EXHIBIT 10.19
STOCK PURCHASE AGREEMENT
AMONG
EISI, INC.
as "Buyer,"
XXXXXX MEDIA SALES, INC.
as the "Company"
AND
XXXXXX XXXXXX, XXXXXXX XXXXXX,
AND XXXXXX XXXXXX
as "Sellers"
Dated as of
June 24, 1998
STOCK PURCHASE AGREEMENT
This Stock Purchase Agreement (the "Agreement") is entered into as of June
24, 1998 (the "Effective Date"), by and among EISI, INC. a California
corporation (the "Buyer"); XXXXXX MEDIA SALES, INC. a Texas Corporation (the
"Company"); and XXXXXX XXXXXX, XXXXXXX XXXXXX and XXXXXX XXXXXX (collectively
the "Sellers" and each individually referred to herein as a "Seller") who each
reside in the State of Texas. The Buyer, the Company and the Sellers are
sometimes referred to collectively herein as the "Parties" and individually as a
"Party."
RECITALS
A. The Sellers own 15,000 shares of common stock of the Company which
constitutes all of the issued and outstanding capital stock of the Company (the
"Company Stock").
B. This Agreement contemplates a transaction in which the Buyer will
purchase from the Sellers, and the Sellers will sell to the Buyer, all of the
Company Stock subject to the terms and conditions set forth in this Agreement.
AGREEMENT
NOW, THEREFORE, in consideration of the premises and the mutual promises
herein made, and in consideration of the representations, warranties, and
covenants herein contained, the Parties agree as follows.
1. Definitions.
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"Accredited Investor" has the meaning set forth in Regulation D promulgated
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under the Securities Act.
"Adverse Consequences" means all actions, suits, proceedings, hearings,
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investigations, charges, complaints, claims, demands, injunctions, judgments,
orders, decrees, rulings, damages, dues, penalties, fines, costs, amounts paid
in settlement, Liabilities, obligations, Taxes, liens, losses, expenses, and
fees, including court costs and attorneys' fees and expenses.
"Affiliate" has the meaning set forth in Rule 12b-2 of the regulations
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promulgated under the Securities Exchange Act.
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"Affiliated Group" means any affiliated group within the meaning of Code
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(S)1504(a) or any similar group defined under a similar provision of state,
local or foreign law.
"Applicable Rate" means the prime base rate of interest publicly announced
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from time to time by Xxxxx Fargo Bank (or its successor).
"Basis" means any past or present fact, situation, circumstance, status,
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condition, activity, practice, plan, occurrence, event, incident, action,
failure to act, or transaction that forms or could form the basis for any
specified consequence.
"Buyer" has the meaning set forth in the preface above.
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"Closing" has the meaning set forth in (S)2(d) below.
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"Closing Date" has the meaning set forth in (S)2(d) below.
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"Code" means the Internal Revenue Code of 1986, as amended.
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"Company" has the meaning set forth in the preface above.
---------
"Company Stock" means any share of the common stock, par value $___ per
---------------
share, of the Company.
"Confidential Information" means any information concerning the businesses
--------------------------
and affairs of the Company that is not already generally available to the
public.
"Controlled Group of Corporations" has the meaning set forth in Code
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(S)1563.
"Deferred Intercompany Transaction" has the meaning set forth in Reg.
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(S)1.1502-13.
"Disclosure Schedule" has the meaning set forth in (S)4 below.
---------------------
"Effective Date" has the meaning set forth in the preface above.
----------------
"Employee Benefit Plan" means any (a) nonqualified deferred compensation or
-----------------------
retirement plan or arrangement which is an Employee Pension Benefit Plan, (b)
qualified defined contribution retirement plan or arrangement which is an
Employee Pension Benefit Plan, (c) qualified defined benefit retirement plan or
arrangement which is an Employee Pension Benefit Plan (including any
Multiemployer Plan), or (d) Employee Welfare Benefit Plan or material fringe
benefit plan or program.
"Employee Pension Benefit Plan" has the meaning set forth in ERISA (S)3(2).
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"Employee Welfare Benefit Plan" has the meaning set forth in ERISA (S)3(1).
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"Environmental, Health, and Safety Laws" means the Comprehensive
----------------------------------------
Environmental Response, Compensation and Liability Act of 1980, the Resource
Conservation and Recovery Act of 1976, the Occupational Safety and Health Act of
1970, the Federal Water Pollution Control Act, the Safe Drinking Water Act, the
Toxic Substances Control Act, the Clean Air Act, [ADD APPLICABLE TEXAS
STATUTES], each as amended, together with all other laws (including rules,
regulations, codes, plans, injunctions, judgments, orders, decrees, rulings, and
charges thereunder) of federal, state, local, and foreign governments (and all
agencies thereof) concerning pollution or protection of the environment, public
health and safety, or employee health and safety, including laws relating to
emissions, discharges, releases, or threatened releases of pollutants,
contaminants, or chemical, industrial, hazardous, or toxic materials or wastes
into ambient air, surface water, ground water, or lands or otherwise relating to
the manufacture, processing, distribution, use, treatment, storage, disposal,
transport, or handling of pollutants, contaminants, or chemical, industrial,
hazardous, or toxic materials or wastes.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
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amended.
"Extremely Hazardous Substance" has the meaning set forth in (S)302 of the
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Emergency Planning and Community Right-to-Know Act of 1986, as amended.
"Fiduciary" has the meaning set forth in ERISA (S)3(21).
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"Financial Statement" has the meaning set forth in (S)4(g) below.
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"GAAP" means United States generally accepted accounting principles as in
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effect from time to time.
"Indemnified Party" has the meaning set forth in (S)6(d) below.
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"Indemnifying Party" has the meaning set forth in (S)6(d) below.
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"Intellectual Property" means (a) all inventions (whether patentable or
-----------------------
unpatentable and whether or not reduced to practice), all improvements thereto,
and all patents, patent applications, and patent disclosures, together with all
reissuances, continuations, continuations-in-part, revisions, extensions, and
reexaminations thereof, (b) all trademarks, service marks, trade dress, logos,
trade names, and corporate names, together with all translations, adaptations,
derivations, and combinations thereof and including all goodwill associated
therewith, and all applications, registrations, and renewals in connection
therewith, (c) all copyrightable works, all copyrights, and all applications,
registrations, and renewals in connection therewith, (d) all mask works and all
applications, registrations, and renewals in
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connection therewith, (e) all trade secrets and confidential business
information (including ideas, research and development, know-how, formulas,
compositions, manufacturing and production processes and techniques, technical
data, designs, drawings, specifications, customer and supplier lists, pricing
and cost information, and business and marketing plans and proposals), (f) all
computer software (including data and related documentation), (g) all other
proprietary rights, and (h) all copies and tangible embodiments thereof (in
whatever form or medium).
"Knowledge" means actual knowledge after reasonable investigation.
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"Liability" means any liability (whether known or unknown, whether asserted
-----------
or unasserted, whether absolute or contingent, whether accrued or unaccrued,
whether liquidated or unliquidated, and whether due or to become due), including
any liability for Taxes.
"Most Recent Balance Sheet" means the balance sheet contained within the
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Most Recent Financial Statements.
"Most Recent Financial Statements" has the meaning set forth in (S)4(g)
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below.
"Most Recent Fiscal Month End" has the meaning set forth in (S)4(g) below.
------------------------------
"Most Recent Fiscal Year End" has the meaning set forth in (S)4(g) below.
-----------------------------
"Multiemployer Plan" has the meaning set forth in ERISA (S)3(37).
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"Ordinary Course of Business" means the ordinary course of business
-----------------------------
consistent with past custom and practice (including with respect to quantity and
frequency).
"Party" has the meaning set forth in the preface above.
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"PBGC" means the Pension Benefit Guaranty Corporation.
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"Person" means an individual, a partnership, a corporation, an association,
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a joint stock company, a trust, a joint venture, an unincorporated organization,
or a governmental entity (or any department, agency, or political subdivision
thereof).
"Prohibited Transaction" has the meaning set forth in ERISA (S)405 and Code
------------------------
(S)4975.
"Purchase Price" has the meaning set forth in (S)2(b) below.
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"Reportable Event" has the meaning set forth in ERISA (S)4043.
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"Requisite Sellers" means Sellers holding a majority in interest of the
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Company Shares as set forth in (S)4(b) of the Disclosure Schedule.
"Securities Act" means the Securities Act of 1933, as amended.
----------------
"Securities Exchange Act" means the Securities Exchange Act of 1934, as
-------------------------
amended.
"Security Interest" means any mortgage, pledge, lien, encumbrance, charge,
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or other security interest, other than (a) mechanic's, materialmen's, and
similar liens, (b) liens for Taxes not yet due and payable, (c) purchase money
liens and liens securing rental payments under capital lease arrangements, and
(d) other liens arising in the Ordinary Course of Business and not incurred in
connection with the borrowing of money.
"Seller" has the meaning set forth in the preface above.
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"Subsidiary" means any corporation with respect to which a specified Person
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(or a Subsidiary thereof) owns a majority of the common stock or has the power
to vote or direct the voting of sufficient securities to elect a majority of the
directors.
"Tax" means any federal, state, local, or foreign income, gross receipts,
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license, payroll, employment, excise, severance, stamp, occupation, premium,
windfall profits, environmental (including taxes under Code (S)59A), customs
duties, capital stock, franchise, profits, withholding, social security (or
similar), unemployment, disability, real property, personal property, sales,
use, transfer, registration, value added, alternative or add-on minimum,
estimated, or other tax of any kind whatsoever, including any interest, penalty,
or addition thereto, whether disputed or not.
"Tax Return" means any return, declaration, report, claim for refund, or
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information return or statement relating to Taxes, including any schedule or
attachment thereto, and including any amendment thereof.
"Third Party Claim" has the meaning set forth in (S)6(d) below.
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2. Purchase and Sale of Company Shares.
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(a) Basic Transaction. On and subject to the terms and conditions of this
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Agreement, the Buyer agrees to purchase from each of the Sellers, and each of
the Sellers agrees to sell to the Buyer, all of their shares of Company Stock
for the consideration specified below in this Section 2.
(b) Purchase Price. On and subject to the terms and conditions of this
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Agreement, as consideration for the sale of all of their shares of Company
Stock, Buyer shall provide and Sellers shall be entitled to receive, in the
aggregate, the following consideration:
(i) a cash payment at Closing (the "Cash Payment") equal to the
difference between the book value of the Company's assets and the Company's
liabilities as of May 31, 1998 as determined by Xxxxxx X. Xxxxxxx, C.P.A.
the ("Sellers' Net Book Value Determination"), and subject to the Buyer's
Right of Offset set forth in (S)2(c) below;
(ii) as soon as reasonably practicable but in no event later than
sixty (60) days after the Closing Date, the Buyer shall cause all
indebtedness of the Company to North Dallas Bank & Trust Company, in the
approximate outstanding principal amount of $385,000 to be paid in full and
all personal guaranties of the Sellers with respect to such indebtedness to
be released; and
(iii) within ninety (90) days after the Closing Date the Buyer shall
pay (or cause the Company to pay) in full all amounts due by the Company to
Xxxxxx Media Services, Inc. as reflected on the Most Recent Financial
Statements (the "Xxxxxx Media Services Debt").
(c) Buyer's Right of Offset. The Buyer shall have the right and expressly
------------------------
reserves against the Sellers the right to offset against its payment of the
Xxxxxx Media Services Debt (the "Buyer's Right of Offset") an amount equal to
the difference between the Buyer's calculation of the difference between the
book value of the Company's assets and the Company's liabilities as of May 31,
1998 (the "Buyer's Net Book Value Determination") and the Sellers' Net Book
Value Determination. Buyer shall have sixty (60) days after the Closing Date in
which to notify the Sellers of the Buyer's Net Book Value Determination and its
proposed exercise of the Buyer's Right of Offset (the "Offset Exercise Notice").
The Buyer's failure to timely provide a timely Offset Exercise Notice to the
Sellers shall constitute a waiver of the Buyer's Right of Offset. If the Buyer
provides a timely Offset Exercise Notice, the parties shall make reasonable
efforts to resolve their differences.
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(d) Release of Cross- Pledge. It is acknowledged and agreed that the
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assets of the Company are subject to a Security Interest in favor of North
Dallas Bank & Trust Company pursuant to a cross-pledge agreement with respect to
obligations of Xxxxxx Media Services, Inc. Sellers covenant and agree to cause
such Security Interest relating to the obligations of Xxxxxx Media Services,
Inc. to be released prior to or at the Closing.
(e) Allocation of Amounts Paid to Sellers. The Purchase Price shall be
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allocated among the Sellers in proportion to their respective holdings of the
Company Stock as set forth in (S)4(b) of the Disclosure Schedule.
(f) The Closing. The closing of the transactions contemplated by this
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Agreement (the "Closing") shall take place at the offices of Xxxxx & Xxxxxx,
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0000 Xxxx Xxxxxx, Xxxxx 0000, Xxxxxx, Xxxxx 00000-0000, commencing at 9:00 a.m.
local time on June ___, 1998 (the "Closing Date").
(g) Deliveries at the Closing. At the Closing, (i) each of the Sellers will
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deliver to the Buyer stock certificates representing all of his Company Stock,
endorsed in blank or accompanied by duly executed assignment documents and (ii)
the Buyer will deliver to each of the Sellers the Cash Payment specified in
(S)2(b)(i) above by wire transfer or the delivery of other immediately available
funds.
3. Representations and Warranties Concerning the Transaction.
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(a) Representations and Warranties of the Sellers. Each of the Sellers
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represents and warrants, jointly and severally, to the Buyer that the statements
contained in this (S)3(a) are correct and complete as of the Closing Date.
(i) Authorization of Transaction. The Seller has full power and
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authority to execute and deliver this Agreement and to perform his
obligations hereunder. This Agreement constitutes the valid and legally
binding obligation of the Seller, enforceable in accordance with its terms
and conditions. The Seller need not give any notice to, make any filing
with, or obtain any authorization, consent, or approval of any government
or governmental agency in order to consummate the transactions contemplated
by this Agreement.
(ii) Noncontravention. Neither the execution and the delivery of this
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Agreement, nor the consummation of the transactions contemplated hereby,
will (A) violate any constitution, statute, regulation, rule, injunction,
judgment, order, decree, ruling, charge, or other restriction of any
government, governmental agency, or court to which the Seller is subject or
(B) conflict with, result in a breach of, constitute a default under,
result in the acceleration of, create in any party the right to accelerate,
terminate, modify, or cancel, or require any notice under any agreement,
contract,
7
lease, license, instrument, or other arrangement to which the Seller is a
party or by which he or it is bound or to which any of his or its assets is
subject.
(iii) Brokers' Fees. The Seller has no Liability or obligation to pay
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any fees or commissions to any broker, finder, or agent with respect to the
transactions contemplated by this Agreement for which the Buyer could
become liable or obligated.
(iv) Company Shares. The Seller holds of record and owns beneficially
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the number of Shares of Company Stock set forth next to his name in
(S)4(b) of the Disclosure Schedule, free and clear of any restrictions on
transfer (other than any restrictions under the Securities Act and state
securities laws), Taxes, Security Interests, options, warrants, purchase
rights, contracts, commitments, equities, claims, and demands. The Seller
is not a party to any option, warrant, purchase right, or other contract or
commitment that could require the Seller to sell, transfer, or otherwise
dispose of any capital stock of the Company (other than this Agreement).
The Seller is not a party to any voting trust, proxy, or other agreement or
understanding with respect to the voting of any capital stock of the
Company.
(b) Representations and Warranties of the Buyer. The Buyer represents and
--------------------------------------------
warrants to the Sellers that the statements contained in this (S)3(b) are
correct and complete as of the Closing Date.
(i) Organization of the Buyer. The Buyer is a corporation duly
--------------------------
organized, validly existing, and in good standing under the laws of the
jurisdiction of its incorporation.
(ii) Authorization of Transaction. The Buyer has full power and
-----------------------------
authority (including full corporate power and authority) to execute and
deliver this Agreement and to perform its obligations hereunder. This
Agreement constitutes the valid and legally binding obligation of the
Buyer, enforceable in accordance with its terms and conditions. The Buyer
need not give any notice to, make any filing with, or obtain any
authorization, consent, or approval of any government or governmental
agency in order to consummate the transactions contemplated by this
Agreement.
(iii) Noncontravention. Neither the execution and the delivery of this
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Agreement, nor the consummation of the transactions contemplated hereby,
will (A) violate any constitution, statute, regulation, rule, injunction,
judgment, order, decree, ruling, charge, or other restriction of any
government, governmental agency, or court to which the Buyer is subject or
any provision of its charter or bylaws or (B) conflict with, result in a
breach of, constitute a default under, result in the acceleration of,
create in any party the right to accelerate, terminate, modify, or cancel,
or require any notice under any agreement, contract, lease, license,
instrument, or other arrangement
8
to which the Buyer is a party or by which it is bound or to which any of
its assets is subject.
(iv) Brokers' Fees. The Buyer has no Liability or obligation to pay
--------------
any fees or commissions to any broker, finder, or agent with respect to the
transactions contemplated by this Agreement for which any Seller could
become liable or obligated.
(v) Investment. The Buyer (i) understands that the Company Stock has
-----------
not been registered under the Securities Act, or under any state securities
laws, and is being offered and sold in reliance upon federal and state
exemptions for transactions not involving any public offering; (ii) is
acquiring the Company Stock for its own account for investment purposes,
and not with a view to the distribution thereof; (iii) is a sophisticated
investor with knowledge and experience in business and financial matters;
(iv) has received certain information concerning the Company, has access to
the officers, employees, assets, operations, books, records and files of
the Company and has had the opportunity to obtain additional information as
desired in order to evaluate the merits and the risks inherent in acquiring
the Company Stock; (v) is relying solely on the basis of its own
independent investigation of the Company and upon the express
representations, warranties and covenants in this Agreement; (vi) is able
to bear the economic risk in holding the Company Stock; and (vii) is an
Accredited Investor.
4. Representations and Warranties Concerning the Company and Its
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Subsidiaries. Each of the Sellers and the Company represent and warrant,
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jointly and severally, to the Buyer that the statements contained in this (S)4
are correct and complete as of the Effective Date except as set forth in the
disclosure schedule delivered by the Sellers to the Buyer and initialed by the
Parties (the "Disclosure Schedule"). The Disclosure Schedule will be arranged in
---------------------
paragraphs corresponding to the lettered and numbered paragraphs contained in
this (S)4.
(a) Organization, Qualification, and Corporate Power. The Company is a
-------------------------------------------------
corporation duly organized, validly existing, and in good standing under the
laws of the jurisdiction of its incorporation. The Company is duly authorized to
conduct business and is in good standing under the laws of each jurisdiction
where such qualification is required. The Company has full corporate power and
authority and all licenses, permits, and authorizations necessary to carry on
the businesses in which it is engaged and to own and use the properties owned
and used by it. (S)4(a) of the Disclosure Schedule lists the directors and
officers of the Company. The Sellers have delivered to the Buyer correct and
complete copies of the charter and bylaws of the Company (as amended to date).
The minute books (containing the records of meetings of the stockholders, the
board of directors, and any committees of the board of directors), the stock
certificate books, and the stock record books of the Company are correct and
complete. The Company is not in default under or in violation of any provision
of its charter or bylaws.
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(b) Capitalization. The entire authorized capital stock of the Company
---------------
consists of 100,000 shares of Company Stock, of which 15,000 shares are issued
and outstanding and no shares are held in treasury. All of the issued and
outstanding shares of Company Stock have been duly authorized, are validly
issued, fully paid, and nonassessable, and are held of record by the respective
Sellers as set forth in (S)4(b) of the Disclosure Schedule. There are no
outstanding or authorized options, warrants, purchase rights, subscription
rights, conversion rights, exchange rights, or other contracts or commitments
that could require the Company to issue, sell, or otherwise cause to become
outstanding any of its capital stock. There are no outstanding or authorized
stock appreciation, phantom stock, profit participation, or similar rights with
respect to the Company. There are no voting trusts, proxies, or other agreements
or understandings with respect to the voting of the capital stock of the
Company.
(c) Noncontravention. Neither the execution and the delivery of this
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Agreement, nor the consummation of the transactions contemplated hereby, will
(i) violate any constitution, statute, regulation, rule, injunction, judgment,
order, decree, ruling, charge, or other restriction of any government,
governmental agency, or court to which the Company is subject or any provision
of the charter or bylaws of the Company or (ii) conflict with, result in a
breach of, constitute a default under, result in the acceleration of, create in
any party the right to accelerate, terminate, modify, or cancel, or require any
notice or consent under any agreement, contract, lease, license, instrument, or
other arrangement to which the Company is a party or by which it is bound or to
which any of its assets is subject (or result in the imposition of any Security
Interest upon any of its assets). The Company does not need to give any notice
to, make any filing with, or obtain any authorization, consent, or approval of
any government or governmental agency in order for the Parties to consummate the
transactions contemplated by this Agreement.
(d) Brokers' Fees. The Company does not have any Liability or obligation to
--------------
pay any fees or commissions to any broker, finder, or agent with respect to the
transactions contemplated by this Agreement.
(e) Title to Assets. The Company has good and marketable title to, or a
----------------
valid leasehold interest in, the properties and assets used by it, located on
its premises, or shown on the Most Recent Balance Sheet or acquired after the
date thereof, free and clear of all Security Interests other than in favor of
North Dallas Bank & Trust Company, except for properties and assets disposed of
in the Ordinary Course of Business since the date of the Most Recent Balance
Sheet.
(f) Subsidiaries. The Company has no subsidiaries, either direct or
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indirect, whatsoever.
(g) Financial Statements. Buyer has received the following financial
---------------------
statements (collectively the "Financial Statements"): (i) balance sheets and
----------------------
statements of income and cash
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flow as of and for the fiscal years ended December 31, 1995, December 31, 1996
and December 31, (the "Most Recent Fiscal Year End") for the Company; and (ii)
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balance sheets and statements of income and cash flow (the "Most Recent
------------
Financial Statements") as of and for the five (5) months ended May 31, 1998 (the
---------------------
"Most Recent Fiscal Month End") for the Company. The Financial Statements
------------------------------
(including the notes thereto) have been prepared on a consistent basis
throughout the periods covered thereby, contain and reflect in all respects all
necessary adjustments and present fairly the financial condition of the Company
as of such dates and the results of operations of the Company for such periods,
are correct and complete, and are consistent with the books and records of the
Company (which books and records are correct and complete).
(h) Events Subsequent to Most Recent Financial Statements. Since the Most
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Recent Financial Statements, there has not been any adverse change in the
business, financial condition, operations, results of operations, or future
prospects of the Company. Without limiting the generality of the foregoing,
since that date:
(i) the Company has not sold, leased, transferred, or assigned any
of its assets, tangible or intangible, other than for a fair consideration
in the Ordinary Course of Business;
(ii) the Company has not entered into any agreement, contract, lease,
or license (or series of related agreements, contracts, leases, and
licenses outside the Ordinary Course of Business;
(iii) no party (including the Company ) has accelerated, terminated,
modified, or canceled any agreement, contract, lease, or license (or series
of related agreements, contracts, leases, and licenses) to which the
Company is a party or by which any of them is bound;
(iv) the Company has not imposed any Security Interest upon any of
its assets, tangible or intangible;
(v) the Company has not made any capital expenditure (or series of
related capital expenditures) outside the Ordinary Course of Business;
(vi) the Company has not made any capital investment in, any loan to,
or any acquisition of the securities or assets of, any other Person (or
series of related capital investments, loans, and acquisitions) outside the
Ordinary Course of Business;
(vii) the Company has not issued any note, bond, or other debt
security or created, incurred, assumed, or guaranteed any indebtedness for
borrowed money or capitalized lease;
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(viii) the Company has not failed to pay any of its obligations when
due or delayed or postponed the payment of accounts payable and other
Liabilities outside the Ordinary Course of Business;
(ix) the Company has not canceled, compromised, waived, or released
any right or claim (or series of related rights and claims) outside the
Ordinary Course of Business;
(x) the Company has not granted any license or sublicense of any
rights under or with respect to any Intellectual Property;
(xi) there has been no change made or authorized in the charter or
bylaws of the Company;
(xii) the Company has not issued, sold, or otherwise disposed of any
of its capital stock, or granted any options, warrants, or other rights to
purchase or obtain (including upon conversion, exchange, or exercise) any
of its capital stock;
(xiii) the Company has not declared, set aside, or paid any dividend
or made any distribution with respect to its capital stock (whether in cash
or in kind) or redeemed, purchased, or otherwise acquired any of its
capital stock;
(xiv) the Company has not experienced any damage, destruction, or
loss (whether or not covered by insurance) to its property;
(xv) the Company has not made any loan to, or entered into any
other transaction with, any of its directors, officers, and employees
outside the Ordinary Course of Business;
(xvi) the Company has not entered into any employment contract or
collective bargaining agreement, written or oral, or modified the terms of
any existing such contract or agreement;
(xvii) the Company has not granted any (a) increase in the
compensation or (b) bonuses, incentive compensation or other benefits,
contingent or otherwise, of or for the benefit of any of its directors,
officers, and employees outside the Ordinary Course of Business;
(xviii) the Company has not adopted, amended, modified, or terminated
any bonus, profit-sharing, incentive, severance, or other plan, contract,
or commitment for
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the benefit of any of its directors, officers, and employees (or taken any
such action with respect to any other Employee Benefit Plan);
(xix) the Company has not made any other change in employment terms
for any of its directors, officers, and employees outside the Ordinary
Course of Business;
(xx) the Company has not made or pledged to make any charitable or
other capital contribution outside the Ordinary Course of Business;
(xxi) there has not been any other occurrence, event, incident,
action, failure to act, or transaction outside the Ordinary Course of
Business involving the Company ; and
(xxii) the Company has not committed to any of the foregoing.
(i) Undisclosed Liabilities. The Company has no Liability (and to the
------------------------
Sellers' Knowledge there is no Basis for any present or future action, suit,
proceeding, hearing, investigation, charge, complaint, claim, or demand against
any of them giving rise to any Liability), except for (i) Liabilities set forth
on the face of the Most Recent Balance Sheet and (ii) Liabilities which have
arisen after the Most Recent Fiscal Month End in the Ordinary Course of Business
(none of which results from, arises out of, relates to, is in the nature of, or
was caused by any breach of contract, breach of warranty, tort, infringement, or
violation of law).
(j) Legal Compliance. The Company has complied with all applicable laws
-----------------
(including rules, regulations, codes, plans, injunctions, judgments, orders,
decrees, rulings, and charges thereunder) of federal, state, local, and foreign
governments (and all agencies thereof), and no action, suit, proceeding,
hearing, investigation, charge, complaint, claim, demand, or notice has been
filed or commenced against any of them alleging any failure so to comply.
(k) Tax Matters.
------------
(i) The Company has filed all Tax Returns that it was required to
file; provided, however, the Company has filed extensions of time for
filing its 1997 federal income tax return and its 1998 Texas franchise tax
return. All such Tax Returns were correct and complete in all respects. All
Taxes owed by the Company (whether or not shown on any Tax Return) have
been paid. Except as expressly set forth above, the Company is not
currently the beneficiary of any extension of time within which to file any
Tax Return. No claim has ever been made by an authority in a jurisdiction
where the Company does not file Tax Returns that it is or may be subject
to taxation by that jurisdiction. There are no Security Interests on any of
the assets of the Company that arose in connection with any failure (or
alleged failure) to pay any Tax.
13
(ii) The Company has withheld and paid all Taxes required to have
been withheld and paid in connection with amounts paid or owing to any
employee, independent contractor, creditor, stockholder, or other third
party.
(iii) No Seller or director or officer (or employee responsible for
Tax matters) of the Company expects any authority to assess any additional
Taxes for any period for which Tax Returns have been filed. There is no
dispute or claim concerning any Tax Liability of the Company either (A)
claimed or raised by any authority in writing or (B) as to which any of the
Sellers and the directors and officers (and employees responsible for Tax
matters) of the Company has Knowledge based upon personal contact with any
agent of such authority. No Tax Returns filed with respect to the Company
have been audited or currently are the subject of audit. The Sellers have
delivered to the Buyer correct and complete copies of all federal income
Tax Returns, examination reports, and statements of deficiencies assessed
against or agreed to by the Company for 1995 and 1996.
(iv) The Company has not waived any statute of limitations in respect
of Taxes or agreed to any extension of time with respect to a Tax
assessment or deficiency.
(v) The Company has not filed a consent under Code (S)341(f)
concerning collapsible corporations. The Company has not made any payments,
is obligated to make any payments, or is a party to any agreement that
under certain circumstances could obligate it to make any payments that
will not be deductible under Code (S)280G. The Company has not been a
United States real property holding corporation within the meaning of Code
(S)897(c)(2) during the applicable period specified in Code
(S)897(c)(1)(A)(ii). The Company has disclosed on its federal income Tax
Returns all positions taken therein that could give rise to a substantial
understatement of federal income Tax within the meaning of Code (S)6662.
The Company is not a party to any Tax allocation or sharing agreement. The
Company (A) has not been a member of an Affiliated Group filing a
consolidated federal income Tax Return (other than a group the common
parent of which was the Company) or (B) has no Liability for the Taxes of
any Person (other than the Company ) under Reg. (S)1.1502-6 (or any similar
provision of state, local, or foreign law), as a transferee or successor,
by contract, or otherwise.
(vi) The unpaid Taxes of the Company (A) did not, as of the Most
Recent Fiscal Month End, exceed the reserve for Tax Liability (rather than
any reserve for deferred Taxes established to reflect timing differences
between book and Tax income) set forth on the face of the Most Recent
Balance Sheet (rather than in any notes thereto) and (B) do not exceed that
reserve as adjusted for the passage of time through the Closing Date in
accordance with the past custom and practice of the Company in filing its
Tax
14
Returns.
(l) Real Property. The Company does not own or lease any real property
--------------
whatsoever. The Company shares certain space with an affiliated company, Xxxxxx
Media Services, Inc. for which the Company reimburses Xxxxxx Media Services,
Inc. for a proportionate share of the costs.
(m) Intellectual Property.
----------------------
(i) Other than goodwill and the Company's trade name and logo, the
Company does not own any Intellectual Property.
(ii) The Company has not received any notice that it has interfered
with, infringed upon, misappropriated, or otherwise come into conflict with
any Intellectual Property rights of third parties, and none of the Sellers
and the directors and officers (and employees with responsibility for
Intellectual Property matters) of the Company has ever received any
charge, complaint, claim, demand, or notice alleging any such interference,
infringement, misappropriation, or violation (including any claim that the
Company must license or refrain from using any Intellectual Property
rights of any third party). To the Knowledge of any of the Sellers and the
directors and officers (and employees with responsibility for Intellectual
Property matters) of the Company, no third party has interfered with,
infringed upon, misappropriated, or otherwise come into conflict with any
Intellectual Property rights of the Company.
(iii) To the Knowledge of any of the Sellers and the directors and
officers (and employees with responsibility for Intellectual Property
matters) of the Company, the Company will not interfere with, infringe
upon, misappropriate, or otherwise come into conflict with, any
Intellectual Property rights of third parties as a result of the continued
operation of its businesses as presently conducted.
(n) Tangible Assets. Except for the telephone system, the Company owns
----------------
or leases all machinery, equipment, and other tangible assets necessary for
the conduct of their businesses as presently conducted. Each such tangible asset
is free from defects (patent and latent), has been maintained in accordance with
normal industry practice, is in good operating condition and repair (subject to
normal wear and tear), is suitable for the purposes for which it presently is
used and is in conformity in all material respects with all applicable laws,
ordinances, orders, regulations and other requirements (including applicable
zoning, environmental, motor vehicle safety or standards, occupational health
and safety laws and regulations) relating thereto currently in effect.
(o) Inventory. The inventory of the Company consists of raw materials and
----------
supplies, manufactured and purchased parts, jobs, goods in process, and finished
goods, all of which is merchantable and fit for the purpose for which it was
procured or manufactured, and none of
15
which is slow-moving, obsolete, damaged, or defective, subject only to the
reserve for inventory writedown set forth on the face of the Most Recent Balance
Sheet as adjusted for the passage of time through the Closing Date in accordance
with the past custom and practice of the Company.
(p) Contracts. (S)4(p) of the Disclosure Schedule lists all contracts and
----------
other agreements to which the Company is a party. The Sellers have delivered to
the Buyer a correct and complete copy of each written agreement listed in
(S)4(p) of the Disclosure Schedule (as amended to date) and a written summary
setting forth the terms and conditions of each oral agreement referred to in
(S)4(p) of the Disclosure Schedule. With respect to each such agreement: (A) the
agreement is legal, valid, binding, enforceable, and in full force and effect;
(B) the agreement will continue to be legal, valid, binding, enforceable, and in
full force and effect on identical terms following the consummation of the
transactions contemplated hereby; (C) no party is in breach or default, and no
event has occurred which with notice or lapse of time would constitute a breach
or default, or permit termination, modification, or acceleration, under the
agreement; and (D) no party has repudiated any provision of the agreement.
(q) Notes and Accounts Receivable. All notes and accounts receivable of the
------------------------------
Company are reflected properly on their books and records, are valid receivable
subject to no setoffs or counterclaims, are current and collectible, and will be
collected in accordance with their terms at their recorded amounts, subject only
to the reserve for bad debts set forth on the face of the Most Recent Balance
Sheet (rather than in any notes thereto) as adjusted for the passage of time
through the Closing Date in accordance with the past custom and practice of the
Company .
(r) Powers of Attorney. There are no outstanding powers of attorney
-------------------
executed on behalf of the Company other than the power of attorney for tax
matters in favor of Xxxxxx X. Xxxxxxx, C.P.A.
(s) Insurance. (S)4(s) of the Disclosure Schedule sets forth the following
----------
information with respect to each insurance policy (including policies providing
property, casualty, liability, and workers' compensation coverage and bond and
surety arrangements) to which the Company has been a party, a named insured, or
otherwise the beneficiary of coverage at any time within the past ___ years:
(i) the name, address, and telephone number of the agent;
(ii) the name of the insurer, the name of the policyholder, and the
name of each covered insured;
(iii) the policy number and the period of coverage;
16
(iv) the scope (including an indication of whether the coverage was
on a claims made, occurrence, or other basis) and amount (including a
description of how deductibles and ceilings are calculated and operate) of
coverage; and
(v) a description of any retroactive premium adjustments or other
loss-sharing arrangements.
With respect to each such insurance policy: (A) the policy is legal, valid,
binding, enforceable, and in full force and effect; (B) the policy will continue
to be legal, valid, binding, enforceable, and in full force and effect on
identical terms following the consummation of the transactions contemplated
hereby; (C) neither the Company nor any other party to the policy is in breach
or default (including with respect to the payment of premiums or the giving of
notices), and no event has occurred which, with notice or the lapse of time,
would constitute such a breach or default, or permit termination, modification,
or acceleration, under the policy; and (D) no party to the policy has repudiated
any provision thereof. The Company has been covered during the past 5 years by
insurance in scope and amount customary and reasonable for the businesses in
which it has engaged during the aforementioned period. (S)4(s) of the Disclosure
Schedule describes any self-insurance arrangements affecting the Company.
(t) Litigation. The Company is not (i) subject to any outstanding
-----------
injunction, judgment, order, decree, ruling, or charge nor (ii) a party or is
threatened to be made a party to any action, suit, proceeding, hearing, or
investigation of, in, or before any court or quasi-judicial or administrative
agency of any federal, state, local, or foreign jurisdiction or before any
arbitrator. None of the Sellers and the directors and officers (and employees
with responsibility for litigation matters)of the Company has any reason to
believe that any such action, suit, proceeding, hearing, or investigation may be
brought or threatened against the Company.
(u) Product Warranty. Each product manufactured, sold, leased, or delivered
-----------------
by the Company has been in conformity with all applicable contractual
commitments and all express and implied warranties, and the Company has no
Liability (and to the Sellers' Knowledge there is no Basis for any present or
future action, suit, proceeding, hearing, investigation, charge, complaint,
claim, or demand against any of them giving rise to any Liability) for
replacement or repair thereof beyond any applicable manufacturers' warranty or
other damages in connection therewith, subject only to the reserve for product
warranty claims set forth on the face of the Most Recent Balance Sheet as
adjusted for the passage of time through the Closing Date in accordance with the
past custom and practice of the Company. No product manufactured, sold, leased,
or delivered by the Company is subject to any guaranty, warranty, or other
indemnity beyond the applicable standard terms and conditions of sale or lease.
Copies of the standard terms and conditions of sale or lease for the Company
(containing applicable guaranty, warranty, and indemnity provisions) have been
made available to the Buyer for review.
17
(v) Product Liability. The Company has no Liability (and to the Sellers'
------------------
Knowledge there is no Basis for any present or future action, suit, proceeding,
hearing, investigation, charge, complaint, claim, or demand against any of them
giving rise to any Liability) arising out of any injury to individuals or
property as a result of the ownership, possession, or use of any product
manufactured, sold, leased, or delivered by the Company.
(w) Employees. To the Knowledge of any of the Sellers and the directors and
----------
officers (and employees with responsibility for employment matters) of the
Company, no executive, key employee, or group of employees has any plans to
terminate employment with the Company. The Company is not a party to or bound by
any collective bargaining agreement, nor has any of them experienced any
strikes, grievances, claims of unfair labor practices, or other collective
bargaining disputes. The Company has not committed any unfair labor practice.
None of the Sellers and the directors and officers (and employees with
responsibility for employment matters) of the Company has any Knowledge of any
organizational effort presently being made or threatened by or on behalf of any
labor union with respect to employees of the Company.
(x) Employee Benefits. The Company does not maintain any Employee Benefit
------------------
Plans. (S)4(x) of the Disclosure Schedule lists each Employee Benefit Plan to
which the Company contributes.
(y) Guaranties. Except as set forth in (S)4(y) of the Disclosure Schedule,
-----------
the Company is not a guarantor or otherwise liable for any Liability or
obligation (including indebtedness) of any other Person.
(z) Environment, Health, and Safety.
--------------------------------
(i) To the Sellers' Knowledge, the Company has complied with all
Environmental, Health, and Safety Laws, and no action, suit, proceeding,
hearing, investigation, charge, complaint, claim, demand, or notice has
been filed or commenced against it alleging any failure so to comply.
Without limiting the generality of the preceding sentence, to the Sellers'
Knowledge the Company has obtained and been in compliance with all of the
terms and conditions of all permits, licenses, and other authorizations
which are required under, and has complied with all other limitations,
restrictions, conditions, standards, prohibitions, requirements,
obligations, schedules, and timetables which are contained in, all
Environmental, Health, and Safety Laws.
(ii) The Company has no Liability (and to the Sellers' Knowledge the
Company has not handled or disposed of any substance, arranged for the
disposal of any substance, exposed any employee or other individual to any
substance or condition, or owned or operated any property or facility in
any manner that could form the Basis for
18
any present or future action, suit, proceeding, hearing, investigation,
charge, complaint, claim, or demand against the Company giving rise to any
Liability) for damage to any site, location, or body of water (surface or
subsurface), for any illness of or personal injury to any employee or other
individual, or for any reason under any Environmental, Health, and Safety
Law.
(iii) To the Sellers' Knowledge, all properties and equipment used in
the business of the Company and its predecessors and Affiliates have been
free of asbestos, PCB's, methylene chloride, trichloroethylene, 1,2-trans-
dichloroethylene, dioxins, dibenzofurans, and Extremely Hazardous
Substances.
(aa) Disclosure. The representations and warranties contained in this (S)4
-----------
do not contain any untrue statement of a material fact or omit to state any
material fact necessary in order to make the statements and information
contained in this (S)4 not misleading.
5. Post-Closing Covenants. The Parties agree as follows with respect to the
-----------------------
period following the Closing.
(a) General. In case at any time after the Closing Date any further action
--------
is necessary or desirable to carry out the purposes of this Agreement, each of
the Parties will take such further action (including the execution and delivery
of such further instruments and documents) as any other Party reasonably may
request, all at the sole cost and expense of the requesting Party (unless the
requesting Party is entitled to indemnification therefor under (S)6 below). The
Sellers acknowledge and agree that from and after the Effective Date the Buyer
will be entitled to possession of all documents, books, records (including Tax
records), agreements, and financial data of any sort relating to the Company.
Buyer shall make such books and records available to Sellers for preparation of
the Company's 1997 federal income tax return and 1998 Texas franchise tax return
and otherwise as reasonably requested by Sellers.
(b) Litigation Support. In the event and for so long as any Party actively
-------------------
is contesting or defending against any action, suit, proceeding, hearing,
investigation, charge, complaint, claim, or demand in connection with (i) any
transaction contemplated under this Agreement or (ii) any fact, situation,
circumstance, status, condition, activity, practice, plan, occurrence, event,
incident, action, failure to act, or transaction on or prior to the Effective
Date involving the Company, each of the other Parties will cooperate with him or
it and his or its counsel in the contest or defense, make available their
personnel, and provide such testimony and access to their books and records as
shall be necessary in connection with the contest or defense, all at the sole
cost and expense of the contesting or defending Party (unless the contesting or
defending Party is entitled to indemnification therefor under (S)6 below).
(c) Transition. None of the Sellers will take any action that is designed
-----------
or intended to have the effect of discouraging any lessor, licensor, customer,
supplier, or other business
19
associate of the Company from maintaining the same business relationships with
the Company after the Closing as it maintained with the Company prior to the
Closing. Each of the Sellers will refer all customer inquiries relating to the
businesses of the Company to the Buyer from and after the Closing.
(d) Covenant Not to Compete. Sellers each acknowledge and agree that they
------------------------
have technical expertise associated with the business of the Company and are
well known in the presentation/communication industry. In addition, the Sellers
have valuable business contacts with clients and potential clients of the
Company and with professionals in the presentation/communication industry. The
Company's reputation and good will are an integral part of business success
throughout the areas where it conducts its business. If Sellers deprive Buyer
of the Company's goodwill or in any manner use their reputation and goodwill in
competition with the Company, Buyer will be deprived of the benefits it has
bargained for pursuant to this Agreement. Since Sellers have the ability to
compete with the Company in the operation of the Company's business, Buyer,
therefore, desires that the Sellers enter into this covenant not to compete.
But for Sellers' entry into this covenant not to compete, Buyer would not enter
into this Agreement. It is, therefore, understood and agreed that by the sale
of their Company Stock, the Sellers have transferred to Buyer all of their
business goodwill in the Company. Sellers, therefore, agree that for a period of
three (3) years from the Closing (the "Term"), Sellers shall not, without
Buyer's prior written consent (which may be given or withheld in Buyer's sole
and absolute discretion), directly or indirectly,
(i) own, manage, join, operate or control, or participate in the
ownership, management, operation or control of, or be connected as a
director, officer, employee, partner, consultant or otherwise with, or
permit their names to be used by or in connection with, any profit or non-
profit business or organization which sells, distributes or markets
products, goods or equipment which, directly or indirectly compete with the
Company's business, as conducted by the Company immediately prior to the
Closing (audio-visual systems sales and installation) in the state of
Texas; provided, however, the following activities shall not be a violation
of the terms of this non-compete provision: (x) the sale by Xxxxxx Media
Services, Inc. of used rental equipment in customary distribution channels,
and (y) the sale, merger, consolidation or other business combination
between Xxxxxx Media Services, Inc. and a company which has a division
which is involved in audio-visual system sales and installation.
(ii) call on or solicit or divert or take away from the Company
and/or the Buyer (including without limitation by divulging to any
competitor or potential competitor of the Company and/or the Buyer) any
Person, firm or corporation or other entity who is or which at the Closing
was a customer of the Company and/or the Buyer or whose identity is known
to the Sellers at the Closing as one whom the Company and/or the Buyer
intends to solicit; provided, however, it is acknowledged that Xxxxxx Media
Services,
20
Inc. and the Company have common customers and Xxxxxx Media Services,
Inc.'s continued providing of audio-visual equipment rental and staging
services to such common customers or the solicitation of other customers or
potential customers of the Company for such services shall not be a
violation of the terms of this non-compete provision; or
(iii) hire or offer employment to or seek to hire or offer employment
to any employee of the Company whose employment is continued by the Company
after the Closing or any employee of any successor or affiliate of the
Company, unless Buyer first terminates the employment of such employee or
gives its written consent to such employment or offer of employment.
Sellers acknowledge that the provisions of this (S)5(d) are reasonable and
necessary to protect legitimate interests of Buyer. Sellers further acknowledge
that any breach of this (S)5(d) by them will cause irreparable injury to Buyer
and the Company, for which the available remedies at law will not be adequate.
Accordingly, in the event of any such breach or threatened breach of any
provisions of this (S)5(d), in addition to any other remedy provided by law or
in equity, the Buyer and the Company shall be entitled to appropriate injunctive
relief and/or specific performance, in any court of competent jurisdiction,
restraining the Sellers from any such actual or threatened breach of this
section without posting bond or other security. Sellers stipulate to the entry
against them of any temporary, preliminary or permanent injunction and agree not
to resist the Buyer's and/or the Company's application for such equitable
relief, except on the grounds that the acts or omissions alleged do not violate
any of the provisions of this section. Sellers shall, in the event that any
injunctive relief or damages shall be granted to the Buyer and/or the Company,
pay all of the Buyer's and/or the Company's reasonable costs and expenses,
including attorneys' fees, incurred in obtaining such relief. If the final
judgment of a court of competent jurisdiction declares that any term or
provision of this (S)5(d) is invalid or unenforceable, the Parties agree that
the court making the determination of invalidity or unenforceability shall have
the power to reduce the scope, duration, or area of the term or provision, to
delete specific words or phrases, or to replace any invalid or unenforceable
term or provision with a term or provision that is valid and enforceable and
that comes closest to expressing the intention of the invalid or unenforceable
term or provision, and this Agreement shall be enforceable as so modified after
the expiration of the time within which the judgment may be appealed.
(e) Intellectual Property. Buyer acknowledges and agrees that following
---------------------
the Closing, the Company shall not be entitled to use certain Intellectual
Property previously used by the Company in the operation of its business, except
as herein provided. Following the Closing, the Company shall not use any
trademark, service xxxx, trade name or logo previously used by the Company which
includes the name "Xxxxxx" or otherwise operate under any name including the
name "Xxxxxx;" provided, however, Buyer shall have ninety (90) days following
the Closing to change the name of the Company. Following the Closing, the
Company shall
21
have no rights to use the internal bid/processing system (computer software)
previously used by the Company (and licensed by Xxxxxx Media Services, Inc. from
a third party).
(f) Premises. It is acknowledged and agreed that the Company shares space
--------
with Xxxxxx Media Services, Inc. Buyer covenants and agrees to cause the company
to vacate such premises on or before July 1, 1998.
(g) Employee Benefit Plans. It is acknowledged and agreed that the
----------------------
Company's employees are covered under the group health insurance plan, and
participate in the 401(k) plan, maintained by Xxxxxx Media Services, Inc. If
requested by Buyer, Sellers agree to cause Xxxxxx Media Services, Inc. to
continue to provide coverage under its group health insurance plan for a period
of up to sixty (60) days following the Closing provided that the company
reimburses Xxxxxx Media Services, Inc. for such costs within ten (10) days of an
invoice therefor. Buyer covenants and agrees to put in place similar employee
benefit plans for the Company's employees within sixty (60) days following
Closing.
(h) Future Equipment Purchases. It is acknowledged and agreed that Xxxxxx
--------------------------
Media Services, Inc. may from time to time seek to purchase audio-visual
equipment from the Company and/or Buyer. Buyer hereby covenants and agrees to
make such equipment available to Xxxxxx Media Services, Inc. for purchase upon
the same price and payment terms as Buyer and/or the Company make available to
its best customers and not to sell any such equipment to another customer for a
price less than that offered to Xxxxxx Media Services, Inc.
6. Remedies for Breaches of This Agreement.
----------------------------------------
(a) Survival of Representations and Warranties.
-------------------------------------------
All of the representations and warranties of the Parties contained in this
Agreement shall survive the Closing hereunder and continue in full force and
effect for a period of two (2) years from the Closing Date.
(b) Indemnification Provisions for Benefit of the Buyer.
----------------------------------------------------
(i) In the event any of the Sellers breaches (or in the event any
third party alleges facts that, if true, would mean any of the Sellers has
breached) any of their representations, warranties, and covenants contained
in this Agreement and, if there is an applicable survival period pursuant
to (S)6(a) above, provided that the Buyer makes a written claim for
indemnification against any of the Sellers pursuant to (S)8(h) below within
such survival period, then each of the Sellers agrees to indemnify the
Buyer from and against the entirety of any Adverse Consequences the Buyer
may suffer through and after the date of the claim for indemnification
(including any Adverse
22
Consequences the Buyer may suffer after the end of any applicable survival
period) resulting from, arising out of, relating to, in the nature of, or
caused by the breach (or the alleged breach).
(ii) Each of the Sellers agrees to indemnify the Buyer from and
against the entirety of any Adverse Consequences the Buyer may suffer
resulting from, arising out of, relating to, in the nature of, or caused by
any Liability of the Company (x) for any Taxes of the Company with respect
to any Tax year or portion thereof ending on or before the Closing Date (or
for any Tax year beginning before and ending after the Closing Date to the
extent allocable (determined in a manner consistent with (S)7(c)) to the
portion of such period beginning before and ending on the Closing Date), to
the extent such Taxes are not reflected in the reserve for Tax Liability
(rather than any reserve for deferred Taxes established to reflect timing
differences between book and Tax income) shown on the face of the Most
Recent Balance Sheet (rather than in any notes thereto), as such reserve is
adjusted for the passage of time through the Closing Date in accordance
with the past custom and practice of the Company in filing their Tax
Returns, and (y) for the unpaid Taxes of any Person (other than the
Company) under Reg. (S)1.1502-5 (or any similar provision of state, local,
or foreign law), as a transferee or successor, by contract, or otherwise.
(c) Indemnification Provisions for Benefit of the Sellers. In the event the
------------------------------------------------------
Buyer breaches (or in the event any third party alleges facts that, if true,
would mean the Buyer has breached) any of its representations, warranties, and
covenants contained herein, and, if there is an applicable survival period
pursuant to (S)6(a) above, provided that any of the Sellers makes a written
claim for indemnification against the Buyer pursuant to (S)8(h) below within
such survival period, then the Buyer agrees to indemnify each of the Sellers
from and against the entirety of any Adverse Consequences the Seller may suffer
through and after the date of the claim for indemnification (including any
Adverse Consequences the Seller may suffer after the end of any applicable
survival period) resulting from, arising out of, relating to, in the nature of,
or caused by the breach (or the alleged breach).
(d) Matters Involving Third Parties.
--------------------------------
(i) If any third party shall notify any Party (the "Indemnified
------------
Party") with respect to any matter (a "Third Party Claim") which may give
-------------------
rise to a claim for indemnification against any other Party (the
"Indemnifying Party") under this (S)6, then the Indemnified Party shall
--------------------
promptly notify each Indemnifying Party thereof in writing; provided,
---------
however, that no delay on the part of the Indemnified Party in notifying
-------
any Indemnifying Party shall relieve the Indemnifying Party from any
obligation hereunder unless (and then solely to the extent) the
Indemnifying Party thereby is prejudiced.
23
(ii) Any Indemnifying Party will have the right to defend the
Indemnified Party against the Third Party Claim with counsel of its choice
reasonably satisfactory to the Indemnified Party so long as (A) the
Indemnifying Party notifies the Indemnified Party in writing within 30 days
after the Indemnified Party has given notice of the Third Party Claim that
the Indemnifying Party will indemnify the Indemnified Party from and
against the entirety of any Adverse Consequences the Indemnified Party may
suffer resulting from, arising out of, relating to, in the nature of, or
caused by the Third Party Claim, (B) the Indemnifying Party provides the
Indemnified Party with evidence reasonably acceptable to the Indemnified
Party that the Indemnifying Party will have the financial resources to
defend against the Third Party Claim and fulfill its indemnification
obligations hereunder, (C) the Third Party Claim involves only money
damages and does not seek an injunction or other equitable relief, (D)
settlement of, or an adverse judgment with respect to, the Third Party
Claim is not, in the good faith judgment of the Indemnified Party, likely
to establish a precedential custom or practice materially adverse to the
continuing business interests of the Indemnified Party, and (E) the
Indemnifying Party conducts the defense of the Third Party Claim actively
and diligently.
(iii) So long as the Indemnifying Party is conducting the defense of
the Third Party Claim in accordance with (S)6 (d)(ii) above, (A) the
Indemnified Party may retain separate co-counsel at its sole cost and
expense and participate in the defense of the Third Party Claim, (B) the
Indemnified Party will not consent to the entry of any judgment or enter
into any settlement with respect to the Third Party Claim without the prior
written consent of the Indemnifying Party (not to be withheld
unreasonably), and (C) the Indemnifying Party will not consent to the entry
of any judgment or enter into any settlement with respect to the Third
Party Claim without the prior written consent of the Indemnified Party (not
to be withheld unreasonably).
(iv) In the event any of the conditions in (S)6(d)(ii) above is or
becomes unsatisfied, however, (A) the Indemnified Party may defend against,
and consent to the entry of any judgment or enter into any settlement with
respect to, the Third Party Claim in any manner it reasonably may deem
appropriate (and the Indemnified Party need not consult with, or obtain any
consent from, any Indemnifying Party in connection therewith), (B) the
Indemnifying Parties will reimburse the Indemnified Party promptly and
periodically for the costs of defending against the Third Party Claim
(including reasonable attorneys' fees and expenses), and (C) the
Indemnifying Parties will remain responsible for any Adverse Consequences
the Indemnified Party may suffer resulting from, arising out of, relating
to, in the nature of, or caused by the Third Party Claim to the fullest
extent provided in this (S)6.
(e) Determination of Adverse Consequences. The Parties shall take into
--------------------------------------
account the time cost of money (using the Applicable Rate as the discount rate)
in determining Adverse
24
Consequences for purposes of this (S)6. All indemnification payments under this
(S)6 shall be deemed adjustments to the Purchase Price. In determining the
amount of any loss, liability or expense for which any party is entitled to
indemnification under this Agreement, the gross amount thereof will be reduced
by any correlative insurance proceeds realized or to be realized by such party
(or, in the case of the Buyer by the Company) and such correlative insurance
benefit shall be net of any insurance premium which becomes due as a result of
such claim.
(f) Other Indemnification Provisions. The foregoing indemnification
---------------------------------
provisions are in addition to, and not in derogation of, any statutory,
equitable, or common law remedy any Party may have for breach of representation,
warranty, or covenant. Each of the Sellers hereby agrees that he or it will not
make any claim for indemnification against the Company by reason of the fact
that he or it was a director, officer, employee, or agent of any such entity or
was serving at the request of any such entity as a partner, trustee, director,
officer, employee, or agent of another entity (whether such claim is for
judgments, damages, penalties, fines, costs, amounts paid in settlement, losses,
expenses, or otherwise and whether such claim is pursuant to any statute,
charter document, bylaw, agreement, or otherwise) with respect to any action,
suit, proceeding, complaint, claim, or demand brought by the Buyer against such
Seller (whether such action, suit, proceeding, complaint, claim, or demand is
pursuant to this Agreement, applicable law, or otherwise).
(g) Limitation of Liability. Notwithstanding any other provision of this
-----------------------
Agreement, the aggregate liability of the Sellers for all such breaches and
indemnification shall not exceed the Purchase Price.
7. Tax Matters. The following provisions shall govern the allocation of
------------
responsibility as between Buyer and Sellers for certain tax matters following
the Closing Date:
(a) Section 338(h)(10) Election. Each of Sellers agree, if so directed by
----------------------------
the Buyer, to join with Buyer in making an election under Section 338(h)(10) of
the Code (and any corresponding elections under state, local, or foreign tax
law) (collectively, a "Section 338(h)(10) Election") with respect to the
purchase and sale of the stock of the Company hereunder. Buyer will pay any Tax,
including any liability of Company for Tax resulting from the application to it
of Treasury Regulation (S) 1.338(h)(10)-1(f)(5), attributable to the making of
the Section 338(h)(10) Election and will indemnify the Sellers against any
Adverse Consequences arising out of any failure to pay such Tax. Buyer will also
pay any state, local, or foreign Tax (and indemnify the Sellers against any
Adverse Consequences arising out of any failure to pay such Tax) attributable to
an election under state, local or foreign law similar to the election available
under Section 338(g) of the Code (or which results from the making of an
election under Section 338(g) of the Code) with respect to the purchase and sale
of the stock of the Company hereunder.
25
(b) Tax Periods Ending on or Before the Closing Date. Sellers shall, at
-------------------------------------------------
their sole cost and expense, prepare or cause to be prepared and file or cause
to be filed all Tax Returns for the Company for all periods ending on or prior
to the Closing Date which are filed after the Closing Date. Sellers shall permit
Company to review and comment on each such Tax Return described in the preceding
sentence prior to filing. Sellers shall reimburse Buyer for Taxes of the Company
with respect to such periods within fifteen (15) days after payment by Buyer or
the Company of such Taxes to the extent such Taxes are not reflected in the
reserve for Tax Liability (rather than any reserve for deferred Taxes
established to reflect timing differences between book and Tax income) shown on
the face of the Closing Balance Sheet.
(c) Tax Periods Beginning Before and Ending After the Closing Date. Buyer
---------------------------------------------------------------
shall prepare or cause to be prepared and file or cause to be filed any Tax
Returns of the Company for Tax periods which begin before the Closing Date and
end after the Closing Date. Sellers shall pay to Buyer within fifteen (15) days
after the date on which Taxes are paid with respect to such periods an amount
equal to the portion of such Taxes which relates to the portion of such Taxable
period ending on the Closing Date to the extent such Taxes are not reflected in
the reserve for Tax Liability (rather than any reserve for deferred Taxes
established to reflect timing differences between book and Tax income) shown on
the face of the Closing Balance Sheet. For purposes of this Section, in the case
of any Taxes that are imposed on a periodic basis and are payable for a Taxable
period that includes (but does not end on) the Closing Date, the portion of such
Tax which relates to the portion of such Taxable period ending on the Closing
Date shall (x) in the case of any Taxes other than Taxes based upon or related
to income or receipts, be deemed to be the amount of such Tax for the entire
Taxable period multiplied by a fraction the numerator of which is the number of
days in the Taxable period ending on the Closing Date and the denominator of
which is the number of days in the entire Taxable period, and (y) in the case of
any Tax based upon or related to income or receipts be deemed equal to the
amount which would be payable if the relevant Taxable period ended on the
Closing Date. Any credits relating to a Taxable period that begins before and
ends after the Closing Date shall be taken into account as though the relevant
Taxable period ended on the Closing Date. All determinations necessary to give
effect to the foregoing allocations shall be made in a manner consistent with
prior practice of the Company .
(d) Cooperation on Tax Matters.
---------------------------
(i) Buyer, the Company and Sellers shall cooperate fully, as and to
the extent reasonably requested by the other party, in connection with the
filing of Tax Returns pursuant to this Section and any audit, litigation or
other proceeding with respect to Taxes. Such cooperation shall include the
retention and (upon the other party's request) the provision of records and
information which are reasonably relevant to any such audit, litigation or
other proceeding and making employees available on a mutually convenient
basis to provide additional information and explanation of any material
provided hereunder. The Company and Sellers agree (A) to retain all books
and
26
records with respect to Tax matters pertinent to the Company relating to
any taxable period beginning before the Closing Date until the expiration
of the statute of limitations (and, to the extent notified by Buyer or
Sellers, any extensions thereof) of the respective taxable periods, and to
abide by all record retention agreements entered into with any taxing
authority, and (B) to give the other party reasonable written notice prior
to transferring, destroying or discarding any such books and records and,
if the other party so requests, the Company or Sellers, as the case may be,
shall allow the other party to take possession of such books and records.
(ii) Buyer and Sellers further agree, upon request, to use their best
efforts to obtain any certificate or other document from any governmental
authority or any other Person as may be necessary to mitigate, reduce or
eliminate any Tax that could be imposed (including, but not limited to,
with respect to the transactions contemplated hereby).
(iii) Buyer and Sellers further agree, upon request, to provide the
other party with all information that either party may be required to
report pursuant to Section 6043 of the Code and all Treasury Department
Regulations promulgated thereunder.
(e) Tax Sharing Agreements. All tax sharing agreements or similar
-----------------------
agreements with respect to or involving the Company shall be terminated as of
the Closing Date and, after the Closing Date, the Company shall not be bound
thereby or have any liability thereunder.
(f) Certain Taxes. All transfer, documentary, sales, use, stamp,
--------------
registration and other such Taxes and fees (including any penalties and
interest) incurred in connection with this Agreement (including any New York
State Gains Tax, New York City Transfer Tax and any similar tax imposed in other
states or subdivisions), shall be paid by Sellers when due, and Sellers will, at
their own expense, file all necessary Tax Returns and other documentation with
respect to all such transfer, documentary, sales, use, stamp, registration and
other Taxes and fees, and, if required by applicable law, Buyer will, and will
cause its affiliates to, join in the execution of any such Tax Returns and other
documentation.
8. Miscellaneous.
--------------
(a) Nature of Certain Obligations.
------------------------------
(i) The covenants of each of the Sellers in (S)2(a) above concerning
the sale of his Company Shares to the Buyer and the representations and
warranties of each of the Sellers in (S)3(a) above concerning the
transaction are several obligations. This means that the particular Seller
making the representation, warranty, or covenant will be solely responsible
to the extent provided in (S)6 above for any Adverse Consequences the Buyer
may suffer as a result of any breach thereof.
27
(ii) The remainder of the representations, warranties, and covenants
in this Agreement are joint and several obligations. This means that each
Seller will be responsible to the extent provided in (S)6 above for the
entirety of any Adverse Consequences the Buyer may suffer as a result of
any breach thereof.
(b) Press Releases and Public Announcements. No Party shall issue any press
----------------------------------------
release or make any public announcement relating to the subject matter of this
Agreement prior to the Closing without the prior written approval of the Buyer
and the Requisite Sellers; provided, however, that any Party may make any public
-----------------
disclosure it believes in good faith is required by applicable law or any
listing or trading agreement concerning its publicly-traded securities (in which
case the disclosing Party will use its reasonable best efforts to advise the
other Parties prior to making the disclosure).
(c) No Third-Party Beneficiaries. This Agreement shall not confer any
-----------------------------
rights or remedies upon any Person other than the Parties and their respective
successors and permitted assigns.
(d) Entire Agreement. This Agreement (including the documents referred to
-----------------
herein) constitutes the entire agreement among the Parties and supersedes any
prior understandings, agreements, negotiations or representations by or among
the Parties or their representatives, whether written or oral, to the extent
they related in any way to the subject matter hereof.
(e) Succession and Assignment. This Agreement shall be binding upon and
--------------------------
inure to the benefit of the Parties named herein and their respective successors
and permitted assigns. No Party may assign either this Agreement or any of his
or its rights, interests, or obligations hereunder without the prior written
approval of the Buyer and the Requisite Sellers; provided, however, that the
-----------------
Buyer may (i) assign any or all of its rights and interests hereunder to one or
more of its Affiliates and (ii) designate one or more of its Affiliates to
perform its obligations hereunder (in any or all of which cases the Buyer
nonetheless shall remain responsible for the performance of all of its
obligations hereunder).
(f) Counterparts. This Agreement may be executed in one or more
-------------
counterparts, each of which shall be deemed an original but all of which
together will constitute one and the same instrument.
(g) Headings. The section headings contained in this Agreement are inserted
---------
for convenience only and shall not affect in any way the meaning or
interpretation of this Agreement.
(h) Notices. All notices, requests, demands, claims, and other
--------
communications hereunder will be in writing. Any notice, request, demand, claim,
or other communication
28
hereunder shall be deemed duly given if (and then two business days after) it is
sent by registered or certified mail, return receipt requested, postage prepaid,
and addressed to the intended recipient as set forth below:
If to the Sellers: Xxxxxx Media Services, Inc.
------------------
00000 Xxxxxx Xxxxx
Xxxxxx, Xxxxx 00000
Attention (as applicable):
Xxxxxx Xxxxxx
Xxxxxxx Xxxxxx
Xxxxxx Xxxxxx
If to the Buyer: EISI, Inc.
----------------
000 Xxxx Xxxx Xxxxxx
Xxxxxxxx Xxxx, Xxxxxxxxxx 00000
Attention: Xxxxxx X. Xxxxxx
Chairman of the Board
Any Party may send any notice, request, demand, claim, or other communication
hereunder to the intended recipient at the address set forth above using any
other means (including personal delivery, expedited courier, messenger service,
telecopy, telex, ordinary mail, or electronic mail), but no such notice,
request, demand, claim, or other communication shall be deemed to have been duly
given unless and until it actually is received by the intended recipient. Any
Party may change the address to which notices, requests, demands, claims, and
other communications hereunder are to be delivered by giving the other Parties
notice in the manner herein set forth.
(i) Governing Law. This Agreement shall be governed by and construed in
-------------
accordance with the domestic laws of the State of Texas without giving effect to
any choice or conflict of law provision or rule (whether of the State of Texas
or any other jurisdiction) that would cause the application of the laws of any
other jurisdiction.
(j) Amendments and Waivers. No amendment of any provision of this Agreement
-----------------------
shall be valid unless the same shall be in writing and signed by the Buyer and
the Requisite Sellers. No waiver by any Party of any default, misrepresentation,
or breach of warranty or covenant hereunder, whether intentional or not, shall
be deemed to extend to any prior or subsequent default, misrepresentation, or
breach of warranty or covenant hereunder or affect in any way any rights arising
by virtue of any prior or subsequent such occurrence.
29
(k) Severability. Any term or provision of this Agreement that is invalid
-------------
or unenforceable in any situation in any jurisdiction shall not affect the
validity or enforceability of the remaining terms and provisions hereof or the
validity or enforceability of the offending term or provision in any other
situation or in any other jurisdiction.
(l) Expenses. Each of the Parties, the Company, will bear his or its own
---------
costs and expenses (including legal fees and expenses) incurred in connection
with this Agreement and the transactions contemplated hereby. The Sellers agree
that the Company has not borne or will bear any of the Sellers' costs and
expenses (including any of their legal fees and expenses) in connection with
this Agreement or any of the transactions contemplated hereby.
(m) Construction. The Parties have participated jointly in the negotiation
-------------
and drafting of this Agreement. In the event an ambiguity or question of intent
or interpretation arises, this Agreement shall be construed as if drafted
jointly by the Parties and no presumption or burden of proof shall arise
favoring or disfavoring any Party by virtue of the authorship of any of the
provisions of this Agreement. Any reference to any federal, state, local, or
foreign statute or law shall be deemed also to refer to all rules and
regulations promulgated thereunder, unless the context requires otherwise. The
word "including" shall mean including without limitation. The Parties intend
that each representation, warranty, and covenant contained herein shall have
independent significance. If any Party has breached any representation,
warranty, or covenant contained herein in any respect, the fact that there
exists another representation, warranty, or covenant relating to the same
subject matter (regardless of the relative levels of specificity) which the
Party has not breached shall not detract from or mitigate the fact that the
Party is in breach of the first representation, warranty, or covenant.
(n) Incorporation of Exhibits, Annexes, and Schedules. The Exhibits,
--------------------------------------------------
Annexes, and Schedules identified in this Agreement are incorporated herein by
reference and made a part hereof.
(o) Specific Performance. Each of the Parties acknowledges and agrees that
---------------------
the other Parties would be damaged irreparably in the event any of the
provisions of this Agreement are not performed in accordance with their specific
terms or otherwise are breached. Accordingly, each of the Parties agrees that
the other Parties shall be entitled to an injunction or injunctions to prevent
breaches of the provisions of this Agreement and to enforce specifically this
Agreement and the terms and provisions hereof in any action instituted in any
court of the United States or any state thereof having jurisdiction over the
Parties and the matter [(subject to the provisions set forth in (S)10(p)
below)], in addition to any other remedy to which they may be entitled, at law
or in equity.
(p) Submission to Jurisdiction. Each of the Parties submits to the
---------------------------
jurisdiction of any state or federal court sitting in Los Angeles County,
California, in any action or proceeding arising out of or relating to this
Agreement and agrees that all claims in respect of the action or
30
proceeding may be heard and determined in any such court. Each Party also agrees
not to bring any action or proceeding arising out of or relating to this
Agreement in any other court. Each of the Parties waives any defense of
inconvenient forum to the maintenance of any action or proceeding so brought and
waives any bond, surety, or other security that might be required of any other
Party with respect thereto.
31
IN WITNESS WHEREOF, the Parties hereto have executed this Agreement on [as
of] the date first above written.
EISI, INC.
By: /s/ XXXXXX X. XXXXXX
-----------------------------
Xxxxxx X. Xxxxxx
Chairman of the Board
XXXXXX MEDIA SALES, INC.
By: /s/ XXXXXXX XXXXXX
----------------------------
Title: President
--------------------------
SELLERS
/s/ XXXXXX XXXXXX
--------------------------------
Xxxxxx Xxxxxx
/s/ XXXXXXX XXXXXX
--------------------------------
Xxxxxxx Xxxxxx
/s/ XXXXXX XXXXXX
--------------------------------
Xxxxxx Xxxxxx
32
