Exhibit 2.1
STOCK PURCHASE AND SHAREHOLDERS' AGREEMENT
This Stock Purchase and Shareholders' Agreement ("Agreement") is made as
of February 28, 2007, by and among Sibling Theatricals, Inc., a Delaware
corporation (a wholly owned subsidiary of Sibling Entertainment Group, Inc., a
New York corporation) ("Buyer"), Xxxx Xxxxxx Productions, Inc., a Nevada
corporation (the "Company") and, Xxxx Xxxxxx, an individual resident in Nevada
("DF") and Xxxxx Xxxxxx, 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.
"Closing Payment" - as defined in Section 2.2(a)(ii)
"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.
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"Down Payment" - as defined in Section 2.2(a)(i).
"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. ss. 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
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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.
"Employment Agreements"--as defined in Section 2.4(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.
"First Installment"--as defined in Section 2.2.
"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.
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"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
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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.
"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
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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).
"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;
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(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 Xxxx Xxxxxx Productions, Inc., a California corporation.
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"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) $400,000 paid to date (the "Down Payment");
(ii) $ 1,000,000 (the "Closing Payment") payable on the Closing Date;
(iii) $ 1,200,000 (the "First Installment") payable ninety (90) days from
the Closing Date by payment of the first installment due under the
Promissory Notes;
(iv) $ 2,300,000 payable two hundred seventy (270) days from the Closing
Date by payment of the second installment due under the Promissory
Notes (the "Second Installment"); and
(v) $ 2,300,000 payable one (1) year and two hundred seventy (270) days
from the Closing Date by payment of the third installment due under
the Promissory Notes (the "Third Installment").
The individual payments referenced in paragraphs (iii) through (v) herein, shall
collectively be
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referred to as the "Installment Payments."
2.3 CLOSING
The purchase and sale (the "Closing") provided for in this Agreement will
take place at the offices of the Company, 0000 Xxxxxxxxx Xxx, Xxx Xxxxx, Xxxxxx
00000 at 12:00 p.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 Xxxxx Xxxxxxx, an individual residing at,
0000 Xxxxxxxx Xxxxxx, Xxxxxxxxx, XX 00000, 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) and (LF) hereto, executed by each of the Sellers (collectively,
the "Non-competition Agreements");
(v) an opinion of Xxxx Doechung Xxx, as counsel to Sellers and the
Company, addressed to the Buyer in substantially the form of Exhibit
2.4 (v) hereto; and
(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
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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).
(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 $2,900,000, in the form of Exhibits 2.4(b)
hereto (collectively, the "Promissory Notes"), evidencing the First
Installment, 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; and
(iv) the guaranty of the Company and Sibling Entertainment Group,
Inc. in substantially the form of Exhibit 2.4(b) (iv) (the "Company
Guaranty") hereto duly executed by the Company;
2.5 CONTROL OVER DISTRIBUTION OF PROFITS
(a) After Closing, until such time as 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 profits and
cash flows 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
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Second Installment shall have been paid.
(b) After the Second Installment has been fully paid, 54.44% of
all remaining after-tax profits and cash flows shall be
distributed to Buyer.
(c) After the Third Installment has been fully paid, retained
profits and cash flow shall be distributed to Buyer, DF and LF
in accordance with their respective interests.
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 Agreement, 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):
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(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
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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
non-assessable. 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 balance sheets of the
Acquired Companies for the periods ending November 30, 2004, November 30, 2005,
and November 30, 2006 and the related unaudited statements of income, changes in
stockholders' equity, and cash flow for each of the fiscal years then ended
("Balance Sheet"), and (b) an unaudited 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
14
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.
15
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
16
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 not been audited by the IRS. 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.
17
(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
ss. 414.
"Multi-Employer Plan" has the meaning given in ERISA ss. 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
18
of IRC ss. 132.
"PBGC" means the Pension Benefit Guaranty Corporation, or any successor thereto.
"Pension Plan" has the meaning given in ERISA ss. 3(2)(A).
"Plan" has the meaning given in ERISA ss. 3(3).
"Plan Sponsor" has the meaning given in ERISA ss. 3(16)(B).
"Qualified Plan" means any Plan that meets or purports to meet the requirements
of IRC ss. 401(a).
"Title IV Plans" means all Pension Plans that are subject to Title IV of ERISA,
29 U.S.C. ss. 1301 et seq., other than Multi-Employer Plans.
"VEBA" means a voluntary employees' beneficiary association under IRC ss.
501(c)(9).
has the meaning given in ERISA ss. 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 ss. 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
19
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 ss. 601 et seq. and IRC ss. 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
20
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 ss. 406 and no "prohibited
transaction" under IRC ss. 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
21
Plan or has any liability under ERISA ss. 502 or ss. 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 ss. 162 or ss. 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 ss. 401(a).
(ix) Each Qualified Plan of each Acquired Company is qualified
in form and operation under IRC ss. 401(a); each trust for each such Plan
is exempt from federal income tax under IRC ss. 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 ss. 302 and IRC ss. 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 ss. 4007.
22
(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 ss. 4062(e), ss. 4063, or ss. 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 ss. 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 ss. 307 or IRC ss. 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 ss. 4001) to
decrease, or the amount by which benefit liabilities exceed assets to
increase.
(xiv) No reportable event (as defined in ERISA ss. 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.
23
(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 ss. 601 et
seq. and IRC ss. 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 ss. 601 et seq. and IRC ss. 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 ss.
280G or ss. 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
24
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
25
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
26
(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;
27
(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
28
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:
29
(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.
30
(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
31
(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
32
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
33
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
34
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 Xxxx Xxxxxx Productions, Creative Productions,
and, all fictional business names, trading names, registered and
unregistered trademarks, service marks, and applications (collectively,
"Marks");
35
(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.
36
(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 Xxxx 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.
37
(v) No Xxxx 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 xxxx of any third party.
(vi) All products and materials containing a Xxxx xxxx 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.
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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
39
[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 Delaware.
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
40
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:
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(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
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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 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. 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
Except as set forth in the proviso to Section 6.1, between the date of
this Agreement and the Closing Date, Buyer will use its Best Efforts to cause
the conditions in Sections 7 and 8 to be satisfied.
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7. CONDITIONS PRECEDENT TO BUYER'S OBLIGATION TO CLOSE
Buyer's obligation to purchase the Shares and to take the other actions required
to be taken by Buyer at the Closing is subject to the satisfaction, at or prior
to the Closing, of each of the following conditions (any of which may be waived
by Buyer, in whole or in part):
7.1 ACCURACY OF REPRESENTATIONS
All of Sellers' and the Company's representations and warranties in this
Agreement (considered collectively), and each of these representations and
warranties (considered individually), must have been accurate in all material
respects as of the date of this Agreement, and must be accurate in all material
respects as of the Closing Date as if made on the Closing Date, without giving
effect to any supplement to the Disclosure Letter.
7.2 SELLERS' PERFORMANCE
(a) All of the covenants and obligations that Sellers and the Company are
required to perform or to comply with pursuant to this Agreement at or prior to
the Closing (considered collectively), and each of these covenants and
obligations (considered individually), must have been duly performed and
complied with in all material respects.
(b) Each document required to be delivered pursuant to Section 2.4 must
have been delivered, and each of the other covenants and obligations in Sections
5.4 and 5.8 must have been performed and complied with in all respects.
7.3 CONSENTS
Each of the Consents identified in Part 3.2 of the Disclosure Letter, and
each Consent identified in Schedule 4.2, must have been obtained and must be in
full force and effect.
7.4 ADDITIONAL DOCUMENTS
Each of the following documents must have been delivered to Buyer:
(a) any estoppel certificates executed dated as of a date not more than
two (2) days prior to the Closing Date, each in the form of Exhibit 7.4(b)
hereto; and
(b) such other documents as Buyer may reasonably request for the purpose
of (i) evidencing the accuracy of any of Sellers' representations and
warranties, (ii) evidencing the performance by either Seller of, or the
compliance by either Seller with, any covenant or obligation required to be
performed or complied with by such Seller, (iii) evidencing the satisfaction of
any condition referred to in this Section 7, or (iv) otherwise facilitating the
consummation or performance of any of the Contemplated Transactions.
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7.5 NO PROCEEDINGS
Since the date of this Agreement, there must not have been commenced or
Threatened against Buyer, or against any Person affiliated with Buyer, any
Proceeding (a) involving any challenge to, or seeking damages or other relief in
connection with, any of the Contemplated Transactions, or (b) that may have the
effect of preventing, delaying, making illegal, or otherwise interfering with
any of the Contemplated Transactions.
7.6 NO CLAIM REGARDING STOCK OWNERSHIP OR SALE PROCEEDS
There must not have been made or Threatened by any Person any claim
asserting that such Person (a) is the holder or the beneficial owner of, or has
any rights to acquire or to obtain beneficial ownership of, any stock of, or any
other voting, equity, or ownership interest in, any of the Acquired Companies,
or (b) is entitled to all or any portion of the Purchase Price payable for the
Shares.
7.7 NO PROHIBITION
Neither the consummation nor the performance of any of the Contemplated
Transactions will, directly or indirectly (with or without notice or lapse of
time), materially contravene, or conflict with, or result in a material
violation of, or cause Buyer or any Person affiliated with Buyer to suffer any
material adverse consequence under, (a) any applicable Legal Requirement or
Order, or (b) any Legal Requirement or Order that has been published,
introduced, or otherwise proposed by or before any Governmental Body.
8. CONDITIONS PRECEDENT TO SELLERS' OBLIGATION TO CLOSE
Sellers' obligation to sell the Shares and to take the other actions
required to be taken by Sellers at the Closing is subject to the satisfaction,
at or prior to the Closing, of each of the following conditions (any of which
may be waived by Sellers, in whole or in part):
8.1 ACCURACY OF REPRESENTATIONS
All of Buyer's representations and warranties in this Agreement
(considered collectively), and each of these representations and warranties
(considered individually), must have been accurate in all material respects as
of the date of this Agreement and must be accurate in all material respects as
of the Closing Date as if made on the Closing Date.
8.2 BUYER'S PERFORMANCE
(a) All of the covenants and obligations that Buyer is required to perform
or to comply with pursuant to this Agreement at or prior to the Closing
(considered collectively), and each of these covenants and obligations
(considered individually), must have been performed and
45
complied with in all material respects.
(b) Buyer must have delivered each of the documents required to be
delivered by Buyer pursuant to Section 2.4 and must have made the cash payments
required to be made by Buyer pursuant to Section 2.4(b)(i), and delivered the
Promissory Notes pursuant to Section 2.4(b)(ii).
8.3 CONSENTS
Each of the Consents identified in Schedule 4.2 must have been obtained
and delivered; and, such Consents must be in full force and effect on the
Closing Date.
8.4 ADDITIONAL DOCUMENTS
Buyer must have caused the following documents to be delivered to Sellers
such other documents as Sellers may reasonably request for the purpose of (i)
enabling their counsel to provide the opinion referred to in Section 2.4(a)(v),
(ii) evidencing the accuracy of any representation or warranty of Buyer, (iii)
evidencing the performance by Buyer of, or the compliance by Buyer with, any
covenant or obligation required to be performed or complied with by Buyer, (ii)
evidencing the satisfaction of any condition referred to in this Section 8, or
(v) otherwise facilitating the consummation of any of the Contemplated
Transactions.
8.5 NO INJUNCTION
There must not be in effect any Legal Requirement or any injunction or
other Order that (a) prohibits the sale of the Shares by Sellers to Buyer, and
(b) has been adopted or issued, or has otherwise become effective, since the
date of this Agreement.
9. TERMINATION
9.1 TERMINATION EVENTS
This Agreement may, by notice given prior to or at the Closing, be terminated:
(a) by either Buyer or Sellers if a material Breach of any provision of
this Agreement has been committed by the other party and such Breach has not
been waived;
(b) (i) by Buyer if any of the conditions in Section 7 has not been
satisfied as of the Closing Date or if satisfaction of such a condition is or
becomes impossible (other than through the failure of Buyer to comply with its
obligations under this Agreement) and Buyer has not waived such condition on or
before the Closing Date; or (ii) by Sellers, if any of the conditions in Section
8 has not been satisfied of the Closing Date or if satisfaction of such a
condition is or becomes impossible (other than through the failure of Sellers to
comply with their obligations under this Agreement) and Sellers have not waived
such condition on or before the Closing Date;
(c) by mutual consent of Buyer and Sellers; or
46
(d) by either Buyer or Sellers if the Closing has not occurred (other than
through the failure of any party seeking to terminate this Agreement to comply
fully with its obligations under this Agreement) on or before March 31, 2007, or
such later date as permitted hereunder.
9.2 EFFECT OF TERMINATION
Each party's right of termination under Section 9.1 is in addition to any
other rights it may have under this Agreement or otherwise, and the exercise of
a right of termination will not be an election of remedies. If this Agreement is
terminated pursuant to Section 9.1, all further obligations of the parties under
this Agreement will terminate, except that the obligations in Sections 11.1 and
11.3 will survive; provided, however, that if this Agreement is terminated by a
party because of the Breach of the Agreement by the other party or because one
or more of the conditions to the terminating party's obligations under this
Agreement is not satisfied as a result of the other party's failure to comply
with its obligations under this Agreement, the terminating party's right to
pursue all legal remedies will survive such termination unimpaired.
10. INDEMNIFICATION; REMEDIES
10.1 SURVIVAL; RIGHT TO INDEMNIFICATION NOT AFFECTED BY KNOWLEDGE
All representations, warranties, covenants, and obligations in this
Agreement, the Disclosure Letter, the supplements to the Disclosure Letter, the
certificate delivered pursuant to Section 2.4(a)(vi), and any other certificate
or document delivered pursuant to this Agreement will survive the Closing. The
right to indemnification, payment of Damages or other remedy based on such
representations, warranties, covenants, and obligations will not be affected by
any investigation conducted with respect to, or any Knowledge acquired (or
capable of being acquired) at any time, whether before or after the execution
and delivery of this Agreement or the Closing Date, with respect to the accuracy
or inaccuracy of or compliance with, any such representation, warranty,
covenant, or obligation. The waiver of any condition based on the accuracy of
any representation or warranty, or on the performance of or compliance with any
covenant or obligation, will not affect the right to indemnification, payment of
Damages, or other remedy based on such representations, warranties, covenants,
and obligations.
10.2 INDEMNIFICATION AND PAYMENT OF DAMAGES BY SELLERS
Sellers, jointly and severally, will indemnify and hold harmless Buyer,
the Acquired Companies, and their respective Representatives, stockholders,
controlling persons, and affiliates (collectively, the "Indemnified Persons")
for, and will pay to the Indemnified Persons the amount of, any loss, liability,
claim, damage (including incidental and consequential damages), expense
(including costs of investigation and defense and reasonable attorneys' fees) or
diminution of value, whether or not involving a third-party claim (collectively,
"Damages"), arising, directly or indirectly, from or in connection with:
(a) any Breach of any representation or warranty made by Sellers in this
Agreement
47
(without giving effect to any supplement to the Disclosure Letter), the
Disclosure Letter, the supplements to the Disclosure Letter, or any other
certificate or document delivered by Sellers pursuant to this Agreement;
(b) any Breach of any representation or warranty made by Sellers in this
Agreement as if such representation or warranty were made on and as of the
Closing Date without giving effect to any supplement to the Disclosure Letter,
other than any such Breach that is disclosed in a supplement to the Disclosure
Letter and is expressly identified in the certificate delivered pursuant to
Section 2.4(a)(vi) as having caused the condition specified in Section 7.1 not
to be satisfied;
(c) any Breach by either Seller of any covenant or obligation of such
Seller in this Agreement;
(d) any product shipped or manufactured by, or any services provided by,
any Acquired Company prior to the Closing Date;
(e) any claim by any Person for brokerage or finder's fees or commissions
or similar payments based upon any agreement or understanding alleged to have
been made by any such Person with either Seller or any Acquired Company (or any
Person acting on their behalf) in connection with any of the Contemplated
Transactions.
The remedies provided in this Section 10.2 will not be exclusive of or
limit any other remedies that may be available to Buyer or the other Indemnified
Persons.
10.3 INDEMNIFICATION AND PAYMENT OF DAMAGES BY SELLERS--ENVIRONMENTAL MATTERS
In addition to the provisions of Section 10.2, Sellers, jointly and
severally, will indemnify and hold harmless Buyer, the Acquired Companies, and
the other Indemnified Persons for, and will pay to Buyer, the Acquired
Companies, and the other Indemnified Persons the amount of, any Damages
(including costs of cleanup, containment, or other remediation) arising,
directly or indirectly, from or in connection with:
(a) any Environmental, Health, and Safety Liabilities arising out of or
relating to: (i) (A) the ownership, operation, or condition at any time on or
prior to the Closing Date of the Facilities or any other properties and assets
(whether real, personal, or mixed and whether tangible or intangible) in which
Sellers or any Acquired Company has or had an interest, or (B) any Hazardous
Materials or other contaminants that were present on the Facilities or such
other properties and assets at any time on or prior to the Closing Date; or (ii)
(A) any Hazardous Materials or other contaminants, wherever located, that were,
or were allegedly, generated, transported, stored, treated, Released, or
otherwise handled by Sellers or any Acquired Company or by any other Person for
whose conduct they are or may be held responsible at any time on or prior to the
Closing Date, or (B) any Hazardous Activities that were, or were allegedly,
conducted by Sellers or any Acquired Company or by any other Person for whose
conduct they
48
are or may be held responsible; or
(b) any bodily injury (including illness, disability, and death, and
regardless of when any such bodily injury occurred, was incurred, or manifested
itself), personal injury, property damage (including trespass, nuisance,
wrongful eviction, and deprivation of the use of real property), or other damage
of or to any Person, including any employee or former employee of Sellers or any
Acquired Company or any other Person for whose conduct they are or may be held
responsible, in any way arising from or allegedly arising from any Hazardous
Activity conducted or allegedly conducted with respect to the Facilities or the
operation of the Acquired Companies prior to the Closing Date, or from Hazardous
Material that was (i) present or suspected to be present on or before the
Closing Date on or at the Facilities (or present or suspected to be present on
any other property, if such Hazardous Material emanated or allegedly emanated
from any of the Facilities and was present or suspected to be present on any of
the Facilities on or prior to the Closing Date) or (ii) Released or allegedly
Released by Sellers or any Acquired Company or any other Person for whose
conduct they are or may be held responsible, at any time on or prior to the
Closing Date.
Buyer will be entitled to control any Cleanup, any related Proceeding,
and, except as provided in the following sentence, any other Proceeding with
respect to which indemnity may be sought under this Section 10.3. The procedure
described in Section 10.9 will apply to any claim solely for monetary damages
relating to a matter covered by this Section 10.3.
10.4 INDEMNIFICATION AND PAYMENT OF DAMAGES BY BUYER
Buyer will indemnify and hold harmless Sellers, and will pay to Sellers
the amount of any Damages arising, directly or indirectly, from or in connection
with (a) any Breach of any representation or warranty made by Buyer in this
Agreement or in any certificate delivered by Buyer pursuant to this Agreement,
(b) any Breach by Buyer of any covenant or obligation of Buyer in this
Agreement, or (c) any claim by any Person for brokerage or finder's fees or
commissions or similar payments based upon any agreement or understanding
alleged to have been made by such Person with Buyer (or any Person acting on its
behalf) in connection with any of the Contemplated Transactions.
10.5 TIME LIMITATIONS
If the Closing occurs, Sellers will have no liability (for indemnification
or otherwise) with respect to any representation or warranty, or covenant or
obligation to be performed and complied with prior to the Closing Date, other
than those in Sections 3.3, 3.11, 3.13, and 3.19, unless on or before the two
year anniversary of the Closing Date, Buyer notifies Sellers of a claim
specifying the factual basis of that claim in reasonable detail to the extent
then known by Buyer; a claim with respect to Sections 3.3, 3.11, 3.13, or 3.19,
or a claim for indemnification or reimbursement not based upon any
representation or warranty or any covenant or obligation to be performed and
complied with prior to the Closing Date, may be made at any time. If the Closing
occurs, Buyer will have no liability (for indemnification or otherwise) with
respect to any representation or warranty, or covenant or obligation to be
performed and complied with prior to
49
the Closing Date, unless on or before the two year anniversary of the Closing
Date, Sellers notify Buyer of a claim specifying the factual basis of that claim
in reasonable detail to the extent then known by Sellers.
10.6 LIMITATIONS ON AMOUNT--SELLERS
Sellers will have no liability (for indemnification or otherwise) with
respect to the matters described in clause (a), clause (b) or, to the extent
relating to any failure to perform or comply prior to the Closing Date, clause
(c) of Section 10.2 until the total of all Damages with respect to such matters
exceeds $10,000, and then only for the amount by which such Damages exceed
$10,000. Sellers will have no liability (for indemnification or otherwise) with
respect to the matters described in clause (d) of Section 10.2 until the total
of all Damages with respect to such matters exceeds $10,000, and then only for
the amount by which such Damages exceed $10,000. However, this Section 10.6 will
not apply to any Breach of any of Sellers' representations and warranties of
which either Seller had Knowledge at any time prior to the date on which such
representation and warranty is made or any intentional Breach by either Seller
of any covenant or obligation, and Sellers will be jointly and severally liable
for all Damages with respect to such Breaches.
10.7 LIMITATIONS ON AMOUNT--BUYER
Buyer will have no liability (for indemnification or otherwise) with
respect to the matters described in clause (a) or (b) of Section 10.4 until the
total of all Damages with respect to such matters exceeds $10,000, and then only
for the amount by which such Damages exceed $10,000. However, this Section 10.7
will not apply to any Breach of any of Buyer's representations and warranties of
which Buyer had Knowledge at any time prior to the date on which such
representation and warranty is made or any intentional Breach by Buyer of any
covenant or obligation, and Buyer will be liable for all Damages with respect to
such Breaches.
10.8 RIGHT OF SET-OFF
Upon notice to Sellers specifying in reasonable detail the basis for such
set-off, Buyer may set off any amount to which it may be entitled under this
Section 10 against amounts otherwise payable under the Promissory Notes. The
exercise of such right of set-off by Buyer in good faith, whether or not
ultimately determined to be justified, will not constitute an event of default
under the Promissory Notes or any instrument securing a Promissory Note. Neither
the exercise of nor the failure to exercise such right of set-off will
constitute an election of remedies or limit Buyer in any manner in the
enforcement of any other remedies that may be available to it.
10.9 PROCEDURE FOR INDEMNIFICATION--THIRD PARTY CLAIMS
(a) Promptly after receipt by an indemnified party under Section 10.2,
10.4, or (to the extent provided in the last sentence of Section 10.3) Section
10.3 of notice of the commencement of any Proceeding against it, such
indemnified party will, if a claim is to be made against an indemnifying party
under such Section, give notice to the indemnifying party of the
50
commencement of such claim, but the failure to notify the indemnifying party
will not relieve the indemnifying party of any liability that it may have to any
indemnified party, except to the extent that the indemnifying party demonstrates
that the defense of such action is prejudiced by the indemnifying party's
failure to give such notice.
(b) If any Proceeding referred to in Section 10.9(a) is brought against an
indemnified party and it gives notice to the indemnifying party of the
commencement of such Proceeding, the indemnifying party will, unless the claim
involves Taxes, be entitled to participate in such Proceeding and, to the extent
that it wishes (unless (i) the indemnifying party is also a party to such
Proceeding and the indemnified party determines in good faith that joint
representation would be inappropriate, or (ii) the indemnifying party fails to
provide reasonable assurance to the indemnified party of its financial capacity
to defend such Proceeding and provide indemnification with respect to such
Proceeding), to assume the defense of such Proceeding with counsel satisfactory
to the indemnified party and, after notice from the indemnifying party to the
indemnified party of its election to assume the defense of such Proceeding, the
indemnifying party will not, as long as it diligently conducts such defense, be
liable to the indemnified party under this Section 10 for any fees of other
counsel or any other expenses with respect to the defense of such Proceeding, in
each case subsequently incurred by the indemnified party in connection with the
defense of such Proceeding, other than reasonable costs of investigation. If the
indemnifying party assumes the defense of a Proceeding, (i) it will be
conclusively established for purposes of this Agreement that the claims made in
that Proceeding are within the scope of and subject to indemnification; (ii) no
compromise or settlement of such claims may be effected by the indemnifying
party without the indemnified party's consent unless (A) there is no finding or
admission of any violation of Legal Requirements or any violation of the rights
of any Person and no effect on any other claims that may be made against the
indemnified party, and (B) the sole relief provided is monetary damages that are
paid in full by the indemnifying party; and (iii) the indemnified party will
have no liability with respect to any compromise or settlement of such claims
effected without its consent. If notice is given to an indemnifying party of the
commencement of any Proceeding and the indemnifying party does not, within ten
days after the indemnified party's notice is given, give notice to the
indemnified party of its election to assume the defense of such Proceeding, the
indemnifying party will be bound by any determination made in such Proceeding or
any compromise or settlement effected by the indemnified party.
(c) Notwithstanding the foregoing, if an indemnified party determines in
good faith that there is a reasonable probability that a Proceeding may
adversely affect it or its affiliates other than as a result of monetary damages
for which it would be entitled to indemnification under this Agreement, the
indemnified party may, by notice to the indemnifying party, assume the exclusive
right to defend, compromise, or settle such Proceeding, but the indemnifying
party will not be bound by any determination of a Proceeding so defended or any
compromise or settlement effected without its consent (which may not be
unreasonably withheld).
(d) Sellers hereby consent to the non-exclusive jurisdiction of any court
in which a Proceeding is brought against any Indemnified Person for purposes of
any claim that an Indemnified Person may have under this Agreement with respect
to such Proceeding or the matters alleged therein, and agree that process may be
served on Sellers with respect to such a
51
claim anywhere in the world.
10.10 PROCEDURE FOR INDEMNIFICATION--OTHER CLAIMS
A claim for indemnification for any matter not involving a third-party
claim may be asserted by notice to the party from whom indemnification is
sought.
11. GENERAL PROVISIONS
11.1 EXPENSES
Except as otherwise expressly provided in this Agreement, each party to
this Agreement will bear its respective expenses incurred in connection with the
preparation, execution, and performance of this Agreement and the Contemplated
Transactions, including all fees and expenses of agents, representatives,
counsel, and accountants. In the event of termination of this Agreement, the
obligation of each party to pay its own expenses will be subject to any rights
of such party arising from a breach of this Agreement by another party.
11.2 PUBLIC ANNOUNCEMENTS
Any public announcement or similar publicity with respect to this Agreement or
the Contemplated Transactions will be issued, if at all, at such time and in
such manner as Buyer determines. Unless consented to by Buyer in advance or
required by Legal Requirements, prior to the Closing Sellers shall, and shall
cause the Acquired Companies to, keep this Agreement strictly confidential and
may not make any disclosure of this Agreement to any Person. Sellers and Buyer
will consult with each other concerning the means by which the Acquired
Companies' employees, customers, and suppliers and others having dealings with
the Acquired Companies will be informed of the Contemplated Transactions, and
Buyer will have the right to be present for any such communication.
11.3 CONFIDENTIALITY
Between the date of this Agreement and the Closing Date, Buyer and Sellers
will maintain in confidence, and will cause the directors, officers, employees,
agents, and advisors of Buyer and the Acquired Companies to maintain in
confidence, any written, oral, or other information obtained in confidence from
written information stamped "confidential" when originally furnished by another
party or an Acquired Company in connection with this Agreement or the
Contemplated Transactions, unless (a) such information is already known to such
party or to others not bound by a duty of confidentiality or such information
becomes publicly available through no fault of such party, (b) the use of such
information is necessary or appropriate in making any filing or obtaining any
consent or approval required for the consummation of the Contemplated
Transactions, or (c) the furnishing or use of such information is required by
[or necessary or appropriate in connection with] legal proceedings.
If the Contemplated Transactions are not consummated, each party will
return or
52
destroy as much of such written information as the other party may reasonably
request. Whether or not the Closing takes place, Sellers waive, and will upon
Buyer's request cause the Acquired Companies to waive, any cause of action,
right, or claim arising out of the access of Buyer or its representatives to any
trade secrets or other confidential information of the Acquired Companies except
for the intentional competitive misuse by Buyer of such trade secrets or
confidential information.
11.4 NOTICES
All notices, consents, waivers, and other communications under this
Agreement must be in writing and will be deemed to have been duly given when (a)
delivered by hand (with written confirmation of receipt), (b) sent by facsimile
(with written confirmation of receipt), provided that a copy is mailed by
registered mail, return receipt requested, or (c) when received by the
addressee, if sent by a nationally recognized overnight delivery service
(receipt requested), in each case to the appropriate addresses and facsimile
numbers set forth below (or to such other addresses, facsimile numbers and email
address as a party may designate by notice to the other parties):
If to either of the Sellers:
Dick or Xxxxx Xxxxxx
0000 Xxxxxxxxx Xxx
Xxx Xxxxx, Xxxxxx 00000
Fax No.: (000) 000-0000
E-mail: xxxxxxx@xxxxxxx.xxx
With a copy to: Xxxx Doechung Xxx, Esq.
0000 Xxxxxx Xxxx, Xxxxx 000
Xxx Xxxxx, Xxxxxx 00000
Fax No.: (000) 000-0000
E-mail: xxxx@xxxxxxxxxx.xxx
If to the Buyer: Sibling Theatricals, Inc.
000 Xxxx 00xx Xxxxxx, Xxxxx 000
Xxx Xxxx, Xxx Xxxx 00000
Attention: Xxxxxxxx Xxxxxxx, President and CEO
Facsimile: (000) 000-0000
Email:xxx@XxxxxxxXxxxxxxxxxxxx.xxx; xxxxxxxxxx@xxxxx.xxx
With a copy to: Xxxxxx & Jaclin, LLP
000 Xxxxx Xxxxx, Xxxxx 000
Xxxxxxxxx Xxx Xxxxxx 00000
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Attention: Xxxxxxx X. Xxxxxx, Esq.
Facsimile: (000) 000-0000
Email: xxxxxxx@xxxxxxxxx.xxx
If to the Company: Xxxx Xxxxxx Productions, Inc.
0000 Xxxxxxxxx Xxx
Xxx Xxxxx, Xxxxxx 00000
Fax No.: (000) 000-0000
With copies to the Buyer and the Sellers.
11.5 FURTHER ASSURANCES
The parties agree (a) to furnish upon request to each other such further
information, (b) to execute and deliver to each other such other documents, and
(c) to do such other acts and things, all as the other party may reasonably
request for the purpose of carrying out the intent of this Agreement and the
documents referred to in this Agreement.
11.6 WAIVER
The rights and remedies of the parties to this Agreement are cumulative
and not alternative. Neither the failure nor any delay by any party in
exercising any right, power, or privilege under this Agreement or the documents
referred to in this Agreement will operate as a waiver of such right, power, or
privilege, and no single or partial exercise of any such right, power, or
privilege will preclude any other or further exercise of such right, power, or
privilege or the exercise of any other right, power, or privilege. To the
maximum extent permitted by applicable law, (a) no claim or right arising out of
this Agreement or the documents referred to in this Agreement can be discharged
by one party, in whole or in part, by a waiver or renunciation of the claim or
right unless in writing signed by the other party; (b) no waiver that may be
given by a party will be applicable except in the specific instance for which it
is given; and (c) no notice to or demand on one party will be deemed to be a
waiver of any obligation of such party or of the right of the party giving such
notice or demand to take further action without notice or demand as provided in
this Agreement or the documents referred to in this Agreement.
11.7 ENTIRE AGREEMENT AND MODIFICATION
This Agreement supersedes all prior agreements between the parties with
respect to its subject matter and constitutes (along with the documents referred
to in this Agreement) a complete and exclusive statement of the terms of the
agreement between the parties with respect to its subject matter. This Agreement
may not be amended except by a written agreement executed by the party to be
charged with the amendment.
11.8 DISCLOSURE LETTER
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(a) The disclosures in the Disclosure Letter, and those in any Supplement
thereto, must relate only to the representations and warranties in the Section
of the Agreement to which they expressly relate and not to any other
representation or warranty in this Agreement.
(b) In the event of any inconsistency between the statements in the body
of this Agreement and those in the Disclosure Letter (other than an exception
expressly set forth as such in the Disclosure Letter with respect to a
specifically identified representation or warranty), the statements in the body
of this Agreement will control.
11.9 ASSIGNMENTS, SUCCESSORS, AND NO THIRD-PARTY RIGHTS
No party may assign any of its, his or her rights under this Agreement
without the prior consent of the other parties except that Buyer may assign any
of its rights under this Agreement to any Subsidiary of Buyer. Subject to the
preceding sentence, this Agreement will apply to, be binding in all respects
upon, and inure to the benefit of the successors and permitted assigns of the
parties. Nothing expressed or referred to in this Agreement will be construed to
give any Person other than the parties to this Agreement any legal or equitable
right, remedy, or claim under or with respect to this Agreement or any provision
of this Agreement. This Agreement and all of its provisions and conditions are
for the sole and exclusive benefit of the parties to this Agreement and their
successors and assigns.
11.10 SEVERABILITY
If any provision of this Agreement is held invalid or unenforceable by any
court of competent jurisdiction, the other provisions of this Agreement will
remain in full force and effect. Any provision of this Agreement held invalid or
unenforceable only in part or degree will remain in full force and effect to the
extent not held invalid or unenforceable.
11.11 CONSTRUCTION
This Agreement shall be construed in accordance with the following rules
of construction:
(a) Calculation of Time Period. When calculating the period of time before
which, within which or following which any act is to be done or step taken
pursuant to this Agreement, the date that is the reference date in calculating
such period shall be excluded. If the last day of such period is a non-Business
Day, the period in question shall end on the next succeeding Business Day.
(b) Gender and Number. Any reference in this Agreement to gender shall
include all genders, and words imparting the singular number only shall include
the plural and vice versa.
(c) Headings. The provision of a table of contents, the division of this
Agreement into Articles, Sections and other subdivisions and the insertion of
headings are for convenience
55
of reference only and shall not affect or be utilized in construing or
interpreting this Agreement. All references in this Agreement to any "Section"
are to the corresponding Section of this Agreement unless otherwise specified.
(d) Herein. The words such as "herein," "hereinafter," "hereof," and
"hereunder" refer to this Agreement as a whole and not merely to a subdivision
in which such words appear unless the context otherwise requires.
(e) Including. The word "including" or any variation thereof means
"including, without limitation" and shall not be construed to limit any general
statement that it follows to the specific or similar items or matters
immediately following it.
(f) Payments and Computations. Except for the payment of the Purchase
Price (which shall be paid at the Closing), each party shall make each payment
due to another party to this Agreement not later than 2:00 p.m. New York time on
the day when due. All payments shall be measured and paid in U.S. dollars by
wire transfer in immediately available funds to the account or accounts
designated by the party receiving such payment. All computations of interest
shall be made on the basis of a year of 365 days, in each case for the actual
number of days (including the first day but excluding the last day) occurring in
the period for which such interest is payable. Whenever any payment under this
Agreement shall be due on a day other that a Business Day, such payment shall be
made on the next succeeding Business Day, and such extension of time shall be
included in the computation of payment of interest.
(g) Language. This Agreement represented a negotiated document and the
language used in this Agreement will be deemed to be the language chosen by the
parties to express their mutual intent, and no rules of strict construction will
be applied against any party.
11.12 TIME OF ESSENCE
With regard to all dates and time periods set forth or referred to in this
Agreement, time is of the essence, unless adjournments and extensions are
otherwise permitted.
11.13 ELECTION OF DIRECTORS
Following the Closing, the number of directors of the Company shall be
fixed at five (5) and each shareholder of the Company (a "Shareholder") shall
cast such Shareholder's votes for the election of directors of the Company in
favor of the election of two (2) individuals designated by Buyer and three (3)
individual designated by the Sellers, as members of the Board of Directors of
the Company. Thereafter, at the time as the Second Installment is paid, each
Shareholder shall cast such Shareholder's votes for the election of directors of
the Company in favor of the election of three (3) individuals designated by
Buyer and two (2) individual designated by the Sellers, as members of the Board
of Directors of the Company.
11.14 RESTRICTIVE LEGENDS ON CERTIFICATES
56
Each Shareholder agrees that the certificate(s) representing the Shares
owned by such Shareholder shall be endorsed by the Company with a legend reading
substantially as follows:
"The shares of stock represented by this Certificate
(a) may not be voted, sold, assigned, transferred, or
otherwise disposed of, or mortgaged, pledged,
hypothecated, or subjected to any security interest or
lien, or otherwise encumbered, except as provided in an
Agreement dated as of February 28, 2007 between the holder
hereof, the Company, and the other signatories thereto, a
copy of which is on file at the office of the Company; and
(b) have been acquired by the holder hereof for such
holder's own account and not with a view to, or for sale
in connection with, any public distribution thereof in
violation of the Securities Act of 1933, as amended; and
the transfer or disposition of this Certificate and the
shares represented hereby is further restricted by said
Securities Act and the rules and regulations thereunder in
that such shares have not been registered under said
Securities Act and may be offered, sold or transferred
only if so registered or if counsel to the Company issues
its opinion that an exemption from such registration is
available.
Each Shareholder shall submit his certificates to the Company at the
Closing for stamping of the restrictive legend set forth herein.
11.15 RIGHT OF FIRST REFUSAL
(a) For a period of three years following the date hereof, Sellers may not
sell, assign, transfer, or otherwise dispose of, or mortgage, pledge,
hypothecate, subject to any security interest or lien, or otherwise encumber,
whether by gift, sale for consideration, testamentary disposition or otherwise
(each of the foregoing being hereinafter referred to as a "Transfer"), other
than in the case of a pledge of Shares to a lending institution to secure a loan
to the Shareholder or to the Company, any Shares (or any security convertible
into Shares) then owned by such Shareholder or any interest therein, without the
prior written consent of Buyer and thereafter only in compliance with clauses
(b), (c), (d), and (e) of this Section 11.15, except that a Transfer may be made
without any such consent, but subject to the further provisions hereof, to any
Permitted Transferee of such Seller. For purposes hereof, "Permitted
Transferees" of a Seller shall mean each of the following persons: The Seller's
spouse, lineal and adopted descendants, executor, administrator or other legal
representative; the spouse of such descendants; the executors, administrators or
other legal representatives of any thereof; another Shareholder, and the
trustees of any trust of which any one or more of such individuals shall
constitute all of the identifiable beneficiaries; provided that no person shall
be deemed to be a Permitted Transferee unless, prior to acquiring any Shares
such person executes and delivers to the Company and Buyer a countersigned copy
of this Agreement, pursuant to which such Permitted Transferee agrees to be
bound by each and every provision imposed upon the Shareholders pursuant to
Sections 11.13, 11.14 and 11.15.
57
(b) In the event that a Seller ("Selling Shareholder") desires to transfer
(other than as permitted under Section 11.15 ( a ) any Shares then owned by such
Shareholder, such Shareholder shall upon obtaining a bona fide written offer
from a third party (an "Offeror") specifying the number of Shares to be
Transferred, the price per share, and other terms of payment (the "Offer"),
deliver a written notice (the "Offer Notice") to the Company and Buyer, which
Offer Notice shall constitute an irrevocable offer to sell such shares to the
Company and Buyer on the terms and conditions set forth in the Offer (but
substituting cash in place of any non-cash consideration other than promissory
notes), which terms shall be subject and subordinate to the terms of this
Agreement.
(c) The Company and the Buyer collectively shall be entitled to purchase
all of such offered Shares by delivering a written notice (the "Acceptance") to
the Selling Shareholder within 30 days after delivery of the Offer Notice;
provided that the total number of Shares to be purchased by the Company and the
Buyer must equal in the aggregate the number of Shares specified in the Offer.
Subject to the foregoing, if the Company and Buyer shall desire to purchase such
Shares on the terms and conditions specified, the Company first shall be
entitled to purchase any and all Shares desired to be purchased by it; and then
Buyer shall be entitled to purchase all Shares not purchased by the Company.
(d) If the offer set forth in the Offer Notice is not accepted in whole by
the Company and/or Buyer within such 30-day period, such offer shall be deemed
to be rejected and terminated, and the Selling Shareholder shall be free to sell
all of the Shares to the third party who delivered the Offer, but only upon the
same or no more favorable terms and conditions than shall have been contained in
the Offer, provided that as to any Shares for which the Selling Shareholder
shall not have consummated such Transfer within 30 days after the termination of
the 30-day period referred to in paragraph (b) above, the Selling Shareholder's
right to Transfer such Shares shall terminate, and such Shares shall again be
subject to this Agreement to the same extent as if never originally offered to
the Company and the Buyer. Upon any such sale to a third party, notice of such
sale shall be given by the Selling Shareholder to the Company and Buyer.
Notwithstanding the foregoing, no Transfer to an Offeror shall be effective
unless, prior to acquiring any such Shares in such a Transfer, such Offeror
executes and delivers to the Company and Buyer a copy of this Agreement, and
thereby agrees to be bound by each and every provision imposed hereunder upon
Shareholders.
(e) The purchase price payable under the terms of the Offer by the Company
and/or Buyer to the Selling Shareholder shall be due and payable on the terms
and conditions specified in the Offer Notice, against delivery of certificates
evidencing all of the securities so purchased, duly endorsed for transfer free
and clear of any and all liens, charges and encumbrances, and with any and all
required transfer tax stamps affixed. If no time for such closing is specified
in the Offer Notice, then the closing of such sale shall occur on a date
mutually agreeable to the Selling Shareholder, the Company and, if applicable,
Buyer.
(f) Any transfer or attempt to transfer any Shares in violation of the
terms and conditions of this Agreement shall not be valid and the transferee
thereof shall not be deemed to be the registered holder of such Shares nor
entitled to any of the rights of a holder thereof. The
58
Company shall refuse to reflect any such transfer on its stock transfer records
and shall treat the holder of such shares who is registered on its books and
records as the owner thereof for all purposes.
11.16 COUNTERPARTS
This Agreement may be executed in one or more counterparts, each of which
will be deemed to be an original copy of this Agreement and all of which, when
taken together, will be deemed to constitute one and the same agreement.
11.17 Reversion of Stock Upon Payment Default and Share Buy-Back Option.
In the event that the Buyer shall fail to pay the First Installment in
accordance with the terms of the Promissory Note after a thirty (30) day cure
period, the Sellers shall have the right to demand the return of the Purchased
Shares.
In the event that the Buyer shall fail to pay the Second Installment in
accordance with the terms of the Promissory Note after a thirty (30) day cure
period, the Buyer shall be obligated to pay a penalty of $100,000 to Sellers and
shall have an additional thirty (30) day period to pay the Second Installment.
If the Second Installment is not paid within such time period, the Sellers shall
have the right to demand the return of the Purchased Shares.
In the event that the Buyer shall fail to pay the Third Installment in
accordance with the terms of the Promissory Note, the Sellers may upon written
notice (the "Buy-Back Notice") to the Buyer, given after the expiration of any
applicable cure period, elect to repurchase the Purchased Shares (pro rata), in
full satisfaction of any and all obligations of the Buyer to the Sellers arising
hereunder, the Promissory Notes, or any Agreement delivered pursuant hereto, for
the sum of Two Million ($2,000,000) dollars. The closing with respect to such
repurchase shall occur no later than 120 days following the date of the Buy-Back
Notice.
11.18 GOVERNING LAW; JURISDICTION; JURY TRIAL.
The corporate laws of the State of Nevada shall govern all issues
concerning the relative rights of the Company and its shareholders. All other
questions concerning the construction, validity, enforcement and interpretation
of this Agreement and the other Transaction Documents shall be governed by the
internal laws of the State of New York, without giving effect to any choice of
law or conflict of law provision or rule (whether of the State of New York or
any other jurisdictions) that would cause the application of the laws of any
jurisdictions other than the State of New York. Each party hereby irrevocably
submits to the exclusive jurisdiction of the state and federal courts sitting in
the City of New York, for the adjudication of any dispute hereunder or under the
other Transaction Documents or in connection herewith or therewith, or with any
transaction contemplated hereby or discussed herein, and hereby irrevocably
waives, and agrees not to assert in any suit, action or proceeding, any claim
that it is not personally subject to the jurisdiction of any such court, that
such suit, action or
59
proceeding is brought in an inconvenient forum or that the venue of such suit,
action or proceeding is improper. Each party hereby irrevocably waives personal
service of process and consents to process being served in any such suit, action
or proceeding by mailing a copy thereof to such party at the address for such
notices to it under this Agreement and agrees that such service shall constitute
good and sufficient service of process and notice thereof. Nothing contained
herein shall be deemed to limit in any way any right to serve process in any
manner permitted by law. EACH PARTY HEREBY IRREVOCABLY WAIVES ANY RIGHT IT MAY
HAVE, AND AGREES NOT TO REQUEST, A JURY TRIAL FOR THE ADJUDICATION OF ANY
DISPUTE HEREUNDER OR IN CONNECTION HEREWITH OR ARISING OUT OF THIS AGREEMENT OR
ANY TRANSACTION CONTEMPLATED HEREBY.
[SIGNATURES APPEAR ON THE FOLLOWING PAGE]
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IN WITNESS WHEREOF, the parties have executed and delivered this Agreement
as of the date first written above.
Sellers:
/s/ Xxxx Xxxxxx /s/ Xxxxx Xxxxxx
-------------------------------------- --------------------------------
Xxxx Xxxxxx Xxxxx Xxxxxx
Buyer:
Sibling Theatricals, Inc.
By: /s/ Xxxxxxxx Xxxxxxx
----------------------------------
Name: Xxxxxxxx Xxxxxxx
Title: President
The Company:
Xxxx Xxxxxx Productions, Inc.
By: /s/ Xxxx Xxxxxx
----------------------------------
Name: Xxxx Xxxxxx
Title: President
61
