EXECUTION COPY
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STOCK PURCHASE AGREEMENT
BY AND AMONG
AKI, INC.
AND
THE SELLERS LISTED ON THE SIGNATURE PAGES HEREOF
Dated as of September 2, 1999
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TABLE OF CONTENTS
Page
Article I SALE AND PURCHASE OF SHARES.............................................................................1
Section 1.1 Sale and Purchase of Shares.....................................................................1
Article II PURCHASE PRICE AND PAYMENT.............................................................................1
Section 2.1 Amount of Purchase Price........................................................................1
Section 2.2 Payment of Estimated Purchase Price.............................................................2
Section 2.3 Escrows.........................................................................................2
Section 2.4 Determination of Purchase Price.................................................................3
Article III CLOSING AND TERMINATION...............................................................................5
Section 3.1 Closing Date....................................................................................5
Section 3.2 Termination of Agreement........................................................................5
Section 3.3 Procedure Upon Termination......................................................................5
Section 3.4 Effect of Termination...........................................................................5
Article IV REPRESENTATIONS AND WARRANTIES OF THE SELLERS..........................................................6
Section 4.1 Organization and Good Standing..................................................................6
Section 4.2 Authorization of Agreement......................................................................6
Section 4.3 Capitalization..................................................................................7
Section 4.4 Subsidiaries....................................................................................7
Section 4.5 Conflicts; Certain Consents of Third Parties....................................................8
Section 4.6 Ownership and Transfer of Shares; Seller Consents...............................................8
Section 4.7 Financial Statements............................................................................9
Section 4.8 No Undisclosed Liabilities.....................................................................10
Section 4.9 Absence of Certain Developments................................................................10
Section 4.10 Taxes..........................................................................................11
Section 4.11 Real Property..................................................................................13
Section 4.12 Tangible Personal Property.....................................................................14
Section 4.13 Intellectual Property; Proprietary Information.................................................14
Section 4.14 Material Contracts.............................................................................16
Section 4.15 Employee Benefits..............................................................................16
Section 4.16 Labor..........................................................................................18
Section 4.17 Litigation.....................................................................................19
Section 4.18 Compliance with Laws; Permits..................................................................19
Section 4.19 Environmental Matters..........................................................................19
Section 4.20 Insurance......................................................................................20
Section 4.21 Inventories; Receivables; Payables.............................................................20
Section 4.22 Related Party Transactions.....................................................................21
Section 4.23 Banks..........................................................................................22
Section 4.24 Full Disclosure................................................................................22
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Section 4.25 Financial Advisors.............................................................................22
Section 4.26 Year 2000 Compliance...........................................................................22
Section 4.27 Representations and Warranties Exclusive.......................................................23
Article V REPRESENTATIONS AND WARRANTIES OF THE PURCHASER........................................................23
Section 5.1 Organization and Good Standing.................................................................23
Section 5.2 Authorization of Agreement.....................................................................23
Section 5.3 Conflicts; Consents of Third Parties...........................................................23
Section 5.4 Litigation.....................................................................................24
Section 5.5 Investment Intention...........................................................................24
Section 5.6 Financial Advisors.............................................................................24
Article VI COVENANTS.............................................................................................25
Section 6.1 Access to Information..........................................................................25
Section 6.2 Conduct of the Business Pending the Closing....................................................26
Section 6.3 Consents.......................................................................................27
Section 6.4 Other Actions..................................................................................27
Section 6.5 No Solicitation................................................................................27
Section 6.6 Preservation of Records........................................................................28
Section 6.7 Publicity......................................................................................29
Section 6.8 Termination of Agreements......................................................................29
Section 6.9 Intellectual Property..........................................................................29
Section 6.10 Collection of Accounts Receivable..............................................................29
Article VII OTHER AGREEMENTS.....................................................................................30
Section 7.1 Payment of Sleepeck Indebtedness...............................................................30
Section 7.2 Exercise of Options and Releases...............................................................30
Section 7.3 Employees......................................................................................31
Section 7.4 Certain Insurance Coverage.....................................................................31
Article VIII CONDITIONS TO CLOSING...............................................................................31
Section 8.1 Conditions Precedent to Obligations of the Purchaser...........................................31
Section 8.2 Conditions Precedent to Obligations of the Sellers.............................................34
Article IX CLOSING DELIVERIES....................................................................................35
Section 9.1 Documents to be Delivered by the Sellers.......................................................35
Section 9.2 Documents to be Delivered by the Purchaser.....................................................36
Section 9.3 Simultaneous Transactions......................................................................37
Article X INDEMNIFICATION........................................................................................37
Section 10.1 Non-Tax Indemnification........................................................................37
Section 10.2 Limitations on Indemnification for Breaches of Representations
and Warranties...............................................................................39
Section 10.3 Non-Tax Indemnification Procedures.............................................................40
Section 10.4 Tax Matters....................................................................................41
Section 10.5 Tax Treatment of Indemnity Payments............................................................46
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Article XI MISCELLANEOUS.........................................................................................46
Section 11.1 Certain Definitions............................................................................46
Section 11.2 Survival.......................................................................................51
Section 11.3 Expenses.......................................................................................51
Section 11.4 Specific Performance...........................................................................52
Section 11.5 Further Assurances.............................................................................52
Section 11.6 Arbitration....................................................................................52
Section 11.7 Entire Agreement; Amendments and Waivers.......................................................52
Section 11.8 Governing Law..................................................................................53
Section 11.9 Table of Contents and Headings.................................................................53
Section 11.10 Notices........................................................................................53
Section 11.11 Severability...................................................................................55
Section 11.12 Binding Effect; Assignment.....................................................................55
Section 11.13 Sellers'Representatives........................................................................56
Section 11.14 Disclaimer of Certain Kinds of Damages.........................................................56
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SCHEDULES
Schedule 1.1 - Sellers; Shares; Sharing Ratios
Schedule 2.1 - 1998 Working Capital
Schedule 2.3 - Accounts Receivable
Schedule 4.1 - Organizations and Good Standing
Schedule 4.3(a) - Owners of Stock
Schedule 4.3(b) - Rights Holders/Exceptions
Schedule 4.4 - Subsidiaries/Qualifications
Schedule 4.5 - Consents of Third Parties
Schedule 4.6 - Share Ownership
Schedule 4.8 - Undisclosed Liabilities
Schedule 4.7 - Financial Statements
Schedule 4.9 - Certain Developments
Schedule 4.10 - Taxes
Schedule 4.11 - Real Property Leases
Schedule 4.12(a) - Personal Property Leases
Schedule 4.13 - Intellectual Property
Schedule 4.14 - Material Contracts
Schedule 4.15 - Employee Benefits
Schedule 4.16 - Labor
Schedule 4.17 - Litigation
Schedule 4.19 - Environmental Matters
Schedule 4.20 - Insurance
Schedule 4.21 - Inventories; Receivables; Payables
Schedule 4.22 - Related Party Transactions
Schedule 4.23 - Banks
Schedule 5.3(b) - Consents Required of Purchaser
Schedule 6.8 - Termination of Agreements
Schedule 8.1(r) - Employee Receivables
Schedule 8.1(u) - Terminated Employees
Schedule 10.1 - Indemnification Exceptions
EXHIBITS
Exhibit A - Form of Escrow Agreement
Exhibit B - Form of Employment Agreement
Exhibit C - Form of Consulting Agreement
Exhibit D - Printing Services Agreement
Exhibit E - Form of Non-Competition and Non-Solicitation Agreement
Exhibit F - Form of Release
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STOCK PURCHASE AGREEMENT
STOCK PURCHASE AGREEMENT, dated as of September 2, 1999 (the
"Agreement"), by and among AKI, Inc., a Delaware corporation (the "Purchaser"),
and the shareholders and rights holders of RetCom Holdings Ltd., a Delaware
corporation (the "Company"), listed on the signature pages hereof (collectively,
the "Sellers").
W I T N E S S E T H:
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WHEREAS, the Sellers own as specified in Schedule 1.1 all of
the issued and outstanding shares of the Company's common stock, no par value
(the "Common Stock"), and all of the issued and outstanding options and other
rights to purchase capital stock of and all of the other equity rights of the
Company (collectively, the "Options"); and
WHEREAS, the Sellers desire to sell to Purchaser, and the
Purchaser desires to purchase from the Sellers, the Common Stock and Options set
forth on Schedule 1.1 (collectively, the "Shares") for the purchase price and
upon the terms and conditions hereinafter set forth; and
WHEREAS, certain terms used in this Agreement are defined in
Section 11.1;
NOW, THEREFORE, in consideration of the premises and the
mutual covenants and agreements hereinafter contained, the parties hereby agree
as follows:
Article I
SALE AND PURCHASE OF SHARES
Section 1.1 Sale and Purchase of Shares.
Upon the terms and subject to the conditions contained herein,
on the Closing Date each Seller identified on Schedule 1.1 shall sell, assign,
transfer, convey and deliver to the Purchaser, and the Purchaser shall purchase
from each such Seller, the Shares of such Seller set forth opposite such
Seller's name on Schedule 1.1 hereto.
Article II
PURCHASE PRICE AND PAYMENT
Section 2.1 Amount of Purchase Price.
The aggregate purchase price (the "Purchase Price") for the
Shares shall be an amount equal to $10,180,000 less (A) the amount by which
Working Capital as of the earlier of September 15, 1999 and the Closing Date
(the "Determination Date") (i) falls short of 108% of the amount of Working
Capital for September 15, 1998 (the "1998 Working Capital") if the 1998 Working
Capital was greater than or equal to zero or (ii) is less than 92% of the 1998
Working Capital if the 1998 Working Capital was less than zero, and (B) the
excess of Indebtedness as of the Determination Date over $4.5 million. Each
Seller identified on Schedule 1.1 shall receive the amount set forth opposite
his or its name on Schedule 1.1, subject to adjustment as described in (A) and
(B) above, such adjustments for each such Seller being calculated pro rata in
accordance with the sharing ratios set forth on Schedule 1.1 (the "Sharing
Ratios").
Section 2.2 Payment of Estimated Purchase Price.
No later than the close of business on September 7, 1999, the
Purchaser and Jay Gartlan shall agree on the estimate of the 1998 Working
Capital and shall agree on a schedule to this Agreement to be initialed by
William J. Fox and Jay Gartlan and inserted as Schedule 2.1. Schedule 2.1 shall
show the estimate of the 1998 Working Capital, based on the average of the
Working Capital as of August 31, 1998 and the Working Capital as of September
30, 1998, as shown on the unaudited balance sheets of the Company as of such
respective dates (the "1998 Interim Balance Sheets"). The 1998 Working Capital
shall be compiled from the relevant line items on the 1998 Interim Balance
Sheets consistent with the definition of Working Capital herein, including
consistency with GAAP, except as noted in Schedule 2.1.
At least two Business Days prior to the Closing Date, the
Purchaser and the Sellers' Representatives shall agree on an estimate of the
Purchase Price (the "Estimated Purchase Price") based on the 1998 Working
Capital as shown on Schedule 2.1 and using the internal accounting records of
the Company and its Subsidiaries for purposes of estimating the Working Capital
as of the Determination Date. On the Closing Date, the Purchaser shall pay the
Estimated Purchase Price, adjusted as set forth in Section 2.3, to the Sellers
identified on Schedule 1.1 in accordance with the Sharing Ratios. Each Seller's
portion of the Estimated Purchase Price shall be paid to such Seller by wire
transfer of immediately available funds into an account designated in writing by
such Seller not later than two Business Days before the Closing Date (or, if no
account is designated, then by certified check payable in immediately available
funds to the order of such Seller).
Section 2.3 Escrows.
(a) The Purchaser shall withhold from each Seller identified
on Schedule 1.1, pro rata in accordance with the Sharing Ratios, an aggregate of
$200,000 (the "Purchase Price Escrow Amount") from the Estimated Purchase Price
on the Closing Date pending agreement pursuant to Section 2.4 as to the amounts
of 1998 Working Capital and Working Capital and Indebtedness on the
Determination Date. The Purchase Price Escrow Amount shall be deposited in an
interest bearing escrow account with Hudson United Bank or another Person
acceptable to the Purchaser and the Sellers' Representatives, as escrow agent
(the "Escrow Agent"), pursuant to an Escrow Agreement (the "Escrow Agreement")
substantially in the form of Exhibit A attached hereto, pending final
determination of the Purchase Price pursuant to Section 2.4. Upon the final
determination of the Purchase Price pursuant to Section 2.4, the Purchase Price
Escrow Amount, if any, shall be disbursed in accordance with such final
determination.
(b) The Purchaser shall withhold from each Seller identified
on Schedule 1.1, pro rata in accordance with the Sharing Ratios, an aggregate of
$500,000 (together with the Additional Indemnification Amount, if any, the
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"Indemnification Escrow Amount") from the Estimated Purchase Price on the
Closing Date, which will be held in an interest bearing escrow account (the
"Indemnification Escrow Account") with the Escrow Agent pursuant to the Escrow
Agreement, as security for the Purchaser with respect to the representations and
warranties of the Sellers set forth in Article IV and the indemnification
obligations of the Sellers set forth in Article X. Subject to certain exceptions
set forth in the Escrow Agreement, on January 2, 2001 or as promptly as
practicable thereafter, the remaining balance of the Indemnification Escrow
Amount and interest earned on all amounts deposited pursuant to the Escrow
Agreement, if any, shall be disbursed to the Sellers in accordance with their
Sharing Ratios.
(c) The Purchaser shall withhold from each Seller identified
on Schedule 1.1, pro rata in accordance with the Sharing Ratios, an aggregate of
$500,000 (the "Receivable Escrow Amount") from the Estimated Purchase Price on
the Closing Date, which will be held in an interest bearing escrow account with
the Escrow Agent pursuant to the Escrow Agreement, as security for the Purchaser
with respect to the collectability of accounts receivable of the Company and its
Subsidiaries existing as of the Closing Date which are older than 90 days, and
which are set forth on Schedule 2.3, which Schedule shall be updated in
accordance with Section 6.1(b) hereof as of the close of business on the day
immediately preceding the Closing Date (collectively, the "Aged Accounts
Receivable"). An amount equal to the aggregate Aged Accounts Receivable (other
than Aged Accounts Receivable which have been previously written-off) which have
not been collected by the Company or its Subsidiaries by the date which is 90
days after the Closing Date (the "Collection Date"), less an amount equal to the
$38,743 general reserve against Aged Accounts Receivable reflected on the
unaudited compiled consolidated balance sheet as of June 30, 1999 (the
"Uncollected Receivables Amount") shall be disbursed to the Purchaser from the
Receivable Escrow Amount as promptly as practicable following the Collection
Date, and the remaining balance of the Receivable Escrow Amount, if any (the
"Additional Indemnification Amount"), shall be transferred and deposited into
the Indemnification Escrow Account. Thereafter, the Indemnification Escrow
Amount shall be increased by an amount equal to the Additional Indemnification
Amount, and shall be held as security for the Purchaser with respect to the
representations and warranties of the Sellers set forth in Article IV and the
indemnification obligations of the Sellers set forth in Article X. The Purchaser
shall cause the Company and/or its Subsidiaries, as the case may be, to assign
to the Sellers (or their respective designees) all of the Company's and/or its
Subsidiaries' right, title and interest in and to Aged Accounts Receivable, as
the Purchaser shall select in its sole discretion (as evidenced by one or more
invoices), in an aggregate amount equal to the funds disbursed from escrow to
the Purchaser in respect of the Uncollected Receivables Amount. During the
period following the Closing Date and until the Collection Date (the "Collection
Period"), all payments received by the Company and its Subsidiaries from any
customer owing both Aged Accounts Receivable and other accounts receivable to
the Company or any Subsidiary during the Collection Period shall be applied to
such accounts receivables as directed by such customer.
Section 2.4 Determination of Purchase Price.
(a) As soon as practicable following the Closing Date, but in
no event later than 30 days following the Closing Date, the Purchaser shall
cause the Company to prepare and deliver to the Sellers a final calculation of
1998 Working Capital and Working Capital and Indebtedness as of the
Determination Date and a balance sheet for the Company and its Subsidiaries as
of the Determination Date (the "Closing Date Balance Sheet") and Jay Gartlan
shall be entitled to consult with the Company in the preparation of such final
calculations and the Closing Date Balance Sheet. The Closing Date Balance Sheet
shall be prepared in accordance with GAAP and shall (i) include all Taxes
accrued on the June 30, 1999 Balance Sheet, (ii) include all Taxes accruing
after June 30, 1999 and until the Closing Date in the ordinary course of
business of the Company and its Subsidiaries and which are not due for payment
on or prior to the Closing Date, (iii) be subject to the exception set forth on
Schedule 10.1 hereto with respect to sales and use Tax liabilities, and (iv)
include all such other reserves required by GAAP. If no objections are raised to
the calculations of 1998 Working Capital, Working Capital and Indebtedness as of
the Determination Date or the Closing Date Balance Sheet by the Sellers'
Representatives within 30 days after receipt thereof by the Sellers, such
calculations and such Closing Date Balance Sheet shall be deemed accepted and
approved by the Sellers and a supplemental closing (herein called the
"Supplemental Closing") shall be held at either the same place and time as is
provided in Section 3.1 hereof, by conference telephone originated from such
place at such time or as the Sellers and the Purchaser may otherwise agree in a
signed writing on the fifth (5th) Business Day following the expiration of such
30 day period. At such Supplemental Closing any difference between the Estimated
Purchase Price and the actual Purchase Price shall be paid to the Sellers or
reimbursed to the Purchaser, as the case may be. Any amount payable hereunder
shall be satisfied first from the Purchase Price Escrow Amount and thereafter
shall be satisfied by direct payments by the Sellers identified on Schedule 1.1
(pro rata in accordance with their Sharing Ratios) or the Purchaser, as the case
may be.
(b) During the 30-day period after the Sellers' receipt of the
final calculations of 1998 Working Capital and Working Capital and Indebtedness
as of the Determination Date, the Purchaser shall permit the Sellers'
Representatives, at the expense of the Sellers, to have reasonable access during
normal business hours to appropriate supporting work papers specifically
requested by the Sellers' Representatives with respect to such calculations. If
the Sellers' Representatives object to the final calculations of 1998 Working
Capital, Working Capital or Indebtedness as of the Determination Date or the
Closing Date Balance Sheet within 30 days after receipt thereof, then the
specific matters disputed by the Sellers' Representatives shall be submitted to
Deloitte & Touche LLP or another independent, nationally recognized accounting
firm acceptable to the Purchaser and the Sellers' Representatives, which
accounting firm shall make a final and binding determination as to such matters.
The Supplemental Closing shall then take place five (5) Business Days following
the receipt of such final determination by the Purchaser and the Sellers'
Representatives.
(c) The parties shall cooperate with each other and each
other's authorized representatives and with the accounting firm selected by the
Purchaser and the Sellers' Representatives in order that any and all matters in
dispute under this Section 2.4 shall be resolved as soon as practicable and that
a final determination shall be made.
(d) The fees and expenses of the accounting firm retained
pursuant to this Section 2.4 shall be paid by the objecting Seller(s) and/or the
Purchaser, as determined by such accounting firm.
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Article III
CLOSING AND TERMINATION
Section 3.1 Closing Date.
Subject to the satisfaction of the conditions set forth in
Sections 8.1 and 8.2 hereof (except for the condition set forth in Sections
8.1(q) and 8.2(l)) or the waiver thereof by the party entitled to waive that
condition, the closing of the sale and purchase of the Shares provided for in
Section 1.1 hereof (the "Closing") shall take place at 10:00 a.m., New York City
time, at the offices of Akin, Gump, Strauss, Hauer & Feld, L.L.P. located at 590
Madison Avenue, New York, New York 10022 (or at such other place as the parties
may designate in writing) on the date that the parties hereto reasonably expect
the conditions in Sections 8.1 and 8.2 hereof to be satisfied or as soon as
practicable thereafter as the parties may otherwise agree. The date on which the
Closing shall be held is referred to in this Agreement as the "Closing Date."
Section 3.2 Termination of Agreement.
This Agreement may be terminated prior to the Closing as
follows:
(a) At the election of the Sellers' Representatives or the
Purchaser on or after September 21, 1999, if conditions to the obligation of the
relevant party to close shall not have been fulfilled or if the Closing shall
not have otherwise occurred by the close of business on such date, provided that
the party seeking to terminate is not in material default of any of its
obligations hereunder;
(b) by mutual written consent of the Sellers' Representatives
and the Purchaser;
(c) by the Sellers' Representatives or the Purchaser if there
shall be in effect a final nonappealable Order of a Governmental Body of
competent jurisdiction restraining, enjoining or otherwise prohibiting the
consummation of the transactions contemplated hereby; it being agreed that the
parties hereto shall promptly appeal any adverse determination which is not
nonappealable (and pursue such appeal with reasonable diligence); or
(d) by the Purchaser pursuant to Section 6.1.
Section 3.3 Procedure Upon Termination.
In the event of a termination of this Agreement pursuant to
Section 3.2 hereof, written notice thereof shall forthwith be given to the other
parties, this Agreement shall terminate, and the purchase of the Shares
hereunder shall be abandoned, without further action by the Purchaser or the
Sellers. If this Agreement is terminated as provided herein 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.
Section 3.4 Effect of Termination.
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In the event that this Agreement is validly terminated as
provided herein, then each of the parties shall be relieved of their respective
duties and obligations arising under this Agreement after the date of such
termination and such termination shall be without liability to the Purchaser,
the Company or any Seller; provided, however, that the obligations of the
parties set forth in Sections 6.5, 11.3 and 11.6 and the provisions of Section
6.1 relating to confidentiality shall survive any such termination and shall be
enforceable hereunder; provided, further, however, that nothing in this Article
III shall relieve the Purchaser or any Seller of any liability for a breach of
this Agreement.
Article IV
REPRESENTATIONS AND WARRANTIES OF THE SELLERS
Each of the Sellers hereby jointly and severally represents
and warrants to the Purchaser with respect to all representations and warranties
in this Article IV, other than those set forth in Sections 4.2 and 4.6 and
Section 4.24 (to the extent Section 4.24 relates to Sections 4.2 and 4.6). Each
of the Sellers severally represents and warrants to the Purchaser as to itself
only with respect to the representations and warranties in Sections 4.2 and 4.6
and Section 4.24 (to the extent Section 4.24 relates to Sections 4.2 and 4.6).
Section 4.1 Organization and Good Standing.
The Company is a corporation duly organized, validly existing
and in good standing under the laws of Delaware and has all requisite corporate
power and authority to own, lease and operate its properties and to carry on its
business as now conducted. The Company is duly qualified or authorized to do
business as a foreign corporation and is in good standing under the laws of the
jurisdictions set forth on Schedule 4.1, which lists each jurisdiction in which
it owns or leases real property and each other jurisdiction in which the conduct
of its business or the ownership of its properties requires such qualification
or authorization except where a failure to be so qualified would not have a
material adverse effect on the condition, financial or otherwise, or on the
earnings, prospects, business or operations of the Company and its Subsidiaries
taken as a whole ("Material Adverse Effect").
Section 4.2 Authorization of Agreement.
Such Seller has all requisite power, authority and legal
capacity to execute and deliver this Agreement and each other agreement,
document instrument or certificate contemplated by this Agreement to be executed
by such Seller in connection with the consummation of the transactions
contemplated by this Agreement (the "Seller Documents"), and to consummate the
transactions contemplated hereby and thereby. This Agreement has been, and each
of the Seller Documents shall be at or prior to the Closing, duly and validly
authorized (if applicable), executed and delivered by such Seller and (assuming
the due authorization, execution and delivery by the other parties hereto and
thereto) this Agreement constitutes, and each of the Seller Documents when so
executed and delivered shall constitute, legal, valid and binding obligations of
such Seller, enforceable against such Seller in accordance with their respective
terms, subject to applicable bankruptcy, insolvency, reorganization, moratorium
and similar laws affecting creditors' rights and remedies generally, and
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subject, as to enforceability, to general principles of equity, including
principles of commercial reasonableness, good faith and fair dealing (regardless
of whether enforcement is sought in a proceeding at law or in equity).
Section 4.3 Capitalization.
(a) The authorized capital stock of the Company consists of
1,500 shares of Common Stock. After giving effect to the exercise of Options
contemplated by Section 7.2 hereof and the exercise of the Option held by Jay
Gartlan (collectively, the "Options Exercise"), as of the Closing Date there
will be 110 shares of Common Stock issued and outstanding. After giving effect
to the Options Exercise, as of the Closing Date all of the issued and
outstanding shares of Common Stock will be duly authorized and validly issued,
fully paid and non-assessable. Schedule 4.3(a) sets forth the names of the
record and beneficial owners of all of the issued and outstanding shares of
Common Stock as of the Closing Date and the number of shares of Common Stock
owned by each such stockholder as of the Closing Date after giving effect to the
Options Exercise.
(b) Except as set forth on Schedule 4.3(b) and in the Memo
Agreement dated January 15, 1998 (the "January Memo"), there is no existing
option, warrant, call, right, commitment or other agreement of any character to
which any Seller or the Company is a party requiring, and there are no
securities of the Company outstanding which upon conversion or exchange would
require, the issuance, sale or transfer of any additional shares of capital
stock or other equity securities of or rights to participate in the Company or
other securities convertible into, exchangeable for or evidencing the right to
subscribe for or purchase shares of capital stock or other equity securities of
or rights to participate in the Company. Except for the January Memo and as set
forth on Schedule 4.3(b), none of the Sellers nor the Company is a party to any
voting trust or other voting agreement with respect to any of the shares of
Common Stock or other equity securities of or rights to participate in the
Company or to any agreement relating to the issuance, sale, redemption, transfer
or other disposition of the capital stock of the Company.
(c) The Shares to be sold to the Purchaser represent all of
the capital stock and other equity securities or rights of any kind to acquire
any such securities of the Company. Upon the Closing and after the consummation
of the transactions contemplated hereby, no party other than the Purchaser (or
other Persons acquiring such rights directly or indirectly from the Purchaser)
will have any right or claim to participate in the assets or earnings of the
Company.
Section 4.4 Subsidiaries.
Schedule 4.4 sets forth each Subsidiary of the Company, and,
with respect to each Subsidiary, the jurisdiction in which it is incorporated or
organized, the jurisdictions, if any, in which it is qualified to do business as
a foreign corporation, the number of shares of its authorized capital stock, the
number and class of shares thereof duly issued and outstanding, the names of all
stockholders or other equity owners and the number of shares of stock owned by
each stockholder or the amount of equity owned by each equity owner. Each
Subsidiary of the Company is in good standing under the laws of the
jurisdictions set forth on Schedule 4.4, which lists each jurisdiction in which
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such Subsidiary owns or leases real property and each other jurisdiction in
which the conduct of its business or the ownership of its properties requires it
to possess such qualification or authorization, except where a failure to be so
qualified would not have a Material Adverse Effect. The outstanding shares of
capital stock or equity interests of each Subsidiary are validly issued, fully
paid and non-assessable, and all such shares or other equity interests
represented as being owned by the Company are owned by it free and clear of any
and all Liens, except as set forth in Schedule 4.4 hereto. There is no existing
option, warrant, call, commitment or agreement to which any Subsidiary is a
party requiring, and there are no convertible securities of any Subsidiary
outstanding which upon conversion would require, the issuance of any additional
shares of capital stock or other equity interests of any Subsidiary or other
securities convertible into shares of capital stock or other equity interests of
any Subsidiary or other equity security of any Subsidiary. Each Subsidiary is a
duly organized and validly existing corporation or other entity in good standing
under the laws of the jurisdiction of its organization and is duly qualified to
do business and is in good standing under the laws of (i) each jurisdiction in
which it owns or leases real property and (ii) each other jurisdiction in which
the conduct of its business or the ownership of its assets requires such
qualification except where a failure to be so qualified would not have a
Material Adverse Effect.
Section 4.5 Conflicts; Certain Consents of Third Parties.
(a) Except as set forth on Schedule 4.5, none of the execution
and delivery by any Seller of this Agreement and the Seller Documents, the
consummation of the transactions contemplated hereby or thereby, or compliance
by any Seller with any of the provisions hereof or thereof will (i) conflict
with, or result in the breach of, any provision of the certificate of
incorporation or by-laws or comparable organizational documents of the Company
or any Subsidiary; (ii) conflict with, violate, result in the breach or
termination of, accelerate the performance required by, give rise to any right
of termination, acceleration, cancellation or amendment under, or constitute a
default under any Contract, instrument, note, bond, mortgage, indenture, lease,
license, franchise, commitment, covenant, understanding, arrangement, agreement
or other instrument or obligation to which the Company or any Subsidiary is a
party or by which any of them or any of their respective properties or assets is
bound; (iii) violate any statute, rule, regulation, order or decree of any
Governmental Body by which the Company or any Subsidiary is bound; or (iv)
result in the creation of any Lien upon the properties or assets of the Company
or any Subsidiary except, in case of clauses (ii), (iii) and (iv), for such
violations, breaches or defaults as would not, individually or in the aggregate,
have a Material Adverse Effect.
(b) Except as set forth on Schedule 4.5, no consent, waiver,
approval, Order, Permit or authorization of, or declaration or filing with, or
notification to, any Person or Governmental Body is required on the part of the
Company or any Subsidiary in connection with the execution and delivery of this
Agreement or the Seller Documents, or the compliance by the Company, with any of
the provisions hereof or thereof, except that no representation is made as to
anything under the Hart-Scott-Rodino Antitrust Improvements Act of 1976 and the
rules and regulations promulgated thereunder (the "HSR Act").
Section 4.6 Ownership and Transfer of Shares; Seller Consents.
(a) After giving effect to the Options Exercise, as of the
Closing Date the Purchaser shall be the record and beneficial owner of the
8
Shares indicated as being owned by each Seller on Schedule 4.6, and on the
Closing Date, after giving effect to the Options Exercise, will have valid and
marketable title to the Shares to be sold by such Seller, free and clear of any
and all Liens after giving effect to the transactions contemplated by this
Agreement. Each Seller has the capacity, power, corporate or otherwise, and
authority to sell, transfer, assign and deliver such Shares as provided in this
Agreement, and such delivery will convey to the Purchaser good and marketable
title to such Shares, free and clear of any and all Liens upon the consummation
of the transactions contemplated by this Agreement.
(b) Except as set forth on Schedule 4.6, no consent, waiver,
approval, Order, Permit or authorization of, or declaration or filing with, or
notification to, any Person or Governmental Body is required on the part of any
Seller in connection with the execution and delivery of this Agreement or the
Seller documents, or the compliance by each Seller with any provisions hereof or
thereof, except that no representation is made as to anything under the HSR Act.
Section 4.7 Financial Statements.
Attached hereto as Schedule 4.7 are copies of (i) the audited
consolidated balance sheets of the Company and its Subsidiaries as at December
31, 1998 and the related audited consolidated statements of income and of cash
flows of the Company and its Subsidiaries for the year then ended and, (ii) the
unaudited compiled consolidated balance sheets of RCC and its subsidiaries as at
December 31, 1997 and the unaudited compiled consolidated balance sheets of the
Company and its Subsidiaries as at June 30, 1999 (the "June 30, 1999 Balance
Sheet") and the related consolidated statements of income and cash flows (except
that there are no cash flows for the June 30, 1999 Balance Sheet) for the year
and six-month period then ended, respectively (such audited and unaudited
statements, including the related notes (except that there are no notes for the
June 30, 1999 Balance Sheet) and schedules thereto, are referred to herein as
the "Financial Statements"). Except as set forth on Schedule 4.7, each of the
Financial Statements is complete and correct in all material respects, has been
prepared in accordance with GAAP and in conformity with the practices
consistently applied by RCC or the Company, as the case may be, without
modification of the accounting principles used in the preparation thereof and
presents fairly the financial position, results of operations and cash flows of
RCC and its subsidiaries or the Company and its Subsidiaries, as the case may
be, as at the dates and for the periods indicated.
For the purposes hereof, the audited consolidated balance
sheet of the Company and its Subsidiaries as at December 31, 1998 is referred to
as the "Balance Sheet" and December 31, 1998 is referred to as the "Balance
Sheet Date."
Except as set forth on Schedule 2.1, the 1998 Interim Balance
Sheets, to the extent relevant to the determination of the 1998 Working Capital,
are complete and correct in all material respects, have been prepared in
accordance with GAAP and in conformity with the practices consistently applied
by RCC or the Company, as the case may be, without modification of the
accounting principles used in the preparation thereof and present fairly the
financial position of the Company and its Subsidiaries as at the dates and for
the periods indicated. The 1998 Working Capital set forth on Schedule 2.1 has
9
been accurately compiled from the relevant line items in the 1998 Interim
Balance Sheets and properly calculated in accordance with the definition of
Working Capital contained herein (except for inconsistencies with GAAP
specifically set forth on Schedule 2.1).
Section 4.8 No Undisclosed Liabilities.
Except as set forth on Schedule 4.8, neither the Company nor
any Subsidiary has any indebtedness, obligations or liabilities of any kind
(whether accrued, absolute, contingent or otherwise, and whether due or to
become due) that would have been required to be reflected in, reserved against
or otherwise described on the Balance Sheet or the June 30, 1999 Balance Sheet
or in the notes thereto in accordance with GAAP which was not fully reflected
in, reserved against or otherwise described in the Balance Sheet or the notes
thereto or the June 30, 1999 Balance Sheet in accordance with GAAP or was not
incurred in the ordinary course of business consistent with past practice since
June 30, 1999.
Section 4.9 Absence of Certain Developments.
Except as expressly contemplated by this Agreement or as set
forth on Schedule 4.9, since the Balance Sheet Date:
(i) there has not been any Material Adverse Change
nor has there occurred any event which is reasonably likely to result in a
Material Adverse Change;
(ii) there has not been any damage, destruction or
loss, whether or not covered by insurance, with respect to the property and
assets of the Company or any Subsidiary having a replacement cost of more than
$25,000 for any single loss or $100,000 for all such losses;
(iii) there has not been any declaration, setting
aside or payment of any dividend or other distribution in respect of any shares
of capital stock of the Company or any repurchase, redemption or other
acquisition by any Seller or the Company or any Subsidiary of any outstanding
shares of capital stock or other securities of, or other ownership interest in,
the Company or any Subsidiary;
(iv) neither the Company nor any Subsidiary has
awarded or paid any bonuses to employees of the Company or any Subsidiary with
respect to the fiscal year ending December 31, 1999, or entered into any
employment, deferred compensation, severance or similar agreement (nor amended
any such agreement) or agreed to increase the compensation payable or to become
payable by it to any of the Company's or any Subsidiary's directors, officers,
employees, agents or representatives or agreed to increase the coverage or
benefits available under any severance pay, termination pay, vacation pay,
company awards, salary continuation for disability, sick leave, deferred
compensation, bonus or other incentive compensation, insurance, pension or other
employee benefit plan, payment or arrangement made to, for or with such
directors, officers, employees, agents or representatives (other than normal
increases in the ordinary course of business consistent with past practice or
consistent with the terms of the existing employment agreements set forth in
Schedule 4.15(a) and that in the aggregate have not resulted in a material
increase in the benefits or compensation expense of the Company and its
Subsidiaries taken as a whole);
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(v) there has not been any change by the Company or
any Subsidiary in accounting or Tax reporting principles, methods or policies;
(vi) neither the Company nor any Subsidiary has
entered into any transaction or Contract in excess of $25,000 (other than
contracts relating to sales to customers and purchases of materials and services
included in the Company's accounts for costs of goods sold, in each case (A)
which have been fully performed by all parties thereto or (B) which have not
been fully performed and do not involve payments exceeding $50,000) or conducted
its business other than in the ordinary course consistent with past practice,
except to the extent that during the entire period since the Balance Sheet Date,
the Company and its Subsidiaries have been engaged in discussions relating to
the sale or refinancing of their respective businesses;
(vii) neither the Company nor any Subsidiary has made
any loans, advances or capital contributions to, or investments in, any Person
or paid any fees or expenses to any Seller or any Affiliate of any Seller (other
than (x) payments to Sleepeck Printing or Dixon Webb Printing Company for
printing services in the ordinary course of business which are included in the
Company's accounts for costs of goods sold, and (y) employee expense
reimbursements in the ordinary course of business consistent with current
contracts in an amount not to exceed $50,000 in the aggregate per employee);
(viii) neither the Company nor any Subsidiary has
subjected to any Lien (other than Permitted Exceptions) any of its assets, or
acquired any assets or sold, assigned, transferred, conveyed, leased or
otherwise disposed of any assets of the Company or any Subsidiary, except for
assets acquired or sold, assigned, transferred, conveyed, leased or otherwise
disposed of in the ordinary course of business consistent with past practice and
Liens granted and transfers to Sleepeck Printing in connection with the Sleepeck
Indebtedness;
(ix) neither the Company nor any Subsidiary has made
or committed to make any capital expenditures or capital additions or
betterments in excess of $25,000 individually or $100,000 in the aggregate; and
(x) none of the Sellers nor the Company has agreed to
do anything set forth in and not excepted by this Section 4.9.
Section 4.10 Taxes.
(a) Except as set forth on Schedule 4.10, (A) all Tax Returns
required to be filed by or on behalf of the Company and each of its Subsidiaries
have been properly prepared and duly and timely filed with the appropriate
taxing authorities in all jurisdictions in which such Tax Returns are required
to be filed (after giving effect to any valid extensions of time in which to
make such filings), and all such Tax Returns were true, complete and correct in
all material respects; (B) all Taxes owed and required to be paid by any of the
Company and its Subsidiaries prior to the date hereof or prior to the Closing
Date (whether or not shown on any Tax Return) have been paid or properly
reflected as an accrual on the June 30, 1999 Balance Sheet; and (C) neither the
Company nor any Subsidiary has executed or filed with the IRS or any other
taxing authority any agreement, waiver or other document or arrangement
extending or having the effect of extending the period for assessment or
collection of Taxes (including, but not limited to, any applicable statute of
11
limitation), and no power of attorney with respect to any Tax matter is
currently in force.
(b) The Company and each of its Subsidiaries has complied in
all material respects with all applicable laws, rules and regulations relating
to the payment and withholding of Taxes and has duly and timely withheld from
employee salaries, wages and other compensation and has paid over to the
appropriate taxing authorities all amounts required to be so withheld and paid
over for all periods under all applicable laws.
(c) Purchaser has received complete copies of (A) all federal,
state, local and foreign income or franchise Tax Returns of the Company and each
Subsidiary relating to taxable periods since 1995 and (B) any audit report
issued within the last three years relating to Taxes due from or with respect to
the Company and each Subsidiary, its income, assets or operations. All income
and franchise Tax Returns filed by or on behalf of the Company and each
Subsidiary for the taxable years ended on the respective dates set forth on
Schedule 4.10 have been examined by the relevant taxing authority or the statute
of limitations with respect to such Tax Returns has expired.
(d) Except as set forth on Schedule 4.10, no claim has been
made by a taxing authority in a jurisdiction where the Company or any of its
Subsidiaries does not file Tax Returns that it is or may be subject to taxation
by that jurisdiction.
(e) Except as set forth on Schedule 4.10, all deficiencies
asserted or assessments made as a result of any examinations by the IRS or any
other taxing authority of the Tax Returns of or covering or including the
Company or any of its Subsidiaries have been fully paid, and none of the
Sellers, the Company or any of its Subsidiaries have received any notice that
there are any other audits or investigations by any taxing authority that are in
progress, nor have the Sellers, Company or any of its Subsidiaries received any
notice from any taxing authority that it intends to conduct such an audit or
investigation. No issue has been raised by a federal, state, local or foreign
taxing authority in any current or prior examination which, by application of
the same or similar principles, could reasonably be expected to result in a
proposed deficiency for any subsequent taxable period.
(f) Except as set forth on Schedule 4.10, neither the Company
nor any of its Subsidiaries nor any other Person (including any of the Sellers)
on behalf of the Company or any of its Subsidiaries has (A) filed a consent
pursuant to Section 341(f) of the Code or agreed to have Section 341(f)(2) of
the Code apply to any disposition of a subsection (f) asset (as such term is
defined in Section 341(f)(4) of the Code) owned by the Company or any of its
Subsidiaries, (B) agreed to or is required to make any adjustments pursuant to
Section 481(a) of the Code or any similar provision of state, local or foreign
law by reason of a change in accounting method initiated by the Company or any
of its Subsidiaries or has any knowledge that the IRS has proposed any such
adjustment or change in accounting method, or has any application pending with
any taxing authority requesting permission for any changes in accounting methods
that relate to the business or operations of the Company or any of its
Subsidiaries or (C) requested any extension of time within which to file any Tax
Return of the Company or any of its Subsidiaries, which Tax Return has since not
been filed. Each of the Company and its Subsidiaries has disclosed in its
federal income Tax Returns all positions taken that could give rise to a
12
substantial understatement of federal income Tax within the meaning of Section
6662 of the Code.
(g) No Seller is a foreign person within the meaning of
Section 1445 of the Code.
(h) Neither the Company nor any of its Subsidiaries is a party
to any tax sharing or similar agreement or arrangement (whether or not written)
pursuant to which it will have any obligation to make any payments after the
Closing.
(i) There is no contract, agreement, plan or arrangement
covering any person that, individually or collectively, could give rise to the
payment of any amount by the Company or any of its Subsidiaries that would not
be deductible by the Company or any of its Subsidiaries, the Purchaser, or any
of their respective Affiliates by reason of Section 280G of the Code.
(j) There are no Liens except Permitted Exceptions as a result
of any unpaid Taxes upon any of the assets of the Company or any of its
Subsidiaries.
(k) Neither the Company nor any of its Subsidiaries has ever
been a member of any consolidated, combined or affiliated group of corporations
for any Tax purposes except the consolidated group of which they are currently
members.
(l) For each taxable period beginning in 1986 and ending on
December 31, 1997, RCC had a valid election to be treated as an S corporation as
the term is defined in Code Sections 1361(a) for federal income tax purposes and
a similar valid election under the laws of the State of New York or any other
applicable governmental authority. RCC has not been, and will not be, subject to
Tax under Code Section 1374 or 1375 (or any comparable provision of New York
law) for any period ending on or prior to the Closing Date.
Section 4.11 Real Property.
Neither the Company nor its Subsidiaries own any real property
or interests in real property in fee. Schedule 4.11 sets forth a complete list
of all real property and interests in real property leased by the Company and
its Subsidiaries ("Real Property Leases") as lessee, all security deposits made
thereunder and any and all guarantees or other agreements relating to the Real
Property Leases. The Real Property Leases constitute all interests in real
property currently used or currently held for use in connection with the
business of the Company and its Subsidiaries and which are necessary for the
continued operation of the business of the Company and its Subsidiaries as the
business is currently conducted. The Company and its Subsidiaries have a valid
and enforceable leasehold interest under each of the Real Property Leases,
subject to applicable bankruptcy, insolvency, reorganization, moratorium and
similar laws affecting creditors' rights and remedies generally and subject, as
to enforceability, to general principles of equity (regardless of whether
enforcement is sought in a proceeding at law or in equity), and except as set
forth on Schedule 4.11, there is no default under any Real Property Lease by the
Company or any of its Subsidiaries or, to the best knowledge of the Sellers, by
any other party thereto, and no event has occurred that with notice or lapse of
time, or both, would constitute a default by the Company or any Subsidiary
thereunder. The Sellers have delivered to the Purchaser true, correct and
complete copies of the Real Property Leases, together with all amendments,
modifications or supplements, if any, thereto.
13
Section 4.12 Tangible Personal Property.
(a) Schedule 4.12 sets forth each lease of personal property
("Personal Property Leases") involving annual payments in excess of $6,000
relating to personal property used in the business of the Company or any of its
Subsidiaries or to which the Company or any of its Subsidiaries is a party or by
which the properties or assets of the Company or any of its Subsidiaries is
bound. The Sellers have delivered to the Purchaser true, correct and complete
copies of the Personal Property Leases, together with all amendments,
modifications or supplements thereto.
(b) The Company and each of its Subsidiaries have a valid
leasehold interest under each of the Personal Property Leases under which it is
a lessee, subject to applicable bankruptcy, insolvency, reorganization,
moratorium and similar laws affecting creditors' rights and remedies generally
and subject, as to enforceability, to general principles of equity (regardless
of whether enforcement is sought in a proceeding at law or in equity), and there
is no material default under any Personal Property Lease by the Company or any
of its Subsidiaries or, to the knowledge of the Sellers, by any other party
thereto, and no event has occurred that with notice or lapse of time or both
would constitute a material default thereunder by the Company or any Subsidiary.
(c) The Company and its Subsidiaries have good and marketable
title to all of the items of tangible personal property reflected in the Balance
Sheet (except as sold or disposed of subsequent to the date thereof in the
ordinary course of business consistent with past practice), free and clear of
any and all Liens other than the Permitted Exceptions and Liens in favor of
Sleepeck Printing. All such items of tangible personal property which,
individually or in the aggregate, are material to the operation of the business
of the Company and its Subsidiaries are in good condition and in a state of good
maintenance and repair (ordinary wear and tear excepted) and are suitable for
the purposes used.
(d) All of the items of tangible personal property used by the
Company and its Subsidiaries under the Personal Property Leases are in good
condition and repair (ordinary wear and tear excepted) and are suitable for the
purposes used.
Section 4.13 Intellectual Property; Proprietary Information.
(a) Schedule 4.13 contains a complete and correct list of each
patent, patent application, trademark (registered or not), trademark
application, common law mark, trade name, service mark, service mark
application, and copyright (registered or not), software, manufacturing and
development process, know-how, inventions, trade-secret, regardless of the form
of manifestation of any of the above, and Internet domain name (including the
domain name registration, the content contained within said domain and any
proprietary software used in conjunction with said domain) owned, necessary or
used by the Company and/or its Subsidiaries in the business as now conducted
(collectively the "Intellectual Property") as well as all registrations thereof
and pending applications therefor, and each license or other agreement relating
thereto. Except for Liens in favor of Sleepeck Printing, each of the foregoing
is owned by the party shown on such Schedule as owning the same, free and clear
14
of all Liens and is in good standing and not the subject of any challenge. There
have been no claims made and neither the Sellers, the Company nor any Subsidiary
has received any notice or otherwise knows, or has reason to believe, that any
of the foregoing or the operations, business or products of the Company or any
Subsidiary, is invalid, unenforceable, infringes upon or conflicts with the
proprietary rights of others, nor does the Company or any Subsidiary know of any
basis for any such claim (whether pending or threatened). The Company and each
of its Subsidiaries possess or have rights to use all the Intellectual Property
necessary for the conduct of its business as now conducted, not subject to any
restrictions, licenses or third-party rights except as set forth on Schedule
4.13, and without any known conflict with the rights of others, and neither the
Company nor any of its Subsidiaries has forfeited or otherwise relinquished any
right in or to such Intellectual Property necessary for the conduct of their
respective businesses as conducted or contemplated to be conducted on the date
hereof. Neither the Company nor any of its Subsidiaries is under any obligation
to pay any royalties or similar payments in connection with any license to any
Seller or any Affiliate thereof.
(b) Except as set forth on Schedule 4.13, the products,
processes, proprietary technology and other proprietary know-how owned, used or
contemplated to be used by the Company and/or its Subsidiaries were completely
developed by the full time employees of the Company and/or its Subsidiaries
only, using only resources of the Company and/or its Subsidiaries. The
inventions and original works of authorship owned or used by the Company and/or
its Subsidiaries were developed or conceived by employees within the scope of
their employment by the Company and/or its Subsidiaries in connection with the
underlying products, processes and proprietary technology of the Company and/or
its Subsidiaries. Except as set forth on Schedule 4.13, no independent
contractors or consultants were used or contracted by the Company and/or its
Subsidiaries in the development of the products, processes, proprietary
technology and other proprietary know-how owned or used or contemplated to be
used by the Company and/or its Subsidiaries. To the extent that independent
contractors or consultants were used or contracted by the Company as specified
in Schedule 4.13 (the "Consultants"), the Sellers represent and warrant that any
and all such Consultants have executed and delivered to the Company a document
evidencing either the exclusive ownership of such Intellectual Property by the
Company or its Subsidiaries, or the due conveyance, assignment and transfer of
any and all rights, title and interest such Consultants may have in any work
product, invention, idea, concept, original work of authorship or Intellectual
Property they may have conceived, worked upon or otherwise participated in their
development within the context of, or in connection with, their employment with
the Company and/or its Subsidiaries, and the Company has all necessary releases,
documents and agreements to make all necessary future filings for the
registration and otherwise perfection of rights and to defend against any claim
raised thereupon, duly executed by such Consultants, complete copies of which
have been delivered to the Purchaser.
(c) Except as set forth on Schedule 4.13, each employee,
consultant or contractor of the Company and/or its Subsidiaries who works with
Intellectual Property (other than clerical workers) has executed and delivered a
non-disclosure, non-solicitation or invention assignment agreement, and a true
and complete copy of each such agreement has been delivered to the Purchaser.
The Company is not aware that any of its employees is in violation thereof, and
the Sellers shall cause the Company to use its best efforts to prevent any such
violation prior to Closing.
15
Section 4.14 Material Contracts.
Schedule 4.14 sets forth all of the following Contracts to
which the Company or any of its Subsidiaries is a party or by which any of them
are bound, other than Contracts for which the Company or its Subsidiaries has no
liabilities or continuing obligations whatsoever (collectively, the "Material
Contracts"): (i) Contracts with any Seller or any current officer or director of
the Company or any of its Subsidiaries; (ii) Contracts pursuant to which any
party is required to purchase or sell a stated portion of its requirements or
output from or to another party or relating to the sale or distribution of the
Company's products; (iii) Contracts for the sale of any of the assets of the
Company or any of its Subsidiaries other than in the ordinary course of business
or for the grant to any person of any preferential rights to purchase any of its
assets; (iv) joint venture agreements; (v) Contracts containing nondisclosure
covenants or covenants not to compete in any line of business or with any person
in any geographical area; (vi) Contracts relating to the acquisition by the
Company or any of its Subsidiaries of any operating business or the capital
stock of any other person; (vii) Contracts relating to the borrowing of money;
or (viii) any other Contracts, other than Real Property Leases, Personal
Property Leases or Contracts which pertain to the purchase or sale of goods
and/or services in the ordinary course of business, which individually involve
the expenditure of more than $50,000 in the aggregate or $6,000 annually, or
require performance by any party more than one year from the date hereof. True
and complete copies of all of the Material Contracts have been delivered to the
Purchaser, or its representatives. Except as set forth on Schedule 4.14, all of
the Material Contracts and other agreements are in full force and effect and are
the legal, valid and binding obligations of the Company and/or its Subsidiaries,
enforceable against them in accordance with their respective terms, subject to
applicable bankruptcy, insolvency, reorganization, moratorium and similar laws
affecting creditors' rights and remedies generally and subject, as to
enforceability, to general principles of equity (regardless of whether
enforcement is sought in a proceeding at law or in equity). Neither the Company
nor any Subsidiary is in default in any material respect under any Material
Contract, nor, to the knowledge of any Seller, is any other party to any
Material Contract in default thereunder in any material respect and no event has
occurred that with notice or lapse of time or both would constitute a material
default thereunder by the Company or any Subsidiary.
Section 4.15 Employee Benefits.
(a) All benefit and compensation plans, contracts, policies,
agreements or other arrangements providing for compensation, severance,
termination pay, performance awards, stock or stock related awards, fringe
benefits, change in control compensation or benefits, employment, deferred
compensation or other employee benefits of any kind, whether formal or informal,
funded or unfunded, written or oral, and whether or not legally binding, or
arrangements covering current employees or former employees of the Company and
its Subsidiaries ("Employees") and current or former directors of the Company,
including, but not limited to, "employee benefit plans" within the meaning of
Section 3(3) of the Employee Retirement Income Security Act of 1974, as amended
("ERISA") (the "Benefit Plans"), are listed on Schedule 4.15. Each "change in
control" or similar provision contained therein is specifically identified on
Schedule 4.15.
16
(b) All employee benefit plans, other than "multiemployer
plans" within the meaning of Section 3(37) of ERISA, covering Employees (the
"Plans"), to the extent subject to ERISA, are in substantial compliance with
ERISA, the Code, and all other applicable law. Each Plan which is an "employee
pension benefit plan" within the meaning of Section 3(2) of ERISA ("Pension
Plan") and which is intended to be qualified under Section 401(a) of the Code,
has received a favorable determination letter from the Internal Revenue Service
with respect to "TRA" (as defined in Section 1 of Rev. Proc. 93-39), and the
Company is not aware of any circumstances likely to result in revocation of any
such favorable determination letter. There is no material pending or threatened
litigation relating to the Plans. Neither the Company nor any of its
Subsidiaries has engaged in a transaction with respect to any Plan that,
assuming the taxable period of such transaction expired as of the date hereof,
could subject the Company or any Subsidiary to a tax or penalty imposed by
either Section 4975 of the Code or Section 502(i) of ERISA in an amount which
would be material.
(c) No current or former Pension Plan of the Company or any of
its Subsidiaries, or any entity which is considered one employer with the
Company under Section 4001 of ERISA or Section 414 of the Code (an "ERISA
Affiliate"), is or has ever been subject to Title IV of ERISA or Section 412 of
the Code.
(d) All contributions required to be made under the terms of
any Benefit Plan have been timely made or have been reflected on the financial
statements of the Company.
(e) Neither the Company nor any of its Subsidiaries has any
obligations for retiree health and life benefits under any Benefit Plan or has
ever represented, promised or contracted (whether in oral or written form) to
any Employee(s) that such Employee(s) would be provided with retiree health or
life benefits, other than rights and obligations under COBRA.
(f) Except as contemplated by Section 8.1(u), the consummation
of the transactions contemplated by this Agreement will not (x) entitle any
Employees of the Company or any of the Subsidiaries to severance pay, (y)
accelerate the time of payment or vesting or trigger any payment or funding
(through a grantor trust or otherwise) of compensation or benefits under,
increase the amount payable or trigger any other material obligation pursuant
to, any of the Benefit Plans or (z) result in any breach or violation of, or a
default under, any of the Benefit Plans. It is understood that in connection
with the agreements referred to in Section 7.3 hereof, the Company will incur
the obligations set forth therein.
(g) Any amount that could be received (whether in cash,
property, or vesting of property) as a result of the transaction contemplated by
this Agreement by any officer, director, employee or independent contractor of
the Company or any of its subsidiaries, who is a "disqualified individual" (as
defined in proposed Treasury Regulation Section 1.280G-1), under any employment
arrangement or Benefit Plan would not be characterized as an "excess parachute
payment" (as defined in Section 280G of the Code).
(i) True, correct and complete copies of the following
documents, with respect to each of the Benefit Plans have been delivered to the
Purchaser (A) any plans and related trust documents, and all amendments thereto,
(B) the Forms 5500 for the past three years and schedules thereto, (C) the most
17
recent financial statements and actuarial valuations for the past three years,
(D) the most recent Internal Revenue Service determination letter, (E) the most
recent summary plan descriptions (including letters or other documents updating
such descriptions) and (F) written descriptions of all non-written agreements
relating to the Benefit Plans.
(j) Except as set forth on Schedule 4.15, the Company and each
of its Subsidiaries and any ERISA Affiliate which maintains a "group health
plan" within the meaning of Section 5000(b)(1) of the Code have complied with
the notice and continuation requirements of Section 4980B of the Code or Part 6
of Title I of ERISA and the applicable regulations thereunder.
(k) No stock or other security issued by the Company or any of
its Subsidiaries forms or has formed a material part of the assets of any
Benefit Plan.
Section 4.16 Labor.
(a) Neither the Company nor any of its Subsidiaries is party
to any labor or collective bargaining agreement and as of the date hereof there
are no labor or collective bargaining agreements which pertain to employees of
the Company or any of its Subsidiaries.
(b) No employees of the Company or any of its Subsidiaries are
represented by any labor organization. No labor organization or group of
employees of the Company or any of its Subsidiaries has made a pending demand
for recognition, and there are no representation proceedings or petitions
seeking a representation proceeding presently pending or, to the best knowledge
of the Sellers, threatened to be brought or filed, with the National Labor
Relations Board or any other labor relations tribunal. There is no organizing
activity involving the Company or any of its Subsidiaries pending or, to the
best knowledge of any Seller, threatened by any labor organization or group of
employees of the Company or any of its Subsidiaries.
(c) There are no (i) strikes, work stoppages, slowdowns,
lockouts or arbitrations or (ii) material grievances or other labor disputes
pending or, to the best knowledge of any Seller, threatened against or involving
the Company or any of its Subsidiaries. There are no unfair labor practice
charges, grievances or complaints pending or, to the best knowledge of any
Seller, threatened by or on behalf of any employee or group of employees of the
Company.
(d) Schedule 4.16 sets forth all consultants and independent
contractors used by the Company as of the date hereof. None of such consultants
and independent contractors is an employee of the Company.
(e) All employees treated as "exempt" employees by the Company
are "exempt" employees under the Fair Labor Standards Act, 29 U.S.C. Section
201, et seq., or under another analogous federal, state, or municipal wage and
hour law.
18
Section 4.17 Litigation.
Except as set forth in Schedule 4.17, there is no Legal
Proceeding pending or, to the knowledge of the Sellers, overtly threatened
against the Company or any of its Subsidiaries (or, to the knowledge of the
Sellers, pending or threatened, against any of the officers, directors or key
employees of the Company or any of its Subsidiaries with respect to their
business activities on behalf of the Company or any of its Subsidiaries), or to
which the Sellers or the Company or any of its Subsidiaries is otherwise a
party, before any court, or before any Governmental Body; nor to the knowledge
of the Sellers is there any reasonable basis for any such Legal Proceeding.
Except as set forth in Schedule 4.17, neither the Company nor any Subsidiary is
subject to any judgment, order or decree of any court or governmental agency and
neither the Company nor any Subsidiary is engaged in any legal action to recover
monies due it or for damages sustained by it. None of the Purchaser, the Company
or any of its Subsidiaries shall have any liabilities or damages whatsoever
incurred after the Closing Date (other than legal fees and expenses relating to
the dismissal of such action) arising out of or otherwise related to the
Cellesence proceeding set forth on Schedule 4.17 (the "Cellesence Matter").
Section 4.18 Compliance with Laws; Permits.
The Company and each of its Subsidiaries is in compliance with
all Laws applicable to it or to the conduct of its business or operations or
the use of its properties (including any leased properties) and assets, except
for such non-compliances, individually or in the aggregate, as would not be
reasonably expected to result in a Material Adverse Effect. The Company and
each of its Subsidiaries has all governmental Permits from state, federal or
local authorities which are required for the Company and each of its
Subsidiaries to operate its business, except for the absence of Permits,
individually or in the aggregate, that would not be reasonably expected to
result in a Material Adverse Effect.
Section 4.19 Environmental Matters.
Except as set forth on Schedule 4.19 hereto:
(a) the operations of the Company and each of its Subsidiaries
have been and are in compliance with all applicable Environmental Laws and all
permits issued pursuant to Environmental Laws or otherwise;
(b) the Company and each of its Subsidiaries has obtained all
permits required under all applicable Environmental Laws necessary to operate
its business;
(c) neither the Company nor any of its Subsidiaries is the
subject of any outstanding written order or Contract with any governmental
authority or person respecting (i) Environmental Laws, (ii) Remedial Action or
(iii) any Release or threatened Release of a Hazardous Material;
19
(d) neither the Company nor any of its Subsidiaries has
received any written communication alleging that the Company and/or any of its
Subsidiaries may be in violation of any Environmental Law, or any Permit issued
pursuant to any Environmental Law, or may have any liability under any
Environmental Law;
(e) neither the Company nor any of its Subsidiaries has any
current contingent liability in connection with any Release of any Hazardous
Materials into the indoor or outdoor environment (whether on-site or off-site),
or the unlawful use, generation, emission, discharge, transportation, storage,
handling, treatment or disposal of any Hazardous Material;
(f) to the Sellers' knowledge, there are no investigations of
the business, operations, or currently or previously owned, operated or leased
property of the Company or any of its Subsidiaries pending or threatened which
could lead to the imposition of any liability pursuant to any Environmental Law;
(g) there has been no release of Hazardous Material at any
property leased or operated by the Company or any of its Subsidiaries.
(h) Neither the Company nor any of its Subsidiaries is aware
of any existing, pending, threatened or past demand, suit or cause of action for
damages, including, without limitation, claims for personal injury or property
damage, by any Person, including, without limitation, those alleged to result
from use, handling or exposure to or injury from any Hazardous Material; and
(i) None of the off-site locations to where Company or any of
its Subsidiaries has transported, disposed or arranged for disposal of Hazardous
Materials has been identified as a facility that is subject to an existing claim
under any Environmental Law, or, to the Sellers' knowledge, is the subject of
any threatened claim by any Governmental Body, and all of the off-site locations
to where Company or any of its Subsidiaries has transported, disposed or
arranged for disposal of Hazardous Materials are properly permitted pursuant to
Environmental Laws.
Section 4.20 Insurance.
Schedule 4.20 sets forth a complete and accurate list of all
policies of insurance of any kind or nature covering the Company or any of its
Subsidiaries or any of their respective employees, properties or assets,
including, without limitation, policies of life, disability, fire, theft,
workers compensation, employee fidelity and other casualty and liability
insurance. All such policies are in full force and effect, and, to the Sellers'
knowledge, neither the Company nor any of its Subsidiaries is in default of any
provision thereof, except for such defaults as would not, individually or in the
aggregate, have a Material Adverse Effect. Since December 31, 1997, no policy of
insurance of any kind has lapsed or been cancelled which was not replaced by a
policy or insurance with substantially the same or better coverage at a
comparable price.
Section 4.21 Inventories; Receivables; Payables.
(a) The inventories of the Company and its Subsidiaries are in
good and marketable condition, and are saleable in the ordinary course of
20
business. None of the Company or any of its Subsidiaries has obsolete or
otherwise unusable inventory which is not reflected on the Balance Sheet or the
June 30, 1999 Balance Sheet.
(b) Set forth on Schedule 4.21 is a true, complete and correct
list of all outstanding accounts receivable of the Company and its Subsidiaries
as of August 27, 1999 (the "Outstanding Receivables"). All outstanding accounts
receivable of the Company and its Subsidiaries have arisen from bona fide
transactions in the ordinary course of business consistent with past practice.
All accounts receivable of the Company and its Subsidiaries reflected on the
June 30, 1999 Balance Sheet are good and collectible at the aggregate recorded
amounts thereof, net of any applicable reserve for returns or doubtful accounts
reflected thereon, which reserves are adequate and were calculated in a manner
consistent with past practice and in accordance with GAAP consistently applied.
Except as set forth on Schedule 4.21, all accounts receivable arising after the
Balance Sheet Date are good and collectible at the aggregate recorded amounts
thereof, net of any applicable reserve for returns or doubtful accounts, which
reserves are adequate and were calculated in a manner consistent with past
practice and in accordance with GAAP consistently applied. The representations
and warranties contained in this Section 4.21(b) shall not be deemed to be a
guaranty of collection of Outstanding Receivables. Except as set forth on
Schedule 4.21, none of such accounts receivable are older than 90 days from the
date the Company recognized such revenue except for accounts receivable from
Gary Farn Ltd. which are not older than 120 days from the date the Company
recognized such revenue and are in an aggregate amount not exceeding $85,000
Except as set forth on Schedule 4.21, there are no loans, draws against
commissions or other accounts receivable from any officer, director or employee
of the Company or any of its Subsidiaries (collectively, the "Employee
Receivables").
(c) Except as set forth on Schedule 4.21, all accounts payable
of the Company and its Subsidiaries reflected in the Balance Sheet or arising
after the date thereof are the result of bona fide transactions in the ordinary
course of business and have either since been paid or are not yet due and
payable. Schedule 4.21 sets forth a description of all outstanding accounts
payable of the Company to Sleepeck Printing Company ("Sleepeck Printing"), and
shows the date of each invoice. Except as set forth on Schedule 4.21, none of
such accounts payable to Sleepeck Printing are overdue by 30 days or more.
Section 4.22 Related Party Transactions.
Except as set forth on Schedule 4.22, none of the Sellers or
any of their respective Affiliates has borrowed any moneys from or has
outstanding any indebtedness or other similar obligations to the Company or any
of its Subsidiaries. Except as set forth in Schedule 4.22, and other than
ownership of three percent (3%) or less of the outstanding voting securities of
a company whose stock is traded on a national securities exchange or The Nasdaq
Stock Market, none of the Sellers, the Company, any Subsidiary of the Company,
any of their respective Affiliates nor any officer or employee of any of them
(i) owns any direct or indirect interest of any kind in, or controls or is a
director, officer, employee or partner of, or consultant to, or lender to or
borrower from or has the right to participate in the profits of, any Person
which is (A) a competitor, supplier, customer, landlord, tenant, creditor or
debtor of the Company or any of its Subsidiaries, (B) engaged in a business
related to the business of the Company or any of its Subsidiaries, or (C) a
participant in any transaction to which the Company or any of its Subsidiaries
21
is a party or (ii) is a party to any Contract with the Company or any of its
Subsidiaries.
Section 4.23 Banks.
Schedule 4.23 contains a complete and correct list of the
names and locations of all banks and other financial institutions in which the
Company or any Subsidiary has accounts or safe deposit boxes or lockbox or
similar arrangements into which accounts receivable of the Company or any
Subsidiary are deposited or remitted and the names of all persons authorized on
behalf of the Company or any Subsidiary to draw thereon or to have access
thereto. Except as set forth on Schedule 4.23, no person holds a power of
attorney or other authority to act on behalf of the Company or any Subsidiary.
Section 4.24 Full Disclosure.
The Sellers know of no information or facts that individually
or in the aggregate, have had or could reasonably be expected to have a Material
Adverse Effect which has not been disclosed to the Purchaser Group in this
Agreement or other written materials furnished to the Purchaser Group. No
representation or warranty of any Seller contained in this Agreement or in any
schedule hereto or in any Seller Document, contains any untrue statement of a
material fact or omits to state a material fact necessary to make the statements
contained herein or therein not misleading.
Section 4.25 Financial Advisors.
No Person has acted, directly or indirectly, as a broker,
finder or financial advisor for the Sellers or the Company in connection with
the transactions contemplated by this Agreement and no Person is entitled to any
fee or commission or like payment in respect thereof.
Section 4.26 Year 2000 Compliance.
Each item of hardware, software, information technology,
embedded, or processor based system and/or any combination thereof, used by the
Company in providing service to its customers, developed, manufactured,
distributed or licensed by the Company and its Subsidiaries (collectively, the
"System"), shall be able to correctly function, operate, process data or perform
date-related calculations, including, but not limited to, calculating, comparing
and sequencing, from, into and between the years 1999 and 2000, and shall
accurately process, provide and/or receive date-data, including leap year
calculations, into and between the years 1999 and 2000, except for such
inabilities which, individually or in the aggregate, would not be reasonably
expected to result in a Material Adverse Effect. Neither performance nor
functionality of the System shall be affected by dates prior to, during and
after January 1, 2000, except for such non-performances or non-functionalities
which, individually or in the aggregate, would not be reasonably expected to
result in a Material Adverse Effect. A System containing or calling on a
calendar function including, without limitation, any function indexed to the CPU
clock, and any function providing specific dates or days, or calculating spans
of dates or days shall record, store, process, provide and, where appropriate,
insert, true and accurate dates and calculations for dates and spans, before,
during and following January 1, 2000, except for such inabilities which,
individually or in the aggregate, would not be reasonably expected to result in
a Material Adverse Effect. The System shall have no lesser functionality or
22
operability with respect to records containing dates, before, during or after
January 1, 2000 than heretofore with respect to dates prior to January 1, 2000,
except for such lesser functionalities or operabilities which, individually or
in the aggregate, would not be reasonably expected to result in a Material
Adverse Effect.
Section 4.27 Representations and Warranties Exclusive
The representations and warranties made by the Sellers in this
Agreement and in the other Seller Documents are the only representations and
warranties made by any Seller in connection with the transactions contemplated
hereby and by the other Seller Documents, and are intended by the parties to
exclude any other basis of recovery against the Sellers by reason of any
representation or warranty of the Sellers which is not set forth in this
Agreement and in the other Seller Documents, including liability under Rule
10b-5 promulgated under the Securities Exchange Act of 1934, as amended.
Article V
REPRESENTATIONS AND WARRANTIES OF THE PURCHASER
The Purchaser hereby represents and warrants to the Sellers that:
Section 5.1 Organization and Good Standing.
The Purchaser is a corporation duly organized, validly
existing and in good standing under the laws of the State of Delaware.
Section 5.2 Authorization of Agreement.
The Purchaser has full corporate power and authority to
execute and deliver this Agreement and each other agreement, document,
instrument or certificate contemplated by this Agreement or to be executed by
the Purchaser in connection with the consummation of the transactions
contemplated hereby and thereby (the "Purchaser Documents"), and to consummate
the transactions contemplated hereby and thereby. The execution, delivery and
performance by the Purchaser of this Agreement and each Purchaser Document have
been duly authorized by all necessary corporate action on behalf of the
Purchaser. This Agreement has been, and each Purchaser Document will be at or
prior to the Closing, duly executed and delivered by the Purchaser and (assuming
the due authorization, execution and delivery by the other parties hereto and
thereto) this Agreement constitutes, and each Purchaser Document when so
executed and delivered will constitute, legal, valid and binding obligations of
the Purchaser, enforceable against the Purchaser in accordance with their
respective terms, subject to applicable bankruptcy, insolvency, reorganization,
moratorium and similar laws affecting creditors' rights and remedies generally,
and subject, as to enforceability, to general principles of equity, including
principles of commercial reasonableness, good faith and fair dealing (regardless
of whether enforcement is sought in a proceeding at law or in equity).
Section 5.3 Conflicts; Consents of Third Parties.
23
(a) None of the execution and delivery by the Purchaser of
this Agreement and of the Purchaser Documents, nor the compliance by the
Purchaser with any of the provisions hereof or thereof will (i) conflict with,
or result in the breach of, any provision of the certificate of incorporation or
by-laws of the Purchaser, (ii) conflict with, violate, result in the breach of,
or constitute a default under any Contract, instrument, note, bond, mortgage,
indenture, lease, license, franchise, commitment, covenant, understanding,
arrangement, agreement or other obligation to which the Purchaser is a party or
by which the Purchaser or its properties or assets are bound or (iii) violate
any statute, rule, regulation, order or decree of any governmental body or
authority by which the Purchaser is bound, except, in the case of clauses (ii)
and (iii), for such violations, breaches or defaults as would not, individually
or in the aggregate, have a material adverse effect on the condition, financial
or otherwise, or the earnings, prospects, business or operations of the
Purchaser and its subsidiaries, taken as a whole.
(b) Except as set forth on Schedule 5.3, no consent, waiver,
approval, Order, Permit or authorization of, or declaration or filing with, or
notification to, any Person or Governmental Body is required on the part of the
Purchaser in connection with the execution and delivery of this Agreement or the
Purchaser Documents or the compliance by the Purchaser with any of the
provisions hereof or thereof.
Section 5.4 Litigation.
There are no Legal Proceedings pending or, to the best
knowledge of the Purchaser, threatened against the Purchaser before any court or
any Governmental Body that are reasonably likely to prohibit or restrain the
ability of the Purchaser to enter into this Agreement or any of the other
Purchaser Documents or to consummate the transactions contemplated hereby and
thereby.
Section 5.5 Investment Intention.
The Purchaser is acquiring the Shares for its own account, for
investment purposes only and not with a view to the distribution thereof in
violation of the Securities Act of 1933, as amended (the "Securities Act"). The
Purchaser understands that the Shares have not been registered under the
Securities Act and cannot be sold unless subsequently registered under the
Securities Act or an exemption from such registration is available.
Section 5.6 Financial Advisors.
Except for Donaldson, Lufkin & Jenrette Securities Corporation
("DLJ") and William J. Fox, no Person has acted, directly or indirectly, as a
broker, finder or financial advisor for the Purchaser in connection with the
transactions contemplated by this Agreement and no person is entitled to any fee
or commission or like payment in respect thereof. All fees payable to DLJ or
William J. Fox as a result of the transactions contemplated by this Agreement
shall be paid by the Purchaser.
24
Article VI
COVENANTS
Section 6.1 Access to Information.
(a) The Sellers shall use their reasonable best efforts to
afford the Purchaser and its representatives full access to all financial,
legal, management and other information concerning the Company and its
Subsidiaries and their respective businesses, and permit the Purchaser to
complete its reasonable due diligence investigation. Such investigation shall be
conducted in all respects in accordance with the terms of the Confidentiality
Agreement entered into between the Company and Arcade, Inc., dated as of March
31, 1998 (the "Retcom Confidentiality Agreement"), and, as applicable, the
Confidentiality Agreement entered into between Arcade Marketing, Inc. and
Sleepeck Printing dated as of October 6, 1998 (the "Sleepeck Confidentiality
Agreement", and collectively with the Retcom Confidentiality Agreement, the
"Confidentiality Agreements") which the Purchaser agrees are both still in full
force and effect and are binding on the Purchaser, its parent corporation and
all of its subsidiaries, consultants and agents (collectively, the "Purchaser
Group"). The Purchaser shall not involve anyone in the due diligence
investigation on its behalf who has not agreed to be bound by the
Confidentiality Agreements. Subject to the foregoing, until the Closing or
earlier termination of this Agreement, each of the parties shall take, or cause
to be taken, such further actions as are reasonably necessary to consummate the
transactions contemplated hereby. No investigation by the Purchaser or any
Seller prior to or after the date of this Agreement shall diminish or obviate
any of the representations, warranties, covenants or agreements of the Sellers
or the Purchaser, respectively, contained in this Agreement, the Seller
Documents or the Purchaser Documents, as the case may be; provided however, that
if the Purchaser discovers any fact prior to the Closing which would make any
representation or warranty of the Sellers untrue (regardless of materiality)
then the Purchaser shall notify the Sellers' Representatives of such fact and
the Purchaser may (i) terminate this Agreement pursuant to Section 3.2, (ii)
request a reduction in the Purchase Price, or (iii) proceed with closing the
transactions contemplated hereby without a reduction to the Purchase Price. If
the Purchaser fails to notify the Sellers' Representatives, then the Closing
shall constitute the Purchaser's waiver of any such untruth in any
representation or warranty and the Sellers shall have no liability as a result
thereof. If the Purchaser notifies the Sellers' Representatives but elects not
to proceed as provided in clause (i) above, or proceeds as provided in clause
(ii) above and reaches a satisfactory agreement with the Sellers in regard
thereto or proceeds as provided in clause (iii) above, then at the Sellers'
request the Purchaser shall waive such untruth in the relevant representation or
warranty in writing and then the Sellers shall have no liability as a result
thereof, except as otherwise provided in Section 11.3 hereof.
(b) The Sellers may deliver to the Purchaser information
concerning events subsequent to the date of this Agreement which relates to the
business of the Company and its Subsidiaries in the ordinary course, which with
the written consent of the Purchaser (which consent shall not be unreasonably
withheld), shall supplement the information contained in the Schedules hereto.
In addition, the Sellers shall promptly deliver to the Purchaser information
concerning events subsequent to the date of this Agreement which relates to the
business of the Company and its Subsidiaries which are not in the ordinary
25
course; provided that receipt of such information shall not be deemed a waiver
by the Purchaser of any of the conditions precedent to the Closing and the
Purchaser may at its option either terminate this Agreement pursuant to Section
3.2, seek a reduction in the Purchase Price or proceed with closing the
transactions contemplated hereby without a reduction to the Purchase Price. If
the Purchaser terminates this Agreement or seeks a reduction in the Purchase
Price by reason of such information and reaches a satisfactory agreement with
the Sellers in regard thereto or proceeds without a reduction to the Purchase
Price, then at the Sellers' request, the Purchaser shall waive such untruth in
the relevant representation or warranty, and then the Sellers shall have no
liability as a result thereof, except as provided in Section 11.3 hereof.
Section 6.2 Conduct of the Business Pending the Closing.
(a) Except as otherwise expressly contemplated by this
Agreement or with the prior written consent of the Purchaser, the Sellers shall,
and shall cause the Company and its Subsidiaries to, (i) conduct the respective
businesses of the Company and its Subsidiaries only in the ordinary course
consistent with past practice and (ii) use its reasonable best efforts to
preserve the business assets and earning potential of the Company and its
Subsidiaries.
(b) Except as otherwise expressly contemplated by this
Agreement or with the prior written consent of the Purchaser, the Sellers shall
not, and shall cause the Company and its Subsidiaries not to:
(i) declare, set aside, make or pay any dividend or
other distribution in respect of the capital stock of the Company or repurchase,
redeem or otherwise acquire any outstanding shares of the capital stock or other
securities of, or other ownership interests in, the Company or any of its
Subsidiaries;
(ii) transfer, issue, sell or dispose of any shares
of capital stock or other securities of the Company or any of its Subsidiaries
or grant options, warrants, calls or other rights to purchase or otherwise
acquire shares of the capital stock or other securities of the Company or any of
its Subsidiaries;
(iii) effect any recapitalization, reclassification,
stock split or like change in the capitalization of the Company or any of its
Subsidiaries;
(iv) amend the certificate of incorporation or
by-laws of the Company or any of its Subsidiaries;
(v) make any payments to (other than payments under
employment agreements existing as of the Balance Sheet Date) or enter into any
other transactions with its shareholders;
(vi) write-off any of the Outstanding Receivables; or
(vii) agree to do anything prohibited by this Section
6.2 or anything which would make any of the representations and warranties of
the Sellers in this Agreement or the Seller Documents untrue or incorrect as of
any time through and including the Closing Date.
26
Notwithstanding anything in this Agreement to the contrary,
the parties hereto agree that Sleepeck Printing shall be entitled to protect its
interests as a vendor and a lender to the Company and certain of its
Subsidiaries.
Section 6.3 Consents.
(a) The Sellers shall use their reasonable best efforts, and
the Purchaser shall cooperate with the Sellers, to obtain at the earliest
practicable date all consents and approvals required to be obtained by the
Sellers or the Company so that the Sellers may consummate the transactions
contemplated by this Agreement, including, without limitation, the consents and
approvals referred to in Sections 4.5(b) and 4.6(b) hereof; provided, however,
that neither the Sellers nor the Purchaser shall be obligated to pay any
consideration therefor to any third party from whom consent or approval is
requested.
(b) The Purchaser shall use its reasonable best efforts, and
the Sellers shall cooperate with the Purchaser, to obtain at the earliest
practicable date all consents and approvals required to be obtained by the
Purchaser so that the Purchaser may consummate the transactions contemplated by
this Agreement, including, without limitation, the consents and approval
referred to in Section 5.3(b) hereof; provided, however, that neither the
Purchaser or the Sellers shall be obligated to pay any consideration therefor to
any third party from whom consent or approval is requested.
Section 6.4 Other Actions.
Each of the Sellers and the Purchaser shall use its best
efforts to (i) take all actions necessary or appropriate to consummate the
transactions contemplated by this Agreement by September 21, 1999 and (ii) cause
the fulfillment at the earliest practicable date of all of the conditions to
their respective obligations to consummate the transactions contemplated by this
Agreement. The Purchaser shall prepare the necessary filings and shall pay all
filing fees in connection with any filing under the HSR Act relating to the
transactions contemplated hereby in the event that the Purchaser determines such
a filing is necessary or required.
Section 6.5 No Solicitation.
Each of the Sellers agrees, severally, that it will not and it
will cause the Company not to, directly or indirectly, without the prior written
consent of Purchaser, until the Closing Date or earlier termination hereof: (i)
solicit or encourage any other offers for any shares of capital stock or
material assets of the Company or any of its Subsidiaries, or provide any
information to, or participate in any discussions or negotiations or otherwise
cooperate with any person other than Purchaser and its designees with respect to
the possible sale or other transfer of any shares of capital stock or material
assets of the Company or any of its Subsidiaries, regardless of when such offers
were received or negotiations were initiated or (ii) take any action or permit
any action or inaction to be taken that would, directly or indirectly, frustrate
the purpose of this Agreement or the ability of Purchaser to consummate any of
the transactions contemplated hereby. Each of the Sellers further agrees that it
will inform Purchaser immediately of the terms and details of any offer received
27
by it or the Company after the date of this Agreement to acquire any capital
stock or material assets of the Company or any of its Subsidiaries.
Without limitation of any other rights or remedies of the
Purchaser hereunder, if any of the Sellers or the Company engage in discussions
regarding the sale or transfer of the Common Stock or Options or any material
assets of the Company or any of its Subsidiaries with a third party (whether or
not in response to a proposal) or take any of the other actions prohibited by
the first paragraph of this Section 6.5 during the period referred to therein,
and prior to September 21, 2000, the Sellers sell their Shares or the Sellers or
the Company otherwise engage in a transaction which in either case results in
the realization by the Sellers of cash or non-cash proceeds in an amount that
would exceed the amount that they could reasonably be expected to realize from
the consummation of the transactions set forth herein, then the Sellers who
realize such proceeds severally (pro rata in accordance with the percentage of
such proceeds realized by each of them from the consummation of the sale or
other transaction or their percentage of ownership of the Company, as the case
may be) and not jointly, shall pay the Purchaser the lesser of (x) $1,000,000 or
(y) the amount realized by the Sellers in the consummation of such a
transaction, minus (i) the Purchase Price (as adjusted) and (ii) the Company's
reasonable attorney's and accountant's fees incurred in connection with the
transactions contemplated hereby; provided, however, that if the transactions
contemplated hereby are not consummated as a result of a breach by the Purchaser
of its obligations under this Agreement, or an injunction prohibiting the
consummation of the transaction (which is not the result of actions by the
Sellers), then the payment obligations of this paragraph of Section 6.5 shall
not apply.
Notwithstanding the foregoing, nothing contained in this
Section 6.5 shall prohibit the Board of Directors of the Company from furnishing
information to or negotiating with any Person that makes a Superior Proposal,
if, and only to the extent that, the Board of Directors in good faith determines
that such action is required to comply with its fiduciary duties. Nothing in
this paragraph shall permit the Sellers to terminate or breach this Agreement or
to enter into any agreement which would frustrate the purposes of this
Agreement.
Section 6.6 Preservation of Records.
Subject to Section 10.4(e) hereof (relating to the
preservation of Tax records), the Sellers and the Purchaser shall each preserve
and keep the records held by it relating to the business of the Company and its
Subsidiaries and the Purchaser shall cause the Company and its Subsidiaries to
preserve and keep their respective records for a period of three years from the
Closing Date and shall make such records and personnel available to the other
party as may be reasonably required by such party in connection with, among
other things, any insurance claims by, legal proceedings against or governmental
investigations of the Sellers or the Purchaser or any of their Affiliates or in
order to enable the Sellers or the Purchaser to comply with their respective
obligations under this Agreement and each other agreement, document or
instrument contemplated hereby or thereby. In the event the Sellers, the
Purchaser, the Company or any Subsidiary wishes to destroy such records after
that time, such party (or the Purchaser on behalf of the Company or any
Subsidiary) shall first give ninety (90) days' prior written notice to the other
parties and each of such other parties shall have the right at its option and
expense, upon prior written notice given to such party within that ninety (90)
day period, to take possession of the records within one hundred and eighty
(180) days after the date of such notice.
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Section 6.7 Publicity.
None of the Sellers nor the Purchaser shall issue any press
release or public announcement concerning this Agreement or the transactions
contemplated hereby or otherwise publicly disclose the existence of this
Agreement without obtaining the prior written approval of the other party
hereto, which approval will not be unreasonably withheld or delayed, unless, in
the sole judgment of the Purchaser, disclosure is otherwise required by
applicable Law, provided that, to the extent required by applicable Law or the
rules or regulations of any securities exchange or The Nasdaq Stock Market, the
party intending to make such release shall use its reasonable best efforts
consistent with such applicable Law or the rules or regulations of any
securities exchange or The Nasdaq Stock Market, to consult with the other party
with respect to the text thereof.
Section 6.8 Termination of Agreements.
Prior to or simultaneously with the Closing, (a) the
Employment Agreement by and between Michael Berman and RCC dated December 31,
1997, (b) the Employment Agreement by and between Michael Berman and
Encapsulation Services, Inc. dated January 1, 1998, (c) the Employment Agreement
by and between Jay Gartlan and Encapsulation Services, Inc. dated January 1,
1998, and the Employment Agreement by and between Jay Gartlan and RCC dated
January 1, 1998, and (d) all other Contracts or transactions between Affiliates
of the Company, on the one hand, and the Company or its Subsidiaries, on the
other hand, as set forth on Schedule 4.22 (other than (i) any agreements
relating to photography services between Paul Pearl and the Company, (ii) the
consulting agreement between Albert Pearl and RCC dated January 15, 1998 (the
"Pearl Consulting Agreement"), and (iii) any completed work not yet invoiced or
accounts payable to Sleepeck Printing by the Company or any of its Subsidiaries
which are not included in the Sleepeck Indebtedness and any work-in-progress
being performed by Sleepeck Printing for the Company or its Subsidiaries in the
ordinary course of business) shall have been terminated without payment or
further liability of any party thereto, except as otherwise contemplated hereby
or as set forth on Schedule 6.8. The bonuses payable in respect of calendar year
1998, which are identified on Schedule 6.8, shall be paid at Closing to the
extent such bonuses are reflected on the Balance Sheet and the June 30, 1999
Balance Sheet.
Section 6.9 Intellectual Property.
Prior to or simultaneously with the Closing, any and all
right, title and interest in any Intellectual Property held by any Affiliate of
any of the Sellers and/or Fragrance Technology Trust that is currently used, or
contemplated to be used, in the business of the Company or its Subsidiaries
shall be conveyed to RCC, without further consideration, or otherwise made
available to the Company or its Subsidiaries on an irrevocable, worldwide,
exclusive and royalty free basis, provided however, that this obligation to
convey Intellectual Property does not extend to Intellectual Property of
Sleepeck Printing relating to the printing of products or the rendering of
printing services.
Section 6.10 Collection of Accounts Receivable.
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The Purchaser shall cause the Company and its Subsidiaries to
use their diligent efforts to collect all accounts receivable outstanding as of
the Closing Date prior to the Collection Date. Prior to the Collection Date, and
only to the extent requested by the Company in its sole discretion, Paul Pearl
shall (i) assist in accordance with the Company's directions in the collection
of such accounts receivable and (ii) act as an advisor to the Company in
connection with any settlements with customers of the Company or its
Subsidiaries with respect to such accounts receivable.
Article VII
OTHER AGREEMENTS
Section 7.1 Payment of Sleepeck Indebtedness.
Simultaneously with the Closing, the Purchaser shall pay, or
cause the Company or one of its Subsidiaries to pay, the Sleepeck Indebtedness
in full. Contemporaneously with the payment in full of the Sleepeck
Indebtedness, Sleepeck Printing shall release all guarantees and Liens made in
connection with the Sleepeck Indebtedness and shall acknowledge to the Purchaser
that no money is owed to Sleepeck Printing by the Company or any of its
Affiliates in relation to the Sleepeck Indebtedness. Notwithstanding the
foregoing, any release or acknowledgement given or made pursuant to this Section
7.1 shall not be deemed to include any obligations of the Company or any
Affiliate with respect to (a) amounts not yet paid for printing services
performed by Sleepeck Printing, which has been billed and such bills have been
outstanding for less than 90 days, (b) payments set aside, withdrawn or
otherwise revoked in respect of printing services performed by Sleepeck Printing
prior to the Closing Date, or (c) obligations associated with printing
work-in-progress being performed by Sleepeck Printing.
Section 7.2 Exercise of Options and Releases.
(a) Simultaneously with the Closing, the Purchaser shall
exercise the Options which as of the date hereof are owned by (i) Sleepeck
Printing to acquire Common Stock from Retail TCA Corporation ("TCA") and Retail
TCB Corporation ("TCB") and (ii) Stuart Fleischer to acquire Common Stock from
TCB at the exercise price of $1,000,000, $884,000 and $136,000, respectively.
Immediately upon the exercise of such Options, (i) TCA shall repay all
outstanding indebtedness owed by TCA to the Company or its Subsidiaries and (ii)
TCB shall repay all outstanding indebtedness owed by TCB to Albert Pearl
pursuant to the Note dated January 15, 1998 and to the Company or its
Subsidiaries.
(b) Simultaneously with the Closing, each of the Sellers
shall, and the Sellers shall cause Albert Pearl to, issue full releases to each
other and to the Company, its Subsidiaries and their respective Affiliates (in
the form attached hereto as Exhibit F and otherwise satisfactory to the
Purchaser).
(c) Simultaneously with the Closing, Sellers shall cause each
of the parties referenced in the January Memo to execute and deliver such
releases as are set forth therein, in substantially the form attached hereto as
Exhibit F and otherwise satisfactory to the Purchaser.
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(d) Simultaneously with the Closing, the Company, its
Affiliates and the Sellers (other than Sleepeck Printing) shall issue a full
release to Sleepeck Printing (except with respect to liabilities associated with
completed work not yet invoiced, accounts receivable and printing
work-in-progress as described in Section 6.8(iii)), in substantially the form
attached hereto as Exhibit F and otherwise satisfactory to the Purchaser.
Section 7.3 Employees.
Subsequent to the Closing and for a period of one year
thereafter, Purchaser agrees that it will not and it will cause the Company not
to terminate without cause the employment with the Company or any of its
Subsidiaries of any of (i) Bob Dona, Arthur Inglesby or Paul Bousselli prior to
the date that is nine (9) months from written notice from Purchaser to the
Company regarding the employment status of each such person, (ii) William
Deierlein or Bob Westover prior to the date that is six (6) months from written
notice from Purchaser to the Company regarding the employment status of each
such person, and (iii) Robert Larr or Fayez Hamma prior to the date that is
three (3) months from written notice from Purchaser to the Company regarding the
employment status of each such person. Purchaser shall provide Jay Gartlan with
a copy of each such notice. The Sellers (other than Sleepeck Printing) shall
recommend and encourage in good faith each such employee to enter into a
confidentiality and non-compete agreement satisfactory to the Purchaser.
Notwithstanding anything to the contrary, none of the Purchaser, the Company or
any of its Subsidiaries shall have any obligation or liability to the Sellers or
any such employee if such employee fails to enter into such confidentiality and
non-compete agreement.
Section 7.4 Certain Insurance Coverage.
After the Closing Date and until January 2, 2001, the
Purchaser shall cause the Company to maintain the Company's insurance policy
covering professional errors and omissions liability having an annual premium
cost of $3,486 in effect on the date hereof or another substantially similar
insurance policy providing for coverage on a "claims made" basis; provided,
however, that the Purchaser and the Company shall have no obligations pursuant
to this Section 7.4 in the event of any material increase in the cost of
premiums charged for any such policy over the costs of premiums charged under
the Company's current policy. In the event that the Purchaser or the Company
determines to cancel such insurance policy prior to the sixth anniversary of the
Closing Date, the Purchaser shall or shall cause the Company to (a) notify the
Sellers' Representatives of such cancellation at least 30 days prior thereto,
and (b) reasonably cooperate (without any cost to the Purchaser, the Company or
any of its Subsidiaries) with the Sellers' Representatives' undertaking to
purchase continuation of such insurance coverage for the benefit of any of Jay
Gartlan, Michael Berman or Paul Pearl who choose to be so insured.
Article VIII
CONDITIONS TO CLOSING
Section 8.1 Conditions Precedent to Obligations of the
Purchaser.
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The obligation of the Purchaser to consummate the transactions
contemplated by this Agreement is subject to the fulfillment, on or prior to the
Closing Date, of each of the following conditions (any or all of which may be
waived by the Purchaser in whole or in part to the extent permitted by
applicable law or which shall be deemed waived if the Closing occurs):
(a) all representations and warranties of the Sellers
contained herein qualified as to materiality shall be true and correct, and the
representations and warranties of the Sellers contained herein not qualified as
to materiality shall be true and correct in all material respects, as of the
date hereof and at and as of the Closing Date with the same effect as though
those representations and warranties had been made again at and as of that time
without amendment for subsequent disclosure, except as specifically provided in
Section 6.1;
(b) the Sellers shall have performed and complied in all
material respects with all obligations and covenants required by this Agreement
to be performed or complied with by them on or prior to the Closing Date;
(c) the Purchaser shall have been furnished with certificates
(dated the Closing Date and in form and substance reasonably satisfactory to the
Purchaser) executed by each Seller certifying as to the fulfillment of the
conditions specified in Sections 8.1(a) and 8.1(b) hereof;
(d) Stock certificates (or other appropriate documentation)
representing 100% of the Shares shall have been, or shall at the Closing be,
validly delivered and transferred to the Purchaser, free and clear of any and
all Liens;
(e) there shall not have been or occurred any Material Adverse
Change;
(f) the Sellers shall have obtained all consents and waivers
referred to in Schedules 4.5 and 4.6 hereto, in a form reasonably satisfactory
to the Purchaser, with respect to the transactions contemplated by this
Agreement and the Seller Documents and the Sellers shall have obtained releases,
in form and substance satisfactory to the Purchaser, of all Liens (other than
Permitted Exceptions) filed against the Company or its Subsidiaries or their
respective assets;
(g) no Legal Proceedings shall have been instituted or
threatened or claim or demand made against the Sellers, the Company or any of
its Subsidiaries, or the Purchaser which challenges the validity or propriety of
the transactions contemplated hereby or otherwise affects the ability of any of
the parties to gain the material intended benefits contemplated hereby;
(h) there shall not be in effect any Order by a Governmental
Body of competent jurisdiction restraining, enjoining or otherwise prohibiting
the consummation of the transactions contemplated hereby;
(i) each of the Sellers shall have provided the Purchaser with
an affidavit of non-foreign status that complies with Section 1445 of the Code
(a "FIRPTA Affidavit");
(j) the Purchaser shall have received the written resignation
of each director of the Company;
32
(k) each of the Sellers and the Escrow Agent shall have
entered into the Escrow Agreement;
(l) Jay Gartlan shall have entered into an employment
agreement with the Purchaser or the Company containing terms that are acceptable
to the Purchaser;
(m) Paul Pearl shall have entered into an employment agreement
with the Company (the "Employment Agreement") substantially in the form of
Exhibit B hereto;
(n) Michael Berman shall have entered into a consulting
agreement (the "Consulting Agreement") substantially in the form of Exhibit C
hereto;
(o) Sleepeck Printing shall have entered into a printing
services agreement (the "Printing Services Agreement") substantially in the form
of Exhibit D hereto;
(p) each of Jay Gartlan, Michael Berman and Paul Pearl shall
have entered into a non-competition and non-solicitation agreement (each a
"Non-Competition and Non-Solicitation Agreement") substantially in the form of
Exhibit E hereto;
(q) the actions contemplated by Sections 6.9, 7.1 (other than
the first sentence of such Section) and 7.2 hereof (other than the first
sentence of Section 7.2(a)), including, without limitation, the execution and
delivery of the releases described in such sections, substantially in the form
of Exhibit F hereto, shall have been taken simultaneously with the Closing;
(r) each Employee Receivable, other than Employee Receivables
set forth on Schedule 8.1(r), shall have been paid to the Company and satisfied
in full;
(s) the Sleepeck Lockbox shall have been terminated as of
11:59 p.m., New York City time, on the day immediately preceding the Closing
Date and provision shall have been made to have (i) all amounts held in the
Sleepeck Lockbox for the account of the Company or its Subsidiaries to be
disbursed and paid to the Company, and (ii) all future amounts remitted to the
Sleepeck Lockbox for the account of the Company or any of its Subsidiaries to be
remitted to the Company;
(t) no Person other than a Seller shall have made, or
threatened to make, any claim to any Common Stock, Option or other rights in the
Company;
(u) the employment of the employees listed on Schedule 8.1(u)
shall have been terminated; and
(v) Sleepeck Printing shall have executed a confidentiality
agreement in form
and substance reasonably acceptable to the Purchaser and Sleepeck Printing.
It is understood that it is not a condition to the Purchaser's
obligations to consummate the transactions contemplated hereby that the
Purchaser shall have obtained financing to consummate the transactions
contemplated hereby.
33
Section 8.2 Conditions Precedent to Obligations of the
Sellers.
The obligations of the Sellers to consummate the transactions
contemplated by this Agreement are subject to the fulfillment, prior to or on
the Closing Date, of each of the following conditions (any or all of which may
be waived by the Sellers in whole or in part to the extent permitted by
applicable law or which shall be deemed waived if the Closing occurs):
(a) all representations and warranties of the Purchaser
contained herein qualified as to materiality shall be true and correct, and all
representations and warranties of the Purchaser contained herein not qualified
as to materiality shall be true and correct in all material respects, as of the
date hereof and at and as of the Closing Date with the same effect as though
those representations and warranties had been made again at and as of that date;
(b) the Purchaser shall have performed and complied in all
material respects with all obligations and covenants required by this Agreement
to be performed or complied with by Purchaser on or prior to the Closing Date;
(c) the Sellers shall have been furnished with certificates
(dated the Closing Date and in form and substance reasonably satisfactory to the
Sellers) executed by the Chief Executive Officer and Chief Financial Officer of
the Purchaser certifying as to the fulfillment of the conditions specified in
Sections 8.2(a) and 8.2(b);
(d) the Purchaser shall have obtained all consents and waivers
referred to in Schedule 5.3 hereto with respect to the transactions contemplated
hereby;
(e) no Legal Proceedings shall have been instituted or
threatened or claim or demand made against the Sellers, the Company or any of
its Subsidiaries, or the Purchaser which challenges the validity or propriety of
the transactions contemplated hereby or otherwise affects the ability of any of
the parties to gain the material intended benefits contemplated hereby;
(f) there shall not be in effect any Order by a Governmental
Body of competent jurisdiction restraining, enjoining or otherwise prohibiting
the consummation of the transactions contemplated hereby;
(g) the Purchaser shall have entered into, or caused the
Company to enter into, an employment agreement with Jay Gartlan acceptable to
Jay Gartlan;
(h) the Purchaser shall have entered into, or caused the
Company to enter into, the Employment Agreement with Paul Pearl substantially in
the form of Exhibit B hereto;
(i) the Purchaser shall have entered in to the Consulting
Agreement with Michael Berman substantially in the form of Exhibit C hereto;
(j) the Purchaser shall have entered into the Printing
Services Agreement with Sleepeck Printing substantially in the form of Exhibit D
hereto;
34
(k) the Purchaser shall have entered into a Non-Competition
and Non-Solicitation Agreement with each of Jay Gartlan, Michael Berman and Paul
Pearl substantially in the form of Exhibit E hereto;
(l) the actions contemplated by Sections 7.1 and 7.2 (other
than the second sentence of Section 7.2(a)) hereof, including without
limitation, the execution and delivery of the releases described in such
sections substantially in the form of Exhibit F hereto, shall have been taken
simultaneously with the Closing;
(m) the Purchaser and the Escrow Agent shall have entered into
the Escrow Agreement;
(n) the Sellers shall have received any waivers to which they
are properly entitled pursuant to Section 6.1; and
(o) the Purchaser shall have proffered the payments referred
to in Section 2.2 hereof and shall have proffered the deposits into escrow
contemplated by Section 2.3 hereof.
Article IX
CLOSING DELIVERIES
Section 9.1 Documents to be Delivered by the Sellers.
At the Closing, the Sellers shall deliver, or cause to be
delivered, to the Purchaser and to each other party as appropriate the
following:
(a) stock certificates (or other appropriate documentation)
representing the Shares, duly endorsed in blank or accompanied by stock transfer
powers and with all requisite stock transfer tax stamps attached;
(b) the certificates referred to in Section 8.1(c) hereof;
(c) copies of all consents, waivers and Lien releases referred
to in Section 8.1(f) hereof;
(d) Escrow Agreement, substantially in the form of Exhibit A
hereto, duly executed by each Seller and the Escrow Agent;
(e) employment agreement acceptable to Purchaser, duly
executed by Jay Gartlan;
(f) Employment Agreement substantially in the form of Exhibit
B hereto, duly executed by Paul Pearl;
(g) Consulting Agreement substantially in the form of Exhibit
C hereto, duly executed by Michael Berman;
35
(h) Printing Services Agreement substantially in the form of
Exhibit D hereto, duly executed by Sleepeck Printing;
(i) Non-Competition and Non-Solicitation Agreements
substantially in the form of Exhibit E hereto, duly executed by each of Michael
Berman, Jay Gartlan and Paul Pearl;
(j) the conveyances of Intellectual Property contemplated by
Section 6.9 and the acknowledgment of payment and Seller releases contemplated
by Sections 7.1 and 7.2, with the releases being substantially in the form of
Exhibit F hereto, duly executed by each appropriate Seller;
(k) written resignation of each of the directors of the
Company;
(l) duly executed FIRPTA Affidavits for each Seller;
(m) certificates of good standing with respect to the Company
and its Subsidiaries issued by the Secretary of State for each state in which
the Company and its Subsidiaries is incorporated and in which each is qualified
to do business as a foreign corporation;
(n) evidence satisfactory to the Purchaser of the payment and
satisfaction of each Employee Receivable, other than Employee Receivables set
forth on Schedule 8.1(r);
(o) evidence satisfactory to the Purchaser of the termination
of the Sleepeck Lockbox;
(p) the corporate books and records of the Company and its
Subsidiaries; and
(q) such other documents as the Purchaser shall reasonably
request three (3) days prior to Closing.
Section 9.2 Documents to be Delivered by the Purchaser.
At the Closing, the Purchaser shall deliver to the Sellers
(except as provided below) the following:
(a) evidence of payment in full of the payments referred to in
Section 2.2 hereof and the deposits into escrow contemplated by Section 2.3
hereof ;
(b) the certificates referred to in Section 8.2(c) hereof;
(c) copies of all consents and waivers referred to in Section
8.2(d) hereof;
(d) Escrow Agreement, substantially in the form of Exhibit A
hereto, duly executed by the Purchaser and the Escrow Agent;
(e) employment agreement with Jay Gartlan acceptable to the
Purchaser, duly executed by the Purchaser to be delivered to Jay Gartlan;
36
(f) Employment Agreement substantially in the form of Exhibit
B hereto, duly Executed by the Purchaser;
(g) Consulting Agreement substantially in the form of Exhibit
C hereto, duly executed by the Purchaser;
(h) Printing Services Agreement substantially in the form of
Exhibit D hereto, duly executed by the Purchaser;
(i) Non-Competition and Non-Solicitation Agreements with each
of Michael Berman, Jay Gartlan and Paul Pearl substantially in the form of
Exhibit E hereto, duly executed by the Purchaser;
(j) the payments required by Sections 7.1 and 7.2;
(k) the releases of Sleepeck Printing contemplated by Section
7.2;
(l) any waivers executed by the Purchaser pursuant to Section
6.1; and
(m) such other documents as the Sellers shall reasonably
request three (3) days prior to Closing.
Section 9.3 Simultaneous Transactions. All things which this
Agreement contemplates are to happen at or in connection with the Closing shall
be deemed to have happened in the order contemplated, if any, and unless all of
such things shall happen none shall be deemed to have occurred.
Article X
INDEMNIFICATION
Section 10.1 Non-Tax Indemnification.
(a) Subject to Section 6.1, if applicable, and Section 10.2,
the Sellers shall jointly and severally indemnify and hold the Purchaser, the
Company, and their respective directors, officers, employees, Affiliates,
agents, successors and assigns (collectively, the "Purchaser Indemnified
Parties") harmless from and against:
(i) subject to Sections 10.2(f) and 10.3(d), any and
all Losses of the Company or any of its Subsidiaries of every kind, nature and
description, absolute or contingent, existing as against the Company or any of
its Subsidiaries prior to and including the Closing Date, including, without
limitation, the Cellesence Matter (except as otherwise provided in Schedule 10.1
hereto), or thereafter coming into being or arising by reason of Claims related
to any matters occurring on or prior to the Closing Date, except to the extent
that the same (x) are reflected on the Balance Sheet or the June 30, 1999
Balance Sheet, (y) have been incurred in the ordinary course of business between
the Balance Sheet Date and the Closing Date, or (z) are disclosed on the
Schedules hereto (except as otherwise provided in Schedule 10.1 hereto);
37
(ii) subject to Section 11.2, any and all Losses
attributable to or resulting from the failure of any representation or warranty
of the Sellers set forth in Article IV hereof or any representation or warranty
contained in any Seller Document to be true and correct in all respects as of
the date made, as amended at or prior to Closing in accordance with Section 6.1,
other than the representations and warranties set forth in Sections 4.2, 4.6 or
Section 4.24, to the extent Section 4.24 relates to Sections 4.2 and 4.6 or
similar representations and warranties contained in any Seller Document;
(iii) any and all Losses attributable to or resulting
from the breach of any covenant or other agreement on the part of any of the
Sellers under this Agreement or the other Seller Documents; and
(iv) any and all notices, actions, suits,
proceedings, claims, demands, assessments, judgments, costs, penalties and
expenses, including attorneys' and other professionals' fees and disbursements
(collectively, "Expenses") incident to any and all Losses with respect to which
indemnification is provided hereunder or the enforcement of the provisions of
this Article X.
(b) Notwithstanding anything in Section 10.1(a) to the
contrary and subject to Sections 10.2 and 11.2, each of the Sellers shall
severally (and not jointly and severally) indemnify and hold the Purchaser
Indemnified Parties harmless from and against any Losses and Expenses based
upon, attributable to or resulting from the failure of any of the respective
individual representations and warranties of each such Seller set forth in
Sections 4.2, 4.6 or Section 4.24, to the extent Section 4.24 relates to
Sections 4.2 and 4.6 or any similar representation or warranty contained in any
Seller Document, to be true and correct in all respects as of the date made.
(c) The Purchaser shall indemnify and hold the Sellers and
their respective Affiliates, agents, successors and assigns, and in the case of
Sellers which are not natural persons, their respective directors, officers and
employees (collectively, the "Seller Indemnified Parties"), harmless from and
against:
(i) subject to Section 11.2, any and all Losses
attributable to or resulting from the failure of any representation or warranty
of the Purchaser set forth in Article V hereof, or any representation or
warranty contained in any Purchaser's Document, to be true and correct as of the
date made;
(ii) any and all Losses based upon, attributable to
or resulting from the breach of any covenant or other agreement on the part of
the Purchaser under this Agreement or the other Purchaser Documents; and
(iii) any and all Losses of the Company or any of its
Subsidiaries of every kind, nature and description absolute or contingent (A)
existing as against the Company or any of its Subsidiaries prior to and
including the Closing Date or thereafter coming into being or arising by reason
of any matters occurring on or prior to the Closing Date, but only to the extent
that the same (x) are reflected on the Balance Sheet or the June 30, 1999
38
Balance Sheet, (y) have been incurred in the ordinary course of business between
the Balance Sheet Date and the Closing Date, or (z) are disclosed on the
Schedules hereto (except as otherwise provided in Schedule 10.1 hereto), and (B)
arising from Claims related to any matters occurring after the Closing Date; and
(iv) any and all Expenses incident to Losses with
respect to which indemnification is provided hereunder or the enforcement of the
provisions of this Article X.
(d) Sleepeck Printing shall indemnify and hold the Purchaser
Indemnified Parties harmless from and against any and all Losses attributable to
or resulting from the employment or termination of employment of the persons
listed on Schedule 8.1(u).
Section 10.2 Limitations on Indemnification for Breaches of
Representations and Warranties.
(a) The Sellers shall not have any liability under Sections
10.1(a)(i), 10.1(a)(ii), 10.1(a)(iv), 10.1(b) or 10.4(a)(i)(c) hereof unless the
aggregate amount of Losses and Expenses of the Purchaser Indemnified Parties
finally determined to arise thereunder that are attributable to or result from
the failure of any representation or warranty of the Sellers to be true and
correct exceeds $50,000 (the "Basket") and in such event, the Sellers shall be
required to pay the entire amount of such Losses and Expenses from the first
dollar thereof. In addition, the Sellers shall not have any liability under
Sections 10.1(a), 10.1(b) and 10.4 (a)(i)(c) hereof which in the aggregate
exceeds the Purchase Price (the "Ceiling").
(b) The liabilities of the Sellers under Section 10.1(a)
hereof shall be joint and several and the liabilities of the Sellers under
Section 10.1(b) hereof shall be several only. Subject to Section 10.2(a), the
maximum liability of each Seller under this Agreement pursuant to Sections
10.1(a), 10.1(b) and 10.4(a)(i)(c) shall not exceed such Seller's Maximum
Obligation. Each Seller's "Maximum Obligation" shall be as follows and shall be
subject to proportionate adjustment upon an adjustment to the Purchase Price
pursuant to Sections 2.1 and 2.4 hereof:
Michael Berman: $3,829,500
Paul Pearl: $1,665,000
Jay Gartlan: $1,100,000
Sleepeck Printing: $3,344,100
Stuart Fleischer: $ 241,400
(c) Notwithstanding anything to the contrary and subject to
Section 10.2(b) hereof, the Sellers who are equity holders in any Seller that is
a corporation shall be jointly and severally liable with such corporate Seller
for any and all indemnification obligations of such corporate Seller pursuant to
Section 10.1(a) or 10.1(b).
(d) Notwithstanding anything to the contrary, the Sellers
shall not have any liability for any Loss arising from the breach or
untruthfulness of any of the representations or warranties contained in Section
4.21(b) solely to the extent that the Purchaser shall have recovered in full an
amount equal to such Loss pursuant to Section 2.3(c).
39
(e) The obligations of the Sellers under this Article X shall
be satisfied first from the amount deposited in escrow pursuant to Sections
2.3(a) and 2.3(b) provided that funds are then held in escrow pursuant to
Sections 2.3(a) or 2.3(b).
(f) Notwithstanding anything to the contrary, in the event any
Purchaser Indemnified Party has a claim for indemnification which, but for
Section 11.2 or otherwise, may be brought pursuant to (x) both Sections
10.1(a)(ii) and 10.1(a)(i) hereof, such claim may only be brought pursuant to
Section 10.1(a)(ii) hereof and recovery for such claim pursuant to Section
10.1(a)(i) shall be barred, or (y) both Sections 10.1(a)(ii) and 10.4 hereof,
such claim may only be brought pursuant to Section 10.1(a)(ii) hereof and
recovery for such claim pursuant to Section 10.4 hereof shall be barred.
Section 10.3 Non-Tax Indemnification Procedures.
(a) In the event that any Claim shall be instituted or
asserted by any Person in respect of which indemnification may be sought under
Section 10.1 hereof (regardless of the Basket or the Ceiling), the indemnified
party shall reasonably and promptly cause written notice of the assertion of any
Claim of which it has knowledge which is covered by this indemnity to be
forwarded to the indemnifying party. The indemnifying party shall have the
right, at its sole option and expense, to have the indemnified party be
represented by counsel of the indemnifying party's choice, which must be
reasonably satisfactory to the indemnified party, and to defend against,
negotiate, settle or otherwise deal with any Claim which relates to any Losses
indemnified against hereunder. If the indemnifying party elects to defend
against, negotiate, settle or otherwise deal with any Claim which relates to any
Losses indemnified against hereunder, it shall within ten (10) days (or sooner,
if the nature of the Claim so requires) notify the indemnified party of its
intent to do so. If the indemnifying party elects not to defend against,
negotiate, settle or otherwise deal with any Claim which relates to any Losses
indemnified against hereunder, fails to notify the indemnified party of its
election as herein provided or contests its obligation to indemnify the
indemnified party for such Losses under this Agreement, the indemnified party
may defend against, negotiate, settle or otherwise deal with such Claim. If the
indemnified party defends any Claim, then the indemnifying party shall reimburse
the indemnified party for the Expenses of defending such Claim upon submission
of periodic bills. If the indemnifying party shall assume the defense of any
Claim, the indemnified party may participate, at his or its own expense, in the
defense of such Claim; provided, however, that such indemnified party shall be
entitled to participate in any such defense with separate counsel at the expense
of the indemnifying party if, (i) so requested by the indemnifying party to
participate or (ii) in the reasonable opinion of counsel to the indemnified
party, an actual or potential conflict exists between the indemnified party and
the indemnifying party that would require such separate representation under
applicable rules of procedure or code of ethics; and provided, further, that the
indemnifying party shall not be required to pay for more than one such counsel
for all indemnified parties in connection with any Claim. The parties hereto
agree to cooperate fully with each other in connection with the defense,
negotiation or settlement of any such Claim.
(b) After any final judgment or award shall have been rendered
by a court, arbitration board or administrative agency of competent jurisdiction
and the expiration of the time in which to appeal therefrom, or a settlement
40
shall have been consummated, or the indemnified party and the indemnifying party
shall have arrived at a mutually binding agreement with respect to a Claim
hereunder, the indemnified party shall forward to the indemnifying party notice
of any sums due and owing by the indemnifying party pursuant to this Agreement
with respect to such matter and the indemnifying party shall be required to pay
all of the sums so due and owing to the indemnified party by wire transfer of
immediately available funds within 10 Business Days after the date of such
notice.
(c) The failure of the indemnified party to give reasonably
prompt notice of any Claim shall not release, waive or otherwise affect the
indemnifying party's obligations with respect thereto except to the extent that
the indemnifying party can demonstrate actual loss and prejudice as a result of
such failure.
(d) A claim for indemnity under Section 10.1(a)(i) may be made
at any time prior to the close of business on December 31, 2001 and not
thereafter.
Section 10.4 Tax Matters.
(a) Tax Indemnification.
(i) Except to the extent Taxes are reserved for on
the Closing Date Balance Sheet, each Seller, jointly and severally, agrees to be
responsible for and to indemnify and hold the Purchaser Indemnified Parties
harmless from and against any and all Taxes due and payable by the Company or
any of its Subsidiaries:
(a) with respect to all taxable periods ending on
or prior to the Closing Date;
(b) with respect to any and all Taxes of the
Company or any of its Subsidiaries for the period allocated to the
Sellers pursuant to Section 10.4(b)(iv);
(c) arising by reason of any breach of the
Sellers or inaccuracy of any of the representations contained in
Section 4.10 hereof; and
(d) with respect to any and all Taxes of any
member of a consolidated, combined or unitary group of which the
Company (or any predecessor) or any of its Subsidiaries is or was a
member on or prior to the Closing Date pursuant to Treasury Regulation
Section 1.1502-6(a) or any analogous or similar state, local or foreign
law or regulation, as transferee or successor, by contract or
otherwise.
The Sellers shall also pay and shall indemnify and hold harmless the Purchaser
Indemnified Parties from and against any losses, damages, liabilities,
obligations, deficiencies, costs and expenses (including, without limitation,
reasonable expenses and fees for attorneys and accountants) ("Related Costs")
incurred in connection with the Taxes for which the Sellers are responsible to
indemnify the Purchaser Indemnified Parties pursuant to this Section 10.4(a) (or
any asserted deficiency, claim, demand, action, suit, proceeding, judgment or
assessment, including the defense or settlement thereof, relating to such Taxes)
or the enforcement of this Section 10.4(a).
41
(ii) The Purchaser shall indemnify and hold harmless
the Seller Indemnified Parties from and against any and all Taxes (A) of the
Company or any of its Subsidiaries with respect to any taxable period of the
Company or any of its Subsidiaries beginning after the Closing Date, (B) of the
Company of any of its Subsidiaries with respect to any taxable period prior to
the Closing Date to the extent reserved on the Closing Date Balance Sheet, or
(C) attributable to the period allocated to Purchaser pursuant to Section
10.4(b)(iv) as well as any Related Costs incurred in connection with the Taxes
for which the Purchaser is responsible to indemnify the Seller Indemnified
Parties pursuant to this Section 10.4(a) (or any asserted deficiency, claim,
demand, action, suit, proceeding, judgment or assessment, including the defense
or settlement thereof, relating to such Taxes) or the enforcement of this
Section 10.4(a).
(iii) If any indemnification payment under this
Section 10.4 (including, without limitation, this Section 10.4(a)(iii)) is
determined to be taxable to the party receiving such payment by any taxing
authority, the paying party shall also indemnify the party receiving such
payment for any Taxes incurred by reason of the receipt of such payment (taking
into account any actual reduction in tax liability to the receiving party) and
any Related Costs incurred by the party receiving such payment in connection
with such Taxes (or any asserted deficiency, claim, demand, action, suit,
proceeding, judgment or assessment, including the defense or settlement thereof,
relating to such Taxes).
(b) Preparation of Tax Returns; Payment of Taxes.
(i) The Sellers shall cause the Company and each of
its Subsidiaries to file all the federal, state, local and foreign Tax Returns
required to be filed by the Company and each of its Subsidiaries for all periods
ending on or prior to the Closing Date and shall pay any and all Taxes due with
respect to such Returns to the extent not reserved on the Closing Date Balance
Sheet. All Tax Returns described in this Section 10.4(b)(i) shall be prepared in
a manner consistent with prior practice unless a past practice has been finally
determined to be incorrect by the applicable taxing authority or a contrary
treatment is required by applicable tax laws (or judicial or administrative
interpretations thereof). The Sellers shall cause the Company and each of its
Subsidiaries to provide the Purchaser with copies of such completed Tax Returns
at least 10 days prior to the filing date, and the Purchaser shall be provided
an opportunity to review and propose changes to such Tax Returns and supporting
workpapers and schedules prior to the filing of such Tax Returns. The Sellers
and the Purchaser shall attempt in good faith mutually to resolve any
disagreements regarding such Tax Returns prior to the due date for filing
thereof.
(ii) Following the Closing, the Purchaser shall be
responsible for preparing or causing to be prepared all federal, foreign, state
and local Tax Returns required to be filed by the Company and each of its
Subsidiaries for all periods which begin before and end after the Closing Date.
To the extent any Taxes shown due on any such Tax Return are indemnifiable by
the Sellers, (A) the Purchaser shall provide the Sellers with copies of such Tax
Return at least 30 days prior to the due date for filing such return, and (B)
the Sellers shall have the right to review and approve (which approval shall not
be unreasonably withheld) such Tax Returns for 15 days following receipt
thereof. The Sellers and Purchaser shall attempt in good faith mutually to
resolve any disagreements regarding such Tax Returns prior to the due date for
filing thereof. The Purchaser shall file or cause to be filed all such Tax
42
Returns on or prior to the due date, as it may be extended, and shall, subject
to receiving the payments from the Sellers referred to in Section 10.4(b)(iii),
pay the Taxes shown due thereon; provided, however, that nothing contained in
the foregoing shall in any manner terminate, limit or adversely affect any right
of Purchaser Indemnified Parties, the Sellers or the Company to receive
indemnification pursuant to any provision in this Agreement.
(iii) Not later than 5 days before the due date for
payment of Taxes with respect to any Tax Returns which Purchaser has the
responsibility to file, each of the Sellers shall pay to the Purchaser such
Seller's proportionate share of an amount equal to that portion of the Taxes
shown on such return for which the Sellers have an obligation to indemnify the
Purchaser Indemnified Parties pursuant to the provisions of Section 10.4(a).
(iv) For federal income tax purposes, the taxable
year of the Company and each of its Subsidiaries shall end as of the close of
the Closing Date and, with respect to all other Taxes of the Company and each of
its Subsidiaries, the Sellers and the Purchaser will, unless prohibited by
applicable law, close the taxable period of the Company and each of its
Subsidiaries as of the close of the Closing Date. Neither the Sellers nor the
Purchaser shall take any position inconsistent with the preceding sentence on
any Tax Return. In any case where applicable law does not permit the Company and
each of its Subsidiaries to close its taxable year on the Closing Date or in any
case in which a Tax is assessed with respect to a taxable period which includes
the Closing Date (but does not begin or end on that day), then Taxes, if any,
attributable to the taxable period of the Company and each of its Subsidiaries
beginning before and ending after the Closing Date shall be allocated (i) to the
Sellers for the period up to and including the Closing Date, and (ii) to
Purchaser for the period subsequent to the Closing Date. Any allocation of
income or deductions required to determine any Taxes attributable to any period
beginning before and ending after the Closing Date shall be prepared by
Purchaser and shall be made by means of a closing of the books and records of
the Company and each of its Subsidiaries as of the close of the Closing Date,
provided that exemptions, allowances or deductions that are calculated on an
annual basis (including, but not limited to, depreciation and amortization
deductions) shall be allocated between the period ending on the Closing Date and
the period after the Closing Date in proportion to the number of days in each
such period. The Purchaser shall provide the Sellers with a schedule showing the
computation of each item which is subject to allocation under this Section at
least 30 days prior to the due date for filing a Tax Return for a taxable period
which includes the Closing Date. The Sellers shall have the right to review such
schedule, and the Purchaser and Sellers shall attempt in good faith mutually to
resolve any disagreements regarding the determination of any such allocation.
Any amount owing from Sellers under this Section 10.4(b)(iv) shall be paid no
later than five (5) days prior to the filing of the underlying Tax Return. With
respect to the Tax Returns of the Company and its Subsidiaries for the first
taxable period following the Closing Date and amendments made following the
Closing Date to Tax Returns of the Company and its Subsidiaries for taxable
periods prior to the Closing Date, the Purchaser shall (i) notify or cause the
Company and its Subsidiaries to notify the Sellers' Representatives at least 30
days prior to the due date for filing such Tax Returns if such Tax Returns
report any item in a manner that is inconsistent with prior years, and (ii)
provide the Sellers' Representatives with an opportunity to consult with the
Purchaser and the Company in connection therewith.
43
(c) Cooperation with Respect to Tax Returns. Purchaser and the
Sellers agree to furnish or cause to be furnished to each other, and each at
their own expense, as promptly as practicable, such information relating to the
Company or any of its Subsidiaries (including access to books and records) and
assistance, including making employees available on a mutually convenient basis
to provide additional information and explanations of any material provided as
is reasonably necessary for the preparation and filing of any Tax Return, for
the preparation for any audit, and for the prosecution or defense of any claim,
suit or proceeding relating to any adjustment or proposed adjustment with
respect to Taxes of the Company or any Subsidiary. Purchaser, the Company or any
of its Subsidiaries shall retain in its possession, and shall provide the
Sellers reasonable access to (including the right to make copies of), such
supporting books and records and any other materials that the Sellers may
specify with respect to Tax matters relating to any taxable period ending on or
prior to the Closing Date or relating to the portion of any taxable period
occurring on or before the Closing Date until the relevant statute of
limitations has expired. After such time, Purchaser may dispose of such
material, provided that prior to such disposition Purchaser shall give the
Sellers a reasonable opportunity to take possession of such materials.
(d) Tax Audits.
(i) The Purchaser shall have the sole right to
represent the interests of the Company and each of its Subsidiaries in any Tax
audit or administrative or court proceeding relating to taxable periods of the
Company or any of its Subsidiaries beginning after the Closing Date and to
employ counsel of its choice at its expense; provided that Jay Gartlan and
Sleepeck Printing shall each have the right to consult with such counsel. The
Sellers agrees that they will cooperate fully with Purchaser and its counsel in
the defense against or compromise of any claim in any said proceeding.
(ii) If any taxing authority in writing asserts a
claim, makes an assessment or otherwise disputes or affects the Tax reporting
position of the Company or any of its Subsidiaries for taxable periods ending on
or prior to the Closing Date, Purchaser shall, promptly upon receipt by
Purchaser, the Company or any of its Subsidiaries of written notice thereof,
inform the Sellers thereof.
(iii) Sellers' Representatives shall have the right
to represent the interests of the Company and each of its Subsidiaries in any
Tax audit or administrative or court proceeding relating to taxable periods of
the Company or any of its Subsidiaries ending on or prior to the Closing Date to
the extent that it involves an asserted Tax liability with respect to which
indemnity is sought under Section 10.04. The Purchaser shall cooperate, and
shall cause the Company and its Subsidiaries to cooperate, at the Sellers'
expense, with the Sellers and their counsel in the defense against any such
claim in any such proceeding. At the request of the Sellers' Representatives,
the Purchaser shall grant a power of attorney to the Sellers' Representatives to
the extent reasonably necessary or required for the Sellers' Representatives to
exercise their rights under this Section 10.4(d) (iii). The Sellers shall not
enter into on behalf of the Purchaser any settlement agreement with respect to
any asserted Tax liability without the prior written consent of the Purchaser,
which consent may not be unreasonably withheld.
44
(iv) The Sellers and the Purchaser jointly shall
represent the interests of the Company or any of its Subsidiaries in any Tax
audit or administrative or court proceeding relating to any taxable period of
the Company or any of its Subsidiaries which includes (but does not begin or end
on) the Closing Date. All costs, fees and expenses paid to third parties in the
course of such proceeding shall be borne by the Sellers and the Purchaser in the
same ratio as the ratio in which, pursuant to the terms of this Agreement, the
Sellers and the Purchaser would share the responsibility for payment of the
Taxes asserted by the taxing authority in such claim or assessment if such claim
or assessment were sustained in its entirety.
(e) Refund Claims. Except as otherwise provided in Section
10.4(f), to the extent any determination of Tax liability of the Company or any
of its Subsidiaries, whether as the result of an audit or examination, a claim
for refund, the filing of an amended return or otherwise, results in any refund
of Taxes paid attributable to (i) any period which ends on or before the Closing
Date or (ii) any period which includes the Closing Date but does not begin or
end on that day, any such refund shall belong to the Sellers, provided that in
the case of any Tax refund described in clause (ii) of this Section 10.4(e), the
portion of such Tax refund which shall belong to the Sellers shall be that
portion that is attributable to the portion of that period which ends on the
Closing Date (determined on the basis of an interim closing of the books as of
the Closing Date), and Purchaser shall promptly pay any such refund, and the
interest actually received thereon, to the Sellers upon receipt thereof by the
Purchaser or by the Company or any of its Subsidiaries. Any and all other
refunds shall belong to the Purchaser. Any payments made under this Section
10.4(e) shall be net of any Taxes payable by the Company or any of its
Subsidiaries with respect to such refund, credit or interest thereon (taking
into account any actual reduction in Tax liability of the Company or any
Subsidiary realized upon the payment pursuant to this Section 10.4(e)).
(f) Carrybacks. The Sellers shall pay to the Purchaser the
amount of any Tax benefit (including interest thereon) realized by the Sellers
or any Affiliate thereof as a result of the carryback of any Tax loss, deduction
or credit of the Company or any of its Subsidiaries from any taxable period
beginning after the Closing Date to a taxable period ending on or before the
Closing Date. The Sellers shall pay such amount to Purchaser within 10 Business
Days after such Tax benefit is realized by the Sellers or any Affiliate as a
refund or otherwise, provided that Purchaser shall return to the Sellers the
amount, if any, by which the amount of such Tax benefit is thereafter reduced
pursuant to a final determination.
(g) Transfer Taxes. The Sellers shall be liable for and shall
pay (and shall indemnify and hold harmless Purchaser against) all sales, use,
stamp, documentary, filing, recording, transfer or similar fees or taxes or
governmental charges (including, without limitation, real property transfer
gains taxes, UCC-3 filing fees, FAA, ICC, DOT, real estate and motor vehicle
registration, title recording or filing fees and other amounts payable in
respect of transfer filings) as levied by any taxing authority or governmental
agency in connection with the transactions contemplated by this Agreement (other
than taxes measured by or with respect to income imposed on the Sellers or on
Purchaser or its Affiliates). The Sellers hereby agree to file all necessary
documents (including, but not limited to, all Tax Returns) with respect to all
such amounts in a timely manner.
45
(h) The indemnification provided for in this Section 10.4
shall be the sole remedy for any claim in respect of Taxes and the provisions of
Sections 10.1 through 10.3 hereof shall not apply to such claims.
(i) Any claim for indemnity under this Section 10.4 may be
made at any time prior to 60 days after the expiration of the applicable Tax
statute of limitations with respect to the relevant taxable period (including
all periods of extension, whether automatic of permissive).
Section 10.5 Tax Treatment of Indemnity Payments.
The Sellers and the Purchaser agree to treat any indemnity
payment made pursuant to this Article X as an adjustment to the Purchase Price
for federal, state, local and foreign income tax purposes.
Article XI
MISCELLANEOUS
Section 11.1 Certain Definitions.
"Affiliate" means, with respect to any Person, any other
Person controlling, controlled by or under common control with such Person.
"Business Day" means a day other than a Saturday, a Sunday or
a day on which commercial banks in New York City are authorized or required to
be closed.
"Code" shall mean the Internal Revenue Code of 1986, as
amended.
"Contract" means any contract, indenture, note, bond, loan,
instrument, lease, commitment or other agreement.
"Claim" means any legal proceeding, claim or demand.
"Environmental Law" means any foreign, federal, state or local
statute, regulation, ordinance or rule of common law as currently in effect in
any way relating to the protection of human health and safety or the environment
including, without limitation, the Comprehensive Environmental Response,
Compensation and Liability Act (42 U.S.C. ss. 9601 et seq.), the Hazardous
Materials Transportation Act (49 U.S.C. App. ss. 1801 et seq.), the Resource
Conservation and Recovery Act (42 U.S.C. ss. 6901 et seq.), the Clean Water Act
(33 U.S.C. ss. 1251 et seq.), the Clean Air Act (42 U.S.C. ss. 7401 et seq.),
the Toxic Substances Control Act (15 U.S.C. ss. 2601 et seq.), the Federal
Insecticide, Fungicide, and Rodenticide Act (7 U.S.C. ss. 136 et seq.), and the
Occupational Safety and Health Act (29 U.S.C. ss. 651 et seq.), and the
regulations promulgated pursuant thereto.
"GAAP" means generally accepted United States accounting
principles as of the date hereof.
46
"Governmental Body" means any government or governmental or
regulatory body thereof, or political subdivision thereof, whether federal,
state, local or foreign, or any agency, instrumentality or authority thereof, or
any court or arbitrator (public or private).
"Hazardous Material" means any substance, material or waste
which is regulated by the United States, or any state or local governmental
authority including, without limitation, petroleum and its by-products,
asbestos, and any material or substance which is defined as a "hazardous waste,"
"hazardous substance," "hazardous material," "restricted hazardous waste,"
"industrial waste," "solid waste," "contaminant," "pollutant," "toxic waste" or
"toxic substance" under any provision of Environmental Law.
"Indebtedness" means debt of the Company and its Subsidiaries
for borrowed money (including letters of credit), notes payable (including the
Sleepeck Indebtedness), obligations to pay the deferred purchase price of
property or services, capitalized leases and guarantees, but shall exclude trade
accounts payable incurred and charges for liabilities accrued in the ordinary
course of business, in accordance with GAAP and consistent with past practice.
For the avoidance of doubt, the indebtedness of TCA to the Company or its
Subsidiaries and the indebtedness of TCB to Al Pearl and to the Company or its
Subsidiaries shall not be included in Indebtedness.
"Law" means any federal, state, local or foreign law
(including common law), statute, code, ordinance, rule, regulation or other
requirement.
"Legal Proceeding" means any legal action, suit, proceeding,
investigation, claim or order.
"Lien" means any lien, pledge, mortgage, deed of trust,
security interest, claim, lease, charge, option, right of first refusal,
easement, servitude, transfer restriction under any shareholder or similar
agreement, encumbrance or any other restriction or limitation whatsoever.
"Loss" means all losses, liabilities, obligations, damages,
costs, expenses and other amounts for which an indemnified party becomes liable
under Article X hereof. For purposes of this Agreement, the amount of a Loss and
the amount of any Expense shall be calculated after giving effect to any reserve
available for the matter or transaction in question reflected on the Closing
Date Balance Sheet, and after taking into account any insurance or other
third-party payments tendered as compensation for such Loss or Expense accruing
to the benefit of the indemnified party by reason of such Loss or Expense and
any tax effect by reason thereof or by reason of the receipt of such insurance
or other third party payments tendered as compensation for such Loss or Expense.
"Material Adverse Change" means any material adverse change in
the condition, financial or otherwise, or in the earnings, prospects, business
or operations of the Company and its Subsidiaries, taken as a whole.
"Order" means any order, injunction, judgment, decree or
ruling.
"Permit" means any approvals, authorizations, consents,
licenses or permits.
47
"Permitted Exceptions" means (i) all defects, exceptions,
restrictions, easements, rights of way and encumbrances disclosed in policies of
title insurance which have been provided to Purchaser; (ii) statutory liens for
current taxes, assessments or other governmental charges not yet delinquent or
the amount or validity of which is being contested in good faith by appropriate
proceedings, provided an appropriate reserve is established therefor; (iii)
mechanics', carriers', workers', repairers' and similar Liens arising or
incurred in the ordinary course of business that are not material to the
business, operations and financial condition of the property so encumbered or
the Company; (iv) zoning, entitlement and other land use and environmental
regulations by any Governmental Body, provided that such regulations have not
been violated; and (v) such other imperfections in title, charges, easements,
restrictions and encumbrances which do not materially detract from the value of
or materially interfere with the present use of any property leased pursuant to
a Real Property Lease subject thereto or affected thereby.
"Person" means any individual, corporation, partnership, firm,
joint venture, association, joint-stock company, trust, unincorporated
organization, Governmental Body or other entity.
"RCC" means Retail Communications Corp.
"Release" means any release, spill, emission, leaking,
pumping, injection, deposit, disposal, discharge, dispersal, or leaching into
the indoor or outdoor environment, or into or out of any property.
"Remedial Action" means all actions to (x) clean up, remove,
treat or in any other way address any Hazardous Material; (y) prevent the
Release of any Hazardous Material so it does not endanger or threaten to
endanger public health or welfare or the indoor or outdoor environment; or (z)
perform pre-remedial studies and investigations or post-remedial monitoring and
care.
"Sleepeck Indebtedness" means all indebtedness of the Company
or any of its Subsidiaries to Sleepeck Printing, including principal, accrued
and unpaid interest and expenses payable by the Company or a Subsidiary, other
than indebtedness on account for goods or services provided by Sleepeck Printing
in the ordinary course, unless such indebtedness has been outstanding for 90
days or more on the Closing Date, with the exception of indebtedness outstanding
for 90 days or more on the Closing Date that relates to payables for printing
services performed for the benefit of Gary Farn Ltd. or Zaharoff provided that
the related accounts receivable of the Company or its Subsidiaries from such
customers exceeds the related payable by the appropriate amount of gross profit
and other related ordinary course ancillary charges.
"Sleepeck Lockbox" means the Sleepeck Printing lockbox account
(account number 99475) at the Bank of America, 231 South LaSalle Street,
Chicago, Illinois.
"Subsidiary" means any Person of which a majority of the
outstanding voting securities or other voting equity interests are owned,
directly or indirectly, by the Company.
"Superior Proposal" means an unsolicited bona fide offer by an
unaffiliated third party to purchase a majority of the Company's Common Stock or
48
substantially all of the assets of the Company and its Subsidiaries at a value
significantly higher than that implied by this Agreement.
"Taxes" shall mean any income, gross income, gross receipts,
profits, capital stock, franchise, business, withholding payroll, social
security, workers compensation, unemployment, disability, property, ad valorem,
stamp, excise, occupation, service, sales, use, license, lease, commercial rent,
transfer, import, export, customs duties, value added, goods and services,
alternative minimum, estimated or other similar tax (including any fee,
assessment, or other charge in the nature of or in lieu of any tax) imposed by
any Governmental Body, and any interest, penalties, additions to tax, or
additional amounts in respect of the foregoing.
"Tax Return" means all returns, declarations, reports,
estimates, information returns and statements required to be filed in respect of
any Taxes.
"Working Capital" means, without duplication, the sum of (i)
accounts receivable, net of an allowance for doubtful accounts, plus (ii)
inventory, plus (iii) taxes receivable, minus (iv) accounts payable (which
includes accrued expenses and other current liabilities), minus (v) the Sleepeck
Indebtedness, all as would be reflected on a balance sheet of RCC, prepared in
accordance with GAAP on a basis consistent with the financial statements which
have previously been delivered to the Purchaser. For the avoidance of doubt,
accounts receivable which have been written-off or accounts receivable which
relate to bill-and-hold arrangements shall not be included in Working Capital
for purposes of this definition.
In addition, the following terms shall have the respective
meanings set forth in the Section noted below:
Additional Indemnification Amount..................2.3(c)
Aged Accounts Receivable...........................2.3(c)
Agreement..........................................Recitals
Agreement Duties...................................11.14
Arcade Group.......................................6.1
Balance Sheet......................................4.7
Balance Sheet Date.................................4.7
Basket.............................................10.2(a)
Benefit Plans......................................4.15(a)
Ceiling............................................10.2(a)
Cellesence Matter..................................4.17
Claim..............................................10.3(a)
Closing............................................3.1
Collection Date....................................2.3(c)
Closing Date.......................................3.1
Closing Date Balance Sheet.........................2..4
Collection Date....................................2.3(c)
Collection Period..................................2.3(c)
Common Stock.......................................Recitals
Company............................................Recitals
Confidentiality Agreements.........................6.1
49
Consultants........................................4.13(b)
Consulting Agreement...............................8.1(n)
Determination Date.................................2.1
DLJ................................................5.6
Employee Receivables...............................4.21(b)
Employees..........................................4.15(a)
Employment Agreement...............................8.1(m)
ERISA..............................................4.15(a)
ERISA Affiliate....................................4.15(c)
Escrow Agent.......................................2.3(a)
Escrow Agreement...................................2.3(a)
Estimated Purchase Price...........................2.2
Expenses...........................................10.1(a)(iv)
Financial Statements...............................4.7
FIRPTA Affidavit...................................8.1(i)
HSR Act............................................4.5(b)
Indemnification Escrow Account.....................2.3(b)
Indemnification Escrow Amount......................2.3(b)
Intellectual Property..............................4.13(a)
January Memo.......................................4.3(b)
June 30, 1999 Balance Sheet........................4.7
Loss...............................................11.15
Material Adverse Effect............................4.1
Material Contracts.................................4.14
Maximum Obligation.................................10.2(b)
Nonbreaching Parties...............................11.4
Non-Competition and Non-Solicitation Agreement.....8.1(p)
Options............................................Recitals
Options Exercise ..................................4.3(a)
Outstanding Receivables............................4.21(b)
Pearl Consulting Agreement.........................6.8
Pension Plan.......................................4.15(b)
Personal Property Leases...........................4.12(a)
Plans..............................................4.15(b)
Printing Services Agreement........................8.1(o)
Purchase Price.....................................2.1
Purchase Price Escrow Amount.......................2.3(a)
Purchaser..........................................Recitals
Purchaser Documents................................5.2
Purchaser Group....................................6.1
Purchaser Indemnified Parties......................10.1(a)
Real Property Leases...............................4.11
Receivable Escrow Amount...........................2.3(c)
Related Costs......................................10.4
Retcom Confidentiality Agreement...................6.1
Securities Act.....................................5.5
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Seller Documents...................................4.2
Seller Indemnified Parties.........................10.1(c)
Sellers' Representatives...........................11.14
Shares.............................................Recitals
Sharing Ratios.....................................2.1
Sleepeck Confidentiality Agreement.................6.1
Sleepeck Printing..................................4.21(c)
Supplemental Closing...............................2.4(a)
System.............................................4.26
TCA................................................7.2
TCB................................................7.2
Uncollected Receivables Amount.....................2.3(c)
1998 Interim Balance Sheet.........................2.1
1998 Working Capital...............................2.1
Section 11.2 Survival.
The parties hereto hereby agree that the representations and
warranties and agreements contained in this Agreement or in any certificate,
document or instrument delivered in connection herewith, shall survive the
execution and delivery of this Agreement and the Closing hereunder, regardless
of any investigation made by the parties hereto (except as otherwise provided in
Section 6.1), and that claims based upon any of them may be asserted in writing
until January 2, 2001; provided, however, that claims with respect to the
representations and warranties contained in Sections 4.2, 4.3 and 4.6 shall
survive for three (3) years from the Closing Date and all claims based on fraud
shall survive for the applicable statute of limitations. The agreements
contained in Articles VII and X shall survive the Closing in accordance with
their respective terms.
Section 11.3 Expenses.
Whether or not the transactions contemplated hereby are
consummated, each party shall bear its own fees and expenses in connection with
the proposed transaction, including but not limited to attorney's, accountant's
and consultant's fees, provided that the Purchaser, solely, shall bear the
expense of all filings fees required under the HSR Act or any other law
regarding competition; and provided further, that in the event this Agreement is
terminated at any time prior to Closing by either the Sellers or the Purchaser
for material breach or default by the other party of the terms of this
Agreement, and such breach or default, in the aggregate, could reasonably be
expected to result in a Loss of at least $50,000, then the breaching party will
pay or reimburse the Sellers or the Purchaser, as the case may be (the
"Nonbreaching Parties"), for the out-of-pocket costs and expenses incurred by
the Nonbreaching Parties (but if the Purchaser is the breaching party, then the
Purchaser shall not be liable for the fees and expenses of more than Dilworth
Paxon LLP as counsel for the Sellers and if one of the Sellers is the breaching
party, then the Sellers shall not be liable for the fees and expenses of more
than one set of counsel for the Purchaser) in connection with the preparation
and negotiation of the Agreement and the parties' due diligence investigations.
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Section 11.4 Specific Performance.
(a) The Sellers acknowledge and agree that in the event of a
breach of this Agreement by the Sellers, including the Sellers' failure to close
the transactions contemplated hereby in accordance with the terms of this
Agreement, the Purchaser would be irreparably damaged and would not have an
adequate remedy at law. Therefore, the obligations of the Sellers under this
Agreement, including, without limitation, the Sellers' obligation to sell the
Shares to the Purchaser, shall be enforceable by a decree of specific
performance issued by any court of competent jurisdiction, and appropriate
injunctive relief may be applied for and granted in connection therewith. Such
remedies shall, however, be cumulative and not exclusive and shall be in
addition to any other remedies which any party may have under this Agreement or
otherwise.
Section 11.5 Further Assurances.
The Sellers and the Purchaser shall execute and deliver such
other documents or agreements and to take such other action as may be reasonably
necessary or desirable for the implementation of this Agreement and the
consummation of the transactions contemplated hereby.
Section 11.6 Arbitration.
Except as herein may be provided to the contrary, all disputes
between the Sellers and Purchaser, including, without limitation, those relating
to this Agreement, shall be resolved by arbitration as provided in this Section
11.6. This agreement to arbitrate shall survive the rescission or termination of
this Agreement. All arbitration shall be conducted pursuant to the Commercial
Arbitration Rules of the American Arbitration Association and shall be conducted
in the Borough of Manhattan, The City of New York, unless otherwise agreed in a
signed writing by all of the parties to any such arbitration. The decision of
the arbitrators shall be final and binding on all parties. All arbitration shall
be undertaken pursuant to the Federal Arbitration Act, where applicable, and the
decision of the arbitrators shall be enforceable in any court of competent
jurisdiction.
Section 11.7 Entire Agreement; Amendments and Waivers.
This Agreement (including the schedules and exhibits hereto)
and the Confidentiality Agreements represent the entire understanding and
agreement between the parties hereto with respect to the subject matter hereof
(and supersedes the letter of intent dated July 27, 1999) and can be amended,
supplemented or changed, and any provision hereof can be waived, only by written
instrument making specific reference to this Agreement signed by the party
against whom enforcement of any such amendment, supplement, modification or
waiver is sought. Except as otherwise provided in Sections 8.1 or 8.2, no action
taken pursuant to this Agreement, including without limitation, any
investigation by or on behalf of any party, shall be deemed to constitute a
waiver by the party taking such action of compliance with any representation,
warranty, covenant or agreement contained herein. Subject to Section 6.1, if
applicable, the waiver by any party hereto of a breach of any provision of this
Agreement shall not operate or be construed as a further or continuing waiver of
such breach or as a waiver of any other or subsequent breach. No failure on the
53
part of any party to exercise, and no delay in exercising, any right, power or
remedy hereunder shall operate as a waiver thereof, except as provided in
Section 11.2, nor shall any single or partial exercise of such right, power or
remedy by such party preclude any other or further exercise thereof or the
exercise of any other right, power or remedy. All remedies hereunder are
cumulative and are not exclusive of any other remedies provided by law.
Section 11.8 Governing Law.
This Agreement shall be governed by and construed in
accordance with the laws of the State of New York, without regard to the
conflicts of laws principles thereof.
Section 11.9 Table of Contents and Headings.
The table of contents and section headings of this Agreement
are for reference purposes only and are to be given no effect in the
construction or interpretation of this Agreement.
Section 11.10 Notices.
All notices and other communications under this Agreement
shall be in writing and shall be deemed given when delivered personally or
mailed by certified mail, return receipt requested, to the parties (and shall
also be transmitted by facsimile to the Persons receiving copies thereof) at the
following addresses (or to such other address as a party may have specified by
notice given to the other party pursuant to this provision):
If to the Purchaser:
Arcade Marketing, Inc.
120 East 56th Street
Twelfth Floor
New York, New York 10022
Attention: Chief Executive Officer
Fax: (212) 223-5776
and to:
Arcade Marketing, Inc.
1815 East Main Street
Chattanooga, Tennessee 37404
Attention: Chief Financial Officer
Fax: (423) 622-4635
53
with a copy to:
Akin, Gump, Strauss, Hauer & Feld, L.L.P.
590 Madison Avenue
New York, New York 10022
Attention: Edward D. Sopher
Fax: (212) 872-1002
If to the Sellers:
Jay Gartlan
c/o Retail Communications Corp.
350 Fifth Avenue
Suite 7920
New York, New York 10018
Fax: (212) 465-8135
with a copy to:
Dilworth Paxson LLP
457 Haddonfield Road
Suite 700
Cherry Hill, New Jersey 08002
Attention: Harold G. Cohen
Fax: (609) 663-8855
and to:
Sleepeck Printing Company
815 Twenty-Fifth Avenue
Bellwood, Illinois 60104
Attention: Vice President - Finance
Fax: (708) 544-8928
54
with a copy to:
Jenner & Block
One IBM Plaza
Chicago, Illinois 60611
Attention: Arthur Martin
Fax: (312) 527-0484
If to Michael Berman:
1346 Curtis Road
Southampton, Pennsylvania 18966
Attention: Michael Berman
Fax: (215) 953-5069
with a copy to:
Tenzer Greenblatt LLP
The Chrysler Building
405 Lexington Avenue
New York, New York 10174
Attention: Michael S. Mullman
Fax: (212) 885-5001
Section 11.11 Severability.
If any provision of this Agreement is invalid or
unenforceable, the balance of this Agreement shall remain in effect.
Section 11.12 Binding Effect; Assignment.
This Agreement shall be binding upon and inure to the benefit
of the parties and their respective successors and permitted assigns. Nothing in
this Agreement shall create or be deemed to create any third party beneficiary
rights in any person or entity not a party to this Agreement except as provided
below. No assignment of this Agreement or of any rights or obligations hereunder
may be made by either the Sellers or the Purchaser (by operation of law or
otherwise) without the prior written consent of the other parties hereto and any
attempted assignment without the required consents shall be void; provided,
however, that the Purchaser may assign this Agreement and any or all rights or
obligations hereunder (including, without limitation, the Purchaser's rights to
purchase the Shares and the Purchaser's rights to seek indemnification
hereunder) to any Affiliate of the Purchaser; provided, however, that any such
assignment to an Affiliate of the Purchaser shall not relieve the Purchaser of
its obligations hereunder or under any Purchaser Document. Upon any such
permitted assignment, the references in this Agreement to the Purchaser shall
also apply to any such assignee unless the context otherwise requires.
55
Section 11.13 Sellers' Representatives.
Jay Gartlan, Michael Berman and a designee of Sleepeck
Printing, acting by majority, or such other persons as shall succeed them
pursuant to this Section 11.13, are hereby designated as the representatives
(the "Sellers' Representatives") to act for and represent the Sellers with
respect to all matters arising out of Article X hereof and in those other
matters with respect to which this Agreement specifies that the Sellers'
Representatives shall so act, as well as matters which require notice to be
given to the Sellers under this Agreement.
Each Seller hereby fully authorizes and empowers each Sellers'
Representative to act for such Seller and for all other Sellers in the matters
to which authority is delegated to the Sellers' Representative in this Agreement
(the "Agreement Duties"), and agrees that each Sellers' Representative shall
have such authority in addition to what is expressly set forth herein as is
necessary to facilitate disposition of all such Agreement Duties and that
actions taken pursuant to that additional authority shall be comprehended within
the term Agreement Duties. Each Seller further agrees and acknowledges that in
acting as a Sellers' Representative, no Sellers' Representative assumes the
status of a fiduciary for the Sellers or any of them, but serves solely as a
volunteer for the convenience of all, and each Seller hereby agrees and assents
to, and waives any right to make any claim based upon, each and every real or
apparent conflict of interest each Sellers' Representative may have with respect
to such Agreement Duties. Each Seller agrees that each Sellers' Representative
shall be entitled to payment of all expenses they incur in discharging the
Agreement Duties, and reasonable compensation for their time spent in so acting,
from the Sellers in accordance with their Sharing Ratios or, if available, from
funds held pursuant to the Escrow Agreement, and that the Sellers'
Representatives shall have no liability to any Seller for any action or omission
to act in the discharge of the Agreement Duties, except in the event of the
Sellers' Representatives' gross negligence or willful misconduct. The Sellers
agree jointly and severally to indemnify and hold each Sellers' Representative
harmless from and against any claims made against them arising out of their
actions or failures to act in the discharge of the Agreement Duties and from and
against all costs and expenses, including attorneys' fees, incurred in
investigating, defending and resolving any such claim, except to the extent that
any such claims are determined to arise out of gross negligence or willful
misconduct.
Section 11.14Disclaimer of Certain Kinds of Damages.
Notwithstanding any other provision of this Agreement
(including those provisions which use and define the term "Loss"), no party
shall be liable to another, whether for breach of contract, warranty or
representation, for consequential damages, including loss of revenues, loss of
profits, down time, extra production or labor costs or increased overhead, and
no party shall be liable to another for punitive damages.
[SIGNATURE PAGES FOLLOW]
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IN WITNESS WHEREOF, the parties have caused this Agreement to
be executed as of the day first written above.
PURCHASER: AKI, INC.
By: /S/ WILLIAM FOX
---------------
Name:William Fox
Title: President
SELLERS: /S/ MICHAEL BERGMAN
--------------------
Michael Berman
/S/ PAUL PEARL
--------------
Paul Pearl
/S/ JAY GARTLAN
---------------
Jay Gartlan
/S/ STUART FLEISCHER
--------------------
Stuart Fleischer
SLEEPECK PRINTING COMPANY
By: /S/ MICHAEL W. SLEEPECK
-----------------------
Name: Michael W. Sleepeck
Title: President
RETAIL TCA CORPORATION
By: /S/ STUART FLEISCHER
--------------------
Name: Stuart Fleischer
Title: President
RETAIL TCB CORPORATION
By: /S/ PAUL PEARL
--------------
Name: Paul Pearl
Title: President
57