SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): December 16, 1999
Paradise Music & Entertainment, Inc.
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(Exact name of registrant as specified in its charter)
Delaware 001-12635 13-3906452
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(State or other jurisdiction of (Commission File (IRS Employer
incorporation) Number) Identification No.)
53 West 23rd Street, New York, New York 10010
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(Address of principal executive offices, zip code)
Registrant's telephone number, including area code: (212) 590-2100
N/A
(Former name or former address, if changed since last report)
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Item 2. Acquisition or Disposition of Assets.
On September 23, 1999, pursuant to an Asset Purchase Agreement (the
"Asset Purchase Agreement") effective as of June 1, 1999 by and among Paradise
Music & Entertainment, Inc. (the "Company"), Straw Dogs Acquisition Corp., a
wholly-owned subsidiary of the Company ("Acquisition Sub"), Consolidated
Entertainment, LLC, ("Consolidated"), Jesse Dylan and Craig Rodgers
(collectively, the "Stockholders"), Consolidated transferred substantially all
of its assets to Acquisition Sub. At the closing, on December 16, 1999,
Consolidated received 900,000 shares of the Company's common stock. A copy of
the Asset Purchase Agreement is filed herewith as Exhibit 2.1. The foregoing
description of the Asset Purchase Agreement is qualified in its entirety by
reference to such exhibit.
On September 23, 1999, pursuant to a Stock Purchase Agreement (the
"Stock Purchase Agreement") effective as of June 1, 1999 by and among Paradise
Music & Entertainment, Inc. (the "Company"), Straw Dogs Acquisition Corp., a
wholly-owned subsidiary of the Company ("Acquisition Sub") and Jesse Dylan
("Owner"), Owner transferred 100% of the issued and outstanding shares of common
stock of Spur & Buckle, Inc. ("S&B") to Acquisition Sub. At the closing, on
December 16, 1999, Owner received 541,000 shares of the Company's common stock.
A copy of the Stock Purchase Agreement is filed herewith as Exhibit 2.2. The
foregoing description of the Stock Purchase Agreement is qualified in its
entirety by reference to such exhibit.
Item 7. Financial Statements and Exhibits.
(a) and (b) Financial Statements of the Businesses Acquired and Pro Forma
Financial Information
It is impractical for the Company to provide at this time the
required financial statements and the required pro forma financial information.
The Company intends to file such financial statements and pro financial
information as an amendment to this form as soon as possible but in any event no
later than February 10, 2000.
(c) Exhibits
2.1 Asset Purchase Agreement
The Company has omitted the exhibits, schedules and appendices to the above
referenced Asset Purchase Agreement:
2.2 Stock Purchase Agreement
The Company has omitted the exhibits, schedules and appendices to the above
referenced Asset Purchase Agreement:
The omitted exhibits, schedules and appendices will be furnished supplementary
to the Commission upon request.
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934,
as amended, the Registrant has duly caused this report to be signed on its
behalf by the undersigned hereunto duly authorized.
PARADISE MUSIC & ENTERTAINMENT, INC.
(Registrant)
Dated: as of December 16, 1999 By: /s/ Richard Flynn
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Richard Flynn
Chief Operating Officer, Chief Financial
Officer, Treasurer and Secretary
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ASSET PURCHASE AGREEMENT
by and among
PARADISE MUSIC & ENTERTAINMENT, INC.
STRAW DOGS ACQUISITION CORP.
CONSOLIDATED ENTERTAINMENT, LLC
JESSE DYLAN
and
CRAIG RODGERS
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Dated September 23, 1999
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TABLE OF CONTENTS
ARTICLE I
SALE OF ASSETS
Section 1.1 Assets Transferred..............................................2
Section 1.2 Excluded Assets.................................................4
Section 1.3 Assumed Liabilities.............................................4
Section 1.4 Retained Liabilities............................................5
ARTICLE II
PURCHASE PRICE AND CLOSING
Section 2.1 Purchase Price..................................................6
2.1.1 Payment.........................................................6
2.1.2 Accounting Procedures...........................................7
2.1.3 Examination of Books and Records................................8
Section 2.2 Closing and Effective Date......................................8
Section 2.3 Further Assurance; Post Closing Cooperation.....................8
Section 2.4 Third-Party Consents............................................9
ARTICLE III
REPRESENTATIONS OF THE OWNERS
Section 3.1 Execution and Validity of Agreement; Restrictive Documents.....10
3.1.1 Execution and Validity.........................................10
3.1.2 No Restrictions................................................10
3.1.4 Liabilities....................................................10
3.1.5 Interests in Customers, Suppliers, Etc.........................10
3.1.6 Company Controls...............................................11
3.1.7 Brokers........................................................11
3.1.8 Investment Representations.....................................11
Section 3.2 Execution and Validity of Agreement; Existence and Good
Standing......................................................13
Section 3.3 Subsidiaries and Investments...................................14
3.3.1 Subsidiaries and Investments...................................14
3.3.2 Ownership Interests............................................14
Section 3.4 Financial Statements and No Material Changes...................14
Section 3.5 Books and Records..............................................14
Section 3.6 Title to Properties; Encumbrances..............................15
Section 3.7 Real Property..................................................15
3.7.1 Owned Real Property............................................15
3.7.2 Leased Real Property...........................................15
Section 3.8 Contracts......................................................16
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Section 3.9 Non-Contravention; Approvals and Consents......................16
3.9.1 Non-Contravention..............................................16
3.9.2 Approvals and Consents.........................................17
Section 3.10 Litigation.....................................................17
Section 3.11 Taxes..........................................................17
Section 3.12 Intentionally Omitted..........................................19
Section 3.13 Insurance......................................................19
Section 3.14 Intellectual Properties........................................19
Section 3.15 Compliance with Laws; Licenses and Permits.....................20
3.15.1 Compliance.....................................................20
3.15.2 Licenses.......................................................20
Section 3.16 Client Relations...............................................20
Section 3.17 Accounts Receivable; Work-in-Process; Accounts Payable.........20
Section 3.18 Employment Relations...........................................21
Section 3.20 Intentionally Omitted..........................................21
Section 3.21 Bank Accounts and Powers of Attorney...........................21
Section 3.22 Compensation of Employees......................................22
Section 3.23 No Changes Since the Balance Sheet Date........................22
Section 3.24 Intentionally Omitted..........................................23
Section 3.25 Intentionally Omitted..........................................23
Section 3.26 Year 2000 Compliant............................................23
3.26.1 Definition.....................................................23
3.26.2 Computer Systems...............................................24
3.26.3 Other Products and Services....................................24
Section 3.27 Prepayment for Services........................................24
Section 3.28 Intentionally Omitted..........................................24
Section 3.29 Copies of Documents............................................24
ARTICLE IV
REPRESENTATIONS OF THE PURCHASER AND PARADISE
Section 4.1 Existence and Good Standing....................................25
Section 4.2 Execution and Validity of Agreement............................25
Section 4.3 No Restrictions................................................25
Section 4.4 Non-Contravention; Approvals and Consents......................25
4.4.1 Non-Contravention..............................................25
4.4.2 Approvals and Consents.........................................26
Section 4.5 Compliance with Laws; Licenses and Permits.....................26
4.5.1 Compliance.....................................................26
4.5.2 Licenses.......................................................26
Section 4.6 Paradise Stock.................................................26
Section 4.7 Brokers........................................................26
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ARTICLE V
COVENANTS OF THE COMPANY AND THE OWNERS
Section 5.1 Regulatory and Other Approvals.................................27
Section 5.2 Investigation by Paradise and the Purchaser....................27
Section 5.3 No Solicitations...............................................27
Section 5.4 Conduct of Business............................................28
Section 5.5 Notice and Cure................................................29
Section 5.6 Fulfillment of Conditions......................................29
ARTICLE VI
COVENANTS OF PARADISE AND THE PURCHASER
Section 6.1 Regulatory and Other Approvals.................................30
Section 6.2 Investigation by the Company and the Owners....................30
Section 6.3 Notice and Cure................................................30
Section 6.4 Fulfillment of Conditions......................................31
Section 6.5 Blue Sky.......................................................31
ARTICLE VII
MUTUAL COVENANTS
Section 7.1 Reasonable Efforts to Consummate Transaction...................31
Section 7.2 Public Announcements...........................................31
ARTICLE VIII
CONDITIONS TO OBLIGATIONS OF PARADISE AND THE PURCHASER
Section 8.1 Representations and Warranties.................................32
Section 8.2 Good Standing and Tax Certificates.............................32
Section 8.3 Performance....................................................32
Section 8.4 Certified Resolutions..........................................32
Section 8.5 No Litigation..................................................33
Section 8.6 Regulatory Consents and Approvals..............................33
Section 8.7 Required Approvals, Notices and Consents.......................33
Section 8.8 Employment Agreements..........................................33
Section 8.9 Opinion of Counsel.............................................33
Section 8.10 Repayment of Loans.............................................34
Section 8.11 Material Adverse Effect........................................34
Section 8.12 Proceedings....................................................34
Section 8.13 Spur & Buckle, Inc.............................................34
Section 8.14 Working Capital................................................34
Section 8.15 Brambilla Release..............................................34
Section 8.16 Net Worth......................................................34
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Section 8.17 Financial Statements...........................................34
ARTICLE IX
CONDITIONS TO OBLIGATIONS OF THE COMPANY AND THE OWNERS
Section 9.1 Representations and Warranties.................................35
Section 9.2 Performance....................................................35
Section 9.3 Certified Resolutions..........................................35
Section 9.4 No Litigation..................................................35
Section 9.5 Regulatory Consents and Approvals..............................36
Section 9.6 Paradise Stockholder Approval..................................36
Section 9.7 Employment Agreements..........................................36
Section 9.8 Opinion of Counsel.............................................36
Section 9.9 Proceedings....................................................36
Section 9.10 Material Adverse Effect........................................36
Section 9.11 Spur & Buckle, Inc. Acquisition Agreement......................36
Section 9.12 Working Capital................................................36
Section 9.13 Insurance Policy...............................................37
Section 9.14 Brambilla Release..............................................37
ARTICLE X
ADDITIONAL AGREEMENTS
Section 10.1 Change of Doing Business Name of the Company...................37
Section 10.2 [Intentionally Omitted]........................................37
Section 10.3 Agreements Regarding Employees After Closing...................37
10.3.1 Affected Employees.............................................37
10.3.2 Service Credit.................................................38
Section 10.4 Apportioned Obligations........................................38
Section 10.5 Tax Liability..................................................38
Section 10.6 Successor Employer.............................................38
Section 10.7 Nameof Purchaser...............................................38
Section 10.8 Termination....................................................38
Section 10.9 Effect of Termination..........................................39
Section 10.10 Registration Rights............................................39
ARTICLE XI
SURVIVAL; INDEMNITY
Section 11.1 Survival.......................................................39
Section 11.2 Obligation of the Owners to Indemnify..........................40
11.2.1 General Indemnity..............................................40
11.2.2 Special Indemnity..............................................40
11.2.3 "Losses".......................................................41
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Section 11.3 Obligation of Paradise and the Purchaser to Indemnify..........41
Section 11.4 Indemnification Procedures.....................................41
11.4.1 Non-Third-Party Claims.........................................41
11.4.2 Third-Party Claims.............................................42
Section 11.5 Limitations on and Other Matters Regarding Indemnification.....44
11.5.1 Indemnity Cushion and Cap......................................44
11.5.2 Termination of Indemnification Obligations of the Company
and the Owners................................................44
11.5.3 Termination of Indemnification Obligations of Paradise
and the Purchaser.............................................45
11.5.4 Exceptions.....................................................45
11.5.5 Control by Paradise............................................45
ARTICLE XII
MISCELLANEOUS
Section 12.1 Expenses.......................................................46
Section 12.2 Governing Law..................................................46
Section 12.3 Jurisdiction...................................................46
Section 12.4 "Person"Defined................................................46
Section 12.5 "Knowledge"Defined.............................................46
Section 12.6 "Affiliate"Defined.............................................47
Section 12.7 Captions.......................................................47
Section 12.8 Confidentiality................................................47
Section 12.9 Notices........................................................47
Section 12.10 Parties in Interest............................................48
Section 12.11 Severability...................................................49
Section 12.12 Counterparts...................................................49
Section 12.13 Entire Agreement...............................................49
Section 12.14 Amendment......................................................49
Section 12.15 Third Party Beneficiaries......................................49
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EXHIBITS AND APPENDICES
Exhibit A-1 Employment Agreement for Dylan
Exhibit A-2 Employment Agreement for Rodgers
Exhibit B-1 Opinion of Cohen, Primiani & Foster
Exhibit B-2 Opinion of James A. Melman, Esq.
Exhibit C Opinion of Davis & Gilbert LLP
Appendix A Registration Rights Provisions
SCHEDULES
Schedule 1.1(vi) Tangible Personal Property
Schedule 3.1.5 Interests in Customers; Suppliers
Schedule 3.1.7 Brokers
Schedule 3.2 Foreign Qualifications
Schedule 3.3.2 Ownership Interests
Schedule 3.4 Financial Statements
Schedule 3.5 Books and Records
Schedule 3.6 Tangible Personal Property; Encumbrances
Schedule 3.7.2 Leased Real Property
Schedule 3.7.3 Real Property
Schedule 3.8 Contracts
Schedule 3.9.2 Consents and Approvals
Schedule 3.10 Litigation
Schedule 3.11 Taxes
Schedule 3.13 Insurance
Schedule 3.14 Intellectual Properties
Schedule 3.16 Client Relations
Schedule 3.19 Employee Benefit Plans
Schedule 3.21 Bank Accounts and Powers of Attorney
Schedule 3.22 Compensation of Employees
Schedule 3.23 Changes Since the Balance Sheet Date
Schedule 3.26 Year 2000 Compliant
Schedule 3.27 Prepayment for Services
Schedule 4.4.1 Approvals and Consents
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ASSET PURCHASE AGREEMENT
ASSET PURCHASE AGREEMENT (the "Agreement") dated September 23, 1999
(the "Execution Date") by and among PARADISE MUSIC & ENTERTAINMENT CORP., a
Delaware corporation ("Paradise"); STRAW DOGS ACQUISITION CORP., a Delaware
corporation and wholly-owned subsidiary of Paradise (the "Purchaser");
CONSOLIDATED ENTERTAINMENT, LLC, a California limited liability company (the
"Company"), JESSE DYLAN ("Dylan") and CRAIG RODGERS ("Rodgers"; together with
Dylan, collectively, the "Owners" and individually an "Owner").
W I T N E S S E T H :
WHEREAS, the Company is in the business of producing television
commercials;
WHEREAS, the Company wishes to transfer, and the Purchaser wishes to
acquire substantially all of the assets of the Company, subject to substantially
all of the Company's liabilities, in a tax-free reorganization as described in
ss. 368(a)(1)(C) of the Internal Revenue Code, upon the terms and subject to the
conditions of this Agreement; and
WHEREAS, the Owners together own 100% of the ownership interests of the
Company and are actively involved in managing the business of the Company and
accordingly are in a position to make certain representations, warranties and
covenants in respect of the Company.
NOW, THEREFORE, in consideration of the mutual covenants and agreements
set forth in this Agreement, and for other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties do hereby
agree as follows:
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ARTICLE I
SALE OF ASSETS
Section 1.1 Assets Transferred. On the terms and subject to the conditions
set forth in this Agreement, except for the Excluded Assets set forth in Section
1.2 below, the Company will sell, transfer, convey, assign and deliver to the
Purchaser, and the Purchaser will purchase, on the Closing Date (as defined in
Section 2.2), all of the Company's right, title and interest in, to and under
the following assets, properties and rights of the Company, as the same exist on
the Effective Date (as defined in Section 2.2), (collectively, the "Assets"),
which Assets constitute substantially all of the assets of the Company, free and
clear of all mortgages, liens, security interests, encumbrances, claims, charges
and restrictions of any kind or character (collectively, "Liens") except for the
Liens set forth on Schedule 3.6 which the Purchaser has agreed to accept as
indicated on such Schedule:
(i) Balance Sheet Assets. All of the assets, properties and rights of the
Company reflected on the Balance Sheet referred to in Section 3.4, as
modified or changed between the Balance Sheet Date (as defined in Section
3.4) and the Effective Date without violation of the provisions of Section
3.23 (the "Balance Sheet Assets");
(ii) Cash. All cash on hand or in bank deposits, and all certificates of
deposit (the "Cash");
(iii) Real Property Leases. (A) The real property leases, subleases,
licenses and other occupancy agreements listed on Schedule 3.7.2 as to
which the Company is the lessor or sublessor and (B) the real property
leases, subleases, licenses and other occupancy agreements listed on
Schedule 3.7.2 as to which the Company is the lessee or sublessee,
together with any options to purchase the underlying property and
leasehold improvements thereon, and in each case all other rights,
subleases, licenses, permits, deposits and profits appurtenant to or
related to such leases, subleases, licenses and other occupancy agreements
(the leases, subleases, licenses and other occupancy agreements described
in subclauses (A) and (B) are collectively referred to herein as the "Real
Property Leases");
(iv) Inventory. All inventories of work-in-process, active job orders,
office and other supplies, and other accessories related thereto, which
are used or held for use by the Company, together with all rights of the
Company against suppliers of such inventories (the "Inventory");
(v) Accounts Receivable. All trade accounts receivable and all notes,
bonds and other evidences of indebtedness of and rights to receive
payments arising out of sales, including without limitation, any rights of
the Company with respect to any third party collection procedures or any
other actions or proceedings which have been commenced in connection
therewith, together with the proceeds in respect of any such accounts
receivable (the "Accounts Receivable");
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(vi) Tangible Personal Property. All furniture, fixtures, equipment,
machinery and other tangible personal property (other than Inventory),
including without limitation, but not limited to the items listed on
Schedule 1.1(vi), including any of the foregoing purchased subject to any
conditional sales or title retention agreement in favor of any other
Person (as defined in Section 12.4) (the "Tangible Personal Property");
(vii) Personal Property Leases. (A) The leases or subleases of Tangible
Personal Property (including but not limited to those listed on Schedule
3.8) as to which the Company is the lessor or sublessor and (B) the leases
of Tangible Personal Property (including but not limited to those listed
on Schedule 3.8) as to which the Company is the lessee or sublessee,
together with any options to purchase the underlying property (the leases
and subleases described in subclauses (A) and (B) are collectively
referred to herein as the "Personal Property Leases");
(viii) Client List. The Company's current and prospective client list and
customer data (the "Client List");
(ix) Contracts. All of the Company's existing agreements, commitments,
leases, licenses, evidences of indebtedness, mortgages, indentures,
security agreements, instruments or other contracts (other than the Real
Property Leases, the Personal Property Leases, Licenses (as defined below)
and the Accounts Receivable) to which the Company is a party, including
without limitation, contracts with clients (and the right to service such
clients), purchase orders and the other agreements listed on Schedule 3.8
other than any agreement by and between the Owners and the Company (the
"Contracts");
(x) Prepaid Expenses. All prepaid expenses, other than prepaid insurance
on policies not being transferred hereunder (the "Prepaid Expenses");
(xi) Intangible Personal Property. All Intellectual Property (as defined
in Section 3.14 below), used or held for use by the Company (including the
Company's goodwill therein) and all rights, privileges, claims, causes of
action and options relating or pertaining to the business of the Company
or the Assets, including but not limited to the name "Straw Dogs" (or any
variations thereof) (the "Intangible Personal Property");
(xii) Licenses. All licenses, permits and other governmental certificates,
authorizations and approvals, including applications therefor (the
"Licenses");
(xiii) Security Deposits. All security deposits deposited by or on behalf
of the Company as lessee or sublessee under the Real Property Leases or
other security deposits relating to the Company's business (the "Security
Deposits");
(xiv) Books and Records. All books and records of the Company, including
but not limited to financial statements, journals, ledgers,
correspondence, customer records,
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employment records for current employees, books of account and
accountant's and attorney's work product (excluding any property of the
accountants and attorneys);
(xv) Goodwill. All of the goodwill associated with the Company's business
(the "Goodwill");
(xvi) Insurance Policies. All of the Company's Insurance Policies listed
on Schedule 3.13 (the "Insurance Policies"); and ;
(xvii) Other Assets. All other assets and properties of every kind and
nature owned or held by the Company, or in which the Company has an
interest, known or unknown, fixed, unfixed, choate or inchoate, accrued,
absolute, contingent, or otherwise, whether or not specifically referred
to in this Agreement (the "Other Assets").
Section 1.2 Excluded Assets. Notwithstanding anything to the contrary in
this Agreement, the following assets and properties and rights (the "Excluded
Assets") shall be excluded from and shall not constitute Assets transferred to
the Purchaser: (i) the corporate seal, minute book, charter documents and stock
records of the Company; (ii) payments made and to be made to the Company, and
other rights of the Company, under this Agreement; (iii) rights under any
insurance policies not being assumed by the Purchaser hereunder; (iv) any tax
refunds, credits or similar tax assets relating to periods prior to the
Effective Date; (v) the rights of the Company in, to and under any contract or
agreement of any nature which is not an Assumed Liability (as defined in Section
1.3 below); (vi) all claims, rights or causes of action related to any Excluded
Asset or Retained Liability (as defined in Section 1.4 below); and (vii) any
non-transferable or non-transferred License.
Section 1.3 Assumed Liabilities. In connection with the sale, transfer,
conveyance, assignment and delivery of the Assets pursuant to this Agreement, on
the terms and subject to the conditions set forth in this Agreement, at the
Closing, the Purchaser will assume on the Closing Date and agrees to pay,
perform and discharge when due the following obligations of the Company (the
"Assumed Liabilities"), and no others:
(i) Balance Sheet Obligations. All obligations of the Company with respect
to liabilities reflected or reserved against on the Balance Sheet, as
modified or changed between the Balance Sheet Date and the Effective Date
in the ordinary course of business without violation of Section 3.23,
unless any such liability is specifically excluded under Section 1.4
below;
(ii) Real Property Lease Obligations. All obligations of the Company under
the Real Property Leases to be performed only on or after the Effective
Date, and excluding any obligations under the Real Property Leases to be
performed prior to the Effective Date;
(iii) Personal Property Lease Obligations. All obligations of the Company
under the Personal Property Leases to be performed only on or after the
Effective Date, and excluding
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any obligations under the Personal Property Leases to be performed prior
to the Effective Date;
(iv) Obligations under Contracts, and Licenses. All obligations of the
Company under the Contracts, Licenses, and licenses to and for the
Intangible Personal Property assumed by the Purchaser to be performed only
on or after the Effective Date, and excluding any obligations thereunder
to be performed prior to the Effective Date; and
(v) Obligations to Affected Employees. All obligations of the Company to
the Affected Employees (as defined in Section 10.3) to be performed only
on and after the Effective Date, and excluding any obligations to the
Affected Employees to be performed prior to the Effective Date.
Section 1.4 Retained Liabilities. Except for the Assumed Liabilities, the
Purchaser shall not assume by virtue of this Agreement or the transactions
contemplated hereby, and shall have no liability for, any liabilities of the
Company of any kind, character or description whatsoever (the "Retained
Liabilities"). Without limiting the generality of the foregoing, the Purchaser
shall not assume the following:
(i) any liability or obligation of the Company or the Owners arising out
of or in connection with the negotiation and preparation of this Agreement
and consummation and performance of the transactions contemplated hereby,
including without limitation, legal and accounting fees (other than as set
forth in Section 12.1), brokerage commissions, finder's fees or similar
fees or commissions, and income, sales or other liability for Taxes (as
defined in Section 3.11) so arising;
(ii) any liability or obligation of the Company to distribute to the
Owners all or any part of the Purchase Price (as defined in Section 2.1);
(iii) any liability or obligation of the Company arising from the failure
of the Company to perform or discharge any of its agreements contained in
this Agreement;
(iv) any liability or obligation of the Company which was required to be
disclosed to the Purchaser pursuant to this Agreement and which was not so
disclosed;
(v) any liability or obligation of the Company with respect to any
insurance policies (unless specifically assumed by the Purchaser under
this Agreement);
(vi) any liability or obligation of the Company to the Owners except for
unpaid current compensation incurred in the ordinary course and
non-reimbursed travel and business expenses incurred in the ordinary
course but only to the extent accrued for on the Effective Date Balance
Sheet (as defined in Section 2.1.2(i));
(vii) any obligation of the Company for Taxes (as defined in Section 3.11)
in respect of all periods through the Effective Date;
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(viii) any liability or obligation of the Company to (x) any of its
employees who are offered employment by the Purchaser as provided in
Section 10.3 hereof but who on the Closing Date do not accept such
employment and (y) any former employees of the Company;
(ix) any claim, cause of action, proceeding or other litigation pending or
threatened on the Effective Date or which is initiated at any time
thereafter against the Company which is based on acts, facts,
circumstances, events or conditions occurring or existing prior to the
Effective Date (except as set forth on Schedule 3.10 which liabilities the
Purchaser is assuming);
(x) any liability or obligation of the Company relating to any Excluded
Assets;
(xi) any liability or obligation of the Company under any Plan, including
any liability or obligation resulting from a termination of any such
Plans; and
(xii) any liability or obligation of the Company incurred by or accruing
to the Company after the Effective Date.
The Company shall discharge in a timely manner or shall make adequate provision
for all of the Retained Liabilities, provided that the Company shall have the
ability to contest, in good faith, any such claim of liability asserted in
respect thereof by any Person other than the Purchaser.
ARTICLE II
PURCHASE PRICE AND CLOSING
Section 2.1 Purchase Price. In full consideration for the purchase by the
Purchaser of the Assets, the purchase price (the "Purchase Price") shall be paid
by the Purchaser as follows:
2.1.1 Payment. (a) At the Closing, the Purchaser will pay the Company
900,000 shares of Paradise Music & Entertainment, Inc. common stock, par value
$.01 per share ("Paradise Stock").
(b) As soon as practicable after the Closing Date, the Company will
distribute the Paradise Stock to the Owners in accordance with their percentage
ownership interests in the Company as set forth on Schedule 3.3.2 to this
Agreement. At the request of the Company, Paradise will cause certificates for
the appropriate number of shares of Paradise Stock to be registered in the names
of the Owners.
(c) The Paradise Stock shall be restricted stock and shall be
saleable by the Owners only in accordance with the terms of the Registration
Rights Agreement described in Section 8.9 of this Agreement or as otherwise
permitted pursuant to applicable securities laws.
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2.1.2 Accounting Procedures.
(i) The Purchaser shall cause Rothstein, Kass & Company, P.C., or another
independent accounting firm chosen by the Purchaser (the "Accountants"), as soon
as practicable after the Effective Date and prior to the Closing, to prepare in
accordance with generally accepted accounting principles, consistently applied
("GAAP"), a report containing an audited balance sheet of the Company as of the
close of business on the Effective Date (the "Effective Date Balance Sheet"),
together with a statement of the Accountants based upon such report and stating
that it was prepared in accordance with this Agreement and setting forth the Net
Worth (as defined in Section 8.16) of the Company (the "Special Determination").
If the Company does not agree that the Special Determination correctly states
the Net Worth, the Company shall promptly (but not later than 45 days after the
delivery to it of the Special Determination) give written notice to the
Purchaser of any exceptions thereto (in reasonable detail describing the nature
of the disagreement asserted). If the Company and the Purchaser reconcile their
differences, the Net Worth calculation shall be adjusted accordingly and shall
thereupon become binding, final and conclusive upon all of the parties hereto
and enforceable in a court of law. If the Company and the Purchaser are unable
to reconcile their differences in writing within 20 days after written notice of
exceptions is delivered to the Purchaser (the "Reconciliation Period"), the
items in dispute shall be submitted to a mutually acceptable accounting firm
(other than the Accountants) selected from any of the five largest accounting
firms in the United States in terms of gross revenues (the "Independent
Auditors") for final determination, and the Net Worth calculation shall be
deemed adjusted in accordance with the determination of the Independent Auditors
and shall become binding, final and conclusive upon all of the parties hereto
and enforceable in a court of law. The Independent Auditors shall consider only
the items in dispute and shall be instructed to act within 20 days (or such
longer period as the Company and the Purchaser may agree) to resolve all items
in dispute. If the Company does not give notice of any exception within 45 days
after the delivery to it of the Special Determination or if the Company gives
written notification of its acceptance of the Net Worth prior to the end of such
45 day period, the Net Worth set forth in the Special Determination shall
thereupon become binding, final and conclusive upon all the parties hereto and
enforceable in a court of law.
(ii) In the event the Independent Auditors are for any reason unable or
unwilling to perform the services required of it under this Section 2.1, then
the Purchaser and the Company agree to select another accounting firm from among
the five largest accounting firms in the United States in terms of gross
revenues to perform the services to be performed under this Section 2.1.2 by the
Independent Auditors. For purposes of this Section 2.1 the term "Independent
Auditors" shall include such other accounting firm chosen in accordance with
this clause (ii).
(iii) The Independent Auditors shall determine the party (i.e., the
Purchaser or the Company) whose asserted position as to the calculation of Net
Worth for the period under examination before the Independent Auditors is
furthest from the determination of Net Worth by the Independent Auditors, which
non-prevailing party shall pay the fees and expenses of the Independent
Auditors.
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2.1.3 Examination of Books and Records. The books and records of the
Company shall be made available during normal business hours upon reasonable
advance notice at the principal office of the Company, to the parties hereto,
the Accountants and the Independent Auditors to the extent required to determine
the calculations required under this Section 2.1. Any such examination shall be
conducted so as to minimize disruption of business. The parties hereto shall
cause the Company and the Purchaser to make arrangements to make available to
the parties hereto and their respective representatives (including auditors) any
back-up materials generated by the Company or the Accountants, as the case may
be, with respect to any adjustments made by them to the financial statements in
the process of preparing the Special Determination. In addition, the Company, on
the one hand, and the Purchaser, on the other hand, shall make available to the
other party and their representatives (including auditors) any back-up materials
generated by them to support a position which is contrary to the position taken
by the other party.
Section 2.2 Closing and Effective Date. Not more than one business day
from the approval of this Agreement at the special meeting of stockholders of
Paradise contemplated by Section 9.6, Paradise shall notify the other parties to
this Agreement of its desire to close, specifying a closing date not more than
five business days thereafter. The transfer of the Assets and Assumed
Liabilities to the Purchaser and delivery of the Purchase Price in exchange
therefor (the "Closing") shall take place at 10:00 a.m. at the offices of Davis
& Gilbert LLP, 1740 Broadway, New York, New York on the date so determined (the
"Closing Date"). In the event a proceeding shall have been instituted attacking
the legality of this Agreement or seeking to enjoin its consummation, then the
Closing Date shall be suspended pending a final determination of any such
proceeding. The transfer of the Assets and the assumption of the Assumed
Liabilities by the Purchaser shall be deemed effective as of the close of
business on June 1, 1999 (the "Effective Date"). As of and after the Effective
Date, all income received by the Company shall be for the benefit of the
Purchaser and all expenses of the Company shall be the obligation of the
Purchaser.
Section 2.3 Further Assurance; Post Closing Cooperation. All transactions
at the Closing shall be deemed to have taken place simultaneously. At the
Closing, the Purchaser shall deliver to the Company one or more written
instruments of assumption in such form as the Company or its counsel shall
reasonably request to effect the assumption by the Purchaser as required by this
Agreement of all of the Assumed Liabilities. The Company will, from time to
time, at the request of the Purchaser, whether at or after the Closing Date,
execute and deliver such other and further instruments of conveyance,
assignment, transfer and consent as the Purchaser or its counsel may reasonably
require for the most effectual conveyance and transfer of the Assets to the
Purchaser, and the Company will assist the Purchaser in the collection and
reduction to possession of the Assets. Following the Closing, each party will
afford the other party, its counsel and its accountants, during normal business
hours, reasonable access to the books, records and other data relating to the
Company in its possession with respect to periods prior to the Closing and the
right to make copies and extracts therefrom, to the extent that such access may
be reasonably required by the requesting party in connection with (i) the
preparation of tax returns, (ii) the determination or enforcement of rights and
obligations under this Agreement, (iii) compliance with the requirements of any
Governmental or Regulatory Authority (as defined in Section 3.1.3), (iv)
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the determination or enforcement of the rights and obligations of any
Indemnified Party (as defined in Section 11.4 below) or (v) in connection with
any actual or threatened action or proceeding.
Section 2.4 Third-Party Consents. Anything in this Agreement to the
contrary notwithstanding, in the event an assignment or purported assignment to
the Purchaser of any Contract, License, Real Property Lease or Personal Property
Lease, or any claim, right or benefit arising thereunder or resulting therefrom,
without the consent of other parties thereto, would constitute a breach thereof
or would not result in the Purchaser receiving all of the rights of the Company
thereunder, such Contract, License, Real Property Lease or Personal Property
Lease shall be deemed not to have been assigned by the Company to the Purchaser.
In those circumstances, if requested by the Purchaser, after the Closing, the
Owners, the Purchaser and the Company will use their reasonable commercial
efforts to obtain any such consent. If such consent is not obtained and is
required to effectively assign a Contract, License, Real Property Lease or
Personal Property Lease to the Purchaser, the Company will cooperate with the
Purchaser in any reasonable arrangement to provide the Purchaser with the full
claims, rights and benefits under any such Contract, License, Real Property
Lease or Personal Property Lease, including enforcement at the cost and for the
benefit of the Purchaser of any and all rights of the Company, as the case may
be, against a third party thereto arising out of the breach or cancellation by
such third party or otherwise, and any amount received by the Company in respect
thereof shall be held for and paid over to the Purchaser.
ARTICLE III
REPRESENTATIONS OF THE OWNERS
A. Each of the Owners, severally and only with respect to such Owner and
not with respect to the other Owner, represents and warrants to and with the
Purchaser and Paradise as follows as of the Effective Date:
Section 3.1 Execution and Validity of Agreement; Restrictive Documents.
3.1.1 Execution and Validity. The Owner has the full legal right and
capacity to enter into this Agreement and to perform his obligations hereunder.
This Agreement has been duly and validly executed and delivered by the Owner
and, assuming due authorization, execution and delivery by the Purchaser and
Paradise, constitutes a legal, valid and binding obligation of the Owner,
enforceable against the Owner in accordance with its terms.
3.1.2 No Restrictions. There is no suit, action, claim, investigation or
inquiry by any Governmental or Regulatory Authority, and no legal,
administrative or arbitration proceeding pending or, to the Owner's knowledge,
threatened against the Owner, with respect to the execution, delivery and
performance of this Agreement or the transactions contemplated hereby or any
other agreement entered into by the Owner in connection with the transactions
contemplated hereby.
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3.1.3 Non-Contravention. The execution, delivery and performance by the
Owner of his obligations hereunder and the consummation of the transactions
contemplated hereby, will not (a) result in the violation by the Owner of any
statute, law, rule, regulation or ordinance (collectively, "Laws"), or any
judgment, decree, order, writ, permit or license (collectively, "Orders"), of
any court, tribunal, arbitrator, authority, agency, commission, official or
other instrumentality of the United States, any foreign country or any domestic
or foreign state, county, city or other political subdivision (a "Governmental
or Regulatory Authority"), applicable to the Owner or any of his assets or
properties, or (b) require the Owner to obtain any consent, approval or action
of, make any filing with or give any notice to, or result in or give to any
Person any right of payment or reimbursement, termination, cancellation,
modification or acceleration of any of the terms, conditions or provisions of
any Contract or License to which the Owner is a party or by which the Owner or
any of his assets or properties are bound.
3.1.4 Liabilities. Except as set forth in the Balance Sheet, the Company
does not have any outstanding claims, liabilities or indebtedness of any nature
whatsoever (collectively in this Section 3.12, "Liabilities"), whether accrued,
absolute or contingent, determined or undetermined, asserted or unasserted, and
whether due or to become due, other than (i) Liabilities specifically disclosed
in any Schedule hereto; (ii) Liabilities under Contracts of the type required to
be disclosed by the Company on any Schedule and so disclosed or which because of
the dollar amount or other qualifications are not required to be listed on such
Schedule; and (iii) Liabilities incurred in the ordinary course of business and
consistent with past practice since the Balance Sheet Date not involving
borrowings by the Company.
3.1.5 Interests in Customers, Suppliers, Etc. Except as set forth on
Schedule 3.1.5, neither (x) such Owner nor any Person controlled by such Owner
nor (y) to the knowledge of such Owner (without making any inquiry of any member
of the Related Group, as hereinafter defined), any officer, director, or
employee of the Company, any parent, brother, sister, child or spouse of any
such officer, director or employee or of such Owner (collectively, the "Related
Group"), or any entity controlled by anyone in the Related Group:
(i) owns, directly or indirectly, any interest in (excepting for
ownership, directly or indirectly, of less than 5% of the issued and
outstanding shares of any class of securities of a publicly held and
traded company) or received or has any right to receive payments from, or
is an officer, director, employee or consultant of, any Person which is,
or is engaged in business as, a competitor, lessor, lessee, supplier,
distributor, sales agent, customer or client of the Company;
(ii) owns, directly or indirectly, in whole or in part, any tangible or
intangible property (including, but not limited to Intellectual Property)
that the Company uses in the conduct of the business of the Company, other
than immaterial personal items owned and used by employees at their work
stations; or
(iii) has any cause of action or other claim whatsoever against, or owes
any amount to, the Company, except for claims in the ordinary course of
business such as for accrued
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vacation pay, accrued benefits under employee benefit plans, and similar
matters and agreements existing on the date hereof.
3.1.6 Company Controls. Neither such Owner, nor, to the knowledge of such
Owner, any officer, authorized agent, employee or any other Person while acting
on behalf of the Company, has, directly or indirectly: used any company fund for
unlawful contributions, gifts, or other unlawful expenses relating to political
activity; made any unlawful payment to foreign or domestic government officials
or employees or to foreign or domestic political parties or campaigns from
Company funds; established or maintained any unlawful or unrecorded fund of
Company monies or other assets; made any false or fictitious entry on its books
or records; made any bribe, rebate, payoff, influence payment, kickback, or
other unlawful payment, or other payment of a similar or comparable nature, to
any Person, private or public, regardless of form, whether in money, property,
or services, to obtain favorable treatment in securing business or to obtain
special concessions, or to pay for favorable treatment for business secured or
for special concessions already obtained, and the Company has not participated
in any illegal boycott or other similar illegal practices affecting any of its
actual or potential customers.
3.1.7 Brokers. Except as set forth on Schedule 3.1.7, no broker, finder,
agent or similar intermediary has acted on behalf of the Company or such Owner
in connection with this Agreement or the transactions contemplated hereby, and
no brokerage commissions, finder's fees or similar fees or commissions are
payable by the Company or such Owner in connection therewith based on any
agreement, arrangement or understanding with any of them.
3.1.8 Investment Representations.
(a) The Company is acquiring the Paradise Stock for investment
purposes only and does not intend to resell, distribute or subdivide the
Paradise Stock other than to the Owners as contemplated by this Agreement and
such Owner does not intend to resell, distribute or subdivide the Paradise Stock
other than pursuant to an effective registration statement or an available
exemption under the Securities Act of 1933, as amended (the "Act"). The Company
and such Owner are each acquiring the Paradise Stock for its own account and no
other person will have any beneficial interest in the Paradise Stock.
(b) The Company and such Owner acknowledge that Paradise is offering
and selling the Paradise Stock pursuant to exemptions from registration under
the Act and exemptions from qualification under the securities laws of certain
states, for transactions not involving any public offering, and that Paradise is
relying on the representations and warranties included herein to obtain those
exemptions. The Company and such Owner further represent and warrant to Paradise
and the Purchaser as follows:
(i) The Company and such Owner has the financial ability to
bear the economic risk of its or his investment in the Paradise Stock (including
the possible loss of such investment in its entirety), has adequate means of
providing for its or his current needs and personal contingencies, and has no
need for liquidity with respect to its or his investment in Paradise; and
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(ii) Neither the Company nor such Owner is an "underwriter" as
such term is defined under the Act and the Company and such Owner has such
knowledge and experience in financial and business matters as to be capable of
evaluating the merits and risks of an investment in Paradise and has obtained,
in the best judgment of the Company and such Owner, sufficient information from
Paradise to evaluate the merits and risks of an investment in Paradise.
(c) The Company and such Owner understand that the Paradise Stock
has not been registered under the Act or qualified under the securities laws of
any state, and therefore cannot be transferred, resold, pledged, hypothecated,
assigned, or otherwise disposed of unless it is subsequently registered under
the Act and qualified under applicable state securities laws and in compliance
with any other applicable securities laws, or an exemption from registration
and/or qualification is available. The Company and such Owner will not sell,
distribute, dispose of or otherwise transfer the Paradise Stock or any part
thereof, or interest therein (other than the contemplated transfer by the
Company to the Owners), except pursuant to an effective registration under the
Act or pursuant to an exemption from the registration requirements of the Act
and in compliance with any other applicable securities laws. The Company and
such Owner understand that all stock certificates representing the Paradise
Stock shall bear a legend reflecting the restrictions contained in this clause
(c).
(d) The Company and such Owner have been given the opportunity to
ask questions of, and receive answers from, and conduct due diligence meetings
with representatives of Paradise concerning the terms and conditions of this
offering and other matters pertaining to this investment and have been given the
opportunity to obtain such additional information as is necessary to evaluate
the merits and risks of an investment in Paradise, in all cases to the extent
that Paradise possessed such information. The Company's and such Owner's
decision to acquire the Paradise Stock was made on the basis of the Company's
and such Owner's independent analysis of the terms of the purchase and arms'
length discussions with representatives of Paradise.
(e) The Company and such Owner are not relying on Paradise or any
representative of Paradise, for advice as to tax, legal, or economic
considerations as they relate to the Company's or such Owner's circumstances. No
such representations or warranties have been made to the Company or such Owner
by Paradise, or any employee or agent of Paradise. In particular, the Company
and such Owner acknowledge that there have been no representations, guarantees
or warranties made to any of them by Paradise, its employees or agents, or by
any other person, with respect to (i) the approximate length of time that will
be required to remain as the owner of the Paradise Stock; or (ii) the percentage
of profit and/or amount of or type of consideration, profit or loss to be
realized, if any, as a result of this investment.
(f) The Company and such Owner have determined that the Paradise
Stock is a suitable investment in light of their investment goals, ability to
sustain losses, needs for liquidity and previous decisions to invest in
securities such as the Paradise Stock or securities bearing similar risks.
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(g) The Company and such Owner is an "Accredited Investor" as that
term is defined in Rule 501(a) of Regulation D.
B. The Company and the Owners, jointly and severally, represent and
warrant to and with the Purchaser and Paradise, as follows as of the Effective
Date:
Section 3.2 Execution and Validity of Agreement; Existence and Good
Standing. The Company has the full power and authority to enter into this
Agreement and to perform its obligations hereunder. The execution and delivery
of this Agreement by the Company and the consummation by the Company of the
transactions contemplated hereby have been duly authorized by all required
action on behalf of the Company and its Owners. This Agreement has been duly and
validly executed and delivered by the Company and, assuming due authorization,
execution and delivery by the Purchaser and Paradise, constitutes the legal,
valid and binding obligations of the Company enforceable against it in
accordance with its terms. The Company was duly organized and is validly
existing and in good standing as a limited liability company under the laws of
California, with the full power and authority to own its property and to carry
on its business all as and in the places where such properties are now owned or
operated or such business is now being conducted. The Company is duly qualified,
licensed or admitted to do business and is in good standing in those
jurisdictions set forth on Schedule 3.2. The Company is qualified, licensed or
admitted to do business in all jurisdictions in which the ownership, use or
leasing of its assets and properties, or the conduct or nature of its business,
makes such qualification, licensing or admission necessary, except for
jurisdictions where failure to be so qualified would not have Material Adverse
Effect. For purposes of this Agreement, "Material Adverse Effect" shall mean any
material and adverse effect on the financial condition, results of operations,
assets, properties or business of the Company, Paradise or the Purchaser, as
applicable.
Section 3.3 Subsidiaries and Investments.
3.3.1 Subsidiaries and Investments. The Company does not own any capital
stock or other equity or proprietary or ownership interest in any Person, other
than investments of publicly-traded debt and equity securities held for
investment.
3.3.2 Ownership Interests. Schedule 3.3.2 sets forth the ownership of all
ownership interests in the Company. Except as set forth on Schedule 3.3.2, there
are no outstanding options, warrants, rights, calls, commitments, conversion
rights, rights of exchange, plans or other agreements of any character
(collectively "Options") providing for the purchase, issuance or sale of any
ownership interests in the Company.
Section 3.4 Financial Statements and No Material Changes. Prior to the
Closing Date, the Company and the Owners will deliver Schedule 3.4 to Paradise
and the Purchaser; provided however, failure to deliver said Schedule 3.4 shall
not be a breach of this Agreement by the Company and/or the Owners. Schedule 3.4
will set forth an audited balance sheet of the Company as at June 30, 1999, and
the related audited statement of income, retained earnings and cash flow for the
twelve months then ended, prepared by Rothstein, Kass & Company, P.C.,
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certified public accountants (the balance sheet of the Company as at June 30,
1999, including the footnotes thereto, being referred to in this Agreement as
the "Balance Sheet"). Such financial statements will have been prepared in
accordance with GAAP throughout the periods indicated. The Balance Sheet will
fairly present the financial condition of the Company at the date thereof and
will reflect all claims against and all debts and liabilities of the Company,
fixed or contingent, as at the date thereof, required to be shown thereon under
GAAP and the related statements of income , retained earnings and cash flow will
fairly present the results of operations of the Company for the period
indicated. Except as set forth on Schedule 3.23, since June 30, 1999 (the
"Balance Sheet Date"), there has been no material adverse change in the assets
or liabilities, or in the business or condition, financial or otherwise, or in
the results of operations of the Company.
Section 3.5 Books and Records. All accounts, books, ledgers and official
and other records material to the Company of whatsoever kind have been properly
and accurately kept and are complete in all material respects, and there are no
material inaccuracies or discrepancies of any kind contained or reflected
therein. Except as set forth on Schedule 3.5, the Company does not have any of
its records, systems, controls, data or information recorded, stored,
maintained, operated or otherwise wholly or partly dependent on or held by any
means (including any electronic, mechanical or photographic process, whether
computerized or not) which (including all means of access thereto and therefrom)
are not under the exclusive ownership and possession of the Company.
Section 3.6 Title to Properties; Encumbrances. The Company has good and
valid title to, or enforceable leasehold interests in or valid rights under
contract to use all the material Assets owned or used by it (personal, tangible
and intangible), including, without limitation (a) all the Assets reflected in
the Balance Sheet, (b) all the Assets purchased or otherwise contracted for by
the Company since the Balance Sheet Date (except for Assets reflected in the
Balance Sheet or acquired or otherwise contracted for since the Balance Sheet
Date that have been sold or otherwise disposed of in the ordinary course of
business), and (c) all Assets leased by the Company, in each case free and clear
of all Liens, except for Liens set forth on Schedule 3.6. The property, plant
and equipment owned or otherwise contracted for by the Company is in a state of
good maintenance and repair (ordinary wear and tear excepted) and is adequate
and suitable in all material respects for the purposes for which they are
presently being used.
Section 3.7 Real Property.
3.7.1 Owned Real Property. The Company does not own any real property
including ground leases) or hold any option or right of first refusal or first
offer to acquire any real property, and the Company is not obligated by Contract
or otherwise to purchase any real property.
3.7.2 Leased Real Property. Schedule 3.7.2 contains an accurate and
complete list of all Real Property Leases, including without limitation, any
modification, amendment or supplement thereto and any other related document or
agreement executed or entered into by the Company (including, without
limitation, any Real Property Lease which the Company has subleased or assigned
to another Person and as to which the Company remains liable). Except as set
forth on Schedule 3.7.3, each Real Property Lease set forth on Schedule 3.7.2
(or required to be set forth on
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Schedule 3.7.2): (a) is valid, binding and in full force and effect; (b) all
rents and additional rents and other sums, expenses and charges due to the
Effective Date have been paid; (c) the lessee has been in peaceable possession
since the commencement of the original term thereof; (d) no waiver, indulgence
or postponement of the lessee's obligations thereunder has been granted by the
lessor; (e) there exists no default or event of default by the Company or to the
knowledge of the Company and the Owners, by any other party thereto; (f) there
exists no occurrence, condition or act (including the purchase of the Assets
hereunder) which, with the giving of notice, the lapse of time or the happening
of any further event or condition, would become a default or event of default by
the Company thereunder; and (g) there are no outstanding claims of breach or
indemnification or notice of default or termination thereunder. The Company
holds the leasehold estate on all Real Property Leases, free and clear of all
Liens, except as set forth on Schedule 3.6 and the liens of mortgagees of the
real property in which such leasehold estate is located. Except as set forth on
Schedule 3.7.2, the real property leased by the Company is in a state of good
maintenance and repair and is adequate and suitable for the purposes for which
it is presently being used, and there are no material repair or restoration
works likely to be required in connection with any of the leased real
properties. The Company is in physical possession and actual and exclusive
occupation of the whole of each of its leased properties. The Company does not
owe any brokerage commission with respect to any Real Property Lease.
Section 3.8 Contracts. Schedule 3.8 hereto contains an accurate and
complete list of the following Contracts: (a) all employee benefit plans (as
defined in Section 3(3) of the Employee Retirement Income Security Act of 1974,
as amended ("ERISA") and all bonus, incentive, deferred compensation, retiree
medical or life insurance; supplemental retirement, severance or other benefit
plans, programs or arrangements which are maintained by the Company
(collectively, "Plans"); (b) any Personal Property Lease with a fixed annual
rental of $10,000 or more; (c) any Contract relating to capital expenditures
which involves payments of $25,000 or more in any single transaction or series
of related transactions; (d) any Contract relating to the making of a loan or
advance to, or investment in, any other Person; (e) any Contract evidencing or
relating in any way to indebtedness for money borrowed or to be borrowed,
whether directly or indirectly, by way of loan, purchase money obligation,
guarantee (other than the endorsement of negotiable instruments for collection
in the ordinary course of business), conditional sale, purchase or otherwise;
(f) any management service, employment, consulting or similar type of Contract
which is not cancelable by the Company without penalty or other financial
obligation within 30 days; (g) any Contract limiting the Company's freedom to
engage in any line of business or to compete with any other Person, including
agreements limiting the ability of the Company or any of its affiliates to
service competitive accounts during or after the term thereof; (h) any
collective bargaining or union agreement; (i) any Contract with any of its
officers or directors or the Owners not covered by subsection (f) above
(including indemnification agreements); (j) any secrecy or confidentiality
agreement (other than standard confidentiality agreements in computer software
license agreements or agreements with clients entered into in the ordinary
course of business); (k) any Contract with respect to any Intellectual Property
of the Company, other than "shrink-wrap" and similar end-user licenses; (l) any
agreement with a client required to be listed on Schedule 3.16; (m) any joint
venture agreement involving a sharing of profits not covered by clauses (a)
through (l)above; and (n) any Contract (not covered by another subsection of
this Section 3.8) which involves $25,000 or more over the unexpired term thereof
and is not cancelable by the Company without penalty or
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other financial obligation within 30 days. Notwithstanding the foregoing, (x)
production expenses which are fully reimbursable from clients, and (y) estimates
or purchase orders given in the ordinary course of business relating to the
execution of projects, do not have to be set forth on Schedule 3.8. Each
Contract to which the Company is a party, including, but not limited to those
set forth on Schedule 3.8, is in full force and effect, and there exists no
default or event of default by the Company or to the knowledge of the Owners and
the Company, by any other Person, or, except as set forth in Schedule 3.9.2,
occurrence, condition, or act (including the purchase of the Assets hereunder)
which, with the giving of notice, the lapse of time or the happening of any
other event or condition, would become a default or event of default thereunder
by the Company, and there are no outstanding claims of breach or indemnification
or notice of default or termination of any such Contract.
Section 3.9 Non-Contravention; Approvals and Consents.
3.9.1 Non-Contravention . The execution, delivery and performance by the
Company of its obligations hereunder and the consummation of the transactions
contemplated hereby, will not (a) violate, conflict with or result in the breach
of any provision of the Certificate of Incorporation or By-Laws (or other
comparable charter documents) of the Company, or (b) result in the violation by
the Company of any Laws or Orders of any Governmental or Regulatory Authority,
applicable to the Company or any of its assets or properties, or (c) if the
consents and notices set forth on Schedule 3.9.2 are obtained, given or waived,
conflict with, result in a violation or breach of, constitute (with or without
notice or lapse of time or both) a default under, or (except as set forth on
Schedule 3.9.2) require the Company to obtain any consent, approval or action
of, make any filing with or give any notice to, or result in or give to any
Person any right of payment or reimbursement, termination, cancellation,
modification or acceleration of, or result in the creation or imposition of any
Lien upon any of the Assets, under any of the terms, conditions or provisions of
any Contract to which the Company is a party or by which the Company or any of
its assets or properties are bound.
3.9.2 Approvals and Consents. Except as disclosed on Schedule 3.9.2, no
consent, approval or action of, filing with or notice to any Governmental or
Regulatory Authority or other Person is necessary or required under any of the
terms, conditions or provisions of any Law or Order of any Governmental or
Regulatory Authority or any Contract to which the Company is a party or by which
its assets or properties are bound for the execution and delivery of this
Agreement by the Company, the performance by the Company of its obligations
hereunder or the consummation of the transactions contemplated hereby.
Section 3.10 Litigation. Except as set forth on Schedule 3.10, there is no
action, suit, proceeding at law or in equity by any Person, or any arbitration
or any administrative or other proceeding by or before (or to the knowledge of
the Company and the Owners, any investigation by) any Governmental or Regulatory
Authority, pending or, to the knowledge of the Company and the Owners ,
threatened against the Company with respect to this Agreement or the
transactions contemplated hereby, or against or affecting the Company or the
Assets; and to the knowledge of the Company and the Owners, no acts, facts,
circumstances, events or conditions occurred or exist which are a basis for any
such action, proceeding or investigation. Schedule 3.10 also sets forth
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with respect to each pending or threatened action, suit or proceeding listed
thereon, the amount of costs, expenses or damages the Company has incurred to
date and reasonably expects to incur through conclusion thereof. The Company is
not subject to any Order entered in any lawsuit or proceeding.
Section 3.11 Taxes. The Company has timely filed, or caused to be filed,
taking into account any valid extensions of due dates, completely and
accurately, all federal, state, local and foreign tax or information returns
(including estimated tax returns or information returns) required under the
statutes, rules or regulations of such jurisdictions to be filed by the Company
with respect to income, accumulated earnings, franchise, capital stock,
employees' income withholding, back-up withholding, withholding on payments to
foreign persons, social security, unemployment, disability, real property,
personal property, sales, use, excise, transfer and other taxes (including
interest, penalties or additions to tax in respect of the foregoing) whether
disputed or not (all of the foregoing collectively referred to as "Taxes"). All
Taxes shown on said returns to be due and all additional assessments received
prior to the Balance Sheet Date have been paid or are being contested in good
faith, in which case, such contested assessments are set forth on Schedule 3.11.
The amount set up as an accrual for Taxes on the Balance Sheet is sufficient for
the payment of all unpaid Taxes of the Company, whether or not disputed, for all
periods ended on and prior to the date thereof. Since the Balance Sheet Date,
the Company has not incurred any liabilities for Taxes other than in the
ordinary course of business. The Company has delivered to the Purchaser correct
and complete copies of all federal and state income tax returns and information
returns filed with respect to the Company for all taxable periods beginning on
or after January 1, 1997. Except as set forth on Schedule 3.11, none of the
federal, state or local tax returns of the Company (or its Owners with respect
to any items of income or gain pertaining to the Company) has ever been audited
by the Internal Revenue Service or any other Governmental or Regulatory
Authority. No audit or examination of any return of the Company by any
Governmental or Regulatory Authority is currently in progress, and the Company
has not received notice of any proposed audit or examination. No deficiency in
the payment of Taxes by the Company for any period has been asserted in writing
by any taxing authority and remains unsettled at the date of this Agreement. The
Company has not made any agreement, waiver or other arrangement providing for an
extension of time with respect to the assessment or collection of any tax
against it. Except as disclosed on Schedule 3.11, the Company is not (and has
not been since its formation) subject to entity-level income or gross receipts
tax. The Company has not been a member of an affiliated group filing
consolidated federal income tax returns nor has it been included in any combined
consolidated or unitary state or local income tax return. The Company is not a
party to any tax allocation or tax sharing agreement nor does it have any
contractual obligation to indemnify any other person with respect to Taxes. The
Company has not been a United States real property holding corporation within
the meaning of Section 897(c)(2) of the Code within the period specified in
Section 897(c)(1)(A)(ii) of the Code. The Company will not be required as a
result of a change in accounting method for any period ending on or before the
Effective Date or as a result of the transactions contemplated herein to include
any adjustment under Section 481 of the Code (or any similar provision of state,
local or foreign income tax law) in income for any period ending after the
Closing Date.
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Section 3.12 Intentionally Omitted
Section 3.13 Insurance. Schedule 3.13 contains a true and complete list
(including the names and addresses of the insurers, the names of the Persons to
whom such insurance policies have been issued, the expiration dates thereof, the
annual premiums and payment terms thereof, whether it is a "claims made" or an
"occurrence" policy and a brief description of the interests insured thereby) of
all liability, property, workers' compensation and other insurance policies
currently in effect that insure the property, assets or business of the Company
or its employees (other than self-obtained insurance policies by such
employees). Each such insurance policy is valid and binding and in full force
and effect, all premiums due thereunder have been paid and the Company has not
received any notice of cancellation or termination in respect of any such policy
or default thereunder. To the knowledge of the Company and the Owners, such
insurance policies are placed with financially sound and reputable insurers, and
in light of the nature of the Company" business, assets and properties, the
Company believes they are in amounts and have coverage that are reasonable and
customary for persons engaged in such business and having such assets and
properties. Neither the Company nor to the Company's and the Owner's knowledge,
the Person to whom such policy has been issued has received notice that any
insurer under any policy referred to in this Section is denying liability with
respect to a claim thereunder or defending under a reservation of rights clause.
Except as set forth on Schedule 3.13, within the last two years the Company has
not filed for any claims exceeding $25,000 against any of its insurance
policies, exclusive of automobile and health insurance policies. None of such
policies shall lapse or terminate by reason of the transactions contemplated by
this Agreement and all such policies shall continue in effect after the Closing
Date for the benefit of the Purchaser. The Company has not received any notice
of cancellation of any such policy. The Company has not received written notice
from any of its insurance carriers that any premiums will be materially
increased in the future or that any insurance coverage listed on Schedule 3.13
will not be available in the future on substantially the same terms now in
effect.
Section 3.14 Intellectual Properties. Schedule 3.14 hereto contains an
accurate and complete list of all Intellectual Property (as defined below) owned
by the Company and all agreements under which any Person has granted a license
for any Intellectual Property to the Company (other than license agreements for
"off the shelf" third party computer software not included within the Company's
products or services). The Company has all right, title and interest in, a valid
and binding license to use, or has the requisite permission and authority to use
all Intellectual Property used in the conduct of its business. No claim of
infringement or misappropriation of Intellectual Property is or has been pending
or, to the knowledge of the Company and the Owners, threatened against the
Company and/or the Owners and, to the knowledge of the Company and the Owners,
the Company and/or the Owners are not infringing or misappropriating any
Intellectual Property of any Person. The Company has not expressly granted any
license, franchise or permit in effect on the date hereof to any Person to use
any of the trade names or any of the trademarks owned by it. The term
"Intellectual Property" means patents and patent rights, trademarks and
trademark rights, tradenames and tradename rights, service marks and service
mark rights, service names and service name rights, copyright and copyright
rights, trade secrets and trade secret rights, rights of privacy and publicity,
and other proprietary intellectual
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property and personal rights and all pending applications for and registrations
of any of the foregoing.
Section 3.15 Compliance with Laws; Licenses and Permits.
3.15.1 Compliance. The Company is and its business has been conducted, in
compliance with all applicable Laws and Orders, except in each case (other than
with respect to compliance with environmental Laws and Orders relating to the
regulation or protection of the environment; "Environmental Laws and Orders")
where the failure to so comply would not reasonably be expected to have a
Material Adverse Effect, including without limitation: (a) all Laws and Orders
promulgated by the Federal Trade Commission or any other Governmental or
Regulatory Authority; (b) all Environmental Laws and Orders; and (c) all Laws
and Orders relating to labor, civil rights, and occupational safety and health
laws, worker's compensation, employment and wages, hours and vacations, or pay
equity. The Company has not been charged with, or, to the knowledge of the
Company and the Owners threatened with or under any investigation with respect
to, any charge concerning any violation of any Laws or Orders.
3.15.2 Licenses. The Company has all Licenses required by any Governmental
or Regulatory Authority for the operation of its business and the use of its
Assets as presently operated or used, except where the failure to have such
Licenses would not reasonably be expected to have a Material Adverse Effect. All
of the Licenses are in full force and effect and no action or claim is pending,
nor to the knowledge of the Company and the Owners is threatened, to revoke or
terminate any of such Licenses or declare any such License invalid in any
material respect.
Section 3.16 Client Relations. Schedule 3.16 sets forth for the Company
(a) the 10 largest clients (measured by revenues), and the revenues from each
such client and from all clients (in the aggregate) for the calendar year ended
December 31, 1998 and (b) the 10 largest clients (measured by revenues) based on
the Company's results for the period from January 1, 1999 through the date of
this Agreement. Except as set forth on Schedule 3.16, no client of the Company
has advised the Company or the Owners in writing that it is (x) terminating or
considering terminating the handling of its business by the Company as a whole
or in respect of any particular product, project or service or (y) planning to
reduce its future spending with the Company in any material manner; and to the
knowledge of the Company and the Owners (without making any special inquiry of
any clients), no client has orally advised the Company or the Owners of any of
the foregoing events.
Section 3.17 Accounts Receivable; Work-in-Process; Accounts Payable. The
amount of all work-in-process, Accounts Receivable, unbilled invoices (including
without limitation unbilled invoices for services and out-of-pocket expenses)
and other debts due or recorded in the records and books of account of the
Company as being due to the Company and reflected on the Balance Sheet and the
Effective Date Balance Sheet represent or will represent valid obligations
arising from sales actually made or services actually performed in the ordinary
course of business, and to the knowledge of the Company and the Owners, none of
the Accounts Receivable or other debts (or Accounts Receivable arising from any
such work-in-process or unbilled invoices) is or will be subject to any
counterclaim or set-off except to the extent of any provision, reserve or
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adjustment therefor reflected on the Balance Sheet and the Effective Date
Balance Sheet. There has been no material adverse change since the Balance Sheet
Date in the amount or aging of the work-in-process, Accounts Receivable,
unbilled invoices, or other debts due to the Company, or the reserves with
respect thereto, or accounts payable of the Company.
Section 3.18 Employment Relations. (a) Neither the Company nor the Owners
have any knowledge of any acts which would give rise to any unfair labor
practice claims against the Company; (b) no unfair labor practice complaint
against the Company is pending before any Governmental or Regulatory Authority;
(c) there is no organized labor strike, dispute, slowdown or stoppage actually
pending or to the knowledge of the Company and the Owners threatened against or
involving the Company; (d) there are no labor unions representing or, to the
knowledge of the Company and the Owners, attempting to represent the employees
of the Company; (e) no claim or grievance nor any arbitration proceeding arising
out of or under any collective bargaining agreement is pending and to the
knowledge of the Company and the Owners, no such claim or grievance has been
threatened; (f) no collective bargaining agreement is currently being negotiated
by the Company; and (g) the Company has not experienced any work stoppage or
similar organized labor dispute during the last three years. There is no legal
action, suit, proceeding or claim pending or, to the knowledge of the Company
and the Owners, threatened between the Company and any of its employees, former
employees, agents, former agents, job applicants or any association or group of
any of its employees, except as set forth on Schedule 3.10.
Section 3.19 Employee Benefit Plans. Except as set forth on Schedule 3.19,
the Company does not maintain or contribute to any Plan which could in any way
impose any liability on Purchaser as a result of the transactions contemplated
hereby. Each Plan of the Company has been operated materially in accordance with
the requirements of all applicable law, including, without limitation, ERISA and
the Internal Revenue Code of 1986, as amended (the "Code") and the regulations
and authorities published thereunder. All reports, disclosures, notices and
filings with respect to such Plans required to be made to employees,
participants, beneficiaries, alternate payees and government agencies have been
timely made or an extension has been timely obtained. There has been no
prohibited transactions (within the meaning of Section 406 of ERISA or Section
4975 of the Code) with respect to any Plan maintained by the Company. All
contributions, premiums or payments required to be made, paid or accrued with
respect to any such Plan have been made, paid or accrued on or before their due
dates, including extensions thereof.
Section 3.20 Intentionally Omitted
Section 3.21 Bank Accounts and Powers of Attorney. Set forth in Schedule
3.21 is an accurate and complete list showing (a) the name of each bank in which
the Company has an account, credit line or safe deposit box and the names of all
Persons authorized to draw thereon or to have access thereto, and (b) the names
of all Persons, if any, holding powers of attorney from the Company and a
summary statement of the terms thereof.
Section 3.22 Compensation of Employees. Schedule 3.22 is an accurate and
complete list showing (a) the names and positions of all employees and exclusive
consultants who are
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currently being compensated by the Company at an annualized rate of $75,000 or
more, together with a statement of the current annual salary, and the annual
salary, bonus and incentive compensation paid or payable with respect to
calendar years 1998 and 1999, and the material fringe benefits of such employees
and exclusive consultants not generally available to all employees of the
Company; (b) all bonus and incentive compensation paid or payable (whether by
agreement, custom or understanding) to any employee of the Company not listed in
clause (a) above for services rendered during calendar years 1998 and 1999; (c)
the names of all retired employees, if any, of the Company who are receiving or
entitled to receive any healthcare or life insurance benefits or any payments
from the Company not covered by any pension plan to which the Company is a
party, their ages and current unfunded pension rate, if any; and (d) a
description of the current severance and vacation policy of the Company. The
Company has not, because of past practices or previous commitments with respect
to its employees, established any rights on the part of any of its employees to
additional compensation with respect to any period after the Closing Date (other
than wage increases in the ordinary course of business).
Section 3.23 No Changes Since the Balance Sheet Date. Since the Balance
Sheet Date, except as specifically stated on Schedule 3.23, the Company has not
(a) incurred any liability or obligation of any nature (whether accrued,
absolute, contingent or otherwise), except in the ordinary course of business;
(b) permitted any Asset to be subjected to any Lien; (c) sold, transferred or
otherwise disposed of any Asset except in the ordinary course of business; (d)
made any capital expenditure or commitment therefor which individually or in the
aggregate exceeded $25,000; (e) declared or paid any distributions on any
ownership interests in the Company, or redeemed, purchased or otherwise acquired
any of its ownership interests of the Company or any option, warrant or other
right to purchase or acquire any of such ownership interests; (f) made any bonus
or profit sharing distribution; (g) increased or prepaid its indebtedness for
borrowed money, except current borrowings under credit lines listed on Schedule
3.8, or made any loan to any Person other than to any Affected Employee for
normal travel and expense advances; (h) written down the value of any
work-in-process, or written off as uncollectible any notes or Accounts
Receivable, except write-downs and write-offs in the ordinary course of
business, none of which, individually or in the aggregate, is material to the
Company; (i) granted any increase in the rate of wages, salaries, bonuses or
other remuneration of any employee who, whether as a result of such increase or
prior thereto, receives aggregate compensation from the Company at an annual
rate of $50,000 or more, or except in the ordinary course of business to any
other employees; (j) entered into an employment or exclusive consultant
agreement which is not cancelable without penalty or other financial obligation
within 30 days; (k) canceled or waived any claims or rights of material value;
(l) made any change in any method of accounting procedures; (m) otherwise
conducted its business or entered into any transaction, except in the usual and
ordinary manner and in the ordinary course of its business; (n) amended or
terminated any agreement which is material to its business; (o) renewed,
extended or modified any Real Property Lease or except in the ordinary course of
business, any Personal Property Lease; (p) adopted, amended or terminated any
Plan; or (q) agreed, whether or not in writing, to do any of the actions set
forth in any of the above clauses.
Section 3.24 Intentionally Omitted
Section 3.25 Intentionally Omitted
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Section 3.26 Year 2000 Compliant.
3.26.1 Definition. The term "Year 2000 Compliant" shall mean:
(i) the functions, calculations and other computer processes of all
computer hardware, software and systems, including but not limited to
internal and outsourced MIS systems and embedded computer features within
other systems of the Company (collectively, "Processes"), perform properly
in a consistent manner regardless of the date in time on which the
Processes are actually performed and regardless of the date of input to
the software, whether before, on or after January 1, 2000 and whether or
not the dates are affected by leap years;
(ii) the computer hardware, software and systems accept, calculate,
compare, sort, extract, sequence and otherwise process data inputs and
date values, and return and display date values, in a consistent manner
regardless of the dates used, whether before, on or after January 1, 2000;
(iii) the computer hardware, software and systems will function
properly without interruptions or extraordinary manual intervention caused
by the date in time on which the Processes are actually performed or by
the date of input to the software, whether before, on or after January 1,
2000;
(iv) the computer hardware, software and systems accept and respond
to two-digit year data input in the Processes in a manner that resolves
any ambiguities as to the century in a defined, predetermined and
appropriate manner; and
(v) the computer hardware, software and systems store and display
data information in the Processes in ways that are unambiguous as to the
determination of the century.
3.26.2 Computer Systems. Except as set forth on Schedule 3.26, (a) the
current computer hardware, software and systems, and accompanying documentation,
of the Company will be Year 2000 Compliant in a full production version, with
accompanying documentation, in all material respects, on or before December 31,
1999; and (b) the Company will use reasonable efforts to obtain confirmation
that Year 2000 Compliant computer hardware, software and systems will be
provided to the Company in a timely manner under current supplier contracts or
standard maintenance and support plans without additional fee or charge of any
kind (including any installation, freight, or other costs or fees) to the
Company.
3.26.3 Other Products and Services. Except as set forth on Schedule 3.26,
(a) the Company's products will be delivered and its services will be scheduled
and performed in a timely manner without interruptions caused by the date in
time on which the product is ordered or is actually delivered or the services
are scheduled or actually performed under normal procedures in the ordinary
course, whether before, on or after January 1, 2000; and (b) the
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Company has made reasonable efforts to obtain confirmation that the Company's
essential suppliers of products and services, including the suppliers of its
infrastructure systems, have Year 2000 Compliant programs in place to avoid
interruptions in the supplier-customer trading relationship which could have a
Material Adverse Effect, whether before, on or after January 1, 2000.
Section 3.27 Prepayment for Services Except as disclosed on Schedule 3.27,
the Company has not prior to the Effective Date received any payments from any
of its clients with respect to services to be rendered by the Company after the
Effective Date.
Section 3.28 Intentionally Omitted.
Section 3.29 Copies of Documents. The Company has caused to be made
available for inspection and copying by the Purchaser and Paradise and its
advisers, true, complete and correct copies of all documents referred to in this
Article III or in any Schedule. Summaries of all oral contracts contained in
Schedule 3.8 are complete and accurate in all material respects.
ARTICLE IV
REPRESENTATIONS OF THE PURCHASER AND PARADISE
Each of the Purchaser and Paradise, jointly and severally, represent,
warrant and agree to and with the Company and the Owners as follows as of the
Effective Date:
Section 4.1 Existence and Good Standing. Each of the Purchaser and
Paradise is a corporation duly organized, validly existing and in good standing
under the laws of the State of Delaware with full corporate power and authority
to own its property and to carry on its business all as and in the places where
such properties are now owned or operated or such business is now being
conducted, except for jurisdictions where the failure to be so qualified would
not have a Material Adverse Effect. Paradise is qualified to do business in New
York.
Section 4.2 Execution and Validity of Agreement. Each of the Purchaser and
Paradise has the full corporate power and authority to make, execute, deliver
and perform this Agreement by the Purchaser and Paradise and the transactions
contemplated hereby. The execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby have been duly authorized
by all required corporate action on behalf of the Purchaser and Paradise, and
this Agreement has been duly and validly executed and delivered by the Purchaser
and Paradise and, assuming due authorization, execution and delivery by the
Company and the Owners, constitutes legal, valid and binding obligations of the
Purchaser, enforceable against it in accordance with its terms.
Section 4.3 No Restrictions. There is no suit, action, claim,
investigation or inquiry by any Governmental or Regulatory Authority, and no
legal, administrative or arbitration proceeding pending or, to the knowledge of
Purchaser and Paradise, threatened against the Purchaser or
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Paradise with respect to the execution, delivery and performance of this
Agreement or the transactions contemplated hereby, and to the knowledge of
Paradise and the Purchaser, no acts, facts, circumstances, events or conditions
occurred or exist which are a basis for any such action, proceeding or
investigation.
Section 4.4 Non-Contravention; Approvals and Consents.
4.4.1 Non-Contravention. The execution, delivery and performance by each
of the Purchaser and Paradise of its obligations hereunder and the consummation
of the transactions contemplated hereby will not (a) violate, conflict with or
result in the breach of any provision of the Certificate of Incorporation or
By-laws of the Purchaser or Paradise, or (b) result in the violation by the
Purchaser or Paradise of any Laws or Orders of any Governmental or Regulatory
Authority applicable to the Purchaser or any of its assets or properties, or (c)
result in a violation or breach of, constitute (with or without notice or lapse
of time or both) a default under, or except as set forth on Schedule 4.4.1,
require the Purchaser or Paradise to obtain any consent, approval or action of,
make any filing with or give any notice to, or result in or give to any Person
any right of payment or reimbursement, termination, cancellation, modification
or acceleration of, or result in the creation or imposition of any Lien upon any
of the assets or properties of the Purchaser or Paradise, under any of the
terms, conditions or provisions of any contract to which the Purchaser or
Paradise is a party or by which the Purchaser or Paradise or any of their
respective assets or properties are bound.
4.4.2 Approvals and Consents. Except as set forth on Schedule 4.4.1, no
consent, approval or action of, filing with or notice to any Governmental or
Regulatory Authority or other public or private third party is necessary or
required under any of the terms, conditions or provisions of any Law or Order of
any Governmental or Regulatory Authority or any contract to which the Purchaser
or Paradise is a party or by which the Purchaser or Paradise or any of their
assets or properties are bound for the execution and delivery of this Agreement
by the Purchaser and Paradise, the performance by the Purchaser and Paradise of
their obligations hereunder or the consummation of the transactions contemplated
hereby by the Purchaser and Paradise.
Section 4.5 Compliance with Laws; Licenses and Permits.
4.5.1 Compliance. Each of Paradise and the Purchaser is and its business
has been conducted, in compliance with all applicable Laws and Orders, except in
each case (other than with respect to compliance with environmental Laws and
Orders relating to the regulation or protection of the environment;
"Environmental Laws and Orders") where the failure to so comply would not
reasonably be expected to have a Material Adverse Effect, including without
limitation: (a) all Laws and Orders promulgated by the Federal Trade Commission
or any other Governmental or Regulatory Authority; (b) all Environmental Laws
and Orders; and (c) all Laws and Orders relating to labor, civil rights, and
occupational safety and health laws, worker's compensation, employment and
wages, hours and vacations, or pay equity. Neither Paradise nor the Purchaser
has been charged with, or, to the knowledge of Paradise and the Purchaser
threatened with or under any investigation with respect to, any charge
concerning any violation of any Laws or Orders.
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4.5.2 Licenses. Each of Paradise and the Purchaser has all Licenses
required by any Governmental or Regulatory Authority for the operation of its
business and the use of its assets as presently operated or used, except where
the failure to have such Licenses would not reasonably be expected to have a
Material Adverse Effect. All of the Licenses are in full force and effect and no
action or claim is pending, nor to the knowledge of Paradise and the Purchaser
is threatened, to revoke or terminate any of such Licenses or declare any such
License invalid in any material respect.
Section 4.6 Paradise Stock. The shares of Paradise Stock to be delivered
to the Company pursuant to this Agreement, when delivered as provided herein,
will be validly issued and outstanding shares of voting common stock of
Paradise, fully paid and non-assessable, and will not be subject to pre-emptive
rights of any Person.
Section 4.7 Brokers. No broker, finder, agent or similar intermediary has
acted on behalf of the Purchaser, Paradise or any of their affiliates in
connection with this Agreement or the transactions contemplated hereby, and no
brokerage commissions, finders' fees or similar fees or commissions are payable
by the Purchaser, Paradise or any of their affiliates in connection therewith
based on any agreement, arrangement or understanding with any of them.
ARTICLE V
COVENANTS OF THE COMPANY AND THE OWNERS
The Company and the Owners covenant and agree with Paradise and the
Purchaser that, at all times from and after the Execution Date until the Closing
or earlier termination of this Agreement, the Company and the Owners will comply
with all covenants and provisions of this Article V, except to the extent
Paradise (on behalf of itself and the Purchaser) may otherwise consent in
writing.
Section 5.1 Regulatory and Other Approvals. Subject to the confidentiality
provisions of Section 12.8, the Company and the Owners will take all
commercially reasonable steps necessary or desirable, and proceed diligently and
in good faith and use all commercially reasonable efforts, as promptly as
practicable to obtain all consents and approvals required of the Company and
Owners to consummate the transactions contemplated hereby. The Company and
Owners will provide prompt notification to Paradise when any such consent or
approval is obtained.
Section 5.2 Investigation by Paradise and the Purchaser. Subject to the
confidentiality provisions of Section 12.8, the Company and the Owners will (a)
provide Paradise and the Purchaser and their respective officers, employees,
counsel, accountants, financial advisors, consultants and other representatives
(collectively, "Representatives") with full access, upon reasonable prior notice
and during normal business hours, to the executive officers and agents of the
Company who have any material responsibility for the conduct of the business of
the Company and to the Company's accountants and their work papers, but only to
the extent that such access
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does not unreasonably interfere with the business of the Company and (b) furnish
Paradise, the Purchaser and the Representatives with all such information and
data concerning the business of the Company as Paradise, the Purchaser or the
Representatives reasonably may request in connection with such investigation,
except to the extent that furnishing any such information or data would violate
any Law, Order, Contract or License applicable to the Company.
Section 5.3 No Solicitations. Neither the Company nor the Owners will
take, nor will they permit any affiliate of the Company or the Owners (or
authorize or permit any investment banker, financial advisor, attorney,
accountant or other Person retained by or acting for or on behalf of the
Company, the Owners or any such affiliate) to take, directly or indirectly, any
action to solicit, encourage, negotiate, assist or otherwise facilitate
(including by furnishing confidential information with respect to the business
of the Company or permitting access to the Assets of the Company ) any offer or
inquiry concerning the acquisition of the Company (whether by sale of assets,
sale of stock, merger or otherwise) from any Person other than Paradise or the
Purchaser.
Section 5.4 Conduct of Business. From the Execution Date to the Closing
Date or earlier termination of this Agreement, except as contemplated or
otherwise permitted under the terms of this Agreement, the Company and the
Owners will operate the business of the Company only in the ordinary course
consistent with past practice. Without limiting the generality of the foregoing,
except as contemplated by or otherwise permitted by the terms of this Agreement
or any Schedule to this Agreement, the Company will refrain and the Owners will
cause the Company to refrain, from taking any of the following actions unless
consented to in writing by Paradise (on behalf of itself and the Purchaser),
which consent shall not be unreasonably withheld:
(i) selling, leasing or otherwise disposing of all or substantially all
of its assets or business;
(ii) amending its Certificate of Formation or operating agreement;
(iii) changing its capitalization;
(iv) engaging in any acquisition of the stock, assets or business of
another Person or making any equity investment of funds of the
Company in another Person other than short-term investments in cash
equivalents;
(v) merging or consolidating with and into any Person or merging or
consolidating any Person with and into it;
(vi) engaging in any liquidation or dissolution;
(vii) making any loans to any Person other than normal employee travel and
expense advances consistent with past practice.
(viii) entering into any real estate, lease or personal property lease;
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(ix) granting any compensation increase to any existing employee whose
compensation is or will become (as a result of such increase) over
$75,000;
(x) entering into any contract or agreement with any officer, manager or
employee;
(xi) declaring or paying any distributions to its Owners or bonuses to
any employees except as set forth in Schedule 3.23;
(xii) amending any Contract in any material respect;
(xiii)entering into any severance agreement involving a payment, or
obligation to pay, any amount in excess of the Company's normal
severance benefit;
(xiv) releasing, canceling or assigning any indebtedness for borrowed
money owed to it, or waiving any material right relating to its
properties;
(xv) creating or modifying any Plan or entering into or modifying any
employment agreement which is not cancelable without penalty or
other obligation on 30 days notice;
(xvi) entering into any transaction or performing any act which would be
reasonably likely to result in any of the representations and
warranties of the Company and the Owners contained in this Agreement
not being true and correct; or agreeing to take any of the actions
that are prohibited herein or which would constitute a violation of
any of the covenants of the Company and the Owners contained herein;
and
(xvii) delegating to any other Person the power to take any of the actions
prohibited by any of the foregoing clauses.
Section 5.5 Notice and Cure. The Company or the Owners will notify
Paradise in writing of, and contemporaneously will provide Paradise with true
and complete copies of any and all information or documents relating to, and
will use all commercially reasonable efforts to cure before the Closing, any
event, transaction or circumstance, as soon as practicable after it becomes
known to the Company or the Owners, occurring after the Execution Date that
causes or will cause any covenant or agreement of the Company or the Owners
under this Agreement to be breached or that renders or will render untrue any
representation or warranty of the Company or the Owners contained in this
Agreement as if the same were made on or as of the date of such event,
transaction or circumstance. The Company or the Owners also will notify Paradise
in writing of, and will use all commercially reasonable efforts to cure, before
the Closing, any other violation or breach, as soon as practicable after it
becomes known to the Company or the Owners, of any representation, warranty,
covenant or agreement made by the Company or the Owners in this Agreement. No
notice given pursuant to this Section shall have any effect on the
representations, warranties, covenants or agreements contained in this Agreement
for purposes of
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determining satisfaction of any condition contained herein; provided, however,
if the Company or the Owners have cured such violation or breach prior to the
Closing to the reasonable satisfaction of Paradise, Paradise and the Purchaser
shall not have the right to terminate this Agreement based on such violation or
breach.
Section 5.6 Fulfillment of Conditions. The Company and each Owner will
execute and deliver at the Closing each agreement that the Company and each
Owner is required hereby to execute and deliver as a condition to the Closing,
will take all commercially reasonable steps necessary or desirable and proceed
diligently and in good faith to satisfy each other condition to the obligations
of Paradise and the Purchaser contained in this Agreement.
ARTICLE VI
COVENANTS OF PARADISE AND THE PURCHASER
Paradise and the Purchaser covenant and agree with the Company and the
Owners that, at all times from and after the Execution Date until the Closing or
the earlier termination of this Agreement, Paradise and the Purchaser will
comply with all covenants and provisions of this Article VI, except to the
extent the Company and the Owners may otherwise consent in writing.
Section 6.1 Regulatory and Other Approvals. Paradise and the Purchaser
will (a) take all commercially reasonable steps necessary or desirable, and
proceed diligently and in good faith and use all commercially reasonable
efforts, as promptly as practicable to obtain all consents, approvals or actions
of, to make all filings with and to give all notices to Governmental or
Regulatory Authorities or any other Person required of Paradise or the Purchaser
to consummate the transactions contemplated hereby, including without limitation
those described on Schedule 4.4.1, (b) provide such other information and
communications to such Governmental or Regulatory Authorities or other Persons
as such Governmental or Regulatory Authorities or other Persons may reasonably
request in connection therewith and (c) provide reasonable cooperation to the
Company and the Owners in obtaining all consents or approvals required of the
Company and the Owners to consummate the transactions contemplated hereby.
Paradise will provide prompt notification to the Company and the Owners when any
such consent, approval, action, filing or notice referred to in clause (a) above
is obtained, taken, made or given, as applicable.
Section 6.2 Investigation by the Company and the Owners. Paradise and the
Purchaser will (a) provide the Company and the Owners and their respective
officers, employees, counsel, accountants, financial advisors, consultants and
other representatives (collectively, "Representatives") with full access, upon
reasonable prior notice and during normal business hours, to the executive
officers and agents of Paradise who have any material responsibility for the
conduct of the business of Paradise and to Paradise's accountants and their work
papers, but only to the extent that such access does not unreasonably interfere
with the business of Paradise and (b) furnish the Company, the Owners and the
Representatives with all such information and data concerning the business of
Paradise as the Company, the Owners or the Representatives reasonably may
request in connection with such investigation, except to the extent
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that furnishing any such information or data would violate any Law, Order,
Contract or License applicable to the Company.
Section 6.3 Notice and Cure. Paradise or the Purchaser will notify the
Company and the Owners in writing of, and contemporaneously, will provide the
Company and the Owners with true and complete copies of any and all information
or documents relating to, and will use all commercially reasonable efforts to
cure before the Closing, any event, transaction or circumstance, as soon as
practicable after it becomes known to Paradise or the Purchaser, occurring after
the Execution Date that causes or will cause any covenant or agreement of
Paradise or the Purchaser under this Agreement to be breached or that renders or
will render untrue any representation or warranty of Paradise or the Purchaser
contained in this Agreement as if the same were made on or as of the date of
such event, transaction or circumstance. Paradise or the Purchaser also will
notify the Company and the Owners in writing of, and will use all commercially
reasonable efforts to cure, before the Closing, any other violation or breach,
as soon as practicable after it becomes known to Paradise or the Purchaser, of
any representation, warranty, covenant or agreement made by Paradise or the
Purchaser in this Agreement. No notice given pursuant to this Section shall have
any effect on the representations, warranties, covenants or agreements contained
in this Agreement for purposes of determining satisfaction of any condition
contained herein; provided, however, if Paradise or the Purchaser have cured
such violation or breach prior to the Closing to the reasonable satisfaction of
the Company and the Owners, the Company and the Owners shall not have the right
to terminate this Agreement based on such violation or breach.
Section 6.4 Fulfillment of Conditions. Paradise and the Purchaser will
execute and deliver or cause the execution and delivery at the Closing each
agreement that Paradise and the Purchaser or one of their affiliates is hereby
required to execute and deliver as a condition to the Closing, will take all
commercially reasonable steps necessary or desirable and proceed diligently and
in good faith to satisfy each other condition to the obligations of the Company
and the Owners contained in this Agreement.
Section 6.5 Blue Sky. Paradise and the Purchaser will use their best
efforts to obtain all necessary state securities and blue sky authorizations
required to issue the Paradise Stock as contemplated by this Agreement.
ARTICLE VII
MUTUAL COVENANTS
Paradise, the Purchaser, the Company and the Owners mutually covenant and
agree with each other as follows:
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Section 7.1 Reasonable Efforts to Consummate Transaction. Paradise, the
Purchaser, the Company and the Owners will each use its reasonable efforts and
will fully cooperate with each other to consummate the transactions contemplated
by this Agreement.
Section 7.2 Public Announcements.Paradise, the Purchaser, the Company and
the Owners will consult with each other before issuing any press releases or
otherwise making any public statements with respect to this Agreement or any of
the transactions contemplated hereby and shall not issue any such press release
or make any public statement without the prior consent of the other parties
which shall not be unreasonably withheld, except as may be required by law or by
obligations pursuant to any listing agreements with any securities exchange.
ARTICLE VIII
CONDITIONS TO OBLIGATIONS OF PARADISE AND THE PURCHASER
The obligations of the Purchaser hereunder to purchase the Assets and
issue the Paradise stock and to assume and pay, perform and discharge the
Assumed Liabilities are subject to the fulfillment, at or before the Closing, of
each of the following conditions (except with respect to Section 8.4, all or any
of which may be waived in whole or in part by Paradise, on behalf of itself and
the Purchaser, in its sole discretion):
Section 8.1 Representations and Warranties. The representations and
warranties made by the Company and the Owners in this Agreement, or in any
Schedule delivered pursuant hereto, shall be true and correct in all material
respects on and as of the Closing Date with the same force and effect as though
made on and as of the Closing Date or, in the case of representations and
warranties made as of a specified date earlier than the Closing Date, on and as
of such earlier date, and Company and the Owners shall have delivered to
Paradise and the Purchaser a certificate, dated the Closing Date, to such
effect.
Section 8.2 Good Standing and Tax Certificates The Company and the Owners
shall have delivered to Paradise and the Purchaser (i) a copy of the Company's
Articles of Organization, including all amendments, certified by the Secretary
of State (or comparable official) of the State of California, (ii) a certificate
from the Secretary of State (or comparable official) of the State of California,
to the effect that the Company is in good standing in California and (iii) a
certificate as to the tax status of the Company in the State of California.
Section 8.3 Performance. The Company and the Owners shall have performed
and complied with the agreements, covenants and obligations required by this
Agreement to be so performed or complied with by the Company and the Owners at
or before the Closing, and the Company and the Owners shall have delivered to
Paradise and the Purchaser a certificate, dated the Closing Date, to such
effect.
Section 8.4 Certified Resolutions. The Company and the Owners shall have
delivered to Paradise and the Purchaser a copy of resolutions of the Owners of
the Company authorizing the
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execution, delivery and performance of this Agreement and the transactions
contemplated hereby, certified to by a manager or officer of the Company.
Section 8.5 No Litigation. There shall not be pending any litigation,
proceeding, investigation, review, arbitration or claim by Governmental or
Regulatory Authority, and no preliminary or permanent injunction or other order
shall have been issued, to restrain or invalidate the consummation by the
Company and the Owners of this Agreement and the transactions contemplated
hereby, and no material litigation shall be pending or to the knowledge of the
Company and the Owners threatened against the Company or the Owners with respect
to this Agreement or the transactions contemplated hereby or arising out of the
actions required or permitted to be taken by any of them pursuant to this
Agreement, or against or affecting either the Company or the Owners or any of
their properties or rights which, if adversely determined, would be reasonably
likely to have a Material Adverse Effect.
Section 8.6 Regulatory Consents and Approvals. All consents, approvals and
actions of, filings with and notices to any Governmental or Regulatory Authority
necessary to permit Paradise, the Purchaser, the Company and the Owners to
perform their obligations under this Agreement and to consummate the
transactions contemplated hereby shall have been duly obtained, made or given
and shall be in full force and effect.
Section 8.7 Required Approvals, Notices and Consents. The Company and the
Owners shall have obtained or given, as the case may be, at no expense to
Paradise or the Purchaser and there shall not have been withdrawn or modified
any notices, consents, approvals or other actions listed on Schedule 3.9.2
hereof (including without limitation, obtaining all consents, approvals and/or
waivers required under the contracts listed on Schedule 3.8 in order to permit
the consummation of the transactions contemplated by this Agreement without
causing or resulting in a default, event of default, acceleration event or
termination event under any of such documents and without entitling any party to
any of such documents to exercise any other right or remedy adverse to the
interests of Paradise, the Purchaser or the Company thereunder). Each such
consent shall be in form reasonably satisfactory to counsel for Paradise and the
Purchaser.
Section 8.8 Employment Agreements. Dylan shall have entered into an
Employment Agreement with Paradise, in the form of Exhibit A-1 hereto and
Rodgers shall have entered into an Employment Agreement with the Purchaser in
the form of Exhibit A-2 hereto.
Section 8.9 Opinion of Counsel. Paradise and the Purchaser shall have
received (i) the opinion of Cohen, Primiani & Foster, counsel to the Company and
Dylan, dated the Closing Date, substantially in the form and to the effect of
Exhibit B-1 hereto, and (ii) the opinion of James A. Melman, Esq., counsel to
Rodgers, dated the Closing Date, substantially in form and to the effect of
Exhibit B-2 hereto.
Section 8.10 Repayment of Loans. All indebtedness of the Owners to the
Company, if any, shall have been repaid in full, other than routine travel and
expense advances in the ordinary course of business consistent with past
practice, and the Company and the Owners shall have delivered to Paradise and
the Purchaser a certificate, dated the Closing Date, to such effect.
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Section 8.11 Material Adverse Effect. Except for the execution and
delivery of this Agreement and the transactions required or permitted to take
place pursuant hereto on or prior to the Closing Date, since the Execution Date
there shall not have occurred any Material Adverse Effect, or any event or
development which, individually or together with such events, could reasonably
be expected to result in a Material Adverse Effect and the Company and Owners
shall have delivered to Paradise and the Purchaser, a certificate dated the
Closing Date to such effect.
Section 8.12 Proceedings. All proceedings to be taken in connection with
the transactions contemplated by this Agreement and all documents incident
thereto must be reasonably satisfactory in form and substance to Paradise and
the Purchaser, and Paradise and the Purchaser shall have received copies of all
such documents and other evidences as Paradise and the Purchaser may reasonably
request in order to establish the consummation of such transactions and the
taking of all proceedings in connection therewith.
Section 8.13 Spur & Buckle, Inc. On the Closing Date, the transactions
contemplated in the Stock Purchase Agreement of even date herewith between
Paradise and Dylan (the "Spur & Buckle, Inc. Agreement") shall have been
consummated contemporaneously with the Closing hereunder.
Section 8.14 Working Capital. Appropriate working capital lines of credit,
as determined by Paradise and subject to the reasonable approval of the Owners,
shall have been obtained for the Purchaser and Paradise.
Section 8.15 Brambilla Release. The Company and the Owners shall have
received (and delivered a copy to Paradise) a release from Marco Brambilla
releasing the Company and the Owners from all claims.
Section 8.16 Net Worth The Net Worth (as defined below) of the Company as
of the Effective Date shall not have been less than $1.00, as finally determined
pursuant to the procedures set forth in Section 2.1.2 above. As used in this
Section 8.16, the term "Net Worth" shall mean the aggregate net book value of
the Company as represented by the aggregate value of the Assets, minus the
aggregate value of the Assumed Liabilities, conveyed or assumed under this
Agreement, calculated in accordance GAAP.
Section 8.17 Financial Statements The Company and the Owners shall have
delivered Schedule 3.4 (Financial Statements) to Paradise and the Purchaser;
provided, however, failure to deliver said Schedule 3.4 shall not be a breach of
this Agreement by the Company and/or the Owners.
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ARTICLE IX
CONDITIONS TO OBLIGATIONS OF THE COMPANY AND THE OWNERS
The obligations of the Company and the Owners hereunder to sell the Assets
are subject to the fulfillment, at or before the Closing, of each of the
following conditions (except with respect to Section 9.6, all or any of which
may be waived in whole or in part by the Company and the Owners in their sole
discretion):
Section 9.1 Representations and Warranties. The representations and
warranties made by Paradise and the Purchaser in this Agreement or in any
Schedule delivered pursuant hereto, shall be true and correct in all material
respects on and as of the Closing Date with the same force and effect as though
made on and as of the Closing Date, and Paradise and the Purchaser shall have
delivered to the Company and the Owners a certificate, dated the Closing Date,
to such effect.
Section 9.2 Performance. Paradise and the Purchaser shall have performed
and complied with the agreements, covenants and obligations required by this
Agreement to be so performed or complied with by Paradise and the Purchaser at
or before the Closing, and Paradise and the Purchaser shall have delivered to
the Company and the Owners a certificate, dated the Closing Date, to such
effect.
Section 9.3 Certified Resolutions. Paradise and the Purchaser shall have
delivered to the Company and the Owners a copy of the resolutions of the boards
of directors of each of Paradise and the Purchaser authorizing the execution,
delivery and performance of this Agreement and the transactions contemplated
hereby, certified to by an officer of Paradise and the Purchaser, respectively.
Section 9.4 No Litigation. There shall not be pending any litigation,
proceeding, investigation, review, arbitration or claim by Governmental or
Regulatory Authority, and no preliminary or permanent injunction or other order
shall have been issued to restrain or invalidate the consummation by Paradise or
the Purchaser of this Agreement and the transactions contemplated hereby, and no
material litigation shall be pending or to the knowledge of Paradise and the
Purchaser, threatened against Paradise or the Purchaser with respect to this
Agreement or the transactions contemplated hereby or arising out of the actions
required or permitted to be taken by any of them pursuant to this Agreement, or
against or affecting either Paradise or the Purchaser or any of their properties
or rights which, if adversely determined, would be reasonably likely to have a
Material Adverse Effect.
Section 9.5 Regulatory Consents and Approvals. All consents, approvals and
actions of, filings with and notices to any Governmental or Regulatory Authority
necessary to permit the Company and the Owners, Paradise and the Purchaser to
perform their obligations under this Agreement and to consummate the
transactions contemplated hereby shall have been duly obtained, made or given
and shall be in full force and effect.
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Section 9.6 Paradise Stockholder Approval. The special meeting of
stockholders of Paradise shall have been duly held and at such meeting the
requisite affirmative vote of Paradise stockholders shall have been recorded to
authorize and to approve the transactions contemplated hereby in accordance with
applicable provisions of Delaware law.
Section 9.7 Employment Agreements. Paradise shall have entered into an
Employment Agreement with Dylan in the form of Exhibit A-1 hereto and the
Purchaser shall have entered into an Employment Agreement with Rodgers in the
form of Exhibit A-2 hereto.
Section 9.8 Opinion of Counsel. The Company and the Owners shall have
received the opinion of Davis & Gilbert LLP, counsel to Paradise and the
Purchaser, dated the Closing Date, substantially in the form and to the effect
of Exhibit C hereto.
Section 9.9 Proceedings. All proceedings to be taken on the part of
Paradise and the Purchaser in connection with the transactions contemplated by
this Agreement and all documents incident thereto shall be reasonably
satisfactory in form and substance to the Company and the Owners , and the
Company and the Owners shall have received copies of all such documents and
other evidences as the Company and the Owners may reasonably request in order to
establish the consummation of such transactions and the taking of all
proceedings in connection therewith.
Section 9.10 Material Adverse Effect. Since the Execution Date there shall
not have occurred any Material Adverse Effect, or any event or development
which, individually or together with such events, could reasonably be expected
to result in a Material Adverse Effect and Paradise shall have delivered to the
Company and the Owners a certificate, dated the Closing Date, to such effect.
Section 9.11 Spur & Buckle, Inc. Acquisition Agreement. On the Closing
Date, the transactions contemplated by the Spur & Buckle Agreement shall have
been consummated contemporaneously with the Closing hereunder.
Section 9.12 Working Capital. Appropriate working capital lines of credit,
as determined by Paradise and subject to the reasonable approval of the Owners,
shall have been obtained for the Purchaser and Paradise.
Section 9.13 Insurance Policy. The Company and the Owners shall have
approved the terms of Paradise's Directors and Officers Errors and Omissions
Insurance policy.
Section 9.14 Brambilla Release. The Company and the Owners shall have
received a release from Marco Brambilla releasing the Company and the Owners
from all claims.
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ARTICLE X
ADDITIONAL AGREEMENTS
Section 10.1 Change of Doing Business Name of the Company. At the Closing,
the Company shall execute appropriate documents to change its doing business
name to a name not including the "Straw Dogs" designation, or any variation
thereof, and promptly thereafter shall file such documents with the appropriate
authorities in California.
Section 10.2 [Intentionally Omitted]
Section 10.3 Agreements Regarding Employees After Closing
10.3.1 Affected Employees. The Purchaser shall offer employment to all of
the employees of the Company effective as of the Closing Date. Such personnel
who accept such employment (the "Affected Employees") will be employed by the
Purchaser with the same salaries and wages under which such Affected Employees
were employed by the Company immediately prior to the Closing Date (other than
as may be provided in the Employment Agreements referred to in Section 8.8
above), but nothing herein contained shall be deemed to create an employment
contract between the Purchaser and/or any of its affiliates and any such
Affected Employee. With respect to any welfare benefits plans (within the
meaning of Section 3(1) of ERISA) maintained by the Purchaser or Paradise in
which an Affected Employee may participate on or after the Closing Date, the
Purchaser or Paradise shall use its reasonable commercial efforts (i) to waive
any pre-existing condition limitations, (ii) to give effect in determining
deductible and maximum out-of-pocket limitations to claims incurred and amounts
paid by and amounts reimbursed to, such employees with respect to similar plans
maintained by the Company prior to the Closing Date and (iii) to permit those
Affected Employees who are eligible as of the Closing Date to participate in the
Company's applicable welfare plans to participate immediately in any applicable
welfare plan of the Purchaser or Paradise. In the event any employee of the
Company shall be deemed to have been terminated solely by reason of the
consummation of this Agreement, all liability for severance benefits or damages
shall be borne by the Company. Employees of the Company that become employees of
the Purchaser shall be subject to all rules, regulations, requirements and
policies applicable to all new hires of the Purchaser (except as otherwise
provided in this Section 10.3), and any such employees who may be subsequently
terminated will be entitled to severance benefits in accordance with the policy
of the Purchaser as then applicable, except to the extent that written
agreements with such employees that are assumed by the Purchaser or subsequently
entered into, provide otherwise.
10.3.2 Service Credit. To the extent that any plan, program, practice,
policy, arrangement or agreement providing compensation or benefits to an
Affected Employee takes into account a participant's service with the Purchaser,
whether for the purposes of determining eligibility, vesting, level or benefits
or otherwise, the Affected Employee's service shall include his or her whole and
partial years of service with the Company prior to the Closing Date.
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Section 10.4 Apportioned Obligations. All real property taxes, personal
property taxes and similar ad valorem obligations levied with respect to the
Assets for a taxable period which includes (but does not end on) the Effective
Date (collectively, the "Apportioned Obligations") shall be apportioned between
the Company and the Purchaser on the Closing Date based on the number of days of
such taxable period included in the Pre-Effective Tax Period and the number of
days of such taxable period included in the Post-Effective Date Tax Period. The
Company shall be liable for the proportionate amount of such taxes that is
attributable to the Pre-Effective Date Tax Period, and the Purchaser shall be
liable for the proportionate amount of such taxes that is attributable to the
Post-Effective Date Tax Period. After the Closing Date, the Company and the
Purchaser shall cooperate to ensure timely payment of all the Apportioned
Obligations in accordance with the foregoing principles. For the purposes of the
foregoing, "Pre-Effective Date Tax Period" means any Tax period (or portion
thereof) ending on or before the close of business on the Effective Date; and
"Post-Effective Date Tax Period" means any Tax period (or portion thereof)
ending after the Effective Date.
Section 10.5 Tax Liability. To the extent that the transfer of any Assets
to the Purchaser gives rise to sales tax liability or other transfer, purchase
or recordation documentary tax and fees (collectively, "Sales Taxes"), the
Company shall promptly pay such Sales Taxes to the appropriate tax authorities.
Section 10.6 Successor Employer. If applicable, the Purchaser agrees that
it shall elect treatment as a "successor employer" for withholding tax purposes
with respect to the 1999 calendar year.
Section 10.7 Name of Purchaser. The parties hereto agree that immediately
after the Closing, the corporate name of the Purchaser will be changed to "Straw
Dogs, Inc."
Section 10.8 Termination. This Agreement may be terminated and the sale of
Assets and other transactions contemplated herein may be abandoned at any time
prior to the Closing, notwithstanding the adoption of this Agreement by the
Owners of the Company or the stockholders of Paradise by:
(a) mutual consent of the Boards of Directors of each of the
Company, Paradise and the Purchaser and the Owners of the Company;
(b) either Paradise and the Purchaser, on the one hand, or the
Company and the Owners , on the other hand, (provided the terminating party is
not then in breach hereof and has not received notice of any breach) if the
other party breaches its representations, warranties or covenants hereunder in
any material respect and such breach is not cured within 15 days after the
delivery of written notice thereof to such breaching party unless the breach of
any such representation, warranty, or covenant does not materially adversely
affect the business or assets of the breaching party or the ability of any or
all parties to consummate the transactions contemplated hereby;
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(c) the Boards of Directors of either Paradise and the Purchaser or
the Company and the Owners of the Company in the event a final and nonappealable
order, decree or judgment of any court, agency, commission or governmental
authority is issued or existing against the parties or any of them or any of
their directors which would enjoin the transactions contemplated hereby; or
(d) either Paradise and the Purchaser, on the one hand, or the
Company and the Owners, on the other hand, if the Closing Date has not occurred
prior to the close of business on September 30, 1999.
Section 10.9 Effect of Termination. If this Agreement is terminated as
provided in Section 10.8 hereof, this Agreement (except as otherwise herein
provided) shall forthwith become void and there shall be no liability on the
part of any party hereto or its respective officers or directors arising from
the act of such permitted termination. Nothing herein shall preclude, however,
any action or claim for damages to which any party is otherwise entitled as a
result of breach by the other party hereto. In the event of any termination,
each of the parties shall promptly return to the other, all documents and other
written information received from the other in connection with the transactions
contemplated by this Agreement and shall not retain any copies or summaries
thereof.
Section 10.10 Registration Rights. After the Closing Date, the Owners
shall have the registration rights set forth in Appendix A to this Agreement
with respect to the Paradise Stock acquired by them pursuant to this Agreement.
ARTICLE XI
SURVIVAL; INDEMNITY
Section 11.1 Survival. Notwithstanding any right of any party hereto fully
to investigate the affairs of any other party, and notwithstanding any knowledge
of facts determined or determinable pursuant to such investigation or right of
investigation, each party hereto shall have the right to rely fully upon the
representations, warranties, covenants and agreements of the other parties
contained in this Agreement and the Schedules, if any, furnished by any other
party pursuant to this Agreement, or in any certificate delivered at the Closing
by any other party. Subject to the limitations set forth in Sections 11.5.2,
11.5.3 and 11.5.4, the respective representations, warranties, covenants and
agreements (including but not limited to, the confidentiality obligations of
Section 12.8) of the Company, the Owners, Paradise and the Purchaser contained
in this Agreement shall survive the Closing.
Section 11.2 Obligation of the Owners to Indemnify
11.2.1 General Indemnity Subject to the limitations contained in Section
11.5, each of the Owners hereby severally agrees to indemnify Paradise, the
Purchaser and their affiliates, shareholders, officers, directors, employees,
agents, representatives and successors, permitted assignees of the Paradise the
Purchaser and their affiliates (individually a "Purchaser
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Indemnified Party" and collectively, the "Purchaser Indemnified Parties")
against, and to protect, save and keep harmless the Purchaser Indemnified
Parties from, and to pay on behalf of or reimburse the Purchaser Indemnified
Parties as and when incurred for, any and all liabilities (including liabilities
for Taxes), obligations, losses, damages, penalties, demands, claims, actions,
suits, judgments, settlements, penalties, interest, out-of-pocket costs,
expenses and disbursements (including reasonable costs of investigation, and
reasonable attorneys', accountants' and expert witnesses' fees) of whatever kind
and nature (collectively, "Losses"), that may be imposed on or incurred by any
Purchaser Indemnified Party as a consequence of, in connection with, incident
to, resulting from or arising out of or in any way related to or by virtue of:
(a) any misrepresentation, inaccuracy or breach of any warranty or
representation contained in Article III.B hereof or in any certificate delivered
by the Company or the Owners at the Closing; (b) any action, demand, proceeding,
investigation or claim by any third party (including any Governmental or
Regulatory Authority) against or affecting any Purchaser Indemnified Party which
may give rise to or evidence the existence of or relate to a misrepresentation
or breach of any of the representations and warranties of the Company or the
Owners contained in Article III.B hereof or in any certificate delivered by the
Owners at the Closing; (c) any breach or failure by the Company or the Owners to
comply with, perform or discharge any obligation, agreement or covenant by the
Company or the Owners contained in this Agreement; and (d) any liability or
obligation or any assertion against any Purchaser Indemnified Party, arising out
of or relating, directly or indirectly, to any Retained Liability.
11.2.2 Special Indemnity. Subject to the limitations contained in Section
11.5, each of the Owners hereby severally agrees to indemnify the Purchaser
Indemnified Parties against, and to protect, save and keep harmless the
Purchaser Indemnified Parties from, and to assume liability for, the payment of
all Losses that may be imposed on or incurred by any Purchaser Indemnified Party
as a consequence of or in connection with, incident to, resulting from or
arising out of or in any way related to or by virtue of: (a) any
misrepresentation, inaccuracy or breach of a representation or warranty by such
Owners contained in Article III.A hereof; and (b) any action, demand,
proceeding, investigation or claim by any third party (including any
Governmental or Regulatory Authority) against or affecting any Purchaser
Indemnified Party which may give rise to or evidence the existence of or relate
to a misrepresentation or breach of any of the representations and warranties of
such Owners contained in Article III.A hereof or in any certificate delivered by
such Owner at the Closing. Any claim for indemnity made under this Section
11.2.2 shall not be construed as a claim under Section 11.2.1 hereof even if a
Purchaser Indemnified Party could have made a claim under Section 11.2.1 hereof
in respect of the same matters.
11.2.3 "Losses". The term "Losses" as used in this Agreement is not
limited to matters asserted by third parties against an Indemnified Party, but
includes Losses incurred or sustained by an Indemnified Party in the absence of
third party claims.
Section 11.3 Obligation of Paradise and the Purchaser to Indemnify.
Subject to the limitations set forth in Section 11.5.2 hereof, Paradise and the
Purchaser hereby agree, jointly and severally, to indemnify the Company and the
Owners and their affiliates, Owners, officers, directors, employees, agents,
representatives and successors, permitted assigns of the Company and
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the Owners and their affiliates (individually a "Company Indemnified Party" and
collectively, the "Company Indemnified Parties") against, and to protect, save
and keep harmless the Company Indemnified Parties from, and to pay on behalf of
or reimburse the Company Indemnified Parties as and when incurred for, any and
all Losses that may be imposed on or incurred by any Company Indemnified Party
as a consequence of, in connection with, incident to, resulting from or arising
out of or in any way related to or by virtue of: (a) any misrepresentation,
inaccuracy or breach of any warranty or representation of Paradise or the
Purchaser contained in Article IV hereof or in any certificate delivered by
Paradise or the Purchaser at the Closing; (b) any action, demand, proceeding,
investigation or claim by any third party (including any Governmental or
Regulatory Authority) against or affecting any Company Indemnified Party which
may give rise to or evidence the existence of or relate to a misrepresentation
or breach of any of the representations and warranties of Paradise or the
Purchaser contained in Article IV hereof or in any certificate delivered by
Paradise or the Purchaser at the Closing; (c) any breach or failure by Paradise
or the Purchaser to comply with, perform or discharge any obligation, agreement
or covenant by Paradise or the Purchaser contained in this Agreement; and (d)
any liability or obligation or any assertion against any Company Indemnified
Party arising out of or relating, directly or indirectly, to any Assumed
Liability.
Section 11.4 Indemnification Procedures.
11.4.1 Non-Third-Party Claims. In the event that any Person entitled to
indemnification under this Agreement (an "Indemnified Party") asserts a claim
for indemnification which does not involve a Third Party Claim (as defined in
Section 11.4.2 below), against which a party to this Agreement is required to
provide indemnification under this Agreement (an "Indemnifying Party"), the
Indemnifiying Party may acknowledge and agree by notice to the Indemnified Party
in writing to satisfy such claim within 20 days of receipt of notice of such
claim from the Indemnified Party. In the event that the Indemnifying Party
disputes such claim, the Indemnifying Party shall provide written notice of such
dispute to the Indemnified Party within 20 days of receipt of notice of such
claim, setting forth a reasonable basis of such dispute. In the event that the
Indemnifying Party shall fail to provide written notice to the Indemnified Party
within 20 days of receipt of notice from the Indemnified Party that the
Indemnifying Party either acknowledges and agrees to pay such claim or disputes
such claim, the Indemnifying Party shall be deemed to have acknowledged and
agreed to pay such claim in full and to have waived any right to dispute such
claim. Once the Indemnifying Party has acknowledged and agreed to pay any claim
pursuant to this Section 11.4.1, or once any dispute under this Section 11.4.1
has been finally resolved in favor of indemnification by a court or other
tribunal of competent jurisdiction, subject to Section 11.5.1, the Indemnifying
Party shall pay the amount of such claim to the Indemnified Party within 10 days
of the date of acknowledgement or resolution, as the case may be, to such
account and in such manner as is designated in writing by the Indemnified Party.
11.4.2 Third-Party Claims.
(a) In the event that any Indemnified Party asserts a claim for
indemnification or receives notice of the assertion of any
claim or of the
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commencement of any action or proceeding by any Person who is
not a party to this Agreement or an affiliate of a party to
this Agreement (a "Third Party Claim") against an Indemnifying
Party, the Indemnified Party shall give written notice
together with a statement of any available information
regarding such claim to the Indemnifying Party within 30 days
after learning of such claim (or within such shorter time as
may be necessary to give the Indemnifying Party a reasonable
opportunity to respond to such claim). The Indemnifying Party
shall have the right, upon written notice to the Indemnified
Party (the "Defense Notice") within 15 days after receipt from
the Indemnified Party of notice of such claim, which Defense
Notice by the Indemnifying Party shall specify the counsel it
will appoint to defend such claim ("Defense Counsel"), to
conduct at its expense the defense against such claim in its
own name, or if necessary in the name of the Indemnified
Party; provided, however, that the Indemnified Party shall
have the right to approve the Defense Counsel, which approval
shall not be unreasonably withheld or delayed, and in the
event the Indemnifying Party and the Indemnified Party cannot
agree upon such counsel within 10 days after the Defense
Notice is provided, then the Indemnifying Party shall propose
an alternate Defense Counsel, which shall be subject again to
the Indemnified Party's approval which approval shall not be
unreasonably withheld or delayed. If the parties still fail to
agree on the Defense Counsel, then, at such time, they shall
mutually agree in good faith on a procedure to determine the
Defense Counsel.
(b) In the event that the Indemnifying Party shall fail to give
the Defense Notice within such 15 day period, it shall be
deemed to have elected not to conduct the defense of the
subject claim, and in such event the Indemnified Party shall
have the right to conduct the defense and to compromise and
settle the claim without prior consent of the Indemnifying
Party and the Indemnifying Party will be liable for all
reasonable costs, expenses, settlement amounts or other Losses
paid or incurred in connection therewith.
(c) In the event that the Indemnifying Party does deliver a
Defense Notice and thereby elects to conduct the defense of
the subject claim, the Indemnifying Party shall be entitled to
have the exclusive control over the defense and settlement of
the subject claim and the Indemnified Party will cooperate
with and make available to the Indemnifying Party such
assistance and materials as it may reasonably request, all at
the expense of the Indemnifying Party; the Indemnified Party
shall have the right at its expense to participate in the
defense assisted by counsel of its own choosing at its
expense. In such an event, the Indemnifying Party will not
settle the subject claim without the prior written consent of
the Indemnified Party, which consent will not be unreasonably
withheld or delayed.
(d) Without the prior written consent of the Indemnified Party,
the Indemnifying Party will not enter into any settlement of
any Third Party Claim or cease to defend
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against such claim, if pursuant to or as a result of such
settlement or cessation, (i) injunctive relief or specific
performance would be imposed against the Indemnified Party, or
(ii) such settlement or cessation would lead to liability or
create any financial or other obligation on the part of the
Indemnified Party for which the Indemnified Party is not
entitled to indemnification hereunder.
(e) If an Indemnified Party refuses to consent to a bona fide
offer of settlement which provides for a full release of the
Indemnified Party and its affiliates and solely for a monetary
payment which the Indemnifying Party wishes to accept, the
Indemnified Party may continue to pursue such matter, free of
any participation by the Indemnifying Party, at the sole
expense of the Indemnified Party. In such an event, the
obligation of the Indemnifying Party shall be limited to the
amount of the offer of settlement which the Indemnified Party
refused to accept plus the costs and expenses of the
Indemnified Party incurred prior to the date the Indemnifying
Party notified the Indemnified Party of the offer of
settlement.
(f) Notwithstanding clause (b) above, the Indemnifying Party shall
not be entitled to control, but may participate in, and the
Indemnified Party shall be entitled to have sole control over,
the defense or settlement of any claim (i) that seeks a
temporary restraining order, a preliminary or permanent
injunction or specific performance against the Indemnified
Party, (ii) to the extent such claim involves criminal
allegations against the Indemnified Party, (iii) that if
unsuccessful, would set a precedent that would materially
interfere with, or have a material adverse effect on, the
business or financial condition of the Indemnified Party or
(iv) if such claim would impose liability on the part of the
Indemnified Party for which the Indemnified Party is not
entitled to indemnification hereunder. In such an event, the
Indemnifying Party will still have all of its obligations
hereunder provided that the Indemnified Party will not settle
the subject claim without the prior written consent of the
Indemnifying Party, which consent will not be unreasonably
withheld or delayed.
(g) Any final judgment entered or settlement agreed upon in the
manner provided herein shall be binding upon the Indemnifying
Party, and shall conclusively be deemed to be an obligation
with respect to which the Indemnified Party is entitled to
prompt indemnification hereunder.
(h) A failure by an Indemnified Party to give timely, complete or
accurate notice as provided in this Section 11.5 will not
affect the rights or obligations of any party hereunder except
and only to the extent that, as a result of such failure, any
party entitled to receive such notice was deprived of its
right to recover any payment under its applicable insurance
coverage or was otherwise directly and materially damaged as a
result of such failure to give timely notice.
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Section 11.5 Limitations on and Other Matters Regarding Indemnification.
11.5.1Indemnity Cushion and Cap. Subject to Section 11.5.4 below, the
Owners shall not have any liability to any Purchaser Indemnified Party with
respect to Losses arising out of any of the matters referred to in Section 11.2
until such time as the amount of such liability shall exceed in the aggregate
(i) $50,000, plus (ii) the amount by which Net Worth of the Company (as defined
in Section 8.16) as of the Effective Date exceeded $1.00 (the "Aggregate
Cushion") (in which case the Owners shall be liable for all Losses in excess of
the Aggregate Cushion); provided, however, the Aggregate Cushion shall not apply
to any Losses arising out of or resulting from a misrepresentation, inaccuracy
or breach of any warranty or representation contained in Sections 3.1.1, 3.1.2,
3.1.3, 3.1.5, 3.1.7 and 3.1.8. Subject to Section 11.5.4 below, the indemnity
obligations of each of the Owners with respect to Losses arising out of any
matter referred to in Section 11.2 shall not exceed the value of the Paradise
Stock delivered to the Owners at the Closing (the "Cap"); provided, however, the
Cap shall not apply to any Losses arising out of or resulting from a
misrepresentation, inaccuracy or breach of any warranty or representation
contained in Sections 3.1.1, 3.1.2, 3.1.3, 3.1.5, 3.1.7 and 3.1.8. For purposes
of calculating the value of the Paradise Stock received by the Owners, the
Paradise Stock shall be valued at its fair market value, which shall be the
average closing price for Paradise Stock on the Nasdaq Small Cap Market for the
ten trading days ending two business days immediately prior to the date of
payment.
11.5.2 Termination of Indemnification Obligations of the Company and the
Owners. The obligation of the Company and the Owners to indemnify under Section
11.2 hereof shall terminate one year from the Closing Date, except (a) as to
matters as to which the Purchaser Indemnified Party has made a claim for
indemnification on or prior to such date and (b) with respect to any claim for
Losses pertaining to a misrepresentation or a breach of representation or
warranty under Section 3.11 or any other Section of Article III of this
Agreement relating to Taxes. The obligation to indemnify referred to in:
(i) the preceding clause (a) shall survive the expiration of such period
until such claim for indemnification is finally resolved and any
obligations with respect thereto are fully satisfied; and
(ii) the preceding clause (b) shall terminate 180 days after the
expiration of the relevant Federal, state or local statute of limitations
(taking into account any extensions or waivers thereof), except as to
matters as to which any Indemnified Party has made a claim for
indemnification on or prior to such date, in which case the right to
indemnification with respect thereto shall survive the expiration of any
such period until such claim for indemnification is finally resolved and
any obligations with respect thereto are fully satisfied.
11.5.3 Termination of Indemnification Obligations of Paradise and the
Purchaser. The obligation of Paradise and the Purchaser to indemnify under
Section 11.3 hereof shall terminate one year from the Closing Date except as to
matters as to which any Company Indemnified Party has made a claim for
indemnification on or prior to such date, in which case the right to
indemnification
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with respect thereto shall survive such period until such claim for
indemnification is resolved and any obligations with respect thereto are fully
satisfied.
11.5.4 Exceptions. Each of the limitations set forth above in this Section
11.5 shall in no event (a) apply to any Losses incurred by a Purchaser
Indemnified Party which relate, directly or indirectly, to (i) any fraudulent
acts committed by the Company or the Owners (including without limitation, fraud
in connection with the transaction contemplated hereby and any fraudulent acts
by any manager, officer, employee, agent or equity holder of the Company); (ii)
any indemnification obligation under Section 11.2.1(c) or 11.2.1(d); and (iii)
the Company's and the Owners' obligations set forth in Section 12.1 to pay
certain expenses; or (b) apply to any Losses incurred by a Company Indemnified
Party which relate, directly or indirectly, to (i) any fraudulent acts committed
by Paradise, the Purchaser (including without limitation, fraud in connection
with the transaction contemplated hereby and any fraudulent acts by any officer,
director, employee, agent or shareholder of Paradise or the Purchaser); (ii) any
indemnification obligation under Section 11.3(c) or 11.3(d); and (iii)
Paradise's obligations set forth in Section 12.1 to pay certain expenses.
11.5.5 Control by Paradise. All decisions and determinations to be made by
the Purchaser and/or a Purchaser Indemnified Party under this Article XI shall
be made by Paradise in the name of and on behalf of the Purchaser or such other
the Purchaser Indemnified Party.
ARTICLE XII
MISCELLANEOUS
Section 12.1 Expenses. Except for the costs of auditing the Company's
financial statements, (as described in Sections 2.1.2 and 3.4), which costs
shall be paid by Paradise, the parties hereto shall pay all of their own
expenses relating to the transactions contemplated by this Agreement, including,
without limitation, the fees and expenses of their respective counsel and
financial advisors.
Section 12.2 Governing Law. The interpretation and construction of this
Agreement, and all matters relating hereto, (including, without limitation, the
validity or enforcement of this Agreement), shall be governed by the laws of the
State of Delaware without reference to its conflict of laws provisions.
Section 12.3 Jurisdiction. Any judicial proceeding brought against any of
the parties to this Agreement on any dispute arising out of this Agreement or
any matter related hereto shall be brought in (i) the courts of the State of New
York or in the United States District Court for the Southern District of New
York, if the principal office of Paradise is then located in New York, or (ii)
the courts of the State of California or in the United States District Court for
the Central District of California, if the principal office of Paradise is then
located in California. Each party hereto irrevocably waives to the fullest
extent permitted by law any objection that it may now or hereafter have to the
laying of the venue of any judicial proceeding brought in such courts and any
claim that any such judicial proceeding has been brought in an inconvenient
forum. The
43
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foregoing consent to jurisdiction shall not constitute general consent to
service of process in the States of New York or California for any purpose
except as provided above and shall not be deemed to confer rights on any person
other than the respective parties to this Agreement. EACH PARTY HEREBY WAIVES
TRIAL BY JURY IN ANY JUDICIAL PROCEEDINGS UNDER THIS AGREEMENT.
Section 12.4 "Person" Defined. "Person" shall mean and include an
individual, a company, a partnership, a joint venture, a corporation (including
any non-profit corporation), a trust, an estate, a limited liability company, a
limited liability partnership, an unincorporated organization and a government
or other department or agency thereof.
Section 12.5 "Knowledge" Defined. Where any representation and warranty
contained in this Agreement is expressly qualified by reference to the knowledge
of the Owners, such term shall be limited to the actual knowledge of the Owners
and unless otherwise stated such knowledge that would have been discovered by
the Owners after reasonable inquiry. Where any representation and warranty
contained in this Agreement is expressly specified by reference to the knowledge
of the Company, Paradise or the Purchaser, as the case may be, such term shall
be limited to the actual knowledge of the executive officers of such entity and
unless otherwise stated, such knowledge that would have been discovered by such
executive officers after reasonable inquiry.
Section 12.6 "Affiliate" Defined. As used in this Agreement, an
"affiliate" of any Person, shall mean any Person that directly, or indirectly
through one or more intermediaries, controls, or is controlled by, or is under
common control with such Person.
Section 12.7 Captions. The Article and Section captions used herein are
for reference purposes only, and shall not in any way affect the meaning or
interpretation of this Agreement.
Section 12.8 Confidentiality. Unless and until the Closing shall have
occurred and except as may be required in connection with (i) any public
announcement that Paradise, the Purchaser, the Company and the Owners have
executed this Agreement, or (ii) any governmental filings contemplated under
this Agreement, Paradise, the Purchaser, the Company and the Owners shall, and
shall cause their respective employees, agents, consultants and representatives
to, maintain in confidence and not otherwise use or permit the use of
information, documents, and data respecting any other party to this Agreement
furnished to them, or to any person or entity on their behalf except to the
extent that such information is elsewhere available to the public or otherwise
rightfully obtained without violation of this Section 12.8 or any other
agreement. If this Agreement is terminated pursuant to Section 10.8 hereof or
otherwise, each party shall (and Paradise the Purchaser and the Company shall
cause any third party to whom it has made permitted disclosures to) (i) return
to the other party or destroy all written information, documents, and data
furnished to it or to any person or entity on its behalf, and (ii) maintain in
confidence all information received by it, or by any person or entity on its
behalf, and shall not use or permit the use of such information by others except
to the extent that such information is elsewhere available to the public or
otherwise rightfully obtained without violation of this Section 12.8 or any
other agreement. Notwithstanding the foregoing, the foregoing provision shall
not apply to the extent that Paradise is required to make any announcement or
file
44
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information relating to or arising out of this Agreement by virtue of the
federal securities laws of the United States or the rules and regulations
promulgated thereunder or other rules of the Nasdaq Small Cap Market, or any
announcement by any party pursuant to applicable law or regulations.
Section 12.9 Notices. Unless otherwise provided herein, any notice,
request, instruction or other document to be given hereunder by any party to any
other party shall be in writing and shall be deemed to have been given (a) upon
personal delivery, if delivered by hand or by courier, (b) three days after the
date of deposit in the mails, postage prepaid, if mailed by certified or
registered mail, or (c) the next business day if sent by facsimile transmission
(if receipt is electronically confirmed) or by a prepaid overnight courier
service, and in each case at the respective addresses or numbers set forth below
or such other address or number as such party may have fixed by notice:
If to either Paradise or to the Purchaser, addressed to:
Paradise Music & Entertainment, Inc.
53 West 23rd Street, 11th Floor
New York, New York 10010
Attention: President
Fax: 212-845-6480
with a copy to:
Davis & Gilbert LLP
1740 Broadway
New York, New York 10019
Attention: Walter M. Epstein, Esq.
Fax: (212) 468-4888
If to either the Company or the Owners, addressed to:
Consolidated Entertainment, LLC
8330 W. Third Street
Los Angeles, CA 90048
Attention: Jesse Dylan and Craig Rodgers
Fax: (310) 458-9833
45
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with a copy to:
Cohen, Primiani & Foster
2029 Century Park East, Suite 400
Los Angeles, CA 90067
Attention: Michael Foster, Esq.
Fax: (310) 277-4351
and
James A. Melman, Esq.
815 Moraga Drive
Los Angeles, CA 90049
Fax: (310) 472-4091
Section 12.10 Parties in Interest. This Agreement may not be transferred,
assigned pledged or hypothecated by any party hereto, other than by operation of
law. Any purported transfer, assignment, pledge or hypothecation (other than by
operation of law) shall be void and ineffective. This Agreement shall be binding
upon and shall inure to the benefit of the parties hereto and their respective
heirs, executors, administrators, successors and permitted assigns.
Section 12.11 Severability. In the event any provision of this Agreement
is found to be void and unenforceable by a court of competent jurisdiction, the
remaining provisions of this Agreement shall nevertheless be binding upon the
parties with the same effect as though the void or unenforceable part had been
severed and deleted.
Section 12.12 Counterparts. This Agreement may be executed in two or more
counterparts, all of which taken together shall constitute one instrument.
Section 12.13 Entire Agreement. This Agreement, including the other
documents referred to herein which form a part hereof, contains the entire
understanding of the parties hereto with respect to the subject matter contained
herein and therein. This Agreement supersedes all prior oral and written
agreements and understandings between the parties with respect to such subject
matter.
Section 12.14 Amendment. This Agreement may not be amended, supplemented
or modified orally, but only by an agreement in writing signed on behalf of each
of the parties hereto.
Section 12.15 Third Party Beneficiaries. Each party hereto intends that
this Agreement shall not benefit or create any right or cause of action in or on
behalf of any person other than the parties hereto and their respective
successors and assigns as permitted under Section 12.10. Notwithstanding the
foregoing, the parties agree that in the event the provisions of this Agreement
inuring to the benefit of the Company are expressly assigned in writing to the
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Owners in their individual capacity, such benefits shall be given to the Owners
in place of the Company.
47
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IN WITNESS WHEREOF, the parties hereto have executed this Asset Purchase
Agreement, on the day and year first above written.
PARADISE MUSIC &
ENTERTAINMENT, INC.
By:
-----------------------------------
Name:
Title:
STRAW DOGS ACQUISITION CORP.
By:
-----------------------------------
Name:
Title:
CONSOLIDATED
ENTERTAINMENT, LLC
By:
-----------------------------------
Name:
Title:
---------------------------------------
JESSE DYLAN
---------------------------------------
CRAIG RODGERS
48
- --------------------------------------------------------------------------------
STOCK PURCHASE AGREEMENT
by and among
PARADISE MUSIC & ENTERTAINMENT, INC.
STRAW DOGS ACQUISITION CORP.
and
JESSE DYLAN
- --------------------------------------------------------------------------------
Dated September 23, 1999
<PAGE>
TABLE OF CONTENTS
ARTICLE I
SALE OF SHARES
Section 1.1 Sale of the Shares................................................1
ARTICLE II
PURCHASE PRICE AND CLOSING
Section 2.1 Purchase Price....................................................2
2.1.1 Payment.........................................................2
2.1.2 Accounting Procedures...........................................2
2.1.3 Examination of Books and Records................................3
Section 2.2 Closing and Effective Date........................................3
ARTICLE III
REPRESENTATIONS OF THE STOCKHOLDER
Section 3.1 Execution and Validity of Agreements; Restrictive Documents.......4
3.1.1 Execution and Validity..........................................4
3.1.2 Stock Ownership.................................................4
3.1.3 No Options......................................................4
3.1.4 No Restrictions.................................................4
3.1.5 Non-Contravention...............................................4
Section 3.2 Capital Stock; Existence and Good Standing........................5
3.2.1 Capital Stock...................................................5
3.2.2 Existence and Good Standing.....................................5
Section 3.3 Subsidiaries and Investments......................................5
Section 3.4 Financial Statements and No Material Changes......................6
Section 3.5 Books and Records.................................................6
Section 3.6 Titles to Properties; Encumbrances................................6
Section 3.7 Real Property.....................................................7
3.7.1 Owned Real Property.............................................7
3.7.2 Leased Real Property............................................7
Section 3.8 Contracts.........................................................7
Section 3.9 Non-Contravention; Approvals and Consents.........................8
3.9.1 Non-Contravention...............................................8
3.9.2 Approvals and Consents..........................................9
Section 3.10 Litigation.......................................................9
Section 3.11 Taxes............................................................9
Section 3.12 Liabilities.....................................................10
Section 3.13 Insurance.......................................................10
Section 3.14 Intellectual Properties.........................................11
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Section 3.15 Compliance with Laws; Licenses and Permits......................11
3.15.1 Compliance....................................................11
3.15.2 Licenses......................................................12
Section 3.16 Intentionally Omitted...........................................12
Section 3.17 Accounts Receivable; Work-in-Process; Accounts Payable..........12
Section 3.18 Employment Relations............................................12
Section 3.19 Employee Benefit Plans..........................................13
Section 3.20 Interests in Customers, Suppliers, Etc..........................13
Section 3.21 Bank Accounts and Powers of Attorney............................13
Section 3.22 Compensation of Employees.......................................14
Section 3.23 No Changes Since the Balance Sheet Date.........................14
Section 3.24 Company Controls................................................14
Section 3.25 Brokers.........................................................15
Section 3.26 Year 2000 Compliant.............................................15
3.26.1 Definition....................................................15
3.26.2 Computer Systems..............................................16
3.26.3 Other Products and Services...................................16
Section 3.27 Prepayment for Services.........................................16
Section 3.28 Investment Representations......................................16
Section 3.30 Copies of Documents.............................................18
ARTICLE IV
REPRESENTATIONS OF THE PURCHASER AND PARADISE
Section 4.1 Existence and Good Standing......................................18
Section 4.2 Execution and Validity of Agreement..............................18
Section 4.3 No Restrictions..................................................18
Section 4.4 Non-Contravention; Approvals and Consents........................19
4.4.1 Non-Contravention..............................................19
4.4.2 Approvals and Consents.........................................19
Section 4.5 Compliance with Laws; Licenses and Permits.......................19
4.5.1 Compliance.....................................................19
4.5.2 Licenses.......................................................20
Section 4.6 Paradise Stock...................................................20
Section 4.7 Brokers..........................................................20
ARTICLE V
COVENANTS OF THE COMPANY AND THE OWNERS
Section 5.1 Regulatory and Other Approvals...................................20
Section 5.2 Investigation by Paradise and the Purchaser......................21
Section 5.3 No Solicitations.................................................21
Section 5.4 Conduct of Business..............................................21
Section 5.5 Notice and Cure..................................................23
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Section 5.6 Fulfillment of Conditions........................................23
ARTICLE VI
COVENANTS OF PARADISE AND THE PURCHASER
Section 6.1 Regulatory and Other Approvals...................................23
Section 6.2 Investigation by the Stockholder.................................24
Section 6.3 Notice and Cure..................................................24
Section 6.4 Fulfillment of Conditions........................................25
Section 6.5 Blue Sky.........................................................25
ARTICLE VII
MUTUAL COVENANTS
Section 7.1 Reasonable Efforts to Consummate Transaction.....................25
Section 7.2 Public Announcements.............................................25
ARTICLE VIII
CONDITIONS TO OBLIGATIONS OF PARADISE AND THE PURCHASER
Section 8.1 Representations and Warranties...................................26
Section 8.2 Good Standing and Tax Certificates...............................26
Section 8.3 Performance......................................................26
Section 8.4 No Litigation....................................................26
Section 8.5 Regulatory Consents and Approvals................................26
Section 8.6 Required Approvals, Notices and Consents.........................27
Section 8.7 Opinion of Counsel...............................................27
Section 8.9 Repayment of Loans...............................................27
Section 8.10 Material Adverse Effect.........................................27
Section 8.11 Proceedings.....................................................27
Section 8.12 Wonderous Strange Acquisition Agreement.........................28
Section 8.13 Working Capital.................................................28
Section 8.13 Net Worth.......................................................28
Section 8.14 Financial Statements............................................28
ARTICLE IX
CONDITIONS TO OBLIGATIONS OF THE STOCKHOLDER
Section 9.1 Representations and Warranties...................................28
Section 9.2 Performance......................................................29
Section 9.3 Certified Resolutions............................................29
Section 9.4 No Litigation....................................................29
Section 9.5 Regulatory Consents and Approvals................................29
Section 9.6 Paradise Stockholder Approval....................................29
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Section 9.7 Opinion of Counsel...............................................29
Section 9.8 Proceedings......................................................30
Section 9.9 Material Adverse Effect..........................................30
Section 9.10 Wonderous Strange Acquisition Agreement.........................30
Section 9.11 Working Capital.................................................30
ARTICLE X
ADDITIONAL AGREEMENTS
Section 10.1 Name of Purchaser...............................................30
Section 10.2 Termination.....................................................30
Section 10.3 Effect of Termination...........................................31
Section 10.4 Registration Rights.............................................31
ARTICLE XI
SURVIVAL; INDEMNITY
Section 11.1 Survival........................................................31
Section 11.2 Obligation of the Stockholder to Indemnify......................32
11.2.1 General Indemnity.............................................32
11.2.3 Losses........................................................32
Section 11.3 Obligation of the Paradise and the Purchaser to Indemnify.......32
Section 11.4 Indemnification Procedures......................................33
11.4.1 Non-Third Party Claims........................................33
11.4.2 Third-Party Claims............................................33
Section 11.5 Limitations on and Other Matters Regarding Indemnification......36
11.5.1 Indemnity Cushion.............................................36
11.5.2 Termination of Indemnification Obligations of the
Stockholder...................................................36
11.5.3 Termination of Indemnification Obligations of Paradise
and the Purchaser.............................................36
11.5.4 Exceptions....................................................37
11.5.5 Control by Paradise...........................................37
ARTICLE XII
MISCELLANEOUS
Section 12.1 Expenses........................................................37
Section 12.2 Governing Law...................................................37
Section 12.3 Jurisdiction....................................................37
Section 12.4 "Person"Defined.................................................38
Section 12.5 "Knowledge".....................................................38
Section 12.6 Affiliate Defined...............................................38
Section 12.7 Captions........................................................38
Section 12.8 Confidentiality.................................................38
Section 12.9 Notices.........................................................39
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Section 12.10 Parties in Interest............................................40
Section 12.11 Severability...................................................40
Section 12.12 Counterparts...................................................40
Section 12.13 Entire Agreement...............................................40
Section 12.14 Amendment......................................................41
Section 12.15 Third Party Beneficiaries......................................41
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EXHIBITS AND APPENDICES
Exhibit A Opinion of Cohen, Primiani & Foster
Exhibit B Opinion of Davis & Gilbert LLP
Appendix A Registration Rights Provisions
SCHEDULES
Schedule 3.2 Foreign Qualifications
Schedule 3.3.2 Ownership Interests
Schedule 3.4 Financial Statements
Schedule 3.5 Books and Records
Schedule 3.6 Tangible Personal Property; Encumbrances
Schedule 3.7.2 Leased Real Property
Schedule 3.7.3 Real Property
Schedule 3.8 Contracts
Schedule 3.9.2 Consents and Approvals
Schedule 3.10 Litigation
Schedule 3.11 Taxes
Schedule 3.13 Insurance
Schedule 3.14 Intellectual Properties
Schedule 3.20 Interests in Customers; Suppliers
Schedule 3.21 Bank Accounts and Powers of Attorney
Schedule 3.22 Compensation of Employees
Schedule 3.23 Changes Since the Balance Sheet Date
Schedule 3.25 Brokers
Schedule 3.26 Year 2000 Compliant
Schedule 3.27 Prepayment for Services
Schedule 4.4.1 Approvals and Consents
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STOCK PURCHASE AGREEMENT
STOCK PURCHASE AGREEMENT (the "Agreement") dated September 23, 1999
(the "Execution Date") by and among PARADISE MUSIC & ENTERTAINMENT CORP., a
Delaware corporation ("Paradise"); STRAW DOGS ACQUISITION CORP., a Delaware
corporation and wholly-owned subsidiary of Paradise (the "Purchaser"); and JESSE
DYLAN ("the Stockholder").
W I T N E S S E T H :
WHEREAS, the Stockholder owns 100% of the issued and outstanding shares of
common stock, no par value per share (the "Shares") of Spur & Buckle, Inc., a
California corporation; (the "Company"); and
WHEREAS, the Stockholder wishes to transfer, and the Purchaser wishes to
acquire100% of the Shares, in a tax-free reorganization as described in ss.
368(a)(1)(B) of the Internal Revenue Code, upon the terms and subject to the
conditions of this Agreement; and
NOW, THEREFORE, in consideration of the mutual covenants and agreements
set forth in this Agreement, and for other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties do hereby
agree as follows:
ARTICLE I
SALE OF THE SHARES
Section 1.1 Sale of the Shares. Subject to the terms and conditions of
this Agreement, the Stockholder agrees to sell, assign, transfer and deliver the
Shares to the Purchaser on the Closing Date (as defined in Section 2.2) and the
purchaser agrees to purchase the Shares from the Stockholder on the Closing
Date. All certificates representing the Shares shall be duly endorsed by the
Stockholder, with all necessary transfer tax and other revenue stamps, acquired
at the Stockholder's expense, affixed and canceled.
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ARTICLE II
PURCHASE PRICE AND CLOSING
Section 2.1 Purchase Price. In full consideration for the purchase by the
Purchaser of the Shares, the purchase price (the "Purchase Price") shall be paid
by the Purchaser as follows:
2.1.1 Payment. (a) At the Closing, the Purchaser will pay the Stockholder
541,000 shares of Paradise Music & Entertainment, Inc. common stock, par value
$.01 per share ("Paradise Stock").
(b) The Paradise Stock shall be restricted stock and shall be
saleable by the Stockholder only in accordance with the terms of the
Registration Rights Agreement described in Section 8.8 of this Agreement or as
otherwise permitted pursuant to applicable securities laws.
2.1.2 Accounting Procedures.
(i) The Purchaser shall cause Rothstein, Kass & Company, P.C., or another
independent accounting firm chosen by the Purchaser (the "Accountants"), as soon
as practicable after the Closing, to prepare in accordance with generally
accepted accounting principles consistently applied ("GAAP"), a report
containing an audited balance sheet of the Company as of the close of business
on the Effective Date (the "Effective Date Balance Sheet"), together with a
statement of the Accountants based upon such report and stating that it was
prepared in accordance with this Agreement and setting forth the Net Worth (as
defined in section 8.13) of the Stockholder (the "Special Determination"). If
the Stockholder does not agree that the Special Determination correctly states
the Net Worth, the Stockholder shall promptly (but not later than 45 days after
the delivery to it of the Special Determination) give written notice to the
Purchaser of any exceptions thereto (in reasonable detail describing the nature
of the disagreement asserted). If the Stockholder and the Purchaser reconcile
their differences, the Net Worth calculation shall be adjusted accordingly and
shall thereupon become binding, final and conclusive upon all of the parties
hereto and enforceable in a court of law. If the Stockholder and the Purchaser
are unable to reconcile their differences in writing within 20 days after
written notice of exceptions is delivered to the Purchaser (the "Reconciliation
Period"), the items in dispute shall be submitted to a mutually acceptable
accounting firm (other than the Accountants) selected from any of the five
largest accounting firms in the United States in terms of gross revenues (the
"Independent Auditors") for final determination, and the Net Worth calculation
shall be deemed adjusted in accordance with the determination of the Independent
Auditors and shall become binding, final and conclusive upon all of the parties
hereto and enforceable in a court of law. The Independent Auditors shall
consider only the items in dispute and shall be instructed to act within 20 days
(or such longer period as the Stockholder and the Purchaser may agree) to
resolve all items in dispute. If the Stockholder does not give notice of any
exception within 45 days after the delivery to it of the Special Determination
or if the Stockholder gives written notification of its acceptance of the Net
Worth prior to the end of
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such 45 day period, the Net Worth set forth in the Special Determination shall
thereupon become binding, final and conclusive upon all the parties hereto and
enforceable in a court of law.
(ii) In the event the Independent Auditors are for any reason unable or
unwilling to perform the services required of it under this Section 2.1, then
the Purchaser and the Stockholder agree to select another accounting firm from
among the five largest accounting firms in the United States in terms of gross
revenues to perform the services to be performed under this Section 2.1.2 by the
Independent Auditors. For purposes of this Section 2.1 the term "Independent
Auditors" shall include such other accounting firm chosen in accordance with
this clause (ii).
(iii) The Independent Auditors shall determine the party (i.e., the
Purchaser or the Stockholder) whose asserted position as to the calculation of
Net Worth for the period under examination before the Independent Auditors is
furthest from the determination of Net Worth by the Independent Auditors, which
non-prevailing party shall pay the fees and expenses of the Independent
Auditors.
2.1.3 Examination of Books and Records. The books and records of the
Company shall be made available during normal business hours upon reasonable
advance notice at the principal office of the Company, to the parties hereto,
the Accountants and the Independent Auditors to the extent required to determine
the calculations required under this Section 2.1. Any such examination shall be
conducted so as to minimize disruption of the Business. The parties hereto shall
cause the Company and the Purchaser to make arrangements to make available to
the parties hereto and their respective representatives (including auditors) any
back-up materials generated by the Company or the Accountants, as the case may
be, with respect to any adjustments made by them to the financial statements in
the process of preparing the Special Determination. In addition, the
Stockholder, on the one hand, and the Purchaser, on the other hand, shall make
available to the other party and their representatives (including auditors) any
back-up materials generated by them to support a position which is contrary to
the position taken by the other party.
Section 2.2 Closing and Effective Date. Not more than one business day
from the approval of this Agreement at the special meeting of stockholders of
Paradise contemplated by Section 9.6, Paradise shall notify the other parties to
this Agreement of its desire to close, specifying a closing date not more than
five business days thereafter. The transfer of the Shares to the Purchaser and
delivery of the Purchase Price in exchange therefor (the "Closing") shall take
place at 10:00 a.m. at the offices of Davis & Gilbert LLP, 1740 Broadway, New
York, New York on the date so determined (the "Closing Date"). In the event a
proceeding shall have been instituted attacking the legality of this Agreement
or seeking to enjoin its consummation, then the Closing Date shall be suspended
pending a final determination of any such proceeding. The transfer of the Shares
by the Stockholder shall be deemed effective as of the close of business on June
1, 1999 (the "Effective Date").
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ARTICLE III
REPRESENTATIONS OF THE STOCKHOLDER
The Stockholder represents and warrants to and with the Purchaser
and Paradise as follows:
Section 3.1 Execution and Validity of Agreement; Restrictive Documents.
3.1.1 Execution and Validity. The Stockholder has the full legal right and
capacity to enter into this Agreement and to perform his obligations hereunder.
This Agreement has been duly and validly executed and delivered by the
Stockholder and, assuming due authorization, execution and delivery by the
Purchaser and Paradise, constitutes a legal, valid and binding obligation of the
Stockholder, enforceable against the Stockholder in accordance with its terms.
3.1.2 Stock Ownership. The Stockholder is the true and lawful owner of the
Shares and all of the Shares have been duly and validly authorized and issued
and are fully paid, nonassessable and free of preemptive rights with no personal
liability attaching to the ownership thereof, except as such liability may be
imposed pursuant to applicable laws, and such ownership is free and clear of all
mortgages, liens, security interests, encumbrances, claims charges and
restrictions of any kind or character (collectively, "Liens").
3.1.3 No Options. There are no outstanding subscriptions, options, rights
(including "phantom stock rights"), warrants, calls, commitments,
understandings, arrangements, plans or other agreements of any kind
(collectively "Options") to acquire any Shares from the Stockholder and there
are no arrangements or understandings with respect to the sale or transfer of
any Shares by the Stockholder.
3.1.4 No Restrictions. There is no suit, action, claim, investigation or
inquiry by any Governmental or Regulatory Authority, (as defined in Section
3.1.5 below), and no legal, administrative or arbitration proceeding pending or,
to the Stockholder's knowledge, threatened against the Stockholder or any of the
Stockholder's properties or assets, with respect to the execution, delivery and
performance of this Agreement or the transactions contemplated hereby or any
other agreement entered into by the Stockholder in connection with the
transactions contemplated hereby.
3.1.5 Non-Contravention. The execution, delivery and performance by the
Stockholder of his obligations hereunder and the consummation of the
transactions contemplated hereby, will not (a) result in the violation by the
Stockholder of any statute, law, rule, regulation or ordinance (collectively,
"Laws"), or any judgment, decree, order, writ, permit or license (collectively,
"Orders"), of any court, tribunal, arbitrator, authority, agency, commission,
official or other instrumentality of the United States, any foreign country or
any domestic or foreign state, county, city or other political subdivision (a
"Governmental or Regulatory Authority"), applicable to the Stockholder or any of
the Shares, or (b) conflict with, result in a violation or breach of, constitute
(with or without notice or lapse of time or both) a default under, or require
the
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Stockholder to obtain any consent, approval or action of, make any filing with
or give any notice to, or result in or give to any Person any right of payment
or reimbursement, termination, cancellation, modification or acceleration of, or
result in the creation or imposition of any Lien upon any of the Shares, under
any of the terms, conditions or provisions of any agreement, commitment, lease,
license, evidence of undebtedness, mortgage, indenture, security agreement,
instrument, note, bond, franchise, permit, concession, or other instrument,
obligation or agreement of any kind (collectively "Stockholder Contracts")"), to
which the Stockholder is a party or by which the Stockholder or any of his
assets or properties are bound.
Section 3.2 Capital Stock; Existence and Good Standing.
3.2.1 Capital Stock. The Company has an authorized capitalization
consisting of 1,000,000 shares of common stock, no par value, of which 1,000
shares are issued and outstanding, and no shares are held in the treasury of the
Company. All such shares have been duly authorized and validly issued, are fully
paid and non-assessable, and have not been issued in violation of any preemptive
rights of Stockholders. No other class of capital stock of the Company is
authorized or outstanding. There are no outstanding Options providing for the
purchase, issuance or sale of any shares of the capital stock of the Company by
the Company.
3.2.2 Existence and Good Standing. The Company was duly organized and is
validly existing and in good standing under the laws of California, with the
full power and authority to own its property and to carry on its business all as
and in the places where such properties are now owned or operated or such
business is now being conducted. The Company is duly qualified, licensed or
admitted to do business and is in good standing in those jurisdictions set forth
on Schedule 3.2. The Company is qualified, licensed or admitted to do business
in all jurisdictions in which the ownership, use or leasing of its assets and
properties, or the conduct or nature of its business, makes such qualification,
licensing or admission necessary, except for jurisdictions where a failure to be
so qualified would not have a Material Adverse Effect. For purposes of this
Agreement, "Material Adverse Effect" shall mean any material and adverse effect
on the financial condition, results of operations, assets, properties or
business of the Company, Paradise or the Purchaser, as applicable.
Section 3.3 Subsidiaries and Investments. The Company does not own any
capital stock or other equity or proprietary or ownership interest in any
Person, other than investments of publicly-traded debt and equity securities
held for investment.
Section 3.4 Financial Statements and No Material Changes. Prior to the
Closing Date, the Stockholder will deliver Schedule 3.4 to Paradise and the
Purchaser; provided, however, failure to deliver said Schedule 3.4 shall not be
a breach of this Agreement by the Stockholder. Schedule 3.4 will set forth an
audited balance sheet of the Company as at June 30, 1999, and the related
audited statement of income, retained earnings and cash flow for the twelve
months then ended, prepared by Rothstein, Kass & Company, P.C., certified public
accountants (the balance sheet of the Company as at June 30, 1999, including the
footnotes thereto, being referred to in this Agreement as the "Balance Sheet").
Such financial statements will have been prepared in accordance with GAAP
throughout the periods indicated. The Balance Sheet will fairly present the
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financial condition of the Company at the date thereof and will reflect all
claims against and all debts and liabilities of the Company, fixed or
contingent, as at the date thereof, required to be shown thereon under GAAP and
the related statements of income , retained earnings and cash flow will fairly
present the results of operations of the Company for the period indicated. Since
June 30, 1999 (the "Balance Sheet Date"), there has been no material adverse
change in the assets or liabilities, or in the business or condition, financial
or otherwise, or in the results of operations of the Company.
Section 3.5 Books and Records. All accounts, books, ledgers and official
and other records material to the Company of whatsoever kind have been properly
and accurately kept and are complete in all material respects, and there are no
material inaccuracies or discrepancies of any kind contained or reflected
therein. Except as set forth on Schedule 3.5, the Company does not have any of
its records, systems, controls, data or information recorded, stored,
maintained, operated or otherwise wholly or partly dependent on or held by any
means (including any electronic, mechanical or photographic process, whether
computerized or not) which (including all means of access thereto and therefrom)
are not under the exclusive ownership and possession of the Company.
Section 3.6 Title to Properties; Encumbrances. The Company has good and
valid title to, or enforceable leasehold interests in or valid rights under
contract to use all the material properties and assets owned or used by it
(personal, tangible and intangible), including, without limitation (a) all the
properties and assets reflected in the Balance Sheet, (b) all the properties and
assets purchased or otherwise contracted for by the Company since the Balance
Sheet Date (except for properties and assets reflected in the Balance Sheet or
acquired or otherwise contracted for since the Balance Sheet Date that have been
sold or otherwise disposed of in the ordinary course of business), and (c) all
properties and assets leased by the Company, in each case free and clear of all
Liens, except for Liens set forth on Schedule 3.6. The property, plant and
equipment owned or otherwise contracted for by the Company is in a state of good
maintenance and repair (ordinary wear and tear excepted) and is adequate and
suitable in all material respects for the purposes for which they are presently
being used.
Section 3.7 Real Property.
3.7.1 Owned Real Property. The Company does not own any real property
including ground leases) or hold any option or right of first refusal or first
offer to acquire any real property, and the Company is not obligated by Contract
or otherwise to purchase any real property.
3.7.2 Leased Real Property. Schedule 3.7.2 contains an accurate and
complete list of all real property leases, subleases, licenses and other
occupancy agreements, including without limitation, any modification, amendment
or supplement thereto and any other related document or agreement executed or
entered into by the Company (each individually, a "Real Property Lease" and
collectively the "Real Property Leases") to which to Company is a party
(including, without limitation, any Real Property Lease which the Company has
subleased or assigned to another Person and as to which the Company remains
liable). Except as set forth on Schedule 3.7.2, each
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Real Property Lease set forth on Schedule 3.7.2 (or required to be set forth on
Schedule 3.7.2): (a) is valid, binding and in full force and effect; (b) all
rents and additional rents and other sums, expenses and charges due to the
Effective Date have been paid; (c) the lessee has been in peaceable possession
since the commencement of the original term thereof; (d) no waiver, indulgence
or postponement of the lessee's obligations thereunder has been granted by the
lessor; (e) there exists no default or event of default by the Company or to the
knowledge of the Stockholder, by any other party thereto; (f) there exists no
occurrence, condition or act which, with the giving of notice, the lapse of time
or the happening of any further event or condition, would become a default or
event of default by the Company thereunder; and (g) there are no outstanding
claims of breach or indemnification or notice of default or termination
thereunder. The Company holds the leasehold estate on all Real Property Leases,
free and clear of all Liens, except as set forth on Schedule 3.6 and the liens
of mortgagees of the real property in which such leasehold estate is located.
Except as set forth on Schedule 3.7.2, the real property leased by the Company
is in a state of good maintenance and repair and is adequate and suitable for
the purposes for which it is presently being used, and there are no material
repair or restoration works likely to be required in connection with any of the
leased real properties. The Company is in physical possession and actual and
exclusive occupation of the whole of each of its leased properties. The Company
does not owe any brokerage commission with respect to any Real Property Lease.
Section 3.8 Contracts. Schedule 3.8 hereto contains an accurate and
complete list of the following agreements, commitments, leases, licenses,
evidences of indebtedness, mortgages, indentures, security agreements,
instruments, notes, bonds, franchises, permits, concessions, or other
instruments, obligations or agreements of any kind to which the Company is a
party (collectively, "Contracts"): (a) all employee benefit plans (as defined in
Section 3(3) of the Employee Retirement Income Security Act of 1974, as amended
("ERISA") and all bonus, incentive, deferred compensation, retiree medical or
life insurance; supplemental retirement, severance or other benefit plans,
programs or arrangements which are maintained by the Company (collectively,
"Plans"); (b) any personal property lease with a fixed annual rental of $10,000
or more; (c) any Contract relating to capital expenditures which involves
payments of $25,000 or more in any single transaction or series of related
transactions; (d) any Contract relating to the making of a loan or advance to,
or investment in, any other Person; (e) any Contract evidencing or relating in
any way to indebtedness for money borrowed or to be borrowed, whether directly
or indirectly, by way of loan, purchase money obligation, guarantee (other than
the endorsement of negotiable instruments for collection in the ordinary course
of business), conditional sale, purchase or otherwise; (f) any management
service, employment, consulting or similar type of Contract which is not
cancelable by the Company without penalty or other financial obligation within
30 days; (g) any Contract limiting the Company's freedom to engage in any line
of business or to compete with any other Person, including agreements limiting
the ability of the Company or any of its affiliates to service competitive
accounts during or after the term thereof; (h) any collective bargaining or
union agreement; (i) any Contract with any of its officers or directors or the
Stockholder not covered by subsection (f) above (including indemnification
agreements); (j) any secrecy or confidentiality agreement (other than standard
confidentiality agreements in computer software license agreements or agreements
with clients entered into in the ordinary course of business); (k) any Contract
with respect to any Intellectual Property (as defined in Section 3.14) of the
Company, other than "shrink-wrap" and similar end-user licenses; (l) any
agreement with a
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client required to be listed on Schedule 3.16; (m) any joint venture agreement
involving a sharing of profits not covered by clauses (a) through (l) above; and
(n) any Contract (not covered by another subsection of this Section 3.8) which
involves $25,000 or more over the unexpired term thereof and is not cancelable
by the Company without penalty or other financial obligation within 30 days.
Notwithstanding the foregoing, (x) production expenses which are fully
reimbursable from clients, and (y) estimates or purchase orders given in the
ordinary course of business relating to the execution of projects, do not have
to be set forth on Schedule 3.8. Each Contract to which the Company is a party,
including, but not limited to those set forth on Schedule 3.8, is in full force
and effect, and there exists no default or event of default by the Company or to
the knowledge of the Stockholder, by any other Person, or except as set forth on
Schedule 3.9.2, occurrence, condition, or act (including the purchase of the
Shares hereunder) which, with the giving of notice, the lapse of time or the
happening of any other event or condition, would become a default or event of
default thereunder by the Company, and there are no outstanding claims of breach
or indemnification or notice of default or termination of any such Contract.
Section 3.9 Non-Contravention; Approvals and Consents.
3.9.1 Non-Contravention . The execution, delivery and performance by the
Stockholder of his obligations hereunder and the consummation of the
transactions contemplated hereby, will not (a) violate, conflict with or result
in the breach of any provision of the Certificate of Incorporation or By-Laws
(or other comparable charter documents) of the Company, or (b) result in the
violation by the Company of any Laws or Orders of any Governmental or Regulatory
Authority, applicable to the Company or any of its assets or properties, or (c)
if the consents and notices set forth on Schedule 3.9.2 are obtained, given or
waived, conflict with, result in a violation or breach of, constitute (with or
without notice or lapse of time or both) a default under, or (except as set
forth on Schedule 3.9.2) require the Company to obtain any consent, approval or
action of, make any filing with or give any notice to, or result in or give to
any Person any right of payment or reimbursement, termination, cancellation,
modification or acceleration of, or result in the creation or imposition of any
Lien upon any of the assets of the Company, under any of the terms, conditions
or provisions of any Contract to which the Company is a party or by which the
Company or any of its assets or properties are bound.
3.9.2 Approvals and Consents. Except as disclosed on Schedule 3.9.2, no
consent, approval or action of, filing with or notice to any Governmental or
Regulatory Authority or other Person is necessary or required under any of the
terms, conditions or provisions of any Law or Order of any Governmental or
Regulatory Authority or any Contract to which the Company is a party or by which
its assets or properties are bound for the execution and delivery of this
Agreement by the Stockholder, the performance by the Stockholder of his
obligations hereunder or the consummation of the transactions contemplated
hereby.
Section 3.10 Litigation. Except as set forth on Schedule 3.10, there is no
action, suit, proceeding at law or in equity by any Person, or any arbitration
or any administrative or other proceeding by or before (or to the knowledge of
the Stockholder, any investigation by) any Governmental or Regulatory Authority,
pending or, to the knowledge of the Stockholder, threatened against the Company
with respect to this Agreement or the transactions contemplated
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hereby, or against or affecting the Company or its assets; and to the knowledge
of the Stockholder, no acts, facts, circumstances, events or conditions occurred
or exist which are a basis for any such action, proceeding or investigation.
Schedule 3.10 also sets forth with respect to each pending or threatened action,
suit or proceeding listed thereon, the amount of costs, expenses or damages the
Company has incurred to date and reasonably expects to incur through conclusion
thereof. The Company is not subject to any Order entered in any lawsuit or
proceeding.
Section 3.11 Taxes. The Company has timely filed, or caused to be filed,
taking into account any valid extensions of due dates, completely and
accurately, all federal, state, local and foreign tax or information returns
(including estimated tax returns) required under the statutes, rules or
regulations of such jurisdictions to be filed by the Company with respect to
income, accumulated earnings, franchise, capital stock, employees' income
withholding, back-up withholding, withholding on payments to foreign persons,
social security, unemployment, disability, real property, personal property,
sales, use, excise, transfer and other taxes (including interest, penalties or
additions to tax in respect of the foregoing) whether disputed or not (all of
the foregoing collectively referred to as "Taxes"). All Taxes shown on said
returns to be due and all additional assessments received prior to the Balance
Sheet Date have been paid or are being contested in good faith, in which case,
such contested assessments are set forth on Schedule 3.11. The amount set up as
an accrual for Taxes on the Balance Sheet is sufficient for the payment of all
unpaid Taxes of the Company, whether or not disputed, for all periods ended on
and prior to the date thereof. Since the Balance Sheet Date, the Company has not
incurred any liabilities for Taxes other than in the ordinary course of
business. The Company has delivered to the Purchaser correct and complete copies
of all federal and state income tax returns filed with respect to the Company
for all taxable periods beginning on or after January 1, 1997. Except as set
forth on Schedule 3.11, none of the federal, state or local tax returns of the
Company has ever been audited by the Internal Revenue Service or any other
Governmental or Regulatory Authority. No audit or examination of any return of
the Company by any Governmental or Regulatory Authority is currently in
progress, and the Company has not received notice of any proposed audit or
examination. No deficiency in the payment of Taxes by the Company for any period
has been asserted in writing by any taxing authority and remains unsettled at
the date of this Agreement. The Company has not made any agreement, waiver or
other arrangement providing for an extension of time with respect to the
assessment or collection of any tax against it. Except as disclosed on Schedule
3.11, the Company is not (and has not been since its formation) subject to
entity-level income or gross receipts tax. The Company has not been a member of
an affiliated group filing consolidated federal income tax returns nor has it
been included in any combined consolidated or unitary state or local income tax
return. The Company is not a party to any tax allocation or tax sharing
agreement nor does it have any contractual obligation to indemnify any other
person with respect to Taxes. The Company has not been a United States real
property holding corporation within the meaning of Section 897(c)(2) of the Code
within the period specified in Section 897(c)(1)(A)(ii) of the Code. The Company
will not be required as a result of a change in accounting method for any period
ending on or before the Closing Date or as a result of the transactions
contemplated
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herein to include any adjustment under Section 481 of the Code (or any similar
provision of state, local or foreign income tax law) in income for any period
ending after the Closing Date.
Section 3.12 Liabilities. Except as set forth in the Balance Sheet, the
Company does not have any outstanding claims, liabilities or indebtedness of any
nature whatsoever (collectively in this Section 3.12, "Liabilities"), whether
accrued, absolute or contingent, determined or undetermined, asserted or
unasserted, and whether due or to become due, other than (i) Liabilities
specifically disclosed in any Schedule hereto; (ii) Liabilities under Contracts
of the type required to be disclosed by the Stockholder on any Schedule and so
disclosed or which because of the dollar amount or other qualifications are not
required to be listed on such Schedule; and (iii) Liabilities incurred in the
ordinary course of business and consistent with past practice since the Balance
Sheet Date not involving borrowings by the Company.
Section 3.13 Insurance. Schedule 3.13 contains a true and complete list
(including the names and addresses of the insurers, the names of the Persons to
whom such insurance policies have been issued, the expiration dates thereof, the
annual premiums and payment terms thereof, whether it is a "claims made" or an
"occurrence" policy and a brief description of the interests insured thereby) of
all liability, property, workers' compensation and other insurance policies
currently in effect that insure the property, assets or business of the Company
or its employees (other than self-obtained insurance policies by such
employees). Each such insurance policy is valid and binding and in full force
and effect, all premiums due thereunder have been paid and the Company has not
received any notice of cancellation or termination in respect of any such policy
or default thereunder. To the knowledge of the Stockholder, such insurance
policies are placed with financially sound and reputable insurers, and in light
of the nature of the Company's business, assets and properties, the Stockholder
believes they are in amounts and have coverage that are reasonable and customary
for Persons engaged in such business and having such assets and properties.
Neither the Company nor to the Stockholder's knowledge, the Person to whom such
policy has been issued has received notice that any insurer under any policy
referred to in this Section is denying liability with respect to a claim
thereunder or defending under a reservation of rights clause. Except as set
forth on Schedule 3.13, within the last two years the Company has not filed for
any claims exceeding $25,000 against any of its insurance policies, exclusive of
automobile and health insurance policies. None of such policies shall lapse or
terminate by reason of the transactions contemplated by this Agreement and all
such policies shall continue in effect after the Closing Date for the benefit of
the Purchaser. The Company has not received any notice of cancellation of any
such policy. The Company has not received written notice from any of its
insurance carriers that any premiums will be materially increased in the future
or that any insurance coverage listed on Schedule 3.13 will not be available in
the future on substantially the same terms now in effect.
Section 3.14 Intellectual Properties. Schedule 3.14 hereto contains an
accurate and complete list of all Intellectual Property (as defined below) owned
by the Company and all agreements under which any Person has granted a license
for any Intellectual Property to the Company (other than license agreements for
"off the shelf" third party computer software not included within the Company's
products or services). The Company has all right, title and
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interest in, a valid and binding license to use, or has the requisite permission
and authority to use all Intellectual Property used in the conduct of its
business. No claim of infringement or misappropriation of Intellectual Property
is or has been pending or, to the knowledge of the Stockholder, threatened
against the Company and/or the Stockholder and, to the knowledge of the
Stockholder, the Company and/or the Stockholder are not infringing or
misappropriating any Intellectual Property of any Person. The Company has not
expressly granted any license, franchise or permit in effect on the date hereof
to any Person to use any of the trade names or any of the trademarks owned by
it. The term "Intellectual Property" means patents and patent rights, trademarks
and trademark rights, tradenames and tradename rights, service marks and service
mark rights, service names and service name rights, copyright and copyright
rights, trade secrets and trade secret rights, rights of privacy and publicity,
and other proprietary intellectual property and personal rights and all pending
applications for and registrations of any of the foregoing.
Section 3.15 Compliance with Laws; Licenses and Permits.
3.15.1 Compliance. The Company is and its business has been conducted, in
compliance with all applicable Laws and Orders, except in each case (other than
with respect to compliance with environmental Laws and Orders relating to the
regulation or protection of the environment; "Environmental Laws and Orders")
where the failure to so comply would not reasonably be expected to have a
Material Adverse Effect, including without limitation: (a) all Laws and Orders
promulgated by the Federal Trade Commission or any other Governmental or
Regulatory Authority; (b) all Environmental Laws and Orders; and (c) all Laws
and Orders relating to labor, civil rights, and occupational safety and health
laws, worker's compensation, employment and wages, hours and vacations, or pay
equity. The Company has not been charged with, or, to the knowledge of the
Stockholder threatened with or under any investigation with respect to, any
charge concerning any violation of any Laws or Orders.
3.15.2 Licenses. The Company has all Licenses required by any Governmental
or Regulatory Authority for the operation of its business and the use of its
assets as presently operated or used, except where the failure to have such
Licenses would not reasonably be expected to have a Material Adverse Effect. All
of the Licenses are in full force and effect and no action or claim is pending,
nor to the knowledge of the Stockholder is threatened, to revoke or terminate
any of such Licenses or declare any such License invalid in any material
respect.
Section 3.16 Intentionally Omitted
Section 3.17 Accounts Receivable; Work-in-Process; Accounts Payable. The
amount of all work-in-process, accounts receivable, unbilled invoices (including
without limitation unbilled invoices for services and out-of-pocket expenses)
and other debts due or recorded in the records and books of account of the
Company as being due to the Company and reflected on the Balance Sheet and the
Effective Date Balance Sheet represent or will represent valid obligations
arising from sales actually made or services actually performed in the ordinary
course of business, and none of the accounts receivable or other debts (or
accounts receivable arising from any such work-in-process or
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unbilled invoices) is or will be subject to any counterclaim or set-off except
to the extent of any provision, reserve or adjustment therefor reflected on the
Balance Sheet and the Effective Date Balance Sheet. There has been no material
adverse change since the Balance Sheet Date in the amount or aging of the
work-in-process, accounts receivable, unbilled invoices, or other debts due to
the Company, or the reserves with respect thereto, or accounts payable of the
Company.
Section 3.18 Employment Relations. (a) The Stockholder has no knowledge of
any acts which would give rise to any unfair labor practice claims against the
Company ; (b) no unfair labor practice complaint against the Company is pending
before any Governmental or Regulatory Authority; (c) there is no organized labor
strike, dispute, slowdown or stoppage actually pending or to the knowledge of
the Stockholder threatened against or involving the Company; (d) there are no
labor unions representing or, to the knowledge of the Stockholder, attempting to
represent the employees of the Company; (e) no claim or grievance nor any
arbitration proceeding arising out of or under any collective bargaining
agreement is pending and to the knowledge of the Stockholder, no such claim or
grievance has been threatened; (f) no collective bargaining agreement is
currently being negotiated by the Company; and (g) the Company has not
experienced any work stoppage or similar organized labor dispute during the last
three years. There is no legal action, suit, proceeding or claim pending or, to
the knowledge of the Stockholder, threatened between the Company and any of its
employees, former employees, agents, former agents, job applicants or any
association or group of any of its employees, except as set forth on Schedule
3.10.
Section 3.19 Employee Benefit Plans. The Company does not maintain or
contribute to any Plan which could in any way impose any liability on Purchaser
as a result of the transactions contemplated hereby. Each Plan of the Company
has been operated materially in accordance with the requirements of all
applicable law, including, without limitation, ERISA and the Internal Revenue
Code of 1986, as amended (the "Code") and the regulations and authorities
published thereunder. All reports, disclosures, notices and filings with respect
to such Plans required to be made to employees, participants, beneficiaries,
alternate payees and government agencies have been timely made or an extension
has been timely obtained. There has been no prohibited transactions (within the
meaning of Section 406 of ERISA or Section 4975 of the Code) with respect to any
Plan maintained by the Company. All contributions, premiums or payments required
to be made, paid or accrued with respect to any such Plan have been made, paid
or accrued on or before their due dates, including extensions thereof.
Section 3.20 Interests in Customers, Suppliers, Etc. Except as set forth
on Schedule 3.20, (x) neither the Stockholder nor any Person controlled by the
Stockholder nor (y) to the knowledge of the Stockholder (without making any
inquiry of any member of the Related Group, as hereinafter defined), any
officer, director, or employee of the Company, any parent, brother, sister,
child or spouse of any such officer, director or employee or of the Stockholder
(collectively, the "Related Group"), or any entity controlled by anyone in the
Related Group:
(i) owns, directly or indirectly, any interest in (excepting for
ownership, directly or indirectly, of less than 5% of the issued and
outstanding shares of any class of securities of a
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publicly held and traded company) or received or has any right to receive
payments from, or is an officer, director, employee or consultant of, any
Person which is, or is engaged in business as, a competitor, lessor,
lessee, supplier, distributor, sales agent, customer or client of the
Company;
(ii) owns, directly or indirectly, in whole or in part, any tangible or
intangible property (including, but not limited to Intellectual Property)
that the Company uses in the conduct of the business of the Company, other
than immaterial personal items owned and used by employees at their work
stations; or
(iii) has any cause of action or other claim whatsoever against, or owes
any amount to, the Company, except for claims in the ordinary course of
business such as for accrued vacation pay, accrued benefits under employee
benefit plans, and similar matters and agreements existing on the date
hereof.
Section 3.21 Bank Accounts and Powers of Attorney. Set forth in Schedule
3.21 is an accurate and complete list showing (a) the name of each bank in which
the Company has an account, credit line or safe deposit box and the names of all
Persons authorized to draw thereon or to have access thereto, and (b) the names
of all Persons, if any, holding powers of attorney from the Company and a
summary statement of the terms thereof.
Section 3.22 Compensation of Employees. Since its formation, the
Stockholder has been the only employee of the Company and the Company has never
engaged any exclusive consultant. Schedule 3.22 sets forth the Stockholder's
current annual salary, and the annual salary, bonus and incentive compensation
paid or payable to him with respect to calendar years 1998 and 1999, and his
material fringe benefits. The Company has not, because of past practices or
previous commitments with respect to the Stockholder, established any rights on
the part of the Stockholder to additional compensation with respect to any
period after the Closing Date (other than wage increases in the ordinary course
of business).
Section 3.23 No Changes Since the Balance Sheet Date. Since the Balance
Sheet Date, except as specifically stated on Schedule 3.23, the Company has not
(a) incurred any liability or obligation of any nature (whether accrued,
absolute, contingent or otherwise), except in the ordinary course of business;
(b) permitted any asset of the Company to be subjected to any Lien; (c) sold,
transferred or otherwise disposed of any asset of the Company except in the
ordinary course of business; (d) made any capital expenditure or commitment
therefor which individually or in the aggregate exceeded $25,000; (e) declared
or paid any dividends or made any distributions on any shares of its capital
stock or any option, warrant or other right to purchase or acquire any such
shares; (f) made any bonus or profit sharing distribution; (g) increased or
prepaid its indebtedness for borrowed money, except current borrowings under
credit lines listed on Schedule 3.8, or made any loan to any Person other than
to the Stockholder for normal travel and expense advances; (h) written down the
value of any work-in-process, or written off as uncollectible any notes or
accounts receivable, except write-downs and write-offs in the ordinary course of
business, none of which, individually or in the aggregate, is material to the
Company; (i) granted any increase in the rate of wages, salaries, bonuses or
other remuneration of the Stockholder; (j) entered into an employment
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or exclusive consultant agreement which is not cancelable without penalty or
other financial obligation within 30 days; (k) canceled or waived any claims or
rights of material value; (l) made any change in any method of accounting
procedures; (m) otherwise conducted its business or entered into any
transaction, except in the usual and ordinary manner and in the ordinary course
of its business; (n) amended or terminated any agreement which is material to
its business; (o) renewed, extended or modified any Real Property Lease or
except in the ordinary course of business, any personal property lease; (p)
adopted, amended or terminated any Plan; or (q) agreed, whether or not in
writing, to do any of the actions set forth in any of the above clauses.
Section 3.24 Company Controls. Neither the Stockholder, nor, to the
knowledge of the Stockholder, any officer, authorized agent, employee or any
other Person while acting on behalf of the Company, has, directly or indirectly:
used any company fund for unlawful contributions, gifts, or other unlawful
expenses relating to political activity; made any unlawful payment to foreign or
domestic government officials or employees or to foreign or domestic political
parties or campaigns from company funds; established or maintained any unlawful
or unrecorded fund of company monies or other assets; made any false or
fictitious entry on its books or records; made any bribe, rebate, payoff,
influence payment, kickback, or other unlawful payment, or other payment of a
similar or comparable nature, to any Person, private or public, regardless of
form, whether in money, property, or services, to obtain favorable treatment in
securing business or to obtain special concessions, or to pay for favorable
treatment for business secured or for special concessions already obtained, and
the Company has not participated in any illegal boycott or other similar illegal
practices affecting any of its actual or potential customers.
Section 3.25 Brokers. Except as set forth on Schedule 3.25, no broker,
finder, agent or similar intermediary has acted on behalf of the Company or the
Stockholder in connection with this Agreement or the transactions contemplated
hereby, and no brokerage commissions, finder's fees or similar fees or
commissions are payable by the Company or the Stockholder in connection
therewith based on any agreement, arrangement or understanding with any of them.
Section 3.26 Year 2000 Compliant.
3.26.1 Definition. The term "Year 2000 Compliant" shall mean:
(i) the functions, calculations and other computer processes of all
computer hardware, software and systems, including but not limited to
internal and outsourced MIS systems and embedded computer features within
other systems of the Company (collectively, "Processes"), perform properly
in a consistent manner regardless of the date in time on which the
Processes are actually performed and regardless of the date of input to
the software, whether before, on or after January 1, 2000 and whether or
not the dates are affected by leap years;
(ii) the computer hardware, software and systems accept, calculate,
compare, sort, extract, sequence and otherwise process data inputs and
date values, and return and display date values, in a consistent manner
regardless of the dates used, whether before, on or after January 1, 2000;
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(iii) the computer hardware, software and systems will function
properly without interruptions or extraordinary manual intervention caused
by the date in time on which the Processes are actually performed or by
the date of input to the software, whether before, on or after January 1,
2000;
(iv) the computer hardware, software and systems accept and respond
to two-digit year data input in the Processes in a manner that resolves
any ambiguities as to the century in a defined, predetermined and
appropriate manner; and
(v) the computer hardware, software and systems store and display
data information in the Processes in ways that are unambiguous as to the
determination of the century.
3.26.2 Computer Systems. Except as set forth on Schedule 3.26, (a) the
current computer hardware, software and systems, and accompanying documentation,
of the Company will be Year 2000 Compliant in a full production version, with
accompanying documentation, in all material respects, on or before December 31,
1999; and (b) the Company will use reasonable efforts to obtain confirmation
that Year 2000 Compliant computer hardware, software and systems will be
provided to the Company in a timely manner under current supplier contracts or
standard maintenance and support plans without additional fee or charge of any
kind (including any installation, freight, or other costs or fees) to the
Company.
3.26.3 Other Products and Services. Except as set forth on Schedule 3.26,
(a) the Company's products will be delivered and its services will be scheduled
and performed in a timely manner without interruptions caused by the date in
time on which the product is ordered or is actually delivered or the services
are scheduled or actually performed under normal procedures in the ordinary
course, whether before, on or after January 1, 2000; and (b) the Company has
made reasonable efforts to obtain confirmation that the Company's essential
suppliers of products and services, including the suppliers of its
infrastructure systems, have Year 2000 Compliant programs in place to avoid
interruptions in the supplier-customer trading relationship which could have a
Material Adverse Effect, whether before, on or after January 1, 2000.
Section 3.27 Prepayment for Services Except as disclosed on Schedule 3.27,
the Company has not prior to the Closing Date received any payments from any of
its clients with respect to services to be rendered by the Company after the
Closing Date.
Section 3.28 Investment Representations.
(a) The Stockholder is acquiring the Paradise Stock for investment
purposes only and does not intend to resell, distribute or subdivide the
Paradise Stock other than pursuant to an effective registration statement or an
available exemption under the Securities Act of 1933, as amended (the "Act").
The Stockholder is acquiring the Paradise Stock for his own account and no other
person will have any beneficial interest in the Paradise Stock.
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(b) The Stockholder acknowledges that Paradise is offering and
selling the Paradise Stock pursuant to exemptions from registration under the
Act and exemptions from qualification under the securities laws of certain
states, for transactions not involving any public offering, and that Paradise is
relying on the representations and warranties included herein to obtain those
exemptions. The Stockholder further represents and warrants to Paradise and the
Purchaser as follows:
(i) The Stockholder has the financial ability to bear the
economic risk of its or his investment in the Paradise Stock (including the
possible loss of such investment in its entirety), has adequate means of
providing for his current needs and personal contingencies, and has no need for
liquidity with respect to his investment in Paradise; and
(ii) The Stockholder is not an "underwriter" as such term is
defined under the Act and the Stockholder has such knowledge and experience in
financial and business matters as to be capable of evaluating the merits and
risks of an investment in Paradise and has obtained, in the best judgment of the
Stockholder, sufficient information from Paradise to evaluate the merits and
risks of an investment in Paradise.
(c) The Stockholder understands that the Paradise Stock has not been
registered under the Act or qualified under the securities laws of any state,
and therefore cannot be transferred, resold, pledged, hypothecated, assigned, or
otherwise disposed of unless they are subsequently registered under the Act and
qualified under applicable state securities laws and in compliance with any
other applicable securities laws, or an exemption from registration and/or
qualification is available. The Stockholder will not sell, distribute, dispose
of or otherwise transfer the Paradise Stock or any part thereof, or interest
therein, except pursuant to an effective registration under the Act or pursuant
to an exemption from the registration requirements of the Act and in compliance
with any other applicable securities laws. The Stockholder understands that all
stock certificates representing the Paradise Stock shall bear a legend
reflecting the restrictions contained in this clause (c).
(d) The Stockholder has been given the opportunity to ask questions
of, and receive answers from, and conduct due diligence meetings with
representatives of Paradise concerning the terms and conditions of this offering
and other matters pertaining to this investment and have been given the
opportunity to obtain such additional information as is necessary to evaluate
the merits and risks of an investment in Paradise, in all cases to the extent
that Paradise possessed such information. The Stockholder's decision to acquire
the Paradise Stock was made on the basis of the Stockholder's independent
analysis of the terms of the purchase and arms' length discussions with
representatives of Paradise.
(e) The Stockholder is not relying on Paradise or any representative
of Paradise, for advice as to tax, legal, or economic considerations as they
relate to the Stockholder's circumstances. No such representations or warranties
have been made to the Stockholder by Paradise, or any employee or agent of
Paradise. In particular, the Stockholder acknowledges that there have been no
representations, guarantees or warranties made to him by
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Paradise, its employees or agents, or by any other person, with respect to (i)
the approximate length of time that will be required to remain as the owner of
the Paradise Stock; or (ii) the percentage of profit and/or amount of or type of
consideration, profit or loss to be realized, if any, as a result of this
investment.
(f) The Stockholder has determined that the Paradise Stock is a
suitable investment in light of his investment goals, ability to sustain losses,
needs for liquidity and previous decisions to invest in securities such as the
Paradise Stock or securities bearing similar risks.
(g) The Stockholder is an "Accredited Investor" as that term is
defined in Rule 501(a) of Regulation D.
Section 3.29 Copies of Documents. The Company has caused to be made
available for inspection and copying by the Purchaser and Paradise and its
advisers, true, complete and correct copies of all documents referred to in this
Article III or in any Schedule. Summaries of all oral contracts contained in
Schedule 3.8 are complete and accurate in all material respects.
ARTICLE IV
REPRESENTATIONS OF THE PURCHASER AND PARADISE
Each of the Purchaser and Paradise, jointly and severally, represent,
warrant and agree to and with the Stockholder as follows:
Section 4.1 Existence and Good Standing. Each of the Purchaser and
Paradise is a corporation duly organized, validly existing and in good standing
under the laws of the State of Delaware with full corporate power and authority
to own its property and to carry on its business all as and in the places where
such properties are now owned or operated or such business is now being
conducted, except for jurisdictions where the failure to be so qualified would
not have a Material Adverse Effect. For purposes of this Agreement, "Material
Adverse Effect" shall mean any material and adverse effect on the financial
condition, results of operations, assets, properties or business of Paradise or
the purchaser. Paradise is qualified to do business in New York.
Section 4.2 Execution and Validity of Agreement. Each of the Purchaser and
Paradise has the full corporate power and authority to make, execute, deliver
and perform this Agreement by the Purchaser and Paradise and the transactions
contemplated hereby. The execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby have been duly authorized
by all required corporate action on behalf of the Purchaser and Paradise, and
this Agreement has been duly and validly executed and delivered by the Purchaser
and Paradise and, assuming due authorization, execution and delivery by the
Stockholder, constitutes legal, valid and binding obligations of the Purchaser
and Paradise, enforceable against them in accordance with its terms.
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Section 4.3 No Restrictions. There is no suit, action, claim,
investigation or inquiry by any Governmental or Regulatory Authority, and no
legal, administrative or arbitration proceeding pending or, to the knowledge of
Purchaser and Paradise, threatened against the Purchaser or Paradise with
respect to the execution, delivery and performance of this Agreement or the
transactions contemplated hereby, and to the knowledge of Paradise and the
Purchaser, no acts, facts, circumstances, events or conditions occurred or exist
which are a basis for any such action, proceeding or investigation.
Section 4.4 Non-Contravention; Approvals and Consents.
4.4.1 Non-Contravention. The execution, delivery and performance by each
of the Purchaser and Paradise of its obligations hereunder and the consummation
of the transactions contemplated hereby will not (a) violate, conflict with or
result in the breach of any provision of the Certificate of Incorporation or
By-laws of the Purchaser or Paradise, or (b) result in the violation by the
Purchaser or Paradise of any Laws or Orders of any Governmental or Regulatory
Authority applicable to the Purchaser or any of its assets or properties, or (c)
result in a violation or breach of, constitute (with or without notice or lapse
of time or both) a default under, or except as set forth on Schedule 4.4.1,
require the Purchaser or Paradise to obtain any consent, approval or action of,
make any filing with or give any notice to, or result in or give to any Person
any right of payment or reimbursement, termination, cancellation, modification
or acceleration of, or result in the creation or imposition of any Lien upon any
of the assets or properties of the Purchaser or Paradise, under any of the
terms, conditions or provisions of any contract to which the Purchaser or
Paradise is a party or by which the Purchaser or Paradise or any of their
respective assets or properties are bound.
4.4.2 Approvals and Consents. Except as set forth on Schedule 4.4.1, no
consent, approval or action of, filing with or notice to any Governmental or
Regulatory Authority or other public or private third party is necessary or
required under any of the terms, conditions or provisions of any Law or Order of
any Governmental or Regulatory Authority or any contract to which the Purchaser
or Paradise is a party or by which the Purchaser or Paradise or any of their
assets or properties are bound for the execution and delivery of this Agreement
by the Purchaser and Paradise, the performance by the Purchaser and Paradise of
their obligations hereunder or the consummation of the transactions contemplated
hereby by the Purchaser and Paradise.
Section 4.5 Compliance with Laws; Licenses and Permits.
4.5.1 Compliance. Each of Paradise and the Purchaser is and its business
has been conducted, in compliance with all applicable Laws and Orders, except in
each case (other than with respect to compliance with environmental Laws and
Orders relating to the regulation or protection of the environment;
"Environmental Laws and Orders") where the failure to so comply would not
reasonably be expected to have a Material Adverse Effect, including without
limitation: (a) all Laws and Orders promulgated by the Federal Trade Commission
or any other Governmental or Regulatory Authority; (b) all Environmental Laws
and Orders; and (c) all Laws and Orders relating to labor, civil rights, and
occupational safety and health laws, worker's compensation, employment and
wages, hours and vacations, or pay equity. Neither Paradise nor the Purchaser
has been
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charged with, or, to the knowledge of Paradise and the Purchaser threatened with
or under any investigation with respect to, any charge concerning any violation
of any Laws or Orders.
4.5.2 Licenses. Each of Paradise and the Purchaser has all Licenses
required by any Governmental or Regulatory Authority for the operation of its
business and the use of its assets as presently operated or used, except where
the failure to have such Licenses would not reasonably be expected to have a
Material Adverse Effect. All of the Licenses are in full force and effect and no
action or claim is pending, nor to the knowledge of Paradise and the Purchaser
is threatened, to revoke or terminate any of such Licenses or declare any such
License invalid in any material respect.
Section 4.6 Paradise Stock. . The shares of Paradise Stock to be delivered
to the Stockholder pursuant to this Agreement, when delivered as provided
herein, will be validly issued and outstanding shares of voting common stock of
Paradise, fully paid and non-assessable, and will not be subject to pre-emptive
rights of any Person.
Section 4.7 Brokers. No broker, finder, agent or similar intermediary has
acted on behalf of the Purchaser, Paradise or any of their affiliates in
connection with this Agreement or the transactions contemplated hereby, and no
brokerage commissions, finders' fees or similar fees or commissions are payable
by the Purchaser, Paradise or any of their affiliates in connection therewith
based on any agreement, arrangement or understanding with any of them.
ARTICLE V
COVENANTS OF THE STOCKHOLDER
The Stockholder covenants and agrees with Paradise and the Purchaser that,
at all times from and after the Execution Date until the Closing or earlier
termination of this Agreement, the Stockholder will comply, and will cause the
Company to comply, with all covenants and provisions of this Article V, except
to the extent Paradise (on behalf of itself and the Purchaser) may otherwise
consent in writing.
Section 5.1 Regulatory and Other Approvals. The Stockholder will take all
commercially reasonable steps necessary or desirable, and proceed diligently and
in good faith and use all commercially reasonable efforts, as promptly as
practicable to obtain all consents and approvals required of the Company and
Stockholder to consummate the transactions contemplated hereby. The Stockholder
will provide prompt notification to Paradise when any such consent or approval
is obtained.
Section 5.2 Investigation by Paradise and the Purchaser. Subject to the
confidentiality provisions of Section 12.8, the Company and the Stockholder will
(a) provide Paradise and the Purchaser and their respective officers, employees,
counsel, accountants, financial advisors, consultants and other representatives
(collectively, "Representatives") with
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full access, upon reasonable prior notice and during normal business hours, to
the executive officers and agents of the Company who have any material
responsibility for the conduct of the business of the Company and to the
Company's accountants and their work papers, but only to the extent that such
access does not unreasonably interfere with the business of the Company and (b)
furnish Paradise, the Purchaser and the Representatives with all such
information and data concerning the business of the Company as Paradise, the
Purchaser or the Representatives reasonably may request in connection with such
investigation, except to the extent that furnishing any such information or data
would violate any Law, Order, Contract or License applicable to the Company.
Section 5.3 No Solicitations. The Stockholder will not, and will cause the
Company to not, nor will they permit any affiliate of the Company or the
Stockholder (or authorize or permit any investment banker, financial advisor,
attorney, accountant or other Person retained by or acting for or on behalf of
the Company, the Stockholder or any such affiliate) to take, directly or
indirectly, any action to solicit, encourage, negotiate, assist or otherwise
facilitate (including by furnishing confidential information with respect to the
business of the Company or permitting access to the assets of the Company ) any
offer or inquiry concerning the acquisition of the Company (whether by sale of
assets, sale of stock, merger or otherwise) from any Person other than Paradise
or the Purchaser.
Section 5.4 Conduct of Business. From the Execution Date to the Closing
Date, except as contemplated or otherwise permitted under the terms of this
Agreement, the Company and the Stockholder will operate the business of the
Company only in the ordinary course consistent with past practice. Without
limiting the generality of the foregoing, except as contemplated by or otherwise
permitted by the terms of this Agreement or any Schedule to this Agreement, the
Stockholder will refrain and the Stockholder will cause the Company to refrain,
from taking any of the following actions unless consented to in writing by
Paradise (on behalf of itself and the Purchaser), which consent shall not be
unreasonably withheld:
(i) selling, leasing or otherwise disposing of all or substantially all
of its assets or business;
(ii) amending its Certificate of Incorporation or by-laws;
(iii) changing its capitalization;
(iv) engaging in any acquisition of the stock, assets or business of
another Person or making any equity investment of funds of the
Company in another Person other than short-term investments in cash
equivalents;
(v) merging or consolidating with and into any Person or merging or
consolidating any Person with and into it;
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(vi) engaging in any liquidation or dissolution;
(vii) entering into any new line of business;
(viii) making any loans to any Person other than normal employee travel
and expense advances consistent with past practice.
(ix) entering into any real estate, lease or personal property lease;
(x) granting any compensation increase to the Stockholder;
(xi) entering into any Contract with any officer, director or employee;
(xii) declaring or paying any dividends or other distributions or bonuses
to the Stockholder except as set forth on Schedule 3.23;
(xiii) amending any contract or agreement in any material respect;
(xiv) entering into any severance agreement involving a payment, or
obligation to pay, any amount in excess of the Company's normal
severance benefit;
(xv) releasing, canceling or assigning any indebtedness for borrowed
money owed to it, or waiving any material right relating to its
properties;
(xvi) creating or modifying any Plan or entering into or modifying any
employment agreement with the Stockholder which is not cancelable
without penalty or other obligation on 30 days notice;
(xvii) entering into any transaction or performing any act which would be
reasonably likely to result in any of the representations and
warranties of the Stockholder contained in this Agreement not being
true and correct; or agreeing to take any of the actions that are
prohibited herein or which would constitute a violation of any of
the covenants of the Stockholder contained herein; and
(xviii) delegating to any other Person the power to take any of the actions
prohibited by any of the foregoing clauses.
Section 5.5 Notice and Cure. The Stockholder will notify Paradise in
writing of, and contemporaneously will provide Paradise with true and complete
copies of any and all information or documents relating to, and will use all
commercially reasonable efforts to cure before the Closing, any event,
transaction or circumstance, as soon as practicable after it becomes known to
the Stockholder, occurring after the Execution Date that causes or will cause
any covenant or agreement of the Stockholder under this Agreement to be breached
or
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that renders or will render untrue any representation or warranty of the
Stockholder contained in this Agreement as if the same were made on or as of the
date of such event, transaction or circumstance. The Stockholder also will
notify Paradise in writing of, and will use all commercially reasonable efforts
to cure, before the Closing, any other violation or breach, as soon as
practicable after it becomes known to the Stockholder, of any representation,
warranty, covenant or agreement made by the Stockholder in this Agreement. No
notice given pursuant to this Section shall have any effect on the
representations, warranties, covenants or agreements contained in this Agreement
for purposes of determining satisfaction of any condition contained herein;
provided, however, if the Stockholder has cured such violation or breach prior
to the Closing to the reasonable satisfaction of Paradise, Paradise and the
Purchaser shall not have the right to terminate this Agreement based on such
violation or breach.
Section 5.6 Fulfillment of Conditions. The Stockholder will execute and
deliver at the Closing each agreement that the Stockholder is required hereby to
execute and deliver as a condition to the Closing, will take all commercially
reasonable steps necessary or desirable and proceed diligently and in good faith
to satisfy each other condition to the obligations of Paradise and the Purchaser
contained in this Agreement.
ARTICLE VI
COVENANTS OF PARADISE AND THE PURCHASER
Paradise and the Purchaser covenant and agree with the Stockholder that,
at all times from and after the Execution Date until the Closing or earlier
termination of this Agreement, Paradise and the Purchaser will comply with all
covenants and provisions of this Article VI, except to the extent the
Stockholder may otherwise consent in writing.
Section 6.1 Regulatory and Other Approvals. Paradise and the Purchaser
will (a) take all commercially reasonable steps necessary or desirable, and
proceed diligently and in good faith and use all commercially reasonable
efforts, as promptly as practicable to obtain all consents, approvals or actions
of, to make all filings with and to give all notices to Governmental or
Regulatory Authorities or any other Person required of Paradise or the Purchaser
to consummate the transactions contemplated hereby, including without limitation
those described on Schedule 4.4.1, (b) provide such other information and
communications to such Governmental or Regulatory Authorities or other Persons
as such Governmental or Regulatory Authorities or other Persons may reasonably
request in connection therewith and (c) provide reasonable cooperation to the
Stockholder in obtaining all consents or approvals required of the Stockholder
to consummate the transactions contemplated hereby. Paradise will provide prompt
notification to the Stockholder when any such consent, approval, action, filing
or notice referred to in clause (a) above is obtained, taken, made or given, as
applicable.
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Section 6.2 Investigation by the Stockholder . Paradise and the Purchaser
will (a) provide the Stockholder and its counsel, accountants, financial
advisors, consultants and other representatives (collectively,
"Representatives") with full access, upon reasonable prior notice and during
normal business hours, to the executive officers and agents of Paradise who have
any material responsibility for the conduct of the business of Paradise and to
Paradise's accountants and their work papers, but only to the extent that such
access does not unreasonably interfere with the business of Paradise and (b)
furnish the Stockholder and the Representatives with all such information and
data concerning the business of Paradise as the Stockholder or the
Representatives reasonably may request in connection with such investigation,
except to the extent that furnishing any such information or data would violate
any Law, Order, Contract or License applicable to the Company.
Section 6.3 Notice and Cure. Paradise or the Purchaser will notify the
Stockholder in writing of, and contemporaneously will provide the Stockholder
with true and complete copies of any and all information or documents relating
to, and will use all commercially reasonable efforts to cure before the Closing,
any event, transaction or circumstance, as soon as practicable after it becomes
known to Paradise or the Purchaser, occurring after the Execution Date that
causes or will cause any covenant or agreement of Paradise or the Purchaser
under this Agreement to be breached or that renders or will render untrue any
representation or warranty of Paradise or the Purchaser contained in this
Agreement as if the same were made on or as of the date of such event,
transaction or circumstance. Paradise or the Purchaser also will notify the
Stockholder in writing of, and will use all commercially reasonable efforts to
cure, before the Closing, any other violation or breach, as soon as practicable
after it becomes known to Paradise or the Purchaser, of any representation,
warranty, covenant or agreement made by Paradise or the Purchaser in this
Agreement. No notice given pursuant to this Section shall have any effect on the
representations, warranties, covenants or agreements contained in this Agreement
for purposes of determining satisfaction of any condition contained herein;
provided, however, if Paradise or the Purchaser have cured such violation or
breach prior to the Closing to the reasonable satisfaction of the Stockholder,
the Stockholder shall not have the right to terminate this Agreement based on
such violation or breach.
Section 6.4 Fulfillment of Conditions. Paradise and the Purchaser will
execute and deliver or cause the execution and delivery at the Closing each
agreement that Paradise and the Purchaser or one of their affiliates is hereby
required to execute and deliver as a condition to the Closing, will take all
commercially reasonable steps necessary or desirable and proceed diligently and
in good faith to satisfy each other condition to the obligations of the
Stockholder contained in this Agreement.
Section 6.5 Blue Sky. Paradise and the Purchaser will use their best
efforts to obtain all necessary state securities and blue sky authorizations
required to issue the Paradise Stock as contemplated by this Agreement.
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ARTICLE VII
MUTUAL COVENANTS
Paradise, the Purchaser and the Stockholder mutually covenant and agree
with each other as follows:
Section 7.1 Reasonable Efforts to Consummate Transaction. Paradise, the
Purchaser, and the Stockholder will each use its reasonable efforts and will
fully cooperate with each other to consummate the transactions contemplated by
this Agreement.
Section 7.2 Public Announcements.Paradise, the Purchaser, and the
Stockholder will consult with each other before issuing any press releases or
otherwise making any public statements with respect to this Agreement or any of
the transactions contemplated hereby and shall not issue any such press release
or make any public statement without the prior consent of the other parties
which shall not be unreasonably withheld, except as may be required by law or by
obligations pursuant to any listing agreements with any securities exchange.
ARTICLE VIII
CONDITIONS TO OBLIGATIONS OF PARADISE AND THE PURCHASER
The obligations of the Purchaser hereunder to purchase the Shares and
issue Paradise Stock are subject to the fulfillment, at or before the Closing,
of each of the following conditions, all or any of which may be waived in whole
or in part by Paradise, on behalf of itself and the Purchaser, in its sole
discretion:
Section 8.1 Representations and Warranties. The representations and
warranties made by the Stockholder in this Agreement, or in any Schedule
delivered pursuant hereto, shall be true and correct in all material respects on
and as of the Closing Date with the same force and effect as though made on and
as of the Closing Date or, in the case of representations and warranties made as
of a specified date earlier than the Closing Date, on and as of such earlier
date, and Stockholder shall have delivered to Paradise and the Purchaser a
certificate, dated the Closing Date, to such effect.
Section 8.2 Good Standing and Tax Certificates The Stockholder shall have
delivered to Paradise and the Purchaser (i) a copy of the Company's Articles of
Incorporation, including all amendments, certified by the Secretary of State (or
comparable official) of the State of California, (ii) a certificate from the
Secretary of State (or comparable official) of the
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State of California, to the effect that the Company is in good standing in
California and (iii) a certificate as to the tax status of the Company in the
State of California.
Section 8.3 Performance. The Stockholder shall have performed and complied
with the agreements, covenants and obligations required by this Agreement to be
so performed or complied with by the Stockholder at or before the Closing, and
the Stockholder shall have delivered to Paradise and the Purchaser a
certificate, dated the Closing Date, to such effect.
Section 8.4 No Litigation. There shall not be pending any litigation,
proceeding, investigation, review, arbitration or claim by Governmental or
Regulatory Authority, and no preliminary or permanent injunction or other order
shall have been issued, to restrain or invalidate the consummation by the
Stockholder of this Agreement and the transactions contemplated hereby, and no
material litigation shall be pending or to the knowledge of the Stockholder
threatened against the Company or the Stockholder with respect to this Agreement
or the transactions contemplated hereby or arising out of the actions required
or permitted to be taken by any of them pursuant to this Agreement, or against
or affecting either the Company or the Stockholder or any of their properties or
rights which, if adversely determined, would be reasonably likely to have a
Material Adverse Effect.
Section 8.5 Regulatory Consents and Approvals. All consents, approvals and
actions of, filings with and notices to any Governmental or Regulatory Authority
necessary to permit Paradise, the Purchaser, and the Stockholder to perform
their obligations under this Agreement and to consummate the transactions
contemplated hereby shall have been duly obtained, made or given and shall be in
full force and effect.
Section 8.6 Required Approvals, Notices and Consents. The Stockholder
shall have obtained or given, as the case may be, at no expense to Paradise or
the Purchaser and there shall not have been withdrawn or modified any notices,
consents, approvals or other actions listed on Schedule 3.9.2 hereof (including
without limitation, obtaining all consents, approvals and/or waivers required
under the contracts listed on Schedule 3.8 in order to permit the consummation
of the transactions contemplated by this Agreement without causing or resulting
in a default, event of default, acceleration event or termination event under
any of such documents and without entitling any party to any of such documents
to exercise any other right or remedy adverse to the interests of Paradise, the
Purchaser or the Company thereunder). Each such consent shall be in form
reasonably satisfactory to counsel for Paradise and the Purchaser.
Section 8.7 Opinion of Counsel. Paradise and the Purchaser shall have
received the opinion of Cohen, Primiani & Foster, counsel to the Stockholder,
dated the Closing Date, substantially in the form and to the effect of Exhibit A
hereto.
Section 8.8 Repayment of Loans. All indebtedness of the Stockholder to the
Company, if any, shall have been repaid in full, other than routine travel and
expense
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advances in the ordinary course of business consistent with past practice, and
the Stockholder shall have delivered to Paradise and the Purchaser a
certificate, dated the Closing Date, to such effect.
Section 8.9 Material Adverse Effect. Except for the execution and delivery
of this Agreement and the transactions required or permitted to take place
pursuant hereto on or prior to the Closing Date, since the Execution Date there
shall not have occurred any Material Adverse Effect, or any event or development
which, individually or together with such events, could reasonably be expected
to result in a Material Adverse Effect and the Stockholder shall have delivered
to Paradise and the Purchaser, a certificate dated the Closing Date to such
effect.
Section 8.10 Proceedings. All proceedings to be taken in connection with
the transactions contemplated by this Agreement and all documents incident
thereto must be reasonably satisfactory in form and substance to Paradise and
the Purchaser, and Paradise and the Purchaser shall have received copies of all
such documents and other evidences as Paradise and the Purchaser may reasonably
request in order to establish the consummation of such transactions and the
taking of all proceedings in connection therewith.
Section 8.11 Straw Dogs Acquisition Agreement. On the Closing Date, the
transactions contemplated in the Asset Purchase Agreement of even date herewith
between Paradise, the Purchaser, Consolidated Entertainment, LLC (d/b/a/ Straw
Dogs), the Stockholder and Craig Rodgers (the "Straw Dogs Agreement"), shall
have been consummated contemporaneously with the Closing hereunder.
Section 8.12 Working Capital. Appropriate working capital lines of credit,
as determined by Paradise and subject to the reasonable approval of the
Stockholder, shall have been obtained for the Purchaser and Paradise.
Section 8.13 Net Worth .The Net Worth (as defined below) of the Company as
of the Effective Date shall not have been less than $1.00, as finally determined
pursuant to the procedures set forth in Section 2.1.2 above. As used in this
Section 8.13, the term "Net Worth" shall mean the aggregate net book value of
the Company as of the Effective Date as represented by the aggregate value of
its assets, minus the aggregate value of it liabilities, calculated as of the
Effective Date in accordance with GAAP.
Section 8.14 Financial Statements. The Stockholder shall have delivered
Schedule 3.4 (Financial Statements) to Paradise and the Purchaser; provided,
however, failure to deliver said Schedule 3.4 shall not be a breach of this
Agreement by the Stockholder.
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ARTICLE IX
CONDITIONS TO OBLIGATIONS OF THE STOCKHOLDER
The obligations of the Stockholder hereunder to sell the Shares are
subject to the fulfillment, at or before the Closing, of each of the following
conditions (except with respect to Section 9.6, all or any of which may be
waived in whole or in part by the Stockholder in his sole discretion):
Section 9.1 Representations and Warranties. The representations and
warranties made by Paradise and the Purchaser in this Agreement or in any
Schedule delivered hereto, shall be true and correct in all material respects on
and as of the Closing Date with the same force and effect as though made on and
as of the Closing Date, and Paradise and the Purchaser shall have delivered to
the Stockholder a certificate, dated the Closing Date, to such effect.
Section 9.2 Performance. Paradise and the Purchaser shall have performed
and complied with the agreements, covenants and obligations required by this
Agreement to be so performed or complied with by Paradise and the Purchaser at
or before the Closing, and Paradise and the Purchaser shall have delivered to
the Stockholder a certificate, dated the Closing Date, to such effect.
Section 9.3 Certified Resolutions. Paradise and the Purchaser shall have
delivered to the Stockholder a copy of the resolutions of the boards of
directors of each of Paradise and the Purchaser authorizing the execution,
delivery and performance of this Agreement and the transactions contemplated
hereby, certified to by an officer of Paradise and the Purchaser, respectively.
Section 9.4 No Litigation. There shall not be pending any litigation,
proceeding, investigation, review, arbitration or claim by Governmental or
Regulatory Authority, and no preliminary or permanent injunction or other order
shall have been issued to restrain or invalidate the consummation by Paradise or
the Purchaser of this Agreement and the transactions contemplated hereby, and no
material litigation shall be pending or to the knowledge of Paradise and the
Purchaser, threatened against Paradise or the Purchaser with respect to this
Agreement or the transactions contemplated hereby or arising out of the actions
required or permitted to be taken by any of them pursuant to this Agreement, or
against or affecting either Paradise or the Purchaser or any of their properties
or rights which, if adversely determined, would be reasonably likely to have a
Material Adverse Effect.
Section 9.5 Regulatory Consents and Approvals. All consents, approvals and
actions of, filings with and notices to any Governmental or Regulatory Authority
necessary to permit the Stockholder, Paradise and the Purchaser to perform their
obligations under this
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Agreement and to consummate the transactions contemplated hereby shall have been
duly obtained, made or given and shall be in full force and effect.
Section 9.6 Paradise Stockholder Approval. The special meeting of
stockholders of Paradise shall have been duly held and at such meeting the
requisite affirmative vote of the Paradise stockholders shall have been recorded
to authorize and to approve the transactions contemplated hereby in accordance
with applicable provisions of Delaware law.
Section 9.7 Opinion of Counsel. The Stockholder shall have received the
opinion of Davis & Gilbert LLP, counsel to Paradise and the Purchaser, dated the
Closing Date, substantially in the form and to the effect of Exhibit B hereto.
Section 9.8 Proceedings. All proceedings to be taken on the part of
Paradise and the Purchaser in connection with the transactions contemplated by
this Agreement and all documents incident thereto shall be reasonably
satisfactory in form and substance to the Stockholder, and the Stockholder shall
have received copies of all such documents and other evidences as the
Stockholder may reasonably request in order to establish the consummation of
such transactions and the taking of all proceedings in connection therewith.
Section 9.9 Material Adverse Effect. Since the Execution Date there shall
not have occurred any Material Adverse Effect, or any event or development
which, individually or together with such events, could reasonably be expected
to result in a Material Adverse Effect and Paradise shall have delivered to the
Stockholder a certificate, dated the Closing Date, to such effect.
Section 9.10 Straw Dogs Acquisition Agreement. On the Closing Date, the
transactions contemplated by the Straw Dogs Agreement shall have been
consummated contemporaneously with the Closing hereunder.
Section 9.11 Working Capital. Appropriate working capital lines of credit,
as determined by Paradise and subject to the reasonable approval of the
Stockholder , shall have been obtained for the Purchaser and Paradise.
ARTICLE X
ADDITIONAL AGREEMENTS
Section 10.1 Name of Purchaser. The parties hereto agree that immediately
after the Closing, the corporate name of the Purchaser will be changed to "Straw
Dogs, Inc."
Section 10.2 Termination. This Agreement may be terminated and the sale of
Shares and other transactions contemplated herein may be abandoned at any time
prior to the
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Closing, notwithstanding the adoption of this Agreement by the Stockholder or
the stockholders of Paradise by:
(a) mutual consent of the Boards of Directors of each Paradise and
the Purchaser, and the Stockholder;
(b) either Paradise and the Purchaser, on the one hand, or the
Stockholder, on the other hand, (provided the terminating party is not then in
breach hereof and has not received notice of any breach) if the other party
breaches its representations, warranties or covenants hereunder in any material
respect and such breach is not cured within 15 days after the delivery of
written notice thereof to such breaching party unless the breach of any such
representation, warranty, or covenant does not materially adversely affect the
business or assets of the breaching party or the ability of any or all parties
to consummate the transactions contemplated hereby;
(c) the Boards of Directors of either Paradise and the Purchaser,
and the Stockholder in the event a final and nonappealable order, decree or
judgment of any court, agency, commission or governmental authority is issued or
existing against the parties or any of them or any of their directors which
would enjoin the transactions contemplated hereby; or
(d) either Paradise and the Purchaser, on the one hand, or the
Stockholder, on the other hand, if the Closing Date has not occurred prior to
the close of business on September 30, 1999.
Section 10.3 Effect of Termination. If this Agreement is terminated as
provided in Section 10.8 hereof, this Agreement (except as otherwise herein
provided) shall forthwith become void and there shall be no liability on the
part of any party hereto or its respective officers or directors arising from
the act of such permitted termination. Nothing herein shall preclude, however,
any action or claim for damages to which any party is otherwise entitled as a
result of breach by the other party hereto. In the event of any termination,
each of the parties shall promptly return to the other, all documents and other
written information received from the other in connection with the transactions
contemplated by this Agreement and shall not retain any copies or summaries
thereof.
Section 10.4 Registration Rights. After the Closing Date, the Stockholder
shall have the registration rights set forth in Appendix A to this Agreement
with respect to the Paradise Stock acquired by him pursuant to this Agreement.
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ARTICLE XI
SURVIVAL; INDEMNITY
Section 11.1 Survival. Notwithstanding any right of any party hereto fully
to investigate the affairs of any other party, and notwithstanding any knowledge
of facts determined or determinable pursuant to such investigation or right of
investigation, each party hereto shall have the right to rely fully upon the
representations, warranties, covenants and agreements of the other parties
contained in this Agreement and the Schedules, if any, furnished by any other
party pursuant to this Agreement, or in any certificate delivered at the Closing
by any other party. Subject to the limitations set forth in Sections 11.5.2,
11.5.3 and 11.5.4, the respective representations, warranties, covenants and
agreements (including but not limited to, the confidentiality obligations of
Section 12.8) of the Stockholder, Paradise and the Purchaser contained in this
Agreement shall survive the Closing.
Section 11.2 Obligation of the Stockholder to Indemnify
11.2.1 General Indemnity Subject to the limitations contained in Section
11.5, the Stockholder hereby agrees, to indemnify Paradise, the Purchaser and
their affiliates, shareholders, officers, directors, employees, agents,
representatives and successors, permitted assignees of the Paradise the
Purchaser and their affiliates (including the Company) (individually a
"Purchaser Indemnified Party" and collectively, the "Purchaser Indemnified
Parties") against, and to protect, save and keep harmless the Purchaser
Indemnified Parties from, and to pay on behalf of or reimburse the Purchaser
Indemnified Parties as and when incurred for, any and all liabilities (including
liabilities for Taxes), obligations, losses, damages, penalties, demands,
claims, actions, suits, judgments, settlements, penalties, interest,
out-of-pocket costs, expenses and disbursements (including reasonable costs of
investigation, and reasonable attorneys', accountants' and expert witnesses'
fees) of whatever kind and nature (collectively, "Losses"), that may be imposed
on or incurred by any Purchaser Indemnified Party as a consequence of, in
connection with, incident to, resulting from or arising out of or in any way
related to or by virtue of: (a) any misrepresentation, inaccuracy or breach of
any warranty or representation contained in Article III hereof or in any
certificate delivered by the Stockholder at the Closing; (b) any action, demand,
proceeding, investigation or claim by any third party (including any
Governmental or Regulatory Authority) against or affecting any Purchaser
Indemnified Party which may give rise to or evidence the existence of or relate
to a misrepresentation or breach of any of the representations and warranties of
the Stockholder contained in Article III hereof or in any certificate delivered
by the Stockholder at the Closing; and (c) any breach or failure by the
Stockholder to comply with perform or discharge any obligation, agreement or
covenant by the Stockholder contained in this Agreement.
11.2.2 "Losses". The term "Losses" as used in this Agreement is not
limited to matters asserted by third parties against an Indemnified Party, but
includes Losses incurred or sustained by an Indemnified Party in the absence of
third party claims. All Losses suffered by the Purchaser by virtue of a state of
facts which constitutes a misrepresentation, inaccuracy or breach of a warranty
or representation by the Stockholder shall (without duplication) be deemed to
have
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been suffered by the Purchaser and, accordingly, the Purchaser shall have the
right, but not the obligation, to make indemnification claims that may be made
by the Stockholder in respect of such Losses, in its own name and for its own
benefit.
Section 11.3 Obligation of Paradise and the Purchaser to Indemnify.
Subject to the limitations set forth in Section 11.5.2 hereof, Paradise and the
Purchaser hereby agree, jointly and severally, to indemnify the Stockholder and
his affiliates, officers, directors, employees, agents, representatives and
successors, permitted assigns of the Stockholder and his affiliates (the
"Stockholder Indemnified Party") against, and to protect, save and keep harmless
the Stockholder Indemnified Party from, and to pay on behalf of or reimburse the
Stockholder Indemnified Party as and when incurred for, any and all Losses that
may be imposed on or incurred by the Stockholder Indemnified Party as a
consequence of, in connection with, incident to, resulting from or arising out
of or in any way related to or by virtue of: (a) any misrepresentation,
inaccuracy or breach of any warranty or representation of Paradise or the
Purchaser contained in Article IV hereof or in any certificate delivered by
Paradise or the Purchaser at the Closing; (b) any action, demand, proceeding,
investigation or claim by any third party (including any Governmental or
Regulatory Authority) against or affecting the Stockholder Indemnified Party
which may give rise to or evidence the existence of or relate to a
misrepresentation or breach of any of the representations and warranties of
Paradise or the Purchaser contained in Article IV hereof or in any certificate
delivered by Paradise or the Purchaser at the Closing; and (c) any breach or
failure by Paradise or the Purchaser to comply with, perform or discharge any
obligation, agreement or covenant by Paradise or the Purchaser contained in this
Agreement.
Section 11.4 Indemnification Procedures.
11.4.1 Non-Third-Party Claims. In the event that any Person entitled to
indemnification under this Agreement (an "Indemnified Party") asserts a claim
for indemnification which does not involve a Third Party Claim (as defined in
Section 11.4.2 below), against which a party to this Agreement is required to
provide indemnification under this Agreement (an "Indemnifying Party"), the
Indemnifying Party may acknowledge and agree by notice to the Indemnifying Party
in writing to satisfy such claim within 20 days of receipt of notice of such
claim from the Indemnified Party. In the event that the Indemnifying Party
disputes such claim, the Indemnifying Party shall provide written notice of such
dispute to the Indemnified Party within 20 days of receipt of notice of such
claim, setting forth a reasonable basis of such dispute. In the event that the
Indemnifying Party shall fail to provide written notice to the Indemnified Party
within 20 days of receipt of notice from the Indemnified Party that the
Indemnifying Party either acknowledges and agrees to pay such claim or disputes
such claim, the Indemnifying Party shall be deemed to have acknowledged and
agreed to pay such claim in full and to have waived any right to dispute such
claim. Once the Indemnifying Party has acknowledged and agreed to pay any claim
pursuant to this Section 11.4.1, or once any dispute under this Section 11.4.1
has been finally resolved in favor of indemnification by a court or other
tribunal of competent jurisdiction, subject to Section 11.5.1, the Indemnifying
Party shall pay the amount of such claim to the Indemnified Party within 10 days
of the date of acknowledgement or resolution, as the case may be, to such
account and in such manner as is designated in writing by the Indemnified Party.
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11.4.2 Third-Party Claims.
(a) In the event that any Indemnified Party asserts a claim for
indemnification or receives notice of the assertion of any claim or of the
commencement of any action or proceeding by any Person who is not a party
to this Agreement or an affiliate of a party to this Agreement (a "Third
Party Claim") against an Indemnifying Party, the Indemnified Party shall
give written notice together with a statement of any available information
regarding such claim to the Indemnifying Party within 30 days after
learning of such claim (or within such shorter time as may be necessary to
give the Indemnifying Party a reasonable opportunity to respond to such
claim). The Indemnifying Party shall have the right, upon written notice
to the Indemnified Party (the "Defense Notice") within 15 days after
receipt from the Indemnified Party of notice of such claim, which Defense
Notice by the Indemnifying Party shall specify the counsel it will appoint
to defend such claim ("Defense Counsel"), to conduct at its expense the
defense against such claim in its own name, or if necessary in the name of
the Indemnified Party; provided, however, that the Indemnified Party shall
have the right to approve the Defense Counsel, which approval shall not be
unreasonably withheld or delayed, and in the event the Indemnifying Party
and the Indemnified Party cannot agree upon such counsel within 10 days
after the Defense Notice is provided, then the Indemnifying Party shall
propose an alternate Defense Counsel, which shall be subject again to the
Indemnified Party's approval which approval shall not be unreasonably
withheld or delayed. If the parties still fail to agree on the Defense
Counsel, then, at such time, they shall mutually agree in good faith on a
procedure to determine the Defense Counsel.
(b) In the event that the Indemnifying Party shall fail to give the
Defense Notice within such 15 day period, it shall be deemed to have
elected not to conduct the defense of the subject claim, and in such event
the Indemnified Party shall have the right to conduct the defense and to
compromise and settle the claim without prior consent of the Indemnifying
Party and the Indemnifying Party will be liable for all reasonable costs,
expenses, settlement amounts or other Losses paid or incurred in
connection therewith.
(c) In the event that the Indemnifying Party does deliver a Defense
Notice and thereby elects to conduct the defense of the subject claim, the
Indemnifying Party shall be entitled to have the exclusive control over
the defense and settlement of the subject claim and the Indemnified Party
will cooperate with and make available to the Indemnifying Party such
assistance and materials as it may reasonably request, all at the expense
of the Indemnifying Party; the Indemnified Party shall have the right at
its expense to participate in the defense assisted by counsel of its own
choosing. In such an event, the Indemnifying Party will not settle the
subject claim without the prior written consent of the Indemnified Party,
which consent will not be unreasonably withheld or delayed.
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(d) Without the prior written consent of the Indemnified Party, the
Indemnifying Party will not enter into any settlement of any Third Party
Claim or cease to defend against such claim, if pursuant to or as a result
of such settlement or cessation, (i) injunctive relief or specific
performance would be imposed against the Indemnified Party, or (ii) such
settlement or cessation would lead to liability or create any financial or
other obligation on the part of the Indemnified Party for which the
Indemnified Party is not entitled to indemnification hereunder.
(e) If an Indemnified Party refuses to consent to a bona fide offer
of settlement which provides for a full release of the Indemnified Party
and its affiliates and solely for a monetary payment which the
Indemnifying Party wishes to accept, the Indemnified Party may continue to
pursue such matter, free of any participation by the Indemnifying Party,
at the sole expense of the Indemnified Party. In such an event, the
obligation of the Indemnifying Party shall be limited to the amount of the
offer of settlement which the Indemnified Party refused to accept plus the
costs and expenses of the Indemnified Party incurred prior to the date the
Indemnifying Party notified the Indemnified Party of the offer of
settlement.
(f) Notwithstanding clause (b) above, the Indemnifying Party shall
not be entitled to control, but may participate in, and the Indemnified
Party shall be entitled to have sole control over, the defense or
settlement of any claim (i) that seeks a temporary restraining order, a
preliminary or permanent injunction or specific performance against the
Indemnified Party, (ii) to the extent such claim involves criminal
allegations against the Indemnified Party, (iii) that if unsuccessful,
would set a precedent that would materially interfere with, or have a
material adverse effect on, the business or financial condition of the
Indemnified Party or (iv) if such claim would impose liability on the part
of the Indemnified Party for which the Indemnified Party is not entitled
to indemnification hereunder. In such an event, the Indemnifying Party
will still have all of its obligations hereunder provided that the
Indemnified Party will not settle the subject claim without the prior
written consent of the Indemnifying Party, which consent will not be
unreasonably withheld or delayed.
(g) Any final judgment entered or settlement agreed upon in the
manner provided herein shall be binding upon the Indemnifying Party, and
shall conclusively be deemed to be an obligation with respect to which the
Indemnified Party is entitled to prompt indemnification hereunder.
(h) A failure by an Indemnified Party to give timely, complete or
accurate notice as provided in this Section 11.4 will not affect the
rights or obligations of any party hereunder except and only to the extent
that, as a result of such failure, any party entitled to receive such
notice was deprived of its right to recover any payment under its
applicable insurance coverage or was otherwise directly and materially
damaged as a result of such failure to give timely notice.
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Section 11.5 Limitations on and Other Matters Regarding Indemnification.
11.5.1 Indemnity Cushion and Cap. Subject to Section 11.5.4 below, the
Stockholder shall not have any liability to any Purchaser Indemnified Party with
respect to Losses arising out of any of the matters referred to in Section
11.2.1 until such time as the amount of such liability shall exceed in the
aggregate (i) $25,000, plus (ii) the amount by which Net Worth of the Company
(as defined in Section 8.13) as of the Effective Date exceeded $1.00 (the
"Aggregate Cushion") (in which case the Stockholder shall be liable for all
Losses in excess of the Aggregate Cushion). Subject to Section 11.5.4 below, the
indemnity obligations of the Stockholder with respect to Losses arising out of
any matter referred to in Section 11.2.1 shall not exceed the value of the
Paradise Stock delivered to the Stockholder at the Closing. For purposes of
calculating the value of the Paradise Stock received by the Stockholder, the
Paradise Stock shall be valued at its fair market value, which shall be the
average closing price for Paradise Stock on the Nasdaq Small Cap Market for the
ten trading days ending two business days immediately prior to the date of
payment.
11.5.2 Termination of Indemnification Obligations of the Stockholder . The
obligation of the Stockholder to indemnify under Section 11.2 hereof shall
terminate one year from the Closing Date, except (a) as to matters as to which
the Purchaser Indemnified Party has made a claim for indemnification on or prior
to such date and (b) with respect to any claim for Losses pertaining to a
misrepresentation or a breach of representation or warranty under Section 3.11
or any other Section of Article III of this Agreement relating to Taxes . The
obligation to indemnify referred to in:
(i) the preceding clause (a) shall survive the expiration of such period
until such claim for indemnification is finally resolved and any
obligations with respect thereto are fully satisfied; and
(ii) the preceding clause (b) shall terminate 180 days after the
expiration of the relevant Federal, state or local statute of limitations
(taking into account any extensions or waivers thereof), except as to
matters as to which any Indemnified Party has made a claim for
indemnification on or prior to such date, in which case the right to
indemnification with respect thereto shall survive the expiration of any
such period until such claim for indemnification is finally resolved and
any obligations with respect thereto are fully satisfied.
11.5.3 Termination of Indemnification Obligations of Paradise and the
Purchaser. The obligation of Paradise and the Purchaser to indemnify under
Section 11.3 hereof shall terminate one year from the Closing Date except as to
matters as to which the Stockholder Indemnified Party has made a claim for
indemnification on or prior to such date, in which case the right to
indemnification with respect thereto shall survive such period until such claim
for indemnification is resolved and any obligations with respect thereto are
fully satisfied.
11.5.4 Exceptions. Each of the limitations set forth above in this Section
11.5 shall in no event (a) apply to any Losses incurred by a Purchaser
Indemnified Party which relate, directly or
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indirectly, to (i) any fraudulent acts committed by the Stockholder (including
without limitation, fraud in connection with the transaction contemplated hereby
and any fraudulent acts by any manager, officer, employee, agent or equity
holder of the Stockholder or the Company); (ii) any indemnification obligation
under Section 11.2.1(c); and (iii) the Stockholder's obligations set forth in
Section 12.1 to pay certain expenses; or (b) apply to any Losses incurred by the
Stockholder Indemnified Party which relate, directly or indirectly, to (i) any
fraudulent acts committed by Paradise, the Purchaser (including without
limitation, fraud in connection with the transaction contemplated hereby and any
fraudulent acts by any officer, director, employee, agent or shareholder of
Paradise or the Purchaser); (ii) any indemnification obligation under Section
11.3(c); and (iii) Paradise's obligations set forth in Section 12.1 to pay
certain expenses.
11.5.5 Control by Paradise. All decisions and determinations to be made by
the Purchaser and/or a Purchaser Indemnified Party under this Article XI shall
be made by Paradise in the name of and on behalf of the Purchaser or such other
the Purchaser Indemnified Party.
ARTICLE XII
MISCELLANEOUS
Section 12.1 Expenses. Except for the costs of auditing the Company's
financial statements (as described in Sections 2.1.2 and 3.4), which costs shall
be paid by Paradise, the parties hereto shall pay all of their own expenses
relating to the transactions contemplated by this Agreement, including, without
limitation, the fees and expenses of their respective counsel and financial
advisors.
Section 12.2 Governing Law. The interpretation and construction of this
Agreement, and all matters relating hereto, (including, without limitation, the
validity or enforcement of this Agreement), shall be governed by the laws of the
State of Delaware without reference to its conflict of laws provisions.
Section 12.3 Jurisdiction. Any judicial proceeding brought against any of
the parties to this Agreement on any dispute arising out of this Agreement or
any matter related hereto shall be brought in (i) the courts of the State of New
York or in the United States District Court for the Southern District of New
York, if the principal office of Paradise is then located in New York, or (ii)
the courts of the State of California or in the United States District Court for
the Southern District of California, if the principal office of paradise is then
located in California. Each party hereto irrevocably waives to the fullest
extent permitted by law any objection that it may now or hereafter have to the
laying of the venue of any judicial proceeding brought in such courts and any
claim that any such judicial proceeding has been brought in an inconvenient
forum. The foregoing consent to jurisdiction shall not constitute general
consent to service of process in the States of New York or California for any
purpose except as provided above and shall not be deemed to confer rights on any
person other than
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the respective parties to this Agreement. EACH PARTY HEREBY WAIVES TRIAL BY JURY
IN ANY JUDICIAL PROCEEDINGS UNDER THIS AGREEMENT.
Section 12.4 "Person" Defined. "Person" shall mean and include an
individual, a company, a partnership, a joint venture, a corporation (including
any non-profit corporation), a trust, an estate, a limited liability company, a
limited liability partnership, an unincorporated organization and a government
or other department or agency thereof.
Section 12.5 "Knowledge" Defined. Where any representation and warranty
contained in this Agreement is expressly qualified by reference to the knowledge
of the Stockholder, such term shall be limited to the actual knowledge of the
Stockholder and unless otherwise stated such knowledge that would have been
discovered by the Stockholder after reasonable inquiry. Where any representation
and warranty contained in this Agreement is expressly specified by reference to
the knowledge of Paradise or the Purchaser, as the case may be, such term shall
be limited to the actual knowledge of the executive officers of such entity and
unless otherwise stated, such knowledge that would have been discovered by such
executive officers after reasonable inquiry.
Section 12.6 "Affiliate"Defined. As used in this Agreement, an "affiliate"
of any Person, shall mean any Person that directly, or indirectly through one or
more intermediaries, controls, or is controlled by, or is under common control
with such Person.
Section 12.7 Captions. The Article and Section captions used herein are
for reference purposes only, and shall not in any way affect the meaning or
interpretation of this Agreement.
Section 12.8 Confidentiality. Unless and until the Closing shall have
occurred and except as may be required in connection with (i) any public
announcement that Paradise, the Purchaser and the Stockholder have executed this
Agreement, or (ii) any governmental filings contemplated under this Agreement,
Paradise, the Purchaser and the Stockholder shall, and shall cause their
respective employees, agents, consultants and representatives to, maintain in
confidence and not otherwise use or permit the use of information, documents,
and data respecting any other party to this Agreement furnished to them, or to
any person or entity on their behalf except to the extent that such information
is elsewhere available to the public or otherwise rightfully obtained without
violation of this Section 12.8 or any other agreement. If this Agreement is
terminated pursuant to Section 10.2 hereof or otherwise, each party shall (and
Paradise the Purchaser and the Stockholder shall cause any third party to whom
it has made permitted disclosures to) (i) return to the other party or destroy
all written information, documents, and data furnished to it or to any person or
entity on its behalf, and (ii) maintain in confidence all information received
by it, or by any person or entity on its behalf, and shall not use or permit the
use of such information by others except to the extent that such information is
elsewhere available to the public or otherwise rightfully obtained without
violation of this Section 12.8 or any other agreement. Notwithstanding the
foregoing, the foregoing provision shall not apply to the extent that Paradise
is required to
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make any announcement or file information relating to or arising out of this
Agreement by virtue of the federal securities laws of the United States or the
rules and regulations promulgated thereunder or other rules of the Nasdaq Small
Cap Market, or any announcement by any party pursuant to applicable law or
regulations.
Section 12.9 Notices. Unless otherwise provided herein, any notice,
request, instruction or other document to be given hereunder by any party to any
other party shall be in writing and shall be deemed to have been given (a) upon
personal delivery, if delivered by hand or by courier, (b) three days after the
date of deposit in the mails, postage prepaid, if mailed by certified or
registered mail, or (c) the next business day if sent by facsimile transmission
(if receipt is electronically confirmed) or by a prepaid overnight courier
service, and in each case at the respective addresses or numbers set forth below
or such other address or number as such party may have fixed by notice:
If to either Paradise or to the Purchaser, addressed to:
Paradise Music & Entertainment, Inc.
53 West 23rd Street, 11th Floor
New York, New York 10010
Attention: President
Fax: 212-845-6480
with a copy to:
Davis & Gilbert LLP
1740 Broadway
New York, New York 10019
Attention: Walter M. Epstein, Esq.
Fax: (212) 468-4888
If to the Stockholder, addressed to:
Consolidated Entertainment, LLC
8330 W. Third Street
Los Angeles, CA 90048
Attention: Jesse Dylan
Fax: (310) 458-9833
with a copy to:
Cohen, Primiani & Foster
2029 Century Park East, Suite 400
Los Angeles, CA 90067
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Attention: Michael Foster, Esq.
Fax: (310) 277-4351
Section 12.10 Parties in Interest. This Agreement may not be transferred,
assigned pledged or hypothecated by any party hereto, other than by operation of
law. Any purported transfer, assignment, pledge or hypothecation (other than by
operation of law) shall be void and ineffective. This Agreement shall be binding
upon and shall inure to the benefit of the parties hereto and their respective
heirs, executors, administrators, successors and permitted assigns.
Section 12.11 Severability. In the event any provision of this Agreement
is found to be void and unenforceable by a court of competent jurisdiction, the
remaining provisions of this Agreement shall nevertheless be binding upon the
parties with the same effect as though the void or unenforceable part had been
severed and deleted.
Section 12.12 Counterparts. This Agreement may be executed in two or more
counterparts, all of which taken together shall constitute one instrument.
Section 12.13 Entire Agreement. This Agreement, including the other
documents referred to herein which form a part hereof, contains the entire
understanding of the parties hereto with respect to the subject matter contained
herein and therein. This Agreement supersedes all prior oral and written
agreements and understandings between the parties with respect to such subject
matter.
Section 12.14 Amendment. This Agreement may not be amended, supplemented
or modified orally, but only by an agreement in writing signed on behalf of each
of the parties hereto.
Section 12.15 Third Party Beneficiaries. Each party hereto intends that
this Agreement shall not benefit or create any right or cause of action in or on
behalf of any person other than the parties hereto and their respective
successors and assigns as permitted under Section 12.10.
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IN WITNESS WHEREOF, the parties hereto have executed this Stock Purchase
Agreement, on the day and year first above written.
PARADISE MUSIC &
ENTERTAINMENT, INC.
By:
----------------------------------
Name:
Title:
STRAW DOGS ACQUISITION CORP.
By:
----------------------------------
Name:
Title:
--------------------------------------
JESSE DYLAN
39
