EXHIBIT 10.18
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ASSET PURCHASE AGREEMENT
AMONG
ADVANCED AESTHETICS, INC.
ADVANCED K, LLC
XXXXXXXXX XXXXXXX, INC.
XXXXXX X. XXXX, XX.
AND
XXXXXX X. XXXX
DATED APRIL 23, 2004
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TABLE OF CONTENTS
PAGE
1. Transfer of Assets.......................................................................................1
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1.1 Acquired Assets.................................................................................1
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1.2 Excluded Assets. ..............................................................................1
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1.3 Assumption of Liabilities. ....................................................................1
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2. Purchase Price...........................................................................................1
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2.1 Purchase Price. ...............................................................................1
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2.2 Estimated Closing Statement.....................................................................1
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2.3 Closing Payments and Deliveries.................................................................1
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2.4 Final Closing Statement. ......................................................................1
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2.5 Changes to the Purchase Price...................................................................1
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2.6 Access to Records...............................................................................1
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2.7 Prorations. ...................................................................................1
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2.8 Allocation of Purchase Price. .................................................................1
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3. Closing. ...............................................................................................1
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4. Representations and Warranties of the Shareholders and the Seller. .....................................1
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4.1 Organization. .................................................................................1
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4.2 Capitalization; No Subsidiaries. ..............................................................1
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4.3 Authorization; Validity of Agreement............................................................1
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4.4 No Violations; Consents and Approvals...........................................................1
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4.5 Financial Statements............................................................................1
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4.6 No Material Adverse Change. ...................................................................1
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4.7 No Undisclosed Liabilities. ..................................................................1
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4.8 Adverse Effect..................................................................................1
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4.8 Legal Proceedings; Compliance with Law; Licenses................................................1
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4.9 Employee Benefit Plans; ERISA...................................................................1
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4.10 Real Property...................................................................................1
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4.11 Intellectual Property Assets. .................................................................1
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4.12 Title to Acquired Assets. .....................................................................1
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4.13 Assumed Contracts. ............................................................................1
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4.14 Taxes...........................................................................................1
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4.15 Affiliated Party Transactions. ................................................................1
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4.16 Environmental Matters...........................................................................1
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4.17 No Brokers. ...................................................................................1
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4.18 Insurance. ....................................................................................1
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4.19 Delivery of Documents; Corporate Records. .....................................................1
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4.20 Labor Matters. ................................................................................1
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4.21 Condition and Sufficiency of Assets............................................................1
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4.22 No Termination of Key or Significant Employees. ...............................................1
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4.23 Investment Undertaking, Etc.....................................................................1
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5. Representations and Warranties of the Shareholders. ....................................................1
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5.1 Ownership. ....................................................................................1
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5.2 Authorization; Validity of Agreement............................................................1
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5.3 No Violations; Consents and Approvals...........................................................1
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6. Representations and Warranties of the Buyer Group. .....................................................1
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6.1 Organization....................................................................................1
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6.2 Capitalization..................................................................................1
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6.3 Authorization; Validity of Agreement............................................................1
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6.4 No Violations; Consents and Approvals...........................................................1
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6.5 Financial Statements............................................................................1
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6.6 No Material Adverse Change. ...................................................................1
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6.7 No Undisclosed Liabilities. ...................................................................1
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6.8 Legal Proceedings...............................................................................1
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6.9 Taxes...........................................................................................1
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6.10 Shares of Capital Stock. ......................................................................1
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7. Other Agreements of the Parties..........................................................................1
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7.1 Tax Returns; Taxes..............................................................................1
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7.2 Non-Disclosure of Confidential Information......................................................1
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7.3 No Solicitation of Employees or Customers.......................................................1
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7.4 Non-Competition.................................................................................1
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7.5 Public Statements. ............................................................................1
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7.6 Cooperation on Taxes. .........................................................................1
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7.7 Employees and Benefits..........................................................................1
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7.8 Stockholders Agreement; Registration Rights Agreement. ........................................1
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7.9 Documents relating to the Leased Real Property. ...............................................1
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8. Other Documents to be Delivered at the Closing...........................................................1
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8.1 Deliveries of the Shareholders and the Seller. ................................................1
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8.2 Deliveries of the Buyer Group. ................................................................1
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9. Survival of Representations and Warranties...............................................................1
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9.1 Survival of Representations and Warranties of the Shareholders and the Seller. ................1
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9.2 Survival of Representations and Warranties of the Buyer Group. ................................1
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9.3 Survival of Liabilities for which Notice is Given...............................................1
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10. Indemnification..........................................................................................1
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10.1 Indemnification by the Shareholders and the Seller. ...........................................1
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10.2 Indemnification by the Buyer Group..............................................................1
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10.3 Indemnification Procedures......................................................................1
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10.4 Limitations.....................................................................................1
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10.5 Exclusive Remedy. .............................................................................1
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10.6 Materiality Qualification. ....................................................................1
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11. Miscellaneous............................................................................................1
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11.1 Transaction Fees and Expenses. ................................................................1
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11.2 Bulk Transfer Laws..............................................................................1
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11.3 Notices. ......................................................................................1
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11.4 Further Assurances..............................................................................1
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11.5 No Waiver. ....................................................................................1
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11.6 Entire Agreement. .............................................................................1
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11.7 Governing Law. ................................................................................1
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11.8 Jurisdiction; Venue.............................................................................1
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11.9 Assignment......................................................................................1
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11.10 Binding Effect. ...............................................................................1
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11.11 No Third Party Beneficiaries. .................................................................1
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11.12 Amendment and Waiver. .........................................................................1
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11.13 Severability. .................................................................................1
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11.14 Specific Performance. .........................................................................1
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11.15 Counterparts. .................................................................................1
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SCHEDULES
Schedule 1.1 Certain Acquired Assets; Permitted Liens
Schedule 1.2 Excluded Assets
Schedule 1.3(h) Trade Payables and Accrued Expenses
Schedule 2.3(d) Chicago Reimbursement
Schedule 4.1 Foreign Qualifications
Schedule 4.2 Capitalization of Seller; Options
Schedule 4.4 Consents
Schedule 4.6 Exceptions to No Material Adverse Change
Schedule 4.7 Exceptions to No Undisclosed Liabilities
Schedule 4.8 Legal Proceedings; Licenses
Schedule 4.9(a) Employee Benefits Plans
Schedule 4.9(b) Legal Compliance
Schedule 4.9(c) Exceptions to Insured Plans
Schedule 4.9(d) Determination Letter
Schedule 4.9(e) Exceptions to Qualified Status
Schedule 4.9(i) Benefit Plans that Cannot be Amended of Terminated
Schedule 4.9(k) List of Agreements
Schedule 4.9(l) Acceleration of Benefits
Schedule 4.9(q) Unfunded Obligations
Schedule 4.9(s) Termination of Plans
Schedule 4.10 Leased Real Property
Schedule 4.13 Certain Seller Contracts and Consents
Schedule 4.15 Certain Affiliate Transactions
Schedule 4.16 Environmental Matters
Schedule 4.18 Insurance Policies
Schedule 4.21 Condition and Sufficiency of Assets
Schedule 6.2 Capitalization of Buyer
Schedule 6.4 Certain Buyer Consents
Schedule 6.8 Buyer Group Legal Proceedings
Schedule 7.7(a) Transferred Employees
Schedule 7.7(c) Transferred Plans
Schedule 7.7(h) Vacation Policy
Schedule 7.9 Lease Assignments
EXHIBITS
Exhibit A Form of Promissory Note
Exhibit B Certificate of Designation
Exhibit C Intentionally Omitted
Exhibit D Form of Stockholders Agreement
Exhibit E Form of Registration Rights Agreement
Exhibit F Form of Opinion of Counsel for the Seller and the Shareholders
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Exhibit G Form of Xxxx of Sale and Assignment
Exhibit H Form of Opinion of Counsel for the Buyer Group
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ASSET PURCHASE AGREEMENT
April 23, 2004
The parties to this agreement are Advanced Aesthetics, Inc., a Delaware
corporation (the "Parent"), Advanced K, LLC, a Delaware limited liability
company and an indirect, wholly-owned subsidiary of the Parent (the "Buyer" and,
together with the Parent, the "Buyer Group"), on the one hand, and Xxxxxxxxx
Xxxxxxx, Inc., a Delaware corporation (the "Seller"), and Xxxxxx X. Xxxx, Xx.
and Xxxxxx X. Xxxx, who together own in excess of 90% of the issued and
outstanding capital stock of the Seller (each, a "Shareholder"), on the other
hand.
The Buyer desires to acquire from the Seller, and the Seller desires to
sell to the Buyer, substantially all of the Seller's assets and properties, and
the Buyer desires to assume and agree to discharge certain of the Seller's
liabilities, in consideration for the payment of cash, a promissory note and
preferred stock.
It is therefore agreed as follows:
1. Transfer of Assets.
1.1 Acquired Assets. Upon the terms and subject to the conditions
contained in this agreement, the Seller is hereby transferring and assigning to
the Buyer the following assets and rights owned and used by the Seller (all of
such assets are referred to as the "Acquired Assets"), free and clear of any and
all liens or other encumbrances ("Liens") except Permitted Liens (as hereinafter
defined):
(a) all Seller's accounts receivable, notes receivable, drafts or other
similar instruments;
(b) all inventory, including but not limited to finished goods, work in
process, raw materials and supplies (including, without limitation, all
proprietary products held for sale by Seller), including without limitation the
items listed on Schedule 1.1;
(c) the Seller's prepaid security deposits listed on Schedule 1.1 and up
to $8,000 in total of xxxxx cash balances maintained at Seller's facilities;
(d) all Seller's machinery, equipment, tools and dies, hand tools,
vehicles, computers and other data processing hardware (and all software related
thereto or used therewith) and other tangible personal property of similar
nature;
(e) all Seller's office furniture, office equipment, fixtures and other
tangible personal property of similar nature;
(f) interests to the extent owned by the Seller in any patent, copyright,
trademark, trade name, brand name, service xxxx, logo, symbol, trade dress,
design or representation or expression of any thereof, or registration or
application for registration thereof, or any other invention, trade secret,
technical information, know-how, proprietary right or intellectual property,
technologies, methods, designs, drawings, software (including
documentation and source code listings), processes and other proprietary
properties or information, including, without limitation, the name "Xxxxxxxxx
Xxxxxxx" and all variations thereof and all similar names and the goodwill
associated therewith, together with all trademarks, service marks and trade
names of the Seller relating thereto (collectively, the "Intellectual Property
Assets"); provided, however, that the term "Intellectual Property Assets" shall
not include any software, hardware or network servers owned by The Xxxx Group,
LLC related to the Citrix initiative undertaken on behalf of the Seller.
(g) all leases, agreements and other rights to use, occupy or possess, or
otherwise, with respect to machinery, equipment, vehicles and other tangible
personal property of similar nature to which the Seller is a party, and all
rights arising under or pursuant to such leases, agreements and rights, except
for Licenses (as such term is hereinafter defined) that cannot be transferred by
the Seller;
(h) all alterations, fixtures, trade fixtures and personal property
relating to the Leases (as hereinafter defined) to the extent owned by the
Seller;
(i) all of the Seller's contracts, agreements, options, commitments,
licenses, leases, instruments and other understandings (including the
Transferred Plans as defined in Section 7.7) (collectively, "Assumed
Contracts"), except Excluded Contracts (as such term is hereinafter defined);
(j) the Seller's customer and supplier lists, mailing lists, catalogs,
brochures and handbooks;
(k) other books, records, files, plans, notebooks, production and sales
data and other data of the Seller, whether or not in tangible form or in the
form of intangible computer storage media such as optical disks, magnetic disks,
tapes and all similar storage media; and
(l) the insurance policies listed and described on Schedule 1.1.
For purposes of this agreement, "Permitted Liens" means (a) mechanics,
materialmen's, carrier's, repairer's, construction and other Liens arising from
or incurred in the ordinary course of business or that are not yet due and
payable or are being contested in good faith (including, without limitation,
Liens created in connection with the matters that are the subject of the Chicago
Reimbursement, as such term is hereinafter defined); (b) Liens for Taxes not yet
due and payable or which are being contested in good faith; (c) encumbrances and
restrictions on real property (including easements, covenants, rights of way and
similar restrictions of record) that do not materially interfere with the
present uses of such real property; and (d) Liens described on Schedule 1.1.
1.2 Excluded Assets. The only assets of the Seller that the Buyer is not
acquiring hereby are (i) the consideration to be delivered to the Seller for the
Acquired Assets; (ii) any insurance policies or rights under such policies
(including any prepaid premiums, held by the Seller), other than the insurance
policies (A) related to the Transferred Plans, or (B) described on Schedule 1.1;
(iii) the certificate of incorporation and all other corporate and
capitalization records of the Seller; (iv) any equity interest in the Seller;
(v) the software, hardware and network servers listed on Schedule 1.2, owned by
The Xxxx Group, LLC related to
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the Citrix initiative undertaken on behalf of the Seller; (vi) cash and cash
equivalents (except for up to $8,000 in total of xxxxx cash balances maintained
at Seller's leased facilities); (vii) the Seller's contracts, agreements,
options, commitments, licenses, leases, instruments and other understandings
listed on Schedule 1.2; (viii) any Employee Benefit Plan and related trust
assets not included as a Transferred Plan ((vii) and (viii) hereto collectively
the "Excluded Contracts"); (ix) Licenses of the Seller that cannot be
transferred by the Seller; and (x) bank, investment and other accounts relating
to cash and cash equivalents.
1.3 Assumption of Liabilities. Subject to the terms and conditions of this
agreement, Buyer is assuming and will perform and discharge when due all of the
following liabilities (the "Assumed Liabilities"):
(a) the Seller Prepaid Services Liability (as such term is defined in
Section 2.3);
(b) all liabilities to purchase goods in accordance with the terms of the
open purchase orders set forth in Schedule 4.13;
(c) all liabilities first arising after the date hereof ("Closing Date"),
under and pursuant to the Assumed Contracts;
(d) the obligation to sell goods and/or provide services in accordance
with the terms of the sales order set forth in Schedule 4.13;
(e) the liabilities related to employees and employee benefit matters to
the extent expressly assumed by the Buyer pursuant to Section 7.7 hereof;
(f) all liabilities to customers for the refund of the purchase price to,
and/or exchange of products with, customers who return products sold by Seller,
whether or not sold prior to the Closing Date;
(g) all liabilities that arise on account of Buyer Group's conduct of the
business of Seller, Buyer's use of the Acquired Assets and the sale of products
by Buyer Group, in each case first arising after the Closing Date;
(h) the trade accounts payable and accrued expenses set forth in Schedule
1.3(h) or incurred subsequent to April 21, 2004, all of which were incurred in
the ordinary course of business consistent with prior practice (and which do
include any liability to any affiliated party); and
(i) all liabilities under the Leases assigned to Buyer under this
agreement.
2. Purchase Price
2.1 Purchase Price. The consideration for the Acquired Assets is (such
consideration is the "Purchase Price"): (a) $4,000,000 in cash, subject to
adjustment pursuant to Section 2.3 and Section 2.5 (the "Cash Payment"); (b) a
$1,000,000 promissory note to the order of the Seller in the form of Exhibit A
(the "Promissory Note"); (c) 3,250 shares of the Parent's
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Series A Preferred Stock (the "Preferred Shares") having the rights and
privileges set forth in the certificate of designation attached as Exhibit B
(the "Certificate of Designation"), which sets forth a liquidation preference of
$1,000 per share; and (d) $299,266.07 for the Chicago Reimbursement (as such
term is hereinafter defined).
2.2 Estimated Closing Statement. The Seller has delivered to the Buyer a
written statement (the "Estimated Closing Statement") setting forth the
estimated Seller Prepaid Services Liability (as defined below) as of the Closing
Date. "Seller Prepaid Services Liability" means the remaining balance on all
series, gift certificates and cards and prepaid debit cards of the Seller
outstanding on the Closing Date.
2.3 Closing Payments and Deliveries.
Concurrently herewith, Buyer is
(a) Paying to the Seller by wire transfer an amount equal to the Cash
Payment, as adjusted by either (i) if the Seller Prepaid Services Liability
exceeds $8,974,703 (the "Target Prepaid Services Liability"), then subtracting
from the Cash Payment 35% of the excess of the Seller Prepaid Services Liability
over the Target Prepaid Services Liability; or (ii) if the Target Prepaid
Services Liability exceeds the Seller Prepaid Services Liability, then adding to
the Cash Payment 35% of the excess of the Target Prepaid Services Liability over
the Seller Prepaid Services Liability;
(b) Delivering the Promissory Note to the Seller;
(c) Delivering to the Seller certificates representing the Preferred
Shares registered in the name of the Seller; and
(d) Paying to the Seller by wire transfer an amount equal to $299,266.07
for the Chicago Reimbursement. "Chicago Reimbursement" means all amounts paid or
incurred by the Seller in connection with the remodeling of the leased facility
in Chicago, Illinois subsequent to February 20, 2004 that are reflected on
invoices or other demonstrable payment obligations of the Seller and that are
listed on Schedule 2.3(d) hereto.
2.4 Final Closing Statement. Within ten business days after the Closing
Date, the Seller shall deliver to the Buyer a written statement (the "Final
Closing Statement") that shall set forth the Seller Prepaid Services Liability
as of the Closing Date.
2.5 Changes to the Purchase Price.
(a) Not more than 45 days after the Closing Date, the Buyer may notify the
Seller in writing (a "Dispute Notice") that the Buyer disputes the amount of the
Seller Prepaid Services Liability set forth on the Final Closing Statement. In
the event that the Buyer and the Seller shall fail to agree on the final amount
of the Seller Prepaid Services Liability within 15 days after the Seller shall
have been given the Dispute Notice, then the national office of McGladrey &
Xxxxxx, LLP (or such other national accounting firm as may be agreed to by the
parties) (the "Independent Auditor") shall determine such amount. The decision
of the Independent Auditor with respect to the final determination of the amount
of the Seller Prepaid
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Services Liability shall be final and binding on all parties hereto. The costs
and expenses of the Independent Auditor shall be borne equally by the Buyer
Group and Seller.
(b) In the event that the amount of the Seller Prepaid Services Liability
set forth on the Final Closing Statement (as finally determined in accordance
with Section 2.5(a)) exceeds the amount of the Seller Prepaid Services Liability
set forth on the Estimated Closing Statement, the Seller shall promptly
following such determination pay to the Buyer by certified check or wire
transfer of immediately available funds an amount equal to 35% of the amount by
which the Seller Prepaid Services Liability set forth on the Final Closing
Statement (as finally determined in accordance with Section 2.5(a)) exceeds the
amount of the Seller Prepaid Services Liability set forth on the Estimated
Closing Statement.
(c) In the event that the amount of the Seller Prepaid Services Liability
set forth on the Estimated Closing Statement exceeds the amount of the Seller
Prepaid Services Liability set forth on the Final Closing Statement (as finally
determined in accordance with Section 2.5(a)), the Buyer shall promptly
following such determination pay to the Seller by certified check or wire
transfer of immediately available funds an amount equal to 35% of the amount by
which the Seller Prepaid Services Liability set forth on the Estimated Closing
Statement exceeds the amount of the Seller Prepaid Services Liability set forth
on the Final Closing Statement (as finally determined in accordance with Section
2.5(a)).
2.6 Access to Records. From and after the Closing, the Buyer agrees to
permit the Seller, the Seller's accountants and their respective
representatives, during normal business hours, to have reasonable access to, and
to examine and make copies of, all books and records of the Seller transferred
to the Buyer pursuant to this agreement, which documents and access are
necessary to prepare and review the Final Closing Statement to be delivered by
the Seller in accordance with Section 2.4. The Seller similarly agrees to permit
the Buyer, the Buyer's accountants and their respective representatives, during
normal business hours, to have reasonable access to any books and records of the
Seller which do not constitute Acquired Assets, in order to enable them to
review the Final Closing Statement or for other bona fide reasons.
2.7 Prorations. The following prorations relating to the Acquired Assets
are being made as of the Closing Date, with the Seller liable to the extent such
items relate to any time period up to and including the Closing and the Buyer
liable to the extent such items relate to periods subsequent to the Closing.
Except as otherwise specifically provided herein, the net amount of all such
prorations will be settled and paid within ten business days after the Closing
Date.
(a) Personal property taxes, real estate taxes and assessments, and other
taxes, if any, on or with respect to the Acquired Assets; provided that special
assessments for work actually commenced or levied prior to the Closing Date
shall be paid by the Seller;
(b) Rents, additional rents, taxes and other items payable by the Seller
under any lease, license, permit, contract or other agreement or arrangement to
be assigned to or assumed by the Buyer, including, without limitation, all
"percentage rent" or similar provision under and pursuant to the Leases;
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(c) The amount of rents, taxes and charges for sewer, water, fuel,
telephone, electricity and other utilities; provided that if practicable, meter
readings shall be taken at the Closing Date and the respective obligations of
the parties determined in accordance with such readings;
(d) prepaid premiums on the insurance policies included in the Acquired
Assets; and
(e) All other items normally adjusted in connection with similar
transactions to
the extent such items do not constitute Assumed Liabilities.
If the actual expense of any of the above items for the billing period
within which the Closing Date falls is not known within ten business days after
the Closing Date, the proration shall be made based on the expense incurred in
the previous billing period, for expenses billed less often than quarterly, and
on the average expense incurred in the preceding three billing periods, for
expenses billed quarterly or more often. The Seller agrees to furnish the Buyer
with such documents and other records as shall be reasonably requested in order
to confirm all proration calculations.
2.8 Allocation of Purchase Price. The Purchase Price shall be allocated
among the Acquired Assets in accordance with their relative fair market value as
reasonably determined by the Buyer and approved by the Seller, such approval not
to be unreasonably withheld, and the parties shall be bound by such allocation
for all purposes, including determining any Tax, and the parties shall prepare
and file all of their respective Tax Returns in a manner consistent with such
allocations. The parties agree to execute an IRS Form 8594 asset acquisition
statement setting forth the agreed upon allocation of the Purchase Price among
the Acquired Assets. In the event that any allocation is questioned, audited or
disputed by any Taxing Authority, the party receiving notice shall promptly
notify and consult with the other party concerning the strategy for the
resolution thereof, and shall keep the other party apprised of the status or
such question, audit or dispute and the resolution thereof.
3. Closing. The closing of the transactions contemplated by this agreement
(the "Closing") is taking place at the offices of Jenkens & Xxxxxxxxx Xxxxxx
Xxxxxx LLP, counsel to the Buyer and the Parent on April 23, 2004.
4. Representations and Warranties of the Shareholders and the Seller. The
Shareholders and the Seller, jointly and severally, represent and warrant to the
Buyer as follows:
4.1 Organization. The Seller is a corporation duly incorporated, validly
existing and in good standing under the laws of the state of Delaware and has
all requisite corporate power and authority to: (a) conduct its business as it
is being conducted; (b) perform its obligations under this agreement and each
other document to be executed and delivered pursuant to this agreement
(collectively, with this agreement, the "Transaction Documents"); and (c)
consummate the transactions contemplated by each Transaction Document to which
it is a party. The Seller is qualified or licensed to do business in each
jurisdiction listed on Schedule 4.1, which are the only jurisdictions where the
nature of its business or assets requires such qualification or licensing
(except where the failure to be so qualified or licensed would not result
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in a material adverse effect on the business, financial condition, properties,
prospects, assets and liabilities of the Seller taken as a whole (a "Seller
Material Adverse Effect")). The Shareholders have heretofore delivered to the
Buyer true and correct copies of the certificate of incorporation and bylaws of
the Seller, as presently in effect.
4.2 Capitalization; No Subsidiaries. Schedule 4.2 sets forth the names of
all of the beneficial and record owners of the shares of common stock of the
Seller and the number of shares held by each such owner. The shares of common
stock of the Seller owned of record and beneficially by the Shareholders are
owned free and clear of all Liens. Except as set forth on Schedule 4.2, no
person has any options or other right to acquire any capital stock of the
Seller. The Seller does not own any equity interest in any entity.
4.3 Authorization; Validity of Agreement.
(a) The Seller has duly authorized this agreement and each of the other
Transaction Documents to which it is a party.
(b) This agreement and each other Transaction Document to which the Seller
is a party has been duly executed and delivered by the Seller.
(c) The execution and delivery of this agreement and the performance of
the Seller's obligations hereunder have been duly authorized by all necessary
corporate action by the Board of Directors and shareholders of the Seller, and
no other corporate proceedings on the part of the Seller or its shareholders are
necessary to authorize such execution, delivery and performance. This agreement
and each other Transaction Document to which the Seller or any Shareholder is a
party is a valid and binding obligation of the Seller and Shareholders,
respectively, enforceable against each in accordance with their respective
terms, except as enforceability may be limited by bankruptcy, insolvency,
reorganization, moratorium and similar laws relating to or affecting creditors
rights generally or by general equitable principles (regardless of whether such
enforceability is considered in a proceeding in equity or at law).
4.4 No Violations; Consents and Approvals.
(a) The performance by the Seller of its obligations under this agreement
and the other Transaction Documents to which it is a party does not and will
not: (i) violate any provision of the certificate of incorporation or bylaws of
the Seller; (ii) result in a breach or default (or give rise to any right of
termination, amendment, cancellation or acceleration) under any of the terms of
any Assumed Contract to which the Seller is a party or by which any of the
Acquired Assets are bound or otherwise subject; or (iii) violate any order,
statute, rule or regulation applicable to the Seller or any Acquired Asset.
(b) Except as set forth on Schedule 4.4, no filing with, notification to,
or authorization of, any governmental entity or regulatory authority (each, a
"Governmental Entity") is required in connection with the performance by the
Seller of its obligations under this agreement or any other Transaction Document
to which the Seller is a party or the consummation of the transactions
contemplated hereby and thereby.
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(c) Except as set forth on Schedule 4.4, no filing with, notice to or
consent of (collectively, "Consents") any individual or entity (each, a
"Person") is required to be made or obtained by the Seller in connection with
the performance by the Seller of this agreement or any other Transaction
Document to which the Seller is a party or the consummation of the transactions
contemplated hereby and thereby.
4.5 Financial Statements.
(a) (i) The audited balance sheet of the Seller as at December 31, 2001
and the related statement of operations, cash flows and stockholders' equity of
the Seller for the one-year period ended December 31, 2001, together with the
notes and schedules thereto and accompanied by the report of Xxxxx Xxxxxxxx LLP
thereon, a copy of each of which has been delivered to the Buyer, fairly present
in all material respects the financial condition of Seller as of the date of
such balance sheet and the results of its operations and cash flows for the
periods covered by such statement of operation and have been prepared in
accordance with generally accepted accounting principles as in effect as of the
date such financial statements were prepared, consistently applied ("GAAP"). The
unaudited balance sheets of the Seller at December 31, 2002 and 2003 (said
December 31, 2003 balance being referred to herein as the "Balance Sheet" and
December 31, 2003 being referred to herein as the "Balance Sheet Date") and the
related statements of operations, cash flows and stockholders' equity of the
Seller for the one-year periods ended on the respective dates of such balance
sheets, a copy of each of which has been delivered to the Buyer, fairly present
in all material respects the financial condition of Seller as of the date of
each such balance sheet and the results of its operations and cash flows for the
periods covered by such statements of operation, and have been prepared on a
basis consistent with prior years.
(ii) The books of account and other records of the Seller and its
subsidiaries, all of which have been made available to the Buyer, are
complete and correct and have been maintained in accordance with sound
business practices.
4.6 No Material Adverse Change. Since the Balance Sheet Date, and except
as set forth on Schedule 4.6 or as contemplated by this agreement:
(a) no event, condition or circumstance has occurred that would, or would
be reasonably likely to, have a Seller Material Adverse Effect;
(b) the business of the Seller has been conducted in the ordinary course
and consistent with past practice;
(c) there has not been:
(i) to the Seller's knowledge, any material adverse change in the
relationships of the Seller with its licensees, customers, suppliers,
payors, reimbursers, and/or persons or organizations that refer business
to it;
(ii) any material damage, destruction or casualty loss (whether or
not covered by insurance) suffered by the Seller;
8
(iii) any transaction material to the business or the assets of the
Seller, except in the ordinary course of business;
(iv) any employment agreement or deferred compensation agreement
entered into between the Seller and any of its employees providing for
payments in excess of $25,000;
(v) any increase, not in the ordinary course of business, in the
compensation payable or to become payable by the Seller or the adoption of
any new (or amendment to or alteration of any existing) Employee Benefit
Plan or bonus, incentive, compensation, pension, stock, matching gift,
profit sharing, retirement, death benefit or other fringe benefit plan;
(vi) any increase in the aggregate indebtedness for borrowed money
or any increase in purchase commitments or other liabilities or
obligations (whether absolute, accrued, contingent or otherwise) incurred
by the Seller, except for liabilities, commitments and obligations
incurred in the ordinary course of business consistent with past practice;
(vii) any Lien created on any of the assets of the Seller, other
than Permitted Liens;
(viii) any material labor dispute involving the employees of the
Seller;
(ix) any sale, assignment, transfer or other disposition or license
of any material tangible or intangible assets of the Seller, other than
the sale of inventory in the ordinary course of business consistent with
past practice;
(x) any amendment, termination or waiver by the Seller of any right
of substantial value belonging to it;
(xi) any capital expenditure or commitment by the Seller not fully
paid for except in the ordinary course of business consistent with past
practice and not exceeding $50,000 in the aggregate; or
(xii) any agreement by the Seller to do any of the foregoing; and
(d) the Seller has not:
(i) made any change in any method of accounting or accounting
practice, principle or policy; incurred any indebtedness, obligation or
liability or paid, satisfied or discharged any indebtedness, obligation or
liability prior to the due date or maturity thereof, except current
indebtedness, obligations and liabilities in the ordinary course of
business consistent with past practice; or
(ii) made any change or modification in any manner of its: (A)
billing and collection policies, procedures and practices with respect
9
to accounts receivable or unbilled charges; (B) policies, procedures and
practices with respect to the provision of discounts, rebates or
allowances; or (C) payment policies, procedures and practices with respect
to accounts payable.
4.7 No Undisclosed Liabilities. Except as set forth on Schedule 4.7, to
the Seller's knowledge, the Seller has no liabilities (whether accrued or
unaccrued, absolute or contingent, liquidated or unliquidated, due or to become
due or otherwise) other than those that are set forth or reserved against in the
Balance Sheet or that were incurred since the dates of the Balance Sheet in the
ordinary course of business, none of which, individually or in the aggregate
would have a Seller Material Adverse Effect.
4.8 Legal Proceedings; Compliance with Law; Licenses.
(a) Except as set forth on Schedule 4.8, there is no claim or other
proceeding or investigation ("Proceeding") pending or, to the Seller's
knowledge, threatened that involves or affects the Seller or the Acquired Assets
by or before any Governmental Entity or any other Person.
(b) The Seller is in compliance with all applicable statutes, orders,
laws, permits and other rules and regulations of all Governmental Entities
(collectively, "Laws"), including but not limited to Laws relating to Taxes;
occupational safety and health; sanitary and hygiene; hiring, wages, hours, and
programs, and the manufacture, sale and promotion of products and services
offered and/or sold by it, except where non-compliance would not have a Seller
Material Adverse Effect. Since July 18, 1998, (i) the Seller has not received
any written notice from any Governmental Entity of any violation of any Law
relating to its business or personnel and (ii) there has been no product
liability claim relating to the sale of products by Seller or any communication
from any regulatory authority with respect to the sale or promotion thereof
which relates to a violation or potential violation of any Laws.
(c) The Seller has every license, permit, certification, qualification or
franchise required by any Governmental Entity (each, a "License") for the Seller
to conduct its business as currently conducted, except where the failure to have
such Licenses would not result in a Seller Material Adverse Effect. All of such
Licenses of the Seller are listed on Schedule 4.8, are in full force and effect,
and the Seller has not received notice of any proposed cancellation or
suspension of any such License nor, to the Seller's knowledge, is any
cancellation or suspension of any License threatened.
4.9 Employee Benefit Plans; ERISA.
(a) Schedule 4.9(a) contains a complete and accurate list of all Employee
Benefit Plans. For purposes of this agreement, "Employee Benefit Plan" means any
"employee pension benefit plan" (as defined in Section 3(2) of the Employee
Retirement Income Security Act of 1974, as amended ("ERISA")), any "employee
welfare benefit plan" (as defined in Section 3(1) of ERISA), and any other
written or oral plan, agreement or arrangement involving direct or indirect
compensation (other than payroll) or any other employee benefit of any kind,
including without limitation insurance coverage, severance benefits, disability
benefits, deferred compensation, bonuses, stock options, stock purchase, phantom
stock, stock appreciation or other forms of incentive compensation or
post-retirement compensation, whether formal or
10
informal, funded or unfunded, and whether or not legally binding, which the
Seller on or before the Closing, has sponsored, maintained or contributed to or
been required to contribute to or has had any obligation, for the benefit of any
present or former Shareholders, employees, retirees, directors or independent
contractors (or their beneficiaries, dependents or spouses) of the Seller, and
for which a liability of the Seller of any nature, contingent or otherwise
currently exists, or for which there is a reasonable expectation of such
obligation or liability. Except as disclosed on Schedule 4.9(a), complete and
accurate copies of the following documents for each Employee Benefit Plan have
been delivered to the Buyer by Seller: (A) any Employee Benefit Plans which have
been reduced to writing and any related amendments, (B) written summaries of any
unwritten Employee Benefit Plan, (C) any related trust agreement, insurance
contract annuity contract or other funding agreement (including all amendments
thereto) and any summary plan description required under ERISA, including any
modification communicated to or required to be communicated to any participant,
(D) any annual report filed or required to be filed on Internal Revenue Service
("IRS") Forms 5500, 5500-C or 5500-R and all related schedules for the last
three years immediately before the year of the Closing, (E) the most recent
determination letter with respect to any Employee Benefit Plan, if any, and the
full and complete application thereof submitted to the IRS, any actuarial report
and any financial statements prepared or issued with respect to any Employee
Benefit Plan, (F) any collective bargaining agreement pursuant to which
contributions have been made or obligations incurred (including both pension and
welfare benefits) by the Seller, and any collective bargaining agreement
pursuant to which contributions are being made or obligations are owed by the
Seller, (G) any contract in effect relating to any Employee Benefit Plan,
including contracts or agreements with any third party administrator, actuary,
investment manager, consultant, or other independent contractor and any
insurance agreements, including stop-loss agreements, (H) any notification and
election forms used to notify any former or active employee of the Seller (or
their beneficiaries, dependents or spouses) of his or her continuation coverage
rights under any group health plan, including without limitation his or her
rights under ERISA ss.601 et seq. and Section 4980B of the Code, and (I) any
communication to any participant relating to any Employee Benefit Plan in
connection with any amendment, termination, establishment, increase or decrease
in benefits, acceleration or deceleration of payments, vesting schedules or
other events which would result in any liability to the Seller.
(b) Except as disclosed on Schedule 4.9(b), each Employee Benefit Plan has
been administered in all material respects in accordance with its terms and in
compliance with all applicable Laws, statutes, orders, rules and regulations,
including, without limitation, ERISA and the Code, and the Seller has met its
obligations under applicable provisions of ERISA and the Code and the
regulations thereunder, and other applicable Laws with respect to such Employee
Benefit Plan and has made all required contributions thereto.
(c) Except as disclosed on Schedule 4.9(c), benefits under each Employee
Benefit Plan which is an employee welfare benefit plan are fully insured by an
insurance company unrelated to Seller.
(d) Except as disclosed on Schedule 4.9(d), all the Employee Benefit Plans
that are intended to be qualified under Section 401(a) of the Code have received
determination letters from the IRS to the effect that such Employee Benefit
Plans are qualified and the plans and the trusts related thereto are exempt from
federal income Taxes under Sections 401(a) and
11
501(a), respectively, of the Code. Such IRS determination letters cover all
amendments to the Code effected by the Tax Reform Act of 1986 and subsequent
legislation. No such determination letter has been revoked and revocation has
not been threatened and nothing has occurred which would cause the loss of such
qualification. No such Employee Benefit Plan has been amended since the date of
its most recent determination letter in any respect, and no act or omission has
occurred, that would adversely affect its qualification.
(e) Each Employee Benefit Plan sponsored by the Seller which is intended
to be qualified under the Code has, since January 1, 2001, received an opinion
letter from the IRS concerning the qualified status of such Employee Benefit
Plan, and, except as described on Schedule 4.9(e), no event has occurred which
would have a material adverse effect on the qualified status of any such
Employee Benefit Plan.
(f) The Seller has never sponsored, maintained, contributed to or was or
is required to contribute to, or has any obligation whatsoever relating to, or
reasonably expects to incur an obligation relating to, an Employee Benefit Plan
subject to Section 412 of the Code or Title IV of ERISA. At no time has the
Seller sponsored, maintained, contributed to or was or is required to contribute
to, or has any obligation whatsoever relating to, or reasonably expects to incur
an obligation relating to, any "multiemployer plan" (as defined in Section
4001(a)(3) of ERISA).
(g) No Employee Benefit Plan is funded by, associated with, or related to
a "voluntary employee's beneficiary association" within the meaning of Section
501(c)(9) of the Code, a "welfare benefit fund" within the meaning of Section
419 of the Code, a "qualified asset account" within the meaning of Section 419A
of the Code or a "multiple employer welfare arrangement" within the meaning of
Section 3(40) of ERISA. No Employee Benefit Plan which is an employee welfare
benefit plan is a multiemployer plan.
(h) The Seller has not violated the health care continuation requirements
of the Consolidated Omnibus Reconciliation Act of 1985, as amended ("COBRA"), or
any amendment to COBRA, or any similar provisions of state Law applicable to its
employees. The Seller has in all instances in the last thirty-six (36) months
reserved the right to provide an administrative fee of two percent (2%) or fifty
percent (50%), as applicable under COBRA.
(i) Except as described on Schedule 4.9(i), no action or omission of the
Seller or any Shareholder, director, officer, employee, or agent thereof, and no
plan documentation or agreement, summary plan description or other written
communication distributed generally to employees, in any way restricts, impairs
or prohibits (whether legally binding or not) the Seller from amending, merging,
terminating or otherwise discontinuing any Employee Benefit Plan in accordance
with the express terms of any such plan and applicable Law at or after Closing.
No agreement, arrangement, commitment, understanding or plan documentation or
other written communication distributed generally to employees exists to create
any additional Employee Benefit Plan.
(j) None of the assets of any Employee Benefit Plan is or has been
invested in any property constituting employer real property or any employer
security within the meaning of Section 407(d) of ERISA.
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(k) Schedule 4.9(k) provides a complete list of each: (i) written
agreement with any present or former Shareholder, employee, retiree, director or
independent contractor (or their beneficiaries, dependents or spouses) of the
Seller (A) the benefits of which are contingent, or the terms of which are
materially altered, upon the occurrence of a transaction involving the Seller of
the nature of any of the transactions contemplated by this Agreement, (B)
providing any term of employment or compensation guarantee or (C) providing
severance benefits or other benefits after the termination of such person; and
(ii) agreement, plan or arrangement, including without limitation any stock
option plan, stock appreciation right plan, restricted stock plan, stock
purchase plan, severance benefit plan, or any Employee Benefit Plan, any of the
benefits of which will be increased, or the vesting of the benefits or time of
payment of which will be accelerated, by the occurrence of any of the
transactions contemplated by this Agreement or the value of any of the benefits
of which will be calculated on the basis of any of the transactions contemplated
by this Agreement.
(l) Except as disclosed in Schedule 4.9(l), no Employee Benefit Plan
provides that any of the benefits under any such Employee Benefit Plan will be
increased, nor will the vesting of the benefits under such Employee Benefit
Plans be accelerated, by the occurrence of any of the transactions contemplated
by this agreement nor will the value of any of the benefits under the Employee
Benefits Plans described in the directly preceding sentence of this section be
calculated on the basis of any of the transactions contemplated by this
Agreement and no payments under any such Employee Benefit Plans or other
agreement will be parachute payments under Section 280G of the Code that are
non-deductible to the Seller or Buyer or be subject to Taxes under Section 4999
of the Code.
(m) No act or omission has occurred and no condition exists with respect
to any employee benefit plan (not including Transferred Plans, as defined in
Section 7.7 of this agreement) of an ERISA Affiliate that would subject Buyer to
any fine, penalty, Tax or liability of any kind imposed under ERISA, the Code or
any other applicable Law and no such liability is anticipated and no basis for
such liability exists. For purposes of this Agreement, ERISA Affiliate means any
entity which is, or ever has been, a member of (i) a controlled group of
corporations (as defined in Section 414(b) of the Internal Revenue Code of 1986,
as amended ("Code")), (ii) a group of trades or businesses under common control
(as defined in Section 414(c) of the Code), or (iii) an affiliated service group
(as defined under Section 414(m) of the Code or the regulations under Section
414(o) of the Code), any of which includes or included the Seller.
(n) None of the Employee Benefit Plans is currently, or has ever been,
under investigation, audit or review by the DOL, the IRS, the PBGC or any other
federal or state agency, and no such investigation, audit or review is pending
or anticipated. None of the Employee Benefit Plans is liable, or ever has been
liable, for any federal, state, local or foreign Taxes except as may be due in
the ordinary course of administration of such Employee Benefit Plan, and no such
Tax is anticipated and no basis for such Tax exists. There is no transaction nor
has there ever been any transaction in connection with the Seller, any fiduciary
of an Employee Benefit Plan who is an employee of the Seller, or, to the
knowledge of Seller, any fiduciary of an Employee Benefit Plan who is not an
employee of Seller, which could subject Seller to either a civil penalty
assessed pursuant to ERISA Section 502, a Tax imposed by Section 4975 of the
13
Code or liability for a breach of fiduciary responsibility under ERISA, and, to
the knowledge of Seller, no basis for any such liability exists.
(o) There are no pending or threatened claims, actions, suits, grievances,
audits, investigations, or other proceedings, involving, directly or indirectly,
any Employee Benefit Plan, any fiduciary thereof who is an employee of the
Seller or, to the knowledge of Seller, any fiduciary thereof who is not an
employee of the Seller, or any rights or benefits thereunder (except claims for
benefits payable in the normal operation of the Employee Benefit Plan and
proceedings with respect to qualified domestic relations orders), and, to the
knowledge of Seller, no basis for any such proceeding exists.
(p) Neither the Seller, nor any Employee Benefit Plan, nor any fiduciary
of an Employee Benefit Plan who is an employee of the Seller, nor, to the
knowledge of Seller, any fiduciary of an Employee Benefit Plan who is not an
employee of the Seller, has engaged in any transaction in violation of Section
406(a) or (b) of ERISA or any nonexempt "prohibited transaction" (as defined in
Section 4975(c)(1) of the Code) which could subject the Seller or Buyer to any
Taxes, penalties or other liabilities resulting from such nonexempt prohibited
transaction.
(q) Except as disclosed on Schedule 4.9(q), there are no unfunded
obligations which have subjected or could subject the Seller to any liability or
obligation under any Employee Benefit Plan providing benefits after termination
of employment of any Shareholder, employee, former employee, retiree, director
or independent contractor (or their beneficiaries, dependents or spouses) of the
Seller, including but not limited to, any retiree health coverage and deferred
compensation, but excluding continuation of health coverage required to be
continued under Section 4980B of the Code ("COBRA") or similar state law or
insurance conversion privileges under state Law. No written or oral
representations have been made to any Shareholder, employee, former employee,
retiree, director or independent contractor (or their beneficiaries, dependents
or spouses) of the Seller promising or guaranteeing any employer payment or
funding for the continuation of medical, dental or disability coverage after
termination of employment or services beyond that legally required.
(r) Full payment has or will, prior to the Closing, been made of all
amounts which the Seller is directly or indirectly required, under applicable
Law, the terms of any Employee Benefit Plan or any agreement relating to any
Employee Benefit Plan to have paid as a contribution, premium or other
remittance thereto or benefit thereunder if such payment has a deadline on or
before the Closing Date. The Seller has made adequate provisions for reserves or
accruals in accordance with GAAP to meet contribution, benefit or funding
obligations arising under applicable Law or the terms of any Employee Benefit
Plan or related agreement. There will be no change on or before the Closing Date
in the operation of any Employee Benefit Plan or any documents with respect
thereto which will result in an increase in the benefit under such plans, except
as may be required by applicable Law.
(s) Except as disclosed on Schedule 4.9(s), each Employee Benefit Plan
that can be terminated as provided in Section 4.9(i) can be terminated within
thirty (30) days of the Closing Date, without payment of any additional
contribution or amount and without creating
14
any unfunded or unaccrued liability or the vesting or acceleration of any
benefits promised by such plan.
(t) Each Employee Benefit Plan covers only employees of the Seller (or
former employees or beneficiaries with respect to service with the Seller), so
that the transaction contemplated by this agreement will require no spin-off of
assets or other division or transfer of rights with respect to any such plan.
(u) The Seller does not, nor has ever had, the obligation to maintain,
establish, sponsor, participate in, or contribute to any International Employee
Plan. "International Employee Plan" shall mean any Employee Benefit Plan
(determined without regard to whether such plan is subject to ERISA) that has
been adopted or maintained by the Seller, whether formally or informally, or
with respect to which the Seller will or may have any liability, for the benefit
of any present or former employees, retirees, directors or independent
contractors (or their beneficiaries, dependents or spouses) who perform services
outside of the United States.
4.10 Real Property.
(a) The Seller does not own any real property.
(b) Schedule 4.10 lists each real property lease including all amendments
and modifications thereto (the "Leases") under which the Seller occupies space
as tenant or subtenant. As used herein, the term "Leased Real Property" shall
mean the real property occupied by the Seller under the Leases. Seller has
heretofore delivered to the Buyer true and correct copies of all the Leases.
There is no real property of any kind whatsoever used by Seller in its business,
except for the Leased Real Property.
(c) The Seller is in possession of and quietly enjoys the Leased Real
Property, has a valid and enforceable leasehold interest therein (except as
enforceability may be limited by bankruptcy, insolvency, reorganization,
moratorium and similar laws relating to or affecting creditors rights generally
or by general equitable principles (regardless of whether such enforceability is
considered in a proceeding in equity or at law)) and holds all necessary
licenses, permits, authorizations and approvals relating to such Leased Real
Property, including duly issued certificates of occupancy, to enable the Leased
Real Property to be lawfully occupied and used for all purposes for which it is
presently occupied and such licenses, permits and approvals are in full force
and effect except where the failure to hold such licenses, permits,
authorizations or approvals would not result in a Seller Material Adverse
Effect. There has been no alteration, improvement or change in use of the Leased
Real Property which would require replacements of or amendments to the existing
licenses, permits, authorization and approvals. The Leases are in full force and
effect and Seller has not received any notice of default or termination
thereunder, and, to the Seller's knowledge, no event has occurred or failed to
occur that, with the giving of notice or the passage of time or both, would
constitute a default or termination event under any of the Leases. All rent and
other sums and charges payable by Seller under each Lease are current. Each
Lease represents the entire agreement between Seller and the applicable landlord
with respect to the applicable parcel of Leased Real Property. Seller has not
entered into any assignment, hypothecation or transfer of any Lease or any
interest therein. Seller has not entered into any sublease of all or any portion
of any parcel of Leased Real Property and no Person has
15
any right to occupy any Leased Real Property other than Seller. The commencement
date, expiration date, current fixed rent, current amount of each component of
additional rent, the dates fixed rent and additional rent have been paid through
and all renewal options and renewal option rents for each Lease as well as the
provider of each utility service to each parcel of Leased Real Property are set
forth on Schedule 4.10.
(d) Except as set forth on Schedule 4.10, there has been no service,
material or other work provided or supplied to the Leased Real Property that has
not been paid for in full. The Leased Real Property and its continued use,
occupancy and operation as currently used, occupied or operated does not violate
any applicable Laws except where such failure would not result in a Seller
Material Adverse Effect.
(e) As of the date hereof, the Leased Real Property, and the building
systems and equipment serving the Leased Real Property, including the plumbing,
electrical, mechanical, heating, ventilating, air conditioning and sprinkler
systems are operational and except as set forth in Schedule 4.10, Seller has not
written any Landlord with respect to any proposed deficiency therein. As of the
date hereof, electricity, water, gas and telephone service to the Leased Real
Property are installed, operating and have been adequate for the conduct of the
business of Seller in the ordinary course of business.
(f) Seller has not received notice from any insurance company or Board of
Fire Underwriters (or organization exercising functions similar thereto) or from
any owner, lessor, sublessor, or mortgagee requesting the performance of any
work or alteration to the Leased Real Property, and there are no outstanding
requirements or recommendations from any of the foregoing.
(g) Except as set forth on Schedule 4.10, there has been no material
damage to any portion of the Leased Real Property caused by fire or other
casualty that has not been completely repaired or restored.
(h) Seller is not a "foreign Person" for purposes of section 1445 of the
Code.
(i) There are no brokerage commissions due and payable by Seller with
respect to the Leased Real Property or with respect to the Leases.
4.11 Intellectual Property Assets. There are no outstanding or, to the
Seller's knowledge, threatened disputes or disagreements with respect to any
Intellectual Property Asset. Except as set forth on Schedule 1.1, the Seller is
the owner or licensee of all Intellectual Property Assets, free and clear of all
Liens, and has the right to use all of the Intellectual Property Assets without
payment to any Person.
(a) All of the trademarks included in the Intellectual Property Assets are
set forth on Schedule 1.1 ("Trademarks") and, except as set forth on Schedule
1.1, have been registered with the United States Patent and Trademark Office in
compliance with all applicable legal requirements (including the timely
post-registration filing of affidavits of use and incontestability and renewal
applications), are valid and enforceable, and are not subject to any maintenance
fees or taxes or actions falling due within ninety days after the Closing;
16
(b) Except as set forth on Schedule 1.1, none of the Trademarks has been
or is now involved in any opposition, invalidation proceeding, or cancellation
and, to the knowledge of Seller, no such action is threatened;
(c) to the knowledge of Seller, there are no trademarks of any third party
that interfere with Seller's use of its Trademarks;
(d) to the knowledge of Seller, no Trademark has been challenged or
threatened in any way;
(e) to the knowledge of Seller, none of the Trademarks infringes or is
alleged to infringe any Trademark of any third party; and
(f) all products bearing any of the Trademarks contain the proper
registration notice required by law.
4.12 Title to Acquired Assets. The Seller has good and marketable title to
all of the Acquired Assets, free and clear of all Liens other than Permitted
Liens.
4.13 Assumed Contracts. Schedule 4.13 includes a complete list of every
Assumed Contract material to the conduct of the Seller's business, including,
without limitation, each such material agreement to which the Seller is a party
with any employee, independent contractor or other Person who works in the
Seller's premises or otherwise provides services to the Seller. All of such
Assumed Contracts are in full force and effect, and to Seller's knowledge there
is no default of any party thereto. Except as set forth on Schedule 4.13, no
Consent from, or notice to, any Governmental Entity or other Person is required
in order to assign such Assumed Contracts to the Buyer as of the Closing.
4.14 Taxes.
(a) The Seller has: (i) duly and timely filed with the Internal Revenue
Service or other applicable Governmental Entity (collectively, "Taxing
Authorities") all Tax Returns that are required to be filed by the Seller, which
Tax Returns are complete and accurate; and (ii) duly and timely paid in full all
Taxes required to be paid.
(b) The Seller has not requested an extension of time within which to file
any Tax Return in respect of any Tax period which has not since been filed.
(c) Any assessment, deficiency or adjustment related to or in connection
with any Tax for which the Seller may be liable or with respect to the Seller's
income, sales, assets or business that is or was required to be reported to any
Tax Authority has been so reported, and any additional Taxes owed with respect
thereto have been paid.
(d) The statute of limitations for any Tax Proceeding or the assessment or
collection of any Tax for which the Seller may be liable or with respect to the
Seller's income, sales, assets or business has never been extended or waived.
17
(e) There is no outstanding subpoena or request for information or
documents from any Tax Authority with respect to any Tax for which the Seller is
or may be liable or with respect to the Seller's income, sales, assets or
business.
(f) The Seller has duly and timely complied with all applicable Laws
relating to the collection or withholding of Taxes, and the reporting and
remittance thereof to the applicable Taxing Authorities.
(g) No audit, examination, investigation, reassessment or other
administrative or court proceeding (each, a "Tax Proceeding") is pending,
proposed or threatened with regard to any Tax or Tax Return referred to in
clause (a) above.
(h) There is no outstanding request for a ruling from any Taxing
Authority, closing agreement (within the meaning of Section 7121 of the Code or
any analogous provision of applicable Law) relating to any Tax for which the
Seller may be liable or with respect to the Seller's income, assets or business,
power of attorney or adjustment related to, or in connection with, any Tax that
could result in a Lien on any asset of the Seller (except for Permitted Liens).
(i) None of the Acquired Assets is "tax-exempt bond financed property" or
"tax-exempt use property" within the meaning of Section 168(g) or (h),
respectively, of the Code or any similar provision of applicable Law.
(j) The Seller has not received notice of any claim made by a Taxing
Authority in a jurisdiction where the Seller has not paid any Tax or filed Tax
Returns asserting that the Seller may be subject to Tax in such jurisdiction.
(k) The Seller has provided to the Buyer Group true copies of all Tax
Returns and all audit reports relating to each proposed adjustment, if any, made
by any Taxing Authority with respect to any taxable period ending after December
31, 2000.
(l) As used herein:
(i) "Tax Return" means any return, declaration, report, claim for
refund or credit, information return or statement, and any amendment
thereto, including without limitation any consolidated, combined or
unitary return or other document (including any related or supporting
information), filed or required to be filed with any Taxing Authority in
connection with the determination, assessment, collection, payment, refund
or credit of any federal, state, local or foreign Tax or the
administration of any Laws relating to any Tax or ERISA; and
(ii) "Tax" or "Taxes" means any and all taxes, charges, fees,
levies, deficiencies or other assessments of whatever kind or nature
including, without limitation, all net income, gross income, profits,
gross receipts, excise, real or personal property, sales, ad valorem,
withholding, social security, retirement, excise, employment,
unemployment, minimum, estimated, severance, stamp, property, occupation,
environmental, windfall profits, use, service, net worth, payroll,
franchise, license, gains, customs, transfer, recording and other taxes,
customs duty, fees assessments or charges of any kind whatsoever, imposed
by
18
any Taxing Authority, including any liability therefor as a transferee
(including without limitation under Section 6901 of the Code or any
similar provision of applicable Law) or as a result of any Tax sharing or
similar agreement, together with any interest, penalties or additions to
tax relating thereto.
4.15 Affiliated Party Transactions. Except as set forth on Schedule 4.15,
no Person who controls, is controlled by or is under common control with (each
such Person, an "Affiliate") the Seller has, or since July 18, 1998 has had: (a)
any interest in any property used in or pertaining to the business of the
Seller; or (b) any equity interest or other financial or profit interest in any
Person that has: (i) had business dealings or a financial interest in any
transaction with the Seller; or (ii) engaged in competition with the Seller in
any market currently served by the Seller. Except as set forth on Schedule 4.15,
no Affiliate of the Seller is a party to any contract or agreement with, or has
any claim or rights against, the Seller.
4.16 Environmental Matters.
(a) Except as set forth on Schedule 4.16, the Seller is in compliance with
all Environmental Laws, has all required Environmental Permits and is in
compliance with the terms thereof; to the Seller's knowledge, no Site is a
treatment, storage or disposal facility, as defined in and regulated under the
Resource Conservation and Recovery Act, 42 U.S.C. ss. 6901 et seq., is on or
ever was listed or is proposed for listing on the National Priorities List
pursuant to the Comprehensive Environmental Response, Compensation and Liability
Act, 42 U.S.C. ss. 9601 et seq., or on any similar state list of sites requiring
investigation or cleanup; except for those Hazardous Substances used by Seller
in the ordinary course of its business, there has been no Release of a Hazardous
Substance at, from, in, to, on or under any Site caused in whole or in part by
Seller's business, except as authorized pursuant to and in material compliance
with applicable Environmental Laws; to the Seller's knowledge, there is no
condition existing at any Site for which investigation, removal or remediation
is required under any applicable Environmental Law; there are no outstanding or,
to the Seller's knowledge, pending corrective actions by any Governmental Entity
for the investigation, remediation or cleanup of any Site; the Seller's
Environmental Permits are in full force and effect; there are no past, pending,
or, to the Seller's knowledge, threatened Environmental Claims against the
Seller; the Seller has not transported or arranged for the treatment of any
Hazardous Substance to any off-Site location; there are no (i) underground
storage tanks, (ii) polychlorinated biphenyl containing equipment, or (iii)
asbestos containing material, on any Site; and there have been no environmental
investigations conducted by, on behalf of, or that are in the possession of the
Seller with respect to any Site or any treatment of any Hazardous Substance on
any Site.
(b) As used herein:
(i) "Environment" means all air, surface water, groundwater, or
land, including land surface or subsurface, including all fish, wildlife,
biota and all other natural resources;
(ii) "Environmental Claim" means any and all administrative or
judicial Proceedings pursuant to or relating to any applicable
Environmental Law by any Person relating to any actual or potential (x)
violation of or liability under
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any Environmental Law, (y) violation of any Environmental Permit, or (z)
liability for any costs or damages related to the presence, Release, or
threatened Release into the Environment, of any Hazardous Substances at
any location, including, but not limited to, any off-Site location to
which Hazardous Substances or materials containing Hazardous Substances
were sent by Seller for handling;
(iii) "Environmental Law" means any and all Laws relating to the
Environment;
(iv) "Hazardous Substance" means petroleum, petroleum hydrocarbons
or petroleum products, petroleum by-products, radioactive materials,
asbestos or asbestos-containing materials, gasoline, diesel fuel,
pesticides, radon, urea formaldehyde, lead or lead-containing materials,
polychlorinated biphenyls; and any other chemicals, materials, substances
or wastes in any amount or concentration which are now included in the
definition of "hazardous substances," "hazardous materials," "hazardous
wastes," "extremely hazardous wastes," "restricted hazardous wastes,"
"toxic substances," "toxic pollutants," "pollutants," "regulated
substances," "solid wastes," or "contaminants" or words of similar import,
under any Environmental Law;
(v) "Release" means any spilling, leaking, pumping, pouring,
emitting, emptying, discharging, injecting, escaping, leaching, dumping,
or disposing of a Hazardous Substance into the Environment; and
(vi) "Site" means any Leased Real Property.
4.17 No Brokers. Neither any Shareholder nor the Seller has engaged any
broker or finder or incurred any related costs in connection with the
transactions contemplated by this agreement.
4.18 Insurance. Attached to Schedule 4.18 is a summary of all policies of
insurance covering the Seller, all of which are in full force and effect. The
Seller has never been denied any insurance coverage which it has requested.
4.19 Delivery of Documents; Corporate Records. The Shareholders have
delivered to the Buyer true copies of all documents referred to in this Article
4 or in the Schedules to this agreement and copies of the minute and stock
record books of the Seller.
4.20 Labor Matters. There are no labor troubles pending or, to the
Seller's knowledge, threatened with respect to the employees or other workers of
the Seller, no union is currently soliciting the Seller's employees for
representation; there is no collective bargaining agreement binding on the
Seller and there is no agreement which restricts the Seller from relocating or
closing any or all of its businesses or operations; and there are no grievances
asserted, nor is there pending any arbitration proceeding arising out of or
under any labor union agreement.
4.21 Condition and Sufficiency of Assets.
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(a) Except as set forth in Schedule 4.21, all of the Acquired Assets and
the equipment underlying the equipment leases set forth on Schedule 1.1 are in
functional operating condition, adequate for use in the course of the Seller's
business.
(b) Except as set forth in Schedule 4.21, the Acquired Assets constitute
all of the properties, assets and contracts that are necessary to the operation
and continued conduct of the business of the Seller as presently conducted and
as proposed to be conducted.
4.22 No Termination of Key or Significant Employees. No key or significant
employee of the Seller (defined as Salon Director and above) has terminated
employment since January 1, 2004 and to the Seller's knowledge, no key or
significant employee intends to terminate his or her employment or other
relationship with the Seller (or Buyer) as a result of the transactions
contemplated hereby or otherwise.
4.23 Investment Undertaking, Etc. The Seller and each Shareholder
acknowledges that the Preferred Shares and the shares of the Parent's common
stock, par value $0.01 per share issuable upon conversion of the Preferred
Shares, will be "restricted securities" within the meaning of Rule 144 of the
General Rules and Regulations under the Securities Act of 1933 ("Rule 144"). The
Seller is acquiring the Preferred Shares for its own account and not with a view
to their distribution within the meaning of Section 2(11) of the Securities Act
of 1933. The Seller and each Shareholder is an "accredited investor," as defined
in Rule 501 of Regulation D under the Securities Act of 1933. The Seller and
each Shareholder understand that Rule 144 requires that the Preferred Shares and
the shares of the Parent's common stock issuable upon conversion of the
Preferred Shares may not be disposed of for a period of at least one year except
pursuant to registration under the Securities Act of 1933 and applicable state
securities laws, or an applicable exemption therefrom. The Seller understands
that it must bear the economic risk of the investment in the Preferred Shares
and the shares of the Parent's common stock issuable upon conversion of the
Preferred Shares indefinitely because such shares may not be sold, hypothecated
or otherwise disposed of unless subsequently registered under the Securities Act
of 1933 and applicable state securities laws, or an exemption from registration
is available.
5. Representations and Warranties of the Shareholders. Each Shareholder
severally and not jointly, represents and warrants to the Buyer as follows:
5.1 Ownership. All of the capital stock of the Seller owned by such
Shareholder is owned free and clear of all Liens.
5.2 Authorization; Validity of Agreement.
(a) Such Shareholder has the requisite capacity to: (i) perform his or her
obligations under this agreement and each other Transaction Document to which
such Shareholder is or will be a party; and (ii) consummate the transactions
contemplated hereby and thereby.
(b) This agreement is, and at the Closing, each other Transaction Document
to which such Shareholder is a party will be, duly executed and delivered by
such Shareholder.
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(c) This agreement is, and at the Closing, each other Transaction Document
to which such Shareholder is a party will be, a valid and binding obligation of
such Shareholder, enforceable against such Shareholder in accordance with its
terms (except as enforceability may be limited by bankruptcy, insolvency,
reorganization, moratorium and similar laws relating to or affecting creditors
rights generally or by general equitable principles (regardless of whether such
enforceability is considered in a proceeding in equity or at law).
5.3 No Violations; Consents and Approvals.
(a) The performance by such Shareholder of its obligations under this
agreement and the other Transaction Documents to which such Shareholder is a
party does not and will not: (i) result in a breach or default (or give rise to
any right of termination, amendment, cancellation or acceleration) under any of
the terms of any Assumed Contract to which such Shareholder is a party or by
which any of the Acquired Assets are bound or otherwise subject; or (ii) violate
any order, statute, rule or regulation applicable to such Shareholder.
(b) No filing with, notification to, or authorization of, any Governmental
Entity is required in connection with the performance by such Shareholders of
such Shareholder's obligations under this agreement or any other Transaction
Document to which such Shareholder is a party.
(c) No Consent of any Person is required to be made or obtained by such
Shareholder in connection with the performance by such Shareholder of its
obligations under this agreement or any other Transaction Document to which such
Shareholder is a party.
6. Representations and Warranties of the Buyer Group. The Parent and the
Buyer, jointly and severally, represent and warrant to the Shareholders and the
Seller as follows:
6.1 Organization. The Parent is a corporation and the Buyer is a limited
liability company, and each of the Parent and the Buyer is duly organized,
validly existing and in good standing under the laws of the state of Delaware
and has all requisite power and authority to: (a) conduct its business as it is
being conducted; (b) perform its obligations under this agreement and each other
Transaction Document to which it is a party; and (c) consummate the transactions
contemplated by each Transaction Document to which it is a party. Each of the
Parent and the Buyer is duly qualified or licensed to do business as a foreign
corporation or limited liability company, as the case may be, and is in good
standing in each jurisdiction in which the nature of its business or assets
requires such qualification or licensing (except where the failure to be so
qualified or licensed would not result in a material adverse effect on the
business, financial condition, properties, assets or liabilities of the Parent
and the Buyer, taken as a whole (a "Buyer Xxxxx Xxxxxxxx Adverse Effect"). The
Buyer has heretofore delivered to the Shareholders true and correct copies of
the certificate of incorporation and bylaws of the Parent and the certificate of
formation and limited liability company agreement of the Buyer, as in effect.
6.2 Capitalization.
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(a) The authorized capital stock of the Parent consists entirely of
30,000,000 shares of common stock, par value $0.01 per share, and 1,000,000
shares of preferred stock, par value $0.01 per share. No shares of such capital
stock are issued or outstanding except as set forth on Schedule 6.2 hereof. The
shares of common stock of the Parent issued and outstanding have been duly
authorized and validly issued and are fully paid and nonassessable, and were
issued in compliance with all applicable federal and state securities laws.
Except as set forth on Schedule 6.2 hereof, there are no (a) securities
convertible into or exchangeable for any of the Parent's capital stock or other
securities, (b) options, warrants or other rights to purchase or subscribe to
capital stock or other securities of the Parent or securities which are
convertible into or exchangeable for capital stock or other securities of the
Parent, or (c) contracts, commitments, agreements, understandings or
arrangements of any kind relating to the issuance, sale or transfer of any
capital stock or other equity securities of the Parent, any such convertible or
exchangeable securities or any such options, warrants or other rights.
(b) On the date hereof, the Buyer is a direct or indirect 100% owned
subsidiary of the Parent.
6.3 Authorization; Validity of Agreement.
(a) Each of the Parent and the Buyer has duly authorized this agreement
and each other Transaction Document to which it is or will be a party.
(b) This agreement is, and at the Closing, each other Transaction Document
to which the Parent or the Buyer is a party will be, duly executed and delivered
by the Parent and/or the Buyer, as the case may be.
(c) The execution and delivery of this agreement and the performance of
the Parent's and the Buyer's obligations hereunder have been duly authorized by
all necessary corporate action by the Board of Directors of the Parent and by
the Board of Managers and the Members of the Buyer, and no other proceedings on
the part of the Parent or its shareholders, or the Buyer or its Members, are
necessary to authorize such execution, delivery and performance. This agreement
is, and at the Closing, each other Transaction Document to which the Parent or
the Buyer is a party will be, a valid and binding obligation of the Parent
and/or the Buyer, as the case may be, enforceable against it or them in
accordance with their respective terms (except as enforceability may be limited
by bankruptcy, insolvency, reorganization, moratorium and similar laws relating
to or affecting creditors rights generally or by general equitable principles
(regardless of whether such enforceability is considered in a proceeding in
equity or at law).
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6.4 No Violations; Consents and Approvals.
(a) The performance by the Parent and the Buyer of their respective
obligations under this agreement and the other Transaction Documents to which
the Parent or the Buyer is a party do not and will not (i) violate any provision
of the certificate of incorporation or bylaws of the Parent or the certificate
of formation or limited liability company agreement of the Buyer, as the case
may be; (ii) result in a breach or default (or give rise to any right of
termination, amendment, cancellation or acceleration) under any of the terms of
any contract or agreement to which the Parent or the Buyer is a party; or (iii)
violate any order, statute, rule or regulation applicable to the Parent or the
Buyer.
(b) No filing with, notification to, or authorization of, any Governmental
Entity is required in connection with the performance by each of the Parent and
the Buyer of their respective obligations under this agreement or any other
Transaction Document to which the Parent or the Buyer, as the case may be, is a
party, except filings as may be required under state and federal securities laws
to give effect to the registration rights granted under the registration rights
agreement referred to in Section 7.8.
(c) Except as set forth on Schedule 6.4 no Consent of any Person is
required to be obtained, that has not been obtained, by the Parent or the Buyer
in connection with the performance by either of them of their respective
obligations under this agreement or any other Transaction Document to which the
Parent or the Buyer, as the case may be, is a party.
6.5 Financial Statements. The consolidated balance sheets of the Parent
and subsidiaries at December 31, 2003 and the related statements of operations,
cash flows and stockholders' equity of the Parent and subsidiaries for the
period ended December 31, 2003 (the "Buyer Financial Statements"), a copy of
which has been delivered to the Seller, fairly present in all material respects
the consolidated financial condition of the Parent and its subsidiaries as of
the date of such balance sheets and the consolidated results of its operations
and cash flows for the period covered by such statements.
6.6 No Material Adverse Change. Since December 31, 2003:
(a) no event, condition or circumstance has occurred that would, or would
be reasonably likely to, have a Buyer Xxxxx Xxxxxxxx Adverse Effect;
(b) the business of the Buyer Group has been conducted in the ordinary
course and consistent with past practice;
(c) there has not been:
(i) to the Buyer Group's knowledge, any material adverse change in
the relationships of the Parent or the Buyer with its licensees,
customers, suppliers, payors, reimbursers, and/or persons or organizations
that refer business to it;
(ii) any material damage, destruction or casualty loss (whether or
not covered by insurance) suffered by the Buyer Group;
24
(iii) other than the transactions contemplated by that certain Note
and Warrant Purchase Agreement dated as of March 31, 2004, among Parent, ,
Buyer, certain other subsidiaries of Parent, and Technology Investment
Capital Corp., any transaction material to the business or the assets of
the Buyer Group, except in the ordinary course of business;
(iv) any adoption of any new (or amendment to or alteration of any
existing) Employee Benefit Plans, bonus, incentive, compensation, pension,
stock, matching gift, profit sharing, retirement, death benefit or other
fringe benefit plan;
(v) any increase in the aggregate indebtedness for borrowed money or
any increase in purchase commitments or other liabilities or obligations
(whether absolute, accrued, contingent or otherwise) incurred by the Buyer
Group, except for liabilities, commitments and obligations incurred in the
ordinary course of business consistent with past practice;
(vi) any created on any of the assets of the Buyer Group, other than
Permitted Liens;
(vii) any material labor dispute involving the employees of the
Parent or the Buyer;
(viii) any sale, assignment, transfer or other disposition or
license of any material tangible or intangible assets of the Parent or the
Buyer, other than the sale of inventory in the ordinary course of business
consistent with past practice;
(ix) any capital expenditure or commitment by the Parent or the
Buyer except in the ordinary course of business consistent with past
practice; or
(x) any agreement by the Buyer Group to do any of the foregoing.
6.7 No Undisclosed Liabilities. The Buyer Group has no liabilities
(whether accrued or unaccrued, absolute or contingent, liquidated or
unliquidated, due or to become due or otherwise) other than those that are set
forth or reserved against in the latest balance sheet referred to in Section 6.5
or that were incurred since the date thereof in the ordinary course of business,
none of which, individually or in the aggregate, are material.
6.8 Legal Proceedings.
(a) Except as set forth in Schedule 6.8, there is no Proceeding pending
or, to the Buyer Group's knowledge, threatened that involves or affects the
Buyer Group by or before any Governmental Entity or any other Person, other than
insured claims arising in the ordinary course of business of the Buyer Group,
which would not, individually or in the aggregate, result in a Buyer Xxxxx
Xxxxxxxx Adverse Effect.
(b) The Buyer Group is in compliance with all applicable Laws except where
non-compliance would not result in a Buyer Xxxxx Xxxxxxxx Adverse Effect. There
are no outstanding orders of any Governmental Entity against the Buyer Group or
any Affiliate thereof.
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Since December 31, 2003, neither the Parent nor the Buyer has received any
written notice from any Governmental Entity of any violation of any Law relating
to its business or personnel.
6.9 Taxes.
(a) The Parent and the Buyer have: (i) duly and timely filed with the
Taxing Authorities all Tax Returns that are required to be filed by the Parent
and/or the Buyer, which Tax Returns are complete and accurate; and (ii) duly and
timely paid in full all Taxes required to be paid.
(b) Neither the Parent nor the Buyer has requested an extension of time
within which to file any Tax Return in respect of any Tax period which has not
since been filed.
(c) Any assessment, deficiency or adjustment related to or in connection
with any Tax for which the Parent and/or the Buyer may be liable or with respect
to the Parent's and/or the Buyer's income, sales, assets or business that is or
was required to be reported to any Tax Authority has been so reported, and any
additional Taxes owed with respect thereto have been paid.
(d) The statute of limitations for any Tax Proceeding or the assessment or
collection of any Tax for which the Parent and/or the Buyer may be liable or
with respect to the Parent's and/or the Buyer's income, sales, assets or
business has never been extended or waived.
(e) There is no outstanding subpoena or request for information or
documents from any Tax Authority with respect to any Tax for which the Parent
and/or the Buyer is or may be liable or with respect to the Parent's and/or the
Buyer's income, sales, assets or business.
(f) The Parent and the Buyer have duly and timely complied with all
applicable Laws relating to the collection or withholding of Taxes, and the
reporting and remittance thereof to the applicable Taxing Authorities.
(g) No Tax Proceeding is pending, proposed or threatened with regard to
any Tax or Tax Return referred to in clause (a) above.
(h) There is no outstanding request for a ruling from any Taxing
Authority, closing agreement (within the meaning of Section 7121 of the Code or
any analogous provision of applicable Law) relating to any Tax for which the
Parent and/or the Buyer may be liable or with respect to the Parent's and/or the
Buyer's income, assets or business, power of attorney or adjustment related to,
or in connection with, any Tax that could result in a Lien on any asset of the
Parent or the Buyer (except for Permitted Liens).
(i) Neither the Parent nor the Buyer has received notice of any claim made
by a Taxing Authority in a jurisdiction where the Parent and/or the Buyer has
not paid any Tax or filed Tax Returns asserting that the Parent and/or the Buyer
may be subject to Tax in such jurisdiction.
26
(j) The Buyer Group has provided to the Seller true copies of all Tax
Returns and all audit reports relating to each proposed adjustment, if any, made
by any Taxing Authority with respect to any taxable period ending after December
31, 2003.
6.10 Shares of Capital Stock. All of the Preferred Shares and all shares
of common stock of the Parent, par value $0.01 per share, issuable upon
conversion of the Preferred Shares, when issued in accordance with the terms
hereof or upon conversion of the Preferred Shares, as the case may be, will be
duly authorized, validly issued, fully paid and nonassessable and, except as set
forth in the stockholders agreement referred to in Section 7.8, will not be
subject to any Lien, option, warrant or any other right of third parties other
than Liens created by the Seller.
7. Other Agreements of the Parties.
7.1 Tax Returns; Taxes.
(a) The Shareholders and the Seller shall duly and timely file with the
applicable Taxing Authorities all Tax Returns that are required to be filed by
or on behalf of the Seller or that include or relate to the Acquired Assets, and
duly and timely pay in full or cause to be paid in full all Taxes. The
Shareholders and the Seller shall duly and timely comply with all applicable
Laws relating to the collection or withholding of Taxes and the reporting and
remittance thereof to the applicable Taxing Authorities. Following the Closing,
the Seller shall, upon reasonable notice, afford the Buyer Group and its
representatives reasonable access, during normal business hours, to the books
and records of the Seller for the purpose of preparing the Buyer Group's tax
returns.
(b) The Buyer Group shall promptly forward to the Seller all written
communications from any Governmental Entity received by the Buyer Group relating
to any Taxes for which the Seller may be responsible. The Seller shall promptly
forward to the Buyer Group all written communications from any Governmental
Entity received by the Seller relating to any Taxes for which the Buyer Group
may be liable.
(c) All sales, transfer and similar Taxes imposed by any Governmental
Entity as a result of the transfer of the Acquired Assets hereunder shall be
paid by the Buyer Group.
7.2 Non-Disclosure of Confidential Information.
(a) The Shareholders and the Seller, on the one hand, and the Buyer Group,
on the other hand, agree not to, and to cause their respective officers,
directors, employees, agents, accountants and counsel not to, communicate or use
to the detriment of each other or for the benefit of any other Person any
confidential information or trade secrets relating to the other party.
(b) For purposes of this agreement, confidential information shall include
the following:
(i) confidential and non-public information, whether visually, in
writing or otherwise concerning the strategies, ideas, policies,
customers, potential customers,
27
vendors, competitors, business and affairs of each party, graphs, samples,
inventions and ideas, past, current and planned marketing methods and
processes, customer lists, current and anticipated customer requirements,
price lists, market studies, business plans, computer software and
database, and any information, however documented, that is confidential
and non-public, whether or not such information would be deemed a trade
secret under applicable state or federal law; and
(ii) information concerning the business and affairs of each party
(which includes financial statements, financial projections and budgets,
historical and projected sales, capital spending budgets and plans, the
names and backgrounds of key personnel, proposed personnel and personnel
training techniques and materials), however documented,
in each case that has been or may hereafter be provided or shown to any party
hereto by the other party, or by the directors, officers, employees, independent
contractors, agents, consultants, advisors, or other representatives, including
legal counsel, accountants and financial advisors of the other party or is
otherwise obtained from review of documents or property or discussions with any
of the foregoing irrespective of the form of the communication, and also
includes all notes, analyses, compilations, studies, summaries and all other
material prepared by any party hereto or its representatives containing or
based, in whole or in part, on any information included in the foregoing.
Without limiting the foregoing, the term "confidential information", as used in
this agreement, includes, in addition to the foregoing, the existence of this
agreement and the fact that the parties have considered or discussed, or engaged
in any communications whatsoever, regarding the transactions contemplated by
this agreement. All confidential information is also entitled to all of the
protections and benefits under applicable law.
7.3 No Solicitation of Employees or Customers.
Neither any Shareholder nor the Seller shall, and neither shall permit any
Affiliate thereof to, from the date hereof and until one year after Closing
Date, directly or indirectly, for the Seller or any Affiliate thereof or on
behalf of any other Person, employ, engage or retain any Person who, at any time
during the 12-month period preceding the date hereof, shall have been an
employee of the Seller, or contact any Person who, at any time during the
12-month period preceding the date hereof, shall have been a customer or
employee of the Seller, for the purpose of soliciting such customer or employee
in connection with transactions involving the business of the Seller or
diverting any such customer or employee from the Buyer.
7.4 Non-Competition.
(a) Until the third anniversary of the Closing Date, neither the Seller,
nor any Shareholder nor any Affiliate of any of the foregoing shall, anywhere in
North America or Europe, directly or indirectly, alone or in association with
any other Person, firm, corporation or other business organization: (i) acquire
or own in any manner, any interest in any Person that is engaged in any facet of
the business presently conducted by the Seller; (ii) engage in any facet of such
business or compete in any way with such business; or (iii) be employed in any
capacity by, serve as an employee of, or consultant or advisor to, or otherwise
participate in the management
28
or operation of, any Person that: (x) engages in any facet of such Business; or
(y) competes with such business in any way; provided, however, that
notwithstanding the foregoing, (i) nothing contained herein shall prohibit The
Xxxx Group, LLC or any Affiliate thereof from providing the products and/or
services described in that certain Application Service Provider Agreement, dated
as of the date hereof, by and between The Xxxx Group, LLC and the Buyer, and
(ii) the Seller, the Shareholders and Affiliates of the foregoing (collectively
and not individually) may own up to 5% of the voting securities of any
publicly-traded company.
(b) The parties hereto intend that the covenant contained in Section
7.4(a) shall be construed as a series of separate covenants, one for each state
or country within the restricted area specified. Except for geographic coverage,
each such separate covenant shall be deemed identical in terms to the covenant
contained in Section 7.4(a) above. If, in any judicial proceeding, a court shall
refuse to enforce any of the separate covenants deemed included in Section
7.4(a), then such unenforceable covenant shall be deemed reduced in scope or, if
necessary, eliminated from these provisions for the purpose of those proceedings
to the extent necessary to permit the remaining separate covenants to be
enforced.
(c) The Seller and each of the Shareholders acknowledge that the
provisions of this Section 7.4, and the period of time, geographic area and
scope and type of restrictions on its activities set forth herein, are
reasonable and necessary for the protection of the Buyer and are an essential
inducement to the Buyer's entering into the Transaction Documents to which it is
a party and consummating the transactions contemplated thereby.
7.5 Public Statements. From and after the date hereof, neither party shall
make any public disclosure or announcement with respect to, or reveal the terms
and status of, the Transaction Documents or the transactions contemplated
thereby (including, without limitation, any such disclosure or announcement
specifying the Purchase Price or terms related thereto), without the prior
written consent of the other parties hereto, except as may be required by law
(in which event prior notice thereof shall be given).
7.6 Cooperation on Taxes. Each of the Shareholders, the Seller and the
Buyer Group shall cooperate with each other by executing or causing to be
executed any reasonably required documents and by making available to the other
all relevant books and records relating to the Seller at all reasonable times,
for the purpose of allowing the appropriate party, at its expense, to complete
its Tax Returns, respond to, defend or prosecute any Tax Proceeding and to make
any determination required under this agreement.
7.7 Employees and Benefits.
(a) Employees. Immediately following the Closing, Buyer shall offer
employment to all of the employees of Seller, a schedule of which employees is
included in Schedule 7.7(a). Each such employee who accepts employment with
Buyer is hereinafter referred to as a "Transferred Employee".
(b) Service. The Buyer shall count the Transferred Employees' service with
the Seller as service periods with the Buyer for purposes of determining the
Transferred Employees' eligibility to participate in, and vesting of benefits
under, all plans of the Seller that
29
are transferred to the Buyer under Section 7.7(c) of this Agreement
("Transferred Plans"). In addition, Buyer shall credit the same service under
any employee benefit plan initially maintained or established by Buyer (or an
Affiliate thereof) pursuant to Section 7.7(c) of the Agreement which covers or
will cover the Transferred Employees.
(c) Employee Benefit Plans. The Seller hereby transfers to the Buyer, and
the Buyer hereby assumes, sponsorship of all Transferred Plans listed on
Schedule 7.7(c) and the Seller hereby assigns to the Buyer, and the Buyer
assumes, any insurance contracts that provide benefits under such plans or any
third party administrative services or other services agreements that relate to
any such plan; provided, however that the Buyer's assumption of any of the
Transferred Plans is, in each case, contingent on the approval by the insurers
(with respect to any insured benefit plan) or the third party administrators
(with respect to any self-insured benefit plan) of the assignment of the
insurance contract or administrative services agreement to the Buyer on terms
substantially identical to those in effect immediately before the Closing Date.
To the extent that such approval is not obtained or such contracts cannot
be assigned on substantially identical terms to those in effect immediately
before the Closing Date, the Buyer agrees to use its best effort to establish
plans ("Replacement Plans") as soon as practicable after Closing that will
provide benefits which are substantially similar to the benefits provided by the
Employee Benefit Plans listed on Schedule 7.7(c), other than the Seller 401(k)
Plan and the Transferred Plans, maintained by the Seller immediately before the
Closing Date ("Nontransferable Seller Plans"). The Seller hereby terminates any
insurance contracts that provide benefits under the Nontransferable Seller
Plans, or any third party administrative services or other services agreements
that relate to any such Nontransferable Seller Plans; provided, however that the
Buyer's provision of any Replacement Plan is, in each case, contingent on
agreement by the insurers (with respect to any insured benefit plan) or the
third party administrators (with respect to any self-insured benefit plan) to
enter into contracts with the Buyer in connection with the Replacement Plan on
terms substantially identical to those in connection with the Nontransferable
Seller Plans as in effect immediately before the Closing Date.
(d) Buyer (or the applicable third party administrator or insurer) shall
assume all responsibility and liability to process and pay all eligible claims
for benefits that are incurred prior to the Closing Date with respect to the
Transferred Plans that are unpaid as of the Closing Date or that are received at
or after the Closing Date (including, without limitation, benefits for claims
incurred prior to Closing but for which the claim is received on or after the
Closing Date). The Seller shall have transferred to the Buyer all records in its
possession that are necessary for the Buyer to operate such Transferred Plans
post-Closing. The Seller (or the applicable third party administrator or
insurer) shall retain all responsibility and liability to process and pay all
eligible claims for benefits that are incurred prior to the Closing Date with
respect to the Nontransferable Seller Plans that are unpaid as of the Closing
Date or that are received at or after the Closing Date (including, without
limitation, benefits for claims incurred prior to Closing but for which the
claim is received on or after the Closing Date). Notwithstanding the above, the
Seller agrees to be responsible and assume liability for completing and timely
filing the Form 5500 reports for any such Transferred Plans for which a report
is required for the 2003 plan year.
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(e) Seller agrees to terminate the Xxxxxxxxx Xxxxxxx, Inc. 401(k) Savings
Plan ("Seller 401(k) Plan") immediately prior to Closing, effective immediately
preceding Closing. The Buyer Group shall receive from the Seller evidence that
such Seller 401(k) Plan has been terminated pursuant to resolutions of Seller's
Board of Directors.
Seller shall submit to the IRS an application for determination of the
tax-qualified status of such Seller 401(k) Plan. Such application shall be: (i)
submitted as soon as is practicable after Closing, and (ii) paid for (including
all related legal, administrative and other costs and expenses unless
specifically set forth otherwise in this subsection) solely by the Seller. The
Seller shall periodically notify the Buyer of the status of such submission and
shall provide Buyer with a copy of the determination letter, if and when
received.
As soon as practicable after the Closing Date, Buyer shall establish, or
offer an existing, 401(k) plan for the benefit of the Transferred Employees, and
as soon as practicable following receipt of a copy of the favorable IRS
determination letter issued to the Seller 401(k) Plan, shall accept rollovers of
the Transferred Employees' distributions from the Seller 401(k) Plan. Buyer
shall credit service with the Seller as eligibility and vesting service under
the Buyer's 401(k) plan.
(f) COBRA. Notwithstanding any provision in this Agreement to the
contrary, the Buyer shall be solely responsible for providing continuation
health coverage, as required under the COBRA, to all Transferred Employees and
to all other current or former employees of Seller who are not Transferred
Employees ("Terminated Employees") and their eligible dependents who have
experienced a qualifying event before or on the Closing Date and (i) who elect
(or elected) continuation coverage within the time period prescribed by COBRA
and (ii) who are otherwise qualified beneficiaries (as defined in Section
4980B(g)(1) of the Code). Buyer shall only be responsible for providing such
coverage if the Seller authorizes and directs the Seller's COBRA administrator
to provide all enrollment forms, correspondence and continuation coverage data
that is necessary or appropriate to enable the Buyer to offer and/or provide
such coverage and by this Agreement the Seller so directs and takes all other
action that is commercially reasonable to enable the Buyer Group to perform its
obligations hereunder. Furthermore, the Seller shall be responsible for any
amounts that are permitted by COBRA to be charged directly to but cannot be
collected from qualified beneficiaries under COBRA pursuant to Code Section
4980B(f)(2)(C) as a result of Seller's failure (or the failure of its agents)
either to reserve the right to charge such fees or to otherwise comply with the
applicable COBRA provisions. Any liability arising under this subsection shall
not be subject to any materiality threshold or deductibles contained elsewhere
in this Agreement.
(g) Third Party Beneficiary Rights. Notwithstanding anything contained
herein to the contrary, no provision in this section shall create any third
party beneficiary or other rights to any employee of the Seller (including any
beneficiary or dependent thereof) in respect of continued employment (or resumed
employment) with the Seller or Buyer Group or any of their Affiliates, and no
provision in this section shall create any rights in any such person in respect
of any benefits that may be provided, directly or indirectly, under any Employee
Benefit Plan or arrangement established by the Buyer Group or their Affiliates.
No provision of this Agreement shall constitute a limitation on the rights of
the Buyer Group or their Affiliates to amend, modify or terminate after the
Closing Date any such plans or arrangements.
31
(h) Vacation. With respect to any earned but unused vacation time to which
any Transferred Employee is entitled pursuant to the Sellers' vacation policy
applicable to such employee immediately prior to the Closing Date (the "Vacation
Policy") (the aggregate amount of which as of the Closing Date is set forth on
Schedule 7.7(h) attached hereto), the Buyer shall allow such Transferred
Employee to use such earned vacation (or if employee terminates employment as of
the Closing Date, shall pay such earned but unused vacation to such employee);
provided, however, that if the Buyer deems it necessary to disallow such
employee from taking such earned vacation, then Buyer shall be liable for and
pay in cash to each such employee an amount equal to such vacation time in
accordance with terms of the Vacation Policy.
(i) Severance Pay. The Buyer shall be responsible for and shall pay and
provide all severance benefits due to the Transferred Employees as a result of
the termination of their employment with either the Buyer or the Seller on and
after the Closing Date as a result of the transaction contemplated by this
agreement.
(j) Workers Compensation, etc. The Seller shall remain responsible for all
payments due with respect to any workers compensation or other claim filed by
any of the Transferred Employees prior to the Closing or for any claims arising
from any alleged act or omission prior to Closing.
(k) No Right to Employment. Nothing in this Section 7.7 shall limit the
"at will" nature of the employment of the Transferred Employees or the right of
the Buyer to alter or terminate any plan.
(l) Cooperation. Buyer shall cause its appropriate employees to cooperate
with Seller, and shall provide to Seller such records as Seller reasonably
requests, to enable Seller to fulfill its obligations under this Section 7.7 to
file the 2003 Form 5500 for the Seller's welfare benefit plans and file an IRS
determination letter for the Seller's 401(k) plan, and the Seller's obligation
to file Form 5500s as set forth on Schedule 4.9(b). It is specifically
understood by the parties that Buyer's appropriate employees will assist Seller
by providing all information needed for completion of (or by completing), to the
best ability and knowledge of Buyer's appropriate employees, the Form 5500s for
the Seller's welfare benefit plans for 2003 and all prior years for which a
filing is required and the Form 5310 for the Seller's 401(k) plan; provided that
Seller shall be responsible for signing and submitting such Form 5500s and Form
5310.
7.8 Stockholders Agreement; Registration Rights Agreement. The Seller and
the Parent are entering into a stockholders agreement and a registration rights
agreement in the forms of Exhibits D and E, respectively. The registration
rights agreement shall set forth the rights of the Seller with respect to the
registration of the shares of common stock of the Parent underlying the
Preferred Shares.
7.9 Documents relating to the Leased Real Property. Seller and the
Shareholders are delivering to Buyer the following documents with respect to the
Leased Real Property:
32
(a) an Assignment and Assumption of Lease, Consent to Assignment and
Assumption of Lease, Landlord's Estoppel Certificate and Amendment to Lease
(each an "Assignment" and collectively, the "Assignments") with respect to each
Lease executed by Seller and each landlord under the applicable Lease, and where
the Lease is a sublease the Assignment shall be executed by each prime landlord
as well. Copies of such Assignments for all of the Leases are annexed as
Schedule 7.9.
(b) (i) maintenance records for the Leased Real Property to the extent
available (ii) a validly issued permanent certificate of occupancy for the
Leased Real Property, if available, (ii) all licenses and permits,
authorizations and approvals pertaining to the Leased Real Property to the
extent available, and (iv) all guaranties and warranties which the Seller has
received in connection with any work or services performed or equipment
installed in the Leased Real Property.
(c) A certificate of non-foreign status (the "Certificate of Non-Foreign
Status") in the form required by Code section 1445 and the regulations
thereunder, signed by an appropriate officer of the Seller under penalties of
perjury.
(d) The parties are completing and executing all necessary tax forms and
Seller is paying any applicable federal, state, county, municipal or other taxes
to the appropriate tax authorities incurred in connection with the execution and
delivery of the Assignments and/or the transfer of the Leases from Seller to
Buyer.
8. Other Documents to be Delivered at the Closing.
8.1 Deliveries of the Shareholders and the Seller. Concurrent herewith,
the Shareholders and the Seller are delivering or causing to be delivered the
following items to the Buyer Group:
(a) a certificate from the Secretary (or comparable official) of the
Seller certifying as to: (i) the full force and effect of its certificate of
incorporation and by-laws (or comparable organizational documents) attached to
such certificate as exhibits; (ii) the full force and effect of resolutions of
its board of directors and stockholders (or Persons with comparable authority)
authorizing it to enter into this agreement and perform its obligations under
each Transaction Document to which it is a party (which such resolutions shall
be attached to such certificate as exhibits); and (iii) the signature and
incumbency of those of its officers (or Persons with comparable authority) who
are authorized to execute the Transaction Documents.
(b) the opinion of Xxxxx & Xxxxxxx, counsel to the Shareholders and the
Seller, in the form attached as Exhibit F;
(c) the stockholders agreement and registration rights agreement referred
to in Section 7.8, each duly executed by the Seller;
(d) a Xxxx of Sale and Assignment in the form of Exhibit G, duly executed
by the Seller;
33
(e) a good standing certificate with respect to the Seller from the
Secretary of the State of Delaware, dated as of a recent date; and
(f) good standing certificates with respect to Seller from the Secretary
of State (or other appropriate official) of each jurisdiction in which Seller is
qualified to do business (and in any event for all of the states in which Seller
has Leased Real Property), dated as of a recent date.
8.2 Deliveries of the Buyer Group. In addition to the agreements and
covenants of the parties set forth in Sections 2 and 7, the Buyer Group is
delivering the following items to the Seller and the Shareholders:
(a) a certificate from the Secretary of the Parent and the Buyer
certifying as to: (i) the full force and effect of its certificate of
incorporation and by-laws (or comparable organizational documents) attached to
such certificate as exhibits; (ii) the full force and effect of resolutions of
its board of directors authorizing it to enter into this agreement and perform
its obligations under each Transaction Document to which it is a party (which
such resolutions shall be attached to such certificate as exhibits); and (iii)
the signature and incumbency of those of its officers who are authorized to
execute the Transaction Documents.
(b) the opinion of Jenkens & Xxxxxxxxx Xxxxxx Xxxxxx LLP, counsel to the
Buyer Group, in the form attached as Exhibit H;
(c) the cash, Promissory Note and Certificates representing the Preferred
Shares;
(d) the stockholders agreement and registration rights agreement referred
to in Section 7.8, each duly executed by the Parent; and
(e) a good standing certificate with respect to each of the Parent and the
Buyer from the Secretary of the State of Delaware dated as of a recent date.
9. Survival of Representations and Warranties.
9.1 Survival of Representations and Warranties of the Shareholders and the
Seller. The Buyer has the right to rely upon the representations and warranties
of the Shareholders and the Seller contained in this agreement, all of which
shall survive the Closing hereunder and shall thereafter continue in full force
and effect for 18 months after the Closing Date, except that (a) the
representations and warranties contained in Sections 4.2 (Capitalization), 4.3
(Authorization), 4.12 (Title to Acquired Assets) and 4.16 (Environmental) shall
survive the Closing and the Shareholders' and the Seller's liability pursuant to
Section 10 in respect of any breach thereof shall continue until barred by all
applicable statutes of limitation; and (b) the representations and warranties
contained in Section 4.9 (ERISA) and 4.14 (Taxes) shall survive the Closing and
the Shareholders' and the Seller's liability pursuant to Section 10 in respect
of any breach thereof shall continue without any limitation.
9.2 Survival of Representations and Warranties of the Buyer Group. The
Shareholders and the Seller have the right to rely upon the representations and
warranties of the
34
Buyer Group contained in this agreement, all of which shall survive the Closing
hereunder and shall thereafter continue in full force and effect for 18 months
after the Closing Date, except that the representations and warranties contained
in Sections 6.2 (Capitalization), 6.3 (Authorization) and 6.10 (Shares of
Capital Stock) shall survive the Closing and the Buyer Group's liability
pursuant to Section 10 in respect of any breach thereof shall continue until
barred by all applicable statutes of limitation.
9.3 Survival of Liabilities for which Notice is Given. Any liability with
respect to which notice shall have been given to the party against which such
claim is asserted prior to the expiration of the applicable time period set
forth above shall remain an obligation of the party against whom such claim is
asserted until such claim is resolved, whether by legal proceedings or
otherwise.
10 Indemnification.
10.1 Indemnification by the Shareholders and the Seller. The Shareholders
and the Seller shall jointly and severally indemnify and defend the Parent, the
Buyer and each of their respective officers, directors, employees, shareholders,
agents, advisors and representatives (each, a "Buyer Group Indemnitee") against,
and hold each Buyer Group Indemnitee harmless from, any damage, including,
without limitation, costs, liabilities, expenses, interest, penalties,
reasonable attorneys' and consultants' fees and disbursements (collectively,
"Damages"; provided, however, that such term shall specifically exclude any and
all incidental, indirect or consequential damages, damages for lost profits or
injury to goodwill or any multiple thereof or punitive damages), that any Buyer
Group Indemnitee may suffer or incur resulting from any of the following
(whether or not in connection with any third party claim):
(a) the breach of any representation or warranty made by any Shareholder
or the Seller in this agreement;
(b) the failure by any Shareholder or the Seller to perform or to comply
with any covenant or condition contained in this agreement (including the
disclosure schedules) that is required to be performed or complied with by such
party;
(c) except with respect to the Assumed Liabilities, the ownership or
operation of the Acquired Assets prior to the Closing; or
(d) any liability or other obligation of the Seller that is not assumed by
the Buyer hereunder.
10.2 Indemnification by the Buyer Group. The Parent and the Buyer shall
jointly and severally indemnify and defend the Shareholders, the Seller and each
of their respective officers, directors, employees, shareholders, agents,
advisors and representatives (each, a "Seller Group Indemnitee") against, and
hold each Seller Group Indemnitee harmless from, any Damages that the Seller
Group Indemnitee may suffer or incur resulting from any of the following
(whether or not in connection with any third party claim):
(a) the breach of any representation or warranty made by the Buyer or the
Parent in this agreement;
35
(b) the failure by the Buyer or the Parent to perform or to comply with
any covenant or condition contained in this agreement required to be performed
or complied with by the Buyer or the Parent;
(c) the failure of the Buyer Group to pay, perform and discharge, when
due, any of the Assumed Liabilities; or
(d) the ownership or operation of the Acquired Assets after the Closing,
other than as to matters for which the Seller and the Shareholders have the
obligation to indemnify the Buyer Group Indemnitees pursuant to Section 10.1.
10.3 Indemnification Procedures.
(a) Promptly after notice to an indemnified party of any claim or the
commencement of any Proceeding, including any Proceeding by a third party
alleging facts which if true would cause the breach of any representation or
warranty by a party or would otherwise subject the indemnifying party to be
liable under Section 10.1 or 10.2, as the case may be, such indemnified party
shall, if a claim for indemnification in respect thereof could be made against
an indemnifying party pursuant to this Section 10, give written notice to the
indemnifying party of the notice of such claim or the commencement of such
Proceeding, setting forth in reasonable detail the nature thereof and the basis
upon which such party seeks indemnification hereunder; provided, however, that
the failure of any indemnified party to give such notice shall not relieve the
indemnifying party of its obligations under this Section 10, except to the
extent that the indemnifying party is actually prejudiced by the failure of the
indemnified party to give such notice.
(b) In the case of any Proceeding by a third party against an indemnified
party, the indemnifying party shall, upon notice as provided above, assume the
defense thereof, with counsel reasonably satisfactory to the indemnified party,
and, after notice from the indemnifying party to the indemnified party of its
assumption of the defense thereof, the indemnifying party shall not be liable to
such indemnified party for any expenses subsequently incurred by the indemnified
party in connection with the defense thereof (but the indemnified party shall
have the right to participate at its own cost and expense in such defense by
counsel of its own choice) or for any amounts paid or foregone by the
indemnified party as a result of any settlement or compromise thereof that is
effected by the indemnified party (without the written consent of the
indemnifying party, which consent shall not be unreasonably withheld).
(c) Anything in Section 10.3(b) notwithstanding, (i) if both the
indemnifying party and the indemnified party are named as parties or subject to
such Proceeding and either such party determines with advice of counsel that
there may be one or more legal defenses available to it that are different from
or additional to those available to the other party or that a material conflict
of interest between such parties may exist in respect of such Proceeding, or
(ii) if the Proceeding involves a claim for equitable relief or other claim not
entirely satisfiable by monetary damages, or (iii) if the indemnifying party
cannot reasonably demonstrate to the indemnified party that it has sufficient
monetary means to satisfy the claim, then, in the event of clause (i) above, the
indemnifying party may decline to assume the defense on behalf of the
indemnified party, and in the event of any of clauses (i), (ii) or (iii) above,
the indemnified party
36
may assume the defense on its own behalf, and, in any such case, after notice to
such effect is given hereunder to the other party, the indemnifying party shall
be relieved of its obligation to assume the defense on behalf of the indemnified
party, but shall be required to pay all reasonable legal and other expenses
incurred by the indemnified party in such defense as well as all Damages
suffered by the indemnified party.
(d) If any party assumes the defense of any Proceeding, the other party
shall cooperate fully with such party and shall appear and give testimony,
produce documents and other tangible evidence, allow such party access to the
books and records of the other party and otherwise assist such party in
conducting such defense. No indemnifying party shall, without the consent of the
indemnified party (which consent shall not be unreasonably withheld), consent to
entry of any judgment or enter into any settlement or compromise that does not
include, as an unconditional term thereof, the giving by the claimant or
plaintiff to such indemnified party of a release from all liability in respect
of such claim or Proceeding, to the extent an indemnity obligation exists with
respect to such claim or Proceeding. Provided that proper notice is duly given,
if the indemnifying party shall fail promptly and diligently to assume the
defense thereof, then the indemnified party may respond to, contest and defend
against such Proceeding and may make in good faith any compromise or settlement
with respect thereto, and recover from the indemnifying party the entire cost
and expense thereof including, without limitation, reasonable attorneys' fees
and disbursements and all amounts paid or foregone as a result of such
Proceeding and the settlement or compromise thereof.
10.4 Limitations.
(a) The amount of any indemnification payable as a result of a claim shall
be reduced to the extent that the indemnified party actually receives any
insurance proceeds with respect to such claim.
(b) [Intentionally omitted].
(c) Except with respect to breaches of the representations and warranties
contained in Sections 4.3 and 4.14 (and Article 5 for each Shareholder), for
which the indemnification obligations of the Shareholders and the Seller shall
not be subject to the limitations described in this Section 10.4(c), (i) the
maximum aggregate liability of the Shareholders and the Seller collectively
under this Section 10 or otherwise under this agreement shall under no
circumstances exceed $3,000,000; (ii) within such $3,000,000 maximum aggregate
liability, the obligation of the Seller and the Shareholders to indemnify the
Buyer Group in cash shall be limited to $500,000; (iii) within such $3,000,000
maximum aggregate liability, the obligation of the Seller and the Shareholders
to indemnify the Buyer Group through a reduction in the outstanding principal
amount of the Note shall be limited to $500,000; (iv) within such $3,000,000
maximum aggregate liability, the obligation of the Seller and the Shareholders
to indemnify the Buyer Group through the return of shares of Preferred Stock
shall be limited to 2,000 shares of such Preferred Stock (with an agreed upon
value for purposes of this Section 10 only of $1,000 per share); and (v) neither
any Shareholder nor the Seller shall have any obligation to indemnify any Buyer
Group Indemnitee under this Section 10 until claims subject to indemnification
by the Shareholders and the Seller hereunder and actually incurred by the Buyer
Group Indemnitees exceed $50,000 (except with respect to the matters described
in
37
Schedule 1.1 under "Permitted Liens" or Schedule 4.8, with respect to which this
clause (v) shall not apply), and then only to the extent of such excess, subject
to limitations described in the foregoing sentence.
(d) Except with respect to breaches of representations and warranties
contained in Sections 6.2, 6.3, 6.9 and 6.10 for which the indemnification
obligations of the Buyer Group shall not be subject to the limitations described
in Section 10.4(d), (i) the maximum aggregate liability of the Buyer Group
collectively under this Section 10 hereof to indemnify any Seller Group
Indemnitee pursuant to Section 10.2(a) hereof shall under no circumstances
exceed $3,000,000; and (ii) none of the Buyer Group shall have any obligation to
indemnify any Shareholder or Seller under this Section 10 until claims subject
to indemnification by the Buyer Group hereunder and actually incurred by the
Shareholders and the Seller in the aggregate exceed $50,000, and then only to
the extent of such excess, subject to limitations described in the foregoing
sentence. For the avoidance of doubt, the indemnification obligations of the
Buyer Group pursuant to Sections 10.2(b), 10.2(c) and 10.2(d) are not subject to
the $3,000,000 limitation set forth in clause (i) above.
(e) It is understood and agreed that the $50,000 "baskets" referred to in
(c) and (d) above are not intended to nor shall they be available for any
intentional non-payment or non-compliance with any obligation of a party herein.
(f) In no event shall any party be liable to another party for any
incidental, indirect or consequential damages, damages for lost profits or
injury to goodwill or any multiple thereof or punitive damages of any nature,
including but not limited to loss of profits, loss of use of the Acquired Assets
or revenue, or claims of customers, whether such damages are a result of breach
of this agreement or otherwise.
(g) Any indemnification payments which may be due or owing by Seller
and/or a Shareholder may be satisfied wholly in cash or, at the option of
Seller, through a Proportional Payment. "Proportional Payment" shall mean
payment through a combination of cash, a reduction in the then outstanding
principal of the Note and delivery to the Buyer of shares of Preferred Stock
(within an agreed upon value for purposes of this Section 10 only of $1,000 per
share and allowing payment with fractional shares) in proportion to the amount
of the Cash Payment (without taking into account the adjustment provided by
Section 2.5(a)), principal amount of the Note and aggregate liquidation
preference of the Preferred Stock to be received by the Seller at the Closing
pursuant to Section 2.3. By way of illustration, a Proportional Payment on a
$100,000 claim would consist of $49,000 in cash (4,000,000/8,250,000), reduction
of the principal amount of the Note by $12,000 (1,000,000/8,250,000) and
delivery to the Buyer of 39 shares of Preferred Stock within an agreed upon
value for purposes of this Section 10 only of $1,000 per share
(3,250,000/8,250,000). If a Proportional Payment in the proportions set forth
above would, if made, result in the aggregate cash paid by the Seller and/or the
Shareholders exceeding the limit set forth in Section 10.4(c)(ii) and/or the
aggregate reduction in principal amount of the Note exceeding the limit set
forth in Section 10.4(c)(iii), then (i) the amount of such Proportional Payment
otherwise required to be paid in cash that would result in the aggregate cash
paid by the Seller and/or the Shareholders exceeding the limit set forth in
Section 10.4(c)(ii) may be satisfied by a reduction in the principal amount of
the Note and (ii) the amount of such Proportional Payment otherwise required to
be satisfied by a reduction in the principal
38
amount of the Note (including after giving effect to clause (i) hereof) that
would result in the aggregate reduction in principal amount of the Note
exceeding the limit set forth in Section 10.4(c)(iii) may be satisfied by
delivery to the Buyer of shares of Preferred Stock.
(h) The representations and warranties set forth in this agreement and the
Transaction Documents are the sole and exclusive representations and warranties
made by the Seller and the Shareholders to the Buyer Group in connection with
the transactions contemplated hereby. The Seller and the Shareholders shall not
be deemed to have made any representation or warranty other than as expressly
made in this agreement and the Transaction Documents. Without limiting the
foregoing, the Seller and the Shareholders make no representation or warranty
with respect to any information or documents made available to the Buyer Group
or its counsel, accountants, advisors or representatives except for the express
representations and warranties made in this agreement and the Transaction
Documents.
(i) The representations and warranties set forth in this agreement and the
Transaction Documents are the sole and exclusive representations and warranties
made by Buyer and Parent to the Seller and the Shareholders in connection with
the transactions contemplated hereby. The Buyer and Parent shall not be deemed
to have made any representation or warranty other than as expressly made in this
agreement and the Transaction Documents. Without limiting the foregoing, the
Buyer and Parent make no representation or warranty with respect to any
information or documents made available to the Seller or the Shareholders or
their counsel, accountants, advisors or representatives except for the express
representations and warranties made in this agreement and the Transaction
Documents.
10.5 Exclusive Remedy. Except for actual fraud, the right of each party to
assert indemnification claims and receive indemnification payments pursuant to
this Section 10 shall be the sole and exclusive remedy exercisable by such party
with respect to any breach by another party of any representation, warranty or
covenant in this agreement, and no other remedy shall be had pursuant to any
contract or other tort theory or otherwise by any of the parties hereto or their
respective representatives or Affiliates, all such remedies being hereby
expressly waived to the fullest extent permitted under applicable law; provided,
however, that nothing herein shall limit any party's right to seek equitable
remedies.
10.6 Materiality Qualification. Certain representations and warranties of the
Seller and the Shareholders contained in this agreement refer to a "Seller
Material Adverse Effect" and/or otherwise quality a statement with the word
"material" or a variant thereof and certain representations and warranties of
the Buyer Group refer to a "Buyer Xxxxx Xxxxxxxx Adverse Effect" and/or
otherwise qualify a statement with the word "material" or a variant thereof. In
determining whether there has been a breach of any representations and
warranties in this agreement or the Transaction Documents for purposes of
measuring Damages of any Buyer Group Indemnitee or Seller Group Indemnitee, as
the case may be, all of such representations and warranties shall be read as if
the qualification of "Seller Material Adverse Effect" and "Buyer Xxxxx Xxxxxxxx
Adverse Effect" or other qualification as to materiality did not exist.
39
11. Miscellaneous.
11.1 Transaction Fees and Expenses. Each party hereto shall bear all costs
incurred thereby in connection with this agreement and the transactions
contemplated hereby.
11.2 Bulk Transfer Laws. The Buyer and the Parent, on behalf of themselves
and their respective Affiliates, hereby waive compliance by the Seller (and the
Seller's Affiliates) with the provisions of the bulk sales or bulk transfer Laws
of any jurisdiction. Nothing herein shall limit the obligation of the Seller
(and the Seller's Affiliates) to pay all liabilities which are not Assumed
Liabilities and to indemnify Buyer Group with respect thereto without regard to
the limitations of Section 10.4(b) above.
11.3 Notices. All notices or other communications to be given hereunder
shall be in writing and sent by (a) messenger or a recognized national overnight
courier service for next day delivery with receipt therefor, (b) facsimile
transmission with a written copy thereof sent on the same day by postage paid
first-class mail or (c) by personal delivery to such party at the following
address:
To the Parent or the Buyer:
000 Xxxxx Xxxxxxx Xxxxx, Xxxxx 000X
Xxxx Xxxx Xxxxx, XX 00000
Attention: President
Telecopier No.: (000) 000-0000
with a copy to:
Jenkens & Xxxxxxxxx Xxxxxx Xxxxxx LLP
000 Xxxxxxxxx Xxxxxx
Xxx Xxxx, XX 00000
Attention: Xxxxxx X. Xxxxxxx
Telecopier No.: (000) 000-0000
To any Shareholder or the Seller:
The Xxxx Group
0000 Xxxxxx Xxxxx
Xxxxxxx, XX 00000
Attention: Xxx Xxxx
Telecopier No.: (000) 000-0000
with a copy to:
Xxxxx & Xxxxxxx LLP
000 Xxxx Xxxxxxxxx Xxxxxx
Xxxxxxxxx, XX 00000
Attention: Xxxxx X. Xxxxxxxxx
40
Telecopier No.: (000)-000-0000
or such other address as either party hereto may at any time, or from time to
time, direct by notice given to the other party in accordance with this Section
11.3.
11.4 Further Assurances. From and after the Closing Date, the parties
hereto will, without further consideration, execute and deliver such further
documents and instruments and take such other actions as may be necessary or
desirable to perfect the transactions contemplated hereby.
11.5 No Waiver. No failure or delay by any party in exercising any right,
power or privilege hereunder shall operate as a waiver thereof nor shall any
single or partial exercise thereof preclude any other or further exercise
thereof or the exercise of any other right, power or privilege. The rights and
remedies herein provided shall be cumulative and not exclusive of any rights or
remedies provided by law.
11.6 Entire Agreement. This agreement, the Exhibits and the Schedules
hereto supersede all prior and/or contemporaneous negotiations, understandings,
discussions and agreements (written or oral) between the parties with respect to
the subject matter hereof (all of which are merged herein and therein) and
contains the sole and entire agreement among the parties hereto with respect to
the subject matter hereof.
11.7 Governing Law. This agreement shall be construed, interpreted and
enforced in accordance with, and shall be governed by, the laws of the state of
Delaware without regard to principles of conflicts of laws.
11.8 Jurisdiction; Venue. Each of the parties hereto hereby irrevocably
consents and submits to the exclusive jurisdiction of the United States District
Court for the District of Delaware in connection with any dispute arising out of
or relating to this agreement or the transactions contemplated hereby, waives
any objection to venue in such District (unless such court lacks jurisdiction
with respect to such dispute, in which case, each of the parties hereto
irrevocably consents to the jurisdiction of the courts of the State of Delaware
located in Dover County in connection with such dispute and waives any objection
to venue in such County), and agrees that service of any summons, complaint,
notice or other process relating to such dispute may be effected in the manner
provided by Section 11.3.
11.9 Assignment. This agreement and all of the provisions hereof shall be
binding upon and inure to the benefit of the parties hereto, their heirs and
their respective successors (whether by operation of law or otherwise) and
permitted assignees. Permitted assignees of the Buyer Group's rights hereunder
shall include any Affiliate of the Parent or the Buyer and any or all financial
institutions or other entities investing and/or lending monies to finance the
transactions herein contemplated, provided that no permitted assignment shall
relieve the Buyer Group from its liabilities or obligations hereunder. Except
for the permitted assignees, neither party shall have the right to assign any
rights or delegate any duties hereunder without the prior written consent of the
other party.
41
11.10 Binding Effect. This agreement shall be binding upon and inure to
the benefit of the parties hereto and their respective successors and permitted
assigns.
11.11 No Third Party Beneficiaries. Nothing contained in this agreement,
whether express or implied, is intended, or shall be deemed, to create or confer
any right, interest or remedy for the benefit of any Person other than as
otherwise provided in this agreement.
11.12 Amendment and Waiver. Any term of this agreement may be amended only
by the written consent of all parties hereto. The observance of any term of this
agreement may be waived (either generally or in a particular instance, either
retroactively or prospectively, and either for a specified period of time or
indefinitely), only by a writing signed by the party for whose benefit such term
is to be performed. Any agreement on the part of a party to any extension or
waiver shall only be valid if set forth in an instrument in writing signed on
behalf of such party. Any such waiver or extension shall not operate as waiver
or extension of any other subsequent condition or obligation.
11.13 Severability. If any provision of this agreement is found to be void
or unenforceable by a court of competent jurisdiction, the remaining provisions
of this agreement shall nevertheless be binding upon the parties with the same
force and effect as though the unenforceable part had been severed and deleted.
11.14 Specific Performance. The parties agree that irreparable damage will
result in the event that this agreement is not specifically enforced and the
parties hereto agree that any damages available at law for a breach of this
agreement (except as otherwise expressly provided in Section 10.5) would not be
an adequate remedy. Therefore, the provisions hereof and the obligations of the
parties hereunder shall be enforceable in a court of equity, or other tribunal
having jurisdiction, by a decree of specific performance, and appropriate
injunctive relief may be applied for and granted in connection therewith.
11.15 Counterparts. This agreement may be executed in one or more
counterparts (including signature pages issued and delivered by facsimile
transmission), each of which shall be deemed an original, but all of which
together will constitute one and the same agreement.
[The next page is the signature page]
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The parties have executed and delivered this Asset Purchase Agreement as
of the date first listed above.
ADVANCED AESTHETICS, INC.
By:
--------------------------------------------
Name: Xxxxxx Xxxxxx
Title: Vice President
ADVANCED K, LLC
By:
--------------------------------------------
Name: Xxxxxx Xxxxxx
Title: Vice President
XXXXXXXXX XXXXXXX, INC.
By:
--------------------------------------------
Name:
Title:
--------------------------------------------
XXXXXX X. XXXX, XX.
--------------------------------------------
XXXXXX X. XXXX
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