EXHIBIT 10.1
EXECUTION COPY
AGREEMENT AND PLAN OF REORGANIZATION
THIS AGREEMENT AND PLAN OF REORGANIZATION, dated as of March 4, 1999,
is made by and among CHILDREN'S BROADCASTING CORPORATION, a Minnesota
corporation ("CBC"), CHELSEA ACQUISITION INC., a Minnesota corporation that is a
wholly-owned subsidiary of CBC ("Merger Sub"), CHELSEA PICTURES, INC., a
Massachusetts corporation ("Chelsea") and XXXXX WAX, an individual residing in
New York City, New York, who is the sole stockholder of Chelsea ("Mr. Wax").
RECITALS
1. Chelsea engages in the commercial production business, which
includes primarily the production of television commercials and music videos.
2. Mr. Wax is the owner and holder of 9,200 shares (the "Chelsea
Shares") of the common stock ($0.01 par value) of Chelsea ("Chelsea Common
Stock"), which represent 100% of Chelsea's issued and outstanding capital stock.
3. The respective Boards of Directors of CBC, Merger Sub and Chelsea
have approved the merger of Merger Sub with and into Chelsea (the "Merger"),
pursuant to which Chelsea will be the surviving corporation and Mr. Wax, as the
sole shareholder of Chelsea immediately prior to the Merger, will be entitled to
receive shares of CBC common stock, all on the terms and subject to the
conditions set forth herein.
4. It is intended that the Merger qualify as a tax-free reorganization
within the meaning of Section 368(a) of the Internal Revenue Code of 1986, as
amended (the "Code").
5. Mr. Wax has agreed to execute this Agreement, in satisfaction of a
condition of, and as an inducement to, CBC's willingness to enter into this
Agreement, thereby approving this Agreement, the Merger and the other
transactions contemplated hereby.
ACCORDINGLY, in consideration of the mutual covenants, representations,
warranties and agreements set forth herein, and intending to be legally bound
hereby, the parties hereby agree as follows:
ARTICLE I
THE MERGER
1.1 CONSUMMATION OF THE MERGER. The consummation of the Merger will
take place as promptly as practicable (and in any event within two business
days) after satisfaction or waiver of the conditions set forth in Sections 8.4
and 8.5 of this Agreement, by filing Articles of Merger in the form of Exhibit A
hereto (the "Articles of Merger"), together with any required related
certificates, with the Secretaries of State of the Commonwealth of Massachusetts
(the "Commonwealth") and the State of Minnesota ("Minnesota"), in such form
as required by, and executed in accordance with the relevant provisions of the
laws of the Commonwealth and Minnesota (the effective date of such filings being
the "Merger Effective Date").
1.2 CLOSING OF RELATED TRANSACTIONS. The Closing of the other
transactions contemplated hereby shall take place on the Merger Effective Date
at the offices of Chelsea Pictures, Inc., 000 Xxxxxx Xxxxxx, Xxx Xxxx, XX,
unless another date, time or place is agreed to in writing by Chelsea and CBC.
The date of such Closing is sometimes referred to herein as the "Closing Date."
1.3 EFFECT OF THE MERGER. On the Merger Effective Date, the effect of
the Merger shall be as provided in this Agreement, the Articles of Merger and
the applicable provisions of the laws of the Commonwealth and Minnesota. Without
limiting the generality of the foregoing, and subject thereto, on the Merger
Effective Date Merger Sub shall be merged with and into Chelsea, the separate
corporate existence of Merger Sub shall cease, Chelsea shall continue as the
surviving corporation, all the property, rights, privileges, powers and
franchises of Chelsea and Merger Sub shall vest in the Surviving Corporation,
and all debts, liabilities and duties of Chelsea and Merger Sub shall become the
debts, liabilities and duties of the Surviving Corporation. Chelsea as the
surviving corporation after the Merger is hereinafter sometimes referred to as
the "Surviving Corporation."
1.4 ARTICLES OF ORGANIZATION; BY-LAWS.
(a) ARTICLES OF ORGANIZATION. Unless otherwise determined by
CBC prior to the Merger Effective Date, on the Merger Effective Date, the
Articles of Organization of Chelsea, as in effect immediately prior to the
Merger Effective Date, shall be the Articles of Organization of the Surviving
Corporation until thereafter amended in accordance with the laws of the
Commonwealth and such Articles of Organization.
(b) BY-LAWS. Unless otherwise determined by CBC prior to the
Merger Effective Date, the By-Laws of Chelsea, as in effect immediately prior to
the Merger Effective Date, shall be the By-Laws of the Surviving Corporation
until thereafter amended in accordance with the laws of the Commonwealth, the
Articles of Organization of the Surviving Corporation and such By-Laws.
1.5 DIRECTORS AND OFFICERS. The directors of Merger Sub immediately
prior to the Merger Effective Date shall be the initial directors of the
Surviving Corporation, each to hold office in accordance with the Articles of
Organization and By-Laws of the Surviving Corporation, and the officers of
Merger Sub immediately prior to the Merger Effective Date shall be the initial
officers of the Surviving Corporation, in each case until their respective
successors are duly elected or appointed and qualified.
1.6 MERGER CONSIDERATION. The consideration payable to Mr. Wax as the
holder of the Chelsea Shares as a result of the Merger shall consist solely of
shares ("CBC Shares") of the Common Stock, par value $.02 per share, of CBC
("CBC Common Stock"), such shares of CBC Common Stock to be issuable in
accordance with the provisions of Section 1.7, below.
1.7 CONVERSION OF SHARES.
(a) CONVERSION OF CHELSEA SHARES. By virtue of the Merger, Mr.
Wax shall be entitled to receive, in exchange for his Chelsea Shares, up to an
aggregate amount of 200,000 shares of CBC Common Stock, of which 125,000 shares
shall be issued at the Closing and 75,000 shares (the "Contingent Shares") shall
be issued upon the satisfaction of the conditions set forth in paragraph (b)
below.
(b) CONDITION TO ISSUANCE OF CONTINGENT SHARES.
(i) Up to 50,000 Contingent Shares shall be
issued to Mr. Wax on the first anniversary
of the Merger Effective Date, in proportion
to the extent that during the one (1) year
period commencing on the Merger Effective
Date Chelsea shall have achieved annual
earnings before interest, taxes,
depreciation and amortization ("EBITDA") of
$410,000 (for example, if Chelsea achieves
EBITDA of $307,500 (75%), Mr. Wax shall be
issued 37,500 Contingent Shares; and
(ii) Mr. Wax shall be issued an additional 25,000
Contingent Shares on the first anniversary
of the Merger Effective Date, if during the
one (1) year period commencing on the Merger
Effective Date Chelsea shall have achieved
EBITDA of at least $500,000.
(c) CHELSEA TREASURY SHARES. Each share of Chelsea Common
Stock held in Chelsea's treasury as of the Merger Effective Date shall, by
virtue of the Merger, be canceled without payment of any consideration therefor.
(d) MERGER SUB SHARES. Each share of common stock, no par
value per share, of Merger Sub issued and outstanding on the Merger Effective
Date shall, by virtue of the Merger, be canceled without payment of any
consideration therefor.
1.8 ADDITIONAL ACTIONS. If, at any time after the Merger Effective
Date, the Surviving Corporation shall consider or be advised that any deeds,
bills of sale, assignments, assurances or any other acts or things are necessary
or desirable to vest, perfect or confirm, or record or otherwise, in the
Surviving Corporation, its right, title or interest in or to any of the rights,
properties or assets of Merger Sub or Chelsea acquired or to be acquired by
reason of, or as a result of, the Merger, or otherwise to carry out the purposes
of this Agreement, the Surviving Corporation and its proper officers and
directors shall be authorized to execute and deliver, in the name and on behalf
of Merger Sub or Chelsea, all such deeds, bills of sale, assignments and
assurances and to do, in the name and on behalf of Merger Sub or Chelsea, all
such other acts and things necessary or desirable to vest, perfect or confirm
any and all right, title or interest in, to or under such rights, properties or
assets in the Surviving Corporation or otherwise to carry out the purposes of
this Agreement.
ARTICLE 2
SATISFACTION OF CHELSEA LIABILITIES
2.1 CAPITAL CONTRIBUTION. Upon the Closing, CBC shall make a capital
contribution to Chelsea in the amount of up to $887,384.00 to be used to
discharge pre-Closing liabilities of Chelsea, as follows:
1. The sum of up to $605,000 as full and final satisfaction of
all debt owed by Chelsea to Xxxxxxx-Xxxxxxx Productions;
2. The sum of up to $234,884 in miscellaneous outstanding trade
payables and expenses owed by Chelsea to various third party
vendors listed on Schedule L; and
3. The sum of up to $47,500 as full and final satisfaction of all
debt owed by Chelsea to the DGA pursuant to an installment
agreement with the DGA.
2.2 OTHER CHELSEA LIABILITIES. There are no obligations other than
those liabilities of Chelsea as set forth in Section 2.1 above which will be
transferred to CBC upon Closing. Prior to Closing, Chelsea shall discharge any
and all such obligations and liabilities not expressly set forth in Section 2.1
above and transferred to CBC hereunder.
ARTICLE 3
DIRECTOR AND EMPLOYMENT AGREEMENTS
3.1 WAX EMPLOYMENT AGREEMENT. At Closing, the surviving corporation
agrees to execute and deliver an employment agreement with Mr. Wax ("Wax
Employment Agreement") in substantially the form attached hereto as Exhibit B
and made a part hereof by reference.
3.2 DIRECTOR AGREEMENTS. At Closing, the parties agree to execute and
deliver the director agreements with Xxxxx Norowzian, Xxxxx Xxxxx, and Xxxxxx
Xxxxxxxx in substantially in the forms set out as Exhibit C, Exhibit D, and
Exhibit E, respectively.
3.3 OTHER EMPLOYMENT AGREEMENTS. At Closing, the surviving corporation
will enter into and execute employment agreements with Xxxxxxx Xxxx as the West
Coast Executive Producer and Xxxx Xxxxxxx as the Sales Manager, in substantially
the forms set out as Exhibit G and Exhibit H, respectively.
ARTICLE 4
MR. WAX'S AND CHELSEA'S REPRESENTATIONS,
WARRANTIES AND COVENANTS
As an inducement to CBC to enter into and consummate the transactions
contemplated by this Agreement, Mr. Wax and Chelsea jointly and severally make
the following representations and warranties to, and covenants with, CBC and
Merger Sub, which representations, warranties and covenants shall be deemed to
have been made again at Closing:
4.1 ORGANIZATION, OWNERSHIP AND CAPITALIZATION OF CHELSEA. Chelsea is a
corporation organized and existing in corporate good standing under the laws of
the
Commonwealth of Massachusetts, with all requisite power, authority, charters,
licenses and franchises necessary or required by law to carry on the business
activity in which it is presently engaged, with full power and authority to
enter into this Agreement and to enter into and complete the transactions
contemplated herein; Chelsea is, and will be at the time of Closing, qualified
to do business in the States of New York and California; all required corporate
actions have been duly and validly taken by Chelsea to make and carry out this
Agreement, which is a valid and binding obligation of Chelsea and which is
enforceable against it in accordance with its terms; the execution of this
Agreement and the completion of the transactions contemplated herein will not
result in the violation of any of the charter documents of Chelsea or any order,
license, permit, rule, judgment or decree to which Chelsea is subject or the
breach of any Contract (as defined in Section 4.5 below) or cause the
acceleration of any obligations under any Contract. Other than as set forth on
Schedule A or F, Chelsea is not in default under any such charter, license or
franchise, the effect of which might materially adversely affect its right to
conduct the business and there are no pending proceedings or actions to limit or
impair any of Chelsea's powers, rights and privileges or to dissolve Chelsea.
Chelsea has provided CBC with true and correct copies of the Articles of
Organization, as amended to the date hereof, and Bylaws of Chelsea, as amended
to the date hereof. Chelsea has no subsidiaries; nor is it a partner in any
partnership or a party to any joint venture. The authorized capital stock of
Chelsea consists of 300,000 shares of Common Stock, $0.01 par value per share,
9,200 of which are issued and outstanding. All outstanding shares of Chelsea
Stock are validly issued, fully paid and nonassessable, and all of such shares
are owned, beneficially and of record, by Mr. Wax, and there are no other
classes of stock, options, warrants or conversion privileges outstanding. As a
result of the Merger, CBC will acquire good and marketable title to the Chelsea
Shares, free and clear of any claim, lien, pledge, security, interest, charge,
or other encumbrance whatsoever. The Chelsea Shares are not subject to any
option or right to purchase other than pursuant to this Agreement. There are no
stock transfer taxes applicable with respect to the Merger.
4.2 COMPLIANCE WITH LAWS; LICENSES AND PERMITS. Chelsea is not subject
to any notice asserting any noncompliance by it with any applicable statute,
law, rule or regulation, whether federal, state, local or otherwise, in
connection with the operation of its business. Chelsea is the holder of the
licenses, permits and authorizations listed on Schedule A, all of which are
valid, and in full force and effect. Chelsea has complied and is in compliance
in all material respects with all statute, laws, rules, regulations and
governmental orders, federal, state, local or otherwise applicable to Chelsea's
operation of its business, except as disclosed on Schedule A. The licenses and
permits listed on Schedule A are all the licenses and permits that are necessary
for the operation of the business as presently conducted.
4.3 REAL PROPERTY. Attached hereto as Schedule B is a list of all of
Chelsea's owned or leased real property interests of every kind or description,
or options or agreements to acquire real property interests relating to the
operation of the business ("Real Property"). True and correct copies of all the
leases have been provided to CBC and have not been modified or amended from such
forms. With respect to the Real Property, except as set forth on Schedule B, (a)
all obligations of the landlord or lessor under the Leases that have accrued
have been performed, and no landlord or lessor is in default under or in arrears
in the payment of any sum or in the performance of any obligation required of it
under any Lease, and no circumstance presently exists, and Chelsea has no
knowledge of any circumstance likely to
occur, which, with notice or the passage of time, or both, would give rise to a
default by the landlord or lessor under any Lease; (b) Chelsea is not in default
under or in the performance of any obligation required of it under any Lease,
and no circumstance presently exists, and Chelsea has no knowledge of any
circumstance likely to occur, which, with notice or the passage of time, or
both, would give rise to a default by Chelsea under any Lease; and (c) there are
no consents of any landlord or lessor required to transfer the Real Property to
CBC. Chelsea shall be responsible to obtain any consents required to transfer
the Real Property to CBC.
4.3.1 TITLE AND DESCRIPTION. Chelsea holds, free and clear of any
liens or encumbrances of any kind or nature, a valid and
enforceable leasehold interest in the Real Property pursuant
to the Leases as shown on Schedule B, subject only to the
right of reversion of the landlord or lessor under the leases
and the terms thereof.
4.3.2 PHYSICAL CONDITION. To the best of Chelsea's knowledge, there
is no material defect in the physical condition of any
improvements located on or constituting a part of the Real
Property. The Real Property, including, without limitation,
such improvements, is in good condition and repair and is
adequate for the uses to which it is being put, and the Real
Property, except as disclosed on Schedule B, is not in need of
maintenance or repairs except for ordinary, routine
maintenance and repairs which are not material in nature or
cost. The soil condition of the Real Property is such that it
will support all of the improvements thereon for the
foreseeable life of the improvements without the need for
unusual or new subsurface excavations, fill, footings,
caissons or other installations.
4.3.3 UTILITIES. To the best of Chelsea's knowledge, all water,
sewer, gas, electric, telephone, drainage and other utility
equipment, facilities and services required by law or
necessary for the operation of the Real Property as it is now
improved and operated are installed and connected pursuant to
valid permits, are sufficient to service the Real Property and
are in good operating condition except in such case as will
not materially detract from the marketability or value of the
Real Property and do not impair the operations of the lessee
thereof.
4.3.4 COMPLIANCE WITH LAW; GOVERNMENTAL APPROVALS. To the best of
Chelsea's knowledge, the Real Property is not in violation of
any zoning, building, fire, water, use, health, or other law,
ordinance, code, regulation, license, permit or authorization
issued in respect of any of the Real Property, and Chelsea
knows of no such violation or violations that now exist that
would materially detract from the marketability or value of
the Real Property or impair the operations of the occupant
thereof in any material respect. Improvements located on or
constituting a part of the Real Property and the construction,
installation, use and operation thereof (including, without
limitation, the construction, installation, use and operation
of any signs located thereon) are in material compliance with
all applicable municipal, state, federal or other governmental
laws, ordinances, codes, regulations, licenses, permits and
authorizations, including, without limitation, applicable
zoning, building, fire, water, use, or health laws,
ordinances, codes, regulations, licenses, permits and
authorizations,
and there are presently in effect all certificates of
occupancy, licenses, permits and authorizations required by
law, ordinance, code or regulation or by any governmental or
private authority having jurisdiction over the ownership or
operation of Chelsea's business, or the occupancy thereof or
any present use thereof, except such non-compliance as will
not materially detract from the marketability or value and do
not impair the operations of the business or the occupant
thereof in any respect. There is a legally enforceable
pedestrian, vehicular and handicapped access to the Real
Property.
4.3.5 REAL PROPERTY TAXES. There is no pending or, to the best of
Chelsea's knowledge, threatened special assessment or
reassessment of all or any portion of any of the Real
Property, and there is no pending or threatened special
assessment or reassessment of all or any portion of the Real
Property, except as disclosed on Schedule B.
4.3.6 CONDEMNATION. There is no pending or, to the best of Chelsea's
knowledge, threatened condemnation of all or any part of the
Real Property.
4.3.7 INSURABILITY. Chelsea has not received any notice from any
insurance carrier of any defects or inadequacies in the Real
Property or any part thereof.
4.4 PERSONAL PROPERTY. Attached hereto as Schedule C is a list of all
tangible personal property of every kind and description owned by Chelsea used
or held for use in the operation of the business, and any additions,
replacements therefor or improvements thereof acquired or constructed prior to
Closing (collectively, the "Personal Property"), and, at Closing, all shall be
owned by Chelsea free and clear of all liens, encumbrances, interests,
restrictions or preemptive rights of any kind whatsoever except as set forth
herein, and the Personal Property shall be owned by Chelsea and free and clear
of all liens, encumbrances, interests or restrictions of any kind whatsoever
except as set forth herein and the Chelsea Assets have been maintained in good
condition, subject to normal wear and tear; Chelsea has conducted its business
in the Ordinary Course of Business as defined herein. As used herein, the term
"Ordinary Course of Business" means, with respect to Chelsea, the ordinary
course of its business consistent with the past practices of Chelsea.
4.5 CONTRACTS. Attached hereto as Schedule D is a list of all of
Chelsea's rights and benefits under the business agreements, production
agreements including but not limited to any agreements regarding any interest or
rights (whether past, present or future) in the ownership or distribution of any
independent films or other commercial production agreements, sales
representation agreements, employment agreements, director agreements, real and
personal property leases, real property licenses and contracts in connection
with the operation of the business which, by their terms, will survive Closing,
including any renewals, extensions, amendments or modifications thereof, and any
additional agreements, leases and contracts made or entered into by Chelsea in
the Ordinary Course of Business, as defined in Section 4.4 hereof, approved in
writing by CBC, between the date hereof and the Closing which, by their terms,
will survive Closing, (collectively, the "Contracts"); and at Closing,
Chelsea will not be a party to or bound by any written or oral Contract, except
as set forth on Schedule D. Each of the Contracts are in full force and effect,
and there are no outstanding notices of cancellation, acceleration or
termination in connection therewith except as noted upon Schedule D. The
Contracts listed on Schedule D are all the contracts and agreements to which
Chelsea is a party in connection with its business which will survive Closing
and are all that are necessary for the operation of its business as presently
conducted. Chelsea is not in breach or default in connection with any of the
Contracts, except as noted on Schedule D. Chelsea has made available to CBC true
and correct copies of all Contracts listed on Schedule D, and will make
available to CBC true and correct copies of any additional Contracts and any
additional agreements, leases and contracts relating to the operation of its
business entered into by Chelsea in the Ordinary Course of Business, or as
approved by CBC.
4.6 INTELLECTUAL PROPERTY. Attached hereto as Schedule E is a list of
all right, title and interest of the Sellers in and to the use of the all common
law property rights, goodwill, copyrights, trademarks, service marks, trade
names, patents, jingles, logotypes, slogans and other similar rights used or
held for use in connection with the operation of the business, including all
accretions thereto. There is no other name, trademark, service xxxx, copyright,
or other trade, or service right or xxxx currently being used in the operation
of the business other than those listed in Schedule E. Chelsea pays no royalty
to anyone for use of any such rights and has the right to bring action for the
infringement thereof by third parties. Chelsea represents and warrants that the
operation of its business does not infringe on any trademark, service xxxx,
copyright or other intellectual property or similar right owned by others,
including without limitation, rights of privacy and publicity.
4.7 LITIGATION. Except as set forth on Schedule F, no strike, labor
dispute, investigation, litigation, claim, court or administrative proceeding is
pending or, to the best of Chelsea's knowledge, threatened against Chelsea
relating to its business, its employees or any of its assets or the Chelsea
Shares, and Chelsea knows of no basis for any such possible action.
4.8 INSURANCE. Chelsea shall maintain in full force and effect all of
its existing casualty, liability, and other insurance covering any or all of the
Acquired Assets through the day following the Closing Date in amounts not less
than those in effect on the date hereof; Chelsea has set forth on Schedule G an
abstract of such casualty insurance coverage. Such coverage is for full
replacement value against risks commonly insured against in the television
commercial production industry and Chelsea is not in default under any such
policies. Chelsea has not received any notice from any issuer of such policies
of its intention to cancel, terminate or refuse to renew any policy issued by
it.
4.9 LABOR RELATIONS. Schedule H lists the names, dates of hire and
current annual salaries of all persons employed by Chelsea directly or
indirectly and principally in connection with the operation of its business.
Except as set forth on Schedule D or H, Chelsea is not a party to or subject to
any collective bargaining agreements. Chelsea has no written or oral contracts
of employment with any of its employees, other than (i) oral employment
agreements terminable at will without penalty, or (ii) those listed in Schedule
D. Chelsea in the operation of its business, has complied with all applicable
laws, rules and regulations relating to the employment of labor, including those
related to wages, hours, collective bargaining, occupational safety,
discrimination and the payment of social security and other payroll related
taxes. To the best of Chelsea's knowledge, there is no representation or
organizing effort pending or threatened against or involving or affecting
Chelsea with respect to employees employed by it.
4.10 EMPLOYEE PLANS. Chelsea has not established any oral or written
Employee Plan for the employees thereof except as set forth on Schedule I to
this Agreement. For purposes of this Agreement, Employee Plan means any pension,
retirement, disability, medical, dental or other health insurance plan, life
insurance or other death benefit plan, profit sharing, deferred compensation,
stock option, bonus or other incentive plan, vacation benefit plan, severance
plan, or other employee benefit plan or arrangement, including, without
limitation, any "pension plan" or "welfare plan" as defined by the Employee
Retirement Income Security Act of 1974 ("ERISA"). Each Employee Plan set forth
on Schedule I to this Agreement has been administered to date or terminated, as
the case may be, in compliance with the requirements of the Internal Revenue
Code and ERISA, where applicable each Employee Plan is fully funded on a
termination basis, and all reports required by any government agency with
respect to such plans have been timely filed, and notwithstanding anything to
the contrary contained in such plan and except as disclosed on Schedule I, all
benefits, liabilities and obligations of Chelsea to date under such plan have
been fully accrued and reflected on the Financial Statements. A complete and
accurate copy of each Employee Plan set forth on Schedule I to this Agreement
has been delivered to CBC along with all related determination letters and
filings for the most recent plan year.
4.11 MATERIAL ADVERSE CHANGE. Since January 31, 1999, there has not
been any material adverse change in the operation of Chelsea's business, except
as disclosed on Schedule J. As used in this Agreement, a "material adverse
change" shall expressly include any event which would prevent CBC from
consummating this acquisition in the ordinary course without a material increase
in the costs of acquisition understood by CBC as of the date hereof.
4.12 FINANCIAL STATEMENTS. Chelsea has delivered to CBC its unaudited
financial statements for the fiscal years ending September 30 1996, 1997, and
1998 along with an income statement for the four month period ending January 31,
1999. Such financial statements, balance sheets, income statements and the notes
thereto are true, complete and accurate in all material respects and fairly
present the consolidated assets, liabilities and financial condition of the
business as at the respective dates thereof, and such statements of operations
and the notes thereto are true, complete and accurate in all material respects
and fairly present the results of operations for the periods indicated, and all
such financial statements, balance sheets and statements of operations have been
prepared in accordance with generally accepted accounting principles
consistently applied throughout the periods involved.
4.13 NO UNDISCLOSED LIABILITIES. Chelsea has no liabilities or
obligations of any nature (absolute, accrued, contingent or otherwise) which
were not fully reflected or reserved against in the January 31, 1999 balance
sheet, except for liabilities and obligations incurred in the ordinary course of
business and consistent with past practice since the date thereof (none of which
liabilities and obligations is a liability for breach of contract, tort,
infringement or violation of law and all of which together are not material in
the aggregate); and the reserves reflected in the January 31, 1999 balance sheet
are adequate, appropriate and reasonable under
generally accepted accounting standards for a business of the same type and
nature as the business.
4.14 RECORD BOOKS. The minute book and stock record book of Chelsea to
be delivered to CBC at Closing shall be complete and correct in all material
respects.
4.15 TAXES. Except as disclosed on Schedule K, Chelsea has filed all
requisite federal, state and local tax returns and all other returns with
respect to taxes which are required to be filed by it on or before the date
hereof, and has paid all taxes at set forth on such returns. All such returns
were accurately prepared, and complete copies of all state and federal tax
returns filed by or on behalf of Chelsea have been provided to CBC. Chelsea has
not received any notice of deficiency or assessment of additional taxes. All
taxes, assessments and other governmental charges, due on or before the date
hereof upon Chelsea, or any of its income, properties, or assets, have been duly
paid or will be paid within the statutory filing periods. Chelsea has not
granted any waiver of any statute of limitation with respect to, or any
extension of a period for the assessment of any federal, state or other tax.
Chelsea has, to the best of it's knowledge, withheld proper and accurate amounts
from its employees and deposited such sums in full and complete compliance with
the tax withholding provisions of applicable federal and state laws and adequate
accruals and reserves have been maintained to cover the liability for all
federal and state income and other taxes.
4.16 SUPPLEMENTAL DISCLOSURE. From time to time prior to the Closing,
Chelsea will promptly supplement or amend the Schedules hereto with respect to
any matter hereafter arising which, if existing or occurring at the date of the
Agreement, would have been required to be set forth or described in such
Schedules. No supplement or amendment of any Schedule made pursuant to this
Section shall be deemed to amend, modify or update any representation or
warranty of Chelsea made in this Agreement or cure any breach thereof unless CBC
specifically agrees thereto in writing.
4.17 ENVIRONMENTAL MATTERS.
4.17.1 ENVIRONMENTAL REPRESENTATION. Chelsea is in compliance in all
material respects with all applicable federal, state and local
laws and regulations relating to pollution or protection of
human health or the environment ("Environmental Laws") (which
compliance includes, but is not limited to, the possession by
such Chelsea of any and all permits and other governmental
authorizations required under applicable Environmental Laws
and compliance with the terms and conditions thereof) with
respect to the Leased Real Property and the operation of its
business. Chelsea has not received any communication (written
or oral), whether from a Governmental Authority, citizens'
group, employee or otherwise, alleging that Chelsea is not in
such compliance, and to Chelsea's knowledge, there are no past
or present actions, activities, circumstances, conditions,
covenants or incidents that may prevent or interfere with such
compliance in the future. Except as disclosed on Schedule B,
Chelsea has not participated in nor approved, nor has there
occurred, to the best of their knowledge, any production,
disposal or
storage on the Leased Real Property of any hazardous waste or
toxic substance (above or beneath the surface), to the best of
Chelsea's knowledge, nor is there any proceeding or inquiry,
by any governmental authority (federal or state) with respect
to the presence of such waste or substance on the Leased Real
Property. There is no Environmental Claim (as defined below)
pending, or to the knowledge of Chelsea, threatened against
Chelsea with respect to the Leased Real Property or its
business or, to the best of the Chelsea's knowledge, against
any person whose liability for any Environmental Claim Chelsea
has or may have retained or assumed either contractually or by
operation of law. There are no past or present actions,
activities, circumstances, conditions, events or incidents
with respect to the Leased Real Property, Chelsea or its
business that could form the basis of an Environmental Claim
against Chelsea or against any person whose liability for any
Environmental Claim Chelsea has or may have retained or
assumed either contractually or by operation of law. As used
herein, "Environmental Claim" means any claim, action, cause
of action, investigation or notice (written or oral) by any
person alleging potential liability arising out of, based on
or resulting from (a) the presence or release of any hazardous
waste at any location, whether or not owned or operated by
Chelsea, (b) circumstances forming the basis of any violation
of any Environmental Law or (c) circumstances requiring the
removal, abatement, investigation or remediation of Hazardous
Waste. "Hazardous waste" shall consist of the substances
defined as "hazardous substances," "hazardous materials," or
"toxic substances" in the Comprehensive Environmental Response
Compensation and Liability Act of 1980, as amended, 42
USCss.9601, et seq., or in the Hazardous Materials
Transportation Act, 49 USCss.1801, et seq., or in the
Resources Conservation and Recovery Act, 42 USCss.6901, et
seq., and all substances defined as "hazardous waste" under
the Statutes of the States of Massachusetts, California and
New York (with respect to Leased Real Property located in such
states) or any regulations adopted pursuant to those statutes,
including, but not limited to, asbestos and asbestos
containing materials.
4.17.2 ENVIRONMENTAL COVENANTS. Chelsea has provided CBC with all
information, surveys and reports in Chelsea's possession or
control concerning the existence or possible existence of any
underground storage tanks, polychlorinated biphenyls, asbestos
or asbestos-containing materials, radon gas, radioactive
materials, liquid petroleum or liquid petroleum products, or
other hazardous wastes, and any other reports, studies or
documents in Chelsea's possession relating to Chelsea's
potential violation or liability under applicable
Environmental Laws ("Environmental Contamination").
4.18 ACCESS TO INFORMATION. Chelsea shall give CBC and its
representatives reasonable access during normal business hours throughout the
period prior to Closing to the
operations, properties, books, accounting records, contracts, agreements,
leases, commitments, sales records and other records of and pertaining to the
operation of its business; provided, however, such access shall not unreasonably
disrupt Chelsea's normal operation. Chelsea shall furnish to CBC all information
concerning Chelsea's affairs as CBC may reasonably request, including, but not
limited to, information regarding the status of Chelsea's loan agreement with
Xxxxxxx-Xxxxxxx Productions, and Chelsea shall provide CBC with such information
regarding Chelsea's affairs as CBC reasonably requests. Each party will maintain
the confidentiality of all the information and materials delivered to the other
or made available for its inspection by the other hereunder. Nothing shall be
deemed to be confidential information that: (a) is known to the party to whom it
was disclosed at the time of its disclosure; (b) becomes publicly known or
available other than through disclosure by the disclosing party; (c) is received
by the party to whom it was disclosed from a third party not actually known by
the disclosing party to be bound by a confidentiality agreement with or
obligation to the disclosing party; or (d) is independently developed by the
party to whom it was disclosed as clearly evidenced by its records.
Notwithstanding the foregoing provisions of this Section, a party may disclose
such confidential information (x) to the extent required (in the opinion of the
disclosing parties independent legal counsel) to comply with applicable laws and
regulations, (y) to its officers, directors, employees, representatives,
financial advisors, attorneys, accountants, and agents with respect to the
transactions contemplated hereby (so long as such parties are informed of the
confidentiality of such information), and (z) to any Governmental Authority in
connection with the transactions contemplated hereby. In the event this
Agreement is terminated, each party will return to the other all confidential
information disclosed pursuant hereto relating to the transactions contemplated
hereunder, whether obtained before or after the execution of this Agreement.
4.19 CONDUCT OF THE BUSINESS. Until Closing, without the prior written
consent of CBC, Chelsea shall not enter into any transaction, agreement or
understanding other than in the Ordinary Course of Business which will not
survive Closing, or modify any of the Contracts; no employment contract shall be
entered into by Chelsea relating to the operation of its business unless the
same is terminable at will and without penalty at any time; no material increase
in compensation payable or to become payable, to any of the employees employed
by Chelsea shall be made; no material change in personnel policies, insurance
benefits or other compensation arrangements shall be made; and Chelsea will
cause its business to be operated in all material respects in compliance with
all applicable laws and regulations.
4.20 EMPLOYEES. Except as set forth herein, Chelsea shall be solely
responsible for any and all liabilities and obligations Chelsea may have to its
employees, including, without limitation, compensation, severance pay, incentive
bonuses, health expenses, and accrued vacation time, sick leave and obligations
under any of Chelsea's employee benefit plans. Chelsea acknowledges that except
as set forth herein, CBC has no obligation hereunder to offer employment to any
employee of Chelsea; however, CBC shall have the right to hire such employees as
CBC may select in its sole discretion. Except as set forth herein, with respect
to any employee that CBC hires, Chelsea further acknowledges that CBC shall have
no obligation for any compensation, incentive bonuses, health expenses, "accrued
vacation" or other accrued leave time of said employees as a consequence of
their being hired by CBC, and CBC shall have no liability for any such
compensation due any employee for service prior to the Closing Date. Chelsea
also acknowledges that with respect to such employees as may be hired by
CBC, and where any such compensation, incentive bonuses, health expenses, or
accrued leave time exists for said employees, Chelsea will retain the
responsibility for any liability arising therefrom. Except as set forth herein,
the consummation of the transaction contemplated hereby will not cause CBC to
incur or suffer any liability relating to, or obligation to pay, severance,
termination, or other payments to any person or entity for employment by
Chelsea, or any liability under any employee benefit plans of Chelsea,
including, without limitation, any liability under the Internal Revenue Code of
1986, as amended, or the Employee Retirement Income Security Act of 1974, as
amended. Chelsea shall comply with the provisions of the Worker Adjustment and
Retraining and Notification Act and similar laws and regulations, if applicable,
and shall be solely responsible for any and all liabilities, penalties, fines,
or other sanctions that may be assessed or otherwise due under such applicable
laws and regulations on account of the dismissal or termination of the employees
by Chelsea.
4.21 PRE-CLOSING COVENANTS. Between the date hereof and the Closing,
Chelsea covenants that:
4.21.1 CONDUCT OF BUSINESS. Chelsea shall conduct the business
operations in the Ordinary Course of Business, and shall
continue all practices, policies, procedures and technical
operations relating to the business in substantially the same
manner as heretofore. Chelsea shall continue to operate its
business in material conformity in all material respects with
all applicable laws, regulations, rules and ordinances.
4.21.2 MAINTENANCE OF ASSETS. Chelsea shall maintain all of its
assets in a good condition and, with respect to the Personal
Property, shall maintain inventories of spare parts at levels
consistent with the past practices of Chelsea. Chelsea shall
not sell, convey, assign, transfer or encumber any of the
Assets, except for the retirement of tangible Assets
consistent with the normal and customary practices of Chelsea
and its business which will be replaced prior to Closing.
4.22 NO MISLEADING STATEMENTS. No statement, representation or warranty
made by Mr. Wax herein and no information provided or to be provided by Chelsea
to CBC pursuant to this Agreement or any other documents delivered hereunder or
in connection with the negotiations covering the purchase and sale contemplated
herein contains or will contain any untrue statement of a material fact, or
omits or will omit a material fact. There are no facts or circumstances known to
Mr. Wax or Chelsea and not disclosed herein or in the Schedules or Exhibits
hereto that, either individually or in the aggregate, will materially adversely
affect after Closing the Assets, Chelsea Shares or the condition or operation of
the business.
4.23 CONSENTS. Chelsea shall obtain any required third party consents,
the absence of which would bar the transactions contemplated by this Agreement.
If, on the Closing Date, Chelsea has not obtained any required consent for the
assignment of any Contract and the Closing occurs, then after the Closing Date,
Chelsea will continue to use its best efforts, and CBC will cooperate with
Chelsea, to obtain any such consent and/or to remove any other impediments to
the assignment of any such Contract. From and after the Closing, until the valid
assignment of all such Contracts, Chelsea will take such lawful actions as are
reasonably necessary to assure that the surviving corporation shall receive the
benefits of, and shall be
obligated to perform the obligations of Chelsea under, all such Contracts after
the Closing Date to the same extent as if the surviving corporation were a party
thereunder and CBC agrees to cooperate with Chelsea in connection with any such
actions and to enter into, at the time of the Closing, any lawful arrangements
in furtherance thereof reasonably requested by Chelsea.
4.24 SUPPLEMENTAL DISCLOSURE. From time to time prior to the Closing,
Chelsea will promptly supplement or amend the Schedules and Exhibits hereto with
respect to any matter hereafter arising which, if existing or occurring at the
date of the Agreement, would have been required to be set forth or described in
such Schedules. No supplement or amendment of any Schedule made pursuant to this
Section shall be deemed to amend, modify or update any representation or
warranty of Chelsea made in this Agreement or cure any breach thereof unless CBC
specifically agrees thereto in writing.
4.25 CHELSEA SHARES. Chelsea hereby covenants to and agrees that, from
the date hereof to the Closing, Chelsea shall not:
(a) Issue, sell or commit to issue or sell any shares of Chelsea's
capital stock or other securities, or any other ownership
interest therein; or
(b) Grant or commit to grant any option, warrant or other right to
subscribe for or purchase or otherwise acquire any shares of
any of Chelsea's capital stock or any other ownership interest
therein.
4.26 CBC COMMON STOCK.
Mr. Wax further acknowledges, represents and warrants to CBC as
follows:
(a) Mr. Wax understands that the shares of CBC Common Stock to be
issued to him in the Merger will not have been registered under the Securities
Act of 1933, as amended (the "Securities Act"), or any state securities law by
reason of specific exemptions under the provisions thereof which depend in part
upon the other representations and warranties made by Mr. Wax in this Agreement.
Mr. Wax understands that CBC is relying upon Mr. Wax's representation and
warranties contained in this Section 4.26 for the purpose of determining whether
this transaction meets the requirements for such exemptions.
(b) Mr. Wax has such knowledge, skill and experience in business,
financial and investment matters so that Mr. Wax is capable of evaluating the
merits and risks of an investment in CBC Common Stock pursuant to the
transactions contemplated by this Agreement or to the extent that Mr. Wax has
deemed it appropriate to do so, Mr. Wax has relied upon appropriate professional
advice regarding the tax, legal and financial merits and consequences of an
investment in CBC Common Stock pursuant to the transactions contemplated by this
Agreement.
(c) Mr. Wax has made, either alone or together with Mr. Wax's advisors,
such independent investigation of CBC, its management and related matters as Mr.
Wax deems to be, or such advisors have advised to be, necessary or advisable in
connection with an
investment in CBC Common Stock through the transactions contemplated by this
Agreement; and Mr. Wax and advisors have received all information and data that
Mr. Wax and such advisors believe to be necessary in order to reach an informed
decision as to the advisability of an investment in CBC Common Stock pursuant to
the transactions contemplated by this Agreement.
(d) Mr. Wax understands that the shares of CBC Common Stock to be
received by Mr. Wax in the transactions contemplated hereby will be "restricted
securities" under applicable federal securities laws and that the Securities Act
and the rules of the Securities and Exchange Commission (the "SEC") promulgated
thereunder provide in substance that Mr. Wax may dispose of such shares only
pursuant to an effective registration statement under the Securities Act or an
exemption from registration if available. Mr. Wax further understands that CBC
has no obligation or intention to register the sale of any of the shares of CBC
Common stock to be received by Mr. Wax in the transactions contemplated hereby,
or take any other action so as to permit sales pursuant to, the Securities Act.
Mr. Wax further understands that applicable state securities laws may impose
additional constraints upon the sale of securities. As a consequence, Mr. Wax
understands that Mr. Wax may have to bear the economic risk of an investment in
CBC Common Stock to be received by Mr. Wax pursuant to the transactions
contemplated hereby for an indefinite period of time.
(e) Mr. Wax is acquiring shares of CBC Common Stock pursuant to the
transactions contemplated hereby for investment only and not with a view to or
intention of or in connection with any resale or distribution of such shares or
any interest therein.
(f) The certificate(s) evidencing the shares of CBC Common Stock to be
issued pursuant to the transactions contemplated hereby shall bear the following
legend:
"The shares represented by this certificate have not been
registered under the Securities Act of 1933, as amended, or
any state securities laws and may not be sold or transferred
in the absence of such registration or an exemption therefrom
under the Securities Act of 1933, as amended, and applicable
state securities laws."
ARTICLE 5
CBC'S REPRESENTATIONS, WARRANTIES AND COVENANTS
CBC represents and warrants as follows, which representations and
warranties shall be deemed to have been made again at Closing:
5.1 CORPORATE EXISTENCE AND POWERS OF CBC. CBC is a corporation
organized and existing in good standing under the laws of the State of Minnesota
with full power and authority to enter into this Agreement and consummate the
transactions contemplated herein; the execution of the Agreement and, the
completion of the transactions herein involved will not result in the violation
of any order, license, permit, rule, judgment or decree to which CBC is subject
or the breach of any contract, agreement or other commitment to which CBC is a
party or by which it or its properties is bound or conflict with or violate any
provision of
CBC's Articles of Incorporation, By-Laws, or other organizational documents; and
except for the transfer of control to CBC and the consents identified by Chelsea
on Schedule D, to CBC's knowledge, no other consent of any kind is required that
has not been obtained for CBC to make or carry out the terms of this Agreement.
5.2 CORPORATE EXISTENCE AND POWERS OF MERGER SUB. Merger Sub is a
corporation duly organized, validly existing and in good standing under the laws
of the State of Minnesota with full power and authority to enter into this
Agreement and consummate the transactions contemplated herein. Merger Sub is a
corporation newly formed by CBC for the sole purpose of consummating the
transactions contemplated by this Agreement and has not conducted any business
other than as expressly set forth in or contemplated by this Agreement.
5.3 AUTHORIZATION. The execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby have been duly approved by
the Boards of Directors of CBC and Merger Sub and by CBC as the sole shareholder
of Merger Sub, and no other corporate proceedings on the part of CBC or Merger
Sub are necessary to approve and authorize the execution and delivery of this
Agreement or the consummation of the transactions contemplated hereby. This
Agreement has been duly executed and delivered by CBC and Merger Sub and
constitutes the valid and binding agreement of CBC and Merger Sub, enforceable
in accordance with its terms, except to the extent that enforceability may be
limited by applicable bankruptcy, reorganization, insolvency, moratorium or
other laws affecting the enforcement of creditors' rights generally and by
general principles of equity (regardless of whether such enforceability is
considered in a proceeding in equity or in law).
5.4 CONSENTS AND APPROVALS; NO VIOLATIONS. Subject to (a) the filing of
Articles of Merger with the Secretaries of State of the Commonwealth and
Minnesota and (b) compliance with applicable federal and state securities laws,
the execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby will not: (i) violate or conflict with any
provisions of the Charter or By-Laws of CBC or Merger Sub; (ii) breach, violate
or constitute an event of default (or an event which with the lapse of time or
the giving of notice or both would constitute an event of default) under, give
rise to any right of termination, cancellation, modification or acceleration
under, or require any consent or the giving of any notice under, any note, bond,
indenture, mortgage, security agreement, lease, license, franchise, permit,
agreement or other instrument or obligation to which CBC or Merger Sub is a
party, or by which any of them or any of their respective properties or assets
may be bound, or result in the creation of any lien, claim or encumbrance of any
kind whatsoever upon the properties or assets of CBC or Merger Sub pursuant to
the terms of any such instrument or obligation, other than any breach,
violation, default, termination, cancellation, modification or acceleration
which would not have a material adverse effect on CBC or its business or
prospects; (iii) violate or conflict with any law, statute, ordinance, code,
rule, regulation, judgment, order, writ, injunction or decree or other
instrument of any Federal, state, local or foreign court or governmental or
regulatory body, agency or authority applicable to CBC or Merger Sub or by which
any of their respective properties or assets may be bound, except for such
violations or conflicts which would not have a material adverse effect on CBC or
its business or prospects; or (iv) require, on the part of CBC or Merger Sub,
any filing or registration with, or permit, license, exemption, consent,
authorization or approval of, or the giving of any notice to, any governmental
or regulatory body, agency or
authority other than any filing, registration, permit, license, exemption,
consent, authorization, approval or notice which if not obtained or made would
not have a material adverse effect on CBC or its business or prospects since
December 31, 1998.
5.5 CAPITALIZATION. (a) The authorized capital stock of CBC consists of
50,000,000 shares of CBC Common Stock, of which 6,871,742 shares are issued and
outstanding as of December 31, 1998. All of the issued and outstanding shares of
CBC Common Stock are (and all shares of CBC Common Stock to be issued in
connection with the Merger, when issued in accordance with this Agreement, shall
be) duly authorized, validly issued, fully paid and nonassessable, and none of
such shares has been issued in violation of any applicable preemptive rights.
There are no agreements or commitments to which CBC is a party or by which it is
bound for the redemption or repurchase of any shares of its capital stock.
Except as otherwise disclosed in CBC's SEC Filings (as defined in Section 5.6)
or on Schedule 5.5, there are no outstanding options, warrants or other rights
to purchase, or securities convertible into or exchangeable for, shares of the
capital stock of CBC, and there are no agreements or commitments to which CBC is
a party or by which it is bound pursuant to which CBC is or may become obligated
to issue additional shares of its capital stock since December 31, 1998.
(b) The authorized capital stock of Merger Sub consists of
1,000 shares of common stock, no par value per share, 100 of which are issued
and outstanding and owned beneficially and of record by CBC. CBC is the sole
holder of the capital stock of Merger Sub. There are no outstanding options,
warrants or other rights to purchase, or securities convertible into or
exchangeable for, shares of the capital stock of Merger Sub, and there are no
agreements or commitments to which Merger Sub is a party or by which it is bound
pursuant to which Merger Sub is or may become obligated to issue additional
shares of its capital stock.
5.6 SEC REPORTS AND FINANCIAL STATEMENTS. CBC has heretofore delivered
or made available to Mr. Wax complete and correct copies of all reports and
other filings filed by CBC with the SEC pursuant to the Securities Act of 1933,
as amended, and the Securities Exchange Act of 1934, as amended, and the rules
and regulations thereunder (the "Acts") since and including the filing date of
the Registration Statement with respect to the Company's initial public offering
(such reports and other filings collectively referred to herein as the "SEC
Filings"). The SEC Filings constitute all of the documents required to be filed
by CBC under the SEC Acts with the SEC. All documents required to be filed as
exhibits to the SEC Filings have been so filed, and all contracts so filed as
exhibits and which are material are in full force and effect, except those which
are expired in accordance with their terms or have otherwise been terminated,
and neither CBC nor any of its subsidiaries is in default thereunder. As of
their respective dates, the SEC Filings did not contain any untrue statement of
a material fact or omit to state a material fact required to be stated therein
or necessary to make the statements therein, in light of the circumstances under
which they were made, not misleading. The audited financial statements of CBC
included in the SEC Filings comply in all material respects with the published
rules and regulations of the SEC with respect thereto, and such audited
financial statements (i) were prepared from the books and records of CBC, (ii)
were prepared in accordance with generally accepted accounting principles
applied on a consistent basis (except as may be indicated therein or in the
notes or schedules thereto) and (iii) present fairly the financial position of
CBC as at the dates thereof and the results of operations and cash flows (or
changes in financial position, from the previous fiscal year) for the periods
then
ended. The unaudited financial statements included in the SEC Filings comply in
all material respects with the published rules and regulations of the SEC with
respect thereto; and such unaudited financial statements (i) were prepared from
the books and records of CBC, (ii) were prepared in accordance with generally
accepted accounting principles, except as otherwise permitted under the Exchange
Act and the rules and regulations thereunder, on a consistent basis (except as
may be indicated therein or in the notes or schedules thereto) and (iii) present
fairly the financial position of CBC as at the dates thereof and the results of
operations and cash flows (or changes in financial condition from the previous
fiscal year) for the periods then ended, subject to normal year-end adjustments
and any other adjustments described therein or in the notes or schedules
thereto. The foregoing representations and warranties in this Section 5.6 shall
also be deemed to be made with respect to all filings made with the SEC on or
before the Merger Effective Date. Except in the event of a shareholder takeover
or other events beyond its control, CBC hereby covenants with Mr. Wax, which
covenant shall survive the Closing indefinitely, to maintain it registration
under the Securities Exchange Act of 1934, as amended, and to file all reports
required to be filed by it thereunder for a period of not less than three years
after and CBC Shares are issued to Mr. Wax as a result of the Merger. CBC agrees
that, as soon as permitted under applicable SEC Regulations, it will use its
best efforts to become qualified to register the CBC Shares issued to Mr. Wax
pursuant to this Agreement on Form S-3 under the Securities Act or any
comparable or successor form and, upon reasonable request from Mr. Wax to
register any of his CBC Common Shares, CBC shall use its best efforts to
register, within 90 days of such request (provided it is permitted under
applicable SEC Regulations), on Form S-3 or any comparable or successor form
thereto, for public sale in accordance with the method of disposition specified
in such form, the number of CBC Shares specified in such request.
5.7 ABSENCE OF CERTAIN CHANGES. Except as set forth on Schedule 5.7
hereto and as disclosed in CBC's SEC Filings, since January 31, 1999, there have
been no material adverse changes in CBC's business and CBC has not: (i) incurred
any material obligation or liability (whether absolute, accrued, contingent or
otherwise) except in the ordinary course of business and consistent with past
practice; (ii) experienced any material adverse change in its business or
prospects; (iii) made any change in any accounting principle or practice or in
its methods of applying any such principle or practice; (iv) suffered any
material damage, destruction or loss, whether or not covered by insurance,
affecting its properties, assets or business; (v) mortgaged, pledged or
subjected to any lien, charge or other encumbrance, or granted to third parties
any rights in, any of its assets, tangible or intangible; (vi) sold or
transferred any of its assets, except in the ordinary course of business and
consistent with past practice, or canceled or compromised any debts or waived
any claims or rights of a material nature; (vii) issued any additional shares of
capital stock or any rights, options or warrants to purchase, or securities
convertible into or exchangeable for, shares of its capital stock other than
options to purchase shares of CBC Common Stock granted under its stock option
plans, shares of CBC Common Stock issued upon exercise of stock options and
shares of CBC Common Stock issued upon the exercise of outstanding warrants;
(viii) declared or paid any dividends on or made any distributions (however
characterized) in respect of shares of its capital stock; or (ix) entered into
any agreement to do any of the foregoing.
5.8 LITIGATION. Except as set forth in Schedule 5.8, there are no
suits, actions, claims, proceedings (including, without limitation, arbitral or
administrative proceedings) or
investigations pending or, to the knowledge of CBC, threatened against CBC or
its properties, assets or business or, to the knowledge of CBC, pending or
threatened against any of the officers, directors, employees, agents or
consultants of CBC in connection with the business of CBC. There are no such
suits, actions, claims, proceedings or investigations pending, or, to the
knowledge of CBC, threatened challenging the validity or propriety of the
transactions contemplated by this Agreement. There is no judgment, order,
injunction, decree or award (whether issued by a court, an arbitrator or an
administrative agency) to which CBC is a party, or involving CBC's properties,
assets or business, which is unsatisfied or which requires continuing compliance
therewith by CBC.
5.9 COMPLIANCE WITH APPLICABLE LAW. Except as set forth in Schedule
5.9, CBC is not in violation of any applicable safety, health, environmental or
other law, statute, ordinance, code, rule, regulation, judgment, order,
injunction, writ or decree of any Federal, state, local or foreign court or
governmental or regulatory body, agency or authority having, asserting or
claiming jurisdiction over it or over any part of its business, operations,
properties or assets, except where any such violation would not have a material
adverse effect. CBC has not received any notice alleging any such violation, nor
to the knowledge of CBC, is there any inquiry, investigation or proceedings
relating thereto.
5.10 DISCLOSURE. No representation or warranty by CBC or Merger Sub
contained in this Agreement and no statement contained in any of the Disclosure
Schedules delivered or to be delivered pursuant to this Agreement contains or
will contain, when considered together as a whole, any untrue statement of a
material fact or omits or will omit to state any material fact necessary to make
the statements contained therein not misleading.
ARTICLE 6
BREACH OF AGREEMENTS,
REPRESENTATIONS AND WARRANTIES
6.1 INDEMNIFICATION BY MR. WAX. Mr. Wax shall indemnify and hold
harmless CBC and Merger Sub and every affiliate of CBC and Merger Sub and any of
its or their directors, members, managers, stockholders, officers, partners,
employees, agents, consultants, representatives, transferees and assignees
(collectively, the "CBC Indemnitees") from and against any loss, damage,
liability, claim, demand, judgment or expense, including claims of third
parties, and including without being limited to, reasonable counsel fees and
reasonable accounting fees, (collectively, "Damages"), sustained by CBC
Indemnities by reason of, or arising out of or relating to, (i) any material
breach of any warranty, representation, covenant or agreement of Mr. Wax
contained herein or in any other document delivered pursuant to the terms hereof
or in the Schedules attached hereto, (ii) any error contained in any statement,
report, certificate or other instrument delivered to CBC Indemnities by Mr. Wax
pursuant to this Agreement, (iii) any failure by Mr. Wax to pay or discharge any
liability relating to the business that is not expressly assumed by CBC
hereunder, (iv) any facts or circumstances described in Schedule F, or (v) any
obligations for unpaid taxes, penalties and interest with respect to Chelsea
noted on Schedule K. Chelsea hereby expressly waives all rights of equitable
indemnity, subrogation and contribution, whether by contract, statute or common
law with respect to it for the indemnification obligations of Chelsea to CBC
Indemnities contained herein. Notwithstanding the foregoing,
Mr. Wax shall have no liability to the CBC Indemnitees pursuant to this
Section 6.1, except to the extent that Damages exceed $25,000.00.
6.2 INDEMNIFICATION BY CBC. CBC shall indemnify and hold harmless Mr.
Wax and Chelsea and any directors, members, stockholders, officers, partners,
employees, agents, consultants, representatives, transferees and assignees
(collectively, the "Chelsea Indemnities") from and against any loss, damage,
liability, claim, demand, judgment or expense, including claims of third
parties, and including without being limited to, reasonable counsel fees and
reasonable accounting fees, sustained by Chelsea Indemnities by reason of, or
arising out of or relating to, (i) any material breach of any warranty,
representation, covenant or agreement of CBC contained herein or any other
document delivered pursuant to the terms hereof, (ii) any material error
contained in any statement, report, certificate or other instrument delivered to
Chelsea Indemnities by CBC pursuant to this Agreement, or (iii) any failure by
CBC to pay or discharge any liability relating to the business as set forth in
Section 2 above. Notwithstanding the foregoing, except in the case of CBC's
failure to maintain its SEC Filings pursuant to Section 5.6 or CBC's failure to
comply with its obligations pursuant to Section 2, CBC shall have no liability
to the Chelsea Indemnitees pursuant to this Section 6.2 except to the extent
that Damages exceed $25,000.
6.3 SPECIFIC PERFORMANCE. Mr. Wax acknowledges that the Chelsea Shares
to be transferred and assigned under this Agreement are unique and not readily
bought or sold on the open market and, for that reason, among others, CBC would
be irreparably harmed by any breach or failure of Mr. Wax to consummate this
Agreement, and monetary damages therefore will be highly difficult, if not
wholly impossible, to ascertain. It is therefore agreed that this Agreement
shall be enforceable by CBC in a court of equity by a decree of specific
performance, and an injunction may be issued restraining any transfer or
assignment of the assets or the Chelsea Shares contrary to the provisions of
this Agreement pending the determination of such controversy. Mr. Wax hereby
waives the claim or defense that an adequate remedy at law exists. In the event
of a suit by CBC to obtain specific performance and CBC's prevailing in such
action, CBC shall be entitled to reimbursement by Mr. Wax of all reasonable
attorneys' fees and other out-of-pocket expenses incurred by CBC with respect
thereto.
6.4 PROCEDURES. The indemnified party agrees to give written notice to
the indemnifying party within 10 days of obtaining knowledge of any claim or
other assertion of liability which could give rise to a claim for
indemnification hereunder (hereinafter collectively "Claims," and individually a
"Claim"), it being understood that the failure to give such notice shall not
affect the indemnified party's obligation to indemnify as set forth in this
Agreement, unless, and then only to the extent, the indemnifying party's ability
to contest, defend or settle with respect to such Claim is thereby demonstrably
and materially prejudiced by such failure to give such notice. The obligations
and liabilities of the parties hereto with respect to their respective
indemnities pursuant to this Article 6 resulting from any Claim, shall be
subject to the following additional terms and conditions:
(a) Provided the indemnifying party acknowledges in writing
its obligation to indemnify the indemnified party with respect to the
Claim and further satisfies the indemnified party as to its financial
ability to satisfy such indemnification obligation,
the indemnifying party shall have the right to undertake, by counsel or
other representatives of its own choosing, the defense or opposition to
such Claim.
(b) In the event that the indemnifying party shall either (i)
elect not to undertake, or shall fail to satisfy any requirements to
undertake, such defense or opposition, or (ii) fail to properly elect
within thirty (30) days after notice of any such Claim from the
indemnified party or thereafter fail to defend or oppose such Claim,
then, in either such event, the indemnified party shall have the right
to undertake the defense, opposition, compromise or settlement of such
Claim, by counsel or other representatives of its own choosing, on
behalf of and for the account and risk of the indemnifying party.
(c) Notwithstanding anything in this Section 6.4 to the
contrary, (i) the indemnifying party shall not, without the indemnified
party's written consent, settle or compromise any Claim or consent to
entry of any judgment which includes any admission of liability or does
not include as a term thereof the giving by the claimant or the
plaintiff to the indemnified party of an unconditional release from all
liability in respect of such Claim, and (ii) in the event that the
indemnifying party undertakes defense of or opposition to any Claim,
the indemnified party, by counsel or other representative of its own
choosing and at its sole cost and expense, shall have the right to
consult with the indemnifying party and its counsel or other
representatives concerning such Claim and the indemnifying party and
the indemnified party and their respective counsel or other
representatives shall cooperate in good faith with respect to such
Claim.
(d) The indemnifying party hereby agrees to pay the amount of
any established Claim within fifteen (15) days after the establishment
thereof. The amount of established Claims shall be paid in cash. Any
amounts for such Claims not paid when due under this Article shall bear
interest at a rate equal to 15% per annum until paid.
ARTICLE 7
TERMINATION
7.1 TERMINATION OF AGREEMENT. This Agreement may be terminated at any
time on or prior to the Closing Date: (a) by the mutual consent of Chelsea and
CBC; (b) by written notice of either CBC or Chelsea if the other party breaches
in any material respect any of its representations, warranties, covenants or
agreements contained herein and such breach has not been cured within ten (10)
days of the date of notice of breach is received by the breaching party,
provided, however, that no notice of intention to terminate this Agreement
pursuant to this Section 7.1 may be served by a party that is itself in material
breach of the Agreement at the time of such notice; (c) by CBC as provided under
Section 4.17 (regarding Environmental Matters); (d) by CBC if not then in
material breach or default if Chelsea have failed to satisfy the conditions set
forth in Section 8.2, or (e) by Chelsea if not then in material breach or
default if CBC has failed to satisfy the conditions set forth in Section 8.3.
7.2 EFFECT OF TERMINATION. In the event this Agreement is terminated as
provided for in this Article 7, this Agreement shall be deemed null, void and of
no further force or
effect, and the parties hereto shall be released from all future obligations
hereunder; provided that the confidentiality provisions of Section 4.18 and the
provisions of Section 9.12 shall survive such termination, and provided further
that the termination of this Agreement shall not relieve any party of liability
for its material breach of this Agreement.
ARTICLE 8
CLOSING
Subject to the terms and conditions herein stated, the parties agree as
follows:
8.1 CLOSING DATE. The closing of the transactions contemplated under
this Agreement (the "Closing") shall be held at such time and date or dates as
shall be mutually agreed by Mr. Wax and CBC; provided, however, that the parties
agree to use all reasonable efforts to cause the Closing to occur on or about
March 1, 1999.
8.2 MR. WAX'S AND CHELSEA'S OBLIGATIONS AT CLOSING. At Closing, Mr. Wax
and/or Chelsea shall deliver to CBC the following:
(a) An Assignment of the Chelsea Shares together with a
certificate or certificates for the Chelsea Shares;
(b) Resignations of the incumbent officers and directors of
Chelsea;
(c) Certificate of Chelsea' s Clerk certifying as to Chelsea's
Articles of Organization, By-Laws, and Board of Directors and
shareholder approvals (all of which shall be attached
thereto);
(d) UCC reports dated not more than thirty (30) days prior to the
Closing Date of the Secretaries of State for the Commonwealth
and the States of New York and California evidencing no
judgments, financing statements, or liens on file with respect
to the any assets of Chelsea, or, if such report evidences
that judgments, financing statements, or liens on file, a
termination statement or other appropriate document signed by
the secured party or lienholder evidencing the release or
termination of such financing statement or such lien or a
pay-off letter from such secured party or lienholder
indicating that such party or lienholder will provide such
release or termination statement upon receipt of payment from
the proceeds of the sale contemplated herein, other than
Permitted Encumbrances;
(e) Executed Director Agreements for Xxxxx Norowzian, Xxxxx Xxxxx
and Xxxxx Xxxxxxxx;
(f) Executed Employment Agreements for Mr. Wax, Xxxxxxx Xxxx, and
Xxxx Xxxxxxx;
(g) Certificates of Corporate Good Standing for Chelsea in the
States of Massachusetts, California and New York;
(h) Such other documents and instruments as might reasonably be
requested by CBC to consummate the transaction contemplated
hereunder consistent with the intent expressed herein;
(i) Third party consents required to consummate the transaction.
(j) Termination of Chelsea's Agreement with Xxxxxxx-Xxxxxxx
Productions.
8.3 CBC'S OBLIGATIONS AT CLOSING. At Closing, CBC shall deliver to
Chelsea the following:
(a) A certificate for the CBC Shares required to be issued on the
Merger Effective Date;
(b) Confirmation that $605,000.00 has been sent directly to an
escrow agent in connection with the termination of the
Xxxxxxx-Xxxxxxx Agreement;
(c) The transfer of the following liabilities and obligations:
(i) The amount up to $47,500 to DGA paid pursuant to the
DGA Settlement Agreement; and
(ii) The amount up to $234,884 for payment of outstanding
accounts payable and expenses listed on Schedule L
attached hereto.
(d) Certified copies of resolutions of the Board of Directors of
CBC authorizing the transaction contemplated hereby; and
(e) Such other documents and instruments as might reasonably be
requested by Chelsea to consummate the transactions
contemplated hereunder consistent with the intent expressed
herein.
8.4 CONDITIONS TO OBLIGATIONS OF CBC. The obligations of CBC to
consummate the transaction herein contemplated at Closing are subject to and
conditioned upon:
(a) The execution of Director Agreements for Xxxxx Norowzian;
Xxxxx Xxxxx; and Xxxxx Xxxxxxxx described and set forth
herein;
(b) Executed Employment Agreements for Mr. Wax, Xxxxxxx Xxxx and
Xxxx Xxxxxxx;
(c) Satisfaction of obligations to Xxxxxxx-Xxxxxxx Productions and
termination of Chelsea's agreement with Xxxxxxx-Xxxxxxx
Productions;
(d) The satisfaction at or before Closing of all agreements,
obligations, covenants and conditions of Chelsea and Mr. Wax
hereunder required to be performed or complied with by them on
or before Closing;
(e) The accuracy of the representations and warranties made by Mr.
Wax and Chelsea;
(f) Chelsea shall not be subject to any judgment, order,
injunction or decree of any court of competent jurisdiction
enjoining the consummation of the transactions contemplated
hereby;
(g) Delivery of the termination statements, pay-off letters or
other appropriate documentation called for to be delivered by
Chelsea so as to result in the release of all security
interests assets and the Chelsea Shares;
(h) CBC shall have completed its due diligence and any remediation
required to be performed by Chelsea pursuant thereto shall
have been completed to CBC's reasonable satisfaction;
(i) CBC shall have completed an inspection of the Leased Real
Property and determined to its reasonable satisfaction that
the buildings, structures, improvements and fixtures
comprising the Leased Real Property are in good and
technically sound operating condition in all material
respects, have no latent defects of material significance and
are reasonably suitable for the purposes for which they are
being used;
(j) Mr. Wax and Chelsea shall have complied with each and every
one of the obligations set forth in Section 8.2 or such
compliance shall have been waived by CBC; and
(k) Delivery of third party consents required to consummate this
transaction.
(l) Receipt of the executed Xxxxxxx-Xxxxxxx Productions
Termination Agreement.
8.5 CONDITIONS TO OBLIGATIONS OF MR. WAX AND CHELSEA. The obligations
of Mr. Wax to consummate the transaction herein contemplated at Closing are
subject to and conditioned upon:
(a) The satisfaction at or before Closing in all respects of all
agreements, obligations and conditions of CBC hereunder
required to be performed or complied with by it at or before
the Closing;
(b) The accuracy of the representations and warranties made by
CBC;
(c) CBC shall not be subject to any judgment, order, injunction or
decree of any court of competent jurisdiction enjoining the
consummation of the transactions contemplated hereby;
(d) CBC shall have complied with each and every one of its
obligations under Section 8.3.
ARTICLE 9
MISCELLANEOUS PROVISIONS
9.1 SURVIVAL OF COVENANTS, REPRESENTATIONS AND WARRANTIES. All
representations, warranties and covenants of Chelsea, Mr. Wax, CBC or Merger Sub
contained in this Agreement shall survive from the Closing until the later of
(i) one year thereafter or, (ii) such date as CBC shall have received audited
financial statements for the fiscal year ending December 31, 1999.
9.2 EXECUTION OF DOCUMENTS. The parties agree to execute all
applications, documents and instruments which may be reasonably necessary for
the consummation of the transactions contemplated hereunder, or which might be
from time to time reasonably requested by any party hereto in connection
therewith, whether before or after the date of Closing.
9.3 NOTICES. All notices, requests, elections, demands and other
communications given pursuant to this Agreement shall be in writing and shall be
duly given when delivered personally or by facsimile transmission (upon receipt
of confirmation) or when deposited in the mail, certified or registered mail,
postage prepaid, return receipt requested, and shall be addressed as follows:
If to Mr. Wax or Chelsea:
Mr. Xxxxx Wax
Chelsea Pictures, Inc.
000 Xxxxxx Xxxxxx
Xxxxx Xxxxx
Xxx Xxxx, Xxx Xxxx 00000
with copy to:
Xxxxxxxxx X. Xxxxx, Xx., Esq.
Xxxxxxxx, Xxxxxxx & Xxxxxxx
000 Xxxxxxx Xxxxxx, 00xx Xxxxx
Xxxxxx, Xxxxxxxxxxxxx 00000
If to CBC Merger Sub or Surviving Corporation:
Xx. Xxxxxxxxxxx X. Xxxx
Children's Broadcasting Corporation
0000 Xxxxxxxxx Xxxxxxxxx
Xxxxxxxxxxx, Xxxxxxxxx 00000
with copy to:
Xxxx Xxxxx, Esq.
Children's Broadcasting Corporation
0000 Xxxxxxxxx Xxxxxxxxx
Xxxxxxxxxxx, Xxxxxxxxx 00000
9.4 EXHIBITS AND SCHEDULES. All Exhibits and Schedules referred to
herein are incorporated into this Agreement by reference for all purposes and
shall be deemed part of this Agreement.
9.5 ENTIRE AGREEMENT. This Agreement together with all Exhibits and
Schedules referred to herein and all other documents executed and delivered by
Chelsea, Mr. Wax, CBC and MergerSub on the date hereof contain all of the terms
and conditions agreed upon by the parties hereto with respect to the
transactions contemplated hereunder.
9.6 ASSIGNABILITY. None of the parties may assign their rights or
obligations under this Agreement without the prior written consent of the other
parties, except that CBC may make an assignment to an entity under essentially
common control as the assigning entity.
9.7 BINDING EFFECT. This Agreement shall be binding upon and inure to
the benefit of the xxxxxxxxxxxxxxx, xxxxx, xxxxxxx, successors, and assigns of
the parties hereto.
9.8 HEADING. The headings contained in this Agreement are for reference
only and shall not effect in any way the meaning or interpretation of this
Agreement.
9.9 MODIFICATION. No modification of any provision of this Agreement
shall be effective unless made in writing and signed by the parties hereto.
9.10 COUNTERPARTS. This Agreement and any other instrument to be signed
by the parties hereto may be executed by the parties, together or separately, in
two or more identical counterparts, each of which shall be deemed an original,
but all of which together shall constitute but one and the same instrument.
9.11 GOVERNING LAW. This Agreement shall be governed by and construed
in accordance with the laws of the State of Minnesota. The parties hereto hereby
irrevocably and unconditionally consent to submit to the exclusive jurisdiction
of the courts of the State of Minnesota and of the United States of America
located in Hennepin County, State of Minnesota for any actions, suits or
proceedings arising out of or relating to this Agreement and the transactions
contemplated hereby (and they agree not to commence any action, suit or
proceeding relating thereto except in such courts) and further agree that
service of any process, summons, notice or document by U.S. registered mail to
the addresses set forth above shall be effective service of process for any
action, suit or proceeding arising out of this Agreement, in the courts of the
State of Minnesota or the United States of America located in the State of
Minnesota, and hereby further irrevocably and unconditionally waive and agree
not to plead or claim in any such court that any such action, suit or proceeding
brought in any such court has been brought in an inconvenient forum.
9.12 PUBLIC ANNOUNCEMENTS. Mr. Wax, Chelsea and CBC shall consult with
one another before making any public statements with respect to this Agreement
or the transactions contemplated herein and shall not issue any such press
release or make any such public
statement without the prior written consent of the other party, which shall not
be unreasonably withheld, conditioned or delayed; provided, however, that a
party may, without the prior consultation with or written consent of the other
party, issue such press release or make such public statement as may be required
by applicable law, rules or regulations if it has used all reasonable efforts to
consult with the other party and to obtain such party's consent but has been
unable to do so in a timely manner.
9.13 CLAUSES SEVERABLE. The provisions of this Agreement are severable.
If any provision of this Agreement or the application thereof to any person or
circumstance is held invalid, the provision or its application shall be modified
to the extent possible to reflect the expressed intent of the parties but in any
event, invalidity shall not affect other provisions or applications of this
Agreement which can be given effect without the invalid provision or
application.
[REMAINDER OF PAGE LEFT BLANK INTENTIONALLY]
IN WITNESS WHEREOF, the parties hereto, by their properly authorized
representatives, have caused this Agreement to be executed as of the day and
date first above written.
CHILDREN'S BROADCASTING CORPORATION CHELSEA PICTURES, INC.
BY: /s/ Xxxxx X. Xxxxxxxxxx By: /s/ Xxxxx Wax
-------------------------------- -------------------------------
XXXXX WAX, PRESIDENT
CHELSEA ACQUISITION, INC.
By: /s/ Xxxxx X. Xxxxxxxxxx /s/ Xxxxx Wax
-------------------------------- -------------------------------
XXXXX WAX, INDIVIDUALLY
