EXHIBIT 2.1
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STOCK PURCHASE AGREEMENT
Among
AMERICAN ACHIEVEMENT CORPORATION
as Buyer
MILESTONE MARKETING INCORPORATED
and
Xxxxxx X. Xxxxxxxx
Xxxx Xxxxx
Page Xxxxxxxxxx
as Sellers
OF
Milestone Marketing IncOrporated
Dated as of July 9, 2002
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TABLE OF CONTENTS
Page
SECTION 1. SALE AND PURCHASE.....................................................1
(a) SALE AND PURCHASE.....................................................1
(b) PURCHASE PRICE........................................................1
(c) POST-CLOSING ESCROW...................................................2
(d) EBITDA ADJUSTMENT.....................................................2
(e) REDUCTION FOR INDEBTEDNESS............................................3
(f) REDUCTION FOR TRANSACTION BONUS.......................................3
SECTION 2. THE CLOSING...........................................................3
(a) TIME AND PLACE OF CLOSING.............................................3
(b) DELIVERY AND PAYMENT..................................................4
SECTION 3. REPRESENTATIONS AND WARRANTIES OF SELLERS WITH RESPECT
TO STOCK OWNERSHIP, AUTHORITY, NO VIOLATION, ETC......................4
(a) STOCK OWNERSHIP.......................................................4
(b) NO VIOLATION, ETC.....................................................4
(c) NO OTHER AGREEMENTS TO SELL ASSETS OR BUSINESS........................4
(d) LITIGATION............................................................5
(e) AUTHORITY; EXECUTION AND DELIVERY.....................................5
SECTION 4. ADDITIONAL REPRESENTATIONS AND WARRANTIES OF
SHAREHOLDERS WITH RESPECT TO THE COMPANY..............................5
(a) NO CONFLICTS, CONSENTS, ETC...........................................5
(b) ORGANIZATION AND GOOD STANDING........................................6
(c) CAPITALIZATION........................................................7
(d) CERTIFICATE OF INCORPORATION AND BY-LAWS; BOOKS AND RECORDS...........7
(e) FINANCIAL STATEMENTS..................................................8
(f) INDEBTEDNESS; ABSENCE OF UNDISCLOSED LIABILITIES......................8
(g) ABSENCE OF CERTAIN CHANGES OR EVENTS..................................8
(h) TAX MATTERS..........................................................11
(i) ACCOUNTS RECEIVABLE..................................................12
(j) INVENTORIES..........................................................12
(k) EQUIPMENT............................................................12
(l) POWERS OF ATTORNEY, AGENTS, ETC......................................12
(m) COPIES OF DOCUMENTS..................................................13
(n) TANGIBLE PROPERTIES; ASSETS..........................................13
(o) VALIDITY OF CONTRACTS................................................14
(p) INTELLECTUAL PROPERTIES..............................................14
(q) ENVIRONMENTAL MATTERS................................................17
(r) INSURANCE............................................................18
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(s) LABOR MATTERS; COMPANY PERSONNEL.....................................18
(t) EMPLOYMENT BENEFITS..................................................18
(u) LITIGATION...........................................................19
(v) COMPLIANCE WITH LAWS.................................................19
(w) NO BROKERS...........................................................19
(x) TRANSACTIONS WITH CERTAIN PERSONS....................................19
(y) SUPPLIERS AND CUSTOMERS..............................................20
(z) FULL DISCLOSURE......................................................20
SECTION 5. REPRESENTATIONS AND WARRANTIES OF BUYER..............................20
(a) CONSENTS, NO CONFLICTS, ETC..........................................20
(b) ORGANIZATION AND GOOD STANDING.......................................20
(c) AUTHORITY, EXECUTION AND DELIVERY....................................20
(d) NO BROKERS...........................................................21
SECTION 6. CERTAIN COVENANTS AND AGREEMENTS.....................................21
(a) CONDUCT OF THE COMPANY'S BUSINESS....................................21
(b) ACCESS TO THE COMPANY'S BUSINESS.....................................21
(c) TAXES................................................................22
(d) FURTHER ASSURANCES...................................................22
(e) AUTOMOBILE OBLIGATIONS...............................................22
SECTION 7. CONDITIONS TO OBLIGATIONS OF BUYER...................................22
(a) REPRESENTATIONS AND WARRANTIES TRUE AT THE CLOSING DATE..............22
(b) SELLER'S PERFORMANCE.................................................23
(c) MATERIAL ADVERSE EFFECT..............................................23
(d) STOCK CERTIFICATES...................................................23
(e) LITIGATION...........................................................23
(f) NO CHANGE IN LAW.....................................................23
(g) OPINION OF SELLER'S COUNSEL..........................................23
(h) EMPLOYMENT AND NON-COMPETITION AGREEMENTS............................23
(i) RESIGNATIONS.........................................................23
(j) NONFOREIGN PERSONS...................................................23
(k) PROCEEDINGS AND DOCUMENTS SATISFACTORY...............................24
(l) INDEBTEDNESS.........................................................24
(m) DUE DILIGENCE........................................................24
(n) LENDER CONSENT.......................................................24
(o) POST-CLOSING ESCROW AGREEMENT........................................24
SECTION 8. CONDITIONS TO OBLIGATIONS OF SELLERS.................................24
(a) REPRESENTATIONS AND WARRANTIES TRUE AT THE CLOSING DATE..............24
(b) BUYER'S PERFORMANCE..................................................24
(c) LITIGATION...........................................................24
(d) NO CHANGE IN LAW.....................................................25
(e) POST-CLOSING ESCROW AGREEMENT........................................25
(f) EMPLOYMENT AND NON-COMPETITION AGREEMENTS............................25
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SECTION 9. NATURE AND SURVIVAL OF REPRESENTATIONS AND WARRANTIES;
INDEMNIFICATION, ETC.................................................25
(a) SURVIVAL OF REPRESENTATIONS, WARRANTIES, ETC.........................25
(b) SELLERS' AGREEMENT TO INDEMNIFY......................................25
(c) BUYER'S AGREEMENT TO INDEMNIFY.......................................26
(d) THIRD PARTY CLAIMS...................................................26
SECTION 10. TERMINATION AND ABANDONMENT..........................................27
SECTION 11. PAYMENT OF CERTAIN EXPENSES..........................................27
SECTION 12. NOTICES, ETC.........................................................27
SECTION 13. ENTIRE AGREEMENT; AMENDMENT AND WAIVER...............................29
SECTION 14. ASSIGNMENT...........................................................29
SECTION 15. PRESS RELEASES.......................................................29
SECTION 16. SEVERABILITY.........................................................29
SECTION 17. GENERAL..............................................................30
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EXECUTION COPY
STOCK PURCHASE AGREEMENT
THIS
STOCK PURCHASE AGREEMENT, dated as of July 9, 2002 (together with
the Schedules, Annexes and Exhibits hereto, this "Agreement"), is by and among
American Achievement Corporation, a Delaware corporation ("Buyer"), Milestone
Marketing Incorporated, a Pennsylvania corporation (the "Company"), Xxxxxx X.
Xxxxxxxx, an individual ("Xxxxxxxx"), Xxxx Xxxxx, an individual ("Xxxxx") and
Page Xxxxxxxxxx, an individual ("Xxxxxxxxxx") (Xxxxxxxx, Xxxxx and Xxxxxxxxxx
each individually a "Shareholder" and, collectively, the "Shareholders"), Eureka
I, L.P., a Delaware limited partnership ("Eureka") and Eureka I-A, L.P., a
Delaware limited partnership ("Eureka I-A", and together with Eureka, each
individually a "Warrant Holder" and collectively, the "Warrant Holders").
Shareholders and Warrant Holders may sometimes hereinafter be referred to
individually as a "Seller" and, collectively, as the "Sellers"). Shareholders
are the beneficial and record owners of an aggregate of one hundred percent
(100%) of the issued and outstanding capital stock, which consists solely of
common stock, no par value per share (the "Common Stock"), of the Company. The
Warrant Holders are the beneficial and record owners of all the issued and
outstanding warrants to purchase Common Stock (the "Warrants").
WHEREAS, each of the Shareholders desires to sell all of the shares of
Common Stock owned by such Seller, as set forth on ANNEX I attached hereto
(collectively, the "Shares") and each of the Warrant Holders desires to sell all
the Warrants owned by such Warrant Holder, as set forth on ANNEX I attached
hereto (with the Warrants and Shares being collectively referred to herein as
the "Securities"), and Buyer desires to purchase all Securities for the
consideration provided herein;
NOW, THEREFORE, in consideration of the foregoing premises and the
representations, warranties and agreements contained herein, Sellers and Buyer
hereby agree as follows:
SECTION 1. SALE AND PURCHASE.
(a) SALE AND PURCHASE. On the terms and subject to the conditions of
this Agreement, on the Closing Date (as defined in Section 2(a)), each Seller
will sell, convey, transfer and deliver to Buyer, and Buyer will purchase from
such Seller, the Securities set forth opposite such Seller's name on ANNEX I
attached hereto, which Securities collectively represent 100% of the outstanding
shares of capital stock and warrants of the Company. As to each Seller, the
Securities being sold by such Seller are sometimes referred to herein as such
"Seller's Securities".
(b) PURCHASE PRICE. On the terms and subject to the conditions of
this Agreement, in consideration of the sale of the Securities, Buyer agrees to
pay to Sellers the purchase price (the "Purchase Price"), which, subject to
Sections 1(c), 1(d), 1(e) and 1(f) hereof, shall consist of an aggregate sum of
$15,750,000. Subject to Section 1(c), the Purchase Price shall be payable by
wire transfer of immediately available funds to such bank account or bank
accounts as Sellers shall theretofore designate in writing to Buyer, or by such
other means as are agreed upon by Sellers and Buyer. The Purchase Price shall be
allocated among Sellers as set forth on ANNEX I hereto. Any amounts escrowed
pursuant to Section 1(c) shall be escrowed pro rata among Sellers and any
adjustment made pursuant to Section 1(d), Section 1(e) and Section 1(f) shall be
made pro rata among Sellers.
(c) POST-CLOSING ESCROW. At the Closing, Buyer shall deliver to the
escrow agent set forth in the Post-Closing Escrow Agreement, dated as of the
Closing Date, by and among the parties hereto and The Bank of New York, as
escrow agent (the "Post-Closing Escrow Agent"), on terms reasonably satisfactory
to Buyer and Sellers (the "Post-Closing Escrow Agreement") $1,575,000 (the
"Post-Closing Escrow Amount), such amount to be held by the Post-Closing Escrow
Agent until November 30, 2003, except as provided for herein and in the
Post-Closing Escrow Agreement, and disbursed by it in accordance with the terms
of the Post-Closing Escrow Agreement. At the time of final disbursement of the
Post-Closing Escrow Amount, any earnings on the Post-Closing Escrow Amount shall
be disbursed to the parties pro rata in proportion to the ultimate distribution
of the Post-Closing Escrow Amount.
(d) EBITDA ADJUSTMENT. (i) Within two days prior to the Closing
Date, Sellers shall deliver to Buyer an estimate of EBITDA (as defined below) of
the Company for the nine months ended May 31, 2002 (the "EBITDA Estimate"). Upon
completion of the Company's audited financial statements for the nine months
ended May 31, 2002, which shall be no later than November 30, 2002 (with copies
furnished promptly to Sellers), Buyer and its auditors shall, in good faith,
calculate EBITDA of the Company for such period and prepare a statement (the
"EBITDA Statement") setting forth such calculation. The fee for such audit,
calculation and statement shall be paid for by Buyer. To the extent that EBITDA
as set forth in the EBITDA Statement is less than the EBITDA Estimate, Sellers
shall pay to Buyer, pro rata among Sellers, an amount (the "Shortfall Amount")
equal to the difference between the EBITDA Estimate and EBITDA as set forth in
the EBITDA Statement (the "EBITDA Shortfall") multiplied by seven (7). The
Shortfall Amount shall be payable by wire transfer of immediately available
funds to such bank account as Buyer shall theretofore designate in writing on
the fifth day following the earliest to occur of (A) the expiration of the
EBITDA Dispute Notice Period (as defined below), if Sellers fail to deliver an
EBITDA Dispute Notice (as defined below) within the EBITDA Dispute Notice
Period, (B) the date of resolution of matters stated in an EBITDA Dispute Notice
and (C) the date of delivery of the report by the Accountant (as defined below)
contemplated in the next paragraph; provided, that Buyer must satisfy any
amounts due under this paragraph from the Post-Closing Escrow Amount.
(ii) If Sellers object to the calculations of EBITDA set forth in the
EBITDA Statement, they shall jointly notify Buyer in writing of their objection
setting forth the amount in dispute and a reasonably detailed statement of the
basis thereof (an "EBITDA Dispute Notice") within 30 days (the "EBITDA Dispute
Notice Period") of delivery of such EBITDA Statement; PROVIDED, HOWEVER, that if
Sellers fail to deliver an EBITDA Dispute Notice within the prescribed period,
such EBITDA Statement shall be final and binding. If Sellers deliver an EBITDA
Dispute Notice, Buyer and Sellers shall negotiate in good faith in an attempt to
resolve their differences within the following 30 days following delivery of the
Dispute Notice (the "Resolution Period"). If, at the end of the Resolution
Period, Buyer and Sellers have not reached an agreement in writing, such EBITDA
Statement shall be submitted to a mutually agreed upon
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accounting firm that is nationally recognized (the "Accountant"), who shall be
engaged by Buyer and Sellers within 10 days after the end of the Resolution
Period for the purpose of making a final determination with respect to such
EBITDA Statement. Buyer, on the one hand, and Sellers, on the other hand, may
submit documentation supporting their respective positions to the Accountant.
Buyer and Sellers shall take all action reasonably required to cause the
Accountant to make its determination within 30 days after the date of its
engagement. Upon making its determination, the Accountant shall deliver to Buyer
and Sellers (i) a report setting forth its adjustments, if any, to such EBITDA
Statement and the calculations supporting such adjustments, and (ii) such EBITDA
Statement accompanied by a schedule setting forth the calculation of EBITDA.
Such report and calculation of EBITDA shall be final, conclusive and binding on
the parties hereto and not subject to appeal, absent fraud or manifest error.
The fees and expenses incurred in connection with the engagement of the
Accountant shall be borne by Buyer in proportion to the percentage of the
disputed amount awarded to Sellers based on the Accountant's determination. The
remaining fees and expenses of the Accountant shall be borne by Sellers.
(iii) As used in this Section 1, "EBITDA" shall mean earnings before
interest, taxes, depreciation, amortization and extraordinary gains or loss, all
as set forth in the audited financial statements of the Company. Such audited
financial statement shall be prepared based upon generally accepted accounting
principles as in effect on the date hereof, consistently applied ("GAAP").
(e) REDUCTION FOR INDEBTEDNESS. The Purchase Price shall further be
reduced by the amount of the outstanding indebtedness of the Company as of the
Closing Date to Wilmington Trust of Pennsylvania pursuant to the Line of Credit
and Security Agreement dated as of January 20, 1999, as amended (the "Wilmington
Loan") and to the Warrant Holders pursuant to the Loan Agreement between the
Company and the Warrant Holders (the "Eureka Loan"). The amount of outstanding
indebtedness under the Wilmington Loan due as of July 11, 2002 shall not exceed
$366,500 and the amount of outstanding indebtedness under the Eureka Loan due as
of July 11, 2002 shall not exceed $3,135,000. To the extent such amounts exceed
$366,500 and $3,135,000 at Closing, the Purchase Price shall further be reduced.
To the extent additional amounts are outstanding based upon borrowings prior to
Closing under the Eureka Loan or the Wilmington Loan after the Closing, such
amounts shall be paid from the Post-Closing Escrow Amount.
(f) REDUCTION FOR TRANSACTION BONUS. The Purchase Price shall
further be reduced by an aggregate of $200,000 representing a transaction bonus
payable by the Company to Xxxxxx Xxxxxxx (the "Bonus"). The Company shall, upon
Closing, wire the amount of the Bonus to Xxxxxx Xxxxxxx, net of all applicable
federal, state and local income and employment tax withholding requirements, as
determined and agreed to by the Buyer.
SECTION 2. THE CLOSING.
(a) TIME AND PLACE OF CLOSING. On the terms and subject to the
conditions contained in this Agreement, the closing of the purchase and sale of
the Shares (the "Closing") shall take place at the offices of Xxxxxxx Xxxx &
Xxxxx LLP, 000 Xxxxx Xxxxxx, Xxx Xxxx, Xxx Xxxx 00000 on July 15, 2002, or at
such other place or time as Buyer and Sellers may agree in
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writing (the "Closing Date"). At the Closing there shall have been delivered to
Buyer and Sellers the opinions, certificates and other documents and instruments
required to be delivered hereunder.
(b) DELIVERY AND PAYMENT. At the Closing, each Seller shall deliver
(or cause to be delivered) to Buyer stock certificates or warrants, as the case
may be, representing the number of such Seller's Securities set forth opposite
such Seller's name on ANNEX I hereto, duly endorsed, with respect to the Shares,
or accompanied by duly executed stock powers in blank and having all necessary
stock transfer tax stamps affixed thereto at the expense of Sellers in form
suitable for transfer of title thereto to Buyer free and clear of any
Encumbrances (as defined herein) or Adverse Claim (as defined in Section 8-303
of the Uniform Commercial Code), against payment of the Purchase Price by Buyer
to Sellers.
SECTION 3. REPRESENTATIONS AND WARRANTIES OF SELLERS WITH RESPECT TO
STOCK OWNERSHIP, AUTHORITY, NO VIOLATION, ETC.
Each Seller hereby severally, and not jointly, represents and warrants
to Buyer, as follows:
(a) STOCK OWNERSHIP. Such Seller is the beneficial and record owner
of such Seller's Securities, free and clear of any lien, mortgage, pledge,
preference, priority, option, security interest, assignment for security claim,
charge, third party right or any other restriction or encumbrance of any nature
whatsoever other than the rights of Buyer created by this Agreement and
restrictions on transfer under applicable securities laws (each an
"Encumbrance"), and, on the Closing Date, it will transfer to Buyer good and
marketable title to such Securities, free and clear of any Encumbrance or
Adverse Claim (as defined in Section 8-303 of the Uniform Commercial Code).
(b) NO VIOLATION, ETC. None of such Seller's execution and delivery
of this Agreement or the Post-Closing Escrow Agreement, the consummation of the
transactions contemplated herein nor compliance by such Seller with any of the
provisions hereof or thereof will: (i) result in the creation of any Encumbrance
or Adverse Claim upon such Seller's Securities under any of the terms,
conditions or provisions of any note, bond, mortgage, indenture, deed of trust,
license, agreement, or any other instrument or obligation to which such Seller
is a party or by which such Seller or such Seller's Securities may be bound or
(ii) violate any order, writ, injunction, decree, statute, rule or regulation
applicable to such Seller or such Seller's Securities. Except as otherwise
disclosed on SCHEDULE 4(a) hereto, no consent, approval, authorization, order,
filing, registration or qualification of or with any court, governmental
authority or any Person (as herein defined) is required to be obtained by such
Seller in connection with the execution and delivery by such Seller of this
Agreement or the Post-Closing Escrow Agreement or consummation by such Seller of
the transactions contemplated herein or therein in the manner contemplated
hereby or thereby.
(c) NO OTHER AGREEMENTS TO SELL ASSETS OR BUSINESS. Neither the
Company nor such Seller has any legal obligation, absolute or contingent, to any
other individual, corporation, partnership, trust, limited liability company,
association, joint venture or any similar entity (each, a "Person") to (i) sell
such Seller's Securities (other than the sales contemplated
4
hereby), (ii) sell any assets of the Company (other than sales of inventory in
the ordinary course of the business of the Company), (iii) issue, sell or
otherwise transfer any capital stock or any security convertible into or
exchangeable for capital stock of the Company (other than the sales contemplated
hereby or the issuance of Common Stock by the Company upon exercise of the
Warrants), (iv) effect any merger, consolidation or other reorganization of the
Company or (v) enter into any agreement with respect to any of the foregoing.
(d) LITIGATION. There is no action, claim, suit or proceeding
pending or, to the knowledge of such Seller, threatened by or against or
affecting such Seller or such Seller's Securities and, to the knowledge of such
Seller, there is no investigation pending or, to the knowledge of such Seller,
threatened against or affecting such Seller or such Seller's Securities, in each
case before any court or governmental or regulatory authority or body, in either
case that could affect the ability of such Seller to sell and transfer such
Seller's Securities or otherwise to consummate the transactions contemplated by
this Agreement and the Post-Closing Escrow Agreement at the Closing. There are
no writs, decrees, injunctions or orders of any court or governmental or
regulatory agency, authority or body outstanding against such Seller with
respect to such Seller's Securities. As used in this Agreement, "knowledge"
shall mean (i) with respect to matters pertaining to the Company, the actual
awareness or understanding of each of the Shareholders after due inquiry of
those officers who would normally be expected to have knowledge of the truth or
completeness of such representation or warranty, and (ii) with respect to
matters pertaining to a Seller or its Securities, the actual awareness or
understanding of such Seller.
(e) AUTHORITY; EXECUTION AND DELIVERY. Each Seller has the power,
capacity and authority to enter into this Agreement and the Post-Closing Escrow
Agreement, to sell such Seller's Securities in accordance with the terms hereof,
and to perform fully Seller's obligations hereunder and thereunder. Each of the
Warrant Holders has taken all requisite partnership action required to authorize
the execution, delivery and performance by such Warrant Holder of this Agreement
and the Post-Closing Escrow Agreement and the transactions contemplated hereby
and thereby. Each of this Agreement and the Post-Closing Escrow Agreement has
been duly executed and delivered by such Seller and each constitutes the legal,
valid and binding obligation of such Seller enforceable against such Seller in
accordance with its terms, except as the enforcement hereof or thereof may be
limited by bankruptcy, insolvency, or other similar laws affecting the
enforcement of creditors' rights in general or by general principles of equity.
SECTION 4. ADDITIONAL REPRESENTATIONS AND WARRANTIES OF SHAREHOLDERS
WITH RESPECT TO THE COMPANY.
Except as set forth on the disclosure schedule attached hereto, with
specific reference to the Section or subsection of this Agreement to which the
information stated in such disclosure relates (the "Disclosure Schedule"), each
Shareholder hereby severally, and not jointly represents and warrants to Buyer
as follows:
(a) NO CONFLICTS, CONSENTS, ETC. Neither the execution and delivery
of this Agreement or the Post-Closing Escrow Agreement, the consummation of the
transactions contemplated hereby, nor compliance by Sellers with any of the
provisions hereof or thereof will: (i) violate or conflict with any of the
provisions of the Certificate of Incorporation or By-
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laws of the Company; (ii) violate, conflict with, result in a breach of any
provision of, constitute a default (or an event which, with the giving of notice
or lapse of time, or both, would constitute a default) under, or result in the
acceleration of performance under, or termination or cancellation or a right of
termination or cancellation of, or result in being declared void, voidable,
without further binding effect or subject to amendment or modification of any of
the material terms, conditions or provisions of, any note, bond, mortgage,
indenture, lease, deed of trust, license, agreement, contract or any other
instrument or commitment or obligation to which the Company is a party, or by
which the Company or any of its assets or properties may be bound or affected,
and in the case of either clause (i) or clause (ii) above, no such violation,
conflict, breach, termination, cancellation or default could reasonably be
expected to impair any Seller's ability to execute, deliver or perform its
obligations under this Agreement or the Post-Closing Escrow Agreement; (iii)
result in the creation of any Encumbrance or Adverse Claim upon the Shares under
any of the terms, conditions or provisions of any note, bond, mortgage,
indenture, deed of trust, license agreement or any other instrument or
obligation to which the Company is a party or any of the capital stock, assets
or properties of the Company; (iv) violate any order, writ, injunction, decree,
judgment, ruling, statute, rule or regulation applicable to the Company, or any
of its assets or properties; or (v) require any consent, approval, permission or
other authorization of, or notice to, or declaration or filing or registration
by or with any court, arbitrator or governmental, administrative, or regulatory
authority or any Person other than those that may be required to be obtained or
provided by Buyer. As used in this Agreement, the term "Material Adverse Effect"
shall mean any event or condition that would or could reasonably be expected to
have a material adverse effect upon the business, operations, assets,
liabilities, properties, or condition (financial or other) of the Company;
provided that (i) events or conditions affecting the economy in general or the
industry in which Buyer and the Company are engaged in general, and (ii) events
or conditions resulting from the disclosure of this transaction, shall not be
deemed to constitute a Material Adverse Effect. The Company has obtained all
notices to and consents, approvals, permissions, waivers or other authorization
from governmental or regulatory authority or agencies or any other Person as
required pursuant to any law, regulation, order, judgment, decree, permit,
authorization, license, opinion, common or decisional law or agency requirement,
lease, mortgage, contract or agreement in order to consummate the transactions
contemplated hereby and for Buyer thereafter to operate the business of the
Company, including, without limitation, those listed on SCHEDULE 4(a).
(b) ORGANIZATION AND GOOD STANDING. (i) The Company is a corporation
duly organized, validly existing and in good standing under the laws of its
state of incorporation. The Company has all the requisite corporate power and
authority to own, lease and operate its properties and to carry on its business
as it is now being conducted and is duly qualified and in good standing to do
business in each jurisdiction (domestic, foreign or otherwise) where such
qualification is necessary under applicable law, except where the failure to so
qualify, would not have a Material Adverse Effect. SCHEDULE 4(b) lists all
jurisdictions in which the Company is qualified to do business as a foreign
corporation. The Company has not received any notice from the Secretary of State
or comparable official of any jurisdiction to the effect that the Company is
required to be qualified or otherwise authorized to do business therein, in
which the Company has not qualified or obtained such authorization.
(ii) SCHEDULE 4(b) sets forth the subsidiaries of the Company (each a
"Subsidiary" and collectively, the "Subsidiaries"). All the outstanding capital
stock of each Subsidiary is
6
owned directly by the Company and is free and clear of all Encumbrances and has
been duly and validly issued and is fully paid and nonassessable. There are no
options, warrants or other rights, agreements, arrangements or commitments of
any character to which any Subsidiary is a party or otherwise obligating any
Subsidiary to issue or sell, or entitling any Person to acquire from any
Subsidiary, and no Subsidiary is a party to any agreement, arrangement or
commitment obligating it to repurchase, redeem or otherwise acquire, any shares
of the capital stock or any securities convertible into or exchangeable for the
capital stock of any such Subsidiary. For purposes of this Section 3 and 4,
unless the context otherwise requires, references to the Company herein shall be
deemed also to include each of the Subsidiaries of the Company.
(c) CAPITALIZATION. (i) The authorized capital stock of the Company
consists solely of the number of shares of Common Stock of the Company set forth
on SCHEDULE 4(c) hereto, which schedule also sets forth the number of shares of
such Common Stock issued and outstanding, all of such shares of Common Stock
constituting the Shares. The Company does not have any direct or indirect
subsidiaries, does not directly or indirectly hold any securities in any other
Person. SCHEDULE 4(c) hereto lists all shareholder agreements to which the
Company or Sellers are a party, if any, all of which will be terminated at or
prior to the Closing.
(ii) All of the Shares have been duly authorized and are
validly issued, fully paid and nonassessable. The issuance and sale of all such
Shares were, at the time of such issuance and sale, in full compliance with all
applicable federal and state securities laws. Except for the Warrants, which
evidence the right to purchase 43 shares of Common Stock, there are no existing
subscriptions, warrants, rights, options, calls, contracts, understandings,
commitments, restrictions or arrangements of any character whatsoever, or
agreements to grant the same, relating to the issuance, sale, delivery or
transfer, or voting of any Shares or of any other capital stock of the Company,
and the Company has no outstanding securities convertible into or exchangeable
or exercisable for any shares of capital stock of the Company or any
subscriptions, warrants, rights, options, calls, contracts, understandings,
commitments, restrictions or arrangements of any character whatsoever with
respect to the issuance, sale or delivery of such convertible securities.
(d) CERTIFICATE OF INCORPORATION AND BY-LAWS; BOOKS AND RECORDS. (i)
Sellers have delivered to Buyer copies of the Certificate of Incorporation of
the Company, including any amendments thereto through the date hereof (certified
as of a recent date by the Secretary of State of its state of incorporation),
and the By-laws (certified as of the date hereof by the Secretary of the
Company), which copies are complete and correct as of the date hereof. The
Company is not in default in the performance, observation or fulfillment of any
term or provision of its Certificate of Incorporation or By-laws.
(ii) The minute books of the Company now contain, and on the
Closing Date will contain, a true, correct and complete record of all material
corporate actions taken on or prior to the date hereof, or hereafter taken on or
prior to the Closing Date, at the meetings of shareholders and directors and
committees thereof. The stock certificate books and records of the Company
accurately reflect on the date hereof, and will accurately reflect on the
Closing Date, the ownership of the Shares by the persons and in the amounts set
forth on ANNEX I.
7
(e) FINANCIAL STATEMENTS. Sellers have delivered to Buyer complete
copies of the following financial statements of the Company, including any
related notes to such financial statements (the "Company Financial Statements"),
each of which has been prepared in accordance with GAAP consistently applied
throughout the periods indicated (subject to year-end adjustments), and have
been prepared from and are in accordance with the books and records of the
Company and fairly presents the financial position and results of operations of
the Company as of the dates and for the periods indicated, subject, in the case
of unaudited interim financial statements, to normal year-end adjustments:
(i) audited balance sheet of the Company as at August 31,
2001;
(ii) audited statement of income and statement of changes of
cash flows of the Company for the eight months ended August 31, 2001; and
(iii) an unaudited balance sheet, statement of income and
statement of changes in cash flows for the Company as at and for the nine months
ended May 31, 2002.
The audited balance sheet of the Company as at August 31, 2001 (the "Balance
Sheet Date") is herein referred to as the "Balance Sheet" for the Company. The
unaudited balance sheet of the Company as at and for the nine months ended May
31, 2002 is herein referred to as the "Interim Balance Sheet" for the Company.
(f) INDEBTEDNESS; ABSENCE OF UNDISCLOSED LIABILITIES. SCHEDULE 4(f)
lists all notes, debentures, bonds, letters of credit, bankers' acceptances and
other instruments evidencing indebtedness (including capital leases, guarantees,
lines of credit and indebtedness with recourse limited to certain assets of the
Company) of the Company. Except as disclosed on the Schedules hereto, the
Company has no liabilities of any nature (whether accrued, absolute, contingent
or otherwise, and whether due or to become due) that are required to be recorded
in accordance with GAAP other than (i) liabilities reflected or reserved against
on the Balance Sheet, and (ii) liabilities that have arisen in the ordinary
course of business consistent with past practice as a result of arms-length
negotiations since the Balance Sheet Date. As of the Closing Date, the Company
shall have no indebtedness for borrowed money.
(g) ABSENCE OF CERTAIN CHANGES OR EVENTS. Except as disclosed on
SCHEDULE 4(g) hereto, since the Balance Sheet Date, there has not been any:
(i) change in the number of shares of capital stock issued
and outstanding or any declaration, setting aside or payment of any dividend or
other distribution (whether in cash, securities, property or otherwise) in
respect of, or any split, combination or reclassification of, the capital stock
of the Company, or any redemption or other acquisition by the Company of any
shares of its capital stock;
(ii) (A) other than pursuant to existing employment
agreements, corporate policies, practices and procedures or existing plans and
arrangement each as described on the Disclosure Schedule, (1) increase in the
compensation payable or to become payable by the Company to any of its officers,
directors, employees, independent contractors or agents (collectively, "Company
Personnel") whose total compensation for services rendered to the Company is
currently at an annual rate of more than $25,000 or any increase of general
8
applicability in the compensation payable to Company Personnel or (2) bonus,
incentive compensation, service award or other like benefit, granted, made or
accrued, contingently or otherwise, of or to the credit of Company Personnel; or
(B) employee welfare, pension, retirement, profit-sharing or similar plan
adopted by the Company or any change in any such plan already in existence;
(iii) strikes, picketing, unfair labor practices, demands for
recognition, petitions or other labor disputes between the Company and any
Company Personnel or any collective bargaining organization representing or
seeking to represent Company Personnel;
(iv) addition to or modification of the employee benefit
plans, arrangements or practices described on SCHEDULE 4(t) hereto, other than
(A) contributions made for the fiscal year ended August 31, 2001 in accordance
with the normal practices of the Company or (B) the extension of coverage to
other Company Personnel who became eligible after August 31, 2001;
(v) mortgage, pledge or subjection to any Encumbrance of
any of the assets or properties, tangible or intangible, of the Company except
(A) liens relating to current real and personal property taxes incurred but not
yet due and payable, (B) materialmen's or like liens or obligations arising in
the ordinary course of business securing obligations not yet due and payable,
(C) purchase money security interests or similar liens arising in the ordinary
course of business in an amount not to exceed in the case of this clause (C)
$5,000, individually, (D) customary covenants, conditions, restrictions,
limitations, easements, rights-of-way and other similar encumbrances and
imperfections of title, if any, which do not detract from the value, or
interfere with or impair in any material respect the present and continued use,
in the usual and normal conduct of the businesses of the Company, or the
properties and assets of the Company or otherwise impair in any material respect
the business operations of the Company, in each case taken as a whole, and (E)
zoning, entitlement, building and other land use regulations that are not
violated by and do not materially interfere with the Company's use or occupancy
of any of real property (the Encumbrances described in clauses (A) through (E)
are referred to herein collectively as the "Permitted Encumbrances");
(vi) (A) sale, assignment or transfer of any assets or
properties, tangible or intangible, of the Company other than in the ordinary
course of business and consistent with past practice, (B) or any conducting of
business other than in the ordinary course of business and consistent with past
practice, or (C) any acquisition of all or any part of the assets, properties,
stock or business of any Person other than in the ordinary course of business
and consistent with past practice;
(vii) material change in the Company's advertising, pricing,
purchasing, budget or product acquisition policies, other than to account for
seasonal variations in a manner consistent with past practice;
(viii) change by the Company in accounting methods, principles
or practices, except as required by GAAP;
9
(ix) cancellation of any debt owed to the Company or waiver
of any material claim or right of the Company, whether or not in the ordinary
course of business;
(x) amendment, cancellation or termination by the Company
of any contract, agreement or other instrument obligating any other Person to
pay to the Company $25,000 or more in the aggregate over the life of the
contract, agreement or other instrument or which is otherwise material to the
Company or its business, operations, results of operations, assets, liabilities,
properties, prospects or condition (financial or otherwise);
(xi) payment, discharge or satisfaction of any claims,
liabilities or obligations (absolute, accrued, contingent or otherwise) of the
Company other than in the ordinary course of business and consistent with past
practice;
(xii) any capital expenditure or the entering into of any
contract, agreement or lease involving payments in excess of $10,000
individually, including all forward commitments to purchase equipment, raw
materials or inventory, other than commitments to purchase raw materials or
inventory in the ordinary course of business and consistent with past practice;
(xiii) borrowing of money by the Company or guaranteeing of
indebtedness of others by the Company;
(xiv) lending of any money or otherwise pledging the credit
of the Company to any other Person;
(xv) cancellation of, or failure to continue, any insurance
coverage of the Company;
(xvi) failure to pay any current obligations of the Company
when due or consistent with past practice, except for those obligations being
contested in good faith and disclosed on SCHEDULE 4(g) hereto;
(xvii) damage, destruction or casualty loss, whether covered
by insurance or not which would for the Company, in the aggregate, exceed
$10,000;
(xviii) transaction entered into with any Affiliate (an
"Affiliate," for purposes of this Agreement, shall include with respect to any
Person, a director or officer of such Person or any other Person which directly
or indirectly, through one or more intermediaries, controls, or is controlled
by, or is under common control with, such Person) of the Company, any Seller or
any member of any Seller's family (related by blood or marriage) (each, a
"Family Member"), including any dividend payment;
(xix) making or changing of any tax election, changing of any
annual tax accounting period, adopting or changing any method of tax accounting,
filing of any amended Tax Return, entering into any closing agreement, settling
of any Tax claim or assessment (other than the payment of Taxes in the ordinary
course of business), surrendering of any right to claim a Tax refund, consenting
to any extension or waiver of the limitation period applicable to any Tax claim
or assessment;
10
(xx) expiry, lapse, cancellation or abandonment of any
Registered or material Owned Intellectual Property, including without limitation
any loss of trademark rights;
(xxi) failure to operate the business of the Company in the
ordinary course;
(xxii) agreement by any Seller or the Company to do or take
any action in furtherance of any of the foregoing; or
(xxiii) other event or condition of any character which has had
a Material Adverse Effect.
(h) TAX MATTERS. Except as set forth in SCHEDULE 4(h), (i) the
Company has timely filed all federal, state, local and foreign returns, reports,
statements and forms required to be filed under the Code or applicable state,
local or foreign Tax laws, including all such returns, reports, statements and
forms with respect to estimated Taxes ("Tax Returns"), and such Tax Returns are
true, correct and complete, (ii) all Taxes required to be paid with respect to
the periods covered by the Tax Returns referred to in the preceding clause (i)
have either been paid in full or the full amount of such Taxes has been accrued
as a liability on the Interim Balance Sheet (except for Taxes accruing from the
date of the Interim Balance Sheet through the Closing Date, which consist only
of Taxes incurred in the ordinary course of business consistent with past
practice), and all Taxes required to be paid with respect to any period that
ended on or prior to the Closing Date have either been paid in full or the full
amount of such Taxes has been accrued as a liability on the Interim Balance
Sheet (regardless of whether a Tax Return is required to be filed with respect
to such Tax), (iii) no Tax liens have been filed, and no audit, or, to
Shareholder's knowledge, no examination or inquiry is currently being conducted
by any Taxing authority, (iv) the Company has complied with all applicable laws,
rules and regulations relating to the payment and withholding of Taxes, (v)
neither the Company nor any predecessor thereof has been included in any
combined, consolidated or unitary group for federal, state or local income Tax
purposes, (vi) there are no outstanding waivers or comparable consents regarding
the application of the statute of limitations with respect to any Taxes or Tax
Returns of the Company, (vii) the Company is not a party to any agreement or
understanding providing for the allocation or sharing of Taxes, (viii) the
Company is not required to include in income any adjustment pursuant to Section
481(a) of the Code by reason of a change in accounting method, (ix) the
acquisition of the stock of the Company will not be a factor causing any
payments to be made by the Company to be nondeductible (in whole or in part)
pursuant to Section 280G or 168(m) of the Code, and the Company is not a party
to any agreement or understanding that could require it to pay any amount that
would not be deductible under either such section, (x) the Company has not filed
with respect to any item a disclosure statement pursuant to Section 6662 of the
Code or any comparable disclosure with respect to foreign, state and/or local
Tax statutes and (xi) no consent or election under Section 341 of the Code has
been made for the Company. Set forth on SCHEDULE 4(h) is a list of all federal
income Tax audits that have ended within three years of the date of this
Agreement. For purposes of this Agreement, "Code" means the Internal Revenue
Code of 1986, as amended; and "Tax" means any Federal, state, local or foreign
net income, gross income, net receipts, gross receipts, profit, severance,
property, production, sales, use, license, excise, franchise, employment,
payroll, withholding, alternative or add-on minimum, ad valorem, value-added,
transfer, stamp, employment or other tax, custom, duty, fee
11
or other governmental charge or any kind, together with any interest, fine,
penalty, addition to tax or additional amount imposed with respect thereto.
(i) ACCOUNTS RECEIVABLE. The accounts receivable reflected on the
Balance Sheet, the Interim Balance Sheet or thereafter earned and recorded by
the Company, (i) have arisen only from bona fide transactions entered into in
the ordinary course of business of the Company and (ii) except with respect to
accounts receivable that become uncollectable as a result of the bankruptcy or
insolvency of the relevant account-debtor of the Company following the Closing
Date, such accounts receivable have been collected or, to Shareholders'
knowledge, are collectible in the ordinary course of the Company's business at
the aggregate gross recorded amounts thereof less, in the case of accounts
receivable reflected on such Balance Sheet and the Interim Balance Sheet, any
allowance for uncollectable accounts, returns and trade allowances set forth
therein, and in the case of accounts receivable thereafter recorded, an
allowance for uncollectable accounts, returns and trade allowances recorded in a
manner consistent with the reserve set forth in such Balance Sheet, the Interim
Balance Sheet and past practice. To Shareholders' knowledge, based on historical
results, Shareholders' reasonably believe such reserve is adequate on the
Closing Date.
(j) INVENTORIES. The inventories, including raw materials, reflected
on the Balance Sheet and the Interim Balance Sheet, or thereafter acquired by
the Company, consist of items of a quality and quantity usable or saleable in
the normal and usual course of the business of the Company and have a fair
market value at least equal to the values at which such items are carried on its
books. The values at which such inventories are carried on the Balance Sheet and
the Interim Balance Sheet reflect the normal inventory valuation policy of the
Company (including the writing down of the value of slow-moving or obsolete
inventory or inventory of below standard quality to realizable market value in
accordance with GAAP), stating inventories at the lower of cost or market on a
first-in, first-out basis.
(k) EQUIPMENT. The present quantity of all assets of the Company
consisting of equipment, whether reflected on the Balance Sheet and Interim
Balance Sheet or otherwise, is reasonable and warranted in the present course of
the business conducted by the Company. Except as set forth on SCHEDULE 4(k), all
of such equipment (except for leased equipment for which the lessors have valid
security interest) is free and clear of any Encumbrance. All equipment owned,
operated or leased by the Company are in all material respects in good operating
condition and repair, ordinary wear and tear excepted. Set forth on SCHEDULE
4(k) is a list of all of the equipment. Except as set forth on SCHEDULE 4(k), no
equipment of the Company is located outside the United States.
(l) POWERS OF ATTORNEY, AGENTS, ETC. SCHEDULES 4(l)(i) through
4(l)(iv) hereto contain accurate lists of the following:
(i) SCHEDULE 4(l)(i). POWERS OF ATTORNEY. The names of all
Persons holding powers of attorney from the Company;
(ii) SCHEDULE 4(l)(ii). MARKETABLE SECURITIES. All
marketable securities and all other notes or other obligations owned by the
Company;
12
(iii) SCHEDULE 4(l)(iii). BANK ACCOUNTS. The name of each
institution in which the Company has a bank account or safe-deposit box, the
number of any such account or box, and the names of all Persons authorized to
draw or to have access thereto; and
(iv) SCHEDULE 4(l)(iv). AGENTS. (A) The name of each agent,
if any, other than a regular employee or a commission salesman of the Company,
who has been paid a commission in connection with obtaining any contract or
order of the Company since January 1, 1999, indicating the amount of such
commission and the contract or order to which it related; and (B) a list of all
contracts with agents, other than employees or commission salesmen, if such
contracts are not terminable by the Company upon 30 days' notice or less without
cost to the Company.
(m) COPIES OF DOCUMENTS. The Company previously delivered or made
available to Buyer or to Xxxxxxx Xxxx & Xxxxx LLP, counsel to Buyer, true and
complete copies of all documents listed or described in or referred to on any
Schedule hereto.
(n) TANGIBLE PROPERTIES; ASSETS. (i) Except as set forth on SCHEDULE
4(n)(i), (i) the Company (A) owns all the properties and assets it purports to
own (including those reflected on the Balance Sheet and the Interim Balance
Sheet, except as since sold or otherwise disposed of in the ordinary course of
business), and (B) has good title to leasehold estates or interests in all real
properties and other tangible properties and assets leased by the Company, in
each case free and clear of all Encumbrances, except for Permitted Encumbrances;
(ii) except where the failure to so perform could not have a Material Adverse
Effect, the Company has in all respects performed all the obligations required
to be performed by it to the date hereof under all leases to which the Company
is a party, and quietly enjoys the properties conveyed under such leases; (iii)
the Company has not received written or oral notice of (A) any violation of any
applicable regulation, ordinance or other law, order, regulation or requirement
relating to the use and operation of any properties owned or leased by the
Company and the Company knows of no such violation, or (B) any pending or, to
Shareholders' knowledge, threatened condemnation proceedings relating to any
real property owned or leased by the Company and, so far as known to the
Company, there are no such pending or, to Shareholders' knowledge, threatened
proceedings; (iv) the Company has not received any notice, demand or request
from any insurance company, any board of fire underwriters (or organization
exercising functions similar thereto) or any governmental or municipal agency or
any other Person requesting the performance of any work or alteration in respect
to any real property owned or leased by the Company; (v) the consummation of the
transactions contemplated by this Agreement will not constitute a default, or
give rise to a right of termination, cancellation or acceleration of any right
under, any lease to which the Company is a party; and (vi) the Company has
obtained all consents and approvals required to be obtained by the Company under
any lease in connection with the consummation of the transactions contemplated
by this Agreement. All real property owned or leased by the Company, and all
plants, structures, leasehold improvements and other tangible properties and
assets owned, operated or leased by the Company are in all material respects in
good operating condition and repair, ordinary wear and tear excepted. SCHEDULE
4(n)(ii) lists all real property owned by the Company; all real property leases,
subleases or other agreements pursuant to which the Company leases, uses and
occupies any real property, including any amendments, modifications or
supplements thereto; all premises occupied by the Company under rental
arrangements without leases (including in each case the amount of rent
13
payable and the type of occupancy); and all contracts to which the Company is a
party for the sale, purchase or lease of real property (including any leases
pursuant to which the Company has any right or option to purchase real
property). SCHEDULE 4(n)(iii) lists all leases of personal property to which the
Company is a party.
(ii) The assets of the Company, constitute, and on the
Closing Date will constitute, all of the assets that are necessary to permit the
business of the Company to be conducted by Buyer in substantially the manner as
it has heretofore been conducted by the Company.
(o) VALIDITY OF CONTRACTS. Except as set forth on SCHEDULE 4(o)(i)
hereto, each contract, agreement or instrument is valid and in full force and
effect, and is binding and enforceable in accordance with its terms and the
Company is not nor will it be with notice, the lapse of time, or both, in
default under any such contract, agreement or instrument. To each Shareholder's
knowledge, no Person who is a party to any such contract, agreement or
instrument, is, and nor will it be with notice, the lapse of time or both, in
default under any provision of any such contract, agreement, or instrument.
SCHEDULE 4(o)(ii) lists all written and oral agreements, contracts and
commitments (all for purposes of this paragraph, "contracts") relating to the
business of the Company not otherwise listed in any other Schedule hereto with
an annual payment either to or from the Company in excess of $15,000
individually or which cannot be canceled upon thirty (30) days' notice (other
than purchase orders entered into in the ordinary course of business with
non-Affiliated parties on an arms'-length basis) and (A) any contract under
which the Company has limited or restricted the Company's right to compete with
any Person in any respect; (B) any contract to indemnify any Person or guaranty
any obligation of any Person (other than pursuant to Company contracts entered
into with customers and facility lessors in the ordinary course of business);
(C) any contract granting to any Person any rights to purchase any of the assets
of the Company other than in the ordinary course of business consistent with
past practice; (D) any joint venture agreement or similar contract; or (E) any
contract relating to the acquisition by the Company of any operating business or
capital stock or securities of any Person. The Company has no oral agreements
with any suppliers of class rings which obligates the Company to purchase rings
from a supplier or restricting or limiting actions of the Company.
(p) INTELLECTUAL PROPERTIES. (i) SCHEDULE 4p(i) lists (A) all
Registered (as defined below) or material (in relation to the business of the
Company) Owned Intellectual Property (as defined below) and the owner of record
thereof; and (B) all Intellectual Property Contracts (as defined below) (other
than licenses for off-the-shelf, shrink wrap computer software).
"Intellectual Property" or "Intellectual Properties" means all foreign
and domestic (i) trademarks, service marks, brand names, certification marks,
collective marks, d/b/a's, Internet domain names, logos, symbols, trade dress,
product configurations, assumed names, fictitious names, trade names, and other
indicia of origin, all applications and registrations for all of the foregoing,
and all goodwill associated therewith and symbolized thereby, including all
extensions, modifications and renewals of same (collectively, "Trademarks");
(ii) inventions, discoveries and ideas, whether patentable or not, and all
patents, registrations, and applications therefor, including divisions,
continuations, continuations-in-part and renewal applications, and
14
including renewals, extensions and reissues (collectively, "Patents"); (iii)
confidential and proprietary information which derives independent economic
value from its confidential nature, trade secrets and know-how, including
processes, schematics, databases, formulae, drawings, prototypes, models,
designs, dies, molds and any confidential, secret or proprietary aspects of a
business (including, without limitation, customer lists, supplier lists, pricing
arrangements with customers or suppliers, capital structure or financial
information) (collectively, "Trade Secrets"); (iv) published and unpublished
works of authorship, whether copyrightable or not, copyrights therein and
thereto, and registrations and applications therefor, and all renewals,
extensions, restorations and reversions thereof (collectively, "Copyrights");
(v) proprietary computer software (including, without limitation, all computer
program object code, source code, user interface, data bases and documentation)
(collectively, "Computer Software"); and (vi) all other intellectual property or
proprietary rights and claims or causes of action arising out of or related to
any infringement, misappropriation or other violation of any of the foregoing,
including rights to recover for past, present and future violations thereof
(collectively, "Other Proprietary Rights"), but shall not include, licenses for
off-the-shelf, shrink wrap computer software.
"Registered" shall mean issued, registered, renewed or the subject of
a pending application.
"Intellectual Property Contracts" means all agreements concerning the
Business Intellectual Property, including without limitation agreements granting
the Company rights to use the Licensed Intellectual Property (including Computer
Software), agreements under which the Company grants rights to use Owned
Intellectual Property, confidentiality agreements, Trademark coexistence
agreements, Trademark consent agreements and nonassertion agreements.
"Business Intellectual Property" means the Owned Intellectual Property
and the Licensed Intellectual Property.
"Owned Intellectual Property" means Intellectual Property owned by the
Company.
"Licensed Intellectual Property" means the Intellectual Property
rights that the Company is licensed or otherwise permitted by other Persons to
use.
(ii) No Person other than the Company has an ownership
interest in, or a right to receive a royalty or similar payment with respect to,
any of the Owned Intellectual Property, except as noted on SCHEDULE 4(p)(i) (and
the Company is current on any required payments under Intellectual Property
Contracts). The Company has good title to, or is licensed or otherwise has the
rights to use, all of the Business Intellectual Property (which is the only
Intellectual Property that is necessary for the Company to conduct its business
as now conducted or as currently contemplated to be conducted), free and clear
of any Encumbrance or royalty or other payment requirements of any nature
whatsoever, which rights are freely assignable by the Company to any person
without payment, consent of any person or other restriction except as noted in
such Schedule.
15
(iii) All Business Intellectual Property is valid, subsisting
and enforceable. None of the Business Intellectual Property has been canceled,
adjudicated invalid or abandoned (excepting any expirations in the ordinary
course), or is subject to any outstanding order, judgment or decree restricting
its use or adversely affecting or reflecting any of the Company's rights thereto
(except that this sentence is to Sellers' knowledge with respect to Licensed
Intellectual Property). None of the Owned Intellectual Property has been
licensed or used by the Company in such a way as could reasonably be expected to
have a Material Adverse Effect on the value, enforceability or validity of such
Intellectual Property or result in the dedication of same to the public.
(iv) No suit, action, reissue, reexamination, public
protest, interference, arbitration, mediation, opposition, cancellation or other
proceeding (collectively, "Suit") is pending concerning any claim or position
that the Company has violated any Intellectual Property rights. No claim has
been threatened or asserted against the Company or any of its indemnitees for
violation or infringement of any Intellectual Property rights. The Company is
not, to the Shareholders' knowledge, violating or infringing upon and has not,
to the Shareholders' knowledge, violated or infringed upon any Intellectual
Property rights. Without limiting the generality of the foregoing, to
Shareholders' knowledge no Trademark used by the Company, including without
limitation any Trademark which includes the words "Milestone Marketing" or
"Milestone Traditions" is the subject of a claim that the use of such Trademark
infringes, violates or dilutes the Trademark of any other Person.
(v) No Suit is pending concerning any claim or position
that the Company or another Person has breached any Intellectual Property
Contract, and no such claim has been threatened or asserted. The Company is in
compliance with, and has conducted its business so as to comply with, all terms
of all Intellectual Property Contracts. There exists no event, condition or
occurrence which, with the giving of notice or lapse of time, or both, would
constitute a breach or default by the Company under any Intellectual Property
Contract. No party to any Intellectual Property Contract has given the Company
notice of its intention to cancel, terminate or fail to renew any such
agreement.
(vi) No Suit is pending concerning the Owned Intellectual
Property, including any Suit concerning a claim or position that the Owned
Intellectual Property has been violated or infringed upon or is invalid,
unenforceable, unpatentable, unregisterable, cancelable, not owned or not owned
exclusively by the Company. No such claim has been threatened or asserted. To
Shareholders' knowledge, no valid basis for any such Suits or claims exists.
(vii) To Shareholders' knowledge, no Person is violating or
infringing upon any Business Intellectual Property.
(viii) The Company has timely made all filings and payments
with the appropriate foreign and domestic agencies required to maintain in
subsistence all Registered Owned Intellectual Property.
(ix) The Company has taken reasonable measures to protect
the secrecy, confidentiality and value of all Trade Secrets used in the business
of the Company as currently conducted or contemplated (collectively, "Business
Trade Secrets"). To Shareholders'
16
knowledge, the Business Trade Secrets have not been disclosed to any Persons
other than (A) Company employees and contractors who had a need to know and use
such Business Trade Secrets in the ordinary course of employment or contract
performance, (B) lenders of the Company who had a need to know such Business
Trade Secrets and (C) customers of the Company with respect to Business Trade
Secrets relating to such customers.
(q) ENVIRONMENTAL MATTERS. (i) Except as set forth on SCHEDULE 4(q)
hereto:
(A) The operations of the Company are in material compliance with
Environmental Laws and the Company has obtained and is in material compliance
with all necessary permits or authorizations that are required under
Environmental Laws to operate the facilities, assets and business of the
Company; (B) there has been no Release at any of the properties owned or
operated by the Company; and (C) there are no pending, or to the Shareholders'
knowledge, threatened Environmental Claims asserted against the Company or, to
the knowledge of Shareholders, no Environmental Claims have been asserted
against any facilities that may have received Hazardous Substances generated by
the Company.
(ii) "Environmental Laws" includes the Comprehensive
Environmental Response, Compensation and Liability Act ("CERCLA"), 42 U.S.C.
9601 et seq., as amended; the Resource Conservation and Recovery Act ("RCRA), 42
U.S.C. 6901 et seq., as amended; the Clean Air Act ("CAA"), 42 U.S.C. 7401 et
seq., as amended; the Clean Water Act ("CWA"), 33 U.S.C. 1251 et seq., as
amended; the Occupational Safety and Health Act ("OSHA"), 29 U.S.C. 655 et seq.,
and any other federal, state, local or municipal laws, statutes, regulations,
rules or ordinances imposing liability or establishing standards of conduct for
protection of the environment.
(iii) "Hazardous Substances" shall include, without regard to
amount and/or concentration (A) any element, compound, or chemical that is
defined, listed or otherwise classified as a contaminant, pollutant, toxic
pollutant, toxic or hazardous substances, extremely hazardous substance or
chemical, hazardous waste, medical waste, biohazardous or infectious waste,
special waste, or solid waste under Environmental Laws; (B) petroleum,
petroleum-based or petroleum-derived products; (C) polychlorinated biphenyls;
and (D) asbestos-containing materials.
(iv) "Environmental Claims" refers to any complaint,
summons, citation, notice, directive, order, claim, litigation, investigation,
judicial or administrative proceeding, judgment, letter or other communication
from any governmental agency, department, bureau, office or other authority, or
any third party involving violations of Environmental Laws or Releases of
Hazardous Substances from (i) any assets, properties or businesses of the
Company or any predecessor in interest; (ii) from adjoining properties or
businesses; or (iii) from or onto any facilities which received Hazardous
Substances generated by any Company or any predecessor in interest.
(v) "Release" means any spilling, leaking, pumping,
emitting, emptying, discharging, injecting, escaping, leaching, migrating,
dumping, or disposing of Hazardous Substances (including the abandonment or
discarding of barrels, containers or other closed receptacles containing
Hazardous Substances) into the environment.
17
(r) INSURANCE. SCHEDULE 4(r) lists all policies of insurance in
force with respect to the Company. All policies of insurance (or renewals
thereof), including those set forth on Schedule 4(r), are valid, outstanding and
in full force and effect on the date hereof and all premiums with respect
thereto, covering all periods up to and including the date hereof, have been
paid. The Company carries insurance of types and in coverage and deductible
amounts as are usual and customary among other companies engaged in the same
industry.
(s) LABOR MATTERS; COMPANY PERSONNEL. (i) Except as disclosed on
SCHEDULE 4(s)(i) hereto, (A) the Company is not a party to any labor contracts,
compensation agreements, collective bargaining agreements, employment agreements
or consulting agreements or arrangements pertaining to any Company Personnel;
(B) no Company Personnel is represented by any labor organization and no labor
organization or Company Personnel has made any demands for recognition,
representation or certification; (C) the Company is in compliance in all
material respects with all applicable laws respecting employment, employment
practices and labor, including, without limitation, all such laws relating to
discrimination and harassment; (D) there is no complaint against, or any other
material dispute involving, the Company pending or, to Shareholders' knowledge,
threatened on behalf of any Company Personnel with respect to any unfair labor
practice or otherwise relating to the employment or termination of any Company
Personnel; (E) there is no labor strike, representation campaign or work
stoppage actually pending or, to Shareholders' knowledge, threatened, against or
affecting the Company and the Company has not experienced any such labor
interruptions over the past five (5) years; and (F) the Company has not incurred
any material liability or obligation under, the Worker Adjustment and Retraining
Notification Act, 29 U.S.C. Sections 2101 et seq. or comparable state or local
law.
(ii) SCHEDULE 4(s)(ii) lists the names and current annual
rates of compensation of all Company Personnel, together with a summary
(containing estimates to the extent necessary) of existing bonuses, additional
compensation (whether current or deferred) and other like benefits, if any, paid
to such persons in the fiscal year ended August 31, 2001, or subsequent thereto.
(t) EMPLOYMENT BENEFITS. SCHEDULE 4(t) lists all "employee benefit
plans" as defined in Section 3(3) of the Employee Retirement Income Security Act
of 1974, as amended ("ERISA"), deferred compensation, stock option, stock
purchase, stock appreciation right, restricted stock, bonus or incentive,
severance pay, supplemental retirement, and any other fringe or employee benefit
plan, agreement, policy or commitment under which current or former Company
Personnel or current or former employees of any ERISA Affiliate are untitled to
participate or have participated by reason of their relationship with the
Company or any ERISA Affiliate (the "Employee Plans"). There are no material
liabilities, breaches, violations or defaults under any such Employee Plans
other than listed on SCHEDULE 4(t)(i). Such Employee Plans have been maintained,
to the extent applicable, in all material respects in accordance with ERISA, the
Code, the terms of such Employee Plan and other applicable Federal, state, local
and foreign laws. A favorable determination letter has been obtained from the
Internal Revenue Service for any such Employee Plan that is an "employee pension
benefit plan" within the meaning of Section 3(2) of ERISA. There has been no
"prohibited transaction" within the meaning of Section 4975(c) of the Code or
Section 406 of ERISA involving the assets of any Employee Plan. Neither the
Company nor any other entity (an "ERISA Affiliate") that is under
18
common control with the Company is or was during the preceding six years
obligated to contribute to any multiemployer plan. Except as required by Section
4980B of the Code, no Employee Plan or other arrangement provides medical or
death benefits with respect to current or former employees of the Company or its
ERISA Affiliates beyond their retirement or other termination of employment.
None of the Employee Plans are subject to Title IV of ERISA.
(u) LITIGATION. Except as disclosed on SCHEDULE 4(u) hereto, which
contains a summary description thereof, there is no (i) claim, litigation,
proceeding, dispute, arbitral action or government investigation pending, or to
any Shareholder's knowledge, threatened against or relating to the Company or
any of its assets or properties nor (ii) valid basis, to any Shareholder's
knowledge, for any such claim, litigation, proceeding, dispute, arbitral action
or investigation. There are no writs, decrees, injunctions or orders of any
court or governmental or regulatory agency, authority or body outstanding
against the Company.
(v) COMPLIANCE WITH LAWS. Except as disclosed on SCHEDULE 4(v)(i)
hereto, the Company has complied in all respects with all applicable statutes,
regulations, orders, ordinances and other laws of the United States of America,
all state, local and foreign governments and other governmental bodies and
authorities and agencies of any of the foregoing to which they are subject,
except where non-compliance would not, individually or in the aggregate, have a
Material Adverse Effect. The Company has not received any written or oral notice
to the effect that, or otherwise been advised that, it is not in compliance with
any of such statutes, regulations and orders, ordinances, other laws or
undertakings. SCHEDULE 4(v)(ii) lists all material licenses, permits, consents,
franchises, approvals, concessions, authorities (including, without limitation,
all easements, rights of way and similar authorities), authorizations and
certificates (including, but not limited to, all of the forgoing pursuant to any
Environmental Law (as defined herein)) and pending applications therefor of, by,
or with any Governmental Authority (as defined herein) (collectively,
"Permits"). The Company has obtained all Permits which are required in
connection with the operations of its business as presently conducted. All such
Permits are in full force and effect and no proceedings for the suspension or
cancellation of any such Permit is pending or, to Shareholders' knowledge,
threatened.
(w) NO BROKERS. No Seller or the Company has entered into and will
not enter into any agreement, arrangement or understanding with any Person which
may result in an obligation of Buyer or the Company to pay any finder's fee,
brokerage commission or similar payment in connection with the transaction
contemplated hereby.
(x) TRANSACTIONS WITH CERTAIN PERSONS. Except as disclosed on
SCHEDULE 4(x) hereto, no Seller nor any present or former officer, directors or
employee of the Company, or any Family Member or any Affiliate of any of the
foregoing, is a party to any transaction with the Company, 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 service
as an employee) any such person or any other Person in which any such person is
a shareholder, member, partner, employee, representative, officer, director,
trustee or agent. Except as disclosed on Schedule 4(x) hereto and except for not
more than 5% of the outstanding stock of any publicly-traded corporation, no
present officer or director of the Company and no Shareholder (or such
Shareholder's Affiliate) have any ownership or stock interest in any other
enterprise, firm,
19
corporation, trust or any other entity which is engaged in any line or lines of
business which are the same as, or competitive with, the line or lines of
business of the Company.
(y) SUPPLIERS AND CUSTOMERS. SCHEDULE 4(y) lists the Company's
suppliers and customers. This list will be delivered to Buyer immediately upon
execution of this Agreement by the parties hereto. The relationships of the
Company with its suppliers and customers are good commercial working
relationships and no supplier or customer of the Company set forth on Schedule
4(y) has cancelled or otherwise terminated, or threatened to cancel or otherwise
terminate, its relationship with the Company or has during the last twelve (12)
months decreased materially, or threatened to decrease or limit materially, its
services, supplies or materials to the Company or its purchase of products, as
the case may be, of the Company.
(z) FULL DISCLOSURE. No representation or warranty of any Seller
contained in this Agreement or in any other certificate delivered by any Seller
pursuant to Section 7 of this Agreement or in connection with the transactions
contemplated herein contains or will contain any untrue statement of material
fact or omits or will omit to state a material fact necessary to make the
statements contained herein or therein not misleading. All documents furnished
to Buyer pursuant to this Agreement by the Company or Sellers which are
documents described in this Agreement or in the Schedules hereto are true and
correct copies of the documents which they purport to represent.
SECTION 5. REPRESENTATIONS AND WARRANTIES OF BUYER.
Buyer hereby represents and warrants to each Seller as follows:
(a) CONSENTS, NO CONFLICTS, ETC. Neither the execution and delivery
of this Agreement or the Post-Closing Escrow Agreement, the consummation by
Buyer of the transactions contemplated herein nor compliance by Buyer with any
of the provisions hereof or thereof will (i) violate or conflict with any
provision of the Certificate of Incorporation or By-laws of Buyer; (ii) violate
any order, writ, injunction, decree, statute, rule or regulation applicable to
Buyer or any of its assets or properties; or (iii) require the consent,
approval, permission or other authorization of or by or filing or qualification
with any court, arbitrator or governmental, administrative, or self-regulatory
authority or any Person which has not been obtained (other than as may be
required to be obtained by Sellers or the Company).
(b) ORGANIZATION AND GOOD STANDING. Buyer is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Delaware and has all the requisite corporate power to carry on its business as
presently conducted.
(c) AUTHORITY, EXECUTION AND DELIVERY. All requisite corporate
action has been taken to authorize the execution, delivery and performance by
Buyer of this Agreement and the Post-Closing Escrow Agreement and the
transactions contemplated herein and therein, and no other corporate proceedings
on the part of Buyer are necessary to authorize the execution and delivery of
this Agreement and the transactions contemplated herein. This Agreement has been
duly executed and delivered by Buyer and constitutes the legal, valid and
binding obligation of Buyer, enforceable against Buyer in accordance with its
terms, except as enforcement hereof or
20
thereof may be limited by bankruptcy, insolvency, or other similar laws
affecting the enforcement of creditors' rights in general or by general
principles of equity.
(d) NO BROKERS. Neither Buyer, nor any of its Affiliates, has
entered into any agreement, arrangement or understanding with any Person that
will result in the obligation of the Company (prior to Closing) or any Seller to
pay any finder's fee, brokerage commission or similar payment in connection with
the transactions contemplated hereby.
SECTION 6. CERTAIN COVENANTS AND AGREEMENTS.
(a) CONDUCT OF THE COMPANY'S BUSINESS. From the date hereof up to
and including the Closing Date, without the prior written consent of Buyer,
neither Sellers nor the Company shall take any action which shall have a
Material Adverse Effect. Without limiting the foregoing, each Seller will, from
the date hereof up to and including the Closing Date, cause the Company to, and
the Company shall, (i) conduct business only in the ordinary course consistent
with past practice; (ii) maintain in full force and effect the insurance
policies of the Company; (iii) take all necessary and prudent action (consistent
with past practice) to preserve the assets and properties, wherever located,
which are material to the business of the Company; (iv) promptly advise Buyer in
writing of any event or condition that would have a Material Adverse Effect; (v)
provide that all compensation and other benefits payable to employees of the
Company will continue to be paid consistent with normal practices of the
Company; (vi) use its commercially reasonable efforts to preserve the business
organization of the Company intact, and to continue its operations at its
present levels, (vii) take all necessary and prudent action (consistent with
past practice) to preserve the goodwill of suppliers, customers and others
having business relations with the Company and retain the services of its
employees, agents and contractors; (viii) replenish the inventories of the
Company in the ordinary course of business and consistent with prior practice;
and (ix) not take, or agree to take, any action that would make any
representation or warranty of Sellers contained herein untrue, incorrect, or
misleading in any material respect (or, if already qualified by materiality, in
any respect) as of the date when made or at any time through Closing, or that
would cause any covenant by Sellers or the Company contained herein not to be
fulfilled in any material respect (or, if already qualified by materiality, in
any respect).
(b) ACCESS TO THE COMPANY'S BUSINESS. From the date hereof until the
Closing Date and subject to the terms of the Confidentiality Agreement, dated
June 12, 2002, between the Company and Buyer (the "Confidentiality Agreement"),
each Seller and the Company shall, and shall cause Company Personnel to, afford
Buyer and its attorneys, consultants, accountants and authorized representatives
full access, upon reasonable notice during normal business hours and at other
reasonable times, to all properties, books, contracts, commitments, records,
personnel, customers, lenders and advisors of the Company, including the
Company's "highly confidential" customer and prospect lists and customer
agreements, in order to permit Buyer to complete its due diligence investigation
of the Company. Such investigation shall include, among other things, the
receipt of relevant financial information, the review of any relevant
contractual obligations of the Company, the conducting of discussions and
meetings with Company Personnel and customers set forth on Schedule 4(y)
("Customers"). All Buyer's diligence, including access to Company Personnel and
Customers will be coordinated only with and through the President of the
Company, Xxxxxx Xxxxxxxx.
21
(c) TAXES. Without the prior written consent of Buyer, neither any
Seller nor the Company shall, to the extent it may affect or relate to the
Company, make or change any Tax election, change any annual Tax accounting
period, adopt or change any method of Tax accounting, file any amended Return,
enter into any closing agreement, settle any Tax claim or assessment, surrender
any right to claim a Tax refund, consent to any extension or waiver of the
limitation period applicable to any Tax claim or assessment or take or omit to
take any other action, if any such action or omission would have the effect of
materially increasing the Tax liability or reducing any Tax Asset, of the
Company, Buyer or any affiliate of Buyer. For purposes of this Agreement, "Tax
Asset" shall mean any net operating loss, net capital loss, investment Tax
credit, or any other credit or Tax attribute which could reduce Taxes
(including, without limitation, deductions and credits related to alternative
minimum Taxes).
(d) FURTHER ASSURANCES. Each Seller, on the one hand, and Buyer, on
the other hand, will cooperate fully with the other party in connection with the
transactions contemplated by this Agreement. Without limiting the generality of
the foregoing, from and after the Closing Date, from time to time, at Buyer's
request and without further consideration, each Seller will execute and deliver,
or cause to be executed and delivered, such other instruments and take such
other action as Buyer may reasonably request in order to carry out the purposes
of this Agreement.
(e) AUTOMOBILE OBLIGATIONS. Within 15 days following the Closing
Date, (i) the automobile loan and lease obligations set forth on SCHEDULE
4(n)(iii) shall be paid in full or assumed by the Shareholders, and the Company
shall be released from all such obligations and (ii) title to any automobile
referenced in the obligations on SCHEDULE 4(n)(iii) and to the three automobiles
referenced on SCHEDULE 6(e) shall be transferred to the Shareholders and the
Company shall be released from any insurance payment obligations with respect to
such automobiles. The Shareholders shall from and after the Closing Date have
the obligation to make all payments, and shall indemnify and hold the Company
harmless from all obligations under the automobile loans and leases listed on
SCHEDULE 4(n)(iii) and all insurance payment obligations with respect to such
automobiles and the automobiles listed on SCHEDULE 6(e). Such agreement to
indemnify shall be in addition to the indemnification obligations as set forth
in Section 9 and such right to indemnity shall not be subject to the $100,000
threshold as provided in SECTION 9(b)(ii).
SECTION 7. CONDITIONS TO OBLIGATIONS OF BUYER.
The obligation of Buyer to consummate the transactions contemplated by
this Agreement shall be subject to the fulfillment, or the waiver by Buyer, on
or prior to the Closing Date, of the following conditions:
(a) REPRESENTATIONS AND WARRANTIES TRUE AT THE CLOSING DATE. The
representations and warranties of each Seller contained in this Agreement shall
be deemed to have been made on and as of the Closing Date with the same force
and effect as though made on and as of the Closing Date and shall then be true
and correct in all material respects (except those representations and
warranties that are qualified by materiality or Material Adverse Effect which
shall be true and correct in all respects). Sellers shall have delivered to
Buyer a certificate with respect to Sellers' representations and warranties,
dated the Closing Date, to such effect.
22
(b) SELLER'S PERFORMANCE. Each of the obligations of Sellers and the
Company to be performed on or before the Closing Date pursuant to the terms of
this Agreement shall have been duly performed on or prior to the Closing Date.
Sellers and the Company shall have delivered to Buyer a certificate with respect
to such obligations, dated the Closing Date, to such effect.
(c) MATERIAL ADVERSE EFFECT. Since the date of the Interim Balance
Sheet, no Material Adverse Effect shall have occurred and Sellers shall have
delivered to Buyer a certificate, dated the Closing Date, to such effect.
(d) STOCK CERTIFICATES. On the Closing Date, Sellers shall have
delivered to Buyer certificates or agreements evidencing the Shares or the
Warrants, as the case may be, free and clear of all Encumbrances or Adverse
Claim of any nature whatsoever, duly endorsed in blank for transfer or
accompanied by stock powers duly executed in blank and with all requisite
documentary or stock transfer tax stamps affixed.
(e) LITIGATION. As of the Closing Date, there shall not be in effect
any judgment, order, injunction or decree of any court of competent
jurisdiction, the effect of which is to prohibit or restrain the consummation of
the transactions contemplated by this Agreement and no claim, action, suit,
investigation or other proceeding shall be threatened or pending before any
court or administrative agency or by any governmental agency or other person,
challenging or otherwise relating to the transactions provided for herein.
(f) NO CHANGE IN LAW. There shall not have been any action, or any
statute enacted, by the United States, any state, any governmental authority or
any foreign country which render the parties unable to consummate the
transaction contemplated herein or make the transactions contemplated herein
illegal or prohibit or restrict the consummation of the transaction contemplated
herein.
(g) OPINION OF SELLER'S COUNSEL. There shall have been delivered to
Buyer an opinion, dated the Closing Date and addressed to Buyer, of Xxxxxxxx,
Xxxxxxx & Xxxxxxx, counsel to the Company, in form and substance reasonably
satisfactory to Buyer.
(h) EMPLOYMENT AND NON-COMPETITION AGREEMENTS. The Company shall
have entered into Employment and Non-Competition Agreements with each of
Xxxxxxxx and Xxxxxxxxxx (the "Employment and Non-Competition Agreements") on
terms reasonably satisfactory to the Buyer and the Employment and
Non-Competition Agreements shall be in full force and effect. In addition, Xxxxx
shall have entered into a Non-Competition Agreement on terms reasonably
satisfactory to Buyer and such agreement shall be in full force and effect.
(i) RESIGNATIONS. At the Closing, each Seller shall deliver to Buyer
written resignations or terminations of all of the directors and officers of the
Company, other than those such directors and officers which Buyer has designated
to Sellers in writing at lease one day prior to Closing that it desires to
retain.
(j) NONFOREIGN PERSONS. Each Seller shall have provided Buyer with a
certification of nonforeign status as described under Treasury Regulations
Section 1.1445-2(b)(2).
23
(k) PROCEEDINGS AND DOCUMENTS SATISFACTORY. Buyer shall have
received such certificates and other documents as it may reasonably require in
order to consummate the transactions contemplated hereby (including any
certificates and documents relating to the pay-off of indebtedness), all of
which shall be in form and substance satisfactory to it. All proceedings in
connection with the purchase of the Shares shall be reasonably satisfactory in
form and substance to Buyer acting reasonably and in good faith.
(l) INDEBTEDNESS. Except for the loans referenced in SECTION 6(e)
hereof, as of the Closing Date, the Company shall not have indebtedness for
borrowed money other than to Wilmington Trust of Pennsylvania and the Warrant
Holders.
(m) DUE DILIGENCE. No diligence information provided to Buyer from
the date hereof through Closing shall have revealed any facts or circumstances
which are unsatisfactory in the sole judgment of Buyer.
(n) LENDER CONSENT. Buyer shall have received all consent(s)
required from its lenders under its existing credit facilities in order to
consummate the transactions contemplated hereby; provided, however, that nothing
contained herein shall be interpreted so as to require Buyer to agree to any
amendment to the terms of any such Facility or to change any aspect of its
existing business or operations.
(o) POST-CLOSING ESCROW AGREEMENT. A Post-Closing Escrow Agreement,
in form and substance satisfactory to Buyer in its reasonable discretion, shall
be executed by the parties hereto and shall be in full force and effect.
SECTION 8. CONDITIONS TO OBLIGATIONS OF SELLERS.
The obligations of Sellers to consummate the transactions contemplated
hereby shall be subject to the fulfillment, or the waiver by Sellers, on or
prior to the Closing Date, of the following conditions:
(a) REPRESENTATIONS AND WARRANTIES TRUE AT THE CLOSING DATE. The
representations and warranties of Buyer contained in this Agreement shall be
deemed to have been made on and as of the Closing Date with the same force and
effect as though made on and as of the Closing Date and shall then be true and
correct in all material respects (except those representations and warranties
that are qualified by materiality which shall be true and correct in all
respects). Buyer shall have delivered to Seller a certificate, dated the Closing
Date, to such effect.
(b) BUYER'S PERFORMANCE. On the Closing Date, Buyer shall pay to
Sellers the Purchase Price in accordance with SECTION 1(b) of this Agreement and
shall have performed any other obligations required to be performed by it
hereunder.
(c) LITIGATION. As of the Closing Date, there shall not be in effect
any judgment, order, injunction or decree of any court of competent
jurisdiction, the effect of which is to prohibit or restrain the consummation of
the transactions contemplated by this Agreement, and no claim, action, suit,
investigation or other proceeding shall be threatened or pending before
24
any court or administrative agency or by any governmental agency or other
person, challenging or otherwise relating to the transactions provided for
herein.
(d) NO CHANGE IN LAW. There shall not have been any action, or any
statute enacted, by the United States, any state, any governmental authority or
any foreign country which would render the parties unable to consummate the
transactions contemplated herein or make the transactions contemplated herein
illegal or prohibit, restrict or substantially delay the consummation of the
transaction contemplated herein.
(e) POST-CLOSING ESCROW AGREEMENT. A Post-Closing Escrow Agreement,
in form and substance satisfactory to Sellers in their reasonable discretion,
shall be executed by the parties hereto and shall be in full force and effect.
(f) EMPLOYMENT AND NON-COMPETITION AGREEMENTS. The Company shall
have entered into the Employment and Non-Competition Agreements with each of
Xxxxxxxx and Xxxxxxxxxx on terms reasonably satisfactory to Xxxxxxxx and
Xxxxxxxxxx and the Employment and Non-Competition Agreements shall be in full
force and effect.
SECTION 9. NATURE AND SURVIVAL OF REPRESENTATIONS AND WARRANTIES;
INDEMNIFICATION, ETC.
(a) SURVIVAL OF REPRESENTATIONS, WARRANTIES, ETC. All
representations and warranties of the parties made in this Agreement or as
provided herein shall survive until November 30, 2003 (and thereafter until
resolved if a claim in respect thereof has been made prior to such date),
notwithstanding any investigation at any time made by or on behalf of the other
party or parties; provided, that the representations in SECTION 3 and in SECTION
4(c) shall survive without limitation as to time, and the representations of
Shareholders with respect to Tax matters and employee benefit matters governed
by ERISA shall survive until expiration of the statute of limitations applicable
to claims with respect to such matters (the "Survival Period").
(b) SELLERS' AGREEMENT TO INDEMNIFY. Subject at all times to the
limitations on liability set forth below:
(i) Each Seller shall fully indemnify and hold harmless and
satisfy and defend Buyer and its Affiliates and their respective officers,
directors, employees, representatives, attorneys, consultants and agents against
and in respect of any and all claims, obligations, liabilities, losses, damages,
deficiencies, penalties, fines, costs or expenses (including, without
limitation, reasonable legal, expert and consultant fees and expenses and Taxes)
(collectively "Losses") arising out of or resulting from any misrepresentation
or breach of warranty or representation or the nonfulfillment of any agreement,
covenant or obligation by Sellers or, with respect to pre-Closing covenants, the
Company, made in this Agreement (including, without limitation, the Schedules
and the certificates delivered hereunder); provided that such obligation to
indemnify shall be several and not joint with respect to breach of any
representation or warranty set forth in SECTION 3.
(ii) Sellers' liability hereunder shall be limited so that
Sellers shall not be obligated to pay any amount for indemnification under
SECTION 9(b)(i) above for breaches of representations or warranties unless and
until any and all of Buyer's Losses under SECTION 9(b)(i)
25
in the aggregate exceed $100,000 (in which event Sellers' indemnity shall apply
from the first dollar of liability); provided, that, such threshold shall not
apply to any claim involving fraud or bad faith.
(iii) Except as provided in the second sentence of this
paragraph, (A) claims for Losses under SECTION 9(b)(i) arising out of a breach
of a representation or warranty shall be limited in amount to $1,575,000 in the
aggregate and (B) Losses in respect of such claims shall be satisfied
exclusively from the Post-Closing Escrow Amount, except in the case of clause
(B), to the extent that the Post-Closing Escrow Amount shall at any time be less
than $1,575,000 as a result of a claim by Buyer pursuant to SECTION 1(d) or 1(e)
or any claim for Losses arising out of a breach of any of the representations
and warranties set forth in SECTION 3 or 4(c) or any representations and
warranties with respect to Tax matters or employee benefit matters governed by
ERISA, in which event the Buyer shall be entitled to seek the shortfall directly
from the Sellers. Notwithstanding the foregoing, any Losses arising out of a
breach of any of the representations and warranties set forth in SECTION 3 or
4(c) or any representations and warranties with respect to Tax matters and
employee benefit matters governed by ERISA shall not be limited in amount and
Buyer shall not be limited to recovery from the Post-Closing Escrow in respect
of such Losses.
(c) BUYER'S AGREEMENT TO INDEMNIFY. Buyer will fully indemnify and
hold harmless Sellers against and in respect of any and all of Sellers' Losses
arising out of or resulting from any misrepresentation or breach of warranty or
representation or the nonfulfillment of any agreement, covenant or obligation by
Buyer made in this Agreement (including, without limitation, any certificates
delivered hereunder). Buyer's liability hereunder shall be limited so that Buyer
shall not be obligated to pay any amount for indemnification under this SECTION
9(c) for breaches of representations or warranties unless and until Sellers'
Losses under this SECTION 9(c) in the aggregate exceed $100,000 (in which event
Buyer's indemnity shall apply from the first dollar of liability); provided,
that, such threshold shall not apply to any claim involving fraud or bad faith.
(d) THIRD PARTY CLAIMS. Promptly after the receipt by any party
hereto of notice of any claim, action, suit or proceeding of any third party
which is subject to indemnification hereunder, such party or parties (the
"Indemnified Party") shall give written notice of such claim (a "Notice of
Claim") to the party obligated to provide indemnification hereunder
(collectively, the "Indemnifying Party"), stating the nature and basis of such
claim and the amount thereof, to the extent known. The Indemnifying Party shall
be entitled to participate in the defense or settlement of such matter and the
parties agree to cooperate in any such defense or settlement and to give each
other full access to all information relevant thereto. The Indemnifying Party
shall not be obligated to indemnify an Indemnified Party hereunder for any
settlement entered into without the Indemnifying Party's prior written consent,
which consent shall not be unreasonably withheld, conditioned or delayed. The
parties shall use commercially reasonable efforts to minimize Losses from claims
by third parties and shall act in good faith in responding to, defending
against, settling or otherwise dealing with such claims, notwithstanding any
dispute as to liability as between the parties under this SECTION 9. The parties
shall also cooperate in any such defense, give each other reasonable access to
all information relevant thereto and make employees and other representatives
available on a mutually convenient basis
26
to provide additional information and explanation of any material provided in
connection therewith.
SECTION 10. TERMINATION AND ABANDONMENT.
This Agreement may be terminated and the transactions contemplated
hereby abandoned (i) by the mutual written consent of Buyer and Sellers; (ii) by
Buyer or by Sellers at any time after 8 days following the date hereof if for
any reason the Closing shall not have occurred on or prior to such date;
provided, however, that the right to terminate under this SECTION 10(ii) shall
not be available to any party whose failure to fulfill any obligation under this
Agreement or whose breach of any representation or warranty shall have been the
cause of, or resulted in, the failure of the Closing to occur on or prior to
such date; (iii) by Buyer if there has been a material breach (or, if already
qualified by materiality or Material Adverse Effect, a breach) on the part of
Sellers in any representation, warranty or covenant of any Seller set forth
herein, or if there has been any material failure on the part of any Seller to
comply with its obligations hereunder; (iv) by Sellers if there has been a
material breach (or, if already qualified by materiality or Material Adverse
Effect, a breach) on the part of Buyer in the representations, warranties or
covenants of Buyer set forth herein, or if there has been any material failure
on the part of Buyer to comply with its obligations hereunder; or (v) by Buyer
or Sellers if any court of competent jurisdiction shall have issued an order,
decree or ruling or taken any other action enjoining or otherwise prohibiting
the transactions contemplated by this Agreement and such order, decree, ruling
or other action shall have become final and nonappealable.
SECTION 11. PAYMENT OF CERTAIN EXPENSES.
Sellers will pay all federal, state, county and local Taxes
(including, without limitation, any requisite transfer taxes) which may be
payable by reason of the consummation of the purchase and sale of the Shares.
Subject to the foregoing, Buyer will pay all reasonable legal fees and expenses
incurred by Sellers and the Company in connection with the preparation and
negotiation of this Agreement and the closing of the transactions contemplated
herein, such amount not to exceed $100,000 (the "Seller Expenses"); provided,
however, that Buyer shall not be obligated to pay the Seller Expenses in the
event Sellers terminate this Agreement (other than a termination pursuant to
Section 10(a)(ii) or (iv) above).
SECTION 12. NOTICES, ETC.
All notices, requests, demands and other communications hereunder
shall be in writing and shall be deemed to have been duly given when delivered
in person, or the business day after delivery to an overnight courier or
delivery service, or transmitted by facsimile transmission (promptly confirmed
in writing) or five (5) days after being mailed by certified or registered mail,
postage prepaid:
If to Buyer:
27
American Achievement Corporation
X.X. Xxx 000000
Xxxxxx, Xxxxx 00000-0000
Attention: Xxxxx Xxxxx
Facsimile: 000-000-0000
With a required copy to:
Xxxxxx Xxxxxx, Inc.
000 Xxxx 00xx Xxxxxx
Xxx Xxxx, Xxx Xxxx 00000
Attention: Xxxxx X. Xxxxxxxx
Facsimile: 000-000-0000
and
Xxxxxxx Xxxx & Xxxxx LLP
000 Xxxxx Xxxxxx
Xxx Xxxx, Xxx Xxxx, 00000
Attention: Xxxx Xxxxxxxxxx, Esq.
Xxxxxxx X. Xxxxxxxxxx, Esq.
Facsimile: 000-000-0000
If to Sellers:
Xxxxxx X. Xxxxxxxx
0000 Xxxxxxx Xxxxxxx Xxxx
Xxxxxxx Xxxxxxx, Xxxxxxxxxxxx 00000
Facsimile: 000-000-0000
Xxxx Xxxxx
c/o Marshall, Dennehey, Xxxxxx, Xxxxxxx & Xxxxxx
0000 Xxxxxx Xxxxxx
Xxxxxxxxxxxx, Xxxxxxxxxxxx 00000
Facsimile: 000-000-0000
Page Xxxxxxxxxx
0000 Xxxxxxx Xxxxxxxxx Xxxx.
Xxxx Xxxxxxx, Xxxxxxxxxxxx 00000
Eureka Growth Capital
0000 Xxxxxx Xxxxxx Xxxx
0000 Xxxxxx Xxxxxx
Xxxxxxxxxxxx, XX 00000
Attention: Xxxxxxxxx Xxxxx
Facsimile: 000-000-0000
28
With a required copy to:
Xxxxxxxx, Xxxxxxx & Xxxxxxx
000 Xxxxxxx Xxxxxx
Xxxxxx, XX 00000
Attention: Xxxxxxx Xxxxxx, Esq.
Facsimile: 000-000-0000
Any party may, by written notice to the other, change the address to
which notices to such party are to be delivered or mailed.
SECTION 13. ENTIRE AGREEMENT; AMENDMENT AND WAIVER.
This Agreement, the other agreements referred to herein and entered
into in connection herewith and the Post-Closing Escrow Agreement set forth the
entire agreement and understanding of the parties in respect of the transactions
contemplated hereby and supersede all prior agreements, arrangements and
understandings relating to the subject matter hereof including the Letter of
Intent, dated June 12, 2002, between Buyer, Company and Sellers. This Agreement
may be amended or modified only by a written instrument executed by Buyer,
Sellers and Company or by their respective successors and assigns. Any of the
terms or conditions of this Agreement may be waived at any time and from time to
time in writing by the party entitled to the benefits thereof without affecting
any other terms or conditions of this Agreement.
SECTION 14. ASSIGNMENT.
This Agreement and all of the provisions hereof shall be binding upon
and inure to the benefit of the parties hereto and their respective successors
and permitted assigns, but neither this Agreement nor any of the rights,
interests, or obligations hereunder shall be assigned by any of the parties
hereto without the prior written consent of the other parties, except that Buyer
may assign this Agreement or any or all of its rights, interests and obligations
hereunder to an Affiliate of Buyer; provided, that any such Affiliate agrees in
writing to be bound by all of the terms, conditions and provisions contained
herein. Notwithstanding anything to the contrary, Buyer and the Company shall
have the right to assign their respective rights hereunder to the lenders
providing working capital and other financing to Buyer, the Company and certain
of their Affiliates.
SECTION 15. PRESS RELEASES.
Prior to Closing, all public announcements, press releases, notices or
other communications to third parties regarding the transactions contemplated
herein shall require the prior written approval of Company and Buyer; provided,
that, Buyer shall be entitled to make any disclosure that it believes, in its
reasonable judgment, necessary or appropriate to comply with its reporting
obligations under the Securities Exchange Act of 1934, as amended.
SECTION 16. SEVERABILITY.
To the extent that any provision of this Agreement shall be invalid or
unenforceable, it shall be considered deleted herefrom and the remainder of such
provision and
29
of this Agreement shall be unaffected and shall continue in full force and
effect. In furtherance and not in limitation of the foregoing, if any provision,
term, covenant or restriction of this Agreement is held by a court of competent
jurisdiction or other authority to be invalid, void, unenforceable or against
its regulatory policy, then such provision, term, covenant or restriction shall
be construed to cover only that duration, extent or activities which may be
validly and enforceably covered and the remainder of the provisions, terms,
covenants and restrictions contained herein shall remain in full force and
effect and shall in no way be affected, impaired or invalidated.
SECTION 17. GENERAL.
This Agreement: (i) shall be construed and enforced in accordance with
the laws of the State of New York, without giving effect to the choice of law
principles thereof; (ii) shall inure to the benefit of and be binding upon the
heirs, legal representatives and permitted assigns of Sellers and the successor
and assigns of Buyer, nothing in this Agreement, expressed or implied, being
intended to confer upon any other Person any right or remedies hereunder; and
(iii) may be executed in two or more counterparts, each of which shall be deemed
an original but all of which together shall constitute one and the same
instrument. The Sections and other headings contained in this Agreement are for
reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement. The parties hereby submit to the personal
jurisdiction of the federal and state courts in the States of New York and waive
any objection as to venue in the New York, New York. Nothing herein shall
preclude a party from bringing suit or taking other legal action in any other
jurisdiction. The parties shall have the right, in addition to any other rights
or remedies they may have, to injunctive relief, without the necessity of
posting a bond. As a material inducement to each parties' execution and
consummation of this Agreement, all parties hereto knowingly and intentionally
waive all rights to a trial by jury of any and all disputes, lawsuits, claims or
demands arising from or relating to this Agreement.
30
IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement the day and year first above written.
BUYER:
AMERICAN ACHIEVEMENT CORPORATION
By:
-----------------------------------
Name:
Title:
COMPANY:
MILESTONE MARKETING INCORPORATED
By:
-----------------------------------
Name:
Title:
SELLERS:
---------------------------------------
Xxxxxx X. Xxxxxxxx
---------------------------------------
Page Xxxxxxxxxx
---------------------------------------
Xxxx Xxxxx
EUREKA I, L.P.
By: Eureka Management, L.P., its sole
general partner
31
By: Berwind Capital Partners, LLC,
its sole general partner
By:
-----------------------------------
Name: Xxxxxxxxx Xxxxx
Title: President
EUREKA I-A, L.P.
By: Eureka Management, L.P., its sole
general partner
By: Berwind Capital Partners, LLC,
its sole general partner
By:
-----------------------------------
Name: Xxxxxxxxx Xxxxx
Title: President
32
ANNEX I
SECURITIES SOLD AND PURCHASE PRICE ALLOCATION
Name of Seller Number of Securities % Sold Purchase Price***
-------------------- -------------------------- ------- -----------------
Owned To be Sold
----------- ------------
Xxxxxx X. Xxxxxxxx* 37.5 37.5 100% $4,131,225
Xxxx Xxxxx* 37.5 37.5 100% $4,131,225
Page Xxxxxxxxxx* 25 25 100% $2,753,100
Eureka I, L.P.** 21.5 21.5 100% $2,367,225
Eureka I-A, L.P.** 21.5 21.5 100% $2,367,225
* Securities represent number of Shares of Common Stock.
** Securities represent Warrants to purchase number of Shares of Common Stock.
*** Subject to reduction pursuant to Section 1.
I-1
List of Annexes
ANNEXES
Annex I Shares Sold and Purchase Price Allocation
i
