STOCK PURCHASE AGREEMENT
DATED AS OF FEBRUARY 6, 2006
AMONG
NEW FRONTIER MEDIA, INC.
MARC XXXXXXXX XXXXXXXXX TRUST DATED MAY 11, 2001
XXXXXXXX FAMILY TRUST DATED JUNE 15, 2001
AND
MARC XXXXXXXX XXXXXXXXX
AND
XXXXXXX X. XXXXXXXX
ARTICLE I. DEFINITIONS........................................................................................... 1
ARTICLE II. PURCHASE AND SALE OF THE SHARES......................................................................11
2.1 Purchase and Sale............................................................................11
2.2 Closing......................................................................................11
ARTICLE III. PURCHASE PRICE; PAYMENT OF PURCHASE PRICE; ESCROW AGREEMENT.........................................11
3.1 Purchase Price; Payment of Purchase Price....................................................11
3.2 Contingent Payments..........................................................................12
3.3 Escrow Amounts...............................................................................13
ARTICLE IV. REPRESENTATIONS AND WARRANTIES OF SELLERS REGARDING THE TARGETS......................................13
4.1 Capitalization; Legal Status; Qualification; Title to Shares.................................14
4.2 Subsidiaries.................................................................................14
4.3 No Violation.................................................................................15
4.4 Ownership of Assets..........................................................................15
4.5 Financial Statements.........................................................................15
4.6 Absence of Undisclosed Liabilities...........................................................16
4.7 Real Property; Leased Real Property..........................................................16
4.8 Insurance....................................................................................17
4.9 Contracts....................................................................................17
4.10 Litigation; Orders...........................................................................18
4.11 Environmental Laws...........................................................................18
4.12 Intellectual Property and Information Technology.............................................19
4.13 Employees; Independent Contractors...........................................................20
4.14 Employee Benefit Matters.....................................................................21
4.15 Taxes........................................................................................24
4.16 Brokers......................................................................................26
4.17 Absence of Certain Changes or Events.........................................................26
4.18 Permits......................................................................................28
4.19 Accounts Receivable..........................................................................28
4.20 Compliance with Laws.........................................................................29
4.21 Transactions with Related Parties............................................................29
4.22 Indebtedness to Affiliates...................................................................29
4.23 Agents.......................................................................................29
4.24 Commission Sales Contracts...................................................................29
4.25 Customers....................................................................................30
4.26 Books and Records............................................................................30
4.27 No Material Misstatements or Omissions.......................................................30
4.28 Shareholders, Directors and Officers.........................................................30
4.29 Bank Accounts; Lock Boxes....................................................................30
i
ARTICLE V. REPRESENTATIONS AND WARRANTIES OF SELLERS REGARDING THEMSELVES........................................30
5.1 Power and Authority; Authorizations; Execution and Validity..................................30
5.2 Consents.....................................................................................31
5.3 No Defaults or Conflicts.....................................................................31
5.4 Brokers......................................................................................31
5.5 Title to Shares; Litigation..................................................................31
5.6 No Other Claims..............................................................................31
5.7 Not Foreign Person...........................................................................31
5.8 Investment...................................................................................31
5.9 Grantor Trusts...............................................................................31
ARTICLE VI. REPRESENTATIONS AND WARRANTIES OF PURCHASER..........................................................32
6.1 Organization and Qualification...............................................................32
6.2 Authority....................................................................................32
6.3 Investment...................................................................................32
6.4 Brokers......................................................................................32
6.5 Litigation...................................................................................32
6.6 Securities Filings...........................................................................32
6.7 Purchaser's Common Stock.....................................................................33
6.8 Consents.....................................................................................33
6.9 No Violation.................................................................................33
ARTICLE VII. COVENANTS OF THE PARTIES............................................................................34
7.1 Interim Conduct of Business by Targets.......................................................34
7.2 Access to Information of Targets.............................................................35
7.3 Opening Financial Statements.................................................................35
7.4 Notification of Changes......................................................................36
7.5 Consents.....................................................................................36
7.6 Supplemental Disclosure......................................................................36
7.7 Governmental Filings.........................................................................36
7.8 Payoff of Revolving Credit Facility..........................................................36
7.9 Seller Loans.................................................................................36
7.10 Sale by Sellers of Purchaser's Common Stock..................................................37
7.11 Certain Tax Matters..........................................................................37
7.12 Employee Benefit Plans.......................................................................40
7.13 Releases of Seller's Guarantees..............................................................41
7.14 Further Assurances...........................................................................41
ARTICLE VIII. CONDITIONS PRECEDENT TO OBLIGATIONS TO CLOSE.......................................................41
8.1 Conditions Precedent to Obligation of Purchaser..............................................41
8.2 Conditions Precedent to Obligation of Sellers................................................43
ARTICLE IX. INDEMNIFICATION......................................................................................45
9.1 Purchaser Claims for Indemnification.........................................................45
9.2 Limits on Purchaser Claims for Indemnification...............................................45
9.3 Purchaser Indemnification....................................................................46
9.4 Assertion of Claims..........................................................................47
9.5 Source of Recovery...........................................................................47
9.6 Third Party Claims...........................................................................47
ii
ARTICLE X. TERMINATION...........................................................................................48
10.1 Termination of Agreement.....................................................................48
10.2 Effect of Termination........................................................................49
ARTICLE XI. GENERAL 50
11.1 Amendments...................................................................................50
11.2 Waivers......................................................................................50
11.3 Notices......................................................................................50
11.4 Successors and Assigns; Parties in Interest..................................................51
11.5 Severability.................................................................................51
11.6 Entire Agreement.............................................................................51
11.7 Governing Law................................................................................52
11.8 Arbitration..................................................................................52
11.9 Release of Information; Confidentiality......................................................52
11.10 Certain Construction Rules...................................................................52
11.11 Counterparts.................................................................................53
11.12 General Release..............................................................................53
iii
STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE AGREEMENT, dated as of February 6, 2006 (this
"Agreement"), is entered into by and among New Frontier Media, Inc., a Colorado
corporation ("Purchaser"), Marc Xxxxxxxx Xxxxxxxxx Trust dated May 11, 2001 (the
"Xxxxxxxxx Trust"), Xxxxxxxx Family Trust dated June 15, 2001 (the "Xxxxxxxx
Trust" and, together with the Xxxxxxxxx Trust, the "Trusts"), Marc Xxxxxxxx
Xxxxxxxxx, an individual ("Xxxxxxxxx"), and Xxxxxxx X. Xxxxxxxx, an individual
("Xxxxxxxx").
WHEREAS, the Trusts collectively own (i) 100% of the issued and
outstanding capital stock (the "MRG Shares") of MRG Entertainment, Inc., a
California corporation ("MRG") and (ii) 100% of the issued and outstanding
capital stock (the "Lifestyle Shares" and, together with the MRG Shares, the
"Shares"), of Lifestyles Entertainment, Inc., a California corporation
("Lifestyles"); and
WHEREAS, Purchaser desires, upon the terms and conditions hereinafter
set forth, to purchase all of the Shares from the Trusts; and
WHEREAS, Sellers (as hereinafter defined) desire, upon the terms and
conditions hereinafter set forth, that the Trusts sell all of the Shares to the
Purchaser.
NOW, THEREFORE, in consideration of the mutual covenants and agreements
contained herein and for other good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the parties hereto, intending to be
legally bound hereby, agree as follows:
ARTICLE I
DEFINITIONS
As used in this Agreement:
"AAA" has the meaning specified in Section 11.8.
"Act" means the Securities Act of 1933, as amended from time to time,
or any successor statute.
"Affiliate" means, as to any Person, (a) any Subsidiary of such Person
and (b) any other Person which, directly or indirectly, controls, is controlled
by, or is under common control with, such Person and includes, in the case of a
Person other than an individual, each officer or director, general partner,
member, trustee or beneficiary of such Person, and each Person who is the
beneficial owner of 10% or more of such Person's outstanding stock or other
equity interests having ordinary voting power in the election of directors of
such Person. For the purposes of this definition, "control" means the possession
of the power to direct or cause the direction of management and policies of such
Person, whether through the ownership of voting stock, by contract or otherwise.
"Agreement" has the meaning specified in the preamble..
"Alternative A Cash Consideration" has the meaning specified in Section
3.1(a).
"Alternative A Escrow Amount" has the meaning specified in Section
3.3(a)(i).
"Alternative A Purchase Price" means the purchase price described in
Section 3.1(a).
"Alternative A Stock Consideration" has the meaning specified in
Section 3.1(a).
"Alternative B Escrow Amount" has the meaning specified in Section
3.3(a)(ii).
"Alternative B Purchase Price" means the purchase price described in
Section 3.1(b).
"Amended Tax Returns" has the meaning specified in Section 7.11(i).
"Assets" has the meaning specified in Section 4.4.
"Average Closing Price" means the simple arithmetic average of the
volume weighted average prices for the shares of Purchaser's Common Stock, as
calculated for the period beginning at 9:30 a.m., New York City time and
concluding at 4:00 p.m., New York City time, for each of the trading days in the
period of thirty (30) consecutive trading days ending on the trading day
immediately preceding the Closing Date, as reported by Bloomberg Financial LP
(using the NOOF Equity AQR function).
"Basket" has the meaning specified in Section 9.2(b).
"Benefit Plans" has the meaning specified in Section 4.14(a).
"Xxxxxxxxx Consulting Agreement" shall mean that certain Consulting
Agreement dated January 1, 2001 between MRG and Xxxx Xxxxxxxxx.
"Buy-Sell Agreement" has the meaning specified in Section 8.1(m).
"Claims" has the meaning specified in Section 9.2(a).
"Closing" has the meaning specified in Section 2.2.
"Closing Date" has the meaning specified in Section 2.2.
"COBRA" has the meaning specified in Section 4.14(m).
"Code" means the Internal Revenue Code of 1986, as amended.
"Contract" means any written contract, agreement, indenture, note,
bond, loan, instrument, lease, conditional sale contract, mortgage, license,
franchise, insurance policy, commitment or other arrangement or agreement.
"Copyrights" shall mean all domestic and foreign copyright interests in
any original work of authorship fixed in a tangible medium of expression,
whether registered or unregistered, including but not limited to all copyright
registrations or foreign equivalent, all applications for registration or
foreign equivalent, all moral rights, all common-law rights, and all rights to
register and obtain renewals and extensions of copyright registrations, together
with all other copyright interests accruing by reason of international copyright
convention, and the right to xxx for past, present, or future infringement and
to collect and retain all damages and profits therefor and to obtain all other
forms of injunctive, equitable and other relief related thereto.
2
"Delinquent Tax Returns" has the meaning specified in Section 7.11(i).
"Drop Dead Date" has the meaning specified in Section 10.1(b).
"Earnings and Profits Payment" has the meaning specified in Section
3.2(a)(i).
"Earnout Agreement" has the meaning specified in Section 3.1(a).
"Earnout Consideration" has the meaning specified in Section 3.1(a).
"Environmental Claims" means any written complaint, summons, citation,
notice, directive, order or claim, or any pending litigation, judicial or
administrative proceeding or judgment, from or by any Governmental Authority, or
any third party asserting or finding violations of Environmental Laws or
Releases of Hazardous Materials from (i) any assets, properties or business of
any Target or any corporate predecessor in interest for which a Target would be
liable under any Environmental Law; or (ii) from or onto any facilities which
received Hazardous Materials generated by a Target or any corporate predecessor
in interest for which a Target would be liable under any Environmental Law.
"Environmental Law" means any Law concerning Releases into any part of
the indoor or outdoor environment, or activities that might result in damage to
the indoor or outdoor environment, or any law that is concerned in whole or in
part with the indoor or outdoor environment or with protecting or improving the
quality of the indoor or outdoor environment, natural resources, or wildlife or
protecting public and employee health and safety and includes, without
limitation, the Comprehensive Environmental Response, Compensation, and
Liability Act (42 U.S.C. ss. 9601 et seq.), the Hazardous Materials
Transportation Act (49 U.S.C. ss. 1801 et seq.), the Resource Conversation and
Recovery Act (42 U. S. C. ss. 6901 et seq.), the Clean Water Act (33 U. S. C.
ss. 1251 et seq.), the Clean Air Act (42 U.S.C. ss.7401 et seq.), the Toxic
Substances Control Act (15 U.S.C. ss. 2601 et seq.), the Federal Insecticide,
Fungicide, and Rodenticide Act (7 U.S.C. ss. 136 et seq.), and the Occupational
Safety and Health Act (29 U.S.C. ss. 651 et seq.), as such laws have been
amended or supplemented, and the regulations promulgated pursuant thereto, and
any and all analogous federal, state or local statutes, ordinances and
regulations imposing liability or establishing standards of conduct for the
protection of the environment.
"Environmental Permit" means any Permit, approval, variance or
permission required or waiver or exemption granted under any applicable
Environmental Law.
"ERISA Affiliate" has the meaning specified in Section 4.14(a).
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
"Escrow Agent" has the meaning specified in Section 3.3(a).
"Escrow Agreement" has the meaning specified in Section 3.3(b).
"Escrow Amount" has the meaning specified in Section 3.3(a)(ii).
"Estimated Opening Balance Sheet" has the meaning specified in Section
7.3.
3
"Exchange Act" has the meaning specified in Section 6.6.
"Extended Drop Dead Date" has the meaning specified in Section 10.1(b).
"Finally Resolved" means that the amount due to Purchaser Indemnitees
or Sellers, as the case may be, after such amount has been finally determined
under and in accordance with the provisions of ARTICLE IX, by agreement of the
parties hereto, or by the decision of a court of competent jurisdiction after
the expiration of all time periods in which to file any appeal, or as determined
in accordance with such other provisions of this Agreement or the Escrow
Agreements as may apply.
"Financial Statements" means, collectively, the Historical Financial
Statements, the Latest Financial Statements and the Opening Financial
Statements.
"GAAP" means generally accepted accounting principles in the United
States of America as in effect from time to time through the Closing Date as
applied on a consistent basis from period to period by the Targets in the past
as set forth in the opinions and pronouncements of the Accounting Principles
Board and the American Institute of Certified Public Accountants and the
statements and pronouncements of the Financial Accounting Standards Board.
"Xxxxxxxx" means the individual specified in the preamble.
"Xxxxxxxx Trust" has the meaning specified in the preamble.
"Governmental Authority" means any federal, state, local or foreign
government or governmental regulatory body and any of their respective
subdivisions, agencies, instrumentalities, authorities or tribunals.
"Xxxxxxxxx" means the individual specified in the preamble.
"Xxxxxxxxx Trust" has the meaning specified in the preamble.
"Guaranteed Indebtedness" of any Person means all Indebtedness of any
other Person that is either (i) guaranteed directly or indirectly in any manner
by such Person, or (ii) secured by (or for which the holder of such Indebtedness
has an existing right, contingent or otherwise, to be secured by) any Lien upon
or in property (including without limitation accounts and contract rights) owned
by such Person, even though such Person has not assumed or become liable for the
payment of such Indebtedness.
"Xxxxxxxx Judgment" has the meaning specified in Section 3.2(b).
"Hazardous Materials" means (a) any element, compound or chemical that
is defined, listed or otherwise classified as a toxic or hazardous substance or
material, extremely hazardous substance or chemical, hazardous material,
hazardous waste, medical waste, biohazardous or infectious waste, or special
waste, under Environmental Laws; (b) petroleum, petroleum-based or
petroleum-derived products; (c) polychlorinated biphenyls; (d) any substance
exhibiting a hazardous waste characteristic including but not limited to
corrosivity, ignitibility, toxicity or reactivity as well as any radioactive
materials; and (e) any raw materials, building components (including but not
limited to asbestos-containing materials) and manufactured products containing
Hazardous Materials.
"Historical Financial Statements" has the meaning specified in Section
4.5.
4
"Indebtedness" means, for any Person, without duplication, (a) all
indebtedness or other obligations of such Person for borrowed money or for the
deferred purchase price of any property, (b) any other indebtedness of such
Person which is evidenced by a note, mortgage, bond, indenture or similar
instrument, (c) all obligations under leases that are or should be, in
accordance with GAAP, recorded as capital leases in respect of which such Person
is liable as lessee, (d) all obligations owed pursuant to any interest rate
hedging arrangement, (e) Guaranteed Indebtedness and (f) all other indebtedness
secured by any Lien (other than Permitted Liens) on any property or asset owned
or held by such Person, other than pursuant to license agreements entered into
in the ordinary course of business.
"Indemnified Party" has the meaning specified in Section 9.6(a).
"Indemnifying Party" has the meaning specified in Section 9.6(a).
"Individual Sellers" means, collectively, Xxxxxxxxx and Xxxxxxxx, and
"Individual Seller" means either of them.
"Intellectual Property" means and includes (a) Patent Rights, (b)
Trademark Rights, (c) Copyrights, (d) Know-How, (e) Trade Secrets and (f)
Internet domain name registrations.
"Inventions" means and includes novel devices, processes, compositions
of matter, methods, techniques, observations, discoveries, apparatuses, designs,
expressions, theories and ideas, whether or not patentable.
"IRS" has the meaning specified in Section 4.14(b).
"Know-How" means scientific, engineering, mechanical, electrical,
financial, marketing or practical knowledge or experience used in the operation
of any Target.
"Knowledge" or "Knowledge of Sellers" means the actual knowledge of
Xxxxxxxxx or Xxxxxxxx; provided, however, Xxxxxxxxx and/or Xxxxxxxx shall be
deemed to have actual knowledge of a particular fact or other matter if a
prudent individual would reasonably be expected to be aware of such fact or
other matter.
"Latest Balance Sheet" has the meaning specified in Section 4.5.
"Latest Financial Statements" has the meaning specified in Section 4.5.
"Law" means any federal, state, local or foreign law, statute, rule,
ordinance, code or regulation.
"Legal Proceeding" means any judicial, administrative or arbitral
action, suit, or proceeding (public or private), investigation, litigation,
complaint or claim, whether civil, criminal or regulatory, in law or in equity,
by a Governmental Authority or a third party, that is pending or that any Seller
or any Target has received written notice or has Knowledge.
"Liabilities" means liabilities or obligations of any nature, whether
absolute, accrued, contingent, liquidated or otherwise, whether due or to become
due, whether asserted or unasserted and whether or not required to be reflected
or reserved against on a balance sheet under GAAP, including any liability for
Taxes.
5
"Licensed Intellectual Properties" has the meaning specified in Section
4.12(b).
"Lien" means any lien, pledge, mortgage, deed of trust, security
interest, attachment, right of first refusal, option, claim, easement, covenant,
encroachment, title defect or any other encumbrance whatsoever.
"Lifestyle Shares" has the meaning specified in the preamble.
"Lifestyles" has the meaning specified in the preamble.
"Losses" has the meaning specified in Section 9.1.
"Material Adverse Effect" means any event, change, circumstances,
development or effect that has an adverse effect aggregating $50,000 or more on
the business, assets, liabilities, condition (financial or otherwise), or
results of operation of the entity and all its Subsidiaries, taken as a whole;
provided, in no event shall any of the following be taken into account (alone or
in combination with any other event identified in this proviso) in determining
whether there has been such a Material Adverse Effect: (i) any change, event,
circumstance, development or effect attributable to conditions generally in the
industry in which the Targets operate, except to the extent that any such
change, event, circumstance, development or effect has an adverse effect on the
entity and all its Subsidiaries that is materially and disproportionately
greater that the adverse effect on comparable entities operating in such
industry in which the party operates; (ii) general economic, political or market
conditions, or acts of terrorism or war (whether or not formally declared);
(iii) any change in Law generally applicable to the industry; and (iv) any
event, change, circumstance, development or effect arising out of or resulting
from (x) the public announcement or pendency of this Agreement and the
transactions contemplated by this Agreement, including, without limitation, the
Purchaser Transaction Agreements or the Seller Transaction Agreements, (y) the
performance of this Agreement or (z) the taking of any action that is required
or expressly permitted by this Agreement or consented to by the other party
pursuant to this Agreement.
"Material Contracts" has the meaning specified in Section 4.9(a).
"Minimum Working Capital Liquidity Threshold" means an amount equal to
$1,000,000.
"Minimum Working Capital Shortfall Amount" means a dollar amount equal
to the Minimum Working Capital Liquidity Threshold minus the Opening Balance
Sheet Working Capital Amount; provided, however, in the event the calculation of
the Minimum Working Capital Shortfall Amount results in a dollar amount of $0.00
or a negative dollar amount, there shall not be, for purposes of this Agreement,
a Minimum Working Capital Shortfall Amount.
"MRG Shares" has the meaning specified in the preamble.
"MRG" has the meaning specified in the preamble.
"Non-Income Tax" has the meaning specified in Section 7.11(h)(ii).
"Opening Balance Sheet Working Capital Amount" means the amount of
working capital of the Targets based on the Opening Balance Sheet, as determined
in the sole discretion of Purchaser's Outside Audit Firm.
6
"Opening Balance Sheet" has the meaning specified in Section 7.3.
"Opening Financial Statements" has the meaning specified in Section
7.3.
"Order" means any order, judgment, injunction, ruling, writ, award or
decree by any court, administrative body or other tribunal or Governmental
Authority specifically identified by its terms as applicable to any Seller or
any Target.
"Organizational Documents" means, with respect to any Person, the
relevant certificate or articles of incorporation, trusts, bylaws, memoranda,
constitutional, organizational or other formation and governance documents of
such Person.
"Owned Intellectual Properties" has the meaning specified in Section
4.12(a).
"Patent Rights" means and includes all domestic and foreign patents
(including without limitation certificates of invention and other patent
equivalents), provisional applications, patent applications and patents issuing
therefrom as well as any division, continuation or continuation in part,
reissue, extension, reexamination, certification, revival or renewal of any
patent, all Inventions and subject matter related to such patents, in any and
all forms, and the right to xxx for past, present, or future infringement and to
collect and retain all damages and profits therefor and to obtain all other
forms of injunctive, equitable and other relief related thereto.
"Pension Plan" has the meaning specified in Section 4.14(a).
"Permit" means any permit, license, certificate (including a
certificate of occupancy) registration, authorization, application, filing,
notice, qualification, waiver of any of the foregoing or approval of a
Governmental Authority.
"Permitted Liens" means: (a) Liens for Taxes that are not yet due and
payable or that are being contested in good faith by appropriate proceedings and
as to which adequate reserves have been established in accordance with GAAP, (b)
workers', repairmen's, and similar Liens imposed by Law that have not been
recorded and that have been incurred in the ordinary course of business
consistent with past practices relating to obligations as to which there is no
material default on the part of any Target and provided that such Liens do not
exceed $50,000 in the aggregate, and (c) Liens granted to licensors or licensees
of the Targets with respect to Intellectual Property or Products involved in
license or distribution agreements between a Target and such licensors or
licensees.
"Person" means any natural person, corporation, partnership, limited
liability company, trust, unincorporated organization, Governmental Authority or
other entity.
"Pre-Closing Returns" has the meaning specified in Section 7.11(b).
"Pro Rata Share" means with respect to each Trust, the collective
number of shares in MRG and Lifestyles owned by it in proportion to all Shares
of MRG and Lifestyles owned by all Trusts as identified on Exhibit A.
"Producer Advances" has the meaning specified in Section 3.2(a)(i).
7
"Producer's Report" has the meaning specified in Section 3.2(a)(iii).
"Purchase Price" has the meaning specified in Section 2.1.
"Purchaser" has the meaning specified in the preamble.
"Purchaser Indemnitees" has the meaning specified in Section 9.1.
"Purchaser Transaction Agreements" means this Agreement and the
agreements, instruments, documents and certificates to be executed at the
Closing by Purchaser, including the Escrow Agreements, the Seller Noncompetition
Agreements, the Earnout Agreement, the Seller Employment Agreements and the
Registration Rights Agreement.
"Purchaser's Common Stock" means the shares of common stock of
Purchaser, or any other shares of capital stock into which such shares are
converted and any shares of capital stock or assets issued in respect thereof.
"Purchaser's Indemnification Cap" has the meaning specified in Section
9.2(a).
"Purchaser's Outside Audit Firm" means CNM, LLP.
"Real Property Lease" has the meaning specified in Section 4.7.
"Registration Rights Agreement" has the meaning specified in Section
7.10(b).
"Related Party" means (i) any Seller, (ii) any Affiliate of any Seller
or any Target, or (iii) any grandparent, parent, brother, sister, child, spouse
or trustee of any such Affiliate, Seller or Target.
"Release" means any release, spill, emission, leaking, pumping,
injection, deposit, disposal, discharge, dispersal, leaching, or migration into
the indoor or outdoor environment, or into or out of any property owned,
operated or leased by Targets including, without limitation, the movement of any
Hazardous Material or other substance through or in the air, soil, surface
water, groundwater or property, but excluding any release, emission or discharge
authorized under any Environmental Permit or provision of Environmental Law.
"Released Parties" has the meaning specified in Section 11.12.
"Required Consents" has the meaning specified in Section 4.3.
"Revolving Credit Facility" means the credit facility identified in
that certain Accounts Receivable Loan Agreement dated as of April 18, 2003, as
amended (i) by that certain First Amendment to Accounts Receivable Loan
Agreement dated as of July 20, 2004, and (ii) that certain Second Amendment to
Accounts Receivable Loan Agreement dated as of December 22, 2004, by and among
MRG, Lightning Entertainment, Inc., Magic Hour Pictures, Inc., and City National
Bank.
"Rights" means all arrangements, calls, commitments, contracts,
options, rights to subscribe to, scrip, understandings, warrants, or other
binding obligations of any kind relating to, or securities or rights convertible
into or exchangeable or exercisable for, shares of the capital stock of a Person
or by which a Person is or may be bound to issue additional shares of its
capital stock.
8
"Schedule" means the disclosure schedule provided by Sellers to
Purchaser pursuant to this Agreement.
"SEC" has the meaning specified in Section 6.6.
"Securities Filings" has the meaning specified in Section 6.6.
"Seller Employment Agreements" has the meaning specified in Section
8.1(o)(ii).
"Seller Loans" has the meaning specified in Section 7.9.
"Seller Noncompetition Agreements" has the meaning specified in Section
8.1(o)(ii).
"Seller Transaction Agreements" means this Agreement and the other
agreements, instruments, documents and certificates to be executed at the
Closing by Sellers, including without limitation the Escrow Agreements, the
Seller Noncompetition Agreements, the Earnout Agreement, the Seller Employment
Agreements and the Registration Rights Agreement.
"Sellers" means, collectively, the Trusts, Xxxxxxxxx and Xxxxxxxx.
"Sellers' Board Designee" has the meaning specified in Section 8.2(h).
"Sellers' Indemnification Cap" has the meaning specified in Section
9.3.
"Shares" has the meaning specified in the preamble.
"Straddle Period" has the meaning specified in Section 7.11(h).
"Subsidiary" of any Person means (i) a corporation of which more than
fifty percent (50%) of the outstanding shares of capital stock of each class
having ordinary voting power is owned by such Person, by one or more
Subsidiaries of such Person, or by such Person and one or more of its
Subsidiaries; or (ii) any other Person (other than a corporation) in which such
Person, or one or more other Subsidiaries of such Person or such Person and one
or more other Subsidiaries thereof directly or indirectly has more than fifty
percent (50%) of the voting power thereof.
"Target" means any of the Targets.
"Targets" means, collectively, MRG and Lifestyles and their respective
subsidiaries, whether wholly or partially owned by MRG or Lifestyles, as the
case may be, including without limitation, Lightning Entertainment, Inc., a
California corporation, SG Productions, Inc., a California corporation,
Lightning Entertainment Productions, Inc., a California corporation, Magic Hour
Pictures, Inc., a California corporation, and Third Street Pictures, Inc., a
California corporation.
"Tax Accruals" means all Taxes that have been accrued in the Opening
Balance Sheet.
9
"Tax Return" means any return, report, information return or other
document (including any related or supporting information) filed or required to
be filed with any federal, state, local or foreign governmental entity or other
authority in connection with the determination, assessment or collection of any
Tax or the administration of any laws, regulations or administrative
requirements relating to any Tax.
"Tax" or "Taxes" means all taxes, charges, fees, duties, levies or
other assessments, however denominated, imposed by any federal, territorial,
state, local or foreign government or any agency or political subdivision of any
such government, which taxes shall include, without limiting the generality of
the foregoing, income or profit, gross receipts, net proceeds, ad valorem,
turnover, real and personal property (tangible and intangible), sales, use,
franchise, excise, value added, stamp, leasing, lease, business license, user,
transfer, fuel, environmental, excess profits, occupational, interest
equalization, windfall profits, severance and employees' income withholding,
workers' compensation, Pension Benefits Guaranty Corporation premiums,
unemployment and Social Security taxes, and other obligations of the same or of
a similar nature to any of the foregoing (all including any interest, penalties
or additions to tax related thereto imposed by any taxing authority).
"Third Party Claim" has the meaning specified in Section 9.6(a).
"Trade Secrets" means any formula, design, device or compilation, or
other information which is used or held for use by a business, which gives the
holder thereof an advantage or opportunity for advantage over competitors which
do not have or use the same, and which is not generally known by the public.
Trade Secrets can include, by way of example, formulas, market surveys, market
research studies, information contained on drawings and other documents, and
information relating to research, development or testing.
"Trademark Rights" means and includes all domestic and foreign
trademarks, trade dress, service marks, trade names, icons, logos, slogans, and
any other indicia of source or sponsorship of goods and services, designs and
logotypes related to the above, in any and all forms, and all trademark
registrations and applications for registration related to such trademarks
(including, but not limited to intent to use applications), including the right
to xxx for past, present, or future infringement and to collect and retain all
damages and profits therefor and to obtain all other forms of injunctive,
equitable and other relief related thereto, and all designs and logotypes
related to such trademarks, in any and all forms, and all trademark
registrations and applications for registration related to such trademarks.
"Transfer Tax" means sales, use, transfer, real property transfer,
filing, recording, stock transfer, stamp, stamp duty reserve, value added,
documentary and other similar Tax.
"Trust" means either of the Trusts.
"Trusts" has the meaning specified in the preamble.
"Uncapped Sections" has the meaning specified in Section 9.2(a).
"Welfare Plan" has the meaning specified in Section 4.14(a).
"Working Capital" means the consolidated working capital of all the
Targets, calculated as (i) the sum of current assets, including all accounts
receivable, inventory (library), prepaid expenses, cash and cash equivalents,
and minus (ii) the sum of all current liabilities, including all accounts
payable, advance xxxxxxxx, accrued payroll, accrued expenses and all amounts
outstanding under the Revolving Credit Facility.
10
ARTICLE II
PURCHASE AND SALE OF THE SHARES
2.1 Purchase and Sale. Upon the terms and subject to the conditions set
forth in this Agreement, each of the Trusts hereby agrees to sell, assign and
transfer its Shares to Purchaser, and Purchaser hereby agrees to purchase and
acquire the Shares from each Trust. The purchase price to be paid by Purchaser
for the Shares as set forth in Section 3.1(a) or 3.1(b), whichever applies (the
"Purchase Price") shall, at Purchaser's option to be designated in writing by
Purchaser at least two (2) business days prior to the Closing, be payable in
accordance with Section 3.1(a) or 3.1(b), whichever applies as designated by
Purchaser. The Purchase Price will be paid to the Trusts in the proportions set
forth on Exhibit A.
2.2 Closing. The closing of the transactions contemplated by this Agreement
(the "Closing") will take place at Noon, Denver, Colorado time on February 10,
2006 at the offices of Kamlet Shepherd & Xxxxxxxx, LLP, 0000 Xxxxxxxx Xxxxxx,
Xxxxx Xxx, Xxxxx 0000, Xxxxxx, Xxxxxxxx 00000, unless another time, date or
place is agreed to in writing by the parties hereto (such date upon which the
Closing occurs, the "Closing Date").
ARTICLE III
PURCHASE PRICE; PAYMENT OF PURCHASE PRICE;
ESCROW AGREEMENT
3.1 Purchase Price; Payment of Purchase Price.
(a) Alternative A Purchase Price. In the event Purchaser elects to
purchase the Shares for the purchase price described in this Section
3.1(a) (the "Alternative A Purchase Price"), Purchaser shall pay
aggregate consideration to the Trusts in an amount up to Twenty-Two
Million Dollars ($22,000,000) consisting of (i) cash in the amount of
$15,000,000 payable to the Trusts on the Closing Date by wire transfer
of immediately available funds to accounts designated by them (the
"Alternative A Cash Consideration"); (ii) that number of shares of
Purchaser's Common Stock determined by dividing $5,000,000 by the
Average Closing Price to be issued to the Trusts at Closing (the
"Alternative A Stock Consideration"); and (iii) performance-based cash
earnout payments up to an aggregate amount of $2,000,000 ("Earnout
Consideration") payable to the Trusts in accordance with and subject to
the provisions of an Earnout Agreement in the form attached as Exhibit
B (the "Earnout Agreement").
(b) Alternative B Purchase Price. In the event Purchaser elects to
purchase the Shares for the purchase price described in this Section
3.1(b) (the "Alternative B Purchase Price"), Purchaser shall pay
aggregate consideration to the Trusts in the amount of Twenty Million
Dollars ($20,000,000) in cash by wire transfer of immediately available
funds to accounts designated by the Trusts.
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3.2 Contingent Payments.
(a) Earnings and Profit Payment.
(i) After the Closing Date, as part of and in addition to the
Purchase Price, Purchaser shall pay to Sellers an amount of up to
One Million Dollars ($1,000,000) (the "Earnings and Profits
Payment"), in respect of advances made by Targets to those certain
producers identified on Schedule 3.2 ("Producer Advances") pursuant
to the Contracts with such producers. The Earnings and Profits
Payment is based on the recoupment by Targets of the Producer
Advances identified on Schedule 3.2.
(ii) Following the Closing Date, the Opening Balance Sheet shall
be prepared as set forth in this Agreement. If the Opening Balance
Sheet Working Capital Amount does not equal or exceed the Minimum
Working Capital Liquidity Threshold (as determined in the sole
discretion of Purchaser's Outside Audit Firm), the potential
Earnings and Profits Payment shall be reduced by the amount of such
shortfall.
(iii) The Targets shall prepare and deliver to each producer
identified on Schedule 3.2 a producer's report ("Producer's Report")
on a timely basis as set forth in each Contract. The Producer's
Report shall set forth the amounts collected by the applicable
Target in connection with the applicable Contract during the
relevant accounting period and the application of such amounts by
the Target. If pursuant to the Producer's Report any portion of the
Producer Advance has been recouped by the Target during the relevant
accounting period, then within thirty (30) days thereafter,
Purchaser shall pay to the Trusts on a pro-rata basis, the
applicable portion of the Earnings and Profits Payment due based on
the aggregate amount of the Producer Advances recouped (e.g., after
taking into account the prior recovery by the Targets of the fees,
expenses and commissions, any sales agency or similar fees payable
to the Targets, any monies advanced by the Targets for repair or
delivery costs or any marketing or similar fees); provided, however
that Sellers shall not be entitled to any portion of the Earnings
and Profit Payment for any recoupment of Producers Advances after
February 10, 2009.
(iv) All payments to be made to any Target in connection with
any Producer Advances listed on Schedule 3.2 belong to the Targets
and not to Sellers and payment to Sellers shall be expressly subject
to the terms of this Section 3.2. The parties shall cooperate in
good faith with each other in connection with the collection of
monies to be applied to the Seller Producer Advances.
(b) Xxxxxxxx Entertainment Judgment. Sellers and Purchaser
acknowledge that an award of judgment in favor of MRG against Xxxx
Xxxxxxxx Entertainment, Inc. and Xxxx Xxxxxxxx, individually, in the
sum of $1,530,550.43 was entered by the Superior Court of the State of
California for the County of Los Angeles on March 14, 2001 in the case
of MRG Entertainment, Inc. v. Xxxx Xxxxxxxx Entertainment, Inc.; Xxxx
Xxxxxxxx; and Does 1 through 20, Inclusive, Case No. BC 211209 (the
"Xxxxxxxx Judgment"). Sellers and Purchaser agree as follows with
respect to the Xxxxxxxx Judgment: (i) the Xxxxxxxx Judgment is
presently and will continue to be a corporate asset of MRG; (ii) any
proceeds recovered by MRG in connection with the Xxxxxxxx Judgment
shall be distributed as follows: (A) 25% shall be payable to each of
the Trusts (and shall be included as and added to the Purchase Price),
provided, however, any such payments to the Trusts shall be net of all
attorneys' fees, costs and expenses incurred by MRG in connection with
the collection of such monies; and (B) the net balance shall be
retained by MRG. Notwithstanding the foregoing, neither Purchaser nor
MRG shall have any obligation to pursue the collection of any amount of
the Xxxxxxxx Judgment.
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3.3 Escrow Amounts.
(a) Notwithstanding anything to the contrary contained in this
Agreement, in order to secure the indemnity obligations of Sellers
under this Agreement and in order to provide for the reimbursement of
Purchaser in respect of such indemnity obligations, and without
limiting any other rights which Purchaser may have pursuant to this
Agreement, Purchaser shall deliver to First Community Bank (the "Escrow
Agent"):
(i) In the event that the Purchaser elects to pay the
Alternative A Purchase Price, $2,550,000 of the Alternative A Cash
Consideration in respect of Sellers' indemnity obligations under
this Agreement ("Alternative A Escrow Amount") or, alternatively,
(ii) In the event that the Purchaser elects to pay the
Alternative B Purchase Price, $3,050,000 of the Alternative B
Purchase Price ("Alternative B Escrow Amount" or the Alternative A
Escrow Amount, whichever applies, is referred to as the "Escrow
Amount").
(b) The Escrow Amount shall be held by the Escrow Agent until
distributed pursuant to the Escrow Agreement attached as Exhibit C (the
"Escrow Agreement"), and shall be paid in accordance with Section 6 of
the Escrow Agreement. The parties agree that up to $1,000,000 (plus
interest earned thereon) may be released from the Escrow Amount
following the completion of the IRS Audit (as such term is defined in
the Escrow Agreement) subject to and in accordance with the terms of
the Escrow Agreement. All costs and expenses incurred by any Target in
connection with the IRS Audit and any costs and expenses associated
with contesting the amount of any Tax Liability imposed by the IRS in
connection with the IRS Audit (whether incurred by Purchaser, Targets
or Sellers) shall be at the sole cost and expense of Sellers and
reimbursed to Targets and Purchaser, as applicable; provided that
Purchaser not charge Sellers for the reasonable assistance of Xx
Xxxxxxxxx (if employed by Purchaser or Targets), Xxxxxxxxx and Xxxxxxxx
in contesting the amount of such Tax Liability.
(c) Notwithstanding the foregoing, this Section 3.3 shall be subject
in all respects to the terms and conditions of the Escrow Agreement.
ARTICLE IV.
REPRESENTATIONS AND WARRANTIES OF SELLERS REGARDING THE TARGETS
Sellers, jointly and severally, represent, warrant and covenant to
Purchaser as of the date hereof and the Closing Date, with full knowledge that
such representations, warranties and covenants are a material consideration and
inducement to the execution of this Agreement by Purchaser and the consummation
of the transactions contemplated hereunder, as follows:
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4.1 Capitalization; Legal Status; Qualification; Title to Shares.
(a) Each Target is a corporation duly organized, validly existing
and in good standing under the laws of the State of California and has
all necessary corporate power, authority and capacity to own all of its
property and assets presently owned and to carry on its business as
presently conducted. Each Target is duly qualified or licensed to do
business and is in good standing as a foreign corporation in all
jurisdictions where the nature or conduct of its business as now
conducted requires such qualification. Sellers have furnished to
Purchaser for each Target and Trust a complete and correct copy of its
Organizational Documents, each as amended or restated, as in effect on
the date of this Agreement and as in effect as of the Closing. None of
the Targets or the Trusts is in violation of any of the provisions of
its Organizational Documents. The minute books of each Target contain
in all material respects complete and accurate records of all actions
taken and resolutions adopted by its Board of Directors (and any
committees thereof) and shareholders since its organization. The stock
transfer ledger of each Target accurately reflects the ownership of its
capital stock. Complete and accurate copies of all the minute books of
each Target and the stock transfer ledger of each Target have been
furnished to Purchaser.
(b) The authorized and issued capital stock of each Target is set
forth in Schedule 4.1 hereof. All of the shares of capital stock of
each Target are fully paid and non-assessable and were validly and
legally issued pursuant to a valid exemption from registration under
applicable securities laws, including under the Act where it is
applicable. There are no outstanding Rights obligating or which could
obligate the Targets to issue any additional shares of their capital
stock of any class or series. There are no outstanding rights to either
demand registration of any shares of the capital stock of any class or
series of the Targets under applicable securities laws or to sell any
shares of the capital stock of any class or series of the Targets in
connection with such a registration. None of the outstanding shares of
capital stock of any class or series of the Targets on the date hereof
has been issued in violation of any preemptive rights of the current or
past shareholders of the Targets. Exhibit A sets forth a true and
compete list of all the holders of the Shares and their respective Pro
Rata Shares. Except as set forth on Schedule 4.1, there are no
agreements, voting trusts or other agreements or understandings between
or among any Sellers or to which any Seller is bound with respect to
the transfer, sharing of profits or losses, or voting of any of its
Shares.
(c) Except as set forth on Schedule 4.1, the Trusts own the Shares
free and clear of all Liens. Other than the Shares, there are no shares
of capital stock of any Target which are not owned free and clear of
all Liens by a Target or a direct or indirect Subsidiary of a Target.
Upon delivery of certificates representing the Shares to be sold by the
Trusts hereunder and payment therefor pursuant to this Agreement, the
Purchaser will acquire good and marketable title to such Shares, free
and clear of all Liens.
4.2 Subsidiaries. (i) Except as set forth on Schedule 4.2, no Target has
any Subsidiaries, nor does any Target, directly or indirectly, own or have any
interest in the capital stock of, or any other equity interest in, any Person;
and (ii) Sellers have disclosed pursuant to this Agreement or its Schedules all
Subsidiaries that any Target, directly or indirectly, currently owns or has an
equity interest in. In the event any Target has ever had any direct or indirect
ownership interest in any Person not set forth on Schedule 4.2, such Target has
withdrawn or otherwise disposed of such interest and/or caused the dissolution
of such Person in accordance with applicable Laws.
14
4.3 No Violation. Except as set forth in Schedule 4.3 (collectively, the
"Required Consents"), the execution and delivery by Sellers of this Agreement or
any other Seller Transaction Agreements to which they are parties, the
consummation of the transactions contemplated hereby and thereby, and the
performance by Sellers of this Agreement and each other Seller Transaction
Agreement to which they are parties in accordance with their respective terms
and conditions will not:
(a) Conflict with the Organizational Documents of any Seller or any
of the Targets;
(b) Require Sellers or any of the Targets to obtain any consents,
approvals, Permits, authorizations or actions of, or make any filings
with or give any notices to, any Governmental Authority or any other
Person;
(c) Violate any Law of any Governmental Authority applicable to
Sellers or to any of the Targets which violation would have a Material
Adverse Effect;
(d) Violate any Orders of any court or Governmental Authority
applicable to any Seller or any of the Targets or their respective
properties, assets or businesses;
(e) Violate, conflict with or result in a breach of any of the terms
and conditions of, result in a material modification of the effect of,
otherwise cause the termination of or give any other contracting party
the right to terminate, accelerate, cancel, impose any fees or
penalties, or constitute (or with notice or lapse of time or both
constitute) a default under any contract, agreement, debt, note, lease,
bond, mortgage, indenture or other similar instrument or license or
result in the creation of any Lien upon the Shares or on any of the
properties or assets of Sellers or any of the Targets; or
(f) Violate or result in the loss of any right under, termination,
revocation or suspension of any Permit.
4.4 Ownership of Assets. Except as set forth on Schedule 4.4, the Targets
have or will have, as the case may be, good and indefeasible or marketable, as
appropriate, title to, or a valid leasehold interest in, or valid license to
use, the properties and assets shown or to be shown on the Latest Financial
Statements and the Opening Financial Statements, as the case may be, or acquired
thereafter and all other properties and assets they use in and which are
necessary for the conduct of the businesses of the Targets subject to no Liens
other than Permitted Liens (the "Assets"), except for (i) properties and assets
disposed of in the ordinary course of business since the date of the Latest
Financial Statements, (ii) defects in title that do not or would not have a
Material Adverse Effect. The equipment and other tangible and intangible assets
owned or leased by the Targets are sufficient to operate the businesses of the
Targets as presently conducted, and all such tangible assets are in good
operating condition, subject to ordinary wear and tear, and are fit for use in
the ordinary course of business.
4.5 Financial Statements. Attached hereto on Schedule 4.5 are correct and
complete copies of (i) the unaudited consolidated balance sheet of the Targets
as of and for the years ending December 31, 2002 and December 31, 2003 and the
audited consolidated balance sheet of the Targets as of and for the year ending
December 31, 2004, together with the related unaudited statements of operations
and operating cash flows for the calendar years ended on such dates
(collectively, the "Historical Financial Statements"), and (ii) the audited
consolidated balance sheet of the Targets as of September 30, 2005 (the "Latest
Balance Sheet"), together with the related audited statements of operations and
operating cash flows for the period ended on such date (the Latest Balance Sheet
and related statements of operations and operating cash flows, the "Latest
Financial Statements"). The Historical Financial Statements and the Latest
Financial Statements (A) have been prepared from the books and records of the
Targets, (B) contain figures that arose out of bona fide licenses, sales and
deliveries of goods, performance of services or other bona fide business
transactions, (C) are true, complete and correct in all material respects, and
(D) present fairly the financial position of the Targets as of the dates
indicated, and the results of their operations and cash flows for the periods
presented. The Latest Balance Sheet will have footnote disclosures and customary
adjustments.
15
4.6 Absence of Undisclosed Liabilities.
(a) None of the Targets has any Liabilities nor any unrealized or
anticipated losses, except (A) Liabilities that are fully reflected or
reserved against in the Latest Balance Sheet (including any notes
thereto), which reserves are in accordance with GAAP, and (B)
Liabilities incurred by the Targets which (1) have arisen after the
date of the Latest Balance Sheet in the ordinary course of business
(none of which is a result of any breach of contract, tort, breach of
warranty or infringement or violation of Law by a Target) consistent
with prior practice or (2) are not required by GAAP to be reflected or
reserved against on a balance sheet. Except as set forth on Schedule
4.6 or in the Latest Balance Sheet none of the Targets has or will have
any Indebtedness. Except as set forth on Schedule 4.6, none of the
Targets has or will be liable for any Guaranteed Indebtedness. Schedule
4.6 further sets forth the outstanding principal amount, interest rate,
maturity date, name of lender and party with respect to all
Indebtedness of the Targets as of the date of the Latest Balance Sheet.
(b) Since the date of the Latest Balance Sheet, (i) the businesses
of the Targets have been conducted in the ordinary course consistent
with past custom and practice, (ii) there has not occurred any event,
change or development which has had or is reasonably expected to have,
individually or in the aggregate, a Material Adverse Effect and (iii)
there has not been any action or transaction that, if it were taken or
occurred after the date hereof, would constitute a breach of Section
7.1.
4.7 Real Property; Leased Real Property. No Target owns any fee interest in
any real property. Schedule 4.7 sets forth the only real property lease and any
and all amendments thereto relating to the leased real property to which any
Target is a party or is bound (the "Real Property Lease"). Sellers have made
available to Purchaser a correct and complete copy of the Real Property Lease.
Except as disclosed on Schedule 4.7, (i) the Real Property Lease is in full
force and effect, (ii) there are no subleases under the Real Property Lease and
the Real Property Lease has not been assigned by any Person, (iii) no notices of
default or notices of termination have been received by a Target with respect to
the Real Property Lease which have not been withdrawn or canceled; and (iv) MRG
is not, and to the Knowledge of Sellers, the landlord is not in default under
the Real Property Lease. Other than the Real Property Lease, no Target is a
lessee or sublessee under any other real property lease or sublease. To the
Knowledge of Sellers, no part of the property subject to the Real Property Lease
is subject to any pending suit for condemnation or other taking by any
Governmental Authority and no such condemnation or other taking is threatened.
16
4.8 Insurance. Schedule 4.8 contains a true and complete list of all
insurance policies currently in effect, which are held by or applicable to the
Targets, and properties leased by them. All insurance policies listed on
Schedule 4.8 have been made available to Purchaser and all such insurance is in
full force and effect. Except as set forth in Schedule 4.8, no Target has
received any notice of cancellation or nonrenewal of any such insurance policy.
Except as set forth in Schedule 4.8, no Target has been refused any insurance
with respect to its assets, properties or businesses, nor has any coverage been
materially limited by any insurance carrier to which a Target has applied for
any such insurance or with which such Target has carried insurance during the
last three years. Except as set forth on Schedule 4.8, no further payments of
premiums will be due following the Closing by any Target with respect to
insurance coverages with an effective date prior to the Closing. To the
Knowledge of Sellers, neither this Agreement, nor any of the transactions
contemplated by this Agreement to occur at the Closing, will adversely affect
any Target's coverage with respect to periods prior to the Closing under the
terms of the insurance policies or programs.
4.9 Contracts.
(a) Material Contracts. Other than (A) the Real Property Lease, (B)
Benefit Plans, (C) insurance policies listed on Schedule 4.8, (D)
Licensed Intellectual Property, (E) the Xxxxxxxxx Consulting Agreement,
and (F) the Revolving Credit Facility, Schedule 4.9 lists, as of the
date hereof, all of the following Contracts to which a Target is a
party, or by which its assets are bound (together with the Contracts
listed in clauses (A) - (D), the "Material Contracts"):
(i) Individual Contracts with licensees identified on the Avails
report and attached to Schedule 4.9;
(ii) Any individual Contract for production of programs
involving actual expenditures in excess of $25,000 during the last
twelve (12) months;
(iii) Contracts that establish a partnership, joint venture,
material agency or other similar arrangements;
(iv) Any Contract that relates to Indebtedness in excess of
$25,000;
(v) Any Contract that (a) provides for payments that are
conditioned on or result from, in whole or in part, or (b) which may
be terminated as the result of, a change of control of a Target or a
change of management of a Target;
(vi) Any Contract that relates to marketing, sales or
advertising and provides for aggregate future payments of more than
$25,000;
(vii) Any Contract under which a Target has guaranteed the
obligations of any Person, agreed to indemnify any Person (other
than in the ordinary course of business), or agreed to share Tax
liability with any Person;
(viii) Any Contract that restricts the right of a Target to
compete in any line of business, or to conduct any of its current
lines of business in any geographic area;
17
(ix) Any Contract that provides for the sale or lease after the
date hereof of any of the assets of any Target other than in the
ordinary course of business;
(x) Any Contract that binds a Target to make payments to any
shareholder, partner, manager, director, officer, employee or
independent contractor, or any former shareholder, partner, manager,
director, officer, employee or independent contractor of such
Target;
(xi) All performance bonds with Governmental Authorities that
are required to operate a Target's business;
(xii) Any Contract pursuant to which a present or former
employee of a Target has outstanding indebtedness to such Target;
(xiii) Any Contract pursuant to which any Target provides, or
may be required to provide, a party with "Most Favored Nation"
status or similar type arrangement; and
(xiv) Any Contract under which any Target outsources the
performance of services, including, but not limited to, all
production services agreements.
(b) Material Contract Validity. All Material Contracts are valid,
binding and in full force and effect, except to the extent
enforceability may be limited by bankruptcy, insolvency,
reorganization, fraudulent conveyance, moratorium or other similar laws
relating to creditors' rights generally and to general principles of
equity and except for such failures to be valid, binding and
enforceable which, individually or in the aggregate, would not have a
Material Adverse Effect. Sellers have provided to Purchaser true and
correct copies of each Material Contract. None of the Targets, nor to
the Knowledge of Sellers, any other party to such Material Contracts,
is in default under any Material Contract, except (i) as set forth on
Schedule 4.9 or (ii) any such default which, individually or in the
aggregate, would not have a Material Adverse Effect.
4.10 Litigation; Orders. Except as set forth on Schedule 4.10, (i) there
are no Legal Proceedings brought by, pending or, to the Knowledge of Sellers,
threatened in writing against or affecting any of the Targets or their
respective assets, and (ii) no Target is subject to any Order. There are no
Legal Proceedings pending against or, to the Knowledge of Sellers, threatened
against any of Sellers or Targets that questions the validity or legality of any
of the Seller Transaction Agreements or any action taken or to be taken by any
Seller or Target in connection herewith or therewith.
4.11 Environmental Laws. Except as set forth on Schedule 4.11, (i) each
Target is in material compliance with all Environmental Laws; (ii) each Target
possesses and is in material compliance with all Environmental Permits required
to operate its facilities, assets and business; (iii) no Target is subject to
any Order that relates to any Environmental Law; (iv) no Target is subject to
any Environmental Claim and, to the Knowledge of Sellers, no unresolved
Environmental Claim has been asserted or threatened against any Target; (v) to
the Knowledge of Sellers, there has been no Release at any of the properties
currently or formerly owned or operated by any Target (at the time such
properties were owned or operated by the Targets and for which the Targets would
be liable under any Environmental Law) or, to the Knowledge of Sellers, a
predecessor in interest for which a Target would be liable; (vi) no Target has
received any written notice and Sellers have no Knowledge of any Environmental
Claims against any facilities that may have received Hazardous Materials
generated by a Target or any predecessor in interest for which such Target would
be liable; and (vii) Sellers have delivered to, or made available for review by,
Purchaser true and complete copies of all environmental reports, studies,
investigations or correspondence regarding any environmental liabilities of the
Targets or any environmental conditions at any property operated by a Target or
any predecessor in interest for which such Target would be liable which are in
possession of Sellers.
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4.12 Intellectual Property and Information Technology.
(a) Set forth on Schedule 4.12 is a true and complete listing of all
issued patents, pending patent applications, registered trade and
service marks, registered copyrights (to the Knowledge of Sellers),
software systems and other technology or proprietary material used in
connection with the conduct of the business of each Target that is
owned by it as of the date hereof (the "Owned Intellectual
Properties").
(b) Set forth on Schedule 4.12 is a true and complete listing of all
patents, registered trade or service marks, copyrighted material,
software, documentation, technology, or other proprietary material
which any Target licenses or otherwise has the right to use from third
parties, other than software which is licensed pursuant to inbound
"shrink-wrap" licenses and similar end-user licenses (the "Licensed
Intellectual Properties").
(c) To the Knowledge of Sellers, the Owned Intellectual Properties
and the Licensed Intellectual Properties constitute all material
intellectual property and information technology assets and properties
used in connection with the conduct of the businesses of the Targets.
(d) Each Target has good and marketable title to its Owned
Intellectual Properties, free and clear of all Liens, other than
Permitted Liens. Except as set forth on Schedule 4.12, each Target has
the valid and enforceable right to use its Licensed Intellectual
Properties in the manner the Licensed Intellectual Properties are used
in connection with such Target's business as currently conducted, free
and clear of all Liens, other than Permitted Liens, except where the
failure to have such valid and enforceable rights would not result in a
Material Adverse Effect. The consummation of the transactions
contemplated by this Agreement will not affect the Targets' free and
clear ownership of its Owned Intellectual Properties and will not
interrupt or adversely affect in any manner such valid right to
continue to use its Licensed Intellectual Properties in the manner the
Licensed Intellectual Properties are used in connection with the
businesses of the Targets as currently conducted.
(e) To the Knowledge of Sellers, none of the Owned Intellectual
Properties or the use thereof, nor does any Target's use of its
Licensed Intellectual Properties, violate or infringe the rights of any
third party, except where such violations or infringements would not
reasonably be expected to have, individually or in the aggregate, a
Material Adverse Effect. There is no claim existing or, to the
Knowledge of Sellers, threatened by any Person. There is no Legal
Proceeding pending which relates to the use by any Target of its Owned
Intellectual Property or the Licensed Intellectual Property or to the
validity or enforceability of any intellectual property rights
associated with the Owned Intellectual Property or the Licensed
Intellectual Property of each such Target. To the Knowledge of Sellers,
no third party is violating or infringing upon any intellectual
property rights associated with the Owned Intellectual Properties or
the Licensed Intellectual Properties of any Target.
19
(f) Except as set forth on Schedule 4.12, no Target has specifically
agreed to indemnify any Person against any charge of infringement of
the intellectual property rights of any third party with respect to
products, software systems, hardware systems, documentation or other
technology or proprietary material used or distributed by such Target
other than (i) subcontractors, customers, Persons granted the right to
use such property and software developers engaged by a Target, (ii)
employees, officers and directors of such Target, (iii) as set forth in
any written agreement granting such Target the right to use its
Licensed Intellectual Properties, or (iv) as set forth in any written
agreement pursuant to which Target has (x) validly licensed to a third
party the right to use any of its Owned Intellectual Properties, or (y)
validly licensed or sublicensed to a third party the right to use any
of its Licensed Intellectual Properties.
4.13 Employees; Independent Contractors.
(a) As of the Closing, there are no written employment, consulting,
independent contractor, non-compete or severance agreement (or similar
independent contractor agreement providing for compensation upon
termination thereof) between each Target and any individual.
(b) None of the Targets is a party to any collective bargaining or
other labor union agreement applicable to any of the employees of any
Target, and to the Knowledge of Sellers, no organizational efforts are
pending on behalf of any labor union or organization with respect to
any Target's employees. There is no organized work stoppage, labor
strike, labor dispute, or slowdown pending or, to the Knowledge of
Sellers, threatened against or involving any Target. No Target has
received written notice of any unfair labor practice in the past two
years and, except as set forth on Schedule 4.13, no such complaints are
pending before the National Labor Relations Board or other similar
Governmental Authority. No grievance or other labor dispute or, except
as set forth on Schedule 4.13, proceeding or any arbitration proceeding
arising out of or under any collective bargaining or other employee
agreement is pending or, to the Knowledge of Sellers, threatened
against any Target. Sellers are not aware of any actual or, to the
Knowledge of Sellers, potential labor problem (or any problem
pertaining to any independent contractor of any Target) that currently
exists that could reasonably be expected to have a Material Adverse
Effect. Each individual providing services to a Target, including any
independent contractor, has been properly classified as an exempt
employee, non-exempt employee, leased employee or independent
contractor. Each Target is, and has at all times been, in compliance in
all material respects with all applicable Laws with respect to
employment and employment practices, terms and conditions of
employment, wages, hours or work, employment standards, labor
relations, workplace safety and insurance and occupational safety and
health, and is not engaged in any unfair labor practices as defined
under applicable Laws.
(c) No Target has incurred any material liability or obligation
under the Workers Adjustment and Restraining Notification Act or any
similar laws, which remains unpaid or unsatisfied.
20
(d) Except as set forth on Schedule 4.13, (i) all of each Target's
employment relationships with its employees are at-will and no employee
is or will be entitled to any severance payments from any Target, and
(ii) all of each Target's agreements with independent contractors are
freely terminable and will not require termination payments by any
Target following the Closing.
(e) Except as set forth on Schedule 4.13, the Targets (i) have paid
or accrued all wages, bonuses, vacation pay, sick pay and other
compensation to all employees and independent contractors, as
applicable, and (ii) will pay all wages, bonuses, vacation pay, sick
pay and other compensation required to be paid to all such employees
and independent contractors through and including the Closing Date.
(f) Schedule 4.13 sets forth a list sets forth a complete and
correct list of each (i) employee of each Target as of and on the
Closing Date and whether such employee is classified as an exempt
employee, non-exempt employee or leased employee; and (ii) independent
contractor of each Target.
4.14 Employee Benefit Matters.
(a) Benefit Plans. Schedule 4.14 contains a list of all "employee
pension benefit plans" (as defined in Section 3(2) of ERISA,
hereinafter a "Pension Plan"), "employee welfare benefit plans" (as
defined in Section 3(1) of ERISA, hereinafter a "Welfare Plan"),
option, incentive, deferred compensation, severance pay, workers
compensation, or other employee benefit plans or programs, trusts,
arrangements, contracts, agreements, policies or commitments, and other
employee fringe benefit plans or arrangements maintained, contributed
to or required to be maintained or contributed to by any Target or any
other person or entity that, together with such Target, is treated as a
single employer under Section 414(b), (c), (m) or (o) of the Code (each
an "ERISA Affiliate") for the benefit of any present or former
officers, employees, managers, directors, independent contractors or
leased employees of such Target who are entitled to participate by
reason of their employment with or provision of services to such Target
or any of its ERISA Affiliates, whether or not any of the foregoing is
funded, whether insured or self-funded, and whether written or oral,
(i) to which the Target or any of its ERISA Affiliates is a party or a
sponsor or a fiduciary thereof or by which the Target or any of its
ERISA Affiliates (or any of their rights, properties or assets) is
bound or (ii) with respect to which the Target or any of any of its
ERISA Affiliates has any obligation to make payments or contributions
or may otherwise have any liability (all the foregoing being herein
called "Benefit Plans").
(b) Each Target has delivered or made available to Purchaser true,
complete and correct copies of (i) each Benefit Plan (or, in the case
of any unwritten Benefit Plans, descriptions thereof), (ii) the most
recent annual report on Form 5500 filed with the Internal Revenue
Service with respect to each Benefit Plan (if any such report was
required by applicable law), (iii) the most recent summary plan
description and related summaries of material modifications for each
Benefit Plan for which such a summary plan description or summary of
material modifications is required by applicable law, (iv) each trust
agreement and insurance or annuity contract relating to any Benefit
Plan and any other funding agreements that implement any such Benefit
Plan, and (v) where applicable, the most recent determination letter
received from the Internal Revenue Service the ("IRS").
21
(c) Benefit Plan Administration and Compliance.
(i) Except as set forth on Schedule 4.14, (A) each Benefit Plan
has been operated and administered in all material respects in
accordance with its terms, (B) the Targets and such Benefit Plans
are in compliance in all material respects with the applicable
provisions of ERISA and the Code and any other applicable law
(including regulations and rulings thereunder), and (C) all
documents required to maintain each such Benefit Plan have been duly
adopted (or otherwise approved, confirmed, ratified or executed) by
the applicable Target in all material respects. Records have been
maintained in accordance with Section 107 of ERISA. In addition,
neither the Targets, Sellers, nor to the Knowledge of Sellers, any
other fiduciary (as defined in Section 3(21) of ERISA), has any
material liability for any breach of any fiduciary duties under
Sections 404, 405 or 409 of ERISA with respect to any of Target's
Benefit Plans.
(ii) Except as disclosed in Schedule 4.14, to the Knowledge of
Sellers, all reports, returns and similar documents with respect to
the Benefit Plans required to be filed with any Governmental
Authority or distributed to any Benefit Plan participant have been
duly and timely filed or distributed. Except as disclosed in
Schedule 4.14, there are no investigations by any Governmental
Authority, termination proceedings or other claims (except claims
for benefits payable in the normal operation of the Benefit Plans),
suits or proceedings pending or, to the Knowledge of Sellers,
threatened against or involving any Benefit Plan or asserting any
rights or claims to benefits under any Benefit Plan that could give
rise to any material liability.
(d) Contributions and Payments. Except as disclosed in Schedule
4.14, all contributions to, and payments from, the Benefit Plans that
may have been required to be made in accordance with the terms of the
Benefit Plans or applicable law have been timely made. All such
contributions to, and payments from, the Benefit Plans, except those
payments to be made from a trust qualified under Section 401(a) of the
Code, for any period ending before the Closing Date that are not yet,
but will be required to be made, will be properly accrued and reflected
in the Financial Statements (including the Opening Financial
Statements), in accordance with GAAP.
(e) Qualification of Pension Plans. Except as disclosed in Schedule
4.14, each Pension Plan that is intended to be qualified under Section
401(a) of the Code has received a favorable opinion letter from the IRS
to the effect that the master or prototype or volume submitter document
underlying such Pension Plan and any trusts associated with therewith,
are qualified and exempt from Federal income Taxes under Sections
401(a) and 501(a), respectively, of the Code; no such opinion letter
has been revoked, and, to the Knowledge of Sellers, revocation has not
been threatened; to the Knowledge of Sellers no facts or circumstances
exist that could be reasonably likely to have an adverse effect on such
qualification; and no Pension Plan has been amended since the effective
date of its most recent determination letter in any respect that could
adversely affect its qualification or materially increase its cost.
Each Target has delivered or made available to Purchaser a copy of the
most recent opinion letter received with respect to its Pension Plan.
22
Each Target has also provided to Purchaser a list of all Pension Plans
with respect to which a favorable determination or opinion letter is
pending but has not yet been received as well as copies of all
currently pending applications on IRS Form 5300 or Form 5307, as the
case may be, relating to such Pension Plans. All amendments which were
required to be made through the date hereof to maintain the continued
qualified status of the Pension Plans under Section 401(a) of the Code
have been made and to the extent any Pension Plan is not entitled to
unqualified reliance on a favorable opinion letter issued with respect
to an applicable master or prototype or volume submitter plan document,
such Pension Plan has been timely submitted for a new determination
letter within the time required by Section 401(b) of the Code. All
Pension Plans have been operated in compliance with all requirements of
ERISA and the Code, including without limitation the requirements of
Sections 410(b) and 401(a)(4) thereof, and no event has occurred that
could result in the qualified status under Section 401(a) of the Code
of any such tax qualified Pension Plan being denied or revoked or
subject any Pension Plan to Tax under Section 511 of the Code.
(f) Pending Investigations and Claims. To the Knowledge of Sellers,
there are no pending or threatened (in writing) lawsuits, claims (other
than routine claims for benefits), investigations or audits with
respect to the Benefit Plans or those of any Target's ERISA Affiliates.
(g) Prohibited Transactions. Schedule 4.14 discloses: (i) any
"prohibited transaction" (as defined in Section 4975 of the Code or
Section 406 of ERISA) that has occurred that involves the assets of any
Benefit Plan.
(h) Absence of Certain Plans. None of the Pension Plans is a
"defined benefit pension plan" (as defined in Section 3(35) of ERISA)
nor is any Pension Plan subject to the requirements of Section 412 of
the Code or Section 302 or Title IV of ERISA. Neither Target nor any of
its ERISA Affiliates has contributed to or been obligated to contribute
to a "multiemployer plan" (as defined in Section 4001(a)(3) of ERISA)
during the past five years. No Benefit Plan is funded by a trust
intended to be exempt from taxation under Section 501(c)(9) of the
Code.
(i) Controlled Group Liabilities. Except as disclosed in Schedule
4.14, to the Knowledge of Sellers, no Targets nor any of their
respective ERISA Affiliates have incurred any unpaid liability to a
Pension Plan (other than for contributions not yet due) that, when
aggregated with other such liabilities, would have a Material Adverse
Effect.
(j) Other Benefit Plan Liabilities. Except as disclosed in Schedule
4.14, to the Knowledge of Sellers no Target nor any of its ERISA
Affiliates has engaged in a transaction described in Section 4069 of
ERISA.
(k) Welfare Plans. The list of Welfare Plans in Schedule 4.14
discloses whether each Welfare Plan is (i) unfunded, (ii) funded
through a "welfare benefit fund", as such term is defined in Section
419(e) of the Code, or other funding mechanism or (iii) insured. Each
such Welfare Plan may be amended or terminated without material
liability to any Target at any time after the Closing Date. Except as
would not have a Material Adverse Effect, each Target complies with the
applicable requirements of Section 4980B(f) of the Code with respect to
each Benefit Plan or health care flexible spending account that is a
group health plan, as such term is defined in Section 5000(b)(1) of the
Code.
23
(l) Deal Payments. Except as set forth on Schedule 4.14, no employee
or independent contractor of any Target will be entitled to any
additional benefits or any acceleration of the time of payment or
vesting of any benefits under any Benefit Plan or other contract or
agreement.
(m) No Post Employment Liabilities. Except as disclosed on Schedule
4.14, no Target has any liability to provide retirement benefits or
deferred compensation under any nonqualified plan, salary continuation,
severance pay, or any benefits pursuant to a Welfare Plan, including
life insurance or medical benefits to (i) any employee, independent
contractor, officer, manager or director or former employee, officer,
manager or director upon retirement or other termination of employment
with the exception of employees and former employees and/or their
qualified beneficiaries entitled to continuation of group health
coverage from a Target for the legal period of entitlement pursuant to
the Consolidated Omnibus Budget Reconciliation Act of 1985 ("COBRA") or
(ii) to any other Person (including any Person providing services to a
Target currently or at any previous time in a capacity other than as a
common law employee, any leased employee, any family members of current
or former officers, employees, managers or directors and any managers
and directors who are not employees). Except as disclosed on Schedule
4.14, no Target has incurred any liability under FAS 106 or FAS 112.
(n) All expenses or accrued liabilities of which Sellers or Targets
are aware, related to any Benefit Plan through the date of this
Agreement are reflected in the Financial Statements to the extent
required by GAAP.
4.15 Taxes.
(a) All Tax Returns required to be filed for periods ending on or
before the Closing Date by or on behalf of any Target have been or will
be filed within the time prescribed by Law (including extensions of
time permitted by Law). Such Tax Returns are or will be accurate,
correct, and complete in all material respects, and have been or will
be prepared in compliance with applicable Laws.
(b) All Taxes of each Target that are due to any Governmental
Authority on or before the Closing Date have been or will be timely
paid.
(c) There are no Liens for Taxes upon any of the properties or
assets of any Target (except for Permitted Liens).
(d) Except as set forth on Schedule 4.15, there are no audits,
actions, proceedings, investigations, disputes or claims with respect
to any Taxes or Tax Returns of any Target that are pending or, to the
Knowledge of Sellers, threatened against any Target. Except as set
forth on Schedule 4.15, no Target has received (i) written notice from
any Taxing authority of its intent to examine or audit any of its Tax
Returns, or (ii) a notice of deficiency or proposed adjustment for any
amount of Tax proposed, asserted, or assessed by any Governmental
Authority against such Target.
24
(e) Sellers have delivered to Purchaser correct and complete copies
of all Federal corporate income Tax Returns, examination reports, and
statements of deficiencies assessed against and agreed to by the
Targets filed or received since 2002, and a list of all other Tax
Returns that have been filed by any Target since January 1, 2002.
(f) To the extent that any Target has ever been subject to any Tax
in any country other than the United States, all such Taxes have been
timely paid.
(g) Except as disclosed on Schedule 4.15, no Target owns any
"tax-exempt use property" within the meaning of Code Section 168(h) or
"tax exempt bond financed property" within the meaning of Code Section
168(g)(5).
(h) No agreements relating to allocation or sharing of, or liability
or indemnification for, Taxes exist between any Target and any other
Person.
(i) All Taxes required to be withheld, collected or deposited by any
Target (including, but not limited to, amounts required to be withheld,
collected or deposited with respect to amounts paid or owing to any
employee, creditor, independent contractor or other Person) have been
timely withheld, collected or deposited and, to the extent required,
have been timely paid to the relevant taxing authority. All Persons
characterized as independent contractors, and not as employees, were
properly so characterized for all purposes under all applicable Laws
(including, without limitation, their characterization as independent
contractors for income and employment tax withholdings and payments).
(j) No disclosure statement pursuant to Section 6662 of the Code or
any comparable disclosure with respect to foreign, state and/or local
Tax statutes has been filed with respect to any item relating to any
Target nor is any such disclosure required with respect to any
transactions occurring on or before the Closing Date.
(k) No Target has received written notice from any taxing authority
in any jurisdiction where the applicable Target did not file Tax
Returns or did not pay Taxes, that such Target is or may be subject to
taxation by that jurisdiction.
(l) No Target has entered into any outstanding agreements or waivers
that would extend the statutory period in which a taxing authority may
assess or collect a Tax against it.
(m) No closing agreements or settlement agreements pursuant to any
provision of any Tax Law have been entered into with any taxing
authority by or with respect to any Target which requires a Target to
include any item of income in, or exclude any item of deduction from,
any Tax Return for any taxable period ending after the Closing Date.
Other than issues that have been or may be raised in connection with
the IRS Audit, no issues have been raised in any examination by any
taxing authority with respect to the businesses and operations of any
Target which, by application of similar principles, reasonably could be
expected to result in a proposed adjustment to the liability for Taxes
for any other period not so examined.
(n) There is no contract, agreement, plan or arrangement to which
Targets are a party as of the date of this Agreement, including but not
limited to the provisions of this Agreement, that, individually or
collectively, should give rise to the payment of any amount that would
not be deductible pursuant to Sections 280G or 404 of the Code (other
than the temporary disallowance of a deduction under Section 404(a)(5)
of the Code). There is no contract, agreement, plan or arrangement to
which any Target is a party or by which it is bound to compensate any
individual for excise taxes paid pursuant to Section 4999 of the Code.
25
(o) No Target has agreed, or is required, to make any adjustment
under Section 481(a) of the Code by reason of a change in accounting
method or otherwise.
(p) No items of income attributable to transactions occurring on or
before the close of the last preceding taxable year of any Target will
be required to be included in taxable income by any Target in a
subsequent taxable year by reason of any Target reporting income on the
installment sales method of accounting, the cash method of accounting,
the completed contract method of accounting or the percentage of
completion capitalized cost method of accounting.
(q) No Target is subject to any liability for Tax of any person,
including, without limitation, liability arising from the application
of U.S. Treasury Regulation Section 1.1502-6 or any analogous provision
of state, local or foreign law.
(r) No Target has constituted either a "distributing corporation" or
a "controlled corporation" in a distribution of stock qualifying for
tax-free treatment under Section 355 of the Code (x) in the two years
prior to the date of this Agreement or (y) in a distribution which
could otherwise constitute part of a "plan" or "series of related
transactions" (within the meaning of Section 355(e) of the Code) in
conjunction with the transaction contemplated hereby.
(s) None of Sellers is a "foreign person" as defined in Section
1445(f)(3) of the Code.
(t) Lifestyles is an "S corporation" within the meaning of Section
1361(a)(1) of the Code and has been at all times since its
incorporation.
4.16 Brokers. Neither Sellers nor the Targets have paid or become obligated
to pay any fee or commission to any broker, finder or intermediary in connection
with the transactions contemplated hereby.
4.17 Absence of Certain Changes or Events. Except as set forth on Schedule
4.17, (i) since the date of the Latest Balance Sheet, there has not been any
transaction or occurrence in which any Target has, and (ii) from the date of
this Agreement through and including the Closing Date, there shall not be any
transaction or occurrence which shall cause any Target to have:
(a) suffered any changes in its business, operations, assets,
prospects, results of operations or financial condition, taken as a
whole, which changes, individually or in the aggregate, would have a
Material Adverse Effect;
(b) incurred any material obligations or Liabilities of any nature
other than items incurred in the ordinary course of business, or
materially increased (or experienced any change in the assumptions
underlying or the methods of calculating) any bad debt, contingency or
other reserve, other than in the ordinary course of business;
26
(c) paid, discharged or satisfied any material claim, lien,
encumbrance, obligation or Liability (whether absolute, accrued,
contingent, and whether due or to become due), other than the payment,
discharge or satisfaction in the ordinary course of business of claims,
liens, encumbrances, obligations or Liabilities of the type reflected
or reserved against, or to be reflected or reserved against, in the
Financial Statements or which were incurred in the ordinary course of
business;
(d) to the Knowledge of Sellers, permitted, allowed or suffered any
of its properties or assets (real, personal or mixed, tangible or
intangible) to be subject to any Lien, other than Permitted Liens;
(e) written down or written up the value of any equipment or
inventory (including write downs by reason of shrinkage or markdowns),
determined as collectible any accounts receivable or any portion
thereof which were previously considered uncollectible, or written off
as uncollectible any accounts receivable or any portion thereof, except
for write downs, write ups and write offs in the ordinary course of
business, none of which is material in amount;
(f) canceled any debts or waived any claims or rights in excess of
$25,000 individually;
(g) assigned, pledged, licensed, transferred, hypothecated, disposed
of or permitted to lapse any right to the use of any assumed name,
Invention or other Intellectual Property or Licensed Intellectual
Property, Copyrights, license or application therefore, except in the
ordinary course of business, consistent with past practice;
(h) except for commitments for capital expenditures not exceeding
$25,000 in the aggregate made in the ordinary course of business,
committed to make any capital expenditure not paid for or accrued prior
to the Closing Date for additions to property, plant, equipment,
intangible or capital assets or for any other purpose, other than for
repairs or replacement except as set forth in Schedule 4.17;
(i) incurred any Indebtedness for borrowed money, except for
indebtedness incurred pursuant to the Revolving Credit Facility in the
ordinary course of business consistent with past practice which amount
is disclosed on Schedule 4.17 as of the Closing Date;
(j) paid, loaned, distributed or advanced any amounts to, sold or
transferred any properties or assets (real, personal or mixed, tangible
or intangible) to, purchased, licensed or otherwise acquired any
properties or assets the aggregate amount of which exceeds $50,000, or
entered into any other agreement or arrangement with any Seller,
Affiliate of any Seller, or Affiliate of any Target except for
compensation not exceeding the rate of compensation in effect as of
January 1, 2005 and for routine travel advances to officers and
employees, or except as set forth in Schedule 4.17;
(k) declared, set aside or paid any dividend or other distribution
(whether in stock or property) with respect to any of its outstanding
securities (including the Shares) or other equity interests, or made
any redemption, purchase or other acquisition of any of its securities
(including the Shares) or other equity securities;
27
(l) issued, sold, split, combined or reclassified any of its equity
securities or interests, or issued, committed to issue or authorized
any issuance of any options, warrants or other similar convertible
securities or equity interests;
(m) made any change in its accounting methods, principles or
practices;
(n) entered into any collective bargaining or labor agreement (oral
and legally binding or written), or experienced any organized slowdown,
material work interruption, strike or work stoppage;
(o) sold, transferred, or otherwise disposed of any of its material
assets except in the ordinary course of business;
(p) granted or incurred any obligation for any increase in the
compensation of any of its officers, employees or independent
contractors, including, without limitation, any increase pursuant to
any Benefit Plan except for raises and bonuses to officers or employees
in the ordinary course of business and consistent with past practice;
(q) suffered any uninsured casualty loss or damage in excess of
$25,000 individually;
(r) made or agreed to make any charitable contributions or incurred
or agreed to incur any non business expenses in excess of $25,000; or
(s) agreed, so as to legally bind itself or any other Target whether
in writing or otherwise, to take any of the actions set forth in this
Section 4.17 and not otherwise permitted by this Agreement.
4.18 Permits. Each Target has all Permits that are necessary for its
business and there has occurred no default under any such Permits, except where
the failure to have such Permit or such default would not have a Material
Adverse Effect. There are no pending Legal Proceedings relating to the
suspension, revocation or modification of any such Permits. The execution,
delivery and performance of this Agreement, and the consummation of the
transactions contemplated hereby, do not and will not result in any suspension,
revocation, cancellation or invalidation of any Permit that is necessary for the
conduct of any Target's business. Schedule 4.18 contains a list of all Permits
currently held and in effect or currently applied for by any Target.
4.19 Accounts Receivable. Except as set forth on Schedule 4.19, all of the
accounts, notes and loans receivable that have been recorded on the books of the
Targets are bona fide and represent amounts validly due, and adequate reserves
for doubtful accounts have been or will be set aside as reflected on the Latest
Balance Sheet and the Opening Balance Sheet, respectively. No account debtor has
asserted any setoff, deduction or defense with respect thereto, and, to the
Knowledge of Sellers, no account debtor has any valid setoff, deduction or
defense. All of such accounts, notes and loans receivable are free and clear of
any Liens (other than Permitted Liens), or other charges; none of such accounts,
notes or loans receivable are subject to any offsets or claims of offset. Except
as set forth on Schedule 4.19, none of the obligors of such accounts, notes or
loans receivable have given notice that they will or may refuse to pay the full
amount thereof or any portion thereof. Except as set forth on Schedule 4.19,
since the date of the Latest Balance Sheet, each Target has collected accounts
receivable only in accordance with its regular collection practices and has not
granted any rebates, discounts, advances or allowances to any customers and has
not otherwise sold, discounted or disposed of any accounts receivable.
Notwithstanding the foregoing, Sellers do not guarantee to Purchaser the full
collection by Targets of their respective accounts receivable.
28
4.20 Compliance with Laws. Except as set forth on Schedule 4.20, each
Target has complied, and is in compliance, in all material respects, with all
Laws and Orders applicable to its business and has filed with the proper
Governmental Authorities all statements and reports required by the Laws and
Orders to which it or any of its properties or operations are subject, except
where the failure to comply or to so file would not have a Material Adverse
Effect. To the Knowledge of Sellers, the operation of the properties and
business of each Target in the manner in which it is now and has been operated
does not violate in any material respect any zoning ordinances, municipal
regulations or other rules, regulations or Laws. To the Knowledge of Sellers, no
claim has been made by any Governmental Authority to the effect that the
business conducted by any Target fails to comply, in any material respect, with
any Law.
4.21 Transactions with Related Parties. Except as set forth on Schedule
4.21, no agreement or transaction between a Target and any Related Party has
been entered into which, if not existing, would have resulted in a Material
Adverse Effect or, irrespective of whether such agreement or transaction would
result in a Material Adverse Effect, will continue after the Closing Date.
(a) No Related Party is a director or officer of, or has any direct
or indirect interest in (other than the ownership of not more than 5%
of the publicly traded shares of), any Person that is a customer,
supplier, vendor, landlord, sales representative or competitor of any
Target;
(b) No Related Party owns or has any interest, directly or
indirectly, in whole or in part, in any tangible or intangible property
used in the conduct of the business of any Target;
(c) Other than expense advance reimbursements in the ordinary course
of business, no Affiliate of any Target owes any money to, nor is any
such Affiliate owed any money by, any Target; and
(d) No Target has, directly or indirectly, guaranteed or assumed any
indebtedness for borrowed money or otherwise for the benefit of any
Related Party.
4.22 Indebtedness to Affiliates. Except as set forth on Schedule 4.22 and
except as provided in Section 7.9, as of the Closing and, following the Closing
Date, no Target will be liable for any Indebtedness owed to any Seller or any
Affiliate thereof. Additionally, except as set forth on Schedule 4.22, no
present or former employee or officer of a Target has any Indebtedness,
including accrued interest, owed to any Target.
4.23 Agents. Except as set forth on Schedule 4.23, no Target has designated
or appointed any Person to act for it or on its behalf pursuant to any power of
attorney or any agency which is presently in effect (other than such of a
Target's managers, directors, officers and employees to whom such Target has
given the authority to act for it in the ordinary course of its business) or
pursuant to any license agreement relating to the Intellectual Property entered
into in the ordinary course of business.
4.24 Commission Sales Contracts. Except as set forth on Schedule 4.24, no
Target has a relationship with any Person whose compensation from a Target is in
whole or in part determined on a commission basis.
29
4.25 Customers. Except as set forth on Schedule 4.25, no customer that is a
party to a Material Contract has canceled or otherwise terminated, or, to the
Knowledge of Sellers, threatened in writing to cancel, terminate or materially
modify in any manner, its relationship with such Target.
4.26 Books and Records. The minute books and records of each Target
contains a true, complete and correct record of all actions taken at all
meetings and by all written consents in lieu of meetings of its shareholders,
board of directors, and committees thereof. To the Knowledge of Sellers, there
are no agreements (other than the Target Stockholders Agreements) regarding the
ownership, voting or rights of any Person in any Target. The accounting,
financial reporting, Tax and business books and records of each Target (i)
accurately and fairly reflect in all material respects the business and
condition of such Target and the transactions and the assets and Liabilities of
such Target with respect thereto, and (ii) have been maintained in all material
respects in accordance with good business and bookkeeping practices.
4.27 No Material Misstatements or Omissions. The representations and
warranties made by Seller in this ARTICLE IV and, to the Knowledge of Sellers,
the information made available by Sellers and Targets pursuant to this
Agreement, including the Schedules hereto, do not contain any untrue statement
of a material fact or omit any material fact necessary to make the statements
herein or in the Schedules hereto, as the case may be, not misleading.
4.28 Shareholders, Directors and Officers. Schedule 4.28 lists all of the
shareholders, directors and officers of each Target.
4.29 Bank Accounts; Lock Boxes. Attached hereto as Schedule 4.29 is a list
of all banks or other financial institutions with which any Target has an
account or maintains a lock box or safe deposit box, showing the type and
account number of each such account, lock box and safe deposit box and the names
of the persons authorized as signatories thereon or to act or deal in connection
therewith.
ARTICLE V.
REPRESENTATIONS AND WARRANTIES OF SELLERS REGARDING THEMSELVES
Each Seller hereby severally represents and warrants to Purchaser
solely with respect to himself or itself, as applicable, as follows:
5.1 Power and Authority; Authorizations; Execution and Validity. Such
Seller has all requisite power and authority to execute and deliver this
Agreement and Seller Transaction Agreements to which it is a party and to
perform his or its obligations hereunder and thereunder. The execution, delivery
and performance by such Seller of the Seller Transaction Agreements to which
such Seller is a party and the consummation by such Seller of the transactions
contemplated to be consummated by such Seller thereby, have been or will be duly
authorized by all necessary action on the part of such Seller (including trust
action, if applicable) and no other action on the part of such Seller is
necessary with respect thereto. Each of the Seller Transaction Agreements to
which such Seller is a party, when duly and validly executed and delivered by
such Seller, will constitute a legal, valid and binding obligation of such
Seller and will be enforceable against such Seller in accordance with its terms,
except as such enforceability may be limited by bankruptcy, insolvency,
reorganization and similar laws affecting creditors generally and by the
availability of equitable remedies.
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5.2 Consents. Neither the execution and delivery by a Seller of this
Agreement or the Seller Transaction Agreements to which such Seller is a party
nor the consummation or performance by such Seller of the transactions
contemplated hereunder or thereunder to be consummated or performed by such
Seller will require prior to the Closing any consent from, authorization or
approval or other action by, notice to or declaration, filing or a registration
with, any Governmental Authority or any other third party which such Seller has
not already obtained.
5.3 No Defaults or Conflicts. Neither the execution and delivery by a
Seller of this Agreement or the Seller Transaction Agreements to which such
Seller is a party nor the consummation or performance by such Seller of the
transactions contemplated hereunder or thereunder to be consummated or performed
by such Seller violates or conflicts with, or constitutes a breach of any of the
terms or provisions of or a default under, results in or will result in the
creation or imposition of any Lien upon any property or asset of such Seller
(including any Shares owned by such Target), the trigger of any charge, payment
or requirement of consent, or the acceleration or increase of the maturity of
any payment date under: (a) any Contract or (b) any applicable Law or Order to
which such Seller or any of such Seller's respective properties is subject,
except as set forth on Schedule 5.3.
5.4 Brokers. No Seller has paid or become obligated to pay any fee or
commission to any broker, finder or intermediary in connection with the
transactions contemplated hereby.
5.5 Title to Shares; Litigation. Each Trust has, good and marketable title
to the Shares set forth opposite its name on Exhibit A free and clear of all
Liens (other than those imposed by federal and state securities laws). Each
Trust has the full power, right and authority to vote and transfer the Shares
owned by it and no other Person has any claim or interest in the Shares owned by
such Trust. The Trusts are permissible shareholders of Lifestyles. There are no
Legal Proceedings brought by, pending or, to the Knowledge of Sellers,
threatened in writing against or affecting the Shares. No Seller is a party to
any Legal Proceeding that would prohibit such Seller from performing its
obligations under this Agreement or any Seller Transaction Agreement to which it
is a party.
5.6 No Other Claims. With respect to each Seller, (i) such Seller does not
own or have any equity interest (or rights to any equity interests) in the
Targets, other than as set forth opposite its name on Exhibit A, and (ii) such
Seller does not have any Lien, cause of action or other claim or potential claim
against any Target.
5.7 Not Foreign Person. No Seller is a "foreign person" as defined in
Section 1445(f)(3) of the Code.
5.8 Investment. With respect to each Trust, the shares of Purchaser's
Common Stock, if any, to be acquired by it is being for investment purposes only
for such Trust's own account and not with a view to the resale or distribution
of any part thereof in violation of applicable securities Laws.
5.9 Grantor Trusts. With respect to each Trust, such Trust is a grantor
trust established under the Laws of the State of California. With respect to the
Trusts, (i) Marc Xxxxxxxx Xxxxxxxxx has the full power, capacity and authority
necessary to (x) cause the Xxxxxxxxx Trust to enter into and perform its
obligations under this Agreement and the other Seller Transaction Agreements to
which such Trust is a party, and (y) consummate the transactions contemplated
hereby and thereby; and (ii) Xxxxxxx X. Xxxxxxxx has the full power, capacity
and authority necessary to (x) cause the Xxxxxxxx Trust to enter into and
perform its obligations under this Agreement and the other Seller Transaction
Agreements to which such Trust is a party, and (y) consummate the transactions
contemplated hereby and thereby.
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ARTICLE VI.
REPRESENTATIONS AND WARRANTIES OF PURCHASER
The Purchaser represents, warrants and covenants to each of Sellers as of
the date hereof and the Closing Date, with full knowledge that such
representations, warranties and covenants are a material consideration and
inducement to the execution of this Agreement by Sellers and the consummation of
the transactions contemplated hereunder, as follows:
6.1 Organization and Qualification. Purchaser is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Colorado, with the requisite corporate power and authority to conduct its
business, and to own, lease or operate its properties in the places where such
business is conducted and such properties are owned, leased or operated.
6.2 Authority. Purchaser has full power and authority to execute, deliver
and perform its obligations under this Agreement and each of the Purchaser
Transaction Agreements to which it is a party, and consummate the transactions
contemplated hereby and thereby. The execution, delivery and performance by
Purchaser of this Agreement and each of the Purchaser Transaction Agreements to
which it is a party, has been duly and validly authorized and approved by all
necessary action on the part of Purchaser. This Agreement and each of the
Purchaser Transaction Agreements to which Purchaser is a party is the legal,
valid and binding obligation of Purchaser enforceable against Purchaser in
accordance with its terms, except as such enforceability may be limited by
bankruptcy, insolvency, reorganization and similar laws affecting creditors
generally and by the availability of equitable remedies.
6.3 Investment. The Shares are being and will be acquired for investment
purposes only for Purchaser's own account and not with a view to the resale or
distribution of any part thereof in violation of applicable securities Laws.
6.4 Brokers. Except as set forth on Schedule 6.4, Purchaser has not paid or
become obligated to pay any fee or commission to any broker, finder or
intermediary in connection with the transactions contemplated hereby. Purchaser
is solely responsible for paying any such fees or commissions listed on Schedule
6.4.
6.5 Litigation. Purchaser is not a party to any Legal Proceeding that would
prohibit Purchaser from performing its obligations under this Agreement or the
Purchaser Transaction Agreements.
6.6 Securities Filings. Schedule 6.6 identifies registration statements
and reports (collectively, the "Securities Filings") filed by Purchaser with the
Securities and Exchange Commission (the "SEC") since March 31, 2005, which have
been filed in accordance with the rules and regulations of the Act and the
Securities and Exchange Act of 1934, as amended (the "Exchange Act"). Copies of
all of the Securities Filings are publicly available at xxx.xxx.xxx/xxxxx.
Seller has advised Purchaser to review the Securities Filings. As of their
respective filing dates, the Securities Filings did not contain any untrue
statements 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. Since the date of the
latest Securities Filings, other than as relate to the transactions contemplated
by this Agreement, there have not been any events which individually or in the
aggregate would be required to be reported pursuant to the Act or the Exchange
Act. Notwithstanding anything in this Agreement to the contrary, this Section
6.6 shall apply only in the event Purchaser elects to pay the Alternative A
Purchase Price; in the event Purchaser elects to pay the Alternative B Purchase
Price, this Section 6.6 shall be null and void.
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6.7 Purchaser's Common Stock. The shares of Purchaser's Common Stock to be
issued hereunder constitute valid and legally issued shares of the common stock
of Purchaser, and are fully paid and nonassessable. All Purchaser's Common Stock
issued pursuant to this Agreement shall, except for restrictions on resale or
transfer described herein or in the Registration Rights Agreement, have the same
rights as all of the other shares of outstanding Purchaser's Common Stock by
reason of the provisions of the Articles of Incorporation of Purchaser or as
otherwise provided by Colorado law. Notwithstanding anything in this Agreement
to the contrary, this Section 6.7 shall apply only in the event Purchaser elects
to pay the Alternative A Purchase Price; in the event Purchaser elects to pay
the Alternative B Purchase Price, this Section 6.7 shall be null and void ab
initio.
6.8 Consents. Neither the execution and delivery by Purchaser of the Seller
Transaction Agreements to which Purchaser is a party, nor the consummation of
performance by Purchaser of the transactions contemplated by the Seller
Transaction Agreements to be consummated or performed by Purchaser, will
require, prior to Closing, any consent from, authorization, or approval, or
other action, by notice to or declaration, filing or registration with, any
Governmental Authority or any other third party which Purchaser has not already
obtained.
6.9 No Violation. The execution and delivery by Purchaser of this Agreement
or any other Seller Transaction Agreements to which it is a party, the
consummation of the transactions contemplated hereby and thereby, and the
performance by Purchaser of this Agreement and each other Seller Transaction
Agreement to which it is a party in accordance with their respective terms and
conditions will not:
(a) Conflict with the Organizational Documents of Purchaser;
(b) Require Purchaser to make any filings with or give any notices
to, any Governmental Authority other than filings required by
securities Laws;
(c) Violate any Law of any Governmental Authority applicable to
Purchaser which violation would have a Material Adverse Effect;
(d) Violate any Orders of any court or Governmental Authority
applicable to Purchaser or its properties, assets or businesses;
(e) Violate, conflict with or result in a breach of any of the terms
and conditions of, result in a material modification of the effect of,
otherwise cause the termination of or give any other contracting party
the right to terminate, accelerate, cancel, impose any fees or
penalties, or continue (or with notice or lapse of time or both
constitute) a default under any contract, agreement, debt, note,
license or result in the creation of any Lien upon any of the
properties or assets of Purchaser or as would not reasonably be
expected to have a Material Adverse Effect; or
33
(f) Violate or result in the loss of any right under, termination,
revocation or suspension of any Permit except where such violation,
loss, termination, revocation or suspension would not reasonably be
expected to have a Material Adverse Effect.
ARTICLE VII.
COVENANTS OF THE PARTIES
7.1 Interim Conduct of Business by Targets. From the date hereof until
the Closing, Sellers shall cause each Target to operate its business as a going
concern consistent with past practice and in the ordinary course of business,
except as expressly permitted or required by this Agreement or as otherwise
expressly consented to by Purchaser in writing. Without limiting the generality
of the foregoing, from the date hereof until the Closing, except for
transactions contemplated by this Agreement or expressly approved in writing by
Purchaser, Sellers shall not permit any Target to:
(a) Enter into or amend any employment, bonus, severance or
retirement contract or arrangement, or increase any salary or other
form of compensation payable or to become payable to any executive,
employee or independent contractor other than in the ordinary course of
business consistent with past practice;
(b) Purchase, lease or otherwise acquire any real estate or any
interest therein;
(c) Except as set forth on Schedule 7.1, declare, set aside or pay,
or permit the payment of, any dividend or make any other distribution
with respect to any of the Shares or any other securities or equity
interests in any Target;
(d) Except as set forth on Schedule 7.1, pay or accrue any bonus,
compensation, fee or commission to any employee, director or
independent contractor of any Target other than amounts payable in the
ordinary course of such Target's business and except for (i) bonus
amounts to be paid to the Individual Sellers and other employees and
independent contractors of MRG which were declared effective as of
December 31, 2005 and which in the aggregate do not exceed $2,600,000,
and (ii) distributions to the shareholders of Lifestyles which in the
aggregate do not exceed $250,000;
(e) Merge or consolidate with, or purchase or agree to purchase all
or substantially all of the assets of, acquire securities of or
otherwise acquire any Person;
(f) Sell, lease or otherwise dispose of or agree to sell, lease or
otherwise dispose of any of its assets, properties, rights or claims,
whether tangible or intangible, except in the ordinary course of
business consistent with prior practice;
(g) Authorize for issuance, issue, sell or deliver any of its Shares
or other securities or equity interests;
(h) Split, combine or reclassify any class of the Shares or other
securities or equity interests, or redeem or otherwise acquire,
directly or indirectly, any of the Shares, or other securities or
equity interests;
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(i) Incur any Liability, guaranty or obligation (fixed or
contingent) other than in the ordinary course of business consistent
with past practice;
(j) Place or permit to be placed any Lien on any of its assets or
properties, other than Permitted Liens arising in the ordinary course
of business;
(k) Make or authorize any amendments or changes to its Charter,
Articles of Incorporation, Bylaws or any other Organizational
Documents;
(l) Make any investment in excess of $25,000, whether singly or in
the aggregate, in property, plant and equipment and other items of
capital expenditure;
(m) Accelerate receivables or delay or postpone payment of any
accounts payable or other Liability, except in the ordinary course of
business consistent with past practice;
(n) Abandon any part of its business; or
(o) Distribute to any Person any proceeds received by any Target in
respect of the repayment of any amount of the Producer Advances. In the
event either Seller or a Target receives repayment of a Producer
Advance, Purchaser shall be notified in writing of the nature and
amount of the payment prior to the Closing Date.
7.2 Access to Information of Targets. Sellers shall, upon reasonable
notice to Sellers, cause each Target to provide Purchaser and its
representatives full and free access to all properties, assets, books,
contracts, commitments and records of such Target during reasonable business
hours and shall promptly furnish Purchaser with all financial and operating data
and other information as to the history, ownership, Affiliates, business,
operations, properties, assets, Liabilities, or condition (financial or
otherwise) of such Target as Purchaser may from time to time reasonably request.
7.3 Opening Financial Statements. Prior to March 15, 2006, Sellers will
cause the preparation by Targets and delivery to Purchaser of an unaudited
consolidated balance sheet of the Targets as of the Closing Date (the "Opening
Balance Sheet"), together with related statements of operations and operating
cash flows for the period (i) beginning on the day immediately following the
Latest Balance Sheet and ending on December 31, 2005, and (ii) beginning on
January 1, 2006 and ending on the Closing Date (collectively, the "Opening
Financial Statements"). The Opening Financial Statements shall be accompanied by
a certificate in the form attached as Exhibit D executed by each of the
Individual Sellers attesting to the truth and accuracy of the information
contained therein. The Opening Financial Statements (A) shall be prepared from
the books and records of the Targets, (B) shall contain figures arising out of
bona fide licenses, sales and deliveries of goods, performance of services or
other bona fide business transactions, (C) shall be true, complete and correct
in all material respects, and (D) shall present fairly the financial position of
the Targets as of the date indicated thereon, and the results of their
operations and cash flows for the period to be presented, prepared in conformity
with GAAP, consistently applied. Purchaser's Outside Audit Firm will review and
verify the accuracy of the Opening Balance Sheet no later than March 15, 2006.
All underlying work papers and materials used by Sellers' accountants in the
preparation of the Opening Balance Sheet shall be made available to Purchaser's
Outside Audit Firm. Exhibit E sets forth each line item to be used by
Purchaser's Outside Audit Firm in connection with its review and verification of
the Opening Balance Sheet and the Opening Balance Sheet Working Capital Amount.
In addition to the foregoing, Sellers shall cause the preparation and delivery
to Purchaser at Closing an estimate of the Opening Balance Sheet of the Targets
signed by each of the Individual Sellers (the "Estimated Opening Balance
Sheet").
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7.4 Notification of Changes. Between the date hereof and the Closing
Date, Sellers shall, subject to the actual knowledge of Purchaser, promptly
notify Purchaser in writing of any change in the business, affairs or financial
condition of each Target, any damage to or loss of any of its assets, or the
institution of or the threat of institution of any Legal Proceeding against any
Target, which, in each case, may reasonably be expected to have a Material
Adverse Effect on such Target, or any breach of a representation or warranty in
this Agreement.
7.5 Consents. Sellers shall use commercially reasonable efforts to
obtain, prior to the Closing, all consents of third parties which, in the
reasonable judgment of Purchaser, are necessary or appropriate for the
consummation of the transactions contemplated by this Agreement. In any case
where a necessary consent or approval has not been obtained at or prior to the
Closing, Seller shall assist Purchaser, at Purchaser's request, after Closing in
taking commercially reasonable steps to obtain such consent or approval.
7.6 Supplemental Disclosure. Sellers shall have the continuing
obligation up to and including the Closing Date to supplement promptly or amend
the Schedules with respect to any matter hereafter arising or discovered which,
if existing or known at the date of this Agreement, would have been required to
be set forth or listed in the Schedule. Any such supplement or amendment shall
be treated as if the information added or modified in such supplement or
amendment had been included in the Schedules as of the date of this Agreement.
7.7 Governmental Filings. Purchaser and Sellers, to the extent legally
required, shall hereof promptly prepare, file, and diligently pursue the
resolution of all applications and filings required by Law in order to effect
the transactions contemplated by this Agreement.
7.8 Payoff of Revolving Credit Facility. Purchaser shall cause the
Targets to pay all amounts owing under the Revolving Credit Facility
contemporaneously or promptly following the Closing.
7.9 Seller Loans. After the Closing Date, Purchaser shall pay or shall
cause Targets to pay Sellers an aggregate principal sum of up to Two Hundred
Fifty Thousand Dollars ($250,000), without interest, in respect of loans made by
Sellers to the Targets ("Seller Loans") as identified on Schedule 7.9; provided,
however, the repayment of any portion of the amount of the Seller Loans, up to
$250,000, shall be subject to the existence of the Minimum Working Capital
Liquidity Threshold, as determined by Purchaser's Outside Audit Firm in
accordance with Section 7.3 (e.g., no payment shall be made until after the
review of the Opening Balance Sheet); and further provided, Sellers shall only
be entitled to that portion of the amount of the Seller Loans to the extent of
the excess amount, if any, of the Opening Balance Sheet Working Capital Amount
over the Minimum Working Capital Liquidity Threshold. To the extent that Sellers
and Purchaser agree prior to Closing that all or a portion of the Seller Loans
(the "Loan Shortfall") will not be repaid by Targets as a result of the
provisions of this Section 7.9 (i.e., the difference between $1,250,000 and the
Opening Balance Working Capital Amount), Sellers agree that an amount equal to
Sellers' estimate of the Loan Shortfall portion of the notes will be contributed
to Targets immediately prior to the Closing such that Targets shall have no
further obligations under the notes; provided, however, in the event Targets
ultimately are entitled to receive payments in respect of the Seller Loans
following the Closing in excess of the Loan Shortfall pursuant to this Section,
Purchaser agrees to pay such excess amount to Sellers, which amount shall be
considered to be part of and in addition to the Purchase Price. The parties
acknowledge that in such event the notes (or a portion thereof) are being
contributed, not that Sellers are contributing additional cash to Targets.
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7.10 Sale by Sellers of Purchaser's Common Stock.
(a) In the event Purchaser elects to pay the Alternative A Purchase
Price, Sellers shall not sell any shares of Purchaser's Common Stock,
except as follows:
(i) beginning on the last day of the fifth quarter following the
Closing Date and up until the second anniversary of the Closing
Date, Sellers may sell, during each quarter, in the aggregate,
one-eighth of the Purchaser's Common Stock shares acquired by them
pursuant to Section 3.1(a); provided, however, that such right to
sell per quarter shall not be cumulative; and
(ii) beginning on the second anniversary of the Closing Date,
Sellers may sell all of the shares of Purchaser's Common Stock
acquired by them pursuant to Section 3.1(a).
(b) All such shares of Purchaser's Common Stock shall be registered
by the Purchaser subject to and in accordance with the terms and
conditions of a Registration Rights Agreement to be entered into by
Sellers and Purchaser, the form of which is attached as Exhibit F (the
"Registration Rights Agreement").
7.11 Certain Tax Matters.
(a) Sellers shall, jointly and severally, be responsible for, will
pay or cause to be paid, and will indemnify and hold harmless the
Targets, Purchaser, and their Affiliates from and against any and all
of the following Taxes, except to the extent that such Taxes are taken
into account in determining the Minimum Working Capital Liquidity
Threshold and are properly accrued on the Opening Balance Sheet:
(i) all Taxes imposed on Sellers or any Target with respect to
all taxable periods of Sellers or the Targets that end on or prior
to the Closing Date;
(ii) all Taxes imposed on the Targets under Treasury Regulation
Section 1.1502-6 or any similar provision of state, local or foreign
law as a result of the inclusion of the Targets in a Seller
Consolidated Return on or prior to the Closing Date; and
(iii) all Taxes allocated to Sellers pursuant to Section 7.11
hereof.
(b) For periods ending on or prior to the Closing Date, Sellers
shall cause the Targets to prepare and timely file at Targets' expense,
or cause to be prepared and timely filed, consistently with prior
practices Tax Returns (including, without limitation, if applicable,
all consolidated, unitary or combined Tax Returns) for periods ending
on or prior to the Closing Date on which Sellers will include the
operations of each Target (the "Pre-Closing Returns"), it being
understood that Lifestyles is not a part of the consolidated Tax
Returns of MRG. In connection therewith, Purchaser shall, and shall
cause each Target to, (i) provide to Sellers and its accountants and
other Tax-related consultants reasonable access to any books and
records that Seller may reasonably request in connection with the
preparation of the Pre-Closing Returns; (ii) cooperate with Sellers and
their accountants and other Tax-related consultants as Sellers may
reasonably need in preparing the Pre-Closing Returns; and (iii) if
necessary, cause a duly elected and authorized officer of each Target
(or its successor) (which may be Xxxxxxxx or Xxxxxxxxx if so requested
by Purchaser) to sign such Pre-Closing Returns as may require the
signature of such an officer. Sellers shall give Purchaser a reasonable
opportunity to review all Tax Returns prepared in accordance with this
Section 7.11(b) and shall cooperate in good faith with Purchaser to
reconcile any items identified by Purchaser in connection with its
review and with regard to any necessary changes in order to file
accurate Tax Returns. Following the Closing, Sellers shall cooperate
with Purchaser and its accountants and other Tax-related consultants as
Purchaser may reasonably need in transitioning any Tax records of the
Targets and provide Purchaser with a list of all countries other than
the United States in which the Targets have been subject to Taxes for
the last two (2) years preceding the Closing.
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(c) Any Tax allocation or sharing agreement or arrangement which,
prior to the Closing Date, may have been entered into between a Target
on the one hand, and any Seller or any of its Affiliates on the other
hand, shall terminate with respect to such Target as of the Closing
Date and Sellers shall be responsible for all amounts owing to any
third party pursuant to any such sharing agreements or arrangements.
(d) Any refunds of Taxes paid with respect to Tax periods or
portions thereof ending on or before the Closing Date that are received
by Purchaser or a Target, and any such amounts credited against Tax to
which Purchaser or a Target become entitled, shall be the property of
Targets, the benefit of which shall be in favor of Purchaser; provided,
however, that to the extent that such Tax refunds have been properly
accrued, Sellers shall receive the benefit for purposes of the
calculation of the Opening Balance Sheet Working Capital Amount.
Without limiting the foregoing, any refunds of sales or use Taxes
recovered by a Target as a result of a filing made after the Closing
Date by Purchaser or a Target with respect to Taxes paid related to
periods prior to the Closing Date shall be for the benefit of the
applicable Target or Purchaser and remain the sole property of such
Target or Purchaser.
(e) INTENTIONALLY OMITTED.
(f) Each party hereto shall, and shall cause its Subsidiaries and
Affiliates to, provide to each of the other parties hereto such
cooperation and information as any of them reasonably may request in
filing any Tax Return, amended Tax Return or claim for refund,
determining a liability for Taxes or a right to refund of Taxes or in
conducting any audit or other proceeding in respect of Taxes. Such
cooperation and information shall include providing copies of all
relevant portions of relevant Tax Returns, together with relevant
accompanying schedules and relevant work papers, relevant documents
relating to rulings or other determinations by Taxing authorities and
relevant records concerning the ownership and Tax basis of property,
which any such party may possess. Each party will retain all Tax
Returns, schedules and work papers, and all material records and other
documents relating to Tax matters, of each Target for its Tax period
first ending after the Closing Date and for all prior Tax periods until
the later of (i) the expiration of the statute of limitations for the
Tax periods to which the Tax Returns and other documents relate; and
(ii) eight years following the due date (without extension) for such
Tax Returns. Thereafter, the party holding such Tax Returns or other
documents may dispose of them; provided that such party shall give to
the other party notice and an opportunity to take custody thereof prior
to doing so. Each party shall make its employees reasonably available
on a mutually convenient basis at its cost to provide explanation of
any documents or information so provided.
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(g) Sellers shall bear all Transfer Taxes arising out of or in
connection with the transactions effected pursuant to this Agreement,
and Sellers shall, jointly and severally, indemnify, defend and hold
harmless each Purchaser with respect to such Transfer Taxes. Sellers
shall file all necessary documentation and Tax Returns with respect to
such Transfer Taxes, if any.
(h) With respect to any Taxable Period of a Target that would
(absent an election) include, but not end until after, the Closing Date
(a "Straddle Period"), Purchaser and Sellers will, to the extent
permitted by applicable Law, elect with the relevant Tax authority to
close such Straddle Period as of the close of the Closing Date. As a
result of such election, Taxes will be allocated to Sellers and
Purchaser pursuant to the provisions of Section 7.11(a).
(i) In any case where applicable Law does not permit a Target to
close a Straddle Period as of the Closing Date, Sellers will be
allocated any income Taxes imposed on the Targets or the applicable
Subsidiary for the portion of the Straddle Period up to and
including the Closing Date. For purposes of this Section 7.11(h),
income Taxes for the portion of a Straddle Period up to and
including the Closing Date will be determined based upon an interim
closing of the books of the Targets, as the case may be, as of the
close of the Closing Date based upon tax accounting practices and
procedures used by each Target in preparing its Tax Returns.
(ii) As to any Tax other than an income Tax (a "Non-Income
Tax"), for any Straddle Period, Sellers will be allocated (i) for
any Non-Income Tax that is determined based upon specific
transactions (including, but not limited to, payroll, value added,
sales and use Taxes), all Non-Income Taxes applicable to
transactions which have occurred during the period through the
Closing Date and (ii) for any Non-Income Tax that is not based upon
specific transactions (including, but not limited to, license, real
property, personal property, franchise and doing business Taxes),
any Non-Income Tax equal to the full amount of such Non-Income Tax
for the entire Straddle Period multiplied by a fraction, the
numerator of which is the number of days in the Straddle Period
ending on the Closing Date and the denominator of which is the
number of days in the entire Straddle Period; provided, that
Sellers' or Purchaser's allocation shall be adjusted appropriately
to reflect the actual proportionate period of property ownership or
the activity of the Targets during the Straddle Period, as
applicable, for any such Non-Income Taxes imposed with respect to
the ownership of specific items of property held by the Targets or
the activity of the Targets, as applicable, during the Straddle
Period.
(iii) With respect to any Taxes due and owing by one party to
the other in connection with any Straddle Period, such Taxes shall
be paid by the owing party prior to the due date of the Tax Return
for such Taxes.
(i) After the Closing Date, Purchaser shall have the right to
prepare and file any Tax Returns with any Governmental Authority that
Purchaser reasonably believes should have been filed prior to the
Closing Date (the "Delinquent Tax Returns") and to prepare and file any
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amended Tax Returns with any Governmental Authority that Purchaser
reasonably believes should be amended (the "Amended Tax Returns");
provided, however that Purchaser shall not file any Delinquent Tax
Returns or Amended Tax Returns unless (i) Purchaser determines in good
faith that the filing is required to avoid a continuing material
negative affect on Purchaser or the Targets following the Closing
(including a loss of Tax refunds), (ii) such filings are required by a
Governmental Authority; or (iii) the Audit Committee of the Board of
Directors of Purchaser determines in good faith that such filings are
required. Prior to making any such filings, Purchaser shall provide
Sellers with a copy of the proposed filings and an opportunity to
discuss any changes to prior returns. Purchaser shall have the right,
in its sole discretion, to calculate the amounts of unpaid Tax
(including any amounts of interest and penalties that may be due), to
discuss any unpaid Tax, Delinquent Tax Return or Amended Tax Return
with the applicable Governmental Authority and to pay any such amounts
in connection with the filing of such Tax Returns or the settlement of
a Tax Liability with the applicable Governmental Authority. To the
extent of any Taxes (including any amounts of interest or penalties
that may be due) related to Delinquent Tax Returns, Amended Tax Returns
or the settlement of a Tax Liability with the applicable Governmental
Authority, Sellers shall be, jointly and severally, liable for such
Taxes to the extent such Taxes would be allocated to Sellers under
Section 7.11(a). Notwithstanding the foregoing, Purchaser will not file
any Delinquent Tax Returns or Amended Tax Returns pursuant to this
Section 7.11(i) after the applicable statute of limitations has expired
with respect to Taxes that would otherwise be the subject of such Tax
Returns.
7.12 Employee Benefit Plans.
(a) The employees of Targets (and their covered dependents) shall
continue to participate under the medical, dental, vision, employee
assistance, life and long-term disability benefit coverages under the
Benefit Plans through the Closing Date. As soon as the employees of
Targets (and their covered dependents) shall cease active participation
under the Benefit Plans maintained by the Targets, the employees shall
be covered by the Purchaser's Benefit Plans, subject to the rules in
effect regarding eligibility under the Purchaser's Benefit Plans.
(b) Following the Closing Date, Purchaser shall, to the extent
allowable under the post-Closing benefit plans of Targets, recognize
Targets' employees' years of service through the Closing Date for
purposes of eligibility and vesting under such post-Closing benefit
plans and waive any pre-existing medical condition (to the extent
waivable under such post-Closing benefit plans of Targets).
(c) From and after the Closing, Sellers shall (i) remain solely
responsible for, and shall reimburse and indemnify Purchaser for, any
and all Liabilities arising prior to the Closing Date under each
Benefit Plan maintained by or for the benefit of the current or former
employees of the Targets or their ERISA Affiliates; and (ii) promptly
pay, when due, all benefits and compensation payable out of such
Benefit Plan or to be provided to all retired, current or former
employees of each Target and such individual's beneficiaries and
dependents in accordance with the terms of the applicable Benefit Plan
to the extent of such employee's participation therein prior to or on
the Closing Date.
(d) To the extent requested by Purchaser after execution of this
Agreement, Xxxxxxxxx and Xxxxxxxx will provide reasonable cooperation
and assistance in getting employees or independent contractors of
Targets to execute documentation related to their engagement by Targets
to be effective on or after the Closing (e.g., Proprietary Information
and Confidentiality Agreements).
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7.13 Releases of Seller's Guarantees. Purchaser shall use commercially
reasonable efforts to seek to obtain the release of Sellers from further
obligations or liabilities subsequent to the Closing Date under the guaranties
set forth on Schedule 7.13.
7.14 Further Assurances. Sellers and Purchaser each agree to use their
reasonable best efforts to take all reasonable actions and to execute,
acknowledge, affirm and deliver any and all documents and instruments, prior to
and after the Closing, to effect and complete the transactions contemplated by
this Agreement.
ARTICLE VIII.
CONDITIONS PRECEDENT TO OBLIGATIONS TO CLOSE
8.1 Conditions Precedent to Obligation of Purchaser. The obligation of
Purchaser to consummate the transactions contemplated by this Agreement shall be
subject to the satisfaction, on or before the Closing Date, of each of the
following conditions all or any of which may be waived in writing, in whole or
in part, by Purchaser:
(a) Representations and Warranties. All information required to be
furnished or delivered by Sellers or Targets pursuant to this Agreement
shall have been furnished or delivered as of the date hereof and as of
the Closing Date, as required hereunder; the representations and
warranties made by Sellers in ARTICLE IV and ARTICLE V shall be true
and correct in all material respects on and as of the Closing Date, and
with the same force and effect as though such representations and
warranties had been made on and as of the Closing Date, and Purchaser
shall have received a certificate dated as of the Closing Date,
executed by an authorized officer or trustee of each Seller, to such
effect.
(b) Compliance by Sellers. Each Seller shall have duly performed in
all material respects all of the covenants, agreements, and conditions
contained in this Agreement and each of the other Seller Transaction
Agreements to which it is a party, to be performed by such Seller on or
prior to the Closing Date.
(c) Certified Resolutions. Purchaser shall have received from each
Target party to this Agreement or any other Seller Transaction
Agreement a certificate executed by the Secretary or Assistant
Secretary thereof, as applicable, containing true and correct copies of
resolutions duly adopted by such Target's shareholders and its board of
directors approving and authorizing this Agreement and each of the
other Seller Transaction Agreements to which it is a party and each of
the transactions contemplated hereby and thereby. The Secretary or
Assistant Secretary of each Target, as applicable, shall also certify
that such resolutions have not been rescinded, revoked, modified, or
otherwise affected and remain in full force and effect.
(d) No Injunction; Etc. No action, proceeding, investigation,
regulation, or legislation shall be pending or threatened which seeks
to enjoin, restrain, or prohibit any Seller, or to obtain damages from
Purchaser, in respect of the consummation of the transactions
contemplated hereby, or which seeks to enjoin the operation of any
portion of the business conducted by any Target.
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(e) No Change in Circumstances. There shall have been no event,
occurrence or development of a state of circumstances or facts which
has had or reasonably could be expected to have a Material Adverse
Effect on the condition (financial or otherwise), business,
capitalization, assets, Liabilities, results of operations or prospects
of any Target.
(f) Consents; Authorizations; Legal Matters. Purchaser shall have
received a true and correct copy of each of the Required Consents.
Purchaser shall have received a certificate dated as of the Closing
Date, executed by Sellers and an officer of each Target, to the
foregoing effect.
(g) Satisfaction with Documents. The form and substance of all
certificates, assignments, orders and other documents and instruments
hereunder shall be reasonably satisfactory to Purchaser and its
counsel.
(h) Certified Documents, Good Standing. Purchaser shall have
received (a) the Articles of Incorporation of each Target as amended,
certified as of a recent date by a Governmental Authority (if such
certification is customarily available) and a copy of the Bylaws of
each Target, as amended, certified as of the Closing Date by the
Secretary or an Assistant Secretary of each Target; and (b) a
certificate of status, good standing or existence with respect to each
Target the applicable Governmental Authority under the Laws of which
such Target is incorporated, organized or registered, and of each other
jurisdiction in which the Target is qualified or registered to do
business, dated as of a recent date acceptable to Purchaser's counsel.
(i) Opinion of Sellers' Counsel. Purchaser shall have received an
Opinion of Sellers' Counsel dated the Closing Date in the form attached
hereto as Exhibit G concerning the right and authority of the Trusts to
enter into this Agreement and to sell their Shares to Purchaser under
their respective Organizational Documents and in accordance with
applicable Laws.
(j) Release from Liens. Any and all Liens on the Shares or the
assets, properties or business of any Target, including without
limitation, any Liens of City National Bank, shall have been released
and discharged to the satisfaction of counsel for Purchaser or in the
case of City National Bank, such party will have committed to release
such liens upon payment by Purchaser.
(k) Completion of Audit of Latest Financial Statements. Purchaser
shall have received a satisfactory completed audit of the Latest
Financial Statements.
(l) Estimated Opening Balance Sheet. Sellers shall deliver the
Estimated Opening Balance Sheet to Purchaser.
(m) Termination of Buy-Sell Agreement. Sellers shall have delivered
an instrument, executed by all parties to that certain Buy-Sell
Agreement dated as of June 1, 2005 (the "Buy-Sell Agreement"),
evidencing all such parties' agreement to cancel the Buy-Sell
Agreement.
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(n) Xxxxxxxxx Release. Xxxx Xxxxxxxxx shall have executed shall have
executed the Settlement and Release of Claims in substantially the form
attached as Exhibit H prior to Closing.
(o) Additional Items to be Delivered at Closing by Sellers. Sellers
shall deliver or shall cause to be delivered the following items to the
appropriate party at the Closing:
(i) the Registration Rights Agreement, executed by Sellers;
(ii) Employment Agreements and Noncompetition Agreements in the
form of Exhibit I and Exhibit J, respectively (the "Seller
Employment Agreements" and Seller Noncompetition Agreements"),
executed by the Individual Sellers;
(iii) the Earnout Agreement, executed by Sellers;
(iv) the Escrow Agreement, executed by Sellers; and
(v) such other instruments, documents and certificates as may be
reasonably requested by Purchaser of any Seller or any Target,
including original stock certificates representing (i) the Shares,
duly endorsed in blank or accompanied by a proper instrument of
assignment duly executed in blank and (ii) upon request, the minute
books for the Targets together with any issued capital stock shares
of any Subsidiary.
8.2 Conditions Precedent to Obligation of Sellers. The obligation of
Sellers to consummate the transactions contemplated by this Agreement shall be
subject to the satisfaction, on or before the Closing Date hereunder, of each of
the following conditions, all or any of which may be waived, in whole or in
part, by Sellers:
(a) Certificate Regarding Representations and Warranties. The
representations and warranties made by Purchaser in ARTICLE VI hereof
shall be true and correct in all material respects on and as of the
Closing Date with the same force and effect as though such
representations and warranties had been made on and as of the Closing
Date; and Sellers shall have received a certificate dated the Closing
Date, executed by an authorized officer of Purchaser, to such effect.
(b) Compliance by Purchaser. Purchaser shall have duly performed in
all material respects all of the covenants, agreements, and conditions
contained in this Agreement and each other Purchaser Transaction
Agreements to which it is a party, to be performed by Purchaser on or
before the Closing Date, and Sellers shall have received a certificate
dated the Closing Date, executed by an authorized officer of Purchaser
to such effect.
(c) Certified Resolutions. Sellers shall have received from
Purchaser certificates executed by the Secretary or Assistant Secretary
thereof containing true and correct copies of resolutions duly adopted
by Purchaser's board of directors approving and authorizing this
Agreement and each of the other Purchaser Transaction Agreements to
which it is a party and each of the transactions contemplated hereby
and thereby. The Secretary or Assistant Secretary of Purchaser shall
also certify that such resolutions have not been rescinded, revoked,
modified, or otherwise affected and remain in full force and effect.
43
(d) No Injunction; Etc. No action, proceeding, investigation,
regulation, or legislation shall be pending or threatened, which seeks
to enjoin, restrain, or prohibit Sellers, or to obtain damages from
Sellers, in respect of the consummation of the transactions
contemplated hereby.
(e) Legal Matters. All authorizations, orders, or approvals of any
Governmental Authority required to consummate the transactions
described in this Agreement shall have been obtained.
(f) Satisfaction with Documents. The form and substance of all
certificates, assignments, orders and other documents and instruments
hereunder shall be reasonably satisfactory to Sellers and Sellers'
counsel.
(g) Good Standing. Seller shall have received certificates of
status, good standing or existence from the Colorado Secretary of State
with respect to Purchaser, dated as of a recent date acceptable to
Sellers' counsel.
(h) Election of Sellers' Designee to Board of Directors. In the
event Purchaser elects to pay the Alternative A Purchase Price,
Purchaser shall, simultaneously with the Closing, appoint an individual
designated by Seller to be a member of Purchaser's board of directors
("Sellers' Board Designee") to fill the vacancy existing on Purchaser's
board of directors as of the signing date of this Agreement, subject to
the provisions of Purchaser's bylaws.
(i) Additional Items to be Delivered at Closing by Purchaser.
Purchaser shall deliver or shall cause to be delivered the following
items to the appropriate party at the Closing:
(i) the Alternative A Purchase Price or the Alternative B
Purchase Price, whichever applies;
(ii) the Registration Rights Agreement, executed by Purchaser;
(iii) Sellers' Employment Agreements, executed by Purchaser;
(iv) the Earnout Agreement, executed by Purchaser;
(v) the Escrow Agreement, executed by Purchaser; and
(vi) such other instruments, documents, and certificates as may
be reasonably requested by Sellers of Purchaser.
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ARTICLE IX.
INDEMNIFICATION
9.1 Purchaser Claims for Indemnification. Subject to the limitations
set forth in Section 9.2, Sellers, jointly and severally (except that with
respect to Section 9.1(c) or 9.1(f) below regarding which the indemnification
obligations shall be several not joint and several), agree to indemnify and hold
Purchaser and the officers, directors and Affiliates thereof (the "Purchaser
Indemnitees") harmless from and against any and all claims, judgments, causes of
action, liabilities, obligations, amounts paid in settlement, damages, losses,
deficiencies, costs, penalties, interest and expenses, including without
limitation, cost of investigation, preparation and defense, and reasonable
attorneys' fees and expenses, and in cases of claims by more than one
indemnitee, without duplication of damages payable by Sellers with respect to
any indemnifiable event, (collectively, "Losses"), arising out of, based upon,
attributable to or resulting from, directly or indirectly:
(a) Any breach of any representation or warranty on the part of any
Seller contained in ARTICLE IV;
(b) Any pending or threatened Legal Proceeding (whether or not
referred to in a Schedule to this Agreement) against any Target as of
the Closing Date or any Legal Proceedings initiated against a Target
after the Closing Date which arise out of any pre-Closing act or
omission or any Target;
(c) Any breach of any representation, warranty, agreement or
covenant on the part of any Seller contained in or pursuant to this
Agreement or any Seller Transaction Agreements; provided, any breach by
a Seller under ARTICLE V or a Seller Transaction Agreement to which it
is a party shall result in liability on a several and not joint and
several basis; and;
(d) Taxes imposed on any Target for any taxable year or period that
ends on or before the Closing Date which is not properly accrued in
accordance with Section 7.11(h);
(e) Any Losses to Targets as a result of the failure by Sellers to
cause the termination of the Xxxxxxxxx Consulting Agreement or to
execute the Settlement Agreement and Release of Claims effective as of
a date prior to the Closing, including without limitation, (i) all
amounts paid to Xxxxxxxxx under the Xxxxxxxxx Consulting Agreement on
or after the Closing, (ii) Taxes payable by Targets as a result of any
payments required to be made by Targets under the Xxxxxxxxx Consulting
Agreement, and/or (iii) Losses to Targets as a result of disallowed Tax
deductions by virtue of payments required to be made under the
Xxxxxxxxx Consulting Agreement.
(f) The fraud or intentional misrepresentation of any Seller in
connection with any representation, warranty or covenant made by any
Seller in this Agreement or in any way pertaining to the transactions
contemplated herein or in any Seller Transaction Agreement to which
such Seller is a party; provided, any fraudulent or intentional
misrepresentation by a Seller under ARTICLE V or a Seller Transaction
Agreement to which it is a party shall result in liability on a several
and not joint and several basis.
9.2 Limits on Purchaser Claims for Indemnification.
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(a) Except as otherwise provided in this Section 9.2, the maximum
amount of Losses recoverable by the Purchaser Indemnitees under Section
9.1(a) through 9.1(c) shall not exceed (i) the Alternative A Escrow
Amount in the event Purchaser elects to pay the Alternative A Purchase
Price, or (ii) the Alternative B Escrow Amount in the event Purchaser
elects to pay the Alternative B Purchase Price (the amount described in
(i) and (ii), whichever applies, is hereinafter referred to as the
"Purchaser's Indemnification Cap"). The Purchaser's Indemnification Cap
shall not apply to indemnification claims for Losses ("Claims") (A)
under Section 9.1(e), or 9.1(f) based on fraud or intentional
misrepresentation, or (B) with respect to representations, warranties
or covenants made under Section 4.1 (Capitalization; Legal Status;
Qualification; Title to Shares), Section 4.4 (Ownership of Assets),
Section 4.5 (Financial Statements), Section 7.3 (Opening Financial
Statements), Section 4.11 (Environmental Laws), Section 4.12(e)
(Intellectual Property and Information Technology) or any
representation, warranty, covenant or agreement made by Sellers in any
way pertaining to Taxes, the Xxxxxxxxx Consulting Agreement (or
termination thereof) or made in any Seller Noncompetition Agreement
(collectively, the "Uncapped Sections").
(b) Individual Claims which are less than $5,000 each shall not be
payable by Sellers until the aggregate amount of such individual Claims
exceeds $50,000 (the "Basket"). Thereafter, all Claims (including all
Claims initially covered by the Basket) shall be paid dollar for
dollar, subject to the provisions contained in Section 9.2(a).
Notwithstanding the foregoing, (i) the Basket shall not apply to Claims
under any Uncapped Section; and (ii) nor shall the Basket apply to any
individual Claim in excess of $5,000, and such Claims described in (i)
and (ii) of this sentence shall be paid dollar for dollar.
(c) The representations and warranties contained in this Agreement
shall survive the Closing notwithstanding any due diligence
investigation or examination of Sellers or any Target by Purchaser.
Claims under Section 9.1(a) through (c) may be asserted at any time
prior to July 2, 2007, except that Claims under Section 9.1(d) with
respect to Taxes, Section 9.1(e) with respect to the Xxxxxxxxx
Consulting Agreement, or Section 9.1(f) based on fraud or intentional
misrepresentation or with respect to any Uncapped Section, shall
survive until expiration of the applicable statute of limitations or
the sixth anniversary of the Closing Date, whichever occurs first.
9.3 Purchaser Indemnification. Purchaser hereby agrees to indemnify and
hold Sellers harmless from and against any and all Losses arising out of, based
upon, attributable to or resulting from:
(a) Any breach of any representation, warranty, agreement or
covenant on the part of Purchaser contained in or made pursuant to this
Agreement or the Purchaser Transaction Agreements;
(b) Any post-Closing Date act or omission of Purchaser or any
Target; and
(c) Fraud or any intentional misrepresentation of Purchaser in
connection with the transactions contemplated hereby or in any
Purchaser Transaction Agreement.
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No Claims or series of Claims for Losses shall be payable by Purchaser
until the aggregate of the Losses claimed first exceeds the Basket. Thereafter,
all Claims (including all Claims initially covered by the Basket) shall be paid
dollar-for-dollar, up to a cap of (x) $1,000,000 in the event Purchaser pays the
Alternative A Purchase Price, or (y) $500,000 in the event Purchaser elects to
pay the Alternative B Purchase Price (either such cap, the "Sellers'
Indemnification Cap"). Notwithstanding the foregoing, neither the Basket nor
Sellers' Indemnification Cap shall apply to Claims under Section 9.3(b) or
9.3(c) based on fraud or intentional misrepresentation or based on Section 6.2
(Authority) and Section 6.6 (Securities Filings) and such Claims described in
this sentence shall be paid dollar-for-dollar. Claims under Section 9.3(a) and
Section 9.3(b) may be asserted at any time prior to July 2, 2007, except that
Claims under Section 9.3(c) based on fraud or intentional misrepresentation or
based on Section 6.2 or Section 6.6 shall survive until the expiration of the
applicable statute of limitations or the sixth anniversary of the Closing Date,
whichever occurs first.
9.4 Assertion of Claims.
(a) Claims must be asserted as promptly as practicable and within
the time periods allowed by Sections 9.2 and 9.3. Each notice of a
Claim must be given to Sellers or the Purchaser, as the case may be, as
provided in Section 11.3 of this Agreement (Notices), set forth in
reasonable detail the basis for the Claim, and cite the Section of this
Agreement under which the Claim arises.
(b) Within thirty (30) days after the receipt of a Claim, Sellers or
Purchaser, as the case may be, must give the other party notice that
such party either agrees with the Claim or disputes it. If no notice is
given within that period, the other party shall be conclusively
presumed to have agreed with the Claim. If the other party timely
objects to the Claim, the parties shall negotiate in good faith to
determine the amount, if any, of the Losses. If no resolution of the
Claim has occurred within thirty (30) days after the receipt of the
Claim, then a party may institute proceedings in a court of competent
jurisdiction to resolve the Claim.
9.5 Source of Recovery.
(a) Claim Asserted by Purchaser Indemnitee. When a Claim asserted by
a Purchaser Indemnitee under Section 9.1 has been Finally Resolved, the
amount of the Claim, subject to any limitation contained in this
Agreement, shall be paid first out of the Escrow Amount, provided that
any such payment shall be made in accordance with the terms of the
Escrow Agreement and, to the extent the Escrow Amount is insufficient
to satisfy the amount of the Claim, shall, at Purchaser's election, be
paid in cash by Sellers. Any payments out of the Escrow Amount or in
cash shall be paid to Purchaser's Indemnitees within ten (10) business
days after the amount of the Claim has been Finally Resolved and
Purchaser has given notice making demand for such payment. Any amounts
not paid within such period shall accrue interest until paid, at the
rate of ten percent (10%) per annum.
(b) Claim Asserted by Sellers. When a Claim asserted by Sellers
under Section 9.3 has been Finally Resolved, Purchaser shall pay to
Sellers in cash the amount of the Claim within ten (10) business days
after the amount of the Claim has been Finally Resolved and Sellers
have given notice making demand for such payment. Any amounts not paid
within such period shall accrue interest until paid, at the rate of ten
percent (10%) per annum.
9.6 Third Party Claims.
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(a) If any third party asserts any claim (a "Third Party Claim")
against a party to this Agreement which, if successful, would entitle
the party to indemnification under this ARTICLE IX (the "Indemnified
Party"), the Indemnified Party shall give notice of such Third Party
Claim to the party from whom the Indemnified Party intends to seek
indemnification (the "Indemnifying Party"), and the Indemnifying Party
shall have the right to assume the defense and, subject to Section
9.6(b), settlement of such Third Party Claim at its expense by
representatives of its own choosing acceptable to the Indemnified Party
(which acceptance shall not be unreasonably withheld or delayed). Upon
the reasonable request of the Indemnifying Party, the Indemnified Party
shall cooperate with and provide information to the Indemnifying Party
in connection with any Third Party Claim that the Indemnifying Party
has elected to defend. The failure of the Indemnified Party to notify
the Indemnifying Party of such Third Party Claim shall not relieve the
Indemnifying Party of any liability that the Indemnifying Party may
have with respect to such Third Party Claim, except to the extent that
the defense is materially prejudiced by such failure. The Indemnified
Party shall have the right to participate in the defense of such Third
Party Claim at its own expense (which expense shall not be deemed to be
a Loss), in which case the Indemnifying Party shall cooperate in
providing information to and consulting with the Indemnified Party
about the Third Party Claim. If the Indemnifying Party fails or does
not assume the defense of any such Third Party Claim within thirty (30)
days after written notice of such Third Party Claim has been given by
the Indemnified Party to the Indemnifying Party, the Indemnified Party
may defend against or, subject to Section 9.6(b), settle such Third
Party Claim with counsel of its own choosing at the expense (to the
extent reasonable under the circumstances) of the Indemnifying Party.
(b) If the Indemnifying Party does not assume the defense of a Third
Party Claim involving the asserted liability of the Indemnified Party
under this ARTICLE IX, settlement of such Third Party Claim may be made
by the Indemnified Party without the prior written consent of the
Indemnifying Party. If the Indemnifying Party assumes the defense of
such a Third Party Claim, (i) no settlement thereof may be effected by
the Indemnifying Party without the Indemnified Party's consent, which
consent shall not be unreasonably withheld or delayed, unless (A) the
sole relief provided is monetary damages that have been paid or
otherwise satisfied in full by the Indemnifying Party, and (B) the
settlement includes, as an unconditional term thereof, the giving by
the claimant or the plaintiff to the Indemnified Party of a release in
form and substance reasonably satisfactory to the Indemnified Party,
from all liability in respect of such Third Party Claim, and (ii) the
Indemnified Party shall have no liability with respect to any
compromise or settlement thereof effected without its consent.
ARTICLE X.
TERMINATION
10.1 Termination of Agreement. This Agreement may be terminated as provided
below:
(a) The Purchaser and Sellers may terminate the Agreement by mutual
written consent at any time prior to the Closing.
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(b) (i) The Purchaser may terminate this Agreement by written notice
to Sellers if the Closing shall not have occurred on or before February
10, 2006 (the "Drop Dead Date"); provided, however, the Purchaser shall
have the right in its sole discretion to extend the Drop Dead Date to
March 31, 2006 (the "Extended Drop Dead Date") upon written notice
delivered to Sellers on or before February 10, 2006; and (ii) either
Sellers or Purchaser may terminate this Agreement by written notice if
the Closing shall not have occurred on or before the Extended Drop Dead
Date (if extended by Purchaser). Notwithstanding the foregoing, if the
Closing shall not have occurred on or before the Extended Drop Dead
Date due to a material breach of this Agreement by Purchaser or
Sellers, the breaching party may not terminate this Agreement pursuant
to this Section 10.1(b).
(c) The Purchaser may terminate this agreement upon written notice
to Sellers if the Purchaser has previously provided Sellers written
notice of any material inaccuracy in or material breach of any
representation or warranty contained in ARTICLE IV or ARTICLE V, or a
failure to perform or comply in any material respect with any covenant
or obligation of Sellers contained in this Agreement, and Sellers have
failed, within five (5) days after the date of such notice, to properly
remedy such inaccuracy or to perform or comply with such covenant or
obligation or provide reasonably adequate assurance as to Sellers'
ability to promptly remedy such inaccuracy or perform or comply with
such covenant; provided, however, that the Purchaser shall not have the
right to terminate this Agreement under this Section 10.1(c) if (i) the
Purchaser is then in material breach of this Agreement or (ii) the
breach or breaches by Sellers would not result in the failure of the
condition contained in Section 8.1(a) or 8.1(b) to be satisfied.
(d) The Purchaser may terminate this agreement upon written notice
to Sellers upon any event, occurrence or development of a state of
circumstances or facts which has had or reasonably could be expected to
have a Material Adverse Effect on the condition (financial or
otherwise), business, capitalization, Assets, Liabilities, results of
operations or prospects of any Target.
(e) Sellers may terminate this agreement upon written notice to the
Purchaser if Sellers have previously provided the Purchaser written
notice of any material inaccuracy in or material breach of any
representation or warranty contained in ARTICLE VI, or a failure to
perform or comply in any material respect with any covenant or
obligation of the Purchaser contained in this Agreement, and the
Purchaser has failed, within five (5) days after the date of such
notice, to properly remedy such inaccuracy or to perform or comply with
such covenant or obligation or provide reasonably adequate assurance as
to the Purchaser's ability to promptly remedy such inaccuracy or
perform or comply with such covenant; provided, however, that the
Seller shall not have the right to terminate this Agreement under this
Section 10.1 if (i) any Seller is then in breach of this Agreement or
(ii) the breach or breaches by the Purchaser would not result in the
failure of the condition contained in Section 8.2(a) or 8.2(b) to be
satisfied.
10.2 Effect of Termination. If any party terminates this Agreement pursuant
to Section 10.1, all rights and obligations of the parties hereunder shall
terminate without any liability of any party to any other party (except for any
liability of any party then in breach).
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ARTICLE XI.
GENERAL
11.1 Amendments. This Agreement may only be amended by an instrument in
writing executed by Purchaser and Sellers.
11.2 Waivers. The observance of any term of this Agreement may be waived
(either generally or in a particular instance and either retroactively or
prospectively) by the party entitled to enforce such term, but such waiver shall
be effective only if it is in a writing signed by the party entitled to enforce
such term and against which such waiver is to be asserted. Unless otherwise
expressly provided in this Agreement, no delay or omission on the part of any
party in exercising any right or privilege under this Agreement shall operate as
a waiver thereof, nor shall any waiver on the part of any party of any right or
privilege under this Agreement operate as a waiver of any other right or
privilege under this Agreement nor shall any single or partial exercise of any
right or privilege preclude any other or further exercise thereof or the
exercise of any other right or privilege under this Agreement.
11.3 Notices. Any notices or other communications required or permitted
hereunder shall be in writing and shall be sufficiently given (and shall be
deemed to have been duly given upon receipt) if sent by overnight mail,
registered mail or certified mail, postage prepaid, or by hand, to the parties
at the following addresses (or at such other address for a party as shall be
specified by like notice):
If to Purchaser, to:
New Frontier Media, Inc.
0000 Xxxxxxxxxx Xxxxxx, Xxxxx 000
Attention: Xxxxxxx Xxxxxx, Xxxxx Xxxxxx and Xxxxxx Xxxxxxx
Xxxxxxx, XX 00000
Facsimile: (000) 000-0000
With a copy (which shall not constitute effective notice) to:
E. Xxx Xxxxxxxx, Esq.
Kamlet Shepherd & Xxxxxxxx, LLP
0000 Xxxxxxxx Xxxxxx, Xxxxx 0, Xxxxx 0000
Xxxxxx, Xxxxxxxx 00000 Facsimile:
(000) 000-0000
If to Xxxxxxxxx or the Xxxxxxxxx Trust:
c/o Xxxx Xxxxxxxxx
0000 Xxxx Xxxxx
Xxxxxx xxx Xxx, Xxxxxxxxxx 00000
50
With a copy (which shall not constitute effective notice) to:
Xxxxxxx Xxxx, Esq.
Wolf, Rifkin, Xxxxxxx & Xxxxxxxx, LLP
00000 Xxxx Xxxxxxx Xxxx., 0xx Xxxxx
Xxx Xxxxxxx, Xxxxxxxxxx 00000-0000
Facsimile: (000) 000-0000
If to Xxxxxxxx or the Xxxxxxxx Trust
c/o Xxxxxxx Xxxxxxxx
000 00xx Xxxxxx
Xxxxx Xxxxxx, Xxxxxxxxxx 00000
With a copy (which shall not constitute effective notice) to:
Xxxxxxx Xxxx, Esq.
Wolf, Rifkin, Xxxxxxx & Xxxxxxxx, LLP
00000 Xxxx Xxxxxxx Xxxx., 0xx Xxxxx
Xxx Xxxxxxx, Xxxxxxxxxx 00000-0000
Facsimile: (000) 000-0000
11.4 Successors and Assigns; Parties in Interest. This Agreement shall be
binding upon and shall inure solely to the benefit of the parties hereto and
their respective successors, legal representatives and permitted assigns.
Neither this Agreement nor any rights or obligations hereunder may be assigned
without the written consent of the other parties except that Purchaser may
assign any or all of its rights, interest and obligations (except its
obligations with respect to payment of the Alternative A Stock Consideration)
hereunder to any of its wholly-owned Subsidiaries (provided that no such
assignment shall discharge Purchaser from any such obligations). Nothing in this
Agreement, express or implied, is intended to or shall confer upon any Person,
other than the parties hereto and their respective successors, legal
representatives and permitted assigns, any rights, benefits or remedies of any
nature whatsoever under or by reason of this Agreement, and no Person shall be
deemed a third party beneficiary under or by reason of this Agreement.
11.5 Severability. If any provision of this Agreement or the application of
any such provision to any Person or circumstance, shall be declared judicially
to be invalid, unenforceable or void, such decision shall not have the effect of
invalidating or voiding the remainder of this Agreement, it being the intent and
agreement of the parties that this Agreement shall be deemed amended by
modifying such provision to the extent necessary to render it valid, legal and
enforceable while preserving its intent or, if such modification is not
possible, by substituting therefor another provision that is valid, legal and
enforceable and that achieves the same objective.
11.6 Entire Agreement. This Agreement and the other Transaction Agreements
(including the exhibits and schedules hereto, and the documents and instruments
executed and delivered in connection herewith) constitutes the entire agreement
among the parties with respect to the subject matter hereof and supersedes all
prior and contemporaneous agreements and understandings, whether written or
oral, among the parties or any of them with respect to the subject matter
hereof, and there are no representations, understandings or agreements relating
to the subject matter hereof that are not fully expressed in this Agreement and
the documents and instruments executed and delivered in connection herewith. All
exhibits and schedules attached to this Agreement are expressly made a part of,
and incorporated by reference into, this Agreement.
51
11.7 Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of Colorado, without giving effect to any
choice-of-law rules that may require the application of the laws of another
jurisdiction.
11.8 Arbitration. Any action or proceeding seeking to enforce any provision
of, or based on any right arising out of, this Agreement (including any Claims
for indemnification under ARTICLE IX) that may be brought against any of the
parties shall be submitted to binding arbitration before the American
Arbitration Association ("AAA") or any other individual or organization on which
the parties agree or which a court may appoint. It is understood that both sides
are hereby waiving the right to a jury trial. The arbitration shall be initiated
in Boulder, Colorado and shall be administered by AAA under its commercial
arbitration rules before a single arbitrator that shall be mutually agreed upon
by the parties hereto. If the parties cannot agree on a single arbitrator, then
an arbitrator shall be selected in accordance with the rules of AAA. The
arbitration must be filed within six (6) months of a party's actual knowledge of
the occurrence of facts or circumstances which give rise to the claim. Each
party shall be entitled to take any discovery as is permitted by the arbitrator.
The arbitrator shall render an award which conforms to the facts, as supported
by competent evidence, and the law as it would be applied by a court sitting in
the State of Colorado. The cost of arbitration shall be advanced equally by the
parties; however, the arbitrator shall award the prevailing party all of the its
costs of arbitration and reasonable attorneys' fees. Any party may apply to a
court of competent jurisdiction for entry of judgment on the arbitration award.
Notwithstanding the foregoing, Sellers or Purchaser may file with an appropriate
state court sitting in the County of Boulder, State of Colorado, a claim for
injunctive relief in any case where the filing party seeks provisional
injunctive relief or where permanent injunctive relief is not available in
arbitration. The filing of such a claim for injunctive relief shall not allow
any party hereto to raise any other claim outside of arbitration.
Except otherwise expressly provided herein, each party to this Agreement
shall bear its own expenses (including, without limitation, fees and
disbursements of counsel, accountants and other experts) incurred by it in
connection with the preparation, negotiation, execution, delivery and
performance of this Agreement, each of the other documents and instruments
executed in connection with or contemplated by this Agreement and the
consummation of the transactions contemplated hereby.
11.9 Release of Information; Confidentiality. The parties shall cooperate
with each other in releasing information concerning this Agreement and the
transactions contemplated hereby. No press releases or other public
announcements, or any private disclosure to any third party of the price or any
other material term, concerning the transactions contemplated by this Agreement
shall be made by any party without prior consultation with, and agreement of,
the other parties, except for any legally required communication by any party
and then only with prior consultation and as much advance notice as is
practicable under the circumstances requiring any announcement, together with
copies of all drafts of the proposed text.
11.10 Certain Construction Rules. The article and section headings and
the table of contents contained in this Agreement are for convenience of
reference only and shall in no way define, limit, extend or describe the scope
or intent of any provisions of this Agreement. Whenever the context may require,
any pronoun used in this Agreement shall include the corresponding masculine,
feminine or neuter forms, and the singular form of nouns, pronouns and verbs
shall include the plural and vice versa. In addition, as used in this Agreement,
unless otherwise provided to the contrary, (a) all references to days, months or
years shall be deemed references to calendar days, months or years and (b) any
reference to a "Section," "Article," or "Schedule" shall be deemed to refer to a
section or article of this Agreement or an exhibit or schedule attached to this
Agreement. The words "hereof", "herein", and "hereunder" and words of similar
import referring to this Agreement refer to this Agreement as a whole and not to
any particular provision of this Agreement. Unless otherwise specifically
provided for herein, the term "or" shall not be deemed to be exclusive.
52
11.11 Counterparts. This Agreement may be executed in multiple
counterparts, each of which shall be deemed an original and all of which taken
together shall constitute one instrument binding on all the parties,
notwithstanding that all the parties are not signatories to the original or the
same counterpart.
11.12 General Release. In consideration of this Agreement and full payment
of the Purchase Price, except for (i) MRG's continuing obligation to indemnify
Xxxxxxxxx or Xxxxxxxx as required by applicable Law; and (ii) Targets'
obligations to repay to Sellers the amounts owing under the Seller Loans, if at
all (subject to and in accordance with Section 7.9), each Seller hereby
releases, acquits, and forever discharges the Targets, all Affiliates, and any
officer, manager, director, fiduciary, agent, employee, representative or
attorney of any Target or any Affiliate, and any successors and assigns of any
of the foregoing (collectively the "Released Parties"), from and against any and
all claims, liabilities, obligations, promises, agreements, controversies,
damages, suits, rights, demands, costs, losses, debts, expenses, or causes of
action of any kind whatsoever, based upon any theory of federal, state or local
statutory, regulatory or common law, and any and all claims and demands of
whatever kind or character, whether vicarious, derivative, or direct, whether
fixed, contingent or liquidated, or whether known or unknown, that may be or
could have been asserted, with respect to such Seller's investment in any
Target. Each Seller (a) makes this waiver and release with full knowledge that
it may be releasing presently unknown or unsuspected claims, (b) has had the
opportunity to be advised by its independent legal counsel with respect to, and
is familiar with Section 1542 of the California Civil Code, which provides as
follows: "A GENERAL RELEASE DOES NOT EXTEND TO CLAIMS WHICH THE CREDITOR DOES
NOT KNOW OR SUSPECT TO EXIST IN HIS OR HER FAVOR AT THE TIME OF EXECUTING THE
RELEASE, WHICH IF KNOWN BY HIM OR HER MUST HAVE MATERIALLY AFFECTED HIS OR HER
SETTLEMENT WITH THE DEBTOR", and (c) expressly waives any and all rights which
it may have under Section 1542 of the California Civil Code, or any other state
or federal statute, regulation or common law principle of similar effect.
[Remainder of Page Intentionally Left Blank]
53
IN WITNESS WHEREOF, this Stock Purchase Agreement has been duly
executed as of the date first above written.
PURCHASER:
NEW FRONTIER MEDIA, INC.,
a Colorado corporation
By: /s/ Xxxxxxx Xxxxxx
---------------------------
Name: Xxxxxxx Xxxxxx
-------------------------
Its: Chief Executive Officer
--------------------------
SELLERS:
MARC XXXXXXXX XXXXXXXXX TRUST
By: /s/ Xxxx Xxxxxxxxx
---------------------------
Name: Xxxx Xxxxxxxxx
--------------------------
Its: Trustee
---------------------------
XXXXXXXX FAMILY TRUST
By: /s/ Xxxxxxx Xxxxxxxx
---------------------------
Name: Xxxxxxx Xxxxxxxx
-------------------------
Its: Trustee
--------------------------
/s/ Marc Xxxxxxxx Xxxxxxxxx
-------------------------------------
Marc Xxxxxxxx Xxxxxxxxx, Individually
/s/ Xxxxxxx X. Xxxxxxxx
---------------------------------
Xxxxxxx X. Xxxxxxxx, Individually
54
