EXHIBIT 2.1
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ASSET PURCHASE AGREEMENT
by and among
EQUITY MARKETING, INC.,
a Delaware corporation
as "Acquiror",
S.C.I. PROMOTION GROUP, LLC,
a Delaware limited liability company
as "Seller", and
XXXXXX X. XXXXXXX, III
as "Member"
Dated: September 3, 2003
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TABLE OF CONTENTS
Page
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ARTICLE I. DEFINITIONS.......................................................... 1
1.1. Defined Terms...................................................... 1
1.2. Other Defined Terms................................................ 11
ARTICLE II. PURCHASE AND SALE OF ASSETS; PURCHASE PRICE......................... 12
2.1. Transfer of Assets................................................. 12
2.2. Assumption of Liabilities.......................................... 13
2.3. Nonassumption of Liabilities....................................... 13
2.4. Purchase Price..................................................... 13
2.5. Forecasted August 31st Balance Sheet............................... 14
2.6. Post-Closing Adjustment............................................ 14
2.7. Earnout............................................................ 16
2.8. Transfer Taxes..................................................... 18
ARTICLE III. CLOSING............................................................ 18
3.1. Deliveries at Closing.............................................. 18
3.2. Other Closing Transactions......................................... 20
3.3. Other Deliveries................................................... 20
ARTICLE IV. REPRESENTATIONS AND WARRANTIES OF THE SELLER PARTIES................ 20
4.1. Organization of Seller............................................. 20
4.2. Subsidiaries....................................................... 20
4.3. Authorization...................................................... 20
4.4. Consents and Approvals............................................. 21
4.5. Absence of Certain Changes or Events............................... 21
4.6. Facilities......................................................... 23
4.7. Assets............................................................. 23
4.8. Contracts and Commitments.......................................... 24
4.9. Permits............................................................ 26
4.10. No Conflict or Violation........................................... 26
4.11. Financial Statements............................................... 27
4.12. Undisclosed Liabilities............................................ 27
4.13. Books and Records.................................................. 27
4.14. Litigation......................................................... 27
4.15. Labor Matters...................................................... 28
4.16. Compliance with Law................................................ 28
4.17. No Brokers......................................................... 28
4.18. No Other Agreements to Sell the Assets or Membership Interests
of Seller.......................................................... 29
4.19. Intellectual Property.............................................. 29
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4.20. Employee Matters................................................... 31
4.21. Transactions with Certain Persons.................................. 32
4.22. Certain Payments................................................... 32
4.23. Tax Matters........................................................ 33
4.24. Insurance.......................................................... 34
4.25. Accounts Receivable................................................ 34
4.26. Other Current Assets............................................... 34
4.27. Customers and Suppliers............................................ 35
4.28. Compliance with Environmental Laws................................. 35
4.29. Xxxxxxxx........................................................... 35
4.30. Banking Relationships.............................................. 35
4.31. Investment Intent.................................................. 36
ARTICLE V. REPRESENTATIONS AND WARRANTIES OF ACQUIROR........................... 37
5.1. Organization of Acquiror........................................... 37
5.2. Authorization...................................................... 37
5.3. No Conflict or Violation........................................... 38
5.4. SEC Filings........................................................ 38
ARTICLE VI. COVENANTS OF THE SELLER PARTIES AND ACQUIROR........................ 38
6.1. Confidentiality and Non-Competition................................ 38
6.2. Further Assurances................................................. 40
6.3. Employee Matters................................................... 41
6.4. Corporate Name of Seller........................................... 41
6.5. Cost of Financial Statement Audit.................................. 42
ARTICLE VII. CONSENTS TO ASSIGNMENT............................................. 42
7.1. Consents to Assignment............................................. 42
ARTICLE VIII. ACTIONS BY SELLER AND ACQUIROR AFTER THE CLOSING.................. 42
8.1. Books and Records; Tax Matters..................................... 42
8.2. Survival of Representations, Etc................................... 43
8.3. Indemnification.................................................... 43
8.4. Bulk Sales......................................................... 46
8.5. Taxes.............................................................. 46
8.6. Insurance.......................................................... 46
8.7. Exclusive Remedy................................................... 47
8.8. Right of Offset.................................................... 47
ARTICLE IX. MISCELLANEOUS....................................................... 47
9.1. Assignment......................................................... 47
9.2. Notices............................................................ 47
9.3. Choice of Law...................................................... 48
9.4. Entire Agreement; Amendments and Waivers........................... 48
9.5. Counterparts....................................................... 48
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9.6. Expenses........................................................... 48
9.7. Severability....................................................... 48
9.8. Headings........................................................... 49
9.9. Publicity.......................................................... 49
9.10. Cumulative Remedies................................................ 49
9.11. No Third-Party Beneficiaries....................................... 49
9.12. Arbitration; Process............................................... 49
9.13. WAIVER OF JURY TRIAL............................................... 49
LIST OF EXHIBITS
Exhibit A--List of Excluded Claims, Causes of Action and Other Rights
Exhibit B--Assignment and Assumption of Contracts
Exhibit C--Assignment and Assumption of Leases
Exhibit D--Assignment of Intellectual Property
Exhibit E--Form of Xxxx of Sale
Exhibit F--Form of Earnout Promissory Note
Exhibit G--List of Excluded Assets
Exhibit H--Form of Opinion of Seller's Counsel
Exhibit I--Form of General Release
Exhibit J--Form of Employment Agreement
LIST OF SCHEDULES
Schedule 1.1--2003 Actual Pro Forma Adjustments
Schedule 2.2(b)--Additional Contracts
Schedule 2.5--Forecasted August 31st Balance Sheet
Schedule 2.7(a)(i)(A)--Employee Bonuses
Schedule 2.7(a)(i)(B)--Sales Bonuses
Schedule 4.1--Foreign Qualifications
Schedule 4.2--Subsidiaries
Schedule 4.4--Consents and Approvals
Schedule 4.5--Absence of Certain Changes or Events
Schedule 4.7--Assets
Schedule 4.8--Contracts and Commitments
Schedule 4.9--Permits
Schedule 4.10--Conflict or Violations
Schedule 4.11--Financial Statements
Schedule 4.12--Undisclosed Liabilities
Schedule 4.14--Litigation
Schedule 4.15(a)--Employee List
Schedule 4.15(b)--Employment Losses
Schedule 4.17--Brokers
Schedule 4.19(a)--Patents, Trademarks and Copyrights
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Schedule 4.19(b)--License, Sublicense and Royalty Agreements
Schedule 4.20--Seller Employee Plans
Schedule 4.21--Transactions with Certain Persons
Schedule 4.23(c)--Tax Deficiencies
Schedule 4.24--Insurance
Schedule 4.26--Other Current Assets
Schedule 4.27--Customers and Suppliers
Schedule 4.28--Environmental
Schedule 4.29--Xxxxxxxx
Schedule 4.30--Banking Relationships
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ASSET PURCHASE AGREEMENT
This ASSET PURCHASE AGREEMENT (this "Agreement"), dated
September 3, 2003, is entered into by and among EQUITY MARKETING, INC., a
Delaware corporation ("Acquiror"), S.C.I. PROMOTION GROUP, LLC, a Delaware
limited liability company ("Seller"), and XXXXXX X. XXXXXXX, III, an individual
resident of California ("Xxxxxxx" or "Member"). The Member and Seller are
sometimes collectively referred to herein as the "Seller Parties".
RECITALS
WHEREAS, Seller wishes to sell to Acquiror, and Acquiror
wishes to purchase from Seller, the Assets (as defined below) at the price and
under the specified terms and conditions as set forth herein;
WHEREAS, as a member of Seller, the Member will benefit from
the sale of the Assets to Acquiror.
AGREEMENT
NOW THEREFORE, in consideration of the respective covenants
and promises contained herein and for other good and valuable consideration, the
receipt and adequacy of which is hereby acknowledged, the parties hereto agree
as follows:
ARTICLE I.
DEFINITIONS
1.1. Defined Terms. As used herein, the terms below shall have the
following meanings. Any such term, unless the context otherwise requires, may be
used in the singular or plural, depending upon the reference.
"Accounts Receivable" shall mean all accounts and notes
receivable (whether current or noncurrent) of Seller, including trade accounts
receivable (including accounts receivable for any products shipped prior to the
Closing Date but not invoiced) outstanding as of the Closing Date, and any other
rights to receive payments of Seller as of the Closing Date in respect of goods
shipped, products sold or services rendered prior to the Closing Date.
"Acquiror's Common Stock" shall mean the common stock, $.001
par value, of Equity Marketing, Inc.
"Action" shall mean any action, complaint claim, suit,
litigation, proceeding, labor dispute, arbitral action, governmental audit,
inquiry, criminal prosecution, civil or criminal investigation or unfair labor
practice charge or complaint.
"Affiliate" shall mean, when used with reference to any
specified Person, any other Person directly or indirectly controlling,
controlled by, or under direct or indirect common
control with, such specified Person. For the purposes of this definition,
"control," when used with respect to any specified Person, means the power to
direct or cause the direction of management or policies of such Person, directly
or indirectly, whether through the ownership of voting securities, by contract
or otherwise; and the terms "controlling" and "controlled" have meanings
correlative of the foregoing.
"Allocations" shall mean Corporate Services Allocation,
Operations and Sourcing Fee, and Rent and Facilities Cost Allocation,
collectively.
"Assets" shall mean all of the right, title and interest of
Seller in and to the business, properties, assets and rights of any kind,
whether tangible or intangible, real or personal and constituting, or used or
useful in connection with, or related to, the Business, including, without
limitation, all of Seller's right, title and interest in the following:
(a) all cash and cash equivalents held by Seller;
(b) all Accounts Receivable (whether current or
noncurrent);
(c) all Contract Rights, to the extent transferable;
(d) all Leases;
(e) all Leasehold Estates;
(f) all Fixtures and Equipment;
(g) all Inventory;
(h) all Books and Records;
(i) all Intellectual Property of Seller;
(j) all Permits, to the extent transferable;
(k) all available supplies, sales literature, promotional
literature, customer, supplier and distributor lists, art work, display units,
telephone and fax numbers and purchasing records related to the Business;
(l) all rights under or pursuant to all warranties,
representations and guarantees made by suppliers in connection with the Assets
or services furnished to Seller pertaining to the Business or affecting the
Assets, to the extent such warranties, representations and guarantees are
assignable;
(m) all refunds, deposits, prepayments and prepaid
expenses of Seller; and
(n) all claims, causes of action, choses in action,
rights of recovery and rights of set-off of any kind, against any person or
entity, including without limitation any liens, security interests, pledges or
other rights to payment or to enforce payment in connection with
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products delivered by Seller on or prior to the Closing Date other than those
set forth on Exhibit A attached hereto;
but excluding therefrom (in each case) the Excluded Assets.
"Assignment and Assumption of Contract Rights" shall mean the
Assignment and Assumption of Contract Rights, substantially in the form attached
hereto as Exhibit B to be entered into at the Closing by and between Seller and
Acquiror.
"Assignment and Assumption of Leases" shall mean the
Assignment and Assumption of Leases, substantially in the form attached hereto
as Exhibit C to be entered into at the Closing by and between Seller and
Acquiror.
"Assignment of Intellectual Property" shall mean the
Assignment of Intellectual Property Rights, substantially in the form attached
hereto as Exhibit D, to be executed at the Closing by Seller in favor of
Acquiror.
"Balance Sheet" shall mean the audited balance sheet of Seller
at June 30, 2003, included in the Financial Statements attached hereto as
Schedule 4.11.
"Balance Sheet Date" shall mean June 30, 2003.
"Balance Sheet Liabilities" shall mean the Assumed Liabilities
to be set forth on the Forecasted August 31st Balance Sheet and the Closing
Balance Sheet.
"Base EBITDA" shall mean the sum of: (i) Two Million Two
Hundred Five Thousand Dollars ($2,205,000), plus (ii) the actual earnings before
interest, taxes, depreciation and amortization of the Special Markets Division
for the calendar year 2003 (inclusive of Allocations), less (iii) a Corporate
Services Allocation of the greater of Two Hundred Fifty Thousand Dollars
($250,000) or 1% of the Net Revenue of the Business for the calendar year 2003,
less (iv) an Operations and Sourcing Fee of the greater of Two Hundred Fifty
Thousand Dollars ($250,000) or 1% of the Net Revenue of the Business for the
calendar year 2003, less (v) an adjustment for Rent and Facilities Cost
Allocation equal to the incremental cost or benefit, if any, associated with
transferring the operations of the Business to Acquiror's Los Angeles,
California facility during 2003 (computed as if the transfer had occurred on
January 1, 2003 and combined with Seller's actual 2003 rent and facilities
costs).
"Benefit Arrangement" shall mean any employment, consulting,
severance or other similar contract, arrangement or policy and each plan,
arrangement (written or oral), program, agreement or commitment providing for
insurance coverage (including, without limitation, any self-insured
arrangements), workers' compensation, disability benefits, supplemental
unemployment benefits, vacation benefits, retirement benefits, life, health,
disability or accident benefits (including, without limitation, any "voluntary
employees' beneficiary association" as defined in Section 501(c)(9) of the Code
providing for the same or other benefits) or for deferred compensation,
profit-sharing bonuses, stock options, stock appreciation rights, stock
purchases or other forms of incentive compensation or post-retirement insurance,
compensation or benefits which is not a Welfare Plan, Pension Plan or
Multiemployer Plan.
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"Xxxx of Sale" shall mean the Xxxx of Sale, substantially in
the form attached hereto as Exhibit E, to be executed at the Closing by Seller
in favor of Acquiror.
"Bonus Amount" shall mean an amount equal to One Million Six
Hundred Fifty Five Thousand Dollars ($1,655,000).
"Books and Records" shall mean all business records, tangible
data, documents, management information systems (including related computer
software), files, customer lists, supplier lists, blueprints, specifications,
designs, drawings, plans, operation or maintenance manuals, bids, personnel
records, invoices, sales literature, all Tax Returns and all worksheets, notes,
files or documents related thereto, and all other books and records maintained
by Seller.
"Business" shall mean Seller's business of providing, directly
and/or indirectly through agencies and other companies supplying to, or selling
to, such businesses, promotional marketing campaigns utilizing premium incentive
merchandise for purchase-with-purchase and gift-with-purchase promotions for
department stores, mass market retailers, grocery stores, specialty retail
stores and consumer product companies.
"Business Day" shall mean a day other than Saturday, Sunday or
any day on which banks located in the State of California are authorized or
obligated to close.
"Closing Date Value" shall mean the average closing price per
share of the Acquiror's Common Stock on the Nasdaq National Market over the
thirty (30) day period preceding the Closing Date.
"Closing Net Working Capital" shall mean Current Assets minus
Balance Sheet Liabilities, in each case, as of the Closing Date.
"Code" shall mean the Internal Revenue Code of 1986, as
amended.
"Consulting Agreement" shall mean that certain Consulting
Agreement dated June 28, 2002 between the Seller and Hiwan Holdings, Inc., a
Colorado corporation, controlled by Xxxx X. Xxxxxx, a member of Seller
("Xxxxxx").
"Contract" shall mean any agreement, contract, note, loan,
evidence of indebtedness, purchase order, letter of credit, indenture, security
or pledge agreement, franchise agreement, undertaking, practice, covenant not to
compete, employment agreement, license, instrument, obligation or commitment to
which Seller is a party or is bound, whether oral or written, but excluding all
Leases.
"Contract Rights" shall mean all of Seller's rights and
obligations under the Contracts and Leases identified on Schedule 4.8 as
"Assumed Contracts" or "Assumed Leases" and under any Contracts or Leases not so
listed which Acquiror, in its sole discretion, elects to accept and assume.
"Corporate Services Allocation" shall mean a cost allocation
for the financial, legal and other services provided at the corporate
headquarters level to an operating division.
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"Court Order" shall mean any judgment, decision, consent
decree, injunction, ruling or order of any federal, state or local court or
governmental agency, department or authority that is binding on any person or
its property under applicable law.
"Current Assets" shall mean the current assets (excluding
intercompany receivables of Seller or the Business) of the Business (to the
extent included in the Assets) determined in accordance with GAAP.
"Current Liabilities" shall mean the current liabilities of
the Business described on the Balance Sheet incurred in the ordinary course of
business determined in accordance with GAAP and excluding any (i) liabilities
(including accrued liabilities) for Taxes of the Seller Parties, (ii)
liabilities to the members of Seller (except for the Consulting Agreement),
including any liabilities that may arise as a result of the consummation of the
transactions contemplated by this Agreement, (iii) severance liabilities, (iv)
indebtedness for borrowed money, and (v) Excluded Liabilities.
"Default" shall mean (a) a breach of or default under any
Contract or Lease, (b) the occurrence of an event that with the passage of time
or the giving of notice or both would constitute a breach of or default under
any Contract or Lease, or (c) the occurrence of an event that with or without
the passage of time or the giving of notice or both would give rise to a right
of termination, renegotiation or acceleration under any Contract or Lease.
"Disclosure Schedule" shall mean a schedule executed and
delivered by the Seller Parties to Acquiror as of the date hereof which sets
forth the exceptions to the representations and warranties contained in Article
IV hereof and certain other information called for by this Agreement. Unless
otherwise specified, each reference in this Agreement to any numbered schedule
is a reference to that numbered schedule which is included in the Disclosure
Schedule.
"EBITDA" shall mean (a) with respect to the year 2003, the
actual earnings before interest, taxes, depreciation and amortization of the
Business, derived from financial statements prepared in accordance with GAAP,
plus the 2003 Pro Forma Adjustment (but only to the extent not reflected in the
financial statements prepared in accordance with GAAP) and excluding any
Allocations (but including costs or expenses incurred or accrued at the Acquiror
corporate level that are directly attributable to the SCI Business, e.g.,
outside legal, insurance, product sourcing, etc.), or (b) with respect to the
years 2004, 2005 and 2006, the actual earnings before interest, taxes,
depreciation and amortization of the SCI Business (excluding the effect, if any,
of any change in accounting principles reflected below earnings from continuing
operations and the corresponding effect, if any, on future periods), derived
from financial statements prepared in accordance with GAAP, less Allocations (as
reflected in Acquiror's internal financial statements for the SCI Business).
"Employee Plans" shall mean all Benefit Arrangements,
Multiemployer Plans, Pension Plans and Welfare Plans which are, or within the
past six years were, sponsored, maintained, contributed to or required to be
contributed to by Seller or any of its ERISA Affiliates or under which Seller or
any of its ERISA Affiliates may incur any liability.
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"Encumbrance" shall mean any claim (as defined in Section
101(5) of the Bankruptcy Code), lien, pledge, option, charge, easement, security
interest, deed of trust, mortgage, right-of-way, encroachment, building or use
restriction, conditional sales agreement, encumbrance or other right of third
parties, whether voluntarily incurred or arising by operation of law, and
includes, without limitation, any agreement to give any of the foregoing in the
future, and any contingent sale or other title retention agreement or lease in
the nature thereof.
"Environmental Laws" shall mean all applicable federal, state,
or local laws, statutes, or regulations, which regulate or relate to the
protection or clean up of the environment; the use, treatment, storage,
transportation, handling, disposal or release of hazardous substances, or the
health and safety of persons or property.
"ERISA" shall mean the Employee Retirement Income Security Act
of 1974, as amended.
"ERISA Affiliate" shall mean, with respect to any Person, any
entity which is (or at any relevant time was) a member of a "controlled group of
corporations" with, under "common control" with, or a member of an "affiliated
service group" with, such Person as defined in Section 414(b), (c), (m) or (o)
of the Code, but only with respect to such time that such entity was an ERISA
Affiliate.
"Estimated August 31st Net Working Capital" shall mean Current
Assets minus Balance Sheet Liabilities, in each case as set forth on the
Forecasted August 31st Balance Sheet.
"Excess Bonus Amount" shall mean an amount equal to One
Million Eight Hundred Fifty Five Thousand Dollars ($1,855,000).
"Exchange Act" shall mean the Securities Exchange Act of 1934,
as amended, and the rules and regulations promulgated thereunder.
"Excluded Assets" shall mean the following assets of Seller
described on Exhibit G attached hereto, which are not to be acquired by Acquiror
hereunder:
(a) all Permits, to the extent not transferable;
(b) all claims, causes of action, choses in action,
rights of recovery and rights of set-off of any kind against any Person arising
out of or relating to the Assets to the extent related to the Excluded
Liabilities;
(c) all obligations of the Members or their Affiliates to
Seller (except for the Consulting Agreement); and
(d) such assets set forth on Exhibit G attached hereto.
"Excluded Liabilities" shall mean any and all Liabilities of
any Seller Party (including any Liability to or in respect of any employee or
former employee of Seller or its ERISA Affiliates, including, without limitation
any Liability under any employment agreement
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that is not an Assumed Contract, whether or not written, between Seller and any
person, and any Liability under or with respect to any Employee Plan), other
than the Assumed Liabilities.
"Facilities" shall mean all plants, offices, manufacturing
facilities, stores, warehouses, improvements, administration buildings, and all
real property and related facilities of Seller.
"Facility Leases" shall mean all of the leases of Facilities
listed on Schedule 4.8.
"Financial Statements" shall mean the audited balance sheet
and statements of operations, changes in members' equity and cash flow of the
Business for the period commencing June 29, 2002 and ending June 30, 2003 as set
forth in Schedule 4.11.
"Fixtures and Equipment" shall mean all of the furniture,
fixtures, furnishings, machinery, automobiles, trucks, spare parts, supplies,
equipment, tooling, molds, patterns, dies and other tangible personal property
owned by Seller, wherever located and including any such Fixtures and Equipment
in the possession of any of Seller's suppliers, including all warranty rights
with respect thereto.
"GAAP" shall mean generally accepted accounting principles in
the United States.
"Insurance Policies" shall mean the insurance policies of
Seller listed on Schedule 4.24.
"Intellectual Property" shall mean any and all rights in or
affecting intellectual or industrial property or other proprietary rights,
existing now or in the future in the United States or anywhere in the universe.
Intellectual Property includes, without limitation, any and all rights in, to,
or subsisting in the following:
(a) all issued patents, reissued or reexamined patents,
revivals of patents, divisions, continuations and continuations-in-part of
patents, all renewals and extensions thereof utility models, and certificates of
invention, regardless of country or formal name;
(b) all published or unpublished nonprovisional and
provisional patent applications, including the right to file other or further
applications, reexamination proceedings, invention disclosures and records of
invention;
(c) all copyrights, copyrightable works, semiconductor
topography and mask work rights, including, without limitation, all rights of
authorship, use, publication, reproduction, distribution, performance,
transformation, moral rights and ownership of copyrightable works, semiconductor
topography works and mask works, the right to create derivative works, and all
applications for registration, registrations, renewals and extensions of
registrations, together with all other interests accruing by reason of
international copyright, semiconductor topography and mask work conventions;
(d) all trademarks, service marks, logos, trade names,
domain names, 1-800, 1-888, 1-877 and other "vanity" telephone numbers, together
with the goodwill of the business
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associated therewith, all applications for registration and registrations
thereof, renewals thereof, the right to bring opposition and cancellation
proceedings and any and all rights under the laws of trade dress;
(e) all proprietary information and materials, whether or
not patentable or copyrightable, and whether or not reduced to practice,
including without limitation all technology, ideas, research and development,
inventions, designs, manufacturing and operating specifications and processes,
know-how, formulae, customer and supplier lists, shop rights, designs, drawings,
patterns, trade secrets and technical data, computer programs, and all hardware,
software and processes; and
(f) all other intangible assets, properties and rights
(whether or not appropriate steps have been taken to protect, under applicable
law, such other intangible assets, properties or rights) including, without
limitation, all claims, causes of action and rights to xxx for past, present and
future infringement or unconsented use of any of the Intellectual Property, the
right to file applications and obtain registrations, and all rights arising
therefrom and pertaining thereto and all products, proceeds and revenues arising
from or relating to any and all of the foregoing.
"Inventory" shall mean all of Seller's inventory held for
resale and all of Seller's raw materials, unbilled receivables, deferred costs,
work in process, finished products, wrapping, supply and packaging items and
similar items, in each case, wherever the same may be located.
"IRS" shall mean the Internal Revenue Service.
"Leasehold Estates" shall mean all of Seller's rights and
obligations as lessee under the Leases.
"Leasehold Improvements" shall mean all leasehold improvements
situated in or on the Leased Real Property and owned by Seller.
"Leased Real Property" shall mean all leased property
described in the Facility Leases.
"Leases" shall mean all of the existing leases with respect to
the real or personal property of Seller listed on Schedule 4.8 and leases with
respect to the real or personal property of Seller which are not required to be
listed on Schedule 4.8.
"Liability" or "Liabilities" shall mean any direct or indirect
liability, indebtedness, obligation, commitment, expense, claim, deficiency,
guaranty or endorsement of or by any Person of any type, whether accrued,
absolute, contingent, matured, unmatured or other, and shall include all
reserves.
"Material Adverse Effect" or "Material Adverse Change" shall
mean any significant adverse effect or change in the condition (financial or
other), business, results of operations, prospects, assets, Liabilities or
operations of the Business, taken as a whole, or on the ability of the Seller or
the Members to consummate the transactions contemplated hereby, or any
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event or condition which would, with the passage of time, constitute a "Material
Adverse Effect" or "Material Adverse Change".
"Multiemployer Plan" shall mean any "multiemployer plan," as
defined in Section 3(37) or 4001(a)(3) of ERISA.
"Net Revenue" shall mean gross revenue less returns, trade
discounts, xxxx-xxxxx and allowances, as determined in accordance with GAAP.
"Operations and Sourcing Fee" shall mean a cost allocation for
operations and sourcing services provided by an Affiliate to an operating
division.
"ordinary course of business" or "ordinary course" or any
similar phrase shall mean the ordinary course of the Business and consistent
with Seller's past practice.
"Organizational Documents" shall mean (a) the articles or
certificate of incorporation, all certificates of determination and designation,
and the bylaws of a corporation; (b) the partnership agreement and any statement
of partnership of a general partnership; (c) the limited partnership agreement
and the certificate or articles of limited partnership of a limited partnership;
(d) the operating agreement, limited liability company agreement and the
certificate or articles of organization or formation of a limited liability
company; (e) any charter or similar document adopted or filed in connection with
the creation, formation or organization of any other Person; and (f) any
amendment to any of the foregoing.
"Owned Real Property" shall mean all real property owned in
fee by Seller, including, without limitation, all rights, easements and
privileges appertaining or relating thereto, all buildings, fixtures, and
improvements located thereon and all Facilities thereon, if any.
"PBGC" shall mean the Pension Benefit Guaranty Corporation.
"Pension Plan" shall mean any "employee pension benefit plan"
as defined in Section 3(2) of ERISA (other than a Multiemployer Plan).
"Permits" shall mean all material licenses, permits,
franchises, approvals, authorizations, consents or orders of, or filings with,
any governmental authority, whether foreign, federal, state or local, or any
other person, necessary or desirable for the past or present conduct of, or
relating to the operation of the Business.
"Permitted Encumbrances" shall mean the Encumbrances set forth
in Schedule 4.7.
"Person" shall mean any individual, corporation (including any
non-profit corporation), general or limited partnership, limited liability
company, joint venture, estate, trust, association, organization, labor union,
or other entity or governmental body.
"Regulations" shall mean any laws, statutes, ordinances,
regulations, rules, notice requirements, court decisions, agency guidelines,
principles of law and orders of any foreign, federal, state or local government
and any other governmental department or agency, including,
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without limitation, Environmental Laws, energy, motor vehicle safety, public
utility, zoning, building and health codes, occupational safety and health and
laws respecting employment practices, employee documentation, terms and
conditions of employment and wages and hours.
"Rent and Facilities Cost Allocation" shall mean a cost
allocation for the corporate facilities occupied or used by an operating
division.
"Representative" shall mean any officer, director, principal,
attorney, agent, employee or other representative.
"SCI Business" shall mean Seller's existing Business together
with Acquiror's existing Special Markets division business (but excluding any
other businesses acquired or separately commenced by Acquiror after the Closing
Date, whether or not operated within the SCI Business).
"Securities Act" shall mean the Securities Act of 1933, as
amended, and the rules and regulations promulgated thereunder.
"Seller Employee Plan" shall mean any Employee Plan in which
any employee, former employee, director, or former director of Seller or its
subsidiaries participates, has participated, or is eligible to participate on
the Closing Date.
"Seller Parties' Knowledge" or "Knowledge of the Seller
Parties" or "Seller's Knowledge" shall mean the Knowledge of any of Seller,
Xxxxxxx or Xxxx Xxxx. "Knowledge" shall mean (a) in the case of a natural
Person, the actual knowledge of such Person or what such Person reasonably
should have known if such Person used due care in the performance of his or her
duties or could be expected to discover or otherwise become aware of in the
course of conducting a reasonably comprehensive investigation regarding the
accuracy of any representation or warranty contained in this Agreement, and (b)
in the case of any other Person, the actual knowledge after reasonable inquiry,
or what should have been known if due care were used, by the officers, managers,
general partner or other natural Person fulfilling similar duties on behalf of
or with respect to such Person.
"Special Markets Division" shall mean Acquiror's existing
business division known as Special Markets.
"Subsidiary" shall mean (a) any corporation in an unbroken
chain of corporations beginning with Seller if each of the corporations other
than the last corporation in the unbroken chain then owns stock possessing fifty
percent (50%) or more of the total combined voting power of all classes of stock
in one of the other corporations in such chain, (b) any partnership in which
Seller is a general partner, or (c) any partnership in which Seller possesses a
fifty percent (50%) or greater interest in the total capital or total income of
such partnership.
"Target Amount" shall mean One Million Four Hundred Fifty Five
Thousand Dollars ($1,455,000).
"Tax" shall mean (a) any net income, alternative or add-on
minimum tax, gross income, gross receipts, sales, use, ad valorem, value added,
transfer, franchise, profits, license,
10
registration, recording, documentary, conveyancing, gains, withholding, payroll,
employment, excise, severance, stamp, occupation, premium, property,
environmental or windfall profit tax, custom duty or other tax, governmental fee
or other like assessment or charge of any kind whatsoever, together with any
interest, penalty, addition to tax or additional amount imposed by any
governmental authority responsible for the imposition of any such tax (United
States or foreign), (b) liability for the payment of any amount described in
clause (a) as a result of being or having been a member of an affiliated,
consolidated, combined or unitary group, and (c) liability for the payment of
any amounts of the type described in clause (a) as a result of being party to
any agreement or any express or implied obligation to indemnify any other
Person.
"Tax Return" shall mean a report, return or other information
required to be supplied to a governmental agency with respect to Taxes,
including, where permitted or required, combined or consolidated returns for any
group of entities that includes Seller.
"Welfare Plan" shall mean any "employee welfare benefit plan"
as defined in Section 3(1) of ERISA.
"2003 Pro Forma Adjustment" shall mean the sum of (a) actual
pro forma adjustments for the six months ended June 30, 2003 in the amount of
Two Hundred Seventy Six Thousand Seven Hundred Eighty-Six Dollars ($276,786) as
set forth on Schedule 1.1, plus (b) any adjustments resulting from Acquiror's
purchase accounting for the transaction contemplated by this Agreement, plus (c)
any incremental costs as a result of operational changes related to the
integration of the Business in excess of "forecasted costs" for such item (e.g.,
replacement of internal services with outside services), including, but not
limited to, costs of the Employee Bonuses, stay bonuses and severance payments
(excluding ordinary course employee terminations unrelated to the integration of
the Business), plus (d) expenses for outside services related to the transaction
contemplated by this Agreement such as legal, accounting and other advisory
fees. For purposes of subsection (c) of the foregoing, "forecasted costs" shall
mean costs consistent with those used by Seller to develop the Forecasted 2003
Statement of Operations included on Schedule 1.1 (the "2003 Forecast"). Acquiror
acknowledges that the 2003 Forecast contains projections regarding future events
or financial performance based upon Seller's current knowledge and expectations
and that actual results may differ. Seller acknowledges that in the event of an
adjustment under subsection (c) of the foregoing, the "forecasted cost" will be
included for purposes of calculating EBITDA.
1.2. Other Defined Terms. The following terms shall have the
meanings defined for such terms in the Sections set forth below:
Term Section
---- -------
Acquiror Indemnitees 8.3(a)
Acquiror SEC Reports 5.4
Additional Contracts 2.2(a)
Adjustment Amount 2.6(b)
Ancillary Agreements 4.3
Assumed Liabilities 2.2(a)
Claim 8.3(d)
Claim Notice 8.3(d)
11
Closing 3.1
Closing Balance Sheet 2.6(a)
Closing Date 2.1
Competitive Activities 6.1(b)
Damages 8.3(a)
Earnout Payments 2.7(a)
Earnout Period 2.7(a)
Earnout Promissory Note 2.7(c)
Earnout Shares 4.31
Employee Bonuses 2.7(a)(i)
Forecasted August 31st Balance Sheet 2.5
Holdback Amount 2.4(c)
Indemnification Basket 8.3(f)
Independent Accountant 2.7(b)
Pre-Closing Tax Period 8.5(a)
Post-Closing Tax Period 8.5(a)
Purchase Price 2.4(a)
Purchase Price Allocation Schedule 2.4(b)
Rehired Employees 6.3(a)
Restricted Persons 6.1(a)
Sales Bonuses 2.7(a)(i)
SCI Business Financial Statements 2.7(a)
SEC 5.4
Seller Indemnitees 8.3(b)
Seller's Account 2.4(a)
Shortfall Amount 2.6(b)
WARN Act 4.15(b)
2003 Additional Payment 2.7(a)(i)
2003 Payment 2.7(a)(i)
2004 EBITDA 2.7(a)(ii)
2004 Payment 2.7(a)(ii)
2005 EBITDA 2.7(a)(iii)
2005 Payment 2.7(a)(iii)
2006 EBITDA 2.7(a)(iv)
ARTICLE II.
PURCHASE AND SALE OF ASSETS; PURCHASE PRICE
2.1. Transfer of Assets. Upon the terms and subject to the
conditions contained herein, on the date of this Agreement (the "Closing Date"),
Seller hereby agrees to sell, convey, transfer, assign and deliver to Acquiror,
and Acquiror hereby agrees to purchase, acquire and accept from Seller, the
Assets, free and clear of all Encumbrances other than Permitted Encumbrances.
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2.2. Assumption of Liabilities.
(a) Upon the terms and subject to the conditions
contained herein, at the Closing, Acquiror agrees to assume (i) all Liabilities
accruing, arising out of, or relating to periods, events or occurrences
happening after the Closing Date under (a) the Contracts and Leases identified
on Schedule 4.8 as "Assumed Contracts" or "Assumed Leases"; (b) any Contract or
Lease not required to be set forth on Schedule 4.8 which (1) is commercially
reasonable as to its terms binding Seller, (2) is reflected in the Books and
Records, (3) was entered into as a result of an arms' length negotiation in the
ordinary course of business and (4) would not, together with other such
Contracts described in clause (b), create a Material Adverse Effect; and (c)
under any other Contracts or Leases that are not Assumed Contracts pursuant to
the foregoing clauses (a) or (b) which Acquiror elects to accept and assume in
its sole discretion (the "Additional Contracts"), excluding in each case any
Liability for any Default under any Contract or Lease occurring on or prior to
the Closing Date, and excluding, in each case, any intercompany Contracts of
Seller or the Business, (ii) all Current Liabilities, and (iii) liability for
real property, personal property and similar ad valorem taxes specifically
apportioned to Acquiror pursuant to Section 10.7 hereof (collectively, the
"Assumed Liabilities").
(b) If Seller discovers an Additional Contract, it shall
promptly give Acquiror written notice of such Additional Contract and a copy of
such Additional Contract, and Acquiror shall have the option to elect to assume
such Additional Contract in its sole discretion. If Acquiror fails to notify
Seller of its intention to assume such Additional Contract within thirty (30)
days after Acquiror's receipt of written notice from Seller, Seller may assume
that Acquiror does not intend to assume such Additional Contract. If Acquiror
discovers an Additional Contract, it may assume such Additional Contract in its
sole discretion by giving Seller written notice of its intention to assume such
Additional Contract. Any Additional Contracts which Acquiror elects to assume
pursuant to this Section 2.2(b) shall be deemed Assumed Contracts for purposes
of this Agreement and the Assignment and Assumption of Contract Rights.
2.3. Nonassumption of Liabilities. Notwithstanding any other
provisions of this Agreement, except for the Assumed Liabilities expressly
specified in Section 2.2 above, Acquiror shall not assume or otherwise be
responsible for any of the Excluded Liabilities.
2.4. Purchase Price.
(a) Upon the terms and subject to the conditions
contained herein, at the Closing, in consideration for the transfer of the
Assets pursuant to Section 2.1 of this Agreement, Acquiror shall pay the
Purchase Price (as defined herein) by depositing in an account or accounts
designated by Seller (the "Seller's Account"): (i) the sum of Three Million
Eight Hundred Eighty Three Thousand Nine Hundred Thirty One Dollars
($3,883,931), plus the Estimated Closing Net Working Capital as set forth in the
calculation accompanying the Forecasted August 31st Balance Sheet pursuant to
Section 2.5 (the "Purchase Price"), and less (ii) the Holdback Amount. The
amount to be deposited in the Seller's Account on the Closing Date shall be paid
in cash by wire transfer of immediately available funds to the Seller's Account.
(b) Seller and Acquiror agree that as soon as reasonably
practical after the Closing, and prior to the filing of any Tax Return which
includes information related to the
13
transactions contemplated by this Agreement, the Purchase Price and the Assumed
Liabilities shall be allocated among the Assets in accordance with an allocation
schedule (the "Purchase Price Allocation Schedule") proposed by Acquiror and
reasonably acceptable to Seller, which shall be prepared in a manner required by
Section 1060 of the Code and other applicable law and delivered by Acquiror to
Seller no later than forty-five (45) days after the Closing. In connection with
the Purchase Price Allocation Schedule, Seller and Acquiror shall discuss the
allocation of the Purchase Price and attempt in good faith to reach agreement
with respect thereto. Seller and Acquiror shall prepare mutually acceptable and
substantially identical initial and supplemental IRS Forms 8594 "Asset
Acquisition Statements Under Section 1060" consistent with the Purchase Price
Allocation Schedule (giving effect to mutually agreed-upon adjustments to the
allocation set forth on the Purchase Price Allocation Schedule as a result of
any required adjustments to the Purchase Price or payment of any Earnout Payment
pursuant to Article II which the parties shall use to report the transactions
contemplated by this Agreement to the applicable Taxing authorities.
(c) The "Holdback Amount" shall be an amount equal to Two
Hundred Fifty Thousand Dollars ($250,000), which Acquiror, at the Closing, shall
hold pending the final determination of the Adjustment Amount (as defined in
Section 2.6 below).
2.5. Forecasted August 31st Balance Sheet. Seller has prepared and
delivered to Acquiror Schedule 2.5 which sets forth (a) a forecasted balance
sheet dated August 31, 2003 (the "Forecasted August 31st Balance Sheet"), and
(b) a reasonably detailed calculation of the Estimated August 31st Net Working
Capital. The Forecasted August 31st Balance Sheet has been prepared by Seller's
personnel consistent with GAAP and consistent with Seller's historical
accounting practices, and fairly presents, in all material respects, the
forecasted Current Assets and Balance Sheet Liabilities of the Business as of
August 31, 2003.
2.6. Post-Closing Adjustment.
(a) Closing Balance Sheet. No later than thirty (30) days
following the Closing, Acquiror shall prepare and deliver to Seller (i) a
balance sheet dated the Closing Date (the "Closing Balance Sheet"), and (ii) a
reasonably detailed calculation of the Adjustment Amount. The Closing Balance
Sheet shall be prepared in accordance with GAAP and consistent with Seller's
historical accounting practices, and shall fairly in all material respects
present the Current Assets and Balance Sheet Liabilities of the Business as of
the Closing Date. The Closing Balance Sheet shall be accompanied by reasonably
detailed schedules indicating a calculation of the Closing Net Working Capital
as set forth on the Closing Balance Sheet.
(b) Adjustment Amount. The "Adjustment Amount" shall be
an amount equal to (i) Closing Net Working Capital, minus (ii) Estimated August
31st Net Working Capital.
(i) If the Adjustment Amount is a positive
number, then Acquiror shall pay to Seller an amount equal to the Holdback Amount
plus the Adjustment Amount.
(ii) If the Adjustment Amount is a negative
number, the absolute value of which is less than or equal to the Holdback
Amount, then Acquiror shall retain from the
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Holdback Amount an amount equal to the absolute value of the Adjustment Amount
and shall pay to Seller the balance of the Holdback Amount.
(iii) If the Adjustment Amount is a negative
number, the absolute value of which is greater than the Holdback Amount,
Acquiror shall retain the Holdback Amount and Acquiror shall have a right of
offset against the Earnout Promissory Note and the Earnout Payments in an amount
equal to the absolute value of the Adjustment Amount less the Holdback Amount
plus interest on such difference calculated from the Closing Date at the rate of
five percent (5%) per annum (the "Shortfall Amount"). Seller Parties' liability
for the Shortfall Amount shall be joint and several.
(c) Disputed Adjustment Amount; Payment of Adjustment
Amount. If Seller shall disagree with the Adjustment Amount, it shall notify
Acquiror of such disagreement in writing specifying in detail the particulars of
such disagreement within fifteen (15) Business Days after Seller's receipt of
the Closing Balance Sheet. To the extent that any portion of the Adjustment
Amount due Seller is not in dispute, within fifteen (15) Business Days after
Acquiror's delivery of the Closing Balance Sheet, Acquiror shall pay to Seller
that portion of the Adjustment Amount which is not in dispute in the manner set
forth in Section 2.6(b).
(d) Resolution of Disputed Adjustment Amount. Acquiror
and Seller shall use their reasonable efforts for a period of fifteen (15)
Business Days after Seller's delivery of such notice (or such longer period as
Acquiror and Seller shall mutually agree upon) to resolve any disagreements
raised by Seller with respect to the calculation of the Adjustment Amount. If,
at the end of such period, Acquiror and Seller are unable to resolve such
disagreements, Acquiror and Seller shall jointly select an independent auditor
of recognized national standing to resolve any remaining disagreements; provided
that Ernst & Young LLP will be the independent auditor if Acquiror and Seller
cannot agree on the selection of such independent auditor. The determination by
such independent auditor shall be final, binding and conclusive on the parties.
Acquiror and Seller shall use their reasonable efforts to cause the independent
auditor to make its determination within thirty (30) calendar days of accepting
its selection. Within ten (10) Business Days after the date of determination of
such independent auditor, Acquiror shall make any payments to Seller required in
accordance with the determination of the independent auditor. The fees and
expenses of such independent auditor shall be borne by Acquiror and Seller
Parties in proportion to the aggregate amount of all disputed items as to which
such party's claim was unsuccessful (i.e., if there are $100,000 of disputed
items and the independent auditor determines that Seller's claim prevails with
respect to $25,000 of such disputed items and Acquiror's claim prevails with
respect to $75,000 of such disputed items, then Seller Parties would be
obligated to pay seventy five percent (75%) of the fees and expenses and
Acquiror would be obligated to pay twenty five percent (25%) of the fees and
expenses).
(e) Payment of Adjustment Amount. All payments made by
Acquiror to Seller or out of the Holdback Amount, shall be made by wire transfer
of immediately available funds to an account designated by Seller.
15
2.7. Earnout.
(a) In connection with this Section 2.7, Acquiror shall
deliver to the Seller no later than ninety (90) calendar days following the end
of each of the first four fiscal years of Acquiror following the Closing Date
(it being understood that the first of such fiscal years shall be the year
ending December 31, 2003)(the "Earnout Period"), an income statement for the SCI
Business (the "SCI Business Financial Statements"). The SCI Business Financial
Statements shall set forth the EBITDA attributable to the SCI Business.
(i) In the event EBITDA of the Business for the
calendar year 2003 exceeds the Target Amount, Acquiror shall pay to Seller the
sum of Five Hundred Thousand Dollars ($500,000) (the "2003 Payment"), plus an
amount equal to one hundred percent (100%) of the amount by which such 2003
EBITDA exceeds the Target Amount (the "2003 Additional Payment") in accordance
with the terms of this Section 2.7, up to a maximum aggregate payment of Eight
Hundred Thousand Dollars ($800,000) pursuant to this sentence. Acquiror shall
also pay to the employees of SCI, excluding Xxxxxxx, bonus compensation
(collectively, "Employee Bonuses") as follows: (A) In the event that 2003 EBITDA
exceeds the Bonus Amount, Acquiror shall pay cash bonuses in the aggregate
amount of Two Hundred Thousand Dollars ($200,000) in the individual amounts set
forth on Schedule 2.7(a)(i)(A) (subject to reallocation at the discretion of
Xxxxxxx if an employee terminates prior to payment bonuses); (B) Up to Two
Hundred Thousand Dollars ($200,000) in cash bonuses to certain sales employees
in accordance with the bonus arrangements set forth on Schedule 2.7(a)(i)(B)
(the "Sales Bonuses"); and (C) In the event that 2003 EBITDA exceeds the Excess
Bonus Amount, Acquiror shall pay cash bonuses equal to twenty-five percent (25%)
of the amount by which 2003 EBITDA exceeds the Excess Bonus Amount up to an
aggregate amount of Two Hundred Thousand Dollars ($200,000) less the amount of
the Sales Bonuses, in the individual amounts determined by Xxxxxxx in his
discretion. Under no circumstances shall the aggregate amount of the Employee
Bonuses payable by Acquiror pursuant hereto exceed Four Hundred Thousand Dollars
($400,000).
(ii) In the event that EBITDA of the SCI Business
for the fiscal year 2004 ("2004 EBITDA") exceeds Base EBITDA, Acquiror shall pay
to Seller an amount equal to fifty percent (50%) of the amount by which 2004
EBITDA exceeds Base EBITDA, subject to a maximum payment of Eight Hundred
Thousand Dollars ($800,000) less 27% of any 2003 Additional Payment (the "2004
Payment").
(iii) In the event that the sum of 2004 EBITDA and
the EBITDA of the SCI Business for the fiscal year 2005 ("2005 EBITDA") exceeds
two (2) times Base EBITDA, Acquiror shall pay to Seller an amount equal to fifty
percent (50%) of the amount by which the sum of 2004 EBITDA and 2005 EBITDA
exceeds two (2) times Base EBITDA, subject to a maximum payment, inclusive of
the 2004 Payment, of One Million Eight Hundred Thousand Dollars ($1,800,000)
less 60% of any 2003 Additional Payment (the "2005 Payment").
(iv) In the event that the sum of 2004 EBITDA,
2005 EBITDA and the EBITDA of the SCI Business for the fiscal year 2006 ("2006
EBITDA") exceeds three (3) times Base EBITDA, Acquiror shall pay to Seller an
amount equal to fifty percent (50%) of the amount by which the sum of 2004
EBITDA, 2005 EBITDA and 2006 EBITDA exceeds three (3) times Base EBITDA, subject
to a maximum payment, inclusive of the 2004 Payment and the
16
2005 Payment, of Three Million Dollars ($3,000,000) less 100% of any 2003
Additional Payment.
Any amounts required to be paid pursuant to this Section
2.7(a) (except for any Employee Bonuses) are collectively referred to as
"Earnout Payments" and shall be payable as provided in Section 2.7(c). The
maximum aggregate Earnout Payments that Acquiror can be required to make under
this Section 2.7(a) shall be Three Million Five Hundred Thousand Dollars
($3,500,000).
(b) Unless Seller gives written notice to Acquiror on or
before the fifteenth (15th) Business Day after Seller's receipt of the final SCI
Business Financial Statements to be delivered pursuant to this Section 2.7,
specifying in reasonable detail all disputed items and the basis therefor,
Seller shall be deemed to have accepted the SCI Business Financial Statements
and the amount of the associated Earnout Payment, if any. If Seller so notifies
Acquiror of its objection to the SCI Business Financial Statements, Seller and
Acquiror shall, within thirty (30) calendar days following such notice, attempt
to resolve their differences in good faith, and any resolution by them as to any
disputed amounts shall be final, binding and conclusive. If, at the end of such
thirty (30) calendar day period, Seller and Acquiror are unable to resolve such
disagreements, Acquiror and Seller shall jointly select an independent auditor
of recognized national standing to resolve any remaining disagreements; provided
that Ernst & Young LLP will be the independent auditor if Acquiror and Seller
cannot agree on the selection of such independent auditor (the "Independent
Accountant"). Acquiror and Seller shall use their reasonable efforts to cause
the Independent Accountant to make its determination within thirty (30) calendar
days of accepting its selection. The determination by the Independent Accountant
shall be final, binding and conclusive on the parties. The fees and expenses of
the Independent Accountant shall be borne by Acquiror and Seller Parties in
proportion to the aggregate amount of all disputed items as to which such
party's claim was unsuccessful (i.e., if there is a $100,000 dispute regarding
the amount of the Earnout Payment and the Independent Accountant determines that
Seller's claim prevails with respect to $25,000 of such disputed amount and
Acquiror's claim prevails with respect to $75,000 of such disputed amount, then
Seller Parties would be obligated to pay seventy five percent (75%) of the fees
and expenses and Acquiror would be obligated to pay twenty five percent (25%) of
the fees and expenses).
(c) Subject to Section 8.8 below, within thirty (30)
calendar days after (i) receipt by Seller of SCI Business Financial Statements
for any year of the Earnout Period which reflect an Earnout Payment due to
Seller, or (ii) in the event of a disagreement, the date of resolution of such
disagreement by the Parties or the date of determination by the Independent
Accountant pursuant to Section 2.7(c) (it being understood that this clause (ii)
shall only apply to any disputed portion of the Earnout Payments), the
applicable Earnout Payment shall be paid by Acquiror as follows:
(i) with respect to the year 2003, the Earnout
Payment shall be payable forty percent (40%) in cash and sixty percent (60%) by
delivery of a three (3) year promissory note bearing interest at the rate of
five percent (5%) amortized over five (5) years and payable monthly (the
"Earnout Promissory Note") in the form attached hereto as Exhibit F; and
17
(ii) with respect to each of the years 2004, 2005
and 2006, the Earnout Payment shall be payable fifty percent (50%) in cash and
fifty percent (50%) in shares of Acquiror's Common Stock at the Closing Date
Value. In the event that following the Closing Date all of the outstanding
shares of Acquiror's Common Stock are converted or exchanged as the result of a
merger, recapitalization, reclassification, stock split, reverse stock split,
stock dividend, stock consolidation or otherwise, appropriate and proportionate
adjustments shall be made to the number and kind of shares issuable with respect
to any Earnout Payment thereafter. In the event that Acquiror's Common Stock is
no longer publicly traded on the date of an Earnout Payment, Seller shall have
the option to receive in cash, the then current fair market value of the number
of shares of Acquiror's Common Stock which would be deliverable as part of such
Earnout Payment.
(d) In connection with the operation of the SCI Business
after the Closing, Acquiror agrees to maintain separate divisional books and
records for the SCI Business in accordance with GAAP, consistently applied.
Acquiror and each of the Seller Parties agree to act in good faith during the
Earnout Period relative to the SCI Business and not to take actions that would
be unfairly prejudicial or discriminatory to the SCI Business for the purpose of
adversely affecting Seller's interest in receiving an Earnout Payment.
(e) Upon delivery of the SCI Business Financial
Statements, Acquiror shall afford to the Seller Parties and their accounting
representatives prompt and reasonable access upon reasonable notice to all
information reasonably necessary to verify calculation of the Earnout Payments.
Acquiror shall make its employees who are familiar with such matters, its
independent outside accounting firm and its representatives available to Seller
on a mutually convenient basis at reasonable times during normal business hours
to provide an explanation of such materials and to provide such other
information as Seller and its representatives may reasonably request in
connection with its review of the SCI Business Financial Statements.
2.8. Transfer Taxes. Seller shall pay, and Seller shall indemnify
and hold harmless Acquiror from, all transfer, conveyance or similar Taxes
imposed as a result of the transactions contemplated by this Agreement. Seller
and Acquiror shall cooperate in timely making all filings, returns, reports and
forms as may be required in connection with Sellers' payment of such Taxes.
Seller and Acquiror, as appropriate, shall execute and deliver all instruments
and certificates necessary to enable the other to comply with any filing
requirements relating to any such Taxes.
ARTICLE III.
CLOSING
3.1. Deliveries at Closing.
(a) Deliveries by Acquiror. Subject to the terms and
conditions of this Agreement, in reliance on the representations, warranties and
agreements of the Seller Parties contained herein, in consideration of the sale,
assignment and transfer of the Assets, Acquiror agrees to deliver (or cause to
be delivered) to Seller upon execution of this Agreement (the
18
"Closing") the following agreements and documents, all satisfactory in form and
substance to Seller and its respective legal counsel:
(i) the wire transfer of the portion of the
Purchase Price to be paid to Seller on the Closing Date;
(ii) a certificate executed by the Secretary or
an Assistant Secretary of Acquiror certifying as of the Closing Date (A) a true
and complete copy of the Organizational Documents of Acquiror certified as of a
recent date by the Secretary of State of the State of Delaware, (B) a true an
complete copy of the resolutions of the board of directors of Acquiror
authorizing the execution, delivery and performance of this Agreement and the
consummation of the transactions contemplated hereby and (C) incumbency matters;
and
(iii) a certificate of good standing and/or
existence of Acquiror, dated as of a recent date prior to the Closing, issued by
the Secretary of State of the State of Delaware.
(b) Deliveries by the Seller Parties. Subject to the
terms and conditions of this Agreement, in reliance upon the representations,
warranties and agreements of Acquiror contained herein and in consideration of
the Purchase Price to be paid to Seller, the Seller Parties agree to deliver (or
cause to be delivered) to Acquiror at the Closing on the Closing Date the
following agreements and documents, all satisfactory in form and substance to
Acquiror and its legal counsel:
(i) a certificate executed by the Manager of
Seller certifying as of the Closing Date (A) a true and complete copy of the
Organizational Documents of Seller certified as of a recent date by the
Secretary of State of the State of Delaware, (B) a true an complete copy of the
resolutions of the Member of Seller and managers of Seller authorizing the
execution, delivery and performance of this Agreement and the consummation of
the transactions contemplated hereby and (C) incumbency matters;
(ii) certificates of good standing and/or
existence of Seller, dated as of a recent date prior to the Closing, issued by
the Secretaries of State of the States of Delaware and California;
(iii) an opinion of Xxxxxx Xxxxxxx Xxxxxx & Xxxxx,
counsel to the Seller Parties, dated as of the Closing Date, in the form
attached hereto as Exhibit H;
(iv) evidence of receipt of all consents set
forth on Schedule 4.4 (except those specifically waived by Acquiror as indicated
on such schedule, which consents shall be subject to Section 6.2 and Section 7.1
hereof);
(v) an affidavit from Seller stating, under
penalties of perjury, Seller's taxpayer identification number and that Seller is
not a foreign person pursuant to Section 1445(b)(2) of the Code;
(vi) a Release executed by the Member in favor of
Acquiror, in the form attached hereto as Exhibit I.
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3.2. Other Closing Transactions. In addition, subject to the terms
and conditions of this Agreement, Acquiror and the applicable Seller Parties
shall deliver or cause to be delivered to each other party on the Closing Date:
(a) the Xxxx of Sale;
(b) the Assignment and Assumption of Contract Rights;
(c) the Assignment and Assumption of Leases; and
(d) the Assignment of Intellectual Property.
3.3. Other Deliveries. In addition, subject to the terms and
conditions of this Agreement, the Seller Parties shall deliver or cause to be
delivered to Acquiror on the Closing Date such other documents and instruments
as in the opinion of counsel for Acquiror may be reasonably required to
effectuate the terms of this Agreement and to comply with the terms hereof.
ARTICLE IV.
REPRESENTATIONS AND WARRANTIES OF THE SELLER PARTIES
Each of the Seller Parties jointly and severally hereby
represents and warrants to Acquiror as follows:
4.1. Organization of Seller. Seller is a limited liability company
duly organized, validly existing and in good standing under the laws of the
State of Delaware with full power and authority to conduct its business as it is
presently being conducted, to own and or use the properties and assets that it
purports to own or use, and to perform all its obligations under its Contracts.
Xxxxxxx and Xxxxxx are all of the members of Seller. Seller is duly qualified to
do business as a foreign corporation and is in good standing in each
jurisdiction listed on Schedule 4.1, being all the jurisdictions in which the
character of its properties owned or leased or the nature of its activities make
such qualification necessary, other than where the failure to be so qualified
would not have a Material Adverse Effect. Copies of the Organizational Documents
of Seller, and all amendments thereto, heretofore delivered to Acquiror are
true, accurate and complete as of the date hereof.
4.2. Subsidiaries. Seller does not have any Subsidiaries. Except as
set forth on Schedule 4.2, Seller has no direct or indirect stock or other
equity or ownership interest (whether controlling or not) in any corporation,
association, partnership, limited liability company, joint venture or other
entity.
4.3. Authorization. Each Seller Party has all requisite power and
authority, and has taken all action necessary, to execute and deliver this
Agreement and the other agreements, instruments, documents and certificates to
be executed and delivered by such Seller Party pursuant hereto (collectively,
the "Ancillary Agreements") and to consummate the transactions contemplated
hereby and thereby and to perform its obligations hereunder and thereunder. The
execution and delivery of this Agreement and the Ancillary Agreements by the
Seller Parties and
20
the consummation by the Seller Parties of the transactions contemplated hereby
and thereby have been duly approved by the managers of Seller and by Xxxxxxx and
Xxxxxx as all of the members of Seller, and Acquiror has been provided with
documentation of such manager and member approvals. No limited liability company
proceedings or other actions on the part of any Seller Party are necessary to
authorize this Agreement and the Ancillary Agreements and the transactions
contemplated hereby and thereby. Each Seller Party represents that this
Agreement has been duly executed and delivered by each of the Seller Parties and
is, and upon execution and delivery of the Ancillary Agreements, each of the
Ancillary Agreements will be, legal, valid and binding obligations of each of
the Seller Parties enforceable against each of them in accordance with their
terms, in each case, except as such enforceability may be limited by (a)
bankruptcy, insolvency, moratorium, reorganization and other similar laws
affecting creditors' rights generally and (b) the general principles of equity,
regardless of whether asserted in a proceeding in equity or at law.
4.4. Consents and Approvals. (a) Except as set forth on Schedule
4.4 no notice to, declaration, filing or registration with, or authorization,
consent or approval of, or permit from, any Person (other than the consent of
the manager and members of Seller, which has already been obtained and other
than consents to the assignment of Contracts), and (b) except as set forth on
Schedule 4.4, no consent to the assignment of any Contract required to be
disclosed on Schedule 4.8 or Schedule 4.19(b) from any other Person, is, in each
case, required to be made or obtained by Seller or any other Affiliate of Seller
in connection with the execution, delivery and performance of this Agreement and
the Ancillary Agreements and the consummation of the transactions contemplated
hereby and thereby by Seller or any other Affiliate of Seller, as applicable.
4.5. Absence of Certain Changes or Events. Since the Balance Sheet
Date, except as set forth on Schedule 4.5, there has not been any:
(a) change in Seller's authorized or issued membership
interests; grant of any membership interest option or right to purchase any
equity interest in Seller; issuance of any security convertible into such equity
interest; grant of any registration rights; purchase, redemption, retirement or
other acquisition by Seller of any such equity interests; or declaration or
payment of any dividend or other distribution or payment in respect of such
equity interests;
(b) amendment to the Organizational Documents of Seller;
(c) actual or, to Seller's Knowledge, threatened Material
Adverse Change in the financial condition, working capital, members' equity,
assets, Liabilities, reserves, revenues, income earnings, prospects or Business
of Seller;
(d) change in accounting methods, principles or practices
by Seller affecting the Assets, its Liabilities or the Business;
(e) material revaluation by Seller of any of the Assets,
including, without limitation, writing down the value of inventory or writing
off notes or accounts receivable;
(f) damage, destruction or loss (whether or not covered
by insurance) materially and adversely affecting the Assets or the Business;
21
(g) cancellation of any indebtedness or waiver or release
of any right or claim of Seller relating to its activities or properties which
had or will have a Material Adverse Effect;
(h) increase in the rate of compensation payable or to
become payable to any director, officer or other employee of Seller or any
consultant, Representative or agent of Seller, including, without limitation,
the making of any loan to, or the payment, grant or accrual of any bonus,
incentive compensation, service award or other similar benefit to, any such
person, or the addition to, modification of, or contribution to any Seller
Employee Plan, arrangement, or practice described in the Disclosure Schedule
other than (i) contributions made for the fiscal year 2003 in accordance with
the normal practices of Seller or (ii) the extension of coverage to others who
become eligible after the Balance Sheet Date;
(i) entry into, amendment, cancellation or termination of
any Contract, commitment, agreement, Lease, transaction or Permit relating to
the Assets or the Business, including, without limitation, any employment,
consulting, distributorship, dealer, sales representative, joint venture, credit
or similar agreement or any Contract or transaction involving a total remaining
commitment by or to Seller of at least $50,000;
(j) mortgage, pledge or other encumbrance of any Assets
of Seller having, individually or in the aggregate, a value of $50,000 or more,
except purchase money mortgages arising in the ordinary course of business;
(k) sale, assignment or transfer of any of the Assets of
Seller having, individually or in the aggregate, a value of $50,000 or more,
other than in the ordinary course of business;
(l) incurrence of indebtedness in excess of $50,000 by
Seller for borrowed money or commitment to borrow money entered into by Seller,
or loans made or agreed to be made by Seller, or indebtedness guaranteed by
Seller;
(m) incurrence by Seller of Liabilities in excess,
individually or in the aggregate, of $50,000 or more, except Liabilities
incurred in the ordinary course of business, or increase or change in any
assumptions underlying or methods of calculating, any doubtful account
contingency or other reserves of Seller;
(n) discharge or satisfaction of any Liabilities of
Seller in excess, individually or in the aggregate, of $50,000 or more other
than the payment, discharge or satisfaction in the ordinary course of business
of Liabilities set forth or reserved for on the Financial Statements or incurred
in the ordinary course of business;
(o) capital expenditure by Seller, the execution of any
Lease by Seller or the incurring of any obligation by Seller to make any capital
expenditure or execute any Lease, in each case, in excess, individually or in
the aggregate, of $50,000 or more;
(p) failure to pay or satisfy when due any Liability of
Seller, except where the failure would not have a Material Adverse Effect;
22
(q) disposition or lapsing of any material Intellectual
Property or any disposition or disclosure to any person of any Intellectual
Property not theretofore a matter of public knowledge;
(r) existence of any other event or condition which in
any one case or in the aggregate has or would reasonably be expected to have a
Material Adverse Effect; or
(s) agreement, whether oral or written, by Seller to do
any of the things described in the preceding clauses (a) through (r) other than
as expressly provided for herein.
4.6. Facilities.
(a) Owned Real Property. Seller does not have any Owned
Real Property.
(b) Actions. There are no pending or, to the Knowledge of
the Seller Parties, threatened condemnation proceedings or other Actions
relating to any Facility.
(c) Leases or Other Agreements. Except for Facility
Leases listed on Schedule 4.8 below, there are no leases, subleases, licenses,
occupancy agreements, options, rights, concessions or other agreements or
arrangements, written or oral, granting to any person the right to purchase, use
or occupy any Facility, or any real property or any portion thereof or interest
in any such Facility or real property.
(d) Facility Leases and Leased Real Property. With
respect to each Facility Lease, Seller has and will transfer to Acquiror at the
Closing an unencumbered interest in the applicable Leasehold Estate. Seller
enjoys peaceful and undisturbed possession of all the Leased Real Property.
Schedule 4.8 sets forth a complete and accurate list of all real property Leases
or other interests therein owned by Seller.
(e) Certificate of Occupancy. All Facilities have
received all required approvals of governmental authorities (including, without
limitation, Permits and a certificate of occupancy or other similar certificate
permitting lawful occupancy of the Facilities) required in connection with the
operation thereof and have been operated and maintained in all material respects
in accordance with applicable Regulations.
(f) No Special Assessment. Seller has not received notice
of any special assessment relating to any Facility or any portion thereof and
there is no pending or threatened special assessment.
4.7. Assets. Seller has and will transfer good and marketable title
to the Assets and upon the consummation of the transactions contemplated hereby
and Acquiror will acquire good and marketable title to all of the Assets, in
each case free and clear of any Encumbrances other than Permitted Encumbrances.
To Seller's Knowledge, the Assets include without limitation all material assets
necessary for the conduct of the Business as presently conducted by Seller and
to permit Acquiror to continue to conduct the Business in all respects in
substantially the same manner as the Business has been conducted through the
date hereof. Except as set forth on Schedule 4.7, no assets used in connection
with the operation of the Business are owned by the members of Seller or any
Affiliate of the members other than Seller. Schedule 4.7 contains
23
accurate lists and summary descriptions of all the tangible Assets where the
value of an individual item exceeds $5,000 or where an aggregate of similar
items exceeds $10,000. To Seller's Knowledge, all tangible assets and properties
which are part of the Assets are in good operating condition and repair, subject
to repair or replacement from time to time in the ordinary course of business,
and are usable in the ordinary course of business and conform in all material
respects to all applicable Regulations (including Environmental Laws) relating
to their construction, use and operation. Schedule 4.7 also sets forth a
complete and accurate list of all Permitted Encumbrances.
4.8. Contracts and Commitments.
(a) Contracts. Schedule 4.8 sets forth a complete and
accurate list of all Contracts (including, to Seller's Knowledge, oral
agreements) of the following categories:
(i) Contracts not made in the ordinary course of
business involving obligations in excess of $25,000;
(ii) Employment contracts, compensation
arrangements and severance agreements, including, without limitation, Contracts
(A) to employ or terminate executive officers or other personnel and other
contracts with present or former officers, directors or shareholders of Seller
or (B) that will result in the payment by, or the creation of any Liability to
pay on behalf of Acquiror or Seller any severance, termination, "golden
parachute," or other similar payments to any present or former personnel
following termination of employment or otherwise as a result of the consummation
of the transactions contemplated by this Agreement;
(iii) Labor or union contacts;
(iv) Distribution, franchise, license, technical
assistance, sales, customer, commission, consulting, agency or advertising
contracts related to the Assets or the Business involving obligations in excess
of $25,000;
(v) Options with respect to any property, real
or personal, whether Seller shall be the grantor or grantee thereunder;
(vi) Contracts involving future expenditures or
Liabilities, actual or potential, in excess of $25,000 or otherwise material to
the Business or the Assets;
(vii) Contracts involving performance of services
or delivery of goods or materials by Seller, actual or potential, in excess of
$25,000;
(viii) Contracts involving receipts, actual or
potential, in excess of $25,000;
(ix) Contracts or commitments relating to
commission arrangements with others;
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(x) Promissory notes, loans, agreements,
indentures, evidences of indebtedness, letters of credit, guarantees, or other
instruments relating to an obligation to pay money, individually in excess of or
in the aggregate in excess of $25,000, whether Seller shall be the borrower,
lender or guarantor thereunder or whereby any Assets are pledged;
(xi) Contracts containing covenants limiting the
freedom of Seller or any officer, manager, member or Affiliate of Seller, to
engage in any line of business or compete with any Person;
(xii) Any Contract with the United States, state
or local government or any agency or department thereof;
(xiii) Leases of real property;
(xiv) Leases of personal property not cancelable
(without Liability) within thirty (30) calendar days reflecting obligations of
Seller of at least $2,000 per month in each case;
(xv) Joint venture, partnership and other
Contracts (however named) involving a sharing of profits, losses costs or
Liabilities by Seller with any other Person;
(xvi) Licensing agreements or other Contracts with
respect to patents, trademarks, copyrights, or other intellectual property,
including agreements with current or former employees, consultants, or
contractors regarding the appropriation or the nondisclosure of any of the
Intellectual Property of Seller; and
(xvii) Each power of attorney that is currently
effective and outstanding.
The Seller Parties have delivered to Acquiror true, correct and complete copies
of all of the Contracts listed on Schedule 4.8 including all amendments and
supplements thereto. Each of the bids, proposals, Contracts or unfilled orders
set forth on Schedule 4.8 were made in the ordinary course of business.
(b) Absence of Defaults. All of the Contracts and Leases
listed or required to be listed on Schedule 4.8 to which Seller is party are
valid, binding and enforceable in accordance with their terms. Seller has
fulfilled, or taken all action necessary to enable it to fulfill when due, all
of its material obligations under each of such Contracts and Leases. Seller has
complied in all material respects with the provisions thereof, and to the
Knowledge of the Seller Parties, all other parties to such Contracts and Leases
have complied in all material respects with the provisions thereof, and neither
Seller nor, to the Seller Parties' Knowledge, any other party is in Default in
any material respect thereunder and no notice of any claim of Default has been
given to any Seller Party. Except as set forth on Schedule 4.8, no event has
occurred or circumstance exists that (with or without notice or lapse of time)
may contravene, conflict with, or result in a violation or breach of, or give
Seller or any other Person the right to default or exercise any remedy under, or
to accelerate the maturity or performance of, or to cancel, terminate, or
modify, any Contract. The members of Seller do not have and may not acquire any
rights under, and the members of Seller do not have and may not become subject
to any obligations or Liability under any Contract that relates to the Business
or the Assets. No Seller
25
Party has Knowledge that the products and services called for by any unfinished
Contract cannot be supplied in accordance with the terms of such Contract,
including time specifications, and has no reason to believe that any unfinished
Contract will upon performance by Seller result in a loss to Seller. With
respect to any Leases, no Seller Party has received any notice of cancellation
or termination under any option or right reserved to the lessor, or any notice
of Default, thereunder.
(c) Product Warranty. To Seller's Knowledge, Seller has
committed no act, and there has been no omission by Seller, which may result in,
and there has been no occurrence which may give rise to, product liability or
Liability for breach of warranty (whether covered by insurance or not) on the
part of Seller, with respect to products designed, manufactured, assembled,
repaired, maintained, delivered, distributed or installed or services rendered
prior to or on the Closing Date.
4.9. Permits.
(a) Schedule 4.9 sets forth a complete list of all
Permits used in the operation of the Business or otherwise held by Seller.
Seller has, and at all times has had, all Permits required under any Regulation
(including Environmental Laws) in the operation of its Business or in the
ownership of the Assets, and owns or possesses such Permits free and clear of
all Encumbrances, except such Permits the failure of which to obtain would not
have a Material Adverse Effect. Seller is not in Default, nor has it received
any notice of any claim of Default, with respect to any such Permit, except
where the Default would not have a Material Adverse Effect. Except as otherwise
governed by law, all such Permits are renewable by their terms or in the
ordinary course of business without the need to comply with any special
qualification procedures or to pay any amounts other than routine filing fees.
No present or former stockholder, member, director, officer, manager, employee
of Seller or any Affiliate thereof, or any other person, firm, corporation or
other entity, owns or has any proprietary, financial or other interest (direct
or indirect) in any Permit which Seller owns, possesses or uses.
(b) Except as disclosed on Schedule 4.9 hereto, no notice
to, declaration, filing or registration with, or Permit from, any domestic or
foreign governmental or regulatory body or authority, or any other person or
entity, is required to be made or obtained by Seller in connection with the
execution, delivery or performance of this Agreement and the consummation of the
transactions contemplated hereby.
(c) The Permits set forth on Schedule 4.9 collectively
constitute all of the Permits necessary to permit Seller to lawfully conduct and
operate the Business in the manner it currently conducts and operates such
business and to permit Seller to own and use its assets in the manner in which
it currently owns and uses such assets, except for such Permits, the absence of
which would not, individually or in the aggregate, have a Material Adverse
Effect.
4.10. No Conflict or Violation. Neither the execution, delivery or
performance of this Agreement nor the consummation of the transactions
contemplated hereby, nor compliance by any Seller Party with any of the
provisions hereof, will (a) violate or conflict with any provision of the
Organizational Documents of Seller, (b) except as set forth on Schedule 4.10,
and subject to the attainment of consents set forth on Schedule 4.4 by third
parties to the assignment of Contracts, violate, conflict with, or result in or
constitute a Default under, or result in the
26
termination of, or accelerate the performance required by, or result in a right
of termination or acceleration, or result in the creation of any Encumbrance
upon or with respect to any of the Assets under any of the terms, conditions or
provisions of any Contract, Lease or Permit, (i) to which Seller is a party or
(ii) by which any of the Assets are bound, (c) violate any Regulation or Court
Order, (d) impose any Encumbrance on the Assets or the Business, (e) cause
Acquiror to become subject to, or to become liable for the payment of, any Tax
(other than an Assumed Liability), or (f) contravene, conflict with, or result
in a violation of any of the terms or requirements of, or give any governmental
body the right to revoke, withdraw, suspend, cancel, terminate, or modify any
Permits that are held by Seller or that otherwise relates to the Business or the
Assets.
4.11. Financial Statements. The Financial Statements are attached
hereto as Schedule 4.11. The Financial Statements (a) are in accordance with the
Books and Records of Seller, (b) have been prepared in accordance with GAAP
consistently applied throughout the periods covered thereby and (c) fairly and
accurately in all material respects present the assets, Liabilities (including
all reserves) and financial position of the Business as of the Balance Sheet
Date and the results of operations and changes in cash flows of the Business for
the period then ended. At the Balance Sheet Date, there were no material
Liabilities of Seller, which, in accordance with GAAP, should have been set
forth or reserved for in the Financial Statements or the notes thereto, which
are not set forth or reserved for in the Financial Statements or the notes
thereto. In addition, there were no assets which were impaired requiring a
write-down of any such assets or any additional reserves required against the
accounts receivable or inventory of the Business.
4.12. Undisclosed Liabilities. Seller does not have any Liabilities
or obligations of any nature (whether accrued, absolute, contingent or
otherwise), except (a) as disclosed on the Balance Sheet, (b) for Current
Liabilities incurred in the ordinary course of business, (c) for those incurred
in the ordinary course of business consistent with past practice since the
Balance Sheet Date, or (d) such Liabilities reflected on Schedule 4.12.
4.13. Books and Records. Seller has made and kept (and given
Acquiror access to) Books and Records and accounts, which, in reasonable detail,
fairly reflect the activities of Seller. The copies of the membership records of
Seller previously delivered to Acquiror are true, correct and complete, and
accurately reflect all transactions effected in Seller's equity interests
through and including the date hereof. Seller has not maintained any bank
account or used any corporate funds except for bank accounts and funds that have
been and are reflected in the normally maintained books and records of Seller.
4.14. Litigation. Except as set forth on Schedule 4.14, there are no
Actions pending, or, to the Seller Parties' Knowledge, threatened (a) against,
related to or affecting (i) Seller, the Business or the Assets (including with
respect to Environmental Laws), (ii) to Seller's Knowledge, the manager of
Seller in his capacity as such, or (iii) any member of Seller in such member's
capacity as a member of Seller, (b) seeking to delay, limit or enjoin the
transactions contemplated by this Agreement, (c) that involve the risk of
criminal liability or (d) in which Seller is a plaintiff. Seller is not in
Default with respect to or subject to any Court Order, and there are no
unsatisfied judgments against Seller, the Business or any of the Assets. There
are no Court Orders or agreements with, or liens by, any governmental authority
or quasi-governmental
27
entity relating to any Environmental Law, which regulate, obligate, bind or in
any way affect Seller, the Business or the Assets.
4.15. Labor Matters.
(a) General. Seller is not a party to any labor agreement
with respect to its employees with any labor organization, union, group or
association and there are no employee unions (nor any other similar labor or
employee organizations) under local statutes, custom or practice. Seller has not
experienced any attempt by organized labor or its representatives to make Seller
conform to demands of organized labor relating to its employees or to enter into
a binding agreement with organized labor that would cover the employees of
Seller. There is no labor strike or labor disturbance pending or, to the best of
the Seller Parties' Knowledge, threatened against Seller nor is any grievance
currently being asserted, and Seller has not experienced a work stoppage or
other labor difficulty, and is not and has not engaged in any unfair labor
practice. Without limiting the foregoing, Seller is in material compliance with
the Immigration Reform and Control Act of 1986 and maintains a current Form I-9,
as required by such Act, in the personnel file of each employee hired after
November 9, 1986. Schedule 4.15(a) sets forth the names and current annual
salary rates or current hourly wages of all present employees of Seller, and
also sets forth the earnings for each employee as reflected on Form W-2 for the
2002 calendar year.
(b) WARN Act. Since the enactment of Worker Adjustment
and Retraining Notification Act (the "WARN Act"), 29 U.S.C. Sections 2101 et
seq., Seller has not effectuated (1) a "plant closing" (as defined in the WARN
Act) affecting any site of employment or one or more facilities or operating
units within any site of employment or facility of Seller, or (2) a "mass
layoff" (as defined in the WARN Act) affecting any site of employment or
facility of Seller, nor has Seller been affected by any transaction or engaged
in layoffs or employment terminations sufficient in number to trigger
application of any similar state or local law. Except as set forth in Schedule
4.15(b), none of Seller's Employees has suffered an "employment loss" (as
defined in the WARN Act) in the past three years.
4.16. Compliance with Law. Seller and the conduct of the Business
have not violated and are in compliance with all Court Orders and Regulations
relating to the Assets or the Business, except for any such violations which
would not, individually or in the aggregate, have a Material Adverse Effect. No
Seller Party has received any written notice to the effect that, or otherwise
been advised that, Seller is not in compliance with any such Regulations or
Court Orders in any material respect.
4.17. No Brokers. Except as set forth on Schedule 4.17, neither
Seller nor any of its officers, directors, managers, employees, members,
Representatives or Affiliates has employed or made any agreement with any
broker, finder or similar agent or any person or firm which will result in the
obligation of Seller, the members of Seller, Acquiror or any of Acquiror's
Affiliates to pay any finder's fee, brokerage fees or commission or similar
payment in connection with the transactions contemplated hereby. The Seller
Parties shall be solely liable for any obligations set forth on Schedule 4.17.
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4.18. No Other Agreements to Sell the Assets or Membership Interests
of Seller. Neither Seller nor any of its officers, directors, managers,
employees, members or Affiliates have any commitment or legal obligation,
absolute or contingent, to any other person or firm other than Acquiror to sell,
assign, transfer or effect a sale of the Assets (other than inventory in the
ordinary course of business), to sell or effect a sale of any membership
interest of Seller, to effect any merger, consolidation, liquidation,
dissolution or other reorganization of Seller, or to enter into any agreement or
cause the entering into of an agreement with respect to any of the foregoing.
Seller is not now engaged in negotiations with any party other than Acquiror
with respect to any of the foregoing.
4.19. Intellectual Property.
(a) Schedule 4.19(a) sets forth a true and complete list
all of Seller's material patents, registered trademarks and registered
copyrights. Schedule 4.19(a) also sets forth: (i) for each patent, the number,
normal expiration date and subject matter for each country in which such patent
has been issued, or, if applicable, the application number, date of filing and
subject matter for each country, (ii) for each registered trademark and service
xxxx, the application/serial number or registration number, the class of goods
covered and the expiration date for each country, and (iii) for each registered
copyright, the registration number and expiration date for each country, or, if
applicable, the application number and date of filing for each country in which
a copyright application has been filed. True and correct copies of all patents
and patent applications, trademark and service xxxx applications and
registrations and copyright applications and registrations owned, controlled,
filed or used by or on behalf of Seller or in which Seller has any interest
whatsoever have been provided to Acquiror.
(b) Schedule 4.19(b) sets forth a true and complete list
of all material license, sublicense and royalty agreements relating to the
Intellectual Property. A true and correct copy of each such agreement has been
delivered to Acquiror. With respect to each item of Intellectual Property
required to be identified in Schedule 4.19(a), to Seller's Knowledge:
(i) all licenses, sublicenses or agreements set
forth in Schedule 4.19(b) are legal, valid, binding, enforceable and in full
force and effect;
(ii) upon consummation of the transactions
contemplated by this Agreement, subject to the attainment of applicable consents
set forth on Schedule 4.4, all licenses, sublicenses or agreements will continue
to be legal, valid, binding, enforceable and in full force and effect on terms
identical to those in effect as of the date of this Agreement;
(iii) neither Seller's nor any other party to any
license, sublicense or agreement is in breach or default under any such license,
sublicense or agreement or has performed any act or omitted to perform any act,
with notice or lapse of time or both, which will become a material breach of
default thereunder;
(iv) no party to any license, sublicense or
agreement has given notice of termination or repudiation of any provision
thereof;
29
(v) with respect to each sublicense, the
representations and warranties set forth above in subsections 4.19(b)(i)-(iv)
are true and correct with respect to the underlying license;
(vi) the underlying item of Intellectual Property
is not subject to any outstanding injunction, judgment, order, decree or ruling;
(vii) Seller has not granted any sublicense or
similar right with respect to the license, sublicense or agreement;
(viii) except as set forth in Schedule 4.19(b),
Seller is not obligated or under any liability whatsoever to make any payments
by way of royalties, fees or otherwise to any owner or licensor of, or other
claimant to, any Intellectual Property; and
(ix) no action, suit, proceeding, hearing,
investigation or complaint is pending or is threatened, nor has any claim or
demand been made, which challenges the legality, validity, enforceability or
ownership of the underlying item of Intellectual Property.
(c) Ownership and Protection of Intellectual Property.
Seller owns exclusively or, in the case of licensed rights, the valid and
enforceable right to use all of the Intellectual Property listed on Schedule
4.19(a) or underlying the licenses set forth on Schedule 4.19(b), and the
Intellectual Property will not cease to be valid rights of Seller by reason of
the execution, delivery and performance of this Agreement or the consummation of
the transactions contemplated hereby. All of the pending applications have been
duly filed. Seller has not received any written notice of invalidity or
infringement of any rights of others with respect to such Intellectual Property.
Seller has taken all reasonable and prudent steps to protect the Intellectual
Property listed on Schedule 4.19(a) from infringement by any other Person. No
other Person (i) has the right to use any of Seller's trademarks or service
marks on the goods and/or services in connection with which they are now being
used either in identical form or in such near resemblance thereto as to be
likely, when applied to the goods or services of any such person, to cause
confusion with such trademarks or to cause a mistake or to deceive, (ii) has
notified Seller in writing that it is claiming any ownership of or right to use
any of the Intellectual Property, or (iii) to Seller's Knowledge, is infringing
upon, violating or misappropriating any of the Intellectual Property in any way.
To Seller's Knowledge, the Intellectual Property does not and will not conflict
with, infringe upon, misappropriate or otherwise violate the valid rights of any
Person in or to such Intellectual Property, and no Action has been instituted
against or written notices received by Seller that are presently outstanding
alleging that Seller's use of the Intellectual Property infringes upon,
misappropriates or otherwise violates any rights of a Person in or to such
Intellectual Property.
(d) Liabilities. Seller has no reasonable basis to
believe that it has any present or future liability under any agreement to
provide indemnification for infringement of any third-party rights or otherwise,
or provide updates, enhancements, improvements, modifications, fixes, support or
maintenance for any products or Intellectual Property.
(e) Trade Secrets. Seller has taken reasonable security
measures to protect the secrecy, confidentiality and value of all of its trade
secrets and confidential information,
30
including without limitation entering into written agreements with its employees
and other persons who may have participated in the development, discovery or
invention of any trade secret or have knowledge of or access to any trade secret
or confidential information, which such agreements provide for the
non-disclosure of trade secrets and confidential information and the transfer of
all rights in and to any development, discovery or invention to Seller.
4.20. Employee Matters.
(a) Disclosure; Delivery of Copies of Relevant Documents
and Other Information. Schedule 4.20 contains a complete list of all current
Seller Employee Plans and all former Seller Employee Plans under which Acquiror
may incur any liability. True and complete copies of each of the following
documents have been delivered or made available by Seller to Acquiror: (i) each
such Seller Employee Plan and all amendments thereto and the summary plan
description for each such plan, and, if none, any written descriptions thereof
which have been distributed to Seller's employees, (ii) a complete description
of any material Seller Employee Plan which is not in writing, (iii) the most
recent determination or opinion letter issued by the IRS with respect to each
Seller Employee Plan which is a Pension Plan, and (iv) a complete description of
age, salary and service as of December 31, 2002 for employees of Seller as of
June 30, 2003.
(b) Representations. Except as set forth in Schedule
4.20, Seller represents and warrants as follows:
(i) Pension Plans.
(A) Neither Seller nor any of its ERISA
Affiliates sponsors, maintains, contributes to or has an obligation to
contribute to, or has, within the six (6) year period prior to the Closing Date,
sponsored, maintained, contributed to or had an obligation to contribute to, any
Pension Plan that is subject to Title IV of ERISA.
(B) Each Seller Employee Plan which is
a Pension Plan, and each related trust agreement, annuity contract or other
funding instrument has been determined by the IRS to be qualified and tax-exempt
under the provisions of Code Section 401(a) (or 403(a), as appropriate), and, to
the Knowledge of the Seller Parties, nothing has occurred which could reasonably
cause the loss of such qualification or tax exemption.
(C) None of the Assets is, or may
reasonably be expected to become, the subject of any lien arising under ERISA or
Section 412(n) of the Code. Except as set forth on Schedule 4.20, neither Seller
nor any ERISA Affiliate has any Liability for unpaid contributions with respect
to any Pension Plans subject to Title IV of ERISA.
(ii) Multiemployer Plans. None of Seller or any
of its ERISA Affiliates sponsors, maintains, contributes to or has an obligation
to contribute to, or has, within the six (6) year period prior to the Closing
Date, sponsored, maintained, contributed to or had an obligation to contribute
to, any Multiemployer Plan. None of Seller or any of its ERISA Affiliates has
any unsatisfied liability due to a complete or partial withdrawal from a
Multiemployer Plan or due to the termination or reorganization of a
Multiemployer Plan.
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(iii) Welfare Plans. Each Seller Employee Plan
which is a Welfare Plan which is a "group health plan," as defined in Section
607(1) of ERISA, has been operated in compliance in all material respects with
provisions of Part 6 of Title I, Subtitle B of ERISA and Sections 162(k) and
4980B of the Code at all times.
(iv) Compliance With Law. Each Seller Employee
Plan, and any related trust agreement, annuity contract or other funding
instrument, presently complies and has been maintained in compliance with its
terms and, both as to form and in operation, with the requirements prescribed by
any and all Regulations and Court Orders which are applicable to such plans,
including, without limitation, ERISA and the Code. All contributions required to
be made under each Seller Employee Plan as of the date of this Agreement have
been timely made or, if not yet due, have been properly reflected on the most
recent consolidated balance sheet filed or incorporated by reference in the
Financial Statements prior to the date of this Agreement.
(v) No Liability. The consummation of the
transactions contemplated by this Agreement will not give rise to any liability
of Acquiror for severance pay, termination pay or any similar payment to any of
Seller's employees, including but not limited to any liability related to Seller
Employee Plans, bonus payments or any other benefits previously provided by
Seller to any of Seller's employees.
(vi) No Foreign Plans. Seller does not sponsor,
contribute to or have any liability with respect to any employee benefit plan,
program or arrangement that provides benefits to non-resident aliens with no
United States source income outside of the United States.
4.21. Transactions with Certain Persons. Except as set forth on
Schedule 4.21, no member, officer or manager of Seller nor any member of any
such Person's immediate family and, to the Knowledge of the Seller Parties, no
employee of Seller (nor any member of any such employee's immediate family) (a)
is presently, or since June 29, 2002 has been a party to any material
transaction with Seller, including, without limitation, any contract, agreement
or other arrangement (i) providing for the furnishing of services by, (ii)
providing for the rental of real or personal property from, or (iii) otherwise
requiring payments to (other than for services as officers or employees of
Seller) any such Person or corporation, partnership, trust or other entity in
which any such Person has an interest as a stockholder, officer, director,
trustee or partner; (b) is presently, or since June 29, 2002 has been, engaged
in competition with Seller with respect to its business in any material respect;
or (c) has presently or since June 29, 2002 has had material business dealings
or a material financial interest in any transaction with Seller (other than
business dealings or transactions conducted in the ordinary course of the
business with Seller at substantially prevailing market prices and on
substantially prevailing market terms).
4.22. Certain Payments. Except with respect to matters which would
not reflect or yield a Material Adverse Effect, to the Seller Parties'
Knowledge, since June 29, 2002, neither Seller, nor any of its officers or
employees or any other Person affiliated with or acting for or on behalf of
Seller, has directly or indirectly (a) made any contribution, gift, bribe,
rebate, payoff, influence payment, kickback or other payment to any Person,
private or public, regardless of form, whether in money, property or services
(i) to obtain favorable treatment in securing business, (ii) to pay for
favorable treatment for business secured, (iii) to obtain special concessions or
for special concessions already obtained, for or in respect of Seller or any of
its
32
Affiliates or (iv) in violation of any Regulations (including, without
limitation, the United States Foreign Corrupt Practices' Act), or (b)
established or maintained any fund or asset that has not been recorded in the
Books and Records of Seller. Seller has not participated, directly or
indirectly, in any boycotts or other similar practices affecting any of its
actual or potential customers and has at all times done business in an open and
ethical manner.
4.23. Tax Matters.
(a) Seller has timely filed with the appropriate taxing
authorities all Tax Returns required to be filed through the date hereof and
will timely file any such Tax Returns required to be filed on or prior to the
Closing Date. Such Tax Returns are true, complete and accurate in all material
respects. To Seller's Knowledge, no claim has ever been made by a taxing
authority in a jurisdiction where Seller does not file Tax Returns that such
entity is or may be subject to taxation by that jurisdiction.
(b) All Taxes due and payable for which Seller is liable,
whether to taxing authorities or to any other Person or entities, have been
timely paid. All Taxes required to be withheld by Seller have been collected and
withheld and have been timely paid to the respective governmental agencies.
(c) Except as set forth in Schedule 4.23(c), no
deficiencies for Taxes, have been claimed, proposed or assessed by any taxing or
other governmental authority against Seller and there are no pending or, to the
Seller Parties' Knowledge, threatened, any audits, examinations, investigations
or other proceedings in respect of Taxes or Tax matters. No extension of a
statute of limitations relating to Taxes is in effect with respect to Seller.
All deficiencies asserted or assessments made as a result of any examination
have been fully paid.
(d) There are no liens for Taxes (other than for current
Taxes not yet due and payable) on any of the Assets.
(e) None of the Assets is property that is required to be
treated as being owned by any other person pursuant to the so-called safe harbor
lease provisions of former Section 168(f)(8) of the Code.
(f) None of the Assets directly or indirectly secures any
debt the interest on which is tax-exempt under Section 103(a) of the Code.
(g) None of the Assets is "tax-exempt use property"
within the meaning of Section 168(h) of the Code.
(h) Seller is not a person other than a United States
person within the meaning of the Code.
(i) The transaction contemplated herein is not subject to
the tax withholding provisions of Section 3406 of the Code, or of Subchapter A
of Chapter 3 of the Code or of any other provision of law.
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4.24. Insurance. Schedule 4.24 contains a complete and accurate list
of all policies or binders of fire, liability, title, workers' compensation,
product liability (which list shall be for three years) and other forms of
insurance (showing as to each policy or binder the carrier, policy number,
coverage limits, expiration dates, annual premiums, a general description of the
type of coverage provided, loss experience history by line of coverage)
maintained by Seller on the Business, the Assets or its employees. True and
correct copies of all such policies or binders have been delivered to Acquiror.
To Seller's Knowledge, all insurance coverage applicable to Seller, the Business
or the Assets is in full force and effect. There is no material Default under
any such coverage nor has there been any failure to give notice or present any
material claim under any such coverage in a due and timely fashion. There are no
outstanding unpaid premiums except in the ordinary course of business and no
notice of cancellation or nonrenewal of any such coverage has been received. All
products liability, general liability and workers' compensation insurance
policies maintained by Seller have been occurrence policies and not claims made
policies. There are no outstanding performance bonds covering or issued for the
benefit of Seller. No insurer has advised Seller in writing that it intends to
reduce coverage, increase premiums or fail to renew existing policy or binder.
4.25. Accounts Receivable. The accounts receivable set forth on the
Balance Sheet, and all accounts receivable arising since the Balance Sheet Date,
represent bona fide claims of Seller against debtors for sales, services
performed or other charges arising on or before the date hereof, and all the
goods delivered and services performed which gave rise to said accounts were
delivered or performed in accordance with the applicable orders, Contracts or
customer requirements. Said accounts receivable are subject to no defenses,
counterclaims or rights of setoff, except to the extent of the appropriate
reserves for bad debts on accounts receivable as set forth on the Balance Sheet
and, in the case of accounts receivable arising since the Balance Sheet Date, to
the extent of a reasonable reserve rate for bad debts on accounts receivable
which is not greater than the rate reflected by the reserve for bad debts on the
Balance Sheet.
4.26. Other Current Assets. Schedule 4.26 contains a complete and
accurate list of all unbilled receivables, deferred costs, prepaid assets and
other current assets (other than accounts receivable) set forth on the Balance
Sheet. The unbilled receivables, deferred costs, prepaid assets and other
current assets (other than accounts receivable) as set forth on the Balance
Sheet or arising since the Balance Sheet Date are valued at reasonable amounts
based on the normal valuation policy of Seller in accordance with GAAP. None of
such unbilled receivables, deferred costs, prepaid assets or other current
assets are subject to write-off or write-down, except for such items which have
been written down to realizable market value, or for which adequate reserves
have been provided, in the Balance Sheet. All unbilled receivables, deferred
costs, prepaid assets and other current assets (other than accounts receivable)
set forth on the Balance Sheet will, when converted to accounts receivable, if
applicable, represent bona fide claims of Seller against debtors for sales,
services performed or other charges arising on or before the Closing Date, and
all the goods delivered and services performed which gave rise to said accounts
were delivered or performed in accordance with the applicable orders, Contracts
or customer requirements. Said accounts receivable will be subject to no
defenses, counterclaims or rights of setoff, except to the extent adequate
reserves have been provided in the Balance Sheet.
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4.27. Customers and Suppliers. Schedule 4.27 sets forth a complete
and accurate list of the names and addresses of Seller's (a) ten (10) largest
customers (including advertisers) based on dollar revenues to Seller from June
29, 2002 to the Balance Sheet Date, showing the approximate total revenues in
dollars to Seller from each such customer during such period; and (b) ten (10)
largest suppliers based on dollar purchases from June 29, 2002 to the Balance
Sheet Date, showing the approximate total purchases in dollars by Seller from
each such supplier during such period. Since the Balance Sheet Date, except as
set forth on Schedule 4.27, there has been no Material Adverse Change in the
business relationship of Seller with any customer or supplier named on Schedule
4.27. Seller has not received any communication from any customer or supplier
named on Schedule 4.27 of any intention to terminate or materially reduce
purchases from or supplies to Seller.
4.28. Compliance with Environmental Laws. Except as disclosed on
Schedule 4.28, (a) to Seller's Knowledge, Seller is now and has always been in
material compliance with all applicable Environmental Laws; (b) to Seller's
Knowledge, Seller has not used, generated, treated, stored, transported,
disposed of, released, or handled hazardous substances except in material
compliance with all applicable Environmental Laws; (c) to Seller's Knowledge,
there is no site to which Seller has arranged the transport of hazardous
substances which is the subject of an environmental action, (d) Seller has not
received any written notice of any alleged non-compliance with, or alleged
responsibility or potential responsibility under, any Environmental Law, nor is
Seller aware (to Seller's Knowledge) of any information which might reasonably
be expected to form the basis of such a notice, and (e) Seller has not released
or indemnified (other than indemnification obligations pursuant to Facility
Leases or in connection with third party loans) any other person or entity from
claims or liability under any Environmental Law nor has Seller waived any rights
concerning any claims under any Environmental Law.
4.29. Xxxxxxxx. Except as set forth in Schedule 4.29, to Seller's
Knowledge, Seller has not made any xxxxxxxx whatsoever to its customers or
clients for services to be provided or products to be sold after the Closing;
all client deposits held by Seller arose from written agreements between Seller
and the remitting client, are correct as to amount, and no such client has
notified Seller of its intention to seek a refund of its deposit; all such
client deposits were received by Seller in cash, in the ordinary course of
business. Except as set forth in Schedule 4.29, as of the date of this
Agreement, to the Knowledge of the Seller Parties, no party to any such
agreement has defaulted in any of its material obligations thereunder, and no
client is in default of its payment obligations on invoices for services
previously rendered or products previously sold by Seller. Except as set forth
in Schedule 4.29, to Seller's Knowledge, the open purchase orders of Seller were
entered into by Seller in good faith, in accordance with past practices, in the
ordinary course of business, and with the exception of routine cancellations in
the ordinary course of business, such open purchase orders were, and to the
extent any such order remains unfilled as of the date of this Agreement, are, in
full force and effect. There is no outstanding bid, proposal, Contract or
unfilled order which will or would, if accepted, have a Material Adverse Effect.
4.30. Banking Relationships. Schedule 4.30 sets forth a complete and
accurate description of all arrangements that Seller has with any banks, savings
and loan associations or other financial institutions providing for checking
accounts, safe deposit boxes, borrowing arrangements, and certificates of
deposit or otherwise, indicating in each case account numbers,
35
if applicable, and the person or persons authorized to act or sign on behalf of
Seller in respect of any of the foregoing.
4.31. Investment Intent. Acquiror's willingness to agree to the
provisions of Section 2.7(c) and the potential issuance of Acquiror's Common
Stock (the "Earnout Shares") to Seller contemplated thereby is made in reliance
upon the Seller Parties' representations set forth in this Section 4.31 as of
the date hereof and as of each date (if any) on which Earnout Shares are
required to be issued:
(a) Acquisition Entirely for Own Account. Seller Parties
hereby confirm, that any Earnout Shares required to be issued to Seller will be
acquired for investment for the Seller's own account, not as a nominee or agent,
and not with a view to the resale or distribution of any part thereof, and that
the Seller has no (and at the time of issuance will have no) intention of
selling, granting any participation in, or otherwise distributing the same other
than as may be permitted by applicable securities laws. By executing this
Agreement, the Seller Parties further represent that they do not have and will
not enter into any contract, undertaking, agreement or arrangement with any
person to sell, transfer or grant participations to such person or to any third
person, with respect to any of the Earnout Shares other than as may be permitted
by applicable securities laws. The Seller has not been formed for the specific
purpose of acquiring the Earnout Shares.
(b) Disclosure of Information. The Seller Parties have
had an opportunity to discuss the Acquiror's business, management, financial
affairs with the Acquiror's management and have had an opportunity to review the
Acquiror's facilities and to ask questions and receive answers concerning the
Earnout Shares and the terms under which the Earnout Shares would be issued
pursuant to this Agreement.
(c) Restricted Securities. The Seller Parties understand
that the Earnout Shares have not been, and will not be, registered under the
Securities Act, by reason of a specific exemption from the registration
provisions of the Securities Act which depends upon, among other things, the
bona fide nature of the investment intent and the accuracy of the Seller
Parties' representations as expressed herein. The Seller Parties understand that
the Earnout Shares are "restricted securities" under applicable U.S. federal and
state securities laws and that, pursuant to these laws, the Seller Parties must
hold the Earnout Shares indefinitely unless they are registered with the
Securities and Exchange Commission and qualified by state authorities, or an
exemption from such registration and qualification requirements is available.
The Seller Parties acknowledge that the Acquiror has no obligation to register
or qualify the Earnout Shares for resale. The Seller Parties further acknowledge
that if an exemption from registration or qualification is available, it may be
conditioned on various requirements including, but not limited to, the time and
manner of sale, the holding period for the Earnout Shares, and on requirements
relating to the Acquiror which are outside of the Seller Parties' control, and
which the Acquiror is under no obligation and may not be able to satisfy.
(d) Legends. The Seller Parties understand that the
Earnout Shares, and any securities issued in respect of or exchange for the
Earnout Shares, may bear one or all of the following legends:
36
(i) "THE SHARES REPRESENTED BY THIS CERTIFICATE
HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AND HAVE BEEN
ACQUIRED FOR INVESTMENT AND NOT WITH A VIEW TO, OR IN CONNECTION WITH, THE SALE
OR DISTRIBUTION THEREOF. NO SUCH SALE OR DISTRIBUTION MAY BE EFFECTED WITHOUT AN
EFFECTIVE REGISTRATION STATEMENT RELATED THERETO OR AN OPINION OF COUNSEL IN A
FORM SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED UNDER
THE SECURITIES ACT OF 1933."
(ii) Any legend required by the Blue Sky laws of
any state to the extent such laws are applicable to the shares represented by
the certificate so legended.
(e) Accredited Investor. Each Seller Party and each
member of Seller is an accredited investor as defined in Rule 501(a) of
Regulation D promulgated under the Securities Act.
ARTICLE V.
REPRESENTATIONS AND WARRANTIES OF ACQUIROR
Acquiror hereby represents and warrants to Seller Parties as
follows:
5.1. Organization of Acquiror. Acquiror is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Delaware with full power and authority to own and lease its properties and
assets and conduct its business as its is presently being conducted. Acquiror is
duly qualified to do business and is in good standing in each jurisdiction in
which its right, title and interest in or to any of the assets held by it, or
the conduct of its business, requires such qualification except where failure to
be so qualified or in good standing, would not, individually or in the
aggregate, have a material adverse effect on the condition (financial or
otherwise), liabilities, operations or results of operations of Acquiror.
5.2. Authorization. Acquiror has all requisite power and authority,
and has taken all action necessary, to execute and deliver this Agreement and
the Ancillary Agreements, to consummate the transactions contemplated hereby and
thereby and to perform its obligations hereunder and thereunder. The execution
and delivery of this Agreement and the Ancillary Agreements by Acquiror and the
consummation by Acquiror of the transactions contemplated hereby and thereby
have been duly approved by the board of directors of Acquiror. No other
corporate proceedings on the part of Acquiror are necessary to authorize this
Agreement and the Ancillary Agreements to which Acquiror is a party and the
transactions contemplated hereby and thereby. This Agreement has been duly
executed and delivered by Acquiror and is, and upon execution and delivery the
Ancillary Agreements will be, legal, valid and binding obligations of Acquiror,
enforceable against Acquiror in accordance with their terms, in each case,
except as such enforceability may be limited by (a) bankruptcy, insolvency,
moratorium, reorganization and other similar laws affecting creditors' rights
generally and (b) the general principles of equity, regardless of whether
asserted in a proceeding in equity or at law.
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5.3. No Conflict or Violation. Neither the execution, delivery or
performance of this Agreement nor the consummation of the transactions
contemplated hereby, nor compliance by Acquiror with any of the provisions
hereof, will (a) violate or conflict with any provision of the Organizational
Documents of Acquiror, (b) violate, conflict with, or result in or constitute a
Default under, or result in the termination of, or accelerate the performance
required by, or result in a right of termination or acceleration under, or
result in the creation of any Encumbrance upon any of Acquiror's assets under,
any of the terms, conditions or provisions of any contract, indebtedness, note,
bond, indenture, security or pledge agreement, commitment, license, lease,
franchise, permit, agreement, authorization, concession, or other instrument or
obligation to which Acquiror is a party or (c) violate any Regulation or Court
Order.
5.4. SEC Filings. Acquiror has filed all forms, reports and
documents, together with any amendments to be made with respect thereto that are
required to be filed by Acquiror with the Securities and Exchange Commission
("SEC") since June 29, 2002. All such required forms, reports and documents
(together with any amendments required to be made with respect thereto
(including those forms, reports, documents and amendments) that Acquiror may
file subsequent to the date hereof) are referred to herein as the "Acquiror SEC
Reports." As of their respective dates, the Acquiror SEC Reports, including the
financial statements, exhibits and schedules thereto (i) were prepared in all
material respects in accordance with the requirements of the Securities Act or
the Exchange Act, as the case may be, and the rules and regulations of the SEC
thereunder applicable to such Acquiror SEC Reports, and (ii) did not at the time
they were filed (or if amended or superseded by a filing, then on the date of
such filing) contain any untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary in order to make the
statements therein, in the light of the circumstances under which they were
made, not misleading, except to the extent corrected by a subsequently filed
Acquiror SEC Report.
ARTICLE VI.
COVENANTS OF THE SELLER PARTIES AND ACQUIROR
The Seller Parties and Acquiror each covenant with the other
as follows:
6.1. Confidentiality and Non-Competition.
(a) Seller Parties acknowledge that they have knowledge
of certain Confidential Information and that such Confidential Information is
confidential and proprietary to the Business and constitutes valuable trade
secrets of the Business, which affect, among other things, the successful
conduct, furtherance and protection of the Business and related goodwill. Seller
Parties acknowledge that the unauthorized use or disclosure of such Confidential
Information is likely to be highly prejudicial to the interests of Acquiror or
its customers, clients and patrons, an invasion of privacy, or an improper
disclosure of trade secrets. Seller Parties agree that a substantial portion of
the Purchase Price is being paid for such Confidential Information and that it
represents a substantial investment having great economic and commercial value
to Acquiror, and constitutes a substantial part of the value to Acquiror of the
Business. Seller Parties further acknowledge that Acquiror would be irreparably
damaged if any of the Confidential Information was disclosed to, or used or
exploited on behalf of, any Person
38
other than Acquiror or any of its Affiliates. Accordingly, Seller Parties
covenant and agree that they shall not, directly or indirectly, and shall use
their best efforts to ensure that any agents, Affiliates and any other persons
acting on the Seller Parties' behalf (Seller Parties and such agents, Affiliates
and other persons with respect to either Seller Party being collectively
referred to as the "Restricted Persons") do not, without the prior written
consent of Acquiror, disclose, use, exploit, furnish or make accessible to
anyone or any other entity, any such Confidential Information, for the benefit
of any such Restricted Person or of any third party, at any time for so long as
such information shall remain secret or confidential or otherwise remain wholly
or partially protectable except that Seller Parties may use or exploit a
particular item of Confidential Information if and to the extent (but only if
and to the extent) that such item is:
(i) or becomes generally known on a
non-confidential basis to persons in the industry, through no wrongful act of
any Restricted Person, in which Acquiror is engaged and is part of the public
domain;
(ii) or was within a Restricted Person's
possession prior to its being furnished to such Restricted Person by or on
behalf of Seller or Acquiror, provided that the source of such information was
not known by such Restricted Person to be bound by a confidentiality agreement
with or other contractual, legal or fiduciary obligation of confidentiality to
either Seller Party or Acquiror or any other Person with respect to such
information; or
(iii) or becomes available to a Restricted Person
on a non-confidential basis from a source other than a Seller Party or Acquiror
or any of their respective Representatives, provided that such source is not
bound by a confidentiality agreement with or other contractual, legal or
fiduciary obligation of confidentiality to either Seller Party or Acquiror or
any other Person with respect to such information.
(b) Seller Parties hereby acknowledge that Acquiror will
invest substantial time, money and resources in acquiring the Business, as well
as in the development and retention of Seller's inventions, Confidential
Information, customers, accounts and business partners of Seller. Therefore,
Seller Parties hereby agree that, if allowed to participate in a competitive
business in violation of this Section 6.1(b), Seller Parties would substantially
impair the value of the Assets being acquired by Acquiror. Seller Parties agree
that for a two (2) year period following the Closing Date, Seller Parties shall
not in any capacity, or in association with others, directly or indirectly, as
advisor, agent, owner, partner, stockholder, beneficial owner or in any other
capacity, for the benefit of any of such Seller Parties or their respective
Affiliates:
(i) engage in the Business or in any business
activity that in any manner whatsoever competes with the Business in any state
of the United States or elsewhere (the "Competitive Activities");
(ii) own any interest in, manage, operate, join
or control any business or organization that engages in a Competitive Activity;
39
(iii) solicit for employment, employ or engage any
person or entity who is employed by Seller on the date hereof or prior to the
Closing Date and becomes employed by Acquiror on the Closing Date; or
(iv) solicit or entice suppliers or customers of
the Business, Acquiror or an Affiliate of Acquiror to cease doing business with
or reduce its relationship with Acquiror or an Affiliate of Acquiror.
If a court determines that the restrictions set forth in Sections 6.1(b) above
are too broad or otherwise unreasonable under applicable law, including with
respect to time or geographical scope, the court is hereby requested and
authorized by the parties without further action by the parties hereto to revise
the restrictions in Section 6.1(b) to include the maximum restrictions allowed
under the applicable law.
(c) Seller Parties hereby expressly acknowledge that the
covenants contained in this Section 6.1 are integral to the purchase of the
Assets by Acquiror and that without the protection of such covenants, Acquiror
would not have entered into this Agreement. Seller Parties hereby further
acknowledge that money damages will be impossible to calculate and may not
adequately compensate Acquiror in connection with an actual or threatened breach
of the provisions of this Section 6.1. Accordingly, on their own behalf and (as
to Section 6.1(a)) on behalf of each of the other Restricted Persons, Seller
Parties hereby expressly waive all rights to raise the adequacy of Acquiror's
remedies at law as a defense if Acquiror seeks to enforce by injunction or other
equitable relief the due and proper performance and observance of the provisions
of this Section 6.1. In addition, Acquiror shall be entitled to pursue any other
available remedies at law or equity, including the recovery of money damages, in
respect of the actual or threatened breach of the provisions of this Section
6.1. Seller Parties hereby expressly waive any right to assert inadequacy of
consideration as a defense to enforcement of the confidentiality covenants in
this Section 6.1 should such enforcement ever become necessary.
6.2. Further Assurances. Upon the terms and subject to the
conditions contained herein, the parties agree, both before and after the
Closing (a) to use all reasonable efforts to take, or cause to be taken, all
actions and to do, or cause to be done, all things necessary, proper or
advisable to consummate and make effective the transactions contemplated by this
Agreement and the Ancillary Agreements, (b) to execute any documents,
instruments or conveyances of any kind which may be reasonably necessary or
advisable to carry out any of the transactions contemplated hereunder or
thereunder, and (c) to cooperate with each other in connection with the
foregoing. Without limiting the foregoing, the parties agree to use their
respective commercially reasonable efforts (a) to obtain all necessary waivers,
consents and approvals necessary or desirable for the consummation of the
transactions contemplated by this Agreement or the Ancillary Agreements from
other parties to the Contracts and Leases, (b) to obtain all necessary Permits
as are required to be obtained under any Regulations, (c) to defend all Actions
challenging this Agreement or the consummation of the transactions contemplated
hereby, (d) to lift or rescind any injunction or restraining order or other
Court Order adversely affecting the ability of the parties to consummate the
transactions contemplated hereby, (e) to give all notices to, and make all
registrations and filings with third parties, including, without limitation,
submissions of information requested by governmental authorities, (f) to obtain
any clearance certificate or similar document(s) which may be required by any
state taxing authority to relieve
40
Acquiror of any obligations to withhold any portion of the Purchase Price to be
paid to Seller pursuant to this Agreement and (g) prior to the Closing, to
fulfill all conditions to this Agreement.
6.3. Employee Matters.
(a) Acquiror shall employ those of Seller's employees
whom Acquiror may select and hire, in Acquiror's sole discretion (such employees
are hereinafter referred to as the "Rehired Employees"), which offers shall be
on terms and conditions which Acquiror shall determine in its sole discretion.
Seller shall terminate the employment of all Rehired Employees immediately prior
to the Closing and shall cooperate with and use its best efforts to assist
Acquiror in its efforts to secure satisfactory employment arrangements with the
Rehired Employees.
(b) Seller shall comply with the requirements of the WARN
Act with respect to any "plant closing" or "mass layoff", as those terms are
defined in WARN Act, which may result from Seller's termination of the
employment of any of the employees of the Business in connection with Seller's
sale of the Assets to Acquiror or any of the other transactions contemplated by
this Agreement.
(c) Seller shall be solely responsible for all of the
Employee Plans and all obligations and liabilities thereunder. Acquiror shall
not assume any of the Employee Plans or any obligation or liability thereunder.
(d) Nothing contained in this Agreement shall confer upon
any Rehired Employee any right with respect to continuance of employment by
Acquiror, nor shall anything herein interfere with the right of Acquiror to
terminate the employment of any of the Rehired Employees at any time, with or
without cause, or restrict Acquiror in the exercise of its independent business
judgment in modifying any of the terms and conditions of the employment of the
Rehired Employees.
(e) No provision of this Agreement shall create any third
party beneficiary rights in any Rehired Employee, any beneficiary or dependents
thereof, or any collective bargaining representative thereof, with respect to
the compensation, terms and conditions of employment and benefits that may be
provided to any Rehired Employee by Acquiror or under any benefit plan which
Acquiror may maintain.
(f) Concurrently with the Closing, Acquiror and Xxxxxxx
shall enter into an employment agreement in the form attached hereto as Exhibit
J.
6.4. Corporate Name of Seller. Promptly following the Closing, the
Seller Parties hereby acknowledge and agree to change the name of Seller and any
Affiliate of the Seller Parties that contains the initials "SCI", and upon
effectuating the change of the name of Seller and any such Affiliate of the
Seller Parties, each of the Seller Parties hereby acknowledges and agrees that
it shall cease using the name "S.C.I. Promotion Group, LLC" (or any name
containing the initials "SCI") in connection with any business conducted by such
party.
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6.5. Cost of Financial Statement Audit. Acquiror shall pay the
first Two Hundred Thousand Dollars ($200,000) of accounting fees and costs
incurred in connection with the Financial Statements. In the event that the
accounting fees and costs incurred by Acquiror in connection with the Financial
Statements exceed such amount, Acquiror will be entitled to offset such excess
paid by Acquiror first against the Earnout Promissory Note and then against the
Earnout Payments.
ARTICLE VII.
CONSENTS TO ASSIGNMENT
7.1. Consents to Assignment. Anything in this Agreement to the
contrary notwithstanding, this Agreement shall not constitute an agreement to
assign any of the Contracts, Leases or Permits or any claim or right or any
benefit arising thereunder or resulting therefrom if an attempted assignment
thereof, without the consent of a third party thereto, would constitute a
Default thereunder or in any way adversely affect the rights of Acquiror
thereunder or thereto. If such consent is not obtained, or if an attempted
assignment thereof would be ineffective or would affect the rights thereunder so
that Acquiror would not receive all such rights, each Party will use its
respective commercially reasonable efforts to provide to Acquiror the benefits
and relieve Seller of the burdens of such Contract, Lease or Permit, including,
without limitation, enforcement for the benefit of Acquiror of any and all
rights of the Seller Parties (and the extinguishment of the burdens of Seller)
against a third party thereto arising out of the Default or cancellation by such
third party or otherwise.
ARTICLE VIII.
ACTIONS BY SELLER AND ACQUIROR
AFTER THE CLOSING
8.1. Books and Records; Tax Matters.
(a) Books and Records. Each party agrees that it will
cooperate with and make available to the other parties, during normal business
hours, all Books and Records, information and employees (without substantial
disruption of employment) retained and remaining in existence after the Closing
which are necessary or useful in connection with any tax inquiry, audit,
investigation or dispute, any litigation or investigation or any other matter
requiring any such Books and Records, information or employees for any
reasonable business purpose. The party requesting any such Books and Records,
information or employees shall bear all of the out-of-pocket costs and expenses
(including, without limitation, attorneys' fees, but excluding reimbursement for
salaries and employee benefits) reasonably incurred in connection with providing
such Books and Records, information or employees. All information received
pursuant to this Section 10.1(a) shall be subject to provisions set forth in
Section 6.1 above.
(b) Cooperation and Records Retention. The Seller Parties
and Acquiror shall each provide the other with such assistance as may reasonably
be requested by any of them in connection with the preparation of any Tax
Return, audit, or other examination by any taxing authority or judicial or
administrative proceedings relating to Liability for Taxes.
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8.2. Survival of Representations, Etc. All of the representations,
warranties, covenants and agreements made by each party in this Agreement or in
any attachment, Exhibit, the Disclosure Schedule, certificate, document or list
delivered by any such party pursuant hereto shall survive the Closing for a
period of (and claims based upon or arising out of such representations,
warranties, covenants and agreements may be asserted at any time before the date
which shall be) two (2) years following the Closing, except with respect to the
representations and warranties set forth in Section 4.1 and Section 4.3, which
shall survive indefinitely and the representations and warranties set forth in
Section 4.23 which shall survive until thirty (30) days following the expiration
of the applicable statute of limitations (with extensions) with respect to the
matters addressed in such sections. Seller, on the one hand, and Acquiror, on
the other hand, shall be entitled to rely upon the representations and
warranties of Acquiror or the Seller Parties, as applicable, set forth in this
Agreement. The termination of the representations and warranties provided herein
shall not affect the rights of a party in respect of any Claim made by such
party in a writing received by the applicable party prior to the expiration of
the applicable survival period provided herein.
8.3. Indemnification.
(a) By the Seller Parties. Each of the Seller Parties,
jointly and severally, shall indemnify, save and hold harmless Acquiror, its
stockholders, Affiliates and subsidiaries and its and their respective
Representatives (collectively, the "Acquiror Indemnitees"), from and against any
and all costs, losses (including, without limitation, diminution in value),
Taxes, Liabilities, obligations, damages, lawsuits, deficiencies, claims,
demands, and expenses (whether or not arising out of third-party claims),
including, without limitation, interest, penalties, costs of mitigation, losses
in connection with any Environmental Law (including, without limitation, any
clean-up or remedial action), Liabilities arising under or relating to the
Employee Plans or employees or former employees of Seller, lost profits and
other losses resulting from any shutdown or curtailment of operations, damages
to the environment, attorneys' fees and all amounts paid in investigation,
defense or settlement of any of the foregoing (herein, "Damages"), incurred in
connection with, arising out of, resulting from or incident to (i) any breach of
any representation or warranty or the inaccuracy of any representation made by
any of the Seller Parties in this Agreement; (ii) any breach of any covenant or
agreement made by any of the Seller Parties in this Agreement; (iii) any
Excluded Liability; (iv) any Damages arising prior to the Closing Date of any
nature (absolute, accrued, contingent or otherwise) of Seller, or any ERISA
Affiliate of Seller arising under or related to any Employee Plan; (v) any
product shipped or manufactured by, or any services provided by Seller prior to
the Closing Date; (vi) any Liability (other than the Assumed Liabilities)
imposed upon Acquiror by reason of Acquiror's status as transferee of the
Business or the Assets; (vii) any Liability (other than the Assumed Liabilities)
imposed upon the Acquiror Indemnitees by reason of and to the extent arising
from Seller's conduct of the Business on or prior to the Closing Date; or (viii)
any claim by any Person for brokerage or finder's fees or commissions or similar
payments based upon any agreement or understanding alleged to have been made by
any such Person with any of the Seller Parties (or any Person acting on their
behalf) in connection with any transactions contemplated by this Agreement.
The term "Damages" as used in this Section 8.3 is not limited
to matters asserted by third parties against Seller or Acquiror, but includes
Damages incurred or sustained by Seller
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or Acquiror in the absence of third-party claims. Payments by a party of amounts
for which such party is indemnified hereunder shall not be a condition precedent
to recovery.
(b) By Acquiror. Acquiror shall indemnify and save and
hold harmless Seller, its Affiliates, and its Representatives (collectively, the
"Seller Indemnitees") from and against any and all Damages incurred in
connection with, arising out of, resulting from or incident to (i) any breach of
any representation or warranty or the inaccuracy of any representation, made by
Acquiror in or pursuant to this Agreement; (ii) any breach of any covenant or
agreement made by Acquiror in or pursuant to this Agreement; (iii) from and
after the Closing, any Assumed Liability; (iv) any Liability (other than the
Excluded Liabilities) imposed upon the Seller Indemnitees by reason of and to
the extent arising from Acquiror's conduct of the Business after the Closing
Date; or (v) any contractual liability imposed upon the Seller Indemnitees by a
third party as a result of the failure of Seller to obtain a consent or approval
listed on Schedule 4.4 where the requirement of Seller to obtain such consent or
approval has been specifically waived by Acquiror.
(c) Cooperation. The indemnified party shall cooperate in
all reasonable respects with the indemnifying party and such attorneys in the
investigation, trial and defense of such lawsuit or action and any appeal
arising therefrom; provided, however, that the indemnified party may, at its own
cost, participate in the investigation, trial and defense of such lawsuit or
action and any appeal arising therefrom. The parties shall cooperate with each
other in any notifications to insurers.
(d) Claims Between the Parties. References in this
Article VIII to "indemnifying party" when an Acquiror Indemnitee is an
indemnified party shall be deemed references to Seller and the Member, jointly
and severally. If a claim for Damages (a "Claim") is to be made by a party
entitled to indemnification hereunder against the indemnifying party, the party
claiming such indemnification shall, subject to Section 8.3, give written notice
(a "Claim Notice") to the indemnifying party as soon as practicable after the
party entitled to indemnification becomes aware of any fact, condition or event
which may give rise to Damages for which indemnification may be sought under
this Section 8.2.
(e) Defense of Third-Party Claims. If any lawsuit or
enforcement action is filed by a third party against any party entitled to the
benefit of indemnity hereunder, written notice thereof shall be given to the
indemnifying party as promptly as practicable (and in any event within fifteen
(15) calendar days after the service of the citation or summons). The failure of
any indemnified party to give timely notice hereunder shall not affect rights to
indemnification hereunder, except to the extent that the indemnifying party
demonstrates actual damage caused by such failure. After such notice, if the
indemnifying party shall acknowledge in writing to the indemnified party that
the indemnifying party shall be obligated under the terms of its indemnity
hereunder in connection with such lawsuit or action, then the indemnifying party
shall be entitled, if it so elects at its own cost, risk and expense, (i) to
take control of the defense and investigation of such lawsuit or action, (ii) to
employ and engage attorneys of its own choice to handle and defend the same
unless the named parties to such action or proceeding include both the
indemnifying party and the indemnified party and the indemnified party has been
advised in writing by counsel that there may be one or more legal defenses
available to such indemnified party that are different from or additional to
those available to the indemnifying party, in which
44
event the indemnified party shall be entitled, at the indemnifying party's cost,
risk and expense, to separate counsel of its own choosing, and (iii) to
compromise or settle such claim, which compromise or settlement shall be made
only with the written consent of the indemnified party, such consent not to be
unreasonably withheld (unless such compromise or settlement (a) solely requires
payment of monetary damages by the indemnifying party and (b) does not impose
obligations or restrictions on or require the admission of liability by the
indemnified party or its business, in which case approval of the indemnified
party shall not be required); provided, however, if the resolution of any such
Claim is reasonably expected to impose obligations or restrictions on the
indemnified party or its business, then, notwithstanding the foregoing, the
indemnified party shall be entitled to control such resolution, including,
without limitation, to take control of the defense and investigation of such
lawsuit or action, to employ and engage attorneys of its own choice to handle
and defend the same, at the indemnifying party's cost, risk and expense, and to
compromise or settle such Claim (which compromise or settlement shall be subject
to the written consent of the indemnifying party, which consent shall not be
unreasonably withheld).
If the indemnifying party fails to assume the defense of such
claim within fifteen (15) calendar days after receipt of the Claim Notice, the
indemnified party against which such claim has been asserted will (upon
delivering notice to such effect to the indemnifying party) have the right to
undertake, at the indemnifying party's cost and expense, the defense, compromise
or settlement of such claim on behalf of and for the account and risk of the
indemnifying party; provided, however, that such Claim shall not be compromised
or settled without the written consent of the indemnifying party, which consent
shall not be unreasonably withheld. In the event the indemnified party assumes
the defense of the claim, the indemnified party will keep the indemnifying party
reasonably informed of the progress of any such defense, compromise or
settlement. The indemnifying party shall be liable for any settlement of any
action effected pursuant to and in accordance with this Section 8.3 and for any
final judgment (subject to any right of appeal), and the indemnifying party
agrees to indemnify and hold harmless an indemnified party from and against any
Damages by reason of such settlement or judgment. The right to indemnification,
payment of Damages or other remedy based on any representations, warranties,
covenants and obligations will not be affected by any investigation conducted
with respect to, or any knowledge acquired (or capable or being acquired) at any
time, whether before or after the execution and delivery of this Agreement or
the Closing, with respect to the accuracy or inaccuracy of or compliance with,
any such representation, warranty, covenant or obligation. The waiver of any
condition based on the accuracy of any representation or warranty, or on the
performance of or compliance with any covenant or obligation, will not affect
the right to indemnification, payment of Damages, or other remedies based on
such representations, warranties, covenants and obligations.
(f) Deductible. No Acquiror Indemnitee shall be entitled
to indemnification for and Damages pursuant to Section 8.3(a) unless the
aggregate amount of all Damages for which all Acquiror Indemnitees are entitled
to indemnification pursuant to Section 8.3(a) exceeds Twenty Five Thousand
Dollars ($25,000) (the "Indemnification Basket"), at which time the Acquiror
Indemnitees shall be entitled to indemnification for all such Damages in excess
of the Indemnification Basket sustained by such Acquiror Indemnitees.
Notwithstanding the foregoing, the limitations contemplated by this Section
8.3(f) shall not apply to or limit any recovery for Damages arising from
fraudulent misrepresentation or fraudulent conduct.
45
(g) Limitations on Indemnity. The Seller Parties shall
not be liable to Acquiror under Section 8.3(a)(i) through (vii) for any Damages
in excess of One Million Dollars ($1,000,000) in the aggregate; provided further
that Acquiror Indemnitees may only recover such Damages arising under Section
8.3(a)(i) through (vii) as an offset against the Earnout Payments (on a pro rata
basis from the cash and stock portions thereof). Notwithstanding the foregoing,
the limitations contemplated by this Section 8.3(g) shall not apply to or limit
any recovery for Damages arising from fraudulent misrepresentation or fraudulent
conduct.
8.4. Bulk Sales. It may not be practicable to comply or attempt to
comply with the procedures of the "Bulk Sales Act" or similar law of any or all
of the states in which the Assets are situated or of any other state which may
be asserted to be applicable to the transactions contemplated hereby.
Accordingly, to induce Acquiror to waive any requirements for compliance with
any or all of such laws, the Seller Parties hereby agree jointly and severally
that the indemnity provisions of Section 8.3 hereof (except for the limitations
set forth in Section 8.3(f)) shall apply to any Damages incurred by any Acquiror
Indemnitees arising out of or resulting from the failure of the Seller Parties
or the Acquiror Parties to comply with any such laws.
8.5. Taxes.
(a) All real property taxes, personal property taxes and
similar ad valorem obligations levied with respect to the Assets for a taxable
period which includes (but does not end on) the Closing Date shall be
apportioned between Seller and Acquiror based on the number of days of such
taxable period which fall on or before the Closing Date (a "Pre-Closing Tax
Period") and the number of days of such taxable period after the Closing Date (a
"Post-Closing Tax Period"). Seller Parties shall be liable for the proportionate
amount of such taxes that is attributable to the Pre-Closing Tax Period, and
Acquiror shall be liable for the proportionate amount of such taxes that is
attributable to the Post-Closing Tax Period.
(b) With respect to Taxes to be prorated in accordance
with this Section 8.5(b) only, Acquiror shall prepare and timely file all Tax
Returns required to be filed after the Closing with respect to the Assets.
Acquiror's preparation of any such Tax Return shall be subject to Seller's
approval, not to be unreasonably withheld. Acquiror shall make such Tax Returns
available for Seller's review no later than fifteen (15) days prior to the due
date for filing such Tax Return. Within ten (10) days after receipt of such Tax
Return, Seller Parties shall pay to Acquiror Seller's proportionate share of the
amount shown as due on such Tax Return determined in accordance with this
Section 8.5(b) of this Agreement.
(c) The Parties shall make appropriate adjustments for
the tax benefits if any, accruing from the indemnifiable Damages in calculating
the amount of Damages under this Agreement.
8.6. Insurance. The parties shall make appropriate adjustments for
insurance proceeds actually received in calculating Damages under this
Agreement.
46
8.7. Exclusive Remedy. The Parties agree that should the Closing
occur, the indemnification provisions of this Article VIII shall be the
exclusive remedy with respect to any Claims for breaches of representations and
warranties under this Agreement, provided that this Section 8.7 shall not apply
with respect to any Claims for breaches of representations and warranties under
this Agreement arising from fraudulent misrepresentation or fraudulent conduct.
8.8. Right of Offset. Anything in this Agreement to the contrary
notwithstanding, Acquiror may withhold and set off against any amounts due to
any Seller Party under Section 2.7 the amount of any Damages to which any Seller
Indemnitee is entitled.
ARTICLE IX.
MISCELLANEOUS
9.1. Assignment. Neither this Agreement nor any of the rights or
obligations hereunder may be assigned by any party without the prior written
consent of the other parties; except that Acquiror may, without such consent,
assign all such rights to any lender as collateral security and assign all such
rights and obligations to any Affiliate or subsidiary of Acquiror or to a
successor in interest to Acquiror, in each case which shall assume all rights
and obligations of Acquiror under this Agreement, so long as Acquiror remains
liable for its obligations hereunder. Subject to the foregoing, this Agreement
shall be binding upon and inure to the benefit of the parties hereto and their
respective successors and permitted assigns, and no other person shall have any
right, benefit or obligation under this Agreement as a third-party beneficiary
or otherwise.
9.2. Notices. All notices, requests, demands and other
communications which are required or may be given under this Agreement shall be
in writing and shall be deemed to have been duly given when received if
personally delivered; when transmitted if transmitted by telecopy; the day after
it is sent, if sent next day delivery to a domestic address by a recognized
overnight delivery service (e.g., Federal Express or UPS); and upon receipt, if
sent by certified or registered mail, return receipt requested. In each case
notice shall be sent to:
If to a Seller Party, addressed to:
Xxxxxx X. Xxxxxxx, III
0000 Xxxx Xxxxxxx Xxxxx
Xxxxxxx, Xxxxxxxxxx 00000
Facsimile: (000) 000-0000
47
With a copy to:
E. Xxxxxx Xxxxxxxx, Esq.
Xxxxxx Xxxxxxx Xxxxxx & Xxxxx, PLLC
000 Xxxxx Xxxxxx, Xxxxx 0000
Xxxxxxxxx, Xxxxxxxxx 00000
Facsimile: (000) 000-0000
If to Acquiror, addressed to:
Equity Marketing, Inc.
0000 Xxx Xxxxxxx Xxxx.
Xxx Xxxxxxx, Xxxxxxxxxx 00000
Attention: Xxxxxx X. Xxxxxx, Esq.,
SVP, General Counsel and Secretary
Facsimile: (000) 000-0000
or to such other place and with such other copies as either party may designate
as to itself by written notice to the others.
9.3. Choice of Law. This Agreement shall be construed, interpreted
and the rights of the parties determined in accordance with the laws of the
State of Delaware, without reference to principles of conflicts of laws.
9.4. Entire Agreement; Amendments and Waivers. This Agreement and
the Ancillary Agreements, together with all exhibits and schedules hereto and
thereto (including the Disclosure Schedule), constitute the entire agreement
among the parties pertaining to the subject matter hereof and supersede all
prior agreements, understandings, negotiations and discussions, whether oral or
written, of the parties. This Agreement may not be amended except by an
instrument in writing signed on behalf of each of the parties hereto. No
amendment, supplement, modification or waiver of this Agreement shall be binding
unless executed in writing by the party to be bound thereby. No waiver of any of
the provisions of this Agreement shall be deemed or shall constitute a waiver of
any other provision hereof (whether or not similar), nor shall such waiver
constitute a continuing waiver unless otherwise expressly provided.
9.5. Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
9.6. Expenses. Except as otherwise specified in this Agreement,
each party hereto shall pay its own legal, accounting, out-of-pocket and other
expenses incident to this Agreement and to any action taken by such party in
preparation for carrying this Agreement into effect.
9.7. Severability. In the event that any one or more of the
provisions contained in this Agreement or in any other instrument referred to
herein, shall, for any reason, be held to be invalid, illegal or unenforceable
in any respect, then to the maximum extent permitted by law,
48
such invalidity, illegality or unenforceability shall not affect any other
provision of this Agreement or any other such instrument.
9.8. Headings. The titles, captions or headings of the Articles and
Sections herein are for convenience of reference only and are not intended to be
a part of or to affect or restrict the meaning or interpretation of this
Agreement.
9.9. Publicity. Except as required by applicable law, neither
Acquiror nor Seller shall issue any press release or make any public statement
regarding the transactions contemplated hereby, without prior written approval
of the other party. Notwithstanding the foregoing, Acquiror may, at its
discretion, issue or make an appropriate press release or public announcement
after the execution and delivery of this Agreement and the closing.
9.10. Cumulative Remedies. All rights and remedies of either party
hereto are cumulative of each other, and the exercise of one or more rights or
remedies shall not prejudice or impair the concurrent or subsequent exercise of
other rights or remedies provided in this Agreement, and nothing herein shall be
deemed to preclude Acquiror or Seller from bringing an action for specific
performance or seeking injunctive relief.
9.11. No Third-Party Beneficiaries. This Agreement is for the sole
benefit of the parties hereto and their permitted assigns and nothing herein,
express or implied, is intended to or shall confer upon any other Person or
entity any legal or equitable right, Claim, benefit or remedy of any nature
whatsoever under or by reason of this Agreement. Notwithstanding the foregoing,
the Acquiror Indemnitees are intended third-party beneficiaries of Article X of
this Agreement.
9.12. Arbitration; Process.
(a) In the event any controversy or claim arising out of
or relating to this Agreement or the making, performance or interpretation
thereof shall be settled by arbitration in the City of Los Angeles, California,
in accordance with the Commercial Arbitration Rules of the American Arbitration
Association then in effect, and judgment on the arbitration award may be entered
in any Federal or State Court in Los Angeles, California having competent
jurisdiction over the subject matter of the controversy. Notwithstanding
anything in this Section 12.12 to the contrary, any of the parties hereto may
apply to a court of competent jurisdiction for interim relief or a provisional
remedy pending the decision of the arbitrator. If any party to this Agreement
brings an action to enforce its rights under this Agreement, the prevailing
party shall be entitled to recover its costs and expenses, including, without
limitation, reasonable attorneys' fees, incurred in connection with such action,
including any appeal of such action.
(b) Process in any arbitration or proceeding referred to
in this Section 12.12 may be served on any party anywhere in the WORLD.
9.13. WAIVER OF JURY TRIAL. THE PARTIES HEREBY WAIVE ANY RIGHT TO
TRIAL BY JURY WITH RESPECT TO ANY CLAIM ARISING OUT OF OR RELATING TO THIS
AGREEMENT OR ANY OF THE TRANSACTIONS CONTEMPLATED HEREBY, WHETHER NOW EXISTING
OR HEREAFTER ARISING, AND WHETHER SOUNDING IN CONTRACT, TORT OR OTHERWISE.
49
THE PARTIES AGREE THAT ANY OF THEM MAY FILE A COPY OF THIS PARAGRAPH WITH ANY
COURT AS WRITTEN EVIDENCE OF THE KNOWING, VOLUNTARY AND BARGAINED-FOR AGREEMENT
AMONG THE PARTIES IRREVOCABLY TO WAIVE TRIAL BY JURY AND THAT ANY ACTION
WHATSOEVER BETWEEN THEM RELATING TO THIS AGREEMENT OR ANY OF THE TRANSACTIONS
CONTEMPLATED HEREBY SHALL INSTEAD BE TRIED IN A COURT OF COMPETENT JURISDICTION
BY A JUDGE SITTING WITHOUT A JURY.
[Signature Page Follows]
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IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be duly executed on their respective behalf, by their respective
officers thereunto duly authorized, all as of the day and year first set forth
above.
EQUITY MARKETING, INC.
By: /s/ Xxxxxx X. Xxxxxx
_________________________________________
Name: Xxxxxx X. Xxxxxx
Title: SVP, General Counsel and Secretary
S.C.I. PROMOTION GROUP, LLC
By: /s/ Xxxxxx X. Xxxxxxx, III
_________________________________________
Name: Xxxxxx X. Xxxxxxx, III
Title: Managing Member
/s/ Xxxxxx X. Xxxxxxx, III
_______________________________________________
XXXXXX X. XXXXXXX, III
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