<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
Date of Report (date of earliest event reported): November 16, 1998
---------------------------
VAUGHN COMMUNICATIONS, INC.
------------------------------------------------------
(Exact name of registrant as specified in its charter)
Minnesota
----------------------------------------------
(State or other jurisdiction of incorporation)
0-15424 41-0626191
- ----------------------------- ---------------------------------------
Commission File Number I.R.S. Employer Identification Number
5050 W. 78th Street, Minneapolis, Minnesota 55435
- ------------------------------------------- -------------------
(Address of principal executive offices) (Zip Code)
Issuer's telephone number, including area code: (612) 832-3200
------------------------
N/A
-------------------------------------------------------------
(Former name or former address, if changed since last report)
<PAGE>
ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS.
SALE OF PRODUCTS DIVISION
Vaughn Communications, Inc. (the "Company") sold substantially all of
the assets and certain liabilities of its Products Division to Gift
Connections, Inc., an Iowa corporation (the "Buyer") effective as of November
16,1998, under the terms of a Purchase and Sale Agreement dated November
9,1998, for a purchase price of $1,432,775. The terms included the payment
of $300,000 at Closing, a promissory note for $932,775 payable within 60
days, and the assumption of $200,000 of liabilities by the Buyer. The
Products Division manufactures and distributes customized gifts and souvenirs
for the travel industry. Prior to this transaction, the Buyer had no
material relationship with the Company or any of the Company's affiliates,
officers, directors or any associate of the Company's officers and directors.
The purchase price was determined through direct negotiations between
the Buyer and the Company. The assets sold included approximately $758,000
of accounts receivable, $3,880,000 of inventory, $383,000 of fixed assets,
and $406,000 of intangibles, trade names and other assets. As a result of
the transaction, the Company will recognize a pretax loss of approximately
$4,123,000 on the sale of the assets.
The Company intends to use the proceeds from the sale to pay the
remaining current liabilities (approximately $350,000), and the long-term
debt (approximately $87,000) of the Products Division. The remaining
proceeds will be used to reduce current bank borrowings.
For the fiscal years ended January 31, 1998 and 1997, the Products
Division had annual sales of $12,196,000 and $13,758,000, respectively.
Pretax income (loss) for the same periods was ($371,000) and $161,000.
In connection with the sale, the Buyer will assume the Company's
obligations under all real and personal property leases relating to the
Products Division. In connection with the sale, the Company terminated the
employment of all employees of the Products Division. The Buyer has informed
the Company that it intends to re-employ substantially all of these employees.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS
(a) FINANCIAL STATEMENTS OF BUSINESS ACQUIRED.
Not applicable.
(b) PRO FORMA FINANCIAL INFORMATION
Vaughn Communications, Inc.
Pro Forma Financial Statements (Unaudited)
The following pro forma financial statements reflect the sale of the
Products Division as if, in the case of the balance sheet, the sale had
occurred July 31, 1998, and, in the case of the statement of operations, the
sale occurred on February 1,1997. The pro forma statements of operations are
not necessarily indicative of the results of operations as they may be in the
future.
<PAGE>
VAUGHN COMMUNICATIONS, INC.
BALANCE SHEET
(UNAUDITED)
<TABLE>
<CAPTION>
Pro Forma
July 31, 1998 Adjustments(1) Pro Forma
------------- -------------- -----------
<S> <C> <C> <C>
ASSETS
Current Assets
Trade Accounts receivable less allowance $17,950,091 ($3,428,939) $14,521,152
Inventories 8,985,636 (3,483,162) 5,502,474
Other 982,653 2,653,614 3,636,267
------------- -------------- -----------
Total Current Assets 27,918,380 (4,258,487) 23,659,893
Property, plant and equipment 35,600,183 (1,182,424) 34,417,759
Less accumulated depreciation 22,020,460 (757,396) 21,263,064
------------- -------------- -----------
13,579,723 (425,028) 13,154,695
Intangible and Other Assets 10,084,461 (431,765) 9,652,696
------------- -------------- -----------
$51,582,564 ($5,115,280) $46,467,284
------------- -------------- -----------
------------- -------------- -----------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Accounts payable $6,685,881 ($200,000) $6,485,881
Notes payable to bank 7,244,435 (1,905,069) 5,339,366
Salaries, wages and payroll taxes 264,794 0 264,794
Current portion of long-term debt and capital
lease obligations 4,148,069 (190,476) 3,957,593
Other 2,170,746 0 2,170,746
------------- -------------- -----------
Total Current Liabilities 20,513,925 (2,295,545) 18,218,380
Long-term debt (less current portion) 5,571,279 (428,572) 5,142,707
Capital lease obligations (less current portion) 3,513,780 0 3,513,780
Deferred taxes 54,326 0 54,326
Shareholders' Equity
Common stock, par value $.10 per share:
Authorized 20,000,000 shares, issued and
outstanding at July 31, 1998 - 4,082,052
shares 408,205 0 408,205
Additional paid-in capital 8,984,859 0 8,984,859
Retained earnings 12,536,190 (2,391,163) 10,145,027
------------- -------------- -----------
Total Shareholders' Equity 21,929,254 (2,391,163) 19,538,091
$51,582,564 ($5,115,280) $46,467,284
------------- -------------- -----------
------------- -------------- -----------
</TABLE>
<PAGE>
VAUGHN COMMUNICATIONS, INC.
STATEMENT OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
Year Ended Pro Forma
January 31, 1998 Adjustments(2) Pro Forma
---------------- -------------- -----------
<S> <C> <C> <C>
Net Sales $74,487,763 ($12,196,484) $62,291,279
Cost of goods sold 50,761,624 (9,365,322) 41,396,302
---------------- -------------- -----------
Gross profit 23,726,139 (2,831,162) 20,894,977
Selling, general and administrative expenses 19,092,543 (3,013,707) 16,078,836
---------------- -------------- -----------
Income from operations 4,633,596 182,545 4,816,141
Other income (expense)
Interest expense (1,410,484) 220,893 (1,189,591)
Interest income 115,194 (32,565) 82,629
---------------- -------------- -----------
Income from continuing operations before taxes 3,338,306 370,873 3,709,179
Income taxes 1,400,000 155,000 1,555,000
---------------- -------------- -----------
Net income from continuing operations $1,938,306 $215,873 $2,154,179
---------------- -------------- -----------
---------------- -------------- -----------
Net income per share
Basic $ .49 $ .55
Diluted $ .48 $ .54
Weighted average common shares outstanding 3,918,263 3,918,263
Dilutive options 101,719 101,719
---------------- -----------
4,019,982 4,019,982
</TABLE>
<PAGE>
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
Six Months Ended Pro Forma Pro Forma
July 31, 1998 Adjustments Remaining
---------------- ----------- -----------
<S> <C> <C> <C>
Net Sales $47,414,650 ($8,045,391) $39,369,259
Cost of goods sold 31,918,461 (5,603,317) 26,315,144
---------------- ----------- -----------
Gross profit 15,496,189 (2,442,074) 13,054,115
Selling, general and administrative expenses 11,661,489 (1,559,699) 10,101,790
---------------- ----------- -----------
Income from operations 3,834,700 (882,375) 2,952,325
Other income (expense)
Interest expense (959,047) 103,698 (855,349)
Interest income 54,847 (591) 54,256
---------------- ----------- -----------
Income from continuing operations before taxes 2,930,500 (779,268) 2,151,232
Income taxes 1,230,000 (327,000) 903,000
---------------- ----------- -----------
Net income from continuing operations $1,700,500 ($452,268) $1,248,232
---------------- ----------- -----------
---------------- ----------- -----------
Net income per share
Basic $ .42 $ .31
Diluted $ .41 $ .30
Weighted average common shares outstanding 4,087,464 4,087,484
Dilutive options 77,110 77,110
---------------- -----------
4,164,574 4,164,574
</TABLE>
<PAGE>
NOTES REGARDING PRO FORMA ADJUSTMENTS
(1) The pro forma balance sheet adjustments reflect the sale of the assets of
the Products Division for $300,000 cash at closing, a short term note for
$932,775, and the assumption of $200,000 of liabilities. In addition, it
reflects the application of the proceeds to reduce current liabilities as
well as collection of Products Division accounts receivable from August 1,
1998 through the date of closing, and the use of these proceeds to reduce
notes payable to bank and long-term debt. Also, the balance sheet reflects
the net loss on the sale of the assets and the tax benefit of the loss.
(2) The pro forma statement of operations reflects the adjustment for the
operations of the Products Division.
<PAGE>
(c) EXHIBITS.
EXHIBIT INDEX
The following is a list of Exhibits filed herewith. The page reference
is to the location of the Exhibits under the sequential numbering system of
the original executed copy of this report on Form 8-K where the Exhibits can
be located.
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION OF EXHIBITS PAGE
- ----------- ----------------------- ----
<C> <S> <C>
2.1 Purchase and Sale Agreement between the Company and
Gift Connections, Inc. dated November 9, 1998, providing
for the Company's sale of the assets of the Products
Division.
</TABLE>
[Balance of Page Intentionally Left Blank.]
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on behalf of the
undersigned thereunto duly authorized.
VAUGHN COMMUNICATIONS, INC.
Date: November 23, 1998 By \s\ M. Charles Reinhart
----------------------------------
M. Charles Reinhart
Chief Financial Officer
<PAGE>
EXHIBIT 2.1
PURCHASE AND SALE AGREEMENT
<PAGE>
EXHIBIT 2.1
TABLE OF CONTENTS
<TABLE>
<S> <C>
1. Purchase and Sale . . . . . . . . . . . . . . . . . . . . . . . . .1
2. Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . .1
3. Purchase Price. . . . . . . . . . . . . . . . . . . . . . . . . . .2
3.1 Amount . . . . . . . . . . . . . . . . . . . . . . . . . .2
3.2 Allocation . . . . . . . . . . . . . . . . . . . . . . . .4
4. Conduct of the Business . . . . . . . . . . . . . . . . . . . . . .4
4.1 Operation Until Closing. . . . . . . . . . . . . . . . . .4
4.2 Negative Covenants . . . . . . . . . . . . . . . . . . . .4
4.3 Access to Books, Records and Premises. . . . . . . . . . .5
4.4 Risk of Loss . . . . . . . . . . . . . . . . . . . . . . .5
4.5 Schedules. . . . . . . . . . . . . . . . . . . . . . . . .5
4.6 Updating of Schedules. . . . . . . . . . . . . . . . . . .6
4.7 Contractual Obligations Being Assumed by Buyer . . . . . .7
5. Representations and Warranties of Seller. . . . . . . . . . . . . .8
5.1 General. . . . . . . . . . . . . . . . . . . . . . . . . .8
5.2 Standing . . . . . . . . . . . . . . . . . . . . . . . . .8
5.3 Authority. . . . . . . . . . . . . . . . . . . . . . . . .8
5.4 Material Change. . . . . . . . . . . . . . . . . . . . . .8
5.5 No Liens or Encumbrances . . . . . . . . . . . . . . . . .9
5.6 Liabilities. . . . . . . . . . . . . . . . . . . . . . . .9
5.7 Financial Statements . . . . . . . . . . . . . . . . . . .9
5.8 No Defaults. . . . . . . . . . . . . . . . . . . . . . . .9
5.9 Inventory. . . . . . . . . . . . . . . . . . . . . . . . 10
5.10 Accounts and Notes Receivable. . . . . . . . . . . . . . 10
5.11 Taxes. . . . . . . . . . . . . . . . . . . . . . . . . . 10
5.12 Lawsuits, Proceedings, etc.. . . . . . . . . . . . . . . 10
5.13 Regulatory Violations. . . . . . . . . . . . . . . . . . 10
5.14 Post Balance Sheet Changes . . . . . . . . . . . . . . . 11
5.15 No Breaches. . . . . . . . . . . . . . . . . . . . . . . 11
5.16 Condition of the Assets. . . . . . . . . . . . . . . . . 11
5.17 Employees. . . . . . . . . . . . . . . . . . . . . . . . 11
5.18 Changes in Suppliers and Customers . . . . . . . . . . . 12
5.19 Intangible Property Rights . . . . . . . . . . . . . . . 12
5.20 No Brokers or Finders. . . . . . . . . . . . . . . . . . 12
5.21 ERISA. . . . . . . . . . . . . . . . . . . . . . . . . . 13
6. Representations and Warranties of Buyer . . . . . . . . . . . . . 13
6.1 Organization and Standing. . . . . . . . . . . . . . . . 13
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6.2 Corporate Authorization. . . . . . . . . . . . . . . . . 13
6.3 No Brokers or Finders. . . . . . . . . . . . . . . . . . 13
6.4 No Defaults. . . . . . . . . . . . . . . . . . . . . . . 13
6.5 Lawsuits, Proceedings, etc.. . . . . . . . . . . . . . . 13
6.6 No Breaches. . . . . . . . . . . . . . . . . . . . . . . 14
6.7 Payment of Note. . . . . . . . . . . . . . . . . . . . . 14
7. Employees . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
8. Closing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
8.1 General Procedure. . . . . . . . . . . . . . . . . . . . 14
8.2 Time and Place . . . . . . . . . . . . . . . . . . . . . 14
8.3 Possession . . . . . . . . . . . . . . . . . . . . . . . 14
9. Conditions to Obligations of Buyer. . . . . . . . . . . . . . . . 15
10. Conditions to Obligations of Seller. . . . . . . . . . . . . . . 16
11. Indemnification. . . . . . . . . . . . . . . . . . . . . . . . . 16
11.1 General. . . . . . . . . . . . . . . . . . . . . . . . . 16
11.2 Seller . . . . . . . . . . . . . . . . . . . . . . . . . 17
11.3 Buyer. . . . . . . . . . . . . . . . . . . . . . . . . . 17
11.4 Notification Re: Indemnification. . . . . . . . . . . . 17
11.5 Limitation on Liability. . . . . . . . . . . . . . . . . 18
11.6 Bulk Sales Compliance. . . . . . . . . . . . . . . . . . 18
12. Possession of Properties and Assets; Loss or Damage. . . . . . . 18
13. Termination. . . . . . . . . . . . . . . . . . . . . . . . . . . 18
13.1 Mutual Termination . . . . . . . . . . . . . . . . . . . 18
13.2 Seller's Right to Terminate. . . . . . . . . . . . . . . 18
13.3 Buyer's Right to Terminate . . . . . . . . . . . . . . . 18
14. Covenant Not To Compete: Confidentiality. . . . . . . . . . . . 18
15. Certain Post Closing Matters . . . . . . . . . . . . . . . . . . 19
15.1 Use of Premises at Minneapolis . . . . . . . . . . . . . 19
15.2 Continuance of Certain Activities by Seller. . . . . . . 20
15.3 Lease Deposit for Savage Lease . . . . . . . . . . . . . 20
16. Arbitration. . . . . . . . . . . . . . . . . . . . . . . . . . . 20
17. Sales and Use Taxes. . . . . . . . . . . . . . . . . . . . . . . 20
18. Use of the Name Vaughn . . . . . . . . . . . . . . . . . . . . . 21
19. Miscellaneous. . . . . . . . . . . . . . . . . . . . . . . . . . 21
ii
<PAGE>
19.1 Binding Effect . . . . . . . . . . . . . . . . . . . . . 21
19.2 Governing Law. . . . . . . . . . . . . . . . . . . . . . 21
19.3 Notices. . . . . . . . . . . . . . . . . . . . . . . . . 21
19.4 Entire Agreement . . . . . . . . . . . . . . . . . . . . 21
19.5 Assignment . . . . . . . . . . . . . . . . . . . . . . . 22
19.6 Expenses . . . . . . . . . . . . . . . . . . . . . . . . 22
19.7 Publicity. . . . . . . . . . . . . . . . . . . . . . . . 22
19.8 Counterparts; Facsimile Signatures . . . . . . . . . . . 22
19.9 Further Assurances . . . . . . . . . . . . . . . . . . . 22
19.10 Authority. . . . . . . . . . . . . . . . . . . . . . . . 22
</TABLE>
iii
<PAGE>
EXHIBIT 2.1
PURCHASE AND SALE AGREEMENT
This Agreement is made and entered into as of the 9th day of November,
1998, by and between Vaughn Communications, Inc. a Minnesota corporation,
with its principal offices in Minneapolis, Minnesota ("Seller") or
("Company"), and Gift Connections, Inc., an Iowa corporation. with its
principal offices in Plymouth, Minnesota ("Buyer").
WHEREAS, Seller is engaged in the sale of gift and souvenir products
through its Products Division ("the Division").
WHEREAS, the Buyer wishes to purchase and the Seller wishes to sell all
of the assets of Seller used, owned or leased by Seller in connection with
the operation and ownership of the Business (defined below), on the terms and
conditions set forth in this Agreement.
NOW, THEREFORE, in consideration of the representations, warranties and
covenants of Seller and Buyer set forth herein, Buyer and Seller hereby agree
as follows:
1. Purchase and Sale
1.1 Upon the terms and subject to the conditions set forth in this
Agreement, the Seller hereby agrees to sell, assign and transfer to Buyer the
Assets (defined below), including but not limited to the assets set forth on
Schedules 2.1(E) through 2.1(J) to this Agreement, and Buyer hereby agrees to
purchase and acquire the Assets.
2. Definitions
2.1 As used throughout this Agreement the following words and phrases
shall have the following meanings:
(A) "Agreement" means this Purchase and Sale Agreement by and between
Seller and Buyer along with all schedules and exhibits and amendments
thereto.
(B) "Assets" means all the assets, tangible and intangible, that are
used, owned or leased by Seller in connection with Seller's operation and
ownership of the Business, including but not limited to the Fixed Assets,
Intangibles, Inventory, Accounts and Notes Receivable and Other Assets, all
as defined below, excepting assets specifically excluded herein below.
Provided, however, that with respect to Assets of the Business located at
the Minneapolis, Minnesota facility, Assets shall include only those assets
used by Seller primarily in connection with Seller's operation and
ownership of the Business. Any real property owned by Seller shall be
specifically excluded from the terms of this Agreement.
(C) "Business" means the design, development, manufacturing,
purchasing and sale of gift and souvenir products as is presently conducted
by Seller through the Division.
<PAGE>
(D) "Closing" or "Closing Date means November 13, 1998 or such other
date the parties may agree to in writing, being the date on which the
transaction contemplated by the Agreement shall be completed. Buyer and
Seller recognize the need to perform the obligations, obtain the rights and
complete the transactions contemplated by the Agreement within the time
periods herein specified.
(E) "Fixed Assets" means equipment, accessories, machinery, furniture
and fixtures (excluding leasehold improvements) identified in Schedule
2.1(E) attached hereto.
(F) "Intangibles" means all items which are not tangible including:
noncompete agreements, reasonable business and financial records relating
to the Business (excluding general ledgers, matters relating to accounts
payable not assumed by Buyer and business records necessary for audit
purposes), computer records and tapes, copyrights, copyright applications,
corporate names, customer lists, vendor lists, telephone numbers, goodwill,
patents, patent applications, proprietary information, trademarks,
trademark applications, trade names (excluding the trade name "Vaughn" and
derivatives thereof)), trade secrets, and any and all of Seller's rights to
any of the foregoing as are identified in Schedule 2.1(F) attached hereto,
used in or relating to the Business.
(G) "Inventory" means all finished goods, raw materials, work in
process, supplies and inventory of Seller's Division identified in Schedule
2.1(G) attached hereto.
(H) "Accounts and Notes Receivable" means all accounts and notes of
the Business owed to the Seller identified in Schedule 2.1 (H) attached
hereto.
(I) "Liabilities to be Assumed by Buyer" means the liabilities set
forth on Schedule 2.1(I) attached hereto.
(J) "Other Assets" means those assets identified in Schedule 2.1(J)
attached hereto, including but not limited to personal and real property
leases and leasehold improvements, and books and records of the Business.
3. Purchase Price
3.1 Amount: Subject to any adjustments to which the Buyer or Seller
may be entitled in accordance with other Sections of this Agreement, the
total purchase price to be paid by Buyer shall be the sum of One Million Five
Hundred Fifty Thousand Dollars ($l,550,000.00) (the "Purchase Price"),
payable as follows:
(A) By 2:00 p.m. on November 10, 1998, the sum of Three Hundred
Thousand Dollars ($300,000.00) shall be delivered, by cashiers check or
wire transfer, to Firstar Bank of Minnesota, N.A., having its principal
corporate office in St. Paul, Minnesota, as Escrow Agent, pursuant to the
terms of an escrow agreement (the "Escrow Agreement") in the form attached
to this Agreement as Exhibit 3.1(A).
2
<PAGE>
(B) The sum of One Million Fifty Thousand Dollars ($1,050,000.00) at
Closing by delivery of a Promissory Note (the "Note") in the form attached
to this Agreement as Exhibit 3.1(B) issued by Buyer to Seller, secured by
the pledge of Buyer to Seller, pursuant to a security agreement (the
"Security Agreement) in the form attached as Exhibit 3.1(B)(2), of the
following property, whether purchased by Buyer from Seller at the Closing
or hereafter acquired and wherever located:
(1) Accounts and Notes Receivable set forth on Schedule 2.1(H)
attached to this Agreement, and all other accounts and notes
receivable of the Buyer (collectively the "Receivables");
(2) Accessions, additions and improvements to, replacements of, and
substitutions for any of the foregoing;
(3) Proceeds of any of the foregoing; and
(4) Books, records and data in any form relating to any of the
foregoing.
(5) Provided, however, from and after the date the Buyer makes a
$400,000 lump-sum payment under the Note to the Seller, the
security interest in the Receivables shall be limited to such
Receivables as are no more than sixty (60) days past due with an
aggregate fair market value of up to $900,000
(C) The assumption of the Liabilities to be Assumed by Buyer in the
amount of Two Hundred Thousand Dollars ($200,000.00), which liabilities are
set forth on Schedule 2.1(I).
(D) The total purchase price shall be adjusted as follows:
The parties hereto agree that the Purchase Price shall be adjusted at
the Closing as follows (by an adjustment to the face amount of, and final
payment on, the Note):
(1) During the period from and including October 31, 1998 through the
Closing Date (the "Adjustment Period"), (a) any amounts collected
by Seller from the Accounts and Notes Receivable set forth on
Schedule 2.1(H) and any amounts collected by Seller from other
accounts and notes receivable of Seller which are created or
generated during the Adjustment Period, shall be credited to the
Buyer and the Purchase Price shall be reduced in such amount; (b)
any amounts spent or expended by Seller for Inventory, as defined
at Section 2.1(G) of this Agreement (excluding operating costs
and other expenses not specifically identified at Section 2.1(G)
hereof) shall be credited to the Seller and the Purchase Price
shall be increased by such amount.
3
<PAGE>
(2) Buyer and Seller shall prorate as of the Closing Date all
payments made by Seller prior to Closing for rent, utilities,
property tax and other expenses relating to the real property
leases described in Schedule 4.5(I) attached to this Agreement.
Seller shall be credited with Seller's pro rata portion of such
payments which are applicable to periods following the Closing
Date and the Purchase Price shall be increased by such amount.
3.2 Allocation: It is agreed that the purchase price to be paid Seller
by Buyer under the terms of this Agreement shall be allocated among the
Assets to be purchased in the manner determined by Seller as will be set
forth in Schedule 3.2 prepared by Seller. The parties agree to report or
cause the reporting of this transaction for state and federal income tax
purposes on a basis consistent with and reflecting the allocation of purchase
price set forth in Schedule 3.2 as of the Date of Closing.
4. Conduct of the Business
4.1 Operation Until Closing: Pending consummation of the sale and
purchase of the Assets pursuant to this Agreement and until the Closing,
Seller shall continue to operate the Business in a prudent and commercially
reasonable manner. However, Seller shall not sell, lend, lien, pledge,
hypothecate, mortgage or otherwise encumber the Assets nor shall Seller make
any acquisition, enter into any purchase contracts, sales contracts, leases
or other commercial or initial arrangements which may affect the Assets or
the Business nor take any other action not in the ordinary course of business
without the prior express written consent of Buyer.
4.2 Negative Covenants: From October 30, 1998 through the Closing
Date, unless and until Buyer otherwise consents in writing, Seller will not
cause or permit the Company as it relates to the Business conducted by Seller
through the Division to (a) change or alter the makeup of the Current Asset
components or the physical contents or character of the Inventory, so as to
adversely affect the nature of its Business or adversely change the total
dollar valuation of such components from that reflected on the September 30,
1998 Financial Statements other than in the ordinary course of business; (b)
incur any obligations or liabilities (absolute or contingent) other than
current liabilities incurred and obligations under contracts entered into in
the ordinary course of business; (c) mortgage, pledge or voluntarily subject
to lien, charge or other encumbrance any Assets, tangible or intangible,
other than the lien of current property taxes not due and payable; (d) sell,
assign or transfer any of its Assets or cancel any debts or claims, other
than in the ordinary course of business; (e) waive any right of any
substantial value whether or not in the ordinary course of business; (f)
grant any increase in the salary ox other compensation of any of its
directors, officers, or employees or make any increase in any benefits to
which such employees might be entitled; (g) institute any bonus, benefit,
profit sharing, stock option, pension, retirement plan or similar
arrangement, or make any changes in any such plans or arrangements presently
existing; (h) enter into any transaction other than in the ordinary course of
business; or (i) to sell, offer for sale or negotiate the sale of the Assets
or any material part thereof, to or with anyone (other than the Buyer), until
11:59 P.M. CST, on November 17, 1998.
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4.3 Access to Books, Records and Premises: From the date of this
Agreement through the Closing Date, Seller shall cause the Company to grant
Buyer and its authorized representatives full access to the properties, books
and records, premises, employees, distributors, customers and auditors of the
Company related to the Business during reasonable business hours for purposes
of enabling Buyer to fully investigate the Business. Seller shall cause the
Company to deliver monthly financial statements of the Business to Buyer as
described in Section 5.7 from September 30, 1998 through the month end
immediately preceding the Closing Date, which statements shall be prepared on
a basis consistent with generally accepted accounting principles and with the
financial statements of September 30,1998. Any information obtained by Buyer
in connection with such review shall be maintained by Buyer on a confidential
basis (subject only to review by Buyer's counsel and accountants), and shall
not be disclosed to any other person m the event that the transactions
contemplated by this Agreement are not consummated.
4.4 Risk of Loss: The risk of loss shall remain with Seller until the
Closing Date, and Seller shall continue in force any and all fire, casualty,
theft or other insurance policies relating to the Business and Assets of the
Company.
4.5 Schedules: Except as noted below, the following Schedules are
attached hereto as of the date of signing this Agreements. As to Schedules
not attached as of the date of signing, Seller shall cause such Schedules to
be prepared and delivered to Buyer prior to the Closing, which delivery shall
be a condition to the Closing, and which Schedules shall be subject to the
written approval of Buyer.
Schedule 4.5(A): This schedule sets forth a list of all equipment,
machinery, furniture, fixtures, furnishings, leasehold improvements and other
similar that are owned by the Company and that are being used by the Company
primarily in connection with the Business conducted by it.
Schedule 4.5(B): This schedule lists each motor vehicle owned or leased
by the Business, together with vehicle identification numbers, any
outstanding loan against such vehicle, the person to whom the vehicle is
assigned and the location of the vehicle.
Schedule 4.5(C): This schedule lists all Intangible property used in
the Business by Seller in the conduct of its trade or business, including
without limitation, all trademarks, trade names (excluding the trade name
"Vaughn" and derivatives thereof), service names, service marks, copyrights,
patents, patent licenses, applications for any and all of the foregoing and
registrations thereof owned by the Company or used in its operations.
Schedule 4.5(D): Intentionally omitted.
Schedule 4.5(E): This schedule lists all permits, licenses and other
approvals and authorizations held or owned by Seller relating to the
Business, which to the best of Seller's knowledge, are necessary to conduct
the Business of the Company and sets forth the title, issuing agency and
expiration thereof.
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Schedule 4.5(F): Intentionally omitted.
Schedule 4.5(G): This schedule lists each employee of the Business and
the position, title, remuneration (including any scheduled salary and
remuneration increases), the date of employment and accrued vacation pay of
each such employee.
Schedule 4.5(H): Intentionally omitted.
Schedule 4.5(I): This schedule lists each lease for real property,
whether written or oral, to which the Business is a party, and any other
instrument under which the Business claims or holds an interest in real
property owned by another person, including a description of any underground
storage tanks owned or leased. True and correct copies of all such leases
will be delivered to Buyer on or before the Closing.
Schedule 4.5(J): This schedule lists and describes each lease for, or
license for, the use of equipment or personal property, whether written or
oral, to which the Business is a party, together with the term, rental,
security agreements, and other material provisions thereof. True and correct
copies of all such leases or licenses will be delivered to Buyer on or before
the Closing.
Schedule 4.5(K): This schedule lists the Accounts Receivable of the
Business aged as of October 30, 1998. Schedule 2.1(H) is incorporated hereat
by reference and therefore there is no separate Schedule 4.5(K).
Schedule 4.5(L): This schedule lists the following agreements, whether
oral or written, to which the Business is a party, as of the date of such
schedule, to the extent such agreements are not set forth in other schedules.
True and correct copies of all such agreements, if any, will be delivered to
Buyer on or before the Closing, except as set forth below:
(a) Each employment contract or agreement relating thereto between
the Company and any officer, consultant, director or employee, including
any bonus, incentive or deferred compensation plans, any confidentiality or
non-compete agreements, and any arrangements which encourage or compensate
Company's employees to stay with Company following the Closing Date.
(b) Each contract between the Company and any dealer, distributor,
broker, agent or sales representative, relating to the Business.
4.6 Updating of Schedules: Between the date of this Agreement and the
Closing Date, Seller shall deliver to Buyer updated schedules to reflect any
material changes in the schedules delivered to Buyer pursuant to Section 4.5
of this Agreement. On the Closing Date, Seller shall deliver to Buyer an
officer's certificate confirming the accuracy, as of the Closing Date, of
each of the schedules delivered to Buyer pursuant to this Agreement,
provided, however, that Buyer shall not be obligated to proceed with the
closing of the transactions contemplated by this Agreement if there are
material adverse changes from the schedules initially delivered to Buyer.
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4.7 Contractual Obligations Being Assumed by Buyer:
(A) Since June 1, 1998, Seller has, in the ordinary course of
operating the Business, ordered certain products from its vendors, on the
Company's purchase orders ("Purchase Orders"), for sale in the ordinary
course of the Business, all as set forth on Schedule 4.7 attached hereto.
Some or all of the products so ordered have not yet been delivered to
Seller nor paid for by Seller. To the extent such products are delivered
prior to the Closing Date, they will be paid for by Seller and title to
such products shall pass to Buyer at the Closing. Purchase Orders for
products not delivered prior to the Closing, shall be assumed by Buyer, and
Buyer shall be responsible for paying the vendor upon delivery of such
products. Provided, however, that with respect to any Purchase Orders for
products not yet delivered, Buyer shall have the option of canceling any
such Purchase Orders, and Seller shall not be responsible for paying the
vendor for any such canceled Purchase Order(s). Buyer acknowledges that
payment for certain Purchase Orders are secured by certain of Seller's
letters of credit, as identified on Schedule 4.7. Buyer shall have the
option of replacing the letters of credit or making other arrangements with
the vendors. However, if a vendor requires payment by Seller's letter of
credit securing a Purchase Order assumed by Buyer, then Buyer agrees to
immediately reimburse Seller for the amount paid by Seller. Buyer and
Seller agree to cooperate with each other with respect to dealing with
vendors of the Business.
(B) Buyer shall assume the real property leases described in Schedule
4.5(I).
(C) Buyer shall assume the personal property leases described in
Schedule 4.5(J).
(D) Buyer shall assume all the Howard Lowen Employment and
Noncompetition Agreement, the Sandra Roth Employment and Noncompetition
Agreement, and the Geoffrey King Agreement described in Schedule 4.5(L).
(E) Buyer shall assume all accrued and unpaid vacation compensation
due to employees of the Business as of the Closing Date, as described on
Schedule 4.5(G).
(F) Buyer shall assume the specific Liabilities to be Assumed by
Buyer set forth on Schedule 2.1(I).
Except for the obligations set forth in Sections 4.7(A), (B), (C),
(D), (E) and (F) above, Buyer is not assuming any obligations or
liabilities of Seller or the Business.
5. Representations and Warranties of Seller
Seller hereby represents and warrants to Buyer that:
5.1 General: The statements and Schedules set forth or referred to in
Sections 4 and 5 of this Agreement are true, accurate, complete and not
misleading in any material respect on the date of this Agreement and will
remain so as of the Closing.
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5.2 Standing: Seller is a corporation duly organized, validly
existing, and in good standing under the laws of the State of Minnesota.
Seller has all the necessary corporate powers to own properties, and to carry
on the Business as now owned and operated by it. Seller is qualified to do
business in each state or jurisdiction where its failure to so qualify would
materially adversely affect its ability to transfer the Assets to Buyer as
required hereunder.
5.3 Authority: Seller has the right, power, legal capacity and
authority to enter into and perform its obligations under this Agreement, and
as of the Closing, Seller shall have obtained and shall deliver at Closing
each and every approval and consent of any person and/or authority necessary
in connection herewith, except as set forth on Schedule 5.3 attached hereto.
The execution and delivery of this Agreement by Seller has been duly
authorized by its Board of Directors.
5.4 Material Change: There have not been since September 30, 1998 any:
(A) Transactions: Transactions relating to the Business except in
the ordinary course of business.
(B) Disclosure: There has not been and will be no material change in
the information set forth in the documents furnished or schedules and
exhibits to this Agreement between the date of such schedule or exhibit and
the date of this Agreement or the Closing Date. Seller has not knowingly
withheld from Buyer any material fact relating to the Assets, Business,
operations, financial condition or prospects of the Business. No
representation or warranty in this Agreement or other document furnished in
connection with the transactions contemplated hereby contains any untrue
statement of a material fact or omits to state any material fact required
to be stated therein to make the statements therein not misleading.
Without limiting the scope of the foregoing, Seller is not aware of any
change or occurrence that has taken place or is pending that could have a
material adverse effect on the value of the Assets or the Business, or the
ability of the Division to operate the Business subsequent to the Closing
Date in the manner in which it has been operated before the Closing Date,
or which could materially increase the costs incurred by the Company in
operating its business subsequent to the Closing Date, including any
pending or present change in any law or regulation, or other requirement,
concerning license or approvals.
(C) Waivers: Waivers or releases of any claim or right pertaining to
the Business.
(D) Other Events: Other events or conditions that have or might have
a material adverse affect on the Business.
5.5 No Liens or Encumbrances: The Company has good and adequate title
to the Assets employed in the operation of its Business, and at the Closing
all such Assets shall be free and clear of any mortgages, liens, claims,
charges, leases, security interests, pledges, easements, encumbrances and
title retention agreements of any kind whatsoever except such property and
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Assets as may be leased by the Company pursuant to leases described on
Schedule 4.5(B), 4.5(I) and 4.5(J), delivered pursuant to Section 4.5.
5.6 Liabilities: There are no liabilities, responsibilities, debts,
claims or obligations known or unknown, liquidated or contingent, fixed or
contingent related to the Assets of the Business which could become the
obligation or responsibility of Buyer other than those set in Section 4.7
hereof. Except as expressly assumed by Buyer in this Agreement, liabilities
of Seller shall be retained by Seller and are expressly not assumed by Buyer.
5.7 Financial Statements: Financial statements of the Business
('Financial Statements") are attached to this Agreement as Exhibit 5.7 which
will have been furnished to Buyer as follows:
(A) Balance sheets of the Business as of January 31, 1998, and
January 31, 1997, and statements of income and expenditures for the fiscal
years then ended have been furnished prior to the date of this Agreement.
(B) Balance sheets of the Business as of July 31, 1998, August 30,
1998 and September 30, 1998, and the statements of income and expenditures
for the periods then ended have been furnished prior to the date of this
Agreement.
Such Financial Statements present fairly and accurately in all material
respects the results of operations of the Business for the periods covered by
such statements, have been prepared in accordance with generally accepted
accounting principles applied on a basis consistent with past practices, and
include all adjustments (consisting only of normal recurring accruals) that
are necessary for a fair presentation of the financial condition of the
Business and the results of the Company's Business operations for the periods
covered by such statements.
5.8 No Defaults: Each of the leases, contacts and agreements listed on
the schedules referred to in Section 4.5 are in full force and effect as of
the date hereof with no defaults existing thereunder. If any such leases,
contracts or agreements or policies are not assumable, Seller will provide
consent of the lessor or contracting party at Closing, except for the consent
of Sandra Roth. The Company is not in default or breach under any of such
leases, contracts or agreements listed on schedules referred to in Section
4.5, and, to the best knowledge of Seller, no other party to any such leases,
contracts or agreements is in default or breach thereunder.
5.9 Inventory: All inventories reflected in the Financial Statements
are stated at the lower of cost or market first in, first out method and, as
so stated, are in good condition and are currently usable or salable, in the
ordinary course of the Business.
5.10 Accounts and Notes Receivable: The Accounts and Notes Receivable
of the Business as set forth in Schedule 2.1(H) are valid and enforceable
obligations due to the Company. The goods and services sold and delivered by
the Business that gave rise to such accounts and notes receivable were sold
and delivered in conformity with the applicable purchase orders, agreements
and specifications. Such Accounts and Notes Receivable are subject to no
valid defense or offsets except routine customer complaints of an immaterial
nature.
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5.11 Taxes: The Company has, as it relates to the Business, filed all
income, excise, corporate franchise, property, payroll, sales, import/export
tariffs and other tax returns or reports required to be filed by it, as of
the date hereof and has paid all taxes and assessments relating to the time
periods covered by such returns or reports. The amounts set up as provisions
for taxes in the Financial Statements are sufficient for the payment of all
unpaid federal, state or local taxes of the Company accrued for or applicable
to all periods ended on or prior to the date of this Agreement, or which may
subsequently be determined to be owing by the Company with respect to all
periods ending on or prior to the Closing Date. There are no present
disputes as to taxes of any nature payable by the Company related to the
Business. The most recent tax year for which the Company's federal income
tax returns have been audited by the Internal Revenue Service is its tax year
ending January 31, 1996.
5.12 Lawsuits, Proceedings, etc.: Except as described on Schedule 5.12,
there is no action or proceeding (whether or not purportedly on behalf of the
Company) pending or, to the best knowledge of Seller, threatened against the
Company, nor, to the best knowledge of Seller, does there exist any basis
therefor, which might result in any adverse change in the condition,
financial or otherwise, of the Company's Business or Assets. No order, writ
or injunction or decree has been issued by, or requested of, any court or
governmental agency which does or may result in any adverse change in the
Assets or properties or in the financial condition of the Business. The
Company is not liable for damages to any employee or former employee of the
Business as a result of any violation of any state or federal laws directly
or indirectly relating to such employee or former employee.
5.13 Regulatory Violations: The Company is not currently being charged
with nor, to the best knowledge of Seller, is it operating its Business in
violation of the federal Occupational Safety and Health Act of 1970, or the
regulations promulgated thereunder, the Environmental Quality Improvement Act
of 1970, or the regulations promulgated thereunder, or any other applicable
law or regulation relating to the import or export of goods or the
environment or occupational health and safety, including laws or regulations
relating to emission, discharges, releases or threatened releases of
pollutants, contaminants, or hazardous materials. To the best knowledge of
Seller, there are no physical conditions existing on any portion of the
Assets or the site(s) at which the Business of the Company is being conducted
that constitute a violation of any such law or regulation and no expenditures
will be required in order for the Company to comply with any such existing
law or regulation in connection with the operation of the Business after
Buyer acquires the Assets from Seller, including, without limitation,
expenditures relating to the clean-up or removal of any such pollutants,
contaminants or hazardous materials which may have been discharged prior to
the Closing Date at the site at which the Company is conducting the Business
or any other discharge site. To the best knowledge of Seller, the Company is
not operating the Business in violation of any applicable laws, regulations
or ordinances, nor is the Company relying on any exemption from or deferral
of any such applicable law or regulation that would not be available to it
after Buyer acquires the Assets from Seller.
5.14 Post Balance Sheet Changes: From September 30, 1998 through the
date of the Agreement, the Company has not, related to the Business, (a)
mortgaged, pledged or subjected to lien, charge or other encumbrance any
asset, tangible or intangible, other than the lien of current
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or real property taxes not yet due and payable; (b) suffered any damage,
destruction or loss, whether or not covered by insurance, materially
adversely affecting its assets or its business; (c) made or suffered any
amendment or termination of any material business; (d) received notice or had
knowledge of any labor organizing efforts or labor trouble other than routine
grievance matters, none of which is material; (e) revalued any of its assets;
or (f) entered into any transactions not in the ordinary course of business.
5.15 No Breaches: The Company is not in violation of, and the
execution, delivery and performance of this Agreement will not result in any
breach or acceleration of, any of the terms or conditions of its articles of
incorporation or bylaws or of any mortgage, bond, indenture, agreement,
contract, license or other instrument or obligation to which the Company is a
party or by which the Assets are bound, nor will they result in any violation
of any statute, regulation, judgment, writ, injunction or decree of any
court, threatened or entered in a proceeding or action in which the Company
may be bound or to which any of the Assets are subject.
5.16 Condition of the Assets: All of the tangible assets included in
the Assets ("Tangible Assets") are in good and usable condition and are fit
for their intended purposes, ordinary wear and tear excepted. There are no
defects in such Tangible Assets or other conditions which, in the aggregate,
materially and adversely affect the operation or value of such Tangible
Assets.
5.17 Employees: Seller has no information indicating that any
management or key employee of the Business intends to terminate his
employment with the Company. There is not pending or, to the best knowledge
of Seller, threatened any labor dispute, strike or work stoppage against the
Business. To the best knowledge of Seller, neither the Company nor any
representative or employee of the Company has committed any unfair labor
practices in connection with the operation of the Company's Business, and
there is not pending or, to the best knowledge of Seller, threatened any
charge or complaint against the Company by the National Labor Relations Board
or any comparable state agency. The Company is not, and will not become,
liable for any retroactive workers' compensation insurance premiums or
retroactive unemployment compensation experience ratings or charges in
connection with the operation of its Business relating to the period of time
prior to the date of this Agreement.
5.18 Changes in Suppliers and Customers: Seller is not aware of any
fact which indicates that any of the suppliers supplying products, components
or materials to the Business intends to cease selling such products to the
Business or to limit or reduce such sales of products to the Business nor is
Seller aware of any fact which indicates that any major customer of the
Business intends to terminate, limit or reduce its business relations with
the Business.
5.19 Intangible Property Rights:
(A) At or prior to the Closing, the Company will own or exclusively
hold all rights to, free and clear of all liens, claims and restrictions,
all patents, trademarks, service marks, trade names, and copyrights used in
the conduct of the Company's Business as now conducted. The Company does
not, to the knowledge of Seller, after due inquiry and the exercise of
reasonable diligence, infringe upon the right or claimed
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right of any person under or with respect to any of the above. The
Company is not obligated or under any liability whatsoever to make any
payments by way of royalties, fees or otherwise to any owner of,
licensor of, or other claimant to any patent used in the conduct of its
Business, nor is the Company presently under any license or contract
obligation to pay royalties or fees with respect to third-party
trademarks, copyrights or other intellectual property in connection with
the conduct of the Company's Business.
(B) Seller has no knowledge of, nor has Seller received any notice
of, any facts which indicate that the Company does not either (i) own or
(ii) have the unrestricted right to the use of all know-how, customer
lists, inventions, designs, processes, computer programs and technical data
necessary to the development, manufacture, operation and sale of all
products and services sold by it in connection with the Business, including
trade secrets, free and clear of any rights, liens and claims of others.
To the knowledge of Seller, after due inquiry and the exercise of
reasonable diligence, the Business is not using any confidential
information or trade secrets of any former employer of any of its past or
present employees or of any past or present employee or consultant.
5.20 No Brokers or Finders: No person, firm or corporation has any
right, interest or valid claim against Seller or the Company for any
commission, fee or other compensation as a finder or broker in connection
with the transactions contemplated by this Agreement.
5.21 ERISA: Except as specifically provided with respect to vacation
pay as set forth in Section 4.7(E) of this Agreement, Employee benefit plan
obligations of the Seller, pursuant to ERISA, will be paid by and will be the
sole responsibility of Seller.
5.22 The Assets, as described herein, constitute all of the material
assets, tangible and intangible, used, owned or leased by Seller in
connection with the operation and ownership of the Business.
6. Representations and Warranties of Buyer
The Buyer hereby represents and warrants to the Seller as follows:
6.1 Organization and Standing: Buyer is a corporation duly organized,
validly existing and in good standing under the laws of Iowa, and has all
requisite corporate power and authority to enter into this Agreement and to
consummate the transactions contemplated by this Agreement.
6.2 Corporate Authorization: The execution, delivery and performance
of this Agreement by Buyer have been duly authorized by proper corporate
action of Buyer and are within its corporate powers. This Agreement
constitutes the legal, valid and binding obligation of Buyer and is
enforceable against Buyer in accordance with its terms, except to the extent
that enforcement thereof may be limited by bankruptcy, insolvency,
reorganization, moratorium, fraudulent conveyance or other similar laws
affecting enforcement of creditors' rights generally, and general principles
of equity (regardless of whether enforcement is considered in a proceeding at
law or in equity).
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6.3 No Brokers or Finders: No person firm or corporation has any
right, interest or valid claim against Buyer for any commission, fee or other
compensation as a finder or broker in connection with the transactions
contemplated by this Agreement other than Manchester Financial and Marsh Run
Capital, Inc., which fees or compensation shall be paid by and shall be the
sole responsibility of Buyer.
6.4 No Defaults: The Buyer is not in default or breach under any
provisions of this Agreement or any other Agreement between the parties on
the date of this Agreement and will not be in default or breach as of the
Closing.
6.5 Lawsuits, Proceedings, etc.: Except as disclosed to Seller in
writing there is no action or proceeding (whether or not purportedly on
behalf of the Buyer) pending or, to the best knowledge of Buyer, threatened
against the Buyer, nor, to the best knowledge of Buyer, does there exist any
basis therefor, which might result in any adverse change in the condition,
financial or otherwise, of the Buyer's Business or Assets. No order, writ,
or injunction or decree has been issued by, or requested of, any court or
governmental agency which does or may result in any adverse change in the
Buyer's Assets or properties or in the financial condition of the Buyer or
its business. The Buyer is not liable for damages to any employee or former
employee as a result of any violation of any state or federal laws directly
or indirectly relating to such employee or former employee.
6.6 No Breaches: The Buyer is not in violation of, and the execution,
delivery and performance of this Agreement will not result in any breach or
acceleration of, any of the terms or conditions of its articles of
incorporation or bylaws or of any mortgage, bond, indenture, agreement,
contract, license or other instrument or obligation to which the Buyer is a
party or by which its assets are bound, nor will they result in any violation
of any statute, regulation, judgment, writ, injunction or decree of any
court, threatened or entered in a proceeding or action in which the Buyer way
be bound or to which any of its assets are subject.
6.7 Payment of Note: The Buyer will take all necessary action to pay
the Note in full in accordance with its terms. The Buyer shall use
commercially reasonable efforts to obtain the necessary financing to pay the
Note in full in accordance with its terms.
7. Employees
7.1 Immediately after the Closing, Buyer will employ or will offer to
employ all individuals previously employed by Seller in the Business. In any
case, Buyer shall employ a sufficient number of individuals previously
employed by Seller in the Business so as to avoid liability under the federal
Worker Adjustment and Retraining Notification Act ("WARN Act").
7.2 Except as otherwise specifically agreed in this Agreement, whether
or not Buyer after Closing employs any or all employees of Seller, Seller
shall retain and remain solely liable for any and all claims, including
retirement benefits, workman's compensation and medical claims (excluding
accrued and unpaid vacation leave) which arise out of, are associated with or
are based upon conditions, events or employment which occurred prior to
Closing.
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8. Closing
8.1 General Procedure: At the Closing each party shall deliver to the
other party, in form and substance satisfactory to the other party, such
documents, instruments and materials required to effectuate the provisions of
this Agreement.
8.2 Time and Place: The Closing shall take place on November 13, 1998
in Minneapolis, Minnesota, effective as of 8:00 p.m., Minneapolis time, at a
place mutually determined, or at such other time, date and place, as the
parties may agree to in writing. The parties may close by facsimile
transmission or other means agreed to.
8.3 Possession: At the Closing, Seller shall put Buyer into full
possession and enjoyment of all the Assets being acquired by Buyer, and shall
provide to Buyer the keys to any locks used at or within the leased premises
being assigned to Buyer, and any alarm codes used at said premises.
9. Conditions to Obligations of Buyer
9.1 The obligation of Buyer to complete the purchase of the assets on
the Closing Date in accordance with the terms set forth in this Agreement is,
at the option of the Buyer, subject to the satisfaction (or waiver by Buyer)
of each of the following conditions:
(A) Accuracy of Representations and Warranties: The representations
and warranties made by Seller in this Agreement shall be correct in all
material respects on and as of the Closing Date with the same force and
effect as though such representations and warranties had been made on the
Closing Date.
(B) Opinion of Counsel: Buyer shall have received the opinion of
Gray Plant Mooty, Mooty & Bennett, the Seller's legal counsel, dated the
Closing Date and in form and substance satisfactory to Buyer's legal
counsel, stating the substance of the representations and warranties set
forth in Sections 5.2, 5.3, and 5.12 of this Agreement. Counsel shall be
entitled to rely upon certificates of governmental officials and, as to
factual matters, upon certificates of the president of the Company.
(C) Delivery of Closing Documents: Seller shall have delivered to
Buyer each of the Schedules listed in Section 2.1 (E through J), Section
4.5 and 4.6 and 5.7 and such items shall be satisfactory in form and
substance to Buyer and include:
(1) A Bill of Sale transferring the assets to Buyer duly
executed by Seller in the form attached as Exhibit 9.1(C)(1).
(2) Assignments executed by Seller to the corporate name,
trademarks, trade names, copyrights, customer lists, vendor lists,
telephone numbers used in the Business, and other intangibles in the
form attached as Exhibit 9.l(C)(2), suitable for recording in the
United States Patent and Trademark Office.
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(3) Assignments or consents executed by Seller or third parties
for leases, licenses, contracts or other agreements listed in Section
4.5 herein.
(4) Certified copy of corporate resolutions authorizing the
execution of this Agreement and the consummation by Seller of the
transactions of the Agreement.
(5) Duly executed instruments or documents sufficient to
terminate all security interests, liens, claims and encumbrances
against the Assets being sold to Buyer hereunder.
(6) A duly executed Officer's Certificate, as required by
Section 4.6, in form and substance reasonably acceptable to Buyer.
10. Conditions to Obligations of Seller
10.1 The obligation of Seller hereunder to complete the sale of the
Assets on the Closing Date on the terms set forth in this Agreement is
subject to the satisfaction (or waiver by the Seller) of each of the
following conditions:
(A) Accuracy of Representations and Warranties: The representations
and warranties of Buyer in this Agreement shall be correct in all material
respects as of the Closing Date.
(B) Opinion of Counsel: Seller shall have received the opinion of
Moss & Barnett, P.A., the Buyer's legal counsel, dated the Closing Date and
in form and substance satisfactory to Seller's legal counsel, stating the
substance of the representations and warranties set forth in Sections 6.1,
6.2 and 6.5. Counsel shall be entitled to rely upon certificates of
governmental officials and, as to factual matters, upon certificates of the
President of Buyer.
(C) Real Property Leases: Buyer shall have assumed the real property
leases described in Section 4.5(I), subject to the Lessors' consent.
(D) Payment: Buyer shall have delivered the purchase price payment
according to the terms of Section 3.1 of this Agreement, and shall have
delivered the documents described in Section 3.1, including, but not
limited to, the Escrow Agreement, the Note and the Security Agreement.
(E) Financial Statements: Buyer shall have delivered to Seller
financial statements of Buyer which are current as of October 31, 1998.
(F) Financing: Buyer shall have delivered to Seller by to
November 13, 1998 written evidence of Buyer's financing for purposes of
consummating the Closing contemplated by this Agreement, to the
satisfaction of Seller.
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(G) Financing Post Closing: On or before December 21, 1998, Buyer
shall deliver to Seller written evidence of Buyer's financing for purposes
of consummating the entire transaction contemplated by this Agreement, to
the satisfaction of Seller. The phrase "to the satisfaction of Seller" in
Subsections 10.1(F) and (G) means that the documentation presented by Buyer
is adequate, in Seller's good faith and reasonable judgment, to show that
Buyer is more likely than not capable of paying the Note when due. Seller
shall not reject any written evidence presented by Buyer based upon the
terms of Buyer's financing.
11. Indemnification
11.1 General: The representations and warranties contained in this
Agreement shall survive the Closing for a period of twelve (12) months after
the Closing Date, except for the representations and warranties in Section
5.11, which shall survive for a period of two (2) years after the Closing
Date.
11.2 Seller: Seller shall indemnify and hold Buyer harmless against and
from any material losses, claims, costs, demands, damages, suits or
liabilities, including without limitation in each case the cost, expenses and
attorney's fees reasonably incurred by Buyer resulting from, arising out of,
incident to or based upon: (i) Seller's ownership of the Assets and
activities associated with the conduct of the Business prior to Closing; (ii)
any material breach of any of the representations, covenants or warranties of
Seller provided in this Agreement, or any misrepresentation in any
certificate or document delivered to Buyer hereunder; (iii) any claims by
third parties alleging strict liability in tort, express or implied warranty
or contract seeking compensation for property damage, bodily injury and or
death related to or arising out of, incident to or associated with the
design, manufacture, sale, installation, operation, use, service and/or
maintenance of any product associated with the Business prior to Closing; and
(iv) any lawsuit or proceeding listed on Schedule 5.12. Seller agrees to
keep, pay and perform all such liabilities and obligations not expressly
assumed hereunder by Buyer in accordance with their respective terms and
conditions and shall indemnify, defend and hold harmless Buyer in respect
thereto and any costs, expenses (including reasonable attorneys' fees), or
other liabilities incurred by Buyer with respect to such liabilities and
obligations of Seller.
11.3 Buyer: Buyer shall indemnify and hold Seller harmless against and
from any material losses, claims, cost, demands, damages, suits or
liabilities, including, without limitation, in each case the costs, expenses
and attorney's fees reasonably incurred by Seller resulting from, arising out
of or based upon: (i) any material breach of any of the representations,
covenants; or warranties of Buyer provided in this Agreement, or any
misrepresentation in any certificate or document delivered to Seller
hereunder; or (ii) Buyer's ownership and operation of the Business subsequent
to Closing.
11.4 Notification Re: Indemnification: Buyer or Seller, as the case
may be, shall promptly notify the other party, of any claim, demand, or other
matters to which the indemnification obligations would pertain, and will give
the indemnifying party a reasonable opportunity to defend the same at its own
expense and with counsel of its own selection
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(reasonably acceptable to the indemnified party). Provided that the
indemnified party will at all times also have the right to participate fully
in the defense at its own expense; and provided further that failure to give
such prompt notice will not relieve the indemnifying party of its indemnity
obligations unless the indemnifying party elects to defend the claim and such
defense was irreparably and materially prejudiced by the indemnified party's
failure to give prompt notice. If, within a reasonable time after the giving
of notice, the indemnifying party fails to defend, the indemnified party
shall have the right, but not the obligation, to undertake the defense of,
and to compromise or settle (exercising reasonable business judgment and in
consultation with the indemnifying party), the claim or other matter on
behalf and at the risk of the indemnifying party. If the claim is one that
cannot by its nature be defended solely by the indemnifying party (including
federal or state tax proceedings), the indemnified party shall promptly make
available all information and assistance the indemnifying party may
reasonably request.
11.5 Limitation on Liability: Seller's and Buyer's maximum liability
under Sections 11.2 and 11.3, respectively, exclusive of attorneys' fees and
costs of suit or arbitration, shall be limited to $1,550,000.00.
11.6 Bulk Sales Compliance: Seller has agreed to indemnify and hold
Buyer harmless from all liabilities arising from Seller's operation of the
Business that have been assumed by Buyer under the terms of this Agreement.
In reliance upon said indemnification, Buyer waives and releases Seller from
Seller's obligation under any applicable Bulk Transfer Law for the state of
Washington or Alaska.
12. Possession of Properties and Assets; Loss or Damage
12.1 Buyer shall not acquire any title to or right in the Assets until
Closing, and accordingly, all risk of loss with respect to the Assets shall
be borne by Seller.
12.2 At the Closing, Seller shall put Buyer into full possession and
enjoyment of all the Assets being acquired by Buyer, and shall provide to
Buyer the keys to any locks used at or within the leased premises being
assigned to Buyer, and any alarm codes used at said premises.
13. Termination
13.1 Mutual Termination: This Agreement may be terminated by the mutual
written agreement of Buyer and Seller at any time.
13.2 Seller's Right to Terminate: If Seller is not obligated at or
prior to Closing to perform pursuant to this Agreement because of the failure
of any condition specified in Section 10, in addition to other right it may
have at law or in equity, including the right of specific performance of this
Agreement, Seller may terminate this Agreement by delivery to Buyer of a
written notice of such termination.
13.3 Buyer's Right to Terminate: If Buyer is not obligated at or prior
to Closing to perform pursuant to his Agreement because of an event specified
in Section 9, in addition to any
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other right it may have at law or in equity, including the right of specific
performance of this Agreement, Buyer may terminate this Agreement by delivery
to the Seller of written notice of such termination.
14. Covenant Not To Compete: Confidentiality
14.1 For two (2) years from and after the date of the Closing ("Closing
Date"), the Company agrees not to directly or indirectly, engage in, have any
interest in, perform services for, advise, be financially interested in, or
loan money to, any person, firm, corporation, or business that engages in a
business that is the same as or competitive with the Business as the Business
is operated on the Closing Date. The foregoing non-competition covenant
shall be applicable to each city, county and state or similar political
subdivision in such state (a) in which the Business was carried on as of the
Closing, and (b) in which Buyer, its successors and assigns carries on the
Business at any time thereafter during the term of the covenant. The names
of all such cities, counties or similar political subdivisions and states are
incorporated herein by reference. All such cities, counties and states are
referred to herein as the "Restricted Territory." The Business as of the
Closing Date shall be defined as the manufacture and sale of gift and
souvenir products to tourist and souvenir locations. Notwithstanding
anything to the contrary set forth herein, the following activities and/or
products shall be excluded from the definition of competition: services or
products (including gift and promotional products) related to video tapes and
the duplication thereof, compact discs and the replication thereof, and
floppy diskettes and the replication thereof.
14.2 The foregoing non-competition provisions shall be construed as
covenants independent of any other provision in this Agreement. If any
portion of the non-competition provisions are held to be unreasonable,
arbitrary or against public policy, the provisions shall be considered
divisible both as to time and geographical area. In such case, each month of
the specified period shall be deemed a separate period of time, and each
county of each State in the Restricted Territory shall be deemed a separate
geographical area. The parties agree that, in the event any court of
competent jurisdiction determines the specified time period or the specified
geographical areas to be unreasonable, arbitrary or against public policy, a
lesser time period or geographical area, which is determined by the court to
be enforceable for any reason, may be enforced against the Company.
14.3 Company agrees nor to divulge, communicate, use to the detriment of
Buyer or for the benefit of any other person or persons, or misuse in any
way, any confidential information or trade secrets related to the Business,
including personnel information, secret processes, know-how, customer lists,
vendors lists, or technical data.
14.4 The parties agree that in the event of a breach of any of the
provisions of subsections 14.1 through 14.3, that the damages will be
difficult if not impossible to ascertain. Accordingly, the Company agrees
that Buyer shall be entitled to equitable and injunctive relief in the event
of any such breach, without the necessity of proving actual damages.
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15. Certain Post Closing Matters
15.1 Use of Premises at Minneapolis: From the Closing Date to February
28, 1999, Seller will lease to Buyer, rent free, approximately 3,500 square
feet of space (the "Premises") presently being used in connection with the
Business at the Minneapolis facility, for delivery and storage of goods, for
dispensing materials to subcontractors and related uses. From March 1, 1999
to August 30, 1999, Seller will lease the Premises to Buyer, at a rental of
$0.50 per square foot per month (which rent includes all utilities and
related operating costs but shall exclude Buyer's general commercial
liability insurance). Buyer shall provide to Seller at Closing written
evidence satisfactory to Seller of general commercial liability insurance in
a commercially reasonable amount listing Seller as a named insured. All rent
shall be due on the first day of each month with a five percent (5%) penalty
for rent not paid by the tenth (10th) day of such month.
15.2 Continuance of Certain Activities by Seller: After the Closing
Date, so that Buyer has a period to transition into the Business, Seller
will, to the extent reasonably required by Buyer, for approximately 45 days,
continue the accounting functions for the Business (other than payroll) on
behalf of Buyer. Additionally, at Buyer's expense, during the term of the
lease referred to in Section 15.1 above, Seller will provide two (2) of
Seller's employees to handle dispensing, receiving, storing and other
operations with respect to leather goods usually handled or processed for the
Business at the Minneapolis facility of Seller. Costs of such services shall
be paid by Buyer at a monthly rate for all of such services of a total of Six
Thousand Five Hundred and Seventy Eight Dollars ($6,578.00) for salary and
Eight Hundred and Ninety Dollars ($890.00) for benefits,, which amount shall
be paid on the first day of each month for which such services will be
provided.
15.3 Lease Deposit for Savage Lease: Seller agrees to maintain its
Security Deposit of $10,000.00 delivered to the Landlord under the Savage
Lease referred to in Schedule 4.5(I). At such time as the Savage Lease
terminates or expires (without taking into consideration any extension to its
terms or any other modification or amendment), Buyer shall ensure that the
Security Deposit is promptly returned to Seller, except for any sums withheld
by the Landlord for damage caused by Seller prior to Buyer's assumption of
the Savage Lease.
16. Arbitration: The parties shall submit any dispute arising out of this
Agreement, including the interpretation of or the enforcement of rights and
duties under this Agreement, to final and binding arbitration pursuant to the
Commercial Arbitration Rules of the American Arbitration Association, in
Minneapolis, Minnesota. Arbitration shall be conducted by a single, neutral
arbitrator, or, at the election of any party, three neutral arbitrators,
appointed in accordance with the Commercial Arbitration Bales of the American
Arbitration Association. The arbitrator(s) shall be attorneys in practice
for at least five years, and experienced in the matter(s) being arbitrated.
The award of the arbitrator(s) shall be enforceable according to the laws of
the State of Minnesota. The arbitrator(s) shall have the same powers as
those of a trial court judge, and shall render a decision as would a judge.
The parties shall have such discovery rights as the arbitrator(s) may allow.
Notwithstanding the foregoing, either party shall have the right to seek
injunctive relief or other equitable remedies against the other for any
violation or breach by such party of its obligations hereunder pending a
decision by the arbitrator(s). If proper notice of any
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hearing has been given, the arbitrator(s) will have full power to proceed to
take evidence or to perform any other acts necessary to arbitrate the matter
in the absence of any party who fails to appear. EACH PARTY HERETO WAIVES
THE RIGHT TO A JURY TRIAL.
17. Sales and Use Taxes: Seller shall pay all sales and use taxes arising
from the transfer of the Assets to Buyer.
18. Use of the Name Vaughn: Some of the Inventory being purchased by Buyer
bears the name Vaughn. Seller agrees that Buyer may sell such products
bearing the Vaughn name and returned products bearing the Vaughn name, for a
period of eighteen (18) months following the Closing Date.
19. Miscellaneous
19.1 Binding Effect: This Agreement shall be binding upon and inure to
the benefit of and be enforceable against the parties hereto and their
respective successors and permitted assigns.
19.2 Governing Law: This Agreement shall in respects of substantive
issues be governed by, and enforced and interpreted in accordance with, the
laws of the State of Minnesota.
19.3 Notices: All notices or other communications provided for herein
shall be in writing and shall be deemed validly given, when delivered
personally or sent by registered or express mail, postage prepaid, and,
pending the designation of another address, addressed as follows:
If to Buyer: Dean W.Fitch, President
Gift Connections, Inc.
625 Vicksburg Lane
Plymouth, Minnesota 55447
With a copy to: Moss & Barnett, P.A.
Attn: Janna R. Severance, Esq.
90 South 7th Street, Suite 4800
Minneapolis, Minnesota 55402-4129
If to Seller: E. D. Willette, CEO
Vaughn Communications, Inc.
5050 West 78th Street
Minneapolis, Minnesota 55435
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With a copy to: Gray, Plant, Mooty, Mooty & Bennett, P.A.
Attn. Nevin R. Harwood
3400 City Center
33 South Sixth Street
Minneapolis, Minnesota 55402-3796
19.4 Entire Agreement: This Agreement, the exhibits attached hereto,
and schedules delivered pursuant to the provisions hereof, set fort the
entire agreement between Seller and Buyer relating to the transaction
contemplated herein, superseding any prior oral or written agreement or
understanding between them. This Agreement shall be amended or modified only
by written instrument signed by both parties.
19.5 Assignment: Seller hereby agrees that Buyer may assign its rights,
and delegate its responsibilities, under this Agreement to a wholly-owned
subsidiary corporation; provided, however, that Buyer shall remain obligated
to cause such subsidiary corporation to complete the purchase of the assets
and carry out Buyer's obligations in the manner contemplated by this
Agreement. Buyer hereby agrees that Seller may assign its rights and delegate
its responsibilities under this Agreement to either a wholly-owned subsidiary
corporation, or to a corporation that owns fifty percent or more of the
issued and outstanding capital stock of Seller.
19.6 Expenses: Each party shall pay for its own legal, accounting and
other similar expenses incurred in connection with the transactions
contemplated by this Agreement.
19.7 Publicity: All notices to third parties and other publicity
relating to the matters contemplated by this Agreement shall be jointly
planned and coordinated between Seller and Buyer, and neither party shall
unilaterally release such notices or publicity without the prior written
approval of the other party.
19.8 Counterparts; Facsimile Signatures: This Agreement may be executed
in one or more counterparts, each of which will be considered an original,
but all of which together will constitute one and the same instrument. This
Agreement may be signed by facsimile signatures, which shall have the same
force and effect as an original signature.
19.9 Further Assurances: Each party hereto shall execute such documents
or instruments and that such further actions as may be reasonably required or
desirable to carry out the provisions hereof and the transactions
contemplated hereby.
19.10 Authority: Any individual executing this Agreement on behalf of
an entity represents and warrants that such individual has the right and
power to so execute this Agreement on behalf of such entity and that this
Agreement will be binding upon such entity.
IN WITNESS WHEREOF, Seller and Buyer have executed this Agreement as of
the date set forth in the first paragraph.
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Buyer: Seller:
GIFT CONNECTIONS, INC. VAUGHN COMMUNICATIONS, INC.
By: /S/ Dean W. Fitch By: /S/ M. Charles Reinhart
Dean W. Fitch M. Charles Reinhart
President CFO
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