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) July 23, 1998
EQUITY MARKETING, INC.
(Exact name of registrant as specified in charter)
Delaware 23346 13-3534145
(State or Other Jurisdiction (Commission (IRS Employer
of Incorporation) File Number) Identification No.)
131 South Rodeo Drive, Beverly Hills, California 90212
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code: (310) 887-4300
Not Applicable
(Former Name or Former Address, if Changed Since Last Report)
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ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS.
On July 23, 1998, Equity Marketing, Inc. (the "Company") acquired
substantially all of the assets of Contract Marketing, Inc., a Massachusetts
corporation, and U.S. Import & Promotions Co., a Florida corporation (the
"Acquired Businesses"), in exchange for $15,000,000 in cash plus potential
additional cash consideration based upon the results of operations of the
Acquired Businesses during each calendar year through December 31, 2002 as set
forth in the respective Asset Purchase Agreements, dated as of July 23, 1998, by
and among the Company and each of Contract Marketing, Inc. and U.S. Import &
Promotions Co. The source of funds used for the acquisitions was bank borrowings
from the Company's existing credit facility with Sanwa Bank California and
Imperial Bank.
The Acquired Businesses focus primarily on promotions for
oil and gas and other retailers. The Company intends to continue
to use the acquired assets for this purpose. The operations of the
Acquired Businesses are located in West Boylston, Massachusetts,
St. Augustine, Florida and Miami Florida.
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND
EXHIBITS.
a. Financial Statements of Acquired Business.
Combined financial statements for Contract Marketing, Inc. and
U.S. Import & Promotions Co. are not included with this filing on
Form 8-K. Pursuant to the requirements of this item, such
financial statements will be filed by amendment no later than
October 6, 1998.
b. Pro Forma Financial Information.
Pro forma financial information reflecting the acquisition of
Contract Marketing, Inc. and U.S. Import & Promotions Co. is not
included with this filing on Form 8-K. Pursuant to the
requirements of this item, such pro forma financial information
will be filed by amendment no later than October 6, 1998.
c. Exhibits.
10.1. Asset Purchase Agreement, dated July 23, 1998, by and among
Equity Marketing, Inc., Contract Marketing, Inc., John C.
McDaniel and Philip A. McDaniel.
10.2. Asset Purchase Agreement, dated July 23, 1998, by and among
Equity Marketing, Inc., U.S. Import & Promotions Co., Philip A. McDaniel and
John C. McDaniel.
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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.
EQUITY MARKETING, INC.
Dated: August 6, 1998 By: /s/ Michael J. Welch
Michael J. Welch
Executive Vice President and
Chief Financial Officer
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EXHIBIT INDEX
No. Description
10.1. Asset Purchase Agreement, dated July 23, 1998, by and among
Equity Marketing, Inc., Contract Marketing, Inc., John C.
McDaniel and Philip A.
McDaniel.
10.2. Asset Purchase Agreement, dated July 23, 1998, by and among
Equity Marketing, Inc., U.S. Import & Promotions Co., Philip A.
McDaniel and John C.
McDaniel.
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ASSET PURCHASE AGREEMENT
DATED AS OF
JULY 23, 1998
BY AND AMONG
EQUITY MARKETING, INC.
AND
CONTRACT MARKETING, INC.
JOHN C. MCDANIEL
AND
PHILIP A. MCDANIEL
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ASSET PURCHASE AGREEMENT
ASSET PURCHASE AGREEMENT, dated as of July 23, 1998 (this "AGREEMENT"),
by and among (i) Equity Marketing, Inc., a Delaware corporation ("EQUITY"), (ii)
Contract Marketing, Inc., a Massachusetts corporation (the "COMPANY"), (iii)
John C. McDaniel, an individual residing at 23 Metcalf Street, Worcester,
Massachusetts 01609 (the "PRINCIPAL") and (iv) Philip A. McDaniel, an individual
residing at 51 Water Street, St. Augustine, Florida 32084.
RECITALS:
WHEREAS, the Principal owns all of the issued and outstanding capital stock
of the Company;
WHEREAS, Equity, for itself or through a wholly-owned subsidiary,
desires to purchase and the Company desires to sell substantially all of the
assets used by the Company in the operation of its promotional products business
(the "BUSINESS"), upon the terms and subject to the conditions set forth in this
Agreement;
WHEREAS, the Company and the Principal have determined that it is in
the best interest of the Company, and in furtherance of its purposes, to sell
substantially all assets, real and personal and mixed, tangible and intangible,
owned or leased by the Company and associated with or employed in the operations
of the Business, and substantially all other related operations owned or leased
by the Company to Equity, subject to the assumption by Equity of certain
specified liabilities of the Company, as are more fully described herein.
NOW, THEREFORE, in consideration of the mutual promises and agreements
hereinafter contained, the parties hereto agree as follows:
ARTICLE I
DEFINITIONS
The following terms shall have the following respective meanings for
all purposes of this Agreement:
"ACQUIRED BUSINESSES" shall mean sales of Promotional Products and
Services to the customers of the Company and U.S. Import identified on SCHEDULE
1 hereto and to such additional customers, and of such additional promotional or
other products and services, as may be solicited and secured by the Principal or
Philip A. McDaniel and agreed by good faith negotiations among Equity, the
Principal and Philip A. McDaniel; PROVIDED, HOWEVER, that products, services or
customers subsequently acquired by Equity as a result of mergers or acquisitions
shall not be deemed part of the "Acquired
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Businesses" unless otherwise agreed by good faith negotiations among Equity, the
Principal and Philip A. McDaniel.
"ACQUISITION" shall mean the purchase and sale of the Assets pursuant
to the terms of this Agreement.
"AFFILIATE" shall mean, with respect to any Person, any other Person
that, directly or indirectly, controls or is controlled by or is under common
control with such Person. As used in this definition, the term "control" and any
derivatives thereof mean the possession, directly or indirectly, of the power to
direct or cause the direction of the management and policies of a Person,
whether through ownership of voting securities, by contract, or otherwise. In
addition, Philip A. McDaniel and U.S. Import shall be deemed Affiliates of the
Principal and of the Company.
"AFFILIATED OBLIGATIONS" means the amounts owed to the Company by the
Principal and his Affiliates; provided, however, that the obligations arising
out of the relationships described on SCHEDULE 3.25 shall not be deemed
"Affiliated Obligations."
"AGREEMENT" shall mean this Asset Purchase Agreement, as it may be from
time to time amended.
"ASSETS" has the meaning set forth in Section 2.01.
"ASSIGNED CONTRACTS" has the meaning set forth in Section 2.01.
"ASSUMED LIABILITIES" has the meaning set forth in Section 2.04.
"BALANCE SHEET" has the meaning set forth in Section 3.06.
"BUSINESS" has the meaning set forth in the recitals to this Agreement.
"BUSINESS DAY" shall mean any day, other than a Saturday, Sunday or a
legal holiday under the federal laws of the United States.
"CLOSING" shall mean the consummation of the Acquisition pursuant to this
Agreement.
"CLOSING DATE BALANCE SHEET" has the meaning set forth in Section 2.03.
"CODE" shall mean the Internal Revenue Code of 1986, as amended.
"CONFIDENTIAL INFORMATION" shall mean all trade secrets and other
confidential information concerning the Company including, without limitation,
information regarding the operations, future plans, projected and historical
sales, marketing, costs, production, growth and distribution, any customer
lists, customer information,
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information relating to governmental relations, and information relating to the
products or services, whether patentable or not.
"EMPLOYEE PLAN" has the meaning set forth in Section 3.17.
"EMPLOYMENT AGREEMENT" shall mean the Employment Agreement by and
between Equity and the Principal dated as of the date of this Agreement, in
substantially the form of EXHIBIT A hereto.
"ENVIRONMENTAL LAWS" shall mean all laws, rules, regulations, statutes,
ordinances, decrees or orders of any governmental entity relating to (a) the
control of any potential pollutant or protection of the air, water or land, (b)
solid, gaseous or liquid waste generation, handling, treatment, storage,
disposal or transportation, and (c) exposure to Hazardous Materials, and
includes without limitation final and binding requirements related to the
foregoing imposed by (i) the terms and conditions of any applicable license,
permit, approval or other authorization by any governmental entity, and (ii)
applicable judicial, administrative or other regulatory decrees, judgments and
orders of any governmental entity. The term "Environmental Laws" shall include,
but not be limited to, the following statutes and the regulations promulgated
thereunder as currently in effect: the Clean Air Act, 42 U.S.C. ss. 7401 ET
SEQ., the Clean Water Act, 33 U.S.C. ss. 1251 ET SEQ., the Resource Conservation
Recovery Act ("RCRA"), 42 U.S.C. ss. 6901 ET SEQ., the Superfund Amendments and
Reauthorization Act, 42 U.S.C. ss. 11011 ET SEQ., the Toxic Substances Control
Act, 15 U.S.C. ss. 2601 ET SEQ., the Water Pollution Control Act, 33 U.S.C. ss.
1251, ET SEQ., the Safe Drinking Water Act, 42 U.S.C. ss. 300f ET SEQ., the
Comprehensive Environmental Response, Compensation, and Liability Act
("CERCLA"), 42 U.S.C. ss. 9601 ET SEQ., and any similar state, federal or local
statute or ordinance.
"ERISA" shall mean the Employee Retirement Income Security Act of 1974,
as amended.
"ERISA AFFILIATE" shall mean any person, firm or entity (whether or not
incorporated) which, by reason of its relationship with the Company, is required
to be aggregated with the Company under Section 414(b), 414(c) or 414(m) of the
Code, or which together with the Company is a member of a controlled group
within the meaning of Section 4001(a) of ERISA.
"ESCROW AGENT" shall mean Sanwa Bank California.
"ESCROW AGREEMENT" shall mean the Escrow Agreement by and among Equity,
the Company and the Escrow Agent dated as of the date of this Agreement, in
substantially the form of EXHIBIT B hereto.
"EXCLUDED ASSETS" has the meaning set forth in Section 2.02.
"FINANCIAL STATEMENTS" has the meaning set forth in Section 3.06.
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"GROSS PROFIT" shall mean an amount calculated by deducting from the
net sales of the Acquired Businesses (a) product costs, including without
limitation tooling costs, (b) purchase discounts, (c) commissions (buying and
selling), (d) freight and warehousing, (e) duty and customs, and (f) testing
services. Such deductions shall include either a third-party buying commission
or allocable overhead "load" for Equity's Hong Kong office, but not both. For
purposes of this definition, all defined terms, and the accounting methodology
used in determining actual amounts relative to such terms, shall be applied
consistent with the past practice of the Company and U.S. Import as represented
in the Financial Statements. For purposes of this definition, "net sales" shall
mean gross sales minus returns, trade discounts, mark-downs, allowances and bad
debt.
"HAZARDOUS MATERIALS" shall mean any (a) toxic or hazardous materials
or substances; (b) solid wastes, including asbestos, buried contaminants,
chemicals, flammable or explosive materials; (c) radioactive materials; (d)
petroleum wastes and spills or releases of petroleum products; and (e) any other
chemical, pollutant, contaminant, substance or waste that is regulated by any
governmental entity under any Environmental Law.
"INTELLECTUAL PROPERTY" has the meaning set forth in Section 2.01.
"INTERIM BALANCE SHEET" has the meaning set forth in Section 3.07.
"INTERIM BALANCE SHEET DATE" has the meaning set forth in Section 3.07.
"INVENTORIES" has the meaning set forth in Section 2.01.
"IRS" shall mean the Internal Revenue Service.
"KNOWLEDGE" of the Principal or the Company shall mean (a) the actual
knowledge of any officer or director of the Company and (b) matters of which
such officers or directors reasonably should have been aware after due inquiry
to the management and employees of the Company.
"LEASED PROPERTY" has the meaning set forth in Section 3.11.
"LIABILITY" shall mean any liability (whether known or unknown, whether
asserted or unasserted, whether absolute or contingent, whether accrued or
unaccrued, whether liquidated or unliquidated, and whether due or to become
due), including any liability for Taxes.
"LICENSE" has the meaning set forth in Section 2.01.
"LIENS" means liens, charges, claims, pledges, security interests and
encumbrances of any nature whatsoever.
"MATERIAL ADVERSE EFFECT" shall mean, with respect to any Person, a
material adverse effect on the business, prospects, results of operations,
financial condition or
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assets of such Person and its subsidiaries taken as a whole. A Material Adverse
Effect shall be deemed to have occurred if the cumulative effect of any
individual event and all other then-existing events would result in a Material
Adverse Effect.
"MATERIAL ADVERSE EVENT" shall mean an occurrence, event or development
which has had or is reasonably likely to have a Material Adverse Effect.
"NET WORTH" of the Company shall mean the equity of the Company
(determined in accordance with generally accepted accounting principles
consistently applied but excluding Affiliated Obligations and Excluded Assets).
"PERSON" shall mean an individual, partnership, corporation, limited
liability company, joint venture, unincorporated organization, cooperative or a
governmental entity or agency thereof.
"PRODUCT LIABILITY" has the meaning set forth in Section 3.16.
"PROFIT SHORTFALL" shall mean the cumulative amount, if any, by which
Gross Profits of the Acquired Businesses have fallen short of $5,250,000 for
each of 1998, 1999, 2000, 2001 or 2002.
"PROMOTIONAL PRODUCTS AND SERVICES" shall mean merchandise given away
to consumers or sold on a "purchase with purchase" basis in connection with a
promotional event, and the services performed to procure and distribute such
merchandise, as well as those services provided to customers in support of
planning, administering and during the execution of a promotional event.
"RECEIVABLES" has the meaning set forth in Section 2.01.
"REGULATORY AUTHORITY" shall mean any foreign, United States federal or
state or local government or governmental authority.
"TAX" shall mean any federal, state, local, or foreign income, gross
receipts, license, payroll, employment, excise, severance, stamp, occupation,
premium, windfall profits, environmental (including taxes under Section 59A of
the Code), customs duties, capital stock, franchise, profits, withholding,
social security (or similar), unemployment, disability, real property, personal
property, sales, use, transfer, registration, value added, alternative or add-on
minimum, estimated, or other tax of any kind whatsoever, including any interest,
penalty or addition thereto, whether disputed or not.
"TAX RETURN" shall mean any return, declaration, report, claim for
refund or information return or statement relating to Taxes, including any
schedule or attachment thereto, and including any amendment thereof.
"TREASURY REGULATIONS" means the regulations promulgated under the Code.
"U.S. IMPORT" shall mean U.S. Import & Promotions Co., a Florida corporation.
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"U.S. IMPORT AGREEMENT" shall mean that certain Asset Purchase Agreement,
dated as of the date hereof, by and among Equity, U.S. Import & Promotions Co.,
Philip A. McDaniel and the Principal.
ARTICLE II
PURCHASE AND SALE
SECTION 2.01. ASSETS CONVEYED. Upon the basis of the representations,
warranties, covenants and agreements contained herein, the Company hereby sells,
transfers, assigns, conveys and delivers to Equity or a wholly-owned subsidiary
of Equity all of the Company's right, title and interest in and to the Assets
(as defined below) free and clear of all Liens. The "ASSETS" shall mean all
those personal, tangible and intangible properties and the real property and
improvements of the Company used in connection with the operation of the
Business (or used in the past in the operation of the Businesses and to which
the Company still holds title), other than Excluded Assets, including without
limitation, those more particularly described in the Schedules to this Section
2.01, those in the possession of third parties but to which the Company holds
title, and those described below:
(a) all the rights and benefits accruing to the Company under all
agreements, contracts, arrangements, leases with respect to real and personal
property, guarantees, commitments and orders, whether written or oral, between
the Company and any third party, including without limitation, the contracts
listed in SCHEDULE 2.01(A) hereto (the "ASSIGNED CONTRACTS");
(b)all of the Company's inventories of raw materials, parts,
work-in-process and finished goods, if any ("INVENTORIES");
(c) all manufacturing, production and testing equipment, production
tooling, computers, computer hardware and software, tools, supplies, furniture,
vehicles, and other tangible personal property and assets of the Company related
to the Business, including, without limitation, the items listed on SCHEDULE
2.01(C) hereto;
(d) all the interest of and the rights and benefits accruing to the
Company as lessee under the leases or rental agreements covering machinery,
equipment, computers, computer hardware and software, vehicles and other
tangible personal property as described in SCHEDULE 2.01(D) hereto;
(e) all accounts and notes receivable (including without limitation,
any claims, remedies and other rights related thereto) evidencing rights to
payment for services rendered through the date hereof, except for any Affiliated
Obligations (it being understood and agreed that such Affiliated Obligations
have been repaid in full) (the "RECEIVABLES");
(f) all operating data and records of the Company relating to the
Business, including, without limitation, client lists and records, referral
sources, production
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reports and records, equipment logs, operating guides and manuals, projections,
copies of financial, accounting and personnel records, correspondence and other
similar documents and records;
(g) all claims, warranty rights, causes of action and other similar
rights granted or owing to the Company arising out of the Business to the extent
the same are assignable;
(h) all of the Company's rights, to the extent of such rights, to use
the name "Contract Marketing, Inc." and all variations on any thereof for any
and all purposes;
(i) all the intellectual property of the Company, including, without
limitation, all software and software libraries, processes, formulae, methods,
plans, research data, marketing plans and strategies, forecasts, patents and
patent applications, inventions, discoveries, know-how, trade secrets and ideas
(including those in the possession of third parties, but which are the property
of the Company), Confidential Information, and all drawings, records, books or
other indicia of the foregoing, trademarks, servicemarks, tradenames, licenses,
copyrights, operating rights, permits and other similar intangible property and
rights (the "INTELLECTUAL PROPERTY");
(j) all licenses, permits, approvals, qualifications, consents and
other authorizations (the "LICENSES") necessary for the lawful conduct,
ownership and operation of the Business to the extent the same are
transferrable;
(k) all prepaid expenses and cash and cash equivalents of the Company;
(l) all goodwill and going-concern value of the Company and the
Business; and
(m) all other assets and properties of any nature whatsoever held by
the Company, either directly or indirectly, and used in, allocated to, or
required for the conduct of the Business, but excluding the Excluded Assets (as
defined in Section 2.02 below).
SECTION 2.02. EXCLUDED ASSETS. Anything to the contrary in Section 2.01
notwithstanding, the Assets shall exclude and Equity shall not purchase (i) all
tax books of the Company other than those relating to sales, use and other state
and local taxes, books and ledgers relating to the ownership interests in the
Company, and minutes of meetings of, and actions taken by, the Company's
shareholders, (ii) the rights which accrue or will accrue to the Company under
this Agreement, (iii) any Employee Plan, (iv) the Affiliated Obligations, and
(v) the assets set forth on SCHEDULE 2.02 hereto (collectively, the "EXCLUDED
ASSETS").
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SECTION 2.03. PURCHASE PRICE.
(a) AGGREGATE PURCHASE PRICE. The aggregate purchase price (the
"PURCHASE PRICE") to be paid by Equity shall consist of (i) $6,500,000, payable
upon execution of this Agreement as provided by Section 2.03(b), (ii) such
additional payments, if any, which may be made as provided by Sections
2.03(c)-(d) (the "ADDITIONAL PAYMENTS"), and (iii) the assumption of the Assumed
Liabilities.
(b) PAYMENT OF PURCHASE PRICE. Upon execution of this Agreement, Equity
shall pay the Company $6,000,000 by wire transfer of immediately available funds
and shall deposit $500,000 with the Escrow Agent pursuant to the terms of the
Escrow Agreement. Any Additional Payments shall be made in accordance with
Sections 2.03(c)-(d).
(c) ADDITIONAL PAYMENTS. If the Gross Profit of the Acquired Businesses
in 1998, 1999, 2000, 2001 or 2002 is equal to or greater than the sum of (i)
$5,250,000 and (ii) any Profit Shortfall, Equity will make a payment equal to
25% of the gross profits in excess of such sum, not to exceed $1,625,000 for any
year, to the Company in the following year; PROVIDED, HOWEVER, that the
aggregate amount of all payments pursuant to this Section 2.03(c) shall not
exceed $4,000,000. No Additional Payment will be made for any year in which
Gross Profit is less than the amount specified in this Section 2.03(c). Upon
determination of Equity's financial results for each of 1998, 1999, 2000, 2001
and 2002 but in any event no later than March 31 of the following year, Equity
shall prepare and submit to the Principal a schedule setting forth the Gross
Profit of the Acquired Businesses for the applicable period. The Company shall
have the right to review the classification of revenues and costs in such
schedule with Equity's independent auditors to confirm that the calculation of
Gross Profit set forth in such schedule is consistent with the definition of
Gross Profit in this Agreement. The Company and the Principal shall be deemed to
have accepted such schedule unless they notify Equity in writing within fourteen
days of the delivery of such schedule. If the Company and the Principal notify
Equity in writing within fourteen days of the delivery of such schedules of any
dispute with the schedules, Equity shall consult with the Company and the
Principal or their representatives to answer questions with respect to such
schedule and calculations and attempt in good faith to resolve such dispute.
Equity shall pay any undisputed amounts due under this Section 2.03(c) to the
Company no later than March 31 of the year following the year to which such
payment relates.
(d) EFFECT OF EMPLOYMENT TERMINATION UPON ADDITIONAL PAYMENTS.
(i) If Equity terminates the employment of the Principal prior
to the close of business on June 30, 2001 without cause (I.E., other than
pursuant to Sections 3(a)(i)-(iv) of the Employment Agreement), Equity shall pay
the Company, in addition to any severance compensation due to the Principal
under the Employment Agreement but in lieu of any obligation under Section
2.03(c) of this Agreement to make subsequent Additional Payments to the Company,
an amount equal to the difference between (i) the present value of $4,000,000
and (ii) any Additional Payments previously made to the Company. Present value
shall be calculated by applying an annual
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discount rate equal of 15% from the date of termination to the earliest March 31
date or dates on which Additional Payments in the maximum amount due (before
applying such discount) otherwise could have been due hereunder. Equity shall
make such payment within fourteen days of such termination.
(ii) If the Employment Agreement expires pursuant to its terms
on June 30, 2001 or is terminated for any reason, other than termination by
Equity prior to the close of business on June 30, 2001 without cause, Equity's
obligations under Section 2.03(c) of this Agreement to make subsequent
Additional Payments to the Company hereunder shall continue and shall not be
affected by such termination.
(iii) Equity may, at any time at its sole option, pay the
Company, in lieu of any obligation under Section 2.03(c) of this Agreement to
make subsequent Additional Payments to the Company, an amount equal to the
difference between (i) the present value of $4,000,000 and (ii) any Additional
Payments previously made to the Company. Present value shall be calculated by
applying an annual discount rate equal of 12% from the date of termination to
the earliest March 31 date or dates on which Additional Payments in the maximum
amount due (before applying such discount) otherwise could have been due
hereunder.
(e) ADJUSTMENTS TO PURCHASE PRICE.
(i) As soon as practicable and in any event no later than
ninety (90) days after the date hereof, Equity shall deliver to the Principal a
consolidated balance sheet of the Company as of the date hereof (the "CLOSING
DATE BALANCE SHEET"), a calculation of the Net Worth of the Company as of the
date hereof (the "NET WORTH CALCULATION") and, if requested by the Company, an
"agreed upon procedures" letter from Equity's independent auditors regarding
conformity of the Closing Date Balance Sheet and the Net Worth Calculation with
generally accepted accounting principles. The Closing Date Balance Sheet and the
Net Worth Calculation shall be prepared in accordance with generally accepted
accounting principles and on a basis consistent with the Financial Statements;
PROVIDED, HOWEVER, that no Affiliated Obligations or Excluded Assets shall be
included as assets on the Closing Date Balance Sheet or included in the Net
Worth Calculation.
(ii) If the aggregate Net Worth of the Company and U.S. Import
as determined pursuant to this Section 2.03 is lower than $2,000,000, then the
purchase price owed to the Company shall be reduced by the return to Equity of
cash in the amount of one half of the difference between $2,000,000 and the Net
Worth indicated on the Net Worth Calculation. Equity shall obtain such return
from the funds held by the Escrow Agent pursuant to the Escrow Agreement if such
funds are sufficient for this purpose; otherwise, the Company shall deliver the
balance due to Equity promptly following the delivery of the Net Worth
Calculation. If the aggregate Net Worth of the Company and U.S. Import as
determined pursuant to this Section 2.03 is greater than $2,000,000, then the
purchase price owed to the Company shall be increased by the payment to the
Company in cash in the amount of one half of the difference between the Net
Worth indicated on the Net Worth Calculation and $2,000,000. Equity shall
deliver the balance due to the Company promptly following the delivery of the
Net
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Worth Calculation. If the aggregate Net Worth of the Company and U.S. Import as
determined pursuant to this Section 2.03 is lower than $1,800,000, the Company
shall bear one half of the costs of preparing the Closing Date Balance Sheet and
the Net Worth Calculation.
(iii) If the Receivables included on the Closing Date Balance
Sheet are not collected by October 21, 1998, then the purchase price owed to the
Company shall be reduced by the return to Equity of cash in the amount of the
difference between the Receivables included on the Closing Date Balance Sheet
and the Receivables collected by such date. Equity shall deliver a notice to the
Company as soon as practicable following such date setting forth the amount of
any such shortfall and listing the uncollected accounts. Equity shall obtain
payment from the funds held by the Escrow Agent pursuant to the Escrow Agreement
if such funds are sufficient for this purpose; otherwise, the Company shall
deliver the balance due to Equity promptly following the delivery of such
notice. Any such Receivable which is collected after Equity has received a
refund thereon, net of any collection fees incurred, shall be for the benefit of
the Company.
(f) ALLOCATION OF PURCHASE PRICE. The Purchase Price shall be allocated
among the Assets and the restrictive covenants of Section 6.09 hereof as the
parties shall mutually agree.
SECTION 2.04. LIABILITIES ASSUMED BY EQUITY. In further consideration
for the sale of the Assets, Equity hereby assumes and agrees to pay, perform and
discharge the Assumed Liabilities. For purposes of this Agreement, the term
"ASSUMED LIABILITIES" shall mean all the Liabilities of the Company set forth in
the Balance Sheet, excluding (a) any Liabilities for transactional and advisory
costs, including, without limitation, attorneys' and accountants' fees and
expenses, incurred in connection with the transactions contemplated hereby or
the proposed sale of the Company or any equity interest therein (collectively,
"TRANSACTION COSTS"), (b) Taxes owing by the Company to any governmental agency
or other taxing authority, (c) any Employee Plan, (d) any Liabilities arising
out or relating to the Excluded Assets, and (e) any Liabilities resulting from,
arising out of, relating to, in the nature of, or caused by any facts or
circumstances which would constitute a breach of the representations and
warranties of the Company set forth herein for which the Company, the Principal
and Philip A. McDaniel would be required to indemnify Equity under the terms of
this Agreement. Nothing in this Section 2.04 shall in any way limit the right of
Equity to indemnification under this Agreement. Notwithstanding anything to the
contrary contained herein, Equity shall not assume, pay, discharge, become
liable for or perform when due, and the Company shall not cause Equity so to
assume, pay, discharge, become liable for or perform, any Liabilities, debts,
contracts, commitments and other obligations of the Company of any nature
whatsoever not expressly assumed pursuant to this Section 2.04.
SECTION 2.05. OTHER ACTIONS AND DOCUMENTS. Upon the execution of this
Agreement:
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(a) the Company shall deliver to Equity such deeds, bills of sale,
endorsements, assignments and other instruments of sale, conveyance, transfer
and assignment, satisfactory in form and substance to Equity and its counsel, as
may be reasonably requested by Equity in order to convey to Equity good and
marketable title to the Assets, free and clear of all Liens;
(b) the Company shall execute and deliver to Equity all necessary
documents, including without limitation any filings with the Secretary of State
of the State of California, to allow Equity to use the name "Contract Marketing"
from and after the Closing and to change the name of the Company to a name that
is not confusingly similar to its current name;
(c) the Company shall pay all sales, use, transfer or stamp taxes, or
similar charges, payable by reason of the sale hereunder;
(d) the Principal and Equity shall execute and deliver the Employment
Agreement;
(e) the Company, Equity and the Escrow Agent shall execute and deliver
the Escrow Agreement;
(f) U.S. Import, Equity, the Principal and Philip A. McDaniel shall
execute and deliver the U.S. Import Agreement;
(g) the Company shall deliver to Equity the favorable opinion, dated
the Closing Date, of counsel to the Company and the Principal in the form of
EXHIBIT C hereto; and
(h) Equity shall deliver to the Company and the Principal the favorable
opinion dated as of the Closing Date of counsel to Equity in the form of EXHIBIT
D hereto.
ARTICLE III
REPRESENTATIONS AND WARRANTIES
CONCERNING THE COMPANY AND THE PRINCIPAL
Each of the Company, the Principal and Philip A. McDaniel, jointly and
severally, represents and warrants to Equity that the statements contained in
this Article III are correct and complete as of the date of this Agreement,
except as set forth in the schedules delivered by the Company to Equity on the
date hereof (the "SCHEDULES").
SECTION 3.01. ORGANIZATION, ETC. The Company is a corporation duly
organized, validly existing and in good standing under the laws of the
Commonwealth of Massachusetts and has full corporate power and authority to
conduct its Business as it is now being conducted and to own, operate or lease
the properties and assets it
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currently owns, operates or holds under lease. The Company is duly qualified or
licensed to do business and is in good standing as a foreign corporation in each
jurisdiction where the character of its Business or the nature of its properties
makes such qualification or licensing necessary, except where the failure to so
qualify or be licensed would not have a Material Adverse Effect. The Company has
heretofore delivered to Equity true and correct copies of its Certificate of
Incorporation and Bylaws as in effect on the date hereof.
SECTION 3.02. SUBSIDIARIES. The Company has no equity interest in any
corporation, partnership, joint venture or other legal entity.
SECTION 3.03. CAPITALIZATION. The Principal is the sole stockholder of
the Company. No contract, commitment or undertaking of any kind has been made
for the issuance of any additional capital stock or other interests in the
Company; nor is there in effect or outstanding any subscription, option, warrant
or preemptive or other right to acquire any of such capital stock or other
instruments convertible into or exchangeable for any of such capital stock.
SECTION 3.04. OWNERSHIP OF ASSETS. The Company is the legal and
beneficial owner of the Assets, free and clear of any Liens; the Company has
full right, power and authority to sell, transfer, assign, convey and deliver
all of the Assets to be sold by it hereunder; and delivery thereof will convey
to Equity good, absolute and marketable title to said Assets, free and clear of
any Liens.
SECTION 3.05. AUTHORITY AND NO CONFLICT; CONSENTS. (a) The Company has
the full right, power and authority to execute, deliver and carry out the terms
of this Agreement and all other documents and agreements to be entered into in
connection herewith or necessary to give effect to the provisions of this
Agreement (the "OTHER AGREEMENTS"), and this Agreement and the Other Agreements
have been duly authorized, executed and delivered by the Company. The execution
and delivery of this Agreement and the Other Agreements by the Company does not,
and the consummation of the transactions contemplated hereby will not, (i)
conflict with, or result in any violation of or default or loss of any benefit
under, any provision of the Company's governing instruments; (ii) conflict with,
or result in any violation of or default or loss of any material benefit under,
any permit, concession, grant, franchise, law, rule or regulation, or any
judgment, decree or order of any court or other Regulatory Authority to which
the Company or its assets or Business is a party or to which the Company is
subject; (iii) conflict with, or result in a breach or violation of or default
or loss of any material benefit under, or accelerate the performance required
by, the terms of any material agreement, contract, indenture or other instrument
to which the Company is a party or to which the Company's assets or Business is
subject, or constitute a default or loss of any material right thereunder or the
creation of any material Liens upon the Company's assets; or (iv) result in any
suspension, revocation, impairment, forfeiture or nonrenewal of any material
License. All action and other authorizations prerequisite to the execution of
this Agreement and the consummation of the transactions contemplated hereby have
been taken or obtained by the Company and the Principal. This Agreement is the
valid and binding agreement of the Company enforceable in accordance with its
terms (except as such enforceability may be limited by any
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applicable bankruptcy, insolvency or other laws affecting creditors' rights
generally or by general principles of equity, regardless of whether such
enforceability is considered in equity or at law).
(b) The execution, delivery and performance by the Company of this
Agreement, and the performance of the transactions contemplated by this
Agreement, do not require the authorization, consent, approval, certification,
license or order of, or any filing with, any Regulatory Authority or any other
third party except for such authorizations, consents, approvals, certifications,
licenses and orders that have been obtained.
SECTION 3.06. FINANCIAL STATEMENTS; BOOKS AND RECORDS. A copy of the
unaudited balance sheet of the Company at December 31, 1997 has been attached as
SCHEDULE 3.06 hereto (the "BALANCE SHEET"). Also attached hereto as SCHEDULE
3.06 are the related statements of operations of the Company for the fiscal year
ended December 31, 1997 (together with the Balance Sheet, the "DECEMBER
FINANCIAL STATEMENTS") and unaudited financial statements of the Company for the
six-month period ended June 30, 1998 (the "INTERIM FINANCIAL STATEMENTS"), which
Interim Financial Statements have been prepared on the same basis as the
December Financial Statements, subject to normal year-end adjustments and
accruals (none of which is expected to be material). The December Financial
Statements and the Interim Financial Statements are collectively referred to as
the "FINANCIAL STATEMENTS." The Financial Statements are true and correct in all
material respects, are consistent with the books and records of the Company,
fairly represent in all material respects the financial condition and results of
operations of the Company as at and for the periods reflected therein, and have
been prepared in accordance with generally accepted accounting principles in the
United States except for the lack of footnotes.
SECTION 3.07. NO UNDISCLOSED LIABILITIES. The Liabilities on the
balance sheet included in the Interim Financial Statements (the "INTERIM BALANCE
SHEET") consist solely of accrued obligations and Liabilities incurred by the
Company in the ordinary course of business to Persons which are not Affiliates
of the Company. There are no Liabilities of the Company of any kind whatsoever,
whether or not accrued and whether or not contingent or absolute, determined or
determinable or otherwise, including without limitation documentary or standby
letters of credit, bid or performance bonds, or customer or third party
guarantees, and no existing condition, situation or set of circumstances that
could reasonably result in such a Liability, other than (i) Liabilities
disclosed in the Interim Financial Statements, and (ii) Liabilities which have
arisen after June 30, 1998 (the "INTERIM BALANCE SHEET DATE") in the ordinary
course of business and consistent with past practice (none of which is a
Liability for breach of contract, breach of warranty, tort, infringement claim
or lawsuit) which do not exceed $10,000 individually or $50,000 in the
aggregate. There are no asserted claims for indemnification by any Person
against the Company under any law or agreement or pursuant to the Company's
Certificate of Incorporation or By-laws and neither the Company nor the
Principal is aware of any facts or circumstances that might reasonably give rise
to the assertion of such a claim against the Company thereunder. There are no
rights of return with respect to products shipped to customers prior to the date
hereof.
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SECTION 3.08. CORPORATE ACTION. All corporate action of the Board of
Directors and of the stockholder(s) of the Company taken on or prior to the date
hereof has been duly authorized, adopted or ratified in accordance with
applicable law and the Certificate of Incorporation and By-laws of the Company,
and has been duly recorded in its corporate minute books (which have been made
available for inspection by Equity).
SECTION 3.09. ABSENCE OF CHANGES. Except as approved in writing by
Equity, since the Interim Balance Sheet Date there has not been, with respect to
the Company, any (a) Material Adverse Event; (b) transaction by the Company
except in the ordinary course of business; (c) capital or Inventories
expenditures exceeding $10,000, in each case in the aggregate; (d) destruction,
damage (other than ordinary wear and tear) to, or loss of any asset (whether or
not covered by insurance); (e) labor trouble or other adverse event or condition
relating to employment or labor matters; (f) increase in compensation payable
to, or any employment, bonus or compensation agreement entered into with, any
employee or consultant of the Company; (g) change in accounting methods or
practices (including, without limitation, changes in depreciation or
amortization policies or rates) by the Company; (h) revaluation of the Company's
assets; (i) sale or transfer of any asset of the Company except in the ordinary
course of business; (j) amendment or termination of any material contract,
agreement, or license to which the Company is a party; (k) loan or other
investment by the Company to or in any person or entity, or guaranty of any loan
other than travel or other job-related expenses advanced to employees in the
ordinary course of business not exceeding $2,500 in the aggregate; (l)
commitment to borrow money or any mortgage, pledge, or other encumbrance of any
asset of the Company or grant or commitment to grant a mortgage, pledge, or
other encumbrance of any asset of the Company; (m) waiver or release of any
right or claim of the Company except in the ordinary course of business; (n)
material obligation or liability (absolute or contingent) incurred by the
Company or to which it has become subject except current liabilities incurred in
the ordinary course of business and obligations under contracts entered into in
the ordinary course of business; (o) write-off in excess of reserves as
uncollectible of any accounts or notes receivable; (p) issue or split-up of, or
grant of any option or other right to acquire, any security of the Company; (q)
amendment of the Company's Certificate of Incorporation or By-laws; (r) dividend
or distribution on or with respect to shares of capital stock or other equity
securities of the Company, or any other distribution to the Principal or his
Affiliates other than payments for salaries; (s) issuance, grant, sale or pledge
of any shares of, or rights of any kind to acquire any shares of, capital stock,
or purchase, redemption or other acquisition of any shares of such capital stock
or other equity securities; (t) cancellation of current insurance (or
reinsurance) policies or termination of any of the coverage thereunder; (u) any
payment or provision with respect to any employee benefit plan, except in the
ordinary course of the administration of such plans; (v) grants of any stock
options, restricted stock grants, stock appreciation rights or similar
instruments or rights; (w) new employment agreement or other contract or
arrangement with respect to the performance of personal services which is not
terminable at will without liability by the Company; or (x) oral or written
agreement, contract, arrangement or understanding with respect to any of the
foregoing.
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SECTION 3.10. TAXES.
(a) All Tax Returns required to be filed by or on behalf of the Company
have been properly prepared and duly and timely filed with the appropriate
taxing authorities in all jurisdictions in which such Tax Returns are required
to be filed (after giving effect to any valid extensions of time in which to
make such filings), and all such Tax Returns were true, complete and correct in
all material respects. The Company is not currently the beneficiary of any
extension of time within which to file any tax return.
(b) All Taxes for all periods up to the date hereof that are due and
payable by the Company on or before the date hereof have been, or on or before
the date hereof will be, fully and timely paid, and adequate reserves or
accruals for any and all Taxes for which the Company is liable with respect to
any period ending on or before the date hereof for which Tax Returns have not
yet been filed or for which Taxes are not yet due and owing have been made in
the Financial Statements.
(c) The Company has timely withheld from employee salaries, wages and
other compensation and paid over to the appropriate taxing authorities all
amounts required to be so withheld and paid over for all periods under all
applicable laws ending on or before the date hereof.
(d) Equity has received complete copies of any audit report issued
within the last five years relating to Taxes due from the Company.
(e) The Company has not executed or filed with the IRS or any other
taxing authority any agreement, waiver or other document or arrangement
extending or having the effect of extending the period for assessment or
collection of Taxes (including, but not limited to, any applicable statute of
limitation).
(f) No claim has been made by a taxing authority in a jurisdiction
where the Company does not file Tax Returns that the Company is or may be
subject to taxation by that jurisdiction.
(g) All deficiencies asserted or assessments made as a result of any
examinations by the IRS or any other taxing authority of the Tax Returns of or
covering or including the Company have been fully paid, and there are no other
audits or investigations by any taxing authority in progress, nor has the
Principal nor the Company received any notice from any taxing authority that it
intends to conduct such an audit or investigation
(h) Neither the Company nor any other person (including the Principal
on behalf of the Company) has filed a consent pursuant to Section 341(f) of the
Code or agreed to have Section 341(f)(2) of the Code apply to any disposition of
a "subsection (f) asset" (as such term is defined in Section 341(f)(4) of the
Code) owned by the Company.
(i) There are no Liens upon any of the Assets as a result of unpaid
Taxes.
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(j) The Company has properly and timely elected under Section 1362 of
the Code, and under each analogous or similar provision of state or local law in
each jurisdiction where such an election is available and in which the Company
is required to file a Tax Return, to be treated as an "S" corporation for all
taxable periods since its inception. There has not been any voluntary or
involuntary termination or revocation of any such election.
(k) No tax is required to be withheld by Equity under Section 1445 of
the Code as a result of the sale of the Assets.
(l) All material elections and consents with respect to any Tax (or the
computation thereof) affecting the Company as of the date hereof are obvious
from the Tax Returns or are set forth on the Disclosure Schedule. After the date
hereof, no election or consent with respect to any Tax (or the computation
thereof) affecting the Company will be made without the written consent of
Equity. The Company has not agreed to make and is not required to make any
adjustments under Section 481 of the Code by reason of a change in accounting
method or otherwise.
(m) The Company has made no payments, and is not obligated to make any
payments that will not be deductible under section 280G of the Code.
(n) The Company is not a party to any Tax allocation or sharing
agreement.
SECTION 3.11. LEASED PROPERTY.
(a) SCHEDULE 3.11 hereto identifies all leasehold interests in real
property including land and improvements held by the Company which is used or
useful in the conduct of the Business of the Company (the "LEASED PROPERTY").
The Company does not own of record or beneficially any real property. The
Company has assignable leaseholds in all real estate leased by it, in each case
under leases which are binding and enforceable against the Company and, to the
knowledge of the Company and the Principal, the other parties thereto. None of
the leasehold interests are subject to any Liens (other than Liens for current
property taxes and assessments or mechanics liens, in each case with respect to
amounts not in default).
(b) There are no outstanding contracts made by the Company for any
improvements to the Leased Property which have not been fully paid. Concurrently
with the execution of this Agreement, the Company shall cause to be discharged
all mechanics' or materialmen's liens arising from any labor or materials
furnished to the Leased Property on behalf of the Company prior to the date
hereof.
(c) All buildings, structures, improvements, fixtures, facilities,
equipment, all components of all buildings, structures and other improvements
included within the Leased Property, including but not limited to the roofs and
structural elements thereof and the heating, ventilation, air conditioning,
plumbing, electrical, mechanical, sewer, waste water, storm water, paving and
parking equipment, systems and facilities included therein, and other material
items of tangible property and assets are in good operating condition and
repair, subject to normal wear and maintenance and are usable
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in the regular and ordinary course of business. No person other than the Company
owns any equipment or other tangible assets or properties situated on the Leased
Property or necessary to the operation of Company's Business.
(d) The use and operation of the Leased Property is in full compliance
with all applicable statutes, rules, regulations, ordinances, orders, writs,
injunctions, judgments, decrees, awards and restrictions of every Regulatory
Authority having jurisdiction over any of the Leased Property, the Company or
its Business, and every instrumentality or agency thereof (including, without
limitation, applicable statutes, rules, regulations, orders and restrictions
relating to zoning, land use, safety, health, environment, Hazardous Materials,
pollution controls, employment and employment practices and access by the
handicapped) (collectively, "LAWS"), and with all covenants, conditions,
restrictions, easements, disposition agreements and similar matters affecting
the Leased Property. As of the date hereof, the Company has the right to
continue the use and operation of the Leased Property for its current uses in
the operation of the Company's Business (which right shall be transferred to
Equity hereby). The Company has not received any notice of any violation of or
investigation regarding any Laws.
SECTION 3.12. ENVIRONMENTAL PROTECTION. No Hazardous Materials are
present on or below the surface of the Leased Property except as consistent with
applicable Environmental Laws, and the Leased Property has not previously been
used by the Company or the Principal for the manufacture, refining, treatment,
storage, or disposal of any Hazardous Material. None of the soil, ground water,
or surface water of the Leased Property is contaminated by any Hazardous
Material in violation of applicable Environmental Laws, and neither the Company
nor the Principal is aware of any such contamination from neighboring real
estate. Except as consistent with applicable Environmental Laws, no Hazardous
Materials are being emitted, discharged or released from the Leased Property
into the environment. The Company is not liable for cleanup or response costs
with respect to the emission, discharge, or release of any Hazardous Material or
for any other matter arising under the Environmental Laws due to its operation
of the Leased Property.
SECTION 3.13. INTELLECTUAL PROPERTY. SCHEDULE 3.13 hereto contains a
schedule of all the Intellectual Property of the Company. The Company has not
infringed, and is not now infringing, any trade name, trademark, service mark,
copyright, patent, trade secret or other Intellectual Property right belonging
to a third party, and it has not received any notice of infringement upon or
conflict with the asserted rights of others. None of such Intellectual Property
rights are registered with the United States Patent and Trademark Office or the
United States Copyright Office. The Company is not a party to any license,
agreement, or arrangement, whether as licensor, licensee, or otherwise, with
respect to any Intellectual Property right. There are no trade names,
trademarks, service marks, copyrights, patents or applications for patents and
trade secrets other than those listed on SECTION 3.13 which are necessary for
the conduct of the Company's Business. The Company is not a party to any
outstanding options, licenses or agreements of any kind relating to the
foregoing. No partner, director, shareholder, officer or employee of the Company
or any predecessor has any interest in any of the foregoing rights.
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SECTION 3.14. ASSETS. The Assets constitute, in the aggregate, all of
the assets and tangible personal property owned by, in the possession of, or
used by the Company in connection with the Business, and are owned by the
Company free and clear of any Liens. No personal property used in connection
with the Company's Business is held under any lease, security agreement,
conditional sales contract, or other title retention or security arrangement, or
is other than in its possession and control. All tangible personal property is
in good operating condition and repair, subject to normal wear and maintenance,
and is suitable for the conduct of the Business.
SECTION 3.15. INVENTORIES. All Inventories of the Company set forth on
the Interim Balance Sheet, and all Inventories acquired subsequent to the
Interim Balance Sheet Date, are valued in accordance with generally accepted
accounting principles in the United States. All such Inventories consist of a
quality and quantity usable and saleable in the ordinary course of business,
except for items of obsolete materials, which have been written down on the
Interim Balance Sheet to realizable market value. The Company's Inventories do
not include any products or materials stored for customers or other third
parties.
SECTION 3.16. NO PRODUCT LIABILITIES; PRODUCT WARRANTIES. The Company
has not incurred, nor does the Company or the Principal know of or have any
reason to believe there is any reasonable basis for alleging, any liability,
damage, loss, cost or expense as a result of any defect or other deficiency
(whether of design, materials, workmanship, labeling, instructions or otherwise)
("PRODUCT LIABILITY") with respect to any product sold or service rendered by
the Company, whether such Product Liability is incurred by reason of any express
or implied warranty (including, without limitation, any warranty of
merchantability or fitness), any doctrine of common law (tort, contract or
other), any statutory provision or otherwise and irrespective of whether such
Product Liability is covered by insurance, subject only to the reserve for
product warranty claims set forth in the Interim Balance Sheet as adjusted for
the passage of time through the date hereof in accordance with the past custom
and practice of the Company. No product sold, leased, or delivered by the
Company is subject to any guaranty, warranty, or other indemnity beyond the
applicable standard terms and conditions of sale or lease of such product.
SECTION 3.17. PERSONNEL AND PLANS. SCHEDULE 3.17 hereto comprises a
complete and correct list of (a) the names, titles, length of employment or
service and current annual salary rates and all other compensation and fringe
benefits of each of the employees, officers or consultants of the Company who is
engaged in the conduct of the Business and (b) the amount of accrued bonuses,
vacation, sick leave, maternity leave and other leave for such personnel. The
Company is not in default with respect to any withholding or other employment
taxes or payments with respect to accrued vacation or severance pay on behalf of
any employee for which it is obligated on the date hereof. There are not in
existence or, to the knowledge of the Company or the Principal, threatened any
(y) work stoppages respecting employees of the Company or (z) unfair labor or
practice complaints against the Company. No representation question exists
respecting the employees of the Company and no collective bargaining agreement
is currently being negotiated by the Company covering employees of the
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Company, nor is any grievance procedure or arbitration proceeding pending under
any collective bargaining agreement and no claim therefor has been asserted. The
Company has not received notice from any union or employees setting forth
demands for representation, elections or for present or future changes in wages,
terms of employment or working conditions. There have been no audits of the
equal employment opportunity practices of the Company, and, to the knowledge of
the Company and the Principal, no basis for such audit exists. The Company does
not have any severance agreement or other arrangement with respect to severance
with any employee of the Company. True and complete copies of the current
written personnel policies, manuals and/or handbooks of the Company have
previously been delivered to Equity.
SCHEDULE 3.17 lists each of the following plans, contracts, policies
and arrangements which is or was sponsored, maintained or contributed to by, or
otherwise binding upon the Company or, in the case of an "employee pension plan"
(as defined in Section 3(2) of ERISA), an ERISA Affiliate for the benefit of any
current or former employee, director or other personnel (including any such
plan, contract, policy or arrangement approved or adopted before, but effective
on or after, the date of this Agreement): (a) any "employee benefit plan," as
such term is defined in Section 3(3) of ERISA, whether or not subject to the
provisions of ERISA, (b) any personnel policy, and (c) any other employment,
consulting, stock option, stock bonus, stock purchase, phantom stock, incentive,
bonus, deferred compensation, retirement, severance, vacation, dependent care,
employee assistance, fringe benefit, medical, dental, sick leave, death benefit,
golden parachute or other compensatory plan, contract, policy or arrangement
that is not an employee benefit plan as defined in Section 3(3) of ERISA (each
such plan, contract, policy and arrangement being herein referred to as an
"EMPLOYEE PLAN"). With respect to each Employee Plan, the Company has delivered
to Equity true and complete copies of each contract, plan document, policy
statement, summary plan description and other written material governing or
describing the Employee Plan and/or any related funding arrangements (including,
without limitation, any related trust agreement or insurance company contract)
or, if there are no such written materials, a summary description of the
Employee Plan.
There are no Liens against the Assets under Section 412(n) of the Code
or Sections 302(f) or 4068 of ERISA. As of the date hereof, Equity has no
obligation to contribute to, or any liability in respect of, any Employee Plan.
Each "employee benefit plan" of the Company that has been required to comply
with the provisions of Section 4980B of the Code has substantially complied in
all material respects.
SECTION 3.18. INSURANCE. Attached hereto as SCHEDULE 3.18 are certificates
of insurance setting forth all insurance agreements and policies maintained by
the Company, including any and all insurance agreements and policies covering
the Business and any life insurance policies maintained by the Company on the
lives of its employees, officers or directors, and the type and amounts of
coverage thereunder, which SCHEDULE 3.18 reflects all such insurance which is
required by law to be maintained by the Company. During the past three years,
the Company has not been refused insurance in connection with the Company's
Business, nor has any claim in excess of $10,000 been made in respect of any
such agreements or policies. Such
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policies are in full force and effect, and the Company is not delinquent with
respect to any premium payments thereon. The Company maintains the type and
amount of insurance which is adequate to protect its financial condition against
the risks involved in the conduct of the Business.
SECTION 3.19. LITIGATION. There is no suit, action, arbitration, or
legal, administrative, or other proceeding, or governmental investigation
pending against or, to the knowledge of the Company or the Principal, threatened
against or affecting the Company relating to any of the transactions
contemplated by this Agreement. The Company is not in default of any order,
writ, injunction or decree of any federal, state, local, or foreign court,
department, agency or instrumentality.
SECTION 3.20. COMPLIANCE WITH LAW. The Company has complied with all
existing local, state, federal and foreign laws, rules, regulations, orders,
judgments and decrees applicable to it and its properties, including, without
limitation, all laws, regulations, orders and requirements relating to consumer
protection, currency exchange, equal opportunity, health, environmental
protection, fire, zoning and building, occupation safety and pension matters.
Neither the Company nor Equity is required to comply with any bulk sales law in
connection with the transactions contemplated by this Agreement.
SECTION 3.21. CONTRACTS, OBLIGATIONS AND COMMITMENTS. SCHEDULE 3.21
hereto lists all existing contracts, obligations or commitments (written or
oral) of any nature, including, without limitation, the following: (a) loan or
other agreements, notes, indentures, or instruments relating to or evidencing
indebtedness for borrowed money or mortgaging, pledging or granting or creating
a Lien on any of the assets of the Company or any agreement or instrument
evidencing any guaranty by the Company of payment or performance by any other
person; (b) any contract or series of contracts with the same person for the
furnishing or purchase of equipment, goods or services; (c) any joint venture
contract or arrangement or other agreement involving a sharing of profits or
expenses; (d) agreements which will limit the freedom of the Company to compete
in any line of business or in any geographic area or with any person; (e)
agreements providing for disposition of the assets of the Company other than in
the ordinary course of business or agreements of merger or consolidation; (f)
any lease under which the Company is either lessor or lessee relating to any
asset of its Business or any property at which its Business or such assets are
located; (g) any contract, commitment or agreement with the federal government
or any state or local government or any agency thereof; or (h) any contract,
commitment or agreement with manufacturing agents or sales agents.
Each contract, agreement, arrangement, plan, lease, license or similar
instrument listed on SCHEDULE 3.21 is a valid and binding obligation of the
Company and, to the knowledge of the Company and the Principal, of the other
parties thereto, enforceable in accordance with its terms (except as the
enforceability thereof may be limited by any applicable bankruptcy, insolvency
or other laws affecting creditors' rights generally or by general principles of
equity, regardless of whether such enforceability is considered in equity or at
law), and is in full force and effect, and neither the Company nor, to the
knowledge of the Company and the Principal, any other party thereto, has
breached
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any material provisions of, or is in default under the terms of (and, to the
knowledge of the Company and the Principal, no condition exists which, with the
passage of time, the giving of notice, or both, would result in a default under
the terms of), any of such contracts.
SECTION 3.22. LICENSES. The Company has all Licenses necessary from all
applicable Regulatory Authorities for the lawful conduct of its Business, all of
which are listed on SCHEDULE 2.01(J) hereto, and it is not in default in any
material respect under such Licenses.
SECTION 3.23. NO BROKER. The Company has not dealt with any broker or
finder in connection with any of the transactions contemplated by this Agreement
and no broker or other person is entitled to any commission or finder's fee in
connection with any of such transactions.
SECTION 3.24. NO ILLEGAL OR IMPROPER TRANSACTIONS. Neither the Company
nor any stockholder, officer or employee of the Company, has directly or
indirectly used funds or other assets of the Company, or made any promise or
undertaking in such regards, for (a) illegal contributions, gifts, entertainment
or other expenses relating to political activity; (b) illegal payments to or for
the benefit of governmental officials or employees, whether domestic or foreign;
(c) illegal payments to or for the benefit of any person, firm, corporation or
other entity, or any director, officer, employee, agent or representative
thereof; (d) gifts, entertainment or other expenses that jeopardize the normal
business relations between the Company and any of its customers; or (e) the
establishment or maintenance of a secret or unrecorded fund. There have been no
false or fictitious entries made in the books or records of the Company, and the
Company has records that accurately and validly reflect transactions and
accounting controls sufficient to insure that such transactions are (i) in all
material respects executed in accordance with management's general or specific
authorization and (ii) recorded in conformity with generally accepted accounting
principles in the United States.
SECTION 3.25. RELATED PARTY TRANSACTIONS. No current or former
stockholder, officer or employee or any associate (as defined in the rules
promulgated under the Securities Exchange Act of 1934, as amended) of the
Company or any Affiliate of any of the foregoing, is presently, or during the
last three fiscal years has been, (a) a party to any transaction with the
Company with respect to the business of the Company (including, but not limited
to, any contract, agreement or other arrangement providing for the furnishing of
services by, or rental of real or personal property from, or otherwise requiring
payments to, any such director, officer, employee or stockholder or such
associate), or (b) the direct of indirect owner of an interest in any
corporation, firm, association or business organization which is a present (or
potential) competitor, supplier or customer of the Company with respect to the
business of the Company, nor does any such person receive income from any source
other than the Company which relates to the business of, or should properly
accrue to, the Company with respect to the business of the Company.
SECTION 3.26. SUPPLIERS AND CUSTOMERS. (a) SCHEDULE 3.26(A) hereto lists
(i) all suppliers of the Company to which the Company made payments during the
years
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ended December 31, 1995, 1996 and 1997, or expects to make payments during the
year ending December 31, 1998, in excess of ten percent of the combined cost of
sales of the Company for such year and (ii) all customers that paid the Company
during the years ended December 31, 1995, 1996 and 1997 or that the Company
expects will pay to the Company during the year ending December 31, 1998, in
excess of one percent of the combined revenues of the Company for such year.
(b) The Company has no information which might reasonably indicate that
any of the customers or suppliers listed on SCHEDULE 3.26(A) intend to cease
purchasing from, selling to or dealing with the Company, nor has any information
been brought to the attention of the Company or the Principal which might
reasonably lead them to believe any such customer or supplier intends to alter
in any material respect the amount of such purchases, sales or the extent of
dealings with the Company or would alter in any material respect such purchases,
sales or dealings in the event of the consummation of the Acquisition. Neither
the Company nor the Principal has any information which might reasonably
indicate, or information which has been brought to its or his attention which
might reasonably lead it or him to believe, that (i) any supplier will not be
able to fulfill outstanding or currently anticipated purchase orders placed by
the Company, or (ii) any customer will cancel outstanding or currently
anticipated purchase orders placed with the Company.
SECTION 3.27. ACCOUNTS RECEIVABLE. Each of the accounts receivable of
the Company set forth on the Interim Balance Sheet (a) arose from BONA FIDE
sales in the ordinary course of business, (b) was entered into under
circumstances and by methods usual and customary in the Company's Business in
the applicable state and the collection practices used with respect thereto have
been in all respects legal and proper, (c) was entered into, and credit granted
pursuant hereto, consistent with the Company's historical credit policies and
practices and (d) shall be collected within ninety (90) days of the date hereof.
The books of the Company correctly record the principal balance of all accounts
receivable and each of the security instruments securing any account receivable,
if any, constitutes a valid lien in favor of the Company upon the property which
it describes, and is enforceable by the Company and its transferees. The
reserves for doubtful accounts shown or reflected in the Interim Financial
Statements are adequate and were calculated consistent with past practice.
SECTION 3.28. CUSTOMS MATTERS. The Company has all licenses, permits,
consents, orders, approvals and other authorizations necessary under the customs
and trade laws of the United States of America, including without limitation
bilateral trade agreements, to carry on its business as currently being
conducted. The Company has properly reported all goods imported into the United
States, accurately stated dutiable cost thereof and paid all tariffs due thereon
at the time of entry.
SECTION 3.29. NO MISLEADING STATEMENTS. This Agreement, the information
and schedules referred to herein and the information that has been furnished to
Equity in connection with the transactions contemplated hereby do not include
any untrue statement of a material fact and do not omit to state any material
fact necessary to make the statements contained herein or therein, in light of
the circumstances under which they were made, not misleading.
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ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF
THE PRINCIPAL AND PHILIP A. MCDANIEL
Each of the Principal and Philip A. McDaniel severally represents and
warrants to Equity that the statements contained in this Article IV are correct
and complete as of the date of this Agreement, except as set forth in the
Schedules attached hereto.
SECTION 4.01. DUE AUTHORIZATION. Each of the Principal and Philip A.
McDaniel has full power and authority to execute and deliver this Agreement and
the Other Agreements to which he is a party and to perform his obligations
hereunder and thereunder. Each of the Principal and Philip A. McDaniel has duly
executed this Agreement and each of the Other Agreements to which he is a party,
and this Agreement and the Other Agreements to which he is a party is, upon
execution and delivery thereof by him, his legal, valid and binding obligation,
enforceable against him in accordance with its terms (except as the
enforceability thereof may be limited by any applicable bankruptcy, insolvency
or other laws affecting creditors' rights generally or by general principles of
equity, regardless of whether such enforceability is considered in equity or at
law).
SECTION 4.02. NO CONFLICT; CONSENTS. (a) The execution and delivery by
each of the Principal and Philip A. McDaniel of this Agreement and the Other
Agreements to which he is a party and the consummation of the transactions
contemplated hereby or thereby by him will not (i) conflict with, or result in
any violation of or default or loss of any material benefit under, any permit,
concession, grant, franchise, law, rule or regulation, or any judgment, decree
or order of any court or Regulatory Authority to which he is a party; or (ii)
conflict with, or result in a breach or violation of or default or loss of any
material benefit under, or accelerate the performance required by, the terms of
any material agreement, contract, indenture or other instrument to which he is a
party, or constitute a default or loss of any right thereunder or an event
which, with the lapse of time or notice or both, might result in a default or
loss of any right thereunder or the creation of any Lien upon the assets of the
Principal or Philip A. McDaniel, as the case may be.
(b) The execution, delivery and performance by each of the Principal
and Philip A. McDaniel of this Agreement, and the performance by him of the
transactions contemplated by this Agreement, do not require the authorization,
consent, approval, certification, license or order of, or any filing with, any
Regulatory Authority or any other third party except for such authorizations,
consents, approvals, certifications, licenses and orders that have been
obtained.
SECTION 4.03. BROKERS. Neither the Principal nor Philip A. McDaniel has
paid or become obligated to pay any fee or commission to any broker, finder,
investment banker or other intermediary in connection with the transactions
contemplated by this Agreement or the Other Agreements.
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ARTICLE V
REPRESENTATIONS AND WARRANTIES OF EQUITY
Equity represents and warrants to the Company and the Principal that
the statements contained in this Article V are correct and complete as of the
date of this Agreement.
SECTION 5.01. ORGANIZATION. Equity is a corporation duly organized, validly
existing and in good standing under the laws of its jurisdiction of
incorporation.
SECTION 5.02. AUTHORITY AND NO CONFLICT. Equity has the full right,
power and authority to execute, deliver and carry out the terms of this
Agreement and the Other Agreements to which it is party, and all documents and
agreements necessary to give effect to the provisions of this Agreement and the
Other Agreements, and this Agreement and the Other Agreements to which it is a
party have been duly authorized, executed and delivered by Equity. The execution
and delivery of this Agreement and the Other Agreements to which it is a party
by Equity does not, and consummation of the transactions contemplated hereby and
thereby will not, (a) conflict with, or result in any violation of or default or
loss of any benefit under, any provision of Equity's governing instruments; (b)
conflict with, or result in any violation of or default or loss of any material
benefit under, any permit, concession, grant, franchise, law, rule or
regulation, or any judgment, decree or order of any court or Regulatory
Authority to which Equity is a party; or (c) conflict with, or result in a
breach or violation of or default or loss of any material benefit under, or
accelerate the performance required by, the terms of any material agreement,
contract, indenture or other instrument to which Equity is a party, or
constitute a default or loss of any right thereunder or an event which, with the
lapse of time or notice or both, might result in a default or loss of any right
thereunder or the creation of any material Lien upon the assets of Equity. All
action and other authorizations prerequisite to the execution of this Agreement
and the Other Agreements to which it is a party and the consummation of the
transactions contemplated hereby and thereby have been taken or obtained by
Equity. This Agreement and the Other Agreements to which it is a party are valid
and binding agreements of Equity enforceable against Equity in accordance with
their terms (except as such enforceability may be limited by any applicable
bankruptcy, insolvency or other laws affecting creditor's rights generally or by
general principles of equity, regardless of whether such enforceability is
considered in equity or at law).
SECTION 5.03. CONSENTS. The execution, delivery and performance by
Equity of this Agreement and the Other Agreements to which it is a party, and
the performance of the transactions contemplated hereby and thereby, do not
require the authorization, consent, approval, certification, license or order
of, or any filing with, any Regulatory Authority or any other third party except
for such governmental authorizations, consents, approvals, certifications,
licenses and orders that have been obtained.
SECTION 5.04. REPORTS OF EQUITY. Equity has delivered to the Company and
the Principal (a) Equity's Annual Report on Form 10-K for the fiscal year ended
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December 31, 1997; (b) Equity's Quarterly Report on Form 10-Q for the fiscal
quarter ended March 31, 1998; (c) Equity's Current Report on Form 8-K filed May
8, 1998 with respect to the acquisition of Corinthian Marketing, Inc.; and (d)
Equity's Definitive Proxy Statement for the Annual Meeting held on May 27, 1998
(collectively, the "SEC REPORTS"). The SEC Reports, when filed with the
Securities and Exchange Commission (the "SEC"), complied as to form in all
material respects with the requirements of the Securities Exchange Act of 1934,
as amended. As of their respective dates, the SEC Reports did not contain an
untrue statement of material fact or omit to state a material fact required to
be stated therein. There has been no Current Report on Form 8-K filed by Equity
with the SEC since May 8, 1998.
SECTION 5.05. NO MATERIAL ADVERSE CHANGE. Since March 31, 1998, there has
been no material adverse change in results of operations, financial condition or
Business of Equity.
SECTION 5.06. BROKERS. Neither Equity or any of its Affiliates has paid or
become obligated to pay any fee or commission to any broker, finder, investment
banker or other intermediary in connection with the transactions contemplated by
this Agreement.
ARTICLE VI
POST-CLOSING COVENANTS
POST-CLOSING COVENANTS OF ALL PARTIES HERETO
SECTION 6.01. GENERAL. In case at any time after the Closing any
further action is necessary or desirable to carry out the purposes of this
Agreement and the Other Agreements, each of the parties hereto will take such
further action (including the execution and delivery of such further instruments
and documents) as any other party hereto reasonably may request. The Principal
acknowledges and agrees that from and after the Closing Equity will be entitled
to possession of all documents, books, records, agreements, and financial data
of any sort relating to the Assets.
SECTION 6.02. TAX MATTERS.
(a) COOPERATION ON TAX MATTERS.
(i) Equity, the Company and the Principal shall cooperate
fully, as and to the extent reasonably requested by the other party, in
connection with the filing of Tax Returns pursuant to this Section and any
audit, litigation or other proceeding with respect to Taxes. Such cooperation
shall include the retention and (upon the other party's request) the provision
of records and information which are reasonably relevant to any such audit,
litigation or other proceeding and making employees available on a mutually
convenient basis to provide additional information and explanation of any
material provided hereunder.
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(ii) Equity and the Principal further agree, upon request, to
use all commercially reasonable efforts to obtain any certificate or other
document from any Regulatory Authority or any other Person as may be necessary
to mitigate, reduce or eliminate any Tax that could be imposed (including, but
not limited to, with respect to the transactions contemplated hereby).
(b) ALLOCATION OF PURCHASE PRICE. The Company, the Principal and Equity
shall file all required information and tax returns (and any amendments thereto)
in a manner consistent with the mutually-agreed allocation of the Purchase Price
and comply with the applicable information reporting requirements of Section
1060 of the Code and Treasury Regulations promulgated thereunder. If, contrary
to the intent of the parties hereto as expressed in this Section 6.02, any
taxing authority makes or proposes an allocation different from that agreed upon
pursuant to this Agreement, the Company and Equity shall cooperate with each
other in good faith to contest such taxing authority's allocation (or proposed
allocation), PROVIDED, HOWEVER, that, after consultation with the party
adversely affected by such allocation (or proposed allocation), another party
hereto may file such protective claims or returns as may reasonably be acquired
to protect its interests.
(c) CERTAIN TAXES. All transfer (including, without limitation, any
real estate transfer taxes), documentary, sales, use, stamp, registration and
other such Taxes and fees (including any penalties and interest) incurred in
connection with this Agreement and the transactions contemplated hereby, shall
be paid by the Company when due, and the Company will, at its expense, file all
necessary Tax Returns and other documentation with respect to all such transfer,
documentary, sales, use, stamp, registration and other Taxes and fees, and, if
required by applicable law, and the Company will, and will cause its Affiliates
to, join in the execution of any such Tax Returns and other documentation.
SECTION 6.03. EQUITY TO ACT AS AGENT FOR THE COMPANY. This Agreement
shall not constitute an agreement to assign any contract right included among
the Assets if any attempted assignment of the same without the consent of the
other party thereto would constitute a breach thereof or in any way adversely
affect the rights of the Company thereunder. If such consent is not obtained or
if any attempted assignment would be ineffective or would adversely affect the
Company's rights thereunder so that Equity would not in fact receive all such
rights, then Equity shall act as the agent for the Company in order to obtain
for Equity the benefits thereunder and to assume the liabilities thereunder.
Nothing herein shall be deemed to make Equity the Company's agent in respect of
any Excluded Asset.
SECTION 6.04. DELIVERY OF PROPERTY RECEIVED BY THE COMPANY OR EQUITY
AFTER CLOSING. From and after the Closing, Equity shall have the right and
authority to collect, for the account of Equity, all assets which shall be
transferred or are intended to be transferred to Equity as part of the Assets as
provided in this Agreement, and to endorse with the name of the Company (without
recourse or warranty except to the extent set forth herein) any checks or drafts
received on account of any such assets. The Company agrees that it will transfer
or deliver to Equity promptly after the receipt thereof, any cash or other
property which the Company
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receives after the date hereof in respect of any assets transferred or intended
to be transferred to Equity as part of the Assets under this Agreement. In
addition, Equity agrees that it will transfer or deliver to the Company,
promptly after receipt thereof, any cash or other property which Equity receives
after the date hereof in respect of any assets not transferred or intended to be
transferred to Equity as part of the Assets under this Agreement.
SECTION 6.05. EQUITY APPOINTED ATTORNEY FOR THE COMPANY. The Company,
effective upon the execution of this Agreement, hereby constitutes and appoints
Equity, and its successors and assigns, the true and lawful attorney of the
Company, in the name of Equity or the Company (as Equity shall determine in its
sole discretion) but for the benefit of Equity: (a) to institute and prosecute
all proceedings which Equity may deem proper in order to collect, assert or
enforce any claim, right or title of any kind in or to the Assets as provided
for in this Agreement; (b) to defend or compromise any and all actions, suits or
proceedings in respect of any of the Assets, and to do all such acts and things
in relation thereto as Equity shall deem advisable; and (c) to take all action
which Equity, its successors or assigns may reasonably deem proper in order to
provide for Equity, its successors or assigns, the benefits under any of the
Assets where any required consent of another party to the sale or assignment
thereof to Equity pursuant to this Agreement shall not have been obtained. The
Company acknowledges that the foregoing powers are coupled with an interest and
shall be irrevocable. Equity shall be entitled to retain for its own account any
amounts collected pursuant to the foregoing powers, including any amounts
payable as interest in respect thereof. Equity agrees to act in good faith in
seeking to collect, assert or enforce any claim against any third party in
accordance with this Section 6.05. Notwithstanding the foregoing, the power of
attorney set forth in this Section 6.05 shall not apply in the event that the
Company or the Principal has an indemnification obligation under Article VII and
is complying with such obligation.
SECTION 6.06. PAYMENT OF LIABILITIES. Following the date hereof Equity
agrees to discharge the Assumed Liabilities in accordance with their terms and
the Company agrees to discharge its remaining liabilities in accordance with
their terms.
SECTION 6.07. SUBSEQUENT LIABILITY. If, subsequent to the date hereof,
any liability for Taxes measured by the income of the Company relating to the
Assets or the conduct of the Business is imposed on Equity with respect to any
period prior to and through the date hereof which has not otherwise been assumed
by Equity pursuant to this Agreement, then the Company and the Principal,
jointly and severally, shall indemnify and hold Equity harmless, from and
against, and shall pay, the full amount of such Tax liability, including any
interest, additions to tax and penalties thereon, together with interest on such
additions to tax or penalties (as well as reasonable attorneys' or other fees
and disbursements of Equity incurred in determination thereof or in connection
therewith), or the Company and the Principal shall, at their sole expense and in
their reasonable discretion, either settle any Tax claim that may be the subject
of indemnification under this Section 6.07 at such time and on such terms as
they shall deem appropriate or assume the entire defense thereof, PROVIDED,
HOWEVER, that the Company and the Principal shall not in any event take any
position in such settlement or defense that subjects Equity to any civil fraud
or any civil or criminal
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penalty or tax assessment. Notwithstanding the foregoing, neither the Company
nor the Principal shall consent, without the prior written consent of Equity,
which prior written consent shall not be unreasonably withheld, delayed or
conditioned, to any change in the treatment of any item which would adversely
affect the tax liability of Equity for a period subsequent to the date hereof.
SECTION 6.08. EMPLOYEE MATTERS.
(a) The Company has no information that Equity would not qualify for
successor status under Internal Revenue Service Revenue Procedure 96-60.
Pursuant to that pronouncement, the parties agree Equity will file (with the
federal government and the state, where appropriate) a single W-2 for the 1998
taxable year for each employee of the Company who becomes an employee of Equity,
reporting the wages paid by both Equity and the Company to any such employee.
The Company will provide Equity any information not available to Equity relating
to periods ending on or prior to the date hereof necessary for Equity to prepare
and distribute Forms W-2 for the year ending December 31, 1998 to any such
employees. In addition, both parties will file Forms 941 for the quarter during
which the sale takes place, reflecting the wages and deposits made during its
period of ownership.
(b) No term of this Agreement shall be deemed to create any contract
between Equity and any current employee of the Company which gives the employee
the right to be retained in the employment of Equity or any related employer, or
to interfere with Equity's right to terminate employment of any employee at any
time or to change its policies regarding salaries, benefits and other employment
matters at any time or from time to time. The representations, warranties,
covenants and agreements contained herein are for the sole benefit of the
parties hereto, and employees are not intended to be and shall not be construed
as beneficiaries hereof.
(c) Equity shall not assume the sponsorship of, or the responsibility
for contributions to, or any liability in connection with, any Employee Plan.
Without limiting the foregoing, the Company shall be liable for any continuation
coverage (including any penalties, excise taxes or interest resulting from the
failure to provide continuation coverage) required by Section 4980B of the Code
due to qualifying events that occur on or before the date hereof, and the
Company shall otherwise retain all obligations and liabilities under the
Employee Plans.
(d) With respect to any employee of the Company hired by Equity, the
Company shall retain and shall defend, indemnify and hold Equity harmless from
and against (i) all liabilities and obligations arising under any group life,
accident, medical, dental or disability plan (whether or not insured) to the
extent that such liability or obligation relates to claims or expenses incurred
(whether or not then reported) on or prior to the date hereof, (ii) all
liabilities and obligations arising under any worker's compensation arrangement
to the extent such liability or obligation arises out of an illness or injury
that originated prior to the date hereof, including liability for any
retroactive worker's compensation premiums attributable to such period, and
(iii) all other liabilities and obligations arising under or in connection the
Employee Plans to
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the extent any such liability or obligation relates to services performed or
events occurring during any period on or prior to the date hereof.
(e) No provision of this Agreement shall create any third party
beneficiary or other rights in any employee or former employee (including any
beneficiary or dependent thereof) of the Company in respect of employment with
Equity or in respect of any benefits that may be provided, directly or
indirectly, under any employee benefit plan, contract, policy or arrangement
which may be established by Equity. No provision of this Agreement shall
constitute a limitation on rights to amend, modify or terminate after the date
hereof any such plans, contracts, policies or arrangements of Equity.
POST-CLOSING COVENANTS OF THE COMPANY AND THE PRINCIPAL
SECTION 6.09. RESTRICTIVE COVENANTS.
(a) Each of the Company and the Principal agrees until December 31,
2003 not to directly or indirectly, as owner, partner, joint venturer,
stockholder, employee, broker, agent, principal, trustee, corporate officer,
director, licensor, or in any capacity whatsoever engage in, become financially
interested in, be employed by, render any consultation or business advice with
respect to, or have any connection with, any firm, corporation, business or
other organization or enterprise which competes with the Business in any
geographic area where the Business is then being conducted or is proposed to be
conducted (by Equity or any Affiliate of Equity to which all or part of the
Business is subsequently transferred), in any manner whatsoever, including
without limitation sales of promotional products and services (including both
self-liquidating and give-away products); PROVIDED, HOWEVER, that ownership of
securities of a corporation which is engaged in such business and is publicly
owned and traded but in an amount not to exceed at any one time one percent (1%)
of any class of stock or securities of such corporation, by itself, shall not be
deemed a violation of this covenant. In addition, each of the Company and the
Principal agrees until December 31, 2003 not to directly or indirectly (i)
solicit for employment, interfere with or entice from employment any employee of
Equity or its Affiliates, (ii) request or cause contracting parties, licensors,
suppliers or customers with whom Equity or any of its Affiliates has a business
relationship to cancel or terminate any such business relationship or (iii) use
any of the proprietary information contained in the Assets in any manner not in
the best interests of Equity.
(b) SCOPE OF RESTRICTIVE COVENANTS. Each of the Company and the
Principal represents, warrants and acknowledges that the Business is
international in scope, that the restrictive covenants set forth in this Section
6.09 (including without limitation the territorial and time limitations thereof)
(the "RESTRICTIVE COVENANTS") are necessary in order adequately to protect and
maintain the goodwill, proprietary interests and other legitimate business
interests of the Business being acquired by Equity and are reasonable in all
respects, and that a breach or threatened breach of any of the Restrictive
Covenants would cause irreparable injury to the Business being acquired by
Equity for which money damages would be difficult to calculate and might not
adequately compensate Equity. In the event of a breach or threatened breach of
any
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of the Restrictive Covenants, in addition to all other remedies available to it,
Equity shall be entitled to injunctive or other equitable relief. If any court
determines that any part of a Restrictive Covenant is unenforceable, the parties
intend and desire such court to reduce the duration or coverage of such
provision to the minimum extent necessary to render such provision enforceable,
and in its reduced form, such provision shall then be enforceable and shall be
enforced. The existence of any claim or cause of action by the Company or the
Principal against Equity shall not constitute a defense to the enforcement by
Equity of the Restrictive Covenants, but such claim or cause of action shall be
litigated separately.
(c) SURVIVAL. The provisions of this Section 6.09 shall survive the
Closing hereunder and shall remain in full force and effect for the term of the
covenants set forth in this Section 6.09 and, thereafter, to the extent a claim
is made prior to such expiration with respect to any breach of such covenant,
until such claim is finally determined or settled. Termination of the Employment
Agreement, or the non-competition provisions contained therein, shall in no way
affect or diminish the obligations of the Principal pursuant to this Section
6.09.
(d) ASSIGNMENT. Notwithstanding anything else in this Agreement, Equity
may assign its rights under this Section 6.09 to any Affiliate of Equity or any
successor in interest to Equity of the Business or the Assets, whether by
merger, consolidation, purchase of assets or otherwise.
SECTION 6.10. RELEASES OF CERTAIN LIENS. Promptly following the Closing,
the Company shall obtain the release of (i) the lien for state taxes created by
Chapter 62C, and (ii) the Lien of Fleet National Bank.
ARTICLE VII
INDEMNIFICATION
SECTION 7.01. SURVIVAL OF REPRESENTATIONS AND WARRANTIES. All of the
representations and warranties contained in this Agreement shall survive the
Closing hereunder and continue in full force and effect through March 31, 2000,
regardless of any investigation made by Equity, the Company, the Principal or
Philip A. McDaniel or on their behalf; PROVIDED, HOWEVER, that the
representations and warranties contained in Sections 3.10, 3.12 and 3.17,
relating to Taxes, environmental matters and ERISA, respectively, shall survive
and remain in full force and effect for the periods equal to the applicable
statutes of limitation relating thereto.
SECTION 7.02. INDEMNIFICATION PROVISIONS FOR BENEFIT OF EQUITY. In the
event the Company, the Principal or Philip A. McDaniel breaches (or in the event
any third party alleges facts that, if true, would mean the Company, the
Principal or Philip A. McDaniel has breached) any of their representations,
warranties and covenants contained herein, then the Company, the Principal and
Philip A. McDaniel, jointly and severally (and severally as to Article IV) agree
to indemnify Equity from and against all damages, costs, liabilities, losses and
expenses, including reasonable attorneys' fees
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and expenses, which Equity may suffer through and after the date of the claim
for indemnification resulting from, arising out of, relating to, in the nature
of or caused by the breach (or the alleged breach). In addition, the Company,
the Principal and Philip A. McDaniel, jointly and severally but subject to all
limitations set forth in this Article VII, shall indemnify Equity from and
against all damages, costs, liabilities, losses and expenses, including
reasonable attorneys' fees and expenses, which Equity may suffer at any time
resulting from (i) any product liability claims relating to the Company's
products that are filed after the closing hereunder and relating to occurrences
prior to the closing hereunder and (ii) any liabilities arising out of or
relating to claims by Susan McCune.
SECTION 7.03. INDEMNIFICATION PROVISIONS FOR BENEFIT OF THE COMPANY AND
THE PRINCIPAL. In the event Equity breaches (or in the event any third party
alleges facts that, if true, would mean Equity has breached) any of its
representations, warranties and covenants contained herein, then Equity agrees
to indemnify the Company and the Principal from and against the entirety of all
damages, costs, liabilities, losses and expenses, including reasonable
attorneys' fees and expenses, which the Company or the Principal may suffer
through and after the date of the claim for indemnification resulting from,
arising out of, relating to, in the nature of or caused by the breach (or the
alleged breach).
SECTION 7.04. MATTERS INVOLVING THIRD PARTIES. (a) If any third party
shall notify any party (the "INDEMNIFIED PARTY") with respect to any matter (a
"THIRD PARTY CLAIM") which may give rise to a claim for indemnification against
any other party hereto (the "INDEMNIFYING PARTY") under this Article VII, then
the Indemnified Party shall promptly notify each Indemnifying Party thereof in
writing; PROVIDED, HOWEVER, that no delay on the part of the Indemnified Party
in notifying any Indemnifying Party shall relieve the Indemnifying Party from
any obligation hereunder unless (and then solely to the extent) the Indemnifying
Party thereby is prejudiced.
(b) Any Indemnifying Party will have the right to defend the
Indemnified Party against the Third Party Claim with counsel of its choice
reasonably satisfactory to the Indemnified Party so long as (i) the Indemnifying
Party notifies the Indemnified party in writing within fifteen (15) days after
the Indemnified Party has given notice of the Third Party Claim that the
Indemnifying Party will indemnify the Indemnified Party from and against the
entirety of all damages, costs, liabilities, losses and expenses, including
reasonable attorneys' fees and expenses, which the Indemnified Party may suffer
resulting from, arising out of, relating to, in the nature of or caused by the
Third Party Claim, (ii) the Indemnifying Party provides the Indemnified Party
with evidence reasonably acceptable to the Indemnified Party that the
Indemnifying Party will have the financial resources to defend against the Third
Party Claim and fulfill its indemnification obligations hereunder, (iii) the
Third Party Claim involves only money damages and does not seek an injunction or
other equitable relief, (iv) settlement of, or an adverse judgment with respect
to, the Third Party Claim is not, in the good faith judgment of the Indemnified
Party, likely to establish a precedential custom or practice adverse to the
continuing Business interests of the Indemnified Party, and (v) the Indemnifying
Party conducts the defense of the Third Party Claim actively and diligently.
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(c) So long as the Indemnifying Party is conducting the defense of the
Third Party Claim in accordance with Section 7.04(b) above, (i) the Indemnified
Party may retain separate co-counsel at its sole cost and expense and
participate in the defense of the Third Party Claim, (ii) the Indemnified Party
will not consent to the entry of any judgment or enter into any settlement with
respect to the Third Party Claim without the prior written consent of the
Indemnifying Party (not to be withheld, delayed or conditioned unreasonably),
and (iii) the Indemnifying Party will not consent to the entry of any judgment
or enter into any settlement with respect to the Third Party Claim without the
prior written consent of the Indemnified Party (not to be withheld, delayed or
conditioned unreasonably); PROVIDED, HOWEVER, that the Indemnified Party shall
have the right to employ its own counsel in any action and the fees and expenses
of such counsel shall be at the expense of the Indemnifying Party in the event
that the Indemnified Party shall have reasonably concluded that there may be a
conflict of interest between the Indemnified Party and the Indemnifying Party in
the conduct of such defense of such action (in which case the Indemnifying Party
shall not have the right to direct the defense of such action on behalf of the
Indemnified Party).
(d) In the event any of the conditions in Section 7.04(b) above is or
becomes unsatisfied, (i) the Indemnified Party may defend against, and consent
to the entry of any judgment or enter into any settlement with respect to, the
Third Party Claim in any manner it reasonably may deem appropriate (and the
Indemnified Party need not consult with, or obtain any consent from, any
Indemnifying Party in connection therewith), (ii) the Indemnifying Party will
reimburse the Indemnified Party promptly and periodically for the costs of
defending against the Third Party Claim (including reasonable attorneys' fees
and expenses), and (iii) the Indemnifying Party will remain responsible for all
damages, costs, liabilities, losses and expenses, including reasonable
attorneys' fees and expenses, which the Indemnified Party may suffer resulting
from, arising out of, relating to, in the nature of, or caused by the Third
Party Claim to the fullest extent provided in this Article VII.
SECTION 7.05. LIMITATIONS.
(a) No claim shall be made under this Article VII or otherwise with
respect to the representations and warranties herein for any individual matter
unless the aggregate of such matters and matters under Article VII of the U.S.
Import Agreement equals $50,000 (but after the aggregate of such matters equals
$50,000, a claim may be made for the full amount of all such matters); PROVIDED,
HOWEVER, that such limitation shall not apply to claims made under Sections 3.04
(Ownership of Assets), 3.10 (Taxes), 3.15 (Inventories), 3.25 (Related Party
Transactions), 3.27 (Accounts Receivable) or to fraud claims.
(b) The Indemnifying Parties shall not have liability under this
Article VII or otherwise with respect to the representations and warranties
herein or in the U.S. Import Agreement in excess of $2,000,000 in the aggregate;
PROVIDED, HOWEVER, that such limitation shall not apply to claims made under
Sections 3.04 (Ownership of Assets), 3.10 (Taxes), 3.15 (Inventories), 3.25
(Related Party Transactions), 3.27 (Accounts Receivable) or to fraud claims or
to the covenants provided in Section 6.10 hereof.
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(c) Except as otherwise expressly provided by this Agreement, none of
the Company, the Principal or Philip A. McDaniel shall be liable to Equity under
the Warranties or under this Article VII with respect to matters which are set
forth (by reference to the applicable section of this Agreement) in the
Disclosure Schedule.
SECTION 7.06. OTHER INDEMNIFICATION PROVISIONS. The foregoing
indemnification provisions are in addition to, and not in derogation of, any
statutory, equitable or common law remedy any party hereto may have for breach
of representation, warranty or covenant. Each of the Principal and Philip A.
McDaniel hereby agrees that he will not make any claim for indemnification
against the Company by reason of the fact that he was a stockholder, director,
officer, employee or agent of any such entity or was serving at the request of
any such entity as a partner, trustee, director, officer, employee or agent of
another entity (whether such claim is for judgments, damages, penalties, fines,
costs, amounts paid in settlement, losses, expenses or otherwise and whether
such claim is pursuant to any statute, charter document, bylaw, agreement or
otherwise) with respect to any action, suit, proceeding, complaint, claim or
demand brought by Equity against the Principal (whether such action, suit,
proceeding, complaint, claim or demand is pursuant to this Agreement, applicable
law or otherwise).
ARTICLE VIII
MISCELLANEOUS
SECTION 8.01. EFFECT OF DUE DILIGENCE. No investigation by or on behalf
of Equity into the Business, operations, prospects, assets or condition
(financial or otherwise) of the Company shall diminish in any way the effect of
any representations or warranties made by the Company, the Principal or Philip
A. McDaniel in this Agreement or shall relieve the Company, the Principal or
Philip A. McDaniel of any of their respective obligations under this Agreement.
SECTION 8.02. PRESS RELEASES AND PUBLIC ANNOUNCEMENTS. Neither the
Company nor the Principal nor Philip A. McDaniel shall issue any press release
or make any public announcement relating to the subject matter of this
Agreement. Equity may make any public disclosure it believes in good faith is
required by applicable law, but shall not make any such disclosure without prior
notice to the Company.
SECTION 8.03. NO THIRD PARTY BENEFICIARIES. This Agreement shall not confer
any rights or remedies upon any Person other than the parties hereto and their
respective successors and permitted assigns.
SECTION 8.04. ENTIRE AGREEMENT. This Agreement and the Other Agreements
constitute the entire agreement among the parties hereto and supersedes any
prior understandings, agreements or representations by or among the parties
hereto, written or oral, to the extent they related in any way to the subject
matter hereof and thereof.
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SECTION 8.05. SUCCESSION AND ASSIGNMENT. This Agreement shall be
binding upon and inure to the benefit of the parties named herein and their
respective successors and permitted assigns. No party may assign either this
Agreement or any of his or its rights, interests, or obligations hereunder
without the prior written approval of Equity and the Principal; PROVIDED,
HOWEVER, that (a) Equity may (i) assign any or all of its rights and interests
hereunder to one or more of its Affiliates and (ii) designate one or more of its
Affiliates to perform its obligations hereunder (in any or all of which cases
Equity nonetheless shall remain responsible for the performance of all of its
obligations hereunder) and (b) the Company may assign its right to receive any
or all of the Purchase Price to the Principal or Philip A. McDaniel.
SECTION 8.06. COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original but all of which
together will constitute one and the same instrument.
SECTION 8.07. HEADINGS. The section headings contained in this Agreement
are inserted for convenience only and shall not affect in any way the meaning or
interpretation of this Agreement.
SECTION 8.08. NOTICES. All notices, requests, demands, claims, and
other communications hereunder will be in writing. Any notice, request, demand,
claim or other communication hereunder shall be deemed duly given (a) on the
date of delivery, if delivered to the persons identified below, (b) two Business
Days after it is sent by registered or certified mail, return receipt requested,
postage prepaid, and addressed to the intended recipient as set forth below:
IF TO THE COMPANY John C. McDaniel
OR THE PRINCIPAL: 23 Metcalf Street
Worcester, Massachusetts 01609
IF TO PHILIP A. MCDANIEL: Philip A. McDaniel
51 Water Street
St. Augustine, Florida 32084
COPY TO: Goodwin, Procter & Hoar LLP
Exchange Place
Boston, Massachusetts 02109
Attn: Stuart Cable, Esq.
IF TO EQUITY: Equity Marketing, Inc.
131 South Rodeo Drive
Beverly Hills, California 90212
Attn: Stephen P. Robeck
COPY TO: Fulbright & Jaworski L.L.P.
666 Fifth Avenue
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<PAGE>
New York, New York 10103
Attn: Merrill M. Kraines, Esq.
Any party may send any notice, request, demand, claim, or other communication
hereunder to the intended recipient at the address set forth above using any
other means (including personal delivery, expedited courier, messenger service,
telecopy, telex, ordinary mail, or electronic mail), but no such notice,
request, demand, claim, or other communication shall be deemed to have been duly
given unless and until it actually is received by the intended recipient. Any
party may change the address to which notices, requests, demands, claims, and
other communications hereunder are to be delivered by giving the other parties
notice in the manner herein set forth.
SECTION 8.09. GOVERNING LAW. This Agreement shall be governed by and
construed in accordance with the domestic laws of the State of New York without
giving effect to any choice or conflict of law provision or rule (whether of the
State of New York or any other jurisdiction) that would cause the application of
the laws of any jurisdiction other than the State of New York.
SECTION 8.10. CONSENT TO JURISDICTION; RECEIPT OF PROCESS. EACH PARTY
HEREBY CONSENTS TO THE JURISDICTION OF, AND CONFERS NON-EXCLUSIVE JURISDICTION
UPON, ANY FEDERAL OR STATE COURT LOCATED IN THE COUNTY OF LOS ANGELES, AND
APPROPRIATE APPELLATE COURTS THEREFROM, OVER ANY ACTION, SUIT OR PROCEEDING
ARISING OUT OF OR RELATING TO THIS AGREEMENT, OR ANY OF THE TRANSACTIONS
CONTEMPLATED HEREBY. EACH PARTY HEREBY IRREVOCABLY WAIVES, AND AGREES NOT TO
ASSERT AS A DEFENSE IN ANY SUCH ACTION, SUIT OR PROCEEDING, ANY OBJECTION WHICH
IT MAY NOW OR HEREAFTER HAVE TO VENUE OF ANY SUCH ACTION, SUIT OR PROCEEDING
BROUGHT IN ANY SUCH FEDERAL OR STATE COURT AND HEREBY IRREVOCABLY WAIVES ANY
CLAIM THAT ANY SUCH ACTION, SUIT OR PROCEEDING BROUGHT IN ANY SUCH COURT OR
TRIBUNAL HAS BEEN BROUGHT IN AN INCONVENIENT FORUM. PROCESS IN ANY SUCH ACTION,
SUIT OR PROCEEDING MAY BE SERVED ON ANY PARTY ANYWHERE IN THE WORLD, WHETHER
WITHIN OR WITHOUT THE STATE OF CALIFORNIA, PROVIDED THAT NOTICE THEREOF IS
PROVIDED PURSUANT TO PROVISIONS FOR NOTICE UNDER THIS AGREEMENT.
SECTION 8.11. AMENDMENTS AND WAIVERS. No amendment of any provision of
this Agreement shall be valid unless the same shall be in writing and signed by
Equity, the Company and Principal. No waiver by any party of any default,
misrepresentation or breach of warranty or covenant hereunder, whether
intentional or not, shall be deemed to extend to any prior or subsequent
default, misrepresentation or breach of warranty or covenant hereunder or affect
in any way any rights arising by virtue of any prior or subsequent such
occurrence.
SECTION 8.12. SEVERABILITY. Any term or provision of this Agreement
that is invalid or unenforceable in any situation in any jurisdiction shall not
affect the validity or enforceability of the remaining terms and provisions
hereof or the validity or enforceability of the offending term or provision in
any other situation or in any other jurisdiction.
SECTION 8.13. EXPENSES. Each of Equity and the Principal will bear his
or its own Transaction Costs, and the Principal shall bear the Transaction
Costs of the
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Company, in each case incurred in connection with this Agreement and the
transactions contemplated hereby. The Principal agrees that the Company has not
borne and will not bear any of the Principal's Transaction Costs in connection
with this Agreement or the Other Agreements or any of the transactions
contemplated hereby or thereby.
SECTION 8.14. CONSTRUCTION. The parties have participated jointly in
the negotiation and drafting of this Agreement. In the event an ambiguity or
question of intent or interpretation arises, this Agreement shall be construed
as if drafted jointly by the parties and no presumption or burden of proof shall
arise favoring or disfavoring any party by virtue of the authorship of any of
the provisions of this Agreement. Any reference to any federal, state, local, or
foreign statute or law shall be deemed also to refer to all rules and
regulations promulgated thereunder, unless the context requires otherwise. The
word "including" shall mean including without limitation. The parties intend
that each representation, warranty and covenant contained herein shall have
independent significance. If any party has breached any representation, warranty
or covenant contained herein in any respect, the fact that there exists another
representation, warranty or covenant relating to the same subject matter
(regardless of the relative levels of specificity) which the party has not
breached shall not detract from or mitigate the fact that the party is in breach
of the first representation, warranty or covenant.
SECTION 8.15. INCORPORATION OF EXHIBITS, ANNEXES, AND SCHEDULES. The
Exhibits and Schedules identified in this Agreement are incorporated herein by
reference and made a part hereof.
SECTION 8.16. SPECIFIC PERFORMANCE. Each of the parties acknowledges
and agrees that the other parties would be damaged irreparably in the event any
of the provisions of this Agreement are not performed in accordance with their
specific terms or otherwise are breached. Accordingly, each of the parties
agrees that the other parties shall be entitled to an injunction or injunctions
to prevent breaches of the provisions of this Agreement and to enforce
specifically this Agreement and the terms and provisions hereof in any action
instituted in any court of the United States or any state thereof having
jurisdiction over the parties and the matter, in addition to any other remedy to
which they may be entitled, at law or in equity.
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<PAGE>
IN WITNESS WHEREOF, the undersigned have duly executed this
Agreement as of the date set forth above.
EQUITY MARKETING,INC.
By: /s/ Stephen P. Robeck
Stephen P. Robeck
Chairman and
Co-Chief Executive Officer
CONTRACT MARKETING, INC.
By: /s/ John C. McDaniel
John C. McDaniel
President
/s/ JOHN C. McDANIEL
JOHN C. McDANIEL
/s/ PHILIP A. McDANIEL
PHILIP A. McDANIEL
<PAGE>
ASSET PURCHASE AGREEMENT
DATED AS OF
JULY 23, 1998
BY AND AMONG
EQUITY MARKETING, INC.
AND
U.S. IMPORT & PROMOTIONS CO.
PHILIP A. MCDANIEL
AND
JOHN C. MCDANIEL
<PAGE>
ASSET PURCHASE AGREEMENT
ASSET PURCHASE AGREEMENT, dated as of July 23, 1998 (this "AGREEMENT"),
by and among (i) Equity Marketing, Inc., a Delaware corporation ("EQUITY"), (ii)
U.S. Import & Promotions Co., a Florida corporation (the "COMPANY"), (iii)
Philip A. McDaniel, an individual residing at 51 Water Street, St. Augustine,
Florida 32084 (the "PRINCIPAL") and (iv) John C. McDaniel, an individual
residing at 23 Metcalf Street, Worcester, Massachusetts 01609.
RECITALS:
WHEREAS, the Principal owns all of the issued and outstanding capital stock
of the Company;
WHEREAS, Equity, for itself or through a wholly-owned subsidiary, desires
to purchase and the Company desires to sell substantially all of the assets used
by the Company in the operation of its promotional products business (the
"BUSINESS"), upon the terms and subject to the conditions set forth in this
Agreement;
WHEREAS, the Company and the Principal have determined that it is in the
best interest of the Company, and in furtherance of its purposes, to sell
substantially all assets, real and personal and mixed, tangible and intangible,
owned or leased by the Company and associated with or employed in the operations
of the Business, and substantially all other related operations owned or leased
by the Company to Equity, subject to the assumption by Equity of certain
specified liabilities of the Company, as are more fully described herein.
NOW, THEREFORE, in consideration of the mutual promises and agreements
hereinafter contained, the parties hereto agree as follows:
ARTICLE I
DEFINITIONS
The following terms shall have the following respective meanings for
all purposes of this Agreement:
"ACQUIRED BUSINESSES" shall mean sales of Promotional Products and
Services to the customers of the Company and Contract Marketing identified on
SCHEDULE 1 hereto and to such additional customers, and of such additional
promotional or other products and services, as may be solicited and secured by
the Principal or John C. McDaniel and agreed by good faith negotiations among
Equity, the Principal and John C. McDaniel; PROVIDED, HOWEVER, that products,
services or customers subsequently acquired by Equity as a result of mergers or
acquisitions shall not be deemed part of the "Acquired
<PAGE>
Businesses" unless otherwise agreed by good faith negotiations among Equity, the
Principal and John C. McDaniel.
"ACQUISITION" shall mean the purchase and sale of the Assets pursuant
to the terms of this Agreement.
"AFFILIATE" shall mean, with respect to any Person, any other Person
that, directly or indirectly, controls or is controlled by or is under common
control with such Person. As used in this definition, the term "control" and any
derivatives thereof mean the possession, directly or indirectly, of the power to
direct or cause the direction of the management and policies of a Person,
whether through ownership of voting securities, by contract, or otherwise. In
addition, John C. McDaniel and Contract Marketing shall be deemed Affiliates of
the Principal and of the Company.
"AFFILIATED OBLIGATIONS" means the amounts owed to the Company by the
Principal and his Affiliates; provided, however, that the obligations arising
out of the relationships described on SCHEDULE 3.25 shall not be deemed
"Affiliated Obligations."
"AGREEMENT" shall mean this Asset Purchase Agreement, as it may be from
time to time amended.
"ASSETS" has the meaning set forth in Section 2.01.
"ASSIGNED CONTRACTS" has the meaning set forth in Section 2.01.
"ASSUMED LIABILITIES" has the meaning set forth in Section 2.04.
"BALANCE SHEET" has the meaning set forth in Section 3.06.
"BUSINESS" has the meaning set forth in the recitals to this Agreement.
"BUSINESS DAY" shall mean any day, other than a Saturday, Sunday or a
legal holiday under the federal laws of the United States.
"CLOSING" shall mean the consummation of the Acquisition pursuant to
this Agreement.
"CLOSING DATE BALANCE SHEET" has the meaning set forth in Section 2.03.
"CODE" shall mean the Internal Revenue Code of 1986, as amended.
"CONFIDENTIAL INFORMATION" shall mean all trade secrets and other
confidential information concerning the Company including, without limitation,
information regarding the operations, future plans, projected and historical
sales, marketing, costs, production, growth and distribution, any customer
lists, customer information,
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information relating to governmental relations, and information relating to the
products or services, whether patentable or not.
"CONTRACT MARKETING" shall mean Contract Marketing, Inc., a Massachusetts
corporation.
"CONTRACT MARKETING AGREEMENT" shall mean that certain Asset Purchase
Agreement, dated as of the date hereof, by and among Equity, Contract Marketing,
John C. McDaniel and the Principal.
"EMPLOYEE PLAN" has the meaning set forth in Section 3.17.
"EMPLOYMENT AGREEMENT" shall mean the Employment Agreement by and
between Equity and the Principal dated as of the date of this Agreement, in
substantially the form of EXHIBIT A hereto.
"ENVIRONMENTAL LAWS" shall mean all laws, rules, regulations, statutes,
ordinances, decrees or orders of any governmental entity relating to (a) the
control of any potential pollutant or protection of the air, water or land, (b)
solid, gaseous or liquid waste generation, handling, treatment, storage,
disposal or transportation, and (c) exposure to Hazardous Materials, and
includes without limitation final and binding requirements related to the
foregoing imposed by (i) the terms and conditions of any applicable license,
permit, approval or other authorization by any governmental entity, and (ii)
applicable judicial, administrative or other regulatory decrees, judgments and
orders of any governmental entity. The term "Environmental Laws" shall include,
but not be limited to, the following statutes and the regulations promulgated
thereunder as currently in effect: the Clean Air Act, 42 U.S.C. ss. 7401 ET
SEQ., the Clean Water Act, 33 U.S.C. ss. 1251 ET SEQ., the Resource Conservation
Recovery Act ("RCRA"), 42 U.S.C. ss. 6901 ET SEQ., the Superfund Amendments and
Reauthorization Act, 42 U.S.C. ss. 11011 ET SEQ., the Toxic Substances Control
Act, 15 U.S.C. ss. 2601 ET SEQ., the Water Pollution Control Act, 33 U.S.C. ss.
1251, ET SEQ., the Safe Drinking Water Act, 42 U.S.C. ss. 300f ET SEQ., the
Comprehensive Environmental Response, Compensation, and Liability Act
("CERCLA"), 42 U.S.C. ss. 9601 ET SEQ., and any similar state, federal or local
statute or ordinance.
"ERISA" shall mean the Employee Retirement Income Security Act of 1974,
as amended.
"ERISA AFFILIATE" shall mean any person, firm or entity (whether or not
incorporated) which, by reason of its relationship with the Company, is required
to be aggregated with the Company under Section 414(b), 414(c) or 414(m) of the
Code, or which together with the Company is a member of a controlled group
within the meaning of Section 4001(a) of ERISA.
"ESCROW AGENT" shall mean Sanwa Bank California.
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"ESCROW AGREEMENT" shall mean the Escrow Agreement by and among Equity,
the Company and the Escrow Agent dated as of the date of this Agreement, in
substantially the form of EXHIBIT B hereto.
"EXCLUDED ASSETS" has the meaning set forth in Section 2.02.
"FINANCIAL STATEMENTS" has the meaning set forth in Section 3.06.
"GROSS PROFIT" shall mean an amount calculated by deducting from the
net sales of the Acquired Businesses (a) product costs, including without
limitation tooling costs, (b) purchase discounts, (c) commissions (buying and
selling), (d) freight and warehousing, (e) duty and customs, and (f) testing
services. Such deductions shall include either a third-party buying commission
or allocable overhead "load" for Equity's Hong Kong office, but not both. For
purposes of this definition, all defined terms, and the accounting methodology
used in determining actual amounts relative to such terms, shall be applied
consistent with the past practice of the Company and Contract Marketing as
represented in the Financial Statements. For purposes of this definition, "net
sales" shall mean gross sales minus returns, trade discounts, mark-downs,
allowances and bad debt.
"HAZARDOUS MATERIALS" shall mean any (a) toxic or hazardous materials
or substances; (b) solid wastes, including asbestos, buried contaminants,
chemicals, flammable or explosive materials; (c) radioactive materials; (d)
petroleum wastes and spills or releases of petroleum products; and (e) any other
chemical, pollutant, contaminant, substance or waste that is regulated by any
governmental entity under any Environmental Law.
"INTELLECTUAL PROPERTY" has the meaning set forth in Section 2.01.
"INTERIM BALANCE SHEET" has the meaning set forth in Section 3.07.
"INTERIM BALANCE SHEET DATE" has the meaning set forth in Section 3.07.
"INVENTORIES" has the meaning set forth in Section 2.01.
"IRS" shall mean the Internal Revenue Service.
"KNOWLEDGE" of the Principal or the Company shall mean (a) the actual
knowledge of any officer or director of the Company and (b) matters of which
such officers or directors reasonably should have been aware after due inquiry
to the management and employees of the Company.
"LEASED PROPERTY" has the meaning set forth in Section 3.11.
"LIABILITY" shall mean any liability (whether known or unknown, whether
asserted or unasserted, whether absolute or contingent, whether accrued or
unaccrued, whether liquidated or unliquidated, and whether due or to become
due), including any liability for Taxes.
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"LICENSE" has the meaning set forth in Section 2.01.
"LIENS" means liens, charge, claims, pledges, security interests and
encumbrances of any nature whatsoever.
"MATERIAL ADVERSE EFFECT" shall mean, with respect to any Person, a
material adverse effect on the business, prospects, results of operations,
financial condition or assets of such Person and its subsidiaries taken as a
whole. A Material Adverse Effect shall be deemed to have occurred if the
cumulative effect of any individual event and all other then-existing events
would result in a Material Adverse Effect.
"MATERIAL ADVERSE EVENT" shall mean an occurrence, event or development
which has had or is reasonably likely to have a Material Adverse Effect.
"NET WORTH" of the Company shall mean the equity of the Company
(determined in accordance with generally accepted accounting principles
consistently applied but excluding Affiliated Obligations and Excluded Assets).
"PERSON" shall mean an individual, partnership, corporation, limited
liability company, joint venture, unincorporated organization, cooperative or a
governmental entity or agency thereof.
"PRODUCT LIABILITY" has the meaning set forth in Section 3.16.
"PROFIT SHORTFALL" shall mean the cumulative amount, if any, by which
Gross Profits of the Acquired Businesses have fallen short of $5,250,000 for
each of 1998, 1999, 2000, 2001 or 2002.
"PROMOTIONAL PRODUCTS AND SERVICES" shall mean merchandise given away
to consumers or sold on a "purchase with purchase" basis in connection with a
promotional event, and the services performed to procure and distribute such
merchandise, as well as those services provided to customers in support of
planning, administering and during the execution of a promotional event.
"RECEIVABLES" has the meaning set forth in Section 2.01.
"REGULATORY AUTHORITY" shall mean any foreign, United States federal or
state or local government or governmental authority.
"TAX" shall mean any federal, state, local, or foreign income, gross
receipts, license, payroll, employment, excise, severance, stamp, occupation,
premium, windfall profits, environmental (including taxes under Section 59A of
the Code), customs duties, capital stock, franchise, profits, withholding,
social security (or similar), unemployment, disability, real property, personal
property, sales, use, transfer, registration, value added, alternative or add-on
minimum, estimated, or other tax of any kind whatsoever, including any interest,
penalty or addition thereto, whether disputed or not.
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<PAGE>
"TAX RETURN" shall mean any return, declaration, report, claim for
refund or information return or statement relating to Taxes, including any
schedule or attachment thereto, and including any amendment thereof.
"TREASURY REGULATIONS" means the regulations promulgated under the Code.
ARTICLE II
PURCHASE AND SALE
SECTION 2.01. ASSETS CONVEYED. Upon the basis of the representations,
warranties, covenants and agreements contained herein, the Company hereby sells,
transfers, assigns, conveys and delivers to Equity or a wholly-owned subsidiary
of Equity all of the Company's right, title and interest in and to the Assets
(as defined below) free and clear of all Liens. The "ASSETS" shall mean all
those personal, tangible and intangible properties and the real property and
improvements of the Company used in connection with the operation of the
Business (or used in the past in the operation of the Businesses and to which
the Company still holds title), other than Excluded Assets, including without
limitation, those more particularly described in the Schedules to this Section
2.01, those in the possession of third parties but to which the Company holds
title, and those described below:
(a) all the rights and benefits accruing to the Company under all
agreements, contracts, arrangements, leases with respect to real and personal
property, guarantees, commitments and orders, whether written or oral, between
the Company and any third party, including without limitation, the contracts
listed in SCHEDULE 2.01(A) hereto (the "ASSIGNED CONTRACTS");
(b) all of the Company's inventories of raw materials, parts,
work-in-process and finished goods, if any ("INVENTORIES");
(c) all manufacturing, production and testing equipment, production
tooling, computers, computer hardware and software, tools, supplies, furniture,
vehicles, and other tangible personal property and assets of the Company related
to the Business, including, without limitation, the items listed on SCHEDULE
2.01(C) hereto;
(d) all the interest of and the rights and benefits accruing to the
Company as lessee under the leases or rental agreements covering machinery,
equipment, computers, computer hardware and software, vehicles and other
tangible personal property as described in SCHEDULE 2.01(D) hereto;
(e) all accounts and notes receivable (including without limitation,
any claims, remedies and other rights related thereto) evidencing rights to
payment for services rendered through the date hereof, except for any Affiliated
Obligations (it being understood and agreed that such Affiliated Obligations
have been repaid in full) (the "RECEIVABLES");
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(f) all operating data and records of the Company relating to the
Business, including, without limitation, client lists and records, referral
sources, production reports and records, equipment logs, operating guides and
manuals, projections, copies of financial, accounting and personnel records,
correspondence and other similar documents and records;
(g) all claims, warranty rights, causes of action and other similar
rights granted or owing to the Company arising out of the Business to the extent
the same are assignable;
(h) all of the Company's rights, to the extent of such rights, to use
the name "U.S. Import & Promotions Co." and all variations on any thereof for
any and all purposes;
(i) all the intellectual property of the Company, including, without
limitation, all software and software libraries, processes, formulae, methods,
plans, research data, marketing plans and strategies, forecasts, patents and
patent applications, inventions, discoveries, know-how, trade secrets and ideas
(including those in the possession of third parties, but which are the property
of the Company), Confidential Information, and all drawings, records, books or
other indicia of the foregoing, trademarks, servicemarks, tradenames, licenses,
copyrights, operating rights, permits and other similar intangible property and
rights (the "INTELLECTUAL PROPERTY");
(j) all licenses, permits, approvals, qualifications, consents and
other authorizations (the "LICENSES") necessary for the lawful conduct,
ownership and operation of the Business to the extent the same are
transferrable;
(k) all prepaid expenses and cash and cash equivalents of the Company;
(l) all goodwill and going-concern value of the Company and the
Business; and
(m) all other assets and properties of any nature whatsoever held by
the Company, either directly or indirectly, and used in, allocated to, or
required for the conduct of the Business, but excluding the Excluded Assets (as
defined in Section 2.02 below).
SECTION 2.02. EXCLUDED ASSETS. Anything to the contrary in Section 2.01
notwithstanding, the Assets shall exclude and Equity shall not purchase (i) all
tax books of the Company other than those relating to sales, use and other state
and local taxes, books and ledgers relating to the ownership interests in the
Company, and minutes of meetings of, and actions taken by, the Company's
shareholders, (ii) the rights which accrue or will accrue to the Company under
this Agreement, (iii) any Employee Plan, (iv) the Affiliated Obligations, and
(v) the assets set forth on SCHEDULE 2.02 hereto (collectively, the "EXCLUDED
ASSETS").
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SECTION 2.03. PURCHASE PRICE.
(a) AGGREGATE PURCHASE PRICE. The aggregate purchase price (the
"PURCHASE PRICE") to be paid by Equity shall consist of (i) $8,500,000, payable
upon execution of this Agreement as provided by Section 2.03(b), (ii) such
additional payments, if any, which may be made as provided by Sections
2.03(c)-(d) (the "ADDITIONAL PAYMENTS"), and (iii) the assumption of the Assumed
Liabilities.
(b) PAYMENT OF PURCHASE PRICE. Upon execution of this Agreement, Equity
shall pay the Company $8,000,000 by wire transfer of immediately available funds
and shall deposit $500,000 with the Escrow Agent pursuant to the terms of the
Escrow Agreement. Any Additional Payments shall be made in accordance with
Sections 2.03(c)-(d).
(c) ADDITIONAL PAYMENTS. If the Gross Profit of the Acquired Businesses
in 1998, 1999, 2000, 2001 or 2002 is equal to or greater than the sum of (i)
$5,250,000 and (ii) any Profit Shortfall, Equity will make a payment equal to
25% of the gross profits in excess of such sum, not to exceed $1,625,000 for any
year, to the Company in the following year; PROVIDED, HOWEVER, that the
aggregate amount of all payments pursuant to this Section 2.03(c) shall not
exceed $4,000,000. No Additional Payment will be made for any year in which
Gross Profit is less than the amount specified in this Section 2.03(c). Upon
determination of Equity's financial results for each of 1998, 1999, 2000, 2001
and 2002 but in any event no later than March 31 of the following year, Equity
shall prepare and submit to the Principal a schedule setting forth the Gross
Profit of the Acquired Businesses for the applicable period. The Company shall
have the right to review the classification of revenues and costs in such
schedule with Equity's independent auditors to confirm that the calculation of
Gross Profit set forth in such schedule is consistent with the definition of
Gross Profit in this Agreement. The Company and the Principal shall be deemed to
have accepted such schedule unless they notify Equity in writing within fourteen
days of the delivery of such schedule. If the Company and the Principal notify
Equity in writing within fourteen days of the delivery of such schedules of any
dispute with the schedules, Equity shall consult with the Company and the
Principal or their representatives to answer questions with respect to such
schedule and calculations and attempt in good faith to resolve such dispute.
Equity shall pay any undisputed amounts due under this Section 2.03(c) to the
Company no later than March 31 of the year following the year to which such
payment relates.
(d) EFFECT OF EMPLOYMENT TERMINATION UPON ADDITIONAL PAYMENTS.
(i) If Equity terminates the employment of the Principal prior
to the close of business on June 30, 2001 without cause (I.E., other than
pursuant to Sections 3(a)(i)-(iv) of the Employment Agreement), Equity shall pay
the Company, in addition to any severance compensation due to the Principal
under the Employment Agreement but in lieu of any obligation under Section
2.03(c) of this Agreement to make subsequent Additional Payments to the Company,
an amount equal to the difference between (i) the present value of $4,000,000
and (ii) any Additional Payments previously made to the Company. Present value
shall be calculated by applying an annual
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discount rate equal of 15% from the date of termination to the earliest March 31
date or dates on which Additional Payments in the maximum amount due (before
applying such discount) otherwise could have been due hereunder. Equity shall
make such payment within fourteen days of such termination.
(ii) If the Employment Agreement expires pursuant to its terms
on June 30, 2001 or is terminated for any reason, other than termination by
Equity prior to the close of business on June 30, 2001 without cause, Equity's
obligations under Section 2.03(c) of this Agreement to make subsequent
Additional Payments to the Company hereunder shall continue and shall not be
affected by such termination.
(iii) Equity may, at any time at its sole option, pay the
Company, in lieu of any obligation under Section 2.03(c) of this Agreement to
make subsequent Additional Payments to the Company, an amount equal to the
difference between (i) the present value of $4,000,000 and (ii) any Additional
Payments previously made to the Company. Present value shall be calculated by
applying an annual discount rate equal of 12% from the date of termination to
the earliest March 31 date or dates on which Additional Payments in the maximum
amount due (before applying such discount) otherwise could have been due
hereunder.
(e) ADJUSTMENTS TO PURCHASE PRICE.
(i) As soon as practicable and in any event no later than
ninety (90) days after the date hereof, Equity shall deliver to the Principal a
consolidated balance sheet of the Company as of the date hereof (the "CLOSING
DATE BALANCE SHEET"), a calculation of the Net Worth of the Company as of the
date hereof (the "NET WORTH CALCULATION") and, if requested by the Company, an
"agreed upon procedures" letter from Equity's independent auditors regarding
conformity of the Closing Date Balance Sheet and the Net Worth Calculation with
generally accepted accounting principles. The Closing Date Balance Sheet and the
Net Worth Calculation shall be prepared in accordance with generally accepted
accounting principles and on a basis consistent with the Financial Statements;
PROVIDED, HOWEVER, that no Affiliated Obligations or Excluded Assets shall be
included as assets on the Closing Date Balance Sheet or included in the Net
Worth Calculation.
(ii) If the aggregate Net Worth of the Company and Contract
Marketing as determined pursuant to this Section 2.03 is lower than $2,000,000,
then the purchase price owed to the Company shall be reduced by the return to
Equity of cash in the amount of one half of the difference between $2,000,000
and the Net Worth indicated on the Net Worth Calculation. Equity shall obtain
such return from the funds held by the Escrow Agent pursuant to the Escrow
Agreement if such funds are sufficient for this purpose; otherwise, the Company
shall deliver the balance due to Equity promptly following the delivery of the
Net Worth Calculation. If the aggregate Net Worth of the Company and Contract
Marketing as determined pursuant to this Section 2.03 is greater than
$2,000,000, then the purchase price owed to the Company shall be increased by
the payment to the Company in cash in the amount of one half of the difference
between the Net Worth indicated on the Net Worth Calculation and
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$2,000,000. Equity shall deliver the balance due to the Company promptly
following the delivery of the Net Worth Calculation. If the aggregate Net Worth
of the Company and Contract Marketing as determined pursuant to this Section
2.03 is lower than $1,800,000, the Company shall bear one half of the costs of
preparing the Closing Date Balance Sheet and the Net Worth Calculation.
(iii) If the Receivables included on the Closing Date Balance
Sheet are not collected by October 21, 1998, then the purchase price owed to the
Company shall be reduced by the return to Equity of cash in the amount of the
difference between the Receivables included on the Closing Date Balance Sheet
and the Receivables collected by such date. Equity shall deliver a notice to the
Company as soon as practicable following such date setting forth the amount of
any such shortfall and listing the uncollected accounts. Equity shall obtain
payment from the funds held by the Escrow Agent pursuant to the Escrow Agreement
if such funds are sufficient for this purpose; otherwise, the Company shall
deliver the balance due to Equity promptly following the delivery of such
notice. Any such Receivable which is collected after Equity has received a
refund thereon, net of any collection fees incurred, shall be for the benefit of
the Company.
(f) ALLOCATION OF PURCHASE PRICE. The Purchase Price shall be allocated
among the Assets and the restrictive covenants of Section 6.09 hereof as the
parties shall mutually agree.
SECTION 2.04. LIABILITIES ASSUMED BY EQUITY. In further consideration
for the sale of the Assets, Equity hereby assumes and agrees to pay, perform and
discharge the Assumed Liabilities. For purposes of this Agreement, the term
"ASSUMED LIABILITIES" shall mean all the Liabilities of the Company set forth in
the Balance Sheet, excluding (a) any Liabilities for transactional and advisory
costs, including, without limitation, attorneys' and accountants' fees and
expenses, incurred in connection with the transactions contemplated hereby or
the proposed sale of the Company or any equity interest therein (collectively,
"TRANSACTION COSTS"), (b) Taxes owing by the Company to any governmental agency
or other taxing authority, (c) any Employee Plan, (d) any Liabilities arising
out or relating to the Excluded Assets, and (e) any Liabilities resulting from,
arising out of, relating to, in the nature of, or caused by any facts or
circumstances which would constitute a breach of the representations and
warranties of the Company set forth herein for which the Company, the Principal
and John C. McDaniel would be required to indemnify Equity under the terms of
this Agreement. Nothing in this Section 2.04 shall in any way limit the right of
Equity to indemnification under this Agreement. Notwithstanding anything to the
contrary contained herein, Equity shall not assume, pay, discharge, become
liable for or perform when due, and the Company shall not cause Equity so to
assume, pay, discharge, become liable for or perform, any Liabilities, debts,
contracts, commitments and other obligations of the Company of any nature
whatsoever not expressly assumed pursuant to this Section 2.04.
SECTION 2.05. OTHER ACTIONS AND DOCUMENTS. Upon the execution of this
Agreement:
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(a) the Company shall deliver to Equity such deeds, bills of sale,
endorsements, assignments and other instruments of sale, conveyance, transfer
and assignment, satisfactory in form and substance to Equity and its counsel, as
may be reasonably requested by Equity in order to convey to Equity good and
marketable title to the Assets, free and clear of all Liens;
(b) the Company shall execute and deliver to Equity all necessary
documents, including without limitation any filings with the Secretary of State
of the State of California, to allow Equity to use the name "Contract Marketing"
from and after the Closing and to change the name of the Company to a name that
is not confusingly similar to its current name;
(c) the Company shall pay all sales, use, transfer or stamp taxes, or
similar charges, payable by reason of the sale hereunder;
(d) the Principal and Equity shall execute and deliver the Employment
Agreement;
(e) the Company, Equity and the Escrow Agent shall execute and deliver
the Escrow Agreement;
(f)Contract Marketing, Equity, the Principal and John C. McDaniel shall
execute and deliver the Contract Marketing Agreement;
(g) the Company shall deliver to Equity the favorable opinion, dated
the Closing Date, of counsel to the Company and the Principal in the form of
EXHIBIT C hereto; and
(h) Equity shall deliver to the Company and the Principal the favorable
opinion dated as of the Closing Date of counsel to Equity in the form of EXHIBIT
D hereto.
ARTICLE III
REPRESENTATIONS AND WARRANTIES
CONCERNING THE COMPANY AND THE PRINCIPAL
Each of the Company, the Principal and John C. McDaniel, jointly and
severally, represents and warrants to Equity that the statements contained in
this Article III are correct and complete as of the date of this Agreement,
except as set forth in the schedules delivered by the Company to Equity on the
date hereof (the "SCHEDULES").
SECTION 3.01. ORGANIZATION, ETC. The Company is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Florida and has full corporate power and authority to conduct its Business as it
is now being conducted and to own, operate or lease the properties and assets it
currently owns, operates or holds under lease. The Company is duly qualified or
licensed to do business
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and is in good standing as a foreign corporation in each jurisdiction where the
character of its Business or the nature of its properties makes such
qualification or licensing necessary, except where the failure to so qualify or
be licensed would not have a Material Adverse Effect. The Company has heretofore
delivered to Equity true and correct copies of its Certificate of Incorporation
and By-laws as in effect on the date hereof.
SECTION 3.02. SUBSIDIARIES. The Company has no equity interest in any
corporation, partnership, joint venture or other legal entity.
SECTION 3.03. CAPITALIZATION. The Principal is the sole stockholder of
the Company. No contract, commitment or undertaking of any kind has been made
for the issuance of any additional capital stock or other interests in the
Company; nor is there in effect or outstanding any subscription, option, warrant
or preemptive or other right to acquire any of such capital stock or other
instruments convertible into or exchangeable for any of such capital stock.
SECTION 3.04. OWNERSHIP OF ASSETS. The Company is the legal and
beneficial owner of the Assets, free and clear of any Liens; the Company has
full right, power and authority to sell, transfer, assign, convey and deliver
all of the Assets to be sold by it hereunder; and delivery thereof will convey
to Equity good, absolute and marketable title to said Assets, free and clear of
any Liens.
SECTION 3.05. AUTHORITY AND NO CONFLICT; CONSENTS. (a) The Company has
the full right, power and authority to execute, deliver and carry out the terms
of this Agreement and all other documents and agreements to be entered into in
connection herewith or necessary to give effect to the provisions of this
Agreement (the "OTHER AGREEMENTS"), and this Agreement and the Other Agreements
have been duly authorized, executed and delivered by the Company. The execution
and delivery of this Agreement and the Other Agreements by the Company does not,
and the consummation of the transactions contemplated hereby will not, (i)
conflict with, or result in any violation of or default or loss of any benefit
under, any provision of the Company's governing instruments; (ii) conflict with,
or result in any violation of or default or loss of any material benefit under,
any permit, concession, grant, franchise, law, rule or regulation, or any
judgment, decree or order of any court or other Regulatory Authority to which
the Company or its assets or Business is a party or to which the Company is
subject; (iii) conflict with, or result in a breach or violation of or default
or loss of any material benefit under, or accelerate the performance required
by, the terms of any material agreement, contract, indenture or other instrument
to which the Company is a party or to which the Company's assets or Business is
subject, or constitute a default or loss of any material right thereunder or the
creation of any material Liens upon the Company's assets; or (iv) result in any
suspension, revocation, impairment, forfeiture or nonrenewal of any material
License. All action and other authorizations prerequisite to the execution of
this Agreement and the consummation of the transactions contemplated hereby have
been taken or obtained by the Company and the Principal. This Agreement is the
valid and binding agreement of the Company enforceable in accordance with its
terms (except as such enforceability may be limited by any applicable
bankruptcy, insolvency or other laws affecting creditors' rights generally or
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by general principles of equity, regardless of whether such enforceability is
considered in equity or at law).
(b) The execution, delivery and performance by the Company of this
Agreement, and the performance of the transactions contemplated by this
Agreement, do not require the authorization, consent, approval, certification,
license or order of, or any filing with, any Regulatory Authority or any other
third party except for such authorizations, consents, approvals, certifications,
licenses and orders that have been obtained.
SECTION 3.06. FINANCIAL STATEMENTS; BOOKS AND RECORDS. A copy of the
unaudited balance sheet of the Company at December 31, 1997 has been attached as
SCHEDULE 3.06 hereto (the "BALANCE SHEET"). Also attached hereto as SCHEDULE
3.06 are the related statements of operations of the Company for the fiscal year
ended December 31, 1997 (together with the Balance Sheet, the "DECEMBER
FINANCIAL STATEMENTS") and unaudited financial statements of the Company for the
six-month period ended June 30, 1998 (the "INTERIM FINANCIAL STATEMENTS"), which
Interim Financial Statements have been prepared on the same basis as the
December Financial Statements, subject to normal year-end adjustments and
accruals (none of which is expected to be material). The December Financial
Statements and the Interim Financial Statements are collectively referred to as
the "FINANCIAL STATEMENTS." The Financial Statements are true and correct in all
material respects, are consistent with the books and records of the Company,
fairly represent in all material respects the financial condition and results of
operations of the Company as at and for the periods reflected therein, and have
been prepared in accordance with generally accepted accounting principles in the
United States except for the lack of footnotes.
SECTION 3.07. NO UNDISCLOSED LIABILITIES. The Liabilities on the
balance sheet included in the Interim Financial Statements (the "INTERIM BALANCE
SHEET") consist solely of accrued obligations and Liabilities incurred by the
Company in the ordinary course of business to Persons which are not Affiliates
of the Company. There are no Liabilities of the Company of any kind whatsoever,
whether or not accrued and whether or not contingent or absolute, determined or
determinable or otherwise, including without limitation documentary or standby
letters of credit, bid or performance bonds, or customer or third party
guarantees, and no existing condition, situation or set of circumstances that
could reasonably result in such a Liability, other than (i) Liabilities
disclosed in the Interim Financial Statements, and (ii) Liabilities which have
arisen after June 30, 1998 (the "INTERIM BALANCE SHEET DATE") in the ordinary
course of business and consistent with past practice (none of which is a
Liability for breach of contract, breach of warranty, tort, infringement claim
or lawsuit) which do not exceed $10,000 individually or $50,000 in the
aggregate. There are no asserted claims for indemnification by any Person
against the Company under any law or agreement or pursuant to the Company's
Certificate of Incorporation or By-laws and neither the Company nor the
Principal is aware of any facts or circumstances that might reasonably give rise
to the assertion of such a claim against the Company thereunder. There are no
rights of return with respect to products shipped to customers prior to the date
hereof.
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SECTION 3.08. CORPORATE ACTION. All corporate action of the Board of
Directors and of the stockholder(s) of the Company taken on or prior to the date
hereof has been duly authorized, adopted or ratified in accordance with
applicable law and the Certificate of Incorporation and By-laws of the Company,
and has been duly recorded in its corporate minute books (which have been made
available for inspection by Equity).
SECTION 3.09. ABSENCE OF CHANGES. Except as approved in writing by
Equity, since the Interim Balance Sheet Date there has not been, with respect to
the Company, any (a) Material Adverse Event; (b) transaction by the Company
except in the ordinary course of business; (c) capital or Inventories
expenditures exceeding $10,000, in each case in the aggregate; (d) destruction,
damage (other than ordinary wear and tear) to, or loss of any asset (whether or
not covered by insurance); (e) labor trouble or other adverse event or condition
relating to employment or labor matters; (f) increase in compensation payable
to, or any employment, bonus or compensation agreement entered into with, any
employee or consultant of the Company; (g) change in accounting methods or
practices (including, without limitation, changes in depreciation or
amortization policies or rates) by the Company; (h) revaluation of the Company's
assets; (i) sale or transfer of any asset of the Company except in the ordinary
course of business; (j) amendment or termination of any material contract,
agreement, or license to which the Company is a party; (k) loan or other
investment by the Company to or in any person or entity, or guaranty of any loan
other than travel or other job-related expenses advanced to employees in the
ordinary course of business not exceeding $2,500 in the aggregate; (l)
commitment to borrow money or any mortgage, pledge, or other encumbrance of any
asset of the Company or grant or commitment to grant a mortgage, pledge, or
other encumbrance of any asset of the Company; (m) waiver or release of any
right or claim of the Company except in the ordinary course of business; (n)
material obligation or liability (absolute or contingent) incurred by the
Company or to which it has become subject except current liabilities incurred in
the ordinary course of business and obligations under contracts entered into in
the ordinary course of business; (o) write-off in excess of reserves as
uncollectible of any accounts or notes receivable; (p) issue or split-up of, or
grant of any option or other right to acquire, any security of the Company; (q)
amendment of the Company's Certificate of Incorporation or By-laws; (r) dividend
or distribution on or with respect to shares of capital stock or other equity
securities of the Company, or any other distribution to the Principal or his
Affiliates other than payments for salaries; (s) issuance, grant, sale or pledge
of any shares of, or rights of any kind to acquire any shares of, capital stock,
or purchase, redemption or other acquisition of any shares of such capital stock
or other equity securities; (t) cancellation of current insurance (or
reinsurance) policies or termination of any of the coverage thereunder; (u) any
payment or provision with respect to any employee benefit plan, except in the
ordinary course of the administration of such plans; (v) grants of any stock
options, restricted stock grants, stock appreciation rights or similar
instruments or rights; (w) new employment agreement or other contract or
arrangement with respect to the performance of personal services which is not
terminable at will without liability by the Company; or (x) oral or written
agreement, contract, arrangement or understanding with respect to any of the
foregoing.
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SECTION 3.10. TAXES.
(a) All Tax Returns required to be filed by or on behalf of the Company
have been properly prepared and duly and timely filed with the appropriate
taxing authorities in all jurisdictions in which such Tax Returns are required
to be filed (after giving effect to any valid extensions of time in which to
make such filings), and all such Tax Returns were true, complete and correct in
all material respects. The Company is not currently the beneficiary of any
extension of time within which to file any tax return.
(b) All Taxes for all periods up to the date hereof that are due and
payable by the Company on or before the date hereof have been, or on or before
the date hereof will be, fully and timely paid, and adequate reserves or
accruals for any and all Taxes for which the Company is liable with respect to
any period ending on or before the date hereof for which Tax Returns have not
yet been filed or for which Taxes are not yet due and owing have been made in
the Financial Statements.
(c) The Company has timely withheld from employee salaries, wages and
other compensation and paid over to the appropriate taxing authorities all
amounts required to be so withheld and paid over for all periods under all
applicable laws ending on or before the date hereof.
(d) Equity has received complete copies of any audit report issued
within the last five years relating to Taxes due from the Company.
(e) The Company has not executed or filed with the IRS or any other
taxing authority any agreement, waiver or other document or arrangement
extending or having the effect of extending the period for assessment or
collection of Taxes (including, but not limited to, any applicable statute of
limitation).
(f) No claim has been made by a taxing authority in a jurisdiction
where the Company does not file Tax Returns that the Company is or may be
subject to taxation by that jurisdiction.
(g) All deficiencies asserted or assessments made as a result of any
examinations by the IRS or any other taxing authority of the Tax Returns of or
covering or including the Company have been fully paid, and there are no other
audits or investigations by any taxing authority in progress, nor has the
Principal nor the Company received any notice from any taxing authority that it
intends to conduct such an audit or investigation
(h) Neither the Company nor any other person (including the Principal
on behalf of the Company) has filed a consent pursuant to Section 341(f) of the
Code or agreed to have Section 341(f)(2) of the Code apply to any disposition of
a "subsection (f) asset" (as such term is defined in Section 341(f)(4) of the
Code) owned by the Company.
(i) There are no Liens upon any of the Assets as a result of unpaid
Taxes.
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(j) The Company has properly and timely elected under Section 1362 of
the Code, and under each analogous or similar provision of state or local law in
each jurisdiction where such an election is available and in which the Company
is required to file a Tax Return, to be treated as an "S" corporation for all
taxable periods since its inception. There has not been any voluntary or
involuntary termination or revocation of any such election.
(k) No tax is required to be withheld by Equity under Section 1445 of
the Code as a result of the sale of the Assets.
(l) All material elections and consents with respect to any Tax (or the
computation thereof) affecting the Company as of the date hereof are obvious
from the Tax Returns or are set forth on the Disclosure Schedule. After the date
hereof, no election or consent with respect to any Tax (or the computation
thereof) affecting the Company will be made without the written consent of
Equity. The Company has not agreed to make and is not required to make any
adjustments under Section 481 of the Code by reason of a change in accounting
method or otherwise.
(m) The Company has made no payments, and is not obligated to make any
payments that will not be deductible under section 280G of the Code.
(n) The Company is not a party to any Tax allocation or sharing
agreement.
SECTION 3.11. LEASED PROPERTY.
(a) SCHEDULE 3.11 hereto identifies all leasehold interests in real
property including land and improvements held by the Company which is used or
useful in the conduct of the Business of the Company (the "LEASED PROPERTY").
The Company does not own of record or beneficially any real property. The
Company has assignable leaseholds in all real estate leased by it, in each case
under leases which are binding and enforceable against the Company and, to the
knowledge of the Company and the Principal, the other parties thereto. None of
the leasehold interests are subject to any Liens (other than Liens for current
property taxes and assessments or mechanics liens, in each case with respect to
amounts not in default).
(b) There are no outstanding contracts made by the Company for any
improvements to the Leased Property which have not been fully paid. Concurrently
with the execution of this Agreement, the Company shall cause to be discharged
all mechanics' or materialmen's liens arising from any labor or materials
furnished to the Leased Property on behalf of the Company prior to the date
hereof.
(c) All buildings, structures, improvements, fixtures, facilities,
equipment, all components of all buildings, structures and other improvements
included within the Leased Property, including but not limited to the roofs and
structural elements thereof and the heating, ventilation, air conditioning,
plumbing, electrical, mechanical, sewer, waste water, storm water, paving and
parking equipment, systems and facilities included therein, and other material
items of tangible property and assets are in good operating condition and
repair, subject to normal wear and maintenance and are usable
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in the regular and ordinary course of business. No person other than the Company
owns any equipment or other tangible assets or properties situated on the Leased
Property or necessary to the operation of Company's Business.
(d) The use and operation of the Leased Property is in full compliance
with all applicable statutes, rules, regulations, ordinances, orders, writs,
injunctions, judgments, decrees, awards and restrictions of every Regulatory
Authority having jurisdiction over any of the Leased Property, the Company or
its Business, and every instrumentality or agency thereof (including, without
limitation, applicable statutes, rules, regulations, orders and restrictions
relating to zoning, land use, safety, health, environment, Hazardous Materials,
pollution controls, employment and employment practices and access by the
handicapped) (collectively, "LAWS"), and with all covenants, conditions,
restrictions, easements, disposition agreements and similar matters affecting
the Leased Property. As of the date hereof, the Company has the right to
continue the use and operation of the Leased Property for its current uses in
the operation of the Company's Business (which right shall be transferred to
Equity hereby). The Company has not received any notice of any violation of or
investigation regarding any Laws.
SECTION 3.12. ENVIRONMENTAL PROTECTION. No Hazardous Materials are
present on or below the surface of the Leased Property except as consistent with
applicable Environmental Laws, and the Leased Property has not previously been
used by the Company or the Principal for the manufacture, refining, treatment,
storage, or disposal of any Hazardous Material. None of the soil, ground water,
or surface water of the Leased Property is contaminated by any Hazardous
Material in violation of applicable Environmental Laws, and neither the Company
nor the Principal is aware of any such contamination from neighboring real
estate. Except as consistent with applicable Environmental Laws, no Hazardous
Materials are being emitted, discharged or released from the Leased Property
into the environment. The Company is not liable for cleanup or response costs
with respect to the emission, discharge, or release of any Hazardous Material or
for any other matter arising under the Environmental Laws due to its operation
of the Leased Property.
SECTION 3.13. INTELLECTUAL PROPERTY. SCHEDULE 3.13 hereto contains a
schedule of all the Intellectual Property of the Company. The Company has not
infringed, and is not now infringing, any trade name, trademark, service mark,
copyright, patent, trade secret or other Intellectual Property right belonging
to a third party, and it has not received any notice of infringement upon or
conflict with the asserted rights of others. None of such Intellectual Property
rights are registered with the United States Patent and Trademark Office or the
United States Copyright Office. The Company is not a party to any license,
agreement, or arrangement, whether as licensor, licensee, or otherwise, with
respect to any Intellectual Property right. There are no trade names,
trademarks, service marks, copyrights, patents or applications for patents and
trade secrets other than those listed on SECTION 3.13 which are necessary for
the conduct of the Company's Business. The Company is not a party to any
outstanding options, licenses or agreements of any kind relating to the
foregoing. No partner, director, shareholder, officer or employee of the Company
or any predecessor has any interest in any of the foregoing rights.
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SECTION 3.14. ASSETS. The Assets constitute, in the aggregate, all of
the assets and tangible personal property owned by, in the possession of, or
used by the Company in connection with the Business, and are owned by the
Company free and clear of any Liens. No personal property used in connection
with the Company's Business is held under any lease, security agreement,
conditional sales contract, or other title retention or security arrangement, or
is other than in its possession and control. All tangible personal property is
in good operating condition and repair, subject to normal wear and maintenance,
and is suitable for the conduct of the Business.
SECTION 3.15. INVENTORIES. All Inventories of the Company set forth on
the Interim Balance Sheet, and all Inventories acquired subsequent to the
Interim Balance Sheet Date, are valued in accordance with generally accepted
accounting principles in the United States. All such Inventories consist of a
quality and quantity usable and saleable in the ordinary course of business,
except for items of obsolete materials, which have been written down on the
Interim Balance Sheet to realizable market value. The Company's Inventories do
not include any products or materials stored for customers or other third
parties.
SECTION 3.16. NO PRODUCT LIABILITIES; PRODUCT WARRANTIES. The Company
has not incurred, nor does the Company or the Principal know of or have any
reason to believe there is any reasonable basis for alleging, any liability,
damage, loss, cost or expense as a result of any defect or other deficiency
(whether of design, materials, workmanship, labeling, instructions or otherwise)
("PRODUCT LIABILITY") with respect to any product sold or service rendered by
the Company, whether such Product Liability is incurred by reason of any express
or implied warranty (including, without limitation, any warranty of
merchantability or fitness), any doctrine of common law (tort, contract or
other), any statutory provision or otherwise and irrespective of whether such
Product Liability is covered by insurance, subject only to the reserve for
product warranty claims set forth in the Interim Balance Sheet as adjusted for
the passage of time through the date hereof in accordance with the past custom
and practice of the Company. No product sold, leased, or delivered by the
Company is subject to any guaranty, warranty, or other indemnity beyond the
applicable standard terms and conditions of sale or lease of such product.
SECTION 3.17. PERSONNEL AND PLANS. SCHEDULE 3.17 hereto comprises a
complete and correct list of (a) the names, titles, length of employment or
service and current annual salary rates and all other compensation and fringe
benefits of each of the employees, officers or consultants of the Company who is
engaged in the conduct of the Business and (b) the amount of accrued bonuses,
vacation, sick leave, maternity leave and other leave for such personnel. The
Company is not in default with respect to any withholding or other employment
taxes or payments with respect to accrued vacation or severance pay on behalf of
any employee for which it is obligated on the date hereof. There are not in
existence or, to the knowledge of the Company or the Principal, threatened any
(y) work stoppages respecting employees of the Company or (z) unfair labor or
practice complaints against the Company. No representation question exists
respecting the employees of the Company and no collective bargaining agreement
is currently being negotiated by the Company covering employees of the
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Company, nor is any grievance procedure or arbitration proceeding pending under
any collective bargaining agreement and no claim therefor has been asserted. The
Company has not received notice from any union or employees setting forth
demands for representation, elections or for present or future changes in wages,
terms of employment or working conditions. There have been no audits of the
equal employment opportunity practices of the Company, and, to the knowledge of
the Company and the Principal, no basis for such audit exists. The Company does
not have any severance agreement or other arrangement with respect to severance
with any employee of the Company. True and complete copies of the current
written personnel policies, manuals and/or handbooks of the Company have
previously been delivered to Equity.
SCHEDULE 3.17 lists each of the following plans, contracts, policies
and arrangements which is or was sponsored, maintained or contributed to by, or
otherwise binding upon the Company or, in the case of an "employee pension plan"
(as defined in Section 3(2) of ERISA), an ERISA Affiliate for the benefit of any
current or former employee, director or other personnel (including any such
plan, contract, policy or arrangement approved or adopted before, but effective
on or after, the date of this Agreement): (a) any "employee benefit plan," as
such term is defined in Section 3(3) of ERISA, whether or not subject to the
provisions of ERISA, (b) any personnel policy, and (c) any other employment,
consulting, stock option, stock bonus, stock purchase, phantom stock, incentive,
bonus, deferred compensation, retirement, severance, vacation, dependent care,
employee assistance, fringe benefit, medical, dental, sick leave, death benefit,
golden parachute or other compensatory plan, contract, policy or arrangement
that is not an employee benefit plan as defined in Section 3(3) of ERISA (each
such plan, contract, policy and arrangement being herein referred to as an
"EMPLOYEE PLAN"). With respect to each Employee Plan, the Company has delivered
to Equity true and complete copies of each contract, plan document, policy
statement, summary plan description and other written material governing or
describing the Employee Plan and/or any related funding arrangements (including,
without limitation, any related trust agreement or insurance company contract)
or, if there are no such written materials, a summary description of the
Employee Plan.
There are no Liens against the Assets under Section 412(n) of the Code
or Sections 302(f) or 4068 of ERISA. As of the date hereof, Equity has no
obligation to contribute to, or any liability in respect of, any Employee Plan.
Each "employee benefit plan" of the Company that has been required to comply
with the provisions of Section 4980B of the Code has substantially complied in
all material respects.
SECTION 3.18. INSURANCE. Attached hereto as SCHEDULE 3.18 are certificates
of insurance setting forth all insurance agreements and policies maintained by
the Company, including any and all insurance agreements and policies covering
the Business and any life insurance policies maintained by the Company on the
lives of its employees, officers or directors, and the type and amounts of
coverage thereunder, which SCHEDULE 3.18 reflects all such insurance which is
required by law to be maintained by the Company. During the past three years,
the Company has not been refused insurance in connection with the Company's
Business, nor has any claim in excess of $10,000 been made in respect of any
such agreements or policies. Such
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policies are in full force and effect, and the Company is not delinquent with
respect to any premium payments thereon. The Company maintains the type and
amount of insurance which is adequate to protect its financial condition against
the risks involved in the conduct of the Business.
SECTION 3.19. LITIGATION. There is no suit, action, arbitration, or
legal, administrative, or other proceeding, or governmental investigation
pending against or, to the knowledge of the Company or the Principal, threatened
against or affecting the Company relating to any of the transactions
contemplated by this Agreement. The Company is not in default of any order,
writ, injunction or decree of any federal, state, local, or foreign court,
department, agency or instrumentality.
SECTION 3.20. COMPLIANCE WITH LAW. The Company has complied with all
existing local, state, federal and foreign laws, rules, regulations, orders,
judgments and decrees applicable to it and its properties, including, without
limitation, all laws, regulations, orders and requirements relating to consumer
protection, currency exchange, equal opportunity, health, environmental
protection, fire, zoning and building, occupation safety and pension matters.
Neither the Company nor Equity is required to comply with any bulk sales law in
connection with the transactions contemplated by this Agreement.
SECTION 3.21. CONTRACTS, OBLIGATIONS AND COMMITMENTS. SCHEDULE 3.21
hereto lists all existing contracts, obligations or commitments (written or
oral) of any nature, including, without limitation, the following: (a) loan or
other agreements, notes, indentures, or instruments relating to or evidencing
indebtedness for borrowed money or mortgaging, pledging or granting or creating
a Lien on any of the assets of the Company or any agreement or instrument
evidencing any guaranty by the Company of payment or performance by any other
person; (b) any contract or series of contracts with the same person for the
furnishing or purchase of equipment, goods or services; (c) any joint venture
contract or arrangement or other agreement involving a sharing of profits or
expenses; (d) agreements which will limit the freedom of the Company to compete
in any line of business or in any geographic area or with any person; (e)
agreements providing for disposition of the assets of the Company other than in
the ordinary course of business or agreements of merger or consolidation; (f)
any lease under which the Company is either lessor or lessee relating to any
asset of its Business or any property at which its Business or such assets are
located; (g) any contract, commitment or agreement with the federal government
or any state or local government or any agency thereof; or (h) any contract,
commitment or agreement with manufacturing agents or sales agents.
Each contract, agreement, arrangement, plan, lease, license or similar
instrument listed on SCHEDULE 3.21 is a valid and binding obligation of the
Company and, to the knowledge of the Company and the Principal, of the other
parties thereto, enforceable in accordance with its terms (except as the
enforceability thereof may be limited by any applicable bankruptcy, insolvency
or other laws affecting creditors' rights generally or by general principles of
equity, regardless of whether such enforceability is considered in equity or at
law), and is in full force and effect, and neither the Company nor, to the
knowledge of the Company and the Principal, any other party thereto, has
breached
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any material provisions of, or is in default under the terms of (and, to the
knowledge of the Company and the Principal, no condition exists which, with the
passage of time, the giving of notice, or both, would result in a default under
the terms of), any of such contracts.
SECTION 3.22. LICENSES. The Company has all Licenses necessary from all
applicable Regulatory Authorities for the lawful conduct of its Business, all of
which are listed on SCHEDULE 2.01(J) hereto, and it is not in default in any
material respect under such Licenses.
SECTION 3.23. NO BROKER. The Company has not dealt with any broker or
finder in connection with any of the transactions contemplated by this Agreement
and no broker or other person is entitled to any commission or finder's fee in
connection with any of such transactions.
SECTION 3.24. NO ILLEGAL OR IMPROPER TRANSACTIONS. Neither the Company
nor any stockholder, officer or employee of the Company, has directly or
indirectly used funds or other assets of the Company, or made any promise or
undertaking in such regards, for (a) illegal contributions, gifts, entertainment
or other expenses relating to political activity; (b) illegal payments to or for
the benefit of governmental officials or employees, whether domestic or foreign;
(c) illegal payments to or for the benefit of any person, firm, corporation or
other entity, or any director, officer, employee, agent or representative
thereof; (d) gifts, entertainment or other expenses that jeopardize the normal
business relations between the Company and any of its customers; or (e) the
establishment or maintenance of a secret or unrecorded fund. There have been no
false or fictitious entries made in the books or records of the Company, and the
Company has records that accurately and validly reflect transactions and
accounting controls sufficient to insure that such transactions are (i) in all
material respects executed in accordance with management's general or specific
authorization and (ii) recorded in conformity with generally accepted accounting
principles in the United States.
SECTION 3.25. RELATED PARTY TRANSACTIONS. No current or former
stockholder, officer or employee or any associate (as defined in the rules
promulgated under the Securities Exchange Act of 1934, as amended) of the
Company or any Affiliate of any of the foregoing, is presently, or during the
last three fiscal years has been, (a) a party to any transaction with the
Company with respect to the business of the Company (including, but not limited
to, any contract, agreement or other arrangement providing for the furnishing of
services by, or rental of real or personal property from, or otherwise requiring
payments to, any such director, officer, employee or stockholder or such
associate), or (b) the direct of indirect owner of an interest in any
corporation, firm, association or business organization which is a present (or
potential) competitor, supplier or customer of the Company with respect to the
business of the Company, nor does any such person receive income from any source
other than the Company which relates to the business of, or should properly
accrue to, the Company with respect to the business of the Company.
SECTION 3.26. SUPPLIERS AND CUSTOMERS. (a) SCHEDULE 3.26(A) hereto lists
(i) all suppliers of the Company to which the Company made payments during the
years
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ended December 31, 1995, 1996 and 1997, or expects to make payments during the
year ending December 31, 1998, in excess of ten percent of the combined cost of
sales of the Company for such year and (ii) all customers that paid the Company
during the years ended December 31, 1995, 1996 and 1997 or that the Company
expects will pay to the Company during the year ending December 31, 1998, in
excess of one percent of the combined revenues of the Company for such year.
(b) The Company has no information which might reasonably indicate that
any of the customers or suppliers listed on SCHEDULE 3.26(A) intend to cease
purchasing from, selling to or dealing with the Company, nor has any information
been brought to the attention of the Company or the Principal which might
reasonably lead them to believe any such customer or supplier intends to alter
in any material respect the amount of such purchases, sales or the extent of
dealings with the Company or would alter in any material respect such purchases,
sales or dealings in the event of the consummation of the Acquisition. Neither
the Company nor the Principal has any information which might reasonably
indicate, or information which has been brought to its or his attention which
might reasonably lead it or him to believe, that (i) any supplier will not be
able to fulfill outstanding or currently anticipated purchase orders placed by
the Company, or (ii) any customer will cancel outstanding or currently
anticipated purchase orders placed with the Company.
SECTION 3.27. ACCOUNTS RECEIVABLE. Each of the accounts receivable of
the Company set forth on the Interim Balance Sheet (a) arose from BONA FIDE
sales in the ordinary course of business, (b) was entered into under
circumstances and by methods usual and customary in the Company's Business in
the applicable state and the collection practices used with respect thereto have
been in all respects legal and proper, (c) was entered into, and credit granted
pursuant hereto, consistent with the Company's historical credit policies and
practices and (d) shall be collected within ninety (90) days of the date hereof.
The books of the Company correctly record the principal balance of all accounts
receivable and each of the security instruments securing any account receivable,
if any, constitutes a valid lien in favor of the Company upon the property which
it describes, and is enforceable by the Company and its transferees. The
reserves for doubtful accounts shown or reflected in the Interim Financial
Statements are adequate and were calculated consistent with past practice.
SECTION 3.28. CUSTOMS MATTERS. The Company has all licenses, permits,
consents, orders, approvals and other authorizations necessary under the customs
and trade laws of the United States of America, including without limitation
bilateral trade agreements, to carry on its business as currently being
conducted. The Company has properly reported all goods imported into the United
States, accurately stated dutiable cost thereof and paid all tariffs due thereon
at the time of entry.
SECTION 3.29. NO MISLEADING STATEMENTS. This Agreement, the information
and schedules referred to herein and the information that has been furnished to
Equity in connection with the transactions contemplated hereby do not include
any untrue statement of a material fact and do not omit to state any material
fact necessary to make the statements contained herein or therein, in light of
the circumstances under which they were made, not misleading.
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ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF
THE PRINCIPAL AND JOHN C. MCDANIEL
Each of the Principal and John C. McDaniel severally represents and
warrants to Equity that the statements contained in this Article IV are correct
and complete as of the date of this Agreement, except as set forth in the
Schedules attached hereto.
SECTION 4.01. DUE AUTHORIZATION. Each of the Principal and John C.
McDaniel has full power and authority to execute and deliver this Agreement and
the Other Agreements to which he is a party and to perform his obligations
hereunder and thereunder. Each of the Principal and John C. McDaniel has duly
executed this Agreement and each of the Other Agreements to which he is a party,
and this Agreement and the Other Agreements to which he is a party is, upon
execution and delivery thereof by him, his legal, valid and binding obligation,
enforceable against him in accordance with its terms (except as the
enforceability thereof may be limited by any applicable bankruptcy, insolvency
or other laws affecting creditors' rights generally or by general principles of
equity, regardless of whether such enforceability is considered in equity or at
law).
SECTION 4.02. NO CONFLICT; CONSENTS. (a) The execution and delivery by
each of the Principal and John C. McDaniel of this Agreement and the Other
Agreements to which he is a party and the consummation of the transactions
contemplated hereby or thereby by him will not (i) conflict with, or result in
any violation of or default or loss of any material benefit under, any permit,
concession, grant, franchise, law, rule or regulation, or any judgment, decree
or order of any court or Regulatory Authority to which he is a party; or (ii)
conflict with, or result in a breach or violation of or default or loss of any
material benefit under, or accelerate the performance required by, the terms of
any material agreement, contract, indenture or other instrument to which he is a
party, or constitute a default or loss of any right thereunder or an event
which, with the lapse of time or notice or both, might result in a default or
loss of any right thereunder or the creation of any Lien upon the assets of the
Principal or John C. McDaniel, as the case may be.
(b) The execution, delivery and performance by each of the Principal
and John C. McDaniel of this Agreement, and the performance by him of the
transactions contemplated by this Agreement, do not require the authorization,
consent, approval, certification, license or order of, or any filing with, any
Regulatory Authority or any other third party except for such authorizations,
consents, approvals, certifications, licenses and orders that have been
obtained.
SECTION 4.03. BROKERS. Neither the Principal nor John C. McDaniel has paid
or become obligated to pay any fee or commission to any broker, finder,
investment banker or other intermediary in connection with the transactions
contemplated by this Agreement or the Other Agreements.
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ARTICLE V
REPRESENTATIONS AND WARRANTIES OF EQUITY
Equity represents and warrants to the Company and the Principal that
the statements contained in this Article V are correct and complete as of the
date of this Agreement.
SECTION 5.01. ORGANIZATION. Equity is a corporation duly organized, validly
existing and in good standing under the laws of its jurisdiction of
incorporation.
SECTION 5.02. AUTHORITY AND NO CONFLICT. Equity has the full right, power
and authority to execute, deliver and carry out the terms of this Agreement and
the Other Agreements to which it is party, and all documents and agreements
necessary to give effect to the provisions of this Agreement and the Other
Agreements, and this Agreement and the Other Agreements to which it is a party
have been duly authorized, executed and delivered by Equity. The execution and
delivery of this Agreement and the Other Agreements to which it is a party by
Equity does not, and consummation of the transactions contemplated hereby and
thereby will not, (a) conflict with, or result in any violation of or default or
loss of any benefit under, any provision of Equity's governing instruments; (b)
conflict with, or result in any violation of or default or loss of any material
benefit under, any permit, concession, grant, franchise, law, rule or
regulation, or any judgment, decree or order of any court or Regulatory
Authority to which Equity is a party; or (c) conflict with, or result in a
breach or violation of or default or loss of any material benefit under, or
accelerate the performance required by, the terms of any material agreement,
contract, indenture or other instrument to which Equity is a party, or
constitute a default or loss of any right thereunder or an event which, with the
lapse of time or notice or both, might result in a default or loss of any right
thereunder or the creation of any material Lien upon the assets of Equity. All
action and other authorizations prerequisite to the execution of this Agreement
and the Other Agreements to which it is a party and the consummation of the
transactions contemplated hereby and thereby have been taken or obtained by
Equity. This Agreement and the Other Agreements to which it is a party are valid
and binding agreements of Equity enforceable against Equity in accordance with
their terms (except as such enforceability may be limited by any applicable
bankruptcy, insolvency or other laws affecting creditor's rights generally or by
general principles of equity, regardless of whether such enforceability is
considered in equity or at law).
SECTION 5.03. CONSENTS. The execution, delivery and performance by Equity
of this Agreement and the Other Agreements to which it is a party, and the
performance of the transactions contemplated hereby and thereby, do not require
the authorization, consent, approval, certification, license or order of, or any
filing with, any Regulatory Authority or any other third party except for such
governmental authorizations, consents, approvals, certifications, licenses and
orders that have been obtained.
SECTION 5.04. REPORTS OF EQUITY. Equity has delivered to the Company and
the Principal (a) Equity's Annual Report on Form 10-K for the fiscal year ended
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December 31, 1997; (b) Equity's Quarterly Report on Form 10-Q for the fiscal
quarter ended March 31, 1998; (c) Equity's Current Report on Form 8-K filed May
8, 1998 with respect to the acquisition of Corinthian Marketing, Inc.; and (d)
Equity's Definitive Proxy Statement for the Annual Meeting held on May 27, 1998
(collectively, the "SEC REPORTS"). The SEC Reports, when filed with the
Securities and Exchange Commission (the "SEC"), complied as to form in all
material respects with the requirements of the Securities Exchange Act of 1934,
as amended. As of their respective dates, the SEC Reports did not contain an
untrue statement of material fact or omit to state a material fact required to
be stated therein. There has been no Current Report on Form 8-K filed by Equity
with the SEC since May 8, 1998.
SECTION 5.05. NO MATERIAL ADVERSE CHANGE. Since March 31, 1998, there has
been no material adverse change in results of operations, financial condition or
Business of Equity.
SECTION 5.06. BROKERS. Neither Equity or any of its Affiliates has paid or
become obligated to pay any fee or commission to any broker, finder, investment
banker or other intermediary in connection with the transactions contemplated by
this Agreement.
ARTICLE VI
POST-CLOSING COVENANTS
POST-CLOSING COVENANTS OF ALL PARTIES HERETO
SECTION 6.01. GENERAL. In case at any time after the Closing any
further action is necessary or desirable to carry out the purposes of this
Agreement and the Other Agreements, each of the parties hereto will take such
further action (including the execution and delivery of such further instruments
and documents) as any other party hereto reasonably may request. The Principal
acknowledges and agrees that from and after the Closing Equity will be entitled
to possession of all documents, books, records, agreements, and financial data
of any sort relating to the Assets.
SECTION 6.02. TAX MATTERS.
(a) COOPERATION ON TAX MATTERS.
(i) Equity, the Company and the Principal shall cooperate
fully, as and to the extent reasonably requested by the other party, in
connection with the filing of Tax Returns pursuant to this Section and any
audit, litigation or other proceeding with respect to Taxes. Such cooperation
shall include the retention and (upon the other party's request) the provision
of records and information which are reasonably relevant to any such audit,
litigation or other proceeding and making employees available on a mutually
convenient basis to provide additional information and explanation of any
material provided hereunder.
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(ii) Equity and the Principal further agree, upon request, to
use all commercially reasonable efforts to obtain any certificate or other
document from any Regulatory Authority or any other Person as may be necessary
to mitigate, reduce or eliminate any Tax that could be imposed (including, but
not limited to, with respect to the transactions contemplated hereby).
(b) ALLOCATION OF PURCHASE PRICE. The Company, the Principal and Equity
shall file all required information and tax returns (and any amendments thereto)
in a manner consistent with the mutually-agreed allocation of the Purchase Price
and comply with the applicable information reporting requirements of Section
1060 of the Code and Treasury Regulations promulgated thereunder. If, contrary
to the intent of the parties hereto as expressed in this Section 6.02, any
taxing authority makes or proposes an allocation different from that agreed upon
pursuant to this Agreement, the Company and Equity shall cooperate with each
other in good faith to contest such taxing authority's allocation (or proposed
allocation), PROVIDED, HOWEVER, that, after consultation with the party
adversely affected by such allocation (or proposed allocation), another party
hereto may file such protective claims or returns as may reasonably be acquired
to protect its interests.
(c) CERTAIN TAXES. All transfer (including, without limitation, any
real estate transfer taxes), documentary, sales, use, stamp, registration and
other such Taxes and fees (including any penalties and interest) incurred in
connection with this Agreement and the transactions contemplated hereby, shall
be paid by the Company when due, and the Company will, at its expense, file all
necessary Tax Returns and other documentation with respect to all such transfer,
documentary, sales, use, stamp, registration and other Taxes and fees, and, if
required by applicable law, and the Company will, and will cause its Affiliates
to, join in the execution of any such Tax Returns and other documentation.
SECTION 6.03. EQUITY TO ACT AS AGENT FOR THE COMPANY. This Agreement
shall not constitute an agreement to assign any contract right included among
the Assets if any attempted assignment of the same without the consent of the
other party thereto would constitute a breach thereof or in any way adversely
affect the rights of the Company thereunder. If such consent is not obtained or
if any attempted assignment would be ineffective or would adversely affect the
Company's rights thereunder so that Equity would not in fact receive all such
rights, then Equity shall act as the agent for the Company in order to obtain
for Equity the benefits thereunder and to assume the liabilities thereunder.
Nothing herein shall be deemed to make Equity the Company's agent in respect of
any Excluded Asset.
SECTION 6.04. DELIVERY OF PROPERTY RECEIVED BY THE COMPANY OR EQUITY
AFTER CLOSING. From and after the Closing, Equity shall have the right and
authority to collect, for the account of Equity, all assets which shall be
transferred or are intended to be transferred to Equity as part of the Assets as
provided in this Agreement, and to endorse with the name of the Company (without
recourse or warranty except to the extent set forth herein) any checks or drafts
received on account of any such assets. The Company agrees that it will transfer
or deliver to Equity promptly after the receipt thereof, any cash or other
property which the Company
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receives after the date hereof in respect of any assets transferred or intended
to be transferred to Equity as part of the Assets under this Agreement. In
addition, Equity agrees that it will transfer or deliver to the Company,
promptly after receipt thereof, any cash or other property which Equity receives
after the date hereof in respect of any assets not transferred or intended to be
transferred to Equity as part of the Assets under this Agreement.
SECTION 6.05. EQUITY APPOINTED ATTORNEY FOR THE COMPANY. The Company,
effective upon the execution of this Agreement, hereby constitutes and appoints
Equity, and its successors and assigns, the true and lawful attorney of the
Company, in the name of Equity or the Company (as Equity shall determine in its
sole discretion) but for the benefit of Equity: (a) to institute and prosecute
all proceedings which Equity may deem proper in order to collect, assert or
enforce any claim, right or title of any kind in or to the Assets as provided
for in this Agreement; (b) to defend or compromise any and all actions, suits or
proceedings in respect of any of the Assets, and to do all such acts and things
in relation thereto as Equity shall deem advisable; and (c) to take all action
which Equity, its successors or assigns may reasonably deem proper in order to
provide for Equity, its successors or assigns, the benefits under any of the
Assets where any required consent of another party to the sale or assignment
thereof to Equity pursuant to this Agreement shall not have been obtained. The
Company acknowledges that the foregoing powers are coupled with an interest and
shall be irrevocable. Equity shall be entitled to retain for its own account any
amounts collected pursuant to the foregoing powers, including any amounts
payable as interest in respect thereof. Equity agrees to act in good faith in
seeking to collect, assert or enforce any claim against any third party in
accordance with this Section 6.05. Notwithstanding the foregoing, the power of
attorney set forth in this Section 6.05 shall not apply in the event that the
Company or the Principal has an indemnification obligation under Article VII and
is complying with such obligation.
SECTION 6.06. PAYMENT OF LIABILITIES. Following the date hereof Equity
agrees to discharge the Assumed Liabilities in accordance with their terms and
the Company agrees to discharge its remaining liabilities in accordance with
their terms.
SECTION 6.07. SUBSEQUENT LIABILITY. If, subsequent to the date hereof,
any liability for Taxes measured by the income of the Company relating to the
Assets or the conduct of the Business is imposed on Equity with respect to any
period prior to and through the date hereof which has not otherwise been assumed
by Equity pursuant to this Agreement, then the Company and the Principal,
jointly and severally, shall indemnify and hold Equity harmless, from and
against, and shall pay, the full amount of such Tax liability, including any
interest, additions to tax and penalties thereon, together with interest on such
additions to tax or penalties (as well as reasonable attorneys' or other fees
and disbursements of Equity incurred in determination thereof or in connection
therewith), or the Company and the Principal shall, at their sole expense and in
their reasonable discretion, either settle any Tax claim that may be the subject
of indemnification under this Section 6.07 at such time and on such terms as
they shall deem appropriate or assume the entire defense thereof, PROVIDED,
HOWEVER, that the Company and the Principal shall not in any event take any
position in such settlement or defense that subjects Equity to any civil fraud
or any civil or criminal
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penalty or tax assessment. Notwithstanding the foregoing, neither the Company
nor the Principal shall consent, without the prior written consent of Equity,
which prior written consent shall not be unreasonably withheld, delayed or
conditioned, to any change in the treatment of any item which would adversely
affect the tax liability of Equity for a period subsequent to the date hereof.
SECTION 6.08. EMPLOYEE MATTERS.
(a) The Company has no information that Equity would not qualify for
successor status under Internal Revenue Service Revenue Procedure 96-60.
Pursuant to that pronouncement, the parties agree Equity will file (with the
federal government and the state, where appropriate) a single W-2 for the 1998
taxable year for each employee of the Company who becomes an employee of Equity,
reporting the wages paid by both Equity and the Company to any such employee.
The Company will provide Equity any information not available to Equity relating
to periods ending on or prior to the date hereof necessary for Equity to prepare
and distribute Forms W-2 for the year ending December 31, 1998 to any such
employees. In addition, both parties will file Forms 941 for the quarter during
which the sale takes place, reflecting the wages and deposits made during its
period of ownership.
(b) No term of this Agreement shall be deemed to create any contract
between Equity and any current employee of the Company which gives the employee
the right to be retained in the employment of Equity or any related employer, or
to interfere with Equity's right to terminate employment of any employee at any
time or to change its policies regarding salaries, benefits and other employment
matters at any time or from time to time. The representations, warranties,
covenants and agreements contained herein are for the sole benefit of the
parties hereto, and employees are not intended to be and shall not be construed
as beneficiaries hereof.
(c) Equity shall not assume the sponsorship of, or the responsibility
for contributions to, or any liability in connection with, any Employee Plan.
Without limiting the foregoing, the Company shall be liable for any continuation
coverage (including any penalties, excise taxes or interest resulting from the
failure to provide continuation coverage) required by Section 4980B of the Code
due to qualifying events that occur on or before the date hereof, and the
Company shall otherwise retain all obligations and liabilities under the
Employee Plans.
(d) With respect to any employee of the Company hired by Equity, the
Company shall retain and shall defend, indemnify and hold Equity harmless from
and against (i) all liabilities and obligations arising under any group life,
accident, medical, dental or disability plan (whether or not insured) to the
extent that such liability or obligation relates to claims or expenses incurred
(whether or not then reported) on or prior to the date hereof, (ii) all
liabilities and obligations arising under any worker's compensation arrangement
to the extent such liability or obligation arises out of an illness or injury
that originated prior to the date hereof, including liability for any
retroactive worker's compensation premiums attributable to such period, and
(iii) all other liabilities and obligations arising under or in connection the
Employee Plans to
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the extent any such liability or obligation relates to services performed or
events occurring during any period on or prior to the date hereof.
(e) No provision of this Agreement shall create any third party
beneficiary or other rights in any employee or former employee (including any
beneficiary or dependent thereof) of the Company in respect of employment with
Equity or in respect of any benefits that may be provided, directly or
indirectly, under any employee benefit plan, contract, policy or arrangement
which may be established by Equity. No provision of this Agreement shall
constitute a limitation on rights to amend, modify or terminate after the date
hereof any such plans, contracts, policies or arrangements of Equity.
POST-CLOSING COVENANTS OF THE COMPANY AND THE PRINCIPAL
SECTION 6.09. RESTRICTIVE COVENANTS.
(a) Each of the Company and the Principal agrees until December 31,
2003 not to directly or indirectly, as owner, partner, joint venturer,
stockholder, employee, broker, agent, principal, trustee, corporate officer,
director, licensor, or in any capacity whatsoever engage in, become financially
interested in, be employed by, render any consultation or business advice with
respect to, or have any connection with, any firm, corporation, business or
other organization or enterprise which competes with the Business in any
geographic area where the Business is then being conducted or is proposed to be
conducted (by Equity or any Affiliate of Equity to which all or part of the
Business is subsequently transferred), in any manner whatsoever, including
without limitation sales of promotional products and services (including both
self-liquidating and give-away products); PROVIDED, HOWEVER, that ownership of
securities of a corporation which is engaged in such business and is publicly
owned and traded but in an amount not to exceed at any one time one percent (1%)
of any class of stock or securities of such corporation, by itself, shall not be
deemed a violation of this covenant. In addition, each of the Company and the
Principal agrees until December 31, 2003 not to directly or indirectly (i)
solicit for employment, interfere with or entice from employment any employee of
Equity or its Affiliates, (ii) request or cause contracting parties, licensors,
suppliers or customers with whom Equity or any of its Affiliates has a business
relationship to cancel or terminate any such business relationship or (iii) use
any of the proprietary information contained in the Assets in any manner not in
the best interests of Equity.
(b) SCOPE OF RESTRICTIVE COVENANTS. Each of the Company and the
Principal represents, warrants and acknowledges that the Business is
international in scope, that the restrictive covenants set forth in this Section
6.09 (including without limitation the territorial and time limitations thereof)
(the "RESTRICTIVE COVENANTS") are necessary in order adequately to protect and
maintain the goodwill, proprietary interests and other legitimate business
interests of the Business being acquired by Equity and are reasonable in all
respects, and that a breach or threatened breach of any of the Restrictive
Covenants would cause irreparable injury to the Business being acquired by
Equity for which money damages would be difficult to calculate and might not
adequately compensate Equity. In the event of a breach or threatened breach of
any
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of the Restrictive Covenants, in addition to all other remedies available to it,
Equity shall be entitled to injunctive or other equitable relief. If any court
determines that any part of a Restrictive Covenant is unenforceable, the parties
intend and desire such court to reduce the duration or coverage of such
provision to the minimum extent necessary to render such provision enforceable,
and in its reduced form, such provision shall then be enforceable and shall be
enforced. The existence of any claim or cause of action by the Company or the
Principal against Equity shall not constitute a defense to the enforcement by
Equity of the Restrictive Covenants, but such claim or cause of action shall be
litigated separately.
(c) SURVIVAL. The provisions of this Section 6.09 shall survive the
Closing hereunder and shall remain in full force and effect for the term of the
covenants set forth in this Section 6.09 and, thereafter, to the extent a claim
is made prior to such expiration with respect to any breach of such covenant,
until such claim is finally determined or settled. Termination of the Employment
Agreement, or the non-competition provisions contained therein, shall in no way
affect or diminish the obligations of the Principal pursuant to this Section
6.09.
(d) ASSIGNMENT. Notwithstanding anything else in this Agreement, Equity
may assign its rights under this Section 6.09 to any Affiliate of Equity or any
successor in interest to Equity of the Business or the Assets, whether by
merger, consolidation, purchase of assets or otherwise.
SECTION 6.10. RELEASES OF CERTAIN LIENS. Promptly following the Closing,
the Company shall obtain the release of the Lien of Barnett Bank of South
Florida, N.A.
ARTICLE VII
INDEMNIFICATION
SECTION 7.01. SURVIVAL OF REPRESENTATIONS AND WARRANTIES. All of the
representations and warranties contained in this Agreement shall survive the
Closing hereunder and continue in full force and effect through March 31, 2000,
regardless of any investigation made by Equity, the Company, the Principal or
John C. McDaniel or on their behalf; PROVIDED, HOWEVER, that the representations
and warranties contained in Sections 3.10, 3.12 and 3.17, relating to Taxes,
environmental matters and ERISA, respectively, shall survive and remain in full
force and effect for the periods equal to the applicable statutes of limitation
relating thereto.
SECTION 7.02. INDEMNIFICATION PROVISIONS FOR BENEFIT OF EQUITY. In the
event the Company, the Principal or John C. McDaniel breaches (or in the event
any third party alleges facts that, if true, would mean the Company, the
Principal or John C. McDaniel has breached) any of their representations,
warranties and covenants contained herein, then the Company, the Principal and
John C. McDaniel, jointly and severally (and severally as to Article IV) agree
to indemnify Equity from and against all damages, costs, liabilities, losses and
expenses, including reasonable attorneys' fees
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and expenses, which Equity may suffer through and after the date of the claim
for indemnification resulting from, arising out of, relating to, in the nature
of or caused by the breach (or the alleged breach). In addition, the Company,
the Principal and John C. McDaniel, jointly and severally but subject to all
limitations set forth in this Article VII, shall indemnify Equity from and
against all damages, costs, liabilities, losses and expenses, including
reasonable attorneys' fees and expenses, which Equity may suffer at any time
resulting from any product liability claims relating to the Company's products
that are filed after the closing hereunder and relating to occurrences prior to
the closing hereunder.
SECTION 7.03. INDEMNIFICATION PROVISIONS FOR BENEFIT OF THE COMPANY AND
THE PRINCIPAL. In the event Equity breaches (or in the event any third party
alleges facts that, if true, would mean Equity has breached) any of its
representations, warranties and covenants contained herein, then Equity agrees
to indemnify the Company and the Principal from and against the entirety of all
damages, costs, liabilities, losses and expenses, including reasonable
attorneys' fees and expenses, which the Company or the Principal may suffer
through and after the date of the claim for indemnification resulting from,
arising out of, relating to, in the nature of or caused by the breach (or the
alleged breach).
SECTION 7.04. MATTERS INVOLVING THIRD PARTIES. (a) If any third party
shall notify any party (the "INDEMNIFIED PARTY") with respect to any matter (a
"THIRD PARTY CLAIM") which may give rise to a claim for indemnification against
any other party hereto (the "INDEMNIFYING PARTY") under this Article VII, then
the Indemnified Party shall promptly notify each Indemnifying Party thereof in
writing; PROVIDED, HOWEVER, that no delay on the part of the Indemnified Party
in notifying any Indemnifying Party shall relieve the Indemnifying Party from
any obligation hereunder unless (and then solely to the extent) the Indemnifying
Party thereby is prejudiced.
(b) Any Indemnifying Party will have the right to defend the
Indemnified Party against the Third Party Claim with counsel of its choice
reasonably satisfactory to the Indemnified Party so long as (i) the Indemnifying
Party notifies the Indemnified party in writing within fifteen (15) days after
the Indemnified Party has given notice of the Third Party Claim that the
Indemnifying Party will indemnify the Indemnified Party from and against the
entirety of all damages, costs, liabilities, losses and expenses, including
reasonable attorneys' fees and expenses, which the Indemnified Party may suffer
resulting from, arising out of, relating to, in the nature of or caused by the
Third Party Claim, (ii) the Indemnifying Party provides the Indemnified Party
with evidence reasonably acceptable to the Indemnified Party that the
Indemnifying Party will have the financial resources to defend against the Third
Party Claim and fulfill its indemnification obligations hereunder, (iii) the
Third Party Claim involves only money damages and does not seek an injunction or
other equitable relief, (iv) settlement of, or an adverse judgment with respect
to, the Third Party Claim is not, in the good faith judgment of the Indemnified
Party, likely to establish a precedential custom or practice adverse to the
continuing Business interests of the Indemnified Party, and (v) the Indemnifying
Party conducts the defense of the Third Party Claim actively and diligently.
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(c) So long as the Indemnifying Party is conducting the defense of the
Third Party Claim in accordance with Section 7.04(b) above, (i) the Indemnified
Party may retain separate co-counsel at its sole cost and expense and
participate in the defense of the Third Party Claim, (ii) the Indemnified Party
will not consent to the entry of any judgment or enter into any settlement with
respect to the Third Party Claim without the prior written consent of the
Indemnifying Party (not to be withheld, delayed or conditioned unreasonably),
and (iii) the Indemnifying Party will not consent to the entry of any judgment
or enter into any settlement with respect to the Third Party Claim without the
prior written consent of the Indemnified Party (not to be withheld, delayed or
conditioned unreasonably); PROVIDED, HOWEVER, that the Indemnified Party shall
have the right to employ its own counsel in any action and the fees and expenses
of such counsel shall be at the expense of the Indemnifying Party in the event
that the Indemnified Party shall have reasonably concluded that there may be a
conflict of interest between the Indemnified Party and the Indemnifying Party in
the conduct of such defense of such action (in which case the Indemnifying Party
shall not have the right to direct the defense of such action on behalf of the
Indemnified Party).
(d) In the event any of the conditions in Section 7.04(b) above is or
becomes unsatisfied, (i) the Indemnified Party may defend against, and consent
to the entry of any judgment or enter into any settlement with respect to, the
Third Party Claim in any manner it reasonably may deem appropriate (and the
Indemnified Party need not consult with, or obtain any consent from, any
Indemnifying Party in connection therewith), (ii) the Indemnifying Party will
reimburse the Indemnified Party promptly and periodically for the costs of
defending against the Third Party Claim (including reasonable attorneys' fees
and expenses), and (iii) the Indemnifying Party will remain responsible for all
damages, costs, liabilities, losses and expenses, including reasonable
attorneys' fees and expenses, which the Indemnified Party may suffer resulting
from, arising out of, relating to, in the nature of, or caused by the Third
Party Claim to the fullest extent provided in this Article VII.
SECTION 7.05. LIMITATIONS.
(a) No claim shall be made under this Article VII or otherwise with
respect to the representations and warranties herein for any individual matter
unless the aggregate of such matters and matters under Article VII of the
Contract Marketing Agreement equals $50,000 (but after the aggregate of such
matters equals $50,000, a claim may be made for the full amount of all such
matters); PROVIDED, HOWEVER, that such limitation shall not apply to claims made
under Sections 3.04 (Ownership of Assets), 3.10 (Taxes), 3.15 (Inventories),
3.25 (Related Party Transactions), 3.27 (Accounts Receivable) or to fraud
claims.
(b) The Indemnifying Parties shall not have liability under this
Article VII or otherwise with respect to the representations and warranties
herein or in the Contract Marketing Agreement in excess of $2,000,000 in the
aggregate; PROVIDED, HOWEVER, that such limitation shall not apply to claims
made under Sections 3.04 (Ownership of Assets), 3.10 (Taxes), 3.15
(Inventories), 3.25 (Related Party Transactions), 3.27 (Accounts Receivable) or
to fraud claims or to the covenants provided in Section 6.10 hereof.
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(c) Except as otherwise expressly provided by this Agreement, none of
the Company, the Principal or John C. McDaniel shall be liable to Equity under
the Warranties or under this Article VII with respect to matters which are set
forth (by reference to the applicable section of this Agreement) in the
Disclosure Schedule.
SECTION 7.06. OTHER INDEMNIFICATION PROVISIONS. The foregoing
indemnification provisions are in addition to, and not in derogation of, any
statutory, equitable or common law remedy any party hereto may have for breach
of representation, warranty or covenant. Each of the Principal and John C.
McDaniel hereby agrees that he will not make any claim for indemnification
against the Company by reason of the fact that he was a stockholder, director,
officer, employee or agent of any such entity or was serving at the request of
any such entity as a partner, trustee, director, officer, employee or agent of
another entity (whether such claim is for judgments, damages, penalties, fines,
costs, amounts paid in settlement, losses, expenses or otherwise and whether
such claim is pursuant to any statute, charter document, bylaw, agreement or
otherwise) with respect to any action, suit, proceeding, complaint, claim or
demand brought by Equity against the Principal (whether such action, suit,
proceeding, complaint, claim or demand is pursuant to this Agreement, applicable
law or otherwise).
ARTICLE VIII
MISCELLANEOUS
SECTION 8.01. EFFECT OF DUE DILIGENCE. No investigation by or on behalf
of Equity into the Business, operations, prospects, assets or condition
(financial or otherwise) of the Company shall diminish in any way the effect of
any representations or warranties made by the Company, the Principal or John C.
McDaniel in this Agreement or shall relieve the Company, the Principal or John
C. McDaniel of any of their respective obligations under this Agreement.
SECTION 8.02. PRESS RELEASES AND PUBLIC ANNOUNCEMENTS. Neither the
Company nor the Principal nor John C. McDaniel shall issue any press release or
make any public announcement relating to the subject matter of this Agreement.
Equity may make any public disclosure it believes in good faith is required by
applicable law, but shall not make any such disclosure without prior notice to
the Company.
SECTION 8.03. NO THIRD PARTY BENEFICIARIES. This Agreement shall not confer
any rights or remedies upon any Person other than the parties hereto and their
respective successors and permitted assigns.
SECTION 8.04. ENTIRE AGREEMENT. This Agreement and the Other Agreements
constitute the entire agreement among the parties hereto and supersedes any
prior understandings, agreements or representations by or among the parties
hereto, written or oral, to the extent they related in any way to the subject
matter hereof and thereof.
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SECTION 8.05. SUCCESSION AND ASSIGNMENT. This Agreement shall be
binding upon and inure to the benefit of the parties named herein and their
respective successors and permitted assigns. No party may assign either this
Agreement or any of his or its rights, interests, or obligations hereunder
without the prior written approval of Equity and the Principal; PROVIDED,
HOWEVER, that (a) Equity may (i) assign any or all of its rights and interests
hereunder to one or more of its Affiliates and (ii) designate one or more of its
Affiliates to perform its obligations hereunder (in any or all of which cases
Equity nonetheless shall remain responsible for the performance of all of its
obligations hereunder) and (b) the Company may assign its right to receive any
or all of the Purchase Price to the Principal or John C. McDaniel.
SECTION 8.06. COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original but all of which
together will constitute one and the same instrument.
SECTION 8.07. HEADINGS. The section headings contained in this Agreement
are inserted for convenience only and shall not affect in any way the meaning or
interpretation of this Agreement.
SECTION 8.08. NOTICES. All notices, requests, demands, claims, and
other communications hereunder will be in writing. Any notice, request, demand,
claim or other communication hereunder shall be deemed duly given (a) on the
date of delivery, if delivered to the persons identified below, (b) two Business
Days after it is sent by registered or certified mail, return receipt requested,
postage prepaid, and addressed to the intended recipient as set forth below:
IF TO THE COMPANY Philip A. McDaniel
OR THE PRINCIPAL: 51 Water Street
St. Augustine, Florida 32084
IF TO JOHN C. MCDANIEL: John C. McDaniel
23 Metcalf Street
Worcester, Massachusetts 01609
COPY TO: Goodwin, Procter & Hoar LLP
Exchange Place
Boston, Massachusetts 02109
Attn: Stuart Cable, Esq.
IF TO EQUITY: Equity Marketing, Inc.
131 South Rodeo Drive
Beverly Hills, California 90212
Attn: Stephen P. Robeck
COPY TO: Fulbright & Jaworski L.L.P.
666 Fifth Avenue
New York, New York 10103
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Attn: Merrill M. Kraines, Esq.
Any party may send any notice, request, demand, claim, or other communication
hereunder to the intended recipient at the address set forth above using any
other means (including personal delivery, expedited courier, messenger service,
telecopy, telex, ordinary mail, or electronic mail), but no such notice,
request, demand, claim, or other communication shall be deemed to have been duly
given unless and until it actually is received by the intended recipient. Any
party may change the address to which notices, requests, demands, claims, and
other communications hereunder are to be delivered by giving the other parties
notice in the manner herein set forth.
SECTION 8.09. GOVERNING LAW. This Agreement shall be governed by and
construed in accordance with the domestic laws of the State of New York without
giving effect to any choice or conflict of law provision or rule (whether of the
State of New York or any other jurisdiction) that would cause the application of
the laws of any jurisdiction other than the State of New York.
SECTION 8.10. CONSENT TO JURISDICTION; RECEIPT OF PROCESS. EACH PARTY
HEREBY CONSENTS TO THE JURISDICTION OF, AND CONFERS NON-EXCLUSIVE JURISDICTION
UPON, ANY FEDERAL OR STATE COURT LOCATED IN THE COUNTY OF LOS ANGELES, AND
APPROPRIATE APPELLATE COURTS THEREFROM, OVER ANY ACTION, SUIT OR PROCEEDING
ARISING OUT OF OR RELATING TO THIS AGREEMENT, OR ANY OF THE TRANSACTIONS
CONTEMPLATED HEREBY. EACH PARTY HEREBY IRREVOCABLY WAIVES, AND AGREES NOT TO
ASSERT AS A DEFENSE IN ANY SUCH ACTION, SUIT OR PROCEEDING, ANY OBJECTION WHICH
IT MAY NOW OR HEREAFTER HAVE TO VENUE OF ANY SUCH ACTION, SUIT OR PROCEEDING
BROUGHT IN ANY SUCH FEDERAL OR STATE COURT AND HEREBY IRREVOCABLY WAIVES ANY
CLAIM THAT ANY SUCH ACTION, SUIT OR PROCEEDING BROUGHT IN ANY SUCH COURT OR
TRIBUNAL HAS BEEN BROUGHT IN AN INCONVENIENT FORUM. PROCESS IN ANY SUCH ACTION,
SUIT OR PROCEEDING MAY BE SERVED ON ANY PARTY ANYWHERE IN THE WORLD, WHETHER
WITHIN OR WITHOUT THE STATE OF CALIFORNIA, PROVIDED THAT NOTICE THEREOF IS
PROVIDED PURSUANT TO PROVISIONS FOR NOTICE UNDER THIS AGREEMENT.
SECTION 8.11. AMENDMENTS AND WAIVERS. No amendment of any provision of
this Agreement shall be valid unless the same shall be in writing and signed by
Equity, the Company and Principal. No waiver by any party of any default,
misrepresentation or breach of warranty or covenant hereunder, whether
intentional or not, shall be deemed to extend to any prior or subsequent
default, misrepresentation or breach of warranty or covenant hereunder or affect
in any way any rights arising by virtue of any prior or subsequent such
occurrence.
SECTION 8.12. SEVERABILITY. Any term or provision of this Agreement
that is invalid or unenforceable in any situation in any jurisdiction shall not
affect the validity or enforceability of the remaining terms and provisions
hereof or the validity or enforceability of the offending term or provision in
any other situation or in any other jurisdiction.
SECTION 8.13. EXPENSES. Each of Equity and the Principal will bear his or
its own Transaction Costs, and the Principal shall bear the Transaction Costs of
the Company, in each case incurred in connection with this Agreement and the
transactions
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contemplated hereby. The Principal agrees that the Company has not borne and
will not bear any of the Principal's Transaction Costs in connection with this
Agreement or the Other Agreements or any of the transactions contemplated hereby
or thereby.
SECTION 8.14. CONSTRUCTION. The parties have participated jointly in
the negotiation and drafting of this Agreement. In the event an ambiguity or
question of intent or interpretation arises, this Agreement shall be construed
as if drafted jointly by the parties and no presumption or burden of proof shall
arise favoring or disfavoring any party by virtue of the authorship of any of
the provisions of this Agreement. Any reference to any federal, state, local, or
foreign statute or law shall be deemed also to refer to all rules and
regulations promulgated thereunder, unless the context requires otherwise. The
word "including" shall mean including without limitation. The parties intend
that each representation, warranty and covenant contained herein shall have
independent significance. If any party has breached any representation, warranty
or covenant contained herein in any respect, the fact that there exists another
representation, warranty or covenant relating to the same subject matter
(regardless of the relative levels of specificity) which the party has not
breached shall not detract from or mitigate the fact that the party is in breach
of the first representation, warranty or covenant.
SECTION 8.15. INCORPORATION OF EXHIBITS, ANNEXES, AND SCHEDULES. The
Exhibits and Schedules identified in this Agreement are incorporated herein by
reference and made a part hereof.
SECTION 8.16. SPECIFIC PERFORMANCE. Each of the parties acknowledges
and agrees that the other parties would be damaged irreparably in the event any
of the provisions of this Agreement are not performed in accordance with their
specific terms or otherwise are breached. Accordingly, each of the parties
agrees that the other parties shall be entitled to an injunction or injunctions
to prevent breaches of the provisions of this Agreement and to enforce
specifically this Agreement and the terms and provisions hereof in any action
instituted in any court of the United States or any state thereof having
jurisdiction over the parties and the matter, in addition to any other remedy to
which they may be entitled, at law or in equity.
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IN WITNESS WHEREOF, the undersigned have duly executed this
Agreement as of the date set forth above.
EQUITY MARKETING,INC.
By: /s/ Stephen P. Robeck
Stephen P. Robeck
Chairman and
Co-Chief Executive Officer
U.S. IMPORT & PROMOTIONS CO.
By: /s/ Philip A. McDaniel
Philip A. McDaniel
President
/s/PHILIP A. McDANIEL
PHILIP A. McDANIEL
/s/ JOHN C. McDANIEL
JOHN C. McDANIEL
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