Execution Copy
ASSET PURCHASE AGREEMENT
THIS ASSET PURCHASE AGREEMENT (this "Agreement") is made and entered into
as of December __, 1996, by and among VDI Media, a California corporation
("Purchaser"), Woodholly Productions, a California general partnership ("WHP" or
the "Partnership") and Yvonne Parker, Rodger Parker, Jim Watt and Kim Watt, the
partners and sole owners of all of the partnership and ownership interests of
WHP (each a "Partner" and collectively, the "Partners") (the Partners and the
Partnership each a "Seller" and collectively, the "Sellers").
R E C I T A L S
A. The Partners are the only partners of WHP and, together with the
Partnership, own all of the interests, assets and any other rights therein.
B. Purchaser desires to purchase from Sellers, and Sellers desire to
sell, convey, transfer, assign and deliver to Purchaser, the assets of WHP upon
the terms and subject to the conditions of this Agreement.
A G R E E M E N T
NOW, THEREFORE, in consideration of the foregoing and the provisions set
forth below, and subject to the terms and conditions set forth herein, the
parties agree as follows:
ARTICLE I
DEFINITIONS
As used in this Agreement, the following terms shall have the meanings
indicated below:
"ACCOUNTS RECEIVABLE" shall have the meaning set forth in Section 5.11.
"ACTION" shall mean any action, claim, suit, litigation, proceeding, labor
dispute, arbitral action, governmental audit, inquiry, criminal prosecution,
investigation or unfair labor practice charge or complaint.
"AFFILIATE" shall mean, in respect of any specified Person, any other
Person that, directly or indirectly, controls, is controlled by, or is under
common control with, such specified Person or if such specified Person bears a
familial relationship with such other Person.
"AFFILIATED PARTIES" shall have the meaning set forth in Section 11.2.
"AGREEMENT" shall have the meaning set forth in the Preamble.
"AGREEMENTS NOT TO COMPETE" shall mean the covenants set forth in
Section 7.9.
"ANCILLARY AGREEMENTS" shall mean each Purchase Note, the Hollywood Lease
and the Employment Agreements, substantially in the forms attached hereto as
Exhibits A, B, and C, respectively.
"ASSETS" shall mean all of the right, title and interest in and to all of
the business, properties, assets and rights of any kind, whether tangible or
intangible, real or personal, owned by any of the Sellers in connection with the
Business or in which any Seller has any interest (to the extent related to the
Business), including without limitation all of each Seller's right, title and
interest in the following:
(i) all accounts and notes receivable and contingent rights relating
thereto (whether current or noncurrent), refunds, deposits, advances, all
advance payments, prepaid expense items and credits relating to the
Business, prepayments or prepaid expenses and all other receivables arising
out of the Business;
(ii) all Contract Rights;
(iii) all Leases and Leasehold Estates and Personal Property
Leases;
(iv) all Leasehold Improvements;
(v) all Fixtures and Equipment (except the personal property
identified on Schedule 1A);
(vi) all Inventory;
(vii) all Books and Records;
(viii) all Proprietary Rights;
(ix) all Permits;
(x) all computers and software;
(xi) all Insurance Policies and all rights to insurance proceeds
relating to the Assets and/or the Business;
(xii) all supplies, sales literature, promotional literature,
customer, supplier and distributor lists, art work, display units,
telephone and fax numbers and purchasing records related to the Business;
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(xiii) all rights under or pursuant to all warranties,
representations and guarantees made by suppliers in connection with the
Assets or services furnished to each such Seller pertaining to the Business
or affecting the Assets;
(xiv) all claims, causes of action, choses in action, rights of
recovery and rights of set-off of any kind related to the Assets or the
Assumed Liabilities, against any person or entity, including without
limitation any liens, security interests, pledges or other rights to
payment or to enforce payment in connection with products delivered by the
Partnership on or prior to the Closing Date except to the extent that any
of the foregoing relate to any of the Excluded Liabilities; and
(xv) all of the Business as a going concern and the goodwill
pertaining thereto.
"AUDIT" shall have the meaning set forth in Section 9.16.
"BALANCE SHEET" or "BALANCE SHEETS" shall have the meaning set forth in
Section 5.7(a).
"BOOKS AND RECORDS" shall mean (a) all records, files and lists of each
Seller pertaining to the Assets, (b) all records and lists pertaining to the
Business, customers, suppliers, vendors, clients or personnel of the
Partnership, (c) all product, business and marketing plans of the Partnership,
(d) all books, ledgers, files, reports, plans, drawings, merchandise and sales
promotion literature and promotional and advertising materials, all catalogues,
research material, management information systems, software, technology and
specifications and operating records of every kind maintained by the Partnership
and (e) true and correct copies of the Partnership's minute books, stock books,
books of account and tax returns.
"BONUS PAYMENT" shall have the meaning set forth in Section 3.3.
"BUSINESS" shall mean the business of WHP, including video and audio tape
storage, post-production, duplication, distribution, editing and ancillary
services.
"BUSINESS DAY" means any day that is not a Saturday, a Sunday or other day
on which banks are required or authorized by law to be closed in the City of Los
Angeles.
"CLOSING" shall have the meaning set forth in Section 4.1.
"CLOSING BALANCE SHEET" shall have the meaning set forth in
Section 3.1(a)(i).
"CLOSING DATE" shall mean (a) December 31, 1996 or (b) such other date as
Purchaser and the Partnership shall mutually agree upon.
"CLOSING DATE NET ASSET VALUE" shall have the meaning set forth in
Section 3.1(a)(i).
"COBRA" shall have the meaning set forth in Section 5.16(e).
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"CODE" shall mean the Internal Revenue Code of 1986, as amended.
"CONTRACT" shall mean, other than any Lease, any agreement, contract, note,
loan, evidence of indebtedness, purchase order, undertaking, obligation or
commitment to which the Partnership and/or any Seller is a party or is bound and
which relates to the Business or the Assets, whether oral or written, including,
without limitation, purchase commitments for materials and other services,
whether or not entered into in the ordinary course of business, relating to the
Business, any Seller's rights under any confidentiality agreements relating to
the Business (if and to the extent assignable), all unfilled sales orders,
invoices, contracts and commitments with customers relating to the Business, all
unfilled purchase orders, invoices, contracts and commitments with suppliers
relating to the Business, all as set forth on Schedule 1B attached hereto.
"CONTRACT RIGHTS" shall mean all of each Seller's rights and obligations
under the Contracts, excluding any such Contracts evidencing Financing
Obligations.
"COPYRIGHTS" shall mean registered copyrights, copyright applications and
unregistered copyrights.
"COURT ORDER" shall mean any judgment, decision, consent decree,
injunction, ruling or order of any federal, state or local court or governmental
agency, department or authority that is binding on any person or its property
under applicable law.
"CPI" shall mean the Consumer Price Index for Los Angeles-Anaheim-Riverside
as prepared and released by the United States Labor Department's Bureau of Labor
Statistics.
"DEFAULT" shall mean (a) a breach of or default under any Contract, Lease
or Permit, (b) the occurrence of an event that with the passage of time or the
giving of notice or both would constitute a breach of or default under any
Contract, Lease or Permit, or (c) the occurrence of an event that with or
without the passage of time or the giving of notice or both would give rise to a
right of termination, renegotiation or acceleration under any Contract, Lease or
Permit.
"DISCLOSURE SCHEDULE" shall mean a schedule executed and delivered by the
Sellers and the Partnership to Purchaser as of the date hereof which sets forth
the exceptions to the representations and warranties contained in Article V
hereof and certain other information called for by this Agreement. Unless
otherwise specified, each reference in this Agreement to any numbered schedule
is a reference to that numbered schedule which is included in the Disclosure
Schedule.
"DISCONTINUED OPERATIONS" shall mean any businesses or operations
previously sold or otherwise disposed of by any of the Sellers and any ongoing
indemnification obligations in connection therewith.
"EARN-OUT"shall have the meaning set forth in Section 2.4(a)(ii).
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"EARN-OUT DEFAULT" shall have the meaning set forth in Section 2.4 (e).
"EARN-OUT INSTALLMENT PAYMENT" shall have the meaning set forth in
Section 2.4(a)(ii).
"EARN-OUT PAYMENT DATE" shall have the meaning set forth in
Section 2.4(a)(ii).
"EARN-OUT REFERENCE DATE" shall have the meaning set forth in
Section 2.4(a)(ii).
"EARN-OUT TERMINATION DATE" shall have the meaning set forth in
Section 2.4(a)(ii).
"EMPLOYMENT AGREEMENTS" shall mean collectively, the employment agreements
between Purchaser and each of the Partners, each dated the Closing Date, and
each substantially in the form of attached hereto as Exhibit C.
"ENCUMBRANCE" shall mean any claim, lien, pledge, option, charge, easement,
security interest, deed of trust, mortgage, right-of-way, encroachment, building
or use restriction, conditional sales agreement, encumbrance or other right of
third parties, whether voluntarily incurred or arising by operation of law, and
includes, without limitation, any agreement to give any of the foregoing in the
future, and any contingent sale or other title retention agreement or lease in
the nature thereof.
"ENVIRONMENTAL LIABILITIES FOR PRE-CLOSING MATTERS" shall mean any and all
liabilities, damages, losses, costs and expenses arising from any Pre-Closing
Environmental Matters, including, without limitation, costs of investigation,
cleanup, removal, remedial, corrective or response action, the costs associated
with posting financial assurances for the completion of investigation, cleanup,
removal, remedial, corrective or response actions, attorneys' fees, the
preparation of any closure or other necessary or required plans or analyses, or
other necessary reports or analyses submitted to or prepared for regulating
agencies.
"ENVIRONMENTAL PROTECTION LAWS" shall mean all federal, state, local and
foreign laws, statutes, regulations having the force and effect of law, permits,
court decrees, judgments, injunctions and written orders concerning (i) public
health and safety relating to exposure of humans to toxic or hazardous
substances or otherwise relating to Regulated Substances or (ii) pollution or
protection of the environment or natural resources, including, without
limitation, the Comprehensive Environmental Response, Compensation, and
Liability Act ("CERCLA") (42 U.S.C. Section 9601 ET SEQ.); the Hazardous
Materials Transportation Act (49 U.S.C. Section 1801 ET SEQ. ); the Resource
Conservation and Recovery Act ("RCRA") (42 U.S.C. Section 6901 ET SEQ.); the
Clean Water Act (33 U.S.C. Section 1251 ET SEQ.); the Safe Drinking Water Act
(14 U.S.C. Section 1401 ET SEQ.); the Toxic Substances Control Act (15 U.S.C.
Section 2601 ET SEQ.), the Federal Insecticide, Fungicide, and Rodenticide Act
(7 U.S.C. Section 136 ET SEQ.), the Clean Air Act (42 U.S.C. Section 7401 ET
SEQ.); the Emergency Planning and Community Right-to-Know Act (42 U.S.C.
Sections 11001-11005, 11021-11023, and 11041-11050); the Porter-Cologne Water
Quality Act (California Water Code Sections 13000-13999.19); the Hazardous Waste
Control Law (California Health & Safety Code Sections 25100-25250.25); the Safe
Drinking Water and Toxic Enforcement Act (California Health &
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Safety Code Sections 25249.5-25249.13); California Health & Safety Code Sections
25280-25299.81 (regarding Underground Storage of Hazardous Substances) and
Sections 25500-25545 (regarding Hazardous Materials Inventories and Emergency
Plans); the Hazardous Substance Account Act (California Health & Safety Code
Sections 25300-25393); and California Health & Safety Code Sections 39000-44384
regarding Air Resources; in each case including the regulations promulgated
thereunder, including, without limitation, the regulations promulgated by the
South Coast Air Quality Management District; each as supplemented or amended
from time to time.
"EPA" shall mean the United States Environmental Protection Agency, or any
successor United States governmental agency.
"ERISA" shall mean the Employee Retirement Income Security Act of 1974, as
the same may be amended from time to time.
"ERISA AFFILIATE" shall mean with respect to any person (a) any corporation
that is a member of a controlled group of corporations, within the meaning of
Section 414(b) of the Code, of which that person is a member, (b) any trade or
business (whether or not incorporated) that is a member of a group of trades or
businesses under common control, within the meaning of Section 414(c) of the
Code, of which that person is a member, and (c) any member of an affiliated
service group, within the meaning of Section 414(m) and (o) of the Code, of
which that person or any entity described in clause (a) or (b) is a member.
"EXCLUDED LIABILITIES" shall have the meaning set forth in Section 2.3.
"FACILITIES" shall mean all plants, offices, manufacturing facilities,
stores, warehouses, improvements, administration buildings, and all real
property and related facilities which are used or held for use in connection
with the Business.
"FINANCIALS" shall have the meaning set forth in Section 5.7(a).
"FINANCING OBLIGATIONS" shall mean (a) indebtedness of any Seller for
borrowed money, (b) obligations of any Seller evidenced by bonds, notes,
debentures, letters of credit or similar instruments, (c) obligations under
capitalized leases, (d) obligations under conditional sale, title retention or
similar agreements or arrangements creating an obligation of any Seller with
respect to the deferred purchase price of property (other than customary trade
credit), (e) interest rate and currency obligation swaps, hedges and similar
arrangements and (f) all obligations of any Seller to guaranty any of the
foregoing types of obligations on behalf of others, in each case as related to
the Business.
"FIXTURES AND EQUIPMENT" shall mean all of the (i) all audiovisual, audio
and visual recordings and other materials produced by any technology, manner or
means relating to the Business, including, without limitation, prints,
negatives, duplicating negatives, fine grains, music and sound effects tracks,
master tapes and other duplicating materials of any kind, all various language
dubbed and titled versions, prints and negatives of stills, trailers and
television
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spots, all promos and other advertising and publicity materials, stock footage,
trims, tabs, outtakes, cells, drawings , (ii) all physical properties relating
to the Business, including, without limitation, all editing and duplication
equipment, in each case, including, without limitation, any of the foregoing in
the possession, custody or control of Sellers, or in the possession of its
assigns, or any film laboratories, storage facilities or other Persons,
(iii) any and all revisionary rights Sellers have to the master and duplicate
masters of any original negative or master tape or elements plus (iv) furniture,
fixtures, furnishings, machinery, automobiles, trucks, spare parts, supplies,
equipment, tooling, molds, patterns, dies and other tangible personal property
owned by any Seller and used, held for use or useful in connection with the
Business, wherever located, and including any such Fixtures and Equipment in the
possession of any of the Sellers' suppliers, together with all warranty rights
with respect thereto.
"FORMER FACILITY" shall mean each plant, office, manufacturing facility,
store, warehouse, improvement, administrative building and all real property and
related facilities that were owned, leased or operated by any Seller at any time
prior to the date hereof, but excluding any Facilities.
"GAAP" shall mean generally accepted accounting principles consistently
applied as in effect at the time in question.
"HOLLYWOOD LEASE" shall mean a lease, dated as of the Closing Date, between
Sellers, as lessor, and Purchaser, as lessee, with respect to that real property
located at 712 North Seward, Hollywood, California 90038, in the form attached
hereto as Exhibit B, as modified on or prior to the Closing by mutual agreement
of Purchaser and the Partnership.
"HSR ACT" shall mean the Hart-Scott-Rodino Antitrust Improvements Act of
1976, as amended.
"INDEMNIFIED PARTY" shall have the meaning set forth in Section 11.7.
"INDEMNIFYING PARTY" shall have the meaning set forth in Section 11.7.
"INDEPENDENT ACCOUNTING FIRM" shall have the meaning set forth in
Section 3.1(a)(iv).
"INSURANCE POLICIES" shall mean the insurance policies related to the
Assets and/or the Business listed in Section 5.23 of the Disclosure Schedule.
"INTANGIBLE PERSONAL PROPERTY" shall have the meaning set forth in
Section 5.14(a).
"INTERIM BALANCE SHEET" shall have the meaning set forth in Section 5.7(b).
"INTERIM FINANCIALS" shall have the meaning set forth in Section 5.7(b).
"INVENTORY" shall have the meaning set forth in Section 5.18.
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"IRS" shall mean the Internal Revenue Service.
"JUNE 1996 BALANCE SHEET" shall have the meaning set forth in
Section 5.7(b).
"LEASE" shall have the meaning set forth in Section 5.12.
"LEASED PERSONAL PROPERTY" shall mean all leased property described in the
Personal Property Leases.
"LEASED REAL PROPERTY" shall mean all leased property described in the
Leases.
"LEASEHOLD ESTATES" shall mean all of each Seller's rights and obligations
as lessee under the Leases.
"LEASEHOLD IMPROVEMENTS" shall mean all leasehold improvements situated in
or on the Leased Real Property and owned by any Seller.
"LIABILITIES" shall mean any liability of WHP or any other Seller,
including, without limitation, any direct or indirect liability, indebtedness,
obligation, commitment, expense, claim, deficiency, guaranty or endorsement of
or by any person of any type, whether accrued, absolute, contingent, matured,
unmatured, known, unknown or other, in each case as related to the Business.
"LICENSES" shall have the meaning set forth in Section 5.14(a).
"MARCH 1996 BALANCE SHEET" shall have the meaning set forth in
Section 5.7(b).
"MATERIAL CONTRACTS" shall have the meaning set forth in Section 5.17.
"MULTI-EMPLOYER PLANS" shall have the meaning set forth in Section 5.15(a).
"ORDINARY COURSE OF BUSINESS" or "ORDINARY COURSE" or any similar phrase
shall mean the ordinary course of the Business and consistent with WHP's past
practices.
"PARTNER" or "PARTNERS"shall have the meaning set forth in the Preamble.
"PARTNERSHIP" shall have the meaning set forth in the Preamble.
"PATENTS" shall mean all patents and patent applications and registered
designs and registered design applications.
"PERMITS" shall mean all licenses, permits, franchises, approvals,
authorizations, consents or orders of, or filings with, any governmental
authority, whether foreign, federal, state or local, or any other person,
necessary or desirable for the past, present or anticipated conduct of, or
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relating to the operation of, the Business.
"PERSON" shall mean any natural person or any corporation, partnership,
joint venture, limited liability company or other entity.
"PERSONAL PROPERTY" shall have the meaning set forth in Section 5.27.
"PERSONAL PROPERTY LEASES" shall have the meaning set forth in
Section 5.27.
"PLANS" shall have the meaning set forth in Section 5.16(a).
"PRE-CLOSING ENVIRONMENTAL MATTERS" shall mean (a) the production, use,
generation, storage, treatment, recycling, disposal or other handling or
disposition at any time on or prior to the Closing Date (collectively
"Handling") of any Regulated Substance, either in, on, under or from any
Facility or Former Facility, including, without limitation, the effects of such
Handling of Regulated Substances on resources, persons or property within or
outside the boundaries of any Facility or Former Facility, (b) any release of
Regulated Substances at any time on or prior to the Closing Date occurring in,
on or under any Facility or Former Facility regardless of how the Regulated
Substances came to rest in, on or under the Facility or Former Facility, (c) the
failure on or prior to the Closing Date of any Facility or Former Facility or
any operation of Sellers to be in compliance with any Environmental Laws, and
(d) any other act or omission occurring, or condition existing, with respect to
the Assets or the Business on or prior to the Closing Date which gives rise to
liability under any Environmental Protection Law.
"PRIME RATE" shall mean the prime rate as reported from time to time by THE
WALL STREET JOURNAL.
"PROPRIETARY RIGHTS" shall mean all of Sellers' Copyrights, Patents,
Trademarks, technology rights and licenses, computer software (including without
limitation any source or object codes therefor or documentation relating
thereto), trade secrets, franchises, know-how, inventions, designs,
specifications, plans, drawings and intellectual property rights, in each case
as relates to the Business.
"PURCHASE NOTE" or "PURCHASE NOTES" shall have the meaning set forth in
Section 2.4(a)(i)
"PURCHASE NOTE DEFAULT" shall have the meaning set forth in Section 2.4
(a).
"PURCHASE PRICE DECREASE" shall have the meaning set forth in
Section 3.1(b).
"PURCHASE PRICE INCREASE" shall have the meaning set forth in
Section 3.1(b).
"PURCHASER" shall have the meaning set forth in the Preamble.
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"REAL PROPERTY" shall have the meaning set forth in Section 5.12.
"REGULATED SUBSTANCE" shall mean any chemical or substance subject to or
regulated under any Environmental Protection Law including, without limitation,
any "pollutant or contaminant" or "hazardous substance" as those terms are
defined in CERCLA, any "hazardous waste" as that term is defined in RCRA, and
any other hazardous or toxic wastes, substances, or materials, petroleum
(including crude oil and refined and unrefined fractions thereof),
polychlorinated biphenyls ("PCBs"), infectious waste, special waste, pesticides,
fungicides, solvents, herbicides, flammables, explosives, asbestos and asbestos
containing material, and radioactive materials, whether injurious by themselves
or in combination with other materials.
"REGULATIONS" shall mean any laws, statutes, ordinances, regulations,
rules, notice requirements, court decisions and orders of any foreign, federal,
state or local government and any other governmental department or agency.
"RELEASE DOCUMENTS" shall have the meaning set forth in Section 4.2(a)(vi).
"REPRESENTATIVE" shall mean any officer, director, principal, attorney,
agent, employee or other representative.
"SELLER" or "SELLERS" shall have the meaning set forth in the Preamble.
"SEPTEMBER 1996 BALANCE SHEET" shall have the meaning set forth in
Section 5.7(b).
"SUBSIDIARY" shall mean (a) with respect to any Seller, any corporation,
association or other business entity of which more than fifty percent (50%) of
the total voting power of shares of stock (or equivalent ownership or
controlling interest) entitled (without regard to the occurrence of any
contingency) to vote in the election of directors, managers or trustees thereof
is at the time owned or controlled, directly or indirectly, by that Seller or
one or more of the other Subsidiaries of that Person or a combination thereof,
(b) any partnership in which any Seller is a general partner and any limited
liability company in which any Seller is the managing member, or (c) any
partnership or limited liability company in which any Seller possesses a 50% or
greater interest in the total capital or total income of such partnership or
limited liability company.
"TAX" or "TAXES" shall mean any and all taxes imposed or required to be
collected by any federal, state or local taxing authority in the United States,
or by any foreign taxing authority under any statute or regulation, including,
without limitation, all income, gross receipts, sales, use, personal property,
use and occupancy, business occupation, mercantile, ad valorem, transfer,
license, withholding, payroll, employment, excise, real estate, environmental,
capital stock, franchise, alternative or add-on minimum, estimated or other tax
of any kind whatsoever, including any interest, penalties and other additions
thereto.
"TOTAL OPERATING INCOME" shall have the meaning set forth in Section 3.2.
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"TRADEMARKS" shall mean registered trademarks, registered service marks,
trademark and service mark applications and unregistered trademarks and service
marks.
"TRANSACTIONS" shall mean, in respect of any party, all transactions
contemplated by this Agreement that involve, relate to or affect such party.
"TRANSFERRED EMPLOYEES" shall have the meaning set forth in Section 7.6(a).
"UNITED STATES GOVERNMENT" shall mean the government of the United States,
including any agencies, commissions, branches, instrumentalities and departments
thereof.
ARTICLE II
PURCHASE AND SALE OF ASSETS
SECTION 2.1 TRANSFER OF ASSETS. Upon the terms and subject to the
conditions contained herein, at the Closing, Sellers shall sell, convey,
transfer, assign and deliver to Purchaser, and Purchaser shall acquire from
Sellers, the Assets (including, without limitation, those assets of the
Partnership listed on Schedule 2.1 hereto), free and clear of all Encumbrances.
SECTION 2.2 ASSUMPTION OF LIABILITIES. Upon the terms and subject to
the conditions contained herein, at the Closing, Purchaser shall assume the
Liabilities under the Contracts and Leases which are listed on Schedule 2.2
attached hereto (collectively, "Assumed Liabilities").
SECTION 2.3 EXCLUDED LIABILITIES. Notwithstanding any other provision
of this Agreement, except for the Assumed Liabilities expressly specified in
Section 2.2, Purchaser shall not assume, or otherwise be responsible for, any
Liabilities of any Seller, whether liquidated or unliquidated, or known or
unknown, whether arising out of occurrences prior to, at or after the date
hereof (the "Excluded Liabilities"), which Excluded Liabilities include, without
limitation, the following:
(a) except as otherwise expressly provided in Section 7.6, any Liability
to or in respect of any employees or former employees of any Seller including
without limitation (i) any employment agreement, whether or not written, between
any Seller and any person, (ii) any Liability under any Employee Benefit Plan at
any time maintained, contributed to or required to be contributed to by or with
respect to any Seller or under which any Seller may incur Liability, or any
contributions, benefits or Liabilities therefor, or any Liability with respect
to any Seller's withdrawal or partial withdrawal from or termination of any
Employee Benefit Plan, (iii) any claim of an unfair labor practice, or any claim
under any state unemployment compensation or worker's compensation law or
regulation or under any federal or state employment discrimination law or
regulation, which shall have been asserted on or prior to the Closing Date or is
based on acts or omissions which occurred on or prior to the Closing Date and
(iv) any liabilities or obligations under the Worker Adjustment and Retraining
Notification Act of 1988, as amended, including the rules and regulations
promulgated thereunder;
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(b) any Liability of any Seller in respect of (i) any income tax or any
interest, penalties or additions pertaining thereto, (ii) any other Tax relating
to any period or portion thereof prior to the date of the Interim Balance Sheet
and not reflected on the Interim Balance Sheet or (iii) any other Tax relating
to any period or portion thereof from the date of the Interim Balance Sheet
unless such Tax is incurred (A) in the ordinary course of business consistent
with past practice and (B) in compliance with the terms of this Agreement;
(c) any warranty claims and any Liability arising from any injury to or
death of any person or damage to or destruction of any property, whether based
on negligence, breach of warranty, express or implied representation, strict
liability, enterprise liability or any other legal or equitable theory arising
from defects in products manufactured or from services performed by or on behalf
of any Seller or any other person or entity on or prior to the Closing Date;
(d) any Liability of any Seller arising out of or related to any Action
against any Seller or any Action which adversely affects the Assets and which
shall have been asserted on or prior to the Closing Date or the basis of which
shall have arisen on or prior to the Closing Date;
(e) any Liability of any Seller resulting from entering into, performing
its obligations pursuant to or consummating the transactions contemplated by,
this Agreement (including without limitation any Liability of any Seller for
fees or expenses incurred in connection with such transactions and any Liability
of any Seller pursuant to Article XI hereof);
(f) any Liability related to any Former Facility or any of the
Discontinued Operations;
(g) any Financing Obligation
(h) any Environmental Liabilities for Pre-Closing Matters, whether or not
disclosed in the Disclosure Schedule;
(i) any Liability of any Seller for fees or expenses incurred in
connection with the review by Gill & Kim of the financial statements of Sellers;
(j) any Liability of any Seller not directly related or incurred with
respect to the conduct of the Business;
(k) except to the extent provided for herein, any indebtedness for
borrowed money;
(l) any amounts payable to any Affiliate of any Seller;
(m) any cash overdraft liability; and
(n) any liabilities accruing prior to the Closing Date.
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SECTION 2.4 PURCHASE PRICE.
(a) PURCHASE PRICE. The purchase price for the Assets and the Agreements
Not To Compete (the "Purchase Price") shall consist of:
(i) Four subordinated promissory notes of Purchaser, one made payable
to each Partner, each in a principal amount of One Million Dollars ($1,000,000)
and in the aggregate Four Million Dollars ($4,000,000), with interest, each such
note due and payable on February 28, 1997 and each in substantially the form
attached hereto as Exhibit A (each a "Purchase Note" and collectively, the
"Purchase Notes").
(ii) A series of earn-out installment payments, described below, up to
an aggregate amount of Four Million Eight Hundred Ninety-Eight Thousand Eight
Hundred Forty-Nine Dollars and Eighty Cents ($4,898,849.80) (as adjusted, the
"Earn-Out"), subject to adjustment as set forth herein, due and payable in the
amounts and on the dates set forth herein. The Purchaser shall pay to the
Partners the aggregate principal amount of the Earn-Out in 20 installments,
within 15 Business Days of the dates (each an "Earn-Out Reference Date") and in
the amounts (each an "Earn-Out Installment Payment") set forth below, subject
to the adjustments and limitations set forth in Section 3.2:
EARN-OUT REFERENCE DATE: EARN-OUT INSTALLMENT PAYMENT:
March 31, 1997 $244,942.44
June 30, 1997 $244,942.44
September 30, 1997 $244,942.44
December 31, 1997 $244,942.44
March 31, 1998 $244,942.44
June 30, 1998 $244,942.44
September 30, 1998 $244,942.44
December 31, 1998 $244,942.44
March 31, 1999 $244,942.44
June 30, 1999 $244,942.44
September 30, 1999 $244,942.44
December 31, 1999 $244,942.44
March 31, 2000 $244,942.44
June 30, 2000 $244,942.44
September 30, 2000 $244,942.44
December 31, 2000 $244,942.44
March 31, 2001 $244,942.44
June 30, 2001 $244,942.44
September 30, 2001 $244,942.44
December 31, 2001 $244,942.44; and
(iii) The Bonus Payment, if any.
13
The Purchase Notes will be subordinate to all indebtedness of Purchaser
existing on the Closig Date, including any refinanacings thereof. The Purchase
Notes shall state the following: "THIS NOTE IS SUBORDINATED PURSUANT TO THE
TERMS OF A SUBORDINATION AGREEMENT IN FAVOR OF [BANK] AND ANY AMENDMENTS OR
MODIFICATIONS THERETO."
Purchaser hereby grants to the Sellers jointly, a security interest in the
Assets, subject only to liens in effect on the Closing Date. In the event
Purchaser commits a "Purchase Note Default" then Sellers execute upon such
security interest by foreclosing on the Assets, up to the aggregate amount due
under the Purchase Notes. A "Purchase Note Default" shall mean failure to pay
the full amount due under any Purchase Note within thirty (30) days of the date
such note becomes due and payable. Purchaser agrees to cooperate with the
Sellers for the purpose of realizing upon the security interest herein,
including signing necessary documents reasonably requested by Sellers such as
Financing Statements on Form UCC-1.
The Partnership and each Partner hereby acknowledge on behalf of itself,
its successors and assigns, that the execution of the Purchase Notes and payment
of the Earn-Out in favor of the Partners as contemplated hereby shall constitute
payment in full for the Assets.
(b) INTEREST ON PURCHASE NOTES. The Purchase Notes shall bear interest,
compounded on a monthly basis, from January 3, 1997 to the date paid at the rate
of eight percent (8%) per annum on the unpaid principal amount of such Purchase
Notes outstanding from time to time. Interest on the Purchase Notes shall be
computed on the principal balance thereof on the basis of a 360-day year for the
actual number of days elapsed in the period during which it accrues. Purchaser
shall pay interest accrued on each Purchase Note on the date upon which the
payment of principal thereof is due and payable. Notwithstanding any provision
to the contrary contained in this Agreement, Purchaser shall not be required to
pay any amount of interest in excess of the maximum amount of interest permitted
by law.
(c) CLOSING PAYMENT. At the Closing, upon the terms and subject to the
conditions set forth herein, Purchaser shall deliver to the Partners the
Purchase Notes.
(d) ALLOCATION OF PURCHASE PRICE. Purchaser shall prepare IRS Form 8594
allocating the Purchase Price in accordance with Section 1060 of the Code and
shall forward it within 120 days after the Closing to Sellers for their
approval, which approval shall not be unreasonably withheld. The parties agree
that Three Hundred Thousand Dollars ($300,000) of the aggregate Purchase Price
will be allocable to the Agreements Not to Compete. Purchaser and Sellers shall
each file with their respective federal income tax return for the tax year in
which the Closing occurs, IRS Form 8594 containing the information agreed upon
by the parties pursuant to the immediately preceding sentence. Purchaser agrees
to report the purchase of the Assets, and Sellers agree to report the sale of
such Assets for income tax purposes (including but not limited to, on their
respective income tax returns, before any governmental agency charged with the
collection of income tax or in any judicial proceeding concerning the income tax
consequences of Purchaser's purchase or Sellers' sale of the Assets hereunder)
in a manner consistent with the
14
information agreed upon by the parties pursuant to this Section 2.4(d) and
contained in its IRS Form 8594.
(e) EARN-OUT DEFAULT. In the event Purchaser commits an "Earn-Out
Default" with respect to an Earn-Out Installment Payment, the Partners shall
notify the Chief Executive Officer of Purchaser in writing of such alleged
Default. If Purchaser has not cured such Earn-Out Default within 15 Business
Days of receipt of such notice, then Purchaser shall be deemed to have
automatically licensed and assigned the name "WOODHOLLY PRODUCTIONS" to the
Partnership, effective on such 15th day, and the Sellers shall be released from
the Agreements Not to Compete set forth in Section 7.8 hereof. In the event an
Earn-Out Default is subsequently cured by payment thereof, waived or rescinded,
the rights to the name "WOODHOLLY PRODUCTIONS" shall revert to Purchaser and the
Sellers shall become subject to the Agreements Not to Compete. An "Earn-Out
Default" shall mean failure to make an Earn-Out Installment Payment on an Earn-
Out Payment Date (unless Purchaser shall in good faith believe it has a right to
adjustment or off-set with respect to such Earn-Out Installment Payment), in
each case subject to the terms and conditions of this Agreement.
SECTION 2.5 CLOSING COSTS; TRANSFER TAXES AND FEES. The Partnership
shall be responsible for any documentary and transfer taxes and any sales, use
or other taxes imposed by reason of the transfer of Assets provided hereunder
and any deficiency, interest or penalty asserted with respect thereto. The
Partnership shall pay the fees and costs of recording or filing all applicable
conveyancing instruments described in Section 4.2(a).
SECTION 2.6 RESCISSION. Purchaser shall have the right, in its sole
discretion, to rescind the transactions contemplated by this Agreement in the
event (AND ONLY IN THE EVENT) that Purchaser does not obtain financing to fund
payment of the Purchase Notes for any reason. In the event Purchaser exercises
its rights under this Section 2.6, it shall notify each Seller in writing and
upon such notification, the Assets and Assumed Liabilities shall immediately
revert to the Partnership or the Sellers, as the case may be, and Purchaser
shall be relieved of its obligation to pay the Purchase Notes. In connection
with such reversion, Purchaser shall pay to the Partnership an amount equal to
the net income of the Business, determined in accordance with GAAP, earned from
the Closing Date to the date of such notice. In the event Purchaser so
exercises its rescission rights (i) Sellers shall be released from their
Agreements Not to Compete, (ii) Purchaser and each Partner shall negotiate in
good faith the status of their respective employment agreements, (iii) the
Sellers shall be released from their indemnification obligations hereunder,
except with respect to Damages actually incurred by Purchaser prior to the date
of rescission, (iv) Purchaser shall be released from its indemnification
obligations hereunder, except with respect to Damages actually incurred by the
Sellers prior to the date of rescission, and (v) Purchaser shall have no
obligation with respect to unearned Earn-Out Installment Payments. The parties
agree to use all reasonable efforts to take, or cause to be taken, all actions
and to do or cause to be done, all things necessary, proper or advisable to
cause the reconveyance of the Assets and the Assumed Liabilities in the manner
contemplated by this Section 2.6, including the execution of documents, and to
cooperate with each other in connection with the foregoing.
15
ARTICLE III
POST-CLOSING ADJUSTMENTS TO EARN-OUT
AND BONUS PAYMENT
SECTION 3.1 ADJUSTMENT TO EARN-OUT.
(a) CLOSING DATE BALANCE SHEET.
(i) Within 10 days after Closing, the Partnership shall cause to be
prepared and delivered to Purchaser an unaudited balance sheet of the
Partnership as of the Closing Date (the "Closing Balance Sheet"), which shall be
(x) prepared from the books and records of the Partnership in accordance with
GAAP consistently applied with prior periods, (y) complete and correct and
fairly present, in each case in all material respects, the financial condition
and results of operations of the Partnership as of the Closing Date and for the
periods indicated thereon and (z) set forth the "Closing Date Net Asset Value",
which shall mean (i) the sum of the amount of all accounts receivable,
inventories, other current assets and prepaid expenses of the Business as of the
Closing Date, minus (ii) (a) to the extent that the items in this clause (a)
constitute Assumed Liabilities, current liabilities of the Business as of the
Closing Date, (b) Taxes as of the Closing Date, and (c) outstanding long-term
debt, if any, of the Partnership assumed by Purchaser hereunder.
(ii) During the preparation of such Closing Balance Sheet, Purchaser
shall provide the Partnership and the Partnership's Representatives during
normal business hours with reasonable access to the books, records, facilities
and employees of the Business.
(iii) Following delivery of the Closing Balance Sheet to
Purchaser, Purchaser shall have a period of 80 days thereafter to present in
writing to the Partnership any objections or disagreement with respect to the
calculation of the Closing Date Net Asset Value. Such notice shall specify, in
reasonable detail, the nature and extent of such disagreement.
(iv) If the Partnership and Purchaser are unable to resolve any such
disagreement with respect to the calculation of the Closing Date Net Asset Value
within ten (10) days after delivery by Purchaser of the notice referred to in
Section 3.l(a)(iii), the disagreement shall be submitted for final determination
to a "Big Six" accounting firm mutually acceptable to the Partnership and
Purchaser (the "Independent Accounting Firm"). The Independent Accounting Firm
shall follow such procedures as it deems appropriate for obtaining the necessary
information in considering the positions of the Partnership and Purchaser but
shall not conduct an independent audit. The Independent Accounting Firm shall
render its determination on the matter within 30 days of its submission by the
Partnership and Purchaser, and such determination shall be final, conclusive and
binding upon Purchaser and Sellers.
(v) The fees and expenses of the Independent Accounting Firm (A)
shall be
16
paid by the Partnership if the Closing Date Net Asset Value, as determined by
the Independent Accounting Firm, is less thatn 90% of the Closing Date Net Asset
Value as calculated by the Partnership, or (B) shall be paid by Purchaser if the
Closing Date Net Asset Value, as calculated by the Partnership is 90% or more of
the Closing Date Net Asset Value as calculated by the Independent Accounting
Firm.
(b) The Purchase Price shall be:(i) increased by the amount, if any, by
which the Closing Date Net Asset Value, as determined pursuant to
Section 3.1(a), is greater than zero; and (ii) decreased by the amount, if any,
by which the Closing Date Net Asset Value, as determined pursuant to
Section 3.1(a), is less than zero. The amount of the decrease in the Purchase
Price, if any, shall hereinafter be referred to as the "Purchase Price
Decrease." The amount of the increase in the Purchase Price, if any, shall
hereinafter be referred to as the "Purchase Price Increase."
(c) Promptly following the date upon which a Purchase Price Decrease, if
any, is mutually agreed upon by the Partnership and Purchaser or determined
pursuant to Section 3.1(a), such Purchase Price Decrease shall be deducted from
the Earn-Out (I.E., the amount of such Purchase Price Decrease shall be
amortized over the 20 Earn-Out Installment Payments.). Promptly following the
date upon which a Purchase Price Increase, if any, is mutually agreed upon by
the Partnership and Purchaser or determined pursuant to Section 3.1(a), but not
later than ten (10) business days after such date, Purchasers shall deliver to
the Partners additional subordinated promissory notes, made by Purchaser,
payable to each different Partner, each in a principal amount of one-quarter of
the amount of such Purchase Price Increase, and each on substantially the same
terms and conditions as the form of the Purchase Note attached hereto as Exhibit
A.
SECTION 3.2 ADJUSTMENT TO EARN-OUT. (a) Within 15 Business Days of each
Earn-Out Reference Date, Purchaser shall cause its auditors to calculate the
Total Operating Income (as defined herein) as of such Earn-Out Reference Date
for the three month period prior thereto. If the Total Operating Income for
such period is equal to or greater than Two Hundred Forty-Five Thousand Six
Hundred Dollars ($245,600), then on the 15th Business Day following such Earn-
Out Reference Date (each, an "Earn-Out Payment Date"), Purchaser shall pay to
the Partners the Earn-Out Installment Payment. If the Total Operating Income
for such period is less than Two Hundred Forty-Five Thousand Six Hundred Dollars
($245,600), then the applicable Earn-Out Installment Payment shall be withheld
until, and paid on, the next successive Earn-Out Payment Date on which the Total
Operating Income with respect to the related Earn-Out Reference Date is equal to
or greater than Two Hundred Forty-Five Thousand Six Hundred Dollars ($245,600).
Subject to similar withholding on subsequent Earn-Out Payment Dates, Earn-Out
Installment Payments shall resume thereafter until the Earn-Out Termination Date
(which shall be December 31, 2003). If on the Earn-Out Termination Date, the
Total Operating Income for the three month period prior thereto is less than Two
Hundred Forty-Five Thousand Six Hundred Dollars ($245,600), then no Earn-Out
Installment Payment shall be due on such date and the unpaid amount of the Earn-
Out shall be deemed waived by the Sellers and Purchaser's obligations with
respect to the Earn-Out shall terminate.
17
(b) If any Earn-Out Installment Payment required to be paid hereunder
is not received within 10 days after such payment is due, then, in addition to
such payment, Purchaser shall pay an additional sum of one and one-half percent
(1 1/2 %) of the payment then due as a late charge. The parties agree that this
late charge represents a reasonable sum considering all of the circumstances
existing on the date of this Agreement and represents a fair and reasonable
estimate of the costs that the Partners will incur by reason of late payment.
The parties further agree that proof of actual damages would be costly or
inconvenient. Acceptance of any late charge shall not constitute a waiver of
the default with respect to the overdue amount, and shall not prevent the
Partners from exercising any of the other rights and remedies available to them.
In the event of a default in payment due hereunder, Purchaser agrees to pay
reasonable costs, expenses and attorney's fees paid or incurred by the Partners
in connection with the collection of such payment, whether or not suit is filed.
(c) "Total Operating Income" means, for any three month period, the
aggregate revenues arising from the conduct of the Business, minus the sum of
(x) the aggregate amount of costs incurred in connection with such sales,
including, without limitation, production, packaging and shipping costs, salary
and wages, equipment rental and depreciation and miscellaneous equipment costs,
contracting fees, rental and other occupancy costs and any other costs related
to the Business and (y) selling, general and administrative expenses, in each
case as determined in accordance with GAAP, subject to the following: the
amounts represented in (x and (y) shall not include (i) any allocation from
Purchaser for overhead or other indirect charges, (ii) amortization of goodwill,
(iii) any allocation of the Agreements Not to Compete, (iv) any increased
depreciation due to a step-up in basis resulting from the Transaction or (v) any
other acquisition cost from the Transaction. Attached as Schedule 3.2 is a
sample calculation of Total Operating Income as determined pursuant to the
foregoing definition. The parties hereto acknowledge and agree that Schedule
3.2 has been prepared for illustrative purposes only and shall not be
determinative of the calculation of Total Operating Income in any future period.
Such calculations shall be made only pursuant to the definition set forth above.
(d) Subject to the occurrence of the Closing, Purchaser and the
Partners (as employees of Purchaser) will use their best efforts to increase the
revenues generated by the Assets from and after the Closing Date.
(e) Purchaser shall maintain accurate books, records and documents
reasonably necessary for the calculation of Total Operating Income. The
Partners shall, upon request received by Purchaser in writing, have reasonable
access during normal business hours to inspect such books and records.
SECTION 3.3 BONUS PAYMENT. Subject to the conditions set forth herein,
Purchaser shall make three cash payments to Sellers (each a "Bonus Payment"),
each in an aggregate amount equal to $333,333 to be divided equally among the
Partners, and due and payable on January 31, 1998, January 31, 1999 and January
31, 2000, respectively; PROVIDED, HOWEVER:
18
(a) Purchaser shall have no obligation to make the Bonus Payment of
$333,333 otherwise due and payable on January 31, 1998, if on such date, (i) the
aggregate sales of the Business as set forth on an unaudited income statement of
the Business (prepared by Purchaser or caused by Purchaser to be prepared) for
the prior four quarters then ended is less than $9,850,500 or (ii) the Total
Operating Income for the prior four quarters then ended as set forth on such
income statement is less than $1,191,911;
(b) Purchaser shall have no obligation to make the Bonus Payment of
$333,333 otherwise due and payable on January 31, 1999, if on such date, (i) the
aggregate sales of the Business as set forth on an unaudited income statement of
the Business (prepared by Purchaser or caused by Purchaser to be prepared) for
the prior four quarters then ended is less than $11,583,000 or (ii) the Total
Operating Income for the prior four quarters then ended as set forth on such
income statement is less than $1,633,203; and
(c) Purchaser shall have no obligation to make the Bonus Payment of
$333,333 otherwise due and payable on January 31, 2000, if on such date, (i) the
aggregate sales of the Business as set forth on an unaudited income statement of
the Business (prepared by Purchaser or caused by Purchaser to be prepared) for
the prior four quarters then ended is less than $13,612,500 or (ii) the Total
Operating Income for the prior four quarters then ended as set forth on such
income statement is less than $2,191,613.
ARTICLE IV
CLOSING
SECTION 4.1 CLOSING. The Closing of the transactions contemplated
herein (the "Closing") shall be held at 9:00 a.m. local time on the Closing Date
at the offices of Kaye, Scholer, Fierman, Hays & Handler, LLP, 1999 Avenue of
the Stars, Los Angeles, California, unless the parties hereto otherwise agree.
SECTION 4.2 CONVEYANCES AT CLOSING.
(a) DOCUMENTS DELIVERED BY SELLERS. To effect the sale of the Assets and
assumption of the Assumed Liabilities referred to in Article II hereof, in
addition to the conditions set forth in Article VIII, each Seller shall, at the
Closing, execute (as applicable) and deliver to Purchaser:
(i) one or more bills of sale, each in the form attached hereto as
Exhibit D, conveying in the aggregate all of such Seller's owned personal
property included in the Assets;
(ii) Assignments of Lease, each in the form attached hereto as Exhibit
E, with respect to the Leases;
(iii) Assignments of Personal Property Leases, each in the form
attached hereto as Exhibit F, with respect to the Personal Property Leases;
19
(iv) Assignments of Contracts, each in the form attached hereto as
Exhibit G, with respect to the Contract Rights;
(v) Assignments of all Sellers' rights, title and interest to the
name "WOODHOLLY" and all variations thereof);
(vi) the Ancillary Agreements;
(vii) releases of any Encumbrances on the Assets (the "Release
Documents");
(viii) such other instruments as shall be requested by Purchaser to
vest in Purchaser title in and to the Assets in accordance with the provisions
hereof.
(b) DOCUMENTS DELIVERED BY PURCHASER. To effect the sale of the Assets
and assumption of the Assumed Liabilities referred to in Article II hereof, in
addition to the conditions set forth in Article IX herein, Purchaser shall at
the Closing execute and deliver to Sellers (i) an instrument or instruments of
assumption substantially in the form attached as an Exhibit, evidencing
Purchaser's assumption, pursuant to Section 2.2, of the Assumed Liabilities (the
"Assumption Document"); and (ii) the Ancillary Agreements.
(c) FORM OF INSTRUMENTS. To the extent that a form of any document to be
delivered hereunder is not attached as an exhibit hereto, such documents shall
be in form and substance, and shall be executed and delivered in a manner,
reasonably satisfactory to Purchaser and Sellers.
(d) CERTIFICATES; OPINIONS. Purchaser and Sellers shall deliver the
certificates, opinions of counsel and other matters described in Articles VIII
and IX.
(e) CONSENTS. Sellers shall deliver all Permits that are transferrable
and any other third party consents required for the valid transfer of the Assets
as contemplated by this Agreement, including the consents specified on Schedule
5.4.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF SELLERS
Each Seller, jointly and severally, hereby represents and warrants to
Purchaser that:
SECTION 5.1 ORGANIZATION AND GOOD STANDING. The legal name of the
Partnership is "WOODHOLLY PRODUCTIONS". The Partnership is a partnership, duly
organized, validly existing and in good standing under the laws of the
jurisdiction of its organization, and the Partnership is duly qualified or
authorized to do business in each jurisdiction in which it does business, or
owns property, or where such qualification or authorization is otherwise
required by virtue of its presence or activities. Schedule 5.l sets forth the
jurisdiction where the Partnership is organized and a complete and correct list
of all jurisdictions in which the Partnership does
20
business or are otherwise required to be qualified or authorized to transact
business or own property.
SECTION 5.2 ASSETS. Excluding the Leased Real Property and the Leased
Personal Property, the Partnership owns, and will transfer good and marketable
title to, the Assets and upon the consummation of the transactions contemplated
hereby, Purchaser will acquire good and marketable title to all of the Assets,
free and clear of any Encumbrances. The Assets include without limitation all
assets used in the conduct of the Business or located at the Facilities.
Section 5.2 contains accurate lists and summary descriptions of all tangible
Assets where the value of an individual item exceeds $100.00 or where an
aggregate of similar items exceeds $100.00. All tangible assets and properties
which are part of the Assets are in good operating condition and repair and are
usable in the ordinary course of business and conform in all material respects
to all applicable Regulations (including Environmental Laws) relating to their
construction, use and operation.
SECTION 5.3 LICENSES AND PERMITS. The Partnership is duly licensed,
with all requisite permits and qualifications, as required by applicable law for
the purpose of conducting its business or owning its properties or both, in each
jurisdiction in which it does business or owns property or in which such
license, permit or qualification is otherwise required and where the failure to
have such license, permit or qualification would have a material adverse effect
on the assets, liabilities (whether absolute, accrued contingent or otherwise),
condition (financial or otherwise), results of operations or business of the
Partnership. The Partnership is in compliance in all material respects with all
such licenses, permits and qualifications. Schedule 5.3 sets forth a list of
all such licenses, permits and qualifications, and the expiration dates thereof.
There are no proceedings pending or, to the best of Sellers' knowledge,
threatened, to revoke or terminate any such presently existing license, permit
or qualification, and each such presently existing license, permit or
qualification can be renewed in the ordinary course of business.
SECTION 5.4 NO BREACH. Neither the execution and delivery of this
Agreement nor the consummation of the Transactions will (A) violate, result in a
breach of any of the terms or provisions of, constitute a default (or any event
that, with the giving of notice or the passage of time or both, would constitute
a default) under, result in the acceleration of any indebtedness under or
performance required by, result in any right of termination of, increase any
amounts payable under, decrease any amounts receivable under, change any other
rights pursuant to, or conflict with, the partnership agreement or certificate
of partnership of the Partnership, any material agreement, indenture or other
instrument to which any of the Sellers is a party or by which any of its
properties are bound, or any judgment, decree, order or award of any court,
governmental body or arbitrator (domestic or foreign) applicable to any of the
Sellers, or (B) require any Seller to obtain any authorization, consent,
approval or waiver from, or make any filing with, any Person, court or public
body or authority, except such consents as are set forth on Schedule 5.4.
SECTION 5.5 THE PARTNERSHIP; AUTHORITY. The general partners of the
Partnership are Yvonne Parker, Rodger Parker, Jim Watt and Kim Watt. Each
Seller has the right to sell,
21
convey, transfer, assign and deliver the Assets to Purchaser hereunder. This
Agreement and all agreements and instruments herein contemplated to be executed
by any Seller have been duly authorized, executed and delivered by each such
Seller and constitutes the valid and binding obligation of each Seller,
enforceable in accordance with its terms. There exist no (a) outstanding
options, warrants or rights to purchase any partnership interests in, or other
ownership interests of, the Partnership, (b) outstanding options or rights to
sell to the Partnership any equity securities or other ownership interests of
any other business entity, (c) obligations of any of the Sellers, whether
absolute or contingent, to sell any partnership interest in, or any other
ownership interests of, the Partnership or to share or make any payments based
on its revenues, profits or net income, or (d) indebtedness or securities
directly or indirectly convertible into any partnership interest in, or any
other ownership interest of, the Partnership.
SECTION 5.6 SUBSIDIARIES. The Partnership has no equity interest in any
corporation, partnership, limited liability company or similar entity.
SECTION 5.7 FINANCIAL STATEMENTS.
(a) The balance sheets of the Partnership at December 31, 1995, December
31, 1994 and December 31, 1993 (individually, a "Balance Sheet" and
collectively, the "Balance Sheets") and the statements of operations and
retained earnings and the statements of cash flows of the Partnership for each
of the 12 month periods then ended and notes thereto (collectively, the
"Financials"), true and correct copies of which are attached hereto as
Schedule 5.7(a), (i) have been prepared from the books and records of the
Partnership in accordance with GAAP consistently applied with prior periods, and
(ii) are complete and correct and fairly present, in each case in all material
respects, the financial condition and results of operations of the Partnership
as of the dates and for the periods indicated thereon. The statements of
operations included in the Financials do not contain any items of extraordinary
income or any other income not earned in the ordinary course of business.
(b) The unaudited balance sheets at March 31, 1996 (the "March 1996
Balance Sheet"), June 30, 1996 (the "June 1996 Balance Sheet") and September 30,
1996 (the "September 1996 Balance Sheet"; and together with the March 1996
Balance Sheet and the June 1996 Balance Sheet, the "Interim Balance Sheet"), and
the unaudited statements of operations and retained earnings and statements of
cash flows for the Partnership for the three, six and nine month periods then
ended and notes thereto (collectively, the "Interim Financials"), true and
correct copies of which are attached hereto as Schedule 5.7(b), (i) have been
prepared from the books and records of the Partnership in accordance with GAAP
consistently applied with prior periods, and (ii) are complete and correct and
fairly present, in each case in all material respects, the financial condition
and results of operations of the Partnership as of the dates and for the periods
indicated thereon.
(c) The Financials have been reviewed by the independent accounting firm
of Gill & Kim whose reports thereon are part of Schedule 5.7. The books of
accounts of the Partnership have been maintained in all material respects in
accordance with sound business practices, and
22
there have been no transactions involving the Partnership that properly should
have been set forth therein in accordance with generally accepted accounting
principles that have not been accurately so set forth.
SECTION 5.8 PROJECTIONS. The projected financial statements of the
Partnership attached hereto as Schedule 5.8 set forth the best estimates by the
Partners of the financial positions and results of operations of the Partnership
at the dates and for the periods set forth therein and neither the Partnership
nor any Partner knows of any reason that any of the assumptions upon which such
projected consolidated financial statements are based is not reasonable.
SECTION 5.9 ABSENCE OF CERTAIN CHANGES. Except as disclosed on Schedule
5.9, since December 31, 1995, there has not occurred:
(a) Any adverse change in the assets, liabilities (whether absolute,
accrued, contingent or otherwise), condition (financial or otherwise), results
of operations or business of Sellers not reflected in the Financials or the
Interim Financials and that has resulted in or reasonably could result in a loss
to Sellers of more than $100,000 in the aggregate;
(b) Any increase in indebtedness over the level reflected on the Interim
Balance Sheet, any guarantee by any of the Sellers of any obligation, or any
mortgage, pledge or encumbrance on any of the properties or assets of the
Partnership;
(c) Any amendment or modification of any Material Contract (as defined
below), or any termination of any agreement that would have been a Material
Contract were such agreement in existence on the date hereof;
(d) Any entering into of any written or oral agreements, contracts,
commitments or transactions that extend beyond the first anniversary hereof or
have obligations thereunder in excess of $25,000, including any purchase or sale
of any assets.
(e) Any increase in the compensation (including, without limitation, the
rate of commissions) payable to, or any payment of a cash bonus to, any employee
or agent of, or consultant to, any of the Sellers;
(f) Any alteration in the manner of keeping the books, accounts or records
of any of the Sellers, or in the accounting practices therein reflected;
(g) Any declaration or payment of any dividends or distributions by the
Partnership, any acquisition or redemption by the Partnership of any of its
equity securities or any loan by any Seller to any other Seller;
(h) Any loss or threatened loss of a customer or customers to which the
Partnership had annual sales in excess of $20,000 during the past two years or
to which Sellers expects the
23
Partnership to have annual sales in excess of $20,000 during calendar years
1996-1999;
(i) Any material damage or destruction to, or loss of, any assets or
property owned, leased or used by the Partnership (whether or not covered by
insurance); or
(k) Any agreement to do any of the things described in the preceding
clauses (a) - (h) of this Section 5.9.
SECTION 5.10 ABSENCE OF UNDISCLOSED LIABILITIES. There are no
liabilities of the Partnership whether absolute, accrued, contingent or
otherwise, and whether due or to become due, not reflected on or reserved for on
the Interim Balance Sheet, except as set forth in Schedule 5.10 and except for
executory obligations under Material Contracts (as defined below) and immaterial
contracts for the purchase of supplies or the sale of products incurred in the
ordinary course of business. There are no commitments, contracts or
undertakings covering the purchases of items of inventory in excess of the
Partnership's normal operating requirements or covering the purchases of items
of machinery and equipment in excess of the requirements of the Partnership.
None of the Sellers is a party to, is bound by, or has bid upon any contract or
agreement that is adverse to the assets, condition (financial or otherwise),
business or prospects of the Partnership, that will require future expenditures
(including incurred costs and allocated overhead and selling, general and
administrative expense) in excess of reasonably anticipated receipts by more
than $10,000 in the aggregate, or on which the Partnership expects to lose in
excess of $10,000 in the aggregate.
SECTION 5.11 ACCOUNTS RECEIVABLE. Schedule 5.11 is an accurate aging of
the accounts, notes and other receivables of the Partnership (the "Accounts
Receivable") at the Closing Date. The Accounts Receivable as of such date and
any Accounts Receivable arising since such date are fully collectible, net of
the reserves set forth in the Interim Balance Sheet, all of which reserves are
adequate in accordance with GAAP.
SECTION 5.12 REAL PROPERTY; REAL PROPERTY LEASES. Schedule 5.12(a) sets
forth a complete and correct summary description of each parcel of real property
(collectively, the "Real Property") owned by or leased to any of the Sellers or
otherwise used by any of the Sellers in connection with the Business, which
description consists of a legal description for each such parcel owned by any of
the Sellers and an identification of each lease (a "Lease") of real property
under which any of the Sellers is either a lessee, sublessee, lessor or
sublessor. Except as set forth in Schedule 5.12(a):
(a) The Partnership does not own any Real Property;
(b) Each Lease is a valid and binding obligation of the Seller that is a
party thereto, and each such Lease is a valid and binding obligation of each of
the other parties thereto;
(c) None of the Sellers nor any other party to a Lease is in default with
respect to any material term or condition thereof, and no event has occurred
that, with the passage of time or
24
the giving of notice or both, would constitute a default thereunder or would
cause the acceleration of any obligation of any party thereto or the creation of
a lien or encumbrance upon any asset of any of the Sellers;
(d) All of the buildings, fixtures and other improvements located on the
Real Property are in good operating condition and repair, and the operation
thereof as presently conducted does not violate any applicable code, zoning
ordinance or other applicable law or regulation;
(e) The Partnership holds valid and effective certificates of occupancy,
underwriters' certificates relating to electrical work, zoning, building,
housing, safety, fire and health approvals and all other permits and licenses
required by applicable law relating to the operation of the Real Property; and
(f) The Partnership has not experienced during the two years preceding the
date hereof any material interruption in the delivery of adequate quantities of
any utilities (including, without limitation, electricity, natural gas, potable
water, and fuel oil) or other public services (including, without limitation,
sanitary and industrial sewer service) required by it in the operation of its
business during such period.
SECTION 5.13 ENVIRONMENTAL MATTERS. Except as set forth in Schedule
5.13, to the best knowledge of Sellers:
(a) The Partnership is, and at all times has been, in all material
respects in full compliance with all Environmental Protection Laws;
(b) The Partnership has obtained or has timely applied for all permits,
licenses and other authorizations under Environmental Protection Laws which are
required in connection with its business and operations, all of which are in
full force and effect. The Partnership is in material compliance with all terms
and conditions of such permits, licenses and authorizations, no action or
proceeding which reasonably could be expected to result in the revocation or
suspension of any such permits, licenses and authorizations is pending or
threatened, and the Partnership has not engaged in any conduct which reasonably
could be expected to cause revocation or suspension of any of its permits,
licenses or authorizations under Environmental Protection Laws;
(c) During the period of the Partnership's ownership, lease, occupation
and operation of the Real Property or any other property previously owned,
leased, occupied or operated by the Partnership, no portion of the Real Property
or such other property (i) has been or is being used in any manner for the
storage, disposal, or treatment of any Regulated Substance, except for the
temporary storage of Regulated Substances in material compliance with
Environmental Protection Laws; (ii) contained or contains underground tanks of
any type, or any materials containing PCBs or any asbestos; or (iii) contained
or contains any surface or sub-surface conditions that constitute, or that
through the physical effects of the passage of time may constitute, a public or
private nuisance or otherwise caused any liability under Environmental
25
Protection Laws;
(d) There is not now nor has there been any contamination of soil,
groundwater or other environmental media by or with any Regulated Substance on,
in, under or about the Real Property or any other property previously owned,
leased, occupied or operated by any of the Sellers which could create liability
under the Environmental Protection Laws;
(e) Except for air emissions in material compliance with Environmental
Protection Laws, during the period of the Partnership's ownership, lease,
occupation and operation of the Real Property or any other property previously
owned, leased, occupied or operated by any of the Sellers, there has been no
spill, discharge, disposal, leak, emission, injection, escape, dumping or
release of any Regulated Substance on, in, under or about the Real Property or
such other property by any of the Sellers or for which any of the Sellers has
any liability;
(f) To best of Sellers' knowledge, no portion of the Real Property or any
other property previously owned, leased, occupied or operated by any of the
Sellers has been designated, listed, or identified in any manner by the EPA, or
any other federal, state, local or other governmental agency or instrumentality,
or under and pursuant to any Environmental Protection Law as a hazardous waste
or hazardous substance disposal or removal site, Superfund or clean-up site, or
candidate for clean-up, investigation, removal or closure pursuant to any
Environmental Protection Law;
(g) None of the Sellers has received at any time prior to the date hereof
a summons, citation, notice, directive, letter or other communication, written
or oral, from the EPA or any other federal, state, local or other governmental
agency or instrumentality, authorized pursuant to an Environmental Protection
Law, concerning any intentional or unintentional action or omission (except any
pertaining to emissions of fugitive dust and other non-hazardous particulates
that are routinely corrected) by any of the Sellers constituting a violation or
potential violation of any Environmental Protection Law, including, without
limitation, violations relating to the releasing, spilling, leaking, pumping,
pouring, emitting, emptying, dumping or otherwise disposing of any
Regulated Substance into the environment resulting in damage thereto or to the
wildlife, biota and other natural resources, and there exist no facts that would
form the basis for a finding of such a violation; and
(h) None of the Sellers has received at any time prior to the date hereof
any summons, citation, notice, directive, letter or other communication, written
or oral, of any potential claim or liability under any Environmental Protection
Law, including, without limitation, any notification as a potentially
responsible party with respect to any Superfund or other clean-up site. There
are no events, conditions, circumstances, activities, practices, incidents,
actions or plans at or concerning the Real Property or the operations of any of
the Sellers which may (i) interfere with or prevent continued compliance by any
of the Sellers with any Environmental Protection Law, (ii) give rise to any
claim or liability under any Environmental Protection Law, or (iii) form the
basis for any claim, action, suit, proceeding, hearing or investigation under
any Environmental Protection Law.
26
(i) Except as set forth on Schedule 5.13(i) , no Seller has received any
notice from a governmental authority or otherwise of any health problem of any
current or former employee which in any way is or is alleged to be related to
the operation of the Business.
SECTION 5.14 INTANGIBLE PERSONAL PROPERTY.
(a) There are no (i) patent, patent applications, copyright, copyright
applications, trademark, trademark applications (in any such case, whether
registered or required to be registered in the United States of America or
elsewhere), process, invention, trade secret, trade name, computer program,
formula and customer list (collectively, the "Intangible Personal Property") of
Sellers related to, or necessary to contintue the operation of, the Business, or
(ii) licenses or similar agreements or arrangements ("Licenses") to which any of
the Sellers is a party either as licensee or licensor for each such item of
Intangible Personal Property.
(b) There are no pending actions or other judicial or adversary
proceedings involving any of the Sellers concerning any item of Intangible
Personal Property, and, to the best of Sellers' knowledge, no such action or
proceeding is threatened and no claim or other demand has been made or, to the
best of Sellers' knowledge, threatened by any Person relating to any item of
Intangible Personal Property;
(c) Sellers have the right and authority to use each item of Intangible
Personal Property in connection with the conduct of its business in the manner
presently conducted and to convey such right and authority, and such use does
not conflict with, infringe upon or violate any patent, trademark or
registration of any other person or entity;
(d) There are no outstanding or, to the best of Sellers' knowledge,
threatened disputes or disagreements with respect to any License; and
(e) The conduct by each of the Sellers of its business does not conflict
with the valid patents, trademarks, trade secrets or trade names of others.
SECTION 5.15 LABOR AND EMPLOYMENT AGREEMENTS.
(a) Schedule 5.15 sets forth a complete and correct list of the following:
(i) Each employment, consulting, collective bargaining and similar
agreement, whether written or oral, to which any of the Sellers is a party or by
which it is bound; and
(ii) The name of (A) each employee of the Partnership who since
January 1, 1995, was or is being paid $50,000 or more per year, and (B) each
agent of or consultant to the Partnership who since January 1, 1995 was or is
being paid $50,000 or more per year.
As used in this Section 5.15, the word "agreement" includes both oral
and written
27
contracts, understandings, arrangements and other agreements.
(b) Each of the Sellers has complied in all material respects with all
applicable laws, rules and regulations relating to the employment of labor,
including, without limitation, those related to wages, hours, collective
bargaining and the payment and withholding of taxes and other sums as required
by appropriate governmental authorities and has withheld and paid to the
appropriate authorities, or is holding for payment not yet due to such
authorities, all amounts required to be withheld from such employees and is not
liable for any arrears of wages, taxes, penalties or other sums for failure to
comply with any of the foregoing.
(c) To the best of Sellers' knowledge, no unfair labor practice complaint
is pending against any of the Sellers before the National Labor Relations Board
or any federal, state or local agency and, to the best of Sellers' knowledge, no
labor strike, grievance or other labor dispute affecting any of the Sellers is
pending or threatened.
(d) Except as set forth in Schedule 5.15, no material organization effort,
and no sex discrimination, racial discrimination, age discrimination or other
employment-related allegation, claim, suit or proceeding, has been made or is
pending or, to the best of Sellers' knowledge, threatened with respect to the
employees of any of the Sellers and no such effort, allegation, claim, suit or
proceeding has been made, raised, brought or threatened within the three-year
period prior to the date of this Agreement.
(e) No arbitration proceeding arising out of or under any collective
bargaining agreement applicable to any of the Sellers is pending and, to the
best of Sellers' knowledge, no basis for any such proceeding exists.
(f) All reasonably anticipated obligations of Sellers, whether arising by
operation of law, contract, past custom or otherwise, for unemployment
compensation benefits, pension benefits, advances, salaries, bonuses, vacation
and holiday pay, sick leave and other forms of compensation payable to the
employees or agents of any of the Sellers in respect of the services rendered by
any of them on or prior to the date of the Financials have been paid or adequate
accruals therefor have been made in the books and records of Sellers and in the
Financials. All such obligations in respect of services rendered on or prior to
the date hereof have been paid as of the date hereof, or adequate accruals
therefor have been made on the Interim Balance Sheet, in accordance with GAAP.
All accrued obligations of Sellers applicable to its employees, whether arising
by operation of law, contract, past custom or otherwise, for payments to trusts
or other funds or to any governmental agency, with respect to unemployment
compensation benefits, social security benefits or any other benefits for
employees, with respect to employment of said employees through the date of the
Financials have been paid or adequate accruals therefor have been made on the
books and records of Sellers and in the Financials in accordance with GAAP. All
such obligations with respect to employment of employees through the date hereof
have been paid as of the date hereof, or adequate accruals therefor have been
made on the Interim Balance Sheet, in accordance with GAAP.
28
SECTION 5.16 EMPLOYEE BENEFIT PLANS: ERISA.
(a) Except as set forth in Section 5.16(a) of the Disclosure Schedule,
none of the Sellers (i) maintains, contributes to or has any obligation with
respect to, and none of the employees of the Business is covered by, any bonus,
deferred compensation, severance pay, pension, profit-sharing, retirement,
insurance, or other fringe benefit plan, arrangement or practice, written or
otherwise, or any other "employee benefit plan," as defined in Section 3(3) of
ERISA, whether formal or informal (collectively, the "Plans"), (ii) is a party
to a contract for the employment of any employee of the Business or any other
person who renders services to the Business, or (iii) has any ERISA Affiliates
other than another Seller. None of the Plans is, and none of the Sellers or any
of their ERISA Affiliates has ever maintained or had an obligation to contribute
to, (i) a plan subject to Section 412 of the Code or Title I, Subtitle B, Part 3
of ERISA, (ii) a "multi employer plan," as defined in Section 3(37) of ERISA (a
"Multi employer Plan"), (iii) a "multiple employer plan," as defined in ERISA or
the Code, or (iv) a funded welfare benefit plan, as defined in Section 419 of
the Code. None of the Sellers has any agreement or commitment to create or
contribute to any additional Plan, enter into any additional employment
agreement or to modify or change any existing Plan or employment agreement.
Section 5.16(a) of the Disclosure Schedule contains a complete and accurate list
of the following information for each employee of the Business (including each
employee who is on a leave of absence or on layoff status): name, employer, job
title(s), date of hire, current salary and benefit arrangements, years of
service for purposes of eligibility, vesting, and benefit determination under
any of the Plans, and current status (E.G., active employee, on leave, etc.).
None of the employees of the Business is a "leased employee," as defined in
Section 414(n) of the Code.
(b) With respect to each Plan, Sellers have heretofore delivered or caused
to be delivered to Purchaser true, correct and complete copies of (i) all
documents that comprise the most current version of such Plan, including any
related trust agreements, insurance contracts, or other funding or investment
agreements and any amendments thereto, and (ii) with respect to each Plan that
is an "employee benefit plan," as defined in Section 3(3) of ERISA, (A) the
three most recent Annual Reports (Form 5500 Series) and accompanying schedules
for each of the Plans for which such a report is required, (B) the most current
summary plan description (and any summary of material modifications), (C) the
three most recent certified financial statements for each of the Plans for which
such a statement is required or was prepared, and (D) for each Plan intended to
be "qualified" within the meaning of Section 401(a) of the Code, all Internal
Revenue Service determination letters issued with respect to such Plan. Except
as set forth in Section 5.16(b) of the Disclosure Schedule, since the date of
the foregoing documents, there has not been any material change in the assets
or liabilities of any of the Plans or any change in their terms and operations
that could reasonably be expected to affect or alter the tax status or
materially affect the cost of maintaining such Plan, and none of the Plans has
been or will be amended prior to the Closing Date. Each of the Plans can be
amended, modified or terminated by a Seller within a period of thirty (30)
days, without payment of any additional compensation or amount or the additional
vesting or acceleration of any such benefits, except to the extent that such
vesting is required under the Code upon the complete or partial termination of
any Plan intended to be qualified within the meaning of Section 401(a) of the
Code.
29
(c) Each Seller has performed and complied in all respects with all of its
obligations under and with respect to the Plans, and each of the Plans has, at
all times, in form, operation and administration complied in all material
respects with its terms, and, where applicable, the requirements of all
applicable laws. Each Plan that is intended to be "qualified" within the
meaning of Section 401(a) of the Code has been determined by the Internal
Revenue Service to be so qualified and nothing has occurred that reasonably
could be expected to adversely affect such qualified status.
(d) Each Seller has made all contributions with respect to a Plan that are
required to have been made as of the date hereof under the terms thereof, or
under the terms of any related insurance contract, or any applicable law.
(e) All Plans that are group health plans have been operated in compliance
with the continuation coverage requirements of Section 4980B of the Code (and
any predecessor provisions) and Part 6 of Title I of ERISA ("COBRA"). None of
the Sellers has any obligation to provide health benefits or other non-pension
benefits to any retired or other former employees, except as specifically
required by COBRA.
(f) None of the Sellers nor any other "disqualified person" or "party in
interest," as defined in Section 4975 of the Code and Section 3(14) of ERISA,
respectively, has engaged in any "prohibited transaction," as defined in
Section 4975 of the Code or Section 406 of ERISA, with respect to any Plan , and
none of the Sellers is aware of any fiduciary violations under ERISA with
respect to any Plan, that could subject a Seller (or any employee thereof) to
any material penalty or tax under Section 502(i) of ERISA or Sections 4971 and
4975 of the Code.
(g) Except as set forth in Section 5.16(g) of the Disclosure Schedule,
with respect to any Plan: (i) no filing, application or other matter is pending
with the Internal Revenue Service, the Pension Benefit Guaranty Corporation, the
United States Department of Labor or any other governmental body, (ii) there is
no action, suit or claim pending (and none of the Sellers is aware of any basis
for such a claim), other than routine claims for benefits, and (iii) there are
no outstanding liabilities for taxes, penalties or fees.
(h) None of the Sellers has incurred any liability or taken any action,
and is not aware of any event that has occurred or is likely to occur, that
could cause any one of them to incur any liability (i) under Section 412 of the
Code or Title IV of ERISA with respect to any "single-employer plan" (as defined
in Section 4001(a)(15) of ERISA), (ii) on account of a partial or complete
withdrawal (as defined in Sections 4203 and 4205 of ERISA, respectively) with
respect to any Multi employer Plan, (iii) on account of unpaid contributions to
any Multi employer Plan, or (iv) on account of any reorganization, insolvency or
termination of any Multi employer Plan.
(i) Neither the execution and delivery of this Agreement nor the
consummation of any or all of the Transactions will: (i) entitle any current or
former employee of the Business to severance pay, unemployment compensation or
any similar payment, (ii) accelerate the time of
30
payment or vesting or increase the amount of any compensation due to any such
employee or former employee, or (iii) directly or indirectly result in any
payment made or to be made to or on behalf of any person to constitute a
"parachute payment" within the meaning of Section 280G of the Code.
SECTION 5.17 MATERIAL CONTRACTS AND RELATIONSHIPS.
(a) Except for agreements specifically identified on other schedules
hereto, Schedule 5.17(a) sets forth a complete and correct list of the
following, in each case to the extent related to the Business:
(i) All agreements (or groups of agreements with one or more related
entities) between the Partnership and any customer or supplier in excess of
$10,000 and all agreements and purchase orders extending beyond 12 months;
(ii) In each case to the extent related to the Partnership, all
agreements that relate to the borrowing or lending by any of the Sellers of
any money or that create or continue any material claim, lien, charge or
encumbrance against, or right of any third party with respect to, any
material asset of the Partnership;
(iii) All agreements by which the Partnership leases any real
property, has the right to lease any real property or leases capital
equipment or leases any other personal property, and all other leases
involving the Partnership as lessee or lessor;
(iv) All agreements to which the Partnership is a party not in the
ordinary course of business;
(v) All contracts or commitments relating to commission arrangements
with others;
(vi) All license agreements, whether as licensor or licensee;
(vii) All agreements between the Partnership and its sales
representatives;
(viii) All agreements between the Partnership and its customers
relating to volume rebates or price reductions;
(ix) All other agreements to which the Partnership is a party or by
which it is bound and that involve $20,000 or more or that extend for a
period of one year or more;
(x) All other agreements to which the Partnership is a party or by
which it is bound and that are or may be material to the assets,
liabilities (whether absolute, accrued, contingent or otherwise), condition
(financial or otherwise), results of operations, business or prospects of
the Partnership; and
31
(xi) A current list of the Partnership's active customers.
As used in this Section 5.17, the word "agreement" includes both oral and
written contracts, leases, understandings, arrangements and all other
agreements. The term "Material Contracts" means the agreements of any of the
Sellers required to be disclosed on Schedule 5.17(a), including agreements
specifically identified in other schedules hereto.
(b) All of the Material Contracts are in full force and effect, are valid
and binding and are enforceable in accordance with their terms in favor of the
Partnership. There are no material liabilities of any party to any Material
Contract arising from any breach or default of any provision thereof and no
event has occurred that, with the passage of time or the giving of notice or
both, would constitute a breach or default by any party thereto.
(c) Each of the Sellers (i) has fulfilled all material obligations
required pursuant to each Material Contract to have been performed by it prior
to the date hereof, and (ii) as far as reasonably foreseeable based on current
conditions, will be able to fulfill all of its obligations under the Material
Contracts that remain to be performed after the date hereof.
(d) Schedules 5.17(b), (c) and (d) set forth a complete and correct list
of each (i) customer (or related group of customers) with whom the Partnership
did $50,000 or more of business during the last fiscal year or the current
fiscal year, (ii) supplier (or related group of suppliers) with whom the
Partnership did $50,000 or more of business during the last fiscal year or the
current fiscal year, and (iii) agent (or related group of agents) or
Representative (or related group of Representatives) who was paid $25,000 or
more by the Partnership during the last fiscal year or the current fiscal year,
respectively.
(e) Each Seller has maintained and continues to maintain good relations
with the Partnership's customers, suppliers and agents and, except as set forth
in Schedule 5.17(e), Sellers do not reasonably expect that any customer (to
which the Partnership had annual sales in excess of $50,000 during the past two
years), supplier or agent will stop doing business with the Partnership or will
materially change the terms on which such customer, supplier or agent has done
business with the Partnership in the past.
SECTION 5.18 INVENTORY. Except for inventory that is excess, damaged,
obsolete, or outdated or requires rework, for which the Partnership has
established an adequate reserve in the September 30, 1996 Balance Sheet in
accordance with GAAP, or inventory on consignment on the date hereof not to
exceed $100.00, the inventory (the "Inventory") reflected in the September 30,
1996 Balance Sheet and acquired since the date of such Balance Sheet (and not
sold prior to the date hereof or reserved for in the Interim Balance Sheet is
good and merchantable material, of a quantity and quality saleable in the
ordinary course of business of the Partnership at normal profit margins, and
carried on the books and records of the Partnership on the lower of cost (on a
first in, first-out basis) or market basis consistent with the past practices of
the Partnership.
SECTION 5.19 ABSENCE OF CERTAIN BUSINESS PRACTICES. None of the Sellers
nor any
32
employee, agent or other person acting on behalf of the Partnership has,
directly or indirectly, given or agreed to give any gift or similar benefit to
any customer, supplier, competitor or governmental employee or official
(domestic or foreign) (a) that would subject the Partnership to any damage or
penalty in any civil, criminal or governmental litigation or proceeding or (b)
that, if not given in the past, would have had a material adverse effect on the
assets, liabilities (whether absolute, accrued, contingent or otherwise),
condition (financial or otherwise), results or operations or business of the
Partnership.
SECTION 5.20 COMPLIANCE WITH LAWS. Except as set forth on Schedule 5.20,
the operation, conduct and ownership of the property or business of the
Partnership are being, and at all times have been, conducted, in all material
respects, in full compliance with all federal, state, local and other (domestic
and foreign) laws, rules, regulations and ordinances (including without
limitation, those relating to employment discrimination, occupational safety,
conservation or corrupt practices) and all judgments and orders of any court,
arbitrator or governmental authority applicable to it. Except as set forth on
Schedule 5.20, to the best of Sellers' knowledge, there are no proposed federal,
state, local and other (domestic or foreign) law, rule, regulation, ordinance,
order, judgment, decree, governmental taking, condemnation or other proceeding
that would be applicable to the business, operations or properties of the
Partnership and that could have a material adverse effect on the assets,
liabilities (whether absolute, accrued, contingent or otherwise), condition
(financial or otherwise), results of operations, business or prospects of the
Partnership.
SECTION 5.21 LITIGATION. Schedule 5.21 sets forth a complete and correct
list, together with a status report, of each legal, administrative, arbitration
or other proceeding, or governmental investigation, to which any of the Sellers
is a party (or by which any of the Partnership's properties are affected), or
was a party or was otherwise affected (or by which any of its properties were
affected) during the past three years. Except as set forth on Schedule 5.21,
there is no legal, administrative, arbitration or other proceeding, or any
governmental investigation, pending or, to the best of Sellers' knowledge,
threatened against or otherwise affecting the Partnership or any of its assets.
The Partnership has given in a timely manner to its insurers all notices
required to be given under each of its insurance policies, if any, with respect
to all of the claims and actions disclosed on Schedule 5.21, and no insurer has
denied coverage of any of such claims or actions or rejected any of the claims
with respect thereto.
SECTION 5.22 TAXES. Except as set forth on Schedule 5.22:
(a) Each of the Partnership, and in connection with their Partnership
interests, the Partners, has timely filed all Tax returns and reports
required to have been filed by it for all taxable periods ending on or prior
to the date hereof;
(b) All Taxes of the Partnership and of the Partners in connection with
their Partnership interests for all taxable periods ending on or prior to the
date hereof have been paid or have been adequately reserved for on the Interim
Balance Sheet. The Tax returns and reports filed are true and correct in all
material respects;
33
(c) None of such returns contains, or will contain, a disclosure statement
under Section 6662 of the Code (or any predecessor statute) or any similar
provision of state, local or foreign law;
(d) None of the Sellers has received notice that the IRS or any other
taxing authority has asserted against such Seller any deficiency or claim for
additional Taxes in connection with the Partnership or the Partners in
connection with their Partnership interests;
(e) All Tax deficiencies asserted or assessed against any of the
Partnership or the Partners in connection with their Partnership interests, have
been paid or finally settled;
(f) There is no pending or, to the best of Sellers' knowledge, threatened
action, audit, proceeding, or investigation with respect to (i) the assessment
or collection of Taxes of the Partnership or the Partners in connection with
their Partnership interests, in connection with the Partnership or (ii) a claim
for refund made by any of the Sellers with respect to Taxes previously paid in
connection therewith;
(g) All amounts that are required to be collected or withheld by the
Partnership or the Partners in connection with their Partnership interests, or
with respect to Taxes of any of the Partnership or the Partners in connection
with their Partnership interests, have been duly collected or withheld; all such
amounts that are required to be remitted to any taxing authority have been duly
remitted;
(h) Neither the IRS nor any state, foreign or local taxing authority has
examined any income tax return of any of the Partnership or the Partners in
connection with their Partnership interests;
(i) None of the Partnership and the Partners in connection with their
Partnership interests has waived any statute of limitations (that have not
expired as of the date hereof) with respect to the assessment of any Tax;
(j) None of the Sellers has taken any action not in accordance with past
practice that would have the effect of deferring any Tax liability of the
Partnership or the Partners in connection with their Partnership interests, from
any taxable period ending on or before the date hereof to any taxable period
ending after such date;
(k) No consent has been filed under Section 341(f) of the Code with
respect to any of the Sellers;
(l) There are no liens for Taxes due and payable upon any assets of any of
the Sellers;
(m) None of the Sellers has participated in, or cooperated with, an
international boycott within the meaning of Section 999 of the Code;
34
(n) None of the Partnership and the Partners in connection with their
Partnership interests is currently required to include in income any adjustment
pursuant to Section 481(a) of the Code (or similar provisions of other law or
regulations) by reason of a change in accounting method nor do any of the
Sellers have any knowledge that the IRS (or other taxing authority) has
proposed, or is considering, any such change in accounting method;
(o) None of the Sellers is a party to any agreement, contract, arrangement
or plan that would result in the payment of any "excess parachute payment"
within the meaning of Section 280G of the Code;
(p) None of the assets of any Seller is property that is required to be
treated as owned by any other person pursuant to the "safe harbor lease"
provisions of former Section 168(f)(8) of the Internal Revenue Code of 1954 as
amended and in effect immediately prior to the enactment of the Tax Reform Act
of 1986 and none of the assets of the Partnership is "tax exempt use property"
within the meaning of Section 168(h) of the Code; and
(q) None of the assets of any Seller secures any debt the interest on
which is tax exempt under Section 103 of the Code.
SECTION 5.23 INSURANCE MATTERS.
(a) Schedule 5.23 sets forth a complete and correct list of:
(i) All insurance policies and of all claims made by the Partnership
on any liability or other insurance policies during the past three
years (other than worker's compensation claims);
(ii) All insurance currently in place and accurately sets forth the
coverages, deductible amounts, carriers and expiration dates thereof;
and
(iii) All insurance with respect to which the policy period has
expired, but for which certain of the coverage years are still subject
to audit or retrospective adjustment by the carrier, and accurately
sets forth such coverage years and the coverages, deductible amounts,
carriers and expiration dates hereof.
(b) There are no outstanding requirements or recommendations by any
insurance company that issued any policy of insurance to the Partnership or by
any board of underwriters or other similar body exercising similar functions or
by any governmental authority exercising similar functions that require or
recommend any changes in the conduct of the Business or any repairs or other
work to be done on or with respect to any of the Partnership's assets.
(c) Except as set forth on Schedule 5.23, no notice or other communication
has been received by any of the Sellers from any insurance company within the
two years preceding the date hereof canceling or materially amending or
materially increasing the annual or other
35
premiums payable under any of its insurance policies, and, to the best of
Sellers' knowledge, no such cancellation, amendment or increase of premiums is
threatened.
(d) During the past five years, the Partnership has maintained occurrence-
based comprehensive general liability and completed operations insurance
(including product liability insurance) with a single combined annual limit of
at least $1,000,000, and no claims have been made or paid, and no claims are
currently pending, under any of such comprehensive general liability insurance
policies.
(e) No lawsuits have been filed and no claims have been made or, to the
best of Sellers' knowledge, threatened against the Partnership as a result of
accidents which occurred during the one-year period prior to the date hereof
that would give rise to a claim with respect to any services provided by or
products designed, manufactured, or sold by any of the Sellers or the operations
of the Partnership.
SECTION 5.24 NO POWERS OF ATTORNEY OR SURETYSHIPS. Except as set forth
on Schedule 5.24, (i) none of the Sellers has granted any general or special
powers of attorney and (ii) none of the Sellers has any obligation or liability
(whether actual, contingent or otherwise) as guarantor, surety, co-signer,
endorser, co-maker, indemnitor, obligor on an asset or income maintenance
agreement or otherwise in respect of the obligation of any person, corporation,
partnership, joint venture, association, organization or other entity.
SECTION 5.25 BROKERAGE FEES. No Person is entitled to any brokerage or
finder's fee or other commission from any of the Sellers in respect of this
Agreement or the Transactions.
SECTION 5.26 BANKING FACILITIES. Schedule 5.26 sets forth a complete and
correct list of:
(a) Each bank, savings and loan or similar financial institution in which
the Partnership has an account or safety deposit box and the numbers of such
accounts or safety deposit boxes maintained thereat; and
(b) The names of all persons authorized to draw on each such account or to
have access to any such safety deposit box, together with a description of the
authority (and conditions thereto, if any) of each person with respect thereto.
SECTION 5.27 MACHINERY, EQUIPMENT AND OTHER PERSONAL PROPERTY; PERSONAL
PROPERTY LEASES. Except as set forth in Schedule 5.27, the Partnership owns all
of the machinery, equipment, vehicles, furniture, fixtures, leasehold
improvements, repair parts, tools and other property (collectively, the
"Personal Property") used by or relating to the Partnership. All such Personal
Property is in good operating condition and sufficient to carry on the business
of the Partnership in the normal course as it is presently conducted and is free
from material defects, whether patent or latent. Schedule 5.27 sets forth a
complete and correct summary description and identification of each lease (a
"Personal Property Lease") of personal property
36
under which the Partnership is either a lessee, sublessee, lessor or sublessor.
Except as set forth in Schedule 5.27:
(a) Each Personal Property Lease is a valid and binding obligation of the
Partnership that is a party thereto, and each such Personal Property Lease is a
valid and binding obligation of each of the other parties thereto; and
(b) Neither the Partnership nor any other party to a Personal Property
Lease is in default with respect to any material term or condition thereof, and
no event has occurred that, with the passage of time or the giving of notice or
both, would constitute a default thereunder or would cause the acceleration of
any obligation of any party thereto or the creation of a lien or encumbrance
upon any asset of the Partnership.
SECTION 5.28 PRODUCT WARRANTY AND LIABILITY. Each product designed,
manufactured, or sold by the Partnership and all services performed by the
Partnership have been in conformity in all material respects with all applicable
contractual commitments and all express and implied warranties. None of the
Sellers has any liability, and there is no basis for any present or future
action, suit or other proceeding giving rise to any liability, (i) for
replacement or repair of any such product or other damages in connection
therewith, or (ii) arising out of any injury to persons or property as a result
of any such product or any services performed by the Partnership. None of the
Sellers has received any notice that an action, suit or proceeding has been, or
in the future may be, made alleging that products or services of the Partnership
are or were defective in any material respect.
SECTION 5.29 STANDARDS AND CERTIFICATIONS. Products previously designed,
manufactured, sold and leased by all Sellers met and had received at the time of
their design, manufacture and sale, and products currently designed,
manufactured, sold and leased by all Sellers meet and have received, all
material standards established by relevant standard-setting organizations and
all certifications from all relevant safety and standards testing and certifying
organizations, if any, as were or are, as the case may be, necessary for such
products to comply with all applicable fire, safety and similar codes and
regulations.
SECTION 5.30 DISCLOSURE. The information provided by Sellers in this
Agreement, including, without limitation, the schedules hereto, and in any other
writing delivered pursuant hereto does not and will not contain any untrue
statement of a material fact or, omit to state a material fact required to be
stated herein or therein or necessary to make the statements and facts contained
herein or therein, in light of the circumstances under which they are made, not
false or misleading. Copies of all documents heretofore or hereafter delivered
or made available by Sellers to Purchaser pursuant hereto were or will be
complete and accurate records of such documents.
37
ARTICLE VI
REPRESENTATIONS AND WARRANTIES OF PURCHASER
The Purchaser hereby represents and warrants to the Partnership that:
SECTION 6.1 ORGANIZATION AND CORPORATE AUTHORITY. Purchaser is a
corporation duly incorporated, validly existing and in good standing under the
laws of the State of California. Purchaser has all requisite corporate power
and authority to enter into this Agreement and to consummate the Transactions.
This Agreement and all agreements and instruments herein contemplated to be
executed by Purchaser are the valid and binding agreements of Purchaser,
enforceable against Purchaser in accordance with their respective terms subject
to bankruptcy, insolvency, reorganization, moratorium and other laws of general
applicability relating to or affecting creditors' rights and to general
equitable principles (whether considered in a proceeding at law or otherwise).
A true and correct copy of the balance sheet of the Purchaser as of September
30, 1996 is attached hereto as Schedule 6.1, which balance sheet (i) has been
prepared from the books and records of the Purchaser in accordance with GAAP
consistently applied with prior periods, and (ii) is complete and correct and
fairly present, in all material respects, the financial condition and results of
operations of the Purchaser as of the date and for the period indicated thereon.
SECTION 6.2 NO BREACH; CONSENTS AND APPROVALS. Neither the execution
and delivery of this Agreement or the related agreements and instruments
contemplated hereby nor the consummation of the Transactions will violate,
result in a breach of any of the terms or provisions of, constitute a default
(or any event that, with the giving of notice or the passage of time or both,
would constitute a default) under, result in the acceleration of any
indebtedness under or performance required by, result in any right of
termination of, increase any amounts payable under, decrease any amounts
receivable under, change any other rights pursuant to, or conflict with, any
material agreement, indenture or other instrument to which Purchaser is a party
or by which any of its property is bound, its charter documents, or any
judgment, decree, order or award of any court, governmental body or arbitrator
(domestic or foreign) applicable to Purchaser. Subject to Section 9, all
consents, approvals and authorizations of, and declarations, filings and
registrations with, any governmental or regulatory authority (domestic or
foreign) or any other person (either governmental or private) required in
connection with the execution and delivery by Purchaser of this Agreement and
the related agreements and instruments contemplated hereby or the consummation
of the Transactions have been obtained, made and satisfied.
SECTION 6.3 BROKERAGE FEES. No Person is entitled to any brokerage or
finder's fee or other commission from Purchaser in respect of this Agreement or
the Transactions.
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ARTICLE VII
COVENANTS OF SELLERS AND PURCHASER
Sellers and Purchaser each covenant with the other as follows:
SECTION 7.1 FURTHER ASSURANCES. Upon the terms and subject to the
conditions contained herein, the parties agree, both before and after the
Closing, (i) to use all reasonable efforts to take, or cause to be taken, all
actions and to do, or cause to be done, all things necessary, proper or
advisable to consummate and make effective the transactions contemplated by this
Agreement, (ii) to execute any documents, instruments or conveyances of any kind
which may be reasonably necessary or advisable to carry out any of the
transactions contemplated hereunder, and (iii) to cooperate with each other in
connection with the foregoing. Without limiting the foregoing, the parties
agree to use their respective reasonable efforts (A) to obtain all necessary
waivers, consents and approvals from other parties to the Contracts and Leases
to be assumed by Purchaser; PROVIDED, HOWEVER, that neither Purchaser nor
Sellers shall be required to make any payments, commence litigation or agree to
modifications of the terms thereof in order to obtain any such waivers, consents
or approvals, (B) to obtain all necessary Permits as are required to be obtained
under any Regulations, (C) to give all notices to, and make all registrations
and filings with third parties, including without limitation submissions of
information requested by governmental authorities, and (D) to fulfill all
conditions to this Agreement.
SECTION 7.2 NO SOLICITATION.
(a) NO SOLICITATION. From the date hereof through the Closing or the
earlier termination of this Agreement, each of the Sellers and their
Representatives shall not, and shall cause each of their respective
Representatives (including, without limitation, investment bankers, attorneys
and accountants), not to, directly or indirectly, enter into, solicit, initiate
or continue any discussions or negotiations with, or encourage or respond to any
inquiries or proposals by, or participate in any negotiations with, or provide
any information to, or otherwise cooperate in any other way with, any
corporation, partnership, person or other entity or group, other than Purchaser
and its Representatives concerning, any sale of all or a portion of the Assets
or the Business, or of any partnership interests in, or any other ownership
interests of, the Partnership, or any merger, consolidation, liquidation,
dissolution or similar transaction involving any Seller (each such transaction
being referred to herein as a "Proposed Acquisition Transaction"); PROVIDED,
HOWEVER, that Sellers may disclose the transactions contemplated by this
Agreement to customers of Sellers in connection with Sellers' efforts to obtain
the benefit of any Contract, Lease or Permit for Purchaser. The parties agree
that in the event the Partnership, Sellers or any individual Seller breaches its
obligation under this Section 7.2, Sellers shall immediately pay to Purchaser
the lesser of (a) Purchaser's expenses incurred in connection with the
Transactions, or (b) $200,000. Each Seller hereby represents that it is not now
engaged in discussions or negotiations with any party other than Purchaser with
respect to any of the foregoing. Each Seller agrees not to release any third
party from, or waive any provision of, any confidentiality or
39
standstill agreement to which such Seller is a party.
(b) NOTIFICATION. Sellers shall immediately notify Purchaser (orally and
in writing) if any discussions or negotiations are sought to be initiated, any
inquiry or proposal is made, or any information is requested with respect to any
Proposed Acquisition Transaction.
SECTION 7.3 NOTIFICATION OF CERTAIN MATTERS. From the date hereof
through the Closing, Sellers and Purchaser shall give prompt notice to the other
of (a) the occurrence, or failure to occur, of any event which occurrence or
failure would be likely to cause any representation or warranty contained in
this Agreement or in any exhibit or schedule hereto to be untrue or inaccurate
in any respect and (b) any failure by it to comply with or satisfy any covenant,
condition or agreement to be complied with or satisfied by it under this
Agreement or any exhibit or schedule hereto; PROVIDED, HOWEVER, that such
disclosure shall not be deemed to cure any breach of a representation, warranty,
covenant or agreement or to satisfy any condition.
SECTION 7.4 INVESTIGATION BY PURCHASER. From the date hereof through
the Closing Date each Seller shall, and shall cause any and all of its
respective employees and agents to, afford the Representatives of Purchaser and
its Affiliates complete access at all reasonable times to the Assets for the
purpose of inspecting the same, and to the employees, agents, attorneys,
accountants, properties, Books and Records, Contracts and Leases of each Seller,
and shall furnish Purchaser and its Representatives all financial, operating and
other data and information as Purchaser or its Affiliates, through their
respective Representatives, may reasonably request, including unaudited
individual and consolidated balance sheets and the related statements of income,
retained earnings and cash flow for each month from the date of the Interim
Balance Sheet through the Closing Date within ten (10) calendar days after the
end of each month which financial statements shall (i) be true, correct and
complete, (ii) be in accordance with the books and records of each Seller, and
(iii) accurately set forth the assets, Liabilities and financial condition,
results of operations and other information purported to be set forth therein in
accordance with generally accepted accounting principles consistently applied.
SECTION 7.5 CONDUCT OF BUSINESS. From the date hereof through the
Closing, each Seller shall, except as contemplated by this Agreement, or as
consented to by Purchaser in writing, operate the Business in the ordinary
course of business and in accordance with past practice and use its best efforts
to preserve intact the Business and its goodwill, and preserve the goodwill and
business relationships with suppliers, distributors, customers and others having
business relationships with the Partnership, and shall not take any action
inconsistent with this Agreement or with the consummation of the Closing.
Without limiting the generality of the foregoing, no Seller shall, except as
specifically contemplated by this Agreement or as consented to by Purchaser in
writing:
(a) enter into, extend, materially modify, terminate or renew any Contract
or Lease, except in the ordinary course of business;
(b) sell, assign, transfer, convey, lease, mortgage, pledge or otherwise
dispose of or
40
encumber any of the Assets, or any interests therein, except in the ordinary
course of business, and without limiting the generality of the foregoing, each
Seller shall continue to operate the Business consistent with its past
practices;
(c) incur any indebtedness for borrowed money or commitment to borrow
money, other than Financing Obligations, guarantee the obligations of others,
indemnify others or, except in the ordinary course of business, incur any other
Liability;
(d) (i) take any action with respect to the grant of any bonus, severance
or termination pay or with respect to any increase of benefits payable under the
Partnership's severance or termination pay policies or agreements in effect on
the date hereof or increase in any manner the compensation or fringe benefits of
any employee or pay any benefit not required by any existing Employee Benefit
Plan or policy;
(ii) make any change in the key management structure of the
Partnership, including without limitation the hiring of additional management
personnel or the termination of existing management personnel;
(iii) adopt, enter into or amend any Employee Benefit Plan,
agreement (including without limitation any collective bargaining or employment
agreement), trust, fund or other arrangement for the benefit or welfare of any
employee, except for any such amendment as may be required or, in Sellers'
reasonable determination, desirable to comply with applicable Regulations; or
(iv) fail to maintain all Employee Benefit Plans in accordance with
applicable Regulations in any material respect;
(e) cause the Partnership to acquire by merger or consolidation with, or
merge or consolidate with, or purchase all or substantially all of the assets
of, or otherwise acquire any material assets or business of any corporation,
partnership, association or other business organization or division thereof;
(f) declare, set aside, make or pay any distribution in respect of any
Seller's partnership interest;
(g) expend funds for budgeted capital expenditures or commitments for or
on behalf of the Partnership otherwise than in accordance with the capital
budget agreed to by Purchaser and the Partnership;
(h) willingly allow or permit to be done, any act by which any of the
Insurance Policies may be suspended, impaired or canceled;
(i) (A) fail to pay its accounts payable and any debts owed or
obligations due to it, or pay or discharge when due any Liabilities, in the
ordinary course of business; or
41
(B) fail to collect its accounts receivable in the ordinary course of
business;
(j) fail to maintain the Assets in substantially their current state of
repair, excepting normal wear and tear or fail to replace consistent with each
Seller's past practice inoperable, worn-out or obsolete or destroyed Assets;
(k) make any loans or advances on behalf of the Partnership to any
partnership, firm or corporation, or, except for expenses incurred in the
ordinary course of business, any individual;
(l) make any income tax election or settlement or compromise with tax
authorities on behalf of the Partnership;
(m) fail to comply with all Regulations applicable to it, the Assets and
the Business;
(n) intentionally do any other act which would cause any representation or
warranty of any Seller in this Agreement to be or become untrue in any material
respect;
(o) sell, transfer, assign, pledge or encumber any partnership interests
in, or any other ownership interests of, the Partnership or repurchase or commit
to repurchase, partnership interests in, or any other ownership interests of,
the Partnership held by any of the Partners;
(p) fail to use its best efforts to (i) retain the Partnership's employees
and (ii) maintain the Business so that such employees will remain available to
the Partnership on and after the Closing Date, (iii) maintain existing
relationships with suppliers, customers and others having business dealings with
any Seller and (iv) otherwise to preserve the goodwill of the Business so that
such relationships and goodwill will be preserved on and after the Closing Date;
(q) enter into any agreement, or otherwise become obligated, to do any
action prohibited hereunder;
(r) make or change any tax election affecting the Assets in the hands of
Purchaser; or
(s) fail to pay, or cause to be paid, when due all Taxes for which the
Partnership or any of the Partners (directly or indirectly through the
Partnership) are or may become liable or that are or may become payable with
respect to any taxable period ending on or prior to the Closing Date.
SECTION 7.6 EMPLOYMENT AGREEMENTS.
(a) Purchaser and each Partner shall enter into an Employment Agreement,
to be effective as of the Closing in substantially the form of Exhibit D hereto.
The Employment Agreements shall each provide (i) for a term of up to three
years, subject to Purchaser's Board of Director's right to terminate a Partner
for performance-related matters, (ii) for a base salary for
42
the Partner party thereto as set forth on such person's Employment Agreement,
(iii) for coverage under the Purchaser's hospitalization, medical, surgical,
dental, life insurance and other welfare plans and programs, and (iv) for four
weeks' vacation with pay. Purchaser shall not be required to hire or offer
employment to any other employee of the Partnership. In the event Purchaser
determines to hire such persons, however, all employees of the Business who
become employed by Purchaser as of the Closing (or upon expiration of an
approved leave of absence) are hereinafter referred to individually as a
"Transferred Employee" and collectively as the "Transferred Employees."
(b) Effective as of the Closing (or the date an employee becomes a
Transferred Employee, if later), all Transferred Employees shall cease to
participate in, or accrue benefits under, any of the Partnerships' Plans, and
the Partnership shall be solely responsible for all of its Plans and all
obligations and liabilities thereunder. Purchaser shall not assume any Plan of
the Partnership or any obligation or liability thereunder. Sellers shall be
responsible for (i) terminating all employees of the Partnership who are not
employed by Purchaser, and shall be responsible for any and all obligations and
liabilities arising in connection with such terminations, including without
limitation, any severance or other termination pay, retirement and welfare
benefits, (ii) providing the appropriate notices to the employees of the
Business pursuant to Section 4980B of the Code and Part 6 of Title I of ERISA,
(iii) all liabilities, including without limitation, the cost of extended
insurance coverage, for any employee of the Partnership not actively employed by
the Partnership on the Closing Date until such time, if ever, that such employee
returns to active employment and is employed by Purchaser.
(c) Nothing contained in this Agreement shall confer upon any Transferred
Employee that is not a Partner any right with respect to continuance of
employment by Purchaser, nor shall anything herein interfere with the right of
Purchaser to terminate the employment of any (i) Transferred Employee that is
not a Partner at any time, with or without cause, and (ii) any
Transferred Employee that is a Partner, at any time, with cause, or restrict
Purchaser in the exercise of its independent business judgment in modifying any
of the terms and conditions of the employment of the Transferred Employees that
are not Partners after the Closing Date.
(d) No provision of this Agreement shall create any third party
beneficiary rights in any Transferred Employee, any beneficiary or dependents
thereof, or any collective bargaining representative thereof, with respect to
the compensation, terms and conditions of employment and benefits that may be
provided to any Transferred Employee by Purchaser or under any benefit plan
which Purchaser may maintain.
(e) Prior to and until Closing, each Partner, as an employee of the
Partnership, shall receive his salary and hospitalization, medical, surgical,
dental, life insurance and any other welfare and benefits plans and programs,
comparable to what such Partner, as an employee of the Partnership, is receiving
as of the date of this Agreement.
SECTION 7.7 HOLLYWOOD LEASE. At the Closing, the Hollywood Lease
between Purchaser and Sellers shall be executed and delivered to Purchaser.
43
SECTION 7.8 AGREEMENTS NOT TO COMPETE.
(a) As additional consideration for the payments made or to be made by
Purchaser hereunder, from the date hereof to and including the third anniversary
of the date hereof, each Seller hereby agrees that he, she or it shall not, for
any reason, directly or indirectly, engage or be interested in any business that
Competes with Purchaser, and shall not, directly or indirectly, have any
interest in, own, manage, operate, control, be connected with as a stockholder
(other than as a stockholder of less than five percent (5%) of the issued and
outstanding stock of a publicly-held corporation), joint venturer, officer,
partner, employee or consultant, or otherwise engage or invest or participate
in, any business that Competes with Purchase; PROVIDED HOWEVER, that the
Partners may engage in the production business (defined to mean the creation of
media content) without violating this agreement not to compete, PROVIDED
FURTHER, HOWEVER, that the Partners may not engage in the production business at
Purchaser's facilities or while employed by Purchaser without Purchaser's prior
written consent. As used herein, the term "Competes" with Purchaser shall mean
competing with any of the businesses conducted by the Partnership at any time
during the three year period preceding the date hereof in any county or any
other political subdivision of any state of the United States of America or any
of its possessions or territories where Sellers conducted or contemplated
conducting such businesses at any time during the three year period preceding
the date hereof. All of the parties agree that the duration and area for which
the covenant not to compete set forth in this Section 7.8 is to be effective are
reasonable. In the event that any court determines that the time period or the
geographical areas provided for in this Section 7.8, or both of them, are
unreasonable and that such covenant is to that extent unenforceable, such
covenant shall remain in full force and effect for the greatest time period and
in the greatest geographical area that would not render it unenforceable. The
parties intend that this covenant shall be deemed to be a series of separate
covenants, one for each and every county of each and every state of the United
States of America and for any other territory or possession of the United States
of America where this covenant is intended to be effective.
(b) The parties agree that damages would be an inadequate remedy for
Purchaser in the event of a breach or threatened breach of this Agreement and
thus, in any such event, Purchaser may, either with or without pursuing any
potential damage remedies and in addition to such remedies, immediately obtain
and enforce an injunction, and/or a temporary restraining order, prohibiting any
Seller from violating this Agreement, without having to prove actual damages or
post bond. The parties agree that this Section 7.8 shall be enforceable
regardless of whether or not any Partner is employed by Purchaser hereunder.
SECTION 7.9 COLLECTION OF ACCOUNTS RECEIVABLE AND LETTERS OF CREDIT. At
the Closing, Purchaser shall acquire hereunder, and thereafter Purchaser or its
designee shall have the right and authority to collect for Purchaser's or its
designee's account, all receivables, letters of credit and other items which
constitute a part of the Assets, and each Seller shall within 48 hours after
receipt of any payment in respect of any of the foregoing, properly endorse and
deliver to Purchaser any letters of credit, documents, cash or checks received
on account of or otherwise relating to any such receivables, letters of credit
or other items related to the Partnership or the Business. Each Seller shall
promptly transfer or deliver to Purchaser or its
44
designee any cash or other property that such Seller may receive in respect of
any deposit, prepaid expense, claim, contract, license, lease, commitment, sales
order, purchase order, letter of credit or receivable of any character, or any
other item, constituting a part of the Assets.
SECTION 7.10 BOOKS AND RECORDS; TAX MATTERS.
(a) BOOKS AND RECORDS. Purchaser shall retain all Books and Records in
the possession of Purchaser after the Closing Date relating to the operation of
the Facilities and the Business prior to the Closing in accordance with all
applicable records retention Regulations, including without limitation, all
Environment Laws and occupational health and safety laws and regulations. Each
party agrees that it shall cooperate with and make available to the other party,
during normal business hours, all Books and Records, information and employees
(without substantial disruption of employment) retained and remaining in
existence after the Closing which are necessary or useful in connection with any
tax, environmental or occupational health and safety inquiry, audit,
investigation or dispute, any litigation or investigation or any other matter
requiring any such Books and Records, information or employees for any
reasonable business purpose. The party requesting any such Books and Records,
information or employees shall bear all of the out-of-pocket costs and expenses
(including without limitation attorneys' fees) reasonably incurred in connection
with providing such Books and Records, information or employees. All
information received pursuant to this Section 7.10(a) shall be treated as
confidential and not disclosed to any person or entity other than the
Representatives of Sellers or Purchaser, as the case may be, who need to know
such information in connection with the proceedings contemplated by this
Section 7.10(a).
(b) COOPERATION AND RECORDS RETENTION. Sellers and Purchaser shall (i)
each provide the other with such assistance as may reasonably be requested by
any of them in connection with the preparation of any return, audit, or other
examination by any taxing authority or judicial or administrative proceedings
relating to Liability for Taxes, (ii) each retain and provide the other with any
records or other information that may be relevant to such return, audit or
examination, proceeding or determination, and (iii) each provide the other with
any final determination of any such audit or examination, proceeding, or
determination that affects any amount required to be shown on any tax return of
the other for any period. Without limiting the generality of the foregoing,
Purchaser and each Seller shall each retain, until the applicable statutes of
limitations (including any extensions) have expired, copies of all tax returns,
supporting work schedules, and other records or information that may be relevant
to such returns for all tax periods or portions thereof ending on or before the
Closing Date and shall not destroy or otherwise dispose of any such records
without first providing the other party with a reasonable opportunity to review
and copy the same.
SECTION 7.11 BULK SALES. It may not be practicable to comply or attempt
to comply with the procedures of the "Bulk Sales Act" or similar law of any or
all of the states in which the Assets are situated or of any other state which
may be asserted to be applicable to the transactions contemplated hereby.
Accordingly, to induce Purchaser to waive any requirements for compliance with
any or all of such laws, each Seller hereby agrees that the indemnity
45
provisions of Section 11.2 hereof shall apply to any Damages of Purchaser or any
institution providing financing to Purchaser arising out of or resulting from
the failure of any Seller or Purchaser to comply with any such laws.
SECTION 7.12 OPERATION OF BUSINESS AFTER CLOSING. From and after the
Closing Date until payment in full of each of the Earn-Out Notes is made,
Purchaser agrees to (a) operate, or cause to be operated, the Assets as a
separate division unconsolidated with and apart from Purchaser's other
businesses and assets or (b) to account on the books and records of Purchaser
for all such Assets as a separate division unconsolidated with and apart from
Purchaser's other businesses and assets.
SECTION 7.13 CONFIDENTIALITY. Unless and until the Closing has been
consummated, Purchaser and its officers, directors and other representatives
will hold in strict confidence, and will not use to the detriment of the
Partnership, all data and information with respect to the Business obtained in
connection with this transaction, subject to the requirements of law. In the
event of the termination or rescission of this Agreement for any reason or the
return of the Assets pursuant to Section 2 hereof, Purchaser will return to the
Partnership all documents, work papers, and other materials (including copies)
relating to the Transactions, whether obtained before or after execution of this
Agreement and the confidentiality requirements of this Section 7.13 shall
terminate.
ARTICLE VIII
CONDITIONS TO THE PARTNERSHIP'S OBLIGATIONS
The obligations of the Partnership to consummate the transactions provided
for hereby are subject, in the discretion of the Partnership, to the
satisfaction, on or prior to the Closing Date, of each of the following
conditions, any of which may be waived by the Partnership by written notice to
Purchaser:
SECTION 8.1 REPRESENTATIONS, WARRANTIES AND COVENANTS. All
representations and warranties of Purchaser contained in this Agreement shall be
true and correct in all material respects at and as of the date of this
Agreement and at and as of the Closing Date, except as and to the extent that
the facts and conditions upon which such representations and warranties are
based are expressly required or permitted to be changed by the terms hereof, and
Purchaser shall have performed and satisfied in all material respects all
agreements and covenants required hereby to be performed by it prior to or on
the Closing Date.
SECTION 8.2 CONSENTS; REGULATORY COMPLIANCE AND APPROVAL. All consents,
approvals and waivers set forth on Schedule 4.2 shall have been obtained.
SECTION 8.3 NO ACTIONS OR COURT ORDERS. No Action by any governmental
authority or other person shall have been instituted or threatened which
questions the validity or legality of
46
the transactions contemplated hereby and which could reasonably be expected to
damage the Partnership materially if the transactions contemplated hereby are
consummated. There shall not be any Regulation or Court Order that makes the
purchase and sale of the Business or the Assets contemplated hereby illegal or
otherwise prohibited.
SECTION 8.4 ASSUMPTION DOCUMENT. Purchaser shall have executed the
Assumption Document.
SECTION 8.5 ANCILLARY AGREEMENTS. Purchaser shall have executed and
delivered the Ancillary Agreements to which it is a party.
ARTICLE IX
CONDITIONS TO PURCHASER'S OBLIGATIONS
The obligations of Purchaser to consummate the transactions provided for
hereby are subject, in the discretion of Purchaser, to the satisfaction, on or
prior to the Closing Date, of each of the following conditions, any of which may
be waived by Purchaser by written notice to the Partnership:
SECTION 9.1 REPRESENTATIONS, WARRANTIES AND COVENANTS. All
representations and warranties of Sellers contained in this Agreement shall be
true and correct in all respects at and as of the date of this Agreement and at
and as of the Closing Date, except as and to the extent that the facts and
conditions upon which such representations and warranties are based are
expressly required or permitted to be changed by the terms hereof, and Sellers
shall have performed and satisfied all agreements and covenants required hereby
to be performed by them prior to or on the Closing Date.
SECTION 9.2 CONSENTS; REGULATORY COMPLIANCE AND APPROVAL. Any necessary
consents to the assignment of all Contracts and Leases shall have been
obtained. All Permits, consents, approvals and waivers from governmental
authorities necessary to the consummation of the transactions contemplated
hereby by Purchaser shall have been obtained. Purchaser shall be satisfied
that all approvals required under any Regulations to carry out the transactions
contemplated by this Agreement shall have been obtained and that the parties
shall have complied with all Regulations applicable to such transactions.
SECTION 9.3 NO ACTIONS OR COURT ORDERS. No Action by any governmental
authority or other person shall have been instituted or threatened which
questions the validity or legality of the transactions contemplated hereby and
which could reasonably be expected to damage Purchaser, the Assets or the
Business materially if the transactions contemplated hereby are consummated,
including without limitation any material adverse effect on the right or ability
of Purchaser to own, operate, possess or transfer the Assets after the Closing.
There shall not be any Regulation or Court Order that makes the purchase and
sale of the Business or the Assets
47
contemplated hereby illegal or otherwise prohibited.
SECTION 9.4 OPINION OF COUNSEL. The Partnership shall have delivered to
Purchaser an opinion of Edwards, Edwards & Ashton, counsel to the Partnership,
dated as of the Closing Date, in form and substance reasonably satisfactory to
Purchaser, to the effect that:
(a) The Partnership is a general partnership duly organized, validly
existing and in good standing under the laws of the State of California;
(b) The Partnership has the necessary partnership power and authority to
enter into this Agreement and the Ancillary Agreements to which it is a party
and to consummate the transactions contemplated hereby and thereby;
(c) The execution, delivery and performance of this Agreement and the
Ancillary Agreements by the Partnership has been duly authorized by all
necessary action of the Partnership and the Partners, and this Agreement and
each of the Ancillary Agreements to which it is a party constitute legally valid
and binding obligations of the Partnership and the Partners, enforceable against
each of the Partnership and the Partners, in accordance with their terms, except
as limited by (i) bankruptcy, insolvency, reorganization, moratorium or other
similar laws relating to creditors' rights generally or by equitable principles
(whether considered in an action at law or in equity) and (ii) limitations
imposed by federal or state law or equitable principles upon the availability of
specific performance, injunctive relief or other equitable remedies;
(d) The documents to be delivered by Sellers at the Closing to effect the
transfer and assignment to Purchaser of all right, title and interest in and to
the Assets are effective to do so, subject to (i) the effects of bankruptcy,
insolvency, reorganization, moratorium or other similar laws relating to
creditors' rights generally and equitable principles (whether considered in an
action at law or in equity) and, (ii) limitations imposed by federal or state
law or equitable principles upon the availability of specific performance,
injunctive relief or other equitable remedies.
SECTION 9.5 CERTIFICATES. Sellers shall furnish Purchaser with such
certificates to evidence compliance with the conditions set forth in this
Article IX as may be requested by Purchaser.
SECTION 9.6 MATERIAL CHANGES. As of the Closing Date, since December
31, 1995, there shall not have been any actual or threatened adverse change in
the Business or the Assets or the liabilities, earnings, results of operations,
condition (financial or otherwise) or prospects of the Partnership.
SECTION 9.7 CONVEYANCING DOCUMENTS; RELEASE OF ENCUMBRANCES. Sellers
shall have executed and delivered each of the documents described in Section 4.2
hereof so as to effect the transfer and assignment to Purchaser of all right,
title and interest in and to the Assets, and Sellers shall have filed (where
necessary) and delivered to Purchaser all documents necessary to
48
release the Assets from all Encumbrances, which documents shall be in a form
reasonably satisfactory to Purchaser's counsel.
SECTION 9.8 PERMITS. Purchaser shall have obtained or been granted the
right to use all Permits.
SECTION 9.9 OTHER AGREEMENTS. Sellers shall have executed and delivered
the Ancillary Agreements in the forms attached as exhibits hereto.
SECTION 9.10 TAX CLEARANCE CERTIFICATE. Sellers shall provide Purchaser
with a clearance certificate or similar document(s) that may be required by any
state taxing authority in order to relieve Purchaser of any obligation to
withhold any portion of the Purchase Price for tax purposes.
SECTION 9.11 NONFOREIGN AFFIDAVIT. Each Seller shall furnish Purchaser
with an affidavit, stating, under penalty of perjury, such Seller's United
States taxpayer identification number (or social security number) and that such
Seller is not a foreign person, pursuant to Section 1445(b)(2) of the Code.
SECTION 9.12 CUSTOMER RELATIONS. Purchaser shall be satisfied with the
business relationship of any Seller with any customer named in
Section 5.17(a)(i) of the Disclosure Schedule.
SECTION 9.13 DUE DILIGENCE. Purchaser shall be satisfied, in its sole
discretion, with the results of its due diligence investigation.
SECTION 9.14 CERTAIN FINANCIAL ARRANGEMENTS. Purchaser shall have
obtained financing and other credit arrangements with a third party satisfactory
to Purchaser, in its sole discretion, in connection with the Purchase Price
payments and any other costs, fees and expenses of Purchaser hereunder or in
connection with any other document or instrument required to be executed and
delivered by Purchaser in connection herewith, and the transactions contemplated
hereby or thereby.
ARTICLE X
RISK OF LOSS
SECTION 10.1 RISK OF LOSS. From the date hereof through and including
the Closing Date, all risk of loss or damage to the Assets shall be borne by
Sellers, and thereafter shall be borne by Purchaser. If any material portion of
the Assets is destroyed or damaged by fire or any other cause on or prior to the
Closing Date, other than use, wear or loss in the ordinary course of business,
Sellers shall give written notice to Purchaser as soon as practicable after, but
in any event within five (5) calendar days of, discovery of such damage or
destruction, which notice shall set forth in detail the nature of such damage or
destruction, the amount of insurance, if any,
49
covering such Assets and the amount, if any, which Sellers are otherwise
entitled to receive as a consequence. Prior to the Closing, Purchaser shall
have the option, which shall be exercised by written notice to Sellers within
ten (10) calendar days after receipt of Sellers' notice or if there is not ten
(10) calendar days prior to the Closing Date, as soon as practicable prior to
the Closing Date, of (a) accepting such Assets in their destroyed or damaged
condition in which event Purchaser shall be entitled to the proceeds of any
insurance or other proceeds payable with respect to such loss and the Purchase
Price shall be reduced by the amount, if any, mutually agreed upon between the
parties, (b) excluding such Assets from this Agreement, in which event the
Purchase Price shall be reduced by the amount allocated to such Assets, as
mutually agreed between the parties or (c) terminating this Agreement in
accordance with Section 12.1. If Purchaser accepts such Assets, then after the
Closing, any insurance or other proceeds shall belong, and shall be assigned to,
Purchaser without any reduction in the Purchase Price; otherwise, such insurance
proceeds shall belong to the Partnership.
ARTICLE XI
INDEMNIFICATION
SECTION 11.1 SURVIVAL OF REPRESENTATIONS AND WARRANTIES OF SELLERS. The
representations and warranties made by Sellers in Article V of this Agreement
and any document, schedule, exhibit or other instrument relating hereto,
respectively, shall survive the date hereof for the following stated periods:
(a) With respect to all representations and warranties other than those
made in Sections 5.1, 5.2, 5.5, 5.12, 5.13, 5.14 and 5.20, for a period of two
(2) years;
(b) With respect to the representations and warranties made in
Sections 5.1, 5.2, 5.5, 5.12, 5.13 and 5.16 for a period of ten (10) years; and
(c) With respect to the representations and warranties made in Sections
5.14 and 5.20 for a period equal to the relevant statute of limitations.
Notwithstanding anything contained in this Agreement, including, without
limitation, this Section 11.1, any claims with respect to representations and
warranties made by Sellers in this Agreement or in any document or other
instrument relating hereto shall survive and continue following the expiration
of the respective survival periods stated above (i) if such claim is submitted
in writing to Sellers prior to the end of the respective survival periods stated
in this Section 11.1 or otherwise and identified as a claim for indemnification
pursuant to this Agreement or (ii) if such claim is based upon fraud or willful
breach or misrepresentation by any Seller. In either event, such claims shall
survive indefinitely.
SECTION 11.2 INDEMNIFICATION BY SELLERS. Each Seller shall, jointly and
severally, indemnify and hold harmless Purchaser and each of Purchaser's
Affiliates, directors, officers, employees, attorneys, agents and
Representatives (collectively, the "Affiliated Parties") in
50
respect of any and all claims, losses, damages, liabilities, declines in value
of the assets, penalties, interest, costs and expenses, including, without
limitation, reasonable attorneys', accountants' and consultants' fees and other
expenses (collectively, "Damages"), incurred by Purchaser or Purchaser's
Affiliated Parties, together with interest on cash disbursements in connection
therewith, at an annual rate equal to the Prime Rate then in effect, from the
date such cash disbursements were made by Purchaser or any of their respective
Affiliated Parties until paid by such Seller, in connection with, or resulting
from, any or all of the following:
(a) Any breach or inaccuracy of any representation or warranty made by
such Seller in Article V of this Agreement or in any document, schedule, exhibit
or other instrument relating hereto;
(b) Any misrepresentation contained in any written statement or
certificate furnished by such Seller pursuant to this Agreement or the
Transactions;
(c) Any failure to perform or comply with any covenant, agreement or
obligation of such Seller contained in this Agreement or any document or other
instrument contemplated by this Agreement;
(d) Any injury to persons or death or property damage resulting from or
contributed to by any products designed, manufactured, sold or leased by any of
the Sellers or any services performed by any of the Sellers if the accident,
incident or occurrence giving rise to such claim, action, lawsuit or proceeding
occurred prior to the Closing Date; and
(e) With respect to any claim arising out of the failure of any Seller to
comply with the bulk transfer or bulk sales laws of any jurisdiction in
accordance with Section 7.11.
SECTION 11.3 INDEMNIFICATION BY SELLERS FOR TAX LIABILITIES. In addition
to, and not by way of limitation on, the indemnities set forth in Section 11.2,
Sellers shall, jointly and severally, indemnify and hold harmless on an
after-tax basis Purchaser against all unpaid Taxes of the Partnership for all
taxable periods ending on or before the Closing Date or otherwise attributable
to the operations, transactions, assets, or income of the Partnership or its
predecessors prior to the Closing Date or otherwise arising from the
consummation of the Transactions as of the date hereof, together with any
expenses (including, without limitation, reasonable attorneys', accountants' and
consultants' fees and other expenses) incurred in connection with the
contesting, collection or assessment of such Taxes, and together with interest
at an annual rate equal to the Prime Rate then in effect.
SECTION 11.4 INDEMNIFICATION BY SELLERS FOR ENVIRONMENTAL MATTERS. For a
period of five (5) years, in addition to, and not by way of limitation on, the
indemnities set forth in Section 11.2, Sellers shall, jointly and severally,
indemnify and hold harmless Purchaser and Purchaser's Affiliated Parties in
respect of any and all claims, losses, damages, liabilities, declines in value
of the Assets or the Business, penalties, interest, costs and expenses
(including, without limitation, reasonable attorneys', accountants', and
consultants' fees and other expenses)
51
incurred by Purchaser or Purchaser's Affiliated Parties, together with interest
on cash disbursements in connection therewith, at an annual rate equal to the
Prime Rate then in effect, from the date such cash disbursements were made by
Purchaser or any of Purchaser's Affiliated Parties until paid by Sellers, in
connection with, or resulting from, any Environmental Liabilities for Pre-
Closing Matters including, without limitation, any of the matters described on
Schedule 5.13, regardless of the diligence performed or investigation made by
Purchaser or its Representatives with respect thereto.
SECTION 11.5 SURVIVAL OF REPRESENTATIONS AND WARRANTIES OF PURCHASER.
The representations and warranties made by Purchaser in Article VI of this
Agreement and any document or other instrument relating hereto shall survive the
date hereof for a period of two (2) years. Notwithstanding anything contained
in this Agreement, including, without limitation, this Section 11.5, any claims
with respect to representations and warranties made by Purchaser in this
Agreement or in any document or other instrument relating hereto shall survive
and continue following the expiration of the survival period stated above (i) if
such claim is submitted in writing to Purchaser prior to the end of the survival
period stated in this Section 11.5 or otherwise and identified as a claim for
indemnification pursuant to this Agreement or (ii) if such claim is based upon
fraud by Purchaser. In either event, such claims shall survive until they are
resolved.
SECTION 11.6 INDEMNIFICATION BY PURCHASER. Purchaser shall indemnify and
hold harmless the Partnership in respect of any and all Damages reasonably
incurred by the Partnership, together with interest on cash disbursements in
connection therewith, at an annual rate equal to the Prime Rate then in effect,
from the date that such cash disbursements were made by the Partnership until
paid by Purchaser, in connection with, or resulting from, any or all of the
following:
(a) Any breach of any representation or warranty made by Purchaser in
Article VI of this Agreement or in any document or other instrument relating
hereto;
(b) Any misrepresentation contained in any written statement or
certificate furnished by Purchaser to such Seller pursuant to this Agreement or
the Transactions;
(c) Any breach of any covenant, agreement or obligation of Purchaser
contained in this Agreement or any document or other instrument contemplated by
this Agreement; and
(d) Liabilities of the Business to parties other than Sellers arising in
relation to the Assets or the Assumed Liabilities resulting from events
occurring after the Closing Date.
PROVIDED, HOWEVER, that Purchaser's obligations set forth in this Section shall
not apply to any. Damages that arise from or are related to any willful
misconduct or gross negligence by any Seller.
SECTION 11.7 CLAIMS FOR INDEMNIFICATION. Whenever any claim shall arise
for
52
indemnification under this Agreement, the party entitled to indemnification (the
"Indemnified Party") shall promptly notify the party obligated to provide
indemnification (the "Indemnifying Party") of the claim and, when known, the
facts constituting the basis for such claim; PROVIDED, HOWEVER, that the failure
to so notify the Indemnifying Party shall not relieve the Indemnifying Party of
its obligation hereunder to the extent such failure does not materially
prejudice the Indemnifying Party. In the event of any claim for indemnification
hereunder resulting from or in connection with any claim or legal proceedings by
a third party, the notice to the Indemnifying Party shall specify, if known, the
amount or an estimate of the amount of the liability arising therefrom.
SECTION 11.8 DEFENSE OF CLAIMS. In connection with any claim giving rise
to indemnity under this Agreement resulting from or arising out of any claim or
legal proceeding by a person who is not a party to this Agreement, the
Indemnifying Party at its sole cost and expense and with counsel reasonably
satisfactory to the Indemnified Party may, upon written notice to the
Indemnified Party, assume the defense of any such claim or legal proceeding if
(a) the Indemnifying Party acknowledges to the Indemnified Party in writing,
within fifteen (15) days after receipt of notice from the Indemnified Party, its
obligations to indemnify the Indemnified Party with respect to all elements of
such claim based upon the facts then reasonably known to such Indemnifying
Party, (b) the Indemnifying Party provides the Indemnified Party with evidence
reasonably acceptable to the Indemnified Party that the Indemnifying Party will
have the financial resources to defend against such third-party claims and
fulfill its indemnification obligations hereunder, (c) the third-party claim
involves only money damages and does not seek an injunction or other equitable
relief, and (d) settlement or an adverse judgment of the third-party claim is
not, in the good faith judgment of the Indemnified Party, likely to establish a
pattern or practice adverse to the continuing business interests of the
Indemnified Party. The Indemnified Party shall be entitled to participate in
(but not control) the defense of any such action, with its counsel and at its
own expense; PROVIDED, HOWEVER, that if there are one or more legal defenses
available to the Indemnified Party that conflict with those available to the
Indemnifying Party, or if the Indemnifying Party fails to take reasonable steps
necessary to defend diligently the claim after receiving notice from the
Indemnified Party that it believes the Indemnifying Party has failed to do so,
the Indemnified Party may assume the defense of such claim; PROVIDED, FURTHER,
that the Indemnified Party may not settle such claim without the prior written
consent of the Indemnifying Party, which consent may not be unreasonably
withheld. If the Indemnified Party assumes the defense of the claim, the
Indemnifying Party shall reimburse the Indemnified Party for the reasonable fees
and expenses of counsel retained by the Indemnified Party and the Indemnifying
Party shall be entitled to participate in (but not control) the defense of such
claim, with its counsel and at its own expense. If the Indemnifying Party
thereafter seeks to question the manner in which the Indemnified Party defended
such third party claim or the amount or nature of any such settlement, the
Indemnifying Party shall have the burden to prove by a preponderance of the
evidence that the Indemnified Party did not defend or settle such third party
claim in a reasonably prudent manner. The parties agree to render, without
compensation, to each other such assistance as they may reasonably require of
each other in order to insure the proper and adequate defense of any action,
suit or proceeding, whether or not subject to indemnification hereunder. If the
indemnification provided for in this Article XI is for
53
any reason unenforceable, the party against whom indemnification was sought
agrees to contribute to the claims for which such indemnification is
unenforceable in such proportion as is appropriate to reflect the relative fault
of such party, on the one hand, and the Indemnified Party, on the other hand, as
well as any other relevant equitable considerations.
SECTION 11.9 MANNER OF INDEMNIFICATION. All indemnification payments
hereunder shall be effected by payment of cash or delivery of a certified or
official bank check in the amount of the indemnification liability.
SECTION 11.10 SET OFF. To the extent that Purchaser or Purchaser's
Affiliated Parties suffer any Damages for which Sellers are liable to Purchaser
or Purchaser's Affiliated Parties under the provisions of Section 11.2,
Purchaser shall have the right to reduce the amount of the Earn-Out by the
amount of such Damages. The parties acknowledge that such reduction shall not
be the exclusive method of receiving indemnification from Sellers pursuant to
this Article XI. If the Partners dispute Purchaser's claim of setoff under this
Section 11.10, they shall so notify the Chief Executive Officer of Purchaser in
writing. Within 15 days Purchaser shall inform the Partnership of the grounds
for such setoff. If the Partner's still dispute Purchaser's claim of setoff,
they shall so notify the Chief Executive Officer of Purchaser in writing. Upon
receipt of such second notice, Purchaser shall deposit or allocate the disputed
amount into a segregated account maintained by Purchaser, pending resolution of
the dispute (which dispute shall be submitted to binding arbitration if the
amount in controversy is less thatn $25,000 and to judicial process if the
amount is $25,000 or more). Unless the Partners timely dispute Purchaser's
setoff in accordance with the foregoing, Sellers shall be deemed to have
irrevocably waived any objection to such setoff.
ARTICLE XII
MISCELLANEOUS
SECTION 12.1 TERMINATION.
(a) TERMINATION. This Agreement may be terminated at any time prior to
Closing:
(i) By mutual written consent of Purchaser and the Partnership;
(ii) By Purchaser or Sellers if the Closing shall not have occurred on
or before February 28, 1997; PROVIDED, HOWEVER, that this provision shall not be
available to Purchaser if Sellers have the right to terminate this Agreement
under clause (iv) of this Section 12.1, and this provision shall not be
available to Sellers if Purchaser has the right to terminate this Agreement
under clause (iii) of this Section 12.1;
(iii) By Purchaser if there is a material breach of any
representation or warranty set forth in Article V hereof or any covenant or
agreement to be complied with or performed by any Seller pursuant to the terms
of this Agreement or the failure of a condition set
54
forth in Article IX to be satisfied (and such condition is not waived in writing
by Purchaser) on or prior to the Closing Date, or the occurrence of any event
which results or would result in the failure of a condition set forth in Article
IX to be satisfied on or prior to the Closing Date;
(iv) By the Partnership if there is a material breach of any
representation or warranty set forth in Article VI hereof or of any covenant or
agreement to be complied with or performed by Purchaser pursuant to the terms of
this Agreement or the failure of a condition set forth in Article VIII to be
satisfied (and such condition is not waived in writing by the Partnership) on or
prior to the Closing Date, or the occurrence of any event which results or would
result in the failure of a condition set forth in Article VIII to be satisfied
on or prior to the Closing Date, PROVIDED that, the Partnership may not
terminate this Agreement prior to the Closing Date if Purchaser has not had an
adequate opportunity (in any event, not to exceed twenty (20) calendar days) to
cure such failure.
(b) IN THE EVENT OF TERMINATION. In the event of termination of this
Agreement:
(i) Each party shall redeliver all documents, work papers and other
material of any other party relating to the transactions contemplated hereby,
whether so obtained before or after the execution hereof, to the party
furnishing the same (and shall destroy all copies in their possession); and
(ii) No party hereto shall have any Liability to any other party to
this Agreement, except as stated in subsections (i) and (ii) of this
Section 12.1(b) and Sellers' obligations under Section 7.2, except for any
willful breach of this Agreement occurring prior to the termination of this
Agreement.
SECTION 12.2 NOTICES. All notices, requests, demands and other
communications hereunder shall be in writing and shall be deemed given if
delivered personally or by facsimile transmission (with subsequent letter
confirmation by mail) or three days after being mailed by certified or
registered mail, postage prepaid, return receipt requested, to the parties,
their successors in interest or their assignees at the following addresses, or
at such other addresses as the parties may designate by written notice in the
manner aforesaid:
If to Purchaser: VDI Media
6920 Sunset Boulevard
Los Angeles, California 90028
Telecopy: (213) 957-2164
Attention: Donald R. Stine
55
With a concurrent copy to: Kaye, Scholer, Fierman, Hays & Handler, LLP
1999 Avenue of the Stars, Suite 1600
Los Angeles, California 90067
Telecopy: (310) 788-1200
Attention: Sheri Jeffrey, Esq.
Barry L. Dastin, Esq.
If to any Seller: Woodholly Productions
712 Seward Street
Los Angeles, California
Telecopy: (213) 466-8469
Attention: Ms. Yvonne Parker
With a concurrent copy to: Edwards, Edwards & Ashton
420 North Brand Boulevard, Suite 500
Glendale, California 91203
Telecopy: (818) 247-7025
Attention: Wilbur Gin, Esq.
Eric A. Ashton, Jr., Esq.
SECTION 12.3 ASSIGNABILITY AND PARTIES IN INTEREST. This Agreement shall
not be assignable by any of the parties, except that Purchaser may assign its
rights hereunder to, and have its obligations hereunder assumed by a
wholly-owned subsidiary of Purchaser. This Agreement shall inure to the benefit
of and be binding upon the parties and their respective permitted successors and
assigns.
SECTION 12.4 GOVERNING LAW. This Agreement shall be governed by, and
construed and enforced in accordance with, the laws of the State of California.
SECTION 12.5 COUNTERPARTS. This Agreement may be executed in several
counterparts, each of which shall be deemed an original, but all of which shall
constitute one and the same instrument.
SECTION 12.6 COMPLETE AGREEMENT. This Agreement, the exhibits and
schedules hereto and the documents delivered or to be delivered pursuant to this
Agreement contain or will contain the entire agreement among the parties with
respect to the Transactions and shall supersede all previous oral and written
and all contemporaneous oral negotiations, commitments and understandings.
SECTION 12.7 MODIFICATIONS, AMENDMENTS AND WAIVERS. This Agreement may
be modified, amended or otherwise supplemented only by a writing signed by
Purchaser and the Partnership. No waiver of any right or power hereunder shall
be deemed effective unless and until a writing waiving such right or power is
executed by the party waiving such right or power.
56
SECTION 12.8 EXPENSES. Except as otherwise expressly provided elsewhere
in this Agreement, each party shall pay all fees and expenses incurred by it in
connection with the transactions contemplated by this Agreement.
SECTION 12.9 INVALIDITY. In the event that any one or more of the
provisions contained in this Agreement or in any other instrument referred to
herein, shall, for any reason, be held to be invalid, illegal or unenforceable
in any respect, then to the maximum extent permitted by law, such invalidity,
illegality or unenforceability shall not affect any other provision of this
Agreement or any other such instrument.
SECTION 12.10 PUBLICITY. Neither Purchaser, on the one hand, nor any
Seller, including Representatives or Affiliates thereof, on the other hand,
shall issue any press release or make any public statement regarding the
transactions contemplated hereby, without prior written approval of the other
parties, provided that Purchaser may describe the Transactions and the
Partnership, and include the Financial Statements, in any document filed in
connection with the offer and sale of its securities under applicable law.
SECTION 12.11 LIMIT ON INTEREST. Notwithstanding anything in this
Agreement to the contrary, no party shall be obligated to pay interest at a rate
higher than the maximum rate permitted by applicable law. In the event that at
any time an interest rate provided in this Agreement exceeds the maximum rate
permitted by applicable law, such interest rate shall be deemed to be reduced to
such maximum permissible rate.
SECTION 12.12 ATTORNEYS' FEES AND COSTS. Each party shall bear its own
expenses arising from the preparation, negotiation and delivery of this
Agreement and any other document required to be delivered in connection
herewith; PROVIDED, HOWEVER, that Purchaser shall solely bear the costs of the
Audit, unless this Agreement is terminated prior to Closing for any reason other
than the bad faith or willful misconduct by Purchaser, in which event the
Partnership, on the one hand, and Purchaser, on the other hand, shall bear one-
half of the costs of such Audit; and PROVIDED, FURTHER, should any party
institute any arbitration, action, suit or other proceeding arising out of or
relating to this Agreement, the prevailing party shall be entitled to receive
from the losing party reasonable attorneys' fees and costs incurred in
connection therewith.
SECTION 12.13 JURISDICTION; SERVICE OF PROCESS. Any action or proceeding
seeking to enforce any provision of, or based on any right arising out of, this
Agreement may be brought against any of the parties in the courts of the State
of California, County of Los Angeles, and the parties hereto irrevocably submit
to the jurisdiction of such courts and waive any objection to venue laid
therein. Process in any action or proceeding referred to in the preceding
sentence may be served on any party anywhere in the world.
SECTION 12.14 CONTRACT INTERPRETATION; CONSTRUCTION OF AGREEMENT.
(a) The headings contained in this Agreement are for reference purposes
only and shall not affect in any way the meaning or interpretation of this
Agreement. Article, section,
57
exhibit, schedule, preamble, recital and party references are to this Agreement
unless otherwise stated. The words "include", "includes" and "including" shall
be deemed to be followed by the phrase "without limitation".
(b) No party, nor its respective counsel, shall be deemed the drafter of
this Agreement for purposes of construing the provisions of this Agreement, and
all language in all parts of this Agreement shall be construed in accordance
with its fair meaning, and not strictly for or against any party.
(c) Whenever the context may require, any pronoun shall include the
corresponding masculine, feminine and neuter forms.
58
IN WITNESS WHEREOF, each of the parties has executed this Agreement as of
the date first above written.
WOODHOLLY PRODUCTIONS, as a Seller
By:
Name:
Title:
Yvonne Parker, as a Seller
Rodger Parker, as a Seller
Jim Watt, as a Seller
Kim Watt, as a Seller
VDI MEDIA, as Purchaser
By:
Name:
Title:
59
TABLE OF CONTENTS
PAGE
----
ARTICLE I DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . .1
ARTICLE II PURCHASE AND SALE OF ASSETS. . . . . . . . . . . . . . . .11
Section 2.1 Transfer of Assets . . . . . . . . . . . . . . . . . . . .11
Section 2.2 Assumption of Liabilities. . . . . . . . . . . . . . . . .11
Section 2.3 Excluded Liabilities . . . . . . . . . . . . . . . . . . .11
Section 2.4 Purchase Price . . . . . . . . . . . . . . . . . . . . . .13
Section 2.5 Closing Costs; Transfer Taxes and Fees . . . . . . . . . .15
Section 2.6 Rescission . . . . . . . . . . . . . . . . . . . . . . . .15
ARTICLE III POST-CLOSING ADJUSTMENTS TO EARN-OUTAND BONUS PAYMENT. . .16
Section 3.1 Adjustment to Purchase Notes . . . . . . . . . . . . . . .16
Section 3.2 Adjustment to Earn-Out . . . . . . . . . . . . . . . . . .17
Section 3.3 Bonus Payment. . . . . . . . . . . . . . . . . . . . . . .18
ARTICLE IV CLOSING. . . . . . . . . . . . . . . . . . . . . . . . . .19
Section 4.1 Closing. . . . . . . . . . . . . . . . . . . . . . . . . .19
Section 4.2 Conveyances at Closing . . . . . . . . . . . . . . . . . .19
ARTICLE V REPRESENTATIONS AND WARRANTIES OF SELLERS . . . . . . . . 20
Section 5.1 Organization and Good Standing . . . . . . . . . . . . . .20
Section 5.2 Assets . . . . . . . . . . . . . . . . . . . . . . . . . .21
Section 5.3 Licenses and Permits . . . . . . . . . . . . . . . . . . .21
Section 5.4 No Breach. . . . . . . . . . . . . . . . . . . . . . . . .21
Section 5.5 The Partnership; Authority . . . . . . . . . . . . . . . .21
Section 5.6 Subsidiaries . . . . . . . . . . . . . . . . . . . . . . .22
Section 5.7 Financial Statements . . . . . . . . . . . . . . . . . . .22
Section 5.8 Projections. . . . . . . . . . . . . . . . . . . . . . . .23
Section 5.9 Absence of Certain Changes . . . . . . . . . . . . . . . .23
Section 5.10 Absence of Undisclosed Liabilities . . . . . . . . . . . .24
Section 5.11 Accounts Receivable. . . . . . . . . . . . . . . . . . . .24
Section 5.12 Real Property; Real Property Leases. . . . . . . . . . . .24
Section 5.13 Environmental Matters. . . . . . . . . . . . . . . . . . .25
Section 5.14 Intangible Personal Property . . . . . . . . . . . . . . .27
Section 5.15 Labor and Employment Agreements. . . . . . . . . . . . . .27
Section 5.16 Employee Benefit Plans: ERISA. . . . . . . . . . . . . . .29
Section 5.17 Material Contracts and Relationships . . . . . . . . . . 31
i
PAGE
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Section 5.18 Inventory. . . . . . . . . . . . . . . . . . . . . . . . .32
Section 5.19 Absence of Certain Business Practices. . . . . . . . . . .32
Section 5.20 Compliance with Laws . . . . . . . . . . . . . . . . . . .33
Section 5.21 Litigation . . . . . . . . . . . . . . . . . . . . . . . .33
Section 5.22 Taxes. . . . . . . . . . . . . . . . . . . . . . . . . . .33
Section 5.23 Insurance Matters. . . . . . . . . . . . . . . . . . . . .35
Section 5.24 No Powers of Attorney or Suretyships . . . . . . . . . . .36
Section 5.25 Brokerage Fees . . . . . . . . . . . . . . . . . . . . . .36
Section 5.26 Banking Facilities . . . . . . . . . . . . . . . . . . . .36
Section 5.27 Machinery, Equipment and Other Personal Property; Personal
Property Leases. . . . . . . . . . . . . . . . . . . . . .36
Section 5.28 Product Warranty and Liability . . . . . . . . . . . . . .37
Section 5.29 Standards and Certifications . . . . . . . . . . . . . . .37
Section 5.30 Disclosure . . . . . . . . . . . . . . . . . . . . . . . .37
ARTICLE VI REPRESENTATIONS AND WARRANTIES OF PURCHASER. . . . . . . .38
Section 6.1 Organization and Corporate Authority . . . . . . . . . . .38
Section 6.2 No Breach; Consents and Approvals. . . . . . . . . . . . .38
Section 6.3 Brokerage Fees . . . . . . . . . . . . . . . . . . . . . .38
ARTICLE VII COVENANTS OF SELLERS AND PURCHASER. . . . . . . . . . . . . . .39
Section 7.1 Further Assurances . . . . . . . . . . . . . . . . . . . .39
Section 7.2 No Solicitation. . . . . . . . . . . . . . . . . . . . . .39
Section 7.3 Notification of Certain Matters. . . . . . . . . . . . . .40
Section 7.4 Investigation by Purchaser . . . . . . . . . . . . . . . .40
Section 7.5 Conduct of Business. . . . . . . . . . . . . . . . . . . .40
Section 7.6 Employment Agreements. . . . . . . . . . . . . . . . . . .42
Section 7.7 Hollywood Lease. . . . . . . . . . . . . . . . . . . . . .43
Section 7.8 Agreements Not to Compete. . . . . . . . . . . . . . . . .44
Section 7.9 Collection of Accounts Receivable and Letters of Credit. .44
Section 7.10 Books and Records; Tax Matters . . . . . . . . . . . . . .45
Section 7.11 Bulk Sales . . . . . . . . . . . . . . . . . . . . . . . .45
Section 7.12 Operation of Business After Closing. . . . . . . . . . . .46
Section 7.13 Confidentiality. . . . . . . . . . . . . . . . . . . . . .46
ARTICLE VIII CONDITIONS TO THE PARTNERSHIP'S OBLIGATIONS . . . . . . . . . .46
Section 8.1 Representations, Warranties and Covenants. . . . . . . . .46
Section 8.2 Consents; Regulatory Compliance and Approval . . . . . . .46
Section 8.3 No Actions or Court Orders . . . . . . . . . . . . . . . .46
Section 8.4 Assumption Document. . . . . . . . . . . . . . . . . . . .47
Section 8.5 Ancillary Agreements . . . . . . . . . . . . . . . . . . .47
ii
PAGE
----
ARTICLE IX CONDITIONS TO PURCHASER'S OBLIGATIONS. . . . . . . . . . .47
Section 9.1 Representations, Warranties and Covenants. . . . . . . . .47
Section 9.2 Consents; Regulatory Compliance and Approval . . . . . . .47
Section 9.3 No Actions or Court Orders . . . . . . . . . . . . . . . .47
Section 9.4 Opinion of Counsel . . . . . . . . . . . . . . . . . . . .48
Section 9.5 Certificates . . . . . . . . . . . . . . . . . . . . . . .48
Section 9.6 Material Changes . . . . . . . . . . . . . . . . . . . . .48
Section 9.7 Conveyancing Documents; Release of Encumbrances. . . . . .48
Section 9.8 Permits. . . . . . . . . . . . . . . . . . . . . . . . . .49
Section 9.9 Other Agreements . . . . . . . . . . . . . . . . . . . . .49
Section 9.10 Tax Clearance Certificate. . . . . . . . . . . . . . . . .49
Section 9.11 Nonforeign Affidavit . . . . . . . . . . . . . . . . . . .49
Section 9.12 Customer Relations . . . . . . . . . . . . . . . . . . . .49
Section 9.13 Due Diligence. . . . . . . . . . . . . . . . . . . . . . .49
Section 9.14 Certain Financial Arrangements . . . . . . . . . . . . . .49
ARTICLE X RISK OF LOSS. . . . . . . . . . . . . . . . . . . . . . . . . .49
Section 10.1 Risk of Loss . . . . . . . . . . . . . . . . . . . . . . .49
ARTICLE XI INDEMNIFICATION. . . . . . . . . . . . . . . . . . . . . .50
Section 11.1 Survival of Representations and Warranties of Sellers. . .50
Section 11.2 Indemnification by Sellers . . . . . . . . . . . . . . . .50
Section 11.3 Indemnification by Sellers for Tax Liabilities . . . . . .51
Section 11.4 Indemnification by Sellers for Environmental Matters . . .51
Section 11.5 Survival of Representations and Warranties of Purchaser. .52
Section 11.6 Indemnification by Purchaser . . . . . . . . . . . . . . .52
Section 11.7 Claims for Indemnification . . . . . . . . . . . . . . . .52
Section 11.8 Defense of Claims. . . . . . . . . . . . . . . . . . . . .53
Section 11.9 Manner of Indemnification. . . . . . . . . . . . . . . . .54
Section 11.10 Set off. . . . . . . . . . . . . . . . . . . . . . . . . .54
ARTICLE XII MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . .54
Section 12.1 Termination. . . . . . . . . . . . . . . . . . . . . . . .54
Section 12.2 Notices. . . . . . . . . . . . . . . . . . . . . . . . . .55
Section 12.3 Assignability and Parties In Interest. . . . . . . . . . .56
Section 12.4 Governing Law. . . . . . . . . . . . . . . . . . . . . . .56
Section 12.5 Counterparts . . . . . . . . . . . . . . . . . . . . . . .56
Section 12.6 Complete Agreement . . . . . . . . . . . . . . . . . . . .56
Section 12.7 Modifications, Amendments and Waivers. . . . . . . . . . .56
iii
Section 12.8 Expenses . . . . . . . . . . . . . . . . . . . . . . . . .57
Section 12.9 Invalidity . . . . . . . . . . . . . . . . . . . . . . . .57
Section 12.10 Publicity. . . . . . . . . . . . . . . . . . . . . . . . .57
Section 12.11 Limit on Interest. . . . . . . . . . . . . . . . . . . . .57
Section 12.12 Attorneys' Fees and Costs. . . . . . . . . . . . . . . . .57
Section 12.13 Jurisdiction; Service of Process . . . . . . . . . . . . .57
Section 12.14 Contract Interpretation; Construction of Agreement . . . .57
EXHIBITS
- --------
Exhibit A - Form of Purchase Note
Exhibit B - Form of Hollywood Lease
Exhibit C - Form of Employment Agreement
Exhibit D - Form of Bill of Sale
Exhibit E - Form of Assignment of Lease
Exhibit F - Form of Assignment of Personal Property Lease
Exhibit G - Form of Assignment of Contracts
Exhibit H - Form of Assumption
SCHEDULES
- ---------
Schedule 1A - Excluded Personal Property
Schedule 1B - Contracts
Schedule 2.1 - Assets
Schedule 2.2 - Assumed Liabilities
Schedule 3.1 - Sample Total Operating Income Calculation
Schedule 5.1 - Jurisdiction of organized; foreign jurisdictions where
transacts business
Schedule 5.4 - Required Consents
Schedule 5.3 - Licenses, permits and qualifications
Schedule 5.7(a) - Financials and accountants reports
Schedule 5.7(b) - Interim Financials
Schedule 5.8 - Projected financial statements
Schedule 5.9 - Adverse Changes
Schedule 5.10 - Material Liabilities
Schedule 5.11 - Accounts Receivable
Schedule 5.12(a) - Real property owned by or leased
Schedule 5.13 - Environmental Matters
Schedule 5.15 - Employment, consulting, collective bargaining and
similar agreements; Names of certain employee of any of
the Sellers and certain agents and consultants to the
Partnership; employment-related allegation, claim, suit
or proceeding
iv
Schedule 5.16 - Employee Benefit Plans; ERISA Matters
Schedule 5.17 - Material Contracts and Relationships
Schedule 5.18 - Material returns, or claims or demands for material
returns, of Inventory
Schedule 5.20 - Compliance
Schedule 5.21 - Litigation
Schedule 5.22 - Taxes
Schedule 5.23 - Insurance Matters
Schedule 5.24 - Powers of Attorney
Schedule 5.26 - Banking Facilities
Schedule 5.27 - Leased Personal Property
Schedule 6.1 - Purchaser's Financial Statements
v
ASSET PURCHASE AGREEMENT
Dated as of December __, 1996
by and among
VDI MEDIA,
as Purchaser
and
WOODHOLLY PRODUCTIONS, YVONNE PARKER, RODGER PARKER,
JIM WATT AND KIM WATT,
as Sellers