EXHIBIT 2C
PURCHASE AND SALE AGREEMENT
This Agreement is made and entered into as of the 31st day of January,
1996, by and between Vaughn Communications, Inc. a Minnesota corporation with
its principal offices in Minneapolis, Minnesota ("Buyer"), and Indian Arts and
Crafts, Inc., a Washington corporation with its principal offices in Seattle,
Washington ("Seller") or ("Company"), and Howard Lowen, Jeanette Lowen, Janice
Lowen, Howard Lowen (trustee for David Lowen), and Howard Lowen (trustee for
Daniel Lowen). ("Shareholders").
WHEREAS, Seller is engaged in the sale and distribution of gift products.
WHEREAS, the Buyer wishes to purchase and the Seller wishes to sell
certain of the assets of the Seller on the terms and conditions set forth in
this Agreement.
NOW, THEREFORE, in consideration of the representations, warranties and
covenants of Seller and Buyer set forth herein, Buyer and Seller hereby agree as
follows:
1. Purchase and Sale
1.1 Upon the terms and subject to the conditions set forth in this
Agreement, the Seller hereby agrees to sell, assign and transfer to Buyer its
Assets and Liabilities as is set forth on Exhibits A, B, C, D, E, F, G, H and I
to this Agreement, and Buyer hereby agrees to purchase and acquire such assets
and liabilities.
2. Definitions
2.1 As used throughout this Agreement the following words and phrases
shall have the following meanings:
(A) AGREEMENT means this Purchase and Sale Agreement by and
between Seller and Buyer along with all schedules and exhibits and
amendments thereto.
(B) ASSETS means all those assets purchased hereunder including
all Fixed Assets, Intangibles, Inventory, Accounts Receivable, Notes
Receivable, and Other Assets and including, without limitation, all
assets of every type and nature, used in Seller's Business or owned by
the Company, unless specifically excluded herein below, all of which
shall be free and clear of all liens, except Permitted Liens.
(C) LIABILITIES means only those liabilities which are
identified in writing in this Agreement including Current Liabilities,
Notes and Contracts payable, and Other Liabilities so identified.
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(D) BUSINESS means the sale and distribution of gift products as
is presently conducted by Seller.
(E) CLOSING or CLOSING DATE means effective as of January 1,
1996, or such later date as the parties mutually agree to, the date on
which the transaction contemplated by the Agreement shall be completed.
Buyer and Seller recognize the need to perform the obligations, obtain
the rights and complete the transactions contemplated by the Agreement
within the time periods herein specified.
(G) ACCOUNTS AND NOTES RECEIVABLE means all accounts and notes
owed to the Seller identified in Exhibit B attached hereto.
(H) INVENTORY means all finished goods, raw materials, work in
process, supplies and inventory of Seller identified in Exhibit C
attached hereto.
(I) OTHER ASSETS means those assets identified in Exhibit D
attached hereto including all Personal Property owned by the Company,
prepaids, insurance policies, letters of credit, claims, receivables and
tax refunds and all other assets used in the business.
(J) INTANGIBLES means all items necessary to the operation of
the business which are not tangible including: noncompete agreements,
licenses, contracts to which the Company is a party, any life insurance
policies, warranties on equipment, software programs, business and
financial records relating to the business, computer records and tapes,
copyrights, copyright applications, corporate names, customer lists and
records, goodwill, patents, patent applications, proprietary information,
trademarks, trademark applications, trade names, trade secrets, and any
and all of Seller's rights to any in the foregoing as are identified in
Exhibit E attached hereto.
(K) FIXED ASSETS means all equipment, accessories, machinery and
fixtures used in the business identified in Exhibit F attached hereto.
(L) CURRENT ASSETS means all Accounts and Notes Receivable, net
of reserve for bad debt, Inventory and other current Assets identified on
Exhibits A through E.
(M) CURRENT LIABILITIES means accounts payable, current portion
of long term debt, and accrued taxes and other accruals identified in
Exhibit G attached hereto. Taxes or other liabilities not yet payable at
the Closing Date for which no reserve or appropriate accrual has been
made will not be assumed by Buyer and shall be retained by Seller and
paid as and when due.
(N) NOTES AND CONTRACTS PAYABLE means all debt owed or contracts
to pay by the Seller identified in Exhibit H attached hereto.
(O) OTHER LIABILITIES means those liabilities identified in
Exhibit I attached hereto.
(P) PERMITTED LIENS means those liens, encumbrances, security
interests or other charges shown on Exhibit J attached hereto to which
the Assets will be subject after the Close.
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(Q) CLOSING DATE SHAREHOLDERS' EQUITY means the amount shown on
the January 31, 1996 Audited Financial Statement of the Company as
Shareholders' Equity, which is then adjusted to the Closing Date to
reflect changes occurring in the ordinary course of business between
January 31, 1996 and Closing.
(R) MARKET VALUE means the average of the closing prices quoted
by the NASDAQ National Market System on the Buyers Common Stock for the
10-day period ending 7 days prior to the Closing Date.
3. Purchase Price
3.1 Amount: Subject to any adjustments to which the Buyer or Seller
may be entitled in accordance with other Sections of this Agreement, the total
purchase price to be paid by Buyer shall be the sum of the Total Closing Date
Shareholders' Equity of the Company (which contemplates the assumption of
certain of Sellers' liabilities by Buyer, as provided herein) plus $500,000
Dollars, payable as follows:
(A) At the Closing, the Buyer shall deliver certificates of the
Buyers Common Stock issued in the name of the Seller or Shareholders, as
the Seller may direct, representing market value of $1,250,000.
(B) The sum of Seven Hundred Fifty Thousand Dollars ($750,000) at
Closing by delivery of a Promissory Note ("Note II") in the form attached
hereto as Exhibit K issued by Buyer to Seller, secured pursuant to a
Security Agreement in the form attached hereto as Exhibit L; and
(C) The sum of Two Hundred Fifty Thousand Dollars ($250,000) at
Closing by Delivery of a Promissory Note ("Note I") in the form attached
hereto as Exhibit M issued by Buyer to Seller, secured pursuant to a
Security Agreement in the form attached hereto as Exhibit L; and
(D) The sum of ______________________ Dollars ($__________)
shall be paid at Closing to the Seller in cash, certified check or wire
transfer to accounts designated in writing by the Sellers. This cash
consideration will be determined, in advance of Closing, to be the amount
remaining after the Total Closing Date Shareholders' Equity increased by
$500,000 is reduced by the $1,250,000 Stock and $1,000,000 Note
obligations. In the event that the January 31, 1996 Financial Statements
are not available on the Closing Date, the parties may agree to a cash
payment at Closing which is 80% of the audit firm's best estimate of the
cash consideration payable, to be followed by an additional cash payment
of the remaining Purchase Price promptly when the Financial Statement is
available to the parties and the Total Closing Date Shareholders' Equity
can be determined.
(E) Furthermore, notwithstanding anything to the contrary in this
Agreement and in addition to the above (A) through (D), Buyer shall also
assume all liabilities of Seller with respect to required continued
health coverage under the provisions of COBRA and shall indemnify and
hold Seller harmless from said liabilities. Seller shall terminate its
health insurance plan prior to Closing.
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3.2 Allocation: It is agreed that the purchase price to be paid
Seller by Buyer under the terms of this Agreement shall be allocated among the
Assets to be purchased as will be set forth in Exhibit O prepared by Buyer and
Seller prior to Closing. The parties agree to report or cause the reporting of
this transaction for state and federal income tax purposes on a basis consistent
with and reflecting the allocation of purchase price set forth in Exhibit O as
of the Date of Closing. State sales tax payment due at Closing will be the
obligation of the Buyer. Buyer will allocate the purchase price to the assets
purchased at the same value shown on IAAC's final Balance Sheet and the
remaining purchase price to goodwill.
3.3 Shareholder Consent: The Shareholders of the Company hereby
consent to the terms of this Agreement. The parties expressly acknowledge that
the Shareholders shall be liable for certain obligations of Seller pursuant to
Section 11.3(c) of this Agreement and are parties hereto for the purpose of
consenting to the terms hereof.
3.4 Stock Restriction: Seller and Shareholders acknowledge and agree
that the shares of common stock comprising the Stock Consideration have not been
and will not be registered with the SEC or any state securities regulatory
agency and as such may not be sold, pledged or otherwise transferred without
such registration or an exemption therefrom. Seller and Shareholders also
acknowledge and agree that the shares comprising the Stock Consideration are
restricted securities pursuant to SEC Rule 144 and as such cannot be resold or
otherwise transferred for a period of two (2) years from the date of issuance,
and then only in accordance with the restrictions imposed by Rule 144, unless
such shares are earlier registered for resale with the SEC. Seller and
Shareholders agree to give Buyer at Closing an Investment Letter in the form of
Exhibit AA.
Seller and Shareholders agree to timely make all filings with the SEC
required under the Securities Exchange Act of 1934 with respect to their
ownership of the Stock Consideration (including, if required and without
limitation, Initial Statements of Beneficial Ownership on Form 3, Statements of
Changes of Beneficial Ownership on Form 4, and Annual Statements of Changes of
Beneficial Ownership on Form 5) for as long as they or their Affiliates (as
defined in the Securities Exchange Act of 1934) continue to own the Stock
Consideration; provided, however, that Buyer prepares all necessary documents
for execution by Seller and Shareholders with information timely provided by
Seller and Shareholders.
4. Conduct of the Business
4.1 The Seller covenants and agrees that, except as otherwise
expressly provided herein or upon the written consent of Buyer, between the date
hereof and the Closing Date, the Company will conduct its business and affairs
only in the ordinary course and consistent with its prior practices;
(A) maintain, keep and preserve the Company and Assets in the
same condition as the date hereof, ordinary wear and tear excepted;
(B) preserve intact the Company's business and organization;
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(C) preserve for the benefit of Buyer the goodwill of the
Company's suppliers and customers and others having business relations
with it and use its best efforts to retain the employees of the Company;
(D) pay and perform all of the Company's liabilities as and when
due;
(E) give Buyer prompt written notice of any material change in
the representations and warranties made in Section 5 hereof or the
Exhibits referred to herein which occurs prior to the Closing Date;
PROVIDED that such notification shall not relieve Sellers or the Company
of any of their obligations hereunder;
(F) not enter into any contract, agreement, commitment,
understanding or arrangement outside of the ordinary course of business
except payment of certain deferred rent, and it will not cancel, modify,
renew or amend any Contract or Lease other than in the ordinary course of
business;
(G) not perform, take any action or incur or, permit to exist
any change, event or condition which has a material and adverse effect on
the condition (financial or otherwise), properties, assets, liabilities,
or prospects of the Company, including but not limited to the contracting
for or incurring of any expense in connection with opening any additional
Company facility;
(H) not cancel any License or permit any of the Licenses to
expire or not be renewed;
(I) not sell or dispose of any of the Assets (except for the use
of inventory and replacement of damaged or defective equipment or
materials in the ordinary course of business, or as listed on Exhibit W
hereto), or permit the creation of any mortgage, pledge, lien or other
encumbrance, security interest, or imperfection of title thereon or with
respect thereto, except for liens for taxes not yet due and payable;
(J) not take any action or permit to exist any condition which
would cause any of the representations and warranties of Seller contained
in the Agreement to be untrue in any material respect as of the Closing
Date;
(K) maintain its books and records in accordance with prior
practices;
(L) not cancel, compromise, excuse, forgive, postpone or apply
any portion of a customer deposit to any Account Receivable;
(M) not offer or provide special incentives to induce customers
to purchase goods from the Company other than incentives offered or
provided in a manner consistent with the Company's reasonable past
business practices;
(N) not amend the Company's Articles of Incorporation or Bylaws;
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(O) not issue or commit to issue any additional shares of
capital stock or any other securities;
(P) not issue, sell or grant any option, warrant or right to
acquire or otherwise dispose of any of its authorized but unissued
capital stock or other securities (or commit to do any of the foregoing);
(Q) not repurchase or redeem any shares of its capital stock or
commit to do so or make any distributions in respect of its capital
stock, except for the customary distribution of 40% of pre-tax income to
the shareholders for tax payment purposes.
(R) not make any increase in the compensation payable to the
Company's employees, officers, directors, consultants or agents;
(S) not terminate any employee of the Company, and promptly
notify Buyer in writing of any employee of the Company voluntarily
terminating his or her employment;
(T) not make any Lease payments in excess of amounts
historically paid by the Company; or
(U) not discharge, remove, suspend or terminate any officer of
the Company, not hire any person as an officer or to serve in an
executive capacity on behalf of the Company.
4.2 The Seller covenants that it will not sell, assign, transfer,
encumber or grant any option, warrant or right to acquire any of the Shares or
rights therein, or otherwise dispose of any of the Shares or rights therein, nor
will it commit to do any of the foregoing.
4.3 Access to Books, Records and Premises: From the date of this
Agreement through the Closing Date, Seller shall cause the Company to grant
Buyer and its authorized representatives full access to the properties, books
and records, premises, employees, distributors, customers and auditors of the
Company during reasonable business hours for purposes of enabling Buyer to fully
investigate the business of the Company. Seller shall cause the Company to
deliver monthly financial statements to Buyer as described in Section 5.7 from
the date of this Agreement through the Closing Date, which statements shall be
prepared on a basis consistent with generally accepted accounting principles and
with the financial statements of October 31, 1995. Any information obtained by
Buyer in connection with such review shall be maintained by Buyer on a
confidential basis (subject only to review by Buyer's counsel and accountants),
and shall not be disclosed to any other person in the event that the
transactions contemplated by this Agreement are not consummated.
4.4 Risk of Loss: The risk of loss shall remain with Seller until the
Closing Date, and Seller shall continue in force any and all fire, casualty,
theft or other insurance policies relating to the Business and Assets of the
Company.
4.5 Additional Schedules: Within twenty (20) days after the date of
this Agreement, Seller shall cause the Company to prepare and to deliver to
Buyer each of the following schedules:
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Schedule 4A: This schedule sets forth a list of all equipment,
machinery, furniture, fixtures, furnishings, leasehold improvements and
other similar property that are owned by the Company and that are being
used by the Company in connection with the Business conducted by it.
Schedule 4B: This schedule lists each motor vehicle owned or
leased by the Company, together with vehicle identification numbers, any
outstanding loan against such vehicle, the person to whom the vehicle is
assigned and the location of the vehicle.
Schedule 4C: This schedule lists all Intangible personal property
used by the Company in the conduct of its trade or Business, including
without limitation, software, computer systems, all trademarks, trade
names, service names, service marks, copyrights, patents, patent
licenses, applications for any and all of the foregoing and registrations
thereof owned by the Company or used in its operations.
Schedule 4D: This schedule lists each policy of fire, liability
and other forms of insurance owned by the Company, the amount of premium
thereon and the expiration date thereof. Also listed are the policy
numbers and dates and insurers name and address for each policy owned in
prior years.
Schedule 4E: This schedule lists all permits, licenses and other
approvals and authorizations which are necessary to conduct the Business
of the Company and sets forth the title, issuing agency and expiration
thereof and indicates which of such permits, licenses and approvals are
not possessed or held by the Company.
Schedule 4F: This schedule lists all personal property owned by
any third parties (whether a customer, supplier or other person) in the
possession of the Company or for which the Company is responsible, other
than leased property set forth on schedule 4K or 4L.
Schedule 4G: This schedule lists each bank or other financial
institution in which the Company has an account or depository
arrangement, together with the names of all persons authorized to take
any actions with respect thereto.
Schedule 4H: This schedule lists each employee of the Company and
the position, title, remuneration (including any scheduled salary and
remuneration increases), the date of employment and accrued vacation pay
of each such employee and the date and amount of last salary review and
increase.
Schedule 4I: This schedule lists the amount of sales made during
fiscal years ending 1993, 1994, and year-to-date 1995, to the Company's
fifteen (15) largest accounts, the principal contact at each such account
and the Company's responsible sales employee for each such account.
Schedule 4J: This schedule contains a true and complete
description of all real properties owned by the Seller or Shareholders
which are used in the Business and will be leased by the Buyer, including
the legal description thereof. This schedule may be filled by reference
to the Lease (Exhibit T).
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Schedule 4K: This schedule lists and describes each lease for
real property, whether written or oral, to which the Company is a party,
together with the term, rental and other material provisions thereof, and
any other instrument under which the Company claims or holds an interest
in real property owned by another person. Include a description of any
underground storage tanks owned or leased. Furnish copies of all such
leases.
Schedule 4L: This schedule lists and describes each lease for, or
license for the use of equipment or personal property, whether written or
oral, to which the Company is a party, together with the term, rental,
security agreements, and other material provisions thereof (ref. Exhibit
H). Furnish copies of all such leases or licenses.
Schedule 4M: This schedule lists the Accounts Receivable aged as
of the most recent month-end (ref. Exhibit B).
Schedule 4N: This schedule lists the following agreements,
whether oral or written, to which the Company is a party, as of the date
of such schedule, to the extent such agreements are not set forth in
other schedules. Furnish copies of all such agreements.
a) Each contract, agreement or arrangement made in the ordinary
course of business by the Company, not terminable by the
Company on thirty (30) days notice or less and involving an
expenditure of more than $1,000.00 for purchase of any
services, materials, supplies or equipment.
b) Each contract, agreement or commitment for the same by the
Company for delivery of its products or services over a
period of more than thirty (30) days from the date of this
agreement and for an aggregate price of more than $5000.00.
c) Each contract or commitment for capital expenditures of any
amount.
d) Each contract continuing over a period of twelve (12) months
or more from its date, which cannot be terminated by Seller
upon thirty (30) days notice, or less.
e) Each agreement for the sale of any capital equipment or real
property.
f) Each employment contract or agreement relating
thereto between the Company and any officer,
consultant, director or employee, including any
bonus, incentive or deferred compensation plans, any
confidentiality or non-compete agreements, and any
arrangements which encourage or compensate Company's
employees to stay with Company following the Closing
Date.
g) Each plan or contract or arrangement of the Company,
providing for pensions, life insurance, medical
insurance, disability insurance, vacations and other
employees' benefits or compensation plans, whether
formal or informal.
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h) Each agreement, if any, with any union covering
employees in the bargaining unit represented by such
union.
i) Each agreement not made in the ordinary course of the
Company's business.
j) Each contract between the Company and any dealer,
distributor, broker, agent or sales representative.
k) Each contract or agreement relating to the property
listed in Section 4.5 Schedule 4C to be delivered to
Buyer by Seller.
l) Each agreement not otherwise listed on Section 4 to
which the Company is a party or which has, or may
have, a material effect on the Company or its future
business prospects.
True and correct copies of all documents listed in any schedule delivered
pursuant to this Section 4 have heretofore been delivered or made available to
Buyer or will be made available prior to closing and will upon request by Buyer
be signed by an officer of the Company for identification.
4.6 Updating of Schedules: Between the date of this Agreement and the
Closing Date, Seller shall deliver to Buyer updated Schedules to reflect any
material changes in the Schedules delivered to Buyer pursuant to Section 4.5 of
this Agreement. On the Closing Date, Seller shall deliver to Buyer an officer's
certificate confirming the accuracy, as of the Closing Date, of each of the
Schedules delivered to Buyer pursuant to this Agreement; provided, however, that
Buyer shall not be obligated to proceed with the closing of the transactions
contemplated by this Agreement if there are material adverse changes from the
Schedules initially delivered to Buyer.
4.7 Contractual Obligations: Buyer agrees to assume only the
obligations identified in Exhibits G, H and I. Buyer's agreement to assume the
obligations is limited to those obligations for which Seller has provided to
Buyer, prior to Closing, a true and complete copy of each and every writing
evidencing such obligation.
5. Representations and Warranties of Seller
Seller hereby represents and warrants to Buyer that:
5.1 General: The statements set forth in Sections 4 and 5 of this
Agreement are true, accurate, complete and not misleading in any respect on the
date of this Agreement and will remain so as of the Closing.
5.2 Standing: Seller is a corporation duly organized, validly
existing, and in good standing under the laws of the State of Washington.
Seller has all the necessary corporate powers to own properties, and to carry on
the business as now owned and operated by it. Seller is qualified to do
business in each state or jurisdiction where its failure to so qualify would
materially adversely affect its ability to transfer the assets to Buyer as
required hereunder.
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5.3 Authority: Seller has the right, power, legal capacity and
authority to enter into and perform its obligations under this Agreement, and no
approval or consent of any person, authority or entity that has not been
obtained is necessary in connection herewith. The execution and delivery of
this Agreement by Seller has been duly authorized by its Board of Directors and
by all requisite shareholder action.
5.4 Material Change: Since October 31, 1995 the Company has not:
(A) sold, transferred, leased to others or otherwise disposed of
any assets, except as listed on Exhibit W, and except for (i) inventory
and/or services sold in the ordinary course of business, and (ii) assets
which are not material to the operation of the Company's business;
canceled or compromised any material debt or claim; or waived,
compromised or released any right, except for rights which are not
material to the operation of the Company's business;
(B) suffered any damage, destruction or loss (whether or not
covered by insurance) that has materially and adversely affected the
Assets, the Company or the Company's business or prospects;
(C) encountered any labor union organizing activity or had any
actual or threatened employee strike, work stoppage, slowdown or lockout;
(D) transferred or granted any right under, or entered into any
settlement regarding the breach or infringement of, any license, patent,
copyright, trademark, trade name, invention, franchise or similar rights,
or modified any existing right with respect thereto;
(E) instituted, been named as a party, settled or agreed to
settle any litigation, action or proceeding before any court or
governmental body;
(F) failed to replenish the Company's inventories and supplies
in a normal and customary manner consistent with the Company's prudent
business practices, nor made any purchase commitments in excess of the
normal, ordinary and usual requirements of the Company's business or at
any price materially in excess of the then current market price, or upon
terms and conditions more onerous in any material respect than those
usual and customary in the Company's business, nor made any material
changes in the Company's marketing, selling, pricing, advertising, or
personnel practices inconsistent with the Company's past practices;
(G) failed to pay its liabilities as and when due in the
ordinary course of the Company's business;
(H) suffered any change, event or condition which has materially
and adversely affected the Company's condition (financial or otherwise),
properties, assets, liabilities, business or prospects;
(I) failed to maintain its facilities and equipment in a
commercially prudent and reasonable manner;
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(J) entered into any transaction, contract or commitment other
than in the ordinary course of the Company's business, except for
transactions, contracts or commitments for which the Company's total
obligation does not exceed in the aggregate $10,000;
(K) incurred any obligation or liability, absolute, contingent
or otherwise, whether due or to become due, except liabilities for trade
or business obligations incurred in the ordinary course of the Company's
business, and except for obligations or liabilities for which the
Company's total obligation does not exceed in the aggregate $10,000;
(L) created or assumed any mortgage, pledge, lien or encumbrance
upon any of the Assets that will survive the Closing;
(M) made any material writedown of the value of any of the
Assets;
(N) made any increase in the compensation of the employees of
the Company, or any increase in compensation payable to any officer or
director of the Company, except as indicated on Exhibit X, or any
increase in compensation payable to any employee, consultant or agent of
the Company;
(O) canceled, compromised, excused, forgiven, postponed or
applied any portion of a customer deposit to any Account Receivable
except that in the ordinary course of business the Company may apply all
or a part of a customer deposit to a customer account which has been
terminated; or
(P) other events or conditions that have or might have a
material adverse affect on the business.
5.5 No Liens or Encumbrances: The Company has good and marketable
title to all of the personal property and assets, tangible and intangible,
employed in the operation of its business, free of any mortgages, liens, claims,
charges, leases, security interests, pledges, easements, encumbrances and title
retention agreements of any kind whatsoever except such property and assets as
may be leased by the Company pursuant to leases described on Schedules 4B, 4K,
4L, delivered pursuant to Section 4.5 or pledged to secure debts described on
Exhibit H (which pledge or security interest will be listed and described on
Exhibit H).
5.6 Liabilities: There are no liabilities, responsibilities, debts,
claims or obligations known or unknown, liquidated or contingent, fixed or
contingent related to the assets or the business which could become the
obligation or responsibility of Buyer other than those set out on Exhibits G, H
and I. All other liabilities shall be retained by Seller and are expressly not
assumed by Buyer.
5.7 Financial Statements: Financial statements of the Company
("Financial Statements") are attached to this Agreement as Exhibit P and will
have been furnished to Buyer as follows:
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(A) Unaudited balance sheets of the Company as of December 31,
1995, and reviewed statements of income and expenditures, retained
earnings and statement of change in financial position for the fiscal
years then ended will be furnished by March 31, 1996; and
(B) Unaudited balance sheets of the Company as of October 31,
1995, November 30, 1995, and all other months prior to closing, and the
unaudited statements of income for the fiscal periods then ended,
prepared by the Company, will be furnished within twenty (20) days of
month end.
In the opinion of Management, such Financial Statements present fairly and
accurately in all material respects the results of operations of the Company for
the periods covered by such statements, have been prepared in accordance with
generally accepted accounting principles ("GAAP") applied on a basis consistent
with past practices, and include all adjustments (consisting only of normal
recurring accruals) that are necessary for a fair presentation of the financial
condition of the Company and the results of the Company's Business operations
for the periods covered by such statements.
5.8 No Defaults: Schedules 4D, 4K, 4L, and 4N accurately and
completely list all Contracts or Leases to which the Company is a party or by
which it is bound or affected. All Contracts required to be listed on these
Schedules are valid and binding, enforceable in accordance with their respective
terms, and in full force and effect. Except as noted on Exhibit V, there is not
under any Contract any default by the Company, or, to the knowledge of Seller,
any other party thereto, or event which, after notice or lapse of time, or both,
would result in a default which would enable any party thereto to terminate such
Contract. Except as expressly set forth in Exhibit V, neither the Sellers nor
the Company have knowledge of any intention by any party to any Contract to (1)
terminate or amend the terms thereof, (2) refuse to renew the same upon
expiration of its term, or (3) renew the same upon expiration only on terms and
conditions which are more onerous than those pertaining to the existing
Contract. True and complete copies of all Contracts (together with any and all
amendments thereto) and a copy of the Company's forms of invoices and purchase
orders have been delivered to Buyer. Except as reflected in Exhibit V, none of
the Contracts relating to Personal Property would be classified for accounting
purposes as capital or financing leases. Other than the Contracts, the Company
requires no contract, agreement, license, franchise or permit to enable it to
carry on its business substantially as presently conducted. None of the
Contracts would be breached by virtue of the consummation of the transactions
contemplated hereby, and the consummation of the transactions contemplated
hereby will not affect the validity, enforceability or continuation of any of
the Contracts. All such Contracts are assignable to Buyer and will be assigned
to Buyer at Closing along with the consent, if required, of the parties thereto.
5.9 Inventory: All inventories reflected in the Financial Statements
are stated at the average cost or such cost as complies with GAAP and, as so
stated, are in good condition and are currently usable or salable, in the
ordinary course of business of the Company, without discount.
5.10 Accounts and Notes Receivable: The accounts and notes receivable
of the Company as set forth in Exhibit B are valid, assignable and enforceable
obligations due to the Company and shall be collectible by the Company without
reduction or setoff in the ordinary course of business. The goods and services
sold and delivered by the Company that gave rise to such accounts and notes
receivable were sold and delivered in conformity with the applicable purchase
orders, agreements and specifications.
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Such accounts and notes receivable are subject to no valid defense or offsets
except routine customer complaints of an immaterial nature.
5.11 Taxes: The Company has filed all income, excise, corporate
franchise, property, payroll and other tax returns or reports required to be
filed by it, as of the date hereof and has paid all taxes and assessments
relating to the time periods covered by such returns or reports. The amounts
set up as provisions for taxes in the Financial Statements are sufficient for
the payment of all unpaid federal, state or local taxes of the Company accrued
for or applicable to all periods ended on or prior to the date of this
Agreement, or which may subsequently be determined to be owing by the Company
with respect to all periods ending on or prior to the Closing Date. There are
no present disputes as to taxes of any nature payable by the Company. The most
recent tax year for which the Company's federal income tax returns have been
audited by the Internal Revenue Service is its tax year ending
___________________.
5.12 Lawsuits, Proceedings, etc.: Except as described on Exhibit Q
there is no action or proceeding (whether or not purportedly on behalf of the
Company) pending or, to the best knowledge of Seller, threatened against the
Company, nor, to the best knowledge of Seller, does there exist any basis
therefor, which might result in any adverse change in the condition, financial
or otherwise, of the Company's Business or Assets. No order, writ or injunction
or decree has been issued by, or requested of, any court or governmental agency
which does or may result in any adverse change in the Company's Assets or
properties or in the financial condition of the Company or its Business. The
Company is not liable for damages to any employee or former employee as a result
of any violation of any state or federal laws directly or indirectly relating to
such employee or former employee.
5.13 Regulatory Violations:
(A) The Company is not currently being charged with nor, to the
best knowledge of Seller, is it operating its Business in violation of
the federal Occupational Safety and Health Act of 1970, or the
regulations promulgated thereunder, the Environmental Quality Improvement
Act of 1970, or the regulations promulgated thereunder, or any other
applicable law or regulation relating to the environment or occupational
health and safety.
(B) Except as disclosed in Exhibit R, (i) the Company has not
received written notice of any violation by the Company of any
Environmental Law, and, to the Seller's knowledge, no condition or event
has occurred which, with notice or passage of time or both, would
constitute a violation of any Environmental Law; (ii) no pollutants,
contaminants or hazardous or toxic wastes, substances or materials, as
defined by the Comprehensive Environmental Response, Compensation and
Liability Act of 1980, as amended, the Resource Conservation and Recovery
Act of 1976, as amended, the Toxic Substances Control Act, or any other
similar Federal, state or local statute, have been manufactured,
generated, stored, handled, disposed, buried, dumped or used on, at or in
connection with the Real Property, or to the Seller's knowledge, by any
other occupant of the Real Property; (iii) no asbestos, asbestos-
containing materials, polychlorinated biphenyls (PCBs), PCB compounds, or
other pollutants, contaminants, hazardous or toxic wastes, substances or
materials have been placed on the Real Property by the Seller, or to
Seller's knowledge, by any other occupant of the Real Property, nor have
they been used in the construction, repair, or alteration of any portion
of the Real Property by the Seller, or to the Seller's knowledge, by any
other occupant of the Real Property; and (iv) there are no above-ground
or underground storage tanks, wells, pools, settling ponds, traps, drains
or other similar above-
13
ground or subsurface structures present on or under the Real Property.
5.14 Post Balance Sheet Changes: The Company has not (a) mortgaged,
pledged or subjected to lien, charge or other encumbrance any asset, tangible or
intangible, other than the lien of current or real property taxes not yet due
and payable; (b) suffered any damage, destruction or loss, whether or not
covered by insurance, materially adversely affecting its assets or its business;
(c) made or suffered any amendment or termination of any material business; (d)
received notice or had knowledge of any labor organizing efforts or labor
trouble other than routine grievance matters, none of which is material; (e)
revalued any of its assets; or (f) entered into any transactions not in the
ordinary course of business.
5.15 Compliance with Laws and Licenses: Schedule 4E is an accurate and
complete list of all of the Licenses issued to or held by the Company. Except
for such non-compliance which could not have a materially adverse effect upon
the Assets or the operation of the Company's business, the Company has complied
with the Licenses listed on Schedule 4E and all laws, rules, regulations and
ordinances of any government or governmental agency. Neither the ownership nor
use of the Company's properties nor the conduct of its business conflicts in any
material respect with the rights of any other person, firm or corporation.
Neither Seller nor the Company is in violation of, or in default under, any
terms or provisions of any lien, mortgage, lease, license, deed of trust,
agreement, instrument, order, judgment or decree, except for such violations or
defaults which could not have a materially adverse affect upon the Assets or the
operation of the Company's business. All of the Licenses listed on Schedule 4E
are valid and binding and in full force and effect without conditions. There is
not under any License listed on Schedule 4E any default by either Seller or the
Company or any event which, after notice or lapse of time, or both, would
constitute a default, which, in either case, could result in a revocation,
termination, non-renewal or impairment of such License. The Company has
delivered true and complete copies of all Licenses listed on Schedule 4E
(together with any and all amendments thereto) to Buyer. All reports of Sellers
and the Company to municipal authorities are true in all material respects and
have been duly filed. Other than the Licenses listed on Schedule 4E, the Seller
and the Company require no license, franchise or permit to carry on the
Company's business as now conducted. None of the Licenses listed on Schedule 4E
would be breached by virtue of the transactions contemplated hereby, provided
the Consents are obtained.
5.16 Condition of the Company's Assets: All of the Company's tangible
Assets are currently in good and usable condition and are fit for their intended
purposes, ordinary wear and tear excepted. There are no defects in such Assets
or other conditions which, in the aggregate, materially and adversely affect the
operation or value of such Assets. Such Assets and the other properties being
leased by the Company pursuant to the leases described on Schedule 4B, 4K, or 4L
delivered by Seller pursuant to Section 4.5 constitute all of the operating
Assets being utilized by the Company in the conduct of its Business.
5.17 Real Estate: The Company does not own any real property in fee
simple. Schedule 4K contains a complete list and description of all leases to
which the Company is a party or of which the Company is a beneficiary. Schedule
4K includes a full legal or location description of the Real Property which is
the subject of such leases. All of the leases required to be listed on Schedule
4K are valid, binding and enforceable in accordance with their respective terms,
except as noted on Schedule 4K.
14
5.18 Employees:
(A) Seller has no information indicating that any
management or key employee of the Company intends to terminate his
employment with the Company. To the best of knowledge of the
management of the Seller, there is not pending or threatened any
labor dispute, strike or work stoppage against the Company. To
the best knowledge of the management of the Seller, neither the
Company nor any representative or employee of the Company has
committed any unfair labor practices in connection with the
operation of the Company's Business, and there is not pending or
threatened any charge or complaint against the Company by the
National Labor Relations Board or any comparable state agency. To
the best knowledge of the management of the Seller, the Company is
not, and will not become, liable for any retroactive workers'
compensation insurance premiums or retroactive unemployment
compensation experience ratings or charges in connection with the
operation of its Business relating to the period of time prior to
the date of this Agreement.
(B) Schedule 4H contains, as of the dates shown on such
Schedule, accurate and complete information as to names and rates
of compensation (whether in the form of salaries, bonuses,
commissions or other supplemental compensation now or hereafter
payable) and shows each such employee's compensation for the two
(2) years immediately prior to the date of this Agreement,
including amounts and dates of change in compensation, of all
employees of the Company (grouped by categories as indicated
thereon), together with information as to any employment contracts
or severance arrangements involving the indebtedness of such
employees to the Company and any arrangements involving the
indebtedness of the Company to such employees in any amount.
(C) The Company is not a party to any collective
bargaining agreement or any employment agreement with any employee
of the Company, other than oral employment agreements at the
sufferance of the Company. The Company has complied in all
material respects and shall comply in all material respects with
all laws and regulations relating to the employment of labor,
including those related to wages, hours, collective bargaining,
discrimination and the payment of Social Security or similar
taxes. There are no unfair labor practice charges or claims
pending against the Company, nor any pending or, to the best of
Seller's or the Company's knowledge, threatened charges against
the Company with respect to any wage and hour, employment
discrimination or other statutory violation by the Company. There
is no union campaign being conducted to solicit cards from
employees to authorize the union to request an NLRB certification
election with respect to any employees of the Company.
5.19 Changes in Suppliers and Customers: Seller is not aware of any
fact which indicates that any of the suppliers supplying products, components or
materials to the Company intends to cease selling such products to the Company
or to limit or reduce such sales of products to the Company nor is Seller aware
of any fact which indicates that any major customer of the Company intends to
terminate, limit or reduce its business relations with the Company.
15
5.20 Intangible Property Rights: Schedules 4C and 4E are true and
complete lists of all Intangibles applied for, issued to or owned by the Company
or under which the Company is licensed or franchised. All of the Intangibles
required to be listed on Schedules 4C and 4E are valid and in good standing are
assignable and, to Seller's knowledge, uncontested, and the Company has
delivered to Buyer copies and required assignments of all documents establishing
those Intangibles. The Intangibles listed on Schedules 4C and 4E are all such
property necessary to operate the business of the Company as now operated. The
Company is not infringing upon or otherwise acting adversely to any Intangibles
owned by any other person or persons. No employee of the Company has any right
in or to the Company's proprietary information, including without limitation,
computer programs used in the Company's business.
5.21 No Brokers or Finders: No person, firm or corporation has any
right, interest or valid claim against Seller or the Company for any commission,
fee or other compensation as a finder or broker in connection with the
transactions contemplated by this Agreement.
5.22 ERISA:
(A) All "employee benefit plans," as defined in Section
3(3) of ERISA, sponsored, maintained or contributed to by the
Company are listed on Schedule 4N(g) hereto, and complete and
accurate copies of the plans (or related insurance policies) have
been furnished to Buyer. Except as disclosed in Schedule 4N(g),
the Company is not a party to, does not have in effect or to
become effective after the date of this Agreement any bonus, cash
or deferred compensation, severance, medical, health or
hospitalization, pension, profit sharing or thrift, retirement,
stock option, employee stock ownership, life or group insurance,
death benefit, welfare, salesmen incentive, vacation, sick leave,
disability, trust agreement, arrangement or other welfare or
pension benefit plan (as such terms are defined by ERISA).
(B) Each employee benefit plan required to be listed in
Schedule 4N(g) hereto has been administered in compliance with
applicable provisions of ERISA and the Code.
(C) All reporting and disclosure requirements under ERISA
and the Code for the plans listed in Schedule 4N(g) hereto have
been complied with, except for such non-compliance which could not
result in a termination or fine or have a materially adverse
affect upon such plans.
(D) All benefits provided under all employee benefit
plans listed in Schedule 4N(g) hereto are covered by insurance,
other than Company policies for profit sharing, sick leave,
personal leave and vacation.
(E) The Company does not contribute to and is not
required to contribute to any "multi-employer plan," as defined in
Section 414(f) of the Code and Section 3(37) of ERISA, and the
Company has not incurred or does not reasonably expect to incur
any "withdrawal liability" under Section 4201 ET SEQ. of ERISA.
16
(F) Neither Buyer, nor any trade or business under common
control with Buyer (within the meaning of Sections 414(b) and
414(c) of the Code) or any officers, directors, employees or
affiliates of the same shall, from and after the Closing Date,
have any liability, obligation or responsibility with respect to
any employee benefit plan maintained or provided by the Company,
or any affiliate thereof, before the Closing Date (including but
not limited to liability for contributions to or the benefits
payable under any such employee benefit plan), except for the
continuation of insurance plans, the continuation of insurance
protection to employees as mandated by applicable law or such
benefits as Buyer, in its sole discretion, may determine to
provide to the Company's employees after the Closing Date.
5.23 Insurance: Schedule 4D is an accurate and complete list of all
fire, theft, casualty, liability and other insurance policies insuring the
Company, its business, or any of the Assets, specifying the type and amount of
coverage and expiration dates. All such policies are in full force and effect.
No insurance policy of the Company has been canceled and no application of the
Company for an insurance policy has been rejected during the past five years.
5.24 Full Disclosure: There has been and will be no material change in
the information set forth in the documents furnished or schedules or exhibits to
this Agreement between the date of such schedule or exhibit and the date of this
Agreement or the Closing Date. Seller has not knowingly withheld from Buyer any
material fact relating to the Assets, Business, Operations, Financial Condition
or Prospects of the Company. No representation or warranty in this Agreement or
other document furnished in connection with the transactions contemplated hereby
contains any untrue statement of a material fact or omits to state any material
fact required to be stated therein to make the statements therein not
misleading. Without limiting the scope of the foregoing, Seller is not aware of
any change or occurrence that has taken place or is pending that could have a
material adverse effect on the value of the Assets or the Business of the
Company, or the ability of the Company to operate its Business subsequent to the
Closing Date in the manner in which it has been operated by the Company before
the Closing Date, or which could materially increase the costs incurred by the
Company in operating its business subsequent to the Closing Date, including any
pending or present change in any law or regulation, or other requirements,
concerning license or approvals.
5.25 The representations and warranties made by Seller in this
Agreement are made as of the date of this Agreement and as of the Closing Date.
Such representations and warranties shall survive the Closing date and shall
continue until their expiration in accordance with the terms of this Agreement.
6. Representations and Warranties of Buyer
The Buyer hereby represents and warrants to the Seller as follows:
6.1 Organization and Standing: Buyer is a corporation duly organized,
validly existing and in good standing under the laws of Minnesota, and has all
requisite corporate power and authority to enter into this Agreement and to
consummate the transactions contemplated by this Agreement.
6.2 Corporate Authorization: The execution, delivery and performance
of this Agreement by Buyer have been duly authorized by proper corporate action
of Buyer and are within its corporate
17
powers. This Agreement constitutes the legal, valid and binding obligation of
Buyer and is enforceable against Buyer in accordance with its terms.
6.3 No Brokers or Finders: No person, firm or corporation has any
right, interest or valid claim against Buyer for any commission, fee or other
compensation as a finder or broker in connection with the transactions
contemplated by this Agreement.
6.4 Property Lease: On the Closing Date, Buyer shall enter into a
lease agreement or assignment for the property located at 1119 Mercer Street,
Seattle, Washington. Such lease agreement shall be in the form of Exhibit T to
this Agreement.
6.5 Personal Service Agreements: On the Closing Date, Buyer shall
offer to enter into non-compete agreements or employment agreements with Howard
Lowen and Sandy Roth; which employment agreements will include covenants not to
compete, the terms of which will be specified on Exhibit U, attached hereto.
6.6 No Defaults: The Buyer is not in default or breach under any
provisions of this Agreement or any other Agreement between the parties on the
date of this Agreement and will not be in default or breach as of the Closing.
6.7 Lawsuits, Proceedings, etc.: Except as disclosed to Seller in
writing there is no action or proceeding (whether or not purportedly on behalf
of the Buyer) pending or threatened against the Buyer, nor, to the best
knowledge of Buyer, does there exist any basis therefor, which might result in
any adverse change in the condition, financial or otherwise, of the Buyer's
Business or Assets. No order, writ, or injunction or decree has been issued by,
or requested of, any court or governmental agency which does or may result in
any adverse change in the Buyer's Assets or properties or in the financial
condition of the Buyer or its Business. The Buyer is not liable for damages to
any employee or former employee as a result of any violation of any state or
federal laws directly or indirectly relating to such employee or former
employee.
6.8 No Breaches: The Buyer is not in violation of, and the execution,
delivery and performance of this Agreement will not result in any breach or
acceleration of, any of the terms or conditions of its articles of incorporation
or bylaws or of any mortgage, bond, indenture, agreement, contract, license or
other instrument or obligation to which the Buyer is a party or by which its
Assets are bound, nor will they result in any violation of any statute,
regulation, judgment, writ, injunction or decree of any court, threatened or
entered in a proceeding or action in which the Buyer may be bound or to which
any of its Assets are subject.
6.9 The representations and warranties made by Buyer in this Agreement
are made as of the date of this Agreement and as of the Closing Date. Such
representations and warranties shall survive the Closing Date and shall continue
until their expiration in accordance with the terms of this Agreement.
7. Employees
7.1 Buyer will not subsequent to Closing, have any obligation to offer
employment to any individuals employed by Seller, except as indicated by
Section 6.5. Except as disclosed pursuant to
18
Section 4.5, 4N (f) (g) (h), there are no other written or oral agreements or
commitments to employees which cannot be terminated at any time by Seller.
7.2 Whether or not Buyer after Closing offers employment to any
employee of Seller, Seller shall retain and remain solely liable for any and all
claims, including without limitation, retirement benefits, accrued vacation,
workman's compensation and medical claims which arise out of, are associated
with or are based upon conditions or events which occurred prior to Closing.
8. Closing
8.1 General Procedure: At the Closing each party shall deliver to the
other party, in form and substance satisfactory to the other party, such
documents, instruments and materials required to effectuate the provisions of
this Agreement.
8.2 Time and Place: The Closing shall take place on January 1, 1996
in Seattle, Washington, or such other later date as is mutually agreed to by the
parties. If the closing has not occurred on or before March 1, 1996, the
Closing Date shall be on a date selected by the Buyer upon not less than 10 days
prior written notice to the Seller, at a time and place mutually determined.
9. Conditions of Buyer's Obligation
9.1 The obligation of Buyer to complete the purchase of the assets on
the Closing Date in accordance with the terms set forth in this Agreement is, at
the option of the Buyer, subject to the satisfaction (or waiver by Buyer) of
each of the following conditions:
(A) Accuracy of Representations and Warranties: The
representations and warranties made by Seller in this Agreement shall be
correct in all material respects on and as of the Closing Date with the
same force and effect as though such representations and warranties had
been made on the Closing Date.
(B) Personal Service Agreements: Employees of Seller shall have
entered into non-compete and/or employment agreements described in
Section 6.5.
(C) Opinion of Counsel: Buyer shall have received the opinion of
Gary English of Casey and Pruzan, the Seller's legal counsel, dated the
Closing Date and in form and substance satisfactory to Buyer's legal
counsel, stating the substance of the representations and warranties set
forth in Sections 5.2, 5.3, 5.8, 5.12 and 5.15 of this Agreement.
Counsel shall be entitled to rely upon certificates of governmental
officials and, as to factual matters, upon certificates of the president
of the Company.
(D) Delivery of Closing Documents: Seller shall have delivered
to Buyer each of the items listed in Section 2.1 (Exhibits A through J),
Section 4.5 and 4.6 and 5.7 Exhibits J, Q, R, V, W, X and such items
shall be satisfactory in form to Buyer and include:
1) A Bill of Sale transferring the assets to Buyer duly
executed by Seller in the form attached as Exhibit Y.
19
2) Assignments executed by Seller to the corporate name,
trademarks, trade names, copyrights and other intangibles listed on
Exhibit E in the form attached as Exhibit Z.
3) Assignments or required consents executed by Seller or third
parties for leases, licenses, contracts or other agreements listed in
Section 4.5 herein and Exhibit D and Exhibit E attached hereto.
4) Certified copy of corporate resolutions, and if required by
statute shareholder approval authorizing the execution of this Agreement
and the consummation by Seller of the transactions of the Agreement.
(5) A letter executed by a duly authorized representative of
Badger Martin, Ross and Smith authorizing Buyer to rely on its
Independent Auditor's Report for Indian Arts and Crafts, Inc. dated
December 31, 1995, and attached financial statements, and the consent of
Badger Martin, Ross and Smith to the inclusion of such Independent
Auditor's Report and attached financial statements in any SEC filings
regarding the Company and the acquisition of the Company by Buyer as
Buyer and its counsel deem necessary and appropriate; provided, however,
that Bader, Martin, Ross & Smith shall be provided with a draft of the
SEC filings prior to granting consent.
(6) The results of UCC, tax, bankruptcy and judgment lien
searches, obtained at Seller's expense and dated within seven (7) days
prior to the Closing Date, in the name of the Seller, the Company and any
trade name used by the Company in the Secretary of State's records of the
States of Washington and Alaska, and in all appropriate local filing
offices.
(7) Appropriate payoff letters from the Company's creditors with
respect to all Long-Term Debt and other indebtedness of the Company, and,
if such debt is to be repaid pursuant to the terms of this Agreement,
releases in form reasonably satisfactory to counsel for Buyer from all
persons holding liens or other interests in any of the Assets (other than
liens for current taxes not yet due and payable).
(8) A Certificate of Good Standing for the Company from the
State of Washington and the Articles of Incorporation of the Company
certified by an appropriate government official as of the Closing Date,
delivered within two weeks of the closing.
(9) The Investment Letters executed by each of the Shareholders
to whom the Buyer's Common Stock is to be issued pursuant to Section 3.1A
herein, in the form of Exhibit AA.
20
(10) The executed Property Lease which indemnifies the Buyer
against regulatory claims with respect to all periods on or prior to the
Closing Date.
(11) All other documents, certificates, instruments and writings
required hereunder to be delivered by the Company and/or Seller, or that
may reasonably be requested by Buyer at or prior to the Closing Date.
(12) Seller shall have conducted at its expense a Phase I
environmental assessment of the site at which the Business is being
conducted, the findings of which, in form and substance are acceptable to
Buyer.
(E) Covenants and Conditions: Seller shall have performed or
caused the company to perform in all material respects all of his
obligations and agreements and complied or caused the Company to comply
in all material respects with all covenants and conditions contained in
this Agreement to be performed or complied with on or before the Closing
Date.
(F) Adverse Change: Between the date of this Agreement and the
Closing Date, in Buyer's sole judgment, using a standard of reasonable
business judgment, there shall have been no material adverse change in
the Company or its condition (financial or otherwise), operations,
business or prospects, and the Company shall not have suffered any
material loss by fire, flood, act of God, natural disaster, blizzard,
windstorm, or other casualty which has not been fully restored or
replaced.
(G) Legal Proceedings: There shall not be pending or threatened
any lawsuit, claim, legal action, administrative proceeding or
investigation involving either Seller, the Company, the Assets or the
Shares which would materially adversely affect the Company, the Assets,
the Shares of the transactions contemplated by this Agreement.
(H) Licenses in Effect: All of the Licenses shall be in full
force and effect on the Closing Date without conditions.
(I) Encumbrances: Except for Permitted Liens (Exhibit J) there
shall be no security interest, mortgage, pledge, conditional sales
agreements, or other lien or encumbrance, affecting any of the Assets
(other than liens for current taxes not yet due and payable).
(J) Facility Leases: The Shareholders shall have executed and
delivered to Buyer the Property Leases.
10. Conditions to Obligations of Seller
10.1 The obligation of Seller hereunder to complete the sale of the
assets on the Closing Date on the terms set forth in this Agreement is subject
to the satisfaction (or waiver by the Seller) of each of the following
conditions:
(A) Accuracy of Representations and Warranties: The
representations and warranties of Buyer in this Agreement shall be
correct in all material respects as of the Closing Date.
21
(B) Personal Service Agreements: The Buyer shall have entered
into the agreements described in Section 6.5.
(C) Opinion of Counsel: Seller shall have received the opinion
of Rider, Bennett, Egan & Arundel, the Buyer's legal counsel, dated the
Closing Date and in form and substance satisfactory to Seller's legal
counsel, stating the substance of the representations and warranties set
forth in Sections 6.1 and 6.2.
(D) Property Lease: Buyer shall have entered into or assumed
the assignment of the lease agreements described in Sections 4.5 (4K) and
6.4.
(E) Payment: Buyer shall have delivered the purchase price
payment according to the terms of Section 3.1 (A), (B), (C), (D), and (E)
of this Agreement.
(F) Copies of the resolutions of Buyer's Board of Directors,
authorizing and approving the execution of this Agreement and the
consummation of the transactions contemplated hereby, certified as true
and correct on the Closing Date by its Secretary or any Assistant
Secretary.
(G) A Certificate of Good Standing for Buyer from the State of
Minnesota and Articles of Incorporation of Buyer certified by an
appropriate government official as of the Closing Date.
(H) Covenants and Conditions: Buyer shall have performed in all
material respects all of its respective obligations and agreements and
complied in all material respects with all covenants and conditions
contained in this Agreement to be performed or complied with by it on or
before the Closing Date.
(I) Legal Proceedings: There shall not be pending any
injunction or legal restriction which, in the opinion of counsel to
Sellers, makes unlawful or impossible the closing of the transactions
contemplated hereby.
11. Indemnification
11.1 General: The covenants, representations and warranties contained
in this Agreement shall survive the Closing.
11.2 Indemnification of Seller:
(A) Seller shall indemnify and hold Buyer harmless against and
from any losses, claims, costs, demands, damages, suits or liabilities,
including without limitation in each case the cost, expenses and
attorney's fees reasonably incurred by Buyer resulting from, arising out
of, incident to or based upon: (i) Seller's ownership of the Assets and
activities associated with the conduct of the Business prior to Closing;
(ii) any breach of any of the representations, covenants or warranties
provided in this Agreement, or any misrepresentation in any certificate
or document delivered to Buyer hereunder; or (iii) any claims by third
parties alleging strict liability in tort,
22
express or implied warranty or contract seeking compensation for property
damage, bodily injury and or death related to or arising out of, incident
to or associated with the design, manufacture, sale, installation,
operation, use, service and/or maintenance of any product associated with
the Business prior to Closing. Seller agrees to keep, pay and perform
all such liabilities and obligations not expressly assumed hereunder by
Buyer in accordance with their respective terms and conditions and shall
indemnify, defend and hold harmless Buyer in respect thereto and any
costs, expenses (including reasonable attorneys' fees), or other
liabilities incurred by Buyer with respect to such liabilities and
obligations of Seller.
(B) Notwithstanding the foregoing, the liability of Sellers
under this Section 11 shall be limited as follows:
(1) The Sellers' aggregate liability for any and all
claims under this Section 11 shall be limited to a sum equal to
the Purchase Price (which appears in Section 3.1).
(2) With respect to claims by third parties (including
without limitation any federal, state or local governmental
authority charged with enforcing environmental laws, tax
authorities, customers, current and former employees and
competitors) against the Company constituting a breach or breaches
of the Sellers' representations and warranties contained in
Section 5 hereof ("Third Party Claims"), Sellers shall have no
indemnification obligations or liabilities with respect to Third
Party Claims after the seventh anniversary of the date hereof or
after the expiration of the applicable statute of limitations
hereunder or with respect thereto.
11.3 Setoff and Reconciliation of Values:
(A) The exact value as of the Closing Date of Assets purchased
and obligations being assumed by Buyer shall be reconciled and verified
by Buyer subsequent to Closing.
Should the verification determine at any time that:
(1) liabilities undisclosed on Exhibit G, H, or I which
Buyer, in its sole discretion, elects to pay in order to preserve
the business operations and reputation of the Business, including
interest and attorneys' fees, to discharge such undisclosed
liabilities will be set off as described below. This provision
notwithstanding, the parties agree and acknowledge that Buyer is
not assuming and shall not be required to pay any liabilities not
disclosed on Exhibits G, H or I, attached hereto.
(2) any matter described in Section 11.2 above has
arisen, the cost to Buyer of such breach will be set off as
described below.
(3) there is a shortfall in the aggregate value of
Current Assets, including:
i) Accounts or Notes Receivable listed on Exhibit B
which have been uncollectable for ninety (90) days past
their payment date, or, in the case of invoices dated for
extended payment in July, thirty (30) days past their July
23
payment date, the amount of such uncollectables exceeding an
aggregate amount equal to the Accounts Receivable Reserve
for Bad Debt on the final IAAC Balance Sheet will, on August
31 after Closing be set off as described below. The Buyer
will cooperate with the Seller on the collection of all
Accounts Receivable. In the event that any Accounts
Receivable, which have been deemed uncollectable at August
31 and set off under the provision herein, are later
collected, then said collected amount shall accrue to the
benefit of Seller.
ii) inventory at closing is less than the amount
listed on Exhibit C, that shortfall exceeding $5,000 will be
set off as described below.
Any amounts to be set off in paragraphs 1 through 3 above will be
applied against any amounts then owed by Buyer to Seller beginning with
amounts owed for payment of principal or interest under the Notes.
Amounts setoff under this provision will be adjustments to the Note
portion of the purchase price as of the Closing Date. Buyer shall notify
Seller in writing of the nature, reason and amount of Buyer's claim for
setoff. Seller shall be entitled to contest any such claimed setoff by
written notice to Buyer within thirty (30) days after the postmark date
of Buyer's notice thereof. If Seller does not so contest, Buyer shall
effect the setoff by reducing payments due under the Notes in the order
of their maturity. If Seller does so contest, and within sixty (60) days
of Buyer's original notice any dispute as to claimed setoff cannot be
settled by the parties without arbitration, the dispute shall be resolved
according to the provisions of Section (B) below.
(B) Disputes which arise under the provisions of this Section
11.3 or under the provisions of any other section of this Agreement shall
be resolved in Seattle, Washington through arbitration in accordance with
rules and procedures of the American Arbitration Association for
commercial transactions of such nature.
(C) Shareholders Guaranty: The parties acknowledge and agree
that Seller may make distribution of its assets to the Shareholders after
consummation of the transactions contemplated by this Agreement. Because
such distributions may leave Seller without significant assets, the
Shareholders hereby jointly and severally guaranty the indemnity
obligations of Seller, but only to the extent of distributions actually
received from Seller. In the event of the existence of an
indemnification liability hereunder, Buyer agrees to look first to the
assets of Seller in accordance with the terms of this Agreement before
looking to the Shareholders in accordance with this Section. To the
extent that Buyer looks to the Shareholders for satisfaction of any
indemnification liability, such liability shall be satisfied as follows:
(i) First, by setoff against any amounts then owed by
Buyer to the Seller or the Shareholders for payment of principal
or interest pursuant to the Notes.
(ii) Second, by surrender of Buyer's common stock held by
the Shareholders at its then current market value pursuant to the
Pledge Agreement attached hereto as Exhibit __.
(iii) Third, by collection of any remaining amount of
indemnification liability from the Shareholders, up to but not
exceeding the amount of any distributions made by Seller to the
Shareholders after the Closing Date.
It is understood by the parties that claims made under this
Section 11 may be, upon recovery by the Buyer, subsequently paid
to third parties or may be retained by the Buyer, depending upon
the nature of the claim. In the event an Indemnification Claim is
determined to be payable to the Buyer and no claim must be
subsequently paid by the Buyer to third parties, and such claim
restores to the Buyer all of the Purchase Price (as defined in
Section 3), then upon payment of such claim to the Buyer, Buyer
agrees to deliver back to the indemnifying party those Assets
which were purchased pursuant to this Agreement and which remain
in the possession of Buyer. Such return of Assets shall be
limited solely to those identifiable Assets (not including cash or
Assets which have been reduced to cash and not including assets
which have been purchased to replace the Purchased Assets) which
remain in the possession of Buyer.
11.4 Indemnification of Buyer: Buyer shall indemnify and hold Seller
harmless against and from any losses, claims, costs, demands, damages, suits or
liabilities, including, without limitation, in each case the costs, expenses and
attorney's fees reasonably incurred by Seller resulting from, arising out of or
based upon: (i) any breach of any of the representations, covenants, warranties
provided in this Agreement, or any misrepresentation in any certificate or
document delivered to Seller hereunder; or (ii) Buyer's operation of the
Business subsequent to Closing.
11.5 Indemnification Claims - Interest: Interest on any claim for
indemnification pursuant to this Section 11 shall accrue at a rate equal to the
reference rate as publicly announced from time to time by Norwest Bank National
Association, Minneapolis, Minnesota, from the date the claim arose until the
claim is satisfied by payment.
11.6 Legal Proceedings: In the event Buyer or Seller become involved
in any legal, governmental or administrative proceeding which may result in
damage to such party, or if any such proceeding is threatened or asserted which
will damage the business or reputation of the Company, such party shall promptly
notify the indemnifying party in writing and in full detail of the filing, or
the threat or assertion of such filing, and of the nature of any such
proceeding. If the Indemnifying Party does not elect to assume control or
otherwise participate in the defense of any third party claim, it shall be
bound by the results obtained by the Indemnified Party with respect to such
claim.
11.7 Bulk Sales Compliance: Seller has agreed to indemnify and hold
Buyer harmless from all liabilities arising from its operation of business that
have not been assumed by Purchaser as set forth above. In reliance upon said
indemnification, Buyer waives and releases Seller from its obligation to execute
and deliver an Affidavit listing creditors as required by Washington's Bulk
Transfer Law.
12. Remedies.
A. Seller's Remedies: If the transaction contemplated by this
Agreement is not consummated because of a default by Buyer of its
obligations hereunder and provided Seller is not in default, Seller shall
be entitled (but not required), to seek any other remedies which may be
available, including money damages. In the event of a default by Buyer
and the filing of a lawsuit
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which results in a final judgment (not subject to further appeal) in
favor of Seller for damages or other remedy, Seller shall be entitled to
reimbursement by Buyer of the reasonable legal fees and expenses incurred
by Seller.
B. Buyer's Remedies: The parties recognize that if Seller
refuses to perform under the provisions of this Agreement, monetary
damages alone will not be adequate. Buyer shall therefore be entitled,
to seek any other remedies which may be available, including money
damages. In the event of any action to enforce this Agreement, Seller
shall waive the defense that there is an adequate remedy at law. In the
event of a default by Seller and the filing of a lawsuit which results in
a final judgment (not subject to further appeal) in favor of Buyer for
damages or other remedy, Buyer shall be entitled to reimbursement by
Seller of the reasonable legal fees and expenses incurred by Buyer.
12.1 Buyer shall not acquire any title to or right in the assets until
Closing, and accordingly, all risk of loss with respect to the assets shall be
borne by Seller.
12.2 At Closing, the assets shall be in substantially the same
condition as of the date of this Agreement except for normal transactions of the
business, and ordinary wear thereof, provided, however, that if at Closing the
assets shall have suffered loss or damage to an extent which substantially
affects the value of such property, Buyer shall have the right, at its election,
to either: (i) complete the acquisition with a reduction in the purchase price
equal to the loss or damage, said reduction to be from the cash amount to be
paid by Buyer to Seller as set forth in Section 3.1 (D); or (ii) to terminate
this Agreement, in accordance with Section 13 hereof.
13. Termination
13.1 Mutual Termination: This Agreement may be terminated by mutual
agreement of Buyer and Seller at any time.
13.2 Default: This Agreement may be terminated by either Buyer or
Sellers, if the terminating party is not then in material default, upon written
notice to the other party, upon the occurrence of the following: prior to the
Closing Date, Sellers or Buyer shall be come aware of any material breach of any
representation, warranty, obligation or agreement by the other party (the
"Breaching party"), they shall give prompt written notice to the Breaching Party
of the nature of such breach. The Breaching Party shall use its best efforts to
cure the breach prior to the Closing Date. If the Breaching Party has not cured
the breach on or before the Closing Date, the parties shall negotiate in good
faith a mutually acceptable compromise taking into account the economic effect
of the breach on the Buyer or Sellers, as the case may be, and shall consummate
the transactions contemplated hereby. If the parties are unable to reach
agreement and consummate the transactions contemplated by this Agreement, the
Closing shall be postponed and the Breaching Party shall use its best efforts to
cure the breach as soon as practicable. The exact date and time of the
postponed Closing Date shall be agreed upon by Buyer and Sellers, provided that
in no event shall the postponed Closing Date occur after March 31, 1996. If the
Breaching Party has not cured the breach before that date, then if Buyer is the
nondefaulting party, it shall have all rights and remedies provided in this
Agreement and at law or equity, including without limitation, that the Sellers
shall be liable to Buyer for any damages incurred or suffered by Buyer.
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14. Miscellaneous
14.1 Binding Effect: This Agreement shall be binding upon and inure to
the benefit of and be enforceable against the parties hereto and their
respective successors and assigns.
14.2 Governing Law: This Agreement shall in respects of substantive
issues be governed by, and enforced and interpreted in accordance with, the laws
of the State of Washington.
14.3 Notices: All notices or other communications provided for herein
shall be in writing and shall be deemed validly given, when delivered personally
or sent by registered or express mail, postage prepaid, and, pending the
designation of another address, addressed as follows:
If to Seller: Howard Lowen
4560 NE 89th
Seattle, WA 98115
(B) 206-622-2855
(H) 206-524-5660
Fax: 206-622-4285 (advance notice
Please)
With a copy to: Attn: Alvin Martin
Bader Martin Ross
1000 2nd Ave. 34th floor
Seattle, WA 98104
(B) 206-667-0308 (direct)
(H) 206-824-1528
Fax: 206-682-1874
Gary English
Casey and Pruzan
18th floor, Pacific Bldg.
720 3rd Ave.
Seattle, WA 98104
(B) 206-623-3577
(H) 206-641-7909
Fax: 206-623-3649
If to Buyer: E. D. Willette
Vaughn Communications, Inc.
5050 West 78th Street
Minneapolis, Minnesota 55435
With a copy to: Rider, Bennett, Egan & Arundel
Attn: Barry Clegg
2000 Lincoln Center
333 South Seventh Street
Minneapolis, Minnesota 55402
27
M. Charles Reinhart
Vaughn Communications, Inc.
5050 West 78th Street
Minneapolis, Minnesota 55435
14.4 Entire Agreement and Counterparts: This Agreement, the exhibits
attached hereto, and schedules delivered pursuant to the provisions hereof, set
forth the entire agreement between Seller and Buyer relating to the transaction
contemplated herein, superseding any prior oral or written agreement or
understanding between them. This Agreement shall be amended or modified only by
written instrument signed by both parties.
14.5 Assignment: Seller hereby agrees that Buyer may assign its
rights, and delegate its responsibilities, under this Agreement, including to a
wholly-owned subsidiary corporation, in which case the Buyer shall remain fully
obligated to on all responsibilities and duties hereunder in all events and
shall use its best efforts cause such subsidiary corporation to complete the
purchase of the assets in the manner contemplated by this Agreement. The
provisions of this Section notwithstanding, this Agreement is not intended to
and shall not create any rights or third parties not signatories to this
Agreement with respect to Buyer or its assets.
14.6 Expenses, Taxes: Each party shall pay for its own legal,
accounting and other similar expenses incurred in connection with the
transactions contemplated by this Agreement; provided, however, that in the
event a full certified Audited Financial Statement is required by the Buyer, the
audit fee for the audit agreed to under this Agreement shall be split equally
between Seller and Buyer.
14.7 Publicity: All notices to third parties and other publicity
relating to the matters contemplated by this Agreement shall be jointly planned
and coordinated between Seller and Buyer, and neither party shall unilaterally
release such notices or publicity without the prior written approval of the
other party.
14.8 Negotiation: Unless this Agreement is terminated, Seller will not
enter into negotiations with any other party for the sale of the Company's
assets or the Shares.
14.9 Exhibits: The Exhibits and Schedules shall be deemed to be
incorporated by reference in this Agreement as if fully set forth herein.
IN WITNESS WHEREOF, Seller and Buyer have executed this Agreement as of
the date set forth in the first paragraph.
INDIAN ARTS AND CRAFTS, INC. VAUGHN COMMUNICATIONS, INC.
By _______________________ By___________________________
Howard Lowen E. David Willette
Its ______________________ Chairman
Title
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SHAREHOLDERS
- ------------------------------
Howard Lowen
- ------------------------------
Jeanette Lowen
- ------------------------------
Janice Lowen
- ------------------------------
Howard Lowen
Trustee for David Lowen
- ------------------------------
Howard Lowen
Trustee for Daniel Lowen
29