STOCK PURCHASE AGREEMENT
Among
XXXXXXX XXXXXXX
the Sole Shareholder of XXXX XXXXXXX AND ASSOCIATES, INC.,
as Seller,
XXXX XXXXXXX AND ASSOCIATES, INC.
and
THE SOURCE COMPANY
K-SUB, INC.
as Purchaser
As of April 24, 1997
Table of Contents
Page
I. DEFINITIONS.......................................................... 1
II. SALE AND TRANSFER OF THE COMPANY STOCK............................... 4
2.01. Sale and Transfer of Company Stock........................... 4
2.02. Termination Escrow........................................... 4
2.03. Transactions at Closing...................................... 5
III. WARRANTIES AND REPRESENTATIONS OF SELLER AND
COMPANY............................................................... 5
3.01. Organization and Standing of Company.......................... 5
3.02. Authority..................................................... 6
3.03. Capitalization; Assets........................................ 6
3.04. Books and Records; Financial Statements; Customer
Revenues...................................................... 7
3.05. Absence of Changes............................................ 7
3.06. Payment of All Debts and Liabilities.......................... 8
3.07. No Conflicting Agreements or Orders........................... 8
3.08. Compliance.................................................... 9
3.09. Litigation.................................................... 9
3.10. Condition of Company.......................................... 9
3.11. Employment Agreements......................................... 9
3.12. Labor Relations...............................................10
3.13. Taxes.........................................................10
3.14. Intellectual Property; Names of Company.......................10
3.15. Real and Personal Property Leases.............................11
3.16. Insurance.....................................................11
3.17. Certain Information...........................................11
3.18. Inventories...................................................11
3.19. Suppliers.....................................................11
3.20. Customers; Accounts Receivable................................11
3.21. Employee Benefit Plans........................................12
3.22. Other Contracts...............................................13
3.23. Corporate Records; Documents..................................14
3.24. No Misrepresentation..........................................14
IV. REPRESENTATIONS AND WARRANTIES OF THE SOURCE..........................14
4.01. Organization and Standing of The Source and K-Sub.............14
4.02. Binding Agreement.............................................14
4.03. Agreement Within Authority....................................14
-i-
4.04. No Conflicting Agreements or Orders...........................15
4.05. Corporate Action..............................................15
4.06. No Conflict...................................................15
4.07. No Misrepresentation..........................................15
V. COVENANTS OF SELLER AND COMPANY PENDING
CLOSING...............................................................15
5.01. Access to Information.........................................15
5.02. Maintain Properties...........................................15
5.03. Maintain Organization.........................................16
5.04. Regular Course of Business....................................16
5.05. Insurance.....................................................16
5.06. Employees.....................................................16
5.07. Business Changes..............................................16
5.08. Consents......................................................16
5.09. Building Lease................................................16
VI. COVENANTS OF THE SOURCE...............................................17
6.01. Small Retail Account Service Agreement........................17
6.02 Change of Corporate Name......................................17
VII. CONDITIONS PRECEDENT TO OBLIGATIONS OF THE SOURCE
AND K-SUB.............................................................17
7.01. No Adverse Change.............................................17
7.02. Representations, Warranties and Agreements of Seller and
Company.......................................................17
7.03. Opinion of Counsel............................................17
7.04. Absence of Litigation.........................................18
7.05. Officers' Certificate.........................................18
7.06. Approval of Documents.........................................18
7.07. Casualty Loss.................................................18
7.08. Satisfactory Review of the Company, the Business and the
Assets; Audit.................................................18
7.09. Closing Accounts Receivable...................................18
7.10. Minimum Equity and Net Current Assets.........................18
7.11. Arrangement with Seller.......................................19
7.12. Executive Employment Agreements...............................19
VIII. CONDITIONS PRECEDENT TO OBLIGATIONS OF SELLER.........................19
8.01. Representations, Warranties and Agreements of The
Source........................................................19
8.02. Opinion of Counsel............................................19
8.03. Consents......................................................19
8.04. Approval of Documents.........................................19
-ii-
8.05. The Source's Certificate......................................20
8.06. Closing Accounts Receivable...................................20
IX. INDEMNIFICATION.......................................................20
X. INDEMNIFICATION.......................................................20
10.01. Indemnification of The Source by Seller and Company...........20
10.02. Indemnification of Seller by The Source and K-Sub.............21
10.03. Notice to Indemnifying Party..................................22
10.04. Termination of Indemnification Obligations of Company.........22
XI. CLOSING AND RISK OF LOSS. ...........................................22
11.01. Place and Time................................................22
11.02. Simultaneous Performance......................................22
XII. MISCELLANEOUS.........................................................23
12.01. Non-competition...............................................23
12.02. Information...................................................23
12.03. Incorporation of Schedules....................................23
12.04. Further Assurances............................................23
12.05. Transfer Taxes................................................23
12.06. Notices.......................................................24
12.07. No Commission.................................................24
12.08. Survival of Representations and Warranties....................25
12.09. Entire Agreement..............................................25
12.10. Binding Effect................................................25
12.11. Third Parties.................................................25
12.12. Expenses of the Parties.......................................25
12.13. Counterparts..................................................25
12.14. Missouri Law to Govern........................................25
12.15. Mail and Communications.......................................25
12.16. Review of Closing Balance Sheet...............................25
-iii-
STOCK PURCHASE AGREEMENT
This Stock Purchase Agreement ("Agreement") is entered into as of the
24th day of April, 1997, by THE SOURCE COMPANY, a Missouri corporation ("The
Source"), K-SUB, INC., a Missouri corporation and wholly-owned subsidiary of The
Source ("K-Sub") and XXXXXXX XXXXXXX ("Seller"), the sole shareholder of XXXX
XXXXXXX AND ASSOCIATES, INC., a New Jersey corporation, and XXXX XXXXXXX AND
ASSOCIATES, INC. ("Company").
WHEREAS, Seller owns all of the issued and outstanding shares of
capital stock of Company;
WHEREAS, Company operates a business engaged in the collection of
retail display allowances for retail store chains (the "Business");
WHEREAS, the Boards of Directors of The Source and K-Sub have approved
this Agreement and determined that it is in the best interests of K-Sub to
acquire all of the issued and outstanding shares of capital stock of Company for
the purchase price and otherwise on the terms and subject to the conditions of
this Agreement;
WHEREAS, Seller has determined that it is in the best interests of
Seller to sell the Company Stock to K-Sub for the purchase price and otherwise
on the terms and subject to the conditions of this Agreement; and
WHEREAS, the Board of Directors and sole shareholder of Company have
determined that it is in the best interests of Company and the conduct of the
Business to become affiliated with and a subsidiary of The Source.
THEREFORE, it is agreed as follows:
I. DEFINITIONS.
For purposes of this Agreement, the following words and phrases have
the following meanings:
"Accounting Firm" means BDO Xxxxxxx, LLP.
"Accounts Receivables Schedule" is defined in Section 3.20(b).
"Assets" means all of the right, title and interest in and to the
property, real, personal and mixed, tangible or intangible, of every kind or
character and wherever located, of Company and comprising the Business in its
entirety, excluding only those assets listed on Schedule 1.0.
"Audit" is defined in Section 7.08.
"Building Lease" is defined in Section 3.15.
"Building Lease Amendment" is defined in Section 5.09.
"Business" is defined in the third paragraph of this Agreement.
"Closing" means the consummation of the transactions contemplated by
this Agreement.
"Closing Accounts Receivable" is defined in Section 3.20(b).
"Closing Balance Sheet" means the balance sheet of Company as of the
close of business on the day preceding the Closing Date.
"Closing Balance Sheet Date" means the date of the Closing Balance
Sheet.
"Closing Customer List" is defined in Section 3.20(a).
"Closing Date" means 10:00 a.m. on May 30, 1997, or such other date and
time as are mutually agreed upon in writing by The Source, K-Sub and Seller;
provided, however, that if all of the conditions to Closing have not been met,
The Source shall have the option to extend the Closing Date at any time, or in
total from time to time, for an additional 30 days.
"Code" means the Internal Revenue Code of 1986, as amended.
"Company" means Xxxx Xxxxxxx and Associates, Inc., a New Jersey
corporation.
"Company Stock" means all of the issued and outstanding shares of
capital stock of Company.
"Contracts" means the contracts, leases and other agreements set forth
in Schedule 3.22 to which Company is a party.
"Customer List" is defined in Section 3.20(a).
"May 31 Balance Sheet" means the balance sheet contained in the May 31
Financial Statements provided in accordance with Section 3.04.
"May 31 Financial Statements" means the financial statements of Company
as of and for the year ended May 31 1996, as delivered to The Source by Seller
and Company in accordance with Section 3.04.
"Equity Deficit" is defined in Section 10.01(a).
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended, and the rules and regulations thereunder.
2
"Financial Statements" are defined in Section 3.04(a).
"Indemnification Escrow" is defined in Section 2.03(b).
"Indemnification Escrow Agent" is defined in Section 2.03(b).
"Indemnification Escrow Agreement" is defined in Section 2.03(b).
"Intellectual Property" means copyrights, patents, trademarks,
licenses, computer software, trade secrets, franchises, know-how and inventions.
"Interim Financial Statements" is defined in Section 3.04(a).
"Liabilities" means the liabilities and obligations of Company,
including accounts payable, existing as of the close of business on May 31, 1996
and set forth on the May 31 Balance Sheet, and as paid or incurred in the
ordinary course of business of Company, consistent with past practice, from May
31, 1996 to the Closing Date, if and to the extent that the same are accrued or
reserved for on the Closing Balance Sheet and remain unpaid and undischarged on
the Closing Date, and the liabilities and obligations of Company set forth in
Schedule 1.01 or otherwise in the Schedules to this Agreement.
"Minimum Stockholder's Equity" is defined in Section 7.10.
"Net Current Receivable Assets" is defined in Section 7.10.
"1996 Customer Revenues" is defined in Section 3.04(b).
"Purchase Price" is defined in Section 2.01.
"Seller" means, Xxxxxxx Xxxxxxx, the sole shareholder of Company.
"Subsequent Financial Statements" is defined in Section 3.04(a).
"Termination Escrow" is defined in Section 2.02(a).
"Termination Escrow Agent is defined in Section 2.02(a).
"Transaction" means the sale and transfer of the Company Stock for the
Purchase Price contemplated under Section 2.01.
"Undisclosed Liabilities" means liabilities of Company which are not
included in the Liabilities.
3
II. SALE AND TRANSFER OF THE COMPANY STOCK.
2.01. Sale and Transfer of Company Stock.
At the Closing, subject to the terms and conditions of this Agreement,
and in reliance on the representations, warranties and covenants contained
herein, Seller shall sell, transfer, convey and assign to K-Sub, and K-Sub shall
acquire, all of the Company Stock for the purchase price of $2,500,000, less the
aggregate amount of all bonuses awarded prior to the Closing Date to employees
of the Company (other than Xxxxxxx Xxxxxxx, Xxxxxxx Xxxxxxx and Xxxx Xxxxxxx)
whether or not then paid (the "Purchase Price").
2.02. Termination Escrow.
(a) Concurrently with the execution of this Agreement, The
Source will deposit $25,000 in escrow (the "Termination Escrow") with
Xxxxx, Banta, Rizzi, Xxxxxxxxxxxx & Basralian, P.C., Hackensack, New
Jersey (the "Termination Escrow Agent") to be held as securitiy for the
due performance by The Source and K-Sub of their respective obligations
under this Agreement. Unless this Agreement shall be sooner terminated
in accordance with Section IX hereof, The Source shall deposit with the
Termination Escrow Agent an additional $225,000 on or prior to the date
on which it desires to commence its review of the Company, the Assets
and the Business pursuant to Section 7.08.
(b) All funds deposited in the Termination Escrow shall be
held by the Termination Escrow Agent in a federally insured, interest
bearing account pending release in accordance with this Agreement. All
income earned with respect to the Termination escrow shall be credited
to each of the parties hereto in proportion to the amount received by
such person under Section 2.02(c).
(c) Upon consummation of the transactions contemplated by
this Agreement, the principal amount held in the Termination Escrow
shall be released to Seller and credited against the Purchase Price,
any interest earned on the Termination Escrow shall be released to
Seller (but shall not be credited against the Purchase Price). In the
event that this Agreement is terminated without consummation of the
transactions contemplated hereby by The Source for any reason other
than those permitted under Section 3.04(b) or IX or by Seller for any
reason permitted under Section IX, the principal amount of the
Termination Escrow and all interest thereon shall be released to Seller
in full satisfaction of all claims Seller may then have as a result of
the failure of The Source and K-Sub to consummate such transactions. In
the event that this Agreement is terminated without consummation of the
transactions contemplated hereby by The Source for any reason permitted
under Sections 3.04(a) or IX or by Seller for any reason other than
those permitted under Section IX, the principal amount of the
Termination Escrow and all interest thereon shall be released to The
Source in full satisfaction of all claims The Source and K-Sub may then
have as a result of the failure of Seller to consummate such
transactions.
4
(d) In the Event that any controversy should arise among the
parties with respect to the disposition of the Terminaton Escrow, or
should the Termination Escrow Agent resign and the parties fail to
select another escrow agent to act in its stead, the Termination Escrow
Agent shall have the right to institute a xxxx of interpleader in any
court of competent jurisdiction to determine the rights of the parties.
The Terminaton Escrow Agent shall not be disqualified from representing
the Seller and the Company in any such proceedings.
2.03. Transactions at Closing. At the Closing:
(a) Seller will deliver the Company Stock to K-Sub, duly
endorsed for transfer to K-Sub, in form acceptable to The Source's
counsel, so as to effectively vest in K-Sub full, indefeasible,
merchantable, legal, equitable and beneficial title to the Company
Stock, free and clear of all debts, claims, security interests, liens,
encumbrances and other title retention agreements, pledges,
assessments, covenants, restrictions and charges of every nature;
(b) The Source will deposit $100,000 in escrow (the
"Indemnification Escrow") with Wachovia Bank of North Carolina, N.A. or
other mutually acceptable escrow agent (the "Indemnification Escrow
Agent") under the Indemnification Escrow Agreement set forth in
Schedule 2.03(b) or otherwise required by and acceptable to the
Indemnification Escrow Agent (the "Indemnification Escrow Agreement"),
which shall be executed by Seller, The Source and the Indemnification
Escrow Agent at the Closing;
(c) The Source will deliver the balance of the Purchase
Price which exceeds the amount of the Escrow to Seller by wire transfer
to a bank account designated by Seller in accordance with wire transfer
instructions provided to The Source by Seller not less than three
business days prior to the Closing Date;
(d) the parties shall perform all of the other obligations
required to be performed by them under this Agreement on or before the
Closing.
III. WARRANTIES AND REPRESENTATIONS OF SELLER AND COMPANY.
Seller and Company, jointly and severally, hereby represent and warrant
to, and covenant and agree with, The Source as follows:
3.01. Organization and Standing of Company. Company is a corporation
duly organized, validly existing and in good standing under the laws of the
State of New Jersey and has all necessary power and authority to own its assets
as now owned and to carry on its business as now being conducted. Company is
duly qualified to transact business and is in good standing in each jurisdiction
in which the conduct of its business, the ownership of its property or any other
legal requirement requires it to be so qualified.
5
3.02. Authority. Seller and Company have full power and authority to
enter into this Agreement and to consummate the transactions contemplated
hereby, and no further authorization, consent or approval of any regulatory body
or third party is required as a condition to the validity of this Agreement or
to give effect to the transactions contemplated hereby. This Agreement
constitutes a valid and binding agreement of Seller and Company and is
enforceable against Seller and Company in accordance with its terms.
3.03. Capitalization; Assets.
(a) The Company's only authorized capital stock consists of
one thousand (1,000) shares of Common Stock, no par value per share.
There are one thousand (1,000) shares of the Company's Common Stock
presently outstanding (the "Company Stock"). All of the Company Stock
is owned by Seller, free and clear of any debts, claims, security
interests, liens, encumbrances and other title retention agreements,
pledges, assessments, covenants, restrictions and charges of every
nature. All of the Company Stock has been duly authorized and validly
issued, is fully paid and nonassessable, was not issued in violation of
the terms of any contract, agreement, covenant or restriction binding
upon Company or Seller, and was issued in compliance with the Articles
of Incorporation of Company and all applicable federal and state
securities laws and regulations. Except for the Company Stock, no
capital stock of the Company is issued or outstanding. There are: (i)
no contracts, agreements, subscriptions, options, warrants, calls,
commitments or rights of any character to purchase or otherwise acquire
any capital shares or other securities of Company, whether or not
presently issued or outstanding, from Company or Seller, at any time,
or upon the happening of any stated event; (ii) no outstanding
securities of Company that are convertible into or exchangeable for
capital stock or other securities of Company; and (iii) no contracts,
agreements, subscriptions, options, warrants, calls, commitments or
rights to purchase or otherwise acquire from Company or Seller any such
convertible or exchangeable securities.
(b) At Closing, Seller will convey to K-Sub good and
marketable title to, and all rights and interests in, the Company
Stock, free and clear of all restrictions on or conditions to transfer
or assignment, mortgages, conditional sale agreements, liens, pledges,
charges, claims, encumbrances, security interests, easements,
covenants, conditions and restrictions.
(c) Company has good and marketable title to and interest in
all of the Assets, free and clear of restrictions on or conditions to
transfer or assignment, and free and clear of all mortgages,
conditional sale agreements, liens, pledges, charges, encumbrances,
claims, security interests, easements, covenants, conditions or
restrictions. All of the tangible personal property included in the
Assets is in good operating condition and repair, ordinary wear and
tear excepted, and conforms to all applicable laws, ordinances and
regulations.
6
3.04. Books and Records; Financial Statements; Customer Revenues.
(a) The books of account of the Company fully and fairly
reflect the transactions, assets and liabilities of the Company. The
Balance Sheet of Company at May 31, 1996 and 1995 and the Statements of
Operations of Company for each of the two years then ended are attached
hereto as Schedule 3.04(a) (the "Financial Statements"). Seller and
Company have provided The Source with comparable financial statements
for each of the nine months ended February 28, 1997 (the "Interim
Financial Statements") and will provide The Source with comparable
financial statements for each succeeding calendar month preceding the
Closing Date (the "Subsequent Financial Statements") as promptly as
practicable following the end of each such month. Except as expressly
stated on Schedule 3.04(a), the Financial Statements and the Interim
Financial Statements have been, and the Subsequent Financial Statements
will be, prepared using a cash method of accounting, consistently
applied, are, and will be, accurate and complete, and fairly represent,
and will fairly represent, the financial condition of Company and the
income, expenses and results of operation of Company, at the time and
for the time periods covered thereby, and do not, and will not, omit to
state or reflect any material fact concerning Company or the Business
required to be stated or reflected therein or necessary to make the
statements therein not misleading. Company does not have any
outstanding or potential unasserted claims, contingent obligations
(whether as a guarantor, indemnitor, surety, accommodation party or
otherwise), liability for taxes or forward or long-term commitments or
obligations, except as set forth in the Financial Statements, the
Interim Financial Statements or the Schedules to this Agreement.
(b) The net revenues of the Company for the fiscal year
ended May 31, 1996 and the nine months ended February 28, 1997, from
the customers of Company and in the amounts for each such customer set
forth in Schedule 3.04(b) (the "1996 Customer Revenues"). The total
income of the Company for the fiscal years ended May 31, 1995 and 1996,
as reported on the Company's federal income tax return for such periods
was $1,599,032 and $1,491,251, respectively. The net revenues of the
Company derived from the collection of retail display allowances and
retail display pocket payments for the nine months ended February 28,
1997 is not less than $1,050,000; provided, however, that if the Audit
shows that such net revenues for such period is less than $1,050,000,
The Source shall have the right to terminate this Agreement by written
notice to Seller, and without prejudice to any other rights of The
Source arising under this Agreement prior to such termination.
3.05. Absence of Changes.
(a) Except as set forth in Schedule 3.05, since May 31,
1996, there has not been any:
(i) declaration or payment of any dividend by Company;
7
(ii) transaction by Company, except in the ordinary
course of business of Company as previously conducted;
(iii) adverse change in the financial condition,
Assets, Business or prospects of Company;
(iv) amendment or termination of any contract,
agreement or license to which Company is a party, except for
the termination of contracts and agreements in the ordinary
course of business in accordance with the past practice of
Company, none of which are material, individually or in the
aggregate, to the continued conduct of the Business of
Company as previously conducted;
(v) mortgage, pledge or other encumbrance of, or the
granting of any security interest or lien with respect to,
any of the Assets; or
(vi) any other event or condition of any character
that has had or in the future may have a material adverse
effect on the financial condition, Business, Assets or
prospects of Company or the Business as heretofore
conducted.
(b) Except for customer account changes set forth on
Schedule 3.05(b), since May 31, 1996, Company has not had any customer
account which was included in the 1996 Customer Revenues (i) cease
doing business with Company, (ii) advise Company that it intends to
cease doing business with Company or intends to reduce the amount of
business it does or proposes to do with Company, or (iii) reduce the
amount of revenues paid to the Company as a result of any amendment or
modification of the terms and conditions under which the Company
provides services.
(c) Except as set forth on Schedule 3.05(c), there are no
proposals currently outstanding to provide new, modified or additional
services or products to any customer or proposed customer of Company.
3.06. Payment of All Debts and Liabilities. The Company has no
Undisclosed Liabilities. On or prior to the Closing Date, Seller shall have
paid, caused to be paid or provided for the payment of all Liabilities.
3.07. No Conflicting Agreements or Orders. There is no: (a) provision
of the Articles of Incorporation or By-laws of Company, or of any mortgage,
indenture, lease, contract, security agreement, document, instrument, license or
agreement binding on Company or Seller or affecting the Assets, or of any
federal, state or local law, rule or regulation, or (b) order, writ, injunction,
decree, judgment, award, determination, direction or demand of any court,
arbitrator, or federal, state, municipal or other governmental department,
bureau, agency or instrumentality to which Company or Seller is subject, which
conflicts with or in any way prevents or will be violated by the execution,
delivery or carrying out of the terms of this Agreement or the consummation of
8
the Transaction, nor will such execution, delivery or consummation constitute a
default, or an event which, with the giving of notice or the passage of time, or
both, would constitute a default, under any of the foregoing, nor be the grounds
for the suspension, revocation, impairment, forfeiture, nonrenewal or
termination of any license, permit, franchise, certificate, consent or
authorization.
3.08. Compliance.
(a) Except as set forth in Schedule 3.08, Company is not
required to obtain any license, permit or consent from any federal,
state, county or municipal authority with respect to the ownership or
use of the Assets or the operation of its Business or otherwise.
(b) Company has conducted its Business and maintained its
properties, including all real property covered by any lease or
otherwise used by Company, in compliance with, and is not in violation
of, applicable laws, rules, regulations or orders of federal, state or
local governments or regulatory bodies. Neither Company nor Seller has
received any claim or notice that Company has not complied in all
respects in the operation of the Business and related properties with
such laws, rules and regulations.
3.09. Litigation. No suit, action, decree, arbitration or legal,
administrative or other proceeding, controversy or investigation is pending or
threatened against Company or Seller, or which otherwise might adversely affect
the Business or financial condition of Company or any of the Assets, the
possession and use of the Assets, the right of Seller to transfer the Company
Stock, or the operation of the Business by K-Sub or The Source subsequent to the
Closing, as heretofore conducted by Company with the Assets, and to the
knowledge of Company and Seller, and without notice to the contrary, there is no
basis for any such litigation, proceeding, controversy or investigation. Neither
Company nor Seller is in default with respect to any order, writ, injunction or
decree of any federal, state, local or foreign court, department, agency or
instrumentality, nor has the time period of compliance by Company or Seller with
respect to any of the same been extended or stayed. Company is not a party to
any legal action to recover moneys due to Company or damages sustained by
Company.
3.10. Condition of Company. Since May 31, 1996, Company has kept the
Business and its organization intact; has maintained the good will of its
customers; and has conducted the Business in the same manner as it had been
conducted prior to that date.
3.11. Employment Agreements. Except as set forth in Schedule 3.11,
Company has neither entered into, nor has any obligation or liability with
respect to, any employment or consulting agreement, executive compensation plan,
collective bargaining agreement, deferred compensation agreement, bonus plan,
employee pension plan or retirement plan, employee profit sharing plan, employee
stock purchase or stock option plan, severance agreement or any other agreement
or arrangement providing for remuneration or benefits to employees or their
dependents.
9
3.12. Labor Relations. Company has complied with all applicable laws,
rules and regulations relating to the employment of labor, including those
relating to wages (including overtime), benefits (including vacation), hours,
employee safety or other conditions of employment, collective bargaining and the
withholding and payment of taxes. Company has withheld all amounts required by
law or agreement to be withheld from the wages or salaries of its employees, and
is not liable for any arrears of wages or any tax or penalties for failure to
comply with the foregoing. Company has paid over, and will pay over, to the
appropriate governmental agencies or depositories, at the time or times required
by law (without any extensions or stays), all "employment taxes" and
"withholding taxes." Company is not a party to any collective bargaining
agreement with any labor union or other representative of employees. No labor
dispute, controversy, grievance, strike, lockout, work slowdown or stoppage,
boycott, or other employment or labor trouble or other occurrence, event or
condition of a similar character has occurred or been threatened within the past
three years, nor has Company or any officer or managerial employee of Company
been the subject of any proceedings before any court, governmental agency or
arbitrator relating to such matters, including unfair labor practice claims. No
discharge has occurred which forms the basis for any claim of discrimination
against Company.
3.13. Taxes. Company has filed all federal, state and local tax returns
and estimates required to be filed by it within the times and in the manner
prescribed by law, which returns and estimates were correct and complete in all
material respects. Company has withheld and paid all taxes required to have been
withheld and paid in connection with amounts paid or owing to any person or
entity. None of the Liabilities is an obligation to make a payment that will not
be deductible under Code Section 280G. Company and Seller have delivered to The
Source true and complete copies of the federal income tax returns of Company for
the three years ended May 31, 1993, 1994 and 1995 and the results of the most
recent audit of the tax returns of Company, if any, by the Internal Revenue
Service and the State of New Jersey. There are no pending audits with respect to
such returns. No waiver or extension of any filing or payment date or of any
statute of limitations with respect to taxes has been requested of or given by
Company. No unpaid claims have been asserted or threatened for taxes against
Company or the Assets. Company has accrued on its books and records all taxes,
charges and assessments accruing on the Assets, the Business or the operation
thereof which are presently payable. All taxes which are due and payable or will
become due and payable by Company prior to the Closing Date have been, or prior
to the Closing Date will be, paid in full or fully provided for in the Closing
Balance Sheet and will be paid when due, without extension.
3.14. Intellectual Property; Names of Company. Company has a valid
right to use the Intellectual Property currently used, heretofore used and
proposed to be used in the conduct of the Business. Company's use of
Intellectual Property has not conflicted and does not conflict with the rights
of others, and there are no pending claims or demands by any third party to the
contrary. Company is the sole legal owner of, and uses, the trade name(s) listed
on Schedule 3.14 (the "Names"). The use of the Names does not conflict with the
rights of others.
10
3.15. Real and Personal Property Leases. Company neither owns nor has
owned any Real Property. No personal or real property used by Company is held
under any lease or rental arrangement, except for the lease of the premises
(which are owned by Seller and his brother) in which the Business is conducted,
a copy of which is set forth in Schedule 3.15 (the "Building Lease"). The
Building Lease is currently in full force and effect. Neither Company nor the
lessor is in default under the Building Lease, nor has any event occurred, nor
does any condition exist, which with the giving of notice or the passage of
time, or both, would constitute a default under the Building Lease. The use of
such leased property in the Business as heretofore used does not violate or
encroach upon the rights of any other party.
3.16. Insurance. Company has maintained and now maintains: (a) "all
risk" insurance on the full fair market value of all of the Assets and on the
Business, covering property damage by fire or other casualties, and (b) adequate
insurance protection against all other liabilities, claims and risks against
which it is customary to insure. All such insurance policies are listed in
Schedule 3.16.
3.17. Certain Information. Schedule 3.17 contains accurate lists and
summary descriptions of the following:
(a) the names of all present officers and directors of
Company;
(b) The names and addresses of every bank and other
financial institution in which Company maintains an account (whether checking,
savings or otherwise), lock box or safe deposit box, and the account numbers and
names of persons having signing authority or other access thereto;
(c) the names of all persons authorized to borrow money or
incur or guarantee indebtedness on behalf of Company;
(d) the names of all persons holding powers of attorney from
Company and a summary statement of the purposes and terms thereof; and
(e) all names under which Company has conducted any business
or which it has otherwise used during the last five years.
3.18. Inventories. At the date of this Agrement, the Company does not,
and at the Closing Date, the Company will not, hold or maintain any inventories
of finished goods, work in process or raw materials.
3.19. Suppliers. Attached hereto as Schedule 3.19 is a list of all
material suppliers of goods and services to Company for the year ended May 31,
1996.
3.20. Customers; Accounts Receivable.
(a) Company and Seller have provided The Source with a list
of the customers of Company (the "Customer List") and the amount of
11
revenues received from each of them during 1996, and will update and
deliver to The Source at Closing a current list of such Customers as of
the Closing Balance Sheet Date (the "Closing Customer List").
(b) Company and Seller have delivered to The Source a
current aged list of unpaid accounts receivable owing to Company (the
"Accounts Receivable Schedule"), and will deliver to The Source, as of
the close of business on the Closing Balance Sheet Date (the "Closing
Accounts Receivable") and as of the Closing Date, current updates of
the Accounts Receivable Schedule and other information pertaining to
the accounts receivable of Company, certified as correct by Seller. The
Accounts Receivable Schedule and any such updates thereto or other
related information provided to The Source sets forth or will set forth
a true and correct list of all Accounts Receivable as of the respective
dates thereof. The Accounts Receivable are, and the Closing Accounts
Receivable will be, legal, valid and binding claims, and are and will
be fully collectible in the ordinary course of business in accordance
with their terms, without litigation or other collection expenses,
within 120 days of the Closing Date at the full face value thereof, and
are not subject to any counterclaim or right of set off.
3.21. Employee Benefit Plans.
(a) Employee Benefit Plans and Similar Arrangements.
(i) Schedule 3.21 lists all employee benefit plans
and other similar arrangements to which Company is or ever
has been a party or by which it is or ever has been bound,
legally or otherwise, including, without limitation: (A) any
profit-sharing, deferred compensation, bonus, stock option,
stock purchase, pension, retainer, consulting, retirement,
severance, welfare or incentive plan, agreement or
arrangement; (B) any plan, agreement or arrangement
providing for "fringe benefits" or perquisites to employees,
officers, directors or agents, including but not limited to
benefits relating to Company, automobiles, clubs, vacation,
child care, parenting, sabbatical, sick leave, medical,
dental, hospitalization, life insurance and other types of
insurance; and (C) any other "employee benefit plan" (within
the meaning of Section 3(3) of ERISA).
(ii) Company has delivered to The Source true and
complete copies of all documents and summary plan
descriptions with respect to such plans, agreements and
arrangements, or summary descriptions of any such plans,
agreements or arrangements not otherwise in writing.
(iii) There are no negotiations, demands or proposals
that are pending or have been made which concern matters now
covered, or that would be covered, by plans, agreements or
arrangements of the type described in this section.
12
(iv) Company is in full compliance with ERISA and all
other laws applicable with respect to all such employee
benefit plans, agreements and arrangements. Company has
performed all of its obligations under all such plans,
agreements and arrangements, including, but not limited to,
the full payment when due of all amounts required to be made
as contributions thereto or otherwise. To the best knowledge
of Company and Seller, and without notice to the contrary,
there are no actions, suits or claims (other than routine
claims for benefits) pending or threatened against such
plans or their assets, or arising out of such plans,
agreements or arrangements, and no facts exist which could
give rise to any such actions, suits or claims.
(v) Except as specified in Schedule 3.21, each of the
plans, agreements or arrangements can be terminated by
Company within a period of 30 days, without payment of any
additional compensation or amount or the additional vesting
or acceleration of any such benefits.
(vi) With respect to each such plan which is an
"employee benefit plan" (within the meaning of Section 3(3)
of ERISA) or a "Plan" (within the meaning of Section
4975(e)(1) of the Code), there has occurred no transaction
prohibited by Section 406 of ERISA and no "prohibited
transaction" (within the meaning of Section 4975(c) of the
Code).
(b) Qualified Plans. Except as identified on Schedule 3.21,
no plan listed in Schedule 3.21 is a stock bonus, pension or profit sharing plan
within the meaning of Section 401(a) of the Code.
(c) Welfare Benefit Plans. All group health plans of Company
and any ERISA Affiliate have been operated in compliance with the group health
plan continuation coverage requirements of Part 6 Subtitle B of Title I of ERISA
and 4980B of the Code to the extent such requirements are applicable. Except to
the extent required under Section 4980B of the Code, Company does not provide
and has not provided health or welfare benefits (through the purchase of
insurance or otherwise) for any retired or former employees.
(d) Fines and Penalties. There has been no act or omission
by Company or any ERISA Affiliate that has given rise to or may give rise to
fines, penalties, taxes or related charges under Section 502(c), (i) or (1)
Section 4071 of ERISA or Chapter 43 of the Code.
3.22. Other Contracts. Except as listed on Schedule 3.22 (the
"Contracts"), Company is not a party to, nor are the Assets bound by, any
commitment, agreement, indenture, mortgage, deed of trust, lease or any other
agreement between Company and any third party. There is no default of Company or
event that with notice or lapse of time, or both, would constitute a default,
nor, to the knowledge of Company or Seller and without notice to the contrary,
any default or threatened default by any other party thereto, existing with
respect to any of such agreements. Neither Company nor Seller has received
13
notice that any party to any of such agreements intends to cancel or terminate
any of such agreements or to exercise or not exercise any options under any of
such agreements. Company is not a party to, nor are the Assets bound by, any
agreement that is materially adverse to the Assets or the Business.
3.23. Corporate Records; Documents.
(a) The minute books of the Company are current and contain
correct and complete copies of the Articles of Incorporation and By-Laws of the
Company, including all amendments thereto and restatements thereof, and of all
minutes of meetings, resolutions and other actions and proceedings of its
shareholders and board of directors and all committees thereof, duly signed by
the Secretary or an Assistant Secretary. The stock record book of the Company is
current, correct and complete and reflects the issuance of all Company Stock.
(b) Company and Seller have furnished to The Source for its
examination: (i) a copy of all Contracts, agreements, policies, leases, and
other instruments and documents listed on the Schedules attached hereto, (ii) a
copy of all tax receipts for all taxes required to be paid by Company for three
years prior to the Closing Date, and (iii) a copy of Company's Articles of
Incorporation and By-Laws.
3.24. No Misrepresentation. No representation or warranty made by
either Company or Seller in this Agreement or any Schedule hereto contains or
will contain any untrue statement of a material fact or omits or will omit to
state a material fact necessary to make the statements contained herein and
therein not misleading.
IV. REPRESENTATIONS AND WARRANTIES OF THE SOURCE.
The Source hereby represents and warrants to, and covenants and agrees
with, Seller as follows:
4.01. Organization and Standing of The Source and K-Sub. The Source is
a Missouri corporation, validly existing and in good standing under the laws of
the State of Missouri. K-Sub is, or at the Closing will be, a Missouri
corporation, validly existing and in good standing under the laws of the State
of Missouri and is, or at the Closing will be, qualified to do business as a
foreign corporation under the laws of the State of _________________. The Source
owns, or at the Closing will own, all of the issued and outstanding shares of
capital stock of K-Sub.
4.02. Binding Agreement. This Agreement constitutes, and each other
instrument to be executed and delivered by The Source and K-Sub in accordance
herewith will constitute, when executed and delivered pursuant hereto, the valid
and legally binding obligations of The Source.
4.03. Agreement Within Authority. The execution and delivery of this
Agreement, consummation of the Transaction and performance of this Agreement by
14
The Source and K-Sub will not: (a) violate the Articles of Incorporation or
Bylaws of The Source or K-Sub, or (b) violate any judgment, order, writ,
injunction, decree or demand against The Source or K-Sub of any court or
federal, state, municipal or other governmental department, commission, board,
bureau, agency or instrumentality.
4.04. No Conflicting Agreements or Orders. No approval or consent of
any foreign, federal, state, county, local or other governmental or regulatory
body is required as a condition to the validity of this Agreement or to give
effect to the transactions contemplated hereby.
4.05. Corporate Action. The Source has, and K-Sub has or at Closing
will have, full corporate power and authority to enter into and deliver this
Agreement and to perform the acts contemplated to be performed by The Source and
K-Sub hereunder, and no further authorization, consent or approval of its board
of directors or shareholders, or of any regulatory body or third party, is
required as a condition to the validity of this Agreement or to give effect to
the Transaction by K-Sub.
4.06. No Conflict. The execution and delivery of this Agreement and
each other instrument to be executed by The Source and K-Sub in accordance
herewith and the consummation of the transactions contemplated herein by The
Source and K-Sub will not conflict or be inconsistent with or result in the
termination of or constitute a breach of or default under the terms of any
indenture, mortgage, deed of trust, covenant, agreement or other instrument to
which The Source or K-Sub is a party or to which its property is subject.
4.07. No Misrepresentation. No representation or warranty made by The
Source or K-Sub in this Agreement or any Schedule hereto contains or will
contain any untrue statement of a material fact or omits or will omit to state a
material fact necessary to make the statements contained herein and therein not
misleading.
V. COVENANTS OF SELLER AND COMPANY PENDING CLOSING.
Pending Closing, Seller and Company, jointly and severally, covenant
and agree as follows:
5.01. Access to Information. The Source and its counsel, accountants
and other representatives shall have full access during normal business hours to
all properties, books, accounts, records, files, agreements and documents of or
relating to Company and the Business, including electronic files. Company and
Seller shall furnish or cause to be furnished to The Source and its counsel,
accountants and representatives all data and information concerning the
operations, finances and assets of Company requested by The Source.
5.02. Maintain Properties. Company shall maintain the Assets in good
repair, order and condition.
15
5.03. Maintain Organization. Company shall keep its organization
intact, keep available the services of its employees, and maintain the
relationship and goodwill of its customers.
5.04. Regular Course of Business. Company shall not, without the prior
written consent of The Source, purchase, sell or otherwise dispose of any of the
Assets, incur any liability, obligation or commitment, or engage in any activity
or transaction, except in the regular and customary course of business in
accordance with its past practices.
5.05. Insurance. Company shall cause its policies of insurance relating
to the Business and the Assets to continue to be kept in full force and effect
and refrain from taking any action which impairs the continued insurability of
the Assets or the Business.
5.06. Employees. Without the prior written consent of The Source,
Company will not, nor will it agree to, enter into or amend any representation,
employment or compensation agreement or grant any increase or change in the
salaries or other compensation or benefits payable or to become payable by
Company to any officer, employee, sales agent or representative of Company;
provided however that the Company shall be permitted to award bonuses to
employees of the Company (other than Xxxxxxx Xxxxxxx, Xxxxxxx Xxxxxxx and Xxxx
Xxxxxxx) in an aggregate amount not to exceed $200,000, and provided further
that the Company shall be permitted to award bonuses to Xxxxxxx Xxxxxxx, Xxxxxxx
Xxxxxxx and Xxxx Xxxxxxx in amounts consistent with past practices.
5.07. Business Changes. Company will not do or agree to do any of the
following without the prior written consent of The Source:
(a) Enter into any contract, commitment or transaction not
in the usual and ordinary course of the Business as heretofore
conducted;
(b) Make any capital expenditure; or
(c) Agree to, modify, amend, cancel or terminate any of its
existing contracts or agreements, including any contracts or agreements
for the collection of RDA or RDP payments. In the event that the
Company or Seller arranges for a face-to-face meeting with RDA or RDP
customer, they will provide The Source with reasonable prior notice and
the opportunity to attend and participate in such meeting.
5.08. Consents. As soon as reasonably practical after the execution and
delivery of this Agreement, and in any event on or before the Closing Date,
Seller will obtain the written consent of all persons whose consent to the
execution of this Agreement and Closing of the Transaction is required, in form
and substance acceptable to The Source; and Seller will furnish The Source
original executed copies of any such consents as they are obtained.
5.09. Building Lease. At or prior to Closing, Seller will cause Company
and the lessor under the Building Lease to enter into an amendment to the
16
Building Lease (the "Building Lease Amendment") which reduces the term of the
Building Lease to a one year period following the Closing Date and provides for
the Company to continue to lease the premises thereunder for said one year term
at a rental equal to $5,900 per month.
VI. COVENANTS OF THE SOURCE.
6.01. Small Retail Account Service Agreement. At the Closing, The
Source will offer to enter into an agreement, mutually satisfactory to the
parties thereto, with Seller's brother-in-law ("BIL") regarding the servicing of
the small retailer accounts listed in Schedule 6.01 and such other small
retailer accounts as are thereafter submitted to The Source by BIL and approved
by The Source in writing. Such agreement shall provide that (a) BIL shall be
considered an independent contractor, (b) BIL shall receive take home pay before
deductions for tax withholding equal to $50,000 per year, (c) the Company shall
provide BIL with an office and access to computer equipment at the Company's
facility located at 00-00 Xxxxxxxx, Xxxx Xxxx, Xxx Xxxxxx for so long as the
Company maintains such facility, (d) BIL shall refrain from competing with The
Source with respect to any accounts (including grocery wholesalers) other than
those listed on Schedule 6.01, and (e) at such time as the Company vacates its
00-00 Xxxxxxxx facility, the Company will sell to BIL for a purchase price of
$1.00 the following equipment : one MicroVax 3100; one disc drive; one tape
drive; one printer; and two CRTs.
6.02 Change of Corporate Name. As soon as practicable, but in any event
not later than ninety (90) days after the Closing Date, The Source shall cause
the Company to amend its corporate name to a name other than Xxxx Xxxxxxx and
Associates, Inc.
VII. CONDITIONS PRECEDENT TO OBLIGATIONS OF THE SOURCE AND
K-SUB.
The obligations of The Source and K-Sub hereunder are subject to
fulfillment (or waiver by The Source), prior to or on the Closing Date, of the
following conditions:
7.01. No Adverse Change. There shall have been no adverse change in or
loss or damage to the Company, the Assets or the Business.
7.02. Representations, Warranties and Agreements of Seller and Company.
The representations, warranties, covenants and agreements of the Seller and
Company herein shall be true and not breached as of the Closing Date, with the
same effect as though such representations, warranties, covenants and agreements
had been repeated by the Seller and Company as of the Closing Date, and all of
the obligations of Seller and Company hereunder shall have been duly performed.
7.03. Opinion of Counsel. The Source shall have received the favorable
opinion of counsel for Seller and Company, dated as of the Closing Date, in the
form of Schedule 7.03 and otherwise in form and substance reasonably
satisfactory to The Source and The Source's counsel. In rendering such opinion,
such counsel may rely on written certificates of Seller and the president of
17
Company and appropriate public officials as to factual matters, provided a copy
thereof is attached to and forms a part of the opinion of counsel with the
knowledge and consent of the president.
7.04. Absence of Litigation. No action, suit or proceeding before any
court or any governmental body or authority pertaining to the Transaction or to
the consummation of the Closing, or to the Company, the Assets or the Business,
shall have been instituted or threatened on or before the Closing Date.
7.05. Officers' Certificate. The Source shall have received a
certificate, dated the Closing Date, signed and verified by the Seller and the
president of Company certifying, in the form of Schedule 7.05 hereto, that the
conditions specified in this Article VII relating to Seller and Company have
been fulfilled.
7.06. Approval of Documents. The form and substance of all
certificates, instruments, opinions and other documents delivered to The Source
under this Agreement shall be satisfactory to The Source and its counsel.
7.07. Casualty Loss. The Business shall not have been curtailed or
interrupted by, and the Assets shall not have been affected by, any loss,
destruction or damage due to fire or other casualty unless, if any such
destruction or damage shall have occurred, The Source has determined, in its
sole judgment and discretion, that such loss, destruction or damage is not of
such nature as to curtail or interrupt the Business or determined that available
insurance proceeds are sufficient to repair or replace any damaged or lost
Assets and Company shall have assigned the proceeds of any such insurance to The
Source, which Seller agrees to cause Company to do upon the request of The
Source.
7.08. Satisfactory Review of the Company, the Business and the Assets;
Audit. The Source shall have been given access to and been permitted to review
the Company, the Assets, the Business and such other information as shall have
been requested by The Source; and The Source shall be satisfied, in its sole
discretion, with the physical, operating and financial condition of the Company
, the Assets and the Business. The Accounting Firm shall have completed a review
and audit of the May 31 Financial Statements and Company's results of operation
for the two fiscal years then ended and a review or audit of the Interim
Financial Statements, sufficient to permit the filing thereof in a registration
statement filed by The Source with the Securities and Exchange Commission (the
"Audit").
7.09. Closing Accounts Receivable. The Source, Seller and the
Accounting Firm shall have mutually agreed upon the collectibility of the
Closing Accounts Receivable, as contemplated by Section 10.01(a).
7.10. Minimum Equity and Net Current Assets. The Stockholder's Equity
of Company as shown on the Closing Balance Sheet, shall not be less than the
amount thereof set forth on the May 31 Balance Sheet (the "Minimum Stockholder's
Equity"), and the accounts receivable which have been billed to and are payable
by retailer accounts of Company as of the Closing Date minus accounts payable
and other Liabilities of Company ("Net Current Receivable Assets") shall not be
18
a negative amount. Any deficiency in the minimum amounts provided for in this
Section 7.10 shall be first recovered from the Escrow and thereafter may be
applied by The Source to reduce and be set off against any other amounts payable
to Seller by The Source or, at the written request of The Source to Seller,
shall be payable by Seller to The Source upon demand.
7.11. Arrangement with Seller. Seller and The Source shall have entered
into a mutually acceptable three-year arrangement which provides for Seller to
provide Seller's services to The Source on terms and conditions mutually
acceptable to The Source and Seller and which contains non-disclosure,
non-competition and non-solicitation provisions for the term of the arrangement
plus one year which are acceptable to The Source.
7.12. Executive Employment Agreements. At the Closing, the Company will
have entered into employment agreements with the Xxx Xxxxx, Xxxxx Xxxxxxx, and
Xxxx Xxxxxx in the form set forth in Schedule 7.12 for a one-year term,
compensation equal to $100,000, $60,000 and $40,000 respectively, and for the
term of employment plus non-competition covenants of two-years.
VIII. CONDITIONS PRECEDENT TO OBLIGATIONS OF SELLER.
The obligations of Seller hereunder are conditioned upon the
fulfillment (or waiver by Seller, prior to or at the Closing Date, of the
following:
8.01. Representations, Warranties and Agreements of The Source. The
representations, warranties, covenants and agreements of The Source and K-Sub
contained herein shall be true and not breached at and as of the Closing Date,
with the same effect as though such representations, warranties, covenants and
agreements had been repeated by The Source at and as of such time, and all of
the obligations of The Source hereunder shall have been duly performed.
8.02. Opinion of Counsel. Seller shall have received the favorable
opinion of counsel for The Source and K-Sub, dated as of the Closing Date, in
the form of Schedule 8.02 and otherwise in form and substance satisfactory to
Seller's counsel. In rendering their opinion, counsel for The Source and K-Sub
may rely on written certificates of the officers of The Source and appropriate
public officials as to factual matters, provided a copy thereof is attached to
and forms a part of the opinion of counsel to The Source and K-Sub with the
knowledge and consent of such officers.
8.03. Consents. All necessary agreements and consents of any parties to
the consummation of the Transaction by K-Sub or otherwise pertaining to the
matters contemplated by this Agreement shall have been obtained by K-Sub and/or
The Source, as appropriate.
8.04. Approval of Documents. The form and substance of all
certificates, instruments, opinions and other documents delivered to Seller
under this Agreement shall be satisfactory to Seller and its counsel.
19
8.05. The Source's Certificate. Seller shall have received a
certificate, dated the Closing Date, signed and verified by the chief executive
officer and chief financial officer of The Source certifying, in the form of
Schedule 8.05 hereto, that the conditions specified in this Article VIII have
been fulfilled.
8.06. Closing Accounts Receivable. The Source, Seller and the
Accounting Firm shall have mutually agreed upon the collectibility of the
Closing Accounts Receivable, as contemplated by Section 10.01(a), which
agreement shall not be unreasonably withheld by Seller.
IX. TERMINATION
This Agreement may be terminated at any time at or prior to the
Closing:
(a) by the mutual written agreement of the parties hereto;
(b) by either party, upon written notice to the other
parties, in the event that any of the conditions precedent to the
obligations of such party are not fulfilled or waived by such party
prior to or on the Closing Date; or
(c) by The Source, upon written notice to the other parties,
in the event, in its sole and absolute discretion, The Source is not
satisfied with the results of its review of the Company, the Assets or
the Business.
In the event of the termination of this Agreement pursuant to this
Article IX, this Agreement (other than Section 2.02) shall be thereafter void
and of no further force or effect, and no party hereto shall have any liability
to the other or their respective shareholders, directors or officers in respect
thereof, except that nothing in this Article shall relieve any party from
liability for any breach of this Agreement prior to such termination.
X. INDEMNIFICATION
This Article sets forth the manner in which The Source and K-Sub shall
be indemnified by Seller and Company, jointly and severally, in the event of any
misrepresentation or breach of warranty or agreement on the part of Seller or
Company hereunder, and the respects in which Seller shall be indemnified by The
Source and K-Sub, jointly and severally, in the event Seller shall become
obligated for, or shall discharge, any liabilities of K-Sub or The Source
subsequent to the Closing, and/or in the event of any misrepresentation or
breach of warranty or agreement on the part of The Source or K-Sub hereunder.
10.01. Indemnification of The Source by Seller and Company.
(a) Representations, Warranties, Covenants and Agreements.
Seller and Company, jointly and severally prior to the Closing, but
Seller individually following the Closing, agree to indemnify The
20
Source and K-Sub against and hold The Source and K-Sub harmless from
any and all loss, liability, damage, claim, cost and expense of any
nature whatsoever, including, without limitation, attorneys' fees,
arising from or in connection with any representation or warranty made
by Seller or Company not being complete, accurate and true at the date
of this Agreement and on the Closing Date, or the failure by Seller or
Company to fulfill and fully perform each covenant or agreement of
Seller and Company under this Agreement or under any other instrument
or document executed and delivered by Seller or Company in connection
with the Transaction or as otherwise contemplated hereby. Seller
further agrees to indemnify The Source and K-Sub and make payment to
The Source and K-Sub of any amount by which the stockholder's equity of
Company, as of the Closing Balance Sheet Date and confirmed by the
Audit, is less than the Minimum Stockholder's Equity (the "Equity
Deficit"). Notwithstanding the foregoing, on or before the Closing
Date, The Source, Seller and the Accounting Firm shall review and
mutually agree on the collectibility of the Closing Accounts
Receivable; and once so agreed upon, Seller shall have no further
obligation to The Source under Section 3.20 or this Section 10.01 with
respect to the collectibility of the Closing Accounts Receivable.
(b) Remedies Not Exclusive. The rights and remedies of The
Source and K-Sub provided for in this Article or otherwise in this
Agreement shall be deemed to be cumulative and in addition to and not
in limitation or exclusion of all other rights and remedies, whether by
the provisions of this Agreement or at law or in equity or otherwise,
which may exist on the part of The Source or K-Sub by reason of any
misrepresentation or breach of warranty, covenant or agreement on the
part of Seller or Company hereunder. Such rights and remedies shall be
cumulative and may be exercised at any time or from time to time, and
any failure or delay of The Source or K-Sub in exercising any right or
remedy at any time shall not constitute a waiver thereof or restrict
its subsequent enforcement or the enforcement of any other right or
remedy of The Source or K-Sub. In addition to any other rights and
remedies of The Source and K-Sub hereunder or otherwise, any amounts
due and payable to The Source or K-Sub by reason of the obligations of
Seller or Company to indemnify The Source and K-Sub and hold The Source
and K-Sub harmless hereunder, including the amount of any Equity
Deficit, shall be first recoverable by The Source against the
Indemnification Escrow and thereafter shall be subject to a right of,
and shall first be applied in, setoff and reduction on the part of The
Source and K-Sub against any amounts due and payable by The Source or
K-Sub to Seller hereunder or under any other agreement, except as any
of the same have been previously delivered or paid to Seller, or, at
the written request of The Source, if the amount available to be
recovered from the Indemnification Escrow is insufficient, shall be
payable directly by Seller to The Source upon demand.
10.02. Indemnification of Seller by The Source and K-Sub.
(a) Representations, Warranties, Covenants and Agreements.
The Source and K-Sub agree, jointly and severally, to indemnify Seller
against and hold Seller harmless from any and all loss, liability,
damage, claim, cost and expense of any nature whatsoever, including,
21
without limitation, attorneys' fees, arising from or in connection with
any representation or warranty made by The Source not being complete,
accurate and true at the date of this Agreement and on the Closing Date
or the failure by The Source or K-Sub to fulfill and fully perform each
covenant or agreement of The Source or K-Sub under this Agreement or
under any other instrument or document executed and delivered by The
Source or K-Sub in connection with the Transaction or otherwise as
contemplated hereby.
(b) Remedies Not Exclusive. The rights and remedies of
Seller provided for in this Article or otherwise in this Agreement
shall be cumulative and in addition to and not in limitation or
exclusion of all other rights and remedies, whether by the provisions
of this Agreement or at law or in equity or otherwise, which may exist
on the part of Seller by reason of any misrepresentation or breach of
warranty, covenant or agreement on the part of The Source or K-Sub
hereunder. Such rights and remedies shall be cumulative and may be
exercised at any time or from time to time, and any failure or delay of
Seller in exercising any right or remedy at any time shall not
constitute a waiver thereof or restrict its subsequent enforcement or
the enforcement of any other right or remedy of Seller.
10.03. Notice to Indemnifying Party. In the event that any party may be
entitled to, or intends to assert a claim for, indemnification hereunder, not
later than thirty (30) days after actual notice of any claim or the filing of
any action giving rise to such claim for indemnification, the indemnified party
will, if a claim in respect thereof is to be made against another party or
parties hereto, notify the indemnifying party or parties thereof. In case any
action is threatened or brought against any indemnified party, and it notifies
the indemnifying party or parties thereof, the indemnifying party or parties
will be entitled to participate in or assume the defense thereof with counsel
reasonably satisfactory to such indemnified party and, after notice of its
election to assume the defense thereof, the indemnifying party or parties will
no longer be liable for any legal or other expense subsequently incurred by the
indemnified party in connection with the defense thereof; provided, however,
that the indemnified party shall be entitled at all times to participate in the
defense of any such action at its own cost.
10.04. Termination of Indemnification Obligations of Company.
Notwithstanding any other provision of this Article X, the obligations of
Company to indemnify and hold harmless The Source and K-Sub hereunder shall
expire and be of no further force or effect effective as of the consummation of
the Closing, and thereafter Seller shall be solely responsible and liable to The
Source and K-Sub therefor.
XI. CLOSING AND RISK OF LOSS.
11.01. Place and Time. The Closing shall take place on the Closing Date
at the offices of ________________________, ______________________________,
_______________, or at such other place as may be agreed upon by The Source and
Seller.
11.02. Simultaneous Performance. None of the transactions described in
Article II will occur unless all such transactions occur.
22
XII. MISCELLANEOUS.
12.01. Non-competition. In consideration of the Closing, but without
the separate allocation of any specific portion of the Source Shares, Seller
agrees, effective on and after the Closing Date and for the five year period
following the Closing Date, not to engage, directly or indirectly, either
personally, or as an owner, employee, partner, associate, officer, manager,
agent, advisor, consultant or otherwise in the periodical rebate or pocket
payment business in the United States or Canada (but excluding Puerto Rico),
which shall not prevent Seller from being employed by any publisher of
periodicals in areas unrelated to and not adversely affecting such publisher's
payment of periodical rebates or pocket payments. Seller acknowledges and agrees
that the restrictions contained in this section are reasonable in light of the
unique circumstances of this Agreement, and that any violation of this section
would cause immediate serious and irreparable harm to The Source and K-Sub,
incapable of being measured in money damages. Accordingly, Seller agrees that in
the event of any breach or threatened breach of this section, The Source and/or
K-Sub shall be entitled to an injunction or restraining order and to reasonable
attorneys' fees and expenses incurred in connection therewith and otherwise in
the enforcement hereof, and The Source and/or K-Sub shall not have to provide a
bond or other security in connection with obtaining any such remedy.
12.02. Information. Except as required by law, each of the parties
hereto agrees to maintain non-public proprietary or otherwise confidential
documents and information of the other in confidence and not to disclose or use
the same other than for the purpose of consummating the Transaction. In the
event the Transaction is not consummated for any reason, all copies of
non-public proprietary or otherwise confidential documents and information: (a)
provided to The Source or its officers, directors, employees, agents,
accountants, counsel, investment bankers and other financing sources (its
"Representatives"), by or on behalf of Seller or Company or otherwise hereunder
for the purpose of consummating the Transaction shall be returned to Seller by
The Source, and The Source and its Representatives shall maintain the same in
confidence and shall not disclose or utilize the same, or (b) provided to Seller
or Company or their Representatives by or on behalf of The Source or K-Sub or
otherwise hereunder for the purpose of consummating the Transaction shall be
returned to The Source by Seller and Company, and Seller and Company shall
maintain the same in confidence and shall not disclose or utilize the same.
12.03. Incorporation of Schedules. The Schedules hereto shall be deemed
to be incorporated in and form part of this Agreement.
12.04. Further Assurances. Each of the parties agrees to do, execute,
acknowledge and deliver, and cause to be done, executed, acknowledged and
delivered, all such further acts, assignments, transfers, instruments,
documents, deeds and assurances as shall be required in order to carry out this
Agreement and give effect hereto.
12.05. Transfer Taxes. Any sales, transfer, excise and other taxes, if
any, payable by reason of the consummation of the Transaction and transfer of
the Company Stock contemplated hereby shall be paid by Seller.
23
12.06. Notices. Any notice, consent, request, claim or other
communication hereunder shall be in writing and shall be deemed to have been
duly given when mailed by First Class Certified, Registered or Express mail, or
when sent by next business day courier (for example, Federal Express) or
confirmed telefax, addressed as follows:
If to The Source or K-Sub:
S. Xxxxxx Xxxxxx,
The Source Company
00000 Xxxxxxx Xxxx Xx.
Xx. Xxxxx, Xxxxxxxx 00000
Fax: 000-000-0000
with a copy to:
Xxxx X. Xxxxxxx
Gallop, Xxxxxxx & Xxxxxx, X.X.
16th Floor
000 Xxxxx Xxxxxx Xxxx
Xx. Xxxxx, Xxxxxxxx 00000
Fax: 000-000-0000
If to Seller or Company:
Xxxx Xxxxxxx and Associates, Inc.
c/o Xxxxxxx Xxxxxxx
000 Xxxxxxx Xxxx
Xxxxxxxx Xxxxx, Xxx Xxxxxx 00000
Fax:
with a copy to:
Xxxxxx X. Xxxxxxxxx, Esq.
Court Plaza North
00 Xxxx Xxxxxx
Xxxxxxxxxx, Xxx Xxxxxx 00000
Fax: 000-000-0000
or to such other address as any party may designate by written notice hereunder.
12.07. No Commission. All negotiations on behalf of Seller and The
Source and K- Sub, respectively, relative to this Agreement and the transactions
contemplated hereby have been carried on by or on behalf of Seller and The
Source and K-Sub directly between Seller and The Source and K-Sub, without the
intervention of any third party, either as the result of any action of Seller or
24
The Source and K-Sub, or otherwise, to the knowledge of Seller or The Source and
K-Sub, in such a manner as to give rise to any valid claim against Seller or The
Source or K-Sub for a finders' fee, brokerage commission or other like payment.
12.08. Survival of Representations and Warranties. The representations
and warranties of The Source and K-Sub and of Seller, respectively, contained
herein shall survive the Closing, regardless of any investigations made by or on
behalf of or any disclosure to The Source, K-Sub or Seller, for two (2) years
following the Closing Date, except that the representations and warranties of
Seller contained in Sections 3.02, 3.03, 3.08(b) and 3.13, and of The Source
contained in Section 4.03, shall survive the Closing for the period of the
statute of limitations applicable thereto.
12.09. Entire Agreement. This Agreement embodies the entire Agreement
between the parties, and no representations, inducements, promises or other
agreements, oral or otherwise, not embodied herein, shall be of any force or
effect. This Agreement may not be modified or terminated except in writing
signed by the parties hereto.
12.10. Binding Effect. This Agreement shall be binding upon and inure
to the benefit of the parties and their respective successors and assigns.
12.11. Third Parties. Nothing in this Agreement or in any instrument or
document executed by any party hereto in connection with the transactions
contemplated hereby shall create any rights in, or be deemed to have been
executed for the benefit of, any person, firm, corporation or other entity or
body that is not a party hereto.
12.12. Expenses of the Parties. All expenses involved in the
preparation, authorization and consummation of this Agreement, including,
without limitation, all fees and expenses of agents, representatives, counsel
and accountants in connection therewith, shall be borne solely by the party who
shall have incurred the same, and no other party shall have any liability in
respect thereof.
12.13. Counterparts. This Agreement may be executed simultaneously in
two or more counterparts, each of which shall be deemed an original, but all of
which taken together shall constitute one and the same instrument.
12.14. Missouri Law to Govern. This Agreement shall be governed by and
construed under the internal laws of the State of Missouri, without regard to
its conflicts of law provisions or interpretations.
12.15. Mail and Communications. After the Closing, each party will
promptly deliver to the other party the original of any mail or other
communication received by that party but pertaining to the business of the other
party.
12.16. Review of Closing Balance Sheet. Seller represents, warrants and
covenants to The Source that at the Closing, the Minimum Stockholders' Equity of
Company shall be not less than $1.00, less the aggregate amount of any bonuses
awarded pursuant to Section 5.06 to employees of the Company other than Xxxxxxx
25
Xxxxxxx, Xxxxxxx Xxxxxxx and Xxxx Xxxxxxx. In order to confirm whether the
Minimum Stockholders' Equity has been met and the amount of the Net Current
Receivable Assets, not later than 30 days following the Closing Balance Sheet
Date, Seller, in cooperation with The Source, shall prepare the Closing Balance
Sheet and the related statements of income for the period from May 31, 1996 to
the Closing Balance Sheet Date in accordance with generally accepted accounting
principles, consistently applied. In preparing the Closing Balance Sheet and
related financial statements, Seller shall consult with The Source and shall
permit The Source to participate in and review the preparation thereof,
including all work papers, schedules and calculations related thereto, prior to
the issuance thereof. The Source shall commence its review of said work papers,
schedules and calculations as soon as practicable. Any dispute which arises
between Seller on the one hand and The Source on the other hand as to such
financial statements shall be resolved in the following manner:
(a) The Source, if it disputes the financial statements, shall
notify Seller in writing within ten days after its receipt of such
financial statements that The Source disputes the financial statements,
specifying in reasonable detail the nature of the dispute;
(b) During the five day period following the date of such
notice, Seller and The Source shall attempt to resolve such dispute and
determine the appropriateness of the Closing Balance Sheet and related
financial statements; and
(c) If at the end of such five day period, the parties have
failed to reach an agreement with respect to the dispute, the matter
shall be referred to an independent accounting firm selected by the
Accounting Firm (the "Arbitrator"). The Arbitrator shall issue its
report as to the Closing Balance Sheet and related financial statements
within ten days after such dispute is referred to the Arbitrator. Each
of the parties shall bear all costs and expenses incurred by it in
connection with such arbitration except for the fees and expenses of
the Arbitrator which shall be borne equally by Seller, on the one hand,
and The Source, on the other hand. This provision for arbitration shall
be specifically enforceable by the parties and the decision of the
Arbitrator in accordance with the provisions hereof shall be final and
binding and there shall be no right of appeal therefrom.
Any amount by which the total Stockholders' Equity or net worth of Company,
calculated on a cash basis in accordance with generally accepted accounting
principles, is less than the Minimum Stockholders' Equity shall be recoverable
by Company first from the Indemnification Escrow and thereafter by set-off and
reduction against any amount payable by The Source or the Company to Seller
subsequent to the Closing or, at the written request of The Source to Seller,
shall be payable by Seller on demand.
26
IN WITNESS WHEREOF, the parties hereto executed this Agreement as of
the date first set forth above.
THE SOURCE COMPANY
By: /s/ S. Xxxxxx Xxxxxx /s/ Xxxxxxx Xxxxxxx
---------------------------- --------------------------------
S. Xxxxxx Xxxxxx Xxxxxxx Xxxxxxx
Chairman and Chief
Executive Officer
XXXX XXXXXXX AND ASSOCIATES, INC.
By:/s/ Xxxxxxx Xxxxxxx
-----------------------------
Xxxxxxx Xxxxxxx, President
27