FORM OF WORKING CAPITAL RECONCILIATION AGREEMENT
Exhibit
E
This
WORKING CAPITAL RECONCILIATION AGREEMENT (this “Agreement”),
dated
as of [_________], 2007, is by and among DG FastChannel, Inc., a Delaware
corporation (the “Purchaser”),
POINT.360, a California corporation (the “Company”),
and
New 360, a California corporation and a wholly-owned subsidiary of the Company
(the “PPB
Sub”).
All
capitalized terms used herein and not defined herein shall have the meanings
assigned to such terms in the Merger Agreement (as defined below).
WHEREAS,
the parties hereto have entered into that certain Agreement and Plan of Merger
and Reorganization, dated as of April 16, 2007 (as amended or supplemented,
the
“Merger
Agreement”),
pursuant to which, among other things, the Purchaser shall acquire the ADS
Business of the Company;
WHEREAS,
the parties hereto have entered into that certain Contribution Agreement, dated
as of April 16, 2007 (as amended or supplemented, the “Contribution
Agreement”),
pursuant to which, among other things, the PPB Sub acquired the non-ADS Business
of the Company;
WHEREAS,
upon the consummation of the transactions contemplated by the Merger Agreement,
the Purchaser shall become the successor-in-interest to the Company under the
Contribution Agreement; and
WHEREAS,
as a condition of consummating the transactions contemplated by the Merger
Agreement on the Acceptance Date, the parties hereto are executing this
Agreement.
NOW,
THEREFORE, in consideration of the mutual covenants and promises contained
in
this Agreement and in the Merger Agreement and for other good and valuable
consideration, the receipt and adequacy of which are hereby acknowledged, the
parties to this Agreement hereby agree as follows:
SECTION
1. POST-CONTRIBUTION
WORKING CAPITAL ADJUSTMENT
(a) Estimated
Acceptance Date Net Working Capital.
(i) Within
ten (10) business days prior to the Acceptance Date, and in no event less than
three (3) business days before the Acceptance Date, the Company shall deliver
to
the Purchaser a certificate signed by the chief financial officer of the Company
setting forth the Company’s reasonable best estimate, based on the standards of
preparation of the December 31, 2006 audited pro forma balance sheet of the
ADS
Business of the Company (the “December
31, 2006 Balance Sheet”)
(including with respect to reserves) and after consulting with the chief
financial officer of the Purchaser, of the Acceptance Date Net Working Capital
(the “Estimated
Acceptance Date Net Working Capital”).
(ii) The
“Estimated
Adjustment Amount”
shall
mean an amount equal to (x) the Estimated Acceptance Date Net Working Capital
minus
(y)
$1,000,000.
(iii) Within
seven (7) days after the Acceptance Date, the Purchaser shall pay to the PPB
Sub, by wire transfer of immediately available funds to an account specified
in
writing by the PPB Sub, an amount (the “Prepayment
Amount”)
in
cash equal to the product obtained by multiplying (x) forty percent (40%) by
(y)
the Estimated Adjustment Amount.
(iv) The
“Reserve
Amount”
shall
mean an amount equal to (x) the Estimated Adjustment Amount minus
(y) the
Prepayment Amount.
(b) Final
Acceptance Date Net Working Capital.
(i) On
or
before the date that is thirty (30) days following the Acceptance Date, the
Purchaser shall, after consulting with the chief financial officer of the PPB
Sub, prepare and deliver to the PPB Sub (i) a balance sheet of the ADS Business
of the Company as of immediately following the consummation of the Contribution
on the Acceptance Date (the “ADS
Business Balance Sheet”)
and
(ii) a calculation of the Acceptance Date Net Working Capital based on the
ADS
Business Balance Sheet and the definition of Acceptance Date Net Working Capital
set forth in Section
1(c).
The ADS
Business Balance Sheet shall be prepared in accordance with GAAP in a manner
consistent with the preparation of the December 31, 2006 Balance Sheet
(including with respect to reserves), using the significant
accounting principles and policies of the Company (to the extent not
inconsistent with GAAP, except as contemplated by the definition of Acceptance
Date Net Working Capital), and shall fairly present the financial position
of
the ADS Business of the Company as of immediately following the consummation
of
the Contribution, without giving effect to the changes to the balance sheet
as a
result of the Offer and the Merger.
(ii) Upon
delivery of the ADS Business Balance Sheet, to the extent necessary the
Purchaser shall cause the Company to provide the PPB Sub with access to the
books and records of the Company to the extent related to its evaluation of
the
ADS Business Balance Sheet and the calculation of the Acceptance Date Net
Working Capital. The PPB Sub may dispute the calculation of the Acceptance
Date
Net Working Capital or any element of the ADS Business Balance Sheet relevant
to
the calculation of the Acceptance Date Net Working Capital by notifying the
Purchaser of such disagreement in writing, setting forth in reasonable detail
the particulars of such disagreement, within thirty (30) days after its receipt
of the ADS Business Balance Sheet; provided
that the
basis of any such dispute shall be limited to the failure of the Acceptance
Date
Net Working Capital to have been determined in accordance with the standards
set
forth in Section 1(a)
and the
definition of Acceptance Date Net Working Capital. In the event that the PPB
Sub
does not provide such a notice of disagreement within such thirty (30) day
period, it shall be deemed to have accepted the accuracy of such ADS Business
Balance Sheet and the calculations underlying such Acceptance Balance Sheet,
which shall be final, binding and conclusive for all purposes hereunder. In
the
event any such notice of disagreement is timely provided, the Purchaser and
the
PPB Sub shall use their commercially reasonable efforts for a period of thirty
(30) days (or such longer period as they may mutually agree) to resolve any
disagreements with respect to the calculation of the Acceptance Date Net Working
Capital. If the Purchaser and the PPB Sub are unable to resolve such
disagreements then, at any time thereafter, either the PPB Sub or the Purchaser
may require that an independent accounting firm of recognized national standing
mutually selected by the Purchaser and the PPB Sub (the “Auditor”)
shall
resolve any remaining disagreements. The Auditor shall determine as promptly
as
practicable whether the ADS Business Balance Sheet was prepared in accordance
with the standards set forth in Section 1(a)
and
(only with respect to the remaining disagreements submitted to the Auditor)
whether and to what extent (if any) the Acceptance Date Net Working Capital
requires adjustment. The fees and expenses of the Auditor shall be shared
equally by the Purchaser and the PPB Sub. The determination of the Auditor
shall
be final, conclusive and binding on the parties. The Acceptance Date Net Working
Capital as finally determined in accordance with this Section 1(b)
is
hereinafter referred as to the “Final
Acceptance Date Net Working Capital.”
The
date on which the Final Acceptance Date Net Working Capital is determined is
hereinafter referred as to the “Determination
Date.”
2
(iii) The
“Final
Adjustment Amount,”
which
may be positive or negative, shall mean an amount equal to (x) the Final
Acceptance Date Net Working Capital minus
(y) the
Estimated Acceptance Date Net Working Capital.
(iv) If
the
Final Adjustment Amount is a positive number (such amount, the “Increase
Amount”)
then,
within five (5) business days after the Determination Date, the Purchaser shall
pay to the PPB Sub, by wire transfer of immediately available funds to an
account specified in writing by the PPB Sub, an amount in cash equal to the
sum
of (x) the Increase Amount and (y) the Reserve Amount. If the Final Adjustment
Amount is a negative number (the absolute value of such amount, the
“Deficit
Amount”),
then
within five (5) business days after the Determination Date, the Purchaser shall
pay to the PPB Sub, by wire transfer of immediately available funds to an
account specified in writing by the PPB Sub, an amount in cash equal to the
excess, if any, of the Reserve Amount over the Deficit Amount.
(c) “Acceptance
Date Net Working Capital”
means
(i) the current assets included in the Acquired Assets as of immediately
following the consummation of the Contribution on the Acceptance Date (including
deposits, but excluding deferred Tax assets) minus
(ii) the
sum of (A) the current liabilities (other than for Taxes and the current portion
of indebtedness under (x) that certain Standard Loan Agreement, dated March
29,
2006, between the Company and Bank of America, N.A. and (y) those certain
Promissory Notes between General Electric Capital Corporation and the Company,
dated December 30, 2005 and March 30, 2007, respectively) included in the
Retained Liabilities as of immediately following the consummation of the
Contribution on the Acceptance Date, in each case as reflected on the final
ADS
Business Balance Sheet, and (B) all current liabilities for Taxes of the Company
and its Subsidiaries for any Pre-Acceptance Date Tax Period (as such term is
defined in the Indemnification and Tax Matters Agreement); provided,
however,
that
Acceptance Date Net Working Capital shall not take into account any Transaction
Related Expenses, which are addressed in Section
2.
An
example of the calculation of Acceptance Date Net Working Capital (based on
the
December 31, 2006 Balance Sheet) is attached hereto as Schedule A.
3
SECTION
2. TRANSACTION
RELATED EXPENSES
(a) Within
ten (10) business days prior to the Acceptance Date, and in no event less than
three (3) business days before the Acceptance Date, the Company shall deliver
to
the Purchaser an itemized list in reasonable detail setting forth a description
and the estimated amount of each of the fees, costs and expenses (“Transaction
Related Expenses”)
incurred by the Company or its Subsidiaries in connection with the Merger
Agreement, the Contribution Agreement, the Offer, the Merger, the Contribution
and the Spin-Off and indicating which Transaction Related Expenses have been
or
will be paid by the Company prior to the consummation of the Contribution (the
“Paid
Expenses”).
(b) After
the
Acceptance Date, the Purchaser shall pay all Transaction Related Expenses other
than the Paid Expenses (the “Outstanding
Expenses”).
Within five (5) business days after the Acceptance Date, (i) the PPB Sub shall
pay to the Purchaser, by a wire transfer of immediately available funds to
an
account specified in writing by the Purchaser, an amount in cash equal to the
excess, if any, of the amount of Outstanding Expenses over the applicable
amount(s) described on Schedule B to this Agreement, and (ii) the Purchaser
shall pay to the PPB Sub, by a wire transfer of immediately available funds
to
an account specified in writing by the PPB Sub, an amount in cash equal to
the
excess, if any, of the applicable amount(s) described on Schedule B to this
Agreement over the amount of Outstanding Expenses; provided,
however,
that
the Purchaser shall not be obligated to pay to the PPB Sub any amount exceeding
the amount of Paid Expenses.
SECTION
3. MISCELLANEOUS
(a) Notices.
All
notices and other communications hereunder shall be in writing and shall be
deemed given if delivered personally (notice deemed given upon receipt),
telecopied (notice deemed given upon confirmation of receipt) or sent by a
nationally recognized overnight courier service, such as Federal Express (notice
deemed given upon receipt of proof of delivery), to the parties at the following
addresses (or at such other address for a party as shall be specified by like
notice):
(i) if
to the
Purchaser or the Company, to:
DG
FastChannel, Inc.
000
X.
Xxxx Xxxxxxxxx Xxxxxxx, Xxxxx 000
Xxxxxx,
XX 00000
Attention:
Chief Financial Officer
Telephone
No.: (000) 000-0000
Facsimile
No.: (000) 000-0000
with
a
copy to:
Xxxxxx
& Xxxxxxx LLP
000
Xxxxxxxx Xxxxxx XX, Xxxxx 0000
Xxxxxxxxxx,
XX 00000
Attention:
Xxxxxxx X. X’Xxxxx
Xxxx
X.
Xxxxxxxx
Telephone
No.: (000) 000-0000
Facsimile
No.: (000) 000-0000
4
and
(ii) if
to the
PPB Sub, to:
0000
Xxxxx Xxxxxxx Xxxxxx
Xxxxxxx,
XX 00000
Attention:
Chief Financial Officer
Telephone
No.: (000) 000-0000
Facsimile
No.: (000) 000-0000
with
a
copy to:
Xxxx
& Xxxxx PC
0000
Xxxxxxx Xxxx Xxxx, Xxxxx 0000
Xxx
Xxxxxxx, XX 00000
Attention:
Xxxxxxx Xxxxx
Telephone
No.: (000) 000-0000
Facsimile
No.: (000) 000-0000
(b) Counterparts;
Facsimile.
This
Agreement may be executed manually or by facsimile by the parties hereto, in
any
number of counterparts, each of which shall be considered one and the same
agreement and shall become effective when a counterpart hereof shall have been
signed by each party and delivered to the other party.
(c) Governing
Law; Consent to Jurisdiction.
This
Agreement shall be governed by, and construed in accordance with, the laws
of
the State of California, without giving effect to conflicts of laws principles
that would result in the application of the law of any other state.
(d) Assignment.
This
Agreement shall not be assigned by any party hereto (whether by operation of
law
or otherwise) without the prior written consent of the other party. Subject
to
the preceding sentence, but without relieving any party hereto of any obligation
hereunder, this Agreement will be binding upon, inure to the benefit of and
be
enforceable by the parties and their respective successors and
assigns.
(e) Amendments;
Waiver.
This
Agreement may be amended or modified only by a written instrument signed by
each
of the parties hereto. Any party may waive any provision of this Agreement
or
compliance therewith; provided
that
such waiver is set forth in an instrument in writing signed by the party to
be
bound thereby. Any waiver or failure to insist on strict compliance with any
agreement or obligation contained herein shall not operate as a waiver of,
or
estoppel with respect to, any subsequent or other failure.
(f) Severability.
If any
term or other provision of this Agreement is invalid, illegal or incapable
of
being enforced by rule of law or public policy, all other conditions and
provisions of this Agreement shall nevertheless remain in full force and effect
so long as the economic or legal substance of the transactions contemplated
by
the Merger Agreement are not affected in any manner adverse to any party. Upon
such determination that any term or other provision is invalid, illegal or
incapable of being enforced, the parties hereto shall negotiate in good faith
to
modify this Agreement so as to effect the original intent of the parties as
closely as possible in an acceptable manner to the end that the transactions
contemplated by the Merger Agreement are fulfilled to the extent
possible.
5
(g) WAIVER
OF JURY TRIAL.
EACH
PARTY HEREBY IRREVOCABLY AND UNCONDITIONALLY WAIVES ANY RIGHT IT MAY HAVE TO
A
TRIAL BY JURY IN RESPECT OF ANY LITIGATION DIRECTLY OR INDIRECTLY ARISING OUT
OF
OR RELATING TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY. EACH
PARTY CERTIFIES AND ACKNOWLEDGES THAT (A) NO REPRESENTATIVE, AGENT OR
ATTORNEY OF ANY OTHER PARTY HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH
OTHER PARTY WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE EITHER OF
SUCH WAIVERS, (B) IT UNDERSTANDS AND HAS CONSIDERED THE IMPLICATIONS OF
SUCH WAIVERS, (C) IT MAKES SUCH WAIVERS VOLUNTARILY AND (D) IT HAS
BEEN INDUCED TO ENTER INTO THIS AGREEMENT BY, AMONG OTHER THINGS, THE MUTUAL
WAIVERS AND CERTIFICATIONS IN THIS SECTION 3(g).
[Remainder
of this page intentionally left blank.]
6
IN
WITNESS WHEREOF, the parties hereto have caused this Agreement to be signed
by
their respective officers thereunto duly authorized as of the date first written
above.
|
DG
FASTCHANNEL, INC.
|
||
| |
|
|
| By: | ||
|
Name: Xxxxx
X. Xxxxxxxx
Title: Chairman
of the Board and
Chief Executive Officer
|
||
| |
|
|
| By: | ||
|
Name:
Xxxx X. Bagerdjian
Title:
Chairman, President and CEO
|
||
|
POINT.360
|
||
| |
|
|
| By: | ||
|
Name:
Xxxx X. Bagerdjian
Title:
Chairman, President and CEO
|
||
Schedule
A
Example
of Acceptance Date Net Working Capital
(to
be updated)
|
($
in thousands)
|
||||
|
ADS
Business
|
||||
|
Accounts
receivable, net
|
5,264
|
|||
|
Inventories,
net
|
210
|
|||
|
Prepaid
expenses
|
11
|
|||
|
Deposits
|
210
|
|||
|
Total
Current Assets
|
5,695
|
|||
|
Accounts
payable
|
1,158
|
|||
|
Accrued
wages and other accrued expenses
|
499
|
|||
|
Total
Current Liabilities
|
1,657
|
|||
|
Current
Tax Liabilities of the Company for Pre-Acceptance Date Tax
Period
|
TBD
|
|||
|
Acceptance
Date Net Working Capital
|
$
|
4,038
|
||
Schedule
B
Transaction
Related Expenses to be paid by the Purchaser
Up
to
$100,000 of the Company’s audit expenses.
Up
to
$175,000 of the Company’s legal expenses.
Up
to
$50,000 of the Company’s financial advisor expenses.
Up
to
$100,000 of the Company’s other miscellaneous expenses (not to include audit,
legal or financial advisor expenses).
