<PAGE>
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 23, 1998
Toymax International, Inc.
------------------------------------------------------
(Exact name of Registrant as specified in its charter)
Delaware
----------------------------------------------
(State or other jurisdiction of incorporation)
0-23215 11-3391335
- ------------------------ ------------------------------------
(Commission File Number) (I.R.S. Employer Identification No.)
125 E. Bethpage Road, Plainview, New York 11803
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (516) 391-9898
Not Applicable
--------------------------------------------------------------
(Former name or former address, if changed since last report.)
<PAGE>
ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS.
On December 23, 1998, Go Fly A Kite Acquisition Corp., a wholly-owned
subsidiary of Toymax International, Inc. (the "Company") acquired certain of the
assets and liabilities of Go Fly A Kite, Inc. ("GFK"). GFK is a creator and
distributor of a full line of kites, flags, windsocks and other related
products. The aggregate consideration for the acquisition was $5,725,000 (the
"Purchase Price"). A portion of the Purchase Price in the amount of $1,300,000
is payable on December 1, 1999 contingent upon the achievement of certain
operating results for the twelve month period ending August 31, 1999. The
Purchase Price was paid through funds available under the Company's credit
facility with State Street Bank and Trust Company, Hong Kong Branch.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS.
(c) Exhibits
A. Asset Purchase Agreement between Go Fly A Kite Acquisition Corp.
and GFK dated December 23, 1998.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
Toymax International, Inc.
--------------------------
(Registrant)
Date: January 6, 1999 By: /s/ William A. Johnson, Jr.
------------------------------------------
William A. Johnson, Jr.
Chief Financial Officer and Treasurer
<PAGE>
EXHIBIT A
ASSET PURCHASE AGREEMENT
BETWEEN
GO FLY A KITE ACQUISITION CORP.
AND
GO FLY A KITE, INC.
DECEMBER 23, 1998
<PAGE>
TABLE OF CONTENTS
Page
ARTICLE I SALE AND PURCHASE....................................................1
SECTION 1.1 Assets to be Sold and Purchased...............................1
SECTION 1.2 Assumed Liabilities...........................................4
SECTION 1.3 Purchase Price................................................6
SECTION 1.4 Review of the 1999 Statements and Payment of the Bonus
Payment.......................................................7
SECTION 1.5 Collection of Receivables; Adjustment to the Purchase
Price.........................................................9
SECTION 1.6 Allocation of the Purchase Price..............................9
SECTION 1.7 Closing.......................................................9
ARTICLE II REPRESENTATIONS AND WARRANTIES OF SELLER............................9
SECTION 2.1 Authority Relative to this Agreement..........................9
SECTION 2.2 No Conflicts; Consents.......................................10
SECTION 2.3 Corporate Existence and Power................................10
SECTION 2.4 Charter Documents and Corporate Records......................10
SECTION 2.5 Financial Information........................................10
SECTION 2.6 Liabilities..................................................11
SECTION 2.7 Inventory....................................................12
SECTION 2.8 Absence of Certain Changes...................................12
SECTION 2.9 The Assets...................................................13
SECTION 2.10 Contracts...................................................14
SECTION 2.11 Intangible Property.........................................15
SECTION 2.12 Claims and Proceedings......................................15
SECTION 2.13 Taxes.......................................................15
SECTION 2.14 Employee Benefits Plans.....................................17
SECTION 2.15 Employee-Related Matters....................................19
SECTION 2.16 Insurance...................................................20
SECTION 2.17 Compliance with Laws........................................20
SECTION 2.18 Permits.....................................................21
SECTION 2.19 Environmental Matters.......................................21
SECTION 2.20 Finders; Fees...............................................22
SECTION 2.21 Restrictions on Business Activities.........................22
SECTION 2.22 Suppliers and Customers.....................................22
SECTION 2.23 Year 2000 Compliance........................................23
SECTION 2.24 Product Warranties, Product Return Policies and Service
Warranties..................................................23
SECTION 2.25 Depositaries................................................23
i
<PAGE>
SECTION 2.26 Product Liability...........................................23
SECTION 2.27 Disclosure..................................................23
ARTICLE III REPRESENTATIONS AND WARRANTIES OF BUYER AND PARENT................24
SECTION 3.1 Authority Relative to this Agreement.........................24
SECTION 3.2 No Conflicts; Consents.......................................24
SECTION 3.3 Corporate Existence and Power................................24
SECTION 3.4 Finders; Fees................................................25
SECTION 3.5 Securities Matters...........................................25
SECTION 3.6 Ability to Perform...........................................25
SECTION 3.7 Disclosure...................................................25
ARTICLE IV COVENANTS AND AGREEMENTS...........................................26
SECTION 4.1 Public Announcements.........................................26
SECTION 4.2 Confidentiality..............................................26
SECTION 4.3 Expenses.....................................................26
SECTION 4.4 Employee Matters.............................................26
SECTION 4.5 Access.......................................................27
SECTION 4.6 Change of Name...............................................27
SECTION 4.7 Year 2000 Compliance.........................................27
SECTION 4.8 Product Liability Insurance..................................28
SECTION 4.9 Obtaining Consents to Assignments............................28
ARTICLE V CLOSING DELIVERIES..................................................29
SECTION 5.1 Closing......................................................29
SECTION 5.2 Buyer Deliveries.............................................29
SECTION 5.3 Seller Deliveries............................................30
ARTICLE VI INDEMNIFICATION....................................................31
SECTION 6.1 Survival of Representations and Warranties...................31
SECTION 6.2 Obligation of Seller to Indemnify............................32
SECTION 6.3 Obligation of Buyer and Parent to Indemnify..................32
SECTION 6.4 Notice and Opportunity to Defend Third Party Claims..........33
SECTION 6.5 Limits on Indemnification....................................33
SECTION 6.6 Exclusive Remedy.............................................34
ARTICLE VII INTENTIONALLY OMITTED.............................................35
ii
<PAGE>
ARTICLE VIII MISCELLANEOUS....................................................35
SECTION 8.1 Notices......................................................35
SECTION 8.2 Entire Agreement.............................................36
SECTION 8.3 Waivers and Amendments.......................................36
SECTION 8.4 Governing Law................................................36
SECTION 8.5 Consent to Jurisdiction......................................36
SECTION 8.6 Binding Effect; No Assignment................................37
SECTION 8.7 Exhibits.....................................................37
SECTION 8.8 Severability.................................................37
SECTION 8.9 Counterparts.................................................37
SECTION 8.10 Third Parties...............................................37
SECTION 8.11 Further Assurances..........................................37
ARTICLE IX DEFINITIONS........................................................38
SECTION 9.1 Definitions..................................................38
SECTION 9.2 Interpretation...............................................41
iii
<PAGE>
ASSET PURCHASE AGREEMENT
ASSET PURCHASE AGREEMENT, dated as of December 23, 1998, by and among
GO FLY A KITE ACQUISITION CORP., a Delaware corporation ("Buyer"), and GO FLY A
KITE, INC., a New York corporation ("Seller").
WHEREAS, Seller desires to sell and assign, and Buyer desires to
purchase and assume, substantially all of the assets and certain liabilities
relating to the Business upon and subject to the terms and conditions
hereinafter set forth.
NOW THEREFORE, in consideration of the premises and of the mutual
agreements and covenants hereinafter set forth, the parties hereto agree as
follows:
ARTICLE I
SALE AND PURCHASE
SECTION 1.1 ASSETS TO BE SOLD AND PURCHASED.
(a) Subject to Section 1.1(b) and the other terms and conditions
hereof, Seller shall sell, assign, transfer, convey and deliver to Buyer free
and clear of all Liens (other than Permitted Liens), and Buyer shall purchase
from Seller, all of the property, assets and rights used, held for use or useful
in the Business as of the Closing Date, other than the Excluded Assets
(collectively, the "Assets;" it being understood for these purposes that to the
extent Buyer leases or licenses properties, assets and/or rights, it is Buyer's
leasehold or license interest and not the underlying properties, assets and/or
rights that are included within the "Assets") including:
(i) all of Seller's rights, title and interest in and to
the machinery, equipment, tools, supplies, spare parts, vehicles, furniture and
other tangible personal property owned, used, held for use or useful in the
Business (the "Equipment"), on the Closing Date;
(ii) all of Seller's rights, title and interest in and to
the real property owned or leased by Seller and used in the Business (the
"Land"), and all of Seller's rights, title and interest in and to all buildings,
improvements and fixtures constructed thereon (the "Improvements," and together
with the Land, the "Real Property");
(iii) all designs, patterns, raw materials, supplies,
work-in-progress and inventories of finished goods, whether in possession of
Seller or any supplier, manufacturer or contractor of Seller;
(iv) to the extent transferable, all claims, rights and
choses in action of Seller against third parties in respect of unliquidated
rights under manufactures' and vendors' warranties, guarantees or similar
obligations;
<PAGE>
(v) all of Seller's rights, title and interest in, to
and under all patents, patent applications, trade names, trademarks,
copyrights, copyright applications, servicemarks, trademark and servicemark
registrations and applications, domain names, logos and other intangible
property (including, without limitation, all of Seller's right to use the
names "Go Fly A Kite", "Air Creations" and "Wind Designs" and any derivation
thereof), whether or not used in the Business;
(vi) all of Seller's rights in, to and under trade
secrets, formulae and specifications and technical know-how, whether
currently being used or under development, including engineering and other
drawings, data, design and specifications, product literature and related
materials, in each case which are owned or licensed by Seller as of the
Closing Date (together with the intellectual property described in Section
1.1(a)(v), the "Intellectual Property Rights") and all of Seller's books,
records and computer software programs relating thereto;
(vii) all of Seller's rights in, to and under the
goodwill of the Business;
(viii) all of Seller's rights, titles and interests in, to
and under all Contracts and all prepaid expenses, claims and other
prepayments, including security deposits, prepaid rent, prepaid Taxes (other
than the Tax Deposit), prepaid supplies, deferred charges and other
retentions held by third parties;
(ix) all customer lists, credit policies and credit
information with respect to customers of, and all existing cost and pricing
data for, the Business for the past five years;
(x) all supplier lists, product specifications, bills
of materials, production routings and all other production information for
the past five years;
(xi) to the extent permitted under applicable Law, all
employee records for all personnel of the Business;
(xii) all existing business plans, advertising and
promotional plans, product development plans, forecasts, market research
reports, competitor information, and reference catalogs;
(xiii) all accounts and notes receivable, whether or not
related invoices have been issued, and the proceeds thereof received after
the Closing Date;
(xiv) all cash and cash equivalents ("Cash") belonging to
Seller in hand or on deposit (other than the Tax Deposit);
(xv) all of Seller's rights under all governmental
licenses, certificates, permits, franchises, similar authorizations and
approvals of Seller (the "Permits") relating to or necessary to the lawful
conduct of the Business as of the Closing Date (including all rights of
-2-
<PAGE>
Seller to obtain renewals and extensions thereof, together with all causes of
action in favor of Seller heretofore accrued or hereafter accruing with
respect thereto), in each case to the extent such Permits are transferable;
(xvi) all transferable warranties and guarantees
pertaining to the Assets;
(xvii) all books and records relating to the Business and
the Assets (whether kept or maintained by Seller or any third party)
including, without limitation, records with respect to costs, Inventory and
Equipment; materials, catalogues, correspondence, mailing lists, art work,
films, negatives, photographs, sales materials and records; purchasing
materials and records; media materials and plates; sales order files; ledgers
and other books of account of Seller; plans, specifications, surveys, reports
and other materials relating to the Real Property; other records required to
continue the Business as heretofore and now being conducted by Seller; and
all software programs, computer printouts, databases and related items used
in the Business it being understood that Seller may retain copies of all Tax
records and all records pertaining to Excluded Assets or Retained Liabilities;
(xviii) all rights of Seller under its Insurance Policies
(as defined below) and the proceeds payable thereunder (other than any
Insurance Policies relating to any employee welfare benefit plans within the
meaning of Section 3(1) of ERISA, except as expressly set forth in Section
1.1(a)(xix)); and
(xix) all rights of Seller under any and all medical
insurance policies with CBIA Health Connections (the "Medical Policy").
(b) The Assets shall exclude the following assets and property
(the "Excluded Assets"):
(i) all of Seller's rights, title and interest in and
to the Transaction Documents;
(ii) all amounts of Seller on deposit as of the date
hereof with the IRS pursuant to Section 444 of the Code (the "Tax Deposit");
(iii) Employee Benefit Plans and any and all assets
related thereto (other than the Medical Policy);
(iv) all rights to refunds with respect to Taxes and/or
insurance premiums previously paid, provided that the value of such refunds
or premiums are not taken into account in determining the Purchase Price;
(v) all books and records pertaining to Taxes, Seller's
personnel, the Excluded Assets and/or the Retained Liabilities, and all of
Seller's stock books and minute books;
-3-
<PAGE>
(vi) all defenses, counterclaims and other choses in
action that pertain in any way to any of the Excluded Assets and/or any of
the Retained Liabilities, provided that the value of such defenses,
counterclaims and choses in an action are not taken into account in
determining the Purchase Price; and
(vii) the items, if any, identified on the attached
Schedule 1.1(b).
SECTION 1.2 ASSUMED LIABILITIES.
(a) Subject to the provisions of Section 1.2(b), Buyer shall
assume, pay, fulfill, perform or otherwise discharge (i) the Liabilities and
obligations reflected on, reserved against or noted on the audited balance
sheet of Seller at August 31, 1998, a copy of which initialed by the parties
for identification is attached hereto as Schedule 1.2, but only to the extent
so reflected, or reserved against or noted thereon; (ii) the Liabilities and
obligations of Seller incurred by Seller in the ordinary course of the
Business consistent with past practice and arising during the period between
August 31, 1998 and the Closing Date, including all open purchase orders
issued to or by Seller; (iii) the Liabilities and obligations of Seller
arising and to be performed after the Closing under the Contracts (but only
to the extent Buyer effectively receives the benefits thereunder or to the
extent that Buyer was otherwise entitled, but does not receive the benefits
thereunder solely as a result of its breach of any such Contract) and which
are expressly referred to in this Agreement as being assumed by Buyer; (iv)
any obligation of Seller to repair, replace or give credit for product sold
prior to the Closing Date (provided that Seller shall indemnify Buyer
therefor in accordance with Article VI below); (v) all obligations of Seller
with respect to the accrued vacation and sick time of Seller's employees
reflected on Schedule 2.15, and (vi) all obligations with respect to "L/C
Obligations" as defined in the pay-off letter agreement of even date herewith
between BankBoston, N.A. (the "Bank") and Seller (the "Pay-Off Letter"). The
foregoing items are collectively referred to as the "Assumed Liabilities." In
addition, Buyer is concurrently with the execution of this Agreement paying
the Bank the amount of the principal balance and accrued interest owing by
Seller to the Bank in connection with Seller's revolving loan indebtedness to
the Bank, as identified in the Pay-Off Letter.
(b) Buyer shall not assume or be bound by or otherwise be
responsible for any duties, responsibilities, obligations or Liabilities of
Seller of any kind or nature, known, unknown, contingent or otherwise, other
than Assumed Liabilities expressly assumed by it pursuant to Section 1.2(a).
Without limiting the generality of the foregoing, except as otherwise
provided in this Agreement, Buyer shall not assume, undertake or accept any
duties, responsibilities, obligations or Liabilities of Seller (whether
existing now or at the Closing or that may arise in the future) with respect
to:
(i) any Liabilities of Seller or any of its Affiliates
relating to the ownership or operation of the Assets or the Business on or
prior to the Closing Date;
-4-
<PAGE>
(ii) any Liabilities of Seller or its Affiliates
relating to the ownership or operation of the Excluded Assets and the
operations of Seller and Seller's Affiliates other than the Business;
(iii) Liabilities or obligations of Seller under this
Agreement or with respect to or arising out of the transactions contemplated
hereby;
(iv) all accounts payable relating to the Business
incurred on or prior to the Closing Date;
(v) any Environmental Liabilities;
(vi) Liabilities and obligations under Contracts that
are not assumed by Buyer pursuant to this Agreement;
(vii) Liabilities and obligations (A) arising or to be
performed at or prior to the Closing under any of the Contracts to be assumed
by Buyer at the Closing or (B) arising out of a breach or default by Seller
at or prior to the Closing (including any event occurring prior to the
Closing that with the passage of time or giving of notice, or both, would
become a breach or default) under any Contract;
(viii) Liabilities and obligations with respect to any
Claims, whether existing on the date hereof or arising hereafter, arising out
of ownership of the Assets or the operation of the Business on or prior to
the Closing;
(ix) Liabilities and obligations to Seller's customers
with respect to shortages and defects in goods delivered to customers or in
transit to customers prior to the Closing where the customer is seeking
return, replacement and/or repair of products pursuant either to product
warranties extended by Seller prior to Closing or product warranties or
obligations implied or provided by Law;
(x) except as otherwise provided in this Agreement,
Liabilities and obligations to persons employed by Seller at any time prior
to the Closing (or any of such employee's beneficiaries, heirs or assignees)
arising out of such employee's employment by Seller;
(xi) Liabilities and obligations with respect to any
federal, state, local or foreign income, profits, franchise, sales or similar
Tax relating to the ownership of the Assets or the conduct of the Business on
or prior to the Closing Date or arising out of the Contemplated Transactions;
(xii) any Liabilities in respect of any Debt of Seller;
and
-5-
<PAGE>
(xiii) Employee Benefit Plans and any and all Liabilities
related thereto (other than the Medical Policy).
(xiv) All such duties, responsibilities, obligations or
Liabilities described in this Section 1.2(b) being referred to herein as
"Retained Liabilities." Seller shall take any and all action which may be
necessary to prevent any person from having recourse against any of the
Assets or against Buyer as transferee thereof with respect to any Retained
Liabilities and shall indemnify Buyer and hold it harmless therefrom in
accordance with the terms and provisions of Section 6.2 hereof.
As used herein, "Environmental Liabilities" means any Liabilities,
obligations, responsibilities, obligations to conduct remedial actions,
losses, damages (other than incidental and/or consequential damages),
punitive damages, costs and other expenses (including, without limitation,
all reasonable fees, disbursements and expenses of counsel, expert and
consulting fees and costs of investigations and feasibility studies), fines,
penalties, and monetary sanctions, interest, direct or indirect, known or
unknown, absolute or contingent, past, present, or future, resulting from any
claim or demand by any person, whether based in contract, tort, implied or
express warranty, strict liability, common law, criminal or civil statute,
including any Environmental Law, arising solely out of the ownership or the
operation by Seller or its Affiliates of the Assets or the Business, in
connection with environmental conditions on, or with respect to, the Land or
the manufacture, refining, storage, disposal or treatment of Hazardous
Substances by Seller or its Affiliates.
SECTION 1.3 PURCHASE PRICE.
(a) Subject to the adjustments provided for herein, the
purchase price for the Assets shall be Five Million Seven Hundred Twenty-Five
Thousand Dollars ($5,725,000) (the "Purchase Price") payable as follows:
(i) Buyer shall deliver to Seller at the Closing, by
wire transfer of immediately available funds, an amount equal to One Million
Dollars ($1,000,000);
(ii) Buyer shall deliver to Seller on January 4, 1999,
by wire transfer of immediately available funds, an amount equal to Three
Million Four Hundred Twenty-Five Thousand Dollars ($3,425,000) (together with
the amount in Section 1.3(a)(i), the "Cash Portion"); and
(iii) Buyer shall deliver to Seller at the Closing a
non-interest bearing promissory note issued by Toymax International, Inc., an
Affiliate of Buyer ("Parent"), in the amount of One Million Three Hundred
Thousand Dollars ($1,300,000) (the "Buyer Note") substantially in the form of
Exhibit 1.3(a) hereto. The Buyer Note shall provide for (i) adjustment as
more particularly described in Section 1.5(b) and (ii) rights of set-off and
reduction with respect to Seller's indemnification obligations to Buyer
arising under and pursuant to Article VI hereof.
-6-
<PAGE>
(b) In addition to its obligation to pay the Purchase Price,
Buyer and Parent, jointly and severally, shall pay to the shareholders of
Seller ("Shareholders") an aggregate amount equal to fifty percent (50%) of
the amount by which the Business EBITDA exceeds One Million Five Hundred
Thousand Dollars ($1,500,000) (the "Bonus Payment") up to a maximum of One
Hundred Fifty Thousand Dollars ($150,000). For these purposes, the "Business
EBITDA" shall mean the sum of (i) Seller's EBITDA for the period from
September 1, 1998 to the Closing Date, plus (ii) Buyer's EBITDA for the
period commencing on the Closing Date and concluding on August 31, 1999.
Section 1.4 REVIEW OF THE 1999 STATEMENTS AND PAYMENT OF THE BONUS
PAYMENT.
(a) Buyer shall deliver to Shareholders, for review by Ronald
Larrow of Simione, Scilia, Larrow & Dowling LLC ("Shareholders
Representative"), a copy of (a) the financial statements for the Business
(including periods under ownership of Seller and of Buyer; the "1999
Statements") for the Fiscal Year commencing September 1, 1998 and concluding
August 31, 1999 ("FY 1999"), (b) a calculation of the Business EBITDA (the
"EBITDA Calculation"), and (c) a calculation of the Bonus Payment, if any
(the "Bonus Payment Statement;" and, together with the 1999 Statements and
the EBITDA Calculation, the "EBITDA Documents"). The 1999 Statements, the
EBITDA Calculation and the Bonus Payment Statement shall all be prepared by
Buyer in accordance with GAAP consistently applied with the manner in which
GAAP have historically been applied by Seller in preparing the Annual
Statements, except as otherwise expressly directed by this Agreement.
(b) Shareholders and Shareholders Representative shall have 30
days to review the EBITDA Documents and to object thereto. Shareholders and
Shareholders Representative shall be provided with access to Buyer's books
and records during such period. Any objection shall be set forth in a written
notice to Buyer (the "Notice of Objections"). If Shareholders do not provide
a Notice of Objections within such 30 day period, Buyer shall deliver to
Shareholders, no later than the next business day following the termination
of such 30 day period, the Bonus Payment, if any, by wire transfer of
immediately available funds. The Bonus Payment shall be allocated among
Shareholders on a pro rata basis, consistent with their respective ownership
interests in Seller as set forth on Schedule 1.4(b).
(c) If Shareholders object to any of the EBITDA Documents in
accordance with Section 1.4(b) above, they shall specify in the Notice of
Objections the grounds of such objections. If a Notice of Objections is
timely delivered, the Bonus Payment will be made in accordance with Section
1.4(b) to the extent of any undisputed portion thereof. Thereupon, the
parties shall meet and exchange information in an attempt to agree upon the
EBITDA Documents and the final calculation of the Business EBITDA and the
amount of the Bonus Payment. If the Shareholders and Buyer have not agreed
upon the same within 45 days following the delivery of the Notice of
Objections, the parties will submit the controversy for final and binding
determination by the Hartford, Connecticut office of KPMG Peat Marwick or
such other accounting firm selected by Buyer and Shareholders. Said
accounting firm shall rule
-7-
<PAGE>
only upon the objections raised in the Notice of Objections which shall not
have been resolved by the parties prior to such submission, accepting all
other aspects of the EBITDA Documents. Revised EBITDA Documents shall be
prepared based upon such accounting firm's determination. Upon agreement on
the final EBITDA Documents or the final determination of the EBITDA Documents
by such accounting firm, as the case may be, Buyer shall pay to Shareholders
an amount by wire transfer of immediately available funds equal to the Bonus
Payment, as finally determined, less any payment on account thereof
previously made. The fees and expenses of the Shareholders Representative
shall be borne by Buyer. The fees and expenses of the independent accounting
firm shall be borne one-half by Buyer and one-half by Shareholders as a group.
(b) For purposes of the EBITDA Documents, the Business EBITDA
shall be determined in accordance with GAAP consistently applied in preparing
the Annual Statements, except as follows:
(i) Extraordinary items of income and expense shall not
be taken into account;
(ii) To the extent that after the Closing, Buyer
provides general and administrative services formerly provided by Seller,
there may be a charge therefor to the extent and in an amount not to exceed
the amount of any such charges incurred by Seller in the fiscal year ended
August 31, 1998 ("FY 1998");
(iii) There shall be a charge equal to 50% of the amount
of any savings realized by Buyer during FY 1999 resulting in cost
efficiencies derived from Buyer's consolidated efforts that produce lower
costs for the Business than were incurred by Seller in FY 1998 with respect
to the categories set forth on Schedule 1.4(d);
(iv) There shall be no charges for any amounts paid or
payable to Debbie Pereira and/or James Christianson (a) with respect to any
Staying Bonus (as referred to in their respective Employment Agreements (as
defined below); or (b) pursuant to any increases in any amounts payable
pursuant to any future amendments to or modifications of their respective
Employment Agreements;
(v) There shall be no charges for any inventory written
off as obsolete, except to the extent done in accordance with GAAP; and
(vi) There shall be no charges for direct or indirect
compensation or other overhead in connection with any management employee of
Buyer or any Affiliate of Buyer other than current management employees of
Seller, or on account of any other expense which is not either (A) reflected
in the budget for the Business for Fiscal Year 1999 prepared prior to the
date hereof, or (B) approved by Andrea Skwarek in writing; and
-8-
<PAGE>
(vii) Subject to the foregoing, in calculating the
Business EBITDA, Buyer will not materially modify the categories and amounts
of expenses incurred (except to adjust for changes in volume) without the
consent of Shareholders.
The foregoing is not intended in any way to limit, restrict or prevent
Buyer's right, in its sole discretion, to incur additional expenses or to
increase historical expenses in FY 1999 with respect to the Assets, but is
intended to limit the impact of such expenses on the determination of EBITDA
for FY 1999.
SECTION 1.5 COLLECTION OF RECEIVABLES; ADJUSTMENT TO THE PURCHASE
PRICE.
(a) Shareholders shall, concurrently with the execution of this
Agreement, jointly and severally, execute and deliver a guarantee of payment
of the Receivables substantially in the form attached hereto as Exhibit 1.5
(the "Guarantee").
(b) The amount payable under the Buyer Note shall be reduced by
the amount equal to 3.3 times the amount by which the Business EBITDA, as
determined in accordance with Section 1.4(d), is less than One Million Four
Hundred Thousand Dollars ($1,400,000).
SECTION 1.6 Allocation of the Purchase Price.
The Purchase Price shall be allocated among the Assets in the manner set forth
on Schedule 1.6 for all purposes, and each of the parties shall make all
appropriate Tax and other filings on a basis consistent with such allocation.
The parties shall exchange drafts of any information returns required by Section
1060 of the Code, and all similar state statutes, ten days prior to filing any
such return.
SECTION 1.7 Closing.
Subject to the terms and conditions of this Agreement, the sale and purchase
of the Assets and the consummation of the other transactions contemplated hereby
(the "Closing") shall take place on the date hereof (the "Closing Date").
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF SELLER
Seller represents and warrants to Buyer that:
SECTION 2.1 Authority Relative to this Agreement.
Seller has full power, capacity and authority to execute and deliver this
Agreement and each other Transaction Document to which it is a party and to
consummate the transactions contemplated hereby and thereby (the "Contemplated
Transactions"). The execution, delivery and performance of each Transaction
Document and the consummation of the Contemplated Transactions to which Seller
is a party have been duly and validly authorized by Seller, and no other acts on
the part of Seller (or any other person) are necessary or required to authorize
the execution, delivery and performance by Seller of each Transaction Document
or the
-9-
<PAGE>
consummation of the Contemplated Transactions to which Seller is a party.
This Agreement and the other Transaction Documents to which Seller is a party
have been, duly and validly executed and delivered by Seller, and (assuming
the valid execution and delivery thereof by the other parties thereto)
constitute the legal, valid and binding agreements of Seller, enforceable
against Seller in accordance with their respective terms, except as such
obligations and their enforceability may be limited by applicable bankruptcy
and other similar laws affecting the enforcement of creditors' rights
generally and except that the availability of equitable remedies is subject
to the discretion of the court before which any proceeding therefor may be
brought (whether at law or in equity).
SECTION 2.2 No Conflicts; Consents.
The execution, delivery and performance by Seller of this Agreement and each
other Transaction Document to which it is a party and the consummation of the
Contemplated Transactions to which Seller is a party do not and will not (i)
violate any provision of the Certificate of Incorporation or By-laws (or
comparable instruments) of Seller; (ii) require Seller or any Affiliate of
Seller to obtain any consent, approval or action of or waiver from, or make any
filing with, or give any notice to, any Governmental Body or any other person,
except as set forth on Schedule 2.2 ("Seller Required Consents"); (iii) if
Seller Required Consents are obtained prior to Closing, violate, conflict with
or result in a breach or default under (with or without the giving of notice or
the passage of time or both), or permit the suspension or termination of, any
Contract to which Seller is a party or by which it or any of the Assets may be
bound or subject, or result in the creation of any Lien upon the Assets; (iv) if
Seller Required Consents are obtained prior to Closing, violate any Law or Order
of any Governmental Body against, or binding upon, Seller or upon the Assets or
the Business; or (v) if Seller Required Consents are obtained prior to Closing,
violate or result in the revocation or suspension of any Permit.
SECTION 2.3 Corporate Existence and Power.
Seller is a corporation duly organized, validly existing and in good standing
under the laws of its jurisdiction of incorporation, and has all requisite
powers, authority and all Permits required to own and/or operate the Assets and
to carry on the Business as now conducted. Seller is duly qualified to do
business as a foreign corporation and is in good standing in each state of the
United States where the character of the property owned or leased by it or the
nature of its activities makes such qualification necessary. Seller does not
have any Subsidiary and does not directly or indirectly own any equity or other
interest or investment in any other person.
SECTION 2.4 Charter Documents and Corporate Records.
Seller has heretofore delivered or made available to Buyer true and complete
copies of the Certificate of Incorporation (certified as of a recent date by its
jurisdiction of incorporation) and By-laws or comparable instruments, of Seller
as in effect on the date hereof.
SECTION 2.5 FINANCIAL INFORMATION.
-10-
<PAGE>
(a) Seller has previously furnished to Buyer true, complete and
correct copies of (i) Seller's audited financial statements at and for the
year ended August 31, 1998, (ii) Seller's unaudited financial statements at
and for the years ended August 31, 1997 and 1996 (the "Annual Statements")
and (iii) Seller's unaudited financial statements at and for each calendar
month of 1997 and 1998 through November 30, 1998 (the "Interim Statements").
Each delivered financial statement has been prepared in accordance with GAAP
consistently applied (except for the absence of footnotes in the case of the
Annual Statements, and, in the case of the Interim Statements, the need for
normal, recurring year end adjustments, which are consistent with past
practice and which, in the aggregate, would not be material) and presents
fairly and accurately the financial position of Seller as of its date, and
its earnings, changes in stockholders' equity and cash flow for the periods
then ended. Each delivered balance sheet fully sets forth all Assets and
Liabilities of Seller existing as of its date which, under GAAP, should be
set forth therein, and each delivered statement of earnings sets forth the
items of income and expense of Seller which should be set forth therein in
accordance with GAAP.
(b) Except to the extent of the amount of the allowance for
doubtful accounts reflected in the Interim Statements or as set forth in
Schedule 2.5, all the Receivables of the Company reflected therein, and all
Receivables that have arisen since August 31, 1998 (except Receivables that
have been collected since such date) are valid and enforceable Claims, and
constitute bona fide Receivables resulting from the sale of goods and
services in the ordinary course of the Business. The Receivables are not
subject to any defenses, offsets, returns, allowances or credits of any kind,
except as set forth on Schedule 2.5.
(c) All financial, business and accounting books, ledgers,
accounts and official and other records relating to Seller and the Business
have been properly and accurately kept and completed, and there are no
material inaccuracies or discrepancies contained or reflected therein. There
are no records, systems, Contracts, data or information of Seller, recorded,
stored, maintained, operated or otherwise wholly or partly dependent upon or
held by any means (including any electronic, mechanical or photographic
process, whether computerized or not) which are not under Seller's exclusive
ownership and direct control, except for Seller's payroll records, which are
maintained by ADP.
SECTION 2.6 LIABILITIES. Except as and to the extent reflected in
the balance sheet of Seller (the "Latest Balance Sheet") at August 31, 1998
(the "Latest Balance Sheet Date") referred to in Section 2.5, Seller did not
have, as of the Latest Balance Sheet Date, any Liabilities or obligations
required to be reflected on a balance sheet under GAAP, and except as
described in Schedule 2.6 hereto, Seller has not incurred any Liabilities
since the Latest Balance Sheet Date except (i) current Liabilities for trade
or business obligations incurred in connection with the purchase of goods or
services in the ordinary course of the Business and consistent with past
practice, (ii) Liabilities reflected on any balance sheet included in the
Interim Statements delivered to Buyer prior to the date hereof, and (iii)
Liabilities or obligations of continued performance under Contracts and other
commitments and arrangements entered into in the ordinary course of the
Business not required to be reflected in financial statements under GAAP.
-11-
<PAGE>
SECTION 2.7 INVENTORY. Schedule 2.7 sets forth a true and complete
list of Inventory by category as of the date indicated thereon (including an
aging schedule showing all items over 60 days old). All Inventory consists of
items which are good and merchantable and of a quantity and quality usable or
saleable in the ordinary course of the Business consistent with past
practices, subject to any reserve for Inventory obsolescence set forth on
Seller's November 30, 1998 internally prepared balance sheet. Since the
Latest Balance Sheet Date, Seller has continued to replenish its Inventories
in a customary manner consistent with past practice. No items of Inventory
are pledged as collateral or held by Seller on consignment from any other
person, other than Seller's letter of credit financing arrangement with Bank
of Boston. The Inventory is valued at the lower of cost or market, net
realizable value on the "weighted moving average, first in, first out
"method, consistent with past practices, and was so valued on August 31,
1998. The quantities of each item of Inventory are not excessive, but are
reasonable in the present circumstances of Seller. The reserve for Inventory
obsolescence contained in the Latest Balance Sheet fairly reflects the amount
of obsolete Inventory as of the date thereof in accordance with GAAP.
SECTION 2.8 ABSENCE OF CERTAIN CHANGES.
(a) Since the Latest Balance Sheet Date, except as disclosed in
Schedule 2.8, Seller has conducted the Business in the ordinary course
consistent with past practices and there has not been:
(i) Any material adverse change in the Assets or any
material adverse change in the condition (financial or otherwise), results of
operations or prospects of Seller, the Assets or the Business (collectively,
the "Condition of the Business") or, to the knowledge of Seller, any event,
occurrence or circumstance that could reasonably be expected to cause such a
material adverse change;
(ii) Any transaction or Contract with respect to the
purchase, acquisition, lease, disposition or transfer of all or any part of
any Assets or to any capital expenditure relating to the Business (in each
case, other than in the ordinary course of the Business in accordance with
past practice);
(iii) Any changes in the Certificate of Incorporation or
by-laws of Seller;
(iv) Any declaration, setting aside or payment of any
dividend or other distribution with respect to the common stock or any other
capital stock of Seller or any loan or advance to any officer, director, or
stockholder of Seller;
(v) Any damage, destruction or other casualty loss
(whether or not covered by insurance), condemnation or other taking affecting
the Business, the Assets or Seller;
(vi) Any change in any method of accounting or
accounting practice by Seller;
-12-
<PAGE>
(vii) Except as set forth in Schedule 2.14 or 2.15, any
increase in the compensation, commission, bonus or other direct or indirect
remuneration paid, payable or to become payable to any officer, shareholder,
director, consultant, agent or employee of Seller, or any alteration in the
benefits payable or provided to any thereof;
(viii) Any adverse change in any material relationship of
Seller with its customers, suppliers and vendors;
(ix) Except for any changes made in the ordinary course
of the Business, any change in any of Seller's business policies, including
advertising, marketing, pricing, purchasing, personnel, returns or budget
policies;
(x) Except in the ordinary course of the Business,
consistent with past practice, or as disclosed in Schedule 2.10, any payment,
directly or indirectly, of any Liability of Seller before the same became due
in accordance with its terms;
(xi) Any (a) incurrence, assumption or guarantee by
Seller of any Debt other than in the ordinary course of the Business in
amounts and on terms consistent with past practices, (b) issuance or sale of
any securities convertible into or exchangeable for debt securities of
Seller, or (c) issuance or sale of options or other rights to acquire from
Seller, directly or indirectly, debt securities of Seller or any securities
convertible into or exchangeable for any such debt securities; or
(xii) Any agreement or arrangement whether written or
oral to do any of the foregoing.
(b) Except as set forth in Schedule 2.8, no Liability of Seller
is past due.
SECTION 2.9 THE ASSETS.
(a) Schedule 2.9(a) sets forth a description of the Real
Property. Seller has a valid leasehold interest in and to the Land and the
Improvements, in each case, free and clear of all Liens of any nature
whatsoever, other than (i) Liens disclosed on the Latest Balance Sheet, (ii)
Liens for current Taxes not yet due and payable (and for which adequate
reserves have been established on the Latest Balance Sheet), and (iii) Liens
set forth on Schedule 2.9(a), which do not materially interfere with the
Assets or impair the conduct of the Business (collectively, "Permitted
Liens"). All Improvements located on the Real Property are in good operating
condition (subject to normal wear and tear) with no structural or other
defects known to Seller that could interfere in any material respect with the
operation of the Business, and are suitable for the purposes for which they
are currently used. There is no and there has never been any manufacturing
activity at or on the Real Property. To Seller's knowledge, the Business is
not in violation in any material respect of any building, zoning,
anti-pollution, health, occupational safety or other Law, Order or Permit in
respect of the Real Property. Except as disclosed on
-13-
<PAGE>
Schedule 2.9(a), no person, other than Seller, has any right to occupy or
possess any of the Real Property.
(b) Seller is in possession of and has good and valid title to the
Assets used in the Business (other than the Real Property) free and clear of any
Liens other than Permitted Liens. All of the tangible Assets used in the
Business are in good condition and repair, normal wear and tear excepted, and,
in the aggregate, are adequate in quantity and quality for the operation of the
Business as presently conducted. Schedule 2.9(b) contains a list and description
of all tangible Assets other than Inventory with a book value of $1,000 or more.
The Assets including the Lease constitute all of the assets which are necessary
to operate the Business and, assuming all Seller Required Consents are obtained,
the consummation of the Contemplated Transactions hereby will enable Buyer to
conduct the Business substantially as it has been conducted since inception.
SECTION 2.10 CONTRACTS.
(a) Schedule 2.10 sets forth an accurate and complete list of all
Contracts to which Seller is a party or by which it or the Assets are bound or
subject, relating to the Business, except for those Contracts with persons who
are not Affiliates of Seller relating solely to the purchase or sale of property
(other than the Real Property) or services by Seller in the ordinary course of
the Business which (i) require Seller to make or receive payments not in excess
of $5,000 or (ii) have a remaining term of less than twelve months on the date
of this Agreement or are terminable by Seller without penalty during such
period. True and correct copies of all written Contracts listed on such Schedule
and summaries of the material provisions of all oral Contracts so listed have
been delivered to Buyer.
(b) All Contracts listed on Schedule 2.10 are valid,
subsisting, in full force and effect and binding upon Seller and, to the
knowledge of Seller, the other parties thereto in accordance with their
terms. Assuming receipt of the Seller Required Consents, Seller is not in
default (or alleged default) under any such Contract nor, to the knowledge of
Seller, is any other party thereto in default thereunder and there is no
condition that with notice or the lapse of time or both would constitute a
default by Seller (or give rise to a termination right) nor, to Seller's
knowledge, does any condition exist that with notice or the lapse of time or
both would constitute a default by any other party thereto (or give rise to a
termination right) under any such Contract. To the knowledge of Seller, none
of the other parties to any such Contract intends to terminate or materially
alter the provisions thereof by reason of the Contemplated Transactions or
otherwise. Since the Latest Balance Sheet Date, Seller has not waived any
material right under any such Contract, materially amended or extended beyond
December 31, 1998 any such Contract or terminated or failed to renew (or
received notice of termination or failure to renew with respect to) any such
Contract. Except as set forth on Schedule 2.10, no approval or consent of any
person is required in order for the Contracts required to be disclosed on
Schedule 2.10 to continue in full force and effect after the Closing.
-14-
<PAGE>
(c) Except as set forth on Schedule 2.10, all purchase commitments
for products, materials, supplies, raw materials or other items to which Seller
is a party are not in excess of the customary requirements of the Business or,
to the knowledge of Seller, are at prices materially in excess of current market
prices for similar items.
SECTION 2.11 INTANGIBLE PROPERTY. Schedule 2.11 sets forth all
Intellectual Property Rights, including a copy of all registrations and
applications with respect thereto filed with or issued by any Governmental
Body and there are no other Intellectual Property Rights that are material to
the Business. Assuming receipt of the Seller Required Consents, the
Contemplated Transactions will not have an adverse effect on the right, title
and interest of Buyer as of the Closing Date in and to the Intellectual
Property Rights. Except as set forth on Schedule 2.11, (i) none of the
Intellectual Property Rights have been assigned, transferred or licensed to
or from any third person, other than licenses of generally available computer
software, (ii) Seller has not received any written notice of invalidity,
infringement or misappropriation from any third party with respect to any
Intellectual Property Rights; (iii) to the knowledge of Seller, Seller has
not interfered with, infringed upon, misappropriated or otherwise come into
conflict with any intellectual property or other rights of any third parties;
and (iv) to the knowledge of Seller, no third party has interfered with,
infringed upon, misappropriated, or otherwise come into conflict with any
Intellectual Property Rights of Seller.
SECTION 2.12 CLAIMS AND PROCEEDINGS. Except as set forth on
Schedule 2.12, there are no outstanding Orders of any Governmental Body
against or involving Seller, the Assets or the Business. Except as set forth
on Schedule 2.12, there are no actions, suits, claims or counterclaims,
examinations, audits or legal, administrative, governmental, arbitral or
other proceedings or investigations (collectively, "Claims") (whether or not
the defense thereof or Liabilities in respect thereof are covered by
insurance), pending or, to the knowledge of Seller, threatened on the date
hereof, against or involving Seller, the Assets or the Business. Schedule
2.12 also indicates those Claims the defense thereof or Liabilities in
respect thereof are covered by insurance. Except as set forth on Schedule
2.12, to the knowledge of Seller, on the date hereof, there is no fact, event
or circumstance that is reasonably likely to give rise to any Claim. All
notices required to have been given to any insurance company listed as
insuring against any Claim have been timely and duly given and, except as set
forth on Schedule 2.12, no insurance company has asserted that any Claim is
not covered by the applicable policy relating to such Claim. Seller is not a
party to any Claim that has created any Lien on the Assets.
SECTION 2.13 TAXES.
(a) Except as set forth in Schedule 2.13:
(i) Seller has timely filed or, if not yet due, will
timely file all Tax Returns required to be filed by it for all taxable
periods ending on or before the Closing Date and all such Tax Returns are or,
if not yet filed, will be, upon filing, true, correct and complete;
-15-
<PAGE>
(ii) Seller has paid, or if payment is not yet due, will
pay to the appropriate Tax Authority, all Taxes of Seller for all taxable
periods ending on or before the Closing Date;
(iii) the accruals for Taxes currently payable as well as
for deferred Taxes shown on the financial statements of Seller as of the
Latest Balance Sheet Date or the date of any financial statements delivered
prior to the Closing (A) adequately provide for all contingent Tax
Liabilities of Seller as of the date thereof, and (B) accurately reflect, as
of the date thereof, all unpaid Taxes owing by Seller;
(iv) no extension of time has been requested or granted
for Seller to file any Tax Return that has not yet been filed or to pay any
Tax that has not yet been paid and Seller has not granted a power of attorney
that remains outstanding with regard to any Tax matter;
(v) Seller has not received notice of a determination
by a Tax Authority that Taxes are owed by Seller (such determination to be
referred to as a "Tax Deficiency") which is currently outstanding, and, to
Seller's knowledge, no Tax Deficiency is proposed or threatened;
(vi) all Tax Deficiencies have been paid or finally
settled and all amounts determined by settlement to be owed have been paid;
(vii) there are no Tax Liens on or pending against Seller
or any of the Assets;
(viii) there are no presently outstanding waivers or
extensions or requests for waiver or extension of the time within which a Tax
Deficiency may be asserted or assessed;
(ix) no issue has been raised in any Tax Authority
examination, investigation, audit, suit, action, claim or proceeding relating
to Taxes (a "Tax Audit") which, by application of similar principles to any
past, present or future period, would result in a Tax Deficiency for such
period;
(x) there are no pending or, to Seller's knowledge,
threatened Tax Audits of Seller;
(xi) there are no transfer or other taxes imposed by any
state on Seller or Buyer by virtue of the Contemplated Transactions, other
than a 6% sales tax upon the transfer of motor vehicles imposed by the state
of Connecticut and which Buyer shall pay;
(xii) no claim has been made by any Tax Authority that
Seller is subject to Tax in a jurisdiction in which Seller is not then paying
Tax of the type asserted; and
(xiii) Seller has been, at all times since tax year 1987,
an "S corporation", its shareholders having elected that status pursuant to
section 1362 of the Code.
-16-
<PAGE>
(b) Except as set forth in Schedule 2.13, Seller has collected and
remitted to the appropriate Tax Authority all sales and use or similar Taxes
required to be collected on or prior to the Closing Date and has been furnished
properly completed exemption certificates for all exempt transactions. Seller
has maintained and has in its possession all records, supporting documents and
exemption certificates required by applicable sales and use Tax statutes and
regulations to be retained in connection with the collection and remittance of
sales and use Taxes for all periods up to and including the Closing Date. With
respect to sales made by Seller prior to the Closing Date for which sales and
use Taxes are not yet due as of the Closing Date, all applicable sales and use
Taxes payable with respect to such sales will have been collected or billed by
Seller and will be included in the Assets of Seller and the Assumed Liabilities
as of the Closing Date.
SECTION 2.14 EMPLOYEE BENEFITS PLANS.
(a) Except as set forth on Schedule 2.14, neither Seller nor
any Affiliate of Seller, nor the Business, nor any portion of the Business
(all of the above hereinafter individually and collectively called the
"Entity") has at any time since January 1, 1990 adopted or maintained, has
any Liability or is a fiduciary with respect to or has any present or future
obligation to contribute to or make payment under (i) any employee benefit
plan (as defined in Section 3(3) of ERISA), or (ii) any other benefit plan,
program, contract or arrangement of any kind whatsoever (whether for the
benefit of present, former, retired or future employees, officers, directors,
consultants or independent contractors of the Entity, or for the benefit of
any other person or persons) including, without limitation, arrangements
providing for contributions, benefits or payments in the event of a change of
ownership or control in whole or in part of the Entity, or with respect to
disability, relocation, child care, educational assistance, deferred
compensation, pension, retirement, profit sharing, thrift, savings, stock
ownership, stock bonus, restricted stock, health, dental, medical, life,
hospitalization, stock purchase, stock option, incentive, bonus, sabbatical
leave, vacation, severance or other contribution, benefit or payment of any
kind, or (iii) any employment, consulting, service or other contract or
agreement of any kind whatsoever (all such employee benefit plans and other
benefit plans, programs, contracts or arrangements and such employment,
consulting, service or other contracts or agreements whether written or oral,
other than any insurance policies covering the acts of the officers and/or
directors of Seller acting as such, hereinafter individually and collectively
called the "Employee Benefit Plan(s)"). No Employee Benefit Plan is subject
to Title IV of ERISA. No Entity has completely or partially withdrawn, within
the meaning of Title IV of ERISA, from any "multiemployer plan" within the
meaning of Section 3(37) of ERISA. No person is under common control with any
Entity, constitutes a member of any Entity's controlled group, constitutes a
member of any Entity's affiliated service group and/or is otherwise required
to be treated as a single employer with any Entity under Sections 4001(a)(14)
and/or (b) of ERISA and/or Sections 414(b), (c), (m) or (o) of the Code.
(b) In addition, except as set forth in Schedule 2.14 hereof
(i) there have been no "prohibited transactions" within the meaning of
Section 406 of ERISA or Section 4975 of the
-17-
<PAGE>
Code with respect to any of the Employee Benefit Plans; (ii) no Liability has
been or is expected to be incurred by the Entity under Title IV of ERISA;
(iii) any and all amounts which the Entity are required to pay as
contributions or otherwise, or with respect to the Employee Benefit Plans
have been timely paid; (iv) no Employee Benefit Plan has incurred any
"accumulated funding deficiency" (as defined in Section 302 of ERISA and
Section 412 of the Code), whether or not waived, and no Entity has provided,
or is required to provide, security to any Employee Benefit Plan which is
subject to Title IV of ERISA or otherwise; (v) the current value of all
"benefit liabilities" within the meaning of Section 4001(a)(16) of ERISA
under each Employee Benefit Plan which is subject to Title IV of ERISA or
otherwise, does not exceed the current value of the assets of such Employee
Benefit Plan allocable to such benefit liabilities; (vi) each of the Employee
Benefit Plans has been established, maintained, operated and administered in
accordance with its terms and all applicable Laws; (vii) each of the Employee
Benefit Plans which is intended to be "qualified" within the meaning of
Sections 401(a) and 501(a) of the Code has been determined by the IRS to be
so qualified and, to Seller's knowledge, continues to be so qualified; (viii)
there are, to Seller's knowledge, no pending, threatened or anticipated
Claims involving any of the Employee Benefit Plans; (ix) the Entity and the
Group have not incurred and will not incur any withdrawal liability with
respect to a multiemployer plan under Title IV of ERISA; (x) no notice of a
"reportable event" within the meaning of Section 4043 of ERISA has been
required to be filed with respect to any Employee Benefit Plan; (xi) no
Entity is a party to, or participates in, or has any Liability or contingent
Liability with respect to any multiemployer plan within the meaning of
Section 3(37) of ERISA; (xii) neither the execution and delivery of this
Agreement nor the consummation of the Contemplated Transactions will (either
alone or upon the occurrence of additional events or acts) accelerate vesting
or any benefits or any payments, increase the amount or value of any benefit
or payment under any Employee Benefit Plan or result in the payment of or
obligation to pay any "parachute payment" (within the meaning of Section 280G
of the Code); and (xiii) no Entity has any obligation or commitment to
establish, maintain, operate or administer any Employee Benefit Plan not set
forth on Schedule 2.14, or to amend any Employee Benefit Plan so as to
increase benefits thereunder or otherwise.
(c) A true and correct copy of each of the Employee Benefit Plans
(and all amendments thereto, whether currently effective or to become effective
at a later date) and all Contracts relating thereto, or to the funding thereof
(including, without limitation, all trust agreements, insurance Contracts,
investment management agreements, subscription and participation agreements,
administration and recordkeeping agreements) have been provided to Buyer. Each
Employee Benefit Plan sponsored or maintained by Seller and all Contracts and
agreements relating thereto or to the funding thereof, can be unilaterally
terminated without penalty by Seller on no more than thirty (30) days' notice,
and all obligations of Seller with respect to all other Employee Benefit Plans
can be unilaterally terminated without penalty to Seller on no more than thirty
(30) days' notice. In the case of any Employee Benefit Plan which is not in
written form, an accurate and complete description of such Employee Benefit Plan
has been provided to Buyer. With respect to each Employee Benefit Plan, Buyer
has been provided with a true and correct copy of (i) the three most recent
annual reports (IRS Form 5500 series), Pension Benefit Guaranty Corporation
filings and actuarial reports, and (ii) the most recent summary plan description
(including summaries of material modification), IRS determination
-18-
<PAGE>
letter and/or ruling, and, in the case of any funded Employee Benefit Plan, a
current schedule of assets (and the fair market value thereof assuming
liquidation of any asset which is not readily tradable) held with respect
thereto, and there have been no material changes in the financial condition
in the respective Employee Benefit Plans (or other information provided
hereunder) from that stated in each Employee Benefit Plan's most recent of
such annual reports, actuarial reports and schedule of assets.
SECTION 2.15 EMPLOYEE-RELATED MATTERS.
(a) Schedule 2.15 contains a true and correct list, by
category, of all officers, directors, full-time employees, part-time
employees, and other employees of Seller, including any Contract relating
thereto, the title, position and dates of employment of, the annual rate of
base salary and/or base wages and a description of the rate and nature of all
other compensation payable or accrued by Seller to, and the amount of
vacation, sick days, personal days and other leave accrued by, each such
person. Buyer has been provided with true and complete (i) copies of all
manuals and handbooks applicable to any current or former director, officer,
employee or consultant of Seller, (ii) copies of all standard forms of
employee trade secret, non-compete, non-disclosure and invention assignment
agreements, together with a list of all agreements that deviate therefrom and
a description of such deviation, and (iii) descriptions of all existing
severance, accrued vacation or other leave policies or retiree benefits of
any such director, officer, employee or consultant. Except as set forth on
Schedule 2.15, the employment or consulting arrangement of all such persons
is, subject to applicable laws involving the wrongful termination of
employees, terminable at will (without liability for the imposition of
damages) by Seller.
(b) Except as set forth in Schedule 2.15, (i) Seller is not a
party to any Contract with any labor organization or other representative of
its employees; (ii) there is no unfair labor practice charge or complaint
pending or, to the knowledge of Seller, threatened against Seller; (iii)
Seller has not experienced any labor strike, slowdown, work stoppage or
similar labor controversy within the past five years, and to the knowledge of
Seller, no such labor strike, slow down, work stoppage or similar labor
controversy is threatened; (iv) no representation question has been raised
respecting any of Seller's employees working within the past five years, nor,
to the knowledge of Seller, are there any organizing activities or campaigns
being conducted to solicit authorization from Seller's employees to be
represented by any labor organization and no such activity or campaign is
threatened; (v) no Claim before any Governmental Body brought by or on behalf
of any employee, prospective employee, former employee, retiree, labor
organization, other representative of employees or any Governmental Body, is
pending or, to the knowledge of Seller, threatened against Seller; (vi)
Seller is not a party to, or otherwise bound by, any Order relating to its
employees or employment practices; (vii) except with respect to ongoing
disputes of a routine nature involving immaterial amounts, Seller has paid in
full to all of its employees all wages, salaries, commissions, bonuses,
benefits and other compensation due and payable to such employees; and (viii)
Seller is in compliance with all applicable Laws affecting employment and
employment practices.
-19-
<PAGE>
(c) No current employee of Seller is (i) absent on a military
leave of absence and eligible for rehire under the terms of the Uniformed
Services Employment and Reemployment Rights Act, or (ii) absent on a leave of
absence under the Family and Medical Leave Act. Schedule 2.15 contains a true
and correct list of (1) each qualified beneficiary (within the meaning of
Section 4980B(g)(1) of the Code) of any group health plan (within the meaning
of Section 4980B(g)(2) of the Code) which is an Employee Benefit Plan who as
of the date hereof, is eligible for continuation of group health plan
coverage under any Employee Benefit Plan on account of a qualifying event
(within the meaning of Section 4980B(f)(3) of the Code) occurring prior to
the Closing Date, (2) with respect to each such qualified beneficiary, the
date and nature of such qualifying event and (3) as of the date hereof, each
employee of Seller and each dependent of each such employee who is covered by
a group health plan (within the meaning of Section 5000(b) of the Code) which
is an Employee Benefit Plan.
SECTION 2.16 INSURANCE. Schedule 2.16 sets forth a list of all
insurance policies, fidelity and surety bonds and fiduciary liability
policies (the "Insurance Policies") covering the Assets, the Business,
operations, employees, officers and directors of Seller and true and complete
copies of all such Insurance Policies have been delivered to Buyer. Schedule
2.16 also sets forth (a) with respect to each Insurance Policy the applicable
deductible amounts and any material limitations on coverage, (b) any letter
of credit relating to any such Insurance Policy and all inspections and
reports delivered to Seller by any insurer with respect to such Insurance
Policies, copies of which have been delivered to Buyer and (c) a true and
complete list of Claims made in respect of each Insurance Policy during the
three years prior to the date hereof. True and correct copies of all loss
runs with respect to such period have been delivered to Buyer. There is no
Claim by Seller pending under any of such Insurance Policies, as to which
coverage has been questioned, denied or disputed by the underwriters of such
Insurance Policies or any requirement by any insurer to perform work which
has not been satisfied. All premiums payable on or before the Closing Date
under all Insurance Policies have been paid and Seller is otherwise in
compliance in all respects with the terms and conditions of all such
Insurance Policies. All Insurance Policies are in full force and effect. The
insurance in effect with respect to any Real Property is in an amount of the
full replacement value of such Real Property, including the Improvements
thereon. Seller does not know of any threatened termination of, premium
increase with respect to, or uncompleted requirements under any Insurance
Policy. No premiums are or will be payable under Insurance Policies after the
Closing in respect of insurance provided for periods prior to the Closing
Date. Claims under all such Insurance Policies are payable on an "occurrence
basis", except as set forth on Schedule 2.16.
SECTION 2.17 COMPLIANCE WITH LAWS. Seller is not in violation of
any order, judgment, injunction, award, citation, decree, consent decree or
writ (collectively, "Orders"), or, to Seller's knowledge, any law, statute,
code, ordinance, rule, regulation or other requirement, including any
Environmental Laws (collectively, "Laws"), of any government, municipality or
political subdivision thereof, whether federal, state, local or foreign, or
any governmental or quasi-governmental agency, authority, board, bureau,
commission, department, instrumentality or public body, or any court,
arbitrator, administrative tribunal or public utility (collectively,
-20-
<PAGE>
"Governmental Bodies") affecting its assets or the Business where the same
may have a material adverse effect on the Assets or the Business.
SECTION 2.18 PERMITS. Seller has obtained all Permits, and has made
all required registrations and filings with, any Governmental Body that are,
to Seller's knowledge, necessary to the ownership of the Assets, the use and
occupancy of the Real Property, and the conduct of the Business where the
failure to do the same would have a material adverse effect on the Assets or
the Business. All Permits required to be obtained or maintained by the
Company are listed on Schedule 2.18 and are in full force and effect; no
violations are or have been recorded, nor have any notices or violations
thereof been received, in respect of any Permit; and no proceeding is pending
or, to the knowledge of Seller, threatened to revoke or limit any Permit; and
the consummation of the Contemplated Transactions will not (or with the
giving of notice or the passage of time or both will not) cause any Permit
which is transferable to Buyer to be revoked or limited.
SECTION 2.19 ENVIRONMENTAL MATTERS. Except as referenced in
Schedule 2.19 or as described in the Phase 1 environmental site assessment
report dated November 27, 1998 prepared by EMG for the benefit of Buyer, (a)
there has been, directly or indirectly, no use, manufacture, generation,
refining, storage, transport, disposal or treatment of Hazardous Substances
by Seller (or, to the knowledge of Seller, any predecessor in interest of
Seller), or any Release at, on or under any Real Property by Seller or, to
the knowledge of Seller, by any other person, in violation of any
Environmental Law or which would require remedial action under any
Environmental Law; Seller has not contaminated the soil, ground water or
surface water; to the knowledge of Seller, none of the soil, ground water or
surface water of such Real Property is or has been contaminated by any
Release.
(a) No portion of the Real Property has ever been used as a
petroleum storage, refining, storage or distribution facility or terminal, a
gasoline service station or automobile repair shop by Seller or any tenant or
licensee of Seller thereat or, to the knowledge of Seller, by any former owner,
lessee or operator;
(b) As to the ownership or operation of the Assets or the
Business, Seller has not created, suffered or permitted, and has not received
any written notice of (i) any alleged violation with respect to any
Environmental Law; or (ii) any prior, pending or threatened Regulatory Action or
other Claim involving any such party or any present or former owner, lessee or
operator of the Real Property;
(c) (i)there are no incinerators, underground or aboveground tanks
or cesspools, pipes or pipelines for the storage or transportation of Hazardous
Materials, including without limitation, heating oil, fuel oil, gasoline and/or
other petroleum products, whether such tanks, pipelines or pipes are in
operation, closed or abandoned (the "Tanks") located, or to the knowledge of
Seller, which have been located, on, at or under the Real Property, (ii) there
is no legal requirement that any sewage being discharged from the Real Property
be discharged, (and
-21-
<PAGE>
all such sewage is not presently being discharged) into a municipal,
quasi-municipal or private sanitary sewer system, (iii) all sewage presently
being discharged from the Real Property is being discharged into a legally
complying septic system, which is located in its entirety on the Real
Property and is in good working order, and (iv) there has been no Release by
Seller, or to Seller's knowledge by any other party, into the atmosphere, any
adjoining or adjacent body of water, or adjoining or adjacent property in
violation of Environmental Law. Seller is not in possession of any
environmental reports or other written materials regarding the environmental
matters set forth in this Section 2.19.
(d) To the knowledge of Seller, the Real Property and all
Improvements are presently, and have been at all times in the past, in material
compliance with all applicable Environmental Laws. All Permits required by any
Environmental Laws in connection with Seller, the Real Property and the Business
have been obtained, are in full force and effect and have not been violated; and
(e) To Seller's knowledge, no Environmental Law requires any
environmental testing, cleanup, removal or work, repairs, construction or
expenditures with respect to any part of the Real Property or activities
conducted at the Real Property and Seller has not received any notice of any
such requirement.
SECTION 2.20 FINDERS; FEES. Other than Duff & Phelps Securities,
LLC, there is no investment banker, broker, finder or other intermediary
which has been retained by or is authorized to act on behalf of Seller who
might be entitled to any fee or commission from Seller in connection with the
consummation of the Contemplated Transactions. Seller shall indemnify and
hold Buyer harmless, in accordance with Article VI, from all amounts owing to
Duff & Phelps Securities, LLC.
SECTION 2.21 RESTRICTIONS ON BUSINESS ACTIVITIES. Other than this
Agreement and the Transaction Documents, there is no Law, Order or Contract
binding upon Seller which has had or could reasonably be expected to have the
effect of prohibiting or adversely affecting (i) competition by Seller, (ii)
any business practice of Seller, (iii) any acquisition of property by Seller,
or (iv) the Condition of the Business.
SECTION 2.22 SUPPLIERS AND CUSTOMERS. Seller has provided Buyer
with lists for the fiscal year ended August 31, 1998, of the twenty-five
largest suppliers and customers (by dollar amount) of Seller. There has not
occurred any material adverse change in the relationship of Seller with any
of such suppliers and customers since August 31, 1998 and, except as and to
the extent set forth on Schedule 2.22, to Seller's knowledge, there are no
facts or circumstances (including, without limitation, the Contemplated
Transactions) that could reasonably be expected to have a material adverse
effect on Seller's relationship with any of its suppliers and customers.
Since August 31, 1998, (i) no such supplier or customer has cancelled or
terminated, or threatened to cancel, or otherwise terminate, its relationship
with Seller or (ii) no such supplier or customer has threatened to decrease
or limit materially its relationship with Seller.
-22-
<PAGE>
SECTION 2.23 YEAR 2000 COMPLIANCE. At Buyer's request, Seller has
engaged three consultants to determine the cost of making Seller's mainframe
information systems, PC/LAN systems, software, facilities, machinery and
equipment (collectively, the "Computer Related Systems") Year 2000 Compliant.
Appended to Schedule 2.23 are estimates of such cost from the consultants.
Except as set forth in the preceding two sentences, Seller has taken no steps
toward making any Computer Related Systems of Seller or any third party
(including without limitation any of Seller's customers, suppliers or
vendors) Year 2000 Compliant. For purposes of this Agreement, "Year 2000
Compliant" means the Computer Related Systems (a) will process all dates in
and after the Year 2000 in a correct and consistent manner in all applicable
operations including, but not limited to input, output, comparisons
(branching) and arithmetic operations (such as the difference between two
dates), (b) uses fields providing at least four decimal digits for the year
portion of all stored dates, (c) calculates and handles leap year dates
correctly, and (d) will otherwise generally manipulate data and generate
output and reports in a fault free manner during and after the Year 2000.
SECTION 2.24 PRODUCT WARRANTIES, PRODUCT RETURN POLICIES AND SERVICE
WARRANTIES. Except as listed on Schedule 2.24, Seller does not utilize any
product warranties, guarantees, product return policies, service warranties
or service policies. Schedule 2.24 also sets forth all pending Claims and, to
the knowledge of Seller, threatened Claims, seeking return, replacement
and/or repair of products pursuant to warranties extended by Seller prior to
Closing.
SECTION 2.25 DEPOSITARIES. Schedule 2.25 sets forth the name of
each bank, financial institution or similar entity in which Seller maintains
an account, lock box or safe deposit box for the purpose of account
receivable collection (the "Depositaries"), together with the names of all
authorized signatories on each of the Depositaries.
SECTION 2.26 PRODUCT LIABILITY. There are no pending Claims and, to
the knowledge of Seller, no threatened Claims nor are there any facts or
circumstances known to Seller that could reasonably be expected to result in
a Claim, against Seller for injury to any person or property of employees or
any third parties suffered as a result of the ownership, possession or use of
any product manufactured, fabricated, assembled, sold, leased or distributed
by Seller, including Claims arising out of the defective or unsafe nature of
Seller's products, which could, individually or in the aggregate, have a
material adverse effect on the Condition of the Business. There have been no
Claims with respect to the manufacture, fabrication, assembly, sale, lease or
distribution by Seller of any toy helicopters in the last five years.
SECTION 2.27 DISCLOSURE. Neither this Agreement, the Schedules
hereto, nor any audited or unaudited financial statements furnished to Buyer
by or on behalf of Seller pursuant to this Agreement or the Transaction
Documents contains any untrue statement of a material fact with respect to
Seller or omits to state a material fact necessary in order to make the
statements contained herein or therein with respect to Seller not misleading.
-23-
<PAGE>
ARTICLE III
REPRESENTATIONS AND WARRANTIES
OF BUYER AND PARENT
Buyer and Parent, jointly and severally, represent and warrant to
Seller that:
SECTION 3.1 AUTHORITY RELATIVE TO THIS AGREEMENT. Each of Buyer and
Parent has full power, capacity and authority to execute and deliver this
Agreement and each other Transaction Document to which it is a party and to
consummate the Contemplated Transactions. The execution, delivery and
performance of each Transaction Document and the consummation of the
Contemplated Transactions to which each of Buyer and/or Parent is a party
have been duly and validly authorized and approved by the board of directors
thereof and no other corporate proceedings on the part of Buyer and/or Parent
are necessary or required to authorize the execution, delivery and
performance by each of Buyer and/or Parent of each Transaction Document or
the consummation of the Contemplated Transactions to which it is a party.
This Agreement and the other Transaction Documents to which Buyer and/or
Parent is a party have been, duly and validly executed and delivered by Buyer
and/or Parent, and (assuming the valid execution and delivery thereof by the
other parties thereto) constitutes the legal, valid and binding agreements of
Buyer and/or Parent, enforceable against Buyer and/or Parent in accordance
with their respective terms, except as such obligations and their
enforceability may be limited by applicable bankruptcy and other similar laws
affecting the enforcement of creditors' rights generally and except that the
availability of equitable remedies is subject to the discretion of the court
before which any proceeding therefor may be brought (whether at law or in
equity).
SECTION 3.2 NO CONFLICTS; CONSENTS. The execution, delivery and
performance by each of Buyer and/or Parent of this Agreement and each other
Transaction Document to which it is a party and the consummation of the
Contemplated Transactions to which it is a party do not and will not (i)
violate any provision of the certificate of incorporation or by-laws of Buyer
and/or Parent; (ii) require Buyer and/or Parent to obtain any consent,
approval or action of or waiver from, or make any filing with, or give any
notice to, any Governmental Body or any other person, except as set forth in
Schedule 3.2 ("Buyer Required Consents"); (iii) if Buyer Required Consents
are obtained prior to the Closing, violate, conflict with or result in the
breach or default under (with or without the giving of notice or the passage
of time or both); or permit the suspension or termination of, any material
Contract to which Buyer or Parent is a party or by which either Buyer or
Parent or their respective assets may be bound or subject; or (iv) if Buyer
Required Consents are obtained prior to the Closing, violate any Law or Order
of any Governmental Body against, or binding upon, Buyer or Parent or upon
their respective assets or businesses.
SECTION 3.3 CORPORATE EXISTENCE AND POWER. Each of Buyer and/or
Parent is a corporation duly organized, validly existing and in good standing
under the laws of its state of
-24-
<PAGE>
incorporation, and has all requisite corporate powers and all material
governmental licenses, authorizations, consents and approvals required to
carry on its business as now conducted.
SECTION 3.4 FINDERS; FEES. Other than Aiken Bay Company LLC, there
is no investment banker, broker, finder or other intermediary which has been
retained by or is authorized to act on behalf of Buyer or Parent who might be
entitled to any fee or commission from Buyer or Parent in connection with the
consummation of the Contemplated Transactions. Buyer and Parent shall
indemnify and hold Seller harmless, in accordance with Article VI, from all
amounts owing to Aiken Bay Company LLC.
SECTION 3.5 SECURITIES MATTERS. As of the Closing Date, Parent has
made in a timely manner all filings (the "Filings") with the Securities and
Exchange Commission (the "Commission") which it is required to make under the
Securities Act of 1933, as amended, and/or under the Securities Exchange Act
1934, as amended (collectively, the "Acts") during the eighteen month period
preceding the Closing Date. Buyer has provided Seller with copies of all of
the Filings, and with Parent's internally prepared financial statements
(including balance sheet, income statement, statement of cash flows and
statement of changes in stockholders' equity) for the month ended October 31,
1998 ("Parent's Internal Statements"). At the time filed, each Filing
complied as to form in all material respects with the applicable requirements
of the Acts and the rules and regulations of the Commission thereunder and,
at the time made, no Filing contained any untrue statement of a material fact
or omitted to state any material fact required to be stated therein or
necessary in order to make the statements therein no misleading. Parent's
Internal Statements have been prepared in accordance with GAAP, consistently
applied (except for the absence of footnotes and the need for normal,
recurring year end adjustments, which are consistent with past practice and
which, in the aggregate, would not be material), and present fairly and
accurately the financial position of Parent as of their date, and Parent's
earnings, changes in stockholders' equity and cash flows for the period then
ended. Except as set forth in Schedule 3.5, the Filings and Parent's Internal
Statements do not contain any untrue statement of a material fact or omit to
state any material fact required to be stated therein or necessary in order
to make the statements therein not misleading.
SECTION 3.6 ABILITY TO PERFORM. Buyer and Parent are each solvent
and possess adequate financing to perform all of Buyer's obligations under
this Agreement and the Transaction Documents to which they are respectively a
party. There is no fact, matter or state of facts that exists as of the
Closing Date (or that would so exist but for the giving of notice and/or the
passage of time) that would in any way hinder Buyer's and/or Parent's ability
to perform any and/or all of their respective obligations under this
Agreement and the Transaction Documents to which they are respectively a
party.
SECTION 3.7 DISCLOSURE. Neither this Agreement, the Schedules
hereto, nor any of the Filings or Parent's Internal Statements or any of the
Transaction Documents contains any untrue statement of a material fact with
respect to Buyer or Parent or omits to state a material fact
-25-
<PAGE>
necessary in order to make the statements contained herein or therein with
respect to Buyer or Parent not misleading.
ARTICLE IV
COVENANTS AND AGREEMENTS
SECTION 4.1 PUBLIC ANNOUNCEMENTS. Seller and Buyer will consult
with each other before issuing any press release or otherwise making any
public statement with respect to the Contemplated Transactions, and no party
hereto will issue any such press release or make any such public statement
without the prior approval of Buyer or Seller, as the case may be, except as
may be required by applicable Law in which event the other party shall have
the right to review and comment upon (but not approve) any such press release
or public statement prior to its issuance.
SECTION 4.2 CONFIDENTIALITY. Each party hereto shall hold in
strict confidence, and shall use its best efforts to cause all of its
directors, officers, Affiliates, employees, attorneys, accountants,
representatives, lenders, consultants and other agents (collectively,
"Representatives") to hold in strict confidence, unless compelled to disclose
by judicial or administrative process, or by other requirements of Law, all
information concerning any other party which it has obtained from such party
prior to, on, or after the date hereof in connection with the Contemplated
Transactions, and each party shall not use or disclose to others, or permit
the use of or disclosure of, any such information so obtained, and will not
release or disclose such information to any other person, except its
Representatives who need to know such information in connection with this
Agreement and who shall be advised of the provisions of this Section 4.2. The
foregoing provision shall not apply to any such information to the extent (i)
known by any party prior to the date such information was provided to such
party in connection with the Contemplated Transactions as shown by such
party's written records, (ii) made known to any party from a third party not
in breach of any confidentiality requirement or (iii) made public through no
fault of such party or any of its Representatives.
SECTION 4.3 EXPENSES. Except as otherwise specifically provided in
this Agreement, Buyer and Seller shall bear their respective expenses, in
each case, incurred in connection with the preparation, execution and
performance of the Transaction Documents and the Contemplated Transactions,
including, without limitation, all fees and expenses of their respective
Representatives.
SECTION 4.4 EMPLOYEE MATTERS.
(a) Immediately following the Closing, Buyer shall make offers
of employment to all of Seller's employees. Such offer shall be for
employment with base salaries and/or base wages at a rate equal to those paid
to them as employees of Seller as of the Closing Date, as set forth on
Schedule 2.15, provided that the terms of employment for Andrea and Mark
Skwarek, Debbie
-26-
<PAGE>
Pereira and James Christianson shall be governed by the Employment Agreements
contemplated by Section 5.2(c)(vii) below. Such employees as shall become
employees of Buyer shall participate in Buyer's employee benefit plans and
policies in accordance with the terms of such plans. For these purposes, the
employees shall be credited under and subject to the terms of Buyer's
policies with all vacation, sick and personal time accrued by them with
Seller, to the extent the same is taken into account for purposes of the
adjustment to the Purchase Price contemplated by Section 1.5 above. Seller
shall concurrently with the Closing terminate the employment of all of its
employees in accordance with the requirements of all applicable Laws.
Employees of Seller who become employees of Buyer shall be permitted to roll
over distributions from Seller's 401(k) plan to Buyer's 401(k) in accordance
with the terms and conditions of Buyer's 401(k) plan, and policies
promulgated thereunder, and all applicable Laws.
(b) Following the Closing, Seller shall transfer to Buyer all of
Seller's records relating to the employment of each of Seller's employees who
executes a disclosure authorization in substantially the form set forth on
Exhibit 4.4(b) hereto (hereinafter, an "Authorization"). Such transfer of
records relating to any employee of Seller shall be made as soon as possible
following Seller's receipt of such employee's Authorization.
SECTION 4.5 ACCESS. After the Closing and from time to time, each
party hereto shall permit the other parties and their Representatives to have
access during regular business hours and upon reasonable notice, to inspect
and copy agreements, records, books and other documents that are included in
or relate to the Assets or the Business and identified with reasonable
particularity, wherever located, for the purposes of (i) preparing Tax
Returns and financial statements and responding to Tax audits, and (ii)
prosecuting or defending any Claim, which arises out of or relates to the
Business or the Assets. Each party shall cooperate fully with the other party
in connection with the foregoing. If, after the Closing, any party determines
to destroy any agreements, records, books or documents referred to above, it
will give to the other party at least two months' prior written notice
thereof, and such other party shall have the right during such two-month
period upon reasonable notice and during regular business hours to take
possession of any such agreements, records, books or documents.
SECTION 4.6 CHANGE OF NAME. At the Closing, Seller shall prepare
and file with its jurisdiction of incorporation, an amendment to its
Certificate of Incorporation which shall change the name of such company to a
dissimilar name.
SECTION 4.7 YEAR 2000 COMPLIANCE.
-27-
<PAGE>
Through negotiation the parties have reduced the Purchase Price to reflect the
fact that Seller's Computer Related Systems are not Year 2000 Compliant. Seller
shall have no further obligation to Buyer on account of Seller's and/or any
other party's failure to have Computer Related Systems (including without
limitation those contained among the Assets) which are Year 2000 Compliant,
provided that this Section 4.7 shall not limit any liability that Seller may
have on account of any misrepresentation set forth in Section 2.23.
SECTION 4.8 PRODUCT LIABILITY INSURANCE. Buyer shall obtain and
maintain in effect a tail insurance policy insuring against product liability
on account of goods sold by Seller prior to the Closing Date, in the amount
of $5,000,000, which policy (the "Tail") shall (i) be effective on the
Closing Date; (ii) remain in effect for a period of five years after the
Closing Date; and (iii) show Seller as named insured. Seller shall share the
expense of the Tail in an amount not to exceed $15,000 and Buyer shall bear
the balance of such costs and expense.
SECTION 4.9 OBTAINING CONSENTS TO ASSIGNMENTS. Seller shall use
its best efforts to obtain all Seller Required Consents as shall be necessary
to convey and assign to and vest in Buyer all of its right, title and
interest in and to the Assets, including, without limitation, any Claim,
right or benefit arising thereunder or resulting therefrom, as soon as
practicable. To the extent that rights under any Contract, Permit or other
Asset to be assigned to Buyer hereunder may not be assigned without the
consent of another person, and such consent has not been obtained on the
Closing Date, neither this Agreement nor any document executed by the parties
hereto in connection with the Contemplated Transactions shall constitute an
agreement to assign the same if any attempted assignment would constitute a
breach thereof or would be unlawful, and Seller shall use its best efforts to
obtain any such Seller Required Consents as promptly as possible after the
Closing Date to the extent requested in writing by Buyer. If such Seller
Required Consents shall not be obtained or if any attempted assignment would
be ineffective or would impair Buyer's rights under the instrument in
question so that Buyer would not in effect acquire the benefit of all such
rights, Seller, to the maximum extent permitted by Law and the instrument,
shall act as Buyer's agent in order to obtain for it the benefits thereunder
and shall cooperate, to the maximum extent permitted by Law and the
instrument, with Buyer in any other reasonable arrangement designed to
provide such benefits to Buyer at no additional cost to Seller for a period
not to exceed twelve (12) months after the Closing Date, and Buyer shall
discharge Seller's obligations thereunder. With respect to any supply
Contract or arrangement pursuant to which Seller currently obtains parts,
supplies or other materials for use in the Business that, in spite of
Seller's best efforts, is not assigned to Buyer on the Closing Date, Seller
shall allow Buyer to purchase such parts, supplies or other materials subject
to such Contract or arrangement (a) from Seller at Seller's cost; or
(b) through Seller, for the Business, until twelve (12) months after
the Closing; and Seller will resell to Buyer and Buyer will buy from Seller all
such materials and supplies at the price paid for same by Seller.
-28-
<PAGE>
ARTICLE V
CLOSING DELIVERIES
SECTION 5.1 CLOSING. The Closing is occurring concurrently with
the execution of this Agreement.
SECTION 5.2 BUYER DELIVERIES. As part of the Closing, Buyer is
delivering the following items:
(a) Purchase Price. Buyer is delivering to Seller the Cash
Portion by wire transfer of immediately available funds and the Buyer Note.
(b) Buyer Required Consents. All Buyer Required Consents have
been obtained and copies thereof are being delivered to Seller.
(c) Documentation. Buyer is delivering to Seller the following:
(i) A certificate, dated the Closing Date, of the
Secretary or Assistant Secretary of Buyer certifying, among other things,
that attached or appended to such certificate (A) is a true and correct copy
of its Certificate of Incorporation and all amendments thereto, if any, as of
the date thereof; (B) is a true and correct copy of its by-laws as of the
date thereof; (C) is a true copy of all resolutions of its board of directors
authorizing the execution, delivery and performance of this Agreement, and
each other Transaction Document to be delivered by Buyer pursuant hereto; and
(D) are the names and signatures of its duly elected or appointed officers
who are authorized to execute and deliver the Transaction Documents and any
certificate, document or other instrument in connection herewith.
(ii) A certificate, dated the Closing Date, of the
Secretary or Assistant Secretary of Parent certifying, among other things,
that attached or appended to such certificate (A) is a true and correct copy
of its Certificate of Incorporation and all amendments thereto, if any, as of
the date thereof; (B) is a true and correct copy of its by-laws as of the
date thereof; (C) is a true copy of all resolutions of its board of directors
authorizing the execution, delivery and performance of this Agreement, and
each other Transaction Document to be delivered by Parent pursuant hereto;
and (D) are the names and signatures of its duly elected or appointed
officers who are authorized to execute and deliver the Transaction Documents
and any certificate, document or other instrument in connection herewith.
(iii) Evidence of the good standing and corporate
existence of Buyer and Parent issued by the Secretary of State of the State
of Delaware.
(iv) A signed opinion of Buyer's and Parent's counsel,
Baer Marks & Upham LLP, dated the Closing Date and addressed to Seller and
Shareholders, substantially in the form annexed as Exhibit 5.2A hereto.
-29-
<PAGE>
(v) A lease with the Shareholders with respect to the
real property currently used in the Business substantially in the form of
Exhibit 5.2B (the "Lease").
(vi) An executed copy of an assumption agreement
substantially in the form annexed as Exhibit 5.2C (the "Assumption
Agreement").
(vii) Buyer shall have delivered to Andrea D. Skwarek and
Mark L. Skwarek, Debbie Pereira and James Christianson executed copies of
employment agreements, substantially in the form annexed hereto as Exhibits
5.2D and 5.2E (the "Employment Agreements"). The Employment Agreements shall
include a mutually satisfactory covenant not to compete.
(viii) An escrow agreement substantially in form annexed
hereto as Exhibit 5.2F (the "Escrow Agreement"), executed by Buyer and the
escrow agent thereunder.
SECTION 5.3 SELLER DELIVERIES. As part of the Closing, Seller is
delivering the following items:
(a) Seller Required Consents. All Seller Required Consents
have been obtained, except as set forth on Schedule 5.3, and copies thereof
are being delivered to Buyer.
(b) Depositaries. Such authorized persons as have been
designated by Buyer, with respect to all Depositaries set forth on Schedule
2.25, shall be added or removed by Seller as authorized signatories or new
Depositaries will be opened by Seller as directed by Buyer.
(c) Documentation. There shall have been delivered to Buyer
the following:
(i) A certificate, dated the Closing Date, of the
Secretary or Assistant Secretary of Seller certifying, among other things,
that attached or appended to such certificate (A) is a true and correct copy
of its Certificate of Incorporation and all amendments thereto, if any, as of
the date thereof certified by the Secretary of State of its state of
incorporation; (B) is a true and correct copy of its by-laws as of the date
thereof; (C) is a true and correct copy of all corporate actions taken by it,
including resolutions of its board of directors and shareholders authorizing
the execution, delivery and performance of this Agreement, and each other
Transaction Document to be delivered by Seller pursuant hereto; and (D) are
the names and signatures of its duly elected or appointed officers who are
authorized to execute and deliver such Transaction Documents and any
certificate, document or other instrument in connection herewith.
(ii) Evidence of the good standing and corporate
existence of Seller issued by the Secretary of State of its state of
incorporation and evidence that Seller is qualified to transact business as a
foreign corporation and is in good standing in each state of the United
States and in each other jurisdiction where the character of the property
owned or leased by it or the nature of its activities makes such
qualification necessary.
-30-
<PAGE>
(iii) A signed opinion of Seller's counsel, Reid and
Riege, P.C., dated the Closing Date, addressed to Buyer, substantially in the
form annexed as Exhibit 5.3A hereto.
(iv) The Lease, executed by the Shareholders, as Landlord.
(v) Possession and control of the Assets.
(vi) An executed copy of a Bill of Sale and Assignment
substantially in a form annexed hereto as Exhibit 5.3B.
(vii) An executed copy of the Assumption Agreement.
(viii) Executed copies of the Employment Agreements.
(ix) A copy of the Guarantee executed by each of the
Shareholders.
(x) The Escrow Agreement executed by Seller.
(xi) An executed copy of an Assignment of Trademarks
substantially in the form annexed hereto as Exhibit 5.3C.
ARTICLE VI
INDEMNIFICATION
SECTION 6.1 SURVIVAL OF REPRESENTATIONS AND WARRANTIES.
(a) Notwithstanding any right of Buyer fully to investigate the
affairs of Seller and notwithstanding any knowledge of facts determined or
determinable by Buyer pursuant to such investigation or right of
investigation, Buyer has the right to rely fully upon the representations,
warranties, covenants and agreements of Seller contained in this Agreement,
or listed or disclosed on any Schedule hereto or in any instrument delivered
in connection with or pursuant to any of the foregoing. All of Seller's
representations, warranties, covenants and agreements in this Agreement shall
survive the execution and delivery of this Agreement and the Closing
hereunder. Notwithstanding the foregoing, all representations and warranties
of Seller contained in this Agreement, on any Schedule hereto or in any
instrument delivered in connection with or pursuant to this Agreement (other
than the representations and warranties as to title in Section 2.9 and the
representations and warranties in Sections 2.13, 2.14, 2.15 and 2.19, which
shall terminate and expire upon expiration of the applicable statute of
limitations) shall terminate and expire twenty-four months after the Closing
Date; provided, however, that the liability of Seller shall not terminate as
to any specific claim or claims of the type referred to in Section 6.2
hereof, whether or not fixed as to Liability or liquidated as to amount, with
respect to which Seller has been given specific notice by Buyer on or prior
to the date on which such Liabilities would otherwise terminate pursuant to
the terms of this Section 6.1(a) or which arise or result
-31-
<PAGE>
from or are related to a Claim for fraud and provided, further, that the
termination of any representation and warranty shall not affect the ability
of Buyer to seek indemnification under Sections 6.2(a)(iii) below.
(b) Notwithstanding any right of Seller fully to investigate
the affairs of Buyer and Parent and notwithstanding any knowledge of facts
determined or determinable by Seller pursuant to such investigation or right
of investigation, Seller has the right to rely fully upon the
representations, warranties, covenants and agreements of Buyer and Parent
contained in this Agreement, or listed or disclosed on any Schedule hereto or
in any instrument delivered in connection with or pursuant to any of the
foregoing. All representations and warranties of Buyer and Parent shall
terminate and expire twenty-four months after the Closing Date, provided that
Buyer's and Parent's representations and warranties in Section 3.5 shall
terminate and expire upon the expiration of the applicable statute of
limitations, and provided, further, that the liability of Buyer shall not
terminate as to any specific claim or claims of the type referred to in
Section 6.3 hereof, whether or not fixed as to Liability or liquidated as to
amount, with respect to which Buyer has been given specific notice on or
prior to the date on which such Liability would otherwise terminate pursuant
to the terms of this Section 6.1(b) or which arise or result from or are
related to a Claim for fraud, and provided further that the termination of
any representation or warranty shall not affect the ability of Seller to seek
indemnification under Sections 6.3(ii) or (iii) below.
SECTION 6.2 OBLIGATION OF SELLER TO INDEMNIFY. Seller agrees to
indemnify, defend and hold harmless Buyer (and its directors, officers,
employees, Affiliates, successors and assigns) from and against all Claims,
Liabilities, Regulatory Actions, damages (other than incidental or
consequential damages), deficiencies, judgments, settlements, costs of
investigation or other expenses (including Taxes, interest, penalties and
reasonable attorneys' fees and reasonable fees of other experts and
disbursements and expenses incurred in enforcing this indemnification)
(collectively, the "Losses") suffered or incurred by Buyer or any of the
foregoing persons in any action or proceeding between Buyer (or any other
indemnified person) or Seller, or between Buyer (or any other indemnified
person) and any third party or otherwise, arising out of (i) any breach of
the representations and warranties of Seller contained in this Agreement or
in the Schedules or any other Transaction Document, (ii) any breach of the
covenants and agreements of Seller contained in this Agreement or in the
Schedules or any other Transaction Document or (iii) any Retained Liabilities.
SECTION 6.3 OBLIGATION OF BUYER AND PARENT TO INDEMNIFY. Buyer and
Parent, jointly and severally, agree to indemnify, defend and hold harmless
Seller (and any director, officer, employee, Affiliate or successors and
assigns of Seller) from and against any Losses suffered or incurred by Seller
or any of the foregoing persons arising out of (i) any breach of the
representations and warranties of Buyer or Parent or of the covenants and
agreements of Buyer or Parent contained in this Agreement or in the Schedules
or any other Transaction Document, (ii) the Assumed Liabilities or (iii) the
operations of the Business following the Closing.
-32-
<PAGE>
SECTION 6.4 NOTICE AND OPPORTUNITY TO DEFEND THIRD PARTY CLAIMS.
(a) Promptly after receipt by any party hereto (the "Indemnitee")
of notice of any demand, claim or circumstance or Tax Audit which would or might
give rise to a claim by, or the commencement (or threatened commencement) of any
action, proceeding or investigation that may result in a Loss (an "Asserted
Liability"), the Indemnitee shall give prompt notice thereof (the "Claims
Notice") to the party or parties obligated to provide indemnification pursuant
to Sections 6.2 or 6.3 (collectively, the "Indemnifying Party"). The Claims
Notice shall describe the Asserted Liability in reasonable detail and shall
indicate the amount (estimated, if necessary, and to the extent feasible) of the
Loss that has been or may be suffered by the Indemnitee.
(b) The Indemnifying Party may elect to defend, at its own
expense and with its own counsel, any Asserted Liability unless (i) the
Asserted Liability seeks an Order, injunction or other equitable or
declaratory relief against the Indemnitee or (ii) the Indemnitee shall have
reasonably concluded that (x) there is a conflict of interest between the
Indemnitee and the Indemnifying Party in the conduct of such defense or (y)
the Indemnitee shall have one or more defenses not available to the
Indemnifying Party. If the Indemnifying Party elects to defend such Asserted
Liability (which election may include a reservation of rights), it shall
within ten days (or sooner, if the nature of the Asserted Liability so
requires) notify the Indemnitee of its intent to do so, and the Indemnitee
shall cooperate, at the expense of the Indemnifying Party, in the defense of
such Asserted Liability. If the Indemnifying Party elects not to defend the
Asserted Liability, is not permitted to defend the Asserted Liability by
reason of the first sentence of this Section 6.4(b), fails to notify the
Indemnitee of its election as herein provided or contests its obligation to
indemnify under this Agreement with respect to such Asserted Liability, the
Indemnitee may pay, compromise or defend such Asserted Liability at the sole
cost and expense of the Indemnifying Party. Notwithstanding the foregoing,
neither the Indemnifying Party nor the Indemnitee may settle or compromise
any claim over the reasonable written objection of the other; provided that
the Indemnitee may settle or compromise any claim as to which the
Indemnifying Party has failed to notify the Indemnitee of its election under
this Section 6.4(b) or as to which the Indemnifying Party is contesting its
indemnification obligations hereunder. In any event, the Indemnitee and the
Indemnifying Party may participate, at their own expense, in the defense of
any Asserted Liability. If the Indemnifying Party chooses to defend any
Asserted Liability, the Indemnitee shall make available to the Indemnifying
Party any books, records or other documents within its control that are
necessary or appropriate for such defense. Any Losses of any Indemnitee for
which an Indemnifying Party is liable for indemnification hereunder shall be
paid upon written demand therefor.
SECTION 6.5 LIMITS ON INDEMNIFICATION.
(a) No Indemnifying Party shall be responsible to indemnify any
Indemnitee under this Agreement unless the Indemnitee shall have provided the
Indemnifying Party with the appropriate notice of the indemnification Claim
within the appropriate period of survival specified in Section 6.1 above.
-33-
<PAGE>
(b) Anything in this Agreement to the contrary notwithstanding,
the amount of Losses for which Seller shall be liable to indemnify any
Indemnitee shall be net of any realized income tax benefit to the Indemnitee
resulting from such Losses.
(c) Anything in this Agreement to the contrary notwithstanding,
any Losses owing from an Indemnifying Party to an Indemnitee under this
Agreement shall be reduced to the extent to which the Indemnitee actually
receives any proceeds of any insurance policy that are paid with respect to the
matter or occurrence that gave rise to the indemnification Claim. Each party
covenants and agrees that all insurance policies maintained by it shall contain
waiver of subrogation provisions with respect to the other party to this
Agreement. Without limiting the foregoing, no Indemnitee shall be entitled to
indemnification from Seller with respect to Losses attributable to a matter that
would be covered by the Tail if a Claim were properly made under the Tail to the
insurer providing the Tail, unless all Claims which may be made under the Tail
have first been properly made.
(d) Seller shall have no obligation to indemnify Indemnitee: (i)
unless and until the aggregate amount of Losses for which all Indemnitees are
seeking indemnification from Seller exceeds $50,000, in which event Indemnity
shall be entitled to be indemnified for all such Losses, or (ii) to the extent
that the aggregate amount of all Losses for which all Indemnitees are seeking or
have received indemnification from Seller exceeds the amount of the Purchase
Price actually paid to Seller under this Agreement, including, without
limitation, payments of the principal amount of the Buyer Note.
(e) Notwithstanding any other provision of this Agreement, and in
addition to any other rights and remedies available to Buyer, Seller and the
Shareholders, jointly and severally, acknowledge and agree that Buyer shall have
the right of set-off and reduction ("Set-Off") against the Buyer Note and
against any other amounts owed to either Seller or each Shareholder by Buyer or
any of its Affiliates in respect of all Losses with respect to which Buyer is
entitled to indemnification under this Article VI. If Buyer elects to exercise
its right of Set-Off pursuant to the provisions of the immediately preceding
sentence, Buyer shall give written notice thereof to Seller and Escrow Agent (as
such term is defined in the Escrow Agreement) specifying the nature and amount
of such Claim, the obligation(s) owing to Seller and/or the Shareholders against
which the Set-Off is being exercised and that Buyer has exercised its right of
Set-Off and, concurrently with the giving of such notice, Buyer shall deposit
with the Escrow Agent a sum equal to the amount of the Set-Off.
SECTION 6.6 EXCLUSIVE REMEDY. Except for any Claims for fraud (for
which the indemnification provisions of this Article VI shall not constitute
the sole and exclusive remedy of any party hereto in respect of this
Agreement and the Contemplated Transactions, each party hereto being entitled
to seek any other remedy to which such party is entitled, whether at law or
in equity), the parties agree that the indemnification provisions of this
Article VI shall constitute the sole and exclusive remedy of any party hereto
in respect of this Agreement and the Contemplated Transactions.
-34-
<PAGE>
ARTICLE VII
INTENTIONALLY OMITTED
ARTICLE VIII
MISCELLANEOUS
SECTION 8.1 NOTICES.
(a) Any notice or other communication required or permitted
hereunder shall be in writing and shall be delivered personally by hand or by
recognized overnight courier, telecopied or mailed (by registered or certified
mail, postage prepaid return receipt requested) as follows:
(i) If to Buyer or Parent, one copy to:
Go Fly A Kite Acquisition Corp.
125 East Bethpage Road
Plainview, New York 11803
Telecopier: (516) 391-9161
Attn: Sanford B. Frank, Esq.
with a copy to:
Baer Marks & Upham LLP
805 Third Avenue
New York, New York 10022
Telecopier: (212) 702-5810
Attn: Joel M. Handel, Esq.
(ii) If to Seller or either Shareholder, one copy to:
Go Fly A Kite, Inc.
c/o Andrea D. Skwarek and Mark L. Skwarek
94 Mt. Parnassus Road
East Haddam, Connecticut 06423
-35-
<PAGE>
with a copy to:
Reid and Riege, P.C.
One State Street
Hartford, Connecticut 06103
Telecopier: (860) 240-1002
Attn: Andrew Howat, Esq.
(b) Each such notice or other communication shall be effective (i)
if given by telecopier, when such telecopy is transmitted to the telecopier
number specified in Section 8.1(a) (with confirmation of transmission and with a
follow-up copy sent by registered or certified mail, return receipt requested)
or (ii) if given by any other means, when delivered at the address specified in
Section 8.1(a). Any party by notice given in accordance with this Section 8.1 to
the other party may designate another address (or telecopier number) or person
for receipt of notices hereunder. Notices by a party may be given by counsel to
such party.
SECTION 8.2 ENTIRE AGREEMENT. This Agreement (including the
Schedules and Exhibits hereto) and the Transaction Documents contain the
entire agreement among the parties with respect to the subject matter hereof
and related transactions and supersede all prior agreements, written or oral,
with respect thereto.
SECTION 8.3 WAIVERS AND AMENDMENTS. This Agreement may be amended,
superseded, cancelled, renewed or extended only by a written instrument
signed by Seller and Buyer. The provisions hereof may be waived in writing by
Seller or Buyer, as the case may be. Any such waiver shall be effective only
to the extent specifically set forth in such writing. No failure or delay on
the part of any party in exercising any right, power or privilege hereunder
shall operate as a waiver thereof. Nor shall any waiver on the part of any
party of any such right, power or privilege, nor any single or partial
exercise of any such right, power or privilege, preclude any other or further
exercise thereof or the exercise of any other such right, power or privilege.
SECTION 8.4 GOVERNING LAW. This Agreement shall be governed and
construed in accordance with the laws of the State of New York applicable to
agreements made and to be performed entirely within such State, without
regard to the conflict of laws rules thereof.
SECTION 8.5 CONSENT TO JURISDICTION. Each of the parties hereto
irrevocably and voluntarily submits to personal jurisdiction in the State of
Connecticut and in the Federal and state courts in such state located in the
District of Connecticut in any action or proceeding arising out of or
relating to this Agreement or the Transaction Documents and agrees that all
claims in respect of such action or proceeding may be heard and determined in
any such court. Each of the parties further consents and agrees that such
party may be served with process in the same manner as a notice may be given
under Section 8.1. The parties hereto agree that any action or
-36-
<PAGE>
proceeding instituted by any of them against any other party with respect to
this Agreement will be instituted exclusively in the state courts located in,
and in the United States District Court for, the District of Connecticut.
Seller and Buyer irrevocably and unconditionally waive and agree not to
plead, to the fullest extent permitted by law, any objection that they may
now or hereafter have to the laying of venue or the convenience of the forum
of any action or proceeding with respect to this Agreement in any such courts.
SECTION 8.6 BINDING EFFECT; NO ASSIGNMENT. This Agreement and all
of its provisions, rights and obligations shall be binding upon and shall
inure to the benefit of the parties hereto and their respective successors,
heirs and legal representatives. This Agreement may not be assigned
(including by operation of Law) by a party hereto without the express written
consent of Buyer (in the case of assignment by Seller) or Seller (in the case
of assignment by Buyer) and any purported assignment, unless so consented to,
shall be void and without effect.
SECTION 8.7 EXHIBITS. All Exhibits and Schedules attached hereto
are hereby incorporated by reference into, and made a part of, this Agreement.
SECTION 8.8 SEVERABILITY. If any provision of this Agreement for
any reason shall be held to be illegal, invalid or unenforceable, such
illegality shall not affect any other provision of this Agreement, this
Agreement shall be amended so as to enforce the illegal, invalid or
unenforceable provision to the maximum extent permitted by applicable law,
and the parties shall cooperate in good faith to further modify this
Agreement so as to preserve to the maximum extent possible the intended
benefits to be received by the parties.
SECTION 8.9 COUNTERPARTS. The Agreement may be executed in any
number of counterparts, each of which shall be deemed to be an original as
against any party whose signature appears thereon, and all of which shall
together constitute one and the same instrument. This Agreement shall become
binding when one or more counterparts hereof, individually or taken together,
shall bear the signatures of all of the parties reflected hereon as the
signatories.
SECTION 8.10 THIRD PARTIES. Except as specifically set forth or
referred to herein, nothing herein express or implied is intended or shall be
construed to confer upon or give to any person other than the parties hereto
and their permitted successors or assigns, any rights or remedies under or by
reason of this Agreement or the Contemplated Transactions.
SECTION 8.11 FURTHER ASSURANCES. At any time and from time to time
after the Closing Date, Buyer and Seller will do, execute, acknowledge and
deliver, or cause to be done, executed, acknowledged or delivered, all such
further acts, deeds, assignments, transfers, conveyances, powers of attorney
or assurances as may be necessary, desirable or proper to carry out the
intent and accomplish the purposes of this Agreement. Seller and Buyer will
each, respectively, bear their own costs and expenses incurred in compliance
with its obligations under this Section 8.11.
-37-
<PAGE>
ARTICLE IX
DEFINITIONS
SECTION 9.1 DEFINITIONS. The following terms, as used herein, have
the following meanings:
"Acquisition Proposal" shall mean any proposal involving, directly or
indirectly, (i) the acquisition of, or merger or other business combination
involving Seller, (ii) the sale or other transfer of any capital stock of
Seller, (iii) the sale, lease, transfer or management of the Business, (iv) the
sale or other transfer of any Assets (except in the ordinary course) and (v) any
other transaction inconsistent with the Contemplated Transactions or which would
render any of them impossible or impracticable to consummate.
"Affiliate" of any person shall mean any other person directly or
indirectly through one or more intermediary persons, controlling, controlled by
or under common control with such person.
"Agreement" or "this Agreement" shall mean, and the words "herein,"
"hereof" and "hereunder" and words of similar import shall refer to, this
agreement as it from time to time may be amended.
The term "audit" or "audited" when used in regard to financial
statements shall mean an examination of the financial statements by a firm of
independent certified public accountants in accordance with generally accepted
auditing standards for the purpose of expressing an opinion thereon.
"Business" shall mean the ownership and operation of the Assets
comprising the business operations of Seller.
"Certificate of Incorporation" shall mean, in the case of any
corporation, the certificate of incorporation, articles of incorporation or
charter of a corporation, howsoever denominated under the laws of the
jurisdiction of its incorporation.
"Code" shall mean the Internal Revenue Code of 1986, as amended.
"Contract" shall mean any contract, agreement, indenture, note, bond,
lease, conditional sale contract, mortgage, license, franchise, instrument,
commitment or other binding arrangement, whether written or oral, and all
modifications and amendments thereto and substitutions thereof.
The term "control," with respect to any person, shall mean the power
to direct the management and policies of such person, directly or indirectly, by
or through stock ownership,
-38-
<PAGE>
agency or otherwise, or pursuant to or in connection with an agreement,
arrangement or understanding (written or oral) with one or more other persons
by or through stock ownership, agency or otherwise; and the terms
"controlling" and "controlled" shall have meanings correlative to the
foregoing.
"Debt" shall mean (i) money borrowed by Seller from any person; (ii)
any indebtedness of Seller arising under leases required to be capitalized under
GAAP or evidenced by a note, bond, debenture or similar instrument; (iii) any
indebtedness of Seller arising under purchase money obligations or representing
the deferred purchase price of property and services (other than current trade
payables incurred in the ordinary course of the Business), (iv) any Liability of
any person secured by a Lien on any of the Assets and (v) any Liability of
Seller under any guaranty, letter of credit (or reimbursement obligations with
respect thereto), performance credit or other agreement having the effect of
assuring a creditor against loss.
"EBITDA" shall mean earnings before interest, taxes, depreciation and
amortization, calculated in accordance with GAAP, but subject to the overriding
instructions set forth in Section 1.4 above. In determining EBITDA,
extraordinary items of income and expense not incurred in the ordinary course of
the Business shall be omitted.
"Environmental Laws" shall mean any and all Laws (including common
law), Orders, Permits, agreements or any other requirement or restriction
promulgated, imposed, enacted or issued by any federal, state, local and foreign
Governmental Bodies relating to human health or the environment, including the
emission, discharge or Release of pollutants, contaminants, or wastes into the
environment (which includes, without limitation, ambient air, surface water,
ground water, or land), or otherwise relating to the manufacture, processing,
distribution, use, treatment, storage, disposal, transport or handling of
pollutants, contaminants, or wastes or the clean-up or other remediation
thereof.
"ERISA" shall mean the Employee Retirement Income Security Act of
1974, as amended.
"GAAP" shall mean accounting methods historically used by Seller in
accordance with generally accepted accounting principles in effect on the date
hereof as set forth in the opinions and pronouncements of the Accounting
Principles Board of the American Institute of Certified Public Accountants and
statements and pronouncements of the Financial Accounting Standards Board.
"Hazardous Materials" shall mean any waste or other substance that is
listed, defined, designated, or classified as hazardous, radioactive or toxic,
or as a pollutant or a contaminant under or pursuant to any Environmental Law,
including, without limitation, petroleum and all derivatives thereof or
synthetic substitutes therefor and asbestos or asbestos-containing materials.
"Hazardous Substances" shall mean any and all dangerous, toxic,
radioactive, caustic or otherwise hazardous material, pollutant, contaminant,
chemical, waste or substance defined,
-39-
<PAGE>
listed or described as any of such in or governed by any Environmental Law,
including but not limited to urea-formaldehyde, polychlorinated biphenyls,
asbestos or asbestos-containing materials, radon, explosives, known
carcinogens, petroleum and its derivatives, petroleum products, lead-based
paint, flammable materials, radioactive materials, controlled or toxic
substances, any pollutant or contaminant, or any substance which might cause
any injury to human health or safety or to the environment or might subject
the owner or operator of the Real Property to any Regulatory Actions or
Claims.
"Inventory" shall mean, as of any date, collectively, all inventories
of merchandise, and other products owned by Seller and held for resale or for
distribution, together with packaging and samples thereof, operating supplies
and spare or maintenance parts owned by Seller as of such date.
"IRS" shall mean the Internal Revenue Service.
"knowledge" with respect to (a) any individual shall mean actual
knowledge and (b) any corporation shall mean the actual knowledge of the
directors and the executive officers of such corporation and its ultimate parent
corporation, except that the "knowledge" of Seller shall mean the actual
knowledge of Andrea D. Skwarek, Mark L. Skwarek, Debbie Pereira or James
Christianson of Seller; and "knows" has a correlative meaning.
"Liability" shall mean any direct or indirect indebtedness, liability,
assessment, claim, loss, damage (other than any incidental or consequential
damage), deficiency, obligation or responsibility, fixed or unfixed, choate or
inchoate, liquidated or unliquidated, secured or unsecured, accrued, absolute,
actual or potential, contingent or otherwise (including any liability under any
guaranties, letters of credit, performance credits or with respect to insurance
loss accruals).
"Lien" shall mean any mortgage, lien (including mechanics,
warehousemen, laborers and landlords liens), claim, pledge, charge, security
interest, preemptive right, right of first refusal, option, judgment, title
defect, covenant, restriction, easement or encumbrance of any kind.
"Net Assets" shall mean the value of the Assets of Seller, less the
value of the Assumed Liabilities as determined in accordance with GAAP.
The term "person" shall mean an individual, corporation, partnership,
joint venture, limited liability company, association, trust, unincorporated
organization or other entity, including a government or political subdivision or
an agency or instrumentality thereof.
"Receivables" shall mean as of any date any trade accounts receivable,
notes receivable, sales representative advances and other miscellaneous
receivables of Seller.
"Regulatory Actions" shall mean any Claim, demand, action, suit,
summons, citation, directive, investigation, litigation, inquiry, enforcement
action, Lien, encumbrance, restriction,
-40-
<PAGE>
settlement, remediation, response, clean-up or closure arrangement or other
remedial obligation or proceeding brought or instigated by any Governmental
Body in connection with any Environmental Law, including, without limitation,
the listing of the Real Property on any list of contaminated or potentially
contaminated sites or potential or verified Hazardous Material sites under
any Environmental Law, or any civil, criminal and/or administrative
proceedings, whether or not seeking costs, damages, penalties or expenses.
"Release" shall mean the intentional or unintentional, spilling,
leaking, pumping, pouring, disposing, discharging or disturbance of, or
emitting, depositing, injecting, leaching, dumping, escaping, or any other
release or threatened release to or from the Real Property, however defined, of
any Hazardous Substance in violation of any Environmental Law.
"Subsidiary" shall mean any person of which securities or other
ownership interests having ordinary voting power to elect a majority of the
board of directors or other persons performing similar functions are owned
directly or indirectly through one or more intermediaries, or both, by any other
person.
"Tax" (including, with correlative meaning, the terms "Taxes" and
"Taxable") shall mean (i) (A) any net income, gross income, gross receipts,
sales, use, ad valorem, transfer, transfer gains, franchise, profits, license,
withholding, payroll, employment, excise, severance, stamp, rent, recording,
occupation, premium, real or personal property, intangibles, environmental or
windfall profits tax, alternative or add-on minimum tax, customs, duty or other
tax, fee, duty, levy, impost, assessment or charge of any kind whatsoever
(including but not limited to taxes assessed to real property and water and
sewer rents relating thereto), together with (B) any interest and any penalty,
addition to tax or additional amount imposed by any Governmental Body (domestic
or foreign) (a "Tax Authority") responsible for the imposition of any such tax
and interest on such penalties, additions to tax, fines or additional amounts,
in each case, with respect to Seller, the Business or the Assets (or the
transfer thereof); (ii) any liability for the payment of any amount of the type
described in the immediately preceding clause (i) as a result of Seller being a
member of an affiliated or combined group with any other person at any time on
or prior to the Closing Date; and (iii) any liability of Seller for the payment
of any amounts of the type described in the preceding clause (i) as a result of
a contractual obligation to indemnify any other person.
"Tax Return" shall mean any return or report (including elections,
declarations, disclosures, schedules, estimates and information returns)
required to be supplied to any Tax Authority.
"Transaction Documents" shall mean, collectively, this Agreement, and
each of the other agreements and instruments to be executed and delivered by all
or some of the parties hereto in connection with the consummation of the
transactions contemplated hereby.
SECTION 9.2 INTERPRETATION. Unless the context otherwise requires,
the terms defined in Section 9.1 shall be applicable to both the singular and
plural forms of any of the terms defined
-41-
<PAGE>
herein. All accounting terms defined in Section 9.1, and those accounting
terms used in this Agreement not defined in Section 9.1 except as otherwise
expressly provided herein, shall have the meanings customarily given thereto
in accordance with GAAP. When a reference is made in this Agreement to
Sections, such reference shall be to a Section of this Agreement unless
otherwise indicated. The headings contained in this Agreement are for
reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement. The use of the neuter gender herein shall
be deemed to include the masculine and feminine genders wherever necessary or
appropriate, the use of the masculine gender shall be deemed to include the
neuter and feminine genders and the use of the feminine gender shall be
deemed to include the neuter and masculine genders wherever necessary or
appropriate. Whenever the words "include", "includes" or "including" are used
in this Agreement, they shall be deemed to be followed by the words "without
limitation."
-42-
<PAGE>
IN WITNESS WHEREOF, the undersigned have executed this Asset Purchase
Agreement as of the date set forth above.
GO FLY A KITE ACQUISITION CORP.
By: /s/ Steven A. Lebensfeld
-------------------------------------
Steven A. Lebensfeld, President
GO FLY A KITE, INC.
By: /s/ Andrea D. Skwarek
-------------------------------------
Andrea D. Skwarek
President
With respect to Sections 1.3(b),
1.4, 1.5 and 1.6:
/s/ Andrea D. Skwarek
- --------------------------------
Andrea D. Skwarek
/s/ Mark L. Skwarek
- --------------------------------
Mark L. Skwarek
Toymax International, Inc. hereby approves Sections 1.3 and 1.4 and hereby
unconditionally guarantees the payment and performance by Buyer of all of
Buyer's obligations under the foregoing Asset Purchase Agreement.
TOYMAX INTERNATIONAL, INC.
By: /s/ Steven A. Lebensfeld
-------------------------------------
Steven A. Lebensfeld, President
-43-
