EXHIBIT 10.14
________________________________________________
AGREEMENT
between
XXXXXXXXXX.XXX, INC.
AND
VIRGIN HOLDINGS, INC.
__________________________________________
Dated June 8, 1999
__________________________________________
TABLE OF CONTENTS
Page
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ARTICLE I THE TRANSACTIONS; DEFINITIONS........................ 1
1.1 Transaction............................................... 1
1.2 Closing and Other Deliveries.............................. 1
1.3 The Closing............................................... 2
1.4 Definitions............................................... 2
ARTICLE II REPRESENTATIONS AND WARRANTIES OF THE COMPANY........ 4
2.1 Corporate Organization.................................... 4
2.2 Subsidiaries.............................................. 4
2.3 Capital Stock............................................. 4
2.4 Books and Records......................................... 5
2.5 Newly Issued Shares....................................... 5
2.6 Title to Properties....................................... 5
2.7 Authority................................................. 6
2.8 No Violation.............................................. 6
2.9 Litigation................................................ 7
2.10 Compliance with Laws...................................... 7
2.11 Financial Condition....................................... 7
2.12 No Undisclosed Financial Liabilities...................... 7
2.13 No Material Adverse Change; Ordinary Course of Business... 8
2.14 No General Solicitation................................... 8
2.15 Taxes..................................................... 9
2.16 Brokers................................................... 9
2.17 Investment Company........................................ 9
2.18 Certain Agreements........................................ 9
2.19 Registration Rights.......................................10
2.20 Trade Relations...........................................10
2.21 Environmental Matters.....................................10
2.22 Proprietary Rights........................................11
2.23 Employee Benefit Plans....................................14
2.24 Employment Matters........................................15
2.25 Potential Conflicts of Interest...........................16
2.26 Insurance.................................................16
2.27 Xxxx-Xxxxx................................................16
2.28 Registration Statement....................................16
2.29 Disclosure................................................17
ARTICLE III REPRESENTATIONS AND WARRANTIES OF VIRGIN.............17
3.1 Organization..............................................17
3.2 Authority.................................................17
3.3 No Violation............................................. 17
3.4 Brokers.................................................. 18
3.5 Securities Act Representation............................ 18
ARTICLE IV INDEMNIFICATION..................................... 18
4.1 Indemnification.......................................... 18
4.2 Notification............................................. 19
4.3 Limitations.............................................. 20
4.4 Exclusive Remedy; Related Agreements..................... 20
ARTICLE V AGREEMENTS.......................................... 20
5.1 License Agreement........................................ 20
5.2 Registration Rights Agreement............................ 20
5.3 Stockholders Agreement................................... 20
5.4 Public Offering.......................................... 21
5.5 Sale of Shares in the IPO................................ 21
5.6 Errors and Omissions Insurance........................... 21
5.7 Policies and Procedures.................................. 21
5.8 Directors and Officers Insurance......................... 21
5.9 Charter Amendment........................................ 22
ARTICLE VI MISCELLANEOUS....................................... 22
6.1 Survival of Representations and Warranties............... 22
6.2 Notices.................................................. 22
6.3 Headings; Agreement...................................... 23
6.4 Publicity................................................ 23
6.5 Entire Agreement......................................... 23
6.6 Assignment............................................... 24
6.7 Counterparts............................................. 24
6.8 Governing Law............................................ 24
6.9 Third Party Beneficiaries................................ 24
6.10 Costs and Expenses....................................... 24
EXHIBITS Page
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Exhibit A Form of License Agreement
Exhibit B-1 Form of Opinion Counsel to the Company
Exhibit B-2 Form of Opinion of Counsel to Virgin
Exhibit C Form of Registration Rights Agreement
Exhibit D Form of Stockholders Agreement
AGREEMENT
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AGREEMENT (this "Agreement"), dated June 8, 1999, between
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xxxxxxxxxx.xxx, Inc., a Delaware corporation (the "Company"), and Virgin
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Holdings, Inc., a Delaware corporation ("Virgin").
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The Company has agreed to issue to Virgin shares of common stock, par
value $.01 per share (the "Common Stock"), of the Company, on the terms and
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subject to the conditions set forth in this Agreement.
Concurrently with the execution of this Agreement, the Company and
Virgin are entering into a license agreement (the "License Agreement") in the
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form attached hereto as Exhibit A, pursuant to which Virgin has agreed to
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license to the Company from time to time over a five-year period certain songs
owned by Virgin upon the terms and subject to conditions set forth in the
License Agreement.
The Company intends to consummate an initial public offering of shares
of Common Stock (an "IPO"), subject to obtaining all regulatory and other
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requisite approvals, and subject to market conditions.
NOW, THEREFORE, intending to be legally bound hereby, the parties
agree as follows:
ARTICLE I
THE TRANSACTIONS; DEFINITIONS
1.1 Transaction. Subject to the terms and conditions of this
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Agreement, at the Closing (as defined below), in exchange for the rights granted
by Virgin to the Company under the License Agreement, the Company will issue to
Virgin a number of shares of Common Stock (the "Shares"), which Shares, after
giving effect to the transactions contemplated in this Agreement, constitute 50%
of the issued and outstanding shares of capital stock of the Company on a fully
diluted basis on the date hereof.
1.2 Closing and Other Deliveries. At the Closing, each party shall
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deliver to the other party:
(a) a certificate of the Secretary of such party, dated the
date of Closing (the "Closing Date"), (i) attaching a true, complete and correct
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copy of the certificate of incorporation of such party, as amended through the
Closing Date, in each case as certified by the Secretary of State of the State
of Delaware, (ii) certifying the
genuineness, and attaching a true, complete and correct copy, of the Bylaws of
such party, as amended through the Closing Date, (iii) certifying as to the
incumbency and genuineness of the signatures of each officer of such party
executing the Agreement, the License Agreement, the Stockholders Agreement and
the Registration Rights Agreement (the "Related Agreements"), and
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(iv) certifying the genuineness and attaching copies of the resolutions of the
Board of Directors of such party authorizing the execution, delivery and
performance of the Agreement and the Related Agreements and the consummation of
the transactions contemplated hereby and thereby.
(b) a certificate of an officer of such party, dated the
Closing Date, certifying that all consents, approvals and other actions of, and
notices and filings with, all entities and persons as may be necessary or
required with respect to the execution and delivery of the Agreement and the
Related Agreements, and the consummation of the transactions contemplated hereby
and thereby, have been obtained or made.
(c) an opinion of counsel of such party, dated the Closing
Date, in the forms attached hereto as Exhibit B-1 and Exhibit B-2.
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In addition, at the Closing, the Company shall issue to Virgin a share
certificate or share certificates representing the Shares.
1.3 The Closing. The closing (the "Closing") will take place
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simultaneously with the execution and delivery of this Agreement and will be
held at the offices of Xxxx, Weiss, Rifkind, Xxxxxxx & Xxxxxxxx, 0000 Xxxxxx xx
xxx Xxxxxxxx, Xxx Xxxx, XX.
1.4 Definitions. When used in this Agreement, the following terms
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shall have the meanings ascribed to them in the sections noted below:
Term Section
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1997 Audited Financials................... 2.11
1998 Audited Financials................... 2.11
1999 Interim Financials................... 2.11
Act....................................... 2.28
affiliate................................. 2.16
Agreement................................. Preamble
Assets.................................... 2.6
Benefit Plans............................. 2.23(a)
Claims.................................... 2.9
Closing................................... 1.3
Closing Date.............................. 1.2(a)
2
Code...................................... 2.23(a)
Common Stock.............................. Preamble
Common Stock Warrants..................... 2.3
Company................................... Preamble
Employees................................. 2.24
Environmental Claims...................... 2.21(b)
Environmental Laws........................ 2.21(b)
ERISA..................................... 2.23(a)
ERISA Affiliate........................... 2.23(b)
Hazardous Substances...................... 2.21(b)
HSR Act................................... 2.27
Indemnified Party......................... 4.1
Indemnifying Party........................ 4.1
Intellectual Property..................... 2.22(a)
IP Licenses............................... 2.22(b)
IPO....................................... Preamble
IRS....................................... 2.23(a)
License Agreement......................... Preamble
Liens..................................... 2.5
Listed Contract........................... 2.18
Losses.................................... 4.1
Material Adverse Effect................... 2.1
Permits................................... 2.10(b)
Preferred Stock........................... 2.3
Preferred Stock Warrants.................. 2.3
Proposed Intellectual Property Agreements 2.22(b)
Registration Rights Agreement............. 5.2
Registration Statement.................... 2.28
Related Agreements........................ 1.2(a)
Requirements of Law....................... 2.8
Rules..................................... 2.27
SEC....................................... 2.28
Series A Preferred Stock.................. 2.3
Series B Preferred Stock.................. 2.3
Shares.................................... 1.1
Software.................................. 2.22(a)
Stockholders Agreement.................... 5.3
Systems................................... 2.22(h)
Technology................................ 2.22(a)
Underwriters.............................. 5.4
Virgin.................................... Preamble
Year 2000 Compliant....................... 2.22(h)
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ARTICLE II
REPRESENTATIONS AND WARRANTIES
OF THE COMPANY
The Company represents and warrants to Virgin as follows:
2.1 Corporate Organization. The Company is a corporation duly
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organized, validly existing and in good standing under the laws of the State of
Delaware, with all requisite corporate power and authority to own and operate
its property and to lease the properties it operates as lessee and to carry on
its business as it is now being conducted and is duly qualified or licensed to
do business and is in good standing in each jurisdiction in which it currently
carries on business except where failure to be so qualified would not have,
individually or in the aggregate, a material adverse effect upon the business,
prospects, results of operations or financial condition of the Company, or a
material adverse effect on the ability of the Company to perform its obligations
under this Agreement or any Related Agreement to which it is a party or the
ability of the Company to consummate the transactions contemplated hereby or
thereby (a "Material Adverse Effect"). True, complete and correct copies of the
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Certificate of Incorporation and the Bylaws of the Company, as amended to date,
heretofore have been delivered to Virgin.
2.2 Subsidiaries. Except as set forth an Schedule 2.2, the
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Company does not, directly or indirectly, own any voting securities of any
corporation or other entity.
2.3 Capital Stock. The authorized capital stock of the Company
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consists of 15,584,415 shares of Common Stock, of which, as of the date hereof,
2,960,058 shares are issued and outstanding (after giving effect to the
transactions contemplated hereby) and 5,219,086 are reserved for issuance under
the terms of the Company's outstanding options, warrants and other convertible
securities which includes only the following: (i) 1,802,575 shares of Common
Stock reserved for issuance under the Company's Amended Stock Option Plan, of
which, as of the date hereof, 812,403 are issued and outstanding; (ii) 454,545
shares of Series A Convertible Preferred Stock, par value $.01 per share (the
"Series A Preferred Stock"), of which, as of the date hereof, 454,545 are issued
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and outstanding; (iii) 865,801 shares of Series B Convertible Preferred Stock,
par value $.01 per share (the "Series B Preferred Stock"), of which, as of the
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date hereof, 364,654 are issued and outstanding; (iv) 227,578 shares Series C
Convertible Preferred Stock, par value $.01 per share (collectively, with the
Series A Preferred Stock and the Series B Preferred Stock, the "Preferred
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Stock"), of which no shares are issued and outstanding; (v) 775,128 warrants to
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purchase shares of Common Stock (the "Common Stock Warrants"), all of which are
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issued and
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outstanding; (vi) 865,801 warrants to purchase Series B Preferred Stock, of
which 501,147 are outstanding; and (vii) 227,578 warrants to purchase
Series C Preferred Stock, all of which are outstanding (collectively, the
"Preferred Stock Warrants"). All of the outstanding shares of Common Stock and
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Preferred Stock have been duly and validly authorized and issued, are fully paid
and nonassessable and were issued in compliance with all applicable federal and
state securities laws. Except as set forth on Schedule 2.3, (i) upon exercise
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of the Common Stock Warrants, the shares of Common Stock issued pursuant to such
warrants will be duly and validly issued, fully paid and nonassessable and
issued in compliance with all applicable federal and state securities laws and
(ii) upon exercise of the Preferred Stock Warrants, the shares of Preferred
Stock issued pursuant to such warrants will be duly and validly issued, fully
paid and nonassessable and issued in compliance with all federal and state
securities laws. Except for the Common Stock Warrants, the Preferred Stock and
the Preferred Stock Warrants, and except as set forth on Schedule 2.3, there are
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no preemptive rights, options, warrants, conversion privileges or other rights
presently outstanding to purchase or otherwise acquire any authorized but
unissued shares of capital stock or other securities of the Company.
2.4 Books and Records. Copies of all the minute books and stock
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record books of the Company have been delivered to Virgin for inspection and
contain accurate records of all meetings of, and written consents by, the Board
of Directors (and any committees thereof) and stockholders of the Company since
its incorporation through the date hereof.
2.5 Newly Issued Shares. The Shares constitute 50% of the issued
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and outstanding shares of capital stock of the Company on a fully diluted basis,
after giving effect to the transactions described herein, the conversion,
exercise or exchange of all securities of the Company convertible into or
exercisable or exchangeable for shares of Common Stock of the Company and all
anti-dilution adjustments required by the transactions described hereunder.
Except as set forth on Schedule 2.5, there are no anti-dilution adjustments
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required by the transactions described hereunder. The Shares have been duly
authorized and, when issued as contemplated hereby at the Closing will be duly
and validly issued, fully paid and non-assessable, and issued in compliance with
all applicable federal and state securities laws. The issuance of the Shares by
the Company will not be subject to preemptive or other similar rights or such
rights have been waived in writing by the holders thereof. At the Closing,
Virgin will acquire good title to the Shares free and clear of any and all
liens, pledges, claims, security interests, mortgages, assessments, covenants,
restrictions, rights of first refusal, defects in title or other burdens
(collectively, "Liens"), except for such Liens as may be created pursuant to
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this Agreement or the Related Documents or imposed by applicable federal and
state securities laws.
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2.6 Title to Properties. The Company does not own any real
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property interests. The Company has, and upon consummation of the transactions
contemplated hereby will have, good record and marketable title to, or holds,
and upon consummation of the transactions contemplated hereby will hold,
interests as lessee under leases in full force and effect in, all of its assets,
rights, interests and other properties, tangible and intangible (the "Assets"),
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except for such defects in title as would not have a Material Adverse Effect.
2.7 Authority. The Company has full corporate power and
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authority to execute and deliver this Agreement and each Related Agreement to
which it is a party, to carry out its obligations hereunder and thereunder. The
execution, delivery and performance by the Company of this Agreement and each
Related Agreement to which it is a party have been duly authorized by the board
of directors of the Company and its stockholders and no other corporate
proceedings on the part of the Company are necessary to authorize the execution
and delivery of this Agreement and each Related Agreement by the Company or the
performance by the Company of its obligations hereunder or thereunder. This
Agreement and each Related Agreement have been duly executed and delivered by
the Company and (assuming due execution and delivery by the other parties
hereto) constitutes the legal, valid and binding obligation of the Company,
enforceable against the Company in accordance with their respective terms,
subject to applicable bankruptcy, insolvency, moratorium, reorganization or
similar laws affecting creditors' rights generally and subject to general
equitable principles (regardless of whether such enforceability is considered in
a proceeding in equity or at law).
2.8 No Violation. The execution, delivery and performance of this
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Agreement and each Related Agreement by the Company do not (a) violate any
provision of the Certificate of Incorporation or By-laws of the Company or any
law, rule, regulation, order, writ, judgment, injunction, decree, determination
or award in effect on the date hereof (collectively, "Requirements of Law")
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applicable to the Company, (b) except as set forth on Schedule 2.8(b), require
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the consent, waiver, approval, license or authorization of or any notice or
filing by the Company with any person or governmental authority or (c) violate,
result (with or without notice or the passage of time, or both) in a breach of
or give rise to the right to accelerate, terminate or cancel any obligation
under, constitute (with or without notice or the passage of time, or both) a
default under, any of the terms or provisions of any charter or bylaw,
indenture, mortgage, agreement, contract, order, judgment, ordinance, regulation
or decree to which the Company is subject or by which the Company is bound.
Except as set forth on Schedule 2.8, the Company is not party to any agreement
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which is currently in effect, or by which the Company is currently bound,
granting any rights to any person which are inconsistent with the rights to be
granted by the Company in this Agreement and each Related Agreement. Except as
set forth on Schedule 2.8, the execution, delivery and performance of this
------------
Agreement and each Related Agreement by
6
the Company and the consummation by it of the transactions contemplated on its
part hereby and thereby will not result in a "change of control" or similar
event occurring under any agreement, indenture, mortgage, contract or plan to
which the Company is subject or by which the Company is bound or give rise to a
payment by the Company under a change of control or similar provision in any
agreement, indenture, mortgage or contract to which the Company is subject or by
which the Company is bound.
2.9 Litigation. Schedule 2.9 lists all actions, suits,
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proceedings, written complaints or, to the Company's knowledge, claims or
investigations (collectively, "Claims") pending or, to the Company's knowledge,
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threatened, at law, in equity, in arbitration or before any governmental
authority against the Company and with respect to which the Company is a party
or responsible by way of indemnity. Other than as set forth on Schedule 2.9, no
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such Claim would, if adversely determined, have a Material Adverse Effect. No
injunction, writ, temporary restraining order, decree or order of any nature has
been issued by any court or other governmental authority against the Company
purporting to enjoin or restrain the execution, delivery or performance of this
Agreement or any Related Agreement.
2.10 Compliance with Laws.
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(a) The Company is in compliance with all Requirements of Law
in all respects, except to the extent that the failure to comply with such
Requirements of Law would not have a Material Adverse Effect.
(b) (i) The Company has all licenses, permits, orders or
approvals of any governmental authority (collectively, "Permits") that are
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material to or necessary for the conduct of the business of the Company,
(i) such Permits are in full force and effect, and (ii) no material violations
with respect to any Permit has occurred and is continuing.
2.11 Financial Condition. The Company heretofore has delivered to
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Virgin true and correct copies of audited consolidated financial statements of
the Company for the years ended December 31, 1997 (the "1997 Audited
------------
Financials") and December 31, 1998 (the "1998 Audited Financials") and the
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unaudited financial statements of the Company for the three-month period ended
March 31, 1999 (the "1999 Interim Financials"). The 1997 Audited Financials,
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1998 Audited Financials and the 1999 Interim Financials have been prepared in
accordance with GAAP applied consistently and fairly present in all material
respects the financial condition of the Company as of the dates thereof and the
results of operations of the Company for the period, or portion thereof, then
ended (except in the case of the 1999 Interim Financials, for normal year-end
adjustment and the absence of footnotes).
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2.12 No Undisclosed Financial Liabilities. The Company does not,
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and upon consummation of the transactions contemplated hereby will not, have any
direct or indirect indebtedness, liability (including, without limitation,
product liability or warranty claim), obligation, fixed or unfixed, contingent
or otherwise, and whether or not of a kind required by GAAP to be set forth on a
financial statement, other than (i) liabilities fully and adequately reflected
on the 1998 Audited Financials, including the Notes thereto and on the Interim
Financials, (ii) those incurred since March 31, 1999 in the ordinary course of
business, (iii) liabilities incurred pursuant to this Agreement, (iv)
liabilities which would not have a Material Adverse Effect or (v) as set forth
on Schedule 2.12.
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2.13 No Material Adverse Change; Ordinary Course of Business.
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Except as contemplated by this Agreement and as set forth on Schedule 2.13,
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since December 31, 1998, the Company has not (a) experienced any change, event
or condition which has had, or could reasonably be expected to have, a Material
Adverse Effect, (b) conducted its business in any material respect other than in
the ordinary course consistent with past practices, (c) incurred any
indebtedness for borrowed money or issued any debt securities or assumed,
guaranteed or endorsed the obligations of any other person, (d)(i) except in
the ordinary course of business, sold, transferred or otherwise disposed of any
of its property or Assets or (ii) mortgaged or encumbered any of its property or
Assets, (e) suffered any casualty losses not covered by insurance,
(f) repurchased any of its capital stock, (g) declared, set aside or paid any
dividend or other distribution in respect of its capital stock, (h) amended its
Certificate of Incorporation or Bylaws or merged with or into or consolidated
with any other person, (i) split, combined or reclassified its capital stock,
(j) issued or sold (or agreed to issue or sell) any of its equity securities or
any options, warrants, conversion or other rights to purchase any such
securities or any securities convertible into or exchangeable for such
securities, or granted, or agreed to grant any such rights, (k) increased the
rates of compensation (including bonuses) payable or to become payable to any of
its officers, employees, agents, independent contractors or consultants other
than increases made in the ordinary course of business except to persons
receiving less than $50,000 per year or where the effect thereof will not either
individually or in the aggregate have, or could reasonably be expected to have,
a Material Adverse Effect (l) entered into any new or amended any existing
employment contracts, severance agreements or consulting contracts or instituted
or agreed to institute any increase in benefits or altered its employment
practices or the terms and conditions of employment, (m) changed in any respect
its accounting methods, principles or practices, (n) entered into or amended or
terminated any transaction or contract that has had, or could reasonably be
expected to have, a Material Adverse Effect on the Company, (o) entered into any
joint ventures or partnerships or any kind, or (p) entered any contract or other
agreements to do any of the foregoing.
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2.14 No General Solicitation. No form of general solicitation or
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general advertising was used by the Company or its representatives in connection
with the offer or sale of the Shares. Assuming the accuracy of Virgin's
representations in Section 4.5, no registration of the Shares, pursuant to the
provisions of the Securities Act or any state securities or "blue sky" laws,
will be required by the offer, sale or issuance of the Shares.
2.15 Taxes.
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(a) The Company has filed or caused to be filed, or has
properly filed extensions for, all income tax returns which are required to
be filed and have paid or caused to be paid all taxes as shown on said
returns and on all assessments received by it to the extent that such taxes
have become due, except taxes the validity or amount of which is being
contested in good faith by appropriate proceedings and with respect to
which adequate reserves have been set aside in accordance with GAAP. The
Company has paid or caused to be paid, or have established reserves that
the Company reasonably believes to be adequate for all income tax
liabilities applicable to the Company for all fiscal years which have not
been examined and reported on by the taxing authorities (or closed by
applicable statutes). The Company has given or otherwise made available to
Virgin correct and complete copies of all tax returns, examination reports
and statements of deficiencies for all periods for which the statute of
limitations has not expired.
(b) No audit or other proceeding by any taxing authority,
court or similar person is pending or to the Company's knowledge, threatened,
with respect to any taxes due from or with respect to the operations of the
Company or any tax return filed by or with respect to the operations of the
Company. The Company has not received any notice of any assessment of taxes
proposed against the Company or any of its assets.
2.16 Brokers. Except as set forth on Schedule 2.16, neither the
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Company nor any person that, directly or indirectly, through one or more
intermediaries, controls, is controlled by, or is under common control with (an
"affiliate") the Company has committed on behalf of itself or a third party to
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pay any fee or commission to any broker, finder, investment banker or other
intermediary in connection with this Agreement.
2.17 Investment Company. Neither the Company nor any person
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controlling the Company is an "investment company" within the meaning of the
Investment Company Act of 1940, as amended.
2.18 Certain Agreements.
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(a) Except as set forth on Schedule 2.18, the Company is not a
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party to any (i) agreement, contract, indenture or other instrument relating to
the borrowing of money or the guarantee of any obligation for the borrowing of
money, (ii) employment, consulting, compensation or severance agreement with any
of its directors, employees or consultants, (iii) agreement, contract or
commitment limiting or restraining it from engaging or competing in any
business, (iv) lease pursuant to which it leases any real property, (v)
distribution, dealer, representation or agency agreement, outside of the
ordinary course of business, (vi) record label, music content, marketing
alliance, music license or similar agreement, or (vii) contract, agreement,
obligation or commitment with any affiliates (each of the foregoing a "Listed
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Contract"). Each Listed Contract is in full force and effect and has been
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complied with in all material respects by the Company and, to the Company's
knowledge, has been complied with in all material respects by all other
parties thereto. Except as set forth in Schedule 2.18, no consent is
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required under any Listed Contract in connection with the consummation of the
transactions contemplated by this Agreement or any Related Agreement. Each
Listed Contract constitutes a legal, valid and binding obligation of the
Company, enforceable against the Company in accordance with its terms and, to
the Company's knowledge, each other party thereto.
2.19 Registration Rights. Schedule 2.19 sets forth all agreements
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to which the Company is a party or by which it is bound relating to the
registration of its securities.
2.20 Trade Relations. To the Company's knowledge, there exists no
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actual or threatened termination, cancellation or material adverse limitation
of, or any material adverse modification or material change in, the business
relationship or business of the Company or its business with any customer or any
group of customers which is individually or in the aggregate material to the
business of the Company, or with any supplier which is material to the business
of the Company.
2.21 Environmental Matters.
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(a) Except as disclosed on Schedule 2.21 or as would not be
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reasonably likely to have a Material Adverse Effect on its operations or
property, (i) the Company is in compliance with all applicable Environmental
Laws, (ii) the Company has all Permits and authorizations required pursuant to
Environmental Laws; all such Permits and authorizations are in full force and
effect; and no actions are pending to revoke, limit or modify any of such
Permits or authorizations, (iii) no Environmental Claims are pending or to the
Company's knowledge, threatened, against the Company and there are no civil,
criminal or administrative judgments or notices of violation against the Company
pursuant to Environmental Laws, and (iv) to the Company's knowledge, there are
no events, conditions or circumstances which have resulted or will result in
obligations or liability pursuant to Environmental Laws or
10
principles of common law relating to the protection of the environment or health
and safety which are reasonably likely to have a Material Adverse Effect.
(b) For purposes of this Agreement, "Environmental Laws" means
------------------
any law, statute, code, ordinance or other legal requirement relating to
pollution, protection of the environment, or the emission, discharge or release
of Hazardous Substances into the environment or otherwise relating to the
manufacture, processing, distribution, use, treatment, storage, disposal,
transport or handling of Hazardous Substances or the protection of employee or
public health and safety; "Environmental Claims" means any written
--------------------
notification pursuant to Environmental Laws that any of the current or past
operations of the Company, or any by-products thereof, or any of the property
currently or formerly owned, leased or operated by the Company is or may be
implicated in or subject to any proceeding, action, complaint, suit, demand,
litigation, investigation, claim, order, hearing, notice or agreement by any
governmental authority or any other person; and "Hazardous Substances"
--------------------
means any toxic waste, pollutant, contaminant, hazardous substance,
toxic substance, hazardous waste, special waste, industrial substance or waste,
petroleum-derived substance or waste, radioactive substance or waste, or any
constituent of any such substance or waste, or any other substance regulated or
defined as hazardous or harmful by any governmental authority.
2.22 Proprietary Rights.
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(a) "Intellectual Property" shall mean all of the following
---------------------
as they exist in all jurisdictions throughout the world, in each case, to the
extent owned by or licensed to, or otherwise used by the Company which,
individually or in the aggregate, are material to the business of the Company:
(i) patents, patent applications, and other patent rights
(including any divisions, continuations, continuations-in-part,
substitutions, or reissues thereof, whether or not patents are issued on
any such applications and whether or not any such applications are
modified, withdrawn, or resubmitted);
(ii) trademarks, service marks, trade dress, trade names,
brand names, Internet domain names, designs, logos, or corporate names
(including, in each case, the goodwill associated thereto), whether
registered or unregistered, and all registrations and applications for
registration thereof;
(iii) copyrights, including all renewals and extensions
thereof, copyright registrations and applications for registration
thereof, and non-registered copyrights;
11
(iv) trade secrets, and proprietary: designs; research;
processes; procedures; techniques; methods; know-how; data; mask works;
discoveries; inventions; and other rights (whether or not patentable or
subject to copyright, mask work, or trade secret protection)
(collectively, "Technology"); and
-----------
(v) computer software programs, including, without
limitation, all source code, object code, and documentation related
thereto (the "Software").
--------
(b) Disclosure.
----------
(i) Schedule 2.22(b) lists all United States and foreign
----------------
patents and patent applications, trademark and service xxxx registrations
and applications, Internet domain name registrations and applications,
and copyright registrations and applications owned by the Company,
specifying as to each item, as applicable: the nature of the item,
including the title; the jurisdictions in which the item is issued or
registered or in which an application for issuance or registration has
been filed; and the issuance, registration, or application numbers and
dates.
(ii) Schedule 2.22(b) lists all licenses, sublicenses, and
----------------
other agreements or permissions necessary to conduct the business of the
Company in all material respects ("IP Licenses") under which the Company
-----------
is a licensee or otherwise is authorized to use any Intellectual
Property, specifying as to each item, as applicable: the nature of the
item, including the title; the owner of the item; and the term of the
license. The Company represents and warrants that it is authorized to use
the Intellectual Property subject to the IP Licenses in all manners
necessary to the conduct of the business of the Company.
(iii) Schedule 2.22(b) lists and describes the status of
----------------
any agreements involving Intellectual Property currently in negotiation
by the Company ("Proposed Intellectual Property Agreements").
-----------------------------------------
(c) Ownership. Except as set forth on Schedules 2.22(b) and
--------- ---------------------
2.22(c), the Company owns and, upon consummation of the transactions
-------
contemplated hereby will own, free and clear of all Liens, and has and, upon
consummation of the transactions contemplated hereby will have, the
unrestricted right to use, sell, or license, all Intellectual Property
material to the conduct of the business of the Company.
(d) Claims. Except as set forth on Schedule 2.22(d), to the
------ ----------------
Company's knowledge, the Company has not infringed, and is not infringing as of
the
12
date hereof, upon or otherwise violated the intellectual property rights of
any third party or received any claim, charge, demand, or notice alleging
any such infringement or other violation. Except as set forth on Schedule
--------
2.22(d), the Company has not been, during the three years preceding the
-------
date hereof, a party to any Claim nor, to the Company's knowledge, is any
Claim threatened, that challenges the validity, enforceability, ownership,
or right to use, sell, or license any Intellectual Property. To the
Company's knowledge, no third party is infringing upon any Intellectual
Property.
(e) Administration and Enforcement. The Company has taken all
------------------------------
necessary action to maintain and protect each item of Intellectual Property
owned by the Company which is necessary to the conduct of its business.
(f) Protection of Trade Secrets and Technology. The Company
------------------------------------------
reasonable precautions to protect the secrecy, confidentiality, and value of its
trade secrets and the proprietary nature and value of the Technology. Schedule
--------
2.22(f) lists every employee and third party who has contributed to the
-------
development of Intellectual Property on behalf of the Company. Employee or third
party listed on Schedule 2.22(f) has signed an agreement with the Company
----------------
stating that such employee or third party (i) shall maintain the confidentiality
of the Company's trade secrets and other confidential information, (ii) assigns
to the Company all rights that such employee or third party might have in such
Intellectual Property, and (iii) has not breached, and shall not breach, any
confidentiality, non-competition, or other obligation to any other person or
entity in contributing to the development of Intellectual Property on behalf of
the Company. To the Company's knowledge, no such employee or third party has
breached any such agreement.
(g) Software. All Software which is necessary to the
--------
Company's business is described in Schedule 2.22(g) hereto. Such Software is
----------------
held by the Company legitimately, and, to the Company's knowledge, is free from
any significant software defect, performs in all necessary respects in
conformance with its documentation, and does not contain any bugs or viruses or
any code or mechanism that could be used to interfere with the operation of the
Software. The Company has furnished all documentation relating to the use,
maintenance, and operation of such Software, all of which, to the Company's
knowledge, is true and accurate.
(h) Year 2000 Compliance. All Software, hardware, databases,
--------------------
and embedded control systems which, individually or in the aggregate, are
necessary to the business of the Company (collectively, the "Systems") owned
-------
or used by the Company are, to the Company's knowledge, Year 2000 Compliant.
Notwithstanding the foregoing, the Company represents and warrants that (i) all
Software listed on Schedule 2.22(g)(1)-(g)(6) is Year 2000 Compliant and
--------------------------
(ii) all Software and databases necessary to calculate and track royalties due
to Virgin under the License Agreement are Year 2000 Compliant. As used herein,
the term "Year 2000
---------
13
Compliant" means that the Systems (i) accurately process date and time data
---------
(including, without limitation, calculating, comparing, and sequencing) from,
into, and between the twentieth and twenty-first centuries, the years 1999 and
2000, and leap year calculations and (ii) operate accurately with other software
and hardware that use standard date format (4 digits) for representation of the
year. The Company has not incurred and does not reasonably expect to incur any
material expenses arising from or relating to the failure of any Systems of the
Company or of any supplier, manufacturer, distributor, or other third party to
be Year 2000 Compliant.
(i) Effect of Transaction. The Company is not, nor, as a
---------------------
result of the execution and delivery of this Agreement or the performance of its
obligations hereunder, will be, in violation of any agreement relating to
any Intellectual Property.
2.23 Employee Benefit Plans.
----------------------
(a) Schedule 2.23 lists all employee benefit plans,
-------------
arrangements, policies or commitments (whether or not an employee benefit plan
within the meaning of Section 3(3) of the Employee Retirement Income
Security Act of 1974, as amended ("ERISA")), including any employment,
-----
consulting or deferred compensation agreement, executive compensation, bonus,
incentive, pension, profit-sharing, savings, retirement, stock option, stock
purchase or severance pay plan, any life, health, disability, or accident
insurance plan or any holiday or vacation practice, as to which the Company
has or in the future would have any direct or indirect, actual or contingent
liability ("Benefit Plans"). With respect to each such Benefit Plan, the
-------------
Company heretofore has delivered to Virgin true, correct and complete copies of
(i) all plan texts and agreements and related trust agreements or annuity
contracts, (ii) all summary plan descriptions and material employee
communications, (iii) the most recent annual report (including all schedules
thereto); and (iv) if the plan is intended to qualify under Section 401(a) or
403(a) of the Internal Revenue Code of 1986, as amended (the "Code"), the
----
most recent determination letter received from the Internal Revenue Service
(the "IRS"), if any.
---
(b) Except as specifically set forth on Schedule 2.23, (i) the
-------------
Company and any person who would be considered a single employer with the
Company pursuant to section 414(b), (c), (m) or (o) of the Code (an "ERISA
-----
Affiliate") has made all material payments due from it to date under or with
---------
respect to each Benefit Plan, (ii) the Company has performed all material
obligations required to be performed by it under, and is not in material default
under or in violation of, any Benefit Plan and to the Company's knowledge,
no other party is in default thereunder or in violation thereof, (iii) the
Company is in compliance in all material respects with the requirements
prescribed by all statutes, orders or governmental rules or regulations
applicable to the Benefit Plans, including, without limitation, ERISA and
the Code,
14
(iv) neither the Company nor to the Company's knowledge, any other "disqualified
person" or "party in interest" (as defined in section 4975 of the Code and
section 3 of ERISA, respectively) has engaged in any "prohibited transaction,"
as such term is defined in section 4975 of the Code or section 406 of ERISA, for
which no exception or exemption exists, (v) there are no actions, suits or
claims pending (other than routine claims for benefits) or to the Company's
knowledge, threatened, with respect to any Benefit Plan, (vi) no Benefit Plan is
subject to Title IV of ERISA or Section 412 of the Code, (vii) the Company has
no liability under or pursuant to any plan which provides medical or death
benefits with respect to current or former employees of the Company beyond their
termination of employment (other than coverage mandated by law), (viii) no
Benefit Plan is a "multiple employer plan" or "multiemployer plan" within the
meaning of the Code or ERISA or the regulations promulgated thereunder, and (ix)
neither the Company nor any ERISA Affiliate has made any contributions to nor
participated in any "multiple employer plan" or "multiemployer plan" (as defined
in subsection (viii)) within the last five years.
(c) No Asset is subject to any Lien under sections 302(f),
306(a), 307(a) and 4068 of ERISA and sections 401(a)(29) and 412(n) of the Code
or, to the knowledge of the Company, under any other provisions of ERISA or
the Code.
(d) Each Benefit Plan conforms in all material respects to, and
its administration is in substantial compliance with, its terms and all
Requirements of Law and regulations. Each Benefit Plan intended to be qualified
under Code section 401(a) is so qualified and each trust established in
connection with any Benefit Plan that is intended to be exempt from federal
income taxation under Code section 501(a) is so exempt.
(e) The consummation of the transactions contemplated by this
Agreement will not (i) entitle any current or former employee to severance pay
or unemployment compensation, (ii) accelerate the time of payment or vesting, or
increase the amount of any compensation due to, any current or former employee,
(iii) result in a payment that would constitute a parachute payment within the
meaning of section 280G of the Code or (iv) constitute or involve a "prohibited
transaction" (as defined in section 406 or section 4975 of the Code) with
respect to a Benefit Plan.
2.24 Employment Matters. The Company has 16 employees (the
------------------
"Employees"), of which 7 are paid hourly and 9 are salaried. To the Company's
---------
knowledge, no Employee has indicated that such Employee will cancel or otherwise
terminate or modify such Employee's relationship with the Company or decrease or
eliminate such Employee's services to the Company as a result of the
consummation of the transactions contemplated hereby or by the Related
Agreements, or otherwise. No Employee is a member of any union and, except as
set forth on Schedule 2.24, no Employee has an employment agreement, whether
-------------
written or oral, with the Company.
15
Except as set forth on Schedule 2.24, the Company has no liability, whether
-------------
absolute or contingent, direct or indirect, including any obligation under any
Benefit Plan, with respect to any misclassification of a person as an
independent contractor rather than as an employee. The Company currently does
not have or at any time in the past has not had nor is there now, to the
Company's knowledge, threatened, any walkout, strike, union activity, picketing,
work stoppage, work slowdown or any other similar occurrence that has had or
could reasonably be expected to have a Material Adverse Effect. The Company has
complied in all material respects with all applicable laws (including, without
limitation, the National Labor Relations Act, as amended), rules and
regulations, relating to the employment of labor, including those relating to
wages, hours, unemployment insurance, collective bargaining and the payment and
withholding of taxes, and the Company has withheld all amounts required by law
or agreement to be withheld from the wages or salaries of the Employees and the
Company is not liable for any arrears of wages or other taxes or penalties for
failure to comply with any of the foregoing. There are no material controversies
pending or to the Company's knowledge, threatened, between the Company and any
of the Employees or any labor union or other collective bargaining unit
representing any of the Employees. No union or other collective bargaining unit
has been certified or recognized by the Company as representing any of the
Employees and there has not been to the Company's knowledge any attempt by any
union to organize or represent the Employees within the last five years. No
approval of any union or other collective bargaining unit is required in
connection with the execution or delivery, performance of this Agreement or any
Related Agreement or the consummation of the transactions contemplated hereby
and thereby. The Company has no outstanding liability for any violations of the
Workers Adjustment and Retraining Notification Act.
2.25 Potential Conflicts of Interest. Except as set forth on
-------------------------------
Schedule 2.25, to the knowledge of the Company, no officer, director or
-------------
affiliate of the Company: (a) owns, directly or indirectly, any interest in
(excepting less than 1% stock holdings for investment purposes in securities of
publicly held and traded companies), or is an officer, director, employee or
consultant of, any person which is, or is engaged in business as, a competitor,
lessor, lessee, supplier, distributor, sales agent or customer of, or lender to
or borrower from, the Company; (b) owns, directly or indirectly, in whole or in
part, any tangible or intangible property that the Company uses in the conduct
of its business; or (c) has any cause of action or other claim whatsoever
against, or owes any amount to, the Company, except for claims in the ordinary
course of business such as for accrued vacation pay, accrued benefits under the
Benefit Plans, and similar matters and agreements arising in the ordinary course
of business.
2.26 Insurance. Schedule 2.26 (i) accurately lists all of the
--------- -------------
Company's insurance policies or programs (including all key-man and similar
insurance) and indicates the insurer's name, policy number, expiration date,
amount of coverage, type
16
of coverage, annual premiums, exclusions and deductibles, and (ii) indicates any
self-insurance program that is in effect. The Company maintains insurance in
such amounts and covering such risks as it believes are usually and customarily
carried with respect to similar businesses.
2.27 Xxxx-Xxxxx. The Company (i) is its own "ultimate parent
----------
entity" as such term is defined in Section 801.1(a)(3) of the Rules (the
"Rules") promulgated under the Xxxx-Xxxxx-Xxxxxx Antitrust Improvements Act of
-----
"HSR Act") and (ii) does not have annual net sales or total assets of 1976
-------
(the $10,000,000 or more as determined in accordance with the HSR Act and Rules.
2.28 Registration Statement. The Registration Statement on Form S-1
----------------------
(Reg. No. 333-72685) (the "Registration Statement") filed by the Company with
----------------------
the Securities and Exchange Commission (the "SEC") on February 19, 1999 and all
---
amendments to the Registration Statement thereafter filed with the SEC conformed
as of the date so filed, and will conform as of the date thereafter filed, in
all materials respects to the requirements of the Securities Act of 1933, as
amended (the "Act"), and the rules and regulations of the SEC thereunder, and
---
did not at the date of filing and will not contain an 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 not misleading.
2.29 Disclosure. The representations and warranties contained in
----------
this Agreement and the Schedules to this Agreement and all documents and
certificates furnished to Virgin by the Company in connection herewith or
pursuant hereto at the Closing do not or as of the date such document and
certificates were prepared did not contain any untrue statement of a material
fact or omit to state a material fact necessary in order to make any statement
contained herein or therein, in the light of the circumstances under which it
was made, not misleading.
ARTICLE III
REPRESENTATIONS AND WARRANTIES
OF VIRGIN
Virgin represents and warrants to the Company as follows:
3.1 Organization. Virgin is a corporation duly organized, validly
------------
existing and in good standing under the laws of the State of Delaware.
3.2 Authority. (i) Virgin has full corporate power and authority
---------
to execute and deliver this Agreement and each Related Agreement to which it is
a party, to carry out its obligations hereunder and thereunder and to consummate
the
17
transactions contemplated on its part hereby and thereby, (ii) the execution,
delivery and performance by Virgin of this Agreement and each Related Agreement
to which it is a party have been duly authorized by all necessary corporate
action on the part of Virgin, (iii) no other action on the part of Virgin is
necessary to authorize the execution and delivery of this Agreement and each
Related Agreement by Virgin or the performance by Virgin of its obligations
hereunder or thereunder and (iv) this Agreement and each Related Agreement to
which Virgin is a party have been duly executed and delivered by Virgin and
(assuming due execution and delivery by the other parties hereto) constitutes a
legal, valid and binding agreement of Virgin, enforceable against it in
accordance with their respective terms, subject to applicable bankruptcy,
insolvency, moratorium, reorganization or similar laws affecting creditors'
rights generally and subject to general equitable principles (regardless of
whether such enforceability is considered in a proceeding in equity or at law).
3.3 No Violation. The execution and delivery by Virgin of this
------------
Agreement and each Related Agreement to which it is a party, the performance by
Virgin of its obligations hereunder and thereunder and the consummation by it of
the transactions contemplated on its part hereby and thereby will not (a)
violate any provision of the Certificate of Incorporation or By-laws of Virgin
or any Requirements of Law applicable to Virgin, (b) require Virgin to obtain
the consent, waiver, approval, license or authorization of or make any filing
with any person or governmental authority or (c) violate, result (with or
without notice or the passage of time, or both) in a breach of or give rise to
the right to accelerate, terminate or cancel any obligation under or constitute
(with or without notice or the passage of time, or both) a default under, any of
the terms or provisions of any charter or bylaw, indenture, mortgage, agreement,
contract, order, judgment, ordinance, regulation or decree to which Virgin is
subject or by which Virgin is bound.
3.4 Brokers. Neither Virgin nor any of its affiliates has
-------
committed on behalf of itself or a third party to pay any fee or commission to
any broker, finder, investment banker or other intermediary in connection with
this Agreement.
3.5 Securities Act Representation. As of the Closing hereunder,
-----------------------------
Virgin will be an "accredited investor" as defined in Rule 501 promulgated as
part of Regulation D under the Securities Act. Virgin is not purchasing the
Shares with a view to a distribution or resale of any of such securities in
violation of any applicable securities laws.
18
ARTICLE IV
INDEMNIFICATION
4.1 Indemnification. Except as otherwise provided in this
---------------
Article IV, the Company (the "Indemnifying Party") agrees to indemnify, defend
------------------
and hold harmless Virgin and its affiliates and their respective officers,
directors, agents, employees and subsidiaries (each, an "Indemnified Party")
-----------------
to the fullest extent permitted by law from and against any and all losses,
Claims (including Claims by a third party), damages, expenses (including
reasonable fees, disbursements and other charges of counsel incurred by the
Indemnified Party, including those reasonably incurred in connection with
investigative, administrative or judicial proceedings commenced or threatened,
whether or not an Indemnified Party shall be designated a party thereby, and
those incurred in connection with any claim for indemnity hereunder) or other
liabilities suffered or incurred (collectively, "Losses") resulting from,
------
arising out of or relating to (a) any breach of any representation or warranty
by the Company in this Agreement, (b) any breach of any covenant or agreement by
the Company in this Agreement or (c) any legal, administrative or other actions
(including without limitation actions brought by any equity holders of the
Company or derivative actions brought by any person claiming through or in the
Company's name other than Virgin and its affiliates), proceedings or
investigations (whether formal or informal), or written threats of any of them,
based upon, relating to or arising out of (x) the Company's execution of this
Agreement or any Related Agreement or (y) the Company's performance of the
transactions contemplated by this Agreement or any Related Agreement; provided,
--------
that if and to the extent that indemnification is unenforceable for any reason,
the Indemnifying Party shall make the maximum contribution to the payment and
satisfaction of the Losses which shall be permissible under applicable laws. In
connection with the obligation of the Indemnifying Party to indemnify for
expenses as set forth above, the Indemnifying Party shall, upon presentation of
appropriate invoices containing reasonable detail, reimburse each Indemnified
Party for all such expenses as they are incurred by such Indemnified Party;
provided, however, that if an Indemnified Party is reimbursed for any expenses,
-------- -------
the reimbursement of such expenses shall be refunded to the extent it is finally
judicially determined that the Losses in question resulted primarily from the
willful misconduct or gross negligence of the Indemnified Party.
4.2 Notification. Each Indemnified Party under this Article IV
------------
shall, promptly after the receipt of notice of the commencement of any Claim
against the Indemnified Party in respect of which indemnity may be sought from
the Indemnifying Party under this Article IV, notify the Indemnifying Party in
writing of its commencement. The omission of any Indemnified Party to so notify
the Indemnifying Party of any action shall not relieve the Indemnifying Party
from any liability which it may have to the Indemnified Party (a) other than
under this Article IV or (b) under this Article IV unless, and only to the
extent that, such omission materially and adversely prejudices the Indemnifying
Party with respect to substantive rights or defenses. In case any Claim shall be
brought against any Indemnified Party, and it shall notify the Indemnifying
Party of its commencement, the Indemnifying Party shall be entitled to
19
assume and control the defense thereof at its own expense, with counsel
satisfactory to the Indemnified Party in its reasonable judgment; provided,
--------
however, that any Indemnified Party may, at its own expense, retain separate
-------
counsel to participate in the defense. Notwithstanding the above, in any Claim
in which both the Indemnifying Party, on the one hand, and an Indemnified Party,
on the other hand, are, or are reasonably likely to become, a party, the
Indemnified Party shall have the right to employ separate counsel at the expense
of the Indemnifying Party and to control its own defense of the Claim if, in the
reasonable written opinion of counsel to the Indemnified Party, a conflict or
potential conflict exists between the Indemnifying Party, on the one hand, and
the Indemnified Party, on the other hand, that would make separate
representation advisable; provided, however, that the Indemnifying Party shall
-------- -------
not be liable for the fees and expenses of more than one counsel to all
Indemnified Parties. The Indemnifying Party agrees that it will not, without
the prior written consent of Virgin, settle, compromise or consent to the entry
of any judgment in any pending or threatened Claim relating to the matters
contemplated by this Agreement (if any Indemnified Party is a party or has been
actually threatened in writing to be made a party to it) unless the settlement,
compromise or consent includes an unconditional release of Virgin and each other
Indemnified Party from all liability arising out of or alleged in the Claim.
The Indemnifying Party shall not be liable for any settlement of any Claim
effected by an Indemnified Party without the Indemnifying Party's written
consent, which consent shall not be unreasonably withheld.
4.3 Limitations. Notwithstanding the foregoing, with respect to
-----------
Section 4.1(a) of this Agreement, an Indemnifying Party shall not have any
liability (other than with respect to any Losses incurred, arising under or
resulting from a breach of any of Sections 2.1, 2.3, 2.5, 2.16 and 2.28 of this
Agreement ("Excepted Claims")) unless the aggregate of all Losses relating
---------------
thereto for which an Indemnifying Party would, but for this provision, be liable
(other than with respect to Excepted Claims) exceeds on a cumulative basis an
amount equal to $75,000, in which event the Indemnified Parties shall be
entitled to indemnification hereunder in full for all Losses in excess of such
amount; provided, that an Indemnifying Party's aggregate liability under this
--------
Section 4.3 shall in no event exceed an amount equal to $40,000,000.
4.4 Exclusive Remedy; Related Agreements. Virgin agrees that,
------------------------------------
from and after the Closing, its sole and exclusive remedy with respect to any
claims relating to the subject matter of this Agreement shall be pursuant to the
indemnification provisions set forth in this Article IV, except that nothing in
this Agreement shall be deemed to constitute a waiver of any rights that any
Indemnified Party may have by separate agreement or a waiver of any tort claims
of, or causes of action arising from, fraudulent misrepresentation or deceit.
Notwithstanding anything to the contrary herein, (i) nothing in this Article IV
restricts or limits any rights that any Indemnified Party may have to seek
equitable relief and (ii) the indemnification and contribution provisions of the
Related Agreements shall govern any claim made with respect to matters arising
thereunder.
20
ARTICLE V
AGREEMENTS
5.1 License Agreement. In connection with the transactions
-----------------
contemplated by this Agreement, simultaneously with the execution of this
Agreement, the Company and Virgin will enter into the License Agreement.
5.2 Registration Rights Agreement. In connection with the
-----------------------------
transactions contemplated by this Agreement, simultaneously with the execution
of this Agreement, the Company, Virgin and certain other stockholders of the
Company will enter into a registration rights agreement (the "Registration
------------
Rights Agreement"), a form of which is attached hereto as Exhibit C.
---------------- ---------
5.3 Stockholders Agreement. In connection with the transactions
----------------------
contemplated by this Agreement, the Company, simultaneously with the execution
of this Agreement, Virgin and certain other stockholders of the Company will
enter into a stockholders agreement (the "Stockholders Agreement"), a form of
----------------------
which is attached hereto as Exhibit D.
---------
5.4 Public Offering. Upon execution of this Agreement, the Company
---------------
shall authorize the amendment of, and shall amend, the Registration Statement to
disclose the transactions contemplated by this Agreement and the Related
Agreements. All changes to the Registration Statement shall be subject to the
approval of Virgin prior to filing with the SEC. The parties intend to
consummate the IPO after the Closing, subject to obtaining all regulatory and
other requisite approvals, and subject to market conditions. The Company and
Virgin shall mutually agree on the selection of underwriters (the
"Underwriters") for the IPO which, as of the date hereof, are agreed to be
------------
Xxxxxx, Xxxxx Xxxxx, Inc. and Xxxxxxxxxx & Co. Inc. Virgin agrees to enter into
a customary lock-up agreement with the Underwriters, on terms acceptable to
Virgin, providing for a "lock-up period" not to exceed the shorter of (i) 180
days, (ii) the period requested by the Underwriters or (iii) the period agreed
to by any other major stockholder of the Company.
5.5 Sale of Shares in the IPO or Other Offering. The Company shall
-------------------------------------------
include in the IPO, without regard to any cut-backs imposed by the Underwriters,
such number of Shares as Virgin may elect, up to a maximum number of Shares
equal to such number that results in Virgin receiving proceeds (after deduction
of underwriters commissions and discounts) in the IPO of $40 million. If prior
to the IPO the Company
21
proposes to sell shares of Common Stock (or securities convertible into, or
exercisable or exchangeable for, shares of Common Stock, other than options to
employees of the Company under the Company's Amended Stock Option Plan), the
Company agrees that it will use its best efforts to arrange for Virgin to sell
such number of Shares (as determined by Virgin in its sole discretion) so that
Virgin realizes proceeds (after deduction of placement and other agent
commissions, discounts or similar fees), up to $40 million, sufficient to pay
any taxes arising from the acquisition by Virgin of the Shares under this
Agreement.
5.6 Errors and Omissions Insurance. Prior to the execution of this
------------------------------
Agreement, the Company will purchase errors and omissions insurance coverage in
the form, and in an amount, reasonably satisfactory to Virgin, and such
insurance shall be in full force and effect on the Closing Date.
5.7 Policies and Procedures. On the Closing Date, the Company
-----------------------
shall have in place and thereafter maintain adequate procedures to be observed
by the Company with respect to taking mechanical licenses, payments of record
and mechanical royalties, maintenance of and compliance with all licenses to
which the Company is a party and all other matters relating to the Company's
administration of its catalog of masters and use of musical compositions. In
addition, as soon as practicable following the Closing Date but in no event
later than 30 days thereafter, the Company shall use its best efforts to hire
sufficient staff to implement such procedures including, at a minimum, an
individual with a royalty accounting background to oversee the establishment and
enforcement of the matters contemplated above.
5.8 Directors and Officers Insurance. Prior to the consummation
--------------------------------
of the IPO, the Company shall increase its directors and officers coverage to a
level reasonably satisfactory to Virgin.
5.9 Charter Amendment. Prior to the consummation of the IPO, the
-----------------
Company shall amend its Certificate of Incorporation to remove certain
conversion, voting, registration and other rights of the holders of the
Preferred Stock.
ARTICLE VI
MISCELLANEOUS
6.1 Survival of Representations and Warranties. The
------------------------------------------
representations and warranties made in this Agreement shall survive the Closing
and shall terminate on April 30, 2002, except that the representations and
warranties contained in Sections 2.1, 2.3, 2.5, 2.15, 2.16, 2.21, 2.23 and 2.28
of this Agreement shall survive without limitation.
22
6.2 Notices. All notices, demands and other communications
-------
provided for or permitted under this Agreement shall be made in writing and
shall be by registered or certified first-class mail, return receipt requested,
telecopier, courier service or personal delivery:
If to the Company, to:
xxxxxxxxxx.xxx, Inc.
0000 Xxxxxx Xxxxxx
Xxxxx 000
Xxxxxx, XX 00000
Facsimile: (000) 000-0000
Attention: Xxxxxx X. Xxxxxxxx
with copies to:
Xxxxxxx, Xxxxxxx and Xxxxxx, LLP
0000 Xxxxxxxxx Xxxxx Xx.
XxXxxx, XX 00000
Facsimile: (000) 000-0000
Attention: Xxxx X. Xxxxxxxx, XX
If to Virgin, to:
Virgin Holdings, Inc.
000 Xxxxx Xxxxxxxx Xxxx
Xxxxxxx Xxxxx, XX 00000
Facsimile: (000) 000-0000
Attention: Xxxxx Xxxxxxxx
with copies to:
EMI Recorded Music North America
1290 Avenue of the Xxxxxxxx
00xx Xxxxx
Xxx Xxxx, XX 00000
Facsimile: (000) 000-0000
Attention: Xxxxxxxx X. XxXxxxxx
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and
Xxxx, Weiss, Rifkind, Xxxxxxx & Xxxxxxxx
0000 Xxxxxx xx xxx Xxxxxxxx
Xxx Xxxx, XX 00000-0000
Facsimile: (000) 000-0000
Attention: Xxxxx X. Xxxxxxx, Esq.
All such notices and communications shall be deemed to have been duly
given when delivered by hand, if personally delivered; when delivered by
courier, if delivered by commercial courier service; five business days after
being deposited in the mail, postage prepaid, if mailed; when receipt is
mechanically acknowledged, if telecopied or transmitted by e-mail.
6.3 Headings; Agreement. The headings contained in this Agreement
-------------------
are inserted for convenience only and do not constitute a part of this
Agreement. The term "Agreement" for purposes of representations and warranties
---------
hereunder shall be deemed to include the Exhibits hereto to be executed
and delivered by parties relevant thereto.
6.4 Publicity. So long as this Agreement is in effect, except as
---------
required by law, regulation or stock exchange requirements, the parties hereto
shall not, and shall cause their affiliates not to, issue or cause the
publication of any press release or other announcement with respect to the
transactions contemplated by this Agreement or the other agreements contemplated
hereby without the consent of the other party, which consent shall not be
unreasonably withheld or delayed or without consulting with the other parties as
to the content of such press release or other announcement.
6.5 Entire Agreement. This Agreement and the Related Agreements
----------------
(including all Schedules and Exhibits hereto and thereto) constitutes the entire
agreement among the parties with respect to the subject matter hereof and
supersedes all other prior agreements and understandings, both written and oral,
among the parties, or any of them.
6.6 Assignment. This Agreement and all of the provisions hereof
----------
shall be binding upon and inure to the benefit of the parties hereto and their
respective successors and permitted assigns. Virgin may transfer or assign this
Agreement and any of its rights, interests and obligations hereunder and to the
Shares to one or more of its affiliates and such assignee shall be a "Purchaser"
for all purposes under this Agreement. Except as provided in the immediately
preceding sentence, neither this Agreement nor any of the rights, interests or
obligations shall be assigned by any of the parties hereto without the prior
written consent of the other party; provided, that
--------
24
nothing in this Section 6.6 shall prohibit Virgin from transferring some or all
of the Shares (but not its rights under this Agreement except to the extent
permitted under this Section 6.6).
6.7 Counterparts. This Agreement may be executed in one or more
------------
counterparts, all of which shall be considered one and the same agreement and
each of which shall be deemed an original.
6.8 Governing Law. The validity and interpretation of this
-------------
Agreement shall be governed by the laws of the State of New York, without
reference to the conflict of laws principles thereof which might indicate the
applicability of the laws of any other jurisdiction.
6.9 Third Party Beneficiaries. Except as provided in Article IV,
-------------------------
no person other than the parties and their successors and permitted assigns is
intended to be a beneficiary of this Agreement.
6.10 Costs and Expenses.
------------------
(a) Each of the Company and Virgin shall pay its own fees and
expenses (including attorneys fees) incurred in connection with the negotiation,
execution and delivery of this Agreement and the Related Agreements.
(b) The Company shall pay all costs and other expenses incurred
from time to time by the Company in connection with the Company's performance
of, and compliance with, this Agreement and the Related Agreements and all
conditions contained herein or therein on its part to be performed or complied
with.
(c) All sales, use, transfer, stamp (including documentary
stamp taxes, if any), excise, recording, income, capital gain, franchise and
other similar taxes or governmental charges with respect to the Shares shall be
borne by the Company.
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IN WITNESS WHEREOF, the Company and Virgin have caused this Agreement
to be duly signed as of the date first written above.
XXXXXXXXXX.XXX, INC.
By: /s/ Xxxxxx Xxxxxxxx
--------------------------------------
Name: Xxxxxx Xxxxxxxx
Title: Chairman and Co-CEO
By: /s/ Devarajan S. Puthukarai
--------------------------------------
Name: Devarajan S. Puthukarai
Title: President and Co-CEO
VIRGIN HOLDINGS, INC.
By: /s/ Xxxxx Xxxxxxxx
--------------------------------------
Name: Xxxxx Xxxxxxxx
Title: Secretary
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