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STOCK PURCHASE AGREEMENT
by and between
HA-LO INDUSTRIES, INC.
and
LAGA, INC.
May 25, 2001
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TABLE OF CONTENTS
Page
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ARTICLE 1 PURCHASE AND SALE.................................................. 1
SECTION 1.1 PURCHASE AND SALE........................................ 1
SECTION 1.2 PURCHASE PRICE........................................... 1
SECTION 1.3 PROCEDURES FOR DETERMINING CONTINGENT PAYMENT............ 1
SECTION 1.4 PAYMENT OF THE CONTINGENT PAYMENT........................ 2
SECTION 1.5 CONDUCT OF BUSINESS FOLLOWING CLOSING.................... 3
SECTION 1.6 CLOSING; CLOSING CONDITIONS.............................. 4
ARTICLE 2 REPRESENTATIONS AND WARRANTIES OF SELLER........................... 7
SECTION 2.1 ORGANIZATION............................................. 7
SECTION 2.2 CAPITALIZATION........................................... 7
SECTION 2.3 SUBSIDIARIES AND INVESTMENTS............................. 8
SECTION 2.4 OWNERSHIP OF SHARES...................................... 8
SECTION 2.5 AUTHORIZATION; VALIDITY OF AGREEMENT..................... 8
SECTION 2.6 CONSENTS AND APPROVALS; NO VIOLATIONS.................... 8
SECTION 2.7 FINANCIAL STATEMENTS..................................... 9
SECTION 2.8 NO UNDISCLOSED LIABILITIES............................... 9
SECTION 2.9 ABSENCE OF CERTAIN CHANGES............................... 10
SECTION 2.10 EMPLOYEE BENEFIT PLANS; ERISA............................ 10
SECTION 2.11 LITIGATION............................................... 12
SECTION 2.12 NO DEFAULT; COMPLIANCE WITH APPLICABLE LAWS.............. 13
SECTION 2.13 TAXES.................................................... 13
SECTION 2.14 INTELLECTUAL PROPERTY.................................... 14
SECTION 2.15 ENVIRONMENTAL LAWS AND REGULATIONS....................... 15
SECTION 2.16 CONTRACTS................................................ 15
SECTION 2.17 TITLE TO ASSETS.......................................... 16
SECTION 2.18 BROKERS OR FINDERS....................................... 16
SECTION 2.19 REAL PROPERTY............................................ 17
SECTION 2.20 CLIENT Relations......................................... 17
SECTION 2.21 PREPAYMENT FOR SERVICES.................................. 17
SECTION 2.22 LABOR MATTERS............................................ 17
SECTION 2.23 INTERESTS IN CUSTOMERS, SUPPLIERS, ETC................... 17
SECTION 2.24 EMPLOYEES................................................ 18
SECTION 2.25 NO IMPLIED REPRESENTATIONS............................... 18
SECTION 2.26 [RESERVED]............................................... 18
SECTION 2.27 CLOSING BALANCE SHEET ITEMS.............................. 18
SECTION 2.28 SYSTEMS AND SOFTWARE PERFORMANCE......................... 19
SECTION 2.29 INFORMATION FURNISHED.................................... 19
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ARTICLE 3 REPRESENTATIONS AND WARRANTIES OF PURCHASER........................ 19
SECTION 3.1 ORGANIZATION............................................. 19
SECTION 3.2 AUTHORIZATION; VALIDITY OF AGREEMENT..................... 20
SECTION 3.3 CONSENTS AND APPROVALS; NO VIOLATIONS.................... 20
SECTION 3.4 SUFFICIENT FUNDS......................................... 20
SECTION 3.5 INVESTMENT PURPOSE....................................... 21
SECTION 3.6 BROKERS OR FINDERS....................................... 21
SECTION 3.7 DISCLAIMER............................................... 21
ARTICLE 4 COVENANTS ......................................................... 21
SECTION 4.1 ACCESS TO INFORMATION.................................... 21
SECTION 4.2 TAX MATTERS.............................................. 21
SECTION 4.3 EMPLOYEE BENEFITS........................................ 26
SECTION 4.4 PUBLICITY................................................ 27
SECTION 4.5 APPROVALS AND CONSENTS; COOPERATION; NOTIFICATION........ 27
SECTION 4.6 FURTHER ASSURANCES....................................... 27
SECTION 4.7 TRANSFER TAXES........................................... 27
SECTION 4.8 INTERCOMPANY ACCOUNTS; GUARANTEES........................ 28
SECTION 4.9 RESTRICTIVE COVENANTS.................................... 28
ARTICLE 5 INDEMNIFICATION.................................................... 30
SECTION 5.1 RELIANCE................................................. 30
SECTION 5.2 OBLIGATION OF SELLER TO INDEMNIFY........................ 30
SECTION 5.3 OBLIGATION OF PURCHASER TO INDEMNIFY..................... 30
SECTION 5.4 INDEMNIFICATION PROCEDURES............................... 31
SECTION 5.5 LIMITATIONS ON AND OTHER MATTERS
REGARDING INDEMNIFICATION............................... 34
ARTICLE 6 MISCELLANEOUS...................................................... 35
SECTION 6.1 AMENDMENT AND MODIFICATION............................... 35
SECTION 6.2 NOTICES.................................................. 35
SECTION 6.3 INTERPRETATION........................................... 36
SECTION 6.4 COUNTERPARTS; FACSIMILE.................................. 36
SECTION 6.5 ENTIRE AGREEMENT; THIRD PARTY BENEFICIARIES.............. 37
SECTION 6.6 SEVERABILITY............................................. 37
SECTION 6.7 GOVERNING LAW............................................ 37
SECTION 6.8 WAIVER OF JURY TRIAL..................................... 37
SECTION 6.9 JURISDICTION............................................. 38
SECTION 6.10 SERVICE OF PROCESS....................................... 38
SECTION 6.11 SPECIFIC PERFORMANCE..................................... 38
SECTION 6.12 ASSIGNMENT............................................... 38
SECTION 6.13 EXPENSES................................................. 38
SECTION 6.14 HEADINGS................................................. 39
SECTION 6.15 WAIVERS.................................................. 39
SECTION 6.16 SCHEDULES................................................ 39
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TABLE OF ANNEXES
Shares of LAGA and NAPA Annex A
Index to Defined Terms Annex B
Index to the Disclosure Schedule Annex C
Determination of Consolidated Adjusted EBITDA Annex D
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TABLE OF EXHIBITS
Form of opinion of Skadden, Arps, Slate, Xxxxxxx & Xxxx (Illinois) Exhibit A
Form of opinion of Xxxxxxx Xxxxx Xxxxxx LLP Exhibit B
Form of Transition Services Agreement Exhibit C
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STOCK PURCHASE AGREEMENT
STOCK PURCHASE AGREEMENT, dated as of May 25, 2001 (this "AGREEMENT"),
by and between Ha-Lo Industries, Inc., a Delaware corporation ("SELLER"), and
LAGA, Inc., a Delaware corporation ("PURCHASER").
WHEREAS, Seller is the owner of all of the outstanding shares or other
units of capital stock (the "SHARES") of each Xxxxxx Associates, Inc., an Ohio
corporation ("LAGA"), and CF Napa Design, Inc., a California corporation
("NAPA"; LAGA and NAPA are sometimes referred to hereinafter individually as a
"COMPANY" and collectively as the "COMPANIES"); and
WHEREAS, Purchaser desires to purchase from Seller, and Seller desires
to sell to Purchaser, 100% of the Shares subject to the terms and conditions of
this Agreement.
NOW, THEREFORE, in consideration of the foregoing and the
representations, warranties, covenants and agreements set forth herein, and
other good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, the parties, intending to be legally bound hereby, agree as
follows:
ARTICLE 1
PURCHASE AND SALE
SECTION 1.1 PURCHASE AND SALE. Upon the terms and subject to the
conditions set forth in this Agreement, at the Closing (as hereinafter defined),
Seller agrees to sell, assign, transfer and deliver to Purchaser, and Purchaser
shall purchase from Seller, the number of Shares of LAGA and NAPA set forth on
Annex A attached hereto, representing, in each case, 100% of the Shares of such
Company, all of which shall be free and clear of all options, pledges,
attachments, deeds of trust, security interests, liens or other encumbrances or
restrictions of any kind ("ENCUMBRANCES"), other than restrictions imposed by
Federal or state securities laws.
SECTION 1.2 PURCHASE PRICE. Subject to the terms and conditions set
forth in this Agreement, in reliance on the representations, warranties,
covenants and agreements of the parties contained herein and in consideration of
the sale, assignment, transfer and delivery of the Shares, Purchaser shall pay
to Seller (i) twenty five million dollars ($25,000,000) by wire transfer of
immediately available funds to an account or accounts specified by Seller (the
"FIXED PURCHASE PRICE") and (ii) a contingent payment based upon the performance
of the Companies on a consolidated basis for the calendar year ending December
31, 2001 (the "PERIOD"), determined in accordance with Annex D attached hereto
and payable in accordance with Section 1.4 (any such payment, the "CONTINGENT
Payment" and, together with the Fixed Purchase Price, the "PURCHASE PRICE");
PROVIDED HOWEVER that, not withstanding anything to the contrary contained in
this Agreement, in no event shall the Purchase Price exceed twenty six million
five hundred fifty thousand dollars ($26,550,000) in the aggregate.
SECTION 1.3 PROCEDURES FOR DETERMINING CONTINGENT PAYMENT.
(a) Within 90 days after the end of the Period, Purchaser shall
deliver to Seller a statement calculating the Consolidated Adjusted EBITDA of
the Companies (as determined in accordance with Annex D attached hereto) for the
Period and the amount of any resulting Contingent Payment payable in connection
therewith, prepared in accordance with the applicable provisions of this Article
1 (a "STATEMENT OF CONTINGENT PAYMENT"). The Statement of Contingent Payment
will be prepared in accordance with GAAP applied on a basis consistent with that
of the Financial Statements (as hereinafter defined). With respect to the
preparation of the Statement of Contingent Payment, no change in accounting
principles shall be made from those utilized in preparing the Financial
Statements. For purposes of the preceding sentence, "CHANGE IN ACCOUNTING
PRINCIPLES" includes all changes in accounting principles, policies, practices,
procedures or methodologies with respect to financial statements, their
classification or their display, as well as all changes in practices, methods,
conventions or assumptions (unless required by objective changes in underlying
events) utilized in making accounting estimates in accordance with GAAP.
(b) If Seller disagrees with any item, deduction, computation or
Contingent Payment set forth in the Statement of Contingent Payment, within 15
days after the receipt by Seller of the Statement of Contingent Payment, Seller
shall deliver to Purchaser a written notice (a "NOTICE OF OBJECTION") setting
forth in reasonable detail Seller's objections. If Seller fails to deliver a
Notice of Objection within such 15-day period, or delivers a written acceptance
of the Statement of Contingent Payment, the Statement of Contingent Payment will
become final and binding upon Seller. In addition, upon receipt of a Notice of
Objection, the Statement of Contingent Payment shall become final and binding as
to all amounts not disputed in such Notice of Objection. If Seller so notifies
Purchaser of its objection to the Statement of Contingent Payment, Seller and
Purchaser shall, within 15 days following the date of such notice (the
"RESOLUTION PERIOD"), attempt to resolve their differences. Any resolution by
Seller and Purchaser as to any disputed amounts shall be final, binding and
conclusive. If at the conclusion of the Resolution Period Seller and Purchaser
do not resolve the dispute, then the Neutral Auditor (as hereinafter defined)
shall resolve the dispute and determine the Contingent Payment for the Period
within 30 days after its appointment by the parties. Each party agrees to
execute, if requested by the Neutral Auditor, a reasonable engagement letter.
All fees and expenses relating to the work, if any, to be performed by the
Neutral Auditor pursuant to this Section 1.3 shall be borne one-half by
Purchaser and one-half by Seller. The Neutral Auditor shall act as an arbitrator
to determine, based solely on presentations by Purchaser and Seller, and not by
independent review, only those issues still in dispute. The Neutral Auditor's
determination shall be set forth in a written statement delivered to Purchaser
and Seller, and shall be final, binding and conclusive.
SECTION 1.4 PAYMENT OF THE CONTINGENT PAYMENT. Purchaser shall pay any
undisputed amount of Contingent Payment for the Period not more than 10 business
days after it becomes final and binding as set forth in Section 1.3 (such amount
to bear interest after such date until paid at the prime rate of interest in
effect from time to time as publicly announced by Bank One Corporation or its
successor (the "PRIME RATE") plus four hundred fifty basis points) and shall pay
any disputed amount of a Contingent Payment (and interest thereon from the date
of receipt of a Notice of Objection with respect thereto through the date of
final resolution pursuant to Section 1.3 at the Prime Rate plus one hundred
basis points and thereafter to the date of payment at the Prime Rate plus four
hundred fifty basis points) within 10 days after resolution of any disputes in
accordance with Section 1.3.
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SECTION 1.5 CONDUCT OF BUSINESS FOLLOWING CLOSING.
(a) During the Period, Purchaser shall not sell or otherwise
dispose of either Company or its business, nor shall either Company be merged or
consolidated with another entity.
(b) During the Period, Purchaser shall cause each Company to be
operated reasonably and prudently and in the ordinary course of business,
consistent with past practice. Purchaser agrees, for the mutual benefit of
itself and Seller, to operate the Companies in good faith, taking into account
Seller's desire to maximize the Contingent Payment provided for herein, and to
devote the degree of attention, financing, support, expertise and personnel to
the business of each Company as is appropriate to achieve such objectives.
(c) During the Period, all intercompany transactions between
either Company, on the one hand, and Purchaser or any of its affiliates, on the
other hand, shall be on terms no less favorable to the Company than a similar
transaction between unrelated persons negotiating at arm's length.
(d) Without limiting the generality of the foregoing paragraphs
(a) through (c), during the Period, neither Purchaser nor any of its affiliates
shall, without the prior written consent of Seller:
(i) fail to maintain the Companies as an
independent business unit of Purchaser or one if its affiliates;
(ii) transfer operations from either Company or
sell a portion of such operations or assets to any affiliate of
Purchaser or any third party; PROVIDED HOWEVER, that, subject to
clause (i) above, Purchaser may transfer the ownership of the
Companies, as a whole, to an affiliate of Purchaser;
(iii) fail to maintain separate books and records
for the operations of the Companies; or
(iv) make any material change to the line of
business which each of the Companies operates.
(e) During the Period, Purchaser shall not, without the consent
of Seller, raise the base salaries of any employee of either Company to an
amount above those amounts set forth on Section 2.24 of the Disclosure Schedule,
except in the ordinary course of business and consistent with the past practices
of the Companies.
(f) Notwithstanding the foregoing, this Section 1.5 shall not
restrict any action on the part of Purchaser or the Companies during the Period
if either (i) such action has no adverse effect on the Contingent Payment or
(ii) any adverse effect on the Contingent Payment can be reliably measured and
is excluded from the determination of the Contingent Payment.
SECTION 1.6 CLOSING; CLOSING CONDITIONS.
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(a) The sale and purchase of the Shares contemplated by this
Agreement shall take place at a closing (the "CLOSING") to be held at the
offices of Skadden, Arps, Slate, Xxxxxxx & Xxxx (Illinois), 000 Xxxx Xxxxxx
Xxxxx, Xxxxxxx, Xxxxxxxx 00000, at 10:00 A.M. Chicago time on the date hereof
(the "CLOSING DATE").
(b) At the Closing, Seller shall deliver or cause to be delivered
to Purchaser:
(i) stock certificates or similar instruments
evidencing the Shares, duly endorsed by Seller in blank or
accompanied by stock powers duly executed by Seller in blank,
together with such other documents and instruments, if any, as
may be necessary to permit Purchaser to acquire the Shares free
and clear of any and all Encumbrances;
(ii) a certificate signed by an appropriate
officer of Seller, dated as of the Closing Date, to the effect
that, to the best of such officer's knowledge, (A) the
representations and warranties of Seller are true and correct in
all material respects as of the Closing Date (other than those
representations and warranties that address matters only as of a
particular date or only with respect to a specific period of time
which need only be true and accurate as of such date or with
respect to such period) and (B) Seller has performed and complied
with, in all material respects, its obligations and covenants in
this Agreement and all other documents delivered in connection
herewith required to be performed by it at or prior to the
Closing Date;
(iii) (A) a copy of each Company's certificate of
incorporation or other equivalent organization document,
including all amendments, certified by the Secretary of State (or
comparable official) of the state of such Company's
incorporation, formation or organization, (B) a certificate from
the Secretary of State (or comparable official) of the state of
each Company's incorporation, formation or organization, to the
effect that such Company is in good standing in such state and
(C) if available from the relevant state, a certificate as to the
tax status of the Company in such state.
(iv) certified copies of the resolutions of the
Board of Directors of Seller authorizing the sale of the Shares
being transferred by Seller pursuant hereto, the execution and
delivery of this Agreement and all other documents delivered in
connection herewith by officers of Seller and the consummation of
the transactions contemplated hereby and thereby, and a
certificate of the Secretary of Seller certifying that such
resolutions were duly adopted and have not been rescinded or
amended as of the Closing Date;
(v) the resignations, each dated the Closing Date,
of those officers and directors of the Companies as set forth on
Section 1.6(b)(v) of the Disclosure Schedule;
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(vi) evidence of the discharge, termination or
repayment in full, as of the Closing Date, of all guarantees and
any other obligations or liabilities by or from each Company to
Seller or regarding Seller's indebtedness to any Person
(including the guarantees of each Company to creditors of Seller
pursuant to Seller's credit facilities);
(vii) the opinion of Skadden, Arps, Slate, Xxxxxxx
& Xxxx (Illinois), substantially in the form of EXHIBIT A
attached hereto, and the opinion of Xxxxxxx Xxxxx Xxxxxx LLP,
substantially in the form of EXHIBIT B attached hereto;
(viii) the Transition Services Agreement, in the
form of EXHIBIT C attached hereto, duly executed by Seller; and
(ix) all other previously undelivered certificates
and other documents required to be delivered by Seller to
Purchaser at or prior to the Closing Date in connection with the
transactions contemplated hereby, with all necessary transfer tax
or other revenue stamps, if any, acquired at Purchaser's expense,
affixed and cancelled;
(c) At the Closing, Purchaser shall deliver to Seller:
(i) the Fixed Purchase Price by wire transfer in
immediately available funds to an account designated by Seller at
least 2 business days prior to the Closing Date;
(ii) the Transition Services Agreement, in the
form of EXHIBIT A attached hereto, duly executed by Purchaser;
(iii) a certificate signed by an appropriate
officer of Purchaser, dated as of the Closing Date, to the effect
that, to the best of such officer's knowledge, (A) the
representations and warranties of Purchaser are true and correct
in all material respects as of the Closing Date (other than those
representations and warranties that address matters only as of a
particular date or only with respect to a specific period of time
which need only be true and accurate as of such date or with
respect to such period) and (B) Purchaser has performed and
complied with, in all material respects, its obligations and
covenants in this Agreement and all other documents delivered in
connection herewith required to be performed by it at or prior to
the Closing Date;
(iv) certified copies of the resolutions of the
Board of Directors of Purchaser authorizing the purchase of the
Shares, the execution and delivery of this Agreement and all
other documents delivered in connection herewith by officers of
Purchaser and the consummation of the transactions contemplated
hereby and thereby, and a certificate of the Secretary of
Purchaser certifying that such resolutions were duly adopted and
have not been rescinded or amended as of the Closing Date; and
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(v) all other previously undelivered certificates
and other documents required to be delivered by Purchaser to
Seller at or prior to the Closing Date in connection with the
transactions contemplated hereby.
(d) Notwithstanding the requirements of Section 1.6(c) above, the
obligation of the Purchaser to consummate the transactions to be performed by it
at the Closing is subject to satisfaction or waiver of the following conditions
on or prior to the Closing Date:
(i) The acquisition by the Purchaser of the Shares
shall represent one hundred percent (100%) of the issued and
outstanding capital stock of LAGA and NAPA, and all of such
Shares shall be free and clear of all Encumbrances, other than
restrictions imposed by Federal or state securities laws.
(ii) Seller shall have procured all necessary
authorizations, consents and approvals of shareholders,
employees, third parties, governments and governmental agencies
set forth in this Agreement and in the Disclosure Schedule.
(iii) Seller or LAGA, as the case may be, shall
have terminated all existing employment agreements with each of
Xxxxxx Xxxxxx, Xxxxxx Xxxxxx, Xxxxx Xxxxx, Xxxxx Xxxxxxxxx, Xxx
Xxxxxx and Xxxx Xxxxxxxx (collectively, the "KEY EMPLOYEES"), and
Purchaser shall have entered into employment agreements with each
of the Key Employees.
(iv) All liens on the Shares and on the assets of
the Companies and all security interests securing the debts of
the Companies (other than liens on the assets of the Companies
and security interests securing the debts of the Companies with
respect to equipment used by the Companies in the Business) shall
have been paid in full and fully released of record to the
satisfaction of the Purchaser, and all Uniform Commercial Code
financing statements covering such debts shall either have been
terminated or executed UCC-3 termination statements shall have
been prepared for filing with respect thereto.
(v) Seller shall have presented to Purchaser (as
far in advance of the scheduled Closing Date as is practicable,
but no more than five (5) business days prior to such date) the
unaudited consolidated balance sheet of the Companies as of April
30, 2001 (the "CLOSING BALANCE SHEET"). The Closing Balance Sheet
shall be prepared in a manner consistent with the Most Recent
Balance Sheet (as defined in Section 2.7). At the Closing, the
Closing Balance Sheet shall be set forth on Section 1.6(d)(v) of
the Disclosure Schedule.
(vi) Seller shall have made all deliveries to
Purchaser required under Section 1.6(b).
(vii) All amounts outstanding under that certain
Business Loan Agreement, dated as of April 10, 1998, between NAPA
and Bank of America
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National Trust and Savings Association shall have been repaid.
The amount outstanding under such loan agreement does not exceed
$70,000.
ARTICLE 2
REPRESENTATIONS AND WARRANTIES OF SELLER
Seller represents and warrants to Purchaser as follows:
SECTION 2.1 ORGANIZATION. Seller and each Company is a corporation or
other entity duly organized, validly existing and in good standing under the
laws of the jurisdiction of its incorporation and has all requisite power and
authority to own, lease and operate its properties and to carry on its business
as it is now being conducted. Except as disclosed in Section 2.1 of the
disclosure schedule delivered by Seller to Purchaser at or prior to the
execution of this Agreement (the "Disclosure Schedule"), each Company is duly
qualified or licensed to do business as a foreign corporation or other entity
and is in good standing in each jurisdiction in which the nature of the business
conducted by it makes such qualification or licensing necessary, except where
the failure to be so duly qualified, licensed and in good standing would not,
individually or in the aggregate, have a Material Adverse Effect (as hereinafter
defined). Seller has heretofore made available to Purchaser a complete and
correct copy of each of the articles of incorporation and by-laws or similar
organizational documents of each Company, as currently in effect. As used in
this Agreement, "MATERIAL ADVERSE EFFECT" means any material adverse change in,
or material adverse effect on, the business, assets (including intangible
assets), properties, financial condition or results of operations of the
Companies, taken as a whole; PROVIDED, HOWEVER, that, the effects of changes
that are generally applicable to (a) the industries and markets in which the
Companies operate; (b) the United States economy or (c) the United States
securities markets shall be excluded from the determination of Material Adverse
Effect; PROVIDED, FURTHER, that any adverse effect on either Company resulting
from the announcement of this Agreement and the transactions contemplated hereby
shall also be excluded from the determination of Material Adverse Effect.
SECTION 2.2 CAPITALIZATION. The authorized capital stock of LAGA
consists of 1000 shares of common stock, no par value, of which 1000 shares are
issued and outstanding and no shares are held in treasury. The authorized
capital stock of NAPA consists of 1000 shares of common stock, no par value, of
which 300 shares are issued and outstanding and no shares are held in treasury.
All the outstanding shares of capital stock of LAGA and NAPA are duly
authorized, validly issued, fully paid, non-assessable and free of preemptive
rights. No other class of capital shares of LAGA or NAPA is authorized or
outstanding. Except as disclosed in Section 2.2 of the Disclosure Schedule,
there are no existing (i) options, warrants, calls, subscriptions or other
rights, convertible securities, agreements or commitments of any character
obligating either Company to issue, transfer or sell any shares of capital stock
or other equity interest in, such Company or securities convertible into or
exchangeable for such shares or equity interests; (ii) contractual obligations
of either Company to repurchase, redeem or otherwise acquire any capital stock
or equity interest of such Company or (iii) voting trusts or similar agreements
to which either Company is a party with respect to the voting of the capital
stock or equity interest of such Company.
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SECTION 2.3 SUBSIDIARIES AND INVESTMENTS. Except as set forth in
Section 2.3 of the Disclosure Schedule, neither Company owns, directly or
indirectly, any capital stock, partnership interest, limited liability company
interest, equity equivalent or other equity or ownership interest in, or any
security issued by, any other individual, company, joint venture, corporation,
limited liability company, limited liability partnership, trust, unincorporated
organization or government or other department or agency thereof (each, a
"PERSON").
SECTION 2.4 OWNERSHIP OF SHARES. Except as set forth in Section 2.4 of
the Disclosure Schedule, Seller is the true and lawful owner of the Shares as
set forth in Annex A. There is no personal liability attaching to the ownership
of the Shares, except as such liability may be imposed pursuant to applicable
laws, and all of the issued and outstanding Shares are owned by Seller free and
clear of all Encumbrances, other than restrictions imposed by Federal or state
securities laws. Upon the consummation of the transactions contemplated hereby,
Purchaser will acquire title to the Shares, free and clear of all Encumbrances,
other than restrictions imposed by Federal or state securities laws.
SECTION 2.5 AUTHORIZATION; VALIDITY OF AGREEMENT. Seller has full
power and authority to execute and deliver this Agreement and to consummate the
transactions contemplated hereby. The execution, delivery and performance by
Seller of this Agreement, and the consummation by it of the transactions
contemplated hereby, have been duly authorized and no other corporate
proceedings on the part of Seller are necessary to authorize the execution and
delivery by Seller of this Agreement and the consummation by it of the
transactions contemplated hereby. This Agreement has been duly executed and
delivered by Seller and (assuming due and valid authorization, execution and
delivery hereof by Purchaser) is a valid and binding obligation of Seller
enforceable against Seller in accordance with its terms, except that (i) such
enforcement may be subject to applicable bankruptcy, insolvency, reorganization,
moratorium or other similar laws, now or hereafter in effect, affecting
creditors' rights generally and (ii) the remedy of specific performance and
injunctive and other forms of equitable relief may be subject to equitable
defenses and to the discretion of the court before which any proceeding therefor
may be brought.
SECTION 2.6 CONSENTS AND APPROVALS; NO VIOLATIONS. Except as disclosed
in Section 2.6 of the Disclosure Schedule and except for (a) filings pursuant to
the Xxxx-Xxxxx-Xxxxxx Antitrust Improvements Act of 1976, as amended (the "HSR
ACT"); (b) applicable requirements under the Securities Exchange Act of 1934, as
amended (the "EXCHANGE ACT"); (c) applicable requirements of any national
securities exchange on which the shares of common stock of Seller are listed;
and (d) matters specifically described in this Agreement, neither the execution,
delivery or performance of this Agreement by Seller nor the consummation by
Seller of the transactions contemplated hereby will (i) violate any provision of
the articles of incorporation or by-laws or similar organizational documents of
Seller or either Company; (ii) result in a violation or breach of, or constitute
(with or without due notice or lapse of time or both) a default (or give rise to
any right of termination, amendment, cancellation or acceleration) under, impair
Seller's rights or alter the rights or obligations of any third party under, or
result in the creation of any Encumbrance upon either Company or any of the
Shares under, any of the terms, conditions or provisions of any note, bond,
mortgage, indenture, lease, license, commitment, evidence of indebtedness,
security agreement, franchise, permit, concession, contract, agreement or other
instrument or obligation (whether written or, to the knowledge of Seller, oral)
(a "CONTRACT") to which Seller or either
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Company is a party or by which any of them or any of their properties or assets
may be bound; (iii) violate any order, charge, writ, ruling, judgment,
injunction, decree, law, constitution, statute, rule, regulation or other
restriction applicable to Seller or either Company or any of their properties or
assets; (iv) require on the part of Seller or either Company any filing or
registration with, notification to, or authorization, consent or approval of,
any court, legislative, executive or regulatory authority or agency and any of
their respective subdivisions, agencies, instrumentalities, authorities or
tribunals (a "GOVERNMENTAL ENTITY"); or (v) to the knowledge of Seller, violate
or breach any license, agreement or instrument governing either Company's
Intellectual Property (as hereinafter defined) or cause the forfeiture or
termination or give rise to a right of forfeiture or termination of either
Company's Intellectual Property or impair the right of either Company to use,
sell or license such Company's Intellectual Property; except in the case of
clauses (ii), (iii), (iv) or (v) for such violations, breaches or defaults
which, or filings, registrations, notifications, authorizations, consents or
approvals the failure of which to obtain, would not, individually or in the
aggregate, have a Material Adverse Effect and would not materially adversely
affect the ability of Seller and the Companies to consummate the transactions
contemplated by this Agreement.
SECTION 2.7 FINANCIAL STATEMENTS. Section 2.7 of the Disclosure
Schedule contains the audited consolidated balance sheet of the Companies as of
December 31, 2000, and the related unaudited consolidated statement of income
for the period ended December 31, 2000 and the unaudited consolidated balance
sheet of the Companies at March 31, 2001 ("MOST RECENT BALANCE SHEET")
(collectively for the Companies, the "FINANCIAL STATEMENTS"). Each statement
included in the Financial Statements has been prepared in accordance with United
States generally accepted accounting principles ("GAAP"), applied on a
consistent basis during the periods involved, except for (a) the absence of any
statements of retained earnings; (b) the absence of notes to the Financial
Statements; and (c) those items which are otherwise noted therein. The Financial
Statements fairly present, in all material respects, the financial condition of
the Companies as of the date thereof and the results of operations of the
Companies for the period indicated, in accordance with GAAP. There has be no
material adverse change in the financial condition of the Companies since the
Most Recent Balance Sheet.
SECTION 2.8 NO UNDISCLOSED LIABILITIES. Except as disclosed in Section
2.8 of the Disclosure Schedule and except (a) for liabilities, indebtedness and
obligations, other than for borrowed money by either Company, incurred in the
ordinary course of business, consistent with past practice, after December 31,
2000 and without violation of Section 2.9; (b) for liabilities, indebtedness and
obligations disclosed, reflected or reserved for in the Financial Statements;
and (c) for liabilities and obligations incurred in connection with the
transactions contemplated hereby or otherwise as contemplated by this Agreement
and other liabilities and obligations that are otherwise specifically the
subject of any other representation or warranty contained in this Article 2,
neither Company has incurred any material liabilities, indebtedness or
obligations, whether accrued, absolute or contingent, determined or
undetermined, asserted or unasserted, and whether due or to become due, that
would be required to be reflected or reserved against in a balance sheet of the
Companies, prepared in accordance with GAAP, consistently applied.
SECTION 2.9 ABSENCE OF CERTAIN CHANGES. Except as (a) disclosed in the
Financial Statements; (b) disclosed in Section 2.9 of the Disclosure Schedule or
(c) specifically contemplated by this Agreement, since December 31, 2000 (the
"BALANCE SHEET DATE"), neither of
9
the Companies has (i) permitted any of its material assets to be subjected to
any Encumbrance (other than a Permitted Encumbrance) (as hereinafter defined);
(ii) sold, transferred or otherwise disposed of any material assets except in
the ordinary course of business; (iii) made any capital expenditure or
commitment therefor which individually or in the aggregate exceed fifty thousand
dollars ($50,000); (iv) made any bonus or profit sharing distribution to its
employees other than in the ordinary course of business; (v) increased or
prepaid its indebtedness for borrowed money, except current borrowings under
credit lines listed on Section 2.8 of the Disclosure Schedule from banks in the
ordinary course of business, or made any loan to any Person; (vi) written down
the value of any work-in-process, or written off as uncollectible any notes or
accounts receivable, except write-downs and write-offs in the ordinary course of
business, none of which, individually or in the aggregate, is material to either
Company; (vii) granted any increase in the rate of wages, salaries, bonuses or
other remuneration of any employee who, whether as a result of such increase or
prior thereto, receives aggregate compensation from either Company at an annual
rate of one hundred thousand dollars ($100,000) or more; (viii) canceled or
waived any claims or rights of material value; (ix) made any change in any
method of accounting procedures; (x) declared, set aside or paid any dividend or
other distribution paid or payable in cash or property with respect to any of
the Shares (except for distributions in connection with cash-management
procedures in the ordinary course of business which shall cease as of the
Closing); (xi) made any loans, advances, investments or capital contributions to
or in any other Person; (xii) otherwise conducted its business or entered into
any transaction, except in the usual and ordinary manner and in the ordinary
course of its business; (xiii) amended or terminated any agreement which is
material to its business; (xiv) renewed, extended or modified any lease of real
property, or, except in the ordinary course of business, any lease of personal
property; (xv) adopted, amended or terminated any Plan (as hereinafter defined);
(xvi) agreed, whether or not in writing, to do any of the foregoing; or (xvii)
suffered any change constituting a Material Adverse Effect.
SECTION 2.10 EMPLOYEE BENEFIT PLANS; ERISA.
(a) Section 2.10(a) of the Disclosure Schedule lists all employee
benefit plans (as defined in Section 3(3) of the Employee Retirement Income
Security Act of 1974, as amended ("ERISA")) and all bonus, incentive, deferred
compensation, stock option, restricted stock, stock appreciation rights, phantom
stock rights, retiree medical or life insurance, supplemental retirement,
severance or other benefit plans, programs or arrangements, and all termination,
severance or other contracts, whether or not subject to any of the provisions of
ERISA, which are or have been maintained, contributed to or sponsored by the
Companies or any ERISA Affiliate (as hereinafter defined) for the benefit of any
employee of the Companies (each item listed on Section 2.10(a) of the Disclosure
Schedule being referred to herein individually, as a "PLAN" and collectively, as
the "PLANS"). Seller has delivered to Purchaser, to the extent applicable, a
complete and accurate copy of: (i) each written Plan and descriptions of any
unwritten Plan (including all amendments thereto whether or not such amendments
are currently effective); (ii) each summary plan description and all summaries
of material modifications relating to a Plan; (iii) each trust agreement or
other funding arrangement with respect to each Plan, including insurance
contracts; (iv) the most recently filed Internal Revenue Service Form 5500
relating to each Plan; (v) the most recently received Internal Revenue Service
determination letter for each Plan; and (vi) the three most recently prepared
actuarial reports and financial statements in connection with each Plan. Neither
Seller nor the
10
Companies have made any commitment (x) to create or cause to exist any Plan not
set forth on Section 2.10(a) of the Disclosure Schedule or (y) to modify, change
or terminate any Plan.
(b) Except as disclosed in Section 2.10(b) of the Disclosure
Schedule, none of the Plans, nor any employment, severance or other similar
agreement to which either of the Companies is a party or bound (i) provides for
the payment of or obligates the Companies to pay separation, severance,
termination or similar-type benefits to any employee of the Companies or (ii)
obligates the Companies to pay separation, severance, termination or
similar-type benefits as a result of any transaction contemplated by this
Agreement or as a result of a "change in control," within the meaning of such
term under Section 280G of the Internal Revenue Code of 1986, as amended (the
"CODE"), either alone or in conjunction with any subsequent occurrence. There is
no commitment covering the employees of the Companies that, individually or in
the aggregate, would reasonably be expected to give rise to the payment of any
amount that would result in a material loss of tax deductions pursuant to
Section 162(m) of the Code.
(c) Neither the Companies nor any ERISA Affiliate has maintained,
contributed to or participated in a multi-employer plan (within the meaning of
Section 3(37) or 4001(a)(3) of ERISA) or a multiple employer plan subject to
Sections 4063 and 4064 of ERISA, nor has any obligations or liabilities,
including withdrawal, reorganization or successor liabilities, regarding any
such plan. As used herein, the term "ERISA AFFILIATE" means any Person that is
or has been a member of a controlled group of organizations (within the meaning
of Sections 414(b), (c), (m) or (o) of the Code) of which the Companies are a
member.
(d) Seller or the Companies, as applicable, have expressly
reserved the right, in all Plan documents relating to welfare benefits provided
to employees, former employees, officers, directors and other participants and
beneficiaries, to amend, modify or terminate at any time the Plans which provide
for welfare benefits, and Seller is not aware of any fact, event or condition
that could reasonably be expected to restrict or impair such right. Except as
required under Section 601 of ERISA or as disclosed in Section 2.10(d) of the
Disclosure Schedule, neither the Companies nor any ERISA Affiliate has made any
promises or commitments to provide, and is not obligated to provide (i) medical
benefits (including without limitation through insurance) to retirees or former
employees of the Companies or any ERISA Affiliate or their respective
dependents, or (ii) life insurance or other death benefits to retired employees
or former employees of the Companies or any ERISA Affiliate or their respective
dependents.
(e) Each Plan is now and has been operated in all material
respects in accordance with the requirements of all applicable laws, including,
without limitation, ERISA, the Health Insurance Portability and Accountability
Act of 1996, the Code and the regulations and authorities published thereunder.
The Companies have performed in all material respects all obligations required
to be performed by them under, are not in any material respect in default under
or in violation of, and Seller has no knowledge of any such default or violation
by any Person of, any Plan. Except as set forth on Section 2.10(e) of the
Disclosure Schedule, no legal action, suit, audit, investigation or claim is
pending or, to the knowledge of Seller, threatened with respect to any Plan
(other than claims for benefits in the ordinary course). With respect to any
insurance policy providing funding for benefits or an investment alternative
under any Plan, to the knowledge of Seller (i) no material liability or loss
shall be incurred by Purchaser or any such Plan in the nature
11
of a retroactive rate adjustment, loss sharing arrangement or other material
liability or loss and (ii) no insurance company issuing any such policy is in
receivership, conservatorship, liquidation or similar proceeding and no such
proceedings with respect to any insurer are imminent.
(f) Each Plan which is intended to be qualified under Section
401(a) of the Code is qualified under Section 401(a) of the Code (and, if
applicable, complies with the requirements of Section 401(k) of the Code), and
has received a favorable determination letter from the Internal Revenue Service
that it is so qualified. Each trust established in connection with any Plan
which is intended to be exempt from federal income taxation under Section 501(a)
of the Code is exempt under Section 501(a) of the Code and has received a
determination letter from the Internal Revenue Service that it is so exempt. To
the knowledge of Seller, no fact or event has occurred or condition exists since
the date of such determination letter from the Internal Revenue Service which
would be reasonably likely to adversely affect the qualified status of any such
Plan or the exempt status of any such trust.
(g) To the knowledge of Seller, there has been no non-exempt
prohibited transaction (within the meaning of Section 406 of ERISA or Section
4975 of the Code) with respect to any Plan subject to ERISA. The Companies have
not incurred any liability for any excise tax arising under Sections 4971, 4972,
4975, 4976, 4977, 4978, 4978B, 4979, 4979A, 4980, 4980B, 4980D or 4980E of the
Code or any civil penalty arising under Sections 409, 502(i) or 502(l) of ERISA
that have not been satisfied in full, and no fact, event or condition exists
which could give rise to any such liability. No Plan is or has been subject to
Title IV or Section 302 of ERISA.
(h) All contributions, premiums or payments required to be made,
paid or accrued with respect to any Plan have been made, paid or accrued on or
before their due dates, including extensions thereof. All such contributions
have been fully deducted for income tax purposes and no such deduction has been
challenged or disallowed by any Governmental Entity and, to the knowledge of
Seller, no fact or event exists which could give rise to any such challenge or
disallowance.
SECTION 2.11 LITIGATION. Except as disclosed in Section 2.11 of the
Disclosure Schedule, there is no action, suit, claim, arbitration, investigation
or proceeding pending, or as to which Seller or either Company has received any
written notice of assertion, or, to the knowledge of Seller, threatened,
involving either of the Companies or their properties or rights by or before any
Governmental Entity or by any Person that is reasonably likely to have,
individually or in the aggregate, a Material Adverse Effect or which in any
manner challenges or seeks to prevent, enjoin, alter or delay any of the
transactions contemplated hereby. Neither Company is subject to any agreement,
injunction, judgment, order, decree or arbitration award of any Governmental
Entity that is, individually or in the aggregate, reasonably likely to have a
Material Adverse Effect.
SECTION 2.12 NO DEFAULT; COMPLIANCE WITH APPLICABLE LAWS. Except as
disclosed in Section 2.12 of the Disclosure Schedule, neither Company is in
conflict with or in default or violation of any term, condition or provision of
(i) its articles of incorporation or by-laws or similar organizational documents
or (ii) any statute, law, rule, regulation, judgment, decree, order, permit or
license or other governmental authorization or approval applicable to any of the
Companies (collectively, the "COMPANY PERMITS"), excluding from the foregoing
clauses (i) and (ii), conflicts,
12
defaults or violations which would not, individually or in the aggregate, have a
Material Adverse Effect or which become applicable as a result of the business
or activities in which Purchaser is or proposes to be engaged or as a result of
any acts or omissions by, or the status of any facts pertaining to, Purchaser.
Notwithstanding the foregoing, this Section 2.12 shall not apply to
Environmental Laws (as hereinafter defined) and any permits required thereunder
which are exclusively the subject of the representations and warranties
contained in Section 2.15. In addition, each of the Companies holds all Company
Permits from Governmental Entities which are necessary or required for the
conduct of its business as presently conducted, except where the failure to hold
such Company Permits would not have a Material Adverse Effect. All Company
Permits are in full force and effect, except where the failure to be in full
force and effect would not have a Material Adverse Effect, and no action or
claim is pending or, to the knowledge of Seller, threatened, to revoke or
terminate any Company Permit or declare any Company Permit invalid in any
material respect.
SECTION 2.13 TAXES.
(a) Except as disclosed in Section 2.13(a) of the Disclosure
Schedule, each Company or Seller on behalf of either Company has (i) timely
filed all material Tax Returns (as hereinafter defined) required to be filed by
any of them (taking into account applicable extensions) with respect to such
Company and all such Tax Returns were true, correct and complete in all material
respects when filed and (ii) paid or accrued (in accordance with GAAP) all
material Taxes (as hereinafter defined) of such Company regardless of whether
shown to be due on such Tax Returns, other than such Taxes as are being
contested in good faith by such Company or Seller.
(b) With respect to Tax Returns referred to in Section 2.13(a),
except as disclosed in Section 2.13(b) of the Disclosure Schedule, there are no
material ongoing federal, state, local or foreign Tax audits or Tax
examinations, nor does Seller or either Company know of any written
communication from any Taxing Authority raising any potential dispute or claim
regarding Taxes.
(c) With respect to Tax Returns referred to in Section 2.13(a),
except as disclosed in Section 2.13(c) of the Disclosure Schedule, there are no
outstanding written requests, agreements, consents or waivers to extend the
statutory period of limitations applicable to the assessment of any Taxes or
deficiencies.
(d) Except as disclosed in Section 2.13(d) of the Disclosure
Schedule, neither Company is a party to any agreement providing for the
allocation or sharing of Taxes.
(e) Except as disclosed in Section 2.13(e) of the Disclosure
Schedule, there are no material liens for Taxes upon the assets of either
Company which are not provided for in the Financial Statements, except liens for
Taxes not yet due and payable and liens for Taxes that are being contested in
good faith.
(f) Since January 1, 1998, no claim has been made by a
Governmental Entity in a jurisdiction a Company does not file Tax Returns that a
Company is or may be subject to taxation by that jurisdiction.
13
(g) Except disclosed in Section 2.13(g) of the Disclosure
Schedule, no Company (i) has been a member of an affiliated group filing a
consolidated federal income Tax return or (ii) has any liability for Taxes of
any Person (other than that of the Companies) under (A) any of Treasury
Regulation Section 1.1502-6 (or any similar provision of state, local or foreign
law), (B) as transferee or successor, or (C) by contract, or otherwise.
(h) "TAXES" shall mean any and all taxes, charges, fees, levies
or other assessments, including, without limitation, income, gross receipts,
excise, real or personal property, sales, withholding, social security,
occupation, use, service, service use, value added, license, net worth, payroll,
franchise, transfer and recording taxes, fees and charges, imposed by any taxing
authority (whether domestic or foreign including, without limitation, any state,
local or foreign government or any subdivision or taxing agency thereof
(including a United States possession)), whether computed on a separate,
consolidated, unitary, combined or any other basis; and such term shall include
any interest, penalties or additional amounts attributable to, or imposed upon,
or with respect to, any such taxes, charges, fees, levies or other assessments
plus any liability under any tax sharing agreement with any person or under
Treasury Regulation Section 1.1502-6 or any similar provision of state, local or
foreign law. "TAX RETURN" shall mean any report, return, document, declaration
or other information or filing required to be supplied to any taxing authority
or jurisdiction (foreign or domestic) with respect to Taxes.
SECTION 2.14 INTELLECTUAL PROPERTY. Section 2.14 of the Disclosure
Schedule contains an accurate and complete list of all Intellectual Property (as
hereinafter defined) owned by each Company for which state, federal or foreign
registration has been obtained or is pending and which is material to the
business or operations of such Company and all agreements under which any Person
has granted a license for any Intellectual Property to either Company (other
than license agreements for "off the shelf" third party computer software not
included within such Company's products or services). Each Company has all
right, title and interest in, a valid and binding license to use, or has the
requisite permission and authority to use, all Intellectual Property used in the
conduct of its business, except where the failure to have such rights would not,
individually or in the aggregate, have a Material Adverse Effect. Except as
disclosed in Section 2.14 of the Disclosure Schedule, no claim of infringement
or misappropriation of Intellectual Property is or has been pending or, to the
knowledge of Seller, threatened against either Company, and, to the knowledge of
Seller, neither Company is infringing or misappropriating any Intellectual
Property of any Person. Neither Company has expressly granted any license,
franchise or permit in effect on the date hereof to any Person to use any of the
trade names or any of the trademarks owned by it. The term "INTELLECTUAL
PROPERTY" means patents and patent rights, trademarks and trademark rights,
tradenames and tradename rights, service marks and service xxxx rights, service
names and service name rights, copyright and copyright rights, trade secrets and
trade secret rights and publicity, and other proprietary intellectual property
rights and all pending applications for and registrations of any of the
foregoing.
SECTION 2.15 ENVIRONMENTAL LAWS AND REGULATIONS. Except as set forth
in Section 2.15 of the Disclosure Schedule, (a) each of the Companies is in
compliance with all applicable federal, state and local laws and regulations
relating to protection of the environment (collectively, "ENVIRONMENTAL LAWS"),
except for non-compliance which would not, individually or in the aggregate,
have a Material Adverse Effect, which compliance includes, but is not limited
to,
14
the possession by each of the Companies of material permits and other
governmental authorizations required under applicable Environmental Laws, and
compliance with the terms and conditions thereof; (b) neither Company has
received notice of, or to the knowledge of Seller, is the subject of, any
actions, causes of action, requests for information, claims, investigations,
demands, or notices by any Person alleging liability under or non-compliance
with any Environmental Law ("ENVIRONMENTAL CLAIMS") which would, individually or
in the aggregate, have a Material Adverse Effect; and (c) Seller is not aware of
and has not received notice of any event, condition, circumstance, activity,
practice, incident, action or plan which is reasonably likely to interfere with
or prevent continued compliance with or which would give rise to any common law
or statutory liability, or otherwise form the basis of any claim, action, suit
or proceeding under any Environmental Laws, except where the interference or
failure to comply with common law or statutes or other claim, action, suit or
proceeding under the Environmental Laws would not, individually or in the
aggregate, have a Material Adverse Effect.
SECTION 2.16 CONTRACTS.
(a) Section 2.16(a) of the Disclosure Schedule sets forth a
complete and accurate list of all of the following Contracts to which either
Company is a party: (i) any personal property lease with a fixed annual rental
of one hundred thousand dollars ($100,000) or more; (ii) any contract relating
to capital expenditures which involves payments of two hundred fifty thousand
dollars ($250,000) or more in any single or related transaction; (iii) any loan
or advance to, or investment in, any other Person, or commitments for any of the
same, in an amount exceeding one hundred thousand dollars ($100,000) or any
contract relating to the making of any such loan, advance or investment; (iv)
any guarantee or other contingent liability in respect of any indebtedness or
obligation of any other Person in an amount exceeding one hundred thousand
dollars ($100,000) (other than the endorsement of negotiable instruments for
collection in the ordinary course of business); (v) any management service,
employment, consulting or any other similar type of contract, agreement or
document relating to services to be provided to either Company which is not
cancellable by such Company or by Seller without penalty or other financial
obligation within 30 days; (vi) any contract limiting the freedom of either
Company to engage in any line of business or to compete with any other Person,
including agreements limiting its ability to take on competitive accounts after
the termination thereof or limiting the ability of either Company or its
affiliates to take on competitive accounts during the term thereof; (vii) any
contract or commitment (not covered by another subsection of this Section
2.16(a)) which involves payments by either Company of one hundred thousand
dollars ($100,000) or more over the unexpired term thereof and is not
cancellable by either Company or Seller without penalty or other financial
obligation within 30 days; (viii) any collective bargaining agreement; (ix) any
contract with any of either of the Company's officers, directors or holders of
Shares (including indemnification agreements); (x) any secrecy or
confidentiality agreement (other than standard confidentiality agreements in
computer software license agreements or agreements with clients entered into in
the ordinary course of business); (xi) any licensing or franchise agreement
(other than license agreements for "off the shelf" third party computer software
not included within either Company's products or services); (xii) any agreement
with any of the 15 largest clients (in terms of revenue) of the Companies (on a
consolidated basis) in 1999 and 2000 and (xiii) any joint venture agreement
involving a sharing of profits not covered by (i) through (xii) above; provided,
HOWEVER, that (x) commitments to media and production expenses which are fully
reimbursable from clients and (y) estimates or purchase orders given in the
15
ordinary course of business relating to the execution of projects, do not have
to be set forth on Section 2.16(a) of the Disclosure Schedule.
(b) Except as set forth in Section 2.16(b) of the Disclosure
Schedule, (i) each of the Contracts to which either Company is a party or by
which any of its assets or operations may be bound is in full force and effect,
except where the failure to be in full force and effect would not, individually
or in the aggregate, have a Material Adverse Effect and (ii) there are no
existing defaults or events of default by either Company, or occurrence,
condition or act which, with or without the giving of notice, the lapse of time
or the happening of any other event or condition, would become a default or
event of default thereunder by either Company, in any such case which would
result in a Material Adverse Effect.
SECTION 2.17 TITLE TO ASSETS. Except as set forth in Section 2.17 of
the Disclosure Schedule, each of the Companies has good and marketable title to
or, in the case of leased properties and assets, valid leasehold interests in,
all of its respective material tangible properties and assets, free and clear of
all Encumbrances, including, without limitation (a) all the tangible properties
and assets reflected in the Financial Statements and (b) all the tangible
properties and assets purchased or otherwise contracted for by each Company
since the Balance Sheet Date (except in the case of (a) or (b) above for
tangible properties and assets reflected in the Financial Statements or acquired
or otherwise contracted for since the Balance Sheet Date that have been sold or
otherwise disposed of in the ordinary course of business), except for (i) zoning
laws and other land use restrictions that do not materially impair the present
or anticipated use or occupancy of the property subject thereto; (ii) any
Encumbrances for taxes, assessments and other governmental charges not yet due
and payable or due but not delinquent or due and being contested in good faith;
(iii) any mechanics', workmen's, repairmen's, warehousemen's, carriers' or other
similar Encumbrances arising in the ordinary course of business, consistent with
past practice or being contested in good faith; (iv) any Encumbrances which have
not had and are not reasonably likely to have, individually or in the aggregate,
a Material Adverse Effect and (v) with respect to any real property, any
defects, easements, rights of way, restrictions, covenants, claims or other
similar charges, which do not, individually or in the aggregate, have a Material
Adverse Effect on the use or possession of such real property (clauses (i)
through (v) being referred to collectively as, the "PERMITTED ENCUMBRANCES").
SECTION 2.18 BROKERS OR FINDERS. Seller represents, as to itself and
the Companies, that except as set forth in Section 2.18 of the Disclosure
Schedule, no agent, broker, investment banker, financial advisor or other firm
or person is or will be entitled to any brokers' or finder's fee or any other
commission or similar fee in connection with any of the transactions
contemplated by this Agreement. Any such fees or commissions disclosed in
Section 2.18 of the Disclosure Schedule shall be paid by Seller.
SECTION 2.19 REAL PROPERTY.
(a) OWNED REAL PROPERTY. Section 2.19(a) of the Disclosure
Schedule contains a complete and accurate list of all real property owned by
either Company and any option or right of first refusal or first offer to
acquire real property on the part of either Company.
16
(b) LEASED REAL PROPERTY. Section 2.19(b) of the Disclosure
Schedule contains, as of the date hereof, a complete and accurate list of all
real property leases to which each Company is a party (as lessee, lessor,
sublessee, sublessor, assignee or assignor), including, without limitation,
leases which either Company has subleased or assigned to a third party and as to
which such Company remains liable. Each real property lease set forth on Section
2.19(b) of the Disclosure Schedule (or required to be set forth on Section
2.19(b) of the Disclosure Schedule) is valid, binding and in full force and
effect, except where the failure to be valid, binding and in full force and
effect would not have a Material Adverse Effect. Except as set forth in Section
2.19(b) of the Disclosure Schedule, there exists no default or event of default
by either Company or, to the knowledge of Seller, by any other party to such
real property lease, or occurrence, condition or act (including the transactions
contemplated hereby) which, with the giving of notice, the lapse of time or the
happening of any further event or condition, would become a default or event of
default by either Company under such real property lease, except for such
defaults or events of default as would not have a Material Adverse Effect.
SECTION 2.20 CLIENT RELATIONS. Section 2.20 of the Disclosure Schedule
sets forth for each Company the fifteen largest clients (measured by fees
generated) as at December 31, 2000 and the fees from each such client and from
all clients (in the aggregate) for the year ended December 31, 2000. No client
of either Company identified above has advised such Company in writing or, to
the knowledge of Seller, verbally that it (y) is terminating or considering
terminating the handling of its business by such Company as a whole or in
respect of any particular project or service or (z) is planning to reduce its
future spending with either Company in any material manner.
SECTION 2.21 PREPAYMENT FOR SERVICES. Except as disclosed in Section
2.21 of the Disclosure Schedule, neither Company has received any payments from
any of its clients with respect to services to be rendered by such Company after
the Closing Date.
SECTION 2.22 LABOR MATTERS. Neither Company nor Seller is a party to
any collective bargaining agreement applicable to employees of either Company
and, to the knowledge of Seller, there are no current actions or proceedings of
any labor union (or representative thereof) to organize any employees of the
Company.
SECTION 2.23 INTERESTS IN CUSTOMERS, SUPPLIERS, ETC. Except as set
forth on Section 2.23 of the Disclosure Schedule, (x) neither Seller nor any
entity controlled by Seller nor (y) to the knowledge of Seller (without making
any special inquiry of the Related Group, as hereinafter defined), any officer,
director or employee of either Company or Seller, or any parent, brother,
sister, child or spouse of any such officer, director or employee (collectively,
the "RELATED GROUP"), or any entity controlled by any person in the Related
Group: (i) owns, directly or indirectly, any interest in (other than holdings
for investment purposes of less than 5% of the securities of any publicly traded
company), or received payments from, or is an officer, director, employee or
consultant, of any Person which is, or is engaged in business as, a competitor,
lessor, lessee, supplier, distributor, sales agent or customer of either
Company; or (ii) owns, directly or indirectly (other than through the ownership
of stock or equity or other securities of either Company), in whole or in part,
any material tangible or intangible property (including, but not limited to,
Intellectual Property) that either Company uses in the conduct of its business.
17
SECTION 2.24 EMPLOYEES. Section 2.24 of the Disclosure Schedule sets
forth a list of each employee of each Company as of the Balance Sheet Date, such
employee's name, title, starting date, base salary for calendar years 1999 and
2000 and a description of any benefits (such as bonus payments) not already
described in Section 2.10 of the Disclosure Schedule to which each such person
is entitled.
SECTION 2.25 NO IMPLIED REPRESENTATIONS. Notwithstanding anything
contained in this Article 2 or any other provision of this Agreement, it is the
explicit intent of each party hereto that Seller is making no representation or
warranty whatsoever, express or implied, beyond those expressly given in this
Agreement as modified by the Disclosure Schedule. In furtherance and not in
limitation of the foregoing, it is expressly understood by each party hereto
that any cost estimates, projections or other predictions contained in or
referred to in the Schedules hereto or in the offering materials that have been
provided to Purchaser are not and shall not be deemed to be representations or
warranties of Seller.
SECTION 2.26 [RESERVED]
SECTION 2.27 CLOSING BALANCE SHEET ITEMS.
(a) As of the Closing Date, (i) the Companies shall each have a
balance of cash and cash equivalents of no less than $100,000, and (ii) there
shall be no material deterioration since the Most Recent Balance Sheet in the
Companies' consolidated net working capital or financial condition.
(b) All of the accounts receivable reflected in the Companies'
Most Recent Balance Sheet are bona fide and represent amounts validly due for
goods sold or services rendered and, except for amounts reserved for therein as
doubtful accounts and, with respect to such accounts receivable, (i) as of
Closing, all shall be free and clear of Encumbrances, (ii) no written claims of
offset have been asserted and (iii) none of the obligors thereto has given
written notice that it will or may refuse to pay the full amount or any portion
thereof.
(c) Since the Most Recent Balance Sheet, neither Seller nor the
Companies have altered or modified their normal accounting practices and
policies in respect of the Companies' issuance of invoices, collection of
accounts receivable or payment of accounts payable in any manner resulting in
either the acceleration of the collection of the Companies' accounts receivable
or the delay of the Companies' payment of its accounts payable.
SECTION 2.28 SYSTEMS AND SOFTWARE PERFORMANCE. The Companies' owned,
leased and licensed hardware, software and communications facilities and
resources owned or utilized by each Company in the Business (as defined in
Section 4.9 below), and all methods of interface between such items and third
party hardware, software and communication facilities, in each case within the
control or under the responsibility of Seller or either Company (the "System"),
including any System interfaces which are a part of the System, and the local
area networks of the Companies, and any wide area networks currently managed and
maintained by Seller or either Company will continue to perform in all material
respects, if operated by Purchaser in accordance with Seller's and the
Companies' practices and standards, at the level of on-line system performance,
18
reliability and response times as experienced by the Companies during the ninety
(90) day period prior to the Closing Date.
SECTION 2.29 INFORMATION FURNISHED. The representations and warranties
contained in this Article 2, as modified by the Disclosure Schedule, do not
contain any untrue statement of a material fact or omit to state a material fact
required to be stated herein necessary to make the statements herein (in light
of the circumstances under which they were made) not misleading.
ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF PURCHASER
Purchaser represents and warrants to Seller as follows:
SECTION 3.1 ORGANIZATION. Purchaser is a corporation duly organized,
validly existing and in good standing under the laws of the jurisdiction of its
incorporation and has all requisite corporate power and authority to own, lease
and operate its properties and to carry on its business as is now being
conducted. Purchaser and each of its Subsidiaries (as hereinafter defined), if
any, is duly qualified or licensed to do business and is in good standing in
each jurisdiction in which the property owned, leased or operated by it or the
nature of the business conducted by it makes such qualification or licensing
necessary, except where the failure to be so duly qualified or licensed and in
good standing would not have a Purchaser Material Adverse Effect (as hereinafter
defined). As used in this Agreement, "PURCHASER MATERIAL ADVERSE EFFECT" means
any material adverse change in, or material adverse effect on, the business,
assets (including intangible assets), properties, financial condition or results
of operations of Purchaser and its Subsidiaries, taken as a whole; PROVIDED,
HOWEVER, that the effects of changes that are generally applicable to (i) the
industries or markets in which Purchaser and its Subsidiaries operate; (ii) the
United States economy or (iii) the United States securities markets shall be
excluded from the determination of Purchaser Material Adverse Effect; PROVIDED,
FURTHER, that any adverse effect on Purchaser resulting from the announcement of
this Agreement and the transactions contemplated hereby shall also be excluded
from the determination of Purchaser Material Adverse Effect. As used in this
Agreement, the word "SUBSIDIARY" means, with respect to any party, any
corporation, partnership or other entity or organization, whether incorporated
or unincorporated, of which (i) such party or any other Subsidiary of such party
is a general partner (excluding such partnerships where such party or any
Subsidiary of such party does not have a majority of the voting interest in such
partnership) or (ii) at least a majority of the securities or other interests
having by their terms ordinary voting power to elect a majority of the Board of
Directors or others performing similar functions with respect to such
corporation or other organization is directly or indirectly owned or controlled
by such party or by any one or more of its Subsidiaries, or by such party and
one or more of its Subsidiaries.
SECTION 3.2 AUTHORIZATION; VALIDITY OF AGREEMENT. Purchaser has full
corporate power and authority to execute and deliver this Agreement and to
consummate the transactions contemplated hereby. The execution, delivery and
performance by Purchaser of this Agreement, and the consummation of the
transactions contemplated hereby, have been duly authorized by its Board of
Directors and no other corporate action on the part of Purchaser is
19
necessary to authorize the execution and delivery by Purchaser of this Agreement
and the consummation by it of the transactions contemplated hereby. This
Agreement has been duly executed and delivered by Purchaser (and assuming due
and valid authorization, execution and delivery hereof by Seller and each
Company) is a valid and binding obligation of Purchaser and may be, enforceable
against it in accordance with its respective terms, except that (i) such
enforcement may be subject to applicable bankruptcy, insolvency, reorganization,
moratorium or other similar laws, now or hereafter in effect, affecting
creditors' rights generally and (ii) the remedy of specific performance and
injunctive and other forms of equitable relief may be subject to equitable
defenses and to the discretion of the court before which any proceeding therefor
may be brought.
SECTION 3.3 CONSENTS AND APPROVALS; NO VIOLATIONS. Except for (a)
filings pursuant to the HSR Act; (b) applicable requirements under the Exchange
Act; and (c) as described in this Agreement, neither the execution, delivery or
performance of this Agreement by Purchaser nor the consummation by Purchaser of
the transactions contemplated hereby will (i) violate any provision of the
articles of incorporation or by-laws of Purchaser; (ii) result in a violation or
breach of, or constitute (with or without due notice or lapse of time or both) a
default (or give rise to any right of termination, amendment, cancellation or
acceleration) under, or impair Purchaser's rights or alter the rights or
obligations of any third party under any of the terms, conditions or provisions
of any Contract to which Purchaser or any of its Subsidiaries is a party or by
which any of them or any of their properties or assets may be bound; (iii) to
the knowledge of Purchaser, violate any order, charge, writ, ruling, judgment,
injunction, decree, law, constitution, statute, rule, regulation or other
restriction applicable to Purchaser, any of its Subsidiaries or any of their
properties or assets or (iv) require on the part of Purchaser any filing or
registration with, notification to, or authorization, consent or approval of,
any Governmental Entity; except in the case of clauses (ii), (iii) or (iv) for
such violations, breaches or defaults which, or filings, registrations,
notifications, authorizations, consents or approvals, the failure of which to
obtain, would not, individually or in the aggregate, have a Purchaser Material
Adverse Effect and would not materially adversely affect the ability of
Purchaser to consummate the transactions contemplated by this Agreement.
SECTION 3.4 SUFFICIENT FUNDS. As of the date hereof, Purchaser has,
and on the Closing Date Purchaser will have, sufficient funds available (through
existing credit arrangements or otherwise) to enable it to consummate the
transactions contemplated by this Agreement.
SECTION 3.5 INVESTMENT PURPOSE. Purchaser is acquiring the Shares
solely for the purpose of investment and not with a view to, or for offer or
sale in connection with, any distribution thereof.
SECTION 3.6 BROKERS OR FINDERS. Purchaser represents, as to itself,
its Subsidiaries and its affiliates, that no agent, broker, investment banker,
financial advisor or other firm or person is or will be entitled to any brokers'
or finders' fee or any other commission or similar fee in connection with any of
the transactions contemplated by this Agreement.
SECTION 3.7 DISCLAIMER. Purchaser has not made and shall not be deemed
to have made to Seller or either Company any representation or warranty other
than those expressly made by Purchaser in this Article 3.
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ARTICLE 4
COVENANTS
SECTION 4.1 ACCESS TO INFORMATION.
(a) Seller shall cause each of the Companies to afford
Purchaser's officers, employees, accountants, counsel and other authorized
representatives full and complete access during normal business hours throughout
the period prior to the Closing Date or the date of termination of this
Agreement, to their respective officers, employees, agents and accountants,
properties, contracts, commitments, books and records (including but not limited
to Tax Returns) and to use their respective reasonable best efforts to cause
representatives to furnish promptly to Purchaser such additional financial and
operating data and other information as to their respective business and
properties as Purchaser or its duly authorized representatives may from time to
time reasonably request; PROVIDED, HOWEVER, that nothing herein shall require
either Seller or either Company to disclose any information to Purchaser if such
disclosure would be in violation of applicable laws or regulations of any
Governmental Entity or the provisions of any confidentiality agreement to which
either Seller or such Company is a party which is in effect on the date of this
Agreement and has been disclosed to Purchaser in the Disclosure Schedule.
(b) For a period of six years from the Closing Date, Purchaser
shall permit Seller, upon prior reasonable written request, to examine and make
copies of books, records, documents or information for purposes of defending any
litigation now pending or hereafter commenced against Seller in connection with
the business of either Company, or the preparation of income and other tax
returns. In addition, Purchaser shall make available to Seller, on a reasonable
basis and as reasonably requested from time to time by Seller, those persons and
documents relevant to the above-described matters for purposes of consultation
and/or testimony in connection therewith.
SECTION 4.2 TAX MATTERS.
(a) SECTION 338(h)(10). On or prior to the date that is sixty
(60) days after the Closing Date, Purchaser may request of Seller in writing
(the "ELECTION NOTICE") that Purchaser and Seller file a joint election with
respect to the purchase of the Shares under Section 338(h)(10) of the Code and
under any similar provisions of state, local or foreign law (the "ELECTIONS"),
and Seller shall agree to such request. The Election Notice shall specify each
state, local and foreign election to be made with respect to the acquisition of
the Shares by Purchaser. If Purchaser requests the Elections, as promptly as
practicable following the date of such Election Notice, (A) Seller and Purchaser
shall cooperate with each other to take all actions necessary and appropriate
(including filing such forms, returns, elections, schedules and other documents
as may be required) to effect and preserve timely Elections in accordance with
the provisions of Treasury Regulations Section 1.338(h)(10)-1 (or any comparable
provision of state or foreign law or any successor provision) and (B) Purchaser
and Seller shall mutually agree on the allocation of the Purchase Price
(including assumed liabilities and liabilities taken subject to) among the
assets of the Companies that are deemed to have been acquired pursuant to the
Elections. The allocation shall be prepared on the following principles: to all
tangible assets according to net book value as of the Closing Date, with
21
the remainder allocated to goodwill. Seller and Purchaser mutually agree that
the tax basis of the tangible personal property fairly approximates its fair
market value. Seller and Purchaser shall report the purchase by Purchaser of the
Shares pursuant to this Agreement consistent with the Elections and shall take
no position inconsistent therewith in any Tax Return, any proceeding before any
taxing authority or otherwise.
(b) SELLER INDEMNIFICATIONS.
(i) Seller shall be liable for, and shall
indemnify and hold Purchaser and the Companies harmless against,
all Taxes, including, without limitation, any Tax attributable to
the Elections (A) imposed on the Seller Group (as defined below)
or the Companies for any taxable year beginning before the
Closing and for which either Company is liable as a result of
filing a Tax Return on a consolidated, combined or unitary basis,
(B) imposed on either Company or for which either Company may
otherwise be liable for any taxable year or period that ends on
or before the Closing Date, and, with respect to any taxable year
or period beginning before and ending after the Closing Date, the
portion of such taxable year ending on and including the Closing
Date (except for Taxes attributable to extraordinary events
occurring outside of the ordinary course of business on the
Closing Date, but after the Closing), including, without
limitation, Taxes arising as a result of any Election or (C)
imposed on Purchaser or either Company as a result of Seller's
failure to comply with any of its obligations under this Section
4.2; and
(ii) in order to appropriately apportion any
income taxes relating to any taxable year or period beginning
before and ending after the Closing Date, the parties hereto
shall apportion such income taxes to the taxable period ending on
or before the Closing Date (the "INTERIM PERIOD") (Interim
Periods and Taxable Years or Periods that end on or prior to the
Closing Date being referred to as "PRE-CLOSING PERIODS") by a
closing of each Company's books as of the close of the Closing
Date, consistent with their past practice for reporting items,
except that exemptions, allowances or deductions that are
calculated on a time basis, such as the deduction for
depreciation, shall be apportioned on a time basis. In order to
appropriately apportion any non-income taxes relating to any
taxable year beginning before (and ending after) the Closing
Date, the parties hereto shall apportion such non-income taxes to
the Interim Period as follows: (A) AD VALOREM taxes (including,
without limitation, real and personal property taxes) shall be
accrued on a monthly basis over the Interim Period, or if it
cannot be determined over the period such taxes are being levied,
over the fiscal period of the relevant taxing authority, in each
case irrespective of the lien or assessment date of such taxes;
(B) all Taxes (other than the Taxes attributable to the Elections
described in Section 4.2(b)(i)) relating to actions outside the
ordinary course of business occurring after the Closing on the
Closing Date shall be apportioned to the period ending after the
Closing Date and (C) franchise and other privilege taxes not
measured by income shall be prorated on a monthly basis over the
period to which the privilege relates.
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As used in this Agreement, "SELLER GROUP" shall mean any
"affiliated group" (as defined in Section 1504(a) of the Code without regard to
the limitations contained in Section 1504(b) of the Code) that includes Seller
or any predecessor of or successor to Seller (or another such predecessor or
successor).
(c) COMPANIES' AND PURCHASER'S INDEMNIFICATION. Except as
otherwise provided in Section 4.2(b) hereof, Purchaser and the Companies shall
be liable for, and shall indemnify and hold Seller or any of its affiliates
harmless against (i) any and all Taxes imposed on either Company relating or
apportioned to any taxable year or Taxable Period other than a Pre-Closing
Period, (ii) any additional Taxes for which the Seller Group is liable
(including amounts owed by Seller on this indemnification payment) on account of
any transaction not in the ordinary course of business (other than the Election
and any transactions deemed to occur due to the Election) occurring on the
Closing Date or after the Closing or (iii) any and all Taxes imposed on Seller
or any member of the Seller Group as a result of Purchaser's failure to comply
with any of its obligations under this Section 4.2.
(d) REFUNDS OR CREDITS. Purchaser or a Company shall promptly pay
to Seller any refunds or credits of Taxes for which Seller may be liable under
Section 4.2(b) hereof. For purposes of this Section 4.2(d), the term "REFUND"
shall include a reduction in Taxes and the use of an overpayment of Taxes as an
audit or other Tax offset and receipt of a refund shall occur upon the filing of
a return or an adjustment thereto using such reduction, overpayment or offset,
or upon the receipt of cash. Upon the reasonable request of Seller, Purchaser
shall prepare and file, or cause to be prepared and filed, all claims for
refunds relating to such Taxes; PROVIDED, HOWEVER, that Purchaser shall not be
required to file such claims for refund to the extent such claims for refund
would have a Material Adverse Effect in future periods or to the extent the
claims for refund relate to a carryback of an item. Purchaser shall be entitled
to all other refunds and credits of Taxes; PROVIDED, HOWEVER, it will not allow
the amendment of any Tax Return relating to any Taxes for a Pre-Closing Period
(or portion thereof) or the carryback of an item to a period ending prior to
Closing without Seller's consent (which shall not be unreasonably withheld).
(e) ADJUSTMENTS TO PURCHASE PRICE. Any payment by Purchaser or
Seller under this Section 4.2 will be an adjustment to the Purchase Price.
(f) TAX RETURNS. Seller shall file or cause to be filed when due
all Tax Returns that are required to be filed by or with respect to the
Companies for taxable years or periods ending on or before the Closing Date and
shall remit any Taxes due in respect of such Tax Returns, and Purchaser shall
file or cause to be filed when due all Tax Returns that are required to be filed
by or with respect to the Companies for taxable years or periods ending after
the Closing Date and shall remit any Taxes due in respect of such Tax Returns.
No less than 10 days prior to the due date for filing any Tax Return with
respect to any Taxes for which Seller is liable pursuant to Section 4.2(b),
Purchaser shall provide written notice to Seller of the amount of such Taxes for
which Purchaser believes Seller is liable and shall set forth in such notice the
calculations for such amount in reasonable detail. If Seller disagrees with the
calculation of such Taxes set forth in such notice, it shall notify Purchaser of
such disagreement within 5 days after receipt of such notice. Seller and
Purchaser shall promptly resolve such disagreement, and Seller shall pay to
Purchaser the amount for which Seller is liable within 2 days after such
disagreement is resolved. If Seller agrees with
23
Purchaser's calculations, Seller shall pay the amount for which Seller is liable
at least 2 days prior to the due date for filing of such Tax Returns.
(g) MUTUAL COOPERATION. As soon as practicable, but in any event
within 30 days after either Seller's or Purchaser's request, as the case may be,
Purchaser shall deliver to Seller or Seller shall deliver to Purchaser, as the
case may be, such information and other data relating to the Tax Returns and
Taxes of the Companies and shall provide such other assistance as may reasonably
be requested, to cause the completion and filing of all Tax Returns or to
respond to audits by any taxing authorities with respect to any Tax Returns or
taxable periods or to otherwise enable Seller, Purchaser or the Companies to
satisfy their accounting or Tax requirements. For a period of six years from and
after the Closing, Purchaser and Seller shall, and shall cause their affiliates
to, maintain and make available to the other party, on such other party's
reasonable request, copies of any and all information, books and records
referred to in this Section 4.2(g). After such six-year period, Purchaser or
Seller may dispose of such information, books and records, provided that prior
to such disposition, Purchaser or Seller shall give the other party the
opportunity to take possession of such information, books and records. In
addition, Seller and Purchaser shall each (a) provide timely notice to the other
in writing of any pending or threatened Tax audits or assessments of either
Company for taxable periods for which the other may have a liability under this
Section 4.2 and (b) furnish the other with copies of all correspondence received
from any taxing authority in connection with any Tax audit or information
request with respect to any such taxable period.
(h) CONTESTS. Whenever any taxing authority asserts a claim,
makes an assessment or otherwise disputes the amount of Taxes for which Seller
is liable under this Agreement, Seller shall have the right to control any
resulting proceedings and to determine whether and when to settle any such
claim, assessment or dispute, except to the extent that such proceeding affects
the amount of Taxes for which Purchaser is liable under this Agreement. Whenever
any taxing authority asserts a claim, makes an assessment or otherwise disputes
the amount of Taxes for which Purchaser is liable under this Agreement,
Purchaser shall have the right to control any resulting proceedings and to
determine whether and when to settle any such claim, assessment or dispute,
except to the extent such proceedings affect the amount of Taxes for which
Seller is liable under this Agreement. Notwithstanding the foregoing, neither
Seller nor Purchaser, as the case may be, shall be entitled to settle, either
administratively or after the commencement of litigation, any claim for Taxes
which would adversely affect the liability for Taxes of the other party or
either Company for which the other party is liable (including, but not limited
to, the imposition of income tax deficiencies, the reduction of asset basis or
cost adjustments, the lengthening of any amortization or depreciation periods,
the denial of amortization or depreciation deductions, or the reduction of loss
or credit carryforwards) to the extent such settlement would have a material
adverse effect on the other party without the prior written consent of the other
party. Such consent shall not be unreasonably withheld, and shall not be
necessary to the extent that the party from which consent would normally be
required has been indemnified by the other party against the effects of any such
settlement.
With respect to claims for Taxes attributable to taxable periods
beginning on or before and ending after the Closing Date, the party with the
greatest potential liability for Taxes (either directly or by reason of Section
4.2(b)) with respect to such claim (the "CONTROLLING PARTY") shall control the
defense of such claim. The other party (the "NON-CONTROLLING PARTY") shall be
24
entitled to participate at its expense in the defense of any claim for Taxes for
a year or period ending after the Closing Date which may be the subject of
indemnification by the Non-Controlling Party pursuant to Section 4.2(b) and,
with the written consent of the Controlling Party, and at its sole expense, may
assume the entire defense of such tax claim. Neither the Controlling Party nor
either Company may agree to settle any tax claim for the portion of the year or
period ending on the Closing Date which may be the subject of indemnification by
the Non-Controlling Party under Section 4.2(b) without the prior written consent
of the Non-Controlling Party, which consent shall not be unreasonably withheld.
(i) RESOLUTION OF DISAGREEMENTS BETWEEN SELLER AND PURCHASER. If
either Seller or Purchaser disagrees as to the amount of Taxes for which either
Seller or Purchaser may be liable under this Agreement, either Seller or
Purchaser shall promptly consult each other in an effort to resolve such
dispute. If any such point of disagreement cannot be resolved within 60 days of
the date of consultation, all points of disagreement concerning Tax matters with
respect to this Agreement shall, at the election of either party, be submitted
to a "Big Five" accounting firm jointly selected by Purchaser and Seller (the
"NEUTRAL AUDITOR"). Each party agrees to execute, if requested by the Neutral
Auditor, a reasonable engagement letter. All fees and expenses of the Neutral
Auditor shall be borne equally by Seller and Purchaser. The Neutral Auditor
shall act as an arbitrator to determine, based solely on presentations by Seller
and Purchaser, only those issues remaining in dispute. The Neutral Auditor's
determination shall be made within 60 days of its engagement, shall be set forth
in a written statement delivered to Seller and Purchaser and shall be final and
binding on the parties hereto.
(j) ADDITIONAL LIMITATIONS ON TAX INDEMNIFICATION. If an audit
adjustment for a Pre-Closing Period (x) gives rise to an indemnity obligation
under Section 4.2(b)(i) and (y) is reasonably expected to reduce the taxable
income of an Indemnified Party for a taxable year or period beginning after the
Closing Date (such estimated reduction in taxable income is referred to herein
as a "POST-CLOSING TAX BENEFIT"), then the amount required to be indemnified by
Seller pursuant to Section 4.2(b)(i) shall be reduced by the "net present income
tax value" of such Post-Closing Tax Benefit. The "net present income tax value"
of a Post-Closing Tax Benefit shall be determined by using a discount rate equal
to 6.5%. For purposes of making this determination, the parties shall assume
that a Post-Closing Tax Benefit shall be realized by the relevant Indemnified
Party at the end of the taxable year or period in which such Post-Closing Tax
Benefit is reasonably expected to be available and that the relevant Indemnified
Party is subject to Federal income tax, and any applicable state and local
taxes, at the maximum rates provided by law for such taxable year or period and
shall take account of any adverse tax consequences on current, past or future
years on account of the indemnity payment, using substantially similar
principles.
(k) SURVIVAL OF OBLIGATIONS AND SOLE REMEDY. The obligations of
the parties set forth in this Section 4.2 shall be unconditional and absolute,
and shall remain in effect until the expiration of the applicable statute of
limitations and without limitation as to amount of recovery. Notwithstanding any
other provision of this Agreement to the contrary, the rights and obligations of
the parties with respect to indemnification for any and all maters relating to
Taxes shall be governed by this Section 4.2.
SECTION 4.3 EMPLOYEE BENEFITS.
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(a) Purchaser agrees that, effective as of the Closing Date and
until December 31, 2001, Purchaser shall provide Employees (as hereinafter
defined) on the Closing Date with employee benefits that are no less favorable
in the aggregate than those provided to Employees immediately prior to the date
hereof. With respect to any employee benefits that are provided to Employees
under Purchaser's employee benefit plans ("PURCHASER PLANS"), service accrued by
Employees during employment with the Companies prior to the Closing Date shall
be recognized for vesting, eligibility and, with respect to vacation and
severance pay, benefit accrual, except to the extent necessary to prevent
duplication of benefits. With respect to any medical, dental or other welfare
benefits that are provided at any time to Employees under Purchaser Plans,
Purchaser shall use its reasonable best efforts to (i) waive any applicable
pre-existing condition exclusions (except to the extent not satisfied under the
comparable Plan as of such time) and (ii) take into account under such Purchaser
Plan any expenses incurred before such time under the comparable Plan for
purposes of satisfying applicable deductible, coinsurance and maximum
out-of-pocket provisions.
(b) For purposes of this Section 4.3, the term "EMPLOYEES" shall
mean all employees of the Companies immediately prior to the Closing Date,
including (but only to the extent set forth on Section 4.3(b) of the Disclosure
Schedule) those on lay-off, disability or leave of absence, paid or unpaid.
(c) Notwithstanding anything to the contrary contained in this
Agreement, Employees shall be employees at will (unless a written employment
agreement to the contrary has been entered into with such Employee) and nothing
express or implied in this Agreement will obligate Purchaser to provide
continued employment to any Employee for any specific period of time following
the Closing Date. For notices and payments relating to events occurring prior to
the Closing Date, Seller and the Companies and their ERISA Affiliates shall be
responsible for any notices required to given to Employees pursuant to the
Worker Adjustment and Retraining Notification Act (the "WARN ACT"), Section
4980B of the Code and/or Section 402(f) of the Code, and for any payments or
benefits required pursuant to such laws or on account of violation of any
requirement of such laws.
(d) Purchaser and its affiliates (including the Companies) shall
be responsible for, and shall indemnify Seller and its affiliates and hold them
harmless against, any and all claims, liabilities and obligations arising from
or related to the employment or termination of the employment of an Employee on
or after the Closing Date. Without limiting the generality of the foregoing,
Purchaser shall be responsible and assume all liability for all notices or
payments due to any Employees, and all notices, payments, fines or assessments
due to any government authority, pursuant to any applicable Federal, state or
local law, common law, statute, rule or regulation with respect to the
employment, discharge or layoff of Employees on and after the Closing Date,
including, without limitation, the Warn Act and Section 4980B of the Code.
SECTION 4.4 PUBLICITY. The initial press releases with respect to the
execution of this Agreement, after mutual consultation, shall be acceptable to
both Purchaser and Seller. Thereafter, so long as this Agreement is in effect,
neither Purchaser nor Seller nor any of their respective affiliates shall issue
or cause the publication of any press release or public statement with respect
to the transactions contemplated hereby or this Agreement without the prior
agreement of
26
the other party, except as may be required by law or by any listing agreement
with a national securities exchange.
SECTION 4.5 APPROVALS AND CONSENTS; COOPERATION; NOTIFICATION.
(a) The parties hereto shall use their respective commercially
reasonable best efforts, and cooperate with each other, to obtain as promptly as
practicable all governmental and third party authorizations, approvals, consents
or waivers required in order to consummate the transactions contemplated by this
Agreement.
(b) The Companies, Seller and Purchaser each shall keep the
others apprized of the status of matters relating to completion of the
transactions contemplated hereby, including promptly furnishing the other with
copies of notices or other communications received by Purchaser or by either
Company or Seller, as the case may be, from any third party and/or any
Governmental Entity with respect to the transactions contemplated by this
Agreement.
(c) Seller shall give prompt notice to Purchaser of the
occurrence of any Material Adverse Effect, and Purchaser shall give prompt
notice to Seller of the occurrence of any Purchaser Material Adverse Effect.
SECTION 4.6 FURTHER ASSURANCES. Each of the parties hereto agrees
to use its respective commercially reasonable best efforts to take, or cause
to be taken, all action, and to do, or cause to be done, all things
necessary, proper or advisable under applicable laws and regulations to
consummate and make effective the transactions contemplated by this
Agreement. Each party hereto, at the reasonable request of the other party
hereto, will execute and deliver such other instruments and do and perform
such other acts and things as may be necessary or desirable for effecting
completely the consummation of the transactions contemplated hereby.
SECTION 4.7 TRANSFER TAXES. Notwithstanding anything to the
contrary contained herein, Purchaser shall be responsible for the timely
payment of all sales (including, without limitation, bulk sales), use, value
added, documentary, stamp, gross receipts, registration, transfer,
conveyance, excise, recording, license and other similar taxes and fees, if
any ("TRANSFER TAXES"), arising out of or in connection with or attributable
to the transactions effected pursuant to this Agreement. Purchaser shall
prepare and in a timely manner file all returns in respect of Transfer Taxes.
(a) Purchaser and Seller shall cooperate with each other in
attempting to minimize Transfer Taxes.
(b) Purchaser shall provide to Seller, and Seller shall provide
to Purchaser, all exemption certificates with respect to Transfer Taxes that may
be provided for under applicable law. Such certificates shall be in the form,
and shall be signed by the proper party, as provided under applicable law.
SECTION 4.8 INTERCOMPANY ACCOUNTS; GUARANTEES. Effective as of the
Closing Date (a) all intercompany receivables, payables and loans (excluding
trade credit incurred in the ordinary course of business) then existing
between Seller or any affiliate of Seller (other than the
27
Companies), on the one hand, and either Company on the other hand, shall be
settled by way of capital contribution in kind or by way of dividend in kind and
(b) all guarantees and any other obligations or liabilities by or from each
Company to Seller or regarding Seller's indebtedness to any Person (including
the guarantees of each Company to creditors of Seller pursuant to Seller's
credit facilities) shall be discharged, terminated or repaid in full.
SECTION 4.9 RESTRICTIVE COVENANTS.
(a) Seller hereby covenants and agrees that for two years after
the Closing Date (the "RESTRICTED PERIOD"), it will not engage in business as,
or own an interest in, directly or indirectly, any individual proprietorship,
partnership, corporation, joint venture, or any other form of business entity,
whether as a partner, shareholder, joint venturer or in any other manner
whatsoever, if such entity is engaged in whole or in part in the design of, or
consulting and research pertaining to, the packaging of corporate or consumer
products, including brochures and collateral documents that relate to such
package designs (the "BUSINESS") as conducted by the Companies on the date
hereof; PROVIDED, HOWEVER, that nothing contained in this paragraph shall be
deemed to prohibit Seller from owning 5% or less of the shares of a
publicly-held company engaged in any such business. For purposes of this
Agreement, the term "Business" shall not include (i) brand consulting and/or
brand research in connection with the design of promotional campaigns for
corporate or consumer products or (ii) the business currently conducted by
Seller's "Upshot" division so long as such business is currently conducted by
such division and (iii) the design and/or placement of corporate identification
or logos on products (apart from package design).
(b) In addition to the foregoing, Seller hereby covenants and
agrees that for three years after the Closing Date, it will not, directly or
indirectly, as principal, agent trustee or through the agency of any
corporation, partnership, association, agent or agency (i) employ (including to
retain, engage or conduct business with) or attempt to employ or assist anyone
else to employ any person who is then or at any time during the preceding year
was an employee (other than non-executive administrative personnel) of either
Company, (ii) solicit any of the Companies' Business from any customer of either
Company or (iii) request or advise any customer of either Company to withdraw,
curtail or cancel such customer's Business with either Company; PROVIDED that
nothing in this Section 4.9(b) shall prohibit Seller from general advertising or
other general solicitation of employees not specifically directed at employees
or customers of either Company.
(c) Seller agrees that, except as otherwise required by law or
the rules or listing agreement of any securities exchange on which Seller's
stock is then traded, it will not, for a period of three years after the date
hereof, disclose to any third party any confidential information or trade secret
of either Company or any client of either Company, or utilize such confidential
information or trade secret for the benefit of third parties. For purposes of
this clause (c), confidential information shall not include (i) information that
is or becomes generally available without any breach of this clause (c); (ii)
information independently developed by Seller outside of the operation of the
business of the Companies and (iii) information obtained from a third party
entitled to disclose it.
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(d) If Seller breaches any of the provisions of this Section 4.9,
Purchaser or either Company shall have the right to have the provisions of this
Agreement specifically enforced by any court having equity jurisdiction without
being required to post bond or other security and without having to prove the
inadequacy of the available remedies of law, it being acknowledged and agreed
that such breach or threatened breach will cause irreparable injury to the
applicable Company and that money damages will not provide an adequate remedy to
such Company. In addition, either Company or Purchaser may take all such other
actions and remedies available to it under law or in equity and shall be
entitled to such damages as it can show it has sustained by reason of such
breach.
(e) The parties acknowledge that the restrictive covenants above
are necessary in order to protect and maintain the trade secrets, business and
assets and goodwill acquired by Purchaser in connection with the purchase of the
Shares of the Companies pursuant to this Agreement and to prevent the usurpation
by Seller of all or any portion of the goodwill purchased by Purchaser under
this Agreement, and that the time, scope, geographic area and other provisions
of Section 4.9(a), (b) and (c) have been specifically negotiated by
sophisticated commercial parties and agree that all such provisions are
reasonable under the circumstances of the transactions contemplated by this
Agreement and are given as an integral and essential part of the transactions
contemplated by this Agreement. In the event that any covenant contained in
Section 4.9 shall be determined by any court of competent jurisdiction to be
unenforceable by reason of its extending for too great a period of time or over
too great a geographical area or by reason of its being too extensive in any
other respect, it shall be interpreted to extend only over the maximum period of
time for which it may be enforceable and/or over the maximum geographical area
as to which it may be enforceable, and/or to the maximum extent in all other
respects as to which it may be enforceable, all as determined by such court in
such action.
(f) Seller acknowledges that Purchaser and Seller intend to and
hereby confer jurisdiction to enforce the covenants contained in this Section
4.9 upon the courts of any state or any jurisdiction within the geographical
scope of such covenants in which a breach or alleged breach of a covenant
contained herein has occurred. In the event that the courts of one or more of
such states or other jurisdictions shall hold such covenants unenforceable (in
whole or in part) by reason of the breadth of such scope or otherwise, it is the
intention of the parties hereto that such determination not bar or in any way
affect the right of Purchaser or either Company to the relief provided above in
the courts of any other states or other jurisdictions within the geographical
scope of such covenants, as to breaches of such covenants in such other
respective states or other jurisdictions, the above covenants as they relate to
each other jurisdiction being, for this purpose, severable into diverse and
independent covenants.
ARTICLE 5
INDEMNIFICATION
SECTION 5.1 RELIANCE. Notwithstanding any right of any party hereto
fully to investigate the affairs of any other party, and notwithstanding any
knowledge of facts determined or determinable pursuant to such investigation
or right of investigation, each party hereto shall have the right to rely
fully upon the representations, warranties, covenants and agreements of the
other parties
29
contained in this Agreement and the Disclosure Schedule hereto, or in any
document delivered at the Closing in connection with this Agreement.
SECTION 5.2 OBLIGATION OF SELLER TO INDEMNIFY. Subject to the
provisions of Section 5.5, Seller hereby agrees to indemnify Purchaser and
its officers, directors and affiliates (including the Companies, but not
including any of Xxxxxx Xxxxxx, Xxxxxx Xxxxxx or Xxxxx Xxxxx with respect to
breaches of representations or warranties relating to the knowledge of any of
Xxxxxx Xxxxxx, Xxxxxx Xxxxxx or Xxxxx Xxxxx) (individually, a "PURCHASER
INDEMNIFIED PARTY" and collectively, the "PURCHASER INDEMNIFIED PARTIES")
against, and to protect, save and keep harmless the Purchaser Indemnified
Parties from, and to pay on behalf of or reimburse the Purchaser Indemnified
Parties as and when incurred for, any and all liabilities, obligations,
losses, damages, penalties, claims, actions, suits, judgments, settlements,
interest, out-of-pocket costs, expenses and disbursements (including
reasonable costs of investigation, and reasonable attorneys', accountants'
and expert witnesses' fees) of whatever kind and nature (collectively,
"LOSSES"), that may be imposed on or incurred by any Purchaser Indemnified
Party as a consequence of, in connection with, incident to, resulting from or
arising out of or in any way related to or by virtue of: (a) any
misrepresentation, inaccuracy or breach of any representation or warranty
contained in Article 2 hereof or in any certificate delivered by Seller at
the Closing; (b) any breach of or failure by Seller to comply with, perform
or discharge any obligation, agreement or covenant by Seller contained in
this Agreement and (c) any item set forth on Section 5.2(c) of the Disclosure
Schedule. The term "Losses" as used herein is not limited to matters asserted
by third parties against an Indemnified Party (as hereinafter defined) but
includes Losses incurred or sustained by an Indemnified Party in the absence
of third party claims; PROVIDED, HOWEVER that the term "Losses" as used
herein does not include special, consequential, incidental or punitive
damages. None of the provisions of this Article 5 shall apply to the claims,
obligations, liabilities, covenants and representations under Section 2.13 or
Section 4.2, which shall be governed solely by the terms of Section 4.2.
SECTION 5.3 OBLIGATION OF PURCHASER TO INDEMNIFY. Purchaser hereby
agrees to indemnify Seller and its officers, directors and affiliates
(individually, a "SELLER INDEMNIFIED PARTY" and collectively, the "SELLER
INDEMNIFIED PARTIES") against, and to protect, save and keep harmless the
Seller Indemnified Parties from, and to pay on behalf of or reimburse the
Seller Indemnified Parties as and when incurred for, any and all Losses that
may be imposed on or incurred by any Seller Indemnified Party as a
consequence of, in connection with, incident to, resulting from or arising
out of or in any way related to or by virtue of: (a) any misrepresentation,
inaccuracy or breach of any warranty or representation of Purchaser contained
in Article 3 hereof or in any certificate delivered by Purchaser at the
Closing; (b) any breach or failure by Purchaser to comply with, perform or
discharge any obligation, agreement or covenant by Purchaser contained in
this Agreement and (c) any occurrences or liabilities arising prior to the
Closing Date to the extent of reserves on the Financial Statements; PROVIDED
that, notwithstanding anything to the contrary contained herein, Purchaser's
indemnification obligations under this Section 5.3(c) shall not be subject to
the limitations set forth in Section 5.5 hereof. None of the provisions of
this Article 5 shall apply to the claims, obligations, liabilities, covenants
and representations under Section 2.13 or Section 4.2, which shall be
governed solely by the terms of Section 4.2.
SECTION 5.4 INDEMNIFICATION PROCEDURES.
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(a) NON-THIRD PARTY CLAIMS. In the event that any Person entitled
to indemnification under this Agreement (an "INDEMNIFIED PARTY") asserts a claim
for indemnification which does not involve a Third Party Claim (as hereinafter
defined) against which a Person is required to provide indemnification under
this Agreement (an "INDEMNIFYING PARTY"), the Indemnifying Party may acknowledge
and agree by notice to the Indemnified Party in writing to satisfy such claim
within 30 days of receipt of notice of such claim from the Indemnified Party. In
the event that the Indemnifying Party disputes such claim, the Indemnifying
Party shall provide written notice of such dispute to the Indemnified Party
within 30 days of receipt of written notice of such claim, setting forth a
reasonable basis of such dispute. In the event that the Indemnifying Party shall
fail to provide written notice to the Indemnified Party within 30 days of
receipt of notice from the Indemnified Party that the Indemnifying Party either
acknowledges and agrees to pay such claim or disputes such claim, the
Indemnifying Party shall be deemed to have acknowledged and agreed to pay such
claim in full and to have waived any right to dispute such claim. Once the
Indemnifying Party has acknowledged and agreed to pay any claim pursuant to this
Section 5.4(a), or once any dispute under this Section 5.4(a) has been finally
resolved in favor of indemnification by a court or other tribunal of competent
jurisdiction, the Indemnifying Party shall, subject to the provisions of Section
5.5, pay the amount of such claim to the Indemnified Party within 10 days of the
date of acknowledgment or resolution, as the case may be, to such account and in
such manner as is designated in writing by the Indemnified Party.
(b) Third Party Claims.
(i) In the event that any Indemnified Party
asserts a claim for indemnification or receives notice of the
assertion of any claim or of the commencement of any action or
proceeding by any Person who is not a party to this Agreement or
an affiliate of a party to this Agreement (a "THIRD PARTY CLAIM")
against an Indemnifying Party, the Indemnified Party shall give
written notice together with a statement of any available
information regarding such claim to the Indemnifying Party (the
"CLAIMS NOTICE") within 30 days after learning of such claim (or
within such shorter time as may be necessary to give the
Indemnifying Party a reasonable opportunity to respond to such
claim). The Indemnifying Party shall have the right, upon written
notice to the Indemnified Party (the "DEFENSE NOTICE") within 15
days after receipt from the Indemnified Party of the Claims
Notice, which Defense Notice shall specify the counsel it will
appoint to defend such claim ("DEFENSE COUNSEL"), to conduct at
its expense the defense against such Third Party Claim in its own
name, or if necessary in the name of the Indemnified Party;
PROVIDED, HOWEVER, that the Indemnified Party shall have the
right to approve the Defense Counsel, which approval shall not be
unreasonably withheld or delayed.
(ii) In the event that the Indemnifying Party
within such 15 day period fails to give the Defense Notice, the
Indemnified Party shall have the right to conduct the defense and
to compromise and settle such Third Party Claim without prior
consent of the Indemnifying Party, and the Indemnifying Party
will, subject to the provisions of Section 5.5, be liable for all
reasonable costs, expenses, settlement amounts or other Losses
paid or incurred in connection therewith.
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(iii) In the event that the Indemnifying Party
disputes the claim for indemnification against it, such
Indemnifying Party shall notify the Indemnified Party to such
effect within 30 days after receipt of the Claims Notice (or
within such shorter time as may be necessary to give the
Indemnified Party a reasonable opportunity to respond to such
Third Party Claim). In such event the Indemnified Party shall
have the right to conduct the defense and to compromise and
settle such Third Party Claim, with the prior consent of the
Indemnifying Party (which consent will not be unreasonably
withheld or delayed), and, once such dispute has been finally
resolved in favor of indemnification by a court or other tribunal
of competent jurisdiction or by mutual agreement of the
Indemnified Party and the Indemnifying Party, the Indemnifying
Party shall, subject to the provisions of Section 5.5, within 10
days of the date of such resolution or agreement, pay to the
Indemnified Party all reasonable costs, expenses, settlement
amounts or other Losses paid or incurred by the Indemnified Party
in connection with such Third Party Claim including the costs and
expenses (including, without limitation, reasonable attorneys
fees and expenses) incurred by the Indemnified Party in obtaining
indemnification hereunder.
(iv) In the event that the Indemnifying Party does
deliver a Defense Notice and thereby elects to conduct the
defense of the Third Party Claim, the Indemnifying Party shall be
entitled to have the exclusive control over the defense of the
Third Party Claim and the Indemnified Party will cooperate in
good faith with and make available to the Indemnifying Party such
assistance and materials as it may reasonably request, all at the
expense of the Indemnifying Party. The Indemnified Party shall
have the right at its expense to participate in the defense
assisted by counsel of its own choosing. The Indemnifying Party
will not settle the Third Party Claim or cease to defend against
such Third Party Claim as to which it has delivered a Defense
Notice without the prior written consent of the Indemnified
Party, which consent will not be unreasonably withheld or
delayed; PROVIDED, HOWEVER, such consent may be withheld for any
reason if, as a result of such settlement or cessation of defense
(A) injunctive relief or specific performance would be imposed
against the Indemnified Party or (B) such settlement or cessation
would lead to liability or create any financial or other
obligation on the part of the Indemnified Party for which the
Indemnified Party is not entitled to indemnification hereunder.
(v) If an Indemnified Party refuses to consent to
a bona fide offer of settlement which provides for a full release
of the Indemnified Party and its affiliates relating to the
claims underlying the offer of settlement and solely for a
monetary payment which the Indemnifying Party wishes to accept,
the Indemnified Party may continue to pursue such matter, free of
any participation by the Indemnifying Party, at the sole expense
of the Indemnified Party. In such an event, the obligation of the
Indemnifying Party shall be limited to the amount of the offer of
settlement which the Indemnified Party refused to accept plus the
reasonable costs and expenses of the Indemnified Party incurred
prior to the date the Indemnifying Party notified the Indemnified
Party of the offer of settlement.
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(vi) Notwithstanding clause (iv) above, the
Indemnifying Party shall not be entitled to control, but may
participate in, and the Indemnified Party shall be entitled to
have sole control over, the defense or settlement of any claim
(A) that seeks a temporary restraining order, a preliminary or
permanent injunction or specific performance against the
Indemnified Party; (B) to the extent such claim involves criminal
allegations against the Indemnified Party; (C) that if
unsuccessful, would set a precedent that would have a material
adverse effect on the business or financial condition of the
Indemnified Party; or (D) if such claim would impose liability on
the part of the Indemnified Party in an amount which is greater
than the amount as to which the Indemnified Party is entitled to
indemnification under this Agreement. In the event the
Indemnified Party retains control of any Third Party Claim, the
Indemnified Party will not settle the subject claim without the
prior written consent of the Indemnifying Party, which consent
will not be unreasonably withheld or delayed.
(vii) Any final judgment entered or settlement
agreed upon in the manner provided herein shall be binding upon
the Indemnifying Party, and shall conclusively be deemed to be an
obligation with respect to which the Indemnified Party is
entitled to prompt indemnification hereunder.
(viii) A failure by an Indemnified Party to give
timely, complete or accurate notice as provided in this Section
5.4 will not affect the rights or obligations of any party
hereunder except and only to the extent that, as a result of such
failure, any party entitled to receive such notice was deprived
of its right to recover any payment under its applicable
insurance coverage or was otherwise directly and materially
damaged as a result of such failure to give timely notice.
(c) TREATMENT. All parties to this Agreement agree that any
indemnification by Seller of Purchaser or by Purchaser of Seller hereunder is
intended to be, and shall be, treated by each of such parties as an adjustment
to the Purchase Price for all purposes (including tax purposes).
(d) ADJUSTMENT FOR INSURANCE AND TAXES. The amount which an
Indemnifying Party is required to pay to, for or on behalf of any Indemnified
Party pursuant to this Article 5 shall be adjusted (including, without
limitation, retroactively) (i) by any insurance proceeds actually recovered by
or on behalf of such Indemnified Party in reduction of the related indemnifiable
loss (the "INDEMNIFIABLE LOSS") and (ii) to take account of any cash tax benefit
realized as a result of any Indemnifiable Loss. Amounts required to be paid, as
so reduced, are hereinafter sometimes called an "INDEMNITY PAYMENT." If an
Indemnified Party shall have received or shall have had paid on its behalf an
Indemnity Payment in respect of an Indemnifiable Loss and shall subsequently
receive insurance proceeds in respect of such Indemnifiable Loss, or realize any
tax benefit as a result of such Indemnifiable Loss, then the Indemnified Party
shall pay to the Indemnifying Party the amount of such insurance proceeds or tax
benefit or, if lesser, the amount of the Indemnity Payment.
SECTION 5.5 LIMITATIONS ON AND OTHER MATTERS REGARDING
INDEMNIFICATION.
33
(a) INDEMNIFY CUSHION AND CAP. Subject to the proviso which
follows and Section 5.5(c) below, Seller shall not have any liability to any
Purchaser Indemnified Party with respect to Losses arising out of any of the
matters referred to in Section 5.2 until such time as the amount of such
liability shall exceed three hundred seventy-five thousand dollars ($375,000) in
the aggregate (in which case Seller shall be liable for all Losses in excess of
three hundred seventy-five thousand dollars ($375,000)); provided, however, that
the foregoing "cushion" or "deductible" shall not apply to any breach of the
representation and warranty contained in Section 2.27 pertaining to certain
Closing Date balance sheet items. Notwithstanding anything to the contrary set
forth herein, the aggregate liability of Seller for indemnity payments under
Section 5.2 shall not exceed twenty-five percent (25%) of the aggregate Purchase
Price.
(b) SURVIVAL. Subject to Section 5.5(c) below, the several
representations and warranties of the parties contained in this Agreement or in
any instrument delivered pursuant hereto will survive the Closing Date and will
remain in full force and effect thereafter for a period of 12 months from the
Closing Date, except (i) as to matters as to which any Purchaser Indemnified
Party has made a claim for indemnification or given a Claims Notice under
Section 5.4 hereof on or prior to such date and (ii) with respect to any claim
for Losses pertaining to a misrepresentation or a breach of representation or
warranty under Sections 2.2, 2.4, 2.5 or 2.10. The matters referred to in (A)
the preceding clause (i) shall survive the expiration of such period until such
claim for indemnification is finally resolved and any obligations with respect
thereto are fully satisfied; and (B) the preceding clause (ii) shall terminate
180 days after the expiration of the relevant Federal, state or local statute of
limitations (taking into account any extensions or waivers thereof), except as
to matters as to which any Indemnified Party made a claim for indemnification on
or prior to such date, in which case such matters shall survive the expiration
of any such period until such claim for indemnification is finally resolved and
any obligations with respect thereto are fully satisfied.
(c) EXCEPTIONS. Each of the limitations set forth above in this
Section 5.5 shall in no event (i) apply to any Losses incurred by a Purchaser
Indemnified Party which relate, directly or indirectly, to (A) any fraudulent
acts committed by Seller in connection with the transactions contemplated
hereby; (B) any breach of a representation or warranty contained in Section
2.18; (C) any indemnification obligations under Section 5.2(b) and (D) Seller's
obligations set forth in Section 6.13 to pay certain expenses; or (ii) apply to
any Losses incurred by a Seller Indemnified Party which relate, directly or
indirectly, to (A) any fraudulent acts committed by Purchaser in connection with
the transactions contemplated hereby; (B) any indemnification obligations under
Section 5.3(b) and (C) Purchaser's obligations set forth in Section 6.13 to pay
certain expenses.
ARTICLE 6
MISCELLANEOUS
SECTION 6.1 AMENDMENT AND MODIFICATION. This Agreement may only be
amended, modified and supplemented by written agreement of the parties hereto.
SECTION 6.2 NOTICES. All notices, consents and other communications
hereunder shall be in writing and shall be deemed to have been duly given (a)
when delivered by
34
hand or by Federal Express or a similar overnight courier to; (b) 5 days after
being deposited in any United States Post Office enclosed in a postage prepaid,
registered or certified envelope addressed to or (c) when successfully
transmitted by telecopier (with a confirming copy of such communication to be
sent as provided in clauses (a) or (b) above) to, the party for whom intended,
at the address or telecopier number for such party set forth below (or at such
other address or telecopier number for a party as shall be specified by like
notice, provided, however, that any notice of change of address or telecopier
number shall be effective only upon receipt):
if to Purchaser, to:
LAGA, Inc.
c/o Xxxxx Xxxxxxx Equity Partners
Sears Tower
000 Xxxxxx Xxxxx, Xxxxx 0000
Xxxxxxx, XX 00000
Telephone No.: (000) 000-0000
Telecopy No.: (000) 000-0000
Attention: Xxx Xxxxxxxx
with a copy (which shall not constitute notice) to:
Xxxxx & Xxxxxxx L.L.P.
000 Xxxxxxxxxx Xxxxxx, XX
Xxxxxxxxxx, X.X. 00000
Telephone No.: (000) 000-0000
Telecopy No.: (000) 000-0000
Attention: X. Xxxxx Xxxx, Esq.
if to Seller, to:
Ha-Lo Industries, Inc.
0000 Xxxx Xxxxx Xxxxxx
Xxxxx, Xxxxxxxx 00000
Telephone No.: (000) 000-0000
Telecopy No.: (000) 000-0000
Attention: Xxxxxxx X. Xxxxxx
with a copy to:
Skadden, Arps, Slate, Xxxxxxx &
Xxxx (Illinois)
000 Xxxx Xxxxxx Xxxxx
Xxxxxxx, Xxxxxxxx 00000
Telephone No.: (000) 000-0000
Facsimile No.: (000) 000-0000
Attention: Xxxxxxx X. Xxxxxx, Esq.
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SECTION 6.3 INTERPRETATION. The words "hereof," "herein" and
"herewith" and words of similar import shall, unless otherwise stated, be
construed to refer to this Agreement as a whole and not to any particular
provision of this Agreement, and article, section, paragraph, exhibit and
schedule references are to the articles, sections, paragraphs, exhibits and
schedules of this Agreement unless otherwise specified. Whenever the words
"include," "includes" or "including" are used in this Agreement they shall be
deemed to be followed by the words "without limitation." The words describing
the singular number shall include the plural and vice versa, and words
denoting any gender shall include all genders and words denoting natural
persons shall include corporations and partnerships and vice versa. The
phrase "to the knowledge of Seller" or any similar phrase shall mean such
facts and other information which as of the date of determination are
actually known to any of Xxxx Xxxxxx, Xxxxxx Xxxxxx, Xxxxxx Xxxxxx or Xxxxx
Xxxxx and, unless otherwise stated, such knowledge as would have been
discovered by such officers and directors after reasonable inquiry. The
phrases "the date of this Agreement," "the date hereof" and terms of similar
import, unless the context otherwise requires, shall be deemed to refer to
May 25, 2001. As used in this Agreement, the term "affiliate(s)" shall have
the meaning set forth in Rule l2b-2 of the Exchange Act. As used in this
Agreement, the term "BUSINESS DAY" means a day, other than a Saturday or a
Sunday, on which banking institutions in The City of New York are required to
be open. The parties have participated jointly in the negotiation and
drafting of this Agreement. In the event an ambiguity or question of intent
or interpretation arises, this Agreement shall be construed as if drafted
jointly by the parties and no presumption or burden of proof shall arise
favoring or disfavoring any party by virtue of the authorship of any
provisions of this Agreement.
SECTION 6.4 COUNTERPARTS; FACSIMILE. This Agreement may be executed
in multiple counterparts, each of which shall be deemed an original but all
of which shall together be considered one and the same agreement. Each party
to this Agreement agrees that it will be bound by its own telecopied
signature and that it accepts the telecopied signature of each other party to
this Agreement.
SECTION 6.5 ENTIRE AGREEMENT; THIRD PARTY BENEFICIARIES. This
Agreement (including the documents and the instruments referred to herein),
the confidentiality agreement between Seller and Xxxxx Xxxxxxx Equity
Partners, and the Disclosure Schedule (a) constitute the entire agreement and
supersede all prior agreements and understandings, both written and oral,
among the parties with respect to the subject matter hereof, and (b) except
as provided herein, are not intended to confer upon any person other than the
parties hereto any rights or remedies hereunder.
SECTION 6.6 SEVERABILITY. If any term, provision, 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, the remainder of the terms, provisions, covenants and restrictions of
this Agreement shall remain in full force and effect and shall in no way be
affected, impaired or invalidated.
SECTION 6.7 GOVERNING LAW. This Agreement shall be governed and
construed in accordance with the laws of the State of Delaware applicable to
contracts to be made and performed entirely therein without giving effect to
the principles of conflicts of law thereof or of any other jurisdiction.
36
SECTION 6.8 WAIVER OF JURY TRIAL. EACH PARTY HEREBY WAIVES ITS
RESPECTIVE RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON
OR ARISING OUT OF THIS AGREEMENT OR ANY DEALINGS BETWEEN THEM RELATING TO THE
SUBJECT MATTER OF THIS AGREEMENT AND THE RELATIONSHIP THAT IS BEING
ESTABLISHED. THE SCOPE OF THIS WAIVER IS INTENDED TO BE ALL-ENCOMPASSING OF
ANY AND ALL DISPUTES THAT MAY BE FILED IN ANY COURT AND THAT RELATE TO THE
SUBJECT MATTER OF THIS AGREEMENT, INCLUDING, WITHOUT LIMITATION, CONTRACT
CLAIMS, TORT CLAIMS, BREACH OF DUTY CLAIMS, AND ALL OTHER COMMON LAW AND
STATUTORY CLAIMS. THE PARTIES ACKNOWLEDGE THAT THIS WAIVER IS A MATERIAL
INDUCEMENT TO ENTER INTO A BUSINESS RELATIONSHIP, THAT EACH PARTY HAS ALREADY
RELIED ON THE WAIVER IN ENTERING INTO THIS AGREEMENT AND THAT EACH PARTY WILL
CONTINUE TO RELY ON THE WAIVER IN THEIR RELATED FUTURE DEALINGS. EACH PARTY
FURTHER WARRANTS AND REPRESENTS IT HAS REVIEWED THIS WAIVER WITH ITS LEGAL
COUNSEL, AND THAT EACH KNOWINGLY AND VOLUNTARILY WAIVES ITS JURY TRIAL RIGHTS
FOLLOWING CONSULTATION WITH LEGAL COUNSEL. THIS WAIVER IS IRREVOCABLE,
MEANING THAT IT MAY NOT BE MODIFIED EITHER ORALLY OR IN WRITING, AND THE
WAIVER SHALL APPLY TO ANY SUBSEQUENT AMENDMENTS, RENEWALS, SUPPLEMENTS OR
MODIFICATIONS TO THIS AGREEMENT OR TO ANY OTHER DOCUMENTS OR AGREEMENTS
RELATING TO THE TRANSACTION CONTEMPLATED HEREBY. IN THE EVENT OF LITIGATION,
THIS AGREEMENT MAY BE FILED AS A WRITTEN CONSENT TO A TRIAL BY THE COURT.
SECTION 6.9 JURISDICTION. Each of the parties hereto hereby expressly
and irrevocably submits to the non-exclusive personal jurisdiction of the
United States District Court for the District of Delaware, and to the
jurisdiction of any other competent court of the State of Delaware
(collectively, the "DELAWARE COURTS"), preserving, however, all rights of
removal to such federal court under 28 U.S.C. Section 1441, in connection
with all disputes arising out of or in connection with this Agreement or the
transactions contemplated hereby and agrees not to commence any litigation
relating thereto except in such courts. If the aforementioned courts do not
have subject matter jurisdiction, then the proceeding shall be brought in any
other state or federal court located in the State of Delaware, preserving,
however, all rights of removal to such federal court under 28 U.S.C. Section
1441. Each party hereby waives the right to any other jurisdiction or venue
for any litigation arising out of or in connection with this Agreement or the
transactions contemplated hereby to which any of them may be entitled by
reason of its present or future domicile. Notwithstanding the foregoing, each
of the parties hereto agrees that each of the other parties shall have the
right to bring any action or proceeding for enforcement of a judgment entered
by the Delaware Courts in any other court or jurisdiction.
SECTION 6.10 SERVICE OF PROCESS. Each party irrevocably consents to
the service of process outside the territorial jurisdiction of the courts
referred to in Section 6.9 hereof in any such action or proceeding by mailing
copies thereof by registered United States mail, postage prepaid, return
receipt requested, to its address as specified in or pursuant to Section 6.2
hereof. However, the foregoing shall not limit the right of a party to effect
service of process on the other party by any other legally available method.
37
SECTION 6.11 SPECIFIC PERFORMANCE. Each of the parties hereto
acknowledges and agrees that in the event of any breach of this Agreement,
each non-breaching party would be irreparably and immediately harmed and
could not be made whole by monetary damages. It is accordingly agreed that
the parties hereto (a) will waive, in any action for specific performance,
the defense of adequacy of a remedy at law and (b) shall be entitled, in
addition to any other remedy to which they may be entitled at law or in
equity, to compel specific performance of this Agreement in any action
instituted in accordance with Section 6.9 hereof.
SECTION 6.12 ASSIGNMENT. Neither this Agreement nor any of the
rights, interests or obligations hereunder shall be assigned by any of the
parties hereto (whether by operation of law or otherwise) without the prior
written consent of the other parties, except that Purchaser shall have the
right to assign its rights and/or obligations pursuant to this Agreement to
any affiliate of Purchaser, provided that upon any such assignment such
assignee agrees in writing to be bound by the terms of this Agreement and
Purchaser remains bound by the terms of this Agreement, and any such assignee
shall be deemed included within the defined term "Purchaser" for purposes of
this Agreement. Subject to the preceding sentence, this Agreement will be
binding upon, inure to the benefit of and be enforceable by the parties and
their respective permitted successors and assigns.
SECTION 6.13 EXPENSES. Except as otherwise provided herein, all costs
and expenses (including all legal, accounting, broker, finder and investment
banker fees) incurred in connection with the transactions contemplated
hereby, this Agreement, each of the other documents and instruments executed
in connection therewith and the consummation of the transactions contemplated
hereby shall be paid by the party incurring such costs and expenses, whether
or not the transactions contemplated hereby is consummated.
SECTION 6.14 HEADINGS. Headings of the Articles and Sections of this
Agreement, the Table of Contents and the Index of Defined Terms are for
convenience of the parties only, and shall be given no substantive or
interpretative effect whatsoever.
SECTION 6.15 WAIVERS. Except as otherwise provided in this Agreement,
any failure of any of the parties to comply with any obligation, covenant,
agreement or condition herein may be waived (either generally or in a
particular instance and either retroactively or prospectively) by the party
or parties entitled to the benefits thereof only by a written instrument
signed by the party granting such waiver, but such waiver or failure to
insist upon strict compliance with such obligation, covenant, agreement or
condition shall not operate as a waiver of, or estoppel with respect to, any
subsequent or other failure. No waiver by any party of any default,
misrepresentation, or breach of warranty or covenant hereunder, whether
intentional or not, shall be deemed to extend to any prior or subsequent
default, misrepresentation or breach of warranty or covenant hereunder or
affect in any way any rights arising by virtue of any prior or subsequent
such occurrence.
SECTION 6.16 SCHEDULES. The Disclosure Schedule shall be construed
with and as an integral part of this Agreement to the same extent as if the
same had been set forth verbatim herein. Any matter disclosed pursuant to the
Disclosure Schedule shall be deemed to be disclosed for all purposes under
this Agreement but such disclosure shall not be deemed to be an admission or
representation as to the materiality of the item so disclosed.
38
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
signed by their respective officers thereunto duly authorized as of the date
first written above.
HA-LO INDUSTRIES, INC.
By:
-----------------------------------
Name:
Title:
LAGA, INC.
By:
-----------------------------------
Name:
Title:
ANNEX A
SHARES OF LAGA AND NAPA
LAGA
1000 shares of common stock, no par value
NAPA
300 shares of common stock, no par value
A-1
ANNEX B
INDEX OF DEFINED TERMS
Defined in
Terms Section
----- -------------
Agreement........................................................................... Preamble
Balance Sheet Date.................................................................. 2.9
Business............................................................................ 4.9
business day........................................................................ 6.3
change in accounting principles..................................................... 1.3(a)
Claims Notice....................................................................... 5.4(b)(i)
Closing............................................................................. 1.6(a)
Closing Date........................................................................ 1.6(a)
Code................................................................................ 2.10(b)
Companies........................................................................... Preamble
Company............................................................................. Preamble
Company Permits..................................................................... 2.12
Contingent Payment.................................................................. 1.2
Contract............................................................................ 2.6
Controlling Party................................................................... 4.2(h)
Defense Counsel..................................................................... 5.4(b)(i)
Defense Notice...................................................................... 5.4(b)(i)
Delaware Courts .................................................................... 6.9
Disclosure Schedule................................................................. 2.1
Election Notice..................................................................... 4.2(a)
Elections........................................................................... 4.2(a)
Employee Agreements................................................................. 2.9(a)
Employees........................................................................... 4.3(c)
Encumbrances........................................................................ 1.1
Environmental Claims................................................................ 2.15(b)
Environmental Laws ................................................................. 2.15(a)
ERISA............................................................................... 2.10(a)
ERISA Affiliate..................................................................... 2.10(c)
Closing Balance Sheet............................................................... 1.6(d)(v)
Exchange Act........................................................................ 2.6
Financial Statements................................................................ 2.7
Fixed Purchase Price................................................................ 1.2
GAAP................................................................................ 2.7
Governmental Entity................................................................. 2.6
HSR Act............................................................................. 2.6
Indemnified Party................................................................... 5.4(a)
Indemnifying Party.................................................................. 5.4(a)
B-1
Defined in
Terms Section
----- -------------
Indemnifiable Loss.................................................................. 5.4(d)
Indemnity Payment................................................................... 5.4(d)
Intellectual Property............................................................... 2.14
Interim Period...................................................................... 4.2(b)(ii)
Key Employees....................................................................... 1.6(d)(iii)
LAGA................................................................................ Preamble
Losses.............................................................................. 5.2
Material Adverse Effect............................................................. 2.1
Most Recent Balance Sheet........................................................... 2.7
NAPA................................................................................ Preamble
net present income tax value........................................................ 4.2(j)
Neutral Auditor..................................................................... 4.2(i)
Non-Controlling Party............................................................... 4.2(h)
Notice of Objection................................................................. 1.3(b)
PBGC................................................................................ 2.10(g)
Period.............................................................................. 1.2
Permitted Encumbrances.............................................................. 2.17
Person.............................................................................. 2.3
Plan(s)............................................................................. 2.10(a)
Post-Closing Tax Benefit............................................................ 4.2(j)
Pre-Closing Periods................................................................. 4.2(b)(ii)
Prime Rate.......................................................................... 1.4
Purchase Price...................................................................... 1.2
Purchaser........................................................................... Preamble
Purchaser Indemnified Parties....................................................... 5.2
Purchaser Indemnified Party......................................................... 5.2
Purchaser Material Adverse Effect................................................... 3.1
Purchaser Plans..................................................................... 4.3(a)
refund.............................................................................. 4.2(d)
Related Group....................................................................... 2.23
Resolution Period................................................................... 1.3(b)
Restricted Period................................................................... 4.9(a)
Seller.............................................................................. Preamble
Seller Group........................................................................ 4.2(b)
Seller Indemnified Parties.......................................................... 5.3
Seller Indemnified Party............................................................ 5.3
Shares.............................................................................. Preamble
Statement of Contingent Payment..................................................... 1.3(a)
Subsidiary.......................................................................... 3.1
Taxes............................................................................... 2.13(h)
Tax Return.......................................................................... 2.13(h)
Third Party Claim................................................................... 5.4(b)(i)
B-2
Defined in
Terms Section
----- -------------
Title IV Plan....................................................................... 2.10(g)
Transfer Taxes...................................................................... 4.7
WARN Act............................................................................ 4.3(d)
B-3
ANNEX C
INDEX TO DISCLOSURE SCHEDULE
Title Section
----- --------
Resignations 1.6(b)(v)
Estimated Closing Balance Sheet 1.6(d)(v)
Organization 2.1
Capitalization 2.2
Subsidiaries and Investments 2.3
Ownership of Shares 2.4
Consents and Approvals; No Violations 2.6
Most Recent Balance Sheet 2.7
Financial Statements 2.7
No Undisclosed Liabilities 2.8
Arrangements for Borrowed Money 2.8
Absence of Certain Changes 2.9
ERISA: Employee Benefit Plans and Similar Agreements 2.10(a)
ERISA: No Severance Payments or Change-in-Control Benefits 2.10(b)
ERISA: No Post-Termination Benefits 2.10(d)
ERISA: No Material Liability 2.10(e)
Litigation 2.11
No Default; Compliance With Applicable Laws 2.12
Taxes: Timely Filing and Payment 2.13(a)
Taxes: No Material Audits 2.13(b)
Taxes: No Waivers of Statutory Periods of Limitations 2.13(c)
Taxes: No Allocation Agreements 2.13(d)
Taxes: No Material Liens 2.13(e)
Taxes: No Liability 2.13(g)
Intellectual Property 2.14
Environmental Laws and Regulations 2.15
Contracts 2.16(a)
Status of Contracts 2.16(b)
Title to Assets 2.17
Brokers or Finders 2.18
Owned Real Property 2.19(a)
Leased Real Property 2.19(b)
Client Relations 2.20
Prepayment for Services 2.21
Interests in Customers, Suppliers, Etc. 2.23
Employees 2.24
Employees on Sick Leave, Etc. 4.3(b)
Indemnification by Seller 5.2(c)
C-1
ANNEX D
DETERMINATION OF CONSOLIDATED ADJUSTED EBITDA
AND AMOUNT OF CONTINGENT PAYMENT
I. CALCULATION OF CONSOLIDATED ADJUSTED EBITDA
For the purposes of the Stock Purchase Agreement dated as of May ___,
2001 (the "AGREEMENT"), by and between, LAGA, INC., a Delaware corporation (the
"PURCHASER") and HA-LO INDUSTRIES, INC., a Delaware corporation ("SELLER"), the
sole shareholder of Xxxxxx Associates, Inc., an Ohio corporation ("LAGA") and CF
NAPA Design, INC., a California corporation ("NAPA"; LAGA and NAPA are sometimes
referred individually as a Company and collectively as the "Companies"),
adjusted earnings before interest, taxes, depreciation and amortization of the
Companies on a consolidated basis for the Period ("CONSOLIDATED ADJUSTED
EBITDA") shall be determined in accordance with this ANNEX D. The term
"Business" as used in this ANNEX D means the business and assets of the
Companies acquired pursuant to the Agreement. Except as specifically provided in
this ANNEX D, the Business shall not include any other business or assets of any
other business entity owned by Purchaser or acquired by Purchaser during the
term of the Period unless otherwise agreed in writing by Seller and Purchaser.
Any capitalized term not defined in this ANNEX D shall have the meaning
ascribed to such term in the Agreement.
A. There shall first be determined the consolidated revenues of the
Companies for the Period, calculated in accordance with GAAP. Revenues shall
reflect such charges and credits to reserve accounts with respect to WIP as
shall be deemed necessary under GAAP and shall exclude interest income. However,
revenues shall not reflect the adjustments recorded in the amount of $112,000
and -$500,000 in respect of revenues which had been previously reflected in the
audited consolidated balance sheet as at December 31, 2000.
B. There shall then be determined the "expenses" of the Business for
the Period. For this purpose, "expenses" shall consist of those expenses
incurred by the Business which are allocable to the Period calculated on the
accrual method of accounting, in accordance with GAAP, applied on a basis
consistent with that employed by the Business in arriving at net income for
accounting purposes, subject to the following provisions and exceptions:
1. Expenses shall include the following:
(a) The usual operating and general
administrative costs and expenses incurred by the Business (including all
employment salaries and benefits) applicable to income earned in the Period as
determined in accordance with GAAP and consistent with past practices of the
Business prior to the Closing Date, and shall exclude prepaid expenses with
respect to any income which is to be realized in a subsequent period except that
portion applicable to the Period according to GAAP.
D-1
(b) The aggregate amount of all taxes (other
than Federal and state and local income taxes) imposed on the Business with
respect to the Period.
(c) Workers' compensation expenses computed
based upon the existing experience modifier of the Companies.
(d) The allocable portion of all direct
operating expenses paid to third parties by Purchaser or any of its affiliates
(as defined in Section 6.3 of the Agreement) on behalf of the Companies.
(e) Accruals for bonuses payable to employees
and consultants.
2. Expenses shall not include any expense related to (i) any
management fees paid to Purchaser or any of its affiliates, (ii) depreciation,
amortization, or other expenses associated with, or as a result of, the
acquisition of the Shares, (iii) material expenses associated with any
unbudgeted new ventures or acquisitions by the Companies, (iv) Purchaser's
general overhead and administrative expenses; PROVIDED, HOWEVER, that expenses
shall include charges for costs and expenses of specific services provided by
Purchaser or its affiliates to the Companies, (v) interest expense, (vi)
extraordinary gain or loss on the sale or disposition of assets, and (vii) the
adjustments recorded in the amount of -$16,851, -$12,000, $66,284 and $135,000
in respect of expenses which had been previously reflected in the audited
consolidated balance sheet as at December 31, 2000.
3. Expenses shall reflect such charges and credits to reserve
accounts with respect or uninsured casualty losses and accounts receivable as
shall be deemed necessary under GAAP.
C. There shall then be subtracted from the revenues of the Business for
the Period, as determined pursuant to SECTION I.A hereof, the "expenses" of the
Business for the Period as determined pursuant to SECTION I.B hereof, and the
difference shall constitute the "Consolidated Adjusted EBITDA" of the Period.
II. CALCULATION OF CONTINGENT PURCHASE PRICE
The Contingent Payment shall be equal to the product of (i) the amount
by which Consolidated Adjusted EBITDA for the Period exceeds five million
dollars ($5,000,000), MULTIPLIED BY (ii) five (5); PROVIDED, HOWEVER, that in no
event shall the Contingent Payment exceed one million five hundred fifty
thousand dollars ($1,550,000).
D-2
