EXECUTION VERSION
MERGER AGREEMENT
DATED AS OF OCTOBER 24, 2003
AMONG
LGF ACQUISITION CORPORATION,
LIONS GATE ENTERTAINMENT CORP.,
AND
FILM HOLDINGS CO.
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TABLE OF CONTENTS
Page
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ARTICLE I DEFINITIONS............................................................................... 1
1.1 Certain Defined Terms............................................................. 1
1.2 Index of Other Defined Terms...................................................... 15
ARTICLE II MERGER................................................................................... 17
2.1 The Merger........................................................................ 17
2.2 Effective Time.................................................................... 18
2.3 Effects of the Merger............................................................. 18
2.4 Certificate of Incorporation and Bylaws........................................... 18
2.5 Directors and Officers............................................................ 18
2.6 Conversion of Shares and Options.................................................. 18
2.7 Conversion of Acquisition Company's Capital Stock................................. 20
2.8 Paying Agent...................................................................... 20
2.9 Dissenting Shares................................................................. 20
2.10 No Further Transfer of Shares..................................................... 21
ARTICLE III SIGNING AND CLOSING; POST-CLOSING DISTRIBUTIONS......................................... 21
3.1 Written Consent of Stockholders................................................... 21
3.2 Closing........................................................................... 21
3.3 Exchange of Shares and Options.................................................... 23
3.4 Post-Closing Distributions........................................................ 25
ARTICLE IV COMPANY REPRESENTATIONS AND WARRANTIES................................................... 27
4.1 Organization, Good Standing and Qualification..................................... 28
4.2 Capitalization.................................................................... 28
4.3 Valid Issuances of Capital Stock.................................................. 29
4.4 Subsidiaries...................................................................... 29
4.5 Power and Due Authorization, etc. ................................................ 30
4.6 Indebtedness...................................................................... 31
4.7 Title to Properties and Assets.................................................... 31
4.8 Other Intellectual Property Rights................................................ 32
4.9 Library Films; Library Film Materials............................................. 33
4.10 Films In Progress and Development Projects........................................ 35
4.11 Material Contracts and Obligations................................................ 37
4.12 Litigation........................................................................ 40
4.13 Government Approvals.............................................................. 40
4.14 Compliance with Other Instruments................................................. 40
4.15 Advisory Fees; Change of Control Payments; Closing Deduct Amount.................. 41
4.16 Insurance......................................................................... 41
4.17 Financial Statements.............................................................. 41
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4.18 Certain Actions; Events........................................................... 42
4.19 Permits........................................................................... 42
4.20 Compliance with Applicable Laws................................................... 42
4.21 Employment Agreements; Change in Control; and Employee Benefits................... 42
4.22 Tax Matters....................................................................... 45
4.23 Labor Agreements and Actions...................................................... 48
4.24 Environmental Compliance.......................................................... 49
4.25 Interested Party Transactions..................................................... 49
4.26 Fictitious Names.................................................................. 49
4.27 AFI............................................................................... 49
4.28 Receivables....................................................................... 49
4.29 Unlawful Contributions............................................................ 50
4.30 No Material Adverse Effect........................................................ 50
4.31 Budgets for DD2 and The Punisher.................................................. 50
4.32 Limitation of Representations and Warranties...................................... 50
ARTICLE V REPRESENTATIONS AND WARRANTIES OF THE BUYER AND THE ACQUISITION COMPANY................... 50
5.1 Organization, Good Standing and Qualification..................................... 51
5.2 Corporate Authorization........................................................... 51
5.3 Governmental Authorization........................................................ 52
5.4 Compliance with Other Instruments................................................. 52
5.5 Broker Fees....................................................................... 52
5.6 Litigation........................................................................ 52
5.7 Financing......................................................................... 52
5.8 Investment Canada Act............................................................. 52
5.9 No Knowledge of Breach............................................................ 52
ARTICLE VI COVENANTS OF THE COMPANY................................................................. 53
6.1 Conduct of the Business........................................................... 53
6.2 Deletion Policy................................................................... 57
6.3 Conversion of Class L Common...................................................... 57
ARTICLE VII DIRECTOR AND OFFICER LIABILITY AND INDEMNIFICATION...................................... 57
ARTICLE VIII COVENANTS OF ALL PARTIES............................................................... 59
8.1 Confidentiality................................................................... 59
8.2 Further Assurances................................................................ 59
8.3 Certain Filings................................................................... 60
8.4 Public Announcements.............................................................. 61
8.5 Cash Flow Insurance Claims........................................................ 62
8.6 Notification of Certain Matters................................................... 63
8.7 Tax Matters....................................................................... 63
8.8 No Solicitation................................................................... 64
8.9 Affiliated Transactions........................................................... 66
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8.10 Contact with Employees, Customers and Suppliers................................... 66
8.11 Lab Access........................................................................ 66
8.12 Production and Distribution of The Punisher and Havana Nights: Dirty Dancing 2.... 66
8.13 Box Office Contingent Payments.................................................... 67
8.14 Public Offering, etc.............................................................. 68
ARTICLE IX CONDITIONS TO CLOSING.................................................................... 69
9.1 Conditions to Obligation of the Buyer and the Acquisition Company................. 69
9.2 Conditions to Obligation of the Company........................................... 70
ARTICLE X INDEMNIFICATION........................................................................... 71
10.1 Agreement to Indemnify............................................................ 71
10.2 Survival of Representations, Warranties and Covenants............................. 76
10.3 Claims for Indemnification........................................................ 77
10.4 Defense of Claims................................................................. 77
10.5 Tax Indemnity..................................................................... 78
10.6 Nature of Payments................................................................ 80
ARTICLE XI TERMINATION.............................................................................. 80
11.1 Grounds for Termination........................................................... 80
11.2 Effect of Termination............................................................. 81
ARTICLE XII MISCELLANEOUS........................................................................... 83
12.1 Governing Law; Forum.............................................................. 83
12.2 Litigation Support; Records....................................................... 83
12.3 Successors and Assigns............................................................ 83
12.4 Entire Agreement.................................................................. 84
12.5 Notices........................................................................... 84
12.6 Amendments........................................................................ 85
12.7 Waivers........................................................................... 86
12.8 Fees and Expenses................................................................. 86
12.9 Titles and Subtitles.............................................................. 86
12.10 Counterparts...................................................................... 86
12.11 Severability...................................................................... 86
12.12 Construction...................................................................... 86
12.13 Third Party Beneficiaries......................................................... 87
12.14 Waiver of Trial By Jury; Equitable Relief......................................... 87
12.15 Further Assurances................................................................ 88
12.16 Dispute Resolution................................................................ 88
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EXHIBIT INDEX
EXHIBIT A Certificate of Incorporation of the Surviving Corporation
EXHIBIT B Merger Certificate
EXHIBIT C Escrow Agreement
EXHIBIT D Cash Flow Insurance Claims Escrow Agreement
EXHIBIT E Letter of Transmittal
EXHIBIT F Option Cancellation Acknowledgment
EXHIBIT G Disclosure Schedule
EXHIBIT H Buyer Disclosure Schedule
EXHIBIT I Designation Agreement regarding Cash Flow Insurance
EXHIBIT J Officer Certificate of the Company
EXHIBIT K Written Consent of Stockholder
EXHIBIT L Opinion of Special Delaware Counsel
EXHIBIT M Officer Certificate of the Buyer
EXHIBIT N Officer Certificate of the Acquisition Company
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MERGER AGREEMENT
This MERGER AGREEMENT (the "Agreement") dated as of October 24, 2003 is
by and among FILM HOLDINGS CO., a Delaware corporation (the "Company"), LIONS
GATE ENTERTAINMENT CORP., a corporation organized under the laws of British
Columbia, Canada (the "Buyer"), and LGF ACQUISITION CORPORATION, a Delaware
corporation (the "Acquisition Company").
R E C I T A L S
WHEREAS, the Buyer has formed the Acquisition Company for the purposes
of merging with and into the Company and acquiring the Company as a wholly-owned
subsidiary;
WHEREAS, the Buyer, the Company and the Escrow Agent have entered into
the Deposit Agreement, and the Buyer has deposited the Deposit Amount with the
Escrow Agent pursuant to the terms thereof;
WHEREAS, the Board of Directors of the Buyer, the Acquisition Company
and the Company have each adopted a resolution approving this Agreement and
declaring its advisability in accordance with the requirements of Delaware Law,
the laws of British Columbia, Canada, and the charter documents of their
respective companies; and
WHEREAS, the Buyer, as an indirect Controlling stockholder of the
Acquisition Company, Lions Gate Entertainment, Inc., as the direct Controlling
stockholder of the Acquisition Company, and the Principal Stockholders of the
Company have each indicated their intent, immediately following the execution of
this Agreement, to vote in favor of the adoption of this Agreement.
A G R E E M E N T
NOW, THEREFORE, in consideration of the premises, and the mutual
representations, warranties, covenants and agreements hereinafter set forth, and
other good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, the parties hereto, intending to be legally bound, agree as
follows.
ARTICLE I
DEFINITIONS
1.1 Certain Defined Terms. As used in this Agreement, the
following terms (when used with initial capital letters) shall have the
following respective meanings:
"$6.55 Per Share Portion" means a fraction, the numerator of which is
one, and the denominator of which is the sum of (i) the Closing Date Stock
Amount, plus (ii) the number of shares of Class A Common issuable upon exercise
of the Participating Options with an exercise price equal to or less than $6.55
per share.
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"$7.39 Per Share Portion" means a fraction, the numerator of which is
one, and the denominator of which is the sum of (i) the Closing Date Stock
Amount, plus (ii) the number of shares of Class A Common issuable upon exercise
of the Participating Options with an exercise price equal to or less than $7.39
per share.
"$10.12 Per Share Portion" means a fraction, the numerator of which is
one, and the denominator of which is the sum of (i) the Closing Date Stock
Amount, plus (ii) the number of shares of Class A Common issuable upon exercise
of the Participating Options with an exercise price equal to or less than $10.12
per share.
"Acquisition Proposal" shall mean any proposal or offer involving the
Company (other than the Merger and the other transactions contemplated hereby)
for any of the following: (i) any merger, consolidation, share exchange,
business combination or any other transaction that would likely result in a
change of Control of the Company; (ii) any sale, lease, exchange, mortgage,
pledge, transfer or other disposition by Company or of any of its Subsidiaries
of more than ten percent in value of the assets of the Company and of any of its
Subsidiaries, considered as a whole, in a single transaction or series of
related transactions; or (iii) any Person acquiring beneficial ownership or the
right to acquire beneficial ownership of, or any "group" (as such term is
defined under Section 13(d) of the Exchange Act) having been formed which
beneficially owns or has the right to acquire beneficial ownership of,
securities, or rights to acquire securities, of the Company or any of its
Subsidiaries which would constitute Control.
"Affiliate" means, with respect to any Person, any other Person
directly or indirectly Controlling, Controlled by or under direct or indirect
common Control with such Person. For the purposes of this Agreement, "Control"
when used with respect to any specified Person means the power to direct or
cause the direction of the management and policies of such Person, directly or
indirectly, whether through the ownership of voting securities, by contract or
otherwise, and the terms "Controlling" and "Controlled" have meanings
correlative of the foregoing. Without limiting the generality of the foregoing,
any Person owning or Controlling 51% or more of the voting securities of another
Person shall be deemed to be an Affiliate of such other Person. Except with
respect to Sections 4.11(a)(v), 4.11(a)(vii), 4.25, 6.1(a)(xxii), and 8.9, no
portfolio company Controlled by, or under direct or indirect common Control
with, any of the Sellers and engaged in business unrelated to the Business shall
be deemed an "Affiliate" of the Company and its Subsidiaries for any purpose of
this Agreement.
"AFI Agreements" means collectively (i) that certain Credit and
Security Agreement dated as of April 4, 2002 among Artisan Film Investors LLC
and JPMorgan Chase Bank, as Administrative Agent on behalf of the lenders, as
amended from time to time prior to the date hereof in accordance with its terms,
(ii) the AFI Secured Participation Agreement, (iii) the Credit and Security
Agreement dated as of October 13, 1999 among Artisan Film Investors Trust, as
borrower, and the lenders named herein with The Chase Manhattan Bank's Capital
Market Fiduciary Services Group, The Chase Manhattan Bank, Artisan Film
Investors Trust and Artisan Pictures Inc., as amended, (iv) the Amended Sponsor
Agreement dated as of October 13, 1999 between Artisan Pictures Inc., Artisan
Film Investors Trust, Artisan Entertainment Inc., Artisan Music Inc., Artisan
Home Entertainment Inc., Artisan Releasing Inc., Be Mine Productions, Inc.,
Beach Dance Productions, inc., Detention Productions, Inc., Heatwave
Productions, Inc., Live American inc., Milk Mission Productions Inc., Sweet Time
Productions, Inc., Vestron Inc., Wish
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Again Productions, Inc., Silent Development Corp., Tongue-Tied Inc., Film
Holdings Co., and The Chase Manhattan Bank, and (v) the Sponsor Agreement dated
as of April 4, 2002 between Artisan Pictures Inc., Artisan Film Investors LLC,
Artisan Digital Media Inc., Artisan Entertainment Inc., Artisan Home
Entertainment Inc., Artisan Music Inc., Artisan Properties Inc., Artisan
Releasing Inc., Artisan Television Inc., Be Mine Productions, Inc., BL
Distribution Corp., Bones Productions Inc., EZ Flix Inc., EZ Flix Productions
Inc., Fusion Productions Inc., Heatwave Productions, Inc., IAM I, Inc.,
Landscape Entertainment Corp., Landscape Television Inc., Landscape Films Inc.,
Landscape Holdings Inc., Landscape Interactive Inc., Landscape interactive Web
Design Inc., Landscape Productions Inc., Vestron Inc., Silent Development Corp,
and Film Holdings Co. and JPMorgan Chase Bank and (vi) such other agreements,
instruments, certificates, or other documents entered into prior to the date
hereof in connection with any of the foregoing.
"AFI Secured Participation Agreement" means that certain Secured
Participation Agreement dated as of March 29, 2002 among FHCL, LLC, as Selling
Lender, and JPMorgan Chase Bank and The Xxxxx Xxxxxxx Organization, as
Participants, relating to the sale of the secured participation by the Selling
Lender to the Participants under the Credit and Security Agreement dated as of
October 13, 1999 among Artisan Film Investors Trust and JPMorgan Chase Bank, as
Administrative Agent on behalf of the lenders, as amended from time to time
prior to the date hereof in accordance with its terms.
"Applicable Law" means, with respect to any Person, any domestic or
foreign, federal, state or local statute, law, ordinance, rule, regulation,
order, writ, injunction, judgment, decree or other requirement of any
Governmental Authority applicable to such Person or any of its Affiliates or any
of their respective properties, assets, officers, directors or employees (in
connection with such officer's, director's or employee's activities on behalf of
such Person or any of its Affiliates) as in effect as of the date hereof.
"Audax Amount" has the meaning specified in Section 4 of the Amendment
to Stockholders Agreement and Amendment to Transfer Agreement dated as of
February 25, 2003, by and among certain stockholders of the Company.
"Basic Escrow Amount" means an amount equal to $12,500,000.
"Benefit Arrangement" means (i) each employment or consulting
agreement, (ii) each arrangement providing for insurance coverage or workers'
compensation benefits, (iii) each incentive bonus or deferred bonus arrangement,
(iv) each arrangement providing termination allowance, severance or similar
benefits, (v) each equity compensation plan, (vi) each deferred compensation
plan, (vii) each compensation plan, policy and practice, (viii) each sales
incentive, payroll practice, fringe benefit or perquisite, including but not
limited to benefits relating to Company automobiles, clubs, vacation, child
care, parenting, sabbatical, or sick leave maintained by the Company or any of
the Company's Subsidiaries or any ERISA Affiliate of any of the foregoing
covering the employees, former employees, directors and former directors thereof
and the beneficiaries of any of them.
"Benefit Plan" means an Employee Benefit Plan or Benefit Arrangement.
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"Business" means the business as currently conducted by the Company and
its Subsidiaries.
"Business Day" means any day on which banking institutions in Los
Angeles, California or New York, New York are not authorized or obligated by law
to close.
"Buyer Indemnitees" means the Buyer and its Affiliates (including the
Acquisition Company, and from and after the Effective Time, the Surviving
Corporation) and their respective officers, directors, employees, partners,
members, agents, representatives, advisors, attorneys, successors and permitted
assigns.
"Buyer MAE Breach" means any breach by the Buyer on or prior to the
Closing Date of any of its (i) representations and warranties or (ii) covenants
required to be performed by it on or prior to the Closing Date, which has had or
will have a Material Adverse Effect.
"Capital Stock" means, with respect to any Person, any and all shares,
interests, participations, rights or other equivalents (however designated) of
capital stock of such Person (if a corporation) or any and all similar ownership
interests in a Person (other than a corporation) whether now outstanding or
issued after the date of this Agreement. When used without further
identification, the term Capital Stock refers to Capital Stock of the Company.
"Cash Flow Insurance Claims" means any and all rights the Sellers, the
Company or any of the Company's Subsidiaries may have relating to or arising out
of claims raised by the Company or any of its Subsidiaries against insurers in
connection with their alleged default under cash flow insurance policies for
Artisan Film Investors Trust relating to or arising out of any of the facts or
circumstances underlying the pending Actions filed in the Los Angeles Superior
Court, in the State of California, on May 5, 2001 titled Artisan Entertainment
et al v. Royal & Sun Alliance et al (Case No. BC251175) and FHCL, LLC v. Royal &
Sun Alliance Insurance, PLC (Case No. BC 275586) (collectively, the "Actions").
"Cash Flow Insurance Claims Escrow Amount" means an amount equal to
$2,500,000.
"Change of Control Payments" means any and all payments required to be
made directly or indirectly by the Company as the result of the consummation of
the Merger or any of the other transactions contemplated by this Agreement to
any employee of the Company or any of its Subsidiaries.
"Class L Conversion Factor" has the meaning given such term in the
Certificate of Incorporation of the Company.
"Closing Date Merger Consideration" means $150,000,000, plus the
Deposit Amount, minus the Closing Deduct Amount.
"Closing Date Per Share Portion" means, a fraction, the numerator of
which is one, and the denominator of which is the sum of (i) the Closing Date
Stock Amount, plus (ii) the number of shares of Class A Common issuable upon
exercise of the Participating Options with an exercise price equal to or less
than $2.98 per share.
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"Closing Date Stock Amount" means the sum of (i) the number of shares
of Class A Common issued and outstanding as of immediately prior to the
Effective Time (but not including any Class A Common held in the treasury of the
Company), plus (ii) the number of shares of Class L Common issued and
outstanding immediately prior to the Effective Time (but not including any Class
L Common held in the treasury of the Company), multiplied by the Class L
Conversion Factor.
"Closing Deduct Amount" means the sum of (A) the aggregate amount of
the following: (a) all fees and expenses incurred or paid by the Company or its
Subsidiaries at any time from the date of this Agreement through and including
the Closing Date that are payable to (x) Xxxxxx Xxxxxxxx and/or (y) Xxxxx &
Company, LLC, and in each case its officers, employees, Affiliates and agents,
in connection with the transactions contemplated hereby, or any other
Acquisition Proposal, and including the auction process and all negotiations
engaged in by the Company and/or the Sellers during such period with respect to
any of the foregoing (collectively, "Investment Banking Fee Payments"), (b) any
and all attorneys, accountants or other consultants' fees, costs and expenses
incurred or paid by the Company or its Subsidiaries at any time from the date of
this Agreement through and including the Closing Date in connection with the
transactions contemplated hereby, or any other Acquisition Proposal, and
including the auction process and all negotiations engaged in by the Company
and/or the Sellers during such period with respect to any of the foregoing, (c)
amounts payable to Richland, Xxxxxx & Co. on or prior to the Closing Date
pursuant to that certain Management Termination Agreement by and among Audax
Entertainment, L.P., CTV, Inc., Xxxxx X. Xxxxxx, Richland, Xxxxxx & Co., Artisan
Entertainment, Inc. and Film Holdings Co., dated as of February 25, 2003 (the
"Management Termination Agreement"), (d) the portion of the Audax Amount due at
the Closing, (e) amounts payable to Audax Entertainment, L.P. on or prior to the
Closing Date pursuant to the Management Termination Agreement (other than
pursuant to Section 2 thereof), (f) the sum of (x) all Change of Control
Payments due at or paid prior to the Closing (it being understood that (i) any
portion of the Change of Control Payments being deposited in an Escrow Account
are included in, and considered as a part of, the Closing Deduct Amount, and
(ii)amounts payable in connection with a termination of employment after the
Closing (including immediately after) by the employee for "good reason" or by
the Successor Corporation without cause or otherwise are not included as a
Closing Deduct Amount) plus (y) all Taxes imposed on the Company with respect to
such Change of Control Payments, and (h) the sum of all fees, costs and expenses
incurred or paid by the Company or its Subsidiaries at any time from the date of
this Agreement through and including the Closing Date in connection with or
relating to the Excluded Assets (including, but not limited to, fees, costs and
expenses of attorneys, experts and other advisors), and (B) the aggregate amount
of the following to the extent that the aggregate amount of the following
exceeds $850,000: (a) all fees and expenses paid by the Company or its
Subsidiaries during the period beginning February 25, 2003 and ending on the
date of this Agreement to (x) Xxxxxx Xxxxxxxx and/or (y) Xxxxx & Company, LLC,
and in each case its officers, employees, Affiliates and agents, in connection
with the transactions contemplated hereby, or any other Acquisition Proposal,
and including the auction process and all negotiations engaged in by the Company
and/or the Sellers during such period with respect to any of the foregoing, (b)
any and all attorneys, accountants or other consultants' fees, costs and
expenses paid during the period beginning February 25, 2003 and ending on the
date of this Agreement in connection with the transactions contemplated hereby,
or any other Acquisition Proposal, and including the auction process and all
negotiations engaged in by the Company and/or the Sellers during such period
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with respect to any of the foregoing, and (c) the sum of all fees, costs and
expenses paid by the Company or its Subsidiaries at any time during the period
beginning February 25, 2003 and ending on the date of this Agreement in
connection with or relating to the Excluded Assets (including, but not limited
to, fees, costs and expenses of attorneys, experts and other advisors).
"Closing Distribution Amount" means an amount equal to (i) the Closing
Date Merger Consideration plus (ii) the amount of the Stockholder Loans plus
(iii) the aggregate exercise price of all Participating Options with a per-share
exercise price equal to or less than $2.98 per share minus (iv) the sum of (x)
the Escrow Amount and (y) the Cash Flow Insurance Claim Escrow Amount
(excluding, for this purpose any portion of the Change of Control Payments being
deposited to one of the escrow accounts); provided, that the aggregate amount
distributed to Sellers, in their capacity as such, at the Closing will equal
(prior to giving effect to withholding taxes) clauses (i) minus (iv) of the
Closing Distribution Amount.
"COBRA" means continued health coverage pursuant to Section 4980B of
the Code or Part 6 of Title I of ERISA.
"Code" means the Internal Revenue Code of 1986, and the rules and
regulations issued thereunder, as amended, or any successor provision thereto.
"Common Stock" means the Class A Common and the Class L Common.
"Contracts" means all contracts (whether oral or written), inclusive of
amendments, which are legally binding and to which the Company or any Subsidiary
of the Company is a party or is otherwise bound, including, any agreement,
arrangement, commitment, option, purchase order, sales order, binding letter of
intent, binding memorandum of understanding, heads of agreement, promise, note,
bond, mortgage, indenture, Lease, License Agreement, Employment Agreement, or
other agreement.
"Controlled Group" means, with respect to any Person, all members of a
controlled group of corporations including such Person and all trades or
businesses (whether or not incorporated) under common Control with such Person
that, together with such Person, are treated as a single employer under Section
414(b), (c), (m) or (o) of the Code.
"Credit Facility" means that certain Second Amended and Restated Credit
Agreement, dated as of March 29, 2002, by and among the Company, certain of its
Subsidiaries referred to therein, JPMorgan Chase Bank, as Administrative Agent,
("Chase"), and the lenders party thereto from time to time (the "Lenders"), as
amended from time to time in accordance with its terms.
"Damages" means any and all losses, damages, costs, obligations, fines,
lost profits, consequential damages that are reasonably foreseeable, penalties,
expenses and liabilities of any kind (whether or not resulting from third party
claims), including out-of-pocket expenses and reasonable attorneys',
accountants' and other professional advisors' fees incurred in the investigation
or defense of any of the same or in asserting any rights in connection
therewith; provided, however, that Damages shall not include consequential
(unless reasonably foreseeable), incidental, special or punitive damages (unless
any of the foregoing are required to be paid to a third party), or any
diminution in value; provided further, that Damages shall not be
6
calculated using any multiple of earnings, book value, cash flow or other
similar measure which may have been used by Buyer to arrive at the Merger
Consideration.
"Designated Stockholders" means Audax Entertainment, L.P., after
reasonable consultation with and reasonable access to information provided to
Richland, Xxxxxx & Company and CTV, Inc. with respect to any distribution of
proceeds or indemnity claims.
"Deposit Agreement" means the agreement dated as of the date hereof by
and among the Buyer, the Company and the Escrow Agent attached hereto as Exhibit
C.
"Deposit Amount" means an amount equal to $10,000,000.
"Dissenting Shares Escrow Amount" means an amount equal to $500,000,
plus the product of (i) 150% of the Closing Date Per Share Portion of the
Closing Date Merger Consideration multiplied by (ii) the aggregate number of
shares that are Dissenting Shares; provided, however, that if there are no
Dissenting Shares as of the Closing Date, then the Dissenting Shares Escrow
Amount shall be zero. The parties acknowledge and agree that the amounts
reserved in the Dissenting Shares Escrow Account in excess of the Per Share
Portion of the Closing Date Merger Consideration multiplied by the aggregate
number of Dissenting Shares, are intended to be used solely in connection with
the costs and expenses associated with the Dissenting Shares (including any
disputes related thereto) and are not intended to be an indication of the fair
value of the shares of Class A Common.
"Distribution Amount" means, as of any Distribution Date, the aggregate
amount of any cash payable at that date (i) to the Sellers, (ii) in respect of
the Audax Amount and (iii) in respect of any Change of Control Payments and
Investment Banking Fee Payments, in each case in respect of (a) the Excluded
Assets, (b) the Box Office Contingent Payments, (c) payments owed under Section
10.5(c), (d) the Escrow Account or (e) the Cash Flow Insurance Claims Escrow
Account.
"Distribution Date" means any date upon which any cash payment is made
to the Sellers in respect of the Merger Consideration (other than in respect of
the Closing Distribution Amount), including without limitation any payment made
in respect of the Excluded Assets or the Box Office Contingent Payments, or out
of the Escrow Account or the Cash Flow Escrow Account.
"Dollar" or "$" means United States Dollars.
"DVD Services Agreement" means the DVD Services Agreement, dated as of
April 18, 2002, between Artisan Home Entertainment, Inc. and Cinram, Inc.
"Elements" means all physical elements of or relating to a Film,
including all negatives, duplicate negatives, fine grain prints, soundtracks,
positive prints (cutouts and trims excepted), and sound, all video formats
(including PAL/NTSC), and other physical properties in connection with a Film
and the trailer for such Film, exposed film, developed film, positives,
negatives, prints, answer prints, special effects, pre-print materials
(including interpositives, negatives, duplicate negatives, internegatives, color
reversals, intermediates, lavenders, fine grain master prints and matrices and
all other forms of pre-print elements which may be necessary or useful to
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produce prints or other copies or additional pre-print elements, whether now
known or hereafter devised), soundtracks, recordings, audio and video tapes and
discs of all types and gauges, cutouts, trims, non-analog recordings and tapes,
including without limitation, any video digital recordings and HDTV format
recordings, and any and all other physical properties of every kind and nature
relating to a Film in whatever state of completion, and all duplicates, drafts,
versions, variations and copies of each thereof.
"Employee Benefit Plan" means any employee benefit plan, as defined in
Section 3(3) of ERISA, that is sponsored or contributed to by the Company or any
Subsidiary of the Company or any ERISA Affiliate thereof covering employees or
former employees of the Company, any Subsidiary of the Company or any ERISA
Affiliate.
"Employee Pension Benefit Plan" means any employee pension benefit
plan, as defined in Section 3(2) of ERISA that is sponsored or contributed to by
the Company or any Subsidiary of the Company or any ERISA Affiliate thereof
covering employees or former employees of the Company, any Subsidiary of the
Company or any ERISA Affiliate, which is subject to Title IV of ERISA, other
than a Multiemployer Plan.
"Environmental Laws" means all Applicable Laws relating to Hazardous
Substances, toxic torts, the health and safety of employees and third parties in
the workplace environment or on other owned or leased properties, or the
environment, including without limitation, the Resource Conservation and
Recovery Act, the Comprehensive Environmental Response Compensation and
Liability Act, the Clean Air Act, the Water Pollution Control Act, the Safe
Drinking Water Act and the Toxic Substances Control Act, any common law theories
based on nuisance, trespass, negligence or other tortious conduct, and any
requirements promulgated pursuant to these Applicable Laws or any analogous
foreign, state or local Applicable Laws.
"Environmental Liabilities" means all Liabilities of a Person (whether
such Liabilities are owed by such Person to Governmental Authorities, third
parties, or otherwise) whether currently in existence or arising hereafter which
arise under or relate to any Environmental Law.
"Equity Interests" means Capital Stock and all warrants, options or
other rights to acquire Capital Stock.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended, and the regulations promulgated thereunder.
"ERISA Affiliate" of any Person means any other Person that, together
with such Person as of the relevant measuring date under ERISA, was or is
required to be treated as a single employer under Section 414 of the Code.
"Escrow Amount" means an amount equal to the Basic Escrow Amount plus
the Dissenting Shares Escrow Amount.
"Exchange Act" means the Securities Exchange Act of 1934, as amended,
or any successor federal statute, and the rules and regulations of the SEC
thereunder, all as the same shall be in effect at the time.
8
"Excluded Assets" means 100% of the first $10,500,000 of net recoveries
from the Cash Flow Insurance Claims, and 75% of all net recoveries from the Cash
Flow Insurance Claims in excess of $10,500,00, regardless of when such
recoveries are realized. For purposes of this definition of Excluded Assets, the
"net recoveries" from the Cash Flow Insurance Claims shall mean the gross
recoveries from the Cash Flow Insurance Claims, reduced by all fees, costs and
expenses incurred or paid by the Company or its Subsidiaries at any time after
the Closing Date in connection with or relating to the Cash Flow Insurance
Claims (including but not limited to fees, costs and expenses of attorneys,
experts and other advisors) to the extent not paid out of the Cash Flow
Insurance Claims Escrow Account.
"Films" means all motion pictures (including, features and shorts),
television programming, animated programming, Internet programming,
direct-to-video programming, direct-to-DVD programming or other filmed, taped or
recorded entertainment of any kind or nature, and all components thereof,
including titles, themes, contents, dialogue, characters, plots,
characterizations, elements and music (whether or not now known or recognized)
as to which the Company or any Subsidiary or Affiliate of the Company owns or
Controls any right, title or interest including: (i) completed, delivered and
released works or projects; (ii) works or projects in any stage of progress,
including works or projects in development, principal photography and/or
post-production completed but not released as of the Closing Date, and
unreleased or completed but not delivered, acquisitioned or licensed as of the
Closing Date; (iii) so-called abandoned or turnaround works or projects; (iv)
underlying rights in and to the literary, musical and dramatic and other
material and intellectual property associated with or related to or necessary to
the exploitation of the works or projects referred to in clauses (i), (ii), or
(iii) hereof including copyrights pertaining thereto; (v) to the extent related
to the works or projects referred to in clauses (i), (ii), or (iii) hereof,
sequel, prequel, remake rights and other derivative production rights, including
all novelization, merchandising, character, serialization, games and interactive
rights; (vi) all other allied, ancillary, subsidiary and derivative rights
(including theme park rights) throughout the universe related to the works and
projects referenced in clauses (i)-(v) above; (vii) all Elements related to the
works and projects referenced in clauses (i)-(v) hereof; and (viii) all
contractual and other rights associated with or related to such works or
projects referenced in clauses (i)-(v) hereof; and the allied, ancillary,
subsidiary and derivative rights relating thereto (including theme park rights),
whether in any media now known or hereafter developed. For the avoidance of
doubt, the term Films shall include all Library Films, Films in Progress and
Development Projects.
"GAAP" means, as of any date of determination, accounting principles in
the United States of America, consistently applied (a) set forth as generally
accepted in then currently effective Opinions of the Accounting Principles Board
of the American Institute of Certified Public Accountants, (b) set forth as
generally accepted in then currently effective Statements of the Financial
Accounting Standards Board or (c) that are then approved by such other entity as
may be approved by a significant segment of the accounting profession in the
United States of America. The term "consistently applied," as used in connection
therewith, means that the accounting principles applied are consistent in all
material respects with those applied by the Person to whom such GAAP relates at
prior dates and for prior periods.
"Governmental Authority" means any foreign, domestic, federal,
territorial, state or local governmental authority, quasi-governmental
authority, instrumentality, court, government or
9
self-regulatory organization, commission, tribunal or organization or any
regulatory, administrative or other agency, or any political or other
subdivision, department or branch of any of the foregoing.
"Group Health Plan" means any group health plan, as defined in Section
5000(b)(1) of the Code.
"Hazardous Substance" means any flammable materials, radioactive
materials, hazardous materials, hazardous wastes, hazardous or toxic substances
or similar materials defined in or regulated under any Environmental Law.
"HSR Act" means the Xxxx-Xxxxx-Xxxxxx Antitrust Improvements Act of
1976, as amended.
"Indebtedness" means any of the following indebtedness of the Company
or any of its Subsidiaries, whether or not contingent: (i) indebtedness for
borrowed money (including any principal, premium, accrued and unpaid interest,
related expenses, prepayment penalties, commitment and other fees, sale or
liquidity participation amounts, reimbursements, indemnities and all other
amounts payable in connection therewith), (ii) obligations evidenced by bonds,
debentures, notes, or other similar instruments, (iii) obligations or
liabilities of the Company or any of its Subsidiaries under or in connection
with letters of credit or bankers' acceptances or similar items, (iv)
obligations to pay the deferred purchase price of property or services other
than those trade payables incurred in the Ordinary Course of Business, (v) all
obligations under capitalized leases, (vi) all obligations of the Company or any
of its Subsidiaries under conditional sale or other title retention agreements,
(vii) all obligations with respect to vendor advances or any other advances made
to the Company, (viii) all obligations of the Company or any of its Subsidiaries
arising out of interest rate and currency swap arrangements and any other
arrangements designed to provide protection against fluctuations in interest or
currency rates, (ix) any deferred purchase price obligations related to past
asset or stock acquisitions by the Company or the Sellers with respect to the
Business, (x) all Liabilities of the Company or any of its Subsidiaries arising
from any breach of any of the foregoing and (xi) all indebtedness of others
guaranteed or secured by any lien or security interest on the assets of the
Company or any of its Subsidiaries.
"Indemnifying Party" means: (a) with respect to any Buyer Indemnitee
asserting a claim under Section 10.1, the Sellers (except as set forth in
proviso B in Section 10.1(a), exclusively from and to the extent funds are
available in the Escrow Account or the Cash Flow Insurance Claims Escrow
Account, as applicable) in accordance with Section 10.1(a)), and (b) with
respect to any Seller Indemnitee asserting a claim under Section 10.1, the Buyer
(in accordance with Section 10.1(c)).
"Infringe" means to infringe, misappropriate, dilute, impair or
otherwise violate. The terms "Infringing" and "Infringement" shall have meanings
correlative to the foregoing.
"Knowledge" of the Company or any of its Subsidiaries means the actual
knowledge of Xxx Xxxxxxxx, Xxxx Xxxxx, Xxxxx Xxxxx, Xxxx Xxxx and/or Xxxx
Xxxxxxx, in each case, after due inquiry.
10
"Liability" means, with respect to any Person, any liability or
obligation of such Person of any kind, character or description, whether known
or unknown, absolute or contingent, accrued or unaccrued, liquidated or
unliquidated, secured or unsecured, joint or several, due or to become due,
vested or unvested, executory, determined, determinable or otherwise and whether
or not required to be accrued on or reserved against in connection with the
preparation of, the financial statements of such Person.
"Library Films" means any and all Films that have been completed and/or
acquired, delivered, and for which the commercial exploitation has commenced on
or prior to the date of this Agreement, and any and all additional Films that
have been completed and/or acquired, delivered, and for which the commercial
exploitation has commenced after the date of this Agreement, but on or prior to
the Closing Date. For the avoidance of doubt, Library Films are intended to
include all Films other than Films In Progress and Development Projects.
"Lien" means, with respect to any tangible or intangible asset, any
mortgage, copyright mortgage, pledge, security interest, encumbrance, lien,
adverse or prior claim (or any other claim of a third party), restriction,
assessment, title retention agreement, title defect, hypothecation or charge of
any kind whatsoever (including any conditional sale or other title retention
agreement, any lease in the nature thereof or the agreement to grant a security
interest at a future date), and any Contract to give or grant any of the
foregoing.
"License Agreements" means agreements to which the Company or any
Subsidiary of the Company is a party or by which any such Subsidiary is
otherwise bound, pursuant to which the Company or any such Subsidiary grants
licenses to, or acquires from a third Person, any right, title or interest
relating to the exploitation of one or more Films, including without limitation,
revenue-sharing arrangements, sales agency agreements, distribution services
agreements, "rent-a-system" deals, merchandising agreements, commercial tie-in
arrangements and similar arrangements.
"MAE Breach" means any breach by the Company on or prior to the Closing
Date of any of its (i) representations and warranties or (ii) covenants required
to performed by it on or prior to the Closing Date, which has had or will have a
Material Adverse Effect on the Company or which is the primary cause preventing
the Buyer from consummating the Merger on or prior to the Outside Date.
"Material Adverse Effect" means, with respect to any Person, a material
adverse effect or change in (a) the business, financial condition or results of
operations of such Person and its Subsidiaries taken as a whole or (b) the
ability of such Person to consummate the Merger or any of the other transactions
contemplated hereby without material delay; provided, however that any material
adverse effect or change after the date of this Agreement to the extent
attributable to any of the following shall not be deemed in themselves, either
alone or in combination, to constitute a Material Adverse Effect: (i) a change
in accounting requirements or principles or in any Applicable Laws, or a change
in interpretations of Applicable Laws, (ii) any change in interest rates, (iii)
general economic or financial market conditions, (iv) the entry into,
consummation or announcement of this Agreement or the transactions contemplated
hereby (including the effect of any actions with respect to any of the
transactions contemplated hereby permitted to be taken in accordance with the
terms of this Agreement), or performance of a party's obligations hereunder
11
or contemplated hereby in accordance with the terms hereof, (v) circumstances
generally affecting the industries and markets in which the Company or its
Subsidiaries operate or (vi) the existence of any Dissenting Shares or shares
which may become Dissenting Shares upon exercise of the rights under Section 262
of the Delaware Law.
"Merger Consideration" means (i) the Closing Date Merger Consideration
plus (ii) the Excluded Assets, plus (iii) the Box Office Contingent Payments.
"Multiemployer Plan" means a plan of the Company or any of its
Subsidiaries as of the close of business on the day immediately preceding the
Closing Date described in Section 4001(a)(3) of ERISA.
"Non-MAE Breach" means any breach by the Company on or prior to the
Closing Date, other than an MAE Breach, of any of its (i) representations and
warranties or (ii) covenants required to performed by it on or prior to the
Closing Date, which would result in (x) the failure of any such representation
and warranty to be true and correct in all material respects as of the Closing
Date or (y) the failure by the Company to perform, in all material respects, its
obligations under such covenant.
"Options" means all options, warrants and rights to acquire shares of
Capital Stock pursuant to the Option Plans which are exercisable (or will become
exercisable) as a result of the transactions contemplated hereby (whether
pursuant to the terms of such options, warrants and rights, or at the election
of the Company's Board of Directors) as of immediately prior to the Effective
Time.
"Option Plans" means the Film Holdings Co. 1997 and 2001 Stock Option
Plans.
"Ordinary Course of Business" shall mean all actions taken by a Person
if such action is consistent with the past practices of such Person and is taken
in the ordinary course of the normal business operations of such Person.
"Other Intellectual Property Rights" means all material intellectual
property rights (other than Films) (whether arising under federal law, state
law, common law, foreign law or otherwise) owned, held or used by the Company or
any of its subsidiaries including: (i) patents and other inventions, (ii)
trademarks, service marks, trade names, domain names, logos or other source
indicators (including all goodwill associated therewith and all common law
rights related thereto), (iii) copyrights and other works of authorship
(expressly excluding those copyrights and works of authorship with respect to
the Films, but only to the extent such rights are included within the definition
of Films), (iv) trade secrets and other confidential or proprietary information,
and (v) rights of privacy, publicity and other personal property rights; (v)
applications, registrations, certificates or issuances related to the foregoing;
and (vi) rights to obtain renewals, extensions, continuations,
continuations-in-part, reissues, divisions or similar legal protections related
thereto.
"Outside Date" means December 15, 2003, or such other date as Buyer and
the Company may mutually agree.
12
"Participating Option" means each Option with respect to which the
Optionholder delivered to the Paying Agent an Option Cancellation Agreement on
or before the Closing Date in accordance with Section 3.3.
"PBGC" means the Pension Benefit Guaranty Corporation or any successor
thereto.
"Per Share Portion" means, as applicable, the Closing Date Per Share
Portion, the $6.55 Per Share Portion, the $7.39 Per Share Portion and the $10.12
Per Share Portion.
"Permitted Liens" means (i) Liens for Taxes or governmental
assessments, charges or claims the payment of which is not yet due, or for Taxes
the validity of which is being contested in good faith by appropriate
proceedings, for which adequate reserves have been established in accordance
with GAAP (provided that such proceedings and the maximum amount of Taxes that
may be payable as a result of such proceedings are set forth and fully described
on Section 4.22 of the Disclosure Schedule); (ii) statutory Liens of landlords
and Liens of carriers, warehousemen, mechanics, materialmen and other similar
Persons and other Liens imposed by Applicable Law incurred in the Ordinary
Course of Business for sums not yet delinquent or being contested in good faith;
(iii) Liens relating to deposits made in the Ordinary Course of Business in
connection with workers' compensation, unemployment insurance and other types of
social security or to secure the performance of leases, trade contracts or other
similar agreements; (iv) Liens securing executory obligations under any Lease
that constitutes an "operating lease" under GAAP; (v) customary guild Liens
relating to a specific Film and not cross-collateralized in any way; (vi)
customary Liens (a) granted in the Ordinary Course of Business to secure a
licensee's ability to retain distribution rights under a License Agreement to
which the licensee is a party, (b) which Liens, if enforced, in the aggregate
would not have a Material Adverse Effect, and (c) the Collateral supporting such
lien is limited to the distribution rights and distribution term owned or
Controlled by the Company or any of its Subsidiaries in the applicable Film;
(vii) purchase money liens and Liens securing rental payments under capital
lease arrangements; (viii) Liens that were incurred in the Ordinary Course of
Business, do not secure Indebtedness for borrowed money and, individually or in
the aggregate, do not and would not materially detract from the value of the
affected property or assets of the Company and its Subsidiaries or materially
interfere with the use thereof as correctly used or proposed to be used; (ix)
Liens created or permitted by the Credit Facility; and (x) other Liens set forth
on Section 1.01(b) of the Disclosure Schedule.
"Person" means an individual, corporation, partnership, limited
liability company, association, trust, estate or other entity or organization,
including a Governmental Authority.
"Pre-Signing MAE Breach with Knowledge" means any MAE Breach described
in clause (i) of the definition thereof with respect to which the Company had
Knowledge on or prior to the date of this Agreement.
"Pre-Signing MAE Breach without Knowledge" means any MAE Breach
described in clause (i) of the definition thereof with respect to which the
Company did not have Knowledge on or prior to the date of this Agreement.
13
"Pre-Signing Non-MAE Breach with Knowledge" means any Non-MAE Breach
described in clause (i) of the definition thereof with respect to which the
Company had Knowledge on or prior to the date of this Agreement.
"Pre-Signing Non-MAE Breach without Knowledge" means any Non-MAE Breach
described in clause (i) of the definition thereof with respect to which the
Company did not have Knowledge on or prior to the date of this Agreement.
"Principal Stockholders" means Audax, Xxxx Xxxxxx, CTV, Inc., Xxxx
Xxxxx and Xxx Xxxxxxxx.
"Principal Stockholders Agreement" means the Principal Stockholders
Agreement dated as of the date hereof by and among the Principal Stockholders
and the Buyer.
"Prohibited Transaction" means a transaction that is prohibited under
Section 4975 of the Code or Section 406 of ERISA and not exempt under Section
4975 of the Code or Section 408 of ERISA, respectively.
"Post-Signing Breach" means any MAE-Breach or Non-MAE Breach, in each
case excluding breaches within clause (ii) of the definition of each of those
terms that do not also give rise to a breach of a representation or warranty,
excluding, however, representations and warranties of the Company contained in
the Officers Certificate to be delivered pursuant to Section 9.1(a), to the
extent (and only to the extent) that such representations and warranties relate
to the second sentence of Section 9.1(a), to the extent that such breach
resulted from or related to representations and warranties which were true and
correct at the date of this Agreement (and are not being only made as of the
date of this Agreement), but which are not true and correct at the Closing Date.
"Real Property" means all real property and all easements, rights to
access, rights-of-way and other real property interests which are owned, or are
leased, used or held for use by the Company and/or its Subsidiaries.
"Required Stockholder Approval" means the requisite approval of this
Agreement and the transactions contemplated by this Agreement by stockholders
holding at least 82% of the shares of Common Stock entitled to vote thereon.
"Seller Indemnitees" means the Sellers and their Affiliates and their
respective officers, directors, employees, partners, members, agents,
representatives, advisors, attorneys, successors and permitted assigns.
"Sellers" means the holders of the Capital Stock, Equity Interests
and/or Participating Options of the Company.
"Share Encumbrances" means any and all Liens of any nature with respect
to any shares of Capital Stock, other than Permitted Liens.
14
"Stockholder Loans" means the aggregate outstanding principal amount of
the loans made by the Company to each of Xxxxxxx Block and Xxxx Xxxxx, plus all
accrued and unpaid interest thereon.
"Subsidiary" of a Person (the "Subject Person") means (a) a corporation
at least a majority of whose Capital Stock with voting power, under ordinary
circumstances, to elect directors is at the date of this Agreement or hereafter
owned or Controlled, directly or indirectly, by the Subject Person or (b) any
other Person (other than a corporation) in which the Subject Person, directly or
indirectly, at the date of this Agreement or hereafter has at least a majority
of voting interests, or (c) any partnership (y) the sole general partner or the
managing partner of which is the Subject Person or a Subsidiary of the Subject
Person or (z) the only general partners of which are the Subject Person or one
or more Subsidiaries of the Subject Person (or any combination thereof). The
term Subsidiary, if used in this Agreement without identification of the parent
entity thereof, shall refer to a Subsidiary of the Company.
"Tax" or "Taxes" shall mean any and all federal, state, local and
foreign taxes, assessments and other governmental charges, duties, Medicare,
impositions, levies and liabilities, including, without limitation, taxes based
upon or measured by gross receipts, income, profits, sales, use and occupation,
and value added, ad valorem, transfer, gains, franchise, withholding, payroll,
recapture, employment, excise, social security, business license, occupation,
business organization, stamp, environmental and property taxes, together with
all interest, penalties and additions imposed with respect to such amounts
including, without limitation, any liability for Taxes as a transferee or
successor, by Contract or otherwise.
"Tax Return" shall mean any report, return, election, estimate, notice,
declaration, information return or statement relating to Taxes (including,
without limitation, all schedules or attachments thereto), and including all
amendments thereto.
"Taxable Period" shall mean any taxable year or any other period that
is treated as a taxable year (or other period, or portion thereof, in the case
of a Tax imposed with respect to such other period; e.g., a quarter) with
respect to which any Tax may be imposed under any applicable statute, rule or
regulation.
"Taxing Jurisdiction" shall mean each and every jurisdiction
(including, without limitation, each and every country, state, province,
municipality, political subdivision or other similar jurisdiction) imposing
Taxes.
1.2 Index of Other Defined Terms. In addition to the terms defined
above, the following terms shall have the respective meanings given thereto in
the sections indicated below:(1)
DEFINED TERM SECTION
------------- -------
"Acquisition Company" Preamble
----------
(1) Needs to be updated to add new references and delete unused
definitions.
15
DEFINED TERM SECTION
------------- -------
"Action" 4.12
"Advisory Fees" 4.15(a)
"AFI" 4.27
"AFI2" 4.27
"AFI Agreements" 4.27
"Agreement" Preamble
"Antitrust Laws" 8.3(b)
"Appellate Arbitrators" 12.16(c)
"Arbitrator" 12.16(a)
"Balance Sheet Date" 4.17
"Board Recommendation" 4.5(c)
"Buyer" Preamble
"Buyer Disclosure Schedule" Article V
"Buyer Indemnified Matters" 10.1(a)
"Certificate" 2.8
"Certificate of Merger" 2.2
"Chase" 1.1
"Class A Common" 2.6(a)
"Class L Common" 2.6(c)
"Closing" 3.2(a)
"Closing Date" 3.2(a)
"Company" Preamble
"Confidentiality Agreement" 8.1
"Deductible Amount" 10.1(b)
"Delaware Law" 2.1
"Development Projects" 4.10(b)
"Disclosure Schedule" Article IV
"Effective Time" 2.2
"Email Deletion Policy" 4.32
"Employment Agreements" 4.21(a)
"Escrow Account" 3.2(a)
"Escrow Agent" 3.2(a)
"Escrow Agreement" 3.2(a)
"Films In Progress" 4.10(a)
"Financial Statements" 4.17
"Form of Proxy" 4.5(d)
"Government Approvals" 4.13
"Holder" 3.3(a)
"Indemnified Individuals" 7.1(a)
"Indemnitee" 10.3
"IP License Agreements" 4.11(a)
"JAMS" 12.16(a)
"Leases" 4.7(b)
"Lenders" 1.1
16
DEFINED TERM SECTION
------------- -------
"Litigation Reserves" 4.12(b)
"Management Termination Agreement" Definitions
"Merger" 2.1
"Most Recent Balance Sheet" 4.28
"NOL" 4.22(t)
"Non-Library Distribution Rights" 4.10(c)
"Non-Library Film" 4.10(c)
"Notice of Claim" 10.3
"Option Cancellation Acknowledgment" 3.3(a)
"Optionholder" 2.6(b)
"Order" 9.1(c)
"Paying Agent" 2.8
"Permits" 4.19
"Personal Property Leases" 4.7(b)
"Pre-Closing Tax Period" 10.5
"Real Property Leases" 4.7(b)
"Remaining Films" 4.27
"Required Government Approvals" 9.1(b)
"Rights" 4.2(b)
"Scheduled Contracts" 4.11(a)
"Securityholder Documents" 3.3(a)
"Specified Litigation" 4.12(a)
"Subject Person" 1.1
"Subsequent Material Contract" 6.1(a)
"Superior Proposal" 8.8(b)
"Surviving Corporation" 2.1
"Tax Claim" 10.5
"Tax Representative" 10.5
"Tax Reserve" 4.22(c)
"Third Party Claim" 10.4
"Trustees" 1.1
"Written Consent" 4.5(d)
ARTICLE II
MERGER
2.1 The Merger. Upon the terms and subject to the conditions
hereof, and in accordance with the relevant provisions of the General
Corporation Law of the State of Delaware ("Delaware Law"), at the Closing, the
Acquisition Company shall be merged (the "Merger") with and into the Company.
Following the Merger, the Company shall continue as the surviving corporation
(the "Surviving Corporation") under the name "Film Holdings Co." and shall
continue its existence under the laws of the State of Delaware, and the separate
corporate existence of the Acquisition Company shall cease.
17
2.2 Effective Time. The Merger shall be consummated at the Closing
by filing with the Secretary of State of the State of Delaware a certificate of
merger (the "Certificate of Merger") as required by, and executed in accordance
with, the relevant provisions of Delaware Law. The Merger shall be effective at
the time that the Certificate of Merger is duly filed with the Delaware
Secretary of State, or at such later time as may be agreed to by the parties to
this Agreement and as stated in the Certificate of Merger (the "Effective
Time").
2.3 Effects of the Merger. From and after the Effective Time, the
Surviving Corporation shall succeed to all the assets, rights, privileges,
powers and franchises and be subject to all of the liabilities, restrictions,
disabilities and duties of the Company and Acquisition Company, including, all
as provided under this Agreement and under Delaware Law.
2.4 Certificate of Incorporation and Bylaws. From and after the
Effective Time the Certificate of Incorporation of the Company shall be amended
and restated in its entirety as set forth in Exhibit A attached hereto and, as
so amended and restated, shall be the Certificate of Incorporation of the
Surviving Corporation until amended in accordance with Delaware Law and the
terms thereof. From and after the Effective Time, the Bylaws of the Acquisition
Company shall be the Bylaws of the Surviving Corporation.
2.5 Directors and Officers. From and after the Effective Time,
until successors are duly elected or appointed in accordance with Applicable
Law, the directors of the Acquisition Company at the Effective Time shall
constitute the directors of the Surviving Corporation, and the officers of the
Acquisition Company at the Effective Time shall be the officers of the Surviving
Corporation.
2.6 Conversion of Shares and Options.
(a) Class A Common Stock. At the Effective Time,
by virtue of the Merger and without any further action on the part of
the Company or the holders thereof, each share of the Company's Class A
Common Stock, par value $.001 per share (including any series thereof,
the "Class A Common") issued and outstanding immediately prior to the
Effective Time (but not including any Class A Common held by the Buyer,
the Acquisition Company or any of their Subsidiaries or in the treasury
of the Company, which Class A Common, by virtue of the Merger and
without any action on the part of the holders thereof, shall be
canceled and retired and shall cease to exist with no payment being
made with respect thereto) shall be converted into the right to receive
the following:
(i) a Closing Date Per Share Portion of
the Closing Distribution Amount, payable by the Paying Agent
to such holder at any time after the Effective Time upon such
holder's surrender and delivery of the Securityholder
Documents to the Paying Agent pursuant to Section 3.3; and
(ii) the applicable Per Share Portion of
any post-closing distribution in respect of the Excluded
Assets or the Box Office Contingent Payments, or any
post-closing distribution out of the Escrow Account or the
Cash
18
Flow Insurance Escrow Account, in each case in accordance with
Section 3.4(b) hereof.
(b) Options. Each Option that is outstanding
immediately prior to the Effective Time, by virtue of the Merger and
without any further action on the part of Company or the holders
thereof, shall be canceled as of the Effective Time. All Options
(including those which are Participating Options) and any other rights
that any Person may have under any of the Option Plans (except for the
right to receive the consideration, if any, expressly provided for in
this Section 2.6 (b)) shall terminate, without liability to the Company
or the Surviving Corporation, to the extent such Options and any such
other rights shall not have been exercised prior to the Effective Time.
At the Effective Time, the following record holders of the following
Participating Options (each, an "Optionholder") shall be entitled to
receive the following for each share of Class A Common such
Optionholder could have purchased upon the exercise in full of such
Participating Options immediately prior to the Effective Time:
(1) Participating Options with an
Exercise Price Equal to or Less than $2.98 Per Share:
(i) a Closing Date Per Share Portion of
the Closing Distribution Amount minus the sum of (x) the
applicable exercise price per share of such Option and (y) all
applicable withholding taxes, payable by the Paying Agent to
the such Optionholder at the Effective Time upon such
Optionholder's surrender and delivery of the Securityholder
Documents to the Paying Agent pursuant to Section 3.3;
(ii) the applicable Per Share Portion of
any post-closing distribution in respect of the Excluded
Assets or the Box Office Contingent Payments, or any
post-closing distribution out of the Escrow Account or the
Cash Flow Insurance Escrow Account, in each case in accordance
with Section 3.4(b) hereof.
(2) Participating Options with an
Exercise Price Equal to or Greater than $6.55 Per Share:
(i) the applicable Per Share Portion of
any post-closing distribution in respect of the Excluded
Assets or the Box Office Contingent Payments, or any
post-closing distribution out of the Escrow Account or the
Cash Flow Insurance Escrow Account, in each case in accordance
with Section 3.4(b) hereof.
(c) Class L Common Stock. At the Effective Time,
by virtue of the Merger and without any further action on the part of
the Company or the holders thereof, each share of the Company's Class L
Common Stock, par value $.001 per share (the "Class L Common") issued
and outstanding immediately prior to the Effective Time (but not
including any Class L Common held by the Buyer, the Acquisition Company
or any of their Subsidiaries) in the treasury of the Company, which
Class L Common, by virtue
19
of the Merger and without any action on the part of the holders
thereof, shall be canceled and retired and shall cease to exist with no
payment being made with respect thereto) shall be converted into the
right to receive the following:
(i) an amount equal to (x) a Closing
Date Per Share Portion of the Closing Distribution Amount,
multiplied by (y) the Class L Conversion Factor, payable by
the Paying Agent to such holder at any time after the
Effective Time upon such holder's surrender and delivery of
the Securityholder Documents to the Paying Agent pursuant to
Section 3.3; and
(ii) a portion equal to the Class L
Conversion Factor multiplied by the applicable Per Share
Portion of any post-closing distribution in respect of the
Excluded Assets or the Box Office Contingent Payments, or any
post-closing distribution out of the Escrow Account or the
Cash Flow Insurance Escrow Account, in each case in accordance
with Section 3.4(b) hereof.
2.7 Conversion of Acquisition Company's Capital Stock. Each share
of Capital Stock of the Acquisition Company issued and outstanding immediately
prior to the Effective Time shall, by virtue of the Merger and without any
action on the part of the holder thereof, be converted into one share of common
stock of the Surviving Corporation, which immediately thereafter shall
constitute all of the issued and outstanding Capital Stock of the Surviving
Corporation.
2.8 Paying Agent. The Company (and, from and after the Effective
Time, the Surviving Corporation) shall act as paying agent (the "Paying Agent")
in effecting the exchange of the Closing Distribution Amount for (i)
certificates which, immediately prior to the Effective Time, represented 100% of
the shares of Common Stock ("Certificates") entitled to payment pursuant to
Section 2.6(a) and Section 2.6(c) and for which the Securityholder Documents
have been delivered pursuant to Section 3.3 and (ii) Participating Options
which, immediately prior to the Effective Time, represented 100% of the
Participating Options entitled to payment on the Closing Date pursuant to
Section 2.6(b). After the Closing Date, each distribution of funds by the Paying
Agent in accordance with this Agreement shall be made in accordance with the
terms and conditions of Section 3.4(a) hereof and instructions not inconsistent
therewith provided to the Paying Agent by the Designated Stockholder evidenced
by a writing signed by authorized representatives of not less than two
Designated Stockholders and Audax Entertainment, L.P., which writing shall be
conclusive evidence of such action and shall be binding upon all of the
Designated Stockholders and all Sellers. The Paying Agent shall be entitled to
rely, and shall be fully protected in relying, upon such written instructions
and any other information which it deems in good faith to be reliable, and shall
be relieved of any further obligation or Liability with respect to any
distribution upon the payment of any distribution in accordance with the terms
and conditions of Section 3.4(a) hereof and the written instructions of the
Designated Stockholders.
2.9 Dissenting Shares. The shares of Class A Common that are
issued and outstanding immediately prior to Effective Time and that are held by
a stockholder who did not vote in favor of the Merger shall be herein called
"Dissenting Shares," and Holders of Dissenting Shares shall be called
"Dissenting Shareholders." Notwithstanding anything in this Agreement to the
contrary, the Dissenting Shares shall not be entitled to receive any portion of
the Merger
20
Consideration (including but not limited to the amounts payable at Closing under
Section 2.6 hereof), but shall be entitled only to such rights as are set forth
in Delaware Law. Subject to Delaware Law, if any Holder of Dissenting Shares
shall have subsequently withdrawn a demand for payments, shall have failed to
perfect or shall have effectively withdrawn or lost such Holder's rights to
appraisal under Delaware Law, such Holder's Dissenting Shares shall thereupon no
longer be deemed to be Dissenting Shares and be deemed to have been converted
into and to have become exchangeable, as of the Effective Time, for the right to
receive the appropriate Merger Consideration (including but not limited to the
amounts payable at Closing under Section 2.6 hereof) without any interest
thereon, pursuant to the terms and conditions set forth above. Nothing herein
shall limit or otherwise modify any Sellers' obligations under any "drag-along"
or "come-along" agreement.
2.10 No Further Transfer of Shares
After the Effective Time, there shall be no transfers of shares of Capital
Stock that were outstanding immediately prior to the Effective Time on the stock
transfer books of the Surviving Corporation. If, after the Effective Time,
Certificates are presented to the Surviving Corporation for transfer, they shall
be canceled and exchanged for their proportionate share of the Merger
Consideration, without any interest thereon, pursuant to the terms and
conditions set forth above.
ARTICLE III
SIGNING AND CLOSING; POST-CLOSING DISTRIBUTIONS
3.1 Written Consent of Stockholders. As soon as possible, but in
any case no later than five Business Days after the execution of this Agreement,
the Company shall mail a notice to the holders of Common Stock advising them of
the approval by a majority of the holders of Common Stock of this Agreement and
the Merger and soliciting waivers of dissenter rights from the holders of Common
Stock in lieu of a meeting. The Company shall require receipt of such waiver
from the holders of Common Stock no later than 20 calendar days following
mailing of the notice to the holders of Common Stock. The Company shall so
notify the holders of Common Stock whether or not the Board of Directors of the
Company determines, at any time subsequent to declaring its advisability, that
this Agreement is no longer advisable and recommends that the holders of Common
Stock reject it.
3.2 Closing.
(a) As soon as practicable, but in any event
within three Business Days after (A) the satisfaction or waiver of the
conditions set forth in Sections 9.1 and 9.2 (other than the conditions
which by their terms are to be satisfied at Closing, including delivery
of items to be delivered at the Closing and conditions that remain
subject to the delivery of such items and the satisfaction or waiver of
such conditions at the Closing), and (B) the delivery by the Buyer to
the Company of notice setting forth the specified date of the Closing,
which notice must (i) be delivered not less than 3 Business Days prior
to the Outside Date, and (ii) must specify as the date of the Closing a
Business Day
21
on or prior to the Outside Date, or upon such other date as the parties
may agree, the closing (the "Closing") of the transactions contemplated
by this Agreement shall be held at the Los Angeles offices of Xxxxxxxx
& Xxxxx LLP (or such other place as the parties may agree). The date on
which the Closing occurs is hereinafter referred to as the "Closing
Date." At or prior to the Closing, (A) the respective designated
parties thereto shall deliver the documents referred to in Sections 9.1
and 9.2, and (B) the Company shall deliver to the Buyer the Certificate
of Merger in the form attached hereto as Exhibit B, executed and
otherwise in order for filing. At the Closing:
(i) the Paying Agent shall deliver to
the Buyer the Certificates described in Section 2.8 that the
Paying Agent has received as of the Closing Date,
(ii) the Buyer shall deliver to the
Paying Agent, by wire transfer of immediately available funds,
to an account designated by the Paying Agent no later than
three Business Days prior to the Closing Date, the Closing
Distribution Amount,
(iii) the Buyer shall deliver, by wire
transfer of immediately available funds, an amount equal to
the positive difference between the Escrow Amount and the
Deposit Amount into an account (the "Escrow Account")
established pursuant to the terms and conditions of an
agreement dated as of the Closing Date in the form attached
hereto as Exhibit C (the "Escrow Agreement") by and among the
parties hereto and Bank One, N.A. (the "Escrow Agent") ,
(iv) the Escrow Agent shall deliver, by
wire transfer of immediately available funds, the Deposit
Amount into the Escrow Account,
(v) the Buyer shall deliver, by wire
transfer of immediately available funds, the Cash Flow
Insurance Claims Escrow Amount into an account (the "Cash Flow
Insurance Claims Escrow Account") established pursuant to the
terms and conditions of an agreement dated as of the Closing
Date in the form attached hereto as Exhibit D (the "Cash Flow
Insurance Claims Escrow Agreement") by and among the parties
hereto,
(vi) the Buyer shall deliver, by wire
transfer of immediately available funds, to the accounts and
in amounts designated to the Company no later than three
Business Days prior to the Closing Date, the applicable
portions of the Closing Deduct Amount, to the extent not
theretofore paid by the Company, upon receipt by Buyer of a
written acknowledgement from each recipient that it has been
paid in full for all amounts comprising that portion of the
Closing Deduct Amount, to which it would be entitled (other
than amounts deposited into an Escrow Account),
(vii) the Paying Agent shall deliver to
each Holder who delivered such Holder's Securityholders
Documents to the Paying Agent prior to the Closing Date in
accordance with Section 3.3, that portion of the Closing
22
Distribution Amount payable to such Holder (or to the Person
designated by such Holder in his, her or its Letter of
Transmittal) at the Closing as set forth in Section 2.6 hereof
by wire transfer of immediately available funds to an account
designated by the Holder to the Paying Agent at least three
(3) Business Days prior to the Closing Date, and
(viii) the Buyer and the Company shall
make such other deliveries as are required by and in
accordance with Article IX.
3.3 Exchange of Shares and Options.
(a) Each record holder of Common Stock or
Optionholder as of the Effective Time, as applicable (each hereinafter,
a "Holder"), shall surrender the Securityholder Documents to the Paying
Agent. The documents to be delivered by the Holders to the Paying Agent
either before or after the Closing Date (the "Securityholder
Documents") shall be (A) in the case of shares of Common Stock, the
Certificates representing such shares (or the affidavit of lost
certificate attached to the Letter of Transmittal), together with the
Letter of Transmittal substantially in the form attached hereto as
Exhibit E executed by such Holder or otherwise reasonably acceptable to
the Buyer, and, if so required, representations regarding title,
authority and ownership of such shares, and (B) in the case of the
Options, the agreement evidencing such Option (or the affidavit of lost
certificate attached to the Option Cancellation Agreement) and a duly
executed acknowledgement of the cancellation of such Option (an "Option
Cancellation Agreement") substantially in the form attached hereto as
Exhibit F or otherwise reasonably acceptable to the Buyer. All such
surrendered Certificates and Options, as applicable, shall be canceled
at the Effective Time.
(b) With respect to each Certificate for which
the Securityholder Documents were not so surrendered at the Closing,
the Paying Agent shall promptly thereafter mail to the Holder thereof,
a Letter of Transmittal (which shall specify that delivery shall be
effected, and risk of loss of title to such Certificate shall pass,
only upon proper delivery of the appropriate Securityholder Documents
to the Paying Agent) and instructions for delivering such
Securityholder Documents in exchange for payment to such Holder (or to
the Person designated by such Holder in his, her or its Letter of
Transmittal) of that portion of the Closing Distribution Amount payable
to such Holder as set forth in Section 2.6 and 3.4(b) hereof by wire
transfer of immediately available funds to an account designated by the
Holder to the Paying Agent. Upon delivery to the Paying Agent of such
Securityholder Documents, the Certificate, as applicable, shall then be
cancelled. All Options with respect to which the Paying Agent failed to
receive the applicable Securityholder Documents on or prior to the
Closing Date shall be cancelled in accordance with the terms of the
Option Plans, and the applicable Optionholders shall not be entitled to
receive any portion of the Merger Consideration.
(c) All amounts payable on the Closing Date to
each Holder indebted to the Company under the Stockholder Loans shall
be net of principal and accrued interest through the Closing Date
thereunder and any and all other amounts owed thereunder.
23
(d) No interest will be paid or accrued on the
amounts payable upon the surrender of the Securityholder Documents. If
payment is to be made to a Person other than the Person in whose name a
Certificate surrendered is registered, it shall be a condition of
payment that the Certificate so surrendered shall be properly endorsed
or otherwise in proper form for transfer and that the Person requesting
such payment shall pay any transfer or other Taxes required by reason
of the payment to a Person other than the Holder of the Certificate
surrendered or shall establish to the satisfaction of the Paying Agent
or the Surviving Corporation, as the case may be, in its sole
discretion, that such Tax has been paid or is not applicable. From and
after the Effective Time, until the applicable Securityholder Documents
are surrendered in accordance with the provisions of Section 3.3, each
Certificate (other than Certificates representing Dissenting Shares)
shall represent for all purposes only the right to receive payment of
the amounts specified in Section 2.6 and 3.4(b) in respect of such
shares of Common Stock.
(e) To the fullest extent permitted by
Applicable Law, any portion of the funds deposited with the Paying
Agent on the Closing Date and on any Distribution Date which remains
undistributed to the Holders of shares of Common Stock who did not
deliver their respective Securityholder Documents to the Paying Agent
prior to the Closing Date shall, for one year after their deposit,
become available to the Surviving Corporation for all purposes, and any
Holder of shares of Common Stock who has not theretofore complied with
this Section 3.3 shall thereafter look only as a general claimant to
the Surviving Corporation for payment of the sums to which such Holder
is entitled pursuant to this Agreement.
(f) Neither the Buyer nor the Surviving
Corporation shall be liable to any Holder of shares of Common Stock or
Participating Options for any cash delivered by the Paying Agent or the
Surviving Corporation in good faith to a public official pursuant to an
applicable abandoned property, escheat or similar law.
(g) The Surviving Corporation (or the Paying
Agent on its behalf) shall be entitled to deduct and withhold from the
consideration otherwise payable pursuant to this Agreement to any
Holder of shares of Common Stock or Participating Options such amounts,
if any, as the Surviving Corporation is required to deduct and withhold
with respect to the making of such payment under the Code or any
provisions of any Law related to Taxes. To the extent that amounts are
so withheld by the Surviving Corporation (or the Paying Agent on its
behalf), such withheld amounts shall be treated for all purposes of
this Agreement as having been paid to the Holder of the relevant shares
of Common Stock or Participating Options in respect of which such
deduction and withholding was made by the Surviving Corporation (or the
Paying Agent on its behalf).
(h) In the event that any Certificate or
Participating Option shall have been lost, stolen or destroyed, the
Paying Agent or the Surviving Corporation, as the case may be, shall
deliver in exchange for such lost, stolen or destroyed Certificate or
Participating Option, upon the making of an affidavit of that fact by
the owner thereof in form and substance satisfactory to the Paying
Agent or the Surviving Corporation, as the case may be, in its sole
discretion, the cash amounts payable with respect to such Certificate
or Participating Option pursuant to Article II.
24
3.4 Post-Closing Distributions.
(a) Excluded Assets and Box Office Contingent
Payments. The Buyer shall, and shall cause the Paying Agent to, deliver
to each Holder who delivered such Holder's Securityholders Documents to
the Paying Agent prior to the applicable Distribution Date in
accordance with Section 3.3, that portion of the applicable
Distribution Amount payable to such Holder (or to the Person designated
by such Holder in his, her or its Letter of Transmittal) on such
Distribution Date as set forth in Section 3.4(b) hereof by wire
transfer of immediately available funds to an account designated by the
Holder to the Paying Agent at least three (3) Business Days prior to
the applicable Distribution Date in accordance with the distribution
priorities set forth in Section 3.4(b) below within three (3) Business
Days (or if later three (3) Business Days after an account has been
designated by a Holder) of (i) in the case of the Excluded Assets, the
date of delivery by any of the parties of a final executed settlement
agreement relating to the Cash Flow Insurance Claims or of the entry of
a final, non-appealable judgment resolving the Cash Flow Insurance
Claims, (ii) in the case of the Box Office Contingent Payments, in
accordance with the terms of the definition of Box Office Contingent
Payments; provided, however, that in no event will the Buyer or the
Paying Agent be required to make any payment (by wire transfer or
otherwise) or distribution of funds unless and until it has actually
received payment of amounts to which such payments or distributions
relate.
(b) Distributions. On any date that (i) the
Paying Agent makes any distribution in accordance with Section 3.4(a)
above, or (ii) the applicable Escrow Agent makes any distribution of
funds to the Sellers in accordance with the terms of the Escrow
Agreement or the Cash Flow Insurance Claims Escrow Agreement (other
than the reimbursement of expenses incurred by the Designated
Stockholders), the Paying Agent and/or the Escrow Agent shall pay the
Distribution Amount in the following order, priority and amounts:
First, to (a) Audax Entertainment, L.P., the Audax
Amount payable in respect of such Distribution Amount, and (b)
each Person entitled to a Change of Control Payment in respect
of such Distribution Amount, the Change of Control Payment and
any Investment Banking Fee Payment payable in respect of such
Distribution Amount, in each case pari passu as their
interests may appear;
Second, to (a) the Holders of Class A Common who have
delivered their Securityholder Documents prior to the
applicable Distribution Date, with respect to each such share
of Class A Common a Closing Date Per Share Portion of the
Distribution Amount, (b) the Holders of Class L Common who
have delivered their Securityholder Documents prior to the
applicable Distribution Date, with respect to each such share
of Class L Common an amount equal to (x) a Closing Date Per
Share Portion of such Distribution Amount, multiplied by (y)
the Class L Conversion Factor, (c) to the Paying Agent, an
amount equal to the sum of (1) a Closing Date Per Share
Portion of the Distribution Amount and (2) an amount equal to
(x) a Closing Date Per Share Portion of such Distribution
Amount, multiplied by (y) the Class L Conversion Factor, in
each case in respect of each
25
such share of Class A Common or Class L Common (as applicable)
with respect to which the applicable Holder failed to deliver
his, her or its Securityholder Documents prior to the
applicable Distribution Date, and (d) to the Holders of
Participating Options with an exercise price equal to or less
than $2.98 per share, a Closing Date Per Share Portion of such
Distribution Amount minus all applicable withholding taxes, in
each case pari passu as their respective interests may appear,
until such time as Closing Date Per Share Portion multiplied
by the sum of (A) such Distribution Amount and (B) all prior
Distribution Amounts (including the Closing Date Distribution
Amount) equals $6.55 (it being understood that the references
to "Distribution Amount" in this clause second means such
amount after giving effect to clause first);
Third, to (a) the Holders of Class A Common who have
delivered their Securityholder Documents prior to the
applicable Distribution Date, with respect to each such share
of Class A Common a $6.55 Per Share Portion of the
Distribution Amount, (b) the Holders of Class L Common who
have delivered their Securityholder Documents prior to the
applicable Distribution Date, with respect to each such share
of Class L Common an amount equal to (x) a $6.55 Per Share
Portion of such Distribution Amount, multiplied by (y) the
Class L Conversion Factor, (c) to the Paying Agent, an amount
equal to the sum of (1) a $6.55 Per Share Portion of the
Distribution Amount and (2) an amount equal to (x) a $6.55 Per
Share Portion of such Distribution Amount, multiplied by (y)
the Class L Conversion Factor, in each case in respect of each
such share of Class A Common or Class L Common (as applicable)
with respect to which the applicable Holder failed to deliver
his, her or its Securityholder Documents prior to the
applicable Distribution Date, and (d) to the Holders of
Participating Options with an exercise price equal to or less
than $6.55 per share, a $6.55 Per Share Portion of such
Distribution Amount minus all applicable withholding taxes, in
each case pari passu as their respective interests may appear,
until such time as the $6.55 Per Share Portion multiplied by
the sum of (A) such Distribution Amount and (B) all prior
Distribution Amounts under this clause third equals $0.84 (it
being understood that the references to "Distribution Amount"
in this clause third means such amount giving effect clauses
first and second);
Fourth, to (a) the Holders of Class A Common who have
delivered their Securityholder Documents prior to the
applicable Distribution Date, with respect to each share of
Class A Common a $7.39 Per Share Portion of the Distribution
Amount, (b) the Holders of Class L Common who have delivered
their Securityholder Documents prior to the applicable
Distribution Date, with respect to each share of Class L
Common an amount equal to (x) a $7.39 Per Share Portion of
such Distribution Amount, multiplied by (y) the Class L
Conversion Factor, (c) to the Paying Agent, an amount equal to
the sum of (1) a $7.39 Per Share Portion of the Distribution
Amount and (2) an amount equal to (x) a $7.39 Per Share
Portion of such Distribution Amount, multiplied by (y) the
Class L Conversion Factor, in each case in respect of each
such share of Class A Common or Class L Common (as applicable)
with respect to which the applicable Holder failed to deliver
his, her or its Securityholder Documents prior to the
applicable
26
Distribution Date, and (d) to the Holders of Participating
Options with an exercise price equal to or less than $7.39 per
share, a $7.39 Per Share Portion of such Distribution Amount
minus all applicable withholding taxes, in each case pari
passu as their respective interests may appear, until such
time as the $7.39 Per Share Portion multiplied by the sum of
(A) such Distribution Amount and (B) all prior Distribution
Amounts under this clause third equals $2.73 (it being
understood that the references to "Distribution Amount" in
this clause fourth means such amount giving effect clauses
first, second and third); and
Fifth, to (a) the Holders of Class A Common who have
delivered their Securityholder Documents prior to the
applicable Distribution Date, with respect to each share of
Class A Common a $10.12 Per Share Portion of the Distribution
Amount, (b) the Holders of Class L Common who have delivered
their Securityholder Documents prior to the applicable
Distribution Date, with respect to each share of Class L
Common an amount equal to (x) a $10.12 Per Share Portion of
such Distribution Amount, multiplied by (y) the Class L
Conversion Factor, (c) to the Paying Agent, an amount equal to
the sum of (1) a $10.12 Per Share Portion of the Distribution
Amount and (2) an amount equal to (x) a $10.12 Per Share
Portion of such Distribution Amount, multiplied by (y) the
Class L Conversion Factor, in each case in respect of each
such share of Class A Common or Class L Common (as applicable)
with respect to which the applicable Holder failed to deliver
his, her or its Securityholder Documents prior to the
applicable Distribution Date, and (d) to the Holders of
Participating Options with an exercise price equal to or less
than $10.12 per share, a $10.12 Per Share Portion of such
Distribution Amount minus all applicable withholding taxes, in
each case pari passu as their respective interests may appear
(it being understood that the references to "Distribution
Amount" in this clause fifth means such amount giving effect
clauses first, second, third and fourth.
(c) Payments to Designated Stockholders. At any
time subsequent to the Closing, with respect to any Distribution Amount
the Paying Agent may upon two (2) Business Days notice to the
Designated Stockholders deliver the entire Distribution Amount (less
holdbacks with respect to Holders who have not then delivered their
Securityholders Documents to the Paying Agent in accordance with
Section 3.3 and less any applicable withholding taxes by wire transfer
to an account designated by the Designated Stockholders and Audax
Entertainment, L.P., in which case the Designated Stockholders and
Audax Entertainment, L.P. shall be responsible for the distribution of
that Distribution Amount among the Persons entitled thereto, as
provided in, and in accordance with, the provisions of this Agreement;
and the Paying Agent shall be relieved of any further obligation or
Liability with respect to that Distribution Amount.
ARTICLE IV
COMPANY REPRESENTATIONS AND WARRANTIES
The Company represents and warrants to, and agrees with, the Buyer and
the Acquisition Company that, except as set forth in the Disclosure Schedule
(the "Disclosure Schedule")
27
attached to this Agreement as Exhibit G, the following representations and
warranties are true and correct (provided that any representations and
warranties made as of a specified date are or shall be true and correct as of
such specified date):
4.1 Organization, Good Standing and Qualification.
(a) The Company is a corporation duly organized,
validly existing and in good standing under, and by virtue of, the laws
of the State of Delaware.
(b) The Company is qualified to do business as a
foreign corporation in each jurisdiction where the character of the
property owned or leased by it or the nature of its activities makes
such qualification necessary to carry on its business as now conducted,
except for those jurisdictions where the failure to be so qualified has
not had, and would not be reasonably expected to have, a Material
Adverse Effect on the Company or a material and adverse effect on the
validity, execution, delivery or performance of this Agreement or the
consummation of the transactions contemplated hereby.
(c) Section 4.1(c) of the Disclosure Schedule
sets forth a complete list of each direct or indirect Subsidiary or
Controlled Affiliate of the Company, its jurisdiction of organization,
the owners of the Capital Stock of such Subsidiary or Controlled
Affiliate and each such owner's ownership percentage.
(d) Each Subsidiary of the Company is a
corporation or limited liability company duly formed, validly existing
and in good standing under the laws of the jurisdiction of its
organization, and has all corporate or limited liability company power
and authority to carry on its business as conducted, except where the
failure to be in good standing has not had, and would not be reasonably
expected to have, a Material Adverse Effect on the Company. Each
Subsidiary of the Company is duly qualified to do business as a foreign
corporation or limited liability company in each jurisdiction where the
character of the property owned or leased by it or the nature of its
activities makes such qualification necessary to carry on its business
as conducted, except for those jurisdictions where the failure to be so
qualified has not had, and would not be reasonably expected to have, a
Material Adverse Effect on the Company.
(e) The Company has heretofore delivered to
Buyer complete and correct copies of the Company's Amended and Restated
Certificate of Incorporation and Bylaws, each as amended to the date
hereof. The Company's Amended and Restated Certificate of Incorporation
and Bylaws are in full force and effect, and the Company is not in
violation of any of the provisions thereof.
4.2 Capitalization.
(a) Authorized and Issued Stock. Section 4.2(a)
of the Disclosure Schedule sets forth the authorized shares of Capital
Stock of, or other Equity Interests in, the Company and the number of
such shares issued and outstanding as of the date of this Agreement,
including a complete list of holders of Capital Stock and Equity
Interests and the number of shares owned by each such holder.
28
(b) Options, Warrants, Convertible Securities.
Except as set forth in Section 4.2(b) of the Disclosure Schedule, (i)
there are no outstanding options, warrants, calls, commitments,
conversion privileges or other rights, obligations or agreements of any
kind relating to the issued or unissued Capital Stock of the Company or
obligating the Company to issue, repurchase, sell or redeem any shares
of the Capital Stock of, or other Equity Interests in, the Company
(individually and collectively, "Rights"), (ii) there are no
outstanding obligations of the Company to repurchase, redeem or
otherwise acquire any Equity Interests or to make any investment (in
the form of a loan, capital contribution or otherwise) in any other
Person, (iii) no shares of the Company's outstanding Capital Stock, or
stock issuable upon exercise or exchange of any outstanding options or
other securities issuable by the Company, are, or on the Closing Date
will be, subject to any rights of first refusal or other rights to
purchase such stock (whether in favor of the Company or any other
person), (iv) the Company does not have any outstanding bonds,
debentures, notes or other obligations the holders of which have the
right to vote in the affairs of the Company, (v) no holder of any
Rights relating to the issued or unissued Capital Stock of the Company
has any consent or approval right with respect to the consummation of
the Merger or any of the other transactions contemplated hereby
(including with respect to the conversion of Options pursuant to
Section 2.6(b)) and (vi) except as specifically provided for in
Sections 2.6 and 3.4, no holder of any Rights (including holders of
Rights not constituting Participating Options) will have any right or
claim against the Surviving Corporation or the Buyer with respect to
Capital Stock of or Equity Interests in the Company from or after the
Effective Time, except as expressly set forth in this Agreement.
4.3 Valid Issuances of Capital Stock. Except as set forth in
Section 4.3 of the Disclosure Schedule, all of the outstanding shares of Capital
Stock of, or Equity Interests in, the Company are owned beneficially and of
record by the Sellers, free and clear of all Share Encumbrances (except for
restrictions imposed by United States federal and state securities laws), and
all outstanding shares of Capital Stock are duly issued, fully paid and
non-assessable, and such shares of Capital Stock of, and all other outstanding
Equity Interests in, the Company have been issued in compliance with all
Applicable Laws and have not been issued in contravention of, and are not
subject to, any preemptive rights. Except as set forth in Section 4.3 of the
Disclosure Schedule, the Company does not hold any of the issued and outstanding
shares of its Capital Stock in its treasury.
4.4 Subsidiaries. Except as set forth in Section 4.4 of the
Disclosure Schedule or except for the Company's Subsidiaries, the Company does
not presently own or Control, directly or indirectly, any Capital Stock of, or
Equity Interests in, or otherwise Control any other Person. Except as set forth
in Section 4.4 of the Disclosure Schedule, all of the outstanding shares of
Capital Stock of, or Equity Interests in, each Subsidiary of the Company are
owned beneficially and of record by the Company or a Subsidiary of the Company,
free and clear of all Share Encumbrances (except for United States federal and
state securities laws), and all of such shares or membership interests are duly
issued, fully paid and non-assessable, and were not issued in contravention of,
and are not subject to, any preemptive rights. Except as disclosed in Section
4.4 of the Disclosure Schedule, no Subsidiary of the Company holds any of its
issued and outstanding shares of Capital Stock or membership interests in its
treasury. Except as set forth in Section 4.4 of the Disclosure Schedule, (a)
there are, and on the Closing Date will be, no
29
obligations or agreements of any kind relating to the issued or unissued Capital
Stock of any of the Company's Subsidiaries or obligating any of the Company's
Subsidiaries to issue, repurchase, sell or redeem any shares of Capital Stock
of, or other Equity Interests in, any of the Company's Subsidiaries, (b) there
are no outstanding obligations of any of the Company's Subsidiaries to
repurchase, redeem or otherwise acquire any Equity Interests or to make any
investment (in the form of a loan, capital contribution or otherwise) in any
other Person, (c) no shares of outstanding Capital Stock of any of the Company's
Subsidiaries, or stock issuable upon exercise or exchange of any outstanding
options or other securities issuable by any of the Company's Subsidiaries, are,
or on the Closing Date will be, subject to any rights of first refusal or other
rights to purchase such stock (whether in favor of such Subsidiary or any other
person), and (d) the Company's Subsidiaries do not have any outstanding bonds,
debentures, notes or other obligations the holders of which have the right to
vote in the affairs of such Subsidiary.
4.5 Power and Due Authorization, etc.
(a) The Company has all requisite corporate
power and authority to own, lease and operate its assets and
properties, to carry on its business as currently conducted and to
execute, deliver and perform its obligations under, as applicable, this
Agreement and any other documents executed in connection with the
Merger and other transactions contemplated hereby.
(b) Except as set forth in Section 4.5(b) of the
Disclosure Schedule, all corporate action, as applicable, on the part
of the Company (including as required pursuant to Section 6.3)
necessary for the authorization, execution and delivery of, and the
performance of all obligations of the Company under this Agreement and
any other documents related to the Merger or other transactions
contemplated by this Agreement has been, or, by the time of the Closing
shall have been taken. Subject to the preceding sentence, each of this
Agreement and any other document executed in connection herewith to
which the Company is a party has been duly authorized, executed and
delivered by Company and is a valid and binding obligation of the
Company, enforceable in accordance with its respective terms, subject,
as to enforcement of remedies, to applicable bankruptcy, insolvency,
moratorium, reorganization and similar laws affecting creditors' rights
generally and to general equitable principles.
(c) The Board of Directors of the Company,
acting by unanimous written consent, has (i) determined as of the date
of this Agreement that the Merger is fair to and in the best interests
of the Company and the Sellers, (ii) adopted a resolution approving
this Agreement and declaring its advisability (the "Board
Recommendation") in accordance with the provisions of Delaware Law and
the Company's Amended and Restated Certificate of Incorporation, (iii)
directed that this Agreement, promptly after its execution, be
submitted to the holders of Capital Stock for action by written consent
for the purpose of considering and voting on the adoption or rejection
of this Agreement, which vote shall be effected pursuant to a written
consent of the holders of Capital Stock, and (iv) adopted a resolution
having the effect of causing the Company not to be subject to any state
takeover law or similar law that might otherwise apply to the Merger
and any other transactions contemplated by this Agreement.
30
(d) All of the Principal Stockholders have
indicated to the Company their intent and desire, immediately following
the execution of this Agreement, to consent to the adoption of this
Agreement. The affirmative vote to adopt this Agreement (pursuant to a
written consent in lieu of a meeting or otherwise) of the holders of a
majority of the outstanding Common Stock, voting as one class, is the
only vote of the holders of any class or series of the Company Capital
Stock or other Equity Interests of the Company necessary to adopt and
approve this Agreement and to consummate the Merger and the other
transactions contemplated hereby.
4.6 Indebtedness. Except as set forth in the Financial Statements
and as set forth in Section 4.6 of the Disclosure Schedule, neither the Company
nor any of its Subsidiaries has any Indebtedness that the Company or any such
Subsidiary has directly or indirectly created, incurred, assumed or guaranteed,
or with respect to which the Company or any such Subsidiary has otherwise become
liable.
4.7 Title to Properties and Assets.
(a) Each of the Company and its Subsidiaries has
good and marketable title to its respective tangible properties and
assets (real, personal or mixed) reflected in the balance sheet of the
Company as of September 30, 2003 or otherwise used or necessary for use
in the Company's or its Subsidiaries' respective businesses or
operations and, in each case, free and clear of all Liens, except for
Permitted Liens, other matters that individually or in the aggregate
have not had, and will not have, a Material Adverse Effect on the
Company, or as disclosed in Section 4.7(a) of the Disclosure Schedule.
No Person or Governmental Authority has an option to purchase, right of
first negotiation or first refusal or other similar right with respect
to all or any part of such properties or assets. The assets, properties
and rights of the Company and each of its Subsidiaries are sufficient
for the continued conduct of their respective businesses after the
Closing in substantially the same manner as conducted prior to the
Closing. All tangible properties and assets and premises owned or
leased by the Company or its Subsidiaries are in good condition and
repair and are adequate in all material respects for the uses to which
they are put, and no tangible properties or assets necessary for the
conduct of the Business in substantially the same manner as it has
heretofore been conducted are in need of replacement, maintenance or
repairs, except for routine and not materially deferred replacement,
maintenance and repair.
(b) With respect to all personal property leases
(the "Personal Property Leases") and all leases or other agreements to
use or occupy any Real Property (the "Real Property Leases" and
collectively with the Personal Property Leases, the "Leases") to which
the Company or any of its Subsidiaries is a party or by which the
Company or any of its Subsidiaries is bound as of the date of this
Agreement, the Company and each of its Subsidiaries (i) are, in all
material respects, in compliance therewith and have obtained or made
all necessary permits, licenses, certificates, approvals, filings and
registrations from all relevant Government Authorities, (ii) hold valid
and binding leasehold interests, good, marketable and insurable
leasehold title in, and actual and exclusive possession of, the
properties and assets leased thereunder (including all buildings,
structures or other improvements located thereon), free of any Liens
(other than Permitted Liens) of any
31
Person other than the lessors of such property and assets under their
respective Personal Property Leases and (iii) enjoy peaceful and
undisturbed possession thereunder. Each of the Real Property Leases
covers the entire estate it purports to cover in all material respects,
and, upon the consummation of the Merger and the other transactions
contemplated hereby, will entitle the Surviving Corporation or its
Subsidiaries, as the case may be, to the exclusive use, occupancy and
possession of the Real Property specified therein for the purposes such
Real Property is now being used. No Real Property Lease is subordinate
to any mortgage or deed of trust except to the extent the holder of
that mortgage or deed of trust has agreed in writing not to disturb the
Company or any of its Subsidiaries' possession or rights under the Real
Property Lease upon any foreclosure of that mortgage or deed of trust.
Neither the Company nor any of its Subsidiaries owns any Real Property.
4.8 Other Intellectual Property Rights.
(a) Section 4.8(a) of the Disclosure Schedule
sets forth, with respect to Other Intellectual Property Rights owned by
the Company or any of its Subsidiaries, a complete and accurate list of
all patent, copyright, domain name and trademark registrations and
pending applications related thereto.
(b) The Other Intellectual Property Rights
together with the Films constitute all intellectual property rights
necessary to conduct the Business from and after the Effective Time in
substantially the same manner as currently conducted, and the Company
or its Subsidiaries own or are licensed, or otherwise possess legally
enforceable rights to use, all intellectual property rights that are
used in the Business.
(c) The Company or its Subsidiaries hold good
and marketable title to all of the Other Intellectual Property Rights
and all of the Other Intellectual Property Rights are free and clear of
all Liens (other than Permitted Liens), are currently subsisting, and
to the Knowledge of the Company, are valid and enforceable.
(d) The Other Intellectual Property Rights do
not (A) Infringe upon any patent, trademark, service xxxx, trade name,
copyright, literary, dramatic, music, artistic, personal, private,
civil, contract or property right or rights of privacy or any other
right, whether tangible or intangible, of any Person or (B) contain any
element or material which in any manner constitutes a libel, slander or
other defamation of any Person.
(e) There are no sums due to any Person in
connection with the exploitation of the Other Intellectual Property
Rights, and all such sums due as of the date hereof (or, with respect
to the Closing, all sums due as of the Closing Date), in connection
with the Other Intellectual Property Rights have been paid in full.
(f) The Company and its Subsidiaries take and
have taken all commercially reasonable steps consistent with industry
standards to protect, confirm, register, maintain, police and enforce
the Other Intellectual Property Rights, including without limitation
making all filings, paying all fees and executing all appropriate
written
32
agreements (license agreements, assignment agreements, work-for-hire
agreements, confidentiality agreements, waivers of moral rights, etc.).
(g) Except to the extent that a Material Adverse
Effect will not result, neither the Company nor any of its Subsidiaries
has done or failed to do any act which impairs or encumbers the
Company's or any of its Subsidiaries' full enjoyment of the Other
Intellectual Property Rights.
(h) Neither the Merger nor any of the other
transactions contemplated by this Agreement, shall restrict, limit,
invalidate or otherwise affect or result in the termination of any
right, title or interest of the Company or any of its Subsidiaries in
any of the Other Intellectual Property Rights.
4.9 Library Films; Library Film Materials.
(a) Section 4.9(a) of the Disclosure Schedule
accurately identifies all of the Library Films owned and/or Controlled
by the Company and/or any of its Subsidiaries, and the media,
territory, and term of the Company's and/or its Subsidiaries'
exploitation rights therein (collectively, "Distribution Rights").
(i) Except as set forth on Section
4.9(a)(i) of the Disclosure Schedule, the Company or its
Subsidiaries hold good and marketable title to all of the
Library Films and Distribution Rights, free and clear of all
Liens (other than Permitted Liens).
(ii) Except as set forth on Section
4.9(a)(ii) of the Disclosure Schedule, no Library Film, nor
any part thereof, nor any of the literary, dramatic or musical
material contained therein or upon which any such Library Film
is based, nor the exercise by any authorized person or entity
of any right granted to or by the Company or any of its
Subsidiaries in connection therewith (A) Infringes upon any
patent, trademark, service xxxx, trade name, copyright,
literary, dramatic, music, artistic, personal, private, civil,
contract or property right or rights of privacy or any other
right, whether tangible or intangible, of any Person or (B)
contains any element or material which in any manner
constitutes a libel, slander or other defamation of any
Person; provided, however, with respect to Library Films
acquired by the Company and produced by Persons that are not
Affiliates of the Company, the foregoing representations shall
be limited (x) to the scope of representations and warranties
obtained by Company and/or its Subsidiaries, and (ii) other
matters within the Knowledge of the Company.
(iii) Except as set forth on Section
4.9(a)(iii) of the Disclosure Schedule, no Actions have
heretofore been asserted and/or brought and no Actions are
pending, or to the Knowledge of the Company, threatened
relating to the Library Films or the Distribution Rights.
(iv) Except for customary guild
residuals, performing rights society payments, and
talent/producer participations, and any amounts reflected
33
on the Company's Financial Statements there are no material
sums due to any Person in connection with the exploitation of
the Library Films or the Distribution Rights.
(v) All sums due as of the date hereof
(or, with respect to the Closing, all sums due as of the
Closing Date), including, without limitation contingent
compensation and residuals, in connection with the Library
Films and the exploitation of the Distribution Rights have
been paid in full and/or the Company has established and
maintains adequate reserves for the payment of such material
payment obligations (which reserves are accurately reflected
in the Most Recent Balance Sheet).
(vi) The Company and its Subsidiaries
take and have taken all commercially reasonable steps
consistent with industry standards to protect, confirm,
register, maintain, police and enforce its rights in the
Library Films and the Distribution Rights, including without
limitation making all filings, paying all fees and executing
all appropriate written agreements (license agreements,
assignment agreements, work-for-hire agreements,
confidentiality agreements, waivers of moral rights, etc.).
(vii) (A) Except as set forth on Section
4.10(a) of the Disclosure Schedule, neither the Company nor
any of its Subsidiaries has any executory obligations relating
to any minimum prints and advertising spend and/or release
obligations (i.e., minimum number of screens, markets and/or
release dates) for any Library Film, and (B) except as set
forth on Section 4.10(a) of the Disclosure Schedule, reflected
in the Financial Statements or set forth in the Scheduled
Contracts, neither the company nor any of its Subsidiaries has
any executory obligations relating to any non-contingent
payment guarantee relating to the Library Films.
(viii) Except for "It's a Wonderful Life",
to the Knowledge of Company, the Library Films have been or
may be validly copyrighted and registered for copyright in the
United States of America and may similarly be registered
and/or protected in the jurisdictions in which the Company or
its Subsidiaries possess Distribution Rights with respect to
such Library Film to the maximum extent that the laws of such
jurisdictions provide for such registration and/or protection;
provided, however, with respect to Library Films acquired by
the Company and produced by Persons that are not Affiliates of
the Company, the foregoing representations shall be limited
(x) to the scope of representations and warranties obtained by
Company and/or its Subsidiaries and (ii) other matters within
the Knowledge of the Company.
(ix) Except for "It's a Wonderful Life",
to the Knowledge of Company, no part of any Library Film
(other than incidental material) is in the public domain;
provided, however, with respect to Library Films acquired by
the Company and produced by Persons that are not Affiliates of
the Company, the foregoing representations shall be limited
(x) to the scope of representations and
34
warranties obtained by Company and/or its Subsidiaries and
(ii) other matters within the Knowledge of the Company.
(x) Except to the extent that a
Material Adverse Effect will not result, neither the Company
nor any of its Subsidiaries has done or failed to do, any act
which impairs or encumbers the Company's or any of its
Subsidiaries' full enjoyment of the Library Films or the
Distribution Rights.
(xi) Neither the Merger nor any of the
other transactions contemplated by this Agreement, shall
restrict, limit, invalidate or otherwise affect or result in
the termination of any right, title or interest of the Company
or any of its Subsidiaries in any of the Library Films or the
Distribution Rights.
(b) Section 4.9(b) of the Disclosure Schedules
sets forth a true, correct and complete list of the locations of all of
the Elements in which the Company or any of its Subsidiaries has any
right, title or interest relating to any of the Library Films. With
respect to each Library Film, the Elements owned or Controlled by the
Company and its Subsidiaries are free and clear of all Liens (other
than Permitted Liens) and are sufficient to produce copies, prints,
video products and other reproductions for exploitation in the
theatrical, non-theatrical, television and video and audio markets that
are of first-class technical quality suitable for use in connection
with the exploitation of the Distribution Rights.
4.10 Films In Progress and Development Projects.
(a) Section 4.10(a) of the Disclosure Schedule
sets forth for the Company and each of its Subsidiaries as of the date
of this Agreement (or, with respect to the Closing, as of the Closing
Date) a list of all Films for which principal photography or
post-production has commenced, or that have been completed and/or
acquired but not delivered, or completed and/or acquired, and
delivered, but not commercially exploited, whether being produced by
the Company or any of its Subsidiaries or whether the Company or any of
its Subsidiaries is committed, or has the right, to acquire any rights
in such Film from a third Person (collectively, the "Films In
Progress"), together with a summary of all material costs and expenses
(including a list of prints and advertising and release commitments,
where applicable) paid by the relevant Person in connection with each
Film In Progress to the date set forth therein and the remaining
material amounts (including a list of prints and advertising and
release commitments, where applicable) that the Company or such
Subsidiary is obligated as of the date of this Agreement (or, with
respect to the Closing, as of the Closing Date) to pay with respect
thereto. For the avoidance of doubt, Films In Progress are intended to
include all Films other than Library Films and Development Projects.
(b) Section 4.10(b) of the Disclosure Schedule
identifies all Films that are being developed, produced or acquired by
or on behalf of the Company or any of its Subsidiaries for which
principal photography has yet to commence, regardless of the stage of
development of such work or project (the "Development Projects") as of
the date of this Agreement (or, with respect to the Closing, as of the
Closing Date), together with
35
a summary of all material costs and expenses paid by the relevant
Person in connection with each Development Project and the remaining
material amounts that the Company or such Subsidiary is obligated to
pay as of the date of this Agreement (or, with respect to the Closing,
as of the Closing Date) with respect thereto. For the avoidance of
doubt, Development Projects are intended to include all Films other
than Library Films and Films in Progress.
(c) With respect to the Films In Progress and
the Development Projects (together, the "Non-Library Films").
(i) No Non-Library Film, nor any part
thereof, nor any of the literary, dramatic or musical material
contained therein or upon which any such Non-Library Film is
based, nor the exercise by any authorized person or entity of
any right granted to or by the Company or any of its
Subsidiaries in connection therewith (A) Infringes upon any
patent, trademark, service xxxx, trade name, copyright,
literary, dramatic, music, artistic, personal, private, civil,
contract or property right or rights of privacy or any other
right, whether tangible or intangible, of any Person or (B)
contains any element or material which in any manner
constitutes a libel, slander or other defamation of any
Person; provided, however, other than with respect to "The
Punisher", "Havana Nights", and the Development Projects, the
foregoing representation shall be limited to the Knowledge of
Company.
(ii) Except as set forth on Section
4.10(c)(iii) of the Disclosure Schedule, all sums due as of
the date hereof (or, with respect to the Closing, all sums due
as of the Closing Date) in connection with the Non-Library
Films have been paid in full.
(iii) The Company and its Subsidiaries
take and have taken all commercially reasonable steps
consistent with industry standards to protect, confirm,
register, maintain, police and enforce its rights in the
Non-Library Films, including without limitation making all
filings, paying all fees and executing all appropriate written
agreements (license agreements, assignment agreements,
work-for-hire agreements, confidentiality agreements, waivers
of moral rights, etc.).
(iv) No Actions have heretofore been
asserted and/or brought and no Actions are pending, or to the
Knowledge of the Company, threatened relating to the
Non-Library Films.
(v) No Person has any put right or
other right, which, if exercised would require the Company or
any of its Subsidiaries to develop, produce, exploit, acquire
or "green light" any Film or entitle such Person to control
the manner or extent to which any Film is developed, produced,
exploited, acquired or "green lit".
36
(vi) The Non-Library Films have been or
may be validly copyrighted and registered for copyright in the
United States of America and may similarly be registered
and/or protected in other jurisdictions in which the Company
or its Subsidiaries possess distribution rights with respect
to such Non-Library Film to the maximum extent that the laws
of such jurisdictions provide for such registration and/or
protection; provided, however, other than with respect to "The
Punisher", "Havana Nights", and the Development Projects, the
foregoing representation shall be limited to the Knowledge of
Company.
(vii) No part of any Non-Library Film
(other than incidental material) is in the public domain;
provided, however, other than with respect to "The Punisher",
"Havana Nights", and the Development Projects, the foregoing
representation shall be limited to the Knowledge of Company.
(viii) Neither the Company nor any of its
Subsidiaries has done or failed to do, any act which
materially impairs or encumbers the Company's or any of its
Subsidiaries' full enjoyment of the Non-Library Films.
(ix) Neither the Merger nor any of the
other transactions contemplated by this Agreement, shall
restrict, limit, invalidate or otherwise affect or result in
the termination of any material right, title or interest of
the Company or any of its Subsidiaries in any of the
Non-Library Films.
4.11 Material Contracts and Obligations.
(a) Section 4.11(a) of the Disclosure Schedule
sets forth a complete list of all of the following Contracts (the
"Scheduled Contracts"):
(i) each Contract (other than License
Agreements) between the Company or any of its Subsidiaries and
(A) any Person that requires the payment or incurrence of
Liabilities, or the rendering of services (other than with
respect to Films), by the Company or any of its Subsidiaries
subsequent to the date hereof of more than $1,000,000 over the
life of such Contract or that is reasonably expected to
require payment of more than $1,000,000 over the life of such
Contract, and (B) any Person in which the aggregate payments
made under such Contract to the Company or any of its
Subsidiaries exceeded or will exceed $1,000,000 over the life
of such Contract (including without limitation each Contract
relating to the sale, transfer, lease, licensing or other
disposal of any properties or assets of the Company or any of
its Subsidiaries), and (C) any Person in (A) or (B) or a group
of related Persons, to the extent less than $1,000,000, all
such Contracts taken together exceeded or will exceed
$5,000,000;
(ii) each License Agreement in which the
aggregate payments to be made to or by the Company or any of
its Subsidiaries exceeds $1,000,000 over the life of such
Contract or that is reasonably expected to require payment to
or by the Company or any of its Subsidiaries of more than
$1,000,000 over the
37
life of such Contract, and each License Agreement together
with other agreements related to the same project or Film, to
the extent less than $1,000,000 singly, all such Contracts
taken together exceeded or will exceed $5,000,000;
(iii) each Contract that limits the right
of the Company or any of its Subsidiaries to engage or compete
with any Person in any business (including those containing
exclusivity provisions restricting the geographical area in
which, or the method by which, any business may be conducted
by the Company or any of its Subsidiaries);
(iv) each Contract that relates to any
joint venture, limited liability company or partnership;
(v) each Contract (other than Contracts
referred to in clauses (vii), (xiv) or (xv)) that is between
the Company or any of its Subsidiaries, on the one hand, and
any of the Sellers or their respective Affiliates (other than
the Company or any of its Subsidiaries) or representatives, on
the other hand;
(vi) each Contract for the borrowing or
lending of money (including without limitation each indenture,
credit agreement, letter of credit, mortgage and promissory
note) with respect to the Business (including any guaranty
agreement) or that otherwise evidences Indebtedness of the
Company (but not including Indebtedness described in clause
(iv) of such definition) of the Company or any of its
Subsidiaries in excess of $50,000 individually or $250,000 in
the aggregate;
(vii) each Contract under which the
Company or any of its Subsidiaries has advanced or loaned any
amount to any of its directors or officers or to any
stockholder (including any of the Sellers) or its Affiliates
or, outside the Ordinary Course of Business, to its employees
that are not Sellers;
(viii) each Contract that is a Lease;
(ix) each Contract that is an option,
right of first refusal or security or other interest in or
relating to the assets or the Business, other than those
entered into in the Ordinary Course of Business;
(x) each Contract involving the
settlement of any lawsuit with respect to which, as of the
date of this Agreement, (a) any unpaid amount exceeds $100,000
or (b) conditions precedent to the settlement have not been
satisfied;
(xi) each Contract pursuant to which the
Company or any of its Subsidiaries has granted a power of
attorney that is currently effective and outstanding;
38
(xii) each Contract that is a bid or
contract proposal made by the Company that, if accepted and
entered into, is likely to result in a material loss to the
Company or any of its Subsidiaries, taken as a whole;
(xiii) each Contract that is an Employment
Agreement, which provides for the payment of more than
$100,000 during any one year period of its term;
(xiv) each Contract the benefits of which
are contingent, or the terms of which are materially altered,
upon the consummation of the Merger or the other transactions
contemplated hereby;
(xv) any other Contract not otherwise
listed herein, the breach of which has had or will have a
Material Adverse Effect;
(xvi) the AFI Agreements; and
(xvii) each Contract that is an amendment,
supplement, and modification (whether oral or written) in
respect of, or waiver of any rights under, any of the
foregoing.
(b) Prior to the date hereof, a true and correct
copy of each written Scheduled Contract has been made available to
Buyer, and the Company has disclosed in writing to Buyer the terms and
conditions of all such Contracts not contained in a written agreement.
Except as disclosed in Section 4.11(b) of the Disclosure Schedule or
that would not have a Material Adverse Effect on the Company or any of
its Subsidiaries, (i) each Scheduled Contract is (and at the Effective
Time and after consummation of the Merger and the other transactions
contemplated hereby will, on identical terms, be) in full force and
effect and is (and will be) a legal, valid and binding obligation of
the Company or the Subsidiary of the Company that is party thereto and,
to the Knowledge of the Company and its Subsidiaries, each other party
thereto, enforceable against the Company or such Subsidiary, and, to
the Knowledge of the Company and its Subsidiaries, each such other
party thereto, in accordance with its terms, except to the extent
enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or similar laws affecting creditors' rights
generally, (ii) there is no actual or alleged breach, default, improper
termination or failure to perform by the Company or any of its
Subsidiaries, or any of the counterparties thereto, (iii) there exists
no condition or event (excluding the consummation of the Merger) which,
after notice or lapse of time or both, would constitute or result in
any material breach, default or termination by the Company or any of
its Subsidiaries or, to the Knowledge of the Company, any other party
thereto (other than any conflict, violation, default or right of
termination resulting from or relating to any Contract of the Buyer or
any of its Subsidiaries), and (iv) neither the Company nor any of its
Subsidiaries, nor any counterparties thereto have given or received
notice of any action to terminate, cancel, rescind, repudiate, or
procure a judicial reformation thereof.
39
4.12 Litigation. Except as disclosed in Section 4.12(a) of the
Disclosure Schedule, or except as has not had or will not have, individually or
in the aggregate, a Material Adverse Effect on the Company, as of the date of
this Agreement there is no action, suit, appeal, petition, plea, charge,
complaint, claim, demand, litigation, arbitration, mediation, hearing, inquiry,
investigation or similar event, occurrence or proceeding ("Action") pending (or,
to the Knowledge of the Company or its Subsidiaries, any Action threatened) (i)
against the Sellers in connection with their respective ownership interest in,
or relationship with, the Company, (ii) against the Company or any of its
Subsidiaries or their respective activities, business, operations, properties or
assets (including (x) with respect to the Library Films or the Other
Intellectual Property Rights or (y) by any current or former employee of the
Company or any of its Subsidiaries) or (iii) against the Sellers, the Company or
any of its Subsidiaries that threatens, or seeks to prevent, delay, restrain,
prohibit, invalidate, enjoin or interfere with the validity or consummation of
the Merger or the other transactions contemplated by this Agreement. Neither the
Company nor any of its Subsidiaries is a party to or subject to the provisions
of any order, writ, injunction, judgment or decree of any Governmental
Authority, that (A) has not had and will not have, a Material Adverse Effect on
the Company or (B) would or could reasonably be expected to threaten, or
prevent, delay, restrain, prohibit, invalidate, enjoin or interfere with the
validity or consummation of the Merger or the other transactions contemplated by
this Agreement. No property or asset of the Company or any of its Subsidiaries
has been taken or expropriated by any Governmental Authority, nor is the Company
or any of its Subsidiaries aware of any intent or proposal by any Governmental
Authority to commence a proceeding relating thereto, by notice to the Company or
any of its Subsidiaries or otherwise.
4.13 Government Approvals. Except as set forth in Section 4.13 of
the Disclosure Schedule and except as required due to the status of the Buyer or
the Acquisition Company, the execution and delivery of this Agreement by the
Company or any of its Subsidiaries do not, and the performance of this Agreement
by the Company or any of its Subsidiaries, the consummation of the Merger and
the other transactions contemplated by this Agreement will not, require any
consent, approval, license, order, authorization or permit of, or filing,
registration or declaration with or notification to, any Governmental Authority
("Government Approvals") by the Company or any of its Subsidiaries.
4.14 Compliance with Other Instruments. Except as set forth in
Section 4.14 of the Disclosure Schedule, the execution, delivery and performance
of this Agreement by the Company and the consummation by the Company of the
Merger and other transactions contemplated hereby do not and will not (excluding
any action by the Surviving Corporation after the Closing) (a) contravene or
conflict with the articles or certificate of incorporation, certificate of
formation, bylaws, operating agreement or other organizational documents of the
Company or any of its Subsidiaries; (b) contravene or conflict with or
constitute a violation of any provision of any Applicable Law binding upon or
applicable to the Company or any of its Subsidiaries, or their respective assets
or properties; (c) conflict with, or result in any violation or breach of, or
constitute a default under any Scheduled Contract; or (d) result in the creation
or imposition, under any Scheduled Contract or Applicable Law binding upon the
Company or any of its Subsidiaries, of any Lien on the shares of Capital Stock
or on any asset of any of the Company or any of its Subsidiaries.
40
4.15 Advisory Fees; Change of Control Payments; Closing Deduct
Amount.
(a) Except as set forth on Section 4.15(a) of
the Disclosure Schedule, neither the Company nor any of its
Subsidiaries, nor any of their respective Affiliates, has any liability
or obligation to pay any fees or commissions to any broker, finder,
financial advisor, investment banker or agent with respect to the
Merger or the transactions contemplated by this Agreement ("Advisory
Fees").
(b) Except as set forth on Section 4.15(b) of
the Disclosure Schedule, neither the Company nor any of its
Subsidiaries, nor any of their respective Affiliates, has any liability
or obligation to pay any Change of Control Payments to any Person.
4.16 Insurance. Section 4.16 of the Disclosure Schedule sets forth
each material insurance policy held by, or for the benefit of, the Company or
its Subsidiaries. The Company has made available to the Buyer true and correct
copies of all such policies (including any additional insured or loss payee
certificates) prior to the date hereof. Except as set forth on Section 4.16 of
the Disclosure Schedule, (i) all premiums due under such insurance policies have
been paid, (ii) all such insurance policies are in full force and effect, (iii)
neither Company nor any of its Subsidiaries is in default with respect to any
such policies, and (iv) no notice of non-renewal, cancellation or termination or
intent to cancel, terminate or not renew has been received by the Company or any
of its Subsidiaries with respect to any such insurance policy.
4.17 Financial Statements. Section 4.17(a) of the Disclosure
Schedule sets forth true and complete copies of the audited consolidated balance
sheets of the Company and its Subsidiaries as at December 31, 2002 and 2001, a
consolidated audited statement of operations and statement of changes in cash
flows of the Company and its Subsidiaries for its fiscal years ended December
31, 2002 and 2001, an unaudited consolidated balance sheet of the Company and
its Subsidiaries as at September 30, 2003 (such balance sheet, the "Most Recent
Balance Sheet", and such date, the "Balance Sheet Date") and an unaudited
consolidated statement of operations of the Company and its Subsidiaries for the
nine-month period ended September 30, 2003 and an unaudited consolidated
statement of operations and statement of changes in cash flows the nine-month
period ending on such date (all such financial statements being collectively
referred to herein as the "Financial Statements"). Such Financial Statements
present fairly in all material respects the consolidated financial condition of
the Company and its Subsidiaries at the date or dates therein indicated and the
results of operations and cash flows for the period or periods therein
specified, and have been prepared in accordance with GAAP, except as noted
therein and except that the unaudited consolidated financial statements omit
certain of the notes thereto required by GAAP and are subject to normal year-end
audit adjustments that will not in the aggregate have a Material Adverse Effect
on the Company. There are no Liabilities of the Company or any of its
Subsidiaries other than: (i) any Liability accrued as a Liability that is
reported on, reserved against or otherwise reflected in the balance sheet dated
the Balance Sheet Date; (ii) Liabilities disclosed in the Disclosure Schedules;
(iii) Liabilities not required to be disclosed on financial statements under
GAAP; or (iv) Liabilities incurred since the Balance Sheet Date that have been
incurred in the Ordinary Course of Business of the Company or any of its
Subsidiaries. The Financial Statements contain a complete and accurate
calculation of all accruals as of September 30, 2003 relating to the DVD
Services Agreement. Neither the Company nor any of its Subsidiaries has had
access to any survey, report or analysis relating to
41
the valuation of the Library of the Company and/or its Subsidiaries since
December 31, 2002. Section 4.17(b) of the Disclosure Schedule lists all off
balance sheet liabilities as of the date of this Agreement relating to the
acquisition or financing of Films and any other material off- balance-sheet
Indebtedness. Section 4.17(c) of the Disclosure Schedule lists all of the active
participation audits of the Company or its Subsidiaries as of the date of this
Agreement.
4.18 Certain Actions; Events. Except as set forth in Section 4.18
of the Disclosure Schedule or except as contemplated by this Agreement, since
the Balance Sheet Date:
(a) each of the Company and its Subsidiaries has
conducted its business in the Ordinary Course of Business consistent
with past practice;
(b) there has not been any event that has
resulted in, or will result in, individually or in the aggregate, a
Material Adverse Effect on the Company; and
(c) neither Company nor any of its Subsidiaries
have taken any actions or failed to take any actions which, had such
actions occurred or failed to occur during the period beginning on the
date of this Agreement and ending on the Closing Date, would have
breached or otherwise violated any of the covenants set forth in
Section 6.1(a).
4.19 Permits. Section 4.19 of the Disclosure Schedule sets forth
all material approvals, licenses, orders, consents, authorizations or
registrations, declarations or filings and permits of all Governmental
Authorities (and all other Persons) necessary for the ownership, lease and
operation of the Business and its property and assets in substantially the same
manner as currently operated or affecting or relating in any material way to the
Business, the Company or any of its Subsidiaries (the "Permits"). All Permits
are in full force and effect, and the Company and its Subsidiaries are in
compliance with all terms of the Permits. The consummation of the Merger and the
other transactions contemplated hereby will not affect any of the Permits, or
cause any payments to be due with respect thereto, except as would not have,
individually or in the aggregate, a Material Adverse Effect on the Company.
4.20 Compliance with Applicable Laws. Except as set forth in
Section 4.20 of the Disclosure Schedule, the operation and conduct of the
Business by the Company and each of its Subsidiaries does not violate any
Applicable Law, except as has not had or will not have, individually or in the
aggregate, a Material Adverse Effect on the Company, and neither Company nor any
of its Subsidiaries has received any notice (whether written or oral) alleging
the same.
4.21 Employment Agreements; Change in Control; and Employee
Benefits.
(a) "Employment Agreements" shall mean any and
all employment, consulting, severance pay, continuation pay or
termination pay agreements between or binding upon the Company or any
Subsidiary of the Company, on the one hand, and any current or former
employee of the Company or any Subsidiary of the Company or any
consultant or agent of the Company or any Subsidiary of the Company, on
the other hand.
42
(b) Except as set forth on Section 4.21(b) of
the Disclosure Schedule, there are no Employment Agreements, Benefit
Arrangements, or Employee Benefit Plans to which the Company or any
Subsidiary of the Company is a party or by which it is bound under
which the transactions contemplated by this Agreement (i) will require
any payment by the Company, any Subsidiary of the Company or the Buyer,
or any consent or waiver from any stockholder, optionholder, officer,
director, employee or Affiliate of the Company or any Subsidiary of the
Company or any consultant or agent of the Company, any Subsidiary of
the Company, or the Buyer or (ii) will result in any increase,
acceleration, vesting or other change in the compensation, benefits or
other rights of any stockholder, officer, director, employee or
Affiliate of the Company or any Subsidiary of the Company or any
consultant or agent of the Company or any Subsidiary of the Company
under any such Employment Agreement, Benefit Arrangements or Employee
Benefit Plans, or other similar agreement. There are no option plans of
the Company or any of its Subsidiaries other than the Option Plans.
(c) Section 4.21(c) of the Disclosure Schedule
sets forth all Employee Benefit Plans of the Company, any ERISA
Affiliate or any Subsidiary of the Company as of the date of this
Agreement in which any employees or former employees and their
beneficiaries of the Company, any ERISA Affiliate or any Subsidiary of
the Company participate. The Company has made available to the Buyer
true and correct copies of (i) the three (3) most recent annual reports
(Form 5500 series) required to be filed with the IRS with respect to
each Employee Benefit Plan or similar report of the jurisdiction in
which such Employee Benefit Plan is located, (ii) each such Employee
Benefit Plan document; (iii) each trust agreement or other funding
vehicle relating to each such Employee Benefit Plan; (iv) a complete
description of any Employee Benefit Plan which is not in writing; (v)
the most recent summary plan description and any summary of material
modifications for each Employee Benefit Plan for which a summary plan
description is required and (vi) the most recent determination letter
and/or opinion letter issued by the IRS with respect to any Employee
Benefit Plan qualified under Section 401(a) of the Code or similar
report of the jurisdiction in which such Employee Benefit Plan is
located. The Company has also made available to the Buyer a list of
former employees who are entitled to COBRA coverage and the date on
which such COBRA coverage terminates.
(d) Neither the Company nor any Subsidiary of
the Company nor any Affiliate or ERISA Affiliate of the Company or any
Subsidiary of the Company sponsors or has ever sponsored, maintained,
contributed to, or incurred an obligation to contribute to, any
Employee Pension Benefit Plan. Except as set forth in Section 4.21(d)
of the Disclosure Schedule, neither the Company nor any Subsidiary of
the Company and their ERISA Affiliates have incurred, directly or
indirectly, any material liability (including any material contingent
liability) to or on account of any Employee Pension Benefit Plan that
could become, on or after the Closing Date, an obligation or liability
of the Company, the Buyer or any of their Affiliates.
(e) Except as set forth in Section 4.21(e) of
the Disclosure Schedule, neither the Company nor any Subsidiary of the
Company nor any Affiliate or ERISA Affiliate of the Company or any
Subsidiary of the Company sponsors or has ever
43
sponsored, maintained, contributed to, or incurred an obligation to
contribute to any Multiemployer Plan. Neither the Company, nor any
Subsidiary of the Company nor any of their ERISA Affiliates has at any
time withdrawn from a Multiemployer Plan in a complete withdrawal or a
partial withdrawal, as such terms are defined in ERISA Sections 4203
and 4205, respectively, so as to result in any material liability,
contingent or otherwise, to the Company or any Subsidiary of the
Company or any of their ERISA Affiliates, nor have any of them received
any Notice of any claim or demand for material withdrawal liability or
potential material withdrawal liability. To the Knowledge of the
Company and its Subsidiaries, with respect to each Multiemployer Plan,
(i) no such plan has been terminated or has been in reorganization
under ERISA so as to result, directly or indirectly, in any liability,
contingent or otherwise, of the Company or any Subsidiary of the
Company or any of their ERISA Affiliates under Title IV of ERISA; (ii)
no proceeding has been initiated by any Person (including the PBGC) to
terminate any such plan; (iii) the Company and the Subsidiaries of the
Company and any of their ERISA Affiliates have no reason to believe
that any Multiemployer Plan will be terminated or reorganized; (iv) the
Company or any Subsidiary of the Company, and their ERISA Affiliates
have not received a notice that increased benefits may be required to
avoid a reduction in plan benefits or the imposition of any excise tax,
or that such plan is or may become insolvent; (v) the Company or any
Subsidiary of the Company, and their ERISA Affiliates have not incurred
any (or will not incur as a result of the transactions contemplated by
this Agreement) withdrawal liability from any such plan by reason of
the sale of assets pursuant to Section 4204 of ERISA; and (vi) the
Company, each Subsidiary of the Company and their ERISA Affiliates do
not expect to withdraw from any Multiemployer Plan.
(f) No Employee Benefit Plan has participated
in, engaged in or been a party to any non-exempt Prohibited
Transaction, and none of the Company, any Subsidiary of the Company, or
any fiduciary of any Employee Benefit Plan, or any Affiliate or ERISA
Affiliate of the foregoing has had asserted against it any claim for
taxes under Chapter 43 of Subtitle A of the Code and Section 5000 of
the Code, or for penalties under ERISA Section 502(c), (i) or (l), with
respect to any Employee Benefit Plan nor, to the Knowledge of the
Company and its Subsidiaries, is there a material basis for any such
claim.
(g) Each Employee Benefit Plan has at all times
prior hereto been maintained, by its terms and in operation, in
accordance with ERISA, COBRA and the Code in all material respects.
Each Employee Benefit Plan that is intended to be qualified under
Section 401(a) of the Code is so qualified, and either has received a
favorable determination letter with respect to such qualified status
from the IRS or has filed a request for such a determination letter
with the IRS within the remedial amendment period such that such
determination of qualified status will apply from and after the
effective date of any such Employee Benefit Plan. No condition exists
that would prevent the Company, its Subsidiaries or any ERISA Affiliate
from amending or terminating any Employee Benefit Plan. To the
Knowledge of the Company or its Subsidiaries, no event or condition
exists or has occurred that could adversely affect the qualified status
of any Employee Benefit Plan. The Company does not maintain any welfare
plan (as defined in Section 3(2) of ERISA) which has any present or
future
44
obligation to make any payment to or with respect to any present or
former employee of the Company, except as required by Section 4980B of
the Code.
(h) Neither the Company nor its Subsidiaries
maintains, sponsors, contributes to, has ever contributed to or been
obligated to contribute to, any employee benefit plan maintained in a
jurisdiction outside the United States or that provides benefits to
individuals outside the United States nor does the Company, its
Subsidiaries or any ERISA Affiliate have any liability with respect to
any employee benefit plan maintained in a jurisdiction outside the
United States or that provides benefits to individuals outside the
United States.
(i) Neither the Company nor its Subsidiaries has
announced to employees, former employees or directors an intention to
create, or otherwise created, a legally binding commitment to adopt any
additional Employee Benefit Plan which is intended to cover employees
or former employees of the Company or its Subsidiaries or to amend or
modify any existing Employee Benefit Plan which covers or has covered
employees or former employees of the Company, its Subsidiaries or any
ERISA Affiliate.
(j) There is no action or decree outstanding or
any governmental audit or investigation, relating to or seeking
benefits under any Employee Benefit Plan that is pending or, to the
Knowledge of the Company or its Subsidiaries, threatened against the
Company, its Subsidiaries, any ERISA Affiliate, or any fiduciary of any
Employee Benefit Plan.
(k) Section 4.21(k) of the Disclosure Schedule
sets forth a complete and accurate list of all accruals made by the
Company and its Subsidiaries as of the date hereof relating to any
bonus or similar compensation payable to any of its respective
directors, officers or employees. Expressly excluding bonuses the
payment of which is in the sole discretion of the Company or its
Subsidiaries, neither the Company nor any of its Subsidiaries has any
obligation as of the date of this Agreement to pay any bonus or similar
compensation to any directors, officers or employees in excess of the
accruals set forth on Section 4.21(k) of the Disclosure Schedule.
4.22 Tax Matters. Except as set forth in Section 4.22 of the
Disclosure Schedule:
(a) (i) all Tax Returns required to be filed by
or with respect to the Company or any of its Subsidiaries for all
Taxable Periods have been timely filed; (ii) all such Tax Returns (x)
were prepared in the manner required by applicable law, (y) are true,
correct and complete in all material respects, and (z) accurately
reflect the liability for Taxes of the Company and its Subsidiaries;
(iii) all assessments of Tax made against the Company or any of its
Subsidiaries with respect to such Tax Returns, and all Taxes, whether
or not shown or required to be shown on any Tax Return, have been paid
when due; and (iv) no adjustment relating to any such Tax Return has
been proposed or, to the Knowledge of the Company, threatened by a Tax
authority which has not been resolved.
45
(b) The federal, state, local and foreign Tax
Returns of the Company and its Subsidiaries that have been provided to
the Buyer prior to the date hereof are true and complete copies of such
Tax Returns.
(c) The Company and each of its Subsidiaries
have provided a sufficient reserve for the payment of all Taxes owing
but not yet due and payable (the "Tax Reserve") on the Financial
Statements; and such Taxes provided for include those for which the
Company or any of its Subsidiaries may be liable in its own right, or
as the transferee of the assets of, or as successor to, any other
corporation, association, partnership, joint venture or other entity.
The reserve for Taxes set forth on the face of the Financial Statements
(and not merely in any notes thereto) adequately covers any liability
for Taxes which may be assessed against the Company or any of its
Subsidiaries through the date of such filing. Any and all Taxes
accruing after the dates of the Financial Statements have been
adequately provided for in the books and records of the Company and its
Subsidiaries.
(d) The Company and each of its Subsidiaries
have complied (and until the Closing Date will comply) in all material
respects with the provisions of the Code and other applicable laws,
rules and regulations relating to the withholding, payment, remittance
and reporting of Taxes, including, without limitation, the withholding,
payment, remittance and reporting requirements under Sections 1441
through 1464, 3101 through 3510, and 6041 through 6053 of the Code and
Treasury Regulations thereunder, and California Revenue and Taxation
Code Section 18662 and related regulations, as well as provisions under
any other laws, rules and regulations relating to the withholding,
payment, remittance or reporting of Taxes, and have, within the time
and in the manner prescribed by law, withheld from employee wages and
amounts payable to other persons and paid over to the proper
governmental authorities all amounts required.
(e) None of the Tax Returns of the Company or
any of its Subsidiaries has been, with respect to a taxable year for
which the statute of limitations has not expired, or is currently being
examined by the United States Internal Revenue Service or relevant
state, local or foreign Taxing authorities. There are no examinations
or other administrative or court proceedings relating to Taxes in
progress or pending nor has the Company or any of its Subsidiaries
received a revenue agent's or similar report asserting a Tax
deficiency.
(f) No claim is pending by any Tax authority
with respect to the Company or any of its Subsidiaries in a
jurisdiction where the Company or such Subsidiary does not file Tax
Returns that the Company or such Subsidiary is or may be subject to
taxation by that jurisdiction. There are no security interests on any
of the assets of the Company or any of its Subsidiaries that arose in
connection with any failure (or alleged failure) to pay any Taxes, and
except for liens for real and personal property Taxes that are not yet
due and payable, there are no liens for any Tax upon any asset of the
Company or any of its Subsidiaries. Neither the Company nor any of its
Subsidiaries has entered into a closing agreement pursuant to Section
7121 of the Code (including any advance pricing or other agreement with
any Tax authority).
46
(g) No extension of time with respect to any
date on which a Tax Return was or is to be filed by the Company or any
of its Subsidiaries is in force, and no waiver or agreement by the
Company or any of its Subsidiaries is in force for the extension of
time for the assessment or payment of Taxes. Neither the Company nor
any of its Subsidiaries has granted a power of attorney that remains in
effect to any person with respect to any Taxable Period.
(h) Neither the Company nor any of its
Subsidiaries has agreed or is required to include in income any
adjustment under Section 481(a) of the Code (or an analogous provision
of state, local or foreign law) by reason of a change in accounting
method prior to the Closing Date, nor will the Company or any
Subsidiary be required to include in a Taxable Period ending after
Closing taxable income that accrued but was not recognized in a prior
Taxable Period as a result of open transaction reporting, the
installment method of accounting, the long-term contract method of
accounting or other Tax accounting method, or any agreement with a Tax
authority.
(i) Neither the Company nor any of its
Subsidiaries is a party to any contract, agreement, plan or arrangement
relating to allocating or sharing the payment of, or liability for,
Taxes, with respect to any Taxable Period.
(j) Neither the Company nor any of its present
or former Subsidiaries has been either a distributing corporation or a
controlled corporation in a transaction satisfying or intended to
satisfy the requirements of Section 355 of the Code since April 16,
1997.
(k) The Company and each of its Subsidiaries
have made (or there has been made on their behalf) all required current
estimated Tax payments sufficient to avoid any underpayment penalties.
(l) The Company is not, and has not been, a
"United States real property holding corporation" within the meaning of
Section 897(c)(2) of the Code during the applicable period specified in
Section 897(c)(1)(A)(ii) of the Code, and neither the Company nor any
Subsidiary of the Company has made an election under Section 897(i) of
the Code to be treated as a domestic corporation for purposes of
Sections 897, 1445 and 6039C of the Code. At or prior to the Closing,
the Company delivered to Buyer a certificate, in form and substance
satisfactory to Buyer, duly executed and acknowledged, certifying that
the Company is not such a U.S. real property holding corporation.
(m) No property owned by the Company or any
Subsidiary (i) constitutes tax exempt use property within the meaning
of Section 168(h)(1) of Code, (ii) is tax exempt bond financed property
within the meaning of Section 168(g) of the Code, or (iii) subject to a
lease under Section 7701(h) of the Code.
(n) Neither the Company nor any of the
Subsidiaries has made any payments, is obligated to make any payments,
or is a party to any agreement (including without limitation Employment
Agreements, Option agreements and Option Plans) that
47
could obligate it to make any payments that may not be deductible under
Section 280G of the Code.
(o) Notwithstanding anything to the contrary set
forth in this Section 4.22, the Company shall not be deemed to have
made any representation or warranty regarding any past, present or
future net operating loss deduction (within the meaning of Section
172(a) of the Code and the applicable Treasury regulations thereunder)
that may be carried to a separate return year of the Company or any of
its Subsidiaries; provided, however, that this Section 4.22(o) shall
not limit or affect any rights to indemnification under Section 10.5,
which shall be determined without reference to this Section 4.22(o).
(p) For each asset of the Company or a
Subsidiary consisting of one or more Films, Section 4.22(o) of the
Disclosure Schedule accurately sets forth, as determined for federal
income tax purposes, (i) the Films treated as part of such asset, (ii)
the adjusted tax basis (A) as of December 31, 2002, for each such asset
held on December 31, 2002, or (B) the original tax basis for each such
asset acquired after December 31, 2002, (iii) the depreciation or
amortization method utilized for the Film, and (iv) for all Films with
remaining tax basis, the aggregate amount of any depreciation or
amortization taken before January 1, 2003.
4.23 Labor Agreements and Actions.
(a) Except as disclosed in Section 4.23(a) of
the Disclosure Schedule, neither the Company nor its Subsidiaries is
bound by or subject to (and none of their respective assets or
properties is bound by or subject to) any Contract with any labor
union, and no labor union has requested or, to the Knowledge of the
Company and its Subsidiaries, has sought to represent any of the
employees, representatives or agents of any of the Company or its
Subsidiaries.
(b) Except as disclosed in Section 4.23(b) of
the Disclosure Schedule, there is no strike or other labor dispute
involving the Company or any of its Subsidiaries pending or, to the
Knowledge of the Company and its Subsidiaries, threatened, which will
have a Material Adverse Effect on the Company nor is the Company or any
of its Subsidiaries aware of any labor organization activity involving
any of the employees of the Company or any of its Subsidiaries.
(c) The Company and any ERISA Affiliate has
complied in all respects with all applicable provisions of the Company
Benefit Plans and Applicable Law, including, but not limited to, the
Code, ERISA, COBRA, HIPAA, the National Labor Relations Act, Title VII
of the Civil Rights Act of 1964, the Age Discrimination in Employment
Act, the Fair Labor Standards Act, the Securities Act of 1933, as
amended, and all other Laws pertaining to the Benefit Plans or the
Company's relations with its employees, and other employee or
employment related benefits, and all premiums and assessments relating
to all Benefit Plans, except as has not had or will not have,
individually or in the aggregate, a Material Adverse Effect on the
Company. The Company has no pending unfair labor practice charges,
contract grievances under any collective bargaining agreement, other
Contract claims or lawsuits, or other
48
administrative charges, claims, grievances or lawsuits before any
court, regulatory body, arbiter or other Governmental Authority arising
under any Applicable Law or any Employment Agreement.
4.24 Environmental Compliance. Except as disclosed in Section 4.24
of the Disclosure Schedule or except for matters that individually or in the
aggregate have not had or will not have, a Material Adverse Effect on the
Company, (a) the Company and its Subsidiaries are in compliance with all terms
and conditions of all Permits required under all Environmental Laws and used in
their respective businesses, (b) the Company and its Subsidiaries have obtained
all Permits that are required under any Environmental Law, and (c) to the
Company's Knowledge, there are no past or present events, conditions,
circumstances, activities, practices, incidents, actions, omissions or plans
that occurred in the conduct of the Business that could reasonably be expected
to interfere with or prevent continued compliance with any Environmental Law by
any of the Company or its Subsidiaries.
4.25 Interested Party Transactions. Except as set forth in the
Financial Statements or disclosed in Section 4.25 of the Disclosure Schedule, no
shareholder, officer or director of the Company or any of its Subsidiaries nor
any Affiliate of any such Person is currently a party to any Contract with the
Company and no such Person has, either directly or indirectly, a material
interest in: (a) any Person or entity which purchases from or sells, licenses or
furnishes to the Company or any of its Subsidiaries any goods, property,
technology, intellectual or other property rights or services; or (b) any
Scheduled Contract to which the Company or any of its Subsidiaries is a party or
by which any of them may be bound or affected.
4.26 Fictitious Names. Except as disclosed in Section 4.26 of the
Disclosure Schedule, none of the Company nor any of its Subsidiaries is doing
business or intends to do business other than under its full corporate name,
including, without limitation, under any trade name or other doing business
name.
4.27 AFI. Except as provided in this Section 4.27, the Company and
its Subsidiaries have satisfied and paid all current and future payment
obligations under the AFI Agreements, including, without limitation, any and all
Quarterly Payment Amounts, including the Minimum Scheduled Payments (as such
terms are defined in the AFI Agreements) due and owing under the AFI Agreements.
Section 4.27(a) of the Disclosure Schedule sets forth an accurate calculation as
of September 30, 2003 of the contingent liability to any party under the AFI
Agreements in the event that the Company or its Subsidiaries do not designate an
additional two Films (the "Remaining Films") as Declared Qualifying Pictures (as
such term is defined in the AFI Agreements) pursuant to the AFI Agreements.
Section 4.27(b) of the Disclosure Schedule sets out (i) a list of those Films
which have been designated pursuant to the AFI Agreements as Declared Qualifying
Pictures and (ii) the Cumulative Gross Receipts (as such term is defined in the
AFI Agreements) of all Declared Qualifying Pictures as at the date August 31,
2003.
4.28 Receivables. Except to the extent, if any, reserved for on the
Most Recent Balance Sheet, all receivables reflected on such balance sheet arose
from, and the receivables existing on the Closing Date will have arisen from,
transactions occurring in the Ordinary Course of Business. Section 4.28 of the
Disclosure Schedule sets forth a true and correct copy of the most recent
borrowing base certificate delivered in connection with the Credit Facility and
all
49
receivables referred to in such certificate constitute "eligible receivables"
under the Credit Facility.
4.29 Unlawful Contributions. Neither the Company nor any of its
Subsidiaries, nor any director, officer, agent, employee or other Person acting
on behalf of the Company or any of its Subsidiaries has used any corporate or
other funds for unlawful contributions, payments, gifts or entertainment, or
made any unlawful expenditures relating to political activity to government
officials or others or established or maintained any unlawful or unrecorded
funds in connection with the Business. Neither the Company, nor any of its
Subsidiaries, or any current director, officer, agent, employee or other Person
acting on behalf of the Company or any of its Subsidiaries has accepted or
received any unlawful contributions, payments, gifts or expenditures in
connection with the Business.
4.30 No Material Adverse Effect. Except as set forth on Section
4.30 of the Disclosure Schedule, since the Balance Sheet Date until the date of
this Agreement, there has been no event or series of events which, singularly or
in the aggregate, has had or will have a Material Adverse Effect on the Company.
4.31 Budgets for DD2 and The Punisher. Section 4.31 of the
Disclosure Schedule sets forth true and complete copies as of the date of this
Agreement of (1) the ingoing completion bond company approved budget, cash flow
schedule, production/post-production schedule and most recent cost report for
the Film currently entitled The Punisher and (2) the ingoing completion bond
company approved budget, cash flow schedule, production/post-production schedule
and most recent cost report for the Film currently Havana Nights: Dirty Dancing
2.
4.32 Limitation of Representations and Warranties. Except for the
representations and warranties contained in this Agreement, the schedules and
exhibits hereto, or any instrument or certificate the delivery of which is
contemplated by this Agreement, neither the Company nor any of its agents,
Affiliates, officers, stockholders, optionholders, directors, employees, agents,
representatives, nor any other Person, makes or shall be deemed to make any
representation or warranty to Buyer or the Acquisition Company, express or
implied, at law or in equity, on behalf of the Company, and the Buyer and
Acquisition Company hereby disclaims reliance on any such representation or
warranty whether by the Company, or any of its agents, Affiliates, officers,
stockholders, optionholders, directors, employees, or representatives or any
other Person, notwithstanding the delivery or disclosure to Buyer or Acquisition
Company or any of their respective officers, directors, employees, agents or
representatives or any other Person of any documentation or other information by
the Company or any of its agents, Affiliates, officers, stockholders,
optionholders, directors, employees, or representatives or any other Person with
respect to any one or more of the foregoing.
ARTICLE V
REPRESENTATIONS AND WARRANTIES
OF THE BUYER AND THE ACQUISITION COMPANY
The Buyer and the Acquisition Company each represents and warrants,
jointly and severally, to the Company that, except as set forth in the Buyer
Disclosure Schedule (the "Buyer
50
Disclosure Schedule") attached to this Agreement as Exhibit H, the following
representations and warranties are true and correct (provided that any
representations and warranties made as of a specified date are or shall be true
and correct as of such specified date):
5.1 Organization, Good Standing and Qualification.
(a) The Buyer is a corporation duly organized,
validly existing and in good standing under, and by virtue of the laws
of the Province of British Columbia, Canada. The Acquisition Company is
a corporation duly organized, validly existing and in good standing
under, and by virtue of Delaware Law.
(b) The Buyer is duly qualified to do business
as a foreign corporation in each jurisdiction where the character of
the property owned or leased by it or the nature of its activities
makes such qualification necessary to carry on its business as now
conducted, except for those jurisdictions where the failure to be so
qualified would not have a Material Adverse Effect on the validity,
execution, delivery or performance of this Agreement by the Buyer or
the consummation of the transactions contemplated hereby.
5.2 Corporate Authorization.
(a) Each of the Buyer and the Acquisition
Company has all requisite corporate power and authority to own, lease
and operate its assets and properties, to carry on its business as
currently conducted and to execute, deliver and perform its obligations
under, as applicable, this Agreement and any other documents executed
in connection with the Merger and other transactions contemplated
hereby.
(b) All corporate action (including without
limitation any notices, board action or stockholder vote or approval),
as applicable, on the part of each of the Buyer and the Acquisition
Company necessary for the authorization, execution and delivery of, and
the performance of all obligations of the Buyer and the Acquisition
Company under this Agreement and any other documents related to the
Merger or other transactions contemplated by this Agreement has been
taken or, immediately after the execution hereof, shall have been
taken. Subject to the preceding Sentence, each of this Agreement and
any other document executed in connection herewith to which each of the
Buyer and the Acquisition Company is a party has been duly authorized,
executed and delivered by the Buyer and the Acquisition Company,
respectively, and is a valid and binding obligation of such party,
enforceable in accordance with its respective terms, subject, as to
enforcement of remedies, to applicable bankruptcy, insolvency,
moratorium, reorganization and similar laws affecting creditors' rights
generally and to general equitable principles.
(c) The Board of Directors of each of the Buyer
and the Acquisition Company has (i) determined as of the date of this
Agreement that the Merger is fair to and in the best interests of the
Buyer, the Acquisition Company and their respective stockholders, and
(ii) adopted a resolution approving this Agreement and declaring its
advisability in accordance with the provisions of laws of the Province
of British Columbia, Canada and Delaware Law (as applicable), and the
Certificate of
51
Incorporation or similar organizational document of the Buyer and the
Acquisition Company.
5.3 Governmental Authorization. The execution and delivery of this
Agreement by the Buyer and the Acquisition Company do not, and the performance
of this Agreement by the Buyer and the Acquisition Company, the consummation of
the Merger and the other transactions contemplated hereby will not, require any
Government Approvals on the part of either the Buyer or the Acquisition Company
other than any filings required under the HSR Act.
5.4 Compliance with Other Instruments. The execution, delivery and
performance of this Agreement by the Buyer and the Acquisition Company and
consummation by the Buyer and the Acquisition Company of the Merger and other
transactions contemplated hereby will not (a) contravene or conflict with the
articles or certificate of incorporation, or bylaws of the Buyer or the
Acquisition Company, or (b) contravene or conflict with or constitute a
violation of any provision of any material Applicable Law binding upon or
applicable to the Buyer or the Acquisition Company.
5.5 Broker Fees. Except for JPMorgan Chase & Co. (whose fees and
expenses will be paid by the Buyer), neither the Buyer, the Acquisition Company
nor their respective Affiliates, has any liability or obligation to pay any fees
or commissions to any broker, finder, financial advisor, investment banker or
agent with respect to the Merger or the transactions contemplated by this
Agreement.
5.6 Litigation. Neither the Buyer, nor any of its Subsidiaries is
a party to or subject to the provisions of any order, writ, injunction, judgment
or decree of any Governmental Authority that would or could reasonably be
expected to threaten, prevent, delay, restrain, prohibit, invalidate, enjoin or
interfere with the validity or consummation of the Merger or the other
transactions contemplated by this Agreement.
5.7 Financing. As of the Closing Date, Buyer will have sufficient
cash or other sources of immediately available cash to enable it to deliver the
Closing Date Merger Consideration, to satisfy any other obligations hereunder
and to take such other actions as may be required by it to consummate the
transactions contemplated hereby. Prior to the date hereof, Buyer completed an
offering of its equity securities which realized not less than $70,000,000 of
net proceeds to the Buyer.
5.8 Investment Canada Act. The Buyer is a "Canadian" for purposes
of the Investment Canada Act (Canada).
5.9 No Knowledge of Breach. The Buyer has no Knowledge that it is
or will be entitled to make an indemnification claim under Section 10.1(a) with
respect to the breach or inaccuracy of the Company's representations and
warranties under this Agreement based on any facts, events or conditions
existing, to the Knowledge of the Buyer, on or prior to the date of this
Agreement. For purposes of this Section 5.9, "Knowledge" shall mean the actual
knowledge of Xxxxx Xxxxx, Buyer's General Counsel, Xxxxxxx Xxxxx and/or Xxxxxx
May, without any duty of inquiry or investigation and, without limiting the
foregoing, shall not include any constructive, imputed or implied knowledge
resulting from Buyer's due diligence investigation of the
52
Company unless Xxxxx Xxxxx had actual Knowledge (as so defined) resulting from
such investigation.
ARTICLE VI
COVENANTS OF THE COMPANY
The Company hereby agrees that:
6.1 Conduct of the Business. From the date hereof until the
Closing Date, the Company shall, and shall cause its Subsidiaries to, conduct
the Business substantially in the Ordinary Course of Business. Without limiting
the generality of the foregoing sentence, from the date hereof until the
Closing:
(a) Except as set forth in Section 6.1(a) of the
Disclosure Schedule or except as contemplated by this Agreement,
without the Buyer's prior written consent (not to be unreasonably
withheld, conditioned or delayed), the Company shall not do or
authorize, commit or agree (in writing or otherwise) to do, and the
Company shall cause its Subsidiaries to refrain from doing or
authorizing, committing or agreeing (in writing or otherwise) to do,
any of the following:
(i) fail to maintain its existence in
good standing, except where such failure would not have a
Material Adverse Effect;
(ii) (A) green-light any theatrical
Film; (B) commit to any P&A spending commitments (including
with respect to Punisher and DD2), except for a fair
consideration, in the Ordinary Course of Business and not in
excess of $3,000,000 individually or $5,000,000 in the
aggregate; or (C) commit to the acquisition (including prints
and advertising commitments which are a part thereof) of any
Film, except in Ordinary Course of Business substantially
consistent with past practice and not in excess of $500,000
individually or $1,500,000 in aggregate; provided that with
respect to Section 6.1(a)(ii)(C) only, it shall be presumed
that Buyer has consented to the acquisition of any Film if
Buyer has not delivered its objections thereto (by fax or
e-mail or other communication to the party requesting such
consent) within one (1) business Day following the actual
receipt by Xxx Xxxxxx, Xxx Xxxxxxxxxx and Xxxxx Xxxxx of
request for such consent.
(iii) modify, alter, amend or otherwise
change any of the Punisher Documents or the DD2 Documents or
any contractual elements of either of such Films;
(iv) enter into, amend, modify, extend
or terminate any output and/or multiple picture agreements;
(v) sell, assign, lease, license,
transfer or otherwise dispose of, or mortgage, pledge or
encumber (other than with Permitted Liens), any of the assets
(other than real property) of the Company or any of its
Subsidiaries, except
53
for a fair consideration in the Ordinary Course of Business
substantially consistent with past practice and not in excess
of $3,000,000 singularly or $5,000,000 in the aggregate;
(vi) amend, modify, extend or terminate
any Scheduled Contract, or waive, release or assign any
material rights or claims thereunder, or enter into any other
Contract which, if in existence on the date hereof, would be
required to be set forth in Section 4.11(a) of the Disclosure
Schedule (each, a "Subsequent Material Contract");
(vii) (A) create, incur, assume,
guarantee or become liable for any Indebtedness except
pursuant to the Credit Facility, (B) incur any Liability
relating to a documentary or standby letter of credit or (C)
make any draws under the DVD Services Agreement;
(viii) (A) delay, postpone or accelerate
the payment of, any accounts payable and any other Liability,
(B) write down the value of any material properties or assets
of the Company or its Subsidiaries, in each case either
involving more than $250,000 in the aggregate or outside the
Ordinary Course of Business;
(ix) take any action to change in any
material respect the accounting or collection policies or
procedures of the Company or its Subsidiaries, including
canceling, compromising, delaying, postponing, waiving,
releasing or accelerating the collection of, or writing off as
uncollectible, any accounts receivable or other asset outside
the Ordinary Course of Business;
(x) (A) enter into any employment,
consulting, severance, salary continuation or deferred
compensation or other similar agreement (or amend any such
existing agreement) with any past, present or future director,
officer, stockholder or employee of the Company or any of its
Subsidiaries, (B) increase any benefits payable or potentially
payable under any severance, continuation or termination pay
policies or employment agreements, or modify, renew or extend
any of the terms thereof, with any employee of the Company or
any of its Subsidiaries, or make or pay any bonus, other than
as required under any Employment Agreement or as disclosed on
Section 6.1(a)(vii) of the Disclosure Schedule, (C) increase
any compensation, bonus or other benefits payable or
potentially payable to directors, officers, stockholders or
employees of the Company or any of its Subsidiaries, other
than as required (and then only to the extent required) under
any Employment Agreement, or as disclosed on Section
6.1(a)(vii) of the Disclosure Schedule, (D) change the terms
of any bonus, pension, insurance, health or other Employee
Benefit Plan or Benefit Arrangement of the Company or any of
its Subsidiaries or (E) establish, adopt, enter into,
terminate, withdraw from or amend or take any action to
accelerate any rights or benefits under any collective
bargaining agreement or Employee Benefit Plan;
54
(xi) (A) declare or pay any dividend or
make any distribution in respect of the Capital Stock or other
Equity Interests of the Company or any of its Subsidiaries,
(B) directly or indirectly, redeem, purchase or otherwise
acquire any of the Capital Stock or Equity Interests of the
Company or any of its Subsidiaries or of any of their
respective Affiliates, or (C) except as contemplated in the
consummation of the Merger, split, combine or reclassify any
of the Capital Stock or other Equity Interests of the Company
or any of its Subsidiaries;
(xii) merge or consolidate with any other
corporation, acquire Control of all or substantially all of
the stock or assets of, or otherwise invest in, any other
corporation, partnership, limited liability company, joint
venture, association or other business entity (or any division
thereof or any material amount of assets), or take any steps
incident to, or in furtherance of, any such action, whether by
entering into an agreement or otherwise;
(xiii) through merger, liquidation,
reorganization, restructuring or otherwise, alter the
structure of ownership of the Company or any of its
Subsidiaries;
(xiv) issue, deliver, sell, grant,
pledge, or otherwise dispose of or encumber or authorize or
propose the issuance, delivery, sale, grant, pledge, disposal
or encumbrance of, or purchase or propose to purchase, any
shares of the Capital Stock of the Company or any of its
Subsidiaries or any securities convertible into, or
subscriptions, rights, warrants or options to acquire, or any
other agreements or commitments of any character obligating
the Company or any of its Subsidiaries to issue any, shares of
Capital Stock or other securities convertible into or
exchangeable for shares of Capital Stock, other than the
issuance of shares of Common Stock of the Company pursuant to
the exercise of stock options outstanding on the date hereof
and disclosed in Section 4.2(b) of the Disclosure Schedule;
(xv) make any loans, advances or capital
contributions to any other Person (except for wholly owned
Subsidiaries of the Company);
(xvi) amend, restate, supplement or
otherwise change its Certificate of Incorporation or
equivalent or its Bylaws or equivalent (except as required
under or contemplated by this Agreement);
(xvii) authorize any capital commitment or
capital lease which is in excess of $100,000 or capital
expenditures which are, in the aggregate, in excess of
$300,000;
(xviii) make or revoke any material Tax
election, or settle or compromise any federal, state, local or
foreign income material Tax liability in excess of $100,000,
or change (or make a request to any Taxing authority to
change) any material aspects of its method of accounting for
Tax purposes;
55
(xix) settle or compromise any pending or
threatened Actions (other than the settlement or compromise of
(a) the Cash Flow Insurance Claims in accordance with Section
8.5 or (b) Actions not material to the Company or its
Subsidiaries in the Ordinary Course of Business);
(xx) pay, discharge or satisfy any
claim, liability or obligation (absolute, accrued, asserted or
unasserted, contingent or otherwise), other than the payment,
discharge or satisfaction, in the Ordinary Course of Business,
of liabilities (i) reflected or reserved against in the
Balance Sheet included in the last audited financial statement
provided to the Buyer or (ii) subsequently incurred in the
Ordinary Course of Business in amounts not in excess of
$100,000 in the aggregate;
(xxi) sell, assign, transfer, license or
sublicense (other than in the Ordinary Course of Business),
pledge or otherwise encumber any of the Other Intellectual
Property Rights and Library Films;
(xxii) enter into any Contract with any
Affiliate (including any of the Sellers) otherwise as
contemplated hereby;
(xxiii) sell, assign, transfer, lease,
sublease, mortgage, or encumber (other than with Permitted
Liens) any Real Property or Real Property Leases;
(xxiv) designate any of the Remaining
Films as Declared Qualifying Pictures under the AFI Agreements
or become obliged in any way under any of the AFI Agreements;
or
(xxv) carry out (or enter into a plan
for) its liquidation, dissolution or winding up.
(b) The Company shall, and shall cause its
Subsidiaries to (unless otherwise contemplated by this Agreement)
provide the Buyer and its representatives (including the Buyer's
attorneys, accountants and financial advisors) with reasonable access
to the Company (during normal business hours and upon reasonable prior
notice to the Company in the presence of management of the Company
designated by the Company, and only to the extent that such activities
do not unreasonably disrupt the day-to-day operations of the Company
and its Subsidiaries), each of its Subsidiaries and their respective
officers, key employees (with the approval of Xxxx Xxxxx, not to be
unreasonably withheld; provided that any Person at the level of Senior
Vice President or above of the Company or Artisan is deemed approved),
records, facilities, properties, minute books, books and records
(including without limitation Tax Returns and environmental records),
and other documentation, additional financial and operating data and
information as Buyer or its representatives shall from time to time
require in order that the Buyer or its representatives may have the
opportunity to make such investigations of the operations, properties,
business, financial condition and prospects of the Company as it shall
deem necessary, in connection with the Merger or any of the
56
other transactions expressly contemplated by this Agreement or with
respect to bank financing. Each of the Buyer and the Company will
promptly furnish the other with copies of any notices, documents,
requests, court papers, or other materials received from any
Governmental Authority or any other third party with respect to the
transactions contemplated by this Agreement. Except as otherwise
provided in this Agreement, no information or knowledge obtained in any
investigation pursuant to this Section 6.1(b) or otherwise shall affect
or be deemed to modify any representation or warranty contained in this
Agreement or the conditions to the obligations of the parties to
consummate the Merger and the other transactions contemplated hereby.
In furtherance of and not in limitation of the foregoing and subject to
the limitations set forth in Section 8.10, between the date of this
Agreement and the Closing Date, the Company shall permit
representatives of the Buyer to meet (during normal business hours and
upon reasonable prior notice to the Company, and only to the extent
that such activities do not unreasonably disrupt the day to day
operations of the Company and its Subsidiaries) with the officers of
the Company and any of its Subsidiaries responsible for the Financial
Statements, the internal controls of the Company and any of its
Subsidiaries, the disclosure controls and procedures of the Company and
any of its Subsidiaries and the independent auditors of the Company to
discuss such matters as the Buyer may deem reasonably necessary or
appropriate for Buyer to satisfy its obligations under Applicable Law
(including without limitation Sections 302 and 906 of the
Xxxxxxxx-Xxxxx Act of 2002).
6.2 Deletion Policy. Promptly after the date that the existence of
this Agreement and the transactions contemplated hereby is publicly announced,
the Company shall instruct all of its officers, directors and employees not to
delete, remove or destroy, from such date, any emails, computer or other records
of the Company or any of its Subsidiaries without the prior written consent of
the Buyer.
6.3 Conversion of Class L Common. Immediately after the execution
of this Agreement, the Company shall amend the Company's Amended and Restated
Certificate of Incorporation to provide that by virtue of the Merger and without
any further action on the part of the Company or the holders thereof, each share
of the Company's Class L Common issued and outstanding immediately prior to the
Effective Time (including any Class L Common held in the treasury of the
Company) shall be converted into the right to receive the consideration provided
for in Section 2.6(a).
ARTICLE VII
DIRECTOR AND OFFICER LIABILITY AND INDEMNIFICATION
The Buyer hereby agrees that:
(a) As of the Effective Time, the Certificate of
Incorporation and the By-Laws of the Surviving Corporation and its
Subsidiaries shall contain provisions with respect to indemnification
and exculpation from liability of directors and officers of the Company
and its Subsidiaries to the maximum extent permitted thereunder by
Delaware Law. Such provisions shall not be amended, repealed or
otherwise modified for a period
57
of six years from the Effective Time in any manner that would adversely
affect the rights thereunder of individuals who on or prior to the
Effective Time were directors or officers, of the Company or its
Subsidiaries (the "Indemnified Individuals"), unless such modification
is required by Applicable Law (and then only to the minimum extent
required thereby).
(b) For a period of six years from the Effective
Time, the Surviving Corporation shall maintain in effect the Company's
current directors' and officers' liability insurance covering those
Persons who are covered on the date of this Agreement by the Company's
directors' and officers' liability insurance policy (a copy of which
has been heretofore made available to Buyer); provided, however, that
in no event shall Buyer be required to expend in any one year an amount
in excess of 150% of the annual premiums currently paid by the Company
for such insurance; provided further that if the annual premiums of
such insurance coverage exceed such amount, the Surviving Corporation
shall be obligated to obtain a policy with the greatest coverage
available for a cost not exceeding such amount; provided further that
the Surviving Corporation may substitute, for the Surviving Corporation
policies, other policies with at least the same coverage containing
terms and conditions which are not materially less advantageous and
provided that said substitution does not result in any gaps or lapses
in coverage with respect to matters occurring prior to the Effective
Time or, at Buyer's option, cause Buyer's directors' and officers'
liability insurance then in effect to cover those Persons who are
covered on the date of this Agreement by any such insurance policy with
respect to those matters covered by such insurance policy.
(c) From and after the Effective Time, the Buyer
shall cause the Surviving Corporation to indemnify, defend and hold
harmless, to the fullest extent that the Company would have been
permitted under Delaware Law, each Indemnified Individual against all
Damages in connection with any action arising out of or pertaining to
acts or omissions, or alleged acts or omissions, by them in their
capacities as such occurring at or prior to the Closing Date; provided,
however, that the Surviving Corporation shall not have any obligation
to indemnify any Indemnified Individual who is also a Seller other than
out of D&O Insurance (i) in connection with any Action brought or
asserted by any Seller or other Indemnified Individual; or (ii) for any
matter for which any Buyer Indemnitee is entitled to indemnification
pursuant to Section 10.1, except to the extent that the Buyer
Indemnitee has received indemnity (including indemnity for the payment
of amounts under this Section) therefor. The Surviving Corporation
shall not be obligated pursuant to this Article VII to pay the fees and
disbursements of more than one counsel for all Indemnified Individuals
in any single Action except to the extent that, in the opinion of
counsel for the Indemnified Individuals, two or more such Indemnified
Individuals have conflicting interests in the outcome of such action.
58
ARTICLE VIII
COVENANTS OF ALL PARTIES
The parties hereto mutually hereby agree that:
8.1 Confidentiality. Each of the Buyer, the Acquisition Company
and the Company acknowledge that they are subject to the Confidentiality
Agreement dated April 20, 2003 by and among Artisan Entertainment, Inc. and the
Buyer (the "Confidentiality Agreement"), which agreement shall, subject to the
provisions of Section 8.4 hereof, remain in full force and effect from the date
hereof until the Effective Time. In the event of a conflict between the terms of
this Agreement and the terms of the Confidentiality Agreement, the terms of this
Agreement shall supersede, govern and control. Notwithstanding anything to the
contrary set forth in this Agreement or the Confidentiality Agreement, with
respect to the Merger or any of the other transactions contemplated by this
Agreement, (i) the obligations of confidentiality contained herein and therein
shall not apply to the federal tax structure or federal tax treatment of the
Merger or any of the other transactions contemplated by this Agreement, and each
party to this Agreement (and any employee, representative or agent of any party
to this Agreement) may disclose to any and all Persons, without limitation of
any kind, the federal tax structure and federal tax treatment of the Merger or
any of the other transactions contemplated by this Agreement and all materials
of any kind (including opinions or other tax analyses) that are provided to such
party relating to such tax treatment and tax structure, and (ii) neither this
Agreement nor the Confidentiality Agreement shall limit in any way at any time
the ability of any party to this Agreement (or any employee, representative or
agent of any party to this Agreement) to consult any tax advisor (including a
tax advisor independent from all other entities involved in the Merger or any of
the other transactions contemplated by this Agreement) regarding the federal tax
treatment or federal tax structure of the Merger or any other transactions
contemplated hereby. The immediately preceding sentence is intended to cause the
Merger and all of the other transactions contemplated by this Agreement to be
treated as not having been offered under conditions of confidentiality for
purposes of Section 1.6011-4(b)(3) of the Treasury Regulations promulgated under
Section 6011 of the Internal Revenue Code of 1986, as amended as of the date
hereof or after this date (or any successor provision and any similar provisions
of state, local or foreign law now or hereafter in effect), and shall be
construed in a manner consistent with such purpose; provided that (i) no party
to this Agreement (nor any employee, representative or agent thereof) may
disclose any information to the extent such disclosure could result in a
violation of any federal or state securities law and (ii) no party to this
Agreement (or any employee, representative or agent thereof) shall make a
disclosure otherwise restricted by the Confidentiality Agreement or any
provision of this Agreement other than this Section 8.1 earlier than the first
to occur of (1) the date of the public announcement of discussions relating to
the Merger, (2) the date of the public announcement of the Merger, or (3) the
date of the execution of this Agreement or another agreement (with or without
conditions) to carry out the Merger.
8.2 Further Assurances. Each of the Company, the Buyer and the
Acquisition Company shall use commercially reasonable efforts to take, or cause
to be taken, all actions, and to do, or cause to be done, and to assist and
cooperate with the other parties (including providing information relating to
the financing of this transaction) in doing, all things necessary, proper or
59
advisable (subject to, and to the extent consistent with, complying with all
Applicable Laws) to consummate and make effective, in the most expeditious
manner practicable, the Merger and the other transactions contemplated by this
Agreement and to satisfy the closing conditions of the other party contained
herein. If at any time after the Effective Time the Buyer or the Surviving
Corporation shall consider or be advised that any deeds, bills of sale,
assignments or assurances or any other acts or things are necessary, desirable
or proper (a) to vest, perfect or confirm, of record or otherwise, in the
Surviving Corporation, its right, title or interest in, to or under any of the
rights, privileges, powers, franchises, properties or assets of either the
Company or the Acquisition Company or (b) otherwise to carry out the purposes of
this Agreement, the Surviving Corporation and its proper officers and directors
or their designated representatives shall be authorized to execute and deliver,
in the name and on behalf of the Company and the Acquisition Company, all such
deeds, bills of sale, assignments and assurances and do, in the name and on
behalf of the Company or the Acquisition Company, all such other acts and things
necessary, desirable or proper to vest, perfect or confirm its right, title or
interest in, to or under any of the rights, privileges, powers, franchises,
properties or assets of the Company or the Acquisition Company, as applicable,
and otherwise to carry out the purposes of this Agreement.
8.3 Certain Filings.
(a) In furtherance and not in limitation of
Section 8.2, the parties hereto shall cooperate with one another in
determining whether any action by or in respect of, or filing with, any
Governmental Authority is required, or any action, consent, approval,
license, permit, authorization, order or waiver from any party to any
Contract is required, in connection with the consummation of the Merger
and the other transactions contemplated by this Agreement. Subject to
the terms and conditions of this Agreement, in taking such actions or
making any such filings, the parties hereto shall furnish information
required in connection therewith and seek timely to obtain any such
consent, approval, license, permit, authorization, order or waiver.
(b) In furtherance and not in limitation of
Section 8.2 and upon the terms and subject to the conditions set forth
in this Agreement, the Buyer and the Company agree to cooperate and to
use their respective commercially reasonable efforts to obtain any
consent, approval, license, permit, authorization, order or waiver that
may be required under the XXX Xxx, xxx Xxxxxxxxxxx Xxx (Xxxxxx), the
Investment Canada Act (Canada) and any other United States (federal or
state), Canadian or foreign antitrust, competition or similar laws
(collectively, the "Antitrust Laws"), and to respond to requests for
information under any Antitrust Laws from any Governmental Authority,
and to contest and resolve objections, if any, as may be asserted with
respect to the Merger or the other transactions contemplated hereby
under any Antitrust Laws. Each party shall promptly inform the other of
any material communication from the United States Federal Trade
Commission, the Department of Justice or any other Governmental
Authority regarding the Merger or any of the other transactions
contemplated hereby. If the Company, the Buyer, or any of their
respective Affiliates, receives a request for additional information or
documentary material from any such Governmental Authority with respect
to the transactions contemplated hereby, then the Company, the Buyer or
such Affiliate will endeavor in good faith to make, or cause to be
made, as soon as practicable and after consultation with the other
parties, an appropriate response in
60
compliance with such request. In furtherance and not in limitation of
the foregoing, each of the Buyer and the Company agrees to make an
appropriate filing of a Notification and Report Form pursuant to the
HSR Act (and to make such other filings as are required under any
Antitrust Laws) with respect to the Merger as promptly as reasonably
practicable (but not later than five Business Days) after the date
hereof and to supply as promptly as reasonably practicable any
additional information and documentary material that may be requested
pursuant to the HSR Act (or pursuant to any Antitrust Laws). Buyer
shall be responsible for all filing fees in connection with filing a
Notification and Report Form pursuant to the HSR Act and any other
Antitrust Laws. Each of Buyer and the Company will meaningfully consult
with the other party promptly in respect of any understandings,
undertakings or agreements (oral or written) that such party proposes
to make or enter into with the Federal Trade Commission, the Department
of Justice or any other Governmental Authority in connection with the
Merger or the other transactions contemplated hereby.
(c) In furtherance and not in limitation of
Section 8.2, each of Buyer and the Company shall give (or shall cause
their respective Subsidiaries to give) any notices to third parties,
and use, and cause their respective Subsidiaries to use, their
commercially reasonable efforts to obtain any third party consents in
connection with the Merger and the other transactions contemplated
hereby that are both (i) necessary to consummate the Merger and the
other transactions contemplated hereby, and (ii) disclosed or required
to be disclosed in the Disclosure Schedule; provided, however, that the
failure to give such notices or obtain such consents shall not be
deemed to have a Material Adverse Effect on the Company.
(d) Notwithstanding any provision of this
Agreement to the contrary (including, without limitation, the
requirements of commercially reasonable efforts as set forth in other
paragraphs of this Section), in no event shall Buyer or the Company, or
any of their respective Affiliates, in order to receive any approval
under the Antitrust Laws or otherwise, be required to (i) sell,
transfer, license, divest, place in trust or otherwise dispose of any
material assets, (ii) agree or consent to (or otherwise become subject
to) any material prohibition of, or limitation on, the acquisition,
ownership, operation, effective control, or exercise of full rights of
ownership of any of their respective material assets, (iii) terminate
any of their existing material relationships or contract rights or
agree to forego any such relationships or rights that may arise or
become available in the future, (iv) effectuate any material change or
restructuring of any of their respective organizations or ownership
structures, or (v) consent to or become subject to any other material
condition, restriction, prohibition or other requirement to which such
Persons are not bound as of the date of this Agreement.
8.4 Public Announcements. Prior to the Closing Date the Buyer and
the Company agree to consult with each other before issuing any press release or
making any public statement or filing with respect to this Agreement or the
transactions contemplated hereby and, except as may be required by Applicable
Law, neither will issue any such public statement without the prior written
consent of the other parties hereto (and, if required by Applicable Law, shall
provide the other parties hereto with as much notice and an opportunity to
consult as is reasonably practicable). The Buyer shall take such actions as are
necessary so that no public
61
disclosure is made in contravention of Section 8.14. Notwithstanding the
foregoing, and subject to the terms of Section 8.8, the parties may, on a
confidential basis, advise and release information regarding the existence and
content of this Agreement or the transactions contemplated hereby, subject to
the confidentiality provisions contained herein, (i) to the Sellers and their
respective Affiliates or any of their agents, accountants and attorneys in
connection with or related to the transactions contemplated by this Agreement
and (ii) to the Buyer's Affiliates, agents, accountants, attorneys, prospective
lenders, key employees, financing sources, rating agencies and investors in
connection with or related to the transactions contemplated by this Agreement.
8.5 Cash Flow Insurance Claims (a) The Buyer, the Company and its
Subsidiaries agree that the Cash Flow Insurance Claims will be managed and
pursued exclusively by the Designated Stockholders, which shall have, subject to
their indemnification obligations under Article X hereof with respect to such
Cash Flow Insurance Claims, the power and authority to act on behalf of the
Surviving Corporation and its Subsidiaries to manage, pursue and settle the Cash
Flow Insurance Claims; provided however, that the Designated Stockholders shall
not, without the Buyer's prior written consent, have the power to (i) add any
Person as a party to any Action relating to the Cash Flow Insurance Claims other
than Artisan Film Investors Trust (as an additional party plaintiff) and
International Ins. Co. of Hanover, St. Xxxx International Ins. Co., Limited NRMA
Ins., Ltd., GIO General, Ltd. and/or Monagasque de Reassurances, X.X.X., and its
successors in liquidation (as additional party defendants), (ii) file any
additional Actions relating to the Cash Flows Insurance Claims at any time after
a release agreement has been entered into with respect to such Claims, (iii)
change the jurisdiction or venue of any of the existing Actions relating to the
Cash Flow Insurance Claims; or (iv) bind the Buyer, the Surviving Corporation or
any of their respective Affiliates, including by settling the Cash Flow
Insurance Claims, in any way that requires the Buyer, the Surviving Corporation
or any of their respective Affiliates to make any payments not funded from the
Cash Flow Insurance Escrow Account; provided, further, that the Company may
settle the Cash Flow Insurance claims prior to the Closing Date, in which case
the proceeds of which shall remain Excluded Assets (as defined) payable to the
Sellers in accordance with Sections 2.6 and 3.4 hereof but paid at the Effective
Time.
(b) Effective as of the Closing Date, the Buyer, the
Surviving Corporation and its Subsidiaries shall execute a Designation Agreement
substantially in the form attached hereto as Exhibit I, which, on the terms and
subject to the conditions set forth therein, will irrevocably constitute and
appoint the Designated Stockholders and any representative or agent thereof,
with full power of substitution, as its true and lawful attorney-in-fact with
full irrevocable power and authority in the place and stead of such parties and
in the name of such parties or in its own name, from time to time in the
Designated Stockholders' discretion, for the purpose of carrying out the terms
of this Section 8.5, to take any and all appropriate action and to execute any
and all documents and instruments which may be necessary or desirable to
accomplish the purposes of this Section 8.5.
(c) No settlement or other resolution of the Cash Flow
Insurance Claims shall (i) require the payment of any amounts by the Buyer, the
Surviving Corporation or any of their respective Affiliates not directly funded
by the Cash Flow Insurance Escrow Account, or (ii) limit or restrict in any way
the conduct of business of the Buyer, the Surviving Corporation
62
or any of their respective Affiliates, or any of their respective rights (other
than confidentiality and other obligations customarily found in settlement
agreements (if settled after the Closing Date), reasonably acceptable to the
Buyer).
(d) If, at any time during the term of the Cash Flow
Insurance Escrow Agreement, any release or distribution of funds from the Cash
Flow Insurance Claim Escrow Account pursuant to the Cash Flow Insurance Claim
Escrow Agreement will cause the funds held in the Cash Flow Insurance Claims
Escrow Account to be less than $1,500,000, then the Designated Stockholders, on
behalf of the Sellers, shall deliver, by wire transfer of immediately available
funds into the Cash Flow Insurance Escrow Account, an amount equal to the
difference between $1,500,000 and the amount that will be held in the Cash Flow
Insurance Escrow Account after such release or distribution. If, at any time
during the term of the Cash Flow Insurance Claims Escrow Agreement, the funds
held in the Cash Flow Insurance Claims Escrow Account are less than $1,500,000
for a period of five or more Business Days, the Company shall have the right, in
its sole discretion and irrespective of any adverse effects that such assignment
may have on the Cash Flow Insurance Claims or any of the Sellers, to assign the
Cash Flow Insurance Claims to a liquidating trust, which shall assume all
liabilities and obligations in connection therewith, on the terms and subject to
the conditions, set forth in the Liquidating Trust Agreement attached hereto as
Exhibit D, and, from and after such assignment, neither the Buyer nor any of its
Subsidiaries shall have any liability or obligation to the Sellers with respect
to, or on account of, the Cash Flow Insurance Claims. Such assignment and
assumption shall not limit in any way Sellers indemnification obligations in
connection therewith, on the terms and subject to the conditions, set forth in
the liquidating trust agreement
8.6 Notification of Certain Matters. From the date of this
Agreement until the Closing, each of the Company and the Buyer shall, promptly
after becoming aware thereof, give written notice to the other of the
occurrence, or non-occurrence, of any event or action which would be reasonably
likely to cause (i) any of its representations or warranties contained in this
Agreement to be untrue or inaccurate in any material respect, (ii) any covenant,
condition or agreement contained in this Agreement not to be complied with or
satisfied in any material respect or (iii) the Closing to not to be consummated.
8.7 Tax Matters. The Company shall prepare and file (or cause to
be prepared and filed) in a manner consistent with past practice and in
accordance with Applicable Law with the applicable Governmental Authorities all
Tax Returns that are required to be filed by or with respect to the Company or
any of its Subsidiaries on or before the Closing Date (taking into account
extensions of time that are timely and properly requested) and shall pay all
Taxes required to be paid by the Company and its Subsidiaries on or before the
Closing Date; provided, however, that the Buyer shall have the reasonable
opportunity to review and approve any such Tax Return (such approval not to be
unreasonably withheld or delayed). An exact copy of the Tax Return for each such
period shall be provided to the Buyer no later than 10 Business Days after such
Tax Return is filed. The Company shall not change any position in any audit,
examination, appeal, suit or other proceeding concerning Taxes, or make any tax
election or take any other action with respect to Taxes (or permit any such
election or action to be made or taken) that could adversely affect the Buyer or
any of its Affiliates. If the Company or any Subsidiary receives any notice from
any Tax authority proposing any adjustment to any Tax relating to the Company or
any Subsidiary, the Company shall promptly forward such notice to the Buyer.
63
8.8 No Solicitation.
(a) Except as contemplated by Section 8.8(b),
from the date of this Agreement until the earlier of the termination of
this Agreement pursuant to Section 11.1 or the Effective Time, the
Company shall not, and shall not permit its Subsidiaries or any of
their respective representatives to, formally or informally, directly
or indirectly, (i) solicit, initiate, or knowingly encourage any
inquiry or the submission of any proposal that constitutes, or may
reasonably be expected to lead to, any Acquisition Proposal, (ii) enter
into any agreement, whether formal or informal, written or oral,
binding or non-binding, with respect to any Acquisition Proposal or
(iii) participate in any discussions or negotiations regarding, or
furnish to any Person any information or data for the purpose of
facilitating the making of, or take any other action to knowingly
facilitate any inquiries or the making of, any proposal that
constitutes, or may reasonably be expected to lead to, any Acquisition
Proposal. Any violation of the foregoing restrictions by any of the
Company's Subsidiaries or their respective representatives, whether or
not such Subsidiary or representative was so authorized and whether or
not such Subsidiary or representative was purporting to act on behalf
of the Company or otherwise, shall be deemed a breach of this Agreement
by the Company. The Company shall, and shall cause its Subsidiaries and
their respective representatives to, cease immediately and cause to be
terminated all activities, discussions and negotiations with any
Persons conducted prior to the date hereof with respect to any
Acquisition Proposal and, to the extent within its power, to recover or
cause to be destroyed all information or data concerning the Company in
the possession of such Persons and their Affiliates and
representatives.
(b) At any time on or prior to the date on which
the Company receives the written consent of a majority of the
Stockholders approving this Agreement and the Merger (after which,
except as provided in Section 8.8(d), this Section 8.8(b) shall have no
further force or effect), notwithstanding anything to the contrary in
this Agreement, nothing contained in this Agreement shall prevent the
Company or its Board of Directors at any time prior to the date on
which the Company receives the written consent of a majority of the
Stockholders approving this Agreement and the Merger from engaging in
discussions with a Person who has subsequent to the date of this
Agreement delivered to the Board of Directors of the Company an
unsolicited Acquisition Proposal; provided, that such discussions shall
be strictly limited to allowing the Board of Directors to solicit such
additional information regarding such Acquisition Proposal, if any, as
is necessary to allow the Board of Directors and its financial advisors
and outside legal counsel to make the determination as to whether such
Acquisition Proposal constitutes a Superior Proposal according to the
criteria set forth below in (v) through (z) inclusive of this Section
8.8(b); provided, further, that the Board of Directors of Company shall
before engaging in such discussions have first received from the Person
making such unsolicited Acquisition Proposal an executed
confidentiality agreement the terms of which are (without regard to the
terms of the Acquisition Proposal) (A) no less favorable to the Company
and (B) no less restrictive on the Person requesting such information
than those contained in the Confidentiality Agreement. An Acquisition
Proposal shall constitute a "Superior Proposal" for all purposes of
this Agreement if, and only if, all of the following criteria are met
with respect to such Acquisition Proposal: (v) such Acquisition
Proposal does not include any financing condition and was not solicited
by any of the Sellers or the
64
Company or their respective Affiliates or any of their respective
representatives, (w) such Acquisition Proposal is a bona fide written
proposal or offer for any of the following involving the Company: (i)
any merger, consolidation, share exchange, business combination or
other similar transaction; (ii) any sale, lease, exchange, mortgage,
pledge, transfer or other disposition of all or substantially all of
the assets of the Company in a single transaction or series of
transactions; or (iii) any Person acquiring beneficial ownership or the
right to acquire beneficial ownership of, or any "group" (as such term
is defined under Section 13(d) of the Exchange Act) having been formed
which beneficially owns or has the right to acquire beneficial
ownership of, eighty percent (80%) or more of the outstanding voting
securities of the Company, (x) the Board of Directors of the Company
determines in good faith (after consultation with its financial advisor
and outside legal counsel) that the Acquisition Proposal, if accepted,
is likely to be consummated without undue delay, (y) the Board of
Directors of the Company determines in good faith, and after
consultation with its financial advisor, receives an opinion from such
financial advisor, that the Acquisition Proposal would, if consummated,
result in a transaction that is more favorable to the Sellers solely in
their capacity as holders of Capital Stock and other Equity Interests
in the Company (taking into account all legal, financial, regulatory
and other terms and conditions of the Acquisition Proposal, including
the identity and nature of the Person making such Acquisition Proposal,
while simultaneously taking into account the long-term value to the
Sellers of the purchase price or total consideration and the strategic
nature of the proposed Merger) from a financial point of view, and (z)
the Board of Directors of the Company reasonably determines in good
faith after consultation with and upon the recommendation of outside
legal counsel, and receives an unqualified opinion from such outside
legal counsel, that the failure to provide such information or enter
into such discussions would constitute a breach of its fiduciary duties
under applicable Law. The Company immediately shall advise the Buyer of
any Acquisition Proposal (including the terms thereof and the identity
of the Person making the Acquisition Proposal) and inquiries with
respect to any Acquisition Proposal, and in addition immediately shall
advise the Buyer if any Acquisition Proposal has been determined by the
Board of Directors of the Company to be a Superior Proposal.
(c) Except as expressly permitted by this
Section 8.8, the Board of Directors of the Company shall not (i)
withdraw or modify, or publicly propose to withdraw or modify, in a
manner adverse to the Buyer or the Acquisition Company, the Board
Recommendation, or take any action not explicitly permitted by this
Agreement that would be inconsistent with its approval of the Merger
and the Board Recommendation, (ii) approve or recommend, or publicly
propose to approve or recommend, any Acquisition Proposal or (iii)
cause the Company to enter into any letter of intent, agreement in
principle, acquisition agreement, commitment or similar Contract
related to any Acquisition Proposal.
(d) Notwithstanding the provisions of Section
8.8(b), if the Board of Directors of the Company receives an
Acquisition Proposal which it considers to be a Superior Proposal, it
may request that Buyer waive the provisions of Section 8.8(b) that
terminate the provisions thereof on the date on which the Company
receives the written consent of a majority of the Stockholders
approving this Agreement and the Merger; and
65
should the Buyer in its sole discretion grant such waiver, the
provisions of Section 8.8(b) with respect to that Acquisition Proposal,
but without the parenthetical phrase commencing in the third line
thereof, shall apply to such Acquisition Proposal.
8.9 Affiliated Transactions. On or prior to the Closing Date,
except for those agreements, contracts or arrangements set forth on Section
8.9(a) of the Disclosure Schedule, the Company shall terminate, or cause to be
terminated, all of the Company's rights and obligations under all of the
agreements, contracts or arrangements between the Company or any of its
Subsidiaries, on the one hand, and any of the Sellers (other than in their
capacity as current or former employees, officers or directors) or any
Affiliates of any Seller (other than the Company or its Subsidiaries and
employees), on the other hand, relating to the provision of services,
cost-sharing or any other similar intercompany Contract or arrangement, whether
written or oral, including without limitation, such of the foregoing as are
listed or described on Section 4.25 of the Disclosure Schedule, in each case
without any cost or continuing obligation (other than those specific contingent
indemnification obligations set forth on Section 8.9(b) of the Disclosure
Schedule) to the Company, the Buyer or the Acquisition Company, and will deliver
to the Buyer evidence of such terminations that is reasonably acceptable to the
Buyer.
8.10 Contact with Employees, Customers and Suppliers.
Notwithstanding anything herein to the contrary, prior to the Closing, with the
cooperation and assistance of the Company, the Buyer and the Buyer's
representatives shall be entitled to contact and communicate with the employees,
customers and suppliers, lenders and other business relations of the Company and
its Subsidiaries, in connection with the Merger and the other transactions
contemplated hereby only after prior consultation with and approval not to be
unreasonably withheld, conditioned or delayed from, Xxx Xxxxxxxx or Xxxx Xxxxx,
and the Company shall use commercially reasonable efforts to assist Buyer in
obtaining lab access and/or lab pledge letters, as necessary, in connection with
Buyer's financing arrangements.
8.11 Lab Access. Prior to the Closing, with the cooperation and
assistance of the Company, the Buyer and the Buyer's representatives shall be
entitled to contact and communicate with any labs or such other Persons that
maintain, hold, store, keep or otherwise possess or Control any of the Elements,
in connection with the Merger and the other transactions contemplated hereby
only after prior consultation with and approval not to be unreasonably withheld,
conditioned or delayed from, Xxx Xxxxxxxx or Xxxx Xxxxx. The Company shall use
commercially reasonable efforts promptly following the date of this Agreement to
update its inventory tracking system, and provide copies of all reasonably
requested reports thereunder.
8.12 Production and Distribution of The Punisher and Havana Nights:
Dirty Dancing 2.
(a) No Representations. Neither the Buyer nor
the Surviving Corporation has made any express or implied
representation, warranty, guarantee or agreement that either The
Punisher or Havana Nights: Dirty Dancing 2 will be released or
distributed or, if released, that either The Punisher or Havana Nights:
Dirty Dancing 2 will earn any minimum amount of box office gross
receipts or any minimum amount of monies will be expended in connection
therewith or the Box Office Contingent Payments will equal or exceed
any minimum amount or that either The Punisher or Havana Nights: Dirty
Dancing 2 will be distributed or exploited in any particular manner.
66
(b) Distribution and Exploitation. The Buyer and
the Surviving Corporation shall have complete, exclusive and
unqualified Control of the distribution, marketing, advertising,
publicizing, exhibition, exploitation and other disposition of each The
Punisher and Havana Nights: Dirty Dancing 2, directly or by any
Subsidiary or Affiliate, or other Person, in all media throughout the
world in perpetuity, in accordance with such sales methods, plans,
patterns, programs, policies, terms and conditions as either the Buyer
or the Surviving Corporation in its sole business judgment may
determine proper or expedient. The enumeration of the following rights
or distribution and exploitation shall in no way limit the generality
or effect of the foregoing:
(1) Refrain from Distribution,
Exhibition or Exploitation: The Buyer or the Surviving
Corporation may refrain from the release, distribution,
re-issue or exhibition of each The Punisher and Havana Nights:
Dirty Dancing 2 at any time, in any location or territory, in
any media, or in any form as the Buyer or the Surviving
Corporation in its sole business judgment may determine.
(2) Contracts and Settlements: The
Buyer or the Surviving Corporation may, in the exercise of its
sole business judgment, make, alter or cancel contracts with
exhibitors, subdistributors and other licensees and adjust and
settle disputes, make allowances and adjustments and give
credits with respect thereto.
(3) Collections: The Buyer or the
Surviving Corporation shall be entitled to, in the exercise of
its sole business judgment, determine the extent to audit,
check or verify the computation of any payments or to press
for the collection of any monies which, if collected, would
constitute box office gross receipts. There shall be no
responsibility or liability to the Sellers for failure to
audit, check, or verify or to collect any monies payable.
(4) Advertising: Neither the Buyer nor
the Surviving Corporation shall be obligated to expend any
minimum or maximum amount with respect to the advertising and
publicizing of either The Punisher or Havana Nights: Dirty
Dancing 2, and the Buyer and/or the Surviving Corporation, in
the exercise of its sole business judgment, shall determine
the amount of the advertising and publicizing budget and the
extent of the advertising and publicizing campaign for each
The Punisher and Havana Nights: Dirty Dancing 2.
(5) Expenses: Either the Buyer or the
Surviving Corporation may incur any expenses which the Buyer
or the Surviving Corporation, in the exercise of its sole
business judgment, deems appropriate with respect to the
either The Punisher or Havana Nights: Dirty Dancing 2 or the
exercise of its rights therein, including the number of prints
ordered.
8.13 Box Office Contingent Payments. "Box Office Contingent
Payments" means the following amounts, which shall not be subject to any offset
or counterclaim, other than as specified below, payable by Buyer and the
Surviving Corporation jointly and severally in
67
connection with the Films Dirty Dancing: Havana Nights ("DD2") and The Punisher
("Punisher"). The Punisher and DD2 shall be collectively referred to as the
"Pictures".
(a) In connection with Punisher, Sellers shall
be entitled to receive $3,750,000 ("Punisher Initial Payment") when, if
ever, actual domestic box office gross receipts from the initial
theatrical release of Punisher equals $35,000,000 ("Base Threshold").
(1) Thereafter, Buyer shall be entitled
to receive an additional $375,000 ("Punisher Subsequent
Payments") when, if ever, actual domestic box office gross
receipts equals each of the following thresholds: $38,250,000,
$41,500,000, $44,750,000, $48,000,000, $51,250,000,
$54,500,000, $57,750,000, $61,000,000, $64,250,000,
$68,500,000. For greater certainty, regardless of the actual
box office gross receipts attained, the total potential
payments payable to Sellers under this Section 8.13 as related
to Punisher is $7,500,000.
(2) The Punisher Initial Payment and
each Punisher Subsequent Payments, if any, shall be paid
within 120 days of the respective domestic box office
thresholds set forth above.
(b) In connection with DD2, Seller shall be
entitled to receive $3,750,000 ("DD2 Initial Payment") when, if ever,
actual domestic box office gross receipts as reported in the
Publications from the initial theatrical release of DD2 equals
$44,000,000 ("Base Threshold").
(1) Thereafter, Buyer shall be entitled
to receive an additional $375,000 ("DD2 Subsequent Payments")
when, if ever, actual domestic box office gross receipts
equals each of the following thresholds: $46,000,000,
$48,000,000, $50,000,000, $52,000,000, $54,000,000,
$56,000,000, $58,000,000, $58,000,000, $60,000,000,
$62,000,000. For greater certainty, regardless of the actual
box office gross receipts attained, the total potential
payments payable to Sellers hereunder as related to DD2 is
$7,500,000.
(2) The DD2 Initial Payment and each
DD2 Subsequent Payments, if any, shall be paid within 120 days
of the respective domestic box office threshold set forth
above.
(c) In connection with each of DD and the
Punisher, a representative of the Designated Stockholders shall be
entitled to audit one time each Lions Gate's books and records for the
sole purpose of verifying Lions Gates report of the actual domestic box
office gross receipts. Such audit shall be conducted on not less than
10 Business Days written notice at Lions Gate's principal place of
business in Los Angeles, California. The person conducting the audit
shall be a qualified CPA.
8.14 Public Offering, etc. Prior to the Closing, the Buyer shall
not announce or commence a public offering of any equity or debt securities if
such offering would require the use, review, disclosure or filing of any of the
Company's financial statements with or by any third party, including any
Governmental Authority.
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ARTICLE IX
CONDITIONS TO CLOSING
9.1 Conditions to Obligation of the Buyer and the Acquisition
Company. The obligations of the Buyer and the Acquisition Company to consummate
the Closing are subject to the satisfaction on or prior to the Closing Date of
each of the following conditions, any of which may be waived, in writing,
exclusively, by the Buyer and the Acquisition Company:
(a) Each of the representations and warranties
of the Company contained in Article IV of this Agreement shall be true
and correct in all respects, as of the Closing Date as though made on
and as of the Closing Date, except that those representations and
warranties which address matters only as of a particular date shall
remain true and correct as of such particular date, unless in each case
any such failure to be true and correct has not had or will not have a
Material Adverse Effect on the Company. The Company shall have
performed and complied, in all respects, with all agreements and
covenants required by this Agreement to be performed or complied with
by the Company prior to or on the Closing Date, unless in each case any
such failure to perform or comply has not had or will not have a
Material Adverse Effect on the Company.
(b) All applicable waiting periods under the HSR
Act shall have expired or otherwise been terminated.
(c) No statute, rule, regulation, executive
order, decree, ruling, injunction or other order ("Order") shall have
become effective restraining, enjoining or otherwise prohibiting or
making illegal the consummation of the transactions contemplated
hereby.
(d) There shall have been no event, series of
events or the lack of occurrence thereof which, singularly or in the
aggregate, has had or will have a Material Adverse Effect on the
Company since the date of this Agreement.
(e) Dissenting Shareholders shall not hold, as
Dissenting Shares, more than 18% of the outstanding Capital Stock of
the Company.
(f) The Company shall deliver to the Buyer an
Officers Certificate, in the form attached hereto as Exhibit J, dated
as of the Closing Date and executed by the Chief Executive Officer and
Chief Financial Officer of the Company stating that (A) each of the
conditions set forth in Sections 9.1(a), (d), (e) and (h) have been
satisfied and (B) the amount of the Closing Deduct Amount is true and
accurate. The representations and warranties made in such Officers
Certificate shall be deemed to be additional representations and
warranties of the Company under this Agreement.
(g) The Company and the Escrow Agent shall have
executed and delivered to the Buyer the Escrow Agreement and the Cash
Flow Insurance Claims Escrow Agreement, which shall be in full force
and effect; and there shall be no breach or default thereunder.
69
(h) At least seventy-five percent (75%) of the
holders of the Common Stock shall have approved the written consent of
stockholders substantially in the form attached hereto as Exhibit K.
(i) The Buyer shall have received an opinion of
special Delaware counsel to the Company, dated as of the Closing Date
and addressed to the Buyer, with respect to the matters set forth on
Exhibit L.
9.2 Conditions to Obligation of the Company. The obligations of
the Company to consummate the Closing are subject to the satisfaction on or
prior to the Closing Date of each of the following conditions, any of which may
be waived in writing exclusively by the Company:
(a) Each of the representations and warranties
of the Buyer (other than Section 5.9) and the Acquisition Company
contained in Article V of this Agreement shall be true and correct in
all respects, as of the Closing Date as though made on and as of the
Closing Date, except that those representations and warranties which
address matters only as of a particular date shall remain true and
correct as of such particular date, unless any such failure to be true
and correct has not had or will not have a Material Adverse Effect on
the Buyer. Each of the Buyer and the Acquisition Company shall have
performed and complied, in all respects, with all agreements and
covenants required by this Agreement to be performed or complied with
by the Buyer and the Acquisition Company prior to or on the Closing
Date, unless any such failure to perform or comply has not had or will
not have a Material Adverse Effect on the Company.
(b) All applicable waiting periods under the HSR
Act shall have expired or otherwise been terminated.
(c) No Order shall have become effective
restraining, enjoining or otherwise prohibiting or making illegal the
consummation of the transactions contemplated hereby.
(d) The Buyer shall deliver to the Company an
Officers Certificate in the form attached hereto as Exhibit M dated as
of the Closing Date and executed by the Chief Executive Officer and
Chief Financial Officer of the Buyer stating that each of the
conditions set forth in Section 9.2(a) have been satisfied. The
representations and warranties made in such Officers Certificate shall
be deemed to be additional representations and warranties of the Buyer
under this Agreement.
(e) The Acquisition Company shall deliver to the
Company an Officer Certificate in the form attached hereto as Exhibit N
dated as of the Closing Date and executed by a duly authorized officer
of the Company stating that each of the conditions set forth in Section
9.2(a) have been satisfied. The representations and warranties made in
such Officer Certificate shall be deemed to be additional
representations and warranties of the Acquisition Company under this
Agreement.
(f) The Buyer and the Escrow Agent shall have
executed and delivered to the Company the Escrow Agreement and the Cash
Flow Insurance Claims Escrow Agreement.
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(g) At least a majority of the holders of Common
Stock shall have voted to adopt this Agreement in accordance with
Delaware Law and Company's Amended and Restated Certificate of
Incorporation.
(h) Buyer shall have made all payments to the
Paying Agent required to be paid on the Closing Date pursuant to
Article II and Section 3.2 hereof.
(i) The Company shall have received from the
Buyer an acknowledgement from its senior lenders (the "Bank"), prepared
by the Company and in form and substance reasonably acceptable to the
Bank, to the effect that the payment of each of the Box Office
Contingent Payments and the Excluded Assets will not be subject to any
setoff, deduction, restriction, compromise or condition imposed by the
senior lenders.
(j) The Company shall have received an opinion
of special Delaware counsel to the Buyer, dated as of the Closing Date
and addressed to the Designated Stockholders on behalf of the Sellers,
with respect to the matters set forth on Exhibit L.
ARTICLE X
INDEMNIFICATION
10.1 Agreement to Indemnify.
(a) From and after the Effective Time and
subject to the terms and conditions of this Article X, the Sellers
shall except to the extent set forth in proviso B of Section 10.1(c)
(exclusively out of the Escrow Account, and only to the extent funds
are available in the Escrow Account) defend, indemnify and hold
harmless ("Indemnify" or "Indemnification") the Buyer Indemnitees from
and against, and pay or reimburse the Buyer Indemnitees for, any and
all Damages resulting from, arising out of or in connection with any of
the following (collectively, the "Buyer Indemnified Matters"):
(i) any breach or inaccuracy of any
representation or warranty made by the Company in this
Agreement or any certificate delivered by the Company in
connection herewith;
(ii) any breach by the Company of any of
its covenants or agreements made or contained herein or in any
instrument, certificate or agreement delivered by the Company
in connection herewith;
(iii) any breach by any one or more of
the Sellers of its or their covenants or agreements made or
contained the Escrow Agreement or the Cash Flow Insurance
Claims Escrow Agreement;
(iv) [intentionally omitted]
(v) with respect to the litigation set
forth on Schedule 10.1(a)(v) (the "Specified Litigation"), if
and to the extent that the aggregate
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Damages incurred by the Buyer Indemnitees (including the
Surviving Corporation) from and after the Closing Date with
respect to the Specified Litigation exceeds 100% of $5.30
million relating thereto, 100% of any Damages incurred by the
Buyer Indemnitees exceeding such amount;
(vi) the Dissenting Shares, during the
period that they constitute Dissenting Shares (including,
without limitation, the portion of the Closing Date Merger
Consideration owed to the dissenting stockholders and the
fees, costs and expenses of any litigation relating
thereto)(such claims and Damages, the "Dissenting Share
Damages");
(vii) the Cash Flow Insurance Claims to
the extent (a) payable to a third party (including any party
or parties defendant in any Action relating to the Cash Flow
Insurance Claims, and counsel for the Sellers) (it being
understood that there shall be no indemnification for Damages
relating to overhead of any Buyer Indemnitee or for the cost
of employee time) and (b) relating to (x) any expense incurred
by the Company after the Closing Date relating to such Cash
Flow Insurance Claims or (y) the prosecution of any claim by a
third party (other than those described in (x) above) with
respect to the Cash Flow Insurance Claims; and
(viii) any error, inaccuracy, omission or
misstatement in any of the amounts comprising the Closing
Deduct Amount;
provided, however, that
any Indemnification of the Buyer Indemnitees pursuant to Section
10.1(a)(vi) shall be satisfied (including without limitation the
payment of fees and expenses incurred in connection with the defense of
a Third Party Claim relating thereto as set forth in Section 10.4)
solely and exclusively (A) first, out of and by setoff against the
Dissenting Shares Escrow Amount and (B) second, out of and by setoff
against the Basic Escrow Amount, pursuant to the terms hereof and the
Escrow Agreement;
provided, further that any Indemnification of the Buyer Indemnitees
pursuant to Section 10.1(a)(vii) shall be satisfied (including without
limitation the payment of fees and expenses incurred in connection with
the defense of a Third Party Claim relating thereto as set forth in
Section 10.4), (A) first, out of and by setoff against any amounts that
the Sellers are entitled to with respect to the Excluded Assets, prior
to such time as the Excluded Assets, or any portion thereof, are
distributed to the Sellers, (B) second, out of and by setoff against
the Cash Flow Insurance Claims Escrow Amount, and (C) third, at the
sole option of Buyer, either or both (i) out of and by setoff against
the Basic Escrow Amount, or (ii) severally and not jointly, by the
Sellers pro rata according to their proportionate share of the cash
distributions made pursuant to Sections 2.6 and 3.4, subject to the
provisions of clause (C) of paragraph 4 of this Section 10.1(a);
provided, further that the parties expressly acknowledge and agree that
from and after the Effective Date, the Surviving Corporation shall not
have any liability to the Buyer
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Indemnitees in connection with the Indemnification of any Buyer
Indemnitees hereunder and that, notwithstanding the fact that the
Surviving Corporation, as a party to this Agreement (as the Company)
made representations and warranties to, and covenants to, the Buyer
hereunder, none of the Sellers shall have any right of contribution or
reimbursement whatsoever from the Surviving Corporation with respect to
such representations, warranties or covenants;
For the avoidance of doubt, (A) the maximum aggregate amount of
Indemnification that the Buyer Indemnitees may recover under this
Section 10.1 (other than pursuant to Section 10.1(a)(vi) or Section
10.1(a)(vii)) shall not exceed the Basic Escrow Amount, (B) the maximum
aggregate amount of Indemnification that the Buyer Indemnitees may
recover under Section 10.1(a)(vi) shall not exceed the aggregate of the
Dissenting Shares Escrow Amount and the Basic Escrow Amount, and (C)
the maximum aggregate amount of Indemnification that the Buyer
Indemnitees may recover under Section 10.1(a)(vii) shall not exceed the
net after-tax proceeds of Closing Date Merger Consideration that have
been received in cash by any Seller as of the date of such
Indemnification claim.
The Buyer Indemnitees shall not be Indemnified under Section 10.1(a)(i)
unless and until the aggregate amount of Damages so incurred by the
Buyer Indemnitees exceeds $1,500,000 (the "Deductible Amount"),
whereupon the Buyer Indemnitees shall be entitled to Indemnification
for all Damages incurred by them in excess of the Deductible Amount;
provided, however, that there shall be no Deductible Amount applicable
to the Indemnification set forth in Section 10.1(a)(ii) - Section
10.1(a)(viii); provided, further, however, that the Deductible Amount
shall apply to Section 10.1(a)(ii) to the extent that a breach of any
of the Company's covenants or agreement is also a breach or inaccuracy
of a representation or warranty made by the Company, excluding,
however, representations and warranties of the Company contained in the
Officers Certificate to be delivered pursuant to Section 9.1(a), to the
extent (and only to the extent) that such representation and warranties
relate to the second sentence of Section 9.1.
The Buyer Indemnitees shall not be Indemnified under Sections
10.1(a)(i) or 10.1(a)(ii) if, as of the Closing Date, the Buyer had
Actual Knowledge, as of the Closing Date, of that Post-Signing Breach.
If, as of the Closing Date, the Buyer had Actual Knowledge of the
existence of a Pre-Signing MAE Breach without Knowledge or a
Pre-Signing Non-MAE Breach without Knowledge and, if such breach is
capable of being cured, complied with Section 8.6, then the Buyer
Indemnitee shall be entitled to Indemnification hereunder with respect
to such Pre-Signing MAE Breach without Knowledge or such Pre-Signing
Non-MAE Breach without Knowledge, but only to the extent of 50% of the
Damages resulting from, arising out of or in connection with such
Pre-Signing MAE Breach without Knowledge or Pre-Signing Non-MAE Breach
without Knowledge (measured from the first dollar of such Damages
without regard to the Deductible Amount but subject to all of the other
limitations set forth in this Article X).
If, as of the Closing Date, the Buyer had Actual Knowledge of the
existence of a Pre-Signing MAE Breach with Knowledge or a Pre-Signing
Non-MAE Breach with
73
Knowledge, then the Buyer Indemnitees shall be entitled to
Indemnification hereunder without any of the limitations set forth in
Sections 10.1(a)(F) or (G) above, but subject to all of the other
limitations set forth in this Article X.
For purposes of Sections 10.1(a)(F), (G) and (H) above, "Actual
Knowledge" of the Buyer shall be deemed to mean (i) the actual
knowledge of Xxxxx Xxxxx, Buyer's General Counsel, and Xxxxxxx Xxxxx,
and Xxxxxx May without any duty or inquiry or investigation and,
without limiting the foregoing, shall not include any constructive,
imputed or implied knowledge resulting from Buyer's due diligence
investigation of the Company unless such Persons had actual knowledge
resulting from such investigations, and (ii) the Buyer Indemnitees
shall be deemed to have Actual Knowledge of the breaches described in
such sections if disclosed to the Buyer by the Company pursuant to
Section 8.6 hereof.
(b) No Buyer Indemnitee shall be entitled to
Indemnification under Section 10.1(a) to the extent the Damages relate
to any inaccuracy or misrepresentation in, or breach of, or failure to
perform, any representation, warranty, covenant or agreement made in
this Agreement by the Buyer or the Acquisition Company.
(c) From and after the Effective Time and
subject to the terms of this Article X, the Buyer shall defend,
indemnify and hold harmless the Seller Indemnitees from and against,
and pay or reimburse the Seller Indemnitees for, any and all Damages
incurred by any Seller Indemnitee as a result of (i) any inaccuracy or
misrepresentation in, or breach of, or failure to perform, any
representation, warranty, covenant or agreement made or required to be
performed by the Buyer or the Surviving Corporation (with respect to
the Surviving Corporation, after the Effective Time) in this Agreement,
the Escrow Agreement, the Cash Flow Insurance Escrow Agreement or any
certificate delivered hereunder or thereunder, (ii) events that relate
to the business, properties, assets, operations, activities,
liabilities, ownership, management, use or Control of the Company which
occur after the Closing Date and (iii) any breach of the fiduciary duty
of the board of directors of the Company (after receipt by the Company
of the written consent of a majority of the Stockholders approving this
Agreement and the Merger) following receipt of a Superior Proposal and
notice to Buyer of same, based solely on the Buyer's determination not
to waive the provisions of Section 8.8(b) that terminate the provisions
thereof on the date on which the Company receives the written consent
of a majority of the Stockholders approving this Agreement and the
Merger, which would otherwise allow the board of directors to accept
the Superior Proposal; provided that no Seller Indemnitee shall be
entitled to indemnification under this Section 10.1(c) to the extent
the Damages relate to any Buyer Indemnified Matters; and provided,
further that no current or former directors or officers of the Company
shall be entitled to any indemnification from the Buyer (or the
Surviving Corporation) as a result their status as such except as
expressly set forth in Article VII and provided, further, that
notwithstanding the foregoing, Buyer's indemnity in (iii) shall be
effective from the date of this Agreement. Additionally, the Seller
Indemnitees shall not be indemnified under Section 10.1(c)(i) for any
breach or inaccuracy of any representation or warranty made by the
Buyer in this Agreement unless and until the aggregate amount of
Damages so incurred by the Seller Indemnitees exceeds the Deductible
Amount, whereupon the Seller
74
Indemnitees shall be entitled to indemnification for all Damages
incurred by them in excess of the Deductible Amount. In the absence of
fraud, except with respect to payment of the Merger Consideration as
required by this Agreement (including but not limited to those payments
required to be made after the Closing Date pursuant to Sections 3.3(b)
and 3.4 hereof)or a breach of Section 10(d) below, the Seller
Indemnitees shall not be entitled to recover from Buyer pursuant to
this Section 10.1(c)(i) an aggregate amount that is greater than the
Basic Escrow Amount;
(d) From and after the Effective Time, the
rights and remedies set forth in this Article X are the sole and
exclusive remedies of the Buyer Indemnitees, except for fraud, in which
case the Buyer Indemnitees may pursue all remedies available to them
against the Person committing such fraud (but only with respect to such
fraud). Without limiting the foregoing, in the absence of fraud and
except as set forth and subject to the limitations in this Section
10.1, no claim or Action shall be brought or maintained, and no rights
or remedies may be exercised, by the Buyer or its Affiliates (including
the Surviving Corporation and its Subsidiaries), or their respective
successors or permitted assigns(a "Releasing Party"), and each
Releasing Party hereby releases and discharges any claim or Action it
may have, directly against any of the Seller Indemnitees (and no
recourse shall be brought or granted against any of them) to the extent
based upon, arising out of, relating to or in connection with (i) any
alleged misrepresentation or inaccuracy in or breach of any of the
representations or warranties of the Company set forth or contained in
this Agreement or any certificate delivered hereunder, (ii) any
information, document or material furnished or made available to the
Buyer in certain "data rooms," management presentations or in any other
form in anticipation of or in connection with the transactions
contemplated by this Agreement, (iii) the ownership, operation,
management, use, Control of, and other actions or omissions with
respect to the Company and its Subsidiaries prior to the Effective Time
or (iii) any of the transactions contemplated by this Agreement.
Notwithstanding anything herein to the contrary, each Releasing Party
is not releasing or discharging any claim or Action it may have against
any of the Seller Indemnitees other than in their capacity as Sellers
except to the extent that a Seller Indemnitee is releasing the Buyer
and the Surviving Corporation for any action it may have in its
capacity other than as a Seller. The Buyer acknowledges that there is
possibility that subsequent to the execution of this Agreement, the
Buyer will discover facts or claims which were unknown or unsuspected
at the time this Agreement was executed, and which if known by the
Buyer at that time may have materially affected the Buyer's decision to
execute this Agreement. The Buyer acknowledges and agrees that, except
in the case of fraud (and then only with respect to the Person
committing such fraud) and except as set forth and subject to the
limitations in this Section 10.1 with respect to its ability to bring
an Action or exercise rights or remedies, the Buyer is assuming any
risk of such unknown facts and such unknown and unsuspected claims. The
undersigned has been advised of the existence of Section 1542 of the
California Civil Code ("Section 1542"), which provides:
A GENERAL RELEASE DOES NOT EXTENT TO CLAIMS WHICH THE CREDITOR
DOES NOT KNOW OR SUSPECT EXIST IN HIS FAVOR AT THE TIME OF
EXECUTING THE RELEASE, WHICH IF KNOWN BY HIM MUST HAVE
75
MATERIALLY AFFECTED HIS SETTLEMENT WITH THE DEBTOR.
Notwithstanding such provision, release set forth in Section
10(d) shall constitute a full release in accordance wit its
terms. The Buyer knowingly and voluntarily WAIVES the
provisions of Section 1542, as well as any other statute, law,
or rule of similar effect, and acknowledges and agrees that
this waiver is an essential and material term of this release
and the agreement which leads to it, and without such waiver
the agreement would not have been accepted.
(e) The amount of any Damages for which the
Indemnification is provided hereunder shall be net of any amounts
recovered by any Buyer Indemnitee from third parties or under insurance
policies of the Buyer, the Company or any of their Subsidiaries with
respect to such Damages; provided, however, that any such amount
received from insurance policies shall themselves be determined net of
Buyer's good faith estimate of any potential increase in insurance
premiums that may result from making a claim against such insurance
policies; provided further, that, in the event that Buyer's good faith
estimate was greater than the actual increase in premium when realized
(a "Estimated Premium Excess"), Buyer shall pay such Estimated Premium
Excess in accordance with the last sentence of this Section 10.1(e).
Buyer shall, and shall cause each Buyer Indemnitee to, use commercially
reasonable efforts to, make a claim and seek to recover against any
such insurance policy which in Buyer's judgment is available to cover
such Damages. To the extent that any Buyer Indemnitee recovers any
amounts pursuant to this Section 10.1(e) after it has received an
Indemnification payment with respect to such Damages or if there is an
Estimated Premium Excess, Buyer shall promptly deposit such amount in
the source of the applicable Indemnification payment (i.e., the Escrow
Account or the Cash Flow Insurance Claim Escrow Account) or, if such
accounts no longer exist, Buyer shall make such payment in accordance
with Section 3.4(b) and instructions it receives from the Designated
Stockholders.
10.2 Survival of Representations, Warranties and Covenants. All
representations and warranties of each Indemnifying Party contained herein shall
survive the Closing and shall expire on the date that is 15 months from the
Closing Date (the "Expiration Date"). All covenants and agreements set forth in
this Agreement shall survive for so long as performance is required thereunder;
provided that nothing herein shall limit Buyer's rights after the Effective Time
to make a claim for indemnification under Section 10.1(a)(ii) for a breach of
any covenant (no matter when the covenant is required to be performed, except
with respect to the following covenants (which will expire immediately following
the Closing: Sections 3.1, 6.1(b), 8.2, 8.3, 8.4, 8.6, 8.8, 8.10 and 8.11). All
representations, warranties and covenants of the Company shall expire (if they
had not previously expired), and all existing claims for Indemnification shall
expire (except for claims made pursuant to Section 10.1(a)(vii), which do not
expire) (and no further claims can be made with respect thereto) on the date
that funds are no longer available in the Escrow Account or the Cash Flow Escrow
Account. So long as any Buyer Indemnitee asserts a valid claim for
indemnification before the expiration of any applicable survival period, such
Buyer Indemnitee shall be deemed to have preserved its rights to indemnification
pursuant
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to this Article X regardless of when such claim is ultimately liquidated or an
arbitration has commenced with respect thereto.
10.3 Claims for Indemnification. If any Buyer Indemnitee or Seller
Indemnitee (each an "Indemnitee") shall believe in good faith that such
Indemnitee is entitled to Indemnification pursuant to this Article X, such
Indemnitee shall promptly give the appropriate Indemnifying Party (which, in the
case of a Buyer Indemnitee, shall be the Designated Stockholders and, in the
case of a Seller Indemnitee, shall be the Buyer) notice of such claim (a "Notice
of Claim") before the expiration of the relevant time period specified in
Section 10.2, and no notice of a claim for Indemnification may be made
thereafter. Any such Notice of Claim shall set forth in reasonable detail and to
the extent then known the basis for such claim for Indemnification and the
amount of the claim, to the extent specified or otherwise known. As long as the
Notice of Claim is delivered within the time period specified in Section 10.2,
the failure of such Indemnitee to give the Notice of Claim for Indemnification
promptly shall not adversely affect such Indemnitee's right to Indemnity
hereunder, except to the extent that the rights of the Indemnifying Party or its
defense of any claim are actually prejudiced by such failure.
10.4 Defense of Claims. In connection with any claim that may give
rise to indemnity under this Article X resulting from or arising out of any
claim against an Indemnitee by a Person that is not a party hereto (a "Third
Party Claim"), and subject to the terms and conditions of Section 10.1 hereof,
the Indemnifying Party will have the right, but not the obligation, to assume
the defense, compromise and settlement of such claim through counsel of its own
choosing, by notifying the Indemnitee within 15 Business Days after the
Indemnifying Party's receipt of the applicable Notice of Claim; provided,
however, that (i) the counsel for the Indemnifying Party who shall conduct the
defense, compromise and settlement of such claims shall be reasonably
satisfactory to the Indemnitee, (ii) the Indemnitee shall have the right, at its
own expense, to participate in the defense of such claim and to employ counsel,
separate from the counsel employed by the Indemnifying Party, (iii) the
Indemnitee shall cooperate in all reasonable respects with the Indemnifying
Party in connection with the defense, compromise and settlement of such claim,
(iv) the Indemnifying Party shall not consent to the entry of a judgment or
enter into a compromise or settlement of any such claim which is subject to
indemnification by the Indemnifying Party hereunder, except with the prior
written consent of the Indemnitee (which consent shall not be unreasonably
withheld) and (v) if the named parties to any Action (including any impleaded
parties) include both the Indemnifying Party and the Indemnitee, and the
Indemnitee has been advised in writing by counsel that there may be one or more
legal defenses available to such Indemnitee that are different from or
additional to those available to the Indemnifying Party, the Indemnitee shall be
entitled, at the expense of the Indemnifying Party, to separate counsel of its
own choosing (provided further that the Indemnitee shall not consent to the
entry of a judgment or enter into a compromise or settlement of any such claim,
except with the prior written consent of the Indemnifying Party, which Consent
shall not be unreasonably withheld). If the Indemnifying Party fails to assume
the defense, compromise and settlement of such claim within 15 Business Days
after the Indemnifying Party's receipt of the applicable Notice of Claim, the
Indemnitee (upon delivering written notice to the Indemnifying Party to such
effect) shall have the right to undertake, at the Indemnifying Party's expense,
the defense, compromise or settlement of such claim on behalf of the
Indemnifying Party; provided, however, that the Indemnitee shall not consent to
the entry of a judgment or enter into a compromise or settlement of any such
claim, except with the prior written consent of the Indemnifying Party
77
(which shall not be unreasonably withheld). In the event that the Indemnitee
assumes that defense, compromise and settlement of such claim, the Indemnitee
shall keep the Indemnifying Party reasonably informed of the progress of any
such defense, compromise or settlement. The Indemnifying Party shall be liable
for any compromise or settlement of any claim effected pursuant to and in
accordance with this Article X and for any final judgment (subject to any right
of appeal) and the Indemnifying Party agrees to indemnify and hold harmless
(subject to the terms and conditions of Section 10.1 above) the Indemnitee from
and against any Damages by reason of such compromise, settlement or judgment.
Notwithstanding the foregoing, if a Buyer Indemnitee reasonably believes that
the costs, expenses and/or Damages associated with any Third Party Claim, the
defense, compromise and settlement of which has previously been assumed by any
of the Sellers (in their capacity as the Indemnifying Party) pursuant to this
Section 10.4 and subject to the terms and conditions of this Article X, will
substantially exceed the Basic Escrow Amount or Dissenting Shares Escrow Amount,
as appropriate (or such portion thereof remaining in the Escrow Account at such
time), then such Buyer Indemnitee shall be entitled, upon written notice at any
time thereafter, to take over the defense, compromise and settlement thereof;
provided that the foregoing shall not limit, expand or otherwise modify such
Buyer Indemnitee's right to indemnification pursuant to this Article X. Nothing
contained in this Section 10.4 shall affect or otherwise modify the terms and
conditions of Section 10.1.
10.5 Tax Indemnity.
(a) Subject to the terms and conditions of this
Article X, the Sellers shall, (exclusively out of the Basic Escrow
Amount, and only to the extent such funds are available in the Escrow
Account) defend, indemnify and hold harmless the Buyer Indemnitees from
and against, and pay or reimburse the Buyer Indemnitees for, any and
all Damages resulting from, arising out of or in connection with (i)
any and all Taxes (or the non-payment thereof) of the Company and any
of its Subsidiaries for all Taxable periods ending on or before the
Closing Date and the portion through the end of the Closing Date for
any Taxable period that includes (but does not end on) the Closing Date
("Pre-Closing Tax Period"), (ii) any and all Taxes of any member of an
affiliated, consolidated, combined, or unitary group of which the
Company or any of its Subsidiaries (or any predecessor of any of the
foregoing) is or was a member on or prior to the Closing Date,
including pursuant to Treasury Regulations Section 1.1502-6 or any
analogous or similar state, local, or foreign law or regulation, and
(iii) any and all Taxes of any person (other than the Company and its
Subsidiaries) imposed on the Company or any of its Subsidiaries as a
transferee or successor, by contract or pursuant to any law, rule or
regulation, which Taxes related to an event or transaction occurring
before the Closing; provided, however, that, after the Effective Time
any indemnification of the Buyer Indemnitees pursuant to this Section
10.5 shall be satisfied solely and exclusively out of and by setoff
against the Escrow Account pursuant to the terms hereof and the Escrow
Agreement, including without limitation the payment of fees and
expenses incurred in connection with the defense of a Tax Claim;
provided further that in the case of clauses (i), (ii) and (iii) above,
the Sellers shall be liable only to the extent that such Taxes are in
excess of the amount, if any, reserved for such Taxes (excluding any
reserve for deferred Taxes established to reflect timing differences
between book and Tax income) on the face of the Most Recent Balance
Sheet (rather than in any notes thereto).
78
(b) Notwithstanding anything to the contrary in
Section 10.4 or any other provision of this Agreement, the conduct of
any audit, examination, appeal, suit or other proceeding relating to
any Tax (a "Tax Claim"), including the conduct, defense, compromise,
settlement or other disposition thereof, shall be controlled
exclusively by the Buyer, provided only that the Designated
Stockholders shall be entitled, at the sole expense of the Designated
Stockholders, to designate a representative (the "Tax Representative")
who, subject to the execution of a confidentiality agreement by the Tax
Representative and the Designated Stockholders, in form and substance
satisfactory to the Buyer, for the purpose of protecting the
confidentiality and use of information of the Buyer and its Affiliates
(including the Surviving Corporation) for so long as there are any
funds remaining in the Escrow Account, shall be entitled (at the sole
expense of the Designated Stockholders), to participate, at Designated
Stockholders' expense, in any meetings, conferences, hearings, trials
or other proceedings before or with any Tax authority or court. For so
long as there are any funds remaining in the Escrow Account, Buyer
shall (i) provide Tax Representative with copies of all notices and
other communications received from any Tax authority or court, (ii)
keep Tax Representative reasonably informed and consult with Tax
Representative with respect to any issue relating to such audit or
proceeding, (iii) provide Tax Representative, on a timely basis, with
drafts of all memoranda, briefs and other communications to be filed
with any Tax authority or court, permit Tax Representative to comment
on those drafts and make any changes to those drafts reasonably
requested by Tax Representative, (iv) permit Buyer's representative to
participate, at Buyer's expense, in any meetings, and (v) provided that
the Basic Escrow Amount remaining in the Escrow Account exceeds the sum
of all claims made against the Basic Escrow Amount in accordance with
the Escrow Agreement (including without limitation claims except as
required by Applicable Law, under this Section 10.5), file no amendment
to a Tax Return for a period ending on or before the Effective Time
that could have a Material Adverse Effect on the Tax liability of
Company or its Subsidiaries for any period ending on or before the
Closing Date without the prior written consent of Tax Representative,
which consent will not be unreasonably withheld. In the event of a
disagreement between the Buyer and Tax Representative with respect to
any Tax Claim, Tax Representative and Buyer shall submit to a
"big-four" accounting firm for review and resolution of any and all
matters (but only such matters) which remain in dispute. If Buyer and
Tax Representative are unable to mutually agree upon an accounting
firm, Buyer and Tax Representative shall select by lot a "big-four"
accounting firm. Buyer and Tax Representative shall instruct the
accounting firm ultimately agreed upon or selected by lot under this
Section 10.5(b) (the "Tax Accounting Firm") to make a final
determination of the item in dispute with respect to the Tax Claim.
Buyer and Tax Representative will cooperate with the Tax Accounting
Firm during the term of its engagement. Such determination shall become
final and binding on Buyer and Tax Representative on the date the Tax
Accounting Firm delivers its final resolution in writing to Buyer and
Tax Representative (which final resolution shall be requested by the
parties to be delivered not more than 45 days following submission of
such disputed matters). The fees and expenses of the Accounting Firm
incurred pursuant to this Section 10.5(b) shall be paid one-half by the
Designated Stockholders from the Cash Flow Insurance Amount and
one-half by Buyer.
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10.6 Nature of Payments. Any indemnity payments made under Article
X of this Agreement shall be treated for Tax purposes as an adjustment of the
Merger Consideration paid for the shares of Capital Stock under this Agreement
to the extent such characterization is proper and permissible under relevant Tax
authorities.
ARTICLE IX
TERMINATION
11.1 Grounds for Termination. This Agreement may be terminated at
any time prior to the Closing:
(a) by the mutual consent of the Buyer and the
Company;
(b) by the Buyer, if a MAE Breach shall have
occurred and such MAE Breach has not been waived in writing by the
Buyer or cured by the Company within 15 Business Days after written
notice thereof from the Buyer; provided that if the Buyer delivers such
notice, the Outside Date shall be extended by 15 Business Days;
(c) by the Company, if a Buyer MAE Breach shall
have occurred and such Buyer MAE Breach has not been waived in writing
by the Company or cured by Buyer within 15 Business Days after written
notice thereof from the Company; provided that if the Buyer delivers
such notice, the Outside Date shall be extended by 15 Business Days;
(d) by the Company, prior to such time as the
holders of Common Stock vote to adopt this Agreement (or, if with
respect to any Acquisition Proposal with respect to which Buyer has
given its consent under Section 8.8(d), prior the Closing) if (A) the
Board of Directors of the Company authorizes the Company, subject to
complying with the terms of this Agreement, to enter into a binding
written agreement concerning a transaction that constitutes a Superior
Proposal and the Company notifies the Buyer in writing that it intends
to enter into such an agreement, specifying the material terms and
conditions of such Superior Proposal and identifying the Person making
the Superior Proposal; (B) the Buyer does not make, within 10 Business
Days of receipt of the Company's written notification of its intention
to enter into a binding agreement for a Superior Proposal, an offer
that the Board of Directors of the Company determines, in good faith
after consultation with its outside legal counsel and its financial
advisors is at least as favorable to the Sellers as the Superior
Proposal with respect to financial and other terms from a financial
point of view; (C) the Company is not then in breach of, and has not
previously breached, Section 8.8; and (D) the Company has paid to the
Buyer the amount of liquidated damages set forth in Section 11.2(b)(1)
and has reimbursed the Buyer for its expenses in accordance with
Section 11.2(b)(2) (or has executed a written undertaking, in form and
substance satisfactory to the Buyer, to so reimburse the Buyer upon
receipt of reasonable documentation from the Buyer of such expenses).
The Company agrees (1) that it will not enter into a binding agreement
referred to in clause (A) above until at least 11 Business Days after
it has provided the notice to the Buyer required by clause (B) above
and (2) to notify the Buyer promptly if
80
its intention to enter into a written agreement referred to in its
notification shall change at any time after giving such notification;
(e) by the Company, if a majority of the holders
of Common Stock do not adopt this Agreement in accordance with Delaware
Law and the Company's Amended and Restated Certificate of
Incorporation; provided that the Company has paid to the Buyer the
amount of liquidated damages set forth in Section 11.2(b)(1) and has
reimbursed the Buyer for its expenses in accordance with Section
11.2(b)(2) (or has executed a written undertaking, in form and
substance satisfactory to the Buyer, to so reimburse the Buyer upon
receipt of reasonable documentation from the Buyer of such expenses);
(f) by the Buyer, if any of the Principal
Stockholders, in its capacity as a holder of Common Stock, fails to
adopt this Agreement and approve the Merger in accordance with Delaware
Law and the Company's Amended and Restated Certificate of Incorporation
(or withdraws such adoption and approval) immediately after the
execution of this Agreement; in which case the Company shall pay to the
Buyer the amount of liquidated damages set forth in Section 11.2(b)(1)
and shall reimburse the Buyer for its expenses in accordance with
Section 11.2(b)(2) (or shall execute a written undertaking, in form and
substance satisfactory to the Buyer, to so reimburse the Buyer upon
receipt of reasonable documentation from the Buyer of such expenses);
(g) by the Buyer or the Company, if the Closing
shall not have been consummated by the Outside Date; provided, however,
that neither the Buyer nor the Company may terminate this Agreement
pursuant to this clause (g) if the Closing shall not have been
consummated within such time period by reason of any breach by the
party attempting to so terminate this Agreement that would result in
the non-satisfaction of the other party's closing conditions;
(h) by the Buyer or the Company if any decree,
judgment, executive order, permanent injunction or other order
permanently restraining, enjoining or otherwise prohibiting
consummation of the Merger or any of the other transactions
contemplated hereby shall become final and non-appealable; and
(i) the party desiring to terminate this
Agreement pursuant to Clauses (b) through (h), above, shall have given
written notice of such termination to the other party.
11.2 Effect of Termination
(a) Except as otherwise provided in this
Agreement, if this Agreement is terminated as permitted by Section
11.1, this Agreement shall become void and of no effect with no
Liability on the part of any party hereto (or of any of its
representatives); provided, further, that the provisions of Article XI
(Termination) and Sections 8.1 (Confidentiality), 8.4 (Public
Announcements), 12.1 (Governing Law; Forum), 12.2 (Litigation Support;
Records), 12.8 (Fees and Expenses), 12.14 (Waiver of Trial By Jury),
12.15 (Further Assurances) and 12.16 (Dispute Resolution) shall survive
any
81
termination of this Agreement pursuant to Article XI as well as any
other provision which by its terms is intended to survive any
termination, and each party hereto shall be fully responsible for any
breach of any such provision, whether or not such breach occurs prior
to the termination of this Agreement.
(b) If this Agreement is terminated (i) by the
Company pursuant to Section 11.1(d) or Section 11.1(e) or (ii) by the
Buyer pursuant to Section 11.1(f), the Company shall, upon such
termination of this Agreement (and, with respect to a termination by
the Company pursuant to Section 11.1(d) or Section 11.1(e), as a
condition to such termination), pay (which for clarity shall be the
sole and exclusive remedy of the Buyer for such a termination) to the
Buyer (1) $8,000,000, as liquidated damages and not as a penalty, the
parties hereto acknowledging and agreeing the impracticability and
extreme difficulty in estimating the damages suffered by the Buyer as a
result of such termination, and that under the circumstances existing
as of the date hereof, the liquidated damages provided for in this
Section 11.2(b) represent a reasonable estimate of the damages which
the Buyer would incur as a result of such termination and (2) the
documented out-of-pocket expenses actually incurred by the Buyer, the
Acquisition Company and their respective Affiliates in connection with
this Agreement, the Merger and any other transactions contemplated by
this Agreement (including, without limitation, attorney's fees and
expenses and fees and expenses of the Buyer's advisors) promptly
following the submission by the Buyer of the documentation therefor,
and in no event later than three (3) Business Days after the submission
of such documentation. If this Agreement is terminated by the Buyer
pursuant to Section 11.1(b) the Company shall pay to the Buyer the
expenses described in clause (2) in the previous sentence, in an amount
not to exceed $2,500,000. The Company acknowledges that the agreements
contained in this Section 11.2(b) are an integral part of the
transactions contemplated by this Agreement, and that, without these
agreements, the Buyer and the Acquisition Company would not enter into
this Agreement. In the event that the Company fails to promptly pay the
amounts due pursuant to and as set forth in this Section 11.2(b) and,
in order to obtain the payment of such amounts, the Buyer commences an
Action which results in a judgment against the Company for the fees set
forth in this Section 11.2(b), the Company also shall pay to the Buyer
its costs and expenses (including attorneys' fees) in connection with
such Action, together with interest from the date of termination of
this Agreement on the amounts owed at the prime rate as reported in the
Wall Street Journal from time to time during such period.
(c) If this Agreement is terminated by the
Company pursuant to Section 11.1(c) or Section 11.1(g) (other than for
a failure of the conditions set forth in Sections 9.1(a)(ii) or
9.1(a)(iii) or if Buyer fails to close for any reason (other than as
permitted under this Agreement), then (which for clarity shall be the
sole and exclusive remedy of the Company for such a termination) (i) as
liquidated damages and not as a penalty, the Escrow Agent shall
immediately pay to the Company and all Parties will instruct the
Company to compel the Escrow Agent to pay the Deposit Amount (not
including any interest earned thereon as of the date of the payment,
which interest shall be paid to the Buyer) in accordance with the terms
of the Deposit Agreement, and (ii) the Buyer shall pay to the Company
an amount equal to the documented out-of-pocket expenses actually
incurred by the Company, its Subsidiaries and their respective
82
Affiliates in connection with this Agreement, the Merger and any other
transactions contemplated by this Agreement (including, without
limitation, attorney's fees and expenses and fees and expenses of the
Company's advisors) in an amount not to exceed $2,500,000 promptly
following the submission by the Company of the documentation therefor,
and in no event later than three (3) Business Days after the submission
of such documentation. If this Agreement terminates or is terminated
for any reason other than as set forth in the preceding sentence, then
the Escrow Agent shall immediately pay to the Buyer the Deposit Amount
(plus all interest earned thereon as of the date of the payment) in
accordance with the terms of the Deposit Agreement. The Buyer
acknowledges that the agreements contained in this Section 11.2(c) are
an integral part of the transactions contemplated by this Agreement,
and that, without these agreements, the Company would not enter into
this Agreement. In the event that the Buyer fails to promptly pay the
amounts due pursuant to and as set forth in this Section 11.2(c) and,
in order to obtain the payment of such amounts, the Company commences
an Action which results in a judgment against the Buyer for the amounts
set forth in this Section 11.2(c), the Buyer shall pay to the Company
its costs and expenses (including attorneys' fees) in connection with
such Action, together with interest from the date of termination of
this Agreement on the amounts owed at the prime rate as reported in the
Wall Street Journal from time to time during such period.
ARTICLE XII
MISCELLANEOUS
12.1 Governing Law; Forum. This Agreement shall be governed in all
respects by the laws of the State of Delaware without regard to provisions
regarding choice of laws of other states.
12.2 Litigation Support; Records. In the event and for so long as
any party (including the Designated Stockholders and any other Seller) actively
is contesting or defending against any Action in connection with (i) the Merger
or any other transaction contemplated by this Agreement or (ii) any fact,
situation, circumstance, status, condition, activity, practice, plan,
occurrence, event, incident, action, failure to act or transaction on or prior
to the Closing Date involving the Company or any of its Subsidiaries each of the
other parties will cooperate with such party or its counsel in the contest or
defense, make available its personnel, and provide such testimony and access to
its books and records as shall be necessary in connection with the contest or
defense. The Buyer shall retain all of the books and records of the Company for
a period of seven (7) years after the Closing Date or such longer time as may be
required by Applicable Law.
12.3 Successors and Assigns. Except as otherwise expressly provided
herein, the provisions hereof shall inure to the benefit of, and be binding
upon, the successors, assigns, heirs, executors and administrators of the
parties hereto whose rights or obligations hereunder are affected thereby.
Neither this Agreement nor any such document nor the rights and obligations of
the Buyer contained herein or therein may be assigned by the Buyer without the
written consent of the Company and by the Designated Stockholders thereafter,
except that the Buyer may assign its rights and obligations under this Agreement
to any direct or indirect Subsidiary of
83
the Buyer upon written notice to the Company or the Designated Stockholders
thereafter; provided that no such assignment by the Buyer shall release the
Buyer from its obligations hereunder. Neither this Agreement nor any document
executed in connection with the consummation of the transactions contemplated
hereby, nor the rights and obligations of the Company contained herein or
therein may be assigned by the Company without the written consent of the Buyer.
12.4 Entire Agreement. This Agreement, the Exhibits (including the
Disclosure Schedules and the Buyer Disclosure Schedules) and the Schedules
hereto (which are hereby expressly incorporated herein by this reference) hereby
constitute the entire understanding and agreement between the parties with
regard to the subjects hereof and thereof.
12.5 Notices. Except as may be otherwise provided herein, all
notices, requests, waivers and other communications made pursuant to this
Agreement shall be in writing and shall be conclusively deemed to have been duly
given (a) when hand delivered to the other party, (b) when received when sent by
facsimile at the address and number set forth below, (c) three Business Days
after deposit in the U.S. mail with first class certified mail receipt requested
postage prepaid and addressed to the other party as set forth below or (d) the
next business day after deposit with a national overnight delivery service,
postage prepaid, addressed to the parties as set forth below with
next-business-day delivery guaranteed, provided that the sending party receives
a confirmation of delivery from the delivery service provider.
If to the Buyer:
Lions Gate Entertainment Corp.
0000 Xxxxxxx Xxxxxx, Xxxxx 000
Xxxxxx Xxx Xxx, XX 00000
Attention: Xxxxx Xxxxx, General Counsel
Telephone Number: (000) 000-0000
Telecopier Number: (000) 000-0000
With copies to:
Sheppard, Mullin, Xxxxxxx and Hampton LLP
000 Xxxxx Xxxx Xxxxxx, Xxxxx-Xxxxxx Xxxxx
Xxx Xxxxxxx, XX 00000
Attention: Xxxxxxx Xxxxx and Xxxxx Xxxxxxxxxx
Telephone Number: (000) 000-0000
Telecopier Number: (000) 000-0000
84
If to the Company (prior to Closing):
____________________________
____________________________
____________________________
0000 Xxxxxxxx Xxxxxx
Xxxxx Xxxxxx, XX 00000
Attention: Xxxx Xxxxx & Xxx Xxxxxxxx
Telephone Number: (000) 000-0000
Telecopier Number: (000) 000-0000
With a copy to:
____________________________
____________________________
Attention: _________________
Telephone Number: __________
Telecopier Number: _________
and
Xxxxxxxx & Xxxxx
Aon Center
000 X. Xxxxxxxx Xx.
Xxxxxxx, XX 00000
Attention: Xxxxxxx X. Xxxxxx P.C. and Xxxxxxx Xxxxxxx
Telephone Number: (000) 000-0000
Telecopier Number: (000) 000-0000
If to the Designated Stockholders:
____________________________
____________________________
Attention: _________________
Telephone Number: __________
Telecopier Number: _________
Each Person making a communication hereunder by facsimile shall
promptly confirm by telephone to the Person to whom such communication was
addressed each communication made by it by facsimile pursuant hereto but the
absence of such confirmation shall not affect the validity of any such
communication. A party may change or supplement the addresses given above, or
designate additional addresses, for purposes of this Section 12.5 by giving the
other party notice of the new address in the manner set forth above.
12.6 Amendments. Any term of this Agreement may be amended only
with the written consent of (a) prior to the Closing, the Company and the Buyer
and (b) after the Closing, the Designated Stockholders and the Buyer.
85
12.7 Waivers. Any waiver, permit, consent or approval of any kind
or character on the part of the Sellers, the Company, the Acquisition Company or
the Buyer of any breach or default under this Agreement or any waiver on the
part of the Sellers, the Company, the Acquisition Company or the Buyer of any
provisions or conditions of this Agreement, must be in writing and shall be
effective only to the extent specifically set forth in such writing.
12.8 Fees and Expenses. Except as otherwise provided herein, each
party hereto shall bear its own legal, accounting and other fees and expenses in
the drafting and negotiation of this Agreement, each of the documents related to
the consummation of the transactions contemplated hereby and each of the other
Exhibits hereto and the pursuit and consummation of the transactions
contemplated hereby (whether or not such transactions are actually consummated).
12.9 Titles and Subtitles. The titles of the Sections and
subsections of this Agreement are for convenience of reference only and are not
to be considered in construing this Agreement.
12.10 Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be an original, but all of which together
shall constitute one instrument.
12.11 Severability. Whenever possible, each provision of this
Agreement will be interpreted in such manner as to be effective and valid under
Applicable Law, but if any provision of this Agreement is held to be prohibited
by or invalid under Applicable Law, such provision will be ineffective only to
the extent of such prohibition or invalidity, without invalidating the remainder
of such provision or the remaining provisions of this Agreement.
12.12 Construction.
(a) The language used in this Agreement will be
deemed to be the language chosen by the parties hereto to express their
mutual intent, and no rule of strict construction shall be applied
against either party. Any reference to any Applicable Law shall be
deemed also to refer to all rules and regulations promulgated
thereunder, unless the context requires otherwise. Whenever required by
the context, any gender shall include any other gender, the singular
shall include the plural and the plural shall include the singular. The
words "herein," "hereof," "hereunder," and words of similar import
refer to the Agreement as a whole and not to a particular section.
Whenever the word "including" is used in this Agreement, it shall be
deemed to mean "including, without limitation," "including, but not
limited to" or other words of similar import such that the items
following the word "including" shall be deemed to be a list by way of
illustration only and shall not be deemed to be an exhaustive list of
applicable items in the context thereof.
(b) If and to the extent any information is
required to be furnished on more than one Section of the Disclosure
Schedule to this Agreement, such information shall be deemed to be
included in all other Sections of the Disclosure Schedules so long as
the relationship between the information and the required disclosure is
reasonably apparent. In the event a subject matter is addressed in more
than one representation and warranty herein, the party relying on such
representation and warranty shall be entitled to rely on each and every
representation and warranty addressing the matter without
86
reference to any other representation and warranty set forth in the
Agreement. The information contained in the Disclosure Schedules is
disclosed solely for the purposes of this Agreement, and no information
contained therein shall be deemed to be an admission by any party
hereto to any third party of any matter whatsoever, including of any
violation of law or breach of any agreement. In addition, matters
reflected in the Disclosure Schedule are not necessarily limited to
matters required by the Agreement to be reflected in the Disclosure
Schedule. Such additional matters are set forth for informational
purposes only and do not necessarily include other matters of a similar
nature. Terms used, but not otherwise defined, in the Disclosure
Schedule shall have the meanings set forth in this Agreement.
12.13 Third Party Beneficiaries. Other than with respect to any
Section that specifically refers to or identifies another Person as an intended
beneficiary (including Article VII and Article X hereof) or otherwise by name
(in which case, such Person(s) shall have all of the rights of third party
beneficiaries and be able to enforce their rights directly as if a party
hereto), no provision of this Agreement shall create any third party beneficiary
rights in any Person, any employee of the Buyer or any employee or former
employee of the Company or any Affiliate thereof (including any beneficiary or
dependent thereof).
12.14 Waiver of Trial By Jury; Equitable Relief. (a) SUBJECT TO
SECTION 12.16, THE COMPANY AND THE BUYER WAIVE THE RIGHT TO A TRIAL BY JURY IN
ANY ACTION OR PROCEEDING UNDER THIS AGREEMENT OR ANY ACTION OR PROCEEDING
ARISING OUT OF THE TRANSACTIONS CONTEMPLATED HEREBY, REGARDLESS OF WHICH PARTY
INITIATES ANY SUCH ACTION OR PROCEEDING.
(b) The Company acknowledges that any breach or
threatened breach by the Company or the Sellers of any covenant or agreement
contained in this Agreement or any of the other agreements contemplated hereby
will cause the Buyer irreparable injury and that notwithstanding any other
provision of this Agreement (including Section 11.2) money damages alone will
not provide an adequate remedy to the Buyer. The Company agrees that this
Agreement is sufficient basis for obtaining injunctive relief should the Buyer
have a reasonable basis for believing that the Company or any of the Sellers has
breached any of their respective covenants or agreements. Accordingly, the
Company hereby acknowledges and agrees that the Buyer shall be entitled to
injunctions, specific performance and other equitable relief hereunder (which
relief may be awarded by the Arbitrator ), including as may be necessary (i) to
require and compel compliance with the provisions of this Agreement or any of
the other agreements contemplated hereby; (ii) to prevent or stop a breach of
such provisions; and (iii) to require and compel the Closing and the
consummation of the Merger and the other transactions contemplated hereby. The
Company acknowledges that the agreements contained in this Section 12.14 are an
integral part of the transactions contemplated by this Agreement, and that,
without these agreements, the Buyer would not enter into this Agreement. This
Section 12.14 shall not be construed as a waiver of any other rights or remedies
which the Buyer may have for damages or otherwise.
87
12.15 Further Assurances. At any time and from time to time after
the Closing, at the request of the Designated Stockholders or the Buyer, as
applicable and without further consideration, the Buyer, the Surviving
Corporation or the Designated Stockholders, or any of their respective
Affiliates will execute and deliver, or cause to be executed and delivered, such
other instruments and documents and take such action as the Designated
Stockholders may reasonably request in order to confirm, complete or better
consummate the Merger or any other transactions contemplated by this Agreement.
12.16 Dispute Resolution.
(a) Any dispute or controversy, including any
claim for indemnification pursuant to Article X of this Agreement, will
be resolved through binding arbitration administered by the Judicial
Arbitration and Mediation Association ("JAMS"), under JAMS
Comprehensive Rules and Procedures (except as otherwise provided
herein) before a single neutral arbitrator ("Arbitrator") located in
the of County of Los Angeles, the State of California. Discovery in the
arbitration will be pursuant to the applicable provisions of the
California Rules of Civil Procedure. The Arbitrator will be a retired
judge mutually selected from a panel of persons provided by JAMS having
significant and demonstrable experience with the resolution of the
types of business disputes and issues to be resolved in arbitration. If
the parties are unable to agree on an Arbitrator within 30 days, a
single neutral Arbitrator shall be appointed by JAMS. There will be a
record of the proceedings at the arbitration hearing and the Arbitrator
will issue a Statement of Decision setting forth the factual and legal
basis for the Arbitrator's decision. In addition to the power to award
money damages, the Arbitrator shall be permitted to award equitable
relief or injunctive relief; provided that, with respect to any claim
for indemnification pursuant to Sections 10.1 or 10.5 of this
Agreement, the Arbitrator may only award such relief as may be
permitted by the terms of Article X; provided further that Buyer may
seek specific performance to force the Company to close the
transactions contemplated hereby and the Arbitrator shall have the
ability to grant the remedy of specific performance. The Arbitrator
shall be required to follow the terms of this Agreement and the
Applicable Law as set forth in Section 12.1 of this Agreement;
provided, however, that Federal Arbitration Act and California law
shall govern with respect to the enforceability of this arbitration
provision. The parties hereto consent to the personal jurisdiction of
the Superior Court, or the Federal District Court, in the County of Los
Angeles, State of California, for the enforcement of this Agreement to
arbitrate and any award or relief granted pursuant to said arbitration.
(b) If neither party gives written notice
requesting an appeal within ten (10) Business Days after the issuance
of the Statement of Decision, the Arbitrator's decision will be final
and binding as to all matters of substance and procedure, and may be
enforced by a petition to the Superior Court, or the Federal District
Court, in the County of Los Angeles, State of California, for the
enforcement of this Agreement to arbitrate or for confirmation and
enforcement of any award granted pursuant to said arbitration,
including, but not limited to, any award for equitable relief.
(c) If either party gives written notice
requesting an appeal within ten (10) Business Days after the issuance
of the Statement of Decision, the award of the
88
Arbitrator will be appealed to three (3) neutral arbitrators (the
"Appellate Arbitrators"), each of whom will have the same
qualifications and be selected through the same procedure as the
Arbitrator. The appealing party must file its appellate brief within
thirty (30) days after its written notice requesting the appeal and the
other party must file its brief within thirty (30) days thereafter. The
Appellate Arbitrators will thereupon review the Statement of Decision
of the Arbitrator applying the same standards of review (and all of the
same presumptions) as if the Appellate Arbitrators were a California
Court of Appeal reviewing a judgment of the Superior Court, except that
the Appellate Arbitrators will in all cases issue a final award and may
not remand the matter to the Arbitrator. All arbitration proceedings
will be closed to the public and confidential and all records relating
thereto will be permanently sealed, except as necessary to obtain court
confirmation of the arbitration award. The decision of the Appellate
Arbitrators will be final and binding as to all matters of substance
and procedure, and may be enforced by a petition to Superior Court, or
the Federal District Court, in the County of Los Angeles, State of
California, for confirmation and enforcement of the award.
(d) The prevailing party in any arbitration
provided for by this Section 12.16 shall be entitled to all attorneys
fees and expenses (subject to reversal in whole or in part by the
Appellate Arbitrators), including fees and expenses incurred in any
action to enforce an arbitration award, the fees and expenses incurred
in the administration of any arbitration proceeding, the fees and
expenses of the arbitrator and the costs of the reporters' transcript
of the proceedings. In the event that the decision of the Arbitrator is
reversed, affirmed in part or reversed in part, the Appellate
Arbitrators shall determine which party is the prevailing party for the
overall proceedings and award reasonable outside attorneys' fees and
costs and expenses (including, but not limited to, attorney and expert
fees and expenses incurred to enforce the terms of this Agreement),
including the costs of arbitration and appeal, to the prevailing party.
(e) Subject to this Section 12.16, to the extent
an Action may be brought or instituted in a State or Federal Court, any
such Action arising out of or relating to this Agreement, the Merger or
any other transactions contemplated by the Agreement may be instituted
in any state or federal court located in County of Los Angeles, State
of California, and each party agrees not to assert, by way of motion,
as a defense or otherwise, in any such Action any claim that it is not
subject personally to the jurisdiction of such court, that its property
is exempt or immune from attachment or execution, that the action, suit
of proceeding is brought in an inconvenient forum, that the venue of
the Action is improper or that this Agreement or the subject matter
hereof may not be enforced in or by such court. Each Party further
irrevocably submits to the jurisdiction of any such court in any such
Action. Any and all service of process and any other notice in any such
Action shall be effective against any party if given in accordance with
Section 12.5 hereof.
(f) Whenever possible, each provision of this
Section 12.16 shall be interpreted in such a manner as to be effective
and valid under applicable law, but if any provision (or portion
thereof) of this Section 12.16 shall be or become invalid or
unenforceable under applicable law, such provision (or portion thereof)
shall be ineffective without invalidating the remainder of such
provisions of this Section 12.16, it
89
being the intent of the parties that the agreement to resolve any
dispute or controversy, including any Action for indemnification under
this Agreement through arbitration, rather than litigation, survive.
* * * *
90
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year herein above first written.
BUYER COMPANY
LIONS GATE ENTERTAINMENT CORP. FILM HOLDINGS CO.
________________________________ ____________________________
Signature Signature
________________________________ ____________________________
Printed Name Printed Name
________________________________ ____________________________
Title Title
ACQUISITION COMPANY
LGF ACQUISITION CORPORATION
________________________________
Signature
________________________________
Printed Name
________________________________
Title
-1-
