<PAGE> 1
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) June 30, 1998
CARLYLE INDUSTRIES, INC.
(Exact Name of Registrant as Specified in Charter)
Delaware 1-3462 13-1574754
(State or Other (Commission (IRS Employer
Jurisdiction of File No.) Identification No.)
Incorporation)
One Palmer Terrace, Carlstadt, New Jersey 07072
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code (201) 935-6220
Not Applicable
(Former Name or Former Address, if Changed Since Last Report)
<PAGE> 2
ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS.
On June 30, 1998, Carlyle Industries, Inc., a Delaware
corporation (the "Registrant"), through a wholly-owned subsidiary, Westwater
Industries, Inc., a Delaware corporation, purchased from Westwater Enterprises,
L.P., a Delaware limited partnership, substantially all of Westwater's operating
assets (the "Acquired Assets"). Neither Westwater nor any of its affiliates had
any material relationship with the Registrant or any of its affiliates,
directors or officers, or any associate of any such director or officer.
In accordance with the terms and conditions of a certain
Acquisition Agreement dated June 24, 1998 between the Registrant and Westwater,
the Acquired Assets were purchased for approximately $2.8 million in cash, the
assumption of approximately $700,000 in bank debt and a commitment to make
payments totaling $2.0 million over three years contingent upon achievement of
specified earnings levels. The purchase price was the result of arms length
negotiations. The portion of the purchase price paid at the closing of the
acquisition of the Acquired Assets was paid from the proceeds of a revolving
credit facility to the Registrant from Fleet Bank, N.A. and the Registrant
expects to make the contingent payments, if any, from funds generated from the
operation of business associated with the Acquired Assets.
The Acquired Assets consist of the assets used by Westwater in
connection with its business of importing and distributing craft products to
major retail and craft chains, specialty stores and independent retailers (the
"Business"), which business the Registrant intends to continue. The Business was
conducted by Westwater from a leased facility in Mountainside, New Jersey. The
Acquired Assets include all assets and property and associated rights and
interests, real, personal, and mixed, tangible and intangible, of whatever kind,
owned or used by Westwater in connection with the Business.
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION
AND EXHIBITS.
(A) FINANCIAL STATEMENTS.
(a)(1) Report of Independent Public Accountants to Westwater
Enterprises, Inc. - April 3, 1998;
2
<PAGE> 3
Balance Sheets of Westwater Enterprises, L.P. at December 31,
1997 and 1996, Statements of Income of Westwater Enterprises,
L.P. for the years ended December 31, 1997 and 1996,
Statements of Partners' Capital of Westwater Enterprises, L.P.
for the years ended December 31, 1997 and 1996, Statements of
Cash Flows of Westwater Enterprises, L.P. for the years ended
December 31, 1997 and 1996, and Notes to Financial Statements
of Westwater Enterprises, L.P. December 31, 1997 and 1996.
(a)(2) It is impractical to provide the interim financial
statements required by this Item within the time this Current
Report is required to be filed. Such pro forma financial
statements will be filed as soon as practicable, but not more
than 60 days after this Current Report is required to be
filed.
(B) PRO FORMA FINANCIAL INFORMATION.
It is impractical to provide the pro forma financial statements
required by this Item within the time this Current Report is required
to be filed. Such pro forma financial statements will be filed as soon
as practicable, but not more than 60 days after this Current Report is
required to be filed.
(C) EXHIBITS.
(c)(1) Acquisition Agreement, dated June 30, 1998, by and between
Carlyle Industries, Inc. and Westwater Enterprises, L.P. (omitting
schedules and exhibits).(1)
- --------
(1) The Registrant shall furnish all omitted schedules and exhibits to the
Acquisition Agreement dated June 24, 1998 by and between Carlyle
Industries, Inc. and Westwater Enterprises, L.P., upon the request of
the Securities and Exchange Commission.
3
<PAGE> 4
SIGNATURES
Pursuant to the requirements of the Securities and Exchange
Act of 1934, the Registrant has duly caused this Report to be signed on its
behalf by the undersigned hereunto duly authorized.
CARLYLE INDUSTRIES, INC.
By: /s/ Edward F. Cooke
-------------------------------------
Vice President and Chief
Financial Officer
Date: July 15, 1998
4
<PAGE> 5
WESTWATER ENTERPRISES, L.P.
FINANCIAL STATEMENTS
AS OF DECEMBER 31, 1997 AND 1996
TOGETHER WITH AUDITORS' REPORT
<PAGE> 6
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Westwater Enterprises, L.P.:
We have audited the accompanying balance sheets of Westwater Enterprises, L.P.,
(a Delaware limited partnership) as of December 31, 1997 and 1996, and the
related statements of income, partners' capital and cash flows for the years
then ended. These financial statements are the responsibility of the
Partnership's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Westwater Enterprises, L.P. as
of December 31, 1997 and 1996, and the results of its operations and its cash
flows for the years then ended in conformity with generally accepted accounting
principles.
Arthur Andersen LLP
New York, New York
April 3, 1998
<PAGE> 7
WESTWATER ENTERPRISES, L.P.
BALANCE SHEETS
DECEMBER 31, 1997 AND 1996
<TABLE>
<CAPTION>
1997 1996
---------- ----------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 40,737 $ 459,111
Accounts receivable, net of allowance for uncollectible accounts of
$50,000 and $27,000 in 1997 and 1996, respectively 1,683,670 855,236
Due from general partner 142,628 --
Inventory 2,358,085 1,120,441
Investments, at market 161,249 242,923
Prepaid expenses and other current assets 44,295 49,853
---------- ----------
Total current assets 4,430,664 2,727,564
PROPERTY, PLANT AND EQUIPMENT, net (Note 3) 174,660 114,979
---------- ----------
OTHER ASSETS 20,520 33,090
---------- ----------
Total assets $4,625,844 $2,875,633
========== ==========
LIABILITIES AND PARTNERS' CAPITAL
CURRENT LIABILITIES:
Accounts payable $ 770,327 $ 394,630
Commissions payable 156,893 79,660
Accrued and other expenses 115,521 9,164
Loans payable 225,986 250,118
---------- ----------
Total current liabilities 1,268,727 733,572
---------- ----------
LONG-TERM DEBT 7,825 --
---------- ----------
PARTNERS' CAPITAL
General partner's initial contribution 10,000 10,000
General partner's share of undistributed earnings 29,526 17,413
Limited partners' initial contributions 185,113 185,113
Limited partners' share of undistributed earnings 3,124,653 1,929,535
---------- ----------
Total partners' capital 3,349,292 2,142,061
Total liabilities and partners' capital $4,625,844 $2,875,633
========== ==========
</TABLE>
The accompanying notes are an integral part of these balance sheets.
<PAGE> 8
WESTWATER ENTERPRISES, L.P.
STATEMENTS OF INCOME
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996
<TABLE>
<CAPTION>
1997 1996
----------- -----------
<S> <C> <C>
NET SALES $ 9,222,185 $ 5,762,846
COST OF SALES 5,288,653 3,825,576
----------- -----------
Gross profit 3,933,532 1,937,270
OTHER EXPENSES (INCOME):
Selling, general and administrative expenses 2,613,926 2,034,128
Interest expense, net 46,702 20,339
Other income, net (101,336) (149,649)
----------- -----------
Total other expenses 2,559,292 1,904,818
----------- -----------
Net income $ 1,374,240 $ 32,452
=========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
<PAGE> 9
WESTWATER ENTERPRISES, L.P.
STATEMENTS OF PARTNERS' CAPITAL
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996
<TABLE>
<CAPTION>
INITIAL CONTRIBUTION UNDISTRIBUTED EARNINGS
-------------------------- ---------------------------
GENERAL LIMITED GENERAL LIMITED
PARTNER PARTNERS PARTNER PARTNERS TOTAL
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
BALANCE, December 31, 1995 $ 10,000 $ 185,113 $ 22,273 $ 2,410,759 $ 2,628,145
Partners' distributions -- -- (4,323) (428,014) $ (432,337)
Unrealized loss on investments -- -- (862) (85,337) $ (86,199)
Net income -- -- 325 32,127 $ 32,452
----------- ----------- ----------- ----------- -----------
BALANCE, December 31, 1996 10,000 185,113 17,413 1,929,535 $ 2,142,061
Partners' distributions -- -- -- (4,007) $ (4,007)
Unrealized loss on investments -- -- (1,629) (161,373) $ (163,002)
Net income -- -- 13,742 1,360,498 $ 1,374,240
----------- ----------- ----------- ----------- -----------
BALANCE, December 31, 1997 $ 10,000 $ 185,113 $ 29,526 $ 3,124,653 $ 3,349,292
=========== =========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
<PAGE> 10
WESTWATER ENTERPRISES, L.P.
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996
<TABLE>
<CAPTION>
1997 1996
----------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 1,374,240 $ 32,452
Adjustments to reconcile net income to net cash (used in)
provided by operating activities-
Non-cash recovery of bad debt (81,329) (329,122)
Depreciation and amortization 38,899 30,880
Changes in operating assets and liabilities-
(Increase) decrease in accounts receivable (828,434) 17,833
(Increase) decrease in due to/from affiliates (142,628) 2,775
(Increase) decrease in inventory (1,237,644) 129,817
Decrease (increase) in prepaid expense and other current
assets 5,558 (4,584)
Decrease (increase) in other assets 12,570 (30,000)
Increase in accounts payable 375,697 280,028
Increase (decrease) in accrued expenses 183,590 (83,843)
----------- -----------
Net cash (used in) provided by operating
activities (299,481) 46,236
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (98,580) (6,167)
----------- -----------
Net cash used in investing activities (98,580) (6,167)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net issuance (repayments) of Banker's Acceptances (43,380) 250,118
Proceeds from loan payable 37,111 --
Repayment of loan payable (10,037) --
Partner distributions (4,007) (432,337)
----------- -----------
Net cash used in financing activities (20,313) (182,219)
----------- -----------
Decrease in cash and cash equivalents (418,374) (142,150)
CASH AND CASH EQUIVALENTS, beginning of year 459,111 601,261
----------- -----------
CASH AND CASH EQUIVALENTS, end of year $ 40,737 $ 459,111
=========== ===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the year for interest $ 46,702 $ 26,424
=========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
<PAGE> 11
WESTWATER ENTERPRISES, L.P.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997 AND 1996
1. DESCRIPTION OF THE ORGANIZATION
Westwater Enterprises, L.P. (the "Partnership"), a Delaware limited partnership,
is engaged in the manufacturing and trading of craft and gift oriented products.
The general partner is Wychwood Trading Company ("Wychwood"), a Delaware
corporation, with a one percent ownership interest. The limited partners
collectively have a 99% ownership interest.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Cash and Cash Equivalents
The Partnership considers all short-term investments with maturities of three
months or less when purchased to be cash equivalents. Cash and cash equivalents
are stated at cost, which approximates market value.
Inventories
Inventories are valued at the lower of cost or market. Cost is determined using
the first-in, first-out (FIFO) method. Inventory consists exclusively of
finished goods.
Investments
The Partnership applies the principles of Statement of Financial Accounting
Standards ("SFAS") No. 115, "Accounting for Certain Investments in Debt and
Equity Securities," which requires that marketable equity securities, other than
equity securities accounted for by the equity method, be reported at fair value.
The Partnerships' investments are classified as available-for-sale securities.
The Partnership received these securities as settlement of amounts due from a
customer pursuant to a plan of reorganization under Chapter 11 of the Bankruptcy
Code. Unrealized gains and losses from these securities are reported as a
component of partners' capital. For the years ended December 31, 1997 and 1996,
unrealized losses amounted to $163,002 and $86,199, respectively. Cumulative
unrealized holding losses amounted to $249,201 and $86,199 as of December 31,
1997 and 1996, respectively.
<PAGE> 12
-2-
Property, Plant and Equipment
Property, plant and equipment are stated at cost and depreciated on a
straight-line basis over the estimated useful lives of the assets. Leasehold
improvements are amortized over the estimated useful life of the improvement or
the length of the lease, whichever is shorter. Asset lives are 5 to 7 years for
machinery and equipment, 7 to 10 years for furniture and fixtures, 5 years for
leasehold improvements.
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reported period. Actual
results could differ from those estimates.
Revenue Recognition
The Partnership recognizes revenues from product sales upon shipment to the
customer. The substantial majority of the Partnership's product sales are to
customers in the United States.
Income Taxes
The Partnership is organized as a limited partnership. Accordingly, no provision
has been made for federal or state income tax. Partnership net income is
allocated to the partners after allowing for General Partner compensation. (See
Note 4)
3. PROPERTY, PLANT AND EQUIPMENT
<TABLE>
<CAPTION>
1997 1996
--------- ---------
<S> <C> <C>
Furniture, fixtures $ 46,607 $ 46,607
Leasehold Improvements 6,835 6,834
Machinery and Equipment 261,530 162,951
--------- ---------
314,972 216,392
Less- Accumulated depreciation (140,312) (101,413)
--------- ---------
Total $ 174,660 $ 114,979
========= =========
</TABLE>
4. RELATED PARTY TRANSACTIONS
The Partnership rents office space from 917 Mountain Avenue Associates. Several
Partnership partners have ownership interests in 917 Mountain Avenue Associates.
In addition, the Partnership sells product to the general partner, Wychwood,
under the same pricing structure available to third parties. Sales to Wychwood
amounted to $418,394 and $89,796 in 1997 and 1996, respectively. Accounts
receivable from Wychwood amounted to $142,628 and $0 as of December 31, 1997 and
1996, respectively.
<PAGE> 13
-3-
As of December 31, 1997, a note receivable in the amount of $17,430 was due from
an employee and is included in prepaid expenses and other current assets on the
accompanying balance sheet.
The Partnership pays salaries, which are expensed in the period incurred, to a
limited partner and to the General Partner. Under the terms of the Partnership
Agreement, the Partnership is required to compensate the General Partner
$100,000 per annum.
5. CREDIT AND SECURITY AGREEMENT
The Partnership has a $2,000,000 Credit and Security Agreement (the "Agreement")
with Summit Bank which expires July 31, 1998. The agreement provides Letters of
Credit subject to available collateral (the "Borrowing Base"), as defined, and
Bankers Acceptances limited to $2,000,000. The Agreement is collateralized by
the accounts receivable and inventory of the Partnership, and is also guaranteed
by the General Partner and a limited partner. Charges on Banker's Acceptances
are discounted at 2% per annum above the Bank's discount rate for Banker's
Acceptances of equal tenor, (10.5% as of December 31, 1997). Letters of Credit
outstanding as of December 31, 1997 and 1996 amounted to $364,184 and $235,839,
respectively. Banker's Acceptances as of December 31, 1997 and 1996, included in
loans payable in the accompanying balance sheets, amounted to $206,738 and
$250,118, respectively.
In addition, as of December 31, 1997, a loan payable in the amount of $27,073,
bearing interest at 0%, was outstanding. Maturity of long term debt is as
follows:
<TABLE>
<S> <C>
1998 $ 19,248
1999 7,825
--------
$ 27,073
========
</TABLE>
6. COMMITMENTS
The Partnership leases certain office space from an affiliate under an operating
lease. Future minimum rental payments under all operating leases of $50,120 at
December 31, 1997 are as follows:
<TABLE>
<S> <C>
1998 $ 46,920
1999 3,200
--------
$ 50,120
========
</TABLE>
Rent expense amounted to $51,790 and $48,544 for the years ended December 31,
1997 and 1996, respectively.
<PAGE> 14
-4-
7. CONCENTRATION OF CUSTOMERS
The Partnership extends credit to various companies in the retail and mass
merchandising industry for the purchase of its merchandise which results in a
concentration of credit risk. This concentration of credit risk may be affected
by changes in economic or other industry conditions and may, accordingly, impact
the Partnership's overall credit risk. Although the Partnership generally does
not require collateral, the Partnership performs ongoing credit evaluations of
its customers and reserves for potential losses are maintained.
Aggregate sales to three customers amounted to $6,205,202 and $3,266,076 or 67%
and 57% of net sales for the years ended December 31, 1997 and 1996,
respectively. For the years ended December 31, 1997 and 1996, sales to customers
with individual sales in excess of 10% of total revenue were $2,943,729, $
2,189,332 and $1,072,141 and $1,384,584, $990,397 and $891,095, respectively.
Accounts receivable from these customers amounted to $1,089,882, $217,261 and
$132,053 as of December 31, 1997 and $68,938, $157,655 and $150,541 as of
December 31, 1996.
Aggregate purchases from individual suppliers in excess of 10% of total
purchases amounted to $4,727,016 and 2,014,165 for the years ended December 31,
1997 and 1996, respectively.
8. SUBSEQUENT EVENT
On March 11, 1998, the Partnership sold all of its marketable securities for
$322,268. In connection with this sale, the Partnership recorded a gain of
$161,019.
<PAGE> 15
EXHIBIT INDEX
EXHIBIT NUMBER EXHIBIT TITLE
(c)(1) Acquisition Agreement, dated June 30, 1998, by and between
Carlyle Industries, Inc. and Westwater Enterprises, L.P.
<PAGE> 1
ACQUISITION AGREEMENT
by and between
CARLYLE INDUSTRIES, INC.
Buyer,
and
WESTWATER ENTERPRISES, L.P.
Seller.
Dated June 30, 1998
<PAGE> 2
TABLE OF CONTENTS
ACQUISITION AGREEMENT
SECTION PAGE
------- ----
ARTICLE I - DEFINITIONS........................................................1
Adjusted Purchase Price........................................................1
Affiliate......................................................................1
Affiliated Group...............................................................1
Ancillary Agreements...........................................................1
Assets.........................................................................1
Assignment and Assumption Agreement............................................3
Assignment of Patents" \f C \l.................................................3
Assignment of Trademarks, Registrations and Applications" \f C \l..............3
Assumed Liabilities............................................................3
Audited Financial Statements...................................................3
Bill of Sale...................................................................3
Business.......................................................................3
Business Condition.............................................................4
Buyer..........................................................................4
Closing........................................................................4
Closing Audit..................................................................4
Closing Balance Sheet..........................................................4
Closing Date...................................................................4
Closing Net Worth..............................................................4
COBRA..........................................................................4
i
<PAGE> 3
Code...........................................................................4
Consideration..................................................................4
Contingent Payments............................................................4
Contract.......................................................................4
Court..........................................................................4
Covenant Not to Compete........................................................4
Cumulative EBT.................................................................4
Earnings Before Taxes..........................................................4
EBT............................................................................5
Effective Time.................................................................5
Employee.......................................................................5
Employee Plan/Agreement........................................................5
Employment Contract............................................................5
Environmental Law..............................................................5
Environmental Permits..........................................................5
Environmental Property.........................................................5
ERISA..........................................................................5
Escrow Agent...................................................................6
Escrow Agreement...............................................................6
Escrow Deposit.................................................................6
Escrow Funds...................................................................6
Excluded Assets................................................................6
Excluded Liabilities...........................................................6
Financial Statements...........................................................6
GAAP...........................................................................6
ii
<PAGE> 4
Government.....................................................................6
Hazardous Materials............................................................6
Holdback.......................................................................6
Holdback Escrow Agent..........................................................6
Holdback Escrow Agreement......................................................6
Independent Accountant.........................................................6
Initial Purchase Price.........................................................6
Interim Balance Sheet..........................................................6
Interim Balance Sheet Date.....................................................6
Interim Financial Statements...................................................7
Intellectual Property..........................................................7
Inventory Reserve Adjustment...................................................7
knowledge......................................................................7
Law............................................................................7
Liabilities....................................................................7
Lien...........................................................................7
Notice of Dispute..............................................................7
Order..........................................................................7
Ordinary Course................................................................7
Party..........................................................................7
Permitted Liens................................................................8
Person.........................................................................8
Plan...........................................................................8
Purchased Assets...............................................................8
Purchase Order.................................................................8
iii
<PAGE> 5
Real Property..................................................................8
Returns........................................................................8
Seller.........................................................................8
Seller Group...................................................................8
Seller Group Person............................................................8
Tax Affiliate..................................................................8
Taxes..........................................................................8
Wychwood.......................................................................9
ARTICLE II - PURCHASE AND SALE OF PURCHASED ASSETS.............................9
2.1 Assets to be Purchased............................................9
2.2 Assumed Liabilities...............................................9
2.3 Consideration....................................................10
2.4 Allocation of Consideration......................................10
2.5 Closing..........................................................10
2.6 Deliveries of Seller at Closing..................................10
2.7 Deliveries of Buyer at Closing...................................10
2.8 Escrow Account...................................................10
2.9 Holdback.........................................................10
2.10 Determination of Closing Net Worth..............................11
2.11 Post-Closing Adjustment.........................................12
2.12 Contingent Payments.............................................12
2.13 Adjustments Regarding Inventory.................................15
ARTICLE III - REPRESENTATIONS AND WARRANTIES OF SELLER........................17
3.1 Existence and Power of Seller and Wychwood.......................17
3.2 Approval and Enforceability of Agreement.........................18
iv
<PAGE> 6
3.3 Financial Statements.............................................18
3.4 Events Subsequent to December 31, 1997...........................18
3.5 Inventories......................................................20
3.6 Accounts and Notes Receivable....................................20
3.7 Undisclosed Liabilities..........................................20
3.8 Taxes............................................................20
3.9 Personal Property -- Owned.......................................21
3.10 Real and Personal Property -- Leased from Seller................21
3.11 Real and Personal Property -- Leased to Seller..................22
3.12 Intellectual Property...........................................22
3.13 Necessary Property and Transfer of Purchased Assets.............23
3.14 Use and Condition of Property...................................24
3.15 Licenses and Permits............................................24
3.16 Contracts/Purchase Orders -- Disclosure.........................24
3.17 Contracts/Purchase Orders -- Validity, Etc......................25
3.18 No Breach of Law or Governing Documents.........................26
3.19 Litigation and Arbitration......................................26
3.20 Officers, Directors, Employees and Consultants..................27
3.21 Indebtedness to and from Officers, Directors and Others.........27
3.22 Outside Financial Interests.....................................27
3.23 Payments, Compensation and Perquisites of Agents and Employees..27
3.24 Employee Benefit Plans..........................................28
3.25 Terminated Plans...............................................30
3.26 Overtime, Back Wages, Vacation and Minimum Wages................30
v
<PAGE> 7
3.27 Discrimination, Workers Compensation and Occupational Safety
and Health......................................................30
3.28 Alien Employment Eligibility....................................31
3.29 Labor Disputes; Unfair Labor Practices..........................31
3.30 Insurance Policies..............................................31
3.31 Guarantees......................................................31
3.32 Product Warranties..............................................31
3.33 Product Liability Claims........................................32
3.34 Product Safety Authorities......................................32
3.35 Environmental Matters...........................................32
3.36 Broker's Fees...................................................34
3.37 Foreign Assets..................................................35
3.38 Foreign Operations and Export Control...........................35
3.39 Absence of Sensitive Payments...................................35
3.40 Truthfulness....................................................36
3.41 Bank Accounts of Seller.........................................36
3.42 Books and Records...............................................36
3.43 Affiliates......................................................36
ARTICLE IV - REPRESENTATIONS AND WARRANTIES OF BUYER..........................36
4.1 Corporate Existence of Buyer.....................................36
4.2 Approval of Agreement............................................37
4.3 No Breach of Articles or Indentures..............................37
4.4 SEC Filings......................................................37
ARTICLE V - COVENANTS CONCERNING SELLER.......................................38
5.1 Operation of the Business........................................38
vi
<PAGE> 8
5.2 Preservation of Business.........................................39
5.3 Insurance and Maintenance of Property............................40
5.4 Full Access......................................................40
5.5 Books, Records and Financial Statements..........................40
5.6 Other Government Filings.........................................40
5.7 Tax Matters......................................................40
ARTICLE VI - CHANGE OF NAME...................................................41
6.1 Change of Westwater Name.........................................41
6.2 Change of Wychwood Name..........................................42
ARTICLE VII - COVENANT NOT TO COMPETE.........................................42
7.1 Covenant Not to Compete..........................................42
7.2 Employees........................................................43
7.3 Confidentiality..................................................44
7.4 Remedies.........................................................44
7.5 Permitted Investments............................................45
7.6 Buyer's Breach...................................................45
ARTICLE VIII - CONDITIONS TO BUYER'S OBLIGATIONS..............................45
8.1 Representations and Warranties of Seller.........................45
8.2 Performance of this Agreement....................................45
8.3 No Material Adverse Change.......................................45
8.4 Certificate of Seller............................................46
8.5 Opinion of Counsel...............................................46
8.6 Escrow Agreements................................................46
8.7 Employment Contract..............................................46
8.10 No Lawsuits.....................................................46
vii
<PAGE> 9
8.11 No Restrictions.................................................46
8.12 Consents........................................................46
8.14 Documents.......................................................46
8.16 Further Assurances..............................................47
ARTICLE IX - CONDITIONS TO SELLER'S OBLIGATIONS...............................47
9.1 Representations and Warranties of Buyer..........................47
9.2 Performance of this Agreement....................................47
9.3 Certificate of Buyer.............................................47
9.4 Opinion of Counsel...............................................47
9.5 Payment of Purchase Price and Assumption of Liabilities..........47
9.6 Further Assurances...............................................48
9.7 Employment Contract..............................................48
9.8 No Lawsuits......................................................48
9.9 Indebtedness.....................................................48
ARTICLE X - INDEMNIFICATION...................................................48
10.1 Survival of Representations and Warranties......................48
10.2 Indemnification of Buyer........................................49
10.3 Indemnification of Seller.......................................49
10.4 Limitations on Indemnification..................................49
10.5 Set-off Rights..................................................50
10.6 Participation in Litigation.....................................50
10.7 Claims Procedure................................................51
10.8 Tax Indemnification.............................................51
ARTICLE XI - DISPUTE RESOLUTION...............................................52
11.1 Scope; Initiation...............................................52
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11.2 Negotiations Between Executives.................................52
11.3 Binding Arbitration.............................................53
11.4 Confidentiality -- Notice.......................................54
ARTICLE XII - MISCELLANEOUS...................................................54
12.1 Assignment; Binding Agreement...................................54
12.2 Termination of Agreement........................................55
12.3 Manner and Effect of Termination................................55
12.4 Amendments......................................................56
12.5 Non-Disclosure of Information...................................56
12.6 Bulk Sales......................................................56
12.7 Remedies........................................................56
12.8 Entire Agreement and Modification...............................56
12.9 Severability....................................................56
12.10 Counterparts...................................................56
12.11 Headings; Interpretation.......................................56
12.12 Governing Law..................................................57
12.13 Payment of Fees and Expenses...................................57
12.14 Notices........................................................57
12.15 Guaranty.......................................................57
12.16 No Third Party Beneficiaries...................................59
12.17 Schedule Disclosures...........................................59
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ACQUISITION AGREEMENT
THIS ACQUISITION AGREEMENT (the "Agreement") is made this 30th day of
June, 1998, by and between CARLYLE INDUSTRIES, INC., a Delaware corporation
("Buyer"), and WESTWATER ENTERPRISES, L.P., a Delaware limited partnership
("Seller").
RECITALS
A. Buyer desires to purchase from Seller the Purchased Assets and to
assume the Assumed Liabilities, on the following terms and conditions; and
B. Seller desires to sell to Buyer the Purchased Assets and to assign
to Buyer the Assumed Liabilities, on the following terms and conditions.
NOW, THEREFORE, in consideration of the foregoing recitals and the
mutual covenants, representations, warranties, conditions, and agreement
hereinafter expressed, the Parties agree as follows:
ARTICLE I
DEFINITIONS
Capitalized terms used in this Agreement have the following meanings:
"Adjusted Purchase Price" means the Initial Purchase Price following
adjustments pursuant to Section 2.11, if any.
"Affiliate" means a Person that directly, or indirectly through one or
more intermediaries, controls, is controlled by, or is under common control
with, the Person referred to. In this definition, "control" means the
possession, direct or indirect, of the power to direct or cause the direction of
the management and policies of a Person, whether through ownership of
securities, by contract, or otherwise.
"Affiliated Group" has the meaning set forth in Section 1504 of the
Code.
"Ancillary Agreements" means the Employment Contract, the Assignment
and Assumption Agreement, the Escrow Agreement and the Holdback Escrow
Agreement, collectively.
"Assets" means all assets and property and associated rights and
interests, real, personal, and mixed, tangible and intangible, of whatever kind,
owned or used by Seller in connection with the Business. Without limiting the
generality of the foregoing, the Assets include the following items:
(a) all assets reflected and/or described on the Interim
Balance Sheet, except any such assets which have been
disposed of or collected or
<PAGE> 12
depreciated in the Ordinary Course of the Business
since the Interim Balance Sheet Date or which are
Excluded Assets;
(b) all assets owned or used by Seller in connection with
the Business which have been fully depreciated or
written off;
(c) all assets acquired by Seller in connection with the
Business since the Interim Balance Sheet Date;
(d) all accounts receivable of Seller in connection with
the Business;
(e) all inventories of Seller in connection with the
Business, including but not limited to all raw
materials, finished goods, component parts, goods in
transit and work in process;
(f) all Contracts and Purchase Orders of Seller with
suppliers or customers in connection with the
Business;
(g) all machinery, equipment, supplies and tools of
Seller used in connection with the Business;
(h) all vehicles of Seller used in connection with the
Business;
(i) all leases of real property of Seller used in
connection with the Business, including without
limitation all buildings, plants, warehouses,
facilities and other improvements and fixtures
thereon and appurtenances thereto;
(j) all permits, approvals, licenses and certifications
issued to Seller by a Government or by a private
testing or certifying authority in connection with
the Business, to the extent assignable under the
terms thereof and applicable Law;
(k) all Intellectual Property, proprietary prospect
lists, customer lists, projections, analyses and
market studies, and documentation thereof and the
right and power to assert, defend and recover title
thereto in the same manner and to the same extent as
Seller could or could cause to be done if the
transactions contemplated hereby did not occur, and
the right to recover for past damages on account of
the infringement, misuse, or theft thereof;
(l) all records, including business, computer,
engineering, and other records, and all associated
documents, discs, tapes, and other storage or
recordkeeping media of Seller prepared or held in
connection with the Business, including but not
limited to all sales data, customer lists, accounts,
bids, contracts, supplier records, and other data and
information of the Business;
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<PAGE> 13
(m) all rights and claims against others under Contracts
and Purchase Orders;
(n) all rights in all countries to the use of the names
"Westwater," "Westwater Enterprises," "Wychwood" and
"Wychwood Trading," whether used in combination with
other words or not, and all goodwill associated
therewith and with the Business; and
(o) all other claims against others, rights, and choices
in action, liquidated or unliquidated, of Seller
arising from the Business, including those arising
under insurance policies.
"Assignment and Assumption Agreement" means the form of instrument
attached hereto as Exhibit A.
"Assignment of Patents" means the form of instrument attached hereto as
Exhibit H.
"Assignment of Trademarks, Registrations and Applications" means the
form of instrument attached hereto as Exhibit I.
"Assumed Liabilities" means Liabilities of Seller, to the extent the
Liabilities are incurred in the Ordinary Course of the Business and to the
extent they are:
(a) bank credit line indebtedness (including letters of
credit), trade accounts payable, commissions and royalties payable, accrued
expenses, accrued payroll taxes and contributions due to the Seller's 401(k)
Plan that are (i) quantified on the Closing Balance Sheet, (ii) included in the
calculation of the Adjusted Purchase Price, or (iii) if incurred after the date
of this Agreement, incurred in compliance with this Agreement; or
(b) executory obligations arising from the Business which are
not required under GAAP to be quantified and included in the financial
statements of the Business and which (i) if required to be set forth on a
Schedule, are so set forth, (ii) are incurred under a Contract or Purchase Order
with a Person other than an Affiliate of Seller for the sale, purchase,
retention or license of goods or services or lease of real or personal property
by Seller, (iii) are to be performed after the Effective Time, and (iv) if
incurred after the date of this Agreement, are incurred in compliance with this
Agreement.
"Audited Financial Statements" means the audited balance sheets of
Seller for each of the years ending December 31, 1996 and December 31, 1997,
together with the related statements of operations (earnings) and cash flows for
each of the periods then ended, all presented in accordance with GAAP
consistently applied, with inventory reported net of a reserve in the amount of
one hundred thousand dollars ($100,000) as provided in Section 2.13, and
accompanied by an unqualified report of Buyer's independent auditors, Arthur
Andersen LLP.
"Bill of Sale" means the form of instrument attached hereto as Exhibit
B.
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<PAGE> 14
"Business" means the business and operations of Seller generally
conducted under the trade names Westwater Enterprises and Wychwood Trading
Company reflected in the Financial Statements.
"Business Condition" of a Person or business means the business,
assets, results of operations or condition (financial or otherwise) of such
Person or business.
"Buyer" has the meaning set forth in the Preamble (or an Affiliate of
Buyer to whom this Agreement is assigned pursuant to Section 12.1(a) hereof).
"Closing" means the consummation of the transactions contemplated by
this Agreement.
"Closing Audit" has the meaning specified in Section 2.10 hereof.
"Closing Balance Sheet" shall mean the balance sheet prepared pursuant
to Section 2.10.
"Closing Date" means June 29, 1998 or, if the conditions to Closing are
not by then satisfied by Seller, on such date within thirty (30) days following
satisfaction of such conditions (other than conditions to be satisfied at
Closing according to the terms hereof) that Buyer shall reasonably designate.
"Closing Net Worth" has the meaning specified in Section 2.10 hereof.
"COBRA" means the Consolidated Omnibus Budget Reconciliation Act of
1985, as amended.
"Code" means the Internal Revenue Code of 1986, as from time to time
amended.
"Consideration" has the meaning set forth in Section 2.3 hereof.
"Contingent Payments" means the payments specified in Section 2.12
hereof.
"Contract" means any contract, agreement, arrangement, understanding,
lease, license, indenture, evidence of indebtedness, binding commitment or
instrument, written or oral, entered into or made by or on behalf of Seller in
connection with the Business, or to which Seller is a party or by which it or
its property is bound, other than a Purchase Order (as defined below).
"Court" means any court, grand jury, administrative or regulatory body,
Government agency, arbitration or mediation panel or similar body.
"Covenant Not to Compete" means the obligations of the Seller Group
Persons under Article VII.
"Cumulative EBT" means the algebraic sum of EBT during each of the
three (3) years ended December 31, 2000.
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<PAGE> 15
"Earnings Before Taxes" of the Business means the earnings before taxes
of the Business determined by the Chief Financial Officer of the Buyer based
upon the relevant financial statements of the Business as audited by Buyer's
independent certified public accountants in accordance with GAAP, consistently
applied, except that such earnings before taxes shall be adjusted (i) by adding
to earnings before taxes an amount equal to all general overhead,
administrative, warehousing, and salary, fees and expenses and other shared
services charges (including legal and accounting) (the "Intracorporate Charges")
charged to the Business by Buyer or caused to be charged to the business by
Buyer (other than charges relating to insurance on the life of Ivan Cohen
obtained by Buyer pursuant to Section 2.12(f) hereof and Section 4(c) of the
Employment Contract which shall be deemed an expense of the Business for all
purposes) and by subtracting from earnings before taxes an amount equal to the
amount of the fees and expenses the Business would have incurred had Buyer not
provided or caused to be provided to the Business the products and services to
which the Intracorporate Charges relate, which amount where applicable shall be
calculated by reference to the fees and expenses incurred by the Business in the
first quarter of 1998, (ii) by excluding the loss on the sale of House of
Fabrics stock, (iii) by excluding expenses in connection with severance or
termination payments made to employees of the Business whose employment
responsibilities were assumed by Buyer personnel, (iv) by excluding any
amortization or depreciation attributable to a write-up of the Assets and
non-recurring expenses incurred in connection with or as a result of the
transaction contemplated hereby, e.g., expenses of shipping inventory of the
Business from the warehouse used by Seller on the Closing Date to Buyer's
warehouse and of converting the computer systems of the Business to Buyer's
computer systems, (v) by reflecting the operating profit (earnings before taxes
and interest) on sales generated by the Business but effected through Buyer or
its Affiliates, (vi) by reflecting the Inventory Reserve Adjustment as provided
in Section 2.13 hereof, and (vii) so that the only interest charged will be the
interest cost incurred by Buyer on borrowings to fund net cash flow deficiencies
of the Business in excess of the amount of cash included in Excluded Assets.
"EBT" means Earnings Before Taxes of the Business during each of the
three years ending December 31, 1998, 1999 and 2000.
"Effective Time" means the effective time of the Closing, which shall
be as of the close of business on the Closing Date.
"Employee" has the meaning set forth in Section 3.24 hereof.
"Employee Plan/Agreement" has the meaning set forth in Section 3.24
hereof.
"Employment Contract" means the form of agreement attached hereto as
Exhibit C.
"Environmental Law" means any current, past or future Law relating to
the protection of health or the environment, including without limitation: the
Clean Air Act, the Federal Water Pollution Control Act, the Resource
Conservation and Recovery Act, the Comprehensive Environmental Response,
Compensation and Liability Act, the Toxic
5
<PAGE> 16
Substance Control Act, any comparable state or foreign Law, and the common law,
including the law of nuisance and strict liability.
"Environmental Permits" means all permits, registrations, approvals and
licenses, and all filings with and submissions to any Government or other
authority, required by any Environmental Law.
"Environmental Property" means all assets and property currently or
previously owned, leased, operated or used in connection with the Business by
Seller.
"ERISA" means the Employee Retirement Security Act of 1974, as amended.
"Escrow Agent" means the escrow agent under the Escrow Agreement.
"Escrow Agreement" means the form of agreement attached hereto as
Exhibit D.
"Escrow Deposit" has the meaning set forth in Section 2.8 hereof.
"Escrow Funds" has the meaning set forth in Section 2.8 hereof.
"Excluded Assets" means any cash, any shares of capital stock of House
of Fabrics, Inc. owned by the Seller and any rights of Seller to tax refunds in
respect of periods covered by the indemnity provided in Section 10.8 hereof.
"Excluded Liabilities" means all Liabilities of Seller other than the
Assumed Liabilities.
"Financial Statements" means the Audited Financial Statements and the
Interim Statements.
"GAAP" means U.S. generally accepted accounting principles.
"Government" means the United States of America, any other nation or
sovereign state, the European Union, any federal, bilateral or multilateral
governmental authority, any state, possession, territory, county, district, city
or other governmental unit or subdivision, and any branch, agency, or judicial
body of any of the foregoing.
"Hazardous Materials" means any pollutants, contaminants, hazardous
substances, hazardous chemicals, toxic substances, hazardous wastes, infectious
wastes, radioactive materials, petroleum including crude oil or any fraction
thereof, asbestos fibers, or solid wastes or other hazardous materials,
including without limitation those defined in any Environmental Law.
"Holdback" has the meaning set forth in Section 2.9 hereof.
"Holdback Escrow Agent" means the escrow agent under the Holdback
Escrow Agreement.
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<PAGE> 17
"Holdback Escrow Agreement" means the form of agreement attached hereto
as Exhibit E.
"Independent Accountant" means the individual appointed under Section
2.10.
"Initial Purchase Price" means the book value of the Purchased Assets
minus the Assumed Liabilities all as reflected in the balance sheet included in
the Interim Financial Statements.
"Interim Balance Sheet" means the unaudited balance sheet included in
the Interim Financial Statements.
"Interim Balance Sheet Date" means the date as of which the disclosures
in the Interim Balance Sheet are made.
"Interim Financial Statements" means the unaudited balance sheet of
Seller as at April 30, 1998, together with the related statement of operations
and cash flows, all presented in accordance with GAAP, consistently applied,
with inventory reported net of a reserve in the amount of one hundred thousand
dollars ($100,000) as provided in Section 2.13.
"Intellectual Property" means all of the following (in whatever form or
medium) which are owned by or licensed to any Seller Group Person and used in
the Business: patents, trademarks, service marks, trade names, corporate names,
copyrights, and copyrighted works; registrations thereof and applications
therefor; trade secrets, software (whether in source code or object code),
firmware, mask works, programs, inventions, discoveries, proprietary processes,
and items of proprietary know-how, information or data; and licenses,
sublicenses, assignments, and agreements in respect of any of the foregoing.
"Inventory Reserve Adjustment" has the meaning specified in Section
2.13 hereof.
"knowledge" with respect to the Buyer means the actual knowledge after
reasonable inquiry of one or more of its officers or directors and with respect
to Seller means the actual knowledge after reasonable inquiry of Ivan Cohen or
Alice Fertig.
"Law" means any statute, law, treaty, ordinance, rule, regulation,
instrument, directive, decree, order, or injunction of any Government,
quasi-governmental authority, or Court, and includes rules or regulations of any
regulatory or self-regulatory authority compliance with which is required by
law.
"Liabilities" means liabilities and/or obligations, whether or not
required to be reflected on the financial statements of a business.
"Lien" means any lien, security interest, mortgage, option, lease,
tenancy, occupancy, restrictive covenant, condition, easement, agreement,
pledge, hypothecation, charge, restriction, or other encumbrance of every kind
and nature, other than Permitted Liens.
7
<PAGE> 18
"Notice of Dispute" means a notice to Buyer delivered pursuant to
Section 2.10, specifying in reasonable detail all points of disagreement with
the calculations, accounting practices and accounting principles reflected in
the Closing Balance Sheet.
"Order" means an order, judgment, writ, injunction, award or decree of
any Court or Government.
"Ordinary Course" means, with respect to the Business, only the
ordinary course of commercial operations customarily engaged in by such Business
consistent with past practices, and specifically does not include activity (i)
involving the purchase or sale of another business or of any product line or
business unit of another business, but nothing herein is intended to otherwise
exclude from the definition of Ordinary Course the purchase, development or
other acquisition of products for resale in the ordinary course, or (ii)
involving modification or adoption of any Plan or (iii) which requires approval
by the board of directors or shareholders of a corporation or the partners of a
partnership engaged in such business.
"Party" means either Buyer or Seller, and "Parties" means both of them.
"Permitted Liens" means the liens on the Assets held by Summit Bank
pursuant to that certain Credit and Security Agreement dated April 16, 1992, the
liens of taxes not yet due and those set forth on Schedule 3.11(c).
"Person" means any natural person, any corporation, partnership,
limited liability company, limited liability partnership, joint venture,
association, company, or other legal entity, and any Government.
"Plan" means any agreement, arrangement, plan or policy, qualified or
non-qualified, whether or not considered legally binding, that involves (a) any
pension, retirement, profit sharing, deferred compensation, bonus, stock option,
stock purchase, phantom stock, health, welfare or incentive plan; or (b) welfare
or "fringe" benefits, including without limitation any voluntary employees'
beneficiary associations or related trusts, vacation, severance, disability,
medical, hospitalization, dental, life and other insurance, tuition, company
car, club dues, income tax preparation, sick leave, maternity, paternity or
family leave, child care or other benefits.
"Purchased Assets" means all of the Assets other than the Excluded
Assets.
"Purchase Order" means any contract, agreement, arrangement,
understanding, purchase order, sales order, commitment or instrument, written or
oral, entered into or made by or on behalf of Seller with respect to the
purchase or sale of goods or services in connection with the Business.
"Real Property" means each parcel of real property included in the
Purchased Assets, including without limitation all buildings, plants,
warehouses, facilities and other improvements and fixtures thereon and
appurtenances thereto.
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<PAGE> 19
"Returns" means returns, reports, estimated tax and informational
statements and returns relating to Taxes which are, were or will be required by
Law to be filed by Seller or any Tax Affiliate of Seller in connection with the
Business, and all information returns (e.g., Form W-2, Form 1099) and reports
relating to Taxes or Plans. Any one of the foregoing Returns may be referred to
sometimes as a "Return."
"Seller" has the meaning set forth in the Preamble.
"Seller Group" means Seller, Ivan Cohen, Alice Fertig and Wychwood.
"Seller Group Person" means a Person included in the Seller Group.
"Tax Affiliate" means any member of an Affiliated Group of which Seller
is or was a member, or any member of a combined or unitary group of which Seller
is or was a member.
"Taxes" means all taxes, charges, fees, levies or other like
assessments imposed or assessed by any Government, including without limitation
income, profits, windfall profit, employment (including Social Security, state
pension plans, and unemployment insurance), withholding, payroll, franchise,
gross receipts, sales, use, transfer, stamp, occupation, real or personal
property, ad valorem, value added, premium, and excise taxes; Pension Benefit
Guaranty Corporation premiums and any other like Government charges; and shall
include all penalties, fines, assessments, additions to tax, and interest
resulting from, attributable to, or incurred in connection with such Taxes or
any contest or despite thereof. Any one of the foregoing Taxes may be referred
to sometimes as a "Tax."
"Wychwood" means Wychwood Trading Company, a Delaware corporation and
the general partner of Seller.
ARTICLE II
PURCHASE AND SALE OF PURCHASED ASSETS
2.1 ASSETS TO BE PURCHASED. Subject to the terms and conditions
hereof, on the Closing Date and as of the Effective Time,
Seller shall sell to Buyer, free and clear of all Liens, all
right, title and interest of Seller in and to all of the
Purchased Assets.
2.2 ASSUMED LIABILITIES.
(a) Subject to the terms and conditions hereof, on the
Closing Date and as of the Effective Time, Seller
shall assign and transfer to Buyer and Buyer agrees
to assume only the Assumed Liabilities.
(b) Notwithstanding the foregoing, if the assignment or
transfer of any obligation or instrument would cause
a breach thereof and if no required consent to such
assignment or transfer has been obtained, then, at
Buyer's election and in its sole discretion, and
subject to Buyer's right to require strict compliance
with Section 8.12 hereof,
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<PAGE> 20
such obligation or instrument shall not be assigned
or transferred, but Seller shall act as agent for
Buyer in order to obtain for Buyer the benefits under
such obligation or instrument.
(c) EXCEPT AS EXPRESSLY PROVIDED IN THIS SECTION 2.2 AND
EXCEPT FOR LIABILITIES OF BUYER TO SELLER UNDER THIS
AGREEMENT OR UNDER ANY ANCILLARY AGREEMENT, NEITHER
BUYER NOR ANY AFFILIATE OF BUYER ASSUMES OR AGREES TO
BECOME LIABLE FOR OR SUCCESSOR TO ANY LIABILITIES OR
OBLIGATIONS WHATSOEVER, LIQUIDATED OR UNLIQUIDATED,
KNOWN OR UNKNOWN, CONTINGENT OR OTHERWISE, WHETHER OF
SELLER, ANY AFFILIATE OF SELLER, ANY PREDECESSOR
THEREOF, OR ANY OTHER PERSON, OR OF THE BUSINESS. NO
OTHER STATEMENT IN OR PROVISION OF THIS AGREEMENT AND
NO OTHER STATEMENT, WRITTEN OR ORAL, ACTION, OR
FAILURE TO ACT INCLUDES OR CONSTITUTES ANY SUCH
ASSUMPTION OR AGREEMENT, AND ANY STATEMENT TO THE
CONTRARY BY ANY PERSON IS UNAUTHORIZED AND HEREBY
DISCLAIMED. EXCEPT AS EXPRESSLY PROVIDED IN THIS
SECTION 2.2 AND EXCEPT FOR LIABILITIES OF BUYER TO
SELLER UNDER THIS AGREEMENT OR UNDER ANY ANCILLARY
AGREEMENT, WITHOUT LIMITING THE GENERALITY OF THE
FOREGOING, NEITHER BUYER NOR ANY AFFILIATE OF BUYER
ASSUMES OR AGREES TO BECOME LIABLE FOR ANY
LIABILITIES RELATING TO TAX, ENVIRONMENTAL MATTERS,
OR PRODUCT LIABILITY.
2.3 CONSIDERATION. The Consideration shall be the aggregate of (a)
the Adjusted Purchase Price, plus (b) the Contingent Payments,
if any, plus (c) the amount of the Assumed Liabilities.
2.4 ALLOCATION OF CONSIDERATION. The Consideration provided for in
Section 2.3, adjusted pursuant to Section 2.11, shall be
allocated among the Purchased Assets and the Assumed
Liabilities as provided in Schedule 2.4 hereto.
2.5 CLOSING. The Closing shall take place at 10:00 a.m. on the
Closing Date at the offices of Bryan Cave LLP, 245 Park
Avenue, New York, N.Y. 10167.
2.6 DELIVERIES OF SELLER AT CLOSING. At Closing, subject to the
conditions to Seller's obligations in Article IX, Seller shall
execute and deliver or cause to be delivered the documents
identified in Article VIII.
2.7 DELIVERIES OF BUYER AT CLOSING. At Closing, subject to the
conditions to Buyer's obligations in Article VIII, Buyer shall
(a) execute and deliver or
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<PAGE> 21
cause to be delivered the documents identified in Article IX
and (b) transfer by wire transfer, to an account designated by
Seller not less than two business days before the Closing
Date, the amount of the Initial Purchase Price less the Escrow
Deposit and the Holdback Escrow Deposit, to an account
designated in the Escrow Agreement, the Escrow Deposit, and to
an account designated in the Holdback Escrow Agreement, the
Holdback Escrow Deposit.
2.8 ESCROW ACCOUNT. In connection with the Closing, Buyer, Seller
and the Escrow Agent shall execute the Escrow Agreement,
pursuant to which the Consideration payable to Seller may be
adjusted as provided in Article X hereof. On the Closing Date,
Buyer shall deliver to the Escrow Agent a sum equal to 10% the
Initial Purchase Price (the "Escrow Deposit"), to be held in
Escrow for a period of one year under the Escrow Agreement.
The Escrow Deposit shall be funded from the Initial Purchase
Price otherwise payable to the Seller. Upon termination of the
Escrow Agreement, the Escrow Agent shall distribute the Escrow
Deposit and all income earned thereon (the "Escrow Funds") to
the Seller in accordance with the Escrow Agreement, except to
the extent that some or all of the Escrow Funds have been
distributed to Buyer pursuant to the terms of the Escrow
Agreement to satisfy any claims pursuant to Article X or
Section 2.11 hereof.
2.9 HOLDBACK. The amount of $350,000 (the "Holdback") shall be
withheld from the payment of the Initial Purchase Price as
security for any adjustments to the Initial Purchase Price in
determining the Adjusted Purchase Price pursuant to Section
2.11 following completion of the Closing Balance Sheet. On the
Closing Date the Buyer shall deliver to the Holdback Escrow
Agent the Holdback to be held in escrow pursuant to the
Holdback Escrow Agreement. After the Adjusted Purchase Price
has been finally determined, and if it is greater than the
Initial Purchase Price (less the Holdback), such excess and
all income earned thereon shall be promptly paid by the
Holdback Escrow Agent to Seller and the remainder of the
Holdback, if any, and all income earned thereon shall be
promptly paid by the Holdback Escrow Agent to Buyer. If the
Initial Purchase Price (less the Holdback) is equal to or
greater than the Adjusted Purchase Price, the Holdback and all
income earned thereon shall be promptly paid by the Holdback
Escrow Agent to Buyer. If the Holdback is not sufficient to
cover the amount by which the Initial Purchase Price exceeds
the Adjusted Purchase Price, Buyer shall be entitled to
withdraw from the Escrow Funds the amount, if any, by which
the Initial Purchase Price (less the Holdback) exceeds the
Adjusted Purchase Price. To the extent that the Escrow Funds
are insufficient to reimburse Buyer for the amount by which
the Initial Purchase Price (less the Holdback) exceeds the
Adjusted Purchase Price, Seller shall be obligated to return
to Buyer such excess.
2.10 DETERMINATION OF CLOSING NET WORTH.
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(a) As soon as is practicable after the Closing Date,
Buyer shall prepare a balance sheet as of the Closing
Date reflecting the book value, as of the Closing
Date, of the Purchased Assets less the Assumed
Liabilities (the "Closing Net Worth") in accordance
with GAAP applied consistently with the accounting
policies and procedures followed in preparing the
Financial Statements, with inventory reported in
accordance with subsection (b) below, and cause its
independent certified public accountants to conduct
an audit and examination of such balance sheet (the
"Closing Audit") at Buyer's sole cost and expense.
Such balance sheet as of the Closing Date together
with the auditor's report on the Closing Audit is
herein referred to as the "Closing Balance Sheet."
The Seller, at its sole cost and expense, may have a
representative participate in the taking of the
physical inventory and review all final work papers
in connection with the Closing Audit. Buyer shall
deliver the Closing Balance Sheet to the Seller not
later than 60 days after the Closing Date.
(b) The inventory reflected on the Closing Balance Sheet
shall be valued at the lower of cost or market (cost
being determined by the FIFO accounting method) in
the same manner as recorded on the Seller's books and
records, net of a reserve in the amount of one
hundred thousand dollars ($100,000).
(c) If the Seller disputes the Closing Balance Sheet as
delivered by Buyer, then not more than 20 days after
the date the Seller receives the Closing Balance
Sheet the Seller shall provide to Buyer a Notice of
Dispute. Upon receipt of the Notice of Dispute, Buyer
shall promptly consult with the Seller with respect
to its specified points of disagreement in an effort
to resolve the dispute. If any such dispute cannot be
resolved by Buyer and the Seller within 20 days after
Buyer receives the Notice of Dispute, they shall
refer the dispute to a partner in and designated by
Ernst & Young LLP, certified public accountants, and
reasonably acceptable to the Parties (the
"Independent Accountant"), as an expert, and not as
an arbitrator, to finally determine, as soon as
practicable, and in any event within 30 days after
such referral, all points of disagreement with
respect to the Closing Balance Sheet. The Parties
represent and warrant that none of them or their
Affiliates has a material pre-existing relationship
with the Independent Accountant. The Independent
Accountant shall apply the terms of this Section
2.10, and shall otherwise conduct the arbitration
under such procedures as the Parties may agree or,
failing such agreement, under the Commercial
Arbitration Rules of the American Arbitration
Association. The fees and expenses of the arbitration
and the Independent Accountant incurred in connection
with the arbitration of the Closing Balance Sheet
shall be allocated between the Parties by the
Independent Accountant in proportion to the extent
either Party did
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not prevail on items in dispute in the Closing
Balance Sheet. All determinations by the Independent
Accountant shall be final, conclusive and binding
with respect to the items in dispute in the Closing
Balance Sheet and the allocation of arbitration fees
and expenses.
2.11 POST-CLOSING ADJUSTMENT. The Adjusted Purchase Price shall be
determined by reducing or increasing (as the case may be as
provided in Section 2.10) the Initial Purchase Price dollar
for dollar by the amount, if any, by which the Closing Net
Worth on the Closing Balance Sheet determined under Section
2.10 is less or more (as the case may be) than the Initial
Purchase Price, which shortfall shall be payable by Seller or
such excess shall be payable by Buyer (as the case may be as
provided in Section 2.9) upon final determination of the
Adjusted Purchase Price in accordance with Section 2.10 above.
2.12 CONTINGENT PAYMENTS.
(a) Subject to the conditions specified in this Section
2.12 and the provisions of Section 2.13, the Buyer
shall pay to the Seller, the following Contingent
Payments:
(i) $250,000, if EBT during the year ended
December 31, 1998 is not less than one and
one-half million dollars ($1,500,000);
(ii) $250,000, if EBT during the year ended
December 31, 1999 is not less than one and
one-half million dollars ($1,500,000); and
(iii) two million dollars ($2,000,000), minus any
amounts paid pursuant to Sections 2.12(a)(i)
and 2.12(a)(ii) hereof, if Cumulative EBT is
not less than four and one-half million
dollars ($4,500,000); or,
(iv) if Cumulative EBT is more than three million
dollars ($3,000,000) and less than four and
one-half million dollars ($4,500,000), an
amount equal to (x) 1.33333 multiplied by
Cumulative EBT in excess of $3,000,000,
minus (y) any amounts paid pursuant to
Sections 2.12(a)(i) and 2.12(a)(ii) hereof.
Any Contingent Payment pursuant to Section
2.12(a)(iii) or this Section 2.12(a)(iv)
shall bear interest at the rate of six
percent (6%) per annum of the amount of such
Contingent Payment from the Closing Date to
the date of payment.
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(b) Each Contingent Payment due pursuant to this Section
2.12 shall be paid within ninety (90) days after the
end of the year or years in respect of which it is
based.
(c) From the Closing Date and until such time as Buyer's
obligations with respect to the Contingent Payments
have been satisfied in full or have expired (the
"Contingent Period") or until Buyer's obligations
with respect to the Contingent Payments become a
fixed obligation under Sections 2.12(d), (e) or (f)
below, the Business will be managed in accordance
with the following provisions:
(i) Ivan Cohen shall act as the President and
Chief Operating Officer of the Business
under the Employment Contract and shall have
full authority over the day-to-day business
and affairs of the Business (subject to the
fiduciary and statutory duties of the Board
of Directors of Buyer (the "Buyer Board")
and subject to such authority being
exercised in a manner consistent with past
practices and in accordance with such
policies as Buyer may adopt and make Ivan
Cohen aware of which are designed to have
the Business comply with applicable law),
including the following:
(A) the making of contracts with
suppliers and customers (provided
that Ivan Cohen must obtain the
consent of the Chief Executive
Officer or the Board of Directors
of the Business for contracts that
involve payments to or from the
Business in excess of $100,000 or
have a term in excess of 12 months
unless such contracts are pursuant
to an ongoing program, or are
consistent with the past practices
of the Business, or are purchase
orders against specific customer
commitments in which event Ivan
Cohen shall only be required to
give prior notice to the Chief
Executive Officer of the Business);
and
(B) the hiring and discharge of
employees, consultants, sales
representatives, and product
designers and product developers
(together, "Designers"), and the
establishment of compensation rates
for them, provided, however, that
if (a) any such employee,
consultant, sales representative or
Designer is a relative of Ivan
Cohen, (b) any such employee has a
status other than as an "employee
at will" or the future services of
any such consultant, sales
representative or Designer are not
terminable by the Business on
thirty or less days notice, or (c)
the annual salary payable for
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any such employee exceeds $100,000,
Ivan Cohen must obtain the consent
of the Chief Executive Officer or
the Board of Directors of the
Business;
(ii) the Buyer shall take all such action as
shall be reasonably required to maintain,
provide and/or arrange for sufficient funds
to operate and grow the Business consistent
with the managerial authority set forth
above and consistent with the latest total
annual funding contemplated by the Operating
Plan (as defined below) in respect of the
then current fiscal year. The "Operating
Plan" shall mean the plan submitted by Ivan
Cohen to the Buyer Board in respect of each
fiscal year during the Contingent Period as
approved by the Buyer Board and as amended
from time to time by the mutual consent of
Ivan Cohen and the Buyer Board or the Chief
Executive Officer of the Business. The
Operating Plan for the fiscal year ending
December 31, 1998 is attached hereto as
Schedule 2.12 and the Operating Plans for
the next two fiscal years shall be in
substantially the same form as Schedule
2.12. If, in respect of either or both of
the fiscal years ending December 31, 1999
and December 31, 2000, Ivan Cohen in good
faith submits an operating plan to the Buyer
Board which is rejected by the Buyer Board
and Ivan Cohen and Buyer fail to resolve
their differences with respect to such plan
within a reasonable time, the Operating Plan
for such fiscal year shall be deemed to be
the Operating Plan in effect for the prior
fiscal year adjusted to reflect a fifteen
percent (15%) increase in the sums provided
therein.
(d) If Cohen is employed by Buyer pursuant to the terms
of the Employment Contract on the date of the
occurrence of a Change in Control (as defined below)
of Buyer, then upon such occurrence the obligation of
Buyer to make any unpaid Contingent Payments shall
become a fixed obligation of Buyer and shall no
longer be subject to the EBT conditions of Section
2.12(a) or any other condition. For purposes of this
Section 2.12, a "Change in Control" shall be deemed
to have occurred if and only if an entity, or one or
more entities acting as a "Group" within the meaning
of Section 13(g) of the Securities Exchange Act of
1934, other than Noel Group, Inc., shall have the
then-effective right to vote, or the then-effective
right to control the vote, of in excess of 50% of the
voting power of Buyer.
(e) If the Employment Contract is terminated by Buyer
without "Cause" (as defined therein), the obligation
of Buyer to make any unpaid Contingent Payments shall
become a fixed obligation of Buyer and shall no
longer be subject to the EBT conditions of Section
2.12(a) or
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any other condition all as provided in Section 7 of
the Employment Contract.
(f) If Cohen shall die while the Employment Contract is
in effect, the obligation of Buyer to make any unpaid
Contingent Payments shall, to the extent of the
proceeds of insurance obtained by the Buyer pursuant
to Section 4(c) of the Employment Contract, become a
fixed obligation of Buyer and shall no longer be
subject to the EBT conditions of Section 2.12(a) or
any other condition. Buyer covenants to obtain term
insurance on Ivan Cohen's life, solely to the extent
available to Buyer on commercially reasonable terms,
the face amount from time to time to be equal to the
maximum amount of unpaid Contingent Payments which
could become payable to Seller hereunder as provided
in Section 4(c) of the Employment Contract. The
proceeds of such insurance up to the amount of the
Contingent Payments payable by Buyer pursuant to this
Section 2.12(f) and Section 4(c) of the Employment
Contract shall, promptly upon receipt of the same by
Buyer, be used to make such Contingent Payments to
Seller, or its successors or assigns, as the case may
be, all as provided in Section 4(c) of the Employment
Contract.
2.13 ADJUSTMENTS REGARDING INVENTORY
(a) The parties agree that the inventory reported in the
Financial Statements and on the Closing Balance Sheet
will reflect a reserve of one hundred thousand
dollars ($100,000). Solely for purposes of
calculating EBT and Cumulative EBT under Section
2.12, the value of the inventory reported on the
financial statements of the Business at each of
December 31, 1998, 1999 and 2000, respectively, shall
be adjusted so that such value is reported net of the
following amounts (collectively, the "Inventory
Reserve Adjustment"):
(i) an amount equal to the aggregate book value
of all items of inventory within a stock
keeping unit of inventory ("SKU") that were
on hand at the end of the immediately
preceding fiscal year (the "Prior Year End")
and with respect to which no items had been
sold by the Business during the period (the
"Current Year") beginning at the Prior Year
End and ending at the end of the then
current fiscal year (the "Current Year
End");
(ii) an amount equal to (x) the aggregate amount
by which the book value of all inventory
within each SKU that was sold during the
Current Year exceeds the consideration
received by the Business in respect of the
sale of such inventory divided by the number
of items of such inventory so sold,
multiplied by
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(y) the number of items within such SKU
which is on hand at the Current Year End;
and
(iii) an amount equal to the aggregate book value
of all items of inventory within a SKU that
were on hand at the Prior Year End and
remained on hand at the Current Year End
which is in excess of an amount equal to
twelve (12) times the average monthly sales
of such items of inventory within the same
SKU during the Current Year.
(b) If, after giving effect to the Inventory Reserve
Adjustment, EBT during the year ended December 31,
1998 is less than one and one-half million dollars
($1,500,000), Seller shall be liable to Buyer in an
amount equal to the difference between one and
one-half million dollars ($1,500,000) and EBT for the
year ended 1998 which amount shall not exceed an
amount equal to that portion of the Inventory Reserve
Adjustment which is attributable to inventory
included on the Closing Balance Sheet less $100,000
(the "Inventory Liability Amount"). Buyer shall be
entitled to receive payment of the Inventory
Liability Amount, in addition to any other amounts
owing to Buyer under this Agreement, from the Escrow
Funds in accordance with the terms of the Escrow
Agreement. If, notwithstanding giving effect to the
Inventory Reserve Adjustment, EBT during the year
ended December 31, 1998 is one and one-half million
dollars ($1,500,000) or more, Seller shall have no
liability to Buyer in respect of the matters set
forth in Section 2.13(a)(i), (ii) and (iii) above
upon which the Inventory Reserve Adjustment was
calculated.
(c) Seller shall be entitled to receive from Buyer an
amount equal to (x) Cumulative EBT (after giving
effect to the Inventory Reserve Adjustment) plus the
sum (the "Additional Sum") of $100,000 and the
Inventory Liability Amount, minus (y) four and
one-half million dollars ($4,500,000), which amount
shall not exceed the Additional Sum. Any payment to
be made by Buyer pursuant to this Section 2.13(c)
shall be made on or before March 31, 2001.
(d) All calculations made pursuant to this Section 2.13
shall be made by the Chief Financial Officer of Buyer
based upon the relevant financial statements of the
Business as audited by Buyer's independent certified
public accountants in accordance with GAAP applied
consistently with the accounting policies and
procedures followed in preparing the Financial
Statements (subject to the adjustments reflected in
Sections 2.12 and 2.13 and in the definition of
"Earnings Before Taxes" in Article I hereof). Any
disputes arising under this Section 2.13 shall be
resolved in the manner provided in Section 2.10(c).
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ARTICLE III
REPRESENTATIONS AND WARRANTIES OF SELLER
The Seller Group hereby makes the following representations and
warranties, each of which is true and correct on the date hereof and, except for
changes expressly permitted by this Agreement, shall be true and correct on the
Closing Date and each of which shall survive the Closing Date and the
transactions contemplated hereby.
3.1 EXISTENCE AND POWER OF SELLER AND WYCHWOOD.
(a) True and complete copies of the articles or
certificate of partnership and partnership agreement
and all amendments thereto of Seller, certified by a
general partner, are attached as Schedule 3.1. Seller
is a limited partnership duly organized, validly
existing and in good standing under the Laws of the
jurisdiction indicated in Schedule 3.1.
(b) Wychwood is a corporation duly organized, validly
existing and in good standing under the Laws of the
State of Delaware.
(c) Seller has the legal power and authority to own and
use the Assets and to transact the business in which
it is engaged, holds all franchises, licenses and
permits necessary and required therefor, is duly
licensed or qualified to do business and is in good
standing in each jurisdiction where such license or
qualification is required, except where failure to
obtain such license or so qualify will not have a
material adverse effect upon the Business, its
Business Condition or, to the knowledge of Seller,
its prospects. Seller has the legal power to enter
into this Agreement and each of the Ancillary
Agreements to which it is a party, to perform its
obligations hereunder and thereunder, and to
consummate the transactions contemplated hereby and
thereby.
(d) Wychwood has the legal power and authority to own and
use its properties and to transact the business in
which it is engaged, holds all franchises, licenses
and permits necessary and required therefor, is duly
licensed or qualified to do business and is in good
standing in each jurisdiction where such license or
qualification is required, except where failure to
obtain such license or so qualify will not have a
material adverse effect upon its business or the
Business, its Business Condition or, to the knowledge
of Wychwood, its prospects. Wychwood has the legal
power to enter into this Agreement and each of the
Ancillary Agreements to which it is a party, to
perform its obligations hereunder and thereunder, and
to consummate the transactions contemplated hereby
and thereby.
3.2 APPROVAL AND ENFORCEABILITY OF AGREEMENT.
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(a) The execution and delivery of this Agreement and each
of the Ancillary Agreements to which it is a party
and the consummation of the transactions contemplated
hereby and thereby have been duly authorized,
approved and ratified by all necessary action on the
part of each Seller Group Person. Certified copies of
all required resolutions, authorizations, consents,
approvals and/or ratifications are attached as
Schedule 3.2 hereto and no such resolution,
authorization, consent or approval has been altered,
amended, rescinded, repealed or revoked. Pursuant to
such resolutions, authorizations, consents, approvals
and/or ratifications, each Seller Group Person has
full authority to enter into and deliver this
Agreement and each of the Ancillary Agreements to
which it is a party, to perform its obligations
hereunder and thereunder, and to consummate the
transactions contemplated hereby and thereby.
(b) Assuming the due execution and delivery hereof by
Buyer, this Agreement and each Ancillary Agreement is
the legal, valid and binding obligation of each
Seller Group Person that is a party thereto,
enforceable against each such Seller Group Person
according to its terms, subject as to enforceability
to general principles of equity and to applicable
bankruptcy, insolvency, reorganization, moratorium,
liquidation and other similar laws relating to, or
affecting generally, the enforcement of applicable
creditors' rights and remedies.
3.3 FINANCIAL STATEMENTS.
(a) Attached as Schedule 3.3 hereto are the Financial
Statements.
(b) The Financial Statements were derived from the books
and records of the Business and (i) are true,
complete, and correct in all material respects, (ii)
present fairly in all material respects, the
financial position, results of operations, and cash
flows of the Business at the dates and for the
periods indicated, and (iii) except as disclosed in
Schedule 3.3 hereto, have been prepared in accordance
with GAAP applied on a basis consistent with previous
periods.
3.4 EVENTS SUBSEQUENT TO DECEMBER 31, 1997. Since December 31,
1997, except as set forth on Schedule 3.4 or in the Interim
Financial Statements, there has been no:
(a) change in the Business Condition, or, to the
knowledge of Seller, the prospects, of the Business
other than changes in the Ordinary Course, none of
which have been materially adverse, and no such
change will arise from the consummation of the
transactions contemplated hereby;
(b) loss or threatened loss of a material customer
account;
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(c) damage, destruction or physical loss in excess of
$5,000, whether covered by insurance or not,
affecting the Purchased Assets;
(d) declaration, setting aside, or payment of any
dividend or any distribution (in cash or in kind)
with respect to any partnership of Seller, other than
as permitted by Section 5.1(i) hereof;
(e) increase in or commitment to increase compensation,
benefits, or other remuneration to or for the benefit
of any shareholder, member, partner, director,
officer, employee, sales representative or agent of
Seller, or, in connection with the Business, any
other Person, or any benefits granted under any Plan
with or for the benefit of any such shareholder,
member, partner, director, officer, employee, agent
or Person except, however, ordinary merit increases
not unusual in character or amount made in the
Ordinary Course of the Business to employees or
agents who are not officers, directors, partners or
stockholders;
(f) transaction entered into or carried out by Seller
other than in the Ordinary Course of the Business;
(g) borrowing or incurrence of any indebtedness
(including letters of credit and foreign exchange
contracts), contingent or other, by or on behalf of
Seller other than through Seller's regular line of
credit described on Schedule 3.4, or any endorsement,
assumption, or guarantee of payment or performance of
any Indebtedness or Liability of any other Person or
entity by Seller;
(h) change made by the Seller in its Tax or financial
accounting or any Tax election other than the
inventory reserve of $100,000;
(i) grant of any Lien with respect to the Purchased
Assets;
(j) transfer of any Assets other than arm's-length sales,
leases, or dispositions in the Ordinary Course of the
Business;
(k) modification or termination of any material Contract
or any material term thereof;
(l) lease or acquisition of any capital assets included
in the Purchased Assets;
(m) loan or advance by the Seller to any Person except
normal employee expense advances not in excess of
$500;
(n) to the knowledge of Seller, incurrence of liability
for any tort or any breach or violation of or a
default under any Contract or Law which
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could have a material adverse effect on the Business
Condition of the Business; or
(o) commitment or agreement by Seller to do any of the
foregoing items (d) through (n).
3.5 INVENTORIES. Seller does not know of any material adverse
condition affecting the supply of materials available to the
Company, other than (a) general economic and business
conditions and governmental (both foreign and domestic)
regulations affecting importing and exporting goods the same
as or similar to the Company's products and raw materials, or
(b) usual and customary conditions arising in the ordinary
course of business. Except as set forth on Schedule 3.5,
Seller does not hold in connection with the Business any
Purchased Assets on consignment and does not have title to or
ownership of any Purchased Assets in the possession of others.
3.6 ACCOUNTS AND NOTES RECEIVABLE. Set forth on Schedule 3.6
hereto are all accounts and notes receivable of Seller and an
aging schedule related thereto, each as of April 30, 1998.
Such accounts and notes receivable are, and any accounts and
notes receivable arising between such date and the Closing
Date shall be, valid, genuine and, to the extent not collected
prior to the Closing Date, subsisting, and all such accounts
and notes receivable arose or will have arisen in the Ordinary
Course of the Business. Such accounts and notes receivable are
not and will not be on the Closing Date, to the knowledge of
the Seller, subject to any defense, set-off, counterclaims or
Lien. Except to the extent of any reserve therefor on the
Financial Statements or payment prior to Closing, to the
knowledge of Seller, all accounts and notes receivable are and
will be current and fully collectible.
3.7 UNDISCLOSED LIABILITIES. Seller does not have, in connection
with the Business, any Liabilities whatsoever, known or
unknown, asserted or unasserted, liquidated or unliquidated,
accrued, absolute, contingent, or otherwise, and there is no
basis for any claim against Seller in connection with the
Business for any such Liability except (a) to the extent set
forth and used in determining the net worth of the Business on
the Interim Balance Sheet, (b) to the extent set forth on
Schedule 3.7, or (c) Liabilities incurred in the Ordinary
Course of the Business since the Interim Balance Sheet Date,
none of which will have a material adverse effect upon the
Business Condition of the Business.
3.8 TAXES.
(a) All Tax and information Returns required to be filed
by Seller on or prior to the Closing Date with
respect to Taxes have been or will be timely filed
except where failure to so file will not have a
material adverse effect on the Business Condition of
the Business.
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(b) All amounts shown on each of such Returns have been
paid or will be paid when due.
(c) Any Taxes which are to be assumed by Buyer in respect
of the Purchased Assets which at the Closing Date are
not yet due and owing will be adequately reflected on
the Closing Balance Sheet as a liability for Taxes.
(d) There are no grounds for the assertion or assessment
of any Taxes against Seller, the Purchased Assets or
the Business other than those reflected or accrued
for on the Closing Balance Sheet.
(e) Neither the Purchased Assets nor the Business are and
will not be encumbered by any Liens arising out of
any unpaid Taxes and there are no grounds for the
assertion or assessment of any Liens against the
Purchased Assets or the Business in respect of any
Taxes (other than Liens for Taxes if payment thereof
is not yet required, and which are set forth on
Schedule 3.8 hereto).
(f) The transactions contemplated by this Agreement will
not give rise to (i) the creation of any Liens
against the Purchased Assets or the Business in
respect of any Taxes or (ii) the assertion of any
additional Taxes against the Purchased Assets or the
Business.
(g) There is no action or proceeding or unresolved claim
for assessment or collection, pending or threatened,
by, or present or expected dispute with, any
Government authority for assessment or collection
from Seller of any Taxes of any nature affecting the
Purchased Assets or the Business.
(h) There is no extension or waiver of the period for
assertion of any Taxes against Seller affecting the
Purchased Assets or the Business.
(i) None of the Purchased Assets or Assumed Liabilities
will constitute a partnership, joint venture, or
other arrangement or contract that could be treated
as a partnership for federal income tax purposes.
(j) None of the Purchased Assets consist of stock in a
subsidiary of Seller.
(k) None of the Purchased Assets is subject to a tax
indemnification agreement.
3.9 PERSONAL PROPERTY -- OWNED. Except as set forth on Schedule
3.9 and Schedule 3.11 hereto, Seller has good and marketable
title to all personal property included in the Purchased
Assets, including in each case all personal property reflected
on the Interim Balance Sheet or acquired after the date
thereof (except any personal property subsequently sold in the
Ordinary
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Course of the Business), free and clear of all Liens, and
there exists no restriction on the use or transfer of such
property.
3.10 REAL AND PERSONAL PROPERTY -- LEASED FROM SELLER. Set forth on
Schedule 3.10 hereto is a description of each lease under
which Seller is the lessor of any real or personal property in
connection with the Business. Seller has delivered to Buyer a
true, correct and complete copy of each lease identified on
Schedule 3.10. The premises or property described in such
leases are presently occupied or used by the respective
lessees under the terms of such leases. All rentals or other
payments due under such leases have been paid and there exists
no default under the terms of any of such leases and no event
has occurred which, upon passage of time or the giving of
notice, or both, would result in any event of default or
prevent Seller from exercising and obtaining the benefits of
any rights contained therein. No consent is necessary for the
assignment or conveyance of such leases to Buyer, and upon the
Closing Buyer will have all right, title and interest of the
lessor under the terms of such leases, free of all Liens.
3.11 REAL AND PERSONAL PROPERTY -- LEASED TO SELLER. Set forth on
Schedule 3.11(a) hereto is a description of each lease under
which Seller is the lessee of any real property in connection
with the Business, and on Schedule 3.11(b) hereto is a
description of each lease under which Seller is the lessee of
any personal property in connection with the Business. Seller
has delivered to Buyer a true, correct and complete copy of
each lease identified on Schedules 3.11(a) and 3.11(b) except
as indicated thereon. The premises or property described in
said leases are presently occupied or used by Seller as lessee
under the terms of such leases. Except as set forth on
Schedules 3.11(a) and 3.11(b), all rentals due under such
leases have been paid and there exists no default by Seller,
or to the knowledge of Seller, by any other party to such
leases under the terms of any such leases and, to the
knowledge of Seller, no event has occurred which, upon passage
of time or the giving of notice, or both, would result in any
event of default or prevent Seller from exercising and
obtaining the benefits of any rights or options contained
therein. Seller has all right, title and interest of the
lessee under the terms of said leases, free of all Liens
(other than the Permitted Liens) and all such leases are valid
and in full force and effect. Except as set forth on Schedules
3.11(a) and 3.11(b), no consent is necessary for the
assignment to Buyer of such leases under which Seller is
lessee. Upon the Closing, Buyer will have all right, title and
interest of the lessee under the terms of such leases, free of
all Liens (other than Permitted Liens). There is no default or
basis for acceleration or termination under, nor, to the
knowledge of Seller, has any event occurred nor does any
condition exist which, with the passage of time or the giving
of notice, or both, would constitute a default or basis for
acceleration under any underlying lease, agreement, mortgage
or deed of trust which default or basis for acceleration would
have a material adverse effect on any lease described on
Schedules 3.11(a) or 3.11(b) or the property or use of the
property covered
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by such lease. Subject to any consent required of a lessor as
set forth on Schedules 3.11(a) and 3.11(b), there will be no
default or basis for acceleration under any such underlying
lease, agreement, mortgage or deed of trust as a result of the
transactions provided for in this Agreement.
3.12 INTELLECTUAL PROPERTY.
(a) Schedule 3.12 contains a true, complete and accurate
list of all the Intellectual Property. Schedule 3.12
accurately identifies, where appropriate, one or more
of the following, by country, for each item of the
Intellectual Property: filing date, issue date,
classification of invention or goods covered,
licenser, license date and licensed subject matter.
Schedule 3.12 contains a complete and accurate list
of all licenses and other rights granted by Seller to
any third party with respect to any item of the
Intellectual Property. True, complete and correct
copies of the forms of such customer licenses are
included as part of Schedule 3.12.
(b) Except as set forth on Schedule 3.12: (i) the
Intellectual Property is valid and enforceable and
encompasses all proprietary rights necessary or used
for the conduct of the Business as presently
conducted or proposed to be conducted (in each case
free and clear of all Liens); (ii) Seller has taken
all actions necessary to maintain and protect the
Intellectual Property owned by it or which, pursuant
to a license, it is required to maintain and protect;
(iii) to the knowledge of Seller, the owners of the
Intellectual Property licensed to Seller have taken
all actions necessary to maintain and protect the
Intellectual Property subject to such licenses; (iv)
there has been no claim made against Seller asserting
the invalidity, misuse or unenforceability of any of
the Intellectual Property or challenging Seller's
right to use or ownership of any of the Intellectual
Property, and there are no grounds for any such claim
or challenge; (v) Seller is not aware of any
infringement or misappropriation of any of the
Intellectual Property or of any facts raising a
likelihood of infringement or misappropriation; (vi)
the conduct of the Business has not infringed or
misappropriated, and does not infringe or
misappropriate, any intellectual property or
proprietary right of any other entity; (vii) no loss
of any of the Intellectual Property is threatened or
pending; and (viii) the consummation of the
transactions contemplated by this Agreement will not
alter, impair or extinguish any of the Intellectual
Property.
3.13 NECESSARY PROPERTY AND TRANSFER OF PURCHASED ASSETS. The
Purchased Assets and the Assumed Liabilities constitute all of
each Seller Group Person's property and property rights now
used or necessary for the conduct of the Business in the
manner and to the extent presently conducted or planned by the
Seller Group Persons. Except as set forth on Schedule 3.13, no
such assets
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or property are in the possession of others and the Seller
holds no property on consignment. Except as set forth on
Schedule 3.13 hereto, no consent is necessary to, and there
exists no restriction on, the transfer of any of the Purchased
Assets or the assignment of the Assumed Liabilities to Buyer.
Except as set forth on Schedule 3.13, there exists no
condition, restriction or reservation affecting the title to
or utility of the Purchased Assets or Assumed Liabilities
which would prevent Buyer from occupying or utilizing the
Purchased Assets or enforcing the rights under the Assumed
Liabilities, or any part thereof, to the same full extent that
Seller might continue to do so if the sale and transfer
contemplated hereby did not take place. Upon the Closing, good
and marketable title to the Purchased Assets and the rights
under the Assumed Liabilities shall be vested in Buyer free
and clear of all Liens (other than Permitted Liens).
3.14 USE AND CONDITION OF PROPERTY. All of the Purchased Assets are
in good operating condition and repair (ordinary wear and tear
excepted) as required for their use in the Business as
presently conducted or planned, and conform to all applicable
Laws, and no notice of any violation of any Law relating to
any of the Purchased Assets has been received by Seller except
such as have been fully complied with. There is no proposed,
pending or threatened condemnation proceeding or similar
action affecting the Purchased Assets or with respect to any
streets or public amenities appurtenant thereto or in the
vicinity thereof which would have a material adverse effect on
the Business Condition of the Business or the use of the
Purchased Assets.
3.15 LICENSES AND PERMITS. Set forth on Schedule 3.15 hereto is a
description of each license or permit required for the conduct
of the Business together with the name of the Government
agency or entity issuing such license or permit. Such licenses
and permits are valid and in full force and effect in all
material respects. Except as noted on Schedule 3.15, such
licenses and permits are freely transferable by Seller, and
upon Closing Buyer will have all right, title and interest of
the holder thereof.
3.16 CONTRACTS/PURCHASE ORDERS -- DISCLOSURE.
(a) Except as set forth in Schedule 3.16(a) there is not
outstanding:
(i) any single Contract providing for an
expenditure by Seller in excess of $2,500,
Contracts with the same or affiliated
vendor(s) providing for an expenditure by
any Seller Group Person in excess of $2,500,
or any Contracts in the aggregate providing
for expenditures by Seller in excess of
$2,500, for the purchase of any real
property, machinery, equipment or other
items which are in the nature of capital
investment;
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(ii) in connection with the Business, any
revocable or irrevocable guaranty,
indemnity, or power of attorney;
(iii) in connection with the Business, any
evidence of indebtedness, loan agreement,
indenture, promissory note, letter of
credit, foreign exchange contract,
conditional sales agreement or other similar
type of agreement;
(iv) any Contract which involves (x) a sharing of
profits, (y) future payments of $2,500 or
more per annum to other Persons, or (z) any
joint venture, partnership or similar
arrangement;
(v) any Contract involving any sales agency,
sales representation, distributorship or
franchise;
(vi) any Contract containing covenants limiting
the freedom of Seller, in connection with
the Business, to compete in any line of
business or with any Person or in any area;
(vii) any Contract not made in the Ordinary Course
of the Business; or
(viii) any other Contract which is material to the
Business which is not cancelable without
penalty on thirty (30) days notice or less
and which is not set forth on another
Schedule.
(b) Except as set forth in Schedule 3.16(b) there is not
outstanding:
(i) any single Purchase Order providing for an
expenditure by Seller in excess of $5,000,
Purchase Orders with the same or affiliated
vendor(s) providing for an expenditure by
Seller in excess of $5,000, or Purchase
Orders in the aggregate providing for
expenditures by Seller in excess of $5,000,
for the purchase of raw materials, supplies,
component parts or any other items or
services;
(ii) any Purchase Order to sell products or to
provide services to third Persons which (x)
to the knowledge of Seller, except as set
forth on Schedule 3.17 is at a price which
would result in a net loss on the sale of
such products or providing of such services,
(y) is pursuant to terms or conditions which
the Seller cannot reasonably expect to
satisfy or fulfill in their entirety, or (z)
involves more than $5,000 or which, together
with all other Purchase Orders to or with
the same party or affiliated parties
involves more than $5,000;
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(iii) any Purchase Order for materials, supplies,
component parts or other items or services
in excess of the normal, ordinary, usual and
current requirements of the Business or at a
price in excess of the current reasonable
market price;
(iv) any Purchase Order not made in the Ordinary
Course of the Business; or
(v) any other Purchase Order which is material
to the Business which is not cancelable
without penalty on thirty (30) days notice
or less and which is not set forth on
another Schedule.
3.17 CONTRACTS/PURCHASE ORDERS -- VALIDITY, ETC.
(a) Each Contract and Purchase Order is a valid and
binding obligation of Seller and, to the knowledge of
Seller, the other parties thereto and is enforceable
in accordance with its terms, and in full force and
effect.
(b) Neither Seller nor, to the knowledge of Seller, any
other party to any Contract or Purchase Order is in
breach or violation thereof or default thereunder in
any material respect. No event has occurred which,
through the passage of time or the giving of notice,
or both, would constitute, and neither the execution
of this Agreement nor the Closing do or will
constitute or result in, a breach or violation of or
default under any Contract or Purchase Order by
Seller, or would cause the acceleration of any
obligation of any party thereto or the creation of a
Lien upon any Purchased Asset.
(c) To the knowledge of Seller, no obligations under
Contracts or Purchase Orders for the sale of goods
will result in a loss to Buyer or would result in a
loss to Seller, assuming it had continued in the
Business except as set forth on Schedule 3.17.
(d) Except as set forth on Schedule 3.13, each Contract
and Purchase Order will be duly assigned to Buyer on
the Closing Date and upon such assignment, Buyer will
acquire all right, title and interest of Seller Group
Person in and to such Contract or Purchase Order and
will be substituted for Seller under the terms of
such Contract or Purchase Order. Except as set forth
on Schedule 3.13, no consent is required for such
assignment.
3.18 NO BREACH OF LAW OR GOVERNING DOCUMENTS. Each of Seller and
Wychwood has in all material respects complied with and is not
in any material respect in default under or in breach or
violation of any applicable Law of any Government body, or the
provisions of any franchise or license in connection with the
Business. Neither Seller nor Wychwood is in default under or
in breach or violation of any provision of its articles or
certificate of
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partnership or association or its partnership agreement or its
certificate of incorporation or by-laws. Neither the execution
of this Agreement or any Ancillary Agreement nor the Closing
do or will constitute or result in any such default, breach or
violation.
3.19 LITIGATION AND ARBITRATION. Except as set forth on Schedule
3.19 hereto, there is no suit, claim, action or proceeding now
pending or, to the best knowledge of Seller, threatened before
any court, grand jury, administrative or regulatory body,
Government agency, arbitration or mediation panel or similar
body, nor are there any grounds therefor, to which any Seller
Group Person is a party in connection with the Business or
which may result in any judgment, order, decree, liability,
award or other determination which will, or could, have any
material adverse effect upon any Purchased Asset or upon the
Business Condition of the Business. No such judgment, order,
decree or award has been entered against any Seller Group
Person nor has any such liability been incurred which has, or
could have, such effect. There is no claim, action or
proceeding now pending or threatened before any court, grand
jury, administrative or regulatory body, Government agency,
arbitration or mediation panel or similar body which will, or
could, prevent or hamper the consummation of the transactions
contemplated by this Agreement, and the Seller has not been or
been threatened to be subject to, and there are no grounds
known to Seller for, any suit, claim, litigation, proceeding
(administrative, judicial, or in arbitration, mediation or
alternative dispute resolution), Government or grand jury
investigation, or other action or order, writ, injunction, or
decree of any court or other Government relating to personal
injury, death, or property or economic damage arising from
products of the Seller.
3.20 OFFICERS, DIRECTORS, EMPLOYEES AND CONSULTANTS. Set forth on
Schedule 3.20 hereto is a complete list of
(a) all partners of Seller;
(b) all officers (with office held) of Seller;
(c) all employees of Seller who earn $20,000 or more per
year;
(d) all consultants to Seller; and
(e) all sale representatives.
together, in each case, with the current rate of compensation payable
to each.
3.21 INDEBTEDNESS TO AND FROM OFFICERS, DIRECTORS AND OTHERS.
Except as set forth on Schedule 3.21, (a) Seller is not
indebted to any partner, officer, employee or agent of Seller
except for amounts due as normal salaries, commissions, wages
and bonuses and in reimbursement of ordinary expenses
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on a current basis and (b) no partner, officer, employee or
agent of Seller is indebted to Seller in connection with the
Business, except for advancements for ordinary business
expenses in a normal amount.
3.22 OUTSIDE FINANCIAL INTERESTS. Except as identified on Schedule
3.22 hereto, no officer or director of Seller nor the owner of
more than 5% of the equity of Seller has any direct or
indirect financial interest in any competitor with or supplier
or customer of Seller; provided, however, that for this
purpose ownership of corporate securities having no more than
2% of the outstanding voting power of any competitor, supplier
or customer which securities are listed on any national
securities exchange or authorized for quotation on the
Automated Quotations System of the National Association of
Securities Dealers, Inc. shall not be deemed to be such a
financial interest provided such Person has no other
connection or relationship with such competitor, supplier or
customer.
3.23 PAYMENTS, COMPENSATION AND PERQUISITES OF AGENTS AND
EMPLOYEES. All payments to agents, consultants and others made
by Seller in connection with the Business have been in payment
of bona fide fees and commissions and not as bribes, illegal
or improper payments. Seller has properly and accurately
reflected on its books and records all compensation paid to
and perquisites provided to or on behalf of its consultants,
agents and employees. Such compensation and perquisites have
been properly and accurately disclosed in the Financial
Statements.
3.24 EMPLOYEE BENEFIT PLANS.
(a) Disclosure. Schedule 3.24 describes all pension,
thrift, savings, profit sharing, retirement,
incentive bonus or other bonus, medical, dental,
life, accident insurance, benefit, employee welfare,
disability, group insurance, stock appreciation,
stock option, executive or deferred compensation,
hospitalization and other similar fringe or employee
benefit plans, programs and arrangements, whether or
not written, and any, whether written or unwritten,
employment or consulting contracts, "golden
parachutes," collective bargaining agreements,
severance agreements or plans, vacation and sick
leave plans, programs, arrangements and policies,
including, without limitation, all "employee benefit
plans" (as defined in Section 3(3) of ERISA, all
employee manuals, and all written statements of
policies relating to employment, which are provided
to, for the benefit of, or relate to, any persons
("Employees") employed by Seller. The items described
in the foregoing sentence are hereinafter sometimes
referred to collectively as "Employee
Plans/Agreements," and each individually as an
"Employee Plan/Agreement." Each of the Employee
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Plans/Agreements has been furnished to Buyer. No
Employee Plan/Agreement is a "multiemployer plan" (as
defined in Section 4001 of ERISA), and Seller has
never contributed nor been obligated to contribute to
any such multiemployer plan. Seller has furnished
Buyer with respect to each Employee Plan/Agreement
the three most recent annual reports prepared in
connection therewith (Form 5500 including all
schedules thereto) or, if an Employee Plan/Agreement
has been in existence for less than three years, the
annual report prepared for each year such Employee
Plan/Agreement has been in existence. There are no
negotiations, written demands or proposals which are
pending which concern matters now covered, or that
would be covered, by the type of agreements,
arrangements, plans or policies listed in this
Section. Seller has at all times operated the
Business and conducted its employment practices in
all material respects in accordance with the terms of
the Employee Plans/Agreements.
(b) Prohibited Transactions, etc. There have been no
"prohibited transactions" within the meaning of
Section 406 or 407 of ERISA or Section 4975 of the
Code for which a statutory or administrative
exemption does not exist with respect to any Employee
Plan/Agreement.
(c) Payments and Compliance. With respect to each
Employee Plan/Agreement (A) all payments due from
Seller to date have been made and all amounts
properly accrued to date as liabilities of Seller
which have not been paid have been properly recorded
on the books of Seller and are reflected in Seller's
most recent balance sheet; (B) all reports and
information relating to each such Employee
Plan/Agreement required to be disclosed or provided
to participants or their beneficiaries have been
timely disclosed or provided; and (C) each such
Employee Plan/Agreement which is intended to qualify
under Section 401 of the Code has received a
favorable determination letter from the Internal
Revenue Service with respect to such qualification,
its related trust has been determined to be exempt
from taxation under Section 501(a) of the Code, and
nothing has occurred since the date of such letter
that would adversely affect such qualification or
exemption. Each trust created under any such Employee
Plan/Arrangement is exempt from tax under Section
501(a) of the Code and has been so exempt during the
period from creation to date. Seller has furnished
Buyer with the most recent determination letters of
the Internal Revenue Service relating to each such
Employee Plan/Arrangement. Each Employee
Plan/Arrangement has been maintained in compliance
with its terms and with the requirements prescribed
by any and all applicable Laws, including but not
limited to ERISA and the Code.
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(d) Post-Retirement Benefits. Except as set forth on
Schedule 3.24, no Employee Plan/Agreement provides
benefits, including, without limitation, death or
medical benefits (whether or not insured) with
respect to current or former employees of Seller
beyond their retirement or other termination of
service other than (A) continuation coverage mandated
by Section 4980B(f) of the Code ("Continuation
Coverage"), (B) death or pension benefits under any
Employee Plan/Agreement that is an employee pension
benefit plan, (C) deferred compensation benefits
accrued as liabilities on the books of Seller
(including Seller's most recent balance sheet), (D)
disability benefits under any Employee Plan/Agreement
that is an employee welfare benefit plan and which
have been fully provided for by insurance or
otherwise, or (E) benefits in the nature of severance
pay. No tax under Section 4980B of the Code has been
incurred in respect of an Employee Plan/Agreement
that is a group health plan, as defined in Section
5000(b)(1) of the Code.
(e) No Triggering of Obligations. Except as set forth on
Schedule 3.24 other than by reason of actions taken
by Buyer following the Closing, the consummation of
the transaction contemplated by this Agreement will
not (A) entitle any current or former employee of
Seller to severance pay, unemployment compensation or
any other payment, except as expressly provided in
this Agreement, (B) accelerate the time of payment or
vesting, or increase the amount of compensation due
to any such employee or former employee, (C) result
in any prohibited transaction described in Section
406 of ERISA or Section 4975 of the Code for which an
exemption is not available, or (D) give rise to the
payment of any amount that would not be deductible
pursuant to the terms of Section 280G of the Code.
(f) International Plans. Seller does not maintain any
Employee Plan/Agreement covering any Employee or
former Employee outside of the United States and
Seller has never contributed to nor been obligated to
contribute to any such Employee Plan/Agreement.
3.25 TERMINATED PLANS. Set forth on Schedule 3.25 hereto are all
employee benefit plans which Seller has terminated or taken
action to terminate since January 1, 1995. Such terminations
have been carried out in all material respects in accordance
with all provisions of applicable law, including without
limitation all applicable provisions of the Code and ERISA.
Except as described on Schedule 3.25 hereto, the Seller has no
liability to any Person or entity, including without
limitation the PBGC, any other Government agency or any
participant in or beneficiary of any such plan, nor is the
Seller liable for any excise, income or other tax or penalty
as a result of such termination. Seller has obtained a notice
of sufficiency from the PBGC and a favorable determination
letter from the IRS with respect to the termination of each of
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such plans (complete and correct copies of which have been
delivered to Buyer). The notices of sufficiency and favorable
determination letters were received after full and accurate
disclosure of all material facts to the appropriate Government
agencies.
3.26 OVERTIME, BACK WAGES, VACATION AND MINIMUM WAGES. No present
or former employee of Seller in connection with the Business
has any claim against Seller (whether under any Law, Contract,
or otherwise) on account of or for (a) overtime pay, other
than overtime pay for the current payroll period, (b) wages or
salary (excluding current bonus, accruals and amounts accruing
under pension and profit-sharing Plans) for any period other
than the current payroll period, (c) vacation, time off or pay
in lieu of vacation or time off, other than that earned in
respect of the current fiscal year, (d) any violation of any
Law relating to minimum wages, child labor or maximum hours of
work except as accrued on the Closing Balance Sheet.
3.27 DISCRIMINATION, WORKERS COMPENSATION AND OCCUPATIONAL SAFETY
AND HEALTH. No Person or party (including, but not limited to,
Government agencies of any kind) has any claim, notice of
claim, charge, lawsuit or basis for any thereof, against
Seller in connection with the Business arising out of any Law
relating to discrimination in employment or employment
practices or occupational safety and health standards, and no
such claim, notice of claim, charge or lawsuit is pending or,
to the best knowledge of Seller, threatened against Seller.
Since January 1, 1997, Seller has not received any notice in
connection with the Business from any Person alleging a
violation of any such Law or occupational safety or health
standards. Seller has no outstanding Contracts or obligations
to indemnify any person for violation of the Laws and
standards set forth in this Section. Seller has filed EEO-1
reports and affirmative action plans with appropriate
Government agencies. Except as set forth on Schedule 3.27,
there are no pending workers compensation claims involving
Seller and there have never been any workers compensation
claims against Seller relating to the use or existence of
asbestos in any of Seller's products. Seller has delivered to
Buyer a true, correct and complete list of all workers
compensation claims made over the three years preceding the
date hereof.
3.28 ALIEN EMPLOYMENT ELIGIBILITY. With respect to each Person
employed by Seller in the Business on or after May 1, 1987,
and who actually commenced such employment on or after
November 6, 1986, (a) Seller hired such Person in compliance
with the Immigration Reform and Control Act of 1986 and the
rules and regulations thereunder ("IRCA") and (b) Seller has
complied in all material respects with all recordkeeping and
other regulatory requirements under IRCA.
3.29 LABOR DISPUTES; UNFAIR LABOR PRACTICES. Except as set forth on
Schedule 3.29, there is neither pending nor, to the best
knowledge of Seller,
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threatened any labor dispute, strike or work stoppage which
affects or which reasonably may be expected to affect the
Business Condition of the Business. Except as set forth on
Schedule 3.29, within the past three years, neither Seller nor
any of its agents, representatives or employees has committed
any unfair labor practice, as defined in the National Labor
Relations Act of 1947, as amended. There is not now pending or
threatened any charge or complaint against Seller by the
National Labor Relations Board, any state or local labor or
employment agency or any representative thereof, and the
execution of this Agreement and the consummation of the
transaction contemplated by this Agreement will not result in
any such charge or complaint.
3.30 INSURANCE POLICIES. Set forth on Schedule 3.30 hereto is a
list of all insurance policies and bonds in force covering or
relating to the Purchased Assets or the Business, including
without limitation all properties, operations or personnel of
Seller. Policies thereon described evidence insurance in such
amounts and against such risks and losses as are generally
maintained with respect to comparable businesses and
properties.
3.31 GUARANTEES. Except as set forth on Schedule 3.31 hereto,
Seller is not a guarantor, indemnitor, surety or accommodation
party or otherwise liable for any indebtedness of any other
Person, firm or corporation except as endorser of checks
received and deposited in the ordinary course of business.
3.32 PRODUCT WARRANTIES. Set forth on Schedule 3.32 hereto are the
standard forms of product warranties and guarantees used in
the Business, and copies of all other material product
warranties and guarantees, and a summary of all oral product
warranties used by Seller if different from the foregoing.
Except as specifically described on Schedules 3.32 or 3.33
since January 1, 1997 no product warranty or similar claims
have been made against Seller except routine claims as to
which, in the aggregate, losses and expenses in respect of
repair or replacement of merchandise do not and will not
exceed $15,000. Except as specifically described on Schedules
3.32 or 3.33 the aggregate loss and expense attributable to
all product, warranty and similar claims now pending or which,
to the knowledge of Seller, may hereafter be asserted with
respect to products in inventory (other than in transit to the
Business) or sold on or prior to the Effective Date will not
exceed $15,000. No Person or party (including, but not limited
to, Government agencies of any kind) has any claim, or basis
for any action or proceeding, against Seller under any Law
relating to unfair competition, false advertising or other
similar claims arising out of product warranties, guarantees,
specifications, manuals or brochures used in the Business.
3.33 PRODUCT LIABILITY CLAIMS. Except as described on Schedule
3.33, since January 1, 1997, Seller has not received notice or
information as to any claim or allegation of injury, death, or
property or economic damages, any claim for punitive or
exemplary damages, any claim for contribution or
indemnification,
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or any claim for injunctive relief in connection with any
product manufactured, sold, distributed or otherwise put in
commerce by or in connection with any service provided by
Seller (collectively, "Product Liability Claims"), except for
routine claims described and quantified pursuant to Section
3.32. The reserves for Product Liability Claims reflected in
the Closing Balance Sheet shall be, to the knowledge of
Seller, adequate to cover all loss and expense attributable to
any and all Product Liability Claims with respect to products
manufactured, sold or distributed or services provided prior
to the Closing Date which are asserted after the date of this
Agreement exclusive of any recovery or coverage under any
insurance policy.
3.34 PRODUCT SAFETY AUTHORITIES. Except as set forth on Schedule
3.34 hereto, no Person has been required to file any
notification or other report with or provide information to
any Government agency or product safety standards group
concerning actual or potential defects or hazards with respect
to any product manufactured, sold, distributed or otherwise
put in commerce in connection with the Business, and there
exist no grounds for the recall of any such product.
3.35 ENVIRONMENTAL MATTERS.
(a) Except as set forth on Schedule 3.35, all assets and
property currently or previously owned, leased,
operated, or used by the Seller, all current or
previous conditions on and uses of the Environmental
Property, and all current or previous ownership or
operation of the Seller or the Environmental Property
(including without limitation transportation and
disposal of Hazardous Materials by or for the
Seller), in all material respects, comply and have at
all times complied with, and do not cause, have not
caused, and will not cause liability to be incurred
by the Seller under any Environmental Law. Except as
set forth on Schedule 3.35, the Seller is not in
violation of and has not violated any Environmental
Law.
(b) Except as set forth on Schedule 3.35, the Seller has
properly obtained and is in compliance, in all
material respects, with all Environmental Permits. No
deficiencies have been asserted by any such
Government or authority with respect to such items.
(c) Except as set forth on Schedule 3.35, there has been
no spill, discharge, leak, leaching, emission,
migration, injection, disposal, escape, dumping, or
release of any kind on, beneath, above, or into the
Environmental Property or into the environment
surrounding the Environmental Property of any
Hazardous Materials, since the date any Seller Group
Person acquired an interest (leasehold or otherwise)
in such Environmental Property or, to the knowledge
of Seller, prior to such date.
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(d) Except as set forth on Schedule 3.35, there are and
have been no (i) Hazardous Materials stored, disposed
of, generated, manufactured, refined, transported,
produced, or treated at, upon, or from the
Environmental Property; (ii) asbestos fibers or
materials or polychlorinated biphenyls on or beneath
the Environmental Property, or (iii) underground
storage tanks on or beneath the Environmental
Property, since the date any Seller Group Person
acquired an interest (leasehold or otherwise) in such
Environmental Property or, to the knowledge of
Seller, prior to such date.
(e) The Seller has delivered to Buyer, prior to the
execution and delivery of this Agreement, complete
copies of any and all (i) documents received by the
Seller from, or submitted by the Seller to, the U.S.
Environmental Protection Agency (the "EPA") and/or
any state, county or municipal environmental or
health agency concerning the environmental condition
of the Environmental Property or the effect of the
Seller's operations on the environmental condition of
the Environmental Property; and (ii) reviews, audits,
reports, or other analyses concerning the
Environmental Property.
(f) No expenditure will be required in order for the
Seller to comply with any Environmental Laws in
effect at the time of the Closing in connection with
the operation or continued operation of the Business
or the Environmental Property in a manner consistent
with the current operation thereof by the Seller.
(g) Except as set forth in Schedule 3.35, there never has
been pending or threatened against the Seller or, to
the knowledge of Seller, any other person or entity
to the extent that such other person or entity from
time to time has owned, leased, occupied or conducted
operations on the Environmental Property, any civil,
criminal or administrative action, suit, summons,
citation, complaint, claim, notice, demand, request,
judgment, order, Lien, proceeding, hearing, study,
inquiry or investigation based on or related to an
Environmental Permit or an Environmental Law.
(h) Except as set forth in Schedule 3.35, neither the
Seller, nor, to the knowledge of Seller, any other
Person or entity to the extent that such other Person
or entity from time to time has owned, leased,
occupied or conducted operations on the Environmental
Property, has ever received from any Person any
notice of, or has any knowledge of, any past, present
or anticipated future events, conditions,
circumstances, activities, practices, incidents,
actions, agreements or plans that could: (i)
interfere with, prevent, or increase the costs of
compliance or continued compliance with any
Environmental Permits or any renewal or transfer
thereof or any Environmental Law; (ii) make more
stringent
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any restriction, limitation, requirement or condition
under any Environmental Law or any Environmental
Permit in connection with the operations on the
Environmental Property; or (iii) give rise to any
liability, loss or expense, or form the basis of any
civil, criminal or administrative action, suit,
summons, citation, complaint, claim, notice, demand,
request, judgment, order, Lien, proceeding, hearing,
study, inquiry or investigation involving the
Environmental Property or the Seller, based on or
related to an Environmental Permit or an
Environmental Law or to the presence, manufacture,
generation, refining, processing, distribution, use,
sale, treatment, recycling, receipt, storage,
disposal, transport, handling, emission, discharge,
release or threatened release of any Hazardous
Materials.
(i) The Seller has not transported or arranged for the
transportation of any Hazardous Materials to any
location which is: (i) listed on, or proposed for
listing on, the EPA's National Priorities List
published at 40 CFR Part 300 or on any similar state
list; or (ii) the subject of any regulatory action
which may lead to claims against the Seller for
damages to natural resources, personal injury,
clean-up costs or clean-up work.
(j) Schedule 3.35 contains a list of all sites where the
Seller's Hazardous Materials may have been sent in
the past, or are currently being sent for disposal,
treatment, recycling or storage, including the
address of each such site, and a description and
estimate of the amount of the Hazardous Materials
disposed of, treated, recycled or stored at each such
site.
(k) Schedule 3.35 contains a list containing the name and
address of each person, firm, corporation or other
entity engaged in the handling, transportation or
disposal of the Seller's Hazardous Materials, a
description of such Hazardous Materials, and an
estimate of the amount of such Hazardous Materials.
3.36 BROKER'S FEES. Except as described on Schedule 3.36, Seller
has not retained any broker, finder or agent or agreed to pay
any brokerage fees, finder's fees or commissions with respect
to the transactions contemplated by this Agreement.
3.37 FOREIGN ASSETS. Except as set forth on Schedule 3.37, Seller
does not have in connection with the Business any interest in
any real property or tangible or intangible property located
outside of the United States, including any stock, securities
or investments in, claims against, or receivables from any
entities or Persons with substantially all their property or
business so located.
3.38 FOREIGN OPERATIONS AND EXPORT CONTROL. Seller has at all times
conducted the Business and operated:
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(a) pursuant to valid permits, licenses, certificates,
accreditations and qualifications to do business in
all jurisdictions outside the United States where
such permits, licenses, certificates, accreditations
and qualifications are required by local Law except
where the failure to so qualify would not have a
material adverse effect on the Business Condition of
the Business or, to the knowledge of Seller, its
prospects;
(b) in compliance with all applicable foreign Laws,
including without limitation Laws relating to foreign
investment, foreign exchange control, immigration,
employment and taxation, and no claims have been
filed against Seller and no investigations are
pending or threatened against Seller alleging a
violation of any such Laws;
(c) without notice of violation of and in compliance with
all relevant anti-boycott legislation, including
without limitation the Tax Reform Act of 1976, as
amended, the Export Administration Act of 1979, as
amended, the Export Administration Amendments Act of
1985, and regulations thereunder, including all
reporting requirements, the International Traffic in
Arms regulations, and the regulations of the Office
of Foreign Assets Control of the U.S. Treasury
Department;
(d) without violation of and pursuant to any required
export licenses granted under the Export
Administration Act of 1979, as amended, and the
Export Administration Amendments Acts of 1981 and
1985, and regulations thereunder, which licenses are
described on Schedule 3.38; and
(e) without violation of the Foreign Corrupt Practices
Act of 1977, and regulations thereunder.
3.39 ABSENCE OF SENSITIVE PAYMENTS. Neither Seller nor any partner,
officer, director, manager, agent or employee of Seller, in
connection with the Business:
(a) has made or authorized any contributions, payments or
gifts of funds or property to any Government
official, employee or agent where either the payment
or the purpose of such contribution, payment or gift
was or is illegal under (i) the Foreign Corrupt
Practices Act and the regulations adopted thereto, or
(ii) applicable local Laws;
(b) has directly or indirectly made any contribution to
candidates for public office which would be a
violation of (i) the Foreign Corrupt Practices Act
and the regulations adopted thereto, or (ii)
applicable local Laws; or
(c) maintains any unrecorded fund or asset for any
purpose.
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3.40 TRUTHFULNESS. No representation or warranty of Seller herein
and no statement, information or certificate furnished or to
be furnished by or on behalf of Seller or its counsel,
accountants or other agents pursuant hereto contains or will
contain any untrue statement of a material fact or omits or
will omit to state a material fact necessary in order to make
the statements contained herein or therein not misleading. To
the knowledge of Seller, there is no fact or development,
actual or prospective, other than general economic conditions,
which adversely affects or in the future might reasonably be
expected adversely to affect the Business, the Purchased
Assets or the rights under the Assumed Liabilities in any
material respect which has not been set forth or described in
this Agreement or in the Schedules hereto.
3.41 BANK ACCOUNTS OF SELLER Set forth on Schedule 3.41 hereto is a
list of all bank accounts and safe deposit boxes maintained by
Seller, together with the names of all Persons who are
authorized signatories or have access thereto.
3.42 BOOKS AND RECORDS. The books of account of Seller are in all
material respects complete and correct, have been maintained
in accordance with good business practices and the matters
contained therein are accurately reflected in all material
respects on the Financial Statements.
3.43 AFFILIATES. Except as set forth on Schedule 3.43, the Seller
has no Affiliates.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF BUYER
Buyer hereby makes the following representations and warranties, each
of which is true and correct on the date hereof and, except for changes
expressly permitted by this Agreement, shall be true and correct on the Closing
Date and each of which shall survive the Closing Date and the sale contemplated
hereby.
4.1 CORPORATE EXISTENCE OF BUYER. Buyer is a corporation duly
organized, validly existing and in good standing under the
Laws of the State of Delaware and is duly qualified as a
foreign corporation and is in good standing in each
jurisdiction where such qualification is required except where
failure to so qualify will not have a material adverse effect
on Buyer. Buyer has the corporate power and authority to own
and use its properties and to transact the business in which
it is engaged. In the event Buyer assigns its rights and
obligations hereunder to a subsidiary or Affiliate, as
provided in Section 12.1 hereof, such subsidiary or Affiliate
will be a corporation duly organized, validly existing and in
good standing under the Laws of its state of incorporation;
and such subsidiary or Affiliate will have the corporate power
and authority to own and use its property and to transact the
business in which it is engaged.
4.2 APPROVAL OF AGREEMENT. The execution and delivery of this
Agreement and each of the Ancillary Agreements and the
consummation of the transactions
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contemplated hereby and thereby have been duly authorized,
approved and ratified by all necessary action on the part of
Buyer. Certified copies of all required resolutions,
authorizations, consents, approvals and/or ratifications are
attached as Schedule 4.2 hereto and no such resolution,
authorization, consent or approval has been altered, amended,
rescinded, repealed or revoked. Pursuant to such resolutions,
authorizations, consents, approvals and/or ratifications,
Buyer has full authority to enter into and deliver this
Agreement and the Ancillary Agreements, to perform its
obligations hereunder and thereunder, and to consummate the
transactions contemplated hereby and thereby. In the event
Buyer assigns its rights and obligations hereunder to a
wholly-owned subsidiary or Affiliate, as provided in Section
12.1 hereof, such assignment will have been approved by all
necessary corporate action of such subsidiary or Affiliate,
and such subsidiary or Affiliate will have full power and
authority to perform its obligations hereunder and under the
Ancillary Agreements.
4.3 NO BREACH OF ARTICLES OR INDENTURES. The execution of this
Agreement and each of the Ancillary Agreements and the
consummation of the transactions contemplated hereby and
thereby has not and will not constitute or result in the
breach of any of the provisions of, or constitute a default
under, the articles or certificate of incorporation or
association or bylaws of Buyer, or any agreement, indenture,
evidence of indebtedness or other commitment to which Buyer
(or any subsidiary or Affiliate to which Buyer assigns its
rights and obligations hereunder, as provided in Section 12.1
hereof) is a party or by which it is bound, which breach of
default would have a material adverse effect on Buyer and its
subsidiaries, taken as a whole.
4.4 SEC FILINGS. Buyer has delivered to the Seller true and
complete copies of its (i) Annual Report on Form 10-K for the
years ended December 31, 1997, 1996 and 1995, as filed with
the SEC, (ii) proxy statements relating to all of Buyer's
meetings of stockholders (whether annual or special) since
January 1, 1995, and (iii) all other reports, statements and
registration statements (including Quarterly Reports on Form
10-Q and Current Reports on Form 8-K) filed by Buyer with the
SEC since January 1, 1995 (collectively, the "Buyer SEC
Filings). As of their respective dates, the Buyer SEC Filings
(including all exhibits and schedules thereto and documents
incorporated by reference therein), did not contain any untrue
statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which
they were made, not misleading. The consolidated financial
statements of Buyer and its subsidiaries included or
incorporated by reference in the Buyer SEC Filings (each, a
"Buyer Financial Statement"), including the related notes and
schedules, have been prepared in accordance with GAAP applied
on a consistent basis during the periods involved, except as
may be indicated in the notes thereto, and fairly present the
consolidated assets, liabilities and financial position of
Buyer and its consolidated subsidiaries as of the dates
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thereof and the consolidated results of their operations and
changes in financial position for the periods then ended
(subject, in the case of any unaudited interim financial
statements, to normal year-end adjustment). Other than the
Buyer SEC Filings, Buyer has not filed any other definitive
reports or statements with the SEC since January 1, 1995.
Since January 1, 1995, Buyer has filed with the SEC all
required forms, reports and documents required to be filed by
it pursuant to the Securities Act of 1933, as amended, the
Exchange Act and the rules and regulations promulgated
thereunder.
ARTICLE V
COVENANTS CONCERNING SELLER
Seller covenants and agrees with Buyer that, from and after the date of
this Agreement and until the Closing Date, Seller will conduct the Business
subject to the following provisions and limitations:
5.1 OPERATION OF THE BUSINESS. Without the prior written consent
of Buyer, Seller will not:
(a) grant any increase in the rate of pay of any of its
employees, grant any increase in the salaries of any
officer, employee or agent, enter into or increase
the benefits provided under any bonus,
profit-sharing, incentive compensation, pension,
retirement, medical, hospitalization, life insurance
or other insurance plan or plans, or other contracts
or commitments, or in any other way increase in any
amount the benefits or compensation of any such
officer, employee or agent except, however, ordinary
merit increases not unusual in character or amount
made in the Ordinary Course of the Business to
employees or agents who are not officers, directors,
partners or stockholders;
(b) hire any new employees, enter into any employment
contract or collective bargaining agreement;
(c) enter into any Contract or Purchase Order or
commitment or engage in any transaction which is not
in the Ordinary Course of the Business or which is
inconsistent with past practices;
(d) sell or dispose of or encumber any material amount of
Assets which is not in the Ordinary Course of the
Business or which is inconsistent with past
practices;
(e) make, or enter into any Contract for, any capital
expenditure or enter into any lease of capital
equipment or real estate requiring an expenditure of
more than $2,500;
(f) enter into any Contract, whether in the Ordinary
Course of the Business or otherwise, involving more
than $5,000 or enter into any
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series of such Contracts with one party or affiliated
group of parties involving more than $5,000 in the
aggregate;
(g) enter into any Purchase Order, whether for the
purchase or sale of inventory, supplies, other
products or services or otherwise, and whether in the
Ordinary Course of the Business or otherwise,
involving more than $100,000 or enter into any series
of such Purchase Orders with one party or affiliated
group of parties involving more than $100,000 in the
aggregate;
(h) except as set forth on Schedule 5.1(h), create,
assume, incur or guarantee any indebtedness other
than (i) in the Ordinary Course of the Business and
with a maturity date of less than one year or (ii)
that incurred pursuant to existing Contracts or
Purchase Orders disclosed in the Schedules delivered
pursuant hereto;
(i) except as set forth on Schedule 5.1(i), declare or
pay any dividend or make any sale of, or distribution
in respect of, its partnership interests or directly
or indirectly redeem, purchase or otherwise acquire
any of its capital stock or issue any of its
partnership interests or other securities, provided,
however, that the Seller may make distributions in
respect of its partnership interests of available
cash;
(j) make or institute any unusual or novel method of
transacting business or change any accounting
procedures or practices or its financial structure;
(k) make any amendments to or changes in its articles or
certificate of partnership or partnership agreement;
(l) perform any act, or attempt to do any act, or permit
any act or omission to act, which will cause a breach
of any material contract, commitment or obligation to
which Seller is a party; or
(m) take any action or incur any liability or obligation
which, if taken or incurred prior to the date of this
Agreement, would be required to be disclosed on any
Schedule hereto.
5.2 PRESERVATION OF BUSINESS. Seller shall carry on the Business
diligently and substantially in the same manner as heretofore
conducted and shall use its best efforts to keep its business
organizations intact, including its present employees and
present relationships with suppliers and customers and others
having business relations with Seller. Seller will at all
times maintain in inventory quantities of raw materials,
component parts, work in process, finished goods and other
supplies and materials on a basis consistent with Seller's
past practices.
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5.3 INSURANCE AND MAINTENANCE OF PROPERTY. Seller will cause all
the Purchased Assets and all property owned or leased pursuant
to the Assumed Liabilities to be insured in the same manner
and to the same extent as heretofore insured and will operate,
maintain and repair all of such property in a manner
consistent with Seller's past practices.
5.4 FULL ACCESS. Representatives of Buyer shall have full access
at all reasonable times to all premises, properties, books,
records, contracts, tax records and documents of Seller , and
Seller will furnish to Buyer any information in respect of the
Business as Buyer may from time to time reasonably request.
Such examination and investigation by Buyer, and any discovery
of facts resulting therefrom, shall not affect the warranties
and representations of Seller contained in this Agreement.
Buyer shall use reasonable efforts to promptly inform Seller
of any matters of which Buyer becomes aware that constitute a
breach of the representations and warranties pursuant to
Article III hereof; provided that Buyer's failure to so inform
Seller of such matters shall in no way adversely impact
Buyer's right to indemnification as provided for in Article X
hereof. All information provided to Buyer in accordance with
this Section 5.4 shall be subject in all respects to that
certain confidentiality letter dated November 14, 1997 between
Buyer and Seller.
5.5 BOOKS, RECORDS AND FINANCIAL STATEMENTS. Seller shall maintain
its books and financial records so that financial statements
based thereon may be prepared in accordance with GAAP
consistently applied, and on a basis consistent with the past
practices of Seller. Said books and financial records shall
fairly and accurately reflect the operations of the Business
in all material respects. Seller shall furnish to Buyer
promptly, as available, monthly financial statements and
operating reports applicable to the Business since April 30,
1998, all of which shall be prepared in accordance with GAAP
consistently applied and shall present fairly in all material
respects the financial position and results of operations of
Seller at the dates and for the periods indicated subject to
normal year-end audit adjustments.
5.6 OTHER GOVERNMENT FILINGS. Seller will cooperate with Buyer in
making, as soon as practicable following the execution hereof,
all filings required by any Government agency in connection
with the transactions contemplated by this Agreement. All
information provided by Seller in connection with such filings
will be true, accurate and complete in all material respects
and will comply with all applicable Laws.
5.7 TAX MATTERS.
(a) Seller shall pay all applicable sales, use or other
similar transfer Taxes that are, or become, due or
payable as a result of the sale, conveyance,
assignment, transfer or delivery of the Purchased
Assets hereunder, whether levied on Buyer, the
Purchased Assets or Seller. Seller, in the
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case of the Purchased Assets, shall prepare, subject
to Buyer's reasonable approval, and file any Returns
required in respect of such Taxes.
(b) All real estate, personal property, ad valorem and
any other local or state Taxes relating to the
Purchased Assets or the Business which shall be
accrued but unpaid as of the Closing Date, or which
shall be paid as of the Closing Date but relate in
whole or in part to periods after the Closing Date,
shall be prorated to the Closing Date and shall be
reflected on the Closing Balance Sheet. Any such
prorated Taxes which may be ultimately assessed after
the Closing Date shall be paid by Seller to Buyer or
Buyer to Seller, as the case may be, within thirty
(30) days of such determination.
(c) Seller and Buyer shall report Buyer's purchase of the
Purchased Assets pursuant to Section 1060 of the Code
and other applicable Laws in a consistent manner and
shall take no position contrary thereto. Such
allocation shall be in accordance with Schedule 2.4.
Buyer and Seller each shall be responsible for the
preparation of any statements and forms to be filed
pursuant to Section 1060 of the Code or in accordance
with other applicable Law.
(d) Each Party agrees to furnish or cause to be furnished
to the other Party, upon request, as promptly as
practicable, such information and assistance
(including access to books and records) relating to
the Purchased Assets as is reasonably necessary for
the preparation of any Tax return, claims for refund
or audit or prosecution or defense of any claim, suit
or proceeding relating to any proposed adjustment of
Taxes paid by such requesting Party.
(e) Each Party, upon request by the other Party, shall
use its reasonable efforts to provide or obtain from
any taxing authority any certificate or other
document necessary to mitigate, reduce or eliminate
any Taxes (including additions thereto or interest
and penalties thereon) that otherwise would be
imposed on the Requesting Party with respect to the
transactions contemplated in this Agreement.
(f) Seller shall furnish to Buyer, as provided in Section
1445(b)(2) of the Code, an affidavit pursuant to
Section 1445(a), stating under penalties of perjury,
Transferor's United States taxpayer identification
number and that the Transferor is not a foreign
person.
ARTICLE VI
CHANGE OF NAME
6.1 CHANGE OF WESTWATER NAME. Immediately after the Closing Date,
Seller, in such manner as is reasonably requested by Buyer,
shall change its name to
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some name other than Westwater Enterprises or any variation or
abbreviation thereof and file appropriate notification of its
change of name in all jurisdictions where such notification is
required. Seller will take all steps as may be reasonably
appropriate to enable Buyer to use the name Westwater
Enterprises and all variants thereof in connection with
Buyer's operation of the Business.
6.2 CHANGE OF WYCHWOOD NAME. Immediately after the Closing Date,
Wychwood, in such manner as is reasonably requested by Buyer,
shall change its name to some name other than Wychwood Trading
or any variation or abbreviation thereof and file appropriate
notification of its change of name in all jurisdictions where
such notification is required. Wychwood will take all steps as
may be reasonably appropriate to enable Buyer to use the name
Wychwood Trading and all variants thereof in connection with
Buyer's operation of the Business.
ARTICLE VII
COVENANT NOT TO COMPETE
7.1 COVENANT NOT TO COMPETE.
(a) As a further inducement to Buyer to purchase the
Purchased Assets and to assume the Assumed
Liabilities, Seller and each Seller Group Person
agrees that for the period from the Closing Date
until the expiration of the greater of (i) the length
of Ivan Cohen's employment under the Employment
Contract plus one year thereafter or (ii) three years
from the Closing Date (the "Restricted Period"), each
of them will not, directly or indirectly: (i) engage
in or in any way own, manage, operate, control or
otherwise advise or assist or be actively connected
with any enterprise which engages in, or otherwise
carries on, any business activity which produces or
otherwise manufactures and/or sells any product or
services in development, developed, manufactured
and/or sold by Seller on or within five (5) years
prior to the Closing Date and any product or services
in development, developed, manufactured and/or sold
by Buyer in connection with the Business during the
portion of the Restricted Period that Ivan Cohen was
employed by the Business (the "Competitive Products")
or in any other manner is in competition with the
current Business of Seller or any related business in
which Buyer is planning to engage and which has been
made known to such Seller Group Person or (ii) with
respect to the Competitive Products, solicit or
accept business from, or provide competitive products
or services to, any customers (whether or not such
Persons have done business with Seller once or more
than once) or accounts of Seller (during the period
beginning three years
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prior to the Closing Date and ending on the Closing Date) or
Buyer as to the Business (after the Closing Date).
(b) It is expressly understood and agreed that although Seller and
Buyer consider the restrictions contained in this Section to
be reasonable in the context in which made, if a final
judicial determination is made that the time, territory, scope
or any other restriction contained in this Section is
unreasonable or otherwise unenforceable, neither this
Agreement nor the provisions of this Section shall be rendered
void, but shall be deemed amended to apply as to such maximum
scope, time and territory and to such other extent as such
court may judicially determine or indicate to be reasonable,
and as so modified, the restrictions contained in this Section
shall be binding and enforceable.
(c) Each Seller Group Person specifically acknowledges and agrees
that the foregoing covenants are commercially reasonable and
reasonably necessary to protect the interests Buyer will
acquire in the Business hereunder.
(d) The covenants contained in this Article VII shall be deemed to
be a series of separate covenants, one for each product line
in each county and each city of every state in which Seller
has heretofore conducted or now conducts the Business. Each
separate covenant shall hereinafter be referred to as a
"Separate Covenant."
(e) If any court or tribunal of competent jurisdiction shall
refuse to enforce one or more of the Separate Covenants
because the time limit applicable thereto is deemed
unreasonable, it is expressly understood and agreed that such
Separate Covenant or Separate Covenants shall not be void but
that for the purpose of such proceedings such time limitation
shall be deemed to be reduced to the extent necessary to
permit the enforcement of such Separate Covenant or Separate
Covenants.
(f) If any court or tribunal of competent jurisdiction shall
refuse to enforce any or all of the Separate Covenants
because, taken together, they are more extensive (whether as
to geographic area, scope of business or otherwise) than is
deemed to be reasonable, it is expressly understood and agreed
between the parties hereto that such Separate Covenant or
Separate Covenants shall not be void but that for the purpose
of such proceedings the restrictions contained therein
(whether as to geographic area, scope of business or
otherwise) shall be deemed to be reduced to the extent
necessary to permit the enforcement of such Separate Covenant
or Separate Covenants.
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7.2 EMPLOYEES. Each Seller Group Person agrees that during the
Restricted Period neither it nor its successors or assigns
will hire any Person who is or shall be in the employ or
service as a consultant or representative or otherwise of
Seller in connection with the Business prior to the Closing
Date, and whom Buyer intends to employ, or seek to entice,
induce or in any manner influence any such employee to leave
his or her employment or not accept or continue in such
employment, provided, however, that the foregoing provision
shall not prevent any Seller Group Person nor its successors
or assigns from hiring Alice Fertig or Howard Cohen or from
engaging consultants or representatives in connection with
products which are not competitive with the Competitive
Products.
7.3 CONFIDENTIALITY. No Seller Group Person will at any time
disclose to any person other than Buyer or use any
"Proprietary Information" (as hereinafter defined) owned,
possessed, licensed or used by or relating to the Business,
whether or not such information is embodied in writing or
other physical form. For purposes of this Agreement, the
phrase "Proprietary Information" means all trade names,
trademarks, service marks, patents and trade secrets and any
and all other information not publicly available which relates
to specific matters concerning the Business, such as, without
limiting the generality of the foregoing, engineering, design,
manufacturing, maintenance and repair information; computer
software and programs; component sourcing and supply
information; identities of suppliers, customers and
contractors; product distribution information; pricing and
compensation policies; sales or financing procedures or
methods; operational methods; strategic plans; internal
financial information; research and development plans and
activities; and acquisition and expansion plans.
Notwithstanding the foregoing, for so long as any Seller Group
Person is employed by Buyer in connection with the Business,
such Seller Group Person shall not be prohibited from
divulging information deemed to be Proprietary Information of
the Business: (i) if he is specifically authorized to do so in
writing by a duly authorized executive officer of Buyer (other
than a Seller Group Person), or (ii) if and to the extent that
disclosure of any such information is (x) necessary and
appropriate in connection with the submission of bids by the
Business in the Ordinary Course of Business or (y) required
pursuant to the Business's marketing efforts directed to
specific clients or bona fide prospective clients or the
provision of services to existing clients in the Ordinary
Course of Business. Seller recognizes and agrees that all
documents and objects containing any Proprietary Information,
whether developed by Seller or by someone else for Seller or
any Seller Group Person, will after the Closing Date become
the exclusive property of Buyer.
7.4 REMEDIES. Because the breach or anticipated breach of the
restrictive covenants provided for in this Article VII will
result in immediate and irreparable harm and injury to Buyer,
for which it will not have an adequate remedy at law, Seller
agrees that Buyer shall be entitled to relief in equity to
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temporarily, preliminarily and/or permanently enjoin such
breach or anticipated breach and to seek any and all other
legal and equitable remedies to which Buyer may be entitled.
Should Buyer be determined the prevailing party in a final
judgment on any such action, Buyer shall be entitled to
reimbursement of reasonable attorneys' fees and costs
incurred. Should Buyer not be determined to be the prevailing
party, Seller and the Seller Group Persons shall be entitled
to reimbursement of reasonable attorneys' fees and costs
incurred. If any Seller Group Person violates any of the
restrictive covenants provided for in this Article VII, the
Restricted Period shall be extended for a period equal to the
period the Seller Group Person has been found by a court of
competent jurisdiction or an arbitrator to have been in
violation of the applicable Restrictive Covenant which
extension shall begin to run after the date of entry of final
judgment enforcing such provision and the time for appeal has
lapsed.
7.5 PERMITTED INVESTMENTS. Nothing contained herein shall restrict
any Seller Group Person from owning two percent (2%) or less
of the corporate securities of any Person in competition with
the Business which securities are listed on any national
securities exchange or authorized for quotation on the
Automated Quotations System of the National Association of
Securities Dealers, Inc., if such Person has no other
connection or relationship, direct or indirect, with the
issuer of such securities.
7.6 BUYER'S BREACH. Notwithstanding the foregoing, the Restricted
Period shall automatically terminate and the restrictive
covenants provided for in Section 7.1 and 7.2 and solely that
portion of Section 7.3 which reads "component sourcing and
supply information; identities of suppliers, customers and
contractors" shall be of no further force or effect 30 days
after the breach by Buyer of its obligation to pay the
Contingent Payments as provided for in Section 2.12, provided
that Buyer has not cured such breach within such 30-day
period, and within three days after the breach by Buyer of its
obligation to fund the amounts provided in Section 7 of the
Employment Contract upon termination of Ivan Cohen's
employment without cause, provided that Buyer has not cured
such breach within such three-day period.
ARTICLE VIII
CONDITIONS TO BUYER'S OBLIGATIONS
The obligations of Buyer to consummate the transactions provided for in
this Agreement shall be subject to the satisfaction of each of the following
conditions on or before the Closing Date, subject to the right of Buyer to waive
any one or more of such conditions:
8.1 REPRESENTATIONS AND WARRANTIES OF SELLER. The representations
and warranties of Seller contained in this Agreement,
including the Schedules hereto, and in the certificates to be
delivered to Buyer pursuant hereto shall be true and correct
in all material respects (except to the extent any such
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representations and warranties is already qualified as to
materiality in Article III, in which case, such
representations and warranties shall be true and correct
without further qualifications) on the date hereof and on the
Closing Date (except for changes specifically permitted
hereunder) as though such representations and warranties were
made on the Closing Date.
8.2 PERFORMANCE OF THIS AGREEMENT. Seller shall have duly
performed or complied in all material respects with all of the
obligations to be performed or complied with by it under the
terms of this Agreement on or prior to the Closing Date.
8.3 NO MATERIAL ADVERSE CHANGE. There shall have been no material
adverse change, actual or threatened, in the Business
(including relationships with customers or vendors for any
reason), whether or not covered by insurance, as a result of
any cause whatsoever.
8.4 CERTIFICATE OF SELLER. Buyer shall have received a certificate
signed by the President and Treasurer of the general partner
of Seller dated as of the Closing Date and subject to no
qualification certifying that the conditions set forth in
Sections 8.1, 8.2, 8.3, 8.8, 8.9, and 8.10 hereof have been
fully satisfied. Such certificate shall be deemed a
representation and warranty of Seller under this Agreement.
8.5 OPINION OF COUNSEL. Buyer shall have received from Breslow &
Walker, LLP, counsel to Seller, an opinion of such counsel,
dated the Closing Date, substantially in the form attached
hereto as Exhibit F.
8.6 ESCROW AGREEMENTS. The Seller and the Escrow Agent shall have
executed and delivered the Escrow Agreement and Seller and the
Holdback Escrow Agent shall have executed and delivered the
Holdback Escrow Agreement.
8.7 EMPLOYMENT CONTRACT. Ivan Cohen shall have executed and
delivered the Employment Contract.
8.8 NO LAWSUITS. No suit, action or other proceeding or
investigation shall be threatened or pending before or by any
Court or Government concerning this Agreement or the
consummation of the transactions contemplated hereby, or in
connection with any material claim against Seller not
disclosed herein or on the Schedules hereto. No Government
shall have threatened or directed any request for information
concerning this Agreement, the transaction contemplated hereby
or the consequences or implications of such transaction to
Buyer or Seller, or any officer, director, employee or agent
of either of them.
8.9 NO RESTRICTIONS. There shall exist no conditions, restrictions
or reservations affecting the title to or utility of the
Purchased Assets and the rights under the Assumed Liabilities
which would prevent Buyer from occupying and utilizing
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the Purchased Assets and Assumed Liabilities, or any part
thereof, to the same full extent that Seller might continue to
do so if the sale and transfer contemplated hereby did not
take place.
8.10 CONSENTS. All consents and approvals necessary to insure that
Buyer will continue to have the same full rights in respect to
the Purchased Assets and Assumed Liabilities as Seller had
immediately prior to the consummation of the transaction
contemplated hereunder shall have been obtained.
8.11 DOCUMENTS. Buyer shall receive from Seller on the Closing
Date:
(a) the Bill of Sale and other appropriate documents conveying
to Buyer good and marketable title to the Purchased
Assets;
(b) the Assignment and Assumption Agreement, with related
consents, if any are so required;
(c) the Assignment of Patents; and
(d) the Assignment of Trademarks, Registrations and
Applications.
8.12 FURTHER ASSURANCES. Buyer shall have received such further
instruments and documents as may reasonably be required to
carry out the transactions contemplated hereby and to evidence
the fulfillment of the agreements herein contained and the
performance of all conditions to the consummation of such
transactions.
ARTICLE IX
CONDITIONS TO SELLER'S OBLIGATIONS
The obligations of Seller to consummate the transactions provided for
in this Agreement shall be subject to the satisfaction of each of the following
conditions on or before the Closing Date, subject to the right of Seller to
waive any one or more of such conditions:
9.1 REPRESENTATIONS AND WARRANTIES OF BUYER. The representations
and warranties of Buyer contained in this Agreement, including
the Schedules hereto, and in the certificates to be delivered
to Seller pursuant hereto shall be true and correct in all
material respects (except to the extent that any of such
representations and warranties is already qualified as to
materiality in Article IV, in which case, such representations
and warranties shall be true and correct without further
qualification) on the date hereof and on the Closing Date
(except for changes specifically permitted hereunder) as
though such representations and warranties were made on the
Closing Date.
9.2 PERFORMANCE OF THIS AGREEMENT. Buyer shall have duly performed
or complied in all material respects with all of the
obligations to be performed or
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complied with by it under the terms of this Agreement on or
prior to the Closing Date.
9.3 CERTIFICATE OF BUYER. Seller shall have received a certificate
signed by an executive officer of Buyer dated as of the
Closing Date and subject to no qualification certifying that
the conditions set forth in Sections 9.1, 9.2 and 9.8 hereof
have been fully satisfied. Such certificate shall be deemed a
representation and warranty of Buyer hereunder.
9.4 OPINION OF COUNSEL. Seller shall have received from Bryan Cave
LLP, counsel to Buyer, an opinion of such counsel, dated the
Closing Date, substantially in the form attached hereto as
Exhibit G.
9.5 PAYMENT OF PURCHASE PRICE AND ASSUMPTION OF LIABILITIES.
Seller shall receive from Buyer on the Closing Date the
Initial Purchase Price (less the Escrow Deposit and the
Holdback Escrow Deposit) to be delivered under Section 2.7
hereof and the Assignment and Assumption Agreement, duly
executed by Buyer. The Escrow Agent shall receive from Buyer
the amount to be delivered to the Escrow Agent under Section
2.7 hereof and the Holdback Escrow Agent shall receive from
Buyer the amount to be delivered to the Holdback Escrow Agent
under Section 2.7.
9.6 FURTHER ASSURANCES. Seller shall have received such further
instruments and documents as may reasonably be required to
carry out the transactions contemplated hereby and to evidence
the fulfillment of the agreements herein contained and the
performance of all conditions to the consummation of such
transactions.
9.7 EMPLOYMENT CONTRACT. Buyer shall have executed and delivered
the Employment Contract.
9.8 NO LAWSUITS. No suit, action or other proceeding or
investigation shall be threatened or pending before or by any
Court or Government concerning this Agreement or the
consummation of the transactions contemplated hereby. No
Government shall have threatened or directed any request for
information concerning this Agreement, the transaction
contemplated hereby or the consequences or implications of
such transaction to Seller or Buyer, or any officer, director,
employee or agent of either of them.
9.9 INDEBTEDNESS. Buyer shall cause all amounts owing by the
Business to Summit Bank as disclosed to it in writing by
Seller within forty-eight (48) hours of the Closing to be
satisfied at Closing.
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ARTICLE X
INDEMNIFICATION
10.1 SURVIVAL OF REPRESENTATIONS AND WARRANTIES. All
representations and warranties of the parties made in this
Agreement or in any exhibit, Schedule, certificate, instrument
or document delivered pursuant hereto shall survive the
Closing and shall remain in effect for a period of three years
after the Closing Date and shall thereupon terminate and be of
no further force and effect; provided, however, that the
foregoing shall not apply to representations and warranties
under Sections 3.1, 3.8 and 3.35 which shall survive
indefinitely; and provided, further, that this shall not
prohibit any claim for Indemnified Losses pursuant to Section
10.2(a) after such applicable survival period with respect to
Indemnified Losses as to which the indemnifying party has
received notice in accordance with this Article X prior to the
expiration of such survival period. The expiration of any
representation or warranty made in this Agreement or in any
exhibit, Schedule, certificate, instrument or document
delivered pursuant hereto shall not impair or restrict the
rights that any party could assert with respect to any and all
remedies at law or in equity outside the scope of such
representation or warranty. All representations and warranties
hereunder shall be deemed to be material and, except as
otherwise specifically provided herein, relied upon by the
parties with or to whom the same were made, notwithstanding
any investigation or inspection made by or on behalf of such
party or parties; provided, however, no Buyer Indemnified
Party shall be entitled to any recovery from Seller under this
Article X for breach of any representation or warranty made by
any Seller Group Person in this Agreement if Buyer had
Documented Knowledge (as defined below) of the breach at the
time of the Closing. For the purposes of this Section 10.1,
"Documented Knowledge" shall mean any fact or other
information learned by Buyer, whether by itself, from Seller,
or any third party, which has been reduced to writing.
10.2 INDEMNIFICATION OF BUYER. Seller and each Seller Group Person
hereby agrees to indemnify and hold Buyer, its shareholders,
directors, officers, employees, Affiliates, successors,
assigns and agents of each of them (collectively, the "Buyer
Indemnified Parties") harmless from, against and in respect
of, and waives any claim for contribution or indemnity with
respect to, any and all claims, losses, damages, liabilities,
expenses or costs ("Losses"), plus reasonable attorneys' fees
and expenses incurred in connection with Losses and/or
enforcement of this Agreement (in all, "Indemnified Losses")
incurred or to be incurred by any of them (a) to the extent
resulting from or arising out of, or alleged by a claimant
other than an Indemnified Party (a "Third Person") to result
from or arise out of, any breach or violation of the
representations, warranties, covenants or agreements of the
Seller contained in this Agreement, or in any exhibit,
statement, Schedule, certificate, instrument or document
delivered pursuant hereto, including provisions of this
Article X, and (b) to the extent resulting from or arising out
of, or alleged by a Third
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Person to result from or arise out of, any liability or
obligation not expressly assumed by Buyer hereunder.
10.3 INDEMNIFICATION OF SELLER. Buyer hereby agrees to indemnify
and hold Seller, its partners, directors, officers, employees,
Affiliates, successors, assigns and agents of each of them
(collectively, the "Seller Indemnified Parties") harmless
from, against and in respect of, and waives any claim for
contribution or indemnity with respect to, any and all
Indemnified Losses incurred or to be incurred by any of them
(a) to the extent resulting from or arising out of, or alleged
by a Third Person to result from or arise out of, any breach
or violation of the representations, warranties, covenants or
agreements of Buyer contained in this Agreement, or in any
exhibit, statement, Schedule, certificate, instrument or
document delivered pursuant hereto, including provisions of
this Article X, and (b) to the extent resulting from or
arising out of, or alleged by a Third Person to result from or
arise out of, any liability or obligation of Buyer in
connection with the Assumed Liabilities or Buyer's use of the
Purchased Assets after the Closing Date, except to the extent
that Buyer is entitled to be indemnified by any Seller Group
Person under Section 10.2.
10.4 LIMITATIONS ON INDEMNIFICATION. Neither Buyer nor Seller shall
be entitled to recover for any Indemnified Losses under
Section 10.2 or 10.3, respectively, or otherwise until the
aggregate amount of the Indemnified Losses of such party shall
exceed $50,000 and then only for the amount in excess thereof.
In addition, Buyer shall not be entitled to recover for any
Indemnified Losses which were taken into account in
calculating the Adjusted Purchase Price or the Inventory
Reserve Adjustment, but nothing herein shall affect Buyer's
right to receive the Inventory Liability Amount, if any.
10.5 SET-OFF RIGHTS. Buyer shall be entitled to set off any amounts
owing by the Seller or any Seller Group Person to the Buyer
Indemnified Parties, or any of them, pursuant to this Article
X or otherwise, against any amounts owed to the Seller by the
Buyer; provided, however, that during the first calendar year
after the Closing Date Buyer shall be entitled to set off
against amounts owed by Buyer to Seller only to the extent the
amounts owing by the Seller or any Seller Group Person to the
Buyer Indemnified Parties is in excess of the then available
Escrow Funds (as defined in the Escrow Agreement); and
further, provided, that all amounts set off by Buyer shall be
promptly delivered to a commercial bank and trust company in
the City of New York or any mutually agreed to escrow agent to
be deposited in an interest bearing account and held in escrow
pending a final arbitral determination as to Buyer's right to
recover from Seller the amounts so set off. If it is
determined pursuant to an arbitration proceeding conducted in
accordance with Article XI that the Buyer was not, in any
particular circumstance, entitled to invoke the set-off rights
contained herein, the Buyer shall pay, on demand, the
reasonable attorney's fees and expenses incurred by the Seller
Group Person, or any of them, in connection with such
determination, and the escrow agent shall distribute to
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the Seller the amount found to have been improperly set-off
and all income earned thereon during the period of the escrow
and shall distribute the remainder, if any, held in escrow to
the Buyer. The amount of any Indemnified Losses payable by
Seller hereunder shall be reduced by the amount of any
insurance proceeds received by the Buyer Indemnified Party in
respect of such Indemnified Losses. In the event the
Indemnified Party with respect to any Indemnified Losses fails
to pursue any claim for recovery upon insurance or any
offsets, defenses or counterclaims under Contracts or Purchase
Orders covering or applicable to such Indemnified Losses, or
any part thereof, Buyer shall take all reasonable steps
necessary to cause Seller to be subrogated to the rights of
the Buyer Indemnified Party in respect of such claim.
10.6 PARTICIPATION IN LITIGATION. Within 20 days after receipt of
notice of commencement of any action which could give rise to
a right of indemnification hereunder, the Buyer Indemnified
Party or the Seller Indemnified Party, as the case may be (the
"Indemnified Party"), shall give the other party (the
"Indemnifying Party") notice thereof, and the Indemnifying
Party shall have the right to undertake the defense thereof by
representatives of its own choosing and at its own expense;
provided that the Indemnified Party may participate in the
defense with counsel of its own choice, the fees and expenses
of which counsel shall be paid by such Indemnified Party
unless (i) the Indemnifying Party has failed to assume the
defense of such action or (ii) the named parties to such
action (including any impleaded parties) include both the
Indemnifying Party and the Indemnified Party and the
Indemnified Party has been advised by counsel that there may
be one or more legal defenses available to it that are
different from or additional to those available to the
Indemnifying Party (in which case, if the Indemnified Party
informs the Indemnifying Party in writing that it elects to
employ separate counsel at the expense of the Indemnifying
Party, the Indemnifying Party shall not have the right to
assume the defense of such action on behalf of the Indemnified
Party, it being understood, however, that Indemnifying Party
shall not, in connection with any one such action or separate
but substantially similar or related actions in the same
jurisdiction arising out of the same general allegations or
circumstances, be liable for the reasonable fees and expenses
of more than one separate firm of attorneys at any time for
the Indemnified Party).
In the event that the Indemnifying Party, by the 30th day after receipt
of notice of any such claim (or, if earlier, by the 10th day preceding the day
on which an answer or other pleading must be served in order to prevent judgment
by default in favor of the party asserting such claim), does not elect to defend
against such claim, the Indemnified Party will (upon further notice to
Indemnifying Party) have the right to undertake the defense, compromise or
settlement of such claim on behalf of and for the account and risk of the
Indemnifying Party and at the Indemnifying Party's expense, subject to the right
of the Indemnifying Party to assume the defense of such claims at any time prior
to settlement, compromise or final determination thereof.
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10.7 CLAIMS PROCEDURE. In the event from time to time an
Indemnified Party believes that it has or will suffer any
Losses for which the Indemnifying Party is obligated to
indemnify it hereunder, it shall promptly notify the
Indemnifying Party in writing of the matter, specifying
therein the reason why the Indemnified Party believes that the
Indemnifying Party is or will be obligated to indemnify, the
amount, if liquidated, to be indemnified, and the basis on
which the Indemnified Party has calculated such amount; if not
yet liquidated, the notice shall so state; provided, however,
that the right of a person to be indemnified hereunder shall
not be adversely affected by a failure to give such notice
unless, and then only to the extent that, an Indemnifying
Party is prejudiced thereby. The Indemnifying Party shall pay
any amount to be indemnified hereunder not more than five days
after receipt of notice from the Indemnified Party of the
liquidated amount to be indemnified, unless such
indemnification is made pursuant to the Escrow Agreement.
10.8 TAX INDEMNIFICATION. In addition to any other indemnification
granted herein, Seller agrees to indemnify, defend and hold
harmless Buyer, its Affiliates and their respective officers,
directors, employees and agents from and against all loss,
liability, including Seller's liability for its own Taxes or
its liability, if any (for example, by reason of transferee
liability or application of Treas. Reg. Section 1.1502-6) for
Taxes of others, damage or reasonable expense (including but
not limited to reasonable attorneys' fees and expenses)
(collectively, "Costs") payable with respect to Taxes claimed
or assessed against Buyer or the Purchased Assets (i) for any
taxable period ending on or before the Closing Date or (ii)
for any taxable period resulting from a breach of any of the
representations or warranties contained in Section 3.8 hereof.
Seller also agrees to indemnify, defend and hold harmless the
Buyer from and against any and all Costs sustained in a tax
period of Buyer ending after the Closing Date arising out of
the settlement or other resolution of a proposed tax
adjustment which relates to a tax period ending on or before
the Closing Date.
In the event any Tax audit is initiated in respect of matters to which
Buyer alleges Seller is or may have an indemnity obligation under this Section
10.8, Seller shall be entitled to control such audit, at its expense and by
counsel and auditors of its choosing, provided that (a) such counsel and
auditors are reasonably satisfactory to Buyer, and (b) Buyer may participate in
such audit with counsel of its own choice, the fees and expenses of which
counsel shall be paid by Buyer. Such counsel and auditors shall be afforded
access to all information pertinent to the audit in question.
With respect to any indemnity payment under this Section 10.8, the
parties agree to treat, to the extent permitted by Law, all such payments as an
adjustment to the consideration paid for the sale and transfer of the Purchased
Assets. The parties also agree that the Seller shall pay the Indemnified Party
an additional or lesser amount sufficient to make such Indemnified Party whole,
taking into account any deductions, credits or other tax benefits allowable with
respect to the loss for which indemnification is required and any Taxes payable
on or with respect to such indemnity payment.
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ARTICLE XI
DISPUTE RESOLUTION
11.1 SCOPE; INITIATION. Resolution of any and all disputes arising
from or in connection with this Agreement, whether based on
contract, tort, statute or otherwise including but not limited
to disputes over arbitrability and disputes in connection with
claims by third persons ("Disputes") shall be exclusively
governed by and settled in accordance with the provisions of
this Article XI; provided, that the foregoing shall not
preclude equitable or other judicial relief or any relief
incidental thereto to enforce the provisions hereof or to
preserve the status quo pending resolution of Disputes
hereunder; and provided further that resolution of Disputes
with respect to claims by third persons shall be deferred
until any judicial proceedings with respect thereto are
concluded. Either Party to this Agreement may commence
proceedings hereunder by delivery of written notice providing
a reasonable description of the Dispute to the other,
including a reference to this Article (the "Dispute Notice").
11.2 NEGOTIATIONS BETWEEN EXECUTIVES. The Parties shall first
attempt in good faith to resolve promptly any Dispute by
negotiations between executives who are not directly involved
in the Dispute, and who have authority to settle it (as to
each Party, an "Executive"). Not later than 20 days after
delivery of the Dispute Notice, each Party shall designate an
Executive to meet with the other Party's Executive at a
reasonably acceptable time and place, and thereafter as such
Executives deem reasonably necessary. The Executives shall
exchange relevant information and endeavor to resolve the
Dispute. Prior to any such meeting, each Party's Executive
shall advise the other as to any other individuals who will
attend such meeting. All negotiations pursuant to this Section
11.2 shall be confidential and shall be treated as compromise
negotiations for purposes of Rule 408 of the Federal Rules of
Evidence and similarly under other federal and state rules of
evidence.
11.3 BINDING ARBITRATION.
(a) If a Dispute which has not been resolved pursuant to
Section 11.2 hereof within 120 days (or such longer
period as the Parties may agree), the Parties hereby
agree to submit all Disputes to arbitration under the
following provisions, which arbitration shall be
final and binding upon the Parties, their successors
and assigns, and that the following provisions
constitute a binding arbitration clause under
applicable Law.
(b) Either Party may initiate arbitration of a Dispute by
delivery of a demand therefor (the "Arbitration
Demand") to the other Party not sooner than 120 days
after the date of delivery of the Dispute Notice but
at any time thereafter; provided, that if a Party
(the "Non-Cooperative Party") does not cooperate in
the procedures provided
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under Section 11.2, the other Party may initiate
arbitration at such earlier time as such
non-cooperation shall become reasonably apparent and
the arbitrators may assess against the
Non-Cooperative Party damages and expenses arising
from such non-cooperation, including reasonable
attorneys' fees and expenses and Arbitration Costs
(as defined below) in connection with arbitration
hereunder.
(c) The arbitration shall be conducted in the Borough of
Manhattan, New York, New York by three arbitrators
(acting by majority vote, the "Panel") selected by
agreement of the Parties not later than 10 days after
delivery of the Arbitration Demand or, failing such
agreement, appointed pursuant to the Commercial
Arbitration Rules of the American Arbitration
Association, as amended from time to time (the "AAA
Rules") If an arbitrator becomes unable to serve, his
or her successor(s) shall be similarly selected or
appointed.
(d) The arbitration shall be conducted pursuant to the
Federal Arbitration Act and the New York Uniform
Arbitration Act and such procedures as the Parties
may agree or, in the absence of or failing such
agreement, pursuant to the AAA Rules. Notwithstanding
the foregoing: (i) each Party shall have the right to
audit the books and records of the other Party that
are reasonably related to the Dispute; (ii) each
Party shall provide to the other, reasonably in
advance of any hearing, copies of all documents which
a Party intends to present in such hearing; (iii)
prehearing discovery and enforcement thereof by the
Panel shall be permitted as provided in the Federal
Rules of Civil Procedure as amended from time to
time; (iv) the Panel shall, upon request of a Party,
conduct prehearing conferences for the purpose of
resolving discovery disputes; and (v) the Parties
consent to the enforcement of the Panel's discovery
rulings without objection in any court of competent
jurisdiction.
(e) All hearings shall be conducted on an expedited
schedule, and all proceedings shall be confidential.
Either Party may at its expense make a stenographic
record thereof.
(f) The Panel shall complete all hearings not later than
90 days after selection or appointment, and shall
make a final award not later than 30 days thereafter.
The award shall be in writing and shall specify the
factual and legal bases for the award. The Panel
shall apportion all costs and expenses of the
arbitration, including the Panel's fees and expenses
and fees and expenses of experts ("Arbitration
Costs") between the prevailing and non-prevailing
Party as the Panel deems fair and reasonable. In
circumstances where (i) a Dispute has been asserted
or defended against on grounds that the Panel deems
manifestly unreasonable, or (ii) the non-prevailing
Party has rejected
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participation in procedures under Section 11.2, the
Panel may assess all Arbitration Costs against the
non-prevailing Party and may include in the award the
prevailing Party's reasonable attorneys' fees and
expenses in connection with any and all proceedings
under this Article XI. Notwithstanding the foregoing,
in no event may the Panel award multiple, punitive or
exemplary damages.
(g) Either Party may assert appropriate statutes of
limitation as a defense in arbitration; provided,
that upon delivery of a Dispute Notice any such
statute shall be tolled pending resolution hereunder.
11.4 CONFIDENTIALITY -- NOTICE. Each Party shall notify the other
promptly, and in any event prior to disclosure to any third
person, if it receives any request for access to confidential
information or proceedings hereunder.
ARTICLE XII
MISCELLANEOUS
12.1 ASSIGNMENT; BINDING AGREEMENT.
(a) This Agreement and all or any part of Buyer's rights
and obligations hereunder may be assigned by Buyer at
any time to any Affiliate of Buyer and as collateral
to Buyer's lender. Buyer shall cause such
Affiliate(s) to perform any of Buyer's obligations
hereunder which are Assigned to such Affiliate(s).
Buyer shall remain liable to Seller hereunder
notwithstanding any assignment of this Agreement.
(b) Neither this Agreement nor any of Seller's rights or
obligations hereunder may be assigned by Seller
without Buyer's prior written consent.
(c) This Agreement shall be binding upon and shall inure
to the benefit of the parties hereto and to their
respective successors and permitted assigns.
12.2 TERMINATION OF AGREEMENT. This Agreement and the transactions
contemplated hereby may be terminated prior to the Closing
Date only as follows:
(a) by mutual consent of Buyer and Seller.
(b) by either Buyer or Seller if the Closing shall not
have occurred on or before June 30, 1998, or such
other date, if any, as Buyer and Seller shall agree
upon.
(c) by Buyer if:
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(i) Buyer determines, in its sole discretion,
that (1) the transaction contemplated hereby
has become inadvisable or impractical by
reason of the institution or threat by any
Person, Governmental or otherwise, of any
litigation, investigation or proceeding (it
being understood and agreed that, without
limiting the generality of the foregoing, a
written request by Government authorities
for information with respect to the proposed
transactions may be deemed to be a threat of
litigation, investigation or proceedings) or
(2) the results of Buyer's due diligence
review of the Business and its Business
Condition and prospects, including without
limitation customer, vendor, and other third
person relationships and environmental,
tort, securities, corporate, product
liability, employee benefits, taxation and
insurance matters shall have revealed, after
the date hereof, issues which Buyer
reasonably believes to be materially adverse
to the Business or its Business Condition or
its prospects.
12.3 MANNER AND EFFECT OF TERMINATION.
(a) Any action by Buyer to terminate this Agreement and
the transactions contemplated hereby, as provided in
Section 12.2 hereof, shall be taken by its Board of
Directors or any appropriately authorized officer.
Any such action by Seller shall be taken by its Chief
Executive Officer in accordance with the Seller's
partnership agreement or any appropriately authorized
officer.
(b) If this Agreement is terminated pursuant to Section
12.2 hereof without fault of either party or breach
of this Agreement, all obligations of Seller and
Buyer hereunder shall terminate, without liability of
Seller to Buyer or of Buyer to Seller. In such event,
each party hereto shall pay all legal and other costs
and expenses incurred by such party in connection
with this Agreement and the transactions contemplated
hereby.
(c) Termination of this Agreement pursuant to this
Section or elsewhere in this Agreement shall not
impair or restrict the rights of any party to any and
all remedies at law or in equity in the event of a
breach of or default under this Agreement.
12.4 AMENDMENTS. This Agreement may be amended with the approval of
the Board of Directors of Buyer and the partners of Seller (or
any officer of Buyer authorized by its Board of Directors to
approve such amendment or any officer of Seller authorized by
its partners) at any time before the Closing Date.
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12.5 NON-DISCLOSURE OF INFORMATION. Without the prior written
consent of the other Party (the "Disclosing Party"), a Party
(the "Receiving Party") will not disclose or reveal to any
third Person any confidential, non-public or commercially
valuable information concerning the Disclosing Party to which
the Receiving Party was exposed in connection with this
Agreement.
12.6 BULK SALES. Buyer hereby waives compliance with any applicable
State Uniform Commercial Code or other statutory provisions
governing bulk sales. Seller agrees to indemnify, defend and
hold harmless Buyer from any and all loss, cost or expenses,
resulting from the assertion of claims made against the
Purchased Assets sold hereunder or against Buyer by creditors
of Seller under any bulk sales Law with respect to liabilities
and obligations of Seller not assumed by Buyer hereunder, such
indemnity to be in accordance with the provisions of Article X
hereof.
12.7 REMEDIES. Nothing contained herein is intended to or shall be
construed to limit the remedies which either party may have
against the other in the event of a breach of or default under
this Agreement, it being intended that any remedies shall be
cumulative and not exclusive, except that the indemnification
obligations of the parties are subject to the express
limitations set forth in Article X.
12.8 ENTIRE AGREEMENT AND MODIFICATION. This Agreement, including
the Schedules attached hereto and the documents delivered
pursuant hereto, constitutes the entire agreement between the
parties. No changes of, modifications of, or additions to this
Agreement shall be valid unless the same shall be in writing
and signed by all parties hereto.
12.9 SEVERABILITY. If any provision of this Agreement shall be
determined to be contrary to Law and unenforceable by any
court of law, the remaining provisions shall be severable and
enforceable in accordance with their terms.
12.10 COUNTERPARTS. This Agreement may be executed in one or more
identical counterparts, each of which shall be deemed an
original but all of which together will constitute one and the
same instrument.
12.11 HEADINGS; INTERPRETATION. The table of contents and article
and section headings contained in this Agreement are inserted
for convenience only and shall not affect in any way the
meaning or interpretation of the Agreement. Both parties have
participated substantially in the negotiation and drafting of
this Agreement and each party hereby disclaims any defense or
assertion in any litigation or arbitration that any ambiguity
herein should be construed against the draftsman.
12.12 GOVERNING LAW. This Agreement shall be construed and
interpreted according to the Laws of the State of New York.
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12.13 PAYMENT OF FEES AND EXPENSES. Each party hereto shall pay all
fees and expenses of such party's respective counsel,
accountants and other experts and all other expenses incurred
by such party incident to the negotiation, preparation and
execution of this Agreement and the consummation of the
transaction contemplated hereby, including any finder's or
brokerage fees.
12.14 NOTICES. All notices, requests, demands and other
communications hereunder shall be deemed to have been duly
given if the same shall be in writing and shall be delivered
or sent by registered or certified mail, postage prepaid, and
addressed as set forth below:
(a) If to Buyer: Carlyle Industries, Inc.
One Palmer Terrace
Carlstadt, New Jersey 07072
Attention: E. Cooke, CFO
with a copy to: Bryan Cave LLP
245 Park Avenue
New York, New York 10167
Attention: Peter A. Eisenberg
(b) If to Seller: Ivan Cohen
900 Minisink Way
Westfield, New Jersey 07090
with a copy to: Breslow & Walker, LLP
767 Third Avenue
New York, New York 10017
Attention: Joel M. Walker
Any such notice shall be effective upon receipt. Either Party may change the
address to which notices are to be addressed by giving the other Party notice in
the manner herein set forth.
12.15 GUARANTY. Ivan Cohen and Alice Fertig, jointly and severally,
hereby irrevocably and unconditionally guaranty to Buyer and
its successors and assigns the payment and performance of the
obligations of Seller hereunder as and when the same shall be
due and payable or required to be performed, as the case may
be.
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12.16 NO THIRD PARTY BENEFICIARIES. Except as provided for
indemnified parties in Article X, this Agreement is for the
sole benefit of the parties hereto and their permitted assigns
and nothing herein expressed or implied shall give or be
construed to give to any person or entity, other than the
parties hereto and such assigns, any legal or equitable rights
hereunder.
12.17 SCHEDULE DISCLOSURES. Disclosure of an item on any Schedule to
this Agreement shall constitute disclosure of such item on
each other Schedule to
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this Agreement to which such disclosure is relevant; provided that the relevance
of such disclosure is apparent on the face of such disclosure.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement, on
the day and year first above written.
CARLYLE INDUSTRIES, INC.
By
---------------------------------
Name: Robert A. Levinson
--------------------------
Title: Chairman, President and Chief
-----------------------------
Executive Officer
-----------------------------
ATTEST:
Name: Edward F. Cooke
------------------------------
Title: Vice President, Treasurer and
------------------------------
Chief Executive Officer
------------------------------
WESTWATER ENTERPRISES, L.P.
BY: WYCHWOOD TRADING COMPANY,
GENERAL PARTNER
By
----------------------------------
Name: Ivan M. Cohen
--------------------------------
Title: President
--------------------------------
WITNESS::
- ---------------------------
Name:
-----------------------
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The following persons are executing this Agreement, on the day
and year first above written, as to all provisions of this Agreement applicable
to such persons:
WYCHWOOD TRADING COMPANY
By
--------------------------------
Name: Ivan Cohen
-------------------------------
Title: President
-------------------------------
WITNESS:
Name:
-------------------------
IVAN COHEN
ALICE S. FERTIG
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TABLE OF EXHIBITS
Exhibit A............................Form of Assignment and Assumption Agreement
Exhibit B...................................................Form of Bill of Sale
Exhibit C............................................Form of Employment Contract
Exhibit D...............................................Form of Escrow Agreement
Exhibit E......................................Form of Holdback Escrow Agreement
Exhibit F...................................Form of Opinion of Counsel to Seller
Exhibit G....................................Form of Opinion of Counsel to Buyer
Exhibit H..........................................Form of Assignment of Patents
Exhibit I.......Form of Assignment of Trademarks, Registrations and Applications
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TABLE OF SCHEDULES
Schedule 2.4.......................................Allocation of Consideration
Schedule 2.12..............................................1998 Operating Plan
Schedule 3.1..............Certificate of Partnership and Partnership Agreement
Schedule 3.2..........................Resolutions and Authorizations of Seller
Schedule 3.3..............................................Financial Statements
Schedule 3.4............................Events Subsequent to December 31, 1997
Schedule 3.5........Purchased Assets on Consignment or in Possession of Others
Schedule 3.6.....................................Accounts and Notes Receivable
Schedule 3.7...........................................Undisclosed Liabilities
Schedule 3.8...................................................Liens for Taxes
Schedule 3.9...........................................Owned Personal Property
Schedule 3.10....................Real and Personal Property Leased from Seller
Schedule 3.11(a)............................... Real Property Leased to Seller
Schedule 3.11(b)............................Personal Property Leased to Seller
Schedule 3.11(c)...............................................Permitted Liens
Schedule 3.12............................................Intellectual Property
Schedule 3.13................................................Required Consents
Schedule 3.15.............................................Licenses and Permits
Schedule 3.16(a)............................................Material Contracts
Schedule 3.16(b)......................................Material Purchase Orders
Schedule 3.17..............................Contracts/Purchase Orders at a Loss
Schedule 3.19.......................................................Litigation
Schedule 3.20...................Officers, Directors, Employees and Consultants
Schedule 3.21..........Indebtedness to and from Officers, Directors and Others
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Schedule 3.22.....................................Outside Financial Interests
Schedule 3.24........................Labor Agreements, Employee Benefit Plans
and Employment Agreements
Schedule 3.25................................................Terminated Plans
Schedule 3.27.......................................Employment-Related Claims
Schedule 3.29..................................................Labor Disputes
Schedule 3.30.......................................................Insurance
Schedule 3.31......................................................Guarantees
Schedule 3.32..............................................Product Warranties
Schedule 3.33........................................Product Liability Claims
Schedule 3.34....................................Product Safety Notifications
Schedule 3.35...........................................Environmental Matters
Schedule 3.36...................................................Broker's Fees
Schedule 3.37..................................................Foreign Assets
Schedule 3.38.........................................Export Control Licenses
Schedule 3.41...................................................Bank Accounts
Schedule 3.43......................................................Affiliates
Schedule 4.2..........................Resolutions and Authorizations of Buyer
Schedule 5.1(h)..................................................Indebtedness
Schedule 5.1(i)...........................................Distributions, Etc.
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