1
EXHIBIT 10.11
STOCK PURCHASE AGREEMENT
BY AND AMONG
TEAM COMMUNICATIONS GROUP, INC.
A CALIFORNIA CORPORATION,
DANDELION DISTRIBUTION LTD.
A UNITED KINGDOM CORPORATION,
AND
XXXX XXXXXX
DATED AS OF OCTOBER 1, 1999
2
SHARE PURCHASE AGREEMENT
This SHARE PURCHASE AGREEMENT (the "AGREEMENT") is made the 1st day
of October 1999 between Xxxx Xxxxxx (the "SELLING SHAREHOLDER"), Team
Communications Group, Inc. ("PURCHASER"), and Dandelion Distribution Ltd. (the
"COMPANY").
RECITALS
A. The Selling Shareholder owns an aggregate of 200 ordinary shares of
Pound Sterling 1 each in the capital of the Company (the "COMPANY SHARES"),
representing, as included on Schedule A hereto, the entire issued share capital
of the Company.
B. The Selling Shareholder wishes to sell, and Purchaser wishes to
purchase, the Shares for the consideration set forth in Article III hereof (the
"PURCHASE PRICE").
C. The Company, the Selling Shareholder and Purchaser desire to make
certain representations and warranties and other agreements in connection with
the transactions contemplated hereby.
D. At the Closing (as hereinafter defined), the Company shall enter into
an employment and non-competition agreements substantially in the form attached
hereto as Schedule B (respectively the "XXXXXX EMPLOYMENT AGREEMENT" and the
"CLUTTON EMPLOYMENT AGREEMENT").
E. At the Closing, the appropriate parties hereto shall execute: (a) the
stock indemnification escrow agreement with Chase Manhattan Bank, Citibank or a
London clearing bank substantially in the form attached hereto as Schedule C
(the "Indemnification Escrow Agreement") relating to the common stock portion of
the Purchase Price, and (b) the cash indemnification escrow agreement with Chase
Manhattan Bank, Citibank or a London clearing bank substantially in the form
attached hereto as Schedule D (the "Cash Escrow Agreement") hereto relating to
the cash portion of the Purchase Price to be used in respect of any adjustments
required by Section 3.3 hereof.
F. All references to dollars in this Agreement shall mean U.S. dollars.
NOW, THEREFORE, in consideration of the covenants, representations,
warranties and other provisions set forth herein and for other good and valuable
consideration, the receipt of which is hereby acknowledged, the parties agree as
follows:
ARTICLE I
DEFINITIONS
1.1 For purposes of this Agreement, the following terms shall have the
meanings set forth below:
"ACCOUNTS DATE" shall mean 31st July, 1999.
"AFFILIATE" shall mean any other person or entity controlling,
controlled by or under common control with the Company.
1
3
"COMPANY EMPLOYEE PLAN" shall refer to any plan, program, policy,
practice, contract, agreement or other arrangement providing for bonuses,
severance, termination pay, performance awards, share options, stock or
stock-related awards, fringe benefits or other employee benefits of any kind,
whether formal or informal, funded or unfunded and whether or not legally
binding, pursuant to which the Company or any Affiliate has or may have any
material liability, contingent or otherwise.
"COMPANY SHARES" shall have the meaning set forth in Recital A.
"DISCLOSURE LETTER" shall mean the disclosure letter from Xxxxxx Xxxxxx
to Marriott Xxxxxxxx of even date.
"EMPLOYEE" shall mean any current, former, or retired employee, officer,
or director of the Company or any Affiliate.
"EMPLOYEE AGREEMENT" shall refer to each employment, severance,
consulting or similar agreement or contract between the Company or any Affiliate
and any Employee.
"FILM" shall mean any and every motion picture or television tape
(including cartoons or other animated features) or other recording of moving
images by any means, manner, process or device now known or hereafter devised.
"FILM ASSETS" shall mean all rights and interests granted to or acquired
by the Company in connection with or related to the distribution or exploitation
of, or otherwise respecting, any Film, including, but not limited to: any
distribution rights, license rights, and rights as a subdistributor or
sublicensee; all rights to distribute, sublicense, copy, exhibit, transmit,
broadcast, package, edit, reformat, advertise or exploit a Film, in any and all
media, and any syndication, television or cable television rights; all
copyrights or interests in any copyright on or relating to a Film; and any
collateral, allied, subsidiary or merchandising rights appurtenant or related to
a Film. Film Assets shall include, with respect to any Film whether produced or
in development (as such term is understood in the entertainment industry as
conducted as of the date hereof in London) the following: all scenarios,
screenplays or scripts upon which any Film is based, all of the properties
thereof, tangible and intangible, whether now in existence or hereafter to be
made or produced and whether or not in possession of Company, and any rights
therein and thereto, of every kind and character, including, without limiting
the foregoing language, each and all of the following particular rights and
properties:
(i) all scenarios, screenplays and/or scripts at every stage of
the development of the Film;
(ii) all common law and statutory copyright and other rights in
all literary and other properties ("Literary Properties") that form the basis of
the Film or which are or will be incorporated into the Film, all component parts
of the same Film consisting of the Literary Properties and other properties, all
Film rights in and to the story, all treatments of said story and other literary
material, together with all preliminary and final screenplays used and to be
used in connection with the Film, and all other literary material upon which the
Film is based or from which it is adapted;
(iii) all Film rights in and to all music and musical
compositions connected with the Film, including, without limitation, all rights
to record, re-record, produce, reproduce, or synchronize all of said music and
musical compositions in and in connection with Films; and
(iv) all Physical Properties.
"NET ASSETS" shall have the meaning set forth in Section 3.3.
2
4
"PHYSICAL PROPERTIES" shall mean all film negatives, prints, pre-print
and/or soundtrack materials and other physical materials relating to any Film;
"REAL PROPERTY" shall mean the property as described in Schedule F;
"RECEIVABLES" shall mean all of the Company's trade debtors,
receivables, note receivables and other accounts receivable including all
written contracts, orders and arrangements between the Company and third parties
respecting the purchase of goods or services from the Company as the same may
exist at the time of Closing;
"RELATED AGREEMENTS" shall mean the Indemnification Escrow Agreement,
Cash Escrow Agreement, the Xxxxxx Employment Agreement and the Clutton
Employment Agreement.
"SUBSIDIARY" shall have the meaning set forth in Section 4.3.
"TAX" and "TAXATION" means all forms of taxation, duties, imposts,
contributions levies, charges or withholdings of whatever nature (including
without limitation PAYE, national insurance, social security and other similar
contributions), imposed by any Tax Authority and whether now in force or
hereinafter imposed or hitherto imposed and any payment whatsoever which the
Company may be or become bound to make to any person as a result of the
discharge by that person of any tax which the Company has failed to discharge,
and any interest, surcharge, penalty or fine in connection therewith or in
connection with any late or incorrect form, record, return or computation in
respect of any of them and regardless of whether any such taxes, duties,
imposts, contributions, levies, charges, withholdings, interest, penalties or
fines are chargeable directly or primarily against or attributable directly or
primarily to the Company or any other person and of whether any amount in
respect of any of them is recoverable from any other person;
"TAX AUTHORITY" and "TAXATION AUTHORITY" means any authorized
governmental regulatory or administrative body agency authority or official
whether local, municipal, state, federal, provincial, national or supranational
(whether of the United Kingdom or elsewhere) competent to impose, assess,
collect or administer Taxation and without prejudice to the generality of the
foregoing shall include the Inland Revenue, HM Customs and Excise and the
Contributions Agency;
"TAXES ACT" means the Income and Corporation Taxes Xxx 0000;
"TAX COVENANT" means the tax covenant set out in Schedule G;
"TAX LIABILITY" has the same meaning as is attributed thereto in
Schedule G;
"TCGA" means the Taxation of Chargeable Gains Xxx 0000;
"TEAM SHARES" shall have the meaning set forth in Section 3.1(b) below;
"VATA" means the Value Added Tax Xxx 0000.
ARTICLE II
THE SALE OF THE SHARES
2.1 The Sale of the Company Shares. (a) At the Closing (as defined in
Section 2.2) and subject to and upon the terms and conditions of this Agreement,
the Selling Shareholder agrees to sell to
3
5
the Purchaser with full title guarantee, and the Purchaser agrees to purchase
from the Selling Shareholder, all of the Company Shares, as described on
Schedule A hereto, which constitute all of the issued and outstanding capital
stock of the Company for the consideration (the "PURCHASE PRICE") set forth in
Article III hereof, subject to the provisions contained herein.
2.2 Closing; Closing Date. Unless this Agreement is earlier terminated
pursuant to Section 10.1, the closing of the transactions contemplated hereby
(the "CLOSING") will take place as promptly as practicable, but no later than
five (5) business days following satisfaction or waiver of the conditions set
forth in Article VII, at the offices of Marriott Xxxxxxxx, London, England,
unless another place or time is agreed to in writing by Purchaser and the
Selling Shareholder. The date upon which the Closing actually occurs is herein
referred to as the "CLOSING DATE."
2.3 Delivery. At the Closing, the Selling Shareholder will deliver to
the Purchaser, against delivery of the Purchase Price in accordance with Article
III hereof, each of the following:
(a) duly executed transfers in respect of the Company Shares in
favor of the Purchaser or such person as the Purchaser may nominate and share
certificates for the Company Shares in the name of the relevant transferors and
duly executed transfers for any shares in any subsidiary of the Company
beneficially owned by the Company which are not registered in the name of the
Company, in favor of the Purchaser or such person as the Purchaser may nominate;
(b) the statutory books (which shall be written up to but not
including the Closing Date), the Certificate of Incorporation (and any
Certificate of Incorporation on Change of Name) and common seal (if any) of the
Company and each Subsidiary and share certificates in respect of all the issued
share capital of each Subsidiary and Associated Company which is owned directly
or indirectly by the Company;
(c) the title deeds relating to the Real Property;
(d) copies of the signed audited accounts of the Company as at
the Accounts Date and copies (signed by the auditors) of the letters from the
auditors of the Company referred to in Clause 2.3(g) below;
(e) a certificate from each of the banks at which the Company or
any Subsidiary maintains an account, stating the amount standing to the credit
or debit of each such account as at the close of business on the business day
prior to the Closing Date together with reconciliation statements prepared by
the Selling Shareholder, reconciling such amounts with the cash book balances of
the Company at the close of business on the last business day prior to the
Closing Date;
(f) resignations of the present directors and secretary of the
Company (other than any director or secretary whom the Purchaser may wish should
continue in office) of their offices as such in which they also relinquish any
rights which they have under any contract of employment with the Company or
under any statutory provision including any right to damages for wrongful
dismissal, redundancy payment or compensation for loss of office or unfair
dismissal, such resignations to be tendered at the board meeting referred to at
Clause 2.3(h) below;
(g) resignations of the present auditors of the Company of their
office as such in the form of a letter to be deposited at the registered office
of the Company notifying their resignation, acknowledging that they have no
claim against the Company and containing a statement pursuant to Section 394(l)
of the Companies Xxx 0000 that there are no circumstances connected with their
ceasing to hold office which they consider should be brought to the attention of
any members or creditors;
4
6
(h) minutes of a board meeting of the Company to be held
immediately prior to the Closing at which:
(aa) it shall be resolved that the transfer relating to the
Company Shares shall be approved for registration and (subject
only to the transfer being duly stamped) each transferee
registered as the holder of the Company Shares concerned in the
register of members;
(bb) each of the persons nominated by the Purchaser shall be
appointed directors and/or secretary, as the Purchaser shall
direct;
(cc) all existing instructions to banks shall be revoked and new
instructions shall be given to such banks in such form as the
Purchaser may direct;
(dd) the situation of the registered office shall be changed to
such address as the Purchaser may nominate and (subject to the
provisions of the Companies Acts) the accounting reference date
shall be changed in accordance with any instructions given by
the Purchaser;
(ee) the resignations referred to in Clauses 2.3(f) and 2.3(g)
shall be tendered and accepted so as to take effect at the close
of the meeting;
2.4 Related Agreements. At the Closing, the parties hereto shall execute
and deliver the Related Agreements.
2.5 Book Value as at Closing. The Selling Shareholder represents that
the Net Assets of the Company (as defined in Section 3.3), at Closing Date is
not less than Pound Sterling 929,711, being the Net Book Value of the Company on
the same basis as shown in the draft audited accounts of the Company, for the
period ended 31st July, 1999 (save in respect of a bonus of Pound
Sterling 150,000 payable to Xxxx Xxxxxxx as agreed by the Company on 30th
September 1999) provided that nothing contained in this Section 2.5 shall be
construed as any waiver by Purchaser of any breach by the Selling Shareholder of
any other representation or warranty contained herein.
ARTICLE III
CONSIDERATION TO BE PAID
AND RELATED MATTERS
3.1 Conditions Precedent. On or before the Closing Date, the Company
will transfer to the Selling Shareholder (or such person as he nominates) each
of the assets listed on Schedule E the ("Transferred Assets"). Such transfer
shall be in form and substance satisfactory to Purchaser and its counsel, and
shall have no adverse tax liability or financial impact to the Purchaser.
3.2 Closing Purchase Price; Other Matters. Subject to the terms and
conditions set forth herein, in consideration for the sale of the Shares,
Purchaser will deliver at the Closing the following consideration (collectively,
the "CLOSING PURCHASE PRICE"):
(a) An aggregate of $2,500,000 in cash, (i) $625,000 which shall
be paid by wire transfer of immediately available U.S. Dollars to the Selling
Shareholder's bank account pursuant to the wire instructions set forth on
Schedule A hereto, and (ii) $1,875,000 which shall be paid into the Cash Escrow
Account (as defined below in this Section 3.1); and
5
7
(b) A certificate or certificates representing such number of
shares (the "TEAM SHARES") of the Purchaser's Common Stock registered in the
name of the Selling Shareholder, as is determined by reference to the following
formula: number of shares = $2,500,000/Share Price. "Share Price" equals the
average of the bid and ask price for each of the five business days immediately
preceding the Closing Date, as determined on the principal stock exchange on
which the Team Shares trade which shall be delivered to the Escrow Agent, as
defined in and pursuant to the Indemnification Escrow Agreement.
(c) The Purchaser hereby undertakes to the Selling Shareholder
that if on the date which is the second anniversary of the Closing Date ("the
Valuation Date") the Value of the Team Shares is less than $3,000,000 ("the
Target Value"), it shall pay to the Selling Shareholder the sum of $250,000;
provided that if any of the Team Shares have been withdrawn from the
Indemnification Escrow Account in order to satisfy a claim under this Agreement
or if for any other reason by agreement between the parties the number of Team
Shares in the Indemnification Escrow Account has been reduced (all as provided
in the Indemnification Escrow Agreement) then the Target Value shall be reduced
by a proportion equal to the proportion which the number of Team Shares in
remaining in the Indemnification Escrow Account is of the number of Team Shares
placed in such account on Closing and the amount to be paid shall be the same
proportion of $250,000. For the purposes of this Section 3.2(c) "the Value" of
the relevant Team Shares shall calculated as an average of the bid and ask price
for each of the five business days immediately preceding the Valuation Date, as
determined on the principal stock exchange on which the Team Shares trade.
3.3 On the Closing Date, Purchaser, Selling Shareholder and the Escrow
Agent shall execute the Cash Escrow Agreement, substantially in the form
attached hereto as Schedule D, relating to the $1,875,000 (collectively, the
"ESCROW AMOUNT") to be deposited in an escrow account (the "CASH ESCROW
ACCOUNT") at the Closing and the Indemnification Escrow Agreement, substantially
in the form attached hereto as Schedule C relating to the Team Shares so that
the holding of the Escrow Amount and the Team Shares shall be administered in
accordance with the Cash Escrow Agreement and the Indemnification Escrow
Agreement, respectively. The Escrow Agent shall administer the Indemnification
Escrow Account, as it may exist from time to time, on behalf of the Purchaser
and the Selling Shareholder, subject to the Indemnification Escrow Agreement,
for the purposes of securing Selling Shareholder's indemnity obligations under
Article VIII and Section 3.3.
3.4 Cash Amount Adjustment.
(a) Preparation of Net Asset Report. Within 28 days after
Closing, the Selling Shareholder will cause the Dartford office of Xxxxxx Xxxxx
(the "Selling Shareholder's Accountants"), to furnish, at the Selling
Shareholder's sole cost and expense, to Purchaser and Selling Shareholder a
report (the "Xxxxxx Xxxxx Net Asset Report"), which shall set forth the "Net
Assets" (as defined below) of the Company as of the Closing Date. The Xxxxxx
Xxxxx Net Asset Report shall indicate the procedures employed by the Selling
Shareholder's Accountants in preparing the Xxxxxx Xxxxx Net Asset Report and
shall contain such other financial information and methods of calculation as may
be reasonably necessary for the Purchaser to evaluate the accuracy thereof.
The Purchaser shall have a period of ten (10) days after receipt
of the Xxxxxx Xxxxx Net Asset Report to notify the Selling Shareholder and the
Company of its election to accept the Xxxxxx Xxxxx Net Asset Report or to
request that X X Xxxxxxxx, the Purchaser's Accountant, prepare an alternate Net
Asset Report (the "X X Xxxxxxxx Net Asset Report"). In the event no notice is
received by the Company and the Selling Shareholder during such ten (10) day
period, the Xxxxxx Xxxxx Net Asset Report shall be deemed accepted by Purchaser.
If so requested, X X Xxxxxxxx shall have thirty (30) days in which to prepare
the X X Xxxxxxxx Net Asset Report. The Selling Shareholder shall have ten (10)
days after
6
8
receipt of the X X Xxxxxxxx Net Asset Report in which to notify Purchaser of its
decision to accept or reject the X X Xxxxxxxx Net Asset Report (and in the case
of rejection, there shall be included in such notice the reasons for such
rejection in reasonable detail). In the event no notice is received by the
Purchaser during such ten (10) day period, the X X Xxxxxxxx Net Asset Report
shall be deemed accepted by the Selling Shareholder. In the event the Selling
Shareholder shall timely reject the X X Xxxxxxxx Net Asset Report, Purchaser and
the Selling Shareholder shall use all reasonable efforts to resolve all
disagreements as to the respective Net Asset Report Reports in good faith. If no
settlement is reached within fifteen (15) days after the timely rejection of the
X X Xxxxxxxx Net Asset Report by Selling Shareholder, Purchaser and Selling
Shareholder shall arbitrate a determination of Net Asset Report for the
Evaluation Period, in London. The arbitration shall be conducted by one
arbitrator mutually and reasonably acceptable to both Selling Shareholder and
Purchaser. The arbitrator shall have at least ten (10) years accounting and
financial experience in the Company's industry. In the event that an arbitrator
cannot be selected, one of the remaining big five (5) international firms shall
be selected at random. In any event, the arbitrator shall be selected in five
(5) days. The arbitration shall commence within five (5) business days from the
selection of an arbitrator, and, the parties shall use their best efforts to
conclude the arbitration within ten (10) days. The arbitrator shall then deliver
a preliminary decision, detailing findings of fact and conclusions as to the
calculation of Net Asset Report to each of the parties (the "Preliminary
Decision"). Within five (5) days after receipt of the Preliminary Decision, the
Purchaser and Selling Shareholder may object, in writing, to any of the contents
of the Preliminary Decision. The arbitrator shall take into account any
objection so received, and shall deliver within an additional five (5) days a
final decision, specifying the facts relied upon and conclusions as to the
calculation of Net Asset Report (the "Final Decision") to the parties. The
decision of the arbitrator contained in the Final Decision shall be binding and
conclusive upon the parties. All costs of the arbitrator shall be borne by the
Company, and the parties shall bear their individual costs and expenses,
including any attorneys' fees. The date on which the Net Asset Report is
accepted by the Purchaser or Selling Shareholder, deemed accepted by virtue of
expiration of any applicable Net Asset Report rejection period, or deemed
accepted by virtue of resolution of any disagreement regarding the Net Asset
Report in accordance with this Section 3.3 shall be referred to hereinafter as
the "Report Date." Assuming the timely delivery of the Xxxxxx Xxxxx Net Asset
Report, in the event there has been no final decision on or before January 1,
2000, Selling Shareholder shall be entitled to receive the First Installment
Amount, and all installment amount adjustments will be made against subsequent
Installment Amounts.
The calculation of Net Asset Report hereunder by Xxxxxx Xxxxx
and X X Xxxxxxxx shall be made in a manner consistent with UK GAAP and, to the
extent not inconsistent therewith, the Company's past accounting policies and
practices provided that in any event (i) there shall be no revaluation of fixed
assets, (ii) the amounts due from String of Pearls PLC and String of Pearls II
PLC shall be included at the same value as in the draft audited accounts of the
Company for the year ended 31st July, 1999 and (iii) the liability in relation
to Four Star shall be treated in the same manner as in such draft audited
accounts.
(b) Net Asset Report-Based Adjustments to Installment Amounts.
If the aggregate dollar value of Net Assets in the final report
is less than Pound Sterling 929,711, then the cash portion of the Purchase Price
shall be reduced on a by an amount (expressed in dollars) equal to such the
amount by which the Net Asset Value is less than Pound Sterling 929,711 (and for
these purposes the pound to dollar exchange rate shall be the spot rate of
exchange for the purchase of US dollars with sterling quoted by Barclays Bank
PLC (or such other bank as may be agreed between the parties) at or about 11.00
a.m. on the Closing Date).
3.5 Tax Adjustment. Notwithstanding any other provision of this
Agreement or the Cash Escrow Agreement to the contrary and after taking account
of any adjustments provided for in Section 3.3, if Seller's application to H M
Inland Revenue for clearance pursuant to section 103 Taxation of Chargeable
Gains Xxx 0000 and section 703 Income and Corporation Xxxxx Xxx 0000 is refused
then:-
7
9
3.5.1 Seller shall be entitled to receive from the Cash Escrow
Account an amount (not exceeding in aggregate US$1,000,000 or if less the amount
then standing to the credit of the Cash Escrow Account) equal to the tax payable
in respect of the sale of those of the Company Shares as are sold in
consideration for the Team Shares (other than any Tax which arises solely as a
result of the sale of any of the Team Shares);
3.5.2 any amount paid from the Cash Escrow Account to Seller
pursuant to Section 3.5.1 shall be paid in a sum equal to the relevant
installment of tax due and no later than five business days before such tax is
due to be paid by Seller.
3.6 Restrictions on Transferability. The Team Shares and any other
securities issued in respect of the Team Shares upon any stock split, stock
dividend, recapitalization, merger, consolidation or similar event
(collectively, the "PURCHASER SECURITIES"), shall not be sold, assigned,
transferred or pledged except in compliance with the provisions of the
Securities Act of 1933, as amended (the "SECURITIES ACT"), all other applicable
securities laws and the provisions of this Agreement. Each holder of Purchaser
Securities ("HOLDER") will cause any proposed purchaser, assignee, transferee,
or pledgee of any such shares held by the Holder to agree in writing for the
benefit of Purchaser and with a copy of such writing to be delivered to
Purchaser to take and hold such Purchaser Securities subject to the restructure
and other terms and conditions specified in this Agreement with respect to the
Selling Shareholder's ownership of Purchaser Securities, as a condition to
Purchaser permitting such transfer.
3.7 Restrictive Legend. Each certificate representing the Purchaser
Securities shall be stamped or otherwise imprinted with a legend in
substantially the following form (in addition to any legend required under
applicable state securities laws):
THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE UNITED STATES SECURITIES ACT OF 1933, AS AMENDED, AND HAVE
BEEN ACQUIRED FOR INVESTMENT AND NOT WITH A VIEW TO, OR IN CONNECTION
WITH, THE SALE OR DISTRIBUTION THEREOF. SUCH SHARES MAY NOT BE SOLD OR
TRANSFERRED IN THE UNITED STATES OR TO A U.S. PERSON IN THE ABSENCE OF
SUCH REGISTRATION UNLESS THE COMPANY RECEIVES AN OPINION OF COUNSEL
REASONABLY ACCEPTABLE TO IT STATING THAT SUCH SALE OR TRANSFER IS EXEMPT
FROM THE REGISTRATION AND PROSPECTUS DELIVERY REQUIREMENTS OF SAID ACT.
COPIES OF THE AGREEMENTS COVERING THE PURCHASE OF THESE SHARES AND
RESTRICTING THEIR TRANSFER MAY BE OBTAINED AT NO COST BY WRITTEN REQUEST
MADE BY THE HOLDER OF RECORD OF THIS CERTIFICATE TO THE SECRETARY OF THE
COMPANY AT THE PRINCIPAL EXECUTIVE OFFICES OF THE COMPANY.
Each Holder consents to the Purchaser's making a notation on its records
and giving instructions to any transfer agent for the Purchaser Securities in
order to implement the restrictions on transfer established in this Agreement.
3.8 Notice of Proposed Transfers. The holder of each certificate
representing Purchaser Securities by acceptance thereof agrees to comply in all
respects with the provisions of this Section 3.6. Prior to any proposed sale,
assignment, transfer or pledge of any Purchaser Securities in the United States
or to a U.S. Person (as defined in Rule 901 promulgated under the Securities
Act), (other than a transfer not involving a change in beneficial ownership, or
(ii) in transactions involving the distribution without consideration of
Purchaser Securities by a shareholder to any of its partners or members, or
retired partners or members, or to the estate of any of its partners or members
or retired partners or members),
8
10
unless there is in effect a registration statement under the Securities Act
covering the proposed transfer, the holder thereof shall give written notice to
the Purchaser of such holder's intention to effect such transfer, sale,
assignment or pledge. Each such notice shall describe the manner and
circumstances of the proposed transfer, sale, assignment or pledge in sufficient
detail, and shall be accompanied, at such holder's expense by an unqualified
written opinion of legal counsel who shall be, and whose legal opinion shall be,
reasonably satisfactory to the Purchaser addressed to the Purchaser, to the
effect that the proposed transfer of the Purchaser Securities may be effected
without registration under the Securities Act and in compliance with all other
applicable securities laws, whereupon the holder of such Purchaser Securities
shall be entitled to transfer such Purchaser Securities in accordance with the
terms of the notice delivered by the holder to the Purchaser. It is agreed that
the Purchaser will not request an opinion of counsel from the holder for
transactions made in reliance on Rule 144 under the Securities Act except as
determined in good faith by the Board of Directors of the Purchaser to be
necessary for the compliance of applicable laws. Each certificate evidencing the
Purchaser Securities transferred as above provided shall bear, except if such
transfer is made pursuant to Rule 144, the appropriate restrictive legend set
forth in Section 2.6 above, except that such certificate shall not bear such
restrictive legend if in the opinion of counsel for such holder and the
Purchaser such legend is not required in order to establish compliance with any
provision of the Securities Act.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
OF THE SELLING SHAREHOLDER ARTICLE IV
REPRESENTATIONS AND WARRANTIES
OF THE SELLING SHAREHOLDER
The Selling Shareholder represents and warrants to Purchaser, subject to
the exceptions specifically disclosed in the Disclosure Letter, as set forth
below. Except for Sections 4.2(a) and 4.3, all references to the Company
contained in this Article IV shall refer to the Company, all Subsidiaries, as
defined in Section 4.3, and all other Affiliates of the Company or any
Subsidiary.
4.1 Organization of the Company. The Company and each of its
subsidiaries is a limited liability company duly organized, validly existing and
in good standing under the laws of England. The Company has the power to own its
properties and to carry on its business as now being conducted. The Company is
not, and is not required to be, duly qualified to do business as a foreign
corporation in any other jurisdiction. The Company has delivered a true and
correct copy of its Memorandum and Articles of Association, as amended to date,
to Purchaser or its counsel.
4.2 Company Capital Structure.
(a) The authorized share capital of the Company consists of
Pound Sterling 1,000 divided into 1,000 ordinary shares of Pound Sterling 1
each, of which 200 shares are issued and fully paid. All of the Company's issued
share capital is held by the Selling Shareholder.
(b) The Shares are the entire issued share capital of the
Company are fully paid and have been issued in accordance with the Companies Xxx
0000 and the Articles of Association of the Company; and are not subject to
preemptive rights created by statute, the Articles of Association of the Company
or any agreement to which the Selling Shareholder or the Company are a party or
by which either of them is bound.
9
11
(c) There are no options, warrants, calls, rights, commitments
or agreements of any character, written or oral, to which the Company is a party
or by which it is bound obligating the Company to issue, deliver, sell,
repurchase or redeem, or cause to be issued, delivered, sold, repurchased or
redeemed, any shares of the Company or obligating the Company to grant, extend,
accelerate the vesting of, change the price of, otherwise amend or enter into
any such option, warrant, call, right, commitment or agreement regarding its
capital stock.
4.3 Subsidiaries. Paragraph 4.3 of the Disclosure Letter sets forth all
of the Company's subsidiaries, partnerships, joint ventures and other entities
in which the Company has an equity interest (individually, a "SUBSIDIARY" and
collectively, the "SUBSIDIARIES"), the authorised and issued share capital of
each Subsidiary and the number of shares of each Subsidiary owned by the
Company. On the Closing Date, the Company will be the sole shareholder of each
Subsidiary. Other than the Subsidiaries listed on Schedule 4.3 of the Disclosure
Letter, the Company does not own and has not owned any interest, beneficially or
of record, in any corporation, partnership, joint venture or other entity or
organization, whether incorporated or unincorporated.
4.4 Authority. The Company and the Selling Shareholder have all
requisite power and authority to enter into this Agreement and the Related
Agreements (collectively, the "TRANSACTION AGREEMENTS"), as applicable, and to
consummate the transactions contemplated hereby and thereby. The execution and
delivery of the Transaction Agreements and the consummation of the transactions
contemplated thereby have been duly authorized by all necessary corporate action
on the part of the Company. The Company's Board of Directors and the Selling
Shareholder have duly approved the Transaction Agreements, as applicable. This
Agreement has been duly executed and delivered, and the other Transaction
Agreements, when delivered, will have been duly executed and delivered by the
Company and the Selling Shareholder, as applicable, and constitute the valid and
binding obligation of the Company and the Selling Shareholder, as applicable,
enforceable in accordance with their terms except as such enforceability may be
limited by principles of public policy and subject to the laws of general
application relating to bankruptcy, insolvency and the relief of debtors and
rules of law governing specific performance, injunctive relief or other
equitable remedies. The execution and delivery of this Agreement by the Company
does not, and, as of the Closing Date will not, conflict with, or result in any
violation of, or default under (with or without notice or lapse of time, or
both), or give rise to a right of termination, cancellation, modification or
acceleration of any obligation or loss of any benefit (any such event, a
"CONFLICT") under: (i) any provision of the Articles of Association of the
Company, as amended; and (ii) any material mortgage, indenture, lease, contract
or other material agreement or instrument applicable to the Company or its
properties or assets. No consent, waiver, approval, order or authorization of,
or registration, declaration or filing with, any court, administrative agency or
commission or other federal, state, county, local or foreign governmental
authority, instrumentality, agency or Commission ("GOVERNMENTAL ENTITY") or any
third party, including a party to any agreement with the Company (so as not to
create or cause any Conflict), is required by or with respect to the Company in
connection with the execution and delivery of the Transaction Agreements or the
consummation of the transactions contemplated hereby, except for such filings as
will have been made as of the Closing Date.
4.5 Company Financial Statements. Schedule 4.5 of the Disclosure Letter
includes the Company's audited consolidated financial statements (balance
sheets, income statements and statements of cash flows) as of and for the
financial year ended 31st July, 1999 (the "7/31 STATEMENTS") and the Company's
unaudited consolidated financial statements (balance sheets, income statement
and statement of cash flow) as of and for the one month ended 31st August, 1999
(the "8/31 Statements" and collectively with the 7/31 Statements, the "FINANCIAL
STATEMENTS"). The 7/31 Statements were prepared in accordance with accounting
practices generally accepted in the United Kingdom at the time they were audited
and show a true and fair view of the state of affairs of the Company as at the
Accounts Date are complete and correct and have been prepared in accordance with
UK GAAP applied on a basis consistent throughout the period indicated and are
consistent with each other. The 8/31 Statements and are subject to
10
12
normal year-end adjustment, present fairly the financial condition and operating
results of the Company as of the date and during the period indicated therein.
The 8/31 Statements are true, complete and correct in all material respects and
have been prepared in a manner not inconsistent with UK GAAP and utilizing the
same accounting principles as were applied in the preparation of the 7/31
Statements. The audited balance sheet of the Company as of 31st July, 1999 is
hereinafter referred to as the "AUDITED BALANCE SHEET." The unaudited balance
sheet of the Company as of July 31, 1999 is hereinafter referred to as the
"UNAUDITED BALANCE SHEET."
4.6 No Undisclosed Liabilities.
(a) Except for obligations incurred in the ordinary course of
business which are not material and not required under UK GAAP to be set forth
or reflected on a balance sheet or the notes thereto, the Company does not have
any liability, indebtedness, obligation, expense, claim, deficiency, guaranty or
endorsement of any type, whether accrued, absolute, contingent, matured,
unmatured or other (whether or not required to be reflected in financial
statements in accordance with generally accepted accounting principles), which
individually or in the aggregate, (i) has not been reflected in the Unaudited
Balance Sheet, or (ii) has not been specifically described in this Agreement or
in the Disclosure Letter and specifically identified herein or therein as not
being included in the Unaudited Balance Sheet, or (iii) has not arisen in the
ordinary course of the Company's business since the date of the Unaudited
Balance Sheet.
(b) The Company's Financial Statements reflect appropriate
reserves for all material amounts to be paid to all grantors and/or producers
all amounts payable under all contracts with such grantors and/or producers in
compliance with the provision in the respective contracts. The Company will not
lose any rights to any Films or suffer any damages as a result of the failure to
timely issue any producer's report.
4.7 Deferred Compensation. Paragraph 4.7 of the Disclosure Letter lists
the names of Company employees, directors and consultants and the amount of
money each is entitled to receive from the Company as of the Closing Date as a
result of deferred compensation, bonuses, profit participation by employees of
the Company or Company expenses payable to the employee, director or consultant.
Other than the names and amounts listed in Paragraph 4.7 of the Disclosure
Letter, no other compensation is owed by the Company to the employees, directors
or consultants of the Company other than ordinary payroll payable by the Company
at the end of each pay period.
4.8 No Changes. Except as disclosed on Paragraph 4.8 of the Disclosure
Letter, since 31st July, 1999, there has not been, occurred or arisen any:
(a) transaction by the Company except in the ordinary course of
business as conducted on that date;
(b) individual capital expenditure or commitment by the Company
exceeding $25,000, it being acknowledged and agreed that the term "capital
expenditure" does not include expenditures on Film Assets;
(c) destruction of, damage to or loss of any material assets,
business or customer of the Company (whether or not covered by insurance) which
individually exceeds $25,000;
(d) employment disputes or claim of unfair or wrongful dismissal
of which the Company has received written notice or of which the Company's
senior management is aware or other unlawful employment practice or action;
11
13
(e) change in accounting methods or practices (including any
change in depreciation or amortization policies or rates) by the Company;
(f) revaluation by the Company of any of its assets other than
depreciation as required by UK GAAP and as reflected through July 31, 1999 on
the Unaudited Balance Sheet;
(g) declaration, setting aside or payment of any dividends on or
any other distribution (whether in cash, stock or property) in respect of any of
the Company's capital stock, or any split, combination or reclassification of
any of the Company's capital stock or the issuance or authorization of the
issuance of any securities in respect of, in lieu of or in substitution for
shares of the capital stock of the Company, or the repurchase, redemption or
other acquisition, directly or indirectly, of any shares of the Company's
capital stock (or options, warrants, or other rights exercisable therefor);
(h) increase in the salary or other compensation payable or to
become payable by the Company to any of its officers, directors, employees or
advisors, or the declaration, payment or commitment or obligation of any kind
for the payment, by the Company, of a bonus or other additional salary or
compensation to any such person except as otherwise contemplated by this
Agreement;
(i) sale, lease, license or other disposition of any of the
assets or properties of the Company, except in the ordinary course of business
as conducted on that date;
(j) material amendment, termination or violation, or any threat
thereof, of any distribution agreement, sales agency agreement or any material
contract, agreement or license to which the Company is a party or by which it is
bound other than amendment or termination by the Company pursuant to the terms
thereof in the ordinary course of business;
(k) loan by the Company to any person or entity, other than
advances to employees for travel and business expenses in the ordinary course of
business and consistent with past practices, or incurring by the Company of any
indebtedness other than trade debt in the ordinary course of business consistent
with past practices, guaranty of the Company of any indebtedness, issuance or
sale of any debt securities of the Company or guaranteeing of any debt
securities of others;
(l) waiver or release of any material right or claim of the
Company, including any write-off or other compromise of any account receivable
of the Company;
(m) issuance or sale by the Company of any shares, or securities
exchangeable, convertible or exercisable therefor, or of any other securities;
(n) transactions by the Company with any of its officers,
directors or employees (other than payment of compensation paid in the ordinary
course) or with any persons or entities affiliated with any of its officers,
directors or employees;
(o) any notice of the occurrence of any of the things described
in the preceding clauses (a) through (n);
(p) negotiation or agreement by the Company or any officer or
employees thereof to do any of the things described in the preceding clauses (a)
through (n) (other than by negotiations with Purchaser and its representatives
regarding the transactions contemplated by this Agreement).
4.9 Tax and Other Returns and Reports.
12
14
(a) The Company has no liability in respect of Taxation (whether
actual or contingent) that is not adequately disclosed or provided for in the
7/31 Statements and, in particular, has no outstanding liability for:
(i) Taxation in any part of the world assessable or
payable by reference to profits, gains, income or distribution earned, received
or paid or arising or deemed to arise on or at any time prior to the Accounts
Date or in respect of any period starting before the Accounts Date, or
(ii) for purchase, value added, sales or other similar
Tax in any part of the world referable to transactions effected on or before the
Accounts Date that is not provided for in full in the 7/31 Statements.
(b) The amount of the provision for deferred Taxation in respect
of the Company contained in the 7/31 Statements was, at the Accounts Date
adequate and fully in accordance with accountancy practices generally accepted
in the United Kingdom and commonly adopted by companies carrying on businesses
similar to those carried on by the Company and, in particular, was in accordance
with SSAP 15.
(c) If the 7/31 Statements were to be drawn up at the date of
this Agreement and in the light of factors known to the Company or the Selling
Shareholder at the date of this Agreement, the provision for deferred Taxation
that would be contained in the 7/31 Statements would be no greater than the
provision which is so contained.
(d) Since the Accounts Date:
(i) the Company has not declared made or paid any
distribution within the meaning of the Taxes Act;
(ii) no accounting period of the Company has ended;
(iii) there has been no disposal of any asset (including
trading stock) or supply of any service or business facility of any kind)
(including a loan of money or the letting, hiring or licensing of any property
whether tangible or intangible) in circumstances where the consideration
actually received or receivable for such disposal or supply was less than the
consideration which could be deemed to have been received for Tax purposes;
(iv) no event has occurred which will give rise to a Tax
Liability on the Company calculated by reference to deemed (as opposed to
actual) income, profits or gains or which will result in the Company becoming
liable to pay or bear a Tax Liability directly or primarily chargeable against
or attributable to another person, firm or company;
(v) no disposal has taken place or other event occurred
which will or may have the effect of crystallizing a liability to Taxation which
should have been included in the provision for deferred Taxation contained in
the 7/31 Statements if such disposal or other event had been planned or
predicted at the Accounts Date;
(vi) the Company has not made any payment or incurred
any obligation to make a payment which will not be deductible in computing
trading profits for the purposes of corporation tax, or be deductible as a
management expense of an investment company;
(vii) the Company has not been a party to any
transaction for which any Tax clearance provided for by statute has been or
could have been obtained;
13
15
(viii) the Company has not paid or become liable to pay
any interest or penalty in connection with any Tax, has otherwise paid any Tax
after its due date for payment or owes any Tax the due date for payment of which
has passed or will arise in the 30 days after the date of this Agreement.
(e) The Company has paid all Taxation which has become due for
payment by it.
(f) The Company has properly and punctually made all returns,
given all notices, maintained all records and supplied all information in
relation to Taxation which it is required to make, give, maintain or supply and
all such returns, notices, records and information were complete and accurate.
(g) There is no dispute or disagreement outstanding nor is any
contemplated at the date of this Agreement with any Tax Authority regarding
liability or potential liability to any Tax recoverable from the Company or
regarding the availability of any relief from Tax to the Company. Any past
dispute is disclosed in the Disclosure Letter.
(h) The Company has sufficient records relating to past events
to calculate the Tax liability or relief which would arise on any disposal or on
the realization of any asset owned at the Accounts Date by the Company since
that date but before Completion.
(i) The Company has duly submitted all claims, notices and
disclaimers which have been assumed to have been made for the purposes of the
7/31 Statements.
(j) The amount of Tax chargeable on the Company during any
accounting period ending on or within six years before the Accounts Date has
not, to any material extent, depended on any concession, agreement or other
formal or informal arrangement with any Tax Authority.
(k) The Company has not received any notice from any Tax
Authority which required or will or may require it to withhold Tax from any
payment made since the Accounts Date or which will or may be made after the date
of this Agreement and the Company has complied with all its obligations to
deduct taxation from payments made by it and to account for such Taxation to any
Tax Authority.
(l) The Company has complied with all its obligations in
relation to national insurance contributions, the PAYE system and the reporting
of benefits provided to employees and former employees.
(m) All documents which are necessary to establish the title of
the Company to any asset or in the enforcement or production of which the
Company may be interested and which, in the UK or elsewhere, either attract
stamp duty or require to be stamped with a particular stamp denoting that no
duty is chargeable or that the document has been produced to the appropriate Tax
Authority have been properly stamped and no such document which is outside the
UK would attract stamp duty if it were brought into the UK. The Company has duly
complied with all its obligations under Part IV of the Finance Xxx 0000 (stamp
duty reserve tax) and with all regulations made thereunder and any comparable
provisions in any other jurisdiction and neither the Company nor a nominee of
the Company is a party to any agreement which falls within section 87(1) and in
relation to which the conditions referred to in section 87(2) have not been
fulfilled. If there is any breach of the warranties in this clause 33 then the
amount recoverable by the Purchaser from the Vendor for the said breach shall be
equal to any unpaid stamp duty or stamp duty reserve tax or comparable duty or
tax in any other jurisdiction together with any fines, penalties or interest in
respect thereof.
14
16
(n) The Company is registered for the purposes of the VATA and
has made, given, obtained and kept full, complete, correct and up-to-date
records, invoices and other documents appropriate or required for those purposes
and is not in arrears with any payments or returns due and has not been required
by the Commissioners of Customs & Excise to give security under paragraph 4 of
Schedule 11 to the VATA.
(o) The Company has never been treated as a member of a group
under Section 43 of the VATA and no application has ever been made for the
Company so to be treated.
(p) The Company has not within the 12 months ending on the
Accounts Date been in default in respect of the prescribed accounting period as
mentioned in Section 59(1) VATA.
(q) Full details of any claim for bad debt relief under Section
36 of the VATA made by the Company have been disclosed in writing to the
Purchaser.
(r) The Company has not made exempt supplies of such amount that
it is unable to obtain full credit for input tax paid or suffered by it.
(s) The Company does not own any assets to which Part XV Value
Added Tax Regulations 1995 applies.
(t) Neither the Company nor any body corporate in relation to
which the Company is a "relevant associate" (as defined in paragraph 3 Schedule
10 VATA) has made any election under paragraph 2 Schedule 10 VATA (buildings and
land - election to waive exemption) in relation to any interest in or right over
land or any licence to occupy land of the Company and the Company does not own
the fee simple in any building or work such as is referred to in item 1(a) Group
1 Schedule 9 VATA.
(u) No interest in or right over land or any licence to occupy
land of the Company constitutes or is subject to a developmental tenancy,
developmental lease or development licence such as is referred to in item 1 (b)
Group 1 Schedule 9 VATA.
(v) The Company is not bound and has not agreed to become bound
by any contract, lease, tenancy or licence under the terms of which, or in
respect of which by virtue of section 89 VATA the Company is or could become
liable to pay any increased consideration as a result of the making the future
of an election under paragraph 2 Schedule 10 VATA (election to waive exemption).
(w) There are no circumstances by reason of which the Company is
or could become liable to account for value added tax under paragraphs 5 and 6
Schedule 10 VATA (developers) or under the Value Added Tax (Self- Supply of
Constructions Services) Order 1989.
(x) All Value Added Tax, import duty and other Taxes or charges
payable to H.M. Customs & Excise in respect of any assets (including trading
stock) imported or owned by the Company have been paid in full.
(y) On a disposal of all its assets by the Company for:
(i) in the case of each asset owned by the Company at
the Accounts Date, a consideration equal to the value attributed to that asset
in preparing the 7/31 Statements; or
(ii) in the case of each asset acquired since the
Accounts Date, a consideration equal to the consideration given for the
acquisition then either:
15
17
(A) in respect of any asset falling within
(y)(i) above, the liability to Tax (if any) which would be incurred by the
Company in respect of that asset would not exceed the amount taken into account
in respect of that asset in computing the maximum liability to deferred Taxation
as stated in the 7/31 Statements; or
(B) in respect of any asset within (y)(ii)
above, no liability to Tax would be incurred by the Company in respect of that
asset.
(z) Full particulars of each claim under Section 247, 152, 153
or 175 of the TCGA made prior to the date of this Agreement to which Section 154
of the TCGA applies and which affects any asset which was owned by the Company
or the Company on or after the Accounts Date (except where the held over gain is
treated as having accrued prior to the Accounts Date) have been disclosed in
writing to the Purchaser.
(aa) Since 6th April 1964 The Company has not made any repayment
of share capital to which Section 210(1) of the Taxes Act applies or issued any
share capital as paid up otherwise than by the receipt of new consideration
within the meaning of Part VI of the Taxes Act.
(bb) The Company has not made any transfer to which the
provisions of section 125 TCGA apply.
(cc) The Company has no outstanding loan to which the provisions
of Section 419 of the Taxes Act would apply (loans to participators etc.) or
incurred any such expense as is referred to in section 418 of the Taxes Act.
(dd) The Company has not made a transfer of value within section
94 Inheritance Tax Xxx 0000.
(ee) The Company is not under any obligation to make any future
payment which will be prevented (whether on the grounds of being a distribution,
or for any other reason) from being deductible for corporation tax purposes,
whether as a deduction in computing the profits of a trade or as an expense of
management or as a charge on income, by reason of any statutory provision, other
than Section 74(f) of the Taxes Act (capital).
(ff) The Company has not acquired any asset from any other
company which was, at the time of the acquisition, a member of the same group of
companies as the Company for the purposes of any Tax within the last six years.
(gg) The United Kingdom is the only country whose Tax
Authorities seek to charge Tax on the worldwide profits or gains of the Company
and the Company has never paid Tax on income profits or gains to any Tax
Authority in any other country.
(hh) The Company has not without the prior consent of HM
Treasury caused, permitted or entered into any transaction specified in section
765 Taxes Act (migration of companies) or agreed to do so nor has it failed to
give proper notice to the Inland Revenue as required by Section 765A(2) Taxes
Act.
(ii) The Company is not and has never been a member of a group
of companies or a consortium or associated with any other company for any
Taxation purpose and the Company is not under any liability to Taxation,
contingent or otherwise, in respect of any other company which at any time has
been a member of the same group or consortium as the Company or is an associated
company of the Company for any Taxation purpose.
16
18
(jj) The Company has not been concerned in an exempt
distribution (as defined in Section 214(4) of the Taxes Act).
(kk) The Company is not a party to any transaction or
arrangement under which it may be required to pay for any asset or any services
or facilities of any kind an amount which is in excess of the market value of
that asset or services or facilities or will receive any payment for an asset of
any services or facilities of any kind that it has supplied or provided or is
liable to supply or provide which is less than the market value of that asset or
service.
(ll) The Company has not at any time entered into or been a
party to a transaction or series of transactions either:-
(i) containing steps inserted without any commercial or
business purpose apart from the reduction, avoidance or deferral of a Tax
liability;
(ii) being transactions to which any of the following
provisions could apply: Taxes Act sections 703, 729, 730, 739, 770, 774, 776,
779, 780, 781 or 786 or sections 132 - 139 inclusive TCGA, without, in the
appropriate cases, having received clearance in respect thereof from the Inland
Revenue and all transactions for which such clearances were obtained have been
carried out in accordance with the terms of the clearances given and the
applications made for them.
(mm) The Company has never been requested to furnish information
pursuant to notices under sections 745 or 778 of the Taxes Act.
(nn) The Company will not have any Tax Liability in respect of:
(i) any event occurring after Completion in pursuance of
a legally binding obligation or arrangement (whether conditional or not) entered
into on or before Completion, otherwise than in the ordinary course of business
of the Company;
(ii) any event occurring before Completion outside the
ordinary course of business of the Company as carried on at any time before
Completion and which forms part of a combination of events which include any
event occurring after Completion which is inside the ordinary course of business
of the Company.
4.10 Restrictions on Business Activities. Other than Film financing
agreements entered into in the ordinary course of business and except as
provided in Paragraph 4.10 of the Disclosure Letter, there is no agreement
(non-compete or otherwise), commitment, judgment, injunction, order or decree to
which the Company is a party or otherwise binding upon the Company which has or
reasonably could be expected to have the effect of prohibiting or impairing any
business practice of the Company, any acquisition of property (tangible or
intangible) by the Company or the conduct of business by the Company.
4.11 Title of Properties; Absence of Liens and Encumbrances; Condition
of Equipment and Inventory.
(a) The Real Property comprises all real property currently
owned or leased by the Company (collectively, the "REAL PROPERTY"), and the
details in Schedule F set out, in respect of leased property, the name of the
lessor, the date of the lease and each amendment thereto and the aggregate
annual rental and/or other fees payable under any such lease. All such leases
are in full force and effect, are valid and effective in accordance with their
respective terms, and there is not, under any of such
17
19
leases, any existing default or event of default (or event which with notice or
lapse of time, or both, would constitute a default).
(b) The Company has good and valid title to, or, in the case of
leased properties and assets, valid leasehold interests in, all of its tangible
properties and assets, including the Film Assets, as defined below in Section
4.12(a), free and clear of any Liens (as defined in Section 4.9(b)(vii)), except
(i) as reflected in the Company Financial Statements, (ii) for liens for taxes
not yet due and payable, (iii) for such imperfections of title, for
encumbrances, if any, which are not material in character, amount or extent, and
which do not materially detract from the value, or materially interfere with the
present use of the property subject thereto or affected thereby, (iv) for Liens
on any asset of the Company, including the Film Assets, as set forth on
Paragraph 4.11 of the Disclosure Letter, (v) liens in favor of production
lenders, completion guarantors, distributors, guilds and laboratories entered
into in the ordinary course of business and (vi) liens on Films for which the
Company has entered into sales agency relationships.
(c) Paragraph 4.11 of the Disclosure Letter sets forth a list of
each laboratory ("LABORATORY") where all film negatives, prints, pre-print
and/or soundtrack materials and other tangible Film Assets (the "PHYSICAL
PROPERTIES") are located. The Company has access to all of the Physical
Properties used in the business of the Company as currently conducted. The
Company is not in material violation of any agreement with any Laboratory
("LABORATORY AGREEMENT") which would prevent the Company from obtaining access
to any of the Physical Properties. The execution and delivery of this Agreement
by the Company, and the consummation of the transactions contemplated hereby (i)
will not cause the Company to be in material violation or default under any
Laboratory Agreement, (ii) entitle any Laboratory to terminate or modify any
Laboratory Agreement or (iii) prevent Purchaser from access to the Physical
Properties after consummation of the transactions contemplated hereby.
4.12 Intellectual Property; Film Assets.
(a) The Company owns, or is licensed or otherwise possesses
legally enforceable rights to use all intangible Film Assets, patents,
trademarks, trade names, service marks, copyrights, and any applications
therefor, (the "COMPANY INTELLECTUAL PROPERTY RIGHTS").
(b) With respect to the Film Assets, Paragraph 4.12 of the
Disclosure Letter sets forth:
(i) all Films which have been produced or are in
production in which the Company has an ownership interest (the "PRODUCED
FILMS");
(ii) all Films currently in development in which the
Company has an ownership interest (the "FILMS IN DEVELOPMENT"); and
(iii) all Films with respect to which the Company has
entered into sales and licensing agency agreements (the "AGENCY FILMS") and
together with the Produced Films, the Films in Development and the Agency Films
collectively, the "DANDELION FILMS").
The Dandelion Films constitute all of the Film Assets of the Company. Except for
the Liens set forth on Paragraph 4.12 of the Disclosure Letter, no Liens exist
on any of the Film Assets.
(c) Paragraph 4.12 of the Disclosure Letter sets forth a
complete list of all registered copyrights, and any applications therefor in
respect of any of the foregoing, included in the Company Intellectual Property
Rights, and specifies, where applicable, the jurisdictions in which each such
Company Intellectual Property Right has been issued or registered or in which an
application for such issuance and registration has been filed, including the
respective registration or application numbers and
18
20
the names of all registered owners. The Company owns no patents, trademarks or
service marks, nor has the Company licensed or sublicensed any patents,
trademarks or service marks. No claims with respect to the Company Intellectual
Property Rights have been asserted against the Company, nor to the knowledge of
the Selling Shareholder are threatened against the Company or have been asserted
or threatened against a third party, nor is the Company aware, except as
disclosed on Schedule 4.16, of any reasonable basis for any claims (i) against
the use by the Company of any distribution rights, trademarks, service marks,
trade names, trade secrets, copyrights, patents, technology, know-how or
computer software programs and applications used in the Company's business as
currently conducted; or (ii) challenging the validity, effectiveness, or
ownership by the Company of any of the Company Intellectual Property Rights. All
registered patents, trademarks, service marks and copyrights held by the Company
are valid and subsisting. To the knowledge of the Selling Shareholder, there is
no unauthorized use, infringement or misappropriation by any third party,
including any employee or former employee of the Company, of any of the Company
Intellectual Property Rights owned by the Company other than the unauthorized
duplication and distribution by third parties of the Company's Films from time
to time in certain territories. No Company Intellectual Property Right or
product of the Company is subject to any outstanding decree, order, judgment, or
stipulation restricting in any manner the licensing thereof by the Company. The
Company has not entered into any agreement under which the Company is restricted
from selling, licensing or otherwise distributing any of its products to any
class of customers, in any geographic area, during any period of time or in any
segment of the market other than the Company's distribution agreements and
acquisition agreements, as set forth in Section 4.13 of the Disclosure Letter.
The Company has no outstanding or future financial commitments or obligations in
respect of Produced Films.
4.13 Agreements, Contracts and Commitments. Except as set forth in
Paragraph 4.13 of the Disclosure Letter, the Company does not have continuing
obligations under, is not a party to nor is it bound by:
(a) any collective bargaining agreements;
(b) any agreements or arrangements that contain any severance
pay or post-employment liabilities or obligations, other than as contemplated
herein;
(c) any bonus, deferred compensation, pension, profit sharing or
retirement plans, or any other employee benefit plans or arrangements;
(d) any employment or consulting agreement, contract or
commitment with an employee or individual consultant or salesperson or
consulting or sales agreement, contract or commitment with a firm or other
organization;
(e) any agreement or plan, including, without limitation, any
stock option plan, stock appreciation rights plan or stock purchase plan, any of
the benefits of which will be increased, or the vesting of benefits of which
will be accelerated, by the occurrence of any of the transactions contemplated
by this Agreement or the value of any of the benefits of which will be
calculated on the basis of any of the transactions contemplated by this
Agreement, except as provided herein;
(f) any fidelity or surety bond;
(g) any lease of personal property having annual lease payments
individually in excess of $25,000;
(h) any agreement of indemnification or guaranty other than in
the ordinary course of business;
19
21
(i) any agreement, contract or commitment containing any
covenant limiting the freedom of the Company to engage in any line of business
or to compete with any person;
(j) any agreement, contract or commitment relating to capital
expenditures and involving future payments in excess of $25,000;
(k) any agreement, contract or commitment relating to the
disposition or acquisition of material assets or any interest in any business
enterprise outside the ordinary course of the Company's business;
(l) any mortgages, indentures, loans or credit agreements,
security agreements or other agreements or instruments relating to the borrowing
of money or extension of credit, including guaranties referred to in clause
(viii) hereof.
(m) any purchase order or contract for the purchase of raw
materials involving $25,000 or more;
(n) any construction contracts;
(o) any agreement, contract or commitment with any party which,
during the last two fiscal years of the Company, accounted for, or is expected
to account during the Company's current fiscal year, for more than 5% of the
Company's revenue or trade payables;
(p) any agreement for the acquisition of any sales agency or
distribution rights by the Company to any motion picture;
(q) any agreement for the granting of any distribution right by
the Company to any other party.
The Company has not breached, violated or defaulted under, or received
notice that it has breached, violated or defaulted under, any of the material
terms or conditions of (i) any agreement, contract or commitment set forth in
Paragraph 4.13 of the Disclosure Letter, or (ii) any other material agreement,
contract or commitment to which it is a party or by which it is bound (any such
agreement, contract or commitment, a "CONTRACT"). Each Contract is in full force
and effect and, except as otherwise disclosed in Paragraph 4.13 of the
Disclosure Letter, is not subject to any default thereunder of which the Company
is aware by any party obligated to the Company pursuant thereto. The Company has
obtained, or will obtain prior to the Closing Date, all necessary consents,
waivers and approvals of parties to any Contract as are required in connection
with the transactions contemplated by this Agreement, or as are required or
advisable in order to remain in effect without modification after the
transactions contemplated by this Agreement. Each Contract requiring any
consent, waiver or third-party approval as a result of the transaction
contemplated by this Agreement is disclosed in Paragraph 4.13 of the Disclosure
Letter. Neither the execution of this Agreement nor consummation of the
transactions contemplated hereby will cause any default or breach under any
Contract, including without limitation any key man clause in any Contract, or
the acceleration of any payment obligation of the Company.
4.14 Interested Party Transactions. Except as set forth in Paragraph
4.14 of the Disclosure Letter, no officer, director or, to Selling Shareholder's
knowledge, employee or stockholder (nor to Selling Shareholder's knowledge, any
ancestor, sibling, descendant or spouse of any of such persons, or any trust,
partnership or corporation in which any of such persons has or has had an
interest), has or has had, directly or indirectly, (i) an interest in any entity
which furnished or sold, or furnishes or sells, services or products to the
Company, or (ii) any interest in any entity that purchases any goods or services
from the
20
22
Company, or (iii) a beneficial interest in any contract or agreement set forth
in Paragraph 4.14 of the Disclosure Letter.
4.15 Governmental Authorization. Paragraph 4.15 of the Disclosure Letter
accurately lists each material consent, license, grant or other authorization
issued to the Company by a governmental entity (i) pursuant to which the Company
currently operates or holds any interest in any of its properties or (ii) which
is required for the operation of its business or the holding of any such
interest (herein collectively called "COMPANY AUTHORIZATIONS"), which Company
Authorizations are in full force and effect and constitute all Company
Authorizations required to permit the Company to operate or conduct its business
or hold any interest in its properties or assets.
4.16 Litigation. Other than as set forth in the Financial Statements or
on Paragraph 4.16 of the Disclosure Letter, there is no action, suit, claim or
proceeding of any nature pending, or to Selling Shareholder's knowledge,
threatened against the Company, its properties or any of its officers or
directors, in their capacities as agents of the Company. There is no
investigation pending or, to Selling Shareholder's knowledge, threatened against
the Company, its properties or any of its officers or directors, in their
capacities as agents of the Company by or before any governmental entity. No
governmental entity has at any time challenged or questioned the legal right of
the Company to manufacture, offer or sell any of its products in the present
manner or style thereof.
4.17 Accounts Receivable; Inventory.
(a) Set forth in Paragraph 4.17 of the Disclosure Letter is a
list of all accounts receivable of the Company reflected on the Unaudited
Balance Sheet ("ACCOUNTS RECEIVABLE").
(b) All Accounts Receivable of the Company arose in the ordinary
course of business, are carried at values determined in accordance with UK GAAP
consistently applied and are collectible except to the extent of reserves
therefor set forth in the Unaudited Balance Sheet. No person has any Lien on any
of such Accounts Receivable, and no request or agreement for deduction or
discount has been made with respect to any of such Accounts Receivable.
4.18 Minute Books. The minute books of the Company and the Subsidiaries,
made available to counsel for Purchaser, are the only minute books of the
Company and contain an accurate summary of all meetings of directors (or
committees thereof) and shareholders or actions by written consent since the
time of incorporation of the Company.
4.19 Brokers' and Finders' Fees. The Company has not incurred, nor will
it incur, directly or indirectly, any liability for brokerage or finders' fees
or agents' commissions or any similar charges in connection with this Agreement
or any transaction contemplated hereby.
4.20 Employee Benefit Plans and Compensation.
(a) Schedule. Paragraph 4.20 of the Disclosure Letter contains
an accurate and complete list of (i) each Employee of the Company and each
Employee's salary as of July 31, 1999, and (ii) each Company Employee Plan and
each Employee Agreement. The Company does not have any plan or commitment,
whether legally binding or not, to establish any new Company Employee Plan or
Employee Agreement, to modify any Company Employee Plan or Employee Agreement
(except to the extent required by law or to conform any such Company Employee
Plan or Employee Agreement to the requirements of any applicable law, in each
case as previously disclosed to Purchaser in writing, or as required by this
Agreement), or to enter into any Company Employee Plan or Employee Agreement,
nor does it have any intention or commitment to do any of the foregoing.
21
23
(b) Documents. The Company has provided to Purchaser (i) correct
and complete copies of all documents embodying each Company Employee Plan and
each Employee Agreement including all amendments thereto and copies of all forms
of agreement and enrollment used therewith; (ii) the most recent annual
actuarial valuations, if any, prepared for each Company Employee Plan; (iii) if
the Company Employee Plan is funded, the most recent annual and periodic
accounting of Company Employee Plan assets; (iv) the most recent summary plan
description together with the most recent summary of material modifications, if
any, with respect to each Company Employee Plan; and (vi) all communications
material to any Employee or Employees relating to any Company Employee Plan and
any proposed Company Employee Plans, in each case, relating to any amendments,
terminations, establishments, increases or decreases in benefits, acceleration
of payments or vesting schedules or other events which would result in any
material liability to the Company.
(c) Employee Plan Compliance. The Company has performed in all
material respects all obligations required to be performed by it under each
Company Employee Plan and each Company Employee Plan has been established and
maintained in all material respects in accordance with its terms and in
compliance with all applicable laws, statutes, orders, rules and regulations;
(ii) there are no actions, suits or claims pending, or, to the knowledge of the
Selling Shareholder, threatened or anticipated (other than routine claims for
benefits) against any Company Employee Plan or against the assets of any Company
Employee Plan; and (iii) each Company Employee Plan can be amended, terminated
or otherwise discontinued after the Closing Date in accordance with its terms,
without liability to the Company, Purchaser or any of its Affiliates (other than
ordinary administration expenses typically incurred in a termination event).
(d) Pension Plans. The Company is not paying nor is it under any
liability (actual or contingent) to pay or secure (other than by payment of
employers' contributions under national insurance or social security
legislation) any pension or other benefit on retirement death or disability or
on the attainment of a specified age or on the completion of a specified number
of years' service.
(e) No Post-Employment Obligations. No Company Employee Plan
provides, or has any liability to provide, life insurance, medical or other
employee benefits to any Employee upon his or her retirement or termination of
employment for any reason, except as may be required by statute, and the Company
has never represented, promised or contracted (whether in oral or written form)
to any Employee (either individually or to Employees as a group) that such
Employee(s) would be provided with life insurance, medical or other employee
welfare benefits upon their retirement or termination of employment, except to
the extent required by statute.
(f) Effect of Transaction. The execution of this Agreement and
the consummation of the transactions contemplated hereby will not (either alone
or upon the occurrence of any additional or subsequent events) constitute an
event under any Company Employee Plan, Employee Agreement, trust or loan that
will or may result in any payment (whether of severance pay or otherwise),
acceleration, forgiveness of indebtedness, vesting, distribution, increase in
benefits or obligation to fund benefits with respect to any Employee.
(g) Employment Matters. The Company (i) is in compliance in all
material respects with all applicable foreign, federal and state laws, rules and
regulations respecting employment, employment practices, terms and conditions of
employment and wages and hours, in each case, with respect to Employees; (ii)
has withheld all amounts required by law or by agreement to be withheld from the
wages, salaries and other payments to Employees; (iii) is not liable for any
arrears of wages or any taxes or any penalty for failure to comply with any of
the foregoing; and (iv) is not liable for any payment to any trust or other fund
or to any governmental or administrative authority, with respect to unemployment
compensation benefits, social security or other benefits for Employees (other
than routine payments to be made in the normal course of business and consistent
with past practice).
22
24
(h) Employment Disputes. No work stoppage or strike against the
Company is pending or, to the best knowledge of the Selling Shareholder,
threatened. The Company is not involved in or, to the knowledge of the Selling
Shareholder, threatened with, any employment dispute, grievance, or litigation
relating to employment, safety or discrimination matters involving any Employee,
including, without limitation, charges of unfair employment practices or
discrimination complaints, which, if adversely determined, would, individually
or in the aggregate, result in liability to the Company. Neither the Company nor
any of its Subsidiaries has engaged in any unfair employment practices which
would, individually or in the aggregate, directly or indirectly result in a
liability to the Company. The Company is not presently, nor has it been in the
past, a party to, or bound by, any collective bargaining agreement or union
contract with respect to Employees and no collective bargaining agreement is
being negotiated by the Company.
4.21 Insurance. Paragraph 4.21 of the Disclosure Letter lists all
insurance policies and fidelity bonds, if any, covering the assets, business,
equipment, properties, operations, employees, officers and directors of the
Company. There is no claim by the Company pending under any of such policies or
bonds as to which coverage has been questioned, denied or disputed by the
underwriters of such policies or bonds. All premiums due and payable under all
such policies and bonds have been paid and the Company is otherwise in material
compliance with the terms of such policies and bonds. The Selling Shareholder
has no knowledge of any threatened termination of, or material premium increase
with respect to, any of such policies.
4.22 Permits. The Company has all material permits (including without
limitation those relating to the occupancy or use of real property) that are
required for the Company to conduct its business as presently conducted and as
currently proposed to be conducted, except for those the absence of which would
not have a Material Adverse Effect. Each such permit is in full force and effect
and, to the best knowledge of the Selling Shareholder, no suspension or
cancellation of such permit is threatened, and the Selling Shareholder is not
aware of any basis for believing that such permit will not be renewable upon
expiration.
4.23 Compliance with Laws. The Company has complied with, is not in
violation of, and has not received any notices of violation with respect to, any
foreign, federal, state or local statute, law or regulation.
4.24 Complete Copies of Materials. Each document (or summary of same)
that has been provided by the Company in response to a request by Purchaser or
its counsel is true and complete provided that if any such copy is of an
unsigned document, then either such document has nevertheless been duly executed
by the relevant parties thereto or the parties thereto have entered into a
course of conduct so that the terms of such document constitute the terms of the
agreement in operation between the parties.
4.25 Consents. There are no consents, waivers, approvals, orders or
authorizations of, or registrations, declarations or filings with, any court,
administrative agency or commission or other federal, state, county, local or
other foreign governmental authority, instrumentability, agency or commission
("GOVERNMENTAL ENTITY") required by or with respect to the Company in connection
with the execution and delivery of this Agreement and Related Agreements or the
consummation of the transactions contemplated hereby and thereby, or in order to
avoid the creation of a Conflict except for such consents, waivers, approvals,
orders, authorizations, registrations, declarations, and filings as may be
required under applicable securities laws.
4.26 Distribution of Pictures
23
25
(a) Paragraph 4.26 of the Disclosure Letter sets forth all of
the Film titles to which the Company has distribution rights.
(b) As required by Section 4.13(e) above, Paragraph 4.26 of the
Disclosure Letter lists all of the agreements pursuant to which the Company has
granted distribution rights to certain Films (such agreements, the "DISTRIBUTION
AGREEMENTS") as of the Closing Date. Paragraph 4.26 of the Disclosure Letter
also sets forth the name of the party receiving the distribution rights, the
territory for which such rights were granted, the title of the Films for which
distribution rights are received, and the commitment and termination dates of
such agreements.
4.27 Film Production. Paragraph 4.27 of the Disclosure Letter sets forth
(a) all of the Films for which the Company participated in the production
financing (the "PRODUCED FILMS"), (b) whether or not such Produced Films have
been completed and delivered for distribution, (c) the names of the entities
providing financing for the Produced Films (the "LENDERS") and (d) whether any
obligation remains outstanding and unpaid to any of the Lenders. The Lenders
have prepared, delivered and filed, or promptly after the execution of this
Agreement shall prepare, deliver and file, any and all papers, reports and
termination statements required to evidence release of any interest any Lender
may have in any of the Films for which no obligation remains outstanding and
unpaid.
4.28 Real Property
(a) Short particulars of the Real Property are correctly set out
in Schedule F and the Real Property comprises all the lands and buildings owned,
used or occupied by the Company and, in this Section 4.28, the expression "the
Real Property" shall include where the context so admits the individual Real
Property comprising the same and subject to the rights of prior mortgagees the
Company has in its possession or control all the deeds and documents duly
executed, stamped and registered to show a good and marketable title to the Real
Property.
(b) The Company has (and will at Completion have) a good and
marketable title to the Real Property.
(c) Save in respect of the charges in favour of Barclays Bank
plc and the lease in favour of Leisureview Limited ("the Lease") each of which
is referred to in the Disclosure Letter the Real Property is free from
mortgages, charges (fixed or floating), liens, encumbrances and third party
rights of any kind whatsoever and are not subject to any outgoings other than
uniform business rates and leasehold rent and services charges.
(d) There are no matters or things which prejudicially or
adversely affect the Real Property for the purposes of the Company's business or
the existing use of the Real Property or which may subject the owner or occupier
of the Real Property to any charge or liability or which may cast any doubt on
the said title of the Company or which should be revealed to a buyer for value.
(e) Save in respect of the Lease the Company is entitled to and
has full vacant possession of the Real Property and the Company is in physical
possession and actual occupation of the whole of the Real Property on an
exclusive basis.
(f) All agreements, obligations, restrictions, covenants,
conditions, statutes, bye-laws and regulations affecting the Real Property or
their use or the owner or occupier of the Real Property have been observed and
performed and all outgoings of whatsoever nature in respect of the Real Property
have been paid to date.
24
26
(g) All licences affecting the Real Property for the purposes of
the Company's business and the existing use are in full force and effect and are
not personal or limited in time and there are no circumstances which could cause
the same to be revoked or not renewed.
(h) There are no outstanding notices, complaints or disputes
with any person or authority (including neighbouring owners or occupiers).
(i) There are no works being carried on or outstanding in
respect of the Real Property.
(j) There are no contingent liabilities on the part of the
Company including liabilities by privity of contract whether as tenant or surety
in respect of Real Property which have been disposed of.
(k) The current actual use of the Real Property is the lawful
permitted use and is not subject to any restrictions or conditions and the Real
Property comply (as to buildings and use) with the Town and Country Planning
legislation and the requirements and recommendations of the insurers and all
applicable statutory and bye-law requirements including fire precautions, public
health and health and safety at work and each of the Real Property has a current
fire certificate.
(l) There are no outstanding or anticipated complaints,
proposals, schemes, resolutions, notices, orders, requirements or
recommendations of any local county or other authority affecting the Real
Property or their use or the owner or occupier of the Real Property and there
are no pending applications (including applications for planning and building
regulation consent) in respect of the Real Property.
(m) No agreement has been entered into with any planning
authority, statutory undertaking or other public body or authority regulating
the Real Property including its use or development.
(n) The means of access to and egress from the Real Property is
over roads which have been taken over by the local authority and are
maintainable at public expense.
(o) The Real Property enjoy mains water, gas, electricity and
telephone and they drain into a public sewer and all pipes and other conducting
media serving the Real Property connect directly to the mains without passing
through land in the possession or occupation of a third party and all the
services are in good and proper working order.
(p) The Real Property is in good and substantial repair,
condition and decorative order and do not contain high alumina cement, calcium
chloride, wood wool slaps, asbestos, calcium silicate bricks or tiles, sea
aggregates, urea formaldehyde, crocodilite or other deleterious substances and
have not been affected by flooding, subsidence, structural, building or drainage
defects, rising or penetrating damp, woodworm, dry or other rot or other
infestation and have been soundly constructed in accordance with good and proper
building practice and are fit for the purpose for which each is used. There are
no obligations on the Company to remedy any latent or inherent defects.
(q) The Company does not anticipate that any substantial
expenditure will be required in respect of the Real Property within the next
three (3) years.
(r) All rents, licence fees, service charges and payments due
from the Company in respect of the Real Property have been paid to date and the
Real Property is not subject to any commutation or agreement for the commutation
of rent or payment of rent in advance of the due dates of
25
27
payment of such rent.
(s) There are no outstanding or anticipated monetary claims or
liabilities, contingent or otherwise, in respect of the Real Property including
compensation for disturbance or improvements in respect of any past or present
tenancy and there are no obligations to reinstate any of the leasehold Real
Property by removal or dismantling of any alterations.
(t) There are no circumstances which would entitle a lessor or
any other person to exercise any right of re-entry or taking possession of the
Real Property or which would otherwise restrict or terminate the continued
possession and occupation of any part of the Real Property.
4.29 Representations Complete. None of the representations or warranties
made by the Company or the Selling Shareholder (as modified by the Disclosure
Letter), nor any statement made in any Schedule or certificate furnished by the
Company or of the Selling Shareholder pursuant to this Agreement or in the
disclosures made by the Disclosure Letter, contains any untrue statement of a
material fact or omits to state any material fact necessary in order to make the
statements contained herein or therein, in the light of the circumstances under
which made, not misleading.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF PURCHASE ARTICLE V
REPRESENTATIONS AND WARRANTIES OF PURCHASER
Purchaser represents and warrants to the Company and the Selling
Shareholder as follows:
5.1 Organization, Standing and Power. Purchaser is a corporation duly
organized, validly existing and in good standing under the laws of California.
Purchaser has the corporate power to own its properties and to carry on its
business as now being conducted and is duly qualified to do business and is in
good standing in each jurisdiction in which the failure to be so qualified would
have a material adverse effect on the ability of Purchaser to consummate the
transactions contemplated hereby.
5.2 Authority. Purchaser has all requisite corporate power and authority
to enter into this Agreement and to consummate the transactions contemplated
hereby. The execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby have been duly authorized by all necessary
corporate action on the part of Purchaser. This Agreement has been duly executed
and delivered by Purchaser and constitutes the valid and binding obligations of
Purchaser, enforceable in accordance with its terms, except as such
enforceability may be limited by principles of public policy and subject to the
laws of general application relating to bankruptcy, insolvency and the relief of
debtors and rules of law governing specific performance, injunctive relief or
other equitable remedies.
5.3 Capital Structure.
(a) As of 30th September 1999, the authorized capital stock of
Purchaser consisted of 40,000,000 shares of common stock, of which 5,897,959
shares of common stock were issued and outstanding as at that date. All such
issued and outstanding shares have been duly authorized, validly issued and are
fully paid and non-assessable.
(b) The shares of Purchaser Capital Stock to be issued pursuant
to the terms of this Agreement will, when so issued, be duly authorized, validly
issued, fully paid, non-assessable.
26
28
5.4 No Conflict. The execution and delivery of this Agreement and any
Related Agreements by Purchaser do not, and, the consummation of the
transactions contemplated hereby and thereby will not, conflict with, or result
in any violation of, or default under (with or without notice or lapse of time,
or both), or give rise to a right of termination, cancellation, modification or
acceleration of any obligation or loss of any benefit under (any such event, a
"CONFLICT") (i) any provision of the Articles of Amendment and Bylaws of the
Purchaser, (ii) any material mortgage, indenture, or lease to which Purchaser or
any of its properties or assets are subject, (iii) any material permit,
concession, franchise, or license to which Purchaser or any of its properties or
assets are subject, or (iv) any judgment, order, decree, statute, law,
ordinance, rule or regulation applicable to Purchaser or its properties or
assets.
5.5 Consents. No consent, waiver, approval, order or authorization of,
or registration, declaration or filing with, any court, administrative agency or
commission or other federal, state, county, local or other foreign governmental
authority, instrumentality, agency or commission ("GOVERNMENTAL ENTITY") or any
third party, including a party to any agreement with the Purchaser, is required
by or with respect to the Purchaser in connection with the execution and
delivery of this Agreement and any Related Agreements or the consummation of the
transactions contemplated hereby and thereby, except for such consents, waivers,
approvals, orders, authorizations, registrations, declarations, and filings as
may be required under applicable securities laws and the requirements of the
NASD.
5.7 Ongoing Filing Requirements. Purchasers shall file any documents
required to be filed when and as required by said Securities Exchange Act and
the rules and regulations promulgated thereunder.
5.8 Brokers' and Finders' Fees. The Purchaser has not incurred, nor will
it incur, directly or indirectly, any liability for brokerage or finders' fees
or agents' commissions or any similar charges in connection with this Agreement
or any transaction contemplated hereby.
ARTICLE VI
CONDUCT PRIOR TO THE CLOSING DATE
6.1 Conduct of Business of the Company. During the period from the date
of this Agreement and continuing until the earlier of the termination of this
Agreement or the Closing Date, both the Company and the Selling Shareholder
agree (except to the extent that Purchaser shall otherwise consent in writing)
to carry on the Company's business in the usual, regular and ordinary course in
substantially the same manner as heretofore conducted, to pay the Company's
debts and Taxes when due, to pay or perform other obligations when due, and, to
the extent consistent with such business, use all reasonable efforts consistent
with past practice and policies to preserve intact the Company's present
business organizations, keep available the services of the Company's present
officers and key employees and preserve the Company's relationships with
customers, suppliers, distributors, licensors, licensees, and others having
business dealings with it, all with the goal of preserving unimpaired the
Company's goodwill and ongoing businesses at the Closing Date. The Company shall
promptly notify Purchaser of any event or occurrence not in the ordinary course
of business of the Company and of any material event involving the Company.
Except as expressly contemplated by this Agreement, the Company shall not,
without the prior written consent of Purchaser:
(a) Enter into any commitment or transaction not in the ordinary
course of business or any commitment or transaction of the type described in
Section 4.8 hereof;
(b) Transfer to any person or entity any rights to the Company
Intellectual Property;
27
29
(c) Except in the ordinary course of business, enter into or
amend any agreements pursuant to which any other party is granted marketing,
distribution or similar rights of any type or scope with respect of the
Company's Film Assets;
(d) Amend or otherwise modify (or agree to do so), except in the
ordinary course of business, or violate the terms of, any of the agreements set
forth or described in the Disclosure Letter;
(e) Commence any litigation;
(f) Declare, set aside or pay any dividends on or make any other
distributions (whether in cash, stock or property) in respect of any of its
capital stock, or split, combine or reclassify any of its capital stock or issue
or authorize the issuance of any other securities in respect of, in lieu of or
in substitution for shares of capital stock of the Company, or repurchase,
redeem or otherwise acquire, directly or indirectly, any shares of its capital
stock (or options, warrants or other rights exercisable therefor);
(g) Issue, grant, deliver or sell or authorize or propose the
issuance, grant, delivery or sale of, or purchase or propose the purchase of,
any shares of its capital stock or securities convertible into, or
subscriptions, rights, warrants or options to acquire, or other agreements or
commitments of any character obligating it to issue any such shares or other
convertible securities;
(h) Cause or permit any amendments to its Articles of
Incorporation or Bylaws;
(i) Acquire or agree to acquire by merging or consolidating
with, or by purchasing any assets or equity securities of, or by any other
manner, any business or any corporation, partnership, association or other
business organization or division thereof, or otherwise acquire or agree to
acquire any assets which are material, individually or in the aggregate, to its
business;
(j) Sell, lease, license or otherwise dispose of any of its
properties or assets, except in the ordinary course of business and consistent
with past practices;
(k) Except for borrowings consistent with past practices, incur
any indebtedness for borrowed money or guarantee any such indebtedness or issue
or sell any debt securities or guarantee any debt securities of others;
(l) Grant any loans to others or purchase debt securities of
others or amend the terms of any outstanding loan agreement, except in the
ordinary course of business and consistent with past practices.
(m) Grant any severance or termination pay (i) to any director
or officer or (ii) to any other employee except payments made pursuant to
standard written agreements outstanding on the date hereof;
(n) Adopt or amend any employee benefit plan, or enter into any
employment contract, pay or agree to pay any special bonus or special
remuneration to any director or employee, or increase the salaries or wage rates
of its employees, except in connection with annual pay adjustment consistent
with past practices which increases in the aggregate have been approved by
Purchaser in writing and which for the Shareholder has been approved by
Purchaser in writing;
(o) Revalue any of its assets, including without limitation
writing down the value of inventory or writing off notes or accounts receivable
other than in the ordinary course of business;
28
30
(p) Pay, discharge or satisfy, in an amount in excess of $25,000
(in any one case) or $100,000 (in the aggregate), any claim, liability or
obligation (absolute, accrued, asserted or unasserted, contingent or otherwise),
other than the payment, discharge or satisfaction in the ordinary course of
business;
(q) Make or change any material election in respect of Taxes,
adopt or change any accounting method in respect of Taxes, enter into any
closing agreement, settle any claim or assessment in respect of Taxes, or
consent to any extension or waiver of the limitation period applicable to any
claim or assessment in respect of Taxes;
(r) Enter into any strategic alliance or joint marketing
arrangement or agreement; or
(s) Take, or agree in writing or otherwise to take, any of the
actions described in Sections 6.1(a) through (r) above, or any other action that
would prevent the Company from performing or cause the Company not to perform
its covenants hereunder.
6.2 No Solicitation. Until the earlier of the Closing Date or the date
of termination of this Agreement pursuant to the provisions of Section 10.1
hereof, neither the Company nor the Selling Shareholder will (nor will the
Company or the Selling Shareholder permit any of the Company's officers,
directors, agents, representatives or affiliates to) directly or indirectly,
take any of the following actions with any party other than Purchaser and its
designees: (a) solicit, conduct discussions with or engage in negotiations with
any person, relating to the possible acquisition of the Company (whether by way
of merger, purchase of capital stock, purchase of assets or otherwise) or any
material portion of its capital stock or assets, (b) provide information with
respect to the Company to any person, other than Purchaser, relating to the
possible acquisition of the Company (whether by way of merger, purchase of
capital stock, purchase of assets or otherwise) or any material portion of its
capital stock or assets, (c) enter into an agreement with any person, other than
Purchaser, providing for the acquisition of the Company (whether by way of
merger, purchase of capital stock, purchase of assets or otherwise) or any
material portion of its capital stock or assets, or (d) make or authorize any
statement, recommendation or solicitation in support of any possible acquisition
of the Company or any of its subsidiaries (whether by way of merger, purchase of
capital stock, purchase of assets or otherwise) or any material portion of its
capital stock or assets by any person, other than by Purchaser.
ARTICLE VII
ADDITIONAL AGREEMENTS
7.1 Non-Competition and Employment Agreements. At or before the Closing,
Xxxx Xxxxxx and the Company will enter into the Xxxxxx Employment Agreement in
the form attached hereto as Schedule B-1 and Xxxx Xxxxxxx and the Company will
enter into the Clutton Employment Agreement in the form attached hereto as
Schedule B-2.
7.2 Legal Requirements. Subject to the terms and conditions provided in
this Agreement, each of the parties hereto shall use its reasonable best efforts
to take promptly, or cause to be taken, all reasonable actions, and to do
promptly, or cause to be done, all things necessary, proper or advisable under
applicable laws and regulations to consummate and make effective the
transactions contemplated hereby to obtain all necessary waivers, consents and
approvals and to effect all necessary registrations and filings and to remove
any injunctions or other impediments or delays, legal or otherwise, in order to
consummate and make effective the transactions contemplated by the Transaction
Agreements for the purpose of securing to the parties hereto the benefits
contemplated by the Transaction Agreements.
29
31
7.3 Additional Documents and Further Assurances. Each party hereto, at
the request of another party hereto, shall execute and deliver such other
instruments and do and perform such other acts as may be necessary or desirable
for effecting completely the consummation of this Agreement and the transactions
contemplated hereby.
7.4 Board of Directors and Officers of the Company. Effective as of the
Closing Date:
(a) The Company's Board of Directors shall consist of Xx. Xxxx
Xxxxx, Mr. Xxxxxxxx Xxxxxxx, Mr. Xxx Xxxx and Mr. N Xxxxxx.
(b) The company secretary of the Company shall be Xx. Xxxx
Xxxxxx, (although the secretary may be replaced as the holder of such office at
a later date).
(c) The Company shall cause, as soon as practicable after the
Closing, all of its Subsidiaries to change their respective Boards of Directors
and officers in a manner parallel with the foregoing.
7.5 Expenses. All fees and expenses incurred in connection with the
transaction contemplated in any of the Transaction Agreements including, without
limitation, all legal, accounting, financial advisory, consulting and all other
transaction fees and expenses ("TRANSACTION EXPENSES") incurred by the Selling
Shareholder, the Company or Purchaser in connection with the negotiation and
closing of the Transaction Agreements, shall be the obligation of (i) the
Selling Shareholder, with respect to the Transaction Expenses incurred by the
Company or the Selling Shareholders and (ii) the Purchaser, with respect to the
Transaction Expenses incurred by the Purchaser.
7.6 Release of Claims. The Selling Shareholder agrees that the
consideration to be received by Selling Shareholder pursuant to this Agreement
will on the Closing Date represent settlement in full of all outstanding
obligations owed to Selling Shareholder by the Company or Purchaser, except
those obligations pursuant to the terms set forth in Article VIII hereof, the
Cash Escrow Agreement and the Indemnification Escrow Agreement, including
without limitation any obligations to Selling Shareholder pursuant to Selling
Shareholder's (or any officer, agent or trustee of the Selling Shareholder) role
as an officer or director of the Company, as applicable.
7.7 Post-Closing Operations and Business Plan. Promptly after Closing,
Xxxx Xxxxxx, on behalf of the Company, and the Chairman and Chief Executive
Officer, Chief Operating Officer and Chief Financial Officer of the Purchaser,
shall meet to formulate an operations and business plan (the "BUSINESS PLAN")
which shall, among other things, set forth the principles, policies and
procedures by which Xx. Xxxxxx shall operate the Company. The Business Plan
shall be presented to the Board of Directors of the Purchaser as soon as
practicable and shall be subject to its approval. The parties hereby agree that
the Company's operating budget and all other material financial and business
decisions not pre-approved in the Business Plan shall be subject to Purchaser's
normal and customary reasonable corporate approvals. The Purchaser and the
Company acknowledge that they intend for Xx. Xxxxxx to assist in developing
Purchaser's overall business plan, including branding strategy, target clientele
and introduction of products in various formats.
7.8 Integration of Business. The Company hereby acknowledges that the
Purchaser is subject to public reporting requirements in the United States of
America, and therefore the Company will be subject to internal control, audit
and corporate governance procedures generally required by publicly-traded
corporations, as reasonably determined by Purchaser in its sole discretion.
7.9 Name Change. The Selling Shareholder shall procure that on
Completion the name of the Company shall be changed to Team Dandelion Limited
and shall ensure that all business activity of the
30
32
Company is conducted under the name Team Dandelion or Team Dandelion Limited as
soon as practicable, and in any event, no later than within six months from the
Closing Date.
7.10 Company Key Employees. As soon as practicable, Purchaser shall
identify the employees of the Company who are key to the Company's business and
operations (the "KEY EMPLOYEES"), and offer such Key Employees continued
employment with the Company following the Closing.
7.11 Tax Covenant. The Tax Covenant shall come into full force and
effect upon Closing.
ARTICLE VIII
CONDITIONS TO THE SALE OF THE SHARES
8.1 Conditions to Obligations of Each Party. The respective obligations
of each party to this Agreement shall be subject to the satisfaction at or prior
to the Closing Date of the following conditions:
(a) No Injunctions or Restraints; Illegality. No temporary
restraining order, preliminary or permanent injunction or other order issued by
any court of competent jurisdiction or other legal restraint or prohibition
preventing the consummation of the transaction contemplated by the Transaction
Agreements shall be in effect, nor shall any proceeding brought by an
administrative agency or commission or other governmental authority or
instrumentality, domestic or foreign, seeking any of the foregoing be pending;
nor shall there be any action taken, or any statute, rule, regulation or order
enacted, entered, enforced or deemed applicable to the transaction contemplated
hereby, which makes the consummation of such sales illegal.
(b) Litigation. There shall be no action, suit, claim or
proceeding of any nature pending, or overtly threatened, against the Selling
Shareholder, Purchaser or the Company, their respective properties or any of
their officers or directors, arising out of, or in any way connected with, the
transactions contemplated by the terms of this Agreement.
(c) Government Approvals. Company and the Selling Shareholder
shall have obtained all other consents and approvals required from governmental
authorities for the consummation of the transactions contemplated by this
Agreement.
(d) Related Agreements. Each of the appropriate parties shall
have executed the Related Agreements.
8.2 Additional Conditions to the Obligations of Purchaser. The
obligations of Purchaser to consummate and effect this Agreement and the
transactions contemplated hereby shall be subject to the satisfaction at or
prior to the Closing Date of each of the following conditions, any of which may
be waived, in writing, exclusively by Purchaser:
(a) Representations, Warranties, and Covenants. The
representations and warranties of the Company and the Selling Shareholder in
this Agreement shall be true and correct in all material respects on and as of
the Closing Date as though such representations and warranties were made on and
as of the Closing Date and the Company and the Selling Shareholder shall have
performed and complied in all material respects with all covenants and
obligations of this Agreement required to be performed and complied with by them
as of the Closing Date.
31
33
(b) Third Party Consents. Any and all material consents,
waivers, and approvals listed in the Disclosure Letter shall have been obtained.
(c) Related Agreements. Each of the parties to each of the
Related Agreements shall have executed and delivered such and each Related
Agreement shall be in full force and effect.
(d) No Material Adverse Changes. There shall not have occurred
any material adverse change in the business, assets (including intangible
assets), results of operations, liabilities (contingent or accrued), financial
condition or prospects of the Company since 31st July, 1999.
(e) Certificate of the Company and the Selling Shareholder.
Purchaser shall have been provided with a certificate executed by the Selling
Shareholder and executed on behalf of the Company by its Chief Executive Officer
to the effect that, as of the Closing Date:
(i) all representations and warranties made by the
Company and the Selling Shareholder in this Agreement are true and correct in
all material respects on and as of the Closing Date as though made on and as of
such date; and
(ii) all covenants and obligations of this Agreement to
be performed by the Company on or before such date have been so performed in all
material respects.
(iii) the provisions set forth in Section 8.2(b) and (e)
have been satisfied.
(f) Due Diligence Investigation. Purchaser shall have completed
its due diligence investigation of the Company to Purchaser's satisfaction in
its unfettered discretion, including, but not limited to, a review and
evaluation of the businesses and finances of the Company and the Subsidiaries to
determine the accuracy of the Financial Statements.
(g) Necessary Approvals. Purchaser shall have received all
requisite board, shareholder and creditor approvals of the transaction
contemplated by this Agreement including (without limitation) the consent of
Barclays Bank plc to the transfer of the Transferred Assets and confirmation
that the facilities will remain unaffected by closing.
(h) Audited Accounts. The 7/31 Statements shall have been
audited and a copy delivered to Purchaser.
8.3 Additional Conditions to Obligations of Company and the Selling
Shareholder. The obligations of the Company and the Selling Shareholder to
consummate and effect this Agreement and the transactions contemplated hereby
shall be subject to the satisfaction at or prior to the Closing Date of each of
the following conditions, any of which may be waived, in writing, by the Company
and the Selling Shareholder:
(a) Representations, Warranties and Covenants. The
representations and warranties of Purchaser in this Agreement shall be true and
correct in all material respects on and as of the Closing Date as though such
representations and warranties were made on and as of such time, and Purchaser
shall have performed and complied in all material respects with all covenants
and obligations of this Agreement required to be performed and complied with by
it as of the Closing Date.
(b) Certificate of the Purchaser. Company and the Selling
Shareholder shall have been provided with a certificate executed on behalf of
the Purchaser by an authorized officer to the effect that, as of the Closing
Date:
32
34
(i) all representations and warranties made by the
Purchaser in this Agreement are true and correct in all material respects on and
as of the Closing Date as though made on and as of such date; and;
(ii) all covenants and obligations of this Agreement to
be performed by the Purchaser on or before such date have been so performed in
all material respects.
8.4 Each of the parties shall use his or its best endeavours to procure
that the conditions (which in the case of each of them is within his or its
control or expressed to be his or its responsibility) in Sections 8.1, 8.2 and
8.3 shall be satisfied as soon as reasonably practicable after the date hereof
and in any event within twenty-one (21) days failing which this Agreement shall
terminate and be of no further force or effect and no party shall have any
liability to any other save in respect of any breach of this Section 8.4.
ARTICLE IX
SURVIVAL OF REPRESENTATIONS AND WARRANTIES; ESCROW
9.1 Indemnification.
(a) If the Closing has occurred, subject to the terms and
conditions of this Article IX, but notwithstanding anything to the contrary
contained herein, the Selling Shareholder shall indemnify the Purchaser, and its
respective officers, directors, agents and representatives (collectively, the
"INDEMNITEES"), from and in respect of, and hold the Indemnitees harmless
against, any and all damages, fines, penalties, losses, liabilities, judgments,
deficiencies and expenses (including without limitation amounts paid in
settlement, interest, court costs, costs of investigators, reasonable fees and
expense of attorneys and accountants and other expenses of litigation), offset
or reduced by the amount of any insurance proceeds received by Purchaser in
respect of any of the foregoing without the insurer becoming subrogated to the
indemnities clause against the Purchaser hereunder, incurred or suffered by any
of the Indemnitees ("DAMAGES") resulting from, relating to or in connection with
(i) any misrepresentation, breach of warranty or failure to perform any covenant
or agreement of the Company or the Selling Shareholder contained in this
Agreement (disregarding, for purposes of determining the existence of a
misrepresentation or breach of warranty under this Section 9.1(a), any
requirement in a representation or warranty that an event or fact be material or
meet a certain minimum dollar threshold or have a Material Adverse Effect, in
order for such event or fact to constitute a misrepresentation or breach of
warranty) (ii) the transfer by the Company of the Transferred Assets, and (iii)
the repayment of Pound Sterling 100,000 made by the Company to the Selling
Shareholder and the repayment of Pound Sterling 50,000 made by the Company to
the executive pension scheme referred to in the Disclosure Letter, the bonuses
totalling Pound Sterling 150,000 payable to Xx Xxxxxxx.
(b) To secure the indemnification obligations of the Selling
Shareholder to the Indemnitees, the Team Shares will be deposited into the
Indemnification Escrow Account with the Escrow Agent in accordance with Section
3.3(a)(vi) hereof and the Indemnification Escrow Agreement. Indemnitees' Damages
shall be limited as set forth in Section 9.5.
(c) The Selling Shareholder acknowledges that its
indemnification obligations hereunder are solely in its capacity as a former
shareholder of the Company, and, accordingly, the indemnification obligations in
this Article IX shall not entitle any current or former officer, director or
employee of the Company to any indemnification from the Company pursuant to its
Articles of Association, or any agreement with the Company (notwithstanding any
insurance policy).
9.2 Method of Asserting Claims.
33
35
(a) Each Indemnitee shall give prompt written notice (the "CLAIM
NOTICE") to the Escrow Agent as provided in the Indemnification Escrow
Agreement, which agreement shall cover all disbursement of Escrowed Funds (as
described therein).
If the Claimed Amount exceeds the Escrow Amount remaining in escrow
("EXCESS DAMAGES"), then the Selling Shareholder shall be liable for the Excess
Damages; provided that in no event shall the sum of the Escrow Amount and the
Excess Damages exceed the maximum indemnity set forth in Section 9.5. Payment of
Excess Damages shall be made (i) to the extent the Claim is not contested, then
within thirty days after delivery of the Claim Notice, (ii) to the extent the
Claim is contested or if the Claimed Amount is not yet fixed, then within ten
days after the amount of the Claim is determined by the procedures set forth in
Section 9.2(c) below or, if a Third Party Claim, pursuant to Section 9.3.
Payment of Excess Damages shall be made in cash.
(c) Resolution of Conflicts.
(i) The Purchaser and the Selling Shareholder shall
attempt to resolve any dispute as to Joint Instructions in good faith in a
person to person meeting. Each party agrees that it will not initiate any
litigation against any other party regarding the subject matter of this Article
IX for at least sixty (60) days following such person to person meeting except
for (i) motions for a temporary restraining order or the other preliminary
equitable relief and (ii) circumstances in which a delay for such period would
result in such action being barred as a result of the relevant statute of
limitations expiring. In the event any litigation is initiated in compliance
with this Section 9.2(c)(i), the parties agree jointly to stipulate to the court
that all proceedings in such action to be kept confidential. The Escrow Agent
shall be entitled to act in accordance with any decision of the court and make
or withhold payments out of the Escrow Account in accordance therewith.
(ii) If no agreement shall have been reached within 15
days after the person to person meeting, the parties shall seek mediation by a
person mutually acceptable to the parties. The parties will use their best
efforts to resolve conflicts in good faith by mediation.
(iii) Any litigation initiated pursuant to Section
9.2(c)(i) shall be brought in the High Court in London. The non-prevailing party
to any litigation shall pay its own expenses and the expenses, including without
limitation, attorneys' fees and costs, incurred by the other party to the
litigation.
9.3 Third Party Claims.
(a) Except as otherwise provided in paragraph (c) below, the
Selling Shareholder, may elect to compromise or defend, at the Selling
Shareholder's own expense and by the Selling Shareholder's own counsel
reasonably satisfactory to the Indemnitee, any Third-Party Claim; provided that
(i) the Representative provides the Indemnitee with reasonable evidence that the
Selling Shareholder will have the financial resources to defend against such
claim and fulfill its indemnification obligations hereunder; and (ii) the giving
of a Defense Notice (as defined below) by the Representative shall constitute an
acknowledgment by the Selling Shareholder of its obligation to indemnify the
Indemnitee with respect to such Third-Party Claim in accordance with the terms
of this Article IX. If the Representative, as agent for the Selling Shareholder,
elects to compromise or defend a Third-Party Claim, the Representative shall,
within thirty (30) days of its receipt of the notice provided pursuant to
Section 9.2(a) hereof (or sooner, if the nature of such Third-Party Claim so
requires), provide written notice to the related Indemnitee of its intent to do
so (a "DEFENSE NOTICE"), and such Indemnitee shall reasonably cooperate in the
compromise of, or defense against, such Third-Party Claim. The Selling
Shareholder shall be responsible for the payment of such Indemnitee's
reasonable, actual out-of-pocket expenses incurred in connection with such
cooperation, and such expenses shall constitute Damages incurred or suffered by
Purchaser within the
34
36
meaning of Section 9.1(a) hereof. After notice from the Selling Shareholder, to
an Indemnitee of its election to assume the defense of a Third-Party Claim, the
Selling Shareholder shall not be liable to such Indemnitee under this Article IX
for any legal expenses subsequently incurred by such Indemnitee in connection
with the defense thereof; provided that such Indemnitee shall have the right to
employ one counsel of its choice to represent such Indemnitee if, in such
Indemnitee's reasonable judgment, a conflict of interest between such Indemnitee
and the Selling Shareholder exists in respect of such claim, and in that event
the reasonable fees and expenses of such separate counsel shall be the
responsibility of the Selling Shareholder (and shall constitute Damages incurred
or suffered by Purchaser within the meaning of Section 9.1(a) hereof). If the
Selling Shareholder, elects not to compromise or defend against a Third-Party
Claim, or fails to notify an Indemnitee of its election as provided in this
Section 9.3, such Indemnitee may pay, compromise or defend such Third-Party
Claim on behalf of and for the account and risk of the Selling Shareholder (and
any amount paid or expenses incurred in connection therewith shall constitute
Damages incurred or suffered by Purchaser within the meaning of Section 9.1(a)
hereof). The Selling Shareholder may not consent to entry of any judgment or
enter into any settlement without the written consent of each related Indemnitee
(which consent shall not be unreasonably withheld), unless such judgment or
settlement provides solely for money damages or other money payments for which
such Indemnitee is entitled to indemnification hereunder and includes as an
unconditional term thereof the giving by the claimant or plaintiff to such
Indemnitee of a release from all liability in respect of such Third-Party Claim.
(b) In respect of any claim, action, suit or proceeding brought
by a taxing authority in respect of Taxes (a "TAX CLAIM"), the Selling
Shareholder, shall have the sole right to control any Tax Claim, provided,
however, that the Selling Shareholder shall provide the Indemnitee with copies
of all correspondence with any taxing authority in connection with any such Tax
Claim and shall keep the Indemnitee reasonably informed of all progress with
such taxing authority, and provided further that the Selling Shareholder shall
consult with the Indemnitee in good faith in contesting any proposed adjustment
and shall consider any reasonable advice from the Indemnitee concerning such Tax
Claim so long as the Selling Shareholder, shall ultimately be entitled to
control any such Tax Claim concerning any indemnity obligation of the Selling
Shareholder. The Selling Shareholder shall not be entitled to compromise or
settle any Tax liability of the Company for any Pre-Closing Date period that
would have the effect of materially decreasing the Company's deductions for
credits or materially increasing the Company's taxable income for any taxable
year or period subsequent to the Pre-Closing Date period without the prior
written consent of Purchaser, which consent shall not be unreasonably withheld.
(c) If there is a reasonable likelihood that a Third-Party Claim
may have a material adverse effect on an Indemnitee, other than as a result of
money damages or other money payments for which such Indemnitee is entitled to
indemnification hereunder, such Indemnitee will have the right, after
consultation with the Selling Shareholder, and at the cost and expense of the
Selling Shareholder (which costs and expenses shall constitute Damages within
the meaning of Section 9.1(a) hereof), to defend such Third-Party Claim. If the
Third-Party Claim involves a third party with whom Purchaser has a significant
on-going or prospective relationship, the Indemnitee will have the right, after
consultation with the Selling Shareholder, and at the cost and expense of the
Selling Shareholder (which costs and expenses shall constitute Damages within
the meaning of Section 9.1(a) hereof), to defend such Third-Party Claim;
provided that the Selling Shareholder shall not be obligated to pay Damages to
the extent it is determined (by agreement between the Selling Shareholder and
Indemnitees or by arbitration or court judgment) that the Third-Party Claim was
settled on terms that were not fair and reasonable to the Indemnitees.
9.4 Survival. The representations and warranties of the Selling
Shareholder set forth in this Agreement (other than in Section 4.9) shall
survive the Closing and shall continue until three (3) years after the Closing
Date; and the representations and warranties in Section 4.9 hereof shall survive
until ten (10) days after the expiration of the relevant statutes of
limitations. This Section 9.4 shall not limit any covenant or agreement of the
parties which by its terms contemplates performance after the Closing.
35
37
Other than as set forth in the Disclosure Letter, the representations and
warranties shall not be affected by any examination made for or on behalf of
Purchaser or the knowledge of any of Purchaser's officers, directors,
stockholders, employees or agents. Notwithstanding anything to the contrary
herein, if a claim for indemnification is made before the expiration of the
periods of survival set forth above in this Section 9.4, then (notwithstanding
the expiration of such time period) the representation or warranty applicable to
such claim shall survive until, but only for purposes of, the resolution of such
claim.
9.5 Limitations.
(a) Except as otherwise expressly provided herein, the Selling
Shareholder shall not be liable under this Article IX unless and until the
aggregate amount of Damages incurred or suffered by Indemnitees with respect to
Damages exceeds $50,000, at which point the Selling Shareholder shall become
liable for any and all additional Damages not exceeding in the aggregate the
Purchase Price.
(b) Nothing in this Article IX shall limit, in any manner
(whether by time, amount, procedure or otherwise), any remedy at law or in
equity to which Purchaser may be entitled as a result of actual fraud or willful
misrepresentation or misconduct by the Selling Shareholder.
(c) The Purchaser shall not be entitled to claim that any fact
renders any of the representations or warranties untrue or misleading or causes
them to be breached if it has been fully, fairly and specifically disclosed to
the Purchaser in the Disclosure Letter.
ARTICLE X
TERMINATION, AMENDMENT AND WAIVER
10.1 Termination. Except as provided in Section 10.2 below, this
Agreement may be terminated at any time prior to the Closing Date:
(a) by mutual consent of the Company, Selling Shareholder and
Purchaser;
(b) by Purchaser or the Selling Shareholder if: (i) there shall
be a final nonappealable order of a federal or state court in effect preventing
consummation of the transactions contemplated in this Agreement; or (ii) there
shall be any statute, rule, regulation or order enacted, promulgated or issued
or deemed applicable to the transactions contemplated in this Agreement by any
governmental entity that would make consummation of the transactions
contemplated in this Agreement illegal;
(c) by Purchaser or if there shall be any action taken, or any
statute, rule, regulation or order enacted, promulgated or issued or deemed
applicable to the transactions contemplated in this Agreement by any
Governmental Entity, which would: (i) prohibit Purchaser's ownership or
operation of any material portion of the business of the Company or (ii) compel
Purchaser or the Company to dispose of or hold separate all or a material
portion of the business or assets of the Company or Purchaser as a result of the
transactions contemplated in this Agreement;
(d) by Purchaser if it is not in material breach of its
obligations under this Agreement and there has been a material breach of any
representation, warranty, covenant or agreement contained in this Agreement on
the part of the Company or the Selling Shareholder and such breach has not been
cured within five (5) calendar days after written notice to the Company
(provided that no cure period shall be required for a breach which by its nature
cannot be cured);
36
38
(e) by the Company if neither it nor the Selling Shareholder is
in material breach of their respective obligations under this Agreement and
there has been a material breach of any representation, warranty, covenant or
agreement contained in this Agreement on the part of Purchaser and such breach
has not been cured within five (5) calendar days after written notice to
Purchaser (provided that no cure period shall be required for a breach which by
its nature cannot be cured); or
(f) by Purchaser if an event having a Material Adverse Effect on
the Company shall have occurred after the date of this Agreement.
Where action is taken to terminate this Agreement pursuant to this
Section 10.1, it shall be sufficient for such action to be authorized by the
Board of Directors (as applicable) of the party taking such action.
10.2 Effect of Termination. In the event of termination of this
Agreement as provided in Section 10.1, this Agreement shall forthwith become
void and there shall be no liability or obligation on the part of Purchaser, the
Selling Shareholder or the Company, or their respective officers, directors or
shareholders, provided that each party shall remain liable for any breaches of
this Agreement prior to its termination.
10.3 Amendment. This Agreement may be amended by the parties hereto at
any time by execution of an instrument in writing signed on behalf of each of
the parties hereto.
10.4 Extension; Waiver. At any time prior to the Closing Date,
Purchaser, on the one hand, and the Company and the Selling Shareholder, on the
other, may, to the extent legally allowed, (i) extend the time for the
performance of any of the obligations of the other party hereto, (ii) waive any
inaccuracies in the representations and warranties made to such party contained
herein or in any document delivered pursuant hereto, and (iii) waive compliance
with any of the agreements or conditions for the benefit of such party contained
herein. Any agreement on the part of a party hereto to any such extension or
waiver shall be valid only if set forth in an instrument in writing signed on
behalf of such party.
ARTICLE XI
GENERAL PROVISIONS
11.1 Notices. All notices and other communications hereunder shall be in
writing and shall be deemed given and received if delivered personally or by
commercial delivery service, or mailed by registered or certified mail (return
receipt requested) or sent via facsimile (with acknowledgment of complete
transmission) to the parties at the following addresses (or at such other
address for a party as shall be specified by like notice):
(a) if to Purchaser, to: Team Communications Group, Inc.
00000 Xxxxxxxx Xxxxxxxxx, Xxxxx 000
Xxx Xxxxxxx, XX 00000
Attention: Chief Operating Officer
Facsimile: 310\ 442-3502
Telephone: 310\ 000-0000
37
39
with a copy to: Xxxxx Xxxxxx Xxxxx & Xxxx LLP
0000 Xxxxxx xx xxx Xxxxx, Xxxxx 0000
Xxx Xxxxxxx, XX 00000
Attention: Xxxxx X. Xxxx, Esq.
Facsimile: 310\ 277-5953
Telephone: 310\ 000-0000
with an additional copy to Marriott Xxxxxxxx
00 Xxxxx Xxxxx Xxxxxx
Xxxxxx XX0X 0XX
Attention Xxxxxxxx Xxxxxx, Esq.
Facsimile: 0171 209 2001
Telephone: 0000 000 0000
(b) if to the Company, to: Dandelion Distribution Ltd.
0 Xxxxxxxxx Xxxxx
00 Xxxxxxx Xxxx
Xxxxx Xxxxxx, Xxxxxxxxx XX0 0XX
Attention: Xxxx Xxxxxx
Facsimile: 000-000-000-0000
Telephone: 000-000-000-0000
with a copy to: Xxxxxx Xxxxxx
Xxxxxxxx House
1379 High Road
Xxxxxxxxx
Attention: Xxxxxx Xxxxxxx, Esq.
Facsimile: 0181 445 0979
Telephone: 0000 000 0000
11.2 Interpretation. The words "INCLUDE," "INCLUDES" and "INCLUDING"
when used herein shall be deemed in each case to be followed by the words
"without limitation." The table of contents and headings contained in this
Agreement are for reference purposes only and shall not affect in any way the
meaning or interpretation of this Agreement.
11.3 Counterparts. This Agreement may be executed in one or more
counterparts, all of which shall be considered one and the same agreement and
shall become effective when one or more counterparts have been signed by each of
the parties and delivered to the other party, it being understood that all
parties need not sign the same counterpart.
11.4 Entire Agreement; Assignment. This Agreement, the Disclosure
Letter, the Schedules hereto, and the documents and instruments and other
agreements among the parties hereto referenced herein: (a) constitute the entire
agreement among the parties with respect to the subject matter hereof and
supersede all prior agreements and understandings, both written and oral, among
the parties with respect to the subject matter hereof; (b) are not intended to
confer upon any other person any rights or remedies hereunder except that the
Representative and the Escrow Agent shall have the express rights articulated in
Articles IX hereof and in the Escrow Agreement hereto; and (c) shall not be
assigned by operation of law or otherwise except as otherwise specifically
provided, except that Purchaser may assign its rights and delegate its
obligations hereunder to any of its affiliates.
11.5 Severability. In the event that any provision of this Agreement or
the application thereof, becomes or is declared by a court of competent
jurisdiction to be illegal, void or unenforceable, the
38
40
remainder of this Agreement will continue in full force and effect and the
application of such provision to other persons or circumstances will be
interpreted so as reasonably to effect the intent of the parties hereto. The
parties further agree to replace such void or unenforceable provision of this
Agreement with a valid and enforceable provision that will achieve, to the
extent possible, the economic, business and other purposes of such void or
unenforceable provision.
11.6 Other Remedies. Except as otherwise provided herein, any and all
remedies herein expressly conferred upon a party will be deemed cumulative with
and not exclusive of any other remedy conferred hereby, or by law or equity upon
such party, and the exercise by a party of any one remedy will not preclude the
exercise of any other remedy.
11.7 Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of England regardless of the laws that might otherwise
govern under applicable principles of conflicts of laws thereof. Each of the
parties hereto irrevocably consents to the exclusive jurisdiction and venue of
the High Court in London, England or, at the option of the claimant, the
appropriate County Court, in connection with any matter based upon or arising
out of this Agreement or the matters contemplated herein, agrees that process
may be served upon them in any manner authorized by the laws of England for such
persons and waives and covenants not to assert or plead any objection which they
might otherwise have to such jurisdiction, venue and such process.
11.8 Amendment. Except as is otherwise required by applicable law, this
Agreement may be amended by the parties hereto at any time by execution of an
instrument in writing signed on behalf of each of the parties hereto.
11.9 Extension; Waiver. At any time, Purchaser, the Selling Shareholder
and the Company may, to the extent legally allowed, (i) extend the time for the
performance of any of the obligations of the other party hereto, (ii) waive any
inaccuracies in the representations and warranties made to such party contained
herein or in any document delivered pursuant hereto, and (iii) waive compliance
with any of the agreements or conditions for the benefit of such party contained
herein. Any agreement on the part of a party hereto to any such extension or
waiver shall be valid only if set forth in an instrument in writing signed on
behalf of such party.
ARTICLE XII
RESTRICTIVE COVENANT
12.1 Agreement of Selling Shareholder. The Selling Shareholder, in
consideration of and as a condition of the Purchaser entering into this
Agreement, undertakes with the Purchaser (both for itself and as trustee for any
subsidiary) that he will not and, in the case of sub-clauses (ii), (iii) and
(iv) below, will procure that any body corporate of which he has for the time
being control and/or any partnership and/or business in which he may be engaged
will not, directly or indirectly:
(i) within the United Kingdom be employed by, concerned or interested in, or
provide technical or commercial advice to any business which supplies goods or
services of a type similar to the goods or services supplied by any Group
Company for a period of three years after the Closing Date;
(ii) for a period of three years after the Closing Date, supply or seek to
supply, to a client or prospective client, goods or services of a type similar
to the goods or services supplied by any Group Company within the 12 month
period prior to the Closing Date;
(iii) for a period of three years after the Closing Date, induce or endeavour
to induce a client or prospective client not to enter into any contract or
arrangement with any Group Company for the supply
39
41
of goods or services by any Group Company of a type similar to any supplied by
any Group Company within the 12 month period prior to the Closing Date;
(iv) for a period of three years after the Closing Date, solicit or entice
away or endeavour to solicit or entice away from any Group Company any director
and/or senior employee of any Group Company who was such a director or senior
employee prior to the Closing Date.
12.2 Definitions: The following expressions shall have the following meanings
for the purposes of this Section 12:- "client" any person to whom the Selling
Shareholder or any employee of any Group Company reporting directly to the
Selling Shareholder supplied services or goods on behalf of any Group Company at
any time during the period of one year prior to the termination of the Selling
Shareholder's employment with the Company;
"Group Company" means the Company and any parent undertaking or
subsidiary undertaking of the Company as defined in Section 262 of the Companies
Xxx 0000;
"prospective client" any person to whom the Selling Shareholder or any
employee of any Group Company reporting directly to the Selling Shareholder was
actively seeking to supply services or goods on behalf of any Group Company at
any time during the period of six months prior to the termination of the Selling
Shareholder's employment with the Company;
"seek" shall where the context so admits extend to the expression "solicit
canvass or otherwise approach with a view to the supply of".
12.3 Construction: In this Clause references to acting directly or indirectly
include (without prejudice to the generality of that expression) references to
acting alone or jointly with or on behalf of or by means of any other person.
12.4 Separate Covenant: The Selling Shareholder acknowledges that each of the
restrictions in this Section 12 hereof constitutes an entirely separate and
independent restriction on him and is no greater than is necessary to protect
the legitimate business interests (including business connections) of the
Company and any Group Company and the parties consider the restrictions to be
reasonable in all the circumstances. If any such restriction shall be held by
any Court to be void as going beyond what is reasonable in all the circumstances
for the protection of the interests of the Company the said restrictions shall
apply with such modifications as may be necessary to render them valid and
effective.
12.5 Exception: Notwithstanding anything contained in this Section 12 the
Selling Shareholder shall not be prevented from fulfilling existing obligations
under contracts with Leisureview Limited, String of Pearls plc, String of Pearls
2 plc and Renown Pictures Limited or as a director of such companies named
herein but only for such time as the nature and scope of such companies are
conducted as at present.
40
42
IN WITNESS WHEREOF, the Purchaser, the Company and the Selling Shareholder have
entered into this Agreement on the date first written above.
PURCHASER
TEAM COMMUNICATIONS GROUP, INC.
By:
--------------------------------------
Name:
Title:
COMPANY
DANDELION DISTRIBUTION LTD.
By:
--------------------------------------
Name:
Title:
SELLING SHAREHOLDER
-----------------------------------------
XXXX XXXXXX
41
43
SCHEDULE A
SCHEDULE OF SELLING SHAREHOLDER
---------------------------------------------------------------
SHARES ESCROWED
BEING TEAM
NAME AND ADDRESS SOLD SHARES CASH
---------------------------------------------------------------
Xxxx Xxxxxx 200 As $625,000
ordinary calculated
shares of pursuant
Pound to Section
Sterling 1 3.2(b)
each
---------------------------------------------------------------
42
44
SCHEDULE B
B - 1 THE XXXXXX EMPLOYMENT AGREEMENT
AND
B - 2 THE CLUTTON EMPLOYMENT AGREEMENT
43
45
SCHEDULE C
INDEMNIFICATION ESCROW AGREEMENT
44
46
SCHEDULE D
CASH ESCROW AGREEMENT
45
47
SCHEDULE E
TRANSFERRED ASSETS
A Part of the land adjoining Highcroft, Xxxxxxx Road, Chipperfield, Herts.
B 00 X Xx Xxxxxxx Xxxxxx, Xx Xxxx, Xxxxxxxx
46
48
SCHEDULE F
REAL PROPERTY
0 Xxxxxxxxx Xxxxx, Xxxxx Xxxxxx, Xxxxxxxxx
47
49
SCHEDULE G
TAX COVENANT
1 INTERPRETATION
1.1 Words and expressions defined in the Agreement to which this is a
Schedule have the same meanings in this Schedule (unless a contrary
intention appears or the context requires otherwise).
1.2 The following expressions have the following meanings in this Schedule
(unless a contrary intention appears or the context requires
otherwise):-
"CLAIM" means the issue of any notice, letter or other document by or on
behalf of any Tax Authority or the taking of any other action by or on
behalf of any Tax Authority from which notice, letter, document or
action it appears that a Tax Liability is to be, or may come to be,
imposed on the Company;
"COMPANY" means either or both of Dandelion Productions Limited and
Baserem Limited;
"COMPLETION" means completion of the sale and purchase of the Company
Shares pursuant to the Agreement;
"EVENT" shall include (without limitation) any arrangement, transaction,
action or omission, the payment of a dividend, any change in the
residence of any person for the purposes of any Tax, the death or the
winding up or dissolution of any person, the Company ceasing or being
deemed to cease to be treated as a member of any group or associated
with any other company for the purposes of any taxation and a failure to
take any action which would avoid an apportionment or deemed
distribution of income (regardless of whether the taking of any such
action after Completion could have avoided such apportionment or deemed
distribution), and shall also include Completion and any reference to an
event occurring on or before a particular date shall include events
which for Tax purposes are deemed to have or are treated or regarded as
having occurred on or before that date and shall include the transfer to
the Selling Shareholder of any asset of the Company by way of a benefit
in kind;
"GROUP RELIEF" means (i) relief surrendered or claimed pursuant to
Chapter IV of Part X of the Taxes Act, (ii) advance corporation tax
surrendered or claimed pursuant to Section 240 of the Taxes Act; and
(iii) any tax refund surrendered or claimed pursuant to Section 102
Finance Xxx 0000;
"PURCHASER'S RELIEF" means any Relief which arises in consequence or in
respect of any Event occurring after Completion whether or not in the
ordinary course of business of the Company;
"RELIEF" means any relief, allowance, exemption, set off or credit in
respect of any Tax or any deduction in computing income, profits or
gains for the purposes of any Tax and (i) any reference to the use or
set off of Relief shall be construed accordingly and shall include use
or set off in part; and (ii) any reference to the loss of a Relief shall
include the absence or non-existence of any such Relief or to such
Relief being available only in a reduced amount;
"REPAYMENT OF TAX" includes any repayment supplement or interest in
respect of Tax and any reference to loss of a right to repayment of Tax
includes its non-existence, reduction, cancellation or set off in whole
or in part; and
"TAX ASSESSMENT" means any assessment, demand or other similar formal
notice of a Tax Liability issued by or on behalf of any Tax Authority by
virtue of which the Company either is
48
50
liable to make a payment of Tax or will, with the passing of time,
become so liable (in the absence of any successful application to
postpone any such payment).
1.3 In this Schedule reference to any "TAX LIABILITY" means any liability of
the Company to make actual payments of Tax (or amounts in respect of
Tax) and also:-
1.3.1 the loss, reduction, use or set off of any Relief which would
(were it not for the said loss, reduction, use or setting off)
have been available to the Company and which has been taken into
account in computing (and so reducing) any provision for deferred
Tax which is reflected in the 7/31 Statements (or which, but for
the presumed availability of such Relief, would have been
reflected in the 7/31 Statements) and any Relief which was
treated as an asset of the Company in the 7/31 Statements;
1.3.2 the loss of a right to repayment of Tax or the setting off of any
such right to repayment of Tax against any actual Tax Liability
in respect of which the Purchaser would, ignoring the use of any
Purchaser's Relief, but for that setting off, have been able to
make a claim against the Selling Shareholder under this Schedule;
and
1.3.3 the use or setting off against income, profits or gains earned,
accrued or received on or before Completion or against Taxation
of any Purchaser's Relief in circumstances where, but for such
use or setting off, the Company would have had an actual Tax
Liability in respect of which the Purchaser would have been able
to make a claim against the Selling Shareholder under this
Schedule.
1.4 In any case falling within any of sub-clauses 1.3.1, 1.3.2 and 1.3.3,
the amount that is to be treated for the purposes of this Schedule as a
Tax Liability of the Company (the "Deemed Tax Liability") shall be
determined as follows:-
1.4.1 in a case which falls within sub-clause 1.3.2, the Deemed Tax
Liability shall be the amount of the repayment that would have
been obtained but for the loss or setting off mentioned in that
sub-paragraph;
1.4.2 in a case which falls within sub-clause 1.3.1 or 1.3.3 and where
the Relief that is the subject of the loss, use or setting off
mentioned in those sub-paragraphs is a deduction from or offset
against Tax, the Deemed Tax Liability shall be the amount of that
Relief so lost, used or set off;
1.4.3 in a case which falls within sub-clause 1.3.1 or 1.3.3 and where
the Relief that is the subject of the loss, use or setting off
mentioned in those sub-paragraphs was a deduction from or offset
against income, profits or gains, the Deemed Tax Liability shall
be:-
(a) if the Relief was the subject of such a loss, the amount of
Tax which would, on the basis of the rates of Tax current at
the date of the loss, have been saved but for the loss
ignoring for this purpose the effect of any Purchaser's
Relief (other than deductions in computing profits for the
purpose of Tax); or
(b) if the Relief was the subject of such a use or setting off,
the amount of Tax which has been saved in consequence of the
use or setting off.
1.5 In this Schedule reference to:
1.5.1 "INCOME, PROFITS OR GAINS" shall include any income profits or
gains which are deemed to
49
51
be earned, accrued or received for the purposes of any Tax;
1.5.2 income, profits or gains (as defined in sub-clause 1.5.1) as
being earned, accrued or received on or before a particular date
or in respect of a particular period shall include income,
profits or gains which are deemed to have been earned, accrued or
received on or before that date or in respect of that period for
the purposes of any Tax;
1.5.3 any payment or distribution as being made on or before a
particular date shall include:-
(a) any payment or distribution which has fallen due to be made
on or before that date; and
(b) any Event which has occurred on or before that date and is,
or is deemed to be, a payment or distribution for (in either
such case) the purposes of any Tax; and
1.5.4 any "DIVIDEND" shall include anything which is deemed to be a
dividend or distribution for the purposes of any Tax and shall
also include any other Event which gives rise to an obligation to
account for advance corporation tax or amounts corresponding to
or similar to advance corporation tax.
1.6 Any stamp duty which is charged on any document executed prior to
Completion or in the case of a document executed prior to Completion
which is outside the United Kingdom at Completion any stamp duty which
would be charged on the document if it were brought into the United
Kingdom, which is necessary to establish the title of the Company to any
asset or in the enforcement or production of which the Company is
interested and any interest, fines or penalties relating to such stamp
duty shall be deemed to be a liability of the Company to make an actual
payment of Taxation.
1.7 In determining for the purposes of this Schedule whether a charge on or
power to sell, mortgage or charge any of the Company Shares or assets of
the Company exists at any time the fact that any Taxation is not yet
payable or may be paid by instalments shall be disregarded and such
Taxation shall be treated as becoming due and a charge or power to sell,
mortgage or charge as arising at the date of the transfer of value or
other date or Event on or in respect of which it becomes payable or
arises.
1.8 The provisions of section 213 Inheritance Tax Act 1984 shall not apply
to payments falling to be made under this Schedule.
1.9 Unless the context otherwise requires, references to any English legal
term for any action, remedy, method or judicial proceeding, legal
document, legal status, court, official or any legal concept or thing
shall in respect of any jurisdiction other than England be deemed to
include what most nearly approximates in that jurisdiction to the
English legal term; and
1.10 Headings in this Schedule shall be for convenience only and accordingly
shall be disregarded.
1.11 The rule known as the eiusdem generis rule shall not apply to this
Schedule and accordingly general words introduced by the word "other"
shall not be given a restrictive meaning by reason of the fact that they
are preceded by words indicating a particular class of acts, matters or
things.
1.12 General words in this Schedule shall not be given a restrictive meaning
by reason of the fact that they are followed by particular examples
intended to be embraced by the general words.
50
52
1.13 References to persons shall include bodies corporate, unincorporated
associations and partnerships.
2. COVENANT
2.1 Subject to the provisions of this Schedule, the Selling Shareholder
covenants with the Purchaser for itself and as trustee for its
successors in title to pay to the Purchaser an amount equal to any:-
2.1.1 Tax Liability of the Company arising:-
(a) as a consequence of or by reference to any Event which
occurred on or before Completion; or
(b) in respect of or by reference to any income, profits or gains
which were earned, accrued or received on or before
Completion; or
(c) as a consequence of the Company ceasing, or being deemed to
cease, to be a member of any group or associated with any
other company for the purposes of any Tax on or before
Completion;
2.1.2 Tax Liability of the Company in respect of:
(a) any Event occurring after Completion in pursuance of a
legally binding obligation or arrangement (whether
conditional or not) entered into on or before Completion, or
pursuant to any request by the Selling Shareholder under this
Schedule or the Agreement.
(b) any Event occurring before Completion outside the ordinary
course of business of the Company as carried on at any time
before Completion and which forms part of any combination of
Events which include any Event occurring after Completion
which is inside the ordinary course of business of the
Company;
2.1.3 depletion or reduction in the value of any assets of the Company
or any increase in its liabilities arising as a result of :-
(a) any liability of the Company to repay in whole or in part any
payment for Group Relief received or make any payment for
Group Relief pursuant to any agreement or arrangement entered
into on or before Completion; and
(b) any failure by the Company to obtain a payment for Group
Relief which was taken into account as and treated as an
asset in the 7/31 Statements;
2.1.4 depletion in or reduction in the value of the assets or increase
in the liabilities of the Company as a result of any liability of
the Company to make a payment by way of reimbursement, recharge,
indemnity, damages (whether for breach of contract or arising in
tort or otherwise) or management charge by reference to Taxation:
(a) in respect of or arising from any Event occurring on or
before Completion;
(b) by reference to any income profits or gains earned or accrued
on or before Completion;
2.1.5 Tax Liability arising in respect of, or by reference to or in
consequence of any failure to discharge or default in discharging
any of the Selling Shareholder's obligations under Clauses 6 and
7 of this Schedule, including any failure to meet any relevant
time limit;
51
53
2.1.6 depletion in or reduction in value of the assets or increase in
the liabilities of the Purchaser and/or the Company as a result
of any inheritance tax which:-
(a) is at Completion a charge on any of the shares or assets of
the Company or gives rise to a power to sell, mortgage or
charge any of the shares or assets of the Company or
(b) after Completion becomes a charge on or gives rise to a power
to sell, mortgage or charge any of the shares or assets of
the Company being a liability in respect of inheritance tax
payable as a result of the death of any person within seven
years of a transfer of value (or a deemed transfer of value)
if a charge on or power to sell, mortgage or charge any such
shares or assets existed at Completion, or would, if death
had occurred immediately before Completion and the
inheritance tax payable as a result had not been paid, have
existed at Completion; or
(c) arises as a result of a transfer of value occurring on or
before Completion (whether or not in conjunction with the
death of any person whenever occurring) which increased or
decreased the value of the estate of the Company.
2.1.7 Tax Liability or any liability in respect of Tax which is the
primary liability of or is primarily attributable to any other
person and which the Company is or becomes required to discharge
by virtue of its relationship at any time before Completion with
any other person Provided that this Clause 2.1.7 shall not apply
to the extent that specific provision or reserve is made for the
Tax Liability (other than a provision or reserve for deferred
Taxation) in the 7/31 Statements;
2.1.8 any costs and expenses reasonably and properly incurred
(including a reasonable amount in respect of management time) by
the Purchaser or the Company in connection with or in consequence
of any matters for which a claim may be made by the Purchaser
under Clause 2.1 or in connection with any action taken in
avoiding resisting or settling any such liability under Clause
2.1.
2.2 For the avoidance of doubt the Selling Shareholder shall remain liable
in accordance with the terms of this Schedule notwithstanding that any
liability giving rise to a liability of the Selling Shareholder to make
a payment pursuant to the provisions of this Schedule is or has been
discharged or suffered by the Company or the Purchaser whether before or
after the date hereof and whether by payment or by the loss, use or
set-off of any Relief.
2.3 Any payments made by the Selling Shareholder to the Purchaser under this
Schedule shall be treated as a reduction or repayment of the
consideration paid for the Company Shares pursuant to the Agreement
provided that this sub-clause shall not operate in any way to limit the
liability of the Selling Shareholder under this Schedule or the
Agreement.
3 LIMITS ON COVENANT
3.1 The covenant given in Clauses 2.1.1 - 2.1.5 (inclusive) shall not cover
any Tax Liability of the Company to the extent that:-
3.1.1 specific provision or reserve (other than a provision or reserve
for deferred Tax) in respect of that Tax Liability was made in
the 7/31 Statements; or
3.1.2 that Tax Liability arises or is increased as a result only of :
(a) an increase in rates of Taxation made after Completion with
retrospective effect; or
52
54
(b) the passing of any legislation, or making of any subordinate
legislation or a change in a published practice generally
applied or the withdrawal of any published concession granted
by any Tax Authority, which is announced and comes into force
on or after Completion with retrospective effect;
3.1.3 the liability would not have arisen but for a voluntary
transaction, act or omission carried out or effected by the
Company after Completion except that this exclusion shall not
apply where any such transaction, act or omission:
(a) is carried out or effected pursuant to a legally binding
commitment created on or before Completion, or which for some
other reason could not reasonably have been avoided; or
(b) is carried out or effected in the ordinary course of business
of the Company; or
(c) (without prejudice to sub-paragraphs (a) and (b) of this
Clause 3.1.3) is carried out in circumstances where the
Purchaser did not know and could not reasonably be expected
to know it would or might give rise to the Tax Liability in
question.
4 OVER-PROVISIONS, RELIEFS, ETC.
4.1 If the auditors for the time being of the Company shall certify (at the
request and expense of the Selling Shareholder) that any provision for
Tax in the 7/31 Statements (excluding any provision for deferred Tax)
has proved to be an over-provision, then the amount of such
over-provision shall be dealt with in accordance with Clause 4.3.
4.2 If the auditors for the time being of the Company shall certify (at the
request and expense of the Selling Shareholder) that any Tax Liability
which has resulted in a payment having been made or becoming due from
the Selling Shareholder under this Schedule will give rise to a Relief
for the Company which would not otherwise have arisen, then, as and when
the liability of the Company to make an actual payment of or in respect
of Tax is reduced by reason of that Relief and after taking account of
the effect of all other Reliefs that are or become available to the
Company (including any Purchaser's Relief ) in calculating the amount
that that liability would have been but for the availability of that
Relief, the amount by which that liability is so reduced shall when such
tax saving is obtained be dealt with in accordance with Clause 4.3.
4.3 Where it is provided under sub-clause 4.1 or 4.2 that any amount (the
"Relevant Amount") is to be dealt with in accordance with this
sub-clause:-
4.3.1 the Relevant Amount shall first be set off against any payment
then due from the Selling Shareholder under this Schedule; and
4.3.2 to the extent there is an excess, a refund shall be made to the
Selling Shareholder of any previous payment or payments made by
the Selling Shareholder under sub-clauses 2.1.1 - 2.1.6
(inclusive) of this Schedule and not previously refunded under
this Clause 4 or Clause 5 up to the amount of such excess; and
4.3.3 to the extent that the excess referred to in sub-clause 4.3.2 is
not exhausted under that paragraph, the remainder of that excess
shall be carried forward and set off against any future payment
or payments which become due from the Selling Shareholder under
this Schedule in chronological order until exhausted
Provided that for the avoidance of doubt neither the Purchaser
nor the Company shall be under
53
55
any obligation to use or set off any Purchaser's Relief in any such way
that may increase or maximise any benefit to the Selling Shareholder
under this Clause 4.
4.4 The provisions of sub-clause 4.3 shall not apply unless the amount of
the over provision or refund so referred to exceeds Pound Sterling
1,000.
4.5 Where any such certification as is mentioned in sub-clause 4.1 or 4.2
has been made, the Selling Shareholder or the Purchaser may request the
auditors for the time being of the Company to review such certification
in the light of all relevant circumstances, including any facts which
have become known only since such certification, and to certify whether
such certification remains correct or whether, in the light of those
circumstances, the amount that was the subject of such certification
should be amended.
4.6 If the auditors certify under sub-clause 4.5 that an amount previously
certified should be amended, that amended amount shall be substituted
for the purposes of sub-clause 4.3 as the Relevant Amount in respect of
the certification in question in place of the amount originally
certified, and such adjusting payment (if any) as may be required by
virtue of the above-mentioned substitution shall be made as soon as
practicable by the Selling Shareholder or (as the case may be) to the
Selling Shareholder.
5 RECOVERY FROM OTHER PERSONS
If the Selling Shareholder has made a payment to the Purchaser under
this Schedule pursuant to Clause 2 and the Company either is immediately
entitled at the due date for the making of that payment to recover from
some other person (not being the Purchaser, but including any Tax
Authority) any sum in respect of the Tax Liability that has resulted in
that payment becoming due from the Selling Shareholder, or at some
subsequent date becomes entitled to make such a recovery, then the
Purchaser shall procure that the Company shall (in either of those
cases) promptly notify the Selling Shareholder of the entitlement and
shall, if so required by the Selling Shareholder and at the Selling
Shareholder's sole expense and upon the Selling Shareholder indemnifying
the Company and providing security as to all costs and expenses which
may thereby be incurred to the reasonable satisfaction of the Company or
the Purchaser, procure that the Company take all appropriate steps to
enforce that recovery (keeping the Selling Shareholder fully informed of
the progress of any action taken) provided that the Company shall not be
obliged to take any action which it shall reasonably consider to be
prejudicial and, provided that the right to such payment or relief is
not prejudiced thereby, shall account to the Selling Shareholder for
whichever is the lesser of:-
5.1 any sum so recovered (including any interest or repayment
supplement paid by the Tax Authority or other person on or in
respect thereof less any Tax chargeable on the Company in respect
of the sum recovered or that interest) after deduction of all
costs and expenses incurred by the Company in enforcing such
recovery; and
5.2 the amount paid by the Selling Shareholder pursuant to Clause 2
as reduced (if at all) by Clause 4 in respect of the Tax
Liability in question.
6 CLAIMS PROCEDURE
6.1 Upon the Purchaser or the Company becoming aware of a Claim relevant for
the purposes of this Schedule ("a Tax Claim"), it shall as soon as
reasonably practicable give written notice thereof to the Selling
Shareholder but such notice shall not be a condition precedent to the
Vendor's liability under this Schedule and the Purchaser shall procure
that the Company shall (if the Selling Shareholder shall indemnify and
secure the Purchaser and/or the Company (as appropriate) to its
54
56
reasonable satisfaction against all losses, costs, damages and expenses
(including a reasonable amount in respect of management time) and
including an increased or additional Tax Liability and interest on
overdue Tax, which may be incurred thereby) take such action and give
such information and assistance in connection with the affairs of the
Company as the Selling Shareholder may reasonably and promptly by
written notice request to avoid, resist, appeal or compromise the Tax
Claim; PROVIDED THAT the Purchaser shall not be obliged to procure that
the Company shall appeal against any Tax assessment raised on it if,
having given the Selling Shareholder written notice of the receipt of
that Tax assessment, it has not within 15 days thereafter received
instructions in writing from the Selling Shareholder to make that appeal
and in those circumstances the Purchaser and the Company shall be free
to pay or settle the Tax Claim on such terms as it or they may in its or
their absolute discretion think fit and without prejudice to the
Purchaser's rights and remedies under this Schedule; AND PROVIDED
FURTHER THAT the Purchaser shall not be obliged to procure that the
Company take any action under this Clause which involves contesting any
Tax assessment before any court or other appellate body (excluding the
authority or body demanding the Tax in question) unless the Selling
Shareholder furnish the Purchaser with the written opinion of leading
Tax Counsel acceptable to the Purchaser in its reasonable discretion to
the effect that an appeal against the Tax assessment in question will,
on the balance of probabilities, be won.
6.2 Subject to the provisions of this Clause 6 the actions which the Selling
Shareholder may reasonably request under sub-clause 6.1 shall include
(without limitation) the Company applying to postpone (so far as legally
possible) the payment of any Tax and/or allowing the Selling Shareholder
to take on or take over at its own expense the conduct of all or any
proceedings of whatsoever nature arising in connection with the Tax
Claim in question, and, if the Selling Shareholder take on or take over
the conduct of the proceedings, the Purchaser shall and shall procure
that the Company shall provide such documents, information and
assistance as the Selling Shareholder may reasonably require in
connection with the preparation for and conduct of those proceedings but
neither the Purchaser nor the Company shall be required to take any
action which it reasonably believes will be unduly onerous or materially
prejudicial to the future liability of the Purchaser or the Company to
Tax or the business or financial interests of either of them or of any
person connected with either of them.
6.3 The Selling Shareholder shall make no settlement or compromise of any
Tax Claim nor agree any matter in the conduct or any such dispute which
is likely to affect the future liability of the Company or the Purchaser
in respect of Tax without the prior written approval of the Purchaser
such approval not to be unreasonably withheld or delayed.
6.4 If any Tax Authority alleges or has alleged, or information has come to
the attention of the Purchaser or the Company which in its reasonable
opinion could constitute evidence that the Selling Shareholder or the
Company prior to Completion have committed fraud, wilful default,
neglect or conduct involving dishonesty or, if in the Purchaser's
reasonable opinion, the action is likely to adversely affect either the
future liability of the Purchaser or the Company to Tax or the business
or financial interest of any of them or of any person connected with any
of them sub-clause 6.1 shall not apply.
7 TAX RETURNS
7.1 The Purchaser shall procure in respect of the Company that the Selling
Shareholder (or their professional advisers) shall subject as
hereinafter provided, have the sole conduct of the preparation,
submission to the relevant Tax Authority in the UK or elsewhere,
negotiation, correspondence and agreement of the Tax computations for
accounting periods ending on or before the Accounts 7/31 Statements Date
("the Relevant Accounting Periods") to the extent that
55
57
the same shall not have been prepared before Completion.
7.2 The Purchaser shall at the expense of the Selling Shareholder procure
that the Company shall provide to the Selling Shareholder or his
authorised agents and during all reasonable hours all such reasonable
assistance, co-operation and information as the Selling Shareholder may
reasonably request in respect of preparing, submitting, negotiating and
agreeing with the relevant Tax Authority the Tax computations referred
to in sub-clause 7.1 above and in respect of the Tax affairs of the
Company generally relating to the Relevant Accounting Periods.
7.3 The Purchaser shall take full responsibility for the outstanding Tax
affairs of the Company in respect of accounting periods commencing after
the Accounts Date and shall prepare and submit such computations and
returns to the appropriate Tax Authorities whether in the UK or
elsewhere and deal with all negotiations, correspondence and agreements
with respect thereto. The Purchaser shall ensure that all material
communications to the relevant Tax Authorities in respect of the
accounting period in which Completion takes place shall first be sent to
the Selling Shareholder and the Purchaser shall consult and shall
procure that the Company shall consult with the Selling Shareholder
regarding the contents of all such communications and undertakes and/or
shall procure that the Company shall undertake to have due and proper
regard to such comments. Subject to the provisions of this Clause 7 the
Purchaser shall procure that the Company shall not submit any
computations or returns which relate to any extent to a period before
the Completion Date without the prior approval of the Selling
Shareholder such approval not to be unreasonably withheld or delayed.
7.4 The Selling Shareholder shall not submit any computations or returns in
respect of the Relevant Accounting Periods without affording the
Purchaser a reasonable opportunity to consider such computations and
returns and make representations prior to submission to the Tax
Authority and the Selling Shareholder undertakes to have due and proper
regard to such comments in finalising such computations and the
Purchaser shall not be obliged to procure that the Company submits any
computation or return which is not full and accurate in all material
respects.
7.5 The Selling Shareholder covenants that all outstanding Taxation
computations for the Relevant Accounting Periods (collectively the
"Relevant Taxation Computations") shall be submitted to the relevant Tax
Authority prior to 31st January 1999 ("the Final Date").
7.6 If any of the Relevant Taxation Computations are not submitted to the
relevant Tax Authority by the Final Date sub-clause 7.1 shall cease to
apply in relation to all the Relevant Taxation Computations and the
Purchaser will assume responsibility for the conduct of preparing,
submitting and agreeing those computations and the Selling Shareholder
shall discharge all reasonable costs and expenses (including a
reasonable amount in respect of management time) incurred by the
Purchaser in preparing, submitting and agreeing such Relevant Taxation
Computations.
7.7 The Selling Shareholder and the Purchaser shall agree a timetable for
the submission of the Relevant Taxation Computations and the Selling
Shareholder shall submit a draft form of timetable for agreement to the
Purchaser for comment on a timely basis prior to the Final Date.
7.8 If the Selling Shareholder or the Company shall have committed or any
relevant Tax Authority shall allege or information shall come to the
attention of the Purchaser or the Company which in the Purchaser's
reasonable opinion could constitute evidence that the Selling
Shareholder or the Company has or have committed acts or omissions which
may constitute fraud, wilful default or neglect prior to the date of
Completion sub-clause 7.1 shall not apply or shall cease to apply and,
in that event, sub-clause 7.7 shall apply.
56
58
7.9 It is agreed that this Clause 7 shall not apply to any returns relating
to value added tax, PAYE, national insurance or social security matters.
7.10 Nothing done by the Purchaser or the Company pursuant to this Clause 7
shall in any respect restrict or reduce any rights the Purchaser may
have to make a claim against the Selling Shareholder under this
Schedule.
8 DUE DATE OF PAYMENT
8.1 Where the Selling Shareholder becomes liable to make any payment
pursuant to Clause 2 of this Schedule, the due date for the making of
that payment shall be:-
8.1.1 in a case that involves an actual payment of Tax by the Company,
the date that is seven days before the last date on which the
Company would have had to have paid to the appropriate Tax
Authority the Tax that has given rise to the Selling Shareholder'
liability under this Schedule in order to avoid incurring a
liability to interest or a charge or penalty in respect of that
Tax Liability;
8.1.2 in a case falling within any of the sub-paragraphs of Clause 1.3,
the date falling seven days after the date when the Selling
Shareholder has been notified by the Company or the Purchaser
that the auditors for the time being of the Company have
certified, at the request of the Purchaser or the Company, that
the Selling Shareholder has a liability for a determinable amount
under Clause 2;
8.1.3 in the case of the costs and expenses referred to in Clause 2.1.8
the date of receipt of a written demand for the same;
8.1.4 in any other case, seven days after the date when the Selling
Shareholder has been notified by the Company or the Purchaser
that the Selling Shareholder has a liability for a determinable
amount.
8.2 In the case of a liability of the Selling Shareholder to pay an
additional amount to the Purchaser under:-
8.2.1 Clause 9.2, the due date for payment shall be the same as the due
date for payment of the amount from which the deduction or
withholding referred to in Clause 9.2 is required to be made;
8.2.2 Clause 9.3, the due date for payment shall be the later of the
date seven days before the date on which the Tax is required to
be paid to the relevant Tax Authority (taking into account any
postponement of such Tax obtained by the Company) and the date on
which the Selling Shareholder receives a written demand for
payment from the Purchaser.
8.3 In the case of a Tax Liability of any person other than the Company
which is charged or secured on or otherwise payable out of the Company
Shares or any asset of the Company or the proceeds of sale thereof under
section 212 or 237 of the Inheritance Tax Xxx 0000, the due date for
payment shall be the date on which the Selling Shareholder receives a
written demand for payment from the Purchaser.
8.4 If any payment required to be made by the Selling Shareholder under
this Schedule is not made by the due date for the making thereof, then,
except to the extent that the Selling Shareholder's liability under
Clause 2 compensates the Purchaser for the late payment by virtue of its
extending
57
59
to interest and penalties, that payment shall be increased by an amount
equal to interest at the rate of 3 per cent per annum above the base
lending rate from time to time of The Governor and Company of the Bank
of Scotland which shall accrue on a daily basis from the due date until
payment is actually made, whether before or after any judgment.
9 DEDUCTIONS FROM PAYMENTS
9.1 All sums payable by the Selling Shareholder to the Purchaser under this
Schedule shall be paid free and clear of all deductions or withholdings
whatsoever, save only as may be required by law.
9.2 If any deductions or withholdings are required by law to be made from
any of the sums payable as mentioned in Clause 9.1, the Selling
Shareholder covenants forthwith to pay to the Purchaser such additional
amount as will, after the deduction or withholding has been made, leave
the Purchaser with the same amount as it would have received in the
absence of any such requirement to make a deduction or withholding.
9.3 If any sum payable by the Selling Shareholder to the Purchaser under
this Schedule shall be subject to Taxation in the hands of the
Purchaser, the Selling Shareholder covenants forthwith to pay to the
Purchaser such an additional amount as will, after taking into account
such Taxation and any Taxation in respect of such additional amount,
leave the Purchaser with the same amount as it would have received and
retained had the payment in question not been subject to Taxation.
10 ILLEGALITY
If at any time any provision of this Schedule is or becomes illegal,
invalid or unenforceable in any respect under any rule of law or
enactment of any jurisdiction; the legality, validity or enforceability
of the remaining provisions in that or any other jurisdiction and the
legality, validity or enforceability of such provision under the law of
any other jurisdiction shall not in any way be affected or impaired
thereby.
11 WAIVER
No delay or omission of the Purchaser or the Company in exercising any
right or power under this Schedule shall impair such right or power or
be construed as a waiver thereof and any single or partial exercise of
any such right or power shall not preclude the further exercise of any
right or power. Any waiver of a breach of, or default under, this
Schedule shall not be deemed to be a waiver of any subsequent breach or
default and shall not affect the other terms of this Schedule. The
rights and remedies of the Purchaser and the Company provided in this
Schedule are cumulative and not exclusive of any rights and remedies
provided by law.
12 ASSIGNMENT
The benefit of the covenants contained in this Schedule may be assigned.
58
60
IN WITNESS WHEREOF, the Purchaser, the Company and the Selling Shareholder
have entered into this Agreement on the date first written above.
PURCHASER
TEAM COMMUNICATIONS GROUP, INC.
By: /s/ XXXXXXXX X. XXXXXXX
-----------------------------------
Name:
Title:
COMPANY
DANDELION DISTRIBUTION LTD.
By: /s/ XXXX XXXXXX
-----------------------------------
Name: XXXX XXXXXX
Title: MANAGING DIRECTOR
SELLING SHAREHOLDER
/s/ XXXX XXXXXX
--------------------------------------
XXXX XXXXXX
59
