Exhibit 6(a)(i)
SHARE EXCHANGE AGREEMENT
Dated as of September 30, 0000
Xxxxx
XXXX XXXXXX,
XXXXXX PICTURES, INC.
and
THE CINEMASTERS GROUP, INC.
TABLE OF CONTENTS
Page
I. EXCHANGE OF SHARES.....................................................1
1.01 Exchange of Shares...............................1
1.02 Closing..........................................1
II. RELATED MATTERS........................................................2
2.01 Employment Agreement.............................2
2.02 Stockholders Agreement...........................2
2.03 Capital Contribution.............................2
2.04 Xxxx Xxxxxxx Exit Option Agreement...............2
III. CONDITIONS TO CLOSING..................................................2
3.01 Conditions to Xx. Xxxxxx'x Obligations...........2
3.02 Conditions To CineMasters'
Obligations....................................4
3.03 Frustration of Conditions.......................5
IV. REPRESENTATIONS AND WARRANTIES.........................................5
4.01 Representations and Warranties of
CineMasters....................................5
4.02 Representations and Warranties of Xx. Xxxxxx....16
V. COVENANTS ........................................................26
5.01 Mutual Covenants................................26
5.02 Covenants of CineMasters........................29
VI. SURVIVAL OF REPRESENTATIONS; INDEMNIFICATION......................30
6.01 Survival of Representations.....................30
6.02 Agreement of CineMasters to Indemnify...........30
6.03 Agreement of Xx. Xxxxxx to Indemnify............31
6.04 Conditions of Indemnification...................31
6.05 Tax Benefits; Insurance.........................32
6.06 Definition of Closing Price.....................32
VII. TERMINATION; AMENDMENT AND WAIVER.................................33
7.01 Termination of Agreement........................33
7.02 Effect of Termination...........................33
7.03 Amendment, Extension and Waiver.................33
-i-
VIII. MISCELLANEOUS..................................................33
8.01 No Finders.................................33
8.02 Expenses; Taxes............................34
8.03 Further Assurances.........................34
8.04 Parties in Interest........................34
8.05 Entire Agreement...........................34
8.06 Headings...................................34
8.07 Notices....................................34
8.08 Governing Law..............................35
8.09 Counterparts...............................35
8.10 Consent to Jurisdiction....................35
8.11 Exhibits...................................36
EXHIBIT A - Form of Employment Agreement EXHIBIT B - Form of Stockholders
Agreement
EXHIBIT C - Form of Xxxx Xxxxxxx Exit Option Agreement
EXHIBIT D - Form of Opinion of Counsel to CineMasters
EXHIBIT E - Form of Opinion of Counsel to Avenue and Xx. Xxxxxx
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SHARE EXCHANGE AGREEMENT
This SHARE EXCHANGE AGREEMENT (the "Agreement") made and entered into
as of the 30th day of September, 1996, among Xxxx Xxxxxx ("Xx. Xxxxxx"), the
sole shareholder of Avenue Pictures, Inc., a Delaware corporation ("Avenue"),
and The CineMasters Group, Inc., a New York corporation ("CineMasters").
W I T N E S S E T H
WHEREAS, Xx. Xxxxxx is the owner of 25 shares (the "Avenue Shares") of
common stock, no par value (the "Avenue Common Stock"), of Avenue, constituting
all of the issued and outstanding shares of capital stock of Avenue;
WHEREAS, CineMasters wishes to acquire the Avenue Shares in exchange
for 1,425,000 shares (the "CineMasters Shares") of common stock, par value $.01
per share (the "CineMasters Common Stock"), of CineMasters, representing a
significant minority equity position in CineMasters, upon the terms and
conditions set forth below; and
WHEREAS, Xx. Xxxxxx wishes to exchange the Avenue Shares for the
CineMasters Shares, upon the terms and conditions set forth below;
NOW, THEREFORE, in consideration of the aforesaid and the respective
warranties, representations, covenants and agreements hereinafter set forth, the
parties, intending to be legally bound, agree as follows:
I. EXCHANGE OF SHARES
1.01 Exchange of Shares. Upon the terms and subject to the conditions
contained in this Agreement, at the closing provided for in Section 1.02 hereof
(the "Closing"), Xx. Xxxxxx shall exchange all of the Avenue Shares for, and
CineMasters shall issue to Xx. Xxxxxx, all of the CineMasters Shares (the "Share
Exchange").
1.02 Closing. The closing of the transactions contemplated by this
Agreement shall take place on the second business day following the satisfaction
or waiver of all of the conditions to Closing set forth in Article III hereof,
at 10:00 a.m., local time, at the offices of Pryor, Cashman, Xxxxxxx & Xxxxx,
000 Xxxx Xxxxxx, Xxx Xxxx, Xxx Xxxx 00000, or on such other date and at such
other time or place as the parties may mutually agree. The actual date of the
Closing is sometimes referred to herein as the "Closing Date".
II. RELATED MATTERS
2.01 Employment Agreement. On or prior to the Closing Date, Xx. Xxxxxx
shall enter into an Employment Agreement with CineMasters, which Employment
Agreement shall be substantially in the form of Exhibit A hereto (the
"Employment Agreement").
2.02 Stockholders Agreement. On or prior to the Closing Date, each of
National Patent Development Corporation, a Delaware corporation ("National
Patent"), Xxxx Xxxxxxx, Xxxxxx Xxxxxxx, Xxxxxxx St. Xxxx Xxxxxxx and Xxxxxxx
Xxxxxxx (collectively, the "Xxxxxxx Group"), shall enter into a Stockholders
Agreement with Xx. Xxxxxx and CineMasters (the "Stockholders Agreement"), which
Stockholders Agreement shall be substantially in the form of Exhibit B hereto.
2.03 Capital Contribution. On the Closing Date, National Patent,
together with certain of its affiliates, shall contribute $815,000 of assets to
the capital of CineMasters (the "Capital Contribution"). Such assets shall be in
the form of registered stock of a publicly-traded company with a valuation based
upon the closing sales price of such stock as of the last trading day prior to
the Closing Date. Such assets will be contributed to the capital of CineMasters
in exchange for shares of CineMasters Common Stock at a price per share of
$2.00.
2.04 Xxxx Xxxxxxx Exit Option Agreement. On or prior to the Closing
Date, Xxxx Xxxxxxx shall enter in an Exit Option Agreement with CineMasters (the
"Xxxx Xxxxxxx Exit Option Agreement"), which Xxxx Xxxxxxx Exit Option Agreement
shall be substantially in the form of Exhibit C hereto.
III. CONDITIONS TO CLOSING
3.01 Conditions to Xx. Xxxxxx'x Obligations. The obligation of Xx.
Xxxxxx to consummate the Share Exchange is subject to the satisfaction at the
time of the Closing referred to in Section 1.02 hereof of the following
conditions (any or all of which may be waived by Xx. Xxxxxx in Xx. Xxxxxx'x sole
discretion):
(a) No preliminary or permanent injunction or other order of
any court of competent jurisdiction preventing the consummation of the Share
Exchange shall be in effect.
(b) The representations and warranties of CineMasters made in
this Agreement shall be true and correct as of the date of this Agreement and as
of the time of Closing as though made as of such time. CineMasters shall have
performed in all material respects each and every covenant contained in this
Agreement required to be performed by it by the time of the Closing. CineMasters
shall have delivered to Xx. Xxxxxx a certificate dated the Closing Date and
signed by the Chairman of the Board of CineMasters confirming the foregoing.
(c) Xx. Xxxxxx shall have received from CineMasters a duly
executed counterpart of his Employment Agreement, dated as of the Closing Date,
substantially in the form of Exhibit A hereto.
(d) Xx. Xxxxxx shall have received from each member of the
Xxxxxxx Group and from CineMasters a duly executed counterpart of the
Stockholders Agreement, dated as of the Closing Date, substantially in the form
of Exhibit B hereto.
(e) National Patent, together with its affiliates, shall have
made the Capital Contribution.
(f) CineMasters shall have received from Xxxx Xxxxxxx, and
Xxxx Xxxxxxx shall have received from CineMasters, a duly executed counterpart
of the Xxxx Xxxxxxx Exit Option Agreement, dated as of the Closing Date,
substantially in the form of Exhibit C hereto.
(g) CineMasters shall not have suffered any material adverse
change in its business, assets, condition (financial or otherwise), prospects or
results of operations since July 31, 1995.
(h) Xx. Xxxxxx shall have received an opinion, dated the
Closing Date and addressed to Xx. Xxxxxx, of Xxxxxx X. Xxxxxx, Esq., Associate
General Counsel to National Patent, substantially in the form of Exhibit D
hereto.
(i) CineMasters shall have received any and all consents,
approvals, authorizations, exemptions or waivers set forth on Schedule 4.01(d)
hereto and Avenue shall have received any and all consents, approvals,
authorizations, exemptions or waivers set forth on Schedule 4.02(d) hereto, in
each case pursuant to instruments in form and substance reasonably satisfactory
to Xx. Xxxxxx.
(j) CineMasters shall have delivered to Xx. Xxxxxx (i) a
certificate of its corporate secretary or assistant secretary as to (I)
resolutions of its Board of Directors approving and authorizing the execution,
delivery and performance of this Agreement and each of the other agreements and
documents contemplated hereby (collectively, the "Related Documents") of which
CineMasters is a party, and (II) its Certificate of Incorporation and By-laws
and all amendments to date as being in full force and effect, with true, correct
and complete copies of such resolutions, Certificate of Incorporation and
By-laws attached thereto, (ii) an incumbency certificate of its officers
executing this Agreement and the Related Documents of which CineMasters is a
party and (iii) a certificate of good standing of CineMasters, dated as of a
recent date prior to the Closing, issued by the Secretary of State of New York
and of each other state in which CineMasters is qualified to do business.
(k) CineMasters shall have executed and delivered such other
information and documentation as Xx. Xxxxxx and his counsel shall reasonably
request, in form and substance reasonably satisfactory to Xx. Xxxxxx and his
counsel.
(l) The Board of Directors of CineMasters shall have been
reconstituted in accordance with Section 2(a) of the Stockholders Agreement.
3.02 Conditions To CineMasters' Obligations. The obligation of the
CineMasters to consummate the Share Exchange is subject to the satisfaction at
the time of the Closing of the following conditions (any or all of which may be
waived by CineMasters in its sole discretion):
(a) No preliminary or permanent injunction or other order of
any court of competent jurisdiction preventing the consummation of the Share
Exchange shall be in effect.
(b) The representations and warranties of Xx. Xxxxxx made in
this Agreement shall be true and correct as of the date of this Agreement and as
of the time of Closing as though made as of such time. Xx. Xxxxxx and Avenue
shall have performed in all material respects each and every covenant contained
in this Agreement required to be performed by Xx. Xxxxxx and Avenue by the time
of the Closing. Xx. Xxxxxx shall have delivered to CineMasters a certificate
dated the Closing Date confirming the foregoing.
(c) CineMasters shall have received from Xx. Xxxxxx a duly
executed counterpart of the Employment Agreement, dated as of the Closing Date,
substantially in the form of Exhibit A hereto.
(d) CineMasters shall have received from Xx. Xxxxxx a duly
executed counterpart of the Stockholders Agreement, dated as of the Closing
Date, substantially in the form of Exhibit B hereto.
(e) Avenue shall not have suffered any material adverse change
in its business, assets, condition (financial or otherwise), prospects or
results of operations since December 31, 1995.
(f) CineMasters shall have received an opinion, dated the
Closing Date and addressed to CineMasters, of Pryor, Cashman, Xxxxxxx & Xxxxx,
counsel to Xx. Xxxxxx, substantially in the form of Exhibit E hereto.
(g) Avenue shall have received any and all consents,
approvals, authorizations, exemptions or waivers set forth on Schedule 4.02(d)
hereto and CineMasters shall have received any and all consents, approvals,
authorizations, exemptions or waivers set forth on Schedule 4.01(d) hereto, in
each case pursuant to instruments in form and substance reasonably satisfactory
to CineMasters.
(h) Xx. Xxxxxx shall have delivered to CineMasters (i) a
certificate of the corporate secretary or assistant secretary of Avenue as to
(I) its Certificate of Incorporation and By-laws (or equivalent organizational
documents) and all amendments to date as being in full force and effect, with
true, correct and complete copies of such Certificate of Incorporation and
By-laws (or equivalent organizational documents) attached thereto and (ii) a
certificate for good standing of Avenue, dated as of a recent date prior to the
Closing, issued by the Secretary of State of California and of each other state
in which Avenue is qualified to do business.
(i) Xx. Xxxxxx shall have executed and delivered such other
information and documentation as CineMasters and its counsel shall reasonably
request, in form and substance reasonably satisfactory to CineMasters and its
counsel.
(j) The Board of Directors of CineMasters shall have been
reconstituted in accordance with Section 2(a) of the Stockholders Agreement.
3.03 Frustration of Conditions. No party may rely upon the failure of
any condition set forth in this Article III to be satisfied if such failure was
caused by such party's failure to act in good faith or to use its best efforts
to cause the Closing to occur.
IV. REPRESENTATIONS AND WARRANTIES
4.01 Representations and Warranties of CineMasters. CineMasters hereby
represents and warrants to Xx. Xxxxxx follows:
(a) Organization. CineMasters is a corporation duly organized,
validly existing and in good standing under the laws of the state of New York.
CineMasters has all requisite power and authority to enable it to own, lease or
otherwise hold its properties and assets and to carry on its business as
presently conducted. CineMasters is duly qualified and in good standing to do
business in each jurisdiction in which the nature of its business or the
ownership, leasing or holding of its properties makes such qualification
necessary, except where the absence of such qualifications, individually or in
the aggregate, would not have a material adverse effect on the business, assets,
condition (financial or otherwise), prospects or results of operations of
CineMasters (a "CineMasters Material Adverse Effect"). A list of the
jurisdictions in which CineMasters is so qualified is set forth on Schedule
4.01(a) hereto. The stock certificate and transfer books and minute books of
CineMasters (all of which have been made available for inspection by Xx. Xxxxxx)
are true and complete.
(b) Authorization. Except to the extent that stockholder
approval is required to amend the CineMasters 1995 Non-Qualified Stock Option
Plan (the "1995 Plan"), CineMasters has all requisite power and authority to
enter into this Agreement and the Related Documents of which it is a party, and
to consummate the transactions contemplated hereby and thereby. Except to the
extent that stockholder approval is required to amend the 1995 Plan, all acts
and other proceedings required to be taken by CineMasters to authorize the
execution, delivery and performance of this Agreement and the Related Documents
of which it is a party, and the consummation of the transactions contemplated
hereby and thereby have been duly and properly taken.
(c) Valid and Binding Agreement. Each of this Agreement and
each of the Related Documents of which CineMasters is a party, constitutes a
valid and binding obligation of CineMasters, enforceable against CineMasters in
accordance with its terms, except that (i) such enforcement may be limited by or
subject to any bankruptcy, insolvency, reorganization, moratorium or similar
laws now or hereafter in effect relating to or limiting creditors' rights
generally and (ii) the remedy of specific performance and injunctive and other
forms of equitable relief are subject to certain equitable defenses and to the
discretion of the court before which any proceeding therefor may be brought.
(d) No Violation. The execution and delivery of this Agreement
and the Related Documents of which it is a party by CineMasters does not, and
the consummation of the transactions contemplated hereby and thereby and
compliance with the terms hereof and thereof will not (subject to obtaining any
required consents, approvals, authorizations, exemptions or waivers set forth on
Schedule 4.01(d) hereto), conflict with, or result in any violation of or
default (with or without notice or lapse of time, or both) under, or give rise
to a right of termination, cancellation or acceleration of any obligation or to
loss of a material benefit under or result in the creation of any lien, claim,
encumbrance, security interest, option, charge or restriction of any kind upon
any of the properties or assets of CineMasters under, any provision of (i) the
Certificate of Incorporation or By-laws of CineMasters, (ii) any note, bond,
mortgage, indenture, deed of trust, license, lease, contract, commitment or
agreement to which CineMasters is a party or by which any of its properties or
assets are bound, or (iii) any judgment, order, decree, statute, law, ordinance,
rule or regulation applicable to CineMasters or any of its property or assets,
excluding from the foregoing clauses (ii) and (iii) such conflicts, violations,
defaults, rights or restrictions which would not, individually or in the
aggregate, have a CineMasters Material Adverse Effect. No consent, approval,
license, permit, order or authorization of, or registration, declaration or
filing with, any court, administrative agency or commission or other
governmental authority or instrumentality, domestic or foreign, or any other
third party is required to be obtained or made by or with respect to CineMasters
or any of its affiliates in connection with the execution and delivery of this
Agreement or any of the Related Documents or the consummation of the
transactions contemplated hereby or thereby, other than as set forth on Schedule
4.01(d) hereto.
(e) The CineMasters Shares. CineMasters Shares, when issued
and delivered by CineMasters pursuant to this Agreement, will be duly
authorized, validly issued, fully paid and nonassessable and will be free of
preemptive and subscription rights. Upon delivery to Xx. Xxxxxx at the Closing
of one or more certificates representing the CineMasters Shares to be acquired
by Xx. Xxxxxx and upon CineMasters' receipt of the Avenue Shares, good and valid
title to such CineMasters Shares will pass to Xx. Xxxxxx, free and clear of any
liens, claims, encumbrances, security interests, options, charges and
restrictions of any kind, except for (i) transfer restrictions contained in the
Stockholders Agreement and (ii) any liens, claims, encumbrances, security
interests, options, charges and restrictions that are caused by acts or
omissions on the part of Xx. Xxxxxx. No stock transfer taxes are due as a result
of the issuance of the CineMasters Shares.
(f) Capital Stock of CineMasters. (i) The authorized and
issued capital stock of CineMasters consists of (A) 5,000,000 shares of common
stock, par value $.01 per share, of which 1,838,338 shares are issued and
outstanding and no shares are held in CineMasters' treasury and (B) 10,000
shares of Class B Common Stock, no par value, none of which are issued and
outstanding. As of the date hereof, there are outstanding options (the
"Options") to purchase 317,500 shares of CineMasters Common Stock. All issued
and outstanding shares of capital stock of CineMasters have been duly authorized
and validly issued and are fully paid and nonassessable. No shares of capital
stock of CineMasters have been issued in violation of any preemptive or
subscription rights and no such shares are subject to any preemptive or
subscription rights.
(ii) Except as set forth in this Section 4.01(f), there are
no shares of capital stock or other equity securities of CineMasters outstanding
and there are no outstanding warrants, options, agreements, convertible or
exchangeable securities or other commitments pursuant to which CineMasters is or
may become obligated to issue, sell, purchase, return or redeem any shares of
capital stock or other securities of CineMasters. There are no equity securities
of CineMasters reserved for issuance for any purpose, except for 600,000 shares
of CineMasters Common Stock reserved for issuance upon exercise of the
outstanding Options.
(iii) Except as provided in the Xxxx Xxxxxxx Exit Option
Agreement and the Stockholders Agreement, there are no rights of first refusal,
tag-along rights or similar rights with respect to the capital stock of
CineMasters triggered by the execution and delivery of this Agreement or any of
the Related Documents or the consummation of the transactions contemplated
hereby or thereby.
(g) Equity Interests. Except as set forth on Schedule 4.01(g)
hereto, CineMasters does not directly or indirectly own any capital stock of or
other equity interests in any corporation, partnership or other entity or have
any direct or indirect equity interest in any business.
(h) Shareholder Reports; Financial Statements. CineMasters has
furnished to Xx. Xxxxxx true, correct and complete copies of its Annual Report
for the fiscal years ended July 31, 1993, 1994 and 1995 (collectively, the
"Annual Reports") and its Proxy Statements dated February 18, 1994, January 12,
1995 and March 25, 1996 (collectively, the "Proxy Statements") (all such Annual
Reports and Proxy Statements being collectively called the "Shareholder
Reports"). With respect to the Sections entitled "Principal Stockholders" and
"Election of Directors" in the Proxy Statement dated March 25, 1996, the
information contained therein was complete and correct in all material respects
as of its date and, as of its date, did not contain any untrue statement of
material fact or omit to state a material fact required to be stated therein or
necessary in order to make the statements made therein, in light of the
circumstances under which they were made, not misleading. The financial
statements included within the Shareholder Reports (the "Financial Statements")
have been prepared in accordance with generally accepted accounting principles
applied on a consistent basis during the periods involved (except as may be
indicated in the notes thereto) and present fairly the financial position of
CineMasters as at the dates thereof and the results of its operations and cash
flows for the periods then ended. Except as set forth in CineMasters' Annual
Report for the fiscal year ended July 31, 1995 or on Schedule 4.01(h) hereto,
there are no ongoing transactions between CineMasters and any affiliate thereof.
On August 31, 1996, certain affiliates and employees of National Patent
contributed $185,000 to the capital of CineMasters in exchange for 123,338
shares of CineMasters Common Stock. As of September 30, 1996, the accrued salary
and vacation pay of CineMasters was $185,000. No amounts have been paid with
respect to the obligations represented by such accruals since August 31, 1996
and such obligations represented by such accruals will be cancelled on or before
the Closing Date without the payment of any consideration by CineMasters.
(i) Undisclosed Liabilities. CineMasters does not have any
liabilities or obligations of any nature (whether accrued, absolute, contingent,
unasserted or otherwise), except (i) as disclosed in the Financial Statements,
(ii) for liabilities or obligations disclosed on Schedule 4.01(i) hereto or
(iii) for liabilities and obligations incurred in the ordinary course of
business consistent with past practice since July 31, 1995, and not in violation
of this Agreement.
(j) Taxes. (i) For purposes of this Agreement, (A) "Tax" or
"Taxes" shall mean all Federal, state, county, local, foreign and other taxes,
assessments, duties or similar governmental charges of any kind whatsoever,
including, without limitation, corporate franchise, income, sales, use, ad
valorem, gross receipts, value added, profits, license, withholding, payroll,
employment, excise, property, customs and occupation taxes and including,
without limitation, any interest, penalties and additions imposed with respect
to such amounts and (B) "Code" shall mean the Internal Revenue Code of 1986, as
amended.
(ii) Except as set forth on Schedule 4.01(j) hereto:
(A) Since January 1, 1988, CineMasters, each predecessor of
CineMasters, and each consolidated, affiliated, combined, unitary or aggregate
group of which CineMasters or any such predecessor is or has been a member, has
timely filed with the appropriate Tax authorities all Tax returns, reports,
estimates, information returns and statements, including any related or
supporting information, ("Tax Returns"), required to be filed through the date
hereof and has paid all Taxes shown to be due with respect to the taxable
periods covered by such Tax Returns. All such Tax Returns are true, complete and
correct in all material respects. All other Taxes of CineMasters, or for which
CineMasters is or shall otherwise be directly or indirectly liable (including
amounts attributable to wage withholding), have either been timely paid or are
reflected as a liability on the Balance Sheet (as defined in Section 4.01(k)
hereof). No statute of limitations has been waived, nor any extension of time
agreed to, with respect to the assessment of any Tax of CineMasters, or for
which CineMasters is or may otherwise be directly or indirectly liable.
(B) There are no pending audits with respect to the Tax
Returns of CineMasters and any deficiencies resulting from any past audits have
been paid and no material issues were raised in writing by the relevant Tax
authority during any past audits that may apply to taxable periods after the
taxable period to which such audit related. No action or proceeding has been
brought or has been threatened to be brought by any Tax authority, nor has any
claim been asserted or threatened to be asserted by any Tax authority, with
respect to any Taxes of CineMasters, or for which CineMasters is or may
otherwise be directly or indirectly liable which could have a CineMasters
Material Adverse Effect.
(C) No Tax liens have been filed by any Tax authority
against any property or assets of CineMasters, except for liens that have been
satisfied or statutory liens for current Taxes not yet delinquent.
(D) There are no Tax sharing or Tax indemnity agreements to
which CineMasters is a party.
(k) Title to Assets. (i) Except as provided in the Xxxx
Xxxxxxx Exit Option Agreement, CineMasters has good and valid title to all
assets reflected on the balance sheet of CineMasters as at July 31, 1995
included in the CineMasters Annual Report for the fiscal year ended July 31,
1995 (the "Balance Sheet"), or thereafter acquired, except those since sold or
otherwise disposed of in the ordinary course of business consistent with past
practice and not in violation of this Agreement, in each case free and clear of
all liens, security interests, pledges, charges, encumbrances or restrictions of
any nature whatsoever, except:
(A) all such as are disclosed on Schedule 4.01(k) hereto;
(B) mechanics', carriers', workmen's, repairmen's or other
like liens arising or incurred in the ordinary course of business, liens arising
under original purchase price conditional sales contracts and equipment leases
with third parties entered into in the ordinary course of business and statutory
liens for current Taxes which are not yet delinquent;
(C) liens, security interests, pledges, charges,
encumbrances and restrictions which secure debt that is reflected as a liability
on the Balance Sheet and the existence of which is indicated in the notes
thereto; and
(D) other encumbrances, restrictions or imperfections of
title, if any, which other encumbrances, restrictions or imperfections of title
do not, individually or in the aggregate, materially impair the continued use
and operation of the assets to which they relate in the business of CineMasters
as presently conducted (the liens, security interests, pledges, charges,
encumbrances, restrictions and other imperfections of title described in clauses
(A), (B), (C) and (D) above are hereinafter referred to collectively as
"Permitted Liens").
(ii) All leased property of CineMasters is in the condition
required of such property by the terms of the lease applicable thereto during
the term of the lease and upon the expiration thereof.
(l) Intellectual Property. Schedule 4.01(l) sets forth a true
and complete list of all material patents, trademarks (registered or
unregistered), trade names, service marks, registered copyrights and
applications therefor and other material intellectual property rights, whether
or not subject to statutory registration or protection ("Intellectual Property
Rights") owned, used or filed by or licensed to CineMasters. Schedule 4.01(l)
hereto specifies for each Intellectual Property Right listed thereon whether
such right is owned or licensed and, in the case of licensed rights, lists the
relevant license agreement. With respect to registered trademarks, Schedule
4.01(l) hereto specifies all jurisdictions in which such trademarks are
registered or applied for and all registration and application numbers. Except
as disclosed on Schedule 4.01(l) hereto, CineMasters owns, free and clear of all
liens, security interests or encumbrances whatsoever, all Intellectual Property
Rights listed on Schedule 4.01(l) hereto as owned by CineMasters and, to the
best knowledge of CineMasters, has the right to use, without payment to any
other party, all other Intellectual Property Rights required to be listed on
Schedule 4.01(l) hereto, and the consummation of the transactions contemplated
hereby will not alter or impair any such rights. Except as disclosed on Schedule
4.01(l) hereto, no claims are pending or, to the best knowledge of CineMasters,
threatened by any person against CineMasters with respect to the ownership,
validity, enforceability or use of any Intellectual Property Rights or, to the
best knowledge of CineMasters, otherwise challenging or questioning the validity
or effectiveness of any of such rights.
(m) Insurance. CineMasters maintains policies of fire and
casualty, liability, errors and omissions and other forms of insurance in such
amounts, with such deductibles and against such risks and losses, as are
consistent with industry standards and will continue such insurance in effect
after the Closing. The insurance policies currently maintained with respect to
CineMasters and its assets and properties are listed on Schedule 4.01(m) hereto.
All such policies are in full force and effect, all premiums due and payable
thereon have been paid and no written or oral notice of cancellation or
termination has been received with respect to any such policy which was not
replaced on substantially similar terms prior to the date of such cancellation.
(n) Absence of Changes or Events. Except as disclosed on
Schedule 4.01(n) hereto, since July 31, 1995, there has not been any material
adverse change in the business, assets, condition (financial or otherwise),
prospects or results of operations of CineMasters. Except as disclosed on
Schedule 4.01(n) hereto, since July 31, 1995, (i) the business of CineMasters
has been conducted in the ordinary course and in substantially the same manner
as previously conducted and (ii) CineMasters has not taken any action that, if
taken after the date hereof, would constitute a breach of any of the covenants
set forth in Section 5.01(b) hereof.
(o) Employee and Labor Relations. Except as set forth on
Schedule 4.01(o) hereto, (i) no collective bargaining agreement presently covers
(nor has any, in the three years immediately preceding the date hereof, covered)
any employee of CineMasters, nor is any currently being negotiated by
CineMasters and, to the best knowledge of CineMasters, no attempt to organize
any group or all of the employees of CineMasters has been made or proposed; (ii)
there is no labor strike, dispute, slowdown or stoppage actually pending or, to
the best knowledge of CineMasters, threatened against or involving CineMasters;
(iii) CineMasters is in compliance in all material respects with all federal,
state and local laws respecting employment and employment practices, terms and
conditions of employment and wages and hours, and is not engaged in any unfair
labor practice; (iv) there is no unfair labor practice complaint against
CineMasters pending or, to the best knowledge of CineMasters, threatened before
the National Labor Relations Board; (v) no charge or grievance with respect to
or relating to the employees of CineMasters is pending before the Equal
Employment Opportunity Commission or any state, local or foreign agency
responsible for the prevention of unlawful practices; (vi) CineMasters has not
received any notice of the intent of any federal, state, local or foreign agency
responsible for the enforcement of labor or employment laws to conduct an
investigation of or relating to CineMasters with respect to its employee and, to
the best knowledge of CineMasters, no such investigation is in progress; (vii)
no private agreement restricts CineMasters from relocating, closing or
terminating any of its operations or facilities; and (viii) CineMasters has not
in the past five years experienced any work stoppage or other labor difficulty
or, to the best of its knowledge, committed any unfair labor practice.
(p) Fixed and Other Tangible Assets. Except as set forth on
Schedule 4.01(p) hereto, all fixed and other tangible assets of CineMasters (the
"CineMasters Fixed Assets") are (i) structurally sound, (ii) in good operating
condition and repair and (iii) not in need of maintenance or repairs, except for
ordinary, routine maintenance and repairs. During the past three years, there
has not been any significant interruption of the operations of CineMasters due
to inadequate maintenance of the CineMasters Fixed Assets.
(q) Licenses; Permits. All licenses, permits and
authorizations issued or granted by Federal, state, local or foreign
governmental authorities or agencies which are necessary or desirable for the
conduct of CineMasters' business are validly held by CineMasters, except for
such licenses, permits and authorizations the failure of which to hold would not
have a CineMasters Material Adverse Effect. CineMasters has complied in all
material respects with all requirements in connection therewith and the same
will not be subject to suspension, modification or revocation as a result of
this Agreement or any of the Related Documents or the consummation of the
transactions contemplated hereby or thereby.
(r) Litigation. Except as set forth on Schedule 4.01(r)
hereto, there is no legal proceeding, claim, or action of any nature pending or,
to the best knowledge of CineMasters, threatened, which questions or challenges
the validity of this Agreement or any of the Related Documents with respect to
CineMasters or any action taken or to be taken by CineMasters pursuant to this
Agreement or any of the Related Documents or in connection with the transactions
contemplated hereby or thereby. Except as set forth on Schedule 4.01(r) hereto,
there is no legal proceeding, claim, or action of any nature pending or, to the
best knowledge of CineMasters, threatened, which could have a CineMasters
Material Adverse Effect.
(s) Compliance With Law. The operations of CineMasters are in
compliance in all material respects with all applicable laws, regulations,
permits, authorizations and other governmental orders including, without
limitation, applicable safety (including OSHA), environmental, antipollution,
building, zoning or health laws, ordinances and regulations.
(t) Contracts. Except as set forth on Schedule 4.01(t) hereto,
CineMasters is not a party to any contract, commitment, arrangement or
understanding involving payments to or from CineMasters which exceed $75,000
over the remaining life of such contract and which are not cancelable without
penalty or premium by CineMasters on 60 days notice or less. All of the
contracts, commitments, arrangements and understandings listed on Schedule 4.01
(t) hereto (collectively, the "Contracts") are in full force and effect with no
material defaults by any party thereto and there are no oral or collateral
agreements modifying any of the Contracts. Except as set forth on Schedule
4.01(r) hereto, all of the Contracts are arms-length transactions between
unrelated parties entered into in the ordinary course of business.
(u) Employee Benefit Plans; ERISA.
(i) Schedule 4.01(u) hereto contains an accurate and
complete description of each employment, consulting, bonus, deferred
compensation, incentive compensation, severance or termination pay, disability
hospitalization or other medical, dental, vision, life or other insurance, stock
purchase, stock option, stock appreciation, stock award, pension, profit
sharing, 401(k) or retirement plan, agreement or arrangement, and each other
employee benefit plan or arrangement, whether formal or informal, written or
oral, tax-qualified under the Code or non-qualified, whether covered by the
Employee Retirement Income Security Act of 1974, as amended ("ERISA"), or not,
maintained or contributed to by CineMasters covering its employees, former
employees, retirees or sales personnel (collectively, "Plans"). In addition,
Schedule 4.01(u) hereto contains an accurate and complete description of any
amounts payable, or which will become payable, under any former pension, profit
sharing, 401(k) or retirement plan, agreement or arrangement, to any
participant, beneficiary or any other third party. Any Plan maintained by
CineMasters that has subsequently been terminated, was terminated in compliance
with the requirements of the Code and ERISA and the liabilities under such plan
were fully satisfied. CineMasters does not have any formal plan or commitment,
whether covered by ERISA or not, to create any additional plan, agreement or
arrangement or to modify or change any existing Plan that would affect any of
its employees, former employees, retirees or sales personnel. CineMasters has
heretofore delivered to Xx. Xxxxxx true and complete copies of the Plans, the
trusts and other contracts (including any amendments to any of the foregoing)
relating to the Plans and all other relevant documents governing or relating to
the Plans in effect on the date hereof (including without limitation, the latest
summary plan description, the latest annual report (and all attachments) filed
with the Internal Revenue Service ("IRS") with respect to each of the Plans, and
the latest favorable determination letter issued by the IRS for each of the
Plans as applicable).
(ii) Except as set forth on Schedule 4.01(u) hereto,
CineMasters does not maintain, nor has it ever maintained, any "employee pension
benefit plan", as such term is defined in Section 3(2) of the ERISA, and the
rules and regulations promulgated thereunder, covering its employees, former
employees or retirees, including but not limited to, any non-qualified
retirement or deferred compensation plan. CineMasters does not maintain, nor has
it ever maintained or contributed to, a "multiemployer plan", as that term is
defined in Section 3(37) of ERISA. CineMasters is not currently responsible for
any "withdrawal liability" as that term is defined in Section 4201 of ERISA with
respect to any multi-employer plan. None of CineMasters, any of the Plans, any
trust created thereunder, or any trustee or administrator thereof has engaged in
a transaction involving any of the Plans in connection with which CineMasters or
any of the Plans, any such trust, or any trustee or administrator thereof, or
any other party dealing with the Plans or any such trust, could be subject to
either a civil penalty assessed pursuant to Section 502(i) of ERISA, or a tax
imposed by Section 4975 of the Code.
(iii) Full payment has been made of all amounts which
CineMasters is required to pay under the terms of the Plans as a contribution to
such Plans as of the last day of the most recent fiscal year of each of the
Plans ended prior to the date of this Agreement.
(iv) Each of the Plans is and has been operated and
administered in all material respects in accordance with applicable laws,
including but not limited to, ERISA and the Code. Except as set forth on
Schedule 4.01(u) hereto, each Plan subject to Section 401(a) of the Code has
received a favorable determination from the IRS that the Plan satisfies the
requirements of Section 401(a) of the Code for the Plan to be tax-qualified, and
no facts exist which could reasonably be expected to adversely affect the
tax-qualified status of any such Plan.
(v) There are no pending, or to the best knowledge of
CineMasters, threatened or anticipated claims, litigation, administrative
actions or proceedings against or otherwise involving any of the Plans or
related trusts, or any fiduciary thereof, by or on behalf of the Plans by any
employee or beneficiary covered under the Plans, or otherwise involving the
Plans. There is no judgment, decree, injunction, rule or order of any court,
governmental body, commission, agency or arbitrator outstanding against or in
favor of any Plan or any fiduciary thereof in that capacity. The assets of
CineMasters are not, and will not, either as a result of any circumstances
existing prior to the Closing Date or as a result of the consummation of the
transactions contemplated by this Agreement or any of the Related Documents, be
subject to any claims under any Plan maintained by CineMasters or in which
employees, former employees or retirees of CineMasters participate.
(vi) Except as set forth in Schedule 4.01(u) hereto, each
Plan that is an employee welfare benefit plan providing health benefits to
retirees may be terminated at any time after the Closing Date without liability
to CineMasters other than liabilities relating to claims incurred prior to the
effective date of the termination of such Plan.
(vii) CineMasters has not engaged in any transaction, failed
to make any required contribution, committed any act or omission or otherwise
incurred any liability for any excise tax under Sections 4971 through 4980B of
the Code, inclusive.
(v) Program Library. Except as contemplated hereby, or in the
Xxxx Xxxxxxx Exit Option Agreement CineMasters owns all right, title and
interest in and to the program library described on Schedule 4.01(v) hereto (the
"CineMasters Library"), free and clear of any and all liens, security interests
or encumbrances whatsoever. To the best knowledge of CineMasters, the use and
exploitation of the CineMaster Library does not and will not violate or infringe
upon any copyright, right of privacy, trademark, patent, trade name, performing
right or any literary, dramatic, musical, artistic, personal, private, several,
contract or copyright or any other right of any person or entity. The
CineMasters Library does not contain any libelous or slanderous material other
than to an extent which is not material.
(w) Disclosure. No representation or warranty expressly made
by CineMasters contained in this Agreement, and no statement contained in any
document, certificate or Schedule furnished or to be furnished by or on behalf
of CineMasters to Xx. Xxxxxx or Avenue or any of their representatives pursuant
to this Agreement contains or will contain any untrue statement of a material
fact or omits or will omit to state any material fact necessary, in light of the
circumstances under which it was or will be made, in order to make the
statements herein or therein not misleading or necessary in order to fully and
fairly provide the information required to be provided in any such document,
certificate or Schedule.
4.02 Representations and Warranties of Xx. Xxxxxx. Xx.Xxxxxx
hereby represents and warrants to CineMasters follows:
(a) Organization. Each of Avenue and the active wholly-owned
subsidiaries of Avenue listed on Schedule 4.02(a) hereto (collectively, the
"Subsidiaries") is a corporation duly organized, validly existing and in good
standing under the laws of their respective states of incorporation. Schedule
4.02(a) sets forth a true and complete list of the respective states of
incorporation of Avenue and its Subsidiaries. Each of Avenue and its
Subsidiaries has all requisite power and authority to enable it to own, lease or
otherwise hold its respective properties and assets and to carry on its
respective business as presently conducted. Each of Avenue and its Subsidiaries
is duly qualified and in good standing to do business in each jurisdiction in
which the nature of its business or the ownership, leasing or holding of its
properties makes such qualification necessary, except where the absence of such
qualifications, individually or in the aggregate, would not have a material
adverse effect on the business, assets, condition (financial or otherwise),
prospects or results of operations of Avenue and its Subsidiaries, taken as a
whole (an "Avenue Material Adverse Effect"). A list of the jurisdictions in
which Avenue and/or its Subsidiaries is so qualified is set forth on Schedule
4.02(a) hereto. The stock certificate and transfer books and minute books of
Avenue and its Subsidiaries (all of which have been made available for
inspection by CineMasters) are true and complete.
(b) Authorization. Avenue has all requisite power and
authority to enter into this Agreement and the Related Documents of which they
are a party, and to consummate the transactions contemplated hereby and thereby.
All acts and other proceedings required to be taken by Avenue to authorize the
execution, delivery and performance of this Agreement and the Related Documents
of which they are a party, and the consummation of the transactions contemplated
hereby and thereby have been duly and properly taken.
(c) Valid and Binding Agreement. Each of this Agreement and
each of the Related Documents of which Avenue and/or Xx. Xxxxxx is a party,
constitutes a valid and binding obligation of Avenue and/or Xx. Xxxxxx,
enforceable against Avenue and/or Xx. Xxxxxx in accordance with its terms,
except that (i) such enforcement may be limited by or subject to any bankruptcy,
insolvency, reorganization, moratorium or similar laws now or hereafter in
effect relating to or limiting creditors' rights generally and (ii) the remedy
of specific performance and injunctive and other forms of equitable relief are
subject to certain equitable defenses and to the discretion of the court before
which any proceeding therefor may be brought.
(d) No Violation. The execution and delivery of this Agreement
and the Related Documents of which Avenue is a party by Avenue does not, and the
consummation of the transactions contemplated hereby and thereby and compliance
with the terms hereof and thereof will not (subject to obtaining any required
consents, approvals, authorizations, exemptions or waivers set forth on Schedule
4.02(d) hereto), conflict with, or result in any violation of or default (with
or without notice or lapse of time, or both) under, or give rise to a right of
termination, cancellation or acceleration of any obligation or to loss of a
material benefit under or result in the creation of any lien, claim,
encumbrance, security interest, option, charge or restriction of any kind upon
any of the properties or assets of Avenue and/or its Subsidiaries under, any
provision of (i) the Certificate of Incorporation or By-laws or comparable
governing instruments of Avenue and/or its Subsidiaries, (ii) any note, bond,
mortgage, indenture, deed of trust, license, lease, contract, commitment or
agreement to which Avenue and/or its Subsidiaries is a party or by which any of
their respective properties or assets are bound, or (iii) any judgment, order,
decree, statute, law, ordinance, rule or regulation applicable to Avenue and/or
its Subsidiaries or any of their respective properties or assets, excluding from
the foregoing clauses (ii) and (iii) such conflicts, violations, defaults,
rights or restrictions which would not, individually or in the aggregate, have
an Avenue Material Adverse Effect. No consent, approval, license, permit, order
or authorization of, or registration, declaration or filing with, any court,
administrative agency or commission or other governmental authority or
instrumentality, domestic or foreign, or any other third party is required to be
obtained or made by or with respect to Avenue and/or its Subsidiaries or any of
their respective affiliates in connection with the execution and delivery of
this Agreement or any of the Related Documents or the consummation of the
transactions contemplated hereby or thereby, other than as set forth on Schedule
4.02(d) hereto.
(e) The Avenue Shares. Upon delivery to CineMasters at the
Closing of one or more certificates representing the Avenue Shares to be
acquired by CineMasters and upon Xx. Xxxxxx'x receipt of the CineMasters Shares,
good and valid title to such Avenue Shares will pass to CineMasters, free and
clear of any liens, claims, encumbrances, security interests, options, charges
and restrictions of any kind except for any liens, claims, encumbrances,
security interests, options, charges and restrictions that are caused by acts or
omissions on the part of CineMasters. No stock transfer taxes are due as a
result of the transfer of the Avenue Shares.
(f) Capital Stock of Avenue and the Subsidiaries. (i) The
authorized capital stock of Avenue consists of 1,500 shares of common stock, no
par value of which 25 shares are issued and outstanding and held by Xx. Xxxxxx
and, no shares are held in Avenue's treasury. The authorized and issued capital
stock of each of the Subsidiaries consists of the shares of common stock and, if
applicable, the shares of preferred stock, set forth opposite the name of each
such Subsidiary on Schedule 4.02(f) hereto. All issued and outstanding shares of
capital stock of Avenue and each of the Subsidiaries have been duly authorized
and validly issued and are fully paid and nonassessable. No shares of capital
stock of Avenue or any of the Subsidiaries have been issued in violation of any
preemptive or subscription rights and no such shares are subject to any
preemptive or subscription rights.
(ii) Except as set forth in this Section 4.02(f), there are no
shares of capital stock or other equity securities of Avenue or any of the
Subsidiaries outstanding and there are no outstanding warrants, options,
agreements, convertible or exchangeable securities or other commitments pursuant
to which Avenue or any of the Subsidiaries is or may become obligated to issue,
sell, purchase, return or redeem any shares of capital stock or other securities
of Avenue or any of the Subsidiaries, respectively. There are no equity
securities of Avenue or any of the Subsidiaries reserved for issuance for any
purpose.
(iii) There are no rights of first refusal, tag-along rights or
similar rights with respect to the capital stock of Avenue or any of the
Subsidiaries triggered by the execution and delivery of this Agreement or any of
the Related Documents or the consummation of the transactions contemplated
hereby or thereby.
(iv) All of the issued and outstanding capital stock of each of
the Subsidiaries listed on Schedule 4.02(a) is owned by Avenue, free and clear
of any liens, claims, encumbrances, security interests, options, charges and
restrictions of any kind.
(g) Equity Interests. Except for its Subsidiaries and as set
forth on Schedule 4.02(g) hereto, Avenue does not directly or indirectly own any
capital stock of or other equity interests in any corporation, partnership or
other entity or have any direct or indirect equity interest in any business.
(h) Financial Statements. Xx. Xxxxxx has previously delivered
to CineMasters unaudited consolidated balance sheets of Avenue and its
Subsidiaries as at December 31, 1993, 1994 and 1995, and the related unaudited
consolidated statements of income and cash flows of Avenue for the twelve-month
periods then ended (collectively, the "Financial Statements"). Except as set
forth on Schedule 4.02(h) hereto, the Financial Statements have been prepared in
accordance with generally accepted accounting principles applied on a consistent
basis during the periods involved (except as may be indicated in the notes
thereto), are correct and complete in all material respects and present fairly
the consolidated financial position of Avenue and its Subsidiaries as at the
dates thereof and the consolidated results of their operations and cash flows
for the periods then ended. Except as set forth on Schedule 4.02(h) hereto,
there are no ongoing transactions between Avenue and its Subsidiaries, on the
one hand, and any affiliate thereof, on the other hand. As of August 31, 1996,
the accrued salary and vacation pay of Avenue was $211,710. No amounts have been
paid with respect to the obligations represented by such accruals since August
31, 1996 and such obligations represented by such accruals will be cancelled on
or before the Closing Date without the payment of any consideration by Avenue.
(i) Undisclosed Liabilities. Neither Avenue nor any of its
Subsidiaries has any liabilities or obligations of any nature (whether accrued,
absolute, contingent, unasserted or otherwise), except (i) as disclosed in the
Financial Statements, (ii) for liabilities or obligations disclosed on Schedule
4.02(i) hereto or (iii) for liabilities and obligations incurred in the ordinary
course of business consistent with past practice since December 31, 1995, and
not in violation of this Agreement.
(j) Taxes. (i) For purposes of this Agreement, (A) "Tax" or
"Taxes" shall mean all Federal, state, county, local, foreign and other taxes,
assessments, duties or similar governmental charges of any kind whatsoever,
including, without limitation, corporate franchise, income, sales, use, ad
valorem, gross receipts, value added, profits, license, withholding, payroll,
employment, excise, property, customs and occupation taxes and including,
without limitation, any interest, penalties and additions imposed with respect
to such amounts and (B) "Code" shall mean the Internal Revenue Code of 1986, as
amended.
(ii) Except as set forth on Schedule 4.02(j) hereto:
(A) Since January 1, 1988, Avenue, each predecessor of Avenue,
each of its Subsidiaries and each consolidated, affiliated, combined, unitary or
aggregate group of which Avenue, its Subsidiaries or any such predecessor is or
has been a member, has timely filed with the appropriate Tax authorities all Tax
returns, reports, estimates, information returns and statements, including any
related or supporting information, ("Tax Returns"), required to be filed through
the date hereof and has paid all Taxes shown to be due with respect to the
taxable periods covered by such Tax Returns. All such Tax Returns are true,
complete and correct in all material respects. All other Taxes of Avenue and its
Subsidiaries, or for which Avenue or any of its Subsidiaries is or shall
otherwise be directly or indirectly liable (including amounts attributable to
wage withholding), have either been timely paid or are reflected as a liability
on the Balance Sheet (as defined in Section 4.02(k) hereof). No statute of
limitations has been waived, nor any extension of time agreed to, with respect
to the assessment of any Tax of Avenue or any of its Subsidiaries, or for which
Avenue or any of its Subsidiaries is or may otherwise be directly or indirectly
liable.
(B) There are no pending audits with respect to the Tax Returns
of Avenue or any of its Subsidiaries and any deficiencies resulting from any
past audits have been paid and no material issues were raised in writing by the
relevant Tax authority during any past audits that may apply to taxable periods
after the taxable period to which such audit related. No action or proceeding
has been brought or has been threatened to be brought by any Tax authority, nor
has any claim been asserted or threatened to be asserted by any Tax authority,
with respect to any Taxes of Avenue or any of its Subsidiaries, or for which
Avenue or any of its Subsidiaries is or may otherwise be directly or indirectly
liable which could have an Avenue Material Adverse Effect.
(C) No Tax liens have been filed by any Tax authority against any
property or assets of Avenue or any of its Subsidiaries, except for liens that
have been satisfied or statutory liens for current Taxes not yet delinquent.
(D) There are no Tax sharing or Tax indemnity agreements to which
Avenue or any of its Subsidiaries is a party.
(k) Title to Assets. (i) Avenue and/or its Subsidiaries has good
and valid title to all of the assets reflected on the consolidated balance sheet
of Avenue and its Subsidiaries as at December 31, 1995 (the "Balance Sheet"), or
thereafter acquired, except those since sold or otherwise disposed of in the
ordinary course of business consistent with past practice and not in violation
of this Agreement, in each case free and clear of all liens, security interests,
pledges, charges, encumbrances or restrictions of any nature whatsoever, except:
(A) all such as are disclosed on Schedule 4.02(k) hereto;
(B) mechanics', carriers', workmen's, repairmen's or other like
liens arising or incurred in the ordinary course of business, liens arising
under original purchase price conditional sales contracts and equipment leases
with third parties entered into in the ordinary course of business and statutory
liens for current Taxes which are not yet delinquent;
(C) liens, security interests, pledges, charges, encumbrances and
restrictions which secure debt that is reflected as a liability on the Balance
Sheet and the existence of which is indicated in the notes thereto; and
(D) other encumbrances, restrictions or imperfections of title,
if any, which other encumbrances, restrictions or imperfections of title do not,
individually or in the aggregate, materially impair the continued use and
operation of the assets to which they relate in the business of Avenue as
presently conducted (the liens, security interests, pledges, charges,
encumbrances, restrictions and other imperfections of title described in clauses
(A), (B), (C) and (D) above are hereinafter referred to collectively as
"Permitted Liens").
(ii) All leased property of Avenue and its Subsidiaries is in the
condition required of such property by the terms of the lease applicable thereto
during the term of the lease and upon the expiration thereof.
(l) Intellectual Property. Schedule 4.02(l) sets forth a true and
complete list of all material patents, trademarks (registered or unregistered),
trade names, service marks, registered copyrights and applications therefor and
other material intellectual property rights, whether or not subject to statutory
registration or protection ("Intellectual Property Rights") owned, used or filed
by or licensed to Avenue and/or its Subsidiaries. Schedule 4.02(l) hereto
specifies for each Intellectual Property Right listed thereon whether such right
is owned or licensed and, in the case of licensed rights, lists the relevant
license agreement. With respect to registered trademarks, Schedule 4.02(l)
hereto specifies all jurisdictions in which such trademarks are registered or
applied for and all registration and application numbers. Except as disclosed on
Schedule 4.02(l) hereto, Avenue and/or its Subsidiaries owns, free and clear of
all liens, security interests or encumbrances whatsoever, all Intellectual
Property Rights listed on Schedule 4.02(l) hereto as owned by Avenue and/or its
Subsidiaries and, to the best knowledge of Avenue, has the right to use, without
payment to any other party, all other Intellectual Property Rights required to
be listed on Schedule 4.02(l) hereto, and the consummation of the transactions
contemplated hereby will not alter or impair any such rights. Except as
disclosed on Schedule 4.02(l) hereto, no claims are pending or, to the best
knowledge of Avenue, threatened by any person against Avenue or any of its
Subsidiaries with respect to the ownership, validity, enforceability or use of
any Intellectual Property Rights or, to the best knowledge of Avenue, otherwise
challenging or questioning the validity or effectiveness of any of such rights.
(m) Insurance. Avenue maintains policies of fire and casualty,
liability and other forms of insurance in such amounts, with such deductibles
and against such risks and losses, as are consistent with industry standards and
will continue such insurance in effect after the Closing. The insurance policies
currently maintained with respect to Avenue and its Subsidiaries and their
respective assets and properties are listed on Schedule 4.02(m) hereto. All such
policies are in full force and effect, all premiums due and payable thereon have
been paid and no written or oral notice of cancellation or termination has been
received with respect to any such policy which was not replaced on substantially
similar terms prior to the date of such cancellation.
(n) Absence of Changes or Events. Except as disclosed on
Schedule 4.02(n) hereto, since December 31, 1995, there has not been any
material adverse change in the business, assets, condition (financial or
otherwise), prospects or results of operations of Avenue and its Subsidiaries,
taken as a whole. Except as disclosed on Schedule 4.02(n) hereto, since December
31, 1995, (i) the business of the Avenue and its Subsidiaries has been conducted
in the ordinary course and in substantially the same manner as previously
conducted and (ii) neither Avenue nor any of its Subsidiaries has taken any
action that, if taken after the date hereof, would constitute a breach of any of
the covenants set forth in Section 5.01(b) hereof.
(o) Employee and Labor Relations. Except as set forth on
Schedule 4.02(o) hereto, (i) no collective bargaining agreement presently covers
(nor has any, in the three years immediately preceding the date hereof, covered)
any employee of Avenue or any of its Subsidiaries, nor is any currently being
negotiated by Avenue or any of its Subsidiaries and, to the best knowledge of
Avenue, no attempt to organize any group or all of the employees of Avenue or
any of its Subsidiaries has been made or proposed; (ii) there is no labor
strike, dispute, slowdown or stoppage actually pending or, to the best knowledge
of Avenue, threatened against or involving Avenue or any of its Subsidiaries;
(iii) Avenue and each of its Subsidiaries is in compliance in all material
respects with all federal, state and local laws respecting employment and
employment practices, terms and conditions of employment and wages and hours,
and is not engaged in any unfair labor practice; (iv) there is no unfair labor
practice complaint against Avenue or any of its Subsidiaries pending or, to the
best knowledge of Avenue, threatened before the National Labor Relations Board;
(v) no charge or grievance with respect to or relating to the employees of
Avenue or any of its Subsidiaries is pending before the Equal Employment
Opportunity Commission or any state, local or foreign agency responsible for the
prevention of unlawful practices; (vi) neither Avenue nor any of its
Subsidiaries has received any notice of the intent of any federal, state, local
or foreign agency responsible for the enforcement of labor or employment laws to
conduct an investigation of or relating to Avenue or any of its Subsidiaries
with respect to its employees and, to the best knowledge of Avenue, no such
investigation is in progress; (vii) no private agreement restricts Avenue or any
of its Subsidiaries from relocating, closing or terminating any of its
operations or facilities; and (viii) neither Avenue nor any of its Subsidiaries
has in the past five years experienced any work stoppage or other labor
difficulty or, to the best of its knowledge, committed any unfair labor
practice.
(p) Fixed and Other Tangible Assets. Except as set forth on
Schedule 4.02(p) hereto, all fixed and other tangible assets of Avenue and its
Subsidiaries (the "Avenue Fixed Assets") are (i) structurally sound, (ii) in
good operating condition and repair and (iii) not in need of maintenance or
repairs, except for ordinary, routine maintenance and repairs. During the past
three years, there has not been any significant interruption of the operations
of Avenue or any of its Subsidiaries due to inadequate maintenance of the Avenue
Fixed Assets.
(q) Licenses; Permits. All licenses, permits and
authorizations issued or granted by federal, state, local or foreign
governmental authorities or agencies which are necessary or desirable for the
conduct of Avenue's business or the conduct of any of its Subsidiaries' business
are validly held by Avenue and/or its Subsidiaries, except for such licenses,
permits and authorizations the failure of which to hold would not have an Avenue
Material Adverse Effect. Each of Avenue and its Subsidiaries has complied in all
material respects with all requirements in connection therewith and the same
will not be subject to suspension, modification or revocation as a result of
this Agreement or any of the Related Documents or the consummation of the
transactions contemplated hereby or thereby.
(r) Litigation. Except as set forth on Schedule 4.02(r)
hereto, there is no legal proceeding, claim, or action of any nature pending or,
to the best knowledge of Avenue, threatened, which questions or challenges the
validity of this Agreement or any of the Related Documents with respect to
Avenue or any of its Subsidiaries or any action taken or to be taken by Avenue
pursuant to this Agreement or any of the Related Documents or in connection with
the transactions contemplated hereby or thereby. Except as set forth on Schedule
4.02(r) hereto, there is no legal proceeding, claim, or action of any nature
pending or, to the best knowledge of Avenue, threatened, which could have an
Avenue Material Adverse Effect.
(s) Compliance With Law. The operations of Avenue and each of
its Subsidiaries are in compliance in all material respects with all applicable
laws, regulations, permits, authorizations and other governmental orders
including, without limitation, applicable safety (including OSHA),
environmental, antipollution, building, zoning or health laws, ordinances and
regulations.
(t) Contracts. Except as set forth on Schedule 4.02(t) hereto,
neither Avenue nor any of its Subsidiaries is a party to any contract,
commitment, arrangement or understanding involving payments to or from Avenue or
any of its Subsidiaries which exceed $75,000 over the remaining life of such
contract and which are not cancelable without penalty or premium by Avenue or
any of its Subsidiaries on 60 days notice or less. All of the contracts,
commitments, arrangements and understandings listed on Schedule 4.02(t) hereto
(collectively, the "Contracts") are in full force and effect with no material
defaults by any party thereto and there are no oral or collateral agreements
modifying any of the Contracts. Except as set forth on Schedule 4.02(t) hereto,
all of the Contracts are arms-length transactions between unrelated parties
entered into in the ordinary course of business.
(u) Employee Benefit Plans; ERISA.
(i) Schedule 4.02(u) hereto contains an accurate and complete
description of each employment, consulting, bonus, deferred compensation,
incentive compensation, severance or termination pay, disability hospitalization
or other medical, dental, vision, life or other insurance, stock purchase, stock
option, stock appreciation, stock award, pension, profit sharing, 401(k) or
retirement plan, agreement or arrangement, and each other employee benefit plan
or arrangement, whether formal or informal, written or oral, tax-qualified under
the Code or non-qualified, whether covered by the Employee Retirement Income
Security Act of 1974, as amended ("ERISA"), or not, maintained or contributed to
by Avenue covering its employees, former employees, retirees or sales personnel
(collectively, "Plans"). In addition, Schedule 4.02(u) hereto contains an
accurate and complete description of any amounts payable, or which will become
payable, under any former pension, profit sharing, 401(k) or retirement plan,
agreement or arrangement, to any participant, beneficiary or any other third
party. Any Plan maintained by Avenue that has subsequently been terminated, was
terminated in compliance with the requirements of the Code and ERISA and the
liabilities under such plan were fully satisfied. Avenue does not have any
formal plan or commitment, whether covered by ERISA or not, to create any
additional plan, agreement or arrangement or to modify or change any existing
Plan that would affect any of its employees, former employees, retirees or sales
personnel. Avenue has heretofore delivered to Xx. Xxxxxx true and complete
copies of the Plans, the trusts and other contracts (including any amendments to
any of the foregoing) relating to the Plans and all other relevant documents
governing or relating to the Plans in effect on the date hereof (including
without limitation, the latest summary plan description, the latest annual
report (and all attachments) filed with the Internal Revenue Service ("IRS")
with respect to each of the Plans, and the latest favorable determination letter
issued by the IRS for each of the Plans as applicable).
(ii) Except as set forth on Schedule 4.02(u) hereto, Avenue does
not maintain, nor has it ever maintained, any "employee pension benefit plan",
as such term is defined in Section 3(2) of the ERISA, and the rules and
regulations promulgated thereunder, covering its employees, former employees or
retirees, including but not limited to, any non-qualified retirement or deferred
compensation plan. Avenue does not maintain, nor has it ever maintained or
contributed to, a "multiemployer plan", as that term is defined in Section 3(37)
of ERISA. Avenue is not currently responsible for any "withdrawal liability" as
that term is defined in Section 4201 of ERISA with respect to any multi-employer
plan. None of Avenue, any of the Plans, any trust created thereunder, or any
trustee or administrator thereof has engaged in a transaction involving any of
the Plans in connection with which Avenue, its Subsidiaries, or any of the
Plans, any such trust, or any trustee or administrator thereof, or any other
party dealing with the Plans or any such trust, could be subject to either a
civil penalty assessed pursuant to Section 502(i) of ERISA, or a tax imposed by
Section 4975 of the Code.
(iii) Full payment has been made of all amounts which Avenue is
required to pay under the terms of the Plans as a contribution to such Plans as
of the last day of the most recent fiscal year of each of the Plans ended prior
to the date of this Agreement.
(iv) Each of the Plans is and has been operated and administered
in all material respects in accordance with applicable laws, including but not
limited to, ERISA and the Code. Except as set forth on Schedule 4.02(u) hereto,
each Plan subject to Section 401(a) of the Code has received a favorable
determination from the IRS that the Plan satisfies the requirements of Section
401(a) of the Code for the Plan to be tax-qualified, and no facts exist which
could reasonably be expected to adversely affect the tax-qualified status of any
such Plan.
(v) There are no pending, or to the best knowledge of Avenue,
threatened or anticipated claims, litigation, administrative actions or
proceedings against or otherwise involving any of the Plans or related trusts,
or any fiduciary thereof, by or on behalf of the Plans by any employee or
beneficiary covered under the Plans, or otherwise involving the Plans. There is
no judgment, decree, injunction, rule or order of any court, governmental body,
commission, agency or arbitrator outstanding against or in favor of any Plan or
any fiduciary thereof in that capacity. The assets of Avenue are not, and will
not, either as a result of any circumstances existing prior to the Closing Date
or as a result of the consummation of the transactions contemplated by this
Agreement or any of the Related Documents, be subject to any claims under any
Plan maintained by Avenue or in which employees, former employees or retirees of
Avenue participate.
(vi) Except as set forth in Schedule 4.02(u) hereto, each Plan
that is an employee welfare benefit plan providing health benefits to retirees
may be terminated at any time after the Closing Date without liability to Avenue
or any of its Subsidiaries other than liabilities relating to claims incurred
prior to the effective date of the termination of such Plan.
(vii) Neither Avenue nor any of its Subsidiaries has engaged in
any transaction, failed to make any required contribution, committed any act or
omission or otherwise incurred any liability for any excise tax under Sections
4971 through 4980B of the Code, inclusive.
(v) Program Library. Avenue owns all right, title and interest in
and to the film library described on Schedule 4.02(v) hereto (the "Avenue
Library"), free and clear of any and all liens, security interests or
encumbrances whatsoever. To the best knowledge of Avenue, the use and
exploitation of the Avenue Library does not and will not violate or infringe
upon any copyright, right of privacy, trademark, patent, trade name, performing
right or any literary, dramatic, musical, artistic, personal, private, several,
contract or copyright or any other right of any person or entity. The Avenue
Library does not contain any libelous or slanderous material other than to an
extent which is not material.
(w) Disclosure. No representation or warranty expressly made by
Xx. Xxxxxx contained in this Agreement, and no statement contained in any
document, certificate or Schedule furnished or to be furnished by or on behalf
of Avenue or Xx. Xxxxxx to CineMasters or any of its representatives pursuant to
this Agreement contains or will contain any untrue statement of a material fact
or omits or will omit to state any material fact necessary, in light of the
circumstances under which it was or will be made, in order to make the
statements herein or therein not misleading or necessary in order to fully and
fairly provide the information required to be provided in any such document,
certificate or Schedule.
V. COVENANTS.
5.01 Mutual Covenants. Each of the parties hereto hereby
covenants and agrees as follows:
(a) Access. Prior to the Closing, each of Avenue and
CineMasters will, upon reasonable notice, give the other party and such party's
representatives, employees, counsel and accountants reasonable access to its
personnel (including directors, officers, employees and independent
accountants), properties, books and records.
(b) Ordinary Conduct. Except as expressly permitted by the
terms of this Agreement or as set forth on Schedule 5.01(b) hereof, from the
date hereof until the Closing, each of Avenue and CineMasters will conduct its
business in the ordinary course in substantially the same manner as presently
conducted. In addition, except as expressly permitted by the terms of this
Agreement or as set forth on Schedule 5.01(b) hereto, CineMasters and Avenue
will not do any of the following prior to the Closing without the prior written
consent of the other party:
(i) amend its Certificate of Incorporation or By-laws or other
comparable governing instruments;
(ii) declare or pay any dividend or make any other distribution
to its stockholders, whether or not upon or in respect or any shares of its
capital stock;
(iii) grant to any officer or employee any increase in
compensation or benefits, except in the ordinary course of business consistent
with past practice or as may be required under existing agreements;
(iv) cancel any material indebtedness (individually or in the
aggregate), waive any claims or rights of substantial value or amend any
material term of any of its outstanding securities;
(v) make any change in any method of accounting or accounting
practice or policy other than those required by generally accepted accounting
principles;
(vi) acquire by merging or consolidating with, by purchasing a
substantial portion of the assets of, or in any other manner, any business or
any corporation, partnership, association or other business organization or
division thereof or otherwise acquire any assets, except in the ordinary course
of business consistent with past practice;
(vii) sell, lease or otherwise dispose of any of its assets,
except in the ordinary course of business consistent with past practice;
(viii) amend, modify, terminate, extend, renew or restate any
Contract, other than in the ordinary course of business consistent with past
practice;
(ix) (A) pay or agree to pay any pension, retirement allowance or
other employee benefit not required or permitted by any Plan, whether past or
present; or (B) commit itself to any new or renewed Plan with or for the benefit
of any person, or to amend any of such Plans or any of such agreements in
existence on the date hereof;
(x) permit any of its insurance policies to be cancelled or
terminated or any of the coverage thereunder to lapse, unless simultaneously
with such termination, cancellation or lapse, replacement policies are in full
force and effect providing coverage, in form, substance and amount equal to or
greater than the coverage under those canceled, terminated or lapsed for
substantially similar premiums; or
(xi) agree, whether in writing or otherwise, to do any of the foregoing.
(c) Notices of Certain CineMasters Events. CineMasters shall
promptly notify Xx. Xxxxxx of:
(i) any notice or other communication from any person alleging
that the consent of such person is or may be required in connection with the
transactions contemplated by this Agreement or any of the Related Documents;
(ii) any notice or other communication from any governmental
entity in connection with the transactions contemplated by this Agreement or any
of the Related Documents;
(iii) any actions, suits, claims, investigations or proceedings
commenced or, to its knowledge, threatened, relating to or involving or
otherwise affecting CineMasters that, if pending on the date of this Agreement,
would have been required to have been disclosed pursuant to Section 4.01(r)
hereof or that relate to the consummation of the transactions contemplated by
this Agreement or any of the Related Documents;
(iv) the occurrence, or failure to occur, of any condition, event
or development that (A) causes any representation or warranty of CineMasters
contained in this Agreement to be untrue or inaccurate in any material respect,
at any time from the date hereof to the Closing Date or (B) would have been
required to be set forth or described in the Schedules hereto if existing or
known at the date of this Agreement; and
(v) any failure on the part of CineMasters to comply with or
perform in any material respect any agreement or covenant to be complied with or
performed by it hereunder; provided that the delivery of any notice pursuant to
this Section 5.01(c) shall not limit or otherwise affect the remedies available
hereunder to Xx. Xxxxxx.
(d) Notice of Certain Avenue Events. Xx. Xxxxxx shall promptly
notify CineMasters of:
(i) any notice of other communication from any person alleging
that the consent of such person is or may be required in connection with the
transactions contemplated by this Agreement or any of the Related Documents;
(ii) any notice or other communication from any governmental
entity in connection with the transactions contemplated by this Agreement or any
of the Related Documents;
(iii) any actions, suits, claims, investigations or proceedings
commenced or, to its knowledge, threatened, relating to or involving or
otherwise affecting Avenue or Xx. Xxxxxx that, if pending on the date of this
Agreement, would have been required to have been disclosed pursuant to Section
4.02(r) hereof or that relate to the consummation of the transactions
contemplated by this Agreement or any of the Related Documents;
(iv) the occurrence, or failure to occur, of any condition, event
or development that (A) causes any representation or warranty of Xx. Xxxxxx
contained in this Agreement to be untrue or inaccurate in any material respect,
at any time from the date hereof to the Closing Date or (B) would have been
required to be set forth or described in the Schedules hereto if existing or
known at the date of this Agreement; and
(v) any failure on the part of Avenue or Xx. Xxxxxx to comply
with or perform in any material respect any agreement or covenant to be complied
with or performed by it hereunder; provided that the delivery of any notice
pursuant to this Section 5.01(d) shall not limit or otherwise affect the
remedies available hereunder to CineMasters.
(e) Publicity. From the date hereof through the Closing Date, no
public release or announcement concerning the transactions contemplated hereby
shall be issued by any party without the prior consent or the other parties,
except as such release or announcement be required by law, in which case the
party required to make the release or announcement shall allow the other parties
reasonable time to comment on such release or announcement in advance of such
issuance.
(f) Reasonable Commercial Efforts. Subject to the terms and
conditions of this Agreement, each party will use reasonable commercial efforts
to cause the conditions set forth in Article III of this Agreement to be
satisfied and the Closing to occur.
(g) Tax-Free Reorganization. Each of the parties hereto covenants
and agrees that it will treat this Agreement, for federal income tax purposes,
as a tax-free reorganization under Section 368(a)(1)(B) of the Code. Following
the consummation of the transactions contemplated by the Agreement, none of the
parties hereto or any of their affiliates shall take or cause to be taken, a
position which, after consultation with counsel, it reasonably believes would
have a material adverse effect on the status of the Share Exchange as a tax-free
reorganization within the meaning of Section 368(a) of the Code.
5.02 Covenants of CineMasters. CineMasters agrees, at its own expense,
to register the CineMasters Shares for resale under the Securities Act of 1933,
as amended, as soon as practicable following the date upon which CineMasters is
eligible to register the CineMasters Shares on Form S-3 (or any successor form
thereto), but in no event later than eighteen (18) months following the Closing
Date.
VI. SURVIVAL OF REPRESENTATIONS; INDEMNIFICATION
6.01 Survival of Representations. The representations and warranties
made by CineMasters and Xx. Xxxxxx pursuant to this Agreement shall survive any
investigation at any time made by or on behalf of any party until the first
anniversary of the Closing Date, except for (i) the representations and
warranties of CineMasters set forth in subsections (e), (f), (i), (j), (r), (s),
(u) and (v) of Section 4.01 hereof and the representations and warranties of Xx.
Xxxxxx xxx xxxxx xx xxxxxxxxxxx (x), (x), (x), (x), (x), (x), (x) and (v) of
Section 4.02 hereof, which shall survive any investigation at any time made by
or on behalf of any party for the applicable statute of limitations period.
6.02 Agreement of CineMasters to Indemnify. CineMasters shall indemnify
Xx. Xxxxxx and each of his employees, representatives, agents, partners and
affiliates (and their respective officers, directors, employees,
representatives, agents, shareholders, partners and affiliates) and hold each of
them harmless from and against any reasonably incurred loss, liability, claim,
cost, damage or expense (including, but not limited to, any and all expenses
reasonably incurred in investigating, preparing or defending any litigation or
proceeding, commenced or threatened, or any claim whatsoever (collectively,
"Litigation Expenses")) (collectively, "Losses") suffered or incurred by any
such indemnified party to the extent arising from (i) any breach of any
representation or warranty of CineMasters contained in this Agreement or in any
Schedule, certificate, instrument or other document delivered pursuant hereto or
(ii) any breach of any covenant or agreement of CineMasters contained in this
Agreement, provided, however, that CineMasters shall not have any liability
under this Section 6.02 (other than with respect to Litigation Expenses) unless
and until the aggregate of all Losses for which CineMasters would, but for this
proviso, be liable exceeds $75,000 on a cumulative basis, and then only to the
extent of any such excess; and provided, further, however, that such excess
amount for which CineMasters shall be liable shall not be more than $2,000,000
on a cumulative basis. Payments in respect of the indemnification provided in
this Section 6.02 shall be made promptly (and currently) as Losses shall be
incurred. The foregoing notwithstanding, CineMasters shall have the option to
make any payments due to Xx. Xxxxxx under the indemnification provisions of this
Section 6.02 in the form of shares of CineMasters Common Stock, which shares
shall be valued based upon the average "Closing Price" (as defined in Section
6.06 below) of such shares for the ten (10) consecutive trading days immediately
preceding the date that such indemnification payment is due to be made.
6.03 Agreement of Xx. Xxxxxx to Indemnify. Xx. Xxxxxx shall indemnify
CineMasters and its employees, representatives, agents, partners and affiliates,
officers, directors and stockholders, (and their respective officers, directors,
employees, representatives, agents, shareholders, partners and affiliates) and
hold each of them harmless from and against any Loss suffered or incurred by any
such indemnified party to the extent arising from (i) any breach of any
representation or warranty of Xx. Xxxxxx contained in this Agreement or in any
schedule, certificate, instrument or other documents delivered hereto or (ii)
any breach of any covenant or agreement of Xx. Xxxxxx or Avenue contained in
this Agreement or in any schedule, certificate, instrument or other documents
delivered hereto, provided, however, that Xx. Xxxxxx shall not have any
liability under this Section 6.03 unless and until the aggregate of all Losses
for which Xx. Xxxxxx would, but for this proviso, be liable exceeds $75,000 on a
cumulative basis, and then only to the event of any such excess; and provided,
further, however, that such excess amount for which Xx. Xxxxxx shall be liable
shall not be more than $2,000,000 on a cumulative basis. Payments in respect of
the indemnification provided in this Section 6.03 shall be made promptly (and
currently) as Losses shall be incurred. The foregoing notwithstanding, Xx.
Xxxxxx'x liability under the indemnification provisions of this Section 6.03
(other than with respect to Litigation Expenses) shall be limited to the
CineMasters Shares that he will receive pursuant to this Agreement, which shares
shall be valued based upon the average Closing Price of shares of CineMasters
Common Stock for the ten (10) consecutive trading days immediately preceding the
date that such indemnification payment is due to be made.
6.04 Conditions of Indemnification. Each party indemnified pursuant to
Sections 6.02 or 6.03 hereof (an "indemnified party") agrees to give prompt
notice to the party required to indemnify such indemnified party (an
"indemnifying party") of the assertion of any claim, or the commencement of any
suit, action or proceeding, whether brought against such indemnified party or
brought by such indemnified party against the indemnifying party (each a
"Claim"), in respect of which indemnity may be sought by such indemnified party
under Section 6.02 or 6.03 hereof or in respect of which such indemnified party
may seek any other remedy against the indemnifying party under this Agreement;
provided, however, that the omission so to promptly notify the indemnifying
party with respect to a Claim brought against such indemnified party will not
relieve the indemnifying party from any liability which it may have to such
indemnified party under Section 6.02 or 6.03 hereof unless such failure
materially prejudices the indemnifying party with respect to the defense of such
Claim. If any indemnified party shall seek indemnity under Section 6.02 or 6.03
hereof, the indemnifying party, in the case of a Claim brought against such
indemnified party, shall be entitled to participate therein and, to the extent
that it wishes, to assume and direct the defense and settlement thereof with
counsel reasonably satisfactory to such indemnified party. After notice from the
indemnifying party to an indemnified party of its election to assume and direct
the defense and settlement of a Claim brought against such indemnified party,
the indemnifying party shall not be liable to such indemnified party (or any of
its affiliates) under Section 6.02 or 6.03 hereof for any legal or other
expenses subsequently incurred by such indemnified party in connection with the
defense thereof other than reasonable costs of investigation undertaken at the
request of the indemnifying party; except that such indemnified party shall have
the right to employ counsel to represent such party if, in the reasonable
judgment of such party, it is advisable for such party to be represented by
separate counsel, and in that event the fees and expenses of such separate
counsel shall be paid by such indemnified party. Notwithstanding the foregoing
provisions of this Section 6.04, the indemnifying party shall not, without the
prior written consent of an indemnified party (which consent shall not be
unreasonably withheld or delayed), effect any settlement of any pending or
threatened proceeding in respect of which such indemnified party is, or with
reasonable foreseeability, could have been a party and indemnity could have been
sought hereunder by such indemnified party for a Claim brought against such
indemnified party, unless such settlement includes an unconditional release of
such indemnified party from all liability arising out of such proceeding
(provided that, whether or not such a release is required to be obtained, the
indemnifying party shall remain liable to such indemnified party in accordance
with Section 6.02 or 6.03 hereof, as applicable, in the event that a Claim is
subsequently brought against such indemnified party).
6.05 Tax Benefits; Insurance. In calculating the amount of any Losses
for which an indemnified party is entitled to indemnification under this Article
VI, any Tax Benefit (as hereinafter defined) received by such indemnified party
shall be applied against the amount of the Loss to reduce the amount payable by
the indemnifying party. "Tax Benefit" shall mean any tax savings to the
indemnified party (computed at the combined Federal, state and local tax rate
applied to the indemnified party in the immediately preceding taxable year)
resulting from any net increase in deductions, losses or credits or any net
decrease in income, gains or recapture of credits attributable to inclusion of
the claims or related indemnification payment, as the case may be, in any tax
return of the indemnified party plus any interest attributable to such
inclusion. In addition, in calculating the amount of any Losses for which an
indemnified party is entitled to indemnification under this Article VI, the
amount of any insurance proceeds received by the indemnified party relating to
or in connection with such Loss shall reduce the amount of any claim.
6.06 Definition of Closing Price. For purposes of this Article VI, the
"Closing Price" shall mean the closing sale price of the CineMasters Common
Stock on the date specified on the principal national securities exchange on
which the CineMasters Common Stock is listed or admitted to trading, or, if the
CineMasters Common Stock is not listed or admitted to trading on any national
securities exchange on such date, the average of the highest reported bid and
lowest reported asked prices as furnished by the National Association of
Securities Dealers, Inc. through NASDAQ or a similar organization if NASDAQ is
not longer reporting such information. If there is no reported bid and asked
price for the CineMasters Common Stock, the "Closing Price" shall be the fair
market value of the Common Stock on the date specified, as determined in good
faith by CineMasters and Xx. Xxxxxx, or, if CineMasters and Xx. Xxxxxx cannot
agree, by an independent appraiser mutually selected by CineMasters and Xx.
Xxxxxx.
VII. TERMINATION; AMENDMENT AND WAIVER
7.01 Termination of Agreement. This Agreement may be terminated
at any time prior to the Closing:
(a) By mutual written agreement of the parties hereto; or
(b) By CineMasters or Xx. Xxxxxx if the Closing shall not have
occurred on or before October 31, 1996.
7.02 Effect of Termination. In the event of termination of this
Agreement as provided above, this Agreement shall forthwith become void and
there shall be no liability on the part of any party hereto (or any of their
respective officers or directors), except (i) based upon obligations set forth
in Sections 8.01 and 8.02 hereof and (ii) to the extent that failure to satisfy
the conditions of Article III hereof results from the negligent, intentional or
willful breach, violation or non-compliance by any party hereto of any covenant,
agreement, obligation, representation or warranty contained in this Agreement or
any other agreement referred to herein.
7.03 Amendment, Extension and Waiver. The parties may amend this
Agreement at any time by an instrument in writing signed by each of the parties
hereto. Any agreement on the part of a party hereto to any waiver of compliance
with any of the agreements or conditions contained herein shall be valid only if
set forth in an instrument in writing signed on behalf of such party.
VIII. MISCELLANEOUS
8.01 No Finders. Each of the parties hereto represents and warrants to
the other that there are no claims for brokerage commissions or finder's fees in
connection with the transactions contemplated by this Agreement. CineMasters, on
the one hand, and Xx. Xxxxxx and Avenue, on the other hand, will pay or
discharge, and will indemnify and hold the other harmless from and against any
and all claims or liabilities for brokerage commissions or finder's fees
incurred by reason of a breach of this representation.
8.02 Expenses; Taxes. CineMasters, on the one hand, and Avenue and Xx.
Xxxxxx, on the other hand, will each pay the fees and expenses incurred by it in
connection with this Agreement; provided, however, that CineMasters shall at
Closing pay the reasonable fees and expenses of Pryor, Cashman, Xxxxxxx & Xxxxx,
legal counsel to Xx. Xxxxxx and Avenue. All sales and transfer taxes and fees
incurred in connection with this Agreement with this Agreement and the
transactions contemplated hereby shall be borne by CineMasters.
8.03 Further Assurances. From time to time, at the request of any party
hereto and without further consideration, the other party or parties will
execute and deliver to such requesting party such documents and take such other
action as such requesting party may reasonably request in order to consummate
more effectively the transactions contemplated hereby.
8.04 Parties in Interest. This Agreement will be binding upon, inure to
the benefit of, and be enforceable by the respective successors and assigns of
the parties hereto and will inure to the benefit and be enforceable by the
parties indemnified hereunder.
8.05 Entire Agreement. This Agreement and the Schedules and Exhibits
hereto and the other agreements, instruments and writings referred to herein or
delivered pursuant hereto contain the entire understanding of the parties with
respect to its subject matter. This Agreement supersedes all prior agreements
and understandings between the parties with respect to its subject matter.
8.06 Headings. The Article and Section headings contained in this
Agreement are for reference purposes only and will not affect in any way the
meaning or interpretation of this Agreement.
8.07 Notices. All notices, claims, certificates, requests, demands and
other communications hereunder will be in writing and will be deemed to have
been duly given if delivered personally or mailed (registered or certified mail,
postage prepaid, return receipt requested) or via facsimile or overnight courier
delivery as follows:
(a) If to CineMasters:
c/o National Patent Development Corporation
0 Xxxx 00xx Xxxxxx
Xxx Xxxx, Xxx Xxxx 00000
Attention: Xx. Xxxxxx X. Xxxxxxx
and
The CineMasters Group, Inc.
000 Xxxx 00xx Xxxxxx
Xxx Xxxx, Xxx Xxxx 00000
Attention: Xx. Xxxxxx X. Xxxxxxx
With a copy to:
National Patent Development Corporation
0 Xxxx 00xx Xxxxxx
Xxx Xxxx, XX 00000
Attention: Xxxxxx X. Xxxxxx, Esq.
(b) If to Xx. Xxxxxx and Avenue:
c\o Avenue Pictures, Inc.
00000 Xxxxx Xxxxxx Xxxxxxxxx, Xxxxx 0000
Xxx Xxxxxxx, Xxxxxxxxxx 00000
Attention: Mr. Xxxx Xxxxxx
With a copy to:
Pryor, Cashman, Xxxxxxx & Xxxxx
000 Xxxx Xxxxxx
Xxx Xxxx, Xxx Xxxx 00000
Attention: Xxxxx X. Xxxxxxxx, Esq.
or to such other address as the person to whom notice is to be given may have
previously furnished to the other in writing in the manner set forth above.
8.08 Governing Law. This Agreement will be governed by, and construed
and enforced in accordance with, the laws of the State of New York, without
regard to conflicts of law principles thereof.
8.09 Counterparts. This Agreement may be executed simultaneously in
counterparts, each of which will be deemed an original, but all of which
together will constitute one and the same instrument.
8.10 Consent to Jurisdiction. Any legal action, suit or proceeding
arising out of or relating to this Agreement or the consummation of the
transactions contemplated hereby may only be instituted in any federal court of
the Southern District of New York or any state court located in New York County,
State of New York, and each party agrees not to assert, by way of motion, as a
defense or otherwise, in any such action, suit or proceeding, any claim that it
is not subject personally to the jurisdiction of such courts, that the action,
suit or proceeding if brought in such courts, would be in an inconvenient forum,
that the venue of the action, suit or proceeding, if brought in any of such
courts, is improper or that this Agreement or the subject matter hereof may not
be enforced in or by such courts on jurisdictional grounds.
8.11 Exhibits. All exhibits and schedules attached hereto are hereby
incorporated by reference into, and made a part of, this Agreement.
IN WITNESS WHEREOF, this Agreement has been duly executed and delivered
by the parties hereto as of the date first above written.
THE CINEMASTERS GROUP, INC.
By:
Name:
Title:
AVENUE PICTURES, INC.
By:
Name:
Title:
Xxxx Xxxxxx
