Execution Copy
STOCK PURCHASE AGREEMENT
BETWEEN
VDI MEDIA, as Buyer
AND
▇▇▇▇▇▇▇ ▇. ▇▇▇▇ AND ▇▇▇▇▇ ▇. ▇▇▇▇,
as trustees under the
▇▇▇▇ FAMILY TRUST DATED DECEMBER 14, 1972,
AND
▇▇▇▇ MULTIMEDIA CO., LP, as Seller
AND
▇▇▇▇▇▇▇ ▇. ▇▇▇▇, as guarantor
STOCK PURCHASE AGREEMENT
This Stock Purchase Agreement ("Agreement") is made as of July 29, 1997
by and among VDI Media, a California corporation ("Buyer"), ▇▇▇▇▇▇▇ ▇. ▇▇▇▇
and ▇▇▇▇▇ ▇. ▇▇▇▇ as trustees under the ▇▇▇▇ Family Trust dated December 14,
1972 (the "Trust"), ▇▇▇▇ MultiMedia Co., LP, a California limited partnership
(the "Partnership, and together with the Trust, "Seller") and ▇▇▇▇▇▇▇ ▇.
▇▇▇▇, as guarantor (the"Guarantor").
RECITALS
For the consideration and on the terms set forth in this Agreement,
Seller desires to sell, and Buyer desires to purchase, all of the issued and
outstanding shares of capital stock (the "Shares") of Multi-Media Services,
Inc., a California corporation (the "Company").
AGREEMENT
The parties, intending to be legally bound, agree as follows:
1. DEFINITIONS.
For purposes of this Agreement, the following terms have the meanings
specified or referred to in this Section 1:
"ADJUSTMENT AMOUNT" -- as defined in Section 2.3.
"APPLICABLE CONTRACT" -- any Contract (a) under which the Company has or
may acquire any rights, (b) under which the Company has or may become subject
to any obligation or liability, or (c) by which the Company or any of the
assets owned or used by it is or may become bound.
"CLOSING DATE" -- the date and time as of which the Closing actually
takes place.
"CONSENT" -- any approval, consent, ratification, waiver, or other
authorization (including any governmental authorization).
"CONTRACT" -- any agreement, contract, obligation, promise, or
undertaking (whether written or oral and whether express or implied) that is
legally binding.
"DISCLOSURE LETTER" -- the disclosure letter delivered by Seller to Buyer
concurrently with the execution and delivery of this Agreement.
"ENCUMBRANCE" -- any charge, claim, community property interest,
condition, equitable interest, lien, option, pledge, security interest, right
of first refusal, mortgage, easement,
servitude, right of way or restriction of any kind, including any restriction
on use, voting, transfer, receipt of income, or exercise of any other
attribute of ownership.
"FACILITIES" -- any real property, leaseholds, or other interests
currently or formerly owned or operated by the Company and any buildings,
plants, structures, or equipment (including motor vehicles) currently or
formerly owned or operated by the Company.
"GAAP" -- generally accepted accounting principles in the United States
as in effect from time to time.
"ORDER" -- any award, decision, injunction, judgment, order, ruling,
subpoena, or verdict entered, issued, made, or rendered by any court,
administrative agency, or other Governmental Body or by any arbitrator.
"PERSON" -- any individual, corporation (including any non-profit
corporation), general or limited partnership, limited liability company,
joint venture, estate, trust, association, organization, labor union, or
other entity or Governmental Body.
"SECURITIES ACT" -- the Securities Act of 1933, as amended or any
successor law, and regulations and rules issued pursuant to that Act or any
successor law.
"TAX" -- any tax (including, without limitation, any income tax,
value-added tax, turnover tax, stamp tax, excise tax, personal asset tax,
land tax, tax on transfer of real estate, social security contributions or
custom duty), levy, assessment, tariff, duty (including any customs duty),
deficiency, or other fee, and any related charge or amount (including any
fine, penalty, interest, or addition to tax), imposed, assessed, or collected
by or under the authority of any governmental body or payable pursuant to any
tax-sharing agreement or any other Contract relating to the sharing or
payment of any such tax, levy, assessment, tariff, duty, deficiency, or fee.
"TAX RETURN" -- any return (including any information return), report,
statement, schedule, notice, form, or other document or information filed
with or submitted to, or required to be filed with or submitted to, any
governmental body in connection with the determination, assessment,
collection, or payment of any Tax or in connection with the administration,
implementation, or enforcement of or compliance with any legal requirement
relating to any Tax.
2. SALE AND TRANSFER OF SHARES; CLOSING.
2.1 SHARES. Subject to the terms and conditions of this Agreement, at
the Closing, Seller will sell and transfer the Shares to Buyer, and Buyer
will purchase the Shares from Seller.
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2.2 PURCHASE PRICE. (a)The purchase price (the"Purchase
Price") for the Shares will be $7,000,000 minus $1,679,237 (the amount by
which the Company's liabilities, including long-term liabilities, exceeded
its current assets as of June 30, 1997), plus or minus the Adjustment Amount.
(b)$750,000 of the Purchase Price (the "Holdback") shall be
deposited in an interest-bearing account for the benefit of Seller and Buyer
in accordance with the terms and conditions set forth in Section 2.4(b)
hereof and an Escrow Agreement among Seller, Guarantor and Buyer,
substantially in the form of Exhibit A hereto (the "Escrow Agreement").
(c) In addition to the Purchase Price, Buyer shall pay to
Guarantor, on behalf of each Seller, $50,000 (an "Earn-Out Installment
Payment"), with respect to each quarter in which the Company achieves the
EBITDA goals described below and shall pay to Guarantor, on behalf of each
Seller, an additional $50,000 (an "Additional Earn-Out Installment Payment")
with respect to each quarter in which the Company achieves the higher EBITDA
goals also described below (together, the"Earn-Out"), subject to the
adjustments and limitations and in the manner set forth herein. Each
Earn-Out Installment Payment and Additional Earn-Out Installment Payment
shall be due and payable only to the extent earned as described herein.
Buyer shall pay Earn-Out Installment Payments and Additional Earn-Out
Installment Payments, if earned, within 15 business days of the last day of
March, June and September and December of each year (each, an "Earn-Out
Reference Date") commencing March 31, 1998 and ending December 31, 2004, up
to a maximum aggregate amount of $2,000,000, exclusive of interest.
(d) Buyer shall calculate EBITDA (as defined herein) of the Company
as of each Earn-Out Reference Date for the three month period ending on that
date. If EBITDA for such period is equal to or greater than $500,000, then
on the 15th business day following such Earn-Out Reference Date (each, an
"Earn-Out Payment Date"), Buyer shall pay the Guarantor (on behalf of each
Seller) an Earn-Out Installment Payment. If EBITDA for such period is
greater than $625,000, then Buyer shall pay the Guarantor (on behalf of each
Seller) an Additional Earn-Out Installment Payment on the related Earn-Out
Payment Date. If EBITDA with respect to any Earn-Out Reference Date is less
than $500,000, then the applicable Earn-Out Installment Payment shall be
withheld until, and paid on, the next successive Earn-Out Payment Date, if
any, on which EBITDA with respect to the related Earn-Out Reference Date is
equal to or greater than $500,000, provided that in no event shall any
Earn-Out be due or payable (i) in respect of any quarter ending after
December 31, 2004 (the "Earn-Out Termination Date") or (ii) after Buyer has
paid $2,000,000, exclusive of interest. Attached as Exhibit B hereto is an
example calculation of an Earn-Out Installment Payment.
(e) Each Earn-Out Installment Payment and each Additional Earn-Out
Installment Payment made with respect to quarters ending between March 31,
1998 and December 31, 2002 shall be accompanied by an additional payment of
interest thereon at 6% per annum, compounded monthly from the Closing Date.
These interest payments shall not be
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counted towards, and shall be in addition to, the $2,000,000 cap on the
Earn-Out set forth above.
(f) "EBITDA" shall mean the Company's earnings before interest,
taxes, depreciation and amortization, in each case as determined in
accordance with GAAP. Buyer agrees to operate the business of the Company in
a manner in which EBITDA can reasonably be determined. Seller and its
representatives shall have the right to review the work papers and other
information prepared by or for Buyer with respect to the calculation of
EBITDA (and any back-up materials related thereto reasonably requested by the
representatives of Seller) and to communicate with the persons conducting
such computation by or for Seller.
2.3 ADJUSTMENT AMOUNT. The Adjustment Amount is the amount by which
(a) as set forth below is greater or lesser than (b) as set forth below:
(a) The figure calculated by subtracting the liabilities, including the
long-term liabilities, of the Company from the current assets of the
Company, in each case as set forth on the Closing Financial Statements
described in Section 2.4 below, as determined in accordance with GAAP;
(b) The figure calculated by subtracting the liabilities, including the
long-term liabilities, of the Company from the current assets of the
Company as shown on the June 30, 1997 compiled balance sheet of the
Company (which figure is a negative $1,679,237).
If (a) is a greater negative amount than (b), the difference shall act to
reduce the Purchase Price. Conversely, if (a) is a lesser negative amount
than (b) or is a positive amount, the difference shall act to increase the
Purchase Price. For example, if (a) is a negative $1,700,000, then the
Adjustment Amount would be a negative $20,763 and would act to reduce the
Purchase Price by that amount. If, on the other hand, (a) is a negative
$1,600,000, then the Adjustment Amount would be $79,237 and would act to
increase the Purchase Price by that amount.
2.4 CLOSING FINANCIAL STATEMENTS; ADJUSTMENT TO PURCHASE PRICE.
(a) With respect to the final determination of the Purchase Price and
the Adjustment Amount, Buyer will, at its expense, prepare and will cause its
independent auditors to audit financial statements ("Closing Financial
Statements") of the Company as of the Closing Date and for the period from
the date of the Interim Balance Sheet through the Closing Date, including a
computation of the Adjustment Amount. Buyer will deliver the Closing
Financial Statements to Seller within sixty days after the Closing Date
together with any back-up materials reasonably requested by Seller. If
within thirty days following delivery of the Closing Financial Statements,
Seller has not given Buyer notice of its objection to the Closing Financial
Statements (such notice must contain a statement of the basis of Seller's
objection), then the current assets and liabilities, including long-term
liabilities of the Company reflected in the Closing Financial Statements will
be used in computing the Adjustment Amount. Seller
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and its representatives shall have the right to review the work papers and
other information prepared by or for Buyer and to communicate with the
persons conducting such computation by or for Buyer. If Seller and Buyer are
unable to resolve any such disagreement with respect to the calculation of
the Closing Financial Statements within ten days after delivery by Seller of
the notice referred to herein, the disagreement shall be submitted for final
determination to a specified partner of a "Big Six" accounting firm mutually
acceptable to Seller and Buyer (the "Independent Accounting Firm Partner");
provided that if Buyer and Seller cannot agree on an Independent Accounting
Firm Partner within five days after the expiration of such ten day period,
they shall submit the decision to JAMS/Endispute for the sole purpose of
identifying a partner from a Big Six accounting firm as the Independent
Accounting Firm Partner. Either party may submit such request to
JAMS/Endispute on behalf of both parties The Independent Accounting Firm
Partner shall follow such procedures as he or she deems appropriate for
obtaining the necessary information in considering the positions of Seller
and Buyer but shall not conduct an independent audit. The Independent
Accounting Firm Partner shall render his or her determination on the matter
within 30 days of its submission by Seller and Buyer, and such determination
shall be final, conclusive and binding upon Buyer and Seller. Buyer and
Seller will bear such portion of the fees of the Independent Accounting Firm
Partner and JAMS/Endispute as determined by the Independent Accounting Firm
Partner, in its discretion after giving consideration to such factors as he
or she deems relevant.
(b) On the third business day following the determination described in
2.4 (a) above, if the finally determined Purchase Price is equal to or
greater than the aggregate of the payments made pursuant to Sections
2.6(b)(i) (the cash payments to Seller at Closing) and 2.6(b) (iii) (the
Holdback), Buyer will within three business days agree in writing that all of
the Holdback (together with all interest which has accrued thereon) may be
released to Seller and, within such three day period, together with Seller
will instruct the Escrow Agent to release such funds to Seller, and will in
addition pay to Seller the amount by which the Purchase Price exceeds the
Holdback plus the payments set forth in Section 2.6(b)(i)(together with
interest on such excess at the rate of 6% per annum, compounded daily
beginning on the Closing Date and ending on the date of payment). On the
other hand, if the Purchase Price is less than the aggregate of the payments
made pursuant to Sections 2.6(b)(i) and 2.6(b)(iii), Seller will within three
business days agree in writing that the difference between the Purchase Price
and the payments set forth in Sections 2.6(b)(i) and 2.6(b)(iii) may be paid
from the Holdback (together with interest which has accrued on that portion
of the total amount in escrow which is being distributed to Buyer) to Buyer
and, within such three day period, together with Buyer will instruct the
Escrow Agent to release such funds to Buyer and if such difference is greater
than the amount of the Holdback (together with the interest that has accrued
thereon) then Seller will within three business days pay to Buyer that
greater amount, together with interest on such amount at the rate of 6% per
annum, compounded daily beginning on the Closing Date and ending on the date
of payment. All payments must be made in immediately available funds. If a
portion of the principal amount in escrow is to be paid to Buyer and a
portion to Seller, then the interest that has accrued in the escrow account
shall be distributed to each in the same percentage as was the principal. If
at the time the Closing Financial Statements are delivered by Buyer to
Seller, or at any time thereafter, there is no dispute as to a portion of the
Holdback, then Buyer and Seller shall immediately
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instruct the Escrow Holder to release such portion to the parties entitled
thereto with the balance to be distributed when the Purchase Price is finally
determined. For example, if the difference between the Purchase Price
determined on the Closing Financial Statements and the payments made pursuant
to Sections 2.6(b)(i) and (iii) is $50,000 and there is a dispute as to
$35,000 of such difference, Buyer shall be entitled to receive $15,000 of the
Holdback (plus earnings thereon) and Seller shall be entitled to receive
$700,000 of the Holdback (plus earnings thereon), in each case within three
business days of the expiration of the period during which Seller may object
to the Closing Financial Statements.
2.5 CLOSING. The purchase and sale (the "Closing") provided for in this
Agreement will take place at the offices of Buyer's counsel at 1999 Avenue
of the Stars, ▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇ at 10:00 a.m. (local
time) on July 30, 1997, or at such other time and place as the parties may
agree. Subject to the provisions of Section 9, failure to consummate the
purchase and sale provided for in this Agreement on the date and time and at
the place determined pursuant to this Section 2.5 will not result in the
termination of this Agreement and will not relieve any party of any
obligation under this Agreement.
2.6 CLOSING OBLIGATIONS. At the Closing:
(a) Seller will deliver to Buyer:
(i) certificates representing the Shares, duly
endorsed (or accompanied by duly executed stock powers) to
effect transfer of title thereof to Buyer;
(ii) a certificate executed by the Trust, the
Partnership and the Guarantor representing and warranting to
Buyer that each of Seller's and Guarantor's representations
and warranties in this Agreement was accurate in all
respects as of the date of this Agreement and is accurate in
all respects as of the Closing Date as if made on the
Closing Date;
(iii) duly executed resignations, dated the Closing
Date, of all members of the Board of Directors of the
Company and evidence of the removal of its officers;
(iv) duly executed acknowledgment of repayment by ▇▇▇▇▇▇▇ ▇.
▇▇▇▇ of the promissory note issued to him by the Company dated April
30, 1995 (upon receipt by ▇▇. ▇▇▇▇ of the payment referenced in
Section 2.6(b)(ii) hereof after the Closing;
(v) duly executed assumption agreements (the "Assumption
Agreements") executed by ▇▇▇▇▇▇▇ ▇. ▇▇▇▇ pursuant to which ▇▇. ▇▇▇▇
shall
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assume those obligations set forth in the letters to ▇▇. ▇▇▇▇▇▇▇
▇▇▇▇▇ and ▇▇. ▇▇▇ ▇▇▇▇▇▇▇ dated June 23, 1997 and January 17, 1997,
respectively; and
(vi) an executed copy of a letter from ▇▇▇▇▇▇ ▇▇▇▇▇
addressed to Buyer in the form of Exhibit C hereto.
(b) Buyer will:
(i) pay $1,215,823 by wire transfer to City National
Bank, A/C #001352199; ABA #▇▇▇▇▇▇▇▇▇ (to benefit of ▇▇▇▇
Multimedia Co. L.P., At.: ▇▇▇ ▇▇▇▇▇▇▇▇), for the benefit of
the Partnership and $3,354,940 to Bank of America, A/C
#0099125931; ABA # ▇▇▇▇▇▇▇▇▇ for the benefit of the Trust,
against delivery of the Shares;
(ii) immediately after the Closing (and prior to any
public announcement of the transactions contemplated herein)
pay $1,545,044.55 (plus $331.95 per day in respect of
interest thereon for each day after July 30, 1997 that the
Closing is postponed) by wire transfer to Bank of America,
A/C #0099125931; ABA # ▇▇▇▇▇▇▇▇▇ for the benefit of ▇▇▇▇▇▇▇
▇. ▇▇▇▇ representing payment in full of the promissory note
to ▇▇. ▇▇▇▇ referenced in (a)(iv) above;
(iii) deliver the sum of $750,000 to the escrow agent
pursuant to the Escrow Agreement by bank cashier's or
certified check; and
(iv) deliver a certificate executed by Buyer
representing and warranting to Seller that each of Buyer's
representations and warranties in this Agreement was
accurate in all respects as of the date of this Agreement
and is accurate in all respects as of the Closing Date as if
made on the Closing Date.
(c) Buyer, Guarantor and Seller will enter into and deliver
executed copies of the Escrow Agreement.
3. REPRESENTATIONS AND WARRANTIES OF SELLERS AND GUARANTOR.
The Trust, the Partnership and the Guarantor, jointly and severally,
represent and warrant to Buyer as follows:
3.1 ORGANIZATION AND GOOD STANDING. (a) Part 3.1 of the Disclosure
Letter sets forth the Company's jurisdiction of incorporation, other
jurisdictions in which it is
7
authorized to do business, and its capitalization (including the identity of
each stockholder and the number of shares held by each). The Company is a
corporation duly organized, validly existing, and in good standing under the
laws of California, with full corporate power and authority to conduct its
business as it is now being conducted, to own or use the properties and
assets that it purports to own or use, and to perform all its obligations
under Applicable Contracts. The Company is duly qualified to do business and
is in good standing under the laws of any other jurisdiction in which the
ownership or use of the properties owned or used by it, or the nature of the
activities conducted by it, require such qualification.
(b) Seller has delivered to Buyer copies of the Company's Articles of
Incorporation and Bylaws, as currently in effect (the "Organizational
Documents").
(c) The Partnership is a California limited partnership, the only
general partners of which are ▇▇▇▇▇▇▇ ▇. ▇▇▇▇ and ▇▇▇▇▇ ▇. ▇▇▇▇.
3.2 AUTHORITY; NO CONFLICT. (a) Each Seller and the Guarantor has
all requisite power and authority to enter into and perform its or his
obligations under this Agreement and to consummate the transactions
contemplated herein. This Agreement and the Escrow Agreement has been duly
authorized, executed and delivered by each Seller and the Guarantor (in the
case of the Trust and the Partnership, by its duly authorized representative)
pursuant to all necessary approvals, including any necessary approval by the
general partners and the limited partners of the Partnership and constitutes
the legal, valid, and binding obligation of each Seller and the Guarantor,
enforceable against each in accordance with its terms. Each Seller and the
Guarantor has the absolute and unrestricted right, power, authority, and
capacity to execute and deliver this Agreement and the Escrow Agreement.
Neither the execution and delivery of this Agreement and the Escrow Agreement
nor the consummation of the transactions contemplated hereby or thereby will
(A) violate, result in a breach of any of the terms or provisions of,
constitute a default (or any event that, with the giving of notice or the
passage of time or both, would constitute a default) under, result in the
acceleration of any indebtedness under or performance required by, result in
any right of termination of, increase any amounts payable under, decrease any
amounts receivable under, change any other rights pursuant to, or conflict
with, the Organizational Documents, any material agreement, indenture or
other instrument to which either Seller, the Guarantor or the Company is a
party or by which any of its respective properties are bound, or any
judgment, decree, order or award of any court, governmental body or
arbitrator (domestic or foreign) applicable to either Seller, the Guarantor
or the Company, or (B) require either Seller, the Guarantor or the Company to
obtain any authorization, consent, approval or waiver from, or make any
filing with, any Person, court or public body or authority, except such
consents as are set forth on Part 3.2 of the Disclosure Letter.
(b) The Guarantor has all requisite power and authority to enter into
and perform his obligations under the this Agreement, the Escrow Agreement
and the Assumption Agreements and to consummate the transactions contemplated
herein and therein. Each of this Agreement, the Escrow Agreement and the
Assumption Agreements has been duly authorized,
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executed and delivered by the Guarantor pursuant to all necessary approvals
and constitutes the legal, valid, and binding obligation of the Guarantor,
enforceable against him in accordance with their respective terms. The
Guarantor has the absolute and unrestricted right, power, authority, and
capacity to execute and deliver this Agreement, the Escrow Agreement and the
Assumption Agreements.
3.3 CAPITALIZATION. The authorized equity securities of the Company
consist of 75,000 shares of common stock, par value $1.00 per share, of which
47,000 shares are issued and outstanding. The Shares constitute, and on the
Closing Date will constitute, all of the equity securities of the Company.
The Trust and the Partnership are, and will be on the Closing Date, the only
record and beneficial owners and holder of the Shares, free and clear of all
Encumbrances. No legend or other reference to any purported Encumbrance
appears upon any certificate representing equity securities of the Company.
All of the outstanding equity securities of the Company have been duly
authorized and validly issued and are fully paid and nonassessable. There
are no Contracts relating to the issuance, sale, or transfer of any equity
securities or other securities of the Company. The Company does not own, nor
has any Contract to acquire, any equity securities or other securities of any
Person or any direct or indirect equity or ownership interest in any other
business. The Company does not have any subsidiaries; the Company is not a
partner (limited or general) in any partnership, joint venture or similar
enterprise.
3.4 FINANCIAL STATEMENTS. Seller has delivered to Buyer: (a) a
balance sheet of the Company as at April 30 in each of the years 1995
through 1997 (including the notes thereto, the "Balance Sheets"), and the
related statements of income, changes in stockholders' equity, and cash flow
for the fiscal years then ended, together with the reviewed report thereon of
▇▇▇▇▇, ▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇ & ▇▇▇▇▇▇, LLP ("▇▇▇▇▇, ▇▇▇▇▇▇") independent certified
public accountants, (b) a balance sheet of the Company as at June 30, 1997
(the "Interim Balance Sheet") compiled by ▇▇▇▇▇, ▇▇▇▇▇▇, and the related
trial balances prepared by the Company for the two months then ended. Such
financial statements and notes fairly present the financial condition and the
results of operations, changes in stockholders' equity, and cash flow of the
Company as at the respective dates of and for the periods referred to in such
financial statements, all in accordance with GAAP; the financial statements
referred to in this Section 3.4 reflect the consistent application of such
accounting principles throughout the periods involved. No financial
statements of any Person other than the Company are required by GAAP to be
included in its financial statements.
3.5 BOOKS AND RECORDS. The books of account, minute books, stock
record books, and other records of the Company, all of which have been made
available to Buyer for review, are complete and correct and have been
maintained in accordance with sound business practices and GAAP, including
the maintenance of an adequate system of internal controls. The minute book
of the Company contains accurate and complete records of all material
meetings held of, and corporate action taken by, the stockholders, the Boards
of Directors, and no material meeting of any such stockholders or Board of
Directors has been held for which minutes have not been prepared and are not
contained in such minute book. There are no
9
committees of the Board of Directors of the Company. At the Closing, all of
those books and records will be in the possession of the Company.
3.6 TITLE TO PROPERTIES; ENCUMBRANCES. Part 3.6 of the Disclosure
Letter contains a complete and accurate list of all real property,
leaseholds, or other interests therein owned by the Company. The Company
owns (with good and marketable title in the case of real property, subject
only to the matters permitted by the following sentence) all the properties
and assets (whether real, personal, or mixed and whether tangible or
intangible) that it purports to own, including all of the properties and
assets reflected in the Balance Sheets and the Interim Balance Sheet, and all
of the properties and assets purchased or otherwise acquired by the Company
since the date of the Balance Sheet (except for personal property acquired
and sold since the date of the Balance Sheet in the ordinary course of
business and consistent with past practice), which subsequently purchased or
acquired properties and assets (other than inventory and short-term
investments) are listed in Part 3.6 of the Disclosure Letter.
3.7 CONDITION AND SUFFICIENCY OF ASSETS. Except as set forth in Part
3.7 of the Disclosure Letter, the Company owns all of the machinery,
equipment, vehicles, furniture, fixtures, leasehold improvements, repair
parts, tools and other property (collectively, the "Personal Property") used
by the Company or relating to its business. Except as set forth in Part 3.7
of the Disclosure Letter, all such Personal Property necessary for the
operation of the business of the Company is in good operating condition and
sufficient to carry on the business of the Company in the normal course as it
is presently conducted and is free from material defects, whether patent or
latent. Attached to the Disclosure Letter is a complete and correct copy of
each lease (a "Personal Property Lease") of personal property under which the
Company is either a lessee, sublessee, lessor or sublessor. Except as set
forth in Part 3.7 of the Disclosure Letter, each Personal Property Lease is a
valid and binding obligation of the Company and each of the other parties
thereto and neither the Company nor any other party to a Personal Property
Lease is in default with respect to any material term or condition thereof,
and no event has occurred that, with the passage of time or the giving of
notice or both, would constitute a default thereunder or would cause the
acceleration of any obligation of any party thereto or the creation of a lien
or encumbrance upon any asset of the Company.
3.8 ACCOUNTS RECEIVABLE. All accounts and other receivables of the
Company that are reflected on the Balance Sheets or the Interim Balance Sheet
or on the accounting records of the Company as of the Closing Date
(collectively, the "Accounts Receivable") represent or will represent valid
obligations arising from sales actually made or services actually performed
in the ordinary course of business. Unless paid prior to the Closing Date,
the Accounts Receivable are or will be as of the Closing Date current and
collectible net of the respective reserves shown on the Balance Sheets or the
Interim Balance Sheet or on the accounting records of the Company as of the
Closing Date (which reserves are adequate and calculated consistent with past
practice and, in the case of the reserves as of the Closing Date, will not
represent a greater percentage of the Accounts Receivable as of the Closing
Date than the reserve reflected in the Interim Balance Sheet represented of
the Accounts Receivable reflected therein and will not represent a material
adverse change in the composition of such
10
Accounts Receivable in terms of aging). Subject to such reserves, a
substantial portion of the Accounts Receivable either has been or will be
collected in full, without any set-off, within 120 days after the day on
which it first becomes due and payable. There is no contest, claim, or right
of set-off under any Contract with any obligor of an Accounts Receivable
relating to the amount or validity of such Accounts Receivable. Part 3.8 of
the Disclosure Letter contains a complete and accurate list of all Accounts
Receivable as of the date of the Interim Balance Sheet, which list sets forth
the aging of such Accounts Receivable.
3.9 NO UNDISCLOSED LIABILITIES. Except as set forth in Part 3.9 of
the Disclosure Letter, the Company has no material liabilities or obligations
of any nature (whether known or unknown and whether absolute, accrued,
contingent, or otherwise) except for liabilities or obligations reflected or
reserved against in the Balance Sheets or the Interim Balance Sheet and
current liabilities incurred in the ordinary course of business since the
respective dates thereof.
3.10 TAXES. (a) The Company has each filed or caused to be filed on a
timely basis all Tax Returns for all periods ending on or before the Closing
Date that are or were required to be filed by or with respect to it. Seller
has delivered to Buyer copies of, and Part 3.10 of the Disclosure Letter
contains complete and accurate copies of, all such Tax Returns filed since
1992. The Company has paid, or made provision for the payment of, all Taxes
that have or may have become due pursuant to those Tax Returns or otherwise,
or pursuant to any assessment received by Seller or the Company, except such
Taxes, if any, as are listed in Part 3.10 of the Disclosure Letter and are
being contested in good faith and as to which adequate reserves (determined
in accordance with GAAP) have been provided in the Balance Sheets and the
Interim Balance Sheet.
(b) The federal income Tax Returns of the Company have not been
audited by the Internal Revenue Service or the taxing authority of any state.
Except as described in Part 3.10 of the Disclosure Letter, neither Seller
nor the Company has given or been requested to give waivers or extensions (or
is or would be subject to a waiver or extension given by any other Person) of
any statute of limitations relating to the payment of Taxes of the Company or
for which the Company may be liable.
(c) The charges, accruals, and reserves with respect to Taxes on the
respective books of the Company are adequate (determined in accordance with
GAAP) and are at least equal to the Company's liability for Taxes. There
exists no proposed tax assessment against the Company except as disclosed in
the Balance Sheet or in Part 3.10 of the Disclosure Letter. To the best of
Seller's knowledge, all Taxes that the Company is or was required to withhold
or collect have been duly withheld or collected and, to the extent required,
have been paid to the proper Governmental Body or other Person.
(d) To the best of Seller's knowledge, all Tax Returns filed by the
Company are true, correct, and complete. There is no tax sharing agreement
that will require any payment by the Company after the date of this
Agreement.
11
(e) There are no liens with respect to Taxes upon any of the
properties or assets, real or personal, tangible or intangible, of the
Company (except for Taxes not yet due). All Taxes that may later be
determined to have been due and payable with respect to any period ending on
or before the Closing Date for the Company will be reimbursed by the Seller.
3.11 NO MATERIAL ADVERSE CHANGE. Since the date of the Interim Balance
Sheet, there has not been any material adverse change in the business,
operations, properties, prospects, assets, or condition of the Company, and
no event has occurred or circumstance exists that may result in such a
material adverse change.
3.12 COMPLIANCE WITH LEGAL REQUIREMENTS Except as set forth on Part
3.12 of the Disclosure Letter, the operation, conduct and ownership of the
property or business of the Company are being, and at all times have been,
conducted, in all material respects, in full compliance with all federal,
state, local and other (domestic and foreign) laws, rules, regulations and
ordinances (including without limitation, those relating to employment
discrimination, occupational safety, conservation or corrupt practices) and
all judgments and orders of any court, arbitrator or governmental authority
applicable to it. Except as set forth on Part 3.12 of the Disclosure Letter,
to the best of Seller's knowledge, there are no proposed federal, state,
local and other (domestic or foreign) law, rule, regulation, ordinance,
order, judgment, decree, governmental taking, condemnation or other
proceeding that would be applicable to the business, operations or properties
of the Company and that could have a material adverse effect on the assets,
liabilities (whether absolute, accrued, contingent or otherwise), condition
(financial or otherwise), results of operations, business or prospects of the
Company.
3.13 LEGAL PROCEEDINGS; ORDERS. (a) Part 3.13 of the Disclosure
Letter sets forth a complete and correct list, together with a status report,
of each legal, administrative, arbitration or other proceeding, or
governmental investigation, to which the Company is a party (or by which any
of the Company's properties are affected), or was a party or was otherwise
affected (or by which any of its properties were affected) during the past
three years. Except as set forth on Part 3.13 of the Disclosure Letter,
there is no legal, administrative, arbitration or other proceeding, or any
governmental investigation, pending or, to the best of Seller's knowledge,
threatened against or otherwise affecting the Company or any of its assets.
The Company has given in a timely manner to its insurers all notices required
to be given under each of its insurance policies, if any, with respect to all
of the claims and actions disclosed on Part 3.13 of the Disclosure Letter,
and no insurer has denied coverage of any of such claims or actions or
rejected any of the claims with respect thereto.
3.14 ABSENCE OF CERTAIN CHANGES AND EVENTS. Except as set forth in
Part 3.14 of the Disclosure Letter, since the date of the Interim Balance
Sheet, the Company has conducted its business only in the ordinary course of
business and there has not been any:
(a) change in the Company's authorized or issued capital stock; grant
of any stock option or right to purchase shares of capital stock of the
Company; issuance of any security
12
convertible into such capital stock; grant of any registration rights;
purchase, redemption, retirement, or other acquisition by the Company of any
shares of any such capital stock; or declaration or payment of any dividend
or other distribution or payment in respect of shares of capital stock;
(b) amendment to the Organizational Documents;
(c) material payment or increase by the Company of any bonuses,
salaries, or other compensation to any stockholder, director, officer, or
(except in the ordinary course of business) employee or entry into any
employment, severance, or similar Contract with any director, officer, or
employee;
(d) adoption of, or material increase in the payments to or benefits
under, any profit sharing, bonus, deferred compensation, savings, insurance,
pension, retirement, or other employee benefit plan for or with any employees
of the Company;
(e) material damage to or destruction or loss of any asset or property
of the Company, whether or not covered by insurance, materially and adversely
affecting the properties, assets, business, financial condition, or prospects
of the Company;
(f) entry into, termination of, or receipt of notice of termination of
any Contract or transaction involving a total remaining commitment by or to
the Company of at least $25,000;
(g) sale (other than sales of inventory in the ordinary course of
business), lease, or other disposition of any asset or property of the
Company or mortgage, pledge, or imposition of any lien or other encumbrance
on any material asset or property of the Company;
(h) cancellation or waiver of any claims or rights with a value to the
Company in excess of $25,000;
(i) material change in the accounting methods used by the Company; or
(j) agreement, whether oral or written, by the Company to do any of
the foregoing.
3.15 CONTRACTS; NO DEFAULTS. (a) Attached to the Disclosure Letter are
complete and accurate copies of:
(i) each Applicable Contract that involves performance of
services or delivery of goods by the Company of an amount or value in
excess of $25,000;
(ii) each lease, rental or occupancy agreement, license,
installment and conditional sale agreement, and other Applicable
Contract affecting the ownership of, leasing of, title to, use of, or
any leasehold or other interest in,
13
any real or personal property (except personal property leases and
installment and conditional sales agreements having a value per item or
aggregate payments of less than $25,000 and with terms of less than one
year);
(iii) each Applicable Contract containing covenants that in
any way purport to restrict the business activity of the Company or
limit the freedom of the Company to engage in any line of business or
to compete with any Person;
(iv) each Applicable Contract for capital expenditures in
excess of $25,000;
(v) each written warranty, guaranty, and or other similar
undertaking with respect to contractual performance extended by the
Company other than in the ordinary course of business; and
(vi) each amendment, supplement, and modification (whether
oral or written) in respect of any of the foregoing.
(b) Except as set forth in Part 3.15(b) of the Disclosure Letter, each
Contract identified or required to be identified in Part 3.15 (a) of the
Disclosure Letter is in full force and effect and is valid and enforceable
against the Company and, to the best of Seller's knowledge, the other parties
thereto, in accordance with its terms.
(c) Except as set forth in Part 3.15(c) of the Disclosure Letter:
(i) the Company is, and at all times since January 1, 1994
has been, in full compliance with all applicable terms and
requirements of each Contract under which the Company has or had any
obligation or liability or by which the Company or any of the assets
owned or used by the Company is or was bound;
(ii) no event has occurred or circumstance exists that (with
or without notice or lapse of time) may contravene, conflict with, or
result in a violation or breach of, or give the Company or other
Person the right to declare a default or exercise any remedy under, or
to accelerate the maturity or performance of, or to cancel, terminate,
or modify, any Applicable Contract, the result of which contravention,
conflict or violation could have a material adverse effect on the
financial condition, business or prospects of the Company; and
(iii) to the best of Seller's knowledge, the Company has not
given to or received from any other Person, at any time since January
1, 1994, any notice or other communication (whether oral or written)
regarding any actual, alleged, possible, or potential violation or
breach of, or default under, any Contract.
14
(iv) the Company is not a party to any collective bargaining
agreement or any other Applicable Contract to or with any labor union
or other employee representative of a group of employees;
(v) the Company is not a participant in any joint venture,
partnership or other Applicable Contract (however named) involving a
sharing of profits, losses, costs, or liabilities by the Company with
any other Person;
(d) There are no renegotiations of, attempts to renegotiate, or
outstanding rights to renegotiate any material amounts paid or payable to the
Company under current or completed Contracts with any Person and no such
Person has made written demand for such renegotiation.
3.16 INSURANCE. (a) Seller has delivered to Buyer:
(i) true and complete copies of all policies of insurance
to which the Company is a party or under which the Company, or any
director of the Company, is or has been covered at any time within the
three years preceding the date of this Agreement;
(ii) true and complete copies of all pending applications
for policies of insurance; and
(iii) any statement by the auditor of the Company's financial
statements with regard to the adequacy of such entity's coverage or of
the reserves for claims.
(b) Part 3.16(b) of the Disclosure Letter describes:
(i) any self-insurance arrangement by or affecting the
Company, including any reserves established thereunder;
(ii) any contract or arrangement, other than a policy of
insurance, for the transfer or sharing of any risk by the Company; and
(iii) all obligations of the Company to third parties with
respect to insurance (including such obligations under leases and
service agreements) and identifies the policy under which such
coverage is provided.
(c) Except as set forth on Part 3.16(c) of the Disclosure Letter:
(i) All policies to which the Company is a party or that
provide coverage to Seller, the Company, or any director or officer of
the Company:
15
(A) are valid, outstanding, and enforceable;
(B) are issued by an insurer that, to the best of
Seller's knowledge, is financially sound and reputable;
(C) to the best of Seller's knowledge, taken
together, provide adequate insurance coverage for the assets
and the operations of the Company for all risks normally
insured against by a Person carrying on the same business or
businesses as the Company;
(D) are sufficient for compliance with all legal
requirements and Contracts to which the Company is a party
or by which any of them is bound;
(E) will continue in full force and effect
following the consummation of the transactions contemplated
by this Agreement
(ii) The Company has paid all premiums due, and have otherwise
performed all of its obligations, under each policy to which the
Company is a party or that provides coverage to the Company or
director thereof.
(iii) The Company has given notice to the insurer of all claims
made against the Company that may be insured thereby.
3.17 ENVIRONMENTAL MATTERS. Except as set forth in Part 3.17 of the
Disclosure Letter:
(a) Neither Seller or the Company, or any other Person for whose
conduct they are or may be held responsible, has any health and safety, and
to the best of Seller's knowledge, environmental, liabilities with respect to
the Facilities or with respect to any other properties and assets in which
Seller or the Company (or any predecessor), has or had an interest, or at any
property geologically or hydrologically adjoining the Facilities or any such
other property or assets.
(b) Seller has delivered to Buyer true and complete copies and results
of any reports, studies, analyses, tests, or monitoring possessed or
initiated by Seller or the Company pertaining to hazardous materials or
hazardous activities in, on, or under the Facilities, or concerning
compliance by Seller, the Company, or any other Person for whose conduct they
are or may be held responsible, with environmental laws.
16
3.18 EMPLOYEES. (a) Part 3.18 of the Disclosure Letter contains a
complete and accurate list of the following information for each employee or
director of the Company, including each employee on leave of absence or
layoff status: employer; name; job title; current compensation paid or
payable and any change in compensation since January 1, 1995; vacation
accrued; and service credited for purposes of vesting and eligibility to
participate under the Company's pension, retirement, profit-sharing,
thrift-savings, deferred compensation, stock bonus, stock option, cash bonus,
employee stock ownership (including investment credit or payroll stock
ownership), severance pay, insurance, medical, welfare, or vacation plan, or
other employee pension benefit plan.
(b) Except as set forth in Part 3.18 (b) of the Disclosure Letter, the
Company (i) does not maintain, contribute to or has any obligation with
respect to, and none of the employees of the Company is covered by, any
bonus, deferred compensation, severance pay, pension, profit-sharing,
retirement, insurance, or other fringe benefit plan, arrangement or practice,
written or otherwise, or any other "employee benefit plan," as defined in
Section 3(3) of ERISA, whether formal or informal (collectively, the
"Plans"), (ii) is a not party to a contract for the employment of any
employee of the Company or any other person who renders services to the
Company, or (iii) has any ERISA Affiliates. None of the Plans is, and none
of the Company or any of its ERISA Affiliates has ever maintained or had an
obligation to contribute to, (i) a plan subject to Section 412 of the Code or
Title I, Subtitle B, Part 3 of ERISA, (ii) a "multi employer plan," as
defined in Section 3(37) of ERISA (a "Multi employer Plan"), (iii) a
"multiple employer plan," as defined in ERISA or the Code, or (iv) a funded
welfare benefit plan, as defined in Section 419 of the Code. The Company
does not have any agreement or commitment to create or contribute to any
additional Plan, enter into any additional employment agreement or to modify
or change any existing Plan or employment agreement. None of the employees
of the Company is a "leased employee," as defined in Section 414(n) of the
Code.
(c) The Company has performed and complied in all respects with all of
its obligations under and with respect to the Plans, and each of the Plans
has, at all times, in form, operation and administration complied in all
material respects with its terms, and, where applicable, the requirements of
all applicable laws. Each Plan that is intended to be "qualified" within the
meaning of Section 401(a) of the Code has been determined by the Internal
Revenue Service to be so qualified and nothing has occurred that reasonably
could be expected to adversely affect such qualified status.
(d) The Company has made all contributions with respect to a Plan that
are required to have been made as of the date hereof under the terms thereof,
or under the terms of any related insurance contract, or any applicable law.
(e) All Plans that are group health plans have been operated in
compliance with the continuation coverage requirements of Section 4980B of
the Code (and any predecessor provisions) and Part 6 of Title I of ERISA
("COBRA"). Neither Seller nor the Company has
17
any obligation to provide health benefits or other non-pension benefits to
any retired or other former employees, except as specifically required by
COBRA.
(f) None of Seller, the Company nor any other "disqualified person" or
"party in interest," as defined in Section 4975 of the Code and Section 3(14)
of ERISA, respectively, has engaged in any "prohibited transaction," as
defined in Section 4975 of the Code or Section 406 of ERISA, with respect to
any Plan , and Seller is not aware of any fiduciary violations under ERISA
with respect to any Plan, that could subject the Company (or any employee
thereof) to any material penalty or tax under Section 502(i) of ERISA or
Sections 4971 and 4975 of the Code.
(g) Except as set forth in Part 3.18(g) of the Disclosure Letter, with
respect to any Plan: (i) no filing, application or other matter is pending
with the Internal Revenue Service, the Pension Benefit Guaranty Corporation,
the United States Department of Labor or any other governmental body, (ii)
there is no action, suit or claim pending (and Seller is not aware of any
basis for such a claim), other than routine claims for benefits, and (iii)
there are no outstanding liabilities for taxes, penalties or fees.
(h) The Company has not incurred any liability or taken any action,
and is not aware of any event that has occurred or is likely to occur, that
could cause it to incur any liability (i) under Section 412 of the Code or
Title IV of ERISA with respect to any "single-employer plan" (as defined in
Section 4001(a)(15) of ERISA), (ii) on account of a partial or complete
withdrawal (as defined in Sections 4203 and 4205 of ERISA, respectively) with
respect to any Multi employer Plan, (iii) on account of unpaid contributions
to any Multi employer Plan, or (iv) on account of any reorganization,
insolvency or termination of any Multi employer Plan.
(i) Except as set forth on Part 3.18(i) of the Disclosure Letter,
neither the execution and delivery of this Agreement nor the consummation of
any or all of the transactions contemplated hereby will: (i) entitle any
current or former employee of the Company to severance pay, unemployment
compensation or any similar payment, (ii) accelerate the time of payment or
vesting or increase the amount of any compensation due to any such employee
or former employee, or (iii) directly or indirectly result in any payment
made or to be made to or on behalf of any person to constitute a "parachute
payment" within the meaning of Section 280G of the Code.
(j) Nothing contained in this Agreement shall confer upon any employee
of the Company any right with respect to continuance of employment by Buyer,
nor shall anything herein interfere with the right of Buyer to terminate the
employment of any employee at any time, with or without cause.
3.19 LABOR RELATIONS; COMPLIANCE. The Company has not been or is a
party to any collective bargaining or other labor Contract. Since January 1,
1994, there has not been, there is not presently pending or existing, and, to
the best of Seller's knowledge there is not
18
threatened, (a) any strike, slowdown, picketing, work stoppage, or employee
grievance process, (b) any proceeding against or affecting the Company
relating to the alleged violation of any legal requirement pertaining to
labor relations or employment matters, including any charge or complaint
filed by an employee or union with any governmental body, organizational
activity, or other labor or employment dispute against or affecting the
Company or its premises, or (c) any application for certification of a
collective bargaining agent. To the best of Seller's knowledge, no event has
occurred or circumstance exists that could provide the basis for any work
stoppage or other labor dispute. There is no lockout of any employees by the
Company, and no such action is contemplated by the Company. The Company has
complied in all material respects with all legal requirements relating to
employment, equal employment opportunity, nondiscrimination, immigration,
wages, hours, benefits, collective bargaining, the payment of social security
and similar taxes, occupational safety and health, and plant closings. The
Company is not liable for the payment of any compensation, damages, taxes,
social security contributions, fines, penalties, or other amounts, however
designated, for failure to comply with any of the foregoing legal
requirements.
3.20 DISCLOSURE. (a) No representation or warranty of Seller or
Guarantor in this Agreement and no statement in the Disclosure Letter omits
to state a material fact necessary to make the statements herein or therein,
in light of the circumstances in which they were made, not misleading.
(b) No notice given pursuant to Section 5.6 will contain any untrue
statement or omit to state a material fact necessary to make the statements
therein or in this Agreement, in light of the circumstances in which they
were made, not misleading.
(c) There is no fact known to Seller or the Guarantor that has
specific application to Seller or the Company (other than general economic or
industry conditions) and that materially adversely affects or, as far as
Seller can reasonably foresee, materially threatens, the assets, prospects,
financial condition, or results of operations of the Company that has not
been set forth in this Agreement or the Disclosure Letter.
3.21 BROKERS OR FINDERS. Seller and its agents have incurred no
obligation or liability, contingent or otherwise, for brokerage or finders'
fees or agents' commissions or other similar payment in connection with this
Agreement.
3.22 LICENSES AND AUTHORIZATIONS. Attached to the Disclosure Letter
are complete and correct copies of all licenses, permits and authorizations
and governmental licenses that are currently held by the Company and are
required for the conduct of the Company's business as presently conducted.
To the best knowledge of Seller, no other licenses, permits or authorizations
from other regulatory bodies are required for the conduct of the Company's
business as conducted on the date hereof. Except as set forth in Section
3.22 of the Disclosure Schedule, (a) the licenses and authorizations are not
subject to any restrictions or conditions which would limit the operation of
the Company's business as presently conducted; and (b) the licenses are in
good standing.
19
4. REPRESENTATIONS AND WARRANTIES OF BUYER.
Buyer represents and warrants to Seller as follows:
4.1 ORGANIZATION AND GOOD STANDING. Buyer is a corporation
incorporated, validly existing, and in good standing under the laws of the
State of California.
4.2 AUTHORITY; NO CONFLICT. (a) This Agreement constitutes the
legal, valid, and binding obligation of Buyer, enforceable against Buyer in
accordance with its terms. Buyer has the absolute and unrestricted right,
power, and authority to execute and deliver this Agreement and to perform its
obligations under this Agreement.
4.3 INVESTMENT INTENT. Buyer is acquiring the Shares for its own
account and not with a view to their distribution within the meaning of
Section 2(11) of the Securities Act.
4.4 CERTAIN PROCEEDINGS. There is no pending proceeding that has been
commenced against Buyer and that challenges, or may have the effect of
preventing, delaying, making illegal, or otherwise interfering with, any of
the transactions contemplated hereby.
4.5 BROKERS OR FINDERS. Each of the Buyer and its officers and agents
have incurred no obligation or liability, contingent or otherwise, for
brokerage or finders' fees or agents' commissions or other similar payment in
connection with this Agreement and will indemnify and hold Seller harmless
from any such payment alleged to be due by or through either of the Buyer as
a result of the action of either of the Buyer or its officers or agents.
5. COVENANTS OF SELLER PRIOR TO CLOSING DATE.
5.1 ACCESS AND INVESTIGATION. Upon execution of this Agreement, the
Company and Seller will permit Buyer and its agents to have access to the
Company's premises, assets, and documents in order to permit Buyer, among
other things, to conduct an audit of the Company's finances by an accounting
firm chosen by Buyer (the "Audit"), prepare financial statements, review the
assets, contracts, customer records, and any other data that relate to the
Company and its business. Such audit will, to the extent possible, take
place away from the Company's premises or after the regular business hours of
the Company. In the event the transaction contemplated by this Agreement is
not consummated, Buyer agrees to return to the Company at the end of the
Audit all original documents in order (and all copies thereof), agrees
further to make diligent efforts to assure that its agents and attorneys do
likewise, and agrees that it and all those individuals bound by the
provisions of the Non-Disclosure Agreement will continue to be bound by its
terms.
5.2 OPERATION OF THE BUSINESSES OF THE COMPANY. Between the date of
this Agreement and the Closing Date, Seller will and will cause the Company
to:
20
(a) conduct the business of the Company only in the ordinary
course of business;
(b) use its best efforts to preserve intact the current
business organization of the Company, keep available the services of
the current officers, employees, and agents of the Company, and
maintain the relations and good will with suppliers, customers,
landlords, creditors, employees, agents, and others having business
relationships with the Company;
(c) confer with Buyer concerning operational matters of a
material nature; and
(d) otherwise report periodically to Buyer concerning the
status of the business, operations, and finances of the Company.
5.3 SALES AND TRANSFER TAXES. All sales and transfer Taxes, and all
similar Taxes and charges, incurred in connection with this Agreement and the
transactions contemplated hereby, will be borne by Seller (unless such Taxes
result from the actions of Buyer, other than its purchase of the Shares).
5.4 NEGATIVE COVENANT. Except as otherwise expressly permitted by
this Agreement, between the date of this Agreement and the Closing Date,
Seller will not, and will cause the Company not to, without the prior written
consent of Buyer, take any affirmative action, or fail to take any reasonable
action within their or its control, as a result of which any of the changes
or events listed in Section 3.14 is likely to occur.
5.5 REQUIRED APPROVALS. As promptly as practicable after the date of
this Agreement, Seller will, and will cause the Company to, make all filings
required by legal requirements to be made by them in order to consummate the
transactions contemplated hereby. The Company (1) does not hold assets
located in the United States having an aggregate book value of $15 million or
more or (2) did not make aggregate sales in or into the United States of $25
million or more in its most recent fiscal year.
5.6 NOTIFICATION. Between the date of this Agreement and the Closing
Date, Seller will promptly notify Buyer in writing if Seller or the Company
becomes aware of any fact or condition that causes or constitutes a breach of
any of Seller's representations and warranties as of the date of this
Agreement, or if Seller or the Company becomes aware of the occurrence after
the date of this Agreement of any fact or condition that would (except as
expressly contemplated by this Agreement) cause or constitute a breach of
any such representation or warranty had such representation or warranty been
made as of the time of occurrence or discovery of such fact or condition.
Should any such fact or condition require any change in the Disclosure Letter
if the Disclosure Letter were dated the date of the occurrence or discovery
of any such fact or condition, Seller will promptly deliver to Buyer a
supplement to the Disclosure Letter specifying such change. During the same
period, Seller
21
will promptly notify Buyer of the occurrence of any breach of any covenant of
Seller in this Section 5 or of the occurrence of any event that may make the
satisfaction of the conditions in Section 7 impossible or unlikely.
5.7 NO NEGOTIATION. Until such time, if any, as this Agreement is
terminated pursuant to Section 9, the Trust, the Guarantor and the
Partnership will not, and will cause the Company and its representatives not
to, directly or indirectly solicit, initiate, or encourage any inquiries or
proposals from, discuss or negotiate with, provide any non-public information
to, or consider the merits of any unsolicited inquiries or proposals from,
any Person (other than Buyer) relating to any transaction involving the sale
of the business or assets (other than in the ordinary course of business) of
the Company, or any of the capital stock of the Company, or any merger,
consolidation, business combination, or similar transaction involving the
Company. Seller agrees that in the event Seller or any of its affiliates
breaches its obligations under this Section 5.7, Seller will immediately pay
to Buyer its actual expenses incurred in connection with the transaction
contemplated by this Agreement.
5.8 BEST EFFORTS. Between the date of this Agreement and the Closing
Date, Seller and Guarantor will use their respective best efforts to cause
the conditions in Sections 7 and 8 to be satisfied.
6. COVENANTS OF BUYER PRIOR TO CLOSING DATE.
6.1 APPROVALS OF GOVERNMENTAL BODIES. As promptly as practicable
after the date of this Agreement, Buyer will make all filings required by law
to be made by it to consummate the transactions contemplated by this
Agreement. Between the date of this Agreement and the Closing Date, Buyer
will cooperate with Seller with respect to all filings that Seller is
required to make in connection with the transactions contemplated by this
Agreement.
6.2 BEST EFFORTS. Between the date of this Agreement and the Closing
Date, Buyer will use its best efforts to cause the conditions in Sections 7
and 8 to be satisfied.
7. CONDITIONS PRECEDENT TO BUYER' S OBLIGATION TO CLOSE.
Buyer's obligation to purchase the Shares and to take the other actions
required to be taken by Buyer at the Closing is subject to the satisfaction,
at or prior to the Closing, of each of the following conditions (any of which
may be waived by Buyer, in whole or in part):
7.1 ACCURACY OF REPRESENTATIONS. All of the Trust's and the
Partnership's representations and warranties in this Agreement (considered
collectively), and each of these representations and warranties (considered
individually), must have been complete and accurate in all material respects
as of the date of this Agreement, and must be complete and accurate in all
material respects as of the Closing Date as if made on the Closing Date,
without giving effect to any supplement to the Disclosure Letter.
22
7.2 SELLER'S PERFORMANCE. (a) All of the covenants and obligations
that Seller is required to perform or to comply with pursuant to this
Agreement at or prior to the Closing (considered collectively), and each of
these covenants and obligations (considered individually), must have been
duly performed and complied with in all material respects.
(b) Each document required to be delivered pursuant to Section 2.6
must have been delivered.
(c) The Guarantor shall provide evidence of his assumption of the
indebtedness related to the Company's Mercedes S420V.
7.3 CONSENTS. Each of the Consents identified in Part 3.2 of the
Disclosure Letter must have been obtained and must be in full force and
effect.
7.4 ADDITIONAL DOCUMENTS. Each of the following documents must have
been delivered to Buyer:
(a) an opinion of ▇▇ ▇▇▇▇▇▇, West & Chodorow, Inc, dated
the Closing Date, in form and scope satisfactory to Buyer, addressing
the items listed in Section 7.8 hereof; and
(b) such other documents as Buyer may reasonably request
for the purpose of evidencing the accuracy of any of Seller's
representations and warranties, evidencing the performance by Seller
of, or the compliance by Seller with, any covenant or obligation
required to be performed or complied with by Seller, evidencing the
satisfaction of any condition referred to in this Section 7, or
otherwise facilitating the consummation or performance of any of the
transactions contemplated by this Agreement.
7.5 NO PROCEEDINGS. Since the date of this Agreement, there must not
have been commenced or threatened against Buyer, or against any Person
affiliated with Buyer, any proceeding (a) involving any challenge to, or
seeking damages or other relief in connection with, any of the transactions
contemplated by this Agreement, or (b) that may have the effect of
preventing, delaying, making illegal, or otherwise interfering with any of
the transactions contemplated by this Agreement.
7.6 NO CLAIM REGARDING STOCK OWNERSHIP OR SALE PROCEEDS. There must
not have been made or threatened by any Person any claim asserting that such
Person (a) is the holder or the beneficial owner of, or has the right to
acquire or to obtain beneficial ownership of, any stock of, or any other
voting, equity, or ownership interest in, the Company, or (b) is entitled to
all or any portion of the Purchase Price payable for the Shares.
7.7 NO PROHIBITION. Neither the consummation nor the performance of
any of the transactions contemplated hereby will, directly or indirectly
(with or without notice or lapse of
23
time), materially contravene, or conflict with, or result in a material
violation of, or cause Buyer or any Person affiliated with Buyer to suffer
any material adverse consequence under (a) any applicable legal requirement
or Order, or (b) any legal requirement or Order that has been published,
introduced, or otherwise proposed by or before any governmental body.
7.8 OPINION OF COUNSEL. Seller shall have delivered to Buyer an
opinion of ▇▇ ▇▇▇▇▇▇, West & Chodorow, Inc., counsel to Seller and the
Company, dated as of the Closing Date, in form and substance reasonably
satisfactory to Buyer, to the effect that (i)the Company is a corporation
duly organized, validly existing and in good standing under the laws of the
State of California, (ii)each Seller has the necessary power and authority to
enter into this Agreement and the Escrow Agreement and to consummate the
transactions contemplated hereby and thereby,(iii) the execution, delivery
and performance of this Agreement and the Escrow Agreement has been duly
authorized by all necessary action of each Seller, and this Agreement and the
Escrow Agreement has been duly executed and delivered by each Seller and
constitutes the legally valid and binding obligations of each Seller,
enforceable against such Seller in accordance with their respective terms,
except as limited by (a) bankruptcy, insolvency, reorganization, moratorium
or other similar laws relating to creditors' rights generally or by equitable
principles (whether considered in an action at law or in equity) and (b)
limitations imposed by federal or state law or equitable principles upon the
availability of specific performance, injunctive relief or other equitable
remedies,(iv) the documents to be delivered by each Seller at the Closing
will effect the transfer and assignment to Buyer of good and marketable title
and interest in and to the Shares, free of any Encumbrances, (v) the
Guarantor has the necessary power and authority to enter into this Agreement,
the Assumption Agreements and the Escrow Agreement, and (vi) each of this
Agreement, the Assumption Agreements and the Escrow Agreement has been duly
executed and delivered by the Guarantor and constitutes the legally valid and
binding obligation of Guarantor, enforceable against the Guarantor in
accordance with their respective terms.
7.9 BUYER'S REVIEW OF THE COMPANY. Buyer shall be satisfied, in
its sole discretion, with the results of its investigation of the Company and
the Audit.
8. CONDITIONS PRECEDENT TO SELLER'S OBLIGATION TO CLOSE.
Seller's obligation to sell the Shares and to take the other actions
required to be taken by Seller at the Closing is subject to the satisfaction,
at or prior to the Closing, of each of the following conditions (any of which
may be waived by Seller, in whole or in part):
8.1 ACCURACY OF REPRESENTATIONS. All of Buyer's representations and
warranties in this Agreement (considered collectively), and each of these
representations and warranties (considered individually), must have been
accurate in all material respects as of the date of this Agreement and must
be accurate in all material respects as of the Closing Date as if made on the
Closing Date.
24
8.2 BUYER'S PERFORMANCE. (a) All of the covenants and obligations
that Buyer is required to perform or to comply with pursuant to this
Agreement at or prior to the Closing (considered collectively), and each of
these covenants and obligations (considered individually), must have been
performed and complied with in all material respects.
(b) Buyer must have delivered each of the documents and made each of
the payments required to be delivered or paid by Buyer pursuant to Section
2.6.
8.3 NO INJUNCTION. Since the date of this Agreement, there must not
have been commenced or threatened against Seller, or against any Person
affiliated with Seller, any proceeding (a) involving any challenge to, or
seeking damages or other relief in connection with, any of the transactions
contemplated by this Agreement, or (b) that may have the effect of
preventing, delaying, making illegal, or otherwise interfering with any of
the transactions contemplated by this Agreement.
9. TERMINATION.
9.1 TERMINATION EVENTS. This Agreement may, by notice given prior to
or at the Closing, be terminated:
(a) by either Buyer or Seller if a material breach of any
provision of this Agreement has been committed by the other party and
such breach has not been waived;
(b) (i) by Buyer if any of the conditions in Section 7 has
not been satisfied as of the Closing Date or if satisfaction of such a
condition is or becomes impossible (other than through the failure of
Buyer to comply with its obligations under this Agreement) and Buyer
has not waived such condition on or before the Closing Date; or (ii)
by Seller, if any of the conditions in Section 8 has not been
satisfied as of the Closing Date or if satisfaction of such a
condition is or becomes impossible (other than through the failure of
Seller to comply with its obligations under this Agreement) and
Seller has not waived such condition on or before the Closing Date;
(c) by mutual consent of Buyer and Seller; or
(d) by either Buyer or Seller if the Closing has not
occurred (other than through the failure of any party seeking to
terminate this Agreement to comply fully with its obligations under
this Agreement) on or before August 5, 1997 or such later date as the
parties may agree upon.
9.2 EFFECT OF TERMINATION. Each party's right of termination under
Section 9.1 is in addition to any other rights it may have under this
Agreement or otherwise, and the exercise of a right of termination will not
be an election of remedies. If this Agreement is
25
terminated pursuant to Section 9.1, all further obligations of the parties
under this Agreement will terminate, except that the obligations in Sections
5.1 (as to confidentiality) and 12.1 will survive; PROVIDED, HOWEVER, that if
this Agreement is terminated by a party because of the breach of the
Agreement by the other party or because one or more of the conditions to the
terminating party's obligations under this Agreement is not satisfied as a
result of the other party's failure to comply with its obligations under this
Agreement, the terminating party's right to pursue all legal remedies will
survive such termination unimpaired.
10. INDEMNIFICATION; REMEDIES.
10.1 SURVIVAL; RIGHT TO INDEMNIFICATION NOT AFFECTED BY KNOWLEDGE. The
representations and warranties made by Seller, Guarantor and Buyer in this
Agreement and any document, schedule, exhibit or other instrument relating
hereto shall survive the Closing Date for a period of four years, except
that with respect to taxation matters, such period shall be the longer of (i)
four years and (ii) the applicable statute of limitations. Notwithstanding
anything contained in this Agreement, including, without limitation, this
Section 10.1, any claims with respect to representations and warranties made
in this Agreement or in any document or other instrument relating hereto
shall survive and continue following the expiration of the survival periods
stated above if such claim is submitted in writing to the Indemnifying Party
(as defined below) prior to the end of the survival periods stated in this
Section 10.1 or otherwise and identified as a claim for indemnification
pursuant to this Agreement. In that event, such claims shall survive until
resolved, with the understanding that if such claims cannot be resolved
within 10 days or such longer period as the parties may agree in writing, the
dispute shall be submitted to arbitration in accordance with Section 12.4
hereof. Except as to such matters described in the Disclosure Letter (which
exception shall not apply to materials merely attached thereto), the right
to indemnification, payment of Damages or other remedy based on such
representations, warranties, covenants, and obligations will not be affected
by any investigation conducted with respect to, or any knowledge acquired (or
capable of being acquired) at any time, whether before or after the
execution and delivery of this Agreement or the Closing Date, with respect to
the accuracy or inaccuracy of or compliance with, any such representation,
warranty, covenant, or obligation.
10.2 INDEMNIFICATION AND PAYMENT OF DAMAGES BY SELLER AND GUARANTOR.
The Trust, the Partnership and the Guarantor, jointly and severally, shall
indemnify and hold harmless Buyer and its representatives, stockholders,
controlling persons, and affiliates (collectively, the "Indemnified Persons")
for, and will pay to the Indemnified Persons the amount of, any loss,
liability, claim, damage (including incidental and consequential damages),
expense (including reasonable costs of investigation and defense and
reasonable attorneys' fees) or diminution of value, whether or not involving
a third-party claim (collectively, "Damages"), arising, directly or
indirectly, from or in connection with:
(a) any breach of any representation or warranty made by
any Seller or the Guarantor in this Agreement (without giving effect
to any supplement to the Disclosure Letter), the Disclosure Letter,
the supplements to the Disclosure
26
Letter, or any other certificate or document delivered by either Seller
pursuant to this Agreement;
(b) any breach by either Seller or the Guarantor of any
covenant or obligation of a Seller in this Agreement;
(c) any product shipped or services provided by the Company
on or prior to the Closing Date;
(d) any claim by any Person for brokerage or finder's fees
or commissions or similar payments based upon any agreement or
understanding alleged to have been made by any such Person with Seller
or the Company (or any Person acting on their behalf) in connection
with any of the transactions contemplated by this Agreement.
The remedies provided in this Section 10.2 will not be exclusive of or limit
any other remedies that may be available to Buyer or the other Indemnified
Persons; provided that in no event shall Seller or the Guarantor be required
to pay Damages in excess of the Purchase Price.
10.3 INDEMNIFICATION BY SELLER AND GUARANTOR FOR TAX LIABILITIES. In
addition to, and not by way of limitation on, the indemnities set forth in
Section 10.2, the Trust, the Partnership and the Guarantor shall, jointly and
severally, indemnify and hold harmless on an after-tax basis Buyer against
all unpaid Taxes of the Company for all taxable periods ending on or before
the Closing Date or otherwise attributable to the operations, transactions,
assets, or income of the Company or its predecessors prior to the Closing
Date or otherwise arising from the consummation of the transactions
contemplated hereby, together with any expenses (including, without
limitation, reasonable attorneys', accountants' and consultants' fees and
other expenses) incurred in connection with the contesting, collection or
assessment of such Taxes.
10.4 INDEMNIFICATION AND PAYMENT OF DAMAGES BY BUYER. Buyer will
indemnify and hold harmless Seller, Guarantor and each of their
representatives and controlling persons for, and will pay to such persons the
amount of, any Damages arising, directly or indirectly, from or in connection
with:
(a) any breach of any representation or warranty made by Buyer
in this Agreement or in any certificate delivered by Buyer pursuant to
this Agreement;
(b) any breach by Buyer of any covenant or obligation of Buyer
in this Agreement;
(c) any product shipped or services provided by the Company
after the Closing Date; and
27
(d) any claim by any Person for brokerage or finder's fees or
commissions or similar payments based upon any agreement or
understanding alleged to have been made by such Person with Buyer (or
any Person acting on its behalf) in connection with any of the
transactions contemplated by this Agreement.
The remedies provided in this Section 10.4 will not be exclusive of or limit
any other remedies that may be available to Seller or the Guarantor; provided
that in no event shall Buyer be required to pay Damages in excess of an
amount equal to the Purchase Price.
10.5 CLAIMS FOR INDEMNIFICATION. Whenever any claim shall arise for
indemnification under this Agreement, the party entitled to indemnification
(the "Indemnified Party") shall promptly notify the party obligated to
provide indemnification (the "Indemnifying Party") of the claim and, when
known, the facts constituting the basis for such claim; PROVIDED, HOWEVER,
that the failure to so notify the Indemnifying Party shall not relieve the
Indemnifying Party of its obligation hereunder to the extent such failure
does not materially prejudice the Indemnifying Party. In the event of any
claim for indemnification hereunder resulting from or in connection with any
claim or legal proceedings by a third party, the notice to the Indemnifying
Party shall specify, if known, the amount or an estimate of the amount of the
liability arising therefrom. If such claim or legal proceeding is a third
party claim, the Indemnifying Party will have the right at its expense to
assume the defense thereof using counsel reasonably acceptable to the
Indemnified Party. The Indemnified Party shall have the right to
participate, at its own expense, with respect to any such third party claim.
In connection with any such third party claim, the Indemnified and
Indemnifying Parties shall cooperate with each other and provide each other
with access to relevant books and records in their possession. No such third
party claim shall be settled without the prior written consent of the
Indemnified Party. If a firm written offer is made to settle any such third
party claim and the Indemnifying Party proposes to accept such settlement and
the Indemnified Party refuses to consent to such settlement, then: (i) the
Indemnifying Party shall be excused from, and the Indemnified Party shall be
solely responsible for, all further defense of such third party claim; and
(ii) the maximum liability of the Indemnifying Party relating to such third
party claim shall be the amount of the proposed settlement if the amount
thereafter recovered by the Indemnified Party on such third party claim is
greater than the amount of the proposed settlement.
10.6 CONTRIBUTION. If the indemnification provided for in this Section
10 is for any reason held unenforceable, the party against whom
indemnification was sought agrees to contribute to the Damages for which such
indemnification is unenforceable in such proportion as is appropriate to
reflect the relative fault of such party, on the one hand, and the
Indemnified Party, on the other hand, as well as any other relevant equitable
considerations.
10.7 HOLDBACK; RIGHT OF SET-OFF. Upon notice to the Guarantor
specifying in reasonable detail the basis for a potential set-off, Buyer may,
in addition to its absolute right to demand payment for Damages or any other
remedy provided by this Section 10, inform the
28
Guarantor of any amounts which it asserts it may be entitled under this
Section 10 and may set-off such amounts against amounts otherwise payable
under the Earn-Out. In addition, Buyer shall be entitled to recover Damages
arising, directly or indirectly, from or in connection with a breach of the
representations set forth in Section 3.4 (only) hereof from the Holdback.
Neither the exercise of nor the failure to exercise such right of set-off
will constitute an election of remedies or limit Buyer in any manner in the
enforcement of any other remedies that may be available to it. In the event
a right of set-off is asserted and the matter on which such claim is based
has been formally submitted to arbitration, succeeding Earn-Out Installment
Payments shall be deferred (but only to the extent of the amount of Damages
asserted to arise from such claim) until the amount of Damages giving rise to
such asserted right of set-off is determined by arbitration as set forth in
Section 12.4 hereof. If the arbitrator shall determine that Buyer did not
act reasonably in exercising this right of set-off, Seller shall be entitled
to interest on the withheld amount at the Prime Rate plus 1.5% from the date
such amount was withheld to the date paid.
11. FURTHER AGREEMENTS.
11.1 RELEASE OF ▇▇▇▇▇▇▇ ▇▇▇▇ GUARANTY. Promptly after the Closing,
Buyer will use its best efforts to remove Guarantor from any liability with
respect to any obligations of the Company (including those set forth on Part
11.2 of the Disclosure Letter) that have been personally guaranteed by
Guarantor (the "Guaranteed Obligations"); provided that nothing in this
Section 11.1 shall require Buyer to assume any liability which it would not
otherwise have assumed as part of this transaction. If Guarantor is not so
removed from the Guaranteed Obligations within 30 days of the Closing Date,
at the option of Seller, Buyer shall repay or refinance the Guaranteed
Obligations, provided that Guarantor shall pay any prepayment or similar
penalties or fees resulting therefrom. Furthermore, if Guarantor is not so
removed from the Guaranteed Obligations, then in the alternative, Buyer shall
indemnify and agree to defend and hold Guarantor free and harmless from and
against the Guaranteed Obligations, including but not limited to the amounts
of any and all awards and judgments that are rendered against Guarantor as a
result of such obligations and any and all reasonable costs and expenses
actually incurred by Guarantor as a result of such obligations, including
reasonable attorneys fees. This indemnity obligation shall be backed by the
full faith and credit of Buyer. In addition, during any period during which
Guarantor remains liable on any Guaranteed Obligations, none of such
Guaranteed Obligations may be modified, renewed, extended, expanded or
increased, except as aforesaid.
11.2 COVENANT NOT TO COMPETE. (a) As additional consideration for the
payments made or to be made by Buyer hereunder, from the date hereof to and
including the third anniversary of the Closing Date, the Guarantor shall not,
for any reason, directly or indirectly, engage or be interested in any
business that Competes with Buyer, and shall not, directly or indirectly,
have any interest in, own, manage, operate, control, be connected with as a
stockholder (other than as a stockholder of less than five percent (5%) of
the issued and outstanding stock of a publicly-held corporation), joint
venturer, officer, partner, employee or consultant, or otherwise engage or
invest or participate in, any business that Competes with
29
Buyer. As used herein, the term "Competes" shall mean competing with any of
the businesses conducted by the Company at any time during the three year
period preceding the date hereof in any county or any other political
subdivision of any state of the United States of America or any of its
possessions or territories where the Company conducted or contemplated
conducting such businesses at any time during the three year period preceding
the date hereof. All of the parties agree that the duration and area for
which the covenant not to compete set forth in this Section 11.2 is to be
effective are reasonable. In the event that any court determines that the
time period or the geographical areas provided for in this Section 11.2, or
both of them, are unreasonable and that such covenant is to that extent
unenforceable, such covenant shall remain in full force and effect for the
greatest time period and in the greatest geographical area that would not
render it unenforceable. The parties intend that this covenant shall be
deemed to be a series of separate covenants, one for each and every county of
each and every state of the United States of America and for any other
territory or possession of the United States of America where this covenant
is intended to be effective.
(b) The parties agree that damages would be an inadequate remedy for
Buyer in the event of a breach or threatened breach of this Agreement and
thus, in any such event, Buyer may, either with or without pursuing any
potential damage remedies and in addition to such remedies, immediately
obtain and enforce an injunction, and/or a temporary restraining order,
prohibiting Seller from violating this Agreement, without having to prove
actual damages or post bond.
11.3 GUARANTY. The Guarantor hereby guarantees the performance by
each Seller of all the obligations, covenants, representations and warranties
of such Seller contained in this Agreement. This guarantee is a continuing
guarantee and shall extend to and cover every extension or renewal of, and
every obligation accepted in substitution for and every modification of any
obligation guaranteed hereby. No delay on Buyer's part in exercising any
right under this guarantee, or in taking any action to collect or enforce any
obligation hereby guaranteed, shall operate as a waiver of any such right or
in any manner prejudice Buyer's right against the undersigned. The
Guarantor hereby waives any requirement that Buyer exhaust any right or take
any action against any Seller.
12. GENERAL PROVISIONS.
12.1 EXPENSES. Subject to the provisions of Section 5.7, each party
will bear its own expenses arising from the transaction contemplated by this
Agreement, including, without limitation, legal, accounting fees, and fees
for tax-related work, provided, however, that Buyer shall bear the costs of
the Audit contemplated in Section 5 hereof unless the transaction
contemplated hereby fails to occur as a result of bad faith or willful
misconduct on the part of the Company or Seller, in which case, Seller, on
one hand, and Buyer, on the other hand, shall each bear one-half of such
Audit costs. In the event of termination of this Agreement, the obligation
of each party to pay its own expenses will be subject to any rights of such
party arising from a breach of this Agreement by another party.
30
12.2 PUBLIC ANNOUNCEMENTS. No party will issue or approve a news
release or other announcement concerning the transaction described herein
without the prior written approval of the other parties except as may be
required by law; provided that Buyer may issue a press release describing
this transaction and the material terms on the Closing Date (after Closing
has been consummated). Seller and Buyer will consult with each other
concerning the means by which the Company's employees, customers, and
suppliers and others having dealings with the Company will be informed of
this Agreement, and Buyer will have the right to be present for any such
communication.
12.3 NOTICES. All notices, consents, waivers, and other communications
under this Agreement must be in writing and will be deemed to have been duly
given when (a) delivered by hand (with written confirmation of receipt), (b)
sent by telecopier (with written confirmation of receipt), provided that a
copy is mailed by registered mail, return receipt requested, or (c) when
received by the addressee, if sent by a nationally recognized overnight
delivery service (receipt requested), in each case to the appropriate
addresses and telecopier numbers set forth below (or to such other addresses
and telecopier numbers as a party may designate by notice to the other
parties):
The Trust, the Partnership and the Guarantor:
▇▇▇▇▇▇▇ ▇. ▇▇▇▇
▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
with a copy to:
▇▇▇▇▇▇▇ ▇. ▇▇▇▇, Esq.
▇▇▇▇, ▇▇▇▇▇▇▇ & ▇▇▇▇▇▇, LLP
Three ▇▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇
▇▇▇ ▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇-▇▇▇▇
and
▇▇▇▇ ▇▇▇▇▇▇, Esq.
▇▇ ▇▇▇▇▇▇, West & Chodorow, Inc.
Fourteenth Floor
▇▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇
▇▇▇ ▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇-▇▇▇▇
Buyer:
VDI Media
▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇
▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇. ▇▇▇▇▇▇ ▇. ▇▇▇▇▇
Facsimile No.: ▇▇▇-▇▇▇-▇▇▇▇
31
with a copy to:
▇▇▇▇, Scholer, Fierman, ▇▇▇▇ & Handler, LLP
▇▇▇▇ ▇▇▇▇▇▇ ▇▇ ▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇
▇▇▇ ▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇ ▇. ▇▇▇▇, Esq.
Facsimile No.: ▇▇▇-▇▇▇-▇▇▇▇
12.4 ARBITRATION. Any claim, dispute or misunderstanding arising out
of or in connection with this Agreement (other than with respect to the
Closing Financial Statements), or any of the provisions hereof, or any of the
transactions contemplated hereby, or the interpretation, meaning or effect
hereof or thereof which is not settled within 15 days after it arises or such
later time as is mutually agreed to by the parties in writing, shall be
submitted to and determined by arbitration before one arbitrator mutually
agreeable to the parties in writing (or if no arbitrator can be found who is
mutually agreeable to the parties within 15 days after either party requests
arbitration hereunder, then the arbitrator shall be selected by
JAMS/Endispute at the request of any party to the dispute from a panel of
persons (such as retired jurists, distinguished legal or business
professionals, and similar persons) knowledgeable in the specific factual and
legal areas which may be relevant to the claim, who have previously acted as
arbitrators, and who generally are held in the highest regard among
professionals in fields or businesses related to or pertinent to such area)
in accordance with the procedures, rules and regulations of JAMS/Endispute
then in effect, and the decision, findings or award rendered by the
arbitrator in the matter shall be final and conclusive upon the parties (and
their respective predecessors, successors and assigns) with respect to the
subject matter herein concerned. Any such arbitration will be conducted in
Los Angeles, California, and judgment upon the award rendered by the
arbitrator may be entered pursuant to applicable arbitration statutes in any
court or forum having jurisdiction thereof. The party against whom the
ruling or judgment is made shall bear all reasonable attorneys' fees, costs
and expenses of such arbitration, including such reasonable attorneys' fees,
costs and expenses incurred by it and the prevailing party to such
arbitration.
12.5 FURTHER ASSURANCES. The parties agree (a) to furnish upon request
to each other such further information, (b) to execute and deliver to each
other such other documents, and (c) to do such other acts and things, all as
the other party may reasonably request for the purpose of carrying out the
intent of this Agreement and the documents referred to in this Agreement.
12.6 WAIVER. The rights and remedies of the parties to this Agreement
are cumulative and not alternative. Neither the failure nor any delay by any
party in exercising any right, power, or privilege under this Agreement or
the documents referred to in this Agreement will operate as a waiver of such
right, power, or privilege, and no single or partial exercise of any such
right, power, or privilege will preclude any other or further exercise of
32
such right, power, or privilege or the exercise of any other right, power, or
privilege. To the maximum extent permitted by applicable law, (a) no claim or
right arising out of this Agreement or the documents referred to in this
Agreement can be discharged by one party, in whole or in part, by a waiver or
renunciation of the claim or right unless in writing signed by the other
party; (b) no waiver that may be given by a party will be applicable except
in the specific instance for which it is given; and (c) no notice to or
demand on one party will be deemed to be a waiver of any obligation of such
party or of the right of the party giving such notice or demand to take
further action without notice or demand as provided in this Agreement or the
documents referred to in this Agreement.
12.7 ENTIRE AGREEMENT AND MODIFICATION. This Agreement supersedes all
prior agreements between the parties with respect to its subject matter
(including the letter of intent between Seller and Buyer dated as of July 3,
1997, and constitutes (along with the documents referred to in this Agreement
and the Confidentiality Agreement dated __________, 1997) a complete and
exclusive statement of the terms of the agreement between the parties with
respect to its subject matter. This Agreement may not be amended except by a
written agreement executed by the party to be charged with the amendment.
12.8 DISCLOSURE LETTER. (a) The disclosures in the Disclosure Letter,
and those in any supplement thereto, must relate only to the representations
and warranties in the Section of the Agreement to which they expressly relate
and not to any other representation or warranty in this Agreement.
(b) In the event of any inconsistency between the statements in the
body of this Agreement and those in the Disclosure Letter (other than an
exception expressly set forth as such in the Disclosure Letter with respect
to a specifically identified representation or warranty), the statements in
the body of this Agreement will control.
12.9 ASSIGNMENTS, SUCCESSORS, AND NO THIRD-PARTY RIGHTS. Neither party
may assign any of its rights under this Agreement without the prior consent
of the other parties. This Agreement will apply to, be binding in all
respects upon, and inure to the benefit of the successors and permitted
assigns of the parties. Nothing expressed or referred to in this Agreement
will be construed to give any Person other than the parties to this Agreement
any legal or equitable right, remedy, or claim under or with respect to this
Agreement or any provision of this Agreement. This Agreement and all of its
provisions and conditions are for the sole and exclusive benefit of the
parties to this Agreement and their successors and assigns.
12.10 SEVERABILITY. If any provision of this Agreement is held invalid
or unenforceable by any court of competent jurisdiction, the other provisions
of this Agreement will remain in full force and effect. Any provision of this
Agreement held invalid or unenforceable only in part or degree will remain in
full force and effect to the extent not held invalid or unenforceable.
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12.11 SECTION HEADINGS, CONSTRUCTION. The headings of Sections in this
Agreement are provided for convenience only and will not affect its
construction or interpretation. All references to "Section" or "Sections"
refer to the corresponding Section or Sections of this Agreement. All words
used in this Agreement will be construed to be of such gender or number as
the circumstances require. Unless otherwise expressly provided, the word
"including" does not limit the preceding words or terms.
12.12 TIME OF ESSENCE. With regard to all dates and time periods set
forth or referred to in this Agreement, time is of the essence.
12.13 GOVERNING LAW. This Agreement will be governed by the laws of the
state of California.
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12.14 COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which will be deemed to be an original copy of this
Agreement and all of which, when taken together, will be deemed to constitute
one and the same agreement.
IN WITNESS WHEREOF, the parties have executed and delivered this
Agreement as of the date first written above.
"Seller" "Buyer"
▇▇▇▇▇▇▇ ▇. ▇▇▇▇ and ▇▇▇▇▇ ▇. ▇▇▇▇ VDI MEDIA
as trustees under the ▇▇▇▇ Family Trust
dated December 14, 1972
/s/ ▇▇▇▇▇▇▇ ▇. ▇▇▇▇ /s/ ▇▇▇▇▇▇ ▇. ▇▇▇▇▇
------------------------ ------------------------
By: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇ By: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇
Its: Trustee Its: CFO, Director
and
/s/ ▇▇▇▇▇ ▇. ▇▇▇▇
------------------------
By: ▇▇▇▇▇ ▇. ▇▇▇▇
Its: Trustee
▇▇▇▇ MultiMedia Co., LP "Guarantor"
/s/ ▇▇▇▇▇▇▇ ▇. ▇▇▇▇ /s/ ▇▇▇▇▇▇▇ ▇. ▇▇▇▇
------------------------ ----------------------------
By: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇ ▇▇▇▇▇▇▇ ▇. ▇▇▇▇
Its: General Partner
and
/s/ ▇▇▇▇▇ ▇. ▇▇▇▇
------------------------
By: ▇▇▇▇▇ ▇. ▇▇▇▇
Its: General Partner
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EXHIBIT B
As an example of the application of the Earn-Out described in Section 2.2
hereof, if EBITDA of the Company for the quarter ending March 31, 1998 is
$550,000, then on April 15, 1998 Buyer shall pay to Guarantor (on behalf of
each Seller) an Earn-Out Installment Payment of $50,000, and shall also pay
on that same date an interest payment on such $50,000 amount at 6% per annum,
compounded monthly from the Closing Date. If, on the other hand, EBITDA for
the quarter ending March 31, 1998 is $650,000, then on April 15, 1998 Buyer
shall pay to Guarantor (on behalf of each Seller) an Additional Earn-Out
Installment Payment of $50,000 for a total of $100,000, and shall also pay on
that same date an interest payment on such $100,000 amount at 6% per annum,
compounded monthly from the Closing Date.
36