemnification is payable hereunder, such indemnification
shall be paid by the Indemnifying Party upon the earlier
to occur of (the "Final Determination"): (i) the entry of
a judgment against the Indemnified Party and the
expiration of any applicable appeal period, or if earlier,
five (5) days prior to the date that the judgment creditor
has the right to execute the judgment; (ii) the entry of
an unappealable judgment or final appellate decision
against the Indemnified Party; or (iii) a settlement of
the claim. Notwithstanding the foregoing, provided that
there is no good faith dispute as to the applicability of
indemnification, the reasonable legal fees and expenses of
counsel to the Indemnified Party shall be reimbursed on a
current basis by the Indemnifying Party if such legal fees
and expenses are a liability of the Indemnifying Party.
With regard to other claims for which indemnification is
payable hereunder, such indemnification shall be paid
promptly by the Indemnifying Party upon demand by the
Indemnified Party.
(d) Limitations on Indemnification. (i) Anything in this Agreement
to the contrary notwithstanding, no indemnification payment shall be made to the
Purchaser Indemnified Parties until the amounts which the Purchaser Indemnified
Parties would otherwise be entitled to receive as indemnification under this
Agreement aggregate at least $100,000, at which time the Purchaser Indemnified
Parties shall be indemnified dollar for dollar to the extent such liability
exceeds $100,000. The indemnification provisions set forth in Section 5.3(a)(i)
(with respect to a breach of Sections 4.7, 4.25, 4.26, 4.30, and 4.40),
5.3(a)(ii), 5.3(a)(iii),
44
5.3(a)(iv), 5.3(a)(v), 5.3(a)(viii), 7.1, and 7.2 or a claim based upon "fraud"
(as hereinafter defined) shall not be subject to the limitations set forth in
this Section 5.3(d)(i) and shall be indemnified to the Purchaser Indemnified
Parties dollar for dollar to the extent any liability with respect to such
matters exists. Anything in this Agreement to the contrary notwithstanding, no
indemnification payment shall be made to the Seller Indemnified Parties until
the amounts which the Seller Indemnified Parties would otherwise be entitled to
receive as indemnification under this Agreement aggregate at least $100,000, at
which time the Seller Indemnified Parties shall be indemnified dollar for dollar
to the extent such liability exceeds $100,000.
(ii) The maximum aggregate liability of the Seller and the
Principal Shareholders for any claim arising from or
relating to this Agreement or the transactions
contemplated hereby, whether asserted as breach of
contract, tort, violation of statute or otherwise,
irrespective of the theory or basis of such claim, shall
not exceed the Indemnification Limit (as defined below),
provided, that the limitation set forth in this sentence
shall not apply to (1) any breach by Seller or the
Principal Shareholders of the representations, warranties
or covenants contained in Sections 4.6, 4.7, 4.15, 4.25,
4.26, 4.30, 4.40, 7.1 or 7.2 of this Agreement, (2) the
indemnification provisions set forth in Sections
5.3(a)(ii), 5.3(a)(iii) and 5.3(a)(v) or (3) the
commission of "fraud" by the Seller or the Principal
Shareholders with respect to any matters pertaining to
this Agreement and the consummation of the transactions
contemplated hereby. For purposes of this Section 5.3(d),
the term "fraud" shall include any willful or intentional
misrepresentation or the making, by the Seller or any
Shareholder, of any untrue statement of a material fact or
the omission to state a material fact necessary in order
to make the statement made, in light of the circumstances
under which they were made, not misleading if the person
making such untrue statement of a material fact or
omitting to state such material fact had actual knowledge
that such statement or omission was untrue when made or
omitted. The maximum aggregate liability of Xxxxxx and the
Purchaser for any claim arising from or relating to this
Agreement or the transactions contemplated hereby, whether
asserted as breach of contract, tort, violation of statute
or otherwise, irrespective of the theory or basis of such
claim, shall not exceed the Indemnification Limit. As used
herein, "Indemnification Limit" shall mean the sum of (i)
the Purchase Price, as it may be increased or decreased
pursuant to Section 2.6 hereof, (ii) the amount of the
Long Term Liabilities on the Closing Date, and (iii) the
aggregate amount of any Deferred Consideration paid to the
Seller.
(iii) The extent to which any Indemnified Party shall be
entitled to indemnification hereunder shall be reduced by
the amount of any insurance proceeds received by the
Indemnified Party on account
45
of the claim that the Indemnified Party is seeking to be
indemnified for, irrespective of the identity of the party
that paid for such insurance.
(e) Right To Set-off Against the Promissory Notes. Should any
claims for Losses be made in good faith by a Purchaser Indemnified Party against
the Seller or the Principal Shareholders, whether pursuant to the provisions of
Section 5.3(a), any of the Seller Ancillary Agreements, the Xxxxxx Employment
Agreement, or the Xxxxx Employment Agreement, or in the case of a decrease in
the Purchase Price in excess of $100,000 pursuant to Section 2.6, the Purchaser
or Xxxxxx shall give notice to the Seller and each of the Principal Shareholders
of the claim for which it is exercising its right to set-off and, if the
circumstances giving rise to such claim have not been cured by the Seller within
ten (10) days after deemed receipt of such notice pursuant to Section 8.1,
Xxxxxx may, in the exercise of its good faith judgment, set-off and deduct such
amount from any principal or interest to be paid by Xxxxxx pursuant the
Promissory Notes; provided, that any amount that may be set-off pursuant to this
Section 5.3(e) shall be reduced by any amounts paid on such claim to the
Purchaser or Xxxxxx by the Seller pursuant to Section 5.3 hereof. If pursuant to
a Final Determination it is determined that Xxxxxx or the Purchaser, as the case
may be, was not entitled to indemnification hereunder with respect to any amount
which Xxxxxx or the Purchaser set-off from principal or interest to be paid
pursuant to the Promissory Notes, such amount, plus interest thereon accruing at
the rate of ten percent (10%) per annum, shall be paid to the Seller in
accordance with the terms of the Promissory Notes.
ARTICLE VI.
CLOSING; DELIVERIES
6.1 Closing Date Deliveries by the Seller. At the Closing, the Seller
shall deliver each of the following to the Purchaser and Xxxxxx:
(a) a copy of each Seller's Certificate of Incorporation certified
as of a recent date by the Secretary of State of the State of New York;
(b) a certificate of good standing of each Seller issued as of a
recent date by the Secretary of State of the State of New York;
(c) certificates of the secretary of each Seller, dated the
Closing Date, in form and substance reasonably satisfactory to the Purchaser, as
to (i) no amendments to its Certificate of Incorporation since the date
certified by the Secretary of State of the State of New York; (ii) its by-laws;
(iii) the resolutions of the Board of Directors of each Seller, and of holders
of all of the capital stock of the Sellers, authorizing the execution and
performance of this Agreement, the Seller Ancillary Agreements and the
transactions contemplated hereby and thereby; and (iv) incumbency and signatures
of the officers of each Seller executing this Agreement and any other agreement,
document, or certificate delivered in connection herewith;
46
(d) Xxxx of Sale, Assignment, and Assumption Agreement,
substantially in the form of Exhibit 2 hereto, duly executed by Benefoot and
Benefoot Professional Products (the "Xxxx of Sale");
(e) a Lock-Up Agreement, substantially in the form of Exhibit 3
hereto, duly executed by Seller (the "Lock-Up Agreement");
(f) a Registration Rights Agreement, substantially in the form of
Exhibit 4 hereto, duly executed by Seller and Xx. Xxxxxxx Xxxxxx (the
"Registration Rights Agreement");
(g) an employment agreement, substantially in the form of Exhibit
5, between Xxxxxx and Xxxxx Xxxxx, duly executed by Xx. Xxxxx (the "Xxxxx
Employment Agreement");
(h) an employment agreement, substantially in the form of Exhibit
6, between Xxxxxx and Xxxx Xxxxxx, duly executed by Xx. Xxxxxx (the "Xxxxxx
Employment Agreement");
(i) a consulting agreement, substantially in the form of Exhibit 7
hereto, duly executed by Xx. Xxxxxxx Xxxxxx (the "Consulting Agreement");
(j) non-competition, non-solicitation, and confidentiality
agreements, substantially in the form of Exhibit 8 hereto, in favor of Xxxxxx
and the Purchaser in a form acceptable to Xxxxxx and the Purchaser, duly
executed by each of the Persons indicated on Schedule 6.1 hereto;
(k) all consents, waivers or approvals required of any Person or
Governmental Authority with respect to transfer of the Purchased Assets or the
consummation of the transactions contemplated by this Agreement, including, but
not limited to, parties to the Material Agreements;
(l) the legal opinion of Xxxxxxx & Xxxxxxxxx Xxxxxx Xxxxxx LLP,
counsel to the Seller and the Principal Shareholders, dated the Closing Date,
addressed to Xxxxxx and Purchaser, substantially in the form of Exhibit 9
hereto;
(m) assignments, in recordable form, with respect to each of the
registered Copyrights, issued Patent Rights, registered Trademarks and pending
applications for the registration or issuance of any Copyrights, Patent Rights
and Trademarks included in the Purchased Assets, duly executed by Seller and in
form and substance reasonably satisfactory the Purchaser;
(n) certificate of title or origin (or like documents) with
respect to any vehicles or other equipment included in the Purchased Assets for
which a certificate of title or origin is required in order to transfer title;
(o) such other bills of sale, assignments, warranty deeds, and
such other good and sufficient instruments of assignment, transfer or conveyance
as the Purchaser may reasonably request or as may be otherwise necessary to vest
in Purchaser the Purchased Assets and evidence and effect the sale, assignment,
transfer, conveyance and delivery of the Purchased Assets to the Purchaser;
47
(p) the Assignment of Lease with consent by Landlord and
Assumption by Assignee relating to the Office Lease (the "Assignment and
Assumption of the Office Lease"), substantially in the form of Exhibit 10
hereto, duly executed by Benefoot;
(q) such other documents and instruments as the Purchaser may
reasonably request.
In addition to the foregoing deliveries, Seller shall take all steps
and actions as Purchaser may reasonably request or as otherwise may be necessary
to put Purchaser in actual possession or control of the Purchased Assets.
6.2 Closing Date Deliveries by Xxxxxx and/or the Purchaser. At
Closing, Xxxxxx and/or the Purchaser shall deliver each of the following to the
Seller:
(a) a wire transfer of funds (provided that the Seller shall, at
least two business days prior to Closing, shall have furnished appropriate wire
instructions) to the Seller in the aggregate amount of the Cash at Closing;
(b) certificates representing the Consideration Shares and shares
of Xxxxxx Common Stock to be delivered to Xx. Xxxxxxx Xxxxxx under the
Consulting Agreement;
(c) the Promissory Notes, duly executed by Purchaser;
(d) Xxxx of Sale, duly executed by the Purchaser;
(e) the Registration Rights Agreement, duly executed by Xxxxxx;
(f) the Xxxxx Employment Agreement, duly executed by Xxxxxx;
(g) the Xxxxxx Employment Agreement, duly executed by Xxxxxx;
(h) the Consulting Agreement, duly executed by the Purchaser;
(i) the Xxxxxx Lease, duly executed by Xxxxxx and the landlord
thereto;
(j) the Assignment and Assumption of the Office Lease, duly
executed by Xxxxxx;
(k) a certificate of good standing of Purchaser issued as of a
recent date by the Secretary of State of the State of Delaware;
(l) a certificate of good standing of Xxxxxx issued as of a recent
date by the Secretary of State of the State of New York
(m) a certificate, dated the Closing Date, of the Secretary of
Purchaser, setting forth (i) the resolutions of the Board of Directors of each
of the Purchaser and Xxxxxx authorizing the execution and performance of this
Agreement, the Xxxxxx Ancillary Agreements, the Purchaser Ancillary Agreements
and the transactions contemplated hereby and thereby and
48
(ii) incumbency and signatures of the officers of Purchaser and Xxxxxx executing
this Agreement and any other agreement, document, or certificate delivered in
connection herewith;
(n) the legal opinion of Xxxx Xxxxxxx, P.C., counsel to Xxxxxx and
the Purchaser, dated the Closing Date, addressed to the Seller and the Principal
Shareholders, substantially in the form of Exhibit 11 hereto; (o) Pay-off
documentation relating to the Long Term Liabilities; and
(p) such other documents and instruments as the Seller may
reasonably request.
ARTICLE VII.
ADDITIONAL AGREEMENTS
7.1 Non-competition. For purposes of this Section 7.1, all references
to Xxxxxx or the Purchaser shall be deemed to include all of the Affiliates,
Subsidiaries, successors and assigns of Xxxxxx or the Purchaser, as the case may
be, and all references to the Seller shall be deemed to include the Seller and
its successors and assigns. The Seller and the Principal Shareholders
acknowledge that in order to assure Xxxxxx and the Purchaser that Xxxxxx and the
Purchaser will retain the value of the Purchased Assets as a "going concern,"
the Seller and the Principal Shareholders agree, on the terms set forth in this
Section 7.1, not to utilize their special knowledge of the business of the
Seller and their relationships with customers, suppliers and others to compete
with Xxxxxx or the Purchaser, subject to the terms hereafter set forth. For the
Restricted Period (as defined below) the Seller, the Principal Shareholders, and
their Affiliates shall not engage or have an interest in any Competitive
Business, anywhere in (i) the United States of America or its territories and
possessions, including, but not limited to, Puerto Rico, (ii) Canada, (iii)
Europe, or (iv) any other geographic area where Xxxxxx or the Purchaser does
business or in which any of Xxxxxx'x or the Seller's products are marketed, as
principal, officer, agent, employee, director, partner or stockholder (except as
an owner of five percent (5%) or less of the stock of any company listed on a
national securities exchange or traded in the over-the-counter market), or
through the investment of capital, lending of money or property, rendering of
services or capital, or otherwise, in any Competitive Business. In addition,
during the Restricted Period, the Seller, the Principal Shareholders, and their
Affiliates shall not, and shall not permit any of their employees, agents or
others then under their control to, directly or indirectly, on behalf of the
Seller, the Principal Shareholders, or their Affiliates, or any other Person,
(i) accept Competitive Business from, or solicit the Competitive Business of any
Person who is, or who had been at any time during the three (3) years prior to
such solicitation, a customer or supplier of any of Xxxxxx, the Purchaser, the
Sellers, or their respective Subsidiaries or any successor to the business of
Xxxxxx, the Purchaser, the Seller, or their Subsidiaries, (ii) accept
Competitive Business from, or solicit the Competitive Business of any Person
who, at any time during the one (1) year prior to such solicitation, had
discussions with Xxxxxx, the Purchaser, the Seller, or any of their respective
Subsidiaries regarding becoming a customer of any of such companies, or (iii)
recruit or otherwise solicit or induce any person who is an employee or
consultant of, or otherwise engaged by, Xxxxxx, the Purchaser or their
Subsidiaries, or any successor to the business of Xxxxxx, the Purchaser or their
Subsidiaries to terminate his or her employment or other relationship with
Xxxxxx, the Purchaser or their Subsidiaries, or such successor, or hire any
49
person who has left the employ of Xxxxxx, the Purchaser, or their Subsidiaries,
or any such successor during the one (1) year preceding such solicitation. The
Seller, the Principal Shareholders, and their Affiliates shall not at any time,
directly or indirectly, use or purport to authorize any Person to use any name,
xxxx, copyright, logo, trade dress or other identifying words or images which
are the same as or similar to those used currently or in the past by Xxxxxx, the
Purchaser, the Seller, or their Subsidiaries in connection with any product or
service, whether or not such use would be in a Competitive Business; provided,
however that, upon the prior written consent of Xxxxxx, which consent shall not
be unreasonably withheld, Xxxx Xxxxxx may use the name "Xxxxxx" in connection
with a business that is not a Competitive Business. The Seller and the Principal
Shareholders acknowledge that compliance with the restrictions set forth in this
Section 7.1 will not prevent any of them from earning a livelihood. As used
herein, the "Restricted Period" shall mean (a) with respect to each Principal
Shareholder, a period equal to the lesser of (x) seven (7) years commencing on
the Closing Date and (y) five (5) years commencing on the date that the
employment of such Principal Shareholder with Xxxxxx has been terminated
voluntarily or involuntarily for any reason and (b) with respect to the Seller,
a period equal to the lesser of (x) seven (7) years commencing on the Closing
Date and (y) five (5) years commencing on the date that the employment of each
of the Principal Shareholders with Xxxxxx has been terminated voluntarily or
involuntarily for any reason. As used herein, the phrase "Competitive Business"
means any business competitive with business engaged in by Xxxxxx, the
Purchaser, or the Seller as of the date hereof and/or during the Restricted
Period.
7.2 General Confidentiality. For purposes of this Section 7.2, all
references to Xxxxxx or the Purchaser shall be deemed to include all of the
Affiliates, Subsidiaries, successors and assigns of Xxxxxx or the Purchaser, as
the case may be, and all references to the Seller shall be deemed to include the
Seller and its successors and assigns. The Seller and the Principal Shareholders
acknowledge that the intangible property and all other confidential or
proprietary information with respect to the business and operations of the
Seller and the Purchased Assets are, after the Closing Date, valuable, special
and unique assets of the Purchaser. The Seller and the Principal Shareholders
shall not, at any time after the Closing Date, disclose, directly or indirectly,
to any Person, or use or purport to authorize any Person to use any confidential
or proprietary information with respect to the Seller or the Purchased Assets,
whether or not for their own benefit, without the prior written consent of
Xxxxxx, including without limitation, (i) trade secrets, designs, formulae,
drawings, intangible property, diagrams, techniques, research and development,
specifications, data, know-how, formats, marketing plans, business plans,
budgets, strategies, forecasts and client data; (ii) information relating to the
products developed by Xxxxxx, (iii) the names of the Seller's customers and
contacts, the Seller's marketing strategies, the names of their vendors and
suppliers, the cost of materials and labor, the prices obtained for services
sold (including the methods used in price determination, manufacturing and sales
costs), lists or other written records used in the Business, compensation paid
to employees and consultants and other terms of employment, production operation
techniques or any other confidential information of, about or pertaining to the
Business, and any other information and material relating to any customer,
vendor, licensor, licensee, or other party transacting business with the Seller,
(iv) all tangible material that embodies any confidential and proprietary
information as well as all records, files, memoranda, reports, price lists,
drawings, plans, sketches and other written and graphic records, documents,
equipment, and the like, relating to the business of the Seller, and (v) any
other confidential information or trade secrets relating to the business or
affairs of Xxxxxx or the Purchaser which the Seller or the Principal
Shareholders
50
may acquire or develop in connection with or as a result of his or its
performance of the terms and conditions of this Agreement. Notwithstanding
anything to the contrary set forth in this Section 7.2, confidential and
proprietary information shall not include (i) information that is known to the
public or which may become known to the public without any fault of the Seller
or any of the Principal Shareholders or in violation of any confidentiality
restrictions imposed upon Seller or the Principal Shareholders, (ii) information
that is required to be disclosed pursuant to subpoena or court order to the
extent that such information is disclosed in compliance therewith, (iii)
information that is required to be disclosed by Applicable Law or to any
Governmental Authority to the extent that such information is disclosed in
compliance therewith or (iv) information that is disclosed by the Principal
Shareholders to their respective attorneys and accountants in connection with
the enforcement of this Agreement to the extent that such attorneys and
accountants are bound by the restrictions of the type set forth in this Section
7.2. The Seller and the Principal Shareholders acknowledge that Xxxxxx and the
Purchaser would not enter into this Agreement without the assurance that all
such confidential and proprietary information will be used for the exclusive
benefit of Xxxxxx and the Purchaser.
7.3 Continuing Obligations; Equitable Remedies. The restrictions set
forth in Sections 7.1 and 7.2 are considered by the parties to be reasonable for
the purposes of protecting the value of the business and goodwill of the
Purchaser and the Purchased Assets. Purchaser, the Seller and the Principal
Shareholders acknowledge that Purchaser and Xxxxxx would be irreparably harmed
and that monetary damages would not provide an adequate remedy to Purchaser or
Xxxxxx in the event the covenants contained in Sections 7.1 and 7.2 were not
complied with in accordance with their terms. Accordingly, the Seller and the
Principal Shareholders agree that any breach or threatened breach by any of them
of any provision of Sections 7.1 or 7.2 shall entitle Purchaser and Xxxxxx to
injunctive and other equitable relief to secure the enforcement of these
provisions, in addition to any other remedies (including damages) which may be
available to Purchaser. If the Seller or any of the Principal Shareholders
breaches the covenant set forth in Section 7.1, the running of the non-compete
period described therein shall be tolled for so long as such breach continues.
It is the desire and intent of the parties that the provisions of Sections 7.1
and 7.2 be enforced to the fullest extent permissible under the laws and public
policies of each jurisdiction in which enforcement is sought. If any provisions
of Section 7.1 relating to the time period, scope of activities or geographic
area of restrictions is declared by a court of competent jurisdiction to exceed
the maximum permissible time period, scope of activities or geographic area, as
the case may be, the time period, scope of activities or geographic area shall
be reduced to the maximum which such court deems enforceable. If any provisions
of Section 7.1 or 7.2 other than those described in the preceding sentence are
adjudicated to be invalid or unenforceable, the invalid or unenforceable
provisions shall be deemed amended (with respect only to the jurisdiction in
which such adjudication is made) in such manner as to render them enforceable
and to effectuate as nearly as possible the original intentions and agreement of
the parties. In addition, if any party brings an action to enforce Sections 7.1
or 7.2 hereof or to obtain damages for a breach thereof, the prevailing party in
such action shall be entitled to recover from the non-prevailing party all
attorney's fees and expenses incurred by the prevailing party in such action.
7.4 Change of Name; Post-Closing Use of Name and Tradenames. Within 1
day following the Closing Date, each Seller shall change its name to remove the
words "Benefoot" by amendment of its certificate of incorporation. Each Seller
shall provide to Purchaser a copy
51
of such amendment of its certificate of incorporation and evidence satisfactory
to Purchaser that whatever filings are necessary to effect such name change in
any jurisdiction in which such Seller is licensed or qualified to do business
have been made. From and after the Closing, none of the Seller, the Principal
Shareholders, or any of their Affiliates shall use the name "Benefoot" or any
tradenames or trademarks listed on Schedule 4.19, nor any derivations thereof or
any confusingly similar tradenames or trademarks, in connection with the conduct
of any business.
7.5 Taxes. The Seller agrees to pay when due and discharge all sales
and other state and local taxes owing by the Seller in respect of the operation
of the Seller up to and including the Closing Date. The Seller shall file with
all appropriate authorities its final sales Tax Returns when and as such returns
are due under Applicable Law. Any sales Tax, use Tax, real property transfer or
gains Tax, documentary stamp Tax or similar Tax attributable to the sale or
transfer of the Business, the Purchased Assets or the Assumed Liabilities shall
be paid by Seller. Purchaser agrees to sign and deliver such certificates or
forms as may be necessary or appropriate to establish an exemption from (or
otherwise reduce), or file Tax Returns with respect to, such Taxes.
7.6 No Pre-Payment of Outstanding 4% Convertible Subordinated Notes.
Xxxxxx agrees that it and its Affiliates shall not prepay, including through
redemption or acquisition, in whole or in part, any of its outstanding 4%
Convertible Subordinated Notes, due August 31, 2006, unless and until the
Promissory Notes have been paid in full, redeemed, or otherwise acquired by the
Purchaser or a Xxxxxx Affiliate.
7.7 Collection of Receivables. (a) From and after the Closing Date,
the Purchaser shall have the right and authority, and shall use commercially
reasonable efforts, to collect the accounts and notes receivable included in the
Purchased Assets (the "Receivables"), and to endorse all checks received on
account of the Receivables, in the Seller's name generally in accordance with
the billing and collection practices presently applied by the Purchaser in the
collection of its accounts and notes receivable, except that with respect to any
particular Receivable, the Purchaser shall be under no obligation to commence or
not to commence litigation to effect collection and may make any adjustment,
concession or settlement which in the good faith judgment of the Purchaser is
commercially reasonable. In connection with the collections by the Purchaser, if
a payment is received from an account debtor of both a Xxxxxx Affiliate and the
Seller, such payment shall be treated as follows:
(i) If such payment specifies that it is to be applied against
an outstanding invoice of the Seller, then such payment
shall be applied against such invoice; provided, however,
that if no amount is then due under such invoice, such
payment shall be applied first to any other amount due to
the Seller from such account debtor and second to any
amounts due from such account debtor to a Xxxxxx
Affiliate;
(ii) If such payment is made to the Seller, but does not
specify an invoice, then such payment shall be applied
first to any other amount due from such account debtor to
the Seller and second to any amounts due from such account
debtor to a Xxxxxx Affiliate;
52
(iii) If such payment specifies that it is to be applied against
an outstanding invoice of a Xxxxxx Affiliate, then such
payment shall be applied against such invoice; provided,
however, that if no amount is then due under such invoice,
such payment shall be applied first to any other amount
due from such account debtor to a Xxxxxx Affiliate and
second to any amounts due from such account debtor to the
Seller; and
(iv) If such payment is made to a Xxxxxx Affiliate, but does
not specify an invoice, then such payment shall be applied
to the earliest invoice outstanding with respect to
indebtedness of such account debtor, and any remaining
portion of such payment shall be applied to the next
earliest invoice outstanding with respect to indebtedness
of such account debtor, in each case regardless whether
such invoice is an invoice of the Seller or a Xxxxxx
Affiliate.
(b) The Purchaser shall, on or before the fifteenth business day
of each calendar month commencing with the second complete calendar month
following the Closing Date, deliver to Seller a written report ("Collection
Report") of the following information with respect to the Receivables:
(i) the aggregate amount of the Receivables (and the number of
accounts comprising such Receivables); and
(ii) the aggregate amount of cash collections of the
Receivables during the period from the Closing Date
through the date of the Collection Report.
(c) If the Purchaser has not collected, within nine (9) months
after the Closing Date, or in the event of an extended payment arrangement with
respect to a customer disclosed on Schedule 7.7(c), such later date as provided
in accordance with the terms of such payment arrangement, an amount equal to the
excess of the Receivables over the allowance for doubtful accounts shown on the
Closing Date Balance Sheet (such excess being referred to herein as the "Net
Amount of Receivables"), then the Purchaser shall have the right to require the
Seller to pay the Purchaser an amount (the "Receivables Reimbursement Payment")
equal to (i) the Net Amount of Receivables minus (ii) the amount collected in
cash by the Purchaser during such nine (9) month period in respect of the
Receivables; provided that the Purchaser shall have no right to receive a
Receivables Reimbursement Payment with respect to any amount thereof for which
the Purchaser or Xxxxxx received indemnification pursuant to Section 5.3(a).
After the expiration of such nine (9) month period, any then outstanding
Receivables shall be referred to the collection agency employed by Xxxxxx or the
Purchaser at such time for collection of such outstanding Receivable; provided,
however, that if at the end of such nine (9) month period, the Purchaser shall
elect not to refer any Receivable to such collection agency, the Seller shall
not be required to pay the portion of the Receivable Reimbursement Payment
related to such Receivable unless and until the Purchaser refers such Receivable
to such collection agency.
53
(d) If, after the Closing Date, the Seller, or any other Person on
behalf of the Seller, shall receive any remittance from any account debtors with
respect to the Receivables (excluding any Receivable assigned to the Seller),
the Seller or such other Person shall endorse such remittance to the order of
the Purchaser and forward it to the Purchaser immediately upon receipt thereof,
and any such amounts shall be deemed to have been collected by the Purchaser for
purposes of this Section 7.7.
(e) If a Xxxxxx Affiliate shall receive any remittance from or on
behalf of any account debtor with respect to any Receivable after such
Receivable has been referred to a collection agency, including a remittance from
the collection agency, the Purchaser shall endorse such remittance to the order
of the Seller and forward it to the Seller immediately upon receipt thereof.
7.8 Access to Records after Closing. (a) For a period of six (6) years
after the Closing Date, Xxxxxx, Purchaser and their representatives shall have
reasonable access to all of the books and records relating to the Business which
Seller, the Principal Shareholders or any of their Affiliates may retain after
the Closing Date. Such access shall be afforded by Seller, the Principal
Shareholders and their Affiliates upon receipt of reasonable advance notice and
during normal business hours. The Purchaser shall be solely responsible for any
costs and expenses incurred by it pursuant to this Section 7.8(a). If the
Seller, the Principal Shareholders, or any of their Affiliates shall desire to
dispose of any of such books and records prior to the expiration of such
representations and warranties, the Seller, the Principal Shareholders, and
their Affiliates shall, prior to such disposition, give the Purchaser a
reasonable opportunity, at the Purchaser's expense, to segregate and remove such
books and records as the Purchaser may select.
(b) During each year of the Deferred Consideration Period, the
Seller, the Principal Shareholders, and each of their representatives shall have
reasonable access at the premises of Xxxxxx during normal business hours to the
work papers of the Purchaser used to calculate the Deferred Consideration.
7.9 Treatment of Certain Excluded Liabilities. Seller agrees that its
obligations with respect to the Excluded Liabilities referred to in Sections
2.4(e) and 2.4(g) include the obligation to undertake the defense of or
otherwise settle or resolve each such matter. Seller shall have the right to
defend, settle or otherwise resolve each such matter in any manner it deems
appropriate, provided that (i) no such matter may be settled or resolved in a
manner that would materially increase the cost of the conduct of the Business
after the Closing and (ii) no such matter may be settled or resolved in a manner
that provides for injunctive or other nonmonetary relief affecting Xxxxxx, the
Purchaser, or the Purchased Assets. Seller shall provide periodic status reports
to Purchaser regarding any matter referred to in this Section 7.9 that could
affect Xxxxxx, the Purchaser, the Business, or the Purchased Assets after the
Closing Date. Xxxxxx, Purchaser, and their counsel and representatives shall
have the right to consult with Seller and its counsel from time to time
regarding such matters and to review any documents prepared in connection
therewith.
7.10 Treatment of Employees. (a) Xxxxxx or the Purchaser shall offer
employment effective as of the Closing Date to all employees of the Seller (the
"Transferred Employees") on
54
terms to be prescribed by the Purchaser. The Seller shall terminate the
employment of all the Seller's employees, including the Transferred Employees,
as of the Closing Date.
(b) Except as set forth below, the Purchaser shall be responsible
for all wages and other benefits of Transferred Employees arising after the
Closing Date relating to the employment by the Purchaser of any Transferred
Employee.
(c) Nothing contained in this Section 7.10 shall limit the at-will
nature of the employment of the Transferred Employees or the right of Xxxxxx or
the Purchaser to alter or terminate any Employee Benefit Plan.
(d) Schedule 7.10(d) sets forth a complete and accurate list of
all qualified beneficiaries receiving COBRA continuation coverage under Seller's
health and dental insurance plans ("Health Plans") as of the Closing Date
("Current COBRA Recipients").
(e) From May 4, 2002 through May 31, 2002, the Purchaser shall pay
the premium payment of the Seller's Health Plans in accordance with the terms
and provisions of the Health Plans (the "May Health Plan Premium"). Seller shall
continue to maintain in effect its Health Plans until May 31, 2002 (i) for
benefit of Transferred Employees who are employed as newly hired employees by
the Purchaser and who were enrolled in Seller's Health Plans on the day before
the Closing Date and (ii) for the benefit of Current COBRA Recipients. The
Seller shall permit such Transferred Employees and COBRA Recipients to continue
to be covered under Seller's Health Plans until May 31, 2002 and shall accept
employee self-pay contributions to any Cafeteria/ Internal Revenue Code Section
125 components of Seller's Health Plans through payroll deductions from wages
earned by Transferred Employees as employees of the Purchaser during the month
of May 2002. The Seller shall not make any statement or representation to such
Transferred Employees with respect to the tax treatment (including but not
limited to the exclusion from taxable gross wages) of employee contributions to
the Seller's Health Plans during the month of May 2002.
(f) The Purchaser shall make available COBRA continuation coverage
under its health plans to the COBRA Recipients and any Transferred Employee
terminated by the Purchaser for the balance of their COBRA coverage period.
Buyer shall have no obligation to provide COBRA continuation coverage under its
health plans to any other COBRA qualified beneficiaries of Seller. Subject to
compliance with Applicable Law, Seller agrees to provide information regarding
the COBRA Recipients reasonably requested by the Purchaser or Xxxxxx.
7.11 Waiver of Jury Trial. Xxxxxx and the Seller hereby waive on behalf
of themselves and their successors and assigns trial by jury in any action, suit
or proceeding in any jurisdiction to enforce or otherwise with respect to the
Promissory Notes.
7.12 Use of Leased Property. [Intentionally Omitted]
7.13 Payments of Accounts Payable. The accounts payable of the Seller
set forth on Schedule 7.13 shall be paid in full, with interest thereby, by the
Purchaser within forty-five (45) days after the Closing Date.
55
ARTICLE VIII.
MISCELLANEOUS
8.1 Notices. Any notice, demand, claim or other communication under
this Agreement shall be in writing and shall be sent by certified mail, return
receipt requested, postage prepaid; telegraph; cable; or overnight courier to
the following addresses (or to such other address as a party to receive such
notice shall specify to the other parties hereto in accordance with the
provisions of this section):
If to Xxxxxx or Purchaser: If to the Seller or the Principal Shareholders:
000 Xxxxxxx Xx. Benefoot, Inc.
Xxxx Xxxx, XX 00000 c/o Trachtenberg & Pauker, LLP
Attn.: Chief Executive Officer 000 Xxxxxxxxx Xxxx Xxxx
Xxxxxxxx, XX 00000
with a copy to: Attn. Xxxxxx Xxxxxx
Xxxx Xxxxxxx, P.C.
1350 Avenue of the Americas Benefoot Professional Products, Inc.
00xx Xxxxx x/x Xxxxxxxxxxxx & Xxxxxx, XXX
Xxx Xxxx, XX 00000 000 Xxxxxxxxx Xxxx Xxxx
Xxxx.: Xxxxxx X. Xxxxxxxx, Esq. Xxxxxxxx, XX 00000
Attn. Xxxxxx Xxxxxx
Xx. Xxxx Xxxxxx
0 Xxxxxxx Xxxxx
Xxxx Xxxxxxx, XX 00000-0000
Xx. Xxxxx Xxxxx
00 Xxxxxxx Xxxxxx
Xxxxxx Xxxxx, XX 00000
with a copy to:
Jenkens & Xxxxxxxxx Xxxxxx Xxxxxx LLP
The Chrysler Building
000 Xxxxxxxxx Xxxxxx
Xxx Xxxx, XX 00000
Attn.: Xxxxxxx X. Xxxxxxx, Esq.
All such notices and communications shall be deemed effective as
follows: if mailed, on the third business day following deposit in the mail; if
sent by telegraph, or cable, when delivered to the telegraph or cable company,
as the case may be, or if by overnight courier, on the day following delivery to
the courier; provided that if such day is not a business day, such notice or
communication shall be deemed effective on the next succeeding business day.
8.2 Entire Agreement. Except as provided in that certain letter
agreement, dated May 3, 2002, between the Company and the Seller, this Agreement
contains every obligation and understanding between the parties relating to the
subject matter hereof and merges all prior
56
discussions, negotiations and agreements between them, including the Term Sheet,
dated January 18, 2002, the Confidentiality Letter Agreement dated January 18,
2002 among the Purchaser and the Seller, and the Exclusivity Letter Agreement,
dated January 18, 2002, among the Purchaser, the Seller, and the Principal
Shareholders, and none of the parties shall be bound by any conditions,
definitions, understandings, warranties or representations other than as
expressly provided or referred to herein.
8.3 Binding Effect. This Agreement shall be binding upon and inure to
the benefit of the parties hereto and their respective successors, heirs,
personal representatives, legal representatives, and permitted assigns.
8.4 Knowledge of the Parties. Where any representation or warranty
contained in this Agreement is expressly qualified by reference to the knowledge
of any of the parties hereto, such party acknowledges and confirms that it has
made due and diligent inquiry as to the matters that are the subject of such
representations and warranties.
8.5 Assignment. This Agreement may not be assigned by any party
without the written consent of the other party; provided that Xxxxxx and the
Purchaser may assign this Agreement to a corporation, partnership, limited
liability company, or other entity of which either Xxxxxx or the Purchaser
maintains majority control; and provided further that Xxxxxx shall agree to
guaranty the obligations hereunder of such assignee.
8.6 Waiver and Amendment. Any representation, warranty, covenant, term
or condition of this Agreement which may legally be waived, may be waived, or
the time of performance thereof extended, at any time by the party hereto
entitled to the benefit thereof, and any term, condition or covenant hereof
(including, without limitation, the period during which any condition is to be
satisfied or any obligation performed) may be amended by the parties thereto at
any time. Any such waiver, extension or amendment shall be evidenced by an
instrument in writing executed on behalf of the appropriate party by its
President or any Vice President or other person, who has been authorized by its
Board of Directors to execute waivers, extensions or amendments on its behalf.
No waiver by any party hereto, whether express or implied, of its rights under
any provision of this Agreement shall constitute a waiver of such party's rights
under such provisions at any other time or a waiver of such party's rights under
any other provision of this Agreement. No failure by any party thereof to take
any action against any breach of this Agreement or default by another party
shall constitute a waiver of the former party's right to enforce any provision
of this Agreement or to take action against such breach or default or any
subsequent breach or default by such other party.
8.7 No Third Party Beneficiary. Nothing expressed or implied in this
Agreement is intended, or shall be construed, to confer upon or give any Person
other than the parties hereto and their respective heirs, personal
representatives, legal representatives, successors and permitted assigns, any
rights or remedies under or by reason of this Agreement.
8.8 Severability. In the event that any one or more of the provisions
contained in this Agreement shall be declared invalid, void or unenforceable,
the remainder of the provisions of this Agreement shall remain in full force and
effect, and such invalid, void or unenforceable provision shall be interpreted
as closely as possible to the manner in which it was written. It is
57
the desire and intent of the parties that the provisions of this Agreement be
enforced to the fullest extent permissible under the laws and public policies of
each jurisdiction in which enforcement is sought. If any provision of this
Agreement relating to a time period or scope of activities is declared by a
court of competent jurisdiction to exceed the maximum permissible time period or
scope of activities, as the case may be, the time period or scope of activities
shall be reduced to the maximum which such court deems enforceable.
8.9 Expenses. Except as set forth in Section 2.6(d) with respect to
$10,000 of expenses incurred by the Seller, each party agrees to pay, without
right of reimbursement from the other party, the costs incurred by it incident
to the performance of its obligations under this Agreement and the consummation
of the transactions contemplated hereby, including, without limitation, costs
incident to the preparation of this Agreement, and the fees and disbursements of
counsel, accountants and consultants employed by such party in connection
herewith.
8.10 Headings. The section and other headings contained in this
Agreement are for reference purposes only and shall not affect the meaning or
interpretation of any provisions of this Agreement.
8.11 Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be deemed an original but all of which
together shall constitute one and the same instrument.
8.12 Time of the Essence. Wherever time is specified for the doing or
performance of any act or the payment of any funds, time shall be considered of
the essence.
8.13 Injunctive Relief. It is possible that remedies at law may be
inadequate and, therefore, the parties hereto shall be entitled to equitable
relief including, without limitation, injunctive relief, specific performance or
other equitable remedies in addition to all other remedies provided hereunder or
available to the parties hereto at law or in equity.
8.14 Remedies Cumulative. No remedy made available by any of the
provisions of this Agreement is intended to be exclusive of any other remedy,
and each and every remedy shall be cumulative and shall be in addition to every
other remedy given hereunder or now or hereafter existing at law or in equity.
8.15 Governing Law. This Agreement has been entered into and shall be
construed and enforced in accordance with the laws of the State of New York
without reference to the choice of law principles thereof.
8.16 Jurisdiction and Venue. This Agreement shall be subject to the
exclusive jurisdiction of the courts of New York County, New York. The parties
to this Agreement agree that any breach of any term or condition of this
Agreement shall be deemed to be a breach occurring in the State of New York by
virtue of a failure to perform an act required to be performed in the State of
New York and irrevocably and expressly agree to submit to the jurisdiction of
the courts of the State of New York for the purpose of resolving any disputes
among the parties relating to this Agreement or the transactions contemplated
hereby. The parties irrevocably waive, to the fullest extent permitted by law,
any objection which they may now or hereafter have to the laying of venue of any
suit, action or proceeding arising out of or
58
relating to this Agreement, or any judgment entered by any court in respect
hereof brought in New York County, New York, and further irrevocably waive any
claim that any suit, action or proceeding brought in New York County, New York
has been brought in an inconvenient forum.
8.17 Participation of Parties. The parties hereto acknowledge that this
Agreement and all matters contemplated herein, have been negotiated among all
parties hereto and their respective legal counsel and that all such parties have
participated in the drafting and preparation of this Agreement from the
commencement of negotiations at all times through the execution hereof.
8.18 Further Assurances. The parties hereto shall deliver any and all
other instruments or documents required to be delivered pursuant to, or
necessary or proper in order to give effect to, all of the terms and provisions
of this Agreement including, without limitation, all necessary stock powers and
such other instruments of transfer as may be necessary or desirable to transfer
ownership of the Purchased Assets.
8.19 Publicity. No public announcement or other publicity regarding
this Agreement or the transactions contemplated hereby shall be made prior to or
after the date hereof without the prior written consent of Xxxxxx, the
Purchaser, and the Seller as to form, content, timing and manner of
distribution. Notwithstanding the foregoing, nothing in this Agreement shall
preclude any party or its affiliates from making any public announcement or
filing pursuant to any federal or state securities laws or stock exchange rules.
[Remainder of this page intentionally left blank]
59
IN WITNESS WHEREOF, the parties hereto have each executed and delivered
this Agreement as of the day and year first above written.
XXXXXX, INC. GOODFOOT ACQUISITION CO.
By: /s/ Xxxxxx X. Xxxxxx By: /s/ Xxxxxxx X. Xxxxxxx
-------------------- ----------------------
Name: Xxxxxx X. Xxxxxx Name: Xxxxxxx X. Xxxxxxx
Title: President Title: Vice President
BENEFOOT, INC. BENEFOOT PROFESSIONAL PRODUCTS, INC.
By: /s/ Xxxxx X. Xxxxx By: /s/ Xxxx Xxxxxx
------------------ ---------------
Name: Xxxxx X. Xxxxx Name: Xxxx Xxxxxx
Title: President Title: President
/s/ Xxxxx Xxxxx /s/ Xxxx Xxxxxx
--------------- ---------------
XXXXX XXXXX XXXX XXXXXX
TABLE OF EXHIBITS
Exhibit Description Section
Reference
1 Promissory Notes 2.5
2 Xxxx of Sale, Assignment, and Assumption Agreement 6.1
3 Lock-Up Agreement 6.1
4 Registration Rights Agreement 6.1
5 Xxxxx Employment Agreement 6.1
6 Xxxxxx Employment Agreement 6.1
7 Consulting Agreement 6.1
8 Non-Competition, Non-Solicitation, and Confidentiality Agreements 6.1
9 Legal Opinion of Xxxxxxx & Xxxxxxxxx Xxxxxx Xxxxxx LLP 6.1
10 Assignment and Assumption of Office Lease 6.1
11 Legal Opinion of Xxxx Xxxxxxx, P.C. 6.2
1
