EXHIBIT 2.1
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ASSET PURCHASE AGREEMENT
by and among
EQUITY MARKETING, INC.,
a Delaware corporation
as "Parent"
XXXXXXX XXXXXXXXXX, INC.,
a Delaware corporation
as "Acquiror",
XXXXXXX XXXXXXXXXX, INC.,
a Minnesota corporation
as "Seller", and
XXXX XXXXXXXXXX
and
XXXX XXXXXXX
as "Shareholders"
Dated: January 16, 2004
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TABLE OF CONTENTS
Page
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ARTICLE I. DEFINITIONS.......................................................................... 1
1.1. Defined Terms............................................................... 1
1.2. Other Defined Terms......................................................... 12
ARTICLE II. PURCHASE AND SALE OF ASSETS; PURCHASE PRICE......................................... 13
2.1. Transfer of Assets.......................................................... 13
2.2. Assumption of Liabilities................................................... 13
2.3. Nonassumption of Liabilities................................................ 14
2.4. Purchase Price.............................................................. 14
2.5. Pre-Closing Balance Sheet................................................... 15
2.6. Post-Closing Adjustment..................................................... 15
2.7. Earnout..................................................................... 16
2.8. Transfer Taxes.............................................................. 20
ARTICLE III. CLOSING............................................................................ 20
3.1. Closing..................................................................... 20
3.2. Deliveries at Closing....................................................... 21
3.3. Other Closing Transactions.................................................. 22
3.4. Other Deliveries............................................................ 22
ARTICLE IV. REPRESENTATIONS AND WARRANTIES OF THE SELLER PARTIES................................ 23
4.1. Organization of Seller...................................................... 23
4.2. Subsidiaries................................................................ 23
4.3. Authorization............................................................... 23
4.4. Consents and Approvals...................................................... 24
4.5. Absence of Certain Changes or Events........................................ 24
4.6. Facilities.................................................................. 25
4.7. Assets...................................................................... 26
4.8. Contracts and Commitments................................................... 26
4.9. Permits..................................................................... 29
4.10. No Conflict or Violation.................................................... 29
4.11. Financial Statements........................................................ 29
4.12. Undisclosed Liabilities..................................................... 30
4.13. Books and Records........................................................... 30
4.14. Litigation.................................................................. 30
4.15. Labor Matters............................................................... 30
4.16. Compliance with Law......................................................... 31
4.17. No Brokers.................................................................. 31
4.18. No Other Agreements to Sell the Assets or Capital Stock of Seller........... 31
4.19. Intellectual Property....................................................... 32
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4.20. Employee Matters............................................................ 33
4.21. Transactions with Certain Persons........................................... 35
4.22. Certain Payments............................................................ 35
4.23. Tax Matters................................................................. 36
4.24. Insurance................................................................... 36
4.25. Accounts Receivable......................................................... 37
4.26. Other Current Assets........................................................ 37
4.27. Customers and Suppliers..................................................... 38
4.28. Compliance with Environmental Laws.......................................... 38
4.29. Xxxxxxxx.................................................................... 38
4.30. Banking Relationships....................................................... 39
4.31. Investment Intent........................................................... 39
ARTICLE V. REPRESENTATIONS AND WARRANTIES OF THE ACQUIROR PARTIES............................... 40
5.1. Organization of the Acquiror Parties........................................ 40
5.2. Authorization............................................................... 40
5.3. No Conflict or Violation.................................................... 41
5.4. SEC Filings................................................................. 41
ARTICLE VI. COVENANTS OF THE SELLER PARTIES AND THE ACQUIROR PARTIES............................ 42
6.1. Confidentiality and Non-Competition......................................... 42
6.2. Further Assurances.......................................................... 44
6.3. No Solicitation............................................................. 44
6.4. Notification of Certain Matters............................................. 45
6.5. Investigation by the Acquiror Parties....................................... 45
6.6. Conduct of Business......................................................... 45
6.7. Employee Matters............................................................ 46
6.8. Corporate Name of Seller.................................................... 46
6.9. Interim Services and Facilities Agreement................................... 47
6.10. Additional Holdback Escrow.................................................. 47
ARTICLE VII. CONSENTS TO ASSIGNMENT............................................................. 47
7.1. Consents to Assignment...................................................... 47
ARTICLE VIII. CONDITIONS TO THE SELLER pARTIES' OBLIGATIONS..................................... 48
8.1. Representations, Warranties and Covenants................................... 48
8.2. No Actions or Court Orders.................................................. 48
8.3. Authorization............................................................... 48
8.4. Ancillary Agreements........................................................ 48
8.5. Other Deliveries............................................................ 48
ARTICLE IX. CONDITIONS TO THE ACQUIROR PARTIES' OBLIGATIONS..................................... 48
9.1. Representations, Warranties and Covenants................................... 49
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9.2. Consents; Regulatory Compliance and Approvals............................... 49
9.3. No Actions or Court Orders.................................................. 49
9.4. Material Changes............................................................ 49
9.5. Other Deliveries............................................................ 49
ARTICLE X. ACTIONS BY THE SELLER PARTIES AND THE ACQUIROR PARTIES AFTER THE CLOSING............. 49
10.1. Books and Records; Tax Matters.............................................. 49
10.2. Survival of Representations, Etc. ......................................... 50
10.3. Indemnification............................................................. 50
10.4. Escrow...................................................................... 53
10.5. Bulk Sales.................................................................. 53
10.6. Taxes....................................................................... 53
10.7. Insurance................................................................... 54
10.8. Exclusive Remedy............................................................ 54
10.9. Right of Offset............................................................. 54
ARTICLE XI. TERMINATION......................................................................... 54
11.1. Termination................................................................. 54
11.2. Procedure and Effect of Termination......................................... 55
ARTICLE XII. MISCELLANEOUS...................................................................... 55
12.1. Assignment.................................................................. 55
12.2. Notices..................................................................... 55
12.3. Choice of Law............................................................... 56
12.4. Entire Agreement; Amendments and Waivers.................................... 56
12.5. Counterparts................................................................ 57
12.6. Expenses.................................................................... 57
12.7. Severability................................................................ 57
12.8. Headings.................................................................... 57
12.9. Publicity................................................................... 57
12.10. Cumulative Remedies......................................................... 57
12.11. No Third-Party Beneficiaries................................................ 57
12.12. Arbitration; Process........................................................ 57
12.13. WAIVER OF JURY TRIAL........................................................ 58
LIST OF EXHIBITS
Exhibit A--List of Excluded Claims, Causes of Action and Other Rights
Exhibit B--Assignment and Assumption of Contract Rights
Exhibit C--Assignment of Intellectual Property
Exhibit D--Xxxx of Sale
Exhibit E--Escrow Indemnification Agreement
Exhibit F--List of Excluded Assets
Exhibit G--Interim Services and Facilities Agreement
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Exhibit H--Registration Rights Agreement
Exhibit I--Opinion of Seller's Counsel
Exhibit J--General Release
Exhibit K--Employment Agreement
LIST OF SCHEDULES
Schedule 2.7--Inter-Division Commissions
Schedule 4.1--Foreign Qualifications
Schedule 4.2--Subsidiaries
Schedule 4.4--Consents and Approvals
Schedule 4.5--Absence of Certain Changes or Events
Schedule 4.7--Assets
Schedule 4.8--Contracts and Commitments
Schedule 4.9--Permits
Schedule 4.10--Conflict or Violations
Schedule 4.11--Financial Statements
Schedule 4.12--Undisclosed Liabilities
Schedule 4.14--Litigation
Schedule 4.15(b)--Employment Losses
Schedule 4.17--Brokers
Schedule 4.19(a)--Patents, Trademarks and Copyrights
Schedule 4.19(b)--License, Sublicense and Royalty Agreements
Schedule 4.20--Seller Employee Plans
Schedule 4.21--Transactions with Certain Persons
Schedule 4.23(c)--Tax Deficiencies
Schedule 4.24--Insurance
Schedule 4.26--Other Current Assets
Schedule 4.27--Customers and Suppliers
Schedule 4.28--Environmental
Schedule 4.29--Xxxxxxxx
Schedule 4.30--Banking Relationships
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ASSET PURCHASE AGREEMENT
This ASSET PURCHASE AGREEMENT (this "Agreement"), dated as of
January 16, 2004 (the "Execution Date"), is entered into by and among EQUITY
MARKETING, INC., a Delaware corporation ("Parent"), XXXXXXX XXXXXXXXXX, INC., a
Delaware corporation wholly owned by Parent (individually "Acquiror" and
together with Parent, collectively, the "Acquiror Parties"), XXXXXXX XXXXXXXXXX,
INC., a Minnesota corporation ("Seller"), XXXX XXXXXXXXXX, an individual
resident of Minnesota ("Xxxxxxxxxx"), and XXXX XXXXXXX, an individual resident
of Minnesota (individually "Xxxxxxx" and together with Xxxxxxxxxx, collectively,
"Shareholders"). The Shareholders and Seller are sometimes collectively referred
to herein as the "Seller Parties".
RECITALS
WHEREAS, Seller wishes to sell to Acquiror, and Acquiror
wishes to purchase from Seller, the Assets (as defined below) at the price and
under the specified terms and conditions as set forth herein;
WHEREAS, as all of the shareholders of Seller, the
Shareholders will benefit from the sale of the Assets to Acquiror.
AGREEMENT
NOW THEREFORE, in consideration of the respective covenants
and promises contained herein and for other good and valuable consideration, the
receipt and adequacy of which is hereby acknowledged, the parties hereto agree
as follows:
ARTICLE I.
DEFINITIONS
1.1. Defined Terms. As used herein, the terms below shall have the
following meanings. Any such term, unless the context otherwise requires, may be
used in the singular or plural, depending upon the reference.
"Accounts Receivable" shall mean all accounts and notes
receivable (whether current or noncurrent) of Seller pertaining to the Business,
including trade accounts receivable (including accounts receivable for any
products shipped prior to the Closing Date but not invoiced) outstanding as of
the Closing Date, and any other rights of Seller to receive payments pertaining
to the Business as of the Closing Date in respect of goods shipped, products
sold or services rendered prior to the Closing Date.
"Action" shall mean any action, complaint claim, suit,
litigation, proceeding, labor dispute, arbitral action, governmental audit,
inquiry, criminal prosecution, civil or criminal investigation or unfair labor
practice charge or complaint.
"Affiliate" shall mean, when used with reference to any
specified Person, any other Person directly or indirectly controlling,
controlled by, or under direct or indirect common control with, such specified
Person. For the purposes of this definition, "control," when used with respect
to any specified Person, means the power to direct or cause the direction of
management or policies of such Person, directly or indirectly, whether through
the ownership of voting securities, by contract or otherwise; and the terms
"controlling" and "controlled" have meanings correlative of the foregoing.
"Allocations" shall mean Corporate Services Allocation,
Operations and Sourcing Fee, and Rent and Facilities Cost Allocation,
collectively.
"Assets" shall mean all of the right, title and interest of
Seller in and to the business, properties, assets and rights of any kind,
whether tangible or intangible, real or personal and constituting, or used in
connection with, or related to, the Business, including, without limitation, all
of Seller's right, title and interest in the following:
(a) all Accounts Receivable (whether current or
noncurrent);
(b) all Contract Rights, to the extent transferable;
(c) all Personal Property Leases;
(d) all Personal Property Leasehold Estates;
(e) all Fixtures and Equipment;
(f) all Inventory;
(g) all Books and Records;
(h) all Intellectual Property of Seller pertaining to the
Business;
(i) all Permits;
(j) all available supplies, sales literature, promotional
literature, customer, supplier and distributor lists, art work, display units,
telephone and fax numbers and purchasing records related to the Business;
(k) all rights under or pursuant to all warranties,
representations and guarantees made by suppliers in connection with the Assets
or services furnished to Seller pertaining to the Business or affecting the
Assets, to the extent such warranties, representations and guarantees are
assignable;
(l) all refunds, deposits, prepayments and prepaid
expenses of Seller pertaining to the Business; and
(m) all claims, causes of action, choses in action,
rights of recovery and rights of set-off of any kind, against any person or
entity pertaining to the Business, including without
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limitation any liens, security interests, pledges or other rights to payment or
to enforce payment in connection with products delivered by Seller on or prior
to the Closing Date other than those set forth on Exhibit A attached hereto;
but excluding therefrom (in each case) the Excluded Assets.
"Assignment and Assumption of Contract Rights" shall mean the
Assignment and Assumption of Contract Rights, substantially in the form attached
hereto as Exhibit B to be entered into at the Closing by and between Seller and
Acquiror.
"Assignment of Intellectual Property" shall mean the
Assignment of Intellectual Property Rights, substantially in the form attached
hereto as Exhibit C, to be executed at the Closing by Seller in favor of
Acquiror.
"Balance Sheet" shall mean the reviewed balance sheet of
Seller at December 31, 2002, together with the notes thereto.
"Balance Sheet Date" shall mean December 31, 2002.
"Balance Sheet Liabilities" shall mean the Assumed Liabilities
to be set forth on the Pre-Closing Balance Sheet and the Closing Balance Sheet.
"Base EBITDA" shall mean One Million One Hundred Sixty-One
Thousand Dollars ($1,161,000).
"Benefit Arrangement" shall mean any employment, consulting,
severance or other similar contract, arrangement or policy and each plan,
arrangement (written or oral), program, agreement or commitment providing for
insurance coverage (including, without limitation, any self-insured
arrangements), workers' compensation, disability benefits, supplemental
unemployment benefits, vacation benefits, retirement benefits, life, health,
disability or accident benefits (including, without limitation, any "voluntary
employees' beneficiary association" as defined in Section 501(c)(9) of the Code
providing for the same or other benefits) or for deferred compensation,
profit-sharing bonuses, stock options, stock appreciation rights, stock
purchases or other forms of incentive compensation or post-retirement insurance,
compensation or benefits which is not a Welfare Plan, Pension Plan or
Multiemployer Plan.
"Xxxx of Sale" shall mean the Xxxx of Sale, substantially in
the form attached hereto as Exhibit D, to be executed at the Closing by Seller
in favor of Acquiror.
"Books and Records" shall mean all business records, tangible
data, documents, management information systems (including related computer
software), files, customer lists, supplier lists, blueprints, specifications,
designs, drawings, plans, operation or maintenance manuals, bids, personnel
records, invoices, sales literature, all Tax Returns and all worksheets, notes,
files or documents related thereto, and all other books and records maintained
by Seller pertaining to the Business.
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"Business" shall mean any business of Seller, including
without limitation, Seller's business activities related to premium fulfillment
and program management and custom design and manufacturing of promotional toys,
premiums and other items, but excluding Seller's media planning and media buying
business (the "Cable Media Division") or Seller's strategic planning and
creative promotion business (the "Strategic and Creative Division").
"Business Day" shall mean a day other than Saturday, Sunday or
any day on which banks located in the State of California are authorized or
obligated to close.
"Closing Net Working Capital" shall mean Current Assets minus
Balance Sheet Liabilities, in each case, as of the Closing Date.
"Code" shall mean the Internal Revenue Code of 1986, as
amended.
"Contract" shall mean any agreement, contract, note, loan,
evidence of indebtedness, purchase order, letter of credit, indenture, security
or pledge agreement, franchise agreement, undertaking, practice, covenant not to
compete, employment agreement, license, instrument, obligation or commitment to
which Seller is a party or is bound, whether oral or written, related to the
Business but excluding all Personal Property Leases and Facility Leases.
"Contract Rights" shall mean all of Seller's rights and
obligations under the Contracts and Personal Property Leases identified on
Schedule 4.8 as "Assumed Contracts" or "Assumed Leases" and under any Contracts
or Personal Property Leases not so listed which Acquiror, in its sole
discretion, elects to accept and assume.
"Corporate Services Allocation" shall mean a cost allocation
for the value of the financial, legal and other services provided at the
corporate headquarters (i.e. Parent) level to the Business. The Corporate
Services Allocation shall consist of (i) the actual direct costs incurred at the
corporate headquarters level on behalf of the Business (e.g., dedicated finance
personnel, outside counsel fees, regulatory filing fees, and other direct costs
mutually agreed by Xxxxxxxxxx and Parent) and (ii) an allocation of indirect
costs for the value of services provided at the corporate headquarters level
equal to one percent (1%) of the net sales of the Business in excess of 2003 net
sales (calculated in accordance with GAAP consistently applied) plus $2,000,000.
(For example, if net sales of the Business in 2003 are $16,000,000 and net sales
in 2004 are $19,000,000, the Corporate Services Allocation for 2004 would be
direct costs plus $10,000.)
"Court Order" shall mean any judgment, decision, consent
decree, injunction, ruling or order of any federal, state or local court or
governmental agency, department or authority that is binding on any person or
its property under applicable law.
"Current Assets" shall mean the current assets (excluding
intercompany receivables of Seller or the Business) of the Business (to the
extent included in the Assets) determined in accordance with GAAP.
"Current Liabilities" shall mean the current liabilities of
the Business incurred in the ordinary course of business determined in
accordance with GAAP and excluding any (i) liabilities (including accrued
liabilities) for Taxes of the Seller Parties, (ii) liabilities to the
Shareholders, including any liabilities that may arise as a result of the
consummation of the
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transactions contemplated by this Agreement, (iii) liabilities to any Person
that may arise as a result of the consummation of the transactions contemplated
by this Agreement, (iv) severance liabilities, (v) indebtedness for borrowed
money, and (vi) Excluded Liabilities.
"Default" shall mean (a) a breach of or default under any
Contract or Lease, (b) the occurrence of an event that with the passage of time
or the giving of notice or both would constitute a breach of or default under
any Contract or Lease, or (c) the occurrence of an event that with or without
the passage of time or the giving of notice or both would give rise to a right
of termination, renegotiation or acceleration under any Contract or Lease.
"Disclosure Schedule" shall mean a schedule executed and
delivered by the Seller Parties to Acquiror as of the date hereof which sets
forth the exceptions to the representations and warranties contained in Article
IV hereof and certain other information called for by this Agreement. Unless
otherwise specified, each reference in this Agreement to any numbered schedule
is a reference to that numbered schedule which is included in the Disclosure
Schedule.
"EBITDA" shall mean (a) with respect to the year 2004, the
actual earnings before interest, taxes, depreciation and amortization of the
Business for the period from the Closing Date until December 31, 2004, derived
from financial statements prepared in accordance with GAAP, plus the 2004 Pro
Forma Adjustment, less Allocations and plus Inter-Division Commissions, or (b)
with respect to the years 2005, 2006, 2007 and 2008,the actual earnings before
interest, taxes, depreciation and amortization of the Business, derived from
financial statements prepared in accordance with GAAP, less Allocations and plus
Inter-Division Commissions.
"EBITDA Threshold" shall mean One Million Four Hundred Eleven
Thousand Dollars ($1,411,000).
"Employee Plans" shall mean all Benefit Arrangements,
Multiemployer Plans, Pension Plans and Welfare Plans which are, or within the
past six years were, sponsored, maintained, contributed to or required to be
contributed to by Seller or any of its ERISA Affiliates or under which Seller or
any of its ERISA Affiliates may incur any liability.
"Encumbrance" shall mean any claim (as defined in Section
101(5) of the Bankruptcy Code), lien, pledge, option, charge, easement, security
interest, deed of trust, mortgage, right-of-way, encroachment, building or use
restriction, conditional sales agreement, encumbrance or other right of third
parties, whether voluntarily incurred or arising by operation of law, and
includes, without limitation, any agreement to give any of the foregoing in the
future, and any contingent sale or other title retention agreement or lease in
the nature thereof.
"Environmental Laws" shall mean all applicable federal, state,
or local laws, statutes, or regulations, which regulate or relate to the
protection or clean up of the environment; the use, treatment, storage,
transportation, handling, disposal or release of hazardous substances, or the
health and safety of persons or property.
"ERISA" shall mean the Employee Retirement Income Security Act
of 1974, as amended.
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"ERISA Affiliate" shall mean, with respect to any Person, any
entity which is (or at any relevant time was) a member of a "controlled group of
corporations" with, under "common control" with, or a member of an "affiliated
service group" with, such Person as defined in Section 414(b), (c), (m) or (o)
of the Code, but only with respect to such time that such entity was an ERISA
Affiliate.
"Escrow Agent" shall mean a bank or other institution
reasonably acceptable to Acquiror and Seller to be designated by Acquiror and
Seller prior to the Closing.
"Escrow Indemnification Agreement" shall mean that certain
Escrow Indemnification Agreement, to be entered into at the Closing pursuant to
Section 10.4 hereof, by and among the Acquiror Parties, the Seller Parties and
the Escrow Agent, substantially in the form attached hereto as Exhibit E.
"Estimated Closing Net Working Capital" shall mean Current
Assets minus Balance Sheet Liabilities, in each case as set forth on the
Pre-Closing Balance Sheet.
"Exchange Act" shall mean the Securities Exchange Act of 1934,
as amended, and the rules and regulations promulgated thereunder.
"Excluded Assets" shall mean the following assets of Seller
which are not to be acquired by Acquiror hereunder:
(a) all cash and cash equivalents;
(b) all Permits, to the extent not transferable;
(c) all claims, causes of action, choses in action,
rights of recovery and rights of set-off of any kind against any Person arising
out of or relating to the Assets to the extent related to the Excluded
Liabilities;
(d) all obligations of the Shareholders or their
Affiliates to Seller; and
(e) such assets set forth on Exhibit F attached hereto.
"Excluded Liabilities" shall mean any and all Liabilities of
any of the Seller Parties (including any Liability to or in respect of any
employee or former employee of Seller or its ERISA Affiliates, including,
without limitation any Liability under any employment agreement that is not an
Assumed Contract, whether or not written, between Seller and any person, and any
Liability under or with respect to any Employee Plan), other than the Assumed
Liabilities; including, without limitation, all liabilities and obligations
pertaining to the Cable Media Division or the Strategic and Creative Division,
all noncurrent Liabilities of Seller, all Facility Leases of Seller, all
obligations of the Seller to the Shareholders or their Affiliates and all
intercompany payables of Seller.
"Execution Date Value" shall mean the average closing price
per share of the Parent's Common Stock on the Nasdaq National Market over the
thirty (30) day period preceding the Execution Date.
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"Facilities" shall mean all plants, offices, manufacturing
facilities, stores, warehouses, improvements, administration buildings, and all
real property and related facilities of Seller.
"Facility Leases" shall mean all of the leases of Facilities
listed on Schedule 4.8(a)(xiii).
"Financial Statements" shall mean the Twelve-Month Financial
Statements and the Interim Financial Statements.
"Fixtures and Equipment" shall mean all of the furniture,
fixtures, furnishings, machinery, automobiles, trucks, spare parts, supplies,
equipment, tooling, molds, patterns, dies and other tangible personal property
owned by Seller which are used in connection with or related to the Business,
wherever located and including any such Fixtures and Equipment in the possession
of any of Seller's suppliers, including all warranty rights with respect
thereto.
"GAAP" shall mean generally accepted accounting principles in
the United States.
"Insurance Policies" shall mean the insurance policies of
Seller listed on Schedule 4.24.
"Intellectual Property" shall mean any and all rights in or
affecting intellectual or industrial property or other proprietary rights,
existing now or in the future in the United States or anywhere in the universe.
Intellectual Property includes, without limitation, any and all rights in, to,
or subsisting in the following:
(a) all issued patents, reissued or reexamined patents,
revivals of patents, divisions, continuations and continuations-in-part of
patents, all renewals and extensions thereof utility models, and certificates of
invention, regardless of country or formal name;
(b) all published or unpublished nonprovisional and
provisional patent applications, including the right to file other or further
applications, reexamination proceedings, invention disclosures and records of
invention;
(c) all copyrights, copyrightable works, semiconductor
topography and mask work rights, including, without limitation, all rights of
authorship, use, publication, reproduction, distribution, performance,
transformation, moral rights and ownership of copyrightable works, semiconductor
topography works and mask works, the right to create derivative works, and all
applications for registration, registrations, renewals and extensions of
registrations, together with all other interests accruing by reason of
international copyright, semiconductor topography and mask work conventions;
(d) all trademarks, service marks, logos, trade names,
domain names, 1-800, 1-888, 1-877 and other "vanity" telephone numbers, together
with the goodwill of the business associated therewith, all applications for
registration and registrations thereof, renewals thereof, the right to bring
opposition and cancellation proceedings and any and all rights under the laws of
trade dress;
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(e) all proprietary information and materials, whether or
not patentable or copyrightable, and whether or not reduced to practice,
including without limitation all technology, ideas, research and development,
inventions, designs, manufacturing and operating specifications and processes,
know-how, formulae, customer and supplier lists, shop rights, designs, drawings,
patterns, trade secrets and technical data, computer programs, and all hardware,
software and processes; and
(f) all other intangible assets, properties and rights
(whether or not appropriate steps have been taken to protect, under applicable
law, such other intangible assets, properties or rights) including, without
limitation, all claims, causes of action and rights to xxx for past, present and
future infringement or unconsented use of any of the Intellectual Property, the
right to file applications and obtain registrations, and all rights arising
therefrom and pertaining thereto and all products, proceeds and revenues arising
from or relating to any and all of the foregoing.
"Inter-Division Commissions" shall have the meaning set forth
on Schedule 2.7.
"Interim Balance Sheet" shall mean the reviewed balance sheet
of the Business dated the Interim Balance Sheet Date.
"Interim Balance Sheet Date" shall mean August 31, 2003.
"Interim Financial Statements" shall mean the Interim Balance
Sheet and the reviewed statements of operations, changes in stockholders' equity
and cash flow of the Business for the eight month period ended on the Interim
Balance Sheet Date.
"Interim Services and Facilities Agreement" shall mean the
Interim Facilities and Services Agreement, substantially in the form attached
hereto as Exhibit G to be entered into at the Closing by and between Seller and
Acquiror.
"Inventory" shall mean all of Seller's inventory held for
resale pertaining to the Business and all of Seller's raw materials, unbilled
receivables, deferred costs, work in process, finished products, wrapping,
supply and packaging items and similar items pertaining to the Business, in each
case, wherever the same may be located.
"IRS" shall mean the Internal Revenue Service.
"Leasehold Improvements" shall mean all leasehold improvements
situated in or on the Leased Real Property and owned by Seller.
"Leased Real Property" shall mean all leased property
described in the Facility Leases.
"Liabilities" shall mean any direct or indirect liability,
indebtedness, obligation, commitment, expense, claim, deficiency, guaranty or
endorsement of or by any Person of any type, whether accrued, absolute,
contingent, matured, unmatured or other, and shall include all reserves.
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"Material Adverse Effect" or "Material Adverse Change" shall
mean any significant adverse effect or change in the condition (financial or
other), business, results of operations, prospects, assets, Liabilities or
operations of the Business, taken as a whole, or on the ability of the Seller or
the Shareholders to consummate the transactions contemplated hereby, or any
event or condition which would, with the passage of time, constitute a "Material
Adverse Effect" or "Material Adverse Change"; provided, however, that changes or
events (a) resulting from the entry into this Agreement or the public
announcement thereof, (b) resulting from conditions specifically affecting the
premium fulfillment, program management and custom design and manufacturing of
promotional toys and premiums businesses (excluding any such conditions that
result in material adverse changes or developments in United States financial
markets (including as a result of the occurrence of any outbreak or escalation
of national or international hostilities, acts of terrorism involving the United
States or declaration of a national emergency or war by the United States), the
material effect of which does not dissipate within ten (10) Business Days), (c)
the Acquiror Parties have Knowledge of, or (d) are described on Seller's
disclosure schedule attached hereto shall not constitute a "Material Adverse
Effect" or a "Material Adverse Change" hereunder.
"Multiemployer Plan" shall mean any "multiemployer plan," as
defined in Section 3(37) or 4001(a)(3) of ERISA.
"Operations and Sourcing Fee" shall mean a cost allocation for
the value of operations and sourcing services provided by an Affiliate to the
Business. The Operations and Sourcing Fee shall consist of (i) the actual direct
costs incurred at the Affiliate on behalf of the Business (e.g., dedicated
sourcing personnel in Hong Kong, outside , and other direct costs mutually
agreed by Xxxxxxxxxx and Parent) and (ii) an allocation of indirect costs for
the value of services provided at the Affiliate level equal to one percent (1%)
of the net sales of the Business in excess of 2003 net sales (calculated in
accordance with GAAP consistently applied) plus $2,000,000. (For example, if net
sales of the Business in 2003 are $16,000,000 and net sales in 2004 are
$19,000,000, the Operations and Sourcing Fee for 2004 would be direct costs plus
$10,000.)
"ordinary course of business" or "ordinary course" or any
similar phrase shall mean the ordinary course of the Business and consistent
with Seller's past practice.
"Organizational Documents" shall mean (a) the articles or
certificate of incorporation, all certificates of determination and designation,
and the bylaws of a corporation; (b) the partnership agreement and any statement
of partnership of a general partnership; (c) the limited partnership agreement
and the certificate or articles of limited partnership of a limited partnership;
(d) the operating agreement, limited liability company agreement and the
certificate or articles of organization or formation of a limited liability
company; (e) any charter or similar document adopted or filed in connection with
the creation, formation or organization of any other Person; and (f) any
amendment to any of the foregoing.
"Owned Real Property" shall mean all real property owned in
fee by Seller, including, without limitation, all rights, easements and
privileges appertaining or relating thereto, all buildings, fixtures, and
improvements located thereon and all Facilities thereon, if any.
9
"Parent's Common Stock" shall mean the common stock, $.001 par
value, of Equity Marketing, Inc.
"" shall mean the Pension Benefit Guaranty Corporation.
"Pension Plan" shall mean any "employee pension benefit plan"
as defined in Section 3(2) of ERISA (other than a Multiemployer Plan).
"Permits" shall mean all material licenses, permits,
franchises, approvals, authorizations, consents or orders of, or filings with,
any governmental authority, whether foreign, federal, state or local, or any
other person, necessary or desirable for the past, present or anticipated
conduct of, or relating to the operation of the Business by Seller.
"Permitted Encumbrances" shall mean the Encumbrances set forth
in Schedule 4.7.
"Person" shall mean any individual, corporation (including any
non-profit corporation), general or limited partnership, limited liability
company, joint venture, estate, trust, association, organization, labor union,
or other entity or governmental body.
"Personal Property Leasehold Estates" shall mean all of
Seller's rights and obligations as lessee under the Personal Property Leases.
"Personal Property Leases" shall mean all of the existing
leases with respect to the personal property of Seller listed on Schedule
4.8(a)(xiv) and leases with respect to the personal property of Seller which are
not required to be listed on Schedule 4.8(a)(xiv).
"Registration Rights Agreement" shall mean the Registration
Rights Agreement in substantially the form attached hereto as Exhibit H to be
entered into at the Closing by and between the Seller and Parent.
"Regulations" shall mean any laws, statutes, ordinances,
regulations, rules, notice requirements, court decisions, agency guidelines,
principles of law and orders of any foreign, federal, state or local government
and any other governmental department or agency, including, without limitation,
Environmental Laws, energy, motor vehicle safety, public utility, zoning,
building and health codes, occupational safety and health and laws respecting
employment practices, employee documentation, terms and conditions of employment
and wages and hours.
"Rent and Facilities Cost Allocation" shall mean a cost
allocation for the fair value of corporate facilities occupied or used by the
Business (e.g., dedicated use of a corporate warehouse facility).
"Representative" shall mean any officer, director, principal,
attorney, agent, employee or other representative.
"Seller Employee Plan" shall mean any Employee Plan in which
any employee, former employee, director, or former director of Seller or its
subsidiaries participates, has participated, or is eligible to participate on
the Closing Date.
10
"Seller Parties' Knowledge" or "Knowledge of the Seller
Parties" or "Seller's Knowledge" shall mean the Knowledge of any of Seller,
Xxxxxxxxxx or Xxxxxxx, in each case, following due inquiry, including due
inquiry of Xxxxxxx Xxxxxxxx. "Knowledge" shall mean (a) in the case of a natural
Person, the actual knowledge of such Person or what such Person reasonably
should have known if such Person used due care in the performance of his or her
duties or could be expected to discover or otherwise become aware of in the
course of conducting a reasonably comprehensive investigation regarding the
accuracy of any representation or warranty contained in this Agreement, and (b)
in the case of any other Person, the actual knowledge after reasonable inquiry,
or what should have been known if due care were used, by the officers, managers,
general partner or other natural Person fulfilling similar duties on behalf of
or with respect to such Person.
"Subsidiary" shall mean (a) any corporation in an unbroken
chain of corporations beginning with Seller if each of the corporations other
than the last corporation in the unbroken chain then owns stock possessing fifty
percent (50%) or more of the total combined voting power of all classes of stock
in one of the other corporations in such chain, (b) any partnership in which
Seller is a general partner, or (c) any partnership in which Seller possesses a
fifty percent (50%) or greater interest in the total capital or total income of
such partnership.
"Tax" shall mean (a) any net income, alternative or add-on
minimum tax, gross income, gross receipts, sales, use, ad valorem, value added,
transfer, franchise, profits, license, registration, recording, documentary,
conveyancing, gains, withholding, payroll, employment, excise, severance, stamp,
occupation, premium, property, environmental or windfall profit tax, custom duty
or other tax, governmental fee or other like assessment or charge of any kind
whatsoever, together with any interest, penalty, addition to tax or additional
amount imposed by any governmental authority responsible for the imposition of
any such tax (United States or foreign), (b) liability for the payment of any
amount described in clause (a) as a result of being or having been a member of
an affiliated, consolidated, combined or unitary group, and (c) liability for
the payment of any amounts of the type described in clause (a) as a result of
being party to any agreement or any express or implied obligation to indemnify
any other Person.
"Taxpayer" shall mean (a) the Shareholders, (b) Seller and (c)
each member of any group with respect to which the Shareholders or Seller files
or has filed a consolidated, combined or unitary Tax Return.
"Tax Return" shall mean a report, return or other information
required to be supplied to a governmental agency with respect to Taxes,
including, where permitted or required, combined or consolidated returns for any
group of entities that includes Seller.
"Twelve-Month Financial Statements" shall mean the reviewed
balance sheet and the reviewed statements of operations, changes in
stockholders' equity and cash flow of Seller for the twelve month period ended
on the Balance Sheet Date.
"Welfare Plan" shall mean any "employee welfare benefit plan"
as defined in Section 3(1) of ERISA.
11
"2004 Pro Forma Adjustment" shall mean the actual earnings
before interest, taxes, depreciation and amortization of the Business for the
period from January 1, 2004 until the Closing Date, derived from the 2004
Pre-Closing Interim Statement.
1.2. Other Defined Terms. The following terms shall have the
meanings defined for such terms in the Sections set forth below:
Term Section
---- -------
Acquiror Indemnitees 10.3(a)
Additional Contracts 2.2(a)
Additional Holdback 6.10
Adjustment Amount 2.6(b)
Ancillary Agreements 4.3
Assumed Contracts 2.2(a)
Assumed Leases 2.2(a)
Assumed Liabilities 2.2(a)
Business Financial Statements 2.7(a)
Claim 10.3(d)
Claim Notice 10.3(d)
Closing 3.1
Closing Balance Sheet 2.6(a)
Closing Date 3.1
Competitive Activities 6.1(b)
Damages 10.3(a)
Earnout Payments 2.7(a)
Earnout Period 2.7(a)
Employment Agreement 6.7(f)
Escrow Amount 2.4(d)
Holdback Amount 2.4(c)
Indemnification Basket 10.3(g)
Independent Accountant 2.7(b)
Notifying Party 6.4
Parent SEC Reports 5.4
Payback Mechanism 6.10
Pre-Closing Balance Sheet 2.5(a)
Pre-Closing Tax Period 10.5(a)
Post-Closing Tax Period 10.5(a)
Proposed Acquisition Transaction 6.3
Purchase Price 2.4(a)
Purchase Price Allocation Schedule 2.4(b)
Rehired Employee 6.7(a)
Release Trigger 6.10
Restricted Person 6.1(a)
SEC 5.4
Seller Indemnitees 10.3(b)
Seller's Account 2.4(a)
12
Shortfall Amount 2.6(b)
WARN Act 4.15(b)
2004 Pre-Closing Interim Statement 2.7(f)
ARTICLE II.
PURCHASE AND SALE OF ASSETS; PURCHASE PRICE
2.1. Transfer of Assets. Upon the terms and subject to the
conditions contained herein, on the Closing Date, Seller hereby agrees to sell,
convey, transfer, assign and deliver to Acquiror, and Acquiror hereby agrees to
purchase, acquire and accept from Seller, the Assets, free and clear of all
Encumbrances other than Permitted Encumbrances.
2.2. Assumption of Liabilities.
(a) Upon the terms and subject to the conditions
contained herein, at the Closing, Acquiror agrees to assume (i) all Liabilities
accruing, arising out of, or relating to periods, events or occurrences
happening after the Closing Date under (a) the Contracts, Permits, Facility
Lease and Personal Property Leases identified on Schedule 4.8 as "Assumed
Contracts" or "Assumed Leases"; (b) any Contract or Lease pertaining to the
Business not required to be set forth on Schedule 4.8 which (1) is commercially
reasonable as to its terms binding Seller, (2) is terminable by Seller within
twelve (12) months of Closing, without adverse recourse, (3) is reflected in the
Books and Records, (4) was entered into as a result of an arms' length
negotiation in the ordinary course of business and (5) would not, together with
other such Contracts described in clause (b), create a Material Adverse Effect;
and (c) under any other Contracts or Personal Property Leases that are not
Assumed Contracts pursuant to the foregoing clauses (a) or (b) which Acquiror
elects to accept and assume in its sole discretion (the "Additional Contracts"),
excluding in each case any Liability for any Default under any Contract or Lease
occurring on or prior to the Closing Date, and excluding, in each case, any
intercompany Contracts of Seller or the Business, (ii) all Current Liabilities,
and (iii) liability for real property, personal property and similar ad valorem
taxes specifically apportioned to Acquiror pursuant to Section 10.7 hereof
(collectively, the "Assumed Liabilities").
(b) If Seller discovers an Additional Contract, it shall
promptly give the Acquiror Parties written notice of such Additional Contract
and a copy of such Additional Contract, and the Acquiror Parties shall have
fifteen (15) days after the date such notice is received to notify Seller
whether Acquiror elects to assume such Additional Contract in its sole
discretion. If the Acquiror Parties fail to notify Seller of Acquiror's
intention to assume such Additional Contract during such fifteen (15) day
period, Seller may assume that Acquiror does not intend to assume such
Additional Contract. If the Acquiror Parties discover an Additional Contract,
Acquiror may assume such Additional Contract in its sole discretion by giving
Seller written notice of its intention to assume such Additional Contract. Any
Additional Contracts which Acquiror elects to assume pursuant to this Section
2.2(b) shall be deemed Assumed Contracts for purposes of this Agreement and the
Assignment and Assumption of Contract Rights.
13
2.3. Nonassumption of Liabilities. Notwithstanding any other
provisions of this Agreement, except for the Assumed Liabilities expressly
specified in Section 2.2 above, Acquiror shall not assume or otherwise be
responsible for any of the Excluded Liabilities.
2.4. Purchase Price.
(a) Upon the terms and subject to the conditions
contained herein, at the Closing, in consideration for the transfer of the
Assets pursuant to Section 2.1 of this Agreement, Acquiror shall pay the
Purchase Price (as defined herein) by depositing in an account designated by
Seller (which account shall be designated by Seller in writing at least three
(3) Business Days prior to the Closing) (the "Seller's Account"): (i) the sum of
Three Million Four Hundred Thousand Dollars ($3,400,000), plus the Estimated
Closing Net Working Capital as set forth in the calculation accompanying the
Pre-Closing Balance Sheet pursuant to Section 2.5 (the "Purchase Price"), and
less (ii) the Holdback Amount and the Escrow Amount. The portion of the Purchase
Price to be deposited in the Seller's Account at the Closing shall be paid in
cash by wire transfer of immediately available funds to the Seller's Account.
(b) Seller and Acquiror agree that as soon as reasonably
practical after the Closing, and prior to the filing of any Tax Return which
includes information related to the transactions contemplated by this Agreement,
the Purchase Price and the Assumed Liabilities shall be allocated among the
Assets in accordance with an allocation schedule (the "Purchase Price Allocation
Schedule") proposed by Acquiror and reasonably acceptable to Seller, which shall
be prepared in a manner required by Section 1060 of the Code and other
applicable law and delivered by Acquiror to Seller no later than forty-five (45)
days after the Closing. In connection with the Purchase Price Allocation
Schedule, Seller and Acquiror shall discuss the allocation of the Purchase Price
and attempt in good faith to reach agreement with respect thereto. Seller and
Acquiror shall prepare mutually acceptable and substantially identical initial
and supplemental IRS Forms 8594 "Asset Acquisition Statements Under Section
1060" consistent with the Purchase Price Allocation Schedule (giving effect to
mutually agreed-upon adjustments to the allocation set forth on the Purchase
Price Allocation Schedule as a result of any required adjustments to the
Purchase Price or payment of any Earnout Payment pursuant to this Article II)
which the parties shall use to report the transactions contemplated by this
Agreement to the applicable Taxing authorities.
The consideration paid at Closing (consisting of the Assumed
Liabilities and the portion of the Purchase Price paid at Closing) shall be
allocated first to the Assets other than goodwill. If the consideration paid at
Closing exceeds the purchase price allocated to the Assets other than goodwill,
(i) such excess consideration shall be allocated to goodwill, and (ii) the
additional consideration paid after Closing, including the Adjustment Amount (if
it is positive), the excess of the Holdback Amount, the Escrow Amount, and the
Earnout, shall be allocated to goodwill. If the consideration paid at Closing is
less than the purchase price allocated to the Assets other than goodwill, (i)
the consideration paid at Closing shall be allocated first to current assets,
then to non-current tangible assets, and finally to non-current intangible
assets (other than goodwill), (ii) the additional consideration paid after
Closing shall be allocated to the items described in the immediately preceding
clause (i) in that same order to the extent of the remaining purchase price
allocated to those items, and (iii) any remaining additional
14
consideration paid after Closing shall be allocated to goodwill. All allocations
of consideration shall be based upon the purchase price allocation determined
under this Section 2.4(b).
(c) The "Holdback Amount" shall be an amount equal to Two
Hundred Fifty Thousand Dollars ($250,000) which Acquiror, at the Closing, shall
hold pending the final determination of the Adjustment Amount (as defined in
Section 2.6 below). Following the final determination of the Adjustment Amount,
any remaining Holdback Amount will be deposited with the Escrow Agent under the
Escrow Indemnification Agreement as provided in Section 6.10 below.
(d) The "Escrow Amount" shall be the number of shares of
Parent's Common Stock equal to Five Hundred Thousand Dollars ($500,000) divided
by the Execution Date Value, rounded up to the next whole share. At the Closing,
Acquiror shall, pursuant to the Escrow Indemnification Agreement (as described
in Section 10.4), deliver the shares of Parent's Common Stock representing the
Escrow Amount to the Escrow Agent.
2.5. Pre-Closing Balance Sheet. No later than ten (10) days before
the Closing Date, Seller shall prepare and deliver to Acquiror (a) an unaudited
balance sheet dated the Closing Date (the "Pre-Closing Balance Sheet"), and (b)
a reasonably detailed calculation of the Estimated Closing Net Working Capital.
The Pre-Closing Balance Sheet shall be prepared by Seller's personnel in
accordance with GAAP consistently applied, and shall fairly in all material
respects present the Current Assets and Balance Sheet Liabilities of the
Business as of the Closing Date. Seller shall consult with Acquiror and its
accountants with respect to the preparation of the Pre-Closing Balance Sheet.
2.6. Post-Closing Adjustment.
(a) Closing Balance Sheet. No later than thirty (30)
calendar days following the Closing Date, Acquiror shall prepare and deliver to
Seller (i) a balance sheet dated the Closing Date (the "Closing Balance Sheet"),
and (ii) a reasonably detailed calculation of the Adjustment Amount. The Closing
Balance Sheet shall be prepared in accordance with GAAP, and shall fairly in all
material respects present the Current Assets and Balance Sheet Liabilities of
the Business as of the Closing Date. The Closing Balance Sheet shall be
accompanied by reasonably detailed schedules indicating a calculation of the
Closing Net Working Capital as set forth on the Closing Balance Sheet.
(b) Adjustment Amount. The "Adjustment Amount" shall be
an amount equal to (i) Closing Net Working Capital, minus (ii) Estimated Closing
Net Working Capital.
(i) If the Adjustment Amount is a positive
number, then Acquiror shall deposit the Holdback Amount with the Escrow Agent
pursuant to Section 6.10 hereof and pay to Seller an amount equal to the
Adjustment Amount.
(ii) If the Adjustment Amount is a negative
number, the absolute value of which is less than or equal to the Holdback
Amount, then Acquiror shall retain from the Holdback Amount an amount equal to
the absolute value of the Adjustment Amount and shall deposit the balance of the
Holdback Amount with the Escrow Agent pursuant to Section 6.10 hereof.
15
(iii) If the Adjustment Amount is a negative
number, the absolute value of which is greater than the Holdback Amount,
Acquiror shall retain the Holdback Amount and Acquiror shall have a right of
offset against both the Escrow Amount and the Earnout Payments in an amount
equal to the absolute value of the Adjustment Amount less the Holdback Amount
plus interest on such difference calculated from the Closing Date at the rate of
five percent (5%) per annum (the "Shortfall Amount"). Seller Parties' obligation
to pay the Shortfall Amount shall be joint and several.
(c) Disputed Adjustment Amount; Payment of Adjustment
Amount. If Acquiror shall disagree with the Adjustment Amount, it shall notify
Seller of such disagreement in writing specifying in detail the particulars of
such disagreement within fifteen (15) Business Days after Acquiror's receipt of
the Closing Balance Sheet. To the extent that any portion of the Adjustment
Amount due Seller is not in dispute, within fifteen (15) Business Days after
Acquiror's receipt of the Closing Balance Sheet, Acquiror shall deposit with
Escrow Agent or pay to Seller that portion of the Adjustment Amount which is not
in dispute in the manner set forth in Section 2.6(b).
(d) Resolution of Disputed Adjustment Amount. Acquiror
and Seller shall use their reasonable efforts for a period of fifteen (15)
Business Days after Acquiror's delivery of such notice (or such longer period as
Acquiror and Seller shall mutually agree upon) to resolve any disagreements
raised by Acquiror with respect to the calculation of the Adjustment Amount. If,
at the end of such period, Acquiror and Seller are unable to resolve such
disagreements, Acquiror and Seller shall jointly select an independent auditor
of recognized national standing to resolve any remaining disagreements; provided
that Ernst & Young LLP will be the independent auditor if Acquiror and Seller
cannot agree on the selection of such independent auditor. The determination by
such independent auditor shall be final, binding and conclusive on the parties.
Acquiror and Seller shall use their reasonable efforts to cause the independent
auditor to make its determination within thirty (30) calendar days of accepting
its selection. Within ten (10) Business Days after the date of determination of
such independent auditor, Acquiror shall make any deposits with the Escrow Agent
or payments to Seller required in accordance with the determination of the
independent auditor. The fees and expenses of such independent auditor shall be
borne by Acquiror and Seller Parties in proportion to the aggregate amount of
all disputed items as to which such party's claim was unsuccessful (i.e., if
there are $100,000 of disputed items and the independent auditor determines that
Seller's claim prevails with respect to $25,000 of such disputed items and
Acquiror's claim prevails with respect to $75,000 of such disputed items, then
Seller Parties would be obligated to pay seventy five percent (75%) of the fees
and expenses and Acquiror would be obligated to pay twenty five percent (25%) of
the fees and expenses).
(e) Payment of Adjustment Amount. All payments made by
Acquiror to Seller pursuant to this Section 2.6, shall be made by wire transfer
of immediately available funds to an account designated by Seller.
2.7. Earnout.
(a) In connection with this Section 2.7, Acquiror shall
deliver to the Seller no later than ninety (90) calendar days following the end
of each of the first five fiscal years of
16
Acquiror following the Closing Date (it being understood that the first of such
fiscal years shall be the year ending December 31, 2004) (the "Earnout Period"),
an income statement for the Business (the "Business Financial Statements"). The
Business Financial Statements shall set forth the EBITDA attributable to the
Business.
(i) Based upon the EBITDA of the Business for
the fiscal year 2004 ("2004 EBITDA"), Acquiror shall pay to Seller:
(A) an amount equal to one hundred
percent (100%) of the amount by which 2004
EBITDA up to the EBITDA Threshold exceeds
Base EBITDA, subject to a maximum payment of
Two Hundred Fifty Thousand Dollars
($250,000) ("Earnout Payment A-1"), plus
(B) an amount equal to fifty percent
(50%) of the amount by which 2004 EBITDA
exceeds Base EBITDA plus Two Hundred Fifty
Thousand Dollars ($250,000), subject to a
maximum payment of Six Hundred Fifty
Thousand Dollars ($650,000) ("Earnout
Payment B-1").
(ii) Based upon the EBITDA of the Business for
the fiscal year 2005 ("2005 EBITDA"), Acquiror shall pay to Seller:
(A) an amount equal to one hundred
percent (100%) of the amount by which the
sum of 2004 EBITDA up to the EBITDA
Threshold and 2005 EBITDA up to the EBITDA
Threshold exceeds two (2) times Base EBITDA,
subject to a maximum payment, inclusive of
Earnout Payment A-1, of Five Hundred
Thousand Dollars ($500,000) ("Earnout
Payment A-2"), plus
(B) an amount equal to fifty percent
(50%) of the amount by which the sum of 2004
EBITDA and 2005 EBITDA exceeds two (2) times
Base EBITDA plus Five Hundred Thousand
Dollars ($500,000), subject to a maximum
payment, inclusive of Earnout Payment B-1,
of One Million Three Hundred Thousand
Dollars ($1,300,000) ("Earnout Payment
B-2").
(iii) Based upon the EBITDA of the Business for
the fiscal year 2006 ("2006 EBITDA"), Acquiror shall pay to Seller:
(A) an amount equal to one hundred
percent (100%) of the amount by which the
sum of 2004 EBITDA up to the EBITDA
Threshold, 2005 EBITDA up to the EBITDA
Threshold and 2006 EBITDA up to the EBITDA
Threshold exceeds three (3) times Base
EBITDA, subject to a maximum payment,
inclusive of Earnout Payment A-1 and Earnout
Payment A-2, of Seven Hundred Fifty Thousand
Dollars ($750,000) ("Earnout Payment A-3"),
plus
17
(B) an amount equal to fifty percent
(50%) of the amount by which the sum of 2004
EBITDA, 2005 EBITDA and 2006 EBITDA exceeds
three (3) times Base EBITDA plus Seven
Hundred Fifty Thousand Dollars ($750,000),
subject to a maximum payment, inclusive of
Earnout Payment B-1 and Earnout Payment B-2,
of One Million Nine Hundred Fifty Thousand
Dollars ($1,950,000) ("Earnout Payment
B-3").
(iv) Based upon the EBITDA of the Business for
the fiscal year 2007 ("2007 EBITDA"), Acquiror shall pay to Seller:
(A) an amount equal to one hundred
percent (100%) of the amount by which the
sum of 2004 EBITDA up to the EBITDA
Threshold, 2005 EBITDA up to the EBITDA
Threshold, 2006 EBITDA up to the EBITDA
Threshold and 2007 EBITDA up to the EBITDA
Threshold exceeds four (4) times Base
EBITDA, subject to a maximum payment,
inclusive of Earnout Payment A-1, Earnout
Payment A-2 and Earnout Payment A-3, of One
Million Dollars ($1,000,000) ("Earnout
Payment A-4"), plus
(B) an amount equal to fifty percent
(50%) of the amount by which the sum of 2004
EBITDA, 2005 EBITDA, 2006 EBITDA and 2007
EBITDA exceeds four (4) times Base EBITDA
plus One Million Dollars ($1,000,000),
subject to a maximum payment, inclusive of
Earnout Payment B-1, Earnout Payment B-2 and
Earnout Payment B-3, of Two Million Six
Hundred Thousand Dollars ($2,600,000)
("Earnout Payment B-4").
(v) Based upon the EBITDA of the Business for
the fiscal year 2008 ("2008 EBITDA"), Acquiror shall pay to Seller:
(A) an amount equal to one hundred
percent (100%) of the amount by which the
sum of 2004 EBITDA up to the EBITDA
Threshold, 2005 EBITDA up to the EBITDA
Threshold, 2006 EBITDA up to the EBITDA
Threshold, 2007 EBITDA up to the EBITDA
Threshold and 2008 EBITDA up to the EBITDA
Threshold exceeds five (5) times Base
EBITDA, subject to a maximum payment,
inclusive of Earnout Payment A-1, Earnout
Payment A-2, Earnout Payment A-3 and Earnout
Payment A-4 of One Million Two Hundred Fifty
Thousand Dollars ($1,250,000) ("Earnout
Payment A-5"), plus
(B) an amount equal to fifty percent
(50%) of the amount by which the sum of 2004
EBITDA, 2005 EBITDA, 2006 EBITDA, 2007
EBITDA and 2008 EBITDA exceeds five (5)
times Base EBITDA plus One Million Two
Hundred Fifty Thousand Dollars ($1,250,000),
subject to a maximum payment, inclusive of
Earnout
18
Payment B-1, Earnout Payment B-2, Earnout
Payment B-3 and Earnout Payment B-4, of
Three Million Two Hundred Fifty Thousand
Dollars ($3,250,000) ("Earnout Payment
B-5").
Any amounts required to be paid pursuant to this Section
2.7(a) are collectively referred to as "Earnout Payments" and shall be payable
as provided in Section 2.7(c). The maximum aggregate Earnout Payments that
Acquiror can be required to make under this Section 2.7(a) shall be Four Million
Five Hundred Thousand Dollars ($4,500,000).
(b) Unless Seller gives written notice to Acquiror on or
before the fifteenth (15th) Business Day after Seller's receipt of the final
Business Financial Statements to be delivered pursuant to this Section 2.7,
specifying in reasonable detail all disputed items and the basis therefor,
Seller shall be deemed to have accepted the Business Financial Statements and
the amount of the associated Earnout Payment, if any. If Seller so notifies
Acquiror of its objection to the Business Financial Statements, Seller and
Acquiror shall, within thirty (30) calendar days following such notice, attempt
to resolve their differences in good faith, and any resolution by them as to any
disputed amounts shall be final, binding and conclusive. If, at the end of such
thirty (30) calendar day period, Seller and Acquiror are unable to resolve such
disagreements, Acquiror and Seller shall jointly select an independent auditor
of recognized national standing to resolve any remaining disagreements; provided
that Ernst & Young LLP will be the independent auditor if Acquiror and Seller
cannot agree on the selection of such independent auditor (the "Independent
Accountant"). Acquiror and Seller shall use their reasonable efforts to cause
the Independent Accountant to make its determination within thirty (30) calendar
days of accepting its selection. The determination by the Independent Accountant
shall be final, binding and conclusive on the parties. The fees and expenses of
the Independent Accountant shall be borne by Acquiror and Seller Parties in
proportion to the aggregate amount of all disputed items as to which such
party's claim was unsuccessful (i.e., if there is a $100,000 dispute regarding
the amount of the Earnout Payment and the Independent Accountant determines that
Seller's claim prevails with respect to $25,000 of such disputed amount and
Acquiror's claim prevails with respect to $75,000 of such disputed amount, then
Seller Parties would be obligated to pay seventy five percent (75%) of the fees
and expenses and Acquiror would be obligated to pay twenty five percent (25%) of
the fees and expenses).
(c) Subject to Section 10.8 below, within thirty (30)
calendar days after (i) receipt by Seller of the Business Financial Statements
for any year of the Earnout Period which reflect an Earnout Payment due to
Seller, or (ii) in the event of a disagreement, the date of resolution of such
disagreement by the Parties or the date of determination by the Independent
Accountant pursuant to Section 2.7(c) (it being understood that this clause (ii)
shall only apply to any disputed portion of the Earnout Payments), the
applicable Earnout Payment shall be paid by Acquiror fifty percent (50%) in cash
and fifty percent (50%) in shares of Parent's Common Stock at the greater of the
Execution Date Value or the average closing price per share of the Parent's
Common Stock on the Nasdaq National Market over the thirty (30) day period
preceding the end of the fiscal year on which such Earnout Payment is based. The
shares of Parent's Common Stock issued as part of the Earnout Payments shall
carry "piggy-back" registration rights as provided in the form of Registration
Rights Agreement attached hereto as Exhibit H.
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(d) In connection with the operation of the Business
after the Closing, Acquiror agrees to maintain separate divisional books and
records for the Business in accordance with GAAP, consistently applied. Acquiror
and each of the Seller Parties agree to act in good faith during the Earnout
Period relative to the Business and not to take actions that would be unfairly
prejudicial or discriminatory to the Business for the purpose of adversely
affecting Seller's interest in receiving an Earnout Payment.
(e) Upon delivery of the Business Financial Statements,
Acquiror shall afford to Seller and its accounting representatives prompt and
reasonable access upon reasonable notice to all information reasonably necessary
to verify calculation of the Earnout Payments. Acquiror shall make its employees
who are familiar with such matters, its independent outside accounting firm
available to Seller and its representatives on a mutually convenient basis at
reasonable times during normal business hours to provide an explanation of such
materials and to provide such other information as Seller and its
representatives may reasonably request in connection with its review of the
Business Financial Statements.
(f) Within thirty (30) days of the Closing Balance Sheet
becoming final in accordance with the procedures set forth in Section 2.6 above,
the Seller Parties shall deliver to Acquiror an unaudited statement of
operations of the Business for the period from January 1, 2004 to the Closing
Date (the "2004 Pre-Closing Interim Statement") prepared in accordance with GAAP
and consistent with the final Closing Balance Sheet. In the event that Acquiror
does not agree with the 2004 Pre-Closing Interim Statement, any disputed amount
will be reflected in Acquiror's 2004 Earnout Payment calculation delivered in
accordance with Section 2.7(a) above, and the parties shall resolve their
differences in accordance with the procedures provided for in Section 2.7(b)
above.
2.8. Transfer Taxes. Seller shall pay, and Seller shall indemnify
and hold harmless Acquiror from, all transfer, conveyance or similar Taxes
imposed as a result of the transactions contemplated by this Agreement. Seller
and Acquiror shall cooperate in timely making all filings, returns, reports and
forms as may be required in connection with Sellers' payment of such Taxes.
Seller and Acquiror, as appropriate, shall execute and deliver all instruments
and certificates necessary to enable the other to comply with any filing
requirements relating to any such Taxes.
ARTICLE III.
CLOSING
3.1. Closing. The closing of the transactions contemplated herein
(the "Closing") shall be held at 10:00 a.m. local time at the offices of Parent,
0000 Xxx Xxxxxxx Xxxx., Xxx Xxxxxxx 00000 on February 2, 2004, or at such other
time or place as Acquiror and Seller may mutually agree in writing; provided,
however, that the Closing shall be deemed effective as of 11:59 p.m. on January
31, 2004 (such date being the "Closing Date").
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3.2. Deliveries at Closing.
(a) Deliveries by the Acquiror Parties. Subject to the
terms and conditions of this Agreement, in reliance on the representations,
warranties and agreements of the Seller Parties contained herein, in
consideration of the sale, assignment and transfer of the Assets, the Acquiror
Parties agree to deliver (or cause to be delivered) to Seller at the Closing the
following agreements and documents, all satisfactory in form and substance to
Seller and its legal counsel:
(i) the wire transfer of the portion of the
Purchase Price to be paid to Seller at the Closing;
(ii) certificates executed by the Secretary or an
Assistant Secretary of each of Parent and Acquiror certifying as of the Closing
Date (A) a true and complete copy of the Organizational Documents of Parent and
Acquiror certified as of a recent date by the Secretary of State of the State of
Delaware, (B) a true an complete copy of the resolutions of the board of
directors of Parent and Acquiror authorizing the execution, delivery and
performance of this Agreement and the consummation of the transactions
contemplated hereby and (C) incumbency matters;
(iii) certificates of good standing and/or
subsistence of Parent and Acquiror, dated as of a recent date prior to the
Closing, issued by the Secretary of State of the State of Delaware; and
(iv) certificates executed by an officer of each
of Parent and Acquiror certifying that as of the Closing Date (A) all
representations and warranties of Parent and Acquiror contained in Article V
shall be true and correct in all respects on and as of the Closing with the same
effect as though such representations and warranties had been made on and as of
the date of the Closing, and (B) each of Parent and Acquiror shall have
performed and satisfied in all respects all agreements and covenants required
hereby to be performed by it prior to or on the Closing Date; except in each
case for any such failure to so perform and/or the inaccuracy of any
representation which, individually or in the aggregate, has not resulted in and
would not reasonably be expected to result in a Material Adverse Effect or a
Material Adverse Change.
(b) Deliveries by the Seller Parties. Subject to the
terms and conditions of this Agreement, in reliance upon the representations,
warranties and agreements of Acquiror contained herein and in consideration of
the Purchase Price to be paid to Seller, the Seller Parties agree to deliver (or
cause to be delivered) to Acquiror at the Closing the following agreements and
documents, all satisfactory in form and substance to Acquiror and its legal
counsel:
(i) a certificate executed by the Secretary or
an Assistant Secretary of Seller certifying as of the Closing Date (A) a true
and complete copy of the Organizational Documents of Seller certified as of a
recent date by the Secretary of State of the State of Minnesota, (B) a true an
complete copy of the resolutions of the Shareholders of Seller and the board of
directors of Seller authorizing the execution, delivery and performance of this
Agreement and the consummation of the transactions contemplated hereby and (C)
incumbency matters;
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(ii) certificates of good standing and/or
subsistence of Seller, dated as of a recent date prior to the Closing, issued by
the Secretary of State of the State of Minnesota;
(iii) a certificate executed by each of the Seller
Parties certifying that as of the Closing Date (A) all representations and
warranties of the Seller Parties contained in Article IV shall be true and
correct in all respects on and as of the Closing with the same effect as though
such representations and warranties had been made on and as of the date of the
Closing, and (B) each of the Seller Parties shall have performed and satisfied
in all respects all agreements and covenants required hereby to be performed by
it prior to or on the Closing Date; except in each case for any such failure to
so perform and/or the inaccuracy of any representation which, individually or in
the aggregate, has not resulted in and would not reasonably be expected to
result in a Material Adverse Effect or a Material Adverse Change;
(iv) an opinion of Xxxx, Plant, Xxxxx, Xxxxx &
Xxxxxxx, P.A., counsel to the Seller Parties, dated as of the Closing Date, in
the form attached hereto as Exhibit I;
(v) evidence of receipt of all consents set
forth on Schedule 3.2(b)(v);
(vi) an affidavit from Seller stating, under
penalties of perjury, Seller's taxpayer identification number and that Seller is
not a foreign person pursuant to Section 1445(b)(2) of the Code; and
(vii) a Release executed by the Shareholders in
favor of Acquiror, in the form attached hereto as Exhibit J.
3.3. Other Closing Transactions. In addition, subject to the terms
and conditions of this Agreement, the applicable Acquiror Parties and the
applicable Seller Parties shall deliver or cause to be delivered to each other
party at the Closing:
(a) the Xxxx of Sale;
(b) the Assignment and Assumption of Contract Rights;
(c) the Assignment of Intellectual Property;
(d) the Escrow Indemnification Agreement;
(e) the Interim Services and Facilities Agreement; and
(f) the Employment Agreement.
3.4. Other Deliveries. In addition, subject to the terms and
conditions of this Agreement, the Seller Parties shall deliver or cause to be
delivered to Acquiror at the Closing such other documents and instruments as in
the opinion of counsel for Acquiror may be reasonably required to effectuate the
terms of this Agreement and to comply with the terms hereof.
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ARTICLE IV.
REPRESENTATIONS AND WARRANTIES OF THE SELLER PARTIES
Each of the Seller Parties jointly and severally hereby
represents and warrants to Acquiror as follows, except as otherwise set forth on
the Disclosure Schedule, which representations and warranties are, as of the
date hereof, and will be, as of the Closing Date, true and correct:
4.1. Organization of Seller. Seller is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Minnesota with full power and authority to conduct its business as it is
presently being conducted, to own and or use the properties and assets that it
purports to own or use, and to perform all its obligations under its Contracts.
Xxxxxxxxxx and Xxxxxxx are all of the shareholders of Seller. Seller is duly
qualified to do business as a foreign corporation and is in good standing in
each jurisdiction listed on Schedule 4.1, being all the jurisdictions in which
the character of its properties owned or leased or the nature of its activities
make such qualification necessary, other than where the failure to be so
qualified would not have a Material Adverse Effect. Copies of the Organizational
Documents of Seller, and all amendments thereto, heretofore delivered to
Acquiror are true, accurate and complete as of the date hereof.
4.2. Subsidiaries. Except as set forth on Schedule 4.2, Seller does
not have any Subsidiaries. None of the Subsidiaries set forth on Schedule 4.2
have any right, title or interest in or to any assets used or useful with, or
related to, the Business. Except as set forth on Schedule 4.2, Seller has no
direct or indirect stock or other equity or ownership interest (whether
controlling or not) in any corporation, association, partnership, limited
liability company, joint venture or other entity.
4.3. Authorization. Each Seller Party has all requisite power and
authority, and has taken all action necessary, to execute and deliver this
Agreement and the other agreements, instruments, documents and certificates to
be executed and delivered by any of the Seller Parties pursuant hereto
(collectively, the "Ancillary Agreements") and to consummate the transactions
contemplated hereby and thereby and to perform its obligations hereunder and
thereunder. The execution and delivery of this Agreement and the Ancillary
Agreements by the Seller Parties and the consummation by the Seller Parties of
the transactions contemplated hereby and thereby have been duly approved by the
board of directors of Seller and by Xxxxxxxxxx and Xxxxxxx as all of the
shareholders of Seller, and Acquiror has been provided with documentation of
such board of directors and shareholder approvals. No other corporate
proceedings or other actions on the part of any Seller Party are necessary to
authorize this Agreement and the Ancillary Agreements and the transactions
contemplated hereby and thereby. This Agreement has been duly executed and
delivered by each of the Seller Parties and is, and upon execution and delivery
of the Ancillary Agreements, each of the Ancillary Agreements will be, legal,
valid and binding obligations of each of the Seller Parties enforceable against
each of them in accordance with their terms, in each case, except as such
enforceability may be limited by (a) bankruptcy, insolvency, moratorium,
reorganization and other similar laws affecting creditors' rights generally and
(b) the general principles of equity, regardless of whether asserted in a
proceeding in equity or at law.
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4.4. Consents and Approvals. (a) Except as set forth on Schedule
4.4 no notice to, declaration, filing or registration with, or authorization,
consent or approval of, or permit from, any Person (other than the consent of
the directors and shareholders of Seller, which has already been obtained and
other than consents to the assignment of Contracts), and (b) except as set forth
on Schedule 4.4 no consent to the assignment of any Contract required to be
disclosed on Schedule 4.8 or Schedule 4.19(b) from any other Person, is, in each
case, required to be made or obtained by Seller or any other Affiliate of Seller
in connection with the execution, delivery and performance of this Agreement and
the Ancillary Agreements and the consummation of the transactions contemplated
hereby and thereby by Seller or any other Affiliate of Seller, as applicable.
4.5. Absence of Certain Changes or Events. Since the Balance Sheet
Date, except as set forth on Schedule 4.5, there has not been any:
(a) change in Seller's authorized or issued capital;
grant of any option or right to purchase any equity interest in Seller; issuance
of any security convertible into such equity interest; grant of any registration
rights; purchase, redemption, retirement or other acquisition by Seller of any
such equity interests; or declaration or payment of any dividend or other
distribution or payment in respect of such equity interests;
(b) amendment to the Organizational Documents of Seller;
(c) actual or, to Seller's Knowledge, threatened Material
Adverse Change in the financial condition, working capital, shareholders'
equity, assets, Liabilities, reserves, revenues, income earnings, prospects or
Business of Seller;
(d) change in accounting methods, principles or practices
by Seller affecting the Assets, its Liabilities or the Business;
(e) material revaluation by Seller of any of the Assets,
including, without limitation, writing down the value of inventory or writing
off notes or accounts receivable;
(f) damage, destruction or loss (whether or not covered
by insurance) materially and adversely affecting the Assets or the Business;
(g) cancellation of any indebtedness or waiver or release
of any right or claim of Seller relating to its activities or properties which
had or will have a Material Adverse Effect;
(h) increase of in the rate of compensation payable or to
become payable to any director, officer or other employee of Seller or any
consultant, Representative or agent of Seller, including, without limitation,
the making of any loan to, or the payment, grant or accrual of any bonus,
incentive compensation, service award or other similar benefit to, any such
person, or the addition to, modification of, or contribution to any Seller
Employee Plan, arrangement, or practice described in the Disclosure Schedule
other than (i) contributions made for the fiscal year 2003 in accordance with
the normal practices of Seller or (ii) the extension of coverage to others who
become eligible after the Balance Sheet Date;
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(i) entry into, amendment, cancellation or termination of
any Contract, commitment, agreement, Lease, transaction or Permit relating to
the Assets or the Business, including, without limitation, any employment,
consulting, distributorship, dealer, sales representative, joint venture, credit
or similar agreement or any Contract or transaction involving a total remaining
commitment by or to Seller of at least $50,000;
(j) mortgage, pledge or other encumbrance of any Assets
of Seller having, individually or in the aggregate, a value of $50,000 or more,
except purchase money mortgages arising in the ordinary course of business;
(k) sale, assignment or transfer of any of the Assets of
Seller having, individually or in the aggregate, a value of $50,000 or more,
other than in the ordinary course of business;
(l) incurrence of indebtedness in excess of $50,000 by
Seller for borrowed money or commitment to borrow money entered into by Seller,
or loans made or agreed to be made by Seller, or indebtedness guaranteed by
Seller;
(m) incurrence by Seller of Liabilities in excess,
individually or in the aggregate, of $50,000 or more, except Liabilities
incurred in the ordinary course of business, or increase or change in any
assumptions underlying or methods of calculating, any doubtful account
contingency or other reserves of Seller;
(n) discharge or satisfaction of any Liabilities of
Seller in excess, individually or in the aggregate, of $50,000 or more other
than the payment, discharge or satisfaction in the ordinary course of business
of Liabilities set forth or reserved for on the Financial Statements or incurred
in the ordinary course of business;
(o) capital expenditure by Seller, the execution of any
Lease by Seller or the incurring of any obligation by Seller to make any capital
expenditure or execute any Lease, in each case, in excess, individually or in
the aggregate, of $50,000 or more;
(p) failure to pay or satisfy when due any Liability of
Seller, except where the failure would not have a Material Adverse Effect;
(q) disposition or lapsing of any material Intellectual
Property or any disposition or disclosure to any person of any Intellectual
Property not theretofore a matter of public knowledge;
(r) existence of any other event or condition which in
any one case or in the aggregate has or would reasonably be expected to have a
Material Adverse Effect; or
(s) agreement, whether oral or written, by Seller to do
any of the things described in the preceding clauses (a) through (r) other than
as expressly provided for herein.
4.6. Facilities.
(a) Owned Real Property. Seller does not have any Owned
Real Property.
25
(b) Actions. There are no pending or, to the Knowledge of
the Seller Parties, threatened condemnation proceedings or other Actions
relating to any Facility.
(c) Leases or Other Agreements. Except for Facility
Leases listed on Schedule 4.8(a) below, there are no leases, subleases,
licenses, occupancy agreements, options, rights, concessions or other agreements
or arrangements, written or oral, granting to any person the right to purchase,
use or occupy any Facility, or any real property or any portion thereof or
interest in any such Facility or real property.
(d) Facility Leases and Leased Real Property. Seller
enjoys peaceful and undisturbed possession of all the Leased Real Property.
Schedule 4.8(a) sets forth a complete and accurate list of all real property
Leases or other interests therein owned by Seller.
(e) Certificate of Occupancy. All Facilities have
received all required approvals of governmental authorities (including, without
limitation, Permits and a certificate of occupancy or other similar certificate
permitting lawful occupancy of the Facilities) required in connection with the
operation thereof and have been operated and maintained in all material respects
in accordance with applicable Regulations.
(f) No Special Assessment. Seller has not received notice
of any special assessment relating to any Facility or any portion thereof and
there is no pending or threatened special assessment.
4.7. Assets. Seller has and will transfer good and marketable title
to the Assets and upon the consummation of the transactions contemplated hereby
and Acquiror will acquire good and marketable title to all of the Assets, in
each case free and clear of any Encumbrances other than Permitted Encumbrances.
To Seller's Knowledge, the Assets include without limitation all material assets
necessary for the conduct of the Business as presently conducted by Seller and
to permit Acquiror to continue to conduct the Business in all respects in
substantially the same manner as the Business has been conducted through the
date hereof. Except as set forth on Schedule 4.7, no assets used in connection
with the operation of the Business are owned by the Shareholders or any
Affiliate of the Shareholders other than Seller. Schedule 4.7 contains accurate
lists and summary descriptions of all the tangible Assets where the value of an
individual item exceeds $5,000 or where an aggregate of similar items exceeds
$10,000. To Seller's Knowledge, all tangible assets and properties which are
part of the Assets are in good operating condition and repair, subject to repair
or replacement from time to time in the ordinary course of business, and are
usable in the ordinary course of business and conform in all material respects
to all applicable Regulations (including Environmental Laws) relating to their
construction, use and operation. Schedule 4.7 also sets forth a complete and
accurate list of all Permitted Encumbrances.
4.8. Contracts and Commitments.
(a) Contracts. Schedule 4.8 sets forth a complete and
accurate list of all Contracts (including, to Seller's Knowledge, oral
agreements) of the following categories:
(i) Contracts not made in the ordinary course of
business involving obligations in excess of $25,000;
26
(ii) Employment contracts, compensation
arrangements and severance agreements, including, without limitation, Contracts
(A) to employ or terminate executive officers or other personnel and other
contracts with present or former officers, directors or shareholders of Seller
or (B) that will result in the payment by, or the creation of any Liability to
pay on behalf of Acquiror or Seller any severance, termination, "golden
parachute," or other similar payments to any present or former personnel
following termination of employment or otherwise as a result of the consummation
of the transactions contemplated by this Agreement;
(iii) Labor or union contacts;
(iv) Distribution, franchise, license, technical
assistance, sales, customer, commission, consulting, agency or advertising
contracts related to the Assets or the Business involving obligations in excess
of $25,000;
(v) Options with respect to any property, real
or personal, whether Seller shall be the grantor or grantee thereunder;
(vi) Contracts involving future expenditures or
Liabilities, actual or potential, in excess of $25,000 or otherwise material to
the Business or the Assets;
(vii) Contracts involving performance of services
or delivery of goods or materials by Seller, actual or potential, in excess of
$25,000;
(viii) Contracts involving receipts, actual or
potential, in excess of $25,000;
(ix) Contracts or commitments relating to
commission arrangements with others;
(x) Promissory notes, loans, agreements,
indentures, evidences of indebtedness, letters of credit, guarantees, or other
instruments relating to an obligation to pay money, individually in excess of or
in the aggregate in excess of $25,000, whether Seller shall be the borrower,
lender or guarantor thereunder or whereby any Assets are pledged;
(xi) Contracts containing covenants limiting the
freedom of Seller or any director, officer, shareholder, employee or Affiliate
of Seller, to engage in any line of business or compete with any Person;
(xii) Any Contract with the United States, state
or local government or any agency or department thereof;
(xiii) Leases of real property;
(xiv) Leases of personal property not cancelable
(without Liability) within thirty (30) calendar days reflecting obligations of
Seller of at least $2,000 per month in each case;
27
(xv) Joint venture, partnership and other
Contracts (however named) involving a sharing of profits, losses costs or
Liabilities by Seller with any other Person;
(xvi) Licensing agreements or other Contracts with
respect to patents, trademarks, copyrights, or other intellectual property,
including agreements with current or former employees, consultants, or
contractors regarding the appropriation or the nondisclosure of any of the
Intellectual Property of Seller; and
(xvii) Each power of attorney that is currently
effective and outstanding.
The Seller Parties have delivered to Acquiror true, correct and complete copies
of all of the Contracts listed on Schedule 4.8 including all amendments and
supplements thereto. Each of the bids, proposals, Contracts or unfilled orders
set forth on Schedule 4.8(a) were made in the ordinary course of business.
(b) Absence of Defaults. All of the Contracts and
Personal Property Leases listed or required to be listed on Schedule 4.8 to
which Seller is party are valid, binding and enforceable in accordance with
their terms. Seller has fulfilled, or taken all action necessary to enable it to
fulfill when due, all of its material obligations under each of such Contracts
and Personal Property Leases. Seller has complied in all material respects with
the provisions thereof, and to the Knowledge of the Seller Parties, all other
parties to such Contracts and Personal Property Leases have complied in all
material respects with the provisions thereof, and neither Seller nor, to the
Seller Parties' Knowledge, any other party is in Default in any material respect
thereunder and no notice of any claim of Default has been given to any Seller
Party. Except as set forth on Schedule 4.8, no event has occurred or
circumstance exists that (with or without notice or lapse of time) may
contravene, conflict with, or result in a violation or breach of, or give Seller
or any other Person the right to default or exercise any remedy under, or to
accelerate the maturity or performance of, or to cancel, terminate, or modify,
any Contract. The Shareholders do not have and may not acquire any rights under,
and the Shareholders do not have and may not become subject to any obligations
or Liability under any Contract that relates to the Business or the Assets. No
Seller Party has Knowledge that the products and services called for by any
unfinished Contract cannot be supplied in accordance with the terms of such
Contract, including time specifications, and has no reason to believe that any
unfinished Contract will upon performance by Seller result in a loss to Seller.
With respect to any Personal Property Leases, no Seller Party has received any
notice of cancellation or termination under any option or right reserved to the
lessor, or any notice of Default, thereunder.
(c) Product Warranty. To Seller's Knowledge, Seller has
committed no act, and there has been no omission by Seller, which may result in,
and there has been no occurrence which may give rise to, product liability or
Liability for breach of warranty (whether covered by insurance or not) on the
part of Seller, with respect to products designed, manufactured, assembled,
repaired, maintained, delivered, distributed or installed or services rendered
prior to or on the Closing Date.
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4.9. Permits.
(a) Schedule 4.9 sets forth a complete list of all
Permits used in the operation of the Business or otherwise held by Seller.
Seller has, and at all times has had, all Permits required under any Regulation
(including Environmental Laws) in the operation of its Business or in the
ownership of the Assets, and owns or possesses such Permits free and clear of
all Encumbrances, except such Permits the failure of which to obtain would not
have a Material Adverse Effect. Seller is not in Default, nor has it received
any notice of any claim of Default, with respect to any such Permit, except
where the Default would not have a Material Adverse Effect. Except as otherwise
governed by law, all such Permits are renewable by their terms or in the
ordinary course of business without the need to comply with any special
qualification procedures or to pay any amounts other than routine filing fees.
No present or former stockholder, director, officer or employee of Seller or any
Affiliate thereof, or any other person, firm, corporation or other entity, owns
or has any proprietary, financial or other interest (direct or indirect) in any
Permit which Seller owns, possesses or uses.
(b) Except as disclosed on Schedule 4.9 hereto, no notice
to, declaration, filing or registration with, or Permit from, any domestic or
foreign governmental or regulatory body or authority, or any other person or
entity, is required to be made or obtained by Seller in connection with the
execution, delivery or performance of this Agreement and the consummation of the
transactions contemplated hereby.
(c) The Permits set forth on Schedule 4.9 collectively
constitute all of the Permits necessary to permit Seller to lawfully conduct and
operate its business in the manner it currently conducts and operates such
business and to permit Seller to own and use its assets in the manner in which
it currently owns and uses such assets, except for such Permits, the absence of
which would not, individually or in the aggregate, have a Material Adverse
Effect.
4.10. No Conflict or Violation. Neither the execution, delivery or
performance of this Agreement nor the consummation of the transactions
contemplated hereby, nor compliance by any Seller Party with any of the
provisions hereof, will (a) violate or conflict with any provision of the
Organizational Documents of Seller, (b) except as set forth on Schedule 4.10,
and subject to the attainment of consents set forth on Schedule 4.4 by third
parties to the assignment of Contracts, violate, conflict with, or result in or
constitute a Default under, or result in the termination of, or accelerate the
performance required by, or result in a right of termination or acceleration, or
result in the creation of any Encumbrance upon or with respect to any of the
Assets under any of the terms, conditions or provisions of any Contract, Lease
or Permit, (i) to which Seller is a party or (ii) by which any the Assets are
bound, (c) violate any Regulation or Court Order, (d) impose any Encumbrance on
the Assets or the Business, (e) cause Acquiror or Seller to become subject to,
or to become liable for the payment of, any Tax (other than an Assumed
Liability), or (f) contravene, conflict with, or result in a violation of any of
the terms or requirements of, or give any governmental body the right to revoke,
withdraw, suspend, cancel, terminate, or modify any Permits that are held by
Seller or that otherwise relates to the Business or the Assets.
4.11. Financial Statements. The Financial Statements are attached
hereto as Schedule 4.11. The Financial Statements (a) are in accordance with the
books and records of Seller, (b)
29
have been prepared in accordance with GAAP consistently applied throughout the
periods covered thereby and (c) fairly and accurately in all material respects
present the assets, Liabilities (including all reserves) and financial position
of Seller or the Business, as applicable, as of the respective dates thereof and
the results of operations and changes in cash flows of Seller or the Business,
as applicable, for the periods then ended (subject, in the case of the Interim
Financial Statements, to normal year-end adjustments). At the respective dates
of the Financial Statements, there were no material Liabilities of Seller,
which, in accordance with GAAP, should have been set forth or reserved for in
the Financial Statements or the notes thereto, which are not set forth or
reserved for in the Financial Statements or the notes thereto. In addition,
there were no assets which were impaired requiring a write-down of any such
assets or any additional reserves required against the accounts receivable or
inventory of Seller or the Business.
4.12. Undisclosed Liabilities. Seller does not have any Liabilities
or obligations of any nature (whether accrued, absolute, contingent or
otherwise), except (a) as disclosed on the Interim Balance Sheet, (b) for
Current Liabilities incurred in the ordinary course of business, (c) for those
incurred in the ordinary course of business consistent with past practice since
the Interim Balance Sheet Date, or (d) such Liabilities reflected on Schedule
4.12.
4.13. Books and Records. Seller has made and kept (and given
Acquiror access to) Books and Records and accounts, which, in reasonable detail,
fairly reflect the activities of Seller. The minute books of Seller previously
delivered to Acquiror accurately and adequately reflect all action previously
taken by the shareholders, managers and committees of the managers of Seller.
The copies of the stock book records of Seller previously delivered to Acquiror
are true, correct and complete, and accurately reflect all transactions effected
in Seller's equity interests through and including the date hereof. Seller has
not maintained any bank account or used any corporate funds except for bank
accounts and funds which have been and are reflected in the normally maintained
books and records of Seller.
4.14. Litigation. Except as set forth on Schedule 4.14, there are no
Actions pending, or, to the Seller Parties' Knowledge, threatened (a) against,
related to or affecting (i) Seller, the Business or the Assets (including with
respect to Environmental Laws), (ii) to Seller's Knowledge, any officers or
directors of Seller in their capacity as such, or (iii) any shareholder of
Seller in such shareholder's capacity as a shareholder of Seller, (b) seeking to
delay, limit or enjoin the transactions contemplated by this Agreement, (c) that
involve the risk of criminal liability or (d) in which Seller is a plaintiff.
Seller is not in Default with respect to or subject to any Court Order, and
there are no unsatisfied judgments against Seller, the Business or any of the
Assets. There are no Court Orders or agreements with, or liens by, any
governmental authority or quasi-governmental entity relating to any
Environmental Law which regulate, obligate, bind or in any way affect Seller,
the Business or the Assets.
4.15. Labor Matters.
(a) General. Seller is not a party to any labor agreement
with respect to its employees with any labor organization, union, group or
association and there are no employee unions (nor any other similar labor or
employee organizations) under local statutes, custom or practice. Seller has not
experienced any attempt by organized labor or its representatives to make Seller
conform to demands of organized labor relating to its employees or to enter into
a
30
binding agreement with organized labor that would cover the employees of Seller.
There is no labor strike or labor disturbance pending or, to the best of the
Seller Parties' Knowledge, threatened against Seller nor is any grievance
currently being asserted, and Seller has not experienced a work stoppage or
other labor difficulty, and is not and has not engaged in any unfair labor
practice. Without limiting the foregoing, Seller is in material compliance with
the Immigration Reform and Control Act of 1986 and maintains a current Form I-9,
as required by such Act, in the personnel file of each employee hired after
November 9, 1986. On or before the execution of this Agreement, Parent will have
been provided with a memorandum setting forth the names and current annual
salary rates or current hourly wages of all present employees of Seller related
to the Business, and also setting forth the earnings for each such employee as
reflected on Form W-2 for the 2002 calendar year.
(b) WARN Act. Since the enactment of Worker Adjustment
and Retraining Notification Act (the "WARN Act"), 29 U.S.C. Sections 2101 et
seq., Seller has not effectuated (1) a "plant closing" (as defined in the WARN
Act) affecting any site of employment or one or more facilities or operating
units within any site of employment or facility of Seller, or (2) a "mass
layoff" (as defined in the WARN Act) affecting any site of employment or
facility of Seller, nor has Seller been affected by any transaction or engaged
in layoffs or employment terminations sufficient in number to trigger
application of any similar state or local law. Except as set forth in Schedule
4.15(b), none of Seller's Employees has suffered an "employment loss" (as
defined in the WARN Act) in the past three years.
4.16. Compliance with Law. Seller and the conduct of the Business
have not violated and are in compliance with all Court Orders and Regulations
relating to the Assets or the Business, except for any such violations which
would not, individually or in the aggregate, have a Material Adverse Effect. No
Seller Party has received any written notice to the effect that, or otherwise
been advised that, Seller is not in compliance with any such Regulations or
Court Orders in any material respect.
4.17. No Brokers. Except as set forth on Schedule 4.17, neither
Seller nor any of its officers, directors, managers, employees, shareholders,
Representatives or Affiliates has employed or made any agreement with any
broker, finder or similar agent or any person or firm which will result in the
obligation of Seller, the Shareholders, Acquiror or any of Acquiror's Affiliates
to pay any finder's fee, brokerage fees or commission or similar payment in
connection with the transactions contemplated hereby. The Seller Parties shall
be solely liable for any obligations set forth on Schedule 4.17.
4.18. No Other Agreements to Sell the Assets or Capital Stock of
Seller. Neither Seller nor any of its officers, directors, managers, employees,
shareholders or Affiliates have any commitment or legal obligation, absolute or
contingent, to any other person or firm other than Acquiror to sell, assign,
transfer or effect a sale of the Assets (other than inventory in the ordinary
course of business), to sell or effect a sale of any capital stock of Seller, to
effect any merger, consolidation, liquidation, dissolution or other
reorganization of Seller, or to enter into any agreement or cause the entering
into of an agreement with respect to any of the foregoing. Seller is not now
engaged in negotiations with any party other than Acquiror with respect to any
of the foregoing.
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4.19. Intellectual Property.
(a) Schedule 4.19(a) sets forth a true and complete list
all of Seller's material patents, registered trademarks and registered
copyrights related to the Business. Schedule 4.19(a) also sets forth: (i) for
each patent, the number, normal expiration date and subject matter for each
country in which such patent has been issued, or, if applicable, the application
number, date of filing and subject matter for each country, (ii) for each
registered trademark and service xxxx, the application/serial number or
registration number, the class of goods covered and the expiration date for each
country, and (iii) for each registered copyright, the registration number and
expiration date for each country, or, if applicable, the application number and
date of filing for each country in which a copyright application has been filed.
True and correct copies of all patents and patent applications, trademark and
service xxxx applications and registrations and copyright applications and
registrations owned, controlled, filed or used by or on behalf of Seller in the
Business or in which Seller has any interest whatsoever and are related to the
Business have been provided to Acquiror.
(b) Schedule 4.19(b) sets forth a true and complete list
of all material license, sublicense and royalty agreements relating to the
Intellectual Property related to the Business. A true and correct copy of each
such agreement has been delivered to Acquiror. With respect to each item of
Intellectual Property required to be identified in Schedule 4.19(a), to Seller's
Knowledge:
(i) all licenses, sublicenses or agreements set forth in
Schedule 4.19(b) are legal, valid, binding, enforceable and in full force and
effect;
(ii) upon consummation of the transactions contemplated by
this Agreement, subject to the attainment of applicable consents set forth on
Schedule 4.4, all licenses, sublicenses or agreements will continue to be legal,
valid, binding, enforceable and in full force and effect on terms identical to
those in effect as of the date of this Agreement;
(iii) neither Seller's nor any other party to any license,
sublicense or agreement is in breach or default under any such license,
sublicense or agreement or has performed any act or omitted to perform any act,
with notice or lapse of time or both, which will become a material breach of
default thereunder;
(iv) no party to any license, sublicense or agreement has
given notice of termination or repudiation of any provision thereof;
(v) with respect to each sublicense, the representations
and warranties set forth above in subsections 4.19(b)(i)-(iv) are true and
correct with respect to the underlying license;
(vi) the underlying item of Intellectual Property is not
subject to any outstanding injunction, judgment, order, decree or ruling;
(vii) Seller has not granted any sublicense or similar
right with respect to the license, sublicense or agreement;
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(viii) except as set forth in Schedule 4.19(b), Seller is
not obligated or under any liability whatsoever to make any payments by way of
royalties, fees or otherwise to any owner or licensee of, or other claimant to,
any Intellectual Property; and
(ix) no action, suit, proceeding, hearing, investigation
or complaint is pending or is threatened, nor has any claim or demand been made,
which challenges the legality, validity, enforceability or ownership of the
underlying item of Intellectual Property.
(c) Ownership and Protection of Intellectual Property.
Seller owns exclusively or, in the case of licensed rights, the valid and
enforceable right to use all of the Intellectual Property listed on Schedule
4.19(a) or underlying the licenses set forth on Schedule 4.19(b), and the
Intellectual Property will not cease to be valid rights of Seller by reason of
the execution, delivery and performance of this Agreement or the consummation of
the transactions contemplated hereby. All of the pending applications have been
duly filed. Seller has not received any written notice of invalidity or
infringement of any rights of others with respect to such Intellectual Property.
Seller has taken all reasonable and prudent steps to protect the Intellectual
Property listed on Schedule 4.19(a) from infringement by any other Person. No
other Person (i) has the right to use any of Seller's trademarks or service
marks on the goods and/or services in connection with which they are now being
used either in identical form or in such near resemblance thereto as to be
likely, when applied to the goods or services of any such person, to cause
confusion with such trademarks or to cause a mistake or to deceive, (ii) has
notified Seller in writing that it is claiming any ownership of or right to use
any of the Intellectual Property, or (iii) to Seller's Knowledge, is infringing
upon, violating or misappropriating any of the Intellectual Property in any way.
To Seller's Knowledge, the Intellectual Property does not and will not conflict
with, infringe upon, misappropriate or otherwise violate the valid rights of any
Person in or to such Intellectual Property, and no Action has been instituted
against or written notices received by Seller that are presently outstanding
alleging that Seller's use of the Intellectual Property infringes upon,
misappropriates or otherwise violates any rights of a Person in or to such
Intellectual Property.
(d) Liabilities. Seller has no reasonable basis to
believe that it has any present or future liability under any agreement to
provide indemnification for infringement of any third-party rights or otherwise,
or provide updates, enhancements, improvements, modifications, fixes, support or
maintenance for any products or Intellectual Property.
(e) Trade Secrets. Seller has taken reasonable security
measures to protect the secrecy, confidentiality and value of all of its trade
secrets and confidential information, including without limitation entering into
written agreements with its employees and other persons who may have
participated in the development, discovery or invention of any trade secret or
have knowledge of or access to any trade secret or confidential information,
which such agreements provide for the non-disclosure or trade secrets and
confidential information and the transfer of all rights in and to any
development, discovery or invention to Seller.
4.20. Employee Matters.
(a) Disclosure; Delivery of Copies of Relevant Documents
and Other Information. Schedule 4.20 contains a complete list of all current
Seller Employee Plans and all
33
former Seller Employee Plans under which Acquiror may incur any liability. True
and complete copies of each of the following documents have been delivered or
made available by Seller to Acquiror: (i) each such Seller Employee Plan and all
amendments thereto and the summary plan description for each such plan, and, if
none, any written descriptions thereof which have been distributed to Seller's
employees, (ii) a complete description of any material Seller Employee Plan
which is not in writing, (iii) the most recent determination or opinion letter
issued by the Internal Revenue Service with respect to each Seller Employee Plan
which is a Pension Plan, and (iv) a description of complete age, salary and
service as of December 31, 2002 for employees of Seller as of August 31, 2003.
(b) Representations. Except as set forth in Schedule
4.20, Seller represents and warrants as follows:
(i) Pension Plans.
(A) Neither Seller nor any of its ERISA
Affiliates sponsors, maintains, contributes to or has an obligation to
contribute to, or has, within the six (6) year period prior to the Closing Date,
sponsored, maintained, contributed to or had an obligation to contribute to, any
Pension Plan that is subject to Title IV of ERISA.
(B) Each Seller Employee Plan which is
a Pension Plan, and each related trust agreement, annuity contract or other
funding instrument has been determined by the Internal Revenue Service to be
qualified and tax-exempt under the provisions of Code Section 401(a) (or 403(a),
as appropriate), and, to the Knowledge of the Seller Parties, nothing has
occurred which could reasonably cause the loss of such qualification or tax
exemption.
(C) None of the Assets is, or may
reasonably be expected to become, the subject of any lien arising under ERISA or
Section 412(n) of the Code. Except as set forth on Schedule 4.20, neither Seller
nor any ERISA Affiliate has any Liability for unpaid contributions with respect
to any Pension Plans subject to Title IV of ERISA.
(ii) Multiemployer Plans. Neither Seller nor any
of its ERISA Affiliates sponsors, maintains, contributes to or has an obligation
to contribute to, or has, within the six (6) year period prior to the Closing
Date, sponsored, maintained, contributed to or had an obligation to contribute
to, any Multiemployer Plan. None of Seller or any of its ERISA Affiliates has
any unsatisfied liability due to a complete or partial withdrawal from a
Multiemployer Plan or due to the termination or reorganization of a
Multiemployer Plan.
(iii) Welfare Plans. Each Seller Employee Plan
which is a Welfare Plan which is a "group health plan," as defined in Section
607(1) of ERISA, has been operated in compliance in all material respects with
provisions of Part 6 of Title I, Subtitle B of ERISA and Sections 162(k) and
4980B of the Code at all times.
(iv) Compliance With Law. Each Seller Employee
Plan, and any related trust agreement, annuity contract or other funding
instrument, presently complies in all material respects and has been maintained
in material compliance with its terms and, both as to form and in operation,
with the requirements prescribed by any and all Regulations and Court Orders
which are applicable to such plans, including, without limitation, ERISA and the
Code.
34
All contributions required to be made under each Seller Employee Plan as of the
date of this Agreement have been timely made or, if not yet due, have been
properly reflected on the most recent consolidated balance sheet filed or
incorporated by reference in the Financial Statements prior to the date of this
Agreement.
(v) No Liability. The consummation of the
transactions contemplated by this Agreement will not give rise to any liability
of Acquiror for severance pay, termination pay or any similar payment to any of
Seller's employees, including but not limited to any liability related to Seller
Employee Plans, bonus payments or any other benefits previously provided by
Seller to any of Seller's employees.
(vi) No Foreign Plans. Neither Seller nor any of
its Subsidiaries whose Assets are being transferred pursuant to this Agreement,
sponsors, contributes to or has any liability with respect to any employee
benefit plan, program or arrangement that provides benefits to non-resident
aliens with no United States source income outside of the United States.
4.21. Transactions with Certain Persons. Except as set forth on
Schedule 4.21, no officer, director or shareholder of Seller nor any member of
any such Person's immediate family and, to the Knowledge of the Seller Parties,
no employee of Seller (nor any member of any such employee's immediate family)
(a) is presently, or since January 1, 2002 has been a party to any material
transaction with Seller, including, without limitation, any contract, agreement
or other arrangement (i) providing for the furnishing of services by, (ii)
providing for the rental of real or personal property from, or (iii) otherwise
requiring payments to (other than for services as officers, directors or
employees of Seller) any such Person or corporation, partnership, trust or other
entity in which any such Person has an interest as a stockholder, officer,
director, trustee or partner; (b) is presently, or since January 1, 2002 has
been engaged in competition with Seller with respect to its business in any
material respect; or (c) has presently or since January 1, 2002 has had material
business dealings or a material financial interest in any transaction with
Seller (other than business dealings or transactions conducted in the ordinary
course of the business with Seller at substantially prevailing market prices and
on substantially prevailing market terms).
4.22. Certain Payments. Except with respect to matters which would
not reflect or yield a Material Adverse Effect, to the Seller Parties'
Knowledge, since January 1, 2002, neither Seller, nor any of its directors,
officers or employees or any other Person affiliated with or acting for or on
behalf of Seller, has directly or indirectly (a) made any contribution, gift,
bribe, rebate, payoff, influence payment, kickback or other payment to any
Person, private or public, regardless of form, whether in money, property or
services (i) to obtain favorable treatment in securing business, (ii) to pay for
favorable treatment for business secured, (iii) to obtain special concessions or
for special concessions already obtained, for or in respect of Seller or any of
its Affiliates or (iv) in violation of any Regulations (including, without
limitation, the United States Foreign Corrupt Practices' Act), or (b)
established or maintained any fund or asset that has not been recorded in the
books and records of Seller. Seller has not participated, directly or
indirectly, in any boycotts or other similar practices affecting any of its
actual or potential customers and has at all times done business in an open and
ethical manner.
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4.23. Tax Matters.
(a) Each Taxpayer has timely filed with the appropriate
taxing authorities all Tax Returns required to be filed through the date hereof
and will timely file any such Tax Returns required to be filed on or prior to
the Closing Date. Such Tax Returns are true, complete and accurate in all
material respects. To Seller's Knowledge, no claim has ever been made by a
taxing authority in a jurisdiction where a Taxpayer does not file Tax Returns
that such entity is or may be subject to taxation by that jurisdiction.
(b) All Taxes due and payable for which any Taxpayer is
liable, whether to taxing authorities or to any other Person or entities, have
been timely paid. All Taxes required to be withheld by any Taxpayer have been
collected and withheld and have been timely paid to the respective governmental
agencies.
(c) Except as set forth in Schedule 4.23(c), no
deficiencies for Taxes, have been claimed, proposed or assessed by any taxing or
other governmental authority against any Taxpayer and there are no pending or,
to the Seller Parties' Knowledge, threatened, any audits, examinations,
investigations or other proceedings in respect of Taxes or Tax matters. No
extension of a statute of limitations relating to Taxes is in effect with
respect to any Taxpayer. All deficiencies asserted or assessments made as a
result of any examination have been fully paid.
(d) There are no liens for Taxes (other than for current
Taxes not yet due and payable) on any of the Assets.
(e) None of the Assets is property that is required to be
treated as being owned by any other person pursuant to the so-called safe harbor
lease provisions of former Section 168(f)(8) of the Code.
(f) None of the Assets directly or indirectly secures any
debt the interest on which is tax-exempt under Section 103(a) of the Code.
(g) None of the Assets is "tax-exempt use property"
within the meaning of Section 168(h) of the Code.
(h) Seller is not a person other than a United States
person within the meaning of the Code.
(i) The transaction contemplated herein is not subject to
the tax withholding provisions of Section 3406 of the Code, or of Subchapter A
of Chapter 3 of the Code or of any other provision of law.
4.24. Insurance. Schedule 4.24 contains a complete and accurate list
of all policies or binders of fire, liability, title, worker's compensation,
product liability (which list shall be for three years) and other forms of
insurance (showing as to each policy or binder the carrier, policy number,
coverage limits, expiration dates, annual premiums, a general description of the
type of coverage provided, loss experience history by line of coverage)
maintained by Seller on the Business, the Assets or its employees. True and
correct copies of all such policies or binders
36
have been delivered to Acquiror. To Seller's Knowledge, all insurance coverage
applicable to Seller, the Business or the Assets is in full force and effect.
There is no material Default under any such coverage nor has there been any
failure to give notice or present any material claim under any such coverage in
a due and timely fashion. There are no outstanding unpaid premiums except in the
ordinary course of business and no notice of cancellation or nonrenewal of any
such coverage has been received. All products liability, general liability and
workers' compensation insurance policies maintained by Seller have been
occurrence policies and not claims made policies. There are no outstanding
performance bonds covering or issued for the benefit of Seller. No insurer has
advised Seller in writing that it intends to reduce coverage, increase premiums
or fail to renew existing policy or binder.
4.25. Accounts Receivable. The accounts receivable set forth on the
Interim Balance Sheet, and all accounts receivable arising since the Interim
Balance Sheet Date, represent bona fide claims of Seller against debtors for
sales, services performed or other charges arising on or before the date hereof,
and all the goods delivered and services performed which gave rise to said
accounts were delivered or performed in accordance with the applicable orders,
Contracts or customer requirements. Said accounts receivable are subject to no
defenses, counterclaims or rights of setoff, except to the extent of the
appropriate reserves for bad debts on accounts receivable as set forth on the
Interim Balance Sheet and, in the case of accounts receivable arising since the
Interim Balance Sheet Date, to the extent of a reasonable reserve rate for bad
debts on accounts receivable which is not greater than the rate reflected by the
reserve for bad debts on the Interim Balance Sheet. As of the Closing Date, the
Accounts Receivable set forth on the Pre-Closing Balance Sheet will represent
bona fide claims of Seller against debtors for sales, services performed or
other charges arising on or before the date hereof, and all the goods delivered
and services performed which gave rise to said accounts were delivered or
performed in accordance with the applicable orders, Contracts or customer
requirements. Said Accounts Receivable will be subject to no defenses,
counterclaims or rights of setoff, except to the extent of the appropriate
reserves for bad debts on Accounts Receivable as set forth on the Pre-Closing
Balance Sheet.
4.26. Other Current Assets. Schedule 4.26 contains a complete and
accurate list of all unbilled receivables, deferred costs, prepaid assets and
other current assets (other than accounts receivable) set forth on the Interim
Balance Sheet. The unbilled receivables, deferred costs, prepaid assets and
other current assets (other than accounts receivable) as set forth (a) on the
Interim Balance Sheet or arising since the Interim Balance Sheet Date and (b) as
of the Closing Date, on the Pre-Closing Balance Sheet, respectively are valued
at reasonable amounts based on the normal valuation policy of Seller in
accordance with GAAP. None of such unbilled receivables, deferred costs, prepaid
assets or other current assets are subject to write-off or write-down, except
for such items which have been written down to realizable market value, or for
which adequate reserves have been provided, in the Interim Balance Sheet and in
the Pre-Closing Balance Sheet, respectively. All unbilled receivables, deferred
costs, prepaid assets and other current assets (other than accounts receivable)
will, when converted to accounts receivable, if applicable, represent bona fide
claims of Seller against debtors for sales, services performed or other charges
arising on or before the Closing Date, and all the goods delivered and services
performed which gave rise to said accounts were delivered or performed in
accordance with the applicable orders, Contracts or customer requirements. Said
accounts receivable will be subject
37
to no defenses, counterclaims or rights of setoff, except to the extent adequate
reserves have been provided in the Interim Balance Sheet and in the Pre-Closing
Balance Sheet, respectively.
4.27. Customers and Suppliers. Schedule 4.27 sets forth a complete
and accurate list of the names and addresses of Seller's (a) the ten (10)
largest customers (including advertisers) of Seller based on dollar revenues to
Seller during Seller's 2002 fiscal year, showing the approximate total revenues
in dollars to Seller from each such customer during such fiscal year; and (b)
the ten (10) largest suppliers of Seller based on dollar purchases during
Seller's 2002 fiscal year, showing the approximate total purchases in dollars by
Seller from each such supplier during such fiscal year. Since the Interim
Balance Sheet Date, except as set forth on Schedule 4.27, there has been no
Material Adverse Change in the business relationship of Seller with any customer
or supplier named on Schedule 4.27. Seller has not received any communication
from any customer or supplier named on Schedule 4.27 of any intention to
terminate or materially reduce purchases from or supplies to Seller.
4.28. Compliance with Environmental Laws. Except as disclosed on
Schedule 4.28, (a) to Seller's Knowledge, Seller is now and has always been in
material compliance with all applicable Environmental Laws; (b) to Seller's
Knowledge, Seller has not used, generated, treated, stored, transported,
disposed of, released, or handled hazardous substances except in material
compliance with all applicable Environmental Laws; (c) to Seller's Knowledge,
there is no site to which Seller has arranged the transport of hazardous
substances which is the subject of an environmental action, (d) Seller has not
received any written notice of any alleged non-compliance with, or alleged
responsibility or potential responsibility under, any Environmental Law, nor is
Seller aware (to Seller's Knowledge) of any information which might reasonably
be expected to form the basis of such a notice, and (e) Seller has not released
or indemnified (other than indemnification obligations pursuant to Facility
Leases or in connection with third party loans) any other person or entity from
claims or liability under any Environmental Law nor has Seller waived any rights
concerning any claims under any Environmental Law.
4.29. Xxxxxxxx. Except as set forth in Schedule 4.29, to Seller's
Knowledge: Seller has not made any xxxxxxxx whatsoever to its customers or
clients for services to be provided or products to be sold after the Closing;
all client deposits held by Seller arose from written agreements between Seller
and the remitting client, are correct as to amount, and no such client has
notified Seller of its intention to seek a refund of its deposit; all such
client deposits were received by Seller in cash, in the ordinary course of
business. Except as set forth in Schedule 4.29, as of the date of this
Agreement, to the Knowledge of the Seller Parties, no party to any such
agreement has defaulted in any of its material obligations thereunder, and no
client is in default of its payment obligations on invoices for services
previously rendered or products previously sold by Seller. Except as set forth
in Schedule 4.29, to Seller's Knowledge, the open purchase orders of Seller were
entered into by Seller in good faith, in accordance with past practices, in the
ordinary course of business, and with the exception of routine cancellations in
the ordinary course of business, such open purchase orders were, and to the
extent any such order remains unfilled as of the date of this Agreement, are, in
full force and effect. There is no outstanding bid, proposal, Contract or
unfilled order which will or would, if accepted, have a Material Adverse Effect.
38
4.30. Banking Relationships. Schedule 4.30 sets forth a complete and
accurate description of all arrangements that Seller has with any banks, savings
and loan associations or other financial institutions providing for checking
accounts, safe deposit boxes, borrowing arrangements, and certificates of
deposit or otherwise, indicating in each case account numbers, if applicable,
and the person or persons authorized to act or sign on behalf of Seller in
respect of any of the foregoing.
4.31. Investment Intent. The Acquiror Parties' willingness to agree
to the provisions of Section 2.4 and Section 2.7(c) and the issuance of Parent's
Common Stock to Seller contemplated thereby is made in reliance upon the Seller
Parties' representations set forth in this Section 4.31 as of the date hereof
and as of each date (if any) on which shares of Parent's Common Stock are
required to be issued:
(a) Acquisition Entirely for Own Account. Seller Parties
hereby confirm, that any Parent's Common Stock required to be issued to Seller
will be acquired for investment for the Seller's own account, not as a nominee
or agent, and not with a view to the resale or distribution of any part thereof,
and that the Seller has no (and at the time of issuance will have no) intention
of selling, granting any participation in, or otherwise distributing the same
other than as may be permitted by applicable securities laws. By executing this
Agreement, the Seller Parties further represent that they do not have and will
not enter into any contract, undertaking, agreement or arrangement with any
person to sell, transfer or grant participations to such person or to any third
person, with respect to any of the Parent's Common Stock other than as may be
permitted by applicable securities laws. The Seller has not been formed for the
specific purpose of acquiring the Parent's Common Stock.
(b) Disclosure of Information. The Seller Parties have
had an opportunity to discuss the Parent's business, management, financial
affairs with the Parent's management and have had an opportunity to review the
Parent's facilities and to ask questions and receive answers concerning the
Parent's Common Stock and the terms under which shares of the Parent's Common
Stock would be issued pursuant to this Agreement.
(c) Restricted Securities. The Seller Parties understand
that the shares of Parent's Common Stock issued pursuant to this Agreement have
not been, and will not be, registered under the Securities Act, by reason of a
specific exemption from the registration provisions of the Securities Act which
depends upon, among other things, the bona fide nature of the investment intent
and the accuracy of the Seller Parties' representations as expressed herein. The
Seller Parties understand that the shares of Parent's Common Stock are
"restricted securities" under applicable U.S. federal and state securities laws
and that, pursuant to these laws, the Seller Parties must hold the Parent's
Common Stock indefinitely unless they are registered with the Securities and
Exchange Commission and qualified by state authorities, or an exemption from
such registration and qualification requirements is available. The Seller
Parties acknowledge that Parent has no obligation to register or qualify the
Parent's Common Stock for resale except as provided in the Registration Rights
Agreement. The Seller Parties further acknowledge that if an exemption from
registration or qualification is available, it may be conditioned on various
requirements including, but not limited to, the time and manner of sale, the
holding period for the Parent's Common Stock, and on requirements relating to
the Parent
39
which are outside of the Seller Parties' control, and which the Parent is under
no obligation and may not be able to satisfy.
(d) Legends. The Seller Parties understand that the
Parent's Common Stock, and any securities issued in respect of or exchange for
the Parent's Common Stock, may bear one or all of the following legends:
(i) "THE SHARES REPRESENTED BY THIS CERTIFICATE
HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AND HAVE BEEN
ACQUIRED FOR INVESTMENT AND NOT WITH A VIEW TO, OR IN CONNECTION WITH, THE SALE
OR DISTRIBUTION THEREOF. NO SUCH SALE OR DISTRIBUTION MAY BE EFFECTED WITHOUT AN
EFFECTIVE REGISTRATION STATEMENT RELATED THERETO OR AN OPINION OF COUNSEL IN A
FORM SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED UNDER
THE SECURITIES ACT OF 1933."
(ii) Any legend required by the Blue Sky laws of
any state to the extent such laws are applicable to the shares represented by
the certificate so legended.
(e) Accredited Investor. Each Seller Party and each
member of Seller is an accredited investor as defined in Rule 501(a) of
Regulation D promulgated under the Securities Act.
ARTICLE V.
REPRESENTATIONS AND WARRANTIES OF THE ACQUIROR PARTIES
Each of the Acquiror Parties jointly and severally hereby
represents and warrants to Seller as follows, which representations and
warranties are, as of the date hereof, and will be, as of the Closing Date, true
and correct:
5.1. Organization of the Acquiror Parties. Each of Parent and
Acquiror is a corporation duly organized, validly existing and in good standing
under the laws of the State of Delaware with full power and authority to own and
lease its properties and assets and conduct its business as its is presently
being conducted. Parent is the sole shareholder of Acquiror. Each of Parent and
Acquiror is duly qualified to do business and is in good standing in each
jurisdiction in which its right, title and interest in or to any of the assets
held by it, or the conduct of its business, requires such qualification except
where failure to be so qualified or in good standing, would not, individually or
in the aggregate, have a material adverse effect on the condition (financial or
otherwise), liabilities, operations or results of operations of Parent or
Acquiror, as applicable.
5.2. Authorization. Each of Parent and Acquiror has all requisite
power and authority, and has taken all action necessary, to execute and deliver
this Agreement and the Ancillary Agreements, to consummate the transactions
contemplated hereby and thereby and to perform its obligations hereunder and
thereunder. The execution and delivery of this Agreement and the
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Ancillary Agreements by each of Parent and Acquiror and the consummation by
Parent and Acquiror of the transactions contemplated hereby and thereby have
been duly approved by their respective boards of directors. No other corporate
proceedings on the part of the Acquiror Parties are necessary to authorize this
Agreement and the Ancillary Agreements to which each of the Acquiror Parties is
a party and the transactions contemplated hereby and thereby. This Agreement has
been duly executed and delivered by the Acquiror Parties and is, and upon
execution and delivery the Ancillary Agreements will be, legal, valid and
binding obligations of the Acquiror Parties, enforceable against each of the
Acquiror Parties in accordance with their terms, except as limited by
bankruptcy, insolvency, reorganization, moratorium or other similar laws
relating to creditor's rights generally or by equitable principles (whether
considered in an action at law or in equity).
5.3. No Conflict or Violation. Neither the execution, delivery or
performance of this Agreement nor the consummation of the transactions
contemplated hereby, nor compliance by the Acquiror Parties with any of the
provisions hereof, will (a) violate or conflict with any provision of the
Organizational Documents of the Acquiror Parties, (b) violate, conflict with, or
result in or constitute a Default under, or result in the termination of, or
accelerate the performance required by, or result in a right of termination or
acceleration under, or result in the creation of any Encumbrance upon any of the
Acquiror Parties' assets under, any of the terms, conditions or provisions of
any contract, indebtedness, note, bond, indenture, security or pledge agreement,
commitment, license, lease, franchise, permit, agreement, authorization,
concession, or other instrument or obligation to which either of the Acquiror
Parties is a party or (c) violate any Regulation or Court Order.
5.4. SEC Filings. Parent has filed all forms, reports and
documents, together with any amendments to be made with respect thereto that are
required to be filed by Parent with the Securities and Exchange Commission
("SEC") since January 1, 2002. All such required forms, reports and documents
(together with any amendments required to be made with respect thereto
(including those forms, reports, documents and amendments) that Parent may file
subsequent to the date hereof) are referred to herein as the "Parent SEC
Reports." As of their respective dates, the Parent SEC Reports, including the
financial statements, exhibits and schedules thereto (i) were prepared in all
material respects in accordance with the requirements of the Securities Act of
1933, as amended or the Exchange Act of 1934, as amended, as the case may be,
and the rules and regulations of the SEC thereunder applicable to such Parent
SEC Reports, and (ii) did not at the time they were filed (or if amended or
superseded by a filing, then on the date of such filing) contain any untrue
statement of a material fact or omit to state a material fact required to be
stated therein or necessary in order to make the statements therein, in the
light of the circumstances under which they were made, not misleading, except to
the extent corrected by a subsequently filed Parent SEC Report.
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ARTICLE VI.
COVENANTS OF THE SELLER PARTIES AND THE ACQUIROR PARTIES
The Seller Parties and the Acquiror Parties each covenant with
the other as follows:
6.1. Confidentiality and Non-Competition.
(a) Seller Parties acknowledge that they have knowledge
of certain Confidential Information and that such Confidential Information is
confidential and proprietary to the Business and constitutes valuable trade
secrets of the Business, which affect, among other things, the successful
conduct, furtherance and protection of the Business and related goodwill. Seller
Parties acknowledge that the unauthorized use or disclosure of such Confidential
Information is likely to be highly prejudicial to the interests of the Acquiror
Parties or their customers, clients and patrons, an invasion of privacy, or an
improper disclosure of trade secrets. Seller Parties agree that a substantial
portion of the Purchase Price is being paid for such Confidential Information
and that it represents a substantial investment having great economic and
commercial value to the Acquiror Parties, and constitutes a substantial part of
the value to the Acquiror Parties of the Business. Seller Parties further
acknowledge that the Acquiror Parties would be irreparably damaged if any of the
Confidential Information was disclosed to, or used or exploited on behalf of,
any Person other than the Acquiror Parties or any of their Affiliates.
Accordingly, Seller Parties covenant and agree that they shall not, directly or
indirectly, and shall use their best efforts to ensure that any agents,
Affiliates and any other persons acting on either Seller Party's behalf (Seller
Parties and such agents, Affiliates and other persons with respect to either
Seller Party being collectively referred to as the "Restricted Persons") do not,
without the prior written consent of the Acquiror Parties, disclose, use,
exploit, furnish or make accessible to anyone or any other entity, any such
Confidential Information, for the benefit of any such Restricted Person or of
any third party, at any time for so long as such information shall remain secret
or confidential or otherwise remain wholly or partially protectable except that
Seller Parties may use or exploit a particular item of Confidential Information
if and to the extent (but only if and to the extent) that such item is:
(i) or becomes generally known on a
non-confidential basis to persons in the industry, through no wrongful act of
any Restricted Person, in which the Acquiror Parties are engaged and is part of
the public domain;
(ii) or was within a Restricted Person's
possession prior to its being furnished to such Restricted Person by or on
behalf of the Seller Parties or the Acquiror Parties, provided that the source
of such information was not known by such Restricted Person to be bound by a
confidentiality agreement with or other contractual, legal or fiduciary
obligation of confidentiality to either the Seller Parties or the Acquiror
Parties or any other Person with respect to such information; or
(iii) or becomes available to a Restricted Person
on a non-confidential basis from a source other than one of the Seller Parties
or one of the Acquiror Parties or any of their respective Representatives,
provided that such source is not bound by a confidentiality
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agreement with or other contractual, legal or fiduciary obligation of
confidentiality to either the Seller Parties or the Acquiror Parties or any
other Person with respect to such information.
(b) Seller Parties hereby acknowledge that the Acquiror
Parties will invest substantial time, money and resources in acquiring the
Business, as well as in the development and retention of Seller's inventions,
Confidential Information, customers, accounts and business partners of Seller.
Therefore, Seller Parties hereby agrees that, if allowed to participate in a
competitive business in violation of this Section 6.1(b), Seller Parties would
substantially impair the value of the Assets being acquired by Acquiror. Seller
Parties agree that for a two (2) year period following the Closing Date, Seller
Parties shall not in any capacity, or in association with others, directly or
indirectly, as advisor, agent, owner, partner, stockholder, beneficial owner or
in any other capacity, for the benefit of any of such Seller Parties or their
respective Affiliates:
(i) engage in the Business or in any business
activity that in any manner whatsoever competes with the Business in any state
of the United States or elsewhere (the "Competitive Activities");
(ii) own any interest in, manage, operate, join
or control any business or organization that engages in a Competitive Activity;
(iii) solicit for employment, employ or engage any
person or entity who is employed by Seller on the date hereof or prior to the
Closing Date and becomes employed by Acquiror on the Closing Date; or
(iv) solicit or entice suppliers or customers of
the Business, Acquiror or an Affiliate of Acquiror to cease doing business with
or reduce its relationship with Acquiror or an Affiliate of Acquiror.
If a court determines that the restrictions set forth in Sections 6.1(b) above
are too broad or otherwise unreasonable under applicable law, including with
respect to time or geographical scope, the court is hereby requested and
authorized by the parties without further action by the parties hereto to revise
the restrictions in Section 6.1(b) to include the maximum restrictions allowed
under the applicable law.
(c) Seller Parties hereby expressly acknowledge that the
covenants contained in this Section 6.1 are integral to the purchase of the
Assets by Acquiror and that without the protection of such covenants, the
Acquiror Parties would not have entered into this Agreement. Seller Parties
hereby further acknowledge that money damages will be impossible to calculate
and may not adequately compensate the Acquiror Parties in connection with an
actual or threatened breach of the provisions of this Section 6.1. Accordingly,
on their own behalf and on behalf of each of the other Restricted Persons,
Seller Parties hereby expressly waive all rights to raise the adequacy of the
Acquiror Parties' remedies at law as a defense if the Acquiror Parties seek to
enforce by injunction or other equitable relief the due and proper performance
and observance of the provisions of this Section 6.1. In addition, the Acquiror
Parties shall be entitled to pursue any other available remedies at law or
equity, including the recovery of money damages, in respect of the actual or
threatened breach of the provisions of this Section 6.1. Seller Parties hereby
expressly waive any right to assert inadequacy of consideration as a defense
43
to enforcement of the confidentiality covenants in this Section 6.1 should such
enforcement ever become necessary.
6.2. Further Assurances. Upon the terms and subject to the
conditions contained herein, the parties agree, both before and after the
Closing (a) to use all reasonable efforts to take, or cause to be taken, all
actions and to do, or cause to be done, all things necessary, proper or
advisable to consummate and make effective the transactions contemplated by this
Agreement and the Ancillary Agreements, (b) to execute any documents,
instruments or conveyances of any kind which may be reasonably necessary or
advisable to carry out any of the transactions contemplated hereunder or
thereunder, and (c) to cooperate with each other in connection with the
foregoing. Without limiting the foregoing, the parties agree to use their
respective commercially reasonable efforts (a) to obtain all necessary waivers,
consents and approvals necessary or desirable for the consummation of the
transactions contemplated by this Agreement or the Ancillary Agreements from
other parties to the Contracts and Personal Property Leases , (b) to obtain all
necessary Permits as are required to be obtained under any Regulations, (c) to
defend all Actions challenging this Agreement or the consummation of the
transactions contemplated hereby, (d) to lift or rescind any injunction or
restraining order or other Court Order adversely affecting the ability of the
parties to consummate the transactions contemplated hereby, (e) to give all
notices to, and make all registrations and filings with third parties,
including, without limitation, submissions of information requested by
governmental authorities, (f) to obtain any clearance certificate or similar
document(s) which may be required by any state taxing authority to relieve
Acquiror of any obligations to withhold any portion of the Purchase Price to be
paid to Seller pursuant to this Agreement and (g) prior to the Closing, to
fulfill all conditions to this Agreement.
6.3. No Solicitation. The Seller Parties shall not, and each of the
Seller Parties shall cause each of their respective Representatives (including,
without limitation, investment bankers, attorneys and accountants), not to,
directly or indirectly, enter into, solicit, initiate or continue any
discussions or negotiations with, or encourage or respond to any inquiries or
proposals by, or participate in any negotiations with, or provide any
information to, or otherwise cooperate in any other way with, any corporation,
partnership, person or other entity or group, other than the Acquiror Parties
and their Representatives, concerning any sale of all or a portion of the
Assets, or of any equity interest in Seller, or any merger, consolidation,
liquidation, dissolution or similar transaction involving Seller (each such
transaction being referred to herein as a "Proposed Acquisition Transaction").
The Seller Parties shall not, directly or indirectly, through any officer,
director, employee, Representative, agent or otherwise, solicit, initiate or
encourage the submission of any proposal or offer from any Person or entity
relating to any Proposed Acquisition Transaction or participate in any
negotiations regarding, or furnish to any other person any information with
respect to Seller for the purposes of, or otherwise cooperate in any way with,
or assist or participate in, facilitate or encourage, any effort or attempt by
any other person to seek or effect a Proposed Acquisition Transaction. The
Seller Parties hereby jointly and severally represent and warrant that none of
them is now engaged in negotiations with any party other than the Acquiror
Parties with respect to any of the foregoing. The Seller Parties shall promptly
advise such prospective purchaser or soliciting party, by written notice (with a
copy to the Acquiror Parties), of the terms of this Section 6.3 and will
promptly notify the Acquiror Parties (orally and in writing) if any such offer,
or any inquiry or contact with any Person with respect thereto, is made and
shall provide the Acquiror Parties with a copy of such
44
offer, the terms of any proposal, including, without limitation, the identity of
the prospective purchaser or soliciting party, and shall keep the Acquiror
Parties informed on the status of any negotiations regarding such offer. The
Seller Parties agree not to release any third party from, or waive any provision
of, any confidentiality or standstill agreement to which Seller is a party.
6.4. Notification of Certain Matters. From the date hereof through
the Closing, each Party shall give prompt notice to the other Party (the party
giving such notice being referred to as the "Notifying Party") (in the case of
any Seller Party, such obligation shall arise only upon receipt of actual
knowledge by any of Xxxxxxxxxx, Xxxxxxx or Xxxxxxx Xxxxxxxx and in the case of
Acquiror, such obligation shall arise only upon receipt of actual knowledge by
Xxxxxx X. Xxxx or Xxxxxx X. Xxxxxx) of the occurrence, or failure to occur from
the date hereof to the Closing, of any event which occurrence or failure would
be likely to cause the closing conditions set forth in Section 8.1 and Section
9.1, respectively, hereof not to be satisfied as of the Closing Date or of any
material breach of a representation, warranty of covenant; provided, however,
that such disclosure shall not be deemed to cure any breach of a representation,
warranty, covenant or agreement or to satisfy any condition. From the date
hereof through the Closing, the Seller Parties shall promptly notify Acquiror
upon receipt of actual Knowledge by any of Xxxxxxxxxx, Xxxxxxx or Xxxxxxx
Xxxxxxxx of any Default or threat or commencement of any Action, in either case
that could in any way materially affect Seller or the Business.
6.5. Investigation by the Acquiror Parties. From the date hereof
through the Closing Date:
(a) Seller shall, and shall cause its officers,
directors, employees and agents to, afford the Representatives of the Acquiror
Parties and their Affiliates reasonable access on at least two (2) days prior
notice to Seller and the Business for the purpose of inspecting the same, and to
the officers, managers, attorneys, accountants, properties, Books and Records
and Contracts of Seller, and shall furnish the Acquiror Parties and their
Representatives all financial, operating and other data and information as the
Acquiror Parties or their Affiliates, through their respective Representatives,
may reasonably request, including an unaudited balance sheet and the related
statements of operations, retained earnings and cash flow for each month from
the date hereof through the Closing Date within ten (10) calendar days after the
end of each month which financial statements shall (i) be true, correct and
complete, (ii) be in accordance with the books and records of Seller and (iii)
accurately set forth the assets, Liabilities and financial condition, results of
operations and other information purported to be set forth therein in accordance
with GAAP consistently applied.
(b) Following the Closing Date, the Seller Parties shall
provide Parent and its independent accountants reasonable access to the records
and personnel of the Seller Parties for the purpose of enabling Parent to
prepare audited and unaudited financial statements of Seller and the Business
that are required to be filed by Acquiror under the Exchange Act, and shall
cooperate with Acquiror in connection with the foregoing.
6.6. Conduct of Business. Except as otherwise expressly permitted
by this Agreement, between the date of this Agreement and the Closing Date,
Seller shall conduct its business in the ordinary course of business, consistent
with past practices, and the Shareholders and Seller will not, and the
Shareholders will cause Seller not to, without the prior consent of
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Acquiror, take any affirmative action, or fail to take any reasonable action
within their control, as a result of which any of the changes or events listed
in Section 4.5 is likely to occur.
6.7. Employee Matters.
(a) Acquiror shall employ those of Seller's employees
whom Acquiror may select and hire, in Acquiror's sole discretion (such employees
are hereinafter referred to as the "Rehired Employees"), which offers shall be
on terms and conditions which Acquiror shall determine in its sole discretion.
Seller shall terminate the employment of all Rehired Employees immediately prior
to the Closing and shall cooperate with and use its best efforts to assist
Acquiror in its efforts to secure satisfactory employment arrangements with the
Rehired Employees.
(b) Seller shall comply with the requirements of the WARN
Act with respect to any "plant closing" or "mass layoff", as those terms are
defined in WARN Act, which may result from Seller's termination of the
employment of any of the employees of the Business in connection with Seller's
sale of the Assets to Acquiror or any of the other transactions contemplated by
this Agreement.
(c) Seller shall be solely responsible for all of the
Employee Plans and all obligations and liabilities thereunder. Acquiror shall
not assume any of the Employee Plans or any obligation or liability thereunder.
(d) Nothing contained in this Agreement shall confer upon
any Rehired Employee any right with respect to continuance of employment by
Acquiror, nor shall anything herein interfere with the right of Acquiror to
terminate the employment of any of the Rehired Employees at any time, with or
without cause, or restrict Acquiror in the exercise of its independent business
judgment in modifying any of the terms and conditions of the employment of the
Rehired Employees.
(e) No provision of this Agreement shall create any third
party beneficiary rights in any Rehired Employee, any beneficiary or dependents
thereof, or any collective bargaining representative thereof, with respect to
the compensation, terms and conditions of employment and benefits that may be
provided to any Rehired Employee by Acquiror or under any benefit plan which
Acquiror may maintain.
(f) Concurrently with the Closing, Acquiror and
Xxxxxxxxxx shall enter into an Employment Agreement in the form attached hereto
as Exhibit K.
6.8. Corporate Name of Seller. Promptly following the Closing, the
Seller Parties hereby acknowledge and agree to change the name of Seller or any
Affiliate of the Seller Parties that contains the name "Xxxxxxx Xxxxxxxxxx" or
the initials "JGI", and upon effectuating the change of the name of Seller and
any such Affiliate of the Seller Parties, each of the Seller Parties hereby
acknowledges and agrees that it shall cease using the name "Xxxxxxx Xxxxxxxxxx,
Inc." (or any name containing the name "Xxxxxxx Xxxxxxxxxx or the initials
"JGI") in connection with any business conducted by such party.
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6.9. Interim Services and Facilities Agreement. Concurrently with
the Closing, the Seller and the Acquiror Parties will enter into the Interim
Services and Facilities Agreement providing for the use by Acquiror of Seller's
facilities and equipment, the use by Acquiror of services of Seller personnel
who are not Rehired Employees, and the use by Seller of services of certain
Acquiror personnel, all for the period commencing on the Closing Date and
continuing through December 31, 2004.
6.10. Additional Holdback Escrow. The Seller Parties covenant and
agree that subject to the occurrence of a Release Trigger (as defined in the
Escrow Indemnification Agreement), the Acquiror Parties shall be entitled to
recover from the Seller Parties, jointly and severally, damages equal to the
amount by which the EBITDA of the Business during any year of the Earnout Period
falls below Base EBITDA, up to a maximum aggregate liability of the Seller
Parties of Seven Hundred Fifty Thousand Dollars ($750,000) (the "Payback
Mechanism"). Any amount actually paid to the Acquiror Parties in any year under
the Payback Mechanism will be added back to EBITDA for purposes of calculating
Earnout Payments in subsequent years. The obligation of the Seller Parties under
the Payback Mechanism will be secured by an "Additional Holdback" consisting of
(a) any Holdback Amount remaining after final determination of the Adjustment
Amount pursuant to Section 2.6 hereof (i.e., the Adjustment Amount is positive
or if negative, is less than the Holdback amount), plus (b) a deposit of cash by
the Seller Parties in an amount equal to the difference between the remaining
Holdback Amount and Two Hundred Fifty Thousand Dollars ($250,000), plus (c) the
Escrow Amount, plus (d) a deposit of cash by the Acquiror Parties from Earnout
Payments otherwise payable to the Seller, in an amount not to exceed Five
Hundred Thousand Dollars ($500,000), equal to any Damages paid by the Seller
Parties for Claims under Article X, all as provided in the Escrow
Indemnification Agreement. The Additional Holdback will be held by the Escrow
Agent under the Escrow Indemnification Agreement. The Additional Holdback will
be released, and the potential liability of the Seller Parties pursuant to the
Payback Mechanism will be terminated upon the earlier of (i) the occurrence of a
Release Trigger or (ii) the final determination of 2008 EBITDA and payment to
the Seller Parties of any amount due under the Payback Mechanism for 2008.
ARTICLE VII.
CONSENTS TO ASSIGNMENT
7.1. Consents to Assignment. Anything in this Agreement to the
contrary notwithstanding, this Agreement shall not constitute an agreement to
assign any of the Contracts, Personal Property Leases or Permits or any claim or
right or any benefit arising thereunder or resulting therefrom if an attempted
assignment thereof, without the consent of a third party thereto, would
constitute a Default thereunder or in any way adversely affect the rights of
Acquiror thereunder or thereto. If such consent is not obtained, or if an
attempted assignment thereof would be ineffective or would affect the rights
thereunder so that Acquiror would not receive all such rights, each Party will
use its respective commercially reasonable efforts to provide to Acquiror the
benefits and relieve Seller of the burdens of such Contract, Lease or Permit,
including, without limitation, enforcement for the benefit of Acquiror of any
and all rights of the Seller Parties (and the extinguishment of the burdens of
Seller) against a third party thereto arising out of the Default or cancellation
by such third party or otherwise. Nothing in this Section 7.1 shall affect
Acquiror's right to terminate this Agreement under Section 11.1 in the
47
event that any required consent or approval to the transfer of any of the Assets
set forth on Schedule 9.2 is not obtained.
ARTICLE VIII.
CONDITIONS TO THE SELLER pARTIES' OBLIGATIONS
The obligations of the Seller Parties to consummate the
transactions provided for hereby are subject, in the discretion of the Seller
Parties, to the satisfaction, on or prior to the Closing Date, of each of the
following conditions, any of which may be waived by the Seller Parties:
8.1. Representations, Warranties and Covenants. All representations
and warranties of the Acquiror Parties contained in this Agreement shall be true
and correct in all respects at and as of the date of this Agreement and at and
as of the Closing Date (in each case without giving effect to materiality
qualifications or material adverse effect qualifications) and the Acquiror
Parties shall have performed and satisfied in all respects all agreements and
covenants required hereby to be performed by them prior to or on the Closing
Date; provided that this condition will be deemed satisfied unless any such
failure to so perform and/or the inaccuracy of any representation, individually
or in the aggregate, has resulted in or would reasonably be expected to result
in a material adverse effect.
8.2. No Actions or Court Orders. No suit, action, investigation,
inquiry or other proceeding by any governmental body or other Person or legal or
administrative proceeding shall have been instituted or threatened which seeks
to restrain, enjoin, prevent the consummation of or otherwise materially affect
the transactions contemplated by this Agreement or which questions the validity
or legality of the transactions contemplated hereby or the ability of Seller to
transfer the Assets free and clear of any Encumbrances other than Permitted
Encumbrances.
8.3. Authorization. Seller shall have received from the Acquiror
Parties a copy of resolutions adopted by the boards of directors of the Acquiror
Parties approving this Agreement and the Ancillary Agreements to which each of
the Acquiror Parties is a party and the transactions contemplated hereby or
thereby, certified by each of the Acquiror Parties' corporate secretary.
8.4. Ancillary Agreements. Acquiror shall have executed and
delivered the Ancillary Agreements to which each of the Acquiror Parties is a
party.
8.5. Other Deliveries. Seller shall have received from the Acquiror
Parties each of the documents set forth in Section 3.2(a) and each of the
documents set forth in Section 3.3 to which each of the Acquiror Parties is a
party.
ARTICLE IX.
CONDITIONS TO THE ACQUIROR PARTIES' OBLIGATIONS
The obligations of the Acquiror Parties to consummate the
transactions provided for hereby are subject, in the discretion of the Acquiror
Parties, to the satisfaction, on or prior to
48
the Closing Date, of each of the following conditions, any of which may be
waived by the Acquiror Parties:
9.1. Representations, Warranties and Covenants. All representations
and warranties of the Seller Parties contained in this Agreement shall be true
and correct in all respects at and as of the date of this Agreement and at and
as of the Closing Date (in each case without giving effect to materiality
qualifications or Material Adverse Effect qualifications) and the Seller Parties
shall have performed and satisfied in all respects all agreements and covenants
required hereby to be performed by it prior to or on the Closing Date.
9.2. Consents; Regulatory Compliance and Approvals. The consents
set forth on Schedule 9.2 necessary for the conveyance of the Assets or the
valid consummation of the transactions contemplated hereby shall have been
obtained, and Acquiror shall have received evidence reasonably satisfactory to
it of the release of all liens or other Encumbrances on the Assets.
9.3. No Actions or Court Orders. No suit, action, investigation,
inquiry or other proceeding by any governmental body or other Person or legal or
administrative proceeding shall have been instituted or threatened which seeks
to restrain, enjoin, prevent the consummation of or otherwise materially affect
the transactions contemplated by this Agreement or which questions the validity
or legality of the transactions contemplated hereby or the ability of Seller to
transfer the Assets free and clear of any Encumbrances.
9.4. Material Changes. Since the Interim Balance Sheet Date, there
shall not have been any Material Adverse Change not reflected on Schedule 4.5.
9.5. Other Deliveries. Acquiror shall have received from the Seller
Parties or such other parties each of the documents set forth in Section 3.2(b)
and each of the documents set forth in Section 3.3.
ARTICLE X.
ACTIONS BY THE SELLER PARTIES AND THE ACQUIROR
PARTIES AFTER THE CLOSING
10.1. Books and Records; Tax Matters.
(a) Books and Records. Each party agrees that it will
cooperate with and make available to the other parties, during normal business
hours, all Books and Records, information and employees (without substantial
disruption of employment) retained and remaining in existence after the Closing
which are necessary or useful in connection with any tax inquiry, audit,
investigation or dispute, any litigation or investigation or any other matter
requiring any such Books and Records, information or employees for any
reasonable business purpose. The party requesting any such Books and Records,
information or employees shall bear all of the out-of-pocket costs and expenses
(including, without limitation, attorneys' fees, but excluding reimbursement for
salaries and employee benefits) reasonably incurred in connection with providing
such Books and Records, information or employees. All information received
pursuant to this Section 10.1(a) shall be subject to provisions set forth in
Section 6.1 above.
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(b) Cooperation and Records Retention. The Seller Parties
and the Acquiror Parties shall each provide the other with such assistance as
may reasonably be requested by any of them in connection with the preparation of
any Tax Return, audit, or other examination by any taxing authority or judicial
or administrative proceedings relating to Liability for Taxes.
10.2. Survival of Representations, Etc. All of the representations,
warranties, covenants and agreements made by each party in this Agreement or in
any attachment, Exhibit, the Disclosure Schedule, certificate, document or list
delivered by any such party pursuant hereto shall survive the Closing for a
period of (and claims based upon or arising out of such representations,
warranties, covenants and agreements may be asserted at any time before the date
which shall be) two (2) years following the Closing, except with respect to the
representations and warranties set forth in Section 4.1 and Section 4.3, which
shall survive indefinitely and the representations and warranties set forth in
Section 4.23 and Section 4.28 which shall survive until thirty (30) days
following the expiration of the applicable statute of limitations (with
extensions) with respect to the matters addressed in such sections. The Seller
Parties, on the one hand, and the Acquiror Parties, on the other hand, shall be
entitled to rely upon the representations and warranties of the Acquiror Parties
or the Seller Parties, as applicable, set forth in this Agreement. The
termination of the representations and warranties provided herein shall not
affect the rights of a party in respect of any Claim made by such party in a
writing received by the applicable party prior to the expiration of the
applicable survival period provided herein.
10.3. Indemnification.
(a) By the Seller Parties. Each of the Seller Parties,
jointly and severally, shall indemnify, save and hold harmless each of the
Acquiror Parties, their Affiliates and subsidiaries and their respective
Representatives (collectively, the "Acquiror Indemnitees"), from and against any
and all costs, losses (including, without limitation, diminution in value),
Taxes, Liabilities, obligations, damages, lawsuits, deficiencies, claims,
demands, and expenses (whether or not arising out of third-party claims),
including, without limitation, interest, penalties, costs of mitigation, losses
in connection with any Environmental Law (including, without limitation, any
clean-up or remedial action), Liabilities arising under or relating to the
Employee Plans or employees or former employees of Seller, lost profits and
other losses resulting from any shutdown or curtailment of operations, damages
to the environment, attorneys' fees and all amounts paid in investigation,
defense or settlement of any of the foregoing (herein, "Damages"), incurred in
connection with, arising out of, resulting from or incident to (i) any breach of
any representation or warranty or the inaccuracy of any representation made by
any of the Seller Parties in this Agreement; (ii) any breach of any covenant or
agreement made by any of the Seller Parties in this Agreement; (iii) any
Excluded Liability; (iv) any Damages arising prior to the Closing Date of any
nature (absolute, accrued, contingent or otherwise) of Seller, or any ERISA
Affiliate of Seller arising under or related to any Employee Plan; (v) any
product shipped or manufactured by, or any services provided by Seller prior to
the Closing Date; (vi) any Liability (other than the Assumed Liabilities)
imposed upon Acquiror by reason of Acquiror's status as transferee of the
Business or the Assets; (vii) any Liability (other than the Assumed Liabilities)
imposed upon the Acquiror Indemnitees by reason of and to the extent arising
from Seller's conduct of the Business on or prior to the Closing Date; or (viii)
any claim by any Person for brokerage or finder's fees or commissions or
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similar payments based upon any agreement or understanding alleged to have been
made by any such Person with any of the Seller Parties (or any Person acting on
their behalf) in connection with any transactions contemplated by this
Agreement.
The term "Damages" as used in this Section 10.3 is not limited
to matters asserted by third parties against Seller or Acquiror, but includes
Damages incurred or sustained by Seller or Acquiror in the absence of
third-party claims. Payments by a party of amounts for which such party is
indemnified hereunder shall not be a condition precedent to recovery.
(b) By the Acquiror Parties. Acquiror shall indemnify and
save and hold harmless Seller, its Affiliates, and its Representatives
(collectively, the "Seller Indemnitees") from and against any and all Damages
incurred in connection with, arising out of, resulting from or incident to (i)
any breach of any representation or warranty or the inaccuracy of any
representation, made by Acquiror in or pursuant to this Agreement; (ii) any
breach of any covenant or agreement made by Acquiror in or pursuant to this
Agreement; (iii) from and after the Closing, any Assumed Liability; or (iv) any
Liability (other than the Excluded Liabilities) imposed upon the Seller
Indemnitees by reason of and to the extent arising from Acquiror's conduct of
the Business after the Closing Date.
(c) Cooperation. The indemnified party shall cooperate in
all reasonable respects with the indemnifying party and such attorneys in the
investigation, trial and defense of such lawsuit or action and any appeal
arising therefrom; provided, however, that the indemnified party may, at its own
cost, participate in the investigation, trial and defense of such lawsuit or
action and any appeal arising therefrom. The parties shall cooperate with each
other in any notifications to insurers.
(d) Claims Between the Parties. References in this
Article X to "indemnifying party" shall be deemed references to Seller and the
Shareholders, jointly and severally, when an Acquiror Indemnitee is the
indemnified party and to Parent and Acquiror, jointly and severally, when a
Seller Indemnitee is the indemnified party. If a claim for Damages (a "Claim")
is to be made by a party entitled to indemnification hereunder against the
indemnifying party, the party claiming such indemnification shall, subject to
Section 10.3, give written notice (a "Claim Notice") to the indemnifying party
as soon as practicable after the party entitled to indemnification becomes aware
of any fact, condition or event which may give rise to Damages for which
indemnification may be sought under this Section 10.2.
(e) Defense of Third-Party Claims. If any lawsuit or
enforcement action is filed by a third party against any party entitled to the
benefit of indemnity hereunder, written notice thereof shall be given to the
indemnifying party as promptly as practicable (and in any event within fifteen
(15) calendar days after the service of the citation or summons). The failure of
any indemnified party to give timely notice hereunder shall not affect rights to
indemnification hereunder, except to the extent that the indemnifying party
demonstrates actual damage caused by such failure. After such notice, if the
indemnifying party shall acknowledge in writing to the indemnified party that
the indemnifying party shall be obligated under the terms of its indemnity
hereunder in connection with such lawsuit or action, then the indemnifying party
shall be entitled, if it so elects at its own cost, risk and expense, (i) to
take control of the defense and investigation of such lawsuit or action, (ii) to
employ and engage attorneys of its own choice to
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handle and defend the same unless the named parties to such action or proceeding
include both the indemnifying party and the indemnified party and the
indemnified party has been advised in writing by counsel that there may be one
or more legal defenses available to such indemnified party that are different
from or additional to those available to the indemnifying party, in which event
the indemnified party shall be entitled, at the indemnifying party's cost, risk
and expense, to separate counsel of its own choosing, and (iii) to compromise or
settle such claim, which compromise or settlement shall be made only with the
written consent of the indemnified party, such consent not to be unreasonably
withheld (unless such compromise or settlement (a) solely requires payment of
monetary damages by the indemnifying party and (b) does not impose obligations
or restrictions on or require the admission of liability by the indemnified
party or its business, in which case approval of the indemnified party shall not
be required); provided, however, if the resolution of any such Claim is
reasonably expected to impose obligations or restrictions on the indemnified
party or its business, then, notwithstanding the foregoing, the indemnified
party shall be entitled to control such resolution, including, without
limitation, to take control of the defense and investigation of such lawsuit or
action, to employ and engage attorneys of its own choice to handle and defend
the same, at the indemnifying party's cost, risk and expense, and to compromise
or settle such Claim (which compromise or settlement shall be subject to the
written consent of the indemnifying party, which consent shall not be
unreasonably withheld).
If the indemnifying party fails to assume the defense of such
claim within fifteen (15) calendar days after receipt of the Claim Notice, the
indemnified party against which such claim has been asserted will (upon
delivering notice to such effect to the indemnifying party) have the right to
undertake, at the indemnifying party's cost and expense, the defense, compromise
or settlement of such claim on behalf of and for the account and risk of the
indemnifying party; provided, however, that such Claim shall not be compromised
or settled without the written consent of the indemnifying party, which consent
shall not be unreasonably withheld. In the event the indemnified party assumes
the defense of the claim, the indemnified party will keep the indemnifying party
reasonably informed of the progress of any such defense, compromise or
settlement. The indemnifying party shall be liable for any settlement of any
action effected pursuant to and in accordance with this Section 10.3 and for any
final judgment (subject to any right of appeal), and the indemnifying party
agrees to indemnify and hold harmless an indemnified party from and against any
Damages by reason of such settlement or judgment. The right to indemnification,
payment of Damages or other remedy based on any representations, warranties,
covenants and obligations will not be affected by any investigation conducted
with respect to, or any knowledge acquired (or capable or being acquired) at any
time, whether before or after the execution and delivery of this Agreement or
the Closing, with respect to the accuracy or inaccuracy of or compliance with,
any such representation, warranty, covenant or obligation. The waiver of any
condition based on the accuracy of any representation or warranty, or on the
performance of or compliance with any covenant or obligation, will not affect
the right to indemnification, payment of Damages, or other remedies based on
such representations, warranties, covenants and obligations.
(f) Limitations on Indemnity. Neither the Acquiror
Parties, on the one hand, nor any of the Seller Parties, on the other hand,
shall be liable to the other under Section 10.3(a)(i) or Section 10.3(b)(i), as
applicable, for any Damages in excess of Three Million Dollars ($3,000,000) in
the aggregate. Notwithstanding the foregoing, the limitations
52
contemplated by this Section 10.3(f) shall not apply to or limit any recovery
for Damages arising from fraudulent misrepresentation or fraudulent conduct.
(g) No Acquiror Indemnitee shall be entitled to
indemnification for and Damages pursuant to Section 10.3(a) unless the aggregate
amount of all Damages for which all Acquiror Indemnitees are entitled to
indemnification pursuant to Section 10.3(a) exceeds Twenty-Five Thousand Dollars
($25,000) (the "Indemnification Basket"), at which time the Acquiror Indemnitees
shall be entitled to indemnification for all such Damages in excess of the
Indemnification Basket sustained by such Acquiror Indemnitees. Notwithstanding
the foregoing, the limitations contemplated by this Section 10.3(g) shall not
apply to or limit any recovery for Damages arising from fraudulent
misrepresentation or fraudulent conduct.
10.4. Escrow. At the Closing, each of the Acquiror Parties and the
Seller Parties shall enter into the Escrow Indemnification Agreement with the
Escrow Agent. Pursuant to the Escrow Indemnification Agreement, Acquiror shall
deposit the shares of Parent's Common Stock representing the Escrow Amount with
the Escrow Agent. The Escrow Amount shall be subject to offset for Claims of the
Acquiror Parties under this Article X, as well as for claims under the Payback
Mechanism set forth in Section 6.10, as provided in the Escrow Indemnification
Agreement. The Escrow Amount shall be payable to the Seller on the later of (a)
eighteen (18) months from the Closing Date or (b) the final release of the
Additional Holdback pursuant to Section 6.10.
10.5. Bulk Sales. It may not be practicable to comply or attempt to
comply with the procedures of the "Bulk Sales Act" or similar law of any or all
of the states in which the Assets are situated or of any other state which may
be asserted to be applicable to the transactions contemplated hereby.
Accordingly, to induce Acquiror to waive any requirements for compliance with
any or all of such laws, the Seller Parties hereby agree jointly and severally
that the indemnity provisions of Section 10.3 hereof (except for the limitations
set forth in Section 10.3(f)) shall apply to any Damages incurred by any
Acquiror Indemnitees arising out of or resulting from the failure of the Seller
Parties or the Acquiror Parties to comply with any such laws.
10.6. Taxes.
(a) All real property taxes, personal property taxes and
similar ad valorem obligations levied with respect to the Assets for a taxable
period which includes (but does not end on) the Closing Date shall be
apportioned between Seller and Acquiror based on the number of days of such
taxable period which fall on or before the Closing Date (a "Pre-Closing Tax
Period") and the number of days of such taxable period after the Closing Date (a
"Post-Closing Tax Period"). Seller Parties shall be liable for the proportionate
amount of such taxes that is attributable to the Pre-Closing Tax Period, and
Acquiror shall be liable for the proportionate amount of such taxes that is
attributable to the Post-Closing Tax Period.
(b) With respect to Taxes to be prorated in accordance
with this Section 10.6(b) only, Acquiror shall prepare and timely fill all Tax
Returns required to be filed after the Closing with respect to the Assets.
Acquiror's preparation of any such Tax Return shall be subject to Seller's
approval, not to be unreasonably withheld. Acquiror shall make such Tax
53
Returns available for Seller's review no later than fifteen (15) days prior to
the due date for filing such Tax Return. Within ten (10) days after receipt of
such Tax Return, Seller Parties shall pay to Acquiror Seller's proportionate
share of the amount shown as due on such Tax Return determined in accordance
with this Section 10.6(b) of this Agreement.
(c) The Parties shall make appropriate adjustments for
the tax benefits if any, accruing from the indemnifiable Damages in calculating
the amount of Damages under this Agreement.
10.7. Insurance. The parties shall make appropriate adjustments for
insurance proceeds actually received in calculating Damages under this
Agreement.
10.8. Exclusive Remedy. The Parties agree that should the Closing
occur, the indemnification provisions of this Article X shall be the exclusive
remedy with respect to any Claims for breaches of representations and warranties
under this Agreement, provided that this Section 10.8 shall not apply with
respect to any Claims for breaches of representations and warranties under this
Agreement arising from fraudulent misrepresentation or fraudulent conduct.
10.9. Right of Offset. Anything in this Agreement to the contrary
notwithstanding, Acquiror may withhold and set off against any amounts due to
any Seller Party under Section 2.7 the amount of any Damages to which any Seller
Indemnitee is entitled.
ARTICLE XI.
TERMINATION
11.1. Termination.
(a) This Agreement may be terminated at any time prior to
Closing:
(i) By mutual written consent of Acquiror and
Seller;
(ii) By the Acquiror Parties or the Seller
Parties if the Closing shall not have occurred on or before February 29, 2004
(the "Termination Date"); provided, however, that this provision shall not be
available to a Party that is in material breach of any of its representations,
warranties, covenants or agreements contained in this Agreement;
(iii) By the Acquiror Parties if any of the
conditions set forth in Article IX shall, in the reasonable judgment of
Acquiror, have become incapable of fulfillment prior to the Termination Date
(and such condition is not waived in writing by Acquiror); provided that this
provision shall not be available to the Acquiror Parties if any of the Acquiror
Parties are in material breach of any of their representations, warranties,
covenants or agreements contained in this Agreement; or
(iv) By the Seller Parties if any of the
conditions set forth in Article VIII shall, in the reasonable judgment of
Seller, have become incapable of fulfillment prior to the Termination Date (and
such condition is not waived in writing by Seller); provided that this
54
provision shall not be available to the Seller Parties if any of the Seller
Parties are in material breach of any of their representations, warranties,
covenants or agreements contained in this Agreement.
11.2. Procedure and Effect of Termination. In the event of
termination of this Agreement:
(a) Each party will redeliver all documents, work papers
and other material of any other party relating to the transactions contemplated
hereby, and all copies thereof, whether so obtained before or after the
execution hereof, to the party furnishing the same; and
(b) No party hereto shall have any Liability to any other
party to this Agreement, except as stated in subsections (a), and (b) of this
Section 11.2 and except that this Section 11.2(b) shall not relieve any party
from liabilities arising from any breach of this Agreement occurring prior to
the proper termination of this Agreement. The foregoing provisions shall not
limit or restrict the availability of specific performance or other injunctive
relief to the extent that specific performance or such other relief would
otherwise be available to a party hereunder.
ARTICLE XII.
MISCELLANEOUS
12.1. Assignment. Neither this Agreement nor any of the rights or
obligations hereunder may be assigned by any party without the prior written
consent of the other parties; except that the Acquiror Parties may, without such
consent, assign all such rights to any lender as collateral security and assign
all such rights and obligations to any Affiliate or subsidiary of the Acquiror
Parties or to a successor in interest to one of the Acquiror Parties, in each
case which shall assume all rights and obligations of the Acquiror Parties under
this Agreement, so long as the Acquiror Parties remain liable for their
obligations hereunder. Subject to the foregoing, this Agreement shall be binding
upon and inure to the benefit of the parties hereto and their respective
successors and permitted assigns, and no other person shall have any right,
benefit or obligation under this Agreement as a third-party beneficiary or
otherwise.
12.2. Notices. All notices, requests, demands and other
communications which are required or may be given under this Agreement shall be
in writing and shall be deemed to have been duly given when received if
personally delivered; when transmitted if transmitted by telecopy; the day after
it is sent, if sent for next day delivery to a domestic address by recognized
overnight delivery service (e.g., Federal Express); and upon receipt, if sent by
certified or registered mail, return receipt requested. In each case notice
shall be sent to:
55
If to any of the Seller Parties, addressed to:
Xxxxxxx Xxxxxxxxxx, Inc.
000 Xxxxxx Xxxxxx
Xxxxxxxxxxx, Xxxxxxxxx
Attention: Xxxx Xxxxxxxxxx, Co-Chairman
Facsimile: (000) 000-0000
With a copy to:
Xxxx, Plant, Xxxxx, Xxxxx & Xxxxxxx, P.A.
500 IDS Center
00 Xxxxx Xxxxxx Xxxxxx
Xxxxxxxxxxx, Xxxxxxxxx 00000
Attention: Xxxxxxx X. Xxxxxxxx, Esq.
Facsimile: (000) 000-0000
If to an of the Acquiror Parties, addressed to:
Equity Marketing, Inc.
0000 Xxx Xxxxxxx Xxxx.
Xxx Xxxxxxx, Xxxxxxxxxx 00000
Attention: Xxxxxx X. Xxxxxx, Esq.,
SVP, General Counsel and Secretary
Facsimile: (000) 000-0000
or to such other place and with such other copies as either party may designate
as to itself by written notice to the others.
12.3. Choice of Law. This Agreement shall be construed, interpreted
and the rights of the parties determined in accordance with the laws of the
State of Delaware, without reference to principles of conflicts of laws.
12.4. Entire Agreement; Amendments and Waivers. This Agreement and
the Ancillary Agreements, together with all exhibits and schedules hereto and
thereto (including the Disclosure Schedule), constitute the entire agreement
among the parties pertaining to the subject matter hereof and supersede all
prior agreements, understandings, negotiations and discussions, whether oral or
written, of the parties other than the Confidentiality Agreement between the
Acquiror and Seller dated February 21, 2003. This Agreement may not be amended
except by an instrument in writing signed on behalf of each of the parties
hereto. No amendment, supplement, modification or waiver of this Agreement shall
be binding unless executed in writing by the party to be bound thereby. No
waiver of any of the provisions of this Agreement shall be deemed or shall
constitute a waiver of any other provision hereof (whether or not similar), nor
shall such waiver constitute a continuing waiver unless otherwise expressly
provided.
56
12.5. Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
12.6. Expenses. Except as otherwise specified in this Agreement,
each party hereto shall pay its own legal, accounting, out-of-pocket and other
expenses incident to this Agreement and to any action taken by such party in
preparation for carrying this Agreement into effect.
12.7. Severability. In the event that any one or more of the
provisions contained in this Agreement or in any other instrument referred to
herein, shall, for any reason, be held to be invalid, illegal or unenforceable
in any respect, then to the maximum extent permitted by law, such invalidity,
illegality or unenforceability shall not affect any other provision of this
Agreement or any other such instrument.
12.8. Headings. The titles, captions or headings of the Articles and
Sections herein are for convenience of reference only and are not intended to be
a part of or to affect or restrict the meaning or interpretation of this
Agreement.
12.9. Publicity. Except as required by applicable law, neither the
Acquiror Parties nor the Seller Parties shall issue any press release or make
any public statement regarding the transactions contemplated hereby, without
prior written approval of the other. Notwithstanding the foregoing, Parent may,
at its discretion, issue or make an appropriate press release or public
announcement after the execution and delivery of this Agreement and the Closing.
12.10. Cumulative Remedies. All rights and remedies of either party
hereto are cumulative of each other, and the exercise of one or more rights or
remedies shall not prejudice or impair the concurrent or subsequent exercise of
other rights or remedies provided in this Agreement, and nothing herein shall be
deemed to preclude the Acquiror Parties from bringing an action for specific
performance or seeking injunctive relief.
12.11. No Third-Party Beneficiaries. This Agreement is for the sole
benefit of the parties hereto and their permitted assigns and nothing herein,
express or implied, is intended to or shall confer upon any other Person or
entity any legal or equitable right, Claim, benefit or remedy of any nature
whatsoever under or by reason of this Agreement. Notwithstanding the foregoing,
the Acquiror Indemnitees are intended third-party beneficiaries of Article X of
this Agreement.
12.12. Arbitration; Process.
(a) In the event any controversy or claim arising out of
or relating to this Agreement or the making, performance or interpretation
thereof shall be settled by arbitration in the City of Los Angeles, California,
in accordance with the with the Commercial Arbitration Rules of the American
Arbitration Association then in effect, and judgment on the arbitration award
may be entered in any Federal or State Court in Los Angeles, California having
competent jurisdiction over the subject matter of the controversy.
Notwithstanding anything in this Section 12.12 to the contrary, any of the
parties hereto may apply to a court of competent jurisdiction for interim relief
or a provisional remedy pending the decision of the arbitrator. If any party to
this Agreement brings an action to enforce its rights under this Agreement, the
prevailing party shall
57
be entitled to recover its costs and expenses, including, without limitation,
reasonable attorneys' fees, incurred in connection with such action, including
any appeal of such action.
(b) Process in any arbitration or proceeding referred to
in this Section 12.12 may be served on any party anywhere in the world.
12.13. WAIVER OF JURY TRIAL. THE PARTIES HEREBY WAIVE ANY RIGHT TO
TRIAL BY JURY WITH RESPECT TO ANY CLAIM ARISING OUT OF OR RELATING TO THIS
AGREEMENT OR ANY OF THE TRANSACTIONS CONTEMPLATED HEREBY, WHETHER NOW EXISTING
OR HEREAFTER ARISING, AND WHETHER SOUNDING IN CONTRACT, TORT OR OTHERWISE. THE
PARTIES AGREE THAT ANY OF THEM MAY FILE A COPY OF THIS PARAGRAPH WITH ANY COURT
AS WRITTEN EVIDENCE OF THE KNOWING, VOLUNTARY AND BARGAINED-FOR AGREEMENT AMONG
THE PARTIES IRREVOCABLY TO WAIVE TRIAL BY JURY AND THAT ANY ACTION WHATSOEVER
BETWEEN THEM RELATING TO THIS AGREEMENT OR ANY OF THE TRANSACTIONS CONTEMPLATED
HEREBY SHALL INSTEAD BE TRIED IN A COURT OF COMPETENT JURISDICTION BY A JUDGE
SITTING WITHOUT A JURY.
[Signature Page Follows]
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IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be duly executed on their respective behalf, by their respective
officers thereunto duly authorized, all as of the day and year first set forth
above.
EQUITY MARKETING, INC.,
A DELAWARE CORPORATION
By:________________________________
Name:
Title:
XXXXXXX XXXXXXXXXX, INC.,
A DELAWARE CORPORATION
By:________________________________
Name:
Title:
XXXXXXX XXXXXXXXXX, INC.,
A MINNESOTA CORPORATION
By:________________________________
Name:
Title:
___________________________________
XXXX XXXXXXXXXX, an individual
___________________________________
XXXX XXXXXXX, an individual
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