Exhibit 2.1
ASSET PURCHASE AGREEMENT
BY AND AMONG
BIG ENTERTAINMENT, INC.,
BASELINE II, INC.,
CINEMA ENTERPRISES GROUP LLC,
XXXX XXXXX ASSOCIATES, INC.
AND
XXXX XXXXX
DATED AS OF AUGUST 30, 1999
ASSET PURCHASE AGREEMENT
ASSET PURCHASE AGREEMENT, dated as of August 30, 1999, by
and among Big Entertainment, Inc., a Florida corporation ("Buyer") and Baseline
II, Inc., a Delaware corporation ("Baseline"), Cinema Enterprises Group LLC, a
Washington limited liability company ("CEG"), Xxxx Xxxxx and Xxxx Xxxxx
Associates, Inc., a California corporation ("PKA"; each of Baseline, CEG and PKA
are referred to herein collectively as the "Seller").
W I T N E S S E T H :
WHEREAS, upon the terms and subject to the conditions
hereinafter set forth, Seller desires to sell, assign and transfer to Buyer, and
Buyer desires to purchase and acquire from Seller, all of Seller's right, title
and interest in the Assets (as defined herein);
WHEREAS, for federal income tax purposes, it is intended
that the Baseline Acquisition (as defined below) shall qualify as a
reorganization under Section 368(a)(1)(C) of the Internal Revenue Code of 1986,
as amended (the "Code"), pursuant to which substantially all of the Baseline
assets shall be transferred to Buyer in exchange for Buyer voting stock and
pursuant to such plan of reorganization Baseline shall be liquidated with the
stock distributed to the shareholders of Baseline; and
WHEREAS, the Film Asset Acquisition (as defined below) and
the acquisition of the CEG Equity (as defined below) shall be taxable
acquisitions for federal income tax purposes;
NOW THEREFORE, in consideration of the premises and the
mutual representations, warranties, covenants and agreements hereinafter set
forth, the parties hereto hereby agree as follows: ARTICLE I
ACQUISITION AND TRANSFER OF ASSETS
Section 1.1. Assets to be Acquired.
(a) Upon the terms and subject to the conditions
hereinafter set forth, Baseline shall sell, assign, transfer, convey and deliver
to Buyer, and Buyer shall purchase, acquire and accept from Baseline (the
"Baseline Acquisition"), free and clear of all Liens (as defined in Section
1.1(c) below), all right, title and interest of Baseline in, to and under all of
its assets, properties, rights, contracts, claims, operations and business
(collectively, the "Baseline Assets") (but excluding the Excluded Assets, as
defined in Section 1.2 below), whether or not appearing on the books of
Baseline, including, without limitation, the following:
(i) Subject to Schedule 3.9, all contracts, license agreements, leases,
rental agreements and other agreements to which Baseline is a party
(collectively, the "Baseline Contracts"), each of which is listed on
Schedule 1.1(a) hereto;
(ii) all of the furniture, supplies, computers, office equipment, fixtures
and other fixed assets owned by Baseline (the "Fixed Assets");
(iii) all right, title and interest of Baseline in, to and under each
trademark, trade name, logo, service xxxx, brand xxxx, brand name,
computer program, domain name, database, patent, industrial design
and copyright owned or used by Baseline, all registrations thereof
and pending applications therefor, inventions, drawings, customer
lists, proprietary know-how or information owned or used by Baseline
and each contract, license or other agreement relating thereto
(including, without limitation, the name "PKBaseline" and all of
Baseline's rights relating to the use of such names and any logos or
characters developed by or on behalf of Baseline for use in
connection with Baseline's business) (collectively, the "Baseline
Intangible Property");
(iv) all trade accounts receivable of Baseline;
(v) all papers, databases, computer programs, disks, software, and other
books, records, documents and materials owned by Baseline (the
"Baseline Books and Records");
(vi) all assets of Baseline (other than Excluded Assets) to the extent
Buyer assumes any liability therefor pursuant to Section 1.3;
(vii) all rights of Baseline under or pursuant to all warranties,
representations and guarantees made by suppliers, manufacturers and
contractors in connection with any of the foregoing Baseline Assets;
and
(viii) all goodwill relating to the foregoing Baseline Assets.
(b) Upon the terms and subject to the conditions
hereinafter set forth and subject in all respects to the terms of the Operation
and Management Agreement of even date herewith between the Buyer and PKA, PKA
shall sell, assign, transfer, convey and deliver to Buyer, and Buyer shall
purchase, acquire and accept from PKA (the "Film Asset Acquisition" and,
together with the Baseline Acquisition, the "Acquisition"), free and clear of
all Liens, all right, title and interest of PKA in, to and under all assets,
properties, rights, contracts and claims reasonably necessary for the ownership
of each of (i) the newsletter Motion Picture Investor; (ii) the Annual Kagan
Film Conference; (iii) the following books: Box Office Champions, International
Co-Productions, The Business of Movie Exhibition, The Business of Movie
Production, and The Box Office Report; (iv) the complete database of information
on individual feature films collected, compiled, maintained and stored in
computerized format by PKA since 1984, which includes information on
approximately 4,953 individual feature films; and (v) PKA's compilations of data
known as Kagan Revenue and Cost Estimates and KBOX (collectively, the "Film
Assets") (but excluding the Excluded Assets) as they are currently published,
distributed and produced, whether or not appearing on the books of PKA,
including, without limitation, the following:
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(i) all contracts, license agreements, leases, rental agreements and
other agreements to which PKA is a party and which relate exclusively
to the Film Assets (collectively, the "Film Asset Assigned Contracts"
and, together with the Baseline Contracts and the CEG Contracts, the
"Assigned Contracts"), each of which is listed on Schedule 1.1(b)
hereto;
(ii) all right, title and interest of PKA in, to and under each trademark,
trade name, logo, service xxxx, brand xxxx, brand name, computer
program, domain name, database, patent, industrial design and
copyright owned or used by PKA exclusively in connection with the
Film Assets, all registrations thereof and pending applications
therefor, inventions, drawings, customer lists, proprietary know-how
or information owned or used by PKA exclusively in connection with
the Film Assets and each contract, license or other agreement
relating exclusively thereto (including, without limitation, the
names of each of the Film Assets and all of PKA's rights relating to
the use of such names and any logos or characters developed by or on
behalf of PKA exclusively for use in connection with the business of
the Film Assets) (collectively, the "Film Asset Intangible Property"
and, together with the Baseline Intangible Property and the CEG
Intangible Property, the "Intangible Property");
(iii) all trade accounts receivable of PKA related exclusively to the Film
Assets;
(iv) all papers, databases, computer programs, disks, software, and other
books, records, documents and materials related exclusively to the
Film Assets (the "Film Asset Books and Records" and, together with
the Baseline Books and Records, the "Books and Records");
(v) all rights of PKA under or pursuant to all warranties,
representations and guarantees made by suppliers, manufacturers and
contractors related exclusively to the foregoing Film Assets; and
(vi) all goodwill relating exclusively to the foregoing Film Assets.
(c) Upon the terms and subject to the conditions
hereinafter set forth, Xxxx Xxxxx shall sell, assign, transfer, convey and
deliver to Buyer, and Buyer shall purchase, acquire and accept from Xxxx Xxxxx,
free and clear of all Liens, 100% of the membership interests in CEG (the "CEG
Equity" and, together with the Baseline Assets and the Film Assets, the
"Assets"). The transfer of the CEG Equity to Buyer shall include a transfer of
all right, title and interest of CEG in, to and under all of its assets,
including, without limitation:
(i) subject to Schedule 3.9, all agreements listed on Schedule 1.1(a)
hereto to which CEG is a party (the "CEG Contracts);
(ii) all of the furniture, supplies, computers, office equipment, fixtures
and other fixed assets owned by CEG; and
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(iii) all right, title and interest of CEG in, to and under each trademark,
trade name, logo, service xxxx, brand xxxx, brand name, computer
program, domain name, database, patent, industrial design and
copyright owned or used by CEG, all registrations thereof and pending
applications therefor, inventions, drawings, customer lists,
proprietary know-how or information owned or used by CEG and each
contract, license or other agreement relating thereto (including,
without limitation, the name "FilmPix" and all of CEG's rights
relating to the use of such name and any logos or characters
developed by or on behalf of CEG for use in connection with CEG's
business) (collectively, the "CEG Intangible Property").
(d) For the purposes of this Agreement, "Lien" shall mean
any lien, pledge, mortgage, deed of trust, security interest, claim, lease,
charge, option, right of first refusal, easement or other real estate
declaration, covenant, condition, restriction or servitude, transfer restriction
under any shareholder or similar agreement, or encumbrance.
Section 1.2. Excluded Assets. Notwithstanding anything in
Section 1.1 to the contrary, the parties hereto expressly agree that Seller is
not hereunder selling, assigning, transferring, conveying or delivering to
Buyer, and Buyer is not purchasing, acquiring or accepting, the following
assets, rights and properties (collectively, the "Excluded Assets"):
(i) any insurance policies, bonds, letters of credit or other similar
items, or any cash surrender value in regard thereto;
(ii) any claim, right or interest in or to any refund for federal, state
or local franchise, income or other taxes or fees of any nature
whatsoever for periods on or prior to the Closing Date (as defined in
Section 9.1 below) and any interest (or similar amount) thereon;
(iii) any real property interests owned by PKA or Xxxx Xxxxx;
(iv) any of Seller's corporate books and records of internal proceedings
or tax records, and any books and records that any Seller is required
by law to retain (the "Corporate Records"), but Buyer shall have
access to the same to the extent permitted by Section 10.3 below;
(v) any employment, consulting or similar agreement except for any
agreements that constitute Assigned Contracts;
(vi) all contracts, license agreements, leases, rental agreements and
other agreements to which CEG is a party and which are listed on
Schedule 1.2 (vi) hereto (none of such agreements shall constitute
Assigned Contracts); and;
(vii) the Intangible Property described on Schedule 1.2 (vii).
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Section 1.3. Assumed and Excluded Liabilities.
(a) Buyer shall not assume or be bound by any obligations,
liabilities (including without limitation, liabilities in respect of Taxes (as
defined in Section 3.13(a) below) and "employee benefit plans" (as defined in
Section 3(3) of the Employee Retirement Income Security Act of 1974, as amended)
or any other pension plans or employee benefit arrangements) or commitments of
any Seller or any of their affiliates of any kind, character or description,
whether absolute, accrued, known, unknown, asserted, unasserted, due or to
become due, contingent or otherwise ("Liabilities"), in connection with the
Assets or otherwise, other than the following (the "Assumed Liabilities").
(i) obligations and liabilities arising after the Closing Date under the
Assigned Contracts in respect of the period following such Closing
Date;
(ii) all current trade accounts payable and expenses arising and accrued
in, the ordinary course of business of Baseline (excluding, however,
(A) any and all royalties or other payments payable to PKA, Xxxx
Xxxxx or any affiliate of PKA, Xxxx Xxxxx or Baseline in respect of
any period prior to the Closing Date, and (B) any and all royalties
payable to any person or entity in respect of any period prior to
July 1, 1999 and (C) any and all amounts payable to Xxxx & Xxxx,
LLP).
(iii) all capitalized leases to which Baseline is a party and which appear
in the Audited Financial Statements.
With respect to any nonincome Tax imposed on a periodic basis that relates to a
period straddling the Closing Date, such Tax shall be prorated to the Closing
Date, and the portion allocable to the period prior to the Closing Date shall be
promptly paid or reimbursed by Seller, and the portion allocable to the period
after the Closing Date shall be promptly paid or reimbursed by Buyer.
All other Liabilities of Seller shall remain the sole responsibility of Seller.
ARTICLE II
CONSIDERATION
Section 2.1. Amount and Form of Consideration.
(a) The aggregate consideration (the "Consideration") to be
paid on the Closing Date by Buyer to Seller for the Assets shall consist of the
following:
(i) a number of fully paid and nonassessable shares of the common stock,
$.01 par value per share (the "Common Stock"), of Buyer (the "Stock
Consideration") equal to the quotient of (x) $9,000,000 and (y)
$18.27;
(ii) warrants to purchase an aggregate of 54,735 shares of Common Stock at
an exercise price of $18.27 per share and otherwise on the terms set
forth in Exhibit A hereto (the "Warrant Consideration"); and
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(iii) the assumption by Buyer of certain of the obligations and liabilities
of Seller pursuant to Section 1.3 above.
(b) Consideration paid by Buyer to Sellers pursuant to
sections 2.1(a)(i) or 2.1(a)(ii) shall be comprised of a proportionate amount of
Warrant Consideration and Stock Consideration and shall be allocated and paid as
follows:
(i) 90% to Baseline;
(ii) 4% to Xxxx Xxxxx in respect of the sale of the CEG Equity; and
(iii) 6% to PKA in respect of the Film Asset Acquisition.
Section 2.2. Allocation of Purchase Price.
(a) The Consideration paid to a Seller (other than
Baseline) pursuant to Section 2.1(b) and other relevant items shall be allocated
among the Assets acquired from such Seller hereunder by Buyer in accordance with
the requirements of Section 1060 of the Internal Revenue Code of 1986, as
amended (the "Code"); provided, however, that the parties agree that
Consideration paid to a Seller in respect of CEG Equity shall be allocated among
the underlying assets of CEG as if such assets were purchased by Buyer from such
Seller, which allocation shall be in accordance with Section 1060 of the Code.
(b) Buyer shall provide Seller with a draft of such
allocation within 90 days after the Closing Date. Seller shall notify Buyer
within thirty (30) days of receipt of such draft allocation of any objection
Seller may have thereto. Seller and Buyer agree to resolve any disagreement with
respect to allocations under this Section 2.2 in good faith consistent herewith.
Seller and Buyer each agree to report and file all Tax Returns (as defined in
Section 3.12(a)) (including amended Tax Returns and claims for refund)
consistent with such allocations, and shall take no position contrary thereto or
inconsistent therewith (including, without limitation, in any audits or
examinations by any taxing authority or any other proceedings). Seller and Buyer
shall cooperate in the filing of any forms (including Form 8594 if applicable)
with respect to such allocations, including any amendments to such forms
required with respect to any adjustment to the Consideration, pursuant to this
Agreement. Notwithstanding any other provisions of this Agreement, the foregoing
agreement shall survive the Closing Date without limitation.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF SELLER
Each Seller hereby represents and warrants to Buyer as
follows:
Section 3.1. Organization.
(a) Each of Baseline and PKA is a corporation duly
organized, validly existing and in good standing under the laws of its state of
organization, and has all requisite corporate power and authority to own, lease
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and operate its properties and to carry on its business as now being conducted.
All of the outstanding capital stock of Baseline is owned beneficially and of
record by the parties listed on Schedule 3.1 hereto. Baseline has no
subsidiaries and does not own or control any stock or other equity interest of
any other entity. Baseline has heretofore delivered to Buyer a complete and
correct copy of its Certificate of Incorporation and Bylaws, each as currently
in effect.
(b) CEG is a limited liability company duly organized,
validly formed and in good standing under the laws of the State of Washington,
and has all requisite power and authority to own, lease and operate its
properties and to carry on its business as now being conducted. As of the
Closing Date, all of the outstanding membership interests of CEG will be owned
beneficially and of record by Xx. Xxxx Xxxxx free and clear of all Liens,
options, warrants, rights, calls, pledges, trusts, voting trusts and other
similar agreements, preemptive rights, assessments, restrictions, commitments,
obligations or other burdens. Seller has heretofore delivered to Buyer a
complete and correct copy of the articles of organization of CEG as currently in
effect. CEG is not, and has never been, a party to or otherwise subject to any
limited liability company operating or similar agreement.
Section 3.2. Authorization of Agreement. Seller has full corporate (or other)
power and authority to execute and deliver this Agreement and each other
agreement, document, instrument or certificate contemplated by this Agreement or
to be executed by Seller in connection with the consummation of the transactions
contemplated by this Agreement (all such other agreements, documents,
instruments and certificates are hereafter collectively referred to as the
"Seller Documents") and to perform fully its obligations hereunder and
thereunder. The execution, delivery and performance of this Agreement and each
of the Seller Documents have been duly and validly authorized and approved by
the Board of Directors of Baseline and PKA, by over 90% of the voting stock of
Baseline and by all member(s) of CEG and by all other necessary corporate (or
other) action on behalf of Seller. This Agreement has been, and on or prior to
the Closing each of the Seller Documents will be, duly and validly executed and
delivered by Seller and (assuming the due authorization, execution and delivery
by Buyer) this Agreement constitutes, and each of the Seller Documents when so
executed and delivered will constitute, the legal, valid and binding obligation
of Seller, enforceable against Seller in accordance with its respective terms,
subject to applicable bankruptcy, insolvency, fraudulent conveyance,
reorganization, moratorium and similar laws affecting creditors' rights and
remedies generally and subject, as to enforceability, to general principles of
equity, including principles of commercial reasonableness, good faith and fair
dealing (regardless of whether enforcement is sought in a proceeding at law or
in equity).
Section 3.3. Consents and Approvals; No Violation.
(a) No filing with, notification to or consent,
authorization, waiver, approval, order, license, certificate or Permit of, any
Government Body (as defined in Section 3.13 below) is necessary for Seller's
execution, delivery or performance of this Agreement or any of the Seller
Documents or the consummation by Seller of the transactions contemplated by this
Agreement and the Seller Documents.
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(b) Except as set forth on Schedule 3.3(b), none of the
execution and delivery by Seller of this Agreement and the Seller Documents, the
consummation of the transactions contemplated hereby or thereby or compliance by
Seller with any of the provisions hereof or thereof will (i) conflict with or
result in any breach of any provision of the Certificate of Incorporation,
By-laws or limited liability company agreement, as applicable, of Seller, (ii)
violate any order, injunction, judgment, decree, ruling, writ, assessment or
arbitration award (each, an "Order") or statute, rule or regulation of any
Government Body by which Seller or any of its properties or assets is bound,
(iii) conflict with, violate, result in the breach or termination of, or (with
or without due notice or the lapse of time or both) constitute a default or give
rise to any "takeback" right or right of termination or acceleration or right to
increase the obligations under or otherwise modify any of the terms, conditions
or provisions of any note, bond, mortgage, license, franchise, Permit,
indenture, contract, agreement or other instrument or obligation to which Seller
is a party, or by which Seller or any of its properties or assets is or may be
bound, or (iv) result in the creation of any Lien upon any of the Assets.
Section 3.4. Title to Assets.
(a) Except as set forth on Schedule 3.11 hereto, Seller has
good and marketable title to all of the applicable Assets, free and clear of all
Liens, including any that arose in connection with any failure (or alleged
failure) to pay any Tax. Upon the sale, assignment, transfer and conveyance of
the Assets to Buyer hereunder, except as set forth in Schedule 3.4 hereto, there
will be vested in Buyer good and marketable title to such Assets, free and clear
of all Liens other than those placed thereon by Buyer.
(b) Other than the Baseline Assets and the Excluded Assets,
there are no other tangible or intangible assets, rights, properties or
agreements that are used in the ownership or operation of the Baseline Assets or
the business of Baseline or that are material to the ownership or operation of
the Baseline Assets or the business of Baseline.
Section 3.5. No Undisclosed Liabilities.
(a) Seller has delivered to Buyer (i) audited balance
sheets and statements of operations, stockholders' equity and cash flows of
Baseline at each of, and for the periods ended, December 31, 1998, December 31,
1997 and December 31, 1996 and unaudited balance sheets and statements of
operations, stockholders' equity and cash flows of Baseline at, and for the
period ended, March 31, 1999 (collectively, the "Baseline Financial
Statements"). The Baseline Financial Statements were prepared in accordance with
generally accepted accounting principles ("GAAP") and present fairly the
financial position of Baseline as of the dates thereof and its results of
operations and changes in financial position for the periods then ended.
(b) Except for liabilities set forth on Baseline's audited
balance sheet at December 31, 1998 included in the Baseline Financial
Statements, and except for normal or recurring liabilities incurred since such
date in the ordinary course of business, Baseline does not have any material
liabilities of any kind, either accrued, contingent or otherwise, and whether
due or to become due (whether or not required to be reflected in financial
statements pursuant to GAAP). Except as set forth on Schedule 3.5 hereto, CEG
has no Liabilities of any kind, and to CEG's knowledge, there is no
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basis for the assertion of any claim of Liability of any nature against CEG.
Neither Baseline nor CEG has any indebtedness for borrowed money other than
indebtedness reflected in the Baseline Financial Statements, which will be
repaid or otherwise canceled at or prior to the Closing.
Section 3.6. Litigation, etc. There is no judicial, administrative or arbitral
action, suit, proceeding (public or private), claim or governmental proceeding
(each, a "Legal Proceeding") pending or, to the knowledge of Seller, threatened
that questions the validity of this Agreement, the Seller Documents or any
action taken or to be taken by Seller in connection with the consummation of the
transactions contemplated hereby or thereby. Except as set forth on Schedule 3.6
hereto, (i) no investigation or review by any Government Body with respect to
Seller is pending or, to the knowledge of Seller, threatened, nor has any
Government Body indicated to Seller an intention to conduct the same, (ii) there
is no Legal Proceeding pending or, to the knowledge of Seller, threatened
against or affecting Seller or its assets at law or in equity, or before any
Government Body (and, to the knowledge of Seller, there is no basis for any such
Legal Proceeding not so set forth which, if adversely determined, could
adversely affect Seller or Buyer) and (iii) there is no outstanding or, to the
knowledge of Seller, threatened Order of any Government Body against, affecting
or naming Seller or affecting any of the Assets. Except as set forth on Schedule
3.6 hereto, during the three years preceding the date of this Agreement, no
Legal Proceeding has been commenced or, to the knowledge of Seller, threatened
against or affecting Seller or the Assets at law or in equity, or before any
Government Body. On and after the date hereof until the Closing, Seller will
notify Buyer of the existence or threat of any investigation, review, Legal
Proceeding or Order which would be required to be disclosed on Schedule 3.6.
Section 3.7. Compliance with Law. Seller has not violated or failed to comply in
any material respect with any statute, law, ordinance, regulation, rule or Order
of any Government Body.
Section 3.8. Employee Benefits and Related Matters.
(a) Except as set forth on Schedule 3.8(a) hereto, neither
Baseline nor CEG is a party to (ii) any employment, compensation, consulting or
severance agreement with any party or (ii) any other agreement with a present or
former employee that provides for severance payments or stay bonuses contingent
upon a change in control of Baseline or CEG or a sale of their respective
business or assets. Seller is in compliance in all material respects with all
laws relating to the employment of labor, including all laws relating to wages,
hours, the Workers' Adjustment Retraining Notification Act and any similar state
or local "mass layoff" or "plant closing" law, collective bargaining,
discrimination, civil rights, safety and health and workers' compensation.
(b) Schedule 3.8(b) sets forth each employee pension,
retirement, profit sharing, stock bonus, stock option, stock purchase,
incentive, deferred compensation, medical, dental, vision, life insurance,
accidental death and dismemberment insurance, business travel insurance,
vacation pay, salary continuation, sick pay, disability, severance, golden
parachute or other plan, fund, program, policy, contract or arrangement
providing employee benefits that is maintained or contributed to by Baseline or
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CEG (the "Plans"). Baseline has delivered to Buyer true, correct and complete
copies of each Plan (or, in the case of any unwritten Plans, descriptions
thereof). There are no pending, or to the knowledge of Seller, threatened suits,
actions, proceedings, or claims (except claims for benefits payable in the
normal operation of the Plans) against any Plan by any employee or other
beneficiary covered under any such Plan or otherwise involving any Plan.
Section 3.9. Certain Agreements.
(a) Except as set forth on Schedule 1.1(a) hereto or
Schedule 3.9 hereto, neither Baseline nor CEG nor any of their respective
properties or assets is a party to or bound by any (i) lease or rental
agreement, (ii) contract granting a right of first refusal or for the
acquisition, sale or lease of any assets of Seller, (iii) mortgage, pledge,
conditional sales contract, security agreement or other similar contract with
respect to any property of Seller, (iv) loan agreement, credit agreement,
promissory note, guarantee, subordination agreement, letter of credit or other
similar type of contract, (v) or any other material contract. Seller has
delivered to Buyer true, correct and complete copies of the Assigned Contracts,
including all amendments, modifications, supplements, side letters or consents
affecting the obligations of any party thereunder.
(b) Each Assigned Contract is valid and enforceable in
accordance with its terms, subject to applicable bankruptcy, insolvency,
fraudulent conveyance, reorganization, moratorium and similar laws affecting
creditors' rights and remedies generally, and subject, as to enforceability, to
general principles of equity (regardless of whether enforcement is sought in a
proceeding at law or in equity). Seller is not in breach of or in default under
any Assigned Contract and, to Seller's knowledge, there has not occurred any
event which, after the giving of notice or lapse of time or both, would
constitute a default under or result in a breach of an Assigned Contract by any
party subject thereto. No previous or current party to any Assigned Contract
has, within the last three years, (i) given notice of or made a claim with
respect to any breach or default under any Assigned Contract or (ii) given
notice of termination or non-renewal of any Assigned Contract. Except as set
forth in Schedule 3.9 hereto, each of the Assigned Contracts is freely
transferable by Seller to Buyer and no third party consents are required for
such transfer.
Section 3.10. Real Property.
(a) Neither Baseline nor CEG now owns or has ever owned any
real property.
(b) Other than the lease agreement, dated June 1, 1986,
between Baseline, as lessee, and 000 Xxxxxxxx Associates, as lessor (the
"Lease") and except as set forth on Schedule 3.10(b) hereto, Baseline is not now
nor has it been, within the last three years, a party to any lease, sublease,
license, sublicense or other agreement or arrangement with respect to any real
property, and has not used or occupied, does not use or occupy, and does not
have any right to use or occupy, now or in the future, any real property.
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(c) The office space that is the subject of the Lease is
not subject to any lease, sublease, license or other agreement granting to any
other corporation, partnership, limited liability company, person or other
entity or group (a "Person") any right to the use, occupancy or enjoyment of
such property or any part thereof.
(d) The Lease is valid and enforceable in accordance with
its terms, subject to applicable bankruptcy, insolvency, fraudulent conveyance,
reorganization, moratorium and similar laws affecting creditors' rights and
remedies generally, and subject as to enforceability to general principles of
equity (regardless of whether enforcement is sought in a proceeding at law or in
equity). Seller is not in breach of or in default under the Lease and, to
Seller's knowledge, there has not occurred any event which, after the giving of
notice or lapse of time or both, would constitute a default under or result in a
breach of the Lease. The Lease covers the entire estate it purports to cover
and, upon the consummation of the transactions contemplated hereby and subject
to the consent of the lessor to the assignment thereof, will entitle Buyer to
the use, occupancy and possession of the real property specified in the Lease
and for the purposes such property is now being used. Seller has delivered to
Buyer a true, correct and complete copy of the Lease, together with all
amendments, modifications, supplements or side letters affecting the obligations
of any party thereto. No previous or current party to the Lease has given notice
of or made a claim with respect to any breach or default thereunder.
Section 3.11. Intangible Property. (a) Schedule 3.11 hereto sets forth a list of
each material item of Intangible Property, including a list of all customers of
Baseline and all subscribers and customers of the Film Assets and indicates,
with respect to each item of Intangible Property, the owner thereof and, if
applicable, the name of the licensor and licensee thereof. Except as set forth
on Schedule 3.11, each of the foregoing assets listed on such Schedule as being
owned by Seller is owned by Seller free and clear of any and all Liens, is in
good standing and, to Sellers' knowledge, no other person or entity (including
any past or present officer, employee or consultant of Seller) has any claim of
ownership or right of use with respect thereto. The use, modification,
compilation, reproduction, public display or performance, or distribution of the
foregoing by Seller does not, and the use, modification, compilation,
reproduction, public display or performance, or distribution thereof by Buyer
immediately after the Closing will not, conflict with, infringe upon, violate or
interfere with or constitute an appropriation of any right, title, interest or
goodwill, including, without limitation, any intellectual property right,
trademark, trade name, service xxxx, brand xxxx, brand name, computer program,
domain name, database, patent, industrial design, copyright or any pending
application therefor of any other person or entity and there have been no claims
made and Seller has not received any notice or otherwise acquired any knowledge
that any of the foregoing is invalid or conflicts with the asserted rights of
any other person or has not been used or enforced or has been failed to be used
or enforced in a manner that would result in the abandonment, cancellation or
unenforceability of any of the Intangible Property.
(b) Except as set forth on Schedule 3.11, Seller is not a
party to or bound by any contract, license or other agreements relating to the
Intangible Property.
11
Section 3.12. Taxes. (a) For purposes of this Agreement:
(i) "Tax" or "Taxes" shall mean all taxes, charges, fees, imposts, levies
or other assessments by any governmental authority, including all net
income, gross receipts, capital, sales, use, ad valorem, value added,
transfer, franchise, profits, inventory, capital stock, license,
withholding, payroll, employment, social security, unemployment,
excise, severance, stamp, occupation, property and estimated taxes,
customs duties, fees, assessments and charges of any kind whatsoever,
and all interest, penalties, fines, additions to tax or other amounts
imposed by any governmental authority which relate in any way to the
assessment of collection of any taxes or the filing of any Tax
Return, and shall include any transferee or successor liability in
respect of Taxes (whether by contract or otherwise) and any liability
in respect of any Tax as a result of being a member of any Affiliated
Group, including any consolidated, combined, unitary or similar
group.
(ii) "Tax Return" means any return (including any consolidated, combined
or unitary return in which Seller is, or was, included or
includible), declaration, report, claim for refund, separate election
or information return or statement relating to Taxes, including any
schedule or attachment thereto, and including any amendment thereof.
(iii) "Affiliated Group" means any affiliated group within the meaning of
Section 1504 of the Code, or any consolidated, combined, unitary or
similar group defined under a similar provision of state, local or
foreign law.
(b) Except as set forth on Schedule 3.12(b) hereto, Seller
has (w) filed when due or will file when due (taking into account extensions)
with the appropriate federal, state, local, foreign and other governmental
agencies, all Tax Returns required to be filed by it or on its behalf, all of
which Tax Returns were true or will be true, complete and correct as of the time
of filing, (x) paid when due and payable (and, until the Closing Date, will
timely pay) all required Taxes (except for Taxes which are being contested in
good faith, as set forth on Schedule 3.12(b), and for which adequate reserves
have been established in accordance with GAAP), and (y) established (and through
and including the Closing Date will establish) reserves that are adequate for
the payment of all Taxes not yet due and payable with respect to the results of
operations through the Closing Date.
(c) Except as set forth on Schedule 3.12(c), there are no
Taxes assessed or asserted or claimed in writing to be due by any governmental
authority or otherwise in respect of any Tax Returns filed by Seller or on
Seller's behalf, and no issues have been raised (and are currently pending) by
any governmental authority in connection with any such Tax returns.
(d) Seller has duly and timely withheld and paid over to
the appropriate governmental authorities all Taxes and other amounts required to
be so withheld and paid over for all periods under all applicable laws in
connection with amounts paid or owing to any employee, independent contractor,
subcontractor, lender, stockholder or other third party or other personnel
supplied by any third party.
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(e) There is no audit, examination, deficiency, or refund
proceeding pending with respect to any Taxes or Tax Returns of Seller, and no
governmental authority has given written notice of the commencement of any
audit, examination or deficiency proceeding with respect to any Taxes or Tax
Returns of Seller.
(f) Set forth on Schedule 3.12(f) is a complete list of all
federal, state, local, and foreign Tax Returns filed by, or on behalf of,
Baseline or CEG for taxable periods commencing on or after January 1, 1995, and
all jurisdictions in which Seller is currently subject to tax.
(g) Set forth on Schedule 3.12(g) is a complete list of all
bulk sales or similar notices required to be filed (whether by Buyer or Seller),
in connection with the transactions contemplated herein, with any governmental
authority with respect to Taxes of Seller.
(h) Except as set forth in Schedule 3.12(h), Seller is not
a party to or bound by any Tax sharing, Tax indemnification or similar
agreements (or portions of any agreements) with respect to (or which relate to)
the Assets, and there are no powers of attorney currently in effect with respect
to any matter related to Taxes of Seller.
(i) Seller does not have, nor has Seller ever had, with
respect to its business or the Assets, a permanent establishment (within the
meaning of any applicable tax treaty) in any foreign country, nor do they engage
or have they ever engaged in a trade or business in any foreign country that has
subjected its business or the Assets to tax in such foreign country.
(j) Except as set forth in Schedule 3.12(j), Seller is not,
with respect to the Assets, a party to any joint venture, partnership or other
arrangement that constitutes a partnership for federal income tax purposes.
(k) Except as set forth in Schedule 3.12(k), the
performance of the transactions contemplated by this Agreement will not (either
alone or upon the occurrence of any additional or subsequent event) result in,
nor do the Liabilities assumed by Buyer in Section 1.3 otherwise provide for,
any payment by Buyer that would constitute an "excess parachute payment" within
the meaning of Section 280G of the Code.
(l) Except as set forth in Schedule 3.12(l), none of the
Assets are (i) property required to be treated as being owned by another Person
pursuant to the provisions of Section 168(f)(8) of the Internal Revenue Code of
1954, as amended and in effect immediately prior to the enactment of the Tax
Reform Act of 1986; (ii) "tax-exempt use property" within the meaning of Section
168(h)(l) of the Code; (iii) tax exempt bond financed property within the
meaning of Section 168(g) of the Code, (iv) property used "predominantly outside
of the United States" within the meaning of Section 168(g)(4), or (v) "limited
use property" (as that term is used in Rev. Proc. 76-30).
(m) Seller is not a "foreign person" within the meaning of
Section 1445 of the Code.
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(n) PKA (and any predecessor of PKA) has since its
inception been and will be, up to and including the Closing Date, a validly
electing S corporation within the meaning of Section 1361 of the Code and under
corresponding provisions of applicable state and local Tax laws to the extent
they recognize S corporation status. CEG has treated itself as a partnership for
income tax purposes.
(o) Neither Baseline nor PKA constitutes either a
"distributing corporation" or a "controlled corporation" (within the meaning of
Section 355(a)(1)(A) of the Code) in a distribution of shares qualifying for
tax-free treatment under Section 355 of the Code (i) in the two years prior to
the date of this Agreement or (ii) in a distribution that could otherwise
constitute part of a "plan" or "series of related transactions" (within the
meaning of Section 355(e) of the Code) in conjunction with the Baseline
Acquisition.
(p) Baseline has no reason to believe that any conditions
exist that could reasonably be expected to prevent the Baseline Acquisition (in
so far as it relates to Baseline) from qualifying as a reorganization within the
meaning of Section 368(a)(1)(C) of the Code.
(q) Pursuant to the Baseline Acquisition, Buyer will
acquire substantially all of the assets of Baseline within the meaning of
Section 368(a)(1)(C) of the Code.
(r) Prior to and in connection with the Baseline
Acquisition, no capital stock of Baseline has been or will be: (i) redeemed by
Baseline (or a predecessor or successor corporation), including through a
partnership; (ii) the subject of any extraordinary distribution by Baseline (or
a predecessor or successor corporation); or (iii) acquired by a corporation
related to Baseline (or any predecessor or successor corporation) within the
meaning of the Code as applicable to transactions under Section 368(a)(1)(C) (a
"Related Corporation"), including through a partnership, for consideration other
than Baseline capital stock or Buyer voting stock (other than the purchase by
PKA of up to 7.5% of the outstanding capital stock of Baseline). For this
purpose, each partner in a partnership will be treated as (x) owning or
acquiring any stock owned or acquired by the partnership, and (y) furnishing its
share of any consideration furnished by the partnership to acquire such stock,
in each case in accordance with the partner's interest in the partnership.
(s) No shareholder of Baseline has any plan or intention to
sell, exchange or otherwise transfer any Baseline stock to be received in the
Baseline Acquisition, directly or indirectly, including through a partnership
(as described in Section 3.12(s) above), to Buyer, any member of Buyer's
affiliated group (as defined for federal income tax purposes), or any
corporation that, immediately before or immediately after such sale, exchange or
other transfer, is a Related Corporation to Buyer, for consideration other than
Buyer voting stock. For this purpose, "Buyer" includes any predecessor or
successor thereto.
(t) In connection with the Baseline Acquisition, Baseline
has not sold, transferred or otherwise disposed of any of its assets as would
prevent Buyer from continuing the historic business of Baseline or using a
significant portion of Baseline's historic assets in a business after the
Baseline Acquisition.
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(u) The liabilities of Baseline to be assumed by Buyer and
the liabilities to which the transferred assets of Baseline will be subject were
incurred by Baseline in the ordinary course of its business.
(v) Baseline is not, and on the date of the Baseline
Acquisition will not be, an investment company, as defined in Sections
368(a)(2)(F)(iii) and (iv) of the Code.
The representations contained in this Section 3.12 are also true with respect to
each subsidiary of each Seller, except where the failure of any such
representation to be true with respect to any such subsidiary would not result
in any liability to Seller or Buyer or otherwise adversely affect Buyer's rights
in or to any of the Assets.
Section 3.13. Permits. Schedule 3.13 hereto sets forth a list of all approvals,
authorizations, consents, franchises, licenses, permits or certificates
(collectively, "Permits") granted by any government or governmental or
regulatory body thereof or political subdivision thereof, whether federal,
state, local or foreign, or any agency or instrumentality thereof, or any court
or arbitrator (public or private) (each, a "Government Body") and applications,
if any, for any of the foregoing, held by Baseline or CEG, or held by PKA and
relating exclusively to the Film Assets. Seller is the holder of all Permits
necessary or appropriate to enable it to continue to conduct its business in all
material respects as presently conducted. Each of the Permits is in full force
and effect.
Section 3.14. Options. There are no outstanding securities of Baseline or CEG
convertible into or evidencing the right to purchase or subscribe for any shares
of capital stock of Seller and there are no outstanding or authorized options,
warrants, calls, subscriptions, rights, commitments or any other agreements of
any character obligating Baseline or CEG to issue any shares of its capital
stock or membership interests or any securities convertible into or evidencing
the right to purchase or subscribe for any shares of such stock or membership
interests.
Section 3.15. Year 2000. Except as set forth on Schedule 3.15, each computer
program used by Seller in its business is Year 2000 Compliant or will be Year
2000 Compliant in sufficient time to avoid any material disruption to Seller's
business. "Year 2000 Compliant" means that such program is capable of managing
and manipulating data involving dates after the year 1999 without any functional
or data abnormality and without inaccurate results related to such dates.
Section 3.16. Absence of Changes or Events. Since December 31, 1998, to Sellers'
knowledge, no event or circumstance has occurred that has had, or is reasonably
likely to have, a material adverse effect on the business, assets, properties,
liabilities, financial condition or results of operations of Seller, other than
events or circumstances relating to the economy in general or the media industry
in general and not specifically relating to Seller. Since December 31, 1998,
Seller has conducted its business only in the ordinary course consistent with
past practice.
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Section 3.17. Investor Representations. The shares of Common Stock received by
Seller pursuant to this Agreement will be acquired for Seller's own account and
not with a view to or in connection with the sale or distribution of any part
thereof other than a distribution to PKA in respect of PKA's ownership interest
in Baseline, CEG and the Film Assets.
Section 3.18. Exemption from Registration; Restricted Securities. Seller
understands that the shares of Common Stock received by Seller pursuant to this
Agreement will not be registered under the Securities Act on the ground that the
sale provided for in this Agreement is exempt from registration under the
Securities Act, and that the reliance of Buyer on such exemption is predicated
in part on Seller's representations set forth in this Agreement. The
certificates representing the shares of Common Stock issued to Seller pursuant
to this Agreement will bear an appropriate legend reflecting such exempt
issuance without registration. Seller understands that the shares of Common
Stock received by Seller pursuant to this Agreement are restricted securities
within the meaning of Rule 144 under the Securities Act.
Section 3.19. Brokers. No broker, finder or investment banker is entitled to any
brokerage fee, finder's fee or other fee or commission in connection with the
transactions contemplated by this Agreement based upon arrangements made by or
on behalf of Seller
Notwithstanding anything to the contrary set forth in this Article
III, the representations and warranties of PKA set forth in Sections 3.6, 3.7,
3.8 and 3.12 relate only to the ownership and operation of the Film Assets and
any and all liabilities of PKA derived from the Film Assets.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF BUYER
Buyer represents and warrants to Seller as follows:
Section 4.1. Organization. Buyer is a corporation duly organized, validly
existing and in good standing under the laws of the State of Florida and has all
requisite corporate power and authority to own, lease and operate its properties
and to carry on its business as now being conducted.
Section 4.2. Authorization of Agreement. Buyer has full corporate power and
authority to execute and deliver this Agreement and each other agreement,
document, instrument or certificate contemplated by this Agreement or to be
executed by Buyer in connection with the consummation of the transactions
contemplated hereby and thereby (all of such agreements, documents, instruments
and certificates required to be executed by Buyer being hereinafter referred to,
collectively, as the "Buyer Documents"), and to perform fully its obligations
hereunder and thereunder. The execution, delivery and performance by Buyer of
this Agreement and each Buyer Document have been duly authorized by the Board of
Directors of Buyer and by all other necessary corporate action on the part of
Buyer. This Agreement has been, and at or prior to the Closing, each of the
Buyer Documents will be, duly and validly executed and delivered by Buyer and
(assuming the due authorization, execution and delivery by the other parties
16
hereto and thereto) this Agreement constitutes, and each of the Buyer Documents
when so executed and delivered will constitute, the legal, valid and binding
obligation of Buyer, enforceable against Buyer in accordance with its respective
terms, subject to applicable bankruptcy, insolvency, fraudulent conveyance,
reorganization, moratorium and similar laws affecting creditors' rights and
remedies generally and subject, as to enforceability, to general principles of
equity, including principles of commercial reasonableness, good faith and fair
dealing (regardless of whether enforcement is sought in a proceeding at law or
in equity).
Section 4.3. Consents and Approvals; No Violations.
(a) No filing with, notification to or consent,
authorization, waiver, approval, order, license, certificate or Permit of, any
Government Body is necessary for Buyer's execution, delivery or performance of
this Agreement or any of the Buyer Documents or the consummation by Buyer of the
transactions contemplated by this Agreement and the Buyer Documents.
(b) None of the execution and delivery by Buyer of this
Agreement or the Buyer Documents, the consummation of the transactions
contemplated hereby or thereby or compliance by Buyer with any of the provisions
hereof or thereof will (i) conflict with or result in any breach of any
provision of the Articles of Incorporation or By-laws of Buyer, (ii) violate any
Order or statute, rule or regulation of any Government Body by which Buyer or
any of its properties or assets is bound, or (iii) conflict with, violate,
result in the breach or termination of, or (with or without due notice or the
lapse of time or both) constitute a default or give rise to any "takeback" right
or right of termination or acceleration or right to increase the obligations
under or modify any of the terms, conditions or provisions of any note, bond,
mortgage, license, franchise, Permit, indenture, agreement or other instrument
or obligation to which Buyer is a party, or by which Buyer or any of its
properties or assets is or may be bound.
Section 4.4. Litigation. There are no Legal Proceedings pending or, to the
knowledge of Buyer, threatened that question the validity of this Agreement, the
Buyer Documents or any action taken or to be taken by Buyer in connection with
the consummation of the transactions contemplated hereby or thereby. On and
after the date hereof until the Closing, Buyer will notify Seller of the
existence or threat of any such Legal Proceeding. Except as set forth on
Schedule 4.4 hereto, there is no Legal Proceeding pending against or affecting
Seller or its assets at law or in equity.
Section 4.5. Capital Stock of Buyer.
(a) The authorized capital stock of Buyer consists of (i)
25,000,000 shares of Common Stock, of which, as of August 10, 1999, 13,683,584
shares of Common Stock were issued and outstanding (each together with a Common
Stock purchase right (the "Buyer Rights") issued pursuant to the Rights
Agreement, dated as of August 23, 1996 by and between Buyer and American Stock
Transfer & Trust Company), and 394,466 shares of Common Stock were issued and
held as collateral for lease obligations of Buyer; and (ii) one million shares
of Preferred Stock ("Buyer Preferred Stock"), designated as follows: (A) 217,600
shares of Series A Variable Rate Convertible Preferred Stock, $6.25 stated value
per share, none of which shares, as of the date hereof, are issued and
outstanding, (B) 142,223 shares of Series B Variable Rate Convertible Preferred
17
Stock, $5.21 stated value per share, none of which shares, as of the date
hereof, are issued and outstanding, (C) 100,000 shares of 4% $100 Series C
Convertible Preferred Stock, $100 stated value per share, none of which shares,
as of the date hereof, are issued and outstanding, (D) 1,000 shares of 7% Series
D Convertible Preferred Stock, $10,000 stated value per share, of which, as of
the date hereof, 50 shares are issued and outstanding and (E) 50 shares of 7%
Series D-2 Convertible Preferred Stock, $10,000 stated value per share, none of
which shares, as of the date hereof, are issued and outstanding. All of the
outstanding shares of Common Stock are duly authorized and validly issued and
none fully paid and nonassessable. Except for the outstanding shares of the
Common Stock and the Buyer Preferred Stock, as of the date hereof, there are no
shares of capital stock or other equity securities of Buyer outstanding. The
shares of Common Stock have not been issued in violation of, and none of the
shares of Common Stock is subject to any preemptive or subscription rights.
(b) The Common Stock constitutes the only class of equity
securities or Buyer or its subsidiaries registered or required to be registered
under the Securities Exchange Act of 1934, as amended (the "Exchange Act").
Section 4.6. SEC Reports; Financial Statements.
(a) Buyer has filed all required forms, reports and
documents required to be filed by it ("Buyer SEC Reports") with the Securities
and Exchange Commission ("SEC"), each of which has complied as to form in all
material respects with all applicable requirements of the Securities Act of
1933, as amended (the "Securities Act"), and the Exchange Act, each as in effect
on the dates such forms, reports and documents were filed. The audited
consolidated financial statements of Buyer included in the Buyer SEC Reports
were prepared in accordance with GAAP and present fairly the consolidated
financial position of Buyer and its consolidated subsidiaries as of the dates
thereof and their consolidated results of operations and changes in financial
position for the periods then ended.
Section 4.7. Brokers. No broker, finder or investment banker is entitled to any
brokerage fee, finder's fee or other fee or commission in connection with the
transactions contemplated by this Agreement based upon arrangements made by or
on behalf of Buyer.
ARTICLE V
COVENANTS OF SELLER
Section 5.1. Access to Information. From the date of this Agreement until the
Closing Date, Seller shall permit Buyer and its representatives, including,
without limitation, its legal counsel and accountants, to conduct an appropriate
due diligence examination and investigation with respect to Seller. Seller will
reasonably cooperate with Buyer's diligence, and such cooperation will include,
without limitation, the following:
(i) providing Buyer and its representatives with reasonable access to all
data, records and other information that they may request in
connection with their evaluation of the transactions contemplated by
this Agreement (including, without limitation, lists of contact
18
persons, marketing information, and records of negotiations with
existing and prospective customers);
(ii) allowing Buyer and its representatives to conduct a complete
business, financial and legal review of all aspects of Seller;
(iii) affording Buyer and its representatives the opportunity to discuss
the affairs, finances, operations and accounts of Seller with
Seller's officers, directors, agents and other appropriate personnel;
and
(iv) facilitating conversations between Buyer and its representatives and
representatives of the other parties to the Assigned Contracts.
Section 5.2. Exclusivity. From the date of this Agreement until the earlier of
the Closing Date or the Termination Date (as defined in Section 12.1 below),
Seller shall not, nor shall Seller permit its officers, directors, affiliates,
representatives or agents to (including, without limitation, investment bankers,
financial advisors, brokers and other advisors) (collectively, the
"Representatives"), directly or indirectly do any of the following (provided
that, with respect to PKA, the following covenants shall only relate to the Film
Assets):
(i) discuss, negotiate, undertake, authorize, recommend, propose or enter
into, either as the proposed surviving, merged, acquiring or acquired
corporation, any transaction (an "Acquisition Transaction") involving
any disposition or other change of ownership or control of a
substantial portion of Seller's stock or assets or any assumption by
Seller of substantial liabilities, including, without limitation, any
joint venture or partnership involving any of the foregoing (other
than the transaction contemplated in this Agreement);
(ii) facilitate, encourage, solicit or initiate or in any way engage in
discussions, negotiations or submissions of proposals or offers in
respect of an Acquisition Transaction (other than the transaction
contemplated in this Agreement);
(iii) furnish or cause to be furnished to any Person (other than Buyer or
its representatives) any information concerning the business,
operations, properties or assets of Seller in connection with an
Acquisition Transaction; or
(iv) otherwise cooperate in any way with, or assist or participate in,
facilitate or encourage, any effort or attempt by any other Person to
do or seek any of the foregoing.
Seller shall inform Buyer by telephone, within 24 hours, of Seller's receipt of
any proposal or bid (including the terms thereof and the Person making such
proposal or bid) in respect of any Acquisition Transaction other than the
transaction described in this Agreement. Seller shall, immediately upon
execution of this Agreement, instruct its Representatives to cease all further
activities with respect to the sale of Seller or Seller's assets, including,
without limitation, the dissemination of information.
19
Section 5.3. Conduct of Business. (a) From the date of this Agreement until the
earlier of the Closing Date or the Termination Date Seller (provided that, with
respect to PKA, the following covenants shall only relate to the Film Assets):
(i) shall not modify or amend any Assigned Contract in any material
respect or assign, transfer or terminate any Assigned Contract;
(ii) shall not enter into any agreement, contract or arrangement with any
person of the type included in the Assigned Contracts, except for
agreements, contracts or arrangements entered into in the ordinary
course of business, consistent with past practice;
(iii) shall use its best efforts to preserve its present relationships with
Persons having business dealings with Seller;
(iv) shall (A) maintain the books, accounts and records of Seller in the
ordinary course of business consistent with past practices, (B)
collect all trade accounts receivable and shall pay all trade
accounts payable in the ordinary course of business consistent with
past practices, and (C) comply in all material respects with all
contractual and other obligations applicable to the operations of
Seller;
(v) shall not subject any of the properties or assets (whether tangible
or intangible) of Seller to any Lien other than liens arising by
operation of law in the ordinary course of business and liens arising
under equipment leases entered into in the ordinary course of
business;
(vi) shall not incur any indebtedness for borrowed money;
(vii) shall not sell, assign, transfer, convey, lease or otherwise dispose
of any of the properties or assets of Seller;
(viii) shall not acquire any properties or assets except in the ordinary
course of business, consistent with past practice;
(ix) shall not cancel or compromise any debt or claim or waive or release
any right of Seller;
(x) shall not grant any officer or employee of Seller any increase in
compensation or benefits or any rights to receive severance payments
or other benefits upon a termination of employment;
(xi) shall not terminate any officer or employee of Seller, induce or
attempt to induce any officer or employee of Seller to leave the
employ of Seller or in any way interfere adversely with the
relationship between any such employee and Seller;
(xii) shall not introduce any material change with respect to the operation
of Seller;
20
(xiii) shall not change any existing Tax elections, or make any new Tax
elections, with respect to the Assets, unless required by applicable
Tax law; and
(xiv) shall operate only in the ordinary course of business.
The foregoing shall not restrict Seller from canceling any agreement not
included in the Assets.
Section 5.4. Public Announcements. Each of the parties hereto agrees that it
shall not issue any press release or make any public statement, announcement or
filing concerning this Agreement or any aspect of the transactions contemplated
hereby or otherwise furnish or make available to any person any of the terms and
conditions of this Agreement or any of the transactions contemplated hereby or
information disclosed by the other party in connection herewith, except as may
be required by applicable law or with the prior consent of the other party. Each
of the parties hereto agrees that it shall not issue any such release or make
any such statement, announcement or filing required by applicable law except
after prior consultation with the other party.
Section 5.5. No Breach of Representations and Warranties. Seller agrees that it
shall not take any action, and shall use its reasonable commercial efforts not
to permit any event to occur, which would result in any of the representations
and warranties of Seller contained in this Agreement not being true and correct
in any material respect on and as of the Closing Date with the same force and
effect as if such representations and warranties had been made on and as of the
Closing Date.
Section 5.6. Updating Information. Seller shall promptly deliver to Buyer any
information concerning events subsequent to the date of this Agreement that is
necessary to supplement the representations and warranties contained herein,
including the Schedules hereto, or the information delivered by Seller pursuant
to any of the covenants contained herein, in order that such representations and
warranties (including such Schedules) or the information so delivered be
complete and accurate in all material respects, it being understood and agreed
that the delivery of such information shall not in any manner constitute a
waiver by Buyer of any of the conditions precedent to the Closing hereunder,
including, without limitation, the conditions contained in Section 7.1.
Section 5.7. Restrictions on Transfer of Stock Consideration. Neither Seller nor
Xxxx Xxxxx shall, directly or indirectly, sell, transfer any beneficial interest
in, pledge, hypothecate or otherwise dispose, or offer to sell, transfer any
beneficial interest in, pledge, hypothecate or otherwise dispose (collectively,
"Transfer"), any shares of Common Stock constituting the Stock Consideration or
the Warrant Consideration (including the shares of Common Stock underlying the
Warrant) during the 24-month period following the Closing Date. The certificates
for the Stock Consideration and the Warrant Consideration shall contain legends
indicating the foregoing transfer restrictions and all other transfer
restrictions required by applicable securities laws. In addition, Seller shall
not transfer any such shares of Common Stock for such additional period as may
be agreed to by Buyer and Seller pursuant to Section 11.3(c).
21
Section 5.8. Non-Competition Agreement; Operation and Management Agreement. At
the Closing, PKA and Baseline shall enter into a non-competition agreement,
substantially in the form of Exhibit B hereto (the "Non-Competition Agreement")
with Buyer and Xx. Xxxx Xxxxx. At the Closing, PKA and Xx. Xxxx Xxxxx shall
enter into an Operation and Management Agreement substantially in the form of
Exhibit D hereto (the "Operation and Management Agreement") with Buyer.
Section 5.9. Consents. Seller shall use its diligent, good faith efforts to
obtain, at the earliest practicable date, all consents and approvals reasonably
required to consummate the transactions contemplated by this Agreement.
Section 5.10. Further Actions. Seller agrees to execute and deliver such
instruments and promptly take such other actions as may reasonably be required
to consummate the transactions contemplated hereby in accordance with the terms
hereof including, without limitation, preparing and filing, within 10 business
days after the Closing Date, all UCC Termination Statements necessary to
terminate any UCC Financing Statement filed by Seller with respect to the
Assets.
ARTICLE VI
COVENANTS OF BUYER
Section 6.1. No Breach of Representations and Warranties. Buyer agrees that it
shall not take any action, and shall use its reasonable commercial efforts not
to permit any event to occur, which would result in any of the representations
and warranties of Buyer contained in this Agreement not being true and correct
in any material respect on and as of the Closing Date with the same force and
effect as if such representations and warranties had been made on and as of the
Closing Date.
Section 6.2. Confidentiality. Buyer agrees that until the Closing Date any
written information provided to it in connection with this Agreement will be
kept confidential by it and its Representatives; provided, however, that
disclosure of such information may be made (i) to Representatives of Buyer, (ii)
to the extent the same shall be or shall have otherwise become publicly
available other than as a result of a disclosure by Buyer or its agents,
advisors or employees, (iii) to the extent required to be disclosed by law or
pursuant to a court order, (iv) to the extent it is obtained by Buyer from a
source other than Seller or its Representatives, provided that such source was
not then bound by a duty of confidentiality to Seller with respect to the
information, (v) to the extent required to be disclosed by Buyer in filings with
the SEC or (vi) with the written consent of Seller.
Section 6.3. Non-Competition Agreement; Operation and Management Agreement. At
the Closing, Buyer shall enter into the Non-Competition Agreement with Baseline,
PKA and Xx. Xxxx Xxxxx and the Operation and Management Agreement with PKA and
Xx. Xxxx Xxxxx.
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Section 6.4. Consents and Conditions. Buyer shall use its reasonable best
efforts to assist Seller in causing each of the conditions precedent to the
obligations of Seller to be satisfied.
Section 6.5 Distribution of Consideration. Buyer shall cooperate fully with
Seller to permit Seller to distribute the Consideration in accordance with
applicable securities laws to certain shareholders of Baseline; provided that
Buyer shall not be required to incur any out-of-pocket expenses (other that
normal overhead expenses of Buyer's business) in connection therewith.
Section 6.6 Further Actions. Buyer agrees to execute and deliver such
instruments and promptly take such other actions as may reasonably be required
to consummate the transactions contemplated hereby in accordance with the terms
hereof.
Section 6.7 Rule 144 Reporting. From and after such time as Seller is eligible
pursuant to this Agreement and under Rule 144 to effect resales of the shares
constituting the Stock Consideration, the Buyer hereby agrees to file with the
SEC all periodic and other reports required to be so filed by it under the
Securities Act and the Exchange Act and the rules and regulations thereunder
(or, if the Buyer is not then required to file such reports, it shall, as
promptly as reasonably practicable after the written request of Seller, make
publicly available the requisite "Rule 15c2-11 information" in respect of the
Buyer so long as and solely to the extent necessary to permit resales of Shares
pursuant to Rule 144).
ARTICLE VII
CONDITIONS PRECEDENT TO BUYER'S OBLIGATIONS
Section 7.1. Conditions. The obligation of Buyer to consummate the Acquisition
on the Closing Date is subject to the satisfaction of the following conditions
(any or all of which may be waived by Buyer, in its sole discretion, in whole or
in part, to the extent permitted by applicable law):
(i) each of the representations and warranties of Seller contained herein
shall be true and correct in all material respects on and as of the
Closing Date with the same force and effect as though the same had
been made on and as of the Closing Date;
(ii) Seller shall have performed and complied, in all material respects,
with the covenants and provisions of this Agreement required to be
performed or complied with by it between the date hereof and the
Closing Date;
(iii) since the date of this Agreement, no event or circumstance shall have
occurred that has had, or is reasonably likely to have, a material
adverse effect on the business, assets, properties, liabilities,
financial condition or results of operations of Seller;
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(iv) (A) no Legal Proceeding shall have been instituted or threatened or
claim or demand made against Seller or Buyer seeking to restrain or
prohibit or to obtain damages with respect to the consummation of the
transactions contemplated by this Agreement, or which might, in the
reasonable opinion of Buyer, result in a material adverse change in
the business, assets, properties, liabilities, financial condition or
results of operations of Seller and (B) there shall not be in effect
any Order of a Government Body of competent jurisdiction restraining,
enjoining or otherwise prohibiting the consummation of the
transactions contemplated by this Agreement;
(v) Buyer and Seller shall have received all third-party consents and
approvals required with respect to the assumption by, and the
assignment to, Buyer of the Lease;
(vi) Buyer shall not have obtained or discovered, in the course of its due
diligence review referred to in Section 5.1 above, information
concerning Seller or the Assets which, in the reasonable judgment of
Buyer, could materially adversely affect the business, assets,
financial condition or results of operations of the Seller or Buyer
(provided that the condition set forth in this clause (vi) will lapse
on the Closing Date);
(vii) Buyer shall have received a certificate to the effect set forth in
clauses (i) and (ii) above, dated the Closing Date and signed by a
duly authorized officer of Seller;
(viii) Buyer shall have received a certificate of the Secretary of each
Seller, dated the Closing Date, setting forth resolutions of the
Board of Directors and of the shareholders or members, as applicable,
of Seller authorizing the execution and delivery of this Agreement
and each document and instrument required to be executed and
delivered by Seller hereunder and the consummation of the
transactions contemplated hereby and thereby, and certifying that
such resolutions were duly adopted and have not been rescinded or
amended as of the Closing Date;
(ix) Seller and Xx. Xxxx Xxxxx shall have executed and delivered to Buyer
the Non-Competition Agreement and the Operation and Management
Agreement;
(x) The oral lease between Baseline and PKA regarding office space in Los
Angeles shall have been terminated; and
(xi) Seller shall have executed and delivered to Buyer (A) all documents
to be delivered at the Closing in accordance with the terms of this
Agreement and (B) such other documents and instruments as Buyer may
reasonably request and which Seller can obtain with reasonable
commercial efforts in order to consummate the transactions
contemplated by this Agreement.
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ARTICLE VIII
CONDITIONS PRECEDENT TO SELLER'S OBLIGATIONS
Section 8.1. Conditions. The obligation of Seller to consummate the Acquisition
on the Closing Date is subject to the satisfaction of the following conditions
(any or all of which may be waived by Seller, at the sole option of Seller, in
whole or in part to the extent permitted by applicable law):
(i) each of the representations and warranties of Buyer contained herein
shall be true and correct in all material respects on and as of the
Closing Date with the same force and effect as though the same had
been made on and as of the Closing Date;
(ii) Buyer shall have performed and complied, in all material respects,
with the covenants and provisions of this Agreement required to be
performed or complied with by it between the date hereof and the
Closing Date;
(iii) Seller shall have received a certificate to the effect set forth in
clauses (i) and (ii) above, dated the Closing Date and signed by a
duly authorized officer of Buyer;
(iv) Seller shall have received a certificate of the Secretary of Buyer,
dated the Closing Date, setting forth resolutions of the Board of
Directors of Buyer authorizing the execution and delivery of this
Agreement and each document and instrument required to be executed
and delivered by Buyer hereunder and the consummation of the
transactions contemplated hereby and thereby, and certifying that
such resolutions were duly adopted and have not been rescinded or
amended as of the Closing Date;
(v) (A) no Legal Proceeding shall have been instituted or threatened or
claim or demand made against Seller or Buyer seeking to restrain or
prohibit or to obtain damages with respect to the consummation of the
transactions contemplated by this Agreement, or which might, in the
reasonable opinion of Buyer, result in a material adverse change in
the business, assets, properties, liabilities, financial condition or
results of operations of Seller and (B) there shall not be in effect
any Order of a Government Body of competent jurisdiction restraining,
enjoining or otherwise prohibiting the consummation of the
transactions contemplated by this Agreement; and
(vi) Buyer shall have executed and delivered to Seller (A) all documents
to be delivered at the Closing in accordance with the terms of this
Agreement and (B) such other documents and instruments as Seller may
reasonably request and which Buyer can obtain with reasonable
commercial efforts in order to consummate the transactions
contemplated by this Agreement.
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ARTICLE IX
THE CLOSING
Section 9.1. Closing Date. Except as hereinafter provided, the closing of the
transactions contemplated by this Agreement (the "Closing") shall take place at
such location as the parties shall mutually agree at 10:00 a.m. on the second
business day following the date on which each of the conditions specified in
Section 7.1 and Section 8.1 (other than those as to which the parties agree will
be satisfied at the Closing) of this Agreement has been fulfilled (or waived by
the party entitled to waive that condition) or at such other time and place as
Seller and Buyer may mutually agree in writing. The date on which the Closing of
the Acquisition occurs is referred to herein as the "Closing Date."
Section 9.2. Proceedings at the Closing. All proceedings to be taken and all
documents to be executed and delivered by Seller in connection with the Closing
shall be reasonably satisfactory in form and substance to Buyer and its counsel.
All proceedings to be taken and all documents to be executed and delivered by
Buyer in connection with the Closing shall be reasonably satisfactory in form
and substance to Seller and its counsel. All proceedings to be taken and all
documents to be executed and delivered by both parties at the Closing shall be
deemed to have been taken and executed simultaneously, and no proceedings shall
be deemed taken nor any documents executed or delivered until all have been
taken and delivered.
Section 9.3. Deliveries by Seller to Buyer. At the Closing, Seller shall
deliver, or shall cause to be delivered, to Buyer the following:
(i) a xxxx of sale and assignment and assumption agreement in the form of
Exhibit C hereto (the "Xxxx of Sale and Assignment and Assumption
Agreement"), duly executed by Seller;
(ii) all other assignments and other instruments or documents as shall be
reasonably necessary in the judgment of Buyer to evidence the sale,
assignment, transfer and conveyance by Seller to Buyer of the Assets
in accordance with the terms hereof, free and clear of all Liens;
(iii) copies of all approvals and consents related to the Lease referred to
in clause (v) of Section 7.1 above;
(iv) the certificates, signed by a duly authorized officer of each Seller,
referred to in clause (vii) of Section 7.1 above;
(v) the certified resolutions of the Board of Directors and shareholders
or members of Seller referred to in clause (viii) of Section 7.1
above;
(vi) the Non-Competition Agreement duly executed by Baseline, PKA and Xx.
Xxxx Xxxxx and the Operation and Management Agreement duly executed
by PKA and Xx. Xxxx Xxxxx;
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(vii) an affidavit of Seller, in a form reasonably satisfactory to Buyer,
stating, under penalties of perjury, Seller's United States taxpayer
identification number and that Seller is not a foreign person within
the meaning of Section 1445 of the Code; and
(viii) a certificate of the Secretary of each Seller attesting to the
incumbency and signature of each officer of Seller who shall execute
this Agreement or any other Seller Document.
Section 9.4. Deliveries by Buyer to Seller. At the Closing, Buyer shall deliver
to Seller the following:
(i) the certificate, signed by a duly authorized officer of Buyer,
referred to in clause (iii) of Section 8.1 above;
(ii) the Non-Competition Agreement duly executed by Buyer and the
Operation and Management Agreement duly executed by Buyer;
(iii) the certified resolutions of the Board of Directors of Buyer referred
to in clause (iv) of Section 8.1 above; and
(iv) a certificate of the Secretary of Buyer attesting to the incumbency
and signature of each officer of Buyer who shall execute this
Agreement or any other Buyer Document.
ARTICLE X
ADDITIONAL POST-CLOSING COVENANTS
Section 10.1. Further Assurances by Seller and Shareholder.
(a) From time to time after the Closing Date, Seller will,
at the request of Buyer, execute and deliver such other and further instruments
of sale, assignment, transfer and conveyance and take such other and further
actions as Buyer may reasonably request in order to make all the benefits of the
Assigned Contracts (subject to Schedule 3.9) and rights of Seller included in
the Assets available to Buyer, to vest in Buyer and put Buyer in possession of
the Assets and to transfer to Buyer any contracts and rights of Seller relating
to the Assets and to assure to Buyer the benefits thereof and effectuate fully
the purposes of this Agreement.
(b) With respect to any Assigned Contract which is not
assumed by Buyer at the Closing because a consent to assignment is required but
not obtained prior to the Closing, if Seller or Buyer shall thereafter obtain
such consent to assignment, then Seller and Buyer shall each execute and deliver
such instruments of assignment and assumption as may reasonably be required for
Seller to assign and Buyer to assume such Assigned Contract, subject to all the
terms and conditions of this Agreement as if such Assigned Contract had been
included in the Assets at the Closing.
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Section 10.2. Seller to Change Name. On the Closing Date or as soon thereafter
as practicable (but in no event more than 5 business days thereafter), Baseline
shall either dissolve or adopt (and shall make all appropriate filings so as to
adopt), and shall thereafter do business under, a new name which does not
contain the words "Baseline" or any variation thereof. Section 10.3.
Preservation of Corporate Records. Seller shall preserve and keep the Corporate
Records for a period of seven years from the Closing Date and shall make such
Corporate Records and personnel, if any, of Seller available to Buyer as Buyer
may reasonably require (i) in connection with, among other things, any insurance
claims by, Legal Proceedings against or governmental investigations of Buyer or
(ii) in order to enable Buyer to comply with its obligations under the Code, any
other applicable statute with respect to taxation, this Agreement and each other
agreement, document or instrument contemplated hereby. If Seller wishes to
destroy such Corporate Records after such seven year period, then Seller shall
first give 90 days prior written notice to Buyer and Buyer shall have the right
at its option and expense, upon prior written notice given to Seller within that
90 day period, to take possession of the Corporate Records within 180 days after
the date of such notice.
Section 10.4. Confidentiality. From and after the Closing Date, none of PKA or
Baseline, or any of their respective employees shall divulge, furnish or make
available to any person any knowledge or information with respect to the Assets
or Buyer (other than in the regular course and in furtherance of the Buyer's
business) which is, or which Seller is advised or has reason to believe is,
confidential (including, but not limited to, information relating to any
marketing, financial or personnel matters in connection with the Assets).
ARTICLE XI
INDEMNIFICATION
Section 11.1. Indemnification.
(a) Each of Baseline and PKA jointly and severally agrees
to indemnify and hold Buyer harmless from and against any and all losses,
liabilities, obligations, judgments, damages, deficiencies, costs, penalties and
expenses (including, without limitation, reasonable attorneys' fees and
expenses) (collectively, "Losses") based upon, attributable to or resulting
from:
(i) (A) any misrepresentation or breach of warranty on the part of any
Seller under this Agreement or any of the Seller Documents or (B) any
breach of covenant or other agreement on the part of any Seller under
this Agreement or any of the Seller Documents;
(ii) any Liabilities of any Seller not expressly assumed by Buyer under
the terms of this Agreement, including, without limitation:
(A) any liabilities and obligations arising out of or based
upon the conduct of the business of any Seller prior to
the Closing Date (other than obligations or liabilities
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that are expressly assumed by Buyer pursuant to Section
1.3 of this Agreement), including, without limitation, any
matter disclosed on Schedule 3.6;
(B) any claims for any injury to person or property
attributable to any services rendered by any Seller prior
to the Closing Date, regardless of whether such claims are
asserted prior to or after the Closing;
(C) any claims by any employee or former employee of any
Seller arising out of the employment or termination of
employment of the employee or former employee on or prior
to the Closing Date or as a result of the transactions
contemplated by this Agreement;
(D) any third party claims with respect to occurrences or
events that occurred on or prior to the Closing Date and
relate to any Seller, its employees or the Assets; and
(E) any liabilities and obligations arising out of or based
upon any agreements listed on Schedule 1.2 hereto.
(iii) any liabilities and obligations, based in any way on agreements,
arrangements or understandings made by or on behalf of any Seller,
for any brokerage fees, finder's fees, commissions or like payments
in respect of the transactions contemplated by this Agreement;
(iv) any costs incurred by Buyer in connection with any claims or disputes
arising from the requirements of any applicable tax bulk sales laws;
(v) any and all Losses in respect of any and all Taxes of CEG for all
periods (or portions thereof) ending on or prior to the Closing; and
(vi) all actions, suits, proceedings, demands, assessments, judgments,
costs, penalties and expenses, including reasonable attorneys' fees,
incident to the foregoing.
(b) Buyer agrees to indemnify and hold Seller harmless from
and against any and all Losses attributable to or resulting from:
(i) (A) any misrepresentation or breach of warranty on the part of Buyer
under this Agreement or any of the Buyer Documents or (B) any breach
of covenant or other agreement on the part of Buyer under this
Agreement or any of the Buyer Documents;
(ii) any liabilities expressly assumed by Buyer pursuant to Section 1.3
hereof;
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(iii) to the extent Buyer is not indemnified with respect thereto under
Section 11.1(a)(i), any claims that arise from Buyer's ownership or
operation of the Assets subsequent to the Closing Date, including,
without limitation, any claims by any employee or former employee of
Buyer arising out of the employment or termination of employment of
the employee or former employee subsequent to the Closing Date or as
a result of the transactions contemplated by this Agreement;
(iv) any liabilities and obligations, based in any way on agreements,
arrangements or understandings made by or on behalf of Buyer, for any
brokerage fees, finder's fees, commissions or like payments in
respect of the transactions contemplated by this Agreement; and
(v) all actions, suits, proceedings, demands, assessments, judgments,
costs, penalties and expenses, including reasonable attorneys' fees,
incident to the foregoing.
Section 11.2. Procedures for Indemnification. Whenever a claim shall arise for
indemnification under Section 11.1 above, the party entitled to indemnification
(the "Indemnified Party") shall promptly notify the party from whom
indemnification is sought (the "Indemnifying Party") of such claim and, when
known, the facts constituting the basis for such claim; provided, however, that
in the event of any claim for indemnification hereunder resulting from or in
connection with any claim or Legal Proceeding by a third party, the Indemnified
Party shall give such notice thereof to the Indemnifying Party, as soon as
possible, but in no event later than 10 business days prior to the time any
response to the asserted claim is required, if possible, and in any event within
3 business days following receipt of notice thereof. The Indemnifying Party
shall not be liable for any legal fees incurred by the Indemnified Party prior
to the Indemnifying Party's receipt of such notice. Notwithstanding anything in
the preceding sentence to the contrary, the failure of any Indemnified Party to
so notify the Indemnifying Party shall not relieve the Indemnifying Party from
any liability for indemnification it may have if and to the extent that the
Indemnifying Party shall not have been prejudiced by such omission. In the event
of any such claim for indemnification resulting from or in connection with a
claim or Legal Proceeding by a third party, the Indemnifying Party may, at its
sole cost and expense, assume the defense thereof (and Seller shall assume the
defense of any claim for unpaid taxes for any period prior to the Closing and
Buyer shall assume the defense of any claim for unpaid taxes for any period
after the Closing); provided, however, that the Indemnifying Party shall first
have agreed in writing that it does not and will not contest its responsibility
for indemnifying the Indemnified Party in respect of Losses, if any,
attributable to such claim or Legal Proceeding. If an Indemnifying Party assumes
the defense of any such claim or Legal Proceeding, the Indemnifying Party shall
be entitled to select counsel and take all steps necessary in the defense
thereof; provided, however, that no settlement shall be made without the prior
written consent of the Indemnified Party, which consent shall not be
unreasonably withheld (and if the Indemnified Party shall withhold its consent
to any monetary settlement proposed by the Indemnifying Party and which the
other party to the action has indicated it is prepared to accept, the
Indemnified Party shall in no event be deemed for purposes of this Agreement, to
have suffered Losses in connection with such claim or proceeding in excess of
30
the proposed amount of such settlement, plus reasonable attorneys' fees);
provided, further, that the Indemnified Party may, at its own expense,
participate in any such proceeding with the counsel of its choice without any
right of control thereof. So long as the Indemnifying Party is in good faith
defending such claim or Legal Proceeding, the Indemnified Party shall not
compromise or settle such claim without the prior written consent of the
Indemnifying Party, which consent shall not be unreasonably withheld. If the
Indemnifying Party does not assume the defense of any such claim or Legal
Proceeding in accordance with the terms hereof, the Indemnified Party may defend
against such claim or Legal Proceeding in such manner as it may deem
appropriate, including, but not limited to, settling such claim or litigation
(after giving prior written notice of the same to the Indemnifying Party and
obtaining the prior written consent of the Indemnifying Party, which consent
shall not be unreasonably withheld) on such terms as the Indemnified Party may
deem appropriate, and the Indemnifying Party will promptly indemnify the
Indemnified Party in accordance with the provisions of this Section 11.2;
provided, however, that if the Indemnified Party does not obtain the prior
written consent of the Indemnifying Party to any such settlement, and such
written consent is not unreasonably withheld by the Indemnifying Party, the
Indemnified Party shall not be entitled to indemnification hereunder from such
Indemnifying Party with respect to the claim settled. Notwithstanding anything
in this Section 11.2 to the contrary, if, in any claim or Legal Proceeding with
respect to which the Indemnified Party has given the notice required under this
Section 11.2, (i) the Indemnifying Party shall not have promptly employed
counsel or (ii) such Indemnified Party shall have reasonably concluded, based
upon the opinion of outside legal counsel to each of the Indemnifying Party and
the Indemnified Party, that a conflict of interest gives rise to one or more
legal defenses available to the Indemnified Party that are different from or
additional to those available to the Indemnifying Party, then in either event
(x) the Indemnified Party may participate in any such proceeding with the
counsel of its choice (reasonably satisfactory to the Indemnifying Party), the
expense for which shall be borne by the Indemnifying Party (but in no event
shall the Indemnifying Party be required to pay the fees and expenses of more
than one counsel employed by the Indemnified Party with respect to such claim or
proceeding) and (y) the Indemnifying Party shall not have the right to direct
the defense of any such action on behalf of the Indemnified Party. All payments
by the Indemnifying Party pursuant to this Article XI shall be in immediately
available funds.
Section 11.3. Determination of Damages and Related Matters.
(a) Payments under this Article XI to a Seller other than
Baseline shall be treated, for federal income tax purposes (to the extent
possible under applicable Tax law), as an adjustment to the Consideration such
Seller received. In all other circumstances, any such amount shall be increased
to take account of any net Tax cost incurred by the Indemnified Party by reason
of the receipt of any indemnity payment (grossed-up for such increase). Any
payment to an Indemnified Party pursuant to this Article XI shall be reduced to
take account of any net Tax benefit actually realized by the Indemnified Party
in respect of the taxable year in which such Loss is incurred or paid and, with
respect to a Tax benefit arising in a year subsequent to the year in which the
Loss is paid or incurred, the Indemnified Party shall pay to the Indemnifying
Party the amount of such Tax benefit (including, as relevant, any member of its
Affiliated Group) when such Tax benefit is actually realized. In computing the
amount of any such Tax cost or Tax benefit, the Indemnified Party (and all
members of its Affiliated Group) shall be deemed to recognize all other items of
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income, gain, loss, deduction or credit before recognizing any item arising from
the receipt of any indemnity payment hereunder or the incurrence or payment of
any indemnified loss, liability, claim, damage or expense.
(b) The provisions of this Article XI shall survive, (i)
with respect to the representations and warranties contained in this Agreement,
as provided in Section 13.1 and (ii) with respect to all other Losses covered by
Section 11.1, until such time as a court of law has determined that the statute
of limitations has expired with respect to claims in respect of any such Losses.
Until it is no longer possible in law or fact for the Indemnified Party to
sustain Losses by reason of any breach hereof or to assert a claim with respect
to any such breach or Losses, PKA shall not file a certificate of dissolution
with respect to any voluntary dissolution or liquidation.
(c) If any claim is pending against Baseline or PKA
pursuant to Section 11.1(a)(ii), (iii), (iv), (v) or (vi) on the second
anniversary of the Closing Date, Seller shall be restricted, until such claim is
resolved, from transferring a number of shares of Common Stock constituting the
Stock Consideration or the Warrant Consideration (including the shares of Common
Stock underlying the Warrant) having an aggregate market value equal to the
amount of such claim.
Section 11.4. Tax Returns of CEG.
(a) CEG shall file all the federal, state, local and
foreign Tax Returns required to be filed by it with respect to periods ending on
or prior to the Closing and shall pay any and all Taxes due with respect to such
returns. All such Tax Returns shall be prepared in a manner consistent with
prior practice unless a past practice has been finally determined to be
incorrect by the applicable taxing authority or a contrary treatment is required
by applicable tax laws (or judicial or administrative interpretations thereof).
CEG shall provide Buyer with copies of such completed Tax Returns at least 15
days prior to the filing date, and Buyer shall be provided an opportunity to
review such Tax Returns and supporting workpapers and schedules prior to the
filing of such Tax Returns. The failure of Buyer to propose any changes to any
such Tax Return within such 15 days shall be deemed to be an indication of its
approval thereof. CEG and Buyer shall attempt in good faith mutually to resolve
any disagreements regarding such Tax Returns prior to the due date for filing
thereof.
(b) For federal income tax purposes, the taxable year of
CEG shall end as of the close of the Closing Date and, with respect to all other
Taxes, CEG and Buyer will, unless prohibited by applicable law, close the
taxable period of CEG as of the close of the Closing Date. Neither PKA (as the
Seller of the CEG Equity) nor Buyer shall take any position inconsistent with
the preceding sentence on any Tax Return. In any case where applicable Law does
not permit CEG to close its taxable year on the Closing Date or in any case in
which a Tax is assessed with respect to a taxable period which includes the
Closing Date (but does not begin or end on that day), then Taxes, if any,
attributable to the taxable period of CEG beginning before and ending after the
Closing Date shall be allocated (i) to PKA for the period up to and including
the Closing Date, and (ii) to Buyer for the period subsequent to the Closing
Date. Any allocation of income or deductions required to determine any Taxes
32
attributable to any period beginning before and ending after the Closing Date
shall be prepared by Buyer and shall be made by means of a closing of the books
and records of CEG as of the close of the Closing Date, provided that
exemptions, allowances or deductions that are calculated on an annual basis
(including, but not limited to, depreciation and amortization deductions) shall
be allocated between the period ending on the Closing Date and the period after
the Closing Date in proportion to the number of days in each such period.
ARTICLE XII
TERMINATION
Section 12.1. Termination. This Agreement may be terminated (i) by the written
agreement of Seller and Buyer, (ii) by either Seller or Buyer by written notice
to the other given after the date that is 10 business days after the date of
this Agreement if the Closing shall not have occurred on or before such date;
provided, that no party shall have the right to terminate this Agreement
pursuant to this clause (ii) to the extent such party's failure to fulfill its
obligations under this Agreement is the cause of, or results in, the failure to
satisfy any of the conditions to the consummation of the Acquisition set forth
in Articles VII or VIII, and (iii) by Buyer upon written notice given to Seller
on or before the Closing Date if, in the course of the due diligence review
referred to in Section 5.1, Buyer obtains or discovers information concerning
Seller or the Assets, which, in the reasonable judgment of Buyer, could
materially adversely affect the business, assets, financial condition or results
of operations of Seller or Buyer (unless, within 10 days after delivery by Buyer
of such notice, Seller is able to satisfy Buyer (which shall act reasonably and
in good faith) that the event, occurrence, fact or situation discovered or
obtained by Buyer has been cured and could not materially adversely affect the
business, assets, financial condition or results of operations of Seller or
Buyer), provided, however, that, in each case, such termination shall have no
effect upon the agreements and obligations set forth in Section 13.5 and
Sections 5.4 and 6.2 above. The date of any such termination is referred to
herein as the "Termination Date."
Section 12.2. Liabilities After Termination. Upon any termination of this
Agreement pursuant to Section 12.1 above, no party hereto shall thereafter have
any further liability or obligation hereunder; provided, however, that no such
termination shall relieve any party hereto of any liability for any breach of
this Agreement prior to the date of such termination and provided, further, that
Seller shall remain bound by Section 5.5 above, Buyer shall remain bound by
Section 6.2 above, and each of Seller and Buyer shall remain bound by Section
13.5 below.
ARTICLE XIII
MISCELLANEOUS
Section 13.1. Survival of Representations and Warranties. Seller and Buyer
hereby agree that the representations and warranties contained in this
Agreement, as supplemented or modified by any amendments to the Schedules hereto
made on or prior to the Closing Date, shall survive the execution and delivery
of this Agreement and shall further survive the Closing hereunder for a period
33
of two years from the Closing Date, regardless of any investigation made by the
parties hereto; provided, however, that the representations and warranties
contained in Section 3.12 shall survive for the applicable statute of
limitations plus 90 days. Notwithstanding the foregoing, the obligations of the
parties to indemnify and hold harmless any other party pursuant to Article XI
for any misrepresentation or breach of warranty shall not terminate with respect
to any item as to which the party to be indemnified shall have, before the
expiration of the applicable representation and warranty, previously made a
claim by delivering a notice pursuant to Section 11.2 (stating in reasonable
detail the basis of the claim) to the party to be providing the indemnification.
Section 13.2. Entire Agreement. This Agreement (with its Schedules and Exhibits)
contains, and is intended as, a complete statement of, all of the terms and the
arrangements between the parties hereto with respect to the matters provided for
herein, and supersedes any previous agreements and understandings among the
parties hereto with respect to those matters.
Section 13.3. Governing Law; Construction. This Agreement and all agreements
related thereto shall be governed by and construed in accordance with the laws
of the State of New York applicable to contracts to be made, executed, delivered
and performed wholly in such state, but without regard to conflicts of law
principles of such state. The Company and each of the Sellers each hereby
consents to personal jurisdiction in any action brought with respect to this
Agreement and the transactions contemplated hereby in the United States District
Court for the Southern District of New York or, if subject matter jurisdiction
is unable to be obtained in such court, in any state court in the City of New
York in the State of New York. The Company and each of the Sellers each also
agrees that service of process may be accomplished pursuant to the provisions of
Section 13.6 hereof. The table of contents, captions and headings in this
Agreement are for reference purposes only and shall be given no effect in the
construction and interpretation of this Agreement. No provision of this
Agreement shall be construed against either party because such party drafted or
caused to be drafted such provision. Each provision of this Agreement shall be
construed as if such provision were proposed by both Buyer and Seller.
Section 13.4. Transfer Taxes. Seller shall pay when due (i) all transfer and
documentary taxes and fees imposed with respect to instruments of conveyance in
the transactions contemplated hereby and (ii) all sales, use and other transfer
or similar taxes on the transfer of the Assets contemplated hereby. Buyer shall
execute and deliver to Seller at the Closing any certificates or other documents
as Seller may reasonably request to perfect any exemption from any such
transfer, documentary, sales or use tax.
Section 13.5. Expenses. Each of Buyer and Seller shall bear its own expenses
(including, without limitation, all fees and expenses of financial institutions,
accountants, legal counsel, brokers, investment bankers and other advisors),
incurred in connection with the negotiation, preparation, execution, review,
delivery and performance of this Agreement, each of the other documents and
instruments executed in connection with or contemplated by this Agreement or
related hereto, and the consummation of the transactions contemplated hereby and
thereby.
34
Section 13.6. Notices. Any notice, request, instruction or other communication
to be given under this Agreement or otherwise in connection with the Acquisition
shall be in writing and shall be delivered by hand or prepaid telecopy, or sent,
postage prepaid, by registered, certified or express mail, or reputable
overnight courier service and shall be deemed given when so delivered by hand or
telecopied, or if mailed, three days after mailing (one business day in the case
of express mail or overnight courier service) to a party at the following
address (or at such other address as such party may have specified by notice
given to the other party pursuant to this provision):
if to Seller at: Xxxx Xxxxx Associates, Inc.
000 Xxxxx Xxxxx Xxxxx
Xxxxxx, XX 00000
Attention: Xx. Xxxx Xxxxx
Telecopier No.: (000) 000-0000
with a copy to: Xxxxx X. Xxxx, Esq.
000 Xxxx Xxxxxx
Xxx Xxxx, XX 00000
Telecopier No.: (000) 000-0000
and if to Buyer at: Big Entertainment, Inc.
0000 Xxxxxx Xxxx, Xxxxx 000X
Xxxx Xxxxx, Xxxxxxx 00000
Attention:Xxxxxxxx Xxxxxxxxxx, Chief Executive Officer
Telecopier No.: (000) 000-0000
with a copy to: Big Entertainment, Inc.
0000 Xxxxxx Xxxx, Xxxxx 000X
Xxxx Xxxxx, Xxxxxxx 00000
Attention:W. Xxxxxx Xxxxxxx, General Counsel
Telecopier No.: (000) 000-0000
Section 13.7. Severability. If any provision of this Agreement, or the
application of such provision to Buyer, Seller, or any Person or circumstance,
shall be held invalid, then the remainder of this Agreement, or the application
of such provision to persons, entities or circumstances other than those as to
which it is held invalid, shall not be affected thereby.
Section 13.8. Binding Effect; No Assignment.
(a) This Agreement shall be binding upon and inure to the
benefit of the parties and their respective successors and permitted assigns.
Nothing in this Agreement shall create or be deemed to create any third party
35
beneficiary rights in any Person not party to this Agreement. Except as
expressly permitted below, no assignment of this Agreement or of any rights or
obligations hereunder may be made by either party (by operation of law or
otherwise) without the prior written consent of the other party hereto and any
attempted assignment without such required consent shall be void.
(b) Prior to the Closing, Buyer may assign any and all of
its rights and obligations under this Agreement to any third party, if Buyer
directly and unconditionally guarantees the obligations of such assignee under
this Agreement. After the Closing, Buyer may assign any or all of its rights and
obligations with respect to the Assets without the consent of Seller, provided
that Buyer shall cause its obligations to Seller under this Agreement in respect
of the Acquisition to be binding upon any successor to Buyer and Buyer shall
directly and unconditionally guarantee the obligations of such successor.
Section 13.9. Amendments. This Agreement may be amended, supplemented or
modified, and any provision hereof may be waived, only pursuant to a written
instrument making specific reference to this Agreement signed by each of the
parties hereto.
Section 13.10. Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
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IN WITNESS WHEREOF, the parties hereto have executed this
instrument as of the date and year first above written.
BASELINE II, INC.
By: /s/ Xxx Xxxxx
-----------------------------------------
Name: Xxx Xxxxx
Title: President
XXXX XXXXX ASSOCIATES, INC.
By: /s/ Xxxx Xxxxx
-----------------------------------------
Name: Xxxx Xxxxx
Title:
CINEMA ENTERPRISES GROUP LLC
By: /s/ Xxxx Xxxxx
-----------------------------------------
Name: Xxxx Xxxxx
Title:
/s/ Xxxx Xxxxx
---------------------------------------------
Xxxx Xxxxx
BIG ENTERTAINMENT, INC.
By: /s/ Xxxxxxxx Xxxxxxxxxx
-----------------------------------------
Xxxxxxxx Xxxxxxxxxx
Chairman of the Board and
Chief Executive Officer
The undersigned hereby acknowledges and agrees to the terms
set forth in Exhibit B and Exhibit D to this Agreement and agrees to execute and
deliver to Buyer at the Closing agreements in the form of such Exhibits.
/s/ Xxxx Xxxxx
---------------------------------------------
Xxxx Xxxxx
37
SCHEDULES
1.1(a) Baseline and CEG Assigned Contracts
1.1(b) Film Asset Assigned Contracts
1.2 Excluded Assets
1.2 (vi) CEG Excluded Contracts
1.2 (vii) Excluded Intangible Property
3.1 Shareholders
3.3(b) Violations
3.4 Title to Assets
3.5 Liabilities
3.6 Litigation, etc.
3.8 Employment Matters
3.8 (a) Employment Related Agreements
3.8 (b) Employee Benefits
3.9 Certain Agreements
3.10(b) Real Property
3.11 Intangible Property
3.12 Taxes
3.12 (b) Filed Tax Returns
3.12 (c) Assessment of Taxes
3.12 (f) Filed Tax Returns by Baseline and/or CEG
3.12 (g) Bulk Sales
3.12 (h) Seller's Tax Agreement Obligations
3.12 (j) Seller's Partnership/Joint Venture
3.12 (k) Obligations of Buyer
3.12 (l) Classification of Assets
3.13 Permits
3.15 Year 2000
4.4 Litigation
