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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): March 23, 1998
INTERIORS, INC.
(Exact name of registrant as specified in its charter)
Delaware 1-6395 13-3590047
- ------------------------------------ ----------- ------------------
(State or other jurisdiction (Commission (IRS Employer
of incorporation or organization) File Number) Identification No.)
320 Washington Street, Mt. Vernon New York 10553
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (914) 665-5400
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Not Applicable
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(Former name or former address, if changed since last report)
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ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS.
On March 23, 1998, the Registrant entered into, and consummated, an
Agreement and Plan of Merger (the "Merger Agreement") among the Registrant,
Artmaster Studios, Inc. ("Artmaster"), a wholly-owned subsidiary of the
Registrant, Merchandise Sales, Inc. ("MSI") and certain shareholders of MSI.
The transaction was structured as a forward triangular merger. As a result of
the merger, MSI has been merged with and into Artmaster. MSI (and, after the
merger, Artmaster) designs, manufactures and wholesales wall decor and lighting
products for the home. The acquisition of MSI provides the Registrant with an
expanded breadth of product offerings.
Pursuant to the Merger Agreement, the purchase price paid to the
shareholders of MSI at closing consisted of the delivery of a subordinated
promissory note in the aggregate principal amount of $537,248. In addition, the
Registrant issued to the shareholders of MSI an aggregate of 779,302
unregistered shares of its Class A Common Stock (the "Merger Shares") and the
Registrant repaid indebtedness of MSI owed to certain creditors of MSI in the
aggregate amount of $1,022,752 through an aggregate cash payment of $750,000 and
the issuance of a subordinated promissory note in the aggregate principal amount
of $272,752. All of the Merger Shares are being held in a one year escrow as
security for the indemnification obligations of MSI's former shareholders
pursuant to the Merger Agreement, and the number of Merger Shares remains
subject to adjustment based on the value of the Merger Shares on the first
anniversary of the closing date.
The merger was financed by the Registrant's available working capital
which was derived in part, from an earlier, unrelated private placement to
accredited investors of the Registrant's unregistered Subordinated Convertible
Promissory Notes. The aggregate purchase price was determined in arms-length
negotiations between the Registrant and the shareholders of MSI.
The assets acquired pursuant to the Merger Agreement included, among
other things, (i) fixed assets owned, leased or used by MSI, including
equipment, (ii) accounts receivable, (iii) inventory and (iv) contracts,
agreements, and leases of real and personal and property. For the foreseeable
future, the Registrant intends to utilize such assets in connection with the
operation of the business of MSI and Vanguard Studios, Inc., another subsidiary
of the Registrant.
A copy of the Merger Agreement is appended as an exhibit to this
Report.
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ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS
(a) Financial Statements of Business Acquired.
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Financial statements with respect to the acquisition of Merchandise Sales, Inc.
by the Registrant will be filed with an amendment to this Form 8-K within 60
days after the date that this Report is required to be filed.
(b) Pro Forma Financial Information.
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Pro forma financial information with respect to the acquisition of Merchandise
Sales, Inc. by the Registrant will be filed with an amendment to this Form 8-K
within 60 days after the date that this Report is required to be filed.
(c) Exhibits
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Document Description Exhibit No.
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Agreement and Plan of Merger, dated as of March 23, 1998, 2
among the Registrant, Artmaster Studios, Inc., a wholly-
owned subsidiary of the Registrant, Merchandise Sales, Inc. and
certain shareholders of Merchandise Sales, Inc.
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SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of
1934, the Registrant has duly caused this report to be signed on its behalf by
the undersigned hereunto duly authorized.
April 6, 1998 INTERIORS, INC.,
a Delaware corporation
By: /s/ John D. Mazzuto.
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Chief Financial Officer
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EXHIBIT INDEX
Exhibit Sequentially
No. Document Description Numbered Page
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2 Agreement and Plan of Merger, dated as of
March 23, 1998, among the Registrant, Artmaster
Studios, Inc., a wholly-owned subsidiary
of the Registrant, Merchandise Sales, Inc. and
certain shareholders of Merchandise Sales, Inc.
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AGREEMENT AND PLAN OF MERGER
AMONG
ARTMASTER STUDIOS, INC.,
INTERIORS, INC.,
MERCHANDISE SALES, INC.,
AND
CERTAIN SHAREHOLDERS OF MERCHANDISE SALES, INC.
MARCH 23, 1998
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TABLE OF CONTENTS
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ARTICLE I DEFINITIONS............................................................................ 1
ARTICLE II THE MERGER............................................................................. 8
2.01 Merger.......................................................................... 8
2.02 Effective Time.................................................................. 8
2.03 Certificate of Incorporation, Bylaws,
Directors and Officers, Name.................................................... 8
2.04 Assets and Liabilities.......................................................... 9
2.05 Further Assurances.............................................................. 9
2.06 Conversion of Securities........................................................ 10
2.07 Post-Closing Adjustments........................................................ 11
2.08 Exchange of Shares.............................................................. 12
2.09 Escrow; Indemnification Representative.......................................... 13
2.10 Consummation of Merger.......................................................... 15
2.11 Closing......................................................................... 15
2.12 Actions at the Closing.......................................................... 15
ARTICLE III REPRESENTATIONS AND
WARRANTIES REGARDING THE COMPANY....................................................... 16
3.01 Organization and Good Standing;
Authorization................................................................... 16
3.02 No Conflicts.................................................................... 17
3.03 Capitalization.................................................................. 17
3.04 Financial Statements............................................................ 18
3.05 Title to Property; Encumbrances................................................. 19
3.06 Inventory and Accounts Receivable............................................... 20
3.07 Compliance with Law............................................................. 20
3.08 Trademarks, Patents, Etc........................................................ 21
3.09 Banking and Insurance........................................................... 22
3.10 Indebtedness.................................................................... 22
3.11 Judgments; Litigation........................................................... 23
3.12 Income and Other Taxes.......................................................... 23
3.13 Corporate Records............................................................... 25
3.14 Employee Benefit Matters........................................................ 25
3.15 No Undisclosed Liabilities...................................................... 25
3.16 Permits, Licenses, Etc.......................................................... 26
3.17 Regulatory Filings.............................................................. 26
3.18 Consents........................................................................ 26
3.19 Material Contracts; No Defaults................................................. 27
3.20 Absence of Certain Changes...................................................... 29
3.21 Employees and Labor Matters..................................................... 30
3.22 Affiliations.................................................................... 31
3.23 Principal Customers and Suppliers............................................... 31
3.24 Warranty Liability.............................................................. 32
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3.25 Hazardous Materials............................................................. 32
3.26 Brokers' Fees................................................................... 33
3.27 Disclosure...................................................................... 33
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF BUYER................................................ 34
4.01 Organization, Power and Authority of Buyer
and Newco....................................................................... 34
4.02 Authorization................................................................... 34
4.03 No Conflict or Violation........................................................ 34
4.04 Capitalization.................................................................. 35
4.05 Consents and Approvals.......................................................... 35
4.06 Reports and Financial Statements................................................ 35
4.07 Brokers' Fees................................................................... 36
4.08 Disclosure...................................................................... 36
4.09 Capital Contribution............................................................ 36
ARTICLE V REPRESENTATIONS AND WARRANTIES OF THE
SHAREHOLDERS........................................................................... 37
5.01 Ownership of Shares............................................................. 37
5.02 Delivery of Good Title.......................................................... 37
5.03 Execution and Delivery.......................................................... 37
5.04 No Conflicts.................................................................... 37
5.05 Restrictions on Transfer of Buyer
Common Stock Under Securities Laws.............................................. 38
ARTICLE VI CONDITIONS TO CONSUMMATION OF MERGER................................................... 39
6.01 Conditions to Obligations of Buyer and
Newco........................................................................... 39
6.02 Conditions to Obligations of the
Company and the Shareholders.................................................... 41
ARTICLE VII CONDUCT OF BUSINESS PENDING CLOSING.................................................... 42
7.01 Qualification................................................................... 42
7.02 Ordinary Course................................................................. 42
7.03 Organic Changes................................................................. 42
7.04 Indebtedness.................................................................... 43
7.05 Accounting...................................................................... 43
7.06 Compliance with Legal Requirements.............................................. 43
7.07 Disposition of Assets........................................................... 43
7.08 Compensation.................................................................... 43
7.09 Modification or Breach of Agreements; New
Agreements...................................................................... 43
7.10 Capital Expenditures............................................................ 44
7.11 Maintain Insurance.............................................................. 44
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7.12 Discharge....................................................................... 44
7.13 Actions......................................................................... 44
7.14 Permits......................................................................... 44
7.15 Tax Assessments and Audits...................................................... 44
ARTICLE VIII ADDITIONAL COVENANTS................................................................... 44
8.01 Covenants of the Company and the
Shareholders.................................................................... 44
8.02 Covenants of Buyer.............................................................. 45
8.03 Access and Information.......................................................... 46
8.04 Expenses........................................................................ 46
8.05 Certain Notifications........................................................... 46
8.06 Publicity; Employee Communications.............................................. 47
8.07 Further Assurances.............................................................. 47
8.09 Post-Termination Employment..................................................... 48
8.10 Subordination................................................................... 48
ARTICLE IX TERMINATION, AMENDMENT AND WAIVER...................................................... 48
9.01 Termination..................................................................... 48
9.02 Effect of Termination........................................................... 49
9.03 Amendment....................................................................... 49
9.04 Waiver.......................................................................... 49
ARTICLE X INDEMNIFICATION........................................................................ 49
10.01 Survival of Representations and Warranties
and Covenants................................................................... 49
10.02 Indemnification................................................................. 50
10.03 Third Party Claims.............................................................. 52
ARTICLE XI REGISTRATION RIGHTS AND ADDITIONAL
RESTRICTIONS ON TRANSFER............................................................... 53
11.01 Registration of Shares......................................................... 53
11.02 Expenses of Registration....................................................... 54
11.03 Indemnification................................................................ 54
11.04 Shareholder Information........................................................ 55
11.05 Restrictions on Transfer....................................................... 55
ARTICLE XII GENERAL PROVISIONS..................................................................... 56
12.01 Notices........................................................................ 56
12.02 Severability................................................................... 57
12.03 Entire Agreement............................................................... 57
12.04 Successors and Assigns......................................................... 58
12.05 Counterparts................................................................... 58
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12.06 Schedules and Annexes.......................................................... 58
12.07 Construction................................................................... 58
12.08 Consent to Jurisdiction........................................................ 58
12.09 Governing Law.................................................................. 59
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AGREEMENT AND PLAN OF MERGER
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THIS AGREEMENT AND PLAN OF MERGER (this "Agreement") is entered into
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as of March 23, 1998 by and among Artmaster Studios, Inc., a Delaware
corporation ("Newco"), Interiors, Inc., a Delaware corporation ("Buyer"),
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Merchandise Sales, Inc., a California corporation (the "Company"), and certain
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shareholders of the Company listed on the signature pages hereto (collectively,
the "Shareholders").
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R E C I T A L S
- - - - - - - -
(A) The Shareholders own approximately 89% of the aggregate issued
and outstanding shares of Common Stock of the Company.
(B) Buyer owns all of the issued and outstanding shares of capital
stock of Newco.
(C) The Board of Directors of each of Newco and the Company have
determined that it is fair to, and in the best interests of, their respective
corporations and stockholders for the Company to be merged with and into Newco
upon the terms and subject to the conditions set forth herein (the "Merger").
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It is the intention of the parties hereto that the Merger be treated as a tax-
deferred reorganization pursuant to Section 368(a)(2)(D) of the Code.
(D) The Board of Directors of each of Newco and the Company have
approved the Merger in accordance with the General Corporation Law of the State
of Delaware and the General Corporation Law of the State of California,
respectively.
AGREEMENT
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NOW, THEREFORE, in consideration of the mutual covenants, agreements,
representations and warranties herein contained, the parties hereto agree as
follows:
ARTICLE I
DEFINITIONS
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Unless the context otherwise requires, the terms defined in this
Article I shall have the meanings herein specified for all purposes of this
Agreement, applicable to both
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the singular and plural forms of any of the terms herein defined. All
accounting terms defined in this Article I and those accounting terms used in
this Agreement and not defined in this Article I shall, except as otherwise
provided for herein, be construed in accordance with GAAP.
"Action" shall mean any actual or threatened claim, action, suit,
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arbitration, hearing, inquiry, proceeding, complaint, charge or investigation by
or before any Governmental Entity or arbitrator and any appeal from any of the
foregoing.
"Affiliate" shall mean any Person which directly or indirectly
---------
controls, is controlled by, or is under common control with, the indicated
Person.
"Agreement" shall have the meaning assigned to such term in the
---------
introductory paragraph of this Agreement.
"Anniversary Date" shall have the meaning assigned to such term in
----------------
Section 2.07(a).
"Balance Sheet" and "Balance Sheet Date" shall have the respective
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meanings assigned to such terms in Section 3.04(a).
"best knowledge of the Shareholders" shall mean the knowledge of
----------------------------------
Robert M. Perkowitz and Steve West.
"Business Day" shall mean any day excluding Saturday, Sunday or any
------------
day which shall be in the State of New York a legal holiday or a day on which
banking institutions are authorized by law to close.
"Buyer" shall have the meaning assigned to such term in the
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introductory paragraph of this Agreement.
"Buyer Common Stock" shall mean the Class A Common Stock, par value
------------------
$.001 per share, of Buyer.
"California Corporation Law" shall mean the California General
--------------------------
Corporation Law, as amended.
"Certificates" shall have the meaning assigned to such term in
------------
Section 2.08(a).
"Closing" and "Closing Date" shall have the respective meanings
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assigned to such terms in Section 2.11.
"Code" shall mean the Internal Revenue Code of 1986, as amended.
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"Common Stock" shall mean the Common Stock, par value $.001 per
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share, of the Company.
"Company" shall have the meaning assigned to such term in the
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introductory paragraph of this Agreement.
"Constituent Corporations" shall have the meaning assigned to such
------------------------
term in Section 2.01.
"Creditor Promissory Note" shall mean the unsecured promissory note of
------------------------
Buyer, substantially in the form of Annex L attached hereto.
"Damages" shall mean any and all losses, liabilities, obligations,
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costs, expenses, damages or judgments of any kind or nature whatsoever
(including without limitation reasonable attorneys', accountants' and experts'
fees, disbursements of counsel, and other costs and expenses incurred pursuing
indemnification claims under Article X hereof).
"Delaware Corporation Law" shall mean the Delaware General
------------------------
Corporation Law, as amended.
"Effective Time" shall have the meaning assigned to such term in
--------------
Section 2.02.
"Environmental Laws" shall mean all Legal Requirements pertaining to
------------------
the protection of the environment, the treatment, emission and discharge of
gaseous, particulate and effluent pollutants and the use, handling, storage,
treatment, removal, transport, transloading, cleanup, decontamination, discharge
and disposal of Hazardous Material.
"ERISA" shall mean the Employee Retirement Income Security Act of
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1974, as amended from time to time.
"Escrow Account" shall have the meaning set forth in the Escrow
--------------
Agreement.
"Escrow Agent" shall mean First Trust of California, a national
------------
association.
"Escrow Agreement" shall have the meaning assigned to such term in
----------------
Section 2.09.
"Escrow Shares" shall have the meaning assigned to such term in
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Section 2.09.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as
------------
amended.
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"Financial Statements" shall have the meaning assigned to such term
--------------------
in Section 3.04(a).
"GAAP" means United States generally accepted accounting principles,
----
consistently applied.
"Governmental Entity" shall mean any local, state, federal or foreign
-------------------
(i) court, (ii) government or (iii) governmental department, commission,
instrumentality, board, agency or authority, including the IRS and other taxing
authorities.
"Hazardous Material" shall mean any flammable, ignitable, corrosive,
------------------
reactive, radioactive or explosive substance or material, hazardous waste, toxic
substance or related material and any other substance or material defined or
designated as a hazardous or toxic substance, material or waste by any
Environmental Law currently in effect or as amended or promulgated in the
future.
"Indebtedness" shall mean, when used with reference to any Person,
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without duplication, (i) any liability of such Person created or assumed by such
Person, or any Subsidiary thereof, (A) for borrowed money, (B) evidenced by a
bond, note, debenture or similar instrument (including a purchase money
obligation, deed of trust or mortgage) given in connection with the acquisition
of, or exchange for, any property or assets (other than inventory or similar
property acquired and consumed in the Ordinary Course), including securities and
other Indebtedness, (C) in respect of letters of credit issued for such Person's
account and "swaps" of interest and currency exchange rates (and other interest
and currency exchange rate hedging agreements) to which such Person is a party
or (D) for the payment of money as lessee under leases that should be, in
accordance with GAAP, recorded as capital leases for financial reporting
purposes; (ii) any liability of others described in the preceding clause (i)
guaranteed as to payment of principal or interest by such Person or in effect
guaranteed by such Person through an agreement, contingent or otherwise, to
purchase, repurchase or pay the related Indebtedness or to acquire the security
therefor; (iii) all liabilities or obligations secured by a Lien upon property
owned by such Person and upon which liabilities or obligations such Person
customarily pays interest or principal, whether or not such Person has not
assumed or become liable for the payment of such liabilities or obligations; and
(iv) any amendment, renewal, extension, revision or refunding of any such
liability or obligation; provided, however, that Indebtedness shall not include
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any liability for compensation of such Person's employees or for inventory or
similar property acquired and consumed in the Ordinary Course or for services.
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"IRS" shall mean the United States Internal Revenue Service.
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"Leased Real Property" shall mean all real property, including
--------------------
Structures, leased by the Company.
"Legal Requirement" shall mean any statute, law, ordinance, rule,
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regulation, permit, order, writ, judgment, injunction, decree or award issued,
enacted or promulgated by any Governmental Entity or any arbitrator.
"Letter of Intent" shall mean that certain Letter of Intent dated
----------------
February 18, 1998 among Buyer, the Company, Sienna Limited Partnership II,
Robert M. Perkowitz, Paradigm Management, Inc., and Daniel L. Skaff.
"Lien" shall mean all liens (including judgment and mechanics' liens,
----
regardless of whether liquidated), mortgages, assessments, security interests,
easements, claims, pledges, trusts (constructive or other), deeds of trust,
options or other charges, encumbrances or restrictions.
"Material Adverse Effect" shall mean a material adverse effect on the
-----------------------
business, financial condition, properties, profitability, prospects or
operations of the Company considered as a whole.
"Merger" shall have the meaning assigned to such term in Recital C
------
hereof.
"Merger Consideration" shall have the meaning assigned to such term
--------------------
in Section 2.06(a).
"Merger Shares" shall have the meaning assigned to such term in
-------------
Section 2.06(a).
"Newco" shall have the meaning assigned to such term in the
-----
introductory paragraph of this Agreement.
"Options" shall mean all outstanding options, warrants and other
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rights to acquire Common Stock.
"Ordinary Course" shall mean, when used with reference to the Company,
---------------
the ordinary course of the Company's business consistent with past practices.
"Permits" shall have the meaning assigned to such term in Section
-------
3.16 hereof.
"Permitted Liens" shall mean (a) Liens for ad valorem real or personal
---------------
property taxes or assessments not at the time
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due and (b) Liens in respect of pledges or deposits under workers' compensation
laws or similar legislation, carriers', warehousemen's, mechanics', laborers'
and materialmen's and similar liens, if the obligations secured by such Liens
are not then delinquent.
"Person" shall mean all natural persons, corporations, business
------
trusts, associations, companies, partnerships, limited liability companies,
joint ventures, Governmental Entities and any other entities.
"Policies" shall have the meaning assigned to such term in Section
--------
3.09(b) hereof.
"Proprietary Information" shall have the meaning assigned to such
-----------------------
term in Section 3.08(b).
"Registered Rights" shall have the meaning assigned to such term in
-----------------
Section 3.08(a).
"Registration" shall have the meaning assigned to such term in
------------
Section 11.01(a).
"Registration Expenses" means all reasonable expenses incurred by the
---------------------
Company in complying with Section 11.01 hereof, including all registration and
filing fees, listing fees, printing expenses, fees and disbursements of counsel
for the Company, and blue sky fees and expenses in all states.
"Registrable Securities" means the Merger Shares and any shares of
----------------------
Buyer Common Stock issued or issuable in respect of the Merger Shares pursuant
to any stock split, stock dividend, recapitalization, or similar event.
"Representative" shall mean Robert M. Perkowitz.
--------------
"Securities Act" shall mean the Securities Act of 1933, as amended.
--------------
"Shareholder Promissory Note" shall have the meaning assigned to
---------------------------
such term in Section 2.06(a).
"Shareholders" shall have the meaning assigned to such term in the
------------
introductory paragraph of this Agreement.
"Shares" shall mean the issued and outstanding Common Stock.
------
"Shortfall Amount" shall have the meaning assigned to such term in
----------------
Section 2.07(a).
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"Stock Plans" shall mean all stock option plans and other stock or
-----------
equity-related plans of the Company.
"Structure" shall mean any facility, building, plant, factory, office,
---------
warehouse structure or other improvement owned or leased by the Company.
"Subsidiary" of a Person shall mean any corporation, partnership,
----------
association or other business entity at least 50% of the outstanding voting
power of which is at the time owned or controlled directly or indirectly by such
Person or by one or more of such subsidiary entities, or both.
"Surviving Corporation" shall have the meaning assigned to such term
---------------------
in Section 2.01 hereof.
"Suspension Period" shall have the meaning assigned to such term in
-----------------
Section 11.01(c).
"Target Value" shall mean $1,250,000.00 or, if additional shares of
------------
Buyer Common Stock have been deposited into the Escrow Account pursuant to the
terms of the Shareholder Promissory Note, $1,500,000.00. The Target Value shall
be reduced to the extent of any proven claims against the Escrow Fund pursuant
to the terms of the Escrow Agreement.
"Tax" shall mean any federal, state, local or foreign income, gross
---
receipts, license, payroll, unemployment, excise, severance, stamp, occupation,
premium, windfall profits, environmental (including, without limitation, taxes
under Code Section 59A), customs duties, capital stock, franchise, profits,
withholding, social security (or similar), employment, disability, real
property, personal property, sales, use, transfer, registration, value added,
alternative or add-on minimum, estimated tax or other tax, assessment or charge
of any kind whatsoever, including, without limitation, any interest, fine,
penalty or addition thereto, whether disputed or not.
"Tax Return" shall mean any return, declaration, report, claim for
----------
refund or information, or statement relating to Taxes, and any exhibit,
schedule, attachment or amendment thereto.
"Trustee" shall mean Robert M. Perkowitz.
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ARTICLE II
THE MERGER
----------
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SECTION 2.01 Merger. Upon the terms and subject to the conditions of
------
this Agreement, the Company shall be merged with and into Newco in accordance
with the applicable provisions of the Delaware Corporation Law. The Company and
Newco are herein sometimes referred to as the "Constituent Corporations." At the
------------------------
Effective Time, the identity and separate corporate existence of the Company
shall cease and Newco shall be the surviving corporation in the Merger
(sometimes hereinafter referred to as the "Surviving Corporation"). The Merger
---------------------
shall have the effects set forth in Section 259 of the Delaware Corporation Law
and Section 1107 of the California Corporation Law.
SECTION 2.02 Effective Time. The Merger shall become effective on
--------------
the date and at the time the Certificates of Merger referred to in Section 2.10
hereof are filed with the Secretary of State of the State of Delaware in
accordance with Section 103 of the Delaware Corporation Law and with the
Secretary of State of the State of California in accordance with Section 1103 of
the California Corporation Law. The time at which the Merger shall become
effective as aforesaid is referred to hereinafter as the "Effective Time."
--------------
SECTION 2.03 Certificate of Incorporation, Bylaws, Directors and
---------------------------------------------------
Officers, Name.
- --------------
(a) The Certificate of Incorporation of Newco, as in effect
immediately prior to the Effective Time, shall be the Certificate of
Incorporation of the Surviving Corporation, from and after the Effective Time
until amended in accordance with applicable law.
(b) The Bylaws of Newco, as in effect immediately prior to the
Effective Time, shall be the Bylaws of the Surviving Corporation from and after
the Effective Time until amended in accordance with applicable law, the
Surviving Corporation's Certificate of Incorporation and such Bylaws.
(c) The directors and officers of Newco in office immediately
prior to the Effective Time shall be the directors and officers, respectively,
of the Surviving Corporation, and each shall hold his or her respective office
or offices from and after the Effective Time until his or her successor shall
have been elected and shall have qualified or as otherwise provided in the
Bylaws of the Surviving Corporation.
(d) The name of the Surviving Corporation from and after the
Effective Time shall be "Artmaster Studios, Inc." until changed in accordance
with applicable law.
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SECTION 2.04 Assets and Liabilities. At the Effective Time, the
----------------------
Surviving Corporation shall possess all the rights, privileges, powers and
franchises of a public as well as of a private nature, and be subject to all the
restrictions, disabilities and duties of each of the Constituent Corporations;
and all the rights, privileges, powers and franchises of each of the Constituent
Corporations, and all property, real, personal and mixed, and all debts due to
any of the Constituent Corporations on whatever account, as well as for stock
subscriptions and all other things in action or belonging to each of the
Constituent Corporations, shall be vested in the Surviving Corporation; and all
property, rights, privileges, powers and franchises, and all and every other
interest shall be thereafter as effectually the property of the Surviving
Corporation as they were of the several and respective Constituent Corporations,
and the title to any real estate vested by deed or otherwise under the laws of
any jurisdiction, in any of the Constituent Corporations, shall not revert or be
in any way impaired by this Article II; but all rights of creditors and all
liens upon any property of any of the Constituent Corporations shall be
preserved unimpaired, and all debts, liabilities and duties of the respective
Constituent Corporations shall thenceforth attach to the Surviving Corporation,
and may be enforced against it to the same extent as if said debts, liabilities
and duties had been incurred or contracted by it. Subject to Article X hereof,
the Surviving Corporation shall indemnify and hold harmless the Shareholders and
their respective agents, representatives, employees, shareholders, partners,
officers and directors against any and all losses or liabilities (including
reasonable attorney's fees and costs) they may suffer or incur as a result of
the failure of the Surviving Corporation to discharge the debts and obligations
of the Company and the Surviving Corporation from and after the Closing Date.
SECTION 2.05 Further Assurances. If, at any time after the Effective
------------------
Date, the Surviving Corporation shall consider or be advised that any deeds,
bills of sale, assignments or assurances or any other acts or things are
necessary, desirable or proper (i) to vest, perfect or confirm, of record or
otherwise, in the Surviving Corporation, its right, title or interest in, to or
under any of the rights, properties or assets of the Constituent Corporations
acquired or to be acquired as a result of the Merger, or (ii) otherwise to carry
out the purposes of this Agreement, the Surviving Corporation and its proper
officers and directors or their designees shall be authorized to execute and
deliver, in the name and on behalf of the Constituent Corporations, all such
deeds, bills of sale, assignments and assurances and do, in the name and on
behalf of the Constituent Corporations, all such other acts and things
necessary, desirable or proper to vest, perfect or confirm its right, title or
interest in, to or under any of the rights, properties or assets
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<PAGE>
of the Constituent Corporations acquired or to be acquired as a result of the
Merger and otherwise to carry out the purposes of this Agreement.
SECTION 2.06 Conversion of Securities.
------------------------
(a) At the Effective Time, by virtue of the Merger and without
any action on the part of the holder of any of the Shares, all of the Shares
shall be converted into and represent the right to receive an aggregate of (i) a
promissory note of Buyer substantially in the form attached as Annex B hereto in
the aggregate principal amount of $537,248.00 (the "Shareholder Promissory
----------------------
Note") and (ii) shares of Buyer Common Stock with a fair market value on the
- ----
Closing Date of $1,250,000 (the "Merger Shares"). The Shareholder Promissory
-------------
Note and Buyer Common Stock issuable in exchange for the Shares is referred to
herein, in the aggregate, as the "Merger Consideration." The Merger
--------------------
Consideration allocable to each individual Shareholder shall be in the amounts
set forth opposite each Shareholder's name on Schedule 2.06(a), but shall be
held by, respectively, the Trustee (in the case of the Shareholder Promissory
Note) and Escrow Agent (in the case of the Merger Shares) after the Closing.
For purposes of this Section 2.06, the fair market value per share of Buyer
Common Stock on the Closing Date shall be computed using the average closing bid
price per share of Buyer Common Stock for the thirty (30) trading days
immediately preceding the third trading day prior to the Closing Date. As
provided in Section 2.12(f) below, at the Closing the Buyer shall pay to the
creditors of the Company set forth on Schedule 2.12(f) the amounts of cash set
forth thereon and shall issue the Creditor Promissory Note in the amount of
$272,752.00.
(b) Prior to the Effective Time, the Company shall take all
action necessary so that (i) all outstanding Options are exercised in full
immediately prior to the Effective Time and (ii) there shall be no Options
outstanding immediately prior to the Effective Time. Any holder of Options who
so exercises his or her Options immediately prior to the Effective Time shall be
considered a "Shareholder" for purposes of this Agreement, and the Company shall
obtain an agreement of the holder of each Option to be bound by the terms of
this Agreement. The Company shall terminate all Stock Plans immediately prior
to the Effective Time, and the Surviving Corporation shall not assume any Stock
Plan of the Company.
(c) By virtue of the Merger and without any action on the part
of the holder thereof, at the Effective Time each share of Common Stock held by
the Company as a treasury share immediately prior to the Effective Time shall be
canceled and no payment of any consideration shall be made with respect thereto.
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<PAGE>
(d) By virtue of the Merger and without any action on the part
of the holder thereof, at the Effective Time, each share of common stock of
Newco that is issued and outstanding immediately prior to the Effective Time
shall be converted into one newly issued share of common stock of the Surviving
Corporation, par value $.01 per share.
SECTION 2.07 Post-Closing Adjustments.
------------------------
(a) If, on the first anniversary of the Closing Date (the
"Anniversary Date"), the Merger Shares (as originally issued, but not including
----------------
$250,000 in Shares of Buyer Common Stock which may be issued as a result of the
failure to prepay $350,000 in aggregate principal amount of the Creditor
Promissory Note and the Shareholder Promissory Note) have a fair market value of
less than the Target Value, then Buyer shall issue to the Shareholders
additional shares of Buyer Common Stock (the "Additional Shares") having a fair
------------------
market value as of the Anniversary Date equal to the difference between (x) the
Target Value and (y) the fair market value of the Merger Shares on the
Anniversary Date (such difference being referred to herein as the "Shortfall
---------
Amount"). Any such issuance of Buyer Common Stock shall be made by Buyer to the
- ------
Shareholders in the same proportions which the Merger Consideration was
allocated among the Shareholders, within ten (10) Business Days of the
Anniversary Date. The number of Additional Shares issuable to each Shareholder
shall be rounded to the nearest whole share. Any issuance of Additional Shares
to the Shareholders pursuant to this Section 2.07(a) shall be subject to the
provisions of the Escrow Agreement.
(b) If, on the Anniversary Date, the Merger Shares have a fair
market value greater than the Target Value, then the Shareholders shall return
to Buyer shares of Buyer Common Stock having a fair market value on the
Anniversary Date equal to the difference between (x) the Target Value and (y)
the fair market value of the Merger Shares on the Anniversary Date. Any such
return of shares of Buyer Common Stock shall be made by the Shareholders to
Buyer in the same proportions which the Merger Consideration was allocated among
the Shareholders, within ten (10) Business Days of the Anniversary Date. The
number of shares of Buyer Common Stock to be returned by each Shareholder to
Buyer pursuant to this Section 2.07(b) shall be rounded to the nearest whole
share.
(c) For purposes of this Section 2.07, the fair market value as
of the Anniversary Date of the Merger Shares and the Additional Shares or the
shares of Buyer Common Stock to be returned to Buyer shall be computed using the
average closing bid price per share of Buyer Common Stock for the thirty (30)
trading days immediately preceding the Anniversary Date.
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<PAGE>
SECTION 2.08 Exchange of Shares.
------------------
(a) Each holder of a certificate or certificates (the
"Certificates") which immediately prior to the Effective Time represented
------------
outstanding shares of Common Stock will be entitled to receive by transfer to
the Trustee and Escrow Agent, upon surrender to Buyer of such Certificates for
cancellation, his or her portion of the Merger Consideration in the amounts
calculated in accordance with Section 2.06 hereof. Until properly surrendered,
each such Certificate shall be deemed for all purposes to evidence only the
right to receive such Merger Consideration.
(b) If any payment is to be made to a person other than the
person in whose name the Certificates surrendered are registered, it shall be a
condition of payment that the Certificates so surrendered shall be properly
endorsed or otherwise in proper form for transfer and that the person requesting
such payment shall pay any transfer or other taxes required by reason of the
payment to a person other than the registered holder of the Certificates
surrendered or establish to the satisfaction of the Surviving Corporation that
such tax has been paid or is not applicable. Following the Effective Time,
until surrendered to Buyer in accordance with the provisions of this Section
2.08, each Certificate shall represent for all purposes only the right to
receive upon such surrender the amount specified in the second sentence of this
Section 2.08, without any interest thereon, subject to any required withholding
taxes.
(c) In the event any Certificate shall have been lost, stolen or
destroyed, upon the making of an affidavit of that fact by the person claiming
such Certificate to be lost, stolen or destroyed, Buyer shall issue in exchange
for such lost, stolen or destroyed Certificate the applicable Merger
Consideration issuable in exchange therefor pursuant to Section 2.06. Buyer
may, in its discretion and as a condition precedent to the issuance thereof,
require the owner of such lost, stolen or destroyed Certificate to give Buyer
indemnity against, or post a bond for, any claim that may be made against Buyer
with respect to the Certificate alleged to have been lost, stolen or destroyed.
(d) No party hereto shall be liable to a holder of Common Stock
for any cash or interest thereon delivered to a public official pursuant to
applicable abandoned property, escheat or similar laws. If any Certificates
shall not have been surrendered prior to three (3) years after the Effective
Time (or immediately prior to such earlier date on which any payment in respect
thereof would otherwise escheat to or become the property of any governmental
unit or agency), the payment in respect of such Certificates shall, to the
extent permitted by applicable
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<PAGE>
law, become the property of the persons who have previously surrendered
Certificates to the Buyer, and the Surviving Corporation shall cause the amount
of such payment or payments to be divided among the holders of previously
surrendered Certificates in proportion to the payments previously made to such
holders in respect of the stock represented by such Certificates, and such
holders shall be entitled to such payments free and clear of all claims of
interest of any person previously entitled thereto.
(e) From and after the Effective Time, the holders of shares of
Common Stock outstanding immediately prior to the Effective Time shall cease to
have any rights with respect to such shares of Common Stock, except as otherwise
provided herein or by law.
(f) After the Effective Time, there shall be no transfers on the
stock transfer books of the Surviving Corporation of any shares of Common Stock
which were outstanding immediately prior to the Effective Time. If, after the
Effective Time, Certificates are presented to the Surviving Corporation, they
shall be canceled and promptly exchanged for a portion of the Merger
Consideration as provided in this Section 2.08.
(g) No certificates or script representing fractional shares of
Buyer Common Stock shall be issued to the Shareholders upon the surrender for
exchange of Certificates, and no Shareholders shall be entitled to any voting
rights, rights to receive any dividends or distributions or other rights as a
shareholder of Buyer with respect to any fractional shares of Buyer Common Stock
that would otherwise be issued to such Shareholder. In lieu of any fractional
shares of Buyer Common Stock that would otherwise be issued, each Shareholder
that would have been entitled to receive a fractional share of Buyer Common
Stock shall, upon proper surrender of such person's Certificates, receive a cash
payment equal to (i) the fair market value per share of Buyer Common Stock
multiplied by (ii) the fraction of a share that such Shareholder would otherwise
be entitled to receive.
SECTION 2.09 Escrow; Indemnification Representative.
--------------------------------------
(a) On the Closing Date, Buyer, the Representative and the
Escrow Agent shall execute and deliver an Escrow Agreement substantially in the
form of Annex A attached hereto (the "Escrow Agreement") in order to provide
----------------
Buyer with security for indemnifiable claims hereunder. Within ten (10)
Business Days after the Closing Date, Buyer shall deliver to the Escrow Agent
the Merger Shares and, after the Closing Date, if required pursuant to the terms
of the Escrow Agreement, Buyer shall deliver to the Escrow Agent the Additional
Shares, if any
-13-
<PAGE>
(collectively, the "Escrow Shares"). The Escrow Shares shall be payable to
-------------
Buyer or to the Shareholders, as the case may be, in accordance with
the terms set forth in the Escrow Agreement.
(b) In order to efficiently administer the transactions
contemplated hereby, including (i) the defense and/or settlement of any claims
for which the Shareholders may be required to indemnify Buyer pursuant to
Article X hereof and (ii) entering into the Escrow Agreement, the Shareholders
hereby agree to the appointment of the Representative. The Representative is
hereby authorized to take any and all action as is contemplated to be taken by
the Shareholders by the terms of this Agreement. All decisions and actions by
the Representative shall be binding upon all of the Shareholders and no
Shareholder shall have the right to object, dissent, protest or otherwise
contest the same. By their approval of this Agreement, the Shareholders agree
that:
(i) Buyer shall be able to rely exclusively on the
instructions and decisions of the Representative as to the settlement of claims
for indemnification by Buyer pursuant to Article X hereof, or any other actions
taken by the Representative hereunder, and no party hereunder shall have any
cause of action against Buyer in reliance upon the instructions or decisions of
the Representative;
(ii) all actions, decisions and instructions of the
Representative shall be final, conclusive and binding upon the Shareholders;
(iii) the provisions of this Section 2.09(b) are
independent and severable, are irrevocable and coupled with an interest, and
shall be enforceable notwithstanding any rights or remedies that any Shareholder
may have in connection with the transactions contemplated by this Agreement and
the Escrow Agreement; and
(iv) the provisions of this Section 2.09(b) shall be
binding upon the executors, heirs, legal representatives and successors of each
Shareholder, and any references in this Agreement to a Shareholder shall mean
and include the successors to the Shareholders' rights hereunder, whether
pursuant to testamentary disposition, the laws of descent and distribution or
otherwise.
In case of the resignation or inability to act of Robert M. Perkowitz
or any of his successors, a successor shall be named by the vote of a majority
in interest of the Shareholders. The term "Representative" as used herein shall
be deemed to include a successor Representative. Except for wilful wrongdoing,
the Representative shall be indemnified and held harmless by the Shareholders
from and against any and all losses
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<PAGE>
or liabilities such Representative may suffer or incur in connection with
performing his duties as Representative. The Representative shall be entitled,
at the expense of the Shareholders, to consult with attorneys, accountants and
other professional consultants of his choice in connection with performing such
duties.
SECTION 2.10 Consummation of Merger. As soon as practicable after
----------------------
satisfaction of the conditions set forth in Article VI hereof, Newco shall
execute and deliver to the Secretary of State of the State of Delaware a duly
executed and verified Certificate of Merger and the Company and Newco shall
execute and deliver to the Secretary of State of the State of California an
executed original of the Certificate of Merger together with any other required
certificates or documents, and the parties shall take all such other and further
actions as may be required by law to make the Merger effective. Each holder of
shares of Common Stock who approves this Agreement and the transactions
contemplated hereby and/or properly surrenders to Buyer its Certificate(s) for
cancellation in accordance with Section 2.07 hereof shall be deemed to be a
party to this Agreement as a "Shareholder" and shall be treated as such for all
purposes hereunder.
SECTION 2.11 Closing. The closing of the Merger and the other
-------
transactions contemplated hereby (the "Closing") shall take place at the offices
-------
of Paul, Hastings, Janofsky & Walker LLP, Twenty-Third Floor, 555 South Flower
Street, Los Angeles, California 90071, at 10:00 A.M. local time on March 23,
1998 or, if all conditions appearing in Article VI hereof to the obligations of
the parties hereto to consummate the transactions contemplated hereby have not
been satisfied or waived by such date, as promptly as practicable upon
satisfaction of such conditions as Buyer and the Company may mutually establish
(such time and date being referred to herein as the "Closing Date").
------------
SECTION 2.12 Actions at the Closing. At the Closing:
----------------------
(a) The Company and the Shareholders shall deliver or cause to
be delivered to Buyer and Newco all of the documents, certificates and
instruments required to be delivered to Buyer or Newco pursuant to Section 6.01.
(b) Buyer and Newco shall deliver or cause to be delivered to
the Company and the Shareholders all of the documents, certificates and
instruments required to be delivered to the Company or the Shareholders pursuant
to Section 6.02.
(c) Newco shall file the Certificates of Merger with the
Secretary of State of the State of Delaware and the
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<PAGE>
Company and Newco shall file the Short Form Merger Agreement with the Secretary
of State of the State of California.
(d) The Buyer shall deliver to the Trustee the Shareholder
Promissory Note.
(e) Buyer, the Representative and the Escrow Agent shall execute
and deliver the Escrow Agreement, and Buyer shall deliver to the Escrow Agent a
certificate or certificates representing the Merger Shares within ten (10)
Business Days after the Closing.
(f) Simultaneously with the Effective Time, Buyer shall, or
shall cause the Surviving Corporation to, extinguish each of the obligations of
the Surviving Corporation, as more particularly set forth on Schedule 2.12(f),
through (i) the payment of $750,000 in immediately available funds and (ii) the
issuance to the Trustee of the Creditor Promissory Note.
ARTICLE III
REPRESENTATIONS AND WARRANTIES
------------------------------
REGARDING THE COMPANY
---------------------
The Shareholders hereby jointly and severally represent and warrant
to, and covenant and agree with, Buyer and Newco that:
SECTION 3.01 Organization and Good Standing; Authorization.
---------------------------------------------
(a) The Company has been duly organized and is existing as a
corporation in good standing under the laws of the State of California with full
power and authority (corporate and other) to own and lease its properties and to
conduct its business as currently conducted. The Company has been duly
qualified as a foreign corporation for the transaction of business and is in
good standing under the laws of each jurisdiction set forth on Schedule 3.01(a),
such jurisdictions comprising all jurisdictions in which the Company owns or
leases any property, or conducts any business, so as to require such
qualification.
(b) Except as set forth in Schedule 3.01(b), the Company has no
Subsidiaries nor owns or controls, or has any other equity investment or other
interest in, directly or indirectly, any corporation, joint venture,
partnership, association or other Person.
(c) The Company has the corporate power and authority to execute
and deliver this Agreement, to consummate
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<PAGE>
the transactions contemplated hereby and to perform its obligations under this
Agreement. The execution and delivery by the Company of this Agreement, and the
consummation of the transactions contemplated hereby, have been duly authorized
by all necessary corporate action by the Company. This Agreement, upon its
execution and delivery by each of the Company and the Shareholders (assuming the
due authorization, execution and delivery hereof by the other parties hereto),
will constitute the legal, valid and binding obligation of the Company,
enforceable against the Company in accordance with its terms, except as such
enforceability may be limited by applicable bankruptcy, insolvency and similar
laws relating to creditors' rights generally and by general principles of equity
(regardless of whether such enforceability is considered in a proceeding in
equity or at law).
SECTION 3.02 No Conflicts. Subject to compliance with the applicable
------------
requirements of the Securities Act and any applicable state securities laws and
the filing of the Certificates of Merger as required by the Delaware Corporation
Law and the California Corporation Law, the execution, delivery and performance
of this Agreement and the consummation of the transactions contemplated hereby
will not (a) conflict with or result in a breach or violation of any term or
provision of, or constitute a default under (with or without notice or passage
of time, or both), or otherwise give any Person a basis for accelerated or
increased rights or termination or nonperformance under, any indenture,
mortgage, deed of trust, loan or credit agreement, lease, license or other
agreement or instrument to which the Company is a party or by which the Company
is bound or affected or to which any of the property or assets of the Company is
bound or affected including, without limitation, all arrangements in Section
3.19 hereof, (b) result in the violation of the provisions of the Certificate of
Incorporation or Bylaws of the Company or any Legal Requirement applicable to or
binding upon it, (c) result in the creation or imposition of any Lien upon any
property or asset of the Company or (d) otherwise adversely affect the
contractual or other legal rights or privileges of the Company. Schedule 3.02
sets forth a list of all agreements requiring the consent of any party thereto
to any of the transactions contemplated hereby.
SECTION 3.03 Capitalization. The authorized capital stock of the
--------------
Company consists solely of 20,000,000 shares of Common Stock and 5,000,000
shares of Preferred Stock, of which 788,383.35 shares of Common Stock are, and
on the Closing Date will be, issued and outstanding. No shares of Preferred
Stock are issued or outstanding. Schedule 3.03 sets forth a complete and
accurate list of the holders of shares of Common Stock, indicating the number of
Shares held by each holder and their respective addresses. All of the issued
and outstanding shares
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<PAGE>
of Common Stock are duly authorized, validly issued, fully paid, nonassessable
and free of all preemptive rights. Other than as set forth on Schedule 3.03,
(i) there are no existing options, warrants, right, calls or commitments of any
character relating to shares of Common Stock, (ii) there are no outstanding
securities or other instruments convertible into or exchangeable for shares of
Common Stock and no commitments to issue such securities or instruments and
(iii) no Person has any right of first refusal, preemptive right, subscription
right or similar right with respect to any shares of Common Stock. The offer,
issuance and sale of the Shares were (i) exempt from the registration and
prospectus delivery requirements of the Securities Act, (ii) registered or
qualified (or exempt from registration or qualification) under the registration
or qualification requirements of all applicable state securities laws and (iii)
accomplished in conformity with all other Legal Requirements.
SECTION 3.04 Financial Statements.
--------------------
(a) Schedule 3.04(a) contains true and complete copies of (i)
the audited balance sheet of the Company at March 28, 1997 and the related
audited statements of income, shareholders' equity and cash flows for the year
then ended, together with the opinion thereon of Kellogg & Andelson, the
Company's independent accountants, and (ii) the unaudited balance sheet of the
Company (the "Balance Sheet") at December 23, 1997 (the "Balance Sheet Date")
------------- ------------------
and the related unaudited statements of income, shareholders' equity and cash
flows for the nine-month period ended on the Balance Sheet Date (such audited
and unaudited financial statements are collectively referred to as the
"Financial Statements").
--------------------
(b) The Financial Statements present fairly the financial
condition of the Company as of the dates indicated therein and the results of
operations and changes in financial position of the Company for the periods
specified therein, have been prepared in conformity with GAAP during the periods
covered thereby and prior periods (except that the Balance Sheet and the related
unaudited statements of income, shareholders' equity and cash flows for the
nine-month period ended on the Balance Sheet Date do not contain footnotes and
are subject to year end adjustments which would not, either individually or in
the aggregate, be material), have been derived from the accounting records of
the Company and represent only actual, bona fide transactions to the best
knowledge of the Shareholders.
SECTION 3.05 Title to Property; Encumbrances.
-------------------------------
(a) The Company does not own any real property or any
Structures.
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<PAGE>
(b) The Company has, and immediately prior to the Closing will
have, good, valid and marketable title in fee simple to all personal property
reflected on the Balance Sheet as owned by the Company and all personal property
acquired by the Company since the Balance Sheet Date, in each case free and
clear of all Liens except (i) as set forth on Schedule 3.05(a) and (ii)
Permitted Liens.
(c) Schedule 3.05(c) contains a list of all tangible personal
property having a cost or fair market value in excess of $5,000 owned by the
Company (other than personal property held by the Company as lessee under a
personal property lease).
(d) Schedule 3.05(d) contains a list of all real property
leases, licenses and personal property leases under which the Company is the
lessee or licensee, together with (i) the location and nature of each of the
leased or licensed properties, (ii) the termination date of each such lease or
license, (iii) the name of the lessor or licensor, (iv) all rental and other
payments made or required to be made for the fiscal years ending December 31,
1998 and December 31, 1999 and (v) the date and amount of the next permitted
cost-of-living increase in each such lease or license. All leases and licenses
pursuant to which the Company leases or licenses from others real or personal
property are valid, subsisting in full force and effect in accordance with their
respective terms, and there is not, under any real property lease, personal
property lease or license, any existing default or event of default (or event
that, with notice or passage of time, or both, would constitute a default, or
would constitute a basis of force majeure or other claim of excusable delay or
----- -------
nonperformance) by the Company thereunder or, to the best knowledge of the
Shareholders, any other party thereto. True and complete copies of all real
property leases, licenses and personal property leases listed on Schedule
3.05(d) have been delivered to Buyer heretofore. Except as set forth in
Schedule 3.05(d), no such lease or license will require the consent of the
lessor or licensor to or as a result of the consummation of the transactions
contemplated by this Agreement. For purposes of this Agreement, a "lease" shall
include a sublease.
(e) All personal property owned by the Company and all personal
property held by the Company pursuant to personal property leases is in the
aggregate and considered as a whole, in good operating condition and repair,
subject only to ordinary wear and tear, has been operated, serviced and
maintained properly and is suitable and appropriate for the use thereof made and
proposed to be made by the Company in its business and operations. The Leased
Real Property and personal property described in Sections 3.05(b) and 3.05(c)
and the
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<PAGE>
personal property held by the Company pursuant to the leases and licenses
described in Schedule 3.05(d) comprise all of the Leased Real Property and
personal property used in the conduct of business of the Company.
SECTION 3.06 Inventory and Accounts Receivable.
---------------------------------
(a) All inventory set forth or reflected in the Balance Sheet,
or acquired by the Company since the Balance Sheet Date, consists of a quality
and quantity usable and saleable by the Company in the ordinary course of its
business as currently conducted. The value at which inventories are carried on
the Balance Sheet reflects the normal inventory valuation policy of the Company,
on a basis consistent with that of preceding period, of stating inventory at its
lower of cost or market value, and, consistent therewith, all non-current or
obsolete inventory held by the Company on the Balance Sheet Date has been valued
at its current market value on the Balance Sheet as adjusted by reserves.
(b) All accounts receivable of the Company reflected in the
Balance Sheet and all accounts receivable of the Company that have arisen since
the Balance Sheet Date (except such accounts receivable as have been collected
since such dates) are valid and enforceable claims against the account debtor,
and the goods and services sold and delivered that gave rise to such accounts
were sold and delivered in conformity with all applicable express and implied
warranties, purchase orders, agreements and specifications. Such accounts
receivable of the Company are subject to no valid defense, offset or
counterclaim and are fully collectible in the Ordinary Course, except to the
extent of the allowance for doubtful accounts reflected on the Balance Sheet.
Schedule 3.06(b)(1) contains a true and complete aging of the Company's accounts
receivable as of the Balance Sheet Date. Schedule 3.06(b)(2) contains a true and
complete list of all customers of the Company who enjoy non-standard discounts
or non-standard payment terms, together with a summary of any such non-standard
discounts or non-standard payment terms.
SECTION 3.07 Compliance with Law. Except where it has not had a
-------------------
Material Adverse Effect, through and including the date hereof, the Company (i)
has not violated, has not conducted its business or operations in violation of,
and has not used or occupied its properties or assets in violation of, any Legal
Requirement, (ii) to the Shareholders' knowledge, has not been alleged to be in
violation of any Legal Requirement, and (iii) has not received any notice of any
alleged violation of, nor any citation for noncompliance with, any Legal
Requirement.
SECTION 3.08 Trademarks, Patents, Etc.
------------------------
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<PAGE>
(a) Schedule 3.08(a) contains a true and complete list of all
letters patent, patent applications, trade names, logos, trademarks, service
marks, trademark and service mark registrations and applications, copyrights,
copyright registrations and applications, Internet domain names, 1-800 and 1-888
telephone numbers, grants of a license or right to the Company with respect to
any of the foregoing, both domestic and foreign, owned or claimed by the Company
or used or proposed to be used by the Company in the conduct of its business,
whether registered or not (collectively herein, "Registered Rights"). No other
-----------------
patent, trademark, service mark, trade name or copyright, or license with
respect to any of the foregoing, is necessary to permit the Company's business
to be conducted as now conducted or as heretofore or proposed to be conducted.
True and complete copies of all documentation related to the Registered Rights
have been delivered to Buyer heretofore.
(b) Except as described in Schedule 3.08(b), the Company owns
exclusively and has the exclusive and unrestricted right to use the Registered
Rights as presently utilized, and all renewals therefor and claims for
infringement thereof, and every trade secret, know-how, process, discovery,
development, design, technique, customer and supplier list, promotional idea,
marketing and purchasing strategy, computer program (including source code),
technical data, invention, process, confidential data and other information
(collectively herein, "Proprietary Information") required for or incident to the
-----------------------
design, development, manufacture, operation, sale and use of all products and
services sold or rendered or proposed to be sold or rendered by the Company,
free and clear of any right, equity or claim of others and without infringing
upon or otherwise acting adversely to the right or claimed right of any third
party under or with respect to any of the Proprietary Information. The Company
has taken reasonable security measures to protect the secrecy, confidentiality
and value of all Proprietary Information.
(c) Schedule 3.08(c) contains a true and complete list and non-
confidential description of all licenses of, or rights to, Proprietary
Information granted to the Company by others or to others by the Company.
Except as described in Schedule 3.08(c), (i) the Company has not sold,
transferred, assigned, licensed, restricted, encumbered or subjected to any
Lien, any Registered Right or Proprietary Information or any interest therein,
and (ii) the Company is not obligated or under any liability whatever to make
any payments by way of royalties, fees or otherwise to any owner or licensor of,
or other claimant to, any Registered Right or Proprietary Information.
(d) There are no claims or demands of any Person pertaining to,
or any Actions that are pending or, to the
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<PAGE>
Shareholders' knowledge, threatened, which challenge the rights of the Company
in respect of any Registered Right or any Proprietary Information.
SECTION 3.09 Banking and Insurance.
---------------------
(a) Schedule 3.09(a) contains a true and complete list of the
names and locations of all financial institutions at which the Company maintains
a checking account, deposit account, securities account, safety deposit box or
other deposit or safekeeping arrangement, the numbers or other identification of
all such accounts and arrangements and the names of all persons authorized to
draw against any funds therein.
(b) Schedule 3.09(b) contains a true and complete list of all
insurance policies and bonds and self insurance arrangements currently in force
that cover or purport to cover risks or losses to, or associated with, the
Company's business, operations, premises, properties, assets, employees, agents
and directors and sets forth, with respect to each such policy, bond and self
insurance arrangement, a description of the insured loss coverage, the
expiration date and time of coverage, the dollar limitations of coverage, a
general description of each deductible feature and principal exclusion and the
premiums paid and to be paid prior to expiration. The Company has no
obligation, liability or other commitment relating to any contract of insurance
containing a provision for retrospective rating or adjustment of the Company's
premium obligation. To the Shareholders' knowledge, no facts or circumstances
exist that would cause the Company to be unable to renew its existing insurance
coverage as and when the same shall expire upon terms at least as favorable as
those currently in effect, other than possible increases in premiums that do not
result from any act or omission of the Company or the Shareholders.
SECTION 3.10 Indebtedness.
------------
(a) The Company has no liability or obligation for Indebtedness
other than as set forth on Schedule 3.10(a), and true and complete copies of all
instruments and documents evidencing, creating, securing or otherwise relating
to such Indebtedness have been delivered to Buyer heretofore. Except as
described in Schedule 3.10(a), no event has occurred and no condition has become
known to the Shareholders (including the transactions contemplated hereby) that
constitutes or, with notice or passage of time, or both, would constitute a
default or a basis of force majeure or other claim of accelerated or increased
----- -------
rights, termination, excusable delay or nonperformance by the Company or any
other Person under any instrument or document relating to or evidencing
Indebtedness that would
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entitle any Person to require the Company to pay any portion of the principal
amount of such Indebtedness prior to the scheduled maturity thereof. Except as
set forth in Schedule 3.10(a), no instrument or document evidencing, creating,
securing or otherwise relating to Indebtedness will require the consent of any
Person to or as a result of the consummation of the transactions contemplated by
this Agreement.
(b) Schedule 3.10(b) contains a list and brief description of
all agreements or instruments pursuant to which any of the Company's directors,
employees or shareholders have guaranteed any Indebtedness of the Company (the
"Guaranties"). True and complete copies of all Guaranties have been delivered
- -----------
to Buyer heretofore.
SECTION 3.11 Judgments; Litigation. Except as set forth on
---------------------
Schedule 3.11:
(a) There is no (i) outstanding judgment, order, decree, award,
stipulation, injunction of any Governmental Entity or arbitrator against or
affecting the Company or its properties, assets or business or (ii) Action
pending against or, to the best knowledge of the Shareholders, affecting the
Company or its properties, assets or business.
(b) To the Shareholders' knowledge, there is no (i) outstanding
judgment, order, decree, award, stipulation, injunction of any Governmental
Entity or arbitrator against or affecting any officer, director or employee of
the Company relating to the Company or its business, (ii) Action threatened
against the Company or its properties, assets or business, (iii) Action pending
or threatened against the Company's officers, directors or employees relating to
the Company or its business or (iv) basis for the institution of any Action
against the Company or any of its officers, directors, employees, properties or
assets which, if decided adversely, would have a Material Adverse Effect.
SECTION 3.12 Income and Other Taxes. Except as set forth on
----------------------
Schedule 3.12:
(a) All Tax Returns required to be filed through and including
the date hereof in connection with the operations of the Company are true,
complete and correct in all material respects and have been properly and timely
filed. The Company has not requested any extension of time within which to file
any Tax Return, which Tax Return has not since been filed. Buyer has heretofore
been furnished by the Company with true, correct and complete copies of each Tax
Return of the Company with respect to the past three taxable years, and of all
reports of, and communications from, any Governmental Entities relating
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to such period. The Company has disclosed on its Federal income Tax Returns all
positions taken therein that could give rise to a substantial understatement of
income Taxes for federal income tax purposes within the meaning of Code Section
6662.
(b) All Taxes required to be paid or withheld and deposited
through and including the date hereof in connection with the operations of the
Company have been duly and timely paid or deposited by the Company. The Company
has properly withheld or collected all amounts required by law for income Taxes
and employment Taxes relating to its employees, creditors, independent
contractors and other third parties, and for Taxes on sales, and has properly
and timely remitted such withheld or collected amounts to the appropriate
Governmental Entity. The Company has no liabilities for any Taxes for any
taxable period ending prior to or coincident with the Closing Date.
(c) The Company has made adequate provision on its books of
account for all Taxes with respect to its business, properties and operations
through the Balance Sheet Date, and the accruals for Taxes in the Balance Sheet
are adequate to cover all liabilities for Taxes of the Company for all periods
ending on or before the Closing Date.
(d) The Company has not heretofore (i) had a tax deficiency
proposed, asserted or assessed against it, (ii) executed any waiver of any
statute of limitations on the assessment or collection of any Taxes, or (iii)
been delinquent in the payment of any Taxes.
(e) No Tax Return of the Company has been audited or the subject
of other Action by any Governmental Entity since January 1, 1995 and, to the
best knowledge of the Shareholders, prior to January 1, 1995. The Company has
not received any notice from any Governmental Entity of any pending examination
or any proposed deficiency, addition, assessment, demand for payment or
adjustment relating to or affecting the Company or its assets or properties and
the Shareholders have no reason to believe that any Governmental Entity may
assess (or threaten to assess) any Taxes for any periods ending on or prior to
the Closing Date.
(f) The Company (i) has not filed any consent or agreement
pursuant to Code Section 341(f), and no such consent or agreement will be filed
at any time on or before the Closing Date; (ii) has not made any payments, is
not obligated to make any payments and is not a party to any agreement that
under certain circumstances could obligate the Company to make any payments that
will not be deductible under Code Section 280G; (iii) is not a United States
real property holding corporation within the meaning of Code Section 897(c)(2);
(iv) is not a party
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to a tax allocation or sharing agreement; (v) has never been (or does not have
any liability for unpaid Taxes because it was) a member of an affiliated group
with the meaning of Code Section 1504(a); (vi) has never applied for a tax
ruling from a Governmental Entity; and (vii) has never filed or been the subject
of an election under Code Section 338(g) or Code Section 338(h)(10) or caused or
been the subject of a deemed election under Code Section 338(e).
(g) Set forth on Schedule 3.12(g) is the amount, as of the most
recent practicable date, of any net operating loss, net capital loss, unused
investment or other credit, unused foreign tax or excess charitable
contribution. No representation or warranty is made that such items are
available for use by Buyer or its affiliates.
SECTION 3.13 Corporate Records. The copies or originals of the
-----------------
Certificate of Incorporation, Bylaws, minute books and stock records of the
Company previously delivered to, or made available for inspection by, Buyer are
true, complete and correct.
SECTION 3.14 Employee Benefit Matters. Except as set forth in
------------------------
Schedule 3.14, the Company maintains no pension, retirement, profit-sharing,
employee stock ownership plan, deferred compensation, stock bonus or other
similar plan; medical, vision, dental or other health plan; life insurance plan;
vacation, severance, golden parachute or other similar plan or arrangement;
stock option, stock appreciation or other similar plan or arrangement; and any
other employee benefit plan, including, without limitation, any "employee
benefit plan" as defined in Section 3(3) of ERISA, which, in any case, relates
to the Company and for which the Surviving Corporation will incur any liability
by operation of law or otherwise as a result of the transactions contemplated by
this Agreement.
SECTION 3.15 No Undisclosed Liabilities. Except (i) to the extent
--------------------------
set forth or provided for in the Balance Sheet or the notes thereto, (ii) as set
forth on Schedule 3.15 or (iii) for non-material current liabilities incurred
since the Balance Sheet Date in the Ordinary Course, as of the date hereof the
Company has no material liabilities, whether accrued, absolute, contingent or
otherwise, whether due or to become due and whether the amounts thereof are
readily ascertainable or not, or any unrealized or anticipated losses from any
commitments of a contractual nature, including Taxes with respect to or based
upon the transactions or events occurring at or prior to the Closing.
SECTION 3.16 Permits, Licenses, Etc. The Company possesses, and is
----------------------
operating in material compliance with, all franchises, licenses, permits,
certificates, authorizations,
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rights and other approvals of Governmental Entities necessary to (i) occupy,
maintain, operate and use the Leased Real Property as it is currently used and
proposed to be used (including, if applicable, with respect to stormwater runoff
and treatment of any of the Leased Real Property as a hazardous waste facility),
(ii) conduct its business as currently conducted and as proposed to be
conducted, and (iii) maintain and operate its employee benefit plans (the
"Permits"). Schedule 3.16 contains a true and complete list of all Permits and
-------
each expiration date and scheduled renewal date related to each Permit. Each
Permit has been lawfully and validly issued, and no proceeding is pending or, to
the Shareholders' knowledge, threatened looking toward the revocation,
suspension or limitation of any Permit. The consummation of the transactions
contemplated by this Agreement will not result in the revocation, suspension or
limitation of any Permit and, except as set forth in Schedule 3.16, no Permit
will require the consent of its issuing authority to or as a result of the
consummation of the transactions contemplated hereby.
SECTION 3.17 Regulatory Filings. The Company has made all required
------------------
registrations and filings with and submissions to all applicable Governmental
Entities relating to the operations of the Company as currently conducted and as
proposed to be conducted, including, without limitation, all such applicable
Governmental Entities having jurisdiction over any matters pertaining to
conservation or protection of the environment, and the treatment, discharge,
use, handling, storage or production, or disposal of Hazardous Materials. To
the best knowledge of the Shareholders, all such registrations, filings and
submissions were in compliance with all Legal Requirements (including all
Environmental Laws) and other requirements when filed, no material deficiencies
have been asserted by any such applicable Governmental Entities with respect to
such registrations, filings or submissions and, to the knowledge of the
Shareholders, no facts or circumstances exist which would indicate that a
material deficiency may be asserted by any such authority with respect to any
such registration, filing or submission.
SECTION 3.18 Consents. All consents, authorizations and approvals of
--------
any Person to, or as a result of the consummation of, the transactions
contemplated hereby that are necessary or advisable in connection with the
operations and business of the Company as currently conducted and as proposed to
be conducted, or for which the failure to obtain the same might have,
individually or in the aggregate, a Material Adverse Effect, have been lawfully
and validly obtained by the Company, except as described in
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Schedules 3.02, 3.05(d), 3.10(a) and 3.16 hereto. All consents, authorizations
and approvals described in Schedules 3.02, 3.05(d), 3.10(a) and 3.16 will have
been lawfully and validly obtained prior to the Closing.
SECTION 3.19 Material Contracts; No Defaults.
-------------------------------
(a) Schedule 3.19(a) contains a true and complete list and
description of each individual outstanding sales order and sales contract of the
Company having an indicated gross value in excess of $5,000 or having a term or
duration in excess of six months. All outstanding sales orders and sales
contracts of the Company have been entered into in the Ordinary Course. Except
as described in Schedule 3.19(a), the Company has not received any advance,
progress payment or deposit in respect of any sales order or sales contract, and
to the best knowledge of the Shareholders, the Company has no sales order or
sales contract that will result, upon completion or performance thereof, in
gross margins materially lower than those normally experienced by the Company
for the services or products covered by such sales order or sales contract.
(b) Schedule 3.19(b) contains a true and complete list and
description of all outstanding purchase orders and purchase commitments of the
Company having a gross indicated value in excess of $5,000 in the aggregate from
any single supplier or other vendor. All outstanding purchase orders and
purchase commitments of the Company have been incurred in the Ordinary Course,
and no purchase order or purchase commitment of the Company is in excess of the
normal, ordinary and usual requirements of the business of the Company or at an
excessive price.
(c) Schedule 3.19(c) contains a true and complete list of all
sales agency, sales representative and similar contracts or agreements of the
Company and a description of the territory or market and the expiration or
renewal date of each such contract or agreement. True and complete copies of
each such contract or agreement have been delivered to Buyer heretofore. Except
as described in Schedule 3.19(c), all of such contracts and agreements are
terminable at any time by the Company without penalty upon not more than thirty
(30) days' notice.
(d) Schedule 3.19(d) contains a true and complete list and
description of all noncompetition agreements and covenants under which the
Company or any Shareholder or, to the knowledge of the Shareholders, any of the
Company's officers, directors or key employees is obligated, and true and
complete copies of the same have been delivered to Buyer heretofore. Except as
described in Schedule 3.19(d), the Company is not restricted by any agreement
from carrying on its business or engaging in any other activity anywhere in the
world (including
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<PAGE>
relocating, closing, or terminating any of its operations or facilities), and,
to the knowledge of the Shareholders, no such officer, director or key employee
is a party to or otherwise bound or affected by any agreement, covenant or other
arrangement or understanding that would restrict or impair his ability to
perform diligently his other duties to the Company. Schedule 3.19(d) also
contains a true and complete list and description of all noncompetition
agreements or covenants in favor of the Company, and true and complete copies of
the same have been delivered to Buyer heretofore. No representation or warranty
is made that any such agreement is enforceable by the Surviving Corporation or
the Company.
(e) Schedule 3.19(e) contains a true and complete list and
description of all contracts, agreements, understandings, arrangements and
commitments, written or oral, of the Company with any officer, director,
consultant, employee or Affiliate of the Company or with any associate,
Affiliate or employee of any Affiliate of the Company, other than those
disclosed in Schedule 3.21(a) hereto; in each case a true and complete copy of
such written contract, agreement, understanding, arrangement or commitment or a
true and complete summary of such oral contract, agreement, understanding,
arrangement or commitment has been delivered to Buyer heretofore.
(f) Schedule 3.19(f) contains a true and complete list and
description of all other material contracts, agreements, understandings,
arrangements and commitments, written or oral, of the Company by which it or its
properties, rights or assets are bound that are not otherwise disclosed in this
Agreement or the Schedules hereto. True and complete copies of such written
contracts, agreements, understandings, arrangements and commitments and true and
complete summaries of such oral contracts, agreements, understandings,
arrangements and commitments have been delivered to Buyer heretofore. For the
purposes of this subsection (f), "material" means any contract, agreement,
understanding, arrangement or commitment that (i) involves performance by any
party more than ninety (90) days from the date hereof, (ii) involves payments or
receipts by the Company in excess of $5,000, (iii) involves capital expenditures
in excess of $5,000 or (iv) otherwise materially affects the Company taken as a
whole.
(g) Except as described in Schedule 3.19(g):
(i) each agreement, contract, arrangement or commitment
described above in this Section 3.19 is, and after the Closing on identical
terms will be, legal, valid, binding, enforceable and in full force and effect;
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<PAGE>
(ii) no event or condition has occurred or become known
to the Shareholders or is alleged to have occurred that constitutes or, with
notice or the passage of time, or both, would constitute a default or a basis of
force majeure or other claim of excusable delay, termination, nonperformance or
- ----- -------
accelerated or increased rights by the Company or any other Person under any
contract, agreement, arrangement, commitment or other understanding, written or
oral, described above in this Section 3.19, or described or otherwise disclosed
pursuant to this Agreement; and
(iii) no Person with whom the Company has such a contract,
agreement, arrangement, commitment or other understanding is in default
thereunder or has failed to perform fully thereunder by reason of force majeure
----- -------
or other claim of excusable delay, termination or nonperformance thereunder, the
delay, termination or nonperformance of which, or a default under which, has had
or may have a Material Adverse Effect.
SECTION 3.20 Absence of Certain Changes. Since the Balance Sheet
--------------------------
Date, except as disclosed in Schedule 3.20, the Company has not: (i) incurred
any debts, obligations or liabilities (absolute, accrued, contingent or
otherwise), other than current liabilities incurred in the Ordinary Course
which, individually or in the aggregate, are not material; (ii) subjected to or
permitted a Lien (other than a Permitted Lien) upon or otherwise encumbered any
of its assets, tangible or intangible; (iii) sold, transferred, licensed or
leased any of its material assets or properties except in the Ordinary Course;
(iv) discharged or satisfied any Lien other than a Lien securing, or paid any
obligation or liability other than, current liabilities shown on the Balance
Sheet and current liabilities incurred since the Balance Sheet Date, in each
case in the Ordinary Course; (v) canceled or compromised any debt owed to or by
or claim of or against it, or waived or released any right of material value
other than in the Ordinary Course; (vi) suffered any physical damage,
destruction or loss (whether or not covered by insurance) causing a Material
Adverse Effect; (vii) entered into any material transaction or otherwise
committed or obligated itself to any capital expenditure other than in the
Ordinary Course; (viii) made or suffered any change in, or condition affecting,
its condition (financial or otherwise), properties, profitability, prospects or
operations other than changes, events or conditions in the Ordinary Course, none
of which (individually or in the aggregate) has had or may have a Material
Adverse Effect; (ix) made any change in the accounting principles, methods,
records or practices followed by it or depreciation or amortization policies or
rates theretofore adopted; (x) other than in the Ordinary Course, made or
suffered any amendment or termination of any material contract, agreement, lease
or license to which it is a party; (xi) paid, or made any accrual or
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<PAGE>
arrangement for payment of, any severance or termination pay to, or entered into
any employment or loan or loan guarantee agreement with, any current or former
officer, director or employee or consultant; (xii) paid, or made any accrual or
arrangement for payment of, any increase in compensation, bonuses or special
compensation of any kind to any employee other than pursuant to an agreement
disclosed on Schedule 3.21(a) or Schedule 3.21(b) or other than in the Ordinary
Course, or paid, or made any accrual or arrangement for payment of, any increase
in compensation, bonuses or special compensation of any kind to any officer or
director of the Company or any consultant to the Company; (xiii) made or agreed
to make any charitable contributions or incurred any nonbusiness expenses; (xiv)
changed or suffered change in any Plan or labor agreement affecting any employee
of the Company otherwise than to conform to Legal Requirements; or (xv) entered
into any material agreement or otherwise obligated itself to do any of the
foregoing.
SECTION 3.21 Employees and Labor Matters.
---------------------------
(a) Schedule 3.21(a) contains a true and complete list of all
contracts, agreements, plans, arrangements, commitments and understandings
(formal and informal) pertaining to terms of employment, compensation, bonuses,
profit sharing, stock purchases, stock repurchases, stock options, commissions,
incentives, loans or loan guarantees, severance pay or benefits, use of the
Company's property and related matters of the Company with any current or former
officer, director, employee or consultant, and true and complete copies of all
such contracts, agreements, plans, arrangements and understandings have been
delivered to Buyer heretofore. A true and complete copy of the Company's
employee manual has been delivered to Buyer heretofore.
(b) Schedule 3.21(b) contains a true and complete list of all
labor, collective bargaining, union and similar agreements under or by which the
Company is obligated, and true and complete copies of all such agreements have
been delivered to Buyer heretofore.
(c) Except for the employment and labor agreements listed on
Schedules 3.21(a) and 3.21(b), neither Buyer nor the Company will have any
responsibility for continuing any person in the employ (or retaining any person
as a consultant) of the Company from and after the Closing or have any liability
for any severance payments to or similar arrangements with any such Person who
shall cease to be an employee of the Company at or prior to the Closing. There
is no agreement, arrangement, commitment or understanding between the Company
and any of its employees which could prohibit the Company from modifying the
work schedule of its employees, including without limitation a change from a
five-day work week to a four-day work week.
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<PAGE>
(d) There is not occurring or, to the Shareholders' knowledge,
threatened, any strike, slow down, picket, work stoppage or other concerted
action by any union or other group of employees or other persons against the
Company or its premises or products. Except for activities by the unions that
are parties to any of the agreements listed on Schedule 3.21(b) with respect to
the existing members of such unions, to the Shareholders' knowledge, no union or
other labor organization has attempted to organize any of the employees of the
Company.
(e) The Company has complied with all Legal Requirements
relating to employment and labor, except where the failure to so comply would
not have a Material Adverse Effect, and, to the knowledge of the Shareholders,
no facts or circumstances exist that could provide a reasonable basis for a
claim of wrongful termination by any current or former employee of the Company
against the Company.
SECTION 3.22 Affiliations. Except as disclosed on Schedule 3.22,
------------
none of the Shareholders, any officer, director or key employee of the Company
or any associate or Affiliate of the Company or any of such Persons has,
directly or indirectly, (i) an interest in any Person that (A) furnishes or
sells, or proposes to furnish or sell, services or products that are furnished
or sold by the Company or (B) purchases from or sells or furnishes to, or
proposes to purchase from or sell or furnish to, the Company any goods or
services or (ii) a beneficial interest in any contract or agreement to which the
Company is a party or by which the Company or any of the assets of the Company
are bound or affected.
SECTION 3.23 Principal Customers and Suppliers.
---------------------------------
(a) Schedule 3.23(a) contains a true and complete list of the
name and address of each customer that purchased in excess of 5% of the
Company's sales of goods or services during the twelve months ended on the
Balance Sheet Date, and except as set forth on Schedule 3.23(a)(1), to the best
knowledge of the Shareholders, since that date no such customer has terminated
its relationship with or adversely curtailed its purchases from the Company or
indicated (for any reason) its intention so to terminate its relationship or
curtail its purchases.
(b) Schedule 3.23(b) contains a true and complete list of each
supplier from whom the Company purchased in excess of 5% of the Company's
purchases of goods or services during the twelve months ended on the Balance
Sheet Date, and, to the best knowledge of the Shareholders, since that date no
such supplier has terminated its relationship with or adversely curtailed its
accommodations, sales or services to the Company or
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<PAGE>
indicated (for any reason) its intention to terminate such relationship or
curtail its accommodations, sales or services.
SECTION 3.24 Warranty Liability. Schedule 3.24 contains a true and
------------------
complete description of (i) all warranties granted or made with respect to
services rendered or products sold by the Company, and (ii) the Company's
aggregate liability related to such warranties for each of the last three years.
SECTION 3.25 Hazardous Materials. [To the best knowledge of the
-------------------
Shareholders, except as set forth on Schedule 3.25:
(a) No Hazardous Material (i) has been released, placed, stored,
generated, used, manufactured, treated, deposited, spilled, discharged, released
or disposed of on or under any real property currently or previously owned or
leased by the Company or is presently located on or under any Leased Real
Property (or, to the Shareholders' knowledge, any property adjoining any Leased
Real Property), (ii) is presently maintained, used, generated, or permitted to
remain in place by the Company in violation of any Environmental Law, (iii) is
required by any Environmental Law to be eliminated, removed, treated or
mitigated by the Company, given the nature of its present condition, location,
nature, material or maintenance, or (iv) is of a type, location, material,
nature or condition which requires special notification to third parties by the
Company under Environmental Law or common law.
(b) No notice, citation, summons or order has been received by
the Company or any Shareholder, no notice has been given by the Company and no
complaint has been filed, no penalty has been assessed and no investigation or
review is pending or, to the Shareholders' knowledge, threatened by any
Governmental Entity, with respect to (i) any alleged violation by the Company of
any Environmental Law or (ii) any alleged failure by the Company to have any
environmental permit, certificate, license, approval, registration or
authorization required in connection with its business or properties, or (iii)
any use, possession, generation, treatment, storage, recycling, transportation,
release or disposal by or on behalf of the Company of any Hazardous Material.
(c) The Company has not received any request for information,
notice of claim, demand or notification that it is or that indicates that it may
be a "potentially responsible party" with respect to any investigation or
remediation of any threatened or actual release of any Hazardous Material.
Schedule 3.25(c) contains a true and complete list of all Material Safety Data
Sheets applicable to the Company's operations at the Leased Real Property.
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<PAGE>
(d) No above-ground or underground storage tanks, whether or not
in use, are or have ever been located at any property currently owned or leased
by the Company.
(e) No notice has been received by the Company with respect to
the listing or proposed listing of any property currently or previously owned,
operated or leased by the Company on the National Priorities List promulgated
pursuant to CERCLA, CERCLIS or any similar state list of sites requiring
investigation or cleanup.
(f) Except for a Phase I study performed in 1992, to the
knowledge of the Company and the Shareholders, there have been no environmental
inspections, investigations, studies, tests, reviews or other analyses conducted
in relation to any Leased Real Property.
(g) The Company has not released, transported, or arranged for
the transportation of any Hazardous Material from any property currently or
previously owned, operated or leased by the Company.
SECTION 3.26 Brokers' Fees. Except for Barrington Associates, no
-------------
broker, finder or similar agent has been employed by or on behalf of the Company
or the Shareholders in connection with this Agreement or the transactions
contemplated hereby, and neither the Company nor any of the Shareholders has
entered into any agreement or understanding of any kind with any person or
entity for the payment of any brokerage commission, finder's fee or any similar
compensation in connection with this Agreement or the transactions contemplated
hereby.
SECTION 3.27 Disclosure. Except as set forth on Schedule 3.27, to
----------
the best knowledge of the Shareholders, no representation or warranty of the
Company or the Shareholders in this Agreement and no information contained in
any Schedule or other writing delivered by the Company or the Shareholders
pursuant to this Agreement or at the Closing contains or will contain any untrue
statement of a material fact or omits or will omit to state a material fact
required to make the statements herein or therein not misleading. To the best
knowledge of the Shareholders, there is no fact that the Company or the
Shareholders has not disclosed to Buyer or Newco in writing that has had or,
insofar as the Company or the Shareholders can now foresee, may have a material
adverse effect on the ability of the Company or the Shareholders to perform
fully this Agreement.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF BUYER
---------------------------------------
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<PAGE>
Buyer hereby represents and warrants to, and covenants and agrees
with, the Shareholders that:
SECTION 4.01 Organization, Power and Authority of Buyer and Newco.
----------------------------------------------------
Each of Buyer and Newco has been duly organized and is existing as a corporation
in good standing under the laws of the State of Delaware with full power and
authority (corporate and other) to own and lease its properties and to conduct
its business as currently conducted.
SECTION 4.02 Authorization. Each of Buyer and Newco has the
-------------
corporate power and authority to execute and deliver this Agreement, to
consummate the transactions contemplated hereby and to perform its obligations
under this Agreement. The execution and delivery by each of Buyer and Newco of
this Agreement, and the consummation by each of them of the transactions
contemplated hereby, have been duly authorized by all necessary corporate action
by each of Buyer and Newco. This Agreement, upon its execution and delivery by
each of Buyer and Newco (assuming the due authorization, execution and delivery
hereof by the other parties hereto), will constitute the legal, valid and
binding obligation of each of Buyer and Newco, enforceable against each of Buyer
and Newco in accordance with its terms, except as such enforceability may be
limited by applicable bankruptcy, insolvency and similar laws relating to
creditors' rights generally and by general principles of equity (regardless of
whether such enforceability is considered in a proceeding in equity or at law).
SECTION 4.03 No Conflict or Violation. Subject to compliance with
------------------------
the applicable requirements of the Securities Act and any applicable state
securities laws and the filing of the Certificates of Merger as required by the
Delaware Corporation Law and the California Corporation Law, the execution,
delivery and performance of this Agreement and the consummation of the
transactions contemplated hereby will not (a) conflict with or result in a
breach or violation of any term or provision of, or constitute a default under
(with or without notice or passage of time, or both), or otherwise give any
Person a basis for accelerated or increased rights or termination or
nonperformance under, any indenture, mortgage, deed of trust, loan or credit
agreement, lease, license or other agreement or instrument to which Buyer or
Newco is a party or by which Buyer or Newco is bound or affected or to which any
of the property or assets of Buyer or Newco is bound or affected, (b) result in
the violation of the provisions of the Certificate of Incorporation or Bylaws of
Buyer or Newco or any Legal Requirement applicable to or binding upon them, (c)
result in the creation or imposition of any Lien upon any property or asset of
Buyer or Newco or (d) otherwise adversely affect the contractual or other legal
rights or privileges of Buyer or Newco. Schedule 4.03 sets forth a list
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<PAGE>
of all agreements to which Buyer or Newco is a party requiring the consent of
any party thereto to any of the transactions contemplated hereby.
SECTION 4.04 Capitalization. The authorized capital stock of Buyer
--------------
consists of (i) 30,000,000 shares of Buyer Common Stock, of which 5,091,241 were
issued and outstanding on December 31, 1997,(ii) 2,500,000 shares of Class B
Common Stock, par value $.001 per share, of which 469,750 were issued and
outstanding on December 31, 1997 and (iii) 5,300,000 shares of preferred stock,
par value $.01 per share, of which 1,147,060 were issued and outstanding on
December 31, 1997. All of the issued and outstanding shares of capital stock of
Buyer are duly authorized, validly issued, fully paid, nonassessable and free of
all preemptive rights. All of the Shares of Buyer Common Stock to be issued
pursuant to this Agreement, when issued in accordance with this Agreement, will
be duly authorized, validly issued, fully paid, nonassessable and free of all
preemptive rights. The authorized capital stock of Newco consists solely of 100
shares of common stock, of which 100 are, and on the Closing Date will be,
issued and outstanding. All of the issued and outstanding shares of capital
stock of Newco are, and on the Closing Date will be, owned beneficially and of
record by Buyer.
SECTION 4.05 Consents and Approvals. No consent, approval,
----------------------
authorization, license, permit or other action by, or filing with, any
governmental or regulatory authority is required in connection with the
execution and delivery of this Agreement by Buyer and Newco or the consummation
by Buyer and Newco of the transactions contemplated hereby, except for such
consents, approvals, authorizations, licenses, permits, actions or filings as
will have been obtained, taken or filed at or prior to the Closing.
SECTION 4.06 Reports and Financial Statements. The Buyer has
--------------------------------
previously furnished to the Company complete and accurate copies, as amended or
supplemented, of its (i) Quarterly Report on Form 10-Q for the fiscal quarters
ended December 31, 1996, March 31, 1997, September 30,1997 and December 31,
1997, (ii) Annual Report on Form 10-K for the fiscal year ended June 30, 1997,
each as filed with the Securities and Exchange Commission (the "SEC"), and (iii)
---
all other reports filed by the Buyer under Section 13 of the Exchange Act with
the SEC since December 31, 1996 (such reports are collectively referred to
herein as the "Buyer Reports"). The Buyer Reports include all of the documents
-------------
required to be filed by the Buyer under the Exchange Act with the SEC since
December 31, 1997. As of their respective dates, the Buyer Reports did not
contain any untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements therein, in
light of the circumstances under which they were
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<PAGE>
made, not misleading. The audited financial statements and unaudited interim
financial statements of the Buyer included in the Buyer Reports (i) comply as to
form in all material respects with applicable accounting requirements and the
published rules and regulations of the SEC with respect thereto, (ii) have been
prepared in accordance with GAAP applied on a consistent basis throughout the
periods covered thereby (except as may be indicated therein or in the notes
thereto, and in the case of quarterly financial statements, as permitted by Form
10-Q under the Exchange Act), (iii) fairly present the consolidated financial
condition, results of operations and cash flows of the Buyer as of the
respective dates thereof and for the periods referred to therein, and (iv) are
consistent with the books and records of the Buyer.
SECTION 4.07 Brokers' Fees. Except as set forth on Schedule 4.07,
-------------
no broker, finder or similar agent has been employed by or on behalf of Buyer or
Newco in connection with this Agreement or the transactions contemplated hereby,
and neither Buyer nor Newco have entered into any agreement or understanding of
any kind with any person or entity for the payment of any brokerage commission,
finder's fee or any similar compensation in connection with this Agreement or
the transactions contemplated hereby.
SECTION 4.08 Disclosure. To the knowledge of Buyer and Newco, no
----------
representation or warranty of the Buyer or Newco in this Agreement and no
information contained in any other writing delivered by them to the Company or
the Shareholders pursuant to this Agreement or at the Closing contains or will
contain any untrue statement of a material fact or omits or will omit to state a
material fact required to make the statements herein or therein not misleading.
To the knowledge of Buyer and Newco, there is no fact that the Buyer or Newco
has not disclosed to the Company or the Shareholders in writing that has had or,
insofar as the Newco or the Buyer can now foresee, may have a material adverse
effect on the ability of Buyer or Newco to fully perform this Agreement.
SECTION 4.09 Capital Contribution. The repayment in cash of certain
--------------------
indebtedness of the Company by Buyer or the Surviving Corporation pursuant to
Section 2.12(f) hereof shall be accounted for as a contribution of capital by
Buyer to the Surviving Corporation.
ARTICLE V
REPRESENTATIONS AND WARRANTIES
------------------------------
OF THE SHAREHOLDERS
-------------------
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<PAGE>
Each Shareholder hereby severally but not jointly represents and
warrants to, and covenants and agrees with, Buyer and Newco that:
SECTION 5.01 Ownership of Shares. The Shareholder owns of record
-------------------
and beneficially the number of Shares set forth opposite its name on Schedule
3.03 hereto, and has, and at all times prior to and as of the Closing the
Shareholder will have, good and marketable title to such Shares free and clear
of all Liens.
SECTION 5.02 Delivery of Good Title. All consents, approvals,
----------------------
authorizations and orders necessary for the sale and delivery of the Shares to
be sold by the Shareholder hereunder have been obtained, and the Shareholder
has, and immediately prior to the Closing the Shareholder will have, full right,
power, authority and capacity to sell, assign, transfer and deliver such Shares
pursuant to this Agreement.
SECTION 5.03 Execution and Delivery. The Shareholder has the power
----------------------
and authority to execute and deliver this Agreement, to consummate the
transactions contemplated hereby and to perform its obligations under this
Agreement. This Agreement, upon its execution and delivery by the Shareholder
(assuming the due authorization, execution and delivery hereof by the other
parties hereto), will constitute the legal, valid and binding obligation of the
Shareholder, enforceable against the Shareholder in accordance with its terms,
except as such enforceability may be limited by applicable bankruptcy,
insolvency and similar laws relating to creditors' rights generally and by
general principles of equity (regardless of whether such enforceability is
considered in a proceeding in equity or at law).
SECTION 5.04 No Conflicts. The execution, delivery and performance
------------
of this Agreement by the Shareholder and the consummation by the Shareholder of
the transactions contemplated hereby will not conflict with or result in a
breach or violation of any term or provision of, or (with or without notice or
passage of time, or both) constitute a default under, any indenture, mortgage,
deed of trust, trust (constructive and other), loan agreement or other agreement
or instrument to which the Shareholder is a party or by which the Shareholder or
the Shareholder's Shares are bound, or violate the provisions of any statute, or
any order, rule or regulation of any governmental body or agency or
instrumentality thereof, or any order, writ, injunction or decree of any court
or any arbitrator, having jurisdiction over the Shareholder or the property of
the Shareholder.
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<PAGE>
SECTION 5.05 Restrictions on Transfer of Buyer Common Stock Under
----------------------------------------------------
Securities Laws.
- ---------------
(a) The Shareholder understands and agrees that the shares of
Buyer Common Stock it will acquire in the Merger have not been registered under
the Securities Act and that, accordingly, such shares will not be fully
transferable except as permitted under various exemptions contained in the
Securities Act or upon satisfaction of the registration and prospectus delivery
requirements of the Securities Act. The Shareholder acknowledges that it must
bear the economic risk of its investment in such shares of Buyer Common Stock
for an indefinite period of time since such shares have not been registered
under the Securities Act and therefore cannot be sold unless they are
subsequently registered or an exemption from registration is available.
(b) The Shareholder hereby represents and warrants that it is
acquiring the shares of Buyer Common Stock in the Merger for investment purposes
only, for its own account, and not as nominee or agent for any other Person, and
not with the view to, or for resale in connection with, any distribution thereof
within the meaning of the Securities Act.
(c) The Shareholder hereby agrees with Buyer as follows:
(i) The certificates evidencing the shares of Buyer Common
Stock it will acquire in the Merger, and each instrument or certificate issued
in transfer thereof, will bear substantially the following legends:
"The securities evidenced by this certificate have not been
registered under the Securities Act of 1933 and have been taken
for investment purposes only and not with a view to the
distribution thereof, and such securities may not be sold or
transferred unless there is an effective registration statement
under such Act covering such securities or the issuer corporation
receives an opinion of counsel (which may be counsel for the
issuer corporation) stating that such sale or transfer is exempt
from the registration and prospectus delivery requirements of
such Act."
"The securities evidenced by this certificate are subject to, and
transferable only in accordance with, the provisions of an
Agreement and Plan of Merger among Interiors, Inc. (the
"Company") and others. A copy of
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<PAGE>
this agreement is on file in the office of the Secretary of the
Company."
(ii) The certificates representing such shares of Buyer
Common Stock, and each instrument or certificate issued in transfer thereof,
will also bear any legend required under any applicable state securities law.
(iii) Absent an effective registration statement under the
Securities Act, covering the disposition of the shares of Buyer Common Stock
which the Shareholder acquires in the Merger, the Shareholder will not sell,
transfer, assign, pledge, hypothecate or otherwise dispose of any or all of such
shares of Buyer Common Stock without first providing Buyer with an opinion of
counsel (which may be counsel for Buyer) to the effect that such sale, transfer,
assignment, pledge, hypothecation or other disposition will be exempt from the
registration and the prospectus delivery requirements of the Securities Act and
the registration or qualification requirements of any applicable state
securities laws.
(iv) The Shareholder consents to Buyer's making a notation
on its records or giving instructions to any transfer agent of the Buyer Common
Stock in order to implement the restrictions on transfer set forth in this
subsection (c).
ARTICLE VI
CONDITIONS TO CONSUMMATION OF MERGER
------------------------------------
SECTION 6.01 Conditions to Obligations of Buyer and Newco.
--------------------------------------------
Notwithstanding any other provision of this Agreement, the obligations of Buyer
and Newco to consummate the Merger and the other transactions contemplated
hereby shall be subject to the satisfaction, at or prior to the Closing Date, of
the following conditions:
(a) There shall not be instituted and pending or threatened any
Action before any Governmental Entity (i) challenging the Merger or otherwise
seeking to restrain or prohibit the consummation of the transactions
contemplated hereby, or (ii) seeking to prohibit the direct or indirect
ownership or operation by Buyer of all or a material portion of the business or
assets of the Company, or to compel Buyer or the Company to dispose of or hold
separate all or a material portion of the business or assets of the Company or
Buyer.
(b) The representations and warranties of the Shareholders in
this Agreement shall be true and correct in all material respects on and as of
the Closing Date with the same
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<PAGE>
effect as if made on the Closing Date and each of the Company and each
Shareholder shall have complied with all covenants and agreements and satisfied
all conditions on the Company's or his or her part, as applicable, to be
performed or satisfied on or prior to the Closing Date.
(c) Buyer shall have received from each Shareholder executing
this Agreement a certificate dated the Closing Date in substantially the form
attached as Annex C hereto.
(d) Buyer shall have received a certificate of the President of
the Company in substantially the form attached as Annex D hereto.
(e) Buyer shall have received a certificate of the Secretary of
the Company dated the Closing Date in substantially the form attached as Annex E
hereto.
(f) Robert M. Perkowitz shall have entered into a Non-
Competition Agreement with Buyer substantially in the form attached as Annex F
hereto.
(g) Buyer, the Escrow Agent and the Representative shall have
entered into the Escrow Agreement.
(h) Buyer shall be satisfied, in its reasonable discretion, that
the issuance of Buyer Common Stock to the Shareholders in connection with the
Merger shall be exempt from the registration and prospectus delivery
requirements of the Securities Act.
(i) All authorizations, consents, waivers and approvals by or
from third parties required for the consummation of the transactions
contemplated hereby shall have been obtained and all Liens on the assets and
properties of the Company shall have been released or terminated or the
Shareholders have made adequate provision for the lack thereof reasonably
acceptable to the Buyer.
(j) No act, event or condition shall have occurred after the
date hereof which Buyer determines has had or could reasonably be expected to
have a Material Adverse Effect.
(k) Each Subsidiary of the Company shall have been merged with
and into the Company.
(l) All corporate and other proceedings and actions taken in
connection with the transactions contemplated hereby and all certificates,
opinions, agreements, instruments, releases and documents referenced herein or
incident to the
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<PAGE>
transactions contemplated hereby shall be in form and substance reasonably
satisfactory to Buyer and its counsel.
SECTION 6.02 Conditions to Obligations of the Company and the
------------------------------------------------
Shareholders. Notwithstanding any other provision of this Agreement, the
- ------------
obligations of the Company and the Shareholders to consummate the Merger and the
other transactions contemplated hereby shall be subject to the satisfaction, at
or prior to the Closing Date, of the following conditions:
(a) The representations and warranties of Buyer in this
Agreement shall be true and correct in all material respects on and as of the
Closing Date with the same effect as if made on the Closing Date, and Buyer
shall have complied with all covenants and agreements and satisfied all
conditions on its part to be performed or satisfied on or prior to the Closing
Date.
(b) The Shareholders shall have received a certificate of the
Secretary of Buyer dated the Closing Date in substantially the form attached as
Annex G hereto.
(c) The Shareholders shall have received a certificate of the
President of Buyer in substantially the form attached as Annex H hereto.
(d) The Shareholders shall have received a certificate of the
Secretary of Newco dated the Closing Date in substantially the form attached as
Annex I hereto.
(e) The Shareholders shall have received a certificate of the
President of Newco in substantially the form attached as Annex J hereto.
(f) No act, event or condition shall have occurred after the
date hereof which the Shareholders determine has had or could reasonably be
expected to have a material adverse effect on the business, financial condition,
properties, profitability, prospects or operations of Buyer.
(g) All corporate and other proceedings and actions taken in
connection with the transactions contemplated hereby and all certificates,
opinions, agreements, instruments, releases and documents referenced herein or
incident to the transactions contemplated hereby shall be in form and substance
reasonably satisfactory to the Shareholders and their counsel.
(h) The payments contemplated by Schedule 2.12(f) shall be made
concurrently with the Closing.
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<PAGE>
ARTICLE VII
CONDUCT OF BUSINESS PENDING CLOSING
-----------------------------------
During the period commencing on the date hereof and continuing through
the Closing Date, the Company and the Shareholders covenant and agree (except as
expressly contemplated by this Agreement or to the extent that Buyer shall
otherwise expressly consent in writing) that:
SECTION 7.01 Qualification. The Company shall maintain all
-------------
qualifications to transact business and remain in good standing in the foreign
jurisdictions set forth on Schedule 3.01(a).
SECTION 7.02 Ordinary Course. The Company shall conduct its
---------------
business in, and only in, the Ordinary Course and shall preserve intact its
current business organizations, keep available the services of its current
officers and employees and preserve its relationships with customers, suppliers
and others having business dealings with it to the end that its goodwill and
going business value shall be unimpaired at the Closing Date. The Company shall
maintain its properties and assets in good condition and repair.
SECTION 7.03 Organic Changes. The Company shall not (a) amend its
---------------
Certificate of Incorporation or Bylaws (or equivalent documents), (b) acquire by
merging or consolidating with, or agreeing to merge or consolidate with, or
purchase substantially all of the stock or assets of, or otherwise acquire any
business or any corporation, partnership, association or other business
organization or division thereof, (c) enter into any partnership or joint
venture, (d) declare, set aside, make or pay any dividend or other distribution
in respect of its capital stock or purchase or redeem, directly or indirectly,
any shares of its capital stock, (e) issue or sell any shares of its capital
stock of any class or any options, warrants, conversion or other rights to
purchase any such shares or any securities convertible into or exchangeable for
such shares, or (f) liquidate or dissolve or obligate itself to do.
SECTION 7.04 Indebtedness. The Company shall not incur any
------------
Indebtedness, sell any debt securities or lend money to or guarantee the
Indebtedness of any Person except in the Ordinary Course. The Company shall not
restructure or refinance its existing Indebtedness.
SECTION 7.05 Accounting. The Company shall not make any change in
----------
the accounting principles, methods, records or practices followed by it or
depreciation or amortization policies
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<PAGE>
or rates theretofore adopted by it. The Company shall maintain its books,
records and accounts in accordance with GAAP.
SECTION 7.06 Compliance with Legal Requirements. The Company shall
----------------------------------
comply promptly with all requirements that applicable law may impose upon it and
its operations and with respect to the transactions contemplated by this
Agreement, and shall cooperate promptly with, and furnish information to, Buyer
in connection with any such requirements imposed upon Buyer, or upon any of its
affiliates, in connection therewith or herewith.
SECTION 7.07 Disposition of Assets. The Company shall not sell,
---------------------
transfer, license, lease or otherwise dispose of, or suffer or cause the
encumbrance by any Lien upon any of, its material properties or assets, tangible
or intangible, or any interest therein.
SECTION 7.08 Compensation. Except as set forth on Schedule 7.08,
------------
the Company shall not (a) adopt or amend in any material respect any collective
bargaining, bonus, profit-sharing, compensation, stock option, pension,
retirement, deferred compensation, employment or other plan, agreement, trust,
fund or arrangement for the benefit of employees (whether or not legally
binding) other than to comply with any Legal Requirement or (b) pay, or make any
accrual or arrangement for payment of, any increase in compensation, bonuses or
special compensation of any kind, or any severance or termination pay to, or
enter into any employment or loan or loan guarantee agreement with, any current
or former officer, director, employee or consultant of the Company.
SECTION 7.09 Modification or Breach of Agreements; New Agreements.
----------------------------------------------------
The Company shall not terminate or modify, or commit or cause or suffer to be
committed any act that will result in breach or violation of any term of, or
(with or without notice or passage of time, or both) constitute a default under
or otherwise give any person a basis for nonperformance under, any indenture,
mortgage, deed of trust, loan or credit agreement, lease, license or other
agreement, instrument, arrangement or understanding, written or oral, disclosed
in this Agreement or the Schedules hereto. The Company shall refrain from
becoming a party to any contract or commitment other than in the Ordinary
Course. The Company shall meet all of its contractual obligations in accordance
with their respective terms.
SECTION 7.10 Capital Expenditures. Except for capital expenditures
--------------------
or commitments necessary to maintain its properties and assets in good condition
and repair (the amount of which shall not exceed $20,000 in the aggregate), the
Company shall not purchase or enter into any contract to purchase any capital
assets.
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<PAGE>
SECTION 7.11 Maintain Insurance. The Company shall maintain its
------------------
Policies in full force and effect and shall not do, permit or willingly allow to
be done any act by which any of the Policies may be suspended, impaired or
canceled.
SECTION 7.12 Discharge. The Company shall not cancel, compromise,
---------
release or discharge any claim of the Company upon or against any person or
waive any right of the Company of material value, and not discharge any Lien
(other than Permitted Liens) upon any asset of the Company or compromise any
debt or other obligation of the Company to any person other than Liens, debts or
obligations with respect to current liabilities of the Company.
SECTION 7.13 Actions. The Company shall not institute, settle or
-------
agree to settle any Action before any Governmental Entity.
SECTION 7.14 Permits. The Company shall maintain in full force and
-------
effect, and comply with, all Permits.
SECTION 7.15 Tax Assessments and Audits. The Company shall furnish
--------------------------
promptly to Buyer a copy of all notices of proposed assessment or similar
notices or reports that are received from any taxing authority and which relate
to the Company's operations for periods ending on or prior to the Closing Date.
The Shareholders shall cause the Company to promptly inform Buyer, and permit
the participation in and control by Buyer, of any investigation, audit or other
proceeding by a Governmental Entity in connection with any Taxes, assessment,
governmental charge or duty and shall not consent to any settlement or final
determination in any proceeding without the prior written consent of Buyer.
ARTICLE VII
ADDITIONAL COVENANTS
--------------------
SECTION 8.01 Covenants of the Company and the Shareholders. During
---------------------------------------------
the period commencing on the date hereof and continuing through the Closing
Date, the Company and each Shareholder agrees to:
(a) comply promptly with all requirements that applicable Legal
Requirements may impose upon it with respect to the transactions contemplated by
this Agreement, and shall cooperate promptly with, and furnish information to,
Buyer in connection with any such requirements imposed upon Buyer or upon any of
its affiliates in connection therewith or herewith;
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<PAGE>
(b) use its reasonable commercial efforts to obtain (and to
cooperate with Buyer in obtaining) any consent, authorization or approval of, or
exemption by, any Person required to be obtained or made by the Company or the
Shareholder, as applicable, in connection with the transactions contemplated by
this Agreement;
(c) use its reasonable commercial efforts to bring about the
satisfaction of the conditions precedent to Closing set forth in Section 6.01 of
this Agreement;
(d) promptly advise Buyer orally and, within three (3) Business
Days thereafter, in writing of any change in the Company's business or condition
that has had or may have a Material Adverse Effect; and
(e) deliver to Buyer prior to the Closing a written statement
disclosing any untrue statement in this Agreement or any Schedule hereto (or
supplement thereto) or document furnished pursuant hereto, or any omission to
state any material fact required to make the statements herein or therein
contained complete and not misleading, promptly upon the discovery of such
untrue statement or omission, accompanied by a written supplement to any
Schedule to this Agreement that may be affected thereby; provided, however, that
-------- -------
the disclosure of such untrue statement or omission shall not prevent Buyer from
terminating this Agreement pursuant to Section 9.01(c) hereof at any time at or
prior to the Closing in respect of any original untrue or misleading statement.
SECTION 8.02 Covenants of Buyer. During the period commencing on
------------------
the date hereof and continuing through the Closing Date, Buyer agrees to:
(a) comply promptly with all requirements that applicable Legal
Requirements may impose upon it with respect to the transactions contemplated by
this Agreement, and shall cooperate promptly with, and furnish information to,
the Company and the Shareholders in connection with any such requirements
imposed upon the Shareholders or the Company or upon any of the Affiliates of
the Company in connection therewith or herewith;
(b) use its reasonable commercial efforts to obtain any consent,
authorization or approval of, or exemption by, any Person required to be
obtained or made by Buyer in connection with the transactions contemplated by
this Agreement;
(c) use its reasonable commercial efforts to preserve intact its
business organization, employees and other business relationships, to operate
its business in the Ordinary
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<PAGE>
Course and to maintain its books, records and accounts in accordance with GAAP;
and
(d) use its reasonable commercial efforts to bring about the
satisfaction of the conditions precedent to Closing set forth in Section 6.02 of
this Agreement.
SECTION 8.03 Access and Information.
----------------------
(a) Between the date hereof and the Closing Date, (i) the
Company will permit, and the Shareholders will cause the Company's officers,
directors, key employees and advisors to permit, Buyer and its representatives
and agents reasonable access to the Company's books and records, facilities, key
personnel, customers, suppliers, independent accountants and attorneys, as
requested by Buyer and (ii) Buyer will permit the Company and its
representatives and agents access to Buyer's books and records, facilities, key
personnel, customers, suppliers, independent accountants and attorneys, as
requested by the Company.
(b) Section 6 of the Letter of Intent (Confidentiality) shall
survive the execution and delivery of this Agreement. Each Shareholder hereby
agrees to be bound by the terms of Section 6 of the Letter of Intent as though
the Shareholder was an original party to the Letter of Intent.
SECTION 8.04 Expenses. Except as otherwise specifically provided
--------
herein, each party to this Agreement shall bear its own direct and indirect
expenses incurred in connection with the negotiation and preparation of this
Agreement and the consummation and performance of the transactions contemplated
hereby, including, without limitation, all legal fees and fees of any brokers,
finders or similar agents. The fees and expenses of the Escrow Agent under the
Escrow Agreement will be shared one-half by Buyer and one=half by the
Shareholders.
SECTION 8.05 Certain Notifications. At all times from the date
---------------------
hereof to the Closing Date, each party shall promptly notify the others in
writing of the occurrence of any event that will or may (i) render any
statement, representation or warranty of such party in this Agreement (including
the Schedules hereto) inaccurate or incomplete in any material respect or (ii)
constitute or result in the breach by such party of, or a failure to comply
with, any agreement or covenant in this Agreement applicable to such party or
(iii) result in the failure by such party to satisfy any of the conditions
specified in Article VI hereof.
SECTION 8.06 Publicity; Employee Communications. At all times prior
----------------------------------
to the Closing Date, each party shall obtain the
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<PAGE>
consent of all other parties hereto prior to issuing, or permitting any of its
directors, officers, employees or agents to issue, any press release or other
information to the press, employees of the Company or any third party with
respect to this Agreement or the transactions contemplated hereby; provided,
--------
however, that no party shall be prohibited from supplying any information to any
- -------
of is representatives, agents, attorneys, advisors, financing sources and others
to the extent necessary to complete the transactions contemplated hereby so long
as such representatives, agents, attorneys, advisors, financing sources and
others are made aware of and agree to be bound by the terms of this Section
8.06. Nothing contained in this Agreement shall prevent any party to this
Agreement at any time from furnishing any required information to any
Governmental Entity or authority pursuant to a Legal Requirement or from
complying with its legal or contractual obligations.
SECTION 8.07 Further Assurances.
------------------
(a) Subject to the terms and conditions of this Agreement, each
of the parties hereto agrees to use all reasonable efforts to take, or cause to
be taken, all action, and to do, or cause to be done, all things necessary,
proper or advisable under applicable Legal Requirements, to consummate and make
effective the transactions contemplated by this Agreement.
(b) If at any time after the Closing any further action is
necessary or desirable to carry out the purposes of this Agreement, the
Shareholders or the proper officers or directors of the Company, Buyer or Newco,
as the case may be, shall take or cause to be taken all such necessary or
convenient action and execute, and deliver and file, or cause to be executed,
delivered and filed, all necessary or convenient documentation.
SECTION 8.08 Inconsistent Action. The Shareholders shall not take or
-------------------
suffer to be taken, and shall not permit the Company to take or cause or suffer
to be taken, any action that would cause any of the representations or
warranties of the Shareholders in this Agreement to be untrue, incorrect,
incomplete or misleading.
SECTION 8.09 Post-Termination Employment. The Shareholders
---------------------------
acknowledge and agree that, subject to any written contracts of employment, if
any, after the Closing (a) neither Buyer nor the Surviving Corporation shall be
required to employ or retain any employee of the Company or any other Person,
and (b) Buyer, in its sole and absolute discretion, may cause the Surviving
Corporation to retain all, some, or none of such employees.
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<PAGE>
SECTION 8.10 Subordination. Each Shareholder agrees that the
-------------
Shareholder Promissory Note shall be subordinated in right of payment to payment
of Buyer's bank debt. Each Shareholder further agrees that, at the request of
Buyer it shall, or shall cause the Trustee to, execute a Subordination Agreement
containing provisions substantially equivalent to those set forth in Annex K
hereto, in favor of any such bank.
ARTICLE IX
TERMINATION, AMENDMENT AND WAIVER
---------------------------------
SECTION 9.01 Termination. This Agreement may be terminated at any
-----------
time prior to the Closing:
(a) by mutual consent of all of the parties hereto;
(b) by the Shareholders, on the one hand, or by Buyer, on the
other hand, by written notice to the other party or parties hereto if the Merger
shall not have been consummated on or before March 23, 1998 (or such later date
as Buyer and the Shareholders may agree), provided that in the case of a
termination under this clause (b), the party or parties terminating this
Agreement shall not then be in material breach of any of its or their
obligations under this Agreement;
(c) by Buyer if (i) there has been a material misrepresentation,
breach of warranty or breach of covenant by the Shareholders under this
Agreement or (ii) any of the conditions precedent to Closing set forth in
Section 6.01 have not been met on the Closing Date, and, in each case, Buyer is
not then in material default of its obligations hereunder; or
(d) by the Shareholders if (i) there has been a material
misrepresentation, breach of warranty or breach of covenant by Buyer under this
Agreement or (ii) any of the conditions precedent to Closing set forth in
Section 6.02 have not been met on the Closing Date, and, in each case, the
Shareholders are then in material default of its obligations hereunder.
SECTION 9.02 Effect of Termination.
---------------------
(a) In the case of any termination of this Agreement, the
provisions of Sections 8.03(b) and 8.04 shall remain in full force and effect.
(b) Upon termination of this Agreement as provided in Section
9.01(a), this Agreement shall forthwith
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become void and there shall be no liability or obligation on the part of any
party hereto or their respective directors, officers, employees, agents or other
representatives.
(c) In the event of termination of this Agreement as provided in
Section 9.1(b), (c) or (d) hereof, such termination shall be without prejudice
to any rights that the terminating party or parties may have against the
breaching party or parties or any other Person under the terms of this Agreement
or otherwise.
SECTION 9.03 Amendment. This Agreement may be amended only by a
---------
written instrument executed by each of the parties hereto. Any amendment
effected pursuant to this Section 9.03 shall be binding upon all parties hereto.
SECTION 9.04 Waiver. Any term or provision of this Agreement may be
------
waived in writing at any time by the party or parties entitled to the benefits
thereof. Any waiver effected pursuant to this Section 9.04 shall be binding
upon all parties hereto. No failure to exercise and no delay in exercising any
right, power or privilege shall operate as a waiver thereof, nor shall any
single or partial exercise of any right, power or privilege preclude the
exercise of any other right, power or privilege. No waiver of any breach of any
covenant or agreement hereunder shall be deemed a waiver of any preceding or
subsequent breach of the same or any other covenant or agreement. The rights
and remedies of each party under this Agreement are in addition to all other
rights and remedies, at law or in equity, that such party may have against the
other parties.
ARTICLE X
INDEMNIFICATION
---------------
SECTION 10.01 Survival of Representations and Warranties and
----------------------------------------------
Covenants.
- ---------
(a) The representations and warranties of the parties hereto
contained in this Agreement or in any writing delivered pursuant hereto or at
the Closing shall survive the execution and delivery of this Agreement and the
Closing and the consummation of the transactions contemplated hereby (and any
examination or investigation by or on behalf of any party hereto) until forty-
five (45) days after the date hereof (except for claims in respect thereof
pending at such time, which shall survive until finally resolved or settled);
provided, however, that the representations and warranties contained in Section
- -------- -------
3.25 shall survive until one hundred eighty (180) days after the date hereof.
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(b) No Action may be commenced with respect to any
representation, warranty, covenant or agreement in this Agreement, or in any
writing delivered pursuant hereto, unless written notice, setting forth in
reasonable detail the claimed breach thereof, shall be delivered pursuant to
Section 12.01 to the party or parties against whom liability for the claimed
breach is charged on or before the termination of the survival period specified
in Section 10.01(a) for such representation, warranty, covenant or agreement.
SECTION 10.02 Indemnification.
---------------
(a) Subject to the limitations set forth in Sections 10.02(c)
and (d), the Shareholders jointly and severally covenant and agree to defend,
indemnify and hold harmless Buyer and each Person who controls Buyer within the
meaning of the Securities Act, and after the Closing, the Company, from and
against any Damages arising out of or resulting from: (i) any inaccuracy in or
breach of any representation, warranty, covenant or agreement made by the
Shareholders in this Agreement or in any writing delivered pursuant to this
Agreement or at the Closing; provided, however, that certain projections
delivered to Buyer as listed on Schedule 10.02 hereof may not be relied upon by
Buyer or Newco (ii) the failure of the Shareholders or the Company to perform or
observe fully any covenant, agreement or provision to be performed or observed
by the Shareholders or the Company pursuant to this Agreement; or (iii) any
Action arising out of or resulting from the conduct by the Company of its
business or operations, or the Company's occupancy or use of its properties or
assets, on or prior to the Closing Date.
(b) Subject to the limitation set forth in Sections 10.02(e),
Buyer covenants and agrees to defend, indemnify and hold harmless the
Shareholders from and against any Damages arising out of or resulting from: (i)
any inaccuracy in or breach of any representation, warranty, covenant or
agreement made by Buyer in this Agreement or in any writing delivered pursuant
to this Agreement or at the Closing; or (ii) the failure by Buyer to perform or
observe any covenant, agreement or condition to be performed or observed by it
pursuant to this Agreement.
(c) The Shareholders' liability under this Section 10.02 shall
be allocated among them pro rata in accordance with the number of Shares owned
by each of them as set forth on Schedule 3.03 hereto. No Shareholder shall have
any right of contribution or equitable indemnification against the Company or
the Surviving Corporation for the Shareholders' obligations under Section
10.02(a).
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(d) The indemnification obligations of the Shareholders under
Section 10.02(a) (other than with respect to indemnification obligations arising
out of or related to Environmental Laws) shall apply only to the extent that the
amount of Damages exceeds an accumulated total of $50,000, at which point the
obligations of the Shareholders shall be to indemnify for all Damages (not
including the first $50,000). The maximum aggregate liability of the
Shareholders under this Section 10.02 (other than with respect to
indemnification obligations arising out of or related to Environmental Laws)
shall be Escrow Shares having a Fair Market Value (as defined in the Escrow
Agreement) of $200,000. The indemnification obligations of the Shareholders
under Section 10.02(a) with respect to indemnification obligations arising out
of or related to Environmental Laws shall apply only to the extent that the
amount of Damages exceeds an accumulated total of $75,000, at which point the
obligations of the Shareholders shall be to indemnify for all Damages (not
including the first $75,000). The maximum aggregate liability of the
Shareholders under this Section 10.02 respect to indemnification obligations
arising out of or related to Environmental Laws shall be Escrow Shares having a
Fair Market Value (as defined in the Escrow Agreement) of $500,000. The initial
amounts of $75,000 and $50,000 set forth above shall be in addition to all book
reserves on the Balance Sheet (except any reserve related to accounts
receivable), which book reserves shall be fungible and shall apply to any
category of liability of the Company.
(e) Buyer's liability under this Section 10.02 shall be limited
to $700,000 (excluding any obligation of Buyer with respect to the payment of
the Merger Consideration or the enforcement of the Shareholder Promissory Note
or the Creditor Promissory Note.
(f) The rights to indemnification set forth in this Section
10.02 shall be the sole and exclusive remedies of the parties with respect to
the breach of this Agreement, including without limitation the breach of any
representation, warranty, covenant or agreement contained in this Agreement.
Each party hereto shall retain all rights and remedies to which it may be
entitled under applicable law for matters other than the breach of this
Agreement (including, without limitation, conduct constituting fraud by any
party hereto in connection with the transactions contemplated hereby).
SECTION 10.03 Third Party Claims.
------------------
(a) If any party entitled to be indemnified pursuant to Section
10.02 or 11.03 (an "Indemnified Party") receives notice of the assertion by any
-----------------
third party of any claim or of the commencement by any such third person of any
Action
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(any such claim or Action being referred to herein as an "Indemnifiable Claim")
-------------------
with respect to which another party hereto (an "Indemnifying Party") is or may
------------------
be obligated to provide indemnification, the Indemnified Party shall promptly
notify the Indemnifying Party in writing (the "Claim Notice") of the
------------
Indemnifiable Claim; provided, however, that the failure to provide such notice
-------- -------
shall not relieve or otherwise affect the obligation of the Indemnifying Party
to provide indemnification hereunder, except to the extent that any Damages
directly resulted or were caused by such failure.
(b) The Indemnifying Party shall have thirty (30) days after
receipt of the Claim Notice to undertake, conduct and control, through counsel
of its own choosing, and at its expense, the settlement or defense thereof, and
the Indemnified Party shall cooperate with the Indemnifying Party in connection
therewith; provided, however, that (i) the Indemnifying Party shall permit the
-------- -------
Indemnified Party to participate in such settlement or defense through counsel
chosen by the Indemnified Party (subject to the consent of the Indemnifying
Party, which consent shall not be unreasonably withheld), provided that the fees
and expenses of such counsel shall not be borne by the Indemnifying Party, and
(ii) the Indemnifying Party shall not settle any Indemnifiable Claim without the
Indemnified Party's consent. So long as the Indemnifying Party is vigorously
contesting any such Indemnifiable Claim in good faith, the Indemnified Party
shall not pay or settle such claim without the Indemnifying Party's consent,
which consent shall not be unreasonably withheld.
(c) If the Indemnifying Party does not notify the Indemnified
Party within thirty (30) days after receipt of the Claim Notice that it elects
to undertake the defense of the Indemnifiable Claim described therein, the
Indemnified Party shall have the right to contest, settle or compromise the
Indemnifiable Claim in the exercise of its reasonable discretion; provided,
--------
however, that the Indemnified Party shall notify the Indemnifying Party of any
- -------
compromise or settlement of any such Indemnifiable Claim.
(d) Anything contained in this Section 10.03 to the contrary
notwithstanding, the Shareholders shall not be entitled to assume the defense
for any Indemnifiable Claim (and shall be liable for the reasonable fees and
expenses incurred by the Indemnified Party in defending such claim) if the
Indemnifiable Claim seeks an order, injunction or other equitable relief or
relief for other than money damages against Buyer or the Company which Buyer
determines, after conferring with its counsel, cannot be separated from any
related claim for money damages and which, if successful, would adversely affect
the business, properties or prospects of Buyer or the Company;
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provided, however, if such equitable relief portion of the Indemnifiable Claim
- -------- -------
can be so separated from that for money damages, the Shareholders shall be
entitled to assume the defense of the portion relating to money damages.
ARTICLE XI
REGISTRATION RIGHTS AND
-----------------------
ADDITIONAL RESTRICTIONS ON TRANSFER
-----------------------------------
SECTION 11.01 Registration of Shares.
----------------------
(a) Buyer shall at any time, upon the written request of a
majority of the holders of Registrable Securities, prepare and file with the
Commission a registration statement pursuant to Rule 415 (or any appropriate
similar rule that may be adopted by the Commission) under the Securities Act
covering the Registrable Securities (the "Registration"). The Registration
------------
shall be on Form S-3 or another appropriate form permitting registration of such
Registrable Securities for resale by such holders from time to time.
(b) Buyer shall use reasonable efforts to cause the Registration
to become effective under the Securities Act as soon as practicable following
the date on which the registration statement is filed with the Commission.
Subject to the requirements of the Securities Act including, without limitation,
requirements relating to updating through post-effective amendments or
otherwise, Buyer shall use reasonable efforts to keep the Registration
continuously effective until the third anniversary of the Closing Date. Buyer
shall use reasonable efforts to take such actions under the laws of various
states as may be required to cause the resale of the Shares pursuant to the
Registration to be lawful.
(c) Following the effectiveness of a registration statement
filed pursuant to this Section 11.01, Buyer may, at any time, suspend the
effectiveness of such Registration for up to 60 days, as appropriate (a
"Suspension Period"), by giving notice to each Shareholder, if Buyer shall have
------------------
determined that Buyer may be required to disclose any material corporate
development which disclosure may have a material adverse effect on Buyer.
Notwithstanding the foregoing, no more than two Suspension Periods (i.e., 120
----
days) may occur in immediate succession. The period of any such suspension of
the registration statement shall be added to the period of time Buyer agrees to
keep the registration statement effective as provided in Section 11.01(b).
Buyer shall use its best efforts to limit the duration and number of any
Suspension Periods. Each Shareholder agrees that, upon receipt of any notice
from Buyer of
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a Suspension Period, such Shareholder shall (or shall cause the Trustee to)
forthwith discontinue disposition of Merger Shares covered by such registration
statement or prospectus until such Shareholder (i) is advised in writing by
Buyer that the use of the applicable prospectus may be resumed, (ii) has
received copies of a supplemental or amended prospectus, if applicable, and
(iii) has received copies of any additional or supplemental filings which are
incorporated or deemed to be incorporated by reference in such prospectus.
SECTION 11.02 Expenses of Registration. All Registration Expenses
------------------------
shall be borne by Buyer; provided, however, that the term Registration Expenses
-------- -------
shall not include, and in no event will Buyer be obligated to pay, expenses and
fees of counsel for the Shareholders or stock transfer taxes relating to
Registrable Securities.
SECTION 11.03 Indemnification.
----------------
(a) Buyer will, and does hereby undertake to, indemnify and hold
harmless each Shareholder with respect to any registration effected pursuant to
this Article XI, against all Damages to which they may become subject under the
Securities Act, the Exchange Act, or other federal or state law arising out of
or based on (i) any untrue statements (or alleged untrue statement) of a
material fact contained in any prospectus, offering circular, or other similar
document incident to any such registration or based on any omission (or alleged
omission) to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, or (ii) any violation
or alleged violation by Buyer of any federal, state or common law rule or
regulation applicable to Buyer in connection with any such registration, and
will reimburse, as incurred, each such Shareholder for any legal and any other
expenses reasonably incurred in connection with investigating or defending any
such Damages; provided that Buyer will not be liable in any such case to the
extent that any such Damages arise out of or are based on any untrue statement
or omission based upon written information furnished to Buyer by an instrument
duly executed by such Shareholder and stated to be specifically for use therein.
(b) Each Shareholder will, if Registrable Securities held by or
issuable to such Shareholder are included in such registration, indemnify Buyer,
each of its directors, and each officer who signs a registration statement in
connection therewith, and each person controlling Buyer, and each other
Shareholder, against all Damages arising out of or based on any untrue statement
(or alleged untrue statement) of a material fact contained in any such
registration statement, prospectus, offering circular, or other document, or any
omission (or alleged
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omission) to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, and will reimburse, as
incurred, Buyer, each such other Shareholder, and each such director, officer
and controlling person, for any legal or any other expenses reasonably incurred
in connection with investigating or defending any such Damages, in each case to
the extent, but only to the extent, that such untrue statement (or alleged
untrue statement) or omission (or alleged omission) was made in such
registration statement, prospectus, offering circular, or other document, in
reliance upon and in conformity with written information furnished to Buyer by
an instrument duly executed by such Shareholder and stated to be specifically
for use therein.
(c) The procedures to be followed with respect to third party
claims by any party entitled to indemnification under this Section 11.03 shall
be as set forth in Section 10.03.
SECTION 11.04 Shareholder Information. Each Shareholder shall
-----------------------
furnish to Buyer such information regarding such Shareholder and the
distribution proposed by such Shareholder as Buyer may reasonably request in
writing and as shall be required in connection with any registration,
qualification, or compliance referred to in this Agreement.
SECTION 11.05 Restrictions on Transfer. In addition to the
------------------------
restrictions on transfer described in Section 5.05 hereof, each Shareholder
hereby agrees that:
(a) The shares of Buyer Common Stock which such Shareholder
receives in the Merger may not be sold, assigned, conveyed, hypothecated,
transferred or subjected to any Lien until the Anniversary Date, and any
transfer or pledge in violation of this Section 11.05(a) (other than pursuant to
the terms of the Escrow Agreement) shall be null and void ab initio; and
-- ------
(b) After the Anniversary Date, the number of shares of Buyer
Common Stock which the Shareholder may sell in any calendar week, combined with
shares of Buyer Common Stock sold by other Shareholders in the same calendar
week, may not (without the prior written consent of Buyer) exceed, in the
aggregate, five percent (5%) of the aggregate number of shares of Buyer Common
Stock received by the Shareholders in the Merger. Each Shareholder further
agrees that it shall use its best efforts to cause the Trustee to comply with
the requirements of this Section 11.05(b).
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ARTICLE XII
GENERAL PROVISIONS
------------------
SECTION 12.01 Notices. All notices and other communications under
-------
or in connection with this Agreement shall be in writing and shall be deemed
given (a) if delivered personally, upon delivery, (b) if delivered by registered
or certified mail (return receipt requested), upon the earlier of actual
delivery or three days after being mailed, or (c) if given by facsimile, upon
confirmation of transmission by facsimile, in each case to the parties at the
following addresses:
(a) If to Buyer or Newco, addressed to:
Interiors, Inc.
320 Washington Street
Mt. Vernon, New York 10553-1017
Facsimile: (914) 665-5469
Attention: Mr. Max Munn
With copies to:
Paul, Hastings, Janofsky & Walker LLP
Twenty-Third Floor
555 South Flower Street
Los Angeles, California 90071
Facsimile: (213) 627-0705
Attention: DeAnne H. Ozaki, Esq.
and
Mr. Dennis D'Amore
1755 Glendale Boulevard
Los Angeles, California 90026
Facsimile: (213) 664-5679
and
Irvin Rothfarb, Esq.
15 West 53/rd/ Street
New York, New York 10019
Facsimile: (212) 262-6228
(b) If to the Company, addressed to:
Merchandise Sales, Inc.
3817 Bonwood Drive
Charlotte, North Carolina 28211
Marked Confidential
Attention: Mr. Robert M. Perkowitz
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<PAGE>
With a copy to:
Jeffer, Mangels, Butler & Marmaro LLP
2121 Avenue of the Stars, 10/th/ Floor
Los Angeles, California 90067
Facsimile: (310) 203-0567
Attention: William F. Capps, Esq.
(c) If to the Shareholders, addressed to:
Sienna Holdings
2330 Marinship Way
Suite 220
Sausalito, California 94965
Attention: Mr. Steve West
Facsimile: (415) 339-2805
With a copy to:
Jeffer, Mangels, Butler & Marmaro LLP
2121 Avenue of the Stars, 10/th/ Floor
Los Angeles, California 90067
Facsimile: (310) 203-0567
Attention: William F. Capps, Esq.
SECTION 12.02 Severability. If any term or provision of this
------------
Agreement or the application thereof to any circumstance shall, in any
jurisdiction and to any extent, be invalid or unenforceable, such term or
provision shall be ineffective as to such jurisdiction to the extent of such
invalidity or unenforceability without invalidating or rendering unenforceable
such term or provision in any other jurisdiction, the remaining terms and
provisions of this Agreement or the application of such terms and provisions to
circumstances other than those as to which it is held invalid or enforceable.
SECTION 12.03 Entire Agreement. Except as specifically set forth
----------------
herein, this Agreement, including the annexes and schedules attached hereto and
other documents referred to herein, contain the entire understanding of the
parties hereto in respect of their subject matter and supersede all prior and
contemporaneous agreements and understandings, oral and written, among the
parties with respect to such subject matter, including, without limitation, the
Letter of Intent.
SECTION 12.04 Successors and Assigns. This Agreement shall be
----------------------
binding upon and inure to the benefit of each of the parties hereto and their
respective successors, heirs and
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assigns; provided, however, that no party may assign either this Agreement or
-------- -------
any of its rights, interests or obligations hereunder in whole or in part
without the prior written consent of the other parties hereto (other than to the
Surviving Corporation as a result of the Merger), and any such transfer or
assignment without said consent shall be void, ab initio. Subject to the
---------
immediately preceding sentence, this Agreement is not intended to benefit, and
shall not run to the benefit of or be enforceable by, any other person or entity
other than the parties hereto and their permitted successors and assigns.
SECTION 12.05 Counterparts. This Agreement may be executed in one
------------
or more counterparts, each of which shall be deemed an original, but all such
counterparts together shall constitute but one and the same Agreement.
SECTION 12.06 Schedules and Annexes. The schedules and annexes to
---------------------
this Agreement are incorporated herein and, by this reference, made a part
hereof as if fully set forth at length herein.
SECTION 12.07 Construction.
------------
(a) The article, section and subsection headings used herein are
inserted for reference purposes only and shall not in any way affect the meaning
or interpretation of this Agreement.
(b) As used in this Agreement, the masculine, feminine or neuter
gender, and the singular or plural, shall be deemed to include the others
whenever and wherever the context so requires.
(c) For the purposes of this Agreement, unless the context
clearly requires, "or" is not exclusive.
SECTION 12.08 Consent to Jurisdiction. Each party hereto irrevocably
-----------------------
submits to the exclusive jurisdiction of the courts of the State of California
and the United States District Court for the Central District of California for
the purpose of any suit, action, proceeding or judgment relating to or arising
out of this Agreement and the transactions contemplated hereby and to the laying
of venue in any such court. Each party hereto irrevocably waives any objection
to the laying of venue of any such suit, action or proceeding brought in any
such court and irrevocably waives any claim that any such suit, action or
proceeding brought in any such court has been brought in an inconvenient forum.
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SECTION 12.09 Governing Law. This Agreement shall be governed by
-------------
and construed in accordance with the internal laws (and not the law of
conflicts) of the State of Delaware.
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IN WITNESS WHEREOF, the parties have caused this Agreement to be duly
executed as of the day and year first above written.
ARTMASTER STUDIOS, INC.
By: /s/ John D. Mazzuto
______________________________________
An Authorized Officer
INTERIORS, INC.
By: /s/ John D. Mazzuto
______________________________________
An Authorized Officer
MERCHANDISE SALES, INC.
By: /s/ Robert M. Perkowitz
______________________________________
Robert M. Perkowitz
President
PARADIGM MANAGEMENT, INC.
By: /s/ Robert M. Perkowitz
______________________________________
Robert M. Perkowitz
President
SIENNA LIMITED PARTNERSHIP II
BY: SIENNA ASSOCIATES, its general
partner
By: /s/ Daniel L. Skaff
______________________________________
Daniel L. Skaff
Chairman of the General Partners
/s/ Daniel L. Skaff
_________________________________________
Daniel L. Skaff
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