AGREEMENT OF MERGER
THIS AGREEMENT OF MERGER (this "Agreement") is dated as of June 9, 1998
among JAMtv CORPORATION, a Delaware corporation ("JAMtv"), TUNES ACQUISITION
CORP., a Delaware corporation and a wholly-owned subsidiary of JAMtv ("Merger
Sub"), and TUNES NETWORK, INC., a California corporation ("Tunes").
RECITAL
WHEREAS, the Boards of Directors of each of JAMtv, Tunes and Merger Sub
have approved the terms and conditions of the acquisition of Tunes by JAMtv
to be effected by the merger of Tunes with and into Merger Sub, pursuant to
the terms and subject to the conditions of this Agreement, the Delaware
General Corporation Law (the "DGCL") and the California General Corporation
Law (the "CGCL").
NOW THEREFORE, in consideration of the premises and mutual covenants
and agreements contained in this Agreement, JAMtv, Merger Sub and Tunes agree
as follows:
SECTION 1
THE MERGER; DEFINITIONS
1.1 MERGER. Subject to the terms and conditions of this Agreement
and of the Certificate of Merger in substantially the form attached hereto as
EXHIBIT A (the "Merger Certificate"), Tunes shall be merged with and into
Merger Sub (the "Merger") in accordance with the applicable provisions of the
DGCL and the CGCL, and Merger Sub shall survive the Merger. The Merger
Certificate provides for the mode of consummating the Merger and the effects
thereof. The Merger Certificate shall be executed by the parties thereto
concurrently with the execution of this Agreement.
1.2 EFFECTIVE TIME OF THE MERGER. Subject to the provisions of this
Agreement and the Merger Certificate, the Merger Certificate, together with
required certificates, if any, shall be duly filed in accordance with the
DGCL and the CGCL simultaneous with or as soon as practicable following the
Closing (as defined in Section 1.3 hereof). The Merger shall become
effective (the "Effective Time") as provided under the DGCL and the CGCL.
1.3 CLOSING. Unless this Agreement shall have been terminated
pursuant to Section 8 hereof, the closing of the Merger (the "Closing") will
take place at 10:00 a.m. on June 15, 1998 (the "Closing Date"), or, if the
closing conditions contained in Section 6 hereof are not satisfied or waived
on or prior to such date, the first business day after satisfaction or waiver
of all such conditions, at the offices of Xxxxxxxx & Xxxxxx, 000 Xxxxx Xxxxxx
Xxxxx, Xxxxx 0000, Xxxxxxx, Xxxxxxxx 00000-0000.
1.4 EFFECT OF MERGER. Subject to the terms and conditions of this
Agreement and the Merger Certificate, at the Effective Time: (i) the separate
existence of Tunes shall cease and Tunes
shall be merged with and into Merger Sub (Merger Sub and Tunes are each
sometimes referred to as the "Constituent Corporations," and Merger Sub,
after the Merger, is sometimes referred to as the "Surviving Corporation")
and (ii) the Surviving Corporation shall possess all the rights, privileges,
immunities and franchises, of a public as well as of a private nature, of
each of the Constituent Corporations; and all property, real, personal and
mixed, and all debts due on whatever account, including subscriptions to
shares, and all other choses in action, and all and every other interest of
or belonging to or due to each of the Constituent Corporations shall be taken
and deemed to be vested in the Surviving Corporation without further act or
deed; and the title to any real estate, or any interest therein, vested in
either of the Constituent Corporations shall not revert or be in any way
impaired by reason of such merger or consolidation; and the Surviving
Corporation shall thenceforth be responsible and liable for all the
liabilities and obligations of each of the Constituent Corporations; and any
claim existing or action or proceeding pending by or against a Constituent
Corporation may be prosecuted as if such merger or consolidation had not
taken place; and neither the rights of creditors nor any liens upon the
property of any Constituent Corporation shall be impaired by the Merger.
1.5 CERTIFICATE OF INCORPORATION; BYLAWS; DIRECTORS; OFFICERS. At
the Effective Time, (i) the Certificate of Incorporation of Merger Sub,
substantially in the form attached hereto as EXHIBIT B, shall be the
Certificate of Incorporation of the Surviving Corporation, until thereafter
duly altered, amended or repealed as provided in the DGCL; (ii) the Bylaws of
Merger Sub, as in effect immediately prior to the Effective Time, shall be
the Bylaws of the Surviving Corporation, until thereafter duly altered,
amended or repealed as provided in the DGCL or in the Certificate of
Incorporation or Bylaws of the Surviving Corporation; (iii) Xxxxxx X.
Xxxxxxx, Xxxx Xxxxxxxxxx, and Xxxxxx Xxxxxxxx shall be the initial directors
of the Surviving Corporation and will hold office from the Effective Time
until they first resign or their respective successors are duly elected or
appointed and qualified in the manner provided in the Certificate of
Incorporation and Bylaws of the Surviving Corporation, as such instruments
may be amended from time to time, either before or after the Effective Time,
or as otherwise provided by law; and (iv) Xxxxxx X. Xxxxxxx, as Chief
Executive Officer, Xxxxxx Xxxxxxxx, as President, Xxxxx Xxxxxxxx, as
Executive Vice President, and Xxxxxx Xxxxxxx, as Treasurer and Secretary,
shall be the initial officers of the Surviving Corporation.
1.6 TAKING OF NECESSARY ACTION. Prior to the Effective Time, the
parties shall take, or cause to be taken, all such reasonable actions as may
be necessary or appropriate in order to effect, as expeditiously as
reasonably practicable, the Merger.
1.7 TAX CONSEQUENCES. For federal income tax purposes, the Merger is
intended to constitute a reorganization within the meaning of Section 368 of
the Code. The parties to this Agreement hereby adopt this Agreement as a
"plan of reorganization" within the meaning of Sections 1.368-2(g) and
1.368-3(a) of the United States Treasury Regulations.
1.8 DEFINITIONS. As used in this Section 1 and elsewhere in this
Agreement, the following terms shall have the following respective meanings:
"AAA" shall have the meaning set forth in Section 9.3 hereof.
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"Accounts Receivable" shall have the meaning set forth in Section
3.6 hereof.
"Aggregate Closing Consideration" shall mean the amount equal to
the aggregate consideration payable upon the Closing with respect to all
outstanding shares of Tunes Common Stock, Tunes Options, and Convertible Debt
that an Investor has elected to convert into shares of Tunes Common Stock, as
calculated in accordance with the provisions of Sections 2.1, 2.2 and 2.3
hereof, as applicable, minus the aggregate of the Pro Rata Share of Total
Closing Consideration attributable to all Dissenting Shares.
"Applicable Deduction" shall mean, with respect to each share of
Tunes Common Stock (including shares underlying Vested Tunes Options and
Convertible Debt that an Investor has elected to convert into shares of Tunes
Common Stock), the amount equal to the product of (A) the Excess Liability
Amount, if any, on the date of Closing, multiplied by (B) a fraction, the
numerator of which is the applicable Pro Rata Share of Cash Closing
Consideration for such share, and the denominator of which is equal to
$1,550,000 minus the aggregate of the Pro Rata Share of Cash Closing
Consideration attributable to all Dissenting Shares.
"Artists Guild" shall have the meaning set forth in Section
3.16(b) hereof.
"Balance Sheet Date" means June 30, 1998.
"Cash Closing Consideration" means $1,550,000, subject to
reduction in accordance with the terms of this Agreement.
"Closing" shall have the meaning set forth in Section 1.3 hereof.
"Closing Date" shall have the meaning set forth in Section 1.3
hereof.
"Closing Shares" means the shares of JAMtv Common Stock to be
issued by JAMtv at the Closing, which shall be the Initial Closing Shares as
reduced in accordancd with Sections 2.9 and 2.10 of this Agreement, which
shall be the Initial Closing Shares, subject to reduction in accordance with
Section 2.7.5 of this Agreement.
"COBRA" shall have the meaning set forth in Section 3.11(m)
hereof.
"Code" means the Internal Revenue Code of 1986, as amended.
"Computer System" shall have the meaning set forth in Section
3.17 hereof.
"Constituent Corporations" shall have the meaning set forth in
Section 1.4 hereof.
"Contingent Shares" shall have the meaning set forth in Section
2.7(a) hereof.
"Convertible Debt" shall mean the indebtedness of Tunes that is
convertible into Tunes Common Stock.
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"Convertible Debt Instrument" shall mean a Convertible Promissory
Note or such other debt instrument which evidences Convertible Debt.
"Copyrights" shall have the meaning set forth in Section
3.16(a)(2) hereof.
"Damages" shall have the meaning set forth in Section 7.1(a)
hereof.
"Dissenting Shares" shall mean any shares of Tunes Common Stock
held by a holder who has properly exercised appraisal rights for such shares
in accordance with the DGCL or the CGCL, as applicable, and who, as of the
Effective Time, has not effectively withdrawn or lost such appraisal rights.
"Xxxxxxx Money" means the $200,000 cash deposit previously paid
to Tunes by JAMtv, the receipt of which Tunes hereby acknowledges and which
deposit is refundable to JAMtv in accordance with Section 8 hereof.
"Effective Time" shall have the meaning set forth in Section 1.2
hereof.
"Employee Bonus Payment" shall have the meaning set forth in
Section 5.15 hereof.
"Environmental Laws" shall have the meaning set forth in Section
3.21(c) hereof.
"ERISA" shall have the meaning set forth in Section 3.11(a)
hereof.
"Escrow Agent" shall have the meaning set forth in Section 6.2
hereof.
"Escrow Agreement" shall mean the Escrow Agreement substantially
in the form attached as EXHIBIT C hereto.
"Escrow Fund" shall have the meaning set forth in Section 2.7
hereof.
"Excess Liability Amount" shall mean the amount by which the
liabilities of Tunes which exist as of the Closing Date or otherwise areise
out of or reelate to Tunes; conduct before the Closing Date (including all
amounts paid by JAMtv to Tunes before the Closing Date to enable Tunes to
satisfy such liabilities ) exceed $105,082. The Excess Liability Amount as
of May 31, 1998, is attached herto as SCHEDULE 1.8, and, from time to time,
shall be adjusted as of the Closing Date.
"Exchange Agent" shall have the meaning set forth in Section 2.8
hereof.
"Financial Statements" shall have the meaning set forth in
Section 3.5 hereof.
"Former Shareholders" shall have the meaning set forth in Section
7.8 hereof.
"GAAP" shall have the meaning set forth in Section 3.5 hereof.
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"Governmental Entity" shall have the meaning set forth in Section
3.4(c) hereof.
"Hazardous Material" shall have the meaning set forth in Section
3.21(a) hereof.
"Indemnification Deadline Date" shall have the meaning set forth
in Section 7.2(d) hereof.
"Information Statement" shall have the meaning set forth in
Section 3.26 hereof.
"Initial Closing Shares" means 300,000 shares of JAMtv Common
Stock.
"Intellectual Property Assets" shall have the meaning set forth
in Section 3.16(a) hereof.
"IPO Shares" shall have the meaning set forth in Section 2.7
hereof.
"Investor" shall mean each of the persons identified on SCHEDULE
2.3 that is a holder of Convertible Debt in such amounts as are set forth on
SCHEDULE 2.3.
"JAMtv Audited Financial Statements" shall have the meaning set
forth in Section 4.6 hereof.
"JAMtv Claim" shall have the meaning set forth in Section 7.4(a)
hereof.
"JAMtv Certificate"shall have the meaning set forth in Section
7.4(a) hereof.
"JAMtv Common Stock" shall mean the common stock, $.01 par value
per share, of JAMtv.
"JAMtv Indemnified Person(s)" shall have the meaning set forth in
Section 7.1(a) hereof.
"JAMtv Intellectual Property Assets" shall have the meaning set
forth in Section 4.12(a) hereof.
"JAMtv Licenses" shall the meaning set forth in Section 4.13
hereof.
"JAMtv Returns" shall have the meaning set forth in Section
4.11(a) hereof.
"JAMtv Preferred Stock" shall have the meaning set forth in
Section 4.2(a) hereof.
"JAMtv Unaudited Balance Sheet" shall have the meaning set forth
in Section 4.6 hereof.
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"JAMtv Unaudited Financial Statements" shall have the meaning
set forth in Section 4.6 hereof.
"Licenses" shall have the meaning set forth in Section 3.19
hereof.
"Marks" shall have the meaning set forth in Section 3.16(a)(1)
hereof.
"Material Adverse Effect" shall mean any change, event or effect
that is materially adverse to the business, assets (including, without
limitation, intangible assets), liabilities, financial condition or results
of operations of Tunes or any of its subsidiaries or JAMtv or any of its
subsidiaries, as the case may be, taken as a whole.
"Material Interest" shall have the meaning set forth in Section
3.15 hereof.
"Merger" shall have the meaning set forth in Section 1.1 hereof.
"Merger Certificate" shall have the meaning set forth in Section
1.1 hereof.
"Microsoft" means Microsoft Corporation, a Washington corporation.
"Microsoft Deluxe CD Player" means the Microsoft utility which
permits a user to play standard audio CDs in a personal computer's CD player,
which includes functionality of a CD player appliance, such as play, pause,
and other standard functions, and the ability to query Tunes's website for
information about the CD being played, such as title, artist, track names,
label, release date and special menus with unique URLs that, when selected,
launch the user's web browser to load relevant pages from Tunes's website.
"Microsoft Windows 98 Plus Pack!" means the software utility
product that Microsoft bundles with its Windows 98 operating system.
"Music Rights Holder" shall have the meaning set forth in Section
3.16(b) hereof.
"Patents" shall have the meaning set forth in Section 3.16(a)(4)
hereof.
"PBGC" shall have the meaning set forth in Section 3.11(h) hereof.
"Pending Claims" shall have the meaning set forth in Section
7.2(d) hereof.
"Performance Rights Society" shall have the meaning set forth in
Section 3.16(b) hereof.
"Performance Shares" shall have the meaning set forth in Section
2.7 hereof.
"Permitted Liens" shall have the meaning set forth in Section
3.18(d) hereof.
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"Plans" shall have the meaning set forth in Section 3.11(a)
hereof.
"Principal Shareholders" shall have the meaning set forth in
Section 5.4 hereof.
"Pro Forma Balance Sheet" shall have the meaning set forth in
Section 3.5 hereof.
"Projections" shall have the meaning set forth in Section 3.5
hereof.
"Pro Rata Share of Cash Closing Consideration" shall mean, with
respect to each share of Tunes Common Stock issued and outstanding or
underlying the Vested Tunes Options and the Convertible Debt that an Investor
has elected to convert into shares of Tunes Common Stock, the amount of cash,
if any, as is determined by dividing the amount of Cash Closing Consideration
by the aggregate number of shares of Tunes Common Stock issued and
outstanding or underlying the Vested Tunes Options and Convertible Debt that
an Investor has elected to convert into shares of Tunes Common Stock prior to
Closing.
"Pro Rata Share of Total Closing Consideration" shall mean, with
respect to each share of Tunes Common Stock issued and outstanding or
underlying the Vested Tunes Options and the Convertible Debt that an Investor
has elected to convert into shares of Tunes Common Stock, (i) the Pro Rata
Share of Cash Closing Consideration plus (ii) such number of shares of JAMtv
Common Stock as shall reflect such Tunes shareholder's pro rata share of the
Closing Shares.
"Publicity Rights" shall have the meaning set forth in Section
3.16(a) hereof.
"Related Person" shall have the meaning set forth in Section 3.15
hereof.
"Retention Amount" shall have the meaning set forth in Section
2.7 hereof.
"Series A Preferred" shall have the meaning set forth in Section
4.2(a) hereof.
"Series A-I Convertible Preferred Stock" shall have the meaning
set forth in Section 4.2(a) hereof.
"Series A-II Convertible Preferred Stock" shall have the meaning
set forth in Section 4.2(a) hereof.
"Series A-III Convertible Preferred Stock" shall have the meaning
set forth in Section 4.2(a) hereof.
"Series B Preferred" shall have the meaning set forth in Section
4.2(a) hereof.
"Series C Preferred" shall have the meaning set forth in Section
4.2(a) hereof.
"Series D Preferred" shall have the meaning set forth in Section
4.2(a) hereof.
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"Shareholder Agreements" shall have the meaning set forth in
Section 5.4 hereof.
"Shareholders' Agent" shall have the meaning set forth in Section
7.8(a) hereof.
"Shareholders' Agent Certificate" shall have the meaning set
forth in Section 7.5 hereof.
"Shareholders' Agent Expenses" shall have the meaning set forth
in Section 7.8(a) hereof.
"Shareholders' Claim" shall have the meaning set forth in Section
7.5 hereof.
"Surviving Corporation" shall have the meaning set forth in
Section 1.4 hereof.
"Tax," "Taxes" and "Taxable" shall have the meaning set forth in
Section 3.14(f) hereof.
"Taxing Authority" shall have the meaning set forth in Section
3.14(f) hereof.
"Total Consideration" shall mean the aggregate value of the (i)
Aggregate Closing Consideration, (ii) aggregate of the Pro Rata Share of
Total Closing Consideration attributable to all Dissenting Shares, (iii)
Performance Shares, (iv) IPO Shares and (v) the Retention Amount.
"Trade Secrets" shall have the meaning set forth in Section
3.16(a) hereof.
"Tunes Common Stock" shall mean the common stock, no par value,
of Tunes.
"Tunes Disclosure Schedule" shall have the meaning set forth in
Section 3 hereof.
"Tunes Indemnified Person(s)" shall have the meaning set forth in
Section 7.1(b) hereof.
"Tunes Third Party Consents" shall have the meaning set forth in
Section 3.4(b) hereof.
"Tunes Options" shall mean the outstanding options to purchase
shares of Tunes Common Stock.
"Tunes Returns" shall have the meaning set forth in Section
3.14(a) hereof.
"Unaudited Balance Sheet" shall have the meaning set forth in
Section 3.5 hereof.
"Unaudited Financial Statements" shall have the meaning set
forth in Section 3.5 hereof.
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"Vested Tunes Options" shall mean the Tunes Options that are
vested and exercisable immediately prior to the Effective Time.
SECTION 2
EFFECT OF THE MERGER ON THE CAPITAL STOCK OF
THE CONSTITUENT CORPORATIONS;
TUNES OPTIONS; SURRENDER OF CERTIFICATES
2.1 EFFECT ON CAPITAL STOCK OF TUNES. At the Effective Time, subject
and pursuant to the terms of this Agreement and the Merger Certificate, each
issued and outstanding share of Tunes Common Stock shall, by virtue of the
Merger and without any action on the part of the Constituent Corporations or
the holder thereof, be converted into the right to receive the Pro Rata Share
of Total Closing Consideration for one share of Tunes Common Stock minus the
Applicable Deduction.
2.2 EFFECT ON TUNES OPTIONS. At the Effective Time, subject and
pursuant to the terms of this Agreement and the Merger Certificate, the
holder of each Vested Tunes Option shall be entitled to receive, for each
share of Tunes Common Stock underlying such Vested Tunes Option, the Pro Rata
Share of Total Closing Consideration for one share of Tunes Common Stock
minus the Applicable Deduction. At the Effective Time, all Tunes Options
that are not then vested and exercisable shall be cancelled.
2.3 EFFECT ON CONVERTIBLE DEBT OF TUNES. At the Effective Time, the
Convertible Debt, subject and pursuant to the terms of this Agreement and the
Merger Certificate, shall be converted into the right to receive the number
of shares of Tunes Common Stock underlying each Investor's Convertible Debt
in accordance with SCHEDULE 2.3. Accordingly, at the Effective Time, subject
and pursuant to the terms of this Agreement and the Merger Certificate, each
Investor shall be entitled to receive, for each share of Tunes Common Stock
underlying such Investor's Convertible Debt, the Pro Rata Share of Total
Closing Consideration for one share of Tunes Common Stock minus the
Applicable Deduction. At the Effective Time, the Convertible Debt shall be
cancelled and deemed paid and satisfied in full pursuant to this Section 2.3.
2.4 CANCELLATION OF TUNES CAPITAL STOCK OWNED BY TUNES. At the
Effective Time, subject and pursuant to the terms of this Agreement and the
Merger Certificate, all shares of Tunes capital stock that are owned directly
or indirectly by Tunes or any subsidiary of Tunes shall, by virtue of the
Merger and without any action on the part of Tunes or any subsidiary of
Tunes, be cancelled, and no consideration shall be delivered in exchange
therefor.
2.5 ADJUSTMENT.
(a) Notwithstanding the provisions of Section 2.1, 2.2 and 2.3
hereof and the Merger Certificate, the Aggregate Closing Consideration shall
not exceed $4,550,000 (including the issuance of up to 300,000 shares of
JAMtv Common Stock, valued at $10 per share).
(b) If prior to the Effective Time and subject to Section 5.1
hereof, the outstanding shares of Tunes Common Stock shall be changed into a
different number of shares or
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a different class of stock by reason of any reclassification,
recapitalization, exchange of shares, or if a stock split, stock combination
or stock dividend thereon shall be declared with a record date within such
period, or by the issuance of shares of Tunes Common Stock or Vested Tunes
Options, the Pro Rata Share of Total Closing Consideration with respect to
each share of Tunes Common Stock, shall be correspondingly adjusted so that
the Aggregate Closing Consideration shall not exceed $4,550,000 (including
the issuance of up to 300,000 shares of JAMtv Common Stock, valued at $10 per
share).
(c) The Total Consideration and the Pro Rata Share of Total
Closing Consideration with respect to each share of Tunes Common Stock
(including shares of underlying Tunes Common Stock issuable upon exercise of
Vested Tunes Options and conversion of Convertible Debt) are premised on
there being issued and outstanding (i) no more than 6,930,214 shares of Tunes
Common Stock; (ii) Vested Tunes Options to purchase 784,030 shares of Tunes
Common Stock; and (iii) no more than 1,693,093 shares of Tunes Common Stock
issuable upon conversion of the Convertible Debt. In the event that the
actual number of such shares or options issued and outstanding, or, in the
case of the Convertible Debt, to be issued, differ from the number of such
shares or options set forth in this Section 2.5(c), the Pro Rata Share of
Total Closing Consideration with respect to each share of Tunes Common Stock
shall be correspondingly adjusted so that the Aggregate Closing Consideration
shall not exceed $4,550,000 (including the issuance of up to 300,000 shares
of JAMtv Common Stock, valued at $10 per share).
(d) Except as otherwise provided in this Agreement, all shares
(or rights to acquire shares) of Tunes capital stock other than Tunes Common
Stock shall be cancelled as of the Effective Time without consideration
received in exchange therefor.
2.6 DISSENTERS' RIGHTS. Any Dissenting Shares shall not be converted
into cash or stock but shall instead be converted into the right to receive
such consideration as may be determined to be due with respect to such
Dissenting Shares pursuant to the DGCL or the CGCL, as applicable. Tunes
agrees that, except with the prior written consent of JAMtv, or as required
under the DGCL or the CGCL, as applicable, it will not voluntarily make any
payment with respect to, or settle or offer to settle, any such purchase
demand to repurchase Tunes Common Stock. If after the Effective Time any
Dissenting Shares shall lose their status as Dissenting Shares, JAMtv shall
deliver, upon surrender by the holder of such Dissenting Shares of a
certificate or certificates representing shares of Tunes Common Stock in
accordance with Section 2.8(c) hereof, the consideration which the holder
thereof would otherwise be entitled to receive under Sections2.1, 2.2 and 2.3
hereof.
2.7 ADDITIONAL MERGER CONSIDERATION.
(a) Upon the Closing, in addition to the Aggregate Closing
Consideration, JAMtv shall deposit (i) a certificate, executed by the Chief
Executive Officer and the Secretary of JAMtv certifying in accordance with
the Escrow Agreement that JAMtv shall issue and deliver: up to 50,000 shares
of JAMtv Common Stock (the "Performance Shares") and up to 100,000 shares of
JAMtv Common Stock (the "IPO Shares") (the Performance Shares and the IPO
Shares are referred to collectively as the "Contingent Shares") into the
Escrow Fund; and (ii) $750,000 in immediately available funds (the "Retention
Amount") into the Escrow Fund. The Escrow Fund shall be
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governed by the terms set forth in this Agreement and in the Escrow
Agreement. The Performance Shares, the IPO Shares and the Retention Amount
shall constitute the "Escrow Fund."
(b) The Performance Shares and the IPO Shares, as the case may
be, shall be issued and disbursed to the Former Shareholders of Tunes, if at
all, as follows:
(1) with respect to the Performance Shares, in the amounts
set forth on SCHEDULE 2.7 attached hereto, and on the terms and conditions
set forth in Section 2.7(d) hereof, the Escrow Agreement and the
"earn-out" schedule set forth on SCHEDULE 2.7;
(2) with respect to the IPO Shares, in the amounts set forth
on SCHEDULE 2.7 attached hereto, and on the terms and conditions set forth
in the Escrow Agreement, upon the closing of a firmly underwritten initial
public offering of JAMtv Common Stock (or within three months thereafter)
which results in an aggregate market value of JAMtv in any of the amounts
set forth in SCHEDULE 2.7.
(c) The Retention Amount shall be disbursed to the Former
Shareholders of Tunes, if at all, on the terms and conditions set forth in
Section 7.9 hereof and the Escrow Agreement.
(d) The issuance and disbursement of the Performance Shares
shall be subject to the following:
(1) JAMtv shall calculate, and deliver notice of such
calculation to the Shareholders' Agent, on or before August 1, 1999
(or as soon as practicable thereafter) the number of Performance
Shares to be disbursed from the Escrow Fund to the Shareholders'
Agent in accordance with this Section 2.7 and SCHEDULE 2.7 (the
"Performance Share Calculation").
(2) JAMtv shall maintain separate books and records
for Tunes in accordance with generally accepted accounting
principles in order to make the Performance Share Calculation.
(3) The Shareholders' Agent will be entitled to audit
the Performance Share Calculation in accordance with this
subsection. The Shareholders' Agent may, within ten (10) business
days after its receipt of the Performance Share Calculation from
JAMtv, request in writing that JAMtv deliver to the Shareholder's
Agent within ten (10) business days of such written request the
books and records reasonably necessary for the Shareholder's Agent
or its accountant to confirm the Performance Share Calculation. If
the Shareholders' Agent does not request such books and records
pursuant to this subsection or if within ten (10) business days
after receipt of such books and records JAMtv does not receive from
the Shareholders' Agent a written notice of objection to the
Performance Share Calculation, JAMtv shall deposit into the Escrow
Fund the Performance Shares subject to the Performance Share
Calculation and shall deliver instructions to the
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Escrow Agent for disbursement of the Performance Shares to the
Shareholders' Agent in accordance with the Escrow Agreement and the
Performance Share Calculation. If the Shareholders' Agent requests
such books and records and, within ten (10) business days after receipt
of such books and records, the Shareholders' Agent objects in writing
to the Performance Share Calculation, then JAMtv and the Shareholders'
Agent shall attempt in good faith to mutually agree upon the
Performance Share Calculation. If, within fifteen (15) business days
after receipt by the Shareholders' Agent of such books and records,
JAMtv and the Shareholder's Agent have not agreed upon the Performance
Share Calculation, then JAMtv and the Shareholder's Agent shall
mutually designate a nationally recognized accounting firm to
independently calculate the Performance Share Calculation, or if JAMtv
and the Shareholder's Agent do not mutually designate such accounting
firm, then each of JAMtv and the Shareholders' Agent shall appoint one
nationally recognized accounting firm, which accounting firms shall
designate a third nationally recognized accounting firm which shall
resolve the dispute regarding the Performance Share Calculation. If
either JAMtv or the Shareholders' Agent shall fail to select a
nationally recognized firm in accordance with the provisions of this
subsection within thirty (30) days after notice by the other party that
such selection should be made, and such other party has selected a
nationally recognized accounting firm pursuant to the provisions
hereof, such dispute shall be referred to the accounting firm selected
by such party. The decision of such accounting firm shall be conclusive
and binding on both parties. Each of JAMtv and the Shareholders' Agent
shall pay the costs and expenses of its accounting firm and the
Shareholders' Agent shall pay the costs of its accounting firm and the
independent accounting firm, if any, designated to resolve any dispute
hereunder (the "Independent Accountant"); provided, however, that if a
dispute arises that is resolved by the Independent Accountant and the
amount of the Performance Shares as calculated by the Independent
Accountant exceeds by more than twenty-five percent (25%) JAMtv's
Performance Share Calculation, JAMtv shall pay the reasonable costs and
expenses of the Shareholders' Agent and the Independent Accountant for
such review. If there is no dispute regarding the Performance Share
Calculation and JAMtv does not instruct the Escrow Agent to deliver the
Performance Shares within ten (10) days of August 1, 1999, or such
later date as JAMtv delivers the Performance Share Calculation in
accordance with this Section 2.7(d)(3), then, provided that shares of
JAMtv Common Stock are then publicly traded, interest shall accrue
thereafter on the market value of such Performance Shares at the rate
per annum equal to the Prime Rate as listed in the Money Rates section
of the WALL STREET JOURNAL plus three percent (3%) (the "Default
Rate"). In the event there is a dispute regarding the Performance
Share Calculation, then, provided that shares of JAMtv Common Stock are
then publicly traded, the Former Shareholders shall be entitled to
receive interest from the Due Date at the Default Rate on the market
value of the number of Performance Shares determined to be due to the
Former Shareholders if such amount exceeds by twenty- five percent
(25%) the market value of the shares included in the Performance Share
Calculation.
12
(4) If Microsoft shall fail to make the Microsoft
Deluxe CD Player generally available to consumers as part of the
Windows 98 Plus Pack! on or before June 30, 1999 or if Tunes shall
otherwise breach its warranty made pursuant to Section 3.32 hereof,
then the amount of Performance Shares disbursable pursuant to the
Performance Share Calculation shall be subject to reduction by an
amount equal to the lesser of (i) 25,000 shares or (ii) the
Performance Share Calculation.
(e) During the period from and after the Effective Time and
until June 30, 1999: (i) JAMtv shall conduct its business in conformity with
sound business practices, (ii) if JAMtv (A) sells fifty percent (50%) or more
of its assets, (B) sells more than fifty percent (50%) of its common stock to
a single acquiror or group of related acquirors in a single transaction or
(C) merges into another company and JAMtv immediately prior to such merger
does not own in excess of fifty percent (50%) of the shares of capital stock
of the surviving company, JAMtv will cause such sale or merger to be subject
to the assumption by the buyer or surviving company of all of JAMtv's
obligations under this Agreement, and (iii) JAMtv shall not take any
voluntary action for the intended purpose of preventing the Principal
Shareholders from earning their Performance Shares or avoiding or seeking to
avoid the observance or performance of JAMtv's obligations under this Section
2.7, and shall at all times deal in good faith with the Principal
Shareholders in connection with JAMtv's obligations hereunder.
(f) If between the Effective Time and June 30, 1999, JAMtv
commences a voluntary case under the federal bankruptcy laws or a petition is
filed against JAMtv under the federal bankruptcy laws and is not dismissed
within ninety (90) days of such filing, the Former Shareholders may seek
treatment as unsecured creditors of JAMtv in the related bankruptcy
proceedings with respect to the Performance Shares the Former Shareholders
are entitled to receive hereunder, if any, as of such filing.
2.8 SURRENDER OF TUNES CERTIFICATES; ISSUANCE OF JAMTV CERTIFICATES.
(a) EXCHANGE AGENT. Prior to the Closing Date, JAMtv shall
appoint American National Bank and Trust Company of Chicago or such other
third party as shall be reasonably satisfactory to Tunes to act as exchange
agent (the "Exchange Agent") in the Merger. In the alternative, JAMtv may,
at its sole option, act as Exchange Agent.
(b) JAMTV TO PROVIDE THE AGGREGATE CLOSING CONSIDERATION. At
the Effective Time, JAMtv shall deposit with the Exchange Agent for exchange
in accordance with Sections 2.1, 2.2 and 2.3 hereof and the Merger
Certificate, through such reasonable procedures as JAMtv may adopt, the
Aggregate Closing Consideration.
(c) EXCHANGE PROCEDURES. Prior to the Closing Date, Tunes
shall mail to each holder of record of certificate(s) or other documents
which represent Tunes Common Stock (the "Certificates"), as well as to
holders of Vested Tunes Options and Convertible Debt, to be converted into
cash and stock pursuant to Sections 2.1, 2.2 and 2.3 hereof and the Merger
Certificate: (i) a letter of transmittal (which shall specify that, with
respect to the Certificates, delivery shall be effected, and risk of loss and
title to the Certificates shall pass, only upon delivery of the Certificates
13
to the Exchange Agent and shall be in such form and have such other
provisions as JAMtv may reasonably specify); and (ii) instructions for use in
effecting the surrender of the Certificates, Vested Tunes Option and
Convertible Debt Instruments in exchange for cash and JAMtv Common Stock.
Upon surrender of a Certificate, Vested Tunes Option or Convertible Debt
Instrument for cancellation to the Exchange Agent or to such other agent or
agents as may be appointed by JAMtv, together with such letter of
transmittal, duly executed, the holder of such Certificate, Vested Tunes
Option or Convertible Debt Instrument shall be entitled to receive in
exchange therefor that portion of the Aggregate Closing Consideration with
respect to the Tunes Common Stock, Vested Tunes Options and Convertible Debt
properly covered by such Certificate, Vested Tunes Option or Convertible Debt
Instrument, as the case may be, as to which such holder is entitled pursuant
to Sections 2.1, 2.2 and 2.3 hereof and the Merger Certificate.
Certificates, Vested Tunes Options and Convertible Debt Instruments so
surrendered pursuant to this Section 2.8 shall forthwith be cancelled (if not
otherwise cancelled or terminated in accordance with their terms). The
portion of the Pro Rata Cash Closing Consideration to which such holder is
entitled shall be payable in cash or by a check drawn on a United States bank
in United States dollars in immediately available funds, and shall not accrue
or otherwise bear interest; provided that persons entitled to receive more
than $1.0 million shall be entitled to obtain a wire transfer of immediately
available funds of the Pro Rata Cash Closing Consideration payable to such
persons from the Exchange Agent immediately after the Effective Time. In the
event of a transfer of ownership of Tunes Common Stock which is not
registered on the transfer records of Tunes, the appropriate amount of cash
and shares of JAMtv Common Stock may be delivered to a transferee if the
Certificate representing such transferred security is presented to the
Exchange Agent and accompanied by all documents required to evidence and
effect such transfer and to evidence that any applicable stock transfer taxes
have been paid. Until surrendered as contemplated by this Section 2.8, each
Certificate, Vested Tunes Option or Convertible Debt Instrument shall be
deemed at any time after the Effective Time to represent solely the right to
receive upon such surrender that portion of the Aggregate Closing
Consideration (without interest and subject to applicable withholding,
escheat, and other laws) to which such holder is entitled.
(d) NO FURTHER OWNERSHIP RIGHTS IN CAPITAL STOCK OF TUNES. The
amounts paid in respect of Tunes Common Stock, Vested Tunes Options and
Convertible Debt in accordance with the terms of this Agreement and the
Merger Certificate shall be deemed to have been delivered in full
satisfaction of all rights pertaining thereto, and following the Effective
Time, holders of the Certificate, Vested Tunes Options and Convertible Debt
shall have no further rights to, or ownership in, shares of Tunes capital
stock or rights to acquire Tunes capital stock. There shall be no further
registration of transfers on the stock transfer books of the Surviving
Corporation of the shares of Tunes capital stock which were outstanding
immediately prior to the Effective Time. If, after the Effective time,
Certificates, Vested Tunes Options and Convertible Debt Instruments are
presented to the Surviving Corporation for any reason, they shall be
cancelled and exchanged in accordance with the terms of this Agreement and
the Merger Certificate.
(e) DISSENTING SHARES. The provisions of this Section 2.8
shall also apply to Dissenting Shares that lose their status as such, except
that the obligations of JAMtv under this Section 2.8 shall commence on the
date of loss of such status.
14
(f) ISSUANCE OF JAMTV CERTIFICATES. The certificates
representing the Closing Shares shall contain the follow legend:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE WERE ISSUED IN A
TRANSACTION EXEMPT FROM REGISTRATION UNDER THE SECURITIES ACT OF
1933 (AS THEN IN EFFECT), AND IN RELIANCE UPON THE HOLDER'S
REPRESENTATION THAT SUCH SECURITIES WERE BEING ACQUIRED FOR
INVESTMENT AND NOT FOR RESALE. NO TRANSFER OF SUCH SECURITIES MAY
BE MADE ON THE BOOKS OF THE COMPANY UNLESS ACCOMPANIED BY AN OPINION
OF COUNSEL, SATISFACTORY TO THE COMPANY, THAT SUCH TRANSFER MAY BE
EFFECTED WITHOUT REGISTRATION UNDER THE SECURITIES ACT OF 1933 (AS
AMENDED) OR THAT SUCH SECURITIES HAVE BEEN SO REGISTERED UNDER A
REGISTRATION STATEMENT WHICH IS IN EFFECT AT THE DATE OF SUCH
TRANSFER.
THE SALE, ASSIGNMENT, PLEDGE, ENCUMBRANCE OR OTHER TRANSFER OF THE
SECURITIES REPRESENTED BY THIS CERTIFICATE IS SUBJECT TO THE
PROVISIONS OF A STOCKHOLDERS' AGREEMENT, DATED AS OF JUNE 2, 1997,
AS AMENDED, AMONG THE COMPANY AND THE STOCKHOLDERS NAMED ON THE
SIGNATURE PAGES THERETO, A COPY OF WHICH IS ON FILE AT THE
PRINCIPAL EXECUTIVE OFFICE OF THE COMPANY."
2.9 EXCESS LIABILITY AMOUNT. Immediately prior to the Closing Date,
the Excess Liability Amoutn shall be calculated by Tunes, consistent with
past practice, as of the Closing date( the "Closing ELA"). If the Closing
ELA amount is greater than $1,550,000, then, at JAMtv's option, the amount of
such difference shall be (i) deducted from the Retention Amoutn and set-off
by JAMtv pursuant to Section 7.3 of this Agreement, and (ii) divided by ten
(which is the deemed fair market value of a share of JAMtv Common Stock),
with the result that the quotient obtaine shall be the number of shares of
JAMtv Common Stock which may be deducted by JAMtv from the Initial Closing
Shares and added to the Retention Amount. For example, if Closing ELA equals
$2,000,000, then (x) the difference between Closing ELA and $1,550,000 is
$450,000, (y) 450,000 divided by 10 is 45,000, and (z) 45,000 shares may be
deducted from the Initial Closing shares and added to the Retention Amount
for distribution in accordance with Section 7 of this Agreement.
2.10 DEDUCTION OF SPECIAL HOLDBACK SHARES. At the closing, JAMtv
shall dduct 100,000 shares (the "Special Holdback Shares") from the Initial
Closing Shares to secure the indemnity obligations of Tunes and the Former
Shareholders as provided in Section 7 of this Agreement.
15
SECTION 3
REPRESENTATIONS AND WARRANTIES OF TUNES
Except as disclosed on the Disclosure Schedule of even date herewith
and delivered to JAMtv concurrently with the execution of this Agreement,
which identifies any exception to the representations and warranties set
forth in this Section 3 (the "Tunes Disclosure Schedule"), Tunes hereby
represents and warrants to JAMtv and Merger Sub as of the Closing Date as
follows:
3.1 ORGANIZATION; GOOD STANDING; AND CORPORATE POWER. Tunes is a
corporation duly organized, validly existing and in good standing under the
laws of the State of California and has all requisite corporate power and
authority to own, operate and lease its properties and to carry on its
business as now being conducted. Tunes is duly qualified as a foreign
corporation and is in good standing in each jurisdiction in which the failure
to so qualify would have a Material Adverse Effect. SCHEDULE 3.1 sets forth
a true and complete list of the jurisdictions where Tunes is qualified as a
foreign corporation. Tunes has delivered to JAMtv complete and correct
copies of its Articles of Incorporation and Bylaws, in each case as amended
to the date hereof, and has delivered or made available to JAMtv copies of
its corporate minute books which include all minutes of Tunes's directors'
and shareholders' meetings and a ledger reflecting the record ownership of
all outstanding shares of Tunes capital stock.
3.2 CAPITAL STRUCTURE.
(a) The entire authorized capital stock of Tunes consists of
10,000,000 shares of Tunes Common Stock, no par value, of which 6,930,214 are
issued and outstanding, 784,030 shares of which are issuable upon the
exercise of Vested Tunes Options, and 1,693,093 shares of which are issuable
upon the conversion of the Convertible Debt. There are no treasury shares of
capital stock of Tunes. Other than as required by applicable federal and
state securities laws, no legend or other reference to any purported
encumbrance appears upon any certificate representing equity securities of
Tunes. All outstanding shares of Tunes Common Stock are, and any shares of
Tunes Common Stock issuable upon exercise of any Vested Tunes Option or any
Convertible Debt would be, duly authorized, validly issued, fully paid and
nonassessable. None of the Tunes Common Stock is subject to any preemptive
rights, whether created by statute, Tunes's Articles of Incorporation or
Bylaws, agreement or otherwise.
(b) Other than as described in this Section 3.2, there are no
issued or outstanding shares of capital stock of Tunes, and there are no
options, warrants, calls, conversion rights, commitments or agreements of any
character (whether oral, written, express, or implied) to which Tunes is a
party or by which Tunes may be bound that do or may obligate Tunes to issue,
deliver or sell, or cause to be issued, delivered or sold, additional shares
of Tunes capital stock or that do or may obligate Tunes to grant, extend or
enter into any such option, warrant, call, conversion right, commitment or
agreement. There are no outstanding agreements, contracts, obligations,
promises, commitments, indentures, plans, instruments, arrangements,
undertakings or understandings (whether oral, written, express or implied) to
which Tunes is a party or is bound or which affects or relates to the voting,
issuance, purchase, redemption, repurchase or transfer of any capital stock
of
16
Tunes or any other securities of Tunes, except as set forth in this Section
3.2 or as contemplated by Section 5.4 hereof. Other than as provided by this
Agreement, Tunes has not, and prior to the Effective Time will not, become
party to or subject to any contract or obligation wherein any person has a
right or option to purchase or acquire any rights in any additional capital
stock or securities of Tunes. None of the outstanding equity securities or
other securities of Tunes was issued in violation of any law, rule or
regulation, including, without limitation, state and federal securities laws.
Tunes does not own, and does not have any contract to acquire, any equity
securities or other securities of any person or entity (including any
subsidiary) or any direct or indirect equity or ownership interest in any
other business.
(c) SCHEDULE 3.2 contains (i) a complete and accurate list of,
and the number of shares owned by each of the record holders of, all
outstanding Tunes Common Stock, (ii) a complete and accurate list of all
Tunes Options, the number of Tunes Options owned by each of the record
holders of all outstanding Tunes Options, the number of shares and kind of
stock issuable upon the exercise of Vested Tunes Options with respect to each
holder thereof, and the exercise price for such Vested Tunes Options with
respect to each holder thereof, and (iii) a complete and accurate list of all
outstanding Convertible Debt the amount of Convertible Debt owned by each of
the record holders of all outstanding Convertible Debt, the number of shares
and kind of stock issuable upon the conversion of the Convertible Debt with
respect to each holder thereof, and the conversion price for such Convertible
Debt with respect to each holder thereof. SCHEDULE 3.2 contains a complete
and accurate list of the name, address, and citizenship of each holder of
Tunes Common Stock, Tunes Options, and Convertible Debt. The shareholders
named on SCHEDULE 3.2 are all of the record and beneficial owners and holders
of Tunes Common Stock, and such stock is free and clear of all liens and
encumbrances. The option holders named on SCHEDULE 3.2 are all of the record
and beneficial owners and holders of Tunes Options, and such options are free
and clear of all liens and encumbrances. The holders of Convertible Debt
named on SCHEDULE 3.2 are all of the record and beneficial owners and holders
of Convertible Debt, and such Convertible Debt is free and clear of all liens
and encumbrances.
(d) The Pro Rata share of Merger Consideration with respect to
each share of Tunes Common Stock (including shares underlying Vested Tunes
Options and Convertible Debt), as adjusted, if required in accordance with
the terms of this Agreement, has been calculated in accordance with and
satisfies the terms and conditions of the dividend, conversion and
liquidation provisions of Tunes's Articles of Incorporation as in effect
immediately prior to the Effective Time.
(e) The aggregate exercise price of the Vested Tunes Options is
$78,403, which shall be payable to Tunes by the holders of Vested Tunes
Options in accordance with SCHEDULE 3.2(e). The Tunes Options (including the
Vested Tunes Options) shall terminate in accordance with their terms as of
the Effective Time; provided, however, that the holders of Vested Tunes
Options shall be entitled to the consideration set forth in Section 2.2
hereof.
(f) The aggregate amount of the Convertible Debt is $630,000.
The Convertible Debt shall be cancelled and deemed satisfied and paid in full
as of the Effective Date; provided, however, that the Investors shall be
entitled to the consideration set forth in Section 2.3 hereof.
17
3.3 CORPORATE NAME; PRIOR TRANSACTIONS; SUBSIDIARIES. Tunes has not
during its existence been known by or used any other corporate or fictitious
name other than "Surf Communications, Inc." or been a party to any merger or
consolidation, or acquired all or substantially all of the assets of any
person or entity, or acquired any of its property outside of the ordinary
course of business. Tunes has no subsidiaries or affiliated companies and
does not otherwise own or control directly or indirectly, any equity interest
or debt in any corporation (including any non-profit corporation), general or
limited partnership, limited liability company, joint venture, estate, trust,
association, organization, labor union, governmental authority, or other
entity.
3.4 AUTHORITY; VALIDITY; NO CONFLICT; CONSENTS.
(a) Tunes has all requisite corporate power and authority to
enter into this Agreement and the Merger Certificate and, subject to approval
of this Agreement and the Merger Certificate by the shareholders of Tunes, to
perform its obligations hereunder and thereunder, and to consummate the
transactions contemplated hereby and thereby. The execution and delivery of
this Agreement and the Merger Certificate, the performance by Tunes of its
obligations hereunder and thereunder and the consummation of the transactions
contemplated hereby and thereby have been duly and validly authorized by all
necessary corporate action on the part of Tunes, including, without
limitation, the approval by the Board of Directors and the shareholders of
Tunes. This Agreement is, and the Merger Certificate, when delivered by the
parties thereto, will be, legal, valid and binding obligations of Tunes and
its shareholders enforceable against Tunes and its shareholders in accordance
with their respective terms, except as enforcement may be limited by
bankruptcy, insolvency, or other similar laws affecting the enforcement of
creditors' rights generally and except that the availability of equitable
remedies is subject to the discretion of the court before which any
proceeding therefor may be brought. The only vote of the holders of any class
or series of Tunes capital stock necessary to approve this Agreement and the
Merger Certificate and the transactions contemplated hereby and thereby is
the affirmative vote of a majority of the outstanding shares of Tunes Common
Stock voting separately as a class.
(b) The execution and delivery of this Agreement does not, and
the execution and delivery of the Merger Certificate and the consummation of
the transactions contemplated hereby and thereby will not, conflict with or
result in any violation of any statute, law, rule, regulation, judgment,
order, decree, or ordinance applicable to Tunes or its properties or assets,
or conflict with or result in any breach or default (with or without notice
or lapse of time, or both) under, or give rise to a right of termination,
cancellation or acceleration of any obligation or to loss of a material
benefit under, or result in the creation of a lien or encumbrance on any of
the material properties or assets of Tunes pursuant to (i) any provision of
the Articles of Incorporation or Bylaws of Tunes or (ii) any material
agreement, contract, obligation, promise, commitment, mortgage, indenture,
plan, lease, instrument, permit, concession, franchise, arrangement, license,
undertaking or understanding (whether oral, written, express or implied) to
which Tunes is a party or by which Tunes or any of its property or assets may
be bound or affected. SCHEDULE 3.4 lists all consents, waivers, and
approvals under any agreement, contract, obligation, promise, commitment,
mortgage, indenture, plan, lease, instrument, permit, concession, franchise,
license, undertaking or understanding (whether oral, written, express or
implied) to which Tunes is a party or by which Tunes or any of its property
18
or assets may be bound or affected which are required to be obtained in
connection with the consummation of the transactions contemplated hereby and
by the Merger Certificate ("Tunes Third Party Consents").
(c) No consent, approval, order or authorization of, or
registration, declaration or filing with, any court, administrative agency,
commission, regulatory authority or other governmental authority or
instrumentality, whether domestic or foreign (a "Governmental Entity"), is
required by Tunes in connection with the execution and delivery of this
Agreement and the Merger Certificate by Tunes or the consummation by Tunes of
the transactions contemplated hereby or thereby, except for the filing of (i)
the Merger Certificate and officers' certificates with the Delaware Secretary
of State and the California Secretary of State in such form as is required
by, and executed in accordance with, the applicable provisions of the DGCL
and the CGCL and (ii) appropriate documents with the relevant approvals,
authorizations, registrations or qualifications as may be required under
federal and state securities or "Blue Sky" laws in connection with the Merger.
3.5 FINANCIAL STATEMENTS. Tunes has furnished or made available to
JAMtv its financial statements for each of the fiscal years ended on December
31, 1996 and December 31, 1997, including balance sheets of Tunes, and the
related statements of operations and cash flow (collectively, the "Financial
Statements"), and the related management letters, if any, and Tunes's
unaudited financial statements as at March 31, 1998, including an unaudited
balance sheet of Tunes (the "Unaudited Balance Sheet") as at March 31, 1998
and the related unaudited statements of operations and cash flow (the
"Unaudited Financial Statements"). Tunes has furnished or made available to
JAMtv the pro forma balance sheet of Tunes as at June 30, 1998 (the "Pro
Forma Balance Sheet"). The Financial Statements, the Unaudited Balance
Sheet, and the Unaudited Financial Statements are collectively referred to as
the "Financial Statements." Tunes has furnished or made available to JAMtv
the projections dated June 30, 1998 of Tunes's monthly financial condition,
results of operations, and cash flow through June 30, 1998 (the
"Projections"), and the Projections represent Tunes's best estimate of its
future financial performance for the periods set forth therein. The
Projections have been prepared on the basis of the assumptions set forth
therein, which Tunes believes are fair and reasonable in light of current and
reasonably foreseeable business conditions. The Financial Statements have
been prepared in accordance with generally accepted accounting principles
("GAAP") consistency applied and fairly present the financial position of
Tunes as at the dates thereof and the results of their operations and cash
flows for the periods then ended and the Pro Forma Balance Sheet presents
fairly and accurately Tunes's financial condition as at such date as if the
transactions contemplated by this Agreement had occurred on such date and the
Closing Date had been such date, and has been prepared in accordance with
GAAP, except that the Unaudited Financial Statements prepared since the
Balance Sheet Date and the Pro Forma Balance Sheet do not contain the
footnote disclosure required by GAAP and may not include the same refinement
of estimates and accruals as are contained in the Audited Financial
Statements. Since January 1, 1996, there has been no change in Tunes's
accounting policies, except as described in notes to the Financial Statements.
3.6 RECEIVABLES. All accounts receivable of Tunes that are reflected
on the Balance Sheet or the Unaudited Balance Sheet or on the accounting
records of Tunes as of the Effective Time (collectively, the "Accounts
Receivable") represent or will represent valid obligations arising from
19
sales actually made or services actually performed in the ordinary course of
business of Tunes. The Accounts Receivable have been collected or are
collectible in the book amounts thereof, less an amount not in excess of the
allowance for doubtful accounts provided for in the Financial Statements, in
the case of Accounts Receivable reflected in the Financial Statements, and
less allowances for doubtful accounts and warranty returns determined in
accordance with the past practices of Tunes, in the case of Accounts
Receivable arising after the Balance Sheet Date. Allowances for doubtful
accounts and warranty returns are adequate and have been prepared in
accordance with GAAP consistently applied and in accordance with the past
practices of Tunes. No Account Receivable is subject to any material claim
of offset, recoupment, set off or counterclaim and Tunes has no knowledge of
any specific facts or circumstances (whether asserted or unasserted) that
could give rise to any such claim. No material amount of Accounts Receivable
are contingent upon the performance by Tunes of any obligation or contract
other than normal warranty performance. SCHEDULE 3.6 sets forth an aging of
Accounts Receivable of Tunes and its subsidiaries in the aggregate and by
customer (0-30 days, 31-60 days, 61-90 days and greater than 90 days), and
indicates for each category the respective amounts of allowances for doubtful
accounts and warranty returns and the amounts of Accounts Receivable within
each category which are subject to warranty claims in the aggregate.
3.7 COMPLIANCE WITH LAW; CHARTER DOCUMENTS; AND ORDERS. Tunes is in
compliance, and has conducted its business so as to comply, with all laws,
rules and regulations, judgments, decrees or orders of any Governmental
Entity applicable to its operations or with respect to which compliance is a
condition of engaging in the business thereof, except to the extent that
failure to comply, individually or in the aggregate, has not had and would
not be reasonably expected to have a Material Adverse Effect. There are no
judgments or orders, injunctions, decrees, stipulations or awards (whether
rendered by a court or administrative agency or by arbitration) against Tunes
or against any of its properties or businesses. To the best of Tunes'
knowledge, no officer, director, agent, or employee of Tunes is subject to
any order that prohibits such officer, director, agent, or employee from
engaging in or continuing any conduct, activity, or practice relating to the
business of Tunes. SCHEDULE 3.7 contains a summary of any violation of, or
conflict with, any applicable statute, law, rule, regulation, ruling, order,
judgment or decree, including any of the foregoing relating to Environmental
Laws, occurring within the last four (4) years. Tunes is not, nor has it
received notice that it is or would be with the passage of time, in violation
of any provision of its Articles of Incorporation, Bylaws or resolutions, or
in default or violation of any term, condition or provision of any judgment,
decree, order, injunction or stipulation applicable to Tunes, its business or
properties.
3.8 LITIGATION. Except as disclosed on SCHEDULE 3.8, there is no
action, suit, proceeding, claim, arbitration or investigation pending by or
against Tunes or any of its subsidiaries, any director, officer, employee or
shareholder of Tunes or any of its subsidiaries relating to or affecting
Tunes' or any subsidiary's business, properties or capital stock, or which in
any manner challenges or seeks to prevent, enjoin, alter or delay any of the
transactions contemplated hereby by or against Tunes, any director, officer,
employee or shareholder of Tunes relating to or affecting Tunes's business,
its properties or its capital stock (including, without limitation, any
claims by any Performance Rights Society (as defined in Section 3.16),
Artists Guild (as defined in Section 3.16), or any other Music Rights Holder
(as defined in Section 3.16), for the payment of any fees or royalties for
the
20
reproduction, creation of derivative works, distribution, public performance
(including digital performance), or public display of any Intellectual
Property Assets), or which in any manner challenges or seeks to prevent,
enjoin, alter or delay any of the transactions contemplated hereby. To the
best of Tunes's knowledge, except as set forth on SCHEDULE 3.8, no such
action, suit, proceeding, claim, arbitration or investigation has been
threatened and no event has occurred or circumstance exists that may give
rise to or serve as a basis for the commencement of any such action, suit,
proceeding, claim, arbitration or investigation. SCHEDULE 3.8 sets forth
with respect to each pending action, suit, proceeding, claim, arbitration or
investigation to which Tunes is a party, the forum, the parties thereto, a
description of the subject matter thereof and the amount of damages claimed.
3.9 NO MATERIAL ADVERSE EFFECT. Except as set forth on SCHEDULE 3.9
hereto, since the Balance Sheet Date, Tunes has conducted its business in the
ordinary course and there has not occurred:
(a) Any Material Adverse Effect;
(b) Any amendments or changes in the Articles of Incorporation
or Bylaws of Tunes;
(c) Any damage, destruction or loss, whether covered by
insurance or not, materially and adversely affecting any of the properties or
businesses of Tunes;
(d) Any issuance, redemption, repurchase or other acquisition
of shares of capital stock of Tunes (other than in the ordinary course under
employee benefit plans), or any declaration, setting aside or payment of any
dividend or other distribution (whether in cash, stock or property) with
respect to the capital stock of Tunes;
(e) Any increase in or modification of the compensation or
benefits payable or to become payable by Tunes to any of its directors or
employees, except in the ordinary course of business consistent with past
practice;
(f) Any increase in or modification of any bonus, pension,
insurance or other employee benefit plan, payment or arrangement (including,
but not limited to, the granting of stock options, restricted stock awards or
stock appreciation rights) made to, for or with any of its employees, except
in the ordinary course of business consistent with past practice;
(g) Any sale of the property or assets of Tunes individually in
excess of $5,000 or in the aggregate in excess of $10,000 other than
inventory sales in the ordinary course of business consistent with past
practice;
(h) Any alteration in any term of any outstanding debt or
capital stock of Tunes;
(i) Any (i) incurrence, assumption or guarantee by Tunes of any
debt for borrowed money; (ii) issuance or sale of any securities convertible
into or exchangeable for debt
21
securities of Tunes; or (iii) issuance or sale of options or other rights to
acquire from Tunes, directly or indirectly, debt securities of Tunes or any
securities convertible into or exchangeable for any such debt securities;
(j) Any creation or assumption by Tunes of any mortgage,
pledge, security interest or lien or other encumbrance on any asset;
(k) Any making of any loan, advance or capital contribution to,
or investment in, any person other than (A) travel loans or advances made in
the ordinary course of business of Tunes and (B) other loans and advances in
an aggregate amount which does not exceed $10,000 outstanding at any time;
(l) Any entry into, amendment of, relinquishment, termination,
cancellation or nonrenewal by Tunes or any other party of any contract,
lease, commitment, license, permit, or other right or obligation to which
Tunes is a party or by which any of its assets is bound, other than in the
ordinary course of business consistent with past practice;
(m) Any amendment of, relinquishment, termination,
cancellation, nonrenewal, default, or notice of default by Tunes or any other
party of any agreement, contract, obligation, promise, commitment, mortgage,
indenture, plan, lease, instrument, permit, concession, right, franchise,
arrangement, license, undertaking or understanding (whether oral, written,
express or implied) which is described or disclosed in Section 3.12 hereof.
(n) Any sale, lease, disposition, transfer, license, grant,
loss, abandonment, or termination of a right under the Intellectual Property
Assets (as defined in Section 3.16 hereof) other than nonexclusive licenses
granted in the ordinary course of business consistent with past practice;
(o) Any strike, walkout, work slowdown or labor dispute other
than routine individual grievances, or any activity or proceeding by a labor
union or representative thereof to organize any employees of Tunes;
(p) Any change in its accounting methods; or
(q) Any agreement or arrangement made by Tunes to take any
action which, if taken prior to the date hereof, would have made any
representation or warranty set forth in this Section 3.9 untrue or incorrect
as of the date when made.
3.10 ABSENCE OF UNDISCLOSED LIABILITIES. Tunes has no liabilities or
obligations (whether absolute, accrued or contingent or otherwise) except
liabilities or obligations (i) adequately provided for in the Financial
Statements (ii) incurred in the ordinary course of business consistent with
past practice and which are not, individually or in the aggregate, material
to Tunes.
22
3.11 EMPLOYEE BENEFIT PLANS.
(a) SCHEDULE 3.11 contains a list of all plans, agreements or
arrangements relating to deferred compensation, pension, profit sharing,
money purchase or other retirement benefits, membership interests purchase,
membership interests grant, membership interests option, membership interests
appreciation rights, and other equity-based compensation or benefits, salary,
bonus, commission, incentive, severance, parachute or change in control
payments or benefits, health and welfare benefits, life, disability or other
insurance benefits, layoff or unemployment benefits, or any other employee
benefits or fringe benefits maintained or contributed to by Tunes, or under
which Tunes has any liabilities or obligations including, but not limited, to
any employee benefit plan within the meaning of Section 3(3) of the
Employment Retirement Income Security Act of 1974, as amended ("ERISA")
(individually, a "Plan" and, collectively, the "Plans"). For purposes of
this Section 3.11, references to Tunes include any entity affiliated with
Tunes under Sections 414(b), (c) and (m) of the Code or Section 4001(b) of
ERISA (excluding any foreign affiliate of Tunes). Tunes is not required to
contribute to, and has no liability under or with respect to, any
multiemployer plan within the meaning of Section 4001(a)(3) of ERISA. Tunes
has previously delivered to JAMtv true and complete copies of (i) each
written Plan, including all amendments to date, (ii) the most recent Form
5500 and schedules thereto for each Plan required to file the same, (iii)
where applicable, trust or other funding agreements or policies under each
Plan, (iv) where applicable, investment management or other service
agreements in respect of each Plan, (v) where applicable, the most recent
actuarial reports and financial statements relating to each Plan, (vi) where
applicable, the most recent determination letter from the Internal Revenue
Service regarding each Plan intended to be qualified under Section 401(a) of
the Code, (vii) summary plan descriptions and any other material employee
communications with respect to each Plan and (viii) all employment or
personal handbooks, policies or manuals.
(b) All material obligations of Tunes existing on or prior to
the date hereof, whether arising by operation of law, by contract or by past
custom, for payments to trusts or other funds or to any governmental agency
or to or in respect of any Plan have been paid, or adequate accruals for such
payments have been made by Tunes on its books of account.
(c) Each Plan has been administered and operated in all
material respects in accordance with its terms and applicable law. Each Plan
intended to be "qualified" within the meaning of Section 401(a) of the Code
has received a determination letter or notification letter to the effect that
it is so qualified and each related trust is exempt from tax under Section
501(a) of the Code. Except for required contributions, benefit accruals, and
administrative expenses, no material liability under ERISA or the Code or the
terms of a Plan has been incurred or, based upon existing facts, may
reasonably be expected to be incurred by Tunes with respect to any Plan
except for any such liabilities that have been fully settled and discharged.
None of the Plans, nor any trust created thereunder, has engaged in any
non-exempt material "prohibited transaction" as such term is defined in
Section 4975 of the Code and Section 406 of ERISA, which involves Tunes.
(d) Each of the Plans is, and in administering each of the
Plans, Tunes is, in material compliance with all applicable laws including,
without limitation, ERISA and the Code. Tunes has not incurred any liability
under Title IV of ERISA, Section 412 of the Code or Section
23
302 of ERISA, with respect to any employee benefit plan subject to any of
those provisions, and there exist no facts, conditions or circumstances which
would make it reasonable to anticipate that Tunes will incur any such
liability.
(e) The projected benefit obligation, within the meaning of
Statement of Financial Accounting Standards No. 87 of the Financial
Accounting Standards Board, under each Plan which is subject to Title IV of
ERISA, determined on the basis of actuarial assumptions ordinarily used under
such Plan as of the most recent actuarial valuation date for such Plan and as
of December 31, 1997, does not exceed the current value of all of the assets
of such Plan.
(f) All reports relating to the Plans required to be filed with
or furnished to any governmental body, agency or court, Plan participants or
beneficiaries prior to the date hereof have been timely filed or furnished in
accordance with applicable law.
(g) There are no actions, suits or claims pending (other than
routine claims for benefits), or, to Tunes's knowledge, threatened against
any of the Plans or against the assets of any of such Plans.
(h) Tunes has not (i) experienced any reportable event within
the meaning of ERISA or other event or condition which presents a material
risk of the termination of any pension Plan by the Pension Benefit Guaranty
Corporation ("PBGC"); (ii) had any tax imposed on it by the Internal Revenue
Service for any violation under Section 4975 of the Code; and (iii) engaged
in any transaction which could reasonably be expected to subject Tunes or any
Plan to any liability for any tax under Section 4975 of the Code.
(i) There is no matter involving any Plan maintained or
established for employees of Tunes which is pending before the Internal
Revenue Service, the Department of Labor or any other governmental agency or
court.
(j) As to any Plan subject to Title IV of ERISA, (i) there has
been no reportable event within the meaning of Section 4043 of ERISA; (ii) no
notice of intent to terminate the Plan has been given under Section 4041 of
ERISA; (iii) no proceeding has been instituted under Section 4042 of ERISA to
terminate any Plan; (iv) no liability to the PBGC has been incurred (other
than PBGC insurance premiums); and (v) as to any Plan intended to be
qualified under Section 401 of the Code, there has been no termination or
partial termination of any such Plan within the meaning of Section 411(d)(3)
of the Code.
(k) No act, omission or transaction has occurred which could
reasonably be expected to result in imposition on Tunes of (i) a breach of
fiduciary duty liability under Section 409 of ERISA, or (ii) a civil penalty
assessed pursuant to subsections (c), (i) or (l) of Section 502 of ERISA.
(l) Each Plan which is a "welfare plan" (as defined in Section
(3)(1) of ERISA) is either (i) unfunded or (ii) funded through insurance
contracts.
24
(m) Tunes does not provide medical or life insurance benefits
to or in respect of employees beyond the date of retirement or other
termination of employment, other than as required under the Consolidated
Omnibus Budget Reconciliation Act of 1985, as amended ("COBRA"), or other
applicable law, nor does it have any current or projected liability for any
unfunded post-retirement medical or life insurance benefits in respect of any
employee or former employee.
(n) No employer securities, employer real property or other
employer property is included in the assets of any Plan.
(o) Tunes is not a party to any written or oral deferred or
incentive compensation, employment, severance, consulting or other similar
contract, arrangement or policy or labor contracts or collective bargaining
agreements relating to its employees that could reasonably be expected to
result in any Material Adverse Effect.
(p) No Plan (including any agreement with any employee or
former employee) provides for benefits by reason of severance or change in
control, except as may be required by COBRA. The consummation of the
transactions contemplated under this Agreement will not cause the payment
(including without limitation severance, unemployment compensation, golden
parachute, bonus or otherwise), acceleration (other than the acceleration of
certain of the Tunes Options as described in SCHEDULE 3.2), vesting or
funding of any compensation, benefit or other entitlement with respect to any
employee, consultant, officer or director of Tunes under any Plan (other
than the acceleration of certain of the Tunes Options as described in
SCHEDULE 3.2) and will not materially increase any benefits otherwise payable
under any Plan.
3.12 MATERIAL CONTRACTS AND COMMITMENTS.
(a) SCHEDULE 3.12 lists and describes every agreement,
contract, obligation, promise, commitment, mortgage, indenture, plan, lease,
instrument, permit, concession, franchise, arrangement, license, undertaking
or understanding (whether oral, written, express or implied) to which Tunes
is a party or by which it or any of its assets are or are purportedly bound
and which:
(1) involves performance of services or delivery of goods or
materials by Tunes of an amount or value in excess of $10,000;
(2) involves performance of services or delivery of goods or
materials to Tunes of an amount or value in excess of $10,000;
(3) was not entered into in the ordinary course of business
and that involves expenditures or receipts of Tunes in excess of $5,000;
(4) evidences a lease, rental or occupancy agreement,
license, installment or conditional sale agreement, or otherwise affecting
the ownership of, leasing of, title to, use of, or any leasehold or other
interest in, any real or personal property;
25
(5) relates to (including, without limitation, by way of
license or restriction on use or transfer) Intellectual Property Assets
(except for any license implied by the sale of a product and perpetual,
paid-up licenses for commonly available software programs with a value of
less than $500 under which Tunes is the licensee), including, without
limitation, any which relates to (i) the All-Music Guide or similar
resource, (ii) the so-called Rating and Recommendation Engine or RARE,
(iii) automated music encoding, (iv) CD cataloging and imaging, (v)
streaming music delivery, (vi) music databases, (vii) order fulfillment or
customer support, (viii) CGI technology, (ix) music search engines, (x)
performance, reproduction, or display rights in musical compositions,
sound recordings, artwork (including album art, liner notes, and other
collateral works), charts, music databases, or other Copyrights,
including, without limitation, those with or relating to any Performance
Rights Society, Artists Guild, or other Music Rights Holder, or (xi)
current or former officers, directors, employees, consultants, or
contractors regarding the appropriation or the non-disclosure of any of
the Intellectual Property Assets;
(6) relates to a collective bargaining arrangement or other
arrangement to or with any labor union or other employee representative of
a group of employees;
(7) radio station affiliates;
(8) evidences any joint venture or partnership;
(9) involves any sharing of revenues (including, without
limitation, any advertising revenues), profits, losses, costs, or
liabilities of Tunes with any other person or entity or of any other
person or entity with Tunes;
(10) involves any barter or in-kind exchange for goods or
services;
(11) involves the supply or fulfillment of sales of CDs,
other sound recordings, or related merchandise to customers or users;
(12) contains any covenants that in any material way purport
to restrict the business activity of Tunes or any affiliate of Tunes or
limit the freedom of Tunes or any affiliate of Tunes to engage in any line
of business or to compete with any person or entity or to enter into or
perform the transactions contemplated by this Agreement;
(13) provides for payments or commissions to or by any person
or entity based on sales, purchases, or profits, other than direct
payments for goods;
(14) evidences a power of attorney that is currently
effective and outstanding;
(15) relates to capital expenditures which, by its terms,
provides for an aggregate balance payable thereunder since December 31,
1996 in excess of $10,000 thereunder;
26
(16) evidences a warranty, guaranty, and or other similar
undertaking with respect to contractual performance extended by Tunes
other than in the ordinary course of business; or
(17) evidences any amendment, supplement, modification or
waiver (whether oral or written) in respect of any of the foregoing.
(b) Tunes has delivered to JAMtv true and complete copies of
(or, if oral, descriptions of) each of the following agreements, together
with any amendment, supplement, modification or waiver (whether oral or
written) thereof, between Tunes and each of the following parties:
(1) that certain Terms Sheet for Internet Movie Database
Soundtrack Mini-Store between Internet Movie Database, Ltd. and Tunes
dated August 18, 1997;
(2) that certain Microsoft Corporation CD Merchant Agreement
between Microsoft Corporation and Tunes dated as of February 6, 1998, a
true and complete copy of which is attached hereto as EXHIBIT H;
(3) that certain License and Service Agreement between
MATRIX Software, Inc. and Tunes dated May 9, 1996;
(4) that certain Terms Sheet for Co-Marketing Agreement
between Radio & Records, Inc. and Tunes dated July 22, 1997; and
(5) that certain Software License Agreement between Xxxxx
Xxxxxxxx and Tunes dated as of September 1, 1995.
(c) Each agreement, contract, obligation, promise, commitment,
mortgage, indenture, plan, lease, instrument, permit, concession, franchise,
arrangement, license, undertaking or understanding (whether oral, written,
express or implied) listed on or attached to SCHEDULE 3.12 is valid and
binding on Tunes, and is in full force and effect, and neither Tunes nor any
other party thereto, has breached, any material provision of, or is in
material default under the terms thereof. No such agreement, contract,
obligation, promise, commitment, mortgage, indenture, plan, lease,
instrument, permit, concession, franchise, arrangement, license, undertaking
or understanding (whether oral, written, express or implied) contains any
material liquidated damages, penalty or similar provision. Tunes does not
intend to cancel, withdraw, modify or amend any such agreement, contract,
obligation, promise, commitment, mortgage, indenture, plan, lease,
instrument, permit, concession, franchise, arrangement, license, undertaking
or understanding (whether oral, written, express or implied) and Tunes has
not been notified by any other party that any party to any such agreement,
contract, obligation, promise, commitment, mortgage, indenture, plan, lease,
instrument, permit, concession, franchise, arrangement, license, undertaking
or understanding (whether oral, written, express or implied) intends to
cancel, withdraw, modify or amend such agreement, contract, obligation,
promise, commitment, mortgage, indenture, plan, lease, instrument, permit,
concession,
27
franchise, arrangement, license, undertaking or understanding (whether oral,
written, express or implied).
3.13 INDEBTEDNESS. Tunes is not obligated as a borrower, guarantor or
accommodation party with respect to any indebtedness for borrowed money other
than as disclosed in the Financial Statements. Tunes is not a lender with
respect to any indebtedness for borrowed money other than as disclosed in the
Financial Statements.
3.14 TAXES.
(a) All Tax Returns, statements, reports and forms (including
estimated tax returns and reports and information returns and reports)
required to be filed with any Taxing Authority with respect to any Taxable
period ending on or before the Effective Time, by or on behalf of Tunes
(collectively, the "Tunes Returns"), have been or will be filed when due
(including any extension of such due date), and all amounts shown due thereon
or before the Effective Time have been or will be paid on or before such
date. The Unaudited Balance Sheet (i) fully accrued all actual and
contingent liabilities for Taxes with respect to all periods through the
Balance Sheet Date and Tunes has not and will not incur any Tax liability in
excess of the amount reflected on the Unaudited Balance Sheet with respect to
such periods, and (ii) properly accrues in accordance with GAAP all
liabilities for Taxes payable following the Balance Sheet Date with respect
to all transactions and events occurred on or prior to such date. All
information set forth in the notes to the Financial Statements relating to
Tax matters is true, complete and accurate in all material respects.
(b) No material Tax liability has been incurred since the
Balance Sheet Date other than in the ordinary course of business and adequate
provision has been or will be made for all Tax liability incurred since that
date in accordance with GAAP on at least a quarterly basis. Tunes has
withheld and paid to the applicable financial institution or Taxing Authority
all amounts required to be withheld. Except as set forth on SCHEDULE 3.14,
all Tunes Returns filed with respect to Taxable years of Tunes through the
Taxable year ended December 31, 1997, in the case of the United States, have
been examined and closed or are Tunes Returns with respect to which the
applicable period for assessment under applicable law, after giving effect to
extensions or waivers, has expired. Neither Tunes nor any member of any
affiliated or combined group of which Tunes has been a member has granted any
currently effective extension or wavier of the limitation period applicable
to any Tunes Returns.
(c) There is no material claim, audit, action, suit,
proceeding, or investigation now pending or, to the knowledge of Tunes,
threatened against or with respect to Tunes in respect of any Tax or
assessment. No notice of deficiency or similar document of any Tax Authority
has been received by Tunes, and there are no liabilities for Taxes (including
liabilities for interest, additions to Tax and penalties thereon and related
expenses) with respect to the issues that have been raised (and are currently
pending) by any Tax authority that could, if determined adversely to Tunes,
materially and adversely affect the liability of Tunes for Taxes. Neither
Tunes, nor any person on behalf of Tunes, has entered into nor will it enter
into any agreement or consent pursuant to Section 341(f) of the Code. There
are no liens for Taxes upon the assets of Tunes except liens for current
Taxes not yet due. Except as may be required as a result of the Merger,
Tunes has not been or will
28
be required to include any material adjustment in Taxable income for any Tax
period (or portion thereof) ending on or after the Closing pursuant to
Section 481 or 263A of the Code or any comparable provision under state or
foreign tax laws as a result of transactions, events or accounting methods
employed prior to the closing.
(d) There is no contract, agreement, plan or arrangement,
including, but not limited to, the provisions of this Agreement, covering any
employee or independent contractor or former employee or independent
contractor of Tunes that, individually or collectively, could give rise to
the payment of any amount that would not be deductible pursuant to Section
280G, 162 or 404 of the Code, other than as may apply with respect to the
acceleration of stock option vesting as described on SCHEDULE 3.2. Other
than pursuant to this Agreement, Tunes is not a party to or bound by (or will
prior to the Effective Time become a party to or bound by) any Tax indemnity,
Tax sharing or Tax allocation agreement (whether written, unwritten or
arising under operation of federal law as a result of being a member of a
group filing consolidated tax returns, under option of certain state laws as
a result of being a member of a unitary group, or under comparable laws of
other states or foreign jurisdictions) which includes a party other than
Tunes. None of the assets of Tunes (i) is property that Tunes is required to
treat as owned by any other person pursuant to the so-called "safe harbor
lease" provisions of former Section 168(f)(8) of the Code, (ii) directly or
indirectly secures any debt the interest on which is tax exempt under Section
103(a) of the Code or (iii) is "tax exempt use property" within the meaning
of Section 168(h) of the Code. Tunes has not participated in (nor will prior
to the Effective Time participate in) an international boycott within the
meaning of Section 999 of the Code. Tunes has previously provided or made
available to JAMtv true and correct copies of all material Tax Returns, and,
as reasonably requested by JAMtv, prior to or following the date hereof,
information statements, reports, work papers, Tax opinions and memoranda and
other Tax data and documents.
(e) SCHEDULE 3.14 lists (i) any foreign Tax holidays that Tunes
has in any jurisdiction, including the nature, amount and lengths of such Tax
holiday, (ii) any intercompany transfer pricing agreements or other
arrangements that have been established by Tunes in any foreign jurisdiction,
and (iii) any expatriate tax programs or policies affecting Tunes.
(f) For purposes of this Agreement, the following terms have
the following meanings: "Tax" (and, with correlative meaning, "Taxes" and
"Taxable") means (i) any net income, alternative or add-on minimum tax, gross
income, gross receipts, sales, use, ad valorem, transfer, franchise, profits,
license, withholding, payroll, employment, excise, severance, stamp,
occupation, premium, property, environmental or windfall profit tax, custom,
duty or other tax governmental fee or other like assessment or charge of any
kind whatsoever, together with any interest or any penalty, addition to tax
or additional amount imposed by any Governmental Entity (a "Taxing
Authority") responsible for the imposition of any such tax (domestic or
foreign), (ii) any liability for the payment of any amounts of the type
described in clause (i) as a result of being a member of an affiliated,
consolidated, combined or unitary group for any Taxable period and (iii) any
liability for the payment of any amounts of the type described in clause (i)
or (ii) as a result of any express or implied obligation to indemnify any
other person.
29
3.15 RELATED TRANSACTIONS. No shareholder of Tunes or any Related
Person of any shareholder or of Tunes has, or since January 1, 1996 has had,
any interest in any property (whether real, personal, or mixed and whether
tangible or intangible), used in or pertaining to Tunes's business, except
for rights as a shareholder, and except for rights under any Plan. No
shareholder of Tunes or any Related Person of any shareholder or of Tunes is,
or since January 1, 1996 has owned (of record or as a beneficial owner) an
equity interest or any other financial or profit interest in, a Person that
has (i) had business dealings or a material financial interest in any
transaction with Tunes, or (ii) engaged in competition with Tunes with
respect to any line of the products or services of Tunes in any market
presently served by Tunes. No shareholder of Tunes or any Related Person of
any shareholder of Tunes is a party to any contract with, or has any claim or
right against, Tunes.
"Related Person" means, (i) with respect to an individual, (a) each
other member of such individual's family; (b) any Person that is directly or
indirectly controlled by such individual or one or more members of such
individual's family; (c) any Person in which such individual or members of
such individual's family hold (individually or in the aggregate) a Material
Interest; and (d) any Person with respect to which such individual or one or
more members of such individual's family serves as a director, officer,
partner, executor, or trustee (or in a similar capacity); and (ii) with
respect to a specified Person other than an individual, (a) any Person that
directly or indirectly controls, is directly or indirectly controlled by, or
is directly or indirectly under common control with such specified Person;
(b) any Person that holds a Material Interest in such specified Person; (c)
each Person that serves as a director, officer, partner, executor, or trustee
of such specified Person (or in a similar capacity); (d) any Person in which
such specified Person holds a Material Interest; (e) any Person with respect
to which such specified Person serves as a general partner or a trustee (or
in a similar capacity); and (f) any Related Person of any individual
described in clause (b) or (c). "Material Interest" means direct or indirect
beneficial ownership of voting securities or other voting interests
representing at least 5% of the outstanding voting power of a Person or
equity securities or other equity interests representing at least 5% of the
outstanding equity securities or equity interests in a Person.
3.16 INTELLECTUAL PROPERTY ASSETS.
(a) INTELLECTUAL PROPERTY ASSETS. "Intellectual Property
Assets" means all of the following, whether owned, used, or licensed (as
licensee or licensor) by Tunes, and all rights corresponding thereto
throughout the world, in any form and on any medium now known or hereafter
developed and all embodiments thereof, whether tangible, intangible, printed,
recorded, digitized, fixed, stored, electronic, or otherwise:
(1) Tunes's corporate name, the uniform resource locator
"xxx.xxxxx.xxx," all fictitious business names, trade names, brand names,
trade dress, logos, trademarks, service marks, trademark registrations,
service xxxx registrations, applications for registration and the goodwill
symbolized by the foregoing and connected therewith (collectively,
"Marks");
30
(2) (A) all copyrights, whether or not published, protected
or registered under the Copyright Act of 1909 or the Copyright Act of 1976
(as either shall be amended from time to time, and any predecessor or
successor statute thereto), applications for registration of copyrights,
all works of authorship, and all secondary and subsidiary rights therein;
(B) art, audiovisual works, animations, compilations, collective works,
computer software and programs, data, databases, designs, emblems, films,
film clips, graphics, images, illustrations, likenesses, literary works,
logos, motion pictures, musical compositions, music videos, performances,
photographs, pictorial works, song lyrics, sound clips, sound recordings,
scripts, screenplays, video recordings, and all other copyrightable
subject matter; (C) all renewals, derivative works, enhancements,
improvements, modifications, updates, new releases or other revisions
thereof; and (D) publication rights, display rights, attribution rights,
integrity rights, performance rights (including digital performance
rights), mechanical rights, synchronization rights, publishing rights,
approval rights, reproduction rights, rights to create derivative works,
distribution rights, or moral rights (collectively, "Copyrights");
(3) all publicity rights or privacy rights (or waivers or
quitclaims thereof) of any person or entity related thereto ("Publicity
Rights");
(4) patents, patent applications and extensions,
continuations and renewals thereof and inventions and discoveries that may
be patentable (collectively, "Patents"); and
(5) all know-how, trade secrets, confidential information,
customer lists, software, technical information, data, process technology,
plans, drawings, and blue prints (collectively, "Trade Secrets").
(b) CERTAIN OTHER DEFINED TERMS. The following capitalized
terms used in this Agreement relating to Intellectual Property Assets shall
have the following meanings:
"Performance Rights Society" means any performance rights
society or clearinghouse concerning the performance, reproduction,
display, or distribution of Copyrights, including, without
limitation, American Society of Composers, Authors and Publishers
(ASCAP), Broadcast Music, Inc. (BMI), Recording Industry Association
of America (RIAA), The Society of European Stage Authors and
Composers (SESAC), and The Xxxxx Xxx Agency (HFA).
"Artists Guild" means any guild, union, or collective
bargaining entity representing artists, performers, or other talent,
including, without limitation, American Federation of Musicians,
Songwriters Guild, American Federation of Television and Radio
Artists, American Society of Media Photographers, Graphic Artists
Guild, Writers Guild of America, and Screen Actors Guild.
"Music Rights Holder" means any record label, music publisher,
songwriter, artist, photographer, or any other holder of any rights
in any sound recording, musical
31
composition, artwork (including album art, liner notes, and other
collateral works), chart, music database or other Copyright.
(c) MARKS. SCHEDULE 3.16 contains a complete and accurate list
(including, without limitation, identifying registration numbers,
registration dates, application numbers, and filing dates) and summary
description of all Marks.
(d) COPYRIGHTS. SCHEDULE 3.16 sets forth a complete and
accurate list of all Copyrights, including, without limitation, (i) rights in
the All-Music Guide or similar resources; (ii) computer software (including,
without limitation, software for the so-called Rating and Recommendation
Engine or RARE, automated music encoding, compact disk cataloging and
imaging, order fulfillment or customer support, CGI technology, and music
search engines); (iii) compact disk catalogues, tables of contents (TOCs),
and other music databases, and (iv) performance, reproduction, or display
rights in musical compositions, sound recordings, artwork (including album
art, liner notes, and other collateral works), charts, and music databases,
including, without limitation, rights relating to any Performance Rights
Society, Artists Guild, or other Music Rights Holder.
(e) PUBLICITY RIGHTS. SCHEDULE 3.16 contains a complete and
accurate list of all Publicity Rights.
(f) PATENTS. SCHEDULE 3.16 contains a complete and accurate
list (including identifying numbers and dates of filing and issuance) and
summary description of all Patents.
(g) TRADE SECRETS. The documentation relating to each Trade
Secret is current, accurate, and sufficient in detail and content to identify
and explain it and to allow its full and proper use without reliance on the
knowledge or memory of any individual. Tunes has taken all reasonable
precautions to protect the secrecy, confidentiality, and value of its Trade
Secrets.
(h) INTELLECTUAL PROPERTY ASSETS NECESSARY FOR THE BUSINESS.
(1) Tunes owns, or is licensed or otherwise entitled to
exercise all rights in Intellectual Property Assets employed in the
operation of the business of Tunes as currently conducted or as currently
proposed to be conducted including, without limitation, (i) rights in the
All-Music Guide or similar resources; (ii) computer software (including,
without limitation, software for the so-called Rating and Recommendation
Engine or RARE, automated music encoding, compact disk cataloging and
imaging, order fulfillment or customer support, CGI technology, and music
search engines); (iii) compact disk catalogues, tables of contents (TOCs),
and other music databases, (iv) performance, reproduction, or display
rights in musical compositions, sound recordings, artwork (including album
art, liner notes, and other collateral works), charts, and music
databases, including, without limitation, rights relating to any
Performance Rights Society, Artists Guild, or other Music Rights Holder;
and (v) the musical compositions, sound recordings, artwork (including
album art, liner notes, and other collateral works), charts, music
databases, and computer software code employed at the web site
"xxx.xxxxx.xxx." Tunes is the owner of all right, title, and
32
interest in and to each of the Intellectual Property Assets, free and
clear of all material liens, security interests, charges, encumbrances,
equities, and other adverse claims, and has the right to use all of the
Intellectual Property Assets without payment to any third party
(including, without limitation, any Performance Rights Society, Artists
Guild, or other Music Rights Holder).
(2) All of the former and current employees and officers of
Tunes (including, without limitation, Xxxxxx Xxxxxxxx and Xxxxx Xxxxxxxx)
have executed valid and binding agreements with Tunes which assign to
Tunes all rights to all Intellectual Property Assets created or discovered
by such employee or officer in the course of employment with Tunes. No
employee, officer, or director of Tunes has entered into any contract,
obligation, promise, commitment, undertaking or understanding (whether
oral, written, express or implied) that restricts or limits in any way the
scope or type of work in which such employee, officer, or director may be
engaged or requires such employee, officer, or director to transfer,
assign, or disclose information concerning his or her work to any party
other than Tunes.
(i) INTELLECTUAL PROPERTY AGREEMENTS. A complete and accurate
list of every contract, obligation, promise, commitment, mortgage, indenture,
plan, lease, instrument, permit, concession, franchise, arrangement, license,
undertaking or understanding (whether oral, written, express or implied)
relating to the Intellectual Property Assets to which Tunes is a party or by
which Tunes is bound (except for any license implied by the sale of a product
and perpetual, paid-up licenses for commonly available software programs with
a value of less than $500 under which Tunes is the licensee) is set forth on
SCHEDULE 3.12. There are no outstanding and, to the best of Tunes's
knowledge, no threatened disputes with respect to any such contract,
obligation, promise, commitment, mortgage, indenture, plan, lease,
instrument, permit, concession, franchise, arrangement, license, undertaking
or understanding (whether oral, written, express or implied) (including,
without limitation, any claims by any Performance Rights Society, Artists
Guild, or any other Music Rights Holder, for the payment of any fees or
royalties for the reproduction, creation of derivative works, distribution,
public performance (including digital performance), or public display of any
Intellectual Property Asset).
(j) COMPLIANCE WITH LEGAL AND CONTRACTUAL REQUIREMENTS. Tunes
has all Copyright, computer software and other Intellectual Property Asset
licenses, and has paid all royalties and fees with respect thereto required
to be paid prior to the date of this Agreement, necessary to operate its
business in compliance with all laws, rules and regulations, and all material
contractual requirements to which it or its properties is subject (including,
without limitation, any fees or royalties for the reproduction, creation of
derivative works, distribution, public performance (including digital
performance), or public display of any Intellectual Property Asset required
by any Performance Rights Society, Artists Guild, or any other Music Rights
Holder). Without limiting the foregoing, Tunes has not been subject to a
computer software audit and no software audit of Tunes is pending.
(k) CLAIMS AGAINST INTELLECTUAL PROPERTY ASSETS. No claims
with respect to the Intellectual Property Assets have been asserted or, to
the best knowledge of Tunes, threatened, by
33
any person or entity (including, without limitation, by any Performance
Rights Society, Artists Guild, or other Music Rights Holder): (i) to the
effect that any business of Tunes as currently conducted or proposed to be
conducted infringes on or misappropriates any Intellectual Property Assets in
which a third party has any rights or (ii) challenging the ownership,
validity or effectiveness of any of the Intellectual Property Assets. All
Intellectual Property Assets are valid and subsisting assets of Tunes. There
is no material unauthorized use, infringement or misappropriation of any of
the Intellectual Property Assets by any third party, including any employee.
Except as set forth in the Tunes Disclosure Schedule, Tunes is not obligated
to and has not agreed or committed to indemnify any other person or entity
against any charge or infringement relating to any Intellectual Property
Assets. No employee or officer of Tunes is in violation of any term of any
employment contract, patent disclosure agreement or any other contract,
agreement, arrangement, or understanding (whether written or oral) relating
to the relationship of any such employee or officer with Tunes or any other
party (including prior employers) because of the nature of the business
conducted or proposed to be conducted by Tunes.
3.17 YEAR 2000 COMPLIANT. Except as set forth in the Tunes Disclosure
Schedule, all computers or computer related hardware or software which are
owned by Tunes (the "Computer System") are Year 2000 compliant. "Year 2000
compliant" means that the Computer System (a) allows for the input of all
dates in a four-digit format; (b) provides date output in a four-digit
format; (c) accommodates same century and multi-century date related formulas
and calculations (including leap year calculations); (d) functions and will
function accurately and without interruption before, during and after January
1, 2000; and (e) responds to two-digit date input in a way that resolves any
ambiguity as to century as disclosed in the System Specifications.
3.18 TITLE TO PROPERTIES; ABSENCE OF LIENS AND ENCUMBRANCES; CONDITION
OF PROPERTY.
(a) TITLE TO PROPERTY. Tunes has good and marketable title,
or valid leasehold rights (in the case of leased property), to all real
property and all personal property (including, without limitation, the
Intellectual Property Assets) purported to be owned, leased, or licensed by
it or used in the operation of its business, free and clear of all liens,
security interests, claims and encumbrances of any nature, other than the
Permitted Liens. SCHEDULE 3.18 sets forth a complete and accurate list of
the following: (i) all real property leased or used by Tunes in the conduct
of its business, (ii) Tunes's catalogue of compact disks, albums, tapes,
artwork (including album art, liner notes, and other collateral works), and
all other tangible embodiments of copyrightable materials (which Tunes
represents and warrants are not subject to return to any third party), and
(iii) all other tangible personal property (and intangible personal property,
to the extent not otherwise disclosed on the other Schedules hereto relating
to Intellectual Property Assets) owned, leased, or licensed by Tunes or used
in connection with its business, including without limitation, all inventory,
machinery, equipment, furniture, supplies, vehicles, office equipment and
other tangible personal property used in conducting its business, and all
leases of equipment or other personal property used in the conduct of its
business, to the extent such personal property has a value in excess of
$5,000 individually or $25,000 in the aggregate.
(b) LEASE TERMS. SCHEDULE 3.18 sets forth with respect to each
lease to which Tunes is a party, the commencement date, termination date,
renewal options, if any, and annual base
34
rents. Tunes has delivered, prior to the Closing Date, copies of all leases,
and all amendments thereto, for real property leased or used by Tunes in the
conduct of the Business. Tunes has furnished or made available to JAMtv,
copies of all engineering, geologic and environmental reports prepared by or
for Tunes, if any, with respect to the real property leased or used by Tunes.
Tunes does not own any fee interest in real property.
(c) CONDITION. The machinery and equipment and other tangible
personal property (and intangible personal property, to the extent not
otherwise comprising Intellectual Property Assets) owned, leased, or used by
Tunes is, taken as a whole, (i) adequate for the conduct of the business of
Tunes consistent with its past practice, (ii) suitable for the uses to which
it is currently employed, (iii) in good operating condition, and (iv) not
obsolete.
(d) PERMITTED LIENS. "Permitted Liens" shall mean:
(i) liens for taxes, assessments or governmental charges
or levies on property of Tunes if the same shall not at the time be
delinquent or thereafter can be paid without penalty, or are being diligently
contested in good faith and by appropriate actions or proceedings and for
which Tunes shall have set aside reserves on its books as required by GAAP
and which are reflected on the Financial Statements;
(iii) liens imposed by law, such as carrier's,
warehousemen's and mechanic's liens and other similar liens, which arise in
the ordinary course of business with respect to obligations not yet due or
being contested in good faith by appropriate actions or proceedings and for
which Tunes shall have set aside reserves on its books as required by GAAP
and which are reflected on the Financial Statements;
(iv) liens arising out of pledges or deposits under
workmen's compensation laws, unemployment insurance, old age pensions, or
other social security benefits other than any lien imposed by ERISA; and
(vii) liens listed on any title report previously delivered
to and accepted by Tunes and zoning restrictions, easements, licenses or
other restrictions on the use of real property or other irregularities in
title thereto so long as the same does not materially impair the use of such
real property in the operation by Tunes of its business.
3.19 GOVERNMENTAL AUTHORIZATIONS AND LICENSES. Tunes is the holder of
all material licenses, authorizations, permits, concessions, certificates and
other franchises of any Governmental Entity required to operate its business
(collectively, the "Licenses") and in compliance in all material respects
with the terms, conditions, limitations, restrictions, standards,
prohibitions, requirements and obligations of such Licenses. The Licenses
are in full force and effect. There is not now pending, nor is there
threatened in writing, any action, suite, investigation or proceeding against
Tunes before any Governmental Entity with respect to the Licenses, nor is
there any issued or outstanding notice, order to complaint with respect to
the violation by Tunes of the terms of any License or any rule or regulation
applicable thereto.
35
3.20 RESTRICTIONS ON BUSINESS ACTIVITIES. There is no material
agreement, judgment, injunction, order or decree binding upon Tunes which has
or could reasonably be expected to have the effect of prohibiting or
materially impairing any business practice of Tunes, any acquisition of
property by Tunes or the conduct of business of Tunes as currently conducted
or as currently proposed to be conducted.
3.21 ENVIRONMENTAL MATTERS.
(a) No substance that is regulated by any Governmental Entity
or that has been designated by any Governmental Entity to be radioactive,
toxic, hazardous or otherwise a danger to health or the environment (a
"Hazardous Material") is present in, on or under any property that Tunes has
at any time owned, operated, occupied or leased, which is reasonably likely
to form the basis of a material claim, action, suit, proceeding hearing or
investigation against Tunes.
(b) Tunes does not and has not in the conduct of its business
transported, stored, used, manufactured, released or exposed its employees or
any other person to any Hazardous Material (other than customary uses of
hazardous materials for janitorial and office purposes in compliance with
applicable law).
(c) No permits, consents, waivers, exemptions, licenses,
approvals and other authorizations are required to be obtained by it under
the laws of any Governmental Entity relating to land use, public and employee
health and safety, pollution or protection of the environment (collectively,
"Environmental Laws"). Tunes is in compliance in all material respects with
all other limitations, restrictions, conditions, standards, prohibitions,
requirements, obligations, schedules and timetables contained in the
Environmental Laws or contained in any regulation, code, plan, order, decree,
judgment, notice or demand letter issued, entered, promulgated or approved
thereunder. Tunes has not received any notice and is not aware of any past
or present condition or practice of the businesses conducted by Tunes which
forms the basis of any material claim, action, suite, proceeding, hearing or
investigation against Tunes, arising out of the manufacture, processing,
distribution, use, treatment, storage, spill, disposal, transport, or
handling, or the emission, discharge, release or threatened release into the
environment, of any Hazardous Material by Tunes or any of its subsidiaries.
3.22 INSURANCE. SCHEDULE 3.22 lists all insurance policies and
fidelity bonds covering the assets, business, equipment, properties,
operations, employees, officers and directors of Tunes, their termination
dates and the amounts of coverage under each such policy and bond of Tunes.
Within the last four (4) years, Tunes has not been refused any requested
coverage. All premiums payable under all such policies and bonds have been
paid and Tunes is otherwise in full compliance with the terms of such
policies and bonds (or other policies and bonds providing substantially
similar insurance coverage). Such policies of insurance and bonds are of the
type and in amounts customarily carried by persons conducting businesses
similar to that of Tunes. Tunes does not know of any threatened termination
of or material premium increase with respect to, any of such policies.
3.23 LABOR MATTERS. Tunes has not been, and is not, a party to any
collective bargaining or other labor Contract. There has not been, there is
not presently pending or existing, and to
36
Tunes's knowledge there is not threatened, (a) any strike, slowdown,
picketing, work stoppage, or employee grievance process, (b) any proceeding
against or affecting Tunes relating to the alleged violation of any laws or
regulations pertaining to labor relations or employment matters, including
any charge or complaint filed by an employee or union with the National Labor
Relations Board, the Equal Employment Opportunity Commission, or any
comparable governmental authority, organizational activity, or other labor or
employment dispute against or affecting Tunes or its premises, or (c) any
application for certification of a collective bargaining agent. To Tunes's
knowledge no event has occurred or circumstance exists that could provide the
basis for any work stoppage or other labor dispute. There is no lockout of
any employees by Tunes, and no such action is contemplated by Tunes. Tunes
has complied in all material respects with all laws and regulations relating
to employment, equal employment opportunity, nondiscrimination, immigration,
wages, hours, benefits, collective bargaining, the payment of social security
and similar taxes, occupational safety and health, and plant closing. Tunes
is not liable for the payment of any compensation, damages, taxes, fines,
penalties, or other amounts, however designated, for failure to comply with
any of the foregoing laws and regulations.
3.24 EMPLOYEES.
(a) SCHEDULE 3.24 contains a complete and accurate list of the
following information for each employee, officer, and director of Tunes,
including, without limitation, each employee on leave of absence or layoff
status: name; title; current compensation and bonus paid or payable;
vacation accrued; severance arrangements; and vested and unvested Tunes
Options held.
(b) No director, officer or employee of Tunes is a party to, or
is otherwise bound by, any agreement or arrangement, including any
confidentiality, noncompetition, or proprietary rights agreement, between
such director or employee and any other Person that in any way adversely
affects or will affect the performance of his duties as an employee, officer
or director of Tunes or Merger Sub, or the ability of Tunes to conduct its
business. To Tunes's knowledge, no director, officer, or employee of Tunes
intends to terminate his employment with Tunes.
(c) SCHEDULE 3.24 identifies each employee, officer or director
of Tunes who was employed by Tunes within the past two years but is no longer
employed by Tunes, and contains a complete and accurate list of the following
information for each retired employee, officer or director of Tunes, or their
dependents, receiving benefits or scheduled to receive benefits from Tunes or
the Plans in the future: name, pension benefit, pension option election,
retiree medical insurance coverage, retiree life insurance coverage, and
other benefits.
3.25 QUESTIONABLE PAYMENTS. Neither Tunes nor any director, officer
or other employee of Tunes has: (i) made any payments or provided services or
other favors in the United States of America or in any foreign country in
order to obtain preferential treatment or consideration by any Governmental
Entity with respect to any aspect of the business of Tunes; or (ii) made any
political contributions which would not be lawful under the laws of the
United States (including, without limitation, the Foreign Corrupt Practices
Act) or the foreign country in which such payments were made. Neither Tunes
nor, any director, officer or other employee of Tunes has been the subject of
any inquiry or investigation by any Governmental Entity in connection with
payments or benefits
37
or other favors to or for the benefit of any governmental or armed services
official, agent, representatives or employee with respect to any aspect of
the business of Tunes or with respect to any political contribution.
3.26 INFORMATION STATEMENT. The information supplied or to be
supplied by Tunes for inclusion in the materials to be prepared for use in
soliciting approval of the Merger by Tunes's shareholders as described in
Section 5.3 hereof and other solicitation materials relating to the Merger
(the "Information Statement"), on the date on which Tunes mails such
materials to its shareholders and at all times from such date up to and
including the Effective Time complies or will comply in all respects with the
CGCL, the DGCL, and the applicable federal and state securities law
requirements and will not contain any untrue statement of a material fact or
omit to state a material fact necessary in order to make the statements made
therein, in the light of the circumstances under which they will be made, not
misleading; PROVIDED, HOWEVER, that Tunes makes no representation or warranty
with respect to any information that JAMtv may supply expressly for use in
the Information Statement.
3.27 ACCOUNTS PAYABLE. All accounts payable of Tunes have been
incurred in the ordinary course of business consistent with past practice.
3.28 SUPPLIERS AND CUSTOMERS. There are no pending or, to Tunes's
knowledge, threatened disputes between Tunes and any of its vendors,
suppliers, customers or other parties which in any way relate to the
operation of Tunes's business, including, without limitation, with respect to
any Performance Rights Society, Artists Guild, or other Music Rights Holder
or with respect to any of the parties to the agreements attached to SCHEDULE
3.12 hereto.
3.29 BANK ACCOUNTS. SCHEDULE 3.29 hereto lists the names and
locations of all banks at which Tunes has an account and/or safe deposit box,
the numbers of any such accounts and the names of all persons authorized to
draw thereon or to have access thereto.
3.30 BROKERS; FINDERS. Tunes represents and warrants that no agent,
broker, investment banker or other firm or person is, or will be, entitled to
any broker's or finder's fee or any similar commission or fee in connection
with any of the transactions contemplated by this Agreement or the Merger
Certificate.
3.31 DISCLOSURE. No representation or warranty made by Tunes in this
Agreement, nor any financial statement, certificate, schedule or exhibit
prepared and furnished or to be prepared and furnished by Tunes or its
representatives pursuant hereto contains or will contain any untrue statement
of a material fact, or omits or will omit to state a material fact necessary
to make the statements or facts contained herein or therein not misleading in
light of the circumstances under which they were furnished. There is no
event, fact or condition that has caused a Material Adverse Effect, that has
not been set forth in this Agreement or the Tunes Disclosure Schedule, other
than general economic or competitive conditions.
3.32 MICROSOFT DELUXE CD PLAYER. Tunes warrants that (i) the
Microsoft Deluxe CD Player shall have the ability to query Tunes's website
for information about the CD being played,
38
such as title, artist, track names, label, release date and that certain
special menus with unique URLs, when selected by the user, shall launch the
user's web browser to load relevant pages from Tunes's website and (ii) and
that Microsoft shall make the Microsoft Deluxe CD Player generally available
to consumers as part of the Windows 98 Plus Pack! on or before June 30, 1999.
3.33 CLIPS MUSIC SYSTEM. Attached hereto as SCHEDULE 3.33 is a true
and complete copy of the Asset Purchase Agreement by and between Tunes and
Xxxxxx Xxxxxxxx, dated as of a date prior to the date hereof. Such agreement
constitutes the entire agreement between the parties with respect to the sale
by Tunes to Xx. Xxxxxxxx of the assets constituting the "CLIPS Music System"
as defined therein, and supersedes all prior agreements and understandings,
both written and oral (if any), among the parties with respect to the subject
matter thereof.
3.34 CDDB. Attached hereto as SCHEDULE 3.34 is a draft of a License
and Service Agreement between Tunes and CDDB, LLC with respect to the
"CDDB-DATABASE" (as defined therein) owned by CDDB, LLC. The transactions
contemplated by such draft agreement are material to the business of Tunes
and failure to consummate such transactions upon terms and conditions no less
favorable to Tunes than those set forth in SCHEDULE 3.34 could have a
Material Adverse Effect on Tunes. Tunes hereby warrants that it shall
consummate such transactions on or before August 31, 1998 upon terms no less
favorable to Tunes than those set forth in SCHEDULE 3.34 (or, alternatively,
shall consummate a transaction whereby Tunes or an affiliate of Tunes would
purchase the business and substantially all of the assets of CDDB, LLC).
3.35 AMG. SCHEDULE 3.35 attached hereto sets forth the material terms
and conditions of a pending transaction which would grant to Tunes certain
rights and benefits with respect to (i) general interest music guides
containing, among other things, lists of artists, albums, ratings, reviews
and other information, and general interest movie guides containing, among
other things, lists of film stars, motion pictures, ratings, reviews and
other information, which are published in electronic form under the trade
names "All-Music Guide" and the "All Movie Guide," using the "AMG" and
"MATRIX" logos and marks, and (ii) a database which provides information
regarding the availability and pricing of record and video products. The
transactions contemplated by SCHEDULE 3.35 are material to the business of
Tunes and failure to consummate such transactions upon terms and conditions
no less favorable to Tunes than those set forth in SCHEDULE 3.35 could have a
Material Adverse Effect on Tunes. Tunes hereby warrants that it shall
consummate such transactions on or before June 25, 1998 upon terms no less
favorable to Tunes than those set forth in SCHEDULE 3.35.
SECTION 4
REPRESENTATIONS AND WARRANTIES OF JAMTV AND MERGER SUB
JAMtv and Merger Sub each represent and warrant as follows such
representations and warranties to be true as of the Closing Date:
4.1 ORGANIZATION; GOOD STANDING; AND CORPORATE POWER. Each of JAMtv
and Merger Sub is a corporation duly organized, validly existing and in good
standing under the laws of the State of Delaware and has all requisite
corporate power and authority to own, operate and lease its properties and to
carry on its business as now being conducted. Each of JAMtv's subsidiaries
are
39
duly organized, validly existing and in good standing under the laws of the
state of incorporation and have all requisite corporate power and authority
to own, operate and lease its properties and to carry on its business as now
being conducted. JAMtv has delivered to Tunes complete and correct copies of
its Certificate of Incorporation and Bylaws, in each case as amended to the
date hereof, and has made available to Tunes a ledger reflecting the record
ownership of all outstanding shares of JAMtv capital stock.
4.2 CAPITAL STRUCTURE.
(a) The authorized capital stock of JAMtv consists of (i)
10,500,000 shares of common stock, par value $0.01 per share (the "JAMtv
Common Stock"); and (ii) 5,000,000 shares of preferred stock, par value $0.01
per share (the "JAMtv Preferred Stock"), issuable in series, of which
2,500,000 shares are designated Series A Convertible Preferred Stock (the
"Series A Preferred"), 500,000 shares are designated Series B Convertible
Preferred Stock (the "Series B Preferred"), 533,340 shares are designated
Series C Convertible Preferred Stock (the "Series C Preferred") and 800,000
shares are designated Series D Convertible Preferred Stock (the "Series D
Preferred"). There are issued and outstanding: 1,150,530 shares of JAMtv
Common Stock; 2,016,666 shares of Series A Preferred, of which 1,666,666
shares are designated "Series A-I Convertible Preferred Stock," 200,000
shares are designated "Series A-II Convertible Preferred Stock," and 150,000
shares are designated "Series A-III Convertible Preferred Stock;" 472,000
shares of Series B Preferred; 533,334 shares of Series C Preferred, and up to
800,000 shares of Series D Preferred. In addition, 1,300,000 shares of JAMtv
Common Stock have been reserved for issuance under the Stock Option Plan of
JAMtv, and JAMtv has delivered to Straight Arrow Publishers Company, L.P. a
warrant for the purchase of 419,224 shares of JAMtv Common Stock at an
exercise price of $3.00 per share, which number of shares is subject to
increase upon the occurrence of certain events so that the warrant holder is
entitled to purchase shares of JAMtv Common Stock in an amount equal to
approximately a ten percent ownership interest in JAMtv prior to certain
events including a public or private offering in which the net proceeds from
the sale are at least $15,000,000. All outstanding shares of JAMtv Common
Stock and JAMtv Preferred Stock are validly issued, fully paid and
nonassessable. The Closing Shares, Performance Shares, and IPO Shares have
been duly reserved for issuance, and when issued as provided by the terms of
this Agreement, will be duly authorized, validly issued, fully paid and
nonassessable. Except as disclosed on SCHEDULE 4.2 hereto, none of the JAMtv
Common Stock issued pursuant to this Agreement is subject to any preemptive
rights, whether created by JAMtv's Certificate of Incorporation, Bylaws, or
any agreement.
(b) Other than as described in this Section 4.2 or as set forth
on SCHEDULE 4.2, there are no issued or outstanding shares of capital stock
of JAMtv, and there are no options, warrants, calls, conversion rights,
commitments or agreements of any character (whether oral, written, express,
or implied) to which JAMtv is a party or by which JAMtv may be bound that do
or may obligate JAMtv to issue, deliver or sell, or cause to be issued,
delivered or sold, additional shares of JAMtv capital stock or that do or may
obligate JAMtv to grant, extend or enter into any such option, warrant, call,
conversion right, commitment or agreement. There are no outstanding
agreements, contracts, obligations, promises, commitments, indentures, plans,
instruments, arrangements, undertakings or understandings (whether oral,
written, express or implied) to which
40
JAMtv is a party or is bound or which affects or relates to the voting,
issuance, purchase, redemption, repurchase or transfer of any capital stock
of JAMtv or any other securities of JAMtv, except as set forth in this
Section 4.2 or as set forth on SCHEDULE 4.2. Except as described on SCHEDULE
4.2 hereto, to JAMtv's knowledge, none of the outstanding equity securities
or other securities of JAMtv was issued in violation of any law, rule or
regulation, including, without limitation, state and federal securities laws.
4.3 CORPORATE NAME; PRIOR TRANSACTIONS; SUBSIDIARIES. Except as
disclosed on SCHEDULE 4.3, JAMtv has not during its existence been known by
or used any other corporate or fictitious name or been a party to any merger
or consolidation, or acquired all or substantially all of the assets of any
person or entity. Except as disclosed on SCHEDULE 4.3 hereto and other than
JAMtv Interactive Services Corporation and Merger Sub, JAMtv has no
subsidiaries, does not have any contract to acquire, and does not hold any
equity securities or other securities of, any person or entity (including any
subsidiary).
4.4 AUTHORITY; VALIDITY; NO CONFLICT; CONSENTS.
(a) JAMtv and Merger Sub have all requisite corporate power and
authority to enter into this Agreement and the Merger Certificate, to perform
its obligations hereunder and thereunder, and to consummate the transactions
contemplated hereby and thereby. The execution and delivery by JAMtv and by
Merger Sub of this Agreement, and the execution and delivery by Merger Sub of
the Merger Certificate, the performance by JAMtv of its obligations hereunder
and thereunder and the consummation of the transactions contemplated hereby
and thereby have been duly authorized by all necessary corporate action on
the part of JAMtv and Merger Sub, including, without limitation, the approval
by the Board of Directors of JAMtv. This Agreement is, and the Merger
Certificate when delivered by the parties thereto, will be, legal, valid and
binding obligations of each of JAMtv and Merger Sub enforceable against JAMtv
and Merger Sub in accordance with their respective terms, except as
enforcement may be limited by bankruptcy, insolvency, or other similar laws
affecting the enforcement of creditors' rights generally and except that the
availability of equitable remedies is subject to the discretion of the court
before which any proceeding therefor may be brought. Except as disclosed on
SCHEDULE 4.4 hereto, no vote of the holders of any class or series of JAMtv
capital stock is necessary to approve this Agreement and the Merger
Certificate and the transactions contemplated hereby and thereby.
(b) The execution and delivery of this Agreement does not, and
the execution and delivery of the Merger Certificate and the consummation of
the transactions contemplated hereby and thereby will not other than as
described or provided in this Agreement, conflict with or result in any
violation of any material statute, law, rule, regulation, judgment, order,
degree or ordinance applicable to JAMtv or any of its subsidiaries or their
respective properties or assets, or conflict with or result in any breach or
default (with or without notice or lapse of time, or both) under, or give
rise to a right of termination, cancellation or acceleration of any
obligation or loss of a material benefit under or result in the creation of a
lien or encumbrance on any of the material properties or assets of JAMtv
pursuant to (i) any provision of the Certificate of Incorporation or Bylaws
of JAMtv or any of its subsidiaries or (ii) any material agreement, contract,
note, obligation, promise, commitment, mortgage, indenture, plan, lease,
instrument, permit, concession, franchise, license,
41
undertaking or understanding (whether oral, written, express or implied) to
which JAMtv or any of its subsidiaries is a party or by which JAMtv or any of
its subsidiaries or their respective properties or assets may be bound or
affected.
(c) No consent, approval, order or authorization of, or
registration, declaration or filing with, any Governmental Entity is required
by JAMtv or Merger Sub in connection with the execution and delivery of this
Agreement and the Merger Certificate by JAMtv and Merger Sub or the
consummation by JAMtv and Merger Sub of the transactions contemplated hereby
or thereby, except for the filing of (i) the Merger Certificate and officers'
certificates with the Delaware Secretary of State and the California
Secretary of State in such form as is required by, and executed in accordance
with, the applicable provisions of the DGCL and the CGCL, (ii) appropriate
documents with the relevant authorities of other states in which JAMtv and
Merger Sub are qualified to do business, and (iii) appropriate documents with
the relevant approvals, authorizations, registrations or qualifications as
may be required under federal and state securities or "Blue Sky" laws in
connection with the Merger.
4.5 FINANCIAL STATEMENTS. JAMtv has furnished or made available to
Tunes its consolidated financial statements for the fiscal year ended on
December 31, 1997, including balance sheets of JAMtv, and the related
statements of operations, cash flow and stockholders' equity (collectively,
the "JAMtv Audited Financial Statements"), and the related management
letters, if any, and JAMtv's unaudited financial statements as at March 31,
1998, including an unaudited balance sheet of JAMtv (the "JAMtv Unaudited
Balance Sheet") as at March 31, 1998 and the related unaudited statements of
operations and cash flow (the "JAMtv Unaudited Financial Statements"). The
JAMtv Audited Financial Statements, the JAMtv Unaudited Balance Sheet, and
the JAMtv Unaudited Financial Statements are collectively referred to as the
"JAMtv Financial Statements." The JAMtv Financial Statements have been
prepared in accordance with GAAP consistency applied and fairly present the
financial position of JAMtv as at the dates, except that the Unaudited
Financial Statements prepared since the Balance Sheet Date do not contain the
footnote disclosure required by GAAP and may not include the same refinement
of estimates and accruals as are contained in the JAMtv Financial Statements.
Since its inception, there has been no change in JAMtv's accounting
policies, except as described in notes to the JAMtv Financial Statements.
4.6 COMPLIANCE WITH LAW; CHARTER DOCUMENTS; AND ORDERS. JAMtv and
each of its subsidiaries are in compliance, and have conducted their
respective businesses so as to comply, with all laws, rules and regulations,
judgments, decrees or orders of any Governmental Entity applicable to their
respective operations or with respect to which compliance is a condition of
engaging in the business thereof, except to the extent that failure to
comply, individually or in the aggregate, has not had and would not be
reasonably expected to have a Material Adverse Effect. There are no
judgments or orders, injunctions, decrees, stipulations or awards (whether
rendered by a court or administrative agency or by arbitration) against JAMtv
or against any of its properties or businesses. To JAMtv's knowledge, no
officer, director, or employee of JAMtv or any subsidiary is subject to any
order that prohibits such officer, director, or employee from engaging in or
continuing any conduct, activity, or practice relating to the business of
JAMtv or the respective subsidiary. JAMtv nor any of its subsidiaries is
not, nor has it received notice that it is or would be with the passage of
42
time, in violation of any provision of its Certificate of Incorporation,
Bylaws or resolutions, or in default or violation of any term, condition or
provision of any judgment, decree, order, injunction or stipulation
applicable to JAMtv or any subsidiary, its respective business or properties.
4.7 LITIGATION. Except as disclosed on SCHEDULE 4.7, there is no
action, suit, proceeding, claim, arbitration or investigation pending by or
against JAMtv or any of its subsidiaries, any director, officer, employee or
stockholder of JAMtv or any of its subsidiaries relating to or affecting
JAMtv's or any subsidiary's business, properties or capital stock, or which
in any manner challenges or seeks to prevent, enjoin, alter or delay any of
the transactions contemplated hereby. Except as disclosed on SCHEDULE 4.7,
to JAMtv's knowledge, no such action, suit, proceeding, claim, arbitration or
investigation has been threatened and no event has occurred or circumstance
exists that may give rise to or serve as a basis for the commencement of any
such action, suit, proceeding, claim, arbitration or investigation.
4.8 NO MATERIAL ADVERSE EFFECT. Except as set forth on SCHEDULE 4.8,
since the Balance Sheet Date, JAMtv and each of its subsidiaries has
conducted its business in the ordinary course and there has not occurred:
(a) Any Material Adverse Effect;
(b) Any amendments or changes in the Certificate of
Incorporation or Bylaws of JAMtv or any of its subsidiaries;
(c) Any damage, destruction or loss, whether covered by
insurance or not, materially and adversely affecting any of the properties or
businesses of JAMtv or any of its subsidiaries;
(d) Any issuance, redemption, repurchase or other acquisition
of shares of capital stock of JAMtv or any of its subsidiaries (other than in
the ordinary course under employee benefit plans), or any declaration,
setting aside or payment of any dividend or other distribution (whether in
cash, stock or property) with respect to the capital stock of JAMtv or any of
its subsidiaries;
(e) Any alteration in any term of any outstanding debt or
capital stock of JAMtv or any of its subsidiaries;
(f) Any (i) incurrence, assumption or guarantee by JAMtv or any
of its subsidiaries of any debt for borrowed money; or (ii) issuance or sale
of any securities convertible into or exchangeable for debt securities of
JAMtv or any of its subsidiaries; or
(g) Any sale, lease, disposition, transfer, license, grant,
loss, abandonment, or termination of a right under the Intellectual Property
Assets other than in the ordinary course of business consistent with past
practice;
(h) Any change in its accounting methods; or
43
(i) Any agreement or arrangement made by JAMtv or any of its
subsidiaries to take any action which, if taken prior to the date hereof,
would have made any representation or warranty set forth in this Section 4.8
untrue or incorrect as of the date when made.
4.9 ABSENCE OF UNDISCLOSED LIABILITIES. To JAMtv's knowledge,
neither JAMtv nor any of its subsidiaries has any liabilities or obligations
(whether absolute, accrued or contingent or otherwise) except liabilities or
obligations (i) adequately provided for in the JAMtv Financial Statements
(ii) incurred in the ordinary course of business consistent with past
practice and which are not, individually or in the aggregate, material to
JAMtv or any of its subsidiaries.
4.10 INDEBTEDNESS. Neither JAMtv nor any of its subsidiaries is
obligated as a borrower, guarantor or accommodation party with respect to any
indebtedness for borrowed money other than as disclosed in the JAMtv
Financial Statements. Neither JAMtv nor any of its subsidiaries is a lender
with respect to any indebtedness for borrowed money other than as disclosed
in the JAMtv Financial Statements.
4.11 TAXES.
(a) All Tax Returns, statements, reports and forms (including
estimated tax returns and reports and information returns and reports)
required to be filed with any Taxing Authority with respect to any Taxable
period ending on or before the Effective Time, by or on behalf of JAMtv or
any of its subsidiaries (collectively, the "JAMtv Returns"), have been or
will be filed when due (including any extension of such due date), and all
amounts shown due thereon or before the Effective Time have been or will be
paid on or before such date. The JAMtv Unaudited Balance Sheet (i) fully
accrues all actual and contingent liabilities for Taxes with respect to all
periods through the Balance Sheet Date and JAMtv or any of its subsidiaries
has not and will not incur any Tax liability in excess of the amount
reflected on the JAMtv Unaudited Balance Sheet with respect to such periods,
and (ii) properly accrues in accordance with GAAP all liabilities for Taxes
payable following the Balance Sheet Date with respect to all transactions and
events that occurred on or prior to such date. All information set forth in
the notes to the JAMtv Financial Statements relating to Tax matters is true,
complete and accurate in all material respects.
(b) No material Tax liability has been incurred since the
Balance Sheet Date other than in the ordinary course of business and adequate
provision has been or will be made for all Tax liability incurred since that
date in accordance with GAAP on at least a quarterly basis. JAMtv has
withheld and paid to the applicable financial institution or Taxing Authority
all amounts required to be withheld.
(c) There is no material claim, audit, action, suit,
proceeding, or investigation now pending or, to the knowledge of JAMtv,
threatened against or with respect to JAMtv in respect of any Tax or
assessment. No notice of deficiency or similar document of any Tax Authority
has been received by JAMtv, and there are no liabilities for Taxes (including
liabilities for interest, additions to Tax and penalties thereon and related
expenses) with respect to the issues that have been raised (and are currently
pending) by any Tax authority that could, if determined adversely to JAMtv,
materially and adversely affect the liability of JAMtv for Taxes. Neither
JAMtv, nor any person on
44
behalf of JAMtv, has entered into nor will it enter into any agreement or
consent pursuant to Section 341(f) of the Code. There are no liens for Taxes
upon the assets of JAMtv except liens for current Taxes not yet due. Except
as may be required as a result of the Merger, JAMtv has not been or will be
required to include any material adjustment in Taxable income for any Tax
period (or portion thereof) ending on or after the Closing pursuant to
Section 481 or 263A of the Code or any comparable provision under state or
foreign tax laws as a result of transactions, events or accounting methods
employed prior to the closing.
4.12 INTELLECTUAL PROPERTY ASSETS.
(a) INTELLECTUAL PROPERTY ASSETS. "JAMtv Intellectual Property
Assets" means all of the following, whether owned, used, or licensed (as
licensee or licensor) by JAMtv, and all rights corresponding thereto
throughout the world, in any form and on any medium now known or hereafter
developed and all embodiments thereof, whether tangible, intangible, printed,
recorded, digitized, fixed, stored, electronic, or otherwise:
(1) JAMtv's corporate name, all fictitious business names,
trade names, brand names, trade dress, logos, trademarks, service marks,
trademark registrations, service xxxx registrations, applications for
registration and the goodwill symbolized by the foregoing and connected
therewith;
(2) (A) all copyrights, whether or not published, protected
or registered under the Copyright Act of 1909 or the Copyright Act of 1976
(as either shall be amended from time to time, and any predecessor or
successor statute thereto), applications for registration of copyrights,
all works of authorship, and all secondary and subsidiary rights therein;
(B) art, audiovisual works, animations, compilations, collective works,
computer software and programs, data, databases, designs, emblems, films,
film clips, graphics, images, illustrations, likenesses, literary works,
logos, motion pictures, musical compositions, music videos, performances,
photographs, pictorial works, song lyrics, sound clips, sound recordings,
scripts, screenplays, video recordings, and all other copyrightable
subject matter; (C) all renewals, derivative works, enhancements,
improvements, modifications, updates, new releases or other revisions
thereof; and (D) publication rights, display rights, attribution rights,
integrity rights, performance rights (including digital performance
rights), mechanical rights, synchronization rights, publishing rights,
approval rights, reproduction rights, rights to create derivative works,
distribution rights, or moral rights;
(3) all publicity rights or privacy rights (or waivers or
quitclaims thereof) of any person or entity related thereto;
(4) patents, patent applications and extensions,
continuations, counter-parts and renewals thereof and inventions and
discoveries that may be patentable; and
(5) all know-how, trade secrets, confidential information,
customer lists, software, technical information, data, process technology,
plans, drawings, and blue prints.
45
(b) INTELLECTUAL PROPERTY ASSETS NECESSARY FOR THE BUSINESS.
JAMtv owns, or is licensed or otherwise entitled to exercise, all rights in
JAMtv Intellectual Property Assets employed in the operation of the business
of JAMtv as currently conducted or as currently proposed to be conducted.
(c) COMPLIANCE WITH LEGAL AND CONTRACTUAL REQUIREMENTS. JAMtv
owns or holds valid licenses to all JAMtv Intellectual Property Assets, and
with respect to each such license has paid all royalties and fees with
respect thereto required to be paid prior to the date of this Agreement,
necessary to operate its business in compliance with all laws, rules and
regulations, and all material contractual requirements to which it or its
properties is subject. Except as disclosed on SCHEDULE 4.12 hereto, JAMtv has
not been subject to a computer software audit and, to JAMtv's knowledge no
software audit of JAMtv is pending.
(d) CLAIMS AGAINST INTELLECTUAL PROPERTY ASSETS. Except as
disclosed on SCHEDULE 4.12, no claims with respect to the JAMtv Intellectual
Property Assets have been asserted or, to the knowledge of JAMtv, threatened,
by any person or entity: (i) to the effect that any business of JAMtv as
currently conducted or proposed to be conducted infringes on or
misappropriates any intellectual property rights or (ii) challenging the
ownership, validity or effectiveness of any of the JAMtv Intellectual
Property Assets. All JAMtv Intellectual Property Assets are valid and
subsisting assets of JAMtv. To JAMtv's knowledge, no officer of JAMtv is in
violation of any term of any employment contract, patent disclosure agreement
or any other contract, agreement, arrangement, or understanding (whether
written or oral) relating to the relationship of any such officer with JAMtv
or any other party (including prior employers) because of the nature of the
business conducted or proposed to be conducted by JAMtv.
4.13 GOVERNMENTAL AUTHORIZATIONS AND LICENSES. JAMtv is the holder of
all material licenses, authorizations, permits, concessions, certificates and
other franchises of any Governmental Entity required to operate its business
(collectively, the "JAMtv Licenses") and in compliance in all material
respects with the terms, conditions, limitations, restrictions, standards,
prohibitions, requirements and obligations of such JAMtv Licenses. The JAMtv
Licenses are in full force and effect. There is not now pending, nor to
JAMtv's knowledge is there threatened in writing, any action, suite,
investigation or proceeding against JAMtv before any Governmental Entity with
respect to the JAMtv Licenses, nor is there any issued or outstanding notice,
order to complaint with respect to the violation by JAMtv of the terms of any
JAMtv License or any rule or regulation applicable thereto.
4.14 RESTRICTIONS ON BUSINESS ACTIVITIES. There is no material
agreement, judgment, injunction, order or decree binding upon JAMtv which has
or could reasonably be expected to have the effect of prohibiting or
materially impairing any business practice of JAMtv, any acquisition of
property by JAMtv or the conduct of business of JAMtv as currently conducted
or as currently proposed to be conducted.
4.15 INFORMATION STATEMENT. The information supplied or to be
supplied by JAMtv for inclusion in the Information Statement, on the date on
which Tunes mails such materials to its
46
shareholders and at all times from such date up to and including the
Effective Time will not contain any untrue statement of a material fact or
omit to state a material fact necessary in order to make the statements made
therein, in the light of the circumstances under which they will be made, not
misleading; PROVIDED, HOWEVER, that JAMtv makes no representation or warranty
with respect to any information that Tunes may supply expressly for use in
the Information Statement.
4.16 DISCLOSURE. To JAMtv's knowledge, no representation or warranty
made by JAMtv in this Agreement, nor any financial statement, certificate,
schedule or exhibit prepared and furnished or to be prepared and furnished by
Tunes or its representatives pursuant hereto contains or will contain any
untrue statement of a material fact, or omits or will omit to state a
material fact necessary to make the statements or facts contained herein or
therein not misleading in light of the circumstances under which they were
furnished. To JAMtv's knowledge, there is no event, fact or condition that
has caused a Material Adverse Effect with respect to JAMtv, that has not been
set forth in this Agreement or on the Schedules hereto, other than general
economic or competitive conditions.
4.17 BROKERS; FINDERS. Each of JAMtv and Merger Sub represents, as to
itself and, to the extent applicable, its subsidiaries, that no agent,
broker, investment banker or other firm or person is, or will be, entitled to
any broker's or finder's fee or any similar commission or fee in connection
with any of the transactions contemplated by this Agreement or the Merger
Certificate.
SECTION 5
CONDUCT AND TRANSACTIONS PRIOR TO EFFECTIVE
TIME; ADDITIONAL AGREEMENTS
5.1 CONDUCT OF BUSINESS OF TUNES. During the period from the date of
this Agreement and continuing until the earlier of the termination of this
Agreement or the Effective Time, Tunes shall carry on its business in the
usual, regular and ordinary course in substantially the same manner as
conducted prior to the date of this Agreement and, to the extent consistent
with such business, use all commercially reasonable efforts consistent with
past practice and policies to preserve intact its present business
organization, keep available the services of its present officers and
employees (except as otherwise contemplated by this Agreement) and preserve
its relationships with customers, suppliers, distributors, licensors,
licenses, and others having business dealings with it, with the objective
that its goodwill and ongoing business shall be unimpaired at the Effective
Time. Tunes shall promptly notify JAMtv of any event or occurrence not in
the ordinary course of business of Tunes which comes to Tunes's attention and
which has had, or could reasonably be expected to have, a Material Adverse
Effect. Except as expressly contemplated by this Agreement or disclosed in
the Tunes Disclosure Schedule, Tunes shall not, without the prior written
consent of JAMtv:
(a) Declare or pay any dividends on or make any other
distributions (whether in cash, stock or property) in respect of any of its
capital stock, or split, combine or reclassify any of its capital stock or
issue or authorize the issuance of any other securities in respect of, in
lieu of or in substitution for shares of its capital stock, or repurchase or
otherwise acquire, directly or indirectly, any shares of its capital stock
except from former employees, directors and consultants
47
in accordance with written agreements providing for the repurchase of shares
in connection with any termination of service to Tunes;
(b) Issue, deliver or sell, authorize or propose the issuance,
delivery or sale of, or purchase or propose the purchase of, any shares of
its capital stock or securities convertible into, or subscriptions, rights,
warrants or options to acquire, or other agreements or commitments of any
character obligating it to issue any such shares or other convertible
securities or authorize or propose any change in its equity capitalization;
(c) Accelerate, amend or change the period of exercisability of
options and warrants (except as would happen automatically pursuant to the
terms of Tunes's stock option plan and related agreements existing on the
date of this Agreement);
(d) Solicit approval for or effect any amendments to Tunes's
Articles of Incorporation or Bylaws;
(e) Acquire or agree to acquire by merging or consolidating
with, or by purchasing a substantial portion of the assets of, or by any
other manner, any business or any corporation, partnership, association or
other business organization or division thereof, or otherwise acquire or
agree to acquire any assets which are material, individually or in the
aggregate, to Tunes;
(f) Sell, lease, license, pledge or otherwise dispose of or
encumber any of its properties or assets except in the ordinary course of
business consistent with past practice (including without limitation any
indebtedness owed to it or any claims held by it);
(g) Incur any indebtedness for borrowed money or guarantee any
such indebtedness or issue or sell any debt securities or guarantee, endorse
or otherwise become responsible for the obligations of others, or make loans
or advances, other than in the ordinary course of business consistent with
past practice;
(h) Pay, discharge or satisfy any claim, liability or
obligation (absolute, accrued, asserted or unasserted, contingent or
otherwise), other than the payment, discharge or satisfaction in the ordinary
course of business consistent with past practice of liabilities reflected or
reserved against in Tunes's Financial Statements or those incurred after the
Balance Sheet Date in the ordinary course of business;
(i) Adopt or amend any Plan; enter into or amend any
employment, severance or termination contract with or pay any special bonus
or special renumeration, including without limitation, any severance or
termination pay to, any director, employee or consultant, or increase the
salaries or wage rates of its employees;
(j) Commence a lawsuit other than for the routine collection
from account debtors;
48
(k) Transfer to any person or entitle any rights to the
Intellectual Property Assets except in the ordinary course of business, or
enter into or amend any agreements pursuant to which any other party is
granted marketing or other similar rights of any type or scope with respect
to any products or palindrome except in the ordinary course of business;
(l) Except in the ordinary course of business with prior notice
to JAMtv, violate, amend or otherwise modify the terms of any of Tunes's
material contracts binding on Tunes set forth on the Tunes Disclosure
Schedule;
(m) Revalue any of its assets, including without limitation,
writing down the value of inventory or writing off notes of accounts
receivable other than in the ordinary course of business and consistent with
past practice;
(n) Make any material Tax election other than in the ordinary
course of business and consistent with past practice, change any material Tax
election, adopt any material Tax accounting method other than in the ordinary
course of business and consistent with past practice, change any material tax
accounting method, file any material Tax return (other than any estimated tax
returns, payroll tax returns or sales tax returns) or any amendment to a
material Tax return, enter into any closing agreement, settle any Tax claim
or assessment, or consent to any Tax claim or assessment, without the prior
written or unwritten consent of JAMtv, which consent will not be reasonably
withheld;
(o) Engage in any activities or transactions that are outside
the ordinary course of its business consistent with past practice;
(p) Fail to pay or otherwise satisfy its monetary obligations
as they become due, except as such as are being contested in good faith; or
waive or commit to waive any rights of substantial value or cancel or
materially amend any insurance policy; or
(q) Take, or agree (in writing or otherwise) to take, any of
the actions described in Sections 5.1(a) through (p) hereof, or any action
which would make any of the representations or warranties of Tunes contained
in this Agreement untrue or incorporate or result in any of the conditions to
the Merger set forth in Section 6 hereof not being satisfied.
5.2 ACCESS TO INFORMATION. Each of Tunes and JAMtv shall afford the
other and its respective accountants, counsel and other representatives,
reasonable access during normal business hours and upon reasonable prior
notice during the period from the date of this Agreement until the earlier of
the Effective Time or the termination of this Agreement to (i) all of its
respective properties, books, contracts, commitments and records, and (ii)
all other information concerning its business, properties and personnel as
the other party may reasonably request. Each of Tunes and JAMtv will provide
to the other and its respective accountants, counsel and other
representatives copies of internal financial statements promptly upon
request. No information or knowledge obtained in any investigation pursuant
to this Section 5.2 shall affect or be deemed to modify any representation or
warranty contained herein or the conditions to the obligations of the parties
to consummate the Merger.
49
5.3 TUNES SHAREHOLDERS' APPROVAL. Tunes shall solicit shareholder
approval by written consent in accordance with applicable law, for the
purpose of obtaining the shareholder approval required in connection with the
transactions contemplated hereby and by the Merger Agreement, and shall use
commercially reasonable efforts to obtain such approval. As soon as
practicable after the execution of this Agreement, Tunes shall prepare and
distribute to its shareholders and holders of Tunes Options and Convertible
Debt Instruments the written consent and the Information Statement for
purposes of soliciting the approval of the shareholders of Tunes of this
Agreement, the Merger Agreement and the transactions contemplated hereby and
thereby. Tunes shall cause the Information Statement to comply with
applicable federal and state securities laws requirements, and the
Information Statement shall be subject to prior review and approval by JAMtv.
The Information Statement shall contain the unanimous recommendation of the
Board of Directors of Tunes that the Tunes shareholders approve the Merger
and this Agreement and the conclusion of the Board of Directors that the
terms and conditions of the Merger are fair and reasonable to the
shareholders of Tunes.
5.4 SUPPORT OF MERGER BY CERTAIN SHAREHOLDERS. Tunes shall use its
best efforts to cause all of its officers and directors to support the Merger
and to take all actions and execute all documents reasonably requested by
JAMtv to carry out the foregoing matters. Concurrently with the execution of
this Agreement, Xxxxxx Xxxxxxxx, Xxxxx Xxxxxxxx, Xxxxx Xxxxxx, and Xxxx
XxXxxxx (the "Principal Shareholders") shall have entered into Shareholder
Agreements with JAMtv in substantially the form attached as EXHIBIT D
(collectively, the "Shareholder Agreements").
5.5 EXCLUSIVITY; ACQUISITION PROPOSALS. Unless and until this
Agreement shall have been terminated by either party pursuant to Section 8.1
hereof, and except (but only to the extent) required to comply with fiduciary
duties under applicable law, Tunes shall not, directly or indirectly, through
any officer, director, shareholder, employee, representative, agent or
otherwise, (i) solicit, initiate or encourage submission of proposals or
offers from any person relating to (x) any acquisition of Tunes, or any
equity securities or ten percent (10%) or more of the assets of Tunes, or any
merger, consolidation, business combination or similar transaction with
Tunes, or (y) any other material joint venture or other similar transaction
or (ii) participate in any discussions or negotiations regarding, furnish to
any other person any confidential information with respect to, or otherwise
cooperate in any way with, or participate in, facilitate or encourage, any
effort or attempt by any other person to do or seek any of the foregoing. In
the event Tunes receives from any third party any offer or indication of
interest regarding any of the transactions referred to in the foregoing
sentence, or any request for information about Tunes with respect to any of
the foregoing, then Tunes shall promptly communicate to JAMtv the material
terms of each such offer, indication of interest, or request, including the
identity of the third party.
5.6 NOTIFICATION OF CERTAIN MATTERS. Tunes shall give prompt notice
to JAMtv, and JAMtv and Merger Sub shall give prompt notice to Tunes, of the
occurrence, or pending or threatened occurrence or failure to occur, of any
event, which occurrence or failure to occur would be likely to cause (a) any
representation or warranty contained in this agreement to be untrue or
inaccurate at any time from the date of this Agreement to the Effective Time,
or (b) any material failure of Tunes or JAMtv and Merger Sub (as the case may
be), or of any officer, director, employee
50
or agent thereof, to comply with or satisfy any covenant, condition or
agreement to be complied with or satisfied by it under this Agreement. Each
party shall use all reasonable efforts to prevent or promptly remedy such
breach or inaccuracy.
5.7 CONSENTS. Each of JAMtv and Tunes shall promptly apply for or
otherwise seek, and use all reasonable efforts to obtain, all consents and
approvals required to be obtained by it for the consummation of the Merger
and the transactions contemplated by this Agreement and to enable the
Surviving Corporation to conduct and operate the business of Tunes
substantially as presently conducted and as contemplated to be conducted.
Tunes shall use its best efforts to obtain all Tunes Third Party Consents.
5.8 REASONABLE EFFORTS.
(a) JAMtv, Merger Sub and Tunes shall each use its reasonable
efforts to effect the transactions contemplated hereby and to fulfill and
cause to be fulfilled the conditions to Closing under this Agreement. Tunes
shall take all reasonable actions necessary to comply promptly with all legal
requirements which may be imposed on Tunes with respect to the Merger and
will promptly cooperate with and furnish information to JAMtv in connection
with any such requirements imposed upon JAMtv, Merger Sub or any other
subsidiary of JAMtv in connection with the Merger. Tunes shall take all
reasonable actions to obtain (and to cooperate with JAMtv and its
subsidiaries in obtaining) any consent, authorization, order or approval of,
or any exemption by, any governmental entity, required to be obtained or made
by Tunes (or by JAMtv or its subsidiaries) in connection with the Merger or
the taking of any action contemplated thereby, by this Agreement or by the
Merger Agreement, and to defend all lawsuits or other legal proceedings
challenging this Agreement or the Merger Agreement or the consummation of the
transactions contemplated hereby and thereby, to lift or rescind any
injunction or restraining order or other order adversely affecting the
ability of the parties to consummate the transactions contemplated hereby and
thereby, and to effect all necessary registrations and filings and
submissions or information required by any Governmental Entity, and to
fulfill all conditions to this Agreement.
(b) Each of JAMtv and Merger Sub shall take all reasonable
actions necessary to comply promptly with all legal requirements which may be
imposed on them with respect to the Merger and will promptly cooperate with
and furnish information to Tunes in connection with any such requirement
imposed upon Tunes in connection with the Merger. JAMtv and Merger Sub shall
take all reasonable actions to obtain (and to cooperate with Tunes in
obtaining) and consent, authorization, order or approval of, or exemption by,
any Governmental Entity required to be obtained or made by JAMtv or any of
its subsidiaries (or by Tunes) in connection with the Merger or the taking of
any action contemplated by this Agreement or by the Merger Agreement,
consummation of the transactions contemplated hereby and by the Merger
Agreement, to lift or rescind any injunction or restraining order or other
order adversely affecting the ability of the parties to consummate the
transaction contemplated hereby and by the Merger Agreement, and to effect
all necessary registrations and filings and submissions of information
requested by any Governmental Entity, and to fulfill all conditions to this
Agreement.
51
5.9 PUBLIC ANNOUNCEMENTS. Each party will consult in advance with
the other concerning the timing and content of any announcements, press
releases and public statements concerning the Merger and will not make any
such announcement, release or statement without the other's consent.
5.10 EMPLOYEE HEALTH INSURANCE BENEFITS. Employees of Tunes who
become employees of JAMtv following the Merger shall continue to participate
in the group health insurance plan of Tunes and shall be entitled to
participate in any successor coverage which may be implemented by JAMtv.
5.11 POST-CLOSING EXECUTION OF PROPRIETARY RIGHTS AGREEMENTS.
Promptly following the Effective Time, the shareholders of Tunes who are
employed by JAMtv or Merger Sub shall exert their best efforts to cause all
employees of Tunes and Merger Sub to execute in favor of Merger Sub
proprietary rights agreements substantially similar to JAMtv's existing
employee proprietary rights agreement.
5.12 JAMTV CAPITALIZATION. During the period from the date of this
Agreement and continuing until the earlier of the termination of this
Agreement or the Effective Time, JAMtv shall not, without the prior written
consent of Tunes, issue, sell, or authorize the issuance or sale of any
shares of its capital stock or securities convertible into its capital stock
at a price per share less than $10.00 per share (or an equivalent price per
share after giving effect to any stock split or combination of JAMtv's
capital stock occurring during such period) other than pursuant to its
employee stock option plans.
5.13 SECURITIES AND BLUE SKY LAWS. JAMtv and Tunes acknowledge that
the JAMtv Common Stock to be issued pursuant to this Agreement will not be
registered under the Securities Act and will be issued pursuant to Section 5
of the Securities Act. Tunes and JAMtv shall use reasonable efforts to make
appropriate filings in accordance with Section 5 of the Securities Act.
Tunes and JAMtv shall use reasonable efforts to make appropriate filings and
to obtain appropriate clearances under the securities and "Blue Sky" laws of
the states of residence of the holders of Tunes Common Stock, Vested Tunes
Options, and Convertible Debt listed on SCHEDULE 3.2 hereto.
5.14 TAX FREE REORGANIZATION. JAMtv's sole obligation with respect to
the tax treatment of the Merger shall be to take such actions as are
reasonably requested of Tunes so that the Merger is treated as a
"reorganization" within the meaning of Section 368(a) of the Code and in
compliance with the record-keeping and filing requirements of Treasury
Regulation Section 1.368-3. No party shall knowingly take any action which
would cause the Merger to fail to qualify as a reorganization.
5.15 EMPLOYEE BONUS PAYMENT. On the dates and subject to the terms
and conditions precedent set forth on SCHEDULE 5.15 hereto, JAMtv shall pay
to each of the Principal Shareholders his respective pro rata share of an
employment bonus up to an aggregate amount of $250,000 (the "Employee Bonus
Payment").
SECTION 6
CONDITIONS PRECEDENT
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6.1 CONDITIONS TO EACH PARTY'S OBLIGATION TO EFFECT THE MERGER. The
respective obligation of each party to effect the Merger shall be subject to
the satisfaction prior to the Closing of the following conditions:
(a) LEGAL ACTION. No temporary restraining order, preliminary
injunction or permanent injunction or other order preventing the consummation
of the Merger or the transactions contemplated by this Agreement shall have
been issued by any Governmental Entity and remain in effect, and no
litigation seeking the issuance of such an order or injunction, or seeking
relief against Tunes, the Surviving Corporation or JAMtv if the Merger is
consummated, shall be pending which, in the good faith judgment of Tunes's or
JAMtv's Board of Directors (acting upon the written opinion of their
respective outside counsel) has a reasonable probability of resulting in such
order, injunction or relief and such relief would have a Material Adverse
Effect on such party. In the event any such order or injunction shall have
been issued, each party agrees to use commercially reasonable efforts to have
any such order or injunction lifted.
(b) STATUTES. No action shall have been taken, and no statute,
rule, resolution or order shall have been enacted, promulgated or issued or
deemed applicable to the Merger by any Governmental Entity which would (i)
make the consummation of the Merger illegal, (ii) prohibit JAMtv's or Merger
Sub's ownership or operation of all or a material portion of the business or
assets of Tunes, or JAMtv and its subsidiaries taken as a whole, or compel
JAMtv or Tunes to dispose of or hold separate all or a material portion of
the business of assets of Tunes or JAMtv and its subsidiaries taken as a
whole, as a result of the Merger, or (iii) render JAMtv, Merger Sub or Tunes
unable to consummate the Merger.
(c) SECURITIES LAWS. JAMtv shall have received the filings and
clearances required for the issuance of the JAMtv Common Stock hereunder with
respect to the securities and "Blue Sky" laws of the states of residence of
the holders of Tunes Common Stock, Vested Tunes Options, and Convertible Debt
listed on SCHEDULE 3.2 hereto, including, without limitation, the approval of
the California Commissioner of Corporations with respect thereto pursuant to
Section 25121 of the California Corporate Securities Law of 1968, as amended,
without the imposition of any conditions adverse to JAMtv or to the Tunes
shareholders or which would require JAMtv to amend its Certificate of
Incorporation or Bylaws.
6.2 ADDITIONAL CONDITIONS TO OBLIGATIONS OF JAMTV AND MERGER SUB.
The obligations of JAMtv and Merger Sub to effect the Merger are subject to
the satisfaction of the following conditions, unless waived by JAMtv and
Merger Sub:
(a) REPRESENTATIONS AND WARRANTIES. The representations and
warranties of Tunes set forth in this Agreement shall be true and correct in
all material respects as of the date of this Agreement and as of the Closing
Date. JAMtv shall have received a certificate signed by the chief executive
officer and the chief financial officer of Tunes to such effect on the
Closing Date.
(b) NO MATERIAL ADVERSE EFFECT. There shall have been no
Material Adverse Effect with respect to Tunes from the date of this Agreement
through the Closing Date and JAMtv
53
shall have received a certificate signed by the chief executive officer and
the chief financial officer of Tunes to such effect on the Closing Date.
(c) OPINION OF COUNSEL TO TUNES. JAMtv shall have received a
written opinion dated as of the Closing Date of Pillsbury Madison & Sutro
LLP, counsel to Tunes, substantially to the effect set forth in EXHIBIT E.
(d) PERFORMANCE OF OBLIGATIONS OF TUNES. Tunes shall have
performed all obligations and covenants required to be performed by it under
this Agreement and the Merger Agreement prior to the Closing Date, and JAMtv
shall have received a certificate signed by the chief executive officer and
the chief financial officer of Tunes to such effect on the Closing Date.
(e) APPROVALS AND CONSENTS. All authorizations, consents,
orders or approvals of, or declarations or filings with, any Governmental
Entity necessary for the consummation of the transactions contemplated by
this Agreement shall have been filed, occurred or been obtained, and JAMtv
shall have received duly executed copies of all Tunes Third Party Consents in
form and substance reasonably satisfactory to JAMtv.
(f) RESIGNATION OF DIRECTORS AND OFFICERS. The directors of
Tunes in office immediately prior to the Effective Time shall have resigned
as directors of Tunes effective as of the Effective Time and the officers of
Tunes in office immediately prior to the Effective Time, other than the
officers named in Section 1.5 hereof, shall have resigned as officers of
Tunes effective as of the Effective Time.
(g) EMPLOYEE RETENTION. JAMtv shall be reasonably satisfied
that a sufficient number of Tunes employees are ready, willing and able to
remain with Tunes and JAMtv following the transaction to enable the continued
operation of Tunes's business.
(h) ESCROW AGREEMENT. JAMtv, Tunes, the Shareholders' Agent
(as defined in Section 7.7 hereof) and American National Bank and Trust
Company of Chicago as escrow agent (the "Escrow Agent") shall have executed
the Escrow Agreement.
(i) SHAREHOLDER AGREEMENTS. JAMtv shall have received an
executed Shareholder Agreement from each of the Principal Shareholders and
Tunes and such agreement shall not have been breached by any Principal
Shareholder or Tunes.
(j) JOINDER TO STOCKHOLDERS' AGREEMENT. JAMtv shall have
received an executed Joinder to Stockholders' Agreement in the form attached
hereto as EXHIBIT F from each of the holders of Tunes Common Stock, Tunes
Options, and Convertible Debt receiving shares of capital stock of JAMtv in
connection with the Merger.
(k) TUNES SHAREHOLDER APPROVAL. Holders of at least two-thirds
(2/3) of the outstanding capital stock of Tunes shall have voted in favor of
approving this Agreement and the Merger Agreement and the transactions
contemplated hereby and thereby.
54
6.3 ADDITIONAL CONDITIONS TO OBLIGATIONS OF TUNES. The obligation of
Tunes to effect the Merger is subject to the satisfaction of the following
conditions unless waived by Tunes:
(a) REPRESENTATIONS AND WARRANTIES. The representations and
warranties of JAMtv and Merger Sub set forth in this Agreement shall be true
and correct in all material respects as of the date of this Agreement and as
of the Closing Date. Tunes shall have received a certificate signed by an
officer of JAMtv and Merger Sub to such effect.
(b) NO MATERIAL ADVERSE EFFECT. There shall have been no
Material Adverse Effect with respect to JAMtv from the date of this Agreement
through the Closing Date and Tunes shall have received a certificate signed
by the chief executive officer of JAMtv to such effect on the Closing Date.
(c) PERFORMANCE OF OBLIGATIONS OF JAMTV AND MERGER SUB. JAMtv
and Merger Sub shall have performed all obligations and covenants required to
be performed by them under this Agreement and the Merger Agreement prior to
the Closing Date, and Tunes shall have received a certificate signed by an
officer of JAMtv and Merger Sub to such effect.
(d) OPINION OF COUNSEL TO JAMTV. Tunes shall have received a
written opinion dated as of the Closing Date of Xxxxxxxx & Xxxxxx, counsel to
JAMtv, substantially to the effect set forth in EXHIBIT G.
(e) APPROVALS AND CONSENTS. All authorizations, consents,
orders or approvals of, or declarations or filings with, any Governmental
Entity necessary for the consummation of the transactions contemplated by
this Agreement shall have been filed, occurred or been obtained.
(f) ESCROW AGREEMENT. JAMtv, Tunes, the Shareholders' Agent
(as defined in Section 7.7 hereof) and the Escrow Agent shall have executed
the Escrow Agreement.
SECTION 7
INDEMNIFICATION; SET-OFF
7.1 INDEMNIFICATION.
(a) Each of the Former Shareholders and Tunes jointly and
severally shall indemnify and hold harmless JAMtv and the Surviving
Corporation, and the respective officers, directors, employees, shareholders,
assigns and successors and the affiliates of the foregoing persons and
entities (individually, a "JAMtv Indemnified Person" and collectively, the
"JAMtv Indemnified Persons;" PROVIDED, HOWEVER, that the term "JAMtv
Indemnified Persons" or "JAMtv Indemnified Person" does not refer to, and
shall be exclusive of, respectively, the Former Shareholders and any Former
Shareholder), from and against and in respect of, and shall pay to the
Indemnified Persons the amount of, any and all claims, demands, lawsuits,
actions, causes of actions, administrative proceedings (including informal
proceedings), losses, diminution in value, assessments, costs, damages,
punitive damages, judgments, liabilities (including sums paid and costs and
expenses including, without limitation, reasonable legal fees and
disbursements) of every kind, nature and
55
description, whether or not involving a third party claim (collectively,
"Damages") that arise or result from or relate to, directly or indirectly,
(i) any breach of any of the representations, warranties, and covenants given
or made by Tunes in this Agreement or any certificate, document, or
instrument delivered by or on behalf of Tunes pursuant to this Agreement,
(ii) any Excess Liability Amount to the extent not otherwise reflected in the
Aggregate Closing Consideration, and (iii) any claim by Xxxxxxxx Xxxxxx
Xxxxxx, including, without limitation, the claims set forth in the complaint
filed with the Superior Court of the State of California in and for the
County of Alameda by Xxxxxxxx Xxxxxx Xxxxxx, as plaintiff, against Tunes,
Xxxxxx Xxxxxxxx and the Does described therein, as defendants (the "Xxxxxx
Xxxxxx Claim").
(b) JAMtv shall indemnify and hold harmless the Former
Shareholders and their respective assigns (individually, a "Tunes Indemnified
Person" and collectively, the "Tunes Indemnified Persons"), from and against
and in respect of any and all Damages that arise or result from or relate to,
directly or indirectly, any breach of any of the representations, warranties,
and covenants given or made by JAMtv in this Agreement or any certificate,
document, or instrument delivered by or on behalf of JAMtv pursuant hereto.
7.2 LIMITATIONS AND EXPIRATION. Notwithstanding the above:
(a) There shall be no liability for indemnification under this
Section 7 for any breach of a representation, warranty or covenant made by
Tunes in this Agreement unless and until the aggregate amount of all Damages
exceeds $10,000; provided, however, that if the aggregate amount of such
Damages exceeds $10,000, liability for Damages under this Section 7 shall be
for the full amount of such Damages, subject to the limitations set forth in
this Section 7.2.
(b) From and after the Effective Time, the indemnification and
set-off rights provided in this Section 7 shall be the exclusive remedy of
JAMtv and the Surviving Corporation and the other JAMtv Indemnified Persons
for any breach of a representation, warranty or covenant made by Tunes in
this Agreement, EXCEPT (i) in the case of any breach of a representation or
warranty set forth in Sections 3.2 (capitalization), 3.18(a) (title), 3.34
(CDDB), and 3.35 (AMG) hereof, (ii) in the case of fraud by Tunes with
respect to any statement made by Tunes in this Agreement or in any
certificate delivered by Tunes pursuant to this Agreement, (iii) with respect
to the Xxxxxx Xxxxxx Claim, and (iv) for any Excess Liability Amount, and in
each such case, all of the Former Shareholders will be liable for all Damages
with respect thereto.
(c) From and after the Effective Time, the total amount payable
under Section 7.1(b) hereof by JAMtv shall not exceed $500,000, except in the
case of fraud by JAMtv with respect to any statement made by JAMtv in this
Agreement or in any certificate delivered by JAMtv pursuant to this
Agreement, and in each such case, JAMtv will be liable for all Damages with
respect thereto; and
(d) The indemnification obligations under this Section 7 shall
terminate on the later of (i) twelve (12) months after the Effective Time
(the "Indemnification Deadline Date"), provided, however, that the
Indemnification Deadline Date shall be extended indefinitely with respect to
the representations and warranties set forth in Sections 3.2 (Tunes
capitalization), 3.17(a)
56
(title), and 4.2 (JAMtv capitalization) hereof, the Excess Liability Amount,
as provided in Section 7.1(a)(ii) hereof, and the Xxxxxx Xxxxxx Claim; or
(ii) the final resolution of any and all JAMtv Claims and Shareholder Claims
(as defined in Sections 7.4 and 7.5 hereof; hereafter, a "Claim" or "Claims")
under this Agreement pending as of the Indemnification Deadline Date
("Pending Claims"), provided, however, that with respect to the
representations and warranties set forth in Section 3.32 hereof (Microsoft
Deluxe CD Player), the indemnification obligations shall terminate on the
later of four (4) years after the Effective Time or the final resolution of
any and all Claims pending with respect thereto as of such time, and provided
further, that from and after the Indemnification Deadline Date (or such later
date with respect to Section 3.32 hereof), such indemnification obligations
shall survive only to the extent of such Pending Claims and all remaining
cash and other property in the Escrow Fund (except as otherwise provided in
the Escrow Agreement) shall be released to the Shareholders' Agent and/or
JAMtv pursuant to the terms of the Escrow Agreement and Section 7.9 hereof.
7.3 JAMTV'S SET-OFF RIGHTS. In order to satisfy any indemnification
obligations to the JAMtv Indemnified Persons pursuant to this Agreement, each
of the Former Shareholders hereby grants to JAMtv the right of set-off
against the Retention Amount contained in the Escrow Fund. Notwithstanding
the provisions of Section 7.1 hereof, JAMtv, Merger Sub, Tunes, and the
Former Shareholders hereby agree that the sole and exclusive remedy for the
JAMtv Indemnified Persons hereunder for a breach of the warranty set forth in
Section 3.32 (Microsoft Deluxe CD Player) hereof shall be (i) the reduction
of the Performance Share Calculation in accordance with Section 2.7(d) hereof
and (ii) a set-off of $250,000 in immediately available funds against the
Retention Amount and that JAMtv shall be entitled to exercise such set-off
rights on behalf of the JAMtv Indemnified Persons if the warranty under
Section 3.32 is breached.
7.4 CLAIMS BY JAMTV.
(a) Upon receipt by the Shareholders' Agent at any time prior
to the Indemnification Deadline Date of a certificate signed by an officer of
JAMtv (a "JAMtv Certificate") providing notice of any claim (a "JAMtv Claim")
for Damages and specifying in reasonable detail the date such Damages were
paid, incurred or otherwise arose, and, if applicable, the nature of the
breach to which such Damages are related, JAMtv shall be entitled to exercise
its set-off rights as provided in Section 7.3 hereof.
(b) At the time of delivery of any JAMtv Certificate to the
Shareholders' Agent, a duplicate copy of such JAMtv Certificate shall be
delivered to the Escrow Agent, and for a period of thirty (30) days after
such delivery, the Escrow Agent shall make no delivery of the cash or shares
from the Escrow Fund in satisfaction of JAMtv's set-off rights unless the
Escrow Agent shall have received written authorization from the Shareholders'
Agent to make such delivery. After the expiration of such thirty (30) day
period, the Escrow Agent shall make delivery of the amount of Damages from
the Escrow Fund in accordance with Section 7.3 hereof, unless the
Shareholders' Agent shall have given notice to the Escrow Agent and to JAMtv
prior to the expiration of such thirty (30) day period that the Shareholders'
Agent disputes the JAMtv Claim set forth in the JAMtv Certificate, with the
basis for such dispute set forth in writing in reasonable detail. The deemed
value at all times of the shares of JAMtv Common Stock which are subject to
the indemnity and set-off
57
provisions of this Section 7 shall be $10.00 per share, including for
purposes of set-off as provided in Section 7.3 and disbursement to the Former
Shareholders of any remaining shares as provided in Section 7.9, subject to
proportionate adjustment as a result of any JAMtv stock split, reverse stock
split, recapitalization, or similar event (provided that there shall be no
adjuctment upon the issuance of shares subject to warrants or options or upon
the conversion of any covertible seucrities of JAMtv).
7.5 CLAIMS BY FORMER SHAREHOLDERS. Upon receipt by JAMtv at any time
prior to the Indemnification Deadline Date of a certificate signed by the
Shareholders' Agent (a "Shareholders' Agent Certificate") providing notice of
any claim (a "Shareholders' Claim") for Damages and specifying in reasonable
detail the date such Damages were paid, incurred or otherwise arose, and the
nature of the breach to which such Damages are related, JAMtv shall deliver
to the Shareholders' Agent, as promptly as practicable, an amount equal to
such Damages as indemnity, unless, within thirty (30) days of the delivery of
such Shareholders' Agent Certificate, JAMtv disputes the Shareholders' Claim
set forth in such certificate, with the basis for such dispute set forth in
writing in reasonable detail.
7.6 CLAIMS BY THIRD PARTIES. JAMtv will give notice to the
Shareholders' Agent and, prior to the Effective Time, Tunes promptly after
JAMtv has actual knowledge of any claim from a third party, as to which
indemnity may be sought, and will permit the Former Shareholders and Tunes
(at their expense) to assume the defense of any claim or any litigation
resulting therefrom; PROVIDED that (i) counsel for any Former Shareholder or
Tunes who shall conduct the defense of such claim or litigation shall be
satisfactory to JAMtv and (ii) the omission by JAMtv or any JAMtv Indemnified
Person to give notice as provided herein will not relieve any Former
Shareholder or Tunes of his or its indemnification obligations under this
Agreement. Neither JAMtv, the Surviving Corporation, nor any other JAMtv
Indemnified Person shall be required to commence litigation or to take any
action against any third party prior to making a claim for indemnification
hereunder. The Former Shareholders and Tunes, in the defense of any such
claim or litigation, will not, except with the written consent of JAMtv,
consent to the entry of any judgment or enter into any settlement. If the
Former Shareholders or Tunes assume the defense of such claim or litigation,
(i) it will be conclusively established for purposes of this Agreement that
such claim is within the scope of and subject to indemnification; and (ii) no
compromise or settlement of such claims may be effected by the Former
Shareholders or Tunes without JAMtv's consent. Notwithstanding the foregoing,
a JAMtv Indemnified Person will have the right at all times to take over and
assume control of the defense, settlement, negotiations or lawsuit relating
to any claim or demand, including, without limitation, in the event that (i)
a Former Shareholder is also a party to such claim or litigation and JAMtv
determines in good faith that joint representation would be inappropriate or
(ii) a Former Shareholder fails to provide reasonable assurance to JAMtv of
its financial capacity to defend such claim or litigation and to provide
indemnification with respect to such claim or litigation. In the event that
the Former Shareholders or Tunes do not accept the defense of any matter as
above provided, a JAMtv Indemnified Person will have the full right to defend
against any such claim or demand, and will be entitled to settle or agree to
pay in full such claim or demand, in its sole discretion. In any event, the
Former Shareholders and Tunes will cooperate in the defense of such action
and the records of each Former Shareholder and Tunes shall be available to
JAMtv and the other JAMtv Indemnified Persons with respect to such defense.
58
7.7 RESOLUTION OF CONFLICTS; ARBITRATION.
(a) In case the Shareholders' Agent or JAMtv, as applicable, shall
object in writing to any Claim made in any JAMtv Officer's Certificate as
described in Section 7.5 hereof, or in any Former Shareholders' Agent
Certificate as described in Section 7.6 hereof, JAMtv or the Shareholders'
Agent, as applicable, shall have thirty (30) days to respond in a written
statement to such objection. If after such thirty (30)-day period there remains
a dispute as to any claims, the Shareholders' Agent and JAMtv shall attempt in
good faith for sixty (60) days thereafter to agree upon the rights of the
respective parties with respect to each of such claims. If the Shareholders'
Agent and JAMtv should so agree, a memorandum setting forth such agreement shall
be prepared and signed by both parties and, if in settlement of a JAMtv Claim,
shall be furnished to the Escrow Agent. The Escrow Agent shall be entitled to
rely on any such memorandum and shall make the distributions from the Escrow
Fund only in accordance with the terms hereof or of the Escrow Agreement.
(b) If no such agreement can be reached after good faith
negotiation, either JAMtv or the Shareholders' Agent may, by written notice to
the other, demand arbitration of the matter in accordance with Section 9.3
hereof, unless the amount of the damage or loss is at issue in pending
litigation with a third party, in which event arbitration shall not be commenced
until such amount is ascertained or both parties agree to arbitration. The
decision of the arbitrators as to the validity and amount of any Claim in such
JAMtv Officer's Certificate or Former Shareholders' Agent Certificate shall be
binding and conclusive upon the parties to this Agreement, and, notwithstanding
anything in Section 7.7 hereof, the Escrow Agent shall be entitled to act in
accordance with such decision and make or withhold payments out of the Escrow
Fund in accordance therewith.
7.8 SHAREHOLDERS' AGENT.
(a) One person appointed by the holders of capital stock of Tunes
outstanding immediately prior to the Effective Time (including stock issuable
upon the exercise of Vested Tunes Options and Convertible Debt) (the "Former
Shareholders") shall be constituted and appointed as agent (the "Shareholders'
Agent") for and on behalf of the Former Shareholders to give and receive notices
and communications, to authorize delivery to any Indemnified Person of amounts
in the Escrow Fund in satisfaction of claims, to object to such deliveries, to
agree to, negotiate, enter into settlements and compromises of, and demand
arbitration and comply with orders of courts and awards of arbitrators with
respect to, such claims, and to take all actions necessary or appropriate in the
judgment of the Shareholders' Agent for the accomplishment of the foregoing.
Such agency may be changed by the holders of a majority in interest of the
Escrow Fund from time to time upon not less than ten (10) days' prior written
notice to JAMtv. No bond shall be required of the Shareholders' Agent, and the
Shareholders' Agent shall receive no compensation for its services, except for
payment of expenses, including fees of counsel, reasonably incurred by the
Shareholders' Agent in connection with the performance of its duties under the
Escrow Agreement (the "Shareholders' Agent Expenses"). The Shareholders' Agent
Expenses may be satisfied from the Escrow Fund, but only to the extent of funds
remaining in the Escrow Fund following the satisfaction of all Claims and any
and all Pending Claims and the payment of all fees and related
59
expenses of the Escrow Agent, all pursuant to the terms and provisions of the
Escrow Agreement. Notices or communications to or from the Shareholders'
Agent shall constitute notice to or from each of the Former Shareholders.
(b) The Shareholders' Agent shall not be liable for any act
done or omitted hereunder as Shareholders' Agent while acting in good faith,
and any act done or omitted pursuant to the advise of counsel shall be
conclusive evidence of such good faith. The Former Shareholders shall
severally indemnify the Shareholders' Agent and hold such agent harmless
against any loss, liability or expense incurred without bad faith on the part
of the Shareholders' Agent and arising out of or in connection with the
acceptance or administration of such agents' duties hereunder.
(c) The Shareholders' Agent shall have reasonable access to
information about Tunes and the reasonable assistance of Tunes's officers and
employees of Tunes for purposes of performing its duties and exercising its
rights hereunder, provided that the Shareholders' Agent shall treat
confidentially and not disclose any non-public information from or about
Tunes to anyone other than JAMtv and its officers, directors, employees and
agents (and except on a need-to-know basis to individuals who agree to treat
such information confidentially).
(d) The Shareholders' Agent or its representatives shall be
entitled to participate in any proceeding, or objection or defense thereto,
involving a claim by a third party for which indemnification could be sought
under Section 7.1(a) hereof; provided, however, that nothing herein shall
entitle the Shareholders' Agent to control the defense of any such third
party claim; and provided further that the settlement of any claim that would
result in a Claim upon the Escrow Fund shall be subject to the approval of
the Shareholders' Agent, which approval shall not be unreasonably withheld.
(e) A decision, act, consent or instruction of the
Shareholders' Agent, taken in the manner set forth in the Escrow Agreement,
shall constitute a decision of all Former Shareholders and shall be final,
binding and conclusive upon each such Former Shareholders, and the Escrow
Agent and JAMtv may rely upon any decision, act, consent or instruction of
the Shareholders' Agent taken in such manner as being the decision, act,
consent or instruction of each and every such Former Shareholders. The
Escrow Agent and JAMtv are hereby relieved from any liability to any person
for any acts done by them in accordance with such decision, act, consent or
instruction of the Shareholders' Agent taken in such manner.
7.9 DISTRIBUTION OF THE RETENTION AMOUNT. The Retention Amount (or
such lesser amount as shall remain after payment of any Claims) shall be
disbursed as provided pursuant to this Section 7.9 and the Escrow Agreement,
as follows:
(i) Upon the final resolution of the Xxxxxx Xxxxxx Claim, but no
earlier than the Closing Date, the Escrow Agent (or JAMtv if such resolution
occurs on or prior to the Closing) shall disburse $250,000 of the Retention
Amount together with accrued interest, if any, as provided in the Escrow
Agreement, to the Shareholders' Agent (or the Exchange Agent, as applicable)
for the benefit of the Former Shareholders (or the holders of the
Certificates, Vested Tunes Options, and Convertible Debt, as applicable);
60
(ii) If, on the later of the Indemnification Deadline Date or such
date as any Pending Claims are finally resolved (the "Release Date"), the
Xxxxxx Xxxxxx Claim has been finally resolved and the Microsoft Deluxe CD
Player has become generally available to Consumers as part of the Windows 98
Plus Pack!, then the Escrow Agent shall disburse the Retention Amount (or
such lesser amount as shall remain after payment of any Claims hereunder or
other permitted disbursements), together with accrued interest as provided in
the Escrow Agreement, to the Shareholders' Agent for the benefit of the
Former Shareholders;
(iii) If, on the Release Date, the Xxxxxx Xxxxxx Claim has been finally
resolved but the Microsoft Deluxe CD Player has not become generally
available to consumers as part of the Windows 98 Plus Pack!, then the Escrow
Agent shall disburse: (x) all but $250,000 of the Retention Amount, together
with accrued interest as provided in the Escrow Agreement, to the
Shareholders' Agent for the benefit of the Former Shareholders; and (y) the
remaining $250,000 to JAMtv, unless $250,000 or less remains after payment
of any Claims hereunder, in which case the Escrow Agent shall disburse to
JAMtv all of the remaining Retention Amount;
(iv) If, on the Release Date, the Xxxxxx Xxxxxx Claim has not been
finally resolved, then the Escrow Agent shall not disburse the Retention
Amount (or any portion of such amount) until such date as the Xxxxxx Xxxxxx
Claim has been finally resolved.
Any disbursement to the Former Shareholders of cash constituting the
Retention Amount shall be made by the Shareholders' Agent, together with
accrued interest as provided in the Escrow Agreement, to each of the Former
Shareholders as follows: each Former Shareholder shall be entitled to receive
an amount equal to the product of the cash portion of the Retention Amount
(plus accrued interest as provided in the Escrow Agreement) minus the
aggregate amount of cash payable in satisfaction of Claims hereunder
(including, without limitation, the Microsoft Set-Off, if any), multiplied by
the applicable pro rata share of the cash portion of the Retention Amount
which is attributable to such Former Shareholder. Any disbursement to the
Fomer Shareholders of shares constituting the Retention Amoutn shall be made
by the Shareholders' Agent to each of the Former Shareholders as provided in
the Escrow Agreement.
7.10 SURVIVAL OF REPRESENTATIONS, WARRANTIES. For the purposes of
asserting Claims under this Section 7, all representations and warranties
made by Tunes or JAMtv in, or pursuant to this Agreement or in any document
delivered on behalf of Tunes or JAMtv pursuant hereto, will survive the
Closing and will remain in effect until the later of (i) the Indemnification
Deadline Date or (ii) the resolution of any and all Pending Claims, provided
that from and after the Indemnification Deadline Date, such indemnification
obligations shall survive only to the extent of such Pending Claims, except
that the representations and warranties contained in Sections 3.2 (Tunes
capitalization), 3.17(a) (title), and 4.2 (JAMtv capitalization) hereof shall
survive indefinitely, and the representations and warranties contained in
Section 3.32 (Microsoft Deluxe CD Player) shall survive for four (4) years
from the Effective Date.
7.11 SPECIAL HOLDBACK SHARES. The Special Holdback Shares shall
secure the indemnity obligations of Tunes and the Former Shareholders as
provided in this Section 7. In order to satisfy any such obligations, the
Former Shareholders hereby grant to JAMtv the right of set-off against the
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Special Holdback Shares. JAMtv shall have until June 30, 1999 (the "Speical
Release Date") in order to make a JAMtv Claim with respect to the Special
Holdback Shares. On the Special Release Date or such later date as any
pending JAMtv Claim is finally resolved, JAMtv shall issue certificates
evidencing the Speical Holdback Shares to the Form Shareholders (such
issuance to be pro rata, consistent with the terms of this Agreement), and
deliver such certificates to the Shareholder's Agent for an on behalf of the
Former Shareholders.
SECTION 8
TERMINATION
8.1 TERMINATION.
(a) This Agreement may be terminated at any time prior to the
Effective Time, whether before or after approval of the Merger by the
shareholders of Tunes:
(1) by mutual agreement of the Boards of Directors of JAMtv
and Tunes;
(2) by JAMtv on or after the sixth (6th) business day
following delivery of notice thereof to Tunes, if there has been a breach
by Tunes of any representation, warranty, covenant or agreement set forth
in this Agreement on the part of Tunes that remains uncured as of such
sixth (6th) business day;
(3) by Tunes on or after the sixth (6th) business day
following delivery of notice thereof to JAMtv, if there has been a breach
by JAMtv or Merger Sub of any representation, warranty, covenant or
agreement set forth in this Agreement on the part of JAMtv or Merger Sub
that remains uncured as of such sixth (6th) business day;
(4) by JAMtv or Tunes, if the Merger shall not have been
consummated on or before September 30, 1998;
(5) by JAMtv or Tunes if the required approval of the
shareholders of Tunes contemplated by this Agreement shall not have been
obtained by reason of the failure to obtain the required vote in
accordance with applicable law; or
(6) by JAMtv or Tunes if any permanent injunction or other
order of a court or other competent authority preventing the Merger shall
have become final and nonappealable.
(b) Where action is taken to terminate this Agreement pursuant
to this Section 8.1, it shall be sufficient for such action to be authorized
by the Board of Directors of the party taking such action.
8.2 EXPENSES. Whether or not the Merger is consummated, all costs
and expenses incurred in connection with this Agreement, the Merger
Certificate and the transactions contemplated hereby and thereby shall be
paid, in the case of costs and expenses incurred by JAMtv,
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by JAMtv, and in the case of costs and expenses incurred by Tunes, by the
Tunes shareholders or Former Shareholders, as applicable.
8.3 PROCEDURE AND EFFECT OF TERMINATION. In the event of termination
of this Agreement as provided in this Section 8, the terminating party shall
provide written notice of such termination to the other party and the
provisions of this Agreement shall forthwith become void, except that the
agreements contained or referred to in Sections 3.30 (brokers, finders),
4.15 (brokers, finders), 5.9 (public announcements), 8 (termination) and 9
(general provisions) hereof shall survive. Notwithstanding the foregoing,
the event of termination of this Agreement by any party hereto, nothing
herein shall limit the remedies at law or in equity of any party with respect
to any breaches hereof by any other party. Upon termination of this
Agreement, Tunes shall return all of the Xxxxxxx Money to JAMtv in
immediately available funds. Notwithstanding the foregoing and Section 8.2
hereof, if this Agreement shall be terminated by reason other than under
paragraphs (2) or (5) of Section 8.1(a) hereof, then Tunes shall be entitled
to retain a portion of the Xxxxxxx Money equal to the amount of reasonable
costs and expenses incurred by Tunes in connection with this Agreement, up to
a maximum of $20,000.
SECTION 9
GENERAL PROVISIONS
9.1 AMENDMENT. This Agreement may be amended by the parties hereto
at any time prior to the Effective Time, by action taken by their respective
Boards of Directors, at any time before or after approval of the Merger by
the shareholders of Tunes; provided that following approval of the Merger by
the shareholders of Tunes, no amendment shall be made which by law requires
the further approval of such shareholders without first obtaining such
further approval. This Agreement may not be amended except by an instrument
in writing signed on behalf of each of the parties hereto.
9.2 EXTENSION; WAIVER. At any time prior to the Effective Time, each
of Tunes and JAMtv, by action taken by its Board of Directors, may, to the
extent legally allowed, (i) extend the time for the performance of any of the
obligations or other acts of the other, (ii) waive any inaccuracies in the
representations and warranties made to it contained herein or in any document
delivered pursuant hereto and (iii) waive compliance with any of the
agreements or conditions for the benefit of it contained herein. Any
agreement on the part of a party hereto to any such extension or waiver shall
be valid only if set forth in an instrument in writing signed on behalf of
such party.
9.3 ARBITRATION. All disputes or controversies (whether of law or
fact) of any nature whatsoever arising from or relating to this Agreement and
the transactions contemplated hereby shall be decided by arbitration by the
American Arbitration Association (the "AAA") in accordance with the rules and
regulations of the AAA.
The arbitrators shall be selected as follows: JAMtv and the
Shareholders' Agent shall, within 60 days of the date of demand by either
party for arbitration, each select one independent, qualified arbitrator and
the two arbitrators so selected shall select the third arbitrator within
sixty (60) days after their appointment as party arbitrators. Each party
reserves the right to object to any
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individual arbitrator who shall be employed by or affiliated with a competing
organization. In the event objection is made, the AAA shall resolve any
dispute regarding the propriety of an individual arbitrator acting in that
capacity. The parties shall each bear the expenses of the arbitrator chosen
by it, and shall bear one-half the expenses of the independent arbitrator.
Hearings in the proceeding shall commence within one hundred twenty (120)
days of the selection of the neutral arbitrator.
Arbitration shall take place in Xxxx County, Illinois. At the
request of either party, arbitration proceedings will be conducted
confidentially; in such case all documents, testimony and records shall be
received, heard and maintained by the arbitrators in confidence under seal,
available for the inspection only by the Association, the Shareholders' Agent
and JAMtv and their respective attorneys and their respective experts who
shall agree in advance and in writing to receive all such information
confidentially and to maintain such information in confidence. The
arbitrators, who shall act by majority vote, shall be able to decree any and
all relief of an equitable and legal nature, including but not limited to,
such relief as a temporary restraining order, a temporary and/or a permanent
injunction, and shall also be able to award damages, with or without an
accounting and costs. The decree or award rendered by the arbitrators may be
entered as a final and binding judgment in any court having jurisdiction
thereof.
Reasonable notice of time and place of arbitration shall be given
to all persons, other than the parties, as shall be required by law, in which
case such persons or those authorized representatives shall have the right to
attend and/or participate in all the arbitration hearings in such manner as
the law shall require.
9.4 NOTICES. All notices and other communications hereunder shall be
in writing and all be deemed given if delivered personally or mailed by
registered or certified mail (return receipt requested) or set by facsimile,
confirmation received, to the parties at the following addresses and
facsimile numbers (or at such other address or number for a party as shall be
specified by like notice):
(a) If to JAMtv or Merger Sub, to:
JAMtv Corporation
000 Xxxxx XxXxxxx Xxxxxx, Xxxxx 000
Xxxxxxx, Xxxxxxxx 00000
Attn: Xxxxxx X. Xxxxxxx
Facsimile No.: (000) 000-0000
Telephone No.: (000) 000-0000
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with a copy to:
Xxxxxxxx & Xxxxxx
000 Xxxxx Xxxxxx Xxxxx
Xxxxx 0000
Xxxxxxx, Xxxxxxxx 00000-0000
Attn: Xxxxxxx X. Xxxxxx
Facsimile No.: (000) 000-0000
Telephone No.: (000) 000-0000
(b) if to Tunes, to:
Tunes Network, Inc.
0000 Xxxxx Xxxxxx
Xxxxxxxx, Xxxxxxxxxx 00000
Attn: Xxxxxx Xxxxxxxx
Facsimile No.: (000) 000-0000
Telephone No.: (000) 000-0000
with copies to (but only up until the Effective Time):
Pillsbury Madison & Sutro LLP
0000 Xxxxxxx Xxxxxx
Xxxx Xxxx, Xxxxxxxxxx 00000
Attn: Xxxxxxxxx X. Xxxxxx
Facsimile No.: (000) 000-0000
Telephone No.: (000 ) 000-0000
9.5 PUBLIC ANNOUNCEMENTS. Each party will consult in advance with
the other concerning the timing and content of any announcements, press
releases and public statements concerning the Merger and will not make any
such announcement, release or statement without the other's consent.
9.6 INTERPRETATION. When a reference is made in this Agreement to
Sections, Schedules or Exhibits, such references shall be to a Section of or
Schedule or Exhibit to this Agreement unless otherwise indicated. The words
"include," "includes" and "including" when used herein shall be deemed in
each case to be followed by the words "without limitation." The table of
contents and headings contained in this Agreement are for reference purposes
only and shall not affect in any way the meaning or interpretation of this
Agreement.
9.7 COUNTERPARTS. This Agreement may be executed in one or more
counterparts, all of which shall be considered one and the same agreement and
shall become effective when one or more counterparts have been signed by each
of the parties and delivered to the other party.
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9.8 ENTIRE AGREEMENT. This Agreement (including the Exhibits and the
Schedules attached hereto) and the documents and instruments and other
agreements among the parties delivered pursuant hereto constitute the entire
agreement among the parties with respect to the subject matter hereof and
supersede all prior agreements and understandings, both written and oral,
among the parties with respect to the subject matter hereof (including the
letter dated March 21, 1998 from Tunes to JAMtv and the Outline of
Transaction attached thereto) and are not intended to confer upon any other
person any rights or remedies hereunder except as otherwise expressly
provided herein.
9.9 NO TRANSFER. This Agreement and the rights and obligations set
forth herein may not be transferred or assigned by operation of law or
otherwise without the consent of each party hereto, PROVIDED that Merger Sub
may assign all or any portion of its rights hereunder to any other
newly-formed, wholly-owned subsidiary of JAMtv. This Agreement is binding
upon and will inure to the benefit of the parties hereto and their respective
successors and permitted assigns.
9.10 SEVERABILITY. If any provision of this Agreement, or the
application thereof, will for any reason and to any extent be invalid or
unenforceable, the remainder of this Agreement and application of such
provision to other persons or circumstances will be interpreted so as
reasonably to effect the intent of the parties hereto. The parties further
agree to replace such void or unenforceable provision of this Agreement with
a valid and enforceable provision that will achieve, to the extent possible,
the economic, business and other purposes of the void or unenforceable
provision.
9.11 OTHER REMEDIES. Except as otherwise provided herein, any and all
remedies herein expressly conferred upon a party will be deemed cumulative
with and not exclusive of any other remedy conferred hereby or by law or
equity on such party; and the exercise of any one remedy will not preclude
the exercise of any other.
9.12 FURTHER ASSURANCES. Each party agrees to cooperate fully with
the other parties and to execute such further instruments, documents and
agreements and to give such further written assurance as may be reasonably
requested by any other party to evidence and reflect the transactions
described herein and contemplated hereby and to carry into effect the intents
and purposes of this Agreement.
9.13 ABSENCE OF THIRD-PARTY BENEFICIARY RIGHTS. Except as set forth
in Section 7 hereof, no provision of this Agreement is intended, nor will be
interpreted, to provide or to create any third party beneficiary rights or
any other rights of any kind in any client, customer, affiliate, shareholder,
employee, partner or any party hereto or any other person or entity, and all
provisions hereof will be personal solely between the parties to this
Agreement.
9.14 MUTUAL DRAFTING. This Agreement is the joint product of JAMtv
and Tunes, and each provision of this Agreement has been subject to the
mutual consultation, negotiation and agreement of JAMtv and Tunes, and shall
not be construed for or against any party hereto.
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9.15 GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED IN ALL RESPECTS,
INCLUDING VALIDITY, INTERPRETATION AND EFFECT, BY THE LAWS OF THE STATE OF
ILLINOIS (WITHOUT GIVING EFFECT TO ITS CHOICE OF LAW PRINCIPLES).
9.16 JURISDICTION; VENUE. Each of the parties hereto hereby
irrevocably submits to the exclusive jurisdiction of any Illinois state court
or federal court sitting in the State of Illinois over any action or
proceeding arising out of or relating to this Agreement and the transactions
contemplated hereby and each of the parties hereto hereby irrevocably agrees
that all claims in respect of such action or proceeding may be heard and
determined in such Illinois state or federal court. Each of the parties
hereto hereby irrevocably waives, to the fullest extent legally possible, the
defense of an inconvenient forum to the maintenance of such action or
proceeding. Each of the parties hereto irrevocably consents to the service
of any and all process in any such action or proceeding by the mailing of
copies of such process to such party at his, her or its address set forth in
this Agreement. Each of the parties hereto agrees 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.
((Signature Page of Agreement of Merger Immediately Follows))
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((Signature Page of Agreement of Merger))
IN WITNESS WHEREOF, JAMtv, Merger Sub and Tunes have caused this
Agreement to be signed by their respective officers, thereunto duly
authorized, all as of the date first written above.
JAMtv CORPORATION
By: /s/ Xxxxxx X. Xxxxxxx
----------------------------------
Name: Xxxxxx X. Xxxxxxx
Title: Chief Executive Officer
TUNES ACQUISITION CORP.
By: /s/ Xxxxxx X. Xxxxxxx
----------------------------------
Name: Xxxxxx X. Xxxxxxx
Title: Chief Executive Officer
TUNES NETWORK, INC.
By: /s/ Xxxxxx Xxxxxxxx
----------------------------------
Name: Xxxxxx Xxxxxxxx
Title: Chief Executive Officer
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