Exhibit 2.2
STOCK PURCHASE AGREEMENT
dated as of April 11, 2002
by and among
DPG HOLDINGS, INC.,
DEVON GROUP, INC.
and
APPLIED GRAPHICS TECHNOLOGIES, INC.
with respect to all
outstanding capital stock of
PORTAL PUBLICATIONS, LTD.
TABLE OF CONTENTS
Page
ARTICLE I SALE OF SHARES AND CLOSING...............................................1
1.01 Purchase and Sale.................................................1
1.02 Purchase Price; Determination of Purchase Price...................1
1.03 Closing...........................................................3
1.04 Escrow Account....................................................3
ARTICLE II REPRESENTATIONS AND WARRANTIES OF SELLER................................4
2.01 Corporate Existence and Authority of Seller.......................4
2.02 Corporate Existence of the Company................................4
2.03 Capital Stock.....................................................5
2.04 Subsidiaries......................................................5
2.05 No Conflicts......................................................5
2.06 Governmental Approvals and Filings................................6
2.07 Financial Statements and Condition; Undisclosed Liabilities.......6
2.08 Absence of Changes or Events......................................7
2.09 Taxes.............................................................8
2.10 Legal Proceedings................................................11
2.11 Compliance With Laws and Orders..................................11
2.12 Benefit Plans; ERISA.............................................11
2.13 Real Property....................................................13
2.14 Assets and Properties............................................15
2.15 Intellectual Property Rights.....................................15
2.16 Contracts........................................................16
2.17 Labor Matters....................................................17
2.18 Affiliate Transactions...........................................18
2.19 Insurance........................................................18
2.20 Environmental Matters............................................19
2.21 Material Business Relationships..................................20
2.22 Permits..........................................................20
2.23 Absence of Certain Practices.....................................21
2.24 Books and Records................................................21
2.25 Corporate Names..................................................21
2.26 Accounts Payable.................................................21
2.27 Accounts Receivable..............................................21
2.28 Bank Accounts....................................................21
2.29 Brokers..........................................................22
ARTICLE III REPRESENTATIONS AND WARRANTIES OF PURCHASER...........................22
3.01 Corporate Existence and Authority of Purchaser...................22
3.02 No Conflicts.....................................................22
3.03 Governmental Approvals and Filings...............................23
3.04 Legal Proceedings................................................23
3.05 Purchase for Investment..........................................23
3.06 Brokers..........................................................23
ARTICLE IV COVENANTS OF THE PARTIES...............................................23
4.01 Covenants of Seller..............................................23
4.02 Covenants of Purchaser...........................................26
4.03 Acknowledgment...................................................26
ARTICLE V CONDITIONS TO CLOSING...................................................26
5.01 Conditions to Obligations of Seller..............................26
5.02 Conditions to Obligations of Purchaser...........................28
ARTICLE VI TAX MATTERS; ERISA MATTERS.............................................29
6.01 Tax Sharing Arrangements.........................................29
6.02 Consolidated Returns for Periods Through the Closing Date........29
6.03 Tax Periods Ending on or Before the Closing Date.................30
6.04 Tax Periods Beginning Before and Ending After the Closing Date...30
6.05 Post-Closing Elections...........................................31
6.06 Indemnification for Post-Closing Transactions....................31
6.07 Amendment of Pre-Closing Period Tax Returns......................31
6.08 Section 338(h)(10) Election......................................32
6.09 Section 338 Election Mechanics...................................32
6.10 Resolution of Tax-Related Disputes...............................32
6.11 Post-Closing ERISA Arrangements..................................32
ARTICLE VII SURVIVAL..............................................................34
7.01 Survival of Representations and Warranties.......................34
ARTICLE VIII INDEMNIFICATION......................................................34
8.01 Indemnification..................................................34
8.02 Method of Asserting Claims.......................................35
8.03 Losses Net of Insurance, etc.....................................37
8.04 Exclusive Remedy.................................................38
ARTICLE IX TERMINATION............................................................38
9.01 Termination by Mutual Written Consent............................38
9.02 Termination Upon Consummation of Alternative Transaction.........38
9.03 Termination by Seller............................................38
9.04 Termination by Purchaser.........................................39
9.05 Effects of Termination...........................................39
ARTICLE X DEFINITIONS.............................................................39
10.01 Definitions......................................................39
ARTICLE XI MISCELLANEOUS..........................................................48
11.01 Notices..........................................................48
11.02 Entire Agreement.................................................49
11.03 Expenses.........................................................49
11.04 Public Announcements.............................................50
11.05 Confidentiality..................................................50
11.06 Further Assurances; Post-Closing Cooperation.....................51
11.07 Waiver...........................................................52
11.08 Amendment........................................................52
11.09 No Third Party Beneficiary.......................................52
11.10 No Assignment; Binding Effect....................................52
11.11 Headings.........................................................52
11.12 Invalid Provisions...............................................52
11.13 Governing Law....................................................53
11.14 Submission to Jurisdiction.......................................53
11.15 Waiver of Jury Trial.............................................53
11.16 Interpretation...................................................53
11.17 Counterparts.....................................................53
Exhibit A: Escrow Agreement
Exhibit B: Production Services Agreement
Exhibit C: Opinion of Counsel to Purchaser
Exhibit D: Opinion of Counsel to Seller
STOCK PURCHASE AGREEMENT
This STOCK PURCHASE AGREEMENT, dated as of April 11, 2002 (this
"Agreement"), is made and entered into by and among DPG Holdings, Inc., a
Delaware corporation ("Purchaser"), Devon Group, Inc., a Delaware corporation
("Seller"), and, solely for purposes of Articles VI, VIII and XI, Applied
Graphics Technologies, Inc., a Delaware corporation and the owner of all of the
outstanding capital stock of Seller ("Parent"). Capitalized terms not otherwise
defined herein have the meanings set forth in Section 10.01.
RECITALS
1. Seller owns 1,000 shares of common stock, par value U.S. $.01 per
share, of Portal Publications, Ltd., a Delaware corporation (the "Company"),
constituting all issued and outstanding shares of capital stock of the Company
(such shares being referred to herein as the "Shares").
2. Seller desires to sell, and Purchaser desires to purchase, the
Shares on the terms and subject to the conditions set forth in this Agreement.
AGREEMENT
In consideration of the mutual covenants and agreements set forth in
this Agreement, and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto agree as
follows:
ARTICLE I.
SALE OF SHARES AND CLOSING
1.01 Purchase and Sale. Seller agrees to sell to Purchaser, and
Purchaser agrees to purchase from Seller, all of the right, title and interest
of Seller in and to the Shares at the Closing on the terms and subject to the
conditions set forth in this Agreement (the "Transaction").
1.02 Purchase Price; Determination of Purchase Price.
(a) Purchase Price. The aggregate purchase price for the Shares is
U.S. $39,000,000 (i) plus the amount by which Net Working Capital as of the
Closing Date exceeds the Net Working Capital Target Amount, or (ii) minus the
amount by which Net Working Capital as of the Closing Date is less than the Net
Working Capital Target Amount (the "Purchase Price"), determined as provided in
Section 1.02(b) and payable in cash as provided in Sections 1.02(b)(iv), 1.03
and 1.04.
(b) Determination of Purchase Price. The Purchase Price shall be
determined in accordance with the following procedures:
(i) At least two Business Days prior to the Closing, Seller will
deliver to Purchaser a letter executed on behalf of Seller setting forth (x) a
good faith estimate of the amount of Net Working Capital as of the Closing Date
(the "Estimated Net Working Capital"), including information concerning the
calculation thereof, which estimate shall be certified by the Chief Financial
Officer of the Company, and (y) an estimate of the Purchase Price, based on
Estimated Net Working Capital (the "Estimated Purchase Price").
(ii) As promptly as practicable after the Closing Date, but in no
event later than 45 days thereafter, Purchaser shall prepare and deliver to
Seller a balance sheet of the Company and its Subsidiaries as of the Closing
Date, together with a letter setting forth the calculation of Net Working
Capital as of the Closing Date certified by the Chief Financial Officer of the
Company (collectively, the "Proposed Closing Statements"). The Proposed Closing
Statements shall be prepared in accordance with GAAP (excluding footnotes) and
consistent with the past practices of the Company.
(iii) Seller shall have 30 days after delivery of the Proposed
Closing Statements pursuant to Section 1.02 (b)(ii) to provide notice to
Purchaser of any objection to the Proposed Closing Statements or the calculation
of Net Working Capital as of the Closing Date. Unless Purchaser shall have
received such notice objecting to the Proposed Closing Statements or such
calculation within such 30 day period, such calculation shall become final and
the Proposed Closing Statements will become the balance sheet of the Company and
its Subsidiaries as of the Closing Date (the "Closing Balance Sheet") for all
purposes under this Agreement. If Seller provides timely notice of any
objections to the Proposed Closing Statements or the calculation of Net Working
Capital, then Purchaser and Seller shall have up to 30 days from the date
Purchaser receives notification of Seller's objection to negotiate in good faith
toward a written resolution of their dispute. In the event the parties resolve
their differences, the Proposed Closing Statements, as adjusted pursuant to the
agreement between the parties, will become the Closing Balance Sheet for all
purposes under this Agreement, and the adjusted calculation of Net Working
Capital as of the Closing Date shall become final. If such dispute cannot be
resolved within such 30-day period (or a longer period if mutually agreed upon
by Purchaser and Seller), then Purchaser and Seller shall each submit such
documents as they deem relevant to (and such documents reasonably requested by)
Ernst & Young LLP (the "Neutral Auditor"). The Neutral Auditor shall, as soon as
practicable, but in no event later than 30 days thereafter, determine Net
Working Capital as of the Closing Date and the Closing Balance Sheet, in
accordance with the procedures set forth in Section 1.02(b)(ii). The costs and
fees of the Neutral Auditor shall be borne equally by Seller and Purchaser.
(iv) Within three Business Days after the final determination of the
Closing Balance Sheet and Net Working Capital as of the Closing Date pursuant to
Section 1.02(b)(iii) (the "Purchase Price Determination Date"), the Purchase
Price shall be determined. Upon such final determination, Purchaser shall pay
Seller the amount (if any) by which the Purchase Price exceeds the Estimated
Purchase Price, plus interest earned from the Closing Date to the date of such
payment at the Escrow Interest Rate, or Seller shall pay Purchaser the amount
(if any) by which the Estimated Purchase Price exceeds
the Purchase Price, plus interest earned from the Closing Date to the
date of such payment at the Escrow Interest Rate (any such payment to
Purchaser or Seller being referred to herein as a "Working Capital
Purchase Price Adjustment"). Payment of any Working Capital Purchase
Price Adjustment shall be made (A) by the Escrow Agent out of the
Working Capital Escrow Funds (any such payment by the Escrow Agent
being referred to herein as a "Working Capital Escrow Payment") and (B)
to the extent the Working Capital Purchase Price Adjustment exceeds the
Working Capital Escrow Funds, directly by Purchaser or Seller (as
applicable). All such payments, whether by Purchaser, Seller or the
Escrow Agent, shall be made by wire transfer of immediately available
funds to the account specified by the party to whom such payment is
owed.
1.03 Closing. Subject to the terms and conditions contained in this
Agreement, the Closing will take place at the offices of ▇▇▇▇▇▇▇ Berlin Shereff
▇▇▇▇▇▇▇▇, LLP, The Chrysler Building, ▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇
▇▇▇▇▇, or at such other place as Purchaser and Seller mutually agree, at 10:00
A.M. local time, on the third Business Day following the satisfaction of all of
the conditions to Closing contained in Article V, or such other date and time as
the parties may mutually agree (the "Closing Date"). At the Closing, Purchaser
will pay the Estimated Purchase Price (less the amounts to be deposited in the
Escrow Account pursuant to Section 1.04) by wire transfer of immediately
available funds to such account as Seller may direct by written notice delivered
to Purchaser by Seller before the Closing Date. Simultaneously, Seller will
assign and transfer to Purchaser good and valid title in and to the Shares, free
and clear of all Liens (other than Liens created by or on behalf of Purchaser or
any of its Affiliates), by delivering to Purchaser a certificate or certificates
representing the Shares, duly endorsed in blank or accompanied by duly executed
stock powers endorsed in blank. At the Closing, there shall also be delivered to
Seller and Purchaser the documents to be delivered under Sections 5.01(c) and
5.02(c), respectively.
1.04 Escrow Account. At the Closing, U.S. $2,000,000 of the Estimated
Purchase Price will be deposited in a segregated, interest-bearing escrow
account (the "Escrow Account") with the Escrow Agent pursuant to an escrow
agreement in substantially the form attached hereto as Exhibit A (the "Escrow
Agreement"), to be distributed by the Escrow Agent as follows:
(a) U.S. $500,000 (the "Working Capital Escrow Amount") shall be
held in the Escrow Account to secure against any Working Capital Purchase Price
Adjustment to be paid pursuant to Section 1.02(b)(iv). On the Purchase Price
Determination Date the Working Capital Escrow Funds, less the amount of any
Working Capital Escrow Payment made pursuant to Section 1.02(b)(iv), shall be
paid to Seller by the Escrow Agent.
(b) U.S. $1,500,000 (the "Representations Escrow Amount") shall be
held in the Escrow Account to secure against any Indemnity Obligations of
Seller. In the event that, at any time on or before March 31, 2003 (the
"Representations Escrow Termination Date"), Purchaser delivers any Claim Notice
or Indemnity Notice to Seller, and the amount of Seller's Indemnity Obligations
thereunder is not disputed by Seller in good faith, such amount shall be
immediately paid to Purchaser by the Escrow Agent out of the Representations
Escrow Funds (any such payment by the Escrow Agent being referred to herein as a
"Representations Escrow Payment"); provided that, to the extent that the
Representations Escrow Funds are not sufficient to
cover the full amount of Seller's undisputed Indemnity Obligations under such
Claim Notice or Indemnity Notice, the remaining amount of such Indemnity
Obligations shall be paid directly by Seller. In the event that, at any time on
or before the Representations Escrow Termination Date, Purchaser delivers any
Claim Notice or Indemnity Notice to Seller, and the amount of Seller's Indemnity
Obligations thereunder is disputed by Seller in good faith or is not readily
ascertainable, a reserve shall be established against the Representations Escrow
Funds (a "Representations Escrow Reserve") in the amount of Purchaser's good
faith estimate of Seller's Indemnity Obligations, as set forth in such Claim
Notice or Indemnity Notice. Within three Business Days of the Representations
Escrow Termination Date, all of the Representations Escrow Funds, other than any
Representations Escrow Reserves and any Representations Escrow Payments
previously made or to be made to Purchaser, shall be paid by the Escrow Agent to
Seller. If, at any time following the Representations Escrow Termination Date,
the amount of Seller's Indemnity Obligations under any Claim Notice or Indemnity
Notice is resolved indisputably, in whole or in part, such amount shall be paid
immediately by the Escrow Agent to Purchaser out of the Representations Escrow
Funds, and, to the extent that the aggregate amount of remaining Representations
Escrow Funds following such payment exceeds the aggregate amount of remaining
Representations Escrow Reserves, such excess shall be paid by the Escrow Agent
to Seller.
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF SELLER
Seller hereby represents and warrants to Purchaser as follows:
2.01 Corporate Existence and Authority of Seller. Seller is a
corporation duly incorporated, validly existing and in good standing under the
Laws of the State of Delaware. Seller has full corporate power and authority to
execute and deliver this Agreement, to perform its obligations hereunder and to
consummate the transactions contemplated hereby, including, without limitation,
to own, hold, sell and transfer (pursuant to this Agreement) the Shares. The
execution, delivery and performance by Seller of this Agreement have been duly
authorized by all necessary action on the part of Seller and its stockholders,
board of directors and officers. Assuming due authorization, execution and
delivery by Purchaser, this Agreement constitutes a legal, valid and binding
obligation of Seller, enforceable against Seller in accordance with its terms,
except to the extent enforceability may be limited by bankruptcy, insolvency,
reorganization, moratorium or other Laws relating to or affecting creditors'
rights generally or by general equity principles, regardless of whether such
enforceability is considered in a proceeding in equity or at Law.
2.02 Corporate Existence of the Company. The Company is a corporation
duly incorporated, validly existing and in good standing under the Laws of the
State of Delaware. The Company has full corporate power and authority to conduct
its business as and to the extent now conducted and to own, use and lease its
Assets and Properties. The Company is qualified to do business and in good
standing in each jurisdiction where the character or location of the Assets and
Properties owned, leased or operated by it, or the nature of its activities,
makes such qualification necessary. Section 2.02 of the Disclosure Schedule sets
forth a complete list of all jurisdictions in which the Company is so qualified.
2.03 Capital Stock. The authorized capital stock of the Company
consists solely of 1,000 shares of Common Stock, of which only the Shares have
been issued. The Shares are duly authorized, validly issued and outstanding,
fully paid and nonassessable, and have been issued in full compliance with all
applicable Laws. Except as set forth in Section 2.03 of the Disclosure Schedule,
Seller owns the Shares, beneficially and of record, free and clear of all Liens.
Except as set forth in Section 2.03 of the Disclosure Schedule, there are no
outstanding Options with respect to the Company, the Shares or the Assets and
Properties of the Company and its Subsidiaries. The delivery of a certificate or
certificates at the Closing representing the Shares in the manner provided in
Section 1.03 will transfer to Purchaser good and valid title to the Shares, free
and clear of all Liens, other than Liens created by or on behalf of Purchaser or
any of its Affiliates.
2.04 Subsidiaries. Section 2.04 of the Disclosure Schedule lists each
Subsidiary. Each Subsidiary is a corporation validly existing and in good
standing under the Laws of its jurisdiction of incorporation identified in
Section 2.04 of the Disclosure Schedule, and has full corporate power and
authority to conduct its business as and to the extent now conducted and to own,
use and lease its Assets and Properties. Each Subsidiary is qualified to do
business and in good standing in each jurisdiction where the character or
location of the Assets and Properties owned, leased or operated by it, or the
nature of its activities, makes such qualification necessary. Section 2.04 of
the Disclosure Schedule sets forth a complete list, for each Subsidiary, of all
jurisdictions in which such Subsidiary is so qualified. Section 2.04 of the
Disclosure Schedule lists, for each Subsidiary, the amount of its authorized
capital stock, the amount of its outstanding capital stock and the record owners
of such outstanding capital stock. Except as disclosed in Section 2.04 of the
Disclosure Schedule, all of the outstanding shares of capital stock of each
Subsidiary have been duly authorized and validly issued, are fully paid and
nonassessable, have been issued in full compliance with all applicable Laws, and
are owned, beneficially and of record, by the Company, free and clear of all
Liens. There are no outstanding Options with respect to any Subsidiary. Other
than the Subsidiaries, the Company does not, directly or indirectly, own an
interest in any other Person, including, without limitation, any joint venture
or partnership.
2.05 No Conflicts. The execution and delivery by Seller of this
Agreement do not, and the performance by Seller of its obligations under this
Agreement and the consummation of the transactions contemplated hereby will not:
(a) conflict with or result in a violation or breach of any of the
terms, conditions or provisions of the certificate or articles of incorporation
or by-laws (or other comparable corporate charter documents) of Seller, the
Company or any Subsidiary;
(b) subject to obtaining the consents, approvals and actions, making
the filings and giving the notices disclosed in Section 2.06 of the Disclosure
Schedule, conflict with or result in a violation or breach of any term or
provision of any Law or Order applicable to Seller, the Company or any
Subsidiary (other than any such conflict, violation or breach as would occur
solely as a result of the legal or regulatory status of Purchaser or any of its
Affiliates); or
(c) except as disclosed in Section 2.05 of the Disclosure Schedule
or as is not reasonably likely to have a Material Adverse Effect (i) conflict
with or result in a violation or breach of, (ii) constitute (with or without
notice or lapse of time or both) a default under, (iii) require Seller, the
Company or any Subsidiary to obtain any consent, approval or action of, make any
filing with or give any notice to any Person as a result or under the terms of,
(iv) result in or give to any Person any right of termination, cancellation,
acceleration or modification in or with respect to or (v) result in the creation
or imposition of any Lien upon Seller, the Company or any Subsidiary or any of
their respective Assets and Properties under, any Contract or Permit to which
Seller, the Company or any Subsidiary is a party or by which any of their
respective Assets and Properties is bound.
2.06 Governmental Approvals and Filings. Except as disclosed in Section
2.06 of the Disclosure Schedule, no consent, approval or action of, filing with
or notice to any Governmental or Regulatory Authority on the part of Seller, the
Company or any Subsidiary is required in connection with the execution, delivery
and performance of this Agreement or the consummation of the transactions
contemplated hereby, except those as would be required solely as a result of the
legal or regulatory status of Purchaser or any of its Affiliates.
2.07 Financial Statements and Condition; Undisclosed Liabilities.
(a) Prior to the execution of this Agreement, Seller has delivered
or made available to Purchaser true and complete copies of the (i) audited
consolidated balance sheets of the Company and its Subsidiaries as of December
31, 2000, 1999, and 1998 and the related audited statements of income and cash
flows for the fiscal years then ended and (ii) the unaudited and draft audited
consolidated balance sheet of the Company and its Subsidiaries as of December
31, 2001 and the related unaudited and draft audited statements of income and
cash flows for the fiscal year then ended.
(b) All such Financial Statements are true and complete in all
material respects and, except as set forth in the notes thereto or as disclosed
in Section 2.07(b) of the Disclosure Schedule, were prepared in accordance with
GAAP and present fairly, in all material respects, the consolidated financial
condition and results of operations of the Company and its Subsidiaries as of
the respective dates thereof and for the respective periods covered thereby
(except, in the case of the financial statements specified in clause (a)(ii)
above, for normal year-end adjustments and the inclusion of footnotes). Except
for those Subsidiaries listed in Section 2.07(b) of the Disclosure Schedule, the
financial condition and results of operations of each Subsidiary are, and for
all periods referred to in this Section 2.07 have been, consolidated with those
of the Company.
(c) Except as set forth in Section 2.07(c) of the Disclosure
Schedule, the Company has no Liabilities, other than (i) Liabilities which are
set forth on and reflected or reserved for in the Financial Statements, (ii)
Liabilities that are not required to be set forth in the Financial Statements
and do not exceed U.S. $100,000 in the aggregate and (iii) Liabilities arising
in the ordinary course of business, consistent with past practices, since the
Financial Statement Date.
2.08 Absence of Changes or Events. Except for the execution and
delivery of this Agreement and the transactions to take place pursuant hereto on
or prior to the Closing Date or as disclosed in the Financial Statements or in
the relevant subsection of Section 2.08 of the Disclosure Schedule, since the
Financial Statement Date there has not, with respect to the Company or any of
its Subsidiaries, been any:
(a) events which are reasonably likely, individually or in the
aggregate, to have a Material Adverse Effect;
(b) transactions not in the ordinary course of business (including
any sale of, or commitment to sell, Assets and Properties or equity securities
or merger or proposed merger) with a value in excess of U.S. $50,000 in the
aggregate;
(c) damage, destruction or loss (whether or not insured) of Assets
and Properties in excess of $50,000 in the aggregate;
(d) failure to maintain in full force and effect substantially the
same level and type of insurance coverage, at substantially the same cost to the
Company and/or its Subsidiaries, as in effect on the Financial Statement Date
for destruction, damage to or loss of any Assets and Properties (provided, that
Purchaser acknowledges that Parent currently maintains the Parent Insurance
Policies on behalf of the Company and its Subsidiaries, and that Seller makes no
representation as to any increase in cost of any Insurance that may result
solely from the need for the Company and/or its Subsidiaries to obtain Insurance
separate from the Parent Insurance Policies prior to or as of the Closing);
(e) change in accounting principles, methods or practices, or
investment practices;
(f) change in claims, payment and processing practices or policies
regarding intercompany transactions;
(g) change in the valuation of any Assets and Properties on the
Books and Records of the Company or any of its Subsidiaries;
(h) declaration, setting aside or payment of any dividend or other
distribution in respect of any capital stock or other equity security of the
Company or any of its Subsidiaries, or any direct or indirect redemption,
purchase or other acquisition of any shares of such capital stock or such other
equity security (other than (A) cash dividends or (B) dividends or distributions
from a Subsidiary to the Company or a wholly-owned Subsidiary of the Company);
(i) amendment to the charter, bylaws or similar governing documents
of the Company or any of its Subsidiaries;
(j) disposition or lapse of any Intellectual Property (including any
license, permit or authorization to use any Intellectual Property) material to
the Business, other than dispositions or lapses (i) set forth in Sections
2.16(b) or 2.21 of the Disclosure Schedule or (ii) pur-
suant to Contracts relating to the licensing of artwork that are not included
within the definition of "Material Contracts" set forth in Section 2.16;
(k) cancellation of any debt owed to the Company or any of its
Subsidiaries or waiver or release of any contract, right or claim of the Company
or any of its Subsidiaries, other than (in all cases) in the ordinary course of
business, consistent with past practices, in amounts not in excess of U.S.
$50,000 in the aggregate;
(l) incurrence of, or commitment to incur, Indebtedness or any
capital expenditure or commitment, other than (in all cases) in the ordinary
course of business, consistent with past practices, in amounts not in excess of
U.S. $50,000 in the aggregate;
(m) amendment of any Material Contract, except as set forth in
Sections 2.16(a), 2.16(b) or 2.21 of the Disclosure Schedule;
(n) increase or commitment to increase the salary or other
compensation payable, or to pay any bonus, to (i) any employee, agent or
independent contractor, other than in the ordinary course of business,
consistent with past practices or (ii) any officer or director, whether or not
in the ordinary course of business;
(o) commitment to enter into any employment agreement; or
(p) Agreement or understanding legally obligating the Company or any
Subsidiary to take any of the actions described in this Section 2.08.
2.09 Taxes. All representations under this Section 2.09 concerning
Taxes, Tax Returns and Taxable periods ended or events occurring on or before
May 27, 1998 or documents relating thereto are made to the Knowledge of Seller,
unless specifically stated otherwise. Except as set forth in Section 2.09 of the
Disclosure Schedule:
(a) Each of the Company and its Subsidiaries has duly filed, or has
had filed on its behalf, with the appropriate Governmental or Regulatory
Authority, all Tax Returns required to have been filed by it on a separate
company basis (collectively, the "Group Tax Returns"), and all Group Tax Returns
are true, correct, accurate and complete. Each Tax Return required to have been
filed (or actually filed) on a consolidated, combined or unitary basis with
respect to any Affiliated Group (a "Consolidated Tax Return"), for a taxable
period during which the Company or any of its Subsidiaries was a member of such
Affiliated Group, has been duly filed with the appropriate Governmental or
Regulatory Authority on behalf of such Affiliated Group. All such Consolidated
Tax Returns are true, correct, accurate and complete, in all respects, insofar
as they relate to the Company or any of its Subsidiaries.
(b) There are no Liens with respect to Taxes on any of the Assets
and Properties of the Company or any of its Subsidiaries other than Permitted
Liens. All Taxes required to have been paid by any of the Company and its
Subsidiaries and Taxes assessed or required to have been paid with respect to
the Consolidated Tax Returns (whether or not shown on the Group Tax Returns or
the Consolidated Tax Returns) have been paid on or before the Closing Date. Any
adjustment of Taxes of any of the Company or its Subsidiaries made by any taxing
authority that is required to be reported to any other taxing authority has been
so reported.
(c) All Taxes of the Company or any of its Subsidiaries incurred
since December 31, 2001 were incurred in the ordinary course of business,
consistent with past practices, or incurred as a result of the transactions
contemplated hereby.
(d) All Taxes of the Company or any of its Subsidiaries required to
have been withheld and paid in connection with amounts paid or owing to any
employee, independent contractor, stockholder, claimant, creditor or other
Person have been duly and properly withheld and paid over or deposited.
(e) None of the Group Tax Returns or the portions of the
Consolidated Tax Returns relating to the separate income and other items of the
Company and its Subsidiaries for any taxable periods currently is the subject of
an audit nor has any Governmental or Regulatory Authority issued a written
notice that any such Tax Return filed on or after May 28, 1998 been audited nor,
to the Knowledge of Seller, has any other such Tax Return with respect to any
taxable period ended on or after December 31, 1996 been audited, where, in
either case, such audit involved a proposed assertion of a material increase in
Tax liability over the Tax reported on the return so audited.
(f) There are no disputes, claims or proceedings with respect to
Taxes arising under such Group Tax Returns or Consolidated Tax Returns or for
which the Company or its Subsidiaries may be liable that are currently pending
or, to the Knowledge of Seller, threatened. Seller does not have any specific
basis to expect any Governmental or Regulatory Authority to assess any
additional Taxes with respect to periods covered by the Group Tax Returns or in
connection with an examination of the portion of the Consolidated Tax Returns
relating to the separate income and other items of the Company and its
Subsidiaries reported on the Consolidated Tax Returns. To the Knowledge of
Seller, no claim has been made by any taxing jurisdiction where the Company has
not filed Tax Returns that the Company is or may be subject to taxation by that
jurisdiction.
(g) None of the Company and its Subsidiaries has waived any statute
of limitations in respect of Taxes or agreed to any extension of time with
respect to any Tax assessment or deficiency (other than a waiver or extension
that has expired prior to the date of this Agreement), and no power of attorney
granted by the Company or any of its Subsidiaries with respect to any Tax matter
is currently in effect.
(h) None of the Company and any of its Subsidiaries has joined (or
was required to join) in the filing of a consolidated, combined or unitary Tax
Return required to be filed on or after December 31, 1996 with any other
corporation, other than corporations (including successors of such corporations)
included in the Affiliated Group of which the common parent is Parent.
(i) None of the Company and its Subsidiaries has any liability for
the Taxes of any Person arising in any taxable year ending after May 27, 1998
under Treasury Regulation
Section 1.1502-6 (or any similar provision of Law), as a transferee or
successor, by contract or otherwise, other than with respect to Taxes of the
Affiliated Group of which Parent is the common parent.
(j) No Indebtedness of the Company or any of its Subsidiaries
consists of "corporate acquisition indebtedness" within the meaning of Section
279 of the Code. No Assets and Property of the Company or any of its
Subsidiaries is "tax-exempt use property" within the meaning of Section 168(h)
of the Code, nor property that the Company will be required to treat as being
owned by another Person pursuant to Section 168(f)(8) of the Internal Revenue
Code of 1954, as amended and in effect immediately prior to the enactment of the
Tax Reform Act of 1986. None of the Company and any of its Subsidiaries: (i) has
filed an election, consent or agreement under Section 341(f) of the Code; (ii)
is a "loss corporation" within the meaning of Section 382(k)(1) of the Code;
(iii) is (or was during the period set forth in Section 897(c)(1)(A)(ii) of the
Code) a "United States real property holding corporation" within the meaning of
Section 897(c)(2) of the Code; (iv) is required to include any amounts in income
for taxable years ending after the Closing Date pursuant to Section 481(a) of
the Code or any similar provision of state or local Law by reason of a change in
accounting method required to be made in a taxable year ending on or before the
Closing Date, and, to the Knowledge of Seller, neither the IRS nor any similar
taxing authority, is currently proposing any change in the method of accounting
with respect to the Company or any of its Subsidiaries for taxable years ending
on or before the Closing Date that would require inclusion pursuant to Section
481(a) of the Code of such amounts in taxable years ending after the Closing
Date; or (v) has participated in, or cooperated with, an international boycott
within the meaning of Section 999 of the Code.
(k) None of the Company and any of its Subsidiaries was a
"distributing corporation" or a "controlled corporation," within the meaning of
Section 355 of the Code, within the last two years, or at any time, if the
distribution pursuant to Section 355 of the Code was part of a plan (or series
of transactions) which included the transactions contemplated hereby.
(l) Seller has provided Purchaser with copies or made available for
examination copies, to the extent requested by Purchaser, of: (i) all Group Tax
Returns and Consolidated Tax Returns (insofar as they relate solely to the
Company or any of its Subsidiaries) for taxable periods ending after May 27,
1998; (ii) any notices, protests or closing agreements issued by, filed with or
entered into with a Governmental or Regulatory Authority relating to issues
arising in any audit, litigation or similar proceeding with respect to the
liability for Taxes of the Company or any of its Subsidiaries (insofar as such
notices relate solely to the Company or any of its Subsidiaries); (iii) any
elections relating to Taxes of the Company or any of its Subsidiaries which will
have continuing effect for taxable years ending after the Closing Date filed by
or on behalf of the Company or any of its Subsidiaries with any taxing authority
(which are not otherwise included in or apparent from the Group Tax Returns or
portions of Consolidated Tax Returns referred to in (i) above); (iv) any letter
rulings, determination letters or similar documents issued by any taxing
authority to the Company or any of its Subsidiaries which has continuing effect
for taxable years ending after the Closing Date; and (v) any Tax sharing or
similar agreement or arrangement to which the Company or any of its Subsidiaries
is or has been a party which has continuing effect for taxable years ending
after the Closing Date.
2.10 Legal Proceedings. There are no Orders outstanding or Actions or
Proceedings pending (or, to the Knowledge of Seller, threatened) against Seller,
the Company, any Subsidiary, their respective Assets and Properties, or any of
their respective officers, directors or employees (in their capacities as
officers, directors or employees of Seller, the Company or any Subsidiary) which
are reasonably likely (individually or in the aggregate) to (i) have a Material
Adverse Effect, (ii) result in the issuance of an Order restraining, enjoining
or otherwise prohibiting or making illegal the consummation of any of the
transactions contemplated by this Agreement, or (iii) challenge or otherwise
have the effect of preventing, delaying, making illegal or otherwise interfering
with the transactions contemplated by this Agreement. There are no unsatisfied
or outstanding judgments against the Company, any of its Subsidiaries or any of
their respective Assets and Properties. To the Knowledge of Seller, no
investigation or review by any Governmental or Regulatory Authority with respect
to the Company or any of its Subsidiaries, or any of their respective Assets and
Properties, is pending or threatened, nor, to the Knowledge of Seller, has any
Governmental or Regulatory Authority indicated to the Company or any of its
Subsidiaries an intention to conduct the same. None of Seller, the Company, nor
any of its Subsidiaries, has received any memorandum or legal advice or notice
from legal counsel to the effect that it is likely, from a legal standpoint,
that the Company or any of its Subsidiaries will incur any Liability or
disadvantage that may cause a Material Adverse Effect.
2.11 Compliance With Laws and Orders. Except for violations or defaults
not reasonably likely (individually or in the aggregate) to have a Material
Adverse Effect, neither the Company nor any Subsidiary is in violation of or in
default under any Law or Order applicable to the Company or any Subsidiary or
any of their respective Assets and Properties, and all such Assets and
Properties are being operated in accordance with all applicable Laws and Orders.
2.12 Benefit Plans; ERISA.
(a) Section 2.12(a) of the Disclosure Schedule contains a true and
complete list of each Benefit Plan, and identifies each Benefit Plan that is a
Qualified Plan and each Benefit Plan that covers employees of an employer other
than the Company or one of its Subsidiaries (each, an "AGT Plan"). Seller has
made available to Purchaser, with respect to each Benefit Plan, accurate and
complete copies of (i) all written documents comprising such plan (including
amendments, service agreements, and trust and other funding agreements), (ii)
the summary plan description currently in effect and all material modifications
thereto, if any, for such plan, (iii) the most recent IRS determination letter,
if any, for such plan and (iv) any other written communications to any
employees, to the extent, to the Knowledge of Seller, that the provisions of
such plan described therein differ materially from such provisions as set forth
or described in the other information or materials furnished above.
(b) Neither the Company nor any Subsidiary maintains or is obligated
to provide benefits under any life, medical or health plan (other than as an
incidental benefit under a Qualified Plan) which provides benefits to retirees
or other terminated employees other than benefit continuation rights under
Section 4980B of the Code, Sections 601 through 608 of ERISA or applicable local
law. Except as set forth in Section 2.12(a) of the Disclosure Schedule, all
health and medical benefit coverage, and all death benefit coverage, under each
Benefit Plan is provided solely through insurance.
(c) Except as set forth in Section 2.12(a) of the Disclosure
Schedule, no Benefit Plan is (i) a "multiemployer plan," as that term is defined
in Section 4001 of ERISA, (ii) a "multiple employer plan," as described in
Section 413(c) of the Code, (iii) a "multiple employer welfare arrangement," as
defined in Section 3(40) of ERISA, (iv) an unfunded plan of deferred
compensation, (v) a "voluntary employees' beneficiary association," within the
meaning of Section 501(c)(9) of the Code or (vi) maintained outside of the
United States.
(d) Each Benefit Plan complies with, and is being operated and
administered in compliance with, its terms and all applicable reporting,
disclosure and other requirements of ERISA, the Code and all other applicable
Laws, except for failures to comply which are not reasonably likely
(individually or in the aggregate) to have a Material Adverse Effect. No
"prohibited transaction" within the meaning of Section 406 of ERISA or Section
4975 of the Code or any breach of fiduciary responsibility under ERISA has
occurred with respect to any Benefit Plan, except for violations which are not
reasonably likely (individually or in the aggregate) to have a Material Adverse
Effect.
(e) All contributions and other payments required to be made by the
Company or any Subsidiary to any Benefit Plan for the period up to and including
the Closing Date have been made or reserves adequate for such contributions or
other payments have been or will be set aside therefor and have been or will be
reflected in Financial Statements in accordance with GAAP.
(f) No Benefit Plan is subject to Part 3 of Title I of ERISA,
Section 412 of the Code or Title IV of ERISA.
(g) Except as set forth in Section 2.12(g) of the Disclosure
Schedule, there are no pending or, to the Knowledge of Seller, threatened
Actions or Proceedings for benefits relating to or under any Benefit Plan which
is reasonably likely to result in Liability on the part of Purchaser, the
Company, any Subsidiary or any fiduciary of any such Benefit Plan. Except as set
forth in Section 2.12(g) of the Disclosure Schedule, no Benefit Plan is
presently under audit or examination by any Governmental or Regulatory
Authority, and no matters are pending with respect to any Benefit Plan under the
IRS voluntary compliance resolution program, its closing agreement program, or
any other similar program. To the Knowledge of Seller, there is no unpaid
material liability, tax, fine or penalty with respect to any employee benefit
plan, which would be a Benefit Plan but for the fact that it is not in existence
as of the Closing Date, that could be imposed upon the Company or any of its
Subsidiaries
(h) Each Benefit Plan which is (or ever was) intended to qualify
under Section 401 of the Code is a Qualified Plan (or, if applicable, was a
Qualified Plan upon its termination), other than with respect to a qualification
defect that can be corrected without a Material Adverse Effect. Each such
Benefit Plan has received a determination letter from the IRS that states that
such plan is a Qualified Plan, and to the extent that the Company and its
Subsidiaries may not currently rely on such determination letter, the remedial
amendment period for such Benefit Plan remains open.
(i) Except as set forth in Section 2.12(j) of the Disclosure
Schedule, no employee of the Company or any of its Subsidiaries, or any other
Person, shall accrue or receive additional benefits, additional credit for
service, accelerated vesting or accelerated rights to payment of any benefit
under any Benefit Plan, or become entitled to any severance, termination
allowance or similar payments as a result of the execution and delivery of, or
the transactions contemplated by, this Agreement. Such execution and delivery,
or the consummation of such transactions, shall not result in any increase in
the contributions required to be made to any Benefit Plan. No payment made or
contemplated under any Benefit Plan, or by the Company or any of its
Subsidiaries, constituted, or would constitute, an "excess parachute payment"
within the meaning of Section 280G and 4999 of the Code.
(j) Except as set forth in Section 2.12(j) of the Disclosure
Schedule, neither the Company nor any of its Subsidiaries is under any
obligation to modify any Benefit Plan, or to establish any new employee benefit
plan. The Company or one of its Subsidiaries or an ERISA Affiliate has expressly
reserved to itself the right to amend, modify or terminate each Benefit Plan
(and any service or funding agreement or arrangement for each Benefit Plan), at
any time without liability or penalty to itself (other than routine expenses);
provided, that the right to amend, modify or terminate benefits for employees
that are subject to a collective bargaining agreement is subject to the
collective bargaining process, and the Company may not unilaterally change any
written employment agreement. No Benefit Plan requires the Company or any of its
Subsidiaries to continue to employ any employee, director or officer, or to
continue to use the services of any independent contractor.
(k) There has been no amendment, interpretation or announcement by
the Company, any Subsidiary or any ERISA Affiliate relating to any Benefit Plan
which would materially increase the expense of maintaining such plan above the
level of expense incurred with respect to that plan for the most recent fiscal
year included in the Financial Statements.
(l) No ERISA Affiliate has incurred any liability, fine, tax or
penalty with respect to any Plan, other than a Benefit Plan, which is material
in amount, and which could be imposed upon Purchaser, the Company or any of its
Subsidiaries.
(m) All liability for unfunded or uninsured health, medical, dental,
death, flexible spending account, deferred compensation or retirement benefits
under any Benefit Plan (including the New Health Plan) that are earned or arise
out of any event occurring prior to the Closing Date has been (or, in the case
of the New Health Plan, will be) assumed by Seller and/or Parent, and neither
the Company nor any of its Subsidiaries has or will have any such liability
(other than to the extent that such liability is a current liability included in
the calculation of Net Working Capital as of the Closing Date). A reserve (based
on historical experience) will be reflected on the Closing Balance Sheet as a
current liability included in the calculation of Net Working Capital as of the
Closing Date in order to reflect the accrual from January 1, 2002 to the Closing
Date of matching contributions under the Company's 401(k) Plan, which vest on
December 31, 2002.
2.13 Real Property.
(a) Section 2.13(a) of the Disclosure Schedule contains a true,
correct and complete list of each parcel of Real Property owned or leased by the
Company or any Subsidiary, indicates whether such Real Property is owned or
leased and provides an accurate description of the premises owned or leased by
the Company and the facilities located on such premises.
(b) The Company or one of its Subsidiaries is in possession of, and
has good, valid and marketable title to, each parcel of the Owned Real Property,
free and clear of all Liens (other than Liens set forth in Section 2.13(b) of
the Disclosure Schedule, which will be discharged prior to the Closing). Seller
has provided Purchaser with a true, correct and complete copy of the deeds
(including any amendments thereto) for all Owned Real Property. Section 2.13(b)
of the Disclosure Schedule contains a schedule of the current real estate tax
amounts and any actual or pending real estate tax assessments, abatements,
exemptions or certiorari proceedings with respect to the Owned Real Property.
All public utilities for the Owned Real Property are installed through valid
easements, and no air or development rights have been transferred to any Person.
(c) Seller has provided Purchaser with a true, correct and complete
copy of each Lease (including any amendments thereto) and each Owned Real
Property Lease (including any amendments thereto). Section 2.13(c) of the
Disclosure Schedule lists, for each Lease and each Owned Real Property Lease, a
summary of any rental abatements, rental prepayments, previously exercised
options, unperformed landlord obligations for tenant work, unpaid work
allowances to tenants or landlord rights to receive tenant credits in effect
with respect to such Lease. The Company or one of its Subsidiaries is the sole
lessee or sublessee under each Lease, and is in possession of the Leased
Premises. Each of the Leases and the Owned Real Property Leases is in full force
and effect, and the Company or its Subsidiary (as applicable) is in compliance
with all commitments and obligations on its part to be performed or observed
thereunder. To the Knowledge of Seller, each party to each Lease or Owned Real
Property Lease other than the Company or its Subsidiary (as applicable) has
complied with all material commitments and obligations on its part to be
performed and observed thereunder. Neither the Company nor any of its
Subsidiaries has waived any obligation of any landlord or tenant (as applicable)
or any right under any of the Leases or the Owned Real Property Leases. Neither
Seller, the Company, nor any of the Company's Subsidiaries, has received any
written or oral notice of a default, offset or counterclaim under any Lease or
Owned Real Property Lease and no event or condition exists which constitutes or
would constitute a default or, after notice or lapse of time or both, is
reasonably likely (either individually or in the aggregate) to constitute a
default under such Lease or Owned Real Property Lease (as applicable). There is
no Lien upon any leasehold interest of the Company or any of its Subsidiaries
under any Lease. Except as set forth in Section 2.05 of the Disclosure Schedule,
no consent of any Person is required under any Lease or Owned Real Property
Lease in connection with the consummation of the transactions contemplated
hereby. The Company has no obligation to pay any brokerage fee or commissions
with respect to any Lease or Owned Real Property Lease (including any extensions
or renewals thereof) or with respect to any future rental agreement relating to
the Owned Real Property. The Owned Real Property Lease pursuant to which the
Company leases a portion of its Novato, California facilities to a third party
expires on December 31, 2002, and the tenant thereunder has no further right to
renew such Owned Real Property Lease.
(d) There are no pending or, to the Knowledge of Seller, threatened
Actions or Proceedings (including condemnation or foreclosure) that could affect
any of the Leases, the Leased Premises or the Owned Real Property. Neither the
Company nor any of its Subsidiaries has violated, and, to the Knowledge of
Seller, there are no violations of, any Law affecting the Leased Premises or the
Owned Real Property.
2.14 Assets and Properties. Except as disclosed in Section 2.14 of the
Disclosure Schedule, the Company or a Subsidiary is in possession of and has
good, valid and marketable title to, or has valid leasehold interests in or
valid rights under Contract to use, all Assets and Properties material to the
Business or Condition of the Company, including all Assets and Properties
reflected on the balance sheet included in the most recent Financial Statements
and all Assets and Properties acquired since the Financial Statement Date, in
each case other than Assets and Properties disposed of in the ordinary course of
business, consistent with past practices. All of such Assets and Properties are
owned by the Company or a Subsidiary (as applicable) free and clear of all
Liens, other than Permitted Liens and Liens disclosed in Section 2.14 of the
Disclosure Schedule, are in good working order and condition, ordinary wear and
tear excepted. The Assets and Property of the Company and its Subsidiaries that
are characterized as inventory consist of raw materials and finished goods
saleable in the ordinary course of the Business, consistent with past practices.
The Financial Statements reflect an adequate reserve for all inventory of the
Company or any of its Subsidiaries that is slow-moving, as determined in
accordance with the Company's past practices, or is obsolete, damaged or
defective.
2.15 Intellectual Property Rights.
(a) Section 2.15(a) of the Disclosure Schedule sets forth a complete
and correct list of any patent, patent application, trademark (whether or not
registered), trademark application, trade name, service ▇▇▇▇, copyright and
other proprietary intellectual property (collectively, "Intellectual Property")
owned, licensed by the Company or any of its Subsidiaries, or otherwise used in
connection with the Business, other than commercial software licensed pursuant
to a "shrink-wrap" software license.
(b) Except as disclosed in Section 2.15(b) of the Disclosure
Schedule, each of the Company and its Subsidiaries has the exclusive right to
use all of the Intellectual Property that is owned by the Company or any of its
Subsidiaries.
(c) Except as set forth in Section 2.15(c): (i) the use by the
Company and its Subsidiaries of the Company Intellectual Property has not and
does not infringe upon or otherwise violate the rights of any other Person; (ii)
to the Knowledge of Seller, no other Person has infringed or otherwise violated,
or is infringing or otherwise violating, the rights of the Company or its
Subsidiaries in any Company Intellectual Property; (iii) no claim has been
asserted or threatened by any Person against the Company or any of its
Subsidiaries with respect to the use of any item of Company Intellectual
Property; (iv) no Person has a right to receive a royalty or similar payment, or
has any other monetary rights, in respect of any item of Company Intellectual
Property, other than Contracts relating to the licensing of artwork used by the
Company or its Subsidiaries; and (v) neither the Company nor any of its
Subsidiaries is a licensee with respect to any Company Intellectual Property.
2.16 Contracts. (a) Section 2.16(a) of the Disclosure Schedule contains
a true and complete list of each of the following Contracts to which the Company
or any Subsidiary is a party or by which any of their respective Assets and
Properties is bound ("Material Contracts"):
(i) all Contracts (excluding Benefit Plans) which are not
terminable at will and which could require the payment of an amount
(including any severance pay) in excess of U.S. $100,000 in any twelve
month period providing for a commitment of employment, consultation
services, or otherwise relating to employment or the termination of
employment;
(ii) all Contracts (excluding Benefit Plans) between the
Company or any of its Subsidiaries, on the one hand, and any officer,
director or Affiliate of the Company or any of its Subsidiaries, on the
other hand;
(iii) all Contracts with any Person containing any provision
or covenant prohibiting or limiting the ability of the Company or any
Subsidiary to engage in any business activity or compete with any
Person, or prohibiting or limiting the ability of any Person to compete
with the Company or any Subsidiary;
(iv) all Contracts relating to the licensing of artwork used
by the Company or its Subsidiaries with respect to which the aggregate
amount of revenue generated by the Company with respect to such artwork
during either of the last two full fiscal years was greater than U.S.
$750,000;
(v) all Contracts relating to Indebtedness of the Company or
any Subsidiary;
(vi) all Contracts relating to (A) the future disposition or
acquisition (or proposed disposition or acquisition) of any assets,
other than dispositions or acquisitions in the ordinary course of
business, consistent with past practices, and (B) any future (or
proposed) Business Combination, other than, in the case of both clauses
(A) and (B), pursuant to an Alternative Transaction;
(vii) all joint venture, partnership, cooperative arrangement,
strategic alliance or other Contracts involving a sharing of revenue or
profits;
(viii) all Contracts with any Governmental or Regulatory
Authority;
(ix) all collective bargaining Contracts;
(x) all powers of attorney, proxies or similar instruments
presently in effect granted by or to the Company or any of its
Subsidiaries;
(xi) all Contracts (other than this Agreement) granting a Lien
on any Assets and Properties of the Company or any Subsidiary;
(xii) all other Contracts (other than Benefit Plans listed in
Section 2.12(a) of the Disclosure Schedule, and Leases listed in
Section 2.13 of the Disclosure Schedule) that: (A) (1) involve the
payment or potential payment, pursuant to the terms of any such
Contract, by or to the Company or any Subsidiary of more than U.S.
$100,000 in any twelve-month period (other than royalty payments with
respect to licensed artwork that are calculated as a percentage of the
revenue generated by the Company and its Subsidiaries through the sale
of products that contain such licensed artwork) or (2) involve
performance by the Company or any Subsidiary of any obligations over a
period greater than twelve months; and (B) cannot be terminated within
60 days after giving notice of termination without resulting in any
material cost or penalty to the Company or any Subsidiary; and
(xiii) any proposed Contract that, if entered into, would be a
Contract of the type described in this Section 2.16(a) and which Seller
reasonably believes, as of the date hereof, is reasonably likely to be
entered into on or prior to the Closing Date.
(b) Except as set forth in Section 2.16(b) of the Disclosure
Schedule, (i) each Material Contract is in full force and effect and constitutes
a legal, valid and binding obligation, enforceable in accordance with its terms,
of the Company or a Subsidiary (as applicable) and, to the Knowledge of Seller,
of each other party thereto; (ii) neither the Company, any Subsidiary nor, to
the Knowledge of Seller, any other party to any Material Contract is in
violation or breach of or default under any such Material Contract (or with
notice or lapse of time or both, would be in violation or breach of or default
under any such Material Contract) the effect of which (individually or in the
aggregate) is reasonably likely to have a Material Adverse Effect; and (iii)
neither the Company nor any of its Subsidiaries has received any written or, to
the Knowledge of Seller, oral notice of default under any such Material
Contract.
2.17 Labor Matters. Except as set forth in Section 2.17 of the
Disclosure Schedule: (i) the Company and each of its Subsidiaries has paid and
performed all obligations that are currently due with respect to its employees,
independent sales representatives, consultants, agents, independent contractors,
sub-contractors, officers and directors, including, without limitation, all
wages, salaries, commissions, bonuses, severance pay, vacation pay, benefits,
▇▇▇▇▇▇▇'▇ compensation payments and other compensation for all services
performed by such Persons and all amounts required to be paid or reimbursed to
such Persons as of the date hereof; (ii) the Company and each of its
Subsidiaries is in compliance, in all material respects, with all Laws
respecting employment and employment practices, terms and conditions of
employment and wages and hours; (iii) there is no pending, or to the Knowledge
of Seller, threatened, charge, complaint, allegation, application or other
process against the Company or any of its Subsidiaries before the National Labor
Relations Board or any comparable Governmental or Regulatory Authority; (iv)
there is no labor strike, dispute, slowdown or work stoppage or other job action
pending, or to the Knowledge of Seller, threatened against or otherwise
affecting or involving the Company or any of its Subsidiaries or their
respective employees; (v) no employee of the Company or any Subsidiary is
presently a member of a collective bargaining unit and, to the Knowledge of
Seller, there are no threatened or contemplated attempts to organize any of the
employees of the Company or any Subsidiary for collective bargaining purposes;
(vi) to the Knowledge of Seller, neither the Company nor any of its Subsidiaries
has hired any illegal aliens as employees; and (vii)
there are no race, age, sex or other discrimination complaints pending, or, to
the Knowledge of Seller, threatened against the Company or any of its
Subsidiaries. All liability for any current or future ▇▇▇▇▇▇▇'▇ compensation
payments due to employees, contractors or consultants of the Company or any of
its Subsidiary as the result of any occurrence that has taken place or takes
place prior to the Closing Date is either covered by insurance the proceeds of
which are payable to the Company or one of its Subsidiaries or has been assumed
by Seller and/or Parent, and neither the Company nor any of its Subsidiaries has
or will have any liability for any such payments (other than to the extent that
such liability is a current liability included in the calculation of Net Working
Capital as of the Closing Date).
2.18 Affiliate Transactions. Except as set forth in Section 2.18 of
the Disclosure Schedule, neither Seller, nor any of Seller's officers, directors
or Affiliates, nor any Affiliate or (to the Knowledge of Seller) officer or
director of the Company or any of the Company's Subsidiaries: (a) owns, directly
or indirectly, any interest in (other than holdings for investment purposes of
less than 1% of a Person's publicly traded equity securities), or is an officer,
director, employee or consultant of, any Person which is a competitor, lessor,
lessee, supplier, distributor, sales agent, customer, licensor, licensee,
service provider or otherwise does business with the Company or any of its
Subsidiaries (except that Parent currently provides services to the Company that
are substantially similar to the services to be provided under the Production
Services Agreement, on terms substantially similar to those contained in the
Production Service Agreement); (b) owns, directly or indirectly, in whole or in
part, any Assets and Properties used by the Company or any of its Subsidiaries
in the conduct of the Business; or (c) has any claim whatsoever against, or owes
any amount to, the Company or any of its Subsidiaries, except for claims in the
ordinary course of business, consistent with past practices, and intercompany
balances that will cease to be outstanding prior to the Closing.
2.19 Insurance. Section 2.19 of the Disclosure Schedule sets forth a
true and complete list (including the name of the insurer, coverage and
expiration date) of all binders or policies of fire, casualty, liability,
product liability, directors' and officers' liability, workers compensation,
vehicular, unemployment or other insurance, self insurance programs and fidelity
bonds maintained by Parent or an Affiliate of Parent on behalf of, or with
respect to, the Company or any of its Subsidiaries (collectively, "Insurance").
All Insurance policies or binders have been issued under valid and enforceable
policies or binders for the benefit of the Company and/or its Subsidiaries, all
such policies or binders are in full force and effect, the Company and its
Subsidiaries are in compliance with the terms thereto and, except as set forth
in Section 2.19 of the Disclosure Schedule, neither the Company nor any of its
Subsidiaries has received any written or oral notice of cancellation with
respect thereto. Notwithstanding the foregoing, Purchaser, Parent and Seller
acknowledge and agree that (a) Parent currently maintains Insurance on behalf of
the Company and its Subsidiaries (collectively, the "Parent Insurance
Policies"), (b) Parent Insurance Policies that are written on a "claims made"
basis (or replacements for such policies) shall continue to provide coverage to
the Company and/or its Subsidiaries for claims made on or after the Closing
Date, but only for wrongful acts committed prior to the Closing Date, for a
period of at least six years following the Closing Date on terms and conditions
substantially similar to those currently in place with respect to such policies
(provided that, in the event that a currently existing Parent Insurance Policy
that is written on a "claims made" basis is replaced, Parent may purchase "tail
coverage" with respect to such policy for the shorter of (1) three years or (2)
the
balance of the six year period, to the extent that the Company and its
Subsidiaries are offered the opportunity to purchase (on terms and conditions
substantially similar to those currently in place) additional coverage that
extends from the expiration of the tail coverage purchased by Parent to the six
year anniversary of the Closing Date), (c) Parent Insurance Policies that are
written on an "occurrence" basis shall continue to provide coverage to the
Company and/or its Subsidiaries for claims arising from events occurring on or
before the Closing Date, but not for claims occurring after the Closing Date,
and (d) the Company shall be required to obtain its own Insurance, to the extent
deemed necessary by Purchaser, effective as of the Closing Date, to cover claims
not covered by the Parent Insurance Policies, as described in clauses (b) and
(c) above. Neither the Company nor any of its Subsidiaries has any Liability for
unpaid premiums or premium adjustments (other than current liabilities included
in the calculation of Net Working Capital as of the Closing Date). All claims
under any Insurance binder or policy have been duly and timely filed. There are
no pending or asserted claims outstanding against any Insurance carrier as to
which such carrier has denied or questioned liability, and there are no pending
or asserted claims outstanding under any Insurance binder or policy that have
been disallowed or improperly filed. No insurance carrier has refused to provide
any insurance with respect to the Assets and Properties and operations of the
Company or any of its Subsidiaries, nor has coverage been limited by any
insurance carrier to which an application has been made for any such insurance
during the last five years.
2.20 Environmental Matters. Except as set forth in Section 2.20 of the
Disclosure Schedule:
(a) To the Knowledge of Seller, the Company and each of its
Subsidiaries are in compliance in all material respects with all applicable
Environmental Laws. The Company and each of its Subsidiaries has obtained and
are in compliance in all material respects with all Permits required to be
issued to it, and, to the Knowledge of Seller, filed all reports and
notifications required to be filed by it, pursuant to any Environmental Law.
Neither the Company nor any of its Subsidiaries has received any written (or, to
the Knowledge of Seller, oral) notice or communication from any Governmental or
Regulatory Authority or other third-party that the Company or any of its
Subsidiaries is not in compliance with, or is potentially liable under, any
Environmental Law.
(b) No written (or, to the Knowledge of Seller, oral) notification
of a Release of Hazardous Materials by the Company or any of its Subsidiaries
has been registered or filed by or on behalf of the Company or any of its
Subsidiaries, and no site or facility now owned, operated or leased by the
Company or any of its Subsidiaries is listed on the NPL or any similar list of
sites requiring investigation or clean-up under any Environmental Law.
(c) To the Knowledge of Seller, no Liens have arisen under or
pursuant to any Environmental Law on any site or facility now owned, operated or
leased by the Company or any of its Subsidiaries, and no Governmental or
Regulatory Authority has taken, or (to the Knowledge of Seller) is in the
process of taking, any action to subject any such site or facility to such
Liens.
(d) There has been no Release of any Hazardous Material in or on any
Real Property owned, operated or leased by the Company or any of its
Subsidiaries that, as of the Closing Date, requires (based on any Environmental
Law currently in effect) (i) remedial or corrective action, removal, monitoring
or closure pursuant to any Environmental Law currently in effect or (ii)
Purchaser, the Company or any of its Subsidiaries to incur costs in connection
with any Environmental Law pursuant to the terms and conditions of any of the
Leases.
(e) Seller has delivered to Purchaser true, correct and complete
copies of all environmental reports, studies, investigations or audits regarding
the Real Property owned, operated or leased by the Company or any of its
Subsidiaries and in the possession of Seller, other than any such report, study,
investigation or audit commissioned by Purchaser.
(f) To the Knowledge of Seller, there are no underground storage
tanks, above-ground storage tanks or surface impoundments or electrical or other
equipment containing polychrorinal biphenyls or asbestos-containing material on
any Real Property owned, operated or leased by the Company or any of its
Subsidiaries.
(g) To the Knowledge of Seller, neither the Company nor any of its
Subsidiaries has transported or arranged for the transport of Hazardous
Materials to any location that is (i) listed on the NPL, (ii) listed for
possible inclusion on the NPL or any similar list by the Environmental
Protection Agency or other governmental or regulatory authority or (iii) subject
to remedial actions which might give rise to liability for the Company or its
Subsidiaries under Environmental Laws.
2.21 Material Business Relationships. Section 2.21 of the Disclosure
Schedule sets forth an accurate, correct and complete list of the ten largest
customers (in terms of revenues) of the Company and its Subsidiaries (the
"Material Customers"), the ten largest suppliers (in terms of contributions to
costs of goods sold) to the Company and its Subsidiaries (the "Material
Suppliers") and the ten largest artists (in terms of revenue generated) to the
Company and its Subsidiaries (the "Material Artists") for the fiscal year ended
December 31, 2001. Since January 1, 2001, except as set forth in Section 2.21 of
the Disclosure Schedule, none of the Material Customers, Material Suppliers or
Material Artists has (i) ceased doing business, or materially changed its
relationship, with the Company or any of its Subsidiaries, or (ii) materially
modified the terms on which it does business with the Company or any of its
Subsidiaries, nor, to the Knowledge of Seller, have any Material Customers,
Material Suppliers or Material Artists threatened to do any of the foregoing.
2.22 Permits. Section 2.22 of the Disclosure Schedule contains an
accurate, correct and complete list of all Permits of the Company or any of its
Subsidiaries that are material to the Business. All such Permits are valid and
in full force and effect, and there are no pending or, to the Knowledge of
Seller, threatened proceedings which are reasonably likely, individually or in
the aggregate, to result in the termination, revocation, or material limitation
or impairment of any Permit. The Permits set forth in Section 2.22 of the
Disclosure Schedule are sufficient to enable the Company and its Subsidiaries to
own their respective Assets and Properties and conduct the Business as currently
conducted. No Permit with respect to any of Real Property of the Company or any
of its Subsidiaries is violated by any existing improvements. Except as set
forth on
Section 2.22 of the Disclosure Schedule, consummation of the transactions
contemplated hereby will not adversely affect any of the Permits set forth on
Section 2.22 of the Disclosure Schedule.
2.23 Absence of Certain Practices. None of the Company, any of its
Subsidiaries, nor (to the knowledge of ▇▇▇▇ ▇▇▇▇▇▇▇, ▇▇▇▇ ▇▇▇▇▇▇▇, ▇▇▇▇▇
▇▇▇▇▇▇▇▇▇, ▇▇., ▇▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇ or ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇) any of
their respective directors, officers, employees, consultants, independent
contractors, agents or other Person acting on their behalf, has (i) given any
unlawful gift or unlawful similar benefit to any customer, supplier or
governmental employee or official or any other Person who is or may be in a
position to help or hinder the Company or any of its Subsidiaries in connection
with any proposed transaction involving the Company or any of its Subsidiaries,
(ii) used any corporate funds for unlawful contributions, payments, gifts, or
entertainment, or made any unlawful expenditures of corporate funds relating to
political activity to, or on behalf of, government officials or other Persons or
(iii) accepted or received any unlawful contributions, payments, gifts or
expenditures.
2.24 Books and Records. The Books and Records of the Company and each
of its Subsidiaries are accurate, correct and complete in all material respects.
The minute books of the Company and each of its Subsidiaries contain accurate,
correct and complete records of all meetings of, and all corporate action taken
by, the stockholders, directors or any committee or class thereof.
2.25 Corporate Names. Section 2.25 of the Disclosure Schedule sets
forth a complete and accurate list of all trade names used by the Company or any
of its Subsidiaries in connection with the Business.
2.26 Accounts Payable. Except as set forth in Section 2.26 of the
Disclosure Schedule, all accounts payable and accrued expenses reflected on the
Financial Statements arose, and each accounts payable and accrued expense that
will exist on the Closing Date will have arisen, from bona fide transactions in
the ordinary course of the business, consistent with past practices.
2.27 Accounts Receivable. Except as set forth in Section 2.27 of the
Disclosure Schedule, the accounts receivable reflected on the Financial
Statements and the accounts receivables on the Closing Date, except to the
extent of recorded reserves for doubtful accounts, constitute bona fide
receivables resulting from bona fide sales or other transactions in the ordinary
course of business, consistent with past practices, the amount of which was
actually due on the date of such Financial Statements or on the Closing Date (as
applicable) in the normal course of business in accordance with the terms of the
sale. No defenses, claims of disability, counterclaims, offsets, refusals to pay
or other rights of set-off against any accounts receivable have been asserted in
writing or, to the Knowledge of Seller, orally, and there is, to the Knowledge
of Seller, no threatened, intended or proposed defense, claim of disability,
counterclaim, offset, refusal to pay or other right of set-off with respect
thereto, except for any such items the value of which, in the aggregate, does
not exceed the amount of the appropriate reserves in the Financial Statements.
2.28 Bank Accounts. Section 2.28 of the Disclosure Schedule sets forth
a list of all bank accounts maintained in the name of the Company or any of its
Subsidiaries, indicating the
type of account and the names of the persons having power to sign on behalf of
the Company or Subsidiary (as applicable) with respect to each such account.
2.29 Brokers. Except for Veronis, Suhler & Associates, LLC ("Veronis"),
whose fees, commissions and expenses are the sole responsibility of Seller, all
negotiations relative to this Agreement and the transactions contemplated hereby
have been carried out by Seller directly with Purchaser and its Representatives
without the intervention of any Person on behalf of Seller in such manner as to
give rise to any valid claim by any Person against Purchaser, the Company or any
Subsidiary for a finder's fee, brokerage commission or similar payment.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF PURCHASER
Purchaser hereby represents and warrants to Seller as follows:
3.01 Corporate Existence and Authority of Purchaser. Purchaser is a
corporation duly incorporated, validly existing and in good standing under the
Laws of the State of Delaware. Purchaser has full corporate power and authority
to execute and deliver this Agreement, to perform its obligations hereunder and
to consummate the transactions contemplated hereby. The execution, delivery and
performance by Purchaser of this Agreement have been duly authorized by all
necessary action on the part of Purchaser and its stockholders, board of
directors and officers. Assuming due authorization, execution and delivery by
Seller, this Agreement constitutes a legal, valid and binding obligation of
Purchaser, enforceable against Purchaser in accordance with its terms, except to
the extent enforceability may be limited by bankruptcy, insolvency,
reorganization, moratorium or other Laws relating to or affecting creditors'
rights generally or by general equity principles, regardless of whether such
enforceability is considered in a proceeding in equity or at Law.
3.02 No Conflicts. The execution and delivery by Purchaser of this
Agreement do not, the performance by Purchaser of its obligations under this
Agreement and the consummation of the transactions contemplated hereby will not:
(a) conflict with or result in a violation or breach of any of the
terms, conditions or provisions of the certificate of incorporation or by-laws
of Purchaser;
(b) subject to obtaining the consents, approvals and actions, making
the filings and giving the notices disclosed in Schedule 3.03, conflict with or
result in a violation or breach of any term or provision of any Law or Order
applicable to Purchaser (other than any such conflict, violation or breach as
would occur solely as a result of the legal or regulatory status of Parent,
Seller, the Company, any Subsidiary or any Affiliate of any of the foregoing);
or
(c) except as disclosed in Schedule 3.02 or as is not reasonably
likely to adversely affect the ability of Purchaser to consummate the
transactions contemplated hereby or to perform its obligations hereunder: (i)
conflict with or result in a violation or breach of, (ii) constitute (with or
without notice or lapse of time or both) a default under or (iii) require
Purchaser to ob-
tain any consent, approval or action of, make any filing with or give any notice
to any Person as a result or under the terms of, any Contract or Permit to which
Purchaser is a party or by which any of its Assets and Properties is bound.
3.03 Governmental Approvals and Filings. Except as disclosed in
Schedule 3.03, no consent, approval or action of, filing with or notice to any
Governmental or Regulatory Authority on the part of Purchaser is required in
connection with the execution, delivery and performance of this Agreement or the
consummation of the transactions contemplated hereby, except those as would be
required solely as a result of the legal or regulatory status of Purchaser, the
Company, any Subsidiary or any Affiliate of any of the foregoing.
3.04 Legal Proceedings. There are no Orders outstanding or Actions or
Proceedings pending (or, to the knowledge of Purchaser, threatened) against
Purchaser, its Assets and Properties, or any of its officers, directors or
employees (in their capacities as officers, directors or employees of Purchaser)
which are reasonably likely (individually or in the aggregate) to (a) result in
the issuance of an Order restraining, enjoining or otherwise prohibiting or
making illegal the consummation of any of the transactions contemplated by this
Agreement, or (b) challenge or otherwise have the effect of preventing,
delaying, making illegal or otherwise interfering with the transactions
contemplated by this Agreement.
3.05 Purchase for Investment. The Shares will be acquired by Purchaser
for its own account for the purpose of investment, it being understood that the
right to dispose of such Shares shall be entirely within the discretion of
Purchaser. Purchaser will refrain from transferring or otherwise disposing of
any of the Shares, or any interest therein, in such manner as to cause Seller to
be in violation of the registration requirements of the Securities Act of 1933,
as amended, or applicable state securities or blue sky Laws.
3.06 Brokers. All negotiations relative to this Agreement and the
transactions contemplated hereby have been carried out by Purchaser directly
with Seller and its Representatives without the intervention of any Person on
behalf of Purchaser in such manner as to give rise to any valid claim by any
Person against Seller, the Company or any Subsidiary for a finder's fee,
brokerage commission or similar payment.
ARTICLE IV
COVENANTS OF THE PARTIES
4.01 Covenants of Seller.
(a) General. Seller shall, and shall cause the Company and each of
its Subsidiaries to, use all commercially reasonably efforts to take, or cause
to be taken, all actions necessary in order to promptly (i) consummate and make
effective the transactions contemplated by this Agreement and (ii) satisfy (and
assist Purchaser in satisfying) all of the conditions to Closing. Seller shall
negotiate with Purchaser in good faith to agree on the contents, terms and
conditions of any documents to be delivered, or agreements to be entered into,
at the Closing; pro-
vided, that nothing contained herein shall preclude Seller from negotiating and
consummating an Alternative Transaction.
(b) Conduct of Business. Except as otherwise expressly contemplated
by this Agreement or as specifically consented to in writing by Purchaser, from
the date hereof until the Closing or earlier termination of this Agreement
(other than in connection with the consummation of an Alternative Transaction):
(i) Seller shall cause the Company and each of its
Subsidiaries to use its commercially reasonable efforts to (A) preserve
its present business organization intact, (B) keep available to
Purchaser the services of its present officers, employees, consultants
and independent contractors, (C) preserve the goodwill of and present
relationships with Persons having business dealings with it, (D)
operate its Business in the ordinary course of business, consistent
with past practices (including the payment of accounts payable and the
collection of accounts receivables), (E) maintain its Assets and
Properties in good operating condition and repair in accordance with
past practices, (F) maintain its Books and Records in accordance with
good business practice, on a basis consistent with past practices and
in accordance with GAAP, (G) perform in all respects all of its
obligations under the Material Contracts and (H) maintain all Insurance
and Permits necessary for the conduct of the Business.
(ii) Seller shall not permit the Company or any of its
Subsidiaries to (A) change or amend its certificate of incorporation,
bylaws or other organizational documents, (B) issue, sell, redeem,
purchase or otherwise acquire any shares of its capital stock, issue or
sell any Option or enter into any agreement obligating it to do any of
the foregoing, (C) declare, set aside or pay any dividend or other
distribution in respect of any capital stock or other equity security
(other than (I) cash dividends or (II) dividends or distributions from
a Subsidiary to the Company or a wholly-owned Subsidiary of the
Company), (D) other than pursuant to existing Contracts or in the
ordinary course of business, consistent with past practices, acquire or
dispose of any amount of receivables, fixed assets or other Assets and
Properties, (E) other than in the ordinary course of business,
consistent with past practices, subject any of its Assets and
Properties to any Lien or incur any additional Indebtedness (other than
Indebtedness which is prepayable without penalty or premium), (F) other
than increases in the ordinary course of business, consistent with past
practices, or increases required by any existing Contract or Law, grant
any material increase in the aggregate compensation payable or to
become payable to its officers, employees, consultants and independent
contractors or any material increase in the aggregate compensation or
benefits payable under the bonus, incentive, pension and other employee
benefit plans, payments or arrangements maintained by it, (G) enter
into or amend any employment agreement not terminable at will and which
could require the payment of an amount (including severance pay) in
excess of U.S. $100,000 in any twelve month period without providing
written notice to Purchaser within three Business Days after entering
into or amending such agreement, (H) enter into any partnership, joint
venture agreement or similar arrangement, (I) enter into any Contract
to purchase the capital stock of any Person or the assets of any Person
purchased as part of the acquisition of a business, (J) change any
accounting methods, principles or practices, (K) enter
into, amend, terminate or revoke any Material Contract without
providing written notice to Purchaser within three Business Days after
entering into, amending, terminating or revoking such Material
Contract, (L) pay, discharge or satisfy any Liability, or prepay any
obligation, except in the ordinary course of business, consistent with
past practices, (M) cancel any debt or receivable or waive any material
claims or rights, except in the ordinary course of business, consistent
with past practices, (N) commit to any capital expenditure (other than
capital expenditures listed in Section 2.08(l) of the Disclosure
Schedule) in excess of U.S. $50,000 in the aggregate; or (O) undertake,
or agree to undertake, any of the other actions set forth clauses
(i)-(xiii).
(c) Indebtedness; Cash Balance. On or prior to the Closing Date,
Seller shall cause the Company and its Subsidiaries to repay or otherwise
extinguish all Indebtedness to or from any Affiliate (other than Indebtedness
solely among any of the Company and its Subsidiaries), all long-term
Indebtedness and all other Indebtedness not included in the calculation of Net
Working Capital in full and without any negative Tax effect to the Company or
its Subsidiaries, whether resulting from any forgiveness of Indebtedness or
otherwise. As of the Closing, Seller shall ensure that the Company has a cash
balance of at least U.S. $250,000.
(d) Access. Seller shall cause the Company and each of its
Subsidiaries to provide Purchaser and its Representatives with reasonable access
to the personnel, Assets and Properties and Books and Records of the Company and
each of its Subsidiaries, and shall provide such information with respect to the
Business as Purchaser may reasonably request, in connection with Purchaser's Due
Diligence Review.
(e) Updates; Revised Disclosure Schedule. Seller shall promptly
inform Purchaser in writing of any development that would cause the
representations and warranties contained in Article II to be inaccurate or
incomplete in any material respect if given on the date of such development. At
least five business days prior to the Closing, Seller shall deliver to Purchaser
a revised Disclosure Schedule (the "Revised Disclosure Schedule"), which shall
amend and revise the Disclosure Schedule to reflect events and developments that
have occurred from the date hereof to the delivery date and would have been
appropriate subject matter for the Disclosure Schedule. Notwithstanding anything
herein to the contrary, to the extent that the Revised Disclosure Schedule is
used to correct any misstatements or omissions in the Disclosure Schedule,
Seller shall continue to be liable, to the extent provided by Article VIII, for
any Losses resulting from any action, or failure to take any action, by any
Purchaser Indemnified Party prior to the delivery of the Revised Disclosure
Schedule; provided, that, if Purchaser elects to proceed with the Closing
regardless of such misstatements or omissions, it shall notify Seller of such
Losses prior to the Closing, and any dispute as to Seller's Indemnity
Obligations with respect to such Losses shall be resolved prior to the Closing.
4.02 Covenants of Purchaser.
(a) Purchaser shall use all commercially reasonably efforts to
take, or cause to be taken, all actions necessary in order to promptly (i)
consummate and make effective the transactions contemplated by this Agreement
and (ii) satisfy (and assist Seller in satisfying) all of the conditions to
Closing. Purchaser shall negotiate with Seller in good faith to agree on the
contents, terms and conditions of any documents to be delivered, or agreements
to be entered into, at the Closing.
(b) Purchaser shall promptly inform Seller in writing of any
development that would cause the representations and warranties contained in
Article III to be inaccurate or incomplete in any material respect if given on
the date of such development. At least five business days prior to the Closing,
Purchaser shall deliver to Seller a revised Schedule (the "Revised Schedule"),
which shall amend and revise the Schedule to reflect events and developments
that have occurred from the date hereof to the delivery date and would have been
appropriate subject matter for the Schedule. Notwithstanding anything herein to
the contrary, to the extent that the Revised Schedule is used to correct any
misstatements or omissions in the Schedule, Purchaser shall continue to be
liable, to the extent provided by Article VIII, for any Losses resulting from
any action, or failure to take any action, by any Seller Indemnified Party prior
to the delivery of the Revised Schedule; provided, that, if Seller elects to
proceed with the Closing regardless of such misstatements or omissions, it shall
notify Purchaser of such Losses prior to the Closing, and any dispute as to
Purchaser's Indemnity Obligations with respect to such Losses shall be resolved
prior to the Closing.
(c) Purchaser shall use commercially reasonable efforts to
keep Seller apprised of the status of Purchaser's efforts to obtain the
financing referred to in Section 5.02(i).
4.03 Acknowledgment. Purchaser acknowledges that its rights to
consummate the Transaction pursuant to this Agreement are non-exclusive, and
that Seller, the Company and their respective Representatives shall at all times
prior to the Closing remain free to negotiate with any other Person, enter into
definitive agreements with respect to, and consummate an Alternative
Transaction, in their sole discretion.
ARTICLE V
CONDITIONS TO CLOSING
5.01 Conditions to Obligations of Seller. The obligations of Seller to
consummate the transactions contemplated hereby are subject to the satisfaction
(or waiver by Seller) at or before the Closing, of each of the following
conditions:
(a) Accuracy of Representations and Warranties of Purchaser.
Each of the representations and warranties of Purchaser contained herein shall
be true and correct in all material respects (except for representations and
warranties that contain qualifications as to materiality, which shall be true
and correct in all respects) at and as of the Closing, with the same force
and effect as though then made; provided, however, that any such representations
and warranties made as of a specific date shall be true and correct only on and
as of such date.
(b) Performance by Purchaser. Purchaser shall have performed,
satisfied and complied with in all material respects all covenants and
agreements required to be performed by it between the date hereof and the
Closing.
(c) At the Closing, Purchaser shall have delivered to Seller:
(i) a certificate of Purchaser, executed by an
appropriate officer thereof, to the effect that each of the conditions
specified in clauses (a) and (b) have been satisfied as of the Closing
Date;
(ii) a certificate of the Secretary of Purchaser,
confirming the completeness and accuracy of attached copies of (A) the
resolutions adopted by the Board of Directors of Purchaser authorizing
the transactions contemplated hereby, (B) the Certificate of
Incorporation or similar organizational document of Purchaser,
certified by the Secretary of State of its State of incorporation or
organization and (C) the Bylaws or similar governing documents of
Purchaser;
(iii) a copy of the Escrow Agreement, executed by
Purchaser and the Escrow Agent;
(iv) a copy of a production services agreement,
substantially in the form attached hereto as Exhibit B (the "Production
Services Agreement"), executed by the Company; and
(v) an opinion of counsel to Purchaser, substantially
in the form attached hereto as Exhibit C.
(d) Consents. All consents, authorizations or approvals from
any Person required for the consummation of the transactions contemplated hereby
by Purchaser (including, without limitation, any such consents, authorizations
or approvals included in Sections 3.02 or 3.03 of the Schedule or the Revised
Schedule) shall have been obtained and shall be in full force and effect.
(e) Absence of Conflicting Law or Order. No Law shall have
been enacted or promulgated, and no Order shall have been issued, which (i)
prohibits or makes illegal the consummation of the transactions contemplated
hereby or (ii) would impose conditions upon the consummation of the transactions
contemplated hereby that would have a material adverse effect on such party or
impair its ability to recognize the benefits to be gained through the
consummation of such transactions.
(f) Proceedings and Documents. All legal and corporate
proceedings in connection with the transactions contemplated hereby shall be in
form and substance reasonably satisfactory to Seller and its counsel.
5.02 Conditions to Obligations of Purchaser. The obligations of
Purchaser to consummate the transactions contemplated hereby are subject to the
satisfaction (or waiver by Purchaser) at or before the Closing, of each of the
following conditions:
(a) Accuracy of Representations and Warranties of Seller. Each
of the representations and warranties of Seller contained herein shall be true
and correct in all material respects (except for representations and warranties
that contain qualifications as to materiality, which shall be true and correct
in all respects) at and as of the Closing, with the same force and effect as
though then made; provided, however, that any such representations and
warranties made as of a specific date shall be true and correct only on and as
of such date.
(b) Performance by Seller. Seller shall have performed,
satisfied and complied with in all material respects all covenants and
agreements required to be performed by it between the date hereof and the
Closing.
(c) At the Closing, Seller shall have delivered to Purchaser:
(i) a certificate of Seller, executed by an
appropriate officer thereof, to the effect that each of the conditions
specified in clauses (a) and (b) have been satisfied as of the Closing
Date;
(ii) certificates of the Secretary of Seller and each
Subsidiary of Seller, confirming the completeness and accuracy of
attached copies of (A) in the case of the certificate to be delivered
by the Secretary of Seller only, the resolutions adopted by the Board
of Directors and shareholders of Seller authorizing the transactions
contemplated hereby, (B) the Certificate of Incorporation of Seller or
such Subsidiary, certified by the Secretary of State of its State of
incorporation or organization (provided, that, with respect to
Subsidiaries organized under jurisdictions outside the United States,
such certification shall not be necessary unless required by
Purchaser's lenders) and (C) the Bylaws or similar governing documents
of Seller or such Subsidiary;
(iii) a copy of the Escrow Agreement, executed by
Seller and the Escrow Agent;
(iv) a copy of a production services agreement,
substantially in the form attached hereto as Exhibit B (the "Production
Services Agreement"), executed by Parent; and
(v) an opinion of in-house counsel to Seller,
substantially in the form attached hereto as Exhibit D;
(vi) a certification containing the information
required by, and in the form prescribed by, Treasury Regulation Section
1.1445-2(b); and
(vii) documentation executed by the Company and its
Subsidiaries (as applicable) effecting, as of the Closing, any
additions or deletions to the list of authorized
signatories with respect to the bank accounts listed in Section 2.28 of
the Disclosure Schedule.
(d) Consents. All consents, authorizations or approvals from
any Person required for the consummation of the transactions contemplated hereby
by Seller, the Company and its Subsidiaries (including, without limitation, any
such consents, authorizations or approvals included in Sections 2.05 or 2.06 of
the Disclosure Schedule) shall have been obtained and shall be in full force and
effect
(e) Absence of Conflicting Law or Order. No Law shall have
been enacted or promulgated, and no Order shall have been issued, which (i)
prohibits or makes illegal the consummation of the transactions contemplated
hereby or (ii) would impose conditions upon the consummation of the transactions
contemplated hereby that would have a material adverse effect on such party or
impair its ability to recognize the benefits to be gained through the
consummation of such transactions.
(f) Proceedings and Documents. All legal and corporate
proceedings in connection with the transactions contemplated hereby shall be in
form and substance reasonably satisfactory to Seller and its counsel.
(g) Changes in the Business. From and after the date hereof,
no event or events shall have occurred or be threatened that could reasonably be
expected, individually or in the aggregate, to have a Material Adverse Effect.
(h) Due Diligence. Purchaser shall be satisfied with the
results of its Due Diligence Review.
(i) Financing. Purchaser shall have received the financing
necessary to consummate the transactions contemplated hereby, in amounts, and on
terms, satisfactory to Purchaser, in its sole discretion.
ARTICLE VI
TAX MATTERS; ERISA MATTERS
6.01 Tax Sharing Arrangements. Any Tax sharing arrangement or agreement
between or among Parent and/or Seller, on the one hand, and Company and/or any
of its Subsidiaries on the other hand, shall have been terminated as of the
Closing Date and will have no further effect for any taxable year (whether the
current year, future year, or a past year).
6.02 Consolidated Income Tax Returns for Periods Through the Closing
Date. Parent will include the items of income of each of the Company and its
Subsidiaries which is a member of the Affiliated Group of which Parent is the
common parent (including to the extent required any deferred income triggered
into income by Treasury Regulation Sections 1.1502-13 and 14 and any excess loss
accounts taken into income under Treasury Regulation Section 1.1502-19) on the
consolidated federal income Tax Returns for all taxable periods of the Company
and its
Subsidiaries during which they are members of such Affiliated Group through the
Closing Date ("Pre-Closing Periods"). Parent shall prepare and file such Tax
Returns and pay the Taxes required to be paid with respect to such Tax Returns
on a timely basis. Parent shall prepare such Tax Returns, to the extent they
relate to items of the Company and its Subsidiaries, in a manner consistent with
prior practices of the Company and its Subsidiaries, provided that such Tax
Returns shall be prepared in compliance with applicable law. The Company and its
Subsidiaries shall furnish Tax information to Parent for inclusion in such Tax
Returns for taxable periods ending on or before the Closing Date in accordance
with past custom and practice.
6.03 Other Income Tax Returns for Tax Periods Ending on or Before the
Closing Date. Seller shall prepare or cause to be prepared and file or cause to
be filed all Tax Returns relating to Income Taxes for the Company and its
Subsidiaries for all taxable periods ending on or prior to the Closing Date
which are filed after the Closing Date. Seller shall pay on behalf of the
Company and its Subsidiaries all Taxes required to be paid with respect to such
Tax Returns. Seller shall permit Purchaser to review and comment on each such
Tax Return described in the preceding sentence prior to filing. Purchaser shall
provide or cause the Company and its Subsidiaries to provide such authorization
to Parent as may be required to validly file the Tax Returns prepared pursuant
to this Section 6.03.
6.04 Other Tax Returns. Purchaser shall properly and accurately prepare
or cause to be prepared and file or cause to be filed any Tax Returns of the
Company and its Subsidiaries for periods beginning before the Closing Date that
are first due after the Closing Date, and that are not otherwise required to be
prepared by Parent pursuant to Section 6.02 or Section 6.03 (including, but not
limited to, Tax Returns for all taxable periods which begin before the Closing
Date and end after the Closing Date). Such Tax Returns shall be prepared in a
manner consistent with prior practices of the Company and its Subsidiaries,
provided that such Tax Returns shall be prepared in compliance with applicable
law. Not later than 15 days before the filing of each such Tax Return, Purchaser
shall provide a copy of such Tax Return to Parent, and Parent shall be given an
opportunity to review and comment on such Tax Return prior to filing. Seller and
Purchaser agree to consult each other and resolve in good faith any issues
arising under the terms of this Section 6.04 as a result of the review of any
such Tax Returns. If the parties are unable to resolve any dispute within 10
Business Days after such Tax Returns are furnished to Seller, the parties shall
resort to the method of dispute resolution provided in Section 1.02(b)(iii)
hereof. If such disputes have not been resolved prior to the due date for filing
of such Tax Return, the Tax Return in question, to the extent any issues thereon
remain unresolved, shall be filed in accordance with the positions taken by
Purchaser. If a determination is made through the dispute resolution process
after a Tax Return is filed that Purchaser's position was inappropriate,
Purchaser shall promptly file an amended Tax Return (to the extent permitted by
applicable law) reflecting the final decision of the Neutral Auditor.
6.05 Payment of Taxes. Purchaser shall pay or cause the Company or its
Subsidiaries to pay on a timely basis all Taxes which are payable with respect
to Tax Returns described in Section 6.04; provided, that if such Taxes exceed
the amount shown as a reserve for Taxes (other than any reserve for deferred
Taxes to reflect timing differences between book and tax income) on the face of
the Closing Balance Sheet (rather than in the notes thereto) and taken into
account in determining the Net Working Capital, the Purchaser Indemnified
Parties shall be entitled to
such indemnification with respect to such payment as may be provided by Section
8.01. Seller shall pay Purchaser the amount of indemnification required to be
paid under Section 8.01 within fifteen days after the date on which such Taxes
are paid and notice is provided to Seller of the amount of Taxes so paid and the
amount subject to a claim for indemnity under Section 8.01.
6.06 Allocation of Taxes to Pre-Closing Period. For purposes of this
Agreement, in the case of any Taxes that are imposed on a periodic basis and are
payable for a taxable period that includes (but does not end on) the Closing
Date, the portion of such Tax that relates to the portion of such taxable period
ending on the Closing Date shall (a) in the case of any Taxes other than Taxes
based upon or related to income or receipts, to the extent feasible, be
determined on a specific identification basis, according to the event or
transaction giving rise to the Tax, and otherwise be deemed to be the amount of
such Tax for the entire taxable period multiplied by a fraction the numerator of
which is the number of days in the taxable period ending on the Closing Date and
the denominator of which is the number of days in the entire taxable period; and
(b) in the case of any Tax based upon or related to income or receipts, be
deemed equal to the amount which would be payable if the relevant taxable period
ended on the Closing Date. Any credits relating to a taxable period that begins
before or ends after the Closing Date shall be taken into account as though the
relevant taxable period ended on the Closing Date. All determinations necessary
to give effect to the foregoing allocations shall be made in a manner consistent
with prior practices of the Company and its Subsidiaries.
6.07 Post-Closing Elections. After the Closing, Purchaser will, at
Parent's request, cause any of the Company and its Subsidiaries to make or join
Parent in making any election relating to Taxes if the making of such election
does not have an adverse impact on Purchaser, the Company or any of its
Subsidiaries for any taxable period ending after the Closing Date compared to
the Tax liabilities that would have been incurred if such election had not been
made, or prior to making any such election, Parent compensates Purchaser, the
Company and its Subsidiaries for any such adverse impact (including paying the
present value (determined by using the applicable federal rate determined under
Section 127(d) of the Code) of any future adverse impact).
6.08 Indemnification for Post-Closing Transactions. To the extent
permitted or required by Law or administrative practice (A) the taxable year of
the Company and its Subsidiaries which includes the Closing Date shall be
treated as ending on (and including) the Closing Date and notwithstanding the
foregoing, (B) all transactions not in the ordinary course of business occurring
after the Closing shall be reported on Purchaser's consolidated United States
Federal Income Tax Return to the extent permitted by Treasury Regulation Section
1.1502-76(b)(1)(ii)(B) and shall be similarly reported on other Tax Returns of
Purchaser or its affiliates to the extent permitted by Law. Purchaser agrees to
indemnify Seller for any additional Tax owed by Seller (including Tax owed by
Seller due to receipt of such indemnification payment) resulting from any
transaction not in the ordinary course of business occurring on the Closing Date
after Purchaser's purchase of the Shares.
6.09 Amendment of Pre-Closing Period Tax Returns. Parent may amend or
cause to be amended any consolidated, combined or unitary Tax Return including
any of the Company and its Subsidiaries which has been filed or was required to
be filed for any Pre-Closing Period.
Purchaser shall not cause to be filed, or permit to be filed any amendment of
any Tax Return of the Company or Subsidiaries for a Pre-Closing Period without
the consent of Seller, which consent shall not be unreasonably withheld or
delayed.
6.10 Section 338(h)(10) Election. Seller and Purchaser hereby agree
that an election under Section 338(h)(10) of the Code (or any similar provision
of the law of any state or other taxing jurisdiction) (the "Section 338
Election") will be made with respect to the Company in connection with the
transactions contemplated by this Agreement and that for purposes of all Tax
Returns and other applicable filings, Purchaser and Seller will report the stock
purchase as a purchase and sale, respectively, of the Assets and Properties of
the Company, where such treatment is the required consequence of the Section 338
Election.
6.11 Section 338 Election Mechanics. For purposes of executing the
Section 338 Election, within thirty (30) days of the Closing Date, Purchaser and
Seller (and/or other entities as necessary) shall jointly execute four (4)
copies (three (3) for Purchaser and one (1) for Seller) of Internal Revenue
Service Form 8023 (or any successor form) and all attachments required to be
filed therewith pursuant to applicable Treasury Regulations. The forms relating
to the Section 338 Election for federal, state and local Tax purposes
hereinafter shall be referred to as the "Forms." Purchaser and Seller agree that
the Forms shall be filed with the appropriate tax authorities not earlier than
sixty (60) days before the latest date for the filing thereof. At least one
hundred twenty (120) days prior to the latest permissible date for the filing of
each Form, Purchaser shall prepare and submit to Seller any necessary
corrections, amendments or supplements to such Form and the attachments thereto,
as executed by Purchaser and Seller (and/or other entities as necessary) on or
before the Closing Date. Purchaser shall not file any Form or the attachments
thereto as corrected, amended or supplemented unless it shall have obtained
Seller's written consent thereto, which consent shall not be unreasonably
withheld or delayed. On or prior to the thirtieth (30th) day after Seller's
receipt of any Form, Seller shall deliver to Purchaser either (A) the executed
Form and its consent to such filing or (B) a written notice specifying in
reasonable detail all disputed items and the basis therefor. If, within thirty
(30) days after Purchaser's receipt of the written notice described in clause
(B) above, Parent, Purchaser and Seller have been unable to resolve their
differences, any remaining disputed issues shall be resolved as described in
Section 6.12. In that event, Parent, Purchaser and Seller shall execute and
consent to the filing of the corrected, amended or supplemented Form in the
manner determined by the Neutral Auditor as determined in Section 6.12.
6.12 Resolution of Tax-Related Disputes. In the event that Seller and
Purchaser cannot agree on the calculation of any amount relating to Taxes or the
interpretation or application of any provision of this Agreement relating to
Taxes, such dispute shall be resolved by the Neutral Auditor, whose decision
shall be final and binding upon all persons involved and whose expense shall be
shared equally by Seller and Purchaser.
6.13 Post-Closing ERISA Arrangements.
(a) Effective as of the Closing Date, Parent and Seller shall
cause the Company and ▇▇▇▇ Art to withdraw from participation in each AGT Plan,
and the participation of their
employees in each AGT Plan shall cease upon such withdrawal, except as otherwise
provided below.
(b) For each AGT Plan that is a welfare benefit plan, and
which provides coverage for medical, health, dental, prescription drug or vision
benefits, the Company or an appropriate Subsidiary shall establish a
corresponding welfare benefit plan (each, a "Company Welfare Plan"), which
provides coverage for the same type of benefit or benefits as such AGT Plan, and
which is effective as of the Closing Date, provided that the Company shall put
into effect a plan providing coverage for health care and prescription drugs,
effective as of the earlier of the Closing Date or April 1, 2002 (the "New
Health Plan"). Coverage of the employees of the Company and ▇▇▇▇ Art under each
such AGT Plan shall cease, and coverage under the corresponding Company Welfare
Plan shall commence without interruption, as of the date on which such Company
Welfare Plan becomes effective. Each Company Welfare Plan shall grant
participants credit for eligibility periods, deductions, co-payments and other
out-of-pocket expenses to the extent that the requirements therefor were
satisfied or paid under the corresponding AGT Plan prior to cessation of
coverage thereunder.
(c) Parent and Seller shall provide Purchaser with all
information in their possession or in the possession of any ERISA Affiliate, and
such reasonable assistance, as may be necessary for the Company or any
Subsidiary, as applicable, to operate any employee benefit plan that it
establishes or maintains after the Closing Date.
(d) The Company and ▇▇▇▇ Art shall, after the Closing Date,
collect such remaining employee premiums and contributions from their employees
for any medical and health care coverage provided under any AGT Plan prior to
the Closing Date. Such collected premiums shall be delivered by the Company or
▇▇▇▇ Art to AGT in accordance with past custom and practice.
(e) Employees and qualified beneficiaries (within the meaning
of Section 4980B of the Code) under AGT's group health care plans who incur a
qualifying event (within the meaning of Section 4980B of the Code) prior to the
earlier of (i) the Company's establishment of its own, separate group health
care plan and (ii) the Closing Date shall be eligible for COBRA health care
continuation coverage under AGT's group health care plan. Except as otherwise
provided in the preceding sentence, the Company's and its Subsidiaries'
employees, former employees and their qualified beneficiaries shall receive
COBRA health care continuation coverage, if any, from the group health care
plans established by the Company.
6.14 Defense of Audits. Parent shall be promptly advised of and
afforded the right to participate in any Tax audit or administrative or court
proceeding relating to taxable periods (or portions thereof) of the Company or
its Subsidiaries which end on or before the Closing Date, unless Purchaser
irrevocably waives the rights of all Purchaser Indemnified Parties' rights to
indemnity under Section 8.01 with respect to any Tax liability which may be
asserted in connection with such proceeding. If a Third Party Claim arises out
of such proceeding, the provisions of Section 8.02 shall control except that
Parent may settle such claim in its sole discretion if such settlement does not
have an adverse impact on the Tax liabilities of the Purchaser, the Company or
any of its Subsidiaries for any taxable period ending after the Closing Date
compared to the
Tax liabilities that would have been incurred if the third party claim had not
been sustained to any extent.
ARTICLE VII
SURVIVAL
7.01 Survival of Representations and Warranties. Notwithstanding
anything to the contrary contained in this Agreement, the representations and
warranties of Seller and Purchaser contained in this Agreement will survive the
Closing until April 1, 2003; provided, that (a) the representations and
warranties contained in Sections 2.09, 2.12 and 2.20 will survive, if later,
until the expiration of the applicable statute of limitations with respect to
any Liability that could result from a breach of such representations and
warranties; and (b) the representations and warranties contained in Section 2.03
will survive indefinitely.
ARTICLE VIII
INDEMNIFICATION
8.01 Indemnification.
(a) Subject to Section 8.01(c) and the other Sections of this
Article VIII, Seller shall (and, with respect to any obligations under clause
(iii) below or any obligations as a result of a breach of any of the provisions
of Sections 2.03, 2.09, 2.11, 2.12, 2.17, 2.19, 2.20 and 11.03 or Article VI,
Parent and Seller, jointly and severally, shall) indemnify Purchaser and its
officers, directors, employees, agents and Affiliates ("Purchaser Indemnified
Parties") in respect of, and hold each of them harmless from and against, any
and all Losses suffered, incurred or sustained by any of them or to which any of
them becomes subject, resulting from, arising out of or relating to: (i) any
breach of any representation or warranty; (ii) any breach of any covenant on the
part of Seller contained in this Agreement; (iii) any liability of the Company
or any of its Subsidiaries for Taxes for taxable periods (or portions thereof)
ending on or before the Closing Date to the extent such Taxes (x) exceed the
reserve for such Taxes (other than any reserve for deferred Taxes to reflect
timing differences between book and tax income) set forth on the face of the
Closing Balance Sheet (rather than in the notes thereto) and taken into account
in determining the Net Working Capital as of the Closing Date, (y) are not
otherwise subject to indemnity under clause (i) and (z) are not otherwise paid
by Seller or Parent pursuant to Section 6.02 or 6.03 or recoverable pursuant to
clause (ii) above; or (iv) any Liability of the Company or any of its
Subsidiaries resulting from any failure to comply with any of the requirements
of ERISA with respect to the benefit provided pursuant to Section 24 of the
Collective Bargaining Agreement.
(b) Subject to Section 8.01(c) and the other Sections of this
Article VIII, Purchaser shall indemnify Seller and its officers, directors,
employees, agents and Affiliates ("Seller Indemnified Parties") in respect of,
and hold each of them harmless from and against, any and all Losses suffered,
incurred or sustained by any of them or to which any of them becomes subject,
resulting from, arising out of or relating to: (i) any breach of any
representation or warranty; or (ii) any breach of any covenant on the part of
Purchaser contained in this Agreement.
(c) Notwithstanding anything to the contrary contained in this
Agreement, no amounts of indemnity shall be payable as a result of any claim in
respect of a Loss arising under clause (a) or (b) of Section 8.01:
(i) unless and until the Purchaser Indemnified
Parties (in the event that Seller is the Indemnifying Party) or the
Seller Indemnified Parties (in the event that Purchaser is the
Indemnifying Party) have suffered, incurred, sustained or become
subject to Losses referred to in clauses (a) or (b) (as applicable) in
excess of U.S. $325,000 in the aggregate (the "Basket Amount"), it
being understood and agreed that, to the extent such Losses exceed the
Basket Amount, the Indemnifying Party shall be obligated to pay the
entire amount of such Losses, including the Basket Amount;
(ii) for any Losses which, together with any other
Losses for which indemnification has been provided under this Article
VIII, result in liability to the Indemnifying Party in excess of 25% of
the Purchase Price; and
(iii) unless the Indemnified Party has given the
Indemnifying Party a Claim notice or Indemnity Notice, as applicable,
prior to the Cut-off Date.
provided that the limitations contained in clauses (i), (ii) and (iii) shall not
apply to Losses arising from breach of the agreements of Seller and Purchaser
contained in Sections 2.03, 2.09, 11.03 and 11.05, Article VI, and any Indemnity
Obligation arising under Section 8.01(a)(iii); further provided that, to the
extent that the Revised Disclosure Schedule or the Revised Schedule contains any
corrections to misstatements or omissions in the Disclosure Schedule or the
Schedule (as applicable), the limitation contained in clause (i) shall not apply
to any Losses for which the Indemnifying Party would otherwise be obligated to
indemnify the Indemnified Party pursuant to this Article VIII and which results
from any action, or failure to take any action, by any Indemnified Party prior
to the delivery of the Revised Disclosure Schedule or Revised Schedule (as
applicable); and further provided that, if the Indemnified Party elects to
proceed with the Closing regardless of such misstatements or omissions, it shall
notify the Indemnifying Party of such Losses prior to the Closing, and any
dispute as to the Indemnifying Party's Indemnity Obligations with respect to
such Losses shall be resolved prior to the Closing.
8.02 Method of Asserting Claims. All claims for indemnification by any
Indemnified Party under Section 8.01 arising from a Third Party Claim will be
asserted and resolved as follows:
(a) In the event any claim or demand in respect of which an
Indemnified Party might seek indemnity under Section 8.01 is asserted against or
sought to be collected from such Indemnified Party by a Person other than
Seller, the Company, any Subsidiary, Purchaser or any Affiliate of Seller or
Purchaser (a "Third Party Claim"), the Indemnified Party shall deliver a Claim
Notice with reasonable promptness to the Indemnifying Party, and in any event
within 10 Business Days after receipt by such Indemnified Party of notice of the
Third Party Claim; pro-
vided, however, that failure to give such notification shall not affect the
indemnification provided under this Agreement except to the extent the
Indemnifying Party shall have been actually prejudiced as a result of such.
Thereafter, the Indemnified Party shall deliver to the Indemnifying Party
promptly, and in any event within five Business Days after the Indemnified
Party's receipt thereof, copies of all notices and documents (including court
papers) received by the Indemnified Party relating to the Third Party Claim. The
Indemnifying Party will notify the Indemnified Party as soon as practicable
within the Dispute Period whether the Indemnifying Party disputes its liability
to the Indemnified Party under Section 8.01 and whether the Indemnifying Party
desires, at its sole cost and expense, to defend the Indemnified Party against
such Third Party Claim.
(i) If the Indemnifying Party notifies the
Indemnified Party within the Dispute Period that the Indemnifying Party
desires to defend the Indemnified Party with respect to the Third Party
Claim pursuant to this Section 8.02(a), then, subject to clause (ii),
the Indemnifying Party will have the right to defend, with counsel
reasonably satisfactory to the Indemnified Party, at the sole cost and
expense of the Indemnifying Party, such Third Party Claim by all
appropriate proceedings, which proceedings will be vigorously and
diligently prosecuted by the Indemnifying Party to a final conclusion
or will be settled at the discretion of the Indemnifying Party (with
the consent of the Indemnified Party, which consent will not be
unreasonably withheld, and provided that such settlement shall not
require the Indemnified Party to take, or refrain from taking, any
action). The Indemnifying Party will, subject to clause (ii), have full
control of such defense and proceedings, including (except as provided
in the immediately preceding sentence) any settlement thereof;
provided, however, that the Indemnified Party may, at the sole cost and
expense of the Indemnified Party, at any time prior to the Indemnifying
Party's delivery of the notice referred to in the first sentence of
this clause (i), file any motion, answer or other pleadings or take any
other action that the Indemnified Party reasonably believes to be
necessary or appropriate to protect its interests and not prejudicial
to the Indemnifying Party (it being understood and agreed that, except
as provided in clause (ii) below, if an Indemnified Party takes any
such action that is prejudicial and causes a final adjudication that is
adverse to the Indemnifying Party, the Indemnifying Party will be
relieved of its obligations hereunder with respect to the portion of
such Third Party Claim prejudiced by the Indemnified Party's action);
and provided further, that if requested by the Indemnifying Party, the
Indemnified Party will, at the sole cost and expense of the
Indemnifying Party, cooperate with the Indemnifying Party and its
counsel in contesting any Third Party Claim that the Indemnifying Party
elects to contest (including, without limitation, providing access to
relevant witnesses, Books and Records and other information), or, if
appropriate and related to the Third Party Claim in question, in making
any counterclaim against the Person asserting the Third Party Claim, or
any cross-complaint against any Person (other than the Indemnified
Party or any of its Affiliates). Notwithstanding the foregoing, the
Indemnified Party may take over the control of the defense or
settlement of a Third Party Claim at any time if it irrevocably waives
its right to indemnity under Section 8.01 with respect to such Third
Party Claim.
(ii) If (A) the Indemnifying Party fails to notify
the Indemnified Party within the Dispute Period that the Indemnifying
Party desires to defend the Third Party
Claim pursuant to Section 8.02(a), (B) the Indemnifying Party gives
such notice but fails to prosecute vigorously and diligently or settle
the Third Party Claim or (C) counsel proposed to be appointed by the
Indemnifying Party pursuant to clause (i) above reasonably determines
that separate counsel is required because of a conflict of interest,
then (in any such case) the Indemnified Party will have the right to
defend, at the sole cost and expense of the Indemnifying Party, the
Third Party Claim by all appropriate proceedings, which proceedings
will be vigorously and diligently prosecuted by the Indemnified Party
to a final conclusion or will be settled at the discretion of the
Indemnified Party (with the consent of the Indemnifying Party, which
consent will not be unreasonably withheld). The Indemnified Party will
have full control of such defense and proceedings, including (except as
provided in the immediately preceding sentence) any settlement thereof;
provided, however, that if requested by the Indemnified Party, the
Indemnifying Party will, at the sole cost and expense of the
Indemnifying Party, cooperate with the Indemnified Party and its
counsel in contesting any Third Party Claim which the Indemnified Party
is contesting (including, without limitation, providing access to
relevant witnesses, Books and Records and other information), or, if
appropriate and related to the Third Party Claim in question, in making
any counterclaim against the Person asserting the Third Party Claim, or
any cross-complaint against any Person (other than the Indemnifying
Party or any of its Affiliates). Notwithstanding the foregoing
provisions of this clause (ii), if the Indemnifying Party has notified
the Indemnified Party within the Dispute Period that the Indemnifying
Party disputes its liability hereunder to the Indemnified Party with
respect to such Third Party Claim and if such dispute is resolved in
favor of the Indemnifying Party, the Indemnifying Party will not be
required to bear the costs and expenses of the Indemnified Party's
defense pursuant to this clause (ii) or of the Indemnifying Party's
participation therein at the Indemnified Party's request, and the
Indemnified Party will promptly reimburse the Indemnifying Party in
full for all reasonable costs and expenses incurred by the Indemnifying
Party in connection with such litigation.
(b) In the event of any claim for indemnity under Section
8.01(a), Purchaser agrees to give Seller and its Representatives reasonable
access to the Books and Records and employees of the Company and its
Subsidiaries in connection with the matters for which indemnification is sought
to the extent Seller reasonably deems necessary in connection with its rights
and obligations under this Article VIII.
8.03 Losses Net of Insurance, etc.
(a) The amount of any Loss for which indemnification is
provided under this Article VIII shall be net of any amounts actually recovered
by the Indemnified Party under insurance policies with respect to such Loss and
shall be (1) reduced (or increased) to take account of any net Tax benefit (or
cost) realized by the Indemnified Party arising from the incurrence or payment
of any such Loss and (2) increased to take account of any increase in insurance
premiums following such insurance recovery. The Indemnified Party shall make
good faith efforts to collect any amounts recoverable under any insurance policy
with respect to such Loss on a timely basis. To the extent permitted by Law, any
indemnity payment hereunder shall be deemed to be an adjustment to the Purchase
Price for Tax purposes.
(b) No party's Indemnity Obligations shall, in any event,
include any obligation to compensate for lost profits or other consequential,
special, incidental or indirect damages of any Indemnified Party or to pay any
punitive damages awarded as a result of any misstatements or omissions of the
Indemnifying Party, provided that Seller's Indemnity Obligations with respect to
breaches of the representations and warranties relating to the Contracts
described in Section 2.16(a)(iv) shall include the obligation to indemnify for
Losses based upon lost profits.
8.04 Exclusive Remedy. Absent fraud, notwithstanding anything to the
contrary contained in this Agreement, after the Closing, to the extent permitted
by Law, the indemnities set forth in this Article VIII shall be the exclusive
remedies of Purchaser and Seller and their respective officers, directors,
employees, agents and Affiliates for any misrepresentation, breach of warranty
or nonfulfillment of, or failure to perform, any covenant or agreement contained
in this Agreement or any other claims relating to this Agreement, any other
documents delivered in connection herewith and the transactions contemplated
hereby and thereby, and the parties shall not be entitled to a rescission of
this Agreement or to any further indemnification rights or claims of any nature
whatsoever in respect thereof, all of which the parties hereto hereby waive;
provided, however, that the parties hereto agree and acknowledge that money
damages may not be a sufficient remedy for a breach of the covenants of this
Agreement to be performed by the parties hereto subsequent to the Closing
contained in Article VI and Sections 11.05 and 11.06, and that each party will
be entitled to specific performance and injunctive or other equitable relief as
a remedy for any such breach.
ARTICLE IX
TERMINATION
This Agreement may be terminated as provided below:
9.01 Termination by Mutual Written Consent. Seller and Purchaser may
terminate this Agreement by mutual written consent at any time prior to the
Closing.
9.02 Termination Upon Consummation of Alternative Transaction. This
Agreement shall terminate automatically upon the consummation of an Alternative
Transaction.
9.03 Termination by Seller. Seller may terminate this Agreement:
(a) upon five Business Days' written notice if any Law shall
have been enacted or promulgated or final and non-appealable Order issued, in
either case, of the type described in Section 5.01(e);
(b) upon written notice in the event that the Closing does not
occur on or before the Closing Deadline Date.
(c) by giving written notice to Purchaser at any time prior to
the Closing of any material breach of a representation, warranty or covenant of
Purchaser contained herein, provided that, in the case of any such breach that
is curable, such termination shall not be effec-
tive unless and until such breach has remained uncured for a period of fifteen
Business Days after the provision of such notice.
9.04 Termination by Purchaser. Purchaser may terminate this Agreement:
(a) upon five Business Days' written notice if any Law shall
have been enacted or promulgated or final and non-appealable Order issued, in
either case, of the type described in Section 5.02(e);
(b) upon five Business Days' written notice in the event that
the Closing does not occur on or before the Closing Deadline Date.
(c) by giving written notice to Seller at any time prior to
the Closing of any material breach of a representation, warranty or covenant of
Seller contained herein, provided that, in the case of any such breach that is
curable, such termination shall not be effective unless and until such breach
has remained uncured for a period of fifteen Business Days after the provision
of such notice.
(d) upon five Business Days' written notice in the event that:
(i) Purchaser is not satisfied with the results of its Due Diligence Review,
(ii) an event or events shall have occurred or be threatened that could
reasonably be expected, individually or in the aggregate, to have a Material
Adverse Effect or (iii) it becomes evident that Purchaser will not be able to
obtain the financing referred to in Section 5.03(i).
9.05 Effects of Termination. The parties' respective rights and
obligations under Articles VIII and XI shall survive any termination of this
Agreement.
ARTICLE X
DEFINITIONS
10.01 Definitions. (a) As used in this Agreement, the following terms
have the meanings indicated below:
"Actions or Proceedings" means any action, suit, proceeding,
condemnation, arbitration or Governmental or Regulatory Authority investigation.
"Affiliate" means any Person that directly, or indirectly through one
of more intermediaries, controls or is controlled by or is under common control
with the Person specified. For purposes of this definition, control of a Person
means the power, direct or indirect, to direct or cause the direction of the
management and policies of such Person whether by Contract or otherwise and, in
any event and without limitation of the previous sentence, any Person owning ten
percent or more of the voting securities of another Person shall be deemed to
control that Person. Notwithstanding the foregoing, no individual shall be
considered an Affiliate of an entity solely by reason of such person's position
as an officer or director of such entity or an Affiliate of such entity.
"Affiliated Group" means any affiliated group within the meaning of
Code Section 1504(a) or any other similar group of corporations defined under a
similar provision of Law for purposes of determining the corporations which are
required or permitted to join in filing Tax Returns on a consolidated, combined
or unitary basis with respect to a taxable period.
"Agreement" means this Stock Purchase Agreement, the Disclosure
Schedule and Exhibits and Schedules attached hereto, as the same shall be
amended from time to time.
"AGT Plan" has the meaning ascribed to it in Section 2.12(a).
"Alternative Transaction" means a merger, consolidation, share
exchange, business combination, reorganization, recapitalization, liquidation,
dissolution, tender offer or exchange offer or other similar transaction, or any
purchase of 5% or more of the assets or equity of the Company, by any Person
other than Purchaser or an Affiliate thereof.
"Assets and Properties" of any Person means all assets and properties
of every kind, nature, character and description (whether Real Property,
personal or mixed, whether tangible or intangible, and wherever situated),
including the goodwill related thereto, operated, owned or leased by such
Person.
"Basket Amount" has the meaning ascribed to it in Section 8.01(c).
"Benefit Plan" means, other than a Plan established outside of the
United States to comply with applicable local law, any Plan established by the
Company or any Subsidiary or any predecessor or ERISA Affiliate of any of the
foregoing, existing at the Closing Date, to which the Company or any Subsidiary
contributes or has contributed, or under which any employee, former employee or
director of the Company or any Subsidiary or any beneficiary thereof is covered,
is eligible for coverage or has benefit rights.
"Books and Records" of any Person means all files, documents,
instruments, papers, books and records of such Person, including without
limitation financial statements, Tax Returns and related work papers and letters
from accountants, budgets, pricing guidelines, ledgers, journals, deeds, title
policies, minute books, stock certificates and books, stock transfer ledgers,
Contracts, Permits, customer lists, computer files and programs, retrieval
programs, operating data and plans and environmental studies and plans.
"Business" means the business conducted by the Company and its
Subsidiaries, including, without limitation, the publishing and wholesale
distribution of posters, prints, calendars, cards, stationery and related items.
"Business Combination" means, with respect to any Person, any merger,
consolidation or combination to which such Person is a party, any sale,
dividend, split or other disposition of capital stock or other equity interests
of such Person or any sale, dividend or other disposition of all or
substantially all of the Assets and Properties of such Person.
"Business Day" means a day other than Saturday, Sunday or any day on
which banks located in the State of New York are authorized or obligated to
close.
"Business or Condition of the Company" means the business, financial
condition, operations or actual results of operations of the Company and its
Subsidiaries taken as a whole.
"Claim Notice" means written notification pursuant to Section 8.02(a)
of a Third Party Claim as to which indemnity under Section 8.01 is sought by an
Indemnified Party, enclosing a copy of all papers served, if any, and specifying
the nature of and basis for such Third Party Claim and for the Indemnified
Party's claim against the Indemnifying Party under Section 8.01, together with
the amount or, if not then reasonably ascertainable, the estimated amount of
such Third Party Claim.
"Closing" means the closing of the transactions contemplated by this
Agreement.
"Closing Balance Sheet" has the meaning ascribed to it in Section
1.02(b).
"Closing Date" has the meaning ascribed to it in Section 1.03.
"Closing Deadline Date" means May 5, 2002.
"COBRA" means the Consolidated Omnibus Budget Reconciliation Act of
1985, as amended.
"Code" means the Internal Revenue Code of 1986, as amended, and the
rules and regulations promulgated thereunder.
"Collective Bargaining Agreement" means any agreement between the
Company and Portal Publications Employee Committee, the collective bargaining
agency for the employees at the Company's Hayward, California warehouse.
"Common Stock" means the common stock, par value U.S. $.01 per share,
of the Company.
"Company" has the meaning ascribed to it in the forepart of this
Agreement.
"Company Welfare Plan" has the meaning ascribed to it in Section
6.13(b).
"Company Intellectual Property" means the Intellectual Property
described in Section 2.15(a).
"Consolidated Tax Returns" has the meaning ascribed to it in Section
2.09(a).
"Contract" means any agreement, lease, sublease, license, evidence of
Indebtedness, mortgage, indenture, security agreement or other contract, whether
written or oral.
"Cut-off Date" means, with respect to any representation and warranty
contained in this Agreement, the date on which such representation, warranty,
covenant or agreement ceases to survive as provided in Section 7.01.
"Disclosure Schedule" means the record delivered to Purchaser by Seller
herewith and dated as of the date hereof, containing all lists, descriptions,
exceptions and other information and materials as are required to be included
therein by Seller pursuant to this Agreement.
"Dispute Period" means the period ending 30 days following receipt by
an Indemnifying Party of a Claim Notice.
"Due Diligence Review" means Purchaser's review of the operations,
Assets and Properties, Books and Records and personnel of the Company, its
Subsidiaries and the Business (including, without limitation, a review of any
documents and other matters included in the Disclosure Schedule or the Revised
Disclosure Schedule), and the transactions contemplated hereby.
"Environmental Law" means any Law relating to prevention, remediation,
reduction or control of pollution, or regulation or protection of the
environment or natural resources or to emissions, discharges, Releases or
threatened Releases of pollutants, contaminants, chemicals or industrial, toxic
or hazardous substances or wastes into the environment (including ambient air,
soil, surface water, ground water, wetlands, land or subsurface strata), or
otherwise relating to the manufacture, processing, distribution, use, treatment,
storage, disposal, transport or handling of pollutants, contaminants, chemicals
or Hazardous Materials, including, without limitation, such Laws relating to (a)
solid waste and/or Hazardous Materials generation, handling, transportation,
use, treatment, storage or disposal, (b) air, water and noise pollution, (c)
soil, ground, water or groundwater contamination, (d) the manufacture,
generation, processing, handling, distribution, use, treatment, storage,
transportation or Release, emission or discharge into the environment of
Hazardous Materials or (e) regulation of underground and above ground storage
tanks.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended, and the rules and regulations promulgated thereunder.
"ERISA Affiliate" means any Person (other than the Company or a
Subsidiary) that has ever been treated as a single employer with the Company or
any Subsidiary under Section 414(b), (c), (m) or (o) of the Code.
"Escrow Account" has the meaning ascribed to it in Section 1.04.
"Escrow Agent" means SunTrust Bank.
"Escrow Agreement" has the meaning ascribed to it in Section 1.04.
"Escrow Interest Rate" means the rate at which the funds deposited in
the Escrow Account earn interest.
"Estimated Net Working Capital" has the meaning ascribed to it in
Section 1.02(b).
"Estimated Purchase Price" has the meaning ascribed to it in Section
1.02(b).
"Evaluation Period" means the period commencing on February 5, 2002 and
ending on the earlier of (a) April 6, 2002 and (b) the consummation of an
Alternative Transaction.
"Financial Statement Date" means December 31, 2001.
"Financial Statements" means the consolidated financial statements of
the Company and its Subsidiaries delivered or made available to Purchaser
pursuant to Section 2.07.
"Forms" has the meaning ascribed to it in Section 6.11.
"GAAP" means generally accepted accounting principles, consistently
applied throughout the specified period and in the immediately prior comparable
period.
"Governmental or Regulatory Authority" means any court, tribunal,
arbitrator, authority, agency, commission, official or other instrumentality of
the United States, any foreign country or any domestic or foreign state, county,
city or other political subdivision.
"Group Tax Returns" has the meaning ascribed to it in Section 2.09(a).
"Hazardous Materials" means (a) any petroleum or petroleum products,
flammable materials, explosives, radioactive materials, urea formaldehyde foam
insulation; (b) any chemicals or other materials or substances defined as or
included in the definition of "hazardous substances," "hazardous wastes,"
"hazardous materials," "extremely hazardous wastes," "restricted hazardous
materials," "toxic substances," "toxic pollutants" or words of similar import
under any applicable Environmental Law; and (c) any other chemical or other
material or substance, exposure to which, or storage, treatment or Release of
which is prohibited, limited or regulated by any Governmental or Regulatory
Authority under any applicable Environmental Law.
"Income Tax" means any Federal, state, local, or foreign income Tax,
including any interest, penalty, or addition thereto, whether disputed or not.
"Indebtedness" of any Person means all obligations of such Person (i)
for borrowed money, (ii) evidenced by notes, bonds, debentures or similar
instruments, (iii) related to the financing of the purchase price of goods or
services (other than trade payables not yet due or accruals incurred in the
ordinary course of business, consistent with past practices), (iv) under capital
leases and (v) in the nature of guarantees of the obligations described in
clauses (i) through (iv) above of any other Person.
"Indemnified Party" means any Person claiming indemnification under any
provision of Article VIII.
"Indemnifying Party" means any Person against whom a claim for
indemnification is being asserted under any provision of Article VIII.
"Indemnity Notice" means written notification of a claim for indemnity
under Article VIII by an Indemnified Party, other than with respect to a Third
Party Claim, specifying the na-
ture of and basis for such claim, together with the amount or, if not then
reasonably ascertainable, the estimated amount of such claim.
"Indemnity Obligations" means a party's obligations pursuant to Article
VIII.
"Insurance" shall have the meaning ascribed to it in Section 2.19.
"Intellectual Property" shall have the meaning ascribed to it in
Section 2.15.
"IRS" means the United States Internal Revenue Service.
"Knowledge of Seller" means, with respect to a representation and
warranty, the knowledge of ▇▇▇▇ ▇▇▇▇▇▇▇, ▇▇▇▇ ▇▇▇▇▇▇▇, ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇, ▇▇▇▇▇
▇▇▇▇, ▇▇▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇ ▇▇▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇▇▇▇ or ▇▇▇▇ ▇▇▇▇▇▇▇▇.
"Laws" means all laws, statutes, rules, regulations, ordinances and
other pronouncements having the effect of law of the United States, any foreign
country or any domestic or foreign state, county, city or other political
subdivision or of any Governmental or Regulatory Authority.
"Lease" means any Contract pursuant to which the Company or any of its
Subsidiaries leases or subleases any Real Property.
"Leased Premises" means any Real Property leased or subleased by the
Company or any of its Subsidiaries.
"Liabilities" means all Indebtedness, obligations and other liabilities
of a Person (whether absolute, accrued, contingent, fixed or otherwise, or
whether due or to become due).
"Liens" means any mortgage, pledge, assessment, security interest,
lease, lien, adverse claim, levy, charge or other encumbrance of any kind, or
any conditional sale Contract, title retention Contract or other Contract to
give any of the foregoing.
"Loss" means any and all damages, fines, penalties, deficiencies,
losses and expenses (including, without limitation, interest, court costs,
reasonable fees of attorneys, accountants and other experts or other reasonable
expenses of litigation or other proceedings or of any claim, default or
assessment).
"Material Adverse Effect" means any change or effect that is reasonably
likely to, individually or in the aggregate, be materially adverse to the
Business or Condition of the Company, or that is reasonably likely to impair the
Company's ability to perform its obligations hereunder or to continue, following
the Closing, to conduct the Business in a manner substantially similar to the
manner in which it is currently conducted; provided, that no (a) development
that is not unique to the Company and its Subsidiaries but also affects other
Persons who participate or are engaged in the lines of business in which the
Company and its Subsidiaries participate or are engaged or (b) adverse effect on
the Company or its Subsidiaries attributable to conditions affecting the United
States economy as a whole or foreign economies in any locations where the
Com-
pany or any of its Subsidiaries has operations or sales shall be taken into
account in determining whether there has been a Material Adverse Effect.
"Material Artists" has the meaning ascribed to it in Section 2.21.
"Material Contract" has the meaning ascribed to it in Section 2.16.
"Material Customers" has the meaning ascribed to it in Section 2.21.
"Material Suppliers" has the meaning ascribed to it in Section 2.21.
"Net Working Capital" means, with respect to the Company and its
Subsidiaries on a consolidated basis as of a given date, current assets minus
current liabilities as of such date (excluding the current portion of long-term
debt and any intercompany receivable or payable as of such date), in each case
determined in accordance with GAAP and consistent with the practices of the
Company; provided that such current liabilities shall not include any current
liability for Taxes that are required to be paid by Parent or Seller pursuant to
Section 6.02 or 6.03.
"Net Working Capital Target Amount" means U.S. $28,000,000.
"Neutral Auditor" has the meaning ascribed to it in Section 1.02(b).
"New Health Plan" has the meaning ascribed to it in Section 6.13(b).
"NPL" means the Environmental Protection Agency's National Priorities
List of Hazardous Waste Sites.
"Option" with respect to any Person means any security, right,
subscription, warrant, option, "phantom" stock right, stock appreciation right
or other Contract that gives the right to (i) purchase or otherwise receive or
be issued any shares of capital stock of such Person or any security of any kind
convertible into or exchangeable or exercisable for any shares of capital stock
of such Person or (ii) receive or exercise any benefits or rights similar to any
rights enjoyed by or accruing to the holder of shares of capital stock of such
Person, including any rights to participate in the equity or income of such
Person or to participate in or direct the election of any directors or officers
of such Person or the manner in which any shares of capital stock of such Person
are voted.
"Order" means any writ, judgment, decree, injunction or similar order
of any Governmental or Regulatory Authority (in each such case whether
preliminary or final).
"Owned Real Property" means any Real Property owned by the Company or
any of its Subsidiaries.
"Owned Real Property Lease" means any Contract pursuant to which the
Company or any of its Subsidiaries leases or subleases Owned Real Property to
any Person.
"Parent" has the meaning ascribed to it in the forepart of this
Agreement.
"Parent Insurance Policies" has the meaning ascribed to it in Section
2.19.
"Permits" means all licenses, permits, certificates of authority,
authorizations, approvals, registrations, franchises and similar consents
granted or issued by any Governmental or Regulatory Authority.
"Permitted Lien" means (i) any Lien for Taxes not yet due or delinquent
or being contested in good faith by appropriate proceedings for which adequate
reserves have been established in accordance with GAAP, (ii) any statutory Lien
arising in the ordinary course of business by operation of Law with respect to a
Liability that is not yet due or delinquent and (iii) any minor imperfection of
title or similar Lien which individually or in the aggregate with other such
Liens is not reasonably likely to have a Material Adverse Effect.
"Person" means any natural person, corporation, general partnership,
limited liability company, limited partnership, proprietorship, other business
organization, trust, union, association or Governmental or Regulatory Authority.
"Plan" means any "employee benefit plan," within the meaning of Section
3(3) of ERISA, and any other employee benefit arrangement, or any other
compensation policy or practice, which is (i) an incentive bonus or deferred
bonus arrangement, (ii) a stock purchase or stock option arrangement, (iii) a
cafeteria plan under Code Section 125, (iv) an arrangement providing termination
allowance, salary continuation, severance, retention compensation or similar
benefits, (v) an equity compensation or profit-sharing plan, (vi) an employee
relocation, tuition reimbursement, dependent care assistance, or legal
assistance plan or arrangement, (vii) a fringe benefit arrangement (cash or
noncash), or (viii) a holiday or vacation plan or policy.
"Pre-Closing Period" has the meaning ascribed to it in Section 6.02.
"Production Services Agreement" has the meaning ascribed to it in
Section 5.01(c).
"Proposed Closing Statements" has the meaning ascribed to it in Section
1.02(b).
"Purchase Price" has the meaning ascribed to it in Section 1.02(a).
"Purchase Price Determination Date" has the meaning ascribed to in
Section 1.02(b).
"Purchaser" has the meaning ascribed to it in the forepart of this
Agreement.
"Purchaser Indemnified Parties" has the meaning ascribed to it in
Section 8.01.
"Qualified Plan" means each Benefit Plan which is intended to qualify
under Section 401 of the Code.
"Real Property" means all realty, fixtures, easements, rights-of-way
and other interests in real property, buildings, improvements and
construction-in-progress.
"Release" shall mean any actual or threatened spilling, leaking,
pumping, pouring, emitting, emptying, discharging, injecting, escaping,
leaching, migrating, dumping or disposing of Hazardous Materials into the
environment (including the abandonment or discarding of barrels, containers or
other receptacles containing Hazardous Materials), as "environment" is defined
by applicable Environmental Law.
"Representations Escrow Amount" has the meaning ascribed to it in
Section 1.04(b).
"Representations Escrow Funds" means the Representations Escrow Amount,
and all interest accrued thereon from the Closing Date pursuant to the Escrow
Agreement.
"Representations Escrow Payment" has the meaning ascribed to it in
Section 1.04(b).
"Representations Escrow Reserve" has the meaning ascribed to it in
Section 1.04(b).
"Representations Escrow Termination Date" has the meaning ascribed to
it in Section 1.04(b).
"Representatives" means, with respect to a Person, all of such Person's
officers, employees, counsel, accountants, financial advisors, consultants and
other representatives.
"Revised Disclosure Schedule" has the meaning ascribed to it in Section
4.01.
"Revised Schedule" has the meaning ascribed to it in Section 4.02.
"Schedule" means the record delivered to Seller by Purchaser herewith
and dated as of the date hereof, containing all lists, descriptions, exceptions
and other information and materials as are required to be included therein by
Purchaser pursuant to this Agreement.
"Seller" has the meaning ascribed to it in the forepart of this
Agreement.
"Seller Indemnified Parties" has the meaning ascribed to it in Section
8.01(b).
"Section 338 Election" has the meaning ascribed to it in Section 6.10.
"Shares" has the meaning ascribed to it in the forepart of this
Agreement.
"Subsidiary" means any Person in which the Company, directly or
indirectly through Subsidiaries or otherwise, beneficially owns more than 50
percent of either the equity interests in, or the voting control of.
"Tax" means any tax (including any Income Tax, franchise tax, capital
gains tax, estimated tax, gross receipts tax, value-added tax, surtax, excise
tax, ad valorem tax, transfer tax, stamp tax, sales tax, use tax, property tax,
business tax, occupation tax, inventory tax, occupancy tax, withholding tax or
payroll tax), levy, assessment, tariff, impost, imposition, toll, duty
(including any customs duty), deficiency or fee, and any related charge or
amount (including any fine, penalty or interest), that is, has been or may in
the future be (i) imposed, assessed or col-
lected by or under the authority of any Governmental or Regulatory Authority
(including, but not limited to, Treasury Regulation Section 1.1502-6, or any
similar provision of state, local or foreign Law) or (ii) payable pursuant to
any tax-sharing agreement or similar Contract.
"Tax Return" means any return (including any information return),
report, statement, declaration, estimate, schedule, notice, notification, form,
election, certificate or other document or information that is, has been or may
in the future be, filed with or submitted to, or required to be filed with or
submitted to, any Governmental or Regulatory Authority in connection with the
administration, implementation or enforcement of or compliance with any legal
requirement relating to any Tax.
"Third Party Claim" has the meaning ascribed to it in Section 8.02(a).
"Veronis" has the meaning ascribed to it in Section 2.29.
"▇▇▇▇ Art" means The ▇▇▇▇ Art Group, Ltd., a wholly-owned Subsidiary of
the Company.
"Working Capital Escrow Amount" has the meaning ascribed to it in
Section 1.04(a).
"Working Capital Escrow Funds" means the Working Capital Escrow Amount,
and all interest accrued thereon from the Closing Date pursuant to the Escrow
Agreement.
"Working Capital Escrow Payment" has the meaning ascribed to it in
Section 1.02(b).
"Working Capital Purchase Price Adjustment" has the meaning ascribed to
it in Section 1.02(b).
(b) Unless the context of this Agreement otherwise requires,
(i) words of any gender include the other gender; (ii) words using the singular
or plural number also include the plural or singular number, respectively; (iii)
the terms "hereof," "herein," "hereby" and derivative or similar words refer to
this entire Agreement; (iv) the terms "Article" or "Section" refer to the
specified Article or Section of this Agreement and (v) the phrase "ordinary
course of business" refers to the business of the Company or a Subsidiary.
Whenever this Agreement refers to a number of days, such number shall refer to
calendar days unless Business Days are specified. All accounting terms used
herein and not expressly defined herein shall have the meanings given to them
under GAAP.
ARTICLE XI
MISCELLANEOUS
11.01 Notices. All notices, requests and other communications hereunder
must be in writing and will be deemed to have been duly given only if delivered
personally, sent postage prepaid, by registered, certified or express mail or
reputable overnight courier service to the parties at the following addresses:
If to Purchaser, to:
DPG Holdings, Inc.
c/o Lynx Investment Management, L.P.
▇▇▇ ▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇ ▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇
Attn: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
with a copy to:
▇▇▇▇▇▇▇ Berlin Shereff ▇▇▇▇▇▇▇▇, LLP
The Chrysler Building
▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇
Attn: ▇▇▇▇▇▇ ▇▇▇▇▇, Esq.
If to Seller or Parent, to:
Applied Graphics Technologies, Inc.
▇▇▇ ▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇ ▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇ ▇▇▇▇▇
Attn: Chief Operating Officer
with a copy to:
Applied Graphics Technologies, Inc.
▇▇▇ ▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇ ▇▇▇▇▇
Attn: Chief Legal Officer
All such notices, requests and other communications will (i) if delivered
personally to the address as provided in this Section, be deemed given upon
delivery, (ii) if delivered by mail in the manner described above to the address
as provided in this Section, be deemed given upon receipt and (iii) if delivered
by express mail or reputable overnight courier service, be deemed given one
Business Day after mailing (in each case regardless of whether such notice is
received by any other Person to whom a copy of such notice, request or other
communication is to be delivered pursuant to this Section). Any party from time
to time may change its address or other information for the purpose of notices
to that party by giving notice specifying such change to the other party hereto.
11.02 Entire Agreement. This Agreement supersedes all prior discussions
and agreements between the parties with respect to the subject matter hereof,
and contains the sole and entire agreement between the parties hereto with
respect to the subject matter.
11.03 Expenses. Except as otherwise expressly provided in this
Agreement, whether or not the transactions contemplated hereby are consummated,
each party will pay its own costs and
expenses, and Seller and/or Parent shall pay the costs and expenses of the
Company and its Subsidiaries, incurred in connection with the negotiation,
execution, performance of covenants under and closing of this Agreement and the
transactions contemplated hereby. Notwithstanding the foregoing: (a) in the
event that, during the Evaluation Period, an Alternative Transaction is
consummated, Seller shall reimburse Purchaser for its out-of-pocket expenses and
fees actually incurred during the Evaluation Period in connection with the
Transaction in an amount not to exceed U.S. $150,000; and (b) in the event that
an Alternative Transaction is not consummated during the Evaluation Period and,
within 30 days after the end of the Evaluation Period, Purchaser is (i) prepared
to consummate the Transaction and (ii) fails to consummate the Transaction
because an Alternative Transaction is consummated within such 30-day period,
Seller shall reimburse Purchaser for its out-of-pocket expenses and fees
actually incurred during the Evaluation Period in connection with the
Transaction in an amount not to exceed $150,000. Purchaser shall provide Seller
with all reasonably requested back-up documentation relating to any expenses or
fees that are subject to reimbursement pursuant to this Section 11.03.
11.04 Public Announcements. At all times at or before the Closing,
neither Seller nor Purchaser will issue or make any reports, statements or
releases to the public or generally to the employees, customers, suppliers or
other Persons to whom the Company and its Subsidiaries sell goods or provide
services or with whom the Company and its Subsidiaries otherwise have
significant business relationships with respect to this Agreement or the
transactions contemplated hereby without the consent of the other, which consent
shall not be unreasonably withheld. If, after using its reasonable best efforts
to obtain consent, either party is unable to obtain the approval of its public
report, statement or release from the other party and such report, statement or
release is, in the opinion of legal counsel to such party, required by Law in
order to discharge such party's disclosure obligations, then such party may make
or issue the legally required report, statement or release and promptly furnish
the other party with a copy thereof. Seller and Purchaser will also obtain the
other party's prior approval of any press release to be issued immediately
following the Closing announcing the consummation of the transactions
contemplated by this Agreement.
11.05 Confidentiality. Each party hereto will hold, and will use its
commercially reasonable efforts to cause its Affiliates, and their respective
Representatives to hold, in strict confidence from any Person (other than any
such Affiliate or Representative) the terms and existence of this Agreement, the
substance or existence of any negotiations between the parties with respect to
the transactions contemplated hereby and all documents and information
concerning the other party or any of its Affiliates furnished to it by the other
party or such other party's Representatives in connection with this Agreement or
the transactions contemplated hereby, except to the extent that such documents
or information can be shown to have been (a) previously known by the party
receiving such documents or information, (b) in the public domain (either prior
to or after the furnishing of such documents or information hereunder) through
no fault of such receiving party or (c) later acquired by the receiving party
from another source if the receiving party is not aware that such source is
under an obligation to another party hereto to keep such documents and
information confidential. The foregoing shall not apply to documents and
information described above: (w) to the extent that Purchaser discloses such
information to potential financing sources, provided that such financing sources
have agreed to treat such information as confidential in accordance with the
terms of this Section 10.05; (x) if and to the extent that a party is
compelled to disclose such documents and information by judicial or
administrative process (including, without limitation, in connection with
obtaining the necessary approvals of this Agreement and the transactions
contemplated hereby of Governmental or Regulatory Authorities) or by other
requirements of Law; (y) if and to the extent that the confidential information
is disclosed in an Action or Proceeding brought by a party hereto in pursuit of
its rights or in the exercise of its remedies; or (z) to Purchaser's
post-Closing use of documents and information concerning the Company and its
Subsidiaries furnished by Seller hereunder. In the event the transactions
contemplated hereby are not consummated, upon the request of the other party,
each party hereto will, and will cause its Affiliates and their respective
Representatives to, promptly (and in no event later than ten Business Days after
such request) redeliver or cause to be redelivered, or destroy or cause to be
destroyed, all copies of confidential documents and information furnished by the
other party in connection with this Agreement or the transactions contemplated
hereby and destroy or cause to be destroyed all notes, memoranda, summaries,
analyses, compilations and other writings related thereto or based thereon
prepared by the party furnished such documents and information or its
Representatives. Notwithstanding the foregoing, each party shall be entitled to
retain one copy of each such document for litigation purposes only.
11.06 Further Assurances; Post-Closing Cooperation.
(a) Subject to the terms and conditions of this Agreement, at
any time or from time to time after the Closing, each of the parties hereto
shall execute and deliver such other documents and instruments, provide such
materials and information and take such other actions as may reasonably be
necessary, proper or advisable, to the extent permitted by Law, to fulfill its
obligations under this Agreement.
(b) Following the Closing, each party will afford the other
party, its counsel and its accountants, during normal business hours, reasonable
access to the books, records and other data relating to the Business or
Condition of the Company in its possession with respect to periods prior to the
Closing and the right to make copies and extracts therefrom, to the extent that
such access may be reasonably required by the requesting party in connection
with (i) the preparation of Tax Returns, (ii) the determination or enforcement
of rights and obligations under this Agreement, (iii) compliance with the
requirements of any Governmental or Regulatory Authority, (iv) the determination
or enforcement of the rights and obligations of any Indemnified Party or (v) in
connection with any actual or threatened Action or Proceeding. Further,
Purchaser agrees for a period extending six years after the Closing Date to take
commercially reasonable efforts to ensure that no books, records and other data
relating to the Company or any Subsidiary that Purchaser could reasonably expect
would be requested by Seller pursuant to the preceding sentence are destroyed or
otherwise disposed of without first offering in writing to surrender such books,
records and other data to Seller; provided that Seller agrees in writing to take
possession thereof during the 10 day period after such offer is made and to use
such books, records and other data, and the information contained therein,
solely for the purposes set forth in clauses (i)-(v) above; and, further
provided, that Purchaser shall have no liability for any inadvertent destruction
or other disposition of any such books, records or other data, or any
destruction or other disposition by any employee of the Company of such books,
records or other data, that occurs despite Purchaser's commercially reasonable
efforts to ensure compliance with the provisions of this subsection (b).
(c) If, in order properly to prepare its Tax Returns, other
documents or reports required to be filed with Governmental or Regulatory
Authorities or its financial statements or to fulfill its obligations hereunder,
it is necessary that a party be furnished with additional information, documents
or records relating to the Business or Condition of the Company not referred to
in clause (b) above, and such information, documents or records are in the
possession or control of the other party, such other party agrees to use
commercially reasonable efforts to furnish or make available such information,
documents or records (or copies thereof) at the recipient's request, cost and
expense. Any information obtained by either party in accordance with this clause
(c) shall be held confidential by it in accordance with Section 11.05.
(d) Notwithstanding anything to the contrary contained in this
Section, if the parties are in an adversarial relationship in litigation or
other formal proceeding, this Section shall not apply and the furnishing of any
relevant information, documents or records shall be pursuant to applicable rules
relating to discovery.
11.07 Waiver. Any term or condition of this Agreement may be waived at
any time by the party that is entitled to the benefit thereof, but no such
waiver shall be effective unless set forth in a written instrument duly executed
by or on behalf of the party waiving such term or condition. No waiver by any
party of any term or condition of this Agreement, in any one or more instances,
shall be deemed to be or construed as a waiver of the same or any other term or
condition of this Agreement on any future occasion. All remedies, either under
this Agreement or by Law or otherwise afforded, will be cumulative and not
alternative.
11.08 Amendment. This Agreement may be amended, supplemented or
modified only by a written instrument duly executed by or on behalf of each
party hereto.
11.09 No Third Party Beneficiary. The terms and provisions of this
Agreement are intended solely for the benefit of each party hereto and their
respective successors or permitted assigns, and it is not the intention of the
parties to confer third-party beneficiary rights upon any other Person other
than any Person entitled to indemnity under Article VIII.
11.10 No Assignment; Binding Effect. Neither this Agreement nor any
right, interest or obligation hereunder may be assigned by any party hereto
without the prior written consent of the other party hereto and any attempt to
do so will be void, except (a) for assignments and transfers by operation of Law
and (b) that Purchaser may assign any or all of its rights, interests and
obligations hereunder to a wholly-owned subsidiary of Purchaser, provided that
any such subsidiary agrees in writing to be bound by all of the terms,
conditions and provisions contained herein, but no such assignment referred to
in clause (b) shall relieve Purchaser of its obligations hereunder. Subject to
the preceding sentence, this Agreement is binding upon, inures to the benefit of
and is enforceable by the parties hereto and their respective successors and
assigns.
11.11 Headings. The headings used in this Agreement have been inserted
for convenience of reference only and do not define or limit the provisions
hereof.
11.12 Invalid Provisions. If any provision of this Agreement is held to
be illegal, invalid or unenforceable under any present or future Law (a) such
provision will be fully severable,
(b) this Agreement will be construed and enforced as if such illegal, invalid or
unenforceable provision had never comprised a part hereof, (c) the remaining
provisions of this Agreement will remain in full force and effect and will not
be affected by the illegal, invalid or unenforceable provision or by its
severance herefrom and (d) in lieu of such illegal, invalid or unenforceable
provision, there will be added automatically as a part of this Agreement a
legal, valid and enforceable provision as similar in terms to such illegal,
invalid or unenforceable provision as may be possible.
11.13 Governing Law. This Agreement shall be governed by and construed
in accordance with the internal Laws of the State of New York, without regard to
conflicts of law principles.
11.14 Submission to Jurisdiction. Each of the parties hereto
irrevocably agrees that any legal action or proceeding with respect to this
Agreement or for recognition and enforcement of any judgment in respect hereof
brought by any other party hereto or its successors or assigns may be brought
and determined in the federal or State courts located in the County of New York,
State of New York, and each party hereto hereby irrevocably submits with regard
to any such action or proceeding for itself and with respect to its property,
generally and unconditionally, to the exclusive jurisdiction of the aforesaid
courts. Each of the parties hereto hereby irrevocably waives, and agrees not to
assert, by way of motion, as a defense, counterclaim or otherwise, in any action
or proceeding with respect to this Agreement, any claim that it is not
personally subject to the jurisdiction of the above-named courts for any reason
other than the failure to lawfully serve process, that it or its property is
exempt or immune from jurisdiction of any such court or from any legal process
commenced in such courts (whether through service of notice, attachment prior to
judgment, attachment in aid of execution of judgment, execution of judgment or
otherwise), and to the fullest extent permitted by applicable Law, that the
suit, action or proceeding in any such court is brought in an inconvenient
forum, the venue of such suit, action or proceeding is improper and this
Agreement, or the subject matter hereof, may not be enforced in or by such
courts.
11.15 Waiver of Jury Trial. Each party hereto hereby irrevocably and
unconditionally waives any rights to a trial by jury in any legal action or
proceeding in relation to this Agreement and for any counterclaim therein.
11.16 Interpretation. The parties hereto agree that in interpreting
this Agreement there shall be no inferences against the drafting party.
11.17 Counterparts. This Agreement may be executed in any number of
counterparts, each of which will be deemed an original, but all of which
together will constitute one and the same instrument.
IN WITNESS WHEREOF, this Agreement has been duly executed and delivered
by the undersigned duly authorized officer of each party hereto as of the date
first above written.
DPG HOLDINGS, INC.
By: /s/ ▇▇▇▇▇▇ ▇▇▇▇▇▇▇
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Name: ▇▇▇▇▇▇ ▇▇▇▇▇▇▇
Title: Vice Chairman
DEVON GROUP, INC.
By: /s/ ▇▇▇▇▇▇ ▇. ▇▇▇▇▇
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Name: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇
Title: Executive Vice
President & Secretary
APPLIED GRAPHICS TECHNOLOGIES, INC.,
SOLELY FOR PURPOSES OF ARTICLES VI,
VIII AND XI
By: /s/ ▇▇▇▇▇▇ ▇. ▇▇▇▇▇
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Name: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇
Title: Chief Legal Officer,
Executive Vice President
& Secretary