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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) May 27, 1999
TOYMAX INTERNATIONAL, INC.
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(Exact name of Registrant as specified in its charter)
DELAWARE
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(State or other jurisdiction of incorporation)
0-23215 11-3391335
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(Commission File Number) (I.R.S. Employer Identification No.)
125 E. BETHPAGE ROAD, PLAINVIEW, NEW YORK 11803
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (516) 391-9898
NOT APPLICABLE
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(Former name or former address, if changed since last report.)
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ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS.
On May 27, 1999, Monogram International, Inc. f/k/a Monogram Acquisition,
Inc. (the "Company"), a wholly-owned subsidiary of Toymax International, Inc.
("Toymax"), and other subsidiaries of Toymax (Gallion Development Limited
("Gallion"), a wholly-owned subsidiary of Toymax, and Monogram Acquisition I,
LLC ("LLC"), a wholly-owned subsidiary of Gallion) acquired substantially all of
the assets and certain liabilities of Burkett Enterprises, Inc. f/k/a Monogram
International, Inc. ("Monogram") and Monogram Products, (H.K.) Limited
("Products," together with Monogram, the "Sellers"), a wholly-owned subsidiary
of Monogram, pursuant to an asset purchase agreement (the "Purchase Agreement"),
dated April 19, 1999.
The Sellers are leading designers, manufacturers and marketers of gift,
novelty and souvenir products sold globally. The consideration for the
acquisition was $6,000,000 paid in cash to the Sellers (the "Initial Payment")
plus up to $9,000,000 payable to the Sellers after the closing if certain
contingencies occur.
Pursuant to the terms and provisions of the Purchase Agreement, among
other things, the Buyers agreed to assume certain liabilities of Monogram. In
furtherance thereof, the Company and LLC agreed to jointly and severally assume
Monogram's short term indebtedness to SunTrust Bank Tampa Bay consisting of
two (2) promissory notes aggregating $3,839,122.32 as of the date of the
acquisition. The obligations of the Company and LLC with respect to the debts
are secured by a guaranty executed and delivered by Toymax.
A portion of the Initial Payment was an advance of funds from a
subsidiary of Toymax and the remainder of the funds required for the Initial
Payment came out of the working capital of Toymax.
In connection with the acquisition, the Company entered into employment
agreements with Charles Burkett, former President of Monogram, and several
other key executives of Monogram. In addition, substantially all of the
former employees of Monogram were hired by the Company.
Toymax incorporates by reference herein the matters announced in
Toymax's press release dated May 27, 1999 (such press release is filed as
Exhibit 99.1 hereto).
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ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS.
(a) Financial Statements of Business Acquired.
Such information will be filed by amendment to this Form 8-K within
sixty days from the date hereof.
(b) Pro-forma financial information.
Such information will be filed by amendment to this Form 8-K within
sixty days from the date hereof.
(c) Exhibits.
The following documents are being filed herewith by the Company as
exhibits to this Current Report on Form 8-K:
2.1 Asset Purchase Agreement, dated April 19, 1999, among Toymax
International, Inc., Monogram International, Inc. f/k/a
Monogram Acquisition, Inc., Gallion Development Limited,
Monogram Acquisition I, LLC, Burkett Enterprises, Inc. f/k/a
Monogram International, Inc., Monogram Products (H.K.)
Limited, and Roberta M. Burkett, Charles D. Burkett, Jr.,
Stephen R. Burkett, and Bonnie L. Beetar.
10.1 Employment Agreement, made as of May 27, 1999, between
Monogram Acquisition, Inc. and Charles Burkett.
99.1 Press release of the Company dated May 27, 1999.
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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.
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(Registrant)
Date: June 11, 1999 By: /S/
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William A. Johnson, Jr.
Chief Financial Officer and Treasurer
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Exhibit 2.1
ASSET PURCHASE AGREEMENT
ASSET PURCHASE AGREEMENT, dated as of April 19, 1999, by and among TOYMAX
INTERNATIONAL, INC., a Delaware corporation ("PARENT"), MONOGRAM ACQUISITION,
INC., a Delaware corporation and a wholly owned subsidiary of Parent (the
"COMPANY"), GALLION DEVELOPMENT LIMITED, a Hong Kong corporation and a wholly
owned subsidiary of Parent ("GALLION"), MONOGRAM ACQUISITION 1, LLC, a Delaware
limited liability company and wholly owned subsidiary of Gallion ("LLC", the
Company, Gallion, and LLC, jointly and severally, the "BUYERS"), MONOGRAM
INTERNATIONAL, INC., a Florida corporation ("MONOGRAM"), MONOGRAM PRODUCTS (HK)
LTD., a Hong Kong company and wholly owned subsidiary of Monogram ("PRODUCTS,"
Monogram and Products, jointly and severally, "SELLER") and Roberta M. Burkett,
Charles D. Burkett, Jr. ("BURKETT"), Stephen R. Burkett and Bonnie L. Beetar
(collectively, the "SHAREHOLDERS").
WHEREAS, Seller desires to sell and assign, and Buyers desire 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;
and
WHEREAS, following the purchase and assumption of assets and liabilities,
respectively, pursuant to the terms and conditions hereinafter set forth Gallion
intends to conduct that portion of the Business of the Seller conducted in the
Far East and the Company and LLC intend to conduct that portion of the Business
of the Seller conducted in the United States.
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 Buyers free
and clear of all Liens (other than Permitted Liens (as defined in Section 2.9(a)
hereof)), and Buyers shall purchase from Seller, all of the property, assets and
rights used or held for use by Seller in the Business (collectively, the
"ASSETS") including:
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(i) all of Seller's rights, title and interest in and to the
machinery, equipment, tools, supplies, molds, spare parts, vehicles, furniture
and other tangible personal property owned, used, or held for use by Seller in
the Business (the "EQUIPMENT"), on the Closing Date;
(ii) all of Seller's rights, title and interest in and to the
real property leased by Seller and used in the Business and all buildings,
improvements and fixtures constructed thereon (the "REAL PROPERTY");
(iii) all of Seller's rights, title, and interest in and to
all designs, patterns, raw materials, supplies, work-in-progress and inventories
of finished goods owned or used by Seller, whether in possession of Seller or
any supplier, manufacturer or contractor of Seller;
(iv) all claims, rights and choses in action of Seller against
third parties in respect of unliquidated rights under manufacturers' and
vendors' warranties, guarantees or similar obligations;
(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 name "Monogram" and any
derivations 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 (other than Contracts relating to Employee Benefit Plans)
and all prepaid expenses, claims and other prepayments, including security
deposits, prepaid rent, prepaid Taxes, prepaid supplies, deferred charges and
other retentions held by third parties;
(ix) all customer lists, credit policies and credit
information owned by Seller with respect to all existing customers of, and all
existing cost and pricing data for, the Business for the past five years;
(x) all of Seller's rights, title, and interest in and to all
supplier lists, product specifications, bills of materials, production routings
and all other production information owned or used by Seller for the past five
years;
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(xi) all of Seller's rights, title, and interest in and to all
existing business plans, advertising and promotional plans, product development
plans, forecasts, market research reports, competitor information, and reference
catalogs owned or used by Seller;
(xii) all accounts and notes receivable owned by Seller,
whether or not related invoices have been issued, and the proceeds thereof
received after the Closing Date;
(xiii) all cash and cash equivalents ("Cash") belonging to
Seller in hand or on deposit;
(xiv) all of Seller's rights under all Permits relating to or
necessary to the lawful conduct of the Business as of the Closing Date
(including all rights of 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;
(xv) all transferable warranties and guarantees belonging to
Seller and pertaining to the Assets;
(xvi) the following assets actually belonging to Seller: 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, equipment, materials, catalogues,
correspondence, mailing lists, art work, films, negatives, photographs, sales
materials and records; purchasing materials and records; personnel records with
respect to employees of the Business; 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; and
(xvii) all rights of Seller under its insurance policies and
the proceeds payable thereunder other than the insurance policies identified in
Section 1.1(b)(ii).
(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 of Seller's rights, title and interest in and to any
insurance policy relating to an Employee Benefit Plan, and those certain life
insurance policies (A) on the life of Charles D. Burkett, Jr., policy nos.
6460210, 6070825, and 6296108 with Massachusetts Mutual Life Insurance Company,
(B) on the life of Richard K. Holden, policy no. WMH 54056 (Fortis) and policy
no. FV 003337877 (John Hancock), (C) on the life of Thomas A. Schultz, policy
nos. WMH 54227 and WMJ
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10819 (Fortis), (D) on the life of Willis Reed, policy no. WMH 63391 (Fortis),
(E) on the life of Kirk Rohlfs, policy no. WMH 63389 (Fortis), (F) on the life
of Tim Kelley, policy no. WMH 63390 (Fortis), (G) on the life Stephen R.
Burkett, policy no. WMH 53219 (Fortis), and (H) on the life of Bonnie L. Beetar,
policy no. WMH 61595 (Fortis); and
(iii) any and all of the common stock of Products owned by
Monogram. Seller shall retain ownership of the Excluded Assets. (c) Of the
Assets purchased by the Buyers, the Assets shall be divided among Gallion, LLC
and the Company as specifically fully set forth on SCHEDULE 1.1(C) attached
hereto.
Section 1.2. ASSUMED LIABILITIES.
(a) Subject to the provisions of Section 1.2(b), Buyers shall
assume, pay, fulfill, perform or otherwise discharge (i) all Liabilities and
obligations of Seller reflected in the Latest Balance Sheet (as defined in
Section 2.6) or Seller Disclosure Schedules, (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 December 31,
1998, and the Closing Date, (iii) the Liabilities and obligations of Seller
arising and to be performed after the Closing under the Contracts which are set
forth on SCHEDULE 1.2(A), and (iv) all of Sellers' liability (not to exceed
$4,300,000) in respect of Seller's obligation to SunTrust Bank, Tampa Bay
pursuant to that certain Loan Agreement, dated June 1, 1998, between SunTrust
Bank, Tampa Bay and Seller (collectively, the "ASSUMED Liabilities").
(b) Buyers 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 them pursuant to Section 1.2(a).
Without limiting the generality of the foregoing, except as otherwise provided
in this Agreement, Buyers 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 its Affiliates which are not
provided for in Section 1.2(a);
(ii) any Liabilities of Seller or its Affiliates relating to
the ownership or operation of the Excluded Assets;
(iii) Liabilities or obligations of Seller under this
Agreement or with respect to or arising out of the transactions contemplated
hereby;
(iv) Liabilities or obligations of Seller or its Affiliates to
the Shareholders;
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(v) any Environmental Liabilities for ownership of or
operations on the Real Property before the Closing;
(vi) Liabilities and obligations under Contracts that are not
assumed by Buyers pursuant to this Agreement as set forth in SCHEDULE
1.2(B)(VI);
(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
Buyers 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
(as defined in Section 2.12 hereof), whether existing on the date hereof or
arising hereafter, arising out of ownership of the Assets or the operation of
the Business prior to the Closing, other than Liabilities and obligations with
respect to any Claims reflected on the Latest Balance Sheet or the Seller
Disclosure Schedules;
(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 (including, but not limited to, rebates, returns and
discounts);
(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 or arising out of the Contemplated Transactions; and
(xii) Employee Benefit Plans and any and all Liabilities
related thereto. All such duties, responsibilities, obligations or Liabilities
described in this Section 1.2(b) are referred to herein as "RETAINED
LIABILITIES." Seller shall take commercially reasonable action to prevent any
person from having recourse against any of the Assets or against Buyers as
transferees thereof with respect to any Retained Liabilities and shall indemnify
Buyers and hold them harmless therefrom in accordance with the terms and
provisions of Section 6.2 hereof. Parent and Buyers shall take commercially
reasonable action to prevent any person from having recourse against Seller, the
Shareholders, or any of their respective assets with respect to the Assets and
all Assumed Liabilities and shall indemnify Seller and each of the Shareholders
and hold them harmless therefrom in accordance with the terms and conditions of
Section 6.3.
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(c) Of the Assumed Liabilities assumed by the Buyers, the Assumed
Liabilities shall be divided among Gallion, LLC and the Company as specifically
set forth on SCHEDULE 1.2(C) attached hereto.
Section 1.3. PURCHASE PRICE. The purchase price for the Assets (the
"PURCHASE PRICE") shall be payable to Seller as follows:
(i) At the Closing, Buyers shall deliver to Seller, by wire
transfer of immediately available funds to a bank account designated by Seller,
an amount equal to Six Million Dollars ($6,000,000) (the "CASH PORTION") of
which One Million Five Hundred Thousand Dollars ($1,500,000) shall be paid by
the Company, Three Million Five Hundred Thousand Dollars ($3,500,000) shall be
paid by LLC and One Million Dollars ($1,000,000) shall be paid by Gallion;
(ii) In addition to the Cash Portion, Buyers shall pay to
Seller a contingent payment for each of the fiscal years ended March 31, 2000
("FY 2000"), March 31, 2001 ("FY 2001") and March 31, 2002 ("FY 2002"), up to an
aggregate amount of Three Million Dollars ($3,000,000) (the "EARN-OUT"), as more
fully set forth in Section 1.4 hereof;
(iii) In addition to the Cash Portion and the Earn Out, Buyers
shall pay to Seller a contingent payment for each of FY 2002 and the fiscal year
ended March 31, 2003 ("FY 2003"), up to an aggregate principal amount of Five
Million Dollars ($5,000,000) (the "CONTINGENT PAYMENTS") as more fully set forth
in Section 1.6 hereof. Parent shall guaranty the full and punctual payment of
all Earn-Out, Travel Gross Profit Payment and Contingent Payment amounts
(including reasonable attorney fees and expenses incurred in connection with the
payment of all Earn-Out, Travel Gross Profit Payment and Contingent Payment
amounts) pursuant to the terms of the Guaranty Agreement attached as EXHIBIT
5.2G.; and
(iv) In addition to the Cash Portion, the Earn Out and the
Contingent Payment, Buyers shall pay to Seller a payment of One Million Dollars
($1,000,000) (the "TRAVEL GROSS PROFIT PAYMENT") provided a contingency has
occurred as more fully set forth in Section 1.5 hereof.
Section 1.4. PAYMENT OF THE EARN-OUT.
(a) The Earn-Out payment for FY 2000 shall be equal to One Million
Dollars ($1,000,000) less the amount by which $3.25 million exceeds the EBITDA
for FY 2000 (the "FY 2000 DEFICIENCY"); and
(b) The Earn-Out payment for FY 2001 shall be equal to One Million
Dollars ($1,000,000):
(i) less the amount by which $3.25 million exceeds the EBITDA
for FY 2001 (the "FY 2001 Deficiency"); or
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(ii) plus the amount, if any, by which EBITDA for FY 2001
exceeds $3.25 million but in no event greater than FY 2000 Deficiency.
(c) The Earn-Out payment for FY 2002 shall be equal to One Million
Dollars ($1,000,000):
(i) less the amount by which $4,000,000 exceeds the EBITDA for
FY 2002; or
(ii) plus the amount, if any, by which the EBITDA for FY 2002
exceeds $4,000,000, but in no event greater than the total of the FY 2000
Deficiency plus the FY 2001 Deficiency.
In no event will Seller or the Shareholders be liable to Buyers or Parent
for any payment if the foregoing calculations result in a number that is not
positive.
(d) The FY 2000 Earn-Out payment, if any, shall be due and payable
by wire transfer of immediately available funds to a bank account designated by
Seller or Burkett not later than June 30, 2000. The FY 2001 Earn-Out payment, if
any, shall be due and payable by wire transfer of immediately available funds to
a bank account designated by Seller or Burkett not later than June 30, 2001. The
FY 2002 Earn-Out payment, if any, shall be due and payable by wire transfer of
immediately available funds to a bank account designated by Seller or Burkett
not later than June 30, 2002.
(e) The Buyers' independent accounting firm (the "Independent
Accountants") shall calculate the EBITDA upon the completion of FY 2000, FY 2001
and FY 2002. The Independent Accountants' calculation of EBITDA shall be used in
determining the amounts to be paid under this Section 1.4 unless Seller or
Burkett has delivered to Buyers a notice that it disputes that calculation (a
"NOTICE OF OBJECTIONS") within 30 days after the deemed receipt of the
calculation in accordance with Section 8.1. As soon as practicable, but in any
event not more than 90 days after the end of the applicable fiscal year, Buyers
shall deliver to Seller (1) the consolidated balance sheet and income statement
of Buyers for the fiscal year in question upon which the Independent
Accountants' calculations are based, (2) the Independent Accountants'
calculation of EBITDA for the fiscal year in question in reasonable detail
(including identification of all excluded items and adjustments and all
necessary back-up calculations), (3) a statement and calculation of the Earn-Out
payment due for such fiscal year, if any (items (1) - (3) collectively, the
"EARN-OUT STATEMENT"), and (4) payment of the Earn-Out payment reflected in the
Earn-Out Statement in the manner specified in Section 1.4(d).
(f) If Seller or Burkett objects to the calculation of EBITDA for
the fiscal year in question or the Earn-Out Statement in accordance with Section
1.4(e) above, they shall specify in the Notice of Objections the grounds of such
objections. Thereupon, the parties shall meet, exchange information, and
negotiate in good faith in an attempt to resolve Seller's or Burkett's objection
to the calculation of EBITDA, the Earn-Out Statement, and the Earn-Out payment
for the fiscal year in question. If the Shareholders
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and Buyers have not agreed upon the same within 30 days following the delivery
of the Notice of Objections, either party may submit the controversy to final
and binding arbitration by Deloitte & Touche, LLP, Tampa, Florida (the
"ARBITRATOR"). The Arbitrator shall rule 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 calculation of EBITDA and
the Earn-Out Payment for the fiscal year in question and the Earn-Out Statement.
The Arbitrator shall rule within 30 days after its receipt of a notice to
arbitrate from one of the parties, and its award shall be conclusive and binding
upon and non-appealable by the parties except to correct manifest clerical
errors and except for fraud, perjury, evident partiality, or misconduct by the
Arbitrator that prejudices the rights of a party. The Arbitrator's award may be
entered as a final judgment in any court of competent jurisdiction. The final
calculation of EBITDA and the Earn-Out payment for such fiscal year shall be
prepared based upon the Arbitrator's award. In the event that the Arbitrator
determines that (i) the Earn-Out payment with respect to the fiscal year in
question is greater than the disputed Earn-Out payment, as determined pursuant
to Section 1.4(d), and (ii) the difference between the Earn-Out payment
calculations is greater than or equal to five percent (5%) of the Earn-Out
payment, Buyers shall pay all fees, costs, and expenses of the arbitration
(including the fees and costs of the Arbitrator and all fees, costs, and
expenses incurred by Seller and the Shareholders in connection with that
arbitration). If the Arbitrator determines that no additional amounts are
payable by Buyers to Seller or the Shareholder or the additional amount payable
by Buyers to Seller or the Shareholder is less than five percent (5%) of the
Earn-Out payment with respect to the fiscal year in question, Seller shall pay
all fees, costs, and expenses of the arbitration (including the fees and costs
of the Arbitrator and all fees, costs, and expenses incurred by Buyers in
connection with that arbitration). Upon agreement on the final calculation of
EBITDA and the Earn-Out payment for such fiscal year by arbitration, Buyers
shall pay to Burkett, as agent for the Shareholders, an amount by wire transfer
of immediately available funds equal to the Earn-Out payment, as finally
determined, less any payment on account thereof previously made, plus interest
at an annual rate of eight percent (8%) on any additional amount payable to the
Shareholders from the date when the Earn-Out payment was due and payable as set
forth in Section 1.4(d) until the date the payment has been made in full.
(g) Until the Earn-Out has been paid in full and until all disputes
regarding those payments have been fully resolved, Parent and Buyers shall grant
to Seller, the Shareholders, and their respective representatives reasonable
access to the financial books, records, and work papers of Parent and its
Subsidiaries pertaining to the calculation of EBITDA and the Earn-Out payment
and the consolidated and consolidating financial statements for the fiscal year
for which EBITDA is calculated and shall ensure that the Independent Accountants
grant to Seller, the Shareholders, and their respective representatives full
access to all books, records, accounts, and work papers of the Independent
Accountants relating to the Earn-Out.
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(h) Until the Earn-Out has been paid in full and until all disputes
regarding those payments have been fully resolved, (1) Burkett shall have a
right to be the principal executive officer of the Company pursuant to the
Employment Agreement attached as EXHIBIT 5.2E, and the Company and Parent shall
cause him to be so elected and (2) Buyers and Parent shall maintain separate
books, records and financial statements so that EBITDA may be accurately
determined.
(i) Each of the following events shall constitute an "Event of
Default" by Buyers and Parent:
(i) Buyers' or Parents failure to pay when due any amount
payable pursuant to this Section 1.4, 1.5 or 1.6.
(ii) Parent or any Significant Subsidiary of Parent applies
for, consents to, or acquiesces in the appointment of a trustee, receiver, or
other custodian for Parent or any Significant Subsidiary of Parent or a
substantial portion of their respective property or makes a general assignment
for the benefit of its creditors or, in the absence of an application, consent
or acquiescence, a trustee, receiver, or other custodian is appointed for Parent
or any Significant Subsidiary of Parent or for a substantial part of their
respective property and is not discharged or dismissed within 30 days;
(iii) Parent, the Company, LLC or Gallion (i) being or
becoming insolvent or bankrupt, (ii) admitting in writing that it is insolvent
or bankrupt, (iii) ceasing to pay its debts as they mature, (iv) making a
general assignment for the benefit of its creditors, (v) seeking, consenting to,
or acquiescing in the appointment of a receiver, trustee, liquidator, fiscal
agent, or similar fiduciary, regardless of how designated, for all or a
substantial part of its business or property, (vi) being or becoming a party to
a bankruptcy, winding up, reorganization, insolvency, arrangement, or similar
proceeding instituted by or against the Parent, the Company, LLC or Gallion
under the laws of any jurisdiction, which proceeding, if involuntary in nature,
has not been dismissed within sixty (60) Days, (vii) taking any action approving
of, consenting to, or acquiescing in, any such proceeding, (viii) being a party
to the levy of any distress, execution, or attachment upon the assets or
property of the Parent, the Company, LLC or Gallion that substantially
interferes with the Company's, LLC's, Gallion's or Parent's performance under
this Agreement or Parent's performance under the Guaranty, (ix) taking any
action (formal or informal) leading to its dissolution, liquidation, or
termination, or (x) the consolidated liabilities of Parent and its Subsidiaries
exceed their consolidated assets;
(iv) A termination by the Company or Parent of Burkett, other
than for "Good Cause," as defined in the Employment Agreement attached as
EXHIBIT 5.2E;
(v) A Change in Control that becomes effective on or before
March 31, 2001;
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(vi) A Change in Control which results in an immediate
decrease in the consolidated net worth of the Parent as a consequence to such
Change in Control; and
(vii) The Company, Gallion, LLC or Parent alter's the
Company's, LLC's or Gallion's corporate structure or makes any material change
to the Company, LLC or Gallion by merger, share exchange, sale of capital stock,
purchase or sale of significant assets without Burkett's advance written
consent, provided, however, that such alteration or change adversely affects the
determination of EBITDA hereunder.
Upon the occurrence of an Event of Default, Seller and the Shareholders may
declare all amounts due to Seller under this Section 1.4 immediately due and
payable and Buyers shall pay those amounts on demand by wire transfer to an
account designated by Seller. For purposes of this Section 1.4(i), the amount
due and payable by Buyers upon an Event of Default shall equal $1,000,000 for
each fiscal year for which Buyers have not yet paid an Earn-Out payment to
Seller.
(j) If, after Closing, Burkett notifies Buyers that Seller has
dissolved and liquidated, Buyers shall pay each Earn-Out Payment that otherwise
is payable to Seller under this Section 1.4 directly to the Shareholders as
follows: 72.4% of the Earn-Out payment to Burkett; 20.10% of the Earn-Out
Payment to Roberta M. Burkett; 3.75% of the Earn-Out payment to Stephen R.
Burkett; and 3.75% of the Earn-Out Payment to Bonnie L. Beetar.
(k) Gallion, LLC and the Company shall each pay a percentage of the
aggregate Earn-Out payable pursuant to this Section 1.4 as set forth on SCHEDULE
1.4.
Section 1.5. TRAVEL GROSS PROFIT PAYMENT. (a) The Buyers shall pay to
Seller One Million Dollars ($1,000,000) if: (i) the term of the license
agreements between the Company and each of Disney and Warner Brothers with
respect to the goods underlying the Travel Related Sales are for at least a two
year period, and (ii) the combined Travel Related Gross Profit of Buyers for any
two (2) fiscal years including FY 2000, FY2001, and FY 2002 exceeds Five Million
Dollars ($5,000,000). The Travel Gross Profit Payment shall be made, if any,
within 30 days after the fiscal year in which the contingencies set forth herein
have each been met payable by wire transfer of immediately available funds to a
bank account designated by Seller or Burkett.
(b) If prior to March 31, 2002 Burkett is terminated by the Company
or Parent other than for "GOOD CAUSE," as defined in the Employment Agreement
attached as EXHIBIT 5.2E, the Travel Gross Profit Payment shall become due and
payable by Buyers on demand of Seller in an amount equal to One Million Dollars
($1,000,000); provided that Buyers have not previously paid the Travel Gross
Profit Payment or determined that a Travel Gross Profit Payment could not be due
pursuant to this Section 1.5.
(c) The Independent Accountants shall calculate the Travel Related
Gross
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Profit for each year up to the completion of FY 2002. The Independent
Accountants' calculation of Travel Related Gross Profit shall be used in
determining whether Seller is entitled to a Travel Gross Profit Payment under
this Section 1.5 unless Seller or Burkett has delivered to Buyers a Notice of
Objections within 30 days after the deemed receipt of the calculation in
accordance with Section 8.1.
(d) If Seller or Burkett objects to the calculation of Travel
Related Gross Profit for the fiscal year in question in accordance with Section
1.5(c) above, they shall specify in the Notice of Objections the grounds of such
objections. Thereupon, the parties shall meet, exchange information, and
negotiate in good faith in an attempt to resolve Seller's or Burkett's objection
to the calculation of Travel Related Gross Profit for the fiscal year in
question. If the Shareholders and Buyers have not agreed upon the same within 30
days following the delivery of the Notice of Objections, either party may submit
the controversy to final and binding arbitration by the Arbitrator. The
Arbitrator shall rule 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 calculation of Travel Related
Gross Profit for the fiscal year in question. The Arbitrator shall rule within
30 days after its receipt of a notice to arbitrate from one of the parties, and
its award shall be conclusive and binding upon and non-appealable by the parties
except to correct manifest clerical errors and except for fraud, perjury,
evident partiality, or misconduct by the Arbitrator that prejudices the rights
of a party. The final calculation of Travel Related Gross Profit for such fiscal
year shall be prepared based upon the Arbitrator's award. In the event that the
Arbitrator determines that the Travel Gross Profit Payment is due to Seller,
Buyers shall pay all fees, costs, and expenses of the arbitration (including the
fees and costs of the Arbitrator and all fees, costs, and expenses incurred by
Seller and the Shareholders in connection with that arbitration). If the
Arbitrator determines that no Travel Gross Profit Payment is payable by Buyers
to Seller, Seller shall pay all fees, costs, and expenses of the arbitration
(including the fees and costs of the Arbitrator and all fees, costs, and
expenses incurred by Buyers in connection with that arbitration). Upon agreement
on the final calculation of Travel Related Gross Profit for such fiscal year by
arbitration, Buyers shall pay to Burkett, as agent for the Shareholders, an
amount by wire transfer of immediately available funds equal to the Travel Gross
Profit Payment, if any, as determined pursuant to this Section 1.5.
(e) Until the Travel Gross Profit Payment has been paid in full and
until all disputes regarding such payment have been fully resolved, Parent and
Buyers shall grant to Seller, the Shareholders, and their respective
representatives reasonable access to the financial books, records, and work
papers of Parent and its Subsidiaries pertaining to the calculation of Travel
Related Gross Profit and the consolidated and consolidating financial statements
for the fiscal year for which Travel Related Gross Profit is calculated and
shall ensure that the Independent Accountants grant to Seller, the Shareholders,
and their respective representatives full access to all books, records,
accounts, and work papers of the Independent Accountants relating to the Travel
Gross Profit Payment.
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(f) If, after Closing, Burkett notifies Buyers that Seller has
dissolved and liquidated, Buyers shall pay the Travel Gross Profit Payment, if
any, that otherwise is payable to Seller under this Section 1.5 directly to the
Shareholders as follows: 72.4% of the Travel Gross Profit Payment to Burkett;
20.10% of the Travel Gross Profit Payment to Roberta M. Burkett; 3.75% of the
Travel Gross Profit Payment to Stephen R. Burkett; and 3.75% of the Contingent
Payment to Bonnie L. Beetar.
(g) Gallion, LLC and the Company shall each pay a percentage of the
Travel Gross Profit Payment pursuant to this Section 1.5, as set forth on
SCHEDULE 1.5.
Section 1.6. CONTINGENT PAYMENT. (a) The Buyers shall pay to Seller Two
and One Half Million Dollars ($2,500,000) on June 30, 2002 together with Regular
Interest and Special Interest, if any (the "FY 2002 Contingent Payment"), if the
Special Gross Profit of Buyers for FY 2002 is equal to or greater than Eleven
Million Dollars ($11,000,000).
(b) The Buyers shall pay to Seller Two and One Half Million Dollars
($2,500,000) on June 30, 2003 together with Regular Interest and Special
Interest, if any (the "FY 2003 Contingent Payment"), if the Special Gross Profit
of the Buyers for FY 2003 is equal to or greater than Eleven Million Dollars
($11,000,000).
(c) If either payment set forth in Section 1.6(a) or 1.6(b) is not
due to Seller because the Special Gross Profit for such year was not equal to or
greater than Eleven Million Dollars ($11,000,000) but the combined Special Gross
Profit of Buyers for FY 2002 and FY 2003 is equal to or greater than Twenty Two
Million Dollars ($22,000,000) then the Buyers shall pay to Seller Two and One
Half Million Dollars ($2,500,000) on June 30, 2003 together with Regular
Interest (the "Alternative Contingent Payment").
(d) The FY 2002 Contingency Payment, the FY 2003 Contingency Payment
and the Alternative Contingency Payment shall bear interest on the amount of
such payment at a rate of six percent (6%) per annum ("Regular Interest")
commencing on the Closing Date. In addition to the Regular Interest, the FY 2002
Contingent Payment and the FY 2003 Contingent Payment shall bear interest on the
amount of such payment at a rate of twelve percent (12%) per annum ("Special
Interest") commencing on the later of: (i) April 1, 2001, or (ii) the date of
delivery to the Company by Burkett of sales projections for FY 2002 and FY 2003
in sufficient and reasonable detail.
(e) Any Contingent Payment may be prepaid, at the option of the
Buyers, in whole or in part at any time. Any such prepayment shall include the
payment of accrued Regular Interest and Special Interest on the Contingent
Payment prepaid to and including the date of prepayment. The payment of any
Contingent Payment shall be made by wire transfer of immediately available funds
to a bank account designated by Seller or Burkett.
(f) If prior to March 31, 2002 Burkett is terminated by the Company
or
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Parent other than for "GOOD CAUSE," as defined in the Employment Agreement
attached as EXHIBIT 5.2E, the Contingent Payment shall become due and payable by
Buyers on demand of Seller in an amount equal to $2,500,000 for each of FY 2002
and FY 2003 plus all accrued Special Interest and Regular Interest; provided
that with respect to such fiscal year, Buyers have not previously paid the
Contingent Payment or determined that a Contingent Payment is not due pursuant
to this Section 1.6.
(g) The Independent Accountants shall calculate the Special Gross
Profit upon the completion of FY 2002 and FY 2003. The Independent Accountants'
calculation of Special Gross Profit shall be used in determining whether Seller
is entitled to any Contingent Payment under this Section 1.6 unless Seller or
Burkett has delivered to Buyers a Notice of Objections within 30 days after the
deemed receipt of the calculation in accordance with Section 8.1.
(h) If Seller or Burkett objects to the calculation of Special Gross
Profit for the fiscal year in question in accordance with Section 1.6(g) above,
they shall specify in the Notice of Objections the grounds of such objections.
Thereupon, the parties shall meet, exchange information, and negotiate in good
faith in an attempt to resolve Seller's or Burkett's objection to the
calculation of Special Gross Profit for the fiscal year in question. If the
Shareholders and Buyers have not agreed upon the same within 30 days following
the delivery of the Notice of Objections, either party may submit the
controversy to final and binding arbitration by the Arbitrator. The Arbitrator
shall rule 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 calculation of Special Gross Profit for the fiscal year
in question. The Arbitrator shall rule within 30 days after its receipt of a
notice to arbitrate from one of the parties, and its award shall be conclusive
and binding upon and non-appealable by the parties except to correct manifest
clerical errors and except for fraud, perjury, evident partiality, or misconduct
by the Arbitrator that prejudices the rights of a party. The final calculation
of Special Gross Profit for such fiscal year shall be prepared based upon the
Arbitrator's award. In the event that the Arbitrator determines that the
Contingent Payment with respect to the fiscal year in question is due to Seller,
Buyers shall pay all fees, costs, and expenses of the arbitration (including the
fees and costs of the Arbitrator and all fees, costs, and expenses incurred by
Seller and the Shareholders in connection with that arbitration). If the
Arbitrator determines that no Contingent Payment is payable by Buyers to Seller
with respect to the fiscal year in question, Seller shall pay all fees, costs,
and expenses of the arbitration (including the fees and costs of the Arbitrator
and all fees, costs, and expenses incurred by Buyers in connection with that
arbitration). Upon agreement on the final calculation of Special Gross Profit
for such fiscal year by arbitration, Buyers shall pay to Burkett, as agent for
the Shareholders, an amount by wire transfer of immediately available funds
equal to the Contingent Payment, if any, as determined pursuant to this Section
1.6.
(i) Until the Contingent Payment has been paid in full and until all
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disputes regarding those payments have been fully resolved, Parent and Buyers
shall grant to Seller, the Shareholders, and their respective representatives
reasonable access to the financial books, records, and work papers of Parent and
its Subsidiaries pertaining to the calculation of Special Gross Profit and the
consolidated and consolidating financial statements for the fiscal year for
which Special Gross Profit is calculated and shall ensure that the Independent
Accountants grant to Seller, the Shareholders, and their respective
representatives full access to all books, records, accounts, and work papers of
the Independent Accountants relating to the Contingent Payment.
(j) If, after Closing, Burkett notifies Buyers that Seller has
dissolved and liquidated, Buyers shall pay each Contingent Payment that
otherwise is payable to Seller under this Section 1.6 directly to the
Shareholders as follows: 72.4% of the Contingent Payment to Burkett; 20.10% of
the Contingent Payment to Roberta M. Burkett; 3.75% of the Contingent Payment to
Stephen R. Burkett; and 3.75% of the Contingent Payment to Bonnie L. Beetar.
(k) Gallion, LLC and the Company shall each pay a percentage of the
Contingent Payment pursuant to this Section 1.6, as set forth on SCHEDULE 1.6.
Section 1.7. ALLOCATION OF THE PURCHASE PRICE. For state and federal tax
reporting purposes, both the amount of the Purchase Price and the types of
consideration included therein shall be allocated among the Assets in the manner
agreed upon by Seller and Buyers and set forth on SCHEDULE 1.7 for all purposes
(the "ALLOCATION"), 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. Buyers
and Seller stipulate that the Allocation reflects the fair market value of the
Assets and further acknowledge that the consideration allocated to the
noncompetition and other restrictive convenants of Seller and the Shareholders
set forth in this Agreement or the agreements to be executed pursuant to it was
the result of an arms-length negotiation between Buyers and Seller and
represents the fair market value to them of those restrictions. Buyers and
Seller accept and shall abide by the foregoing Allocation of the consideration
for the transaction, and shall execute on the Closing Date and timely file with
the Internal Revenue Service a Form 8594 reflecting the Allocation. In addition,
Buyers, Seller, and any corporation with which any of them files a consolidated
tax return shall not include in any Tax Return filed by any of them any item of
gain, loss, income, or deduction that reflects a different allocation of any
portion of the consideration for the transaction and the noncompetition and
other restrictive convenants of Seller and the Shareholders set forth in this
Agreement or the agreements to be executed pursuant to it.
SECTION 1.8. Closing. Subject to the terms and conditions of this
Agreement, the sale and purchase of the Assets and the consummation of the other
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transactions contemplated hereby (the "CLOSING") shall take place at 10:00 a.m.,
local time, at the offices of Baer Marks & Upham LLP, 805 Third Avenue, New
York, New York 10022, the later of (i) March 30, 1999, and (ii) the fifth
business day following the satisfaction or waiver of all of the conditions
specified in Article V (other than conditions requiring the delivery of the
Purchase Price, the Assets, the addition or removal of authorized signatories
with respect to the Depositaries, or certificates, instruments and documents
referenced in Section 5.2(e) and Section 5.3(g)) (the "CLOSING DATE").
ARTICLE II
REPRESENTATIONS AND WARRANTIES
OF SELLER AND BURKETT
Subject to the exceptions set forth in the Seller Disclosure Schedules,
Seller and Burkett, jointly and severally, represent and warrant to Buyers 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 or, at the Closing, will be, 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 Seller is or, at the Closing, will be, a
party have been duly and validly authorized by Seller, and no other acts on the
part of Seller (or any other person, except as provided in Section 2.2) are
necessary or required to authorize the execution, delivery and performance by
Seller of each Transaction Document or the consummation of the Contemplated
Transactions to which Seller is, or at the Closing will be, a party. This
Agreement has been and, at the Closing, the other Transaction Documents to which
Seller is a party will have been, duly and validly executed and delivered by
Seller, and (assuming the valid execution and delivery thereof by the other
parties thereto) constitute or will, at the Closing, 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 or, at the Closing, will be, a party and the consummation of the
Contemplated Transactions to which Seller is or, at the Closing, will be, a
party do not and will not (i) violate any provision of the Articles of
Incorporation or By-laws (or comparable instruments) of Seller; (ii) require
Seller or any other Affiliate of Seller to obtain any consent, approval or
action of or waiver from, or make any filing with, or give any notice
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to, any Governmental Body or any other person, except as set forth on SCHEDULE
2.2 (the "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 material 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 applicable to
Seller.
SECTION 2.3. Corporate Existence and Power. Seller is a corporation duly
organized, validly existing, and in active status under the laws of its
jurisdiction of incorporation, and has all requisite power, 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 the states where the character of the
property owned or leased by it or the nature of its activities makes such
qualification necessary. Other than the Subsidiaries disclosed on the Seller
Disclosure Schedules, Seller does not have any Subsidiary and does not directly
or indirectly own any equity or other interest or investment in any other
person. Except for maintaining a showroom in the state of New York, Seller
conducts substantially all of its business in the state of Florida and in Hong
Kong.
SECTION 2.4. Charter Documents and Corporate Records. Seller has
heretofore delivered or made available to Buyers true and complete copies of the
Articles of Incorporation (certified as of a recent date by its jurisdiction of
incorporation), By-laws and minute books, or comparable instruments, of Seller
as in effect on the date hereof.
SECTION 2.5. Financial Information. Seller has previously furnished to
Buyers true, complete and correct copies of (i) Seller's audited financial
statements at and for the years ended December 31, 1997, 1996 and 1995 (the
"ANNUAL STATEMENTS"), and (ii) Seller's unaudited financial statements at and
for the twelve (12) months ended December 31, 1998 (the "INTERIM STATEMENTS")
which have been certified and signed as true, correct and complete by Burkett.
Each delivered Annual Statement and Interim Statement has been prepared in
accordance with GAAP (except for changes specified therein and the absence of
footnotes) 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 included in the Annual
Statements and the Interim Statements fully sets forth all assets and
liabilities of Seller existing as of its date which, under GAAP consistently
applied, should be set forth therein, and each delivered statement of earnings
included in the Annual Statements and the Interim Statements sets forth the
items of income and expense of Seller which should be set forth therein in
accordance with GAAP.
(a) To the knowledge of Seller, except to the extent of the amount
of the allowance for doubtful accounts reflected in the Interim Statements or as
set forth in
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SCHEDULE 2.5, all the Receivables of the Seller reflected therein, and all
Receivables that have arisen since December 31, 1998 (except Receivables that
have been collected since such date) constitute bona fide and valid rights to
collect payments from the sale of goods and services in the ordinary course of
the Business.
(b) All material 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 in all material respects, and
there are no material inaccuracies or discrepancies contained or reflected
therein. There are no material 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 control.
(c) The Closing Date Net Assets of the Seller shall be equal to or
greater than $2,678,524 (the net asset value of the Seller as determined on
December 31, 1998) subject to changes attributable to operations in the ordinary
course of Business consistent with past practices during the period between
December 31, 1998 and the Closing Date including any withdrawals that are
necessary for the Shareholders to pay 1998 and 1999 federal income taxes imposed
upon such Shareholders as a result of the income or gain of the Seller in the
ordinary course of Business up to the Closing Date.
SECTION 2.6. Liabilities. Except as and to the extent reflected in the
balance sheet of Seller (the "LATEST BALANCE SHEET") at December 31, 1998 (the
"LATEST BALANCE SHEET DATE") referred to in Section 2.5 or described on the
Seller Disclosure Schedules, Seller did not have, as of the Latest Balance Sheet
Date, any Liabilities or obligations, 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 Buyers 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.
SECTION 2.7. Inventory. Schedule 2.7 sets forth a true and complete list
of Inventory by category as of December 31, 1998 (including an aging schedule
showing all items over 60 days old). No material change to Inventory has
occurred since the Latest Balance Sheet Date. 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. Since the
Latest Balance Sheet Date, Seller has continued to replenish its Inventories in
a manner consistent with past practice. Except as noted on the Seller Disclosure
Schedules, no items of Inventory are pledged as collateral or held by Seller on
consignment from any other person. The Inventory is valued at the lower of cost
or market, net realizable value on the "first in, first out" method consistent
with past
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practices, and were so valued on December 31, 1998. The inventory and reserves
reflected on the Latest Balance Sheet are stated in accordance with GAAP
consistent with past practices.
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 of Seller or 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 Articles 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 shareholder
of Seller, other than those distributions as set forth on SCHEDULE 2.8;
(v) Any damage, destruction or other casualty loss (whether or
not covered by insurance), condemnation or other taking adversely affecting the
tangible Assets;
(vi) Any change in any method of accounting or accounting
practice by Seller;
(vii) Except as set forth in the Seller Disclosure Schedules
or required by any of the Transaction Documents, 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 (excluding professional advisors), or employee of Seller, or any
alteration in the benefits payable or provided to any thereof;
(viii) Any materially adverse change in the relationship of
Seller with its customers, suppliers and vendors;
(ix) Except for any changes made in the ordinary course of the
Business, any material 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 2.8, any material payment,
directly or
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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 complete list and description of
the Real Property. Seller has a valid leasehold interest in and to the Real
Property and good and marketable title to the improvements located on the Real
Property, 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), (iii) liens arising under workers'
compensation, unemployment insurance, social security, retirement, and similar
legislation, (iv) landlord and other statutory liens, (v) liens in favor of
SunTrust Bank, Tampa Bay, and (vi) liens, easements, covenants, restrictions and
other similar encumbrances of record listed on SCHEDULE 2.9(A) (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. To the knowledge of Seller, 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 SCHEDULE 2.9(A), no person, other than Seller
and subject to the terms and conditions of the existing leases for the Real
Property, the lessor of the Real Property, has any right to occupy or possess
any of the Real Property.
(b) Seller has good and valid title to (or valid leasehold interest
in) all equipment used in the Business, free and clear of all Liens except
Permitted Liens. The equipment constituting a part of the Assets (whether owned
or leased) has been well maintained, is in good condition and repair (subject to
normal wear and tear) and is, in the aggregate, adequate in quantity and quality
for the operation of the Business as presently conducted.
(c) Seller is in possession of and has good and valid title to the
Assets used in the Business (other than the Real Property and Equipment) (except
as provided in
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the license agreements listed on Schedule 2.10 of the Seller Disclosure
Schedules), 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 are suitable for the uses for which they are
currently used. SCHEDULE 2.9(C) contains a list and description, including
location, of all tangible Assets with a book value (before depreciation) of
$1,000 or more. The Assets 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 Buyers to
conduct the Business substantially as it has been conducted before Closing.
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 that (i) cannot be canceled upon 30 days'
notice without payment or penalty of less than $1,000, or (ii) involve aggregate
future payments by or to any person of more than $5,000. 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 made available to Buyers.
(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. Seller is not in
default (and has not received any notice of an 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 adversely 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 (other than the Disney
Licenses, if Disney extends the Disney Licenses) or terminated or failed to
renew (or received written notice of termination or failure to renew with
respect to) any such Contract. Except as set forth on SCHEDULE 2.2, 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.
(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 in excess of current market prices for
similar items.
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SECTION 2.11. Intangible Property. Schedule 2.11 sets forth all of
Seller's Intellectual Property Rights. Except as set forth in Schedule 2.11,
Seller has not filed any registrations and/or applications with respect to
Seller's Intellectual Property Rights with any Governmental Body. There are no
other Intellectual Property Rights that are material to the Business. The
Contemplated Transactions will not have a material adverse effect on the right,
title and interest of Buyers 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, (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 material 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, at the Closing there will be
no such Claims pending or, to the knowledge of Seller, threatened, other than
Claims that, individually or in the aggregate, could not reasonably be expected
to have a material adverse effect on the Condition of the Business. 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 material 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 asserted Claim that exists as of the date of this Agreement is not
covered by the applicable policy relating to any Claim submitted to it. 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 (taking into account all extensions of time allowed by Law) 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 to Seller's knowledge;
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(ii) Seller has paid, or if payment is not yet due, will on or
before the Closing Date, pay to the appropriate Tax Authority, all Taxes of
Seller that to Seller's knowledge are due and payable before the Closing Date
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 Interim Statements as of the Latest Balance Sheet
Date or the date of the Annual Statements delivered prior to the Closing have
been accrued in accordance with GAAP and accurately reflect, as of the date
thereof, all unpaid Taxes of Seller whether or not disputed;
(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 written notice of a determination
by a Tax Authority that Taxes are owed by Seller as of the date of this
Agreement (such determination to be referred to as a "TAX DEFICIENCY") and, to
Seller's knowledge, no Tax Deficiency is proposed or threatened;
(vi) to Seller's knowledge, 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, other than Liens for Taxes not yet due and payable;
(viii) there are no presently outstanding waivers or
extensions or requests for waiver or extension by Seller of the time within
which a Tax Deficiency may be asserted or assessed;
(ix) there are no pending Tax Audits and Seller has not
received any written notice of any threatened Tax Audit of Seller;
(x) except for the State of Florida, Seller has not filed any
Tax Returns which are based upon the income or assets of Seller with any state
of the United States;
(xi) 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
(xii) Seller has been, at all times since January 1, 1988, an
"S corporation" having elected that status pursuant to Section 1362 of the Code.
(xiii) Each reference to a provision of the Code in this
Section 2.13 shall be treated for state and local Tax purposes as a reference to
analogous or similar provisions of state and local law. 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
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completed exemption certificates for all exempt transactions. Seller has
maintained and has in its possession substantially 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 the seven years preceding 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 as of the Closing
Date.
SECTION 2.14. Employee Benefits Plans.
(a) Except as set forth on Schedules 2.10 and 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"), nor any other company or entity which together with the Entity
constitutes a member of the Entity's "controlled group" or "affiliated service
group" (within the meaning of Sections 4001(a)(14) and/or (b) of ERISA and/or
Sections 414(b), (c), (m) or (o) of the Code (such group or groups and each
member thereof hereinafter referred to individually and collectively as the
"GROUP")), 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 the Group, 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 the Group,
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, or service 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
and no member of the Group 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.
(b) In addition, except as set forth in Schedule 2.14 hereof (i)
there have been no material, nonexempt, "prohibited transactions" within the
meaning of Section 406 of ERISA or Section 4975 of the Code with respect to any
of the Employee Benefit Plans; (ii) no Liability has been or is expected to be
incurred by the Entity or any member of the Group under Title IV of ERISA; (iii)
any and all amounts which the Entity or any
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member of the Group are required to pay as contributions or otherwise, or with
respect to the Employee Benefit Plans have been 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 neither
Entity nor any member of the Group 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 substantially in accordance with its material terms
and all material 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 no pending or
threatened Claims involving any of the Employee Benefit Plans; (ix) 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; (x) neither the
Entity nor any member of the Group 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; (xi) 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; and (xii) except to the
extent required to maintain tax-qualified status or otherwise required by
applicable Laws, neither the Entity nor any member of the Group 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 made available to Buyers.
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 Buyers. With respect to each Employee Benefit Plan, Buyers have 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 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 tradeable) held with respect thereto, and there have been
no material changes in the financial condition in the
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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 and a description of the rate and nature of all compensation
payable or accrued by Seller to, and the amount of vacation, sick days, personal
days and other leave accrued by, each such person. Buyers have 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, or employee. 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 and each such arrangement is terminable at will (without the
imposition of damages) by Seller as limited by such applicable Florida and
federal Law.
(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 material compliance with all applicable Laws
affecting employment and employment practices.
(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
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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 on or prior to the Closing Date, and (2) with respect to
each such qualified beneficiary, the date and nature of such qualifying event.
SECTION 2.16. Insurance. Schedule 2.16 sets forth a list of all material
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 made available to Buyers. SCHEDULE 2.16 also
sets forth (a) with respect to each Insurance Policy the applicable deductible
amounts, (b) any letter of credit relating to any such Insurance Policy and all
reports delivered to Seller during the past year by any insurer with respect to
such Insurance Policies, copies of which have been made available to Buyers and
(c) a true and complete list of Claims made in respect of each Insurance Policy
during the five (5) years prior to the date hereof. True and correct copies of
all loss runs with respect to such period have been made available to Buyers.
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 material
compliance in all respects with the terms and conditions of all such Insurance
Policies. All Insurance Policies are in full force and effect. Each Insurance
Policy is of the type and in amounts which have been reasonably determined by
Seller to be adequate. 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 a "claims
made basis."
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 any material Law, 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,
"GOVERNMENTAL BODIES") affecting its 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
necessary in all material respects for the ownership of the Assets, the use and
occupancy of the Real
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Property, and the conduct of the Business. All material Permits required to be
obtained or maintained by the Seller 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 material Permit; and no
proceeding is pending or, to the knowledge of Seller, threatened to revoke or
limit any material 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 material Permit to be revoked or limited.
SECTION 2.19. Environmental Matters. Except as referenced in Schedule
2.19:
(a) there has been, directly or indirectly, no use, manufacture,
generation, refining, storage, transport, disposal or treatment of Hazardous
Substances by Seller or any Release at, on or under any Real Property by Seller
or, to the knowledge of Seller based upon written notice to Seller, by any other
person, in violation of any Environmental Law or which would require remedial
action under any Environmental Law; to the knowledge of Seller, Seller has not
contaminated the soil, ground water or surface water of the Real Property; to
the knowledge of Seller based upon written notice, none of the soil, ground
water or surface water of such Real Property is or has been contaminated by any
Release.
(b) 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;
(c) 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
Seller or any present or former owner, lessee or operator of the Real Property;
(d) (i) To Seller's knowledge and other than as listed on the Seller
Disclosure Schedule, there are no incinerators, septic tanks, underground or
aboveground tanks or cesspools, pipes or pipelines for the storage or
transportation of Hazardous Substances, 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 based on written notice to Seller, which have been
located, on, at or under the Real Property, (ii) all sewage from the Real
Property is discharged into a public sanitary sewer system, and (iii) except as
disclosed on the Seller Disclosure Schedules, there has been no Release by
Seller, or to Seller's knowledge based upon written notice to Seller, 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 has
made available to Buyers copies of all environmental reports and all other
written materials held or controlled by Seller regarding the environmental
matters set forth in this Section 2.19;
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(e) To Seller's knowledge, the Real Property and all improvements on
that property are presently, and, to the knowledge of Seller based upon written
notice to Seller, have been at all times in the past, in full compliance with
all material applicable Environmental Laws. All material 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 in
any material respect;
(f) There is no pending or, to the knowledge of Seller, threatened
Claim, including without limitation Regulatory Actions, or Environmental
Liability, or, to the knowledge of Seller, any existing condition or basis which
may give rise to any such Claim or Environmental Liability, or which, to the
knowledge of Seller, may otherwise result in the imposition of a Lien or
forfeiture of the Real Property, or otherwise prohibit, restrict or materially
interfere with its use as presently conducted;
(g) Seller has not received any written notice that any
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;
(h) To Seller's knowledge, no part of the Real Property (and Seller
has not received written documentation stating or indicating that any part of
the Real Property) is wetlands or in a flood plain; and
(i) Seller's representations and warranties in this Section 2.19 are
based upon its respective knowledge of the Real Property, and Buyers are
entitled to rely thereon notwithstanding any independent investigations by
Buyers.
SECTION 2.20. Finders; Fees. Other than Gerard Klauer Mattison & Co.,
L.L.C., 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.
SECTION 2.21. Restrictions on Business Activities. There is no Order
directed to Seller or Contract binding upon Seller which has had or could
reasonably be expected to have the effect of prohibiting or adversely limiting
the freedom of Seller to engage in the Business or compete with any person.
SECTION 2.22. Suppliers and Customers. Schedule 2.22 lists for the fiscal
year ended December 31, 1998, 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 its suppliers and customers since
December 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 December 31, 1998,
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(i) no supplier or customer has canceled or terminated, or threatened to cancel,
or otherwise terminate, its relationship with Seller or (ii) no supplier or
customer has threatened to decrease or limit materially its relationship with
Seller.
SECTION 2.23. Year 2000 Compliance. Seller has conducted an evaluation and
review of its Computer Related Systems and has determined the total costs of its
Computer Related Systems becoming Year 2000 Compliant, including costs related
to remediation, replacement, upgrading, conversion and testing of hardware,
software and other equipment. On the basis of this review, Seller has concluded
that the incremental cost to Seller of its Computer Related Systems becoming
Year 2000 Compliant will not have a material adverse effect on the Condition of
Seller. Seller believes it has adequate plans and processes in place sufficient
for all of its Computer Related Systems to become Year 2000 Compliant prior to
such time that a failure to be Year 2000 Compliant might reasonably be expected
to have a material adverse effect upon the Condition of the Business.
SECTION 2.24. Product Warranties, Product Return Policies and Service
Warranties. Except as set forth on Schedule 2.24, Seller does not utilize any
express product warranties, guarantees, product return policies, service
warranties or service policies.
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 Claims and, to the knowledge
of Seller, no threatened Claims nor, to the knowledge of Seller, are there any
facts or circumstances 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.
SECTION 2.27. Disclosure. None of the representations and warranties of
each of Seller and Burkett in this Agreement contain any untrue statement of a
material fact or omit to state a material fact necessary in order to make the
statements in them not misleading, in light of the circumstances under which
they were made.
ARTICLE III
REPRESENTATIONS AND WARRANTIES
OF THE COMPANY, LLC, GALLION AND PARENT
The Company, Gallion, LLC and Parent jointly and severally represent
and warrant to Seller and each of the Shareholders that:
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SECTION 3.1. Authority Relative to this Agreement. Each of the Company,
Gallion, LLC and Parent has full power, capacity and authority to execute and
deliver this Agreement and each other Transaction Document to which it is or, at
the Closing, will be, 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 the Company, Gallion, LLC
or Parent is or, at the Closing, will be, a party have been duly and validly
authorized and approved by the board of directors of the Company, Gallion and
Parent and by the manager of LLC and no other corporate proceedings on the part
of the Company, Gallion, LLC or Parent and no other acts on the part of the
Company, Gallion, LLC, Parent, or any other person are necessary or required to
authorize the execution, delivery and performance by the Company, Gallion, LLC
and Parent of each Transaction Document or the consummation of the Contemplated
Transactions to which it is, or at the Closing will be, a party. This Agreement
has been and, at the Closing, the other Transaction Documents to which the
Company, Gallion LLC and Parent is a party will have been, duly and validly
executed and delivered by the Company, Gallion, LLC and Parent, and (assuming
the valid execution and delivery thereof by the other parties thereto)
constitute or, will at the Closing, constitute the legal, valid and binding
agreements of the Company, Gallion, LLC and Parent, enforceable against the
Company, Gallion, LLC and 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). All of the issued and outstanding stock of each
of the Company and Gallion is owned of record and beneficially by Parent. All of
the issued and outstanding membership interests of LLC are owned of record and
beneficially by Gallion.
SECTION 3.2. No Conflicts; Consents. The execution, delivery and
performance by the Company, Gallion, LLC and Parent of this Agreement and each
other Transaction Document to which it is or, at the Closing, will be, a party
and the consummation of the Contemplated Transactions to which it is or, at the
Closing, will be, a party do not and will not (i) violate any provision of the
Certificate of Incorporation or By-laws (or comparable instruments) of the
Company, Gallion or Parent; (ii) violate any provisions of the Certificate of
Formation or the Operating Agreement of LLC; (iii) require the Company, Gallion,
LLC or Parent or any of their Affiliates 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 (the
"BUYERS REQUIRED CONSENTS"); (iv) if Buyers 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 Parent, the
Company, LLC or Gallion is a party or by which the Company, Gallion, LLC,
Parent, or their respective assets may be bound or subject; (v) if Buyers
Required Consents are obtained prior to the Closing, violate any Law or Order of
any Governmental Body against, or binding upon, Parent, the Company,
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LLC or Gallion or upon its assets or business; or (v) if Buyers Required
Consents are obtained prior to Closing, violate or result in the revocation or
suspension of any Permit.
SECTION 3.3. Corporate Existence and Power. Each of the Company, Gallion
and Parent 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, all Permits, and all material governmental
licenses, authorizations, consents and approvals required to carry on its
business as now conducted. Each of the Company, Gallion, LLC and Parent 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.
LLC is a limited liability company duly formed, validly existing and in good
standing under the laws of Delaware, and has all requisite powers, authority,
all Permits, 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 Akin 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 the Company, Gallion, LLC or Parent who
might be entitled to any fee or commission from the Company, Gallion, LLC or
Parent in connection with the consummation of the Contemplated Transactions.
SECTION 3.5. SEC Filings. Parent has filed with the SEC all forms,
reports, schedules, and statements that were required to be filed by it with the
SEC since October 20, 1997, and previously has furnished or made available to
Seller accurate and complete copies of all the SEC Documents. As of their
respective dates, the SEC Documents were prepared in accordance with the
Exchange Act and the Securities Act and did not contain any untrue statement of
a material fact or omit to state a material fact required to be stated in those
documents or necessary to make the statements in those documents not misleading,
in light of the circumstances under which they were made. Parent shall deliver
to Seller as soon as they become available accurate and complete copies of any
report or statement that it mails to its shareholders generally or files with
the SEC during the period after the date of this Agreement and before the
Closing Date. As of their respective dates, these reports and statements will
not contain any untrue statement of a material fact or omit to state a material
fact required to be stated in them or necessary to make the statements in them
not misleading, in light of the circumstances under which they are made and
these reports and statements will comply in all material respects with all
applicable requirements of the Exchange Act and the Securities Act.
SECTION 3.6. Financial Statements. The audited consolidated financial
statements and unaudited consolidated interim financial statements of Parent and
its Subsidiaries that are included or incorporated in the SEC Documents were
prepared in accordance with GAAP applied on a consistent basis during the
periods involved (except as otherwise indicated in the notes to them) and fairly
present the consolidated financial position, results of operations, and cash
flows from operating, investing, and financing activities of Parent and its
Subsidiaries as of the dates and for the periods indicated,
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except that the unaudited consolidated interim financial statements in the SEC
Documents are subject to normal year-end adjustments and were prepared in
accordance with the instructions to SEC Form 10-Q and, accordingly, omit or
condense certain footnotes and other information normally included in financial
statements prepared in accordance with GAAP. The consolidated financial
statements of Parent and its Subsidiaries that are included or incorporated in
any subsequent report or statement that Parent mails to its shareholders
generally or files with the SEC during the period after the date of this
Agreement and before the Closing Date will be prepared in accordance with GAAP
applied on a consistent basis during the periods involved (except as otherwise
indicated in them, the notes to them, or any related report of Parent's
independent accountants) and will fairly present the financial information that
they purport to present, except that the unaudited, consolidated interim
financial statements will be subject to normal year-end adjustments and will
omit or condense certain footnotes and other information normally included in
financial statements prepared in accordance with GAAP.
SECTION 3.7. Subsequent Events. Except as contemplated by this Agreement
or disclosed in the SEC Documents, none of the following has occurred since the
date of the most recent consolidated balance sheet of Parent and its
Subsidiaries that is included in the SEC Documents: (a) any event that had, or
is reasonably likely to have, a material adverse effect on Parent; (b) any
change by Parent in its accounting methods, practices, or principles, except as
required to comply with applicable Law or a change in GAAP; (c) any commitment
or transaction by Parent or any of its Subsidiaries that had, or is reasonably
likely to have, a material adverse effect on Parent and was not in the usual and
ordinary course of business; (d) any declaration, payment, or setting aside for
payment of any dividends or other distributions (whether in cash, stock, or
property) in respect of the Parent's stock; or (e) any event, action, or
condition that (i) is of the type prohibited by Section 4.1(b), (ii) constitutes
an agreement by Parent to do anything described in clauses (a)-(d) above, or
(iii) if it had occurred before the date of this Agreement, would have made any
representation or warranty by the Company, Gallion, LLC or Parent in this
Agreement inaccurate in any material respect.
SECTION 3.8. Financing. The Company, Gallion, LLC and Parent have
immediately available internal funds to pay the purchase price required by
Article I and will not require financing from any other person to satisfy its
obligations to pay the Purchase Price.
SECTION 3.9. Compliance with Laws. Each of the Company, Gallion, LLC and
Parent is not in violation of any Orders, or any material Law, of any
Governmental Bodies affecting its assets or its business.
SECTION 3.10. Restrictions on Business Activities. There is no Order
directed to the Company, Gallion, LLC or Parent or Contract binding upon the
Company, Gallion, LLC or Parent which has had or could reasonably be expected to
have the effect of prohibiting or adversely limiting the freedom of the Company,
Gallion, LLC or Parent to engage in its business or compete with any person.
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SECTION 3.11. Year 2000 Compliance. Each of the Company, Gallion, LLC and
Parent has conducted an evaluation and review of its Computer Related Systems,
as well as the Computer Related Systems of its customers, suppliers and vendors
and has determined the total costs of becoming Year 2000 Compliant, including
costs related to remediation, replacement, upgrading, conversion and testing of
hardware, software and other equipment. On the basis of this review, each of the
Company, Gallion., LLC and Parent has concluded that its incremental cost of
becoming Year 2000 Compliant will not have a material adverse effect on the
Condition of the Company, Gallion, LLC or Parent. Each of the Company, Gallion,
LLC and Parent believes it has adequate plans and processes in place sufficient
for all of its Computer Related Systems to become Year 2000 Compliant prior to
such time that a failure to be Year 2000 Compliant might reasonably be expected
to have a material adverse effect upon the Condition of its business.
SECTION 3.12. Intangible Property. The Company, Gallion, LLC, Parent and
Parent's Subsidiaries have all Intellectual Property Rights that are material to
the Company's, Gallion's, LLC's or Parent's business. The Contemplated
Transactions will not have a material adverse effect on the right, title and
interest of the Company, Gallion, LLC or Parent as of the Closing Date in and to
the Intellectual Property Rights. Except as disclosed on the SEC Documents, (i)
the Company, Gallion, LLC and Parent have not received any written notice of
material invalidity, infringement or misappropriation from any third party with
respect to any of their respective Intellectual Property Rights; (ii) to the
knowledge of the Company, Gallion, LLC and Parent, the Company, Gallion, LLC and
Parent have not interfered with, infringed upon, misappropriated or otherwise
come into conflict with any intellectual property or other rights of any third
parties; and (iii) to the knowledge of the Company, Gallion, LLC and Parent, no
third party is interfering with, infringing upon, misappropriating, or otherwise
coming into conflict with any Intellectual Property Rights of either the
Company, Gallion, LLC or Parent.
SECTION 3.13. Employee Benefits Plans.
(a) Except as disclosed on the SEC Documents or as set forth on
Schedule 3.13, neither the Company, Gallion, LLC nor Parent nor any Subsidiary
of the Company, or Gallion, nor the Company's, LLC's or Gallion's business (all
of the above hereinafter individually and collectively called the "BUYERS'
ENTITY"), nor any other company (except Go Fly A Kite Acquisition, Inc.) or
Buyers' Entity which together with the Buyers' Entity constitutes a member of
the Buyers' Entity's "controlled group" or "affiliated servicegroup" (within the
meaning of Sections 4001(a)(14) and/or (b) of ERISA and/or Sections 414(b), (c),
(m) or (o) of the Code (such Buyers' Group or Buyers' Groups and each member
thereof hereinafter referred to individually and collectively as the "BUYERS'
Group")), has at any time 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,
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officers, directors, consultants or independent contractors of the Buyers'
Entity or the Buyers' Group, 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 Buyers' Entity or the Buyers' Group, 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, or service 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 the Company, LLC
or Gallion acting as such, hereinafter individually and collectively called the
"BUYERS EMPLOYEE BENEFIT PLAN(S)"). No Buyers Employee Benefit Plan is subject
to Title IV of ERISA. No Buyers' Entity and no member of the Buyers' Group 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.
(b) In addition, except as disclosed on the SEC Documents or as set
forth in Schedule 3.13 hereof (i) there have been no material non-exempt
"prohibited transactions" within the meaning of Section 406s and 408 of ERISA or
SECTION 4975 of the Code with respect to any of the Buyers Employee
Benefit Plans; (ii) no Liability has been or is expected to be incurred by the
Buyers' Entity or any member of the Buyers' Group under Title IV of ERISA; (iii)
any and all amounts which the Buyers' Entity or any member of the Buyers' Group
are required to pay as contributions or otherwise, or with respect to the Buyers
Employee Benefit Plans have been paid; (iv) no Buyers 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 neither Buyers'
Entity nor any member of the Buyers' Group has provided, or is required to
provide, security to any Buyers 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 Buyers Employee
Benefit Plan which is subject to Title IV of ERISA or otherwise, does not exceed
the current value of the assets of such Buyers Employee Benefit Plan allocable
to such benefit liabilities; (vi) each of the Buyers Employee Benefit Plans has
been established, maintained, operated and administered substantially in
accordance with its material terms and all material applicable Laws; (vii) each
of the Buyers 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 Buyers knowledge, continues to be so qualified;
(viii) there are no pending or threatened Claims involving any of the Buyers
Employee Benefit Plans; (ix) no notice of a "reportable event" within the
meaning of Section 4043 of ERISA has been required to be filed with respect to
any Buyers Employee Benefit Plan; (x) neither the Buyers' Entity nor any member
of the Buyers'
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Group 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; (xi) 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
Buyers Employee Benefit Plan; and (xii) except to the extent required to
maintain tax-qualified status or otherwise required by applicable Laws, neither
the Buyers' Entity nor any member of the Buyers' Group has any obligation or
commitment to establish, maintain, operate or administer any Buyers Employee
Benefit Plan not disclosed on the SEC Documents or set forth on SCHEDULE 3.13,
or to amend any Buyers Employee Benefit Plan so as to increase benefits
thereunder or otherwise.
(c) A true and correct copy of each of the Buyers 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 made
available to Seller. In the case of any Buyers Employee Benefit Plan which is
not in written form, an accurate and complete description of such Buyers
Employee Benefit Plan has been provided to Seller.
SECTION 3.14. Employee-Related Matters. Except as disclosed on the SEC
Documents, (i) neither the Company, Gallion, LLC nor Parent is 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 the Company, Gallion, LLC or Parent, threatened against the
Company, Gallion, LLC or Parent; (iii) neither the Company, Gallion, LLC nor
Parent has experienced any labor strike, slowdown, work stoppage or similar
labor controversy within the past (5) five years, and to the knowledge of the
Company, Gallion, LLC and Parent, no such labor strike, slow down, work stoppage
or similar labor controversy is threatened; (iv) no representation question has
been raised respecting any of the Company's, Gallion's, LLC's or Parent's
employees working within the past five (5) years, nor, to the knowledge of the
Company, Gallion, LLC or Parent, are there any organizing activities or
campaigns being conducted to solicit authorization from the Company's,
Gallion's, LLC's or Parent'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 the
Company, Gallion, LLC and Parent, threatened against the Company, Gallion, LLC
and Parent; (vi) neither the Company, Gallion, LLC nor Parent is 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, the Company, Gallion, LLC and Parent have paid in full to
all of
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their respective employees all wages, salaries, commissions, bonuses, benefits
and other compensation due and payable to such employees; and (viii) each of the
Company, Gallion, LLC and Parent in material compliance with all applicable Laws
affecting employment and employment practices. For purposes of this Section
3.14, except for Go Fly A Kite Acquisition, Inc., "Parent" includes all of
Parent's Subsidiaries.
SECTION 3.15. Environmental Matters. Except as disclosed on the SEC
Documents:
(a) except for heating oil, there has been, directly or indirectly,
no use, manufacture, generation, refining, storage, transport, disposal or
treatment of Hazardous Substances by the Company, Gallion, LLC or Parent or any
Release at, on or under any real property owned or used by the Company, Gallion,
LLC or Parent (the "Buyer Real Property") or, to the knowledge of the Company,
Gallion, LLC or Parent based upon written notice, by any other person, in
violation of any Environmental Law or which would require remedial action under
any Environmental Law; to the knowledge of the Company, Gallion, LLC and Parent,
the Company, Gallion, LLC and Parent have not contaminated the soil, ground
water or surface water of the Buyers' Real Property; to the knowledge of the
Company, Gallion, LLC and Parent based upon written notice, none of the soil,
ground water or surface water of such Buyers' Real Property is or has been
contaminated by any Release.
(b) No portion of the Buyers' Real Property has ever been used as a
petroleum storage (except for heating oil), refining, storage or distribution
facility or terminal, a gasoline service station or automobile repair shop by
the Company, Gallion, LLC or Parent or any tenant or licensee of the Company,
Gallion, LLC or Parent thereat;
(c) As to the ownership or operation of the assets or the business
of the Company, Gallion, LLC and Parent, the Company, Gallion, LLC and Parent
have not created, suffered or permitted, and have 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 Buyers
Real Property;
(d) (i) To the Company's, Gallion's, LLC's and Parent's knowledge,
there are no incinerators, septic tanks, underground or aboveground tanks or
cesspools, pipes or pipelines for the storage or transportation of Hazardous
Substances (excluding heating oil), including without limitation, 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 the Company, Gallion, LLC and Parent, which have been located, on, at or
under the Buyers Real Property, (ii) all sewage from the Buyers Real Property is
legally and properly discharged, and (iii) there has been no Release by the
Company, Gallion, LLC or Parent, or to the Company's, Gallion's, LLC's and
Parent's knowledge based upon written notice, by any other party, into the
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atmosphere, any adjoining or adjacent body of water, or adjoining or adjacent
property in violation of Environmental Law. The Company, Gallion, LLC and Parent
have made available to Seller copies of all environmental reports and all other
written materials held or controlled by the Company, Gallion, LLC or Parent
regarding the environmental matters set forth in this SECTION 3.15;
(e) To the Company's, Gallion's, LLC's and Parent's knowledge, the
Buyers Real Property is presently, and, to the knowledge of the Company,
Gallion, LLC and Parent based upon written notice, has been at all times in the
past, in full compliance with all material applicable Environmental Laws. All
material Permits required by any Environmental Laws in connection with the
Company, Gallion, LLC, Parent, the Buyers Real Property and the business of the
Company, Gallion, LLC and Parent have been obtained, are in full force and
effect and have not been violated in any material respect;
(f) There is no pending or, to the knowledge of the Company,
Gallion, LLC or Parent, threatened Claim, including without limitation
Regulatory Actions, or Environmental Liability, or, to the knowledge of the
Company, Gallion, LLC or Parent, any existing condition or basis which may give
rise to any such Claim or Environmental Liability, or which, to the knowledge of
the Company, Gallion, LLC or Parent, may otherwise result in the imposition of a
Lien or forfeiture of the Buyers Real Property, or otherwise prohibit, restrict
or materially interfere with its use as presently conducted;
(g) Neither the Company, Gallion, LLC nor Parent has received any
notice that any Environmental Law requires any environmental testing, cleanup,
removal or work, repairs, construction or expenditures with respect to any part
of the Buyers Real Property or activities conducted at the Buyers Real Property;
(h) To the Company's, Gallion's, LLC's and Parent's knowledge, no
part of the Buyers Real Property (and the Company, Gallion, LLC and Parent have
not received written documentation stating or indicating that any part of the
Buyers Real Property) is wetlands or in a flood plain; and
(i) The Company's, Gallion's, LLC's and Parent's representations and
warranties in this Section 3.15 are based upon their respective knowledge of the
Buyers Real Property, and Seller and the Shareholders are entitled to rely
thereon notwithstanding any independent investigations by Seller or the
Shareholders.
For purposes of this Section 3.15, except for Go Fly A Kite
Acquisition, Inc., "Parent" includes all of Parent's Subsidiaries.
SECTION 3.16. Disclosure. None of the representations and warranties of
each of the Company, Gallion, LLC and Parent in this Agreement contain any
untrue statement of a material fact or omit to state a material fact necessary
in order to make the statements in them not misleading, in light of the
circumstances under which they were made.
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SECTION 3.17. Claims. Except as set forth in the SEC Documents, there are
no material 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 the Company, Gallion, LLC or Parent, threatened on the date hereof,
against or involving Parent, the Company, Gallion, LLC, or their respective
assets or businesses. Except as set forth in the SEC Documents, at the Closing
there will be no such Claims pending or, to the knowledge of the Company,
Gallion, LLC and Parent, threatened, other than Claims that, individually or in
the aggregate, could not reasonably be expected to have a material adverse
effect on the Condition of the Company, Gallion, LLC and Parent. Except as set
forth in the SEC Documents, to the knowledge of the Company, Gallion, LLC and
Parent, on the date hereof, there is no fact, event or circumstance that is
reasonably likely to give rise to any material Claim.
SECTION 3.18. Product Liability. Except as set forth in the SEC Documents,
there are no Claims and, to the knowledge of the Company, Gallion, , LLC and
Parent, no threatened Claims nor, to the knowledge of the Company, Gallion, LLC
and Parent, are there any facts or circumstances that could reasonably be
expected to result in a Claim, against the Company, Gallion, LLC or Parent 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 the Company, Gallion, LLC
or Parent, including Claims arising out of the defective or unsafe nature of the
Company's, Gallion's, LLC's or Parent's products, which could, individually or
in the aggregate, have a material adverse effect on the Condition of the
Company, Gallion, LLC and Parent.
ARTICLE IV
COVENANTS AND AGREEMENTS
SECTION 4.1. Conduct of Business.
(a) From the date hereof through the Closing Date, Seller agrees:
(i) To conduct its operations according to the ordinary and
usual course of the Business consistent with past practice, to preserve in all
material respects intact its present business organization and structure, to use
reasonable efforts to keep available the services of its key officers and
employees, to preserve and maintain in all material respects the Assets and the
good will of the Business and to preserve in all material respects its
relationships with customers and suppliers, and others having business dealings
with Seller.
(ii) To maintain in the ordinary course of the Business,
consistent with past practice and in accordance with Seller's business plan for
FY 1999, all material Contracts, the Real Property, all equipment, the Inventory
(subject to normal
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adjustments in the ordinary course of business) and other tangible Assets in
their present repair, order and condition, subject to ordinary wear and tear.
(iii) Not to incur any Liability, including, without
limitation any Debt not contemplated by Seller's business plan for the fiscal
year ended December 31, 1999 (other than Liabilities incurred in the ordinary
course of the Business, consistent with past practice), nor enter into any
Contract of a type required to be disclosed on any Schedule hereto.
(iv) Not to undertake (nor permit to be undertaken) any of the
actions specified in Section 2.8(a)(ii), (iii), (iv), (vi) (except as required
to comply with GAAP), (vii), (viii), (ix), (x), (xi), or (xii) hereof.
(v) Not to pay, discharge or satisfy any material Claim or
Liability, other than the payment, discharge or satisfaction in the ordinary
course of the Business of Claims or Liabilities incurred in the ordinary course
of Business, consistent with past practice.
(vi) Not to enter into, amend, modify, terminate, renew,
extend, or waive any material right under, any leases, licenses, occupancy
agreements or other Contracts concerning the Real Property or any other real
property or permit any person to occupy the Real Property, nor enter into any
material mortgage, pledge or other encumbrance, or other Contract affecting
title to, or the use, possession, occupancy, operation and/or maintenance of the
Real Property.
(vii) To pay all Taxes and other charges required with respect
to the Assets that are due and payable before the Closing Date and comply in all
material respects with all Laws, including all Environmental Laws.
(viii) To maintain insurance coverage in the amounts and types
as are currently in existence and more specifically described on SCHEDULE 2.16
annexed hereto and made a part hereof.
(ix) Not to withdraw, settle or otherwise compromise any
pending Tax reduction proceeding without the prior written consent of Buyers.
(x) Not to make any request of any Governmental Body without
the prior written consent of Buyers and to keep Buyers informed of all written
notices received from, or any correspondence with, any such Governmental Body.
(xi) To comply in all material respects with its obligations
under the Contracts to which it is a party, and send to Buyers copies of all
notices of default delivered pursuant to any of the Contracts, promptly upon
receipt thereof.
(xii) On or prior to the Closing Date, Seller shall, at its
sole cost and expense, cause all Liens, other than Permitted Liens, to be
discharged, removed and/or released of record. As of the Closing, there shall be
no outstanding Contracts made by Seller for the construction or repair of any
improvements to the Real Property that have not been fully paid for, and Seller
shall cause to be discharged all mechanics,
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materialmen's and other Liens arising from any labor or materials furnished to
the Real Property on or prior to the Closing Date.
(xiii) Not to make any declaration, set aside or payment of
any dividend or other distribution of common stock or other capital stock of
Seller to any Shareholder with respect to FY 1998 and FY 1999 (other than in a
manner consistent with Seller's past practices as a portion of the compensation
and distributions payable to such Shareholders).
(xiv) To conduct its business in such a manner so that the
representations and warranties of Seller contained herein shall continue to be
true and correct on and as of the Closing Date as if made on and as of the
Closing Date.
(xv) To consult with Buyers prior to any renewal, amendment,
extension or termination of, waiver of any material right under, or any failure
to renew, any material Contract and will not take any such action if Buyers
object thereto in writing before Seller takes that action. Notwithstanding the
foregoing, if Seller refrains from taking any action at the request of Buyers,
the Company, Gallion, LLC and Parent shall indemnify Seller and the Shareholders
for any adverse consequence to Seller or the Shareholders resulting from
Seller's failure to take that action. This Section 4.1(a)(xv) will survive the
expiration or termination of this Agreement.
(b) From the date hereof through the Closing Date, the Company,
Gallion, LLC and Parent agree:
(i) To promptly notify the Shareholders of (w) any material
change in the Condition of Parent or any of its Subsidiaries, (x) any Claim or
threatened Claim involving Parent or any of its Subsidiaries of which a director
or an executive officer of Parent becomes aware, (y) any event, circumstance or
development that would result in the representations and warranties under
Article III of this Agreement not to be true in all material respects if such
representations and warranties had been made on such date; and (z) the loss of
any material customer, supplier or license or any substantial damage to any of
the assets of any Parent or any of its Subsidiaries.
(ii) To conduct its business in such a manner so that their
respective representations and warranties contained herein shall continue to be
true and correct on and as of the Closing Date as if made on and as of the
Closing Date.
(iii) To use its best efforts to sustain and preserve in all
material respects its goodwill and business organization and all its
advantageous business relationships with lenders, customers, suppliers, and
licensors.
SECTION 4.2. Corporate Examinations and Investigations. (a) During the
period beginning upon the execution of this Agreement through the Closing Date,
Seller agrees that Buyers shall be entitled, through their Representatives to
make such investigation of the Assets, the Business and operations of Seller,
and such examination of the books, records and financial condition of Seller, as
Buyers reasonably deem necessary. Any such investigation and examination shall
be conducted at reasonable times, under
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reasonable circumstances and upon reasonable notice, and Seller shall cooperate
fully therein. In that connection, Seller shall make available to
Representatives of Buyers during such period all such information and copies of
such documents and records concerning the affairs of Seller as such
Representatives may reasonably request, shall permit Representatives of Buyers
access to the Assets and all parts thereof and to Seller's employees, customers,
suppliers, contractors and others, and shall cause Seller's Representatives to
cooperate fully in connection with such review and examination. During the
period after the date this Agreement is executed through the Closing Date, the
Company, Gallion, LLC and Parent shall at all reasonable times during normal
business hours afford Seller and the Shareholders and their respective officers,
directors, Affiliates, employees, attorneys, accountants, representatives,
lenders, consultants, and other agents with complete access to all books,
records, contracts, officers, directors, employees, and properties of the
Company, Gallion, LLC and Parent as are necessary to allow Seller to verify
compliance by the Company, Gallion, LLC and Parent with their respective
covenants, representations, and warranties in this Agreement. Each party to this
Agreement will use its best efforts to cause its independent public accountants
to afford every other party to this Agreement and its independent public
accountants complete access to the independent public accountant's work papers
pertaining to it and its Subsidiaries.
SECTION 4.3. Additional Financial Statements. Prior to the Closing Date,
as soon as available and in any event within fifteen (15) calendar days after
the end of each monthly accounting period of Seller ending after the date of the
most recent Interim Statement, Seller shall furnish Buyers with unaudited
financial statements of Seller for such month in form and substance comparable
to the Interim Statements and with such other financial or other information
routinely prepared by Seller or reasonably requested by Buyers. During the
period from the date of this Agreement until the Closing Date, Parent shall
deliver to Seller a copy of each report, statement, or other document Parent
files with the SEC within 48 hours after it is filed with the SEC and a copy of
each report or statement Parent mails to its shareholders generally within 48
hours after the date of the mailing.
SECTION 4.4. Filings and Authorizations. The parties hereto shall
cooperate and use their respective best efforts to make, or cause to be made,
all registrations, filings, applications and submissions, to give all notices
and to obtain all governmental or other third party consents, transfers,
approvals, Orders and waivers necessary or desirable for the consummation of the
Contemplated Transactions in accordance with the terms of this Agreement and
shall furnish copies thereof to each other party prior to such filing and shall
not make any such registration, filing, application or submission to which
Buyers or Seller, as the case may be, reasonably objects in writing. All such
filings shall comply in form and content in all material respects with
applicable Law. The parties hereto also agree to furnish each other with copies
of such filings and any correspondence received from any Governmental Body in
connection therewith. Each party hereto agrees to make an appropriate filing of
a Notification and Report Form pursuant to the HSR Act with respect to the
Transactions contemplated hereby within five (5) business days of the
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date hereof and to supply promptly any additional information and documentary
material that may be requested pursuant to the HSR Act. The parties hereto shall
not take any action that will have the effect of delaying, impairing or impeding
the receipt of any required approvals.
SECTION 4.5. Efforts to Consummate. Subject to the terms and conditions
herein, each of Seller, Parent, the Company, LLC and Gallion, without payment or
further consideration, shall use its good faith efforts to take or cause to be
taken all action and to do or cause to be done all things necessary, proper or
advisable to consummate and make effective, as soon as reasonably practicable,
the Contemplated Transactions, including, but not limited to, the obtaining of
all Seller Required Consents and Buyers Required Consents, respectively, and
Permits or consents of any third party, whether private or governmental,
required in connection with such party's performance of such transactions and
each party hereto shall cooperate with the other in all of the foregoing.
Notwithstanding the foregoing, Seller will not be required to commit to a
divestiture transaction.
SECTION 4.6. Negotiations With Others. From and after the date hereof
until the Closing, unless and until this Agreement shall have terminated in
accordance with its terms, neither Seller nor any of the Shareholders will
directly or indirectly and shall direct and cause their respective officers,
directors, employees, agents, and representatives not to (i) initiate, solicit,
intentionally encourage or facilitate, engage in discussions or engage in
negotiations with any person (other than Buyers or any of their Affiliates) with
respect to an Acquisition Proposal; (ii) provide information to any person
(other than Buyers or any of their Representatives) in connection with an
Acquisition Proposal; (iii) enter into any transaction with any person (other
than Buyers or any of their Affiliates) with respect to an Acquisition Proposal;
or (iv) agree to do any of the foregoing. If Seller, any Affiliate or
Representative thereof receives any offer or proposal to enter into discussions
or negotiations relating to any of the above, Seller will immediately notify
Buyers in writing that such offer or proposal was received by Seller, but
neither Seller nor the Shareholders are obligated to disclose to Buyers, Parent,
or any other person the identity of the offeror or the party making any such
proposal, the specific terms of such offer or proposal, or the content of the
discussions or negotiations.
SECTION 4.7. Notices of Certain Events.Prior to the Closing Date, Seller,
Parent, and Buyers shall promptly notify the other of:
(a) any notice or other communication from any person alleging that
the consent, approval, authorization or waiver of such person is or may be
required in connection with the Contemplated Transactions;
(b) any material adverse change in the Condition of the business or
the Condition of the Company, Gallion, LLC or Parent;
(c) any notice or other communication from any Governmental Body in
connection with the Contemplated Transactions; and
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(d) any event, condition or circumstance occurring from the date
hereof through the Closing Date that would constitute a violation or breach of
any representation or warranty, whether made as of the date hereof or as of the
Closing Date, or that would constitute a violation or breach of any covenant of
any party contained in this Agreement.
SECTION 4.8. Public Announcements. Prior to the Closing Date, Seller and
Buyers 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 Buyers 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. Parent shall
provide to Seller a copy of every press release, public announcement, and SEC
filing that mentions this Agreement, Seller, the Shareholders, or the
Contemplated Transactions, in advance of filing or issuing the document.
SECTION 4.9. Expenses. Except as otherwise specifically provided in this
Agreement, Buyers 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. Seller
shall pay when due all transfer, documentary, sales, use, stamp, registration,
recording, and other taxes and fees (including penalties and interest) imposed
by any Governmental Body of the State of Florida incurred by Seller in
connection with this Agreement, the Transaction Documents, and the Contemplated
Transactions ("FLORIDA TAXES"). Except for Florida Taxes and taxes which are
based upon the income or gain of Seller, Buyers shall pay when due all transfer,
documentary, stamp, registration, recording, and other taxes and fees (including
penalties and interest) in connection with this Agreement, the Transaction
Documents, and the Contemplated Transactions.
SECTION 4.10. Employee Matters. From the date hereof through the Closing
Date (and except as otherwise required by this Agreement), Seller agrees:
(a) Not to (1) adopt or enter into any Employee Benefit Plan, (2)
completely or partially withdraw (within the meaning of Section 4201 of ERISA)
from any multiemployer plan (within the meaning of Section 3(37) of ERISA) or
from any single employer plan (within the meaning of Section 4001(a)(15) of
ERISA) which has two or more contributing sponsors at least two of whom are not
under common control, (3) increase in any manner the compensation or fringe
benefit of any director, officer, employee or consultant of Seller, (4) pay any
benefit not required under the terms of any Employee Benefit Plan or this
Agreement, (5) grant any discretionary awards under any Employee Benefit Plan or
other bonus, incentive, performance or other compensation plan or arrangement
except as provided on SCHEDULE 4.10(A), (6) take any action to fund or in any
other way secure the payment of compensation or benefits to any director,
officer, employee or consultant of Seller or under any Employee Benefit Plan,
except to the extent required under applicable Laws, or (7) adopt, enter into or
amend any contract,
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agreement, commitment or arrangement to do any of the foregoing except as
necessary under applicable Laws.
(b) To fully satisfy all material obligations, on a timely basis,
under each Employee Benefit Plan, including, without limitation, all
contribution obligations, and to administer, operate and maintain each Employee
Benefit Plan in accordance with its terms and all applicable Laws.
(c) Not to take any action that interferes with Buyers' relationship
with Seller's key employees and not to be a direct or indirect party to any
action or activity which would deprive Buyers of the services of such key
employees.
SECTION 4.11. Further Assurances. At any time and from time to time after
the Closing Date, upon the request of another party to this Agreement, a party
to this Agreement shall do, execute, acknowledge and deliver, or cause to be
done, executed, acknowledged or delivered, all such further documents,
instruments or assurances, as may be necessary, desirable or proper to carry out
the intent and accomplish the purposes of this Agreement. Seller, Parent, the
Company, LLC and Gallion will each, respectively, bear its own costs and
expenses incurred in compliance with the first sentence of this Section 4.11.
SECTION 4.12. 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 4.13. Change of Name. At the Closing, Seller shall prepare and
file with its jurisdiction of incorporation, an amendment to its Articles of
Incorporation which shall change the name of such company to a dissimilar name.
SECTION 4.14. Product Liability Insurance. Seller shall obtain and
maintain in effect a tail insurance policy insuring against product liability
and other Retained Liabilities, in the amount of $5,000,000, which policy shall
(i) be effective on the Closing Date; (ii) remain in effect for a period of five
(5) years after the Closing Date, (iii) show Buyers as named insureds and (iv)
certify that no alteration, modification or termination of such coverage shall
be effective without at least thirty days' prior notice to
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Buyers. Buyers and Seller shall each pay 50% of all costs, fees, and expenses
associated with procuring and maintaining the foregoing insurance coverage.
SECTION 4.15. 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 Buyers 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. In the event that
Seller fails to obtain a person's consent or approval to the transfer of any of
the Assets that Seller in good faith determines is immaterial to the
Contemplated Transaction and Buyers waive Seller's obligation to obtain such
person's consent or approval, Seller's failure will not abrogate this Agreement.
To the extent that rights under any Contract, Permit or other Asset to be
assigned to Buyers hereunder may not be assigned without the consent of another
person, and such consent has not been obtained by 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. If such Seller Required
Consents shall not be obtained or if any attempted assignment would be
ineffective or would impair Buyers' rights under the instrument in question so
that Buyers 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 Buyers
agent in order to obtain for them the benefits thereunder and shall cooperate,
to the maximum extent permitted by Law and the instrument, with Buyers in any
other reasonable arrangement designed to provide such benefits to Buyers at no
additional cost to Seller for a period not to exceed twelve (12) months after
the Closing Date. 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 Buyers by
the Closing Date, Seller shall allow Buyers 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 Buyers and Buyers will buy from
Seller all such materials and supplies at the price paid for same by Seller.
SECTION 4.16. Transfer of Disney License. Seller shall use its best
efforts to obtain the consent of Disney to the transfer of the Disney Licenses
to the LLC.
SECTION 4.17. Business Employees. Immediately prior to the Closing and in
accordance with applicable Law, Seller shall terminate the employment of each of
its employees who perform services for or with respect to the operations of the
Business (the "BUSINESS EMPLOYEES"). In no event shall the Company, Gallion, LLC
or Parent be liable for any fees, expenses, salaries, wages, benefits, severance
payments or other payments which are accrued prior to, or arise as a result of,
Seller's termination of the Business Employees. Except as otherwise provided in
this Agreement, the Company may offer (but shall not be obligated to offer)
employment to any or all of the Business Employees. During the thirty (30) day
period prior to the Closing Date, Seller shall provide the
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Company with reasonable access to the Business Employees for purposes of
interviewing and communicating offers of employment and Burkett shall provide
information to the Company with respect to the job related skills, abilities and
performance of each of the Business Employees. At least five days before the
Closing Date, the Company shall notify Seller in writing of the Business
Employees to whom the Company has extended an offer of employment or will extend
an offer of employment before the Closing Date. The Company shall use its best
efforts to communicate all offers of employment to the Business Employees on or
about the Closing Date to ensure a smooth transition upon consummation of the
Contemplated Transactions.
As promptly as practicable after the Closing Date, Parent shall provide,
or cause the Company to provide, to employees of Seller and its Subsidiaries who
are employed by the Company or any of its direct or indirect Subsidiaries after
the Closing Date ("TRANSFERRED EMPLOYEES") employee benefits that are comparable
to the employee benefits that Parent and its Subsidiaries generally provide to
their own similarly situated employees, as reasonably determined by Parent in
good faith. In furtherance of the foregoing, Parent shall cause the Company to
adopt on or promptly after the Closing Date employee benefit plans that are
comparable to the employee benefit plans generally available to the employees of
Parent or its Subsidiaries. Prior to the Closing Date, the Company shall offer
employment to a sufficient number of the employees of Seller as Burkett
determines in his judgment is necessary as of the Closing Date to properly and
efficiently operate the Business subsequent to the Closing Date.
SECTION 4.18. Consent and Guaranty of Parent. By executing this Agreement,
Parent (as the sole shareholder of each of the Company and Gallion, the sole
member of LLC) approves the Contemplated Transactions and consents to the
execution, delivery, and performance of this Agreement and each other
Transaction Document by Buyers. This consent will be treated for all purposes as
an affirmative vote duly adopted at a meeting of the sole shareholder of the
Company and Gallion held for that purpose. Parent shall take, or shall cause its
direct and indirect Subsidiaries to take, all further action that is advisable
or necessary to authorize the Company's and Gallion's execution, delivery, and
performance of this Agreement and each other Transaction Document and Gallion
shall take, or shall cause its direct and indirect Subsidiaries to take, all
further action that is advisable or necessary to authorize LLC's execution,
delivery, and performance of this Agreement and each other Transaction Document.
In addition, Parent irrevocably and unconditionally guarantees to Seller and
each of the Shareholders the full and punctual payment and performance, when
due, by Buyers of all their obligations under this Agreement and each other
Transaction Document. Parent expressly waives presentment, demand of payment,
protest, and any requirement that Seller exhaust any right, power, or remedy or
proceed against Buyers under this Agreement or any other agreement or instrument
referred to in this Agreement or against any other person under any other
guaranty of, or security for, any of the obligations of Buyers under this
Agreement or any other agreement or instrument referred to in this Agreement.
SECTION 4.19. Release of Personal Liability.
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(a) At or before the Closing, the Company, LLC or Gallion shall
satisfy and obtain the release of any and all personal liability of the
Shareholders for all liabilities, obligations, and indebtedness of Seller to
SunTrust Bank, Tampa Bay, that have been personally guaranteed by any of them,
for which any of them is a co-obligor or accommodation party for or with Seller,
or that are secured wholly or partially by a lien, mortgage, security interest,
or other encumbrance on any personal assets of any Shareholder and shall cause
all such liens, mortgages, security interests, and encumbrances to be fully
released at Closing.
(b) At or before the Closing, the Company, LLC or Gallion shall
satisfy, obtain the release of, or indemnify with respect to any and all
personal liability of the Shareholders for all liabilities, obligations, and
indebtedness of Seller to all persons other than SunTrust Bank, Tampa Bay, as
set forth on SCHEDULE 4.19, that have been personally guaranteed by any of them,
for which any of them is a co-obligor or accommodation party for or with Seller,
or that are secured wholly or partially by a lien, mortgage, security interest,
or other encumbrance on any personal assets of any Shareholder. Each of the
Company, LLC and Gallion shall use its best efforts to cause all such liens,
mortgages, security interests, and encumbrances to be fully released at Closing.
ARTICLE V
CONDITIONS TO CLOSING
SECTION 5.1. Conditions to the Obligations of the Parties. The obligations
of Seller, the Company, Gallion, Parent, LLC and the Shareholders to consummate
the Contemplated Transactions are subject to the satisfaction of the following
conditions:
(a) NO INJUNCTION. No provision of any applicable Law and no Order
shall prohibit the consummation of the Contemplated Transactions.
(b) No Proceeding or Litigation. No Claim instituted by any person
(other than the Company, Gallion, Seller or their respective Affiliates), shall
have been commenced or pending against Seller, the Company, Gallion, LLC,
Parent, the Shareholders, or any of their respective Affiliates, officers or
directors, which Claim seeks to restrain, prevent, change or delay in any
respect the Contemplated Transactions or seeks to challenge any of the terms or
provisions of this Agreement or seeks damages in connection with any of such
transactions.
(c) Disney License Transfer. Seller shall have received the written
consent of Disney to the transfer of the Disney Licenses to LLC and Seller shall
have paid One Million Dollars ($1,000,000.00) to Disney representing the fee
required by Disney (the "DISNEY TRANSFER FEE") for the transfer of the Disney
Licenses to LLC.
(d) Employment Agreements. Charles D. Burkett, Jr., R. K. Holden,
Thomas Schultz, Willis Reed, and Kirk Rohlfs (collectively, the "Key Employees")
shall have delivered to the Company executed copies of employment agreements, in
the form
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annexed hereto as EXHIBIT 5.2E (the "EMPLOYMENT AGREEMENTS").
(e) Merger Control. Any waiting period (and any extension thereof)
under the HSR Act applicable to the purchase of the Assets contemplated hereby
shall have expired or shall have been terminated.
(f) No Order. No United States or state governmental authority or
other agency or commission or United States or state court of competent
jurisdiction shall have enacted, issued, promulgated, enforced or entered any
statute, rule, regulation, injunction or other order (whether temporary,
preliminary or permanent) which is in effect and has the effect of making the
transactions contemplated by this Agreement illegal or otherwise restraining or
prohibiting consummation of such transactions; PROVIDED, HOWEVER, that the
parties hereto shall use all reasonable efforts to have any such order or
injunction vacated.
SECTION 5.2. Conditions to the Obligations of Seller. All obligations of
Seller hereunder are subject, at the option of Seller, to the fulfillment, prior
to or at the Closing, of each of the following further conditions: (a)
PERFORMANCE. The Company, Gallion, LLC and Parent shall have performed and
complied with all agreements, obligations and covenants required by this
Agreement to be performed or complied with by it at or prior to the Closing
Date.
(b) Representations and Warranties. The representations and
warranties of Parent and Buyers contained in this Agreement and in any
certificate or other writing delivered by Parent or Buyers pursuant hereto shall
be true in all respects at and as of the Closing Date as if made at and as of
such time.
(c) Purchase Price. Buyers shall have delivered to Seller the Cash
Portion.
(d) Buyers Required Consents. All Buyers Required Consents shall
have been obtained in form and substance reasonably satisfactory to Seller, and
shall be in full force and effect.
(e) Documentation. There shall have been delivered to Seller the
following:
(i) A certificate, dated the Closing Date, of the Chairman of
the Board, the President, Managing Director or Chief Financial Officer of the
Company, Gallion, LLC and Parent confirming the matters set forth in Section
5.2(a) and (b) hereof.
(ii) A certificate, dated the Closing Date, of the Secretary
or Assistant Secretary of the Company, Gallion and Parent in the form of EXHIBIT
5.2A(I), certifying 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 the
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Company, Gallion and 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) A certificate, dated the Closing Date, of the manager of
LLC in the form of Exhibit 5.2A(ii), certifying that attached or appended to
such certificate (A) is a true and correct copy of its Certificate of Formation
and all amendments thereto, if any, as of the date thereof; (B) is a true copy
of all resolutions of the manager authorizing the execution, delivery and
performance of this Agreement, and each other Transaction Document to be
delivered by LLC pursuant hereto; and (C) 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.
(iv) Evidence of the good standing and corporate existence of
the Company, Gallion and Parent issued by the Secretary of State of the State of
Delaware and the appropriate authorities in Hong Kong and evidence of good
standing and limited liability existence of LLC issued by the Secretary of State
of the State of Delaware.
(v) A signed opinion of Buyers' outside legal counsel, dated
the Closing Date and addressed to Seller, in the form annexed as EXHIBIT 5.2B
hereto.
(vi) Copies of all Buyers Required Consents.
(vii) Executed copies of lease agreements with respect to all
real property currently used in the Business in the form of EXHIBIT 5.2C (the
"LEASES").
(viii) An executed copy of an assumption agreement in the form
annexed as Exhibit 5.2D (the "Assumption AGREEMENT").
(ix) The Company shall have delivered to the Key Employees
executed copies of the Employment Agreements.
(x) Buyers shall have delivered to Seller an executed copy of
a guaranty agreement of Parent, in the form annexed hereto as EXHIBIT 5.2G, with
respect to the obligation of Parent to guarantee the Earn-Out, the Travel Gross
Profit Payment and the Contingent Payments pursuant Sections 1.4, 1.5 and 1.6
hereof.
(xi) The Shareholders must have been fully released from all
guarantees of Seller Debt, all Liabilities and all other obligations owed by
Seller to SunTrust Bank, Tampa Bay, and all liens on personal assets of the
Shareholders in favor of SunTrust Bank, Tampa Bay and released or indemnified
from all guaranties of Seller Debt, all Liabilities, and other obligations and
all liens on personal assets of the Shareholders that are set forth on SCHEDULE
4.19.
(xii) Between the date of this Agreement and the Closing Date,
there shall not have occurred any material adverse change in the Condition of
Parent.
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(xiii) The Company and Burkett will have entered into an
employment agreement (the "Employment Agreement") in the form of EXHIBIT 5.2E.
(xiv) Buyers shall have delivered to Seller a fully completed
and executed Blanket Resale Certificate in the form of EXHIBIT 5.2H.
SECTION 5.3. Conditions to the Obligations of Buyers. All obligations of
Buyers hereunder are subject, at the option of each of the Company, LLC and
Gallion, to the fulfillment, prior to or at the Closing, of each of the
following further conditions:
(a) PERFORMANCE. Seller shall have performed and complied with all
agreements, obligations and covenants required by this Agreement to be performed
or complied with by it at or prior to the Closing Date.
(b) Representations and Warranties. The representations and
warranties of Seller contained in this Agreement and in any certificate or other
writing delivered by Seller pursuant hereto shall be true in all respects at and
as of the Closing Date as if made at and as of such time.
(c) Seller Required Consents. All Seller Required Consents shall
have been obtained in form and substance reasonably satisfactory to Buyers, and
shall be in full force and effect.
(d) Disney License Transfer. The Disney Transfer Fee shall have been
paid by Seller and the Disney Licenses shall have been transferred to LLC with
substantially the same terms and conditions as the Disney Licenses in effect on
the date hereof.
(e) Warner Brothers License Transfer. The Warner Brothers Licenses
shall have been transferred to LLC with substantially the same terms and
conditions as the Warner Brothers Licenses in effect on the date hereof.
(f) Claims. Subsequent to the date of this Agreement, there shall
not have arisen any Claims (other than Claims the substance of which are
disclosed on a Schedule to this Agreement) (whether or not the defense thereof
or Liabilities in respect thereof are covered by insurance), asserted or
threatened against or involving Seller, any of the Assets or the Business, other
than Claims that, individually or in the aggregate, together with all other
Claims existing or threatened on the Closing Date, could not reasonably be
expected to have a material adverse effect on the Condition of the Business.
(g) Depositaries. Contemporaneous with the Closing, such authorized
persons as shall be designated by Buyers, 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 Buyers.
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(h) Documentation. There shall have been delivered to Buyers the
following:
(i) A certificate dated the Closing Date, of the President of
Seller, confirming the matters set forth in Sections 5.3(a) and (b).
(ii) A certificate, dated the Closing Date, of the Secretary
or Assistant Secretary of Seller in the form of EXHIBIT 5.3A, certifying that
attached or appended to such certificate (A) is a true and correct copy of its
Articles 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 the
Transaction Documents and any certificate, document or other instrument in
connection herewith.
(iii) Evidence of the corporate existence of Seller issued by
the Secretary of State of its state of incorporation.
(iv) A signed opinion of Seller's counsel, dated the Closing
Date, addressed to each of the Company, LLC and Gallion, in the form annexed as
EXHIBIT 5.3B hereto.
(v) Copies of all Seller Required Consents.
(vi) Executed copies of the Leases.
(vii) A copy of an assignment of the Disney Licenses, duly
executed by a representative of Disney, evidencing the transfer of the Disney
Licenses to LLC.
(viii) An executed copy of a Bill of Sale and Assignment in a
form annexed hereto as Exhibit 5.3C.
(ix) An executed copy of the Assumption Agreement.
(x) An executed copy of the Employment Agreements of each of
the Key Employees.
(i) Phase II Environmental Study. Receipt by Parent of a Phase II
environmental study obtained by Parent from HydroScience, Inc. at Parent's sole
cost and expense regarding the real property leased by Seller located in Largo,
Florida that does not recommend that any remediation be performed with respect
to that property.
(j) Seller's Audited Financial Statements. Receipt by Parent of a
true, correct and complete copy of Seller's audited financial statements at and
for the year ended December 31, 1998.
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ARTICLE VI
INDEMNIFICATION
SECTION 6.1. Survival of Representations and Warranties. (a)
Notwithstanding any right of Buyers fully to investigate the affairs of Seller
and notwithstanding any knowledge of facts determined or determinable by Buyers
pursuant to such investigation or right of investigation, Buyers have the right
to rely upon the representations, warranties, covenants and agreements of Seller
and the Shareholders contained in this Agreement or in any document delivered in
connection with the Contemplated Transactions. Likewise, notwithstanding any
right of Seller or the Shareholders to fully investigate the affairs of the
Company, Gallion, LLC and Parent and notwithstanding any knowledge of facts
determined or determinable by Seller or the Shareholders pursuant to such
investigation or right of investigation, Seller and the Shareholders have the
right to rely fully upon the representations, warranties, covenants, and
agreements of the Company, Gallion, LLC and Parent contained in this Agreement
or in any document delivered in connection with the Contemplated Transaction.
All representations, warranties, covenants and agreements of all parties to this
Agreement shall survive the execution and delivery of this Agreement and the
Closing hereunder. Notwithstanding the foregoing, all representations and
warranties of Seller and the Shareholders contained in 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, 2.19 and 2.24,
which shall terminate and expire upon expiration of the applicable statute of
limitations) shall terminate and expire twenty-four (24) 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 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 from or are related to a Claim
for fraud by Seller and PROVIDED, FURTHER, that the termination of any
representation and warranty shall not affect the ability of Buyers to seek
indemnification under Section 6.2(iii) below.
(b) All representations and warranties of Parent and Buyers (other
than the representations and warranties in Section 3.13, 3.14 and 3.15, which
shall terminate and expire upon expiration of the applicable statute of
limitations) shall terminate and expire twenty-four (24) months after the
Closing Date; PROVIDED, HOWEVER, that the liability of each of Parent, the
Company, LLC and Gallion 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 either Parent, the
Company, LLC or Gallion has been given specific notice on or prior to the date
on which such Liabilities 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 and
warranty shall not affect the ability of Seller and the Shareholders to seek
indemnification under Section 6.3.
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(c) All representations and warranties of Seller and the
Shareholders in this Agreement are expressly conditioned by the information
included in the Seller Disclosure Schedules. Unless otherwise indicated, all
capitalized terms used in the Seller Disclosure Schedules have the meanings
attributed to them in this Agreement and the definitions of those terms in this
Agreement are incorporated by reference in the Seller Disclosure Schedules. The
Seller Disclosure Schedules constitute integral exhibits to this Agreement, are
incorporated by reference into the Agreement, and replace and supersede all
other disclosure schedules previously furnished by Seller or the Shareholders to
the Company, Gallion, LLC and Parent. Any disclosure schedule previously
furnished to the Company, Gallion, LLC and Parent by Seller or its Shareholders
is void and has no effect.
The information included in the Seller Disclosure Schedules is not
necessarily limited to the information that is required by the Agreement to be
reflected in the Seller Disclosure Schedules or to be delivered to the Company,
Gallion, LLC and Parent. Accordingly, the inclusion in the Seller Disclosure
Schedules of any particular information not otherwise requested or required does
not mean that all information of a similar nature is disclosed in the Seller
Disclosure Schedules. The disclosure of information under any particular
Schedule constitutes disclosure for all purposes of Seller Disclosure Schedules
and this Agreement.
SECTION 6.2. Obligation of Seller to Indemnify. Seller and the
Shareholders, jointly and severally, agree to indemnify, defend and hold
harmless the Company, Gallion, LLC and Parent (and their respective directors,
officers, employees, successors and assigns) from and against all Claims,
losses, Liabilities, Regulatory Actions, damages, deficiencies, judgments,
settlements, costs of investigation or other expenses (including Taxes,
interest, penalties and reasonable attorneys' fees and fees of other experts and
disbursements and expenses incurred in enforcing this indemnification)
(collectively, the "LOSSES") suffered or incurred by the Company, Gallion, LLC,
Parent or any of the foregoing persons in any action or proceeding between
Parent, the Company, LLC or Gallion (or any other indemnified person) and Seller
or any of the Shareholders, or between Parent, the Company, LLC or Gallion (or
any other indemnified person) and any third party or otherwise, arising out of
(i) any breach of the representations and warranties of Seller or Burkett
contained in this Agreement or any other Transaction Document, as conditioned or
limited by the Schedules hereto, (ii) any breach of the covenants and agreements
of Seller or the Shareholders contained in this Agreement or in the Schedules or
any other Transaction Document or (iii) any Retained Liabilities.
SECTION 6.3. Obligation of the Company, Gallion, LLC and Parent to
Indemnify. The Company, Gallion, LLC and Parent, jointly and severally, shall
indemnify, defend and hold harmless Seller and each of the Shareholders (and
their respective heirs, directors, officers, employees, legal and personal
representatives, and successors and assigns) from and against all Losses
suffered or incurred by Seller, the Shareholders, or any of the foregoing
persons in any action or proceeding between Seller or any of the Shareholders
and the Company, Gallion, LLC or Parent or between Seller or any of the
Shareholders and any third party or otherwise, arising out of (i) any breach of
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the representations and warranties of the Company, Gallion, LLC or Parent or of
the covenants and agreements of the Company, Gallion, LLC or Parent contained in
this Agreement or any other Transaction Document (ii) any breach of the
covenants and agreements of the Company, Gallion, LLC or Parent contained in
this Agreement or in the Schedules or any other Transaction Document, or (iii)
Buyers' ownership or use of the Assets, or (iv) any Assumed Liabilities.
SECTION 6.4. Notice and Opportunity to Defend Third Party. (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. The failure of the Indemnitee to so notify
the Indemnifying Party, however, will not relieve the Indemnifying Party from
any liability to the Indemnitee for indemnification pursuant to this Agreement
or otherwise, unless the failure materially prejudices the rights or obligations
of the Indemnifying Party. Without limiting what might be materially prejudicial
to the Indemnifying Party, the failure of the Indemnitee to notify the
Indemnifying Party of a lawsuit ten (10) days prior to such date when a
definitive response or answer is required to the complaint, petition, or other
pleading that asserts a claim that is or might give rise to an Loss will be
presumed to be materially prejudicial to the Indemnifying Party, unless the
Indemnifying Party also was served with a copy of the same complaint, petition,
or other pleading.
(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, 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 defend such Asserted
Liability at the sole cost and expense of the Indemnifying Party. An Indemnitee
shall not settle, compromise, or admit civil liability with respect to an
Asserted Liability that constitutes or might give rise to a Loss without the
advance written approval of the Indemnifying Party. The Indemnifying Party shall
notify the Indemnitee whether or not it will approve a proposed
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settlement within twenty (20) days after the date when the Indemnitee gives it
written notice of the proposed settlement that summarizes all the settlement
terms and conditions. The Indemnifying Party's failure to notify the Indemnitee
within the twenty (20) day period as to whether it will approve the proposed
settlement will constitute its approval of the proposed settlement. The
Indemnifying Party shall not unreasonably withhold or delay its approval of a
proposed settlement of any Loss. Except as provided in this paragraph, an
Indemnitee is not entitled to any indemnification for amounts paid or payable by
the Indemnitee pursuant to a settlement that is made by the Indemnitee without
the Indemnifying Party's approval. However, an Indemnifying Party will not have
any liability or obligation to an Indemnitee under this Agreement for any Loss
that the Indemnitee voluntarily pays, settles, compromises, confesses judgment
for, or admits liability with respect to, without the written approval of the
Indemnifying Party or before the Indemnitee requests the Indemnifying Party to
pay or perform the Loss. If an Indemnitee is entitled to indemnification under
this Agreement for only a portion of a Loss, the Indemnifying Party shall
indemnify the Indemnitee for that portion of the Loss. If the Indemnitee pays a
Loss with the Indemnifying Party's written approval, or if the Indemnitee
becomes legally obligated to pay a Loss, the Indemnifying Party shall reimburse
the Indemnitee for the Loss, or pay it on behalf of the Indemnitee, in
accordance with this Agreement within forty-five (45) days after the date when
the Indemnitee notifies the Indemnifying Party of its request for payment or
reimbursement of the Loss. Each notice from an Indemnitee requesting payment or
reimbursement of Loss must be accompanied by evidence of the Loss.
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.
(c) To the extent of any payment by an Indemnifying Party to or on
behalf of an Indemnitee for a Loss, the Indemnifying Party will be subrogated to
all rights of the Indemnitee to recover or obtain reimbursement for the payment
from any third party. At the request of the Indemnifying Party at any time and
from time to time, the Indemnitee shall execute and deliver to the Indemnifying
Party any document and do all such other acts as are reasonably necessary to
enable the Indemnifying Party to obtain or realize the benefit of that
subrogation, including the prosecution by the Indemnitee or the Indemnified
Party of a legal proceeding to enforce those rights of the Indemnitee. However,
if the Indemnified Party requests the Indemnitee to institute a legal proceeding
to recover or obtain reimbursement from a third party of any amount paid by the
Indemnifying Party to or on behalf of the Indemnitee for a Loss, that proceeding
will be covered by the indemnification provisions of this Agreement, and the
Indemnifying Party shall pay, reimburse, indemnify, and hold harmless the
Indemnitee from all cost, expense, damage, and liability arising out of, or in
any way connected with, that proceeding to the same extent that it is obligated
to do for any Loss. The Indemnifying Party is not liable
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for, and an Indemnitee is not entitled to any payment with respect to, a Loss to
the extent the Indemnitee has received payment for the Loss from any person
other than the Indemnifying Party, including any insurance company.
SECTION 6.5. Limits on Indemnification.(a) An Indemnitee is not entitled
to indemnification pursuant to SECTION 6.2 or 6.3 unless (a) all the
Contemplated Transactions are consummated, (b) the Indemnitee requests by
written notice to the Indemnifying Party payment or reimbursement of the Loss
within twenty-four (24) months after the Closing or the applicable limitations
period (as provided in Section 6.1), (c) the Indemnitee furnishes to the
Indemnifying Party evidence conclusively establishing the nature and amount of
the Losses, (d) the amount of the Loss has been determined and is absolute and
liquidated (not contingent), and (e) the Indemnitee has complied with Section
6.4(a). Notwithstanding anything in this Agreement to the contrary, (1) no
Indemnitee identified in Section 6.2 or Section 6.3 is entitled to
indemnification pursuant to Section 6.2 or Section 6.3, respectively, unless the
total, cumulative amount of all Losses for which the Indemnitee has requested
indemnification exceeds $100,000, and (2) the maximum, cumulative, aggregate
amount of any Indemnifying Party's liability under this Article VI is limited to
$8,500,000, and an Indemnifying Party shall not have any liability under this
Article VI on account of those matters for any amount, whether individually or
in the aggregate, in excess of $8,500,000.
(b) Buyers' remedies with respect to Losses specified in Section 6.2
shall be satisfied first by an off-set against any amount owed under the
Contingent Payment, provided that the amount of the Loss is due and owing to
Buyers as a result of a legitimate claim arising from a breach of any warranty,
obligation or representation of Seller or any of the Shareholders under this
Agreement and either (i) no dispute exists over the amount or validity of the
Loss or (ii) the Loss has been determined by a final, nonappealable order or
judgment of a court. Buyers shall not satisfy any other asserted Loss by an
off-set against any liability, obligation or indebtedness owed to Seller or any
Shareholder by Buyers without complying with the ensuing provisions. As required
by SECTION 6.4 above, Buyers promptly shall notify the Indemnifying Party of
either the incidence of a Loss or the existence of any known set of facts that,
if not corrected, might result in a Loss. The Indemnifying Party will have
twenty (20) calendar days following the effective date of Buyers' notice of a
Loss to notify Buyers of any objection that he or it has to the validity or
amount of the Loss. If the Indemnifying Party does not notify Buyers of his or
its objection to the validity or amount of the Loss within the twenty (20) day
period, Buyers (at their election) may recover the amount of the Loss payable by
Seller or any of the Shareholders by a set-off against any indebtedness that it
owes to Seller or any of the Shareholders. If the Indemnifying Party timely
notifies Buyers of an objection to the validity or amount of a Loss, however,
Buyers, at any time before the due date of any amount payable by them to the
Seller or any of the Shareholders, may pay over and deliver to SunTrust Bank,
Tampa Bay, as the escrow agent (the "INDEMNITY ESCROW AGENT"), for deposit in
escrow pursuant to the ensuing escrow instructions, the amount of the set-off
claimed by the Indemnified Party in respect of the indemnity claim.
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The amount of any disputed indemnity claim on deposit with the Indemnity
Escrow Agent will be applied as follows:
(i) The escrow will continue with respect to the disputed
amount for not more than sixty (60) days following its deposit with the
Indemnity Escrow Agent, during which time Buyers and the Indemnifying Party
shall attempt in good faith to resolve the dispute between them;
(ii) If the dispute between Buyers and the Indemnifying Party
is resolved, the Indemnity Escrow Agent, upon receipt of a written notice of
resolution signed by Buyers and the Indemnifying Party, shall pay over and
distribute such amount of escrow funds, in such a manner, and to such persons as
Buyers and the Indemnifying Party specify in their notice to the Indemnity
Escrow Agent; and
(iii) If the dispute between Buyers and the Indemnifying Party
has not been resolved within sixty (60) days, the Indemnity Escrow Agent shall
interplead with a court of competent jurisdiction an amount equal to the
disputed indemnity claim.
A dispute between Buyers and the Indemnifying Party over a Loss will be
deemed to be conclusively resolved by any written agreement between Buyers and
the Indemnifying Party or, failing agreement, by final adjudication of the
dispute by a court having jurisdiction over it. The Indemnity Escrow Agent is
entitled to rely conclusively on any written agreement between Buyers and an
Indemnifying Party concerning the disposition or application of any escrowed
funds or on any order of a court establishing the entitlement of either Buyers
or the Indemnifying Party to the escrow funds. Any payment by Buyers to the
Indemnity Escrow Agent in accordance with the foregoing escrow provisions will
not constitute a breach of this Agreement, regardless of the ultimate resolution
of the dispute between Buyers and the Indemnifying Party. Any escrowed funds
applied or disbursed by the Indemnity Escrow Agent to Buyers or the Indemnifying
Party in accordance with these escrow instructions will be owned by the
recipient, free and clear of all claims of the other parties. Upon application
of all the escrowed funds pursuant to these escrow instructions or upon
interpleading of all the escrowed funds with a court having jurisdiction, these
escrow provisions will terminate and the Indemnity Escrow Agent will be released
from all further responsibility.
Property held in escrow by the Indemnity Escrow Agent pursuant to these
escrow instructions will not be subject to a setoff, counterclaim, recoupment,
or other right the Indemnity Escrow Agent might have against any party to this
Agreement (except with respect to any payments due the Indemnity Escrow Agent
pursuant to these escrow provisions) or against any other person for any reason
whatsoever. The Indemnity Escrow Agent will not be liable for any act or
omission by it pursuant to these escrow instructions that is done in good faith
and in the exercise of its best judgment, except for willful conduct or grossly
negligent acts or omissions.
The Indemnity Escrow Agent shall invest and reinvest the escrowed funds
from
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time to time in a time deposit account that accrues interest daily, a short-term
trust for United States government securities, time deposit certificates or
other evidences of deposit or short-term securities that in each case are issued
or guaranteed by the United States or any agency of the United States and have
maturities of not more than thirty (30) days. However, all investments by the
Indemnity Escrow Agent must be readily convertible into cash on short notice.
Interest earned on the escrowed funds will inure to the party who ultimately
prevails in the dispute over the indemnity claim.
SECTION 6.6. Exclusive Remedy. Except as provided in Article VII and
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.
SECTION 6.7. Subrogation and Duplication of Payments. To the extent of any
payment by an Indemnifying Party to or on behalf of an Indemnitee for any
indemnified Losses, the Indemnifying Party will be subrogated to all rights of
the Indemnitee to recover or obtain reimbursement for the payment from any third
party. At the request of the Indemnifying Party at any time and from time to
time, the Indemnitee shall execute and deliver to the Indemnifying Party any
document (and do all such other acts and things) as are reasonably necessary to
enable the Indemnifying Party to obtain or realize the benefit of that
subrogation, including the prosecution by the Indemnitee of a legal proceeding
to enforce those rights of the Indemnitee. However, if the Indemnifying Party
requests the Indemnitee to institute a legal proceeding to recover or obtain
reimbursement from a third party of any amount paid by the Indemnifying Party to
or on behalf of the Indemnified Party for any indemnified Losses, that legal
proceeding will be covered by the indemnification provisions of this Article VI,
and the Indemnifying Party shall indemnify and hold harmless the Indemnitee from
all Losses arising out of, or in any way connected with, that legal proceeding
to the same extent that it is obligated to do for any Losses of a third party
that is indemnified hereunder.
SECTION 6.8. Liquidation of Indemnification Claims. When any Losses are
paid or are otherwise fixed or determined as to amount for which any Indemnitee
shall claim indemnification pursuant to this Article VI, then the Indemnitee
shall give every Indemnifying Party notice thereof, specifying in reasonable
detail the nature and amount of the Losses and the Sections of this Agreement
upon which the claim for indemnification for those Losses is based. If the
Indemnifying Party desires to dispute the claim, it shall, within thirty (30)
days after notice of the claim is given pursuant to this Section, give counter
notice to the Indemnitee, setting forth in reasonable detail the basis for
disputing the claim. If no such counter notice is given within that thirty (30)
day period, or if the Indemnifying Party acknowledges liability for
indemnification, then the indemnification obligation shall be promptly
satisfied.
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If, within thirty (30) days after the giving of a counter notice by the
Indemnifying Party, the Indemnifying Party and the Indemnitee have not reached
agreement as to the indemnification claim in question, then the claim for
indemnification shall be submitted to and settled by arbitration as hereinafter
provided (it being expressly understood and agreed that if such counter notice
is duly given, it is the intention of the parties to this Agreement that any
such indemnification claim shall be resolved by arbitration as provided in this
Section). Arbitration shall be by a single arbitrator experienced in the matters
at issue selected by, and mutually acceptable to, the Indemnifying Party and the
Indemnified Party and shall be conducted in accordance with the rules of the
American Arbitration Association. In the event that Buyers bring an arbitration
action, such arbitration shall be held in Florida. In the event that Seller or
Shareholders bring an arbitration action, such arbitration shall be held in New
York. The arbitrator must be independent (not an agent, officer, director,
attorney, employee, or shareholder of Parent, the Company, Gallion, LLC, Seller,
or any of the Shareholders or a relative of any of those persons) without any
economic or financial interest of any kind in the outcome of the arbitration.
Each arbitrator's conduct will be governed by the Code of Ethics for Arbitrators
in Commercial Disputes (1986) that has been approved and recommended by the
American Bar Association and the American Arbitration Association. Within one
hundred-twenty (120) days after the effective date of the counter notice of the
Indemnifying Party, the arbitrator shall convene a hearing for the dispute to be
held on such date and at such time as the arbitrator designates upon thirty (30)
days' advance notice to each Indemnitee and each Indemnifying Party. The
arbitrator shall render her or his decision within thirty (30) days after the
conclusion of the hearing. The arbitrator shall hear and decide the dispute
based on the evidence produced, notwithstanding the failure or refusal to appear
by a party who has been duly notified of the date, time, and place of the
hearing. The decision of the arbitrator shall be final and binding as to any
matters submitted under this Agreement, and to the extent that the arbitrator's
decision is that Losses have been incurred for which a party is to be
indemnified under this Agreement, the Losses shall be promptly satisfied;
PROVIDED HOWEVER, that, if necessary, such decision may be enforced by either
the Indemnifying Party or the Indemnitee in any court of record having
jurisdiction over the subject matter or over any of the parties hereto. Each
party shall pay its own costs and expenses incurred in connection with any such
arbitration.
Neither Seller nor any Shareholder is liable for any Loss incurred by a
Parent Indemnitee to the extent that the Loss is covered as a whole or in part
as an insured claim under any insurance policy maintained by Parent, the
Company, Gallion, LLC, or others or would have been covered by an insurance
policy of Seller that was in force as of the Closing Date, but not covered by
insurance policies of the Company, Gallion, LLC or Parent.
SECTION 6.9. Indemnification Net of Benefits. The amount of any recovery
by an Indemnitee pursuant to this Article VI shall be net of any insurance
benefits actually received by such Indemnitee (but not to the extent such
benefits are repaid through retrospective premium adjustments or otherwise) or
any foreign federal, state
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and/or local tax benefits actually received by such Indemnitee as a result of
the state of facts which entitled the Indemnitee to recover from the
Indemnifying Party pursuant to this Article VI. Notwithstanding the foregoing,
any increase or decrease in the basis of any assets or stock of Parent or any of
its Subsidiaries shall not be considered to give rise to a tax benefit for
purposes of this Section 6.9.
ARTICLE VII
SPECIFIC PERFORMANCE; TERMINATION
SECTION 7.1. Specific Performance; Waiver of Certain Damages. Seller
acknowledges and agrees that, if Seller fails to proceed with the Closing in any
circumstance other than those described in clauses (a), (b), (d) or (e) of
Section 7.2 below, Buyers will not have adequate remedies at Law with respect to
such breach. In such event, and in addition to Buyers' right to terminate this
Agreement, Buyers shall be entitled, without the necessity or obligation of
posting a bond or other security, to seek injunctive relief, to commence a suit
in equity to obtain specific performance of Seller's obligations under this
Agreement, or to sue Seller for damages, in each case without first terminating
this Agreement. Seller specifically affirms the appropriateness of such
injunctive or other equitable relief or damages in any such action. The Company,
Gallion, LLC and Parent acknowledge and agree that, if the Company, Gallion, LLC
or Parent fail to proceed with the Closing under any circumstance other than
those described in clauses (a), (c), (d), or (e) of Section 7.2 below, Seller
and the Shareholders will not have adequate remedies at Law with respect to such
breach. In such event, and in addition to Seller's and the Shareholder's right
to terminate this Agreement, Seller and the Shareholders shall be entitled,
without the necessity or obligation of posting a bond or other security, to seek
injunctive relief, to commence a suit in equity to obtain specific performance
of the Company's, Gallion's, LLC's and Parent's obligations under this
Agreement, or to sue the Company, Gallion, LLC and Parent for damages, in each
case without first terminating this Agreement. Each of the Company, Gallion, LLC
and Parent specifically affirms the appropriateness of such injunctive or other
equitable relief or damages in any such action.
The parties acknowledge that, because of the unique nature of the
undertakings contemplated by this Agreement, it is difficult or impossible to
determine with precision the amount of damages that would or might be incurred
by either party as a result of certain breaches of or defaults under this
Agreement. Accordingly, in no event is any party liable for or obligated in any
manner to pay special, indirect, punitive, incidental, or consequential damages
of any nature incurred by the other party.
SECTION 7.2. Termination. This Agreement may be terminated and the
Contemplated Transactions may be abandoned at any time prior to the Closing:
(a) By mutual written consent of Seller and Buyers;
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(b) By Seller if: (i) there has been a misrepresentation or a breach
of warranty on the part of the Company, Gallion, LLC or Parent in the
representations and warranties contained herein and such misrepresentation or
breach of warranty, if curable, is not cured within thirty days after written
notice thereof from Seller; (ii) the Company, Gallion, LLC or Parent has
committed a breach of any material covenant imposed upon it hereunder and fails
to cure such breach within thirty days after written notice thereof from Seller;
or (iii) any condition to Seller's obligations hereunder becomes incapable of
fulfillment through no fault of Seller and is not waived by Seller; PROVIDED
that, on the date of termination, the conditions to the Company's, Gallion's,
LLC's and Parent's obligations hereunder specified in Section 5.3 hereof (other
than clauses (d), (e), (f), and (g) thereof) shall have been satisfied, and
Seller shall then be otherwise ready, willing and able to proceed with the
Closing hereunder;
(c) By Buyers, if (i) there has been a misrepresentation or a breach
of warranty on the part of Seller in the representations and warranties
contained herein and such misrepresentation or breach of warranty, if curable,
is not cured within thirty days after written notice thereof from Buyers; (ii)
Seller has committed a breach of any material covenant imposed upon it hereunder
and fails to cure such breach within thirty days after written notice thereof
from Buyers; or (iii) any condition to Buyers' obligations hereunder becomes
incapable of fulfillment through no fault of Buyers and is not waived by Buyers;
PROVIDED that, on the date of termination, the conditions to Seller's
obligations hereunder specified in Section 5.2 hereof (other than clauses (c)
and (e) thereof) shall have been satisfied, and the Company, Gallion, LLC and
Parent shall then be otherwise ready, willing and able to proceed with the
Closing hereunder;
(d) By Seller or by Buyers, if any condition under Section 5.1
becomes incapable of fulfillment through no fault of the party seeking
termination and is not waived in writing by the party seeking termination; and
(e) By either Seller or Buyers if the Closing shall not have
occurred on or prior to May 30, 1999; provided that, (i) if so terminated by
Seller, the conditions specified in the proviso of Section 7.2(b) shall have
been satisfied on the date of termination and Seller shall be then otherwise
ready, willing and able to proceed with the Closing, or (ii) if so terminated by
Buyers, the conditions specified in the proviso of Section 7.2(c) shall have
been satisfied on the date of termination and the Company, Gallion, LLC and
Parent shall be then otherwise ready, willing and able to proceed with the
Closing.
SECTION 7.3. Effect of Termination; Right to Proceed. Subject to the
provisions of Section 7.1 hereof, in the event that this Agreement shall be
terminated pursuant to Section 7.2(a), (b), (c), (d), or (e), all further
obligations of the parties under this Agreement shall terminate without further
liability of any party hereunder except that (i) the agreements contained in
Sections 4.8 and 4.9 shall survive the termination hereof, and (ii) termination
shall not preclude any party from seeking relief against any other party for
breach of this Agreement. In the event that a condition precedent to its
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obligation is not met, nothing contained herein shall be deemed to require any
party to terminate this Agreement, rather than to waive such condition precedent
and proceed with the Contemplated Transactions. Likewise, the provisions of
Sections 1.3, 1.4, 1.5, 1.6, 1.7, 4.1(a)(xv), 4.8, 4.9, 4.11, 4.12, 4.13, 4.17,
4.18, 4.19, 6.1, 6.2, 6.3, 6.4, 6.5, 6.6, 6.7, 6.8, 6.9, 7.1, 8.1, 8.4, 8.5, and
8.10 shall survive the Closing.
ARTICLE VIII
MISCELLANEOUS
SECTION 8.1. Notices. (a) Any notice, consent, approval, 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 the Company, Gallion, LLC or Parent, one copy to:
Monogram Acquisition, Inc.
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, one copy to:
Monogram International, Inc.
12395 75th Street North
Largo, Florida 33773
Telecopier: (813) 536-0335
Attn: Mr. Charles D. Burkett, Jr.,
Chief Executive Officer
with a copy to:
Glenn Rasmussen & Fogarty, P.A.
100 South Ashley Drive, Suite 1300
Tampa, Florida 33602
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Telecopier: (813) 229-5946
Attn: Sharon Docherty Danco, Esq.
(iii) If to the Shareholders, one copy to:
Charles D. Burkett, Jr., as Agent
for the Shareholders
13201 - 94th Avenue North
Seminole, Florida 33646
with a copy to:
Glenn Rasmussen & Fogarty, P.A.
100 South Ashley Drive, Suite 1300
Tampa, Florida 33602
Telecopier: (813) 229-5946
Attn: Sharon Docherty Danco, Esq.
(b) Each such notice, consent, approval, 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) 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.
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 transactions described in them and
supersede all prior agreements (including specifically all agreements included
in the letter of intent, as amended, among Parent, Seller, and Burkett), written
or oral, with respect thereto, except for the Confidentiality Agreement, which
will continue in full force and effect.
SECTION 8.3. Waivers and Amendments; Non-Contractual Remedies;
Preservation of Remedies. This Agreement may be amended, superseded, canceled,
renewed or extended only by a written instrument signed by Seller, the
Shareholders, the Company, Gallion, LLC and Parent. The provisions hereof may be
waived only in writing by Seller, Parent, the Company, Gallion, LLC or the
Shareholders. 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. Except as otherwise provided herein, the
rights and remedies herein provided are cumulative and are not exclusive of any
rights or remedies that any party may otherwise have at Law or in equity.
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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 and the federal laws of the
United States of America, without regard to the conflict of laws rules thereof.
SECTION 8.5. 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 Buyers (in the
case of assignment by Seller) or Seller (in the case of assignment by the
Company, Gallion, LLC or Parent) and any purported assignment, unless so
consented to in writing, shall be void and without effect.
SECTION 8.6. Exhibits. All Exhibits and Schedules attached hereto are
hereby incorporated by reference into, and made a part of, this Agreement.
SECTION 8.7. 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 8.8. 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 8.9. 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 claims, rights or remedies under or by
reason of this Agreement or the Contemplated Transactions.
SECTION 8.10. Direct or Indirect Action.When any provision of this
Agreement requires or prohibits any particular action to be taken by a person,
the provision applies regardless of whether the action is taken directly or
indirectly by the person.
SECTION 8.11. Title and Risk of Loss. Legal title, equitable title and
risk of loss with respect to the Assets and rights to be transferred hereunder
shall not pass to Buyers until the Closing hereunder.
SECTION 8.12. Appointment of Agent. Each of the Shareholders hereby
appoints and authorizes Burkett to act as agent on his or her behalf with
respect to all actions necessary, required or incidental to the Contemplated
Transactions.
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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
(other than transfers among the Shareholders), (iii) the sale, lease, or
transfer of the Business, or (iv) the sale or other transfer of any Assets
(except in the ordinary course).
"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 in accordance with its terms.
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.
"Burkett" means Charles D. Burkett, Jr.
"Business" shall mean the ownership and operation of the Assets comprising
the business operations of Seller.
"Change in Control" means any of the following: (a) the shareholders of
Parent approve the liquidation of all or substantially all the consolidated
assets of Parent and its Subsidiaries, other than a liquidation of a Parent
Subsidiary into Parent or another Parent Subsidiary (unless the transaction is
subsequently abandoned); (b) the shareholders of Parent approve a sale, lease,
exchange, or other transfer to any person other than Parent or a Parent
Subsidiary (in a single transaction or related series of transactions) of all or
substantially all the consolidated assets of Parent and its Subsidiaries,
excluding the creation (but not the foreclosure) of a lien, mortgage, or
security interest (unless the transaction is subsequently abandoned); (c) the
shareholders of Parent approve a merger, consolidation, reorganization, tender
offer, exchange offer, or share exchange in which Parent is not the surviving
corporation or becomes a majority-owned subsidiary of a person other than a
Parent Subsidiary (unless the transaction is subsequently abandoned); or (d) the
occurrence of any event, transaction, or arrangement that results in any person
or group becoming a beneficial owner of (i) a majority of the outstanding equity
securities of Parent or any Parent Subsidiary that contributed more than 50% of
Parent's consolidated revenues for its last fiscal year, (ii) securities of
Parent representing greater than 50% of the combined voting power of all the
outstanding securities of Parent that are entitled to vote generally in the
election of its directors, or (iii) with respect to any Subsidiary that
contributed more than 50% of Parent's consolidated revenues for its last fiscal
year, securities of that Subsidiary representing a majority of the combined
voting power of all the outstanding securities of that Subsidiary that are
entitled to vote
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generally in the election of its directors, unless in each case the beneficial
owner is Parent, a Parent Subsidiary, an employee benefit plan sponsored by
Parent, a person or group who is a record or beneficial owner of 30% or more of
the outstanding shares of Parent's common stock on the effective date of this
Agreement, or a person who becomes a beneficial owner of 30% or more of the
outstanding shares of Parent's common stock solely by becoming a trustee of an
inter vivos trust created by a person who is the record or beneficial owner of
30% or more of the outstanding shares of Parent's common stock on the effective
date of this Agreement.
"Closing Date Net Assets" shall mean the excess of (a) the Assets on the
Closing Date over (b) the dollar amount of currently payable Assumed Liabilities
on the Closing Date, all as determined in accordance with GAAP applied in a
manner consistent with those principles used in preparing the Latest Balance
Sheet.
"Code" shall mean the Internal Revenue Code of 1986, as amended, or any
law enacted to replace that Code or any regulations or rules promulgated under
that Code or any such Law.
"Computer Related Systems" means a parties mainframe information systems,
PC/LAN systems, software, facilities, machinery, and equipment.
"Condition" of any person shall mean the condition (financial or
otherwise), earnings, results of operations, business, and properties of the
person.
"Confidentiality Agreement" means the Confidentiality Agreement dated
August 25, 1998, between Parent and Seller.
"Contemplated Transactions" shall mean the transactions contemplated by
the Transaction Documents.
"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, 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.
"days" shall mean calendar days, including Saturdays, Sundays, and
holidays.
"Debt" shall mean (i) money borrowed from any person; (ii) any
indebtedness arising under leases required to be capitalized under GAAP or
evidenced by a note, bond, debenture or similar instrument; (iii) any
indebtedness 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 business); (iv) any Liability of any
person secured by a Lien on any assets; and (v) any Liability 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.
"DISNEY" means (a) with respect to the Disney Licenses, Disney Consumer
Products International, Inc., Disney Enterprises, Inc. and Walt Disney Company
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Licensing (Europe, Middle East & Africa) S.A., and (b) for all other purposes of
this Agreement, means The Walt Disney Company, Disney Consumer Products
International, Inc., Disney Enterprises, Inc. and Walt Disney Company Licensing
(Europe, Middle East & Africa) S.A., Disney Sourcing Organization, Disney Travel
Products, Disney Tax-Free Goods division, The Disney Store Inc., The Disney
Store Ltd., Walt Disney Music Company, Walt Disney Attractions, Inc., The Walt
Disney Company, all other Disney-related entities, all affiliates and divisions
of the foregoing entities, and all the respective successors and assigns of the
foregoing entities (by contract, operation of law, or otherwise).
"Disney Licenses" means the following: (a) Memorandum of Understanding
between Seller and Disney Sourcing, as agent for Disney Enterprises, Inc., for
the manufacturing and selling of products containing licensed material dated as
of October 8, 1998; (b) Duty Free License Agreement dated as of July 1, 1996,
between the Disney Tax-free Goods division of Disney Consumer Products
International, Inc., a wholly owned subsidiary of Disney Enterprises, Inc., and
Seller regarding the following licensed material and trademarks: MICKEY'S WORLD,
MICKEY MOUSE, MINNIE MOUSE, DONALD DUCK, DAISY DUCK, PLUTO, and GOOFY, as
amended by the following amendments: First Amendment dated as of June 25, 1997;
Second Amendment dated August 21, 1997; Third Amendment dated as of January 1,
1998; and Fourth Amendment dated July 30, 1998, all between Seller and Disney
Travel Products (formerly known as Disney Tax-free Goods division of Disney
Consumer Products International, Inc.); (c) Duty Free License Agreement dated as
of April 1, 1996, between the Disney Tax-free Goods division of Disney Consumer
Products International, Inc., a wholly owned subsidiary of Disney Enterprises,
Inc., and Seller regarding the licensing of the licensed materials and
trademarks MICKEY'S WORLD, MICKEY MOUSE, MINNIE MOUSE, DONALD DUCK, DAISY DUCK,
PLUTO, and GOOFY, as amended by the following amendments: Amendment dated as of
September 9, 1996; Second Amendment dated June 25, 1997; Third Amendment dated
August 21, 1997; Fourth Amendment dated as of January 1, 1998; and Fifth
Amendment dated July 30, 1998, all between Seller and Disney Travel Products
(formerly known as Disney Tax-free Goods division of Disney Consumer Products
International, Inc.); (d) License Agreement dated as of February 11, 1997,
between Disney Enterprises, Inc. and Seller regarding the licensing of the
trademarks MICKEY'S STUFF FOR KIDS and MICKEY UNLIMITED, MICKEY MOUSE, MINNIE
MOUSE, DONALD DUCK, DAISY DUCK, THE ORANGE BIRD, PLUTO and GOOFY (but not SPORT
GOOFY), as amended by the First Amendment dated March 24, 1997, between Seller
and Disney Enterprises, Inc.; (e) License Agreement dated November 7, 1996,
between Disney Enterprises, Inc. and Seller regarding the licensing of the
trademarks WALT DISNEY, DISNEY, ARIEL, SEBASTIAN, FLOUNDER, SCUTTLE, TRITON,
URSULA, FLOTSAM & JETSAM, ERIC, MAX, GRIMSBY, CARLOTTA, CHEF LOUIS, and THE
LITTLE MERMAID; (f) License Agreement dated July 1, 1998, between Seller and
Disney Enterprises, Inc. for use of licensed material and trademarks "TARZAN,"
"Walt Disney" and "Disney," with the following addenda: Special Addendum to
TARZAN License Agreement; Catalogue Schedule (List of Pre-Approved Catalogues);
Transfer Fee Policy; Code of
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Conduct for Manufacturers; and Code of Conduct for Licensees; (g) License
Agreement dated March 10, 1998, between Seller and Disney Enterprises, Inc.
regarding the licensing of trademarks "A BUG'S LIFE," "Walt Disney" and "Disney"
with the following addenda: Catalogue Schedule (List of Pre-Approved
Catalogues); Transfer Fee Policy; Code of Conduct for Manufacturers; and Code of
Conduct for Licensees; (h) License Agreement dated January 19, 1999, between
Seller and Disney Enterprises, Inc., regarding the licensing of trademarks "Toy
Story II" characters and representations, "Walt Disney," and "Disney" with a
stated expiration date of December 31, 2000, and the following addenda:
Catalogue Schedule (List of Pre-Approved Catalogues); Transfer Fee Policy; Code
of Conduct for Manufacturers; and Code of Conduct for Licensees; (i) License
Agreement dated March 10, 1998, between Seller and Disney Enterprises, Inc.,
regarding the licensing of "Disney's The Lion King - Simba's Pride," with the
following Addenda: Catalog Schedule (List of Pre-Approved Catalogs); Transfer
Fee Policy; Code of Conduct for Manufacturers; and Code of Conduct for
Licensees; (j) Memorandum of Understanding dated June 19, 1996, between Seller
and The Disney Store, Inc., for the licensing and manufacturing of licensed
material with (a) Consent for Third Party Manufacturer dated June 17, 1996,
between Seller and The Disney Store whereby Disney consents to the manufacturing
by Flying Dragon Toys Ffy., Ltd., of certain authorized articles in Hong
Kong/China, (b) Consent for Third Party Manufacture dated June 19, 1996, between
Seller and The Disney Store whereby Disney consents to the manufacturing by
Point East Limited, Ltd., of certain authorized articles in Hong Kong/China, and
(c) Third Party Manufacturer's Agreement Disney Character Merchandise dated June
17, 1996 among Seller, as authorized vendor, The Disney Store, Inc., as
licensor, and Flying Dragon Toys Mfy., Ltd., as manufacturer (UNEXECUTED); (k)
Memorandum of Understanding dated October 13, 1998, between Seller and the
Disney Store Limited for the manufacturing and selling of merchandise containing
licensed material; (l) Memorandum of Understanding dated June 1, 1993, between
Seller and The Disney Store Limited for the manufacturing and selling of
merchandise containing licensed material; (m) Mechanical License Agreement dated
July 9, 1997, between Seller and Walt Disney Music Company for the use of the
musical composition entitled "Mickey Mouse March"; (n) Memorandum of
Understanding dated March 11, 1996, between Seller and Walt Disney Attractions,
Inc., for the licensing and manufacturing of licensed material; and (o)
Agreement dated September 15, 1998, between Seller, as licensee, and Walt Disney
Company, (Europe, Middle East and Africa) S.A., as licensor, regarding the use
of licensed material and trademarks listed on accompanying schedule with the
following addenda: Consent/Manufacturer's Agreement Disney Character
Merchandise; Code of Conduct for Licensees; Code of Conduct for Manufacturers;
and Appendix B, List of Licensed Articles Per Property.
"EBITDA" shall mean the consolidated earnings of the Company, LLC and
Gallion, their respective Subsidiaries (if any), and any other businesses of
Parent or any of its Subsidiaries that represent a successor to and a
continuation of the Business before interest, taxes, depreciation, and
amortization, calculated in accordance with GAAP consistently applied as in
effect as of the Closing Date and applied consistently with the accounting
principles applied by Seller in fiscal years before the Closing modified as
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follows:
(a) to the extent included in EBITDA, excluding the effect of the
following:
(i) Any items of income, gain, loss or expense relating to
Toymax Product Line Sales of the Company;
(ii) Any extraordinary items of income, gain, loss, or
expense;
(iii) Intercompany charges that are greater than actual cost
for such goods or services between Buyers or any Subsidiary of Buyers and Parent
or any Subsidiary of Parent that have not been approved by Burkett;
(iv) Any costs or expenses caused by or arising out of the
Toymax International, Inc. amended and restated 1997 Stock Option Plan (the
"Stock Option Plan") (including payments under the Stock Option Plan);
(v) Any employment-related costs associated with personnel
required by the Company, Gallion, LLC or Parent to be employed or retained by
Buyers that Burkett did not approve in writing;
(vi) Any expenses directly or indirectly incurred in
connection with the acquisition of the Assets by Buyers and the Contemplated
Transactions;
(vii) Any reserves or adjustments to reserves or changes to
payments of mark-down dollars or chargebacks that are not consistent with past
practices of Seller;
(viii) Any gain, loss, income, expense, reserves or
adjustments to reserves resulting from a change in the accounting methods,
principles, or practices by Buyers from those of Seller in its audited financial
statements for its fiscal year 1998 including, but not limited to, any balance
sheet provisions or accruals relating to inventory, receivables or restructuring
subsequent to December 31, 1998;
(ix) Any expenses or benefits directly or indirectly incurred
in connection with the financing of the Contemplated Transactions or any
refinancing of that indebtedness or any other financing not reflected in the
Annual Statements or Interim Statements other than those approved by Burkett;
(x) Any benefit, credit, loss, charge, or expense other than
those approved by Burkett that are (A) not related to the ordinary business
operations of Buyers or (B) paid, incurred, or changed in connection with
expansion of the Business as a result of acquisitions or the opening and
staffing of new offices;
(xi) Any savings, credits, payments, charges, or expenses for
allocation of home office, executive, general and administrative expenses, or
other payments, charges, or expenses of Parent and/or its Affiliates, other than
those approved by Burkett; and
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(xii) All Earn-Out payments, Contingent Payments and the
Travel Gross Profit Payment, including interest, Special Interest and Regular
Interest.
To the extent any of the items specified in this Section require the
approval of Burkett, Burkett will be deemed to approve such charges, expenses or
costs of Buyers if such charges, expenses or costs have not increased when
compared to the prior fiscal year or such percentage increase is less than or
equal to the percentage increase in sales of Buyers, if any, for the current
fiscal year.
(b) Consistent with GAAP and consistent with the accounting
principles applied by the Seller in fiscal years before the Closing, all
available accounting elections shall be made in a manner as to reflect the
highest possible EBITDA of Buyers.
"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, Hazardous Substances 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, Hazardous Substances or wastes or the
clean-up or other remediation thereof.
"Environmental Liabilities" means any Liabilities, obligations,
responsibilities, obligations to conduct remedial actions, losses, damages,
punitive damages, consequential 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 a party or its Affiliates of its assets or its business, in
connection with environmental conditions on, or with respect to, real property
or the manufacture, refining, storage, disposal or treatment of Hazardous
Substances by a party or its Affiliates.
"ERISA" shall mean the Employee Retirement Income Security Act of 1974, as
amended, and includes all rules and regulations promulgated under that act.
"Exchange Act" means the United States Securities Exchange Act of 1934, as
amended, and includes all rules and regulations of the SEC promulgated under
that act.
"FTC" shall mean the United States Federal Trade Commission.
"GAAP" shall mean generally accepted accounting principles and practices
as in effect from time to time and applied consistently throughout the periods
involved.
"Hazardous Substances" shall mean any and all dangerous, toxic,
radioactive, caustic or otherwise hazardous material, pollutant, contaminant,
chemical, waste or substance defined, listed or described as any of such in or
governed by any Environmental Law, including but not limited to
urea-formaldehyde, polychlorinated
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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.
"HSR ACT" means the Hart-Scott-Rodino Antitrust Improvements Act of 1976,
as amended, and the rules and regulations promulgated thereunder.
"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 Seller means the actual knowledge of Burkett
and the Chief Financial Officer of Seller and with respect to the Company,
Gallion, LLC or Parent shall mean the actual knowledge of the directors and the
executive officers of such corporation; and "KNOWS" has a correlative meaning.
"Law" means a state or natural code, rules, statute, ordinance, or
regulation and the common law arising from final, nonappealable decisions of
governmental authorities and state and federal courts in the United States.
"Liability" shall mean any direct or indirect indebtedness, liability,
assessment, claim, loss, 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.
"material adverse change" shall mean any change in or effect on, the
person specified that is, was, or likely will be materially adverse to the
business, operations, assets, or financial condition of the person, except that
any fact, event, condition, or circumstance that is described in the Seller
Disclosure Schedules or described in the Annual Statements or Interim Statements
will not constitute a "material adverse change," unless the fact, event,
condition, or circumstance constitutes an enforcement proceeding by a
governmental authority against Seller in which the governmental authority seeks
sanctions that would materially impair or restrict the conduct of the Business
by Buyers after the Closing Date.
"Permits" shall mean all governmental licenses, certificates, permits,
franchises, and similar authorizations and approvals.
"person" shall mean an individual, corporation, partnership, joint
venture, limited liability company, cooperative, association, trust,
unincorporated organization, syndicate or other entity, including a government
or political subdivision or an agency or instrumentality thereof.
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"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, 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, however defined, any Hazardous Substance in
violation of any Environmental Law.
"Representative" shall mean the directors, officers, Affiliates,
employees, attorneys, accountants, representatives, lenders, consultants and
other agents of a company.
"SEC" means the United States Securities and Exchange Commission.
"SEC Documents" means all forms, notices, reports, schedules, statements,
and other documents filed by Parent with the SEC since October 15, 1997, whether
or not constituting a "filed" document, and includes all proxy statements,
registration statements, amendments to registration statements, periodic reports
on Forms 10-K, 10-Q, and 8-K, and annual and quarterly reports to shareholders.
"Securities Act" means the United States Securities Act of 1933, as
amended, and includes all rules and regulations of the SEC promulgated under
that act.
"Seller Disclosure Schedules" shall mean all Schedules attached to this
Agreement.
"Significant Subsidiary" shall mean any existing Subsidiary of Parent, the
Company, LLC or Gallion (other than Go Fly A Kite, Inc.).
"Special Gross Profit" shall mean total sales (excluding any Toymax
Product Line Sales and Travel Related Sales) less (i) cost of goods sold, (ii)
related discounts, rebates and refunds, and (iii) the effect of any increase in
royalties arising from the renewal, amendment or modification of any license
agreement of Buyers (as determined by GAAP).
"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,
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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; (ii) any liability for the payment of any amount of the type
described in the immediately preceding clause (i) as a result of the person
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 the person for
the payment of any amounts of the type described in the immediately 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.
"Toymax Product Line Sales" shall mean sales of any goods which are owned,
manufactured, distributed, licensed, developed or designed by the Parent or any
Subsidiary of Parent (excluding the Company).
"Transaction Documents" shall mean, collectively, this Agreement, and each
of the other agreements and instruments identified in this Agreement to be
executed and delivered by all or some of the parties hereto pursuant to this
Agreement in connection with the consummation of the transactions contemplated
hereby.
"Travel Related Sales" shall mean sales for resale of Disney and Warner
Brothers licensed goods to retail establishments licensed in the duty free
channel and primarily engaged in business as a duty free/tax free retailers
and/or selling facilities on commercial airlines, cruise ships and ferries.
"Travel Related Gross Profit" shall mean the gross profit, determined in
accordance with GAAP, from any Travel Related Sales less related royalties and
selling commissions.
"Warner Brothers" shall mean Time Warner Companies Inc., Time Warner
Entertainment Company, L.P., Warner Bros., and all other Warner Bros.-related
entities, all affiliates and divisions of the foregoing entities, and all the
respective successors and assigns of the foregoing entities (by contract,
operation of Law, or otherwise).
"Warner Brothers Licenses" means the License Agreement dated January 8,
1996, between Seller and Warner Bros., division of Time Warner Entertainment
Company, L.P., c/o Warner Bros. Consumer Products regarding the licensing of
trademarks used in connection with certain LOONEY TUNES characters, as amended
by the following amendments between Seller and Warner Bros., a division of Time
Warner Entertainment Company, L.P.: Amendment #1 dated March 21, 1996; Amendment
#2 dated October 9, 1996; Amendment #3 dated January 16, 1997; Amendment #4
dated February 28, 1997; Amendment #5 dated April 17, 1997; and Amendment #6
dated July 8, 1997.
"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 material operations including, but not limited to input, output,
comparisons (branching) and arithmetic operations (such as the difference
between two dates), (b) uses fields
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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 materially fault
free manner during and after the Year 2000.
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 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 a Section, exhibit or schedule, such reference shall
be to a Section, exhibit or schedule 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, effect, 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."
[THE REMAINDER OF THIS PAGE IS INTENTIONALLY BLANK]
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IN WITNESS WHEREOF, the undersigned have executed this Asset Purchase
Agreement as of the date set forth above.
TOYMAX INTERNATIONAL, INC.
By: ________________________________
Name: Steven A. Lebensfeld
Title: President
MONOGRAM ACQUISITION, INC.
By: ________________________________
Name: Steven A. Lebensfeld
Title: President
GALLION DEVELOPMENT LIMITED
By: ________________________________
Name: Steven A. Lebensfeld
Title: Managing Director
MONOGRAM ACQUISITION 1, LLC
By: ________________________________
Name: Steven A. Lebensfeld
Title: Manager
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MONOGRAM INTERNATIONAL, INC.
By: ________________________________
Charles D. Burkett, Jr.
Chief Executive Officer
MONOGRAM PRODUCTS (HK) LTD.
By: ________________________________
Charles D. Burkett, Jr.
Managing Director
With respect to Article VI. ___________________________________
Charles D. Burkett, Jr.
With respect to Article VI.
___________________________________
Roberta M. Burkett
With respect to Article VI. ___________________________________
Stephen R. Burkett
With respect to Article VI. ___________________________________
Bonnie L. Beetar
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Exhibit 10.1
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT ("Agreement"), dated as of May 27, 1999,
between Monogram Acquisition, Inc., a Delaware corporation (the "Company"), and
Charles D. Burkett, Jr. (the "Executive").
W I T N E S S E T H
WHEREAS, the Company is acquiring the business and substantially all
of the assets of Monogram International, Inc., a Florida corporation
("MONOGRAM") of which the Executive is a shareholder and employee, and Monogram
Products (HK) Ltd., a Hong Kong company and wholly owned subsidiary of Monogram
("PRODUCTS," Monogram and Products, jointly and severally, "Seller"), pursuant
to a certain Asset Purchase Agreement dated April 19, 1999 by and among Toymax
International, Inc., a Delaware corporation and sole shareholder of the Company
("TOYMAX"), the Company, Monogram Acquisition 1, LLC, a Delaware limited
liability company, Gallion Development Limited, a Hong Kong company, the Seller,
the Executive, Roberta M. Burkett, Stephen R. Burkett and Bonnie L. Beetar (the
"PURCHASE AGREEMENT"); and
WHEREAS, the Company desires to employ the Executive, and the
Executive desires to accept such employment, on the terms and conditions set
forth herein.
NOW, THEREFORE, in consideration of the mutual promises,
representations and warranties set forth herein, and for other good and valuable
consideration, it is hereby agreed as follows:
1. EMPLOYMENT. The Company hereby agrees to employ the Executive,
and the Executive hereby accepts such employment, upon the terms and conditions
set forth herein.
2. TERM. Subject to the provisions of Section 9 hereof, the period
of the Executive's employment under this Agreement shall be from May 27, 1999
through the earlier of May 27, 2002 or the Termination Date pursuant to Section
9 (the "Term") provided that the Term shall automatically be extended by one
additional year unless, at least 30 days prior to May 27, 2002 (the "Renewal
Date"), the Executive shall deliver to the Company written notice that the Term
will not be further extended.
3. POSITION AND DUTIES.
(a) During the Term, the Executive shall serve as President of
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the Company and shall have such duties consistent with such office as from time
to time may be prescribed by the Board of Directors of the Company (the
"Board"). The Company shall provide the Executive with office facilities and
support which are necessary for the performance of the Executive's duties
hereunder.
(b) During the Term, the Executive shall perform and discharge
the duties that may be assigned to him by the Senior Vice President of Corporate
Strategy and New Business Development of Toymax or such other senior officer as
the Board of Directors of Toymax (the "Toymax Board") may designate from time to
time in accordance with this Agreement, and the Executive shall devote his best
talents, efforts and abilities to the performance of his duties hereunder;
provided, however, that the Executive shall not be assigned any duties
inconsistent in any material respect with the Executive's position (including
status, offices, titles and reporting relationships), authority, duties or
responsibilities, or any other action or actions by the Company which when taken
as a whole results in a significant diminution in the Executive's position,
authority, duties or responsibilities, excluding any isolated, immaterial and
inadvertent action not taken in bad faith by the Company.
(c) During the Term, the Executive shall perform such duties
on a full-time basis and the Executive shall have no other employment and no
other outside business activities whatsoever.
4. COMPENSATION. For the Executive's services hereunder, the Company
shall pay the Executive during the period of the Executive's employment a salary
(the "Base Salary") at an annual rate of $230,000, payable in accordance with
the customary payroll practices of the Company. If the effective date of this
Agreement is not the first day of a pay period, the first and last salary
installments payable under this Agreement will be prorated based on the actual
working days that this Agreement was in effect during such pay period.
5. OTHER BENEFITS. During the Term, the Company shall provide the
Executive with the following benefits:
(a) STOCK OPTIONS. The Company shall grant to the Executive an
option (the "Options") to purchase 50,000 shares (the "Shares") of the common
stock of Toymax at an exercise price per share equal to the closing price of the
Shares on NASDAQ exchange on the date of this Agreement. The Options shall be
granted pursuant to and in accordance with the terms and conditions of an option
agreement substantially in the form attached hereto as Exhibit A (the "Option
Agreement") and Toymax International, Inc.'s amended and restated 1997 Stock
Option Plan.
(b) MEDICAL AND HEALTH INSURANCE BENEFITS. The Company shall,
at its own expense, provide the Executive and his eligible dependents with the
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medical, health and dental insurance coverage generally provided by the Company
to its other executives.
(c) 401(K) PLAN. The Executive shall be entitled to
participate in Toymax's 401(k) Plan in accordance with the terms and conditions
of such plan.
(d) DISABILITY AND ACCIDENT INSURANCE BENEFITS. The Company
shall provide the Executive with long term disability insurance (providing 60%
Base Salary replacement coverage), business travel accident and accidental death
and dismemberment insurance coverage.
(e) ADDITIONAL BENEFITS. The Company shall provide the
Executive all other insurance, retirement and employment benefits that are
furnished by the Company or Toymax to all their respective employees and
executives on the same or substantially similar terms and conditions as those
benefits are provided to those other employees and executives.
6. AUTOMOBILE ALLOWANCE. During the Term, the Company shall
reimburse the Executive for expenses, such as automobile lease or loan payments,
in an amount of six hundred dollars ($600) per month (the "Automobile
Payments"), plus such amount(s) as may be required to reimburse the Executive
for expenses (the "Automobile Expenses") such as registration, insurance,
repairs, maintenance, license fees, parking, gasoline and oil incurred by the
Executive incident to his use of an automobile in connection with his duties
hereunder.
7 REIMBURSEMENT OF EXPENSES. During the Term, the Company shall pay
or reimburse the Executive for all reasonable travel (including hotel),
entertainment and other business expenses actually incurred or paid by the
Executive in the performance of his duties hereunder upon presentation of
expense statements and/or such other supporting information as the Company may
reasonably require of the Executive. The Company acknowledges that the
Executive's position with the Company may require frequent travel from the
greater Tampa, Florida metropolitan area, and the Company agrees to pay or
reimburse such reasonable expenses incurred or paid by the Executive for such
travel in the performance of his duties hereunder.
8 VACATIONS. The Executive shall be entitled to four (4) weeks of
paid vacation during each fiscal year the Term or a PRO RATA portion thereof in
the event that the Executive's employment with the Company terminates prior to
the expiration of the Term; provided that no single vacation may exceed two
consecutive weeks in duration, and provided further that the Executive shall
provide the Company with appropriate contact information during his absence and
shall at all reasonable times be available by telephone. Unused vacation may not
be carried over to successive years.
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9. TERMINATION. The employment hereunder of the Executive may be
terminated prior to the expiration of the Term in the manner described in this
Section 9.
(a) TERMINATION BY THE COMPANY FOR GOOD CAUSE. The Company
shall have the right to terminate the employment of the Executive for Good Cause
(as such term is defined herein) by written notice to the Executive specifying
the particulars of the circumstances forming the basis for such Good Cause.
(b) TERMINATION UPON DEATH. The employment of the Executive
hereunder shall terminate immediately upon the death of the Executive.
(c) RESIGNATION FOR GOOD REASON. The Executive shall have the
right to terminate his employment with the Company for Good Reason (as such term
is defined herein).
(d) TERMINATION BY THE COMPANY WITHOUT GOOD CAUSE. The Company
shall have the right to terminate the Executive's employment hereunder without
Good Cause by written notice to the Executive.
(e) TERMINATION DATE. The "Termination Date" is the date as of
which the Executive's employment with the Company terminates. Any notice of
termination given pursuant to the provisions of this Agreement shall specify the
Termination Date.
(f) CERTAIN DEFINITIONS. For purposes of this Agreement, the
following terms shall have the following meanings:
(i) "Person" means any individual, corporation,
partnership, limited liability company, association, joint-stock company, trust,
unincorporated organization, joint venture, court or government (or political
subdivision or agency thereof).
(ii) "Good Cause" shall exist if, and only if, the Executive
(A) willfully and repeatedly fails in any material respect to perform his
obligations hereunder as provided herein, provided that such Good Cause shall
not exist unless the Company shall first have provided the Executive with
written notice specifying in reasonable detail the factors constituting such
material failure and such material failure shall not have been cured by the
Executive within 30 days after such notice or such longer period as may
reasonably be necessary to accomplish the cure; or (B) has been convicted of a
crime which constitutes a felony under applicable law or has entered a plea of
guilty or nolo contendere with respect thereto.
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(iii) "Good Reason" means the occurrence of any of the
following: (i) a material breach by the Company of one or more provisions of
this Agreement, provided that such Good Reason shall not exist unless the
Executive shall first have provided the Company with written notice specifying
in reasonable detail the factors constituting such material breach and such
material breach shall have not been cured by the Company within 30 days after
such notice or such longer period as may be reasonably necessary to accomplish
the cure, or (ii) the Company requiring the Executive to be based permanently at
any location other than within 50 miles of the Company's current executive
office location, except for requirements of temporary travel on the Company's
business not to exceed, per calendar year, the average of the Executive's
business related travel over the three (3) year period prior to the date hereof.
10. OBLIGATIONS OF COMPANY ON TERMINATION. Notwithstanding anything
in this Agreement to the contrary, the Company's obligations on termination of
the Executive's employment shall be as described in this Section 10.
(a) OBLIGATIONS OF THE COMPANY IN THE CASE OF TERMINATION
WITHOUT GOOD CAUSE OR FOR GOOD REASON. In the event that prior to the expiration
of the Term, the Company terminates the Executive's employment, without Good
Cause (pursuant to Section 9(d)) or upon termination of the Executive's
employment as a result of the voluntary resignation of the Executive for Good
Reason (pursuant to Section 9(c)), the Company shall provide the Executive with
the following:
(i) AMOUNT OF SEVERANCE PAYMENT. Except as provided in
Section 10(b) below, the Company shall pay the Executive the following (the
"Severance Payment"):
(A) a single lump sum cash payment, within 30 days
following the Termination Date, equal to the sum of: (i) any Base Salary,
vacation and unreimbursed expenses accrued but unpaid as of the Termination
Date; and (ii) the Base Salary otherwise payable to the Executive for the
shorter of: (y) the then remaining duration of the Term, or (z) the six (6)
month period following the Termination Date ("Post-termination Period"); and
(B) in the event that any portion of the Severance
Payment is calculated pursuant to Section 10(a)(i)(A)(ii)(z) above, each month
for the period following the Post-termination Period until the otherwise end of
the Term, the Company shall pay the Executive a sum equal to the difference, if
any, as determined and calculated on a monthly basis, between the Base Salary
and the then current salary of the Executive from other employment, if any.
(ii) MEDICAL AND HEALTH INSURANCE. The Company shall, at its
sole expense, provide the Executive (and his dependents) with coverage under
(and in accordance with the terms and conditions of) the Company's medical,
health and dental
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insurance plans, as in effect from time to time, for the otherwise remaining
duration of the Term; provided that to the extent such coverage may be
unavailable under such medical, health and dental insurance plans due to
restrictions imposed by the insurer(s) under such plans, the Company shall take
such action as may be required to provide equivalent benefits from other
sources.
(iii) AUTOMOBILE ALLOWANCE. For the otherwise remaining
duration of the Term, the Company shall continue to reimburse the Executive for
the Automobile Payments, to the extent provided in Section 6 of this Agreement;
however, the Executive shall not be entitled to reimbursement for any Automobile
Expenses.
(b) OBLIGATIONS OF THE COMPANY IN CASE OF TERMINATION FOR GOOD
CAUSE. Upon termination of the Executive's employment for Good Cause (pursuant
to Section 9(a)), the Company shall have no payment or other obligations
hereunder to the Executive, except for the payment of any Base Salary, benefits
or unreimbursed expenses accrued but unpaid as of the date of such termination.
(c) OBLIGATIONS OF THE COMPANY IN CASE OF DEATH. If the
Executive dies, his employment with the Company will terminate immediately, and
the Company shall pay to the Executive's heirs or estate any Base Salary,
benefits or unreimbursed expenses accrued but unpaid as of the date of such
death.
11. COVENANT NOT-TO-COMPETE . During either (i) the Term and for a
period of two (2) years thereafter, or (ii) if the Executive is terminated
without Good Cause pursuant to Section 9(d) or if the Company does not offer to
the Executive a renewal or extension of this Agreement prior to the expiration
of the Term, during the Term (the "Covenant Period"):
(a) The Executive agrees that he will not, directly or
indirectly, as a partner, officer, employee, director, stockholder, proprietor,
other equity owner, consultant, representative, agent or otherwise own or
operate any business or Person, or otherwise become or be interested in, or
associate with or render assistance to any Person (other than the Company,
Toymax and any other Person directly or indirectly through one or more
intermediary persons, controlling, controlled by or under common control with
the Company ("Affiliates")), engaged in the geographic areas where the Company's
products are sold during the Term in (i) the business of marketing or selling
products, which are the same or substantially similar to any of the products
offered for sale by the Company on the Termination Date or (ii) a business which
is otherwise in competition with the business of the Company (such Person as
described in (i) and (ii), a "Competitor"). The foregoing provisions shall not,
however, prohibit the Executive from making passive investments in Persons that:
(i) do not require the devotion of any significant time or effort, and (ii) are
not Competitors; PROVIDED that such activities do not
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interfere in any respect with the proper performance of his duties and
responsibilities under Sections 1, 2 and 3.
(b) The Executive agrees that he will not, directly or
indirectly, during the Covenant Period, for his own benefit or for the benefit
of any other Person:
(i) (A) influence or attempt to influence any Person to
either terminate or adversely modify such Person's employment or other
professional relationship with the Company and/or its Affiliates or (B) employ,
consult or otherwise retain, directly or indirectly, any Person who is (or
during the twelve months prior thereto was) employed, advising, or otherwise
retained by the Company or its Affiliates;
(ii) Influence or attempt to influence a supplier or
customer of the Company or its Affiliates, or any other Person with whom the
Company or its Affiliates shall have dealt, to terminate or modify any written
or oral agreement or course of dealing with the Company or its Affiliates; or
(iii) Influence or contract with or attempt to influence or
contract with a supplier or customer of the Company or its Affiliates, or any
other Person with whom the Company or its Affiliates shall have dealt, for the
purpose of offering or selling any products which are identical, substantially
similar or comparable to the products offered by the Company or its Affiliates.
(c) The Executive recognizes and acknowledges that, in
connection with his employment with the Company, he will have access to valuable
trade secrets and confidential information of the Company and its Affiliates,
including, but not limited to, customer, supplier and mailing lists, business
methods and processes, advertising, marketing, promotional, pricing and
financial information and data relating to officers, employees, agents and
consultants (collectively, "Confidential Information") and that such
Confidential Information is being made available to the Executive only in
connection with the furtherance of his employment with the Company. The
Executive agrees that he will not at any time, directly or indirectly, use for
any purpose, disclose or make available to any Person any of such Confidential
Information, except that disclosure of Confidential Information will be
permitted in connection with the performance of his duties and: (i) if such
Confidential Information has previously become available to the public through
no fault of the Executive; (ii) if required by any court or governmental agency
or body or is otherwise required by law; or (iii) if expressly consented to in
writing by the Company. In the event that the Executive is requested or required
to disclose any of the Confidential Information pursuant to subsection (ii)
above, he shall provide the Company with prompt written notice of any such
request or requirement so that the Company will have a reasonable opportunity to
seek a stay or other protective order or other appropriate remedy prior to
disclosure by the Executive.
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(d) The Executive agrees that any and all publications,
inventions, software, formulae, reports or other work product directly or
indirectly produced, created, developed or otherwise prepared by the Executive
while employed by the Company and related to the business of the Company and/or
its Affiliates (collectively, "Materials") and any copyrights, patents,
trademarks, trade names, service marks or similar registrations or any
applications therefore (collectively, "Intellectual Property Rights") obtained
or made at any time during the Term or thereafter with respect to such Materials
shall be the sole and exclusive property of the Company. Upon request of the
Board or an officer of the Company, the Executive promptly shall execute any and
all applications, assignments or other instruments which the Board or such
officer shall reasonably deem necessary or advisable in order to apply for and
obtain an Intellectual Property Right for the Materials in the United States and
throughout the world and to assign to the Company all right, title and interest
in and to such Materials and Intellectual Property Rights. The Company shall
bear the cost of preparation and filing of all such applications, assignments
and instruments in the appropriate governmental offices in the United States and
any foreign country.
(e) The Executive acknowledges and agrees that: (i) this
Section 11 is necessary for the protection of the legitimate business of the
Company; (ii) the restrictive covenants set forth in this Section 11 (the
"Restrictive Covenants") are reasonable in geographical and temporal scope and
in all other respects; (iii) the Executive's expertise and services to be
provided hereunder are unique; and (iv) the Executive has received adequate
consideration for the execution, delivery and performance of this Agreement.
(f) If a court of competent jurisdiction finally determines
that any of the Restrictive Covenants, or any part or parts thereof, are invalid
or unenforceable for any reason, the parties hereto agree, and it is their
desire, that such court shall substitute a judicially enforceable limitation in
its place, and that the Restrictive Covenant, in its modified form, shall then
be valid and enforceable as if originally set forth herein and the remainder of
the Restrictive Covenants shall not thereby be affected and shall be given full
force and effect, without regard to the invalid or unenforceable parts.
(g) The provisions of this Section 11 shall survive the
termination of this Agreement.
(h) The parties agree that a violation of this Section 11 will
cause irreparable damage to the Company, and the Company shall be entitled
(without any requirement of posting a bond or other security), in addition to
any other rights and remedies which it may have, at law or in equity, to seek an
injunction enjoining and restraining the Executive from doing or continuing to
do any such act or any other violations or threatened violations of this Section
11.
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12. RETURN OF PROPERTY. In the event of the termination of the
Executive's employment with the Company, regardless of the reason for such
termination, the Executive shall immediately return to the Company all
documents, Materials, information and other property of the Company (including,
but not limited to, keys, records, notes, data, memoranda, models and equipment)
whether or not such property constitutes Confidential Information including,
without limitation, any computerized, duplicated, copied or other records,
extracts or summaries of any such information. The provisions of this Section 12
shall survive the termination of this Agreement.
13. SEVERABILITY. If any provision of this Agreement for any reason
shall be held, by a court of competent jurisdiction, to be illegal, invalid or
unenforceable, the parties hereto agree that such illegality, invalidity or
unenforceability shall not render the entire Agreement illegal, invalid or
unenforceable, and it is their desire, that such court shall amend or modify
this Agreement, and that this Agreement, in its modified form, shall be
enforceable and valid to the maximum extent permitted by applicable law, and
each other provision hereof shall not thereby be affected and shall be given
full force and effect, and the parties shall cooperate in good faith to further
modify this Agreement so as preserve to the maximum extent possible the intended
benefits to be received by the parties.
14. SUCCESSORS AND ASSIGNS.
(a) This Agreement and all rights under this Agreement are
personal to the Executive and shall not be assignable other than by will or the
laws of descent. All of the Executive's rights under the Agreement shall inure
to the benefit of his heirs, personal representatives, designees or other legal
representatives, as the case may be.
(b) This Agreement shall inure to the benefit of and be
binding upon the Company and its successors and assigns. Any Person succeeding
to the business of the Company by merger, purchase, consolidation or otherwise
shall assume by contract or operation of law the obligations of the Company
under this Agreement.
15. GOVERNING LAW. This Agreement shall be governed and construed in
accordance with the laws of the State of New York, without regard to any rules
respecting the conflicts of laws.
16. NOTICES. All notices, requests and demands given to or made upon
the respective parties hereto shall be deemed to have been given or made three
business days after the date of mailing when mailed by registered or certified
mail, postage prepaid, or on the date of delivery if delivered by hand, or one
business day after the date of delivery by Federal Express or other reputable
overnight delivery service, addressed to the parties at their addresses set
forth below or to such other addresses furnished by
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notice given in accordance with this Section 16: (a) if to the Company, to 125
E. Bethpage Road, Plainview, New York 11803 and (b) if to the Executive, to
13201 94th Avenue North, Seminole, Florida 33602.
17. WITHHOLDING. All payments required to be made by the Company to
the Executive under this Agreement shall be subject to withholding taxes, social
security and other payroll deductions in accordance with applicable law and the
Company's policies applicable to executive employees of the Company.
18. LITIGATION EXPENSES. In the event of any litigation or other
proceeding between the Company and the Executive with respect to the subject
matter of this Agreement and the enforcement of rights hereunder, the Company
shall reimburse the Executive for all reasonable costs and expenses relating to
such litigation or other proceeding, including reasonable attorney's fees and
expenses, provided that such litigation or proceeding results in any
(i) settlement requiring the Company to make a payment to
the Executive, or
(ii) judgment, order, finding, award, determination or other
resolution in favor of the Executive, provided such result is not subsequently
reversed on appeal or in a collateral proceeding.
19. COMPLETE UNDERSTANDING. This Agreement supersedes any prior
contracts, understandings, discussions and agreements, written or oral, relating
to employment between the Executive and the Company, and constitutes the
complete understanding between the parties with respect to the subject matter
hereof. No statement, representation, warranty or covenant has been made by
either party with respect to the subject matter hereof except as expressly set
forth herein.
20. MODIFICATION; WAIVER.
(a) This Agreement may be amended, canceled or waived if, and
only if, such amendment, cancellation or waiver is in writing and signed, in the
case of an amendment or cancellation, by the Company and the Executive or in the
case of a waiver, by the party against whom the waiver is to be effective. Any
such waiver shall be effective only to the extent specifically set forth in such
writing.
(b) No failure or delay by any party in exercising any right,
power or privilege hereunder shall operate as a waiver thereof, nor shall any
single or partial exercise of any right, power or privilege preclude any other
or further exercise thereof or the exercise of any other right, power or
privilege.
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21. HEADINGS. The headings in this Agreement are for convenience of
reference only and shall not control or affect the meaning or construction of
this Agreement.
22. RECURRING WORDS. As used in this Agreement, (a) the word
"including" is always without limitation, (b) the word "days" refers to calendar
days, including Saturdays, Sundays and holidays, and (c) words in the singular
number include words in the plural number and vice versa.
23. COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which shall be deemed to be an original, with the same
effect as if the signatures thereto and hereto were upon the same instrument.
This Agreement shall become binding when each party hereto shall have received
counterparts hereof signed by the other party hereto.
[THE REMAINDER OF THIS PAGE IS INTENTIONALLY BLANK]
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IN WITNESS WHEREOF, the Company has caused this Agreement to be duly
executed in its corporate name by one of its officers duly authorized to enter
into and execute this Agreement, and the Executive has manually signed his name
hereto, all as of the day and year first above written.
Monogram Acquisition, Inc.
________________________________ By:_____________________________
Witness Name:
Title:
________________________________ ________________________________
Witness Charles D. Burkett. Jr.
Toymax International, Inc. hereby unconditionally guarantees the payment and
performance by the Company of all of the Company's obligations under the
foregoing Employment Agreement.
TOYMAX INTERNATIONAL, INC.
By:_____________________________
Name: Steven A. Lebensfeld
Title: President
Date: May 27, 1999
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TOYMAX INTERNATIONAL, INC.
AMENDED AND RESTATED
1997 STOCK OPTION PLAN
INCENTIVE STOCK OPTION AGREEMENT
STOCK OPTION AGREEMENT (the "AGREEMENT"), dated as of August __, 1999, by
and between Toymax International, Inc. (the "COMPANY"), a Delaware corporation
having an address at 125 E. Bethpage Road, Plainview, New York 11803, and
Charles D. Burkett, Jr. (the "GRANTEE"), having an address at 13201 94th Avenue
North, Seminole, Florida 33646.
In accordance with Sections 1 and 5 of the Toymax International, Inc.
Amended and Restated 1997 Stock Option Plan (the "PLAN") and subject to the
terms of the Plan and this Agreement, the Company hereby grants to the Grantee
an option (the "OPTION") to purchase all or any part of an aggregate of Fifty
Thousand (50,000) shares of the Common Stock, $.01 par value per share (the
"SHARES") of the Company. The Option granted hereby is intended to constitute an
Incentive Stock Option, within the meaning of Section 422 of the Internal
Revenue Code of 1986, as amended (the "CODE").
To evidence the Option and to set forth its terms, the Company and the
Grantee agree as follows:
1. CONFIRMATION OF GRANT. The Company hereby evidences and confirms its
grant of the Option to the Grantee as of the date of this Agreement. The Option
is intended to be an "incentive stock option" within the meaning of Section 422
of the Code.
2. NUMBER OF SHARES. This Option shall be for an aggregate of Fifty
Thousand (50,000) Shares.
3. EXERCISE PRICE. The exercise price shall be [$ ] per share (the
"EXERCISE PRICE"). The Exercise Price shall not be less than 100% (110% if the
Grantee is a 10% Shareholder) of the Fair Market Value of one share of Common
Stock on the date hereof. The total exercise price for all Shares subject to the
Option is [$ ].
4. TERM AND EXERCISABILITY OF THE OPTION. The Option shall expire on May
27, 2009 (which date shall not be more than 10 years (five years if the Grantee
is a 10% Shareholder) from the date of this Agreement), and may be exercised
prior to its expiration at such times and for such number of whole Shares as
follows:
(a) On or after September 15, 1999, the Option is exercisable for up
to 40% of the total number of Shares subject to this Option;
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(b) On or after May 27, 2000, the Option is exercisable for up to
60% of the total number of Shares subject to this Option;
(c) On or after May 27, 2001, the Option is exercisable for up to
80% of the total number of Shares subject to this Option; and
(d) On or after May 27, 2002, the Option is exercisable for up to
100% of the total number of Shares subject to this Option.
Notwithstanding the foregoing provisions of this Paragraph 4, (i) any
portion of the Option which is not otherwise exercisable at the time of the
Grantee's termination of employment with the Company shall not become
exercisable after such termination, (ii) no exercise shall be effective to the
extent it would require the delivery of fractional Shares, and (iii) the Option
shall not become exercisable in any calendar year to the extent that the
aggregate Fair Market Value of all Incentive Stock Options for shares of Common
Stock (including the Option) granted to the Grantee (determined as of the
respective date or dates of grant of such Incentive Stock Options) which become
exercisable for the first time in such calendar year would exceed $100,000.
5. EXERCISE OF OPTION. On or after the date any portion of the Option
becomes exercisable, but prior to the expiration of the Option in accordance
with Paragraph 4 above, the portion of the Option which has become exercisable
may be exercised in whole or in part by the Grantee (or his or her permitted
successor) upon delivery of the following to the administrative committee of the
Plan (the "COMMITTEE"):
(a) a written notice of exercise which identifies this Agreement and
states the number of Shares then being purchased;
(b) cash (or other consideration acceptable to the Committee, in its
sole discretion) in an amount (or, in the case of other consideration,
having a combined value) equal to the aggregate Exercise Price of the
Shares then being purchased;
(c) additional cash in an amount reasonably requested by the
Committee to satisfy the Company's withholding obligations under federal,
state or other applicable tax laws with respect to the taxable income, if
any, recognized by the Grantee in connection with the exercise of this
Option, unless, in accordance with Section 18 of the Plan and subject to
the prior approval of the Committee, which may be withheld by the
Committee in its sole discretion, the Grantee satisfies such obligations,
in whole or in part by (i) causing the Company to withhold Shares
otherwise issuable pursuant to the exercise of the Option, or (ii)
delivering to the Company shares of Common Stock already owned by the
Grantee.
(d) a letter, if requested by the Committee, in such form and
substance as
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the Committee may require, in its sole discretion, setting forth the
investment intent of the Grantee, or his or her permitted successor, as
the case may be.
Notwithstanding the foregoing, the Grantee (or any permitted successor)
shall take whatever additional actions, including, without limitation, the
furnishing of an opinion of counsel, and execute whatever additional documents
the Committee may, in its sole discretion, deem necessary or advisable in order
to carry out or effect one or more of the obligations or restrictions imposed by
the Plan, this Agreement or applicable law.
Upon satisfaction of the conditions and requirements of Paragraph 5
hereof, the Company shall deliver to Grantee (or his or her permitted successor)
a certificate or certificates for the number of Shares in respect of which the
Option shall have been exercised (less any Shares withheld pursuant to clause
(c) of this Paragraph 5).
The acceptance of any Shares upon exercise of the Option shall constitute
an agreement by the Grantee (i) to notify the Company if any or all of such
Shares are disposed of by the Grantee within two (2) years from the date the
Option was granted or within one (1) year from the date the Shares were issued
to the Grantee pursuant to the exercise of the Option, and (ii) to remit to the
Company, at the time of and in the case of any such disposition, an amount
sufficient to satisfy the Company's federal, state and local withholding tax
obligations, if any, with respect to such disposition, whether or not, as to
both (i) and (ii), the Grantee is in the employ of the Company at the time of
such disposition.
6. LIMITATION UPON TRANSFER. This Option and all rights granted hereunder
shall not be transferred by the Grantee, other than by will or by the laws of
descent and distribution, shall not be assigned, pledged or hypothecated in any
way, and shall not be subject to execution, attachment or similar process. Upon
any attempt to transfer this Option, other than by will or by the laws of
descent and distribution, or to assign, pledge or hypothecate or otherwise
dispose of this Option or of any rights granted hereunder contrary to the
provisions hereof, or upon the levy of any attachment or similar process upon
this Option or such rights, this Option and such rights shall immediately become
null and void. The Option shall be exercised during the Grantee's lifetime only
by the Grantee or by the grantee's legal representative.
7. TERMINATION OF EMPLOYMENT; EFFECT OF TERMINATION FOR CAUSE. If the
Grantee's employment with the Company terminates, the Option, to the extent then
exercisable, shall remain exercisable to the extent set forth in Sections 10 and
11 of the Plan; PROVIDED, HOWEVER, that no part of the Option shall be
exercisable after the expiration of the Option pursuant to Paragraph 4 hereof.
Notwithstanding the foregoing, the Grantee hereby acknowledges and agrees that
in accordance with Section 10 of the Plan, all or part of the Option granted
hereunder may be forfeited upon his or her termination of employment with the
Company if the Board of Directors of the Company (the "BOARD") determines that
the Grantee incurred or is to incur a termination for cause.
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The Board shall have the power to determine, in its sole discretion, what
constitutes a termination for cause, whether the Grantee has incurred or is to
incur a termination for cause, and the date as of which any such forfeiture
occurs.
8. EFFECT OF BREACH OF EMPLOYMENT OR OTHER AGREEMENT. The Grantee hereby
acknowledges and agrees that in accordance with Section 10 of the Plan, all or
part of the Option granted hereunder may be forfeited upon the determination by
the Board that the Grantee has violated any provision of an employment or
confidentiality or non-disclosure agreement. The Board shall have the power to
determine, in its sole discretion, what constitutes a breach of an employment or
confidentiality or non-disclosure agreement, whether the Grantee has breached
such an agreement and the date upon which such breach occurs.
9. EFFECT OF TERMINATION OR AMENDMENT OF PLAN. No suspension, termination,
modification, or amendment of the Plan or this Agreement may, without the
express written consent of the Grantee, adversely affect the rights of the
Grantee under this Option.
10. NO LIMITATION ON RIGHTS OF THE COMPANY. The grant of this Option shall
not in any way affect the right or power of the Company to make adjustments,
reclassifications, or changes in its capital or business structure or to merge,
consolidate, dissolve, liquidate, sell, or transfer all or any part of its
business or assets.
11. RIGHTS AS A SHAREHOLDER. The Grantee shall have the rights of a
shareholder with respect to the Shares covered by the Option only upon becoming
the holder of record of those Shares.
12. COMPLIANCE WITH APPLICABLE LAW. Notwithstanding anything herein to the
contrary, the Company shall not be obligated to cause to be issued or delivered
any certificates for Shares pursuant to the exercise of the Option, unless and
until the Company is advised by its counsel that the issuance and delivery of
such certificates is in compliance with all applicable laws, regulations of
governmental authority, and the requirements of any exchange upon which Shares
are traded. The Company shall in no event be obligated to register any
securities pursuant to the Securities Act of 1933 (as now in effect or as
hereafter amended) or to take any other action in order to cause the issuance
and delivery of such certificates to comply with any such law, regulation or
requirement. The Company may require, as a condition of the issuance and
delivery of such certificates and in order to ensure compliance with such laws,
regulations, and requirements, that the Grantee make such covenants, agreements,
and representations as the Company, in its sole discretion, considers necessary
or desirable.
13. NO OBLIGATION TO EXERCISE OPTION. The granting of the Option shall
impose no obligation upon the Grantee to exercise the Option.
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14. AGREEMENT NOT A CONTRACT OF EMPLOYMENT OR OTHER RELATIONSHIP. This
Agreement is not a contract of employment, and the terms of employment of the
Grantee or other relationship of the Grantee with the Company or any of its
subsidiaries or affiliates shall not be affected in any way by this Agreement
except as specifically provided herein. The execution of this Agreement shall
not be construed as conferring any legal rights upon the Grantee for a
continuation of an employment or other relationship with the Company or any of
its subsidiaries or affiliates, nor shall it interfere with the right of the
Company or any of its subsidiaries or affiliates to discharge the Grantee and to
treat him or her without regard to the effect which such treatment might have
upon him or her as a Grantee.
15. NOTICES. Any notice or other communication required or permitted
hereunder shall be in writing and shall be delivered personally or sent by
certified, registered, or express mail, postage prepaid, return receipt
requested, or by a reputable overnight delivery service. Any such notice shall
be deemed given when received by the intended recipient.
16. GOVERNING LAW. Except to the extent preempted by Federal law, this
Agreement shall be construed and enforced in accordance with, and governed by,
the laws of the State of New York.
17. RECEIPT OF PLAN. Grantee acknowledges receipt of a copy of the Plan,
and represents that Grantee is familiar with the terms and provisions thereof,
and hereby accepts this Option subject to all the terms and provisions of this
Agreement and of the Plan. Grantee hereby agrees to accept as binding,
conclusive and final all decisions or interpretations of the Committee or the
Board upon any questions arising under this Agreement or the Plan.
18. DEFINITIONS . All capitalized terms not otherwise defined herein shall
have the meanings set forth in the Plan.
IN WITNESS WHEREOF, the Company and the Grantee have duly executed this
Agreement as of the date first written above.
TOYMAX INTERNATIONAL, INC.
__________________________ __________________________________
Witness Sanford Frank, Secretary
__________________________ __________________________________
Witness
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__________________________ __________________________________
Witness Charles D. Burkett, Jr.
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Exhibit 99.1
Toymax Completes Acquisition of Monogram International
Leader in Gifts, Novelty and Souvenir Items Strengthens Year-Round Product Line
PLAINVIEW, N.Y.--May 27, 1999--Toymax International, Inc. (NASDAQ National
Market: TMAX - NEWS) announced today that it has completed the acquisition of
Monogram International, Inc., a leading designer, manufacturer and marketer of
gift, novelty and souvenir products sold globally. Monogram's sales for the year
ended December 31, 1998 were approximately $22 million.
Headquartered in Largo, Florida, Monogram's gift and children's leisure product
lines include plastic, die-cast, plush and action toys, key chains, drinkware,
stationery, and desk accessories. Its product lines include items based on
well-established and evergreen licenses. Monogram has been associated with The
Walt Disney Company for the past 27 years and more recently with Warner Bros.
Consumer Products. In 1999, Monogram will add product based on newly acquired
licenses from Coca-Cola and Crayola. Its products are sold through more than
5,000 independent souvenir and gift shops, distributors, tax-free franchises,
department stores, general merchandise and variety stores, discount department
stores, drug store and supermarket chains and large toy retail outlets. Monogram
also designs and markets promotional and private label specialty products for
major theme parks, resorts and corporate customers in the United States, Mexico
and Europe.
"Monogram is another key building block in Toymax's overall strategy to
diversify its offerings beyond seasonal promotional toy lines," said Steven
Lebensfeld, Toymax President. "This acquisition is important to us because it
provides tremendous opportunities to expand our portfolio of licensed product
and distribution channels and allows us to cross-sell to retailers our toy,
candy and kite lines. We're glad to have Chuck Burkett, President of Monogram,
and his team on board, and expect a long and fruitful association. Our newly
formed administrative group, Toymax Enterprises, under the direction of Barry
Shapiro, will integrate Monogram into our operations and will strengthen our
move to become a leisure products company."
About Toymax
Toymax (WWW.TOYMAX.COM) is a children's consumer products company that creates,
designs and markets innovative and technologically advanced toys as well as
other leisure products. Toymax products promote fun and creative play, and are
available under several brands: Toymax(R) toys, such as R.A.D.(TM) Robot, Mighty
Mo's(TM) vehicles, the award-winning Laser Challenge(TM) and Creepy Crawlers(R)
brands and a new line of educational hand-held and tabletop electronics; Go Fly
A Kite(R) kites, windsocks and banners; CandyPlanet(TM) candy products. Toymax
is headquartered in Plainview, N.Y. and its products are available at retailers
worldwide.
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The statements made in this press release contain certain forward-looking
statements. The Company cautions readers that all forward-looking statements are
necessarily speculative and accordingly undue reliance should not be placed on
any such forward-looking statements, which only speak as of the date made.
Actual results may vary materially from those anticipated by the Company for a
variety of reasons, including, without limitation, changes in retail
sell-through of the Company's products, differences between bookings received
from customers and actual orders received, changing consumer demand for its
products, a reliance on new product introductions, the dependence on a limited
number of customers, seasonal and quarterly fluctuations, the dependence on a
limited number of product lines and the loss of existing licenses or the
inability to renew or extend licenses under favorable terms. The risks
highlighted herein should not be assumed to be the only things that could affect
the future performance of the Company. The Company undertakes no obligation to
publicly release the results of any revisions to these forward-looking
statements, which may be made to reflect events or circumstances after the date
hereof or to reflect the occurrence of unanticipated events. Readers are
referred to the documents filed by the Company with the Securities and Exchange
Commission, specifically, the most recent reports filed under the Securities
Exchange Act of 1934 and the registration statement filed pursuant to the
Securities Act of 1933, which identify important risk factors.
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