1
EXHIBIT 2.1
AGREEMENT AND PLAN OF MERGER
BY AND AMONG
INTERVISUAL BOOKS, INC.,
FFM ACQUISITION CORP.,
FAST FORWARD MARKETING, INC.,
XXXXXX X. XXXX
AND
XXXXXX X. XXXX AND XXXXXX XXXXX
AS TRUSTEES OF THE XXXXX
REVOCABLE FAMILY TRUST
DATED AS OF MARCH 29, 1999
2
TABLE OF CONTENTS
Page
----
ARTICLE I THE MERGER ............................................... 2
1.1 The Merger ............................................... 2
1.2 Effective Time ........................................... 2
1.3 Effect of the Merger ..................................... 4
1.4 Certificate of Incorporation; Bylaws ..................... 4
1.5 Directors and Officers ................................... 4
1.6 Conversion of Shares; Effect on Capital Stock ............ 4
1.7 Payments ................................................. 5
1.8 Surrender of Certificates ................................ 7
1.9 No Further Ownership Rights in Company Common Stock ...... 7
1.10 Tax and Accounting Consequences .......................... 8
1.11 Taking of Necessary Action; Further Action ............... 8
1.12 Satisfaction of Compensation Plan Arrangements ........... 8
ARTICLE II REPRESENTATIONS AND WARRANTIES OF THE COMPANY, ADES AND
SHAREHOLDER .............................................. 10
2.1 Organization of the Company .............................. 11
2.2 Company Capital Structure ................................ 11
2.3 Subsidiaries ............................................. 11
2.4 Authority ................................................ 11
2.5 Company Financial Statements ............................. 12
2.6 No Undisclosed Liabilities ............................... 13
2.7 No Changes ............................................... 13
2.8 Tax and Other Returns and Reports ........................ 15
2.9 Restrictions on Business Activities ...................... 17
2.10 Title to Properties; Absence of Liens and Encumbrances ... 17
2.11 Intellectual Property .................................... 18
2.12 Agreements, Contracts and Commitments .................... 19
2.13 Interested Party Transactions ............................ 21
2.14 Compliance with Laws ..................................... 21
2.15 Litigation ............................................... 21
2.16 Insurance ................................................ 21
2.17 Minute Books ............................................. 21
2.18 Environmental Matters .................................... 22
2.19 Brokers'and Finders'Fees: Third Party Expenses ........... 23
-i-
3
Page
----
2.20 Employee Matters and Benefit Plans ....................... 23
2.21 Customers and Supplies ................................... 24
2.22 Investment Representations ............................... 25
2.23 Representations Complete ................................. 25
ARTICLE III REPRESENTATIONS AND WARRANTIES OF PARENT AND MERGER SUB .. 25
3.1 Organization, Standing and Power ......................... 25
3.2 Parent Capital Structure ................................. 26
3.3 Authority ................................................ 26
3.4 Litigation ............................................... 26
3.5 Parent SEC Documents ..................................... 27
3.6 Breaches of Material Contracts ........................... 27
3.7 Compliance of Laws ....................................... 27
3.8 Insurance ................................................ 27
ARTICLE IV CONDUCT PRIOR TO THE EFFECTIVE TIME ...................... 27
4.1 Conduct of Business of the Company ....................... 27
4.2 No Solicitation .......................................... 29
4.3 Conduct of Business of Parent ............................ 30
ARTICLE V ADDITIONAL AGREEMENTS .................................... 30
5.1 Access to Information .................................... 30
5.2 Expenses ................................................. 31
5.3 Public Disclosure ........................................ 31
5.4 Consents ................................................. 31
5.5 Preparation of Proxy Statement ........................... 31
5.6 Reasonable Efforts ....................................... 32
5.7 Notification of Certain Matters .......................... 32
5.8 Employment Matters ....................................... 32
5.9 Restricted Stock Agreement ............................... 32
5.10 Board Nominees ........................................... 32
5.11 Additional Documents and Further Assurances .............. 33
5.12 Assistance With Auditors ................................. 33
5.13 Modification Agreements .................................. 33
5.14 Parent's 401(k) Plan ..................................... 33
-ii-
4
Page
----
ARTICLE VI CONDITIONS TO THE MERGER ................................. 33
6.1 Conditions to Obligations of Each Party to Effect
the Merger ............................................... 33
6.2 Additional Conditions to Obligations of the Company ...... 34
6.3 Additional Conditions to the Obligations of Parent
and Merger Sub ........................................... 35
ARTICLE VII INDEMNIFICATION AND ESCROW ............................... 36
7.1 Indemnification .......................................... 36
7.2 Cooperation; Insurance Proceeds .......................... 38
7.3 Threshold ................................................ 38
ARTICLE VIII TERMINATION, AMENDMENT AND WAIVER ........................ 38
8.1 Termination .............................................. 38
8.2 Effect of Termination .................................... 39
8.3 Amendment ................................................ 39
8.4 Extension; Waiver ........................................ 40
ARTICLE IX COVENANT NOT TO COMPETE .................................. 40
9.1 General Covenant ......................................... 40
9.2 Confidentiality .......................................... 40
9.3 Agreement Not to Solicit ................................. 41
9.4 Consideration; Reasonable Scope .......................... 41
ARTICLE X GENERAL PROVISIONS ....................................... 41
10.1 Survival of Representations, Warranties and Agreements ... 41
10.2 Notices .................................................. 42
10.3 Interpretation ........................................... 43
10.4 Counterparts ............................................. 43
10.5 Entire Agreement: Assignment ............................. 43
10.6 Severability ............................................. 43
10.7 Other Remedies ........................................... 43
10.8 Governing Law ............................................ 44
10.9 Rules of Construction .................................... 44
-iii-
5
EXHIBITS
Exhibit A Agreement of Merger
Exhibit B Ades Employment Agreement
Exhibit C Ades Option Agreement
Exhibit X Xxxxxx Employment Agreement
Exhibit E Xxxxxx Option Agreement
Exhibit F Xxxxxxx Employment Agreement
Exhibit G Xxxxxxx Option Agreement
Exhibit H Restricted Stock Agreement
Exhibit I Opinion of Paul, Hastings, Xxxxxxxx & Xxxxxx LLP
Exhibit J Voting Agreement
Exhibit K Opinion of Tyre Kamins Xxxx & Xxxxxx
SCHEDULES
Schedule 2.4 Authority
Schedule 2.5 Company Financial Statements
Schedule 2.6 No Undisclosed Liabilities
Schedule 2.7 No Changes
Schedule 2.10(a) Real Property Lease
Schedule 2.10(b) Title to Property
Schedule 2.11 Intellectual Property
Schedule 2.12 Agreements, Contracts and Commitments
Schedule 2.13 Interested Party Transactions
Schedule 2.15 Litigation
Schedule 2.16 Insurance
Schedule 2.19 Brokers' and Finders' Fees; Third Party Expenses
Schedule 2.20 Employee Matters and Benefit Plans
Schedule 2.21 Customers and Supplies
Schedule 3.3 Authority
Schedule 3.4 Parent Litigation
Schedule 3.6 Breaches of Material Contracts
Schedule 6.3(c) Third Party Consents
-iv-
6
AGREEMENT AND PLAN OF MERGER
This AGREEMENT AND PLAN OF MERGER (this "Agreement") is made and entered
into as of March 29, 1999 among Intervisual Books, Inc., a California
corporation ("Parent"), FFM Acquisition Corp., a California corporation and a
wholly-owned subsidiary of Parent ("Merger Sub"), Fast Forward Marketing, Inc.,
a California corporation (the "Company"), Xxxxxx X. Xxxx, the President of the
Company ("Ades"), and Xxxxxx X. Xxxx and Xxxxxx Xxxxx, trustees of the Xxxxx
Revocable Family Trust UTD April 18, 1991 (the "Trust" or the "Shareholder").
RECITALS
A. The Boards of Directors of each of the Company, Parent and Merger
Sub believe it is in the best interests of each company and their respective
shareholders that Parent acquire the Company through the statutory merger of the
Company with and into Merger Sub (the "Merger") and, in furtherance thereof,
have approved the Merger.
B. Pursuant to the Merger, among other things, and subject to the
terms and conditions of this Agreement, all of the issued and outstanding shares
of common stock of the Company ("Company Common Stock") shall be converted into
the right to receive shares of voting common stock, no par value, of Parent
("Parent Common Stock") and certain payments and rights as provided for herein.
C. The Company has granted to Xxxxxx Xxxxxx ("Xxxxxx"), Xxxxxx
Xxxxxxx ("Xxxxxxx"), Xxxxxx Xxxxxxxxxx ("Xxxxxxxxxx") and Xxxxxxx Xxxxxx
("Abella") certain rights under the Company's Incentive Compensation Plan dated
February 26, 1993 (the "Compensation Plan"). Selsky, Wallace, Xxxxxxxxxx and
Abella are collectively referred to herein as the "FFM Employees" and their
rights under the Compensation Plan and related participation agreements, as
modified, are referred to herein as the "Compensation Plan Arrangements." The
Company has provided for the satisfaction in full of the Compensation Plan
Arrangements as provided for in Section 1.12 of this Agreement.
NOW, THEREFORE, in consideration of the covenants, promises and
representations set forth herein, and for other good and valuable consideration,
intending to be legally bound hereby the parties agree as follows:
7
ARTICLE I
THE MERGER
1.1 The Merger. At the Effective Time (as defined in Section 1.2) and
subject to and upon the terms and conditions of this Agreement and the
applicable provisions of the California General Corporation Law ("California
Law"), the Company shall be merged with and into Merger Sub, the separate
corporate existence of the Company shall cease, and Merger Sub shall continue as
the surviving corporation and as a wholly-owned subsidiary of Parent. Merger Sub
as the surviving corporation after the Merger is hereinafter sometimes referred
to as the "Surviving Corporation."
1.2 Effective Time. Unless this Agreement is earlier terminated
pursuant to Section 8.1, the closing of the Merger (the "Closing") will take
place as promptly as practicable, but no later than April 30, 1999, following
satisfaction or waiver of the conditions set forth in Article VI, at the offices
of the Parent, unless another place or time is agreed to by Parent and the
Company. Notwithstanding the foregoing, in the event a material controversy
should arise or approval by Parent's shareholders of this Agreement, the Merger
and the transactions contemplated hereby is required by The Nasdaq Stock Market
("Nasdaq") or otherwise, Parent shall have the unilateral right to postpone the
date of the Closing until such controversy is resolved or such approval is
obtained, but in no event to a date later than August 31, 1999. The date upon
which the Closing actually occurs is herein referred to as the "Closing Date."
On the Closing Date, the parties hereto shall cause the Merger to be consummated
by executing and filing an Agreement of Merger substantially in the form of
Exhibit A hereto (the "Merger Agreement"), together with such officers'
certificates certifying approval of the Merger Agreement as required by
California law, with the Secretary of State of the State of California, in
accordance with the relevant provisions of applicable law (the time of
confirmation by the Secretary of State of California of such filing and the
effectiveness of the Merger being referred to herein as the "Effective Time").
(a) Deliveries by Parent.
At the Closing, the Parent shall deliver to the Company
and the Shareholder:
(1) The Merger Agreement duly executed by Parent and
Merger Sub with the required officers' certificate;
(2) The Employment Agreement in the form of Exhibit B
attached hereto (the "Ades Employment Agreement") executed by Parent;
-2-
8
(3) The Nonstatutory Stock Option Agreement in the form
of Exhibit C attached hereto (the "Ades Option Agreement") executed by Parent;
(4) The Employment Agreement in the form of Exhibit D
attached hereto (the "Xxxxxx Employment Agreement") executed by Parent;
(5) The Nonstatutory Stock Option Agreement in the form
of Exhibit E attached hereto (the "Xxxxxx Option Agreement") executed by Parent;
(6) The Employment Agreement in the form of Exhibit F
attached hereto (the "Xxxxxxx Employment Agreement") executed by Parent;
(7) The Nonstatutory Stock Option Agreement in the form
of Exhibit G attached hereto (the "Xxxxxxx Option Agreement") executed by
Parent;
(8) The Restricted Stock Agreement in the form of
Exhibit H attached hereto (the "Restricted Stock Agreement") executed by Parent;
(9) The opinion of Paul, Hastings, Xxxxxxxx & Xxxxxx,
LLP ("PHJW"), counsel to Parent in the form of Exhibit I attached hereto; and
(10) The letter concerning the voting for certain
director nominees in the form of Exhibit J attached hereto (the "Voting
Agreement") executed by The Xxxx Family Trust.
(b) Deliveries by the Company, Ades and Shareholder.
At the Closing, the Company, Ades and Shareholder shall
deliver to Parent:
(1) The Merger Agreement duly executed by the Company
with the required officer's certificate;
(2) The Ades Employment Agreement executed by Ades;
(3) The Ades Option Agreement executed by Ades;
(4) The Xxxxxx Employment Agreement executed by Xxxxxx;
(5) The Xxxxxx Option Agreement executed by Xxxxxx;
-3-
9
(6) The Xxxxxxx Employment Agreement executed by
Xxxxxxx;
(7) The Xxxxxxx Option Agreement executed by Xxxxxxx;
(8) The Restricted Stock Agreement duly executed by the
Trust, the FFM Employees and the spouses of FFM Employees;
(9) The legal opinion of Tyre Kamins Xxxx & Xxxxxx,
counsel to the Company and Shareholder in the form of Exhibit K attached hereto;
and
(10) The Voting Agreement duly executed by the Trust and
Ades.
1.3 Effect of the Merger. At the Effective Time, the effect of the
Merger shall be as provided in the applicable provisions of California Law.
Without limiting the generality of the foregoing, and subject thereto, at the
Effective Time, all the property, rights, privileges, powers and franchises of
the Company and Merger Sub shall vest in the Surviving Corporation, and all
debts, liabilities and duties of the Company and Merger Sub shall become the
debts, liabilities and duties of the Surviving Corporation.
1.4 Certificate of Incorporation; Bylaws.
(a) Unless otherwise determined by Parent prior to the
Effective Time, at the Effective Time, the Articles of Incorporation of Merger
Sub, as in effect immediately prior to the Effective Time, shall be the Articles
of Incorporation of the Surviving Corporation until thereafter amended as
provided by law and such Articles of Incorporation; provided, however, that
Article I of the Articles of Incorporation of the Surviving Corporation shall be
amended to read as follows: "The name of the corporation is Fast Forward
Marketing, Inc."
(b) Unless otherwise determined by Parent, the Bylaws of
Merger Sub, as in effect immediately prior to the Effective Time, shall be the
Bylaws of the Surviving Corporation until thereafter amended.
1.5 Directors and Officers. The director(s) of Merger Sub immediately
prior to the Effective Time shall be the initial director(s) of the Surviving
Corporation, each to hold office in accordance with the Articles of
Incorporation and Bylaws of the Surviving Corporation. The officers of Merger
Sub immediately prior to the Effective Time shall be the initial officers of the
Surviving Corporation, each to hold office in accordance with the Bylaws of the
Surviving Corporation.
-4-
10
1.6 Conversion of Shares; Effect on Capital Stock.
(a) Conversion of Shares. At the Effective Time and by virtue
of the Merger, each share of the Company Common Stock issued and outstanding at
the Effective Time will be canceled and extinguished and will be converted
automatically into the right to receive (i) 670 shares of validly issued, fully
paid and nonassessable shares of Parent Common Stock less the number of shares
to be issued to the FFM Employees in satisfaction of the Compensation Plan
Arrangements in accordance with Section 1.12 below (as adjusted to be on a per
share of Company Common Stock basis), (ii) the Contingent Payment (as provided
for in Section 1.7(a) herein) and (iii) the Additional Payment (as provided for
in Section 1.7(b) below). The Contingent Payment and the Additional Payment are
referred to herein as the "Additional Cash Rights". The maximum number of shares
of Parent Common Stock to be issued in the Merger and in satisfaction of the
Compensation Plan Arrangements in Section 1.12 below shall be 670,000 shares.
The shares of Parent Common Stock to be issued in connection with the Merger and
in satisfaction of the Compensation Plan Arrangements will not be registered
under the Securities Act of 1933 (the "Securities Act") and will be subject to
the legend required by the Restricted Stock Agreement and the following legend:
"THE SECURITIES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
"ACT"), AND MAY NOT BE SOLD, TRANSFERRED, ASSIGNED OR
HYPOTHECATED UNLESS THERE IS AN EFFECTIVE REGISTRATION STATEMENT
UNDER THE ACT COVERING SUCH SECURITIES OR THE COMPANY RECEIVES AN
OPINION OF COUNSEL FOR THE HOLDER OF THESE SECURITIES REASONABLY
SATISFACTORY TO THE COMPANY, STATING THAT SUCH SALE, TRANSFER,
ASSIGNMENT OR HYPOTHECATION IS EXEMPT FROM THE REGISTRATION AND
PROSPECTUS DELIVERY REQUIREMENTS OF THE ACT."
(b) Fractional Shares. No fractional shares of Parent Common
Stock will be issued in the Merger and, in lieu thereof, Parent shall arrange to
pay in cash the fair market value of a fraction of a share of Parent Common
Stock.
1.7 Payments.
-5-
11
(a) Contingent Payment. Subject to the terms and conditions
contained in this Agreement, the maximum amount of all "Contingent Payments"
payable by Parent shall be $200,000, of which $172,280 (86.14%) shall be payable
on account of the Company Common Stock by virtue of the Merger and $27,720
(13.86%) shall be payable to the FFM Employees in satisfaction of the
Compensation Plan Arrangements. As provided for in this Section 1.7(a), Parent's
obligation to pay any of the Contingent Payments shall be contingent upon
Surviving Corporation meeting both of the following two criteria: (i) Surviving
Corporation shall have sales of "FFM Product" (as defined below) with a Gross
Margin of 14 percent or more (the "Minimum Gross Margin Requirement") for the
twelve (12) period ending December 31, 1999 (the "Applicable Period") and (ii)
Surviving Corporation shall have generated at least $1,998,500 of Gross Margins
from sales of FFM Product for the Applicable Period (which amount is equal to
70% of $2,855,000 ($2,855,000 is defined herein as the ("Gross Margin Level")).
Failure to meet either criterion shall result in the loss of any rights to
receive any portion of the Contingent Payment.
(i) Assuming that the Minimum Gross Margin Requirement
for Surviving Corporation is met for Applicable Period, then payment of the
Contingent Payment shall depend upon the Surviving Corporation having a
sufficient amount of Gross Margins so as to meet 70% or more of the Gross Margin
Level as follows:
a. If Surviving Corporation has Gross Margins
equal to 90% or more of the Gross Margin Level and the Minimum Gross Margin
Requirement is met for the Applicable Period, the entire amount of the
Contingent Payment shall be payable by Parent. For example, if Gross Margins of
Surviving Corporation are $2,569,500 (which equals 95% of the Gross Margin
Level), then the entire amount of the Contingent Payment shall be payable by
Parent;
b. If Surviving Corporation has Gross Margins
of greater than 70% and less than 90% of the Gross Margin Level and the Minimum
Gross Margin Requirement is met for the Applicable Period, then the amount of
the Contingent Payment payable by Parent shall be calculated as follows: (i)
take the percentage of Gross Margin Level obtained and subtract 70 from that
number; (ii) take the result of (i) and divide by 20; and (iii) take the result
of (ii) which shall be expressed as a decimal and multiply by the aggregate
amount of the Contingent Payments. For example, if Gross Margins are $2,141,250
(which is 75% of the Gross Margin Level), then .25 of the Contingent Payment
($50,000) shall be payable [75 - 70 = 5; 5 divided by 20 = .25; .25 x $200,000 =
$50,000]. For a second example, if Gross Margins are $2,284,000 (which is 80% of
the Gross Margin Level), then .50 of the Contingent Payment ($100,000) shall be
payable [80 - 70 = 10; 10 divided by 20 = .50; .50 x $200,000 = $100,000]; and
-6-
12
c. If Surviving Corporation has Gross Margins
which are less than 70% of the the Gross Margin Level even though the Minimum
Gross Margin Requirement is met for the Applicable Period, then no portion of
the Contingent Payment shall be payable by Parent. For example, if Gross Margins
of Surviving Corporation are $1,855,750 (which equals 65% of the Gross Margin
Level), then no Contingent Payment shall be payable.
(ii) For purposes of determining Surviving Corporation's
Gross Margins, the calculations and determinations made by Parent's independent
accounting firm shall be binding on the parties hereto. Gross Margins shall be
calculated as net sales less cost of goods sold (including but not limited to
purchases, warehouse, handling, royalties and other miscellaneous costs).
(iii) The term "FFM Product" shall mean sales by
Surviving Corporation of goods and products other than those goods and products
produced by Parent or White Heat Ltd.
(iv) In the event any Contingent Payment is payable by
Parent after the calculations above, then such Contingent Payment shall be paid
by Parent on or before May 1, 2000.
(b) Additional Payments. At the Effective Time and by virtue
of the Merger, each share of Company Common Stock issued and outstanding on the
Effective Time shall be converted into the right to receive the result of $150
per share, less the amount of Compensation Tax Withholdings required to be
withheld by Parent and Surviving Corporation in accordance with Section 1.12
below (the "Additional Payment"). The Additional Payment , plus interest thereon
calculated at the rate of six percent (6%) from the Closing Date until paid,
shall be payable by Parent on or before May 1, 2001. The maximum amount of all
Additional Payments (including the amount of Compensation Tax Withholdings) to
be paid by Parent shall be $150,000.
(c) Nature of Rights. The parties acknowledge that the
Additional Cash Rights shall be uncertificated and unsecured obligations of
Parent. The Additional Cash Rights are not transferable or assignable without
the consent of Parent. The Additional Cash Rights shall be subject to
withholdings, reduction and offset as provided for in this Agreement.
1.8 Surrender of Certificates. At the Closing, Shareholder shall
deliver the certificate(s) representing all issued and outstanding shares of
Company Common Stock ("Certificates") for cancellation and conversion in
accordance with the terms of this Agreement. Upon surrender of the Certificates
for cancellation to Parent, at the Effective
-7-
13
Time Parent shall instruct its transfer agent to issue the shares of Parent
Common Stock as provided in Section 1.6(a) above, plus cash in lieu of
fractional shares in accordance with Section 1.6(b), and the Certificates so
surrendered shall be canceled. Until so surrendered, each outstanding
Certificate that, prior to the Effective Time, represented shares of Company
Common Stock will be deemed from and after the Effective Time, for all corporate
purposes, to evidence the ownership of shares of Parent Common Stock and the
Additional Cash Rights as provided for in this Agreement.
1.9 No Further Ownership Rights in Company Common Stock. All shares
of Parent Common Stock issued upon the surrender for exchange of shares of
Company Common Stock in accordance with the terms hereof (including any cash
paid in respect thereof) shall be deemed to have been issued in full
satisfaction of all rights pertaining to such shares of Company Common Stock,
and there shall be no further registration of transfers on the records of the
Surviving Corporation of shares of Company Common Stock which were outstanding
immediately prior to the Effective Time. If, after the Effective Time,
Certificates are presented to the Surviving Corporation for any reason, they
shall be canceled and exchanged as provided in this Article I.
1.10 Tax and Accounting Consequences. It is intended by the parties
hereto that the Merger shall constitute a reorganization within the meaning of
Section 368(a)(2)(D) of the Internal Revenue Code of 1986, as amended (the
"Code"). The satisfaction of the Compensation Plan Arrangements as provided for
in this Agreement shall result in a tax withholding obligation the parties
intend to satisfy in accordance with Section 1.12 below.
1.11 Taking of Necessary Action; Further Action. The parties agree to
take all such further actions as necessary to cause the Merger Agreement to be
accepted for filing by the Secretary of State of the State of California and
agree to make such reasonable revisions consistent with the intentions of the
parties in this Agreement which are as necessary. If, at any time after the
Effective Time, any such further action is necessary to carry out the purposes
of this Agreement and to vest the Surviving Corporation with full right, title
and possession to all assets, property, rights, privileges, powers and
franchises of the Company and Merger Sub, the officers and directors of the
Company and Merger Sub are fully authorized in the name of their respective
corporations or otherwise to take, and will take, all such lawful and necessary
action.
1.12 Satisfaction of Compensation Plan Arrangements. In order to
satisfy in full the obligations of the Company to the FFM Employees arising out
of the Compensation Plan Arrangements, the Company hereby irrevocably instructs
Parent to issue to the FFM Employees the shares of the Parent Common Stock and
their respective pro rata percentage interests in the Contingent Payments (if
any) as provided for in this Section 1.12. The FFM Employees shall have no
rights to any portion of the Additional Payments. Ades and
-8-
14
Shareholder hereby indemnify and agree to hold Parent harmless from and against
any claim or controversy arising from the FFM Employees in connection with the
settlement of their Compensation Plan Arrangements under this Section 1.12.
(a) Tax Withholdings. In order to satisfy the tax withholding
obligations which arise as a result of the satisfaction of the Compensation Plan
Arrangements under this Section 1.12, Parent and Surviving Corporation are
hereby authorized to withhold 40% of all consideration paid or payable to the
FFM Employees in accordance with this Section 1.12 (the "Compensation Tax
Withholdings"). The parties intend that Surviving Corporation and/or Parent
shall issue the FFM Employees a W-2 disclosing as compensation the fair market
value of all consideration they receive as a result of this Section 1.12 and
Surviving Corporation and Parent are directed to pay over to the appropriate
state and federal taxing authorities the amounts withheld.
(b) Contingent Payments. As a result of their respective
Compensation Plan Arrangements, the FFM Employees shall be entitled to receive
such employee's pro rata percentage of the Contingent Payment (to the extent
earned) (less the Compensation Tax Withholdings) as set forth below:
Pro Rata
Percentage of
Contingent
Individual Payments
---------- --------
Xxxxxx 9.56%
Xxxxxxx 2.58%
Xxxxxxxxxx .86%
Abella .86%
-----
13.86%
As a result of the payments to be made to the FFM Employees to satisfy the
Compensation Plan Arrangements, Shareholder acknowledges that Shareholder is
only entitled to 86.14% of any Contingent Payment earned.
(c) Modification Agreements. At least five business days prior
to the Closing, the Company shall enter into with each FFM Employee a
modification agreement (the "Modification Agreement") which shall have the
effect of (i) fixing the dollar value of
-9-
15
the amount of Parent Common Stock issuable to each FFM Employee, (ii) providing
that the FFM Employees shall have no rights to the Additional Payments, (iii)
setting forth the appropriate pro rata percentage of Contingent Payments to
which each FFM Employee is entitled to receive (which percentages shall equal
the percentages referenced in subparagraph (b) above), (iv) providing that
Parent and Surviving Corporation can withhold the Compensation Tax Withholdings
from the shares issuable and amounts payable to the FFM Employees, and (v) such
other terms as Parent and the Company shall agree. Such Modification Agreements
shall specifically state that Parent is entitled to rely upon such agreements.
The form and substance of the Modification Agreements shall be subject to
Parent's approval in its reasonable discretion. Also at least five business days
prior to the Closing, the Company shall present to Parent a spread sheet
detailing all payments and distributions to be made as a result of the
Modification Agreements, which spreadsheet shall be subject to Parent's approval
in its reasonable discretion.
(d) Net Number of Shares Issuable. To satisfy the Compensation
Plan Arrangements, the parties agree to:
1. Take the fixed dollar value of Parent Common Stock
established in the Modification Agreements
applicable to each FFM Employee and subtract from
such dollar value 40% as the required Compensation
Tax Withholding (the result of which is referred to
herein as the "Net Value").
2. The Net Value shall then be divided by the closing
bid price of the Parent Common Stock on The Nasdaq
Stock Market on the trading day which is prior to
the Closing Date (the "Market Value"), and the
resulting number of shares shall be issued to the
respective FFM Employee.
(e) Deduction of Tax Liability. To compensate Parent and
Surviving Corporation for paying the required tax withholding, the Company, Ades
and Shareholder authorize and instruct Parent to withhold all Compensation Tax
Withholdings from the Additional Payments and from any Contingent Payment which
might otherwise be earned. Ades, Shareholder and the Company agree that the
maximum amount of Compensation Tax Withholdings applicable to the shares of
Parent Common Stock issuable to the FFM Employees shall not exceed $100,000.
Ades and Shareholder agree to indemnify Parent for any Compensation Tax
Withholdings which exceed this amount.
-10-
16
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF THE
COMPANY, ADES AND SHAREHOLDER
The Company, Ades and Shareholder hereby jointly and severally represent
and warrant to Parent and Merger Sub, subject to such exceptions as are
disclosed in the disclosure letter supplied by the Company to Parent (the
"Company Schedules") and dated as of the date hereof, as follows:
2.1 Organization of the Company. The Company is a corporation duly
organized, validly existing and in good standing under the laws of the State of
California. 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 is in good standing as a foreign corporation in each
jurisdiction in which the failure to be so qualified would have, or would
reasonably be expected to have, a material adverse effect on the business,
assets (including intangible assets), financial condition, results of
operations, liabilities or prospects of the Company (hereinafter referred to as
a "Material Adverse Effect"). The Company has delivered a true and correct copy
of its Articles of Incorporation and Bylaws, each as amended and in effect as of
the Effective Time, to Parent.
2.2 Company Capital Structure. The authorized capital stock of the
Company consists of 75,000 shares of authorized Common Stock, of which 1,000
shares are issued and outstanding. There are no other shares of capital stock of
the Company authorized or issued. All issued and outstanding shares of Company
Common Stock are duly authorized, validly issued, fully paid and non-assessable
and not subject to preemptive rights created by statute, the Articles of
Incorporation or Bylaws of the Company or any agreement to which the Company is
a party or by which it is bound. All of the issued and outstanding shares of
Company Common Stock are currently, have always been, and shall as of the
Effective Time be, held of record and beneficially by the Shareholder, free and
clear of any and all Liens (as defined below). There are no options, warrants,
calls, rights, commitments or agreements of any character, written or oral, to
which the Company is a party or by which it is bound obligating the Company to
issue, deliver, sell, purchase or redeem any shares of the capital stock of the
Company or obligating the Company to grant or enter into any option, warrant,
call, right, commitment or agreement. As a result of the Merger, Parent will be
the record and sole beneficial owner of all capital stock of the Company and
rights to acquire or receive such capital stock.
2.3 Subsidiaries. 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
-11-
17
shares of capital stock or any interest in, or control, directly or indirectly,
any other corporation, partnership, association, joint venture or other business
entity.
2.4 Authority. The Company has all requisite corporate power and
authority to enter into this Agreement and to consummate the transactions
contemplated hereby and 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. Ades and each
trustee of the Trust is of legal age and has full legal capacity to enter into
this Agreement and the other documents contemplated hereby. The trustees on
behalf of the Trust have all requisite power and authority to enter into this
Agreement and to consummate the transactions contemplated hereby and the
execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby have been duly authorized by all necessary
actions on the part of the Trust. The Company's Board of Directors and all
outstanding shares of Company Common Stock have unanimously approved the Merger
and this Agreement and the other documents contemplated hereby. This Agreement
has been duly executed and delivered by the Company, Ades and Shareholder and
constitutes the valid and binding obligation of the Company, Ades and
Shareholder, enforceable in accordance with its terms except (i) as limited by
applicable bankruptcy, insolvency, reorganization, moratorium and other laws of
general application affecting enforcement of creditors' rights generally and
(ii) as limited by laws relating to the availability of specific performance,
injunctive relief or other equitable remedies. Except as set forth on Schedule
2.4, the execution and delivery of this Agreement by the Company, Ades and
Shareholder does not, and, as of the Effective Time, 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 under (any such event, a "Conflict") (i)
any provision of the Articles 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, Ades, Shareholder or
their properties or assets. No consent, waiver, approval, order or authorization
of, or registration, declaration or filing with, any court, administrative
agency or commission or other federal, state, country, 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, Ades or Shareholder in connection with the
execution and delivery of this Agreement or the consummation of the transactions
contemplated hereby, except for the filing of the Merger Agreement with the
California Secretary of State.
2.5 Company Financial Statements. Prior to the Closing, the Company
shall deliver to Parent as part of Schedule 2.5 the Company's balance sheets as
of December 31, 1997 and 1998 and the related audited statements of income and
retained earnings as of and
-12-
18
for the twelve-month periods ended December 31, 1997 and 1998 (all such
financial statements are collectively referred to herein as the "Audited
Financials"). The Audited Financials are true and correct in all material
respects and will have been prepared in accordance with generally accepted
accounting principles ("GAAP") applied on a basis consistent throughout the
periods indicated and consistent with each other. Upon the signing of this
Agreement, Schedule 2.5 shall set forth the Company's balance sheet ("the
Balance Sheet") and related unaudited statements of income and retained earnings
as of and for the two-month period ended February 28, 1999 (the "Balance Sheet
Date") (such financial statements are collectively referred to herein as the
"Stub Period Financials"). The Stub Period Financials are true and correct and
have been prepared on the same basis as the Audited Financials and include all
recurring adjustments (consisting only of normal recurring adjustments)
necessary for a fair presentation of the financial position and results of the
operations for the Company for the interim period presented. (The Audited
Financials and the Stub Period Financials are collectively referred to herein as
the "Company Financials"). The Company Financials present accurately and fairly
the financial condition and operating results of the Company as of the dates and
during the periods indicated therein. At least five days before the Closing, the
Company will deliver to Parent the Company's preliminary balance sheet and
related unaudited statements of income and retained earnings as of and for the
three-month period ended March 31, 1999 and all such financial statements are
collectively referred to herein as the "March Financials." The March Financials
will be true and correct in all material respects and will be prepared on the
same basis as the Audited Financials and will include all recurring adjustments
(consisting only of normal recurring adjustments) necessary for the fair
presentation of the financial position and results of operation for the interim
period presented.
2.6 No Undisclosed Liabilities. Except as set forth in Schedule 2.6,
other than the obligations of the Company under all executory contracts and
agreements to which it is a party and liabilities incurred in the ordinary
course of business since the Balance Sheet Date, the Company does not have any
liability, indebtedness, obligations, expense, claim, deficiency, guaranty or
endorsement of any type, whether accrued, absolute, matured, or to its
knowledge, contingent, unmatured or other (whether or not required to be
reflected in financial statements in accordance with GAAP), which has not been
reflected in the Balance Sheet. Except as set forth on Schedule 2.6, the
accounts receivable balance, net of reserves, as recorded on the Balance Sheet
is correct in all respects and to the knowledge of the Company, Ades and the
Shareholder, there are no reasons why the accounts receivable recorded on the
Balance Sheet will not be collected within twelve (12) months except for minor
disputes of immaterial amounts which arise in the ordinary course of the
Company's business.
2.7 No Changes. Except as set forth in Schedule 2.7, since the
Balance Sheet Date, there has not been, occurred or arisen any:
-13-
19
(a) material transaction by the Company;
(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 $25,000;
(d) destruction of, damage to or loss of any material assets,
or business of the Company (whether or not by covered by insurance) or
revaluation by the Company of any of its assets;
(e) claim of wrongful discharge or other claim of unlawful
labor practice or action;
(f) sale, lease, license or other disposition of any of the
assets or properties of the Company, except in the ordinary course of business
as conducted on that date and consistent with past practices;
(g) amendment or termination of any material contract,
agreement or license to which the Company is a party or by which it is bound;
(h) loan by the Company to any person or entity, incurring by
the Company of any indebtedness for borrowed money, guaranteeing by the Company
or any indebtedness, issuance 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;
(i) waiver or release of any right or claim of the Company,
including any material write-off or other compromise of any account receivable
of the Company;
(j) commencement or notice or threat of commencement of any
lawsuit or proceeding against or investigation of the Company or its affairs;
(k) notice of any claim of ownership by a third party of
Company Intellectual Property Rights (as defined in Section 2.11 below) or of
infringement by the Company of any third party's intellectual property rights;
(l) issuance or sale by the Company of any of its shares of
capital stock, or securities convertible or exercisable therefor, or
declaration, setting aside of payment of
-14-
20
a dividend or other distribution with respect to the capital stock of the
Company, or redemption or other acquisition by the Company of any Company stock;
(m) change in pricing set or charged by the Company to its
customers (except for customary and reasonable changes in the usual and ordinary
course) or in pricing or royalties set or charged by persons who have licensed
Company Intellectual Property Rights to the Company;
(n) any event or condition of any character that has or to the
knowledge of the Company, Ades or Shareholder could be reasonably expected to
have a Material Adverse Effect on the Company; or
(o) agreement by Shareholder, Ades, the Company or any officer
or employees thereof to do any of the things described in the preceding clauses
(a) through (n).
2.8 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, exercise and
property taxes, together with all interest, penalties and additions imposed with
respect to such amounts and any obligations under any agreements or arrangements
with any other person with respect to such amounts and including any liability
for taxes of a predecessor entity.
(b) Tax Returns and Audits. As of the Effective Time, the
Company 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, to the knowledge of the Company, Ades and Shareholder such
Returns are true and correct and have been completed in accordance with
applicable law. The Company as of the Effective Time: (A) will have paid or
accrued all Taxes it is required to pay or accrue and, with regard to periods
covered by filed Returns, it has paid all taxes required to be paid as shown on
such Returns, (B) will have withheld with respect to its employees all Taxes
required to be withheld. With regard to the Company's 1998 tax year, the Company
has timely and properly filed an extension in which to file its federal and
state Returns and Ades and the Shareholder will properly complete such Returns
and the Company will not be obligated to pay any taxes when such Returns are
filed which have not already been paid. Ades and the Shareholder agree not to
take any position adverse to the Company, the Surviving Corporation or the
Parent on the 1998 Returns and
-15-
21
shall be responsible for any tax liability relating to the 1998 Returns for the
Company. 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. No audit or
other examination of any Return of the Company is currently in progress, nor has
the Company been notified of any request for such an audit or other examination.
The Company does not have any liabilities for unpaid Taxes which have not been
accrued or reserved against in accordance with GAAP on the Balance Sheet,
whether asserted or unasserted, contingent or otherwise, and the Company has no
knowledge of any reasonable basis of the assertion of any such liability
attributable to the Company, its assets or operations.
(c) Copies of Returns. The Company has provided to Parent
copies of its three most recent federal and state income and state sales and use
Tax Returns.
(d) No Liens. There are (and as of immediately following the
Effective Date there will be) no liens, pledges, charges, claims, security
interests or other encumbrances of any sort ("Liens") on the assets of the
Company relating to or attributable to Taxes and the Company has no knowledge of
any reasonable basis for the assertion of any claim relating or attributable to
Taxes which, if adversely determined, would result in any Lien on the assets of
the Company. None of the Company's assets are treated as "tax-exempt use
property" within the meaning of Section 168(h) of the Code.
(e) 280G Payments. As of the Effective Time, 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. In addition, the satisfaction of the Compensation Plan Arrangements as
provided for in this Agreement will not give rise to any payment that would not
be deductible pursuant to Section 280G or 162 of the Code.
(f) Consents; Tax Allocations. 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. The Company is
not a party to a tax sharing or allocation agreement nor does the Company owe
any amount under any such agreement. The Company has 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. The Company's tax basis in its assets for
purposes of determining its future amortization, depreciation and other federal
income tax deductions is accurately reflected on the Company's tax books and
records.
-16-
22
(g) S Corporation Status. The Company has made an election
under Section 1362(a) of the Code to be an "S" corporation, as defined therein,
and all persons who were shareholders of the Company on the day on which such
election was made validly consented to such election. An accurate copy of the
election by the Company has been made available to Parent. Such election was
effective on the election date and has remained in effect continuously from such
election date to and including the Effective Time, and such election has not
been terminated, whether by revocation, disqualification or any other reason, at
any time during the period beginning on the election date and ending as of the
Effective Time. No actions have been taken and no omissions have occurred which
would cause such election to terminate or to be revoked at any time. At all
times, the shareholders of the Company have been eligible shareholders under
Section 1361 of the Code. The Company's shareholders have filed all required
Returns for each of the tax years ended since the election date or have obtained
timely extensions thereof, and shall file their Returns for the tax years which
include the year ending at the Effective Time, in each case consistent with the
election of the Company under Section 1362(a) of the Code to be an S
corporation. No Return of a shareholder is being audited by any taxing authority
and to the knowledge of the Company, Ades and Shareholder, no tax authority
intends to audit such Company, Ades or Shareholder's Return. No agreement or
waiver extending, or having the effect of extending, the period for auditing
Shareholder's or Ades' Returns which include any items of income, gain, loss or
deduction of the Company has been filed, which extension or waiver is still in
effect. Without the consent of Parent, Shareholder and Ades agree that they will
not file a return or amend an existing return, which includes any items of
income, gain, loss or deduction of the Company and which treats any such item in
a manner inconsistent with the manner in which such item is treated by the
Company in its Return for the applicable period. Shareholder agrees that the
Return of the Company for the tax year beginning January 1, 1999 and ending at
the Effective Time shall be prepared and filed by Parent in accordance with GAAP
and that Shareholder will be responsible for any and all taxes accrued or owing
in the tax year ending at the Effective Time.
2.9 Restrictions on Business Activities. There is no agreement
(noncompete or otherwise), commitment, judgment, injunction, order or decree to
which either the Company, Ades or Shareholder is a party or otherwise binding
upon the Company, Ades or Shareholder which has or reasonably could be expected
to have the effect of prohibiting or impairing any business practice of the
Company, the Surviving Corporation, or Parent, any acquisition of property
(tangible or intangible) by the Company, the Surviving Corporation, or Parent or
the conduct of business by the Company, the Surviving Corporation, or Parent.
There is no agreement, commitment, judgment, injunction, order or decree which
restricts the ability of either the Company or Ades to distribute any products
produced by Parent or White Heat. Neither the Company, Ades nor the Shareholder
has entered into any agreement restricting their ability to sell, license or
otherwise distribute any products to any class of customers in any geographical
area except for certain vendor agreements applicable to sales of videos by
-17-
23
the Company which contain certain restrictions dealing with the class of
customers and pricing restrictions.
2.10 Title to Properties; Absence of Liens and Encumbrances.
(a) Real Property Lease. The Company owns no real property,
nor has it ever owned any real property. Schedule 2.10(a) contains a true and
correct copy of the lease and describes the Company's currently leased premises
(the "Leased Premises") and such current lease is in full force and effect, is
valid and effective in accordance with its terms, and there is not, under such
lease, any existing default or event of default (or event which with notice or
lapse of time, or both, would constitute a default) on behalf of the Company
with regard to such Leased Premises and, to the knowledge of the Company, Ades
and Shareholder, there is no existing default or event of default (or event
which with notice or lapse of time, or both, would constitute a default) by the
landlord relating to the Company's Leased Premises. The release for the Leased
Premises has not been modified, canceled or amended and the Company is in
compliance with all of its obligations under the lease. Schedule 2.10(a) also
contains a true and correct copy of the sublease pertaining to a portion of the
Company's Leased Premises and such sublease has not been modified, canceled or
amended and the Company is in compliance with all of its obligations under the
sublease. To the knowledge of Ades, the Company and Shareholder, there is no
existing default or vendor default (or event with notice or lapse of time, or
both, would constitute a default) by the subtenant relating to the sublease and
the Company is not in default under the sublease. The consummation of the Merger
will not result in a breach of the sublease. Except as set forth in Schedule
2.10(a), the consummation of the Merger will not result in the breach of the
lease for the Leased Premises, or otherwise require the consent of the landlord
of the lease for the Leased Premises. The structures at the Leased Premises are
in reasonably good condition and repair and to the knowledge of the Company and
Shareholder, such structures are free from design, construction, physical or
mechanical defects and other damage.
(b) Title to Property. The Company has good and valid title
to, or, in the case of leased properties and assets, valid leasehold interests
in, all of its tangible properties and assets, real, personal and mixed, used or
held for use in its business, free and clear of any Liens except as reflected in
the Company Financials or in Schedule 2.10(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.
-18-
24
22.11 Intellectual Property.
(a) Intellectual Property Rights. The Company owns, or
licenses or otherwise possesses the right to use, all patents, trademarks, trade
names, service marks, copyrights, and any applications therefor, maskworks, net
lists, schematics, technology, know-how, computer software programs or
applications in both source code and object code form ("Software"), and tangible
or intangible proprietary information or material that are used in the business
of the Company as currently conducted or as proposed to be conducted by the
Company (collectively, the "Company Intellectual Property Rights"). Schedule
2.11 sets forth a complete list of all patents, registered and material
unregistered trademarks, registered copyrights, trade names and service marks,
and any applications therefor, included in the Company Intellectual Property
Rights. Schedule 2.11 also sets forth a complete list of all licenses,
sublicenses or other agreements pursuant to which the Company utilizes any
Software or other Company Intellectual Property Rights. The Company has complied
with all the material terms of such license, sublicense or agreement and the
execution and delivery of this Agreement by the Company, and the consummation of
the transactions contemplated hereby, will neither cause the Company to be in
violation or default under any such license, sublicense or agreement, nor
entitle any other party to any such license, sublicense or agreement to
terminate or modify such license, sublicense or agreement.
(b) Adverse Claims. No claims with respect to the Company
Intellectual Property Rights have been asserted or are, to the Company's
knowledge, threatened by any person, nor to the Company's knowledge are there
any valid grounds for any bona fide claims, (i) to the effect that the
manufacture, sale, licensing or use of any of the products of the Company
infringes on any copyright, patent, trade xxxx, service xxxx, trade secret or
other proprietary right, (ii) against the use by the Company of any trademarks,
service marks, trade names, trade secrets, copyrights, maskworks, patents,
technology, know-how or computer software programs and applications used in the
Company's business as currently conducted or as proposed to be conducted by the
Company, or (iii) challenging the ownership by the Company, validity or
effectiveness of any of the Company Intellectual Property Rights. To the
Company's knowledge, the Company has not infringed, and the business of the
Company as currently conducted or as proposed to be conducted does not infringe,
any copyright, patent, trademark, service xxxx, trade secret or other
proprietary right of any third party. No Company Intellectual Property Right or
product of the Company or any of its subsidiaries is subject to any outstanding
decree, order, judgment, or stipulation restriction in any manner the licensing
thereof by the Company. Each employee, consultant or contractor of the Company
has executed a proprietary information and confidentiality agreement
substantially consistent with the Company's standard forms.
(c) Year 2000 Compliance. The Company has taken commercially
reasonable steps and efforts to ensure that all Software, computer hardware and
firmware
-19-
25
used by the Company is Year 2000 compliant, is designed to be used prior to,
during and after the calendar year 2000 A.D. To the knowledge of the Company,
Ades and Shareholder, all such Software, computer hardware and firmware used
during each such time period will accurately receive, provide and process
date/time data (including, but not limited to, calculating, comparing and
sequencing) from, in to and between the twentieth and twenty-first centuries,
including the years 1999 and 2000, and leap year calculations and will not
malfunction, cease to function, or provide invalid or incorrect results as
result of the date/time data, to extent that all other information technology,
used in combination with the Company's Software, properly exchanges date/time
data with it.
2.12 Agreements, Contracts and Commitments. Except as set forth on
Schedule 2.12, the Company does not have, is not a party to nor is it bound by:
(i) any collective bargaining agreements;
(ii) any agreements or arrangements that contain any
severance pay or post-employment liabilities or obligations or any bonus,
deferred compensation, pension, profit sharing or retirement plans, stock option
plan, phantom stock plan, stock appreciation rights plan or stock purchase plan
or performance awards, fringe benefits, or any other employee benefit plans or
arrangements;
(iii) any employment or consulting agreement, contract or
commitment (other than an oral offer of employment as an employee at will) with
an employee or individual consultant or salesperson or any consulting or sales
agreement, contract or commitment under which any firm or other organization
provides services to the Company.
(iv) any fidelity or surety bond or completion bond;
(v) any agreement of indemnification or guaranty;
(vi) 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;
(vii) any mortgages, indentures, loans or credit
agreements, security agreements or other arrangements or instruments relating to
the borrowing of money or extension of credit;
(viii) any distribution, joint marketing or development
agreement; or
-20-
26
(ix) any other agreement, lease, contract, purchase
order or commitment that involves future obligations of or payments to the
Company of $25,000 or more.
To the knowledge of the Company, Ades and Shareholder, the Company has
not breached, violated or defaulted under any of the terms or conditions of any
agreement, contract or commitment required to be set forth on Schedule 2.12 or
Schedule 2.11 (any such agreement, contract or commitment, a "Contract"). True
and correct copies of all Contracts have been furnished to Parent. The Company
has not received notice that it has breached, violated or defaulted under any of
the terms or conditions of any Contract. Each Contract is in full force and
effect and is not subject to any material default thereunder of which the
Company, Ades or Shareholder has knowledge by any party obligated to the Company
pursuant thereto.
2.13 Interested Party Transactions. Except as set forth on Schedule
2.13, no officer, director or shareholder 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 economic 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, (ii) an economic 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.
2.14 Compliance with Laws. The Company has not received any notices of
violation with respect to, and to the knowledge of the Company, Ades and
Shareholder the Company has complied in all material respects with, and is not
in material violation of, any foreign, federal, state or local statute, law or
regulation.
2.15 Litigation. Except as set forth in Schedule 2.15, there is no
action, suit or proceeding of any nature pending or to its knowledge threatened
against the Company, its properties or any of its shareholders, officers or
directors, in their respective capacities as such. Except as set forth in
Schedule 2.15, there is no investigation pending or to the knowledge of the
Company, Ades or Shareholder threatened against the Company, its properties or
any of its officers or directors by or before any governmental entity. No
governmental entity has at any time challenged or questioned the legal right of
the Company to manufacture, offer or sell any of its products in the present
manner or style thereof.
2.16 Insurance. The Company maintains valid and enforceable insurance
policies and fidelity bonds covering the assets, business, equipment,
properties, operations, employees, officers and directors of the Company, which
are identified in Schedule 2.16, and there is no claim by the Company pending
under any of such policies or bonds as to which
-21-
27
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 has no knowledge of any
threatened termination of, or material premium increase with respect to, any of
such policies.
2.17 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 stockholders or actions by written consent since the time of incorporation
of the Company.
2.18 Environmental Matters.
(a) Hazardous Material. The Company has not operated any
underground storage tanks, and the Company, Ades and Shareholder have no
knowledge of the existence, at any time, of any underground storage tank (or
related piping or pumps), at any property that the Company has at any time
owned, operated, occupied or leased. The Company has not released any 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, oil and petroleum products, urea-formaldehyde and all substances
listed as a "hazardous substance," "hazardous waste," "hazardous material" or
"toxic substance" or words of similar import, under any law, including but not
limited to, the Comprehensive Environmental Response, Compensation, and
Liability Act of 1980, as amended; the Resource Conservation and Recovery Act of
1976, as amended; the Federal Water Pollution Control Act, as amended; the Clean
Air Act, as amended, or the regulations promulgated pursuant to said laws (a
"Hazardous Material"). No Hazardous Materials are present as a result of the
actions or omissions of the Company, or, to the Company's, Ades' and
Shareholder's knowledge, 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. To the knowledge to the Company,
Shareholder and Ades, the subtenant under the sublease pertaining to the Leased
Premises has not released any amount of any Hazardous Material.
(b) Hazardous Materials Activities. 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 Effective Time, 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
-22-
28
control Hazardous Materials or any Hazardous Material Activity. The Company is
in compliance with all environmental laws applicable to the Company and the
Company's business does not require that the Company obtain any environmental
approval, license, permit, clearance or consent. No action, proceeding,
injunction or claim is pending, or to the Company's, Ades or Shareholder's
knowledge, threatened against the Company regarding any environmental law or
regulation. The Company is not aware of any reasonable basis by which it would
be involved in any environmental litigation or any fact which would impose upon
the Company any environmental liability. Neither the Company, Ades nor
Shareholder has any knowledge that the subtenant under the Company's sublease
has transported, stored, used, manufactured, disposed of, leased or exposed its
employees or others to Hazardous Materials nor engaged in any Hazardous
Materials Activities.
2.19 Brokers' and Finders' Fees: Third Party Expenses. Neither the
Company, Ades nor Shareholder has not incurred, nor will they incur any
liability for brokerage or finders' fees or agents' commissions or any similar
charges in connection with this Agreement or any transaction contemplated
hereby. Schedule 2.19 sets forth the Company's current reasonable estimate of
all Third Party Expenses (as defined in Section 5.4) expected to be incurred by
the Company in connection with the negotiation and effectuation of the terms and
conditions of this Agreement and the transactions contemplated hereby.
2.20 Employee Matters and Benefit Plans.
(a) Employees To the best of the Company's, Ades' and
Shareholder's knowledge, (i) no employees of the Company are in violation of any
term of any employment contract, patent disclosure agreement, non-competition
agreement, or any restrictive covenant to a former employer relating to the
right of any such employee to be employed by the Company because of the nature
of the business conducted or presently proposed to be conducted by the Company
or to the use of trade secrets or proprietary information of others and (ii) no
officer or key employee has given notice to the Company, nor is the Company
otherwise aware, that any employee intends to terminate his or her employment
with the Company.
(b) Agreements and Plans. Schedule 2.12 contains an accurate
complete list of any employee welfare plan, agreement, arrangements, benefit
plan, profit sharing plan, phantom stock plan, option plan, bonus plan or
commitment by the Company pertaining to the Company's employees (collectively
"Benefit Plans") and all liabilities thereunder have been properly reflected on
the Balance Sheet to the extent required by GAAP. The Company has never been
subject to any "multi-employer pension plan" as defined in Section 3(37) of
ERISA. The Company has made available to Parent true, complete and correct
copies of all Benefit Plans, agreements, plans, or commitments pertaining to the
Company's employees together with the most recent summary plan description or
similar document with respect to
-23-
29
each applicable Benefit Plan. Each Benefit Plan has been administered in all
material respects in accordance with its terms. Except as disclosed in Schedule
2.20, to the knowledge of the Company, Ades and Shareholder, the Company and all
Benefit Plans are in compliance in all material respects with the applicable
provisions of ERISA and other applicable laws. Except as set forth in Schedule
2.20, there are no investigations by any governmental agency, termination
proceedings or other claims or lawsuits against or involving any Benefit Plan.
Except as set forth in Schedule 2.20, all contributions to the Benefit Plans
required to be made by the Company in accordance with the terms of the Benefit
Plans have been timely made. To the extent each Benefit Plan is intended to be a
tax qualified plan, each such plan or related trust is qualified and exempt from
federal income taxes and there has not occurred any event or circumstances which
would adversely affect the tax qualification of such plan. To the knowledge of
the Company, Ades and Shareholder, no trustee, administrator or other fiduciary
of any Benefit Plan has engaged in transactions which would subject the Company
to any liability for breach of fiduciary duty under ERISA or other applicable
law. Except for the Compensation Plan Arrangements which are to be satisfied in
full pursuant to Section 1.12 above, the Company will terminate all Benefit
Plans as of the Effective Time and such termination will not give rise to any
ongoing liability by Parent or the Surviving Corporation. When executed by the
respective parties thereto, the Modification Agreements shall be valid and
binding obligations of their respective parties and satisfaction of the
Compensation Plan Arrangements as provided in Section 1.12 above shall
constitute payment in full of all obligations thereunder.
(c) No Post-Employment Obligations. The Company has no
liability to provide life insurance, medical or other 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 that such
employee would be provided with life insurance, medical or other benefits upon
their retirement or termination of employment, except to the extent required by
statute.
(d) Compliance with Laws. The Company (i) to its knowledge and
to the knowledge of Ades and Shareholder is in compliance in all material
respects with all applicable laws and regulations respecting employment,
employment practices, terms and conditions of employment and wages and hours;
(ii) has withheld all amounts required by law or by agreement to be withheld
from the wages, salaries, and other payments to Employees; (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.
-24-
30
(e) Labor. No work stoppage or labor strike against the
Company is pending or threatened and the Company is not involved in or
threatened with, any labor dispute, grievance, or litigation relating to labor,
safety or discrimination matters involving any employee. The Company has not
engaged in any unfair labor practices within the meaning of the National Labor
Relations Act and the Company is not bound by any collective bargaining
agreement or union contract and no collective bargaining agreement is being
negotiated by the Company.
2.21 Customers and Supplies. Schedule 2.21 contains a true and
complete list of the name and address of each customer that has purchased in
excess of five percent (5%) of the Company's sales during the twelve months
ended February 28, 1999, and except as set forth on Schedule 2.21 no such
customer has terminated its relationship with or adversely curtailed its
purchases from the Company or indicated to the Company its intention to so
terminate its relationship or curtailed purchases. Schedule 2.21 also contains a
true and complete list of top 25 companies that produce videos and other
products sold by the Company, and no such company has terminated its
relationship with or adversely modified its relationship with the Company or
indicated to the Company its intention to so terminate its relationship or
otherwise adversely change its relationship with the Company.
2.22 Investment Representations. Shareholder is acquiring the Parent
Common Stock and other rights in the Merger for his own account, not as a
nominee or agent, for investment and not with a view to, or for resale in
connection with any distribution or public offering thereof within the meaning
of the Securities Act. Shareholder understands that the Parent Common Stock has
not been registered under the Securities Act by reason of a specific exemption
therefrom and may not be transferred or resold except pursuant to an exemption
for the registration and prospectus delivery requirements of the Securities Act.
Shareholder has been furnished with such materials and has been given access to
such information relating to Parent as requested and has been afforded the
opportunity to ask questions regarding Parent as Shareholder has found necessary
to make an informed investment decision. Shareholder has the knowledge and
experience in financial and business matters and investments in general that
Shareholder is capable of evaluating the merits and risks of the transactions
contemplated by this Agreement.
2.23 Representations Complete. To the best of the Company's, Ades' and
the Shareholder's knowledge, none of the representations or warranties made by
the Company, Ades or the Shareholder (as modified by the Company Schedules), nor
any statement made in any schedule or certificate furnished by the Company
pursuant to this Agreement, contains or will contain at the Effective Time, any
untrue statement of a material fact, or omits or will omit at the Effective Time
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.
-25-
31
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF
PARENT AND MERGER SUB
Parent and Merger Sub represent and warrant to the Company and its
stockholders as follows:
3.1 Organization, Standing and Power. Parent is a corporation duly
organized, validly existing and in good standing under the laws of the State of
California. Merger Sub is a corporation duly organized, validly existing and in
good standing under the laws of the State of California. Each of Parent and
Merger 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 as a foreign corporation in each jurisdiction in which the failure
to be so qualified would have a material adverse effect on Parent and Merger Sub
as a whole.
3.2 Parent Capital Structure. The authorized capital stock of Parent
consists of 10,000,000 shares of common stock of which 5,164,531 shares were
issued and outstanding as of December 31, 1998. All issued and outstanding
shares of Parent Common Stock are duly authorized, validly issued, fully paid
and nonassessable. As of December 31, 1998, options to purchase 1,266,500 shares
of Parent Common Stock were issued and outstanding.
3.3 Authority. Parent and Merger 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 Merger
Sub. This Agreement has been duly executed and delivered by Parent and Merger
Sub and constitutes the valid and binding obligations of Parent and Merger Sub,
enforceable in accordance with its terms except (i) as limited by applicable
bankruptcy, insolvency, reorganization, moratorium and other laws of general
application affecting enforcement of creditors' rights generally and (ii) as
limited by laws relating to the availability of specific performance, injunctive
relief or other equitable remedies. The execution and delivery of this Agreement
by Parent does not, and, as of the Effective time, the consummation of the
transactions contemplated hereby will not result in a Conflict with (i) any
provision of the Articles of Incorporation or Bylaws of Parent or (ii) any
mortgage, indenture, lease, contract, or other agreement or instrument to which
Parent is a party, or any permit, concession, franchise, license, judgment,
order, decree, statute, law, ordinance, rule or regulation applicable to Parent
or its properties or assets. No consent, waiver, approval, order or
authorization of, or registration, declaration or filing with any Governmental
Entity or any third party (so as not to trigger any Conflict) is required by
-26-
32
or with respect to Parent or Merger Sub in connection with the execution and
delivery of this Agreement or the consummation of the transactions contemplated
hereby, except for (i) the filing of the Merger Agreement with the Delaware
Secretary of State, (ii) such consents, waivers, approvals, orders,
authorizations, registrations, 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 3.3.
3.4 Litigation. Except as set forth in Schedule 3.4, there is no
material action, suit or proceeding of any nature pending or threatened against
Parent, its properties or any of its officers or directors, in their respective
capacities as such. Except as set forth in Schedule 3.4, there is no
investigation pending or to its knowledge threatened against Parent, its
properties or any of its officers or directors by or before any governmental
entity. Schedule 3.4 sets forth, with respect to any pending or threatened
action, suit, proceeding or investigation, the forum, the parties thereto, the
subject matter thereof and the amount of damages claims or other remedy
requested. No governmental entity has at any time challenged or questioned the
legal right of Parent to manufacture, offer or sell any of its products in the
present manner or style thereof.
3.5 Parent SEC Documents. The reports and proxy statements filed by
Parent with the Securities and Exchange Commission since January 1, 1997 (the
"Parent SEC Documents") complied in all material respects with the requirements
of the Securities Exchange Act of 1934 and the rules and regulations of the SEC
thereunder applicable to such Parent SEC Documents. None of the Parent 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 therein not misleading as of the date they were filed, except to the
extent that information contained in any Parent SEC Document has been revised or
superseded by a later-filed Parent SEC Document or otherwise disclosed to the
Company.
3.6 Breaches of Material Contracts. Except to the extent set forth on
Schedule 3.6, to the knowledge of Parent, Parent is not in breach, violation or
default under any of the material terms or conditions of any material agreement
or contract applicable to Parent, and Parent has not received notice that it has
breached, violated or defaulted under any of the material terms or conditions of
any such agreement or contract.
3.7 Compliance of Laws. To the knowledge of Parent, Parent has not
received any notices of violations with respect to, and Parent has complied in
all material respects with, and is not in material violation of, any material
federal, state or local statute, law or regulation.
-27-
33
3.8 Insurance. Parent maintains valid and enforceable insurance
policies covering Parent's business, assets, properties, employees, officers and
directors to the extent Parent deems it prudent and necessary.
ARTICLE IV
CONDUCT PRIOR TO THE EFFECTIVE TIME
4.1 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 and the Effective Time, 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, to
use all reasonable efforts consistent with past practice and policies to
preserve intact its present business organization, keep available the services
of its present officers and key employees and preserve its relationships with
customers, suppliers, distributors, licensors, and others having business
dealings with it, all with the goal of preserving unimpaired its goodwill and
ongoing businesses at the Effective Time. The Company shall promptly notify
Parent of any event or occurrence or emergency not in the ordinary course of its
business, and any material event involving or adversely affecting the Company or
its business. Except as expressly contemplated by this Agreement, the Company
shall not, without the prior written consent of Parent (which such consent shall
not be unreasonably withheld by Parent):
(a) Enter into any commitment, activity or transaction not in
the ordinary course of business or enter into or amend any agreements pursuant
to which any other party is granted manufacturing, marketing, distribution or
similar rights of any type or scope with respect to any products of the Company;
(b) Amend or otherwise modify (or agree to do so), except in
the ordinary course of business, or violate the terms of, any of the agreements
set forth or described in the Company Schedules;
(c) Commence any litigation or any dispute resolution process;
(d) Declare, set aside or pay any dividends on or make any
other distributions (whether in cash, stock or property) in respect of any
Company stock, or split, combine or reclassify any stock or issue, grant or
authorize the issuance of any securities, 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, or
-28-
34
repurchase, redeem or otherwise acquire, directly or indirectly, any shares of
stock (or options, warrants or other rights exercisable therefor);
(e) Cause or permit any amendments to its Articles of
Incorporation or Bylaws;
(f) Acquire or agree to acquire by any manner any business or
corporation, partnership, association or other business organization or division
thereof, or any assets which are material, individually or in the aggregate, to
the business of the Company;
(g) Sell, lease, license or otherwise dispose of any of its
properties or assets except in the ordinary course of business and consistent
with past practice;
(h) Incur any indebtedness for borrowed money or guarantee any
such indebtedness or issue or sell any debt securities of the Company or
guarantee any debt securities of others;
(i) Grant any severance or termination pay to any director,
officer, employee or consultant or adopt or amend any employee benefit plan,
program, policy or arrangement, or enter into any employment contract, extend
any employment offer, pay or agree to pay any special bonus or special
remuneration to any director, employee or consultant, or increase the salaries
or wage rates of its employees;
(j) Revalue any of its assets, including without limitation
writing down the value of inventory or writing off notes or accounts receivable;
(k) Pay, discharge or satisfy any claim, liability or
obligation (absolute, accrued, asserted or unasserted, contingent or otherwise),
other than the payment in the ordinary course of business of liabilities
reflected or reserved against in the Company Financial Statements or liabilities
incurred in the ordinary course of business consistent with past practices after
the date of the Company Financial Statements;
(l) 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;
(m) Enter into any strategic alliance, joint development or
joint marketing arrangement or agreement;
-29-
35
(n) Fail to pay or otherwise satisfy its monetary obligations
as they become due, except such as are being contested in good faith;
(o) Cancel, materially amend or renew any insurance policy
other than in the ordinary course of business;
(p) Take, or agree in writing or otherwise to take, any of the
actions described above, or any other action that would prevent the Company from
performing or cause the Company not to perform its covenants hereunder.
4.2 No Solicitation. Until the earlier of the Effective Time and the
date of termination of this Agreement pursuant to the provisions of Section 8.1
hereof, the Company will not (nor will the Company permit any of the Company's
officers, directors, stockholders, 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, initiate, entertain, or encourage
any proposals or offers from, or conduct discussions with or engage in
negotiations with, any person relating to any possible acquisition of the
Company or any of its subsidiaries (whether by way of merger, purchase of
capital stock, purchase of assets or otherwise), any material portion of its or
their capital stock or assets or any equity interest in the Company or any of
its subsidiaries, (b) provide information with respect to it to any person,
other than Parent, relating to, or otherwise cooperate with, facilitate or
encourage any effort or attempt by any such person with regard to, any possible
acquisition of the Company (whether by way of merger, purchase of capital stock,
purchase of assets or otherwise), any material portion of its or their capital
stock or assets or any equity interest in the Company or any of its
subsidiaries, (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), any material portion of its
or their capital stock or assets or any equity interest in the Company or any of
its subsidiaries, or (d) make or authorize any statement, recommendation or
solicitation in support of any possible acquisition of the Company or any of its
subsidiaries (whether by way of merger, purchase of capital stock, purchase of
assets or otherwise), any material portion of its or their capital stock or
assets or any equity interest in the Company or any of its subsidiaries by any
person, other than by Parent. If the Company receives prior to the Effective
Time or the termination of this Agreement any offer or proposal relating to any
of the above, the Company 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.
4.3 Conduct of Business of Parent. During the period from the date of
this Agreement and continuing until the earlier of the termination of this
Agreement and the
-30-
36
Effective Time, Parent agrees (except to the extent that the Company shall
otherwise consent to 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, to use all reasonable efforts
consistent with past practice and policies to preserve intact its present
business organization, keep available the services of its present officers and
key employees and preserve its relationships with customers, suppliers,
distributors, licensors and others having business dealings with it, all the
goal of preserving the goodwill and business of Parent at the Effective Time.
The Parent shall promptly notify the Company of any event or occurrence or
emergency not in the ordinary course of its business, and any material event
involving or adversely affecting Parent and its business.
ARTICLE V
ADDITIONAL AGREEMENTS
5.1 Access to Information. Each party shall afford the others and
their accountants, counsel and other representatives, reasonable access during
normal business hours during the period prior to the Effective Time to (a) all
of its properties, books, contracts, commitments and records, and (b) all other
information concerning its business, properties and personnel (subject to
restrictions imposed by applicable law) as the others may reasonably request.
Each of the parties hereto hereby agrees to keep such information or knowledge
obtained in any investigation pursuant to this Section 5.1, 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.
5.2 Expenses. All fees and expenses incurred in connection with the
Agreement including, without limitation, all legal, accounting, financial
advisory, consulting and all other fees and expenses of third parties ("Third
Party Expenses") 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; provided, however, that within thirty (30) days after
-31-
37
the Effective Time, Parent shall pay the reasonable and customary Third Party
Expenses of the Company.
5.3 Public Disclosure. Unless otherwise required by law (including,
without limitation, federal and state securities laws) or, as to Parent, by the
rules and regulations of The Nasdaq Stock Market Inc., prior to the Effective
Time, no public 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. The parties agree that Parent will publicly
disclose the signing of this Agreement and will file a copy of the Agreement as
an exhibit with a filing with the Securities and Exchange Commission.
5.4 Consents. The Company shall use its best efforts to obtain the
consents, waivers and approvals under any of the Contracts as may be required in
connection with the Merger (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 thereunder.
5.5 Preparation of Proxy Statement. In the event that approval of
Parent's shareholders is required in order to consummate the Merger and the
transactions contemplated hereby, the Company agrees to help prepare such
information about the Company and its employees and shareholders which may be
required to be in Parent's proxy statement to be distributed to Parent's
shareholders. All such information provided to Parent by the Company for
purposes of being included in Parent's proxy statement shall not contain any
untrue statements of material fact or fail to state a material fact required to
be stated therein or necessary in order to make the statements therein, in light
of the circumstances under which they were made, not misleading.
5.6 Reasonable Efforts. Subject to the terms and conditions provided
in this Agreement, each of the parties hereto shall use its reasonable efforts
to ensure that its representations and warranties remain true and correct in all
material respects, and 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, 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. Without limiting the foregoing, the Company shall obtain the
agreements required by Schedule 6.3(c).
5.7 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-
-32-
38
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
Effective Time 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 5.9 shall not limit or otherwise affect
any remedies available to the party receiving such notice.
5.8 Employment Matters. The Company shall deliver or cause to be
delivered to Parent at the Closing the Ades Employment Agreement, the Xxxxxx
Employment Agreement and the Xxxxxxx Employment Agreement, duly executed by
Ades, Xxxxxx and Xxxxxxx, respectively.
5.9 Restricted Stock Agreement. The Company shall deliver or cause to
be delivered to Parent at the Closing the Restricted Stock Agreement executed by
Shareholder, the FFM Employees and their spouses.
5.10 Board Nominees. At the first regularly scheduled meeting of
Parent's Board of Directors held after the Effective Time, Parent agrees to ask
Ades to join Parent's board as a director. In addition, at the first annual
meeting of Parent's shareholders held after the Effective Time, Parent agrees to
nominate Ades and a second outside independent director selected mutually by
Ades and Parent (which such director shall not be Selsky, Wallace, a family
member of Ades, Xxxxxx or Xxxxxxx or otherwise related to Ades, Xxxxxx or
Xxxxxxx).
5.11 Additional Documents and Further Assurances. Each party hereto,
at the request of the other 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 and contemplated hereby.
5.12 Assistance With Auditors. The Company will cause its management
to cooperate with Parent's accountants and help facilitate on a timely basis (i)
the preparation of audited Company financial statements (including pro forma
financial statements if required) as required by Parent and Parent's accountants
to comply with applicable SEC regulations, (ii) the review of the Company's
books, records and work papers, including the examination of selected interim
financial statements and data by Parent's accountants, and (iii) the delivery of
such representations from the Company's independent accountants and Company's
management as may be reasonably requested by Parent or its accountants in
connection with the preparation by Parent's accountants of the Company's
financial statements.
-33-
39
5.13 Modification Agreements. The Company shall deliver or cause to be
delivered to Parent at least five business days prior to the Closing, the
Modification Agreements contemplated by Section 1.12(c).
5.14 Parent's 401(k) Plan. To the extent permitted by all applicable
laws, ERISA, and Parent's 401(k) Plan, it is the intent of Parent to take
commercially reasonable steps so that the normal one-year waiting period for
participation in Parent's 401(k) plan will be waived for the employees of the
Company who become employees of Parent and the Surviving Corporation immediately
after the Merger and that such employees of the Company should be given vesting
credit for purposes of the Parent's 401(k) plan for their years of service with
the Company. The parties acknowledge that Parent is not representing or
warranting that Parent will be able to make these changes to Parent's 401(k)
plan and that Parent's inability to make these changes will not result in a
breach of this covenant by Parent.
ARTICLE VI
CONDITIONS TO THE MERGER
6.1 Conditions to Obligations of Each Party to Effect the Merger. The
respective obligations of each party to this Agreement to effect the Merger
shall be subject to the satisfaction at or prior to the Closing of the following
conditions:
(a) Government Approvals. All approvals of governments and
governmental agencies necessary to consummate the transactions hereunder shall
have been received.
(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 or regulatory restraint or
prohibition preventing the consummation of the Merger shall be in effect.
(c) Shareholder Approval. To the extent required by applicable
law or Nasdaq listing requirements, the shareholders of Parent shall have
approved this Agreement, the Merger, and the transactions contemplated hereby.
6.2 Additional Conditions to Obligations of the Company. The
obligations of the Company to consummate the Merger and the transactions
contemplated by this Agreement shall be subject to the satisfaction at or prior
to the Closing of each of the following conditions, any of which may be waived,
in writing, exclusively by the Company:
-34-
40
(a) Representations and Warranties. The representations and
warranties of Parent and Merger Sub contained in this Agreement shall be true
and correct in all material respects on and as of the Closing Date, except for
changes contemplated by this Agreement and except for those representations and
warranties which address matters only as of a particular date (which shall
remain true and correct as of such date), with the same force and effect as if
made on and as of the Closing Date.
(b) Agreements and Covenants. Parent and Merger Sub shall have
performed or compiled in all material respects with all agreements and covenants
required by this Agreement to be performed or complied with by them or prior to
the Closing and the Closing and the Effective Time, and the Company shall have
received a certificate to such effect signed by a duly authorized officer of
Parent.
(c) Legal Opinion. The Company shall have received a legal
opinion from PHJW, counsel to Parent, in substantially the form attached hereto
as Exhibit E.
(d) Due Diligence. The Company shall have conducted its due
diligence review of Parent and Parent's business and shall be satisfied, in its
discretion, with the results of its review and investigation of the items,
matters, exceptions and affairs set forth in the disclosure schedules prepared
by Parent attached to this Agreement and the disclosures contained in such
schedules. The Company's review of the disclosure schedules of Parent in no way
minimize or diminish any of the representations and warranties made by Parent in
this Agreement.
(e) Material Adverse Change. There shall not have occurred any
material adverse change in the business, assets (including intangible assets),
financial condition, results of operations, liabilities or prospects of the
Parent since the date of this Agreement.
6.3 Additional Conditions to the Obligations of Parent and Merger
Sub. The obligations of Parent and Merger Sub to consummate the Merger and the
transactions contemplated by this Agreement shall be subject to the satisfaction
at or prior to the Closing of each of the following conditions, any of which may
be waived, in writing, exclusively by Parent:
(a) Representations and Warranties. The representations and
warranties of the Company, Ades and Shareholder contained in this Agreement
shall be true and correct in all material respects on and as of the Closing
Date, except for changes contemplated by this Agreement and except for those
representations and warranties which address matters only as of a particular
date (which shall remain true and correct as of such date), with the same force
and effect as if made on and as of the Closing Date.
-35-
41
(b) Agreements and Covenants. The Company, Ades and
Shareholder shall have performed or complied in all material respects with all
agreements and covenants required by this Agreement to be performed or complied
with by it or him on or prior to the Effective Time, and Parent and Merger Sub
shall have received a certificate to such effect signed by a duly authorized
officer of the Company.
(c) Third Party Consents. Parent shall have been furnished
with evidence satisfactory to it that the Company has obtained the consents,
modifications, approvals and waivers set forth in Schedule 6.3(c).
(d) Legal Opinion. Parent shall have received a legal opinion
from Tyre Kamins Xxxx & Xxxxxx legal counsel to the Company, in substantially
the form attached hereto as Exhibit F.
(e) Material Adverse Change. There shall not have occurred any
material adverse change in the business, assets (including intangible assets),
financial condition, results of operations, liabilities or prospects of the
Company since the Balance Sheet Date.
(f) Due Diligence. Parent shall have concluded its due
diligence review of the Company and the Company's business and Parent shall be
satisfied, in its sole and absolute discretion, with the results of its review
and its investigation of the items, matters, exceptions and affairs set forth in
the Company Schedules to this Agreement and the disclosures contained in such
schedules. Parent's review of the Company Schedules shall in no way minimize or
diminish any of the representations and warranties made by the Company, Ades and
Shareholder in this Agreement. Parent shall have received from Parent's
accounting firm audited balance sheets as of December 31, 1997 and 1998, and
statements of income and statements of cash flows for the Company for the two
years ended December 31, 1998, which such Audited Financials shall meet all
applicable requirements by the Securities and Exchange Commission and Parent
shall be satisfied, in its sole and absolute discretion, with the financial
results of the Company and other financial information contained in the Audited
Financials.
(g) Consent of Bank. Parent shall have received from Parent's
bank the bank's consent to the Merger and the consummation of the transactions
contemplated hereby.
(h) Fairness Opinion. Parent shall have received a "fairness
opinion" from an investment bank or financial adviser of Parent's choice prior
to Effective Time substantially to the effect that the consideration to be paid
by Parent pursuant to this Agreement is fair, from financial point of view, to
the shareholders of Parent and such opinion shall not have been withdrawn at or
prior to the Effective Time.
-36-
42
(i) Financing. Parent shall have closed such working capital
or other financing as Parent deems necessary or advisable to provide Parent with
sufficient working capital for future operations.
(j) Shareholder Approval. To the extent required by applicable
law or Nasdaq, Parent shall have received the approval of Parent's shareholders
for this Agreement, the merger and the transactions contemplated hereby.
ARTICLE VII
INDEMNIFICATION AND ESCROW
7.1 Indemnification. The parties shall indemnify each other as set
forth below:
(a) Indemnification by Shareholder, Ades and Company.
Shareholder, Ades and the Company hereby agree to indemnify and hold harmless
Parent and Merger Sub and their members, managers, directors, officers,
employees and all persons which directly or indirectly, through one or more
intermediaries, controls, is controlled by, or is under common control with
Parent and Merger Sub (collectively, "Parent's Indemnified Parties") from, and
to reimburse Parent and Merger Sub and their members, managers, directors,
employees and all persons which directly or indirectly, through one or more
intermediaries, controls, is controlled by, or is under common control with
Parent and Merger Sub for, any and all losses, damages, liabilities, claims,
fees, costs and expenses of any kind related thereto (including, without
limitation, any and all reasonable legal fees) actually incurred or suffered by
Parent's Indemnified Parties (excluding the benefit of any insurance proceeds
received by or owed to such parties) arising out of, based upon or resulting
from (i) the breach of any representation or warranty of the Company, Ades or
Shareholder contained in this Agreement, or (ii) the breach of or failure to
perform by the Company, Ades or Shareholder any of their covenants or
obligations contained in this Agreement.
(b) Indemnification by Parent and Merger Sub. Parent and
Merger Sub hereby agree to indemnify and hold harmless Shareholder and its
members, manager's, directors, officers, employees and all persons which
directly or indirectly, through one or more intermediaries, controls, is
controlled by, or is under common control with Shareholder (collectively,
"Shareholder's Indemnified Parties") from, and to reimburse Shareholder and its
members, manages, directors, officers, employees and all persons which directly
or indirectly, through one or more intermediaries, controls, is controlled by,
or is under common control with Shareholder for, any and all losses, damages,
liabilities claims, fees, costs and expenses of any kind related thereto
(including, without limitation, any and all reasonable legal fees) actually
incurred or suffered by Shareholder's Indemnified Parties (excluding the benefit
of any insurance proceeds received by or owed to such parties) arising
-37-
43
out of, based upon or resulting from (i) breach of any representation or
warranty of Parent or Shareholder contained in this Agreement, or (ii) the
breach of or failure to perform by Parent or Shareholder and of their covenants
or obligations contained in this Agreement.
(c) Claims. In the event of the occurrence of any event which
one of the parties hereto asserts is an indemnifiable event pursuant to this
Article VII, the party claiming indemnification shall notify the other party
promptly. If such even involves the claim of any third party, the indemnifying
party shall have sole control over, and shall assume all expense with respect
to, the defense of settlement of such claim; provided, however, that:
(i) the indemnified party shall be entitled to
participate in t he defense of such claim and to employ counsel at its own
expense to assist in the handling of such claim;
(ii) the indemnifying party shall obtain the prior
written approval of the indemnified party before entering into any settlement of
such claim or ceasing to defend against such claim, if pursuant to or as a
result of such settlement or cessation, injunctive or other equitable relief
would be imposed against the indemnified party, and such approval shall not be
unreasonably withheld.
If the indemnifying party does not assume sole control over the
defense or settlement of such claim as provided in this Section 7.1(c), the
indemnified party, following provision of ten (10) days prior written notice to
the indemnifying party, shall have the right to defend and settle the claim in
such manner as it may deem appropriate at the cost and expense of the
indemnifying party, and the indemnifying party shall promptly reimburse the
indemnified party therefor in accordance with this Section 7.1.
7.2 Cooperation; Insurance Proceeds. In any event involving the claim
of any third party, the indemnified party shall cooperate fully with the
indemnifying party in the defense of any such claim. Without limiting the
generality of the foregoing, the indemnified party shall furnish the
indemnifying party with such documentary or other evidence as is then in its
possession as may reasonably be requested by the indemnifying party for the
purpose of defending against any such claim. In determining the amount to be
paid by the indemnifying party hereunder, the amount of insurance proceeds
received by or benefitting the indemnified party in connection with the matter
giving rise to the right of indemnification shall be deducted from the amount to
be paid by the indemnifying party.
7.3 Threshold. Any other provision of this Article VII
notwithstanding, no party hereto shall be entitled to indemnification hereunder
unless the aggregate amount of claims for indemnification by such party exceeds
$10,000 in which event, such party shall be
-38-
44
entitled to indemnification for the full amount of all such claims. In the event
any of Parent's Indemnified Parties are entitled to indemnification hereunder,
Parent may withhold such amounts from the Contingent Payment and the Additional
Payments.
ARTICLE VIII
TERMINATION, AMENDMENT AND WAIVER
8.1 Termination. Except as provided in Section 8.2 below, this
Agreement may be terminated and the Merger abandoned at any time prior to the
Effective Time:
(a) by mutual written consent of the Company and Parent;
(b) by Parent and Merger Sub or the Company if: (i) the
Effective Time has not occurred before 5:00 p.m. (Pacific time) on April 30,
1999, except that in the event Parent extends the Closing Date as provided in
Section 1.2, then the date shall be such date as determined by Parent, but in no
event later than August 31, 1999 (provided that the right to terminate this
Agreement under this clause 8.1(b)(i) shall not be available to any party whose
willful failure to fulfill any obligation hereunder has been the cause of, or
resulted in, the failure of the Effective Time to occur on or before such date);
(ii) there shall be a final nonappealable order of a federal or state court in
effect preventing consummation of the Merger; or (iii) there shall be any
statute, rule, regulation order enacted, promulgated or issued or deemed
applicable to the Merger by any governmental entity that would make consummation
of the Merger illegal;
(c) by Parent and Merger Sub if there shall be any action
taken, or any statute, rule, regulation or order enacted, promulgated or issued
or deemed applicable to the Merger, by any Governmental Entity, which would: (i)
prohibit Parent's or the Surviving Corporation's ownership or operation of all
or any portion of the business of the Company or (ii) compel Parent or the
Company 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 Merger;
(d) by Parent and Merger Sub if they are not in material
breach of their obligations under this Agreement and (i) if any of the
conditions set forth in Sections 6.1 and 6.3 shall become impossible to fulfill
and shall not have been waived in accordance with the terms of this Agreement or
(ii) the Board of Directors of Parent shall withdraw or modify its approval or
recommendation of this Agreement or the Merger, or (iii) there has been a
material breach of any representation, warranty, covenant or agreement contained
in this Agreement on the part of the Company and (a) such breach has not been
cured within five (5) business 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), and (b) as a result of such breach
-39-
45
the conditions set forth in Section 6.3(a) or 6.3(b), as the case may be, would
not then be satisfied;
(e) by the Company if it is not in material breach of its
obligations under this Agreement and (i) if any of the conditions set forth in
Sections 6.1 and 6.2 shall become impossible to fulfill and shall not have been
waived in accordance with the terms of this Agreement or (ii) there has been a
material breach of any representation, warranty, covenant or agreement contained
in this Agreement on the part of the Parent or Merger Sub and (a) such breach
has not been cured within five (5) business days after written notice to Parent
(provided that, no cure period shall be required for a breach which by its
nature cannot be cured), and (b) as a result of such breach the conditions set
forth in Section 6.2(a) or 6.2(b), as the case may be, would not then be
satisfied.
When action is taken to terminate this Agreement pursuant to this
Section 8.1, it shall be sufficient for such action to be authorized by the
Board of Directors (as applicable) of the party taking such action.
8.2 Effect of Termination. In the event of termination of this
Agreement as provided in Section 8.1, this Agreement shall forthwith become void
and there shall be no liability or obligation on the part of Parent, Merger Sub
or the Company, or their respective officer, directors or stockholders, provided
that each party shall remain liable for any breaches of this Agreement prior to
its termination; and provided further that, that provisions of Sections 5.2 and
5.3, the confidentiality obligation contained in Section 5.1, and Articles VIII
and X (other than Section 10.1) of this Agreement shall remain in full force and
effect and survive any termination of this Agreement.
8.3 Amendment. 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.
8.4 Extension; Waiver. At any time prior to the Effective Time,
Parent and Merger 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 in behalf of such
party.
-40-
46
ARTICLE IX
COVENANT NOT TO COMPETE
9.1 General Covenant. For a period commencing on the Effective Time
and ending on the later of (a) three (3) years from the cessation of Ades'
employment with Parent in the event such employment terminates for cause or Ades
voluntarily leaves Parent or (b) on the third anniversary of the Effective Time
in the event Ades' employment with Parent ends for any other reason, Ades and
Shareholder agree that they will not directly or indirectly, engage or
participate in the ownership, management, operation or control of, or be
connected as an officer, employee, partner, director, agent, security holder,
creditor, consultant or otherwise aid or assist anyone in the conduct of, any
business which would be similar to or competitive with the business presently
conducted by the Company or the Parent in the United States of America. Ades and
Shareholder agree that the Company is currently conducting its business in such
territory and that covenants contained in this Section 9.1 shall be construed as
a series of separate covenants, one for each geographical location. Except for
geographical coverage, each such separate covenant shall be deemed identical to
the terms contained therein. If a court of competent jurisdiction deems any
term, provision or geographical location of any covenant or provision to be
invalid, illegal or unenforceable for any reason, the court may reduce or
eliminate such term, provision or geographical location to conform to applicable
laws so as to be valid and enforceable, or, if it cannot be so reduced or
eliminated without materially altering the intention of the parties, the
invalidity or unenforceability of such term or provision shall in no way affect
the validity or enforceability of any other term, provision or geographical
location in this section. Nothing contained in this section shall prevent Ades
and Shareholder from holding or acquiring common stock in any company which is
publically traded at any nationally recognized stock exchange or on the national
market system of The Nasdaq Stock Market, provided that such holdings are less
than five percent of the outstanding capital stock of such publically traded
company.
9.2 Confidentiality. Ades and Shareholder shall not, unless
specifically consented to by Parent, use or divulge, disclose or communicate to
any person any confidential information of the Company or Parent, including,
without limited to, the names, specifications, requirements or practices of
customers, marketing methods and related data, prices obtained for products or
services, lists for other records, written records used in the business of the
Company or Parent, compensation paid to employees and other terms of employment,
or other confidential information concerning the business of the Company or
Parent. The parties stipulate that the foregoing are important, material and
confidential trade secrets.
-41-
47
9.3 Agreement Not to Solicit. To insure the protection of the trade
secrets of Parent and the Company and to preserve the good will of the Company
for the benefit of Parent, Ades and Shareholder agree to not, and will cause
each of their affiliates to not, at any time during Ades' employment with Parent
and for two years after the termination of Ades' employment with Parent:
(a) Attempt in any manner to persuade any customer of the
Company or Parent to cease to do business or to reduce the amount of business
which such customer has customarily done or contemplates doing with Parent or
the Company; or
(b) Solicit for employment or employ any person who is an
employee of Parent or the Company.
9.4 Consideration; Reasonable Scope. Ades and Shareholder agree that
the transactions contemplated by this Agreement constitute good, valid and
binding consideration for obligations and covenants contained in this Article
IX. Ades and Shareholder agree and acknowledge that the agreements and covenants
contained herein are reasonable as to scope and time and necessary to protect
legitimate interests of Parent, including, without limitation, the trade secrets
and good will of the Company and any violations of such provision would result
in irreparable harm to Parent. Accordingly, Ades and Shareholder consent and
agree that in the event of any violation of such covenants by Ades or
Shareholder, Parent shall be entitled to, in addition to such other rights and
remedies that Parent may have at law, injunctive or other relief. Furthermore,
none of Parent's remedies at law or in equity shall be exclusive of any other
remedy available to Parent.
ARTICLE X
GENERAL PROVISIONS
10.1 Survival of Representations, Warranties and Agreements. All
representations, warranties, covenants and agreements in this Agreement or in
any instrument delivered pursuant to this Agreement shall survive the
consummation of the Merger and shall (except as otherwise specifically provided
herein) terminate at 5:00 p.m., California time, on the date which is two years
following the Closing Date; except that the representations and warranties
contained in Section 2.8 shall survive until the conclusion of the applicable
statute of limitations and the representations and warranties contained in
Sections 2.1, 2.2, 2.3, 2.4 and 2.18 shall survive the consummation of Merger
without limitation.
10.2 Notices. All notices and other communications hereunder shall be
in writing and shall be deemed given if delivered personally or by commercial
delivery service, or mailed by registered or certified mail (return receipt
requested) or sent via facsimile (with
-42-
48
acknowledgment of complete transmission) to the parties at the following
addressed (or at such other address for a party as shall be specified by like
notice):
(a) if to Parent or Merger Sub, to:
Intervisual Books, Inc.
0000 Xxxxx Xxxx Xxxxxxxxx, Xxxxx 0000
Xxxxx Xxxxxx, Xxxxxxxxxx 00000
Attention: Executive Vice President
Telephone No: (000) 000-0000
Facsimile No: (000) 000-0000
with a copy to:
Paul, Hastings, Xxxxxxxx & Xxxxxx LLP
000 Xxxx Xxxxxx Xxxxx 00xx Xxxxx
Xxxxx Xxxx, Xxxxxxxxxx 00000
Attention: Xxxxxxx X. Xxxxx, Esq.
Telephone: (000) 000-0000
Facsimile: (000) 000-0000
(b) if to Company to:
Fast Forward Marketing, Inc.
0000 Xxxxxxx Xxxxxx, Xxxxx 000
Xxxxxx xxx Xxx, Xxxxxxxxxx 00000
Attention: President
Telephone: (000) 000-0000
Facsimile: (000) 000-0000
with a copy to:
Tyre Kamins Xxxx & Xxxxxx
0000 Xxxxxxx Xxxx Xxxx, Xxxxx 000
Xxx Xxxxxxx, Xxxxxxxxxx 00000-0000
Attention: Xxxxxxx X. Xxxxxxx, Esq.
Telephone: (000) 000-0000
Facsimile: (000) 000-0000
10.3 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
-43-
49
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.
10.4 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.
10.5 Entire Agreement: Assignment. This Agreement, the Schedules and
Exhibits hereto, and the documents and instruments and other agreements among
the 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 Merger Sub may assign their respective rights and delegate their
respective obligations hereunder to their respective affiliates. Without
limiting the foregoing, this Agreement, the Schedules and Exhibits hereto
supersede and replace the Letter of Intent dated February 2, 1999 between
Parent, the Company and the Shareholder. The parties hereto are executing this
Agreement with the intent that this Agreement shall be binding upon each of
them, notwithstanding the fact that the Ades Employment Agreement, the Ades
Option Agreement, the Xxxxxx Employment Agreement, the Xxxxxx Option Agreement,
the Xxxxxxx Employment Agreement, and the Xxxxxxx Option Agreement (Exhibits B
through G) (collectively, the "Missing Exhibits") are not being attached to this
Agreement at the time of execution. Within 10 days after the execution of this
Agreement, the parties agree in good faith to attempt to negotiate the form of
each Missing Exhibit. In the event the parties are unable to come to terms
regarding any or all of the Missing Exhibits, this Agreement shall still remain
binding on the parties hereto, such Missing Exhibit shall be deleted from the
Agreement and the obligations of the respective parties to deliver an executed
copy of the Missing Exhibit at the Closing shall be removed.
10.6 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 unenforceable, 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 reasonable
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.
-44-
50
10.7 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 any party of any one remedy will not preclude
the exercise of any other remedy.
10.8 Governing Law. This Agreement shall be governed by and construed
in accordance with the laws of the State of California, regardless of the laws
that might otherwise govern under applicable principles of conflicts of laws
thereof. Each of the parties hereto agrees that process may be served upon them
in any manner authorized by the laws of the State of California for such persons
and waives and covenants not to assert or plead any objection which they might
otherwise have to such jurisdiction and such process.
10.9 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.
[Remainder of This Page Intentionally Left Blank]
-45-
51
IN WITNESS WHEREOF, Parent, Merger Sub, Ades, the Company and Shareholder have
caused this Agreement to be signed by their respective duly authorized
representatives, all as of the date first written above.
FAST FORWARD MARKETING, INC., INTERVISUAL BOOKS, INC.,
a California corporation a California corporation
By: /s/ Xxxxxx X. Xxxx By: /s/ Xxxxx X. Xxxx
----------------------------- -------------------------------------
Xxxxxx X. Xxxx, President Xxxxx X. Xxxx, Chairman of the
Board and Chief Executive Officer
By: /s/ Xxxxxx Xxxxx By: /s/ Xxxx X. Xxxxxxxxx
----------------------------- -------------------------------------
Name: Xxxxxx Xxxxx Xxxx X. Xxxxxxxxx, Secretary
Title: Secretary
ADES FFM ACQUISITION CORP.,
a California corporation
/s/ Xxxxxx X. Xxxx By: /s/ Xxx X. Xxxxxx
--------------------------------- -------------------------------------
Xxxxxx X. Xxxx, an individual Name: Xxx X. Xxxxxx
Title: President and Secretary
SHAREHOLDER
/s/ Xxxxxx X. Xxxx
---------------------------------
Xxxxxx X. Xxxx, Trustee of the
Xxxxx Revocable Family Trust UTD
April 18, 1991
/s/ Xxxxxx Xxxxx
---------------------------------
Xxxxxx Xxxxx, Trustee of the
Xxxxx Revocable Family Trust UTD
April 18, 1991
-46-
