AMENDMENT NO. 1
TO
STOCK PURCHASE AGREEMENT
by and between
EMPLOYEE SOLUTIONS, INC., as Buyer,
and
THE STOCKHOLDERS OF
GCK ENTERTAINMENT SERVICES I, INC., and
TALENT, ENTERTAINMENT AND MEDIA SERVICES, INC.,
as Seller,
and
GCK ENTERTAINMENT SERVICES I, INC., and
TALENT, ENTERTAINMENT AND MEDIA SERVICES, INC.,
the Acquired Companies
TABLE OF CONTENTS
1. Purchase and Sale of Stock ................................................................... 1
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2. Purchase Price................................................................................ 1
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(a) Calculation of Purchase Price........................................................ 1
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(b) No Purchase Price Payable at Closing................................................. 3
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(c) Purchase Price Payable at the End of the Pricing Period.............................. 3
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3. Closing; Obligations at and after Closing; Further Assurances................................. 4
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4. Representations and Warranties by Seller...................................................... 6
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(a) Consents; Authority.................................................................. 6
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(b) Authority; Enforceability............................................................ 6
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(c) No Violation, Conflict or Required Filing............................................ 7
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(d) No Broker............................................................................ 7
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(e) Governmental Approvals............................................................... 7
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(f) Investment Intent.................................................................... 7
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(g) Suitability and Sophistication....................................................... 8
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(h) Receipt of Information............................................................... 8
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5. Representations and Warranties by Seller and the Company...................................... 9
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(a) Organization, Standing and Qualification............................................. 9
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(b) Subsidiaries......................................................................... 9
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(c) Transactions with Certain Persons.................................................... 9
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(d) Execution, Delivery and Performance of Agreement; Authority.......................... 10
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(e) Financial Statements................................................................. 10
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(f) Absence of Undisclosed Liabilities................................................... 10
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(g) Taxes................................................................................ 10
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(h) Intentionally omitted................................................................ 11
(i) Litigation........................................................................... 11
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(j) Compliance with Laws and Other Instruments........................................... 11
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(k) Title to Properties.................................................................. 11
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(l) Schedules............................................................................ 12
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(m) Patents, etc......................................................................... 14
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(n) No Guaranties........................................................................ 14
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(o) Inventory and Supplies............................................................... 14
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(p) Receivables.......................................................................... 14
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(q) Business Description; Material Customer List; Indemnification for Loss
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of Customers......................................................................... 14
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(r) Records.............................................................................. 15
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(s) Absence of Certain Business Practices................................................ 15
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(t) Labor Matters; Workers' Compensation................................................. 15
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(u) Employees; Employee Benefit Plans.................................................... 16
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(v) Capital Stock........................................................................ 20
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(w) Disclosure........................................................................... 21
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(i)
6. Representations and Warranties by ESI......................................................... 21
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(a) Organization......................................................................... 21
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(b) Authorization and Approval of Agreement.............................................. 21
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(c) Execution, Delivery and Performance of Agreement..................................... 21
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(d) Litigation........................................................................... 22
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(e) No Consents or Approvals............................................................. 22
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(f) Common Stock......................................................................... 22
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(g) Commission Filings................................................................... 22
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(h) No Material Adverse Changes.......................................................... 22
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(i) Disclosure........................................................................... 23
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7. Employment of General Manager................................................................. 24
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8. Audited Financial Statements.................................................................. 24
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9. Indemnification............................................................................... 24
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10. Nature and Survival of Representations and Warranties; Relationship to
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Indemnification. ............................................................................ 27
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11. Notices....................................................................................... 27
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12. Registration Rights .......................................................................... 28
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(a) Piggy-Back Registration Rights....................................................... 28
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(b) Demand Registration Rights........................................................... 29
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(c) Additional Agreements of Eligible Stockholders....................................... 30
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(d) Effect of Underwriter Participation.................................................. 30
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(e) Reduction in Offering................................................................ 30
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13. Miscellaneous................................................................................. 31
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(ii)
AMENDMENT NO. 1
TO
STOCK PURCHASE AGREEMENT
------------------------
This Amendment No. 1 (the "Agreement") dated October 25, 1996 amends
and restates the Stock Purchase Agreement dated as of June 22, 1996, and is by
and among the Stockholders listed on Schedule "A" attached hereto, each with an
address as set forth below his name on Schedule "A" (severally and collectively,
"Seller"; also each sometimes referred to individually as a "Selling
Stockholder"), GCK Entertainment Services I, Inc., a Delaware corporation,
having its principal office at 0000 Xxxxx Xxxxxxxxx Xxx, Xxxxx 000, Xxxxxxx,
Xxxxxxxxxx 00000-0000 ("GCK"), Talent, Entertainment and Media Services, Inc., a
Delaware corporation, having its principal offices at 0000 Xxxxx Xxxxxxxxx Xxx,
Xxxxx 000, Xxxxxxx, Xxxxxxxxxx 00000-0000 ("TEAM"), and Employee Solutions,
Inc., an Arizona corporation having its principal office at 0000 Xxxx Xxxxxxxxx
Xxxx, Xxxxx 000, Xxxxxxx, Xxxxxxx 00000 ("ESI"). (GCK and TEAM sometimes are
referred to herein severally and collectively as the "Company.")
In consideration of the mutual covenants and agreements hereinafter set
forth, the parties hereby agree as follows:
1. Purchase and Sale of Stock.
(a) Subject to and upon the terms and conditions set forth in this
Agreement, Seller has sold, transferred, conveyed, assigned and delivered to
ESI, and ESI has purchased, effective as of the Closing Date (as defined below),
all of the issued and outstanding common stock of the Company, which consists of
999.9 shares of GCK common stock, $0.01 par value per share, and 999.9 shares of
TEAM common stock, $0.01 par value per share (the "Purchased Stock").
(b) The parties intend for the acquisition of the Purchased Stock
to be treated as a stock-for-stock tax free reorganization under Section 368 of
the Internal Revenue Code.
2. Purchase Price.
(a) Calculation of Purchase Price. In consideration of the sale,
transfer, conveyance, assignment and delivery of the Purchased Stock by Seller
to ESI, and in reliance upon the representations and warranties made herein by
Seller, ESI will, in full payment thereof, pay to Seller, at the time and in the
manner provided below in this Section, a total purchase price equal to the
following amount (the "Purchase Price"):
(i) If No Exit Event Occurs. If no Exit Event (as defined
below) occurs, the Purchase Price will be four times (4x) the Adjusted Pretax
Income (as defined below) for the period from July 1, 1998 through June 30, 1999
(the "Pricing Period"), less an amount equal to the amount by which all of the
Company's liabilities exceed the Company's current assets , as reflected on the
Company's balance sheet as of the Closing Date; provided, however, that such
total purchase price shall not be less than $0. "Adjusted Pretax Income" shall
mean, subject to the remainder
of this paragraph, the combination, for the four quarters comprising the Pricing
Period, of (i) the Company's net income before taxes as determined in accordance
with generally accepted accounting principles consistently applied ("GAAP")(the
"Company Income"), and (ii) the gross profit on ESI leasing sales (as defined in
the following sentence) generated by the following (collectively, the "Colby
Group"): (1) Xxxxxxx Xxxxx, (2) any corporation wholly owned by him, or (3)
those agents or employees working under Colby's direct supervision and control,
with such gross profit calculated in the same manner and on an equivalent basis
as the gross profit for ESI's leasing business generally, less commissions on
such sales and an overhead charge of $10 per check processed, all as determined
by ESI (the "Colby/ESI Income"). For purposes of the preceding sentence, "gross
profit on ESI leasing sales" only shall include gross profit from leasing
business generated by the Colby Group pertaining to products or services
associated with ESI's leasing business (or that of any successor-in-interest to
ESI's leasing business), and shall not include gross profit derived from ESI's
stand alone workers compensation business, nor gross profit from leasing sales
for the Company. In calculating Adjusted Pretax Income, the Company shall be
charged with Colby's base salary, which shall be at an initial rate of $75,000
per year, and the salary of a general manager for the Company, which shall be at
an initial rate of not to exceed $60,000 per year. The amount of the general
manager's salary expense allocable to the Company's earnings statement shall be
a pro rata portion of the actual salary based upon the percentage of the
manager's overall working time spent on the Company's matters.
(ii) If an Exit Event Occurs. ESI shall have the right, in
its sole discretion, on or before June 30, 1999, to exercise either of the
following options, which if exercised, shall constitute an "Exit Event"
hereunder, and which shall mandate a new Purchase Price, as calculated in
accordance with the applicable option:
(1) If the Company, in calculating the Company
Income, has two consecutive quarters each of which standing alone results in net
losses as determined by generally accepted accounting principles (excluding any
charge related to goodwill amortization which resulted from the acquisition
under this Agreement) beginning with the quarter starting April 1, 1997, ESI
shall have the right, in its sole discretion, to dispose of, or shut down, the
Company. In any such case, Seller shall have a right of first refusal to
reacquire the Company. The price at which Seller can reacquire the Company shall
be: (i) if ESI proposes to sell the Company, the same price and on substantially
the same terms as those accepted by ESI from a third party, and (ii) if ESI
proposes to shut down the Company, the value that ESI would receive if the
Company were to be liquidated. After receipt of the full reacquisition price
from Seller or the proceeds from Seller based upon a deemed liquidation, ESI
shall remain obligated to make payment to Seller of Seller's share, if any, of
the Adjusted Net Proceeds of Disposition (as defined and calculated below). ESI
shall give written notice of any such offer to Seller, which shall set forth the
price, the payment terms, the closing logistics, and the other material terms
and conditions of the offer, subject to such nondisclosure or confidentiality
requirements as ESI might reasonably require from Seller. Seller then shall have
ten (10) business days (excluding Saturdays, Sundays and legal holidays) from
the date ESI's written notice is given in which to give written notice to ESI of
its election to purchase the Company. The failure of Seller to provide a written
notice within such time period shall be deemed an election by Seller not to
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purchase the Company, and ESI shall have the right thereafter to consummate the
sale with the offeror with no obligation to provide any further notice to
Seller. Upon any sale or disposition hereunder, ESI shall make certain
Adjustments (as defined below) to the Net Proceeds of Disposition (as defined
below), if any, to arrive at the "Adjusted Net Proceeds of Disposition," which
shall be split one-half to ESI and one-half to Seller. "Net Proceeds of
Disposition" shall mean the gross proceeds realized upon any sale or
disposition, less all liens and encumbrances and customary transactional costs
incurred by ESI in completing the sale or disposition, including, but not
limited to, escrow fees and costs, title costs, broker's fees and reasonable
attorneys' fees. The "Adjustments" shall consist of (i) deductions from the Net
Proceeds of Disposition of all expenses, payments, losses, costs or other items
associated with the acquisition of and operations of the Company, that either
are out-of-pocket costs of ESI, or result in a decrease in ESI's income on ESI's
financial statements, and (ii) additions to the Net Proceeds of Distribution for
any items that result in an increase in ESI's income on ESI's financial
statements.
(2) If the conditions for a sale or disposition
under Subsection 2(a)(ii)(1) are not present, ESI nonetheless may identify a
buyer for the Company at a price mutually agreeable to both ESI and Seller, and,
in its sole discretion, upon at least ten (10) days prior written notice to
Seller of the sale or disposition, dispose of or sell the Company to such buyer
or any other third party offering a comparable or greater price. Should such a
sale or disposition occur, the Adjusted Net Proceeds of Disposition, if any,
shall be split one-half to ESI and one-half to Seller. ESI also may, in its sole
discretion, without the consent of Seller, sell the Company or its operations so
long as ESI pays Seller the greater of: (i) four times (4X) the Company Income
for the twelve calendar months immediately preceding the closing date of the
sale; (ii) one-half of the Adjusted Net Proceeds of Disposition; or (iii)
$1,600,000 in cash or ESI Stock (valued based upon the closing price of ESI's
stock on the NASDAQ National Market for the last full calendar month immediately
preceding the date of payment, calculated in the manner referenced in Section
2(c) below), at ESI's sole election, provided that if the proceeds received by
ESI upon such sale or disposition are paid substantially in cash, ESI will pay
its required payment to Seller in cash.
If an Exit Event occurs, ESI shall retain the Colby/ESI Income
and the business related thereto, and shall not include the same within the
business of the Company that is sold or transferred pursuant to the Exit Event.
ESI, however, after the Exit Event, shall be obligated to pay Seller four time
(4X) the Colby/ESI Income for the Pricing Period (the "Colby/ESI Purchase
Price"). Payment of the Colby/ESI Purchase Price shall be effected in the same
manner as payment of the Purchase Price would have been effected in the absence
of an Exit Event, pursuant to Sections 2(c) and (d) below. In such case, all
references in those Sections to the Purchase Price shall be deemed as references
to the Colby/ESI Purchase Price.
(b) No Purchase Price Payable at Closing. ESI has not paid, and
was not required to pay, any portion of the Purchase Price to Seller at Closing.
(c) Purchase Price Payable at the End of the Pricing Period. ESI
shall pay the full Purchase Price on or before August 31, 1999, which date is
two (2) months after the end of the
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Pricing Period, or as promptly as possible thereafter. The Purchase Price shall
be paid to Seller through the issuance to Seller of unregistered shares of
common stock of ESI (the "ESI Stock"), with the number of shares of ESI Stock to
be issued equal to the Purchase Price divided by the average ESI Stock closing
price on the NASDAQ National Market for the month of June 1999. ESI shall pay
any fractional amount in cash. The average shall be calculated by adding
together the ESI Stock closing prices for each trading day in June 1999, and
dividing by the number of trading days. Appropriate adjustments in the
calculation shall be made for any stock split or similar type of occurrence. The
Purchase Price shall be divided among and paid to the Selling Stockholders based
upon their former percentage ownership interests in the Company's stock.
Further, by delivery of written, irrevocable notice to ESI on or before July 1,
1999, each Selling Stockholder shall have the right, at his sole option, to
obtain from ESI price protection on fluctuations in ESI's common stock price
from July 1, 1999 through the effective date of a registration allowing sale of
the shares in question. Each such agreement will provide that the Selling
Stockholder and ESI, respectively, as to the shares of ESI Stock to be acquired
by the Selling Stockholder, will pay the other the spread between the share
price (as calculated above for the Purchase Price) and the share price on the
effective date of the registration statement. Payments will occur only if the
stock fluctuates more than five percent (5%) in either direction. If the share
price decreases, ESI will pay the Selling Stockholder in cash under such an
agreement. If the share price increases, the Selling Stockholder will pay ESI in
cash under such an agreement. Any payment under such an agreement shall be made
immediately upon the effective date of the registration statement.
(d) Disputes Regarding Calculation of Purchase Price. ESI shall
endeavor to provide Seller with its Purchase Price calculations and any
documentation reasonably necessary to support such calculations on or before
August 18, 1999. If Seller does not agree with any one or more of the figures
used by ESI in calculating the Purchase Price pursuant to this Section, the
parties shall endeavor in good faith to resolve the dispute as promptly as
possible after it arises, and in any event within thirty (30) days after written
notice from Seller to ESI of the dispute. If a mutual agreement cannot be
achieved within thirty (30) days after written notice, Seller shall have the
right within fifteen (15) days thereafter to request in writing an audit and
determination of the Purchase Price by ESI's auditors, the results of which
shall be dispositive. Absent a request by Seller for an audit in the manner set
forth above, the figures previously proposed by ESI shall be dispositive. Seller
shall bear the cost of any audit requested by Seller, unless the Purchase Price
increases more than five percent (5%), in which case, the costs of the audit
shall be borne by ESI.
3. Closing; Obligations at and after Closing; Further Assurances.
(a) The parties acknowledge that effective control of the Company
was transferred on June 22, 1996 pursuant to the original Stock Purchase
Agreement, and the "Closing" shall be deemed to have occurred as of that date
(the "Closing Date"). This Agreement amends and restates the original Stock
Purchase Agreement to clarify certain aspects thereof.
(b) Either at the Closing, or on or prior to the execution hereof,
Seller and the Company shall have delivered to ESI:
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(i) a signed counterpart of this Agreement;
(ii) the certificates for the Company Stock, along with
separate assignments thereof or endorsements in blank thereto, all in
proper form for transfer and in form acceptable to ESI;
(iii) a certificate of good standing for the Company from
the Delaware Secretary of State;
(iv) an opinion of Seller's counsel in form and content
agreed upon by the parties;
(v) such third party consents, approvals and estoppel
certificates as may be necessary to ensure the conveyance of all of the
Purchased Stock free from the claims of any third parties and the
suitability of the assets of the Company, all in form and content
acceptable to ESI;
(vi) a certified copy of resolutions of the Board of
Directors of the Company authorizing the execution, delivery and
performance of this Agreement and the other documents referred to
herein;
(vii) such other good and sufficient instruments of
conveyance, assignment and transfer, in form and substance reasonably
satisfactory to ESI's counsel, as shall be necessary to vest in ESI
good and marketable title to the Purchased Stock; and
(viii) all other documents required to be delivered to ESI
under the provisions of this Agreement or reasonably necessary to
consummate the transactions contemplated hereby.
(c) Either at the Closing, or on or prior to the execution hereof,
ESI shall have delivered to Seller:
(i) a signed counterpart of this Agreement;
(ii) an opinion of ESI's counsel in form and content
agreed upon by the parties;
(iii) a certificate executed by the President and Secretary
of ESI, dated the date of the Closing, certifying that (1) all
representations and warranties of ESI contained herein or in any
document delivered pursuant hereto are true and correct in all material
respects as of the Closing; and (2) all covenants, agreements and
obligations required by the terms of this Agreement to be performed by
ESI at or before the Closing have been duly and properly performed in
all material respects; and
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(iv) such other documents and instruments as may be
reasonably required to consummate the transactions contemplated hereby.
(d) Promptly after the execution hereof, ESI shall deliver (i) to
Seller a certified copy of resolutions of the Board of Directors of ESI
authorizing the execution, delivery and performance of this Agreement and the
other documents referred to herein; and (ii) to Colby an employment agreement
(the "Employment Agreement") retaining him as President of the Company, a copy
of which is attached hereto as Exhibit 3(d).
(e) At any time and from time to time after the Closing, at ESI's
request and without further consideration, Seller will execute and deliver such
other instruments of sale, transfer, conveyance, assignment and confirmation and
take such action as ESI may reasonably deem necessary or desirable in order more
effectively to transfer, convey and assign to ESI, and to confirm ESI's title
to, all of the Purchased Stock. After the Closing, at reasonable times and on
reasonable notice, Seller shall have access to the books and records pertaining
to the Company's operations prior to the Closing, and ESI shall retain such
books and records for a period of three years after the Closing.
4. Representations and Warranties by Seller. Each Selling Stockholder
hereby represents and warrants severally with respect to himself only to ESI, as
of the date hereof with respect to all representations and warranties dealing
with the execution of this Agreement and any other documents executed in
conjunction herewith, and as of the Closing Date with respect to all other
representations and warranties, as follows, in each case except as set forth on
a disclosure schedule attached hereto.
(a) Consents; Authority. All consents, approvals, authorizations
and orders necessary for the execution, delivery and performance of this
Agreement, including without limitation with respect to the sale and delivery of
the Purchased Stock to be sold by such Selling Stockholder hereunder, have been
obtained, and such Selling Stockholder has full right, and all necessary power
and authority, to enter into this Agreement and to sell, assign, transfer and
deliver 100% of the Purchased Stock being sold by such Selling Stockholder to
ESI as contemplated herein.
(b) Authority; Enforceability. Such Selling Stockholder has the
necessary power and authority to enter into and deliver this Agreement and all
documents contemplated hereby to which such Selling Stockholder is a party, to
perform his obligations hereunder and thereunder and to consummate the
transactions contemplated hereby and thereby. The execution and
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delivery of this Agreement and all documents contemplated hereby to which such
Selling Stockholder is a party and the consummation of the transactions
contemplated hereby and thereby by such Selling Stockholder have been duly
authorized by all necessary actions. This Agreement and all documents
contemplated hereby to which such Selling Stockholder is a party have each been
duly and validly authorized, executed and delivered by such Selling Stockholder
and constitute the legal, valid and binding obligation of such Selling
Stockholder enforceable in accordance with their respective terms (except as
such enforcement may be limited by applicable bankruptcy, insolvency, moratorium
or similar laws affecting the rights of creditors generally or by the general
principles of equity).
(c) No Violation, Conflict or Required Filing.
(i) Neither the execution, delivery or performance of
this Agreement nor any document contemplated hereby to which such Selling
Stockholder is a party, nor the consummation of the transactions contemplated
hereby or thereby, nor compliance by such Selling Stockholder with the terms and
provisions of this Agreement or any document contemplated hereby to which such
Selling Stockholder is a party, will result in a violation or breach of any term
or provision of any organizational documents of such Selling Stockholder, or of
any statute, rule or regulation applicable to such Selling Stockholder, nor
conflict with or constitute a violation or breach of, or a default under (or an
event which, with the passage of time or the giving of notice, or both, would
constitute a default under), any indenture, mortgage, deed of trust, or contract
to which such Selling Stockholder is a party or any instrument, judgment,
decree, writ, or other restriction to which such Selling Stockholder is a party,
nor require any consent or approval of any person.
(ii) Such Selling Stockholder is not required to submit
any notice, report or other filing with any federal, state or local governmental
authority in connection with the execution or delivery or performance by such
Selling Stockholder of this Agreement or the consummation of the transactions
contemplated hereby, except such as already have been submitted or filed or will
be submitted or obtained in a timely manner and except for filings under the
Xxxx-Xxxxx-Xxxxxx Act and any consent, approval, filing or notice that would
not, if not given or made, individually or in the aggregate, have a material
adverse effect on the Company's business, financial condition or results of
operations.
(d) No Broker. Except as set forth on Schedule 4(d), there are no
broker's or finder's fees or obligations due to any persons engaged by such
Selling Stockholder or, to the best of such Selling Stockholder's knowledge, any
other stockholder of the Company, or any of the affiliates, employees,
representatives or agents of any of such persons in connection with the
transactions contemplated by this Agreement, except for the fees and expenses of
Seller's counsel and accountants.
(e) Governmental Approvals. No permission, approval,
determination, consent or waiver by, or any declaration, filing or registration
with, any governmental or regulatory authority is required in connection with
the execution, delivery and performance of this
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Agreement by such Selling Stockholder or, to the best of such Selling
Stockholder's knowledge, the Company, except those that already have been
obtained prior to the Closing.
(f) Investment Intent. The ESI Stock is being or will be purchased
by such Selling Stockholder for his own account and not with the view to, or for
resale in connection with, any distribution or public offering thereof within
the meaning of the Securities Act of 1933, as amended (the "1933 Act"). Such
Selling Stockholder understands that the ESI Stock has not been registered under
the 1933 Act by reason of its issuance in transactions exempt from the
registration and prospectus delivery requirements of the 1933 Act pursuant to
Section 4(2) thereof and agrees to deliver to the ESI, if requested by ESI, an
investment letter in customary form. Such Selling Stockholder understands that
the ESI Stock may not be sold, transferred or otherwise disposed of without
registration under the 1933 Act or an exemption therefrom, and that in the
absence of an effective registration statement covering the ESI Stock, or an
available exemption from registration under the 1933 Act, ESI Stock, must be
held indefinitely. In particular, such Selling Stockholder is aware that the ESI
Stock may not be sold pursuant to Rule 144 promulgated under the Securities Act
unless all of the conditions of that Rule are met. Such Selling Stockholder
further understands that the certificates representing the ESI Stock will bear a
legend substantially in the following form and agrees that it will hold such
shares subject thereto:
THE SHARES REPRESENTED BY THIS CERTIFICATE AND ANY SHARES THAT
MAY BE ISSUED UPON THE CONVERSION OF SUCH SHARES HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR
UNDER ANY STATE SECURITIES LAWS. NEITHER THIS SECURITY NOR ANY
PORTION HEREOF OR INTEREST HEREIN MAY BE SOLD, ASSIGNED,
TRANSFERRED, PLEDGED OR OTHERWISE DISPOSED OF UNLESS THE SAME
IS REGISTERED UNDER SAID ACT AND APPLICABLE STATE SECURITIES
LAWS OR UNLESS AN EXEMPTION FROM SUCH REGISTRATION IS
AVAILABLE AND THE COMPANY SHALL HAVE RECEIVED, AT THE EXPENSE
OF THE HOLDER HEREOF, EVIDENCE OF SUCH EXEMPTION REASONABLY
SATISFACTORY TO THE COMPANY (WHICH MAY INCLUDE, AMONG OTHER
THINGS, AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY).
(g) Suitability and Sophistication. Such Selling Stockholder has
(i) such knowledge and experience in financial and business matters that such
Selling Stockholder is capable of evaluating independently the risks and merits
of purchasing the ESI Stock; (ii) independently evaluated the risks and merits
of purchasing the ESI Stock and has independently determined that the ESI Stock
is a suitable investment for such Selling Stockholder; and (iii) sufficient
financial resources to bear the loss of its entire investment in the ESI Stock.
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(h) Receipt of Information. Such Selling Stockholder further
represents that he has had an opportunity to ask questions and receive answers
from the officers and directors of ESI regarding the business, properties,
prospects and financial condition of ESI and to obtain additional information
(to the extent the ESI possessed such information or could acquire it without
unreasonable effort or expense) necessary to verify the accuracy of any
information furnished to such Selling Stockholder or to which such Selling
Stockholder had access.
5. Representations and Warranties by Seller and the Company. Seller and
the Company jointly and severally represent and warrant to ESI, as of the date
hereof with respect to all representations and warranties dealing with the
execution of this Agreement and any other documents executed in conjunction
herewith, and as of the Closing Date with respect to all other representations
and warranties, as follows, in each case except as set forth on a disclosure
schedule attached hereto:
(a) Organization, Standing and Qualification. GCK and TEAM are
corporations duly organized, validly existing and in good standing under the
laws of Delaware; GCK and TEAM each has all requisite corporate power and
authority to carry on its business as now being conducted and to own, lease or
operate its properties as and in the places where such business is now conducted
and such properties are now owned, leased or operated; and GCK and TEAM each is
duly qualified, licensed or domesticated and in good standing as a foreign
corporation authorized to do business in the jurisdictions listed on Schedule
"5(a)" attached hereto. GCK and TEAM each is licensed as a leasing company in
the jurisdictions listed on Schedule "5(a)." Neither GCK nor TEAM has failed to
qualify to do business in any state where the failure to do so would have a
material adverse effect on it or its operations. As of the date of Closing,
Seller has delivered to ESI for each of GCK and TEAM true and complete copies of
its certificate or articles of incorporation and all amendments thereto,
certified by the Secretary of State for the state of incorporation of each such
entity, and its by-laws as presently in effect, certified as true and correct by
its Secretary.
(b) Subsidiaries. The Company has no subsidiaries except those
listed on Schedule "5(b)" attached hereto. The Company has no interest, direct
or indirect, and has no commitment to purchase any interest, direct or indirect,
in any other corporation or in any partnership, joint venture or other business
enterprise or entity other than as set forth on Schedule "5(b)." The business
carried on by the Company has not been conducted through any other direct or
indirect subsidiary or affiliate of the Company.
(c) Transactions with Certain Persons. Except as set forth on
Schedule "5(c)" attached hereto, and except for transactions entered into on the
substantially the same terms as would have applied in a bona fide, arms' length
transaction with a third party, the Company has not during the past five (5)
years, directly or indirectly, purchased, leased from others or otherwise
acquired any property or obtained any services from, or sold, leased to others
or otherwise disposed of any property or furnished any services to, or otherwise
dealt with (except with respect to remuneration for services rendered as a
director, officer or employee of the Company), in the ordinary course of
business or otherwise, Seller or any person, firm or corporation which, directly
or indirectly, alone or together with others, controls, is controlled
-9-
by or is under common control with Seller or the Company. Except as set forth on
Schedule "5(c)," the Company does not owe any amount to, or have any contract
with or commitment to, Seller or any of the Company's directors, officers,
employees or consultants (other than compensation for current services not yet
due and payable and reimbursement of expenses arising in the ordinary course of
business), and none of such persons owes any amount to the Company.
(d) Execution, Delivery and Performance of Agreement; Authority.
Except as set forth on Schedule "5(d)," neither the execution, delivery nor
performance of this Agreement by the Company, will with or without the giving of
notice or the passage of time, or both, conflict with, result in a default,
right to accelerate or loss of rights under, or result in the creation of, lien,
charge or encumbrance pursuant to, any provision of the Company's certificate of
incorporation or by-laws or any franchise, mortgage, deed of trust, lease,
license, agreement, understanding, law, ordinance, rule, regulation, order,
judgment, decree or other legal or contractual requirement to which the Company
is a party or by which the Company or the Company's assets may be bound or
affected. The Company has the full corporate power and authority to enter into
this Agreement and to carry out the transactions contemplated hereby, all
proceedings required to be taken by them or their stockholders to authorize the
execution, delivery and performance of this Agreement and the agreements
relating hereto to which the Company is a party have been properly taken and
this Agreement constitutes a valid and binding obligation of the Company,
enforceable against it in accordance with its terms.
(e) Financial Statements. The Company has provided the following
financial statements (hereinafter collectively called the "Financial
Statements"), all of which are complete and correct, have been prepared in
accordance with GAAP and maintained throughout the periods indicated (except for
any deviations from GAAP discovered by Xxxxxx Xxxxxxxx during its audit) and
fairly present the financial condition of the Company as of the respective dates
and the results of its operations for the periods covered thereby, subject to
normal year-end adjustments: a balance sheet of the Company ("Balance Sheet") as
of June 22, 1996 (the "Balance Sheet Date"), and the Company's statements of
earnings and statements of cash flows for the year ended December 31, 1995, and
for the six-month period ended June 30, 1996. Such statements of earnings do not
contain any material items of special or nonrecurring income or any other income
not earned in the ordinary course of business except as specified therein.
(f) Absence of Undisclosed Liabilities. Except as set forth on or
referred to in or reserved against on the face of the Balance Sheet or as set
forth on Schedule "5(f)" attached hereto, as of the Balance Sheet Date, the
Company had no material debts, liabilities or obligations (whether absolute,
accrued, contingent or otherwise) of any nature whatsoever, including, without
limitation, any foreign or domestic tax liabilities or deferred tax liabilities
incurred in respect of or measured by the Company's income, or its period prior
to the close of business on the Balance Sheet Date or any other debts,
liabilities or obligations relating to or arising out of any act, omission,
transaction, circumstance, sale of goods or services, state of facts or other
condition which occurred or existed on or before the Balance Sheet Date, whether
or not then known, due or payable.
-10-
(g) Taxes. Except as set forth on or referred to in or reserved
against on the face of the Balance Sheet or as set forth on Schedule "5(g)"
attached hereto, all taxes, including, without limitation, income, property,
sales, use, franchise, added value, employees' income withholding (including
without limitation employer and employee portions of FICA, state unemployment
taxes, federal unemployment taxes, and any other payroll taxes for both
administrative and leased employees) and social security taxes, imposed by the
United States or by any foreign country or by any state, municipality,
subdivision or instrumentality of the United States or of any foreign country,
or by any other taxing authority, which are due or payable by the Company, and
all interest and penalties thereon, whether disputed or not, have been paid in
full, all tax returns required to be filed in connection therewith have been
accurately prepared and duly and timely filed and all deposits required by law
to be made by the Company with respect to employees' withholding and other taxes
have been duly made. The Company has not been delinquent in the payment of any
foreign or domestic tax, assessment or governmental charge or deposit and has no
tax deficiency or claim outstanding, proposed or assessed against it, and there
is no basis for any such deficiency or claim. The Company is not a "consenting
corporation" within the meaning of Section 341(f)(1) of the Internal Revenue
Code of 1986.
(h) Intentionally omitted.
(i) Litigation. Except as set forth in Schedule "5(i)" attached
hereto, there is no claim, legal action, suit, arbitration, governmental
investigation or other legal or administrative proceeding, nor any order, decree
or judgment in progress, pending or in effect, or to the knowledge of Seller or
the Company threatened, against or relating to the Company, its officers,
directors or employees, its properties, assets or business or the transactions
contemplated by this Agreement, and neither Seller nor the Company knows or has
reason to be aware of any basis for the same.
(j) Compliance with Laws and Other Instruments. Except as set
forth in Schedule "5(j)" attached hereto, the Company has complied in all
material respects with all existing laws, rules, regulations, ordinances,
orders, judgments and decrees now or hereafter applicable to its business,
properties or operations as presently conducted, to the extent that the failure
to do so would have a material, adverse effect on the business, operations, or
financial condition of the Company. Neither the ownership nor use of the
Company's properties nor the conduct of its business (i) violates, or with or
without the giving of notice or the passage of time, or both, will violate,
conflict with or result in a default, right to accelerate or loss of rights
under, any terms or provisions of its certificate of incorporation or by-laws as
presently in effect, or any lien, encumbrance, mortgage, deed of trust, lease,
license, agreement, understanding, law, ordinance, rule or regulation, or any
order, judgment or decree to which the Company is a party or by which it may be
bound or affected, or (ii) conflicts with the rights of any person, firm or
corporation, except in each case which would not have a material adverse effect
on the business, operations or financial condition of the Company.
(k) Title to Properties. Except as set forth on Schedule "5(k),"
the Company has good and marketable title to all material properties and assets
it owns or uses in its business or purports to own, including, without
limitation, those reflected in its books and records and in
-11-
the Balance Sheet. Except as set forth on Schedule "5(k)" attached hereto, none
of such properties and assets are subject to any mortgage, pledge, lien, charge,
security interest, encumbrance, restriction, lease, license, easement, liability
or adverse claim of any nature whatsoever, direct or indirect, whether accrued,
absolute, contingent or otherwise, except (i) mortgages or security interests
shown on the Balance Sheet as securing specific liabilities or obligations or
(ii) those imperfections of title and encumbrances, if any, which, individually
or in the aggregate, (1) are not substantial in character, amount or extent and
do not materially detract from the value of the properties subject thereto, (2)
do not interfere with either the present and continued use of such property or
the conduct of the Company's normal operations and (3) have arisen only in the
ordinary course of business.
(l) Schedules. Attached hereto as Schedule "5(l)" is a separate
schedule containing an accurate and complete list and description of the
following assets of the Company on the Closing Date:
(i) All real property owned by the Company or in which
the Company has a leasehold or other interest or which is used by the
Company in connection with the operation of its business, together with
a description of each lease, sublease, license, or any other instrument
under which the Company claims or holds such leasehold or other
interest or right to the use thereof or pursuant to which the Company
has assigned, sublet or granted any rights therein, identifying the
parties thereto, the rental or other payment terms, expiration date and
cancellation and renewal terms thereof.
(ii) All of the Company's receivables (which shall include
accounts receivable, loans receivable and any advances), together with
acceptable information as to each such listed receivable which has been
outstanding for more than 30 days.
(iii) All machinery, tools, equipment, motor vehicles and
other tangible personal property (other than inventory and supplies),
owned, leased or used by the Company except for items having a value of
less than $10,000 which do not, in the aggregate, have a total value of
more than $50,000, setting forth with respect to all such listed
property a summary description of all leases, liens, claims,
encumbrances, charges, restrictions, covenants and conditions relating
thereto, identifying the parties thereto, the rental or other payment
terms, expiration date and cancellation and renewal terms thereof.
(iv) All patents, patent applications, licenses,
trademarks, trademark registrations, service marks, service names,
trade names, copyrights and copyright registrations, and applications
for any of the foregoing, wholly or partially owned or held by Seller
or the Company or used in the operation of the Company's business.
(v) All fire, theft, casualty, liability and other
insurance policies insuring the Company or its properties or interests
therein, specifying with respect to each such policy the name of the
insurer, the risk insured against, the limits of coverage, the
deductible
-12-
amount (if any), the premium rate and the date through which coverage
will continue by virtue of premiums already paid.
(vi) All sales agency or route distributorship agreements
or franchises or agreements providing for the services of an
independent contractor to which the Company is a party or by which it
is bound.
(vii) All contracts, agreements, commitments or licenses
relating to patents, trademarks, trade names, copyrights, inventions,
processes, knowhow, formulae or trade secrets to which the Company is a
party or by which it is bound.
(viii) All loan agreements, indentures, mortgages, pledges,
conditional sale or title retention agreements, security agreements,
equipment obligations, guaranties, leases or lease purchase agreements
to which the Company is a party or by which it is bound.
(ix) All contracts, agreements and commitments, whether or
not fully performed, in respect of the issuance, sale or transfer of
the capital stock, bonds or other securities of the Company or pursuant
to which the Company has acquired any substantial portion of its
business or assets.
(x) All contracts, agreements, commitments or other
understandings or arrangements to which the Company is a party or by
which it or any of its property is bound or affected.
(xi) All collective bargaining agreements, employment and
consulting agreements, executive compensation plans, bonus plans,
deferred compensation agreements, employee pension plans or retirement
plans, employee stock options or stock purchase plans and group life,
health and accident insurance and other employee benefit plans
agreements, arrangements or commitments, whether or not legally
binding, including, without limitation, holiday, vacation, Christmas
and other bonus practices, to which the Company is a party or is bound
or which relate to the operation of the Company's business.
(xii) The names and current annual salary rates of all
persons (including independent commission agents) whose annual
compensation (direct or indirect) from the Company is in excess of
$45,000 and showing separately for each such person the amounts paid or
payable as salary, bonus payments and any indirect compensation for the
year ended June 22, 1996, and any accrued amounts as of the Closing
that may or will become payable after the Closing.
(xiii) The names of all of the Company's directors and
officers; the name of each bank in which the Company has an account or
safe deposit box and the names of all persons authorized to draw
thereon or have access thereto; and the names of all persons, if any,
holding tax or other powers of attorney from the Company and a summary
of the terms thereof.
-13-
All of the contracts, agreements, leases, licenses and commitments required to
be listed on Schedule "5(l)" are valid and binding, enforceable by or against
the Company in accordance with their respective terms, in full force and effect
and, except as otherwise specified in Schedule "5(l)," require no consent to
remain effective after the consummation of the transactions contemplated by this
Agreement. Except as disclosed in Schedule "5(l)," none of the payments required
to be made under any such contract, agreement, lease, license or commitment has
been prepaid more than 30 days prior to the due date of such payment thereunder,
and there is not thereunder any existing default, or event which, after notice
or lapse of time, or both, would constitute a default or a basis for force
majeure or other claim of excusable delay or non-performance thereunder or
result in a right to accelerate or loss of rights. None of the Company's
existing or completed contracts is subject to renegotiation with any
governmental body. To the extent not already delivered, true and complete copies
of all such contracts, agreements, leases, licenses and other documents listed
on Schedule "5(l)" (together with any and all amendments thereto) shall be
delivered to ESI as promptly as possible after the execution hereof.
(m) Patents, etc. Except as set forth in Schedule "5(m)" attached
hereto, the Company owns or possesses the royalty free licenses or other rights
to use all copyrights, trademarks, service marks, service names, trade names,
patents, trade secrets and other proprietary rights necessary to conduct its
business as it is presently operated. The Company is not infringing upon or
otherwise acting adversely to any copyrights, trademarks, trademark rights,
service marks, service names, trade names, patents, patent rights, licenses,
trade secrets or other proprietary rights owned by any other person or persons,
and there is no claim or action by any such person pending, or to the knowledge
of Seller or the Company threatened, with respect thereto.
(n) No Guaranties. Except as set forth on Schedule "5(n)," none of
the obligations or liabilities of the Company is guaranteed by, or subject to a
similar contingent liability of, any other person, firm or corporation, nor has
the Company guaranteed, or otherwise become contingently liable for, the
obligations or liabilities of any other person, firm or corporation.
(o) Inventory and Supplies. The Company does not own any inventory
or work in process items. The Company's supplies reflected on the Balance Sheet
are suitable and usable for their intended purpose, and none of such items is
obsolete or below standard quality.
(p) Receivables. All receivables of the Company (including
accounts receivable, loans receivable and advances) which are reflected in the
Balance Sheet have arisen since the date thereof, shall have arisen only from
bona fide transactions in the ordinary course of the Company's business and
shall be (or have been) fully collected when due, or in the case of each account
receivable within 90 days after it arose, without resort to litigation and
without offset or counterclaim, in the aggregate face amounts thereof except to
the extent of the normal allowance for doubtful accounts with respect to
accounts receivable computed consistently with the Company's prior practices as
reflected on the most recent annual Financial Statement.
-14-
(q) Business Description; Material Customer List. Schedule "5(q)"
attached hereto contains an accurate and substantially complete (i) description
of the percentage of total sales and revenues and income attributable to each
line of business of the Company (as determined by the Company) for its last two,
full fiscal years immediately preceding the Closing and the portion of the
current fiscal year through the Closing Date, which accounted for 10% or more of
the Company's total sales and revenues or income before taxes, and (ii) listing
of the names of the 15 largest customers of the Company during the past year and
the name of each other customer or supplier of the Company, the loss of which as
of the Closing Date would reasonably be expected to materially and adversely
affect the Company's business (the customers referred to in this sentence are
referred to hereafter in this Section as the "Customers") on the basis of
revenues generated. Except as set forth on Schedule "5(q)," the Company and
Seller represent and warrant that none of them is aware of any circumstance or
reason why any of the Customers would terminate its relationship or materially
decrease its business with ESI after the Closing.
(r) Records. The books of account, minute books, stock record
books and other records of the Company are complete and correct in all material
respects and have been maintained in accordance with sound business practices,
and there have been no transactions involving the business of the Company which
properly should have been set forth therein and which have not been accurately
so set forth.
(s) Absence of Certain Business Practices. Neither the Company nor
any officer, employee or agent of the Company, nor any other person acting on
its behalf, has, directly or indirectly, within the five (5) year period
immediately preceding the Closing Date, given or agreed to give any gift or
similar benefit to any customer, supplier, governmental employee or other person
who is or may be in a position to help or hinder the business of the Company (or
assist the Company in connection with any actual or proposed transaction) which
(A) would reasonably be expected to subject Seller to any damage or penalty in
any civil, criminal or governmental litigation or proceeding, or (B) which would
reasonably be expected to subject the Company to suit or penalty in any private
or governmental litigation or proceeding.
(t) Labor Matters; Workers' Compensation.
(i) Except as set forth on Schedule "5(t)" and except for
those contracts that arise pursuant to applicable local law (1) there
are no collective bargaining or other labor union contracts applicable
to employees of the Company, and (2) to the best of Seller's and the
Company's knowledge, there is no organizational activity currently
under way with respect to the business being acquired by ESI. There has
not been, there is not presently pending or existing, and there is not
threatened, (a) any strike, slowdown, picketing, work stoppage, or
employee grievance/complaint process, or (b) any application for
certification of a collective bargaining agent. To the best of Seller's
and the Company's knowledge, no event has occurred or circumstance
exists that could provide the basis for any work stoppage or other
labor dispute or labor unrest.
(ii) Except as set forth on Schedule "5(t)," the Company
has not engaged in, and has not received any notice of any unfair labor
practices or discrimination, and there
-15-
is no actual, pending or threatened claim (including, without
limitation, a claim alleging an unfair labor practice or
discrimination) or threat to file same arising under any statute,
regulation, administrative or executive order or regulation relating to
any aspect of employment or labor law affecting any of the operations
or facilities being purchased by the Company. Schedule "5(t)" also
lists all labor and employment litigation that pertains to any of the
operations or facilities being acquired by the Company pursuant to this
Agreement. To the best of Seller's and the Company's knowledge, there
are no violations of any law, statute, regulation, administrative or
executive order or regulation by a Company customer relating to any
aspect of employment or labor law pursuant to which the Company is or
could become liable as a "joint employer" or otherwise. Except as set
forth on Schedule "5(t)," the Company has complied in all material
respects with all legal requirements relating to employees, employment,
equal employment opportunity, nondiscrimination, immigration, wages,
hours, benefits, collective bargaining, the payments of social security
and similar taxes, occupational safety and health and family and
medical leave. The Company is not liable for the payment of any
compensation, damages, taxes, fines, penalties, or other amounts,
however designated, for failure or alleged failure to comply with such
legal requirements.
(iii) Except as set forth on Schedule "5(t)" and except for
those contracts that arise pursuant to applicable local law, there are
no employment, severance or consulting agreements between the Company
and any of its current or former employees.
(iv) The Company is in compliance in all material respects
with all rules and regulations regarding workers' compensation and all
requirements of the Company's workers' compensation insurance carrier,
if any.
(u) Employees; Employee Benefit Plans.
(i) Employees. The Company has provided ESI with a
complete and accurate list of all permanent and full-time employees of the
Company who are not leased to customers as part of the Company's normal course
of business ("Non-leased Employees"), their salary and wage rates, vacation pay
schedule as of June 22, 1996 and other amounts payable, including, without
limitation, accrued vacation and illness pay, positions, and length of service.
Except as disclosed in Schedule "5(u)(i)" attached hereto, no Non-leased
Employee has any agreement as to length of notice required to terminate his or
her employment, other than such as results by law from the employment of an
employee without agreement as to such notice or as to length of service.
(ii) Employee Benefit Plans. Schedule "5(u)(ii)" attached
hereto lists all deferred compensation, pension, profit sharing, stock option,
stock purchase, savings, group insurance and retirement plans, and all medical,
dental, vision, life, disability, vacation pay, severance pay, incentive
compensation, consulting, bonus and other employee benefit or fringe benefit
plans, policies, or arrangements, both formal and informal, funded and unfunded,
maintained by or for the benefit of the Company with respect to which
contributions are made by or for the benefit of the Company (including health,
life insurance and other benefit plans
-16-
maintained for retirees) on behalf of employees or former employees of the
Company (but excluding "Multiemployer Plans" as described in subsection
5(u)(iii)). Said plans, including but not limited to all plans or programs
(other than Multiemployer Plans or programs) that constitute "employee benefit
plans" as defined in Section 3(3) of the Employee Retirement Income Security Act
of 1974, as amended ("ERISA"), are sometimes collectively referred to in this
Section as "Benefit Plans" and each individually is sometimes referred to as a
"Benefit Plan". True and complete copies of all Benefit Plans, including any
insurance contracts under which benefits are provided, as currently in effect
have been or will be made available to ESI upon request. A true and complete
copy of the current summary plan description, if any was required by ERISA to be
prepared and distributed to participants, for each Benefit Plan has been or will
be made available to ESI upon request. Except as set forth in Schedule
"5(u)(ii)":
(1) Other than Multiemployer Plans, neither the
Company nor any affiliate of the Company, as determined under Code Section
414(b),(c),(m) or (o) (hereinafter referred to as an "ERISA Affiliate") is or
has ever maintained, contributed to or otherwise participated in any "defined
benefit plan" as defined in Section 3(35) of ERISA; nor does the Company or any
ERISA Affiliate have any liability under Title IV of ERISA or Part 3 of Subtitle
B of Title I of ERISA.
(2) All Benefit Plans comply in all material
respects with all applicable agreements, arrangements and understandings between
the Company and its present and former employees. All contributions, premiums or
other payments due from the Company or any ERISA Affiliate to (or under) any
Benefit Plan on or prior to the Closing Date have been fully paid or adequately
provided for on the books and consolidated financial statements of the Company.
All accruals (including, where appropriate, proportional accruals for partial
periods) have been made in accordance with prior practices.
(3) Each Benefit Plan that provides medical
benefits has been operated in compliance in all material respects with all
requirements of Sections 601 through 608 of ERISA and Section 4980B of the Code
and regulations thereunder, relating to the continuation of coverage under
certain circumstances in which coverage would otherwise cease, as well as any
applicable state law health continuation of coverage provisions.
(4) The Company maintains no Benefit Plan that
provides post retirement medical benefits, post retirement death benefits or
other post retirement welfare benefits.
(5) The Company has not made or caused to be
made to any current employee, officer, director or independent contractor and
there has not been made to any former employee, officer, director or independent
contractor of the Company, any payment in the form of wages or other
consideration pursuant to any employment agreement, Benefit Plan, or other
arrangement that was (in the case of payments made prior to Closing) or will (in
the case of payments made after Closing) constitute in the aggregate an "excess
parachute payment" (within the meaning of Section 280G(b) of the Code) as a
consequence in whole or in part of this
-17-
Agreement, or thereafter, as a consequence of any change in the ownership or
effective control of the Company.
(6) To the best of Company's and Seller's
knowledge, there have been no statements or communications made or materials
provided to any employee or former employee of the Company by any person
(including any ERISA Affiliate or any employee, officer or director of any ERISA
Affiliate) which provide for or could be construed as a contract or promise by
the Company or any ERISA Affiliate to provide for any pension, welfare, or other
insurance-type benefits to any such employee or former employee, whether before
or after retirement, other than benefits under Benefit Plans set forth on
Schedule "5(u)(ii)."
(7) There are no current or former employees who
are (A) absent on a military leave of absence and eligible for rehire under the
terms of the Uniformed Services Employment and Reemployment Rights Act, or (B)
absent on a leave of absence under the Family and Medical Leave Act, which in
either case would allow any such employee to obtain restoration of any employee
benefit plan contributions or accruals related to the period of such leave.
(8) The consummation of the transactions
contemplated by the Agreement will not (A) give rise to any liability or
obligation of the Company pursuant to any Benefit Plan, including but not
limited to, the payment of severance pay or benefits, (B) accelerate the time of
payment or vesting or increase the amount of compensation due under any Benefit
Plan, (C) cause any individual to accrue or receive additional benefits, service
or accelerated rights to payment of benefits under any Benefit Plan, or (D)
directly or indirectly cause the Company or any ERISA Affiliate to transfer or
set aside any assets to fund or otherwise provide for benefits for any
individual.
(9) Each Benefit Plan complies in all material
respects, in form and operation, with all applicable statutes, laws and
regulations of any public body or authority, including, but not limited to,
ERISA and the Code and all applicable requirements of (A) the Age Discrimination
in Employment Act of 1967, as amended, and regulations thereunder, (B) Title VII
of the Civil Rights Act of 1964, as amended, and regulations thereunder, and (C)
the Americans with Disabilities Act of 1990, as amended, and regulations
thereunder.
(10) The funds available under each Benefit Plan
which is intended to be a funded plan equal or exceed the amounts required to be
paid, or which would be required to be paid, if such Benefit Plan were
terminated, on account of rights vested or accrued as of the Closing Date.
(11) No Benefit Plan is intended to qualify under
Section 401(a) of the Code. Any Benefit Plan intended to comply with Section
408(k) of the Code meets in all material respects all requirements of Section
408(k) of the Code and the regulations thereunder, and has been administered in
accordance with its terms and the applicable provisions of ERISA and the Code
and the regulations thereunder.
-18-
(12) With respect to each Benefit Plan, except as
set forth on Schedule "12(b)(iv)," there have been no "prohibited transactions"
within the meaning of Section 406 or 407 of ERISA or Section 4975 of the Code
for which a statutory or administrative exemption does not exist with respect to
such Benefit Plan; all reports and information relating to each such Benefit
Plan required to be filed with any governmental entity have been accurately and
timely filed; all reports and information relating to each such Benefit Plan
required to be disclosed or provided to participants or their beneficiaries have
been timely disclosed or provided; there is no trust related to any Benefit Plan
which is a voluntary employee beneficiary association pursuant to Section
501(c)(9) of the Code; there exist no restrictions on ESI's right to terminate
or decrease prospectively the level of benefits under any Benefit Plan after the
Closing Date without liability; to the best of Company's and Seller's knowledge,
no event has occurred or circumstance exists that could result in a material
increase in premium costs of any Benefit Plan that is insured or a material
increase in benefit costs of any Benefit Plan that is self-insured; to the best
of Company's and Seller's knowledge, no officer, employee or director of the
Company or other fiduciary of any Benefit Plan has committed a material breach
of any responsibility or obligation imposed upon fiduciaries under Title I of
ERISA with respect to such Benefit Plan.
(13) There has been made available to ESI, with
respect to each Benefit Plan the following: a copy of the annual report (if
required under ERISA) with respect to each such Benefit Plan for the last three
years (including all schedules and attachments); a copy of the summary plan
description, together with each summary of material modifications, required
under ERISA with respect to such Benefit Plan; all material employee
communications relating to such Benefit Plan (including COBRA notices); a true
and complete copy of such Benefit Plan; all trust agreements, insurance
contracts, accounts or other documents which establish the funding vehicle for
any Benefit Plan and the latest financial statements thereof; any investment
management agreements, administrative services contracts, or other agreements
and documents relating to the ongoing administration and investment of any
Benefit Plan.
(14) With respect to each such Benefit Plan for
which an annual report has been filed, no material adverse change has occurred
with respect to the matters covered by the latest such annual report since the
date thereof.
(15) There are no actions, suits, proceedings,
investigations or hearings pending with respect to any Benefit Plan, or to
Seller's or the Company's knowledge any claims (other than claims for benefits
arising in the ordinary course of an Benefit Plan) threatened against or with
respect to any Benefit Plan or any fiduciary or assets thereof, and there are no
facts known to Seller or the Company which could reasonably give rise to any
such actions, suits, proceedings, investigations, hearings or claims.
-19-
(iii) Multiemployer Plans.
(1) Except as disclosed on Schedule "5(u)(iii)":
(A) The Company is not a party to, or
otherwise contributes to, any pension plan or welfare benefit plan that is a
"Multiemployer Plan" within the meaning of Section 4001(a)(3) of ERISA;
(B) Neither the Company nor any ERISA
Affiliate has incurred a withdrawal (either complete or partial) (as defined in
Section 4203 or 4205 of ERISA) from any Multiemployer Plan;
(C) Neither the Company nor any ERISA
Affiliate is delinquent in making any contributions required to be paid to any
Multiemployer Plan; and
(D) There is no pending dispute between
the Company or any ERISA Affiliate and any Multiemployer Plan concerning payment
of contributions or payment of withdrawal liability payments.
(2) For each Multiemployer Plan (including each
welfare benefit plan which, pursuant to its trust agreement, contract, or
otherwise, imposes any post-withdrawal liability or contribution obligations
upon employers withdrawing from such plan) to which the Company has an
obligation to contribute with respect to the Company's assets, the Company has
requested, or will so request, one of the following which will be provided to
Buyer promptly upon receipt:
(A) a letter from the Administrator of
the Multiemployer Plan setting forth the estimated withdrawal liability which
would be imposed by the Plan if the Company were to withdraw from the Plan in a
complete withdrawal, as of the most recently-available information, and the
factors used to determine such estimate; or
(B) a letter from the Administrator of
the Multiemployer Plan, or the most recently-available Form 5500 and/or
actuarial report of the Multiemployer Plan, which in either case sets forth the
actuarial assumptions used in determining the present value of unfunded vested
benefits, and which shows that the Plan had no unfunded vested benefits as of
the date of such report or form; or
(C) a letter from the Administrator of
the Multiemployer Plan and/or the most recently-available actuarial report of
the Plan, which sets forth the allocation method used by the Plan under Section
4211 of ERISA, the present value of unfunded vested benefits of the Plan for
withdrawal liability purposes as of each plan year relevant under such
allocation method, and the total employer contributions (net of withdrawn
employers) for each such relevant plan year, and (from the Administrator or from
the Company) a listing by relevant year of the total contributions to the Plan
which the Company and all its ERISA Affiliates were obligated to make for such
plan year.
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(v) Capital Stock. Except for certain options running to Seller in
existence on the Closing Date but thereafter waived and no longer in effect on
the date hereof, there are no outstanding subscriptions, options, warrants,
calls, contracts, demands, commitments, convertible securities or other
agreements or arrangements of any character or nature whatever under which the
Company is or may become obligated to issue, assign or transfer any shares of
the capital stock of the Company. The Company has no stock issued and
outstanding other than the Purchased Stock. All shares of capital stock of the
Company outstanding were issued in compliance in all material respects with all
federal and state securities or "blue sky" laws. There are no preemptive or
similar rights with respect to the Company's capital stock. The Company is not a
party to any voting trust agreements or other contracts, agreements or
arrangements restricting voting rights or transferability with respect to any
shares of the capital stock of the Company.
(w) Disclosure. No representation or warranty by Seller or the
Company contained in this Agreement, nor any statement or certificate furnished
or to be furnished by the Company to ESI or its representatives in connection
herewith or pursuant hereto, contains or will contain any untrue statement of a
material fact, or omits to state any material fact required to make the
statements herein or therein contained, in light of the circumstances under
which made, not misleading as of the date made.
When a representation or warranty is given to "the best of Seller's or the
Company's knowledge," it means all information that is known by them, or their
counsel, if an individual, and by any one or more of its officers, directors or
counsel, if an entity.
6. Representations and Warranties by ESI. ESI represents and warrants to
Seller, as of the date hereof with respect to all representations and warranties
dealing with the execution of this Agreement and any other documents executed in
connection herewith, and as of the Closing, with respect to all other
representations and warranties, as follows:
(a) Organization. ESI is a corporation duly organized, validly
existing and in good standing under the laws of Arizona and has full corporate
power and authority to enter into this Agreement and the related agreements
referred to herein and to carry out the transactions contemplated by this
Agreement and to carry on its business as now being conducted and to own, lease
or operate its properties as and in the places where such business is now
conducted and such properties are now owned, leased or operated. ESI has not
failed to qualify to do business or to become licensed as a leasing company in
any state where the failure to do so would have a material adverse effect on it
or its operations.
(b) Authorization and Approval of Agreement. All proceedings or
corporate action required to be taken by ESI relating to the execution and
delivery of this Agreement and the consummation of the transactions contemplated
hereby shall have been taken at or prior to the Closing.
(c) Execution, Delivery and Performance of Agreement. Neither the
execution, delivery nor performance of this Agreement by ESI will, with or
without the giving of notice
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or the passage of time, or both, conflict with, result in a default, right to
accelerate or loss of rights under, or result in the creation of any lien,
charge or encumbrance pursuant to, any provision of ESI's certificate of
incorporation or by-laws or any franchise, mortgage, deed of trust, lease,
license, agreement, understanding, law, ordinance, rule or regulation or any
order, judgment or decree to which ESI is a party or by which it may be bound or
affected. ESI has full power and authority to enter into this Agreement and to
carry out the transactions contemplated hereby, all proceedings required to be
taken by ESI to authorize the execution, delivery and performance of this
Agreement and the agreements relating hereto, have been properly taken and this
Agreement constitutes a valid and binding obligation of ESI, enforceable against
it in accordance with its terms.
(d) Litigation. There is no legal action, suit, arbitration,
governmental investigation or other legal or administrative proceeding, nor any
order, decree or judgment in progress, pending or in effect, or to the knowledge
of ESI threatened, against or relating to ESI in connection with or relating to
the transactions contemplated by this Agreement, and ESI does not know or have
any reason to be aware of any basis for the same.
(e) No Consents or Approvals. The execution, delivery and
performance by ESI of this Agreement and the consummation by it of the
transactions contemplated hereby will not require any consent or approval of, or
filing or notice to, any federal, state or local governmental or regulatory
authority except for filings under the Xxxx-Xxxxx Xxxxxx Act and any consent,
approval, filing or notice that would not, if not given or made, individually or
in the aggregate, have a material or adverse effect on ESI's business, financial
condition or results of operations.
(f) Common Stock. ESI has taken all actions necessary to authorize
and approve the issuance of the ESI Stock issuable in connection with the
payment of the Purchase Price and, when issued, such stock will be validly
issued, fully paid and non-assessable. There are and shall at the time of
issuance be no statutory or contractual preemptive rights or rights of first
refusal with respect to the issuance of such ESI stock.
(g) Commission Filings. ESI has filed and made available to each
Selling Stockholder and the Company all forms, reports and documents required to
be filed by ESI with the Securities and Exchange Commission (the "SEC") under
the Securities Exchange Act of 1934, as amended (the "Exchange Act"), during the
two year period ending on the Closing Date (collectively, the "SEC Reports").
The SEC Reports (i) at the time filed, complied in all material respect with the
applicable requirements of the Exchange Act and (ii) did not at the time they
were filed (or if amended or superseded by a filing prior to the date of this
Agreement, then on the date of such filing) contain any untrue statement of a
material fact or omit to state a material fact required to be stated in such SEC
Reports or necessary in order to make the statement in such SEC Reports, in the
light of the circumstances under which they were made, not misleading. As of
their respective dates, the financial statements of ESI included the SEC Reports
complied when filed as to form in all material respects with applicable
accounting requirements and with the published rules and regulations of the SEC
with respect thereto, and were, when filed, in accordance with the books and
records of ESI, complete and accurate in
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all material respects, and presented fairly the consolidated financial position
and the consolidated results of operations, changes in the stockholders' equity
and cash flows of ESI and its subsidiaries as of the dates and of the periods
indicated, in accordance with generally accepted accounting principles,
consistently applied, subject in the case of interim financial statements to
normal year-end adjustments and the absence of certain footnote information.
(h) No Material Adverse Changes. Since the date of the most recent
SEC Report, no event has occurred which has had a material adverse effect on ESI
and no action, suit, claim or proceeding has been filed, or threatened in
writing, which if adversely determined, would result in a material adverse
effect on ESI's business, results of operations or financial condition.
(i) Disclosure. Neither this Agreement nor any other document,
certificate or statement furnished or to be furnished by or on behalf of ESI to
Seller or the Company in connection with the transactions contemplated hereby
contains or will contain any untrue statement of a material fact, or omits or
will omit to state a material fact required to make the factual statements
contained herein or therein, in light of the circumstances under which made, not
misleading.
(j) The Company's Business. Subject to the ultimate control and
responsibility of the Board of Directors of the Company and of ESI as the sole
stockholder of the Company, ESI will permit the Company to conduct its business
in substantially the manner conducted prior to Closing and under the guidance of
Colby, subject to the terms of his Employment Agreement. ESI will cooperate with
Colby in maintaining and increasing the Company's profitability, but this
agreement by ESI shall not be construed as a commitment by ESI to invest in or
make available to the Company any particular amount of additional capital, or to
incur or allow any particular expense or obligation by or on behalf of the
Company.
(k) Working Capital. ESI will not, except for a valid business
purpose, attempt to limit the Company's access to working capital funds.
Further, ESI, in its sole discretion, may make available to the Company working
capital funds in such amounts as are reasonably required by the Company at the
prime rate of interest.
(l) Listing and Exchange Act Compliance. ESI will use its
reasonable efforts to (i) remain listed on a national securities exchange or
NASDAQ, and (ii) file all reports, statements and other documents required to be
filed under the Exchange Act in a timely manner , so as to avoid any prohibition
on Seller's ability to sell the ESI Stock pursuant to Rule 144. If ESI is not
listed on a national securities exchange or NASDAQ on or after the date that the
Purchase Price is due, it shall pay the Purchase Price in cash instead of with
ESI stock.
(m) Merger. ESI will not merge with or into another entity unless
(i) ESI is the surviving entity, or (ii) ESI is not the surviving entity, but
the surviving entity (A) obligates itself to pay the Purchase Price in cash
(provided, however, that the surviving entity still may pay the Purchase Price
in its stock if both it and Seller agree to such payment), and (B) assumes all
of the other obligations of ESI hereunder.
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(n) ESI's Business. ESI, except in the exercise of its reasonable
business judgment, will not cease to conduct ESI's business as now being
conducted by it.
(o) Continuing Corporate Status. ESI will, at the time the ESI
Stock is issuable, be a corporation duly organized, validly existing and in good
standing under the laws of the state of its incorporation, with full corporate
power and authority to consummate the transactions contemplated hereby.
When a representation or warranty is given to "the best of ESI's knowledge," it
includes all information that is known or that reasonably should be known by any
one or more of its officers, directors or in-house counsel, if any.
7. Employment of General Manager. Colby and ESI each shall use his or its
best efforts to assist the Company in hiring a general manager to manage the
day-to-day operations of the Company, thereby enabling Colby, as president of
the Company, to focus on generating additional leasing sales (both traditional
sales from the Company's business and sales traditional to ESI's business) to
enhance the Company's profitability. Notwithstanding the hiring of a general
manager, Colby will retain ultimate responsibility over the operations and
profitability of the Company, subject to the supervision and control of ESI's
Board of Directors and the terms of the Employment Agreement.
8. Audited Financial Statements. To the extent not completed prior to the
date of this Agreement, Seller shall use its best efforts to cooperate with ESI
and the Company to complete the audit and delivery of the following financial
statements:
(a) The Company's audited balance sheets as of December 31, 1994
and 1995, and audited income statements, statements of cash flows, and related
notes, prepared in accordance with GAAP and SEC Regulation S-X for the related
one year periods ended on December 31, 1993, 1994 and 1995, accompanied by a
clean and unqualified report of the Company's auditor thereon; and
(b) The Company's unaudited balance sheets and unaudited income
statements, statements of cash flows, and related notes, prepared in accordance
with GAAP and SEC Regulation S-X for any such periods that might be required to
keep the statements current under Regulation S-X.
Seller shall make available to ESI's auditors, Xxxxxx Xxxxxxxx, LLP, all
materials, notes, work papers, etc., necessary for the preparation of any
financial statements. All costs associated with the fulfillment of the foregoing
shall be borne by ESI and shall not affect the Purchase Price. ESI also shall
bear the cost of any future audits of the Company required in connection with
ESI's public company reporting.
9. Indemnification.
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(a) Indemnification by Seller and the Company. Except for the
matters covered by Section "9(b)," Seller and the Company, jointly and
severally, hereby indemnify and agree to hold ESI and its affiliates and their
respective stockholders, officers, directors, employees and agents (all of which
are included in any reference to ESI in this Section) harmless from, against and
in respect of (and shall on demand reimburse ESI for):
(i) any and all losses, liabilities or damages suffered
or incurred by ESI by reason of any untrue representation, breach of
warranty or nonfulfillment of any covenant by the Company contained
herein or in any certificate, document or instrument delivered to ESI
hereunder;
(ii) any and all losses, damages, debts, liabilities or
obligations of the Company or its respective affiliates, direct or
indirect, fixed, contingent or otherwise, which exist at or as of the
Closing Date hereunder or which arise after the Closing but which are
based upon or arise from any act, omission, transaction, circumstance,
providing of goods or services, state of facts or other condition which
occurred or existed on or before the Closing Date, whether or not then
known, due or payable, except to the extent reflected or reserved
against on the Financial Statements, and including, but not limited to,
any loss, damage, debt, liability or obligation arising from
outstanding, uncashed checks of the Company not reserved for on the
Financial Statements;
(iii) any and all losses, liabilities or damages suffered
or incurred by ESI by reason of or in connection with any claim for a
finder's fee or brokerage or other commission arising by reason of any
services alleged to have been rendered to or at the instance of the
Company with respect to this Agreement or any of the transactions
contemplated hereby; and
(iv) any and all actions, suits, proceedings, claims,
demands, assessments, judgments, costs and reasonable expenses,
including, without limitation, reasonable legal fees and expenses,
incident to any of the foregoing or incurred in investigating any claim
which in fact gives rise to a right of indemnification hereunder or
attempting to avoid the same or to oppose the imposition thereof, or in
enforcing this indemnity.
(b) Indemnification by Selling Stockholders. Each Selling
Stockholder shall,severally and not jointly, indemnify, defend and hold ESI and
its affiliates and their respective stockholders, officers, directors, employees
and agents (all of which are included in any reference to ESI in this Section)
harmless, from, against and in respect of (and shall on demand reimburse ESI
for) any and all losses, liabilities or damages suffered or incurred by ESI:
(i) by reason of any untrue representation, breach of
warranty or nonfulfillment of any covenant by such Selling Stockholder
contained in Section 4 or in any certificate, document or instrument
delivered to ESI hereunder by or on behalf of such Selling Stockholder;
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(ii) any and all losses, liabilities or damages suffered
or incurred by ESI by reason of or in connection with any claim for a
finder's fee or brokerage or other commission arising by reason of any
services alleged to have been rendered to or at the instance of such
Selling Stockholder with respect to this Agreement or any of the
transactions contemplated hereby; and
(iii) any and all actions, suits, proceedings, claims,
demands, assessments, judgments, costs and reasonable expenses,
including, without limitation, reasonable legal fees and expenses,
incident to any of the foregoing or incurred in investigating any claim
which in fact gives rise to a right of indemnification hereunder or
attempting to avoid the same or to oppose the imposition thereof, or in
enforcing this indemnity.
(c) Indemnification by ESI. ESI hereby agrees to indemnify and
hold Seller harmless from, against and in respect of (and shall on demand
reimburse Seller for):
(i) Any and all losses, liabilities or damages resulting
from any untrue representation, breach of warranty or non-fulfillment
of any covenant or agreement by ESI contained herein or in any
certificate, document or instrument delivered to Seller hereunder;
(ii) Any and all claims asserted directly against Seller
by reason of any and all losses, damages, debts, liabilities or
obligations of the Company, direct or indirect, fixed, contingent or
otherwise, except for those based upon or arising from any circumstance
giving rise to a right of indemnification under Sections 9(a) or 9(b)
(regardless of whether timely asserted);
(iii) Any and all losses, liabilities or damages suffered
or incurred by Seller by reason of or in connection with any claim for
a finder's fee or brokerage or other commission arising by reason of
services alleged to have been rendered to ESI with respect to this
Agreement or any transactions contemplated hereby; and
(iv) Any and all actions, suits, proceedings, claims,
demands, assessments, judgments, costs and reasonable expenses,
including, without limitation, reasonable legal fees and expenses,
incident to any of the foregoing or incurred in investigating or
attempting to avoid the same or to oppose the imposition thereof, or in
enforcing this indemnity.
(d) Limitations and Offset. Subject to the following sentence, (i)
the total amount of all claims for indemnification by ESI, on the one hand, or
Seller, the Company and the Shareholders, in the aggregate, on the other hand,
shall not exceed an amount equal to the Purchase Price, and (ii) all
indemnification claims by ESI against Seller, the Company and/or the Selling
Stockholders shall be paid only in the form of an offset against the Purchase
Price (with any such offset allocated against the portion of the Purchase Price
owing to each Selling Stockholder on the basis of his former percentage
ownership interest in the Company). Notwithstanding the previous sentence, if
any party incurs damages as a result of fraud, the
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damaged party may pursue the party that committed the fraud directly for such
claims, without regard to the Purchase Price cap or offset requirement set forth
in the previous sentence. The parties acknowledge that a violation of a
representation or warranty, absent the traditional elements for a claim of fraud
under applicable state law, shall not constitute fraud hereunder.
(e) Notice and Defense. If at any time a party entitled to
indemnification hereunder (the "Indemnitee") shall receive notice of any
asserted losses, liabilities or damages claimed to give rise to indemnification
hereunder, the Indemnitee shall promptly give notice thereof (a "Claims Notice")
to the party obligated to provide indemnification (the "Indemnitor") therefor.
The Claims Notice shall set forth a brief description of the facts and
circumstances giving rise to such claim for indemnification, and, if known, the
amount of the losses, liabilities or damages that have been or may be suffered
by the Indemnitee. Thereafter, the Indemnitor shall have at its election, the
right to settle or defend any such matter at the Indemnitor's sole cost and
expense through counsel chosen by the Indemnitor and approved by the Indemnitee
(which approval shall not unreasonably be withheld); provided, however, that any
such settlement or defense shall be conducted in a manner which is reasonable
and not contrary to the Indemnitee's interests and the Indemnitee shall in all
events have a right to reasonably veto any non-monetary settlement or any
defense which would jeopardize in any material respect any assets or business of
the Indemnitee or any of its affiliates or increase the potential liability of,
or create a new liability for, the Indemnitee or any of its affiliates and
provided further that the Indemnitor shall in all events indemnify the
Indemnitee and its affiliates against any damage resulting from the manner in
which such matter is settled or defended including any failure to pay any such
claim which such litigation is pending. If the Indemnitee unreasonably vetoes
any settlement or defense, the Indemnitee shall be deemed to have waived any
right against the Indemnitor with respect to such matter. In the event that the
Indemnitor does so undertake to settle and defend a claim, the Indemnitor shall
notify the Indemnitee of its intention to do so. Even if the Indemnitor
undertakes to settle or defend a claim, the Indemnitee shall have the right to
settle any matter for which a claim for indemnification has been made hereunder
upon notice to the Indemnitor and by waiving any right against Indemnitor with
respect to such matter. Each party agrees in all cases to cooperate with the
defending party and its counsel in the settlement of or defending of any such
liabilities or claims. In addition, the non-defending party shall at all times
be entitled to monitor such defense through the appointment, at its own cost and
expense, of advisory counsel of its own choosing.
10. Nature and Survival of Representations and Warranties; Relationship to
Indemnification. Except as set forth in the following sentence, all statements,
representations, warranties, indemnities and covenants made by each of the
parties hereto shall survive the Closing and shall not expire until June 30,
1998. Notwithstanding the previous sentence, the following representations shall
survive the Closing for the following periods of time: (i) any representations
and warranties relating to tax matters or for fraud shall survive until the
expiration of the applicable statute of limitations for the tax matter or fraud
in question, (ii) any representations and warranties relating to the Plan or
Benefit Plan (including without limitation those contained in Sections 5(u)
hereof) shall survive until June 22, 1999, and (iii) any representations and
warranties, which by their express terms require performance of an action after
June 30, 1998, shall survive until sixty (60) days after the later of (1) the
date upon which
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the performance of the action is required and fails to occur, or (2) the date
upon which any notice and/or cure period expires with respect to the failed
performance. The foregoing limitations do not apply to, and do not limit, the
post-closing covenants and obligations of the parties expressly set forth in
Sections 2, 3, 12 and 13(e) hereof. Claims for violations of representations and
warranties shall be subject to the same limitations and mechanics as claims for
indemnification, all as set forth in Sections 9(d) and (e). Any party may make a
claim for indemnification by sending written notice to the other party or
parties hereto on or before midnight on the last date of the time period for
survival of the representation and warranty in question. The termination of the
rights of an indemnified party to receive indemnification as provided in the
Agreement shall not affect any person's right to prosecute to conclusion any
claim made by that person prior to the time that the relevant right of indemnity
terminates.
11. Notices.
All notices and other communications required or permitted under this
Agreement shall be in writing and shall be delivered or sent to the parties at
the address set forth below, or at such other address that they designate by
notice to all other parties in accordance with this Section 11. Any party
delivering notice to Seller shall deliver it to:
c/o Xxxxxxx X. Xxxxx
TEAM Services
0000 Xxxxx Xxxxxxxxx Xxx
Xxxxx 000
Xxxxxxx, Xxxxxxxxxx 00000-0000
Fax No. (000) 000-0000
with a copy to:
Xxxxxxxx & Xxxxxx, Ltd.
00 Xxxxx Xxxxxx Xxxxx
Xxxxxxx, Xxxxxxxx 00000
Attn: Xxxxxxx Xxxxx
Fax No. (000) 000-0000
Any party delivering notice to ESI shall deliver it to:
Xxxxxx X. Xxxxx
Chairman of the Board
EMPLOYEE SOLUTIONS, INC.
0000 X. Xxxxxxxxx Xxxx, Xxxxx 000
Xxxxxxx, Xxxxxxx 00000
Fax No. (000) 000-0000
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with a copy to:
Xxxxxx X. Xxxxxxxx, Esq.
XXXXXXX & XXXXX
Xxx X. Xxxxxxxxx, Xxxxx 000
Xxxxxxx, Xxxxxxx 00000
Fax No. (000) 000-0000
All notices and communications shall be deemed to have been received:
(1) in the case of personal delivery, on the date of such delivery; (2) in the
case of telex or facsimile transmission, on the date on which the sender
receives confirmation by telex or facsimile transmission that such notice was
received by the addressee, provided that a copy of such transmission is
additionally sent by mail as set forth in (4) below; (3) in the case of
overnight air courier, on the second business day following the day sent, with
receipt confirmed by the courier; and (4) in the case of mailing by first class
certified or registered mail, postage prepaid, return receipt requested, on the
date of delivery, as evidenced by the certified or registered mail receipt.
12. Registration Rights
(a) Piggy-Back Registration Rights. During the one (1) year period
beginning on the date of delivery to Seller of the ESI Stock in payment of the
Purchase Price, ESI shall advise each Selling Stockholder with respect to whom
there are no continuing uncured breaches, uncured defaults or unfulfilled
obligations under Sections 3(b) and 4 hereof for which such Selling Stockholder
has been given notice and at least ten (10) days to cure or perform, if the
breach is curable (each Selling Stockholder meeting these criteria is an
"Eligible Stockholder"), by written notice at least two (2) weeks prior to the
filing of any new registration statement under the 1933 Act covering any
securities of ESI, for its own account or for the account of others, except for
any registration statement filed on Form S-4 or S-8 or successor form, and will,
during such period of time, upon the written request of such Eligible
Stockholders include in any such new registration statement, such information as
may be required to permit a public offering of the ESI Stock. ESI shall supply
prospectuses and such other documents as such Eligible Stockholders may
reasonably request in order to facilitate the public sale or other disposition
of the ESI Stock, use its reasonable efforts to register and qualify any of the
ESI Stock for sale in all states as such Eligible Stockholders may reasonably
designate (provided that the maximum number of states in any offering shall be
five (5) if ESI's common stock ceases to be listed on any nationally recognized
exchange, including without limitation, The Nasdaq National Market) and do any
and all other reasonable acts and things which may be necessary to enable such
Eligible Stockholders to consummate the public sale or other disposition of the
ESI Stock; provided, however, that such Eligible Stockholders shall furnish
information and indemnification as set forth in Section 12(c) below.
(b) Demand Registration Rights. In the event that (i) ESI does not
file any new registration statement referred to in Section 12(a) above (other
than any registration statement filed on Form S-4 or S-8) during the period
described therein, or, ESI does file a registration
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statement, but all of the ESI Stock owned by the Eligible Stockholders is not
eligible for sale thereunder, and (ii) any Eligible Stockholders are then unable
to dispose of all of the ESI Stock under SEC Rule 144, for a period of one (1)
year, commencing on the first anniversary date of the delivery to Seller of the
ESI Stock in payment of the Purchase Price, ESI agrees that, upon written demand
by a majority (based upon their former percentage ownership interests in the
Company's stock) of the Eligible Stockholders, ESI will use all reasonable
efforts on a one-time basis only (except as provided in Section 12(e) below) to
prepare and file a registration statement under the 1933 Act covering the ESI
Stock, to cause such registration statement to become effective as expeditiously
as possible, and to register and qualify the ESI Stock for sale in all states as
the Eligible Stockholders may reasonably designate (provided that the maximum
number of states in any offering shall be five (5) if ESI's common stock ceases
to be listed on any nationally recognized exchange, including without
limitation, The Nasdaq National Market), and do any and all other reasonable
acts and things which may be necessary to enable all Eligible Stockholders to
consummate the public sale or other disposition of the ESI Stock, all at no
expense to all Eligible Stockholders (except as otherwise provided herein and
specifically except for any underwriting broker or other selling discounts and
commissions, which shall be paid by all Eligible Stockholders); provided,
however, that all Eligible Stockholders shall furnish information and
indemnification as set forth in Section 12(c) below, and provided further that
ESI shall not be required to maintain the effectiveness of the registration
statement covering the ESI Stock for more than sixty (60) days (six (6) months
if not done pursuant to an underwritten offering) following its becoming
effective.
(c) Additional Agreements of Eligible Stockholders. In
consideration of the piggyback registration rights and demand registration
rights provided by the provisions of Sections 12(a) and (b) above, respectively,
the Eligible Stockholders agree as follows: (i) Whenever pursuant to either
Section 12(a) or (b) above a registration statement and/or preliminary or final
prospectus relating to the ESI Stock is filed under the 1933 Act, amended or
supplemented, each of the Eligible Stockholders participating in such offering
will on a several basis solely with respect to himself indemnify and hold
harmless ESI, each of its directors, officers, agents, representatives
(including legal counsel, accountants and underwriters), and each person, if
any, who controls ESI (within the meaning of said Act) against any and all
actions, losses, claims, damages or liabilities, to which ESI or any such
director, officer or controlling person may become subject, under said Act or
otherwise, insofar as such losses, claims, damages or liabilities, or actions
with respect thereto, arise out of or are based upon (1) any untrue or alleged
untrue statement of any material fact contained in said registration statement,
said preliminary prospectus, said final prospectus, or said amendment or
supplement, or arise out of or are based upon the omission or the alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, in each case to the
extent, but only to the extent, that such action, loss, claim, damage or
liability arises out of or is based upon an untrue statement or alleged untrue
statement or omission or alleged omission made in said registration statement,
said preliminary prospectus, said final prospectus or said amendment or
supplement in reliance upon and in conformity with information furnished in
writing, by or on behalf of such Eligible Stockholder expressly for use in the
preparation thereof, or (2) such Eligible Stockholder's failure to comply with
any applicable prospectus delivery requirements after ESI has furnished such
Eligible Stockholder with a sufficient number
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of copies of the same; and will reimburse ESI or any such director, officer,
agent, representative or controlling person for any legal or other expenses
reasonably incurred by them in connection with investigating or defending any
such loss, claim, damage, liability or action.
(d) Effect of Underwriter Participation. If the registration of
which ESI gives notice pursuant to Section 12(a) is for a public offering
involving an underwriting, ESI agrees to so advise each Selling Stockholder as a
part of its written notice. In such event the right of an Eligible Stockholder
to registration pursuant to Section 12(a) shall be conditioned upon such
Eligible Stockholder's participation in such underwriting and the inclusion of
such Eligible Stockholder's ESI Stock in the underwriting to the extent provided
herein. Such Eligible Stockholder, if proposing to distribute its ESI Stock
through such underwriting, agrees to enter into (together with ESI and the other
holders distributing their securities through such underwriting) an underwriting
agreement (in customary form) with the underwriter or underwriters selected for
such underwriting by ESI.
(e) Reduction in Offering. Notwithstanding any other provision of
this Section 12, if the managing underwriter of any underwritten distribution
advises ESI and the participating Eligible Stockholders that in its good faith
judgment the number of shares of ESI common stock and other securities requested
to be registered exceeds the number of shares of ESI common stock and other
securities which can be sold in such offering, then (i) the number of shares of
ESI common stock and other securities so requested to be included in the
offering shall be reduced to the number of shares which in the good faith
judgment of the managing underwriter can be sold in such offering (except for
shares to be issued by ESI, which shall be given priority over the shares of ESI
Stock owned by such Eligible Stockholder in all cases other than a registration
initiated as the result of a demand pursuant to Section 12(b)), and (ii) such
reduced number of shares shall be allocated among the participating Eligible
Stockholder and the other holders of securities in proportion, as nearly as
practicable, to the respective number of shares of ESI common stock and other
securities which are excluded from the underwriting by reason of the
underwriter's marketing limitation and all other securities not originally
requested to be so included shall not be included in such registration and shall
be withheld from the market by such Eligible Stockholder and the other holders
thereof for a period, not to exceed one hundred eighty (180) days, which the
managing underwriter reasonably determines is necessary to effect the
underwritten public offering. If such reduction occurs in respect of any
registration referenced in Section 12(a), the Eligible Stockholders shall be
entitled to additional rights to piggyback registration until the expiration of
the time period set forth in Section 12(a), and thereafter to demand rights
pursuant to Section 12(b). If such reduction occurs in respect of any
registration initiated as the result of a demand pursuant to Section 12(b), the
Eligible Stockholders shall be entitled to additional rights to demand
registration until no such reduction occurs; provided, however, that such
additional registration rights may not be exercised to the extent that the
Eligible Stockholders may then be eligible to sell their ESI Stock without
registration under the 1933 Act by virtue of Rule 144 thereunder.
(f) Responsibility for Fees. With respect to each inclusion of
shares of ESI Stock in a registration statement pursuant to Section 12(a) or
12(b) hereof, ESI agrees to bear all fees, costs and expenses of and incidental
to such registration and the public offering in connection
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therewith; provided that each Eligible Stockholder shall bear his own attorneys'
fees and a pro rata share of the underwriting, broker or other selling discounts
and commissions.
(g) Indemnification. In connection with any registration of an
Eligible Stockholder's shares of ESI Stock, ESI agrees to indemnify, to the
extent permitted by law, each such Eligible Stockholder against all losses,
claims, damages, liabilities and expenses (including, without limitation,
attorneys' fees) arising out of or based upon any untrue or alleged untrue
statement of a material fact contained in any registration statement, prospectus
or any amendment thereof or supplement thereto or any omission or alleged
omission of a material fact required to be stated therein or necessary to make
the statements therein not misleading, except insofar as the same are caused by
or contained in any information furnished in writing to ESI by such Eligible
Stockholder expressly for use therein or by such Eligible Stockholder's failure
to deliver a copy of the registration statement or prospectus or any amendments
or supplements thereto after ESI has furnished such Eligible Stockholder with a
sufficient number of copies of the same or any violation or alleged violation by
the ESI of any applicable law, rule or regulation in connection with such
registration or sale.
13. Miscellaneous.
(a) This writing constitutes the entire agreement of the parties
with respect to the subject matter hereof and may not be modified, amended or
terminated except by a written agreement specifically referring to this
Agreement signed by ESI, the Company and a simple majority (based upon the
former percentage ownership interests of the Selling Stockholders in the
Company's stock) of the Selling Stockholders.
(b) No waiver of any breach or default hereunder shall be
considered valid unless in writing and signed by the party giving such waiver,
and no such waiver shall be deemed a waiver of any subsequent breach or default
of the same or similar nature.
(c) ESI may assign its right to acquire ownership of the Purchased
Stock to a nominee that is an affiliate of ESI, provided that ESI shall remain
obligated for all representations, warranties, indemnifications, covenants and
performances given by or required of ESI hereunder. All of the Selling
Stockholders other than Colby may assign to Colby up to 20% of their rights to
receive payments of Purchase Price hereunder. Aside from the preceding two
sentences, no party may assign or transfer any of its rights under this
Agreement without the consent of the other parties hereto, which consent shall
not be unreasonably withheld. Subject to the foregoing, this Agreement shall be
binding upon and inure to the benefit of each corporate party hereto, its
successors and assigns, and each individual party hereto and his heirs, personal
representatives, successors and assigns.
(d) The paragraph headings contained herein are for the purposes
of convenience only and are not intended to define or limit the contents of said
paragraphs.
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(e) Each party hereto shall cooperate, shall take such further
action and shall execute and deliver such further documents as may be reasonably
requested by any other party in order to carry out the provisions and purposes
of this Agreement.
(f) Seller will pay all sales, transfer and documentary taxes, if
any, payable in connection with the sale, conveyances, assignments, transfers
and deliveries to be made to ESI hereunder.
(g) This Agreement may be executed in one or more counterparts,
all of which taken together shall be deemed one original.
(h) This Agreement and all amendments thereof shall be governed by
and construed in accordance with the law of the State of Arizona applicable to
contracts made and to be performed therein, without regard to principles
relating to conflicts of laws.
(i) Except for the audit procedure set forth above for Purchase
Price disputes, any controversy or claim arising out of or relating to this
agreement or the breach or validity thereof shall be settled exclusively by
arbitration in Phoenix, Arizona, by a panel of three arbitrators in accordance
with the rules of the American Arbitration Association. Judgment upon the award
rendered by the arbitrators may be entered in any court having jurisdiction
thereof, and the parties consent to the exclusive jurisdiction of the Maricopa
County, Arizona courts for this purpose.
(j) Seller and the Company hereby consent to the exclusive
jurisdiction of the State and Federal courts sitting in Maricopa County, Arizona
in any action arising out of or connected in any way with this Agreement, and
Seller and the Company further agree that the service of process or of any other
papers upon them or any of them by registered mail at their respective addresses
set forth herein shall be deemed good, proper and effective service upon them.
(j) Each party agrees that neither it nor any of its affiliates
will make any public statement regarding the transactions contemplated by this
Agreement without first consulting the other parties hereto in order than such
public statement shall be jointly worded and issued by the parties, except that
ESI shall be entitled to make such disclosures as it reasonably concludes are
required of it by law.
(k) If any party (the "Defaulting Party") defaults in its
obligations under this Agreement and, as a result thereof, the other party (the
"Non-Defaulting Party") seeks to legally enforce its rights hereunder against
the Defaulting Party, then, in addition to all damages and other remedies to
which the Non-Defaulting Party is entitled by reason of such default, the
Defaulting Party shall promptly pay to the Non-Defaulting Party an amount equal
to all reasonable costs and expenses (including reasonable attorneys' fees and
arbitration costs) paid or incurred by the Non-Defaulting Party in connection
with such enforcement. -33-
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of the day and year first above written.
THE COMPANY: GCK ENTERTAINMENT SERVICES I, INC.
By: /s/ Xxxxxxx Xxxxx
-----------------------------
Its: President
-----------------------------
TALENT, ENTERTAINMENT AND MEDIA
SERVICES, INC.
By: /s/ Xxxxxxx Xxxxx
-----------------------------
Its: President
-----------------------------
ESI: EMPLOYEE SOLUTIONS, INC.
By: Xxxxxx X. Xxxxx
-----------------------------
Its: Chief Executive Officer
-----------------------------
SELLER: /s/ Xxxxxxx Xxxxx
--------------------------------
XXXXXXX XXXXX
/s/ Xxxxxxx Xxxxxxxx
--------------------------------
XXXXXXX XXXXXXXX
/s/ Xxxxxxxx Xxxxxxxxx
--------------------------------
XXXXXXXX XXXXXXXXX
/s/ Xxxxxxx Xxxxxxx
--------------------------------
XXXXXXX XXXXXXX
/s/ Xxxxx Xxxxxxx
--------------------------------
XXXXX XXXXXXX
/s/ Xxxxxx Xxxxxxxx
--------------------------------
XXXXXX XXXXXXXX
/s/ Xxxxxx Xxxxx
--------------------------------
XXXXXX XXXXX
SCHEDULE LIST
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A List of Stockholders
4(d) List of Brokers
5(a) List of Jurisdictions (i) in which the Company Does Business
and (ii) in which the Company is licensed as a leasing company
5(b) List of Subsidiaries
5(c) List of Transactions with Certain Persons
5(d) Violation of Laws or Contracts
5(f) List of Liabilities Not Disclosed on Balance Sheet
5(i) Litigation
5(g) Taxes
5(j) Compliance with Laws
5(k) Liens
5(l) Contract and Asset Lists
5(m) Non-owned Intellectual Property
5(n) Guaranties
5(q) Customer List
5(t) Workers Compensation
5(u)(i) Nonunion Employees
5(u)(ii) ERISA and Employee Benefit Plans
5(u)(iii) Multiemployer Plans
EXHIBIT LIST
------------
3(b) Colby Employment Agreement
