ASSET PURCHASE AGREEMENT
dated as of March 10, 1998
between
TAKE-TWO INTERACTIVE SOFTWARE, INC.
and
BMG ENTERTAINMENT NORTH AMERICA, a division of BMG MUSIC
TABLE OF CONTENTS
Section Page
ARTICLE I.....................................................................1
DEFINITIONS...................................................................1
ARTICLE II....................................................................7
PURCHASE AND SALE.............................................................7
SECTION 2.01. Purchase and Sale of the Assets................................7
SECTION 2.02. Assumption of Liabilities......................................7
SECTION 2.03. Purchase Price; Adjustment to Purchase Price...................8
SECTION 2.04. Allocation of Purchase Price..................................10
SECTION 2.05. Receivables, License Payments.................................10
SECTION 2.06. Closing.......................................................10
ARTICLE III..................................................................10
CONDITIONS PRECEDENT TO THE CLOSING..........................................10
SECTION 3.01. General.......................................................10
SECTION 3.02. Closing Deliveries............................................11
ARTICLE IV...................................................................11
REPRESENTATIONS AND WARRANTIES OF THE PURCHASER..............................11
SECTION 4.01. Purchaser's Organization and Authority........................11
SECTION 4.02 Capitalization................................................11
SECTION 4.03. Warrants and Options..........................................12
SECTION 4.04. No Conflict...................................................12
SECTION 4.05. Consents and Approvals........................................12
SECTION 4.06. Securities Reports; Financial Statements......................12
SECTION 4.07. Absence of Certain Changes or Events..........................13
SECTION 4.08. Litigation....................................................13
SECTION 4.09. Certificate of Designation....................................13
SECTION 4.10. Brokers.......................................................13
ARTICLE V....................................................................13
REPRESENTATIONS AND WARRANTIES OF THE SELLER.................................13
SECTION 5.01. Organization and Authority....................................13
SECTION 5.02. No Conflict...................................................14
SECTION 5.03. Consents and Approvals........................................14
SECTION 5.04. Litigation....................................................14
SECTION 5.05. Compliance with Laws..........................................15
SECTION 5.06. Contracts.....................................................15
SECTION 5.07. Employees.....................................................15
SECTION 5.08 Tangible Personal Property....................................16
SECTION 5.09. Certain Representations.......................................16
SECTION 5.10. Investment Intent.............................................16
SECTION 5.11. Securities Act................................................16
SECTION 5.12. Taxes.........................................................16
SECTION 5.13. Brokers.......................................................16
ARTICLE VI...................................................................17
ADDITIONAL AGREEMENTS........................................................17
SECTION 6.01. Investigation.................................................17
SECTION 6.02. Access to Information.........................................17
SECTION 6.03. Publicity.....................................................17
SECTION 6.04. Confidentiality...............................................17
SECTION 6.05. Notice Preceding Compelled Disclosure.........................18
SECTION 6.06. Notification to Governmental Authorities......................18
SECTION 6.07. Bulk Transfer Laws............................................18
SECTION 6.08. Use of Name or Other Intellectual Property....................18
SECTION 6.09. Employees.....................................................19
SECTION 6.10. No Competition................................................19
SECTION 6.11. Voting of Designated Shares...................................20
SECTION 6.12. Audit.........................................................20
SECTION 6.13. Termination of Gametek Litigation.............................20
SECTION 6.14. Right of Set-off..............................................20
SECTION 6.15. Performance of Contracts......................................21
SECTION 6.16. Further Action................................................21
ARTICLE VII..................................................................21
TAX MATTERS..................................................................21
SECTION 7.01. Conveyance Taxes..............................................21
SECTION 7.02. Taxes.........................................................21
SECTION 7.03. Tax Reporting.................................................21
ARTICLE VIII.................................................................22
INDEMNITY....................................................................22
SECTION 8.01. Survival; Waiver..............................................22
SECTION 8.02. Seller Indemnification........................................22
SECTION 8.03. Purchaser Indemnification.....................................24
SECTION 8.04. No Rescission.................................................25
ARTICLE IX...................................................................25
GENERAL PROVISIONS...........................................................25
SECTION 9.01. Expenses......................................................25
SECTION 9.02. Notices.......................................................25
SECTION 9.03. Headings......................................................26
SECTION 9.04. Severability..................................................26
SECTION 9.05. Entire Agreement..............................................27
SECTION 9.06. Assignment....................................................27
SECTION 9.07. No Third-Party Beneficiaries..................................27
SECTION 9.08. Amendment; Waiver.............................................27
SECTION 9.09. Governing Law.................................................27
SECTION 9.10. Consent to Jurisdiction.......................................27
SECTION 9.11. Counterparts..................................................28
EXHIBITS
Exhibit A: Administrative Services Agreement
Exhibit B-1: Assignment of Contracts between BMG Music and the Purchaser
Exhibit B-2: Assignment of Contracts between BMG EIV and the Purchaser
Exhibit B-3: Assignment of Contracts between BMG Music Spain, S.A. and
the Purchaser
Exhibit B-4: Assignment of Contracts between BMG Chile, S.A. and the
Purchaser
Exhibit B-5: Assignment of Contracts between BMG Portugal, Actividades
Audiovisuais, Lda. and the Purchaser
Exhibit B-6: Assignment of Contracts between BMG Entertainment Mexico,
S.A. de C.V. and the Purchaser
Exhibit B-7: Assignment of Contracts between BMG Xxxxxx Xxxxxx GmbH and
the Purchaser
Exhibit B-8: Assignment of Contracts between BMG Japan, Inc. and the
Purchaser
Exhibit B-9: Assignment of Contracts between Universum Film GmbH and
the Purchaser
Exhibit B-10: Assignment of Contracts between BMG Entertainment
International UK & Ireland Ltd. and the Purchaser
Exhibit B-11: Assignment of Contracts between BMG France, S.A. and the
Purchaser
Exhibit C: Assumption Agreement made by the Purchaser in favor of the
Seller and certain of its Affiliates
Exhibit D: Xxxx of Sale and Assignment between Seller and the Purchaser
Exhibit E: Central Services Agreement
Exhibit F: Certificate of Designation
Exhibit G: Copyright Assignment
Exhibit H: Term Sheet for Employment Agreement for Benoit Deniau
Exhibit I: Term Sheet for Employment Agreement for Xxxxx Xxxxxxxx
Exhibit J: Term Sheet for Employment Agreement for Xxx Xxxxxx
Exhibit K: Pick, Pack, Ship, Billing and Collection Agreement
Exhibit L: Reference Balance Sheet
Exhibit M: Registration Rights Agreement
Exhibit N: Secondment Agreement
Exhibit O: Legal Opinion of Xxxxxx Xxxxxxxxxx LLP
SCHEDULE I
PART A-1: Designated Contracts
PART A-2: All Other Contracts
SCHEDULE II Accounting Policies
SCHEDULE III Unrecouped Advance Value
SCHEDULE IV Inventory
SCHEDULE V Book Values
SCHEDULE VI Employee Bonuses
DISCLOSURE SCHEDULE
Section 4.03: Holders of Options, Warrants and Registration Rights
Section 5.03: Consents, Approvals and Authorizations
Section 5.04: Litigation
Section 5.05: Compliance with Laws
Section 5.06(a): Exceptions to Designated Contracts
Section 5.07(a): Employees
Section 5.07(b): Strikes, Slowdowns and Work Stoppages
ASSET PURCHASE AGREEMENT, dated as of March 10, 1998 between TAKE-TWO
INTERACTIVE SOFTWARE, INC., a Delaware company, having an office at 000
Xxxxxxxx, Xxx Xxxx, Xxx Xxxx 00000 (the "Purchaser") and BMG ENTERTAINMENT NORTH
AMERICA, a division of BMG MUSIC, a New York general partnership, having an
office at 0000 Xxxxxxxx, Xxx Xxxx, Xxx Xxxx 00000 (the "Seller"; the Seller and
the Purchaser are sometimes hereinafter collectively referred to as the
"Parties").
W I T N E S S E T H:
WHEREAS, the Seller and certain of its Affiliates (as defined below) are
engaged in, among other things, the business of distributing, developing and
publishing Products (as defined below) (the "Business"); and
WHEREAS, the Seller wishes to sell to the Purchaser, and the Purchaser
wishes to purchase from the Seller, the Assets (as defined below) and assume
certain liabilities of the Business, all upon the terms and subject to the
conditions set forth herein.
NOW, THEREFORE, in consideration of the premises and the mutual agreements
and covenants hereinafter set forth, the Purchaser and the Seller hereby agree
as follows:
ARTICLE I
DEFINITIONS
As used in this Agreement, the following terms shall have the following
meanings:
"Accounting Policies" means United States generally accepted accounting
principles, except as set forth in Schedule II.
"Action" means any claim, action, suit, arbitration, proceeding or
investigation by or before any Governmental Authority. An Action shall not be
deemed to be "pending" with respect to any Person if such Person has not yet
been served with a summons in connection therewith.
"Adjusted Assets" means, as of any date of determination, (i) the sum of
Inventory Value plus Unrecouped Advance Value plus Tangible Personal Property
Value less (ii) Balance Sheet Liabilities.
"Adjustment Date Share Price" means the average per share price of the
Common Stock as traded on the NASDAQ SmallCap Market as of the Business Day
immediately preceding the Closing Date.
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"Administrative Services Agreement" means the Administrative Services
Agreement dated as of the date hereof between the Purchaser and the Seller, a
copy of which is attached hereto as Exhibit A.
"Affiliate" means, with respect to any specified Person, any other Person
that directly, or indirectly through one or more intermediaries, controls, is
controlled by, or is under common control with, such specified Person.
"Agreement" means this Asset Purchase Agreement, dated as of March 10,
1998, between the Purchaser and the Seller.
"Assets" has the meaning specified in Section 2.01.
"Assignments of Contracts" means the Assignments of Contracts, dated as of
the date hereof, copies of which are attached hereto as Exhibits B-1 through B-
11.
"Assumed Liabilities" has the meaning specified in Section 2.02.
"Assumption Agreement" means the Assumption Agreement, dated as of the date
hereof, made by the Purchaser in favor of the Seller and certain of its
Affiliates, a copy of which is attached hereto as Exhibit C.
"Balance Sheet Liabilities" means, as of any date of determination, the
aggregate liabilities of the Business determined in accordance with the
Accounting Policies.
"Xxxx of Sale and Assignment" means the Xxxx of Sale and Assignment, dated
as of the date hereof, between the Purchaser and the Seller, a copy of which is
attached hereto as Exhibit D.
"BMG EIV" means BMG Entertainment International Interactive and Video Ltd.
"Business" has the meaning specified in the recitals to this Agreement.
"Business Day " means any day that is not a Saturday, a Sunday or other day
on which banks are required or authorized to be closed in the City of New York.
"Central Services Agreement" means the Central Services Agreement, dated as
of the date hereof, between the Seller and the Purchaser, a copy of which is
attached hereto as Exhibit E.
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"Certificate of Designation" means the Certificate of Designation with
respect to the Preferred Stock to be filed by the Purchaser with the Secretary
of State of Delaware, a copy of which is attached hereto as Exhibit F.
"Closing" has the meaning specified in Section 2.06.
"Closing Date" means the date this Agreement is executed or such other date
as the Purchaser and the Seller may mutually agree.
"Code" shall mean the Internal Revenue Code of 1986, as amended through the
date hereof.
"Common Stock" means the common stock of the Purchaser.
"Confidential Information" has the meaning specified in Section 6.04.
"Contracts" means, collectively, all of the contracts, licenses,
sublicenses, agreements, leases, commitments, and sales and purchase orders as
set forth in Part A-1 and Part A-2 of Schedule I.
"Copyright Assignment" means the Copyright Assignment, dated as of the date
hereof, between the Purchaser and the Seller, with respect to the Product known
as "Grand Theft Auto", a copy of which is attached hereto as Exhibit G.
"Copyrights" means copyrights, copyright registrations, copyright
applications, copyright renewals and similar rights owned by or licensed to the
Seller and used exclusively in the conduct of the Business, to the extent of the
Seller's rights herein.
"Designated Contracts" means the Contracts set forth on Part A-1 of
Schedule I.
"Designated Shares" means 1,850,000 shares of Preferred Stock (as it may be
adjusted pursuant to Section 2.03(b)).
"Disclosing Party" has the meaning specified in 6.05.
"Disclosure Schedule" means the Disclosure Schedule, dated as of the date
hereof and attached hereto.
"Employees" has the meaning specified in Section 5.07(a).
"Final Closing Balance Sheet" has the meaning specified in Section
2.03(b)(i).
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"Gametek Litigation" means the litigation in Germany between Gametek (UK)
Limited and BMG Xxxxxx Xxxxxx GmbH relating to the Distribution Agreement dated
as of August 1, 1995 between such parties.
"General Partner" means Bertelsmann Music Group Inc., a general partner of
the Seller.
"Governmental Authority" means any United States federal, state or local or
any foreign government, governmental, regulatory or administrative authority,
agency or commission or any court, tribunal, or judicial or arbitral body.
"Indemnitee" has the meaning specified in Sections 8.02 and 8.03.
"Independent Accounting Firm" has the meaning specified in Section
2.03(b)(iii).
"Initial Closing Balance Sheet" has the meaning specified in Section
2.03(b)(i).
"Inventory" means the finished goods inventory of Products.
"Inventory Value" means, as of any date of determination, the value of the
Inventory on such date determined in accordance with the Accounting Policies.
"IP Entities" has the meaning specified in Section 6.08.
"Key Employee Term Sheets" means the binding Term Sheets, dated the date
hereof, between the Purchaser and each of Benoit Deniau, Xxxxx Xxxxxxxx and Xxx
Xxxxxx, copies of which are attached hereto as Exhibits H, I and J.
"Key Employees" means Benoit Deniau, Xxx Xxxxxx and Xxxxx Xxxxxxxx.
"Losses" means any and all liabilities, losses, damages, claims, costs and
expenses, interest, awards, judgments and penalties (including, without
limitation, attorneys' and consultants' fees and expenses) actually suffered or
incurred by a person (including, without limitation, any Action brought or
otherwise initiated by any person.
"Loss Notice" has the meaning specified in Section 8.02.
"Material Adverse Effect" means any change in, or effect on, the Assets
that is materially adverse to the Business or the Assets, in each case taken as
a whole after giving effect to this Agreement.
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"NASDAQ" means The NASDAQ Stock Market, Inc.
"Parties" has the meaning specified in the recitals.
"Permitted Disclosure" shall have the meaning specified in Section 6.03.
"Person" means any individual, partnership, firm, corporation, limited
liability company, limited liability partnership, association, trust,
unincorporated organization or other entity, as well as any syndicate or group
that would be deemed to be a person under Section 13(d)(3) of the Securities
Exchange Act of 1934, as amended.
"Pick, Pack and Ship Agreement" means the Pick, Pack, Ship, Billing and
Collection Agreement dated as of the date hereof between the Purchaser and the
Seller, a copy of which is attached hereto as Exhibit K.
"Platforms" means, collectively, Sony PlayStation, Nintendo 64 and Sega
Saturn.
"Preferred Stock" means shares of the Purchaser's Series A Preferred Stock.
"Product" means an interactive multimedia product, including, but not
limited to, the software applications, text, photographs, audio or video
segments, story line, characters, animation, graphics, charts, tables or any
other content or materials incorporated into the product, and related user and
system documentation.
"Purchase Price" has the meaning set forth in Section 2.03(a).
"Purchaser" has the meaning specified in the recitals to this Agreement.
"Purchaser SEC Reports" has the meaning specified in Section 4.06.
"Reference Balance Sheet" means the balance sheet of the Seller, dated as
of January 31, 1998 and prepared in accordance with the Accounting Policies, a
copy of which is set forth in Exhibit L hereto.
"Reference Balance Sheet Date" means January 31, 1998.
"Registration Rights Agreement" means the Registration Rights Agreement
dated as of the date hereof between the Purchaser and the Seller, a copy of
which is attached hereto as Exhibit M.
"SEC" has the meaning specified in Section 4.06.
6
"Secondment Agreement" means the Secondment Agreement dated as of the date
hereof between the Purchaser and the Seller with respect to Xxxx Xxxx, a copy of
which is attached hereto as Exhibit N.
"Seller" has the meaning specified in the recitals.
"Specified Liabilities" means, collectively, (i) the payment obligations of
the Seller or its Affiliates pursuant to the Contracts were due as of the
Closing Date (after all applicable grace periods), (ii) the bonuses to the
Employees as set forth on Schedule VI, and (iii) the costs and liabilities
relating to the specific litigation matters set forth in items 1 and 3 on
Disclosure Schedule 5.04.
"Tangible Personal Property" means all computers, equipment, supplies,
furniture, personalty, rolling stock and other tangible personal property
exclusively used in the Business and which is located in the United Kingdom,
Germany or France; provided, that Tangible Personal Property shall not be deemed
to include, without limitation, (i) telephones, computer servers (other than the
computer server exclusively used in the Business and located in the United
Kingdom) and fixtures, or (ii) any personal property exclusively used by Xxxx
Xxxx or his assistant Xxxxxx Xxxxx.
"Tangible Personal Property Value" means $413,000.
"Tax" or "Taxes" means any and all taxes or similar charges or levies of
any kind whatsoever (together with any interest, penalties, additions to tax and
additional amounts imposed with respect thereto) imposed by any governmental or
taxing authority.
"Third-Party Claims" has the meaning specified in Section 8.02.
"Transaction Agreements" means, collectively, the Central Services
Agreement, the Administrative Services Agreement, the Pick, Pack and Ship
Agreement, the Registration Rights Agreement, the Assumption Agreements, the
Assignments of Contracts, the Bills of Sale and Assignment, the Copyright
Assignment and the Key Employee Term Sheets.
"Transferred Employees" means the Employees of the Business who have
executed employment agreements with the Seller, as set forth on Part A-2 of
Schedule I attached hereto.
"Unrecouped Advance Value" means, as of any date of determination, the
aggregate amount of unrecouped advances made by the Seller (and its Affiliates,
as applicable) to the developers under the applicable Contracts.
7
ARTICLE II
PURCHASE AND SALE
SECTION 2.01. Purchase and Sale of the Assets. Upon the terms and subject
to the conditions of this Agreement, at the Closing the Seller shall, or shall
cause its applicable Affiliate to, sell, assign, transfer and convey to the
Purchaser (or its designee), and the Purchaser (or its designee) shall purchase
and acquire from the Seller (or its applicable Affiliate), all of the Seller's
(or its applicable Affiliates') right, title and interest in and to the assets
expressly set forth in this Section 2.01 (all such assets being referred to as
the "Assets"):
(i) the Contracts (including, without limitation, all obligations set
forth therein);
(ii) the Copyrights;
(iii) the Inventory;
(iv) the Tangible Personal Property;
(v) photocopies of all of the Seller's (and its Affiliates', as
applicable) books of account, general, financial and personnel records
(other than medical records) and other files and records pertaining
exclusively to the Assets, wherever located.
SECTION 2.02. Assumption of Liabilities. The Purchaser shall assume and
shall pay, perform and discharge when due all obligations and liabilities of the
Seller and its Affiliates, as the case may be, of whatever nature (whether fixed
or contingent, arising by law or by contract or otherwise) arising out of or
relating to the Assets (all liabilities assumed pursuant to this Section 2.02
being, the "Assumed Liabilities"), including, without limitation, the following
liabilities:
(a) All liabilities relating to the Employees; provided, that the Seller
shall retain (i) all such liabilities relating to facts or circumstances
arising, in their entirety, prior to the Closing, (ii) if such liabilities
relate to facts and circumstances arising both before and after the Closing, all
such liabilities that are principally related to facts or circumstances arising
before the Closing, and (iii) any termination or severance costs in connection
with the termination of the Employees who do not choose to be, and are not at
any time, employed by the Purchaser.
(b) All obligations and liabilities which are set forth on the Closing Date
Balance Sheet.
8
Notwithstanding anything to the contrary in the foregoing, the Purchaser
shall not be deemed to assume any of the Specified Liabilities.
SECTION 2.03. Purchase Price; Adjustment to Purchase Price. (a) The
aggregate purchase price for the Assets payable by the Purchaser to the Seller
shall be the Designated Shares, subject to adjustment as set forth in paragraph
(b) of this Section (the "Purchase Price").
(b) The Purchase Price shall be subject to adjustment after the Closing
Date as specified in this Section 2.03(b).
(i) Final Closing Balance Sheets. At the Closing, the Seller shall
deliver to the Purchaser an unaudited estimated balance sheet (the "Initial
Closing Balance Sheet") as at the Closing Date, prepared in accordance with
the Accounting Policies, subject to the amounts reflected thereon being the
Seller's best estimates as of the Closing Date. Within thirty (30) days of
the Closing Date the Seller shall prepare and deliver to the Purchaser, an
unaudited balance sheet (the "Final Closing Balance Sheet") of the Business
as at the Closing Date, prepared in accordance with the Accounting
Policies.
(ii) Initial Purchase Price Adjustment. If the Adjusted Assets
reflected on the Initial Closing Balance Sheet are less than $9,000,000,
the number of shares of Preferred Stock comprising the Purchase Price shall
be reduced by an amount equal to the quotient of (A) $9,000,000 less the
Adjusted Assets reflected on the Initial Closing Balance Sheet divided by
(B) the Adjustment Date Share Price.
(iii) Disputes. Purchaser may dispute any amounts reflected on the
Final Closing Balance Sheet by delivering to Seller within twenty (20)
Business Days of the Seller's delivery of the Final Closing Balance Sheet a
written notice setting forth in reasonable detail the basis for such
dispute; provided, however, that Purchaser may dispute amounts reflected on
the Final Closing Balance Sheet (A) only to the extent the net effect of
such disputed amounts in the aggregate would reduce the Adjusted Assets
reflected on the Final Closing Balance Sheet to less than $9,000,000; and
(B) only on the basis that the amounts reflected on the Final Closing
Balance Sheet were not arrived at in accordance with the Accounting
Policies. If the Purchaser timely delivers to Seller a dispute notice
pursuant to this Section 2.03(b)(iii), the parties hereto shall negotiate
in good faith to resolve such dispute, and any resolution by them as to any
disputed amounts shall immediately be final, binding, and conclusive. If
any such resolution leaves in dispute amounts the net effect of which in
the aggregate would not reduce the Adjusted Assets reflected on the Final
Closing Balance Sheet to less than $9,000,000, all
9
such amounts remaining in dispute shall then be deemed to have been
resolved in favor of the Final Closing Balance Sheet delivered by the
Seller to the Purchaser. If the parties are unable to reach a resolution
with such effect within twenty (20) Business Days after receipt by the
Seller of the Purchaser's written notice of dispute, the parties shall
submit the items remaining in dispute for resolution in accordance with the
Accounting Policies to Price Waterhouse LLP (or, if such firm shall decline
or is unable to act or is not, at the time of such submission, independent
of both the Seller and the Purchaser, to another independent accounting
firm of international reputation mutually acceptable to the Purchaser and
the Seller) (either Price Waterhouse LLP or such other accounting firm, the
"Independent Accounting Firm"), which shall, within thirty (30) Business
Days after such submission, determine and report to the Purchaser and the
Seller upon such remaining disputed items, and such report shall be final,
binding, and conclusive on the Seller and the Purchaser. The fees and
disbursements of the Independent Accounting Firm shall be allocated between
the Seller and the Purchaser in the same proportion that the aggregate
amount of such remaining disputed items so submitted to the Independent
Accounting Firm that is unsuccessfully disputed by each such party (as
finally determined by the Independent Accounting Firm) bears to the total
amount of such remaining disputed items so submitted. No adjustment to the
Purchase Price pursuant shall be made with respect to amounts disputed by
the Purchaser, unless the net effect of the amounts successfully disputed
by the Seller in the aggregate is to reduce the Adjusted Assets reflected
on the Final Closing Balance Sheet to less than $9,000,000.
(iv) Final Purchase Price Adjustment. The Final Closing Balance Sheet
shall be final, binding, and conclusive on the parties hereto on the
earlier of (A) the twentieth (20th) Business Day after delivery thereof by
Seller to Purchaser if no dispute notice is delivered by Purchaser prior to
such date, and (B) the date on which all disputes thereof have been
resolved in accordance with Section 2.03(b)(iii). If the Adjusted Assets
reflected on the Final Closing Balance Sheet are less than $9,000,000, the
Seller shall, within ten (10) Business Days of the delivery of the Final
Closing Balance Sheet being deemed final, binding, and conclusive, reconvey
to the Purchaser a number of shares of Preferred Stock equal to the
quotient of (A) (1) the lesser of (x) $9,000,000 and (y) the Adjusted
Assets reflected on the Initial Closing Balance Sheet, less (2) the
Adjusted Assets reflected on the Final Closing Balance Sheet, divided by
(B) the Adjustment Date Share Price; provided, however, that if the
Adjusted Assets reflected on the Initial Closing Balance Sheet were less
than $9,000,000 (i.e., an initial purchase price adjustment was made at the
Closing), and the Adjusted
10
Assets reflected on the Final Closing Balance Sheet are greater than the
Adjusted Assets reflected on the Initial Closing Balance Sheet, the
Purchaser shall issue to the Seller within ten (10) Business Days of the
Final Closing Balance Sheet being deemed final, binding, and conclusive a
number of shares of Preferred Stock equal to the quotient of (A) (1) the
lesser of (x) $9,000,000 and (y) the Adjusted Assets reflected on the Final
Closing Balance Sheet less (2) the Adjusted Assets reflected on the Initial
Closing Balance Sheet, divided by (B) the Adjustment Date Share Price.
SECTION 2.04. Allocation of Purchase Price. The Purchase Price, as adjusted
pursuant to Section 2.03 hereof (and all other capitalizable costs), shall be
allocated among the various categories of Assets, in such manner as shall be
negotiated and agreed by the Parties in good faith, in accordance with Section
1060 of the Code and the regulations promulgated thereunder and all applicable
provisions of state, local or foreign law. Each of the Parties hereto agrees to
prepare and file all tax returns, including Form 8594, in a manner consistent
with such allocation and to report this transaction for federal, state and
foreign income tax purposes in accordance with such allocation of the Purchase
Price and shall use its best efforts to sustain such allocation in any
subsequent tax audit or dispute.
SECTION 2.05. Receivables, License Payments. Notwithstanding anything
herein to the contrary, the Seller (and its Affiliates) shall be entitled to all
proceeds and receivables generated from the Seller's (and its Affiliates')
shipment of Products (for the avoidance of doubt, for purposes of this Section,
gold masters shall not be deemed Products) prior to the Closing Date.
Additionally, BMG shall be entitled to collect and retain all payments, whether
made before or after the Closing, related to the (i) Assignment and Assumption
Agreement, dated as of June 20, 1997, between BMG Interactive, Xxxxxxxx Software
International S.A.R.L. and Electronic Arts, Inc.; (ii) Termination Agreement,
dated as of June 21, 1997, between BMG Interactive and Pixel Multimedia Limited;
and (iii) Termination Agreement, dated as of June 30, 1997, between BMG
Interactive and Engineering Animation, Inc.
SECTION 2.06. Closing. Upon the terms and subject to the conditions of this
Agreement, the sale and purchase of the Assets contemplated by this Agreement
shall take place at a closing (the "Closing") to be held at the office of Xxxxx
& Srinivasan LLP, 0000 Xxxxxxxx, Xxxxx 0000, Xxx Xxxx, Xxx Xxxx 00000, at 10:00
A.M. New York time on the Closing Date, or at such other place or at such other
time or on such other date as the Seller and the Purchaser may mutually agree.
ARTICLE III
CONDITIONS PRECEDENT TO THE CLOSING
11
SECTION 3.01. General. The respective obligations set forth herein of the
Purchaser and the Seller to consummate the transactions contemplated in this
Agreement shall be conditioned on the satisfaction at or prior to the Closing of
the condition set forth in Section 3.02 and the delivery at the Closing of the
documents set forth in Section 3.02 hereof.
SECTION 3.02. Closing Deliveries. At the Closing:
(a) The Purchaser, or its Affiliate, as applicable, the Seller, or its
Affiliate, as applicable, and all other applicable parties shall have entered
into each of the Transaction Agreements to which it is a party;
(b) The Purchaser shall deliver to the Seller (i) the stock certificates
evidencing the Designated Shares, in the name of the Purchaser, in form
satisfactory to the Seller and with all required tax stamps affixed and (ii) a
legal opinion from Xxxxxx Xxxxxxxxxx LLP, a copy of which is attached hereto as
Exhibit O; and
(c) The Seller shall deliver to the Purchaser a receipt for the Purchase
Price.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE PURCHASER
As an inducement to the Seller to enter into this Agreement, the Purchaser
hereby represents and warrants to the Seller as follows:
SECTION 4.01. Purchaser's Organization and Authority. The Purchaser is a
corporation duly organized, validly existing and in good standing under the laws
of the State of Delaware and the execution, delivery and performance of this
Agreement and the Transaction Agreements to which the Purchaser is a party are
within the Purchaser's corporate powers and have been duly authorized on its
part by all requisite action. This Agreement and the Transaction Agreements to
which the Purchaser is a party have been duly executed and delivered by the
Purchaser and (assuming due execution and delivery by all other parties
signatory thereto) constitutes a legally valid and binding obligation of the
Purchaser, subject to principles of equity, bankruptcy laws and the effect of
laws limiting the rights of creditors generally.
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SECTION 4.02 Capitalization.
(a) The authorized capital stock of the Purchaser consists of 15,000,000
shares of voting Common Stock and 5,000,000 shares of Preferred Stock, of which,
as of the Closing (after taking into account the issuance of the Designated
Shares), 9,850,043 shares of voting Common Stock and 1,850,000 shares of
Preferred Stock were issued and outstanding, all of which are duly authorized,
validly issued, fully paid and non-assessable and not subject to preemptive
rights created by statute, the Purchaser's certificate of incorporation or
by-laws or any agreement to which the Purchaser is a party or is bound.
(b) Upon the consummation of the transactions contemplated herein, the
Designated Shares will be duly authorized, validly issued, fully paid and
non-assessable, and such Designated Shares will be owned by the Seller free and
clear of all security interests, liens, claims, pledges, agreements,
restrictions or other limitations on the Seller's voting rights, charges or
other encumbrances of any nature whatsoever, other than any restrictions arising
under applicable law, imposed by obligations or agreements to which the Seller
is a party or under the Transaction Agreements.
SECTION 4.03. Warrants and Options. Except as set forth in Section 4.03 of
the Disclosure Schedule, there are no options, warrants or other rights
(including registration rights), agreements, arrangements or commitments to
which the Purchaser or any of its subsidiaries is a party of any character
relating to the issued or unissued capital stock of, or other equity interests
in, the Purchaser or any of its subsidiaries, or obligating the Purchaser or any
of its subsidiaries to grant, issue or sell any shares of the capital stock of,
or other equity interests in, the Purchaser or any of its subsidiaries.
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SECTION 4.04. No Conflict. Assuming that all consents, approvals,
authorizations and other actions described in Section 4.05 have been obtained,
and except as may result from any facts or circumstances relating solely to the
Seller, the execution and delivery of this Agreement and the Transaction
Agreements to which the Purchaser is a party and the performance by the
Purchaser of its obligations and duties under this Agreement and the Transaction
Agreements do not contravene or constitute a default under (a) to the
Purchaser's knowledge, any provision of applicable law or regulation, or (b) the
certificate of incorporation or by-laws or similar organizational documents of
the Purchaser.
SECTION 4.05. Consents and Approvals. No action by, or in respect of or
filing with, any Governmental Authority is required to be taken by the Purchaser
for the execution delivery and performance by the Purchaser of this Agreement or
the Transaction Agreements to which the Purchaser is a party, except (a) where
failure to obtain such consent, approval, authorization or action, or to make
such filing or notification, would not prevent the Purchaser from performing any
of its material obligations under this Agreement or the Transaction Agreements
to which the Purchaser is a party and (b) as may be necessary as a result of any
facts or circumstances relating solely to the Seller.
SECTION 4.06. Securities Reports; Financial Statements. As of the date
hereof, (a) the Purchaser has filed all forms, reports, statements and other
documents required to be filed with (i) the Securities and Exchange Commission
(the "SEC") including, without limitation, (A) all Annual Reports on Form 10-K,
(B) all Quarterly Reports on Form 10-Q, (C) all proxy statements relating to
meetings of shareholders (whether annual or special), (D) all reports on Form
8-K, (E) all other reports or registration statements, and (F) all amendments
and supplements to all such reports and registration statements (collectively,
the "Purchaser SEC Reports") and (ii) any applicable, federal, state or foreign
securities authorities; and (b) the Purchaser has complied with the filing
requirements in all material respects regarding all forms, reports, statements
and other documents required to be filed with any other applicable federal,
state or foreign regulatory authorities including, without limitation, state
insurance and health regulatory authorities. The Purchaser SEC Reports do not,
as of the date they were filed, contain any untrue statement of a material fact
or omit to state a material fact required to be stated therein or necessary in
order to make the statements therein, in the light of the circumstances under
which they were made, not misleading.
SECTION 4.07. Absence of Certain Changes or Events. Except as disclosed in
the Purchaser SEC Reports filed prior to the date of this Agreement or as
contemplated in this Agreement, there has not been any material adverse change
in the Purchaser's business or in its financial condition.
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SECTION 4.08. Litigation. No claim, action, proceeding or investigation is
pending which seeks to delay or prevent the consummation of the transactions
contemplated by this Agreement or the Transaction Agreements to which the
Purchaser (or its Affiliates) is a party, or which would be reasonably likely to
adversely affect or restrict the Purchaser's (or its Affiliates') ability to
consummate the transactions contemplated by this Agreement or such Transaction
Agreements, as the case may be.
SECTION 4.09. Certificate of Designation. Attached hereto as Exhibit F is a
true and complete copy of the Certificate of Designation.
SECTION 4.10. Brokers.
No broker, finder or investment banker is entitled to any brokerage,
finder's or other fee or commission in connection with the transactions
contemplated by this Agreement or the Transaction Agreements based on
arrangements made by or on behalf of the Purchaser.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF THE SELLER
As an inducement to the Purchaser to enter into this Agreement, the Seller
hereby represents and warrants to the Purchaser as follows:
SECTION 5.01. Organization and Authority. (a) The Seller is a general
partnership duly organized, validly existing and in good standing under the laws
of the State of New York and the execution, delivery and performance of this
Agreement and the Transaction Agreements to which the Seller is a party are
within the Seller's partnership powers and have been duly authorized on its part
by all requisite action. This Agreement and the Transaction Agreements to which
the Seller is a party have been duly executed and delivered by the Seller and
(assuming due execution and delivery by all other parties signatory thereto)
constitutes a legally valid and binding obligation of the Seller, subject to
principles of equity, bankruptcy laws and the effect of laws limiting the rights
of creditors generally.
(b) The General Partner is a corporation duly organized, validly existing
and in good standing under the laws of the State of Delaware. The execution and
delivery of this Agreement and the other Transaction Agreements by the General
Partner, on behalf of the Seller are within the General Partner's powers
(corporate or otherwise) and have been duly authorized on its part by all
requisite actions. This Agreement and the Transaction Agreements to which the
Seller is a party have been duly executed and delivered by the General Partner,
on behalf of the Seller, and (assuming due execution and delivery by all other
parties signatory thereto) constitutes a legal, valid and binding obligation of
the Seller enforceable against the Seller in
15
accordance with its terms, subject to principles of equity, bankruptcy laws and
the effect of laws limiting the rights of creditors generally.
SECTION 5.02. No Conflict. Assuming that all consents, approvals,
authorizations and other actions described in Section 5.03 have been obtained,
and except as may result from any facts or circumstances relating solely to the
Purchaser, the execution and delivery of this Agreement and the Transaction
Agreements to which the Seller is a party and the performance by the Seller of
its obligations and duties under this Agreement and the Transaction Agreements
to which the Seller is a party do not contravene or constitute a default under
(a) to the Seller's knowledge, any provision of applicable law or regulation, or
(b) the certificate of incorporation or by-laws or similar organizational
documents of the Seller.
SECTION 5.03. Consents and Approvals.
Except as set forth in Section 5.03 of the Disclosure Schedule:
(a) No action by, or in respect of, or filing with, any Governmental
Authority is required to be taken by the Seller for the execution, delivery and
performance by the Seller of this Agreement or the Transaction Agreements to
which the Seller is a party, except (i) where the failure to obtain such
consent, approval, authorization or action, or to make such filing or
notification, would not prevent the Seller from performing any of its material
obligations under this Agreement or the Transaction Agreements to which the
Seller is a party and would not have a Material Adverse Effect and (ii) as may
be necessary as a result of any facts or circumstances relating solely to the
Purchaser.
(b) No action by, or in respect of, or filing with, any Governmental
Authority is required to be taken by the General Partner for the execution and
delivery by the General Partner, on behalf of the Seller, of this Agreement or
the Transaction Agreements to which the Seller is a party, except (i) where the
failure to obtain such consent, approval. authorization or action, or to make
such filing or notification, would not prevent the Seller from performing any of
its material obligations under this Agreement or the Transaction Agreements to
which the Seller is a party and would not have a Material Adverse Effect and
(ii) as may be necessary as a result of any facts or circumstances relating
solely to the Purchaser.
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SECTION 5.04. Litigation. Except as disclosed in Section 5.04 of the
Disclosure Schedule, there are no Actions pending against the Seller relating to
any Assets that, individually or in the aggregate, are reasonably likely to have
a Material Adverse Effect. The Seller is not subject to any order, writ,
judgment, injunction, decree, determination or award relating to the Assets
which could be reasonably expected to have a Material Adverse Effect. No claim,
action, proceeding or investigation is pending which seeks to delay or prevent
the consummation of the transactions contemplated by this Agreement or the
Transaction Agreement to which the Seller is a party, or which would be
reasonably likely to adversely affect or restrict the Seller's ability to
consummate the transactions contemplated by this Agreement or such Transaction
Agreements, as the case may be.
SECTION 5.05. Compliance with Laws. To the best of the Seller's knowledge,
the Seller's use of the Assets is not in violation of any law, rule, regulation,
order, judgment or decree applicable to the Seller and relating to the Assets or
by which any of the Assets are bound or affected, except (i) as set forth in
Section 5.05 of the Disclosure Schedule and (ii) for violations the existence of
which would not be reasonably expected to have a Material Adverse Effect.
SECTION 5.06. Contracts. (a) Except as disclosed in Section 5.06(a) of the
Disclosure Schedule, each Designated Contract: (i) is valid and binding in
accordance with its terms on the Seller, taking into account any oral
modifications or waivers that do not substantially and materially impair the
value of the Designated Contract as a whole, (ii) has not been breached by the
Seller in any manner that could reasonably be expected to have a material
adverse effect on the Purchaser's rights thereunder, (iii) is freely assignable
to the Purchaser without penalty, (iv) has not been terminated by the Seller,
and (v) true and complete copies of each Designated Contract have previously
been made available to the Purchaser; provided, however, that the Seller does
not represent or warrant in any respect the performance under any Designated
Contract by any party thereto (other than the Seller), or any party whose
services are furnished thereunder, after the date hereof.
(b) To the best of the Seller's knowledge, Part A-2 of Schedule I lists
substantially all of the contracts, licenses, sublicenses, and agreements
exclusively related to the Business (other than the Designated Contracts),
except for omissions which would not be reasonably expected to have a Material
Adverse Effect. To Xxx XxXxxxxx'x and XxXxxxx Xxxxx' actual knowledge, in each
case without independent investigation, no notices of default have been received
by the Seller (or its applicable Affiliates) alleging a default by the Seller
(or its applicable Affiliates) under any of the Contracts listed on Part A-2 of
Schedule I, except for notices of default, the existence of which default would
not be reasonably expected to have a Material Adverse Effect.
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SECTION 5.07. Employees. (a) Attached hereto as Section 5.07(a) of the
Disclosure Schedule is a true and complete list of all of the Seller's employees
to be transferred to the Purchaser as of the date hereof (collectively, the
"Employees") in accordance with Section 6.09.
(b) Except as set forth on Section 5.07(b) of the Disclosure Schedule there
are no strikes, slowdowns, picketing or work stoppages in which the Employees
are participating that, individually or in the aggregate, are reasonably likely
to have a Material Adverse Effect.
SECTION 5.08 Tangible Personal Property. (a) The value of the Tangible
Personal Property as of the date of the Closing shall not be less than $250,000,
as calculated using the values set forth for such Tangible Personal Property in
Schedule V.
(b) The Tangible Personal Property is free and clear of any security
interest, pledge, mortgage, lien or encumbrance; provided, that the Seller shall
only be liable for any breach of the representation contained in this Section
5.08(b) to the extent such breach causes the Adjusted Assets, as reflected on
the Final Closing Balance Sheet, to be less than $9,000,000.
SECTION 5.09. Certain Representations. (i) The Seller's financial situation
is such that it can afford to bear the economic risk of holding its interest in
the Designated Shares for an indefinite period of time and can afford to suffer
a complete loss of its investment in the Designated Shares, (ii) the Seller's
knowledge and experience in financial and business matters are such that it is
capable of evaluating the merits and risks of its investment in the Designated
Shares, as contemplated by this Agreement, and (iii) the Seller understands that
the Designated Shares are a speculative investment which involves a high degree
of risk of loss of its investment therein and that there are substantial
restrictions on the transferability of the Designated Shares.
SECTION 5.10. Investment Intent. The Designated Shares to be acquired by
the Seller hereunder are being acquired for its own account and without a view
to any public distribution of such Designated Shares.
SECTION 5.11. Securities Act. The Seller has been advised that the
Purchaser is issuing and selling the Designated Shares in reliance upon the
exemption from registration provided in Section 4(2) of the Securities Act and
is relying upon these representations, and agrees that said Designated Shares
may be transferred only if registered under the Securities Act or pursuant to an
exemption from such registration requirements in compliance with such applicable
securities laws and that the certificate representing the Designated Shares will
have a legend to such effect.
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SECTION 5.12. Taxes. To the best of the Seller's knowledge, there are no
liens encumbering any of the Assets as a result of any Taxes.
SECTION 5.13. Brokers. No broker, finder or investment banker is entitled
to any brokerage, finder's or other fee or commission in connection with the
transactions contemplated by this Agreement based upon arrangements made by or
on behalf of the Seller.
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ARTICLE VI
ADDITIONAL AGREEMENTS
SECTION 6.01. Investigation. The Purchaser acknowledges and agrees that it
(i) has made its own inquiry and investigation into, and, based thereon, has
formed an independent judgment concerning the Assets and the Assumed
Liabilities, (ii) has been furnished with or given adequate access to such
information about the Business, the Assets and the Assumed Liabilities as it has
requested, and (iii) will not assert any claim against the Seller or any of its
directors, officers, employees, agents, stockholders, Affiliates, consultants,
or representatives, or hold the Seller or any such persons liable for any
inaccuracies, misstatements or omissions with respect to information (other
than, with respect to the representations, warranties, covenants and agreements
contained in this Agreement) furnished by the Seller or such persons concerning
the Seller, the Business, the Assets or the Assumed Liabilities.
SECTION 6.02. Access to Information. If after the Closing, in order to
properly prepare documents required to be filed with Governmental Authorities or
its financial statements, it is necessary that any Party hereto or any of its
successors be furnished with additional information relating to the Business,
the Assets or the Assumed Liabilities, and such information is in the possession
of any another Party hereto, such Party agrees to use its reasonable efforts to
furnish photocopies of such information to such other Party, at the cost and
expense of the Party being furnished such information.
SECTION 6.03. Publicity. Each Party agrees to consult the other Party prior
to issuing any press release, public statement or advertisement in any manner
relating to the existence of this Agreement or any terms, conditions or
obligations contained herein or in the Transaction Agreements; provided, that
the Purchaser shall have the right to disclose such information (the "Permitted
Disclosure") as it is required to disclose by applicable law and the applicable
NASDAQ regulations to be disclosed; provided, further, that the Purchaser hereby
agrees that it will not issue any communication to the press, any other media or
its applicable regulators that would reflect adversely on the Seller or its
Affiliates, except to the extent that such failure to disclose such information
in that way would cause the Purchaser to be in violation of applicable law or
applicable NASDAQ regulations.
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SECTION 6.04. Confidentiality. Subject to Section 6.03 above, each of the
Parties will keep strictly confidential any and all information delivered or
transferred by the Purchaser or the Seller in connection with this Agreement and
any of the Transaction Agreements, including, without limitation, the terms of
any such agreements (the "Confidential Information"), except that any Party may
disclose any such term or information:
(a) to the extent required by law, regulation or legal process or any
regulatory agency, subject to the terms and conditions contained in Section
6.05;
(b) to its employees, representatives, legal, financial, technical and
professional advisors and affiliates who need to know the information for the
purpose of performing their duties and obligations hereunder; or
(c) if at the time of disclosure it is in the public domain other than as a
result of a Party's breach under this Section 6.04.
To the extent that there is a breach of this Section 6.04 by any person
receiving information pursuant to (b) above, such breach shall be deemed to be a
breach by the Party which originally disclosed the information to the person
pursuant to (b) above.
Each Party, on behalf of itself and the employees and Affiliates of such
Party, agrees that it will issue no communication to the press or other media
that would reflect adversely on any other Party.
SECTION 6.05. Notice Preceding Compelled Disclosure. In the event any of
the Parties or any of their respective representatives are requested pursuant
to, or become compelled by, applicable law, regulation or legal process to
disclose any of the Confidential Information (the "Disclosing Party"), such
Disclosing Party will provide the other Parties with prompt written notice so
that they may seek a protective order or other appropriate remedy or, in their
sole discretion, waive compliance with the term of this Agreement. In the event
that no such protective order or other remedy is obtained, or that any of the
Parties waive compliance with the terms of this Agreement, the Disclosing Party
will furnish only that portion of the Confidential Information which the
Disclosing Party is advised by counsel is legally required and cooperate, at the
Disclosing Party's sole cost and expense with the other Parties efforts to
obtain reliable assurance that confidential treatment will be accorded the
Confidential Information.
21
SECTION 6.06. Notification to Governmental Authorities. The Purchaser shall
promptly after the Closing, and in any event not later than thirty (30) days
after the date hereof notify each governmental and regulatory authority that
would have on record the ownership of the Seller (or its Affiliates) or the
names of the officers and directors (either current or former) of the Seller (or
its Affiliates), with respect to the Purchaser's ownership of the Assets and
with respect to the names of the then current officers and directors of the
Purchaser.
SECTION 6.07. Bulk Transfer Laws. The Parties hereby waive compliance by
the Seller with the provisions of any so-called bulk transfer laws of any
jurisdiction in connection with the sale or transfer to the Purchaser of the
Assets.
SECTION 6.08. Use of Name or Other Intellectual Property. Immediately after
the Closing and with all due diligence, the Purchaser shall remove or obliterate
from all of the Assets (including letterheads and other materials) all signs and
other materials containing the name BMG, BMG Music, BMG Entertainment,
Bertelsmann Music Group, Inc., Xxxxxx Eurodisc, Inc., Bertelsmann Music Group
Company or any Affiliate, or related entity to all of the foregoing
(collectively, the "IP Entities"), or any variant thereof, and any trademark,
servicemark, trade dress, logo, trade name, or corporate name of BMG or any of
the IP Entities. The Purchaser shall not use or put into use after the Closing
Date any materials that bear any trademark, service xxxx, trade dress, logo,
trade name or corporate name of the IP Entities or any variant thereof. The
Purchaser shall make any requisite filings with, and provide any requisite
notices to, the appropriate federal, state, local and foreign agencies to place
a title or other indicia of ownership in a name other than as referred to above
in this Section 6.08. Any signs and other materials containing the name of the
IP Entities or any variant thereof and any trademark, service xxxx, trade dress,
logo, trade name, or corporate name of the IP Entities shall be promptly
returned to the Seller or with the Seller's written consent, destroyed or
otherwise permanently disposed of. Notwithstanding the foregoing, with the
Seller's prior written consent, such consent not to be unreasonably withheld,
the Purchaser may sticker the materials, so long as all references to the IP
Entities or any variant thereof shall be obliterated; provided, that the
Purchaser may use materials ancillary to the Products (but expressly excluding
the Products) containing references to the IP Entities or a variant thereof
without stickering such materials for a reasonable period of time during the
transition, such period not to exceed 90 days from the date hereof.
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SECTION 6.09. Employees. As of the Closing, the Seller shall transfer all
the Employees to the Purchaser and the Purchaser shall offer employment to all
the Employees effective as of the Closing. The Purchaser's offer of employment
to such Employees of the Seller shall be on terms and conditions no less
favorable, in the aggregate, than the terms and conditions such Employees were
entitled to from the Seller prior to the Seller's transfer of such Employee,
including, without limitation, salary, bonus, and pension and health benefit
arrangements; provided, that, for purposes of all of the Purchaser's employee
benefit plans, including but not limited to, retirement benefit plans, the
Purchaser will grant each of the Employees who becomes an employee of the
Purchaser on or after the Closing service credit equal to the service credit
that each such Employee of the Seller would have accrued if he or she had been
employed by the Purchaser during the entire period that each such Employee of
the Seller was employed by the Business or the Seller. The Seller and the
Purchaser shall comply with all applicable laws relating to the transfer and
employment of the Employees. The Seller shall pay all severance and termination
costs in connection with any Employee who does not accept employment with the
Purchaser. The Purchaser hereby represents that it does not have any intention
to hire any Employee, either contemporaneously with the Closing or at any time
thereafter, who declines its offer of employment and accepts any severance or
termination payments from the Seller.
SECTION 6.10. No Competition. In partial consideration of the payment of
the Purchase Price, as set forth in Section 2.01, for a period of two (2) years
after the Closing Date, the Seller will not (i) internally develop a business
which is principally engaged in the publishing of traditional video games (as
currently understood as of the date hereof in the Platform industry) for
Platforms and personal computers; but expressly excluding any on-line activities
of the Seller; or (ii) acquire a business whose principal line of business is
the publishing of traditional video games (as currently understood as of the
date hereof in the Platform industry) for Platforms and personal computers; but,
for purposes of determining such principal line of business, all on-line
activities of the entity whose business is acquired shall be excluded. For the
avoidance of doubt, the Seller shall have no restrictions with respect to
publishing any products which are primarily focused on music or musical artists
or where prerecorded music forms a substantial portion of such Product.
SECTION 6.11. Voting of Designated Shares. From the date hereof through and
including June 30, 1998, the Seller hereby agrees to vote the Designated Shares
in favor of an amendment to the Purchaser's certificate of incorporation,
authorizing the Purchaser to (i) increase its number of authorized options
exercisable to purchase Common Stock, and (ii) increase its authorized share
capital.
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SECTION 6.12. Audit. The Parties hereby agree that KPMG Peat Marwick shall
be principally responsible for preparing, within sixty (60) days of the date
hereof, audited financial statements of the Business' operations in the United
States, United Kingdom, France, Germany, Sweden, Italy and Japan.
Notwithstanding anything herein or in the Transaction Agreements to the
contrary, the Parties agree and acknowledge that the audit is being prepared
solely as a result of the Purchaser's obligations under Section 3.05 of
Regulation S-X under the Securities Act of 1933, as amended, and the Securities
Exchange Act of 1934, as amended and, in that regard, the Parties agree that
neither Party shall use the results of such audit with respect to this Agreement
or the Transaction Agreements, including, without limitation, to impact the
Purchase Price adjustment set forth in Section 2.03 or to affect the
representations, warranties, covenants, agreements and indemnities contained
herein and in the Transaction Agreements or in any way to affect the performance
of the Parties hereunder or under the Transaction Agreements. The Seller shall
pay the costs and expenses associated with conducting the audit in the United
Kingdom, France, Germany, Sweden, Italy and Japan and the Purchaser shall pay
all costs and expenses associated with conducting the audit in the United
States.
SECTION 6.13. Termination of Gametek Litigation. The Purchaser shall
immediately following the execution of this Agreement, and in no event later
than fifteen (15) days following such execution, take all actions in order to
unilaterally terminate, with prejudice, the Gametek Litigation, thereby
releasing the Seller (and its Affiliates) from all liability related to such
litigation.
SECTION 6.14. Right of Set-off. Each party hereto is hereby authorized at
any time and from time to time, to the fullest extent permitted by law, to set
off and apply any and all indebtedness or other payment obligations at any time
owing by such party (or any of its Affiliates) to or for the credit or the
account of any other party against any and all of the obligations of such other
party to such party now or hereafter existing under any agreement, including,
without limitation, this Agreement or any Transaction Agreement. Each party
hereto agrees promptly to notify the other parties after any such set-off and
application; provided, that the failure to give such notice shall not affect the
validity of such set-off and application. The rights of each party under this
Section are in addition to other rights and remedies (including, without
limitation, other rights of set-off) which such party may have at law or in
equity. Nothing set forth in this Section 6.14 shall be deemed to waive or
otherwise limit any rights of set-off any party may have at law or in equity.
SECTION 6.15. Performance of Contracts. The Purchaser hereby agrees, as of
the Closing, to perform, observe and fulfill all of the terms, covenants,
conditions and obligations under the Contracts.
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SECTION 6.16. Further Action. Each of the Parties hereto shall execute and
deliver such documents and other papers and take such further actions as may be
reasonably required to carry out the provisions hereof and give effect to the
transactions contemplated hereby.
ARTICLE VII
TAX MATTERS
SECTION 7.01. Conveyance Taxes. Notwithstanding anything contained herein
to the contrary, any sales, use, transfer, value added, excise, stock transfer,
stamp, recording, registration and any similar Taxes which become payable in
connection with the transactions contemplated hereby shall be payable by the
Party obligated to make such payment under applicable law. The Parties shall
execute and deliver all instruments and certificates necessary to permit
compliance with the foregoing.
SECTION 7.02. Taxes. Except as provided in Section 7.01, the Purchaser
shall be responsible for any and all Taxes, including, without limitation, all
real and personal property Taxes or any other Taxes related to the ownership or
the use of the Assets or the conduct of the Business that are due after the date
hereof, whether accruing prior to or after the date hereof; provided that, for
these purposes any such Taxes payable with respect to a period beginning before
and ending after the date hereof shall be pro-rated based on the number of days
in such period, including, without limitation, any Taxes paid by the Seller in
respect of the Assets prior to the date of the Closing.
SECTION 7.03. Tax Reporting. The Seller agrees to reasonably cooperate with
the Purchaser to provide any information reasonably requested by the Purchaser
which is necessary to the filing of the Purchaser's tax return.
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ARTICLE VIII
INDEMNITY
SECTION 8.01. Survival; Waiver. (a) Subject to the limitations and other
provisions of this Agreement, the representations and warranties of the Parties
hereto contained herein shall survive and remain in full force and effect and be
subject to indemnification as provided in this Article VIII, regardless of any
investigation made by or on behalf of the Purchaser or the Seller, for a period
of one (1) year from the date hereof; provided, that if either Party gives the
other Party written notice of a claim prior to the expiration of the applicable
representation or warranty, then the relevant representation or warranty and
such claim, as the case may be, shall survive as to such claim until such claim
has been finally resolved. Except as set forth in this Agreement or a
Transaction Agreement, there are no other representations and warranties,
express or implied, made by any Party hereto to any other Party in connection
with the transactions contemplated by this Agreement.
(b) The Purchaser and the Seller hereby acknowledge and agree that their
sole and exclusive remedy with respect to any and all claims (including claims
against each other) relating to the subject matter of this Agreement shall be
pursuant to the indemnification provisions set forth in this Article VIII. The
Purchaser and the Seller shall take all steps as may be reasonably requested by
the other Party and at such requesting Party's expense, to mitigate all such
liabilities and damages.
SECTION 8.02. Seller Indemnification. (a) The Seller shall indemnify the
Purchaser, each Affiliate of the Purchaser, each successor and assign of each
such person, and each representative of each of the foregoing (for purposes of
this Section 8.02, each such person in its capacity as indemnitee hereunder, an
"Indemnitee"), with respect to, and hold each of them harmless from and against,
any and all Losses resulting from, arising out of, or relating to (i) the
Seller's breach of any representation, warranty, covenant, or agreement of the
Seller contained in this Agreement or any Transaction Agreement, and (ii) the
Specified Liabilities. To the extent that the Seller's undertakings in this
Section 8.02 may be unenforceable, the Seller shall contribute the maximum
amount that it is permitted to contribute under applicable law to the payment
and satisfaction of all Losses incurred by any Indemnitee.
(b) An Indemnitee shall give the Seller notice (for purposes of this
Section 8.02, a "Loss Notice") of any matter which such Indemnitee has
determined has given or could reasonably be expected to give rise to a right of
indemnification under this Agreement within thirty (30) days of such
determination, stating the amount of the Loss, if known, and method of
computation thereof, and describing in reasonable detail the facts and
circumstances upon which such determination is based;
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provided, however, that the failure to provide such notice shall not release the
Seller from any of its obligations under this Article VIII except to the extent
the Seller is materially prejudiced by such failure and shall not relieve the
Seller from any other obligation or liability that it may have to any Indemnitee
otherwise than under this Article VIII.
(c) The Seller's obligations and liabilities hereunder with respect to
Losses arising from claims of any third party which are subject to the
indemnification provided for in this Section 8.02 (for purposes of this Section
8.02, "Third-Party Claims") shall be governed by and contingent upon the
following additional terms and conditions:
(i) If an Indemnitee receives notice of any Third-Party Claim, such
Indemnitee shall give the Seller notice of such Third-Party Claim within
thirty (30) days after the receipt of such notice by such Indemnitee;
provided, however, that the failure to provide such notice shall not
release the Seller from any of its obligations under this Section 8.02
except to the extent the Seller is materially prejudiced by such failure
and shall not relieve the Seller from any other obligation or liability
that it may have to any Indemnitee otherwise than under this Section 8.02;
(ii) If the Seller acknowledges in writing its obligation to indemnify
an Indemnitee against any Losses that may result from such Third-Party
Claim, then the Seller shall be entitled to assume and control the defense
of such Third-Party Claim at its expense and through counsel of its choice
(which counsel shall be reasonably acceptable to such Indemnitee) if it
gives notice of its intention to do so to such Indemnitee within five (5)
Business Days after the receipt of such notice from such Indemnitee;
provided, however, that if there exists or is reasonably likely to exist a
conflict of interest that would make it inappropriate in the judgment of
such Indemnitee, in its sole and absolute discretion, for the same counsel
to represent both such Indemnitee and the Seller, then all Indemnitees with
respect to any such Third-Party Claim shall, collectively, be entitled to
retain one counsel of their own selection, in each jurisdiction for which
such Indemnitees determine counsel is required, at the Seller's expense. If
the Seller exercises its right to undertake any such defense against any
such Third-Party Claim as provided above, the Indemnitee shall cooperate
with the Seller in such defense and make available to the Seller, at the
Seller's expense, all witnesses, pertinent records, materials, and
information in such Indemnitee's possession or under such Indemnitee's
control relating thereto as is reasonably required by the Seller.
Similarly, in the event that an Indemnitee is, directly or indirectly,
conducting the defense against any such Third-Party Claim, the Seller shall
cooperate with such Indemnitee in such defense and make available to such
Indemnitee, at the Seller's expense, all such witnesses, records,
materials, and information in the Seller's possession or under the Seller's
control relating thereto as is reasonably required by such
27
Indemnitee. No such Third-Party Claim may be settled by the Seller without
the prior written consent of the Indemnitee.
SECTION 8.03. Purchaser Indemnification. (a) The Purchaser shall indemnify
the Seller, each Affiliate of the Seller, each successor and assign of each such
person, and each representative of each of the foregoing (for purposes of this
Section 8.03, each such person in its capacity as indemnitee hereunder, an
"Indemnitee"), with respect to, and hold each of them harmless from and against,
any and all Losses resulting from, arising out of, or relating to (i) the
Purchaser's breach of any representation, warranty, covenant, or agreement of
the Purchaser contained in this Agreement or any Transaction Agreement; (ii) the
Assumed Liabilities; and (iii) any claim alleging that any Products shipped
after the date hereof or Assets sold by the Purchaser containing the name of the
IP Entities, infringe a valid and existing copyright or of any claim for
royalties (based on title to the Products or Assets) pursuant to any copyright
law of the United States or any other law. To the extent that the Purchaser's
undertakings in this Section 8.03 may be unenforceable, the Purchaser shall
contribute the maximum amount that it is permitted to contribute under
applicable law to the payment and satisfaction of all Losses incurred by any
Indemnitee.
(b) An Indemnitee shall give the Purchaser notice (for purposes of this
Section 8.02, a "Loss Notice") of any matter which such Indemnitee has
determined has given or could reasonably be expected to give rise to a right of
indemnification under this Agreement within thirty (30) days of such
determination, stating the amount of the Loss, if known, and method of
computation thereof, and describing in reasonable detail the facts and
circumstances upon which such determination is based; provided, however, that
the failure to provide such notice shall not release the Purchaser from any of
its obligations under this Article VIII except to the extent the Purchaser is
materially prejudiced by such failure and shall not relieve the Purchaser from
any other obligation or liability that it may have to any Indemnitee otherwise
than under this Article VIII.
(c) The Purchaser's obligations and liabilities hereunder with respect to
Losses arising from claims of any third party which are subject to the
indemnification provided for in this Section 8.03 (for purposes of this Section
8.03, "Third-Party Claims") shall be governed by and contingent upon the
following additional terms and conditions:
(i) If an Indemnitee receives notice of any Third-Party Claim, such
Indemnitee shall give the Purchaser notice of such Third-Party Claim within
thirty (30) days after the receipt of such notice by such Indemnitee;
provided, however, that the failure to provide such notice shall not
release the Purchaser from any of its obligations under this Section 8.03
except to the extent the Purchaser is materially prejudiced by such failure
and shall not relieve the Purchaser from any other obligation or liability
that it may have to
28
any Indemnitee otherwise than under this Section 8.03;
(ii) If the Purchaser acknowledges in writing its obligation to
indemnify an Indemnitee against any Losses that may result from such
Third-Party Claim, then the Purchaser shall be entitled to assume and
control the defense of such Third-Party Claim at its expense and through
counsel of its choice (which counsel shall be reasonably acceptable to such
Indemnitee) if it gives notice of its intention to do so to such Indemnitee
within five (5) Business Days after the receipt of such notice from such
Indemnitee; provided, however, that if there exists or is reasonably likely
to exist a conflict of interest that would make it inappropriate in the
judgment of such Indemnitee, in its sole and absolute discretion, for the
same counsel to represent both such Indemnitee and the Purchaser, then all
Indemnitees with respect to any such Third-Party Claim shall, collectively,
be entitled to retain one counsel of their own selection, in each
jurisdiction for which such Indemnitees determine counsel is required, at
the Purchaser's expense. If the Purchaser exercise its right to undertake
any such defense against any such Third-Party Claim as provided above, the
Indemnitee shall cooperate with the Purchaser in such defense and make
available to the Purchaser at its expense, all witnesses, pertinent
records, materials, and information in such Indemnitee's possession or
under such Indemnitee's control relating thereto as is reasonably required
by the Purchaser. Similarly, in the event that an Indemnitee is, directly
or indirectly, conducting the defense against any such Third-Party Claim,
the Purchaser shall cooperate with such Indemnitee in such defense and make
available to such Indemnitee, at the Purchaser's expense, all such
witnesses, records, materials, and information in the Purchaser's
possession or under the Purchaser's control relating thereto as is
reasonably required by such Indemnitee. No such Third-Party Claim may be
settled by the Purchaser without the prior written consent of the
Indemnitee.
SECTION 8.04. No Rescission. Except as set forth in this Agreement, neither
Party is making any representation, warranty, covenant or agreement with respect
to the matters contained herein. Notwithstanding anything herein to the
contrary, no breach of any representation, warranty, covenant or agreement
contained herein shall give rise to any right on the part of either Party to
rescind this Agreement or any of the transactions contemplated hereby.
ARTICLE IX
GENERAL PROVISIONS
29
SECTION 9.01. Expenses. All costs and expenses, including, without
limitation, fees and disbursements of counsel, financial advisors and
accountants, incurred in connection with this Agreement and the Transaction
Agreements and the transactions contemplated hereby and thereby shall be paid by
the Party incurring such costs and expenses, whether or not the Closing shall
have occurred.
SECTION 9.02. Notices. All notices and other communications given or made
pursuant hereto shall be in writing and shall be deemed to have been duly given
or made as of the date delivered, mailed or telecopied if delivered personally
or mailed by registered or certified mail (postage prepaid, return receipt
requested) or telecopied to the Parties at the following addresses (or at such
other address for a Party as shall be specified by like notice, except that
notices after the giving of which there is a designated period within which to
perform an act and notices of changes of address shall be effective only upon
receipt):
(a) if to the Purchaser: Take-Two Interactive Software, Inc.
000 Xxxxxxxx
Xxx Xxxx, Xxx Xxxx 00000
Attention: Xxxxxxx Xxxxxxxx
Telecopy: (000) 000-0000
with a copy to: Xxxxxx Xxxxxxxxxx LLP
The Chrysler Building
000 Xxxxxxxxx Xxxxxx
Xxx Xxxx, Xxx Xxxx 00000
Attention: Xxxxx X. Xxxxxxxxx
Telecopy: (000) 000-0000
(b) if to the Seller: BMG Entertainment,
a division of BMG Music
0000 Xxxxxxxx
Xxx Xxxx, Xxx Xxxx 00000-0000
Telecopy: (000) 000-0000
Attention: Executive Vice President
and Chief Financial Officer
with a copy to: BMG Entertainment,
a division of BMG Music
0000 Xxxxxxxx
Xxx Xxxx, Xxx Xxxx 00000-0000
Telecopy: (000) 000-0000
Attention: Senior Vice President
and General Counsel of BMG
Entertainment
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Xxxxx & Xxxxxxxxxx LLP
0000 Xxxxxxxx, Xxxxx 0000
Xxx Xxxx, Xxx Xxxx 00000
Telecopy: (000) 000-0000
Attention: Notices (100/022)
SECTION 9.03. Headings. The headings contained in this Agreement are for
reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
SECTION 9.04. Severability. If any term or other provision of this
Agreement is invalid, illegal or incapable of being enforced by any 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 hereby is 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 a mutually acceptable manner in
order that the transactions contemplated hereby be consummated as originally
contemplated to the greatest extent possible.
SECTION 9.05. Entire Agreement. This Agreement and the Transaction
Agreements constitute the entire agreement of the Parties hereto with respect to
the subject matter hereof and supersede all prior agreements and undertakings,
both written and oral, with respect to the subject matter hereof and except as
otherwise expressly provided herein.
SECTION 9.06. Assignment. This Agreement shall be binding upon the parties
and their successors and assigns and shall benefit and inure it to the benefit
of the parties, their successors and permitted assigns. This Agreement shall not
be assigned by any party hereto without the express written consent of the
Purchaser and the Seller (which consent may be granted or withheld in the sole
discretion of the Purchaser and the Seller).
SECTION 9.07. No Third-Party Beneficiaries. Except as explicitly provided
herein, this Agreement is for the sole benefit of the Parties hereto and their
permitted assigns and nothing herein, express or implied, is intended to or
shall confer upon any other Person any legal or equitable right, benefit or
remedy of any nature whatsoever under or by reason of this Agreement.
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SECTION 9.08. Amendment; Waiver. This Agreement may not be amended or
modified except by an instrument in writing signed by the Purchaser and the
Seller. Waiver of any term or condition of this Agreement shall only be
effective if in writing and shall not be construed as a waiver of any subsequent
breach or waiver of the same term or condition, or a waiver of any other term or
condition of this Agreement.
SECTION 9.09. Governing Law. This Agreement shall be governed by, and
construed in accordance with, the laws of the State of New York applicable to
contracts executed in and to be performed in that State.
SECTION 9.10. Consent to Jurisdiction. The Purchaser and the Seller hereby
irrevocably submit to the exclusive jurisdiction of any court of the State of
New York sitting in New York County and any Federal court sitting in New York
County and any appellate court from any thereof in any action or proceeding
arising out of or relating to this Agreement, and the Purchaser and the Seller
hereby irrevocably agree that all claims in respect of such action or proceeding
may be heard and determined in such court. The Purchaser and the Seller agree
that a final judgment in any such action or proceeding shall be conclusive and
may be enforced in other jurisdictions by suit on the judgment or in any other
manner provided by law. The Purchaser and the Seller hereby irrevocably agree
that the summons a complaint or any other process in any action in any
jurisdiction may be served by mailing to any of the addresses set forth herein
or by hand delivery to a person of suitable age and discretion at any such
address. Such service will be complete on the date such process is so mailed and
delivered.
SECTION 9.11. Counterparts. This Agreement may be executed in one or more
counterparts, and by the different Parties hereto in separate counterparts, each
of which when executed shall be deemed to be an original but all of which taken
together shall constitute one and the same agreement.
[REST OF PAGE INTENTIONALLY LEFT BLANK]
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IN WITNESS WHEREOF, each of the Purchaser and the Seller have caused this
Agreement to be executed as of the date first written above by their, if
applicable, respective officers thereunto duly authorized.
TAKE-TWO INTERACTIVE SOFTWARE, INC.,
a Delaware company
By: __________________________________
Name:
Title:
BMG ENTERTAINMENT NORTH AMERICA, a
division of BMG MUSIC, a New York
general partnership
By: BERTELSMANN MUSIC GROUP,
INC., a Delaware corporation,
a general partner
By: _____________________________
Name:
Title:
