SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-------
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES AND EXCHANGE ACT OF 1934
Date of Report (date of earliest event reported) FEBRUARY 12, 1996
LOIS/USA INC.
(Exact name of registrant as specified in its charter)
DELAWARE 33-83894 13-3441962
(State or other jurisdiction of (Commission (IRS Employer
incorporation) File Number) ID Number)
40 WEST 57TH STREET, NEW YORK, NEW YORK 10019
(Address of principal executive offices) (Zip Code)
Registrant's Telephone Number,
including area code: (212) 373-4700
- ---------------------------------------
(Former name or former address, if changed since last report)
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ITEM 2 - ACQUISITIONS AND DISPOSITIONS
On February 12, 1996 Lois/USA Inc. ("Lois/USA") acquired the outstanding shares
of Eisaman, Johns & Laws Advertising, Inc. ("EJL"), a national advertising
agency, established in 1959, with its principal advertising offices in Los
Angeles, Chicago, Houston and Detroit.
Pursuant to the Stock Purchase Agreement (the "Agreement"), dated
February 12, 1996,with the shareholders of EJL, Lois/USA made an initial cash
payment of $4,000,000 and issued 333,333 shares of Lois/USA stock having a value
of $2,000,000 ($6.00 per share) at the date issued.
The Sellers will receive as additional purchase price, an amount equal
to 5% of the combined revenue of Lois/USA and EJL, as defined in the Agreement,
for an additional maximum of $12,000,000 of purchase price (the "Additional
Purchase Price"). Payments will be made in the ratio of 75% cash and 25% in
Lois/USA stock, valued at $6.00 per share for the first four quarters and
thereafter based upon the fair market value of Lois/USA stock as defined in the
Agreement. At least $1,750,000 of Additional Purchase Price MUST BE PAID for the
year ending December 31, 1996, and the sellers have been guaranteed a minimum
Additional Purchase Price of $6,000,000 in cash. To the extent that this minimum
cash amount is not paid by December 31, 1999, all further payments must be made
in cash until the guaranteed cash amount has been made; then all Additional
Purchase Price will be paid in additional shares until the payment ratio has
been restored and then all remaining payments will be made in the payment ratio.
The Agreement provides the Sellers with the ability to put shares of Additional
Purchase Price back to the Company in the event that the minimum cash amounts
have not been paid to the Sellers. Such shares can be put back to the Company
based at the value on the date such shares were initially issued on a last-in
first out basis. The Sellers cannot put the initial 333,333 shares back to the
Company.
Interest will be payable on any missed payment of Additional Purchase Price at
the prime rate plus 2% for the first missed payment and an additional 5%
beginning with the second consecutive missed and uncured payment.
The Sellers will receive a final purchase price payment of $750,000 in
additional shares in 2001.
At the closing of the transaction on February 12, 1996, the Sellers
were required to deliver $2,200,000 of net worth, as defined in the Agreement,
and based upon EJL's historical cost as determined under generally accepted
accounting principles. To the extent an amount in excess of $2,200,000 was
delivered, Lois/USA agreed to issue the Sellers a three-year subordinated
installment note, payable quarterly, and bearing interest at Chemical Bank's
prime rate plus 1.5%. This note would be subordinated to the Company's bank
indebtedness. If less than $2,200,000 was delivered, the cash portion of the
purchase price was to be reduced. According to the final balance sheet, the
Sellers delivered $2,211,000 at closing, although the values of certain assets
delivered is being disputed.
To the extent Lois/USA consummates a public offering within 12 months of the
acquisition date at a price per share less than $6.00, Lois/USA will increase
the number of initial shares to the Sellers based upon the offering price.
Lois/USA has granted the Sellers certain rights with respect to registration of
the shares under the Securities Act of 1933. Lois/USA's two majority
shareholders also entered into a shareholders' agreement with EJL's four
majority shareholders which, among other things, entitles the former EJL
shareholders to elect one director to Lois/USA's board of directors.
Concurrent with the Acquisition, Lois/USA entered into five-year employment
agreements with four of the senior EJL executives which will provide for
aggregate compensation of $1,165,000 per year, renewable upon the mutual
agreement of the parties. Bonuses are discretionary and upon termination of
three of the employment agreements, the executives will enter into consulting
agreements for a five year term, with compensation to each executive of $100,000
per year. Each employment agreement provides for a two year non-competition
clause and provisions for health and life insurance and the payment of costs of
medical coverage.
Lois/USA accounted for the transaction using the purchase method of
accounting. The Company's consolidated financial statements have included EJL's
activity since February 12, 1996. At the date of acquisition, the excess of the
minimum guaranteed purchase price of $12,750,000 (the "Minimum Guaranteed
Purchase Price") over the fair market value of the net assets acquired was
reflected in the Company's consolidated financial statements as goodwill. As
payments of Additional Purchase Price are made, such payments are accounted
for as increases to goodwill. None of the recorded goodwill will be deductible
for income tax purposes. This goodwill will be amortized over a 20-year life. As
a result of the non-deductibility of goodwill, the Company's effective tax rate
has been adversely impacted.
Additional minimum guaranteed purchase price payments of $6,750,000 will be
reflected as a liability on the Company's balance sheet at the acquisition date
and will be reduced as additional cash payments are made. The accounting for
additional share issuances through the date that the put feature continues to be
available to the Sellers will be similar to the treatment of redeemable stock
which is classified outside of shareholders' equity. At the time that the
minimum cash purchase price payments have been made and the ability of the
sellers to put shares back to the Company ceases, the value of additional
shares, if any, issued to the sellers will be reclassified as stockholders'
equity.
In connection with the acquisition, the Company acquired a significant amount of
excess space in Los Angeles and Chicago, and the long-term lease in Los Angeles
has a lease rate that is substantially higher than currently prevailing in the
market. The accompanying pro forma consolidated balance sheet reflects reserves
for management's estimate of the future cost of excess space and for the cost of
leases in excess of current market rates.
ITEM 7 - FINANCIAL STATEMENTS
(a) Pro Forma consolidated financial statements as of December
31, 1995 and for the year ended December 31, 1995, giving effect to the above
referenced acquisition.
(b) Audited consolidated financial statements of EJL for the
fiscal years ended February 28, 1995, 1994 and 1993 are attached as an exhibit
to this report.
(c) Unaudited consolidated financial statements of
EJL as of January 31, 1996 and 1995 are attached as an
exhibit to this report
EXHIBITS
1.1 Stock Purchase Agreement among Lois/USA Inc.,
and the shareholders of Eisaman, Johns & Laws
Advertising, Inc. dated February 12, 1996
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<TABLE>
<CAPTION>
LOIS/USA INC.
PRO FORMA CONSOLIDATED BALANCE SHEET
AS OF DECEMBER 31, 1995
STOCK
PURCHASE PRO LOIS/USA
LOIS AGREEMENT FORMA PRO
USA EJL ADJUSTMENTS ADJUSTMENTS FORMA
Assets
CURRENT ASSETS
<S> <C> <C> <C> <C> <C>
Cash and Cash Equivalents $ 1,729 $ 2,916 $ 39(a) $ (3,085)(b) $ 1,599
Accounts Receivable, Net 19,527 8,250 2,581(a) (356)(d) 30,002
Investments 150 0 150
Expenditures Billable to Clients 1,388 511 (1)(a) 1,898
Deferred Tax Asset 76 0 76
Prepaid Tax 270 32 (32)(a) 270
Other Current Assets 130 518 (304)(a) 344
Total Current Assets 23,270 12,227 2,283 (3,441) 34,339
Property and Equipment, Net 332 905 7(a) 100(e) 1,344
OTHER ASSETS
Deferred Financing and Offering Costs 212 - 225(e) 437
Cash Surrender Value of Officers Life
Insurance - 471 (240)(d) 231
Deferred Tax Asset - 41 59(a) 100
Goodwill 325 - 19,318(e) 19,643
Other Assets 51 112 163
Total Other Assets 588 624 59 19,303 20,574
Total Assets $ 24,190 $13,756 $ 2,349 $ 15,962 $56,257
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
LOIS/USA INC.
PRO FORMA CONSOLIDATED BALANCE SHEET
AS OF DECEMBER 31, 1995
STOCK
PURCHASE PRO LOIS/USA
LOIS AGREEMENT FORMA PRO
USA EJL ADJUSTMENTS ADJUSTMENTS FORMA
Total Liabilities and
Stockholders' Equity (Deficit)
CURRENT LIABILITIES
<S> <C> <C> <C> <C> <C>
Accounts Payable $ 24,613 $ 9,506 $ 1,683(a) $ 318(d) $ 36,120
Bank Borrowings 1,500(b) 1,500
Accrued Expenses and Other
Current Liabilities 221 573 498(a) 1,565(c) 2,857
Deferred Purchase Price 1,750(b) 1,750
Total Current Liabilities 24,834 10,079 2,181 5,133 42,227
OTHER LIABILITIES
Lease Related Reserves 6,029(c) 6,029
Deferred Payouts and Other Liabilities 46 1,407 226(a) 1,679
Deferred Purchase Price 12(a) 5,000(b) 5,012
Total Liabilities 24,880 11,486 2,419 16,162 54,947
STOCKHOLDERS' EQUITY (DEFICIT)
Preferred Stock 0
Common Stock 22 124 3(b) 25
(124)(f)
Additional Paid in Capital 3,746 950 1,997(b) 5,743
(950)(f)
Accumulated Deficit (4,458) 1,196 (70)(a) (1,126)(f) (4,458)
Total Stockholders' Equity
(Deficit) (690) 2,270 (70) (200) 1,310
Total Liabilities and
Stockholders' Equity (Deficit) $ 24,190 $13,756 $ 2,349 $ 15,962 $ 56,257
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
LOIS/USA INC.
PRO FORMA CONSOLIDATED BALANCE SHEET
AS OF DECEMBER 31, 1995
STOCK
PURCHASE PRO LOIS/USA
LOIS AGREEMENT FORMA PRO
USA EJL ADJUSTMENTS ADJUSTMENTS FORMA
Total Liabilities
Stockholders' Equity (Deficit)
INCOME
<S> <C> <C> <C> <C> <C>
Commissions and Fees $ 16,035 $ 16,683 $ $ (244)(c) $ 32,474
OPERATING EXPENSES
Salaries and related costs, net 9,986 12,358 51(b) 22,395
Client Services 1,387 632 2,019
Rent and related services 1,334 2,063 (1,278)(a) 2,119
Amortization of Goodwill 88 966(d) 1,054
Depreciation and amortization 215 310 14(e) 539
Other operating expenses 1,723 2,523 4,246
Total Operating Expenses 14,733 17,886 0 (247) 32,372
Operating Income 1,302 (1,203) 0 3 102
NONOPERATING EXPENSES (INCOME)
Interest, Net 138 (391) (253)
Amortization of Deferred Financing Costs 56 45(f) 101
Other Expenses (173) (173)
Total Nonoperating Expenses (Income) 194 (564) 0 45 (325)
Net Income (Loss) Before Provision
For Income Taxes 1,108 (639) 0 (42) 427
Provision for Income Taxes (Credits) 390 (437) 665(g) 618
Net Income (Loss) $ 718 (202) $ 0 $ (707) $ (191)
Net Income (Loss) Per Common Share $ 0.33 $ $ $ (0.08)
Weighted Average Number of
Shares Outstanding 2,175,000 333,333 2,508,333
</TABLE>
<PAGE>
PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
The following pro forma consolidated financial statements (the "Pro Forma
Financial Statements") of Lois/USA include the unaudited Pro forma consolidated
statement of income for the year ended December 31, 1995 (the "Pro Forma
Consolidated Statement of Income") and the unaudited pro forma consolidated
balance sheet as of December 31,1995 (the "Pro Forma Consolidated Balance
Sheet").
The Pro Forma Consolidated Statement of Income is based on Lois/USA's audited
consolidated statement of income for the year ended December 31, 1995 and the
unaudited consolidated financial statements of EJL for the year ended December
31. 1995 (EJL's audited consolidated financial statements for the fiscal years
ended February 28, 1995, 1994 and 1993, and its unaudited consolidated financial
statements for the eleven months ended January 31, 1996 and 1995 are included
elsewhere in this filing). These financial statements have been adjusted to give
effect to Lois/USA's acquisition of EJL as though it had occurred as of January
1, 1995, the beginning of Lois/USA's reporting year.
The Pro Forma Consolidated Statement of Income reflects pro forma adiustments to
(a) eliminate the effect of certain transactions contemplated in the Agreement,
and (b) give effect to (i) the acquisition of EJL by Lois/USA and the related
financing transactions ; (ii) the elimination of excess space costs; and (iii) a
reduction in lease costs associated with the excess cost of the Los Angeles
lease over current market rates.
The Pro Forma Consolidated Balance Sheet is based on the audited Lois/USA
consolidated balance sheet at December 31, 1995 and is adjusted to (a) eliminate
the effect of certain transactions contemplated in the Agreement, and (b) give
effect to (i) the acquisition of EJL by Lois/USA and the related financing
transactions, including the application of the estimated net proceeds therefrom
as though they had occurred as of December 31, 1995; (ii) incremental costs for
severance anticipated to occur as a direct result of management's formal plan to
integrate EJL; (iii) management's estimate as to the future cost associated with
excess space in Chicago and Los Angeles (net of anticipated sub-lease revenues);
and (iv) management's estimate as to the excess of the cost of the Los Angeles
lease over the currently prevailing market rate. The Acquisition will be
accounted for by the purchase method of accounting, pursuant to which the
purchase price is allocated among the acquired assets and liabilities in
accordance with estimates of fair market value on the date of acquisition. The
Pro Forma Consolidated Balance Sheet reflects the allocation of the purchase
price to the acquired assets and liabilites. The amount of net assets delivered
by the sellers at Closing of $2,211,000 is currently being disputed. The pro
forma adjustments reflect adjustments to reduce the seller's value of the
acquired assets to management's estimate of fair market. These values are
currently in dispute and may give rise to a subsequent reduction in the purchase
price. A substantial portion of the excess purchase price has been allocated to
goodwill. No other specific intangibles have been identified.
The Pro Forma Financial Statements and the accompanying notes should be read in
conjunction with Lois/USA's historical audited consolidated financial statements
and related notes thereto, and EJL's audited consolidated financial statements
and related notes thereto, appearing elsewhere in this filing.
The Pro Forma Financial Statements do not purport to be indicative of the
Lois/USA's financial condition or the results that would have actually been
obtained had such transactions been consummated as of the assumed dates and for
the periods presented, nor are they indicative Lois/USA's results of operation
or financial condition for any future period or date.
<PAGE>
NOTES TO THE PRO FORMA CONSOLIDATED BALANCE SHEET
(UNAUDITED)
(a) Adjustment to increase or decrease the January 31, 1996 balances to the
amount actually delivered at closing on February 12, 1996, and to reflect the
amount owing to the sellers ($12,000) for the excess of the net assets delivered
over the amount required to be delivered pursuant to the Stock Purchase
Agreement of $2,200,000.
(b) Reflects the impact of the acquisition of EJL by Lois/USA.
The purchase cost and liabilities are as follows:
Acquisition Cost:
Minimum Guaranteed Purchase Price $12,750,000
Transaction costs 585,000
Total Acquisition Cost $13,335,000
Funded by:
Issuance of shares of Lois/USA stock $ 2,000,000
Cash paid to seller at closing
Available cash resources $2,500,000
Borrowings under Bank facility 1,500,000
Total cash to Sellers at Closing 4,000,000
Transaction costs funded by cash 585,000
Deferred Guaranteed Purchase Price liability 6,750,000
Total sources of funds $13,335,000
(c) In connection with its decision to acquire EJL, management of Lois/USA
prepared a strategic integration plan to (i) terminate certain employee
positions, (ii) relocate personnel from EJL's Chicago office into Lois/USA's
Chicago office and exit EJL's Chicago office, and (iii) reduce the amount of
leased space occupied within EJL's Los Angeles office. For accounting purposes,
estimated severance costs associated with terminated employees have been
accounted for as an acquisition date liability and the related severance costs
will not be charged to subsequent period earnings. In addition, the Company has
recognized an acquisition date liability for excess space in Los Angeles and
Chicago (net of anticipated sub-lease revenues) and for the excess of the lease
cost for the Los Angeles lease over current fair market value. These acquisition
date reserves are as follows:
Severance $ 150,000
Excess space - Los Angeles,
3,276,000
Excess space - Chicago, net of anticipated
sublease revenues of $1,380 1,657,000
Excess of lease cost for Los Angeles
lease over current fair market value 2,511,000
Total Acquisition date liabilities $ 7,594,000
Current Portion $1,565,000
Long-term portion $6,029,000
(d) Management is currently disputing the values of certain assets delivered by
the Sellers at closing, and has (i) reduced the carrying amount of the Cash
Surrender Value of certain life insurance policies to their estimated market
value; (ii) reduced the amount of recorded receivables to their estimated
recoverable amounts; and (iii) established a liability for certain amounts owed
to a client that was not previously reflected in the balance sheet delivered by
the Sellers. Should such amounts be recovered from the Sellers, the proceeds
will be used to reduce the amount of goodwill recorded as detailed in (e) below.
(e) Determination of Excess Purchase Price:
Acquisition cost per above $13,335,000
Less: Historical net assets acquired of $2,211,000,
less Stock Purchase Agreement adjustments
of $11,000 as per (a) above (2,200,000)
Incremental reserves as per (c) above 7,594,000
Value adjustments as per (d) above 914,000
Excess Purchase Price $19,643,000
Allocation of Excess Purchase Price:
Fixed assets $ 100,000
Goodwill 19,318,000
Deferred financing fees 225,000
Deferred tax asset 3,363,000
Valuation allowance for deferred taxes (3,363,000)
$19,643,000
A valuation allowance for deferred taxes has been established for the full
amount of future deferred tax assets given that management has concluded that
the realization of such deferred tax asset is not more likely than not.
(f) Entry to eliminate historical EJL equity, less Stock Purchase Agreement
Adjustments.
<PAGE>
NOTES TO THE PRO FORMA CONSOLIDATED STATEMENT OF INCOME
(UNAUDITED)
(a) As further described in note (c) to the unaudited consolidated balance
sheet, the Company has recorded reserves for excess space and the excess of
lease costs over current fair market value. This adjustment reduces historical
lease expense to reflect the amount of lease expense that will be reflected in
the post-acquisition consolidated statement of income.
(b) Reflects incremental future compensation costs to be incurred by Lois/USA as
a result of compensation differences between the amounts contractually agreed
with the senior management of EJL and the costs reflected in the historical EJL
statement of income for the year ended December 31, 1995.
(c) As further described in note (d) to the unaudited consolidated balance
sheet, the Company has identified adjustments to reserves for uncollectible
accounts, and certain accruals that EJL should have reflected in the net assets
delivered at closing. These amounts represent Lois/USA management's estimate of
the amount of such adjustments that should have been reflected in EJL's income
statement for the year ended December 31, 1995.
(d) Reflects amortization of goodwill as a result of the allocation of the
excess of the purchase price over identified net assets acquired. The excess
purchase price is being amortized over 20 years.
(e) Reflects increased depreciation expense resulting from the allocation of a
portion of the purchase price to fixed assets, using an average life of 7
years.
(f) Reflects net incremental interest expense associated with higher borrowing
levels post-acquisition. Lois/USA management has assumed that incremental
borrowings of approximately $1.5 million will be outstanding on an average of
180 days in the period following acquisition, and that the assumed weighted
average rate would be 10.5%. If actual interest rates were higher or lower by
1/8% than the rate assumed, then interest expense would increase or decrease by
$1,000 for the year ended December 31, 1995. If the full amount of the
acquisition indebtedness were assumed to be outstanding for the full year,
interest expense would be $79,000 higher than that reflected in the unaudited
pro forma statement of income.
(g) Reflects the pro forma income tax provision (benefit) associated with pro
forma adjustments. The non-deductibility of the goodwill arising on the
acquisition has a significant impact on the Company's effective tax rate.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized
LOIS/USA, INC.
By:/s/ Robert K. Stewart
Name: Robert K. Stewart
Title: Chief Financial Officer
Dated: February 13, 1997
<PAGE>
EXHIBIT INDEX
Exhibit Description of Exhibit
1.1 Stock Purchase Agreement among Lois/USA
Inc. and the shareholders of Eisaman,
Johns & Laws Advertising, Inc. dated
February 12, 1996.
EXHIBIT 1.1
EXECUTION COPY
STOCK PURCHASE AGREEMENT
by and among
The Shareholders listed on Exhibit A hereto
and
LOIS/USA INC.
Dated as of: February 12, 1996
<PAGE>
STOCK PURCHASE AGREEMENT
TABLE OF CONTENTS
ARTICLE I DEFINITIONS...................................... 1
1.1 Defined Terms.................................... 1
1.2 Other Defined Terms.............................. 5
ARTICLE II PURCHASE AND SALE OF STOCK....................... 6
2.1 Sale of Stock.................................... 6
2.2 Purchase Price................................... 6
2.3 Additional Consideration......................... 7
2.4 Closing Costs; Transfer Taxes.................... 9
2.5 Preparation of Financial Statements;
Determination of Combined Revenue................ 9
2.6 Net Worth Adjustment............................. 10
2.7 Dubai Net Worth Adjustment....................... 10
2.8 Fractional Shares................................ 10
2.9 Purchase Price Adjustment........................ 10
2.10 Missed Earn-Out Payments......................... 11
2.11 Combined Revenue Adjustment...................... 11
ARTICLE III CLOSING.......................................... 11
3.1 Closing.......................................... 11
3.2 Employment Agreement............................. 12
3.3 Registration Rights Agreement.................... 12
3.4 Shareholders' Agreement.......................... 12
3.5 Other Deliveries at Closing...................... 12
3.6 December Balance Sheet........................... 12
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF SELLERS........ 13
4.1 Organization of the Company and its Subsidiary... 13
4.2 Certificates of Incorporation, By-Laws, etc...... 13
4.3 Authorization. ................................. 14
4.4 Absence of Certain Changes or Events............. 14
4.5 Capital Stock.................................... 16
4.6 Title to Assets.................................. 17
4.7 Condition of Tangible Assets..................... 17
4.8 Contracts and Commitments........................ 18
4.9 No Conflict or Violation......................... 19
4.10 Restrictive Documents............................ 19
4.11 Consents and Approvals........................... 19
4.12 Financial Statements............................. 20
4.13 Litigation....................................... 20
4.14 Labor Matters.................................... 20
4.15 Liabilities...................................... 21
4.16 Compliance with Law.............................. 21
4.17 No Brokers....................................... 21
4.18 No Other Agreements to Sell the Company Stock.... 21
4.19 Proprietary Rights............................... 22
4.20 Employee Benefit Plans........................... 23
4.21 Transactions with Certain Persons................ 26
4.22 Tax Matters...................................... 27
4.23 Insurance........................................ 29
4.24 Purchase Commitments and Outstanding Bids........ 29
4.25 Payments......................................... 29
4.26 Customers........................................ 30
4.27 Compliance With Legislation Regulating
Environmental Quality........................... 30
4.28 Vacation Time, Bonuses, Etc...................... 30
4.29 Compensation..................................... 31
4.30 Material Misstatements Or Omissions.............. 31
4.31 Books and Records................................ 31
4.32 Bank Accounts; Powers of Attorney................ 31
4.33 Accounts Receivable.............................. 31
4.34 Full Disclosure.................................. 32
ARTICLE V REPRESENTATIONS AND WARRANTIES OF BUYER.......... 32
5.1 Organization of Buyer............................ 32
5.2 Authorization.................................... 32
5.3 No Conflict or Violation......................... 32
5.4 Consents and Approvals........................... 33
5.5 Issuance of Shares............................... 33
5.6 No Brokers....................................... 33
5.7 Full Disclosure.................................. 33
5.8 Investment Representations....................... 33
5.9 Financial Statements............................. 34
5.10 Financing........................................ 34
5.11 Private Offering................................. 34
ARTICLE VI COVENANTS OF SELLERS AND BUYER................... 35
6.1 Maintenance of Business Prior to Closing......... 35
6.2 Investigation by Buyer........................... 35
6.3 Consents and Best Efforts........................ 35
6.4 Certain Prohibited Transactions.................. 36
6.5 Notification of Certain Matters.................. 37
6.6 No Mergers, Consolidations, Sale of Stock, Etc... 37
6.7 Financial Certifications......................... 37
6.8 Financial Statements............................. 37
ARTICLE VII CONDITIONS TO SELLERS' OBLIGATIONS............... 38
7.1 Representations, Warranties and Covenants........ 38
7.2 Consents......................................... 38
7.3 No Governmental Proceedings or Litigation........ 38
7.4 Opinion of Counsel............................... 38
7.5 Corporate Documents.............................. 40
7.6 Registration Rights Agreement.................... 40
7.7 Employment Agreement............................. 40
7.8 Certificates..................................... 40
7.9 Shareholders' Agreement.......................... 40
ARTICLE VIII CONDITIONS TO BUYER'S OBLIGATIONS................ 40
8.1 Representations, Warranties and Covenants........ 40
8.2 Consents......................................... 41
8.3 No Governmental Proceedings or Litigation........ 41
8.4 Employment Agreement............................. 41
8.5 Registration Rights Agreement.................... 41
8.6 Agency Agreement................................. 41
8.7 Shareholders' Agreement.......................... 41
8.8 Opinion of Counsel............................... 41
8.9 Certificates..................................... 43
8.10 Material Changes................................. 43
8.11 Financing........................................ 43
ARTICLE IX INVESTMENT REPRESENTATIONS OF SELLERS............ 43
9.1 Investment Intent................................ 43
9.2 No Registration under Federal or State
Securities Laws.................................. 43
9.3 Restrictive Legend and Stop Transfer Order...... 44
9.4 Investment Experience............................ 44
9.5 Access to Information............................ 45
9.6 Investment Risks................................. 45
9.7 Commissions and Advertising...................... 45
ARTICLE X ACTIONS BY SELLERS AND BUYER
AFTER THE CLOSING................................ 45
10.1 Books and Records................................ 45
10.2 Survival of Representations, Etc................. 45
10.3 Indemnifications................................. 46
10.4 Further Assurances............................... 48
10.5 Offset........................................... 48
ARTICLE XI RESOLUTION OF CERTAIN DISPUTES................... 49
11.1 Arbitration Procedure............................ 49
ARTICLE XII MISCELLANEOUS.................................... 50
12.1 Assignment....................................... 50
12.2 Notices; Transfer of Funds....................... 50
12.3 Governing Law.................................... 51
12.4 Entire Agreement; Modifications and Waivers...... 51
12.5 Counterparts..................................... 51
12.6 Expenses......................................... 52
12.7 Invalidity....................................... 52
12.8 Titles........................................... 52
12.9 Publicity........................................ 52
EXHIBITS
Exhibit
A. List of Sellers and their Percentage Interests.......... A-1
B. Financial Statements.................................... B-1
C. Summary of Significant Accounting Policies.............. C-1
D. Form of Employment Agreements........................... D-1
E. Registration Rights Agreement........................... E-1
F. Required Consents or Approvals of Buyer................. F-1
G. Agency Agreement........................................ G-1
H. Shareholders' Agreement................................. H-1
I. List of Facilities...................................... I-1
J. Form of Note............................................ J-1
K. List of Investment Bankers.............................. K-1
<PAGE>
STOCK PURCHASE AGREEMENT
This STOCK PURCHASE AGREEMENT (the "Agreement"), dated as of February
12, 1996, is by and among the shareholders of EISAMAN, JOHNS & LAWS ADVERTISING,
INC., a California corporation ("EJL" or the "Company"), listed on Exhibit A
hereto (each, a "Seller" and collectively, the "Sellers") and LOIS/USA, INC., a
Delaware corporation ("Buyer").
RECITALS
WHEREAS, each Seller owns the number of issued and outstanding shares
of common stock of EJL, $5.00 par value per share (the "Company Stock") as are
set forth opposite such Sellers' name on Exhibit A hereto.
WHEREAS, Buyer desires to purchase from each Seller, and each Seller
desires to sell to Buyer, the Company Stock owned by the respective Sellers,
subject to the terms and conditions of this Agreement.
AGREEMENT
NOW THEREFORE, in consideration of the mutual covenants and promises
contained herein and for other good and valuable consideration, the receipt and
adequacy of which is hereby acknowledged, the parties hereto agree as follows:
ARTICLE 1.
DEFINITIONS
I.1 DEFINED TERMS. As used herein, the terms below shall have the
following meanings:
"BOOKS AND RECORDS" shall mean all records pertaining to the assets,
properties, business, operations, accounts, financial condition, customers or
suppliers of the Company and its Subsidiary.
"CLOSING BALANCE SHEET" shall mean the balance sheet of the Company
and its Subsidiary as of December 31, 1995, prepared in accordance with Section
3.6.
"CLOSING DATE" shall mean 10:00 A.M. on February 13, 1996 or such
other time and date as Buyer and Sellers' Representative shall mutually agree.
"CODE" shall mean the Internal Revenue Code of 1986, as such may be
amended from time to time.
"COMMON STOCK" shall mean Buyer's common stock, par value $.01 per
share. In case of any reclassification of shares of Common Stock (except for a
subdivision or combination of such shares), or in case of any consolidation or
merger of Buyer with or into any other corporation (except for a merger or
consolidation in which Buyer is the continuing corporation and which does not
result in any recapitalization of shares of Common Stock, other than a
subdivision or combination of such shares), or in case of any sale or transfer
of all or substantially all of the assets of Buyer, then as a part of such
recapitalization, consolidation, merger, sale or transfer, as the case may be,
lawful provision shall be made so that Sellers shall thereafter receive the kind
and amount of shares of stock and other securities and property substituted for
each share of Common Stock pursuant to such recapitalization, consolidation,
merger, sale or transfer, which kind and amount of shares of stock and other
securities and property shall thereafter be deemed to be the Common Stock; the
provisions of this sentence shall similarly apply to successive
recapitalizations, consolidations, mergers, sales and transfers.
"CONTRACT" shall mean any of the agreements, contracts leases or
commitments described in the Disclosure Schedule.
"DECEMBER BALANCE SHEET" shall mean the unaudited consolidated balance
sheets of the Company and its Subsidiary as of December 31, 1995.
"DECEMBER BALANCE SHEET DATE" shall mean December 31, 1995.
"DECEMBER FINANCIAL STATEMENTS" shall mean the December Balance Sheet
and the consolidated statements of income and retained earnings of the Company
and its Subsidiary for the period from March 1, 1995 through December 31, 1995,
together with the notes thereon.
"DIRECT CONTRACTUAL EXPENSES" shall mean the direct cost of providing
services, other than advertising services or production expenses, specifically
required to be performed by EJL or the Buyer under contractual arrangements with
clients (including but not limited to research expenses and other services or
fees incurred and usually paid for under contractual arrangements with clients)
for which EJL or Lois is required to make cash outlays.
"DISCLOSURE SCHEDULE" shall mean a schedule executed and delivered by
Sellers to Buyer concurrently herewith which sets forth the exceptions to the
representations and warranties contained in Article IV hereof and certain other
information called for by Article IV hereof and other provisions of this
Agreement.
"DUBAI ASSETS" shall mean all of the rights of EJL under its agreement
with D'Arcy, Massus, Benton & Bowles relating to EJL's discontinued Dubai
operations.
"ENCUMBRANCE" shall mean any lien, pledge, option, charge, easement,
security interest, right-of-way or encumbrance. "EXCHANGE ACT" shall mean the
Securities Exchange Act of 1934, as amended.
"FACILITIES" shall mean the offices, storage facilities and all real
property and related facilities, including existing commitments for Leases, of
the Company or its Subsidiary which are identified or listed on Exhibit J
attached hereto, identifying whether each Facility is owned or leased.
"FIXTURES AND EQUIPMENT" shall mean all of the furniture, fixtures,
furnishings, machinery and equipment owned or used by the Company or its
Subsidiary and located in, at or upon the Facilities as of the December Balance
Sheet Date, plus all additions and replacements, less deletions, since the
December Balance Sheet Date in the ordinary course of the Company's or its
Subsidiary's business.
"GOVERNMENTAL ENTITY" shall mean any governmental entity, department,
commission, board, agency or instrumentality, whether federal, state or local,
and whether domestic or foreign.
"INITIAL STOCK PRICE" means $6.00 per share of Common Stock of Buyer
which shall be adjusted, as appropriate, to take account of any stock dividend,
stock split, reverse stock split or similar event affecting the Common Stock
that occurs after the date hereof.
"LEASES" shall mean all of the leases, including commitments for
leases, listed on the Disclosure Schedule.
"MATERIAL ADVERSE CHANGE" shall mean any event or occurrence,
including, without limitation, any development or discovery of any material
contingent or other liability not in the Disclosure Schedule, which would
reasonably be expected to materially adversely affect the business, properties,
assets, operations, or relations with customers, suppliers, distributors or
employees of the Company and its Subsidiary, taken as a whole.
"NET WORTH" shall mean, as of the December Balance Sheet Date, the
total assets minus the total liabilities of EJL and its Subsidiary determined in
accordance with generally accepted accounting principles consistently applied.
"1993 FINANCIAL STATEMENTS" shall mean the audited consolidated
balance sheets and the audited statements of income and retained earnings and
cash flows of the Company and its Subsidiary for the fiscal year ended February
28, 1993, together with the notes thereon and the related unqualified report of
Miller & Co., the Company's independent certified public accountants, previously
delivered to Buyer and attached hereto as Exhibit B.
"1994 FINANCIAL STATEMENTS" shall mean the audited consolidated
balance sheets and the audited statements of income and retained earnings and
cash flows of the Company and its Subsidiary as of the fiscal year ended
February 28, 1994, together with the notes thereon and the related unqualified
report of Miller & Co., the Company's independent certified public accountants,
previously delivered to Buyer and attached hereto as Exhibit B.
"1995 BALANCE SHEET" shall mean the audited balance sheets of the
Company and its Subsidiary as of the fiscal year ended February 28, 1995,
together with the notes thereon and the related unqualified report of Miller &
Co., the Company's independent certified public accountants, previously
delivered to Buyer and attached hereto as Exhibit B.
"1995 FINANCIAL STATEMENTS" shall mean the 1995 Balance Sheets and the
audited statements of income and retained earnings and cash flows of the Company
and its Subsidiary for the fiscal year ended February 28, 1995, together with
the notes thereon and the related unqualified report of Miller & Co., the
Company's independent certified public accountants, previously delivered to
Buyer and attached hereto as Exhibit B.
"PRIVATE PLACEMENT MEMORANDUM" shall mean the Preliminary Confidential
Private Placement Memorandum dated February 6, 1996 as amended and superseded by
the Confidential Private Placement Memorandum dated February 9, 1996, as amended
by the supplemental Confidential Private Placement Memorandum dated February 12,
1996, which memorandum, among other things, describes the transaction
contemplated by this Agreement.
"PUBLIC OFFERING" shall mean an offering as a result of which the
Common Stock will trade on either a national exchange or on the Nasdaq Market
System.
"REPRESENTATIVE" shall mean any officer, director, principal,
attorney, agent, employee or other representative.
"SEC" shall mean the United States Securities and Exchange Commission.
"SECURITIES ACT" shall mean the Securities Act of 1933, as amended.
"SELLERS' REPRESENTATIVE" shall mean either or both of Dean Laws or
Dennis Coe, or any successor designee of Sellers named in a writing by all of
the Sellers attached hereto as Exhibit H (the "Agency Agreement").
"SUBSEQUENT STOCK PRICE" shall mean the then current market price of
the Common Stock determined as follows: (a) if the Common Stock has commenced
trading on the Nasdaq Market System or a national exchange, then the average of
the closing sale price of the Common Stock as reported on the principal exchange
or Nasdaq Market System on which the Common Stock is then quoted for the twenty
trading days immediately preceding the end of the relevant fiscal quarter, for
trading not in blocks or (b) if the Common Stock has not commenced trading on
the Nasdaq Market System or a national exchange, then the current market price
shall be determined by any one to be selected by the Board of Directors of Buyer
of the five investment bankers listed on Exhibit K hereto, provided that the
investment banker cannot have rendered services for Buyer during the prior two
years and shall not have any conflicts of interest. The first Subsequent Stock
Price shall be valued as of March 31, 1997 and such valuation shall be
determined on a yearly basis thereafter. Once determined, the Subsequent Stock
Price shall be adjusted, as appropriate, to take account of any stock dividend,
stock split, reverse stock split or similar event affecting the Common Stock.
"SUBSIDIARY" means EJL Communications International, Inc., an Illinois
corporation.
"TAXES" mean all taxes, charges, levies or other assessments,
including, without limitation, income, gross receipts, excise, real and personal
property, sales, use, transfer, capital gains, transfer gains, license, payroll,
privilege, and franchise taxes, imposed by any Governmental Entity and shall
include any interest, penalties or additions to tax attributable to any of the
foregoing.
I.2 OTHER DEFINED TERMS. The following terms shall have the meaning
defined for such terms in the Sections set forth below:
TERM SECTION
Actions 4.13
Additional Cash 2.3
Additional Purchase Price 2.3
Additional Shares 2.3
Benefit Arrangement 4.20
Buyer Recitals
Buyer's SEC Documents 5.7
CERCLA 4.27
Closing 3.1
Combined Revenue 2.3(a)
Company Recitals
Company Stock Recitals
Damages 10.3(a)
Dubai Valuation 2.7
Earn-Out Formula 2.3
Earn-Out Period 2.3(a)
Employee Plans 4.20
Employment Agreement 3.2
ERISA 4.20
ERISA Affiliate 4.20
Financial Statements 4.12
Final Payment 2.3(a)
Form 10-K 2.3(c)
Form 10-Q 2.3(c)
Guaranteed Cash Payment 2.3(a)
Indemnification Threshold 10.3(e)
Initial Shares 2.2(b)
MDA 6.8
Minimum Amount 2.3
Minimum Net Worth 2.6
Multiemployer Plan 4.20
Note 2.6
Payment Ratio 2.3(a)
Pension Plan 4.20
Personnel 4.4(b)
Plans 4.20
Prime Rate 2.6
Proprietary Rights 4.19
Purchase Price 2.2
Registration Rights Agreement 3.3
Sellers Recitals
Shares 2.3(e)
Shareholders' Agreement 3.4
Statement of Calculation 2.3(c)
Tax Returns 4.22
Welfare Plan 4.20
ARTICLE II
PURCHASE AND SALE OF STOCK
II.1 SALE OF STOCK. Each Seller hereby agrees to sell, transfer,
assign, convey and deliver to Buyer, and Buyer hereby agrees to purchase and
acquire from such Seller, on the Closing Date, all right, title and interest of
such Seller, legal or equitable, in and to all of the issued and outstanding
shares of Company Stock set forth opposite such Seller's name on Exhibit A
hereto.
II.2 PURCHASE PRICE. On the Closing Date, Buyer shall pay to Sellers
(in the proportions set forth on Exhibit A hereto), in consideration for the
sale, transfer, assignment, conveyance and delivery of the Company Stock an
amount (the "Purchase Price") equal to the sum of $4,000,000 plus the number of
shares of Common Stock as determined according to subparagraph (b) below. The
Purchase Price shall be subject to adjustment as provided in Section 2.6. The
Purchase Price, except the portion represented by (c) below, shall be paid as
follows:
(a) $4,000,000 by wire transfer of immediately available funds to the
Sellers' Representative;
(b) delivery to the Sellers' Representative of the number of shares of
Common Stock equal to $2,000,000 divided by the Initial Stock Price (the
"Initial Shares"); and
(c) delivery to the Note pursuant to Section 2.6.
II.3 ADDITIONAL CONSIDERATION. As additional consideration for Common
Stock (the "Additional Purchase Price"), Buyer shall pay to the Sellers'
Representative, on behalf of the Sellers (in the proportions set forth on
Exhibit A hereto) the sum of no less than an additional $6,000,000 (the "Minimum
Amount") but no more than $12,000,000, payable in additional shares of Common
Stock ("Additional Shares") and cash ("Additional Cash") determined pursuant to
the following formula (the "Earn-Out Formula") plus the Final Payment:
(a) Over the period beginning on the Closing Date and ending on
December 31, 2000 (the "Earn-Out Period"), Buyer shall pay to Sellers an amount
equal to five percent of the combined revenue of EJL and Buyer determined in
accordance with generally accepted accounting principles consistently applied
net, without duplication, of Direct Contractual Expenses ("Combined Revenue") to
be paid quarterly, as provided below, in the ratio for each payment ("Payment
Ratio") of 75% cash and 25% in Common Stock valued for the first four fiscal
quarters including and following the Closing Date at the Initial Stock Price and
thereafter valued at the Subsequent Stock Price; provided that $6,000,000 of the
Additional Purchase Price shall be paid in cash as provided below (the
"Guaranteed Cash Payment"). At least $1,750,000 of Additional Purchase Price
shall be paid for the year ending December 31, 1996. The "Final Payment" shall
equal $750,000 and shall be paid to Seller's Representative in Additional
Shares, valued based on the then Subsequent Stock Price, within thirty days
following the end of the Earn-Out Period.
(b) If Buyer has not made the Guaranteed Cash Payment in full upon the
payment with respect to the first quarter of 1999, the Payment Ratio shall no
longer apply. Buyer shall thereafter make (i) all Additional Purchase Price
payments pursuant to the Earn-Out Formula in Additional Cash until the
Guaranteed Cash Payment has been made, (ii) then all Additional Purchase Price
payments in Additional Shares until the Payment Ratio has been restored, and
(iii) all remaining payments in the Payment Ratio. If at the end of the Earn-Out
Period, either the Minimum Amount and/or the Guaranteed Cash Payment have not
been paid, Buyer will make Additional Cash payments to cover the shortfall
including through the repurchase of the number of Additional Shares such that
Buyer shall not have paid more than the greater of the Minimum Amount and the
Additional Purchase Price to be paid pursuant to the Earn-Out Formula. In no
event shall Initial Shares be repurchased by Buyer. Buyer shall repurchase
Additional Shares on a last-in, first-out basis, repurchasing Additional Shares
at their issued price, beginning with the Additional Shares issued at the most
recent Subsequent Stock Price. Such repurchase will be made pro rata from the
Sellers in the proportions set forth on Exhibit A hereto. Buyer shall make any
required payments pursuant to the preceding sentence within three months
following December 31, 2000; PROVIDED, HOWEVER, that to the extent Additional
Cash payments are to be made in repurchase of Additional Shares previously
issued, no payment need be made until delivery of such Additional Shares for
repurchase free and clear of all Encumbrances, and PROVIDED, FURTHER, HOWEVER,
that to the extent such Additional Shares are not delivered within 90 days of
written notice, the obligation of Buyer to make such Additional Cash payments
shall terminate.
(c) Additional Cash and/or Additional Shares shall be delivered by
Buyer to the Sellers' Representative on a date forty-five days from the end of
Buyer's fiscal quarter. Within ninety days of the end of Buyer's fiscal year,
the amount paid as part of the Additional Purchase Price pursuant to the
Earn-Out Formula shall be recalculated based on the Combined Revenue reflected
on the audited financial statements for the fiscal year then ended. Buyer shall
deliver to Sellers' Representative together with any adjustment of the payments
made in the first three fiscal quarters a statement reflecting all such
calculations and any exclusions from Combined Revenue (a "Statement of
Calculation") which shall have been reviewed by Arthur Andersen LLP. Any payment
required by adjustments made pursuant to this Section and Section 2.5 shall be
made by Buyer to Sellers as provided in Sections 2.3(a) and (b) above; whereas
any such payment made by Sellers to Buyer shall reduce the next Earn-Out payment
(and any subsequent payment, if necessary); HOWEVER, if there are no remaining
Earn-Out payments, the payment shall be made by the return of Additional Shares
valued at their Subsequent Stock Price. The initial payment pursuant to the
Earn-Out shall be made on or about May 15, 1996.
(d) In the event Sellers' Representative provides Buyer with a written
request for registration as provided for in Section 3 of the Registration Rights
Agreement, Buyer shall have the right, at its option, at each such time to
purchase from Sellers all or any part of the Additional Shares which have been
issued and are the subject of such request for registration at a purchase price
equal to the number of Additional Shares being purchased multiplied by the
Subsequent Stock Price of such shares at the date of Sellers' Representative's
written request for registration, which purchase price shall be payable in cash
(by wire transfer or certified or bank cashier's check); in each case, Buyer may
exercise its option at any time within 15 days after receipt by Buyer of the
applicable written request for registration.
(e) The Initial Shares and the Additional Shares are referred to
herein collectively as the "Shares."
II.4 CLOSING COSTS; TRANSFER TAXES. Buyer shall initially pay for any
documentary transfer taxes and any sales, use or other taxes imposed by reason
of the transfer of the Company Stock provided hereunder and any deficiency,
interest or penalty asserted with respect thereto, but any such payment made by
Buyer shall be deducted in cash from the first Earn-Out payment (and, if
necessary, from the next Earn-Out payment, until paid).
II.5 PREPARATION OF FINANCIAL STATEMENTS; DETERMINATION OF COMBINED
REVENUE. Following delivery of any payment of Additional Purchase Price with
respect to the end of a fiscal year, Buyer shall permit Sellers' Representative,
his accountants and other authorized representatives to inspect the financial
books and records of the Buyer during normal business hours. If, within 30 days
after such payment, Sellers' Representative notifies Buyer that Sellers'
Representative disputes the annual Combined Revenue computation (and in such
notice states the nature of the dispute in reasonable detail), and if Buyer and
Sellers' Representative are unable, within 30 days after receipt by Buyer of
Sellers' Representative's notice of such dispute, to resolve such dispute,
Sellers' Representative and Buyer shall each designate a firm of certified
public accountants and Buyer and Sellers' Representative, together with such
designated firms, shall jointly endeavor to resolve each item disputed by
Sellers' Representative. If all such disputed items are not resolved within 60
days after Buyer's being notified thereof, then the firms designated by Buyer
and Sellers' Representative shall jointly select a third firm of nationally
recognized certified public accountants, provided that if such firms fail to
appoint such a third firm within 60 days after Buyer's receipt of said
notification, either party may request the American Arbitration Association in
New York City to appoint an independent firm of certified public accountants of
recognized national standing. Such third firm shall resolve all remaining
disputed items and its resolution shall be final and binding on the parties and
enforceable in a court of law. Each party shall be responsible for the fees and
expenses of the firm it designated. The fees and expenses of the third firm, if
required hereunder, shall be apportioned between the parties to reflect the
relative differences between the position asserted by each party with respect to
each disputed item referred to such third firm and the resolution reached by
such third firm, with the party that is further from such resolution bearing a
proportionately greater share of such fees and expenses. If resolution of the
disputed items results in a change in the Combined Revenue from that determined
by Buyer, Sellers or Buyer, as the case may be, shall promptly return the excess
Additional Purchase Price paid or pay the Additional Purchase Price owed,
respectively.
II.6 NET WORTH ADJUSTMENT. Sellers agree that the Net Worth of the
Company and its Subsidiary as of December 31, 1995 shall be no less than
$2,200,000 as determined in accordance with generally accepted accounting
principles consistently applied but without duplication subtracting from such
Net Worth all costs and expenses incurred directly in connection with the
transaction to the extent that they are being paid by the Company and the
investment in life insurance policies for Joseph Eisaman. Following final
determination of the Closing Balance Sheet, Buyer shall give to Sellers an
installment note (the "Note") substantially in the form attached hereto as
Exhibit J in a principal amount equal to the difference between the Net Worth
shown on the Closing Balance Sheet (net of the amounts, without duplication,
subtracted as described in the first sentence of this Section) and $2,200,000.
The Note shall have a term of three years and shall bear interest from the
Closing Date at a rate per annum equal to the prime rate (the "Prime Rate"),
adjustable every 90 days, to be adjusted on the ninetieth day, plus 1.5 percent.
The Prime Rate shall be at that which is quoted as such from time to time by
Chemical Bank. The Note shall be subordinated in right of payment to Buyer's
outstanding bank indebtedness. In the event that the Net Worth shown on the
Closing Balance Sheet (net of the amounts, without duplication, subtracted as
described in the first sentence of this Section) is less than $2,200,000, the
difference shall be deducted in cash from the first Earn-Out payment (and, if
necessary, from the next Earn-Out payment, until paid).
II.7 DUBAI NET WORTH ADJUSTMENT. Sellers guarantee that Buyer shall
realize an amount at least equal to the valuation of the Dubai Assets as
reflected on the December Balance Sheet by the first anniversary of the Closing
Date.
II.8 FRACTIONAL SHARES. Buyer shall not be obligated
to issue a fractional share of Common Stock pursuant to this
Article II. In lieu of issuing a fractional share of Common Stock, Buyer may, at
its option, round the number of shares to be delivered to each Seller pursuant
to this Article II to the nearest whole or pay the fraction in cash based on the
Subsequent Stock Price at time of issuance.
II.9 PURCHASE PRICE ADJUSTMENT. Buyer agrees that if Buyer completes a
Public Offering within twelve (12) months of the Closing Date at a price per
share (the "Actual Price") of Common Stock less than the Initial Stock Price,
Buyer will increase the number of Initial Shares and cause such additional
shares of Common Stock to be issued to the Sellers' Representative for Sellers
within 90 days following the consummation of the Public Offering. The number of
additional shares of Common Stock which shall be payable shall be calculated
pursuant to the following formula: (x) (a) the Initial Stock Price minus (b) the
Actual Price (y) multiplied by the number of Initial Shares divided by the
Actual Price.
II.10 MISSED EARN-OUT PAYMENTS. Buyer agrees that upon a failure which
remains unremedied for 15 days to make a scheduled payment of Additional Cash
and/or Additional Shares as provided in Section 2.3(c) hereof, interest shall
accrue in respect of the Earn-Out payment (or, if payment was to be made in
Additional Shares, then interest shall accrue on the value of the Additional
Shares valued at the Initial Stock Price or the then Subsequent Stock Price, as
the case may be) at a rate per annum equal to the Prime Rate plus an additional
2% for the first missed scheduled Earn-Out payments and at the Prime Rate plus
an additional 5% beginning with the second consecutive missed scheduled Earn-Out
payment; PROVIDED, HOWEVER, that should any failure to make an Earn-Out payment
be cured prior to the next scheduled payment date, such missed payment shall be
considered cured. At Sellers' Representative's option, beginning twelve months
after the date of the first scheduled missed uncured Earn- Out payment the
missed Earn-Out payments may be converted into Common Stock at the then
Subsequent Stock Price. However, if an Earn-Out payment is missed because a
claim has arisen against EJL for which indemnification is being sought pursuant
to Section 10.3 hereunder, Buyer shall not be subject to the penalties provided
for in this Section, subject to the exercise of its right to offset provided in
Section 10.5 hereof.
II.11 COMBINED REVENUE ADJUSTMENT. The Combined Revenue shall not
include revenue attributable to businesses acquired after the Closing Date as
determined by Buyer in good faith (each, an "Acquisition"). If an Acquisition
results in a client loss due to a client conflict for EJL or its Subsidiary, the
Combined Revenue shall be adjusted thereafter such that an amount shall be added
to the Combined Revenue attributable to the projected revenues which would have
been earned from the lost client. If an Acquisition results in a client loss for
Lois (other than loss of a client acquired in connection with any prior
Acquisition), which is also not a client loss for EJL or its Subsidiary, such
that there is no duplication, the Combined Revenue shall be adjusted thereafter
such that an amount shall be added into the Combined Revenue attributable to the
projected revenues which would have been earned from the lost client. The lost
revenues shall be calculated based on the average historical revenues received
from that client in the prior three fiscal years. Such calculation shall be
reviewed by Arthur Andersen LLP.
ARTICLE III
CLOSING
III.1 CLOSING. The closing of the transactions contemplated herein
(the "Closing") shall be held at 10:00 a.m. local time on the Closing Date at
the offices of Stroock & Stroock & Lavan, Seven Hanover Square, New York, New
York, unless Buyer and Sellers' Representative otherwise agree.
III.2 EMPLOYMENT AGREEMENT. At the Closing, Messrs. Laws, Coe, de Maio
and Waterkotte shall each enter into five-year employment agreements with Buyer
substantially in the form of Exhibit D attached hereto (the "Employment
Agreement").
III.3 REGISTRATION RIGHTS AGREEMENT. At the Closing, Buyer and Sellers
shall enter into a registration rights agreement substantially in the form of
Exhibit E attached hereto (the "Registration Rights Agreement"), pursuant to
which Buyer shall grant to Sellers certain registration rights with respect to
the Initial Shares and the Additional Shares.
III.4 SHAREHOLDERS' AGREEMENT. At Closing, Buyer and George Lois,
Theodore Veru, Dean Laws, Dennis Coe, Michael de Maio and Michael Waterkotte
shall enter into a shareholders agreement substantially in the form of Exhibit H
attached hereto (the "Shareholders' Agreement"), providing for, among other
things, certain of the Sellers' right to elect a nominee to the Buyer's Board of
Directors.
III.5 OTHER DELIVERIES AT CLOSING. In addition to the foregoing
matters, at the Closing:
(a) Buyer shall pay to Sellers the cash portion of the Purchase Price
and deliver the Initial Shares as provided for in Section 2.2 hereof;
(b) Buyer and Sellers shall deliver the certificates, opinions of
counsel and other matters described in Articles VII and VIII; and
(c) the certificates representing the Company Stock to be delivered
pursuant to Section 2.1 shall be duly endorsed in blank, or accompanied by stock
powers duly executed in blank by Sellers, transferring same, with all necessary
transfer tax and other revenue stamps affixed and canceled.
III.6 DECEMBER BALANCE SHEET. If Buyer does not notify Sellers'
Representative within 60 days after the Closing Date of the December Balance
Sheet that Buyer objects to any item on, or other matter relating to, the
December Balance Sheet, then Buyer shall be deemed to have accepted the December
Balance Sheet as the Closing Balance Sheet. If Buyer does so object and if Buyer
and Sellers' Representative are unable, within 30 days after receipt by Sellers'
Representative of Buyer's notice of objection, to resolve any disputes regarding
the December Balance Sheet, Sellers' Representative and Buyer shall each
designate a firm of certified public accountants and Buyer and Sellers'
Representative, together with such designated firms, shall jointly endeavor to
resolve each dispute. If all such disputes are not resolved within 60 days after
Sellers' Representative was notified thereof, then the firms designated by Buyer
and Sellers' Representative shall jointly select a third firm of nationally
recognized certified public accountants, provided that if such firms fail to
appoint such a third firm within 90 days after Sellers' Representative's receipt
of said notification, either party may request the American Arbitration
Association in New York City to appoint an independent firm of certified public
accountants of recognized national standing. Such third firm shall resolve all
remaining disputes and its resolution shall be final and binding on the parties
and enforceable in a court of law. Each party shall be responsible for the fees
and expenses of the firm it designated. The fees and expenses of the third firm,
if required hereunder, shall be apportioned between the parties to reflect the
relative differences between the position asserted by each party with respect to
each dispute referred to such third firm and the resolution reached by such
third firm, with the party that is further from such resolution bearing a
proportionately greater share of such fees and expenses. If there is more than
one such dispute, the fees and expenses of such third firm shall be allocated in
proportion to their respective amounts.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF SELLERS
Except as set forth on the Disclosure Schedule, Sellers hereby,
jointly and severally, represent and warrant to Buyer as follows:
IV.1 ORGANIZATION OF THE COMPANY AND ITS SUBSIDIARY. The Company is
duly organized, validly existing and in good standing under the laws of the
State of California, and its Subsidiary is duly organized, validly existing and
in good standing under the laws of the State of Illinois. Each has full
corporate power and authority to conduct its business as it is presently being
conducted and to own, lease and operate its properties and assets. Each of the
Company and its Subsidiary is duly qualified to do business as a foreign
corporation and is in good standing in each jurisdiction where the ownership of
property or nature of its business requires such qualification and where failure
to be so qualified would have a material adverse effect on the Company or its
Subsidiary. Each jurisdiction in which the Company and its Subsidiary is
qualified to do business as a foreign corporation is listed on the Disclosure
Schedule. The Subsidiary is the only direct or indirect subsidiary of the
Company.
IV.2 ARTICLES OF INCORPORATION, BY-LAWS, ETC. True and complete copies
of the Articles of Incorporation, By-Laws, minute books and all stock books and
stock transfer records of the Company and of the Subsidiary, each of the
foregoing as amended to the date hereof, have been furnished or made available
to Buyer and its Representatives and there will be no amendments or changes to
the Company's and the Subsidiary's Articles of Incorporation or By-Laws prior to
the Closing Date. On the Closing Date, such minute books will contain the true
and complete minutes and records of any meetings, proceedings and other actions
of the shareholders, all committees of the Board of Directors and the Board of
Directors of the Company and its Subsidiary from the date hereof to and
including the Closing Date.
IV.3 AUTHORIZATION. Each of this Agreement, the Registration Rights
Agreement, the Shareholders' Agreement and the Agency Agreement has been duly
executed and delivered by the Sellers and is a legal, valid and binding
obligation of each Seller enforceable against such Seller in accordance with its
terms (except as may be limited by bankruptcy, insolvency, reorganization,
moratorium or other similar laws relating to creditors' rights generally).
IV.4 ABSENCE OF CERTAIN CHANGES OR EVENTS. Since the December Balance
Sheet Date, except as set forth in the Disclosure Statement, there has not been
any:
(a) change in the Company's or its Subsidiary's financial condition,
assets, liabilities, working capital, reserves, earnings or business, including
client losses, except for changes in the ordinary course of business which
changes, individually or in the aggregate, have not had a material adverse
effect on the Company or its Subsidiary;
(b) (i) increase in the compensation payable or to become payable by
the Company or its Subsidiary to any of its officers, employees or sales
representatives whose total compensation for services rendered to the Company or
its Subsidiary is currently at an annual rate of $30,000 or more (collectively,
"Personnel") except in the ordinary course of business, (ii) bonus, incentive
compensation, service award or other like benefit granted, made or accrued,
contingently or otherwise, for or to the credit of any of the Personnel except
in the ordinary course of business, none of which to any one person exceeds
$25,000, except for gifts or bonuses to Personnel from the Company or its
Subsidiary in anticipation of the transactions contemplated hereby, (iii)
employee welfare, pension, retirement, profit-sharing or similar payment or
arrangement made or agreed to by the Company or its Subsidiary for any Personnel
except pursuant to the existing plans and arrangements described in the
Disclosure Schedule or (iv) new employment agreement to which the Company or its
Subsidiary is a party;
(c) addition to or modification of the employee benefit plans,
arrangements or practices described in the Disclosure Schedule affecting
Personnel other than (i) contributions made in accordance with the normal
practices of the Company and its Subsidiary or (ii) the extension of coverage to
other Personnel who became eligible after the December Balance Sheet Date;
(d) sale, assignment or transfer of any of the assets of the Company
or its Subsidiary, material singly or in the aggregate, other than in the
ordinary course of business;
(e) cancellation of any indebtedness or waiver of any rights of
substantial value to the Company or its Subsidiary, other than write-offs or
write-downs in the ordinary course of business;
(f) amendment, cancellation or termination (other than in accordance
with its terms or otherwise in the ordinary course of business) of any Contract,
license or other instrument material to the Company or its Subsidiary;
(g) capital expenditure or the execution of any lease or any incurring
of liability therefor by the Company or its Subsidiary, involving payments, in
the aggregate, or at an annualized rate, of $25,000 or more;
(h) failure to pay any obligation of the Company or its Subsidiary,
except in the ordinary course of business or where contested in good faith, or
where such failure would not have a material adverse effect on the financial
condition, assets, liabilities or business of the Company or its Subsidiary;
(i) failure to operate the business of the Company or its Subsidiary
in the ordinary course;
(j) change in accounting methods or practices by the Company or its
Subsidiary affecting its assets, liabilities or business (whether for accounting
or tax purposes) including any material increase or change in any assumptions
underlying or methods of calculating bad debt, contingency or other reserves;
(k) revaluation by the Company or its Subsidiary of any of its assets,
including without limitation, writing off notes or accounts receivable in any
material respect other than in the ordinary course of business;
(l) damage, destruction or loss (whether or not covered by insurance)
adversely affecting the properties, assets or business of the Company or its
Subsidiary in any material respect;
(m) mortgage, pledge, grant or creation of any Encumbrance on any
assets of the Company or its Subsidiary, material singly or in the aggregate,
except purchase money mortgages arising in the ordinary course of business to
secure indebtedness not exceeding the fair market value of the assets subject
thereto;
(n) declaration, setting aside or payment of dividends or
distributions in respect of any capital stock of the Company or its Subsidiary,
or any redemption, purchase or other acquisition of any of the Company's or its
Subsidiary's equity securities;
(o) issuance by the Company or its Subsidiary of, or commitment of the
Company or its Subsidiary to issue, any shares of stock or other equity
securities or obligations or securities convertible into or exchangeable for
shares of stock or other equity securities;
(p) indebtedness incurred by the Company or its Subsidiary for
borrowed money or any commitment to borrow money entered into by the Company or
its Subsidiary, or any loans other than advances of business expenses in the
ordinary course of business made or agreed to be made by the Company or its
Subsidiary;
(q) liabilities incurred or assumed by the Company or its Subsidiary
involving $5,000 or more except in the ordinary course of business and
consistent with past practice;
(r) payment, discharge or satisfaction of any liabilities of the
Company or its Subsidiary in excess of $5,000 other than the payment, discharge
or satisfaction in the ordinary course of business and consistent with past
practice of liabilities reflected or reserved against in the 1995 Balance Sheet
or incurred in the ordinary course of business and consistent with past practice
since February 28, 1995;
(s) agreement or commitment by the Company or its Subsidiary to do any
of the foregoing;
(t) other event or condition of any character which in any one case or
in the aggregate has materially adversely affected, or any event or condition
known to Sellers which it is reasonable to expect will, in any one case or in
the aggregate, materially adversely affect the Company's or its Subsidiary's
relationships with its customers and the Company's or its Subsidiary's obtaining
of renewals of contracts and new contracts with its customers; or
(u) personnel changes of the Company or its Subsidiary, except as
disclosed on Schedule 4.4 hereto.
IV.5 CAPITAL STOCK. The authorized capital stock of the Company
consists of 200,000 shares of common stock, $5.00 par value per share, of which
49,512 shares are issued and outstanding and are owned of record and
beneficially by Sellers, as set forth on Exhibit A hereto, free and clear of all
Encumbrances. All such outstanding shares are, from the date hereof through the
Closing Date, will be, validly issued and outstanding, fully paid and
non-assessable. The authorized capital stock of the Subsidiary consists of
10,000 shares of common stock, no par value per share, of which 5,000 shares are
issued and outstanding and are owned of record and beneficially by the Company,
free and clear of all Encumbrances. All such outstanding shares of the
Subsidiary are, and from the date hereof through the Closing Date, will be,
validly issued and outstanding, fully paid and non-assessable. There are no
outstanding options, warrants, rights, calls, commitments, conversion rights,
rights of exchange, plans or other agreements of any character providing for the
purchase, issuance or sale of any shares of the capital stock of the Company or
its Subsidiary, other than as contemplated by this Agreement.
IV.6 TITLE TO ASSETS. The Company and its Subsidiary have good title
to, or valid leasehold interests in, all assets and properties purported to be
owned, operated or leased by each of them, or used in the operation of each of
their business, free and clear of all Encumbrances, except for minor
Encumbrances which in the aggregate are not substantial in amount, do not
materially detract from the value of the property or assets subject thereto or
interfere with the present use and have not arisen other than in the ordinary
course of the Company's or its Subsidiary's business. The Company and its
Subsidiary have performed in all material respects all the obligations required
to be performed by it with respect to all assets leased by it through the date
hereof. The Facilities include all real property and related facilities used in
the conduct of the Company's or its Subsidiary's business as presently
conducted. The Company and its Subsidiary enjoy peaceful and undisturbed
possession of all Facilities. The real property improvements (including
leasehold improvements), equipment and other tangible assets owned or used by
the Company or its Subsidiary at the Facilities are adequately insured and have
no known material defects, normal wear and tear excepted. None of such
improvements, equipment and other assets is subject to any commitment or other
arrangement for its sale or use by any affiliate of the Company or third parties
except for any lien or ownership rights of the landlord at each of the
Facilities pursuant to the provisions of the lease of the applicable Facility.
The assets reflected on the December Balance Sheet or acquired after the
December Balance Sheet Date are valued on the Company's and its Subsidiary's
books at or below the Company's or its Subsidiary's actual cost less an adequate
and proper depreciation charge. The Company and its Subsidiary have not
depreciated any of their assets on an accelerated basis (or in any other manner)
inconsistent with applicable Internal Revenue Service guidelines, if any.
IV.7 CONDITION OF TANGIBLE ASSETS. The Facilities and Fixtures and
Equipment are in good operating condition and repair (except for ordinary wear
and tear), are sufficient for the operation of the Company's and its
Subsidiary's business as presently conducted and, to Seller's knowledge, are in
conformity in all material respects with all applicable laws, ordinances,
orders, regulations and other requirements (including applicable zoning,
environmental, motor vehicle safety or standards, occupational safety and health
laws and regulations) relating thereto currently in effect.
IV.8 CONTRACTS AND COMMITMENTS. The Company and its Subsidiary are not
a party to (or, in the case of clause (e) below, the holder of) any written or
oral:
(a) commitment, contract, note, loan, evidence of indebtedness,
purchase order or letter of credit involving any obligation or liability on the
part of the Company or its Subsidiary of more than $50,000 (and not more than
$100,000 in the aggregate for related instruments) and not cancelable (without
further liability) on not more than 30 days' notice.
(b) lease of real property (the Disclosure Schedule indicates with
respect to each lease listed on the Disclosure Schedule the term, annual rent,
renewal options and number of square feet leased);
(c) lease of personal property involving any annual expense in excess
of $8,000 and not cancelable without further liability within 30 days (the
Disclosure Schedule indicates with respect to each lease listed on the
Disclosure Schedule a general description of the leased items, term, annual rent
and renewal options);
(d) contracts and commitments not otherwise described above or listed
in the Disclosure Schedule (including purchase orders, franchise agreements and
undertakings or commitments to any Governmental Entity) relating to the business
of the Company or its Subsidiary, and which materially affect the Company's or
its Subsidiary's business and which are not entered into in the ordinary course
of business;
(e) material governmental or regulatory licenses or permits required
to conduct the business of the Company or its Subsidiary as presently conducted;
(f) contracts or agreements containing covenants limiting the freedom
of the Company or its Subsidiary to engage in any line of business or compete
with any person;
(g) employment contracts, including without limitation, contracts to
employ executive officers and other contracts with officers or directors of the
Company or its Subsidiary; or
(h) Tax sharing or similar agreements.
The Company and its Subsidiary are not, in any material respect, (and,
to the best knowledge of Sellers, no other party is, in any material respect) in
breach or violation of, or default under, any of the Contracts or other
instruments, obligations, evidences of indebtedness or commitments described in
(a)-(h) above. All of the Company's and its Subsidiary's outstanding Contracts
with its customers are listed in the Disclosure Schedule (together with a
notation as to whether such customer has renewed such Contract for the period
following the period covered thereby).
IV.9 NO CONFLICT OR VIOLATION. Neither the execution and delivery of
this Agreement, the Agency Agreement or the Registration Rights Agreement nor
the consummation of the transactions contemplated hereby will result in (a) a
violation of or a conflict with any provision of the Articles of Incorporation
or By-laws of the Company or its Subsidiary, (b) a breach of, or a default
under, any term or provision of any material contract, agreement, indebtedness,
lease, Encumbrance, commitment, license, franchise, permit, authorization or
concession to which the Company, its Subsidiary or any Seller is a party or by
which the Company, its Subsidiary or any Seller or any of their assets are
bound, or affected, (c) a violation by the Company, its Subsidiary or any Seller
of any statute, rule, regulation, ordinance, code, order, judgment, writ,
injunction, decree or award applicable to the Company, its Subsidiary or Sellers
or (d) an imposition of any Encumbrance, restriction or charge on the business
of the Company or its Subsidiary, or on any of its assets, other than resulting
from a contract, agreement, indebtedness, lease, Encumbrance, commitment,
license, franchise, permit, authorization or concession to which the Buyer or an
affiliate is a party or by which either, or its assets are bound.
IV.10 RESTRICTIVE DOCUMENTS. Neither the Company nor its Subsidiary
nor Sellers are subject to, or a party to, any charter, by-law, mortgage, lien,
lease, license, permit, agreement, contract or instrument, or to any order,
judgment or decree in which such entity is named, (A) which, when taken as a
whole, materially adversely affects the business, operations or financial
condition of the Company or its Subsidiary or any of their assets or property,
or which, when taken as whole, would have a materially adverse effect on (i) the
execution, delivery and performance of this Agreement and consummation of the
transactions contemplated hereby or thereby or (ii) the continued operation of
the Company's and its Subsidiary's business after the date hereof or the Closing
Date on substantially the same basis as heretofore operated or (B) which
materially restricts the ability of the Company or its Subsidiary to acquire any
property or conduct business in any area.
IV.11 CONSENTS AND APPROVALS. No consent, approval or authorization
of, or declaration, filing or registration with, any Governmental Entity, or any
other person or entity, is required to be made or obtained by the Company, its
Subsidiary or Sellers in connection with the execution, delivery and performance
of this Agreement and the consummation of the transactions contemplated hereby.
IV.12 FINANCIAL STATEMENTS. The Company and its Subsidiary have
heretofore delivered to Buyer or its representatives the 1993 Financial
Statements, the 1994 Financial Statements and the 1995 Financial Statements and
the December Financial Statements and will deliver to Buyer any interim
unaudited financial statements of the Company and its Subsidiary prepared prior
to the Closing Date. The 1993 Financial Statements, the 1994 Financial
Statements, the 1995 Financial Statements and the December Financial Statements
are referred to herein collectively as the "Financial Statements." The Financial
Statements are complete, are in accordance with the Books and Records and
present fairly the assets, liabilities and financial condition, results of
operations and cash flows (except the December Financial Statements which do not
include a statement of cash flows) indicated thereby as of each date and for the
period covered thereby in conformity with generally accepted accounting
principles consistently applied subject in the case of any such interim
statements to the absence of footnotes and to normal year end adjustments which
in the aggregate are not material.
IV.13 LITIGATION. There is no action, order, writ, injunction,
judgment or decree outstanding or claim, suit, litigation, proceeding, labor
dispute (other than routine grievance procedures or routine, uncontested claims
for benefits under any benefit plans for Personnel), arbitral action or
investigation (collectively, "Actions") pending or, to the knowledge of Sellers,
threatened or anticipated against, relating to or affecting (i) the Company and
its Subsidiary, or each of their business, activities, properties or assets,
(ii) any benefit plan for Personnel or any fiduciary or administrator thereof or
(iii) the transactions contemplated by this Agreement. Neither the Company nor
its Subsidiary are in default with respect to any judgment, order, writ,
injunction or decree of any court or Governmental Entity, and there are no
unsatisfied judgments against the Company or its Subsidiary, or their business,
activities, properties or assets.
IV.14 LABOR MATTERS. Neither the Company nor its Subsidiary are a
party to any labor agreement with respect to their employees with any labor
organization, group or association. Within the last five years, the Company and
its Subsidiary have not experienced any attempt by organized labor or its
representatives to make the Company and its Subsidiary conform to demands of
organized labor relating to its employees or to enter into a binding agreement
with organized labor that would cover the employees of the Company or its
Subsidiary. The Company and its Subsidiary are in material compliance with all
applicable laws respecting employment practices, terms and conditions of
employment and wages and hours and is not engaged in any unfair labor practice.
There is no unfair labor practice charge or complaint against the Company or its
Subsidiary pending before the National Labor Relations Board or any other
Governmental Entity arising out of the Company's or its Subsidiary's activities,
and Sellers have no knowledge of any facts or information which would give rise
thereto; there is no labor strike or labor disturbance pending or, to the
Sellers' knowledge, threatened against the Company or its Subsidiary, nor is any
grievance currently being asserted; and the Company and its Subsidiary have not
experienced a work stoppage or other labor difficulty.
IV.15 LIABILITIES. The Company and its Subsidiary have no liabilities
or obligations (absolute, accrued, contingent, direct or indirect, known or
unknown, matured or unmatured, or otherwise) except (i) liabilities which are
reflected or reserved for or are disclosed on the December Balance Sheet, (ii)
liabilities incurred in the ordinary course of business and consistent with past
practice since the December Balance Sheet Date, and (iii) liabilities arising
under Contracts, letters of credit, purchase orders, licenses, permits, purchase
agreements and other agreements, business arrangements and commitments described
in the Disclosure Schedule or which are of the type described in Section 4.8 but
which because of the dollar amount or other qualifications are not required to
be listed in the Disclosure Schedule.
IV.16 COMPLIANCE WITH LAW. The Company and its Subsidiary, and the
conduct of each of their businesses are in compliance in all material respects
with all applicable laws, statutes, ordinances and regulations, whether federal,
state or local and whether foreign or domestic. The Company and its Subsidiary
have not received any written notice to the effect that, or otherwise been
advised that, it is not in compliance with any of such statutes, regulations,
orders, ordinances or other laws.
IV.17 NO BROKERS. None of the Company, its Subsidiary, any affiliate
of the Company or its Subsidiary or Sellers have entered into or will enter into
any Contract, agreement, arrangement or understanding with any person or firm
which will result in the obligation of Buyer to pay any finder's fee, brokerage
commission or similar payment in connection with the transactions contemplated
hereby.
IV.18 NO OTHER AGREEMENTS TO SELL THE COMPANY STOCK. Sellers have no
legal obligation, absolute or contingent, to any person or entity other than
Buyer to sell the Company Stock, or to enter into any agreement with respect
thereto. Sellers agree that their consent to this Agreement terminates any and
all rights pursuant to any prior agreement relating to or in connection with the
EJL Stock, including, but not limited to, any rights of first refusal, rights of
second refusal, rights or options to purchase EJL Stock or rights to receive EJL
Stock as compensation.
IV.19 PROPRIETARY RIGHTS. All of the Company's and its Subsidiary's
(i) registrations of trademarks and of other marks, trade names or other trade
rights, (ii) pending applications for any such registrations, (iii) rights in or
to patents and copyrights and all pending applications therefor, (iv) rights to
all other trademarks and other marks, trade names and other trade rights and (v)
all other trade secrets, designs, plans, specifications, technology, know-how,
methods, designs, concepts and other proprietary rights, whether or not
registered (all of the items in the preceding clauses (i) through (v)
collectively, "Proprietary Rights"), used in and material to the conduct of the
Company's and its Subsidiary's business are listed in the Disclosure Schedule
except with respect to the preceding clause (v). The Company and its Subsidiary
are the sole owner of, and have the exclusive right to use, the Proprietary
Rights held by each of them, without any Encumbrances, and no person or entity
has a right to receive a royalty or similar payment in respect of any
Proprietary Rights, whether pursuant to any contractual arrangements entered
into by the Company, its Subsidiary or otherwise. The Company and its Subsidiary
have no licenses granted by or to it and no other agreements to which it is a
party, relating in whole or in part to any of the Proprietary Rights. To
Sellers' knowledge, none of such Proprietary Rights, nor the Company's or its
Subsidiary's use thereof, infringe or otherwise violate the rights of any third
party. No proceedings have been instituted against or notices received by the
Company or its Subsidiary that are presently outstanding alleging that the
Company's or its Subsidiary's use of the Proprietary Rights infringes or
otherwise violates any rights of a third party. The Company and its Subsidiary
are not aware of any infringement or violation of the Company's or its
Subsidiary's rights in or to the Proprietary Rights by any third party. No claim
has been asserted that is presently outstanding, nor, to Sellers' knowledge, has
any claim been threatened, by any person with respect to the ownership,
validity, license or use of, or any infringement resulting from, any of the
Proprietary Rights used by the Company or its Subsidiary or the production,
provision or sale of any services or products by the Company and its Subsidiary
and, to Sellers' knowledge, there is no basis for any such claim. The Company
and its Subsidiary have the right to produce, provide and sell the services and
products produced, provided and sold by each of them and to conduct each of
their business as heretofore conducted, and the consummation of the transactions
contemplated hereby will not alter or impair any such rights. No shareholder,
officer, director or employee of the Company or its Subsidiary owns or has any
interest in any Proprietary Rights or any trade secret, invention or process, if
any, used by the Company or its Subsidiary in connection with its business.
IV.20 EMPLOYEE BENEFIT PLANS.
(a) PLANS; ERISA AFFILIATES. The Company and its Subsidiary do not now
have or participate in and since the December Balance Sheet Date have not
participated in, or directly or indirectly contributed to, any Employee Plans.
The Company and its Subsidiary do not have and have never had any ERISA
Affiliates except each other.
(b) DEFINITIONS. The following terms, when used in this Section 4.20,
shall have the following meanings. Any of these terms may, unless the context
otherwise requires, be used in the singular or the plural depending on the
reference.
(1) BENEFIT ARRANGEMENT. "Benefit Arrangement" shall mean any
employment, consulting, severance or other similar contract, arrangement or
policy and each plan, arrangement (written or oral), program, agreement or
commitment providing for insurance coverage (including any self-insured
arrangements), workers' compensation, disability benefits, supplemental
unemployment benefits, vacation benefits, retirement benefits, life, health,
disability or accident benefits (including, without limitation, any "voluntary
employees' beneficiary association" as defined in Section 501(c)(9) of the Code
providing for the same or other benefits) or for deferred compensation,
profit-sharing bonuses, stock options, stock appreciation rights, stock
purchases or other forms of incentive compensation or post-retirement insurance,
compensation or benefits which (A) is not a Welfare Plan, Pension Plan or
Multiemployer Plan, (B) is entered into, maintained, contributed to or required
to be contributed to, as the case may be, by the Company or its Subsidiary or an
ERISA Affiliate or under which the Company, its Subsidiary or an ERISA Affiliate
may incur any liability, and (C) covers any employee or former employee of the
Company or its Subsidiary or any ERISA Affiliate (with respect to their
relationship with such entities).
(2) EMPLOYEE PLANS. "Employee Plans" shall mean all Multiemployer
Plans, Pension Plans and Welfare Plans.
(3) ERISA. "ERISA" shall mean the Employee Retirement Income Security
Act of 1974, as amended.
(4) ERISA AFFILIATE. "ERISA Affiliate" shall mean any entity, whether
or not incorporated, which is (or at any relevant time was) a member of a
"controlled group of corporations" with the Company or its Subsidiary within the
meaning of Section 414(b) of the Code or under "common control" with the Company
or its Subsidiary as defined in Section 414(c) of the Code.
(5) MULTIEMPLOYER PLAN. "Multiemployer Plan" shall mean any
"multiemployer plan," as defined in Section 4001 (a)(3) of ERISA, (A) which the
Company, its Subsidiary or any ERISA Affiliate maintains, administers,
contributes to or is required to contribute to, or, within the five years prior
to the Closing Date, maintained, administered, contributed to or was required to
contribute to, or under which the Company, its Subsidiary or any ERISA Affiliate
may incur any liability.
(6) PENSION PLAN. "Pension Plan" shall mean any "employee pension
benefit plan" as defined in Section 3(2) of ERISA (other than a Multiemployer
Plan which the Company, its Subsidiary or any ERISA Affiliate maintains,
administers, contributes to or is required to contribute to, or, within the five
years prior to the Closing Date, maintained, administered, contributed to or was
required to contribute to, or under which the Company, its Subsidiary or any
ERISA Affiliate may incur any liability.
(7) WELFARE PLAN. "Welfare Plan" shall mean any "employee welfare
benefit plan" as defined in Section 3(1) of ERISA, which the Company, its
Subsidiary or any ERISA Affiliate maintains, administers, contributes to or is
required to contribute to, or, within the five years prior to the Closing Date,
maintained, administered, contributed to or was required to contribute to, or
under which the Company, its subsidiary or any ERISA Affiliate may incur
liability.
(c) DISCLOSURE; DELIVERY OF PLAN DOCUMENTS AND OTHER INFORMATION. A
true and complete copy of each of the Employee Plans maintained by the Company
or its Subsidiary or any ERISA Affiliate set forth on the Disclosure Schedule
(the "Plans") and any trust instruments, insurance, group annuity and other
contracts pertaining thereto has been delivered or made available by the Company
or its Subsidiary to Buyer, together with (i) all amendments thereto, all
written interpretations thereof and written descriptions thereof which have been
distributed to the employees of the Company or its Subsidiary, (ii) a complete
description of age, salary, service and related data as of February 1, 1996 for
employees of the Company and its Subsidiary and any ERISA Affiliate, and (iii) a
description setting forth the amount of any liability of the Company and its
Subsidiary and any ERISA Affiliate as of the Closing Date for payments more than
thirty days past due with respect to the Plans.
(d) COMPLIANCE.
(i) Each Plan which is intended to comply with Section 401(a) of the
Code and each trust related thereto is qualified and exempt within the meaning
of Sections 401 and 501 of the Code, respectively, and a determination letter
has been received from the Internal Revenue Service with respect to each such
Plan stating that such Plan (and its related trust, if applicable) are qualified
and exempt within the meaning of Sections 401 and 501 of the Code, respectively,
and a copy of each such determination letter has been furnished to Buyer. There
has been (i) no change in any of the documents delivered to Buyer under which
each Plan is maintained and (ii) no change, since each Plan's most recent
valuation date, in the operation of the Plan which could be expected to
adversely affect or alter the tax status of, or materially increase the cost of
maintaining, any such Plan.
(ii) With respect to the Plans, the reporting and disclosure
requirements of ERISA and the Code, as applicable, and the group health plan
continuation coverage requirements of Sections 162(k) and 4980B of the Code and
Part 6 of Title I of ERISA, have been fulfilled in all material respects and the
Company or its Subsidiary has furnished to Buyer copies of the most annual
filings with the Internal Revenue Service and the Department of Labor or other
applicable Governmental Authority.
(iii) Each Plan has been maintained in all material respects in
compliance with its terms and, both as to form and operation, with the
requirements prescribed by any and all statutes, orders, rules and regulations
which are applicable to such Plan, including but not limited to the provisions
of ERISA and the Code.
(iv) Neither the Company, its Subsidiary, any ERISA Affiliate, the
Plans, any of the trusts created thereunder, nor any trustee, administrator or
other fiduciary thereof, has engaged in a "prohibited transaction" as such term
is defined in Section 4975 of the Code or Section 406 of ERISA or otherwise
taken or failed to take any action which could subject the Plans, the Company,
any of the trusts created thereunder or any trustee or administrator thereof, or
any party dealing with such Plans or trusts, to a material Tax, penalty or other
Liability resulting from any prohibited transactions under Section 409 or 502 of
ERISA or Section 4975 of the Code or otherwise, and neither the Company, any
Plan, any ERISA Affiliate, any trust created thereunder nor any other fiduciary
(within the meaning of Section 3(21) of ERISA) of any Plan or its attendant
trust has breached its fiduciary duties under Title I of ERISA in a manner which
could result in a direct or indirect liability to Seller or the trustee,
administrator or other fiduciary of any Plan.
(v) Neither the Company, its Subsidiary, nor any other "trade or
business (whether or not incorporated) which is under common control" (as such
term is defined in Section 4001 of ERISA and the regulations promulgated
thereunder) with the Company or its Subsidiary has ever (i) terminated a Plan
subject to Title IV of ERISA or (ii) contributed to any Multiemployer Plan, and
neither the Company, its Subsidiary, nor any such "trade or business" has
effected either a "complete withdrawal" or a "partial withdrawal," as those
terms are defined in Sections 4203 and 4205, respectively, of ERISA, from any
such Multiemployer Plan.
(e) TERMINATION. Except as set forth on the Disclosure Schedule, no
contracts guarantee that the employment of any persons presently employed or
retained by the Company or its Subsidiary is not terminable at will.
(f) DEDUCTIBILITY OF PAYMENTS. There is no Benefit Arrangement
covering any employee or former employee of the Company or its Subsidiary (with
respect to their relationship with such entity) that, individually or
collectively, provides for contributions as payments by the Company or its
Subsidiary to such Benefit Arrangement or to any employee or former employee of
any material amount (i) that is not deductible under Section 162(a)(1) or 404 of
the Code or (ii) that is an "excess parachute payment" pursuant to Section 280G
of the Code.
(g) LITIGATION. Neither the Company nor its Subsidiary is a party to
any litigation relating to or seeking benefits under any of the Plans.
(h) NO AMENDMENTS. The Company does not have any announced plan or
legally binding commitment to create any Employee Plans which are intended to
cover employees or former employees of the Company or to amend or modify any
Plan.
(i) NO OTHER MATERIAL LIABILITY. To Sellers' best knowledge, no event
has occurred in connection with which the Company or its Subsidiary, directly or
indirectly, could reasonably be expected to result in any material liability (i)
under any statute, regulation or governmental order relating to the Plans or
(ii) pursuant to any obligation of the Company or its Subsidiary to indemnify
any person against liability incurred under, any such statue, regulation or
order as they relate to the Plans.
IV.21 TRANSACTIONS WITH CERTAIN PERSONS. None of Sellers or any
officer or director of the Company or its Subsidiary or, to Sellers' knowledge,
any Personnel or any member of any such person's immediate family, is presently
a party to any material transaction with the Company or its Subsidiary relating
to the Company's or its Subsidiary's business, including, without limitation,
any contract, agreement or other arrangement (i) providing for the furnishing of
services by, (ii) providing for the rental of real or personal property from, or
(iii) otherwise requiring payments to (other than for services as officers,
directors or employees of the Company or its Subsidiary) any such person or any
corporation, partnership, trust or other entity in which any such person has a
substantial interest as a stockholder, officer, director, trustee or partner.
IV.22 TAX MATTERS.
(a) The Company and its Subsidiary, including any predecessor of the
Company or its Subsidiary, have duly and timely filed all tax reports and
returns required to be filed by them, including all federal, state, local and
foreign tax returns and reports ("Tax Returns"). All such Tax Returns were
correct and complete in all material respects. The Company and its Subsidiary
have paid in full all Taxes (whether or not shown on a Tax Return) required to
be paid by the Company or its Subsidiary before such payment became delinquent.
The Company and its Subsidiary have made adequate provision in conformity with
generally accepted accounting principles consistently applied, for the payment
of all accrued Taxes not yet payable. All Taxes which the Company or its
Subsidiary has been required to collect or withhold have been duly collected or
withheld and, to the extent required when due, have been or will be duly and
timely paid to the proper taxing authority.
(b) The federal income tax returns of the Company and its Subsidiary
have not been examined by the Internal Revenue Service for any period in the
last five (5) years. The Sellers have received no notice that any issue has been
raised by the Internal Revenue Service in respect of any such returns. There are
no ongoing audits, inquiries, investigations or examinations relating to the
Company's or its Subsidiary's Tax Returns pending or, to Sellers' knowledge,
threatened by any Governmental Entity, and there are no claims which have been
asserted relating to any of the Company's or its Subsidiary's Tax Returns filed
for any year which if determined adversely would result in the assertion by any
Governmental Entity of any Tax deficiency against the Company or its Subsidiary.
There have been no waivers or extensions of statutes of limitations executed by
the Company or its Subsidiary or by Sellers affecting any liability for Taxes
owed by the Company or its Subsidiary.
(c) Neither the Company nor its Subsidiary has filed a statement under
Section 341(f) of the Code (or any comparable state income tax provision)
consenting to have the provisions of Section 341(f)(2) (collapsible corporations
provisions) of the Code (or any comparable state income tax provision) apply to
any disposition of any of the Company's or its Subsidiary's assets or property
and no property of the Company or its Subsidiary is property which Buyer, the
Company or its Subsidiary is or will be required to treat as owned by another
person pursuant to the provisions of Section 168(f) (safe harbor leasing
provisions) of the Code. Neither the Company nor its Subsidiary has been a
United States real property holding corporation within the meaning of Code
Section 897(c)(2) during the applicable period specified in Code Section
897(C)(1)(A)(ii). Neither the Company nor its Subsidiary has made a disclosure
on a Tax Return pursuant to Code Section 6662(d)(2)(B)(ii) and the Regulations
thereunder. Neither the Company nor its Subsidiary has ever been a member of an
affiliated, consolidated, combined or unitary group of corporations for tax
purposes.
(d) Neither the Company nor its Subsidiary has ever filed a
consolidated tax return pursuant to Sections 1501, 1502 and 1504 of the Code,
other than with such other entity. No power of attorney has been granted by the
Company or its Subsidiary with respect to any matter relating to any Taxes or
Tax Returns of the Company or its Subsidiary which is currently in force.
Neither the Company nor its Subsidiary has participated in or cooperated with an
international boycott within the meaning of Code Section 999. Neither the
Company nor its Subsidiary are required to include in income any adjustment
pursuant to Code Section 481(a) by reason of a change in accounting method. The
Company and its Subsidiary have not made any payments, nor are they obligated to
make any payments or are a party to any agreement that could obligate them to
make any payments that will not be deductible under Section 380G of the Code (or
any corresponding provision of any state, local or foreign Income Tax law).
(e) Sellers shall be responsible for, and shall indemnify Buyer
against, all Taxes, interest and penalties imposed on the Company or its
Subsidiary relating to taxable periods ending on or before the Closing Date
(including without limitation all Taxes referred to in the Disclosure Schedule
as possible of assessment for taxable periods prior to the Closing Date) to the
extent such Taxes were not reserved for on the Closing Balance Sheet.
(f) Schedule 4.22(f) of the Disclosure Schedule contains a listing of
each of the Company's and its Subsidiary's assets, if any, with respect to which
the tax basis differs from the book basis for financial reporting purposes, and
the amount of such tax basis.
(g) Except as disclosed on the Disclosure Schedule, the Company and
its Subsidiary have complied, in all material respects, with all applicable
federal, state and local withholding and payroll tax provisions.
IV.23 INSURANCE. The Disclosure Schedule contains a complete and
accurate list of all policies or binders of fire, liability, title, workers'
compensation and other forms of insurance (showing as to each policy or binder
the carrier, policy number, coverage limits, expiration dates, annual premiums
and a general description of the type of coverage provided) maintained by the
Company and its Subsidiary on its business, property or Personnel. All of such
policies are sufficient for compliance with all requirements of law except where
failure would not have a material adverse effect on the financial condition,
assets, liabilities, or business of the Company or its Subsidiary, and of all
Contracts to which the Company or its Subsidiary is a party. Neither the Company
nor its Subsidiary are in default with respect to payment or any other matter
under any of such policies or binders. Neither the Company nor its Subsidiary
has failed to give any notice or to present any material claim under any such
policy or binder in a due and timely fashion. To Sellers' knowledge, there are
no facts upon which an insurer might be justified in reducing coverage or
increasing premiums on existing policies or binders. There are no outstanding
unpaid claims under any such policies or binders other than in the ordinary
course. Such policies and binders are in full force and effect on the date
hereof and shall be kept in full force and effect by the Company and its
Subsidiary through the Closing Date.
IV.24 PURCHASE COMMITMENTS AND OUTSTANDING BIDS. All of the Contracts,
commitments and orders set forth in Section 4.8(a) of the Disclosure Schedule
were made in the ordinary course of the Company's or its Subsidiary's business
and at prices and on terms which are consistent with the Company's and its
Subsidiary's past practices. As of the date of this Agreement, no customer of
the Company or its Subsidiary has requested that services to be performed by the
Company or its Subsidiary under any Contract be delayed for any material period
of time.
IV.25 PAYMENTS. Neither the Company, its Subsidiary nor Sellers have,
directly or indirectly, paid or delivered any fee, commission or other sum of
money or item or property, however characterized, to any finder, agent,
government official or other party, in the United States or any other country,
which is in any manner related to the business or operations of the Company or
its Subsidiary, which Sellers know or have reason to believe to have been
illegal under any federal, state or local laws of the United States or any other
country having jurisdiction; and the Company or its Subsidiary has not
participated, directly or indirectly, in any boycotts or other similar practices
affecting any of its actual or potential customers.
IV.26 CUSTOMERS. The Disclosure Schedule contains a complete and
accurate list of (i) the ten largest customers of the Company and its Subsidiary
(on a consolidated basis) in terms of fees during the Company's and its
Subsidiary's fiscal year ended February 28, 1995, showing the approximate total
commissions and fees earned by the Company and its Subsidiary from each such
customer during the period from March 1, 1995 through December 31, 1995, net of
refunds accrued on a GAAP basis. Since December 31, 1995, there has been no
Material Adverse Change in the business relationship of the Company or its
Subsidiary with any such customer or supplier named in the Disclosure Schedule.
IV.27 COMPLIANCE WITH LEGISLATION REGULATING ENVIRONMENTAL QUALITY. There
are no toxic wastes or other toxic or hazardous substances or materials being
stored or otherwise held in or on any of the Facilities, or which have migrated
from the Facilities, whether contained in ambient air, surface water,
groundwater, land surface or subsurface strata. The Facilities have been
maintained in compliance with all federal, state and local environmental
protection, occupational, health and safety or similar laws, ordinances,
restrictions, licenses and regulations, including but not limited to the Federal
Water Pollution Control Act (33 U.S.C. ss. 1251 ET SEQ.), Resource Conservation
& Recovery Act (42 U.S.C. ss.6901 ET SEQ.), Safe Drinking Water Act (21 U.S.C.
ss. 349, 42 U.S.C. ss. 201, 300f), Toxic Substances Control Act (15 U.S.C. ss.
2601 ET SEQ.), Clean Air Act (42 U.S.C. ss. 7401 ET SEQ.), Comprehensive
Environmental Response, Compensation and Liability Act (42 U.S.C. ss. 9601 ET
SEQ.) ("CERCLA"), and similar state laws. The Company or its Subsidiary has not
disposed or arranged (by contract, agreement or otherwise), within the meaning
of Section 107(a)(3) of CERCLA, for the disposal of any material or substance
that was generated or used by the Company or its Subsidiary at any off-site
location that has been or is listed or proposed for inclusion on the National
Priority List promulgated pursuant to CERCLA or any list promulgated by any
Governmental Entity for the purpose of identifying sites which pose an imminent
danger to health and safety. Sellers have delivered or made available to Buyer
and its representative true and complete copies of all environmental studies,
reports and analyses made or prepared, in the last five years relating to the
Company, its Subsidiary or the each of their assets of which Sellers have
possession.
IV.28 VACATION TIME, BONUSES, ETC. The Disclosure Schedule sets forth
the method for accruing vacation pay used by the Company and its Subsidiary on
each of their Books and Records. Except as set forth on the Disclosure Schedule,
at the December Balance Sheet Date there were, at the date hereof there are and
on the Closing Date there will be, no bonuses, profit sharing, incentives,
commissions or other compensation of any kind with respect to work done prior to
the December Balance Sheet Date, the date hereof or the Closing Date,
respectively, due to present or former employees of the Company or its
Subsidiary not fully paid prior to such applicable date (other than accrued
payroll charges in the ordinary course of business for the pay period during
which this Agreement is executed or the Closing occurs, all of which will be
accrued on the Closing Balance Sheet) or, with respect to compensation for work
done prior to the December Balance Sheet Date, not fully accrued on the December
Balance Sheet. Total bonuses, profit sharing and incentives paid or to be paid
by the Company for the Company's past two fiscal years are $0 and $199,000 in
the aggregate, respectively, for the persons and in the amounts set forth on the
Disclosure Schedule. Total bonuses, profit sharing and incentives paid or to be
paid by the Subsidiary for the Subsidiary's past two fiscal years are $0 and $0
in the aggregate, respectively, for the persons and in the amounts set forth on
the Disclosure Schedule. All such amounts have been accrued on the December
Balance Sheet for purposes of determining Net Worth.
IV.29 COMPENSATION. The Disclosure Schedule lists the names, title or
job description, and total annual compensation (including, as separately set
forth figures, any bonuses paid, accrued, or granted through the December
Balance Sheet Date, any bonuses paid, accrued or granted, or to be paid,
accrued, granted or earned, from the December Balance Sheet Date to the date
hereof, and any bonuses attributable to the period of time prior to the date
hereof but to be paid, accrued or granted thereafter) of all employees, officers
and directors of the Company and its Subsidiary who, as of the date hereof, are
or will be entitled to receive compensation from the Company or its Subsidiary.
IV.30 MATERIAL MISSTATEMENTS OR OMISSIONS. No representations or
warranties by Sellers in any document, exhibit, certificate or schedule
furnished to Buyer pursuant hereto, contains or will contain any untrue
statement of a material fact, or omits or will omit to state any material fact
necessary to make the statements or facts contained therein not misleading. The
copies of all documents furnished to Buyer hereunder are true and complete
copies of the originals thereof in all material respects. The representations
and warranties contained in this Article IV shall not be affected or deemed
waived by reason of the fact that Buyer or its Representatives did not know but
should have known that any such representation or warranty is or might be
inaccurate in any respect or by any investigation by Buyer or its
Representatives.
IV.31 BOOKS AND RECORDS. Neither the Company nor its Subsidiary has
any of its records, systems, controls, data or information, recorded, stored,
maintained, operated or otherwise wholly or partly dependent on or held by any
means (including any electronic, mechanical or photographic process, whether
computerized or not) which (including all means of access thereto and therefrom)
are not under the exclusive ownership and direct control of the Company or its
Subsidiary.
IV.32 BANK ACCOUNTS; POWERS OF ATTORNEY. Set forth on the Disclosure
Statement is a list of each bank in which the Company or its Subsidiary
maintains an account or safe deposit box, the corresponding number of each such
account or safe deposit box and the names of all persons holding check-signing
or withdrawal powers or other authority with respect thereto. Also set forth on
the Disclosure Schedule are the names of any persons holding powers of attorney
from the Company or its Subsidiary and a summary statement of the terms thereof.
IV.33 ACCOUNTS RECEIVABLE. All of the accounts receivable of the
Company and its Subsidiary are actual and bona fide receivables representing
obligations for the total dollar amount thereof shown on its books. All such
receivables reflected on the Closing Balance Sheet will be collected in full in
accordance with their terms, net of the reserve shown on the Closing Balance
Sheet, without being subject to any recoupments, set-offs or counterclaims. No
accounts have been written off since the December Balance Sheet Date other than
write-downs or write-offs in the ordinary course.
IV.34 FULL DISCLOSURE. None of the statements made in this Agreement,
in the Private Placement Memorandum, the Financial Statements, nor any other
written statements furnished by the Company or its Subsidiary in connection with
the transaction contemplated herein, taken as a whole, contain any untrue
statement of a material fact or omit a material fact necessary to make
statements contained herein or therein not misleading.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF BUYER
Buyer hereby represents and warrants to Sellers as follows:
V.1 ORGANIZATION OF BUYER. Buyer is duly organized, validly existing
and in good standing under the laws of the State of Delaware, and has full
corporate power and authority to conduct its business as it is presently being
conducted and to own, lease and operate its properties and assets. Buyer is duly
qualified to do business as a foreign corporation and is in good standing in
each jurisdiction where the ownership of property or nature of its business
requires such qualification and where failure to be so qualified would have a
material adverse effect on Buyer.
V.2 AUTHORIZATION. Buyer has all necessary corporate power and
authority and has taken all corporate action necessary to enter into this
Agreement to consummate the transactions contemplated hereby and to perform its
obligations hereunder. Each of this Agreement and the Registration Rights
Agreement has been duly executed and delivered by Buyer and is a legal, valid
and binding obligation of Buyer enforceable against Buyer in accordance with its
terms (except as may be limited by bankruptcy, insolvency, reorganization,
moratorium or other similar laws relating to creditors' rights generally).
V.3 NO CONFLICT OR VIOLATION. Neither the execution and delivery of
this Agreement or the Registration Rights Agreement nor the consummation of the
transactions contemplated hereby or thereby will result in (a) a violation of or
a conflict with any provision of the Certificate of Incorporation or By-laws of
Buyer, (b) a breach of, or a default under, any term or provision of any
contract, agreement, indebtedness, lease, Encumbrance, commitment, license,
franchise, permit, authorization or concession to which Buyer is a party or by
which Buyer or any of its assets are bound, or affected, (c) a violation by
Buyer of any statute, rule, regulation, ordinance, code, order, judgment, writ,
injunction, decree or award applicable to Buyer or (d) an imposition of any
Encumbrance, restriction or charge on the business of Buyer or on any of its
assets.
V.4 CONSENTS AND APPROVALS. Except as set forth on Exhibit G attached
hereto, no consent, approval or authorization of, or declaration, filing or
registration with, any Governmental Entity, or any other person is required to
be made or obtained by Buyer in connection with the execution, delivery and
performance of this Agreement and the consummation of the transactions
contemplated hereby.
V.5 ISSUANCE OF SHARES. Upon the issuance of the Initial Shares as
provided herein, the Initial Shares will be duly and validly issued, fully paid
and non-assessable. Based on the Initial Stock Price, as of the Closing Date,
Buyer shall have duly authorized and reserved for issuance a sufficient number
of shares of Common Stock for issuance of the Additional Shares, and such shares
when issued as provided herein will be duly and validly issued, fully paid and
non-assessable.
V.6 NO BROKERS. Neither Buyer nor any affiliate of Buyer has entered
into or will enter into any Contract, agreement, arrangement or understanding
with any person or firm which will result in the obligation of Seller to pay any
finder's fee, brokerage commission or similar payment in connection with the
transactions contemplated hereby.
V.7 FULL DISCLOSURE. Neither Buyer's Annual Report on Form 10-KSB for
the fiscal year ended December 31, 1994 or Buyer's Quarterly Reports on Form
10-QSB for the quarters ended March 31, 1995, June 30, 1995 or September 30,
1995 (the "Buyer's SEC Documents") contain any untrue statement of a material
fact or omit to state a material fact necessary to make the statements contained
therein, in light of the circumstances under which they were made, not
misleading. Except as disclosed in Buyer's Current Reports on Form 8-K filed
with the SEC, Buyer has not suffered any material adverse change in its
business, operations, assets or financial condition since the date of the
financial statements contained in its Annual Report on Form 10-KSB for the
fiscal year ended December 31, 1994. None of the statements made in this
Agreement, the Private Placement Memorandum, nor any other written statements
furnished by the Buyer in connection with the transaction contemplated herein,
taken as a whole, contain any untrue statement of a material fact or omit a
material fact necessary to make statements contained herein or therein not
misleading.
V.8 INVESTMENT REPRESENTATIONS. Buyer is acquiring the Company Stock
for its own account for investment and not with a view to the sale or
distribution thereof or with any present intention of selling or distributing
any thereof. Buyer understands and acknowledges that the Company Stock is not
registered under the Securities Act and will not be transferable except (i)
pursuant to an effective registration statement under the Securities Act, (ii)
pursuant to Rule 144 or any successor rule under the Securities Act, (iii)
pursuant to a no-action letter issued by the SEC to the effect that a proposed
transfer of the Company Stock may be made without registration under the
Securities Act or (iv) upon an opinion of counsel knowledgeable in securities
law matters to the effect that the proposed transfer is exempt from registration
or qualification under the Securities Act and relevant state securities laws.
The Company Stock is being acquired under this Agreement by Buyer in good faith
solely for its own account, for investment and not with a new toward resale or
distribution within the meaning of the Act; and such Company Stock will not be
offered for sale, sold or otherwise transferred without either registration or
exemption from registration under the Act. Buyer has such knowledge and
experience in financial and business matters that Buyer is capable of evaluating
the merits and risks of Buyer's investment in the Company Stock; and Buyer
understands and is able to bear any economic risks associated with such
investment (including the necessity of holding such Company Stock for an
indefinite period of time, inasmuch as such Company Stock has not been
registered under the Act).
V.9 FINANCIAL STATEMENTS. The audited financial statements of Buyer as
at and for the year ended December 31, 1994 contained in Buyer's Annual Report
on Form 10-KSB for the fiscal year ended December 31, 1994 are complete, are in
accordance with the books and records of Buyer and present fairly the assets,
liabilities and financial condition, results of operations and cash flows
indicated thereby as of December 31, 1994 and for the period covered thereby in
conformity with generally accepted accounting principles consistently applied.
V.10 FINANCING. Buyer has delivered to Sellers' Representative copies
of financing commitments received by Buyer necessary in order to consummate the
purchase.
V.11 PRIVATE OFFERING. Buyer has not offered any of the Shares or any
similar security of Buyer for sale to, or solicited offers to buy any thereof
from any prospective purchaser, other than Sellers. Buyer has not engaged in any
conduct or entered into any agreements or understandings so as to subject the
transactions contemplated by this Agreement to the registration provisions of
Section 5 of the Securities Act or to the registration, qualification or other
similar provisions of any securities or "blue sky" law of any applicable state.
ARTICLE VI
COVENANTS OF SELLERS AND BUYER
Sellers, on the one hand, and Buyer, on the other hand, covenant with
each other as follows:
VI.1 MAINTENANCE OF BUSINESS PRIOR TO CLOSING. During the period from
the date hereof through the Closing Date, Sellers shall cause the Company and
its Subsidiary (a) to continue to carry on its business in the ordinary course
and in accordance with past practice and not to take any action inconsistent
therewith or with the consummation of the Closing, (b) to make timely payments
of accounts payable and other obligations and liabilities of the Company and its
Subsidiary in accordance with past practice and (c) to use its reasonable best
efforts to preserve intact its business organization, keep available the
services of its officers and employees and maintain satisfactory relationships
with suppliers, distributors, customers, agents and others having a business
relationship with it.
VI.2 INVESTIGATION BY BUYER. During the period from the date hereof
through the Closing Date, Sellers shall cause the Company and its Subsidiary to
allow Buyer at its own expense during regular business hours and upon reasonable
notice, through Buyer's employees, agents and Representatives, to make such
inspection of the Company's and its Subsidiary's business, properties, plants,
books and records (including Tax Returns, elections and records), and to conduct
such examination (including an examination of the work papers of any independent
public accountant) of the condition (financial or otherwise) of the Company and
its Subsidiary as Buyer, in its sole discretion, deems necessary or advisable to
familiarize itself with such business, properties, plants, books, records,
condition and other matters and to verify the representations of Sellers
hereunder. Sellers shall cause the Company and its Subsidiary to allow Buyer to
have full access to each of the officers, employees and agents of the Company
and its Subsidiary and, after consultation with and consent from the president
of the Company or the president of the Subsidiary, as appropriate, customers and
other third parties having business dealings with the Company or its Subsidiary.
VI.3 CONSENTS AND BEST EFFORTS. As soon as practicable, Sellers and
Buyer will commence all reasonable action required hereunder to obtain all
applicable consents, approvals and agreements of, and to give all notices and
make all filings with, any third parties as may be necessary to authorize,
approve or permit the full and complete sale, conveyance, assignment or transfer
of the Company Stock by a date early enough to allow the sale hereunder to be
consummated by the Closing Date. In addition, subject to the terms and
conditions herein provided, each of the parties hereto covenants and agrees to
use its reasonable best efforts to take or cause to be taken all things
necessary, proper or advisable under applicable laws and regulations to
consummate and make effective the transactions contemplated hereby.
VI.4 CERTAIN PROHIBITED TRANSACTIONS. During the period from the date
hereof through the Closing Date, Sellers shall not permit the Company or its
Subsidiary to, without the prior written approval of Buyer:
(a) incur any indebtedness for borrowed money, assume, guarantee,
endorse or otherwise become responsible for obligations of any other individual,
partnership, firm or corporation, or make any loans or advances to any
individual, partnership, firm or corporation, except in the ordinary course of
business and consistent with past practice;
(b) issue any shares of its capital stock or any other securities or
any securities convertible into shares of its capital stock or any other
securities;
(c) pay or incur any obligation to pay any dividend on its capital
stock or make or incur any obligation to make any distribution or redemption
with respect to capital stock;
(d) make any change to its Articles of Incorporation or By-laws;
(e) mortgage, pledge or otherwise encumber any of its properties or
assets, sell, transfer or otherwise dispose of any of its properties or assets
or cancel, release or assign any indebtedness owed to it or any claims held by
it, except in the ordinary course of business and consistent with past practice;
(f) make any investment of a capital nature either by purchase of
stock or securities, contributions to capital, property transfer or otherwise,
or by the purchase of any property or assets of any other individual,
partnership, firm or corporation (including entering into any capitalized
leases), except in the ordinary course of business and consistent with past
practice;
(g) except as set forth in the Disclosure Schedule, enter into or
terminate any material contract or agreement, or make any material change in any
of its Leases and Contracts, other than in the ordinary course of business and
consistent with past practice;
(h) do any other act which would cause any representation or warranty
of Seller in this Agreement to be or become untrue in any material respect; or
(i) enter into any leases or commitments in respect of leases for cars
or other vehicles.
VI.5 NOTIFICATION OF CERTAIN MATTERS. During the period from the date
hereof through the Closing Date, Sellers shall give prompt notice to Buyer, and
Buyer shall give prompt notice to Sellers' Representative, of (i) the
occurrence, or failure to occur, of any event which occurrence or failure would
be likely to cause any of its representations or warranties made in or pursuant
to this Agreement to be untrue or inaccurate in any material respect any time
from the date hereof to the Closing Date and (ii) any material failure of
Sellers or Buyer, as the case may be, to comply with or satisfy any covenant,
condition or agreement to be complied with or satisfied by it hereunder. Each
party shall use all reasonable efforts to remedy any material failure on its
part to satisfy any covenant, condition or agreement to be complied with or
satisfied by it.
VI.6 NO MERGERS, CONSOLIDATIONS, SALE OF STOCK, ETC. During the period
from the date hereof through the Closing Date, Sellers shall not, directly or
indirectly, solicit any inquiries or proposals or enter into or continue any
discussions, negoti ations or agreements relating to the sale or exchange of
Company Stock or the merger of the Company or its Subsidiary with, or any direct
or indirect disposition of a significant amount of the Company's or its
Subsidiary's assets or business to, any person other than Buyer or its
affiliates or provide any assistance or any information to or otherwise
cooperate with any person in connection with any such inquiry, proposal or
transaction. In the event that Sellers receive an unsolicited offer for such a
transaction or obtain information that such an offer is likely to be made,
Sellers will provide Buyer with notice thereof as soon as practicable after
receipt, including the identity of the prospective purchaser or soliciting
party.
VI.7 FINANCIAL CERTIFICATIONS. Sellers agree to provide, promptly and
from time to time, such certifications regarding the Company's and its
Subsidiary's financial information for any period prior to the Closing Date as
Buyer or its independent public accountants may reasonably request in connection
with any filings or reports Buyer is required to file with the SEC or any other
governmental authority, whether as a result of the transactions contemplated
hereby, pursuant to the Registration Rights Agreement or as required under
Buyer's periodic reporting obligations under the Exchange Act.
VI.8 FINANCIAL STATEMENTS.
(a) Within sixty days after the Closing Date, Sellers agree to deliver
to Buyer financial statements of the Company for (i) the eleven month period
ended January 31, 1995, and (ii) the eleven month period ended January 31, 1996;
together with the review report of Miller & Co. for each such period, all in
compliance in all material respects with all SEC requirements for such financial
statements to be included in a Current Report on Form 8-K or a registration
statement on Form S-1 filed under the Securities Act. Concurrently with the
delivery of the financial statements described in the preceding sentence,
Sellers shall deliver to Buyer a management's discussion and analysis ("MDA")
relating to such financial statements and relating to the Company's Financial
Statements, each complying in all material respects with the requirements for an
MDA to be contained in a registration statement on Form S-1 under the Securities
Act.
(b) Sellers hereby agree to execute and deliver to Miller & Co. and
Arthur Andersen LLP from time to time such representation letters as may be
reasonably required by such firms as a condition of their consent to the
inclusion of the Financial Statements or any other financial statements audited
or reviewed by them and referred to in the preceding paragraph in a registration
statement or report filed with the SEC or as a condition to their furnishing any
cold comfort letter with respect to any financial statements described in the
preceding paragraph.
ARTICLE VII
CONDITIONS TO SELLERS' OBLIGATIONS
The obligations of Sellers to consummate the transactions provided for
hereby are subject, in the discretion of Sellers' Representative, to the
satisfaction, on or prior to the Closing Date, of each of the following
conditions:
VII.1 REPRESENTATIONS, WARRANTIES AND COVENANTS. All representations
and warranties of Buyer contained in this Agreement shall be true and correct in
all material respects at and as of the Closing Date (and such representations
and warranties shall be deemed to be repeated by Buyer at and as of the Closing
Date), except as and to the extent that the facts and conditions upon which such
representations and warranties are based are expressly required or permitted to
be changed by the terms hereof, and Buyer shall have performed in all material
respects all agreements and covenants required hereby to be performed by it
prior to or at the Closing Date.
VII.2 CONSENTS. All consents, approvals and waivers from Governmental
Entities and other parties necessary to permit Sellers to transfer the Company
Stock to Buyer as contemplated hereby shall have been obtained.
VII.3 NO GOVERNMENTAL PROCEEDINGS OR LITIGATION. No injunction,
restraining order or other order of any Governmental Entity shall be in effect
on the Closing date which restrains, prohibits or invalidates the transactions
contemplated by this Agreement.
VII.4 OPINION OF COUNSEL. Buyer shall have delivered to Sellers'
Representative an opinion of Stroock & Stroock & Lavan, counsel to Buyer, dated
as of the Closing Date, in form and substance reasonably satisfactory to
Sellers' Representative, which opinion may be relied upon by any lender
providing the financing to Buyer set forth in Section 8.11, to the effect that:
(a) Buyer is a corporation duly incorporated, validly existing and in
good standing under the laws of the State of Delaware.
(b) All corporate action by Buyer required in order to authorize the
execution and delivery of this Agreement, the Shareholders' Agreement and the
Registration Rights Agreement and the Note, when delivered, and the consummation
of the transactions contemplated hereby has been duly and validly taken, and no
approval of the stockholders of Buyer is required in connection therewith.
(c) Each of this Agreement, the Registration Rights Agreement and the
Shareholders' Agreement has been duly executed and delivered by Buyer and is,
and the Subordinated Note, upon execution and delivery thereof, will be a legal,
valid and binding obligation of Buyer, enforceable against Buyer in accordance
with its terms, except as limited by bankruptcy, insolvency, reorganization,
moratorium or other similar laws relating to creditors' rights generally or by
equitable principles (whether considered in an action at law or in equity) or
other customary limitations reasonably satisfactory to Sellers' counsel.
(d) The Initial Shares have been duly authorized and validly issued
and are fully paid and non-assessable and the Additional Shares when issued in
accordance with the terms of this Agreement will be duly authorized, validly
issued and fully paid and non-assessable.
(e) No authorization, consent, order, permit or approval of, or filing
with, any Governmental Entity, or, to the knowledge of such counsel, any other
person, is required to be made or obtained by Buyer in connection with the
execution, delivery and performance of this Agreement, the Registration Rights
Agreement and the Note, when duly executed and delivered, by Buyer or the
consummation by Buyer of the transactions contemplated hereby or thereby, except
as set forth in this Agreement or on Exhibit G attached hereto.
(f) To such counsel's knowledge, the execution, delivery and
performance of this Agreement, the Registration Rights Agreement and the
Shareholders' Agreement and the Note, when executed and delivered, by Buyer will
not violate or result in a failure to comply in any material respect with any
statute, law, ordinance, regulation, rule or order of any federal, state or
local government or any other Governmental Entity, or any judgment, decree or
order or any court, applicable to the business or operations of Buyer.
(g) Neither the execution and delivery of this Agreement, the
Shareholders' Agreement, the Registration Rights Agreement, or the Note, when
duly executed and delivered, nor the consummation of the transactions
contemplated hereby will (i) violate the Certificate of Incorporation or the
By-laws of the Company, (ii) breach, or cause a default under, any terms or
provision of any material contract or agreement known to counsel to which the
Company is a party, or (iii) violate any judgment, decree, injunction, writ or
order applicable to the Company known to counsel.
In rendering such opinion, such counsel may rely (i) as to matters
governed by the laws of jurisdictions other than states in which such counsel is
admitted to practice, upon opinions of local counsel satisfactory to such
counsel, and (ii) as to factual matters, upon certificates and assurances of
public officials and officers of Buyer.
VII.5 CORPORATE DOCUMENTS. Seller shall have received from Buyer
resolutions adopted by the Board of Directors of Buyer approving this Agreement
and the transactions contemplated hereby, certified by Buyer's corporate
secretary.
VII.6 REGISTRATION RIGHTS AGREEMENT. Buyer shall have entered into the
Registration Rights Agreement.
VII.7 EMPLOYMENT AGREEMENT. Buyer shall have entered into the
Employment Agreements with Messrs. Laws, Coe, de Maio and Waterkotte.
VII.8 CERTIFICATES. Buyer shall have furnished Seller with such
certificates of Buyer's officers and others to evidence compliance with the
conditions set forth in this Article VII as may be reasonably requested by
Seller.
VII.9 SHAREHOLDERS' AGREEMENT. The Buyer and Messrs. Veru and Lois
shall have executed and delivered the Shareholders' Agreement.
ARTICLE VIII
CONDITIONS TO BUYER'S OBLIGATIONS
The obligations of Buyer to consummate the transactions provided for
hereby are subject, in the discretion of Buyer, to the satisfaction, on or prior
to the Closing Date, of each of the following conditions:
VIII.1 REPRESENTATIONS, WARRANTIES AND COVENANTS. All representations
and warranties of Sellers contained in or made pursuant to this Agreement shall
be true and correct in all material respects at and as of the Closing Date (and
such representations and warranties shall be deemed to be repeated by Sellers at
and as of the Closing Date), except as and to the extent that the facts and
conditions upon which such representations and warranties are based are
expressly required or permitted to be changed by the terms hereof, and Sellers
shall have performed in all material respects all agreements and covenants
required hereby to be performed by them prior to or at the Closing Date.
VIII.2 CONSENTS. All consents, approvals and waivers from third
parties and Governmental Entities and other parties necessary to permit Sellers
to transfer the Company Stock to Buyer as contemplated hereby shall have been
obtained and copies thereof shall have been delivered by the Closing Date to
Buyer or its Representatives.
VIII.3 NO GOVERNMENTAL PROCEEDINGS OR LITIGATION. No injunction,
restraining order or other order of any Governmental Entity shall be in effect
on the Closing Date which restrains, prohibits or invalidates the transactions
contemplated by this Agreement.
VIII.4 EMPLOYMENT AGREEMENT. Messrs. Laws, Coe, de Maio and Waterkotte
shall have entered into the Employment Agreements with Buyer.
VIII.5 REGISTRATION RIGHTS AGREEMENT. The Sellers shall have entered
into the Registration Rights Agreement.
VIII.6 AGENCY AGREEMENT. Each of the Sellers shall have executed and
delivered the Agency Agreement.
VIII.7 SHAREHOLDERS' AGREEMENT. Messrs. Laws, Coe, de Maio and
Waterkotte shall have executed and delivered the Shareholders' Agreement.
VIII.8 OPINION OF COUNSEL. Sellers shall have delivered to Buyer an
opinion of Brobeck, Phleger & Harrison, counsel to Sellers and to the Company,
which opinion may be relied upon by any Lender providing the financing to Buyer
set forth in Section 8.11, dated as of the Closing Date, in form and substance
reasonably satisfactory to Buyer, to the effect that:
(a) The Company is a corporation duly organized, validly existing and
in good standing under the laws of the State of California, and its Subsidiary
is a corporation duly organized, validly existing and in good standing under the
laws of the State of Illinois, and each of the Company and its Subsidiary is
duly qualified to do business as a foreign corporation and is in good standing
in each jurisdiction where the ownership of property or nature of its business
requires such qualification and where failure to be so qualified would have a
material adverse effect on the Company or its Subsidiary.
(b) Each of this Agreement, the Agency Agreement, the Shareholders'
Agreement and the Registration Rights Agreements have been duly executed and
delivered by Sellers and is a legal, valid and binding obligation of Sellers,
enforceable against Sellers in accordance with its terms, except as limited by
bankruptcy, insolvency, reorganization, moratorium or other similar laws
relating to creditors' rights generally or by equitable principles (whether
considered in an action at law or in equity) or other customary limitations
reasonably satisfactory to Buyer's counsel.
(c) The authorized capital stock of the Company consists of 200,000
shares of common stock, $5.00 par value per share, of which 49,512 shares are
issued and outstanding, are owned of record and, to such counsel's best
knowledge, beneficially by Sellers, free and clear of all Encumbrances. All such
shares are validly issued and outstanding, fully paid and non-assessable. To
such counsel's knowledge there are no outstanding options, warrants, rights,
calls, commitments, conversion rights, rights of exchange, plans or other
agreements of any character providing for the purchase, issuance or sale of any
shares of the capital stock of the Company. The authorized capital stock of the
Subsidiary consists of 10,000 shares of common stock, no par value per share, of
which 5,000 shares are issued and outstanding and are owned of record and, to
such counsel's knowledge, beneficially by the Company, free and clear of all
Encumbrances. All such shares are validly issued and outstanding, fully paid and
non-assessable. To such counsel's knowledge there are no outstanding options,
warrants, rights, calls, commitments, conversion rights, rights of exchange,
plans or other agreements of any character providing for the purchase, issuance
or sale of any shares of the capital stock of the Subsidiary.
(d) Neither the execution and delivery of this Agreement, the Agency
Agreement, the Shareholders' Agreement or the Registration Rights Agreement by
Sellers nor the consummation of the transactions contemplated hereby will (i)
violate the Articles of Incorporation or By-laws of the Company or its
Subsidiary, (ii) breach, or cause a default under, any term or provision of any
material contract or agreement known to counsel to which the Company or its
Subsidiary is a party, or (iii) violate any judgment, decree, injunction, writ
or order applicable to the Company or its Subsidiary, known to counsel.
(e) No authorization, consent, order, permit or approval of, or filing
with, any Governmental Entity, or, to the knowledge of such counsel, any other
person, is required for the execution and delivery of this Agreement by Sellers
or the consummation by Sellers of the transactions contemplated hereby except as
set forth in the Disclosure Schedule.
(f) To such counsel's knowledge, the execution, delivery and
performance of this Agreement, the Registration Rights Agreement and the
Shareholders' Agreement by Sellers will not violate or result in a failure to
comply in any material respect with any statute, law, ordinance, regulation,
rule or order of any federal, state or local government or any other
Governmental Entity, or any judgment, decree or order of any court, applicable
to the business or operations of the Company, its Subsidiary or the Sellers.
(g) The documents to be delivered by Sellers on the Closing Date are
sufficient to effect the transfer and assignment to Buyer of all right, title
and interest to the Company Stock.
In rendering such opinion, such counsel may rely (i) as to matters
governed by the laws of jurisdictions other than states in which such counsel is
admitted to practice, upon opinions of local counsel satisfactory to such
counsel, and (ii) as to factual matters, upon certificates and assurances of
public officials and officers of the Company and its Subsidiary.
VIII.9 CERTIFICATES. Sellers shall have furnished Buyer with such
certificates of the Company's and its Subsidiary's officers and others to
evidence compliance with the conditions set forth in this Article VIII as may be
reasonably requested by Buyer.
VIII.10 MATERIAL CHANGES. Except as set forth on the Disclosure
Schedule or as permitted hereby, since the December Balance Sheet Date, there
shall not have been any material adverse change in the condition (financial or
otherwise), assets, liabilities, reserves, business, properties, operations,
employee relations, or customer, supplier or distributor relations of the
Company or its Subsidiary.
VIII.11 FINANCING. Buyer shall have obtained, on such terms as are
reasonably acceptable to Buyer, bank financing in an amount not less than
$3,888,000.
ARTICLE IX
INVESTMENT REPRESENTATIONS OF SELLERS
Each Seller hereby represents, warrants, acknowledges and agrees as
follows:
IX.1 INVESTMENT INTENT. Seller is acquiring the Shares for its own
account, for investment purposes only, and not with a view to, or in connection
with, any resale or other distribution of such Shares.
IX.2 NO REGISTRATION UNDER FEDERAL OR STATE SECURITIES LAWS. The
Seller acknowledges that the Shares have not been registered under the
Securities Act, or the securities laws of any state by reason of a specific
exemption or exemptions from registration under the Securities Act and
applicable state securities laws, and that the Buyer's reliance on such
exemptions is predicated on the accuracy and completeness of the Sellers'
representations, warranties, acknowledgements and agreements herein.
Accordingly, the Shares may not be offered, sold, transferred, pledged or
otherwise disposed of by the Seller without an effective registration statement
under the Securities Act and any applicable state securities laws or an opinion
of counsel acceptable to the Buyer that the proposed transaction will be exempt
from registration. The Seller acknowledges that the Buyer is not required to
register the Shares under the Securities Act or any applicable state securities
law or to make any exemption from registration available. The Seller
acknowledges that to the extent the exemption from registration provided by Rule
144 under the Securities Act becomes available for the resale of the Shares, any
such resales may be made only in accordance with the terms and conditions of
that rule, including, among other things, the existence of a public market for
the Shares, the availability of current public information about the Buyer, the
resale occurring not less than two years after the Shares were purchased and
paid for, the sale being effected in a specified manner and the number of Shares
being sold not exceeding specified limitations.
IX.3 RESTRICTIVE LEGEND AND STOP TRANSFER ORDER. The Seller
acknowledges that the certificates representing the Shares will bear the
following legend:
"THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, AND ARE "RESTRICTED SECURITIES" AS THAT TERM
IS DEFINED IN RULE 144A UNDER
THE ACT. THE SHARES MAY NOT BE OFFERED FOR SALE,
SOLD OR OTHERWISE TRANSFERRED EXCEPT PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT OR
PURSUANT TO AN EXEMPTION FROM REGISTRATION UNDER THE
ACT, THE AVAILABILITY OF WHICH IS TO BE ESTABLISHED
TO THE SATISFACTION OF THE COMPANY."
and that Buyer reserves the right to place a stop order against the
certificate representing the Shares and to refuse to effect any transfers
thereof in the absence of an effective registration statement with respect to
the Shares or in the absence of an opinion of counsel to Buyer that such
transfer is exempt from registration under the Securities Act and under
applicable state securities laws.
IX.4 INVESTMENT EXPERIENCE. The Seller has such knowledge and
experience in financial and business matters that the Seller is capable of
evaluating the merits and risks of its investment in Buyer and of protecting its
own interests in connection therewith.
IX.5 ACCESS TO INFORMATION. At a reasonable time prior to the Closing
Date, the Seller has had the opportunity to review all documents and information
which the Seller has requested concerning its investment and Buyer, including,
but not limited to, Buyer's Form 10-KSB for the year ended December 31, 1994,
Buyer's Forms 10-QSB for the quarters ended March 31, 1995, June 30, 1995 and
September 30, 1995 and any other report or document filed by Buyer under the
Exchange Act, and the Private Placement Memorandum. The Seller has had the
opportunity to ask questions of Buyer's management, which questions were
answered to its satisfaction. The Seller has relied only on the foregoing
information in determining to make its investment in Buyer.
IX.6 INVESTMENT RISKS. The Seller acknowledges that an investment in
Buyer involves substantial risks. The Seller understands that there is no market
for the Shares and that there is no assurance that a market will develop. The
Seller is able to bear the economic risk of its investment for an indefinite
period of time.
IX.7 COMMISSIONS AND ADVERTISING. The Seller has not paid or given any
commission or other remuneration in connection with the purchase of the Shares.
The Seller has not received any public media advertisements and has not been
solicited by any form of mass mailing solicitation.
ARTICLE X
ACTIONS BY SELLERS AND BUYER
AFTER THE CLOSING
X.1 BOOKS AND RECORDS. Each party agrees that it will cooperate with
and make available to the other party, during normal business hours, all Books
and Records, information and employees (without substantial disruption of
employment) retained and remaining in existence after the Closing Date which are
necessary or useful in connection with any Tax inquiry, audit, investigation or
dispute, any litigation or investigation or any other matter requiring any such
Books and Records, information or employees for any reasonable business purpose.
The party requesting any such Books and Records, information or employees shall
bear all of the out-of-pocket costs and expenses (including, without limitation,
attorneys' fees, but excluding reimbursement for salaries and employee benefits)
reasonably incurred in connection with providing such Books and Records,
information or employees. Sellers may require certain financial information
relating to the Company for periods prior to the Closing Date for the purpose of
filing federal, state, local and foreign Tax Returns and other governmental
reports, and Buyer agrees to furnish such information to Sellers at Sellers'
request and expense.
X.2 SURVIVAL OF REPRESENTATIONS, ETC. All representations and
warranties contained herein or in any certification or instrument delivered
pursuant to this Agreement or the transactions contemplated hereby shall survive
the execution and delivery hereof, the consummation of the transactions
contemplated hereby and any investigation or audit made by any party hereto
until July 1, 1997; PROVIDED, HOWEVER, that the representations and warranties
contained in Sections 4.3, 4.5, 4.6, 4.20 and 4.22 hereof shall survive until
the expiration of the applicable statutes of limitations with respect to the
matters contained therein; and PROVIDED FURTHER that the representations and
warranties contained in Section 4.27 hereof shall survive until January 1, 2001.
All statements contained in the Disclosure Schedule or in any certificate
delivered pursuant to the transactions contemplated hereby shall be deemed to be
representations and warranties of Sellers or Buyer contained herein.
X.3 INDEMNIFICATIONS.
(a) BY SELLERS. The Sellers jointly and severally agree to indemnify,
save and hold harmless Buyer, its affiliates and subsidiaries, and its and their
respective Representatives, and the Company and its Subsidiary from and against
any and all costs, losses, liabilities, damages, lawsuits, deficiencies, claims,
Taxes and expenses, except consequential damages ("Damages"), incurred in
connection with or arising out of or resulting from any breach of any covenant
or warranty, or the inaccuracy of any representation, made by the Company or its
Subsidiary or the Sellers in or pursuant to this Agreement. The term "Damages"
as used in this Section 10.3 is not limited to matters asserted by third parties
against the Company or its Subsidiary or against Buyer, its affiliates,
subsidiaries and their respective Representatives or against the Sellers, but
includes Damages incurred or sustained by Sellers or by Buyer, its affiliates,
subsidiaries and their respective Representatives or the Company or its
Subsidiary in the absence of third party claims.
(b) BY BUYER. Buyer shall indemnify, save and hold harmless Sellers
and their Representatives from and against any and all Damages incurred in
connection with or arising out of or resulting from (i) any breach of any
covenant or warranty, or the inaccuracy of any representation, made by Buyer in
or pursuant to this Agreement; or (ii) subject to Sellers' obligations under
Section 10.3(a), any liability or obligation of the Company or its Subsidiary.
(c) DEFENSE OF CLAIMS. If a claim for Damages is to be made by a party
entitled to indemnification hereunder against the indemnifying party, the party
entitled to such indemnifica tion shall give written notice to the indemnifying
party as soon as practicable after the party entitled to indemnification becomes
aware of any fact, condition or event which may give rise to Damages for which
indemnification may be sought under this Section 10.3. If any lawsuit or
enforcement action is filed against any party entitled to the benefit of
indemnity hereunder, written notice thereof shall be given to the indemnifying
party as promptly as practicable (and in any event within fifteen days after the
service of the citation or summons); PROVIDED, that the failure of any
indemnified party to give timely notice shall not affect rights to
indemnification hereunder except to the extent that the indemnifying party
demonstrates actual damage caused by such failure. After such notice, if the
indemnifying party shall acknowledge in writing to the indemnified party that
the indemnifying party shall be obligated under the terms of its indemnity
hereunder in connection with such lawsuit or action, then the indemnifying party
shall be entitled, if it so elects, to take control of the defense and
investigation of such lawsuit or action and to employ and engage attorneys of
its own choice to handle and defend the same, at the indemnifying party's cost,
risk and expense provided that the indemnifying party and its counsel shall
proceed with diligence and in good faith with respect thereto. The indemnified
party shall cooperate in all reasonable respects with the indemnifying party and
such attorneys in the investigation, trial and defense of such lawsuit or action
and any appeal arising therefrom; PROVIDED, HOWEVER, that the indemnified party
may, at its own cost, participate in the investigation, trial and defense of
such lawsuit or action and any appeal arising therefrom. If a tax audit is
commenced or any tax is claimed for any period of the Company or its Subsidiary
prior to the Closing Date, such tax audit or claim shall be treated as a lawsuit
or enforcement action for purposes of this Section 10.3(c); PROVIDED, HOWEVER,
that Sellers shall be solely responsible for all liabilities and expenses
arising therefrom, including, without limitation, taxes, interest and penalties,
except to the extent of any reserves in respect of such taxes shown on the
Closing Balance Sheet.
(d) BROKERS AND FINDERS. Pursuant to the provisions of this Section
10.3, each of Buyer and Sellers shall indemnify, hold harmless and defend the
other party from the payment of any and all broker's and finder's expenses,
commissions, fees or other forms of compensation which may be due or payable
from or by the indemnifying party, or may have been earned by any third party
acting on behalf of the indemnifying party in connection with the negotiation
and execution hereof and the consummation of the transactions contemplated
hereby.
(e) Notwithstanding any of the provisions of this Section 10.3 or
otherwise, neither Buyer nor Sellers shall make claims for money Damages
hereunder unless and until the aggregate of such claims (in the case of the
Sellers, collectively) exceeds $100,000 (the "Indemnification Threshold");
PROVIDED, HOWEVER, that (i) the aggregate amount payable to Buyer or Sellers
hereunder with respect to Damages shall not exceed the Additional Purchase
Price, (ii) the Indemnification Threshold shall not be applicable to Sections
10.3(d) and 10.3(f) and to claims by Buyer for Damages arising from a breach of
any provisions of the following Sections: 4.3, 4.5, and 4.22 (and any claim
arising from a breach of any provisions of any such Section shall not be taken
into account for purposes of determining when the Indemnification Threshold has
been met or for purposes of the following clause (iii)) and (iii) once the
Indemnification Threshold has been met with respect to money Damages as to which
the Indemnification Threshold is applicable, Buyer or Sellers shall be entitled
to the full dollar amount of such Damages in excess of $100,000.
(f) DUBAI ASSETS. Sellers agree to indemnify, save and hold harmless
Buyer, its affiliates and subsidiaries, and their respective Representatives
against any and all costs, losses (including, without limitation, diminution in
value), liabilities, damage, lawsuits, deficiencies, claims, Taxes and expenses
incurred in connection with or arising out of the business conducted by the
Company or its Subsidiary in Dubai or the Dubai Assets.
X.4 FURTHER ASSURANCES. Both before and after the Closing Date, each
party will cooperate in good faith with the other and will take all appropriate
action and execute any documents, instruments or conveyances of any kind which
may be reasonably necessary or advisable to carry out any of the transactions
contemplated hereunder.
X.5 OFFSET. Any claim of Buyer arising pursuant to this Article X or
any other provision of this Agreement shall be offset against the Additional
Purchase Price. Buyer agrees that this right of offset shall be Buyer's
exclusive remedy under this Agreement. Buyer shall give Sellers' Representative
written notice within 15 days of the date of any scheduled Earn-Out payment of
its intent to exercise its right of offset. Sellers' Representative shall notify
Buyer in writing of any objection to the notice of Buyer's exercise of its right
to offset within 30 days of receipt by Sellers' Representative of Buyer's
written notice. Upon resolution of the dispute, Buyer shall pay to Sellers'
Representative an amount equal to any amount found to be wrongfully offset by
Buyer plus any interest accrued at the rate set forth in Section 2.10 on such
amount owed to Sellers from the date of the scheduled Earn-Out payment to the
date such amount is paid to Sellers' Representative.
ARTICLE XI
RESOLUTION OF CERTAIN DISPUTES
XI.1 ARBITRATION PROCEDURE. In the event that Buyer shall fail to
comply with its material obligations under (x) Section 2.3 of this Agreement, or
(y) Sections 3 and 4 of the Registration Rights Agreement, in each case within
the time periods specified therein, Sellers' Representative may give written
notice to Buyer describing such failure to comply in reasonable specificity and
demanding that such failure be remedied. If Buyer shall not remedy such failure
within ten (10) days after receipt of such notice, Sellers' Representative may
notify Buyer in writing of Sellers' Representative's election to submit to
arbitration as provided in this paragraph the matter of Buyer's alleged failure
to comply with its material obligations under such Section or Sections. At the
time of such notice by Sellers' Representative, Sellers' Representative shall
advise Buyer of the arbitrator selected by Sellers' Representative. Within
fifteen (15) days after Sellers' Representative notifies Buyer of such election,
Buyer shall select an arbitrator on its behalf, and give notice to Sellers'
Representative of such selection. Each arbitrator shall be a disinterested
party. If within fifteen (15) days after Sellers' Representative notifies Buyer
of his election to arbitrate such dispute Buyer shall have failed to select an
arbitrator, the second arbitrator shall be selected by the American Arbitration
Association, upon the application of Sellers' Representative. A third arbitrator
shall be selected by the American Arbitration Association. The parties shall
instruct the arbitrators that (i) the arbitrators shall schedule hearings so
that within thirty (30) days after the selection of the third arbitrator,
Sellers' Representative and Buyer shall submit to the arbitrators all materials
that they deem relevant to the determination of the matter in dispute and (ii)
the arbitrators shall render their written decision and award to each party
within forty-five (45) days after the appointment of the third arbitrator, and
such decision shall be accompanied by a written statement of the reasons for the
decision. In no event shall the arbitrators have any power to vary or modify any
of the provisions of this Agreement. To the extent not inconsistent with the
provisions of this Agreement, the arbitration shall be conducted in accordance
with the rules and procedures of the American Arbitration Association, with the
understanding that the parties intend to conclude the arbitration as rapidly as
possible. The decision of the majority of arbitrators so selected shall be final
and binding upon both Sellers and Buyer as to the matters determined. Unless the
majority of the arbitrators decide otherwise, the expenses of the arbitrator
selected by each party shall be borne by the party selecting such arbitrator,
and the expenses of the third arbitrator shall be borne by both parties equally.
Subject to the second preceding sentence, the provisions of this Article XI
shall not be deemed to limit the availability to Sellers or Buyer of any other
legal remedies for breach of the other party's contractual obligations. In no
event shall Sellers have the right to require arbitration under this Section
11.1 of a determination of Combined Revenue or the amount of the Company's and
its Subsidiary's Net Worth as of the Closing Date, which determinations shall be
made in accordance with Section 2.5 or Section 3.6, respectively.
ARTICLE XII
MISCELLANEOUS
XII.1 ASSIGNMENT. Sellers and Buyer shall not assign or delegate any
of their rights or obligations hereunder to any Person or Persons without the
express prior written consent of the other party hereto, which consent shall not
be unreasonably withheld, other than assignments or delegations made by Buyer to
an affiliate of Buyer; PROVIDED, HOWEVER, that Buyer may assign all of its
rights under this Agreement to certain lenders in connection with a revolving
credit agreement to be entered into by Buyer and such lenders in connection with
the transactions contemplated by this Agreement, and Sellers' Representative
shall execute a consent to such assignment in a form reasonably requested by
such lenders. Subject to the foregoing, this Agreement shall be binding upon and
inure to the benefit of the parties hereto and their respective successors and
assigns, and in the case of each Seller his heirs, beneficiaries, trusts for his
benefit and personal representatives, and no other person shall have any right,
benefit or obligation hereunder.
XII.2 NOTICES; TRANSFER OF FUNDS. Unless otherwise provided herein,
any notice, request, instruction or other document to be given hereunder by any
party to any other party shall be in writing and shall be deemed to have been
given (a) if mailed, at the time when mailed in any general or branch office of
the United States Postal Service, enclosed in a registered or certified
postage-paid envelope, (b) if sent by facsimile transmission, when so sent and
receipt acknowledged by an appropriate telephone or facsimile receipt or (c) if
sent by other means, when actually received by the party to which such notice
has been directed, in each case at the respective addresses or numbers set forth
below or such other address or number as such party may have fixed by notice:
If to Sellers, addressed to:
Sellers' Representative
Dean Laws and Dennis Coe
Eisaman, Johns & Laws Advertising, Inc.
5700 Wilshire Boulevard
Los Angeles, California 90036
With a copy to:
Brobeck, Phleger & Harrison
550 South Hope Street
Los Angeles, California 90071-2604
Attention: Kenneth Bender, Esq.
Fax: (213) 239-1324
If to Buyer, addressed to:
Lois/USA Inc.
40 West 57th Street
New York, New York 10019
Attention: Theodore Veru
Fax: (212) 586-9472
With a copy to:
Stroock & Stroock & Lavan
Seven Hanover Square
New York, New York 10004
Attention: James R. Tanenbaum, Esq.
Fax: (212) 806-6006
Payments to be made to Sellers hereunder shall be made by wire
transferred funds to be delivered to such account or place as Sellers'
Representative may designate by written notice as provided herein; PROVIDED,
HOWEVER, that certificates evidencing any Shares issued to Seller shall be
delivered to Sellers' Representative.
XII.3 GOVERNING LAW. This Agreement shall be construed, interpreted
and the rights of the parties determined in accordance with the laws of the
State of New York (without reference to the choice of law provisions of New York
law) except with respect to matters of law concerning the internal corporate
affairs of Buyer, the Company or its Subsidiary, and as to those matters the law
of the jurisdiction under which Buyer, the Company or its Subsidiary, as the
case may be, derives its powers shall govern.
XII.4 ENTIRE AGREEMENT; MODIFICATIONS AND WAIVERS. This Agreement,
together with all exhibits and schedules hereto, constitutes the entire
agreement among the parties pertaining to the subject matter hereof and
supersedes all prior agreements, understandings, negotiations and discussions,
whether oral or written, of the parties. No supplement, modification or waiver
of this Agreement shall be binding unless executed in writing by Buyer and
Sellers' Representative. No waiver of any of the provisions of this Agreement
shall be deemed or shall constitute a waiver of any other provision hereof
(whether or not similar), nor shall such waiver constitute a continuing waiver
unless otherwise expressly provided.
XII.5 COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
XII.6 EXPENSES. Except as otherwise specified herein, each party
hereto shall pay its own legal, accounting, out-of- pocket and other expenses
incident to this Agreement and to any action taken by such party in preparation
for carrying this Agreement into effect.
XII.7 INVALIDITY. In the event that any one or more of the provisions
contained in this Agreement or in any other instrument referred to herein,
shall, for any reason, be held to be invalid, illegal or unenforceable in any
respect, then to the maximum extent permitted by law, such invalidity,
illegality or unenforceability shall not affect any other provision of this
Agreement or any other such instrument.
XII.8 TITLES. The titles, captions or headings of the Articles and
Sections herein are for convenience of reference only and are not intended to be
a part of or to affect the meaning or interpretation of this Agreement.
XII.9 PUBLICITY. No party shall issue any press release or make any
public statement regarding the transactions contemplated hereby, without the
prior approval of the Buyer and the Sellers' Representative except, if after
discussion between the parties or their counsel, in the opinion of any party's
counsel, such party is required under any applicable law or regulation to make a
public statement or announcement, such party shall be permitted to issue the
legally required statement or announcement.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed as of the day and year first above written.
LOIS/USA INC.
By:/s/ Theodore J. Veru
Name: Theodore J. Veru
Title: Co-President
INDIVIDUALLY:
/s/ Dennis Coe
Name: Dennis Coe*
/s/ Michele de Maio
Name: Michele de Maio
/s/ Bear Ferguson
Name: Bear Ferguson
/s/ Andrea Giambrone
Name: Andrea Giambrone
/s/ Consuelo Gomez
Name: Consuelo Gomez
/s/ Anna Laws
Name: Anna Laws**
/s/ Dean Laws
Name: Dean Laws
/s/ Ric Militi
Name: Ric Militi
/s/ Adrienne Powell
Name: Adrienne Powell
/s/ Anne Stuzin
Name: Anne Stuzin
/s/ Lisa Tucker
Name: Lisa Tucker
/s/ Paul Vernon
Name: Paul Vernon
/s/ Mike Waterkotte
Name: Mike Waterkotte
* and Phyllis Thalman Coe, as Trustees under the Coe Living Trust dated
April 20, 1982.
** Trustee for Laws Family Trust U.D.O. 2/17/84.
<PAGE>
EXHIBIT A
LIST OF SELLERS AND THEIR PERCENTAGE INTERESTS
<PAGE>
EXHIBIT B
FINANCIAL STATEMENTS
(attached)
<PAGE>
EXHIBIT C
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(attached)
<PAGE>
EXHIBIT D
FORM OF EMPLOYMENT AGREEMENTS
(attached)
<PAGE>
EXHIBIT E
REGISTRATION RIGHTS AGREEMENT
(attached)
<PAGE>
EXHIBIT F
REQUIRED CONSENTS OR APPROVALS OF BUYER
Consent of Chemical Bank, N.A.
[See executed copy of Amended and Restated Credit Agreement]
<PAGE>
EXHIBIT G
AGENCY AGREEMENT
<PAGE>
EXHIBIT H
SHAREHOLDERS' AGREEMENT
<PAGE>
EXHIBIT I
LIST OF FACILITIES
<PAGE>
EXHIBIT J
FORM OF NOTE
<PAGE>
EXHIBIT K
LIST OF INVESTMENT BANKERS
Houlihan Lokey Howard & Zukin, Inc.
Duff & Phelps Capital Markets
Furman Selz Inc.
NatWest Securities Inc.
Smith Barney Incorporated
