SALE PROCEEDS AGREEMENT
This Sale proceeds Agreement (the "Agreement") is entered into this 10th day of
September 2004 (the "Effective Date"), among Stimulys, Inc., a Delaware
corporation and any successors (collectively "Stimulys"), whose address is 0000
Xxxxxx Xxx, Xxxxxxxxxx, Xxxxx 00000, and Spar Incentive Marketing, Inc., a
Delaware corporation ("Spar"), whose address is 000 Xxxxx Xxxxxx Xxxx, 0xx
Xxxxx, Xxxxxxxxx, Xxx Xxxx 00000.
RECITALS
A. Stimulys is a wholly-owned subsidiary of Performance Holdings, Inc., a
Delaware corporation ("PHI"). PHI is indebted to Spar in the amount of
approximately $7,664,019 as of the Effective Date, pursuant to (i) two Term
Promissory Notes dated as of June 30, 2002 (the "Term Notes") in the original
principal amounts of $2,500,000 and $3,500,000, respectively, issued by PHI, as
borrower, to Spar, as lender, and (ii) that certain Term Loan, Guaranty and
Security Agreement dated as of June 30, 2002 (the "Term Loan Agreement") among
PHI, as borrower, Stimulys, as guarantor, and Spar, as lender. The loan made
pursuant to the Term Notes and the Term Loan Agreement is referred to as the
"Term Loan."
B. All assets of PHI and Stimulys are pledged as collateral to secure
repayment of the Term Loan.
C. The parties wish to restructure the obligations of Stimulys and PHI to
Spar pursuant to the Term Loan. The parties wish to enter into this Agreement to
memorialize the terms of such restructuring.
TERMS AND PROVISIONS
In consideration of the mutual promises made in this Agreement and other
good and valuable consideration, the receipt and sufficiency of which are
acknowledged, the parties agree as follows:
1. Definitions. As used in this Agreement, the following terms shall have
the meanings indicated:
- "Change of Control" means either (i) a sale, transfer or other
disposition of over 50% of the assets of Stimulys outside the ordinary
course of Stimulys' business, to a Non-Affiliate that is not related
to any of the stockholders in the broadcast definition, (ii) a merger,
consolidation or similar transaction the result of which is that the
owner of over 50% of Stimulys' assets is a Non-Affiliate, or (iii) a
sale of over 50% of the common stock or other voting securities of
Stimulys, the result of which is that more than 50% of Stimulys'
voting securities are Controlled by one or more Non-Affiliates. Any
transaction in which an Initial Owner and/or its affiliate increases
its ownership percentage in Stimulys to over 50% shall also be
considered a change in control. The change in control covers either a
single transfer or a change in control by a series of transfers or
sale that cumulatively exceeds 50%.
- "Control" "Controlled by" and "Controlling" means, with respect to the
voting securities of a given entity, the right to direct the voting or
disposition of such voting securities, where due to ownership of the
voting securities, contractual right, or otherwise.
- "Hunter Securities" means all equity or other type of securities in
Stimulys or any related companies or affiliates fully or partly owned
or Controlled directly or indirectly in whole or in part by Xxxxxx
Xxxxxx or by any member of his immediate family.
- "Initial Owner" or "Initial Owners" means shareholders included on
Exhibit ___ in their respective percentages and their wholly owned
subsidiaries.
- "Net Proceeds" means (i) in the case of an asset sale that constitutes
a Change of Control transaction, the aggregate cash or other
consideration received by Stimulys in respect of such transaction, or
(ii) in the case of a Change of Control transaction other than a sale
of assets, the aggregate cash or other consideration received by the
selling parties in respect of such transaction (provided that if the
transaction involved less than 100% ownership of Stimulys, such cash
proceeds shall be deemed increased for purposes of this definition to
the amount that would have been received if the transaction involved
100% ownership of Stimulys); in each case net of direct costs relating
to such transaction (including without limitation, legal, accounting
and investment banking fees, and sales commissions) and net of the
amount of Stimulys' outstanding indebtedness (provided that such
indebtedness shall be excluded only if and to the extent such
indebtedness did not reduce the appraised value of Stimulys by the
amount of such indebtedness, and is assumed directly or indirectly by
the purchaser).
- "Non-Affiliate" means (i) one or more persons, entity or entities that
are not Initial Owners.
- Non-Tax Distribution" means any dividend or other distribution to
Stimulys' equity owners in excess of the amount necessary to satisfy
the obligations of such equity owners to pay all local, state and
federal income taxes due or to become due before or during the year in
which the distribution is made as a result of their ownership interest
in Stimulys (assuming a tax rate applicable to such distributions
equal to the sum of the highest incremental local, state and federal
income tax rates applicable at the time to individuals) if and only if
Stimulys is a non-taxable entity.
2. Commitment Regarding Sale Proceeds.
A. Base Commitment. Upon the occurrence of a Change of Control
transaction, Stimulys or the selling parties, as the case may be, shall
distribute or cause to be distributed to Spar a portion of the Net Proceeds
from such Change of Control transaction, within 30 days of receipt of the
Net Proceeds, equal to the sum of:
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(i) Twenty-Three and One-Half percent (23 1/2%) of the first
$10,000,000 of Net Proceeds; and
(ii) Fifteen percent (15%) of any Net Proceeds in excess of
$10,000,000.
The proceeds to which Spar is entitled pursuant to this Section 2.A shall be in
the same form (i.e., cash, securities, other consideration, or any combination
of the foregoing) and proportions as the consideration received by the seller(s)
in the applicable Change of Control transaction, unless the parties affected
thereby otherwise agree.
B. Right of First Refusal to Spar. As a condition to the entry by
Stimulys into a Change of Control transaction, Stimulys shall first be
required to: (i) secure an appraisal of Stimulys by a nationally recognized
business appraisal company with expertise in valuing companies such as
Stimulys, (ii) provide Spar a copy of the appraisal report, together with a
written offer, which shall remain in effect for a period of thirty days and
shall be legally binding on Stimulys, to sell all of Stimulys' assets
(unless the parties shall agree to a stock sale or another form of sale
transaction) to Spar for cash equal to 90% of the sum of (x) the appraisal
value of Stimulys shown in the appraisal report plus (y) the amount of
Stimulys' outstanding indebtedness (provided that such indebtedness shall
be added to the appraised value only if and to the extent such indebtedness
did not reduce the appraised value of Stimulys, and is not assumed directly
or indirectly by SPAR).
If Spar elects to exercise such right to purchase Stimulys' assets for
90% of the appraised value of Stimulys plus the amount of Stimulys'
indebtedness (if applicable), the parties shall proceed forthwith to
preparation of asset purchase and sale documents in form customary and
reasonable for a transaction of that type and size, and shall close such
purchase and sale as soon as is reasonably practicable.
Because the sale to Spar in that instance shall constitute a Change of
Control transaction, Spar shall be entitled to receive a portion of the Net
Proceeds from the transaction, which may be deducted from the sale price if
requested by Spar.
If Spar does not elect to exercise its right to purchase Stimulys'
assets, Stimulys and its owners shall be free to pursue a sale transaction
within six months thereafter for a price no less than 90% of the appraised
value shown in the appraisal and under the same terms and conditions
offered to SPAR.
C. Distributions Prior to Change of Control. If approved by Stimulys'
Board of Directors and subject to the availability of distributable funds
thereof, Stimulys may make distributions to its equity owners from time to
time. To the extent any such distribution constitutes a Non-Tax
Distribution, Spar shall be entitled to a payment equal to 30.72% of such
Non-Tax Distribution until total distributions to Spar pursuant to this
Section 2.C equal $2,350,000, after which Spar shall be entitled to further
distributions equal to 17.65% of any subsequent Non-Tax Distributions.
Notwithstanding the preceding, there will be no Non-Tax Distributions made
unless (A) Stimulys' cumulative
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net income after taxes from the effective date of this agreement to the
date of the Non-Tax Distribution exceeds two million dollars
($2,000,000.00) and Stimulys' Tangible Net deficit (negative tangible net
worth) is no less than minus four million seven hundred thousand dollars
($4,700,000.00) after any non-tax distribution). For purposes of
clarification, if the Tangible Net Deficit is $(4,700,001.00), a Non-Tax
Distribution cannot be made, if the Tangible Net Deficit is
$(4,699,999.00), a Non-Tax Distribution can be made. In any given year,
total Non-Tax Distributions will be limited to 30% of the prior years net
income after taxes as reported in Stimulys' year and audited financial
statements. Prior to issuance, any Non-Tax Distribution must be approved by
the Stimulys Lender/Lenders in effect at that time. Spar's approval will
not be required. No distributions will be made in the two years prior to a
sale.
D. Escrow of Shares. In order to ensure that Spar received the portion
of the proceeds of a Change of Control transaction as set out in Section
2.A above, as a condition to the effectiveness of this Agreement Xxxxxx
Xxxxxx shall tender the certificate(s) evidencing the Hunter Securities to
a mutually acceptable neutral party serving as Escrow Agent under an Escrow
Agreement to be executed contemporaneously herewith, which shall be in the
form attached hereto as Exhibit A (the "Escrow Agreement"). The escrow
arrangement shall not affect Xx. Xxxxxx'x ability to vote the Hunter
Securities or to receive distributions in respect of such securities.
E. Restriction on Non-Change of Control Transactions. Neither Stimulys
nor its owners shall be entitled to conduct any sale of Stimulys' assets or
stock to a third party entity that does not result in a Change of Control,
unless (i) the acquirer shall have assumed in writing all of the
obligations of Stimulys under this Agreement, (ii) the Escrow Agreement
shall have been modified to apply to the acquirer entity in lieu of
Stimulys, and (iii) Xxxxxx Xxxxxx shall have tendered all equity securities
he Controls or will Control in the acquiring entity to the Escrow Agent as
contemplated in Section 2.D above.
3. Release of Term Loan. Spar acknowledges that the commitments of Stimulys
made in Section 2 above fully and finally satisfy all indebtedness of any part
in respect of the Term Loan. Accordingly, Spar hereby releases PHI and Stimulys
from any and all claims, demands, liability or causes of action in respect of
the Term Loan, including without limitation all obligations of PHI and Stimulys
under the Term Notes, the Term Loan Agreement, and all other documents,
instruments, agreements and other writing entered into by PHI, Stimulys or Spar
in order to give effect to the Term Loan.
4. Release of Collateral. Without limiting the generality of Section 3
above, Spar acknowledges that any security interest it has in any collateral
pledged pursuant to the Term Loan Agreement is hereby forever released. Spar
agrees to assist Stimulys with and to cooperate (including without limitation
execution and filing (at Stimulys' expense) of UCC-3 Partial Termination
Statements) in the termination of Spar's security interest in collateral of
either Stimulys or PHI, other than Spar's security interest in the accounts
receivable of Stimulys, all as reasonably requested by Stimulys or PHI from time
to time.
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5. Mutual Release.
A. Release by Spar. Spar, on behalf of itself and its affiliates,
successors, assigns, divisions, parents, subsidiaries, employees, agents,
directors, officers, shareholders, attorneys, successors and assigns
(collectively referred to as the "Spar Parties"), hereby releases, acquits and
forever discharges Stimulys, its affiliates (including without limitation PHI),
successors, assigns, divisions, parents, subsidiaries, employees, agents,
directors, officers, shareholders, attorneys, successors and assigns
(collectively referred to as the "Stimulys Parties") of and from any and all
liabilities, claims, remedies, demands, suits or causes of action of whatsoever
kind or character, in whole or in part whether xxxxxx or inchoate, which the
Spar Parties now have or ever have had against the Stimulys Parties arising from
any occurrence or transaction between the Spar Parties and the Stimulys Parties
from the beginning of time to the date hereof; provided, -------- however, that
notwithstanding the foregoing, nothing in this Section 5.A shall be construed as
or shall have the effect of ------- releasing any obligation of any of the
Stimulys Parties under this Agreement or any other document or agreement entered
into simultaneously herewith.
B. Release by Stimulys. Stimulys, on behalf of itself and the other
Stimulys Parties, hereby releases, acquits and forever discharges the Spar
Parties and from any and all liabilities, claims, remedies, demands, suits or
causes of action of whatsoever kind or character, in whole or in part, whether
xxxxxx or inchoate, which the Stimulys Parties now have or ever have had against
the Spar Parties arising from any occurrence or transaction between the Spar
Parties and the Stimulys Parties from the beginning of time to the date hereof;
provided, however, that notwithstanding the foregoing, nothing in this Section
6.A shall be construed as or shall have the effect of releasing any obligation
of any of the Spar Parties under this Agreement or any other document or
agreement entered into simultaneously herewith.
6. Management of Company. At all times while this Agreement is in effect,
Stimulys shall be managed in a normal and customary manner, consistent with past
practices.
7. Provision of Financial Information. No later than 120th day after the
end of each fiscal year of Stimulys, Stimulys shall provide Spar its financial
statements for the prior fiscal year, prepared in accordance with Generally
Accepted Accounting Principles consistently applied, including all accompanying
footnotes audited by a non-related accounting firm acceptable and approved by
the Stimulys Lender/Lenders in effect at that time. Stimulys shall also provide
quarterly unaudited statements or such other statements as would be normally
maintained and usual.
8. Expenses. The parties agree each will be responsible for and bear all of
its own costs and expenses in connection with the transactions contemplated by
this Agreement, including, but not limited to, all attorneys, accountants,
investment advisors or other professional fees incurred by the parties. The
parties agree that no broker or finder is or will be due any fee or other
compensation in connection with the transactions contemplated by this Agreement.
No expenses incurred by any party shall be assumed to be paid by any other party
without the written permission of the responsible party.
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9. Disclosure. Except as and to the extent required by law, without the
prior written consent of the other party neither Stimulys nor Spar will make,
and each will direct its representatives not to make, directly or indirectly,
any public comment, statement or communication with respect to, or otherwise to
disclose or to permit the disclosure of the existence of discussions regarding
this transaction or any of the terms, conditions, or other aspects of the
transaction described in this Agreement, except to their banks, auditors and
legal or financial advisors. If a Party is required by law to make any such
disclosure, such Party shall first notify the other party of the content of the
proposed disclosure, the reasons such disclosure is required by law, and the
time and place that the disclosure will be made. SPAR will be allowed to provide
that information which in its sole judgment is required to be filed as part of
any official documents filed with the SEC or other governmental or regulatory
agencies. Such information shall include any required press release.
10. Entire Agreement; Amendments. The provisions of this Agreement
constitute the entire and only agreement between the parties with respect to the
subject matter hereof and supersede all prior agreements, commitments,
representations, understandings, or negotiations, oral or written, and all other
communications relating to the subject matter hereof. No amendment or
modification of any of the provisions of this Agreement will be effective unless
set forth in a document that purports to amend this Agreement and is executed by
all parties hereto.
11. Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original and all of which
counterparts collectively shall constitute one instrument representing the
agreement between the parties hereto. It shall not be necessary that any one
counterpart be signed by all of the parties hereto as long as each of the
parties has signed at least one counterpart.
12. Governing Law and Venue. The validity, construction, and performance of
this Agreement shall be governed by and in accordance with the laws of the State
of New York (other than those choice of law rules that would defer to the
substantive laws of another jurisdiction). This governing law election has been
made by the parties in reliance (at least in part) on Section 5-1401 of the
General Obligations Law of the State of New York, as amended (as and to the
extent applicable), and other applicable law. Each party hereby consents and
agrees that the Supreme Court of the State of New York for the County of
Westchester and the United States District Court for the Southern District of
New York, County of Westchester, each shall have personal jurisdiction and
proper venue with respect to any dispute between the parties under or related to
this Agreement; provided that the foregoing consent shall not deprive either
party of the right in its sole and absolute discretion to voluntarily commence
or participate in any action, suit or proceeding in any other court having
jurisdiction and venue over the other party. The preceding consents to
jurisdiction and venue have been made by the parties in reliance (at least in
part) on Section 5-1402 of the General Obligations Law of the State of New York,
as amended (as and to the extent applicable), and other applicable law. Each
party will not raise, and hereby absolutely, unconditionally, irrevocably and
expressly waives forever, any objection or defense in any such dispute to any
such New York jurisdiction as an inconvenient forum.
13. Interpretation. The parties acknowledge that each party and its counsel
have reviewed and negotiated the terms and provisions of this Agreement and have
contributed to its
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revision. Accordingly, the normal rule of construction, to the effect that
ambiguities are resolved against the drafting party, shall not be employed in
the interpretation of this Agreement; and its terms and provisions shall be
construed fairly as to all parties hereto and not in favor of or against any
party, regardless of which party is generally responsible for the preparation of
this Agreement.
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Exhibit A
To
Sale Proceds Agreement
Escrow Agreement
[See attachment]
EXECUTION
The parties have executed this Sale Proceeds Agreement as of the Effective Date.
STIMULYS:
By: /s/ Xxxxxx Xxxxxx
----------------------------------------------
Xxxxxx Xxxxxx, President
SPAR:
SPAR INCENTIVE MARKETING, INC.
By: /s/ Xxxxxx Xxxxx
----------------------------------------------
Xxxxxx Xxxxx, Chairman & CEO
Performance Holdings and other current stockholders need to sign as a party and
be bound by the change in control and payment provisions in case they sell the
stock of Stimulys. This is contemplated as a business matter by Section 2A but
is not enforceable against PHI and the other stockholders without its
participation in the agreement.
