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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of earliest event reported) October 4, 1996
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FRANKLIN ELECTRONIC PUBLISHERS, INCORPORATED
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(Exact name of registrant as specified in its charter)
Pennsylvania
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(State or other jurisdiction of incorporation)
0-14841 22-2476703
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(Commission File Number) (IRS Employer Identification Number)
One Franklin Plaza, Burlington, New Jersey 08016-4907
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(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code (609) 386-2500
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ITEM 2 ACQUISITION OR DISPOSITION OF ASSETS.
On October 4, 1996, Franklin Electronic Publishers, Inc. (the "Registrant")
purchased, pursuant to an Asset Purchase Agreement with Insilco Corporation
("Insilco"), for an aggregate purchase price of $15,767,387, (1) a perpetual,
exclusive, fully paid up license to use the "Rolodex" trademark in connection
with the manufacture and distribution of "Electronic Products" (data banks,
electronic organizers, telephones, electronic telephone dialers, caller
identification products, or any electronic product which is a combination of two
or more of the foregoing products) and (2) certain of the assets of Insilco's
Rolodex(R) electronic products line, including its Electronic Products
inventory, and certain receivables and miscellaneous assets. A copy of said
Asset Purchase Agreement is filed as an exhibit hereto. The purchase price
represents a negotiated amount. The source of the funds used by the Registrant
in connection with the purchase is a borrowing under the Registrant's bank line
of credit from Chase Manhattan Bank (successor to Chemical Bank).
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ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION
AND EXHIBITS
(a) Financial statements
Pursuant to the reported transaction, the Registrant acquired only a paid
up trademark license for the "Rolodex" trademark for Electronic Products,
and certain inventory, certain receivables and miscellaneous assets.
Accordingly, the Registrant does not believe that it is required to furnish
"Financial Statements of Business Acquired" because it did not acquire a
"business" as defined by Rule 11-01(d) of Regulation S-X.
(b) Pro Forma Financial Information
For the same reasons stated above in Item 7(a), the Registrant does not
believe that it is required to submit pro forma financial information under
Rule 11-01 of Regulation S-X.
(c) Exhibit:
(10) Asset Purchase Agreement between Insilco Corporation and Franklin
Electronic Publishers, Incorporated dated as of October 4, 1996.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
FRANKLIN ELECTRONIC PUBLISHERS, INC.
By /s/ Gregory J. Winsky
___________________________
Name: Gregory J. Winsky
Title: Vice President
Date: October 18, 1996
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EXHIBIT 10
ASSET PURCHASE AGREEMENT
Between
INSILCO CORPORATION
and
FRANKLIN ELECTRONIC PUBLISHERS, INCORPORATED
Dated as of October 4, 1996
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TABLE OF CONTENTS
Page
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ARTICLE I
Transactions
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SECTION 1.01. Purchase and Sale...................... 1
SECTION 1.02. Acquired Assets........................ 1
SECTION 1.03. Assumed Liabilities.................... 4
SECTION 1.04. Consents of Third Parties.............. 6
SECTION 1.05. Receivable and Inventory Adjustments... 6
ARTICLE II
The Closing
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SECTION 2.01. Closing Date........................... 7
SECTION 2.02. Transactions To Be Effected at the
Closing................................ 7
ARTICLE III
Representations and Warranties of Seller
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SECTION 3.01. Organization, Standing and Power....... 8
SECTION 3.02. Authority; Execution and Delivery;
Enforceability......................... 9
SECTION 3.03. No Conflicts; Consents................. 9
SECTION 3.04. Liabilities of the Business............ 9
SECTION 3.05. Title to Assets........................ 10
SECTION 3.06. Intellectual Property.................. 10
SECTION 3.07. Contracts.............................. 11
SECTION 3.08. Personal Property...................... 13
SECTION 3.09. Permits................................ 13
SECTION 3.10. Taxes.................................. 13
SECTION 3.11. Proceedings............................ 14
SECTION 3.12. Compliance with Applicable Laws........ 14
SECTION 3.13. Effect of Transaction.................. 15
SECTION 3.14. Acquired Assets........................ 15
SECTION 3.15. Disclaimer............................. 15
ARTICLE IV
Representations and Warranties of Purchaser
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SECTION 4.01. Organization, Standing and Power....... 15
SECTION 4.02. Authority; Execution and Delivery; and
Enforceability
SECTION 4.03. No Conflicts; Consent.................. 16
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Page
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ARTICLE V
Covenants
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SECTION 5.01. Confidentiality...................... 16
SECTION 5.02. Expenses; Transfer Taxes............... 17
SECTION 5.03. Brokers or Finders..................... 17
SECTION 5.04. Collection of Receivables.............. 18
SECTION 5.05. Employee Matters; WARN Act............. 18
SECTION 5.06. Post-Closing Cooperation............... 18
SECTION 5.07. Publicity.............................. 19
SECTION 5.08. Agreement Not To Compete 20
SECTION 5.09. Seller's Representations Modified by
Purchaser's Knowledge.................. 21
SECTION 5.10. Bulk Transfer Laws..................... 21
SECTION 5.11. Further Assurances..................... 21
SECTION 5.12. Returned Inventory..................... 21
SECTION 5.13. Letters of Credit...................... 22
SECTION 5.14. Rolodex Programs....................... 22
SECTION 5.15. Trademark Covenants.................... 22
SECTION 5.16. Transfer of Inventory.................. 22
ARTICLE VI
Indemnification
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SECTION 6.01. Indemnification by Seller.............. 23
SECTION 6.02. Indemnification by Purchaser........... 24
SECTION 6.03. Termination of Indemnification......... 24
SECTION 6.04. Procedures............................. 24
SECTION 6.05. Survival............................... 27
ARTICLE VII
General Provisions
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SECTION 7.01. Assignment............................. 27
SECTION 7.02. No Third-Party Beneficiaries........... 28
SECTION 7.03. Notices................................ 28
SECTION 7.04. Interpretation; Exhibits and Schedules;
Certain Definitions.................... 29
SECTION 7.05. Counterparts........................... 31
SECTION 7.06. Entire Agreement....................... 31
SECTION 7.07. Severability........................... 31
SECTION 7.08. Governing Law.......................... 31
SECTION 7.09. Amendments and Waivers................. 32
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ASSET PURCHASE AGREEMENT, dated as of October 4, 1996, between INSILCO
CORPORATION, a Delaware corporation ("Seller"), and FRANKLIN ELECTRONIC
PUBLISHERS, INCORPORATED, a Pennsylvania corporation ("Purchaser").
WHEREAS, Seller desires to sell to Purchaser, and Purchaser desires to
purchase from Seller, substantially all the assets of the Rolodex(R) electronic
products business of Seller (the "Business"), and a perpetual, exclusive, fully
paid up license to use the "Rolodex" trademark in connection with the Business
and the manufacture and distribution of "Electronic Products" (as defined in the
License Agreement), upon the terms and subject to the conditions of this
Agreement and the License Agreement. Capitalized terms referenced in Section
7.04(c) are defined in the Sections set forth therein.
NOW, THEREFORE, the parties hereby agree as follows:
ARTICLE I
Transactions
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SECTION 1.01. Purchase and Sale. On the terms and subject to the
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conditions of this Agreement, at the Closing, Seller shall sell, assign,
transfer, convey and deliver to Purchaser, and Purchaser shall purchase from
Seller, all the right, title and interest of Seller in, to and under the
Acquired Assets, for an aggregate purchase price of $15,767,387 (the "Purchase
Price"), payable as set forth in Section 2.02, and the assumption of the Assumed
Liabilities. The purchase and sale of the Acquired Assets and the assumption of
the Assumed Liabilities is referred to in this Agreement as the "Acquisition".
SECTION 1.02. Acquired Assets. (a) The term "Acquired Assets" means
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all the business, properties, assets, goodwill and rights of Seller of whatever
kind and nature, real or personal, tangible or intangible, that are owned,
leased or licensed by Seller on the Closing Date and used, held for use or
intended to be used primarily (except as provided below) in the operation or
conduct of the Business, other than the Excluded Assets, including:
(i) all raw materials, work-in-process, finished goods, supplies,
parts, spare parts and other inventories of Seller that on the Closing Date
are used, held for use or intended to be used primarily in the operation or
conduct of the Business, including, without limitation, those listed as of
September 29, 1996 on Schedule 1.02(a)(i) (collectively, the "Inventory");
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(ii) the tangible personal property and interests therein (including
all machinery, tooling, equipment, furniture and vehicles) of Seller listed
on Schedule 1.02(a)(ii) and all other tangible personal property that on
the Closing Date is used primarily in the operation or conduct of the
Business (the "Personal Property");
(iii) all trade accounts receivable of Seller on the Closing Date
arising out of the operation or conduct of the Business, including, without
limitation, those listed as of September 29, 1996 on Schedule 1.02(a)(iii)-
A, other than trade accounts receivable owed by the customers listed on
Schedule 1.02(a)(iii)-B ("Receivables");
(iv) all patents (including all reissues, divisions, continuations
and extensions thereof) patent applications, trademarks, trademark
registrations, trademark applications, servicemarks, trade names, business
names, brand names, copyrights, copyright registrations, designs, design
registrations, and all rights to any of the foregoing ("Intellectual
Property"), of Seller that are listed on Schedule 3.06 and all other items
of Intellectual Property that are used primarily in the operation or
conduct of the Business (the "Assigned Intellectual Property"), other than
any right, title and interest of Seller in and to the name and mark
"Rolodex(R)";
(v) all trade secrets, confidential information, inventions, know-
how, formulae, processes, procedures, research records, records of
inventions, test information, market surveys and marketing know-how of
Seller that are used primarily in the operation or conduct of the Business
(the "Technology);
(vi) all Permits of Seller that are listed on Schedule 3.09 and all
other Permits that are used, held for use or intended to be used primarily
in the operation or conduct of the Business (the "Assigned Permits");
(vii) all contracts, leases, licenses, indentures, agreements,
commitments and all other legally binding arrangements, whether oral or
written ("Contracts"), to which Seller is a party or by which Seller is
bound that are listed in Schedule 3.07, including the License of July 1996,
granted to Tele-Art, Limited, a corporation organized under the laws of
Hong Kong ("Tele-Art"), to sell "Rolodex(R)" branded products to Radio
Shack (the "Tele-Art License"), and the Repair Agreement between Tele-Art
and Seller (the "Tele-Art Repair Agreement") (together with the Tele-Art
License, the "Tele-Art Contracts"), all purchase and sales orders to the
extent they relate to the Business, and all other Contracts to which Seller
is a party or by which Seller is bound that
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are used, held for use or intended to be used primarily in, or that arise
primarily out of, the operation or conduct of the Business (the "Assigned
Contracts");
(viii) all rights, claims and credits relating to, but only to the
extent relating to, any other Acquired Asset or any Assumed Liability,
including any such items arising under insurance policies, and all
guarantees, warranties, indemnities and similar rights in favor of Seller
relating to, but only to the extent relating to, any other Acquired Asset
or any Assumed Liability;
(ix) all books of account, ledgers, financial and accounting records,
files, invoices, customers' and suppliers' lists, distribution lists,
billing records, sales and promotional literature, manuals, customer and
supplier correspondence (in all cases, in any form or medium) of Seller
that are used, held for use or intended to be used exclusively in, or that
arise exclusively out of, the conduct or operation of the Business (the
"Records");
(x) the receivables due Seller from Tele-Art, except for the royalty
receivables, if any, due to Seller on account of Tele-Art's sales of
electronic products to RadioShack prior to the Closing; and
(xi) all goodwill generated by, and associated with, the Business.
(b) The term "Excluded Assets" means:
(i) all assets identified in Schedule 1.02(b)(i);
(ii) all real property, leaseholds and other interests in real
property of Seller;
(iii) all cash, cash equivalents, cash refunds and securities of
Seller;
(iv) all rights, claims and credits of Seller relating to any
Excluded Asset or any Excluded Liability, including any such items arising
under insurance policies, and all guarantees, warranties, indemnities and
similar rights in favor of Seller in respect of any Excluded Asset or any
Excluded Liability;
(v) all personnel records of current or former employees of Seller;
(vi) all the assets of the Seller Pension Plans;
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(vii) all rights of Seller under this Agreement and the other
agreements and instruments executed and delivered in connection with this
Agreement (the "Ancillary Agreements");
(viii) all records pertaining to the Excluded Assets or the Excluded
Liabilities;
(ix) all records prepared solely in connection with the sale of the
Business to Purchaser; and
(x) all Tax returns of Seller.
SECTION 1.03. Assumed Liabilities. (a) The term "Assumed
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Liabilities" means all the following liabilities, obligations and commitments of
Seller:
(i) all accounts payable, if any, and accrued expenses of Seller
arising out of the operation or conduct of the Business prior to the
Closing, but only to the extent they do not exceed $150,489 in the
aggregate;
(ii) all liabilities, obligations and commitments of Seller under the
Assigned Contracts and Assigned Permits, whether such liabilities,
obligations and commitments relate to a period prior to or from and after
the Closing, but not any such liabilities, obligations or commitments
arising out of any breach by Seller of any Assigned Contract (other than
the Tele-Art Contracts) prior to the Closing other than those liabilities,
obligations or commitments that would constitute Assumed Liabilities under
clause (i) or (iii) of this Section 1.03(a);
(iii) all liabilities, obligations and commitments of Seller for
product warranty and consumer or customer return, replacement or service
obligations and any other liabilities, obligations and commitments of
Seller that relate to, or that arise out of products manufactured, shipped
or sold by or on behalf of Seller on or prior to the Closing Date
(including claims of negligence, personal injury (except as otherwise
provided in Section 1.03(b)(viii)), product damage, product liability,
product warranties, strict liability, product recall or any other claims
(but excluding workers' compensation or employer's liability)), whether
such liabilities, obligations or commitments relate to or arise out of
accidents, injuries or losses occurring on or prior to or after the Closing
Date; and
(iv) all liabilities obligations and commitments of Seller expressly
assumed by Purchaser in this Agreement.
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(b) The term "Excluded Liabilities" means:
(i) all liabilities, obligations and commitments of Seller relating
to or arising out of the Business or any Acquired Asset, whether express or
implied, liquidated, absolute, accrued, contingent or otherwise or known or
unknown, and based upon, arising out of, or resulting from any fact,
circumstance, occurrence, condition, act or omission existing on or
occurring prior to the Closing, except as set forth in Section 1.03(a);
(ii) all liabilities, obligations and commitments of Seller arising
out of any breach by Seller of any Assigned Contract (other than the Tele-
Art Contracts) prior to the Closing other than liabilities, obligations and
commitments which would constitute Assumed Liabilities under clause (i) or
(iii) of Section 1.03(a).
(iii) all liabilities, obligations and commitments of Seller arising
out of (A) any suit, action or proceeding ("Proceeding") pending as of the
Closing Date or (B) any violation by Seller or any of its affiliates of any
Applicable Law prior to the Closing;
(iv) all accounts payable and accrued expenses of Seller (including
outstanding checks not settled as of the Closing) to the extent they exceed
$150,489 in the aggregate;
(v) all liabilities, obligations and commitments of Seller that
relate primarily to, or that arise primarily out of, any Excluded Asset
other than those liabilities, obligations or commitments that would
constitute Assumed Liabilities under clause (i) or (iii) of Section
1.03(a);
(vi) all liabilities, obligations and commitments for Taxes, whether
or not accrued, assessed or currently due and payable, (A) of Seller or (B)
relating to the operation or ownership of the Business or the Acquired
Assets for any Tax period (or portion thereof) ending prior to the Closing
Date (for purposes of this provision, all personal property Taxes and
similar ad valorem obligations levied with respect to the Acquired Assets
for a Tax period that includes (but does not end on) the Closing Date shall
be apportioned between Seller and Purchaser based upon the number of days
of such period included in the pre-Closing Tax period and the number of
days of such Tax period from and after the Closing Date);
(vii) all liabilities, obligations and commitments of Seller arising
under any Seller Pension Plan or Seller Benefit Plan;
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(viii) any liability for personal injury arising out of any product
manufactured, shipped or sold by or on behalf of Seller on or prior to the
Closing Date the claim for which injury is asserted in writing within nine
months following the Closing; and
(ix) all liabilities, obligations and commitments of Seller that
relate to, or that arise out of, the employment or the termination of the
employment with Seller of any employee or former employee of the Business
(including as a result of the transactions contemplated by this Agreement).
SECTION 1.04. Consents of Third Parties. (a) Notwithstanding
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anything in this Agreement to the contrary, this Agreement shall not constitute
an agreement to assign any asset or any claim or right or any benefit arising
thereunder or resulting therefrom if an attempted assignment thereof, without
the consent of a third party, would constitute a breach or other contravention
thereof, would be ineffective with respect to any party thereto or would in any
way adversely affect the rights of Seller or, upon transfer, Purchaser
thereunder; and any transfer or assignment by Seller to, or any assumption by,
Purchaser of any interest in, or liability, obligation or commitment under, any
such asset that requires the consent of a third party shall be made subject to
such consent being obtained. To the extent any Assigned Contract may not be
assigned to Purchaser by reason of the absence of any such consent and the
Purchaser does not otherwise get any benefit of such Assigned Contract,
Purchaser shall not be required to assume any Assumed Liabilities arising under
such Assigned Contract other than those liabilities, obligations or commitments
that would constitute Assumed Liabilities under clause (i) or (iii) of Section
1.03(a).
(b) If any such consent is not obtained prior to the Closing, Seller
and Purchaser shall cooperate (at each party's expense) in any lawful and
reasonable arrangement reasonably proposed by Purchaser under which Purchaser
shall obtain the economic claims, rights and benefits under the asset, claim or
right with respect to which the consent has not been obtained in accordance with
this Agreement, including subcontracting, sublicensing or subleasing to
Purchaser and enforcement of any and all rights of Seller against the other
party thereto arising out of a breach or cancellation thereof by the other
party; provided, however, that the parties shall not be required to pay or
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commit to pay any amount to (or incur any obligation in favor of) any person
from whom any such consent may be required (other than nominal filing or
application fees).
SECTION 1.05. Receivable and Inventory Adjustments. (a) Within 30
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days after the Closing, Seller shall prepare and deliver to Purchaser a
certificate setting forth (i) the amount of any trade accounts receivable of
Seller arising out of the operation
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or conduct of the Business that were created by Seller between September 30,
1996 and October 4, 1996 and that were included in the Acquired Assets and (ii)
the amount of trade accounts receivables set forth on Schedule 1.02(a)(iii)-A
that were collected between September 30, 1996 and October 4, 1996 (net of any
applicable reserves). The difference between the two amounts, which may be a
positive number (if the amount referred to in clause (i) is greater than the
amount referred to in clause (ii)) or a negative number (if the opposite is
true), is herein referred to as the "Receivable Difference."
(b) A count of the Inventory shall be conducted by Purchaser, at
Purchaser's expense, as promptly as shall be practicable following the Closing
Date in accordance with the procedures set forth in Exhibit I. Purchaser shall
deliver to Seller a certificate of such count. Seller and its independent
auditors shall be allowed to observe such count. If there is any difference
between (i) the amount of Inventory shown on the certificate and (ii) the amount
of inventory set forth on Schedule 1.02(a)(i), such difference shall be valued
by Seller in accordance with the principles set forth in Exhibit F. Such
difference in value, which may be a positive number (if the amount referred to
in clause (i) is greater than the amount referred to in clause (ii)) or negative
number (if the opposite is true), is herein referred to as the "Inventory
Difference."
(c) If the sum of the Receivable Difference and Inventory Difference
is a negative number, then the amount of such sum shall be paid by Seller to
Purchaser, but only to the extent such amount exceeds $225,000. If the sum of
the Receivable Difference and the Inventory Difference is a positive number,
then the amount of such sum shall be paid by Purchaser to Seller, but only to
the extent such amount exceeds $225,000.
ARTICLE II
The Closing
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SECTION 2.01. Closing Date. The closing of the Acquisition (the
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"Closing") shall take place at the offices of Rosenman & Colin LLP, 575 Madison
Avenue, New York, New York 10022, at 10:00 a.m. on the date hereof. The date on
which the Closing occurs is referred to in this Agreement as the "Closing Date".
SECTION 2.02. Transactions To Be Effected at the Closing. At the
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Closing:
(a) Seller shall deliver to Purchaser bills of sale, assignments and
other instruments of transfer relating to the
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Acquired Assets in the respective forms set forth in Exhibit A;
(b) Purchaser shall deliver to Seller at the Closing (i) payment, by
wire transfer to a bank account designated in writing by Seller at least
two business days prior to the Closing Date, immediately available funds in
the amount of $15,767,387 and (ii) the assumption agreements and other
instruments of assumption providing for the assumption of the Assumed
Liabilities in the respective forms set forth in Exhibit B;
(c) Purchaser and Seller shall execute a license agreement (the
"License Agreement") in the form set forth in Exhibit C;
(d) Seller shall execute and deliver to Purchaser the letters to the
United States Customs Service attached as Exhibits D-1 and D-2 authorizing
the importation by Purchaser or any authorized sublicensee of Electronic
Products or Covered Books bearing the Licensed Marks into the United States
under Recorded Trademark 95-00049; and
(e) Purchaser and Seller shall execute and deliver an interim license
agreement in the form set forth in Exhibit E.
ARTICLE III
Representations and Warranties of Seller
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Seller represents and warrants to Purchaser as follows:
SECTION 3.01. Organization, Standing and Power. Seller is duly
--------------------------------
organized, validly existing and in good standing under the laws of the State of
Delaware and has full corporate power and authority necessary to enable it to
own, lease or otherwise hold the properties and assets of, and to conduct the
operations of, the Business. None of the affiliates of Seller is presently or
has in the past been engaged in the operation or conduct of the Business or
owns, leases or licenses any of the Acquired Assets.
SECTION 3.02. Authority; Execution and Delivery; Enforceability.
-------------------------------------------------
Seller has full corporate power and authority to execute this Agreement and the
Ancillary Agreements to which it is, or is specified to be, a party and to
consummate the Acquisition and the other transactions contemplated hereby and
thereby. The execution and delivery by Seller of this Agreement and the
Ancillary Agreements to which it is, or is specified to be, a party and the
consummation by Seller of the Acquisition and the other transactions
contemplated hereby and thereby have been duly authorized by all necessary
corporate action. Seller has
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duly executed and delivered this Agreement and prior to the Closing will have
duly executed and delivered each Ancillary Agreement to which it is, or is
specified to be, a party, and this Agreement constitutes, and each Ancillary
Agreement to which it is, or is specified to be, a party will after the Closing
constitute, its legal, valid and binding obligation, enforceable against it in
accordance with its terms.
SECTION 3.03. No Conflicts; Consents. Except as set forth in
----------------------
Schedule 3.03 or except as would not have a Business Material Adverse Effect,
the execution and delivery by Seller of this Agreement do not, the execution and
delivery by Seller of each Ancillary Agreement to which it is, or is specified
to be, a party will not, and the consummation of the Acquisition and the other
transactions contemplated hereby and thereby and compliance with the terms
hereof and thereof will not result in any violation of or default (with or
without notice or lapse of time, or both) under any provision of (i) the
certificate of incorporation or by-laws of Seller, or (ii) any judgment, order
or decree ("Judgment") or statute, law (including common law) ordinance, rule or
regulation ("Applicable Law") applicable to Seller or its properties or assets.
Except as set forth in Schedule 3.03, no consent, approval, license, permit,
order or authorization ("Consent") of, or registration, declaration or filing
with, any Federal, state, local or foreign government or any court of competent
jurisdiction, administrative agency or commission or other governmental
authority or instrumentality, domestic or foreign (a "Governmental Entity") is
required to be obtained or made by or with respect to Seller in connection with
the execution, delivery and performance of this Agreement or any Ancillary
Agreement or the consummation of the Acquisition or the other transactions
contemplated hereby and thereby other than compliance with and filings under the
Hart-Scott-Rodino Antitrust Improvements Act of 1976 (the "HSR Act") and the
Securities Exchange Act of 1934, as amended (the "Exchange Act") and other than
consents the lack of which would not have a Business Material Adverse Effect.
SECTION 3.04. Liabilities of the Business. The Business does not
---------------------------
have any liabilities or obligations of any nature (whether accrued, absolute,
contingent, unasserted or otherwise) required by generally accepted accounting
principles to be reflected on a balance sheet of the Business or in the notes
thereto, except (i) as disclosed or referred to in Schedule 3.04 or any other
Schedule hereto (or in any of the documents listed in a Schedule hereto), (ii)
for liabilities and obligations incurred in the ordinary course of the Business
consistent with past practice, (iii) for Taxes, (iv) for liabilities and
obligations which are not required to be disclosed in a Schedule hereto (as for
example because the making of the representation or warranty is disclaimed or
because the liability involved an amount which is less than the threshold above
which disclosure is required) and
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(v) for liabilities or obligations which would not have a Business Material
Adverse Effect.
SECTION 3.05. Title to Assets. Seller has good and valid title to
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all the Acquired Assets, in each case free and clear of all mortgages, liens,
security interests, charges, easements, leases, subleases, rights of way,
options, claims or encumbrances of any kind (collectively, "Liens"), except (i)
mechanics', carriers', workmen's, repairmen's or other like Liens arising or
incurred in the ordinary course of business, Liens arising under original
purchase price conditional sales contracts and equipment leases with third
parties entered into in the ordinary course of business and liens for Taxes that
are not due and payable or that may thereafter be paid without penalty, and (ii)
other imperfections of title or encumbrances, if any, that do not, individually
or in the aggregate, materially impair the continued use and operation of the
assets to which they relate in the conduct of the Business as presently
conducted (the Liens described in clauses (i) and (ii) above are referred to
collectively as "Permitted Liens"). Purchaser will acquire the Acquired Assets
free and clear of all Liens other than Permitted Liens.
SECTION 3.06. Intellectual Property. (a) Schedule 3.06 sets forth a
---------------------
true and complete list of all Intellectual Property, owned, used, filed by or
licensed to Seller and used, held for use or intended to be used primarily in
the operation or conduct of the Business, other than Intellectual Property that,
individually and in the aggregate, is not material to the conduct of the
Business as presently conducted. There is no Assigned Intellectual Property
that is registered or subject to an application for registration. Except as set
forth in Schedule 3.06, (i) Seller is the sole and exclusive owner of or has the
right to use, execute, reproduce, display, perform, modify, enhance, distribute,
prepare derivative works of and sublicense, without payment to any other person,
all the Assigned Intellectual Property, except where the failure to have such
rights would not have a Business Material Adverse Effect, and the consummation
of the Acquisition and the other transactions contemplated hereby does not and
will not conflict with, alter or impair any such rights in a way that would have
a Business Material Adverse Effect, (ii) during the past three years, Seller and
its affiliates have not received any written communication from any person
asserting any ownership interest in any material Assigned Intellectual Property,
(iii) Seller has no knowledge of any impediment to use the Licensed Marks in the
United States, Canada or the European Community countries and (iv) Seller has
the right to grant Purchaser a license in and to the Licensed Marks in the
"Territory" (as defined in the License Agreement) as provided in the License
Agreement.
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(b) Except as set forth in Schedule 3.06, Seller has not granted any
written license of any kind relating to any Technology or Assigned Intellectual
Property or the marketing or distribution thereof. Seller is not bound by or a
party to any option, license or agreement of any kind relating to the Assigned
Intellectual Property for the use of such Assigned Intellectual Property in the
conduct of the Business, except as set forth in Schedule 3.06 and except for
"shrink-wrap" license agreements relating to computer software licensed in the
ordinary course of Business. The conduct of the Business as presently conducted
does not violate, conflict with or infringe the Intellectual Property of any
other person, except for such violations, conflicts or infringements that,
individually or in the aggregate, would not have a material adverse effect on
the business, assets, financial condition or results of operations of the
Business, on the ability of Seller to perform its obligations under this
Agreement and the Ancillary Agreements or on the ability of Seller to consummate
the Acquisition and the other transactions contemplated hereby (a "Business
Material Adverse Effect"). Except as set forth in Schedule 3.06 or except as
would not have a Business Material Adverse Effect, (i) no claims are pending or,
to the knowledge of Seller, threatened, against Seller or any of its affiliates
by any person with respect to the ownership, validity, enforceability, or use in
the Business of any Assigned Intellectual Property and (ii) during the past
three years, Seller and its affiliates have not received any written
communication alleging that Seller or any of its affiliates has in the conduct
of the Business violated any rights relating to Intellectual Property of any
person.
SECTION 3.07. Contracts. (a) Except as set forth in Schedule 3.07
---------
and except for Contracts relating solely to Excluded Assets, Seller is not a
party to or bound by any Contract that is used, held for use or intended for use
primarily in, or that arises primarily out of, the operation or conduct of the
Business and that is:
(i) a collective bargaining agreement or other Contract with any
labor organization, union or association;
(ii) a covenant not to compete or other covenant of Seller
restricting the development, manufacture, marketing or distribution of the
products and services of the Business;
(iii) a lease, sublease or similar Contract with any person under
which (A) Seller is lessee of, or holds or uses, any machinery, equipment,
vehicle or other tangible personal property owned by any person or (B)
Seller is a lessor or sublessor of, or makes available for use by any
person, any tangible personal property owned or leased by Seller, which in
any such case has an aggregate future liability or receivable, as the case
may be, in excess of $50,000 per
11
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annum and is not terminable by Seller by notice of not more than 60 days
for a cost of less than $50,000;
(iv) (A) a continuing Contract for the future purchase of materials,
supplies or equipment, (B) a management, service, consulting or other
similar Contract or (C) an advertising agreement or arrangement, in any
such case that has an aggregate future liability to any person in excess of
$50,000 per annum and is not terminable by Seller by notice of not more
than 60 days for a cost of less than $50,000;
(v) a Contract granting a Lien upon any Acquired Asset;
(vi) a confidentiality agreement which would bind the Purchaser with
respect to information supplied to the Business;
(vii) a Contract (including a purchase order) involving payment by
Seller of more than $50,000 (unless terminable without payment or penalty
upon no more than 60 days' notice), other than purchase orders entered into
in the ordinary course of the Business;
(viii) a Contract (including a sales order) involving the obligation
of Seller to deliver products or services for payment of more than $50,000
or extending for a term more than 90 days from the date of this Agreement
(unless terminable without payment or penalty upon no more than 60 days'
notice), other than sales orders entered into in the ordinary course of the
Business;
(ix) a Contract for the sale of any Acquired Asset (other than
inventory sales in the ordinary course of business) or the grant of any
preferential rights to purchase any Acquired Asset;
(x) a Contract with any Governmental Entity;
(xi) a Contract for any joint venture, partnership or similar
arrangement;
(xii) a Contract providing for the services of any dealer,
distributor, sales representative, franchisee or similar representative
involving the payment or receipt over the life of such Contract in excess
of $50,000 by Seller; or
(xiii) a Contract other than as set forth above to which Seller is a
party or by which it or any of its assets or businesses is bound or subject
that is material to the Business or the use or operation of the Acquired
Assets.
12
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(b) Except as set forth in Schedule 3.07, all Assigned Contracts are
valid, binding and in full force and effect and are enforceable by Seller in
accordance with their respective terms, except for such failures to be valid,
binding, in full force and effect or enforceable that, individually or in the
aggregate, would not have a Business Material Adverse Effect. Except as set
forth in Schedule 3.07, Seller has performed all obligations required to be
performed by it to date under the Assigned Contracts, and it is not (with or
without the lapse of time or the giving of notice, or both) in breach or default
in any respect thereunder and, to the knowledge of Seller, no other party to any
Assigned Contract is (with or without the lapse of time or the giving of notice,
or both) in breach or default in any respect thereunder, except for such
noncompliance, breaches and defaults that, individually or in the aggregate,
would not have a Business Material Adverse Effect. Seller has not within the
last six months, except as disclosed in Schedule 3.07, received any written
notice of the intention of any party to terminate any Assigned Contract.
Complete and correct copies of all Contracts listed in Schedule 3.07, together
with all modifications and amendments thereto, have been made available to
Purchaser.
SECTION 3.08. Personal Property. Except as would not have a Business
-----------------
Material Adverse Effect, the Personal Property which is in Seller's personal
possession is in good working order (ordinary wear and tear excepted), is free
from any material defect and has been maintained in all material respects in
accordance with the past practice of the Business and generally accepted
industry practice, and no repairs, replacements or regularly scheduled
maintenance relating to any such item has been deferred.
SECTION 3.09. Permits. Schedule 3.09 sets forth all material
-------
certificates, licenses, permits, authorizations and approvals ("Permits") issued
or granted to Seller by Governmental Entities that are necessary for the conduct
of the Business. All such Permits are validly held by Seller, and Seller has
complied with all terms and conditions thereof, except where such failure to
comply would not have a Business Material Adverse Effect. Seller has not
received written notice of any Proceedings relating to the revocation or
modification of any such Permits the loss of which, individually or in the
aggregate, would have a Business Material Adverse Effect. Except as set forth
in Schedule 3.09 or as would not have a Business Material Adverse Effect, none
of such Permits will be subject to suspension, modification, revocation or
nonrenewal as a result of the execution and delivery of this Agreement or the
consummation of the Acquisition.
SECTION 3.10. Taxes. (a) For purposes of this Agreement:
-----
13
<PAGE>
"Tax" shall mean (i) any tax, governmental fee or other like
assessment or charge of any kind whatsoever (including any tax imposed under
Subtitle A of the Code and any net income, alternative or add-on minimum tax,
gross income, gross receipts, sales, use, ad valorem, value added, transfer,
franchise, profits, license, withholding on amounts paid to or by Seller,
payroll, employment, excise, severance, stamp, capital stock, occupation,
property, environmental or windfall profit tax, premium, custom, duty or other
tax), together with any interest, penalty, addition to tax or additional amount
due from, or in respect of, Seller imposed by any Governmental Entity
responsible for the imposition of any such tax (a "Taxing Authority"), (ii) any
liability for the payment of any amount of the type described in clause (i)
above as a result of Seller being a member of an affiliated, consolidated or
combined group with any other corporation at any time on or prior to the Closing
Date and (iii) any liability of Seller with respect to the payment of any
amounts of the type described in clause (i) or (ii) above as a result of any
express or implied obligation to indemnify any other person.
"Code" shall mean the Internal Revenue Code of 1986, as amended.
(b) (i) None of the Acquired Assets is "tax exempt use property"
within the meaning of Section 168(h) of the Code and (ii) none of the Acquired
Assets is a lease made pursuant to Section 168(f)(8) of the Internal Revenue
Code of 1954.
(c) Seller is not a "foreign person" within the meaning of Section
1445 of the Code.
SECTION 3.11. Proceedings. Schedule 3.11 sets forth a list of all
-----------
pending Proceedings against Seller arising out of the conduct of the Business or
against or affecting any Acquired Asset or that relate to the transactions
contemplated by this Agreement, other than claims for product warranty and
consumer or customer return, replacement or service obligations. Except as set
forth in Schedule 3.11, (i) none of the Proceedings listed in Schedule 3.11 as
to which there is at least a reasonable possibility of adverse determination
would have, if so determined, individually or in the aggregate, a Business
Material Adverse Effect, (ii) to the knowledge of Seller, Seller is not a party
or subject to or in default under any Judgment applicable to the conduct of the
Business or any Acquired Asset or Assumed Liability, and (iii) there is not any
Proceeding by Seller pending, or which Seller intends to initiate, against any
other Person arising out of the conduct of the Business.
SECTION 3.12. Compliance with Applicable Laws. The Business is in
-------------------------------
compliance with all Applicable Laws, including those relating to occupational
health and safety, except where such failure to comply would not have a Business
Material Adverse
14
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Effect. Seller has not received any written communication during the past three
years from a Governmental Entity that alleges that the Business is not in
compliance with any Applicable Laws which non-compliance would have a Business
Material Adverse Effect. Seller has not received any written notice that any
investigation or review by any Governmental Entity with respect to any Acquired
Asset or the Business is pending or that any such investigation or review is
contemplated the outcome of which would have a Business Material Adverse Effect.
SECTION 3.13. Effect of Transaction. No creditor, employee, client,
---------------------
customer or other person having a material business relationship with the
Business informed Seller in writing that such person intends to change such
relationship because of the purchase and sale of the Business or the
consummation of any other transaction contemplated hereby, which change,
individually or in the aggregate with other such changes, would have a Business
Material Adverse Effect.
SECTION 3.14. Acquired Assets. The Acquired Assets comprise all the
---------------
assets that are owned, leased or licensed by Seller and are used, held for use
or intended to be used primarily in the conduct of the Business, other than the
Excluded Assets and except as otherwise provided in Section 1.02(a).
SECTION 3.15. Disclaimer. Except as set forth in this Article III,
----------
Seller makes no representation or warranty, express or implied. In any event,
(i) Seller makes no representation or warranty with respect to the Tele-Art
Contracts (except that the Tele-Art Contracts were duly authorized, executed and
delivered by Seller, constitute legal, valid and binding agreements of Seller
and have not been modified or amended except as stated in Schedule 3.07), (ii)
Seller makes no warranty of merchantability, suitability or fitness for a
particular purpose, or quality, with respect to any of the tangible assets being
so transferred, or as to the condition or workmanship thereof or the absence of
any defect therein, whether latent or patent and (iii) Seller makes no
representation or warranty regarding the net assets or financial condition of
the Business on the Closing Date or any date prior thereto.
ARTICLE IV
Representations and Warranties of Purchaser
-------------------------------------------
Purchaser hereby represents and warrants to Seller as follows:
SECTION 4.01. Organization, Standing and Power. Purchaser is duly
--------------------------------
organized, validly existing and in good standing under the laws of the
jurisdiction of its incorporation and has
15
<PAGE>
full corporate power and authority necessary to enable it to own, lease or
otherwise hold its properties and assets and to carry on its business as
presently conducted.
SECTION 4.02. Authority; Execution and Delivery; and Enforceability.
-----------------------------------------------------
Purchaser has full corporate power and authority to execute this Agreement and
the Ancillary Agreements to which it is, or is specified to be, a party and to
consummate the Acquisition and the other transactions contemplated hereby and
thereby. The execution and delivery by Purchaser of this Agreement and the
Ancillary Agreements to which it is, or is specified to be, a party and the
consummation by Purchaser of the Acquisition and the other transactions
contemplated hereby and thereby have been duly authorized by all necessary
corporate action. Purchaser has duly executed and delivered this Agreement and
prior to the Closing will have duly executed and delivered each Ancillary
Agreement to which it is, or is specified to be, a party, and this Agreement
constitutes, and each Ancillary Agreement to which it is, or is specified to be,
a party will after the Closing constitute, its legal, valid and binding
obligation, enforceable against it in accordance with its terms.
SECTION 4.03. No Conflicts; Consent. The execution and delivery by
---------------------
Purchaser of this Agreement do not, the execution and delivery by Purchaser of
each Ancillary Agreement to which it is, or is specified to be, a party will
not, and the consummation of the Acquisition and the other transactions
contemplated hereby and thereby and compliance by Purchaser with the terms
hereof and thereof will not result in any violation of or default (with or
without notice or lapse of time, or both) under any provision of (i) the
certificate of incorporation or by-laws of Purchaser or (ii) any Judgment or
Applicable Law applicable to Purchaser or its properties or assets. No Consent
of or registration, declaration or filing with any Governmental Entity is
required to be obtained or made by or with respect to Purchaser in connection
with the execution, delivery and performance of this Agreement or any Ancillary
Agreement or the consummation of the Acquisition or the other transactions
contemplated hereby and thereby, other than compliance with and filings under
the HSR Act and the Exchange Act.
ARTICLE V
Covenants
---------
SECTION 5.01. Confidentiality. (a) Purchaser acknowledges that the
---------------
information provided to it in connection with the Acquisition and the
consummation of the other transactions contemplated hereby was subject to the
terms of a confidentiality agreement dated July 16, 1996, between Purchaser and
Seller (the "Confidentiality Agreement"), the terms of which are incorporated
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<PAGE>
herein by reference. Effective upon the Closing, the Confidentiality Agreement
shall terminate, except with respect to information provided to Purchaser that
does not relate to the Business.
(b) Seller shall keep confidential all information relating to the
Business, except (i) as required by law or administrative or legal process, and
(ii) information that is available to the public on the Closing Date, or
thereafter becomes available to the public other than as a result of a breach of
this Section 5.01(b); provided that the foregoing restrictions shall not apply
to, and nothing herein shall be construed as prohibiting Seller from using or
disclosing, confidential information in connection with (i) any claim against
Seller or for which Seller is responsible, whether by a third party or by
Purchaser, or (ii) the performance by Seller of its obligations, or the
assertion by Seller of any of its rights or remedies under, this Agreement or
any Ancillary Agreement. The covenant set forth in this Section 5.01(b) shall
terminate three years after the Closing Date.
SECTION 5.02. Expenses; Transfer Taxes. (a) Except as otherwise
------------------------
provided in this Agreement, all costs and expenses incurred in connection with
this Agreement and the Ancillary Agreements and the transactions contemplated
hereby and thereby shall be paid by the party incurring such expense.
(b) All Transfer Taxes applicable to the conveyance and transfer from
Seller to Purchaser of the Acquired Assets and any other transfer or documentary
Taxes or any filing or recording fees applicable to such conveyance and transfer
shall be paid by Seller and Purchaser in equal shares. Each party shall use
reasonable efforts to avail the parties of any available exemptions from any
such Taxes or fees, and to cooperate with the other parties in providing any
information and documentation that may be necessary to obtain such exemptions.
(c) The term "Transfer Taxes" means all liabilities, obligations and
commitments for transfer, documentary, sales, use, registration, value-added and
other similar Taxes and related amounts (including any penalties, interest and
additions to Tax) incurred in connection with this Agreement, the Ancillary
Agreements, the Acquisition and the other transactions contemplated hereby and
thereby.
SECTION 5.03. Brokers or Finders. Each of Purchaser and Seller
------------------
represent, as to itself and its affiliates, that no agent, broker, investment
banker or other firm or person is or will be entitled to any broker's or
finder's fee or any other commission or similar fee in connection with any of
the transactions contemplated by this Agreement.
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<PAGE>
SECTION 5.04. Collection of Receivables. From and after the Closing,
-------------------------
Purchaser shall have the right and authority to collect for its own account all
Receivables and other items that are included in the Acquired Assets and to
endorse with the name of Seller, as applicable, any checks or drafts received
with respect to any Receivables or such other items. Seller shall promptly
deliver to Purchaser any cash or other property received by it or any affiliate
from any person with respect to the Receivables and such other items included in
the Acquired Assets, including any amounts payable as interest received from
such person. Purchaser shall promptly deliver to Seller any cash or other
property received by it or any affiliate from any person with respect to any
other business or assets of Seller other than the Business and the Acquired
Assets, including the Excluded Assets and any related items, including any
amounts payable as interest received from such person.
SECTION 5.05. Employee Matters; WARN Act. Purchaser does not have
--------------------------
any obligation to offer employment with Purchaser or the Business to any current
or former employee (each an "Employee") of the Business. If Purchaser does
elect to make any such offers, the recipients thereof and the terms of
employment offered shall be at the sole and absolute discretion of Purchaser.
Seller shall comply with the Worker Adjustment and Retraining Notification Act
to the extent applicable to the Acquisition and related matters.
SECTION 5.06. Post-Closing Cooperation. (a) Purchaser and Seller
------------------------
shall cooperate with each other for a period of one year after the Closing to
ensure the orderly transition of the Business from Seller to Purchaser and to
minimize any disruption to the Business and the other respective businesses of
Seller and Purchaser that might result from the transactions contemplated
hereby. After the Closing, upon reasonable written notice, Purchaser and Seller
shall furnish or cause to be furnished to each other and their employees,
counsel, auditors and representatives access, during normal business hours, to
such information and assistance (to the extent within the control of such party)
relating to the Business as is reasonably necessary for financial reporting and
accounting matters.
(b) After the Closing, upon reasonable written notice, Purchaser and
Seller shall furnish or cause to be furnished to each other as promptly as
practicable, such information and assistance (to the extent within the control
of such party) relating to the Acquired Assets (including access to books and
records) as is reasonably necessary for the filing of all Tax returns, and
making of any election related to Taxes, the preparation for any audit by any
Taxing Authority, and the prosecution or defense of any claim, suit or
proceeding relating to any Tax return.
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<PAGE>
(c) Each party shall reimburse the other for reasonable out-of-pocket
costs and expenses incurred in assisting the other pursuant to this Section
5.06. Neither party shall be required by this Section 5.06 to take any action
that would unreasonably interfere with the conduct of its business or
unreasonably disrupt its normal operations (or, in the case of Purchaser, the
Business).
(d) Seller will provide Purchaser and Feldman Radin & Co., P.C. ("FR
& Co.") access to Seller's books, records and employees and KPMG Peat Marwick
LLP ("KPMG") and its working papers (subject to Purchaser and FR & Co. signing a
letter in favor of KPMG in the form of Exhibit H) relating to the Business,
which is reasonably required in connection with the audit of the financial
statements of the Business as of and for the year ended December 31, 1995.
(e) For a period of seven years from the Closing Date:
(i) Purchaser shall not dispose of or destroy any of the books and
records of the Business relating to periods prior to the Closing ("Books
and Records") without first offering to turn over possession thereof to
Seller by written notice to Seller at least 30 days prior to the proposed
date of such disposition or destruction.
(ii) Purchaser shall allow Seller and its agents access to all Books
and Records during normal working hours at Purchaser's principal place of
business or at any location where any Books and Records are stored, and
Seller shall have the right, at its own expense, to make copies of any
Books and Records; provided, however, that any such access or copying shall
be had or done in such a manner so as not to interfere with the normal
conduct of Purchaser's business.
(iii) Purchaser shall make available to Seller upon written request
(A) copies of any Books and Records, (B) Purchaser's personnel to assist
Seller in locating and obtaining any Books and Records, and (C) any of
Purchaser's personnel whose assistance or participation is reasonably
required by Seller or any of its affiliates in anticipation of, or
preparation for, existing or future litigation, Tax returns or other
matters in which Seller or any of its affiliates is involved. Seller shall
reimburse Purchaser for the reasonable out-of-pocket expenses incurred by
it in performing the covenants contained in this Section 5.06.
SECTION 5.07. Publicity. No public release or announcement
---------
concerning the transactions contemplated hereby shall be issued by any party
without the prior consent of the other party (which consent shall not be
unreasonably withheld), except as such release or announcement may be required
by law or the
19
<PAGE>
rules or regulations of any United States or foreign securities exchange, in
which case the party required to make the release or announcement shall give the
other party notice in advance of such issuance; provided, however, that Seller
-------- -------
or Purchaser may make internal announcements to its employees that are
consistent with the parties' prior public disclosures regarding the transactions
contemplated hereby after reasonable prior notice to and consultation with the
other.
SECTION 5.08. Agreement Not To Compete. (a) Seller understands that
------------------------
Purchaser shall be entitled to protect and preserve the going concern value of
the Business to the extent permitted by law and that Purchaser would not have
entered into this Agreement absent the provisions of this Section 5.08 and,
therefore, for a period of five years from the Closing, Seller shall not, and
shall cause each of its affiliates that it controls not to, directly or
indirectly:
(i) (A) engage in the manufacture or sale of Electronic Products,
including goods or services of the type sold by the Business at any time
within the two year period ending on the date of the Closing ("Competitive
Activities"), or (B) solicit any customer or prospective customer of the
Business to purchase any goods or services of the type sold by the Business
at any time within the two year period ending on the date of Closing; or
(ii) establish or acquire any business that engages in
Competitive Activities; provided, however, that nothing herein shall
preclude Seller from acquiring any interest in any business (the "Acquired
Business") some or all of the operations of which would constitute
Competitive Activities so long as (x) the annual revenues attributable to
the Competitive Activities do not exceed 10% of the annual revenues of the
Acquired Business, or (y) if they do, Seller divests itself of the
Competitive Activities as soon as practicable, but not later than 18
months, after such acquisition.
(b) Section 5.08(a) shall be deemed not breached as a result of the
ownership by Seller or any of its affiliates of: (i) less than an aggregate of
5% of any class of stock of a person engaged, directly or indirectly, in
Competitive Activities; provided, however, that such stock is listed on a
-------- -------
national securities exchange or traded in the NASDAQ National Market System; or
(ii) less than 5% in value of any instrument of indebtedness of a person
engaged, directly or indirectly, in Competitive Activities.
(c) Notwithstanding any other provision of this Agreement, it is
understood and agreed that the remedy of indemnity payments pursuant to Article
VI and other remedies at law
20
<PAGE>
would be inadequate in the case of any breach of the covenants contained in
Section 5.08(a) and, accordingly, Purchaser shall be entitled to equitable
relief, including the remedy of specific performance, with respect to any breach
or attempted breach of such covenants.
SECTION 5.09. Seller's Representations Modified by Purchaser's
------------------------------------------------
Knowledge. Purchaser hereby agrees that to the extent any representation or
- ---------
warranty of Seller made herein or in any Ancillary Agreement is, to the
knowledge of Purchaser acquired prior to the Closing, untrue or incorrect, (i)
Purchaser shall have no rights thereunder by reason of such untruth or
inaccuracy, and (ii) any such representation or warranty by Seller shall be
deemed to be amended to the extent necessary to render it consistent with such
knowledge of Purchaser.
SECTION 5.10. Bulk Transfer Laws. Purchaser hereby waives compliance
------------------
by Seller with the provisions of any so-called "bulk transfer law" of any
jurisdiction in connection with the sale of the Acquired Assets to Purchaser.
SECTION 5.11. Further Assurances. From time to time, as and when
------------------
requested by any party, and at the requesting party's expense, each party shall
execute and deliver, or cause to be executed and delivered, all such documents
and instruments and shall take, or cause to be taken, all such further or other
actions (subject to Section 1.04(b)), and without incurring any legal liability
beyond that provided for in this Agreement, as such other party may reasonably
deem necessary or desirable to consummate the transactions contemplated by this
Agreement. The foregoing shall include such additional documents as may be
requested by Purchaser to facilitate the importation under the "Licensed Marks"
(as defined in the License Agreement) of Electronic Products or "Covered Books"
(as defined in the License Agreement) into the United States or any other
country.
SECTION 5.12. Returned Inventory. If a customer, listed on Schedule
------------------
1.02(a)(iii)-B as a customer the receivables of which are not included in the
Acquired Assets, returns any item sold by the Business and takes, or requests
that Seller grant such customer, a credit therefor, Purchaser shall, within five
days of demand therefor from Seller (which demand shall be accompanied by the
customer's request or demand for a credit) pay to Seller an amount equal to the
cost of the item returned calculated in accordance with the principles set forth
in Exhibit F for the determination of the cost of inventory. If the credit
taken against Seller is attributable to Purchaser's sales, Purchaser will
reimburse Seller for the full amount of the credit taken. If the item was
returned to Seller rather than to Purchaser, Seller shall promptly send such
item to Purchaser. An item shall be deemed to have been sold by the Business if
the return takes place within 90 days of the Closing and shall be deemed to have
been
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sold by Purchaser if the return takes place after 90 days following the Closing.
SECTION 5.13. Letters of Credit. As promptly as shall be
-----------------
practicable after the Closing (and in any event within two business days),
Purchaser shall deliver to Seller back-up letters of credit and similar
instruments, in an aggregate principal amount and with terms and from banks or
other financial institutions or surety companies in each case reasonably
satisfactory to Seller, to collateralize the letters of credit or similar
instruments of Seller with respect to the Business listed in Exhibit G.
SECTION 5.14 Rolodex Programs. Seller has entered into customer
----------------
programs with respect to the sale of Rolodex(R) products, including the
Business' products, which are listed on Schedule 3.07 (the "Programs").
Purchaser agrees to honor the terms of the Programs (but not any extensions or
amendments thereof entered into after the Closing) and will pay or grant to such
customer any rebate, allowance, credit or other charge under the Programs
allocable to sales made by the Business from and after the Closing Date, or
reimburse Seller for any rebate or allowance under the Programs paid by Seller
or credit or other charge taken under the Programs against Seller by such
customer, with respect to sales made by the Business from and after the Closing
Date. Seller agrees to reimburse Purchaser for any rebate or allowance under
the Programs paid by Purchaser or credit or other charge under the Programs
taken against Purchaser by such customer, with respect to sales made by Seller
from and after the Closing Date.
SECTION 5.15 Trademark Covenants. Seller agrees that, so long as the
-------------------
License Agreement is in effect, it shall not use the "Trademark" (as defined in
the License Agreement), or grant any right to any third party to use the
Trademark, at any time. Seller further agrees that, so long as the License
Agreement is in effect, it shall not use the Rolodex(R) mark in connection with
the manufacture, packaging, distribution, importation or sale of Electronic
Products, or grant any right to any third party to use the Rolodex(R) mark in
connection with the manufacture, packaging, distribution, importation or sale of
Electronic Products, at any time. Notwithstanding anything herein to the
contrary, Seller shall be permitted to use, and to grant any right to any third
party to use, the Rolodex(R) mark (but not the Trademark) on an electronic
device which primarily functions as a business card reader or business card
scanner irrespective of the input or output means.
SECTION 5.16 Transfer of Inventory. Purchaser agrees to take
---------------------
physical possession of the Inventory as promptly as shall be practicable after
the Closing (and in any event within 30 days). Seller agrees that, pending such
physical transfer, it will store the Inventory rent-free at the locations at
which the
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Inventory is located at the Closing, and will cooperate with Purchaser in
effecting such physical transfer.
ARTICLE VI
Indemnification
---------------
SECTION 6.01. Indemnification by Seller. If the Closing occurs,
-------------------------
Seller shall indemnify Purchaser and its affiliates against, and hold them
harmless from, any loss, liability, claim, damage or expense (including
reasonable legal fees and expenses) ("Losses"), arising from, relating to or
otherwise in respect of:
(i) any breach of any representation or warranty of Seller contained
in this Agreement or any Ancillary Agreement;
(ii) any breach of any covenant of Seller contained in this Agreement
or in any Ancillary Agreement;
(iii) any Excluded Liability;
(iv) the failure to comply with statutory provisions relating to bulk
sales and transfers, if applicable (other than Losses arising from,
relating to or otherwise in respect of the Assumed Liabilities); and
(v) any fees, expenses or other payments incurred or owed by Seller to
any brokers, financial advisors or comparable other persons retained or
employed by it in connection with the transactions contemplated by this
Agreement.
For purposes of clause (i) of Section 6.01, (I) to determine whether a
representation or warranty made with reference to a Business Material Adverse
Effect has been breached, such representation and warranty shall be read as
though there were no reference therein to a Business Material Adverse Effect and
(II) if a representation or warranty has been so breached, such breach shall
result in an obligation of the Seller to indemnify Purchaser only if such
breach, together with breaches of all other representations and warranties
(assuming for this purpose that such other representations and warranties had
been made without reference to a Business Material Adverse Effect) resulted in
Losses which in the aggregate have a Business Material Adverse Effect. The
foregoing applies only to determine whether there is an obligation to indemnify
for a breach and does not apply to determine the amount that is recoverable by
reason of such breach; such amount shall be calculated as though such
representation and warranty had been made without a reference to a Business
Material
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Adverse Effect, but shall be subject to the limitations of Section 6.04(d).
SECTION 6.02. Indemnification by Purchaser. If the Closing occurs,
----------------------------
Purchaser shall indemnify Seller and its affiliates against, and hold them
harmless from, any Losses arising from, relating to or otherwise in respect of:
(i) any breach of any representation or warranty of Purchaser
contained in this Agreement or in any Ancillary Agreement or any document
delivered pursuant thereto;
(ii) any breach of any covenant of Purchaser contained in this
Agreement or in any Ancillary Agreement;
(iii) any Assumed Liability;
(iv) any fees, expenses or other payments incurred or owed by
Purchaser to any brokers, financial advisors or comparable other persons
retained or employed by it in connection with the transactions contemplated
by this Agreement; or
(v) the conduct of the Business from and after the Closing.
SECTION 6.03. Termination of Indemnification. The obligations to
------------------------------
indemnify and hold harmless any party, (i) pursuant to clauses (i) and (ii) of
Section 6.01 or 6.02, shall terminate when the applicable representation or
warranty or covenant terminates pursuant to Section 6.05 and (ii) pursuant to
the other clauses of Sections 6.01 and 6.02 shall not terminate; provided,
--------
however, that such obligations to indemnify and hold harmless shall not
- -------
terminate with respect to any item as to which the person to be indemnified (the
"Indemnified Party") shall have, before the expiration of the applicable period,
previously made a claim by delivering a valid Claim Notice pursuant to Section
6.04(a) to the party to be providing the indemnification (the "Indemnifying
Party").
SECTION 6.04. Procedures. (a) In order for the Indemnified Party to
----------
be entitled to any indemnification provided for under this Agreement in respect
of, arising out of or involving a claim made by any person against the
Indemnified Party (a "Third Party Claim"), such Indemnified Party must notify
the Indemnifying Party in writing of the Third Party Claim (a "Claim Notice")
promptly following receipt by such Indemnified Party of written notice of the
Third Party Claim, which notification, to be a valid Claim Notice, must be
accompanied by a copy of the written notice of the Third Party Claimant
asserting the Third Party Claim; provided, however, that failure to give such
-------- -------
notification promptly (so long as a valid Claim Notice is given before the
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expiration of the applicable period) shall not affect the indemnification
provided hereunder except to the extent the Indemnifying Party shall have been
prejudiced as a result of such failure. Thereafter, the Indemnified Party shall
deliver to the Indemnifying Party copies of all other notices and documents
(including court papers) received by the Indemnified Party relating to the Third
Party Claim.
(b) If a Third Party Claim is made against an Indemnified Party, the
Indemnifying Party shall be entitled to participate in the defense thereof and,
if it so chooses, to assume the defense thereof with counsel selected by the
Indemnifying Party; provided, however, that such counsel is not reasonably
-------- -------
objected to by the Indemnified Party. Should the Indemnifying Party so elect to
assume the defense of a Third Party Claim, the Indemnifying Party shall not be
liable to the Indemnified Party for any legal expenses incurred by the
Indemnified Party in connection with the defense thereof, except as provided
below. If the Indemnifying Party assumes such defense, the Indemnified Party
shall have the right to participate in the defense thereof and to employ
counsel, at its own expense, separate from the counsel employed by the
Indemnifying Party, it being understood that the Indemnifying Party shall
control such defense. The Indemnifying Party shall be liable for the reasonable
fees and expenses of counsel employed by the Indemnified Party (provided that
the incurrence of such fees and expenses of counsel was reasonably necessary to
respond timely to legal process) for any period after the Claim Notice is given
during which the Indemnifying Party has not assumed the defense thereof if and
to the extent that the Indemnifying Party is responsible to indemnify for such
Third Party Claim. If the Indemnifying Party does not assume the defense of a
Third Party Claim within 30 days after the giving by the Indemnified Party to
the Indemnifying Party of a valid Claim Notice with respect to the Third Party
Claim, the Indemnifying Party shall be liable to the Indemnified Party for all
fees and expenses of counsel employed by the Indemnified Party if and to the
extent that the Indemnifying Party is responsible to indemnify for such Third
Party Claim; provided, however, such counsel is not reasonably objected to by
the Indemnifying Party. If the Indemnifying Party chooses to defend a Third
Party Claim, all the Indemnified Parties shall cooperate in the defense thereof.
Such cooperation shall include the retention and (upon the Indemnifying Party's
request) the provision to the Indemnifying Party of records and information
which are relevant to such Third Party Claim, and making employees available on
a mutually convenient basis to provide additional information and explanation of
any material provided hereunder and to act as a witness or respond to legal
process. Whether or not the Indemnifying Party assumes the defense of a Third
Party Claim, the Indemnified Party shall not admit any liability with respect
to, or settle, compromise or discharge, such Third Party Claim without the
Indemnifying Party's prior written consent (which consent shall not be
unreasonably withheld). If the Indemnifying
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<PAGE>
Party assumes the defense of a Third Party Claim, the Indemnified Party shall
agree to any settlement, compromise or discharge of a Third Party Claim that the
Indemnifying Party may recommend and that by its terms obligates the
Indemnifying Party to pay the full amount of the liability in connection with
such Third Party Claim, which releases the Indemnified Party completely in
connection with such Third Party Claim.
(c) Other Claims. In the event any Indemnified Party should have a
------------
claim against any Indemnifying Party under Section 6.01 or 6.02 that does not
involve a Third Party Claim being asserted against or sought to be collected
from such Indemnified Party, the Indemnified Party shall deliver prompt written
notice of such claim to the Indemnifying Party (the "Other Claim Notice") which
notice to be a valid Other Claim Notice must certify that the Indemnified Party
has in good faith already sustained Losses with respect to such claim. The
failure by any Indemnified Party to notify the Indemnifying Party promptly (so
long as a valid Other Claim Notice is given before the expiration of the
applicable period) shall not relieve the Indemnifying Party from any liability
that it may have to such Indemnified Party under Section 6.01 or 6.02, except to
the extent that the Indemnifying Party has been prejudiced by such failure. If
the Indemnifying Party does not notify the Indemnified Party within 10 business
days following its receipt of such notice that the Indemnifying Party disputes
its liability to the Indemnified Party under Section 6.01 or 6.02, such claim
specified by the Indemnified Party in such notice shall be conclusively deemed a
liability of the Indemnifying Party under Section 6.01 or 6.02 and the
Indemnifying Party shall pay the amount of such liability to the Indemnified
Party on demand or, in the case of any Other Claim Notice in which the amount of
the claim (or any portion thereof) is estimated, on such later date when the
amount of such claim (or such portion thereof) becomes finally determined, in
each case subject to the provisions of Section 6.04(d). If the Indemnifying
Party has timely disputed its liability with respect to such claim, as provided
above, the Indemnifying Party and the Indemnified Party shall proceed in good
faith to negotiate a resolution of such dispute and, if not resolved through
negotiations, such dispute shall be resolved by litigation in an appropriate
court of competent jurisdiction.
(d) Purchaser and its affiliates shall not be entitled to recover any
amount for indemnification claims under clause (i) of Section 6.01 unless and
until the amount which Purchaser and its affiliates are entitled to recover in
respect of such claims exceeds, in the aggregate, $250,0000 (the "Deductible"),
in which event (subject to clause (ii) below) the entire amount which Purchaser
and its affiliates are entitled to recover in respect of such claims less the
Deductible shall be payable; and (ii) the maximum amount recoverable by
Purchaser and its affiliates for
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indemnification claims under clause (i) of Section 6.01 shall in the aggregate
be equal to $1,600,000.
(e) The indemnification provided in Article VI shall be the sole and
exclusive remedy for any inaccuracy or breach of any representation or warranty
made by Seller in this Agreement or in any Ancillary Agreement. All amounts
payable by one party in indemnification of the other shall be considered an
adjustment to the Purchase Price.
(f) In no event shall Seller be liable for loss of profits or
consequential damages by reason of a breach of any representation or warranty
made by Seller or any of its affiliates in this Agreement or any Ancillary
Agreement.
(g) Upon making any payment to an Indemnified Party for any
indemnification claim pursuant to this Article VI, the Indemnifying Party shall
be subrogated, to the extent of such payment, to any rights which the
Indemnified Party may have against any other parties with respect to the subject
matter underlying such indemnification claim.
SECTION 6.05. Survival. The representations and warranties in
--------
Article III and Article IV shall survive the Closing until January 20, 1998 and
shall thereupon terminate together with any right to indemnification except as
set forth in the proviso contained in Section 6.03. The covenants and
agreements contained herein (other than the covenant and agreement to indemnify
against breaches of representations and warranties, which shall terminate
January 20, 1998) shall survive the Closing without limitation.
ARTICLE VII
General Provisions
------------------
SECTION 7.01. Assignment. This Agreement and the rights and
----------
obligations hereunder shall not be assignable or transferable by Purchaser or
Seller without the prior written consent of the other party hereto.
Notwithstanding the foregoing, (a) Purchaser may assign its right to purchase
the Acquired Assets or any portion thereof hereunder to a wholly-owned
subsidiary of Purchaser without the prior written consent of Seller so long as
(i) the representations and warranties of Purchaser contained herein are equally
true of such assignee, (ii) such assignment does not have any adverse
consequences to Seller or any of its affiliates (including, without limitation,
any adverse effect on the ability of Purchaser to consummate (or timely
consummate) the transactions contemplated hereby), and (iii) such assignee
executes a counterpart of this Agreement agreeing to be bound by the provisions
hereof as "Purchaser," and agreeing to be jointly and severally liable with the
assignor and any other assignee for
27
<PAGE>
all of the obligations of the assignor hereunder; (b) Purchaser may assign its
rights hereunder by way of security and such secured party may assign such
rights by way of exercise of remedies and (c) Seller may assign its rights
hereunder to any purchaser of the Rolodex business (it being understood that
such purchaser will not thereby have assumed any of the obligations of Seller
hereunder). No assignment shall limit or affect the assignor's obligations
hereunder. Any attempted assignment in violation of this Section 7.01 shall be
void.
SECTION 7.02. No Third-Party Beneficiaries. Except as provided in
----------------------------
Article VI, 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, other than the parties hereto and such assigns,
any legal or equitable rights hereunder.
SECTION 7.03. Notices. All notices or other communications required
-------
or permitted to be given hereunder shall be in writing and shall be delivered by
hand or sent by facsimile or sent, postage prepaid, by registered, certified or
express mail or reputable overnight courier service and shall be deemed given
when so delivered by hand or facsimile, or if mailed, three days after mailing
(one business day in the case of overnight express mail or overnight courier
service), as follows:
(i) if to Purchaser,
Franklin Electronic Publishers, Incorporated
One Franklin Plaza
Burlington, New Jersey 08016-4907
Attention: Gregory J. Winsky, Esq.
Senior Vice President
and General Counsel
Facsimile: (609) 387-2666
with a copy to:
Rosenman & Colin LLP
575 Madison Avenue
New York, NY 10022
Attention: Edward H. Cohen, Esq.
Facsimile: (212) 940-3815; and
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(ii) if to Seller,
Insilco Corporation
425 Metro Place North, Fifth Floor
Box 7196
Dublin, Ohio 43017
Attention: General Counsel
Facsimile: (614) 791-3195
with a copy to:
Fried, Frank, Harris, Shriver & Jacobson
One New York Plaza
New York, NY 10004-1980
Attention: Aviva Diamant, Esq.
Facsimile: (212) 859-4000
SECTION 7.04. Interpretation; Exhibits and Schedules; Certain
-----------------------------------------------
Definitions. (a) The headings contained in this Agreement, in any Exhibit or
- -----------
Schedule hereto and in the table of contents to this Agreement are for reference
purposes only and shall not affect in any way the meaning or interpretation of
this Agreement. All Exhibits and Schedules annexed hereto or referred to herein
are hereby incorporated in and made a part of this Agreement as if set forth in
full herein. Any capitalized terms used in any Schedule or Exhibit but not
otherwise defined therein, shall have the meaning as defined in this Agreement.
When a reference is made in this Agreement to a Section, Exhibit or Schedule,
such reference shall be to a Section of, or an Exhibit or Schedule to, this
Agreement unless otherwise indicated.
(b) For all purposes hereof:
"affiliate" of any person means another person that directly or
indirectly, through one or more intermediaries, controls, is controlled by, or
is under common control with, such first person provided, however, that neither
Goldman Sachs & Co. nor any of its affiliates shall be deemed an affiliate of
Seller except for purposes of Article VI.
"including" means including, without limitation.
"person" means any individual, firm, corporation, partnership, limited
liability company, trust, joint venture, Governmental Entity or other entity.
"subsidiary" of any person means another person, an amount of the
voting securities, other voting ownership or voting partnership interests of
which is sufficient to elect at least a majority of its Board of Directors or
other governing body (or, if
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<PAGE>
there are no such voting interests, 50% or more of the equity interests of
which) is owned directly or indirectly by such first person.
(c) The following terms are defined in this Agreement in the Sections
set forth below:
Term Section
---- -------
Acquired Assets 1.02(a)
Acquisition 1.01
Ancillary Agreements 1.02(b)(vii)
Applicable Law 3.03
Acquired Business 5.08(a)(ii)
Assigned Contracts 1.02(a)(vii)
Assigned Intellectual Property 1.02(a)(iv)
Assigned Permits 1.02(a)(vi)
Assumed Liabilities 1.03(a)
Books and Records 5.06(e)(i)
Business Material Adverse Effect 3.06(b)
Business Recital
Claim Notice 6.04(a)
Closing 2.01
Closing Date 2.01
Code 3.10(a)
Competitive Activities 5.08(a)(i)
Confidentiality Agreement 5.01(a)
Consent 3.03
Contracts 1.02(a)(vii)
Covered Books 5.11
Deductible 6.04(d)
Electronic Products Recital
Employee 5.05
Exchange Act 3.03
Excluded Assets 1.02(b)
Excluded Liabilities 1.03(b)
FR & Co. 5.06(d)
Governmental Entity 3.03
HSR Act 3.03
Indemnified Party 6.03
Indemnifying Party 6.03
Intellectual Property 1.02(a)(iv)
Inventory 1.02(a)(i)
Inventory Difference 1.05(b)
Judgment 3.03
KPMG 5.06(d)
License Agreement 2.02(c)
Licensed Marks 5.11
Liens 3.05
Losses 6.01
Other Claim Notice 6.04(c)
Permits 3.09
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Permitted Liens 3.05
Personal Property 1.02(a)(ii)
Proceeding 1.03(b)(iii)
Programs 5.14
Purchase Price 1.01(a)
Purchaser Preamble
Receivables 1.02(a)(iii)
Receivable Difference 1.05(a)
Records 1.02(a)(ix)
Seller Preamble
Tax 3.10(a)
Taxing Authority 3.10(a)
Technology 1.02(a)(v)
Tele-Art 1.02(a)(vii)
Tele-Art Contracts 1.02(a)(vii)
Tele-Art License 1.02(a)(vii)
Tele-Art Repair Agreement 1.02(a)(vii)
Territory 3.06(a)(iv)
Third Party Claim 6.04(a)
Trademark 5.15
Transfer Taxes 5.02(c)
SECTION 7.05. Counterparts. This Agreement may be executed in one or
------------
more counterparts, all of which shall be considered one and the same agreement,
and shall become effective when one or more such counterparts have been signed
by each of the parties and delivered to the other party.
SECTION 7.06. Entire Agreement. This Agreement, the Ancillary
----------------
Agreements and the Confidentiality Agreement contain the entire agreement and
understanding between the parties hereto with respect to the subject matter
hereof and supersede all prior agreements and understandings relating to such
subject matter. Neither party shall be liable or bound to any other party in
any manner by any representations, warranties or covenants relating to such
subject matter except as specifically set forth herein or in the Ancillary
Agreements or the Confidentiality Agreement.
SECTION 7.07. Severability. If any provision of this Agreement (or
------------
any portion thereof) or the application of any such provision (or any portion
thereof) to any person or circumstance shall be held invalid, illegal or
unenforceable in any respect by a court of competent jurisdiction, such
invalidity, illegality or unenforceability shall not affect any other provision
hereof (or the remaining portion thereof) or the application of such provision
to any other persons or circumstances.
SECTION 7.08. Governing Law. This Agreement shall be governed by and
-------------
construed in accordance with the internal laws of the State of New York
applicable to agreements made and to be performed entirely within such State,
without regard to the conflicts of law principles of such State.
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SECTION 7.09. Amendments and Waivers. This Agreement may not be
----------------------
amended except by an instrument in writing signed on behalf of each of the
parties hereto. By an instrument in writing Purchaser, on the one hand, or
Seller, on the other hand, may waive compliance by the other party with any term
or provision of this Agreement that such other party was or is obligated to
comply with or perform.
IN WITNESS WHEREOF, Purchaser and Seller have duly executed this
Agreement as of the date first written above.
INSILCO CORPORATION
by
----------------------------------------
Name:
Title:
FRANKLIN ELECTRONIC PUBLISHERS,
INCORPORATED
by
----------------------------------------
Name:
Title:
32
