Item 10.1 — Schedule 4.2(g) Richard
Bernstein Agreement
Item 10.1 Schedule 4.2(g)
SIBLING MUSIC CORP.
SIBLING ENTERTAINMENT GROUP, INC.
EMPLOYMENT AGREEMENT
Richard Bernstein
6900 W Princeton Avenue
Denver, CO 80235
Dear Richard:
Sibling
Entertainment Group, Inc. (“Sibling”), a New York
Corporation, and its wholly owned subsidiary Sibling Music Corp.
(“SMC”), a Delaware Corporation currently having an
address at 511 West 25th Street, Suite 503, New York, NY 10001 and
registered to do business in the State of Colorado with an address
at 927 7th Avenue, Denver, CO 80204, agrees to employ you and you
agree to accept such employment on the terms and conditions set
forth herein.
|
1)
|
|
TERM. The term of your employment hereunder shall commence on
December 1, 2006 and, unless terminated by SMC and/or Sibling
pursuant to paragraph 8 hereof, shall continue through and until
December 31, 2008. The period from December 1, 2006 through
December 31, 2006 (the “Employment Term”)
notwithstanding any earlier termination pursuant to Paragraph
14.
|
|
2)
|
|
DUTIES/RESPONSIBILITIES/REPORTING
|
|
a)
|
|
General. Your title shall be “President” of SMC and
“Vice President” of Sibling. You shall have such duties
and responsibilities as are consistent with the traditional
positions of President of a music recording and publishing company
a Vice President of a publicly traded entertainment company. You
shall report solely and directly to the CEO of SMC and Sibling and
the Board of Directors of SMC.
|
|
b)
|
|
Services. Except as herein otherwise specified, during the
Employment Term you shall devote your entire business time,
attention and energies to the business of SMC and Sibling. You
agree to perform such duties, and such other duties reasonable and
consistent with such office as may be assigned to you from time to
time by the President of SMC and Vice President of Sibling or such
other individual as may be designated by the President of SMC and
Sibling.
|
|
c)
|
|
Location. The principal place of business shall be in the
greater metropolitan Denver, Colorado area.
|
|
3)
|
|
EXCLUSIVITY. Except as otherwise provided herein, you
hereby acknowledge and agree that your engagement with SMC and
Sibling under this Agreement is exclusive and that during the
Employment Term hereof you shall not, directly or indirectly,
whether for
|
|
|
compensation
|
|
or otherwise, engage in any business that is
competitive with the business of SMC and Sibling, or render any
services of a business, commercial or professional nature to any
other person or organization that is a competitor of SMC and
Sibling or in a business similar to that of SMC and Sibling,
without the prior written consent of SMC and Sibling, except you
shall be permitted to render services for the following:
|
|
a)
|
|
Denver Civic Theatre, Inc. (“DCT”): It is understood
that you currently serve as a member of the Board of Directors and
the President of the Denver Civic Theatre, Inc. (a not-for-profit)
organization in the State of Colorado and may perform all the
duties and responsibilities under such appointment and receive the
appropriate compensation for such services. SMC and Sibling
encourages your participation and shall not restrict your
involvement with other not-for-profit and charitable organizations
including theatrical and performance based organizations provided
such participation does not prohibit your duties to SMC and Sibling
under this Agreement.
|
|
b)
|
|
Bernstein Companies, Inc.(“BCI”): It is understood
that you currently serve as an officer and director of BCI a
company organized and operated in a similar industry of SMC and you
may continue to serve in such positions, except you shall not
devote more than approximately ten percent (10%) of your
professional working hours to BCI.
|
|
c)
|
|
Other Prior Partnerships and Corporations: It is understood that
you may own part or control singularly or with others, limited
partnership, limited liabilities companies, or other corporations
within the theatrical, film or entertainment industries that may
own various residual rights, royalties and other income for which
you may still possess certain legal responsibilities to such
entities and their limited investors, except you shall not devote
more than approximately five percent (5%) of your professional
working hours towards such activities and responsibilities.
|
|
d)
|
|
Other Corporate Investments. The Exclusivity Provisions shall
also not prohibit your ownership or services in connection with
investments which you or members of your family or your charitable
trusts or foundations (directly or indirectly) and future
investments which (a) do not require devotion of a substantial
amount of your personal professional services which shall include,
without limitation, passive investment interests, limited
partnership interests or limited liability membership interests and
(b) other than SMC and Sibling, do not compete with SMC and
Sibling’s business when the investment is made, provided
however that you may own directly or indirectly up to 5% of a
publicly held company, limited partnership interests, or limited
liability membership interests or other passive investment
interests in private companies even if it does compete with SMC and
Sibling’s business.
|
|
a)
|
|
SALARY . For all the services rendered by you in any
capacity hereunder:
|
|
i)
|
|
For the period between December 1, 2006 and December 31, 2008,
SMC agrees to pay you the sum of One Hundred Twenty Thousand
Dollars ($120,000) per annum (“Salary”), payable by
either SMC or Sibling in accordance with SMC’s then effective
payroll
|
|
ii)
|
|
Your Salary will be reviewed every six (6) months both during
the first quarter of SMC’s fiscal year and the first quarter
of each calendar year during the Employment Term, commencing with
SMC’s first quarter beginning after June 30, 2007, and
|
|
iii)
|
|
Your Salary, at that time, shall increase by a percentage that
is generally consistent within the range of percentages by which
the salaries of other comparable executives are increased, but no
less than six (6%) percent bi-annually.
|
|
iv)
|
|
Your Salary shall be payable solely by SMC.
|
|
b)
|
|
ANNUAL BONUS . In addition to your Salary, you shall be
entitled to receive bonus compensation for each of the fiscal years
during the Employment Term, determined and payable from both SMC
(“SMC Bonus”) and Sibling (“Sibling Bonus”)
as follows:
|
|
i)
|
|
Your SMC Bonus and Sibling Bonus for each of the fiscal years
during the Employment Term will be based upon a measurement of
performance against objectives as established and determined by the
Board of Directors of SMC and Sibling.
|
|
ii)
|
|
Your SMC Bonus as determined above shall not be less than two
(2%) percent of the “Pre-Tax Profits” (as defined in
Exhibit A), if any, and shall be payable to you in accordance with
the terms and conditions of that certain SMC Bonus Plan attached
hereto and incorporated herein by this reference as Exhibit A.
|
|
iii)
|
|
Your Sibling Bonus as determined above shall not be less than
two (2%) percent of the “Pre-Tax Profits” (as defined
in Exhibit A), if any, and shall be payable to you in accordance
with the terms and conditions of that certain SMC and Sibling Bonus
Plan attached hereto and incorporated herein by this reference as
Exhibit A.
|
|
iv)
|
|
Your Bonus for any fiscal year shall be payable within sixty
(60) days after the end of each fiscal year of SMC and Sibling.
|
|
c)
|
|
SIGNING BONUS . In addition to Salary you will be
entitled to a Twenty-Thousand ($20,000) dollars signing bonus
payable in two installments:
|
|
i)
|
|
Ten Thousand ($10,000) dollars within thirty (30) days of the
signing of this Agreement; and
|
|
ii)
|
|
Ten Thousand ($10,000) dollars on the first (1st) anniversary or
this Agreement.
|
|
d)
|
|
BENEFITS. You shall be entitled to participate in such
vacation, medical, dental and life insurance, 401(k), pension and
other plans as SMC and/or Sibling may have or establish from time
to time and in which you would be entitled to participate pursuant
to the terms thereof. The foregoing, however, shall not be
construed to require SMC and/or Sibling to establish any such plans
or to prevent the modification or termination of such plans once
established, and no such action or failure thereof shall affect
this Agreement. It is further understood and agreed that all
benefits you may be entitled to as an employee of SMC and/or
Sibling shall be based upon your Salary, as set forth above, and
not upon any bonus compensation due, payable or paid to you
hereunder, except where the benefit plan expressly provides
otherwise.
|
|
e)
|
|
BUSINESS EXPENSES . During your employment with SMC and
Sibling, you shall be reimbursed for such reasonable travel and
other expenses incurred in the performance of your duties hereunder
as are customarily reimbursed to comparable executives of SMC and
Sibling.
|
|
5)
|
|
CONFIDENTIAL INFORMATION and OTHER RESTRICTIONS .
|
|
a)
|
|
Confidential Agreement. You agree that you shall not, during the
Employment Term or at any time thereafter, use for your own
purposes, or disclose to or for the benefit of any third party, any
trade secret or other confidential information of SMC and Sibling,
SMC and Sibling or any of SMC and Sibling’s affiliates
(except as may be required by law or in the performance of your
duties hereunder consistent with SMC and Sibling’s policies)
and that you will comply with any confidentiality obligations of
SMC and Sibling or SMC and Sibling to a third party, whether under
agreement or otherwise. Notwithstanding the foregoing, confidential
information shall be deemed not to include information which
|
|
i)
|
|
is or becomes generally available to the public other than as a
result of a disclosure by you or any other person who directly or
indirectly receives such information from you or at your direction
or
|
|
ii)
|
|
is or becomes available to you on a non-confidential basis from
a source which is entitled to disclose it to you.
|
|
6)
|
|
NO EMPLOYEE SOLICITATION . You agree that, during the
Employment Term and for one (1) year thereafter, you shall not,
directly or indirectly, engage, employ, or solicit the employment
of any person who is then or has been within six (6) months prior
thereto, an employee of SMC and Sibling, SMC and Sibling or any of
SMC and Sibling’s affiliates.
|
|
7)
|
|
SMC AND SIBLING OWNERSHIP . The results and proceeds of
your services hereunder, including, without limitation, any works
of authorship resulting from your services during your employment
with SMC and Sibling, SMC and Sibling and/or any of SMC and
Sibling’s affiliates and any works in progress, shall be
works-made-for-hire and SMC and Sibling shall be deemed the sole
owner throughout the universe of any and all rights of whatsoever
nature therein, whether or not now or hereafter known, existing,
contemplated, recognized or developed, with the right to use the
same in perpetuity in any manner SMC and Sibling determines in its
sole discretion without any further payment to you whatsoever. If,
for any reason, any of such results and proceeds shall not legally
be a work-for-hire and/or there are any rights which do not accrue
to SMC and Sibling under the preceding sentence, then you hereby
irrevocably assign and agree to assign any and all of your right,
title and interest thereto, including, without limitation, any and
all copyrights, patents, trade secrets, trademarks and/or other
rights of whatsoever nature therein, whether or not now or
hereafter known, existing, contemplated, recognized or developed to
SMC and Sibling, and SMC and Sibling shall have the right to use
the same in perpetuity throughout the universe in any manner SMC
and Sibling determines without any further payment to you
whatsoever. You shall, from time to time, as may be requested by
SMC and Sibling, do any and all things which SMC and Sibling may
deem useful or desirable to establish or document SMC
|
and Sibling's exclusive ownership of any and
all rights in
|
|
any such results and proceeds, including,
without limitation, the execution of appropriate copyright and/or
patent applications or assignments. To the extent you have any
rights in the results and proceeds of your services that cannot be
assigned in the manner described above, you unconditionally and
irrevocably waive the enforcement of such rights. This paragraph is
subject to, and shall not be deemed to limit, restrict, or
constitute any waiver by SMC and Sibling of any rights of ownership
to which SMC and Sibling may be entitled by operation of law by
virtue of SMC and Sibling being your employer.
|
|
8)
|
|
LITIGATION. You agree that, during the Employment Term,
for one (1) year thereafter and, if longer, during the pendency of
any litigation or other proceeding,
|
|
i)
|
|
You shall not communicate with anyone (other than your own
attorneys and tax advisors and, except to the extent necessary in
the performance of your duties hereunder) with respect to the facts
or subject matter of any pending or potential litigation, or
regulatory or administrative proceeding involving SMC and Sibling
or SMC and Sibling or any of their officers, directors, agents,
employees, suppliers or customers, other than any litigation or
other proceeding in which you are a party-in-opposition, without
giving prior notice to SMC and Sibling’s General Counsel,
and
|
|
ii)
|
|
In the event that any other party attempts to obtain information
or documents from you with respect to matters possibly related to
such litigation or other proceeding, you shall promptly so notify
SMC and Sibling’s General Counsel.
|
|
9)
|
|
NO RIGHT TO GIVE INTERVIEWS OR WRITE BOOKS, ARTICLES, ETC
. You agree that during the Employment Term and for a period of one
(1) year thereafter, except as authorized by SMC and Sibling or SMC
and Sibling, you shall not (i) give any interviews or speeches, or
(ii) prepare or assist any person or entity in the preparation of
any books, articles, television or motion picture productions or
other creations, in either case, concerning SMC and Sibling, SMC
and Sibling or any of SMC and Sibling’s affiliates or any of
their officers, directors, agents, employees, suppliers or
customers.
|
|
10)
|
|
RETURN OF PROPERTY . All documents, data, recordings, or
other property, whether tangible or intangible, including all
information stored in electronic form, obtained or prepared by or
for you and utilized by you in the course of your employment with
SMC and Sibling shall remain the exclusive property of SMC and
Sibling. In the event of the termination of your employment for any
reason, SMC and Sibling reserves the right, to the extent permitted
by law and in addition to any other remedy SMC and Sibling may
have, to deduct from any monies otherwise payable to you the
following:
|
|
i)
|
|
the full amount of any debt you owe to SMC and Sibling, SMC and
Sibling or any of SMC and Sibling’s affiliates at the time of
or subsequent to the termination of your employment with SMC and
Sibling, and
|
|
ii)
|
|
the value of the SMC and Sibling property which you retain in
your possession after the termination of your employment with SMC
and Sibling. In the event that the law of any state or other
jurisdiction requires the consent of an employee for such
deductions, this Agreement shall serve as such consent. You
acknowledge and agree
|
that the foregoing remedy shall
not be the sole
and exclusive remedy of SMC and Sibling with respect to a breach of
this paragraph.
|
11)
|
|
NON-DISPARAGEMENT . You agree that you shall not, during
the Employment Term and for a period of one (1) year thereafter,
criticize, ridicule or make any statement which disparages or is
derogatory of SMC and Sibling, SMC and Sibling or any of SMC and
Sibling’s affiliates or any of their officers, directors,
agents or employees.
|
|
12)
|
|
FAMILY LEAVE POLICY & RIGHTS.
|
|
a)
|
|
Regardless of SMC and Sibling’s status or qualification
under the Family Leave Act of 1993 (the “Act”), you
will be entitled to all rights and benefits required under this Act
including, but not limited to the following:
|
|
i)
|
|
Birth and or child care of the newborn child of the employee
|
|
ii)
|
|
Placement through foster care or adoption of a child with the
employee
|
|
iii)
|
|
To care for an immediate family member with a serious health
condition
|
|
iv)
|
|
If the employee is unable to work because of a serious medical
condition.
|
|
b)
|
|
Partial Paid Family Leave Policy. In addition to any rights
provided under Paragraph 12 a), you will also be entitled to up to
fifteen (15) weeks of partially paid leave at two-thirds (2/3) of
your normal base salary. All other benefits including insurance,
bonuses and other rights shall be continued at their full amounts
as defined by this agreement.
|
|
c)
|
|
SMC and Sibling may reduce the amount received under Paragraph
12 b) by any amount you may receive through any compensation or
award received under Paragraph 13, or through your participation in
any disability insurance plan or program.
|
|
d)
|
|
After 15 weeks, you shall have the absolute right to return to
work in same position with the same duties regardless of any
limitation that may be available to SMC and Sibling under the
Act.
|
|
13)
|
|
PERMANENT DISABILITY. If, for any reason including physical,
mental illness, failure, refusal or other inability, you cannot
perform a majority of your usual duties for a period of longer than
120 consecutive days, SMC and Sibling’s obligation to pay
Salary shall be reduced to fifty (50%). If your disability and
inability to perform your duties exceeds 180 consecutive days, SMC
and Sibling may terminate this Agreement effective upon 30 days
prior written notice to you. In such event, Executive shall be
entitled to receive:
|
|
i)
|
|
Fifty (50%) Percent of your Salary continued for a period of 6
months or the expiration of the Term, whichever occurs first;
and
|
|
ii)
|
|
a prorated portion of Bonus Compensation, if any, otherwise
payable pursuant to this Agreement or any partial fiscal year that
has occurred prior to the effective date of termination, whichever
is greater; and
|
|
iii)
|
|
any insurance previously provided for a period of 6 months or
the expiration of the Term, whichever occurs first.
|
|
iv)
|
|
Disagreement as to the anticipation of a permanent
disability/suspension and/or the date such permanent
disability/suspension commenced shall be settled by the majority
decision of 3 neutral arbitrators (or, if applicable, licensed
physicians) one to be selected by each party to the dispute, the
two thus appointed shall choose the third, and the three thus
appointed shall constitute the board of arbitration. Such board,
acting by majority vote within 30 days after choosing the third
arbitrator, shall resolve such disagreement and their decision
shall be final and binding on you, SMC and Sibling and any other
person with an interest in the matter.
|
|
a)
|
|
“CAUSE.” In the event of “Cause” (as
defined below), SMC and Sibling may terminate this Agreement at any
time effective upon delivery of written notice to Executive. In
such event, all of SMC and Sibling’s obligations hereunder
will immediately terminate without further liability. Moreover, you
shall not be entitled to receive any severance, fringe benefits,
compensation or other such rights, nor shall you be entitled to
receive a pro-rata portion of Bonus Compensation otherwise payable
pursuant to this Agreement. For purposes of this Agreement
“Cause” shall include, but is not limited to:
|
|
i)
|
|
fraud, felonious conduct or dishonesty or (ii) willful
misconduct or gross negligence in the performance of your duties
hereunder; provided, however, that bona fide disagreements or
disputes as to expense reimbursement shall not be deemed fraud or
felonious conduct or your breach of any material provision of this
Agreement; or
|
|
ii)
|
|
breach of any material provision of this Agreement or any other
material agreement between SMC and Sibling and you.
|
|
b)
|
|
“WITHOUT CAUSE.” Notwithstanding anything contained
herein to the contrary, in the event this Agreement is terminated
by SMC and Sibling prior to expiration of the Term for any reason
other than pursuant to Paragraphs 14 a) for Cause, this Agreement
shall be deemed to have been terminated “Without Cause”
and you shall be entitled to receive all of the compensation,
rights and benefits described in this Agreement through the
expiration of the Term as if this Agreement were in full force.
|
|
c)
|
|
You must receive 30 days prior written notice of termination
regardless of the reason for termination.
|
|
d)
|
|
CHANGE IN CONTROL. Notwithstanding anything contained herein to
the contrary, the terms and conditions of this Agreement, you are
permitted to terminate this Agreement Without Cause following a
“Change In Control” (as defined below) and shall be
entitled to receive all of the compensation, rights and benefits
described in this Agreement following the effective date of
termination or through the expiration of the Employment Term,
whichever is longer, and the severance described in Paragraph 15,
as if this Agreement were in full force. If any other
Officer’s options are acquired pursuant to a Change In
Control, your options will be acquired on terms and at all times at
least equal to any other Officer.
|
|
|
“CHANGE IN CONTROL.” For purposes
of this Agreement “Change In Control” shall mean and be
deemed to have occurred on the earliest of the following dates:
|
|
i)
|
|
the date, pursuant to Section 13(d) of the Act and the rules
promulgated thereunder, a person shall have acquired beneficial
ownership of more than 45% of the Voting Stock;
|
|
ii)
|
|
the date the persons who were members of the Board at the
beginning of any 24-month period shall cease to constitute a
majority of the Board, unless the election, or the nomination for
election by SMC and Sibling’s shareholders, of each new
director was approved by two-thirds of the members of the Board
then in office who were in office at the beginning of the 24-month
period; or
|
|
iii)
|
|
the date SMC and Sibling’s shareholders shall approve a
definitive agreement (a) to merge or consolidate SMC and Sibling
with or into another corporation, unless the holders of SMC and
Sibling’s capital stock immediately before such merger or
consolidation will, immediately following such merger or
consolidation, hold as a group on a fully-diluted basis the ability
to elect at least a majority of the directors of the surviving
corporation (assuming cumulative voting, if applicable), or (b) to
sell or otherwise dispose of all or substantially all the assets of
SMC and Sibling.
|
|
e)
|
|
YOUR RIGHT TO TERMINATE FOR GOOD REASON. During the Term, you
shall be entitled to terminate your employment with SMC and Sibling
for “Good Reason” (as defined below) following a Change
In Control. For purposes of this Agreement “Good
Reason” shall mean any of the following events which occurs
without your express written consent:
|
|
i)
|
|
the assignment of any duties inconsistent with your status as an
Officer or a substantial alteration in the nature or status of your
responsibilities from those in effect immediately prior to a Change
In Control other than any such alteration primarily attributable to
the fact that SMC and Sibling may no longer be a public
company;
|
|
ii)
|
|
a reduction by SMC and Sibling in Base Salary;
|
|
iii)
|
|
the relocation of SMC and Sibling’s principal offices to a
location more than 35 miles from the current locale or SMC and
Sibling’s requiring you to be based anywhere other than SMC
and Sibling’s principal offices except for required travel on
SMC and Sibling’s business to an extent substantially
consistent with your present travel obligations;
|
|
iv)
|
|
the failure by SMC and Sibling to continue in effect without
material change any compensation or benefit plan in which you are
entitled to participate, or the failure by SMC and Sibling to
continue your participation therein, or the taking of any action by
SMC and Sibling which would directly or indirectly materially
reduce any of the benefits of such plans enjoyed by you at the time
of the Change In Control, or the failure by SMC and Sibling to
provide you with the number of paid vacation days to which you is
entitled hereunder, or the taking of any other action by SMC and
Sibling which materially adversely changes the conditions or
perquisites of your employment;
|
|
v)
|
|
the failure of SMC and Sibling to obtain a satisfactory
agreement from any successor to assume and agree to perform the
Services contemplated by this Agreement;
|
|
vi)
|
|
the failure of SMC and Sibling to maintain adequate D&O
insurance coverage pursuant to the terms of this Agreement; or
|
|
vii)
|
|
the breach by SMC and Sibling of any material term of this
Agreement.
|
|
15)
|
|
SEVERANCE. Upon expiration of the Employment Term, Executive
shall be entitled to receive:
|
|
a)
|
|
Base Salary continuation for a period of 6 months; and
|
|
b)
|
|
a prorated portion of Bonus Compensation, if any, otherwise
payable for 6 months or any partial fiscal year that has occurred
prior to the expiration of the Employment Term, whichever is
greater; and
|
|
c)
|
|
Insurance continuation for a period of 6 months.
|
|
d)
|
|
TERMINATION OF BENEFITS. Notwithstanding anything in this
Agreement to the contrary (except as otherwise provided in
paragraph 8(d) with respect to medical, dental and life insurance),
coverage under all SMC and Sibling benefit plans and programs
(including, without limitation, vacation, 401(k) plan, the pension
plans, long-term disability plans, car insurance and accidental
death and dismemberment and business travel and accident insurance)
will terminate upon the termination of your employment except to
the extent otherwise expressly provided in such plans or
programs.
|
|
16)
|
|
DEATH. If you die prior to the end of the Employment Term, your
beneficiary or estate shall be entitled to receive your Salary up
to the date on which the death occurs and any pro-rated Bonus.
|
|
17)
|
|
EQUAL OPPORTUNITY EMPLOYER. You acknowledge that SMC and Sibling
is an equal opportunity employer. You agree that you will comply
with SMC and Sibling policies and applicable federal, state, and
local laws prohibiting discrimination on the basis of race, color,
creed, national origin, age, sex or disability.
|
|
18)
|
|
NOTICES. All notices required to be given hereunder shall be
given in writing, by personal delivery or by mail at the respective
addresses of the parties hereto set forth above, or at such other
address as may be designated in writing by either party, and in the
case of SMC and Sibling, to the attention of the General Counsel of
SMC and Sibling. Any notice given by mail shall be deemed to have
been given three days following such mailing.
|
|
19)
|
|
ASSIGNMENT. This is an Agreement for the performance of personal
services by you and may not be assigned by you. SMC and Sibling or
SMC and Sibling may assign this Agreement to SMC and Sibling or any
affiliate of SMC and Sibling or any purchaser of all or
substantially all of the assets of SMC and Sibling or SMC and
Sibling or any successor in interest to SMC and Sibling or SMC and
Sibling.
|
|
20)
|
|
GOVERNING LAW. This Agreement and all matters or issues
collateral thereto shall be governed by the laws of the State of
Texas.
|
|
21)
|
|
NO IMPLIED CONTRACT. Nothing contained in this Agreement shall
be construed to impose any obligation on SMC and Sibling to renew
this Agreement or any portion thereof. The parties intend to be
bound only upon execution of a written agreement and no
negotiation, exchange of draft or partial performance shall be
deemed to imply an agreement. Neither the continuation of
employment nor any other conduct shall be deemed to imply a
continuing agreement upon the expiration of this Agreement.
|
|
22)
|
|
ENTIRE UNDERSTANDING. This Agreement contains the entire
understanding of the parties hereto relating to the subject matter
herein contained, and can be changed only by a writing signed by
both parties hereto.
|
|
23)
|
|
VOID PROVISIONS. If any provision of this Agreement, as applied
to either party or to any circumstances, shall be adjudged by a
court to be void or unenforceable, the same shall be deemed
stricken from this Agreement and shall in no way affect any other
provision of this Agreement or the validity or enforceability of
this Agreement.
|
_________________
If the foregoing
correctly sets forth our understanding, please sign and date one
copy of this letter and return it to the undersigned whereupon this
letter shall constitute a binding agreement between us.
Very truly yours,
SMC AND SIBLING ENTERTAINMENT GROUP, INC.
By:
_____________________
_____________________
Print: Mitchell Maxwell
Date
ITS: President
ACCEPTED AND AGREED:
By:
_____________________
_____________________
Print: Richard Bernstein
Date
EXHIBIT A
BONUS COMPENSATION PLAN
SIBLING MUSIC CORP..
OBJECTIVES OF THE PLAN. In addition to Base Salary and stock
options, to provide Executive Officer incentive compensation based
upon SMC’s operating profits.
“PRE-TAX PROFIT” PERCENTAGE. The incentive
compensation plan is designed to provide Executive Officers with a
bonus based on SMC’s “Pre-Tax Profits,” as
defined on the attached. The actual amount earned pursuant to the
Plan shall be based upon audited fiscal year end numbers and
determined using the calculation method attached. Concurrent with
the payment of Bonus Compensation, SMC shall deliver to Executive a
detailed statement setting forth the numbers and method of
calculation.
PAYMENT. Bonus Compensation, if any, for
the applicable fiscal year will be paid, using best efforts, at the
earliest practicable date following completion of SMC’s
annual audit, as conducted by SMC’s independent certified
public accountants, and the filing of SMC’s Annual Report on
Form 10-K for that fiscal year.
AUDIT RIGHTS. Executive shall be entitled to audit, at
Executive’s own expense, SMC’s records in order to
verify any Bonus Compensation statement rendered hereunder. Any
such audit shall be conducted by a certified public accountant upon
reasonable notice to SMC and during SMC’s normal business
hours. Any statement not questioned by Executive in writing within
3 years from the date of such statement shall be deemed final and
conclusive. In the event an audit reveals a discrepancy of 5% or
more, SMC shall bear the full cost of the audit and pay Executive
interest on any underage at the highest rate permitted by law.
DISPUTES. Disagreement as to the
computation of Bonus Compensation and/or any numbers used in such
computation shall be settled by the majority decision of 3
certified public accountants, one to be selected by each party to
the dispute, the two thus appointed shall choose the third, and the
three thus appointed shall constitute the board of arbitration.
Such board, acting by majority vote within 30 days after choosing
the third arbitrator, shall resolve such disagreement and their
decision shall be final and binding on Executive, SMC and any other
person with an interest in the matter.
PRORATION OF BONUS COMPENSATION. For any partial fiscal year for
which Executive is entitled to receive Bonus Compensation, the
proration shall be determined by multiplying total Net Profits for
the fiscal year within which such partial fiscal year occurs by (a)
the decimal equivalent of the applicable percentage bonus and by
(b) a number equal to the number of months during any such partial
fiscal year in which Executive was employed by SMC (or, if
applicable, such longer period as is set forth in the Employment
Agreement), divided by 12.
EXHIBIT B
BONUS COMPENSATION PLAN
SIBLING ENTERTAINMENT GROUP, INC.
OBJECTIVES OF THE PLAN. In addition to Base Salary and stock
options, to provide Executive Officer incentive compensation based
upon Sibling’s operating profits.
“PRE-TAX PROFIT” PERCENTAGE. The incentive
compensation plan is designed to provide Executive Officers with a
bonus based on Sibling’s “Pre-Tax Profits,” as
defined on the attached. The actual amount earned pursuant to the
Plan shall be based upon audited fiscal year end numbers and
determined using the calculation method attached. Concurrent with
the payment of Bonus Compensation, Sibling shall deliver to
Executive a detailed statement setting forth the numbers and method
of calculation.
PAYMENT. Bonus Compensation, if any, for
the applicable fiscal year will be paid, using best efforts, at the
earliest practicable date following completion of Sibling’s
annual audit, as conducted by Sibling’s independent certified
public accountants, and the filing of Sibling’s Annual Report
on Form 10-K for that fiscal year.
AUDIT RIGHTS. Executive shall be entitled to audit, at
Executive’s own expense, Sibling’s records in order to
verify any Bonus Compensation statement rendered hereunder. Any
such audit shall be conducted by a certified public accountant upon
reasonable notice to Sibling and during Sibling’s normal
business hours. Any statement not questioned by Executive in
writing within 3 years from the date of such statement shall be
deemed final and conclusive. In the event an audit reveals a
discrepancy of 5% or more, Sibling shall bear the full cost of the
audit and pay Executive interest on any underage at the highest
rate permitted by law.
DISPUTES. Disagreement as to the
computation of Bonus Compensation and/or any numbers used in such
computation shall be settled by the majority decision of 3
certified public accountants, one to be selected by each party to
the dispute, the two thus appointed shall choose the third, and the
three thus appointed shall constitute the board of arbitration.
Such board, acting by majority vote within 30 days after choosing
the third arbitrator, shall resolve such disagreement and their
decision shall be final and binding on Executive, Sibling and any
other person with an interest in the matter.
PRORATION OF BONUS COMPENSATION. For any partial fiscal year for
which Executive is entitled to receive Bonus Compensation, the
proration shall be determined by multiplying total Net Profits for
the fiscal year within which such partial fiscal year occurs by (a)
the decimal equivalent of the applicable percentage bonus and by
(b) a number equal to the number of months during any such partial
fiscal year in which Executive was employed by Sibling (or, if
applicable, such longer period as is set forth in the Employment
Agreement), divided by 12.
AMENDMENT
AGREEMENT OF ACQUISITION AND
PLAN OF REORGANIZATION between
SONA DEVELOPMENT CORP. (“Sona”) and
SIBLING ENTERTAINMENT GROUP, INC. (“Sibling”)
Dated June 28, 2006 (the “Agreement”)
The parties to this Amendment hereby agree to the following
changes in the Agreement.
A. Section 1.3 Closing Date of the
Agreement is deleted in its entirety and the following substituted
in lieu thereof:
|
|
“The closing of the Acquisition (the
“Closing Date”) shall take place within three (3)
business days after compliance with Section 1.2 herein is completed
by both parties and any other conditions of this Agreement shall be
satisfied. The parties have contemplated February 9, 2007 as a
Closing Date. However, in good faith, both parties shall agree to
close prior to such time if all conditions for closing are
satisfied. Notwithstanding the above, if the closing does not take
place by February 9, 2007, either party may terminate this
Agreement. “
|
|
B.
|
|
To conclude Sibling’s efforts to acquire Dick Foster
Productions, Inc., and to meet current working capital needs, Sona
shall permit Sibling Theatrical, Inc. to raise up to three million
($3,000,000) dollars from a banking or other financial institution
(the “Lending Bank”) through a debt instrument
guaranteed by third parties (the “Guarantor”), whereby
Sibling shall be permitted to compensate the Guarantor and the
Lending Bank with cash, stock and/or warrants (the “Debt
Offering”), which compensation in the form of stock and/or
warrants shall be exchanged in equal measure for stock and/or
warrants of Sona on the Closing Date as considered in Article 1.1.
of the Agreement. In exchange for a no fee guarantee the Guarantor
shall receive 3,600,000 million purchase warrants exercisable for a
period of five (5) year from the date of issuance with an exercise
price in the following denominations:
|
|
a.
|
|
1,200,000 warrants at $0.55/share.
|
|
b.
|
|
1,200,000 warrants at $0.75/share.
|
|
c.
|
|
1,200,000 warrants at $1.00/share.
|
|
C.
|
|
Furthermore, Sona shall permit Sibling in advance of closing the
Debt Offering to accept from the Guarantor an advance of up to
Seven-Hundred Fifty Thousand ($750,000) Dollars of which Five
Hundred Thousand ($500,000) Dollars will be repaid upon the closing
of the Debt Offering; and Two Hundred Fifty Thousand ($250,000)
will be repaid in the form of a convertible debenture entitling the
Guarantor as the debenture holder to convert any outstanding
principal of the debenture into shares of common stock at the rate
of $0.35/share for a total of 714,288 shares and upon conversion to
receive an additional issuance of 357,144 stock purchase warrants
exercisable at $0.75/share and 357,144 stock purchase warrants
exercisable at $1.00/share, both with a term of five (5) years from
the date of issuance.
|
|
D.
|
|
Section 4.2 (b) of the Agreement is deleted in its entirety and
the following substituted in lieu thereof:
|
|
|
“Sibling shall not (i) directly or
indirectly redeem, purchase or otherwise acquire or agree to
redeem, purchase or otherwise acquire any shares of its capital
stock except as set forth on Exhibit B attached hereto as
Revised
|
Exhibit B to the Agreement; (ii) amend its
articles of incorporation or bylaws or those of the
|
|
Subsidiaries; or (iii) split, combine or
reclassify its capital stock or declare, set aside or pay any
dividend payable in cash, stock or property or make any
distribution with respect to such stock; and”
|
E. Section 4.2 (c) of the Agreement is
deleted in its entirety and the following substituted in lieu
thereof:
|
|
“Sibling and its Subsidiaries shall not
(i) issue or agree to issue any additional shares of, or options,
warrants or rights of any kind to acquire shares of, its capital
stock other than its present offering of Series F shares
(5,714,300), any shares required to be issued by Sibling pursuant
to any registration agreement, the RHS Convertible debenture, the
Debt Offering and related stock and/or warrants issued to licensed
investment bankers and brokers engaged to sell and place any
existing or proposed offerings and/or debt and related
participation agreements, or execute any other consulting
agreements other than those detailed in exhibits attached the
Agreement and any supplemental exhibits. Attached hereto and made
apart hereof as Exhibit H is the subscription agreement for the
Series F offering; (ii) acquire or dispose of any assets other than
in the ordinary course of business; (iii) incur additional
indebtedness or any other liabilities or enter into any other
transaction except in the ordinary course of business except for
the Debt Offering; (iv) enter into any contract, agreement,
commitment or arrangement with respect to any of the foregoing
other than those detailed in the exhibits attached to the Agreement
and any supplemental exhibits, or (v) except as contemplated by
this Amendment, enter into any contract, agreement, commitment or
arrangement to dissolve, merge; consolidate or enter into any other
material business contract or enter into any negotiations in
connection therewith other than those detailed in exhibits attached
to the Agreement and any supplemental exhibits.”
|
F. Section 4.2 (e) of the Agreement is
deleted in its entirety and the following substituted in lieu
thereof:
|
|
“Sibling and its Subsidiaries will not
enter into any new employment agreements with any of its officers
or grant any increases in the compensation or benefits of its
officers, except for an agreement with Richard Bernstein as a Vice
President of Sibling and President of Sibling Music Corp. Inc.
which
|
letter of intent
|
|
agreement is attached to the Agreement as
Schedule 4.2(e), an extension thereto as Schedule 4.2(f) to the
Agreement and a definitive agreement attached hereto as Schedule
4.2(g) to the Agreement; an agreement with William Plon replacing
James Cardwell as Chief Financial Officer, the terms and conditions
to be negotiated and approved by Sibling’s Board of
Directors, attached hereto as Schedule 4.2(h) to the Agreement; and
an agreement with James Cardwell as Chief Operating Officer, the
terms and conditions negotiated and approved by Sibling’s
Board of Directors, attached hereto as Schedule 4.2(i) to the
Agreement, replacing the existing agreement attached as Schedule
3.19(c) to the Agreement. Other than officers and directors,
Sibling and its Subsidiaries, in the normal conduct of business,
may enter into other employment agreements, hire additional
employees or provide increases to existing salaries, or provide
merit bonuses.”
|
G. Section 3.5(b) Commission Reporting
and Compliance is deleted in its entirety and the following
substituted in lieu thereof:
|
|
“(b)Sibling has delivered to Sona true
and complete copies of the registration statements, information
statements and other reports (or Sona can obtain same from the
Commission web site at www.sec.gov) (collectively,
“Sibling’s Commission Documents”) filed by
Sibling with the Commission. Notwithstanding this representation,
Sibling has just completed its response to the Commission regarding
questions to its June 30, 2005 Form 10-KSB; and September 30, 2005
Form 10-QSB, December 31, 2005 Form 10-QSB and March 31, 2006 Form
10-QSB and as result of its correspondence with the Commission and
Sibling’s accountants, amended and filed as disclosed in Form
8-K filed with the Commission on October 20, 2006 and the amended
refiled financial statements on October 20, 2006 including June 30,
2005 Form 10-KSB/A and September 30, 2005 Form 10-QSB/A, December
31, 2005 Form 10-QSB/A and March 31, 2006 Form 10-QSB/A. Except as
noted above, none of Sibling’s Commission Documents as
amended, as of their respective dates, contained any untrue
statement of a material fact or omitted to state a material fact
necessary in order to make the statements contained therein not
misleading. The SEC has advised Sibling that it cleared Sibling for
the period ending June 30, 2005 and has issued comments related to
June 30, 2006 and September 30, 2006 in a letter dated December 4,
2006 and will provide Sona with a copy of all further
correspondence with the SEC.
|
|
H.
|
|
As previously disclosed on SCHEDULE 3.6(i), amended and refilled
its prior financial statements, as disclosed in an 8-K filed with
the Securities and Exchange Commission on October 20, 2006, and the
financials statements previously attached to the Agreement should
be replaced in their entirety with the financials statement filed
with the Securities and Exchange Commission which are available at
www.sec.gov for the financial periods including:
|
a.
June 30, 2005 – 10KSB/A as filed on October 20, 2006
|
a.
|
|
September 30, 2005 – 10QSB/A as filed on October 20,
2006
|
|
b.
|
|
December 31, 2005 – 10QSB/A as filed on October 20,
2006
|
|
c.
|
|
March 31, 2006 – 10QSB/A as filed on October 20, 2006
|
|
d.
|
|
June 30, 2006 – 10KSB as filed on October 25, 2006
|
|
I.
|
|
As previously disclosed in Exhibit 3.10(b), Sibling issued five
million (5,000,000) stock purchase warrants to Moneta Capital, Inc.
(“Moneta”) provided the proposed merger between Sibling
and Sona is completed and closed on or before August 31, 2006. Sona
shall permit Sibling to hold these warrants in trust to be
delivered to Moneta on the Closing defined by the Agreement.
|
|
J.
|
|
Sona shall permit Sibling to enter into a definitive agreement
with Dick Foster and Lynne Foster to acquire majority ownership of
Dick Foster Productions, Inc. by paying seven million two hundred
thousand ($7.2 million) dollars for eighty (80%) percent of the
outstanding shares of Dick Foster Productions, Inc. on terms that
include the payment of up to three thousand ($300,000) dollars in
deposits and advances prior to closing the acquisition and three
annual payments of two million three hundred thousand ($2.3
million) with the first payment due at closing on or before
February 28, 2007. A draft copy of the agreement to acquire Dick
Foster Productions, Inc. is attached hereto as Exhibit I to the
Agreement.
|
|
K.
|
|
Sona shall permit Sibling to execute an agreement with any
shareholder relations firm approved by Sibling, including Bentley
Partners, Inc., for the services of Richard Coyle to provide
services related to shareholder relations, corporate publicity,
corporate newsletters, media and other financial and shareholder
communications, in exchange for compensation that shall include
cash and two hundred thousand (200,000) warrants that entitle the
holder to purchase 200,000 shares of common stock for $0.50 per
share valid for a period of three (3) years from the date of
issuance.
|
|
L.
|
|
Sona shall permit Sibling to extend its agreement with Venture
Catalyst, LLC (“VenCat”) dated March 15, 2006, and
execute a new two (2) year agreement with VenCat to provide a
variety of corporate services including the introduction of clients
to potential “sponsors” for Sibling’s public
traded securities, investment bankers, strategic partners, and
other entities and persons that can benefit Sibling’s
presence in the public markets in exchange for compensation that
includes cash of up to $6,250/month for twenty four (24) months,
twenty-five thousand shares (25,000) a month up to three hundred
thousand (300,000) shares for the first twelve (12) months, and one
hundred
|
twenty thousand (120,000) warrants quarterly
up to four
|
|
hundred and eighty (480,000) thousand warrants
for the first twelve (12) months, that entitle the holder to
purchase 120,000 shares of common stock for $0.55 per share valid
for a period of five (5) years from the date of issuance or in the
event that the common stock is trading, at a price that is equal to
110% of the average five (5) day closing price for the common stock
prior to notification of intent to purchase.
|
|
M.
|
|
Sona shall permit Sibling to enter into an agreement with one or
more licensed brokers and/or investment banking/brokerage firms for
the purchase of placing and securing up to one million dollars
($1,000,000) of Sibling’s Series F Private Equity Offering in
exchange for compensation that includes both a cash fee of up to
ten (10%) percent of the Series F Private Equity Offering placed by
such licensed broker and up to three hundred thousand (300,000)
warrants equal to ten (10%) percent of the Units in the Series F
Private Equity Offering sold by any such licensed broker that
entitle the holder to purchase up to 300,000 shares of common stock
for $0.50 per share valid for a period of three (3) years from the
date of issuance.
|
|
|
IN WITNESS WHEREOF, the parties hereto have
executed this amendment Agreement to be binding and effective as of
the day and year first above written.
|
Dated: December 12, 2006
SIBLING ENTERTAINMENT GROUP, INC.:
By: /s/ Mitchell Maxwell
Mitchell Maxwell, President
and Chief Executive Officer
Dated: December 12, 2006
SONA DEVELOPMENT CORP.:
By: /s/ Nora Coccaro
Nora Coccaro, Chief Executive Officer
EXHIBITS
REVISED — EXHIBIT B — Issuance of Sona Shares and
Warrants to Sibling
EXHIBIT H — Subscription Agreement – Series F as
Revised – September 20, 2006
EXHIBIT I — Draft Purchase Agreement with Dick Foster
Productions, Inc.
SCHEDULE 4.2(g) — Richard Bernstein
Employment Agreement
SCHEDULE 4.2(h) — William Plon
Employment Agreement
SCHEDULE 4.2(i) — James Cardwell
Employment Agreement
Item 2.1 Exhibit 3(10) — Draft Purchase Agreement with
Dick Foster Productions, Inc.
Item 2.1 Exhibit 3(10)
Draft Purchase Agreement with Dick Foster Productions, Inc.
Stock Purchase And Shareholders’ Agreement
This Stock
Purchase and Shareholders’ Agreement
(“Agreement”) is made as of ¦ , 2006, by and among
Sibling Theatricals, Inc., a Delaware corporation (a wholly owned
subsidiary of Sibling Entertainment Group, Inc., a New York
corporation) (“Buyer”), Dick Foster Productions, Inc.,
a Nevada corporation (the “Company”) and, Dick Foster,
an individual resident in Nevada (“DF”), Lynne
Foster, an individual resident in Nevada (“LF”):
collectively, DF and LF are sometimes herein referred to as the
“Sellers.”
Recitals
The Company is
authorized to issue an aggregate of 25,000 shares of common stock,
$1.00 par value per share (the “Common Stock”), all of
which have been issued and are outstanding (the
“Shares”); DF owns 12,500 Shares and LF owns 12,500
Shares constituting 100% of the issued and outstanding Shares.
Sellers desire
to sell, and Buyer desires to purchase 10,000 Shares from each of
the Sellers, or an aggregate of twenty thousand (20,000) Shares
(the “Purchased Shares”), representing eighty (80%)
percent of the Shares, for the consideration and on the terms set
forth in this Agreement.
Agreement
The parties,
intending to be legally bound, agree as follows:
1. Definitions
For purposes of
this Agreement, the following terms have the meanings specified or
referred to in this Section 1:
“Acquired Companies” — the Company and its
Subsidiaries, collectively.
“Applicable Contract” — any Contract (a) under
which any Acquired Company has or may acquire any rights, (b) under
which any Acquired Company has or may become subject to any
obligation or liability, or (c) by which any Acquired Company or
any of the assets owned or used by it is or may become bound.
“Balance Sheet” — as
defined in Section 3.4.
“Best Efforts” — the efforts that a prudent
Person desirous of achieving a result would use in similar
circumstances to ensure that such result is achieved as
expeditiously as possible; provided, however, that an obligation to
use Best Efforts under this Agreement does not require an
unreasonable expenditure of funds or the incurrence of an
unreasonable liability on the part of the obligated party.
“Breach” — a “Breach” of a
representation, warranty, covenant, obligation, or other provision
of this Agreement or any instrument delivered pursuant to this
Agreement will be deemed to have
occurred if there is or has been (a) any
inaccuracy in or breach of, or
any failure to perform or comply with, such representation,
warranty, covenant, obligation, or other provision, or (b) any
claim (by any Person) or other occurrence or circumstance that is
or was inconsistent with such representation, warranty, covenant,
obligation, or other provision, and the term “Breach”
means any such inaccuracy, breach, failure, claim, occurrence, or
circumstance.
“Business Day” — any day other than a
Saturday, Sunday or other day on which banks are closed or are
authorized to be closed in the city and state of New York.
“Buyer” — as defined in the first paragraph of
this Agreement.
“Closing”
— as defined in Section 2.3.
“Closing Date” — as
defined in Section 2.3.
“Company” — as defined in the Recitals of this
Agreement.
“Consent” — any approval, consent,
ratification, waiver, or other authorization (including any
Governmental Authorization).
“Contemplated Transactions” — all of the
transactions contemplated by this Agreement, including:
(a)
the sale of the Shares by Sellers to Buyer;
(b)
the execution, delivery, and performance of the Promissory Note,
the Employment Agreements, the Non-competition Agreements;
(c)
the performance by each of the Buyer and Sellers of their
respective covenants and obligations under this Agreement; and
(d)
Buyer’s acquisition and ownership of the Shares and exercise
of control over the Acquired Companies and their business
operations.
“Contract” — any agreement, contract,
obligation, promise, or undertaking (whether written or oral and
whether express or implied) that is legally binding.
“Damages” — as defined in
Section 10.2.
“Disclosure Letter” — the disclosure letter
delivered by Sellers to Buyer concurrently with the execution and
delivery of this Agreement.
“Distribution of Profits”
— xxx
“Employment Agreements” — as defined in
Section 2.4(a)(iii).
“Encumbrance” — any charge, claim, community
property interest, condition, equitable interest, lien, option,
pledge, security interest, right of first refusal, or restriction
of any kind, including any restriction on use, voting, transfer,
receipt of income, or exercise of any other attribute of
ownership.
“Environment” — soil, land surface or
subsurface strata, surface waters (including navigable waters,
ocean waters, streams, ponds, drainage basins, and wetlands),
groundwaters, drinking water supply, stream sediments, ambient air
(including indoor air), plant and animal life, and any other
environmental medium or natural resource.
“Environmental, Health, and Safety Liabilities”
— any cost, damages, expense, liability, obligation, or other
responsibility arising from or under Environmental Law or
Occupational Safety and Health Law and consisting of or relating
to:
(a)
any environmental, health, or safety matters or conditions
(including on-site or off-site contamination, occupational safety
and health, and regulation of chemical substances or products);
(b)
fines, penalties, judgments, awards, settlements, legal or
administrative proceedings, damages, losses, claims, demands and
response, investigative, remedial, or inspection costs and expenses
arising under Environmental Law or Occupational Safety and Health
Law;
(c)
financial responsibility under Environmental Law or Occupational
Safety and Health Law for cleanup costs or corrective action,
including any investigation, cleanup, removal, containment, or
other remediation or response actions (“Cleanup”)
required by applicable Environmental Law or Occupational Safety and
Health Law (whether or not such Cleanup has been required or
requested by any Governmental Body or any other Person) and for any
natural resource damages; or
(d)
any other compliance, corrective, investigative, or remedial
measures required under Environmental Law or Occupational Safety
and Health Law.
The terms
“removal,” “remedial,” and “response
action,” include the types of activities covered by the
United States Comprehensive Environmental Response, Compensation,
and Liability Act, 42 U.S.C. § 9601 et seq., as amended
(“CERCLA”).
“Environmental Law” — any Legal Requirement
that requires or relates to:
(a)
advising appropriate authorities, employees, and the public of
intended or actual releases of pollutants or hazardous substances
or materials, violations of discharge limits, or other prohibitions
and of the commencements of activities, such as resource extraction
or construction, that could have significant impact on the
Environment;
(b)
preventing or reducing to acceptable levels the release of
pollutants or hazardous substances or materials into the
Environment;
(c)
reducing the quantities, preventing the release, or minimizing the
hazardous characteristics of wastes that are generated;
(d)
assuring that products are designed, formulated, packaged, and used
so that they do not present unreasonable risks to human health or
the Environment when used or disposed of;
(e)
protecting resources, species, or ecological amenities;
(f)
reducing to acceptable levels the risks inherent in the
transportation of hazardous substances, pollutants, oil, or other
potentially harmful substances;
(g)
cleaning up pollutants that have been released, preventing the
threat of release, or paying the costs of such clean up or
prevention; or
(h)
making responsible parties pay private parties, or groups of them,
for damages done to their health or the Environment, or permitting
self-appointed representatives of the public interest to recover
for injuries done to public assets.
“First Installment”—as
defined in Section 2.2.
“Employment Agreements”—as defined in Section
2.4(a)(ii).
“Extension Payment”—as defined in Section 2.2
(a) (ii).
“ERISA” — the Employee Retirement Income
Security Act of 1974 or any successor law, and regulations and
rules issued pursuant to that Act or any successor law.
“Facilities” — any real property, leaseholds,
or other interests currently or formerly owned or operated by any
Acquired Company and any buildings, plants, structures, or
equipment (including motor vehicles, tank cars, and rolling stock)
currently or formerly owned or operated by any Acquired
Company.
“GAAP” — generally accepted United States
accounting principles, applied on a basis consistent with the basis
on which the Balance Sheet and the Interim Balance Sheet and the
other financial statements referred to in Section 3.4(b) were
prepared.
“Governmental Authorization” — any approval,
consent, license, permit, waiver, or other authorization issued,
granted, given, or otherwise made available by or under the
authority of any Governmental Body or pursuant to any Legal
Requirement.
“Governmental Body” —
any:
(a)
nation, state, county, city, town, village, district, or other
jurisdiction of any nature;
(b)
federal, state, local, municipal, foreign, or other government;
(c)
governmental or quasi-governmental authority of any nature
(including any governmental agency, branch, department, official,
or entity and any court or other tribunal);
(d)
multi-national organization or body; or
(e)
body exercising, or entitled to exercise, any administrative,
executive, judicial, legislative, police, regulatory, or taxing
authority or power of any nature.
“Hazardous Activity” — the distribution,
generation, handling, importing, management, manufacturing,
processing, production, refinement, Release, storage, transfer,
transportation, treatment, or use (including any withdrawal or
other use of groundwater) of Hazardous Materials in, on, under,
about, or from the Facilities or any part thereof into the
Environment, and any other act, business, operation, or thing that
increases the danger, or risk of danger, or poses an unreasonable
risk of harm to persons or property on or off the Facilities, or
that may affect the value of the Facilities or the Acquired
Companies.
“Hazardous Materials” — any waste or other
substance that is listed, defined, designated, or classified as, or
otherwise determined to be, hazardous, radioactive, or toxic or a
pollutant or a contaminant under or pursuant to any Environmental
Law, including any admixture or solution thereof, and specifically
including petroleum and all derivatives thereof or synthetic
substitutes therefor and asbestos or asbestos-containing
materials.
“Intellectual Property Assets” — as defined in
Section 3.22.
“Interim Balance Sheet” — as defined in
Section 3.4.
“IRC” — the Internal Revenue Code of 1986 or
any successor law, and regulations issued by the IRS pursuant to
the Internal Revenue Code or any successor law.
“IRS” — the United States Internal Revenue
Service or any successor agency, and, to the extent relevant, the
United States Department of the Treasury.
“Knowledge” — an individual will be deemed to
have “Knowledge” of a particular fact or other matter
if:
(a)
such individual is actually aware of such fact or other matter;
or
(b)
a prudent individual could be expected to discover or otherwise
become aware of such fact or other matter in the course of
conducting a reasonably comprehensive investigation concerning the
existence of such fact or other matter.
A Person (other
than an individual) will be deemed to have “Knowledge”
of a particular fact or other matter if any individual who is
serving, or who has at any time served, as a director, officer,
partner, executor, or trustee of such Person (or in any similar
capacity) has, or at any time had, Knowledge of such fact or other
matter.
“Legal Requirement” — any federal, state,
local, municipal, foreign, international, multinational, or other
administrative order, constitution, law, ordinance, principle of
common law, regulation, statute, or treaty.
“Letter of Intent” — shall mean that certain
letter of intent dated June 19, 2006 by and among the parties
hereto.
“LOI Payment” — as defined in Section 2.2 (a)
(i).
“Non-competition Agreements” — as defined in
Section 2.4(a) (iv).
“Occupational Safety and Health Law” — any
Legal Requirement designed to provide safe and healthful working
conditions and to reduce occupational safety and health hazards,
and any program, whether governmental or private (including those
promulgated or sponsored by industry associations and insurance
companies), designed to provide safe and healthful working
conditions.
“Order” — any award, decision, injunction,
judgment, order, ruling, subpoena, or verdict entered, issued,
made, or rendered by any court, administrative agency, or other
Governmental Body or by any arbitrator.
“Ordinary Course of Business” — an action
taken by a Person will be deemed to have been taken in the
“Ordinary Course of Business” only if:
(a)
such action is consistent with the past practices of such Person
and is taken in the ordinary course of the normal day-to-day
operations of such Person;
(b)
such action is not required to be authorized by the board of
directors of such Person (or by any Person or group of Persons
exercising similar authority) and is not required to be
specifically authorized by the parent company (if any) of such
Person; and
(c)
such action is similar in nature and magnitude to actions
customarily taken, without any authorization by the board of
directors (or by any Person or group of Persons exercising similar
authority), in the ordinary course of the normal day-to-day
operations of other Persons that are in the same line of business
as such Person.
“Organizational Documents” — (a) the
articles or certificate of incorporation and the bylaws of a
corporation; (b) the partnership agreement and any statement
of partnership of a general partnership; (c) the limited
partnership agreement and the certificate of limited partnership of
a limited partnership; (d) any charter or similar document
adopted or filed in connection with the creation, formation, or
organization of a Person; and (e) any amendment to any of the
foregoing.
“Person” — any individual, corporation
(including any non-profit corporation), general or limited
partnership, a limited liability company, joint venture, estate,
trust, association, organization, labor union, or other entity or
Governmental Body.
“Plan” — as defined in
Section 3.13.
“Proceeding” — any action, arbitration, audit,
hearing, investigation, litigation, or suit (whether civil,
criminal, administrative, investigative, or informal) commenced,
brought, conducted, or heard by or before, or otherwise involving,
any Governmental Body or arbitrator.
“Promissory Notes” — as defined in Section
2.4(b)(ii).
“Proprietary Rights Agreement”—as defined in
Section 3.20 (b).
“Purchase Price”—as
defined in Section 2.2(a).
“Purchase Price Deposits”—as defined in
Section 2.2 (b).
“Purchase Price Increase(s)"—as defined in Section
2.2 (c).
“Purchased Shares” — as defined in the
recitals to this Agreement.
“Related Person” — with respect to a
particular individual:
|
|
(a)
each other member of such individual’s Family;
|
|
|
(b)
any Person that is directly or indirectly controlled by such
individual or one or more members of such individual’s
Family;
|
|
|
(c)
any Person in which such individual or members of such
individual’s Family hold (individually or in the aggregate) a
Material Interest; and
|
|
|
(d)
any Person with respect to which such individual or one or more
members of such individual’s Family serves as a director,
officer, partner, executor, or trustee (or in a similar
capacity).
|
With respect to
a specified Person other than an individual:
|
|
(a)
any Person that directly or indirectly controls, is directly or
indirectly controlled by, or is directly or indirectly under common
control with such specified Person;
|
|
|
(b)
any Person that holds a Material Interest in such specified
Person;
|
|
|
(c)
each Person that serves as a director, officer, partner, executor,
or trustee of such specified Person (or in a similar capacity);
|
|
|
(d)
any Person in which such specified Person holds a Material
Interest;
|
|
|
(e)
any Person with respect to which such specified Person serves as a
general partner or a trustee (or in a similar capacity); and
|
(f)
any Related Person of any individual described in clause (b) or
(c).
For purposes of
this definition, (a) the “Family” of an individual
includes (i) the individual, (ii) the individual’s spouse and
former spouses, (iii) any other natural person who is related to
the individual or the individual’s spouse within the second
degree, and (iv) any other natural person who resides with such
individual, and (b) “Material Interest” means direct or
indirect beneficial ownership (as defined in Rule 13d-3 under
the Securities Exchange Act of 1934) of voting securities or other
voting interests representing at least 10% of the outstanding
voting power of a Person or equity securities or other equity
interests representing at least 10% of the outstanding equity
securities or equity interests in a Person.
“Release” — any spilling, leaking, emitting,
discharging, depositing, escaping, leaching, dumping, or other
releasing into the Environment, whether intentional or
unintentional.
“Representative” — with respect to a
particular Person, any director, officer, employee, agent,
consultant, advisor, or other representative of such Person,
including legal counsel, accountants, and financial advisors.
“Second Installment” — as defined in Section
2.2.
“Securities Act” — the Securities Act of 1933
or any successor law, and regulations and rules issued pursuant to
that Act or any successor law.
“Sellers” — as defined in the first paragraph
of this Agreement.
Sellers’ Closing Documents”
— as defined in Section3.2.
“Shares” — as defined in the Recitals of this
Agreement.
“Share Acquisition Rights” as defined in Section
3.3(b).
“Subsidiary” — with respect to any Person (the
“Owner”), any corporation or other Person of which
securities or other interests having the power to elect a majority
of that corporation’s or other Person’s board of
directors or similar governing body, or otherwise having the power
to direct the business and policies of that corporation or other
Person (other than securities or other interests having such power
only upon the happening of a contingency that has not occurred) are
held by the Owner or one or more of its Subsidiaries; when used
without reference to a particular Person, “Subsidiary”
means a Subsidiary of the Company, including, but not limited to
Creative Productions, Inc, a Nevada corporation and Dick Foster
Productions, Inc., a California corporation.
“Tax Return” — any return (including any
information return), report, statement, schedule, notice, form, or
other document or information filed with or submitted to, or
required to be filed with or submitted to, any Governmental Body in
connection with the determination, assessment, collection, or
payment of any Tax or in connection with the administration,
implementation, or enforcement of or compliance with any Legal
Requirement relating to any Tax.
“Threat of Release” — a substantial likelihood
of a Release that may require action in order to prevent or
mitigate damage to the Environment that may result from such
Release.
“Threatened” — a claim, Proceeding, dispute,
action, or other matter will be deemed to have been
“Threatened” if any demand or statement has been made
(orally or in writing) or any notice has been given (orally or in
writing), or if any other event has occurred or any other
circumstances exist, that would lead a prudent Person to conclude
that such a claim, Proceeding, dispute, action, or other matter is
likely to be asserted, commenced, taken, or otherwise pursued in
the future.
“Third Installment”—as
defined in Section 2.2.
2. Sale And Transfer Of Shares; Closing
2.1 Shares
Subject to the
terms and conditions of this Agreement, at the Closing, Sellers
will sell and transfer the Shares to Buyer, and Buyer will purchase
the Shares from Sellers.
2.2 Purchase Price
(a)
The purchase price (the “Purchase Price”) for the
Shares will be an aggregate of seven million two hundred thousand
($7,200,000) dollars, as follows:
(i) $ 150,000 paid upon the execution
and delivery of the Letter of Intent (the “LOI
Payment”);
|
(ii)
|
|
$ 50,000 paid on or about September 8, 2006 (the “First
Extension Payment”);
|
|
(iii)
|
|
$ 100,000 paid on or about October 31, 2006 (the “Second
Extension Payment”);
|
|
(iv)
|
|
$ 50,000 paid on or about December 31, 2006 (the “Third
Extension Payment”);
|
|
(v)
|
|
$ 50,000 paid on or about January 31, 2006 (the “Fourth
Extension Payment”);
|
|
(vi)
|
|
$ 2,266,666 (the “First Installment) payable on the
Closing Date;
|
|
(vii)
|
|
$ 2,266,666, (the “Second Installment”) payable, on
the first anniversary of the Closing Date by payment of the first
installment due under the Promissory Notes; and
|
|
(viii)
|
|
$ 2,266,667 payable, on the first anniversary of the Closing
Date by payment of the second installment due under the Promissory
Notes (the “Third Installment”).
|
|
(b)
|
|
The parties hereto hereby agree that (i) the $150,000 was paid
and delivered to
|
Dick Foster and Lynne Foster in two checks in the amount $75,000
each dated May 31, 2006 simultaneously with the execution and
delivery of the Letter of Intent; (ii) the First Extension Payment
in two checks in the amount of $25,000 each dated September 6, 2006
paid and delivered to Dick Foster and Lynne Foster, (iii) the
Second Extension Payment in two checks in the amount of $50,000
each dated October 31, 2006 paid and delivered to Dick Foster and
Lynne Foster, and (iv) the Third Extension Request in two checks in
the amount of $25,000 each dated December 31, 2006 paid and
delivered to Dick Foster and Lynne Foster, and (v) the Fourth
Extension Request in two checks in the amount of $25,000 each dated
January 31, 2006 paid and delivered to Dick Foster and Lynne Foster
(collectively, together with the LOI Payment, the “Purchase
Price Deposits”).
2.3 Closing
The purchase and
sale (the “Closing”) provided for in this Agreement
will take place at the offices of the Company, 6260 Stevenson Way,
Las Vegas, Nevada 89120 at 10:00 a.m. (local time) on such date as
may be agreed to by the parties hereto but in no event later than
February 28, 2007 (the “Closing Date”). Subject to the
provisions of Section 9, failure to consummate the purchase and
sale provided for in this Agreement on the date and time and at the
place determined pursuant to this Section 2.3 will not result in
the termination of this Agreement and will not relieve any party of
any obligation under this Agreement.
2.4 Closing Obligations
At the Closing:
(a)
Sellers will deliver, or cause to be delivered, to Buyer:
|
(i)
|
the
certificate(s) representing the Shares, duly endorsed (or
accompanied by duly executed stock powers), with signatures
guaranteed by a commercial bank or by a member firm of the National
Association of Securities Dealers, Inc., for transfer to Buyer;
|
|
(ii)
|
the
employment agreement in substantially the form of Exhibit
2.4(a)(ii) hereto with David Gravatt, an individual residing at,
2128 Rockrose Circle, Henderson, NV 89014, and currently the
Company’s Chief Operating Officer (“DG”) (
“Employment Agreement”), executed, by DG;
|
|
(iii)
|
the
consulting agreement in substantially the form of Exhibit
2.4(a)(iii) hereto with D& L Partnership, a Nevada General
Partnership, the only partners of which are DF and LF (the
“Consulting Agreement”);
|
|
(iv)
|
non-competition agreements in the form of Exhibits 2.4(a)(iv) (DF)
(LF), and (D&L) hereto, executed by each of the Sellers
(collectively, the “Non-competition Agreements”);
|
|
(v)
|
an
opinion of John Doechung Lee, as counsel to Sellers and the
Company, addressed to the Buyer in substantially the form of
Exhibit 2.4 (v) hereto;
|
|
(vi)
|
a
certificate executed by Sellers and the Company representing and
warranting to Buyer that each of Sellers’ and Company’s
representations and warranties in this Agreement was accurate in
all respects as of the date of this Agreement and is accurate in
all respects as of the Closing Date as if made on the Closing Date
(giving full effect to any supplements to the Disclosure Letter
that were delivered by Sellers to Buyer prior to the Closing Date
in accordance with Section 5.5); and
|
|
(vi)
|
an
acknowledgement of the application of the Purchase Price Deposits
against the the First Installment of the Purchase Price.
|
(b)
Buyer will deliver, or cause to be delivered, to Sellers:
|
(i)
|
the
First Installment;
|
|
(ii)
|
promissory notes payable to DF and LF in the respective principal
amounts of $2,266,666.50 and $2,266,666.50, in the form of Exhibits
2.4(b)(DF) and (LF) hereto (collectively, the “Promissory
Notes”), evidencing the Second Installment and the Third
Installment;
|
|
(iii)
|
a
certificate executed by Buyer to the effect that, except as
otherwise stated in such certificate, each of Buyer’s
representations and warranties in this Agreement was accurate in
all respects as of the date of this Agreement and is accurate in
all respects as of the Closing Date as if made on the Closing
Date;
|
|
(iv)
|
the
guaranty of the Company in substantially the form of Exhibit 2.4(b)
(iv) (the “Company Guaranty”) hereto duly executed by
the Company;
|
|
(v)
|
the
Non-competition Agreements executed by the Buyer and the
Company;
|
|
(v)
|
the
Consulting Agreement executed by the Buyer and the Company; ;
and
|
|
(vi)
|
the
Employment Agreements, executed by Buyer and the Company;
|
2.5 Control over Distribution of Profits
(a)
After Closing, until such time the Second Installment has been
fully paid, the sole control of the distribution of any Company
profits and cash flow shall reside jointly between DF and LF
subject to the following:
|
(i)
|
|
To the extent the Buyer is subject to any corporate income or
franchise taxes payable by the Buyer, or its parent company, to any
taxing authority related to income attributed to Company’s
income as reported on the Buyer’s consolidated income or
franchise tax returns, in accordance with the rules governing such
taxing authorities, then DF and LF shall cause the Company to pay
forth such taxes to the Buyer in a manner and time to allow the
Buyer to pay such taxes on time without penalty or interest as
maybe required and established by such taxing authorities.
|
|
(ii)
|
|
All payments necessary to pay any and all taxes shall be paid
prior to any further distribution of profits of the Company.
|
|
(iii)
|
|
Thirty (30%) percent of all remaining after-tax profit and cahs
flow shall be distributed to Buyer.
|
|
(iv)
|
|
Unless otherwise agreed by the Buyer, DF and LF any remaining
profits and cash flows shall be retained by the Company until the
Second Installment shall have been at which time such retained
profits and cash flow shall be distributed to Buyer Df and LF in
accordance with their respective interests.
|
(b)
After the Second Installment has been fully paid, the control over
any distribution of profits shall reside solely with the Board of
the Directors of the Company.
3. Representations And Warranties Of
Sellers
Sellers and the
Company represent and warrant to Buyer as follows:
3. 1 Organization And Good Standing
(a)
Part 3.1 of the Disclosure Letter contains a complete and accurate
list for each Acquired Company of its name, its jurisdiction of
incorporation, other jurisdictions in which it is authorized to do
business, and its capitalization (including the identity of each
stockholder and the number of shares held by each). Each Acquired
Company is a corporation duly organized, validly existing, and in
good standing under the laws of its jurisdiction of incorporation,
with full corporate power and authority to conduct its business as
it is now being conducted, to own or use the properties and assets
that it purports to own or use, and to perform all its obligations
under Applicable Contracts. Each Acquired Company is duly qualified
to do business as a foreign corporation and is in good standing
under the laws of each state or other jurisdiction in which either
the ownership or use of the properties owned or used by it, or the
nature of the activities conducted by it, requires such
qualification. The Company owns all of the issued and outstanding
common stock of the Subsidiaries free and clear of liens and/or
encumbrances.
(b)
Sellers have delivered to Buyer copies of the Organizational
Documents of each Acquired Company, as currently in effect.
3.2 Authority; No Conflict
(a)
This Agreement constitutes the legal, valid, and binding obligation
of each of the Sellers and the Company, enforceable against Sellers
and the Company, in accordance with its terms. Upon the execution
and delivery by Sellers of the Employment Agreements, and the
Non-competition Agreements (collectively, the “Sellers’
Closing Documents”), the Sellers’ Closing Documents
will constitute the legal, valid, and binding obligations of
Sellers, enforceable against Sellers in accordance with their
respective terms. Sellers have the absolute and unrestricted right,
power, authority, and capacity to execute and deliver this
Agreement and the Sellers’ Closing Documents and to perform
their obligations under this Agreement and the Sellers’
Closing Documents.
(b)
Except as set forth in Part 3.2 of the Disclosure Letter, the
execution and delivery of this Agreement and/or the consummation or
performance of any of the Contemplated Transactions will not,
directly or indirectly (with or without notice or lapse of
time):
(i)
contravene, conflict with, or result in a violation of (A) any
provision of the Organizational Documents of the Acquired
Companies, or (B) any resolution adopted by the board of
directors or the stockholders of any Acquired Company;
(ii)
contravene, conflict with, or result in a violation of, or give any
Governmental Body or other Person the right to challenge any of the
Contemplated Transactions or to exercise any remedy or obtain any
relief under, any Legal Requirement or any Order to which any
Acquired Company or either Seller, or any of the assets owned or
used by any Acquired Company, may be subject;
(iii)
contravene, conflict with, or result in a violation of any of the
terms or requirements of, or give any Governmental Body the right
to revoke, withdraw, suspend, cancel, terminate, or modify, any
Governmental Authorization that is held by any Acquired Company or
that otherwise relates to the business of, or any of the assets
owned or used by, any Acquired Company;
(iv)
cause Buyer or any Acquired Company to become subject to, or to
become liable for the payment of, any Tax;
(v)
cause any of the assets owned by any Acquired Company to be
reassessed or revalued by any taxing authority or other
Governmental Body;
(vi)
contravene, conflict with, or result in a violation or breach of
any provision of, or give any Person the right to declare a default
or exercise any remedy under, or to accelerate the maturity or
performance of, or to cancel, terminate, or modify, any Applicable
Contract; or
(vii)
result in the imposition or creation of any Encumbrance upon or
with respect to any of the assets owned or used by any Acquired
Company.
Except as set
forth in Part 3.2 of the Disclosure Letter, no Seller or
Acquired Company is or will be required to give any notice to or
obtain any Consent from any Person in connection with the execution
and delivery of this Agreement or the consummation or performance
of any of the Contemplated Transactions.
(c)
Sellers are acquiring the Promissory Notes for their own account
and not with a view to their distribution within the meaning of
Section 2(11) of the Securities Act. Each Seller is an
“accredited investor” as such term is defined in Rule
501(a) under the Securities Act.
3.3 CAPITALIZATION
The authorized
equity securities of the Company consist of twenty-five thousand
(25,000) shares of common stock, par value $1.00 per share, all of
which are issued and outstanding and constitute the Shares. Sellers
are and will be on the Closing Date the record and beneficial
owners and holders of the Shares, free and clear of all
Encumbrances. DF owns twelve thousand five hundred (12,500) of the
Shares, and LF owns twelve thousand five hundred (12,500) of the
Shares. With the exception of the Shares (which are owned by
Sellers), all of the outstanding equity securities and other
securities of each Acquired Company are owned of record and
beneficially by one or more of the Acquired Companies, free and
clear of all Encumbrances. No legend or other reference to any
purported Encumbrance appears upon any certificate representing
equity securities of any Acquired Company, except as may be
required by the Securities Act.. All of the outstanding equity
securities of each Acquired Company have been duly authorized and
validly issued and are fully paid and nonassessable. There are no
Contracts relating to the issuance, sale, or transfer of any equity
securities or other securities of any Acquired Company. None of the
outstanding equity securities or other securities of any Acquired
Company was issued in violation of the Securities Act or any other
Legal Requirement. No Acquired Company owns, or has any Contract to
acquire, any equity securities or other securities of any Person
(other than Acquired Companies) or any direct or indirect equity or
ownership interest in any other business.
(b)
No person, including, but not limited to DG, has any right, option,
contract or agreement, directly or indirectly, to acquire or
receive any securities of the Company or any Acquired Company, or
holds any security convertible into securities of the Company or
any Acquired Company (collectively, “Share Acquisition
Rights”).
3.4 Financial Statements
Sellers have
delivered to Buyer: (a) unaudited consolidated balance sheets
of the Acquired Companies for the periods ending November 30, 2004
and November 30, 2005 and the related unaudited consolidated
statements of income, changes in stockholders’ equity, and
cash flow for each of the fiscal years then ended, (b) a
consolidated balance sheet of the Acquired Companies (including the
notes thereto, the “Balance Sheet”), and the related
consolidated statements of income, changes in stockholders’
equity, and cash flow for the fiscal year then ended, together with
the report thereon of the periods ending November 30, 2004 and
November
30, 2005
and (c) an unaudited consolidated balance sheet of the
Acquired Companies as at September 30, 2006 (the “Interim
Balance Sheet”) and the related unaudited consolidated
statements of income, changes in stockholders’ equity, and
cash flow for the ten (10) months then ended, including in each
case the notes thereto. Such financial statements and notes fairly
present the financial condition and the results of operations,
changes in stockholders’ equity, and cash flow of the
Acquired Companies as at the respective dates of and for the
periods referred to in such financial statements, all in accordance
with GAAP, subject, in the case of interim financial statements, to
normal recurring year-end adjustments (the effect of which will
not, individually or in the aggregate, be materially adverse) and
the absence of notes (that, if presented, would not differ
materially from those included in the Balance Sheet); the financial
statements referred to in this Section 3.4 reflect the consistent
application of such accounting principles throughout the periods
involved, except as disclosed in the notes to such financial
statements. No financial statements of any Person other than the
Acquired Companies are required by GAAP to be included in the
consolidated financial statements of the Company.
3.5 Books And Records
The books of
account, minute books, stock record books, and other records of the
Acquired Companies, all of which have been made available to Buyer,
are complete and correct and have been maintained in accordance
with sound business practices. The minute books of the Acquired
Companies contain accurate and complete records of all meetings
held of, and corporate action taken by, the stockholders, the
Boards of Directors, and committees of the Boards of Directors of
the Acquired Companies, and no meeting of any such stockholders,
Board of Directors, or committee has been held for which minutes
have not been prepared and are not contained in such minute books.
At the Closing, all of those books and records will be in the
possession of the Acquired Companies.
3.6 Title To Properties; Encumbrances
Part 3.6 of
the Disclosure Letter contains a complete and accurate list of all
real property, leaseholds, or other interests therein owned by any
Acquired Company. Sellers have delivered or made available to Buyer
copies of the deeds and other instruments (as recorded) by which
the Acquired Companies acquired such real property and interests,
and copies of all title insurance policies, opinions, abstracts,
and surveys in the possession of Sellers or the Acquired Companies
and relating to such property or interests. The Acquired Companies
own (with good and marketable title in the case of real property,
subject only to the matters permitted by the following sentence)
all the properties and assets (whether real, personal, or mixed and
whether tangible or intangible) that they purport to own, including
all of the properties and assets reflected in the Balance Sheet and
the Interim Balance Sheet (except for assets held under capitalized
leases disclosed or not required to be disclosed in Part 3.6
of the Disclosure Letter and personal property sold since the date
of the Balance Sheet and the Interim Balance Sheet, as the case may
be, in the Ordinary Course of Business), and all of the properties
and assets purchased or otherwise acquired by the Acquired
Companies since the date of the Balance Sheet (except for personal
property acquired and sold since the date of the Balance Sheet in
the Ordinary Course of Business and consistent with past practice),
which subsequently purchased or acquired properties and assets
(other than inventory and short-term investments) are listed in
Part 3.6 of the Disclosure Letter. All material properties and
assets reflected in the Balance
Sheet and the Interim Balance Sheet are free
and clear of all Encumbrances and are not, in the case of real
property, subject to any rights of way, building use
restrictions, exceptions, variances, reservations, or limitations
of any nature except, with respect to all such properties and
assets, (a) mortgages or security interests shown on the
Balance Sheet or the Interim Balance Sheet as securing specified
liabilities or obligations, with respect to which no default (or
event that, with notice or lapse of time or both, would constitute
a default) exists, (b) mortgages or security interests
incurred in connection with the purchase of property or assets
after the date of the Interim Balance Sheet (such mortgages and
security interests being limited to the property or assets so
acquired), with respect to which no default (or event that, with
notice or lapse of time or both, would constitute a default)
exists, (c) liens for current taxes not yet due, and
(d) with respect to real property, (i) minor imperfections of
title, if any, none of which is substantial in amount, materially
detracts from the value or impairs the use of the property subject
thereto, or impairs the operations of any Acquired Company, and
(ii) zoning laws and other land use restrictions that do not
impair the present or anticipated use of the property subject
thereto. All buildings, plants, and structures owned by the
Acquired Companies lie wholly within the boundaries of the real
property owned by the Acquired Companies and do not encroach upon
the property of, or otherwise conflict with the property rights of,
any other Person.
3.7 Condition And Sufficiency Of Assets
The buildings,
plants, structures, and equipment of the Acquired Companies are
structurally sound, are in good operating condition and repair, and
are adequate for the uses to which they are being put, and none of
such buildings, plants, structures, or equipment is in need of
maintenance or repairs except for ordinary, routine maintenance and
repairs that are not material in nature or cost. The building,
plants, structures, and equipment of the Acquired Companies are
sufficient for the continued conduct of the Acquired
Companies’ businesses after the Closing in substantially the
same manner as conducted prior to the Closing.
3.8 Accounts Receivable
All accounts
receivable of the Acquired Companies that are reflected on the
Balance Sheet or the Interim Balance Sheet or on the accounting
records of the Acquired Companies as of the Closing Date
(collectively, the “Accounts Receivable”) represent or
will represent valid obligations arising from sales actually made
or services actually performed in the Ordinary Course of Business.
Unless paid prior to the Closing Date, the Accounts Receivable are
or will be as of the Closing Date current and collectible net of
the respective reserves shown on the Balance Sheet or the Interim
Balance Sheet or on the accounting records of the Acquired
Companies as of the Closing Date (which reserves are adequate and
calculated consistent with past practice and, in the case of the
reserve as of the Closing Date, will not represent a greater
percentage of the Accounts Receivable as of the Closing Date than
the reserve reflected in the Interim Balance Sheet represented of
the Accounts Receivable reflected therein and will not represent a
material adverse change in the composition of such Accounts
Receivable in terms of aging). Subject to such reserves, each of
the Accounts Receivable either has been or will be collected in
full, without any set-off, within ninety days after the day on
which it first becomes due and payable. There is no contest, claim,
or right of set-off, other than returns in the Ordinary Course of
Business, under any Contract with any obligor of an Accounts
Receivable relating to the amount or validity of such Accounts
Receivable. Part 3.8 of the Disclosure Letter contains a
complete and
accurate list of all Accounts Receivable as of the date of the
Interim Balance Sheet, which list sets forth the aging of such
Accounts Receivable.
3.9 Inventory
All inventory of
the Acquired Companies, whether or not reflected in the Balance
Sheet or the Interim Balance Sheet, consists of a quality and
quantity usable and salable in the Ordinary Course of Business,
except for obsolete items and items of below-standard quality, all
of which have been written off or written down to net realizable
value in the Balance Sheet or the Interim Balance Sheet or on the
accounting records of the Acquired Companies as of the Closing
Date, as the case may be. The quantities of each item of inventory
(whether raw materials, work-in-process, or finished goods) are not
excessive, but are reasonable in the present circumstances of the
Acquired Companies.
3.10 No Undisclosed Liabilities
Except as set
forth in Part 3.10 of the Disclosure Letter, the Acquired Companies
have no liabilities or obligations of any nature (whether known or
unknown and whether absolute, accrued, contingent, or otherwise)
except for liabilities or obligations reflected or reserved against
in the Balance Sheet or the Interim Balance Sheet and current
liabilities incurred in the Ordinary Course of Business since the
respective dates thereof.
3.11 Taxes
(a)
The Acquired Companies have filed or caused to be filed (on a
timely basis since January 1, 2002) all Tax Returns that are or
were required to be filed by or with respect to any of them, either
separately or as a member of a group of corporations, pursuant to
applicable Legal Requirements. Sellers have delivered to Buyer
copies of, and Part 3.11 of the Disclosure Letter contains a
complete and accurate list of, all such Tax Returns filed since
January 1, 2002. The Acquired Companies have paid, or made
provision for the payment of, all Taxes that have or may have
become due pursuant to those Tax Returns or otherwise, or pursuant
to any assessment received by Sellers or any Acquired Company,
except such Taxes, if any, as are listed in Part 3.11 of the
Disclosure Letter and are being contested in good faith and as to
which adequate reserves (determined in accordance with GAAP) have
been provided in the Balance Sheet and the Interim Balance
Sheet.
(b)
The United States federal and state income Tax Returns of each
Acquired Company subject to such Taxes have been audited by the IRS
or relevant state tax authorities or are closed by the applicable
statute of limitations for all taxable years through December 31,
2005. Part 3.11 of the Disclosure Letter contains a complete and
accurate list of all audits of all such Tax Returns, including a
reasonably detailed description of the nature and outcome of each
audit. All deficiencies proposed as a result of such audits have
been paid, reserved against, settled, or, as described in
Part 3.11 of the Disclosure Letter, are being contested in
good faith by appropriate proceedings. Part 3.11 of the
Disclosure Letter describes all adjustments to the United States
federal income Tax Returns filed by any Acquired Company or any
group of
corporations including any Acquired Company
for all taxable years
since January 1, 2002, and the resulting deficiencies proposed
by the IRS. Except as described in Part 3.11 of the Disclosure
Letter, no Seller or Acquired Company has given or been requested
to give waivers or extensions (or is or would be subject to a
waiver or extension given by any other Person) of any statute of
limitations relating to the payment of Taxes of any Acquired
Company or for which any Acquired Company may be liable.
(c)
The charges, accruals, and reserves with respect to Taxes on the
respective books of each Acquired Company are adequate (determined
in accordance with GAAP) and are at least equal to that Acquired
Company’s liability for Taxes. There exists no proposed tax
assessment against any Acquired Company except as disclosed in the
Balance Sheet or in Part 3.11 of the Disclosure Letter. No
consent to the application of Section 341(f)(2) of the IRC has
been filed with respect to any property or assets held, acquired,
or to be acquired by any Acquired Company. All Taxes that any
Acquired Company is or was required by Legal Requirements to
withhold or collect have been duly withheld or collected and, to
the extent required, have been paid to the proper Governmental Body
or other Person.
(d)
All Tax Returns filed by (or that include on a consolidated basis)
any Acquired Company are true, correct, and complete. There is no
tax sharing agreement that will require any payment by any Acquired
Company after the date of this Agreement. No Acquired Company is,
or within the five-year period preceding the Closing Date has been,
an “S” corporation. During the consistency period (as
defined in Section 338(h)(4) of the IRC with respect to the
sale of the Shares to Buyer), no Acquired Company or target
affiliate (as defined in Section 338(h)(6) of the IRC with
respect to the sale of the Shares to Buyer) has sold or will sell
any property or assets to Buyer or to any member of the affiliated
group (as defined in Section 338(h)(5) of the IRC) that
includes Buyer. Part 3.11 of the Disclosure Letter lists all
such target affiliates.
3.12 No Material Adverse Change
Since the date
of the Balance Sheet, there has not been any material adverse
change in the business, operations, properties, prospects, assets,
or condition of any Acquired Company, and no event has occurred or
circumstance exists that may result in such a material adverse
change.
3.13 Employee Benefits
(a)
As used in this Section 3.13, the following terms have the meanings
set forth below.
“Company Other Benefit Obligation” means an Other
Benefit Obligation owed, adopted, or followed by an Acquired
Company or an ERISA Affiliate of an Acquired Company.
“Company Plan” means all Plans of which an Acquired
Company or an ERISA Affiliate of an Acquired Company is or was a
Plan Sponsor, or to which an Acquired Company or an ERISA Affiliate
of an Acquired Company otherwise contributes or has contributed, or
in which an Acquired Company or an ERISA Affiliate of an Acquired
Company otherwise participates or has participated. All references
to Plans are to Company Plans unless the context requires
otherwise.
“Company VEBA” means a VEBA whose members include
employees of any Acquired Company or any ERISA Affiliate of an
Acquired Company.
“ERISA Affiliate” means, with respect to an Acquired
Company, any other person that, together with the Company, would be
treated as a single employer under IRC § 414.
“Multi-Employer Plan” has the meaning given in ERISA
§ 3(37)(A).
“Other Benefit Obligations” means all obligations,
arrangements, or customary practices, whether or not legally
enforceable, to provide benefits, other than salary, as
compensation for services rendered, to present or former directors,
employees, or agents, other than obligations, arrangements, and
practices that are Plans. Other Benefit Obligations include
consulting agreements under which the compensation paid does not
depend upon the amount of service rendered, sabbatical policies,
severance payment policies, and fringe benefits within the meaning
of IRC § 132.
“PBGC” means the Pension Benefit Guaranty
Corporation, or any successor thereto.
“Pension Plan” has the meaning given in ERISA §
3(2)(A).
“Plan” has the meaning given in ERISA §
3(3).
“Plan Sponsor” has the meaning given in ERISA §
3(16)(B).
“Qualified Plan” means any Plan that meets or
purports to meet the requirements of IRC § 401(a).
“Title IV Plans” means all Pension Plans that are
subject to Title IV of ERISA, 29 U.S.C. § 1301 et seq., other
than Multi-Employer Plans.
“VEBA” means a voluntary employees’
beneficiary association under IRC § 501(c)(9).
has the meaning
given in ERISA § 3(1).
(b)
with respect to the Disclosure Letter,
|
|
(i)
Part 3.13(i) of the Disclosure Letter contains a complete and
accurate list of all Company Plans, Company Other Benefit
Obligations, and Company VEBAs, and identifies as such all Company
Plans that are (A) defined benefit Pension Plans, (B) Qualified
Plans, (C) Title IV Plans, or (D) Multi-Employer Plans.
|
|
|
(ii)
Part 3.13(ii) of the Disclosure Letter contains a complete and
accurate list of (A) all ERISA Affiliates of each Acquired Company,
and (B) all Plans of which any such ERISA Affiliate is or was a
Plan Sponsor, in which any such ERISA Affiliate participates or has
participated, or to which any such ERISA Affiliate contributes or
has contributed.
|
|
|
(iii)
Part 3.13(iii) of the Disclosure Letter sets forth, for each
Multi-Employer Plan, as of its last valuation date, the amount of
potential withdrawal liability of the Acquired Companies and the
Acquired Companies’ other ERISA Affiliates, calculated
according to information made available pursuant to ERISA §
4221(e).
|
|
|
(iv)
Part 3.13(iv) of the Disclosure Letter sets forth a calculation of
the liability of the Acquired Companies for post-retirement
benefits other than pensions, made in accordance with Financial
Accounting Statement 106 of the Financial Accounting Standards
Board, regardless of whether any Acquired Company is required by
this Statement to disclose such information.
|
|
|
(v)
Part 3.13(v) of the Disclosure Letter sets forth the financial cost
of all obligations owed under any Company Plan or Company Other
Benefit Obligation that is not subject to the disclosure and
reporting requirements of ERISA.
|
(c)
Sellers have delivered to Buyer, or will deliver to Buyer within
ten days of the date of this Agreement:
|
|
(i)
all documents that set forth the terms of each Company Plan,
Company Other Benefit Obligation, or Company VEBA and of any
related trust, including (A) all plan descriptions and summary plan
descriptions of Company Plans for which Sellers or the Acquired
Companies are required to prepare, file, and distribute plan
descriptions and summary plan descriptions, and (B) all summaries
and descriptions furnished to participants and beneficiaries
regarding Company Plans, Company Other Benefit Obligations, and
Company VEBAs for which a plan description or summary plan
description is not required;
|
|
|
(ii)
all personnel, payroll, and employment manuals and policies;
|
|
|
(iii)
all collective bargaining agreements pursuant to which
contributions have been made or obligations incurred (including
both pension and welfare benefits) by the Acquired Companies and
the ERISA Affiliates of the Acquired Companies, and all collective
bargaining agreements pursuant to which contributions are being
made or obligations are owed by such entities;
|
|
|
(iv)
a written description of any Company Plan or Company Other Benefit
Obligation that is not otherwise in writing;
|
|
|
(v)
all registration statements filed with respect to any Company
Plan;
|
|
|
(vi)
all insurance policies purchased by or to provide benefits under
any Company Plan;
|
|
|
(vii)
all contracts with third party administrators, actuaries,
investment managers, consultants, and other independent contractors
that relate to any Company Plan, Company Other Benefit Obligation,
or Company VEBA;
|
|
|
(viii)
all reports submitted within the four years preceding the date of
this Agreement by third party administrators, actuaries, investment
managers, consultants, or other independent contractors with
respect to any Company Plan, Company Other Benefit Obligation, or
Company VEBA;
|
|
|
(ix)
all notifications to employees of their rights under ERISA §
601 et seq. and IRC § 4980B;
|
|
|
(x)
the Form 5500 filed in each of the most recent three plan years
with respect to each Company Plan, including all schedules thereto
and the opinions of independent accountants;
|
|
|
(xi)
all notices that were given by any Acquired Company or any ERISA
Affiliate of an Acquired Company or any Company Plan to the IRS,
the PBGC, or any participant or beneficiary, pursuant to statute,
within the four years preceding the date of this Agreement,
including notices that are expressly mentioned elsewhere in this
Section 3.13;
|
|
|
(xii)
all notices that were given by the IRS, the PBGC, or the Department
of Labor to any Acquired Company, any ERISA Affiliate of an
Acquired Company, or any Company Plan within the four years
preceding the date of this Agreement;
|
|
|
(xiii)
with respect to Qualified Plans and VEBAs, the most recent
determination letter for each Plan of the Acquired Companies that
is a Qualified Plan; and
|
|
|
(xiv)
with respect to Title IV Plans, the Form PBGC-1 filed for each of
the three most recent plan years.
|
(d)
Except as set forth in Part 3.13(vi) of the Disclosure Letter:
|
|
(i)
The Acquired Companies have performed all of their respective
obligations under all Company Plans, Company Other Benefit
Obligations, and Company VEBAs. The Acquired Companies have made
appropriate entries in their financial records and statements for
all obligations and liabilities under such Plans, VEBAs, and
Obligations that have accrued but are not due.
|
|
|
(ii)
No statement, either written or oral, has been made by any Acquired
Company to any Person with regard to any Plan or Other Benefit
Obligation that was not in accordance with the Plan or Other
Benefit Obligation and that could have an adverse economic
consequence to any Acquired Company or to Buyer.
|
|
|
(iii)
The Acquired Companies, with respect to all Company Plans, Company
Other Benefits Obligations, and Company VEBAs, are, and each
Company Plan, Company Other Benefit Obligation, and Company VEBA
is, in full compliance with ERISA, the IRC, and other applicable
Laws including the provisions of such Laws
|
expressly mentioned in this Section 3.13,
and with any
applicable collective bargaining agreement.
(A)
No transaction prohibited by ERISA § 406 and no
“prohibited transaction” under IRC § 4975(c) have
occurred with respect to any Company Plan.
(B)
No Seller or Acquired Company has any liability to the IRS with
respect to any Plan, including any liability imposed by Chapter 43
of the IRC.
(C)
No Seller or Acquired Company has any liability to the PBGC with
respect to any Plan or has any liability under ERISA § 502 or
§ 4071.
(D)
All filings required by ERISA and the IRC as to each Plan have been
timely filed, and all notices and disclosures to participants
required by either ERISA or the IRC have been timely provided.
(E)
All contributions and payments made or accrued with respect to all
Company Plans, Company Other Benefit Obligations, and Company VEBAs
are deductible under IRC § 162 or § 404. No amount, or
any asset of any Company Plan or Company VEBA, is subject to tax as
unrelated business taxable income.
|
|
(iv)
Each Company Plan can be terminated within thirty days, without
payment of any additional contribution or amount and without the
vesting or acceleration of any benefits promised by such Plan.
|
|
|
(v)
Since January 1, 2000 there has been no establishment or amendment
of any Company Plan, Company VEBA, or Company Other Benefit
Obligation.
|
|
|
(vi)
No event has occurred or circumstance exists that could result in a
material increase in premium costs of Company Plans and Company
Other Benefit Obligations that are insured, or a material increase
in benefit costs of such Plans and Obligations that are
self-insured.
|
|
|
(vii)
Other than claims for benefits submitted by participants or
beneficiaries, no claim against, or legal proceeding involving, any
Company Plan, Company Other Benefit Obligation, or Company VEBA is
pending or, to Sellers’ Knowledge, is Threatened.
|
|
|
(viii)
No Company Plan is a stock bonus, pension, or profit-sharing plan
within the meaning of IRC § 401(a).
|
|
|
(ix)
Each Qualified Plan of each Acquired Company is qualified in form
and operation under IRC § 401(a); each trust for each such
Plan is exempt from federal income tax under IRC § 501(a).
Each Company VEBA is exempt from federal income tax. No event has
occurred or circumstance exists that will or could give rise to
disqualification or loss of tax-exempt status of any such Plan or
trust.
|
|
|
(x)
Each Acquired Company and each ERISA Affiliate of an Acquired
Company has met the minimum funding standard, and has made all
contributions required, under ERISA § 302 and IRC §
402.
|
|
|
(xi)
No Company Plan is subject to Title IV of ERISA.
|
|
|
(xii)
The Acquired Companies have paid all amounts due to the PBGC
pursuant to ERISA § 4007.
|
|
|
(xiii)
No Acquired Company or any ERISA Affiliate of an Acquired Company
has ceased operations at any facility or has withdrawn from any
Title IV Plan in a manner that would subject to any entity or
Sellers to liability under ERISA § 4062(e), § 4063, or
§ 4064.
|
|
|
(xiv)
No Acquired Company or any ERISA Affiliate of an Acquired Company
has filed a notice of intent to terminate any Plan or has adopted
any amendment to treat a Plan as terminated. The PBGC has not
instituted proceedings to treat any Company Plan as terminated. No
event has occurred or circumstance exists that may constitute
grounds under ERISA § 4042 for the termination of, or the
appointment of a trustee to administer, any Company Plan.
|
|
|
(xv)
No amendment has been made, or is reasonably expected to be made,
to any Plan that has required or could require the provision of
security under ERISA § 307 or IRC § 401(a)(29).
|
|
|
(xvi)
No accumulated funding deficiency, whether or not waived, exists
with respect to any Company Plan; no event has occurred or
circumstance exists that may result in an accumulated funding
deficiency as of the last day of the current plan year of any such
Plan.
|
|
|
(xvii)
The actuarial report for each Pension Plan of each Acquired Company
and each ERISA Affiliate of each Acquired Company fairly presents
the financial condition and the results of operations of each such
Plan in accordance with GAAP.
|
|
|
(xviii)
Since the last valuation date for each Pension Plan of each
Acquired Company and each ERISA Affiliate of an Acquired Company,
no event has occurred or circumstance exists that would increase
the amount of benefits under any such Plan or that would cause the
excess of Plan assets over benefit liabilities (as defined in ERISA
§ 4001) to decrease, or the amount by which benefit
liabilities exceed assets to increase.
|
|
|
(xiv)
No reportable event (as defined in ERISA § 4043 and in
regulations issued thereunder) has occurred.
|
|
|
(xx)
No Seller or Acquired Company has Knowledge of any facts or
circumstances that may give rise to any liability of any Seller,
any Acquired Company, or Buyer to the PBGC under Title IV of
ERISA.
|
|
|
(xxi)
No Acquired Company or any ERISA Affiliate of an Acquired Company
has ever established, maintained, or contributed to or otherwise
participated in, or had an obligation to maintain, contribute to,
or otherwise participate in, any Multi-Employer Plan.
|
|
|
(xxii)
No Acquired Company or any ERISA Affiliate of an Acquired Company
has withdrawn from any Multi-Employer Plan with respect to which
there is any outstanding liability as of the date of this
Agreement. No event has occurred or circumstance exists that
presents a risk of the occurrence of any withdrawal from, or the
participation, termination, reorganization, or insolvency of, any
Multi-Employer Plan that could result in any liability of either
any Acquired Company or Buyer to a Multi-Employer Plan.
|
|
|
(xxiii)
No Acquired Company or any ERISA Affiliate of an Acquired Company
has received notice from any Multi-Employer Plan that it is in
reorganization or is insolvent, that increased contributions may be
required to avoid a reduction in plan benefits or the imposition of
any excise tax, or that such Plan intends to terminate or has
terminated.
|
|
|
(xxiv)
No Multi-Employer Plan to which any Acquired Company or any ERISA
Affiliate of an Acquired Company contributes or has contributed is
a party to any pending merger or asset or liability transfer or is
subject to any proceeding brought by the PBGC.
|
|
|
(xxv)
Except to the extent required under ERISA § 601 et seq. and
IRC § 4980B, no Acquired Company provides health or welfare
benefits for any retired or former employee or is obligated to
provide health or welfare benefits to any active employee following
such employee’s retirement or other termination of
service.
|
|
|
(xxvi)
Each Acquired Company has the right to modify and terminate
benefits to retirees (other than pensions) with respect to both
retired and active employees.
|
|
|
(xxii)
Sellers and all Acquired Companies have complied with the
provisions of ERISA § 601 et seq. and IRC § 4980B.
|
|
|
(xxviii)
No payment that is owed or may become due to any director, officer,
employee, or agent of any Acquired Company will be non-deductible
to the Acquired Companies or subject to tax under IRC § 280G
or § 4999; nor will any Acquired Company be required to
“gross up” or otherwise compensate any such person
because of the imposition of any excise tax on a payment to such
person.
|
|
|
(xxiv)
The consummation of the Contemplated Transactions will not result
in the payment, vesting, or acceleration of any benefit.
|
3.14 Compliance With Legal Requirements; Governmental
Authorizations
(a)
Except as set forth in Part 3.14 of the Disclosure Letter:
|
|
(i)
each Acquired Company is, and at all times since January 1, 2000
has been, in full compliance with each Legal Requirement that is or
was applicable to it or to the conduct or operation of its business
or the ownership or use of any of its assets;
|
|
|
(ii)
no event has occurred or circumstance exists that (with or without
notice or lapse of time) (A) may constitute or result in a
violation by any Acquired Company of, or a failure on the part of
any Acquired Company to comply with, any Legal Requirement, or (B)
may give rise to any obligation on the part of any Acquired Company
to undertake, or to bear all or any portion of the cost of, any
remedial action of any nature; and
|
|
|
(iii)
no Acquired Company has received, at any time since January 1, 2000
any notice or other communication (whether oral or written) from
any Governmental Body or any other Person regarding (A) any actual,
alleged, possible, or potential violation of, or failure to comply
with, any Legal Requirement, or (B) any actual, alleged, possible,
or potential obligation on the part of any Acquired Company to
undertake, or to bear all or any portion of the cost of, any
remedial action of any nature.
|
(b)
Part 3.14 of the Disclosure Letter contains a complete and accurate
list of each Governmental Authorization that is held by any
Acquired Company or that otherwise relates to the business of, or
to any of the assets owned or used by, any Acquired Company. Each
Governmental Authorization listed or required to be listed in Part
3.14 of the Disclosure Letter is valid and in full force and
effect. Except as set forth in Part 3.14 of the Disclosure
Letter:
|
|
(i)
each Acquired Company is, and at all times since January 1, 2000
has been, in full compliance with all of the terms and requirements
of each Governmental Authorization identified or required to be
identified in Part 3.14 of the Disclosure Letter;
|
|
|
(ii)
no event has occurred or circumstance exists that may (with or
without notice or lapse of time) (A) constitute or result directly
or indirectly in a violation of or a failure to comply with any
term or requirement of any Governmental Authorization listed or
required to be listed in Part 3.14 of the Disclosure Letter, or (B)
result directly or indirectly in the revocation, withdrawal,
suspension, cancellation, or termination of, or any modification
to, any Governmental Authorization listed or required to be listed
in Part 3.14 of the Disclosure Letter;
|
|
|
(iii)
no Acquired Company has received, at any time since January 1, 2000
any notice or other communication (whether oral or written) from
any Governmental Body or any other Person regarding (A) any actual,
alleged, possible, or potential violation of or failure to comply
with any term or requirement of any Governmental Authorization, or
(B) any actual, proposed, possible, or potential revocation,
withdrawal, suspension, cancellation, termination of, or
modification to any Governmental Authorization;
|
|
|
(iv)
all applications required to have been filed for the renewal of the
Governmental Authorizations listed or required to be listed in Part
3.14 of the Disclosure Letter have been duly filed on a timely
basis with the appropriate Governmental Bodies, and all other
filings required to have been made with respect to such
Governmental Authorizations have been duly made on a timely basis
with the appropriate Governmental Bodies; and
|
|
|
(v)
except as listed in Part 3.14 the execution of this Agreement and
the consummation of the transaction contemplated hereby will not
result, directly or indirectly. in the revocation, withdrawal,
suspension, cancellation, or termination of, or any modification
to, any Governmental Authorization listed or required to be listed
in Part 3.14 of the Disclosure Letter
|
The Governmental
Authorizations listed in Part 3.14 of the Disclosure Letter
collectively constitute all of the Governmental Authorizations
necessary to permit the Acquired Companies to lawfully conduct and
operate their businesses in the manner they currently conduct and
operate such businesses and to permit the Acquired Companies to own
and use their assets in the manner in which they currently own and
use such assets.
3.15 Legal Proceedings; Orders
(a)
Except as set forth in Part 3.15 of the Disclosure Letter, there is
no pending Proceeding:
|
|
(i)
that has been commenced by or against any Acquired Company or that
otherwise relates to or may affect the business of, or any of the
assets owned or used by, any Acquired Company; or
|
|
|
(ii)
that challenges, or that may have the effect of preventing,
delaying, making illegal, or otherwise interfering with, any of the
Contemplated Transactions.
|
To the Knowledge
of Sellers and the Acquired Companies, (1) no such Proceeding has
been Threatened, and (2) no event has occurred or circumstance
exists that may give rise to or serve as a basis for the
commencement of any such Proceeding. Sellers have delivered to
Buyer copies of all pleadings, correspondence, and other documents
relating to each Proceeding listed in Part 3.15 of the Disclosure
Letter. The Proceedings listed in Part 3.15 of the Disclosure
Letter will not have a material adverse effect on the business,
operations, assets, condition, or prospects of any Acquired
Company.
(b)
Except as set forth in Part 3.15 of the Disclosure Letter:
|
|
(i)
there is no Order to which any of the Acquired Companies, or any of
the assets owned or used by any Acquired Company, is subject;
|
|
|
(ii)
neither Seller is subject to any Order that relates to the business
of, or any of the assets owned or used by, any Acquired Company;
and
|
|
|
(iii)
to the Knowledge of Sellers and the Company no officer, director,
agent, or employee of any Acquired Company is subject to any Order
that prohibits such officer, director, agent, or employee from
engaging in or continuing any conduct, activity, or practice
relating to the business of any Acquired Company.
|
(c)
Except as set forth in Part 3.15 of the Disclosure Letter:
|
|
(i)
each Acquired Company is, and at all times since January 1, 2000
has been, in full compliance with all of the terms and requirements
of each Order to which it, or any of the assets owned or used by
it, is or has been subject;
|
|
|
(ii)
no event has occurred or circumstance exists that may constitute or
result in (with or without notice or lapse of time) a violation of
or failure to comply with any term or requirement of any Order to
which any Acquired Company, or any of the assets owned or used by
any Acquired Company, is subject; and
|
(iii) no Acquired Company has received,
at any time since January 1, 2000 any notice or other communication
(whether oral or written) from any Governmental Body or any other
Person regarding any actual, alleged, possible, or potential
violation of, or failure to comply with, any term or requirement of
any Order to which any Acquired Company, or any of the assets owned
or used by any Acquired Company, is or has been subject.
3.16 Absence Of Certain Changes And
Events
Except as set
forth in Part 3.16 of the Disclosure Letter, since the date of the
Interim Balance Sheet, the Acquired Companies have conducted their
businesses only in the Ordinary Course of Business and there has
not been any:
(a)
change in any Acquired Company’s authorized or issued capital
stock; grant of any stock option or right to purchase shares of
capital stock of any Acquired Company; issuance of any security
convertible into such capital stock; grant of any registration
rights; purchase, redemption, retirement, or other acquisition by
any Acquired Company of any shares of any such capital stock; or
declaration or payment of any dividend or other distribution or
payment in respect of shares of capital stock;
(b)
amendment to the Organizational Documents of any Acquired
Company;
(c)
payment or increase by any Acquired Company of any bonuses,
salaries, or other compensation to any stockholder, director,
officer, or (except in the Ordinary Course of Business) employee or
entry into any employment, severance, or similar Contract with any
director, officer, or employee;
(d)
adoption of, or increase in the payments to or benefits under, any
profit sharing, bonus, deferred compensation, savings, insurance,
pension, retirement, or other employee benefit plan for or with any
employees of any Acquired Company;
(e)
damage to or destruction or loss of any asset or property of any
Acquired Company, whether or not covered by insurance, materially
and adversely affecting the properties, assets, business, financial
condition, or prospects of the Acquired Companies, taken as a
whole;
(f)
entry into, termination of, or receipt of notice of termination of
(i) any license, distributorship, dealer, sales representative,
joint venture, credit, or similar agreement, or (ii) any Contract
or transaction involving a total remaining commitment by or to any
Acquired Company of at least $25,000;
(g)
sale (other than sales of inventory in the Ordinary Course of
Business), lease, or other disposition of any asset or property of
any Acquired Company or mortgage, pledge, or imposition of any lien
or other encumbrance on any material asset or property of any
Acquired Company, including the sale, lease, or other disposition
of any of the Intellectual Property Assets;
(h)
cancellation or waiver of any claims or rights with a value to any
Acquired Company in excess of $10,000;
(i)
material change in the accounting methods used by any Acquired
Company; or
(j)
agreement, whether oral or written, by any Acquired Company to do
any of the foregoing.
3.17 Contracts; No Defaults
(a)
Part 3.17(a) of the Disclosure Letter contains a complete and
accurate list, and Sellers have delivered to Buyer true and
complete copies, of:
|
|
(i)
each Applicable Contract that involves performance of services or
delivery of goods or materials by one or more Acquired Companies of
an amount or value in excess of $25,000;
|
|
|
(ii)
each Applicable Contract that involves performance of services or
delivery of goods or materials to one or more Acquired Companies of
an amount or value in excess of $25,000;
|
|
|
(iii)
each Applicable Contract that was not entered into in the Ordinary
Course of Business and that involves expenditures or receipts of
one or more Acquired Companies in excess of $25,000;
|
|
|
(iv)
each lease, rental or occupancy agreement, license, installment and
conditional sale agreement, and other Applicable Contract affecting
the ownership of, leasing of, title to, use of, or any leasehold or
other interest in, any real or personal property (except personal
property leases and installment and conditional sales agreements
having a value per item or aggregate payments of less than $10,000
and with terms of less than one year);
|
|
|
(v)
each licensing agreement or other Applicable Contract with respect
to patents, trademarks, copyrights, or other intellectual property,
including agreements with current or former employees, consultants,
or contractors regarding the appropriation or the non-disclosure of
any of the Intellectual Property Assets;
|
|
|
(vi)
each collective bargaining agreement and other Applicable Contract
to or with any labor union or other employee representative of a
group of employees;
|
|
|
(vii)
each joint venture, partnership, and other Applicable Contract
(however named) involving a sharing of profits, losses, costs, or
liabilities by any Acquired Company with any other Person;
|
|
|
(viii)
each Applicable Contract containing covenants that in any way
purport to restrict the business activity of any Acquired Company
or any Affiliate of an Acquired Company or limit the freedom of any
Acquired Company or any Affiliate of an Acquired Company to engage
in any line of business or to compete with any Person;
|
|
|
(ix)
each Applicable Contract providing for payments to or by any Person
based on sales, purchases, or profits, other than direct payments
for goods;
|
|
|
(x)
each power of attorney that is currently effective and
outstanding;
|
|
|
(xi)
each Applicable Contract entered into other than in the Ordinary
Course of Business that contains or provides for an express
undertaking by any Acquired Company to be responsible for
consequential damages;
|
(xii)
each Applicable Contract for capital expenditures in excess of
$10,000;
|
|
(xiii)
each written warranty, guaranty, and or other similar undertaking
with respect to contractual performance extended by any Acquired
Company other than in the Ordinary Course of Business; and
|
|
|
(xiv)
each amendment, supplement, and modification (whether oral or
written) in respect of any of the foregoing.
|
Part 3.17(a) of the Disclosure Letter sets forth reasonably
complete details concerning such Contracts, including the parties
to the Contracts, the amount of the remaining commitment of the
Acquired Companies under the Contracts, and the Acquired
Companies’ office where details relating to the Contracts are
located.
(b)
Except as set forth in Part 3.17(b) of the Disclosure Letter:
|
|
(i)
neither Seller (and no Related Person of either Seller) has or may
acquire any rights under, and neither Seller has or may become
subject to any obligation
|
|
|
|
or
|
|
liability under, any Contract that relates to
the business of, or any of the assets owned or used by, any
Acquired Company; and
|
|
|
(ii)
[to the Knowledge of Sellers and the Acquired Companies,] no
officer, director, agent, employee, consultant, or contractor of
any Acquired Company is bound by any Contract that purports to
limit the ability of such officer, director, agent, employee,
consultant, or contractor to (A) engage in or continue any conduct,
activity, or practice relating to the business of any Acquired
Company, or (B) assign to any Acquired Company or to any other
Person any rights to any invention, improvement, or discovery.
|
(c)
Except as set forth in Part 3.17(c) of the Disclosure Letter, each
Contract identified or required to be identified in Part 3.17(a) of
the Disclosure Letter is in full force and effect and is valid and
enforceable in accordance with its terms.
(d)
Except as set forth in Part 3.17(d) of the Disclosure Letter:
|
|
(i)
each Acquired Company is, and at all times since January 1, 2000,
has been, in full compliance with all applicable terms and
requirements of each Contract under which such Acquired Company has
or had any obligation or liability or by which such Acquired
Company or any of the assets owned or used by such Acquired Company
is or was bound;
|
|
|
(ii)
each other Person that has or had any obligation or liability under
any Contract under which an Acquired Company has or had any rights
is, and at all times since January 1, 2000 has been, in full
compliance with all applicable terms and requirements of such
Contract;
|
|
|
(iii)
no event has occurred or circumstance exists that (with or without
notice or lapse of time) may contravene, conflict with, or result
in a violation or breach of, or give any Acquired Company or other
Person the right to declare a default or exercise any remedy under,
or to accelerate the maturity or performance of, or to cancel,
terminate, or modify, any Applicable Contract; and
|
|
|
(iv)
no Acquired Company has given to or received from any other Person,
at any time since December 31, 2005, any notice or other
communication (whether oral or written) regarding any actual,
alleged, possible, or potential violation or breach of, or default
under, any Contract.
|
(e)
There are no renegotiations of, attempts to renegotiate, or
outstanding rights to renegotiate any material amounts paid or
payable to any Acquired Company under current or completed
Contracts with any Person and, to the Knowledge of Sellers and the
Company, , no such Person has made written demand for such
renegotiation.
(f)
The Contracts relating to the sale, design, manufacture, or
provision of products or services by the Acquired Companies have
been entered into in the Ordinary Course of Business and have been
entered into without the commission of any act alone or in concert
with any other
Person, or any consideration having been paid or promised, that
is or would be in violation of any Legal Requirement.
3.18 Insurance
(a)
Sellers have delivered to Buyer:
(i)
true and complete copies of all policies of insurance to which any
Acquired Company is a
|
|
party or under which any Acquired Company, or
any director of any Acquired Company, is or has been covered at any
time within the three (3) years preceding the date of this
Agreement;
|
|
(ii)
|
true and complete copies of all pending applications for policies
of insurance; and
|
|
(iii)
|
any
statement by the auditor of any Acquired Company’s financial
statements with regard to the adequacy of such entity’s
coverage or of the reserves for claims.
|
(b)
Part 3.18(b) of the Disclosure Letter describes:
|
(i)
|
any
self-insurance arrangement by or affecting any Acquired Company,
including any reserves established thereunder;
|
|
(ii)
|
any
contract or arrangement, other than a policy of insurance, for the
transfer or sharing of any risk by any Acquired Company; and
|
|
(iii)
|
all
obligations of the Acquired Companies to third parties with respect
to insurance (including such obligations under leases and service
agreements) and identifies the policy under which such coverage is
provided.
|
(c)
Part 3.18(c) of the Disclosure Letter sets forth, by year, for the
current policy year and each of the three (3) preceding policy
years:
|
(i)
|
a
summary of the loss experience under each policy;
|
|
(ii)
|
a
statement describing each claim under an insurance policy for an
amount in excess of $10,000, which sets forth:
|
|
(A)
|
the
name of the claimant;
|
|
(B)
|
a
description of the policy by insurer, type of insurance, and period
of coverage; and
|
|
(C)
|
the
amount and a brief description of the claim; and
|
|
(iii)
|
a
statement describing the loss experience for all claims that were
self-insured, including the number and aggregate cost of such
claims.
|
(d)
Except as set forth on Part 3.18(d) of the Disclosure Letter:
|
(i)
|
All
policies to which any Acquired Company is a party or that provide
coverage to either the Sellers, any Acquired Company, or any
director or officer of an Acquired Company:
|
|
(A)
|
are
valid, outstanding, and enforceable;
|
|
(B)
|
are
issued by an insurer that is financially sound and reputable;
|
|
(C)
|
taken together, provide adequate insurance coverage for the assets
and the operations of the Acquired Companies for all risks normally
insured against by a Person carrying on the same business or
businesses as the Acquired Companies for all risks to which the
Acquired Companies are normally exposed;
|
|
(D)
|
are
sufficient for compliance with all Legal Requirements and Contracts
to which any Acquired Company is a party or by which any of them is
bound;
|
|
(E)
|
will continue in full force and effect following the consummation
of the Contemplated Transactions; and
|
|
(F)
|
do
not provide for any retrospective premium adjustment or other
experienced-based liability on the part of any Acquired
Company.
|
|
(ii)
|
No
Seller or Acquired Company has received (A) any refusal of coverage
or any notice that a defense will be afforded with reservation of
rights, or (B) any notice of cancellation or any other indication
that any insurance policy is no longer in full force or effect or
will not be renewed or that the issuer of any policy is not willing
or able to perform its obligations thereunder.
|
|
(iii)
|
The
Acquired Companies have paid all premiums due, and have otherwise
performed all of their respective obligations, under each policy to
which any Acquired Company is a party or that provides coverage to
any Acquired Company or director thereof.
|
|
(iv)
|
The
Acquired Companies have given notice to the insurer of all claims
that may be insured thereby.
|
3.19 Environmental Matters
Except as set
forth in Part 3.19 of the disclosure letter:
(a)
Each Acquired Company is, and at all times has been, in full
compliance with, and has not been and is not in violation of or
liable under, any Environmental Law. No Seller or Acquired Company
has any basis to expect, nor has any of them or any other Person
for whose conduct they are or may be held to be responsible
received, any actual or Threatened order, notice, or other
communication from (i) any Governmental Body or private citizen
acting in the public interest, or (ii) the current or prior owner
or operator of any Facilities, of any actual or potential violation
or failure to comply with any Environmental Law, or of any actual
or Threatened obligation to undertake or bear the cost of any
Environmental, Health, and Safety Liabilities with respect to any
of the Facilities or any other properties or assets (whether real,
personal, or mixed) in which Sellers or any Acquired Company has
had an interest, or with respect to any property or Facility at or
to which Hazardous Materials were generated, manufactured, refined,
transferred, imported, used, or processed by Sellers, any Acquired
Company, or any other Person for whose conduct they are or may be
held responsible, or from which Hazardous Materials have been
transported, treated, stored, handled, transferred, disposed,
recycled, or received.
(b)
There are no pending or, to the Knowledge of Sellers and the
Acquired Companies, Threatened claims, Encumbrances, or other
restrictions of any nature, resulting from any Environmental,
Health, and Safety Liabilities or arising under or pursuant to any
Environmental Law, with respect to or affecting any of the
Facilities or any other properties and assets (whether real,
personal, or mixed) in which Sellers or any Acquired Company has or
had an interest.
(c)
No Seller or the Company has Knowledge of any basis to expect, nor
has any of them or any other Person for whose conduct they are or
may be held responsible, received, any citation, directive,
inquiry, notice, Order, summons, warning, or other communication
that relates to Hazardous Activity, Hazardous Materials, or any
alleged, actual, or potential violation or failure to comply with
any Environmental Law, or of any alleged, actual, or potential
obligation to undertake or bear the cost of any Environmental,
Health, and Safety Liabilities with respect to any of the
Facilities or any other properties or assets (whether real,
personal, or mixed) in which Sellers or any Acquired Company had an
interest, or with respect to any property or facility to which
Hazardous Materials generated, manufactured, refined, transferred,
imported, used, or processed by Sellers, any Acquired Company, or
any other Person for whose conduct they are or may be held
responsible, have been transported, treated, stored, handled,
transferred, disposed, recycled, or received.
(d)
No Seller or Acquired Company, or any other Person for whose
conduct they are or may be held responsible, has any Environmental,
Health, and Safety Liabilities with respect to the Facilities or,
to the Knowledge of Sellers and the Acquired Companies, with
respect to any other properties and assets (whether real, personal,
or mixed) in which Sellers or any Acquired Company (or any
predecessor), has or had an interest, or at any property
geologically or hydrologically adjoining the Facilities or any such
other property or assets.
(e)
There are no Hazardous Materials present on or in the Environment
at the Facilities or at any geologically or hydrologically
adjoining property, including any Hazardous Materials contained in
barrels, above or underground storage tanks, landfills, land
deposits, dumps, equipment (whether moveable or fixed) or other
containers, either temporary or permanent, and deposited or located
in land, water, sumps, or any other part of the Facilities
or such adjoining property, or incorporated
into any
structure therein or thereon. None of the Sellers, the Company,
or any other Person for whose conduct they are or may be held
responsible, or to the Knowledge of Sellers and the Company,, any
other Person, has permitted or conducted, or is aware of, any
Hazardous Activity conducted with respect to the Facilities or any
other properties or assets (whether real, personal, or mixed) in
which Sellers or any Acquired Company has or had an interest except
in full compliance with all applicable Environmental Laws.
(f)
There has been no Release or, to the Knowledge of Sellers and the
Company, the Threat of Release, of any Hazardous Materials at or
from the Facilities or at any other locations where any Hazardous
Materials were generated, manufactured, refined, transferred,
produced, imported, used, or processed from or by the Facilities,
or from or by any other properties and assets (whether real,
personal, or mixed) in which Sellers or any Acquired Company has or
had an interest, or [to the Knowledge of Sellers and the Acquired
Companies] any geologically or hydrologically adjoining property,
whether by Sellers, any Acquired Company, or any other Person.
(g)
Sellers have delivered to Buyer true and complete copies and
results of any reports, studies, analyses, tests, or monitoring
possessed or initiated by Sellers or any Acquired Company
pertaining to Hazardous Materials or Hazardous Activities in, on,
or under the Facilities, or concerning compliance by Sellers, any
Acquired Company, or any other Person for whose conduct they are or
may be held responsible, with Environmental Laws.
3.20 Employees
(a)
Part 3.20 of the Disclosure Letter contains a complete and accurate
list of the following information for each employee or director of
the Acquired Companies, including each employee on leave of absence
or layoff status: employer; name; job title; current compensation
paid or payable and any change in compensation since December 31,
2005; vacation accrued; and service credited for purposes of
vesting and eligibility to participate under any Acquired
Company’s pension, retirement, profit-sharing,
thrift-savings, deferred compensation, stock bonus, stock option,
cash bonus, employee stock ownership (including investment credit
or payroll stock ownership), severance pay, insurance, medical,
welfare, or vacation plan, other Employee Pension Benefit Plan or
Employee Welfare Benefit Plan, or any other employee benefit plan
or any Director Plan.
(b)
No employee or director of any Acquired Company is a party to, or
is otherwise bound by, any agreement or arrangement, including any
confidentiality, non-competition, or proprietary rights agreement,
between such employee or director and any other Person
(“Proprietary Rights Agreement”) that in any way
adversely affects or will affect (i) the performance of his duties
as an employee or director of the Acquired Companies, or (ii) the
ability of any Acquired Company to conduct its business, including
any Proprietary Rights Agreement with Sellers or the Acquired
Companies by any such employee or director. To Sellers’
Knowledge, no director, officer, or other key employee of any
Acquired Company intends to terminate his employment with such
Acquired Company.
(c)
Part 3.20 of the Disclosure Letter also contains a complete and
accurate list of the following information for each retired
employee or director of the Acquired Companies, or their
dependents, receiving benefits or scheduled to receive benefits in
the future: name, pension benefit, pension option election, retiree
medical insurance coverage, retiree life insurance coverage, and
other benefits.
3.21 Labor Relations; Compliance
Since December
31, 2005, no Acquired Company has been or is a party to any
collective bargaining or other labor Contract. Since December 31,
2005, there has not been, there is not presently pending or
existing, and to Sellers’ Knowledge there is not Threatened,
(a) any strike, slowdown, picketing, work stoppage, or employee
grievance process, (b) any Proceeding against or affecting any
Acquired Company relating to the alleged violation of any Legal
Requirement pertaining to labor relations or employment matters,
including any charge or complaint filed by an employee or union
with the National Labor Relations Board, the Equal Employment
Opportunity Commission, or any comparable Governmental Body,
organizational activity, or other labor or employment dispute
against or affecting any of the Acquired Companies or their
premises, or (c) any application for certification of a collective
bargaining agent. To Sellers’ Knowledge No event has occurred
or circumstance exists that could provide the basis for any work
stoppage or other labor dispute. There is no lockout of any
employees by any Acquired Company, and no such action is
contemplated by any Acquired Company. Each Acquired Company has
complied in all respects with all Legal Requirements relating to
employment, equal employment opportunity, nondiscrimination,
immigration, wages, hours, benefits, collective bargaining, the
payment of social security and similar taxes, occupational safety
and health, and plant closing. No Acquired Company is liable for
the payment of any compensation, damages, taxes, fines, penalties,
or other amounts, however designated, for failure to comply with
any of the foregoing Legal Requirements.
3.22 Intellectual Property
(a) Intellectual Property Assets The term
"Intellectual Property Assets" includes:
|
(i)
|
the
names Dick Foster Productions, Creative Productions, and, all
fictional business names, trading names, registered and
unregistered trademarks, service marks, and applications
(collectively, “Marks”);
|
|
(ii)
|
all
patents, patent applications, and inventions and discoveries that
may be patentable (collectively, “Patents”);
|
|
(iii)
|
all
copyrights in both published works and unpublished works
(collectively, “Copyrights”);
|
|
(iv)
|
all
rights in mask works (collectively, “Rights in Mask
Works”); and
|
|
(v)
|
all
know-how, trade secrets, confidential information, customer lists,
software, technical information, data, process technology, plans,
drawings, and blue prints (collectively, “Trade
Secrets”); owned, used, or licensed by any Acquired Company
as licensee or licensor.
|
(b) Agreements
Part 3.22(b) of
the Disclosure Letter contains a complete and accurate list and
summary description, including any royalties paid or received by
the Acquired Companies, of all Contracts relating to the
Intellectual Property Assets to which any Acquired Company is a
party or by which any Acquired Company is bound, except for any
license implied by the sale of a product and perpetual, paid-up
licenses for commonly available software programs with a value of
less than $1,000 under which an Acquired Company is the licensee.
There are no outstanding and, to Sellers’ Knowledge, no
Threatened disputes or disagreements with respect to any such
agreement.
(c) Know-How Necessary for the Business
|
(i)
|
The
Intellectual Property Assets are all those necessary for the
operation of the Acquired Companies’ businesses as they are
currently conducted [or as reflected in the business plan given to
Buyer]. One or more of the Acquired Companies is the owner of all
right, title, and interest in and to each of the Intellectual
Property Assets, free and clear of all liens, security interests,
charges, encumbrances, equities, and other adverse claims, and has
the right to use without payment to a third party all of the
Intellectual Property Assets.
|
|
(ii)
|
Except as set forth in Part 3.22(c) of the Disclosure Letter,
all former and current employees of each Acquired Company have
executed written Contracts with one or more of the Acquired
Companies that assign to one or more of the Acquired Companies all
rights to any inventions, improvements, discoveries, or information
relating to the business of any Acquired Company. No employee of
any Acquired Company has entered into any Contract that restricts
or limits in any way the scope or type of work in which the
employee may be engaged or requires the employee to transfer,
assign, or disclose information concerning his work to anyone other
than one or more of the Acquired Companies.
|
(d) Patents
|
(i)
|
Part 3.22(d) of the Disclosure Letter contains a complete and
accurate list and summary description of all Patents. One or more
of the Acquired Companies is the owner of all right, title, and
interest in and to each of the Patents, free and clear of all
liens, security interests, charges, encumbrances, entities, and
other adverse claims.
|
|
(ii)
|
All
of the issued Patents are currently in compliance with formal legal
requirements (including payment of filing, examination, and
maintenance fees and proofs of working or use), are valid and
enforceable, and are not subject to any
|
maintenance fees or taxes or actions falling due within ninety
days after the Closing Date.
|
(iii)
|
No
Patent has been or is now involved in any interference, reissue,
reexamination, or opposition proceeding. To Sellers’
Knowledge, there is no potentially interfering patent or patent
application of any third party.
|
|
(iv)
|
No
Patent is infringed or, to Sellers’ Knowledge, has been
challenged or threatened in any way. None of the products
manufactured and sold, nor any process or know-how used, by any
Acquired Company infringes or is alleged to infringe any patent or
other proprietary right of any other Person.
|
|
(v)
|
All
products made, used, or sold under the Patents have been marked
with the proper patent notice.
|
(e) Trademarks
|
(i)
|
Part 3.22(e) of Disclosure Letter contains a complete and accurate
list and summary description of all Marks. One or more of the
Acquired Companies is the owner of all right, title, and interest
in and to each of the Marks, free and clear of all liens, security
interests, charges, encumbrances, equities, and other adverse
claims.
|
|
(ii)
|
All
Marks that have been registered with the United States Patent and
Trademark Office are currently in compliance with all formal legal
requirements (including the timely post-registration filing of
affidavits of use and incontestability and renewal applications),
are valid and enforceable, and are not subject to any maintenance
fees or taxes or actions falling due within ninety days after the
Closing Date.
|
|
(iii)
|
No
Mark has been or is now involved in any opposition, invalidation,
or cancellation and, to Sellers’ Knowledge, no such action is
Threatened with the respect to any of the Marks.
|
|
(iv)
|
To
Sellers’ Knowledge, there is no potentially interfering
trademark or trademark application of any third party.
|
|
(v)
|
No
Mark is infringed or, to Sellers’ Knowledge, has been
challenged or threatened in any way. None of the Marks used by any
Acquired Company infringes or is alleged to infringe any trade
name, trademark, or service mark of any third party.
|
|
(vi)
|
All
products and materials containing a Mark bear the proper federal
registration notice where permitted by law.
|
(f) Copyrights
|
(i)
|
Part 3.22(f) of the Disclosure Letter contains a complete and
accurate list and summary description of all Copyrights. One or
more of the Acquired
|
Companies is the owner of all right, title,
and interest in and to each of
|
|
the Copyrights, free and clear of all liens,
security interests, charges, encumbrances, equities, and other
adverse claims.
|
|
(ii)
|
All
the Copyrights have been registered and are currently in compliance
with formal legal requirements, are valid and enforceable, and are
not subject to any maintenance fees or taxes or actions falling due
within ninety days after the date of Closing.
|
|
(iii)
|
No
Copyright is infringed or, to Sellers’ Knowledge, has been
challenged or threatened in any way. None of the subject matter of
any of the Copyrights infringes or is alleged to infringe any
copyright of any third party or is a derivative work based on the
work of a third party.
|
|
(iv)
|
All
works encompassed by the Copyrights have been marked with the
proper copyright notice.
|
(g) Trade Secrets
(i) With respect to each Trade Secret,
the documentation relating to such Trade Secret is current,
accurate, and sufficient in detail and content to identify and
explain it and to allow its full and proper use without reliance on
the knowledge or memory of any individual.
(ii) Sellers and the Acquired Companies
have taken all reasonable precautions to protect the secrecy,
confidentiality, and value of their Trade Secrets.
(iii) One or more of the Acquired
Companies has good title and an absolute (but not necessarily
exclusive) right to use the Trade Secrets. The Trade Secrets are
not part of the public knowledge or literature, and, to
Sellers’ Knowledge, have not been used, divulged, or
appropriated either for the benefit of any Person (other than one
or more of the Acquired Companies) or to the detriment of the
Acquired Companies. No Trade Secret is subject to any adverse claim
or has been challenged or threatened in any way.
3.23 Certain Payments
Since January 1,
2000, no Acquired Company or director, officer, agent, or employee
of any Acquired Company, or to Sellers’ Knowledge any other
Person associated with or acting for or on behalf of any Acquired
Company, has directly or indirectly (a) made any contribution,
gift, bribe, rebate, payoff, influence payment, kickback, or other
payment to any Person, private or public, regardless of form,
whether in money, property, or services (i) to obtain favorable
treatment in securing business, (ii) to pay for favorable treatment
for business secured, (iii) to obtain special concessions or for
special concessions already obtained, for or in respect of any
Acquired Company or any Affiliate of an Acquired Company, or (iv)
in violation of any Legal Requirement, (b) established or
maintained any fund or asset that has not been recorded in the
books and records of the Acquired Companies.
3.24 Disclosure
(a)
No representation or warranty of Sellers, the Company or DG, in
this Agreement and no statement in the Disclosure Letter omits to
state a material fact necessary to make the statements herein or
therein, in light of the circumstances in which they were made, not
misleading.
(b)
No notice given pursuant to Section 5.5 will contain any
untrue statement or omit to state a material fact necessary to make
the statements therein or in this Agreement, in light of the
circumstances in which they were made, not misleading.
(c)
There is no fact known to either Seller that has specific
application to either Seller or any Acquired Company (other than
general economic or industry conditions) and that materially
adversely affects or, as far as either Seller can reasonably
foresee, materially threatens, the assets, business, prospects,
financial condition, or results of operations of the Acquired
Companies (on a consolidated basis) that has not been set forth in
this Agreement or the Disclosure Letter.
3.25 Relationships With Related Persons
No Seller or any
Related Person of Sellers, or of any Acquired Company has, or since
December 1, 2004 has had, any interest in any property (whether
real, personal, or mixed and whether tangible or intangible), used
in or pertaining to the Acquired Companies’ businesses. No
Seller or any Related Person of Sellers or of any Acquired Company
is, or since December 1, 2004 has owned (of record or as a
beneficial owner) an equity interest or any other financial or
profit interest in, a Person that has (i) had business dealings or
a material financial interest in any transaction with any Acquired
Company other than business dealings or transactions conducted in
the Ordinary Course of Business with the Acquired Companies at
substantially prevailing market prices and on substantially
prevailing market terms, or (ii) engaged in competition with any
Acquired Company with respect to any line of the products or
services of such Acquired Company (a “Competing
Business”) in any market presently served by such Acquired
Company [except for less than one percent of the outstanding
capital stock of any Competing Business that is publicly traded on
any recognized exchange or in the over-the-counter market]. Except
as set forth in Part 3.25 of the Disclosure Letter, no Seller or
any Related Person of Sellers or of any Acquired Company is a party
to any Contract with, or has any claim or right against, any
Acquired Company.
3.26 Brokers Or Finders
Sellers, the
Company and their agents have incurred no obligation or liability,
contingent or otherwise, for brokerage or finders’ fees or
agents’ commissions or other similar payment in connection
with this Agreement.
4. Representations And Warranties Of
Buyer
Buyer represents
and warrants to Sellers as follows:
4.1 Organization And Good Standing
Buyer is a
corporation duly organized, validly existing, and in good standing
under the laws of the State of New York.
4.2 Authority; No Conflict
(a)
This Agreement constitutes the legal, valid, and binding obligation
of Buyer, enforceable against Buyer in accordance with its terms.
Upon the execution and delivery by Buyer of the Escrow Agreement,
the Employment Agreements, and the Promissory Notes (collectively,
the “Buyer’s Closing Documents”), the
Buyer’s Closing Documents will constitute the legal, valid,
and binding obligations of Buyer, enforceable against Buyer in
accordance with their respective terms. Buyer has the absolute and
unrestricted right, power, and authority to execute and deliver
this Agreement and the Buyer’s Closing Documents and to
perform its obligations under this Agreement and the Buyer’s
Closing Documents.
(b)
Except as set forth in Schedule 4.2, the execution and delivery of
this Agreement by Buyer and the consummation or performance of any
of the Contemplated Transactions by Buyer will not give any Person,
the right to prevent, delay, or otherwise interfere with any of the
Contemplated Transactions pursuant to:
(i)
any provision of Buyer’s Organizational Documents;
(ii)
any resolution adopted by the board of directors or the
stockholders of Buyer;
(iii)
any Legal Requirement or Order to which Buyer may be subject;
or
(iv)
any Contract to which Buyer is a party or by which Buyer may be
bound.
Except as set
forth in Schedule 4.2, Buyer is not and will not be required
to obtain any Consent from any Person in connection with the
execution and delivery of this Agreement or the consummation or
performance of any of the Contemplated Transactions.
4.3 Investment Intent
Buyer is
acquiring the Shares for its own account and not with a view to
their distribution within the meaning of Section 2(11) of the
Securities Act.
4.4 Certain Proceedings
There is no
pending Proceeding that has been commenced against Buyer and that
challenges, or may have the effect of preventing, delaying, making
illegal, or otherwise interfering with, any of the Contemplated
Transactions. To Buyer’s Knowledge, no such Proceeding has
been Threatened.
4.5 Brokers Or Finders
Buyer and its
officers and agents have incurred no obligation or liability,
contingent or otherwise, for brokerage or finders’ fees or
agents’ commissions or other similar payment in connection
with this Agreement and will indemnify and hold Sellers harmless
from any such payment alleged to be due by or through Buyer as a
result of the action of Buyer or its officers or agents.
5. Covenants Of Sellers Prior To Closing
Date
5.1 Access And Investigation
Between the date
of this Agreement and the Closing Date, Sellers will, and will
cause each Acquired Company and its Representatives to, (a) afford
Buyer and its Representatives and prospective lenders and their
Representatives (collectively, “Buyer’s
Advisors”) full and free access to each Acquired
Company’s personnel, properties (including subsurface
testing), contracts, books and records, and other documents and
data, (b) furnish Buyer and Buyer’s Advisors with copies of
all such contracts, books and records, and other existing documents
and data as Buyer may reasonably request, and (c) furnish Buyer and
Buyer’s Advisors with such additional financial, operating,
and other data and information as Buyer may reasonably request.
5.2 Operation Of The Businesses Of The
Acquired Companies
Between the date
of this Agreement and the Closing Date, Sellers will, and will
cause each Acquired Company to:
(a)
conduct the business of such Acquired Company only in the Ordinary
Course of Business;
(b)
use their Best Efforts to preserve intact the current business
organization of such Acquired Company, keep available the services
of the current officers, employees, and agents of such Acquired
Company, and maintain the relations and good will with suppliers,
customers, landlords, creditors, employees, agents, and others
having business relationships with such Acquired Company;
(c)
confer with Buyer concerning operational matters of a material
nature; and
(d)
otherwise report periodically to Buyer concerning the status of the
business, operations, and finances of such Acquired Company.
5.3 Negative Covenant
Except as
otherwise expressly permitted by this Agreement, between the date
of this Agreement and the Closing Date, Sellers will not, and will
cause each Acquired Company not to, without the prior consent of
Buyer, take any affirmative action, or fail to take any reasonable
action within their or its control, as a result of which any of the
changes or events listed in Section 3.16 is likely to occur.
5.4 Required Approvals
As promptly as
practicable after the date of this Agreement, Sellers will, and
will cause each Acquired Company to, make all filings required by
Legal Requirements to be made by them in order to consummate the
Contemplated Transactions. Between the date of this Agreement and
the Closing Date, Sellers will, and will cause each Acquired
Company to, (a) cooperate with Buyer with respect to all filings
that Buyer elects to make or is required by Legal Requirements to
make in connection with the Contemplated Transactions, and (b)
cooperate with Buyer in obtaining all consents identified in
Schedule 4.2.
5.5 Notification
Between the date
of this Agreement and the Closing Date, each Seller will promptly
notify Buyer in writing if such Seller or any Acquired Company
becomes aware of any fact or condition that causes or constitutes a
Breach of any of Sellers’ representations and warranties as
of the date of this Agreement, or if such Seller or any Acquired
Company becomes aware of the occurrence after the date of this
Agreement of any fact or condition that would (except as expressly
contemplated by this Agreement) cause or constitute a Breach of any
such representation or warranty had such representation or warranty
been made as of the time of occurrence or discovery of such fact or
condition. Should any such fact or condition require any change in
the Disclosure Letter if the Disclosure Letter were dated the date
of the occurrence or discovery of any such fact or condition,
Sellers will promptly deliver to Buyer a supplement to the
Disclosure Letter specifying such change. During the same period,
each Seller will promptly notify Buyer of the occurrence of any
Breach of any covenant of Sellers in this Section 5 or of the
occurrence of any event that may make the satisfaction of the
conditions in Section 7 impossible or unlikely.
5.6 Payment Of Indebtedness By Related
Persons
Sellers will
cause all indebtedness owed to an Acquired Company by either Seller
or any Related Person of either Seller to be paid in full prior to
Closing.
5.7 No Negotiation
Until such time,
if any, as this Agreement is terminated pursuant to Section 9,
Sellers will not, and will cause each Acquired Company and each of
their Representatives not to, directly or indirectly solicit,
initiate, or encourage any inquiries or proposals from, discuss or
negotiate with, provide any non-public information to, or consider
the merits of any unsolicited inquiries or proposals from, any
Person (other than Buyer) relating to any transaction involving the
sale of the business or assets (other than in the Ordinary Course
of Business) of any Acquired Company, or any of the capital stock
of any Acquired Company, or any merger, consolidation, business
combination, or similar transaction involving any Acquired
Company.
5.8 Best Efforts
Between the date
of this Agreement and the Closing Date, Sellers will use their Best
Efforts to cause the conditions in Sections 7 and 8 to be
satisfied.
6. Covenants Of Buyer Prior To Closing
Date
6.1 Approvals Of Governmental Bodies
As promptly as
practicable after the date of this Agreement, Buyer will, and will
cause each of its Related Persons to, make all filings required by
Legal Requirements to be made by them to consummate the
Contemplated Transactions (including all filings under the HSR
Act). Between the date of this Agreement and the Closing Date,
Buyer will, and will cause each Related Person to, cooperate with
Sellers with respect to all filings that Sellers are required by
Legal Requirements to make in connection with the Contemplated
Transactions, and (ii) cooperate with Sellers in obtaining all
consents identified in Part 3.2 of the Disclosure Letter; provided
that this Agreement will not require Buyer to dispose of or make
any change in any portion of its business or to incur any other
burden to obtain a Governmental Authorization.
6.2 Best Efforts
&
