EXECUTION COPY
ASSET PURCHASE AGREEMENT
Dated as of November 3, 2000
by and among
VDI MULTIMEDIA,
as Purchaser
and
CREATIVE DIGITAL, INC. and LARRY HESTER,
as Sellers
ASSET PURCHASE AGREEMENT
THIS ASSET PURCHASE AGREEMENT (this "Agreement") is made and entered
into as of November 3, 2000, by and among VDI MultiMedia, a California
corporation ("Purchaser") on the one hand, and Creative Digital, Inc. a
California corporation (the "Company") and Larry Hester (the "Shareholder") on
the other hand (the Company and the Shareholder referred to herein each as a
"Seller" and collectively as "Sellers").
R E C I T A L S
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A. The Shareholder is the only record holder and beneficial owner of
the capital stock of the Company.
B. The Company is the owner of the Assets (as hereinafter defined).
C. Purchaser desires to purchase from the Company, and the Company
desires to sell, convey, transfer, assign and deliver to Purchaser, the assets
of the Company upon the terms and subject to the conditions of this Agreement.
A G R E E M E N T
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NOW, THEREFORE, in consideration of the foregoing and the provisions
set forth below, and subject to the terms and conditions set forth herein, the
parties agree as follows:
ARTICLE I
DEFINITIONS
As used in this Agreement, the following terms shall have the meanings
indicated below:
"ACCOUNTS RECEIVABLE" shall have the meaning set forth in Section 5.11.
"ACTION" shall mean any action, claim, suit, litigation, proceeding,
labor dispute, arbitral action, governmental audit, inquiry, criminal
prosecution, investigation or unfair labor practice charge or complaint.
"AFFILIATE" shall mean, in respect of any specified Person, any other
Person that, directly or indirectly, controls, is controlled by, or is under
common control with, such specified Person or if such specified Person bears a
familial relationship with such other Person.
"AFFILIATED PARTIES" shall have the meaning set forth in Section 11.2.
"AGREEMENT" shall have the meaning set forth in the Preamble.
"AGREEMENT NOT TO COMPETE" shall mean the covenants set forth in
Section 7.9.
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"ANCILLARY AGREEMENTS" shall mean the the Employment Agreement and the
Agreement Not to Compete, substantially in the forms attached hereto as Exhibits
A and B, respectively.
"ASSETS" shall mean all of the right, title and interest in and to all
of the business, properties, assets and rights of any kind, whether tangible or
intangible, real or personal, owned by the Company or in which the Company has
any interest, including without limitation all of the Company's right, title and
interest in the following:
(1) all accounts and notes receivable and contingent rights relating
thereto (whether current or noncurrent), cash-on-hand, refunds,
deposits, advances, all advance payments, prepaid expense items and
credits relating to the Business, prepayments or prepaid expenses and
all other receivables arising out of the Business;
(2) all Contract Rights;
(3) all Leases and Leasehold Estates and Personal Property Leases;
(4) all Leasehold Improvements;
(5) all Fixtures and Equipment;
(6) all Inventory;
(7) all Books and Records;
(8) all Proprietary Rights, including the name "Creative Digital"
and all derivations thereof;
(9) all Permits;
(10) all computers and software;
(11) all Insurance Policies and all rights to insurance proceeds
relating to the Assets and/or the Business;
(12) all supplies, sales literature, promotional literature,
customer, supplier and distributor lists, art work, display units,
telephone and fax numbers and purchasing records related to the
Business;
(13) all rights under or pursuant to all warranties, representations
and guarantees made by suppliers in connection with the Assets or
services furnished to the Company pertaining to the Business or
affecting the Assets;
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(14) all claims, causes of action, choses in action, rights of
recovery and rights of set-off of any kind related to the Assets or the
Assumed Liabilities, against any person or entity, including without
limitation any liens, security interests, pledges or other rights to
payment or to enforce payment in connection with products delivered by
the Company on or prior to the Closing Date except to the extent that
any of the foregoing relate to any of the Excluded Liabilities; and
(15) all of the Business as a going concern and the goodwill
pertaining thereto.
"AUDIT" shall have the meaning set forth in Section 3.1(a).
"AUDITED CLOSING BALANCE SHEET" shall have the meaning set forth in
Section 3.1(a).
"BALANCE SHEET" or "Balance Sheets" shall have the meaning set forth in
Section 5.7(a).
"BOOKS AND RECORDS" shall mean (a) all records, files and lists of the
Company (and the Shareholder, if any such records exist) pertaining to the
Assets, (b) all records and lists pertaining to the Business, customers,
suppliers, vendors, clients or personnel of the Company, (c) all product,
business and marketing plans of the Company, (d) all books, ledgers, files,
reports, plans, drawings, merchandise and sales promotion literature and
promotional and advertising materials, all catalogues, research material,
management information systems, software, technology and specifications and
operating records of every kind maintained by the Company and (e) true and
correct copies of the Company's minute books, stock books, books of account and
tax returns.
"BUSINESS" shall mean the business of the Company, including
pre-production and post-production services, post-production supervision, film
transfer services, visual effects supervision, mix and voice-over session
supervision, video and audio tape storage, post-production, duplication,
distribution, editing and ancillary services.
"BUSINESS DAY" means any day that is not a Saturday, a Sunday or other
day on which banks are required or authorized by law to be closed in the City of
Los Angeles.
"CLOSING" shall have the meaning set forth in Section 4.1.
"CLOSING DATE" shall mean (a) November 3, 2000 or (b) such other date
as Purchaser and the Sellers shall mutually agree upon.
"COBRA" shall have the meaning set forth in Section 5.16(e).
"CODE" shall mean the Internal Revenue Code of 1986, as amended.
"COMPANY" shall have the meaning set forth in the Preamble.
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"CONTRACT" shall mean, other than any Lease, any agreement, contract,
note, loan, evidence of indebtedness, purchase order, undertaking, obligation or
commitment to which the Company is a party or is bound and which relates to the
Business or the Assets, whether oral or written, including, without limitation,
purchase commitments for materials and other services, whether or not entered
into in the ordinary course of business, relating to the Business, any Company's
rights under any confidentiality agreements relating to the Business (if and to
the extent assignable), all unfilled sales orders, invoices, contracts and
commitments with customers relating to the Business, all unfilled purchase
orders, invoices, contracts and commitments with suppliers relating to the
Business.
"CONTRACT RIGHTS" shall mean all of the Company's rights and
obligations under the Contracts, excluding any such Contracts evidencing
Financing Obligations.
"COPYRIGHTS" shall mean registered copyrights, copyright applications
and unregistered copyrights.
"COURT ORDER" shall mean any judgment, decision, consent decree,
injunction, ruling or order of any federal, state or local court or governmental
agency, department or authority that is binding on any person or its property
under applicable law.
"DEFAULT" shall mean (a) a breach of or default under any Contract,
Lease or Permit, (b) the occurrence of an event that with the passage of time or
the giving of notice or both would constitute a breach of or default under any
Contract, Lease or Permit, or (c) the occurrence of an event that with or
without the passage of time or the giving of notice or both would give rise to a
right of termination, renegotiation or acceleration under any Contract, Lease or
Permit.
"DISCLOSURE SCHEDULE" shall mean a schedule executed and delivered by
the Company to Purchaser as of the date hereof which sets forth the exceptions
to the representations and warranties contained in Article V hereof and certain
other information called for by this Agreement. Unless otherwise specified, each
reference in this Agreement to any numbered schedule is a reference to that
numbered schedule which is included in the Disclosure Schedule.
"DISCONTINUED OPERATIONS" shall mean any businesses or operations
previously sold or otherwise disposed of by any of the Sellers and any ongoing
indemnification obligations in connection therewith.
"EARN-OUT"shall have the meaning set forth in Section 2.4(a)(iii).
"EMPLOYMENT AGREEMENT" shall mean the employment agreement between
Purchaser and Larry Hester dated the Closing Date and substantially in the form
of attached hereto as Exhibit A.
"ENCUMBRANCE" shall mean any claim, lien, pledge, option, charge,
easement, security interest, deed of trust, mortgage, right-of-way,
encroachment, building or use restriction, conditional sales agreement,
encumbrance or other right of third parties, whether voluntarily incurred or
arising by operation of law, and includes, without limitation, any agreement to
give any of the foregoing in the future, and any contingent sale or other title
retention agreement or lease in the nature thereof.
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"ENVIRONMENTAL LIABILITIES FOR PRE-CLOSING MATTERS" shall mean any and
all liabilities, damages, losses, costs and expenses arising from any
Pre-Closing Environmental Matters, including, without limitation, costs of
investigation, cleanup, removal, remedial, corrective or response action, the
costs associated with posting financial assurances for the completion of
investigation, cleanup, removal, remedial, corrective or response actions,
attorneys' fees, the preparation of any closure or other necessary or required
plans or analyses, or other necessary reports or analyses submitted to or
prepared for regulating agencies.
"ENVIRONMENTAL PROTECTION LAWS" shall mean all federal, state, local
and foreign laws, statutes, regulations having the force and effect of law,
permits, court decrees, judgments, injunctions and written orders concerning (i)
public health and safety relating to exposure of humans to toxic or hazardous
substances or otherwise relating to Regulated Substances or (ii) pollution or
protection of the environment or natural resources, including, without
limitation, the Comprehensive Environmental Response, Compensation, and
Liability Act ("CERCLA") (42 U.S.C.ss.9601 et seq.); the Hazardous Materials
Transportation Act (49 U.S.C.ss.1801 et seq.); the Resource Conservation and
Recovery Act ("RCRA") (42 U.S.C.ss.6901 et seq.); the Clean Water Act (33
U.S.C.ss.1251 et seq.); the Safe Drinking Water Act (14 U.S.C.ss.1401 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.), the Clean
Air Act (42 U.S.C.ss.7401 et seq.); the Emergency Planning and Community
Right-to-Know Act (42 U.S.C.ss.ss.11001-11005, 11021-11023, and 11041-11050);
the Porter-Cologne Water Quality Act (California Water
Codess.ss.13000-13999.19); the Hazardous Waste Control Law (California Health &
Safety Codess.ss.25100-25250.25); the Safe Drinking Water and Toxic Enforcement
Act (California Health & Safety Codess.ss.25249.5-25249.13); California Health &
Safety Code ss.ss.25280-25299.81 (regarding Underground Storage of Hazardous
Substances) andss.ss.25500-25545 (regarding Hazardous Materials Inventories and
Emergency Plans); the Hazardous Substance Account Act (California Health &
Safety Codess.ss.25300-25393); and California Health & Safety
Codess.ss.39000-44384 regarding Air Resources; in each case including the
regulations promulgated thereunder, including, without limitation, the
regulations promulgated by the South Coast Air Quality Management District; each
as supplemented or amended from time to time.
"EPA" shall mean the United States Environmental Protection Agency, or
any successor United States governmental agency.
"ERISA" shall mean the Employee Retirement Income Security Act of 1974,
as the same may be amended from time to time.
"ERISA AFFILIATE" shall mean with respect to any person (a) any
corporation that is a member of a controlled group of corporations, within the
meaning of Section 414(b) of the Code, of which that person is a member, (b) any
trade or business (whether or not incorporated) that is a member of a group of
trades or businesses under common control, within the meaning of Section 414(c)
of the Code, of which that person is a member, and (c) any member of an
affiliated service group, within the meaning of Section 414(m) and (o) of the
Code, of which that person or any entity described in clause (a) or (b) is a
member.
"ESTIMATED CLOSING BALANCE SHEET" shall have the meaning set forth in
Section 2.4.
"EXCLUDED LIABILITIES" shall have the meaning set forth in Section 2.3.
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"FACILITIES" shall mean all plants, offices, manufacturing facilities,
stores, warehouses, improvements, administration buildings, and all real
property and related facilities which are used or held for use in connection
with the Business.
"FINAL CLOSING BALANCE SHEET" shall have the meaning set forth in
Section 3.1(a)(4).
"FINANCIALS" shall have the meaning set forth in Section 5.7(a).
"FINANCING OBLIGATIONS" shall mean (a) indebtedness of any Seller for
borrowed money, (b) obligations of any Seller evidenced by bonds, notes,
debentures, letters of credit or similar instruments, (c) obligations under
capitalized leases, (d) obligations under conditional sale, title retention or
similar agreements or arrangements creating an obligation of any Seller with
respect to the deferred purchase price of property (other than customary trade
credit), (e) interest rate and currency obligation swaps, hedges and similar
arrangements and (f) all obligations of any Seller to guaranty any of the
foregoing types of obligations on behalf of others, in each case as related to
the Business.
"FIXTURES AND EQUIPMENT" shall mean all of the (i) all audiovisual,
audio and visual recordings and other materials produced by any technology,
manner or means relating to the Business, including, without limitation, prints,
negatives, duplicating negatives, fine grains, music and sound effects tracks,
master tapes and other duplicating materials of any kind, all various language
dubbed and titled versions, prints and negatives of stills, trailers and
television spots, all promos and other advertising and publicity materials,
stock footage, trims, tabs, outtakes, cells, drawings , (ii) all physical
properties relating to the Business, including, without limitation, all editing
and duplication equipment, in each case, including, without limitation, any of
the foregoing in the possession, custody or control of the Company, or in the
possession of its assigns, or any film laboratories, storage facilities or other
Persons, (iii) any and all revisionary rights the Company has to the master and
duplicate masters of any original negative or master tape or elements plus (iv)
furniture, fixtures, furnishings, machinery, automobiles, trucks, spare parts,
supplies, equipment, tooling, molds, patterns, dies and other tangible personal
property owned by the Company and used, held for use or useful in connection
with the Business, wherever located, and including any such Fixtures and
Equipment in the possession of the Company's suppliers, together with all
warranty rights with respect thereto.
"FORMER FACILITY" shall mean each plant, office, manufacturing
facility, store, warehouse, improvement, administrative building and all real
property and related facilities that were owned, leased or operated by the
Company at any time prior to the date hereof, but excluding any Facilities.
"GAAP" shall mean generally accepted accounting principles consistently
applied as in effect at the time in question.
"HOLDBACK STOCK" shall have the meaning set forth in Section 3.1(d).
"INDEMNIFIED PARTY" shall have the meaning set forth in Section 11.7.
"INDEMNIFYING PARTY" shall have the meaning set forth in Section 11.7.
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"INSURANCE POLICIES" shall mean the insurance policies related to the
Assets and/or the Business listed in Section 5.23 of the Disclosure Schedule.
"INTANGIBLE PERSONAL PROPERTY" shall have the meaning set forth in
Section 5.14(a).
"INVENTORY" shall have the meaning set forth in Section 5.18.
"IRS" shall mean the Internal Revenue Service.
"LEASE" shall have the meaning set forth in Section 5.12.
"LEASED PERSONAL PROPERTY" shall mean all leased property described in
the Personal Property Leases.
"LEASED REAL PROPERTY" shall mean all leased property described in the
Leases.
"LEASEHOLD ESTATES" shall mean all of the Company's rights and
obligations as lessee under the Leases.
"LEASEHOLD IMPROVEMENTS" shall mean all leasehold improvements situated
in or on the Leased Real Property and owned by any Seller.
"LIABILITIES" shall mean any liability of the Sellers, including,
without limitation, any direct or indirect liability, indebtedness, obligation,
commitment, expense, claim, deficiency, guaranty or endorsement of or by any
person of any type, whether accrued, absolute, contingent, matured, unmatured,
known, unknown or other, in each case as related to the Business.
"LICENSES" shall have the meaning set forth in Section 5.14(a).
"MATERIAL CONTRACTS" shall have the meaning set forth in Section 5.17.
"MULTI-EMPLOYER PLANS" shall have the meaning set forth in Section
5.15(a).
"NET WORKING CAPITAL" shall mean, as of a particular date, all current
assets of the Company, including without limitation its account and trade
receivables, inventory, cash and cash equivalents, deposits, prepaid expenses,
less its current (i.e., short-term) liabilities, in each case as determined in
accordance with GAAP.
"ORDINARY COURSE OF BUSINESS" or "ORDINARY COURSE" or any similar
phrase shall mean the ordinary course of the Business and consistent with the
Company's past practices.
"PATENTS" shall mean all patents and patent applications and registered
designs and registered design applications.
"PERMITS" shall mean all licenses, permits, franchises, approvals,
authorizations, consents or orders of, or filings with, any governmental
authority, whether foreign, federal, state or local, or any other person,
necessary or desirable for the past, present or anticipated conduct of, or
relating to the operation of, the Business.
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"PERSON" shall mean any natural person or any corporation, partnership,
joint venture, limited liability company or other entity.
"PERSONAL PROPERTY" shall have the meaning set forth in Section 5.27.
"PERSONAL PROPERTY LEASES" shall have the meaning set forth in Section
5.27.
"PLANS" shall have the meaning set forth in Section 5.16(a).
"PRE-CLOSING ENVIRONMENTAL MATTERS" shall mean (a) the production, use,
generation, storage, treatment, recycling, disposal or other handling or
disposition at any time on or prior to the Closing Date (collectively
"Handling") of any Regulated Substance, either in, on, under or from any
Facility or Former Facility, including, without limitation, the effects of such
Handling of Regulated Substances on resources, persons or property within or
outside the boundaries of any Facility or Former Facility, (b) any release of
Regulated Substances at any time on or prior to the Closing Date occurring in,
on or under any Facility or Former Facility regardless of how the Regulated
Substances came to rest in, on or under the Facility or Former Facility, (c) the
failure on or prior to the Closing Date of any Facility or Former Facility or
any operation of Sellers to be in compliance with any Environmental Laws, and
(d) any other act or omission occurring, or condition existing, with respect to
the Assets or the Business on or prior to the Closing Date which gives rise to
liability under any Environmental Protection Law.
"PROPRIETARY RIGHTS" shall mean all of the Company's Copyrights,
Patents, Trademarks, technology rights and licenses, computer software
(including without limitation any source or object codes therefor or
documentation relating thereto), trade secrets, franchises, know-how,
inventions, designs, specifications, plans, drawings and intellectual property
rights.
"PURCHASE PRICE" shall have the meaning set forth in Section 2.4(a).
"PURCHASE PRICE ADJUSTMENT" shall have the meaning set forth in
Sections 2.4(a).
"PURCHASER" shall have the meaning set forth in the Preamble.
"REAL PROPERTY" shall have the meaning set forth in Section 5.12.
"REGULATED SUBSTANCE" shall mean any chemical or substance subject to
or regulated under any Environmental Protection Law including, without
limitation, any "pollutant or contaminant" or "hazardous substance" as those
terms are defined in CERCLA, any "hazardous waste" as that term is defined in
RCRA, and any other hazardous or toxic wastes, substances, or materials,
petroleum (including crude oil and refined and unrefined fractions thereof),
polychlorinated biphenyls ("PCBs"), infectious waste, special waste, pesticides,
fungicides, solvents, herbicides, flammables, explosives, asbestos and asbestos
containing material, and radioactive materials, whether injurious by themselves
or in combination with other materials.
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"REGULATIONS" shall mean any laws, statutes, ordinances, regulations,
rules, notice requirements, court decisions and orders of any foreign, federal,
state or local government and any other governmental department or agency.
"RELEASE DOCUMENTS" shall have the meaning set forth in Section
4.2(a)(vi).
"REPRESENTATIVE" shall mean any officer, director, principal, attorney,
agent, employee or other representative.
"SUBSIDIARY" shall mean (a) with respect to the Company, any
corporation, association or other business entity of which more than fifty
percent (50%) of the total voting power of shares of stock (or equivalent
ownership or controlling interest) entitled (without regard to the occurrence of
any contingency) to vote in the election of directors, managers or trustees
thereof is at the time owned or controlled, directly or indirectly, by the
Company or one or more of the other Subsidiaries of that Person or a combination
thereof, (b) any partnership in which any Seller is a general partner and any
limited liability company in which any Seller is the managing member, or (c) any
partnership or limited liability company in which any Seller possesses a 50% or
greater interest in the total capital or total income of such partnership or
limited liability company.
"TAX" OR "TAXES" shall mean any and all taxes imposed or required to be
collected by any federal, state or local taxing authority in the United States,
or by any foreign taxing authority under any statute or regulation, including,
without limitation, all income, gross receipts, sales, use, personal property,
use and occupancy, business occupation, mercantile, ad valorem, transfer,
license, withholding, payroll, employment, excise, real estate, environmental,
capital stock, franchise, alternative or add-on minimum, estimated or other tax
of any kind whatsoever, including any interest, penalties and other additions
thereto.
"TRADEMARKS" shall mean registered trademarks, registered service
marks, trademark and service mark applications and unregistered trademarks and
service marks.
"TRANSACTIONS" shall mean, in respect of any party, all transactions
contemplated by this Agreement that involve, relate to or affect such party.
"TRANSFERRED EMPLOYEES" shall have the meaning set forth in Section 7.6(a).
"UNITED STATES GOVERNMENT" shall mean the government of the United
States, including any agencies, commissions, branches, instrumentalities and
departments thereof.
ARTICLE II
PURCHASE AND SALE OF ASSETS
Section .1 TRANSFER OF ASSETS. Upon the terms and subject to the
conditions contained herein, at the Closing, the Company shall sell, convey,
transfer, assign and deliver to Purchaser, and Purchaser shall acquire from the
Company, the Assets (including, without limitation, those assets of the Company
listed on Schedule 2.1 hereto), free and clear of all Encumbrances.
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Section .2 ASSUMPTION OF LIABILITIES. Upon the terms and subject to
the conditions contained herein, at the Closing, Purchaser shall assume the
liabilities which are listed on Schedule 2.2 attached hereto (collectively,
"Assumed Liabilities").
Section .3 EXCLUDED LIABILITIES. Notwithstanding any other provision
of this Agreement, except for the Assumed Liabilities expressly specified in
Section 2.2, Purchaser shall not assume, or otherwise be responsible for, any
Liabilities of the Company or any Seller, whether liquidated or unliquidated, or
known or unknown, whether arising out of occurrences prior to, at or after the
date hereof (the "Excluded Liabilities"), which Excluded Liabilities include,
without limitation, the following:
(a) any Liability to or in respect of any employees or former
employees of the Company including without limitation (i) any employment
agreement, whether or not written, between the Company and any person, (ii) any
Liability under any Employee Benefit Plan at any time maintained, contributed to
or required to be contributed to by or with respect to the Company or under
which the Company may incur Liability, or any contributions, benefits or
Liabilities therefor, or any Liability with respect to the Company's withdrawal
or partial withdrawal from or termination of any Employee Benefit Plan, (iii)
any claim of an unfair labor practice, or any claim under any state unemployment
compensation or worker's compensation law or regulation or under any federal or
state employment discrimination law or regulation, which shall have been
asserted on or prior to the Closing Date or is based on acts or omissions which
occurred on or prior to the Closing Date and (iv) any liabilities or obligations
under the Worker Adjustment and Retraining Notification Act of 1988, as amended,
including the rules and regulations promulgated thereunder;
(b) any Liability of the Company in respect of (i) any income tax or
any interest, penalties or additions pertaining thereto, (ii) any other Tax
relating to any period or portion thereof prior to the Closing Date;
(c) any warranty claims and any Liability arising from any injury to
any person or damage to or destruction of any property, whether based on
negligence, breach of warranty, express or implied representation, strict
liability, enterprise liability or any other legal or equitable theory arising
from defects in products manufactured or from services performed by or on behalf
of the Company or any other person or entity on or prior to the Closing Date;
(d) any Liability of any Seller arising out of or related to any
Action against any Seller or any Action which adversely affects the Assets and
which shall have been asserted on or prior to the Closing Date or the basis of
which shall have arisen on or prior to the Closing Date;
(e) any Liability of any Seller resulting from entering into,
performing its obligations pursuant to or consummating the transactions
contemplated by, this Agreement (including without limitation any Liability of
any Seller for fees or expenses incurred in connection with such transactions
and any Liability of any Seller pursuant to Article XI hereof);
(f) any Liability related to any Former Facility or any of the
Discontinued Operations;
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(g) any Financing Obligation
(h) any Environmental Liabilities for Pre-Closing Environmental
Matters, whether or not disclosed in the Disclosure Schedule;
(i) any Liability of any Seller for fees or expenses incurred by
Sellers in connection with the consummation of the transaction contemplated by
this Agreement;
(j) any Liability of any Seller not directly related or incurred with
respect to the conduct of the Business;
(k) except to the extent provided for herein, any indebtedness for
borrowed money;
(l) any amounts payable to any Affiliate of any Seller;
(m) any cash overdraft liability; and
(n) any liabilities accruing prior to the Closing Date.
Section .4 PURCHASE PRICE.
(a) PURCHASE PRICE. The purchase price for the Assets and Agreement
Not to Compete (as adjusted as set forth below, the "Purchase Price") shall
consist of:
(i) Five Hundred Thousand Dollars ($500,000), as increased or
decreased pursuant to Section 3.1(c) (the "Cash Payment") (such net adjustments
are referred to herein collectively as the "Purchase Price Adjustment"), which
shall be paid in cash at the Closing;
(ii) the assumption of the Assumed Liabilities;
(iii) Three Hundred Fifty Thousand Dollars ($350,000) worth of
the Purchaser's Common Stock (the actual number of shares to be issued based on
the closing price of a share of such common stock on the Closing Date), less Two
Hundred Thousand Dollars ($200,000) worth of the Purchaser's Common Stock (the
"Holdback Stock");
(iv) if earned the Earn-Out Payments, subject to conditions set
forth in Section 3.2.
(a) ALLOCATION OF PURCHASE PRICE. Purchaser shall prepare IRS Form
8594 allocating the Purchase Price in accordance with Section 1060 of the Code
and shall forward it within 120 days after the Closing to the Company for its
approval, which approval shall not be unreasonably withheld. The parties agree
that Two Hundred Thousand Dollars ($200,000) of the aggregate Purchase Price
will be allocable to the Agreement Not to Compete. Purchaser and the Company
shall each file with their respective federal income tax return for the tax year
in which the Closing occurs, IRS Form 8594 containing the information agreed
upon by the parties pursuant to the immediately preceding sentence. Purchaser
agrees to report the purchase of the Assets, and Sellers agree to report the
sale of such Assets for income tax purposes (including but not limited to, on
their respective income tax returns, before any governmental agency charged with
the collection of income tax or in any judicial proceeding concerning the income
tax consequences of Purchaser's purchase or Sellers' sale of the Assets
hereunder) in a manner consistent with the information agreed upon by the
parties pursuant to this Section 2.4(b) and contained in its IRS Form 8594.
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Section .1 CLOSING COSTS; TRANSFER TAXES AND FEES. The Company and the
Shareholder shall be responsible for any documentary and transfer taxes and any
sales, use or other taxes imposed by reason of the transfer of Assets provided
hereunder and any deficiency, interest or penalty asserted with respect thereto.
The Purchaser and the Company shall each pay fifty percent (50%)of the fees and
costs of recording or filing all applicable conveyancing instruments described
in Section 4.2(a).
ARTICLE I
PURCHASE PRICE ADJUSTMENTS AND EARN-OUT
Section .1 PURCHASE PRICE ADJUSTMENTS.
(a) AUDITED CLOSING BALANCE SHEET.
(2) Within sixty (60) days after Closing, Purchaser shall
conduct a financial audit of the Company (the "Audit") and shall prepare and
deliver to the Company an audited balance sheet of the Company as of the Closing
Date (the "Audited Closing Balance Sheet"), which shall set forth the Net
Working Capital and liabilities of the Company as of such date, and the amount
of the Purchase Price Adjustment. In the event that the transactions
contemplated by this Agreement are not consummated, Purchaser agrees to return
all original documents to the Company at the end of the Audit and to otherwise
comply with the terms and provisions of that certain confidentiality agreement
executed by the Company and Purchaser.
(3) Following delivery of the Audited Closing Balance Sheet to
the Company, the Company shall have a period of thirty (30) days to present in
writing to Purchaser any objections or disagreement with respect to the
calculation of the Purchase Price Adjustment. Such notice shall specify, in
reasonable detail, the nature and extent of such disagreement.
(4) If the Company and Purchaser are unable to resolve any such
disagreement with respect to the calculation of the Purchase Price Adjustment
within ten (10) days after delivery by the Company of the notice referred to in
Section 3.l(a)(2), the disagreement shall be submitted for final determination
to a "Big Five" accounting firm mutually acceptable to the Company and Purchaser
(the "Independent Accounting Firm"). The Independent Accounting Firm shall
follow such procedures as it deems appropriate for obtaining the necessary
information in considering the positions of the Company and Purchaser but shall
not conduct an independent audit. No party may conduct discovery in connection
with the foregoing. The Independent Accounting Firm shall render its
determination on the matter within thirty (30) days of its submission by the
Company and Purchaser, and such determination shall be final, conclusive and
binding upon Purchaser and Sellers. The closing balance sheet of the Company
finally agreed upon by the parties shall be the Final Closing Balance Sheet (the
"Final Closing Balance Sheet").
(5) The fees and expenses of the Independent Accounting Firm
shall be borne by the party whose asserted Purchase Price Adjustment is more at
variance from the actual Purchase Price Adjustment ultimately determined by the
Independent Accounting Firm.
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(a) ESTIMATED CLOSING BALANCE SHEET. The Company shall prepare a
balance sheet as of the Closing Date (the "Estimated Closing Balance Sheet")
which shall set forth, among other things, the current assets, current
liabilities and outstanding long term debt of the Company in accordance with
GAAP. The Estimated Closing Balance Sheet shall be prepared in a manner
consistent with the presentation of the Company's August 24, 2000 Balance Sheet
attached hereto.
(b) PURCHASE PRICE ADJUSTMENT. The Purchase Price shall be (i)
increased or decreased on a dollar-for-dollar basis by the amount by which Net
Working Capital reflected on the Final Closing Balance Sheet exceeds, or is less
than, respectively, the Net Working Capital reflected on the Estimated Closing
Balance Sheet, and (ii) increased or decreased on a dollar-for-dollar basis by
the amount by which the liabilities paid or assumed by Purchaser is less than,
or exceeds, respectively, the liabilities reflected on the Estimated Closing
Balance Sheet. If the Purchase Price Adjustment requires a payment to the
Company, Purchaser shall make such payment in cash. If the Purchase Price
Adjustment requires a payment to Purchaser, Purchaser shall be entitled to
deduct such payment from the Holdback Stock, or, if such funds are insufficient,
the Company or the Shareholder shall make such payment to Purchaser in cash
(including by way of set-off). In addition to the preceding, the Purchase Price
shall be decreased (on a dollar for dollar basis against the Holdback Stock
otherwise distributable to the Company) by the amount, if any, by which the
Company's Earnings (defined below) for the year ending December 31, 2000 are
less than $250,000.
(c) HOLDBACK STOCK. In order to secure (but not to limit) the
Company's payment obligations regarding any Purchase Price Adjustment and
Sellers' indemnity obligations in this Agreement, Purchaser shall issue into
escrow (but not deliver) the Holdback Stock. Purchaser shall deliver
certificates representing the Holdback Stock, less an amount of shares equal in
value (expressed in Closing Date, i.e, November 3, 2000, closing prices) to any
ultimately determined Purchase Price Adjustments or indemnity claims asserted by
Purchaser, if any, to the Company on the date one year from the Closing Date,
unless a dispute then exists in which case Purchaser shall continue to hold the
Holdback Stock until the dispute is resolved.
Section .1 EARN-OUT.
(a) Purchaser shall calculate the revenue and the Earnings (as defined
herein) of the Business for each year during the Earn-Out Period. Provided that
the Business achieves the minimum revenue target for a particular year (as set
forth on Schedule 3.2 hereto), if the Earnings for such period is equal to or
greater than the "Earnings Target" for such year as set forth on Schedule 3.2
hereto, then Purchaser shall pay the Company one dollar for each dollar by which
Earnings exceed the Earnings Target for the first $200,000 in excess and $.50
for each dollar thereafter. If the Earnings for a particular year during the
Earn-Out Period is less than the corresponding Earnings Target set forth on
Schedule 3.2 or if the minimum revenue target is not achieved, Purchaser shall
have no obligation to make the Earn-Out Payment in respect of such year. In no
event shall the Earn-Out Payments, before giving effect to any deductions or
offsets provided for herein, be greater than $3,000,000 in the aggregate
pursuant to this Section 3.2. "Earnings" shall mean the net income of the
Business before income taxes (i.e., revenues (net of any allowances, discounts
and intra-company sales), less expenses, commissions, depreciation and interest
attributable to the Business, as determined in accordance with GAAP. Purchaser
shall operate the Business in a manner in which the Earnings can reasonably be
determined and (subject to the discretion of its Board of Directors) spend at
least $10,000 per year during the Earn-Out Period on capital expenditures for
the Business. Purchaser shall maintain accurate books, records and documents
reasonably necessary for the calculation of the Earnings. Representatives of the
Company shall, upon reasonable request delivered to the Chief Financial Officer
of Purchaser in writing, have reasonable access during normal business hours to
inspect such books and records at its cost. Purchaser shall provide the Company
with updates regarding the Earnings of the Business on a quarterly basis, such
reports to be provided within thirty (30) days after the end of each quarter in
the Earn-Out Period.
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(b) Purchaser shall pay to the Company the applicable Earn-Out
Payment, if earned, within forty-five (45) business days after the last day of
the last month of each year during the Earn-Out Period. If Purchaser shall
determine, after consultation with its independent auditors, that the Earnings
Target in respect of a particular year was not achieved, it shall so notify the
Company prior to the date on which an Earn-Out Payment would have otherwise been
due, and include in such notification its calculation of the Earnings. The
Company shall have a period of forty-five (45) days thereafter to present in
writing to Purchaser any objections or disagreement with respect to the
calculation of Earnings. Such notice shall specify, in reasonable detail, the
nature and extent of such disagreement.
(c) If the Company and Purchaser are unable to resolve any such
disagreement with respect to the calculation of the Earnings within ten (10)
days after delivery by the Company of the notice referred to above, the
disagreement shall be submitted for final determination of the Independent
Accounting Firm. The Independent Accounting Firm shall follow such procedures as
it deems appropriate for obtaining the necessary information in considering the
positions of the Company and Purchaser but shall not conduct an independent
audit nor any discovery. The Independent Accounting Firm shall render its
determination on the matter within 30 days of its submission by the Company and
Purchaser, and such determination shall be final, conclusive and binding upon
Purchaser and the Company.
(d) The fees and expenses of the Independent Accounting Firm shall be
borne by the party whose asserted Earnings calculation is more at variance from
the actual Earnings ultimately determined by the Independent Accounting Firm.
ARTICLE I
CLOSING
Section .1 CLOSING. The Closing of the transactions contemplated
herein (the "Closing") shall be held at 8:30 a.m. local time on the Closing Date
at the offices of Katten Muchin Zavis, 1999 Avenue of the Stars, Los Angeles,
California, unless the parties hereto otherwise agree.
Section .1 CONVEYANCES AT CLOSING.
(a) COMPANY DELIVERIES. To effect the sale of the Assets, in addition
to the conditions set forth in Article VIII, the Company shall, at the Closing,
execute and deliver to Purchaser:
(2) a bill of sale in substantially the form attached hereto as
Exhibit C;
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(3) Assignment of Real Property Lease, in the form attached
hereto as Exhibit D;
(4) Assignment of Personal Property Lease, in the form attached
hereto as Exhibit E;
(5) Assignments of the Company's rights, title and interest to
the name "Creative Digital" and all variations thereof);
(6) the Ancillary Agreements;
(7) the Shareholder Release in the form of Exhibit F;
(8) Releases of any Encumbrances on the Assets (the "Release
Documents"); and
(9) such other instruments as shall be requested by Purchaser to
vest in Purchaser title in and to the Assets in accordance with the provisions
hereof.
(a) PURCHASER DELIVERIES. To effect the sale of the Assets and
assumption of the Assumed Liabilities referred to in Article II hereof, in
addition to the conditions set forth in Article IX herein, Purchaser shall at
the Closing deliver to Sellers (i) the Cash Payment; (ii) an instrument or
instruments of assumption substantially in the form attached as Exhibit G,
evidencing Purchaser's assumption, pursuant to Section 2.2, of the Assumed
Liabilities (the "Assumption Document"); (iii) a certified, irrevocable letter
of instruction to the Company's transfer agent to immediately issue and deliver
a legended certificate representing the Common Stock portion of the Purchase
Price (less the Holdback Stock) to the Company and (iv) the Ancillary
Agreements.
(b) FORM OF INSTRUMENTS. To the extent that a form of any document to
be delivered hereunder is not attached as an exhibit hereto, such documents
shall be in form and substance, and shall be executed and delivered in a manner,
satisfactory to Purchaser and the Company.
(c) CERTIFICATES; OPINIONS. On the Closing Date, Purchaser and Sellers
shall deliver the certificates, opinions of counsel and other matters described
in Articles VIII and IX.
(d) CONSENTS. Sellers shall deliver all Permits that are transferrable
and any other third party consents required for the valid transfer of the Assets
as contemplated by this Agreement, including the consents specified on Schedule
5.4.
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ARTICLE I
REPRESENTATIONS AND WARRANTIES OF SELLERS
The Company and the Shareholder, jointly and severally, hereby
represent and warrant to Purchaser that:
Section .1 ORGANIZATION AND GOOD STANDING. The Company is a
corporation, duly organized, validly existing and in good standing under the
laws of the jurisdiction of California, and the Company is duly qualified or
authorized to do business in each jurisdiction in which it does business, or
owns property, or where such qualification or authorization is otherwise
required by virtue of its presence or activities. Schedule 5.l sets forth a
complete and correct list of all jurisdictions in which the Company does
business or is otherwise required to be qualified or authorized to transact
business or own property. The Shareholder is the only record holder and
beneficial owner of the capital stock of the Company.
Section .1 ASSETS. Excluding the Leased Real Property and the Leased
Personal Property, the Company owns, and will transfer good and marketable title
to, the Assets and upon the consummation of the transactions contemplated
hereby, Purchaser will acquire good and marketable title to all of the Assets,
free and clear of any Encumbrances. The Assets include without limitation all
assets used in the conduct of the Business or located at the Facilities.
Schedule 2.1 contains accurate lists and summary descriptions of all tangible
Assets. All tangible assets and properties which are part of the Assets are in
good operating condition and repair and are usable in the ordinary course of
business and conform in all material respects to all applicable Regulations
(including Environmental Laws) relating to their construction, use and operation
(it being understood by Purchaser that the Equipment is no longer under warranty
from the original manufacturer.)
Section .2 LICENSES AND PERMITS. The Company is duly licensed, with
all requisite permits and qualifications, as required by applicable law for the
purpose of conducting its business or owning its properties or both, in each
jurisdiction in which it does business or owns property or in which such
license, permit or qualification is otherwise required and where the failure to
have such license, permit or qualification would have a material adverse effect
on the assets, liabilities (whether absolute, accrued contingent or otherwise),
condition (financial or otherwise), results of operations, prospects or business
of the Company. The Company is in compliance with all such licenses, permits and
qualifications. Schedule 5.3 sets forth a list of all such licenses, permits and
qualifications, and the expiration dates thereof. There are no proceedings
pending or, to the best of Sellers' knowledge, threatened, to revoke or
terminate any such presently existing license, permit or qualification, and each
such presently existing license, permit or qualification can be renewed in the
ordinary course of business.
Section .3 NO BREACH. Neither the execution and delivery of this
Agreement nor the consummation of the Transactions will (A) violate, result in a
breach of any of the terms or provisions of, constitute a default (or any event
that, with the giving of notice or the passage of time or both, would constitute
a default) under, result in the acceleration of any indebtedness under or
performance required by, result in any right of termination of, increase any
amounts payable under, decrease any amounts receivable under, change any other
rights pursuant to, or conflict with, any provision of the Company's articles of
incorporation or bylaws, any agreement, indenture or other instrument to which
any of the Sellers is a party or by which any of its properties are bound, or
any judgment, decree, order or award of any court, governmental body or
arbitrator (domestic or foreign) applicable to any of the Sellers, or (B)
require the Company to obtain any authorization, consent, approval or waiver
from, or make any filing with, any Person, court or public body or authority,
except such consents as are set forth on Schedule 5.4.
16
Section .4 AUTHORITY. The Company has the right to sell, convey,
transfer, assign and deliver the Assets to Purchaser hereunder. This Agreement
and all agreements and instruments herein contemplated to be executed by any
Seller have been duly authorized, executed and delivered by each such Seller and
constitutes the valid and binding obligation of each Seller, enforceable in
accordance with its terms. There exist no options, warrants, equity securities,
calls, rights, preemptive rights, commitments or agreements of any character to
which the Company is a party or by which it is bound obligating the Company to
issue, deliver or sell, or cause to be issued, delivered or sold, additional
shares of capital stock of the Company obligating the Company to call, right,
commitment or agreement. There are no voting trusts, proxies or other agreements
or understandings with respect to the shares of capital stock of the Company.
Section .5 SUBSIDIARIES. The Company has no equity interest in any
corporation, partnership, limited liability company or similar entity.
Section .6 FINANCIAL STATEMENTS.
(a) The balance sheets of the Company, at _____________, ___________,
and ___________ (individually, a "Balance Sheet" and collectively, the "Balance
Sheets") and the statements of operations and retained earnings and the
statements of cash flows of the Company for each of the 12 month periods then
ended and notes thereto (collectively, the "Financials"), true and correct
copies of which are attached hereto as Schedule 5.7(a), (i) have been prepared
from the books and records of the Company in accordance with GAAP consistently
applied with prior periods, and (ii) are complete and correct and fairly present
the financial condition and results of operations of the Company as of the dates
and for the periods indicated thereon. The statements of operations included in
the Financials do not contain any items of extraordinary income or any other
income not earned in the ordinary course of business.
(b) The unaudited balance sheet as of August 24, 2000 (the "August 24,
2000 Balance Sheet"), and the related statements of operations and retained
earnings and statements of cash flows and notes thereto (collectively, the
"August Financials"), true and correct copies of which are attached hereto as
Schedule 5.7(b), (i) have been prepared from the books and records of the
Company in accordance with GAAP consistently applied with prior periods, and
(ii) are complete and correct and fairly present the financial condition and
results of operations of the Company as of the dates and for the periods
indicated thereon.
(c) The Financials have been reviewed by the independent accounting
firm of R.A. Bianchi & Associates whose reports thereon are part of Schedule
5.7. The books of accounts of the Company have been maintained in all material
respects in accordance with sound business practices, and there have been no
transactions involving the Company that properly should have been set forth
therein in accordance with generally accepted accounting principles that have
not been accurately so set forth.
17
Section .7 ABSENCE OF CERTAIN CHANGES. Since August 1, 2000, there has
not occurred:
(a) Any adverse change in the assets, liabilities (whether absolute,
accrued, contingent or otherwise), condition (financial or otherwise), results
of operations, prospects or business of the Company not reflected in the August
2000 Balance Sheet and that has resulted in or reasonably could result in a loss
to the Company;
(b) Any increase in indebtedness over the level reflected on the
August 2000 Balance Sheet, any guarantee by any of the Sellers of any
obligation, or any mortgage, pledge or encumbrance on any of the properties or
assets of the Company;
(c) Any amendment or modification of any Material Contract (as defined
below), or any termination of any agreement that would have been a Material
Contract were such agreement in existence on the date hereof;
(d) Any entering into of any written or oral agreements, contracts,
commitments or transactions that extend beyond the first anniversary hereof or
have obligations thereunder in excess of $1,000, including any purchase or sale
of any assets.
(e) Any increase in the compensation (including, without limitation,
the rate of commissions) payable to, or any payment of a cash bonus to, any
employee or agent of, or consultant to, the Company;
(f) Any alteration in the manner of keeping the books, accounts or
records of the Company, or in the accounting practices therein reflected;
(g) Any declaration or payment of any dividends or distributions by
the Company, any acquisition or redemption by the Company of any of its equity
securities or any loan by any Seller to any other Seller;
(h) Any loss or threatened loss of a customer or customers to which
the Company had annual sales in excess of $20,000 during the past two years or
to which Sellers expects the Company to have annual sales in excess of $50,000
during calendar years 2000-2001;
(i) Any material damage or destruction to, or loss of, any assets or
property owned, leased or used by the Company (whether or not covered by
insurance); or
(k) Any agreement to do any of the things described in the preceding
clauses (a) - (h) of this Section 5.8.
Section .8 PROJECTIONS. The projected financial statements of the
Company attached hereto as Schedule 5.9 set forth the best estimates by the
Company of the financial positions and results of operations of the Company at
the dates and for the periods set forth therein and neither the Company nor any
Seller knows of any reason that any of the assumptions upon which such projected
consolidated financial statements are based is not reasonable.
18
Section .9 ABSENCE OF UNDISCLOSED LIABILITIES. There are no
liabilities of the Company whether absolute, accrued, contingent or otherwise,
and whether due or to become due, not reflected on or reserved for on the
Estimated Closing Balance Sheet, except as set forth in Schedule 5.10 and except
for executory obligations under Material Contracts (as defined below) and
immaterial contracts for the purchase of supplies or the sale of products
incurred in the ordinary course of business. There are no commitments, contracts
or undertakings covering the purchases of items of inventory in excess of the
Company's normal operating requirements or covering the purchases of items of
machinery and equipment in excess of the requirements of the Company. The
Company is not a party to, nor bound by, nor has bid upon any contract or
agreement that is adverse to the assets, condition (financial or otherwise),
business or prospects of the Company, that will require future expenditures
(including incurred costs and allocated overhead and selling, general and
administrative expense) in excess of reasonably anticipated receipts by more
than $10,000 in the aggregate, or on which the Company expects to lose in excess
of $10,000 in the aggregate.
Section .10 ACCOUNTS RECEIVABLE. Schedule 5.11 is an accurate aging of
the accounts, notes and other receivables of the Company (the "Accounts
Receivable") at the Closing Date. The Accounts Receivable as of such date and
any Accounts Receivable arising since such date are fully collectible, net of
the reserves set forth in the Estimated Closing Balance Sheet, all of which
reserves are adequate and in accordance with GAAP.
Section .11 REAL PROPERTY; REAL PROPERTY LEASES. Schedule 5.12(a) sets
forth a complete and correct summary description of each parcel of real property
(collectively, the "Real Property") leased to the Company or otherwise used by
the Company in connection with the Business, which description consists of a
legal description for each such parcel owned by the Company and an
identification of each lease (a "Lease") of real property under which the
Company is either a lessee, sublessee, lessor or sublessor. Except as set forth
in Schedule 5.12(a):
(a) The Company does not own any Real Property;
(b) Each Lease is a valid and binding obligation of the Company, and
each such Lease is a valid and binding obligation of each of the other parties
thereto;
(c) None of the Company nor any other party to a Lease is in default
with respect to any material term or condition thereof, and no event has
occurred that, with the passage of time or the giving of notice or both, would
constitute a default thereunder or would cause the acceleration of any
obligation of any party thereto or the creation of a lien or encumbrance upon
any asset of any of the Company;
(d) All of the buildings, fixtures and other improvements located on
the Real Property are in good operating condition and repair, and to the best of
the Company's knowledge the operation thereof as presently conducted does not
violate any applicable code, zoning ordinance or other applicable law or
regulation;
19
(e) The Company holds valid and effective certificates of occupancy,
underwriters' certificates relating to electrical work, zoning, building,
housing, safety, fire and health approvals and all other permits and licenses
required by applicable law relating to the operation of the Real Property; and
(f) The Company has not experienced during the two years preceding the
date hereof any material interruption in the delivery of adequate quantities of
any utilities (including, without limitation, electricity, natural gas, potable
water, and fuel oil) or other public services (including, without limitation,
sanitary and industrial sewer service) required by it in the operation of its
business during such period.
Section .12 ENVIRONMENTAL MATTERS. Except as set forth in Schedule
5.13:
(a) To the best of its knowledge, the Company is, and at all times has
been, in full compliance with all Environmental Protection Laws;
(b) The Company has obtained or has timely applied for all permits,
licenses and other authorizations under Environmental Protection Laws which are
required in connection with its business and operations, all of which are in
full force and effect. The Company is in material compliance with all terms and
conditions of such permits, licenses and authorizations, no action or proceeding
which reasonably could be expected to result in the revocation or suspension of
any such permits, licenses and authorizations is pending or threatened, and the
Company has not engaged in any conduct which reasonably could be expected to
cause revocation or suspension of any of its permits, licenses or authorizations
under Environmental Protection Laws;
(c) During the period of the Company's ownership, lease, occupation
and operation of the Real Property or any other property previously owned,
leased, occupied or operated by the Company, no portion of the Real Property or
such other property (i) has been or is being used in any manner for the storage,
disposal, or treatment of any Regulated Substance, except for the temporary
storage of Regulated Substances in material compliance with Environmental
Protection Laws; (ii) contained or contains underground tanks of any type, or
any materials containing PCBs or any asbestos; or (iii) contained or contains
any surface or sub-surface conditions that constitute, or that through the
physical effects of the passage of time may constitute, a public or private
nuisance or otherwise caused any liability under Environmental Protection Laws;
(d) There is not now nor has there been any contamination of soil,
groundwater or other environmental media by or with any Regulated Substance on,
in, under or about the Real Property or any other property previously owned,
leased, occupied or operated by any of the Sellers which could create liability
under the Environmental Protection Laws;
(e) Except for air emissions in material compliance with Environmental
Protection Laws, during the period of the Company's ownership, lease, occupation
and operation of the Real Property or any other property previously owned,
leased, occupied or operated by the Company, there has been no spill, discharge,
disposal, leak, emission, injection, escape, dumping or release of any Regulated
Substance on, in, under or about the Real Property or such other property by the
Company or for which the Company has any liability;
20
(f) No portion of the Real Property or any other property previously
owned, leased, occupied or operated by the Company has been designated, listed,
or identified in any manner by the EPA, or any other federal, state, local or
other governmental agency or instrumentality, or under and pursuant to any
Environmental Protection Law as a hazardous waste or hazardous substance
disposal or removal site, Superfund or clean-up site, or candidate for clean-up,
investigation, removal or closure pursuant to any Environmental Protection Law;
(g) None of the Sellers has received at any time prior to the date
hereof a summons, citation, notice, directive, letter or other communication,
written or oral, from the EPA or any other federal, state, local or other
governmental agency or instrumentality, authorized pursuant to an Environmental
Protection Law, concerning any intentional or unintentional action or omission
(except any pertaining to emissions of fugitive dust and other non-hazardous
particulates that are routinely corrected) by any of the Sellers constituting a
violation or potential violation of any Environmental Protection Law, including,
without limitation, violations relating to the releasing, spilling, leaking,
pumping, pouring, emitting, emptying, dumping or otherwise disposing of any
Regulated Substance into the environment resulting in damage thereto or to the
wildlife, biota and other natural resources, and there exist no facts that would
form the basis for a finding of such a violation; and
(h) None of the Sellers has received at any time prior to the date
hereof any summons, citation, notice, directive, letter or other communication,
written or oral, of any potential claim or liability under any Environmental
Protection Law, including, without limitation, any notification as a potentially
responsible party with respect to any Superfund or other clean-up site. There
are no events, conditions, circumstances, activities, practices, incidents,
actions or plans at or concerning the Real Property or the operations of any of
the Sellers which may (i) interfere with or prevent continued compliance by any
of the Sellers with any Environmental Protection Law, (ii) give rise to any
claim or liability under any Environmental Protection Law, or (iii) form the
basis for any claim, action, suit, proceeding, hearing or investigation under
any Environmental Protection Law.
(i) Except as set forth on Schedule 5.13(i), no Seller has received
any notice from a governmental authority or otherwise of any health problem of
any current or former employee which in any way is or is alleged to be related
to the operation of the Business.
Section .13 INTANGIBLE PERSONAL PROPERTY. Except as set forth on
Schedule 5.14:
(a) There are no (i) patent, patent applications, copyright, copyright
applications, trademark, trademark applications (in any such case, whether
registered or required to be registered in the United States of America or
elsewhere), process, invention, trade secret, trade name, computer program,
formula and customer list (collectively, the "Intangible Personal Property") of
Sellers related to, or necessary to continue the operation of, the Business, or
(ii) licenses or similar agreements or arrangements ("Licenses") to which any of
the Sellers is a party either as licensee or licensor for each such item of
Intangible Personal Property.
21
(b) There are no pending actions or other judicial or adversary
proceedings involving the Company concerning any item of Intangible Personal
Property, and, no such action or proceeding is threatened and no claim or other
demand has been made or threatened by any Person relating to any item of
Intangible Personal Property;
(c) The Company has the right and authority to use each item of
Intangible Personal Property in connection with the conduct of its business in
the manner presently conducted and to convey such right and authority, and such
use does not conflict with, infringe upon or violate any patent, trademark or
registration of any other person or entity;
(d) There are no outstanding or threatened disputes or disagreements
with respect to any License; and
(e) The conduct by each of the Sellers of its business does not
conflict with the valid patents, trademarks, trade secrets or trade names of
others.
Section .14 LABOR AND EMPLOYMENT AGREEMENTS.
(a) Schedule 5.15 sets forth a complete and correct list of the
following:
(2) Each employment, consulting, collective bargaining and
similar agreement, whether written or oral, to which the Company is a party or
by which it is bound; and
(3) The name of (A) each employee of the Company, and (B) each
agent of or consultant to the Company.
As used in this Section 5.15, the word "agreement" includes both oral
and written contracts, understandings, arrangements and other agreements.
(a) The Company has complied with all applicable laws, rules and
regulations relating to the employment of labor, including, without limitation,
those related to wages, hours, collective bargaining and the payment and
withholding of taxes and other sums as required by appropriate governmental
authorities and has withheld and paid to the appropriate authorities, or is
holding for payment not yet due to such authorities, all amounts required to be
withheld from such employees and is not liable for any arrears of wages, taxes,
penalties or other sums for failure to comply with any of the foregoing.
(b) No unfair labor practice complaint is pending against the Company
before the National Labor Relations Board or any federal, state or local agency
and no labor strike, grievance or other labor dispute affecting the Company is
pending or threatened.
(c) Except as set forth in Schedule 5.15, no material organization
effort, and no sex discrimination, racial discrimination, age discrimination or
other employment-related allegation, claim, suit or proceeding, has been made or
is pending or threatened with respect to the employees of the Company and no
such effort, allegation, claim, suit or proceeding has been made, raised,
brought or threatened within the three-year period prior to the date of this
Agreement.
22
(d) No arbitration proceeding arising out of or under any collective
bargaining agreement applicable to the Company is pending and no basis for any
such proceeding exists.
(e) All reasonably anticipated obligations of the Company, whether
arising by operation of law, contract, past custom or otherwise, for
unemployment compensation benefits, pension benefits, advances, salaries,
bonuses, vacation and holiday pay, sick leave and other forms of compensation
payable to the employees or agents of any of the Company in respect of the
services rendered by any of them on or prior to the date of the Financials have
been paid or adequate accruals therefor have been made in the books and records
of the Company and in the Financials. All such obligations in respect of
services rendered on or prior to the date hereof have been paid as of the date
hereof, or adequate accruals therefor have been made on the Interim Balance
Sheet, in accordance with GAAP. All accrued obligations of the Company
applicable to its employees, whether arising by operation of law, contract, past
custom or otherwise, for payments to trusts or other funds or to any
governmental agency, with respect to unemployment compensation benefits, social
security benefits or any other benefits for employees, with respect to
employment of said employees through the date of the Financials have been paid
or adequate accruals therefor have been made on the books and records of the
Company and in the Financials in accordance with GAAP. All such obligations with
respect to employment of employees through the date hereof have been paid as of
the date hereof, or adequate accruals therefor have been made on the Estimated
Closing Balance Sheet, in accordance with GAAP.
Section .15 EMPLOYEE BENEFIT PLANS: ERISA.
(a) Except as set forth in Section 5.16(a) of the Disclosure Schedule,
the Company (i) does not maintain, contribute to or have any obligation with
respect to, and none of the employees of the Business is covered by, any bonus,
deferred compensation, severance pay, pension, profit-sharing, retirement,
insurance, or other fringe benefit plan, arrangement or practice, written or
otherwise, or any other "employee benefit plan," as defined in Section 3(3) of
ERISA, whether formal or informal (collectively, the "Plans"), (ii) is not a
party to a contract for the employment of any employee of the Business or any
other person who renders services to the Business, or (iii) has no ERISA
Affiliates other than another Seller. None of the Plans is, and the Company or
any of its ERISA Affiliates has ever maintained or had an obligation to
contribute to, (i) a plan subject to Section 412 of the Code or Title I,
Subtitle B, Part 3 of ERISA, (ii) a "multi employer plan," as defined in Section
3(37) of ERISA (a "Multi- employer Plan"), (iii) a "multiple employer plan," as
defined in ERISA or the Code, or (iv) a funded welfare benefit plan, as defined
in Section 419 of the Code. The Company does not have any agreement or
commitment to create or contribute to any additional Plan, enter into any
additional employment agreement or to modify or change any existing Plan or
employment agreement. Section 5.16(a) of the Disclosure Schedule contains a
complete and accurate list of the following information for each employee of the
Business (including each employee who is on a leave of absence or on layoff
status): name, employer, job title(s), date of hire, current salary and benefit
arrangements, years of service for purposes of eligibility, vesting, and benefit
determination under any of the Plans, and current status (e.g., active employee,
on leave, etc.). None of the employees of the Business is a "leased employee,"
as defined in Section 414(n) of the Code.
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(b) With respect to each Plan, the Company has heretofore delivered or
caused to be delivered to Purchaser true, correct and complete copies of (i) all
documents that comprise the most current version of such Plan, including any
related trust agreements, insurance contracts, or other funding or investment
agreements and any amendments thereto, and (ii) with respect to each Plan that
is an "employee benefit plan," as defined in Section 3(3) of ERISA, (A) the
three most recent Annual Reports (Form 5500 Series) and accompanying schedules
for each of the Plans for which such a report is required, (B) the most current
summary plan description (and any summary of material modifications), (C) the
three most recent certified financial statements for each of the Plans for which
such a statement is required or was prepared, and (D) for each Plan intended to
be "qualified" within the meaning of Section 401(a) of the Code, all Internal
Revenue Service determination letters issued with respect to such Plan. Except
as set forth in Section 5.16(b) of the Disclosure Schedule, since the date of
the foregoing documents, there has not been any material change in the assets or
liabilities of any of the Plans or any change in their terms and operations that
could reasonably be expected to affect or alter the tax status or materially
affect the cost of maintaining such Plan, and none of the Plans has been or will
be amended prior to the Closing Date. Each of the Plans can be amended, modified
or terminated by the Purchaser within a period of thirty (30) days, without
payment of any additional compensation or amount or the additional vesting or
acceleration of any such benefits, except to the extent that such vesting is
required under the Code upon the complete or partial termination of any Plan
intended to be qualified within the meaning of Section 401(a) of the Code.
(c) The Company has performed and complied in all respects with all of
its obligations under and with respect to the Plans, and each of the Plans has,
at all times, in form, operation and administration complied with its terms,
and, where applicable, the requirements of all applicable laws. Each Plan that
is intended to be "qualified" within the meaning of Section 401(a) of the Code
has been determined by the Internal Revenue Service to be so qualified and
nothing has occurred that reasonably could be expected to adversely affect such
qualified status.
(d) The Company has made all contributions with respect to a Plan that
are required to have been made as of the date hereof under the terms thereof, or
under the terms of any related insurance contract, or any applicable law.
(e) All Plans that are group health plans have been operated in
compliance with the continuation coverage requirements of Section 4980B of the
Code (and any predecessor provisions) and Part 6 of Title I of ERISA ("COBRA").
The Company has no obligation to provide health benefits or other non-pension
benefits to any retired or other former employees, except as specifically
required by COBRA.
(f) None of the Sellers nor any other "disqualified person" or "party
in interest," as defined in Section 4975 of the Code and Section 3(14) of ERISA,
respectively, has engaged in any "prohibited transaction," as defined in Section
4975 of the Code or Section 406 of ERISA, with respect to any Plan, and none of
the Sellers is aware of any fiduciary violations under ERISA with respect to any
Plan, that could subject a Seller (or any employee thereof) to any material
penalty or tax under Section 502(i) of ERISA or Sections 4971 and 4975 of the
Code.
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(g) Except as set forth in Section 5.16(g) of the Disclosure Schedule,
with respect to any Plan: (i) no filing, application or other matter is pending
with the Internal Revenue Service, the Pension Benefit Guaranty Corporation, the
United States Department of Labor or any other governmental body, (ii) there is
no action, suit or claim pending (and the Company is unaware of any basis for
such a claim), other than routine claims for benefits, and (iii) there are no
outstanding liabilities for taxes, penalties or fees.
(h) The Company has not incurred any liability or taken any action,
and is not aware of any event that has occurred or is likely to occur, that
could cause any one of them to incur any liability (i) under Section 412 of the
Code or Title IV of ERISA with respect to any "single-employer plan" (as defined
in Section 4001(a)(15) of ERISA), (ii) on account of a partial or complete
withdrawal (as defined in Sections 4203 and 4205 of ERISA, respectively) with
respect to any Multi-employer Plan, (iii) on account of unpaid contributions to
any Multi-employer Plan, or (iv) on account of any reorganization, insolvency or
termination of any Multi-employer Plan.
(i) Neither the execution and delivery of this Agreement nor the
consummation of any or all of the Transactions will: (i) entitle any current or
former employee of the Business to severance pay, unemployment compensation or
any similar payment, (ii) accelerate the time of payment or vesting or increase
the amount of any compensation due to any such employee or former employee, or
(iii) directly or indirectly result in any payment made or to be made to or on
behalf of any person to constitute a "parachute payment" within the meaning of
Section 280G of the Code.
Section .16 MATERIAL CONTRACTS AND RELATIONSHIPS.
(a) Except for agreements specifically identified on other schedules
hereto, Schedule 5.17(a) sets forth a complete and correct list of the
following:
(2) All agreements (or groups of agreements with one or more
related entities) between the Company and any customer or supplier in excess of
$5,000 and all agreements and purchase orders extending beyond two (2) months;
(3) All agreements that relate to the borrowing or lending by
the Company of any money or that create or continue any material claim, lien,
charge or encumbrance against, or right of any third party with respect to, any
asset of the Company;
(4) All agreements by which the Company leases any real
property, has the right to lease any real property or leases capital equipment
or leases any other personal property, and all other leases involving the
Company as lessee or lessor;
(5) All agreements to which the Company is a party not in the
ordinary course of business;
(6) All contracts or commitments relating to commission
arrangements with others;
25
(7) All license agreements, whether as licensor or licensee;
(8) All agreements between the Company and its sales
representatives;
(9) All agreements between the Company and its customers
relating to volume rebates or price reductions;
(10) All other agreements to which the Company is a party or by
which it is bound and that involve $5,000 or more or that extend for a period of
two (2) months or more;
(11) All other agreements to which the Company is a party or by
which it is bound and that are or may be material to the assets, liabilities
(whether absolute, accrued, contingent or otherwise), condition (financial or
otherwise), results of operations, business or prospects of the Company; and
(12) A current list of the Company's active customers.
As used in this Section 5.17, the word "agreement" includes both oral and
written contracts, leases, understandings, arrangements and all other
agreements. The term "Material Contracts" means the agreements of any of the
Sellers required to be disclosed on Schedule 5.17(a), including agreements
specifically identified in other schedules hereto.
(a) All of the Material Contracts are in full force and effect, are
valid and binding and are enforceable in accordance with their terms in favor of
the Company. There are no material liabilities of any party to any Material
Contract arising from any breach or default of any provision thereof and no
event has occurred that, with the passage of time or the giving of notice or
both, would constitute a breach or default by any party thereto.
(b) The Company (i) has fulfilled all material obligations required
pursuant to each Material Contract to have been performed by it prior to the
date hereof, and (ii) as far as reasonably foreseeable based on current
conditions, will be able to fulfill all of its obligations under the Material
Contracts that remain to be performed after the date hereof.
(c) Schedules 5.17(b), (c) and (d) set forth a complete and correct
list of each (i) customer (or related group of customers) with whom the Company
did $10,000 or more of business during the last fiscal year or the current
fiscal year, (ii) supplier (or related group of suppliers) with whom the Company
did $10,000 or more of business during the last fiscal year or the current
fiscal year, and (iii) agent (or related group of agents) or Representative (or
related group of Representatives) who was paid $10,000 or more by the Company
during the last fiscal year or the current fiscal year, respectively.
(d) Each Seller has maintained and continues to maintain good
relations with the Company's customers, suppliers and agents and, except as set
forth in Schedule 5.17(e), Sellers do not reasonably expect that any customer
(to which the Company had annual sales in excess of $10,000 during the past two
years), supplier or agent will stop doing business with the Company or will
materially change the terms on which such customer, supplier or agent has done
business with the Company in the past.
26
Section .17 INVENTORY. Except for inventory that is excess, damaged,
obsolete, or outdated or requires rework, for which the Company has established
an adequate reserve in the Estimated Closing Balance Sheet in accordance with
GAAP the inventory (the "Inventory") reflected in the Estimated Closing Balance
Sheet and acquired since the date of such Balance Sheet (and not sold prior to
the date hereof or reserved for in the Estimated Closing Balance Sheet is good
and merchantable material, of a quantity and quality saleable in the ordinary
course of business of the Company at normal profit margins, and carried on the
books and records of the Company on the lower of cost (on a first in, first-out
basis) or market basis consistent with the past practices of the Company.
Section .18 ABSENCE OF CERTAIN BUSINESS PRACTICES. Neither the Company
nor any employee, agent or other person acting on behalf of the Company has,
directly or indirectly, given or agreed to give any gift or similar benefit to
any customer, supplier, competitor or governmental employee or official
(domestic or foreign) (a) that would subject the Company to any damage or
penalty in any civil, criminal or governmental litigation or proceeding or (b)
that, if not given in the past, would have had a material adverse effect on the
assets, liabilities (whether absolute, accrued, contingent or otherwise),
condition (financial or otherwise), results or operations, prospect, or business
of the Company.
Section .19 COMPLIANCE WITH LAWS. Except as set forth on Schedule
5.20, the operation, conduct and ownership of the property or business of the
Company are being, and at all times have been, conducted, in all material
respects, in full compliance with all federal, state, local and other (domestic
and foreign) laws, rules, regulations and ordinances (including without
limitation, those relating to employment discrimination, occupational safety,
conservation or corrupt practices) and all judgments and orders of any court,
arbitrator or governmental authority applicable to it. Except as set forth on
Schedule 5.20, there are no proposed federal, state, local and other (domestic
or foreign) law, rule, regulation, ordinance, order, judgment, decree,
governmental taking, condemnation or other proceeding that would be applicable
to the business, operations or properties of the Company and that could have a
material adverse effect on the assets, liabilities (whether absolute, accrued,
contingent or otherwise), condition (financial or otherwise), results of
operations, business or prospects of the Company.
Section .20 LITIGATION. Except as set forth on Schedule 5.21, there is
no legal, administrative, arbitration or other proceeding, or any governmental
investigation, pending or threatened against or otherwise affecting the Company
or any of its assets. The Company has given in a timely manner to its insurers
all notices required to be given under each of its insurance policies, if any,
with respect to all of the claims and actions disclosed on Schedule 5.21, and no
insurer has denied coverage of any of such claims or actions or rejected any of
the claims with respect thereto.
Section .21 TAXES. Except as set forth on Schedule 5.22:
(a) The Company has timely filed all Tax returns and reports required
to have been filed by it for all taxable periods ending on or prior to the date
hereof;
27
(b) All Taxes of the Company for all taxable periods ending on or
prior to the date hereof have been paid or have been adequately reserved for on
the Estimated Closing Date Balance Sheet. The Tax returns and reports filed are
true and correct in all material respects; (c) None of such returns contains, or
will contain, a disclosure statement under Section 6662 of the Code (or any
predecessor statute) or any similar provision of state, local or foreign law;
(d) The Company has not received notice that the IRS or any other
taxing authority has asserted against the Company any deficiency or claim for
additional Taxes;
(e) All Tax deficiencies asserted or assessed against the Company have
been paid or finally settled;
(f) There is no pending or threatened action, audit, proceeding, or
investigation with respect to (i) the assessment or collection of Taxes of the
Company or a claim for refund made by the Company with respect to Taxes
previously paid in connection therewith;
(g) All amounts that are required to be collected or withheld by the
Company or with respect to Taxes have been duly collected or withheld; all such
amounts that are required to be remitted to any taxing authority have been duly
remitted;
(h) To the best of its knowledge, neither the IRS nor any state,
foreign or local taxing authority has examined any income tax return of the
Company;
(i) The Company has not waived any statute of limitations (that have
not expired as of the date hereof) with respect to the assessment of any Tax;
(j) The Company has not taken any action not in accordance with past
practice that would have the effect of deferring any Tax liability of the
Company, from any taxable period ending on or before the date hereof to any
taxable period ending after such date;
(k) The Company has not filed any consent agreement under Section
341(f) of the Code;
(l) To the best of its knowledge, there are no liens for Taxes due and
payable upon any assets of the Company;
(m) The Company has not participated in, or cooperated with, an
international boycott within the meaning of Section 999 of the Code;
(n) The Company is not currently required to include in income any
adjustment pursuant to Section 481(a) of the Code (or similar provisions of
other law or regulations) by reason of a change in accounting method, and does
not have any knowledge that the IRS (or other taxing authority) has proposed, or
is considering, any such change in accounting method;
28
(o) The Company is not a party to any agreement, contract, arrangement
or plan that would result in the payment of any "excess parachute payment"
within the meaning of Section 280G of the Code;
(p) None of the assets of the Company is property that is required to
be treated as owned by any other person pursuant to the "safe harbor lease"
provisions of former Section 168(f)(8) of the Internal Revenue Code of 1954 as
amended and in effect immediately prior to the enactment of the Tax Reform Act
of 1986 and none of the assets of the Company is "tax exempt use property"
within the meaning of Section 168(h) of the Code; and
(q) None of the assets of the Company secures any debt the interest on
which is tax exempt under Section 103 of the Code.
Section .22 INSURANCE MATTERS.
(a) Schedule 5.23 sets forth a complete and correct list of:
(2) All insurance policies and of all claims made by the Company
on any liability or other insurance policies during the past three years (other
than worker's compensation claims);
(3) All insurance currently in place and accurately sets forth
the coverages, deductible amounts, carriers and expiration dates thereof; and
(4) All insurance with respect to which the policy period has
expired, but for which certain of the coverage years are still subject to audit
or retrospective adjustment by the carrier, and accurately sets forth such
coverage years and the coverages, deductible amounts, carriers and expiration
dates hereof.
(a) There are no outstanding requirements or recommendations by any
insurance company that issued any policy of insurance to the Company or by any
board of underwriters or other similar body exercising similar functions or by
any governmental authority exercising similar functions that require or
recommend any changes in the conduct of the Business or any repairs or other
work to be done on or with respect to the Company's assets.
(b) Except as set forth on Schedule 5.23, no notice or other
communication has been received by the Company from any insurance company within
the two years preceding the date hereof canceling or materially amending or
materially increasing the annual or other premiums payable under any of its
insurance policies, and, to the best of the Company's knowledge, no such
cancellation, amendment or increase of premiums is threatened.
(c) During the past five years, the Company has maintained
occurrence-based comprehensive general liability and completed operations
insurance (including product liability insurance) with a single combined annual
limit of at least $1,000,000, and no claims have been made or paid, and no
claims are currently pending, under any of such comprehensive general liability
insurance policies.
29
(d) No lawsuits have been filed and no claims have been made or, to
the best of Sellers' knowledge, threatened against the Company as a result of
accidents which occurred during the one-year period prior to the date hereof
that would give rise to a claim with respect to any services provided by or
products designed, manufactured, or sold by the Company or the operations of the
Company.
Section .23 No Powers of Attorney or Suretyships. Except as set forth
on Schedule 5.24, (i) neither the Company nor, with respect to the Company or
the Business, the Seller, has granted any general or special powers of attorney
and (ii) none of the Sellers has any obligation or liability (whether actual,
contingent or otherwise) as guarantor, surety, co-signer, endorser, co-maker,
indemnitor, obligor on an asset or income maintenance agreement or otherwise in
respect of the obligation of any person, corporation, partnership, joint
venture, association, organization or other entity.
Section .24 BROKERAGE FEES. No Person is entitled to any brokerage or
finder's fee or other commission from any of the Sellers in respect of this
Agreement or the Transactions.
Section .25 BANKING FACILITIES. Schedule 5.26 sets forth a complete
and correct list of:
(a) Each bank, savings and loan or similar financial institution in
which the Company has an account or safety deposit box and the numbers of such
accounts or safety deposit boxes maintained thereat; and
(b) The names of all persons authorized to draw on each such account
or to have access to any such safety deposit box, together with a description of
the authority (and conditions thereto, if any) of each person with respect
thereto.
Section .26 MACHINERY, EQUIPMENT AND OTHER PERSONAL PROPERTY; PERSONAL
PROPERTY LEASES. Except as set forth in Schedule 5.27, the Company owns all of
the machinery, equipment, vehicles, furniture, fixtures, leasehold improvements,
repair parts, tools and other property (collectively, the "Personal Property")
used by or relating to the Company. All such Personal Property is in good
operating condition and sufficient to carry on the business of the Company in
the normal course as it is presently conducted and is free from material
defects, whether patent or latent. Schedule 5.27 sets forth a complete and
correct summary description and identification of each lease (a "Personal
Property Lease") of personal property under which the Company is either a
lessee, sublessee, lessor or sublessor. Except as set forth in Schedule 5.27:
(a) Each Personal Property Lease is a valid and binding obligation of
the Company that is a party thereto, and each such Personal Property Lease is a
valid and binding obligation of each of the other parties thereto; and
(b) Neither the Company nor any other party to a Personal Property
Lease is in default with respect to any material term or condition thereof, and
no event has occurred that, with the passage of time or the giving of notice or
both, would constitute a default thereunder or would cause the acceleration of
any obligation of any party thereto or the creation of a lien or encumbrance
upon any asset of the Company.
30
Section .27 PRODUCT WARRANTY AND LIABILITY. Each product designed,
manufactured, or sold by the Company and all services performed by the Company
have been in conformity in all material respects with all applicable contractual
commitments and all express and implied warranties. The Company has no
liability, and there is no basis for any present or future action, suit or other
proceeding giving rise to any liability, (i) for replacement or repair of any
such product or other damages in connection therewith, or (ii) arising out of
any injury to persons or property as a result of any such product or any
services performed by the Company. None of the Sellers has received any notice
that an action, suit or proceeding has been, or in the future may be, made
alleging that products or services of the Company are or were defective in any
material respect.
Section .28 STANDARDS AND CERTIFICATIONS. Products previously
designed, manufactured, sold and leased by the Company met and had received at
the time of their design, manufacture and sale, and products currently designed,
manufactured, sold and leased by the Company meet and have received, all
material standards established by relevant standard-setting organizations and
all certifications from all relevant safety and standards testing and certifying
organizations, if any, as were or are, as the case may be, necessary for such
products to comply with all applicable fire, safety and similar codes and
regulations.
Section .29 DISCLOSURE. The information provided by Sellers in this
Agreement, including, without limitation, the schedules hereto, and in any other
writing delivered pursuant hereto does not and will not contain any untrue
statement of a material fact or, omit to state a material fact required to be
stated herein or therein or necessary to make the statements and facts contained
herein or therein, in light of the circumstances under which they are made, not
false or misleading. Copies of all documents heretofore or hereafter delivered
or made available by Sellers to Purchaser pursuant hereto were or will be
complete and accurate records of such documents.
Section .30 SECURITIES. The Company is an "accredited investor" as
such term is defined in Regulation D promulgated under the Securities Act of
1933, as amended. The Company understands that Purchaser has made no
representations regarding the Company other than as set forth herein. The
Company has made such further investigation as it deems appropriate to evaluate
the merits and risks of receiving common stock in Purchaser. The Company will
acquire the Common Stock portion of the Purchase Price for its own account, for
investment purposes only, and not with a view towards the sale or other
distribution thereof (other than to a Shareholder who is also an "accredited
investor"). The Company acknowledges that there are restrictions under federal
and state securities laws on the transferability of the Common Stock portion of
the Purchase Price. The Sellers agree and acknowledge that certificates for the
Common Stock portion of the Purchase Price shall bear substantially the
following legend:
The Shares represented by this certificate are subject to restrictions
on transferability and resale any may not be transferred or resold
except as permitted under the Securities Act of 1933, pursuant to
registration under said Act or pursuant to an applicable exemption
from the requirements of said Act. Prior to any transfer, the holder
of the Shares must deliver an opinion of counsel acceptable to the
Company to the effect that such transfer is either so registered or so
exempt.
Section 5.31 EMPLOYEES. As of the Closing Date, the Company has four
employees, all of whom work within a 75 mile radius of the City of Los Angeles.
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ARTICLE I
REPRESENTATIONS AND WARRANTIES OF PURCHASER
The Purchaser hereby represents and warrants to the Company that:
Section VI.1 ORGANIZATION AND CORPORATE AUTHORITY. Purchaser is a
corporation duly incorporated, validly existing and in good standing under the
laws of the State of California. Purchaser has all requisite corporate power and
authority to enter into this Agreement and to consummate the Transactions. This
Agreement and all agreements and instruments herein contemplated to be executed
by Purchaser are the valid and binding agreements of Purchaser, enforceable
against Purchaser in accordance with their respective terms. Purchaser has the
ability to fund the Purchase Price and has experience in the industry in which
the Business operates.
Section .1 BROKERAGE FEES. No Person is entitled to any brokerage or
finder's fee or other commission from Purchaser in respect of this Agreement or
the Transactions.
ARTICLE I
COVENANTS
Sellers and Purchaser each covenant with the other as follows:
Section .1 FURTHER ASSURANCES. Upon the terms and subject to the
conditions contained herein, the parties agree, both before and after the
Closing, (i) to use all reasonable efforts to take, or cause to be taken, all
actions and to do, or cause to be done, all things necessary, proper or
advisable to consummate and make effective the transactions contemplated by this
Agreement, (ii) to execute any documents, instruments or conveyances of any kind
which may be reasonably necessary or advisable to carry out any of the
transactions contemplated hereunder, and (iii) to cooperate with each other in
connection with the foregoing. Without limiting the foregoing, the parties agree
to use their respective reasonable efforts (A) to obtain all necessary waivers,
consents and approvals from other parties to the Contracts and Leases to be
assumed by Purchaser; PROVIDED, HOWEVER, that neither Purchaser nor the Company
shall be required to make any payments, commence litigation or agree to
modifications of the terms thereof in order to obtain any such waivers, consents
or approvals, (B) to obtain all necessary Permits as are required to be obtained
under any Regulations, (C) to give all notices to, and make all registrations
and filings with third parties, including without limitation submissions of
information requested by governmental authorities, and (D) to fulfill all
conditions to this Agreement.
Section .2 NO SOLICITATION.
(a) NO SOLICITATION. From the date hereof through the Closing or the
earlier termination of this Agreement, each of the Sellers and their
Representatives shall not, and shall cause each of their respective
Representatives (including, without limitation, investment bankers, attorneys
and accountants), not to, directly or indirectly, enter into, solicit, initiate
or continue any discussions or negotiations with, or encourage or respond to any
inquiries or proposals by, or participate in any negotiations with, or provide
any information to, or otherwise cooperate in any other way with, any
corporation, partnership, person or other entity or group, other than Purchaser
and its Representatives concerning, any sale of all or a portion of the Assets
or the Business, or any merger, consolidation, liquidation, dissolution or
similar transaction involving any Seller (each such transaction being referred
to herein as a "Proposed Acquisition Transaction"); PROVIDED, HOWEVER, that
Sellers may disclose the transactions contemplated by this Agreement to
customers of Sellers in connection with Sellers' efforts to obtain the benefit
of any Contract, Lease or Permit for Purchaser. The parties agree that in the
event the Company, Sellers or any individual Seller breaches its obligation
under this Section 7.2, the Company shall immediately pay to Purchaser the sum
of (a) Purchaser's expenses incurred in connection with the Transactions, and
(b) $200,000; PROVIDED, HOWEVER, that such amount shall not exceed $300,000.
Each Seller hereby represents that it is not now engaged in discussions or
negotiations with any party other than Purchaser with respect to any of the
foregoing. Each Seller agrees not to release any third party from, or waive any
provision of, any confidentiality or standstill agreement to which such Seller
is a party.
(b) NOTIFICATION. Sellers shall immediately notify Purchaser (orally
and in writing) if any discussions or negotiations are sought to be initiated,
any inquiry or proposal is made, or any information is requested with respect to
any Proposed Acquisition Transaction.
32
Section .3 NOTIFICATION OF CERTAIN MATTERS. From the date hereof
through the Closing, Sellers and Purchaser shall give prompt notice to the other
of (a) the occurrence, or failure to occur, of any event which occurrence or
failure would be likely to cause any representation or warranty contained in
this Agreement or in any exhibit or schedule hereto to be untrue or inaccurate
in any respect and (b) any failure by it to comply with or satisfy any covenant,
condition or agreement to be complied with or satisfied by it under this
Agreement or any exhibit or schedule hereto; PROVIDED, HOWEVER, that such
disclosure shall not be deemed to cure any breach of a representation, warranty,
covenant or agreement or to satisfy any condition.
Section .4 INVESTIGATION BY PURCHASER. From the date hereof through
the Closing Date the Company shall, and shall cause any and all of its employees
and agents to, afford the Representatives of Purchaser and its Affiliates
complete access at all reasonable times to the Assets for the purpose of
inspecting the same, and to the employees, agents, attorneys, accountants,
properties, Books and Records, Contracts and Leases of the Company, and shall
furnish Purchaser and its Representatives all financial, operating and other
data and information as Purchaser or its Affiliates, through their respective
Representatives, may reasonably request, including unaudited balance sheets and
the related statements of income, retained earnings and cash flow for each month
from the date of the August 2000 Balance Sheet through the Closing Date within
ten (10) calendar days after the end of each month which financial statements
shall (i) be true, correct and complete, (ii) be in accordance with the books
and records of the Company, and (iii) accurately set forth the assets,
Liabilities and financial condition, results of operations and other information
purported to be set forth therein in accordance with generally accepted
accounting principles consistently applied.
Section .5 CONDUCT OF BUSINESS. From the date hereof through the
Closing, the Company shall, except as contemplated by this Agreement, or as
consented to by Purchaser in writing, operate the Business in the ordinary
course of business and in accordance with past practice and use its best efforts
to preserve intact the Business and its goodwill, and preserve the goodwill and
business relationships with suppliers, distributors, customers and others having
business relationships with the Company, and shall not take any action
inconsistent with this Agreement or with the consummation of the Closing.
Without limiting the generality of the foregoing, the Company shall not, except
as specifically contemplated by this Agreement or as consented to by Purchaser
in writing:
(a) enter into, extend, materially modify, terminate or renew any
Contract or Lease, except in the ordinary course of business;
(b) sell, assign, transfer, convey, lease, mortgage, pledge or
otherwise dispose of or encumber any of the Assets, or any interests therein,
except in the ordinary course of business, and without limiting the generality
of the foregoing, each Seller shall continue to operate the Business consistent
with its past practices;
(c) incur any indebtedness for borrowed money or commitment to borrow
money, other than Financing Obligations, guarantee the obligations of others,
indemnify others or, except in the ordinary course of business, incur any other
Liability;
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(d) (1) take any action with respect to the grant of any bonus,
severance or termination pay or with respect to any increase of benefits payable
under the Company's severance or termination pay policies or agreements in
effect on the date hereof or increase in any manner the compensation or fringe
benefits of any employee or pay any benefit not required by any existing
Employee Benefit Plan or policy;
(2) make any change in the key management structure of the
Company, including without limitation the hiring of additional management
personnel or the termination of existing management personnel;
(3) adopt, enter into or amend any Employee Benefit Plan,
agreement (including without limitation any collective bargaining or employment
agreement), trust, fund or other arrangement for the benefit or welfare of any
employee, except for any such amendment as may be required or, in the Company's
reasonable determination, desirable to comply with applicable Regulations; or
(4) fail to maintain all Employee Benefit Plans in accordance
with applicable Regulations in any material respect;
(e) cause the Company to acquire by merger or consolidation with, or
merge or consolidate with, or purchase all or substantially all of the assets
of, or otherwise acquire any material assets or business of any corporation,
partnership, association or other business organization or division thereof;
(f) declare, set aside, make or pay any dividends;
(g) expend funds for budgeted capital expenditures or commitments for
or on behalf of the Company otherwise than in accordance with the capital budget
agreed to by Purchaser and the Company;
(h) willingly allow or permit to be done, any act by which any of the
Insurance Policies may be suspended, impaired or canceled;
(i) (1) fail to pay its accounts payable and any debts owed or
obligations due to it, or pay or discharge when due any Liabilities, in the
ordinary course of business; or
(2) fail to collect its accounts receivable in the ordinary
course of business;
(j) fail to maintain the Assets in substantially their current state
of repair, excepting normal wear and tear or fail to replace consistent with the
Company's past practice inoperable, worn-out or obsolete or destroyed Assets;
(k) make any loans or advances on behalf of the Company to any
partnership, firm or corporation, or, except for expenses incurred in the
ordinary course of business, any individual;
(l) make any income tax election or settlement or compromise with tax
authorities on behalf of the Company;
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(m) fail to comply with all Regulations applicable to it, the Assets
and the Business;
(n) intentionally do any other act which would cause any
representation or warranty of any Seller in this Agreement to be or become
untrue in any material respect;
(o) sell, transfer, assign, pledge or encumber in, or any other
ownership interests of, the Company or repurchase or commit to repurchase,
partnership interests in, or any other ownership interests of, the Company held
by any of the Sellers;
(p) fail to use its best efforts to (i) retain the Company's employees
and (ii) maintain the Business so that such employees will remain available to
the Company on and after the Closing Date, (iii) maintain existing relationships
with suppliers, customers and others having business dealings with any Seller
and (iv) otherwise to preserve the goodwill of the Business so that such
relationships and goodwill will be preserved on and after the Closing Date;
(q) enter into any agreement, or otherwise become obligated, to do any
action prohibited hereunder;
(r) make or change any tax election affecting the Assets in the hands
of Purchaser; or
(s) fail to pay, or cause to be paid, when due all Taxes for which the
Company is or may become liable or that are or may become payable with respect
to any taxable period ending on or prior to the Closing Date.
Section .6 EMPLOYMENT AGREEMENTS.
(a) Purchaser and Larry Hester shall enter into an Employment
Agreement, to be effective as of the Closing in substantially the form of
Exhibit A hereto. Purchaser shall not be required to hire or offer employment to
any other employee of the Company. In the event Purchaser determines to hire
such persons, however, all employees of the Business who become employed by
Purchaser as of the Closing (or upon expiration of an approved leave of absence)
are hereinafter referred to individually as a "Transferred Employee" and
collectively as the "Transferred Employees."
(b) Effective as of the Closing (or the date an employee becomes a
Transferred Employee, if later), all Transferred Employees shall cease to
participate in, or accrue benefits under, any of the Company's Plans, and the
Company shall be solely responsible for all of its Plans and all obligations and
liabilities thereunder. Purchaser shall not assume any Plan of the Company or
any obligation or liability thereunder. The Company shall be responsible for (i)
terminating all employees of the Company who are not employed by Purchaser, and
shall be responsible for any and all obligations and liabilities arising in
connection with such terminations, including without limitation, any severance
or other termination pay, accrued vacation, retirement and welfare benefits,
(ii) providing the appropriate notices to the employees of the Business pursuant
to Section 4980B of the Code and Part 6 of Title I of ERISA, (iii) all
liabilities, including without limitation, the cost of extended insurance
coverage, for any employee of the Company not actively employed by the Company
on the Closing Date until such time, if ever, that such employee returns to
active employment and is employed by Purchaser.
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(c) Nothing contained in this Agreement shall confer upon any
Transferred Employee any right with respect to continuance of employment by
Purchaser, nor shall anything herein interfere with the right of Purchaser to
terminate the employment of any Transferred Employee at any time, with or
without cause, or restrict Purchaser in the exercise of its independent business
judgment in modifying any of the terms and conditions of the employment of the
Transferred Employees after the Closing Date.
(d) No provision of this Agreement shall create any third party
beneficiary rights in any Transferred Employee, any beneficiary or dependents
thereof, or any collective bargaining representative thereof, with respect to
the compensation, terms and conditions of employment and benefits that may be
provided to any Transferred Employee by Purchaser or under any benefit plan
which Purchaser may maintain.
(e) Prior to and until Closing, each Shareholder, that is an employee
of the Company, shall receive his salary and hospitalization, medical, surgical,
dental, life insurance and any other welfare and benefits plans and programs,
comparable to what such Shareholder, as an employee of the Company, is receiving
as of the date of this Agreement.
Section .7 AGREEMENT NOT TO COMPETE.
(a) As additional consideration for the payments made or to be made by
Purchaser hereunder, from the date hereof, the Company and the Shareholder
hereby agree that it and he shall not, for any reason, directly or indirectly,
engage or be interested in any business that Competes with Purchaser, and shall
not, directly or indirectly, have any interest in, own, manage, operate,
control, be connected with as a stockholder (other than as a stockholder of less
than five percent (5%) of the issued and outstanding stock of a publicly-held
corporation), joint venturer, officer, partner, employee or consultant, or
otherwise engage in, control, advise with respect to, manage, act as a
consultant to, receive any economic benefit from, or exert any influence upon
the development, marketing, manufacture, sale, distribution, offering or
promotion of products or services similar to those performed by the Company for
the one-year period prior to the Closing, any business that Competes with
Purchaser. As used herein, the term "Competes" with Purchaser shall mean
competing with any of the businesses conducted by the Company at any time for
the period Mr. Hester is employed by Purchaser (or for a two-year period -- six
months if Mr. Hester is terminated without Cause -- following termination of his
employment) in any county or any other political subdivision of any state of the
United States of America or any of its possessions or territories where the
Company conducted or contemplated conducting such businesses during the one-year
period preceding the date hereof. All of the parties agree that the duration and
area for which the covenant not to compete set forth in this Section 7.7 is to
be effective are reasonable. In the event that any court determines that the
time period or the geographical areas provided for in this Section 7.7, or both
of them, are unreasonable and that such covenant is to that extent
unenforceable, such covenant shall remain in full force and effect for the
greatest time period and in the greatest geographical area that would not render
it unenforceable. The parties intend that this covenant shall be deemed to be a
series of separate covenants, one for each and every county of each and every
state of the United States of America and for any other territory or possession
of the United States of America where this covenant is intended to be effective.
(b) The parties agree that damages would be an inadequate remedy for
Purchaser in the event of a breach or threatened breach of this Agreement and
thus, in any such event, Purchaser may, either with or without pursuing any
potential damage remedies and in addition to such remedies, immediately obtain
and enforce an injunction, and/or a temporary restraining order, prohibiting any
Seller from violating this Agreement, without having to prove actual damages.
The parties agree that this Section 7.7 shall be enforceable regardless of
whether or not any Seller is employed by Purchaser hereunder.
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Section .8 COLLECTION OF ACCOUNTS RECEIVABLE AND LETTERS OF CREDIT. At
the Closing, Purchaser shall acquire hereunder, and thereafter Purchaser or its
designee shall have the right and authority to collect for Purchaser's or its
designee's account, all receivables, letters of credit and other items which
constitute a part of the Assets, and each Seller shall within 48 hours after
receipt of any payment in respect of any of the foregoing, properly endorse and
deliver to Purchaser any letters of credit, documents, cash or checks received
on account of or otherwise relating to any such receivables, letters of credit
or other items related to the Company or the Business. Each Seller shall
promptly transfer or deliver to Purchaser or its designee any cash or other
property that such Seller may receive in respect of any deposit, prepaid
expense, claim, contract, license, lease, commitment, sales order, purchase
order, letter of credit or receivable of any character, or any other item,
constituting a part of the Assets.
Section .9 BOOKS AND RECORDS; TAX MATTERS.
(a) BOOKS AND RECORDS. Purchaser shall retain all Books and Records in
the possession of Purchaser after the Closing Date relating to the operation of
the Facilities and the Business prior to the Closing in accordance with all
applicable records retention Regulations, including without limitation, all
Environment Laws and occupational health and safety laws and regulations. Each
party agrees that it shall cooperate with and make available to the other party,
during normal business hours, all Books and Records, information and employees
(without substantial disruption of employment) retained and remaining in
existence after the Closing which are necessary or useful in connection with any
tax, environmental or occupational health and safety inquiry, audit,
investigation or dispute, any litigation or investigation or any other matter
requiring any such Books and Records, information or employees for any
reasonable business purpose. The party requesting any such Books and Records,
information or employees shall bear all of the out-of-pocket costs and expenses
(including without limitation attorneys' fees) reasonably incurred in connection
with providing such Books and Records, information or employees. All information
received pursuant to this Section 7.9(a) shall be treated as confidential and
not disclosed to any person or entity other than the Representatives of Sellers
or Purchaser, as the case may be, who need to know such information in
connection with the proceedings contemplated by this Section 7.10(a).
(b) COOPERATION AND RECORDS RETENTION. Sellers and Purchaser shall (i)
each provide the other with such assistance as may reasonably be requested by
any of them in connection with the preparation of any return, audit, or other
examination by any taxing authority or judicial or administrative proceedings
relating to Liability for Taxes, (ii) each retain and provide the other with any
records or other information that may be relevant to such return, audit or
examination, proceeding or determination, and (iii) each provide the other with
any final determination of any such audit or examination, proceeding, or
determination that affects any amount required to be shown on any tax return of
the other for any period. Without limiting the generality of the foregoing,
Purchaser and each Seller shall each retain, until the applicable statutes of
limitations (including any extensions) have expired, copies of all tax returns,
supporting work schedules, and other records or information that may be relevant
to such returns for all tax periods or portions thereof ending on or before the
Closing Date and shall not destroy or otherwise dispose of any such records
without first providing the other party with a reasonable opportunity to review
and copy the same.
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Section .10 BULK SALES. It may not be practicable to comply or attempt
to comply with the procedures of the "Bulk Sales Act" or similar law of any or
all of the states in which the Assets are situated or of any other state which
may be asserted to be applicable to the transactions contemplated hereby.
Accordingly, to induce Purchaser to waive any requirements for compliance with
any or all of such laws, each Seller hereby agrees that the indemnity provisions
of Section 11.2 hereof shall apply to any Damages of Purchaser or any
institution providing financing to Purchaser arising out of or resulting from
the failure of any Seller or Purchaser to comply with any such laws.
Section .11 CONFIDENTIALITY. Unless and until the Closing has been
consummated, Purchaser and its officers, directors and other representatives
will hold in strict confidence, and will not use to the detriment of the
Company, all data and information with respect to the Business obtained in
connection with this transaction, subject to the requirements of law. In the
event of the termination of this Agreement for any reason or the return of the
Assets pursuant to Section 2 hereof, Purchaser will return to the Company all
documents, work papers, and other materials (including copies) relating to the
Transactions, whether obtained before or after execution of this Agreement and
the confidentiality requirements of this Section 7.12 shall terminate.
Section .12 RELEASE OF LEASE GUARANTY. Purchaser shall use its best
commercially reasonable efforts to obtain the release of the Shareholder from
his personal guaranty of the Company's obligations in respect of the premises
located at 11755 Wilshire Boulevard, Suite 880, Los Angeles, California 90025.
ARTICLE II
CONDITIONS TO THE COMPANY'S OBLIGATIONS
The obligations of the Company to consummate the transactions provided
for hereby are subject, in the discretion of the Company, to the satisfaction,
on or prior to the Closing Date, of each of the following conditions, any of
which may be waived by the Company by written notice to Purchaser:
Section .1 REPRESENTATIONS, WARRANTIES AND COVENANTS. All
representations and warranties of Purchaser contained in this Agreement shall be
true and correct at and as of the date of this Agreement and at and as of the
Closing Date, except as and to the extent that the facts and conditions upon
which such representations and warranties are based are expressly required or
permitted to be changed by the terms hereof, and Purchaser shall have performed
and satisfied in all material respects all agreements and covenants required
hereby to be performed by it prior to or on the Closing Date.
Section .2 NO ACTIONS OR COURT ORDERS. No Action by any governmental
authority or other person shall have been instituted or threatened which
questions the validity or legality of the transactions contemplated hereby and
which could reasonably be expected to damage the Company materially if the
transactions contemplated hereby are consummated. There shall not be any
Regulation or Court Order that makes the purchase and sale of the Business or
the Assets contemplated hereby illegal or otherwise prohibited.
Section .3 ASSUMPTION DOCUMENT. Purchaser shall have executed the
Assumption Document.
Section .4 ANCILLARY AGREEMENTS. Purchaser shall have executed and
delivered the Ancillary Agreements to which it is a party.
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ARTICLE III
CONDITIONS TO PURCHASER'S OBLIGATIONS
The obligations of Purchaser to consummate the transactions provided
for hereby are subject, in the discretion of Purchaser, to the satisfaction, on
or prior to the Closing Date, of each of the following conditions, any of which
may be waived by Purchaser by written notice to the Company:
Section .1 REPRESENTATIONS, WARRANTIES AND COVENANTS. All
representations and warranties of Sellers contained in this Agreement shall be
true and correct in all respects at and as of the date of this Agreement and at
and as of the Closing Date, except as and to the extent that the facts and
conditions upon which such representations and warranties are based are
expressly required or permitted to be changed by the terms hereof, and Sellers
shall have performed and satisfied all agreements and covenants required hereby
to be performed by them prior to or on the Closing Date.
Section .2 CONSENTS; REGULATORY COMPLIANCE AND APPROVAL. Any necessary
consents to the assignment of all Contracts and Leases shall have been obtained,
including the consents identified on Schedule 5.4. All Permits, consents,
approvals and waivers from governmental authorities necessary to the
consummation of the transactions contemplated hereby by Purchaser shall have
been obtained. Purchaser shall be satisfied that all approvals required under
any Regulations to carry out the transactions contemplated by this Agreement
shall have been obtained and that the parties shall have complied with all
Regulations applicable to such transactions.
Section .3 NO ACTIONS OR COURT ORDERS. No Action by any governmental
authority or other person shall have been instituted or threatened which
questions the validity or legality of the transactions contemplated hereby and
which could reasonably be expected to damage Purchaser, the Assets or the
Business materially if the transactions contemplated hereby are consummated,
including without limitation any material adverse effect on the right or ability
of Purchaser to own, operate, possess or transfer the Assets after the Closing.
There shall not be any Regulation or Court Order that makes the purchase and
sale of the Business or the Assets contemplated hereby illegal or otherwise
prohibited.
Section .4 OPINION OF COUNSEL. The Company shall have delivered to
Purchaser an opinion of Cantor & Weinshenk, Company counsel, dated as of the
Closing Date, in form and substance reasonably satisfactory to Purchaser, to the
effect that:
(a) The Company is a corporation duly organized, validly existing and
in good standing under the laws of the State of California;
(b) Each of the Sellers has necessary power and authority to enter
into this Agreement and the Ancillary Agreements to which he or it is a party
and to consummate the transactions contemplated hereby and thereby;
39
(c) The execution, delivery and performance of this Agreement and the
Ancillary Agreements by the Sellers have been duly authorized by all necessary
action of the Board of Directors and shareholders, and this Agreement and each
of the Ancillary Agreements to which it is a party constitute legally valid and
binding obligations of the Sellers, enforceable against each of the Company and
the Sellers, in accordance with their terms, except as limited by (i)
bankruptcy, insolvency, reorganization, moratorium or other similar laws
relating to creditors' rights generally or by equitable principles (whether
considered in an action at law or in equity) and (ii) limitations imposed by
federal or state law or equitable principles upon the availability of specific
performance, injunctive relief or other equitable remedies;
(d) The documents to be delivered by the Company at the Closing to
effect the transfer and assignment to Purchaser of all right, title and interest
in and to the Assets are effective to do so.
Section .5 CERTIFICATES. Sellers shall furnish Purchaser with such
certificates to evidence compliance with the conditions set forth in this
Article IX as may be requested by Purchaser.
Section .6 MATERIAL CHANGES. As of the Closing Date, since August 1,
2000, there shall not have been any actual or threatened adverse change in the
Business or the Assets or the liabilities, earnings, results of operations,
condition (financial or otherwise) or prospects of the Company.
Section .7 CONVEYANCING DOCUMENTS; RELEASE OF ENCUMBRANCES. Sellers
shall have executed and delivered each of the documents described in Section 4.2
hereof so as to effect the transfer and assignment to Purchaser of all right,
title and interest in and to the Assets, and Sellers shall have filed (where
necessary) and delivered to Purchaser all documents necessary to release the
Assets from all Encumbrances, which documents shall be in a form reasonably
satisfactory to Purchaser's counsel.
Section .8 PERMITS. Purchaser shall have obtained or been granted the
right to use all Permits.
Section .9 OTHER AGREEMENTS. Sellers shall have executed and delivered
the Ancillary Agreements in the forms attached as exhibits hereto.
Section .10 CUSTOMER RELATIONS. Purchaser shall be satisfied with the
business relationship of any Seller with any customer named in Section
5.17(a)(i) of the Disclosure Schedule.
Section .11 DUE DILIGENCE/FINANCIAL CONDITION. Purchaser shall be
satisfied, in its sole discretion, with the results of its
due diligence investigation.
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ARTICLE IV
RISK OF LOSS
Section .1 RISK OF LOSS. From the date hereof through and including
the Closing Date, all risk of loss or damage to the Assets shall be borne by
Sellers, and thereafter shall be borne by Purchaser. If any material portion of
the Assets is destroyed or damaged by fire or any other cause on or prior to the
Closing Date, other than use, wear or loss in the ordinary course of business,
Sellers shall give written notice to Purchaser as soon as practicable after, but
in any event within five (5) calendar days of, discovery of such damage or
destruction, which notice shall set forth in detail the nature of such damage or
destruction, the amount of insurance, if any, covering such Assets and the
amount, if any, which Sellers are otherwise entitled to receive as a
consequence. Prior to the Closing, Purchaser shall have the option, which shall
be exercised by written notice to Sellers within ten (10) calendar days after
receipt of Sellers' notice or if there is not ten (10) calendar days prior to
the Closing Date, as soon as practicable prior to the Closing Date, of (a)
accepting such Assets in their destroyed or damaged condition in which event
Purchaser shall be entitled to the proceeds of any insurance or other proceeds
payable with respect to such loss and the Purchase Price shall be reduced by the
amount, if any, mutually agreed upon between the parties, (b) excluding such
Assets from this Agreement, in which event the Purchase Price shall be reduced
by the amount allocated to such Assets, as mutually agreed between the parties
or (c) terminating this Agreement in accordance with Section 12.1. If Purchaser
accepts such Assets, then after the Closing, any insurance or other proceeds
shall belong, and shall be assigned to, Purchaser without any reduction in the
Purchase Price; otherwise, such insurance proceeds shall belong to the Company.
ARTICLE V
INDEMNIFICATION
Section .1 SURVIVAL OF REPRESENTATIONS AND WARRANTIES OF SELLERS. The
representations and warranties made by Sellers in Article V of this Agreement
and any document, schedule, exhibit or other instrument relating hereto,
respectively, shall survive the date hereof for a period of five years.
Notwithstanding anything contained in this Agreement, including, without
limitation, this Section 11.1, any claims with respect to representations and
warranties made by Sellers in this Agreement or in any document or other
instrument relating hereto shall survive and continue following the expiration
of the survival period stated above (i) if such claim is submitted in writing to
Sellers prior to the end of the survival period stated in this Section 11.1 or
otherwise and identified as a claim for indemnification pursuant to this
Agreement or (ii) if such claim is based upon fraud or willful breach or
misrepresentation by any Seller. In either event, such claims shall survive
indefinitely.
Section .2 INDEMNIFICATION BY SELLERS. Each Seller shall, jointly and
severally, indemnify and hold harmless Purchaser and each of Purchaser's
Affiliates, directors, officers, employees, attorneys, agents and
Representatives (collectively, the "Affiliated Parties") in respect of any and
all claims, losses, damages, liabilities, declines in value of the assets,
penalties, interest, costs and expenses, including, without limitation,
reasonable attorneys', accountants' and consultants' fees and other expenses
(collectively, "Damages"), incurred by Purchaser or Purchaser's Affiliated
Parties, together with interest on cash disbursements in connection therewith,
at an annual rate equal to the Prime Rate then in effect, from the date such
cash disbursements were made by Purchaser or any of their respective Affiliated
Parties until paid by such Seller, in connection with, or resulting from, any or
all of the following:
(a) Any breach or inaccuracy of any representation or warranty made by
such Seller in Article V of this Agreement or in any document, schedule, exhibit
or other instrument relating hereto;
41
(b) Any misrepresentation contained in any written statement or
certificate furnished by such Seller pursuant to this Agreement or the
Transactions;
(c) Any failure to perform or comply with any covenant, agreement or
obligation of either Seller contained in this Agreement or any document or other
instrument contemplated by this Agreement;
(d) Any injury to persons or death or property damage resulting from
or contributed to by any products designed, manufactured, sold or leased by any
of the Sellers or any services performed by any of the Sellers if the accident,
incident or occurrence giving rise to such claim, action, lawsuit or proceeding
occurred prior to the Closing Date;
(e) With respect to any claim arising out of the failure of any Seller
to comply with the bulk transfer or bulk sales laws of any jurisdiction in
accordance with Section 7.10; and
(f) Liabilities of the Sellers resulting from events occurring before
or on the Closing Date, other than a liability or obligation which is included
in the Assumed Liabilities.
Sellers' obligations set forth in this Section shall not apply to any Damages
that arise from or are related to any willful misconduct or gross negligence by
Purchaser.
Section .3 INDEMNIFICATION BY SELLERS FOR TAX LIABILITIES. In addition
to, and not by way of limitation on, the indemnities set forth in Section 11.2,
Sellers shall, jointly and severally, indemnify and hold harmless on an
after-tax basis Purchaser against all unpaid Taxes of the Company for all
taxable periods ending on or before the Closing Date or otherwise attributable
to the operations, transactions, assets, or income of the Company or its
predecessors prior to the Closing Date or otherwise arising from the
consummation of the Transactions as of the date hereof, together with any
expenses (including, without limitation, reasonable attorneys', accountants' and
consultants' fees and other expenses) incurred in connection with the
contesting, collection or assessment of such Taxes, and together with interest
at an annual rate equal to the Prime Rate then in effect.
Section .4 INDEMNIFICATION BY SELLERS FOR ENVIRONMENTAL MATTERS. For a
period of five (5) years, in addition to, and not by way of limitation on, the
indemnities set forth in Section 11.2, Sellers shall, jointly and severally,
indemnify and hold harmless Purchaser and Purchaser's Affiliated Parties in
respect of any and all claims, losses, damages, liabilities, declines in value
of the Assets or the Business, penalties, interest, costs and expenses
(including, without limitation, reasonable attorneys', accountants', and
consultants' fees and other expenses) incurred by Purchaser or Purchaser's
Affiliated Parties, together with interest on cash disbursements in connection
therewith, at an annual rate equal to the Prime Rate then in effect, from the
date such cash disbursements were made by Purchaser or any of Purchaser's
Affiliated Parties until paid by Sellers, in connection with, or resulting from,
any Environmental Liabilities for Pre-Closing Matters including, without
limitation, any of the matters described on Schedule 5.13, regardless of the
diligence performed or investigation made by Purchaser or its Representatives
with respect thereto.
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Section .5 INDEMNIFICATION BY PURCHASER. Purchaser shall indemnify and
hold harmless the Company in respect of any and all Damages reasonably incurred
by the Company, together with interest on cash disbursements in connection
therewith, at an annual rate equal to the Prime Rate then in effect, from the
date that such cash disbursements were made by the Company until paid by
Purchaser, in connection with, or resulting from, any or all of the following:
(a) Any breach of any representation or warranty made by Purchaser in
Article VI of this Agreement or in any document or other instrument relating
hereto;
(b) Any breach of any covenant, agreement or obligation of Purchaser
contained in this Agreement or any document or other instrument contemplated by
this Agreement; and
(d) Liabilities of the Business to parties other than Sellers arising
in relation to the Assets or the Assumed Liabilities resulting from events
occurring after the Closing Date.
Purchaser's obligations set forth in this Section shall not apply to any Damages
that arise from or are related to any willful misconduct or gross negligence by
any Seller.
Section .6 CLAIMS FOR INDEMNIFICATION. Whenever any claim shall arise
for indemnification under this Agreement, the party entitled to indemnification
(the "Indemnified Party") shall promptly notify the party obligated to provide
indemnification (the "Indemnifying Party") of the claim and, when known, the
facts constituting the basis for such claim; PROVIDED, HOWEVER, that the failure
to so notify the Indemnifying Party shall not relieve the Indemnifying Party of
its obligation hereunder to the extent such failure does not materially
prejudice the Indemnifying Party. In the event of any claim for indemnification
hereunder resulting from or in connection with any claim or legal proceedings by
a third party, the notice to the Indemnifying Party shall specify, if known, the
amount or an estimate of the amount of the liability arising therefrom.
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Section .7 DEFENSE OF CLAIMS. In connection with any claim giving rise
to indemnity under this Agreement resulting from or arising out of any claim or
legal proceeding by a person who is not a party to this Agreement, the
Indemnifying Party at its sole cost and expense and with counsel reasonably
satisfactory to the Indemnified Party may, upon written notice to the
Indemnified Party, assume the defense of any such claim or legal proceeding if
(a) the Indemnifying Party acknowledges to the Indemnified Party in writing,
within fifteen (15) days after receipt of notice from the Indemnified Party, its
obligations to indemnify the Indemnified Party with respect to all elements of
such claim based upon the facts then reasonably known to such Indemnifying
Party, (b) the Indemnifying Party provides the Indemnified Party with evidence
reasonably acceptable to the Indemnified Party that the Indemnifying Party will
have the financial resources to defend against such third-party claims and
fulfill its indemnification obligations hereunder, (c) the third-party claim
involves only money damages and does not seek an injunction or other equitable
relief, and (d) settlement or an adverse judgment of the third-party claim is
not, in the good faith judgment of the Indemnified Party, likely to establish a
pattern or practice adverse to the continuing business interests of the
Indemnified Party. The Indemnified Party shall be entitled to participate in
(but not control) the defense of any such action, with its counsel and at its
own expense; PROVIDED, HOWEVER, that if there are one or more legal defenses
available to the Indemnified Party that conflict with those available to the
Indemnifying Party, or if the Indemnifying Party fails to take reasonable steps
necessary to defend diligently the claim after receiving notice from the
Indemnified Party that it believes the Indemnifying Party has failed to do so,
the Indemnified Party may assume the defense of such claim; PROVIDED, FURTHER,
that the Indemnified Party may not settle such claim without the prior written
consent of the Indemnifying Party, which consent may not be unreasonably
withheld. If the Indemnified Party assumes the defense of the claim, the
Indemnifying Party shall reimburse the Indemnified Party for the reasonable fees
and expenses of counsel retained by the Indemnified Party and the Indemnifying
Party shall be entitled to participate in (but not control) the defense of such
claim, with its counsel and at its own expense. If the Indemnifying Party
thereafter seeks to question the manner in which the Indemnified Party defended
such third party claim or the amount or nature of any such settlement, the
Indemnifying Party shall have the burden to prove by a preponderance of the
evidence that the Indemnified Party did not defend or settle such third party
claim in a reasonably prudent manner. The parties agree to render, without
compensation, to each other such assistance as they may reasonably require of
each other in order to insure the proper and adequate defense of any action,
suit or proceeding, whether or not subject to indemnification hereunder. If the
indemnification provided for in this Article XI is for any reason unenforceable,
the party against whom indemnification was sought agrees to contribute to the
claims for which such indemnification is unenforceable in such proportion as is
appropriate to reflect the relative fault of such party, on the one hand, and
the Indemnified Party, on the other hand, as well as any other relevant
equitable considerations.
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Section .8 MANNER OF INDEMNIFICATION. All indemnification payments
hereunder shall be effected by payment of cash or delivery of a certified or
official bank check in the amount of the indemnification liability.
Section .9 SET OFF. To the extent that Purchaser or Purchaser's
Affiliated Parties suffer any Damages for which Sellers are liable to Purchaser
or Purchaser's Affiliated Parties under the provisions of Section 11.2,
Purchaser shall have the right to reduce the amount of the Holdback Stock and
the Earn-Out Payments by the amount of such Damages. The parties acknowledge
that such reduction shall not be the exclusive method of receiving
indemnification from Sellers pursuant to this Article XI.
ARTICLE VI
MISCELLANEOUS
Section .1 TERMINATION.
(a) TERMINATION. This Agreement may be terminated at any time prior to
Closing:
(2) By mutual written consent of Purchaser and the Company;
(3) By Purchaser or Sellers if the Closing shall not have
occurred on or before November 12, 2000; PROVIDED, HOWEVER, that this provision
shall not be available to Purchaser if Sellers have the right to terminate this
Agreement under clause (iv) of this Section 12.1, and this provision shall not
be available to Sellers if Purchaser has the right to terminate this Agreement
under clause (iii) of this Section 12.1;
(4) By Purchaser if there is a material breach of any
representation or warranty set forth in Article V hereof or any covenant or
agreement to be complied with or performed by any Seller pursuant to the terms
of this Agreement or the failure of a condition set forth in Article IX to be
satisfied (and such condition is not waived in writing by Purchaser) on or prior
to the Closing Date, or the occurrence of any event which results or would
result in the failure of a condition set forth in Article IX to be satisfied on
or prior to the Closing Date;
(5) By the Company if there is a material breach of any
representation or warranty set forth in Article VI hereof or of any covenant or
agreement to be complied with or performed by Purchaser pursuant to the terms of
this Agreement or the failure of a condition set forth in Article VIII to be
satisfied (and such condition is not waived in writing by the Company) on or
prior to the Closing Date, or the occurrence of any event which results or would
result in the failure of a condition set forth in Article VIII to be satisfied
on or prior to the Closing Date, provided that, the Company may not terminate
this Agreement prior to the Closing Date if Purchaser has not had an adequate
opportunity (in any event, not to exceed twenty (20) calendar days) to cure such
failure.
(a) IN THE EVENT OF TERMINATION. In the event of termination of this
Agreement:
(6) Each party shall redeliver all documents, work papers and
other material of any other party relating to the transactions contemplated
hereby, whether so obtained before or after the execution hereof, to the party
furnishing the same (and shall destroy all copies in their possession); and
(7) No party hereto shall have any Liability to any other party
to this Agreement, except as stated in subsections (i) and (ii) of this Section
12.1(b) and Sellers' obligations under Section 7.2, except for any willful
breach of this Agreement occurring prior to the termination of this Agreement.
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Section .2 NOTICES. All notices, requests, demands and other
communications hereunder shall be in writing and shall be deemed given if
delivered personally or by facsimile transmission (with subsequent letter
confirmation by mail) or three days after being mailed by certified or
registered mail, postage prepaid, return receipt requested, to the parties,
their successors in interest or their assignees at the following addresses, or
at such other addresses as the parties may designate by written notice in the
manner aforesaid:
If to Purchaser: VDI MultiMedia
7083 Hollywood Boulevard
Los Angeles, California 90028
Telecopy: (323) 957-7990
Attention: Chief Financial Officer
With a concurrent copy to: Katten Muchin Zavis
1999 Avenue of the Stars, Suite 1600
Los Angeles, California 90067
Telecopy: (310) 788-4471
Attention: Brian Hoye, Esq.
If to any Seller: Creative Digital, Inc.
11755 Wilshire Boulevard, Suite 880
Los Angeles, California 90025
Telecopy: (310) 479-0543
Attention: Larry Hester
With a concurrent copy to: Cantor & Weinshenk
1630 Ventura Boulevard, Suite 350
Studio City, California 91436
Telecopy: (818) 986-2728
Attention: John Cantor, Esq.
Section .3 ASSIGNABILITY AND PARTIES IN INTEREST. This Agreement shall
not be assignable by any of the parties, except that Purchaser may assign its
rights hereunder to, and have its obligations hereunder assumed by a
wholly-owned subsidiary of Purchaser. This Agreement shall inure to the benefit
of and be binding upon the parties and their respective permitted successors and
assigns.
Section .4 GOVERNING LAW. This Agreement shall be governed by, and
construed and enforced in accordance with, the laws of the State of California.
Section .5 COUNTERPARTS. This Agreement may be executed in several
counterparts, each of which shall be deemed an original, but all of which shall
constitute one and the same instrument.
Section .6 COMPLETE AGREEMENT. This Agreement, the exhibits and
schedules hereto and the documents delivered or to be delivered pursuant to this
Agreement contain or will contain the entire agreement among the parties with
respect to the Transactions and shall supersede all previous oral and written
and all contemporaneous oral negotiations, commitments and understandings.
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Section .7 MODIFICATIONS, AMENDMENTS AND WAIVERS. This Agreement may
be modified, amended or otherwise supplemented only by a writing signed by
Purchaser and the Company. No waiver of any right or power hereunder shall be
deemed effective unless and until a writing waiving such right or power is
executed by the party waiving such right or power.
Section .8 EXPENSES. Except as otherwise expressly provided elsewhere
in this Agreement, each party shall pay all fees and expenses incurred by it in
connection with the transactions contemplated by this Agreement.
Section .9 INVALIDITY. In the event that any one or more of the
provisions contained in this Agreement or in any other instrument referred to
herein, shall, for any reason, be held to be invalid, illegal or unenforceable
in any respect, then to the maximum extent permitted by law, such invalidity,
illegality or unenforceability shall not affect any other provision of this
Agreement or any other such instrument.
Section .10 PUBLICITY. Neither Purchaser, on the one hand, nor any
Seller, including Representatives or Affiliates thereof, on the other hand,
shall issue any press release or make any public statement regarding the
transactions contemplated hereby, without prior written approval of the other
parties, provided that Purchaser may describe the Transactions and the Company,
and include the Financial Statements, in any document filed in connection with
the offer and sale of its securities under applicable law.
Section .11 LIMIT ON INTEREST. Notwithstanding anything in this
Agreement to the contrary, no party shall be obligated to pay interest at a rate
higher than the maximum rate permitted by applicable law. In the event that at
any time an interest rate provided in this Agreement exceeds the maximum rate
permitted by applicable law, such interest rate shall be deemed to be reduced to
such maximum permissible rate.
Section .12 ATTORNEYS' FEES AND COSTS. Each party shall bear its own
expenses arising from the preparation, negotiation and delivery of this
Agreement and any other document required to be delivered in connection
herewith; PROVIDED, HOWEVER, that Purchaser shall solely bear the costs of the
Audit, unless this Agreement is terminated prior to Closing for any reason other
than the bad faith or willful misconduct by Purchaser, in which event the
Company, on the one hand, and Purchaser, on the other hand, shall bear one-half
of the costs of such Audit; and PROVIDED, FURTHER, should any party institute
any arbitration, action, suit or other proceeding arising out of or relating to
this Agreement, the prevailing party shall be entitled to receive from the
losing party reasonable attorneys' fees and costs incurred in connection
therewith.
Section .13 JURISDICTION; SERVICE OF PROCESS. Any action or proceeding
seeking to enforce any provision of, or based on any right arising out of, this
Agreement may be brought against any of the parties in the courts of the State
of California, County of Los Angeles, and the parties hereto irrevocably submit
to the jurisdiction of such courts and waive any objection to venue laid
therein. Process in any action or proceeding referred to in the preceding
sentence may be served on any party anywhere in the world.
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Section .14 CONTRACT INTERPRETATION; CONSTRUCTION OF AGREEMENT.
(a) The headings contained in this Agreement are for reference
purposes only and shall not affect in any way the meaning or interpretation of
this Agreement. Article, section, exhibit, schedule, preamble, recital and party
references are to this Agreement unless otherwise stated. The words "include",
"includes" and "including" shall be deemed to be followed by the phrase "without
limitation".
(b) No party, nor its respective counsel, shall be deemed the drafter
of this Agreement for purposes of construing the provisions of this Agreement,
and all language in all parts of this Agreement shall be construed in accordance
with its fair meaning, and not strictly for or against any party.
(c) Whenever the context may require, any pronoun shall include the
corresponding masculine, feminine and neuter forms.
IN WITNESS WHEREOF, each of the parties has executed this Agreement as
of the date first above written.
CREATIVE DIGITAL, INC. as a Seller
By:
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Name:
Title:
Larry Hester, as a Seller
VDI MULTIMEDIA, as Purchaser
By:
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Name:
Title:
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