EXHIBIT 2.1
STOCK PURCHASE AGREEMENT
among
MARKETING SERVICES GROUP, INC.
XXXXXXX X. XXXXXXX
and
XXXXXX X. XXXXXXX
TABLE OF CONTENTS
Page
I. PURCHASE AND SALE.................................................... 2
1.1 Terms of Purchase and Sale.................................... 2
1.2 Terms of the Transaction...................................... 2
1.3 Election Pursuant to Section 338(h)(10)....................... 5
1.4 Financing; Closing Date....................................... 5
1.5 Other Transactions at Closing................................. 6
II. REPRESENTATIONS AND WARRANTIES OF THE SELLERS........................ 8
2.1 Organization and Qualification................................ 8
2.2 Capitalization................................................ 9
2.3 Financial Condition........................................... 9
2.4 Tax and Other Liabilities..................................... 11
2.5 Litigation and Claims......................................... 15
2.6 Properties of the Companies................................... 15
2.7 Contracts and Other Instruments............................... 17
2.8 Employees..................................................... 17
2.9 Patents, Trademarks, Et Cetera................................ 18
2.10 Questionable Payments......................................... 19
2.11 Authority to Sell............................................. 19
2.12 Nondistributive Intent........................................ 20
III. REPRESENTATIONS AND WARRANTIES OF THE PURCHASER...................... 21
3.1 Organization and Qualification................................ 21
3.2 Capitalization................................................ 21
3.3 Authority..................................................... 22
3.4 Financial Condition........................................... 23
3.5 Undisclosed Liabilities....................................... 23
3.6 Litigation and Claims......................................... 24
3.7 Benefit Plans................................................. 24
3.8 Absence of Changes or Events.................................. 25
3.9 Compliance with Applicable Laws............................... 25
3.10 Licenses, Permits............................................. 25
3.11 Securities Act................................................ 26
3.12 SEC Filings................................................... 26
3.13 Validity of Shares of MSGI Common Stock....................... 27
IV. CONDITIONS TO OBLIGATIONS OF THE PURCHASER........................... 27
4.1 Accuracy of Representations and Compliance With Conditions.... 27
4.2 Opinion of Counsel............................................ 27
4.3 Other Closing Documents....................................... 28
4.4 Legal Action.................................................. 28
4.5 No Governmental Action........................................ 28
4.6 Contractual Consents Needed................................... 29
4.7 Material Adverse Change....................................... 29
V. CONDITIONS TO OBLIGATIONS OF SELLERS................................. 29
5.1 Accuracy of Representations and Compliance With Conditions.... 29
5.2 Legal Action.................................................. 30
5.3 Contractual Consents.......................................... 30
5.4 Opinion of Counsel............................................ 30
5.5 Other Closing Documents....................................... 30
5.6 No Governmental Action........................................ 30
5.7 Material Adverse Change....................................... 31
VI. CERTAIN COVENANTS OF SELLERS AND THE PURCHASER....................... 31
6.1 Access........................................................ 31
6.2 Conduct of Business........................................... 32
6.3 Advice of Changes............................................. 32
6.4 Public Statements............................................. 33
6.5 Other Proposals............................................... 33
6.6 Voting by the Sellers......................................... 34
6.7 Lock-Up Agreements............................................ 35
VII. COVENANTS OF PURCHASER............................................... 35
7.1 Confidentiality............................................... 35
7.2 Benefit Plans................................................. 35
7.3 Employee Shares............................................... 36
7.4 Options....................................................... 37
7.5 Documents..................................................... 37
7.6 Press Release................................................. 37
VIII. INDEMNIFICATION; SURVIVAL; LIMITATIONS ON LIABILITY.................. 38
8.1 Indemnification of Purchaser.................................. 38
8.2 Indemnification of Sellers.................................... 39
8.3 Survival...................................................... 39
IX. MISCELLANEOUS........................................................ 40
9.1 Brokerage Fees................................................ 40
9.2 Further Actions............................................... 40
9.3 Submission to Jurisdiction.................................... 41
9.4 Merger; Modification.......................................... 41
9.5 Notices....................................................... 41
9.6 Waiver........................................................ 42
9.7 Binding Effect................................................ 43
9.8 No Third-Party Beneficiaries.................................. 43
9.9 Separability.................................................. 43
9.10 Headings...................................................... 43
9.11 Counterparts; Governing Law................................... 43
STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE AGREEMENT (this "Agreement"), is being
made on the 8th day of December, 1997, by and among MARKETING SERVICES GROUP,
INC., a Nevada corporation (the "Purchaser" or "MSGI"), with offices at 000
Xxxxxxx Xxxxxx, Xxx Xxxx, Xxx Xxxx; XXXXXXX X. XXXXXXX, an individual residing
at 000 Xxxxx Xxxx, Xxxxxxx, XX 00000 ("SR"); and XXXXXX X. XXXXXXX, an
individual residing at 00 Xxxxxx Xxxx, Xxxxxxxxx Xxxxxxxx, Xxx Xxxxxx 00000
("TK"; together with SR, the "Sellers") relating to the sale of capital stock of
Media Marketplace, Inc., a Pennsylvania corporation ("Media Marketplace"), and
Media Marketplace Media Division, Inc., a Pennsylvania corporation ("Media
Division" together with Media Marketplace, each a "Company", collectively, the
"Companies").
W I T N E S S E T H :
WHEREAS, each of the Sellers owns beneficially and of record
50% of the issued and outstanding capital stock of Media Marketplace, which
outstanding capital stock consists of an aggregate of sixty-eight (68) common
shares (the "Media Marketplace Shares"), par value $1.00 (the "Media Marketplace
Common Stock").
WHEREAS, each of the Sellers owns beneficially and of record
50% of the issued and outstanding capital stock of Media Division, which
outstanding capital stock consists of an aggregate of two hundred (200) common
shares (the "Media Division Shares" together with the Media Marketplace Shares,
collectively, the "Shares"), par value $.01 (the "Media Division Common Stock").
WHEREAS, the Purchaser desires to acquire the Shares from the
Sellers and the Sellers desire to sell the Shares to the Purchaser, subject to
the terms and conditions set forth below.
NOW, THEREFORE, in consideration of the premises,
representations, warranties, and covenants contained herein, and intending to be
legally bound hereby, the parties hereto agree as follows:
I. PURCHASE AND SALE.
1.1 Terms of Purchase and Sale.
Subject to the terms and conditions of this Agreement, at the
Closing (as defined in Section 1.5 below), the Sellers shall sell, assign,
transfer and convey to the Purchaser, effective as of December 1, 1997 (the
"Effective Date"), the Shares free and clear of any liens, pledges, encumbrances
or security interests (collectively, "Liens") whatsoever.
1.2 Terms of the Transaction.
(a) On the date hereof, the Purchaser shall place two hundred
fifty thousand dollars ($250,000) (the "Escrow Amount") in escrow with Drinker
Xxxxxx & Xxxxx LLP (the "Escrow Agent") pursuant to all of the terms and
conditions of the Escrow Agreement executed on the date hereof between the
Escrow Agent, the Purchaser, SR and TK (the "Escrow Agreement"). The Escrow
Agreement provides generally that: (i) in the event that financing for the
transactions contemplated by this Agreement is not obtained and the Closing does
not occur on or before the Final Closing Date (as defined in Section 1.4 herein)
(a "Termination Event"), Sellers shall retain the Escrow Amount plus any accrued
interest thereon and (ii) in the event of a Closing on or prior to the Final
Closing Date, the Escrow Agent shall apply the Escrow Amount as payment to the
Sellers pursuant to Section 1.2(c)(i) herein. The Purchaser and the Sellers
agree that upon a Termination Event, all rights and obligations of the Purchaser
and the Sellers under this Agreement and under any agreement contemplated
hereunder shall end without any liability of any party to any other party except
as set forth in this Section 1.2(a) which damages shall constitute the sole and
exclusive liquidated damages for such breach.
(b) At the Closing, each of the Sellers shall deliver to the
Purchaser stock certificates representing the Shares owned by them, duly
endorsed in blank or with stock powers duly endorsed in blank. Additionally, at
the Closing, the Sellers shall deliver to the Purchaser the minute books of
Media Marketplace and Media Division, the corporate seals of Media Marketplace
and Media Division, if any, the stock ledgers of Media Marketplace and Media
Division, and such other corporate documents and records as the Purchaser or its
counsel shall reasonably request in writing at least five (5) days prior to the
Closing.
(c) In consideration of the purchase of the Shares and the
other transactions contemplated hereby, the Sellers shall receive, at the
Closing, the following consideration:
(i) The aggregate sum of two hundred fifty thousand dollars ($250,000), payable
from the Escrow Agent in respect of the Escrow Amount allocated as follows:
a. one hundred twenty five thousand dollars ($125,000) to SR and
b. one hundred twenty five thousand dollars ($125,000) to TK
In addition, subject to the terms of the Escrow Agreement, the Sellers shall
receive all accrued interest on and proceeds of the Escrow Amount (the "Escrow
Proceeds") to be allocated to each Seller in an amount equal to fifty percent
(50%) of the Escrow Proceeds.
(ii) The aggregate sum of five million seven hundred and fifty thousand dollars
($5,750,000.00) from the Purchaser, payable by certified check or wire transfer,
allocated as follows:
a. the principal amount of three million one hundred twenty five
thousand dollars ($3,125,000) to SR; and
b. the principal amount of two million six hundred twenty five
thousand dollars ($2,625,000) to TK.
(iii) Purchaser shall issue to the Sellers, an aggregate of two hundred twenty
two thousand two hundred twenty two (222,222) restricted shares of common stock
of MSGI, par value $.01 per share, (the "MSGI Common Stock") allocated as
follows:
a. one hundred seven thousand four hundred sixty (107,460) shares
issued to SR; and
b. seven thousand three hundred two (7,302) shares issued to CCM
Consulting, Inc.
The parties hereto acknowledge that the price of the MSGI Common Stock used to
determine the number of shares of MSGI Common stock in the preceding sentence is
based upon the price of $4.50 per share (the "MSGI Stock Price").
(d) The purchase price as set forth in Section 1.2(c) shall be
allocated between the Companies as described in Schedule 1.2(c), attached
hereto.
(e) The MSGI Common Stock delivered or to be delivered
pursuant to Section 1.2(c)(iii) shall not be registered under the Securities Act
of 1933, as amended (the "1933 Act"). SR acknowledges in writing that he may not
sell or otherwise dispose of such shares in the absence of either a registration
statement under the 1933 Act or an exemption from the registration provisions of
the 1933 Act. The certificates representing such shares will contain a legend
substantially to the effect that such shares have not been registered under the
1933 Act, and may not be sold or transferred without an effective registration
statement under the 1933 Act or an exemption from the registration provisions
under the 1933 Act. The MSGI Common Stock to be delivered to SR pursuant to
Section 1.2(c)(iii) shall be subject to registration rights commencing on the
day after the date of Closing, pursuant to the terms of the Registration Rights
Agreement (the "Registration Rights Agreement") which shall be executed and
delivered at the Closing by MSGI and SR the form of which is attached hereto as
Exhibit 1.2(d).
1.3 Election Pursuant to Section 338(h)(10).
The Sellers and the Purchaser will join in making an election
pursuant to Section 338(h)(10) of the Internal Revenue Code of 1986, as amended
(the "Code") with respect to the stock of the Companies and will jointly take
such action as is necessary to effect such election. The purchase price
(inclusive of the cash portion, Shares issued to the Sellers and the aggregate
amount of liabilities and expenses assumed) as determined in accordance with
Treasury Regulations promulgated under Code Section 338(h)(10) will be allocated
to the assets of the Companies for all purposes as set forth in such section.
Amounts equal to the book value thereof of the respective Companies' books will
be allocated to the Companies' tangible assets. As soon as practicable, on or
after the Closing Date the Purchaser and Sellers shall file such forms as are
required pursuant to the Treasury Regulations to effect such election. The
Sellers shall be responsible for all Taxes resulting from the Code Section
338(h)(10) election contemplated by this Section 1.3.
1.4 Financing; Closing Date.
The financing date shall be the date the Purchaser obtains at
least $6,000,000 in financing for the transactions contemplated under this
Agreement (the "Financing Date"). The Closing (the "Closing") of the
transactions contemplated by this Agreement shall take place at the offices of
Camhy Xxxxxxxxx & Xxxxx LLP, 0000 Xxxxxxxx, 00xx Xxxxx, Xxx Xxxx, Xxx Xxxx 00000
at 10:00 a.m., New York time two (2) business days after the Financing Date (the
"Closing Date") or such other time or date as the parties may mutually agree,
but in no event later than January 15, 1998 (the "Final Closing Date");
provided, that if the Financing Date is between December 25, 1997 and December
31, 1997 the Closing Date shall be January 2, 1998. The Final Closing Date may
be extended by mutual written agreement of all of the parties hereto.
1.5 Other Transactions at Closing.
(a) In addition to the transactions referred to in Sections
1.1 and 1.2 above, at the Closing, the Sellers shall deliver to the Purchaser
the following:
(i) Subsistence Certificates, with "bring down" telegrams or
similar documentation as of the Closing Date, as to Media
Marketplace, issued by the appropriate governmental
authorities of the Commonwealth of Pennsylvania;
(ii) Certified copy of the Articles of Incorporation of Media
Marketplace, and all amendments thereto, certified by the
Secretary of State of the Commonwealth of Pennsylvania;
(iii) A copy of by-laws of Media Marketplace, certified by the
secretary or assistant secretary thereof as being true,
complete, and correct;
(iv) Subsistence Certificates, with "bring down" telegrams
or similar documentation as of the Closing Date, as to
Media Division issued by the appropriate governmental
authorities of the Commonwealth of Pennsylvania;
(v) Certified copy of the Articles of Incorporation of Media
Division, and all amendments thereto, certified by the
Secretary of State of the Commonwealth of Pennsylvania;
(vi) A copy of by-laws of Media Division, certified by the
secretary or assistant secretary thereof as being true,
complete, and correct;
(vii) The executed letter, dated prior to the Closing Date,
of TK contributing to the capital of Media Marketplace the
one hundred fifty thousand dollars ($150,000) promissory note
from Media Marketplace to TK, dated April 12, 1996, and
releasing the Companies from all obligations under such note,
substantially in the form of Exhibit A attached hereto;
(viii) Executed confidentiality, non-competition and release
agreements by and among the persons listed on Schedule
1.5(a)(viii) and the Companies, substantially in the form of
Exhibit B attached hereto;
(ix) Executed amendment to the $150,000 promissory note from
Media Marketplace to SR, dated April 12, 1996, providing for
the payment by MSGI of $150,000, the balance of such note as
of the Closing Date, in thirty-six (36) monthly installments
at a variable interest rate of 1% over the prime rate as
reported in The Wall Street Journal, substantially in the
form of Exhibit D attached hereto.
(x) Executed letters by the individuals listed in Schedule 7.3
acknowledging the terms of receipt and forfeiture of Employee
Shares pursuant to Section 7.3 of this Agreement,
substantially in the form of Exhibit C attached hereto.
(xi) Lock Up Agreement of SR pursuant to Section 6.7 of this
Agreement substantially in the form of Exhibit E.
(xii) Consulting Agreement by and among the Companies and TK,
substantially in the form of Exhibit F attached hereto.
(xiii) Release by all employees of Media Marketplace
participating in the Discretionary Plan for V.P. Pool And
Executive Remuneration, substantially in the form of Exhibit G
attached hereto.
(b) In addition to the transactions referenced to in Section
1.1 and 1.2 above, at the Closing, the Purchaser shall deliver to the Sellers
the following:
(i) Executed Registration Rights Agreement between the
Purchaser and SR, substantially in the form of Exhibit H
attached hereto; and
(ii) Executed Employment Agreement by and among the Purchaser,
the Companies and SR substantially in the form of Exhibit I
attached hereto.
II. REPRESENTATIONS AND WARRANTIES OF THE SELLERS.
Each of the Sellers jointly and severally represent and warrant to the
Purchaser as follows:
2.1 Organization and Qualification.
Except as set forth in Schedule 2.1, the Companies do not own
any capital stock of any corporation or any interest in any joint venture,
partnership, association, trust, or other entity. The business and operations of
the Companies are conducted solely by and through the Companies. Each Company is
a corporation duly organized, validly existing, and in good standing under the
laws of the Commonwealth of Pennsylvania, with all requisite corporate power and
authority and all necessary material consents, authorizations, approvals,
orders, licenses, certificates and permits of and from, and declarations and
filings with, all federal, state, local and other governmental authorities, and
all courts and other tribunals to own, lease, license, and use their properties
and assets and to carry on the business in which it is now engaged. With the
possible exception of Kansas, each Company is duly qualified to transact the
business in which it is now engaged and is in good standing as a foreign
corporation in every jurisdiction in which their ownership, leasing, licensing,
or use of property or assets or the conduct of their business makes such
qualification necessary.
2.2 Capitalization.
The authorized capital stock of Media Marketplace consists of
1,000 common shares, par value $1.00 per share, of which 68 shares are
outstanding. Each of such outstanding shares of Media Market Place Common Stock
is validly authorized, validly issued, fully paid, and nonassessable, and has
not been issued and is not owned or held in violation of any preemptive right of
stockholders. Thirty four (34) shares are owned of record and beneficially by
each of the Sellers. The authorized capital stock of Media Division consists of
one thousand (1,000) common shares, par value $.01 per share, of which two
hundred (200) shares are outstanding. Each of such outstanding shares of Media
Division Common Stock is validly issued, fully paid, and nonassessable and has
not been issued and is not owned or held in violation of any preemptive right of
stockholders. One Hundred (100) shares are owned of record and beneficially by
each of the Sellers. The Shares owned by each of the Sellers are held free and
clear of all Liens whatsoever. There is no commitment, plan, or arrangement to
issue, and no outstanding option, warrant, or other right calling for the
issuance of, any share of capital stock of either of the Companies or any
security or other instrument convertible into, exercisable for, or exchangeable
for capital stock of either of the Companies. There is no outstanding security
or other instrument convertible into or exchangeable for capital stock of either
of the Companies.
2.3 Financial Condition.
The Sellers have delivered to the Purchaser true and correct
copies of the following: the unaudited balance sheet of each of the Companies at
September 30, 1997, and December 31, 1996 and 1995 and the unaudited statements
of income, statements of retained earnings, and statements of cash flows of the
Companies for the nine-month period ended September 30, 1997 for each of the
years ended December 31, 1996 and 1995. Each such balance sheet presents fairly
the financial conditions, assets, liabilities, and stockholders' equity of the
Company reported on as of its date; each such statement of income and statement
of retained earnings presents fairly the results of operations of the Company
reported on for the period indicated and its retained earnings as of the date
indicated; and each such statement of cash flows presents fairly the information
purported to be shown therein. Except for the absence of footnotes and vacation
accruals and, with the exception that the balance sheet and other financial
statements for the nine-month period ended September 30, 1997 are subject to
normal year-end adjustments, the financial statements referred to in this
Section 2.3 have been prepared in accordance with generally accepted accounting
principles consistently applied throughout the periods involved and are in
accordance with the books and records of the Companies. Except as disclosed on
Schedule 2.3, since September 30, 1997:
(a) there has not been a material adverse change in the
financial condition, results of operations, business, properties,
assets or liabilities of the Companies.
(b) the operations and business of the Companies have been
conducted only in the ordinary course;
(c) the Companies have not suffered an extraordinary loss
(whether or not covered by insurance) or waived any right of
substantial value; and,
(d) the Companies have not to date paid any expense resulting
from the preparation of, or the transactions contemplated by, this
Agreement. The Sellers shall pay all such expenses (including without
limitation their legal expenses resulting from this Agreement or the
transactions contemplated hereby) except for such expenses (not to
exceed $15,000) which shall be paid by Media Marketplace.
Except as disclosed in this Agreement or in any Schedule hereto or in any
materials furnished to the Purchaser pursuant to this Agreement, there is no
fact known to the Sellers which materially and adversely affects, the financial
condition, results of operations, business, properties, assets or liabilities,
of the Companies; provided, however, that neither of the Sellers expresses any
opinion as to political or economic matters of general applicability.
2.4 Tax and Other Liabilities.
(a) the Companies have no material liability of any nature,
accrued or contingent, including without limitation liabilities for Taxes (as
defined in Section 2.4(c)) and liabilities to customers or suppliers, required
by generally accepted accounting principles to be reflected on a balance sheet
or in notes thereto, other than the following:
(i) Liabilities as set forth or reflected on the respective Company's balance
sheet (the "Last Balance Sheet") as of September 30, 1997 (the "Last Balance
Sheet Date");
(ii) Other liabilities arising since the Last Balance Sheet Date and prior to
the Closing in the ordinary course of business which are not inconsistent with
the representations and warranties of the Sellers or any other provision of this
Agreement; and
(iii) Liabilities disclosed in this Agreement or in any Schedule hereto or in
any materials furnished to the Purchaser pursuant to this Agreement.
(b) Without limiting the generality of Section 2.4(a):
(i) The Companies and any combined, consolidated, unitary or affiliated group of
which the Companies are or have been a member prior to the Closing Date: (i)
have paid all Taxes required to be paid on or prior to the Closing Date
(including, without limitation, payments of estimated Taxes) for which the
Companies could be held liable, except for Taxes which are being contested in
good faith and by appropriate proceedings as set forth in Schedule 2.4(b)(i);
and (ii) have accurately and timely filed (or filed an extension for), all
federal, state, local, and foreign tax returns, reports, and forms with respect
to the Taxes required to be filed by them on or before the Closing Date.
(ii) The amount set up as provisions for Taxes on each Company's Last Balance
Sheet is sufficient for all accrued and unpaid Taxes of the respective
Companies, whether or not due and payable and whether or not in dispute, under
applicable laws relating to Taxes as in effect on the Last Balance Sheet Date or
now in effect, for the period ended on such date and for all periods prior
thereto.
(iii) Except as set forth in Schedule 2.4(b)(iii), with respect to each taxable
period of either of the Companies, either such taxable period has been audited
by the Internal Revenue Service or other appropriate taxing authority or the
time for assessing or collecting Tax with respect to such taxable period has
closed and such taxable period is no longer subject to review.
(iv) No deficiency or proposed adjustment which has not been settled or
otherwise resolved for any amount of Tax has been proposed, asserted, or
assessed by any taxing authority against, or with respect to the activities of
either of the Companies.
(v) Neither of the Companies has consented to extend the time in which any Tax
may be assessed or collected by a taxing authority.
(vi) Neither of the Companies has requested or been granted an extension of time
for filing any Tax Return to a date later than the Closing Date.
(vii) There is no action, suit, taxing authority proceeding, or audit now in
progress, pending, or threatened against or with respect to either of the
Companies with respect to any Tax.
(viii) Neither of the Companies is or has been a member of an affiliated group
as defined in Section 1504 of the Internal Revenue Code of 1986, as amended (the
"Code"), or filed or been included in a combined, consolidated, or unitary Tax
Return.
(ix) No claim has ever been made by a taxing authority in a jurisdiction where
either of the Companies does not pay Tax or file Tax Returns that either of the
Companies may be subject to the Taxes assessed by such jurisdiction.
(x) The Companies have withheld and paid all Taxes required to have been
withheld and paid in connection with amounts paid or owing to any employee,
creditor, independent contractor, or other party.
(xi) Schedule 2.4(b)(xi) contains a list setting forth all the states,
territories, or jurisdictions (other than Pennsylvania), if any, in which either
of the Companies is required to file a Tax Return relating to their operations.
(xii) The Companies (and any predecessor of either of the Companies) have both
been validly electing S corporations within the meaning of Code Sections 1361
and 1362 at all times and for all periods since the later of July 1, 1988 or
such Company's date of incorporation, through and including all taxable periods
thereafter up to and including the day of the Closing Date, it being understood
that the Sellers and the Purchaser intend to make an election under section
338(h)(10) of the Code, pursuant to Treasury Regulations section
1.338(h)(10)-1(e).
(xiii) The Companies have delivered to MSGI complete and correct copies of all
federal, state, local and foreign income tax returns filed with respect to the
Companies for taxable periods on or after January 1, 1995.
(xiv) Neither Company has made any payments, nor is it obligated to make any
payments, nor is it a party to any agreement that under certain circumstances
could obligate it to make any payment that will not be deductible under Section
280G of the Code. The Companies will not have any liability on or after the
Closing Date pursuant to any tax sharing or tax allocation agreement. The
Companies have no liability for the Taxes of any other person under Treasury
Regulation 1.1502-6 (or any similar provision of state, local or foreign law),
as a transferee or successor, by contract, or otherwise.
(c) For purposes of this Agreement, "Taxes" shall mean all
federal, state, local or foreign taxes, assessments or duties (not including
sales or use taxes) which are payable or remittable by the Companies or levied
upon any property of the Companies, or levied with respect to either of their
assets, franchises, income, receipts, including, without limitation, import
duties, excise, franchise, gross receipts, utility, real property, capital,
personal property, withholding, FICA, unemployment compensation, governmental
charges (whether or not requiring the filing of a return), and all additions to
tax, penalties and interest relating thereto. Tax Return means any return,
declaration, report, claim for refund, information return or other statement
relating to Taxes filed with or sent to any federal, state, local, or foreign
governmental entity or subdivision.
2.5 Litigation and Claims.
There is no litigation, arbitration, claim, governmental or
other proceeding (formal or informal), or investigation pending, threatened, or
in prospect (or any basis therefor known to the Sellers) with respect to the
Companies, or their businesses, properties, or assets. The Companies are not
affected by any present or threatened strike or other labor disturbance nor to
the knowledge of the Sellers is any union attempting to represent any employee
of the Sellers as collective bargaining agent. The Companies are not in
violation of, or in default with respect to, any material law, rule, regulation,
order, judgment, or decree; nor is either Company required to take any action in
order to avoid such violation or default.
2.6 Properties of the Companies.
(a) Set forth on Schedule 2.6(a) is a list of all real
property owned or leased by either Company. With respect to real property that
is owned by the Companies, the Companies have good and marketable title to all
such property and such property is clear of all Liens, except as otherwise
disclosed on Schedule 2.6(a).
(b) Set forth in Schedule 2.6(b) is a true and complete list
of all material personal property and assets (other than real property), owned
by the Companies or leased or licensed by the Companies from or to a third
party, and carried on the books of the Company at a depreciated value in excess
of $1,000. All such property and assets owned by either of the Companies on the
Last Balance Sheet Date are reflected on that Company's Last Balance Sheet
(material acquisitions subsequent to the Last Balance Sheet Date are also noted
on Schedule 2.6(b)). All such property and assets owned, leased, or licensed by
the Companies are in good and usable condition (reasonable wear and tear which
is not such as to affect adversely the operation of the business excepted).
(c) All accounts and notes receivable reflected on the Last
Balance Sheet, or arising since the Last Balance Sheet Date, have arisen in bona
fide arms-length transactions in the ordinary course of the Companies'
respective businesses and, to the knowledge of the Sellers, are not subject to
any right of recourse, defense, deduction, return of goods, counterclaim,
offsets, or set-off.
(d) No real property owned, leased, or licensed by the
Companies lies in an area which is, or to the knowledge of the Sellers will be,
subject to zoning, use, or building code restrictions that would prohibit the
continued effective ownership, leasing, licensing, or use of such real property
in the business in which the Companies are now engaged.
(e) The Companies have not caused or permitted their
respective businesses, properties, or assets to be used to generate,
manufacture, refine, transport, treat, store, handle, dispose of, transfer,
produce, or process any Hazardous Substance (as such term is defined in this
Section 2.6(e)) except in compliance with all applicable laws, rules,
regulations, orders, judgments, and decrees, and has not caused or permitted the
Release (as such term is defined in this Section 2.6(e)) of any Hazardous
Substance on or off the site of any property of the Sellers. The term "Hazardous
Substance" shall mean any hazardous waste, as defined by 42 U.S.C. ss.6903(5),
any hazardous substance, as defined by 42 U.S.C. ss.9601(14), any pollutant or
contaminant, as defined by 42 U.S.C. ss.9601(33), and all toxic substances,
hazardous materials, or other chemical substances regulated by any other law,
rule, or regulation. The term "Release" for the purposes of this paragraph shall
have the meaning set forth in 42 U.S.C. ss.9601(22).
2.7 Contracts and Other Instruments.
Schedule 2.7(a) accurately and completely sets forth a list of
all material contracts, agreements, loan agreements, instruments, leases,
licenses, arrangements, or understandings with respect to the business of the
Companies (collectively, the "Contracts"). Except as set forth in Schedule
2.7(b), each such contract, agreement, loan agreement, instrument, lease, or
license is in full force and is the legal, valid, and binding obligation of the
Company which is a party thereto, and (subject to applicable bankruptcy,
insolvency, and other laws affecting the enforceability of creditors' rights
generally) is enforceable as to it in accordance with its terms. Except as set
forth in Schedule 2.7(c), the Companies are not in violation, in breach of, or
in default with respect to any material terms of any such contract, agreement,
loan agreement, instrument, lease, or license. Except for employment agreements
and as disclosed in Schedule 2.7(d), the Companies are not a party to any
contract, agreement, loan agreement, instrument, lease, license, arrangement, or
understanding with, any Companies or any director, officer, or employee of the
Companies, or any relative or affiliate of the Companies or of any such
director, officer, or employee.
2.8 Employees.
(a) Except as set forth in Schedule 2.8(a) hereof, neither
Company has contributed to, any pension, profit sharing, option, other incentive
plan, or any other type of Employee Benefit Plan (as defined in Section 3(3) of
the Employee Retirement Income Security Act of 1974, as amended ("ERISA"), and
does not have any non-customary arrangement with employees for bonuses,
incentive compensation, vacations, severance pay, insurance, or other benefits.
(b) Schedule 2.8(b) contains a true and correct statement of
the names, relationship with the Companies, present rates of compensation
(whether in the form of salary, bonuses, commissions, or other supplemental
compensation now or hereafter payable), and aggregate compensation for the
twelve month period ending September 30, 1997 of each director, officer, or
other employee of the Companies whose aggregate compensation for the fiscal year
ended December 31, 1996 exceeded $40,000 per annum or whose aggregate
compensation presently exceeds the rate of $40,000 per annum. Except as set
forth in Schedule 2.8(b), since September 30, 1997, the Companies have not
changed the rate of compensation of any of their directors, officers, employees,
agents, dealers, or distributors, nor has any Employee Benefit Plan or program
been instituted or amended to increase benefits thereunder.
2.9 Patents, Trademarks, Et Cetera.
The Companies do not own or have pending, nor is it licensed
under, any patent, patent application, trademark, trademark application, trade
name, service xxxx, copyright, franchise, or other intangible property or asset
(all of the foregoing being herein called "Intangibles"). Neither Sellers, any
director, officer, or employee of the Companies, nor any relative or affiliate
of the Companies or the Sellers, possesses any Intangible which relates to the
business of the Companies. There is no right under any Intangible necessary to
the business of the Companies as presently conducted, except such as are so
designated in Schedule 2.9. The Companies have not infringed, is infringing, or
has received notice of infringement with asserted Intangibles of others. To the
knowledge of the Sellers, there is no infringement by others of Intangibles of
the Companies.
2.10 Questionable Payments.
Neither of the Companies, nor Sellers, nor to the knowledge of
Sellers, any director, officer, agent, employee or other person associated with
or acting on behalf of the Companies or Sellers have, directly, or indirectly:
used any corporate funds for unlawful contributions, gifts, entertainment, or
other unlawful expenses relating to political activity; made any unlawful
payment to foreign or domestic government officials or employees or to foreign
or domestic political parties or campaigns from corporate funds; established or
maintained any unlawful or unrecorded fund of corporate monies or other assets;
made any false or fictitious entry on the books or records of the Companies; or
made any bribe, kickback, or other payment of a similar or comparable nature,
whether lawful or not, to any person or entity, private or public, regardless of
form, whether in money, property, or services, to obtain favorable treatment in
securing business or to obtain special concessions, or to pay for favorable
treatment for business secured or for special concessions already obtained.
2.11 Authority to Sell.
(a) The Sellers have the capacity to execute, deliver, and
perform this Agreement. This Agreement has been duly executed and delivered by
the Sellers, is the legal, valid, and binding obligation of the Sellers and is
enforceable as to them in accordance with its terms. Neither of the Sellers is
under any contractual restriction or obligation which is inconsistent with the
execution and performance of this Agreement. Neither of the Sellers has any
knowledge of any consent, authorization, approval, order, license, certificate,
or permit of or from, or declaration or filing with, any federal, state, local,
or other governmental authority or any court or other tribunal that is required
by the Companies or the Sellers for the execution, delivery, or performance of
this Agreement by the Sellers.
(b) Except as disclosed in Schedule 2.11(b), no consent of any
party to any material lease, license, distribution, agency, consulting,
employment, financing, lending, installment sale or conditional sale, security,
pledge, guarantee, or other agreement, arrangement, or understanding to which
the Companies or the Sellers are a party, or to which any of their or his
properties or assets are subject, is required for the execution, delivery, or
performance of this Agreement. Neither the Companies nor the Sellers have made
any agreement or understanding not approved in writing by the Purchaser as a
condition for obtaining any consent, authorization, approval, order, license,
certificate, or permit required for the consummation of the transactions
contemplated by this Agreement. The execution, delivery, and performance of this
Agreement by the Sellers will not violate, result in a breach of, conflict with,
or (with or without the giving of notice or the passage of time or both) entitle
any party to terminate or call a default under such lease, license,
distribution, agency, consulting, employment, financing, lending, installment
sale or conditional sale, security, pledge, guarantee, or other agreement, or
understanding, or violate or result in a breach of any term of the Articles of
Incorporation (or other charter document) or by-laws of the Companies or, to the
Sellers' knowledge, violate, result in a breach of, or conflict with any
material law, rule, regulation, order, judgment, or decree binding on the
Companies, or to which any of their operations, business, properties, or assets
are subject.
2.12 Nondistributive Intent.
The Sellers are acquiring the shares of MSGI Common Stock to
be issued pursuant to Section 1.2 hereof for their own account (and not for the
account of others) for investment and not with a view to the distribution
thereof. The Sellers will not sell or otherwise dispose of such shares without
registration under the 1933 Act, or an exemption therefrom.
III. REPRESENTATIONS AND WARRANTIES OF THE PURCHASER.
The Purchaser represents and warrants to the Sellers as follows:
3.1 Organization and Qualification.
Purchaser and each of its subsidiaries is a corporation duly
organized and validly existing under the laws of its respective state of
incorporation as listed on Schedule 3.1. Purchaser has full corporate power and
authority and possesses all material governmental franchises, licenses, permits,
authorizations and approvals necessary to enable it to use its corporate name
and to own, lease or otherwise hold its properties and assets and to carry on
its business in all material respects as presently conducted. Purchaser and each
of its subsidiaries is duly qualified and in good standing to do business in
each jurisdiction in which the nature of its business or the ownership, leasing
or holding of its properties makes such qualification necessary to the extent
material. Purchaser has caused to be delivered to Sellers true and complete
copies of its Articles of Incorporation, as amended to date, and the Bylaws, as
in effect on the date hereof, of Purchaser.
3.2 Capitalization.
The authorized capital stock of Purchaser consists of
36,250,000 shares of common stock, par value $.01 per share, of which 12,721,176
shares are validly issued and outstanding, fully paid and nonassessable. Except
as set forth above, there are no shares of capital stock or other equity
securities of Purchaser outstanding. Except as set forth in Schedule 3.2, there
are no outstanding warrants, options, agreements, subscriptions, convertible or
exchangeable securities or other commitments pursuant to which Purchaser or any
of its affiliates is or may become obligated to issue, sell, purchase, return or
redeem any shares of capital stock or other securities of Purchaser and with the
exception that Purchaser has authorized, and reserved, a sufficient number of
shares of Common Stock to provide for the exercise of the rights represented by
the Employee Options (as defined in Section 7.4) no equity securities of
Purchaser are reserved for issuance for any purpose.
3.3 Authority.
Purchaser has all requisite corporate power and authority to
enter into this Agreement and to consummate the transactions contemplated
hereby. All corporate acts and other proceedings required to be taken by
Purchaser to authorize the execution, delivery and performance of this Agreement
and the consummation of the transactions contemplated hereby have been duly and
properly taken. This Agreement has been duly executed and delivered by Purchaser
and constitutes the legal, valid and binding obligation of Purchaser,
enforceable against Purchaser in accordance with its terms. The execution and
delivery of this Agreement does not, and the consummation of the transactions
contemplated hereby and compliance with the terms hereof will not result in any
violation of or default, except for violations or defaults which would,
individually or in the aggregate, have a material adverse effect on the
financial condition or results of operations of Purchaser and its subsidiaries
taken as a whole (a "Material Adverse Effect"), under: (i) any provisions of the
Certificate or Articles of Incorporation or Bylaws of Purchaser or any of its
subsidiaries, (ii) any note, bond, mortgage, indenture, deed of trust, license,
lease, contract, commitment or agreement to which Purchaser or any of its
subsidiaries is a party or by which any of such entities or their assets is
bound or (iii) any judgment, order or decree, or material statute, law
ordinance, rule or regulation applicable to Purchaser or to the property or
assets of Purchaser or any of its subsidiaries. No consent is required to be
obtained or made by or with respect to Purchaser in connection with the
execution and delivery of this Agreement or the consummation by Purchaser of the
transactions contemplated hereby.
3.4 Financial Condition.
Purchaser has previously delivered to Sellers the audited
consolidated balance sheet of Purchaser an of June 30, 1997 and the unaudited
consolidated balance sheet of Purchaser as of September 30, 1997 (such balance
sheet dated September 30, 1997, "Purchaser's Balance Sheet") and the
consolidated statements of income, shareholders' equity, and cash flows of the
Company for the fiscal year ended June 30, 1997 (audited) and the period ended
September 30, 1997 (unaudited), together with the notes to such financial
statements (collectively, "Purchaser's Financial Statements"). Purchaser's
Financial Statements have been prepared in accordance with the books and records
of Purchaser and its subsidiaries and to Purchaser's knowledge present fairly,
in all material respects, the financial position as of June 30, 1997 and
September 30, 1997, as the case may be, and the results of operations and cash
flows of Purchaser on a consolidated basis for the periods then ended in
conformity with generally accepted accounting principles consistently applied.
3.5 Undisclosed Liabilities.
To Purchaser's knowledge, as of the date of the Purchaser's
Balance Sheet, Purchaser and its subsidiaries did not have any material
liabilities or obligations of any nature (whether accrued, absolute, contingent,
unasserted or otherwise) required by generally accepted accounting principles to
be reflected on a balance sheet or in notes thereto, except: (i) as set forth or
reflected on the Purchaser's Balance Sheet (or described in the notes included
therein), (ii) for items disclosed in Schedule 3.5 hereto, (iii) for purchase
contracts and orders in the ordinary course of business, (iv) for liabilities
and obligations incurred in the ordinary course of business consistent with past
practice since the date of Purchaser's Balance Sheet, (v) liabilities and
obligations pursuant to this Agreement and (vi) liabilities and obligations
which, individually or in the aggregate, excluding liabilities referred to in
the foregoing clauses (i) through (v), will not have a Material Adverse Effect.
3.6 Litigation and Claims.
Schedule 3.6 sets forth a list as of the date of this
Agreement of all lawsuits, claims, proceedings or investigations pending or, to
the knowledge of Purchaser, threatened by or against or affecting Purchaser or
any of its subsidiaries or any of their properties, assets, operations or
businesses which, if determined adversely to Purchaser or its subsidiaries,
taken as a whole, could reasonably be expected to have a Material Adverse
Effect, or which challenge the legality of this Agreement or any action to be
taken in connection herewith. Neither Purchaser nor any of its subsidiaries is
in default under any judgment, order or decree having a Material Adverse Effect.
3.7 Benefit Plans.
(a) Schedule 3.7(a) sets forth a list of all "employee benefit
plans" (as defined in Section 3(3) of ERISA), bonus, incentive, deferred
compensation, stock or stock option plans or arrangements, and other material
employee fringe benefit plans or arrangements (all the foregoing being herein
called "Purchaser's Benefit Plans") maintained, or contributed to, by Purchaser
or by any of its subsidiaries for the benefit of any employees of Purchaser or
of one or more of its subsidiaries. Purchaser will deliver, on request, to
Sellers copies of: (i) each of Purchaser's Benefit Plans (or, in the case of any
unwritten Benefit Plans, written descriptions thereof), (ii) the most recent
annual report on Form 5500 filed with the Internal Revenue Service with respect
to any of Purchaser's Benefit Plans (if applicable), and (iii) each trust
agreement and group annuity contract relating to any of Purchaser's Benefit
Plans.
(b) Purchaser's Benefit Plans are in compliance in all
material respects with the applicable provisions of ERISA and the regulations
and published interpretations thereunder, except where noncompliance would not
have a Material Adverse Effect. None of Purchaser's Benefit Plans is subject to
the provisions of Title IV of ERISA.
3.8 Absence of Changes or Event.
Except as set forth in Schedule 3.8 to this Agreement, since
the date of Purchaser's Balance Sheet, the business of Purchaser and its
subsidiaries, taken as a whole, has been conducted in the ordinary course
consistent with past practice and there has not been any change in the financial
condition or results of operations of Purchaser and its subsidiaries, taken as a
whole, other than changes relating to the economy in general or industry
conditions, which would not, individually or in the aggregate, have a Material
Adverse Effect.
3.9 Compliance with Applicable Laws.
To the knowledge of Purchaser, Purchaser and its subsidiaries
and their properties and assets are in compliance with all applicable statutes,
laws, ordinances, rules and regulations of any governmental authority or
instrumentality, domestic or foreign (including laws relating to environmental
matters), except where noncompliance would not have a Material Adverse Effect.
3.10 Licenses, Permits.
To the knowledge of Purchaser, all material licenses, permits
or authorizations of Purchaser and its subsidiaries are validly held by
Purchaser or by the appropriate subsidiary, Purchaser and each of its
subsidiaries has complied in all material respects with all requirements in
connection therewith and the same will not be subject to suspension,
modification or revocation as a result of this Agreement or the consummation of
the transactions contemplated.
3.11 Securities Act.
The Shares purchased by Purchaser pursuant to this Agreement
are being acquired for investment only and not with a view to any public
distribution thereof, and Purchaser will not offer to sell or otherwise dispose
of the Shares so acquired by it in violation of any of the registration
requirements of the 1933 Act. Purchaser acknowledges that it has had sufficient
access to the books and records of the Companies to conduct an adequate due
diligence investigation, and Purchaser represents to Sellers that it is not
aware of any breach of any of Sellers' representations and warranties in this
Agreement not disclosed by Purchasers or by Sellers.
3.12 SEC Filings.
Since January 1, 1995, Purchaser has timely filed all required
reports, statements, schedules and registration statements (collectively,
"Purchaser's Filings") with the Securities and Exchange Commission required to
be filed by Purchaser pursuant to the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), all of which complied in all material respects
with all applicable requirements of the Exchange Act. Purchaser has delivered to
Sellers: (i) its annual reports on Form 10-KSB for its fiscal years ended June
30, 1996 and 1997, (ii) its quarterly report on Form 10-QSB for its fiscal
quarter ended September 30, 1997, and (iii) its proxy or information statements
relating to meetings of, or action taken without a meeting by, the stockholders
of Purchaser held since January. 1, 1996 and prior to the date hereof. None of
Purchaser's Filings, including without limitation, any financial statements or
schedules included therein, at the time filed, contained any untrue statements
of a material fact or omitted to state a material fact required to be stated
therein or necessary in order to make the statements therein, in light of the
circumstances under which they were made, not misleading.
3.13 Validity of Shares of MSGI Common.
The shares of MSGI Common Stock to be issued and delivered to
Sellers pursuant to this Agreement, the Employee Shares (as defined in Section
7.3 hereof) and the shares issuable upon the exercise of the Employee Options,
when issued in accordance with the terms and conditions of this Agreement, will
be duly authorized, validly issued, fully paid and nonassessable.
IV. CONDITIONS TO OBLIGATIONS OF THE PURCHASER.
The obligations of the Purchaser under this Agreement are subject,
at the option of the Purchaser, to the following conditions:
4.1 Accuracy of Representations and Compliance With Conditions.
All representations and warranties of the Sellers contained in
this Agreement shall be accurate as of the Closing as though such
representations and warranties were then made in exactly the same language by
such persons; as of the Closing, the Sellers shall have performed and complied
with all covenants and agreements and satisfied all conditions required to be
performed and complied with by any of them at or before such time by this
Agreement; and the Purchaser shall have received a certificate executed by each
of the Sellers dated the date of the Closing, to that effect.
4.2 Opinion of Counsel.
The Sellers have delivered to MSGI on the date of the Closing
the opinion of counsel to the Sellers, dated as of the Closing Date, in form and
substance satisfactory to counsel for the Purchaser.
4.3 Other Closing Documents.
The Sellers shall have delivered to the Purchaser at or prior
to the Closing such other documents as the Purchaser may reasonably request five
(5) days prior to the Closing Date in order to enable the Purchaser to determine
whether the conditions to its obligations under this Agreement have been met and
otherwise to carry out the provisions of this Agreement.
4.4 Legal Action.
There shall not have been instituted or threatened any legal
proceeding relating to, or seeking to prohibit or otherwise challenge the
consummation of, the transactions contemplated by this Agreement, or to obtain
substantial damages with respect thereto.
4.5 No Governmental Action.
There shall not have been any action taken, or any law, rule,
regulation, order, judgment, or decree proposed, promulgated, enacted, entered,
enforced, or deemed applicable to the transactions contemplated by this
Agreement by any federal, state, local, or other governmental authority or by
any court or other tribunal, including the entry of a preliminary or permanent
injunction, which, in the sole judgment of the Purchaser, (a) makes any of the
transactions contemplated by this Agreement illegal, (b) results in a delay
beyond the Final Closing Date in the ability of the Purchaser to consummate any
of the transactions contemplated by this Agreement, (c) requires the divestiture
by the Purchaser of a material portion of the business of the Purchaser and its
subsidiaries taken as a whole, or of the Companies (d) imposes material
limitations on the ability of the Purchaser effectively to exercise full rights
of ownership of the shares to be acquired from the Sellers or (e) otherwise
prohibits or materially, restricts consummation of any of the transactions
contemplated by this Agreement or materially impairs the contemplated benefits
to the Purchaser of any of the transactions contemplated by this Agreement.
4.6 Contractual Consents.
Except as provided in Schedule 4.6, the Companies shall have
obtained at or prior to the Closing all consents required for the consummation
of the transactions contemplated by this Agreement from any party to any
contract, agreement, instrument, lease, license, arrangement, or understanding
to which it is a party, or to which it or any of its respective businesses,
properties, or assets are subject.
4.7 Material Adverse Change.
Except as disclosed in this Agreement or in any Schedule
hereto or in any materials furnished to the Purchaser pursuant to this Agreement
since September 30, 1997 there shall not have been any event or development or
combinations of changes or developments, individually or in the aggregate, that
could be reasonably expected to have a material adverse effect on the business,
operations, or future prospects of the Companies.
V. CONDITIONS TO OBLIGATIONS OF SELLERS.
5.1 Accuracy of Representations and Compliance With Conditions.
All representations and warranties of the Purchaser contained
in this Agreement shall be accurate when made and, in addition, shall be
accurate as of the Closing as though such representations and warranties were
then made in exactly the same language by the Purchaser; as of the Closing, the
Purchaser shall have performed and complied with all conditions required to be
performed and complied with by it at or before such time by this Agreement, and
the Sellers shall have received a certificate executed an executive officer of
the Purchaser, dated the date of the Closing, to that effect.
5.2 Legal Action.
There shall not have been instituted or threatened any legal
proceeding relating to, or seeking to prohibit or otherwise challenge the
consummation of, the transactions contemplated by this Agreement, or to obtain
substantial damages with respect thereto.
5.3 Contractual Consents.
The Purchasers shall have obtained at or prior to the Closing
all consents required for the consummation of the transactions contemplated by
this Agreement from any party to any contract, agreement, instrument, lease,
license, arrangement, or understanding to which it is a party, or to which any
of its respective businesses, properties, or assets are subject.
5.4 Opinion of Counsel.
The Purchaser has delivered to Sellers on the date of the
Closing the opinion of counsel to the Purchaser, dated as of the Closing Date,
in form and substance satisfactory to counsel for the Sellers.
5.5 Other Closing Document.
The Purchaser shall have delivered to the Sellers at or prior
to the Closing such other documents as the Sellers may reasonably request five
(5) days prior to the Closing Date in order to enable the Sellers to determine
whether the conditions to its obligations under this Agreement have been met and
otherwise to carry out the provisions of this Agreement.
5.6 No Governmental Action.
There shall not have been any action taken, or any law, rule,
regulation, order, judgment, or decree proposed, promulgated, enacted, entered,
enforced, or deemed applicable to the transactions contemplated by this
Agreement by any federal, state, local, or other governmental authority or by
any court or other tribunal, including the entry of a preliminary or permanent
injunction, which, in the sole judgment of the Sellers, (a) makes any of the
transactions contemplated by this Agreement, illegal, (b) results in a delay in
the ability of the Sellers to consummate any of the transactions contemplated by
this Agreement, (c) requires the divestiture by the Sellers of any or a material
portion of the business of the Companies (d) imposes material limitations on the
ability of the Sellers effectively to exercise full rights of ownership of the
MSGI Common Stock or (e) otherwise prohibits, restricts, or delays consummation
of any of the transactions contemplated by this Agreement or impairs the
contemplated benefits to the Sellers of any of the transactions contemplated by
this Agreement.
5.7 Material Adverse Change.
Except as disclosed in this Agreement or in any Schedule
hereto or in any materials furnished to the Purchaser pursuant to this Agreement
since September 30, 1997 there shall not have been any event or development or
combinations of changes or developments, individually or in the aggregate, that
could be reasonably expected to have a material adverse effect on the business,
operations, or future prospects of the Purchaser.
VI.CERTAIN COVENANTS OF SELLERS AND THE PURCHASER.
6.1 Access.
Until the earlier of the Closing and the rightful abandonment
or termination of this Agreement pursuant to Section 1.4 or otherwise (the
"Release Time"), the Sellers will cause the Companies to afford the officers,
employees, counsel, agents, investment bankers, accountants, and other
representatives of the Purchaser reasonable access to the plants, properties,
books, and records of the Companies, will permit them to make extracts from the
copies of such books and records, and will from time to time furnish the
Purchaser with such additional financial and operating data and other
information as to the financial condition, results of operations, businesses,
properties, assets, liabilities, or future prospects of the Companies as the
Purchaser from time to time may reasonably request.
6.2 Conduct of Business.
Until the Release Time, the Purchaser shall, and the Sellers
shall cause the Companies to, conduct their respective affairs so that at the
Closing no representation or warranty of Purchaser or of the Sellers will be
inaccurate, no covenant or agreement of Purchaser or of the Sellers will be
breached, and no condition in this Agreement will remain unfulfilled by reason
of the actions or omissions of Purchaser or of the Sellers. Except as otherwise
requested by the Purchaser in writing, until the Release Time, the Sellers will
cause the Companies to use their best efforts to preserve the business
operations of the Companies intact, to keep available the services of their
present personnel, to preserve in full force and effect the contracts,
agreements, instruments, leases, licenses, arrangements, and understandings of
the Companies, and to preserve the goodwill of their customers, and others
having business relations with it. Until the Release Time, the Purchaser shall,
and the Sellers will cause the Companies to, conduct their respective businesses
and operations in all respects only in the ordinary course.
6.3 Advice of Changes.
Until the Release Time, the Purchaser and Sellers will
immediately advise one another in a detailed written notice of any fact or
occurrence or any pending or threatened occurrence of which any of them obtains
knowledge and which (if existing and known at the date of the execution of this
Agreement) would have been required to be set forth or disclosed in this
Agreement or a Schedule hereto, which (if existing and known at any time prior
to or at the Closing) would make the performance by any party of a covenant
contained in this Agreement impossible or make such performance materially more
difficult than in the absence of such fact or occurrence, or which (if existing
and known at the time of the Closing) would cause a condition to any party's
obligations under this Agreement not to be fully satisfied.
6.4 Public Statements.
Neither of the Sellers nor the Companies shall disseminate any
information to the public regarding this Agreement or the transactions
contemplated hereby, without the prior written consent of the Purchaser.
Notwithstanding the foregoing, nothing contained herein shall prevent the
Sellers or the Companies from releasing any information to any governmental
authority if required to do so by law.
6.5 Other Proposals.
Until the Release Time, the Sellers shall not, and shall
neither authorize nor permit any officer, director, employee, counsel, agent,
investment banker, accountant, or other representative of any of the Sellers or
the Companies directly or indirectly, to: (i) initiate contact with any person
or entity in an effort to solicit any Takeover Proposal (as such term is defined
in this Section 6.5); (ii) cooperate with, or furnish or cause to be furnished
any non-public information relating to the financial conditions, results of
operations, business, properties, assets, liabilities, or future prospects of
the Business to, any person or entity in connection with any Takeover Proposal;
(iii) negotiate with any person or entity with respect to any Takeover Proposal;
or (iv) enter into any agreement or understanding with the intent to effect a
Takeover Proposal of which any of them becomes aware. As used in this Section
6.5, "Takeover Proposal" shall mean any proposal, other than as contemplated by
this Agreement, (x) for a merger, consolidation, reorganization, other business
combination, or recapitalization involving the Companies, for the acquisition of
a five (5%) percent or greater interest in the equity or in any class or series
of capital stock of the Companies, for the acquisition of the right to cast five
(5%) percent or more of the votes on any matter with respect to the Companies,
or for the acquisition of a substantial portion of any of their assets other
than in the ordinary course of their businesses or (y) the effect of which may
be to prohibit, restrict, or delay the consummation of any of the transactions
contemplated by this Agreement or impair the contemplated benefits to the
Purchaser or of any of the transactions contemplated by this Agreement.
6.6 Voting by the Sellers.
The Sellers agree that until the Release Time, they will vote
all securities of the Companies which they are entitled to vote against (a) any
merger, consolidation, reorganization, other business combination, or
recapitalization of the Companies, (b) any sale of assets of the Companies other
than in the ordinary course of their respective businesses, (c) any stock split,
stock dividend, or reverse stock split relating to any class or series of the
Companies, (d) any issuance of any shares of capital stock of the Companies, any
option, warrant, or other right calling for the issuance of any such share of
capital stock, or any security convertible into or exchangeable for any such
share of capital stock, (e) any authorization of any other class or series of
stock of the Companies, (f) the amendment of the Articles of Incorporation (or
other charter document) or the by-laws of the Companies, or (g) any other
proposition the effect of which may be to prohibit, restrict, or delay the
consummation of any of the transactions contemplated by this Agreement or to
impair materially the contemplated benefits to the Purchaser of the transactions
contemplated by this Agreement.
6.7 Lock-Up Agreements.
SR agrees to execute and deliver on the Closing Date to MSGI
agreements with respect to limiting their ability to sell their shares of MSGI
Common Stock for a period of one year from the Closing Date.
VII. COVENANTS OF PURCHASER.
The Purchaser covenants and agrees as follows:
7.1 Confidentiality.
The Purchaser shall insure that all confidential information
which the Purchaser, any of its officers, directors, employees, counsel, agents,
investment bankers, or accountants, may now possess or may hereafter create or
obtain relating to the financial condition, results of operations, business,
properties, assets, liabilities, or future prospects of the Companies shall not
be published, disclosed, or made accessible by any of them to any other person
or entity at any time or used by any of them without the prior written consent
of the Companies, provided, however, that the restrictions of this sentence
shall not apply (a) after the Closing takes place, (b) as may otherwise be
required by law, (c) as may be necessary or appropriate in connection with the
enforcement of this Agreement, or (d) to the extent the information shall have
otherwise become publicly available.
7.2 Benefit Plans.
Until such time as the Purchaser's life, health, medical and
other benefit plans and 401K plan are made available to employees of the
Companies, Purchaser shall, after the Closing, continue to provide all employees
of the Companies with the benefits of the Companies' life, health, medical and
other benefit plans and 401(k) plan, subject to the terms of each plan.
7.3 Employee Shares.
At the Closing, MSGI shall issue an aggregate of one hundred
seven thousand four hundred sixty (107,460) restricted shares (the "Employee
Shares") of MSGI Common Stock to the individuals (each a "Designee") as
specified in Schedule 7.3 attached hereto. The Employee Shares shall vest at
such times and in such amounts as are set forth opposite each Designee's name;
provided, however, that any Designee shall forfeit all rights to his or her
non-vested Employee Shares if such designee is not employed by MSGI or a
subsidiary of MSGI on the date upon which Designee's right to receive any
portion of the Employee Shares would otherwise vest; provided, further, that
MSGI and each Designee shall acknowledge, in a writing satisfactory to MSGI, the
Designee's rights with respect to the Employee Shares and certain resale
restrictions on Employee Shares prior to their registration under the 1933 Act
or the availability of an exemption therefrom. Immediately upon the termination
of a Designee's employment with MSGI or a subsidiary of MSGI, the Employee
Shares that otherwise would have vested with such Designee shall be registered
and issued to TK. MSGI shall retain Employee Shares until such time as they vest
to Designee or are issued to TK. MSGI shall distribute the vested Employee
Shares to the appropriate Designee within 30 days of the date such shares vest.
The Employee Shares when issued pursuant to this Section 7.3 shall not be
registered under the 1933 Act. MSGI shall use its best efforts to cause a
registration statement to be filed with the Securities and Exchange Commission
covering resale of the Employee Shares to become effective prior to the date the
Employee Shares shall vest with Designees unless in the opinion of counsel for
MSGI resale of the Employee Shares will be exempt from registration under the
1933 Act. MSGI shall not be required to issue Employee Shares in whole or in
part to TK if to do so would violate any applicable State or Federal law, it
being agreed that such issuances to TK can be made pursuant to applicable
Federal and state securities laws. Until all Employee Shares have vested, MSGI
shall provide TK with a written report once a year which sets forth the
employment status of each Designee with MSGI or a subsidiary of MSGI and the
number of Employee Shares that have vested with each Designee.
7.4 Options.
(a) On the Closing Date MSGI shall grant options ("Employee
Options") to purchase three hundred thousand (300,000) shares of MSGI Common
Stock pursuant to all of the Terms and Conditions of MSGI's 1991 Stock Option
Plan, registered on Form S-8 with the Securities and Exchange Commission. The
Employee Options shall be issued to the individuals named in Schedule 7.4
attached hereto in such amounts as are set forth opposite each of their names.
The exercise price of the Employee Options shall equal the fair market value of
MSGI Common Stock as determined by its closing price on December 8, 1997.
7.5 Documents.
(a) The Purchaser shall have delivered to the Sellers at or
prior to the Closing such other documents as the Sellers may reasonably request
in order to enable the Sellers to determine whether the conditions to its
obligations under this Agreement have been met and otherwise to carry out the
provisions of this Agreement.
7.6 Press Release.
(a) Upon the completion of the Closing, if a press release is
written by the Purchaser's investor relations staff, SR shall have the
reasonable opportunity to contribute to its content.
VIII. INDEMNIFICATION; SURVIVAL; LIMITATIONS ON LIABILITY.
8.1 Indemnification of Purchaser.
(a) Subject to the terms and conditions set forth in Section
8.3, the Sellers jointly and severally agree to indemnify and hold harmless the
Purchaser, its officers, directors, employees, counsel, and agents,
(collectively, the "Purchaser Indemnitees"), on an after-tax basis against and
in respect of any and all claims, suits, actions, proceedings (formal or
informal), investigations, judgments, deficiencies, damages, settlements,
liabilities, and reasonable legal and other expenses related thereto
(collectively, "Claims"), as and when incurred, arising out of or based upon any
breach of any representation, warranty, covenant, or agreement of the Sellers
contained in this Agreement or any document or instrument delivered in
connection with this Agreement.
(b) Each Purchaser Indemnitee shall give the Sellers prompt
notice of any Claim on the basis of which such Purchaser Indemnitee intends to
seek indemnification (but the obligations of the Sellers shall not be conditions
upon receipt of such notice, except to the extent that the indemnifying party is
actually prejudiced by such failure to give notice). The Sellers shall promptly
assume the defense of any Purchaser Indemnitee, with counsel reasonably
satisfactory to such Purchaser Indemnitee, and the fees and expenses of such
counsel shall be at the sole cost and expense of the Sellers. Notwithstanding
the foregoing, any Purchaser Indemnitee shall be entitled, at his or its
expense, to employ counsel separate from counsel for the Sellers and from any
other party in such action, proceeding, or investigation. No Purchaser
Indemnitee may agree to a settlement of a Claim without the prior written
approval of the Sellers, which approval shall not be unreasonably withheld.
8.2 Indemnification of Sellers.
(a) Subject to the terms and conditions set forth in Section
8.3, the Purchaser agrees to indemnify and hold harmless the Sellers, the
Companies and each of their respective officers, directors, employees, counsel,
and agents, (collectively, the "Seller Indemnitees"), on an after-tax basis
against and in respect of any and all Claims as and when incurred, arising out
of or based upon any breach of any representation, warranty, covenant, or
agreement of the Purchaser contained in this Agreement or any document or
instrument delivered in connection with this Agreement.
(b) Each Seller Indemnitee shall give the Purchaser prompt
notice of any Claim on the basis of which such Seller Indemnitee intends to seek
indemnification (but the obligations of the Purchaser shall not be conditions
upon receipt of such notice, except to the extent that the indemnifying party is
actually prejudiced by such failure to give notice). The Purchaser shall
promptly assume the defense of any Seller Indemnitee, with counsel reasonably
satisfactory to such Seller Indemnitee, and the fees and expenses of such
counsel shall be at the sole cost and expense of the Purchaser. Notwithstanding
the foregoing, any Seller Indemnitee shall be entitled, at his or its expense,
to employ counsel separate from counsel for the Purchaser and from any other
party in such action, proceeding, or investigation. No Seller Indemnitee may
agree to a settlement of a Claim without the prior written approval of the
Purchaser, which approval shall not be unreasonably withheld.
8.3 Survival.
(a) Subject to the provisions of Section 7.2(b), the
covenants, agreements, representations, and warranties contained in or made
pursuant to this Agreement shall survive the Closing and the delivery of the
purchase price by the Purchaser, irrespective of any investigation made by or on
behalf of any party.
(b) The liabilities and obligations of the Sellers and the
Purchaser under this Agreement shall be subject to the following limitations.
The Sellers and the Purchaser shall have no liability or obligation with respect
to any claim for a breach of a representation or warranty under this Agreement
made after two (2) years from the Closing Date except for claims arising out of
a breach of the representations as to (i) tax liabilities under Section 2.4,
with respect to which the Sellers shall remain liable until ninety (90) days
after the expiration of the applicable statute of limitations relating to such
tax liabilities and (ii) capitalization under Section 2.2, which shall continue
indefinitely. In addition, the Sellers shall not be responsible for any claims
until the cumulative aggregate amount thereof shall exceed one hundred fifty
thousand dollars ($150,000) (the "Minimum Amount"), or after the cumulative
aggregate amount thereof exceeds four million dollars ($4,000,000) (the "Maximum
Amount"), excluding any liabilities for a breach of a representation or warranty
relating to Taxes pursuant to Section 2.4. The Sellers shall be liable for all
amounts in excess of the Minimum Amount and less than the Maximum Amount.
IX. MISCELLANEOUS.
9.1 Brokerage Fees.
Each party hereto will indemnify and hold harmless the others
against and in respect of any and all Claims for brokerage or other commissions
relative to this Agreement or to the transactions contemplated hereby, based in
any way on agreements, arrangements or understandings made by such party with
any third party.
9.2 Further Actions.
At any time and from time to time, each party agrees, as its
or his expense, to take such actions and to execute and deliver such documents
as may be reasonably necessary to effectuate the purposes of this Agreement.
9.3 Submission to Jurisdiction.
Each of the parties hereto irrevocably submits to the
jurisdiction of the courts of the State of New York, and of any federal court
located in the State of New York, in connection with any action or proceeding
arising out of or relating to, or a breach of, this Agreement, or of any
document or instrument delivered pursuant to, in connection with, or
simultaneously with this Agreement.
9.4 Merger; Modification.
This Agreement and the Schedules attached hereto set forth the
entire understanding of the parties with respect to the subject matter hereof,
supersede all existing agreements among them concerning such subject matter, and
may be modified only by a written instrument duly executed by each party to be
charged.
9.5 Notices.
Any notice or other communication required or permitted to be
given hereunder shall be in writing and shall be mailed by certified mail,
return receipt requested (or by the most nearly comparable method if mailed from
or to a location outside of the United States) or by Federal Express, Express
Mail, or similar overnight delivery or courier service or delivered (in person
or by telecopy, or similar telecommunications equipment) against receipt to the
party to whom it is to be given at the address of such party set forth in the
preamble to this Agreement (or to such other address as the party shall have
furnished in writing in accordance with the provisions of this Section 8.5). Any
notice given to the Purchaser shall be addressed to the attention of Xxxxxx
Xxxxxxx, 000 Xxxxxxx Xxxxxx, Xxx Xxxx, XX 00000, and a copy of such notice
(which copy shall not constitute notice) shall also be sent to Camhy Xxxxxxxxx &
Xxxxx LLP, 0000 Xxxxxxxx, 00xx Xxxxx, Xxx Xxxx, Xxx Xxxx 00000-0000 Attention:
Xxxx X. Annex, Esq. Any notice given to SR shall be addressed to the attention
of Xxxxxxx X. Xxxxxxx, 000 Xxxxx Xxxx, Xxxxxxx, XX 00000. Any notice given to TK
shall be address to Xxxxxx X Xxxxxxx, 00 Xxxxxx Xxxx, Xxxxxxxxx Xxxxxxxx, Xxx
Xxxxxx 00000. A copy of any notice to the Sellers (which copy shall not
constitute notice) shall also be sent to Drinker Xxxxxx & Xxxxx LLP, 0000
Xxxxxxxxx Xxxxx, Xxxxx 000, Xxxxxx, XX 00000-0000, Attn: Xxxxxx X. Xxxx, Esq.
Notice to the estate of any party shall be sufficient if addressed to the party
as provided in this Section 9.6. Any notice or other communication given by
certified mail (or by such comparable method) shall be deemed given at the time
of certification thereof (or comparable act) except for a notice changing a
party's address which will be deemed given at the time of receipt thereof. Any
notice given by other means permitted by this Section 9.6 shall be deemed given
at the time of receipt thereof.
9.6 Waiver.
Any waiver by any party of a breach of any terms of this
Agreement shall not operate as or be construed to be a waiver of any other
breach of that term or of any breach of any other term of this Agreement. The
failure of a party to insist upon strict adherence to any term of this Agreement
on one or more occasions will not be considered a waiver or deprive that party
of the right thereafter to insist upon strict adherence to that term or any
other term of this Agreement. Any waiver must be in writing.
9.7 Binding Effect.
The provisions of this Agreement shall be binding upon and
inure to the benefit of the Purchaser, and its successors and assigns and the
Sellers and their respective assigns, heirs, and personal representatives, and
shall inure to the benefit of each Indemnitee and its successors and assigns (if
not a natural person) and his assigns, heirs, and personal representatives (if a
natural person). Neither the Purchaser or the Seller may assign this Agreement
without obtaining the other party's prior written consent.
9.8 No Third-Party Beneficiaries.
This Agreement does not create, and shall not be construed as
creating, any rights enforceable by any person not a party to this Agreement
(except as provided in 9.7).
9.9 Separability.
If any provision of this Agreement is invalid, illegal, or
unenforceable, the balance of this Agreement shall remain in effect, and if any
provision is inapplicable to any person or circumstance, it shall nevertheless
remain applicable to all other persons and circumstances.
9.10 Headings.
The headings in this Agreement are solely for convenience of
reference and shall be given no effect in the construction or interpretation of
this Agreement.
9.11 Counterparts; Governing Law.
This Agreement may be executed in any number of counterparts,
each of which shall be deemed an original, but all of which together shall
constitute one and the same instrument. It shall be governed by, and construed
in accordance with, the laws of the State of New York, without giving effect to
the rules governing the conflict of laws.
IN WITNESS WHEREOF, the parties have duly executed this
Agreement on December 8, 1997, effective as provided herein.
MARKETING SERVICES GROUP,INC.
By: /s/ J. Xxxxxx Xxxxxxx
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Title: Chairman & Chief Executive Officer
/s/ Xxxxxxx X. Xxxxxxx
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/s/ Xxxxxx X. Xxxxxxx
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