1
Exhibit 2.1
ASSET PURCHASE AGREEMENT
BY AND AMONG
CKS GROUP, INC.
DG ACQUISITION, INC.
XXXXXX XXXXX
XXXXXXX XXXXXXX
AND
XXXXXXX & GREEN, INC.
DATED AS OF OCTOBER 4, 1996
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INDEX OF EXHIBITS
EXHIBIT DESCRIPTION
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Exhibit A Form of Affiliate Agreement
Exhibit B-1 Form of Legal Opinion of Counsel to the Company
Exhibit B-2 Form of Legal Opinion of Counsel to the Parent
Exhibit C Form of Noncompetition Agreement
Exhibit D Form of Employment Agreement
Exhibit E Form of Bylaws
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TABLE OF CONTENTS
PAGE
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ARTICLE I - ASSET PURCHASE........................................................................................... 1
1.1 Acquisition of Assets.............................................................................. 1
1.2 Assumption of Liabilities and Obligations.......................................................... 3
1.3 Consideration for Assets; Taxes.................................................................... 4
1.4 Guaranteed Payments................................................................................ 5
1.5 Earnout Payments................................................................................... 5
1.6 Additional Tax Payments............................................................................ 9
1.7 Parent Common Stock................................................................................ 9
ARTICLE II........................................................................................................... 10
2.1 The Closing........................................................................................ 10
2.2 Deliveries at the Closing by the Company and the Company Shareholders.............................. 10
2.3 Deliveries at the Closing by Parent and Sub........................................................ 10
2.4 Allocation......................................................................................... 11
ARTICLE III - REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND THE
COMPANY SHAREHOLDERS................................................................................... 11
3.1 Organization of the Company........................................................................ 11
3.2 Company Capital Structure.......................................................................... 12
3.3 Subsidiaries....................................................................................... 12
3.4 Authority.......................................................................................... 12
3.5 Company Financial Statements....................................................................... 13
3.6 No Undisclosed Liabilities......................................................................... 13
3.7 No Changes......................................................................................... 13
3.8 Tax and Other Returns and Reports.................................................................. 15
3.9 Restrictions on Business Activities................................................................ 17
3.10 Title of Properties; Absence of Liens and Encumbrances; Condition of
Equipment ......................................................................................... 17
3.11 Intellectual Property.............................................................................. 18
3.12 Agreements, Contracts and Commitments.............................................................. 20
3.13 Interested Party Transactions...................................................................... 22
3.14 Governmental Authorization......................................................................... 22
3.15 Litigation......................................................................................... 22
3.16 Accounts Receivable; Inventory..................................................................... 23
3.17 Minute Books....................................................................................... 23
3.18 Environmental Matters.............................................................................. 23
3.19 Brokers' and Finders' Fees; Third Party Expenses................................................... 24
3.20 Employee Matters and Benefit Plans................................................................. 24
3.21 Insurance.......................................................................................... 28
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TABLE OF CONTENTS
(CONTINUED)
PAGE
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3.22 Compliance with Laws............................................................................... 28
3.23 Third Party Consents............................................................................... 28
3.24 Warranties; Indemnities............................................................................ 28
3.25 Complete Copies of Materials....................................................................... 28
3.26 Representations Complete........................................................................... 28
ARTICLE IV - REPRESENTATIONS AND WARRANTIES OF PARENT AND SUB........................................................ 29
4.1 Organization, Standing and Power................................................................... 29
4.2 Authority.......................................................................................... 29
4.3 Capital Structure.................................................................................. 29
4.4 SEC Documents; Parent Financial Statements......................................................... 30
4.5 Brokers' and Finders' Fees......................................................................... 31
4.6 Litigation......................................................................................... 31
ARTICLE V - CONDUCT PRIOR TO THE EFFECTIVE TIME...................................................................... 31
5.1 Conduct of Business of the Company................................................................. 31
5.2 No Solicitation.................................................................................... 33
ARTICLE VI - ADDITIONAL AGREEMENTS................................................................................... 34
6.1 Fairness Hearing/Registration; Company Shareholder Approval........................................ 34
6.2 Access to Information.............................................................................. 35
6.3 Confidentiality.................................................................................... 35
6.4 Expenses........................................................................................... 35
6.5 Public Disclosure.................................................................................. 35
6.6 Consents........................................................................................... 36
6.7 Best Efforts....................................................................................... 36
6.8 Notification of Certain Matters.................................................................... 36
6.9 Secretary's Certificate............................................................................ 36
6.10 Affiliate Agreements............................................................................... 36
6.11 Additional Documents and Further Assurances........................................................ 37
6.12 NMS Listing........................................................................................ 37
6.13 Payment to Employee Bonus Pool..................................................................... 37
6.14 Amendment to Bylaws of Sub; Board of Directors..................................................... 37
6.15 Current Public Information......................................................................... 37
6.16 Bulk Sales; Tax Clearance Certificate.............................................................. 37
6.17 Maintenance of Insurance Coverage. ............................................................... 37
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TABLE OF CONTENTS
(CONTINUED)
PAGE
ARTICLE VII - CONDITIONS TO THE ACQUISITION.......................................................................... 38
7.1 Conditions to Obligations of Each Party to Effect the Acquisition.................................. 38
7.2 Additional Conditions to Obligations of Company.................................................... 38
7.3 Additional Conditions to the Obligations of Parent and Sub......................................... 39
ARTICLE VIII - OTHER AGREEMENTS...................................................................................... 41
8.1 Survival of Representations and Warranties......................................................... 41
8.2 Setoff for Losses.................................................................................. 41
8.3 Indemnification by Parent and Sub of the Company................................................... 44
ARTICLE IX - TERMINATION, AMENDMENT AND WAIVER....................................................................... 44
9.1 Termination........................................................................................ 44
9.2 Effect of Termination.............................................................................. 45
9.3 Amendment.......................................................................................... 45
9.4 Extension; Waiver.................................................................................. 45
ARTICLE X - GENERAL PROVISIONS....................................................................................... 46
10.1 Notices............................................................................................ 46
10.2 Interpretation..................................................................................... 47
10.3 Counterparts....................................................................................... 47
10.4 Entire Agreement; Assignment....................................................................... 47
10.5 Severability....................................................................................... 47
10.6 Other Remedies..................................................................................... 47
10.7 Governing Law...................................................................................... 48
10.8 Rules of Construction.............................................................................. 48
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ASSET PURCHASE AGREEMENT
This ASSET PURCHASE AGREEMENT (the "Agreement") is made and entered
into as of October 4, 1996 among CKS Group, Inc., a Delaware corporation
("Parent"), DG Acquisition, Inc., a Delaware corporation and a wholly-owned
subsidiary of Parent ("Sub"), Xxxxxxx & Green, Inc., a New York corporation (the
"Company"), Xxxxxxx Xxxxxxx, an individual and a shareholder of the Company, and
Xxxxxx Xxxxx, an individual and a shareholder of the Company, (such individuals
being hereinafter referred to collectively as the "Company Shareholders" and,
individually, as a "Company Shareholder").
RECITALS
A. The Boards of Directors of each of the Company, Parent and Sub
believe it is in the best interests of each company and their respective
stockholders that Sub acquire the assets of the Company and assume certain
liabilities of the Company (the "Acquisition") and, in furtherance thereof, have
approved the Acquisition.
B. Pursuant to the Acquisition, among other things, the Company shall
receive an amount of cash plus the contingent right to receive additional shares
of Common Stock of the Parent and additional amounts of cash pursuant to
Sections 1.04 and 1.05 hereof.
C. The Company, the Company Shareholders, Parent and Sub desire to
make certain representations, warranties, covenants and other agreements in
connection with the Acquisition.
D. The Company is engaged in the business of designing, developing,
marketing, selling and supporting, advertising, marketing and communication
services (the "Business").
E. A portion of the funds otherwise payable to the Company in
connection with the Acquisition shall be subject to set off in the event that
either the Company or the Company Shareholders breach any of their
representations, warranties or covenants contained in this Agreement.
NOW, THEREFORE, in consideration of the covenants, promises and
representations set forth herein, and for other good and valuable consideration,
the parties agree as follows:
ARTICLE I
ASSET PURCHASE
1.1 Acquisition of Assets. On the terms and subject to the conditions
of this Agreement, at the Closing provided for in Article II hereof, the Company
will sell, convey, assign, transfer and deliver to Sub, and Sub will purchase,
acquire and accept from the Company, all right, title, and
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interest in and to all assets and properties of the Company (collectively, the
"Acquired Assets"), including without limitation, the following:
(a) all cash, cash equivalents, securities, notes and accounts
receivable of, and other evidences of indebtedness owing to, the Company
existing as of the Closing Date;
(b) all indentures, leases, subleases, licenses, loan
agreements, mortgages, notes, indentures, restrictions, xxxxx, trusts,
commitment obligations or other contracts, agreements or instruments, whether
written or oral or other similar agreements ("Contracts"), and rights
thereunder, including without limitation, the designated Contracts relating to
the Company set forth on Schedule 3.12(a);
(c) (i) all claims, deposits, refunds, causes of action,
choses in action, rights of recovery, rights of set off, and rights of
recoupment, (ii) franchises, approvals, permits, licenses, orders,
registrations, certificates, variances, and similar rights obtained from
governments and governmental agencies, (iii) all books, records, ledgers, files,
documents, correspondence, lists, plats, architectural plans, drawings, and
specifications, creative materials, advertising and promotional materials,
studies, reports, and other printed or written materials;
(d) all supplies owned by the Company;
(e) all tangible personal property, including equipment owned
or leased by the Company;
(f) all businesses and financial records, books, ledgers,
files, plans, documents, correspondence, lists, plots, architectural plans,
drawings, notebooks, specifications, creative materials, advertising and
promotional materials, marketing materials, studies, reports, equipment repair,
maintenance or service records of the Company, whether written or electronically
stored or otherwise recorded;
(g) all books, records, customer lists, supplier lists and
other proprietary or confidential information or data relating to the Acquired
Assets;
(h) all of the Company's goodwill;
(i) the benefit, to the extent the Company is able to assign
the same, of all right, title and interest of the Company to claims and causes
of action relating to the Company's Business;
(j) all patents, patent applications, copyrights, trademarks,
service marks, trade names, trade secrets, proprietary information, technology
rights and licenses, proprietary rights and processes, know-how, research and
development in progress, and any and all other intellectual property including,
without limitation, the Company's name, all things authored, discovered,
developed, made, perfected, improved, designed, engineered, devised, acquired,
produced, conceived or first reduced to practice and that pertain to or are used
in the Business or that are relevant to an
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understanding or to the development of the Business or to the performance by the
products of the Business of their intended functions or purposes, whether
tangible or intangible, in any stage of development, including without
limitation, enhancements, designs, technology, improvements, inventions, works
or authorship, formulas, processes, routines, subroutines, techniques, concepts,
object code, flow charts, diagrams, coding sheets, source code, listings and
annotations, programmers' notes, information, work papers, work product and
other materials or any types whatsoever, and all rights of any kind in or to any
of the foregoing including all goodwill associated therewith, licenses and
sublicenses granted and obtained with respect thereto, and rights thereunder,
remedies against infringements thereof, and rights to protection of interests
therein under the laws of all jurisdictions;
(k) all real property, improvements, fixtures and fittings
thereon, easements, rights of way and other appurtenant rights thereto (such as
appurtenant rights in and to public streets), if any;
(l) all rights with respect to leasehold interests and
subleases and rights thereunder relating to the real and personal property; and
(m) all prepaid rentals and other prepaid expenses of the
Company.
1.2 Assumption of Liabilities and Obligations.
(a) Except as set forth in Section 1.2(b), at the Closing
provided for in Article II hereof, Sub hereby assumes and agrees to pay, perform
and discharge all of the liabilities of the Company other than those specified
in Section 1.2(b) as Excluded Liabilities (the "Assumed Liabilities").
(b) Sub shall not assume or be obligated for any Excluded
Liabilities. None of the following shall be "Assumed Liabilities" for purposes
of this Agreement and shall be deemed to be "Excluded Liabilities":
(i) any liability for Taxes (as defined in Section 3.8
hereof) of the Company attributable to any period or portion of any period
ending on or prior to the Closing Date and arising from the operation of the
Company's business or ownership of the Acquired Assets, except to the extent
reserved on the Current Balance Sheet; and
(ii) any costs and expenses incurred by the Company
incident to its negotiation and preparation of this Agreement (including the
fees and expenses of Xxxxx & Co.) and its performance and compliance with the
agreements and conditions herein.
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1.3 Consideration for Assets; Taxes.
(a) Definitions.
"Company Common Stock" shall mean the common stock of the Company, no
par value.
"Closing Price" shall mean the closing price and if no such closing
price can be determined, the average of the bid and asked prices of Parent's
Common Stock in trading on the Nasdaq Stock Market on the first business day
prior to the date of determination.
"Estimated Tax Liability" shall mean $87,628.
"Parent Common Stock" shall mean the common stock of the Parent, par
value $.001 per share.
"Shares Outstanding" shall mean the total number of shares of Company
Common Stock issued and outstanding immediately prior to the Effective Time.
(b) Acquisition Consideration. In consideration of the
aforementioned sale, conveyance, assignment, transfer and delivery of the
Acquired Assets, in addition to the assumption of liabilities referred to in
Section 1.2(a) at the Closing, Parent shall issue to the Company (i) that number
of shares of the Parent Common Stock as is determined by dividing (A) the sum of
(x) $1.67 million and (y) 167% of the Estimated Tax Liability, by (B) the
Closing Price (the "Initial Consideration Shares") plus (ii) $3.33 million in
cash (the "Initial Cash Amount") plus (iii) the right to receive Parent Common
Stock and cash as provided in Section 1.4 of this Agreement (the "Guaranteed
Payments") plus (iv) the right to receive shares of Parent Common Stock and cash
as provided in Section 1.5 of this Agreement (the "Earnout Payments"). The
Initial Consideration Shares, the Initial Cash Amount, the Guaranteed Payments
and the Earnout Payments are hereinafter collectively referred to as the
"Acquisition Consideration Amount."
(c) Transfer Taxes; Property Taxes. Parent shall pay and
promptly discharge when due 50% of the amount of any and all sales taxes, use
taxes, transfer taxes, recording fees and similar taxes, charges, fees or
expenses ("Sales Tax") that may become payable by reason of the sale of the
Acquired Assets up to a total liability to Parent of a maximum of $25,000. The
Company shall pay and promptly discharge or reimburse Parent for all other Sales
Taxes by reason of or in connection with the Acquisition. The parties shall
cooperate with each other to the extent reasonably requested and legally
permitted to minimize any such Sales Tax by appropriate allocation of the
purchase price for the Acquired Assets among each item or class of Acquired
Assets, or otherwise. All personal property Taxes shall be pro rated for the
taxable period which includes the Closing Date and each party shall bear its
allocable share of such Taxes.
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1.4 Guaranteed Payments.
(a) Definitions.
"The 1997 Share Amount" shall be a number of shares of Parent Common
Stock equal to $1,114,000 divided by the Closing Price with a determination date
of April 16, 1997.
"The 1998 Share Amount" shall be a number of shares of Parent Common
Stock equal to $330,000 divided by the Closing Price with a determination date
of April 15, 1998.
"The 1999 Share Amount" shall be a number of shares of Parent Common
Stock equal to $167,000 divided by the Closing Price with a determination date
of April 15, 1999.
(b) Guaranteed Payments. Subject to set off permitted in
Article VIII hereof, on each of the dates set forth in Column A below (or the
first business day after such date, if such date falls on a weekend or a
holiday) (the "Guaranteed Payment Dates"), the Company shall be entitled to
receive (i) the amount of shares of Parent Common Stock set forth in Column B
below, and (ii) the amount of cash set forth in Column C below.
COLUMN A COLUMN B COLUMN C
-------------- --------------------- ----------
April 16, 1997 The 1997 Share Amount $2,219,000
April 15, 1998 The 1998 Share Amount $ 670,000
April 15, 1999 The 1999 Share Amount $ 333,000
Such amounts shall be paid to the Company two business days after the
date set forth in Column A.
1.5 Earnout Payments.
(a) Definitions.
"1997 Fiscal Year" shall mean the fiscal year of the Parent ending
November 30, 1997.
"1998 Fiscal Year" shall mean the fiscal year of the Parent ending
November 30, 1998.
"1999 Fiscal Year" shall mean the fiscal year of the Parent ending
November 30, 1999.
"2000 Fiscal Year" shall mean the fiscal year of the Parent ending
November 30, 2000.
"Adjusted Payment" shall mean (i) a number of shares of Parent Common
Stock equal to (x) $444,000.00 less an amount equal to the amount, if any, by
which Net Pretax Income for the applicable Fiscal Year is less than the First
Earnout Goal or the Second Earnout Goal, as applicable, divided by (y) the
Closing Price on the date of the Adjusted Payment, if any, plus (ii) an amount
of
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cash equal to $889,000.00 less an amount equal to twice the dollar amount by
which Net Pretax Income for the applicable Fiscal Year is less than the First
Earnout Goal or the Second Earnout Goal, as applicable.
"Direct Salaries and Related Expenses" shall include, but not be
limited to, wages for regular and temporary employees, as well as profit-sharing
payments, approved by the Company Shareholders (other than respect to the
Employee Bonus Pool) and benefits for all employees.
"Earnout Goals" shall mean the First Earnout Goal, the Second Earnout
Goal, the Third Earnout Goal, and the Fourth Earnout Goal.
"First Earnout Goal" shall mean $1,143,000 of Net Pretax Income of the
Sub in the 1997 Fiscal Year.
"Second Earnout Goal" shall mean $1,567,000 of Pretax Income of the Sub
in the 1998 Fiscal Year, less the amount by which Net Pretax Income for the 1997
Fiscal Year exceeded $1,143,000 in the event that the Net Pretax Income in the
1997 Fiscal Year was less than $1,257,300.
"Third Earnout Goal" shall mean $2,043,000 of Net Pretax Income of the
Sub for the 1999 Fiscal Year, less the amount by which Net Pretax Income for the
1998 Fiscal Year exceeded $1,567,000 in the event that the Net Pretax Income for
the 1998 Fiscal Year was less than $1,723,700.
"Fourth Earnout Goal" shall mean $2,691,000 of Net Pretax Income of the
Sub for the 2000 Fiscal Year, less the amount by which Net Pretax Income for the
1999 Fiscal Year exceeded $2,043,000 in the event that the Net Pretax Income for
such Fiscal Year was less then $2,247,300.
"Earnout Payment" shall mean (i) a number of shares of Parent Common
Stock equal to $444,000 divided by the Closing Price with a determination date
of the date in the applicable year when the Pretax Income Statement becomes the
Final Statement plus (ii) an amount of cash equal to $889,000.
"Employee Bonus Pool" shall mean an amount equal to 15% of Gross
Pre-tax Income which the Sub shall use each year to pay incentive bonuses to its
employees other than the Company Shareholders.
"General and Administrative Expenses" shall include, but not be limited
to, headquarters expenses, office expenses, insurance, personnel costs for
finance and administration, legal fees, audit expenses (including audit expenses
required by Section 1.5(b)(i)), bad debt, management information systems
expenses, employee profit sharing (other than the contributions to the Employee
Bonus Pool as provided in Section 6.14 herein), executive bonus payments and
management fees. Notwithstanding the foregoing, Parent shall not charge Sub any
fees, expenses or other amounts for services, overhead charges or otherwise
without the express written consent of at least one of the Company Shareholders.
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"Gross Pretax Income" shall mean all sales and other sources normally
determined to be revenues of the Sub less all expenses (including Direct
Salaries and Related Expenses, Other Direct Operating Expenses and General and
Administrative Expenses) of Sub, including without limitation all compensation
expenses of the Company Shareholders. Any local, state federal and foreign
income taxes incurred by the Company shall not be subtracted from revenues for
purposes of calculating Pretax Income. Notwithstanding the foregoing, expenses
incurred by Sub (other than Direct Salaries and Related Expenses, Other Direct
Expenses and General and Administrative Expenses) as a result of transactions
with Parent shall not be included as expenses of Sub for the purposes of Pretax
Income if such transactions are entered into without the consent of at least one
of the Company Shareholders.
"Increased Earnout Amount" shall mean twice the dollar amount by which
Net Pretax Income for the applicable year is more than 110% of the First Earnout
Goal, the Second Earnout Goal, the Third Earnout Goal or the Fourth Earnout
Goal, as applicable. Under no circumstances shall the "Increased Earnout Amount"
exceed $1.0 million in any Fiscal Year.
"Increased Earnout Payment" shall mean (i) a number of shares of Parent
Common Stock equal to one-third of the Increased Earnout Amount divided by the
Closing Price with a determination date of the date in the applicable year when
the Pretax Income Statement becomes the Final Statement, plus (ii) an amount of
cash equal to two-thirds of the Increased Earnout Amount.
"Net Pretax Income" shall mean 85% of Gross Pretax Income.
"Other Direct Operating Expenses" shall include, but not be limited to,
materials, contract freelance talent expenses (including independent
consultants), outsourced services expenses (including expenses of services and
facilities provided by Parent with the express written consent of at least one
of the Company Shareholders), and facilities and equipment expenses.
(b) Pretax Income Statement.
(i) Not later than 90 calendar days following the end of
each of the 1997 Fiscal Year, the 1998 Fiscal Year, the 1999 Fiscal Year, and
the 2000 Fiscal Year, Parent shall deliver to the Company Shareholders a
statement of the Gross Pretax Income and the Net Pretax Income of the Sub for
the 1997 Fiscal Year, the 1998 Fiscal Year, the 1999 Fiscal Year, or the 2000
Fiscal Year, as the case may be (the "Pretax Income Statement"), which will be
determined in accordance with generally accepted accounting principles ("GAAP")
applied on a basis consistent with that used by the Parent from time to time in
preparation of Parent's consolidated financial statements, but applied to the
Sub as if it were a stand alone entity, which such Pretax Income Statement shall
be calculated and audited by Parent's certified public accountants. Parent will
pay 50% of the cost of each such audit, up to a maximum of $10,000. The
remainder of the costs of such audit will be included in General and
Administrative Expenses of the Sub.
(ii) If, within 30 days following receipt by the Company
Shareholders of the Pretax Income Statement, the Company Shareholders determine
in good faith that the amount of
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either Gross or Net Pretax Income as so computed on the Pretax Income Statement
is inaccurate, the Company Shareholders shall give notice to Parent within such
30 day period, (i) setting forth the Company Shareholders' determination of
either Gross or Net Pretax Income, as the case may be, and (ii) specifying in
reasonable detail the nature of Company Shareholders' basis for its disagreement
with Parent's calculation. The failure by the Company Shareholders so to express
their disagreement within such 30 day period shall constitute acceptance of the
amount of either the Gross or Net Pretax Income, as applicable, so computed on
the Pretax Income Statement and the Pretax Income Statement shall become the
"Final Statement." If Parent and the Company Shareholders are unable to resolve
their disagreement within 15 days after receipt by the Company Shareholders of
notice of such disagreement, the items in dispute will be referred to Ernst &
Young LLP (or another "Big 6" accounting firm mutually acceptable to Parent and
the Company Shareholders) (the "Accountant") within such 15 day period. The
Accountant shall make a determination as to each of the items in dispute, which
determination shall be (i) in writing, (ii) furnished to Parent and the Company
Shareholders as promptly as practicable after the items in dispute have been
referred to Accountant, (iii) made in accordance with the accounting principles
and procedures provided for in this Agreement for the preparation of the Pretax
Income Statement and (iv) conclusive and binding on Parent and the Company
Shareholders. The fees and expenses of the Accountant (the "Accounting Fees")
shall be for the account of the Non-Prevailing Party. The "Non-Prevailing Party"
means that party whose calculation of the Gross or Net Pretax Income, as the
case may be, is, on a percentage basis, the least close to the Gross or Net
Pretax Income as determined by the Accountant. The Pretax Income Statement as
finally determined by the Accountant shall become the "Final Statement."
(iii) Payments.
(A) Fiscal Year 1997. Not more than 10 days after the 1997
Pretax Income Statement becomes the Final Statement, (i) Parent shall, if Sub
shall have achieved the First Earnout Goal distribute to the Company the Earnout
Payment for the 1997 Fiscal Year, (ii) Parent shall, if the Sub shall have not
achieved the First Earnout Goal, but the Net Pretax Income as reflected on the
Final Statement is equal to or greater than $698,667, distribute to the Company
the Adjusted Payment for the 1997 Fiscal Year, and (iii) Parent shall, if Sub
shall have exceeded the First Earnout Goal by more than ten percent (10%),
distribute to the Company the Increased Earnout Payment for the 1997 Fiscal
Year.
(B) Fiscal Year 1998. Not more than 10 days after the 1998
Pretax Income Statement becomes the Final Statement, (i) Parent shall, if Sub
shall have achieved the Second Earnout Goal distribute to the Company the
Earnout Payment for the 1998 Fiscal Year, (ii) Parent shall, if the Sub shall
have not achieved the Second Earnout Goal, but the Net Pretax Income as
reflected on the Final Statement is equal to or greater than $1,122,667,
distribute to the Company the Adjusted Payment for the 1998 Fiscal Year, and
(iii) Parent shall, if Sub shall have exceeded the Second Earnout Goal by more
than ten percent (10%) distribute to the Company the Increased Earnout Payment
for the 1998 Fiscal Year.
(C) Fiscal Year 1999. Not more than 10 days after the 1999
Pretax Income Statement becomes the Final Statement, Parent shall, if Sub shall
have exceeded the Third
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Earnout Goal by more than ten percent (10%), distribute to the Company the
Increased Earnout Payment for the 1999 Fiscal Year.
(D) Fiscal Year 2000. Not more than 10 days after the 2000
Pretax Income Statement becomes the Final Statement, Parent shall, if Sub shall
have exceeded the Fourth Earnout Goal by more than ten percent (10%), distribute
to the Company the Increased Earnout Payment for the 2000 Fiscal Year.
(iv) In the event the Pretax Income Statement for the 1997
Fiscal Year, the 1998 Fiscal Year, the 1999 Fiscal Year, or the 2000 Fiscal Year
has not become the Final Statement by April 15, 1998; April 15, 1999; April 15,
2000; or April 15, 2001, respectively, Parent shall on April 15, 1998; April 15,
1999; April 15, 2000; or April 15, 2001, as the case may be, distribute to the
Company the Earnout Payment, Adjusted Payment or Increased Earnout Payment, as
the case may be, which is not subject to a dispute between the parties. The
balance, if any of such Earnout Payment, Adjusted Payment or Increased Earnout
Payment, as the case may be, shall be distributed by Parent to the Company
within 10 days after the Pretax Income Statement for the 1997 Fiscal Year, the
1998 Fiscal Year, the 1999 Fiscal Year, or the 2000 Fiscal Year, as the case may
be, becomes the Final Statement.
(c) Fractional Earnout Shares. No fractional Earnout Shares will be
issued and the value of such fractional shares will be paid in cash pursuant to
the valuation formula set forth in Section 1.6(c).
1.6 Additional Tax Payments. In the event that the Company incurs and
pays any liability under the Internal Revenue Code of 1986, as amended (the
"Code"), Section 1374 or similar state or local statute, in excess of $292,093
(the "Excess Liability"), Parent shall pay to the Company in cash an amount
equal to 167% of 30% of the Excess Liability (the "Additional Tax Amount"),
provided, however that in no event shall the Additional Tax Amount exceed 167%
of the difference between $300,000 and the Estimated Tax Liability. Any amount
payable pursuant to this Section 1.6 shall be paid to the Company within 30 days
of a final determination of Excess Liability by the Internal Revenue Service
(the "IRS") or a court of competent jurisdiction or an agreement between the IRS
and the Company (a copy of which shall be provided to Parent).
1.7 Parent Common Stock. The shares of Parent Common Stock issued in
connection with the Acquisition will be issued in a transaction either (i)
exempt from registration under the Securities Act of 1933 (the "Securities Act")
by reason of Section 3(a)(10) thereof or (ii) registered under the Securities
Act on a Form S-4, and, as such will not be deemed "restricted securities"
within the meaning of Rule 144 promulgated thereunder and resale of such shares
will not be subject to any Securities Act restrictions other than as set forth
under Rule 145 of such Act.
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ARTICLE II
2.1 The Closing. The closing of the transactions contemplated by this
Agreement (the "Closing") shall take place by exchange of original documentation
by each of the respective parties' attorneys via Federal Express or similar
overnight courier service on December 2, 1996, or such other date as the parties
hereto may mutually determine (the "Closing Date").
2.2 Deliveries at the Closing by the Company and the Company
Shareholders. At the Closing, the Company or the Company Shareholders, as the
case may be, shall deliver or cause to be delivered to Parent or Sub, as the
case may be, the following:
(a) copies of the resolutions of the Board of Directors of the
Company authorizing the execution, delivery and performance of this Agreement by
the Company and a certificate of the Secretary of the Company, dated the Closing
Date, certifying that such resolutions were duly adopted and in full force and
effect;
(b) a copy of the resolution of the Company Shareholders
approving this Agreement and all other transactions contemplated by this
Agreement and a certificate of the Secretary of the Company, dated the Closing
Date, certifying that such resolutions were duly adopted and are in full force
and effect;
(c) the Company will execute, acknowledge (if appropriate), and
deliver to Sub (A) the deeds related to any Acquired Assets, properly endorsed,
(B) assignment of the permits and contracts of the Company and any third party
consents necessary, or requested by Sub and Parent, to such assignments which
appear on Schedule 3.12, and (D) such other instruments of sale, transfer,
conveyance and assignment as Parent, Sub and their counsel may reasonably
request to transfer the Acquired Assets;
(d) the various other certificates, instruments and documents
referred to in Article I; and
(e) all other documents, certificates, instruments or writings
required to be delivered by the Company or the Company Shareholders at or prior
to the Closing pursuant to this Agreement or otherwise required in connection
herewith.
2.3 Deliveries at the Closing by Parent and Sub. At the Closing, Parent
and Sub shall deliver to the Company or the Company Shareholders as the case may
be, the following:
(a) stock certificates representing the Initial Consideration
Shares;
(b) a certified check or wire transfer for the Initial Cash Amount;
(c) an instrument of assumption of liabilities, reasonably
acceptable to the Company, by which Sub shall assume the Assumed Liabilities as
of the Closing;
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(d) a copy of the resolutions of the Board of Directors of each of
Parent and Sub authorizing the execution, delivery and performance by the
relevant Company and a certificate of the Secretary of the relevant Company
dated the Closing Date, certifying that such resolutions were duly adopted and
are in full force and effect;
(e) the various other certificates, instruments and documents
referred to in Article I; and
(f) a copy of the resolution of the sole shareholder of Sub
approving the Acquisition, and this Agreement and a certificate of the Secretary
or Assistant Secretary of Sub, dated the Closing Date, certifying that such
resolutions were duly adopted and are in full force and effect.
2.4 Allocation. Within 30 days of the Closing, Parent and the Company
shall mutually agree on the manner in which the consideration referred to in
Section 1.2 is to be allocated among the Acquired Assets (the "Allocation"). The
Allocation shall be prepared in a manner consistent with Section 1060 of the
Code, and shall be conclusive and binding upon Parent and the Company for all
purposes, and the parties agree that all tax returns and reports (including IRS
Form 8594) and all financial statements shall be prepared in a manner consistent
with (and the parties shall not otherwise file a tax return position
inconsistent with) the Allocation unless required by the IRS or state taxing
authority.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE
COMPANY AND THE COMPANY SHAREHOLDERS
The Company and the Company Shareholders hereby, jointly and severally,
represent and warrant to Parent and Sub, subject to such exceptions as are
specifically disclosed in the disclosure letter (referencing the appropriate
section and paragraph numbers) supplied by the Company to Parent (collectively,
the "Company Schedules" and each a Schedule) and dated as of the date hereof, as
follows:
3.1 Organization of the Company. The Company is a corporation duly
organized, validly existing and in good standing under the laws of the State of
New York. The Company has the corporate power to own its properties and to carry
on its business as now being conducted. The Company is duly qualified to do
business and in good standing as a foreign corporation in each jurisdiction in
which the failure to be so qualified would have a material adverse effect on the
Acquired Assets or the Business (hereinafter referred to as a "Material Adverse
Effect"). The Company has delivered a true and correct copy of its Certificate
of Incorporation and Bylaws, each as amended to date, to Parent. Section 3.1 of
the Company Schedules lists the directors and officers of the Company. The
operations now being conducted by the Company have not been conducted under any
other name.
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3.2 Company Capital Structure.
(a) The authorized capital stock of the Company consists of 200
shares of authorized Common Stock, no par value, of which 25 shares are issued
and outstanding. The Company Shareholders hold of record and beneficially all of
the outstanding capital stock of the Company as set forth on Section 3.2(a) of
the Company Schedule. All outstanding shares of Company Common Stock are duly
authorized, validly issued, fully paid and non-assessable.
(b) The Company has never adopted or maintained any stock option
plan or other plan providing for equity compensation of any person. There are no
options, warrants, calls, rights, commitments or agreements of any character,
written or oral, to which the Company or any Company Shareholder is a party or
by which it is bound obligating the Company to issue, deliver, sell, repurchase
or redeem, or cause to be issued, delivered, sold, repurchased or redeemed, any
shares of the capital stock of the Company or obligating the Company to grant,
extend, accelerate the vesting of, change the price of, otherwise amend or enter
into any such option, warrant, call, right, commitment or agreement. There are
no outstanding or authorized stock appreciation, phantom stock, profit
participation, or similar rights with respect to the Company. There are no
voting trusts, proxies, or other agreements or understandings with respect to
the voting of capital stock of the Company.
3.3 Subsidiaries. Except as set forth on Schedule 3.3 hereto, the
Company does not have and has never had any subsidiaries or affiliated companies
and does not otherwise own and has never otherwise owned any shares of capital
stock or any interest in, or control, directly or indirectly, any other
corporation, partnership, association, joint venture or other business entity.
3.4 Authority. Subject only to the requisite approval of the
Acquisition and this Agreement by the Company's Shareholders, the Company has
all requisite corporate power and authority to enter into this Agreement and to
consummate the transactions contemplated hereby. The vote required of the
Company's Shareholders to duly approve the Acquisition and this Agreement is
that number of shares as would constitute two-thirds of all the outstanding
Company Common Stock. The execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby have been duly authorized
by all necessary corporate action on the part of the Company. The Company's
Board of Directors has unanimously approved the Acquisition and this Agreement.
This Agreement has been duly executed and delivered by the Company and
constitutes the valid and binding obligation of the Company, enforceable in
accordance with its terms except as such enforceability may be limited by
principles of public policy and subject to the laws of general application
relating to bankruptcy, insolvency and the relief of debtors and rules of law
governing specific performance, injunctive relief or other equitable remedies.
Except as set forth on Schedule 3.4, none of the execution and delivery of this
Agreement by the Company, the sale and transfer of the Acquired Assets and the
assumption of the Assumed Liabilities does, and, as of the Closing Date, the
consummation of the transactions contemplated hereby will not, conflict with, or
result in any violation of, or default under (with or without notice or lapse of
time, or both), or give rise to a right of termination, cancellation or
acceleration of any obligation or loss of any benefit or creation of any
security interest under (any such event, a "Conflict") (i) any provision of the
Articles
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of Incorporation or Bylaws of the Company or (ii) any mortgage, indenture,
lease, contract or other agreement or instrument, permit, concession, franchise,
license, judgment, order, decree, statute, law, ordinance, rule or regulation
applicable to the Company or the Acquired Assets other than Conflicts which
individually or in the aggregate would not have a Material Adverse Effect. No
consent, waiver, approval, order or authorization of, or registration,
declaration or filing with, any court, administrative agency or commission or
other federal, state, county, local or foreign governmental authority,
instrumentality, agency or commission ("Governmental Entity") or any third party
(so as not to trigger any Conflict), is required by or with respect to the
Company in connection with the execution and delivery of this Agreement, the
sale and transfer of the Acquired Assets or the consummation of the transactions
contemplated hereby, except for (i) the filing with the New York State Sales Tax
Commission, (ii) such consents, waivers, approvals, orders, authorizations,
registra tions, declarations and filings as may be required under applicable
federal and state securities laws and (iii) such other consents, waivers,
authorizations, filings, approvals and registrations which are set forth on
Schedule 3.4, except where the failure to obtain such Consent would not have a
Material Adverse Effect.
3.5 Company Financial Statements. Schedule 3.5 sets forth the
Company's audited balance sheet as of December 31, 1995 and the related
unaudited statements of income and cash flow for the twelve-month period then
ended (the "Audited Financials") and the Company's unaudited balance sheet as of
August 31, 1996 (the "Current Balance Sheet") and the related unaudited
statements of income and cash flow for the eight-month period then ended (the
"Unaudited Financials" and together with the Audited Financials, the "Company
Financials"). The Audited Financials present fairly the financial condition,
operating results and cash flows of the Company, are correct in all material
respects and have been prepared in accordance with GAAP applied on a basis
consistent throughout the periods indicated and consistent with each other. The
Unaudited Financials present fairly the financial condition, operating results
and cash flows of the Company, are correct in all material respects and have
been prepared in accordance with GAAP applied on a basis consistent with the
Audited Financials, subject to normal year-end adjustments, which will not be
material in amount or significance. At the Closing Date, the Company's current
assets are, and will be, equal to or greater than its total liabilities less
accrued rent as determined in accordance with GAAP.
3.6 No Undisclosed Liabilities. Except as set forth in Schedule 3.6,
the Company does not have any liability, indebtedness, obligation, expense,
claim, deficiency, guaranty or endorsement of any type in excess of $15,000,
individually, or $25,000 in the aggregate, whether accrued, absolute,
contingent, matured, unmatured or other (whether or not required to be reflected
in financial statements in accordance with GAAP), which (i) has not been
reflected in the Current Balance Sheet, or (ii) has not arisen since August 31,
1996 in the ordinary course of the Company's business consistent with past
practices.
3.7 No Changes. Except as set forth in Schedule 3.7, since August 31,
1996, there has not been, occurred or arisen any:
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(a) material transaction by the Company except in the ordinary
course of business as conducted on that date and consistent with past practices;
(b) amendments or changes to the Articles of Incorporation or
Bylaws of the Company;
(c) capital expenditure or commitment by the Company, either
individually or in the aggregate, exceeding $10,000;
(d) destruction of, damage to or loss of any material assets,
business or customer of the Company (whether or not covered by insurance);
(e) labor dispute, work stoppage, or claim of wrongful discharge or
other unlawful labor practice or action;
(f) change in accounting methods or practices (including any change
in depreciation or amortization policies or rates) by the Company;
(g) revaluation by the Company of any of its assets;
(h) declaration, setting aside or payment of a dividend or other
distribution with respect to the capital stock of the Company, or any direct or
indirect redemption, purchase or other acquisition by the Company of any of its
capital stock; provided that the Company may pay dividends or make other
distributions between the date hereof and the Closing Date, provided that the
payment of such dividends or distributions do not violate paragraph 5.1(f)
hereof;
(i) increase in the salary or other compensation payable or to
become payable by the Company to any of its officers, directors, employees or
advisors, or the declaration, payment or commitment or obligation of any kind
for the payment, by the Company, of a bonus or other additional salary or
compensation to any such person;
(j) any agreement, contract, lease or commitment (collectively a
"Company Agreement") or any extension or modification the terms of any Company
Agreement which (i) involves the payment by the Company of greater than $10,000
per annum or which extends for more than one (1) year, (ii) involves any payment
or obligation to any Affiliate or the Company other than in the ordinary course
of business as conducted on that date and consistent with past practices, or
(iii) involves the sale of any material assets;
(k) sale, lease, license or other disposition of any of the assets
or properties of the Company, or the creation of any security interest in such
assets or properties, except in the ordinary course of business as conducted on
that date and consistent with past practices;
(l) amendment or termination of any material contract, agreement or
license to which the Company is a party or by which it is bound;
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(m) loan by the Company to any person or entity, incurrence by the
Company of any indebtedness, guaranteeing by the Company of any indebtedness,
issuance or sale of any debt securities of the Company or guaranteeing of any
debt securities of others, except for advances to employees for travel and
business expenses in the ordinary course of business, consistent with past
practices;
(n) waiver or release of any right or claim of the Company,
including any write-off or other compromise of any account receivable of the
Company;
(o) the commencement or notice or, to the Company Shareholders' or
the Company's knowledge, threat of commencement of any lawsuit or proceeding
against or, to the Company Shareholders' knowledge, investigation of the Company
or its affairs;
(p) notice of any claim of ownership by a third party of the
Company's Intellectual Property (as defined in Section 3.11 below) or of
infringement by the Company of any third party's Intellectual Property rights;
(q) issuance or sale by the Company of any of its shares of capital
stock, or securities exchangeable, convertible or exercisable therefor, or of
any other of its securities;
(r) change in pricing or royalties set or charged by the Company to
its customers or licensees or in pricing or royalties set or charged by persons
who have licensed Intellectual Property to the Company;
(s) any event or condition of any character that has or could be
reasonably be expected to have a Material Adverse Effect on the Company;
(t) any event or condition that adversely affects the Company's
status as an S Corporation within the meaning of Section 1361 of the Code;
(u) negotiation or agreement by the Company or any officer or
employees thereof to do any of the things described in the preceding clauses (a)
through (t) (other than negotiations with Parent and its representatives
regarding the transactions contemplated by this Agreement).
3.8 Tax and Other Returns and Reports.
(a) Definition of Taxes. For the purposes of this Agreement, "Tax"
or, collectively, "Taxes", means any and all federal, state, local and foreign
taxes, assessments and other governmental charges, duties, impositions and
liabilities, including taxes based upon or measured by gross receipts, income,
profits, sales, use and occupation, and value added, ad valorem, transfer,
franchise, withholding, payroll, recapture, employment, excise and property
taxes, together with all interest, penalties and additions imposed with respect
to such amounts and any obligations under any agreements or arrangements with
any other person with respect to such amounts and including any liability for
taxes of a predecessor entity.
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(b) Tax Returns and Audits. Except as set forth in Schedule 3.8:
(i) The Company as of the Closing Date will have prepared
and filed all required federal, state, local and foreign returns, estimates,
information statements and reports ("Returns") relating to any and all Taxes
concerning or attributable to the Company or its operations and such Returns
shall be true and correct in all material respects and shall have been completed
in accordance with applicable law.
(ii) The Company as of the Closing Date will have withheld
with respect to its employees all federal and state income taxes, FICA, FUTA and
other Taxes required to be withheld.
(iii) The Company has not been delinquent in the payment of
any Tax nor is there any Tax deficiency outstanding, proposed or assessed
against the Company, nor has the Company executed any waiver of any statute of
limitations on or extending the period for the assessment or collection of any
Tax.
(iv) No audit or other examination of any Return of the
Company is presently in progress, nor has the Company been notified of any
request for such an audit or other examination.
(v) The Company does not have any liabilities for unpaid
federal, state, local and foreign Taxes which have not been accrued or reserved
against all Taxes in accordance with GAAP on the Current Balance Sheet, whether
asserted or unasserted, contingent or otherwise, and the Company and the Company
Shareholders have no knowledge of any reasonable basis for the assertion of any
additional liability for taxes attributable to the Company, its assets or
operations.
(vi) The Company has made available copies of all federal and
state income and all state sales and use Tax Returns for all periods since
January 1, 1991.
(vii) There are (and as of immediately following the Closing
there will be) no liens, pledges, charges, claims, restrictions on transfer,
mortgages, security interests or other encumbrances of any sort (collectively,
"Liens") on the assets of the Company relating to or attributable to Taxes,
other than liens for personal property, sales and payroll taxes not yet due and
payable.
(viii) None of the Company's assets are treated as "tax-exempt
use property" within the meaning of Section 168(h) of the Code.
(ix) As of the Closing Date, there will not be any contract,
agreement, plan or arrangement, including but not limited to the provisions of
this Agreement, covering any employee or former employee of the Company that,
individually or collectively, could give rise to the payment of any amount that
would not be deductible pursuant to Section 280G or 162 of the Code.
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(x) The Company has not filed any consent agreement under
Section 341(f) of the Code or agreed to have Section 341(f)(2) of the Code apply
to any disposition of a subsection (f) asset (as defined in Section 341(f)(4) of
the Code) owned by the Company.
(xi) The Company is not a party to a tax sharing or
allocation agreement nor does the Company owe any amount under any such
agreement.
(xii) The Company is not, and has not been at any time, a
"United States real property holding corporation" within the meaning of Section
897(c)(2) of the Code.
(xiii) The Company has been an S Corporation within the meaning
of Section 1361 of the Code at all times since June 1, 1991.
3.9 Restrictions on Business Activities. There is no agreement
(noncompete or otherwise), commitment, judgment, injunction, order or decree to
which the Company is a party or otherwise binding upon the Company which has or
could be expected to have the effect of prohibiting or impairing any business
practice of the Company, any acquisition of property (tangible or intangible) by
the Company or the conduct of business by the Company. The Company has not
entered into any agreement under which the Company is restricted from providing
services to customers or potential customers or any class of customers, in any
geographic area, during any period of time or in any segment of the market.
3.10 Title of Properties; Absence of Liens and Encumbrances; Condition
of Equipment.
(a) The Company owns no real property, nor has it ever owned any
real property. Schedule 3.10(a) sets forth a list of all real property currently
leased by the Company, the name of the lessor, the date of the lease and each
amendment thereto and, with respect to any current lease, the aggregate annual
rental and/or other fees payable under any such lease. All such current leases
are in full force and effect, are valid and effective in accordance with their
respective terms, and there is not, under any of such leases, any existing
default or event of default (or event which with notice or lapse of time, or
both, would constitute a default).
(b) The Company has good and valid title to, or, in the case of
leased properties and assets, valid leasehold interests in, all of the Acquired
Assets, free and clear of any liens, pledges, charges, claims, security
interests and other encumbrances of any sort (collectively, "Liens"), except as
reflected in the Company Financials or in Schedule 3.10(b) and except for Liens
for taxes not yet due and payable and such imperfections of title and
encumbrances, if any, which are not material in character, amount or extent, and
which do not materially detract from the value, or materially interfere with the
present use, of the property subject thereto or affected thereby. The Company
has full corporate right and corporate power to (and at the Closing will) sell,
convey, assign, transfer and deliver to Sub good and valid title to all of the
Acquired Assets, free and clear of Liens, except as reflected in the Company
Financials or in Schedule 3.10(b) and except for Liens for taxes not yet due and
payable and such imperfections of title and encumbrances, if any, which are not
material in
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character, amount or extent, and which do not materially detract from the value,
or materially interfere with the present use, of the property subject thereto or
affected thereby.
(c) Schedule 3.10(c)(i) lists all material items of equipment (the
"Equipment") owned or leased by the Company and such Equipment is, taken as a
whole, (i) adequate for the conduct of the business of the Company as currently
conducted and (ii) in reasonable operating condition, subject to normal wear and
tear. Schedule 3.10(c)(ii) sets forth a list of art, books and furniture
currently on the Company's premises which are owned personally by the Company
Shareholders.
3.11 Intellectual Property.
(a) For the purposes of this agreement, the following terms have
the following definitions:
"Intellectual Property" shall mean any or all of the following and all
rights associated therewith: (i) all domestic and foreign patents and
applications therefor and all reissues, divisions, renewals, extensions,
continuations and continuations-in-part thereof; (ii) all inventions (whether
patentable or not), invention disclosures, improvements, trade secrets,
proprietary information, know how, technology, technical data and customer
lists, and all documentation relating to any of the foregoing; (iii) all
copyrights, copyrights registrations and applications therefor, and all other
rights corresponding thereto throughout the world; (iv) all mask works, mask
work registrations and applications therefor; (v) all industrial designs and any
registrations and applications therefor; (vi) all trade names, logos, common law
trademarks and service marks; trademark and service xxxx registrations and
applications therefor and all goodwill associated therewith; and (vii) all
computer software including all source code, object code, firmware, development
tools, files, records and data, all media on which any of the foregoing is
recorded, all documentation related to any of the foregoing.
"Intellectual Property of Company" shall mean any Intellectual Property
that: (i) is owned by or exclusively licensed to the Company, or (ii) which is
necessary to the operation of the Company, including the design, manufacture and
use of the products of the Company as it currently is operated or is reasonably
anticipated to be operated in the future, but shall specifically not include any
rights in or to materials created for clients as "work-made-for-hire" or which
are subject to an exclusive assignment or license in favor of clients of the
Company.
(b) Schedule 3.11 (b) lists all of the United States and foreign:
(i) patent and patent applications; (ii) registered trademarks and trademark
applications; (iii) registered copyrights and applications for copyright
registration; (iv) mask work registrations and applications to register mask
works; and (v) any other Intellectual Property of Company that is the subject of
an application, certificate or registration issued by any state, government or
other public legal authority.
(c) The registrations of the Intellectual Property listed on
Schedule 3.11(b) are valid and subsisting, all necessary registration and
renewal fees in connection with such registrations
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have been made and all necessary documents and certificates in connection with
such registrations have been filed with the relevant patent, copyright and
trademark authorities in the United States for the purposes of maintaining such
Intellectual Property registrations.
(d) The contracts, licenses and agreements listed on Schedule
3.12(a) include all contracts, licenses and agreement, to which the Company is a
party which (i) still require performance of services, delivery of materials or
ongoing royalties or similar payments, either by the Company or to the benefit
of the Company or (ii) to the knowledge of the Company and the Company
Shareholders are not included in (i) and since January 1, 1995, required the
performance of services, delivery of materials or ongoing royalties or similar
payment either by the Company or to the benefit of the Company and included
indemnification obligations of the Company or the performance of nondisclosure
obligations, in each case, with respect to any Intellectual Property, other than
"shrink wrap" and similar commercial end-user licenses.
(e) To the best of the knowledge of the Company and the Company
Shareholders, the contracts, licenses and agreements listed on Schedule 3.12(a)
are in full force and effect. Provided that the consents to assignment listed on
Schedule 3.12(a) have been obtained, the consummation of the transactions
contemplated by this Agreement will neither violate nor result in the breach,
modification, cancellation, termination, or suspension of the contracts,
licenses and agreements listed on Schedule 3.12(a). The Company is in compliance
with, and has not breached any material term of, the contracts, licenses and
agreements listed on Schedule 3.12 (a), and, to the knowledge of the Company and
the Company Shareholders, all other parties to the contracts, licenses and
agreements listed on Schedule 3.12(a) are, in compliance with, and have not
breached any material term of, the contracts, licenses and agreements. Following
the Closing Date, Sub will be permitted to exercise all of the Company's rights
under the contracts, licenses and agreements listed in Schedule 3.12(a) without
the payment of any additional amounts or consideration other than ongoing fees,
royalties or payments which the Company would otherwise be required to pay.
(f) Except as set forth in Schedule 3.12(a): (i) no person has any
rights to use any of the Intellectual Property of the Company; and (ii) the
Company has neither granted to any Person, nor authorized any Person to retain,
any rights in the Intellectual Property of Company.
(g) To the knowledge of the Company and the Company Shareholders:
(i) the Company owns and has good and exclusive title to each item of
Intellectual Property listed on Schedule 3.11(b), free and clear of any lien or
encumbrance; and (ii) the Company owns, or has the right, pursuant to a valid
Contract to use or operate under, all other Intellectual Property of the
Company.
(h) The operation of the Business as it currently is conducted,
including its design, development, manufacture and sale of its products
(including with respect to products currently under development) and provision
of services, does not infringe the Intellectual Property of any other person.
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(i) The Company has not received notice from any person that the
operation of the Business, including its design, development, manufacture and
sale of its products (including with respect to products currently under
development) and provision of services, infringes the Intellectual Property of
any person.
(j) The Acquired Assets include all Intellectual Property
necessary to the conduct of the Business as it currently is conducted,
including, without limitation, the design, development, manufacture and sale of
all products currently manufactured or sold by the Company or under development
by the Company.
(k) To the knowledge of the Company and the Company Shareholders,
Schedule 3.12(a) lists all contracts, licenses and agreements between the
Company and any other person pursuant to which required the performance of
services, delivery of materials or ongoing royalties or similar payment either
by the Company or to the benefit of the Company since January 1, 1995, and
included indemnification obligations of the Company or the performance of
nondisclosure obligations, or otherwise require the Company to assume or incur
any obligation or liability with respect to the infringement by the Company or
such other Person of the Intellectual Property rights of any other person.
(l) There are no contracts, licenses and agreements between the
Company and any other person with respect to Company Intellectual Property which
there is any dispute known to the Company regarding the scope of such agreement,
or performance under such agreement including with respect to any payments to be
made or received by the Company thereunder.
(m) To the knowledge of the Company and the Company Shareholders,
no person is infringing or misappropriating any of the Company's Intellectual
Property.
(n) To the knowledge of the Company and the Company Shareholders,
there are no material claims asserted against the Company or against any
customer of the Company, related to any product or service of the Company.
(o) No Company Intellectual Property right or product of the
Company is subject to any outstanding decree, order, judgment, or stipulation
restricting in any material manner the use or licensing thereof by the Company.
(p) The Company has a policy requiring each employee and
contractor to execute proprietary information and confidentiality agreements
substantially in the Company's standard forms.
3.12 Agreements, Contracts and Commitments.
(a) Except as set forth on Schedule 3.12(a), the Company is not a
party to nor is it bound by:
(i) any collective bargaining agreements,
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(ii) any agreements or arrangements that contain any
severance pay or post-employment liabilities or obligations,
(iii) any bonus, deferred compensation, pension, profit
sharing or retirement plans, or any other employee benefit plans or
arrangements,
(iv) any employment or consulting agreement, contract or
commitment with an employee or individual consultant or salesperson or
consulting or sales agreement, contract or commitment with a firm or other
organization,
(v) any agreement or plan, including, without limitation,
any stock option plan, stock appreciation rights plan or stock purchase plan,
any of the benefits of which will be increased, or the vesting of benefits of
which will be accelerated, by the occurrence of any of the transactions
contemplated by this Agreement or the value of any of the benefits of which will
be calculated on the basis of any of the transactions contemplated by this
Agreement,
(vi) any fidelity or surety bond or completion bond,
(vii) any lease of personal property,
(viii) to the knowledge of Company and the Company
Shareholders any agreement of indemnification contained in any agreement which
required the performance of services, delivery of materials or ongoing royalties
or similar payment either by the Company or to the benefit of the Company since
January 1, 1995.
(ix) any agreement of guaranty,
(x) any agreement, contract or commitment containing any
covenant limiting the freedom of the Company to engage in any line of business
or to compete with any person,
(xi) any agreement, contract or commitment relating to
capital expenditures and involving future payments in excess of $10,000,
(xii) any agreement, contract or commitment relating to the
disposition or acquisition of assets or any interest in any business enterprise
outside the ordinary course of the Company's business,
(xiii) any mortgages, indentures, loans or credit agreements,
security agreements or other agreements or instruments relating to the borrowing
of money or extension of credit, including guaranties referred to in clause
(viii) hereof,
(xiv) any purchase order or contract for the purchase of
materials involving $10,000 or more,
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(xv) any construction contracts,
(xvi) any distribution, joint marketing or development
agreement, or
(xvii) any other agreement, contract or commitment that
involves $15,000 or more or is not cancelable without penalty within thirty (30)
days pursuant to which the Company is still required to perform services,
deliver materials or pay ongoing royalties or similar fees or a third party is
still obligated to perform services, deliver materials or pay ongoing fees to
the Company.
(b) To the best of the knowledge of the Company and the Company
Shareholders, the Company has not breached, violated or defaulted under, or
received written notice that it has breached, violated or defaulted under, any
of the terms or conditions of any agreement, contract or commitment to which it
is a party or by which it is bound. Each such agreement, contract or commitment
is in full force and effect and, to the knowledge of the Company and the Company
Shareholders, is not subject to any default thereunder by any party obligated to
the Company pursuant thereto.
3.13 Interested Party Transactions. No officer, director or affiliate
(as defined under Regulation C under the Securities Act of 1933, as amended) of
the Company nor any ancestor, sibling, descendant or spouse of any of such
persons, or any trust, partnership or corporation in which any of such persons
has or has had an interest), has or has had, directly or indirectly, (i) an
interest in any entity which furnished or sold, or furnishes or sells, services
or products that the Company furnishes or sells, or proposes to furnish or sell,
or (ii) any interest in any entity that purchases from or sells or furnishes to,
the Company, any goods or services or (iii) a beneficial interest in any
Contract; provided, that ownership of no more than one percent (1%) of the
outstanding voting stock of a publicly traded corporation shall not be deemed an
"interest in any entity" for purposes of this Section 3.13.
3.14 Governmental Authorization. Schedule 3.14 accurately lists each
material consent, license, permit, grant or other authorization issued to the
Company by a Governmental Entity (i) pursuant to which the Company currently
operates or holds any interest in any of the Acquired Assets or (ii) which is
required for the operation of its business or the holding of any such interest
other than the failure to obtain a consent, license, permit, grant or other
authorization which would not have a Material Adverse Effect (herein
collectively called "Company Authorizations"), which Company Authorizations are
in full force and effect and constitute all Company Authorizations required to
permit the Company to operate or conduct its Business or hold any interest in
the Acquired Assets.
3.15 Litigation. There is no action, suit or proceeding of any nature
pending or to the Company or the Company Shareholders' knowledge threatened
against the Company, the Acquired Assets or any of the Company's officers or
directors. There is no investigation pending or, to the Company or the Company's
Shareholders' knowledge, threatened against the Company, the Acquired Assets or
any of the Company's officers or directors by or before any Governmental Entity.
No
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Governmental Entity has at any time challenged or questioned the legal right of
the Company to produce, offer or sell any of its products or services in the
present manner or style thereof.
3.16 Accounts Receivable; Inventory.
(a) The Company has made available to Parent a list of all
accounts receivable of the Company reflected on the Current Balance Sheet
("Accounts Receivable") along with a range of days elapsed since invoice.
(b) All Accounts Receivable of the Company arose in the ordinary
course of business, are carried at values determined in accordance with GAAP
consistently applied and are collectible except to the extent of reserves
therefor set forth in the Current Balance Sheet. Except as set forth on Schedule
3.10(b), no person has any Lien on any of such Accounts Receivable and no
request or agreement for deduction or discount has been made with respect to any
of such Accounts Receivable.
(c) All of the inventories of the Company reflected on the Company
Financials and the Company's books and records on the date hereof were
purchased, acquired or produced in the ordinary and regular course of business
and in a manner consistent with the Company's regular inventory practices and
are set forth on the Company's books and records in accordance with the
practices and principles of the Company consistent with the method of treating
said items in prior periods. None of the inventory of the Company reflected on
the Company Financials or on the Company's books and records as of the date
hereof (in either case net of the reserve therefor) is in excess of the needs of
the business of the Company reasonably anticipated for the normal operation of
the business consistent with past practices and outstanding customer contracts.
The presentation of inventory on the Company Financials conforms to GAAP and
such inventory is stated at the lower of cost (determined using the first-in,
first-out method) or net realizable value.
3.17 Minute Books. The minute books of the Company made available to
counsel for Parent are the only minute books of the Company and contain a
reasonably accurate summary of all meetings of directors (or committees thereof)
and Shareholders or actions by written consent since the time of incorporation
of the Company.
3.18 Environmental Matters.
(a) Hazardous Material. The Company has not: (i) operated any
underground storage tanks at any property that the Company has at any time
owned, operated, occupied or leased; or (ii) to the knowledge of the Company and
the Company Shareholders, illegally released any material amount of any
substance that has been designated by any Governmental Entity or by applicable
federal, state or local law to be radioactive, toxic, hazardous or otherwise a
danger to health or the environment, including, without limitation, PCBs,
asbestos, petroleum, urea-formaldehyde and all substances listed as hazardous
substances pursuant to the Comprehensive Environmental Response, Compensation,
and Liability Act of 1980, as amended, or defined as a hazardous waste pursuant
to the United States Resource Conservation and Recovery Act of 1976,
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as amended, and the regulations promulgated pursuant to said laws, (a "Hazardous
Material"), but excluding office and janitorial supplies properly and safely
maintained. To the knowledge of the Company and the Company Shareholders', no
Hazardous Materials are present as a result of the deliberate actions of the
Company or as a result of any actions of any third party or otherwise, in, on or
under any property, including the land and the improvements, ground water and
surface water thereof, that the Company has at any time owned, operated,
occupied or leased.
(b) Hazardous Materials Activities. To the knowledge of the
Company and the Company Shareholders, the Company has not transported, stored,
used, manufactured, disposed of, released or exposed its employees or others to
Hazardous Materials in violation of any law in effect on or before the Closing
Date, nor has the Company disposed of, transported, sold, or manufactured any
product containing a Hazardous Material (any or all of the foregoing being
collectively referred to as "Hazardous Materials Activities") in violation of
any rule, regulation, treaty or statute promulgated by any Governmental Entity
in effect prior to or as of the date hereof to prohibit, regulate or control
Hazardous Materials or any Hazardous Material Activity.
(c) Permits. To the knowledge of the Company and the Company
Shareholders, the Acquired Assets include all environmental approvals, permits,
licenses, clearances and consents (the "Environmental Permits") necessary for
the conduct of the Business' Hazardous Material Activities and other businesses
of the Company as such activities and businesses are currently being conducted.
(d) Environmental Liabilities. No action, proceeding, revocation
proceeding, amendment procedure, writ, injunction or claim is pending, or to the
Company Shareholders' knowledge, threatened concerning any Environmental Permit,
Hazardous Material or any Hazardous Materials Activity of the Company or the
Business. Neither the Company nor the Shareholders are aware of any fact or
circumstance which could involve the Company in any environmental litigation or
impose upon the Company any environmental liability.
3.19 Brokers' and Finders' Fees; Third Party Expenses. The Company has
not incurred, nor will it incur, directly or indirectly, any liability for
brokerage or finders' fees or agents' commissions or any similar charges in
connection with this Agreement or any transaction con templated hereby, except
for fees and expenses which are Excluded Liabilities.
3.20 Employee Matters and Benefit Plans.
(a) Definitions. With the exception of the definition of
"Affiliate" set forth in Section 3.20(a)(i) below (such definition shall only
apply to this Section 3.20), for purposes of this Agreement, the following terms
shall have the meanings set forth below:
(i) "Affiliate" shall mean any other person or entity under
common control with the Company within the meaning of Section 414(b) or (c) of
the Code and the regulations thereunder;
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(ii) "ERISA" shall mean the Employee Retirement Income
Security Act of 1974, as amended;
(iii) "Company Employee Plan" shall refer to any plan,
program, policy, practice, contract, agreement or other arrangement providing
for compensation, severance, termination pay, performance awards, stock or
stock-related awards, fringe benefits or other employee benefits or remuneration
of any kind, whether formal or informal, funded or unfunded and whether or not
legally binding, including without limitation, each "employee benefit plan",
within the meaning of Section 3(3) of ERISA which is maintained, contributed to,
or required to be contributed to, by the Company or any Affiliate for the
benefit of any "Employee" (as defined below), and pursuant to which the Company
or any Affiliate has or may have any material liability contingent or otherwise;
(iv) "Employee" shall mean any current, former, or retired
employee, officer, or director of the Company or any Affiliate;
(v) "Employee Agreement" shall refer to each management,
employment, severance, consulting or similar agreement or contract between the
Company or any Affiliate and any Employee or consultant;
(vi) "IRS" shall mean the Internal Revenue Service;
(vii) "Multiemployer Plan" shall mean any "Pension Plan"
(as defined below) which is a "multiemployer plan", as defined in Section 3(37)
of ERISA; and
(viii) "Pension Plan" shall refer to each Company Employee
Plan which is an "employee pension benefit plan", within the meaning of Section
3(2) of ERISA.
(b) Schedule. Schedule 3.20(b) contains an accurate and complete
list of (i) each Employee of the Company and each Employee's current salary and
bonus applicable to the current fiscal period and (ii) each Company Employee
Plan and each Employee Agreement. The Company does not have any plan or
commitment, whether legally binding or not, to establish any new Company
Employee Plan or Employee Agreement, to materially modify any Company Employee
Plan or Employee Agreement (except to the extent required by law or to conform
any such Company Employee Plan or Employee Agreement to the requirements of any
applicable law, in each case as previously disclosed to Parent in writing, or as
required by this Agreement), or to enter into any Company Employee Plan or
Employee Agreement, nor does it have any intention or commitment to do any of
the foregoing.
(c) Documents. The Company has provided to Parent (i) correct and
complete copies of all documents embodying or relating to each Company Employee
Plan and each Employee Agreement including all amendments thereto; (ii) the most
recent annual actuarial valuations, if any, prepared for each Company Employee
Plan; (iii) the two most recent annual reports (Series 5500 and all schedules
thereto), if any, required under ERISA in connection with each Company Employee
Plan
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or related trust; (iv) if the Company Employee Plan is funded, the most recent
annual and periodic accounting of Company Employee Plan assets; (v) the most
recent summary plan description together with the most recent summary of
material modifications, if any, required under ERISA with respect to each
Company Employee Plan; (vi) all IRS determination letters and rulings relating
to Company Employee Plans and copies of all applications and correspondence to
or from the IRS or the Department of Labor ("DOL") with respect to any Company
Employee Plan; and (vii) all material communications to any Employee or
Employees relating to any Company Employee Plan.
(d) Employee Plan Compliance. Except as set forth on Schedule
3.20(d), (i) the Company has performed in all material respects all obligations
required to be performed by it under each Company Employee Plan and each Company
Employee Plan has been established and maintained in all material respects in
accordance with its terms and in compliance with all applicable laws, statutes,
orders, rules and regulations, including but not limited to ERISA or the Code;
(ii) no "prohibited transaction", within the meaning of Section 4975 of the Code
or Section 406 of ERISA, has occurred with respect to any Company Employee Plan;
(iii) there are no actions, suits or claims pending, or, to the knowledge of the
Company or the Company Shareholders, threatened or reasonably anticipated (other
than routine claims for benefits) against any Company Employee Plan or against
the assets of any Company Employee Plan; and (iv) each Company Employee Plan can
be amended, terminated or otherwise discontinued after the Closing Date in
accordance with its terms, without liability to the Company, Parent or any of
its Affiliates (other than ordinary administration expenses typically incurred
in a termination event); (v) there are no inquiries or proceedings pending or,
to the knowledge of the Company or the Company Shareholders, threatened by the
IRS or DOL with respect to any Company Employee Plan; and (vi) neither the
Company nor any Affiliate is subject to any penalty or tax with respect to any
Company Employee Plan under Section 402(i) of ERISA or Section 4975 through 4980
of the Code.
(e) Pension Plans. The Company does not now, nor has it ever,
maintained, established, sponsored, participated in, or contributed to, any
Pension Plan which is subject to Part 3 of Subtitle B of Title I of ERISA, Title
IV of ERISA or Section 412 of the Code.
(f) Multiemployer Plans. At no time has the Company contributed to
any Multiemployer Plan.
(g) No Post-Employment Obligations. Except as set forth in
Schedule 3.20(g), no Company Employee Plan provides, or has any liability to
provide, life insurance, medical or other employee benefits to any Employee upon
his or her retirement or termination of employment for any reason, except as may
be required by statute, and the Company has never represented, promised or
contracted (whether in oral or written form) to any Employee (either
individually or to Employees as a group) that such Employee(s) would be provided
with life insurance, medical or other employee welfare benefits upon their
retirement or termination of employment, except to the extent required by
statute.
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(h) Effect of Transaction.
(i) The execution of this Agreement, the sale of the Acquired
Assets and the consummation of the transactions contemplated hereby will not
(either alone or upon the occurrence of any additional or subsequent events)
constitute an event under any Company Employee Plan, Employee Agreement, trust
or loan that will or may result in any payment (whether of severance pay or
otherwise), acceleration, forgiveness of indebtedness, vesting, distribution,
increase in benefits or obligation to fund benefits with respect to any
Employee.
(ii) No payment or benefit which will or may be made by the
Company or Parent or any of their respective affiliates with respect to any
Employee will be characterized as an "excess parachute payment", within the
meaning of Section 280G(b)(1) of the Code.
(i) Employment Matters. The Company (i) is, to the knowledge of
the Company and the Company Shareholders, in compliance in all material respects
with all applicable foreign, federal and state laws, rules and regulations
respecting employment, employment practices, terms and conditions of employment
and wages and hours, in each case, with respect to Employees; (ii) has withheld
all amounts required by law or by agreement to be withheld from the wages,
salaries and other payments to Employees or other persons who by virtue of their
activities performed on behalf of the Company may be deemed employees within the
meaning of applicable law; (iii) is not liable for any arrears of wages or any
taxes or any penalty for failure to comply with any of the foregoing; and (iv)
is not liable for any payment to any trust or other fund or to any governmental
or administrative authority, with respect to unemployment compensation benefits,
social security or other benefits or obligations for Employees or other persons
who by virtue of their activities performed on behalf of the Company may be
deemed employees within the meaning of applicable law (other than routine
payments to be made in the normal course of business and consistent with past
practice).
(j) Labor. No work stoppage or labor strike against the Company is
pending or, to the best knowledge of the Company or the Company Shareholders,
threatened. The Company is not involved in or, to the knowledge of the Company
or the Company Shareholders, threatened with, any labor dispute, grievance, or
litigation relating to labor, safety or discrimination matters involving any
Employee, including, without limitation, charges of unfair labor practices or
discrimination complaints, which, if adversely determined, would, individually
or in the aggregate, result in liability to the Company. The Company has not
engaged in any unfair labor practices within the meaning of the National Labor
Relations Act which would, individually or in the aggregate, directly or
indirectly result in a liability to the Company. The Company is not presently,
nor has it been in the past, a party to, or bound by, any collective bargaining
agreement or union contract with respect to Employees and no collective
bargaining agreement is being negotiated by the Company.
(k) No Interference or Conflict. To the knowledge of the Company
and the Company Shareholders, no director, officer, employee or consultant of
the Company is obligated under any contract (including licenses, covenants or
commitments of any nature) or other agreement, or subject to any judgment,
decree or order of any court or administrative agency, that would interfere with
the use of such person's best efforts to promote the interests of the Company or
that
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would conflict with the Company's business. Neither the execution nor delivery
of this Agreement, nor the carrying on of the Company's business as presently
conducted or proposed to be conducted will, to the Company's or the Company
Shareholders' knowledge, conflict with or result in a breach of the terms,
conditions or provisions of, or constitute a default under, any contract,
covenant or instrument under which any of such officers, directors, employees or
consultants is now obligated.
3.21 Insurance. Schedule 3.21 lists all insurance policies and fidelity
bonds covering the Acquired Assets and the Business. There is no claim by the
Company pending under any of such policies or bonds as to which coverage has
been questioned, denied or disputed by the underwriters of such policies or
bonds. All premiums due and payable under all such policies and bonds have been
paid and the Company is otherwise in material compliance with the terms of such
policies and bonds (or other policies and bonds providing substantially similar
insurance coverage). The Company Shareholders have no knowledge of any
threatened termination of, or material premium increase with respect to, any of
such policies.
3.22 Compliance with Laws. To the knowledge of the Company and the
Company Shareholders, the Company has complied with, is not in violation of, and
has not received any notices of violation with respect to, any foreign, federal,
state or local statute, law or regulation.
3.23 Third Party Consents. Except as set forth on Schedule 3.23, no
consent or approval is needed from any third party in order to effect the
Acquisition or any of the transactions contemplated by this Agreement.
3.24 Warranties; Indemnities. Schedule 3.24 indicates all warranty and
indemnity claims in excess of $10,000 presently pending against the Company.
3.25 Complete Copies of Materials. The Company has delivered or made
available true and complete copies of each document (or summaries of same) that
has been requested by Parent or its counsel.
3.26 Representations Complete. None of the representations or
warranties made by the Company or the Company Shareholders (as modified by the
Company Schedules), nor any statement made in any Schedule or certificate
furnished by the Company pursuant to this Agreement, or furnished in or in
connection with documents mailed or delivered to the Shareholders of the Company
in connection with soliciting their consent to this Agreement and the
Acquisition, contains or will contain at the Effective Time, any untrue
statement of a material fact, or omits or will omit at the Closing Date to state
any material fact necessary in order to make the statements contained herein or
therein, in the light of the circumstances under which made, not misleading.
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ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF PARENT AND SUB
Parent and Sub hereby jointly and severally represent and warrant to
the Company as follows:
4.1 Organization, Standing and Power. Parent and Sub are corporations
duly organized, validly existing and in good standing under the laws of the
State of Delaware. Each of Parent and Sub has the corporate power to own its
properties and to carry on its business as now being conducted and is duly
qualified to do business and is in good standing in each jurisdiction in which
the failure to be so qualified would have a material adverse effect on the
ability of Parent and Sub to consummate the transactions contemplated hereby.
4.2 Authority. Parent and Sub have all requisite corporate power and
authority to enter into this Agreement and to consummate the transactions
contemplated hereby. The execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby have been duly authorized
by all necessary corporate action on the part of Parent and Sub. This Agreement
has been duly executed and delivered by Parent and Sub and constitutes the valid
and binding obligations of Parent and Sub, enforceable in accordance with its
terms, except as such enforceability may be limited by principles of public
policy and subject to the laws of general application relating to bankruptcy,
insolvency and the relief of debtors and rules of law governing specific
performance, injunctive relief or other equitable remedies. None of the
execution and delivery of this Agreement by Parent or Sub, the purchase of the
Acquired Assets and the assumption Assumed Liability does, and as of the Closing
Date, the consummation of the transaction contemplated hereby will Conflict with
(i) any provision of the Certificate of Incorporation or Bylaws of Parent or Sub
or (ii) any mortgage, indenture, lease, contract or other agreement or
instrument, permit, concession, franchise, license, judgement, order, decree,
statute, law, ordinance, rule or regulation applicable to Parent or Sub or any
of their respective properties and assets, except where such Conflict will not
have a material adverse affect on the business, assets, financial conditions or
results of operations of Parent and Sub taken as a whole. No consent, waiver,
approval, order, or authorization of, or registration, declaration or filing
with, any Governmental Entity or third party (so as not trigger any Conflict),
is required by or with respect to Parent or Sub in connection with execution and
delivery this Agreement, the purchase of the Acquired Assets or consummation of
the transactions contemplated hereby, except for such consents, waivers,
approvals, orders, authorizations, registrations, declarations and filings which
may be required under applicable Federal and State securities laws and such
consents, waivers, authorizations, filings, approvals and registration, which if
not obtained, would not have a material adverse affect on the business, assets,
financial condition or results of operations of Parent and Sub taken as a whole.
4.3 Capital Structure.
(a) The authorized stock of Parent consists of 30,000,000 shares
of Common Stock, $.001 par value, of which 12,845,937 shares were issued and
outstanding as of June 21, 1996, and 5,000,000 shares of undesignated Preferred
Stock, $.001 par value. No shares of Preferred
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Stock are issued or outstanding. The authorized capital stock of Sub consists of
1,000 shares of Common Stock, $.001 par value, 1,000 shares of which, as of the
date hereof, are issued and outstanding and are held by Parent. All such shares
have been duly authorized, and all such issued and outstanding shares have been
validly issued, are fully paid and nonassessable and are free of any liens or
encumbrances other than any liens or encumbrances created by or imposed upon the
holders thereof. Parent has also reserved (i) 1,000,000 shares of Common Stock
for issuance to employees and consultants pursuant to the Parent's 1995 Stock
Plan, (ii) 100,000 shares of Common Stock for issuance to directors under its
1995 Directors Option Plan, (iii) 300,000 shares of Common Stock for issuance
under the Parent's 1995 Employee Stock Purchase Plan and (iv) 750,000 shares of
Common Stock reserved for issuance under Parent is 1995 Series B Common Stock
Plan. There are no other options, warrants, calls, rights, commitments or
agreements of any character to which Parent is a party or by which it is bound
obligating Parent to issue, deliver, sell, repurchase or redeem, or cause to be
issued, delivered, sold, repurchased or redeemed, any shares of the capital
stock of Parent or obligating Parent to grant, extend or enter into any such
option, warrant, call, right, commitment or agreement.
(b) The shares of Parent Common Stock to be issued pursuant to the
Acquisition will be duly authorized, validly issued, fully paid, non-assessable.
4.4 SEC Documents; Parent Financial Statements. Parent has furnished
the Company with a true and complete copies of its filings with the Securities
and Exchange Commission (the "SEC") of (i) its final prospectus dated December
14, 1995 relating to its initial public offering, (ii) its report on Form 10-K
for the fiscal year ended November 30, 1995, (iii) its Annual Report to its
stockholders for the fiscal year ended November 30, 1995, (iv) its Proxy
Statement to its stockholders dated April 5, 1996, (v) its report on Form 10-Q
for the fiscal quarter ended February 29, 1996, (vi) its report of Form 10-Q for
the fiscal quarter ended May 31, 1996, and (vii) its final prospectus dated June
21, 1996 relating to its secondary public offering (collectively, the "SEC
Documents"). As of their respective filing dates, the SEC Documents complied in
all material respects with the requirements of the Securities Act of 1933, as
amended (the "1933 Act"), and the Securities Exchange Act of 1934, as amended,
as applicable and none of the SEC Documents contained any untrue statement of a
material fact or omitted to state a material fact required to be stated therein
or necessary to make the statements made therein, in light of the circumstances
in which they were made, not misleading, except to the extent corrected by a
document subsequently filed with the SEC. No event, condition or occurrence has
occurred since the date of the most recent SEC Document which has had a material
adverse effect on Parent. The financial statements of Parent, including the
notes thereto, included in the SEC Documents (the "Parent Financial Statements")
comply as to form in all material respects with applicable accounting
requirements and with the published rules and regulations of the SEC with
respect thereto, have been prepared in accordance with generally accepted
accounting principles consistently applied (except as may be indicated in the
notes thereto) and present fairly the consolidated financial position of Parent
at the dates thereof and of its operations and cash flows for the periods then
ended (subject, in the case of unaudited statements, to normal audit
adjustments).
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4.5 Brokers' and Finders' Fees. The Parent has not incurred, nor will
it incur, directly or indirectly, any liability for brokerage or finders' fees
or agents' commissions or any similar charges in connection with this Agreement
or any transaction contemplated hereby.
4.6 Litigation. As of the date of this Agreement, there is no action,
suit, proceeding, claim, arbitration or investigation pending, or the knowledge
of Parent, threatened, against Parent or Sub, which in any manner challenges or
seeks to prevent, enjoin, alter, or materially delay the Acquisition or any of
the other transaction contemplated by this Agreement.
ARTICLE V
CONDUCT PRIOR TO THE EFFECTIVE TIME
5.1 Conduct of Business of the Company. During the period from the date
of this Agreement and continuing until the earlier of the termination of this
Agreement or the Closing Date, the Company agrees (except to the extent that
Parent shall otherwise consent in writing), to carry on its business in the
usual, regular and ordinary course in substantially the same manner as
heretofore conducted, to pay its debts and Taxes when due, to pay or perform
other obligations when due, and, to the extent consistent with such business,
use all reasonable efforts consistent with past practice and policies to
preserve intact the Company's present business organization, keep available the
services of its present officers and key employees and preserve their
relationships with customers, suppliers, distributors, licensors, licensees, and
others having business dealings with it, all with the goal of preserving
unimpaired the Acquired Assets, including without limitation, the Company's
goodwill and ongoing businesses at the Closing Date. The Company shall promptly
notify Parent of any event or occurrence involving the Company or the Acquired
Assets, whether or not in the ordinary course of business of the Company, which
could reasonably be expected to have a Material Adverse Effect. Except as
expressly contemplated by this Agreement, the Company shall not, without the
prior written consent of Parent:
(a) Enter into any commitment or transaction not in the ordinary
course of business or any commitment or transaction of the type described in
Section 3.7 hereof;
(b) Transfer to any person or entity any rights with respect to
Company Intellectual Property Rights;
(c) Enter into or amend any agreements pursuant to which any other
party is granted marketing, distribution or similar rights of any type or scope
with respect to any products of the Company;
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(d) Amend or otherwise modify (or agree to do so), except in the
ordinary course of business, or violate the terms of, any contract or agreement
set forth on Company Schedule 3.12;
(e) Commence any litigation;
(f) Declare, set aside or pay any dividends on or make any other
distributions (whether in cash, stock or property) in respect of any of its
capital stock, or split, combine or reclassify any of its capital stock or issue
or authorize the issuance of any other securities in respect of, in lieu of or
in substitution for shares of capital stock of the Company, or repurchase,
redeem or otherwise acquire, directly or indirectly, any shares of its capital
stock (or options, warrants or other rights exercisable therefor); provided that
the Company may declare, set aside or pay dividends or make any other
distributions (whether in cash, stock or property) in respect of any of its
capital stock as long as at the Closing Date, the Company's current assets are
equal to or greater than its total liabilities less accrued rent as determined
in accordance with GAAP;
(g) Issue, grant, deliver or sell or authorize or propose the
issuance, grant, delivery or sale of, or purchase or propose the purchase of,
any shares of its capital stock or securities convertible into, or
subscriptions, rights, warrants or options to acquire, or other agreements or
commitments of any character obligating it to issue any such shares or other
convertible securities;
(h) Cause or permit any amendments to its Articles of Incorporation
or Bylaws;
(i) Acquire or agree to acquire by merging or consolidating with,
or by purchasing any assets or equity securities of, or by any other manner, any
business or any corporation, partner ship, association or other business
organization or division thereof, or otherwise acquire or agree to acquire any
assets which are material, individually or in the aggregate, to the business of
the Company;
(j) Sell, lease, license or otherwise dispose of any of its
properties or assets, except in the ordinary course of business and consistent
with past practices;
(k) Incur any indebtedness for borrowed money other than under the
Company's existing line of credit consistent with past practice or guarantee any
such indebtedness or issue or sell any debt securities of the Company or
guarantee any debt securities of others;
(l) Grant any severance or termination pay (i) to any director or
officer or (ii) to any other employee except payments made pursuant to standard
written agreements outstanding on the date hereof.
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(m) Adopt or amend any employee benefit plan, or enter into any
employment contract, pay or agree to pay any special bonus or special
remuneration to any director or employee, or increase the salaries or wage rates
of its employees;
(n) Revalue any of its assets, including without limitation writing
down the value of inventory or writing off notes or accounts receivable other
than in the ordinary course of business;
(o) Pay, discharge or satisfy, in an amount in excess of $10,000
(in any one case) or $25,000 (in the aggregate), any claim, liability or
obligation (absolute, accrued, asserted or unasserted, contingent or otherwise),
other than the payment, discharge or satisfaction in the ordinary course of
business or liabilities reflected or reserved against in the Company Financials
(or the notes thereto);
(p) Make or change any material election in respect of Taxes, adopt
or change any accounting method in respect of Taxes, enter into any closing
agreement, settle any claim or assessment in respect of Taxes, or consent to any
extension or waiver of the limitation period applicable to any claim or
assessment in respect of Taxes;
(q) Enter into any strategic alliance or joint marketing
arrangement or agreement; or
(r) Take, or agree in writing or otherwise to take, any of the
actions described in Sections 5.1(a) through (q) above, or any other action that
would prevent the Company from performing or cause the Company not to perform
its covenants hereunder.
5.2 No Solicitation. Until the earlier of the Closing Date, and the
date of termination of this Agreement pursuant to the provisions of Section 9.1
hereof, neither the Company nor either of the Company Shareholders will (nor
will the Company permit any of the Company's officers, directors, agents,
representatives or affiliates to) directly or indirectly, take any of the
following actions with any party other than Parent and its designees: (a)
solicit, conduct discussions with or engage in negotiations with any person,
relating to the possible acquisition of the Company or any of its subsidiaries
(whether by way of merger, purchase of capital stock, purchase of assets or
otherwise) or any material portion of its or their capital stock or assets, (b)
provide information with respect to it to any person, other than Parent,
relating to the possible acquisition of the Company (whether by way of merger,
purchase of capital stock, purchase of assets or otherwise) or any material
portion of its or their capital stock or assets, (c) enter into an agreement
with any person, other than Parent, providing for the acquisition of the Company
(whether by way of merger, purchase of capital stock, purchase of assets or
otherwise) or any material portion of its or their capital stock or assets or
(d) make or authorize any statement, recommendation or solicitation in support
of any possible acquisition of the Company or any of it subsidiaries (whether by
way of merger, purchase of capital stock, purchase of assets or otherwise) or
any material portion of its or their capital stock or assets by any person,
other than
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by Parent. In addition to the foregoing, if the Company or either Company
Shareholder receives prior to the Effective Time or the termination of this
Agreement any offer or proposal relating to any of the above, the Company or the
Company Shareholder, as applicable, shall immediately notify Parent thereof,
including information as to the identity of the offeror or the party making any
such offer or proposal and the specific terms of such offer or proposal, as the
case may be, and such other information related thereto as Parent may reasonably
request.
ARTICLE VI
ADDITIONAL AGREEMENTS
6.1 Fairness Hearing/Registration; Company Shareholder Approval.
(a) As promptly as practicable after the execution of this
Agreement, Parent and the Company shall prepare the necessary documentation to
seek to obtain a permit (a "California Permit") from the Commissioner of
Corporations of the State of California (after a hearing before such Department)
pursuant to Section 25121 of the California Corporate Securities Law of 1968, so
that the issuance of Parent Common Stock in the Acquisition shall be exempt from
registration under Section 3(a)(10) of the Securities Act, and as such the
Parent Common Stock will not be deemed "restricted securities" within the
meaning of Rule 144 promulgated thereunder and resale of such shares will not be
subject to any Securities Act restrictions other than as set forth under Rule
145.
(b) If the Parent and the Company are unable to obtain the
California Permit prior to December 2, 1996, Parent shall prepare and file with
the SEC a registration statement on Form S-4 (the "S-4") and include therein a
proxy statement (the "Proxy Statement") to be sent to the Company's Shareholders
soliciting their consent to the Acquisition. The Company shall provide to Parent
and its counsel for inclusion in the Proxy Statement of the S-4, in form and
substance reasonably satisfactory to Parent and its counsel, such information
concerning the Company, its operations, capitalization, share ownership and
other material as Parent or its counsel may reasonable request. Each of Parent
and the Company shall use its reasonable best efforts to respond to any comments
of the SEC, to have the S-4 declared effective under the 1933 Act as promptly as
practicable after such filing and to cause the Proxy Statement to be mailed to
the Company's Shareholders at the earliest practicable time. Each party will
notify the other parties hereto promptly of the receipt of any comments from the
SEC or its staff and of any request by the SEC or its staff for amendments or
supplements to the S-4 or, the Proxy Statement or for additional information and
will supply the other party with copies of all correspondence between such party
or any of its representatives, on the one hand, and the SEC, or its staff, on
the other hand, with respect to the S-4 or the Proxy Statement. Whenever any
event occurs which should be set forth in an amendment or supplement to the
Proxy Statement and the S-4 Filing, Parent or the Company, as the case may be,
shall promptly inform the other Company of such occurrence and cooperate in
filing with the SEC or its staff.
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(c) As promptly as practicable after the receipt of a California
Permit, or declaration of effectiveness of the S-4 by the SEC, the Company shall
submit this Agreement and the transactions contemplated hereby to the Company
Shareholders for approval and adoption as provided by New York Law and its
Certificate of Incorporation and Bylaws. The Company Shareholders shall approve
the Acquisition and this Agreement and shall take such other actions as may be
necessary or desirable to enable the Closing to occur as promptly as
practicable. The materials submitted to the Company's Shareholders shall be
subject to review and approval by Parent and include information regarding the
Company, the terms of the Acquisition and this Agreement and the unanimous
recommendation of the Board of Directors of the Company in favor of the
Acquisition and this Agreement.
6.2 Access to Information. The Company shall afford Parent and its
accountants, counsel and other representatives, reasonable access during normal
business hours during the period prior to the Effective Time to (a) all of the
Company's properties, books, contracts, commitments and records, and (b) all
other information concerning the business, properties and personnel (subject to
restrictions imposed by applicable law) of the Company as Parent may reasonably
request. The Company agrees to provide to Parent and its accountants, counsel
and other representatives copies of internal financial statements promptly upon
request. Parent shall provide the Company and the Shareholders with copies of
such publicly available information about Parent as the Company may request and
shall provide the Company with reasonable access to its executive officers in
this regard. No information or knowledge obtained in any investigation pursuant
to this Section 6.2 shall affect or be deemed to modify any representation or
warranty contained herein or the conditions to the obligations of the parties to
consummate the Acquisition.
6.3 Confidentiality. Each of the parties hereto hereby agrees to keep
such information or knowledge obtained in any investigation pursuant to Section
6.2, or pursuant to the negotiation and execution of this Agreement or the
effectuation of the transactions contemplated hereby, confidential; provided,
however, that the foregoing shall not apply to information or knowledge which
(a) a party can demonstrate was already lawfully in its possession prior to the
disclosure thereof by the other party, (b) is generally known to the public and
did not become so known through any violation of law, (c) became known to the
public through no fault of such party, (d) is later lawfully acquired by such
party from other sources, (e) is required to be disclosed by order of court or
government agency with subpoena powers or (f) which is disclosed in the course
of any litigation between any of the parties hereto.
6.4 Expenses. Whether or not the Acquisition is consummated, all fees
and expenses incurred in connection with the Acquisition including, without
limitation, all legal, accounting, financial advisory, consulting and all other
fees and expenses of third parties incurred by a party in connection with the
negotiation and effectuation of the terms and conditions of this Agreement and
the transactions contemplated hereby, shall be the obligation of the respective
party incurring such fees and expenses. Notwithstanding the foregoing the
Company shall pay fifty percent (50%) of the fee of Empire Valuation Consultants
up to a maximum of $10,000.
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6.5 Public Disclosure. Unless otherwise required by law, prior to the
Closing Date, no disclosure (whether or not in response to an inquiry) of the
subject matter of this Agreement shall be made by any party hereto unless
approved by Parent and the Company prior to release, provided that such approval
shall not be unreasonably withheld, subject, in the case of Parent, to Parent's
obligation to comply with applicable securities laws; provided that Parent and
the Company shall agree on the substance of such disclosure in connection with
applicable securities laws which agreement shall not be unreasonably withheld or
delayed.
6.6 Consents. The Company shall use commercially reasonable efforts to
obtain the consents, waivers and approvals under any of the Contracts as may be
required in connection with the Acquisition (all of such consents, waivers and
approvals are set forth in Company Schedules) so as to preserve all rights of,
and benefits to, the Company and the Acquired Assets thereunder.
6.7 Best Efforts. Subject to the terms and conditions provided in this
Agreement, and subject specifically to paragraph 6.6 hereof, each of the parties
hereto shall use its best efforts to take promptly, or cause to be taken, all
actions, and to do promptly, or cause to be done, all things necessary, proper
or advisable under applicable laws and regulations to consummate and make
effective the transactions contemplated hereby to obtain all necessary waivers,
consents and approvals and to effect all necessary registrations and filings and
to remove any injunctions or other impediments or delays, legal or otherwise, in
order to consummate and make effective the transactions contemplated by this
Agreement for the purpose of securing to the parties hereto the benefits
contemplated by this Agreement; provided that Parent shall not be required to
agree to any divestiture by Parent or the Company or any of Parent's
subsidiaries or affiliates of shares of capital stock or of any business, assets
or property of Parent or its subsidiaries or affiliates or the Company or its
affiliates, or the imposition of any material limitation on the ability of any
of them to conduct their businesses or to own or exercise control of such
assets, properties and stock.
6.8 Notification of Certain Matters. The Company shall give prompt
notice to Parent, and Parent shall give prompt notice to the Company, of (i) the
occurrence or non-occurrence of any event, the occurrence or non-occurrence of
which is likely to cause any representation or warranty of the Company and
Parent, respectively, contained in this Agreement to be untrue or inaccurate at
or prior to the Closing Date and (ii) any failure of the Company or Parent, as
the case may be, to comply with or satisfy any covenant, condition or agreement
to be complied with or satisfied by it hereunder; provided, however, that the
delivery of any notice pursuant to this Section 6.8 shall not limit or otherwise
affect any remedies available to the party receiving such notice.
6.9 Secretary's Certificate. Upon execution of this Agreement, the
Secretary of the Company shall deliver a certificate in form and substance
acceptable to counsel to Parent certifying that resolutions of the Board of
Directors of the Company were duly adopted at by unanimous consent of the Board
on September 30, 1996, authorizing and ratifying the transactions contemplated
by this Agreement, and certifying the accuracy and correctness of such
resolutions as adopted by the Board of Directors of the Company. Such
certificates shall also certify that such
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resolutions have not been amended or modified, and all such resolutions are in
full force and effect.
6.10 Affiliate Agreements. Schedule 6.11 sets forth those persons who,
in the Company's reasonable judgment, are or may be "affiliates" of the Company
within the meaning of Rule 145 (each such person an "Affiliate") promulgated
under the Securities Act ("Rule 145"). The Company shall provide Parent such
information and documents as Parent shall reasonably request for purposes of
reviewing such list. The Company shall deliver or cause to be delivered to
Parent, concurrently with the execution of this Agreement (and in any case prior
to the Effective Time) from each of the Affiliates of the Company, an executed
Affiliate Agreement in the form attached hereto as Exhibit C. Parent and Sub
shall be entitled to place appropriate legends on the certificates evidencing
any Parent Common Stock to be received by such Affiliates pursuant to the terms
of this Agreement, and to issue appropriate stop transfer instructions to the
transfer agent for Parent Common Stock, consistent with the terms of such
Affiliate Agreements.
6.11 Additional Documents and Further Assurances. Each party hereto, at
the request of another party hereto, shall execute and deliver such other
instruments and do and perform such other acts and things as may be necessary or
desirable for effecting completely the consummation of this Agreement and the
transactions contemplated hereby.
6.12 NMS Listing. Parent shall authorize for listing on the Nasdaq
Stock Market the shares of Parent Common Stock issuable, and those required to
be reserved for issuance, in connection with the Acquisition, upon official
notice of issuance.
6.13 Payment to Employee Bonus Pool. Sub shall contribute 15% of Gross
Pre-tax Income to the Employee Bonus Pool. No Company Shareholder shall be
entitled to receive any payment relating to this Employee Bonus Pool.
6.14 Amendment to Bylaws of Sub; Board of Directors. Until the earlier
of the end of the 2000 Fiscal Year or the termination of the Company
Shareholders' employment with Sub, Parent shall not amend Article III of Sub's
Bylaws. In addition, until the end of the 2000 Fiscal Year Parent shall and so
long as a Company Shareholder is employed by Sub and Parent is not entitled
pursuant to Sub's Bylaws to amend Sub's Bylaws, elect such Company Shareholder
to the Board of Directors of Sub.
6.15 Current Public Information. Parent agrees that at any time that
Parent Common Stock is being issued to the Company Shareholders pursuant to this
Agreement, that Parent will be in compliance with the "current public
information" requirements of subparagraph (c) of Rule 144 of the 1933 Act and in
connection with each such issuance Parent shall, if requested by either Company
Shareholder, deliver a certificate to such effect to the Company Shareholders,
which certificate shall specifically state that in connection with any sale of
Parent Common Stock by the Company Shareholders such certificate may be relied
on by such Company Shareholders.
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6.16 Bulk Sales; Tax Clearance Certificate. The parties agree to take
such actions as may be necessary to comply with any bulk transfer laws which may
be applicable to the transactions contemplated by this Agreement. The parties
agree to cooperate to obtain state or local tax clearance certificates relating
to Sales Taxes or employment or employee withholding Taxes, including the filing
of New York State Form AU-196.10.
6.17 Maintenance of Insurance Coverage. Sub and the Company
Shareholders shall each use their best efforts to (i) insure that the Company's
existing business insurance policies are transferred to Sub upon consummation of
the Acquisition and (ii) insure that such policies, or substantially similar
policies, are maintained by Sub after the Closing, for so long as any of the
Company Shareholders remains an employee of Sub. Sub and Parent shall consult
with each other with respect to the most cost-efficient manner of maintaining
such insurance policies.
6.18 Change of Name. No later than 30 days after the Closing, the
Company shall take all actions necessary to change its corporate name, and take
such other actions as are necessary to allow Sub to conduct business under the
name "Xxxxxxx & Green, Inc." in the State of New York.
ARTICLE VII
CONDITIONS TO THE ACQUISITION
7.1 Conditions to Obligations of Each Party to Effect the Acquisition.
The respective obligations of each party to this Agreement to effect the
Acquisition shall be subject to the satisfaction at or prior to the Closing Date
of the following conditions:
(a) Securities Law Compliance. Parent shall be able to issue the
Parent Common Stock that comprises part of the consideration in the Acquisition
in compliance with the 1933 Act and the rules and regulations thereunder.
(b) No Injunctions or Restraints; Illegality. No temporary
restraining order, preliminary or permanent injunction or other order issued by
any court of competent jurisdiction or other legal restraint or prohibition
preventing the consummation of the Acquisition shall be in effect, nor shall any
proceeding brought by an administrative agency or commission or other
governmental authority or instrumentality, domestic or foreign, seeking any of
the foregoing be pending; nor shall there be any action taken, or any statute,
rule, regulation or order enacted, entered, enforced or deemed applicable to the
Acquisition, which makes the consummation of the Acquisition illegal.
(c) Litigation. There shall be no bona fide action, suit, claim or
proceeding of any nature pending, or overtly threatened, against the Parent, Sub
or the Company, their respective properties or any of their officers or
directors, arising out of, or in any way connected with, the Acquisition or the
other transactions contemplated by the terms of this Agreement.
7.2 Additional Conditions to Obligations of Company. The obligations of
the Company to consummate and effect this Agreement and the transactions
contemplated hereby shall be subject
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to the satisfaction at or prior to the Closing Date of each of the following
conditions, any of which may be waived, in writing, exclusively by the Company:
(a) Representations, Warranties and Covenants. The representations
and warranties of Parent and Sub in this Agreement shall be true and correct in
all material respects on and as of the Closing Date as though such
representations and warranties were made on and as of such time and each of
Parent and Sub shall have performed and complied in all material respects with
all covenants and obligations of this Agreement required to be performed and
complied with by it as of the Closing Date.
(b) Certificate of the Parent. Company shall have been provided
with a certificate executed on behalf of the Parent by its President to the
effect that, as of the Closing Date;
(i) all representations and warranties made by the Parent in
this Agreement are true and correct in all material respects; and
(ii) all covenants and obligations of this Agreement to be
performed by the Parent on or before such date have been so performed in all
material respects;
(c) Claims. There shall not have occurred any claims (whether or
not asserted in litigation) which may materially and adversely affect the
consummation of the transactions contemplated hereby or the business, assets
(including intangible assets), financial condition or results of operations of
the Parent and its subsidiaries, taken as a whole.
(d) No Material Adverse Changes. There shall not have occurred any
material adverse change in the business, assets (including intangible assets),
financial condition or results of operations of the Parent and its subsidiaries,
taken as a whole.
(e) Legal Opinion. The Company shall have received a legal opinion
from Wilson, Sonsini, Xxxxxxxx & Xxxxxx, legal counsel to Parent, substantially
in the form of Exhibit B-1 hereto.
(f) Bylaws. Sub shall have adopted bylaws substantially in the form
of Exhibit E hereto.
(g) Shareholder Approval. This Agreement and the Acquisition shall
have been approved and adopted by all the shareholders of Sub by the requisite
vote under applicable law.
(h) Employment Agreements. Sub shall have executed and delivered
the Employment Agreements for each of the Company Shareholders in the form of
Exhibit D hereto.
(i) On the Closing Date, Parent shall be in compliance with
"current public information" requirement of paragraph (c) of Rule 144
promulgated under the 1933 Act.
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7.3 Additional Conditions to the Obligations of Parent and Sub. The
obligations of Parent and Sub to consummate and effect this Agreement and the
transactions contemplated hereby shall be subject to the satisfaction at or
prior to the Closing Date of each of the following conditions, any of which may
be waived, in writing, exclusively by Parent:
(a) Representations, Warranties and Covenants. The representations
and warranties of the Company and the Company Shareholders in this Agreement
shall be true and correct in all material respects on and as of the Closing Date
as though such representations and warranties were made on and as of such time
and the Company and the Company Shareholders shall have performed and complied
in all material respects with all covenants and obligations of this Agreement
required to be performed and complied with by it as of the Closing Date.
(b) Certificate of the Company and Company Shareholders. Parent
shall have been provided with a certificate executed by the Company Shareholders
and executed on behalf of the Company by its Chief Executive Officer to the
effect that, as of the Closing Date:
(i) all representations and warranties made by the Company
and the Company Shareholders in this Agreement are true and correct in all
material respects; and
(ii) all covenants and obligations of this Agreement to be
performed by the Company on or before such date have been so performed in all
material respects.
(c) Claims. There shall not have occurred any claims (whether or
not asserted in litigation) which may materially and adversely affect the
consummation of the transactions contemplated hereby or may have a Material
Adverse Effect.
(d) Third Party Consents. Any and all consents, waivers, and
approvals listed on Schedule 7.3(d) shall have been obtained.
(e) Legal Opinion. Parent shall have received a legal opinion from
Frankfurt, Xxxxxx, Xxxxx & Xxxx, legal counsel to the Company, substantially in
the form of Exhibit B-2 hereto.
(f) Noncompetition Agreements. Each of the Company Shareholders
shall have executed and delivered to Parent a Noncompetition Agreement in the
form of Exhibit C and such Noncompetition Agreements shall be in full force and
effect.
(g) No Material Adverse Changes. There shall not have occurred any
material adverse change in the business, assets (including intangible assets),
results of operations, liabilities (contingent or accrued) or financial
condition of the Company.
(h) Affiliate Agreement. Parent shall have received from each of
the Affiliates of the Company an executed Affiliate Agreement in the form of
Exhibit A hereto which shall be in full force and effect.
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(i) Closing Balance Sheet. Parent shall have received from the
Company a balance sheet, certified as to accuracy and correctness by the Company
Shareholders and the Company, of the Acquired Assets and Assumed Liabilities as
of the Closing Date. Such balance sheet shall indicate that current assets are
equal to or greater than total liabilities less accrued rent (as determined in
accordance with GAAP).
(j) Non Disclosure Agreement. Each person that will become an
employee of Sub upon consummation of the Acquisition shall have entered into
Parent's standard Employment, Proprietary Information and Non Disclosure
Agreement.
(k) Shareholder Approval. This Agreement and the Acquisition shall
have been approved and adopted by all of the shareholders of the Company by the
requisite vote under applicable law.
(l) Employment Agreements. Each of the Company Shareholders shall
have executed and delivered to Sub an Employment Agreement in the form of
Exhibit D hereto.
ARTICLE VIII
OTHER AGREEMENTS
8.1 Survival of Representations and Warranties. All of the Company's
and the Company Shareholders' representations and warranties in this Agreement
or in any instrument delivered pursuant to this Agreement (each as modified by
the Company Schedules) shall survive the Acquisition and continue until April
15, 1999; provided, however, that the representations and warranties and
covenants relating or pertaining to any Tax or Returns related to such Tax set
forth in Sections 1.2(b)(i), 1.3(c) and 3.8 hereof, shall survive until ninety
(90) days following the expiration of all applicable statutes of limitations, or
extensions thereof, governing each Tax or Returns related to such Tax. All of
the Parent's and Sub's representation and warranties contained herein or in any
instrument delivered pursuant to this Agreement shall terminate at the Closing
Date.
8.2 Setoff for Losses
(a) Indemnification. The Company and the Company Shareholders,
jointly and severally, agree to indemnify and hold Parent and its officers,
directors and affiliates harmless against all claims, losses, liabilities,
damages, deficiencies, costs and expenses, including reasonable attorneys' fees
and expenses of investigation (hereinafter individually a "Loss" and
collectively "Losses"), not covered by insurance (provided that Parent or Sub
actually receives the insurance proceeds), incurred by Parent, its officers,
directors, or affiliates (including the Sub) directly or indirectly as a result
of (i) any inaccuracy or breach of a representation or warranty of the Company
or the Company Shareholders contained in Article III herein, (ii) any failure by
the Company or Company Shareholder to perform or comply with any covenant
contained herein or (iii) any liability resulting from, or any failure of the
Company to pay, any liability that is not an Assumed Liability. As partial
security for
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the indemnity provided in this Section 8.2 hereof, the Company
shall have the right to set off amounts from the Guaranteed Payments in the
manner provided in Section 8.2(c). In addition to setting off amounts from the
Guaranteed Payments, Parent may, at its discretion, seek indemnification for
Losses directly from the Company and the Company Shareholders in the manner and
to the extent provided in Section 8.2(b), (d) and (e) and subject to (g).
Nothing herein shall limit the liability of the Parent, the Company or the
Company Shareholders for any breach of any representation, warranty or covenant
if the Acquisition does not close. Notwithstanding the foregoing, there shall be
no right to indemnification or right to in pursuant to this Article VIII unless
and until Officer's Certificates (defined below) identifying Losses, the
aggregate of which exceeds $75,000, have been delivered to the Company and the
Company Shareholders.
(b) Delivery of Officer's Certificate.
(i) In the event Parent shall have incurred any Losses for
which indemnification pursuant to this Article VIII is sought, Parent shall
deliver to each of the Company and the Company Shareholders a certificate signed
by any officer of Parent (an "Officer's Certificate"): (A) stating that Parent
has paid or properly accrued or reasonably anticipates that it will have to pay
or accrue Losses, (B) specifying in reasonable detail the individual items of
Losses included in the amount so stated, the date each such item was paid or
properly accrued, or the basis for such anticipated liability, and the nature of
the misrepresentation, breach of warranty or covenant to which such item is
related and (C) indicating whether Parent is seeking to set off such Losses
against Guaranteed Payments or is seeking indemnification directly from the
Company Shareholders, or both.
(c) Set Off From Guaranteed Amounts. In the event that Parent has
elected a set off of Guaranteed Amounts, upon delivery of such Officer's
Certificate to the Company and the Company Shareholders, the number of shares of
Parent Common Stock otherwise issuable to the Company on the next Guaranteed
Payment Date after the date of the Officer's Certificate pursuant to Section 1.4
hereof shall be reduced by a number of shares with a value equal to 1/3 of the
amount of the Losses incurred by Parent, and the amount of cash otherwise
payable to the Company pursuant to Section 1.4 hereof shall be reduced by an
amount equal to 2/3 of the amount of the Losses set forth in such Officer's
Certificate. To the extent that the value of the Guaranteed Payments otherwise
due on any Guaranteed Payment Date is less than the amount of the unreimbursed
Losses incurred prior to such Guaranteed Payment Date, the Guaranteed Payments
otherwise payable on next Guaranteed Payment Date thereafter shall be
appropriately reduced.
(i) For the purposes of determining the number of shares of
Parent Common Stock by which Guaranteed Payments are to be reduced pursuant to
Section 8.2(c)(i) hereof, the shares of Parent Common Stock shall be valued at
the price at which the shares delivered in the Guaranteed Payment Amounts are
valued in Section 1.4 hereof (i.e., the Closing Price on the particular
determination date listed in the chart on Section 1.4(b)).
(d) Actions Against Company Shareholders. In the event that Parent
has elected to pursue indemnity directly from the Company and the Company
Shareholders, the Company
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Shareholders shall promptly, and in no event later than 30 days after delivery
of the Officer's Certificate, wire transfer to Parent the amount of such Loss,
unless the Company or the Company Shareholders, as the case may be, contest such
claim by following the procedures set forth in Section 8.2(e).
(e) Resolution of Conflicts; Arbitration.
(i) In case either the Company or Company Shareholder shall
object in writing to any claim or claims made in any Officer's Certificate
within thirty (30) days after delivery of such Certificate, the Company
Shareholders and Parent shall attempt in good faith to agree upon the rights of
the respective parties with respect to each of such claims. If the Company
Shareholders and Parent should so agree, a memorandum setting forth such
agreement shall be prepared and signed by both parties.
(ii) If no such agreement can be reached after good faith
negotiation, either Parent or the Company Shareholders may demand arbitration of
the matter unless the amount of the damage or loss is at issue in pending
litigation with a third party, in which event arbitration shall not be commenced
until such amount is ascertained or both parties agree to arbitration; and in
either such event the matter shall be settled by arbitration conducted by one
arbitrator mutually agreeable to Parent and the Company Shareholders. In the
event that within 30 days after submission of any dispute to arbitrators Parent
and the Company Shareholders cannot mutually agree on an arbitrator, Parent and
the Company Shareholders shall each select one arbitrator, and the two
arbitrators so selected shall select a third arbitrator. The arbitrator or
arbitrators shall set a limited time period and establish procedures designed to
reduce the cost and time for discovery while allowing the parties an
opportunity, adequate in the sole judgement of the arbitrator or a majority of
the three arbitrators, as the case may be, to discover relevant information from
the opposing parties about the subject matter of the dispute. The arbitrator or
a majority of the three arbitrators, as the case may be, shall rule upon motions
to compel or limit discovery and shall have the authority to impose sanctions,
including attorneys' fees and costs, to the same extent as a court of competent
law or equity, should the arbitrator or a majority of the three arbitrators, as
the case may be, determine that discovery was sought without substantial
justification or that discovery was refused or objected to without substantial
justification. The decision of the arbitrator or a majority of the three
arbitrators, as to the validity and amount of any claim in such Officer's
Certificate shall be binding and conclusive upon the parties to this Agreement.
Such decision shall be written and shall be supported by written findings of
fact and conclusions which shall set forth the award, judgment, decree or order
awarded by the arbitrator(s). The arbitrator(s) shall have the authority to
award Parent more than that requested in the Officer's Certificate. Within 30
days of any entry of a decision of the arbitrator(s) requiring payment of any
Guaranteed Payments withheld pursuant to Sections 8.1 and 8.2, Parent shall
distribute such Guaranteed Payments, together with the interest thereon accrued
at the Prime Rate (as determined by Citibank, N.A.) from the date on which such
Guaranteed Payments were otherwise payable. In the event that Parent withholds
under Section 8.2(c) an amount in excess of 10% greater than the amount which
the arbitrator(s) determines Parent was permitted to withhold, Parent shall
reimburse the Company Shareholders for actual attorneys fees and costs in
connection with such arbitration. Within 30 days of a decision of an
arbitrator(s) requiring payment by the
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Company or the Company Shareholders, the Company or the Company Shareholders
shall make the payment to Parent.
(iii) Judgment upon any award rendered by the arbitrator(s) may
be entered in any court having jurisdiction. Any such arbitration shall be held
in New York City under the rules then in effect of the American Arbitration
Association. The arbitrator(s) shall determine how all expenses of and fees of
the arbitrator(s) and the administrative fees of the American Arbitration
Association shall be paid.
(f) Third-Party Claims. In the event Parent becomes aware of a
third-party claim which Parent believes may result in Losses, Parent shall
notify the Company Shareholders of such claim, and the Company Shareholders
shall be entitled, at their expense, to participate in the defense of such
claim. Parent shall have the right in its sole discretion to settle any such
claim; provided, however, that except with the consent of the Company
Shareholders, no settlement of any such claim with third-party claimants shall
be determinative of the amount of any claim for indemnification pursuant to
Sections 8.1 and 8.2. In the event that the Company Shareholders have consented
to any such settlement, the Company Shareholders shall have no power or
authority to object under any provision of Sections 8.1 and 8.2 to the amount of
any reduction by Parent of the Guaranteed Payments in accordance with such
settlement.
(g) Maximum Payments. Except in the event of any breaches of the
representations and warranties of the Company and the Company Shareholders
contained in this Agreement as a result of intentionally false statements with
the intent of deceiving Parent and/or Sub, the maximum amount of indemnification
that Parent may obtain from the Company and the Company Shareholders for any
Losses related to breaches or inaccuracies of representations and warranties
contained in this Agreement shall be $3,500,000.
8.3 Indemnification by Parent and Sub of the Company.
(a) Indemnity. Sub and Parent agree to indemnify and hold the
Company and its officers, directors and affiliates and the Company Shareholders
harmless against all Losses incurred by such indemnified parties resulting from
or attributable an Assumed Liability. As used in this subparagraph 8.3(a),
"Losses" shall only exclude losses or damages covered by insurance only to the
extent that the Company and/or the Company Shareholders receive the proceeds of
such insurance. Notwithstanding the foregoing, the Company and its officers,
directors and affiliates shall not be entitled to indemnification with respect
to any Loss to the extent attributable to an Excluded Liability.
(b) Procedures for Asserting Claims. Upon obtaining knowledge of
the institution of any action, suit, proceeding or other event which would give
rise to a claim of indemnity pursuant to Section 8.3(a), the Company shall
notify Parent and Sub of such claim. The Company shall have the right in its
sole discretion to settle any such claim; provided, however, that except with
the consent of Parent and Sub, no settlement of any such claim shall be
determinative of the amount of any claim for indemnification pursuant to this
Section 8.3. In the event that Parent and Sub have
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consented to any such settlement, neither the Company nor the Company
Shareholders shall have power or authority to object under any provision of this
Section 8.3 to the amount of any settlement.
ARTICLE IX
TERMINATION, AMENDMENT AND WAIVER
9.1 Termination. Except as provided in Section 9.2 below, this
Agreement may be terminated and the Acquisition abandoned at any time prior
to the Closing Date:
(a) by mutual consent of the Company and Parent;
(b) by Parent or the Company if: (i) the Closing has not occurred
by December 2, 1996; provided, however, if Parent has not received a California
Permit by November 30, 1996, such termination date shall be extended until
January 31, 1997 in order to allow Parent to register the Parent Common Stock
pursuant to the 1933 Act; (ii) there shall be a final nonappealable order of a
federal or state court in effect preventing consummation of the Acquisition; or
(iii) there shall be any statute, rule, regulation or order enacted, promulgated
or issued or deemed applicable to the Acquisition by any Governmental Entity
that would make consummation of the Acquisition illegal;
(c) by Parent if there shall be any action taken, or any statute,
rule, regulation or order enacted, promulgated or issued or deemed applicable to
the Acquisition by any Governmental Entity, which would: (i) prohibit Parent's
or Sub's ownership or operation of all or a portion of the business of the
Company or (ii) compel Parent or Sub to dispose of or hold separate all or a
portion of the business or assets of the Company or Parent as a result of the
Acquisition;
(d) by Parent if it is not in material breach of its obligations
under this Agreement and there has been a material breach of any representation,
warranty, covenant or agreement contained in this Agreement on the part of the
Company or the Company Shareholders and such breach has not been cured within
twenty (20) calendar days after written notice to the Company (provided that, no
cure period shall be required for a breach which by its nature cannot be cured);
(e) by the Company if neither it nor the Company Shareholders are
in material breach of their respective obligations under this Agreement and
there has been a material breach of any representation, warranty, covenant or
agreement contained in this Agreement on the part of Parent or Sub and such
breach has not been cured within twenty (20) calendar days after written notice
to Parent (provided that, no cure period shall be required for a breach which by
its nature cannot be cured).
Where action is taken to terminate this Agreement pursuant to this
Section 9.1, it shall be sufficient for such action to be authorized by the
Board of Directors (as applicable) of the party taking such action.
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9.2 Effect of Termination. In the event of termination of this
Agreement as provided in Section 9.1, this Agreement shall forthwith become void
and there shall be no liability or obligation on the part of Parent, Sub or the
Company, or their respective officers, directors or shareholders, provided that
each party shall remain liable for any breaches of this Agreement prior to its
termination; provided further that, the provisions of Sections 6.3, 6.4, 6.5 and
Article X of this Agreement shall remain in full force and effect and survive
any termination of this Agreement.
9.3 Amendment. Except as is otherwise required by applicable law after
the shareholders of the Company approve this Agreement, this Agreement may be
amended by the parties hereto at any time by execution of an instrument in
writing signed on behalf of each of the parties hereto.
9.4 Extension; Waiver. At any time prior to the Closing Date, Parent
and Sub, on the one hand, and the Company, on the other, may, to the extent
legally allowed, (i) extend the time for the performance of any of the
obligations of the other party hereto, (ii) waive any inaccuracies in the
representations and warranties made to such party contained herein or in any
document delivered pursuant hereto, and (iii) waive compliance with any of the
agreements or conditions for the benefit of such party contained herein. Any
agreement on the part of a party hereto to any such extension or waiver shall be
valid only if set forth in an instrument in writing signed on behalf of such
party.
ARTICLE X
GENERAL PROVISIONS
10.1 Notices. All notices and other communications hereunder shall be
in writing and shall be deemed given if delivered personally or by commercial
messenger or courier service, or mailed by registered or certified mail (return
receipt requested) or sent via facsimile (with acknowledgment of complete
transmission) to the parties at the following addresses (or at such other
address for a party as shall be specified by like notice):
(a) if to Parent or Sub, to:
CKS Group, Inc.
00000 Xxxxxxx Xxxxx
Xxxxxxxxx, Xxxxxxxxxx 00000
Attention: Xxxx X. Xxxxxx
Telephone No.: (000) 000-0000
Facsimile No: (000) 000-0000
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with a copy to:
Wilson, Sonsini, Xxxxxxxx & Xxxxxx
Professional Corporation
000 Xxxx Xxxx Xxxx
Xxxx Xxxx, Xxxxxxxxxx 00000
Attention: Xxxxxx X. Xxxxxxxx, Esq.
Telephone No.: (000) 000-0000
Facsimile No.: (000) 000-0000
(b) if to the Company, to:
Xxxxxxx & Green
00 Xxxxx Xxxxxx
Xxx Xxxx, XX 00000
Telephone No.: (000) 000-0000
Facsimile No.: (000) 000-0000
Attention: Xxxxxx Xxxxx and Xxxxxxx Xxxxxxx
with a copy to:
Xxxxxx Xxxxx and Xxxxxxx Xxxxxxx
000 Xxxx 00xx Xxxxxx
Xxx Xxxx, XX 00000
with a copy to:
Frankfurt, Xxxxxx, Xxxxx & Selz
000 Xxxxxxx Xxxxxx
Xxx Xxxx, XX 00000
Telephone No: (000) 000-0000
Facsimile No.: (000) 000-0000
Attention: Xxxxxx X. Xxxx
10.2 Interpretation. The words "include," "includes" and "including"
when used herein shall be deemed in each case to be followed by the words
"without limitation." The table of contents and headings contained in this
Agreement are for reference purposes only and shall not affect in any way the
meaning or interpretation of this Agreement.
10.3 Counterparts. This Agreement may be executed in one or more
counterparts, all of which shall be considered one and the same agreement
and shall become effective when one or more counterparts have been signed by
each of the parties and delivered to the other party, it being understood that
all parties need not sign the same counterpart.
10.4 Entire Agreement; Assignment. This Agreement, the schedules, the
Company Schedules and Exhibits hereto, and the documents and instruments and
other agreements among the
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parties hereto referenced herein: (a) constitute the entire agreement among the
parties with respect to the subject matter hereof and supersede all prior
agreements and understandings, both written and oral, among the parties with
respect to the subject matter hereof; (b) are not intended to confer upon any
other person any rights or remedies hereunder; and (c) shall not be assigned by
operation of law or otherwise except as otherwise specifically provided, except
that Parent and Sub may assign their respective rights and delegate their
respective obligations hereunder to their respective affiliates but no such
assignment shall relieve the Parent or Sub from any of their obligations
hereunder.
10.5 Severability. In the event that any provision of this
Agreement or the application thereof, becomes or is declared by a court of
competent jurisdiction to be illegal, void or unenforce able, the remainder of
this Agreement will continue in full force and effect and the application of
such provision to other persons or circumstances will be interpreted so as
reasonably to effect the intent of the parties hereto. The parties further agree
to replace such void or unenforceable provision of this Agreement with a valid
and enforceable provision that will achieve, to the extent possible, the
economic, business and other purposes of such void or unenforceable provision
provided that Parent and Sub shall remain liable for their obligations
hereunder.
10.6 Other Remedies. Except as otherwise provided herein, any and all
remedies herein expressly conferred upon a party will be deemed cumulative
with and not exclusive of any other remedy conferred hereby, or by law or
equity upon such party, and the exercise by a party of any one remedy will not
preclude the exercise of any other remedy.
10.7 Governing Law. This Agreement shall be governed by and construed
in accordance with the laws of the State of New York, regardless of the laws
that might otherwise govern under applicable principles of conflicts of laws
thereof. Each of the parties hereto irrevocably consents to the exclusive
jurisdiction and venue of any court within New York County, in connection with
any matter based upon or arising out of this Agreement or the matters
contemplated herein, agrees that process may be served upon them in any manner
authorized by the laws of the State of New York for such persons and waives and
covenants not to assert or plead any objection which they might otherwise have
to such jurisdiction, venue and such process.
10.8 Rules of Construction. The parties hereto agree that they have
been represented by counsel during the negotiation and execution of this
Agreement and, therefore, waive the application of any law, regulation, holding
or rule of construction providing that ambiguities in an agreement or other
document will be construed against the party drafting such agreement or
document.
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IN WITNESS WHEREOF, Parent, Sub, the Company and the Company
Shareholders have caused this Agreement to be signed by their duly authorized
respective officers, all as of the date first written above.
XXXXXXX & GREEN, INC. CKS GROUP, INC.
By: /s/ XXXXXX XXXXX By: /s/ XXXX X. XXXXXX
----------------------------- -----------------------------
Xxxxxx Xxxxx Xxxx X. Xxxxxx, President and
President Executive Officer
COMPANY SHAREHOLDERS DG ACQUISITION, INC.
/s/ XXXXXXX XXXXXXX By: /s/ XXXX X. XXXXXX
--------------------------------- ------------------------------
Xxxxxxx Xxxxxxx Xxxx X. Xxxxxx, President
/s/ XXXXXX XXXXX
---------------------------------
Xxxxxx Xxxxx
***REORGANIZATION AGREEMENT***
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