<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR
15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended ........... September 30, 1994
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR
15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from .............to...................
Commission file number .................................1-8681
RUSS BERRIE AND COMPANY, INC.
.................................................................
(Exact name of registrant as specified in its charter)
New Jersey 22-1815337
.................................................................
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
111 Bauer Drive, Oakland, New Jersey 07436
.................................................................
(Address of principal executive offices) (Zip Code)
(201) 337-9000
.................................................................
(Registrant's telephone number, including area code)
.................................................................
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15 (d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to
file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes .X. No ...
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
<TABLE>
<CAPTION>
CLASS OUTSTANDING AT NOVEMBER 5, 1994
----- -------------------------------
<S> <C>
Common stock, $.10 stated value 21,473,591
</TABLE>
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RUSS BERRIE AND COMPANY, INC.
INDEX
<TABLE>
<CAPTION>
PAGE
PART I - FINANCIAL INFORMATION NUMBER
<S> <C>
Item 1. Financial Statements
Consolidated Balance Sheet as of
September 30, 1994 and December 31, 1993 3
Consolidated Statement of Income
for the three-month and nine-month periods
ended September 30, 1994 and 1993 4
Consolidated Statement of Cash Flows
for the nine-month periods ended
September 30, 1994 and 1993 5
Notes to Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis
of Financial Condition and Results of
Operations 7-9
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 10
Signatures 11
</TABLE>
(2)
<PAGE> 3
PART 1 - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
RUSS BERRIE AND COMPANY, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
(UNAUDITED)
ASSETS SEPTEMBER 30, DECEMBER 31,
------ 1994 1993
------------- ------------
<S> <C> <C>
Current assets
Cash and cash equivalents $ 36,552 $ 51,478
Short-term investments 10,688 31,421
Accounts receivable, trade, net 62,230 46,899
Merchandise inventories 63,848 66,110
Prepaid expenses and other current assets 3,592 5,005
Deferred income taxes 12,482 12,169
-------- --------
Total current assets 189,392 213,082
Property, plant and equipment - net 26,063 28,133
Goodwill and other intangible assets - net 36,451 16,420
Other assets 4,754 1,480
-------- --------
Total assets $256,660 $259,115
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
Current liabilities
Accounts payable $ 4,000 $ 5,235
Accrued expenses 27,716 23,171
Accrued restructuring costs 5,015 6,283
Accrued income taxes - 392
-------- --------
Total current liabilities 36,731 35,081
Shareholders' equity
Common stock; $.10 stated value;
authorized 50,000,000 shares;
issued 23,928,404 at September 30, 1994
and 23,876,274 at December 31, 1993 2,393 2,388
Additional paid-in capital 37,479 36,840
Retained earnings 219,436 225,650
Foreign currency translation adjustments (1,522) (2,987)
Treasury stock, at cost (2,454,813 shares
at September 30, 1994 and December 31,
1993) (37,857) (37,857)
-------- --------
Total shareholders' equity 219,929 224,034
Total liabilities and shareholders'
equity $256,660 $259,115
======== ========
</TABLE>
The accompanying notes are an integral part
of the consolidated financial statements.
(3)
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RUSS BERRIE AND COMPANY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF INCOME
(DOLLARS IN THOUSANDS EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
(UNAUDITED) (UNAUDITED)
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------ -----------------
1994 1993 1994 1993
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net sales $ 82,850 $ 70,738 $ 204,563 $216,935
Cost of sales 40,096 30,279 103,890 90,802
Selling, general
and administrative expense 35,163 32,448 98,361 104,075
Investment and other
income-net 699 669 2,045 2,176
-------- -------- --------- --------
Income before income taxes 8,290 8,680 4,357 24,234
Provision for income taxes 2,548 2,358 920 7,279
-------- -------- --------- --------
Net income $ 5,742 $ 6,322 $ 3,437 $ 16,955
======== ======== ========= ========
Net income per share $ 0.27 $ 0.30 $ 0.16 $ 0.79
======== ======== ========= ========
</TABLE>
The accompanying notes are an integral part of
the consolidated financial statements.
(4)
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RUSS BERRIE AND COMPANY, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(Dollars in Thousands)
<TABLE>
<CAPTION>
(UNAUDITED)
NINE MONTHS ENDED
SEPTEMBER 30,
----------------
1994 1993
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net income $ 3,437 $ 16,955
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation 3,463 3,936
Amortization of intangible assets 1,404 725
Provision for bad debts, returns and other
allowances 6,560 2,494
Loss on sale of assets and other, net 536 197
Changes in assets and liabilities
Accounts receivable (21,891) 12,833
Inventories 5,655 14,421
Prepaid expenses 1,579 (1,112)
Goodwill and other intangible assets (2,254) -
Other assets (3,170) 157
Accounts payable (1,235) (3,851)
Accrued expenses 4,095 (7,876)
Accrued restructuring costs (1,268) (760)
Accrued and deferred income taxes (705) (3,667)
-------- --------
Total adjustments (7,231) 17,497
-------- --------
Net cash provided by operating activities (3,794) 34,452
Cash flows from investing activities:
Decrease (increase) in short-term investments 20,733 (1,082)
Proceeds from sale of fixed assets 276 532
Capital expenditures (1,886) (4,196)
Acquisitions (22,713) -
-------- --------
Net cash (used in) investing activities (3,590) (4,746)
Cash flows from financing activities:
Payment of long-term debt - (3,000)
Common stock transactions 644 3,533
Transactions in treasury shares - (22,214)
Dividends (9,651) (9,597)
-------- --------
Net cash (used in) financing activities (9,007) (31,278)
Effect of exchange rate changes on cash
and cash equivalents 1,465 (230)
-------- --------
Net (decrease) in cash and cash equivalents (14,926) (1,802)
Cash and cash equivalents at beginning of period 51,478 62,285
-------- --------
Cash and cash equivalents at end of period $ 36,552 $ 60,483
======== ========
Cash paid during the period for:
Interest $ 49 $ 486
Income taxes $ 1,625 $ 10,915
</TABLE>
The accompanying notes are an integral part of
the consolidated financial statements.
(5)
<PAGE> 6
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1
The information furnished reflects all adjustments which are, in
the opinion of management, necessary for a fair presentation of the
results for the interim periods presented and are of a normal
recurring nature. Results for interim periods are not necessarily
an indication of results to be expected for the year.
NOTE 2
The weighted average number of shares outstanding during the three
and nine-month periods ended September 30, 1994 were 21,469,000 and
21,450,000 shares, respectively compared to the three and nine-
month periods ended September 30, 1993 of 21,296,000 and 21,512,000
shares, respectively. Employee stock option plans did not have a
material dilutive effect on the earnings per share calculation.
NOTE 3
Cash dividends of $3,220,377 ($.15 per share) were paid on
September 7, 1994 to shareholders of record of the Company's Common
Stock on August 18, 1994. Cash dividends of $9,651,261 ($.15 per
share per quarter) were paid in the nine-month period ended
September 30, 1994.
Cash dividends of $3,194,570 ($.15 per share) were paid on
September 8, 1993 to shareholders of record of the Company's Common
Stock on August 19, 1993. Cash dividends of $9,596,763 ($.15 per
share per quarter) were paid in the nine-month period ended
September 30, 1993.
(6)
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ITEM 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Results of Operations for the Nine Months Ended September 30, 1994
Consolidated net sales for the nine months ended September 30, 1994 were
$204,563,000 compared to $216,935,000 for the nine months ended September
30, 1993. Included in the results for the nine months ended September 30,
1994 are the net sales of $60,997,000 achieved by Cap Toys, Inc. which was
acquired in October 1993. Excluding the net sales of Cap Toys, Inc.,
consolidated net sales for the nine months ended September 30, 1994
decreased $73,369,000 compared to the same period in the prior year. This
decrease can be attributed to the lower level of sales of Troll products
compared to the prior year. During the nine-month period ended September
30, 1994, net sales of Troll products were approximately $6,272,000
compared to $79,592,000 for the nine-month period ended September 30, 1993.
Cost of sales was 50.8% of net sales for the nine months ended September
30, 1994 compared to 41.9% for the same period in 1993. This increase can
be attributed primarily to the higher gross profit margins on sales of
Troll products, which represented a larger portion of net sales during the
nine-month period ended September 30, 1993, and the effects of the reduction of
the selling price of certain of the Company's products in August 1993. Also
contributing to the increase in cost of sales are the lower gross margins
achieved by Cap Toys, Inc. compared to certain of the Company's other sales and
distribution channels.
Selling, general and administrative expense was $98,361,000 or 48.1% of net
sales for the nine months ended September 30, 1994 compared to $104,075,000
or 48.0% of net sales for the nine months ended September 30, 1993, a
decrease of $5,714,000 or 5.5%. This decrease can be primarily attributed
to a decrease in expenses required to support lower sales levels
(approximately $12,800,000), cost reductions associated with the
restructuring program implemented during 1993 of closing and consolidating
distribution centers and administrative functions (approximately
$7,300,000) and to lower expenses related to the Company's "RUSS" consumer
advertising program (approximately $2,000,000). Partially offsetting these
decreases is the inclusion of the selling, general and administrative
expenses of Cap Toys, Inc. (approximately $16,400,000) for the nine months
ended September 30, 1994.
Investment and other income of $2,045,000 for the nine months ended
September 30, 1994 compares to $2,176,000 for the nine months ended
September 30, 1993.
(7)
<PAGE> 8
The provision for income taxes as a percent of income before taxes for the
nine months ended September 30, 1994 was 21.1% compared to 30.0% in the
same period in the prior year. The decrease in the effective tax rate can
be attributed to lower tax provisions on income of foreign operations.
Net income for the nine months ended September 30, 1994 of $3,437,000
compares to net income of $16,955,000 for the same period last year. This
decrease in net income can be attributed to the decrease in net sales and
the increase in cost of sales as a percent of net sales described above,
partially offset by the decrease in selling, general and administrative
expense.
Results of Operations for the Three Months Ended September 30, 1994
Consolidated net sales for the three months ended September 30, 1994 were
$82,850,000 compared to $70,738,000 for the three months ended September
30, 1993, an increase of $12,112,000 or 17.1%. The increase can be
attributed to the inclusion of the net sales of Cap Toys, Inc. of
$26,299,000 during the three months ended September 30, 1994. Excluding
Cap Toys, Inc., net sales decreased $14,187,000 resulting from the lower
level of sales of Troll products compared to the prior year. During the
three-month period ended September 30, 1994 net sales of Troll products
were $1,325,000 compared to $17,584,000 during the three months ended
September 30, 1993.
Cost of sales was 48.4% of net sales for the three months ended September
30, 1994 compared to 42.8% for the same period in 1993. This increase can
be attributed to the higher gross profit margins on sales of Troll products,
which represented a larger portion of net sales during the three-month period
ended September 30, 1993, and the effects of the reduction of the selling price
of certain of the Company's products in August 1993. Also contributing to the
increase are the lower gross margins achieved by Cap Toys, Inc. compared to
certain of the Company's other sales and distribution channels.
Selling, general and administrative expense was $35,163,000 or 42.4% of
sales for the three months ended September 30, 1994 compared to $32,448,000
or 45.9% of net sales for the three months ended September 30, 1993, an
increase of $2,715,000 or 8.4%. This increase can be attributed to the
inclusion of the selling, general and administrative expense of Cap Toys,
Inc. (approximately $7,900,000). Excluding these expenses, selling,
general and administrative expense decreased $5,185,000. This decrease can
be primarily attributed to a decrease in expenses required to support lower
sales levels (approximately $3,000,000) and cost reductions associated with
the restructuring program implemented during 1993 of closing and
consolidating distribution centers and administrative functions
(approximately $2,500,000).
Investment and other income of $699,000 for the three months ended
September 30, 1994 compares to $669,000 for the three months ended
September 30, 1993.
The provision for income taxes as a percent of income before taxes for the
three months ended September 30, 1994 was 30.7% compared to 27.2% in the
same period in the prior year.
(8)
<PAGE> 9
Liquidity and Capital Resources
At September 30, 1994, the Company had cash, cash equivalents and short-
term investments of $47,240,000 compared to $82,899,000 at December 31,
1993.
In September 1994, the Company completed the acquisition of OddzOn
Products, Inc, a toy company based in Campbell, California. This acquisition
was accounted for as a purchase and as of September 30, 1994 approximately
$22,713,000 of cash and cash equivalents were utilized to acquire the
company. The results of operations will be included from the date of
acquisition. Cash was also used for the payment of dividends of $9,651,000
during the nine months ended September 30, 1994.
Working capital requirements during the nine months ended September 30,
1994 were met entirely through internally generated funds. The Company
remains in a highly liquid position and believes that the resources
available from operations and bank lines of credit are sufficient to meet
the foreseeable requirements of its business.
(9)
<PAGE> 10
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a) Exhibits
10.109 Asset Purchase Agreement - dated
September 30, 1994 by and among
RBCACQ, Inc. and ODDZON PRODUCTS,
INC., SCOTT STILLINGER AND MARK BUTTON.
27.1 Financial Data Schedule
b) During the quarter ended September 30, 1994,
no reports on Form 8-K were filed.
(10)
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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 thereunto duly authorized.
RUSS BERRIE AND COMPANY, INC.
-----------------------------
(Registrant)
11-11-94 By s/Paul Cargotch
-------- ---------------------------
Date Paul Cargotch
Vice President - Finance and
Chief Financial Officer
(11)
<PAGE> 12
EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION PAGE NO.
- ---------- ----------- -------
10.109 Asset Purchase Agreement dated
September 30, 1994 by and among
RBCACQ, Inc. and ODDZON PRODUCTS,
INC., SCOTT STILLINGER AND MARK BUTTON.
27.1 Financial Data Schedule
<PAGE> 1
ASSET PURCHASE AGREEMENT
Dated September 30, 1994
by and among
RBCACQ, INC.,
and
ODDZON PRODUCTS, INC.,
SCOTT STILLINGER, and
MARK BUTTON
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
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SECTION 1. ASSETS TO BE ACQUIRED . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
SECTION 2. LIMITED LIABILITIES TO BE ASSUMED . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
(a) ASSUMPTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
(b) INSTRUMENTS OF ASSUMPTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
SECTION 3. PURCHASE PRICE AND CERTAIN OTHER PAYMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . 6
(a) PURCHASE PRICE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
(b) PAYMENT OF BASE PURCHASE PRICE . . . . . . . . . . . . . . . . . . . . . . . . . . 6
(c) INVENTORY PURCHASE PRICE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
(d) PAYMENT FOR PREPAID ASSETS . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
(e) EARNOUT PROVISIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
(f) METHOD OF PAYMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
(g) ESCROW . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
SECTION 4. CLOSING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
SECTION 5. REPRESENTATIONS AND WARRANTIES OF SELLER AND THE SHAREHOLDERS . . . . . . . . . . . . . . . . 10
(a) CORPORATE ORGANIZATION AND AUTHORITY . . . . . . . . . . . . . . . . . . . . . . . 10
(b) CORPORATE AUTHORIZATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
(c) NO VIOLATION OR CONFLICT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
(d) CONSENTS, APPROVALS, PERMITS AND AUTHORIZATIONS . . . . . . . . . . . . . . . . . . 12
(e) FINANCIAL STATEMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
(f) LEASED REAL PROPERTY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
(g) PERSONAL PROPERTY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
(h) ASSUMED CONTRACTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
(i) COMPLIANCE WITH APPLICABLE LAWS AND REGULATIONS; ENVIRONMENTAL MATTERS . . . . . . 14
(j) TAXES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
(k) LITIGATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
(l) INTELLECTUAL PROPERTY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
(m) CONDUCT OF BUSINESS FROM AND AFTER JUNE 30, 1994 . . . . . . . . . . . . . . . . . 18
(n) EMPLOYEES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
(o) INSURANCE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
(p) EMPLOYEE BENEFIT PLANS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
(q) WORKER'S COMPENSATION; UNEMPLOYMENT INSURANCE . . . . . . . . . . . . . . . . . . . 21
(r) CONDITION OF ASSETS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
(s) INCLUDED ASSETS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
(t) UNDISCLOSED LIABILITIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
(u) COBRA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
</TABLE>
-i-
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<TABLE>
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(v) DISCLOSURE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
[(w) MATERIAL FACTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
(x) BROKERS OR FINDERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
(y) BOOKS AND RECORDS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
SECTION 6. REPRESENTATIONS AND WARRANTIES OF BUYER . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
(a) CORPORATE ORGANIZATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
(b) CORPORATE AUTHORIZATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
(c) NO VIOLATION OR CONFLICT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
(d) CONSENTS, APPROVALS OR AUTHORIZATIONS . . . . . . . . . . . . . . . . . . . . . . . 23
(e) BROKERS OR FINDERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
SECTION 7. INVESTIGATION BY BUYER . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
SECTION 8. COVENANTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
(a) PRESERVATION OF SELLER . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
(b) SALES AND TRANSFER TAXES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
(c) FURTHER ASSURANCES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
(d) POST CLOSING ACCESS; PRESERVATION OF RECORDS . . . . . . . . . . . . . . . . . . . 25
(e) BEST EFFORTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
(f) ENVIRONMENTAL MATTERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
(g) NOTIFICATION OF CERTAIN MATTERS . . . . . . . . . . . . . . . . . . . . . . . . . . 25
(h) ACCOUNTS RECEIVABLE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
(i) CREDITORS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
(j) CHANGE OF NAME . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
(k) RETAINED LIABILITIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
(l) REMOVAL OF OBSOLETE AND UNUSABLE INVENTORIES . . . . . . . . . . . . . . . . . . . 27
(m) PROVISION OF FINANCIAL INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . 27
(n) NO SHOPPING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
(o) POST-CLOSING ALLOCATION OF LIABILITY FOR CERTAIN ITEMS . . . . . . . . . . . . . . 28
(p) COVENANT NOT TO COMPETE; BUSINESS INFORMATION; EMPLOYEES . . . . . . . . . . . . . 30
SECTION 9. EMPLOYEE MATTERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
(a) INTERVIEWS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
(b) PAYMENTS OF BENEFITS BY SELLER . . . . . . . . . . . . . . . . . . . . . . . . . . 32
(c) NO EMPLOYMENT CONTRACTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
(d) WORKER'S COMPENSATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
(e) UNEMPLOYMENT COMPENSATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
(f) VACATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
(g) NOTICES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
(h) W-2 MATTERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
(i) ASSUMPTION OF POST-CLOSING COBRA OBLIGATIONS . . . . . . . . . . . . . . . . . . . 33
(j) HONORING OF PRO-RATED LIABILITIES TO EMPLOYEES . . . . . . . . . . . . . . . . . . 33
</TABLE>
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<TABLE>
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SECTION 10. CONDITIONS PRECEDENT TO THE OBLIGATION OF BUYER . . . . . . . . . . . . . . . . . . . . . . . 33
(a) CORPORATE AUTHORIZATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
(b) REPRESENTATIONS AND WARRANTIES . . . . . . . . . . . . . . . . . . . . . . . . . . 34
(c) COVENANTS AND AGREEMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
(d) INSTRUMENTS OF SALE OR ASSIGNMENT . . . . . . . . . . . . . . . . . . . . . . . . . 34
(e) NO ADVERSE ORDER OR INJUNCTION . . . . . . . . . . . . . . . . . . . . . . . . . . 34
(f) JUDICIAL, GOVERNMENTAL OR REGULATORY APPROVALS; CONSENTS TO ASSIGNMENT . . . . . . 34
(g) PERMITS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
(h) OPINION OF COUNSEL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
(i) BARBOUR EMPLOYMENT AGREEMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
(j) STILLINGER CONSULTING AND "KOOSH BALL" MANUFACTURING MACHINE AGREEMENTS . . . . . . 35
(k) BUTTON CONSULTING AGREEMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
(l) ENVIRONMENTAL REVIEW . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
(m) ALL DOCUMENTS AND PROCEEDINGS SATISFACTORY TO BUYER AND ITS COUNSEL . . . . . . . . 36
SECTION 11. CONDITIONS PRECEDENT TO THE OBLIGATION OF SELLER . . . . . . . . . . . . . . . . . . . . . . . 36
(a) CORPORATE AUTHORIZATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
(b) REPRESENTATIONS AND WARRANTIES . . . . . . . . . . . . . . . . . . . . . . . . . . 36
(c) COVENANTS AND AGREEMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
(d) INSTRUMENTS OF ASSUMPTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
(e) NO ADVERSE ORDER OR INJUNCTION . . . . . . . . . . . . . . . . . . . . . . . . . . 37
(f) JUDICIAL GOVERNMENTAL OR REGULATORY APPROVALS . . . . . . . . . . . . . . . . . . . 37
(g) OPINION OF COUNSEL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
(h) ALL DOCUMENTS AND PROCEEDINGS SATISFACTORY TO SELLER AND ITS COUNSEL . . . . . . . 37
SECTION 12. WAIVER OF BULK TRANSFER . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
SECTION 13. SURVIVAL OF REPRESENTATIONS, WARRANTIES AND COVENANTS . . . . . . . . . . . . . . . . . . . . 37
SECTION 14. INDEMNIFICATION AND RIGHT OF SET-OFF . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
(a) INDEMNIFICATION BY SELLER AND THE SHAREHOLDERS . . . . . . . . . . . . . . . . . . 38
(b) INDEMNIFICATION BY BUYER . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
(c) NOTICE OF CIRCUMSTANCES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
(d) SURVIVAL OF INDEMNIFICATION OBLIGATIONS . . . . . . . . . . . . . . . . . . . . . . 41
SECTION 15. PRORATIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
</TABLE>
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SECTION 16. COSTS INCIDENT TO PREPARATION OF AGREEMENT . . . . . . . . . . . . . . . . . . . . . . . . . . 41
SECTION 17. PARTIES IN INTEREST . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
SECTION 18. MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
(a) ASSIGNMENT: SUCCESSORS AND ASSIGNS . . . . . . . . . . . . . . . . . . . . . . . . 42
(b) NOTICES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
(c) WAIVER: REMEDIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
(d) ENTIRE AGREEMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
(e) AMENDMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
(f) COUNTERPARTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
(g) GOVERNING LAW . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
(h) JURISDICTION/VENUE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
(i) EXHIBITS AND SCHEDULES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
(j) CAPTIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
(k) PUBLICITY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
(l) SEVERABILITY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
(m) ALLOCATION OF PURCHASE PRICE . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
</TABLE>
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<PAGE> 6
ASSET PURCHASE AGREEMENT
ASSET PURCHASE AGREEMENT dated September 30, 1994 by and among
RBCACQ, INC., a California corporation ("Buyer") which is a wholly-owned
subsidiary of Russ Berrie and Company, Inc. ("Russ"); ODDZON PRODUCTS, INC., a
California corporation ("Seller"); SCOTT STILLINGER ("Stillinger") and MARK
BUTTON ("Button", and together with Stillinger, hereinafter sometimes referred
to as the "Shareholders").
W I T N E S S E T H:
WHEREAS, the Shareholders are the holders of an aggregate of
ninety-five percent (95%) of the issued and outstanding shares of Seller; and
WHEREAS, Seller is engaged in the development, manufacture,
purchase and sale of certain toys and games (collectively the "Business"); and
WHEREAS, Buyer desires to purchase and Seller desires to sell
substantially all of the property, assets and goodwill of Seller and Buyer
desires to assume and Seller desires to transfer certain liabilities of Seller,
all upon the terms and subject to the conditions hereinafter set forth;
NOW, THEREFORE, in consideration of the premises, the mutual
agreements hereinafter contained and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, Buyer, Seller and the
Shareholders do each hereby agree as follows:
SECTION 1. Assets to be Acquired.
(a) Subject to the terms and conditions set forth
herein, and in reliance upon the representations and warranties contained
herein, on the Closing Date (as defined in Section 4 hereof) Seller shall sell,
convey, assign, transfer and deliver, and Buyer shall purchase and acquire, all
of Seller's right, title, and interest in and to the properties, assets and
rights owned, used, useful, acquired for use, or arising or existing in
connection with the Business (other than the Excluded Assets described in
subsection 1(b) below) wherever located, whether real or personal, tangible or
intangible, and whether or not recorded on Seller's books and records, all as
the same shall exist at the Closing, free and clear of all liens, claims and
encumbrances
<PAGE> 7
(other than UCC-1 informational filings on leased personal property),
including, without limitation, the following:
(i) all inventories of Seller, including
finished goods, work-in-process and raw materials comprising Seller's current
product line and/or used in the production thereof and all other inventory of
Seller (excluding obsolete or unusable items as determined by Buyer), to be
determined during the course of the physical inventory made pursuant to
subsection 3(c) hereof and set forth in a schedule to be delivered by Seller to
Buyer pursuant to subsection 3(c) hereof (the "Inventory");
(ii) all of Seller's products, ideas,
concepts, inventions and all rights thereto for current products and products
in the process of development by Seller, including but not limited to those
products described on attached Schedule 1(a)(ii) ("Products");
(iii) all of Seller's executory contracts,
whether oral or written, including, without limitation, open purchase and sale
orders, personal property leases (including machinery and equipment leases),
agreements with sales representatives, license agreements, any arrangements
providing for any guarantee in favor of Seller and all guarantees or
indemnities which Seller may have from any customers or suppliers, all as more
particularly described on Schedule 1(a)(iii) (hereinafter collectively referred
to as the "Assumed Contracts");
(iv) all prepaid assets and expenses of
Seller as to which Buyer will receive the benefits of after Closing which are
agreed to by Buyer and Seller and are described on Schedule 1(a)(iv) hereto
(the "Prepaid Assets");
(v) the leases for all of the premises
(collectively, "Premises") at which Seller conducts the Business, all as more
particularly described on Schedule 1(a)(v) hereto (the "Real Estate Leases");
(vi) all of Seller's existing patents, patent
applications, trademarks (including trade dress), trademark applications and
registrations, trade names, including, without limitation, the marks and names
"Koosh," "OddzOn" and "SureBet", all variants thereof, trade styles, service
marks, service names, and all goodwill associated therewith, copyrights,
copyright applications and registrations and inventions (including, but not
limited to, all such items more particularly described in Schedule 1(a)(vi)),
advertising materials, designs, sketches and art work together with all
commercial and technical trade secrets, engineering, production and other
designs, drawings, specifications, formula, technology, computer and electronic
data processing programs and software, processes, know-how, confidential
information and other proprietary property, rights and interests of
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Seller used, useful or usable in the Business (hereinafter collectively
referred to as the "Intellectual Property");
(vii) all of Seller's licenses, permits,
variances, franchises, notices, authorizations and approvals which relate to
the Business including, without limitation, those for all equipment and
Intellectual Property, from all Federal, state, local and foreign authorities
and all other third parties (hereinafter collectively referred to as the
"Permits") to the extent such Permits are transferable;
(viii) all machinery, equipment, furniture
and fixtures, improvements, computer hardware and software, tools, molds,
printing plates, parts, accessories, supplies and plant and office equipment
owned by Seller and used, useful or usable in the conduct of the Business,
including, without limitation, those items described more fully in Schedule
1(a)(viii) hereto (the "Equipment"), together with any rights or claims of
Seller arising out of any express or implied warranty by the manufacturers or
sellers of any such assets or any component part thereof, including any claims
for past breaches thereof;
(ix) all existing financial, accounting and
operating data and records relating to the Business, including, without
limitation, all books, records, notes, sales and sales promotional data, credit
information, cost and pricing information, advertising data, blueprints,
customer and supplier lists, business plans, reference catalogs, payroll and
personnel records and other similar property, rights, and information (provided
that Seller may retain the original copies of its tax returns and attachments
thereto, accounts receivable records and other records related to the Excluded
Assets and the Retained Liabilities (as each such term is hereinafter defined),
and shall provide Buyer with copies of all such materials);
(x) all existing inventions, whether or not
now reduced to practice, which Seller, Stillinger or Button, together or
individually, alone or in combination with each other or with others have made
which relate in any way, shape, form or manner to the product sold under the
mark "Koosh" or any other mark used by Seller in the Business, including,
without limitation, all improvements on the inventions, patents, patent
applications or variations thereof which are the subject of such patents,
patent applications or variations, whether or not such improvements or
variations are infringements of the patents or patent applications or
inventions assigned hereunder; and
(xi) any and all goodwill and going concern
value of the Business and the Seller.
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<PAGE> 9
The assets to be sold, conveyed, assigned,
transferred and delivered to Buyer by Seller pursuant to this Agreement are
hereinafter collectively referred to as the "Assets".
(b) Notwithstanding the foregoing, the Assets shall
not include the following specific properties, assets, and rights of Seller,
which are sometimes referred to collectively herein as the "Excluded Assets":
(i) all cash and cash equivalents;
(ii) all marketable and other investment
securities;
(iii) all items of obsolete or unusable
inventory, including raw material and component parts not included in the
Inventory, as determined by Buyer in its sole discretion and set forth on
Schedule 1(b)(iii) (which Schedule sets forth a description of each category of
(A) obsolete, and (B) unusable inventory, under separate headings for each of
"(A)" and "(B)");
(iv) all trade accounts receivable
("Receivables");
(v) one "Koosh Ball" manufacturing machine,
to be transferred to Stillinger; with respect to which Buyer is granting to
Stillinger a license to use such machine solely for personal purposes and,
subject to the terms of his consulting agreement with Buyer as provided by
subsection 10(j), for purposes of new product development, which license is
included in the terms of the "Koosh Ball" manufacturing machine license
agreement attached hereto as Exhibit 10(j)(ii); and
(vi) any of Seller's right, title, and
interest in and to its product known as "Floaties."
(c) Seller shall deliver or cause to be delivered
to Buyer such deeds, bills of sale, endorsements, assignments and other good
and sufficient instruments of transfer, conveyance and assignment in such form
as Buyer or Buyer's counsel shall reasonably request to effect or evidence the
sale, conveyance, assignment, transfer and delivery of the Assets to Buyer.
(d) Anything contained herein to the contrary
notwithstanding, this Agreement shall not constitute an agreement to assign any
Assumed Contract, Real Estate Lease, Permit or any right to be assigned to
Buyer pursuant to the provisions hereof if an assignment or attempted
assignment of the same without the consent of the other party or parties
thereto would constitute a breach thereof or in any way impair the rights of
Buyer thereunder. Seller shall use its reasonable best efforts and Buyer shall
cooperate in all reasonable respects with Seller to obtain all
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<PAGE> 10
consents and waivers and to resolve all impracticalities of assignments or
transfers necessary to convey to Buyer the Assets. If such consent is not
obtained or if an attempted assignment would be ineffective or would impair
Buyer's rights under any such Assumed Contract, Real Estate Lease, Permit or
any right to be assigned to Buyer pursuant to the provisions hereof so that
Buyer would not receive all such rights, and Buyer waives its condition to
Closing contained in subsection 10(f) hereof insofar as such consent has not
been obtained prior to Closing, Seller shall use its best efforts to provide or
cause to be provided to Buyer the full benefits of any such Assumed Contract,
Real Estate Lease, Permit or any right to be assigned to Buyer pursuant to the
provisions hereof. Seller shall promptly pay or cause to be paid to Buyer when
received all monies received by Seller with respect to any such Assumed
Contract, Real Estate Lease, Permit or any right to be assigned to Buyer
pursuant to the provisions hereof. In consideration of Seller providing or
causing to be provided to Buyer the full benefits of any such Assumed Contract,
Real Estate Lease, Permit or any right to be assigned to Buyer pursuant to the
provisions hereof, Buyer shall (subject to the provisions of the second
sentence of subsection 2(a) hereof) perform and discharge on behalf of Seller
all of Seller's debts, liabilities, obligations or commitments thereunder
arising from and after the Closing in accordance with the provisions thereof.
SECTION 2. Limited Liabilities to be Assumed.
(a) Assumption. Subject to the terms and
conditions set forth herein, and in reliance upon the representations,
warranties and covenants contained herein, and in consideration for the sale,
conveyance, assignment, transfer, and delivery of the Assets to Buyer, on the
Closing Date Buyer shall assume and undertake to pay, perform and discharge
when due (i) all of the liabilities, obligations or commitments of Seller
arising under the Assumed Contracts, Real Estate Leases and Permits from and
after the Closing Date; (ii) to the extent that each such liability is taken
into account in reducing the Base Purchase Price, the Pro-Rated Liabilities (as
each such term is defined herein); and (iii) product liability claims with
respect to products manufactured or sold by the Seller prior to the Closing
(the "Assumed Liabilities"). In no event shall the Assumed Liabilities include
any liabilities for defaults (or events which constitute breaches and, upon
notice and/or the passage of time, or both, would become defaults) under the
Assumed Contracts, Real Estate Leases or Permits existing as of the Closing
Date or any liabilities thereunder accrued as of the Closing Date. Except for
the Assumed Liabilities, and except to the extent otherwise provided in
subsection 8(o) with respect to certain post-Closing liabilities, all
obligations, debts, commitments or liabilities relating to, arising out of or
in connection with the operation of the Business and/or of Seller on or prior
to the Closing Date, whether known or unknown, fixed, contingent or otherwise,
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<PAGE> 11
including, but not limited to, the payment of all employee wages and fringe
benefits and contributions to Seller's profit sharing, bonus or similar plans
for periods and occurrences up to and including the Closing Date and any and
all retrospective adjustments to premiums for workmen's compensation insurance
for premium periods up to and including the Closing Date (collectively, the
"Retained Liabilities"), shall be retained by Seller and shall not be assumed
by Buyer.
(b) Instruments of Assumption. Buyer shall
execute and deliver to Seller such written instruments of assumption to effect
or evidence its assumption of the Assumed Liabilities in such form as Seller or
Seller's counsel shall reasonably request.
SECTION 3. Purchase Price and Certain Other Payments.
(a) Purchase Price. In consideration for the
sale, conveyance, assignment, transfer and delivery of the Assets, Buyer shall:
(i) pay to Seller:
(A) Nineteen Million Five Hundred
Thousand dollars ($19,500,000), as adjusted pursuant to the provisions of
subsection 3(b)(i) (the "Base Purchase Price"), for the Assets, excluding
Inventory and Prepaid Assets, payable as set forth below in subsection 3(b);
and
(B) The amount due for the
Inventory and Prepaid Assets, determined and payable in accordance with
subsections 3(c) and 3(d) below, respectively.
(ii) pay to Seller any amounts due under the
earnout provisions of subsection 3(e) (the "Earnout Provisions").
(iii) assume the Assumed Liabilities.
(b) Payment of Base Purchase Price. At the
Closing:
(i) Buyer shall pay to Seller Eighteen
Million Five Hundred Thousand dollars ($18,500,000) of the Base Purchase Price,
reduced by the amount, as of the close of business on the Closing Date, of
those liabilities of Seller to be pro-rated at Closing and assumed by Buyer, as
each such category of liabilities is set forth on Schedule 15. The actual
amount of each such liability as of the close of business on the Closing Date
shall be set forth on a schedule prepared by Seller and agreed to by Buyer at
the Closing (the "Pro-Rated Liabilities").
(ii) One Million dollars ($1,000,000) (the
"Deferred Payment") of the Base Purchase Price shall be paid by the
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Buyer to the Escrow Agent pursuant to the terms of the Escrow Agreement
described in subsection 3(g) below.
(c) Inventory Purchase Price. At the Closing,
Buyer shall pay Seller an amount (the "Estimated Inventory Payment") equal to
seventy-five percent (75%) of a good faith estimate made by Seller and Buyer of
the Value (as defined below) as of the close of business on the Closing Date of
the Inventory, which Inventory is identified by type on Schedule 3(c)(I)
hereto. On or about the Closing Date, Seller shall conduct, in accordance with
the procedures set forth in Schedule 3(c)(II) hereto, and Buyer may observe, a
physical counting of the inventory of Seller. Within five (5) business days
following completion of the counting of the inventory, Seller shall, based upon
the actual count, deliver to Buyer a schedule identifying the Inventory and
setting forth the Value (defined below) thereof (the "Inventory Schedule").
The Inventory Schedule shall exclude all items of Inventory which Buyer has
previously informed Seller are obsolete or unusable (provided, however, that
Buyer shall not designate any items as obsolete or unusable unless such items
are included in one of the categories set forth on Schedule 1(b)(iii) or such
item has been returned by any customer after September 16, 1994). The Buyer
agrees that, as of September 16, 1994, the book value of the obsolete or
unusable inventory does not exceed ten percent (10%) of the aggregate book
value of all of Seller's inventories on that date. The Inventory Schedule shall
be subject to review and acceptance by Buyer. Buyer will review the Inventory
Schedule and provide its acceptance or rejection within five (5) business days
from receipt of the Inventory Schedule. If Buyer rejects the Inventory
Schedule, Buyer will specifically state the reasons for such rejection. Seller
and Buyer shall then discuss the reasons for the rejection and shall use their
best efforts to reasonably agree upon the value of any item included within the
Inventory. If the Value of the Inventory exceeds the Estimated Inventory
Payment, Buyer shall pay to Seller by delivery of a check payable to Seller as
promptly as practicable but in any event no later than 30 days after the
Closing an amount equal to such excess. The aggregate of the Estimated
Inventory Payment together with any additional amount paid to, or less any
additional amount paid by, Seller pursuant to the preceding sentence is
referred to as the "Total Inventory Payment." If the Estimated Inventory
Payment exceeds the Value of the Inventory, Seller shall, as promptly as
practicable but in any event no later than 30 days after the Closing, refund to
Buyer Buyer's overpayment for the Inventory by check payable to the order of
Buyer in an amount equal to such excess. For purposes of this subsection 3(c),
"Value" shall mean the book value (lower of cost or market) of the Inventory as
of the close of business on the Closing Date, determined in accordance with
generally accepted accounting principles, consistently applied. Each of Seller
and Buyer shall be responsible for its own costs incurred in connection with
the physical inventory and the valuation of the Inventory.
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<PAGE> 13
(d) Payment for Prepaid Assets. At the Closing, the
Buyer shall pay to Seller a sum equal to the book value, net of reserves, of
the Prepaid Assets set forth on Schedule 1(a)(iv) as of the close of business
on the Closing Date, mutually determined by the parties in accordance with
generally accepted accounting principles.
(e) Earnout Provisions. (i) For purposes of this
subsection 3(e):
(A) "Base Amount" shall mean $3,500,000.
(B) "Operating Profit" shall mean the profits of
the Business, considered as a separate entity, during a specified time period,
determined in accordance with generally accepted accounting principles
consistent with Buyer's practices. The determination of Operating Profit shall
take into account, among other things, (i) interest expense or income of the
Business on outstanding inter-company balances received from or credited to any
parent or affiliated corporation, excluding any acquisition interest
attributable to the acquisition of the Business or any amount payable to Seller
with respect to outstanding Receivables pursuant to subsection 8(h), at the
prime rate announced from time to time by the Bank of New York, (ii) the
commission payments and/or receipts referred to in subsection 3(e)(iii) hereof,
and (iii) all bonus and other employee expenses incurred with respect to the
Business (including, without limitation, any bonus payable pursuant to the
terms of any employment agreement). The determination of Operating Profit shall
not take into account (i) purchase price adjustments relating to the
acquisition of the Business (such as goodwill amortization and amortization of
covenants not to compete), (ii) any election by Buyer to step-up the basis of
the Assets by reason of the acquisition of the Business, (iii) allocations of
indirect overhead of Buyer or any affiliate thereof, and (iv) expenses related
to the transactions contemplated hereby (other than ongoing expenses under any
consulting or employment agreement contemplated hereby).
(ii) For each of the five calendar years beginning
with the calendar year commencing January 1, 1995, Buyer shall pay Seller (or
such persons as Seller may assign its rights to receive such amounts pursuant
to Section 18(a), as Seller may designate in writing to Buyer) an earnout equal
to five percent (5%) of the amount, if any, by which the Operating Profit for
the calendar year exceeds the Base Amount (the "Earnout"). The determination
of Operating Profit for each calendar year and the payment of the Earnout for
that calendar year by the Buyer shall take place not later than March 31 of the
following year. The payment by Buyer shall be accompanied by a statement
setting forth, in reasonable detail, the calculation of the Operating Profit
and Earnout amount due. Seller, Shareholders and their designee shall then have
the right, promptly after delivery of such statement, to review such
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<PAGE> 14
statement and the records related thereto. If Seller or the Shareholders, or
any of them, disagrees with the calculation of the Earnout payment, such
persons shall, within sixty (60) days of delivery of the statement, give
written notice of such disagreement to Buyer, stating the reasons therefor.
Buyer and Seller shall then endeavor to resolve any such disagreements in good
faith.
(iii) In the event that Russ or any of Russ's
affiliates (other than Buyer) sell products of the Business during any calendar
year, the determination of Operating Profit for such year shall take into
account a commission payable to the Business at the rate of three percent (3%)
of the net sales of such products. In the event that the Business sells
products of Russ or Russ's affiliates (other than Buyer) during any calendar
year, the determination of Operating Profit for such year shall take into
account a commission payable to Russ or Russ's affiliates at the rate of three
percent (3%) of the net sales of such products. Products purchased by either
party from the other for resale shall be purchased (or shall be deemed to have
been purchased) at the selling party's cost of such products.
(iv) If Buyer makes any significant structural or
operational change in the Business (including, but not limited to, any
dissolution, merger or sale of substantially all of the assets acquired from
the Seller) which materially affects Operating Profit, adjustments will be made
to the earnout formula as set forth in this subsection 3(e) so that any such
structural change will not have an impact (negative or positive) on the
Earnout. Such adjustments shall be determined by the Chief Financial Officer of
Russ, acting in good faith. Written notice of any such adjustment, together
with an explanation thereof, shall be given to Seller and the Shareholders not
later than the date of delivery of the statement setting forth the Operating
Profit and the Earnout amount provided for in subsection 3(e)(ii). If Seller or
the Shareholders, or any of them, disagrees with any such adjustment, they
shall, within sixty (60) days of delivery of such notice from Buyer or Russ,
give written notice of such disagreement to Buyer, stating the reasons
therefor. Buyer and Seller shall then endeavor to resolve any such
disagreements in good faith. If any such disagreement is not resolved within
thirty days of the date upon which notice of disagreement was delivered to
Buyer, the parties shall submit such disagreement related to the disputed
adjustment(s) to a major independent public accounting firm acceptable to both
parties for final resolution of such disagreement, which final resolution shall
be binding on the parties. The fees and expenses of such independent public
accounting firm shall be shared equally by Buyer and Seller. For purposes of
this subsection 3(e)(iv) only, the term "material" shall mean any change or
changes which in the aggregate affect Operating Profit by at least $100,000
with respect to any one year or, to the extent not previously adjusted for, any
change or
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changes which in the aggregate affect Operating Profit by at least $300,000.
(f) Method of Payment. Unless otherwise specified
herein, all payments to be made by Buyer pursuant to Section 3 of this
Agreement shall be made by wire transfer to one or more accounts designated by
Seller.
(g) Escrow. On the Closing Date, Seller, Buyer,
Shareholders and The Bank of New York ("Escrow Agent") shall enter into an
agreement substantially in the form of Exhibit 3(g) (the "Escrow Agreement"),
providing for the terms of the escrow under which the Deferred Payment will be
held and released.
SECTION 4. Closing.
The closing of the transactions contemplated hereby
(the "Closing") shall take place at the offices of McCarter & English, Newark,
New Jersey not later than the later of (i) 10:00 a.m. local time on September
30, 1994, or (ii) the tenth business day following receipt by the parties of
all government or other regulatory approvals required for consummation of the
transactions contemplated hereby including, without limitation, the expiration
of all waiting periods under the Hart-Scott-Rodino Antitrust Improvements Act
of 1976, as amended (the "HSR Act"), but in no event later than October 30,
1994 unless otherwise agreed to in writing by the parties hereto (such time and
date of the Closing being herein called the "Closing Date"). Each of the
parties agrees to use their reasonable best efforts to assure that the Closing
will occur on September 30, 1994. The Closing shall be effective immediately
upon its occurrence. Notwithstanding the foregoing, any provision of this
Agreement which provides for an accounting with respect to the assets and/or
liabilities of the Business at Closing or on the Closing Date shall be measured
as of 8:00 p.m. New York time (5:00 p.m. Pacific Time) on the Closing Date (the
"close of business").
SECTION 5. Representations and Warranties of Seller and the Shareholders.
Seller and the Shareholders hereby jointly and
severally represent and warrant to Buyer as follows:
(a) Corporate Organization and Authority. Seller
is a corporation duly incorporated, validly existing and in good standing under
the laws of the State of California. Seller is qualified to do business as a
foreign corporation and is in good standing in each jurisdiction in which it
owns or leases real property or maintains an office or in which the failure so
to qualify would have a material adverse effect on Seller, the Business or the
Assets. A list of such jurisdictions is set forth on Schedule 5(a) annexed
hereto. Schedule 5(a) correctly sets
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forth, in addition, the record and beneficial owners of all of the issued and
outstanding shares of capital stock of Seller, and of all of the units issued
pursuant to Seller's phantom stock plan. There are no outstanding obligations
of Seller or the Shareholders to issue or sell any capital stock or other
securities of Seller (including any securities convertible into or exchangeable
for, or options or other rights to acquire, such capital stock or other
securities). Seller has full corporate power and authority to carry on the
Business as it is currently conducted and to own, lease and operate the Assets
where and in the manner in which such Assets are now owned, leased or operated.
Except as set forth in Schedule 5(a) hereto, Seller does not own any equity
interest in any other entity and the Business has not been conducted through
any direct or indirectly owned subsidiary or affiliate of Seller or the
Shareholders.
(b) Corporate Authorization. Seller has full
corporate power and authority to execute, deliver and perform this Agreement
and all other agreements, instruments and documents to be executed and
delivered by Seller in connection herewith (collectively, the "Ancillary Seller
Documents") and to consummate the transactions contemplated hereby and thereby.
This Agreement has been and all Ancillary Seller Documents have been or will
be, on or prior to the Closing Date, duly authorized, executed and approved by
all necessary and proper corporate action of Seller. The transactions
contemplated by this Agreement and all Ancillary Seller documents have been
approved by the shareholders of Seller. This Agreement constitutes a legal,
valid and binding obligation of each of Seller and the Shareholders, and each
Ancillary Seller Document to be delivered in connection herewith, when executed
and delivered, will constitute, a legal, valid and binding obligation of Seller
and the Shareholders, enforceable against them in accordance with their
respective terms (except that Seller and Shareholders make no representation
and warranty as to the enforceability of the covenant not to compete contained
in subsection 8(p) hereof).
(c) No Violation or Conflict. Except as set
forth on Schedule 5(c), neither the execution and delivery of this Agreement or
any Ancillary Seller Document by Seller and/or Shareholders nor the
consummation of the transactions contemplated hereby will violate, conflict
with, result in the breach or modification of, or default under, or accelerate
the performance required by, any of the terms, conditions or provisions of the
Certificate of Incorporation or other charter document or By-Laws of Seller, or
any term, provision, covenant or condition of any agreement or understanding to
which Seller is a party or to which Seller's assets are subject, or any order,
ruling, injunction, decree, judgment, arbitration award or stipulation or any
law to which Seller or any of its assets are subject, or which would result in
the creation or imposition of any lien, mortgage, security interest, pledge,
charge, easement, right of avoidance,
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imperfection of title, claim or other restriction or encumbrance (each an
"Encumbrance") thereunder upon any of the Assets or give to any person or
entity any interest or right, including any right of acceleration, termination
or cancellation in or with respect to or otherwise materially affect, any of
the Assets (including, without limitation, the Assumed Contracts, Real Estate
Leases and Permits) or the business operations or financial condition of
Seller. Neither Shareholder nor Seller are parties to any contract,
understanding or ongoing negotiation or discussion with any person or entity
other than Buyer concerning any Transaction (as hereinafter defined) involving
Seller.
(d) Consents, Approvals, Permits and
Authorizations. Except as set forth on Schedule 5(d) hereto, and except with
respect to the filing required under the HSR Act, no consent, approval or
authorization of, filing or registration with, or notification to, any
judicial, governmental, public or regulatory body or authority is required in
connection with the execution and delivery of this Agreement or any Ancillary
Seller Document by Seller or the consummation by Seller of the transactions
contemplated hereby and by the Ancillary Seller Documents including, without
limitation, the assignment by Seller, and assumption by Buyer of the Permits,
or for the continuation by Buyer of the Business after the Closing in the same
manner as presently conducted or proposed to be conducted. Except as set forth
in Schedule 5(d) hereto, no consent, approval or authorization of any person,
partnership, corporation or other entity is required in connection with the
execution or delivery of this Agreement or any Ancillary Seller Document by
Seller or the consummation by Seller of any of the transactions contemplated
hereby, including, without limitation, the assignment by Seller, and assumption
by Buyer of the Assumed Contracts and the Real Estate Leases, or for the
continuation by Buyer of the Business after the Closing in the same manner as
presently conducted or proposed to be conducted. Except as set forth on
Schedule 5(d) hereto, Seller has no, nor is Seller required by applicable Law
(as defined in subsection 5(i) hereof) to have any, licenses, permits, product
approvals or registrations, authorizations, franchises or other approvals from
any domestic (federal, state or local) or foreign governmental, public or
regulatory body or authority which relate specifically to the Assets or the
Business and not generally to Seller.
(e) Financial Statements. The compiled balance
sheets of Seller as of December 31, 1992 and December 31, 1993, and the related
statements of income and retained earnings and cash flows for the years then
ended, are attached hereto as Schedule 5(e)(i). The balance sheet of Seller as
of June 30, 1994 and the related statements of income and retained earnings for
the six months then ended are attached as Schedule 5(e)(ii). Except as set
forth in Schedule 5(e)(iii), each of such balance sheets is complete and fairly
presents the financial position of Seller as at
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the date thereof and the related statements of income and retained earnings and
cash flows are complete and fairly present the results of Seller for the
periods referred to therein in all material respects, in each case in
conformity with generally accepted accounting principles consistently applied.
Each of such financial statements was prepared from the books, accounts and
financial records of Seller. Except as set forth in Schedule 5(e)(iv) hereto,
each balance sheet makes full and adequate provision for all obligations or
liabilities (fixed and contingent) of Seller required to be reserved against in
the balance sheet or disclosed in the notes thereto in accordance with
generally accepted accounting principles, consistently applied, as of the
respective dates thereof.
(f) Leased Real Property.
(i) The list of Real Estate Leases set
forth on Schedule 1(a)(v) is true, complete and accurate, and Seller has
delivered to Buyer a true and complete copy of each Real Estate Lease. Seller
is not in default nor does any breach by Seller exist under any Real Estate
Lease, nor has any event occurred which, with the giving of notice or the lapse
of time or both, would constitute a default by Seller under any Real Estate
Lease, nor has Seller received any notices concerning any of the foregoing. No
landlord which is a party to any Real Estate Lease has committed any event of
default thereunder, and no event has occurred which with the passage of time or
the giving of notice or both would result in the occurrence of such an event of
default. Except as set forth on Schedule 5(f), Seller has complied in all
material respects with the provisions of each Real Estate Lease. Neither
Seller nor, to the knowledge of Seller, any landlord, is in arrears in respect
of the performance or satisfaction of the terms or conditions on its part to be
performed or satisfied under any of such Real Estate Leases and no waiver or
indulgence has been granted by any of the parties thereto. Each Real Estate
Lease is valid, in full force and effect and enforceable in accordance with its
terms. Except as set forth on Schedule 5(f), each of the Real Estate Leases
listed on Schedule 1(a)(v) is assignable by Seller to Buyer without the consent
of the other parties thereto.
(ii) There is neither pending nor is
Seller aware of any threatened condemnation, eminent domain or similar
proceeding with respect to the Premises.
(iii) The Premises and the activities which
have been conducted by Seller thereon, comply with all applicable Laws (as
such term is hereinafter defined).
(g) Personal Property.
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<PAGE> 19
(i) Except as set forth in Schedule 5(g)
hereto, and except in regard to any Excluded Asset, Seller owns in fee and has
and will convey to Buyer good and marketable title to the personal properties
included in the Assets, free and clear of all Encumbrances.
(ii) The Inventory is of a quality usable in
the ordinary course of Seller's Business as conducted immediately prior to the
Closing Date. All items of Inventory have been, and as of the Closing, will
have been, acquired in the ordinary course of business from unaffiliated third
parties in customary quantities and at prevailing prices or manufactured in the
ordinary course of business by Seller.
(h) Assumed Contracts. The list of Assumed
Contracts set forth on Schedule 1(a)(iii) is true, complete and accurate, and
Seller has delivered to Buyer a true and complete copy of each written Assumed
Contract and a true and complete description of each oral Assumed Contract. All
the Assumed Contracts were entered into in the ordinary and usual course of the
Business. Seller is not in default nor does any breach by Seller exist under
any Assumed Contract, nor has any event occurred which, with the giving of
notice or the lapse of time or both, would constitute a default by Seller under
any Assumed Contract, nor has Seller received any notices concerning any of the
foregoing. To Seller's knowledge, no other party to any Assumed Contract has
committed any event of default thereunder, and no event has occurred which with
the passage of time or the giving of notice or both would result in the
occurrence of such an event of default. Except as set forth on Schedule 5(h),
Seller has complied in all material respects with the provisions of each
Assumed Contract. Neither Seller nor, to the knowledge of Seller, any other
party, is in arrears in respect of the performance or satisfaction of the terms
or conditions on its part to be performed or satisfied under any of such
Assumed Contracts and no waiver or indulgence has been granted by any of the
parties thereto. Each Assumed Contract is valid, in full force and effect and
enforceable in accordance with its terms. Except as set forth on Schedule
5(h), each of the Assumed Contracts listed on Schedule 1(a)(iii) is assignable
by Seller to Buyer without the consent of the other parties thereto. With
respect to each Assumed Contract between Seller and any sales representative,
Schedule 5(h) sets forth the sales volume of each sales representative for the
calendar years ended December 31, 1992 and 1993. Schedule 5(h) contains a true,
complete and accurate list of all agreements between Seller and customers,
distributors and any other third parties which provide for the consignment of
products by Seller and/or the repurchase of unsold product by Seller, including
repurchases by means of exchange for and/or the granting of credits towards the
purchase of new products.
(i) Compliance With Applicable Laws and
Regulations; Environmental Matters. (A) Except as disclosed by
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Seller to Buyer in Schedule 5(i), Seller has complied in all material respects
with all laws, regulations, rules, orders, judgments, decrees and other
requirements imposed by Federal, state, local and foreign governmental
authorities applicable to it in the operation or ownership of Seller and the
Assets, including without limitation, all such laws, regulations, rules,
orders, judgments, decrees and other requirements relating to matters of
environmental protection, pollution, sanitation, conservation, hazardous
substances, pollutants or contaminants and to matters of antitrust, trade,
employment, labor, non-discrimination, safety and health, and zoning and
building codes (collectively, "Laws"). Seller has disclosed or will disclose to
the U.S. Customs Service possible liabilities, if any, concerning Products
previously imported into the United States by Seller. Seller acknowledges that
any liability related thereto shall constitute a Retained Liability.
(B) Schedule 5(i) hereto lists all notices to Seller of environmental
violations or environmental claims and all reports made by Seller to federal,
state and local environmental agencies since January 1, 1990 and Seller has
delivered to Buyer true and correct copies of all such notices, claims and
reports. Except as set forth on Schedule 5(i):
(a) Seller has not conducted or operated and
currently does not conduct or operate on any real property, wherever located,
and there is not currently conducted or operated by Seller and there has never
been conducted or operated by Seller on any real property, any storage areas,
drum storage areas, surface impoundments, incinerators, land fills, tanks,
lagoons, ponds, waste piles, or deep well injection systems for the purpose of
treatment, storage or disposal of hazardous waste as defined by the Federal
Resource Conservation and Recovery Act, as amended ("RCRA");
(b) Seller has not transported for off site
disposal any hazardous waste or substance as defined in either RCRA or the
Federal Comprehensive Environmental Response, Compensation and Liability Act,
as amended ("CERCLA"), or entered into any contract or agreement, or otherwise
arranged, for the transportation, storage, or disposal of any such hazardous
substance or waste at any off site treatment, storage or disposal facility;
(c) There has been no spill, release or discharge
by Seller of any hazardous substance, as the term is defined in CERCLA or in
the Federal Superfund Amendment and Reauthorizations Act of 1986 ("SARA") or of
a hazardous waste, as the term is defined in RCRA, resulting from Seller's
operation of any of the Assets or conduct of the Business which would (i)
constitute or have constituted a violation of Law, or (ii) give rise to an
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obligation by Seller, its assigns or its successors in interest to effect any
environmental cleanup or remediation; and
(d) No federal, state or local government or
agency has asserted or created an Encumbrance upon any or all of the Assets or
the Premises as a result of any use, spill, release, discharge or cleanup of
any hazardous substance or waste, as those terms are defined in CERCLA, SARA or
RCRA, nor has any such use, spill, release, discharge or cleanup occurred which
could result in the assertion or creation of such an Encumbrance.
(j) Taxes. Except as provided in Section 8(b),
there are and by reason of the consummation of the transactions contemplated
hereby there will be no Tax (as defined below) liabilities of Seller and/or
Shareholders which could result in any transferee liability to Buyer or could
attach to the Assets. Seller and/or Shareholders have paid or will pay when
due all Taxes relating to Seller or to Business or the Assets which are payable
for the periods (or the portion thereof) up to and including the Closing Date.
Seller's election as an S Corporation (within the meaning of Section 1361 of
the Code (as hereinafter defined)) is valid and effective and has been valid
and effective since the date of its adoption and has been consistently
reflected on Seller's filings with the Internal Revenue Service and other
applicable taxing authorities. Seller and/or Shareholders have filed, or will
file when due all Federal, state, local and provincial and other foreign
income, franchise and other Tax reports and returns required to be filed by
Seller and/or Shareholders relating to Seller or the Business or the Assets for
the periods (or the portion thereof) up to and including the Closing Date.
There is no unpaid assessment or proposed assessment by any taxing authority
for additional Taxes. There are no Encumbrances for Taxes upon the Assets.
Other than with respect to the calendar year 1991, for which an Internal
Revenue Service audit is in progress, there have been no audits of any of
Seller's Tax returns for the past five (5) years. There have been no extensions
of the statutes of limitations applicable to the assessment of additional Taxes
granted by Seller during the past five years. As used in this Agreement, "Tax"
or "Taxes" shall mean taxes of any kind to the extent properly due and payable
to any taxing authority of the United States (federal, state or local) or any
other country or jurisdiction including, without limitation, (a) income, gross
receipts, ad valorem, value added, sales, use, service, franchise, profits,
real or personal property, capital stock, license, payroll, withholding,
employment, social security, workers compensation, unemployment compensation,
utility, severance, production, excise, stamp, occupation, premium, windfall
profits, transfer and gains taxes, (b) customs duties, imposts, charges,
levies, or other assessments of any kind, (c) interest, penalties, and
additions to tax imposed with respect to the above taxes, and (d) any damages,
costs, expenses, fees or other liability arising from such Tax or Taxes.
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(k) Litigation. Except as set forth on Schedule
5(k), Seller has not received notice that it is engaged in or a party to, and
to its knowledge Seller is not engaged in or a party to, any legal or
administrative action, suit, investigation or other proceeding by or before any
court, arbitrator or administrative agency ("Litigation") against, relating to
or affecting Seller, the Business, the Assets or the transactions contemplated
hereby, and no such Litigation has been threatened. To the best knowledge of
Seller and Shareholders, there is no basis for any such Litigation. Except as
set forth on Schedule 5(k), there are no outstanding orders, injunctions,
awards, rulings, decrees, judgments or stipulations to which Seller is a party
or by which Seller, the Business or the Assets are bound, by or with any court,
arbitrator or administrative agency, any of which orders, rulings, decrees,
judgments or stipulations relate to Seller, the Business or the Assets or
challenge or otherwise relate to the transactions contemplated by this
Agreement. Schedule 5(k) sets forth a true, complete and accurate list of all
Litigation since January 1, 1990 involving the Seller, the Business and/or
Assets (including, but not limited to, the Products and the Intellectual
Property). Except as set forth on Schedule 5(k), since January 1, 1990 no
product liability claims with respect to the Seller's products have been filed
under the Seller's insurance policies and the Seller is not and has not been a
party to any Litigation relating to any product liability claims and, to
Seller's and Shareholders' knowledge, no such Litigation is threatened. Except
as set forth on Schedule 5(k), there have been no voluntary recalls for safety,
labeling, health or any other reasons or required product recalls or
notifications with respect to the products of Seller made by any governmental,
administrative or regulatory instrumentality, body or agency.
(l) Intellectual Property. Except as set forth
on Schedule 5(l), Seller owns, or is licensed or otherwise has the right to
use, the Intellectual Property free and clear of any payment or Encumbrance,
and no event has occurred which, with notice or the passage of time, or both,
would allow any party to exercise any right of reversion with respect to any
Intellectual Property. A complete and correct listing of all patents, patent
applications, trademarks, trademark applications and registrations, trade
names, trade styles, service marks, service mark applications, service names,
copyrights and copyright applications and registrations included in the
Intellectual Property is set forth in Schedule 1(a)(vi). Except as set forth
on Schedule 5(l), all filings necessary prior to the date hereof to make or
continue to make all trademarks and trademark registrations valid have been
properly made. Except as set forth in Schedule 5(l), there is no claim or
demand of any person, firm or corporation pertaining to, or any proceedings
which are pending, or any unasserted claims or threatened proceedings of which
Seller is aware, which challenge the right of Seller in respect of any of the
Intellectual Property, and no such claims or demands have been made and no such
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proceedings have been pending since January 1, 1991. Except as set forth on
Schedule 5(l), no use of any of the Intellectual Property relating to the
Products sold by Seller prior to the Closing infringes or has infringed the
intellectual property rights of others, and, to Seller's knowledge, without
independent investigation, no use which is contemplated by Seller of any of the
Intellectual Property relating to the Products under development by the Seller
as of the Closing will infringe the intellectual property rights of others.
Except as set forth on Schedule 5(l), none of the Intellectual Property is
subject to any outstanding order, ruling, decree, injunction, restriction,
judgment or stipulation by any court, arbitrator or administrative agency, and
Seller has not received notice of any, and to Seller's knowledge there is no,
proceeding to subject any Intellectual Property thereto which is pending or
threatened. Schedule 5(l) sets forth the identities and/or a description of
all persons who, to Seller's knowledge, are currently infringing upon or
appropriating the Intellectual Property. Except as set forth on Schedule 5(l),
the Seller has paid and/or filed, as the case may be, all of its patent
maintenance fees and all trademark declarations, renewals and fees which were
due and/or payable prior to the date hereof, other than those which were
intentionally not paid or filed with respect to certain items of Intellectual
Property, none of which are listed on Schedule 1(a)(vi). Seller has not failed
to disclose to Buyer any agreement with Stillinger concerning Intellectual
Property transferred by Stillinger to Seller, including without limitation any
agreement containing a right of reversion of all or any part of such
Intellectual Property to Stillinger.
(m) Conduct of Business From and After June 30,
1994. Except as set forth in Schedule 5(m) hereto, from and after June 30,
1994 there has not been a change in Seller which has had an adverse effect on
the business, assets, operations or condition (financial or otherwise) of
Seller. Without limiting the generality of the foregoing, except as set forth
in Schedule 5(m), from and after June 30, 1994 Seller has caused the Business
to be conducted only in the ordinary course and has not (with respect to the
Business):
(i) incurred or entered into any
agreement or commitment which resulted or will result in an expenditure
exceeding $10,000, other than in the ordinary course of business or with the
approval of Buyer or its affiliate;
(ii) made any change in the rate of
compensation, commission, bonus or other direct or indirect remuneration
payable or to become payable to any director, officer, employee, distributor,
sales representative or agent of Seller, or agreed or orally promised to pay,
conditionally or otherwise, any bonus, extra compensation, pension, retirement,
allowance, severance or vacation pay or other employee benefit, to any such
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<PAGE> 24
director, officer, employee, distributor, sales representative or agent of
Seller;
(iii) sold, transferred, leased or otherwise
disposed of any of its assets, other than Inventory in the ordinary course of
the Business, or waived or released any rights with respect to the Business or
the Assets, or disclosed any confidential business information to any
prospective buyer other than Buyer;
(iv) amended in any material respect,
transferred or granted any rights under, or terminated any Assumed Contract,
Real Estate Lease or Permit, or with respect to the Intellectual Property;
(v) incurred, assumed, created, paid or
guaranteed any loan, liability or other obligation other than in the ordinary
course of the Business;
(vi) subjected any of the Assets to any
Encumbrance other than in the ordinary course of the Business or created or
consented to any Encumbrance;
(vii) suffered any damage, destruction or
casualty loss, or suffered the occurrence of any events which, individually or
in the aggregate, have had, or might reasonably be expected to have, a material
adverse effect on its financial condition, results of operations, assets,
properties, business or prospects;
(viii) changed any accounting practices or
policies or restated any historical financial information; or
(ix) entered into any agreement or commitment
(other than this Agreement or any arrangement provided for or contemplated in
this Agreement) to take any of the types of action described in subclauses (i)
through (viii) of this subsection 5(m).
(n) Employees. There is no labor strike, lockout
or work stoppage pending or threatened against or involving Seller. Except as
set forth on Schedule 5(n), and except for oral arrangements with its employees
at-will, who may be terminated by Seller with or without cause, Seller is not a
party to any contract for the employment of any employee employed by Seller or
collective bargaining agreement relating to any employee with respect to
Seller. There is no pending or, to the knowledge of Seller, threatened
representation question respecting any employees. Except as listed on Schedule
5(n), there are no disputes presently subject to any grievance procedure,
arbitration or litigation under such agreements, nor is there any default, or
any event which solely by notice and/or passage of time will become a default,
under any such agreements, by Seller or any other party thereto.
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No employee of Seller has delivered written or, to the knowledge of Seller,
oral notice of his or her intention to resign or retire. Schedule 5(n) hereto
sets forth the name, position, title or function, taxpayer identification
number and salary or wages, accrued severance and vacation pay as of the date
hereof with respect to each employee of Seller, and all severance pay and
vacation which will accrue as a result of the transactions contemplated hereby.
Seller has withheld all amounts required by Law or contract to be withheld from
the wages or salaries of the employees and is not liable for any arrears of
wages or any taxes or penalties for failure to comply with any of the foregoing
or for payment to any trust or other fund or to any authority with respect to
unemployment compensation, Social Security or other benefits for employees.
Seller has not engaged in any unfair labor practice or discriminated on the
basis of race, age, sex or otherwise in its employment conditions or practices
with respect to its employees or employee benefits. Except as set forth on
Schedule 5(n), each employee of Seller and, to Seller's and Shareholders'
knowledge, after due inquiry, each employee of R.H. Jones and Company, Seller's
manufacturing subcontractor, are lawful residents of the United States with
full authority to hold such jobs in compliance with all applicable Laws
(including, but not limited to, United States immigration Laws). None of Seller
or, to Seller's and Shareholders' knowledge after due inquiry, R.H. Jones or
any other subcontractor of Seller (including, but not limited to, any
subcontractor located in the People's Republic of China) utilizes slave, prison
or child labor with respect to the Products.
(o) Insurance. Schedule 5(o) sets forth a true
and complete list of all policies of insurance in force relating to Seller
(including its employees), the Business or the Assets setting forth the
applicable underwriter, type of coverage, policy number and policy periods.
All such policies set forth in Schedule 5(o) attached hereto are in full force
and effect; all premiums with respect thereto covering all periods up to and
including the date as of which this representation is being made have been
paid; and no notice of cancellation or termination has been received with
respect to any such policy. All such insurance policies will be maintained by
Seller and shall continue in full force and effect up to and including the
Closing Date. Seller has not failed to give any notice or present any claim
under any insurance policy in due and timely fashion, and there are no claims
by Seller against any of such policies as to which any insurance company is
denying liability or defending under a reservation of rights clause. Seller
has not received notice of, and to Seller's knowledge there are no, outstanding
requirements or recommendations by any insurance company that issued a policy
or by any Board of Fire Underwriters or other body exercising similar functions
or by any governmental authority requiring or recommending any repairs or other
work to be done or requiring or recommending any equipment or facilities to be
installed.
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<PAGE> 26
(p) Employee Benefit Plans. Schedule 5(p) sets
forth each pension, retirement, profit-sharing, deferred compensation, employee
reimbursement, stock bonus, phantom stock or other similar plan; each medical,
vision, dental or other health plan; each life insurance plan; each employment
agreement; each severance agreement or arrangement; each salary continuation
program; and any other employee benefit plan, including, without limitation,
any "employee benefit plan" ("ERISA Benefit Plan") as defined in Section 3(3)
of the Employee Retirement Income Security Act of 1974, as amended ("ERISA"),
which constitutes an obligation or liability of Seller and/or which Seller
sponsors for the benefit of any current or former employees (or their
beneficiaries) of Seller, or under which current or former employees (or their
beneficiaries) of Seller are eligible to receive benefits, (collectively, the
"Plans"). Seller has made available to Buyer complete and correct copies of
all Plans together with the most recent report on Form 5500 including schedules
thereto for each Plan required to file such report. All ERISA Benefit Plans
have been operated and maintained in compliance in all respects with the
provisions of ERISA, the Internal Revenue Code of 1986, as amended (the
"Code"), and the rules and regulations promulgated thereunder. There is no
pending or threatened litigation relating to the Plans. All contributions
required to be made on or prior to the Closing Date under the terms of any Plan
have or will be made. There is not, and as of the Closing Date there will not
be any, accumulated funding deficiency within the meaning of Section 412 of the
Code, whether or not waived with respect to any ERISA Benefit Plan. No plan
has engaged in a "prohibited transaction" (as defined in Section 406 of ERISA
and Section 4975 of the Code) with respect to which Seller could incur any tax
or liability for which an exemption has not been received from the Department
of Labor and/or the Internal Revenue Service, as applicable. No "reportable
event" (as that term is defined in Section 4043 of ERISA) for which the 30 day
reporting requirement has not been waived has occurred with respect to any
Employee Pension Benefit Plan subject to Title IV of ERISA which would subject
Seller or any of the Assets to any liability. Seller does not currently
participate in, has not incurred, does not expect to, and will not, as a result
of the transactions contemplated herein, incur any unpaid withdrawal liability
under any "multiemployer" plan as described under Section 4001(a)(3) of ERISA.
Seller has not in the past and does not presently discriminate with respect to
any Plan in violation of applicable Law (including, without limitation, ERISA).
Each employee of Seller participates in the medical, vision, dental or other
health Plans set forth on Schedule 5(p) (which Schedule designates any such
Plan in which fewer than all employees participate).
(q) Worker's Compensation; Unemployment
Insurance. Except as disclosed in Schedule 5(q), Seller is an employer in good
standing under California unemployment insurance and worker's compensation
laws. The worker's compensation and unemployment
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insurance ratings and contributions of Seller are set forth in Schedule 5(q)
hereto. Seller and/or Shareholders have no knowledge of any proposed increase
therein and know of no conditions or circumstances which might result in such
increase.
(r) Condition of Assets. The Premises and the
Equipment transferred to Buyer will on the Closing Date be well maintained and
in good working order. Except as set forth on Schedule 5(r), Seller has not
within the past three years made any, and there are no pending, claims against
suppliers or manufacturers of any of the Assets with respect to breach of
warranty or quality or condition of the Assets.
(s) Included Assets. The Assets to be
transferred to Buyer on the Closing Date include (i) all assets necessary to
enable Buyer to operate the Business in substantially the same manner as the
Business has been operated by Seller at all times since January 1, 1992, and
(ii) substantially all of the assets used in the Business (other than in each
case the Excluded Assets).
(t) Undisclosed Liabilities. There are no
liabilities or obligations whether accrued, absolute, contingent or otherwise
that may be asserted against Seller with respect to the Assets, the Business or
Seller except (i) Retained Liabilities and (ii) liabilities and obligations
which are disclosed in this Agreement and Schedules hereto.
(u) COBRA. Seller has complied in all respects
with the provisions of the Consolidated Omnibus Budget Reconciliation Act of
1985.
(v) Disclosure. No representation or warranty of
Seller contained in this Agreement and no Schedules attached hereto and no
schedule, instrument, certificate or other document to be delivered at the
Closing by Seller 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.
(w) Material Facts. The Shareholders have not
intentionally or recklessly failed to disclose any material facts about the
Business relevant to an analysis of the condition and operations of the
Business and Seller.
(x) Brokers or Finders. No broker or finder has
been involved in this transaction on behalf of Seller or the Shareholders and
neither Seller nor the Shareholders will be obligated to pay any brokers' or
finders' fees in connection with this transaction as a consequence of any
action or inaction on Seller's part.
(y) Books and Records. The books of account and
other financial and corporate records of Seller relating to the
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Business which are included in the Assets are in all material respects complete
and correct, are maintained in accordance with Seller's past business
practices, and are accurately reflected in the financial statements of Seller.
SECTION 6. Representations and Warranties of Buyer.
Buyer hereby represents and warrants to Seller and
the Shareholders as follows:
(a) Corporate Organization. Buyer is a
corporation duly incorporated, validly existing and in good standing under the
laws of the State of California. Buyer is not qualified to do business as a
foreign corporation and does not own or lease real property or maintain an
office in any other jurisdiction. Russ is the sole record and beneficial owner
of all of the issued and outstanding shares of capital stock of Buyer. There
are no outstanding obligations of Buyer to issue or sell any capital stock or
other securities of Buyer (including any securities convertible into or
exchangeable for, or options or other rights to acquire, such capital stock or
other securities). Buyer has full corporate power and authority to carry on
the Business as it is currently conducted and to own, lease and operate its
assets where and in the manner in which such assets are now owned, leased or
operated by the Buyer. Buyer does not own any equity interest in any other
entity.
(b) Corporate Authorization. Buyer has full
corporate power and authority to execute, deliver and perform this Agreement
and all other instruments and documents to be executed and delivered by Buyer
in connection herewith (collectively, the "Ancillary Buyer Documents") to
consummate the transactions contemplated hereby. This Agreement has been, and
all Ancillary Buyer Documents have been or will be duly authorized, executed
and approved by all necessary and proper corporate action of Buyer. This
Agreement constitutes a legal, valid and binding obligation of Buyer, and all
Ancillary Buyer Documents, when executed and delivered, will constitute, legal,
valid and binding obligations of Buyer enforceable against Buyer in accordance
with their respective terms.
(c) No Violation or Conflict. Neither the
execution and delivery of this Agreement by Buyer nor the consummation of the
transactions contemplated hereby will violate, conflict with, result in the
breach of or accelerate the performance required by any of the terms,
conditions or provisions of the Certificate of Incorporation or other charter
document or By-Laws of Buyer or any covenant, agreement or understanding to
which Buyer is a party or any order, ruling, decree, judgment, arbitration
award or stipulation to which Buyer is subject, or constitute a default
thereunder, or result in the creation or imposition of any Encumbrance
thereunder upon any of the properties
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or assets of Buyer, other than those which would not materially and adversely
affect Buyer's ability to consummate the transactions contemplated hereby.
(d) Consents, Approvals or Authorizations.
Except as set forth on Schedule 6(d), and except with respect to the filing
required under the HSR Act, no consent, approval or authorization of, filing or
registration with, or notification to, any judicial, governmental, public or
regulatory body or authority is required in connection with the execution and
delivery of this Agreement or any Ancillary Buyer Document by Buyer or the
consummation by Buyer of the transactions contemplated hereby. No consent,
approval or authorization of any person, partnership, corporation or other
entity is required in connection with the execution or delivery of this
Agreement or any Ancillary Buyer Document by Buyer or the consummation by Buyer
of any of the transactions contemplated hereby.
(e) Brokers or Finders. No broker or finder has
been involved in this transaction on behalf of Buyer and no party will be
obligated to pay any brokers' or finders' fees in connection with this
transaction as a consequence of any action or inaction on Buyer's part.
SECTION 7. Investigation by Buyer.
Until the Closing Date and subject to the terms of a
Confidentiality Agreement dated April 20, 1994, Buyer, through its agents and
employees, may conduct such investigation of the Business and the financial and
legal condition of the Business as Buyer may determine. During the course of
such investigation, Seller agrees to cause the facilities, books, records,
personnel, accountants, distributors, sales representatives and agents of
Seller to be made available for review (or interviews in the case of personnel,
accountants, distributors, sales representatives and agents) by such agents and
employees of Buyer during normal business hours on reasonable notice and to
provide or cause to be provided to Buyer such other information with respect to
Seller as Buyer shall reasonably request.
SECTION 8. Covenants.
(a) Preservation of Seller. Between the date
hereof and the close of business on the Closing Date, Seller and Shareholders
will use their reasonable best efforts (i) to cause the Business to be
conducted only in the ordinary course, (ii) to preserve the Business, Assets
and properties of the Business intact, (iii) consistent with efficient and
economical management, retain the services of the present employees,
distributors, sales representatives and agents of Seller and preserve the
business relationships with customers, suppliers and others, and (iv) not take,
or permit or suffer to be taken, any action that would cause
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or tend to cause the conditions upon the obligations of the parties hereto to
effect the transactions contemplated hereby not to be fulfilled; including,
without limitation, taking, causing to be taken, or permitting or suffering to
be taken or to exist any action, condition or thing that would cause the
representations and warranties made by them herein not to be true, correct and
accurate as of the Closing.
(b) Sales and Transfer Taxes. All transfer taxes
imposed upon the transfer of the Assets and any fees payable in connection with
such transfer shall be paid by the party upon whom the payment obligation
therefor is imposed by Law. Buyer shall execute and deliver to Seller at
Closing all applicable and properly completed sales/use tax exemption
certificates as Seller may reasonably request and prepare, including, but not
limited to, sale for resale exemption certificates for the transfer of any
Inventory purchased by the Buyer for resale.
(c) Further Assurances. From time to time after
the Closing, at Buyer's request and without further consideration (except
reimbursement for out-of-pocket costs), Seller and/or Shareholders shall
execute and deliver or cause to be executed and delivered such other and
further instruments of conveyance, assignment and transfer, and take or cause
to be taken such other action, as Buyer may reasonably require for the more
effective conveyance and transfer of the Assets to Buyer and the fulfillment of
Seller's obligations hereunder. From time to time after the Closing, at
Seller's request and without further consideration (except reimbursement for
out-of-pocket costs), Buyer will execute and deliver or cause to be executed
and delivered such other and further instruments of assumption and take such
other action as Seller may reasonably require for the more effective assumption
by Buyer of the Assumed Liabilities and the fulfillment of Buyer's obligations
hereunder.
(d) Post Closing Access; Preservation of Records.
From and after the Closing Date, Buyer shall make available to Seller, the
Shareholders, their agents and employees all books, records and documents
relating to the Business as carried on prior to the Closing Date (and, to the
extent relevant to any amounts payable following the Closing pursuant to
Sections 8, 9 or 15, after the Closing Date) during regular business hours as
may be reasonably requested by Seller and the Shareholders; provided, however,
that access to such books, records and documents shall not unreasonably
interfere with the normal operation of Buyer by Seller. Buyer shall preserve
all records and documents relating to the Business as carried on prior to the
Closing Date in good order for a period of seven (7) years from the Closing
Date.
(e) Best Efforts. Seller, Shareholders and Buyer
shall use their best efforts to cause to be fulfilled the
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conditions to their respective obligations set forth in Sections 10 and 11.
(f) Environmental Matters. From the date hereof
to the Closing Date, Seller shall not illegally store or illegally release or
permit to be illegally stored or illegally released any sewage or other waste
materials or any hazardous waste, hazardous substance or pollutant.
(g) Notification of Certain Matters. Seller and
Buyer each agree to give prompt notice to each other of (a) the occurrence, or
failure to occur, of any event the occurrence or failure of which would be
likely to cause any representation or warranty contained in this Agreement to
be untrue or inaccurate in any material respect at any time from the date
thereof to the Closing, and (b) any failure on its part to comply with or
satisfy any covenant, condition or agreement to be complied with or satisfied
by it hereunder prior to the Closing Date. In particular, between the date of
this Agreement and the Closing, each party shall give notice to the other
promptly upon becoming aware of (a) any inaccuracy in a representation or
warranty made by the party providing notice and set forth in Section 5 or
Section 6, as the case may be, or in any Schedule or (b) any event or state of
facts which, if it had occurred or existed on or prior to the date of this
Agreement, would have caused any such representation, warranty and/or Schedule
to be inaccurate. Any such notice shall describe such inaccuracy, event or
state of facts in reasonable detail. Any information included in any such
notice shall constitute a representation or warranty as though made in Section
5 or Section 6 hereof, as the case may be, but shall not affect the conditions
to Buyer's and Seller's obligations contained in subsection 10(b) or 11(b), as
the case may be, that the representations and warranties of the other party
shall be true on and as of the date of this Agreement and as of the Closing as
though made at such time (without modification by any notice provided pursuant
to this Section).
(h) Accounts Receivable. (i) For a period of
nine months following the Closing, Buyer shall act as Seller's attorney-in-fact
and agent for the collection of Receivables, and Seller hereby constitutes and
appoints Buyer the true and lawful attorney in fact of Seller, with full power
of substitution, in the name of and on behalf of Seller, for such purpose.
Buyer shall use reasonable efforts, consistent with its or its affiliates'
current practice (not including the retention of any collection agency or the
commencement of litigation), to collect the Receivables and to remit any such
collections to Seller on a weekly basis. Receipts from customers shall be
applied to such customers' oldest Receivables outstanding unless such amount
has been disputed by the customer, in which event receipts from such customers
shall not be applied to the disputed amount until the dispute has been
resolved. Buyer may settle any outstanding dispute with a customer by
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granting a credit against any invoice in an amount agreed to by Seller. Seller
hereby appoints and constitutes John Barbour as its sole and exclusive agent
and attorney-in-fact for the purpose of approving the granting of any such
credits. Buyer may endorse and deposit all checks payable to Seller into
Buyer's own bank accounts.
(ii) From and after the Closing Date, Buyer
shall pay to Seller, on a monthly basis within ten days after the end of each
month, an amount equivalent to interest, at the prime rate announced by The
Bank of New York from time to time, on the actual weekly balances during such
month of the net amount of uncollected Receivables, less a reserve for doubtful
accounts and reserves for other allowances in an aggregate amount of three
percent (3%). Such interest payments with respect to any Receivable shall
cease to accrue on the earlier of 180 days after the due date of such
Receivable or nine months after the Closing Date.
(i) Creditors. Seller shall pay in full when due
all amounts owed to any creditor of the Business and shall at or prior to the
Closing pay in full any creditors holding Encumbrances on the Assets or
otherwise cause such creditors to release such Encumbrances on the Assets
(other than UCC-1 informational filings on leased personal property) and shall
provide to Buyer evidence of such releases including, where applicable, any
UCC-3 termination statements.
(j) Change of Name. Promptly upon Closing,
Seller shall change its corporate name so as to remove any references to the
name "OddzOn" and shall cease using any fictional or alternate name which
Seller has in the past utilized (including, but not limited to, "SureBet"), and
Seller and Shareholders shall execute all documents deemed reasonably
appropriate by Buyer in order for Buyer to change its name to include "OddzOn"
if Buyer elects to make such change and to enable Buyer to utilize any such
fictional or alternate name.
(k) Retained Liabilities. Following the Closing,
Seller shall perform in a timely manner all of its obligations, as and when
required, in connection with the Retained Liabilities.
(l) Removal of Obsolete and Unusable Inventories.
Seller shall remove from the Premises, at its sole cost and expense, all
obsolete and unusable inventory and raw material and component parts not
included in the Inventory not later than ten (10) days after the Closing Date.
(m) Provision of Financial Information. Upon a
determination by Buyer or Russ, in its sole discretion, that the rules and
regulations of the Securities and Exchange Commission require Russ to file or
publish audited financial statements of
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Seller, Seller and Shareholders shall take all necessary action to provide Russ
with such audited financial statements as Russ shall request for the Seller's
fiscal year ended December 31, 1993. The cost of obtaining such audited
financial statements shall be shared equally by Buyer and Seller. The
obligation of Seller to provide such financial information shall survive the
Closing for a period of two years.
(n) No Shopping. Between the date hereof and the
Closing Date, neither Seller nor any Shareholder shall, directly or indirectly,
through any subsidiary, director, officer, employee, advisor, agent or
otherwise, except in connection with the acquisition contemplated hereby, (i)
solicit, initiate or encourage the submission of proposals or offers from any
person relating to any merger, acquisition or purchase of all or (other than in
the ordinary course of business) any portion of the assets of, or any equity
interest in, Seller or any business combination involving Seller (a
"Transaction"), or participate in any negotiation regarding, or otherwise
cooperate in any way with, or assist or participate in, facilitate or
encourage, any effort or attempt by any other person to do or seek a
Transaction, and (ii) except in the ordinary course of business, in connection
with the transactions contemplated hereby, or with the prior written consent of
Buyer, disclose, directly or indirectly, to any person any information
concerning Seller's business and properties or afford to any person access to
the properties, books or records of Seller. Seller and Shareholders shall
immediately cease and cause to be terminated any existing discussions or
negotiations with any parties other than Buyer conducted heretofore with
respect to any Transaction.
(o) Post-Closing Allocation of Liability for Certain
Items.
(i) Rebates. The following shall apply with
respect to Assumed Contracts with customers of the Business for rebates or
other payments based on sales for the year ended December 31, 1994: On or
prior to March 1, 1995, Buyer shall prepare and shall supply to Seller a
schedule listing the amount of rebates and/or other payments which were paid
and/or are due to be paid to each such customer as a result of sales by such
customer and which rebates have been presented to Buyer for payment. The
liability for such rebates and other payments to each customer listed in such
schedule shall be divided between Seller and Buyer based upon the relative
volume for each of Seller and Buyer of sales of the Business to such customer
for 1994. Seller shall promptly reimburse Buyer for any rebates or other
payments made by Buyer to customers of the Business on account of the portion
of such liability imposed on Seller pursuant to the terms of this subsection
8(o)(i).
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(ii) Coupons. On or prior to that date which
is 120 days after the Closing Date, Buyer shall prepare, or shall cause the
coupon "fulfillment house" contractor serving the Business to prepare, and
shall supply to Seller a schedule of the aggregate face amount of coupons for
Products which were received by such fulfillment house prior to and including
that date which is 60 days after the Closing Date, and for which the
fulfillment house was not previously reimbursed by Seller, as well as any
service or other charges of the fulfillment house which relate to such period
and/or such coupons. Seller shall promptly pay to Buyer, who shall in turn pay
to the fulfillment house, such aggregate face amount and such service or other
charges.
(iii) Returns. Unless such product can be
identified as having been sold by the Buyer after the Closing Date, all returns
of products (including any destroyed defectives in the field) received by Buyer
from any customer of the Business prior to that date which is 120 days after
the Closing Date (or at any time thereafter in the case of returns of products
from Bart Smit pursuant to the letter from Seller to Bart Smit dated May 16,
1994 attached to Schedule 5(h) hereto) shall be for the account of Seller and
shall serve to reduce such customer's oldest Receivable outstanding pursuant to
subsection 8(h) or, if no Receivables from such customer constituting Excluded
Assets remain outstanding, shall create a liability from Seller to Buyer, which
shall be paid promptly by Seller. Such reduction and/or liability shall be
equal to the amount returned and/or credited to such customer by Buyer with
respect to such returned product. All products which are physically returned
shall be transferred to Seller (or, at Seller's option, destroyed) to the
extent that Buyer deems them to be obsolete or unusable, or to the extent such
product types constituted Excluded Assets or were otherwise not included in the
Inventory purchased by Buyer. To the extent that such returned products are of
a type included in the Inventory purchased by Buyer and are not otherwise
deemed by Buyer to be obsolete or unusable, Buyer shall retain such products
and shall pay to Seller an amount equal to the book value of such products on
the Closing Date, reduced by the Buyer's out-of-pocket costs related to any
reworking of such products, plus an amount based on the rate which is set forth
on Schedule 8(o)(iii) hereto. Except as the same have heretofore been conducted
in the ordinary course of the Business, Buyer agrees not to conduct any product
"sweeps" or otherwise to encourage the return of products by customers of the
Business prior to February 1, 1995.
(iv) Self-Insured Portion of Health Benefits
Plans. Seller agrees to reimburse Buyer promptly following Buyer's request for
any payments which Buyer is required to make to or otherwise for the benefit of
any employees of the Business who are employed by Buyer following the Closing
(and their eligible dependents) pursuant to the terms of Seller's health
benefit plans, including but not limited to medical, prescription, dental and
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vision plans constituting Assumed Contracts and/or reimbursements pursuant to
the terms of Seller's health benefit plans, which payments relate to sickness,
accident, and hospital claims resulting from or arising out of professional
services rendered or prescriptions or other items supplied prior to and
including the Closing Date.
(v) Other Customer Allowances. All customer
inventory markdowns or other credits granted to a customer by Buyer after the
Closing with regard to any particular product line shall be allocated to the
inventory of such product line most recently sold to such customer, unless the
markdown or credit can be specifically identified to product that was shipped
prior to the close of business on the Closing Date, and in that instance the
markdown or credit will be applied to that specific product. Seller shall
promptly remit to Buyer the portion of such markdown or credit, if any, as is
allocable to product shipped prior to the close of business on the Closing Date
in accordance with the immediately preceding sentence (i.e., unless
specifically identifiable, the total number of units of the product line marked
down or credited must exceed the total number of units of that product line
shipped by Buyer to such customer through the date of receipt by the Buyer of
the customer's request for such markdown or credit before any portion of the
markdown or credit is allocable to Seller). The provisions of this subsection
8(o)(v) shall not apply to customer inventory markdowns or other credits
granted to customers after March 31, 1995, the costs of which shall be borne by
Buyer.
(p) Covenant Not To Compete; Business Information;
Employees. As an inducement and necessary incident to Buyer's acquisition of
the Assets, Seller and the Shareholders agree that:
(i) For a period of two (2) years following
the Closing Date, neither Seller nor any Shareholder shall, without the express
prior written consent of the Buyer, directly or indirectly, anywhere in the
world, whether for themselves or for any other person or entity, and whether as
a proprietor, principal, shareholder (other than the holder of not more than
three percent (3%) of the stock of a corporation whose shares are publicly
traded), lender, partner, agent, director, officer, employee, consultant,
independent contractor, joint venturer or in any other capacity whatsoever, at
any time during the period of time described above, enter into or engage in
competition with the Buyer or any affiliate of the Buyer, including Russ, in
the business of the manufacture, purchase or sale of (A) any toy or (B) any
other type of product presently or in the future manufactured or offered by the
Buyer or any affiliate thereof or which were offered by Seller prior to the
Closing Date or offered or under development by the Seller on the Closing Date.
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(ii) For a period of three (3) years
following the date of expiration of the two year period referenced in
subsection 8(p)(i) (the "Expiration Date"), neither Seller nor any Shareholder
shall, without the express prior written consent of the Buyer, directly or
indirectly, anywhere in the world, whether for themselves or for any other
person or entity, and whether as a proprietor, principal, shareholder (other
than the holder of not more than three percent (3%) of the stock of a
corporation whose shares are publicly traded), lender, partner, agent,
director, officer, employee, consultant, independent contractor, joint venturer
or in any other capacity whatsoever, at any time during the period of time
described above, enter into or engage in competition with the Buyer or any
affiliate of the Buyer in the business of the manufacture, purchase or sale of
any product that is consistent with the types or kinds of products offered or
under development by the Seller on or prior to the Closing Date.
(iii) Notwithstanding the foregoing
subsections 8(p)(i) and (ii), it shall not be a violation of any such
subsection if either or both Shareholders shall license or sell any "New
Product" (as defined in Section 6 of the Consulting Agreements attached hereto
as Exhibits 10(j) and 10(k)) to any competitor without violating the terms of
such Consulting Agreements, or shall sell or otherwise dispose of any obsolete
or unusable inventory items.
(iv) Seller and the Shareholders agree from
and after the Closing Date to preserve the confidentiality of all confidential
information related to the Business, including, without limitation, all trade
secrets, customer lists, identity of suppliers and distributors, methods of
production and all confidential Intellectual Property. Seller and the
Shareholders agree that, for a period of five (5) years from the Closing Date,
they shall not, directly or indirectly, induce or attempt to induce, or assist
others in inducing or attempting to induce, (A) any person who was employed by
Seller and is employed by the Buyer or Russ on or after the Closing Date, or
(B) Seller's independent sales consultant David Capper, to terminate his or its
relationship with Buyer or Russ or in any other manner to interfere with the
relationship between Buyer or Russ and any such person.
(v) Buyer and Russ shall be entitled to
specific performance, injunctive, and other equitable relief for the
enforcement of the provisions of this subsection 8(p) by a court of competent
jurisdiction, it being acknowledged and agreed by Seller and Shareholders that
any breach or threatened breach hereof will cause irreparable injury to Buyer
and Russ for which money damages alone will not provide an adequate remedy.
The rights and remedies set forth in this subsection 8(p) shall be in addition
to, and not in lieu of, any other rights and remedies available to Buyer and
Russ at law or in equity. If any provisions of this subsection 8(p) should be
adjudicated to be invalid or
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unenforceable, such provision shall be deemed deleted herefrom with respect,
and only with respect, to the operation of such provision in the particular
jurisdiction in which such adjudication was made; provided, however, that to
the extent any such provision may be made valid and enforceable in such
jurisdiction by limitations on the scope of the activities, geographical area
or time period covered, such provision shall instead be deemed limited to the
extent, and only to the extent, necessary to make such provision enforceable to
the fullest extent permissible under the laws and public policies applied in
such jurisdiction.
SECTION 9. Employee Matters.
(a) Interviews. Seller shall use its reasonable
best efforts to cause all of the employees of the Business to be available for
interviews and for possible employment by Buyer in the Business.
(b) Payments of Benefits by Seller. Except as
otherwise provided herein, Seller shall retain liability for and shall pay or
cause to be paid when due, whether before or after the Closing Date, to or for
the benefit of all employees employed by Seller (and their eligible dependents)
in the Business during all periods prior to and including the Closing Date all
employee benefits payable up to and including the Closing Date, including
without limitation, (i) all sickness, accident, and hospital claims; and (ii)
all amounts in respect of service with Seller prior to and including the
Closing Date in accordance with the terms and conditions of Seller's
profit-sharing, bonus and phantom stock plans.
(c) No Employment Contracts. Nothing in this
Agreement, including, without limitation, this Section 9, shall establish an
employment contract between Buyer and any employees of Seller or constitute the
creation of a right of a third party beneficiary or in any way constitute a
waiver of or limitation on the employment-at-will status between Buyer and any
employee of the Business employed by Buyer or a waiver or limitation on Buyer's
right to terminate the employment of any employee of the Business who may be
subsequently employed by Buyer. Notwithstanding the foregoing, Buyer hereby
declares that it is its intention as of the date of this Agreement to hire all
of the present permanent employees of the Business (other than Stillinger) on
and as of the Closing Date.
(d) Worker's Compensation. Seller shall be
responsible for payment of any premiums, premium deposits, interest, claims
losses, retrospective adjustments and other amounts required to be paid to
comply with the California workmen's compensation law for periods of coverage
prior to and including the Closing Date, regardless of when the determination
is made that such payment is required.
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(e) Unemployment Compensation. Seller agrees
that it will remain liable for and will assume the administration and defense
of any claims filed by former employees of Seller arising prior to or on the
Closing Date (including the claims of any employees of Seller who are not
employed by Buyer) and that Seller will be responsible for payment of any sums
due by Seller to the California Department of Labor as of the Closing Date.
(f) Vacation. Seller agrees that it will
compensate Buyer for the accrued and unused vacation days earned by the
employees of Seller prior to the Closing Date for those employees of Seller who
are hired by Buyer. Compensation shall be made by a deduction from the Base
Purchase Price as provided in subsection 3(b).
(g) Notices. Seller will timely give all notices
required by law to be given to employees in connection with the sale of the
Business and termination of employment of the employees by Seller. These
notices shall include, but shall not be limited to, notices required, if any,
under the Worker Adjustment and Retraining Notification Act and other similar
statutes and regulations.
(h) W-2 Matters. Seller and Buyer agree that pursuant
to the "Alternative Procedure" provided in Section 5 of Revenue Procedure
84-77, 1984-2 Cumulative Bulletin 753, with respect to filing and furnishing
Internal Revenue Service Forms W- 2, W-3 and 941: (i) Seller and Buyer shall
report on a "predecessor-successor" basis as set forth therein, (ii) Seller
shall be relieved from furnishing Forms W-2 to employees of Seller who are
hired by Buyer and (iii) Buyer shall assume the obligations of Seller to
furnish such forms to employees of Seller who are hired by Buyer for the full
1994 calendar year.
(i) Assumption of Post-Closing COBRA Obligations.
Buyer shall assume all liabilities and obligations of Seller, if any, relating
to providing the persons named in Schedule 9(i) with continuation of coverage
under COBRA for coverage periods (or portions thereof) occurring after the
Closing Date.
(j) Honoring of Pro-Rated Liabilities to Employees.
Buyer shall pay and discharge all of Seller's obligations to employees to the
extent that the same are included in the Pro-Rated Liabilities.
SECTION 10. Conditions Precedent to the Obligation of Buyer.
The obligation of Buyer to consummate the transactions
contemplated hereby shall be subject to the satisfaction, or waiver in writing
by Buyer, on or prior to the Closing Date, of each of the following conditions:
-33-
<PAGE> 39
(a) Corporate Authorization. All corporate and
other actions necessary to authorize and effectuate the consummation of the
transactions contemplated hereby by Seller shall have been duly taken prior to
the Closing, and Seller shall have delivered to Buyer certified copies of
resolutions of the Board of Directors and stockholders of Seller authorizing
the execution and delivery of this Agreement, the Ancillary Seller Documents
and the consummation of the transactions contemplated hereby.
(b) Representations and Warranties. The
representations and warranties of Seller set forth in this Agreement shall be
true and correct in all material respects on and as of the Closing Date with
the same force and effect as though all such representations and warranties had
been made on and as of such date and there shall have been delivered to Buyer
certificates to that effect, dated the Closing Date, signed by an appropriate
officer of Seller.
(c) Covenants and Agreements. Each and all of
the covenants and agreements of Seller to be performed or complied with prior
to the Closing pursuant to this Agreement shall have been duly performed and
complied with or duly waived and there shall have been delivered to Buyer
certificates to that effect, dated the Closing Date, signed by an appropriate
officer of Seller.
(d) Instruments of Sale or Assignment. Seller
shall have delivered to Buyer such bills of sale, endorsements, assignments,
stock powers, and instruments of transfer, assignment and conveyance as shall
be reasonably required by Buyer for the transfer to Buyer of all of Seller's
right, title and interest to and in the Assets, free and clear of all
Encumbrances (other than UCC-1 informational filings on leased personal
property). Seller shall have obtained releases of any and all Encumbrances
(other than UCC-1 informational filings on leased personal property) with
respect to the Assets.
(e) No Adverse Order or Injunction. There shall
not be in effect on the Closing Date any judgment, decree or order issued by
any court of competent jurisdiction which prohibits the consummation by Seller
or Buyer of the transactions contemplated hereby.
(f) Judicial, Governmental or Regulatory
Approvals; Consents to Assignment. All judicial, governmental or regulatory
consents, approvals or authorizations necessary to consummate the transactions
contemplated by this Agreement shall have been obtained prior to the Closing,
including, but not limited to, the expiration of any waiting periods pursuant
to the HSR Act. All consents required for the valid assignment of any Asset to
Buyer (including, without limitation, all material Assumed Contracts, Real
Estate Leases and Intellectual Properties) shall have been
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<PAGE> 40
obtained by Seller for Buyer's benefit on such terms as shall be acceptable to
Buyer in its reasonable discretion and shall be in full force and effect.
(g) Permits. Buyer shall have received all
licenses and permits necessary to operate the Business in accordance with all
applicable Federal, state, or local laws, regulations, ordinance or other
requirements, including those relating to environmental matters.
(h) Opinion of Counsel. Buyer shall have
received from McManimon & Scotland, counsel for Seller, an opinion dated the
Closing Date, in form and substance satisfactory to Buyer and its counsel,
substantially in the form of Exhibit 10(h) attached hereto.
(i) Barbour Employment Agreement. John Barbour
("Barbour") shall have entered into an employment agreement with Buyer
substantially in the form of Exhibit 10(i) hereto.
(j) Stillinger Consulting and "Koosh Ball"
Manufacturing Machine Agreements. Stillinger shall have entered into (i) a
consulting agreement with Buyer substantially in the form of Exhibit 10(j)(i)
hereto, and (ii) an agreement concerning his use of the "Koosh Ball"
manufacturing machine referred to in subsection 1(b)(v) substantially in the
form of Exhibit 10(j)(ii) hereto.
(k) Button Consulting Agreement. Button shall have
entered into a consulting agreement with Buyer substantially in the form of
Exhibit 10(k) hereto.
(l) Environmental Review. (i) At Buyer's option, at
its sole cost and expense, Buyer shall have had performed and completed a Phase
I environmental review with respect to each of the Premises, as well as the
property occupied by R.H. Jones and Company at which the Products are
manufactured, by a consultant or consultants of its choosing, and the results
of each such review shall be satisfactory to Buyer in its sole discretion. Each
such Phase I review shall include, but not be limited to, environmental
information obtained from Seller and R.H. Jones and Company and any of their
respective environmental consultants, including a description of their
industrial waste handling processes, listing the identity and volume of wastes
produced. If any consultant performing such reviews shall recommend a Phase II
environmental review with respect to any of the Premises and/or the property
occupied by R.H. Jones and Company, the cost of such Phase II review shall be
divided 50% to Buyer and 50% to Seller, and it shall be a condition to Buyer's
obligation to close that such Phase II review(s) shall have been performed and
completed, and the results of each such review shall be satisfactory to Buyer
in its sole discretion.
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<PAGE> 41
(ii) Notwithstanding the foregoing, if the Phase I
and/or Phase II reviews performed with respect to the Premises and/or the
property occupied by R.H. Jones and Company reveal conditions of environmental
pollution for which the likely remediation cost, in the judgment of the
consultant or consultants performing such reviews, is less than or equal to
$25,000, Seller shall perform such remediation activities prior to Closing at
its sole cost and expense. Upon the certification by Seller's consultant that
such remediation activities have been satisfactorily performed, Buyer's
condition to closing set forth in this subsection 10(l) shall be deemed to have
been satisfied.
(m) All Documents and Proceedings Satisfactory to
Buyer and its Counsel. All certificates and other documents to be delivered by
Seller and the Shareholders and all other matters to be accomplished prior to
or at the Closing shall be satisfactory in the reasonable judgment of Buyer and
its counsel.
SECTION 11. Conditions Precedent to the Obligation of Seller.
The obligation of Seller to consummate the
transactions contemplated hereby shall be subject to the satisfaction, or
waiver in writing by Seller, on or prior to the Closing Date, of each of the
following conditions:
(a) Corporate Authorization. All corporate and
other actions necessary to authorize and effectuate the consummation of the
transactions contemplated hereby by Buyer shall have been duly taken prior to
the Closing, and Buyer shall have delivered to Seller a certified copy of
resolutions of the Board of Directors of Buyer authorizing the execution and
delivery of this Agreement and the Ancillary Buyer Documents and the
consummation of the transactions contemplated hereby.
(b) Representations and Warranties. The
representations and warranties of Buyer set forth in this Agreement shall be
true and correct in all material respects on and as of the Closing Date with
the same effect as though all such representations and warranties had been made
on and as of such date and there shall have been delivered to Seller a
certificate to that effect, dated the Closing Date, signed by an appropriate
officer of Buyer.
(c) Covenants and Agreements. Each and all of
the covenants and agreements of Buyer to be performed or complied with prior to
the Closing pursuant to this Agreement shall have been duly performed and
complied with or duly waived and there shall have been delivered to Seller a
certificate to that effect, dated the Closing Date, signed by an appropriate
officer of Buyer.
(d) Instruments of Assumption. Buyer shall have
delivered to Seller such instruments of assumption as shall be
-36-
<PAGE> 42
reasonably required by Seller for the assumption by Buyer of the Assumed
Liabilities.
(e) No Adverse Order or Injunction. There shall
not be in effect on the Closing Date any judgment, decree or order issued by an
court of competent jurisdiction which prohibits the consummation by Seller of
the transactions contemplated hereby.
(f) Judicial Governmental or Regulatory
Approvals. All judicial, governmental or regulatory consents, approvals or
authorizations necessary to consummate the transactions contemplated by this
Agreement shall have been obtained prior to the Closing, including, but not
limited to, the expiration of any waiting periods pursuant to the HSR Act.
(g) Opinion of Counsel. Seller shall have received
from McCarter & English, counsel for Buyer, an opinion dated the Closing Date,
in form and substance satisfactory to Seller and its counsel, substantially in
the form of Exhibit 11(g) attached hereto.
(h) All Documents and Proceedings Satisfactory to
Seller and its Counsel. All certificates and other documents to be delivered by
Buyer and all other matters to be accomplished prior to or at the Closing shall
be satisfactory in the reasonable judgment of Seller and its counsel.
SECTION 12. Waiver of Bulk Transfer.
Buyer and Seller agree to waive compliance with any
applicable bulk sales statutes. Any and all liabilities arising out of any
bulk sales laws applicable to the transactions contemplated by this Agreement
shall constitute a Retained Liability for the purposes of this Agreement.
SECTION 13. Survival of Representations, Warranties and Covenants.
Each and every representation, warranty and covenant
(other than any covenant set forth in Section 14, which covenants shall survive
the Closing indefinitely) of Seller or Buyer contained in this Agreement, in
any Schedule or in any certificate or instrument delivered pursuant hereto or
in connection herewith shall survive the Closing until three (3) years after
the Closing Date (except that the representations, warranties and covenants
contained in subsections 5(g)(i) (relating to title to the Assets), 5(i)(B)
(relating to environmental matters), 5(j) (relating to Taxes) and 5(l)
(relating to Intellectual Property) shall continue in full force and effect
until six (6) years after the Closing Date).
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<PAGE> 43
SECTION 14. Indemnification and Right of Set-Off.
(a) Indemnification by Seller and the Shareholders.
(i) Except as limited herein, each of Seller and each
Shareholder jointly and severally agrees to indemnify, defend and hold Buyer,
Russ and each parent, subsidiary and affiliate of Buyer, including, without
limitation, their employees, directors, officers, and stockholders (hereinafter
collectively referred to as the "Buyer Group") harmless from and against any
and all losses, expenses, claims, charges, liabilities, damages or
deficiencies, including, without limitation, interest, penalties, attorneys'
fees and disbursements and any losses that may result from the granting of
injunctive relief in any suit, action or proceeding, less any insurance
proceeds actually collected with respect to the same (hereinafter collectively
referred to as "Damages"), actually incurred by any member of the Buyer Group
based upon, arising out of or otherwise in respect of (A) any breach of any
covenant or agreement of Seller or any Shareholder contained in this Agreement
or any Ancillary Seller Document, (B) the breach of any of Seller's or any
Shareholder's representations and warranties contained in this Agreement, in
any Exhibit or Schedule hereto, or in any Ancillary Seller Document delivered
in connection herewith, or (C) the Retained Liabilities (including, without
limitation, any mechanics' liens for work performed on, or supplies provided
to, the Business; subject to subsection 14(a)(iv), Litigation involving Seller,
including without limitation any pending or threatened Litigation set forth on
Schedule 5(k); the operation of the Business by Seller prior to the Closing
Date,; or the generation, treatment, storage, handling, disposal or release by
or in connection with the Business of any hazardous waste or hazardous
substance (as defined by RCRA or CERCLA), or petroleum or other pollutant or
material in existence on or prior to the Closing Date regulated under any
applicable federal, state or local law, regulation, ordinance or other
requirement), except to the extent that any Damage is the result of acts or
omissions of Buyer Group. Notwithstanding any provision contained herein to
the contrary, Seller shall have no obligation to indemnify Buyer hereunder for
any Assumed Liability.
(ii) Indemnification obligations of Seller and the
Shareholders shall only arise after Damages have reached $75,000, at which time
Buyer Group shall receive indemnification for only that amount of Damages which
is in excess of $75,000. The total liability hereunder of Seller and the
Shareholders for indemnification shall not exceed the aggregate amount of
$6,000,000, and the individual liability hereunder of each Shareholder for
indemnification shall not exceed the aggregate amount of $4,500,000.
Notwithstanding anything to the contrary set forth herein, the limitations set
forth in this subsection 14(a)(ii) shall not apply to an indemnification claim
which is based upon or arises out of: (A) the imposition or attempted
-38-
<PAGE> 44
imposition upon Buyer of a Retained Liability; (B) the failure by Seller to
deliver good title to the Assets (other than the Intellectual Property) free
and clear of all Encumbrances (other than UCC-1 informational filings on leased
personal property); (C) the breach or non-fulfillment or default by Seller or
any Shareholder of any covenant set forth in subsections 8(o) or 8(p) or
Sections 12 or 15; (D) any liability related to the incorrect marking of
Products or Product packaging by the Seller prior to the Closing; or (E) any
obligations arising from the consent to the assignment of the Lease, dated June
9, 1992, as amended, between Kan-Mac, L.P. as lessor and Seller as lessee, for
the Premises located at 2865 Uranium Drive, Santa Clara, California, which
obligations relate to period(s) up to and including the Closing Date.
(iii) Buyer may, at its option, without waiver of any other
rights, set off its Damages against the Deferred Payment held by the Escrow
Agent, the Earnout (as defined and described in the Earnout Provisions) and/or
any other amounts which, pursuant to the terms of this Agreement or any
Ancillary Agreement, are required to be paid by Buyer to or on behalf of Seller
and/or any Shareholder (other than payments with respect to Receivables
pursuant to subsection 8(h)). Such right of set-off shall in no way limit or
restrict any right of Buyer to commence an action against Seller or any
Shareholder in the event that such damage or loss exceeds the amount set off by
Buyer pursuant hereto.
(iv) Notwithstanding anything to the contrary contained
herein, the following shall apply with respect to Litigation listed as
"Pending" on Schedule 5(k):
(A) Buyer shall assume, at its sole cost and expense,
the Spanish opposition filed by Seller against Spanish Industrial Model No.
131,089.
(B) Buyer shall reasonably cooperate with Seller in
attempting to reach a mutually satisfactory settlement or other resolution of
the U.S. cancellation proceeding filed against the Seller's MONDO trademark
registration, Mondo S.p.A. v. OddzOn Products, Inc. In the event that any
proposed settlement thereof shall include terms with respect to the future
usage of the name "MONDO" by Mondo S.p.A. and/or the Business, Buyer shall have
the right to review and, if approved by Buyer, to consent to such settlement,
such consent not to be unreasonably withheld.
(b) Indemnification by Buyer. Buyer agrees to
indemnify, defend and hold Seller and the Shareholders (hereinafter
collectively referred to as "Seller Group") harmless from and against any and
all Damages actually incurred by any member of Seller Group which are based
upon, or arise out of or otherwise in respect of (i) any breach of any covenant
or agreement of Buyer contained in this Agreement, (ii) the Assumed
Liabilities, (iii)
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<PAGE> 45
the breach of Buyer's representations and warranties contained in this
Agreement, in any Exhibit or Schedule hereto, or in any agreement, certificate,
instrument or other document delivered in connection herewith, (iv) claims,
actions or other litigation involving Buyer (other than those for which Seller
is obligated to indemnify Buyer), (v) the operation of the Business by Buyer
from and after the Closing Date, including without limitation, products
produced or sold by Buyer (other than to the extent Seller is obligated to
indemnify Buyer), (vi) the generation, treatment, storage, handling, disposal
or release on, in, under or from the Premises or disposal at, on or under any
other location of any hazardous waste or hazardous substance (as defined by
RCRA or CERCLA), or petroleum or other pollutant or material used in the
Business subsequent to the Closing Date regulated under any applicable federal,
state or local law, regulation, ordinance or other requirement, except to the
extent that any Damage is the result of acts or omissions of Seller Group or
(vii) product liability claims with respect to products manufactured or sold by
the Seller prior to the Closing.
(c) Notice of Circumstances. Promptly after
receipt by Seller Group or Buyer of notice of any action, proceeding, claim or
potential claim (any of which is hereinafter individually referred to as a
"Circumstance"), which could give rise to a right to indemnification pursuant
to any provisions of this Agreement, such party shall give the party who may
become obligated to provide indemnification hereunder (the "Indemnifying
Party") written notice describing the Circumstance in reasonable detail. If
notice of a Circumstance is not given to the Indemnifying Party within a
sufficient period of time or in sufficient detail to apprise the Indemnifying
Party of the nature of the Circumstance (in each instance taking into account
the facts and circumstance known by the indemnified party with respect to such
Circumstance), the Indemnifying Party shall not be liable to the party seeking
indemnification to the extent that the Indemnifying Party's position is
actually prejudiced as a result thereof. The Indemnifying Party shall have the
right, at its option, to compromise or defend, at its own expense and by its
own counsel, any Circumstance involving the asserted liability of the party
seeking indemnification. If any Indemnifying Party shall undertake to
compromise or defend any such asserted liability, it shall promptly notify the
party seeking indemnification of its intention to do so, and the party seeking
indemnification agrees to cooperate fully with the Indemnifying Party and its
counsel (which counsel will be reasonably acceptable to the indemnified party)
in the compromise of, or defense against, any such asserted liability. All
costs and expenses incurred in connection with such cooperation shall be borne
by the Indemnifying Party. In any event, the indemnified party shall have the
right at its own expense to participate in the defense of such asserted
liability. Under no circumstances shall the party seeking indemnification
compromise any such asserted liability without the written consent of the
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<PAGE> 46
Indemnifying Party, which consent shall not be unreasonably withheld or
delayed.
(d) Survival of Indemnification Obligations. The
indemnification obligations for all claims relating to breaches of
representations, warranties and covenants shall survive the Closing and shall
be enforceable with respect to Damages for which a notice of Circumstance has
been delivered prior to the expiration of the representation or warranty on
which the indemnified party's claim is based.
SECTION 15. Prorations.
All utility charges, water and sewer charges or
similar regular periodic charges with respect to the Premises (other than any
such charges included in the Prepaid Assets) shall be prorated between the
parties on the basis of the actual number of days elapsed from the first day of
such period to the Closing Date. All personal property and ad valorem real
estate taxes (other than any such taxes included in the Prepaid Assets) shall
be prorated between the parties on a calendar year basis to the Closing Date.
These and each other category of Pro-Rated Liabilities are set forth on
Schedule 15. To the extent that the actual amount of each category of Pro-Rated
Liabilities may not be determined until after the Closing Date, the parties
agree to use their joint good faith estimates of such Pro-Rated Liabilities for
purposes of determining the amounts to be deducted from the Base Purchase
Price, and upon calculation after the Closing of the actual amount of each such
category of Pro-Rated Liabilities, to promptly remit to the proper party the
difference between such good faith estimates and the actual amounts.
SECTION 16. Costs Incident to Preparation of Agreement.
Each of the parties hereto shall pay, without right
of reimbursement from the other, all costs incurred by it incident to the
preparation, execution and delivery of this Agreement and the performance of
its obligations hereunder, whether or not the transactions contemplated by this
Agreement are consummated, including, without limitation, fees and
disbursements of legal counsel, accountants and consultants employed by the
respective parties hereto in connection with the transactions contemplated by
this Agreement.
SECTION 17. Parties in Interest.
This Agreement is binding upon and is for the benefit
of the parties hereto and their respective successors and permitted assigns.
This Agreement is not made for the benefit of any person, firm, corporation or
other entity not a party hereto (other than Russ), and no person, firm,
corporation or other entity
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<PAGE> 47
other than the parties hereto or their respective successors and permitted
assigns shall acquire or have any right, remedy or claim under or by virtue of
this Agreement.
SECTION 18. Miscellaneous.
(a) Assignment: Successors and Assigns. No party
to this Agreement shall convey, assign or otherwise transfer any of its rights
or obligations under this Agreement without the express written consent of the
other parties hereto in their sole and absolute discretion, except that
following the Closing Seller may assign to its shareholders all of its rights
under this Agreement without the consent of the Buyer. No assignment of this
Agreement shall relieve the assigning party of its obligations hereunder. This
Agreement shall be binding upon and shall inure to the benefit of the parties
hereto and their respective successors and permitted assigns. Notwithstanding
the foregoing, Buyer may assign, in whole or in part, its rights and
obligations hereunder to an affiliated company.
(b) 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 prepaid cable or telecopy, 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, cabled or
telecopied, or if mailed, four days after mailing (one business day in the case
of express mail or overnight courier service) as follows:
If to Buyer
RBCACQ, Inc.
1696 Dell Avenue
Campbell, California 95008
Attention: President
with a copy to:
Russ Berrie and Company, Inc.
111 Bauer Drive
Oakland, New Jersey 07436
Attention: President
If to Seller
OddzOn Products, Inc.
1696 Dell Avenue
Campbell, California 95008
Attention: Scott Stillinger, Chief Executive Officer
with a copy to:
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<PAGE> 48
Jeffrey Kramer, Esq.
McManimon & Scotland
One Gateway Center
Suite 1800
Newark, New Jersey 07102
or in any case to such other address or addresses as hereafter shall be
furnished as provided in this subsection 18(b) by any party hereto to the other
party hereto.
(c) Waiver: Remedies. No delay on the part of
any party hereto in exercising any right, power or privilege hereunder shall
operate as a waiver thereof, nor shall any waiver on the part of any party
hereto of any right, power or privilege hereunder operate as a waiver of any
other right, power or privilege hereunder, nor shall any single or partial
exercise of any right, power of privilege hereunder preclude any other or
further exercise thereof or the exercise of any other right, power or privilege
hereunder. The rights and remedies herein provided are cumulative and are not
exclusive of any rights or remedies which the parties hereto may otherwise have
at law or in equity.
(d) Entire Agreement. This Agreement and all
agreements executed and delivered in connection herewith shall constitute the
entire agreement among the parties with respect to the subject matter hereof
and this Agreement supersedes all prior agreements or understandings of the
parties relating thereto. Except as expressly stated herein, no party has made
or is making any representations or warranties in connection with the
transactions contemplated herein.
(e) Amendment. This Agreement may be modified or
amended only by written agreement of the parties hereto.
(f) Counterparts. This Agreement may be executed
in any number of counterparts, each of which shall be deemed an original but
all of which together shall constitute a single instrument.
(g) Governing Law. This Agreement shall be
governed and construed in accordance with the laws of the State of New Jersey
applicable to contracts made and to the performed entirely within such state.
(h) Jurisdiction/Venue. Buyer, Seller and the
Shareholders agree and consent to personal and subject matter jurisdiction in
New Jersey and venue in the United States District Court for New Jersey in
Newark or, if such court has and can obtain no jurisdiction over the legal
action at issue, the Superior Court of New Jersey in Bergen County for any and
all legal actions brought to enforce the terms of this Agreement.
-43-
<PAGE> 49
(i) Exhibits and Schedules. 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.
(j) Captions. All section titles or captions
contained in this Agreement or in any Exhibit or Schedule referred to herein,
and the table of contents to this Agreement are for convenience only, shall not
be deemed a part of this Agreement and shall not affect the meaning or
interpretation of this Agreement. All references herein to numbered sections
are to sections of this Agreement.
(k) Publicity. No press release or announcement
concerning the existence of this Agreement or transactions contemplated hereby
shall be issued by any party without the prior consent of the other party,
except as such release or announcement may (i) be required by law, rule or
regulation (including applicable federal and state securities laws, rules and
regulations) or (ii) be made by Buyer if the identity of Seller is not
disclosed, provided that in each case the party making the release or
announcement shall allow the other party reasonable time to comment on such
release or announcement in advance of such issuance.
(l) Severability. Any provision of this
Agreement which is invalid or unenforceable shall be ineffective to the extent
of such invalidity or unenforceability, without affecting in any way the
remaining provisions hereof.
(m) Allocation of Purchase Price. The fair market
values of the Assets and the allocation of the purchase price among the Assets
and the covenant not to compete in subsection 8(p) for purposes of Section 1060
of the Code shall be determined by the parties after the Closing in accordance
with the methods of allocation set forth in Schedule 18(m) hereof, and each
party agrees to be bound by such fair market value determination and allocation
and to file Form 8594 with the IRS reflecting the same.
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<PAGE> 50
IN WITNESS WHEREOF, the parties hereto have caused
this Agreement to be executed as of the date first above written.
RBCACQ, INC.
By
---------------------------
Name: A. Curts Cooke
Title: Vice-President
ODDZON PRODUCTS, INC.
By
--------------------------
Scott Stillinger,
Chief Executive Officer
PRINCIPAL SHAREHOLDERS:
----------------------------
Scott Stillinger
----------------------------
Mark Button
The undersigned hereby guarantees the performance of the obligations of the
Buyer under this Agreement.
RUSS BERRIE AND COMPANY, INC.
By:
--------------------------
Name: A. Curts Cooke
Title: President
-45-
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<PERIOD-START> JAN-01-1994
<PERIOD-END> SEP-30-1994
<CASH> 36,552
<SECURITIES> 10,688
<RECEIVABLES> 71,134
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0
0
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