Exhibit 2.1
AGREEMENT OF MERGER
This Agreement of Merger (the "AGREEMENT") is made and entered into as of
July 15, 1998, by and among The Producers Entertainment Group Ltd., a Delaware
corporation ("PARENT"), TPEG Merger Company, a California corporation
("MERGERCO"), MWI Distribution, Inc., a California corporation doing business as
MediaWorks International (the "COMPANY") and Xxx Xxxxxxx and Xxxxx Xxxxxxx (each
individually, a "STOCKHOLDER" and collectively, the "STOCKHOLDERS").
R E C I T A L S
A. Parent owns of record and beneficially all of the issued and outstanding
shares of capital stock of Merger Co and the Stockholders own of record and
beneficially all of the issued and outstanding capital stock of the Company.
B. The Company and Parent jointly desire that Parent acquire all of the
issued and outstanding stock of the Company. The parties have determined that
the most expeditious manner of accomplishing such acquisition would be the
merger of the Company with and into MergerCo (the "MERGER").
C. It is the intent of the Company and the Stockholders that this Merger
qualify as a tax-free reorganization under the provisions of the Internal
Revenue Code section 368(a)(2)(D).
A G R E E M E N T
NOW, THEREFORE, in consideration of the foregoing premises, and mutual
covenants and agreements hereinafter set forth, the parties to this Agreement
hereby agree as follows:
ARTICLE 1.
DEFINITIONS
As used in this Agreement, terms defined in the preamble and recitals
hereto shall have the respective meanings specified therein and the following
terms shall have the meanings set forth below:
1.1 "AFFILIATE" means, when used with reference to a specified Person,
any Person that directly or indirectly through one or more intermediaries
controls or is controlled by, or is under common control with, the specified
Person. For purposes of the preceding sentence, the term "CONTROL" means the
power, direct and indirect, to direct or cause the direction of the management
and policies of a Person through voting securities, contract or otherwise.
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1.2 "AGREEMENT" means this Agreement of Merger including all Exhibits
and Schedules hereto.
1.3 "ANCILLARY AGREEMENTS" means the Agreement of Merger, the Escrow
Instructions, the Tax Certificate, the Guaranty and the Employment Agreements.
1.4 "CLOSING STOCK" shall mean that number of shares, up to a maximum
of 1,203,704, of Parent Common Stock which is comprised of the maximum number of
shares of Net Worth Stock and the maximum number of shares of Escrow Stock.
1.5 "CODE" shall mean the Internal Revenue Code of 1986, as amended.
1.6 "COMPANY" shall have the meaning set forth in the preamble hereto.
1.7 "COMPANY STOCK" shall mean the common stock, no par value, of the
Company.
1.8 "CONTINGENT CONVERSION PRICE" shall mean, for any particular
determination of the number of Contingent Shares constituting any particular
Contingent Payment, the greater of: (i) the Parent Common Stock Average Price
immediately prior to the end of the fiscal year relating to the particular
Contingent Payment, or (ii) the Minimum Contingent Share Price.
1.9 "CONTINGENT PAYMENTS" shall mean Contingent Payment No.1,
Contingent Payment No. 2, Contingent Payment No. 3 and Contingent Payment No. 4,
collectively.
1.10 [INTENTIONALLY DELETED]
1.11 "CONTINGENT SHARES" shall mean up to an aggregate of 1,375,662
shares of Series B Preferred Stock and Parent Common Stock the actual number of
which shall be determined by dividing $3,250,000 by the Contingent Conversion
Price.
1.12 "DATE OF DETERMINATION" means any date on which the Stockholders
become entitled to receive an Escrow Stock Payment.
1.13 "ESCROW AGENT" shall mean that agent as designated in the Escrow
Instructions.
1.14 "ESCROW STOCK" shall mean a number of shares of Parent Common
Stock as shall be determined by dividing (A) the product of (i) Net Distribution
Fees Receivable multiplied by (ii) 2.75, by (B) the Minimum Share Price, up to a
maximum of 439,815 shares of Parent Common Stock.
1.15 "ESCROW STOCK PAYMENT" shall means any payment of shares of Escrow
Stock pursuant to this Agreement and the Escrow Instructions.
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1.16 "EXCHANGE ACT" shall mean the Securities Exchange Act of 1934, as
amended.
1.17 "GAAP" shall mean generally accepted accounting principles.
1.18 "GCL" shall mean the General Corporation Law of the State of
California.
1.19 "LEGEND" shall mean any stock legends required by sections 417 and
418 of the GCL and the restrictive stock legend in substantially the following
form:
"THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933 OR ANY STATE SECURITIES LAWS. THEY
MAY NOT BE SOLD OR OFFERED FOR SALE IN THE ABSENCE OF AN
EFFECTIVE REGISTRATION STATEMENT AS TO THE SECURITIES UNDER
SAID ACT AND ANY APPLICABLE STATE SECURITIES LAWS OR AN
OPINION OF COUNSEL REASONABLY SATISFACTORY TO THE
CORPORATION THAT SUCH REGISTRATION IS NOT REQUIRED."
1.20 "MATERIAL ADVERSE EFFECT" means with respect to any Person and its
Subsidiaries, an effect which is materially adverse to the business, properties,
assets, revenues, operations, financial condition or results of operations of
such Person and its Subsidiaries, taken as a whole.
1.21 "MINIMUM CONTINGENT SHARE PRICE" shall mean $2.3625 per share.
1.22 "MINIMUM SHARE PRICE" shall mean $2.70 per share.
1.23 "NET DISTRIBUTION FEES RECEIVABLE" shall mean the aggregate dollar
amount as determined on the Closing Date of: (A) the sum of all of the
commissions and distribution fees due to the Company by third parties for
broadcast, video, co-production and other sales and services, pursuant to an
enforceable written agreement identified on SCHEDULE 1.23 hereto, and (B) the
Pending Projects Value.
1.24 "NET WORTH STOCK" shall mean 763,889 shares of Parent Common
Stock.
1.25 "PARENT COMMON STOCK" shall mean the common stock, par value
$0.001 per share, of Parent.
1.26 "PARENT COMMON STOCK AVERAGE PRICE" shall mean the average of the
closing bid and asked prices of Parent Common Stock on the Nasdaq SmallCap
Market during a particular thirty (30) consecutive trading days period.
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1.27 "PENDING PROJECTS" shall mean all projects which the Company has
identified in SCHEDULE 1.27 attached hereto so long as each such project is
evidenced by an enforceable fully executed and delivered written agreement no
later than September 30, 1998.
1.28 "PENDING PROJECTS VALUE" shall mean the aggregate dollar amount,
as determined on the Closing Date and set forth on SCHEDULE 1.28, of all of the
commissions and distribution fees due to the Company by third parties for the
Pending Projects.
1.29 "PERSON" includes an individual, partnership, limited liability
company, limited liability partnership, trust, estate, corporation, joint
venture, unincorporated association, group (as defined in Sections 13(d)(3) or
14(d)(2)of the Exchange Act) government bureau or agency or other entity of
whatsoever kind or nature.
1.30 "PRE-TAX NET INCOME" shall be equal, subject to the provisions set
forth on SCHEDULE 1.30, to: (i) pre-tax net income calculated according to GAAP;
PLUS (ii) the dollar amount of bonuses to the Stockholders for such period which
shall be added back in; MINUS (iii) the aggregate dollar amount of Escrow Stock
received for such period (which aggregate dollar amount shall be equal to the
product of the number of shares of Escrow Stock received by the Stockholders in
such period MULTIPLIED by $0.9818). Pre-Tax Net Income shall be determined in
the sole and absolute discretion of the Parent's independent auditors. Nothing
herein shall affect the Stockholders' ability to challenge the independent
auditor's determination. The Stockholders, in accordance with ordinary business
practices, shall in their capacity as officers and directors of the Surviving
Corporation, participate in, and be actively involved with assisting the
auditors and the audit process.
1.31 "SECURITIES ACT" means the Securities Act of 1933, as amended.
1.32 "SEC" means the Securities and Exchange Commission.
1.33 "SERIES B PREFERRED STOCK" shall mean up to a maximum of 1,375,662
shares of the preferred stock of Parent, par value $0.001 per share, designated
"Series B Convertible Preferred Stock" which number is equal to $3,250,000
divided by the Minimum Contingent Share Price. However, the number of shares of
Series B Convertible Preferred Stock shall be reduced and replaced with shares
of Parent Common Stock so that in accordance with Section 2.5.4 below, the
Stockholders receive up to 19.99% of all shares of Parent Common Stock issued
and outstanding as of the Effective Time. Such Series B Preferred Stock shall
have such rights, powers, privileges and preferences as set forth in the
Certificate of Designations of the Series B Convertible Preferred Stock, a copy
of which is attached hereto as EXHIBIT 1.33 and incorporated herein by this
reference.
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1.34 "SUBSIDIARY" of any Person means any other Person, 10% or more of
the equity securities of which are, at the time as of which such determination
is being made, owned by the particular Person either directly or indirectly
through one or more other Subsidiaries.
1.35 [INTENTIONALLY DELETED]
1.36 The following terms are defined in the following sections of this
Agreement:
DEFINED TERM WHERE FOUND
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Acquisition Proposal Section 6.7
Additional Parent Common Stock Section 2.5.5
Agreement of Merger Section 2.3
Applicable Conversion Price Section 9.1.5
Arbitrator Article 11
Audited Financial Statements Section 9.10
Benefit Plans Section 4.12.1
Business Plan Section 9.3
California Filings Section 2.3
California Secretary of State Section 2.3
CERCLA Section 4.23
Certificates Section 2.8
Change in Control Exhibit 2.5.4(f)
Claims Section 4A.2
Closing Article 3
Closing Date Article 3
Company Preamble
Company Organizational Documents Section 4.1
Constituent Corporations Section 2.1
Damages Section 9.1.1
Disclosure Schedule Article 4
Effective Time Section 2.3
Environmental Laws Section 4.23
ERISA, ERISA Affiliate Section 4.12.1
Escrow Section 7.7
Escrow Instructions Section 7.7
Excess Variance Section 9.10
Executive Management Committee Section 9.2
Hazardous Substances, Hazardous
Wastes, Hazardous Materials,
Pollutants, Solid Wastes,
Contaminants and Toxic Substances Section 4.23
Indemnified Liabilities Section 9.1.5
Indemnified Party Section 9.1.1
Indemnifying Party Section 9.1.1
JAMS Article 11
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Investment Letter Section 7.8
Liabilities Section 4.7
Material Contracts Section 4.11
Maximum Consideration Section 2.5
Merger Section 2.1
MergerCo Preamble
National Geographic Arbitration Section 2.5.6.3
National Geographic Proceeds Section 2.5.6.3
Notices Section 12.1
Order Section 7.5
Parent Preamble
Parent Stock Section 9.1.5
Permits Section 4.23
Permitted Variance Section 9.10
Plan Section 4.12.1
Properties Section 4.11
Related Party Section 4.15.1
Significant Employee Section 4.13.9
Stockholder(s) Preamble
Surviving Corporation Section 2.1
Taxes, Tax Returns Section 4.14.1
Tax Certificate Section 2.3
Third Party Claim Section 9.1.1
Unaudited Financial Statements Section 4.6
ARTICLE 2.
THE MERGER
2.1 THE MERGER. On the terms and subject to the conditions set forth
in this Agreement, at the Effective Time, in accordance with this Agreement and
the GCL, the Company shall merge with and into MergerCo, the separate existence
of the Company shall cease and MergerCo shall continue as the surviving
corporation. MergerCo, in its capacity as the entity surviving the Merger, is
sometimes referred to herein as the "SURVIVING CORPORATION" and MergerCo and the
Company are sometimes referred to collectively herein as the "CONSTITUENT
CORPORATIONS."
2.2 EFFECT OF THE MERGER. At the Effective Time, the identity and
separate existence of the Company shall cease and the Surviving Corporation
shall succeed, without other transfer, to all of the rights, privileges,
immunities, powers, franchises and authority, whether of a public or private
nature, and be subject to all restrictions, disabilities and duties, of each of
the Constituent Corporations, and all the rights, privileges, immunities,
powers, franchises and authority of each of the Constituent Corporations, and
all assets and properties of every
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description, real, personal and mixed, and every interest therein, wherever
located, and all debts, liabilities and other obligations belonging or due to
either of the Constituent Corporations on whatever account, as well as stock
subscriptions and all other things in action belonging or due to each of the
Constituent Corporations, shall be vested in the Surviving Corporation, and
all property rights, privileges, immunities, powers, franchises and
authority, and all and every other interest, shall be thereafter as
effectually the property of the Surviving Corporation as they were of the
Constituent Corporations, and the title to any real estate or interest
therein vested in either Constituent Corporation shall not revert or be in
any way impaired by reason of the Merger but all rights of creditors and all
liens upon any property of either of the Constituent Corporations shall be
preserved unimpaired, and the Surviving Corporation shall be liable for the
debts, liabilities and other obligations of each of the Constituent
Corporations, and any claims existing or action or proceeding pending, by or
against either of the Constituent Corporations may be prosecuted to judgment
with right of appeal, as if the Merger had not taken place. Additionally, if
and when the Closing occurs, at the Effective Time, the joint venture between
the Parent and the Company shall terminate without any further action
required by any of the parties thereto.
2.3 FILINGS. On the Closing Date, MergerCo and the Company shall
cause the Merger to be consummated by executing, delivering and filing with the
Secretary of State of the State of California (the "CALIFORNIA SECRETARY OF
STATE") the agreement of merger, substantially in the form attached hereto as
EXHIBIT 2.3 (the "AGREEMENT OF MERGER") and an appropriate tax clearance
certificate of the California Franchise Tax Board (the "TAX CERTIFICATE") (the
Agreement of Merger and the Tax Certificate are collectively referred to as the
"CALIFORNIA FILINGS"). The Parties shall on the Closing Date file such other
documents with the California Secretary of State as may be required by the
provisions of the GCL and as are necessary to cause the Merger to become
effective. The Merger shall become effective when the California Filings are so
filed and approved by the California Secretary of State. The time at which the
Merger becomes effective is herein referred to as the "EFFECTIVE TIME."
2.4 CHARTER DOCUMENTS, BY-LAWS AND DIRECTORS.
2.4.1 From and after the Effective Time, the Articles of
Incorporation in the form attached hereto as EXHIBIT 2.4.1 shall be the Articles
of Incorporation of the Surviving Corporation, and shall thereafter continue in
effect until amended as provided therein and in accordance with the GCL.
2.4.2 From and after the Effective Time, the By-Laws in the form
attached hereto as EXHIBIT 2.4.2 shall be the By-Laws of the Surviving
Corporation, and shall thereafter continue in effect until amended as provided
therein and in accordance with the GCL.
2.4.3 At the Effective Time, each of the members of the Board of
Directors of the Company and its Subsidiaries shall resign and, concurrently
with such resignation, persons designated by the Parent, as the sole shareholder
of the Surviving Corporation, shall be appointed
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the directors and officers of the Surviving Corporation, and the Surviving
Corporation's Subsidiaries, to serve in accordance with the by-laws of the
Surviving Corporation, in the case of each such director or officer, until
his successor is duly elected or appointed and qualified or until his earlier
death, resignation or removal in accordance with the by-laws of the Surviving
Corporation. Parent shall, at the Effective Time, appoint each of the
Stockholders as a director of the Surviving Corporation. Parent shall use
its best efforts to ensure that each Stockholder is elected as a director of
the Surviving Corporation so long as he is employed by the Surviving
Corporation.
2.5 CONSIDERATION FOR MERGER. The maximum aggregate consideration to
be paid by the Parent to the Stockholders for all of the outstanding shares of
Company Stock shall not exceed the sum of (a) the maximum number of shares of
Closing Stock PLUS (b) the maximum number of shares of Contingent Shares (the
"MAXIMUM CONSIDERATION"), issuable as follows:
2.5.1 NET WORTH STOCK AT CLOSING. At the Closing the Parent
shall cause its transfer agent to issue and deliver to the Stockholders the Net
Worth Stock.
2.5.2 [INTENTIONALLY DELETED]
2.5.3 ESCROW STOCK AT CLOSING. At the Closing, the Parent shall
cause its transfer agent to issue in the name of the Stockholders and deliver to
the Escrow Agent, pursuant to the terms of the Escrow Instructions, all 439,815
shares of the Escrow Stock. The Escrow Agent shall deliver the Escrow Stock in
accordance with the terms of the Escrow Instructions.
2.5.4 CONTINGENT STOCK PAYMENTS.
(a) In addition to the payments described above, the Parent
shall pay the Stockholders the Contingent Shares payable as follows:
2.5.4.1 A number of Contingent Shares determined by
dividing Eight Hundred and Fifty Thousand Dollars ($850,000) by the Contingent
Conversion Price ("CONTINGENT PAYMENT NO. 1") if the Surviving Corporation earns
Pre-Tax Net Income of Seven Hundred and Fifty Thousand Dollars ($750,000) for
the fiscal year ended June 30, 1999; and
2.5.4.2 A number of Contingent Shares determined by
dividing One Million One Hundred and Fifty Thousand Dollars ($1,150,000) by the
Contingent Conversion Price ("CONTINGENT PAYMENT NO. 2") if the Surviving
Corporation earns Pre-Tax Net Income of Nine Hundred Thousand Dollars ($900,000)
for the fiscal year ended June 30, 2000; and
2.5.4.3 The balance of the Contingent Shares
("CONTINGENT PAYMENT NO. 3") if the Surviving Corporation earns Pre-Tax Net
Income of One Million One Hundred Thousand Dollars ($1,100,000) for the fiscal
year ended June 30, 2001; and
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2.5.4.4 Notwithstanding SECTION 2.5.4(c), any
Contingent Shares that have not been delivered pursuant to SECTIONS 2.5.4.1,
2.5.4.2 and 2.5.4.3 ("CONTINGENT PAYMENT NO. 4") if the Surviving Corporation
(i) achieves an average Pre-Tax Net Income of Five Hundred Thousand Dollars
($500,000) for the fiscal years ended June 30, 1999, 2000 and 2001 and (ii)
earns Pre-Tax Net Income of One Million Three Hundred and Twenty Five Thousand
Dollars ($1,325,000) for the fiscal year ended June 30, 2002.
(b) Notwithstanding anything to the contrary contained in
this SECTION 2.5.4, the Stockholders shall receive their PRO RATA portion of
the respective Contingent Shares in the applicable period so long as the
actual Pre-Tax Net Income for such period is within seventy five percent
(75%) of the projected amount. For example, if the Surviving Corporation
achieves Pre-Tax Net Income of Seven Hundred and Twenty Thousand Dollars
($720,000) for the fiscal year ended June 30, 2000, the Stockholders will
receive Contingent Shares equal to eighty percent (80%) of Contingent Payment
No. 2. Furthermore, if the Surviving Corporation achieves Pre-Tax Net Income
in excess of the agreed upon Pre-Tax Net Income, the Stockholders shall
receive additional Contingent Shares equal to the percentage that actual
Pre-Tax Net Income exceeds the agreed upon minimum amount; PROVIDED, HOWEVER,
that the increase cannot exceed fifty percent (50%) of the specified maximum
number of Contingent Shares for such contingent payment. Again, using
Contingent Payment No. 2 as an example, if the actual Pre-Tax Net Income for
the period is One Million and Eighty Thousand Dollars ($1,080,000), the
Stockholders will receive Contingent Shares equal to one hundred and twenty
percent (120%) of Contingent Payment No.2. For the periods of payment for
Contingent Payment Nos. 2 and 3, the calculation of any excess payments shall
be based upon a running average of the Pre-Tax Net Income amount. In
addition, if for the period beginning July 1, 1998, through the end of
fiscal year 2001 (the "Contingent Period"), the Surviving Corporation has
achieved total Pre-Tax Net Income for the Contingent Period of not less than
fifty percent (50%) of the aggregate targets for the fiscal years ended 1999,
2000 and 2000 combined (the "50% Target"), then the Stockholders shall
receive a number of Contingent Shares equal to (i) the total maximum number
of Contingent Shares MULTIPLIED BY (ii) the actual percentage of the 50%
Target achieved during the Contingent Period. For example, if Pre-Tax Net
Income during the Contingent Period equals 75% of the 50% Target, then the
Stockholders shall receive 75% of the Contingent Shares not yet delivered.
(c) If the Surviving Corporation fails to achieve the minimum
projected Pre-Tax Net Income during any period, the portion of the respective
Contingent Payment not used shall be added to the amount contingently payable in
the next year.
(d) All Contingent Payments provided for pursuant to this
SECTION 2.5.4 shall be made by the Parent in Parent Common Stock until the
issuance of one additional share of Parent Common Stock would require the
authorization of a majority of the outstanding shares of Parent Common Stock as
a result of Nasdaq Rule 4310(c)(25), and then in Series B Preferred Stock. As
soon as, and in the event that, the holders of a majority of the outstanding
shares of Parent Common Stock authorize the Merger and issuance of shares of
Parent Common Stock in place of
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Series B Preferred Stock, all shares of Parent stock delivered under this
Agreement shall be Parent Common Stock, and all Series B Preferred Stock
delivered shall be convertible into Parent Common Stock.
(e) All Contingent Payments made hereunder shall be payable by
the Parent within one hundred and twenty (120) days of the Parent's Fiscal year
end.
(f) Notwithstanding anything to the contrary contained in this
SECTION 2.5.4, upon the occurrence of a "Change in Control" as defined in
EXHIBIT 2.5.4(f) attached hereto, any Contingent Shares that have not been
delivered to the Stockholders shall immediately vest and be issued to the
Stockholders.
2.5.5 ADDITIONAL PARENT COMMON STOCK. Notwithstanding the
Maximum Consideration, the Stockholders shall receive up to an additional One
Hundred Nine Thousand Four Hundred and Twenty Eight (109,428) shares of Parent
Common Stock (the "ADDITIONAL PARENT COMMON STOCK") if the Parent Common Stock
Average Price never equals or exceeds Three Dollars and Eighty Cents ($3.80) per
share between Closing and June 30, 1999. The number of shares of Additional
Parent Common Stock to be issued shall be equal to 0.0908 MULTIPLIED BY the
total number of shares Closing Stock.
2.5.6 NATIONAL GEOGRAPHIC PROCEEDS.
2.5.6.1 As soon as any National Geographic Proceeds (as
defined below) are received they shall immediately be delivered or applied as
follows, in the following order of priority: (1) to Parent for all legal
fees, expenses and costs incurred or paid by Parent which are associated with
the National Geographic Arbitration (defined below); (2) to the Stockholders,
an amount equal to 50% of the legal fees, expenses and costs associated with
the National Geographic Arbitration (defined below)which were actually paid
by the Company prior to the Closing; (3) to the Stockholders, $200,000 of
National Geographic Proceeds (one-half of such amount to each Stockholder);
(4) if all the Escrow Stock has not been delivered to the Stockholders,
National Geographic Proceeds shall, pursuant to the Escrow Instructions, then
be converted into Escrow Stock; and (5) any remaining National Geographic
Proceeds ("REMAINING NATIONAL GEOGRAPHIC PROCEEDS") shall be converted into a
number of Contingent Shares determined by dividing (i) the product of 1.18
and such Remaining National Geographic Proceeds, BY (ii) $2.3625. Such
Contingent Shares shall promptly be delivered to the Stockholders in all
events and regardless of Pre-Tax Net Income, SECTION 2.5.4(c)
notwithstanding. Any delivery of Contingent Shares made pursuant to clause
(5) of this paragraph shall reduce the total number of Contingent Shares that
are deliverable pursuant to SECTION 2.5.4, and any National Geographic
Proceeds converted into Contingent Shares pursuant to clause (5) of this
paragraph shall reduce the Pre-Tax Net Income levels required under SECTION
2.5.4(a), pro rata over the then remaining years identified in SECTION 2.5.4.
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2.5.6.2 Notwithstanding anything to the contrary in this
Agreement or in the Escrow Instructions, if National Geographic Proceeds are
converted into Escrow Stock and later there are Net Distribution Fees that, but
for the conversion of the National Geographic Proceeds into Escrow Stock, would
have been converted into Escrow Stock, the amount of such Net Distribution Fees
shall be treated as National Geographic Proceeds and applied as contemplated by
SECTION 2.5.6.1. Any such Net Distribution Fees shall not, however, be
converted into Contingent Stock pursuant to SECTION 2.5.4.
2.5.6.3 As used in this Agreement, "NATIONAL GEOGRAPHIC
PROCEEDS" means any award or other amount, net of contingent payments to third
parties, received by any of the parties to this Agreement in connection with the
National Geographic Arbitration; and "NATIONAL GEOGRAPHIC ARBITRATION" means the
arbitration currently pending in Washington, D.C., between the Company and
National Geographic.
2.5.6.4 All shares of Parent Stock (as hereinafter defined)
required to be delivered pursuant to this SECTION 2.5.6 shall be delivered to
the Stockholders as soon as practicable after the National Geographic Proceeds
attributable to such shares are received by any of the
parties to this Agreement.
2.6 CONVERSION OF COMPANY STOCK. At the Effective Time, by virtue of
the Merger and without any further action on the part of the Company, the
Stockholders, MergerCo, or Parent, each issued and outstanding share of Company
Stock shall be canceled and converted into the right to receive the pro rata
share of the Closing Stock, the Contingent Payments and the Additional Parent
Common Stock.
2.7 MERGERCO COMMON STOCK. The outstanding shares of MergerCo shall
remain outstanding and are not affected by the Merger.
2.8 DELIVERY OF CERTIFICATES. At the Closing the Stockholders shall
be entitled to receive, upon surrender to the Parent or its representatives, of
any and all certificates evidencing the Company Stock (the "CERTIFICATES") for
cancellation, the aggregate Closing Stock in accordance with this Agreement and
later, any Contingent Shares and/or any Additional Parent Common Stock that
becomes payable in accordance to SECTIONS 2.5.4 or 2.5.5 above, which shall have
the Legend, into which such Company Stock shall have been converted in the
Merger. Upon the delivery and surrender of each Certificate by the Stockholders
such Certificates shall forthwith be canceled. Until so surrendered, each
Certificate shall be deemed for all corporate purposes to evidence only the
right to receive upon such surrender the aggregate number of Closing Stock into
which the Company Stock represented thereby is convertible.
2.9 CLOSING OF TRANSFER BOOKS. At and after the Effective Time,
transfers of the shares of Company Common Stock outstanding immediately prior to
the Effective Time shall not be made on the stock transfer books of the Company.
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2.10 ADJUSTMENT FOR STOCK SPLIT, ETC. If at any time after the Closing
the outstanding shares of Parent Common Stock or Series B Preferred Stock are
changed into a different number of shares or a different class by reason of a
stock split, reclassification, recapitalization, combination, exchange of shares
or readjustment, or a stock dividend thereon is declared with a record date
after the Closing, the number of shares of stock then or thereafter required to
be delivered to the Stockholders pursuant to this Agreement shall be
correspondingly and appropriately adjusted.
ARTICLE 3.
THE CLOSING
The Closing of the Merger (the "CLOSING") shall, unless another date or
place is agreed to in writing by the parties, take place at the offices of Troop
Xxxxxxxxx Xxxxxxx & Xxxxxx, LLP, 00000 Xxxxxxxx Xxxxxxxxx, Xxx Xxxxxxx,
Xxxxxxxxxx 00000 (except for the filing of the Agreement of Merger, which shall
take place in the office of the California Secretary of State) on the second
business day following the satisfaction or waiver of all conditions precedent to
the Merger or such other time as shall be mutually agreed to by the Company and
Parent. The date of the Closing is referred to in this Agreement as the
"CLOSING DATE."
ARTICLE 4.
REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND THE STOCKHOLDERS
The Company represents and warrants, subject to those matters identified
in the disclosure schedule attached hereto as SCHEDULE 4 (the "DISCLOSURE
SCHEDULE"), to the Parent and MergerCo, which representations and warranties
are, as of the Effective Date, true and correct, as set forth below. For
purposes of this ARTICLE 4, the phrase "knowledge of the Company" or words of
similar import shall mean the knowledge of the Stockholders after due inquiry.
4.1 ORGANIZATION AND STANDING; CHARTER DOCUMENTS AND BY-LAWS. The
Company is a corporation duly organized, validly existing and in good standing
under the laws of the state of California. The Company is qualified, licensed
or domesticated as a foreign corporation and is in good standing in all
jurisdictions where the character of its properties owned or held under lease or
the nature of the business conducted by it make such qualification necessary
except where the failure to be so qualified would not have a Material Adverse
Effect. The Company has the requisite corporate power and corporate authority to
own, lease and operate its properties and assets and to carry on its business in
the manner and in the locations as presently conducted. The state of
incorporation of the Company and each foreign jurisdiction in which it is
qualified are set forth in SECTION 4.1 of the Disclosure Schedule. True and
correct copies of the charter documents, by-laws and stock ledger of the Company
(the "COMPANY ORGANIZATIONAL DOCUMENTS") have been delivered to Parent.
12
4.2 AUTHORIZATION. The Company has the corporate power and authority
to enter into this Agreement and each of the Ancillary Agreements and to carry
out its obligations hereunder and thereunder. The execution and delivery of this
Agreement and each of the Ancillary Agreements and the consummation of the
transactions contemplated hereby and thereby have been duly and validly
authorized by the Company's Board of Directors and the Company's stockholders;
no other corporate proceedings on the part of the Company are necessary to
authorize the execution, delivery and performance by the Company of this
Agreement and each of the Ancillary Agreements. The execution, delivery and
performance of this Agreement and each of the Ancillary Agreements by the
Company will not conflict with or constitute a breach, violation or default
under the Company's organizational documents, any statute, law or administrative
regulation, or under any judgment, decree, order, writ, governmental permit or
license, any Material Contract or any other agreement, lease, indenture or
instrument to which the Company is a party or by which the Company is bound,
which breach, violation or default would have a Material Adverse Effect on the
Company. This Agreement and each of the Ancillary Agreements have been duly and
validly executed and delivered by the Company and constitute the legal, valid
and binding obligations of the Company enforceable in accordance with their
terms except as enforcement may be limited by applicable bankruptcy, insolvency
or similar laws affecting enforcement of creditors' rights generally.
4.3 CAPITAL STOCK. The authorized capital stock of the Company
consists of 50,000 shares of Common Stock, no par value, of which 20,000 shares
are issued and outstanding and no shares are issued and held in the treasury of
the Company. All of the Common Stock of the Company is owned by Xxx Xxxxxxx
(10,000 shares) and Xxxxx Xxxxxxx (10,000 shares). As of the date hereof, the
Company has no authorized class of capital stock other than the Company Stock.
All of the issued and outstanding shares of Company Stock are duly authorized,
validly issued, fully paid and are non-assessable and were not issued in
violation of any preemptive rights or any Federal or state securities laws and
all such outstanding shares of Company Stock are held of record and beneficially
solely by the Stockholders. As of the date hereof, the Company has reserved no
shares of Company Stock for issuance pursuant to any option, warrant,
subscription or other similar agreement or commitment. As of the date hereof,
the Company neither has nor is a party to any outstanding written or oral
offers, subscriptions, options, warrants, rights or other agreements,
obligations or commitments obligating the Company to issue or sell, or cause to
be issued or sold, any shares of any class of capital stock of the Company
(including Company Stock) or any securities or obligations convertible into or
exchangeable for or giving any Person any right to acquire any shares of such
capital stock, or obligating the Company to enter into any such agreement or
commitment and no obligation or commitment to authorize for issuance any shares
of any other class of capital stock.
4.4 SUBSIDIARIES AND AFFILIATES AND OTHER NAMES. The Company does not
have any Subsidiaries or own any equity interest or other securities or
ownership interest in any entity. The Company (including any entity merged into
or consolidated with the Company or a predecessor to the Company's business) has
not been known as or used any name for itself or any of its
operations other
13
than the names MWI Distribution, Inc., MediaWorks, LLC and MediaWorks
International, LLC.
4.5 NO CONSENTS. To the knowledge of the Company, no consent,
authorization, order or approval of, or filing with or registration with, any
governmental authority, commission, board or other regulatory body of the United
States or any state or political subdivision thereof, or any other Person, other
than the California Filings, is required to be made or obtained by the Company
for or in connection with the execution and delivery by the Company and the
Stockholders of this Agreement and the Ancillary Agreements and the consummation
by the Company and the Stockholders of the transactions contemplated hereby and
thereby, the absence of which would have a Material Adverse Effect on the
Company.
4.6 FINANCIAL STATEMENTS. The books, accounts and records of the
Company are, and have been, maintained in the Company's usual, regular and
ordinary manner, in accordance with GAAP consistently applied. The financial
information provided by the Company (the "UNAUDITED FINANCIAL STATEMENTS") and
attached to this Agreement as EXHIBIT 4.6 is true and correct in all material
respects. The Unaudited Financial Statements include a consolidated balance
sheet, statements of earnings, stockholders' equity and cash flows for the
period November 16, 1997 to March 31, 1998, consolidated balance sheets,
accounts receivable aging, consolidated statements of earnings, stockholders'
equity and cash flows for each year of the Company's existence, together with
appended notes which are an integral part thereof. All of the Unaudited
Financial Statements, including any appended notes which are an integral part of
such statements, are prepared in conformity with GAAP applied on a consistent
basis throughout the periods covered thereby, each balance sheet therein
presenting fairly the consolidated financial position of the Company as at its
respective date and each statement of earnings, stockholders' equity and cash
flows presents fairly the consolidated results of operations, stockholders'
equity and cash flows, respectively, of the Company for the period covered
thereby.
4.7 LIABILITIES. The Company, to its knowledge, does not have any
obligations or liabilities (direct or indirect, matured or unmatured, absolute,
accrued, contingent or otherwise) whether or not required by GAAP to be
reflected or reserved against on a balance sheet ("LIABILITIES") other than
Liabilities provided for or reserved against in the Unaudited Financial
Statements or as disclosed in SECTION 4.7 of the Disclosure Schedule. None of
the Liabilities described above relates to or has arisen out of a breach of
contract, breach of warranty, tort or infringement by or against the Company or
any claim or lawsuit involving the Company.
4.8 ABSENCE OF CERTAIN CHANGES OR EVENTS. Since the period ended
March 31, 1998, the Company has conducted its business only in the ordinary and
usual course consistent with past practice or as required for the consummation
of the transactions contemplated by this Agreement, and since that date there
has not been:
4.8.1 any Material Adverse Effect on the Company;
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4.8.2 any change in accounting methods, principles and practices
employed by the Company (other than the change from cash basis accounting to
accrual basis);
4.8.3 any casualty, damage, destruction or loss, or interruption
of use of any asset or property (whether covered by insurance or not) in excess
of $25,000 individually or in the aggregate;
4.8.4 any declaration, payment or setting aside for payment of
any dividends or other distribution on the Company Stock or purchase, exchange
or redemption of any of the Company Stock;
4.8.5 any grant to any officer or director of any increase in
compensation in an amount in excess of $10,000 individually or $50,000 in the
aggregate, excluding the Cash Bonus called for herein;
4.8.6 any sale, assignment, lease, exchange, transfer or other
disposition of any of its assets, contracts, licenses, or rights thereunder, or
property, except for sales of inventory and cash applied in the payment of the
Company's Liabilities, in each case in the usual and ordinary course of business
in accordance with the Company's past practices;
4.8.7 any write off of any material asset as unusable or obsolete
or for any other reason;
4.8.8 any material change in the conduct or nature of any aspect
of the business of the Company;
4.8.9 any capital expenditures in an amount which exceeds $20,000
in the aggregate;
4.8.10 any discharge of any Liability except in the usual and
ordinary course of business in accordance with past practices, or prepayment of
any Liability which, in the aggregate, exceeds $50,000;
4.8.11 any borrowing of any money other than in the ordinary
course of business consistent with past custom and practice or issuance or sale
of any bonds, debentures, notes or other corporate securities of any class,
including without limitation, those evidencing borrowed money, or prepayment or
acceleration of any payments under any of the foregoing, or otherwise making of
any payments in respect thereof other than in accordance with regularly
scheduled payments;
4.8.12 any hiring or termination of any employee who has an annual
salary in excess of $30,000;
15
4.8.13 any payments or distributions to employees, officers or
directors of the Company except such amounts as constitute currently effective
compensation for services rendered, or reimbursement for reasonable, ordinary
and necessary out-of-pocket business expenses;
4.8.14 any payment or incurrence of any management or consulting
fees, or engagement of any consultants;
4.8.15 any issuance or sale of any securities of any class; or
4.8.16 without limitation by the enumeration of any of the
foregoing, the entry into any material transactions other than in the usual and
ordinary course of business in accordance with past practices (the foregoing
representation and warranty shall not be deemed to be breached by virtue of the
entry by the Company or the Stockholders into this Agreement or their
consummation of the transactions contemplated hereby).
4.9 REAL PROPERTY. The Company does not own any real property. All
real property which the Company holds under any lease is identified in SECTION
4.9 of the Disclosure Schedule. Such leases are in full force and effect; none
of the leases has been modified or amended; no waiver, indulgence or
postponement of the obligations of the Company thereunder has been granted by
any lessor and there exists no violation thereof or event of default thereunder
or event, occurrence, condition or act by the Company, or to the knowledge of
the Company by any lessor, which, with the giving of notice or the lapse of
time, would become a default under the terms and provisions of such leases. The
Company has not subleased or agreed to sublease to anyone any real property
owned or leased by it and has not assigned or agreed to assign to anyone other
than Parent any such lease.
4.10 TANGIBLE PERSONAL PROPERTY. The Company has good and marketable
title to or a valid right to use all of its tangible personal property, free and
clear of any and all Claims other than any Claim or Claims which alone or in the
aggregate would not have a Material Adverse Effect on the Company. To the
Company's knowledge, no unreleased mortgage, trust deed, chattel mortgage,
security agreement, financing statement or other instrument encumbering any of
the Company assets has been recorded, filed, executed or delivered.
4.11 CONTRACTS. SCHEDULE 4.11 contains a true and complete list of all
Material Contracts to which the Company is a party, by which it is bound, or
with respect to which it is the issuer, beneficiary or recipient. To the
Company's knowledge, all such Material Contracts are in full force and binding
on the parties thereto and no default has occurred thereunder by the Company and
no default has occurred thereunder by any other contracting party in each case
which has given, or with the lapse of time or giving of notice, or both, would
give any party the right to terminate such agreement or would result in the
acceleration of any liability or monetary obligation or the imposition of any
penalty, fine or forfeiture thereunder. All Material Contracts
16
originally made in the name of either of MediaWorks; MediaWorks
International; MediaWorks International, LLC; MediaWorks, LLC; MWI
Distribution; MediaSat International; Xxxxx Xxxxxxx; XxxxXx Entertainment; or
Xxx Xxxxxxx, whether individually or any combination of the aforementioned,
have been transferred to the Company and there are no such contracts
remaining in the name of any of MediaWorks; MediaWorks International;
MediaWorks International, LLC; MediaWorks, LLC; MWI Distribution; MediaSat
International; Xxxxx Xxxxxxx; XxxxXx Entertainment; or Xxx Xxxxxxx, other
than those contracts specifically identified in a separate section of
SCHEDULE 4.11 as having not been transferred to the Company. No event,
occurrence or condition exists which, with the lapse of time, the giving of
notice, or both, would become a default by the Company under any Material
Contract or, to the knowledge of the Company, any other contracting party.
For purposes of this Agreement, "MATERIAL CONTRACTS" shall mean any oral or
written: (a) employment, management, consulting and other contracts or
agreements with any current or former officer, director, employee or
consultant or with any entity in which any of the foregoing is an owner,
officer, director, employee or consultant, except for any such agreements
which are terminable at will, (b) contracts, agreements, understandings or
commitments for the purchase or sale of any materials, products, services or
supplies (i) calling for a purchase price or payment by the Company in any
one year of more than $25,000 (or $50,000 in the aggregate, in the case of
any related series of contracts or other commitments) or (ii) which are not
one-time purchase orders and cannot be canceled or terminated by the Company
without liability, premium or penalty on one month's or less notice, (c)
leases, conditional sales contracts, licenses and other agreements under
which the Company uses any tangible personal property (including without
limitation all computer and peripheral and other related equipment and
devices) to which there are remaining payment obligations which exceed
$10,000 in the aggregate, (d) contracts or arrangements with customers or
suppliers for the sharing of fees, the rebating of charges or other similar
arrangements, (e) contracts, commitments or options relating to either (i)
the acquisition by the Company of any operating business or substantially all
of the assets of a third party or (ii) the purchase or disposition of any
tangible or intangible assets of the Company other than in the ordinary and
usual course of business, (f) contracts containing covenants or restrictions
limiting in any way the freedom of the Company to compete in any line of
business or with any person or entity in any geographical area or for any
period of time, (g) contracts or arrangements requiring the payment to any
person of an override, commission, royalty or fee, (h) guarantees,
performance bid or completion bonds, or other contracts of suretyship or
indemnification, (i) trade secret, confidentiality or similar agreements, (j)
joint venture, operating, shareholder and partnership agreements, (k) loan
agreements, (l) notes, (m) security agreements, mortgages, debentures,
indentures, factoring agreements or letters of credit, (n) sales
representative, distribution, production, franchise, advertising and similar
agreements, (o) license agreements, (p) service agreements affecting the
Company's assets where the service charge is in excess of $50,000 in the
aggregate or is not terminable on 30 days or less notice with a payment of no
more than $5,000, and (q) contracts, agreements, understandings or
commitments for, or in connection with, any and all television (series or
movies), feature film, video or other entertainment related projects, either
now existing, in production or in development, which are owned by, controlled
by, under option to, or entitle the Company or either of the Stockholders,
17
to any profit participation, equity interest, activity, credit, compensation
or otherwise (the "PROPERTIES"), including, but not limited to, all film,
television or video distribution rights of any kind and nature in and to the
Properties.
4.12 EMPLOYEE BENEFITS. The following representations, warranties and
agreements relate to employee benefits and are made to the Company's knowledge:
4.12.1 Neither the Company nor any affiliate of the Company as
determined under Section 414(b), (c), (m) or (o) of the Code ("ERISA AFFILIATE")
maintains, administers or contributes to, or has maintained, administered or
contributed to, nor do the employees of the Company or any ERISA Affiliate
receive or expect to receive as a condition of employment, benefits pursuant to
any: employee benefit plan (as defined in Section 3(3) of the Employee
Retirement Income Security Act of 1974, as amended ("ERISA")) ("PLAN"); or
bonus, deferred compensation, stock purchase, stock option, stock appreciation,
severance plan, salary continuation, vacation, holiday, sick leave, fringe
benefit, personnel policy, tool allowance, safety equipment allowance,
incentive, insurance, welfare or similar plan, program, policy or arrangement
("BENEFIT PLAN") which could result in the MergerCo or the Company having any
liabilities, whether direct or indirect, other than those Plans and Benefit
Plans described in the Disclosure Schedule.
4.12.2 All Plans and Benefit Plans comply with and are and have
been operated in material compliance with each applicable provision of ERISA,
the Code (other federal statutes, state law (including, without limitation,
state insurance law) and the regulations and rules promulgated pursuant thereto
or in connection therewith. Each Plan which is a group health plan (within the
meaning of Section 5000(b)(1) of the Code) complies with and has been maintained
and operated in accordance with each of the requirements of section 162(k) of
the Code as in effect for years beginning prior to 1989, Section 4980B of the
Code for years beginning after December 31, 1988 and Part 6 of Subtitle B of
Title I of ERISA.
4.12.3 Neither the Company nor any ERISA Affiliate has failed to
make any contributions or to pay any amounts due and owing as required by the
terms of any Plan, Benefit Plan, or ERISA or any other law applicable to any
Plan or Benefit Plan.
4.12.4 True and complete copies of each Plan and Benefit Plan, all
written communications to employees regarding any Plan and Benefit Plan and each
plan, agreement, instrument and commitment referred to herein and any related
contracts, insurance policies or other agreements or documentation necessary or
appropriate for the customary operation, amendment, modification or termination
of any Plan or Benefit Plan, have been made available to the Parent and
MergerCo, including a description of the material terms of any unwritten Plan or
Benefit Plan. All of the foregoing are legally valid, binding, in full force
and effect, and there are no defaults thereunder. With respect to each Plan and
Benefit Plan, SECTION 4.12.4 of the
18
Disclosure Schedule sets forth the name and address of the administrator and
the policy number and insurer under all insurance policies.
4.12.5 Neither the Company nor any ERISA Affiliate maintains,
administers or contributes to or has maintained, administered or contributed to
within the six (6) preceding full calendar years any Plan subject to Title IV of
ERISA or Section 412 of the Code or Part 3 of Title I(B) of ERISA.
4.12.6 All contributions, payments and premiums, reimbursements,
expenses and accruals with respect to all Plans and Benefit Plans for all
periods prior to or as of the Closing Date have been funded in a funding vehicle
separate from the assets of the Company or accrued on the Unaudited Financial
Statements.
4.12.7 Except as required by Section 4980B of the Code, neither
the Company nor any ERISA Affiliate has promised any former employee or other
individual not employed by the Company or any ERISA Affiliate, medical or other
benefit coverage, and neither the Company nor any ERISA Affiliate maintains or
contributes to any plan or arrangement providing medical benefits, life
insurance or other welfare benefits to former employees, their spouses or
dependents or any other individual not employed by the Company or any ERISA
Affiliate except to the extent required by applicable law.
4.13 COMPANY AND ITS SUBSIDIARY EMPLOYEES. With respect to employees
of the Company:
4.13.1 the Company is and has been in material compliance with
all applicable laws respecting employment and employment practices, terms and
conditions of employment and wages and hours, including, without limitation, any
such laws respecting employment discrimination, occupational safety and health,
immigration status, and unfair labor practices; to the Company's knowledge,
there are no pending or threatened unfair labor practice charges or employee
grievance charges;
4.13.2 there is no request for union representation, labor strike,
dispute, slowdown or stoppage pending or threatened against or directly
affecting the Company;
4.13.3 no grievance or arbitration proceeding arising out of or
under collective bargaining agreements is pending and no claims therefor exist
before any governmental agency;
4.13.4 to the Company's knowledge, the employment of the Company's
employees is terminable at will without cost to the Company except for payments
required under the Plans and the Benefit Plans and payment of accrued salaries
or wages and vacation pay;
19
4.13.5 there is no collective bargaining agreement which is
binding on the Company or other written or oral agreement with respect to
collective bargaining with any union or group of employees;
4.13.6 the Company has not experienced any work stoppage since
November, 1997;
4.13.7 the Company is not delinquent in payments to any of its
employees for any wages, salaries, commissions, bonuses or other direct
compensation for any services performed by them to the Closing Date or amounts
required to be reimbursed to such employees;
4.13.8 no employee or former employee has any right to be rehired
by the Company prior to the Company's hiring a Person not previously employed by
the Company;
4.13.9 SECTION 4.13.9 of the Disclosure Schedule contains a true
and complete list of all employees who are employed by the Company as of April
30, 1998, and such list correctly reflects their salaries, wages, other
compensation (other than benefits under the Plans and the Benefit Plans), dates
of employment and positions. The Company has not taken any actions which were
calculated to dissuade any present employees, representatives or agents of the
Company from commencing an association with the Parent or MergerCo after the
Closing Date. The Company has no knowledge of any intention of a "Significant
Employee" (as herein defined) or that such Significant Employee has terminated
or intends to terminate his or her employment with the Company. As used herein
"SIGNIFICANT EMPLOYEE" means the Chief Executive Officer, Chief Operating
Officer, Chief Financial Officer, President, any Vice President, or any Manager
of the Company.
4.14 TAX AUDITS AND PAYMENT OF TAXES. The following representations,
warranties and agreements are made with respect to tax matters:
4.14.1 As used in this Agreement, the following terms shall have
the following meanings: (A) "TAXES" shall mean all federal, state, local,
foreign and other net income, gross income, gross receipts, sales, use, ad
valorem, estimated, transfer, franchise, profits, license, lease, service,
service use, withholding, payroll, employment, excise, severance, stamp,
occupation, premium, property, windfall profits, customs, duties or other taxes,
fees, assessments or charges of any kind whatever, together with any interest
and any penalties, additions to tax or additional amounts with respect thereto;
and (B) "TAX RETURN(s)" shall mean all returns, declarations, reports,
statements and other documents required to be filed in respect of Taxes,
including Returns for estimated Taxes. All citations to the Code, or to the
Treasury Regulations promulgated thereunder, shall include any amendments or any
substitute or successor provisions thereto.
20
4.14.2 Company has filed all Tax Returns that it was required to
file. All such Tax Returns were correct and complete in all respects. All
Taxes owed by the Company (whether or not shown on any Tax Return) have been
paid. The Company currently is not the beneficiary of any extension of time
within which to file any Tax Return. No claim has ever been made by an
authority in a jurisdiction where the Company does not file Tax Returns that it
is or may be subject to taxation by that jurisdiction. There are no security
interests on any of the assets of the Company that arose in connection with any
failure (or alleged failure) to pay any Tax.
4.14.3 The Company has withheld and paid all Taxes required to
have been withheld and paid in connection with amounts paid or owing to any
employee, independent contractor, creditor, stockholder, or other third party.
4.14.4 No Stockholder or director or officer (or employee
responsible for Tax matters) of the Company expects any authority to assess any
additional Taxes for any period for which Tax Returns have been filed. There is
no dispute or claim concerning any tax liability of the Company either (A)
claimed or raised by any authority in writing or (B) as to which any of the
Stockholders and the directors and officers (and employees responsible for Tax
matters) of the Company has knowledge based upon personal contact with any agent
of such authority. SECTION 4.14 of the Disclosure Schedule lists all federal,
state, local, and foreign income Tax Returns filed with respect to the Company
for taxable periods ended on or after December 31, 1996, indicates those Tax
Returns that have been audited, and indicates those Tax Returns that currently
are the subject of audit. The Stockholders have delivered to the Parent correct
and complete copies of all federal income Tax Returns, examination reports, and
statements of deficiencies assessed against or agreed to by the Company since
December 31, 1996.
4.14.5 The Company has not waived any statute of limitations in
respect of Taxes or agreed to any extension of time with respect to a Tax
assessment or deficiency.
4.14.6 The Company has not filed a consent under Code Section
341(f) concerning collapsible corporations. The Company has not made any
payments, is not obligated to make any payments, and is not a party to any
agreement that under certain circumstances could obligate it to make any
payments that will not be deductible under Code Section 280G. The Company is
not and has not been a United States real property holding corporation within
the meaning of Code Section 897(c)(2) during the applicable period specified in
Code Section 897(c)(1)(A)(ii). The Company has disclosed on its federal income
Tax Returns all positions taken therein that could give rise to a substantial
understatement of federal income Tax within the meaning of Code Section 6662.
The Company is not a party to any Tax allocation or sharing agreement. The
Company (A) has not been a member of an Affiliated Group filing a consolidated
federal income Tax Return or (B) has any Liability for the Taxes of any Person
(other than any of the Company) under Reg. Section 1.1502-6 (or any similar
provision of state, local, or foreign law), as a transferee or successor, by
contract, or otherwise.
21
4.14.7 SECTION 4.14 of the Disclosure Schedule sets forth the
following information with respect to the Company as of the most recent
practicable date (as well as on an estimated pro forma basis as of the Closing
giving effect to the consummation of the transactions contemplated hereby): (A)
the basis of the Company in its assets; and (B) the amount of any net operating
loss, net capital loss, unused investment or other credit, unused foreign tax,
or excess charitable contribution allocable to the Company.
4.14.8 The unpaid Taxes of the Company: (A) did not, as of the
most recent fiscal month end, exceed the reserve for Tax Liability (rather than
any reserve for deferred Taxes established to reflect timing differences between
book and Tax income) set forth on the face of the most recent balance sheet
(rather than in any notes thereto) and (B) do not exceed that reserve as
adjusted for the passage of time through the Closing Date in accordance with the
past custom and practice of the Company in filing its Tax Returns.
4.15 PAYMENTS TO COMPANY EMPLOYEES. SECTION 4.15 of the Disclosure
Schedule describes each:
4.15.1 business relationship (excluding employee compensation paid
in the ordinary course of business consistent with past practices and other
ordinary incidents of employment existing on the date of this Agreement) between
(i) the Company and (ii) any present or former officer, director, stockholder or
Affiliate of the Company, any present or former known spouse, sibling, ancestor
or descendant of any of the aforementioned persons or any trust or other similar
entity for the benefit of any of the forgoing persons (all such persons and
trusts encompassed by this clause (ii) being sometimes referred to collectively
herein as the "RELATED PARTIES" and individually as a "RELATED PARTY");
4.15.2 transaction (excluding employee compensation paid in the
ordinary course of business consistent with past practices and other ordinary
incidents of employment) occurring between the Company and any Related Party;
and
4.15.3 amount owing by or to any of the Related Parties,
respectively, to or from the Company as of the date of this Agreement. To the
Company's knowledge, no property or interest in any property which relates to
and is or will be necessary or useful in the present or currently contemplated
future operation or the business of the Company is presently owned by or leased
or licensed by or to any Related Party. On or prior to the Closing Date, all
amounts due and owing to the Company by any of the Related Parties shall be paid
in full. To the Company's knowledge, no Related Party has any interest,
directly or indirectly, in any business, corporate or otherwise, which is in
competition with the business of the Company.
4.16 LITIGATION. Other than the National Geographic Arbitration as
described more fully in SECTION 4.16 of the Disclosure Schedule, there is no
litigation or proceeding pending before any court or administrative agency or,
to the knowledge of the Company, threatened, in law or in
22
equity, and there are no proceedings or governmental investigations pending
or, to the knowledge of the Company, threatened against the Company, or any
of their respective officers or directors, with respect to or affecting the
properties, assets or operations of the Company, or related to the
consummation of the transactions contemplated hereby. To the knowledge of
the Company, there are no facts which, if known by a potential claimant or
governmental authority, would be likely to give rise to a claim or
proceedings which, if asserted or conducted with results unfavorable to the
Company, would have a Material Adverse Effect on the Company or on the
consummation of the transactions contemplated hereby. The Company is not a
party to, or bound by, any decree, order or arbitration award (or agreement
entered into in any administrative, judicial or arbitration proceeding with
any governmental authority) with respect to or affecting its properties,
assets or operations.
4.17 INSURANCE. SECTION 4.17 of the Disclosure Schedule sets forth a
true and correct list of all policies of insurance, including the types and
coverage amounts thereof, owned by the Company or in which the Company is named
as an insured party or beneficiary. True and correct copies of all such
policies have been delivered to the Parent. All such policies are in full force
and effect and the Company has not received any notice of cancellation of any
such insurance policies. The Company has never been refused any insurance, nor
has its coverage been limited, by any insurance carrier to which it has applied
for insurance or with which it has carried insurance. The Company has not
borrowed any money or otherwise received any loans against any such policies.
The Company has never (i) made any accident, loss or other claims in excess of
$5,000 under any of the insurance policies or (ii) been notified of any material
premium increase with respect to any of the insurance policies.
4.18 ACCOUNTS RECEIVABLE. The accounts receivable reflected in the
Unaudited Financial Statements, and all accounts receivable arising since
November 15, 1997, represent bona fide claims of the Company against debtors for
sales, services performed or other charges arising on or before the date hereof
and all the goods delivered and services performed which gave rise to said
accounts were delivered or performed in accordance with the applicable orders,
contracts or customer requirements. To the knowledge of the Company, accounts
receivable are subject to no defenses, counterclaims or rights of set-off.
4.19 LOANS AND ADVANCES. There are no outstanding loans or advances by
the Company to any employees, former employees, officers, directors, security
holders, consultants or agents of the Company, nor are there any outstanding
loans or advances by any such persons to or for the benefit of the Company.
4.20 SEVERANCE AND EMPLOYMENT AGREEMENTS. The Company is not a party to
any agreement, and has no policy providing for severance or termination payments
to, any officer, director, consultant or employee.
23
4.21 COMPLIANCE WITH APPLICABLE LAW. To the Company's knowledge, its
businesses are not being conducted in violation of any applicable law,
ordinance, regulation, decree or order of any governmental entity, except for
violations which either singly or in the aggregate do not and are not expected
to have a Material Adverse Effect on the Company. The Company is not a party to
or subject to any judgment, decree, or order entered in any suit or proceeding
brought by any governmental agency or by any other Person, enjoining the Company
with respect to any business practice, the acquisition of any property, or the
conduct of business in any area.
4.22 PERMITS. A true and correct copy of every material license,
permit, registration and governmental approval, agreement and consent applied
for, pending by, issued or given to the Company, and every agreement with
governmental authorities (federal, state or local) entered into by the Company,
which is in effect or has been applied for or is pending, exclusive of
Environmental Permits (the "PERMITS"), has previously been furnished to the
Parent or MergerCo. To the Company's knowledge, such Permits constitute all
licenses, permits, registrations, approvals and agreements and consents which
are required in order for the Company to conduct its business as presently
conducted other than any license, permit, registration, approval agreement or
consent which the failure to obtain would not have a Material Adverse Effect on
the Company.
4.23 ENVIRONMENTAL COMPLIANCE MATTERS. The business of the Company as
conducted in the past did not and as currently being conducted is not in
material violation of any applicable law, ordinance, rule, prohibition or
regulation relating to air, water or noise pollution, or the production,
storage, labeling or disposition of wastes or hazardous or toxic substances, or
the health, safety or environmental conditions on, beneath or about any of the
properties owned, used or leased by the Company or relating to the business of
the Company (such laws, ordinances, rules, prohibitions and regulations being
herein referred to as "ENVIRONMENTAL LAWS"). The Company has timely filed all
material reports, obtained all material approvals and permits and generated and
maintained all material data, documentation and records required under any
applicable Environmental Laws. Neither the Company nor, to the knowledge of the
Company, any other Person has placed, stored, buried, spilled or released, used,
generated, manufactured, refined, processed, treated, dumped or disposed of any
materials produced by, or resulting from, any business, commercial or industrial
activities, operations or processes, including without limitation any materials
which are "HAZARDOUS WASTES", "HAZARDOUS SUBSTANCES", "HAZARDOUS MATERIALS",
"POLLUTANTS", "TOXIC SUBSTANCES", "SOLID WASTES" or "CONTAMINANTS" (as such
terms are defined in any applicable Environmental Law, including without
limitation the Comprehensive Environmental Response, Compensation and Liability
Act of 1980, as-amended ("CERCLA"), the Hazardous Materials Transportation Act,
the Resource Conservation and Recovery Act and the Toxic Substances Control
Act), on, beneath or about, or transported any such materials to or from, any of
the properties owned, used or leased by the Company in each case other than in
material compliance with applicable Environmental Laws and in the ordinary
course of the Company's business. The Company has not received any notice from
any governmental agency or private or public entity advising it that it is or
may be responsible, or potentially responsible, for costs with respect to a
release, a threatened release or clean up of
24
materials located in any property owned by the Company or produced by, or
resulting from, any business, commercial or industrial activities, operations
or processes of the Company, including without limitation, materials which
are Hazardous Wastes, Hazardous Substances, Hazardous Materials, Pollutants,
Toxic Substances, Solid Wastes or Contaminants.
4.24 NO CHANGE OF CONTROL PROVISION. The Company is not a party or
subject to any agreement, contract or other obligation which would require the
making of any payment, other than payments as contemplated by this Agreement, to
any employee of the Company or to any other Person as a result of the
consummation of the transactions contemplated herein.
4.25 BROKERS. Neither the Company nor any of the Stockholders dealt
with any Person who is or may be entitled to a broker's commission, finder's
fee, investment banker's fee or similar payment for arranging the transactions
contemplated hereby or introducing the parties to each other.
4.26 CONVERSION TERMS. The allocation of Closing Stock, the Contingent
Payments and the Additional Parent Common Stock among the Stockholders, as
determined pursuant to the provisions contained in ARTICLE 2 hereof and as set
forth in SCHEDULE 4.26 attached hereto, is in accordance with this Agreement,
the Company's organizational documents and all plans, agreements and other
instruments and documents relating to the Company Stock or rights thereto.
4.27 INFORMATION. All written information provided to the Parent or
its agents by or on behalf of the Company or any respective representatives
(including, without limitation, each representation and warranty of the Company
set forth in this Agreement) is, and the Company covenants that any such
information provided as of the Effective Date shall be, true and correct in all
material respects and does not, or shall not, omit any material fact required to
be included therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading.
ARTICLE 4A.
REPRESENTATIONS AND WARRANTIES OF THE STOCKHOLDERS
Each Stockholder, jointly and severally, represents and warrants to the
Parent and MergerCo, which representations and warranties are, as of the
Effective Date, true and correct, as set forth below.
4A.1 Each Stockholder has the power and authority to enter into this
Agreement and to carry out their respective obligations hereunder and
thereunder. The execution, delivery and performance of this Agreement and each
of the Stockholder Ancillary Agreements by such Stockholder will not conflict
with or constitute a breach, violation or default under any statute, law or
administrative regulation, or under any judgment, decree, order, writ,
governmental permit or
25
license, any Material Contract or any other agreement, lease, indenture or
instrument to which such Stockholder is a party or by which such Stockholder
is bound, which breach, violation or default would have a Material Adverse
Effect on the Company.
4A.2 All Company Stock owned by each Stockholder is owned by such
Stockholder free and clear of any lien, option, security interest, pledge or
other encumbrance, proxy, voting trust, voting agreement, judgment, charge,
escrow, right of first refusal or first offer, indenture, claim or transfer
restriction, whether arising by agreement or operation of law ("CLAIMS").
4A.3 Each Stockholder does not own, directly or indirectly, any equity
interest or other securities or ownership interest in any entity involved in a
business related to or competitive in any way with the businesses of the
Company, MergerCo or the Parent. Notwithstanding the preceding sentence, the
foregoing shall not apply to a Stockholder's ownership of up to 10% of any
entity related to or competitive in any way with the businesses of the Surviving
Corporation or the Parent so long as such business has securities registered
under the Securities Act which are listed on a national securities exchange or
market.
4A.4 Each Stockholder has not taken any actions which were calculated
to dissuade any present employees, representatives or agents of the Company from
commencing an association with the Parent or MergerCo after the Closing Date.
ARTICLE 5.
REPRESENTATIONS AND WARRANTIES OF THE PARENT AND MERGERCO
The Parent and MergerCo, represent and warrant to the Company and the
Stockholders, which representations and warranties are, as of the Effective
Date, true and correct, as follows:
5.1 ORGANIZATION AND STANDING Each of the Parent and MergerCo is a
corporation duly incorporated and in good standing under the laws of the state
of its incorporation. Each of the Parent and the MergerCo is qualified,
licensed or domesticated as a foreign corporation and is in good standing in all
jurisdictions where the character of its properties owned or held under lease or
the nature of the business conducted by it make such qualification necessary
except where the failure to be so qualified would not have a Material Adverse
Effect. Each of the Parent and the MergerCo has the requisite corporate power
and corporate authority to own, lease and operate its properties and assets and
to carry on its business in the manner and in the locations as presently
conducted.
5.2 AUTHORIZATION. The Parent and MergerCo have the requisite
corporate power and authority to enter into and carry out the terms and
conditions of this Agreement and the Ancillary Agreements to which they are a
party and to carry out their obligations hereunder and thereunder. The
execution and delivery of this Agreement and each of the Ancillary Agreements
and the
26
consummation of the transactions contemplated hereby and thereby have been
duly and validly authorized by the Parent's and MergerCo's Board of Directors
and no other corporate proceedings on the part of the Parent or MergerCo are
necessary to authorize this Agreement and each of the Ancillary Agreements.
This Agreement and each of the Ancillary Agreements have been duly executed
and delivered by the Parent and MergerCo and constitute the legal, valid and
binding obligations of the Parent and MergerCo, enforceable against the
Parent and MergerCo in accordance with their respective terms, subject to the
laws of bankruptcy, insolvency, or creditor rights and equitable remedies.
The execution, delivery and performance of this Agreement and each of the
Ancillary Agreements by Parent and MergerCo will not conflict with or
constitute a breach, violation or default under Parent's or MergerCo's
organizational documents, any statute, law or administrative regulation, or
under any judgment, decree, order, writ, governmental permit or license, any
material contract or any other agreement, lease, indenture or instrument to
which Parent or MergerCo is a party or by which either of them is bound,
which breach, violation or default would have a Material Adverse Effect on
either Parent or MergerCo.
5.3 VALIDITY OF MERGER SHARES. Upon delivery of the certificates for
the Merger Shares pursuant to the terms of this Agreement, due countersignature
of the certificates by Parent's transfer agent and delivery to the Stockholders
receiving Merger Shares pursuant to this Agreement, the Merger Shares to be
issued by the Company represented thereby will be duly authorized and validly
issued, fully paid and nonassessable.
5.4 SEC REPORTS. The Parent has heretofore furnished or made
available to the Company its Annual Reports on Form 10-K for each fiscal year
and all Quarterly Reports on Form 10-Q for each of the fiscal quarters, as
filed with the SEC and any other reports or registration statements filed by the
Parent with the SEC since September 1996. As of their respective dates, such
reports and statements did not contain any untrue statement of a material fact
or omit to state a material fact required to be stated therein or necessary to
make the statements therein, in light of the circumstances under which they were
made, not misleading.
5.5 NO CONSENTS. No consent, authorization, order or approval of, or
filing with or registration with, any governmental authority, commission, board
or other regulatory body of the United States or any state or political
subdivision thereof, or any other Person, is required to be made or obtained by
Parent or MergerCo for or the execution and delivery by Parent and MergerCo, of
this Agreement, the Ancillary Agreements and the Stockholder Ancillary
Agreements and the consummation by Parent and MergerCo of the transactions
contemplated hereby and thereby other than filings under the Securities Act, the
Exchange Act, state blue sky laws and the filing of the California Filings.
5.6 COMPLIANCE WITH APPLICABLE LAW. The businesses of Parent, its
Subsidiaries and MergerCo are not being conducted in violation of any applicable
law, ordinance, regulation, decree or order of any governmental entity, except
for violations which either singly or in the aggregate do not and are not
expected to have a Material Adverse Effect on Parent, its Subsidiaries or
MergerCo. Neither Parent, its Subsidiaries nor MergerCo is a party to or
subject to any judgment, decree, or order entered in any suit or proceeding
brought by any governmental agency or by any other Person, enjoining Parent, its
Subsidiaries
27
or MergerCo with respect to any business practice, the acquisition of any
property, or the conduct of business in any area.
5.7 NO BROKERS. Neither the Parent nor MergerCo dealt with any Person
who is or may be entitled to a broker's commission, finder's fee, investment
banker's fee or similar payment for arranging the transactions contemplated
hereby or introducing the parties to each other.
5.8 INFORMATION. All written information provided to the Company or
its agents by or on behalf of the Parent or any of its representatives
(including, without limitation, each representation and warranty of the Parent
set forth in this Agreement) is, and the Parent covenants that any such
information provided hereafter shall be, true and correct in all material
respects and does not, or shall not, omit any material fact required to be
included therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading; PROVIDED, HOWEVER,
that no representation or warranty is made by the Parent as to any financial
forecasts or projections previously furnished to the Company by the Parent,
except that such financial forecast or projection has been prepared in good
faith based on assumptions that are believed by the Parent to have been
reasonable at the time or times made.
ARTICLE 6.
PRE-MERGER COVENANTS OF THE PARENT, THE COMPANY,
THE PRINCIPAL STOCKHOLDERS AND MERGERCO
Each of the Parent, the Company, the Principal Stockholders and MergerCo
covenants and agrees with the others that:
6.1 CONDUCT OF BUSINESS OF THE COMPANY. Prior to the Effective Time,
except as contemplated by this Agreement, unless the other party has consented
in writing thereto, the Company (i) shall conduct its operations according to
its ordinary and usual course of business, (ii) shall use its reasonable efforts
to preserve intact its respective business organizations and goodwill, keep
available the services of its respective officers and employees and maintain
satisfactory relationships with those persons having business relationships with
it, (iii) shall not propose, adopt, or authorize any amendment to the Company's
organizational documents except as provided for in this Agreement, (iv) shall
promptly notify the Parent of any emergency or other material change in the
Company's business, properties, assets or liabilities or in the operation of its
properties and of any governmental complaints, investigations or hearings (or
communications indicating that the same may be contemplated) or the breach in
any material respect of any representation or warranty contained herein, (v)
shall not (A) authorize, issue, sell, pledge, encumber or agree to authorize,
issue, sell, pledge or encumber any additional shares of its capital stock of
any class or any other securities in respect of, in lieu of or in substitution
of common stock outstanding as of the date hereof, (B) effect any stock split,
combination, recapitalization or
28
otherwise change its capitalization as it existed on the date hereof, (C)
grant, confer or award any option, warrant, conversion right or other right
not existing on the date hereof to acquire any shares of its capital stock of
any class or any other securities in respect of, in lieu of or in
substitution of common stock outstanding as of the date hereof, (D) redeem or
otherwise acquire any of its outstanding equity securities or any outstanding
options or rights to purchase any such equity securities or make any
commitment to take such action, or, (E) declare, set aside or pay any
dividend or distribution payable in cash, stock or property with respect to
shares of its common stock or other securities, (vi) shall not knowingly
authorize, recommend, or propose, or announce an intention to propose, any
transaction, or enter into any agreement or arrangement with any other party,
that could have a Material Adverse Effect on it, (vii) shall not (A) acquire
any assets, other than in the ordinary course of business consistent with
past practice, (B) dispose of or encumber any assets other than in the
ordinary course of business consistent with past practice or relinquish,
forfeit or waive any right under any agreement, license, lease, deed or other
instrument that is material to its business or operations as presently
conducted or proposed to be conducted, or (C) incur any indebtedness for
borrowed money, or assume, guarantee or otherwise as an accommodation become
responsible for, the obligations of any other Person, or enter into any other
transaction other than in the ordinary course of business consistent with
past practice, (viii) shall not adopt, or amend to increase materially
compensation or benefits payable under, any collective bargaining, bonus,
profit sharing, compensation, stock option, pension, retirement, deferred
compensation, employment or consulting or other plan, agreement, trust, fund
or arrangement for the benefit of employees except for normal increases
consistent with past practice and the payment of cash bonuses to officers
pursuant to and consistent with existing plans or programs, (ix) shall not
enter into any transaction involving an obligation in excess of $25,000,
except for obligations in connection with this Agreement and transactions
disclosed in the Disclosure Schedule, and (x) shall not enter into any
agreement, document or instrument which would constitute a Material Contract
hereunder, except for obligations in connection with this Agreement and
transactions disclosed in the Disclosure Schedule.
6.2 INSPECTION OF RECORDS. From the date hereof to the Effective
Time, the Company shall allow the duly authorized and appropriate officers,
attorneys, accountants and other representatives of Parent access at all
reasonable times and upon reasonable notice to the records and files,
correspondence, audits and properties, as well as to all information relating to
commitments, contracts, titles and financial position, or otherwise pertaining
to, the business and affairs of the Company.
6.3 STOCKHOLDER APPROVAL. Each Stockholder covenants and agrees (i)
to vote at the meeting of Company Stockholders or by written consent, as the
case may be, to approve this Agreement, the Merger and the transactions
contemplated hereby, (ii) that such Stockholder will not exercise, and hereby
waives, his dissenter's rights under GCL with respect to any of his Company
Stock, and (iii) such Stockholder will execute the Investment Letter referred to
in SECTION 7.8 hereof.
29
6.4 [INTENTIONALLY DELETED]
6.5 FILINGS; OTHER ACTION. Subject to the terms and conditions herein
provided, the Parent, the Company and MergerCo shall: (a) use all reasonable
efforts to cooperate with one another in (i) determining which filings are
required to be made prior to the Effective Time with, and which consents,
approvals, permits or authorizations are required to be obtained prior to the
Effective Time in connection with the execution and delivery of this Agreement
and the consummation of the transactions contemplated hereby and (ii) timely
making all such filings and timely seeking all such consents, approvals, permits
or authorizations; and (b) use all reasonable efforts to take, or cause to be
taken, all other action and do, or cause to be done, all other things necessary,
proper or appropriate to consummate and make effective the transactions
contemplated by this Agreement. If, at any time after the Effective Time, any
further action is necessary or desirable to carry out the purpose of this
Agreement, the proper officers and directors of the Parent and the Stockholders
shall take all such necessary action.
6.6 PUBLICITY. Upon consummation of the Closing, Parent, the Company
and MergerCo shall, subject to the Parent's legal obligations applicable to
public companies, issue the press release attached hereto as EXHIBIT 6.6, which
press release has been mutually agreed to by Parent, the Company and MergerCo.
6.7 ACQUISITION PROPOSALS. Prior to the Effective Time, the Company
agrees and each of the Stockholders jointly and severally agree (a) that neither
the Company nor any of the Stockholders shall, and it shall direct and use its
best efforts to cause its officers, directors, employees, agents and
representatives (including, without limitation, any investment banker, attorney
or accountant retained by it) not to, initiate, solicit or encourage, directly
or indirectly, any inquiries or the making or implementation of any proposal or
offer (including, without limitation, any proposal or offer to its stockholders)
with respect to a merger, acquisition, consolidation or similar transaction
involving, or any purchase of all or any significant portion of the assets or
any equity securities of, the Company (any such proposal or offer being
hereinafter referred to as a "ACQUISITION PROPOSAL") or engage in any
negotiations concerning, or provide any confidential information or data to, or
have any discussions with, any person relating to an Acquisition Proposal, or
otherwise facilitate any effort or attempt to make or implement an Acquisition
Proposal; (b) that it will immediately cease and cause to be terminated any
existing activities, discussions or negotiations with any parties conducted
heretofore with respect to any of the foregoing and will take the necessary
steps to inform the individuals or entities referred to above of the obligations
undertaken in this SECTION 6.7; and (c) that it will notify the Parent and
MergerCo immediately if any such inquiries or proposals are received by, any
such information is received from, or any such negotiations or discussions are
sought to be initiated or continued with, it.
30
6.8 DISCLOSURE SCHEDULE. The Disclosure Schedule attached to this
Agreement contains the only conditions or exceptions to the representations and
warranties, as set forth above, of the Company and the Stockholders.
6.9 NO TRANSFER OF COMPANY STOCK. The Stockholders agree that, prior
to the consummation of the Merger, they will not transfer in any way any of the
Company Stock held by them or any interest therein.
6.10 MERGER TAX MATTERS. The parties hereto agree that neither Parent,
MergerCo, nor any of their respective subsidiaries, nor their officers,
directors, agents, or representatives have made any representation or warranty
with respect to the tax consequences of the Merger for the Company or the
Stockholders.
6.11 SELECTION OF ESCROW AGENT. The Escrow Agent (as defined in the
Escrow Instructions) under the Escrow Instructions shall be such person as is
selected by the Parent and approved by the Stockholders, which approval shall
not be unreasonably withheld.
ARTICLE 7.
CONDITIONS PRECEDENT TO MERGER OBLIGATION OF
THE COMPANY AND EACH OF THE STOCKHOLDERS.
The obligation of the Company and the Stockholders to consummate the
Merger and to execute and deliver the Ancillary Documents is subject to
satisfaction and fulfillment of the following conditions:
7.1 COMPLIANCE BY THE PARENT; REPRESENTATIONS AND WARRANTIES CORRECT.
All of the terms and conditions of this Agreement and the Ancillary Agreements
to be complied with and performed by the Parent and MergerCo at or before the
Effective Time shall have been complied with and performed in all material
respects, and the representations and warranties made by the Parent and MergerCo
in this Agreement, the Ancillary Agreements shall be correct in all material
respects at and as of the Effective Time with the same force and effect as
though such representations and warranties had been made at and as of the
Effective Time, except for changes contemplated or permitted in this Agreement
and the Ancillary Agreements and changes in the ordinary and usual course of the
Parent's business. The Parent and MergerCo shall have delivered to the Company
a certificate, dated the Closing Date and signed on behalf of the Parent and
MergerCo by each of its chief executive officer and its chief financial officer,
certifying to the satisfaction and fulfillment of these conditions.
7.2 GOVERNMENTAL AND REGULATORY CONSENTS. All filings required to be
made prior to the Effective Time by Parent, MergerCo or the Company with, and
all consents, approvals, orders, registrations and authorizations required to be
obtained prior to the Effective Time by Parent, MergerCo or the Company from
governmental and regulatory authorities in connection
31
with the execution and delivery of this Agreement by Parent, MergerCo or the
Company and the consummation of the transactions contemplated hereby by
Parent, MergerCo and the Company shall have been made or obtained (as the
case may be), except where the failure to have obtained or made such consent,
filing, authorization, order, approval or registration would not have a
Material Adverse Effect on Parent, MergerCo or the Company.
7.3 CONSENTS. The Parent and MergerCo shall have obtained all
consents, permits and approvals required as a condition to the lawful
consummation of the Merger and of the transactions contemplated in this
Agreement, or as necessary to avoid a breach of or default under any material
agreement to which the Company, MergerCo, any of the Stockholders or the Parent
is a party.
7.4 BLUE SKY REQUIREMENTS. All permits, licenses, consents and
approvals necessary under any state securities laws for the issuance of the
Merger Shares shall have been issued or given, and no such permit, license,
consent or approval shall have been revoked, canceled, terminated, suspended or
made the subject of any "stop order" or proceeding therefor.
7.5 LITIGATION. No court or governmental or regulatory authority of
competent jurisdiction shall have enacted, issued, promulgated, enforced or
entered any statute, rule, regulation, judgment, decree, injunction or other
order (whether temporary, preliminary or permanent) (collectively, an "ORDER")
which is in effect and makes illegal or prohibits consummation of the
transactions contemplated by this Agreement; provided that the Company shall
have used reasonable efforts to obtain the removal of any Order.
7.6 NO MATERIAL ADVERSE CHANGES. There does not exist any
circumstance and has not occurred any event which has had or could have a
Material Adverse Effect on the Parent and its Subsidiaries.
7.7 ESCROW OF MERGER CONSIDERATION. At or prior to the Effective
Time, Parent shall have executed and delivered escrow instructions (the "ESCROW
INSTRUCTIONS") in substantially the form attached as EXHIBIT 7.7 and shall have
taken such other action as is necessary so that the Escrow Stock is or may be
placed in an escrow (the "ESCROW") pursuant to the Escrow Instructions. The
Escrow Stock placed in Escrow, subject to any claims asserted by the Parent
under the Escrow Instructions, shall be released from Escrow pursuant to the
terms of the Escrow Instructions.
7.8 INVESTMENT LETTER. Prior to the Closing Date, Parent and the
Company shall have received an investment letter (the "INVESTMENT LETTER") from
each of the Stockholders receiving Merger Shares pursuant to this Agreement in
the form attached hereto as EXHIBIT 7.8.
7.9 EMPLOYMENT AGREEMENTS. The Surviving Corporation shall have
executed and delivered the Employment Agreements with each of Xxx Xxxxxxx and
Xxxxx Xxxxxxx in the forms attached hereto as EXHIBIT 7.9.
32
7.10 DUE DILIGENCE. The Company shall have completed and approved to
its sole satisfaction customary business and legal due diligence with respect to
the Parent and its business.
7.11 SURVIVING CORPORATION ORGANIZATION. The by-laws of the Surviving
Corporation shall provide for a two person Compensation Committee and a two
person Audit Committee, each of which shall be comprised of directors appointed
by the Parent. The Stockholders shall each be elected to the Surviving
Corporation's board of directors
ARTICLE 8.
CONDITIONS PRECEDENT TO MERGER OBLIGATION
OF THE PARENT AND MERGERCO
The obligation of the Parent and MergerCo to consummate the Merger and to
execute and deliver the Ancillary Documents is subject to satisfaction and
fulfillment of the following conditions:
8.1 OPINION OF COUNSEL FOR THE COMPANY. The Parent shall have
received an opinion of Wolf, Xxxxxx & Xxxxxxx, counsel for the Company, dated
the Effective Date, in form and substance reasonably satisfactory to the Parent
and its counsel containing the opinions set forth in EXHIBIT 8.1, which opinion
shall be accompanied with an Officer's Certificate executed by both Stockholders
on behalf of the Company.
8.2 COMPLIANCE BY THE COMPANY AND THE STOCKHOLDERS; REPRESENTATIONS
AND WARRANTIES CORRECT. All of the terms and conditions of this Agreement and
the Ancillary Agreements to be complied with and performed by the Company and
each of the Stockholders at or before the Effective Time shall have been
complied with and performed in all material respects, and the representations
and warranties made by the Company and each of the Stockholders in this
Agreement and the Ancillary Agreements shall be correct in all material respects
at and as of the Effective Time with the same force and effect as though such
representations and warranties had been made at and as of the Effective Time,
except for changes contemplated or permitted in this Agreement and the Ancillary
Agreements and changes in the ordinary and usual course of the Company's and its
Subsidiaries' businesses. The Company and each Stockholder shall have delivered
to the Parent and MergerCo a certificate, dated the Closing Date and signed on
behalf of the Company by its chief executive officer and its chief financial
officer, certifying to the satisfaction and fulfillment of these conditions.
8.3 [INTENTIONALLY DELETED BASED UPON THE COMPANY'S REPRESENTATION
THAT IT IS NOT A PARTY TO ANY WRITTEN LEASE FOR ANY REAL PROPERTY]
33
8.4 DUE DILIGENCE. The Company has provided the Parent with all
requested due diligence materials and Parent shall have completed and approved
to its sole satisfaction customary business and legal due diligence with respect
to the Company and its business.
8.5 CONSENTS. The Company, MergerCo, the Stockholders and the Parent
shall have obtained all consents, permits and approvals required, in the
reasonable opinion of counsel for the Parent, as a condition to the lawful
consummation of the Merger and of the transactions contemplated in this
Agreement, or as necessary to avoid a breach of or default under any material
agreement to which the Company, MergerCo, or the Parent is a party.
8.6 BLUE SKY REQUIREMENTS. All permits, licenses, consents and
approvals necessary under any state securities laws for the issuance of the
Merger Shares shall have been issued or given, and no such permit, license,
consent or approval shall have been revoked, canceled, terminated, suspended or
made the subject of any "stop order" or proceeding therefor.
8.7 ESCROW OF MERGER CONSIDERATION. At or prior to the Effective
Time, the Company shall have executed and delivered the Escrow Instructions on
behalf of the Stockholders in the form attached as EXHIBIT 7.7 and shall have
taken such other action as is necessary so that the Escrow Stock is or may be
placed in Escrow pursuant to the Escrow Instructions.
8.8 STOCKHOLDERS OF THE COMPANY APPROVAL. Prior to the Effective
Time, the Stockholders shall have approved the Merger in accordance with the
California Law. Additionally, no Stockholders shall have validly exercised
their appraisal rights under the GCL.
8.9 PARENT BOARD OF DIRECTOR APPROVAL. Prior to the Effective Time,
Parent's Board of Directors shall have approved the Merger in accordance with
Delaware Law.
8.10 RESIGNATION OF COMPANY OFFICERS AND DIRECTORS. Prior to the
Effective Time, each of the members of the Board of Directors of the Company and
each of the officers of the Company, other than Xxxxxxx and Xxxxxxx, shall have
executed letters of resignation.
8.11 COMPANY AFFILIATE'S LETTERS. All of the Company Affiliates (any
Stockholders who are Company Affiliates hereby agreeing to do so) shall have
executed and delivered to the Parent the Company Affiliate's Letter in the form
as attached hereto as EXHIBIT 8.11.
8.12 INVESTMENT LETTER. Prior to the Closing Date, Parent and the
Company shall have received Investment Letters from all Stockholders.
8.13 NO ADVERSE CHANGES. As of the Closing, there does not exist any
circumstance and has not occurred any event which has had a Material Adverse
Effect on the Company.
34
8.14 CONTRACTS. The Company shall have executed agreements and or
written memorandums of understanding with each of Sony, BMG and National
Geographic, the terms and conditions of which are acceptable to Parent. In
addition, the Company shall have in place, as of the Closing Date, enforceable
written agreements for revenues, including distribution fees and commissions, to
be earned within two years from the Closing Date of not less than $2,000,000
from available projects and/or product, as determined in accordance with GAAP.
Goodwill and amortization shall be subject to the approval of Parent's financial
advisors.
ARTICLE 9.
POST-CLOSING COVENANTS
9.1 INDEMNIFICATION.
9.1.1 GENERAL. From and after the Effective Time, the parties
shall indemnify each other as provided in this SECTION 9.1. As used in this
Agreement, (a) the term "DAMAGES" shall mean all liabilities, demands, claims,
actions or causes of action, regulatory, legislative or judicial proceedings or
investigations, assessments, levies, losses, fines, penalties, damages, costs
and expenses, including without limitation reasonable attorneys', accountants',
investigators', and experts' fees and expenses, sustained or incurred in
connection with the defense or investigation of any claim; (b) the term
"INDEMNIFIED PARTY" shall mean a party who is entitled to indemnification from a
party hereto pursuant to this SECTION 9.1; (c) the term "INDEMNIFYING PARTY"
shall mean a party hereto who is required to provide indemnification under this
ARTICLE 9 to another party; and (d) the term "THIRD PARTY CLAIM" shall mean any
claim, action, suit, proceeding, investigation or like matter which is asserted
or threatened by a party other than the parties hereto, their successors and
permitted assigns, against any Indemnified Party or to which any Indemnified
Party is subject.
9.1.2 THE COMPANY INDEMNIFICATION OBLIGATIONS. The Company shall
indemnify, save and keep the Parent, MergerCo, its officers, directors,
employees, partners and stockholders (each a "PARENT INDEMNITEE" and
collectively, the "PARENT INDEMNITEES") harmless against and from all Damages
sustained or incurred by any Parent Indemnitee, as a result of or arising out of
or by virtue of:
(a) any inaccuracy in or breach of any representation and
warranty made by the Company to the Parent or MergerCo herein or in any of the
Ancillary Agreements delivered to the Parent or MergerCo in connection herewith;
and
(b) the breach by the Company of, or failure of the Company to
comply with, any of the covenants or obligations under this Agreement or any of
the Ancillary Agreements to be performed by the Company (including, without
limitation, their obligations under this SECTION 9.1).
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9.1.3 EACH STOCKHOLDER'S INDEMNIFICATION OBLIGATIONS. Each
Stockholder shall indemnify, individually but not jointly, and save and keep the
Parent Indemnitees harmless against and from all Damages sustained or incurred
by any Parent Indemnitee, as a result of or arising out of or by virtue of:
(a) any inaccuracy in or breach of any representation and
warranty made by such Stockholder to the Parent or MergerCo in this Agreement;
and
(b) the breach by such Stockholder of, or failure of such
Stockholder to comply with, any of the covenants or obligations under this
Agreement.
9.1.4 THE PARENT INDEMNIFICATION OBLIGATIONS TO THE
STOCKHOLDERS. The Parent shall indemnify, save and keep the Stockholders and
their spouses, heirs, successors and permitted assigns (individually a
"COMPANY INDEMNITEE" and collectively, the "COMPANY INDEMNITEES") harmless
against and from all Damages sustained or incurred by any Company Indemnitee
as a result of or arising out of or by virtue of:
(a) any inaccuracy in or breach of any representation and
warranty made by the Parent or MergerCo to the Stockholders herein or in any
Ancillary Agreements or Stockholder Ancillary Agreements delivered to the
Stockholders in connection herewith;
(b) any breach by the Parent or MergerCo of, or failure by the
Parent or MergerCo to comply with, any of the covenants or obligations under
this Agreement or any of the Ancillary Agreements to be performed by the Parent
or MergerCo (including without limitation its obligations under this SECTION
9.1); or
(c) the operation of the business of the Company or any of its
Subsidiaries from and after the Effective Time but only to the extent such
Damages are not proximately caused by any of the events described in SECTIONS
9.1.2(a) or (b) or SECTIONS 9.1.3(a) or (b).
9.1.5 LIMITATION ON INDEMNIFICATION OBLIGATIONS.
(a) The Company's, each Stockholder's and the Parent's
obligations pursuant to SECTIONS 9.1.2, 9.1.3 and 9.1.4, respectively, are
subject to the following limitations. No Indemnified Party shall be entitled to
recover under this SECTION 9.1 other than with respect to the Special Provisions
unless the Indemnified Party has asserted a claim by written notice, setting
forth the basis for such claim (a "NOTICE OF LOSS"), delivered to the
Indemnifying Party on or prior to the date (the "APPLICABLE DATE") as is the
earlier to occur of (i) the date of issuance of the first independent audit
report of Parent which includes any period ending after the Effective Time or
(ii) the first anniversary of the Closing Date. The Special Provisions shall
mean the provisions of SECTIONS 4.1, 4.2, 4A.1, 4A.2, 5.1, 5.2, 9.1.5(b) and
9.2.
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(b) In addition to the limitations set forth in SECTION
9.1.5(a), the Company and each of the Stockholder's obligations pursuant to
Sections 9.1.2 and 9.1.3 are subject to the following limitations:
(i) Notwithstanding anything to the contrary in this
Agreement, all Damages for which the Company or either or both of the
Stockholders is or are responsible pursuant to SECTION 9.1.2 or SECTION 9.1.3
(collectively "INDEMNIFIED LIABILITIES") shall be deemed to have been satisfied
in full, and the Company and the Stockholders shall be forever discharged and
forever released from any obligation any of them may have with regard to such
Indemnified Liabilities, if one or both of the Stockholders tenders or tender
shares of Parent Common Stock or Series B Preferred Stock (collectively referred
to as "PARENT STOCK") in the manner provided in this paragraph. The
Stockholders may so satisfy their obligations with regard to Indemnified
Liabilities by tendering Parent Stock to the Indemnified Party equal in value to
the Indemnified Liabilities. For purposes of this paragraph only, each share of
the Parent Stock so tendered shall be valued at the higher of (A) the Applicable
Conversion Price (as defined below) and (B) the average bid and asked prices of
Parent Common Stock on the date the Company's and the Stockholders'
responsibility for the particular Indemnified Liabilities is determined.
(ii) As used in this Agreement, "APPLICABLE CONVERSION
PRICE" means (A) with respect to each share of Closing Stock and Additional
Parent Common Stock, the Minimum Share Price, and (B) with respect to each
Contingent Share, the Contingent Conversion Price that was applied to such share
under SECTION 2.5.4 in determining the number of Contingent Shares required to
be delivered to the Stockholders pursuant to that section; PROVIDED, HOWEVER,
that the Applicable Conversion Price shall in all events be adjusted for any
stock split or other event contemplated by SECTION 2.10.
(c) Notwithstanding anything to the contrary herein contained,
the limitations contained in SECTION 9.1.5(a) and (b) shall not apply to any
claim for Damages to the extent it arises out of fraud or intentional
misrepresentation or omission, provided that nothing herein shall be deemed to
extend the applicable statute of limitations.
9.1.6 THIRD PARTY CLAIMS OTHER THAN TAXES. Forthwith following
the receipt of notice of a Third Party Claim (other than a Third Party Claim
with respect to Taxes), the party receiving the notice of the Third Party Claim
shall (i) notify the other party of its existence setting forth with reasonable
specificity the facts and circumstances of which such party has received notice
and (ii) if the party giving such notice is an Indemnified Party, specifying the
basis hereunder upon which the Indemnified Party's claim for indemnification is
asserted. The Indemnified Party shall, upon reasonable notice, tender the
defense of a Third Party Claim to the Indemnifying Party. If:
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(a) the defense of a Third Party Claim so tendered is accepted
without qualification (or reservation of rights) by the Indemnifying Party
within thirty (30) days after such tender; or
(b) within thirty (30) days after the date on which written
notice of a Third Party Claim has been given pursuant to this SECTION 9.1.6, the
Indemnifying Party shall acknowledge in writing to the Indemnified Party and
without qualification (or reservation of rights) its indemnification obligations
as provided in this SECTION 9.1.6; or
(c) the defense of a Third Party Claim is accepted by the
Indemnifying Parties pursuant to SECTION 9.1.6(a) or (b) above, then, except as
hereinafter provided, the Indemnified Party shall not, and the Indemnifying
Party shall, have the right to contest, defend, litigate or settle such Third
Party Claim. The Indemnified Party shall have the right to be represented by
counsel at its own expense in any such contest, defense, litigation or
settlement conducted by the Indemnifying Party; provided that the Indemnified
Party shall be entitled to reimbursement therefor if the Indemnifying Party
shall lose its right to contest, defend, litigate and settle the Third Party
Claim as herein provided. The Indemnifying Party shall lose its right to defend
and settle the Third Party Claim if it shall fail to diligently contest the
Third Party Claim. So long as the Indemnifying Party has not lost its right
and/or obligation to contest, defend, litigate and settle as herein provided,
the Indemnifying Party shall have the exclusive right to contest, defend and
litigate the Third Party Claim and shall have the exclusive right, in its
discretion exercised in good faith, and upon the advice of counsel, to settle
any such matter, either before or after the initiation of litigation, at such
time and upon such terms as it deems fair and reasonable, provided that at least
ten (10) days prior to any such settlement, written notice of its intention to
settle shall be given to the Indemnified Party. All expenses (including without
limitation attorneys' fees) incurred by the Indemnifying Party in connection
with the foregoing shall be paid by the Indemnifying Party. Notwithstanding the
foregoing, in connection with any settlement negotiated by an Indemnifying
Party, no Indemnified Party shall be required by an Indemnifying Party to (x)
enter into any settlement that does not include as an unconditional term thereof
the delivery by the claimant or plaintiff to the Indemnified Party of a release
from all liability in respect of such claim or litigation, (y) enter into any
settlement that attributes by its terms liability to the Indemnified Party or
(z) consent to the entry of any judgment that does not include as a term thereof
a full dismissal of the litigation or proceeding with prejudice. No failure by
an Indemnifying Party to acknowledge in writing its indemnification obligations
under this SECTION 9.1.6 shall relieve it of such obligations to the extent they
exist. If an Indemnified Party is entitled to indemnification against a Third
Party Claim, and the Indemnifying Party fails to accept a tender of, or assume,
the defense of a Third Party Claim pursuant to this SECTION 9.1.6 or if, in
accordance with the foregoing, the Indemnifying Party shall lose its right to
contest, defend, litigate and settle such a Third Party Claim, the Indemnified
Party shall have the right, without prejudice to its right of indemnification
hereunder, in its discretion exercised in good faith and upon the advice of
counsel to contest, defend and litigate such Third Party Claim, and may settle
such Third Party Claim, either before or after the initiation of litigation, at
such time and
38
upon such terms as the Indemnified Party deems fair and reasonable, provided
that at least ten (10) days prior to any such settlement, written notice of
its intention to settle is given to the Indemnifying Party. If, pursuant to
this SECTION 9.1.6, the Indemnified Party so contests, defends, litigates or
settles a Third Party Claim, for which it is entitled to indemnification
hereunder as hereinabove provided, the Indemnified Party shall be reimbursed
by the Indemnifying Party for the reasonable attorneys' fees and other
expenses of defending, contesting, litigating and/or settling the Third Party
Claim which are incurred from time to time, forthwith following the
presentation to the Indemnifying Party of itemized bills for said attorneys'
fees and other expenses.
9.1.7 CLAIMS INVOLVING TAXES. In the case of any proposed or
actual assessment of Tax liabilities for which a Parent Indemnitee is entitled
to indemnification from the Company as provided herein, Parent shall give notice
to the Stockholders, and shall contest such proposed or actual assessment in the
manner reasonably directed by the Stockholders (in consultation with the Parent)
through the administrative review or appeal procedures available under the
relevant Tax laws and regulations. The Stockholders shall bear all costs and
expenses relating to any action requested by the Stockholders to be taken by
Parent under this SECTION 9.1.7. If the pursuit of such administrative remedies
by the Parent is unsuccessful, Parent shall be entitled to indemnification for
the Tax (and any penalties and interest) pursuant to SECTION 9.1 hereof;
PROVIDED HOWEVER, that if within ten (10) days of receipt from the Parent of
notice of its intention to do so, the Stockholders shall notify the Parent of
their desire to contest the proposed or assessed Tax deficiency in the courts,
they shall be entitled to do so at their expense provided the Stockholders pay
the deficiency and any penalties and interest if required in order to seek
judicial relief. The Parent shall cooperate with the Company for such purposes
but shall be entitled to reimbursement for any out-of-pocket expenses incurred
by the Parent in doing so. For purposes of this SECTION 9.1.7, the Stockholders
shall select a representative to act on their behalf who shall serve as a
liaison between Parent and the Stockholders with respect to all matters arising
under or related to this SECTION 9.1.7.
9.1.8 COOPERATION. Subject to the provisions of SECTION 9.1.7,
the Indemnified Party shall have the right, at its own expense, to participate
in the defense of any Third Party Claim, and if said right is exercised, the
parties shall cooperate in the investigation and defense of said Third Party
Claim.
9.1.9 SUBROGATION. The Indemnifying Party shall not be entitled
to require that any action be brought against any other Person before action is
brought against it hereunder by the Indemnified Party and shall not be
subrogated to any right of action until it has paid in full or successfully
settled or defended against the Third Party Claim for which indemnification is
sought.
9.1.10 INDEMNIFICATION NET OF BENEFITS. The amount of any
recovery by an Indemnified Party pursuant to this SECTION 9.1 shall be net of
any insurance benefits actually received by such Indemnified Party (but not to
the extent such benefits are repaid through retrospective premium adjustments or
otherwise) or any foreign federal, state and/or local tax
39
benefits actually received by such Indemnified Party as a result of the state
of facts which entitled the Indemnified Party to recover from the
Indemnifying Party pursuant to this SECTION 9.1. Notwithstanding the
foregoing, any increase or decrease in the basis of any assets or stock of
the Parent or any of its Subsidiaries shall not be considered to give rise to
a tax benefit for purposes of this SECTION 9.1.10.
9.1.11 PAYMENT OF INDEMNIFICATION. Except for Damages arising out
of fraud or intentional misrepresentation, all other Damages that are covered
under this SECTION 9.1 may be satisfied by delivering to the Indemnified Party
that number of shares of Parent Common Stock equal to the quotient of the dollar
amount of the Damages divided by the Parent Common Stock Average Price as of the
determination of the amount of Damages.
9.1.12 LIMITS ON INDEMNIFICATION. Except for Damages arising out
of fraud or intentional misrepresentation, the total dollar amount of
indemnification available hereunder shall be limited to the aggregate value of
the Parent Common Stock paid hereunder, which value shall be equal to the sum of
the dollar valuation of the Parent Common Stock on the such dates as it becomes
payable to the Stockholders hereunder based upon the Parent Common Stock Average
Price as of such dates.
9.2 PARENT BOARD OF DIRECTORS AND EXECUTIVE MANAGEMENT COMMITTEE. The
Parent covenants to use its best efforts to ensure that one position on Parent's
Board of Directors is filled by a Stockholder no later than July 15, 1998. The
Parent further covenants to create an "EXECUTIVE MANAGEMENT COMMITTEE" comprised
of five members, at least one of which shall be a Stockholder. This Executive
Management Committee shall have the power and authority to review the business
of the Parent and its subsidiaries and to present recommendations to the Board
of Directors of the Parent.
9.3 BUSINESS PLAN. No later than sixty (60) days after the Closing
Date, Stockholders, with the assistance of Parent's representatives, shall
prepare, finalize and approve a business plan (the "BUSINESS PLAN") for the
Surviving Corporation which Business Plan shall be presented to the Board of
Directors of Parent for the Board's comments and subject to the Board's ultimate
final approval. The Business Plan shall charge Xxxxxxx and Xxxxxxx with the
responsibility with meeting the goals set forth therein. Additionally, Xxxxxxx
and Xxxxxxx shall be empowered, pursuant to the Business Plan, with the decision
making authority and control over the day to day operations of the Surviving
Company. The Business Plan shall include an identification of costs and
corporate administrative charges for which the Surviving Corporation shall be
responsible. Among other things, the Business Plan shall address the Surviving
Corporation's working capital needs. Upon completion and approval, the Business
Plan shall be attached hereto as EXHIBIT 9.3. Parent shall act in good faith in
connection with the goals set forth in the Business Plan; Parent shall permit
the Stockholders to act in accordance with the terms and goals of the Business
Plan in their pursuit of accomplishing the Pre-Tax Net Income targets of the
Surviving Corporation.
40
9.4 TAX MATTERS. The following provisions shall govern the
allocation of responsibility as between Parent and Stockholders for certain tax
matters following the Closing Date:
9.4.1 TAX PERIODS ENDING ON OR BEFORE THE CLOSING DATE. Parent
shall prepare or cause to be prepared and file or cause to be filed all Tax
Returns for the Company for all periods ending on or prior to the Closing Date
which are filed after the Closing Date. Parent shall permit Company to review
and comment on each such Tax Return described in the preceding sentence prior to
filing. Stockholders shall reimburse Parent for Taxes of the Company with
respect to such periods within fifteen (15) days after payment by Parent or the
Company of such Taxes.
9.4.2 TAX PERIODS BEGINNING BEFORE AND ENDING AFTER THE CLOSING
DATE. Parent shall prepare or cause to be prepared and file or cause to be
filed any Tax Returns of the Company for Tax periods which begin before the
Closing Date and end after the Closing Date. Stockholders shall pay to Parent
within fifteen (15) days after the date on which Taxes are paid with respect to
such periods an amount equal to the portion of such Taxes which relates to the
portion of such Taxable period ending on the Closing Date to the extent such
Taxes are not reflected in the reserve for Tax Liability (rather than any
reserve for deferred Taxes established to reflect timing differences between
book and Tax income) shown on the face of the Closing Balance Sheet. For
purposes of this SECTION 9.4.2, in the case of any Taxes that are imposed on a
periodic basis and are payable for a Taxable period that includes (but does not
end on) the Closing Date, the portion of such Tax which relates to the portion
of such Taxable period ending on the Closing Date shall (x) in the case of any
Taxes other than Taxes based upon or related to income or receipts, be deemed to
be the amount of such Tax for the entire Taxable period multiplied by a fraction
the numerator of which is the number of days in the Taxable period ending on the
Closing Date and the denominator of which is the number of days in the entire
Taxable period, and (y) in the case of any Tax based upon or related to income
or receipts be deemed equal to the amount which would be payable if the relevant
Taxable period ended on the Closing Date. Any credits relating to a Taxable
period that begins before and ends after the Closing Date shall be taken into
account as though the relevant Taxable period ended on the Closing Date. All
determinations necessary to give effect to the foregoing allocations shall be
made in a manner consistent with prior practice of the Company.
9.4.3 COOPERATION ON TAX MATTERS.
(a) Parent, the Company and Stockholders shall cooperate
fully, as and to the extent reasonably requested by the other party, in
connection with the filing of Tax Returns pursuant to this SECTION 9.4 and any
audit, litigation or other proceeding with respect to Taxes. Such cooperation
shall include the retention and (upon the other party's request) the provision
of records and information which are reasonably relevant to any such audit,
litigation or other proceeding and making employees available on a mutually
convenient basis to provide
41
additional information and explanation of any material provided hereunder.
The Company and Stockholders agree (A) to retain all books and records with
respect to Tax matters pertinent to the Company relating to any taxable
period beginning before the Closing Date until the expiration of the statute
of limitations (and, to the extent notified by Parent or Stockholders, any
extensions thereof) of the respective taxable periods, and to abide by all
record retention agreements entered into with any taxing authority, and (B)
to give the other party reasonable written notice prior to transferring,
destroying or discarding any such books and records and, if the other party
so requests, the Company or Stockholders, as the case may be, shall allow the
other party to take possession of such books and records.
(b) Parent and Stockholders further agree, upon request,
to use their best efforts to obtain any certificate or other document from any
governmental authority or any other Person as may be necessary to mitigate,
reduce or eliminate any Tax that could be imposed (including, but not limited
to, with respect to the transactions contemplated hereby).
(c) Parent and Stockholders further agree, upon request,
to provide the other party with all information that either party may be
required to report pursuant to Section 6043 of the Code and all Treasury
Department Regulations promulgated thereunder.
9.4.4 TAX SHARING AGREEMENTS. All tax sharing agreements or
similar agreements with respect to or involving the Company shall be terminated
as of the Closing Date and, after the Closing Date, the Company shall not be
bound thereby or have any liability thereunder.
9.4.5 CERTAIN TAXES. All transfer, documentary, sales, use,
stamp, registration and other such Taxes and fees (including any penalties and
interest) incurred in connection with this Agreement shall be paid by
Stockholders when due, and Stockholders will, at their own expense, file all
necessary Tax Returns and other documentation with respect to all such transfer,
documentary, sales, use, stamp, registration and other Taxes and fees, and, if
required by applicable law, Parent will, and will cause its affiliates to, join
in the execution of any such Tax Returns and other documentation.
Notwithstanding the immediately preceding sentence, Parent shall be responsible
for the transfer agent fees and similar fees, if any, but excluding any
applicable Taxes, if any, which fees are specifically related to the issuance of
Parent Stock to the Stockholders.
9.5 BOARD OF SURVIVING CORPORATION. In the event Parent files a
petition in bankruptcy, or is adjudicated a bankrupt, or if a petition in
bankruptcy is filed against Parent, or if Parent becomes insolvent, or Parent
makes an assignment of substantially all of its assets for the benefit of its
creditors or an arrangement pursuant to any bankruptcy law, Parent shall cause
its director designees, excluding the Stockholders, to resign from the board of
directors of the Surviving Corporation.
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9.6 [INTENTIONALLY DELETED]
9.7 REGISTRATION RIGHTS. The Parent shall enter into a mutually
acceptable Registration Rights Agreement, a form of which is attached hereto as
EXHIBIT 9.7 which shall, among other things, grant the Stockholders, "piggyback"
registration rights with respect to the Parent Common Stock issuable hereunder,
for a period of 24 months after the Closing Date. Except as provided in the
Registration Rights Agreement, the Company has not granted or agreed to grant
any registration rights, including piggyback rights, to the Stockholders.
9.8 LIMITATIONS OF LIABILITY. Notwithstanding anything to the
contrary in this Agreement, in no event shall either Stockholder's aggregate
liability pursuant to or in connection with this Agreement (whether for Damages
or otherwise) exceed the aggregate value of the Parent Stock that such
Stockholder actually received pursuant to this Agreement. For purposes of this
paragraph only, each such share of Parent Stock shall be valued at the
Applicable Conversion Price. Notwithstanding either the immediately preceding
sentence or anything to the contrary contained in this Agreement, there shall be
no limitation of either of the Stockholder's liabilities to the extent it arises
out of fraud, intentional material omission or intentional misrepresentation by
either or both Stockholders.
9.9 SOLICITATION OF STOCKHOLDER APPROVAL. As soon as practicable
after the Closing, Parent shall prepare and file a proxy statement in
connection with an annual meeting of Parent's stockholders to be held on or
before December 31, 1998 requesting approval of the Merger whereby the Series
B Preferred Stock shall be convertible into Parent Common Stock.
9.10 AUDITED FINANCIAL STATEMENTS. Within 60 days of the Closing, the
Stockholders shall deliver to the Parent, copies of audited consolidated
financial statements of the Company for the period November 16, 1997 to June 30,
1998 (the "AUDITED FINANCIAL STATEMENTS"). The Audited Financial Statements
shall include a consolidated balance sheet, accounts receivable aging,
statements of earnings, stockholders' equity and cash flows for the period,
together with appended notes which are an integral part thereof, all of which
have been audited and certified by Singer, Lewak, Xxxxxxxxx and Xxxxxxxxx,
certified public accountants. Parent shall be responsible for all auditors'
fees and expenses for the audit required by this paragraph. All of the Audited
Financial Statements, including any appended notes which are an integral part of
such statements, will be prepared in conformity with GAAP applied on a
consistent basis throughout the periods covered thereby, each balance sheet
therein presenting fairly the consolidated financial position of the Company as
at its respective date and each statement of earnings, stockholders' equity and
cash flows presents fairly the consolidated results of operations, stockholders'
equity and cash flows, respectively, of the Company for the period covered
thereby. Notwithstanding anything to the contrary in this Agreement, if the
Audited Financial Statements show that the Unaudited Financial Statements
overstate any earnings, income, cash, accounts receivable or other similar items
by fifteen percent (15%) or less (the "PERMITTED VARIANCE"), Parent and MergerCo
hereby waive and forever release and discharge (without any further action on
the part of any party), yet
43
subject to a limitation in the event of fraud or intentional
misrepresentation, any and all claims they may have against the Stockholders
arising as a result of the Permitted Variance. If the difference between the
Audited Financial Statements and the Unaudited Financial Statements exceeds
the Permitted Variance (an "EXCESS VARIANCE"), Parent and MergerCo must
commence, pursuant to SECTION 11 of this Agreement, any action against the
Stockholders and/or the Company no later than six months after the date on
which Parent received the Audited Financial Statements or the claims they may
have had against the Stockholders and/or the Company arising directly from
the Excess Variance are hereby waived and forever released and discharged
without any further action necessary on the part of the Stockholders and/or
the Company.
9.11 DISSOLUTION OF MEDIAWORKS, LLC, A DELAWARE LIMITED LIABILITY
COMPANY. Within 15 days of the Closing, the Stockholders shall file with the
Secretary of State for the State of Delaware an amendment to the Certificate of
Formation of MediaWorks, LLC changing its name to a name chosen by Parent;
within 15 days of the filing of the name change, Stockholders shall file all
necessary documentation to wind-up and dissolve the entity previously known as
MediaWorks, LLC.
ARTICLE 10.
TERMINATION
This Agreement may be terminated and the Merger may be abandoned at any
time prior to the Effective Time:
10.1 MATERIAL BREACH. By a non-breaching party, in the event of a
material breach of any representation, warranty, condition or agreement
contained in this Agreement that is not cured within 10 days of the time that
written notice of such breach is received by such other party from the party
giving notice.
10.2 CONSUMMATION OF MERGER. If the Merger shall not have been
consummated on or before June 30, 1998; provided, in the case of a termination
pursuant to this SECTION 10.2, the terminating party shall not have materially
breached its obligations hereunder in any manner that shall have contributed to
the failure to consummate the Merger by such date.
10.3 DUE DILIGENCE. In the event that the Parent's due diligence
investigation of the Company and its Subsidiaries conducted between the date
hereof and the Closing Date, related to all aspects of the business of the
Company and its Subsidiaries, is not completed to the satisfaction of Parent in
its sole discretion, the Parent may elect to the terminate this Agreement by
giving written notice of termination to the Company within seven (7) days of the
conclusion of such due diligence investigation.
10.4 MUTUAL CONSENT. By mutual written consent of the Parent and the
Company authorized by their respective Boards of Directors.
44
10.5 EFFECT OF TERMINATION. In the event of termination of this
Agreement and abandonment of the Merger pursuant to this ARTICLE 10, no party
hereto (or any of its Affiliates) shall have any liability or further obligation
to any other party to this Agreement, except that if termination of this
Agreement shall be judicially determined to have been caused by willful breach
of this Agreement, then, in addition to other remedies at law or equity for
breach of this Agreement, the party so found to have willfully breached this
Agreement shall indemnify the other parties for their respective costs, fees and
expenses of their counsel, accountants and other experts and advisors as well as
fees and expenses incident to negotiation, preparation and execution of this
Agreement and related documentation and their stockholders' meetings and
consents.
ARTICLE 11.
CHOICE OF LAW; ARBITRATION
The internal laws of the State of California, United States of America,
applicable to contracts entered into and wholly to be performed in California by
California residents, without reference to any principles concerning conflicts
of law, shall govern the validity of this Agreement, the construction of its
terms and the interpretation of the rights and duties of the parties hereunder;
PROVIDED, HOWEVER, that this Section and the parties' rights under this Section
shall be governed by and construed in accordance with the Federal Arbitration
Act, 9 U.S.C. Section 1 et. sec. Any controversy or claim arising out of or
relating to this Agreement, or the breach thereof, shall be settled by the
following procedures: Either party may send the other written notice
identifying the matter in dispute and involving the procedures of this Section.
Within fourteen (14) days after such written notice is given, one or more
principals of each party shall meet at a mutually agreeable location in Los
Angeles, California, for the purpose of determining whether they can resolve the
dispute themselves by written agreement, and, if not, whether they can agree
upon a third-party impartial arbitrator (the "ARBITRATOR") to whom to submit the
matter in dispute for final and binding arbitration. If the parties fail to
resolve the dispute by written agreement or to agree on the Arbitrator within a
twenty-one (21) day period, either party may make written application to the
Judicial Arbitration and Mediation Services ("JAMS"), Los Angeles, California
for the appointment of a single Arbitrator to resolve the dispute by arbitration
and at the request of JAMS, the parties shall meet with JAMS at its offices or
confer with JAMS by telephone within ten (10) calendar days of such request to
discuss the dispute and the qualifications and experience which each party
respectively believes the Arbitrator should have; provided, however, the
selection of the Arbitrator shall be the exclusive decision of JAMS and shall be
made within thirty (30) days of the written application to JAMS. Within 30 days
of the selection of the Arbitrator, the parties shall meet in Los Angeles,
California with such Arbitrator at a place and time designated by the Arbitrator
after consultation with the parties and present their respective positions on
the dispute. Each party shall have no longer than one day to present its
position, the entire proceeding before the Arbitrator shall be on no more than
three consecutive days, and the award shall be made in writing no more than 30
days following the end of the proceeding. Such award shall be a final and
binding determination of the dispute and shall be fully
45
enforceable as an arbitration award in any court having jurisdiction and
venue over the parties. The prevailing party (as determined by the
Arbitrator) shall in addition be awarded by the Arbitrator such party's own
attorneys' fees and expenses in connection with such proceeding. The
non-prevailing party (as determined by the Arbitrator,) shall pay the
Arbitrator's fees and expenses.
ARTICLE 12.
MISCELLANEOUS PROVISIONS
12.1 NOTICES. All notices, demands or other communications hereunder
shall be in writing and shall be deemed to have been duly given if (i) delivered
in person, on the date actually given, (ii) by United States mail, certified or
registered, with return receipt requested, on the date which is two business
days after the date of mailing, or (iii) if sent by telex or facsimile
transmission, with a copy mailed on the same day in the manner provided in (i)
above, on the date transmitted provided receipt is confirmed:
12.1.1 if to the Parent or MergerCo to:
The Producers Entertainment Group Ltd.
0000 Xxxxxxxx Xxxxxxxxx, Xxxxxxxxx
Xxx Xxxxxxx, Xxxxxxxxxx 00000
Attention: Xxxxx Xxxxx
Telecopy No.: (000) 000-0000
With copies to:
Troop Xxxxxxxxx Xxxxxxx & Xxxxxx, LLP
00000 Xxxxxxxx Xxxxxxxxx, Xxxxx 000
Xxx Xxxxxxx, Xxxxxxxxxx 00000
Attention: C. N. Xxxxxxxx Xxxxxxx III, Esq.
Telecopy No.: (000) 000-0000
12.1.2 if to the Company or the Stockholders to:
MWI Distribution, Inc.
0000 Xxxxxxxxxxx Xxxxx
Xxx Xxxxxxx, Xxxxxxxxxx 00000
Attention: Chief Executive Officer
Telecopy No.: (000) 000-0000
46
With copies to:
Xxxxxxx Xxxx
Wolf, Xxxxxx & Xxxxxxx
00000 Xxxx Xxxxxxx Xxxxxxxxx, 0xx Xxxxx
Xxx Xxxxxxx, XX 00000
Telecopy No.: (000) 000-0000
12.2 SEVERABILITY. Should any Section or any part of a Section within
this Agreement be rendered void, invalid or unenforceable by any court of law
for any reason, such invalidity or unenforceability shall not void or render
invalid or unenforceable any other Section or part of a Section in this
Agreement.
12.3 EXHIBITS AND SCHEDULES. Each Exhibit and Schedule delivered
pursuant to the terms of this Agreement, each document, instrument and
certificate delivered by the parties in connection with the transactions
contemplated hereby and each Ancillary Agreement constitutes an integral part of
this Agreement.
12.4 HEADINGS. Section headings and subheadings used in this Agreement
are for convenience only and shall not affect the meaning or construction of
this Agreement.
12.5 NO ADVERSE CONSTRUCTION. The rule that a contract is to be
construed against the party drafting the contract is hereby waived, and shall
have no applicability in construing this Agreement, any other document delivered
at the Closing or any provisions hereof or thereof.
12.6 COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original but all of which
together shall constitute one and the same instrument.
12.7 COSTS AND ATTORNEYS' FEES. In the event that any action, suit, or
other proceeding is instituted concerning or arising out of this Agreement or
any of the Ancillary Agreements the prevailing party shall recover all of such
party's costs, and reasonable attorneys' fees incurred in each and every such
action, suit, or other proceeding, including any and all appeals or petitions
therefrom.
12.8 SUCCESSORS AND ASSIGNS. All rights, covenants and agreements of
the parties contained in this Agreement shall, except as otherwise provided
herein, be binding upon and inure to the benefit of their respective successors
and assigns.
12.9 AMENDMENT. This Agreement may be amended at any time by the
mutual written agreement of the Parent, the Company and MergerCo, but no
amendment shall be made which
47
materially changes the rights, obligations or liabilities of any Stockholder
hereunder without his written agreement thereto.
12.10 WAIVER. At any time prior to the Effective Time, the Parent, the
Company and MergerCo may:
12.10.1 Extend the time for the performance of any of the
obligations or other acts of the parties hereto.
12.10.2 Waive any inaccuracies in the representations and
warranties contained herein or in any document delivered pursuant hereto.
12.10.3 Waive compliance with any of the agreements or
conditions contained herein.
Any agreement on the part of the Parent, the Company or MergerCo to any such
extension or waiver shall be valid only if set forth in an instrument in writing
signed by or on behalf of such party, and no such agreement which materially
changes the rights, obligations or liabilities of any Principal Stockholder
hereunder shall be binding upon him without his written agreement thereto.
12.11 ENTIRE AGREEMENT. This Agreement, the attached Exhibits and
Schedules, the other schedules referred to in this Agreement, and the Ancillary
Agreements contain the entire understanding of the parties and there are no
further or other agreements or understandings, written or oral, in effect
between the parties relating to the subject matter hereof unless expressly
referred to herein. Nothing in this Agreement, express or implied, is intended
to confer upon any person other than the parties hereto any rights or remedies
under or by way of this Agreement; PROVIDED, HOWEVER, that the Indemnified
Parties shall be entitled to the benefits of ARTICLE 9.
12.12 DISCLOSURE SCHEDULE. Matters reflected on the Disclosure Schedule
are not necessarily limited to matters required by this Agreement to be
reflected on the Disclosure Schedule. Such additional matters are set forth for
informational purposes only and do not necessarily include other matters of a
similar nature provided that the representations and warranties of the party or
parties making a particular disclosure shall in all respects be subject to such
disclosure. Matters disclosed by the Company and the Stockholders pursuant to
any particular section of or schedule to this Agreement (or any section of the
Disclosure Schedule) shall be deemed to be disclosed with respect to all
sections of this Agreement (and all sections of the Disclosure Schedule) to the
extent this Agreement requires such disclosure. Capitalized terms used in the
Disclosure Schedule not otherwise defined therein shall have the respective
meanings assigned to such terms in this Agreement.
12.13 OBLIGATIONS OF THE PARENT. Whenever this Agreement requires
MergerCo to take any action, such requirement shall be deemed to include an
undertaking on the part of Parent to cause MergerCo to take such action.
48
IN WITNESS WHEREOF, the parties hereto have executed and delivered
this Agreement as of the date first above written.
THE PRODUCERS ENTERTAINMENT GROUP LTD.
A DELAWARE CORPORATION
By: /s/ XXXXX XXXXX
------------------------------------
Name: Xxxxx Xxxxx
Title: Chief Executive Officer
TPEG MERGER COMPANY,
A CALIFORNIA CORPORATION
By: /s/ XXXXX XXXXX
------------------------------------
Name: Xxxxx Xxxxx
Title: President
By: /s/ XXXXXX XXXXXXXXX
------------------------------------
Name: Xxxxxx Xxxxxxxxx
Title: Secretary
MWI DISTRIBUTION, INC.
A CALIFORNIA CORPORATION
By: /s/ XXXXX XXXXXXX
------------------------------------
Name: Xxxxx Xxxxxxx
Title: President
By: /s/ XXX XXXXXXX
------------------------------------
Name: Xxx Xxxxxxx
Title: Chief Financial Officer
XXX XXXXXXX ("STOCKHOLDER")
By: /s/ XXX XXXXXXX
------------------------------------
XXXXX XXXXXXX ("STOCKHOLDER")
By: /s/ XXXXX XXXXXXX
------------------------------------
LIST OF EXHIBITS AND SCHEDULES
NO. EXHIBIT/SCHEDULE NAME
--- ----------------------
1.23 Company's Net Distribution Fees Receivable Contracts
1.27 Company's Pending Projects
1.28 Pending Projects Value
1.30 Pre-Tax Net Income
1.33 Certificate of Designations of the Series B Convertible Preferred Stock
2.3 Agreement of Merger
2.4.1 MergerCo Articles of Incorporation
2.4.2 MergerCo Bylaws
4 Company's Disclosure Schedule (with related sections)
4.6 Unaudited Financial Statements
4.7 Liabilities
4.11 Company's Material Contracts
4.26 Allocation Among Stockholders
6.6 Press Release
7.7 Escrow Instructions
7.8 Investment Letter
7.9 Employment Agreements
8.1 Opinion of Wolf, Xxxxxx & Xxxxxxx and related Officers' Certificate
8.11 Company's Affiliate's Letter
9.3 Business Plan
9.7 Form of Registration Rights Agreement
